1.

In 2019, the Bureau of Internal Revenue (BIR) assessed JKL-Philippines for

deficiency withholding taxes for both Mr. F and Mr. J for the year 2018. As
to Mr. F, the BIR argued that he is a resident citizen; hence, his income tax
should be based on his worldwide income. As to Mr. J, the BIR argued that
he is a resident alien; hence, his income tax should be based on his
income from sources within the Philippines at the schedular rate under
Section 24 (A) (2) of the Tax Code, as amended by Republic Act No. 10963,
or the "Tax Reform for Acceleration and Inclusion" Law.

(a) ls the BIR correct in basing its income tax assessment on Mr. F's worldwide
income? Explain.

Yes, the contention of BIR is correct.

As provided by Sec. 23 of National Internal Revenue Code (NIRC), a resident

citizen in the Philippines is taxable on all income derived from sources within and
outside the Philippines.

In the present case, Mr. F is a resident citizen, thus, his income worldwide and
from JKL-Philippines is subject to income tax.

Hence, BIR is correct.

(b) Is the BIR correct in basing its income tax assessment on Mr. J's income within
the Philippines at the schedular rate? Explain.

No, BIR is incorrect on basing the income tax of Mr. J’s within the Philippines at
the schedular rate.

Under the NIRC, resident aliens are only taxable on income derived from sources
within the Philippines. Further, the code provides that resident aliens who
engaged their selves in trade or business are subject to a flat rate of 15% based
on their gross income.

The present case, indicate that Mr. J is a resident alien in the Philippines. Thus,
he shall be subjected to flat rate of 15% based on gross income he earned within
the Philippines.

2. As a way to augment the income of the employees of DEF, Inc., a private

corporation, the management decided to grant a special stipend of
₱50,000.00 for the first vacation leave that any employee takes during a
 given calendar year. In addition, the senior engineers were also given
housing inside the factory compound for the purpose of ensuring that
there are available engineers within the premises every time there is a
breakdown in the factory machineries and equipment.

(a) Is the special stipend part of the taxable income of the employees receiving the
same? If so, what tax is applicable and what is the tax rate? Explain.

Yes, the special stipend will form part of the of his taxable income since it is
considered as income.

(b) Is the cash equivalent value of the housing facilities received by the senior
engineers subject to fringe benefits tax? Explain.

No, the cash equivalent value of the housing facilities is not subject to fringe
benefits tax.

As provided by Sec. 33 of the National Internal Revenue Code, a fringe benefits

which is any good, service or other benefit furnished or granted in cash or in kind
by an employer to an individual non-rank and file employee, which includes
housing benefits are subject to fringe benefits. However, housing provided for the
convenience of the employes is not subject to fringe benefit.

In which in the present case, the housing provided to the senior engineers inside
the compound is for the welfare of the company to assure that there is available
engineers in the premises when there is breakdown in the factory machineries
and equipment.

Hence, the cash equivalent value received by the senior engineers is not subject
to fringe benefits tax.

3. Mr. C is employed as a Chief Executive Officer of MNO Company, receiving

an annual compensation of ₱10,000,000.00, while Mr. S is a security guard
in the same company earning an annual compensation of ₱200,000.00.
Both of them source their income only from their employment with MNO
Company.

(a) At the end of the year, is Mr. C personally required to file an annual income tax
return? Explain.

No, Mr. C is not required to file personally an income tax return.

 As provided by Sec. 24(A) of the National Internal Revenue Code (NIRC),
individuals who are earning not exceeding P250,000.00 annually shall not be
subject to income tax and shall not be required to file an income tax return as
provided under Sec. 51 (A) of NIRC

In this case, Mr. S as a security guard with annual compensation of only

P200,000 is under the 0% bracket of income tax.

Thus, he does not need to file an annual income tax return.

(b) How about Mr. S? Is he personally required to file an annual income tax return?
Explain.

No, individuals receiving compensation income from a single employer, are not
required to file their annual income tax return.

As provided by Sec. 51(A) of the National Internal Revenue code, individuals with
respect to purely compensation income derived from such sources within the
Philippines, of which income tax are correctly withheld shall not be required to file
an income tax return.

In the present case, Mr. S is receiving the amount of10 Million Pesos annually as
purely compensation income from MNO Company, thus he does not need to
personally file his annual income tax return.

4. (a) Differentiate between a calendar year and a fiscal year.

The difference between calendar year and fiscal year is that,

Calendar year means an accounting period of twelve months ending on the last
day of December. While, fiscal year means an accounting period of twelve
months ending on the last day of any month other than the month of December.

