04 Dimaampao - Taxation Law Bar Q - A

BARQ&A
FOR THE PAST 10 YEARS
TAXATION LAW
2020 Edition
JAPAR B. DIMAAMPAO
Associate Justice, Court of Appeals
Professor of Law and Bar Reviewer
Civil Law Examiner, 2013 & 2016
Holder, 2018 Metrobank Foundation Professorial Chair in Taxation
Taxation Law Examiner, 2019
Philippines Copyrigl1t 2020
By PREFACE
JUSTICE JAPAR B. DIMAAMPAO
Taxation is widely perceived as a perennial difficult
bar subject. Law students and bar examinees bewail
ALL RIGHTS RESERVED the technical rules envisaged in the various tax laws.
Still and all, bar examinees must endeavor to embark
No portion of this handbook may be copied or reproduced in on a comprehensive and comprehensible review
book, pamphlets, outlines or notes, whether printed, typewrit- of the subject.
ten, mimeographed, machine copied, or in any other form, for
In this light, the completion of an extensive study of
sale or distribution, without the written permission/consent of
taxation law precedes an insightful perusal of the previous
the Author.
bar questions and answers. This will appropriately gauge
Any copy of this book without bearing the corresponding the degree or extent of the bar examinees' preparation.
Serial Number and original signature of the Author on this Inevitably, the configuration of answers to bar
page, either proceeds from an illegitimate source or is in questions looms large in the minds of the bar examinees.
possession of one who has no authority to dispose thereof. On this score, this query leaps to the eye: will their
answers pass muster?
This humble opus entitled, Q and A in Taxation Law
in the Past Ten Years, suggests simplified, concise,
abridged and updated answers to previous bar questions
taking into account the amendments under RA No. 10963
effective in 2018. As former Taxation Law Examiner, the
author underscores keywords or striking phrases which
cut a wide swath with the examiner.
May this new book strike the right chord with the law
No. 8 05 students and bar examinees thereby bolstering their
confidence in framing authoritative and plain answers to
bar questions.
ISBN 978-621-02-1134-4 1 September 2020. Las Pinas City, Metro Manila.
Published and Printed by JBD
CENTRAL BOOK SUPPLY, INC.

927 Quezon Avenue, Quezon City, Philippines
E-mail: info@central.com.Qb
ACKNOWLEDGMENT TABLE OF CONTENTS
Page
This newfangled vade mecum, "Bar Q & A for the
Past 10 Years in Taxatior Law" is spurred by the
adjuration of bar examination reviewees who have been 2009 TAXATION LAW
clamoring for an easy and up-to-the-minute reference in Bar Questions and Suggested Answers
Taxation, and of law stucents who would want to
embark on advance reading. PARTI
As this publication rolls out and falls into the hands
of its users, acknowledgments are in order for the I. ....... " ..... " .................................................... ..
unceasing support of family and friends in the fulfillment Suggested Answers .......................................... .
of this humble opus- 11............................................................................ 2
Suggested Answer ... .. .. ... ... .. .. . .. .. .. .. ... . . .. ... . ... .. .. 2
Maria Gina V. Dimaamp.ao, who holds the only key
·111. ............................ :............................................. 3
to my heart, merits utmost ·ecognition for the constant
and boundless inspiration and encouragement;
Suggested Answers........................................... 3
IV. .. .. ... .. .. .. ...... . .. ... ... ... .. ....... ...... . .. .... ...... . .. .. . .. ...... 4
Atty. Alice Abratigue, Atty. Lou Wella Mae Mendoza, Suggested Answer....................................... . .. 4
Atty. Rafael Lorenz Santos, Atty. Nusaybah Muti, Taki V. .......................................................................... 4
Salas, Jay Tuquero, Chevy Perez, Magelle Labrador, Cha Suggested Answers........................................... 5
Bacabac, Beth Mendoza, Arnold Mingao, Woody Antonio, VI. .. .. .. .. . .. ... .. .. . ... .. .. .... . .. .. . ... .. .... . .. . . .. . .. .. . .. .. .. . . . . .. . .. 6
and Jimson Albino, my staff members at the Court of
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Appeals, who unfailingly and ably support me in all my
endeavors as a Jurist and academician; VII. .................................. :,.................................... 7
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Girlie Jacala and the management and staff of VIII......................................................................... 8
Central Books, whose indispensable assistance has Suggested Answer .. .. .. . .. .. .. ... .. .. . .. .. .... . .. .. .. .. .. . .. 8
brought this publication to fruition; and most of all, IX.......................................................................... 8
The Almighty God who truly deserves the greatest Suggested Answer .. .. . .. .. . .. .. . .. .. . .. .. .. .. . .. .. . .. .. .. . .. 9
praise and glory for He is th2 only and true fount of all X . .......................................................................... 10
knowledge and wisdom. Suggested Answers........................................... 11
Las Pinas City, Metro Ma1ila.
PARTII
1 September 2020.
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XIII ....................... ·.................................................. 13 VII. ............................................................... , ....... 26
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XIV ...................................................................... . 14 VIII........................................................................ 27
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XV ....................................................................... . 15 IX......................................................................... 28
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XVI ...................................................................... . 16
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XVII ..................................................................... . 16
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XIII ....................................................................... . 33
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2010 TAXATION LAW XIV ...................................................................... . 34
Bar Questions and Sugges,!ed Answers Suggested Answer ......................................... .. 34
XV ....................................................................... . 34
PARTI Suggested Answers ......................................... . 36
XVI ...................................................................... . 38
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II........................................................................... 21 Suggested Answers ........................................ .. 39
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Ill.......................................................................... 23 Suggested Answer .......................................... . 40
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2011 TAXATION LAW X. .. ...................................................................... 121
Bar Questions and Suggested Answers Suggested Answers .......................................... 121
(MCQ) ... ............................... : :: ..... ~................. .·:.~:-:.... 41 2013 TAXATION LAW

Bar Questions and Suggested Answers
2012 TAXATION LAW
Bar Questions and Suggested Answers I. .......................·.................................................... 122
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SETA 11. ........ .. .... ......... ... ............. .. ... .. .... . .. ..... .... ... ......... 122
(MCQ)... .... .... ... ... ..... ..... ...... .. . ........... ... ... ............... .. 75 111. ......................................................................... 123
SETS IV . ........................................................................ 124
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1. ............................................................. ,.... .......... ... 109 V . ................... :..................................................... 125
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II. .......................................................................... 110 VI. ........................................................................ 125
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Ill. ......................................................................... 112 VII. ........................................................................ 126
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IV. . . .. ..... .. . ... .. .. ... ... .. ... . . ... . .. . . .. ... . . .. ... ... . ... .... . .. . .. . .. 113 VIII.................................................... .. ........ 127
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V. ......................................................................... 114 IX . ......................................................................... 128
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VII. ........................................................................ 117 XI. ......................................................................... 129
VIII. ....................................................................... 118 XII. ........................................................................ 130
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IX . ........................................................................ 119 Multiple Choice Questions ..................................... 132
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2014 TAXATION LAW XVI........................................................... ...... 157
Bar Questions and Suggested Answers Suggested Answer .......................................... 158
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II ............................................................................ 145 Suggested Answers ........................................... 159
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Ill. ........................................................................... 146 Suggested Answer ............................................ 160
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IV ................................................................ ,.......... 147 Suggested Answer .......................................... 161
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V. ......................................................................... 148 Suggested Answer ........................................... 162
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VII. ....................................................................... 150 Suggested Answer ........................................... 16Ll
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VIII. ........................................................................ 151 I Suggested Answers ........................................... 165
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IX .......................................................................... 152 '.,\.
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X . .......................................................................... 153 Suggested Answer ......... :.................................. 167
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XI. ......................................................................... 153 Suggested Answers ........................................... 168
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XII ......................................................................... 154 I Suggested Answer ............................................ 169
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2015 TAXATION LAW XVI ........................................................................ 185