Calendar year always begins on New Year’s Day and ends on the last day of the
year while a fiscal year can start at any day and end precisely 365 days later.

(c) When is the deadline for the filing of a corporation's final adjustment return for a
calendar year? How about for a fiscal year? (2019 Bar)
 For a calendar year, the final return should be filed on or before the 15th day of
April following the close of the taxable year.

For a fiscal year, the final return is filed on or before the 15th day of the 4th
month following the close of the taxable year.

5. XYZ Corp. is listed as a top 20,000 Philippine corporation by the Bureau of

Internal Revenue. It secured a loan from ABC Bank with a 6% per annum
interest. All interest payments made by XYZ Corp. to ABC Bank is subject
to a 2% creditable withholding tax. At the same time, XYZ Corp. has a trust
deposit with ABC Bank in the amount of ₱100,000,000.00, which earns 2%
interest per annum, but is subject to a 20% final withholding tax on the
interest income received by XYZ Corp.

(a) Who are the withholding agents in the case of: 1. the 20% final withholding tax;
and 2. the 2% creditable withholding tax? Explain.

ABC Bank, the withholding agent of 20% final withholding tax.

As provided by the Code, the withholding tax agent is any person or entity in who
is in control of the payment subject to withholding tax and therefore is required to
remit and deduct such withholding tax.

In the case at bar, ABC Bank is in control of the payment subject to withholding
tax because XYZ Corp. has a trust deposit with ABC Bank and thus making them
the withholding agent of the 20% withholding tax.

Meanwhile, the withholding agent for the 2% creditable withholding tax is XYZ
Corporation, being the party paying for the interest payments on the loan secured
and therefore having control over the payment subject to the creditable
withholding tax.

(b) When is the deadline for filing a judicial claim for refund for any excess or
erroneous taxes paid in the case of: 1. the 20% final withholding tax; and 2. the
2% creditable withholding tax? (2019 Bar)

As provided by Sec. 229 of NIRC, the deadline for filing a judicial claim for refund
for any excess or erroneous taxes paid for both the (1) 20% final withholding tax
and (2) the 2% creditable withholding tax is two (2) years from the date of
payment of the tax.
6. Patrick is a successful businessman in the United States and he is a sole
proprietor of a supermarket which has a gross sales of $10 million and an
annual income of $3 million. He went to the Philippines on a visit and, in a
party, he saw Atty. Agaton who boasts of being a tax expert. Patrick asks
Atty. Agaton: if he (Patrick) decides to reacquire his Philippine citizenship
under RA 9225, establish residence in this country,a and open supermarket
in Makati City, will the BIR tax him on the income he earns from his U.S.
business? If you were Atty. Agaton, what advice will you give Patrick?
(2016 Bar)

If I were Atty. Agaton, I will advise Patrick that once he re-acquires his Philippine
citizenship and establishes his residence in this country, his income tax
classification would then be a ‘resident citizen’.

As provided under Sec. 23 of the National Internal Revenue Code, a citizen

residing therein is taxable on all income derived from sources within and outside
the Philippines.

In the present case, when Patrick reacquires his citizenship and opens a
supermarket in Makati city and the income he earns from his U.S. Business will
be subject to income tax in the Philippines.

7. Rakham operates the lending company that made a loan to Alfonso in the
amount of Pl20,000.00 subject of a promissory note which is due within one
(1) year from the note's issuance. Three years after the loan became due
and upon information that Alfonso is nowhere to be found, Rakham asks
you for advice on how to treat the obligation as "bad debt." Discuss the
requisites for deductibility of a "bad debt?" (2016 Bar)

I will advise Rakham that under Sec. 34 (E) of the National Internal Revenue
Code, debts due to the taxpayer ascertained to be worthless are deductible.
These are receivables that may come from money actually extended as a loan
for goods sold or services rendered which have become uncollectible.

Hence, the obligation of Alfonso may now be considered as bad debts.

A bad debt is deductible if it complies with the following requisites:

(a) There must be a valid and subsisting debt.

 (b) The obligation is connected with the taxpayer’s trade or business and is not
between related parties.

(C) There is an actual ascertainment that the debt is worthless.

(d) The debt is charged-off during the taxable year. A partial write-off is not
allowed.

8. Mr. A, a citizen and resident of the Philippines, is a professional boxer. In a

professional boxing match held in 2013, he won prize money in United
States (US) dollars equivalent to P300,000,000.

a) Is the prize money paid to and received by Mr. A in the US taxable in the
Philippines? Why?

Yes, the prize money paid to and received by Mr. A in the US is taxable in the
Philippines.