Bar Questions and Suggested Answers Suggested Answers ........................................... 185
XVII ....................................................................... 186
I. ............................................................................ 171 Suggested Answer ........................................... 186
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II. ........................................................................... 171 Suggested Answers ........................................... 187
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Ill. .......................................................................... 172 Suggested Answers ........................................... 188
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IV .......................................................................... 173 Suggested Answer ............................................ 189
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V ........................................................................... 174 Suggested Answers ........................................... 190
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VI. ......................................_................................... 175 Suggested Answer ............................................ 191
VII. ........................................................................ 176 2016 TAXATION LAW
Suggested Answer ............................................ 176 Bar Questions and Suggested Answers
VIII. ........................................................................ 176
Suggested Answer ............................................ 177 I. ............................................................................ 193
IX .......................................................................... 177 Suggested Answers ........................................... 193
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X. .......................................................................... 178 Suggested Answer ........................................... 194
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XI .......................................................................... 180 Suggested Answer ........................................... 195
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XII . ........................................................................ 180 Suggested Answer ............................................ 196
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Xlll. ........................................................................ 181 Suggested Answer ........................................... 197
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XIV ........................................................................ 183 Suggested Answer ............................................ 198
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XV ......................................................................... 184 Suggested Answer ............................................ 199
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VIII. ........................................................................ 200 11. ........................................................................... 216
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X. .......................................................................... 202 IV.......................................................................... 218
XI. ......................................................................... 203 V . ......................................................................... 219
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XII. .. ,.............................. ·....................................... 204 VI. ......................................................................... 220
XIII. ........................................................................ 205 VII ......................................................................... 221
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XIV ........................................................................ 206 VIII. ........................................................................ 223
xv ......................................................................... 207 IX . ......................................................................... 224
Suggested Answer ............................................ 207 Suggested ,L\nswer ............................................ 224
XVI. ....................................................................... 208 X . .......................................................................... 225
XVII. ...................................................................... 209 XI. ......................................................................... 226
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XVIII. .................................................. _... ,.............. 211 XII. ........................................................................ 227
XIX ........................................................................ 212 XIII ......................................................................... 228
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xx ......................................................................... 213 XIV ........................................................................ 229
xv ......................................................................... 230
2017 TAXATION LAW Suggested Answers ........................................... 231
Bar Questions and Suggested Answers XVI. ....................................................................... 232
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I. ............................................................................ 215 XVII. ...................................................................... 233
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XVIII ...................................................................... 234 XIV ........................................................................ 254
XIX ........................................................................ 235 xv ......................................................................... 255
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XVI ........................................................................ 257
2018 TAXATION LAW Suggested Answer ........................................... 257
Bar Questions and Suggested Answers XVII............................. .. ................ 258
1. ............................................................................ 237 XVIII ...................................................................... 259
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II. ........................................................................... 238 XIX ........................................................................ 261
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111. .......................................................................... 241 xx ......................................................................... 262
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IV.......................................................................... 242
Suggested Answers ........................................... 243 2019 TAXATION LAW
V . .......................................................................... 243 Bar Questions and Suggested Answers
VI. ......................................................................... 245
PARTI
VII. ....................................................-,-... ;............... 246
Suggested Answers ........................................... 247 A.1 . ....................................................................... 264
VIII ......................................................................... 248
A.2 . ....................................................................... 266
IX .......................................................................... 249
A.3 . ....................................................................... 267
X. .......................................................................... 251 ·
A.4 . ........................................................................ 268
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xvi xvii
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A.8 . ....................................................................... 273 2009 TAXATION LAW
Suggested Answer ............................................ 273 BAR QUESTIONS AND SUGGESTED ANSWERS
A.9 . ....................................................................... 274
Suggested Answers ........................................... 274 PARTI
A.10 . ..................................................................... 275
I.
PARTII TRUE or FALSE. Ans\'Ver TRUE if the statement is
true, or FALSE if the statement is false. Explain your
B.11 . ..................................................................... 276 answer in not more than two (2) sentences. (5%)
8.12 . ..................................................................... 277 (a) A law that allows taxes to be paid either in
Suggested Answers ........................................... 278 cash or in kind is valid.
8.13 . ..................................................................... 279
(b) When the financial position of the taxpayer
Suggested Answers .......................................... 280 demonstrates a clear inability to pay the tax, the
8.14 . ........................... ,............ ,........................... 281 Commissioner of Internal Revenue may validly
Suggested Answer ........................................... 281 compromise the tax liability.
8.15. ········ ......................... ,................... ······ ......... 281
Suggested Answers ........................................... 282 (c) The doctrine of equitable recoupment allows
8.16 . ..... ,............. ·········· .......... ,............................ , 282 a taxpayer whose claim for refund has prescribed to
Suggested Answers ............ ··········-······· .............. 283 offset tax liabilities with his claim of overpayment.
8.17 . ............ ,............ ,........................................... 283 (d) A law imposing a tax on income of religious
Suggested Answers ........................................... 284 institutions derived from the sale of religious articles
8.18. ,...... ,........................... ,.... ,............................ 285 is valid.
B.19 . ..................................................................... 286 (e) A false return and a fraudulent return are
Suggested Answer ............................................ 287 one and the same.
8.20 . ..................................................................... 288
Suggested Answers ........................................... 288 SUGGESTED ANSWERS:
APPENDIX
(a) TRUE. It does not violate any constitutionai or
Syllabus for the 2020 Bar Examinations
inherent limitation on taxation. It merely violates the
(Taxation Law) ...................................................... 291
principle of administrative feasibility designed to make
--o0o-- the tax system sound.
xviii
2 BAR Q & A For The Past 10 Years 2009 TAXATION LAW 3
TAXATION LAW Bar Questions and Suggested Answers
(b) TRUE. The NIRC, as amended, allows the 3) It is inherently legislative - The legislature has
Commissioner of Internal revenue to compromise tax the full discretion to determine the subject to be taxed,
liability on the ground of financial incapacity (Section the amount or rate of tax, the nature of tax and the
204, NIRC). method of collection. (1 Cooley, 176-184)
(c) TRUE. The doctrine allows offsetting of a 4) It is subject to international comity - The
prescribed claim against a tax liability arising from the principle of sovereign equality among states, a generally
same transaction. (CIR v. UST, 104 Phil 1062) accepted tenet of international law, proscribes the
(d) FALSE. The law constitutes an infringement of imposition of taxes on a sovereign state.
religious freedom which is not allowed under the
Constitution (American Bible Society v. City of Manila, 101 111.
Phil 386)
Melissa inherited from her father a 300-square-
(e) FALSE. They are different. A false return meter lot. At the time of her father's death on March
implies a deviation from the truth or fact whether 14, 1995, the property was valued at P720,000.00. On
intentional or not, while fraudulent return is intentional February 28, 1996, to defray the cost of the medical
and deceitful with the aim of evading the correct tax due. expenses of her sick son, she sold the lot for
(Aznar v. CIR, 58 SCRA 519) P600,000.00, on cash basis. The prevailing market
value of the property at
the time of the sale was
II. P3,000.00 per square meter.
Enumerate the four (4) inherent iimitations on (a) Is Melissa liable to pay capital gains tax on
taxation. Explain each item briefly. (4%) the transaction? If so, how much and why? If not,
why not? (4%)
SUGGESTED ANSWER:
(b) Is Melissa liable to pay Value Added Tax
(VAT) on the sale of the property? If so, how much
They are as follows:
and why? If not, why not? (4%)
1) It is for a public purpose - Taxes must be used
for the support of the State and some recognized SUGGESTED ANSWERS:
objectives of the government.
(a) YES. The real property is classified as a capital
2) It is territorial - Taxation may be exercised only asset. It is subject to 6% final tax of the higher value of
within the territorial jurisdiction of the taxing authority. P900,000 or a tax in the amount of P54,000 (Section
(61 AmJur. 88) 24(0)(1), NJRC, as amended).
4 BAR Q & A For The Past 10 Years
2009 TAXATION LAW 5
TAXATIOr~ LAW
(b) NO. The real property sold is a capital asset