As provided under Sec. 23 of the National Internal Revenue Code, a citizen

residing therein is taxable on all income derived from sources within and without
the Philippines.

In the present case, Mr. A is a professional boxer who joined a professional

boxing match in which any prizes or award he may receive will be taxable.

b) May Mr. A's prize money qualify as an exclusion from his gross income?
Why?

No, Mr. A’s prize money cannot qualify as an exclusion from gross income.

As provided by NIRC, all prizes and awards granted to athletes in local and
international sports competitions whether held in the Philippines or abroad and
sanctioned by their national sports association are excluded from gross income.

In this case, the competition that Mr. A joined is a professional boxing match.

Therefore, the prize money will not qualify as an exclusion from his gross
income.
 c) The US already imposed and withheld income taxes from Mr. A's prize
money. How may Mr. A use or apply the income taxes he paid on his prize
money to the US when he computes his income tax liability in the Philippines
for 2013? (2015 Bar)

Mr. A may avail the remedy of tax credit against his tax liability in the
Philippines for taxes paid in foreign countries.

Under Sec. 34 (C) of the National Internal Revenue Code, credit may be
made against tax for taxes of foreign countries if the taxpayer signifies in his
return his desire to have such tax credited.

9. Ms. C, a resident citizen, bought ready-to-wear goods from Ms. B, a

nonresident citizen.

a) If the goods were produced from Ms. B's factory in the Philippines, is Ms. B's
income from the sale to Ms. C taxable in the Philippines? Explain.

Yes, the income of Ms. B will be taxable from the sale of ready-to-wear goods
to Ms. C.

Under the Code, a nonresident citizen is taxable only on income derived from
sources within the Philippines. When the production and the sale of such
goods are completely in the Philippines the situs of the sale are within the
Philippines and thus taxable in the Philippines.

In the present case, if the goods were produced from Ms. B’s factory in the
Philippines and sold here, it will be subject to tax in the Philippines as a
nonresident citizen.

b) If Ms. B is an alien individual and the goods were produced in her factory in
China, is Ms. B's income from the sale of the goods to Ms. C taxable in the
Philippines? Explain. (2015 Bar)

Yes. Ms. B’s income from the sale will be partly taxable.

As provided by the Code, gains, profits and income from the sale of personal
property produced by the taxpayer without and sold within the Philippines,
 shall be treated as derived partly from sources within and partly without the
Philippines.

In the present case, given that Ms. B is a non-resident citizen, and the goods
in produces in the factory of Ms. B in China and sold here in the Philippines.

Thus, the income will be partly taxed.

10. BBB, Inc., a domestic corporation, enjoyed a particularly profitable year in

2014. In June 2015, its Board of Directors approved the distribution of cash
dividends to its stockholders. BBB, Inc. has individual and corporate
stockholders. What is the tax treatment of the cash dividends received
from BBB, Inc. by the following stockholders: (2015 Bar)

a) A resident citizen
A final withholding tax of ten percent (10%) shall be imposed upon the cash
dividends actually or constructively received by a resident citizen from BBB,
Inc.

b) Non-resident alien engaged in trade or business

A final withholding tax of twenty percent (20%) shall be imposed upon the
cash dividends actually or constructively received by a nonresident alien
engaged in trade or business from BBB, Inc.

c) Non-resident alien not engaged in trade or business

A final withholding tax equal to twenty-five percent (25%) of the entire income
received from all sources within the Philippines, including the cash dividends
received from BBB, Inc.

d) Domestic corporation
A final withholding tax equal to twenty-five percent (25%) of the entire income
received from all sources within the Philippines, including the cash dividends
received from BBB, Inc.

e) Non-resident foreign corporation

A final withholding tax of fifteen percent (15%) is imposed on the amount of
cash dividends received from BBB, Inc., subject to the tax sparing credit
provision (Section 28(B)(5)(b), NIRC). The application of the tax sparing credit
is that the country-domicile of the recipient corporation allows a credit against
 the tax due from the non-resident foreign corporation. Otherwise, the
applicable tax rate is thirty percent (30%) of the gross income received during
each taxable year from all sources within the Philippines.

11. Indicate whether each of the following individuals is required or not

required to file an

An income tax return:

a) Filipino citizen residing outside the Philippines on his income from sources
outside the Philippines.

Not required to file, because a non-resident Filipino citizen is taxable only in

income sourced within the Philippines.

b) Resident alien on income derived from sources within the Philippines.

Yes, resident alien is required to file taxable income derived from sources
within the Philippines.

c) Resident citizen earning purely compensation income from two employers

within the Philippines, whose income taxes have been correctly withheld.