warrant of seizure and detention. The car, then parked
because it is not primarily held for sale to customers in
inside a pay parking garage, was seized and brought
the ordinary course of trade or business ( Sections 39
by government agents to a government impounding
and 106, NIRC, as amended).
facility. The Collector of Customs denied Jessie's
request for the withdrawal of the warrant.
IV.
Aggrieved, Jessie filed against the Collector a
International Technologies, Inc. (ITI) filed a criminal complaint for usurpation of judicial functions
claim for refund for unutilized input VAT with the on the ground that only a judge may issue a warrant
Court of Tax Appeals (CTA). In the course of the of search and seizure.
trial, ITI engaged the services of an independent
Certified Public Accountant (CPA) who examined (a) Resolve with reasons Jessie's criminal
the voluminous invoices and receipts of ITI. ITI complaint. (4%)
offered in evidence only the summary prepared by (b} Would your answer be the same if the
the CPA, without the invoices and the receipts, and luxury car was seized while parked inside the
then submitted the case for decision. garage of Jessie's residence? Why or why not? (4%)
Can the CTA grant ITl's claim for refund based
only on the CPA's summary? Explain. (4%) SUGGESTED ANSWERS:
SUGGESTED ANSWER: (a) The criminal complaint is unmeritorious. It is

settled that the Commissioner of Customs has the
NO. The summary of invoices and receipts will not primary and exclusive jurisdiction over seizure of
suffice. The invoices and receipts must be presented to smuggled goods. Thus, regular courts are precluded
enable the CTA to determine with particular certainty the from taking cognizance thereof (Ra//os v. Gako, 344
basis of the refund. They constitute the real and direct SCRA 178).
evidence of the transactions •'. CIR v. Rio Tuba Nickel (b) NO. The Bureau of Customs is devoid of
Mining Corp., 207 SCRA 549).
authority to seize the luxury car inside the garage of
Jessie's residence becau'se the place of seizure is a
V. dwelling house which necessitates a search warrant
(Pacis v. Pamaran, 56 SCRA 16).
Jessie brought into the Philippines a foreign-
made luxury car, and paid less than the actual taxes
and duties due. Due to the discrepancy, the Bureau of
Customs instituted seizure proceedings and issued a
VI. VII.
The Sangguniang Bayan of the Municipality of
Kenya International Airlines (KIA) is a foreign
Sampaloc, Quezon, passed an ordinance imposing a
corporation, organized under the laws of Kenya. It is
storage fee of ten centavos (P0.10) for every 100
not licensed to do business in the Philippines. Its
kilos of copra deposited in any bodega within
commercial airplanes do not operate within Philippine
the Municipality's jurisdiction. The Metropolitan
territory, or service passengers embarking from
Manufacturing Corporation (MMC), with principal
Philippine airports. The firm is represented in the
office in Makati, is engaged in the manufacture of
Philippines by its general agent, Philippine Airlines
soap, edible oil, margarine, and other coconut oil-
(PAL), a Philippine corporation.
based products. It has a warehouse in Sampaloc,
Quezon, used as storage space for the copra KIA sells airplane tickets through PAL, and
purchased in Sampaloc and nearby towns before these tickets are serviced by KIA airplanes outside
the same is shipped to Makati. MMC goes to court to the Philippines. The total sales of airline tickets
challenge the validity of the ordinance, demanding transacted by PAL for KIA in 1997 amounted
the refund of the storage fees it paid under protest. to P2,968, 156.00. The Commissioner of Internal
Revenue assessed KIA deficiency income taxes at
Is the ordinance valid? Explain your answer. (4%)
the rate of 35% on its taxable income, finding that
KIA's airline ticket sales constituted income derived
SUGGESTED ANSWER:
from sources within the Philippines.
YES. The ordinance is valid. The Municipality of KIA filed a protest on the ground that the
Sampaloc, Quezon is authorized under Section 147 of P2,968, 156.00 should be considered as income
the Loca, Government Code (LGC) to impose a derived exclusively from sources outside the
reasonable storage fee as a regulatory measure. A Philippines since KIA only serviced passengers
warehouse used for storing copra is an establishment outside Philippine territory.
likely to endanger the public safety as it may cause
conflagration. Thus, the storage fee is imposed under Is the position of KIA tenable? Reason. (4%)
the "general welfare clause" (Procter and Gamble
Manufacturing Corp. v. Municipality of Jagna, Bohol, 94 SUGGESTED ANSWER:
SCRA 894)
KIA's position is not tenable. It is doctrinal that selling
airplane tickets through the local agent of a foreign airline
is considered doing or transacting business in the
Philippines. Considering that KIA sold airplane tickets
through its general agent, PAL, it is taxed as resident
foreign corporation subject to regular corporate rate.
TAXATION LAW
It must be stressed that the sale of airplane tickets provides that JEC shall own the power barges and the
in the Philippines is the activity that produced the fixtures, fittings, machinery, and equipment therein, all
income. Having enjoyed the protection of the Philippine of which JEC shall supply at ·its own cost, and that
government, the income is taxable. (CIR v. BOAC, 149 JEC shall operate, manage and maintain the power
SCRA 395).
barges for the purpose of converting the fuel of RPC
into electricity. The contract also stipulates that all
VIII.
real estate taxes and assessments, rates and other
charges, in respect of the power barges, shall be for
The City of Manila enacted Ordinance No. 55-66
the account of RPC.
which imposes a municipal occupation tax on
persons practicing various professions in the city. In 2007, JEC received an assessment of real
Among those subjected to the occupation tax were property taxes on the power barges from the
lawyers. Atty. Mariano Batas, who has a law office in Assessor of Batangas City. JEC sought reconsideration
Manila, pays the ordinance-imposed occupation tax of the assessment on the ground that the power
under protest. He goes to court to assail the validity barges are exempt from real estate taxes under
of the ordinance for being discriminatory. Decide Section 234 [c] of R.A. 7160 as they are actually,
with reasons. (3%) directly and exclusively used by RPC, a
government-owned and controlled corporation.
SUGGESTED ANSWER: Furthermore, even assuming that the power barges
are subject to real property tax, RPC should be held
The ordinance is valid. It is not discriminatory liable therefor, in accordance with the terms of the
because the City Council of Manila -ha·s the power to lease agreement. Is the contention of JEC correct?
impose professional tax under Section 151 in relation to Explain your answer. (4%)
Section 139 of the Local Government Code (RA 7160).
Lawyers are included within the class of professionals_. SUGGESTED ANSWER:
IX. JEC's contention is not correct. The exempting

provision of Section 234(c) of RA 7160 is inapplicable. It
Republic Power Corporation (RPC) is a is not disputed that JEC operates, manages and
government-owned and controlled corporation maintains the power barges for the purpose of
engaged in the supply, generation and transmission of converting the fuel of RPC into electricity. As such, it is
electric power. In 2005, in order to provide electricity to
JEC, not RPC, that is the actual, direct, and exclusive
Southern Tagalog provinces, RPC entered into an user of the barges.
agreement with Jethro Energy Corporation (JEC), for
the lease of JEC's power barges which shall be
berthed at the port of Batangas City. The contract
2009 TAXATION LAW 11
JEC's argument that RPC should be held liable for (b) Is the contention of ABCD Corporation
the real property tax in accordance with the terms of the correct? Why or why not? (3%)
lease agreement is not meritorious. Basic is the rule that
the liability for the payment of the real estate taxes is SUGGESTED ANSWERS:
determined by law and not by the agreement of the
parties. (FELS Energy Inc. v. The Province of Batangas, (a) YES. Well-settled is the rule that a withholding
516 SCRA 186). agent is not only an agent of the government but also an
agent of the taxpayer in reporting an income. It is
X. properly regarded as a "taxpayer" within the meaning of
Section 22(N) of the NIRC, as amended. (CIR v. Procter
ABCD Corporation (ABCD) is a domestic
and Gamble, 204 SCRA 377).
corporation with individual and corporate shareholders
who are residents of the United States. For the (b) YES. The contention of ABCD Corporation is
nd
2 quarter of 1983, these U.S.-based individual and correct. The principle of international comity dictates that
corporate stockholders received cash dividends from a tax treaty must prevail over the local taxing statute.
the corporation. The corresponding withholding tax on Thus, the RP-US Tax Treaty, must be applied thereby
dividend income •·· 30% for individual and 35% for resulting in a claim for refund representing the difference
corporate non-resident stockholders -·· was deducted between the amount actually withheld and paid to the BIR
at source and remitted to the BIR. and the amount due and payable under the said treaty.
On May 15, 1984, ABCD filed with the
PART II
Commissioner of Internal Revenue a_ formal claim
;i,
for refund, alleging that under the RP-US Tax Treaty,
the deduction withheld at source as tax on t XI.
dividends earned was fixed at 25% of said income. ·,·1 Raffy and Wena, husband and wife, are both
Thus, ABCD asserted that it overpaid the I
employed by XXX Corporation. After office hours,
withholding tax due on the cash dividends given to I they jointly manage a coffee shop at the ground
its non-resident stockholders in the U.S. The t floor of their house. The coffee shop is registered in
Commissioner denied the claim. the name of both spouses. Which of the following is
On January 17, 1985, ABCD filed a petition with the correct way to prepare their income tax
the Court of Tax Appeals (CTA) reiterating its II•.;.•
,. return? Write the letter only. DO NOT EXPLAIN
demand for refund. YOUR ANSWER. (2%)
(a) Does ABCD Corporation have the legal

l (a) Raffy will declare as his income the salaries
of both spouses, while Wena will declare the income
i
personality to file the refund on behalf of its non-
resident stockholders? Why or why not? (3%) from the coffee shop.
I
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TAXATION LAW
(b) Wena will declare the combined compensation the law firm billed the corporation only in 2008. The
income of the spouses, and Raffy will declare the corporation duly paid the same.
income from the coffee shop. YYY Corporation claimed this expense as a
(c) All the income will be declared by Raffy deduction from gross income in its 2008 return,
alone, because only one consolidated return is because the exact amount of the expense was
required to be filed by the spouses. determined only in 2008. Is YYY's claim of deduction
proper? Reason. (4%)
(d) Raffy will declare his own compensation
income and Wena will declare hers. The income from SUGGESTED ANSWER:
the coffee shop shall be equally divided between
them. Each spouse shall be taxed separately on their NO. The all-events test states that an expense is
corresponding taxable income to be covered by one deductible in the year the amount of liability is
consolidated return for the spouses. determinable with reasonable accuracy. When the
services were rendered in 2007, the liability to pay was
(e) Raffy will declare his own compensation already fixed and reasonably determined with accuracy.
income and Wena will declare hers. The income from Ergo, the deduction should have been claimed as
the coffee shop shall be equally divided between deduction in 2007, not in 2008 (CIR v. lsabela Cultural
them. Raffy will file one income tax return to cover all
Corporation, 515 SCRA 556).
the income of both spouses, and the tax is computed
on the aggregate taxable income of the spouses. XIII.
SUGGESTED ANSWER: In 1999, Xavier purchased from his friend, Yuri,