Yes, resident citizen who is earning purely compensation income from two
employers should file income tax return for not being qualified for substituted
filing.

d) Resident citizen who falls under the classification of minimum wage earners.

No, resident citizen is not required to file, under the law, all minimum wage
earners in the private and public sector shall be exempt from payment of
income tax.

e) An individual whose sole income has been subjected to final withholding tax.

No, under the law, an individual whose sole income has been subjected to
final withholding tax pursuant to Section 57(A) of the NIRC need not file a
return.
12. What are de minimis benefits and how are these taxed? Give three (3)
examples of de minimis benefits. (2015 Bar)

As provided by the Code, De minimis benefits are facilities, and privileges

furnished or offered by an employer to his employees, which are not considered
as compensation subject to income tax and consequently to withholding tax, if
such facilities or privileges are of relatively small value and are offered or
furnished by the employer merely as means of promoting the health, goodwill,
contentment, or efficiency of his employees.

The following shall be considered as “de minimis” benefits:

1. Rice subsidy of P1,500.00 or 1 sack of 50kg rice per month amounting to not
more than P1,500.00;
2. Uniform and clothing allowance not exceeding P5,000 per annum;
3. Actual medical assistance not exceeding P10,000 per annum;
4. Laundry allowance not exceeding P300 per month;

13. Mr. H decided to sell the house and lot wherein he and his family have lived
for the past 10 years, hoping to buy and move to a new house and lot
closer to his children's school. Concerned about the capital gains tax that
will be due on the sale of their house, Mr. H approaches you as a friend for
advice if it is possible for the sale of their house to be exempted from
capital gains tax and the conditions they must comply with to avail
themselves of said exemption. How will you respond? (2015 Bar)

I would advise Mr. H that he may avail of the exemption from capital gains tax on
sale of his principal residence.

As provided by the Code, the requisite for exemption from capital gain tax are:
(1) proceeds of the sale of the principal residence have been fully utilized in
acquiring or constructing new principal residence within eighteen (18) calendar
months from the date of sale or disposition; (2) The historical cost or adjusted
basis of the real property sold or disposed will be carried over to the new
principal residence built or acquired; (3) The Commissioner has been duly
notified, through a prescribed return, within thirty (30) days from the date of sale
or disposition of the person’s intention to avail of the tax exemption; and (4)
Exemption was availed only once every ten (10) years.

In the present case, provided Mr. H can comply the given requisites he may able
to avail the tax exemption.
14. In 2012, Dr. K decided to return to his hometown to start his own practice.
At the end of 2012, Dr. K found that he earned gross professional income in
the amount of P1,000,000.00; while he incurred expenses amounting to
P560,000.00 constituting mostly of his office space rent, utilities, and
miscellaneous expenses related to his medical practice. However, to Dr.
K's dismay, only P320,000.00 of his expenses were duly covered by
receipts. What are the options available for Dr. K so he could maximize the
deductions from his gross income? (2015 Bar)

The option of Dr. K is to use the optional standard deduction (OSD) in lieu of the
itemized deduction. OSD is a maximum of forty percent (40%) of gross receipts
during the taxable year. Proof of actual expenses is not required, but Dr. K shall
keep such records pertaining to his gross receipts.

15. Dr. Taimtim is an alumnus of the College of Medicine of Universal

University (UU), a privately-owned center for learning which grants yearly
dividends to its stockholders.

UU has a famous chapel located within the campus where the old folks
used to say that anyone who wanted to pass the medical board
examinations should offer a dozen roses on all the Sundays of October.
This was what Dr. Taimtim did when he was still reviewing for the board
examinations. In his case, the folk saying proved to be true because he is
now a successful cardiologist. Wanting to give back to the chapel and help
defray the costs of its maintenance, Dr. Taimtim donated P50,000.00 to the
caretakers of the chapel which was evidenced by an acknowledgment
receipt.

In computing his net taxable income, can Dr.Taimtim use his donation to
the chapel as an allowable deduction from his gross income under the
National Internal Revenue Code (NIRC)? (2014 Bar)

No, Dr. Taimtim cannot use his donation as an allowable deduction.

As provided by Sec. 34(H) of the National Internal Revenue Code, a charitable

donation to a domestic corporation can be used as a deduction from gross
income if the domestic corporation is organized and operated exclusively for
educational purpose and no part of its income inures to the benefit to any
stockholder or individual.
In the present case, the chapel is owned by private-owned university, hence, the
donation for the maintenance is considered as donation to the university.
Provided also, the university is granting yearly dividends to its stockholders which
is a clear violation of the law.

Thus, the donation is non-deductable.