a painting for PS00,000.00. The fair market value
(d) Raffy will declare his own compensation income (FMV) of the painting at the time of the purchase
and Wena will declare hers. The income from the coffee was P1-million. Yuri paid all the corresponding
shop shall be equally divided between them. Each taxes on the transaction': In 2001, Xavier died. In his
spouse shall be taxed separately on their corresponding last will and testament, Xavier bequeathed the
taxable income to be covered by one consolidated return painting, already worth P1 .5-million, to his only son,
for the spouses. Zandro. The will also .granted Zandro the power to
appoint his wife, Wilma, as successor to the
XII.
painting in the event of Zandra's death. Zandra died
YYY Corporation engaged the services of the in 2007, and Wilma succeeded to the property.
Manananggol Law Firm in 2006 to defend the (a) Should the painting be included in the gross
corporation's title over a property used in the estate of Xavier in 2001 and thus, be subject to
business. For the legal services rendered in 2007,
estate tax? Explain. (3%)
ii';
-'ff;.
(b} Should the painting be included in the gross ::\ SUGGESTED ANSWER:
estate of Zandro in 2007 and thus, be subject to ".'·,'.'·
"'.(;
estate tax? Explain. (3%) I will advise Emiliano that he is not required to
register as a VAT taxpayer. Leasing residential units for
(c) May a vanishing deduction be allowed in an amount not exceeding P10,000 per unit per month is
either or both of the estates? Explain. (3%) exempt from VAT irrespective of the aggregate amount
of rentals received annually. R.A. No. 10963 which took
SUGGESTED ANSWERS: effect on January 1, 2018, exempts lease of residential
!,, units where the gross receipts from rentals do not
(a) Yes. It should be included in the gross estate of exceed P15,000 per month per unit.
Xavier, subject to estate tax, jecause as it is within r
p
xv.
i
Xavier's control to dispose upon his death. The transfer
is considered one in contemplat on of death ( Section 85
(8) NIRC, as amended). Miguel, a citizen and resident of Mexico, donated
US$1,000.00 - worth of stocks in Barack Motors
(b) No. It was a transmis.sion from the first heir
(Zandro) in favor of another beneficiary (Wilma) in
f I,
Corporation, a Mexican company, to his legitimate
son, Miguelito, who is residing in the Philippines and
accordance with the desire of the predecessor exempt r about to be married to a Filipino girlfriend. Mexico
'
under Section 87(c) of the NIRC, as amended. does not impose any transfer tax of whatever nature
(c) Only the estate of Xavier may claim vanishing on all gratuitous transfers of property.
deduction as the bequest took place within five (5) ·(a) Is Miguel entitled to claim a dowry exclusion?
(1999-2001 ). Zandra's estate may nof be entitled to Why or why not? (3%)
claim vanishing deduction because it is includible in his
gross estate. (b) Is Miguel entitled to the rule of reciprocity in
order to be exempt from the Philippine donor's tax?
XIV. Why or why not? (3%)
Emiliano Paupahan is engaged in the business SUGGESTED ANSWERS:

of leasing out several residential apartment units he
owns. The monthly rental for each unit ranges from (a) Miguel, a non-resident alien, is not entitled to
P8,000.00 to P10,000.00. His gross rental income for claim a dowry as exclusion. Before January 1, 2018, a
one year is P1 ,650,000.00. He consults you on resident donor (citizen or resident alien) could claim
whether it is necessary for him to register as a VAT dowry as exclusion. However, under RA No. 10963
taxpayer. What legal advice will you give him, and which took effect on January 1, 2018, dowry is no longer
why? (4%} considered as exclusion.
r;r!!tr•·
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16 BAR Q & A For The Past 10 Years 1: 2009 TAXA Tl ON LAW 17
(b) No. -he rule of reciprocity applies only if the

property is an intangible personal property situated in
the Philippines ( Section 104, N!RC, as amended).
[
t
J
' (a) Is the CTA correct in dismissing the petition
for review? Explain your answer. (4%)
(b) Assume that the CTA's decision dismissing
XVI. the petition for review has become final. May the
Commissioner legally enforce collection of the
Ernesto, a Filipino . citizen and a practicing delinquent tax? Explain. (4%)
lawyer, filed his income tax return for 2007 claiming
optional standard deductions. Realizing that he has SUGGESTED ANSWERS:
enough documents to substantiate his profession-
connected expenses, he now plans to file an (a) YES. The CTA correctly dismissed the petition
amended income tax return for 2007, in order to I for review. It appearing that the protest was filed out of
claim itemized deductions, since no audit has been time, the CTA acquired no jurisdiction thereover.
commenced by the BIR on the return he previously
filed. Will Ernesto be allowed to amend his return?
Why or why not? (4%)
'
f
·11
f (b) NO. Given that the filing of the protest out of
time did not suspend the running of the prescription
period for collection, the Commission can no longer
SUGGESTED ANSWER: enforce collection of the delinquent tax once the right to
collect has prescribed.
No. Erresto will not be allowed to amend his return
XVIII.
in order to claim optional standard deduction because
the election is irrevocable for the taxabie ·year for which
A taxpayer received an assessment notice from
the return is made ( Section 34 (L), NIRC, as amended).
the BIR on. February 3, 2009. The following day, he
filed a protest, in the form of a request for
XVII.
reinvestigation, against the assessment and submitted
A final assessment notice was issued by the all relevant documents in support of the protest. On
BIR on June 13, 2000, and received by the taxpayer September 11, 2009, the taxpayer, apprehensive
on June 15, 2000. The taxpayer protested the because he had not yet received notice of a decision
assessment on July 31, 2000. The protest was by the Commissioner on his protest, sought
initially given due course, but was eventually denied your advice.
by the Commissioner of Internal Revenue in a What remedy or remedies are available to the
decision dated June 15, 2005. The taxpayer then taxpayer? Explain. (4%)
filed a petition for review with the Court of Tax
Appeals (CTM, but the CTA dismissed the same.
TAXA Tl ON LAW
SUGGESTED ANSWER:
.•·;11\. SUGGESTED ANSWERS:
'. i
The taxpayer may avail of either of the two (2) options: i >
(a) I will advise the trustee that inasmuch as the
'i
·_.. 1·_..·
amount of income to be distributed annually to the

(1) File a petition for review with the CTA within
beneficiary is a deduction from gross income of the
thirty (30) days after the expiration of the 180-day period ;·,1\i·.
't'.
trust, he need not pay annual income taxes (Section 61
(submission of all relevant documents); or ·.,
(A), NIRC, as amended).
1
f
(2) Await the final decision of the Commission on
I (b) NO. Once a taxable trust is established, its net
the disputed assessment and appeal such final decision
to the CTA within thirty (30) days after receipt thereof.
! income is either taxable to the trust, represented by the
These options are mutually exclusive and resort to

I trustee, or to the beneficiary. Thus, the trustee has to
pay the income tax on the trust's net income annually
one bars the application of the other. (RCBC v. CIR, 522 accumulated.
SCRA 144).
xx.
XIX.
Masarap Food Corporation (MFC) incurred
Johnny transferred a valuable 10-door commercial substantial advertising expenses in order to protect
apartment to a designated trustee, Miriam, naming in its brand franchise for one of its line products. In its
the trust instrument Santino, Johnny's 10-year old income tax return, MFC included the advertising
son, as the sole beneficiary. The trustee_ is instructed expense as deduction from gross income, claiming
to distribute the yearly rentals amounting to it as an ordinary business expense. Is MFC correct?
P720,000.00. The trustee consults you if she has to Explain. (3%)
pay the annual income tax on the rentals received
from the commercial apartment. SUGGESTED ANSWER:
(a) What advice will you give the trustee? NO. It is settled that advertising expenses incurred to
Explain. (3%) protect brand franchise is in the nature of a capital
expenditure. This being so, MFC could not claim such
(b) Will your advice be the same if the trustee is advertising expenses as the amount does not qualify as an
directed to accumulate the rental income and ordinary business expense (CIR v. General Foods, Inc.,
distribute the same only when the beneficiary 401 SCRA 545).
reaches the age of majority? Why or why not? (3%)
2010 TAXATION LAW SUGGESTED ANSWERS:

BAR QUESTIONS AND SUGGESTED ANSWERS
A) TRUE. (CIR v. BF Goodrich, Phils., 303 SCRA 546)
PARTI B) FALSE. (Lim v. Court of Appeals, 190 SCRA 616)
I. C) FALSE. (Section 11, Rule 9, 2005 Revised

Rules of the Court of Tax Appeals)
True or False.
D) TRUE. (CIR v. Manila Mining Corp., 468 SCRA 571)
(A) In civil cases involving the collection of E) FALSE. (Section 3(b)(2), Rule 4, 2005 Revised
internal revenue taxes, prescription is construed Rules of Court of Tax Appeals)
strictly against the government and liberally in favor
of the taxpayer. (1%) 11.
(8) In criminal cases involving tax offenses
(A) What is 'the "a// events test"? Explain briefly.
punishable under the National Internal Revenue
Code (NIRC), prescription is construed strictly against (2%)
the government. (1%) (8) What is the "immediacy test"? Explain briefly.
(C) In criminal cases where the Court of Tax (2%)
Appeals (CTA) has exclusive original jurisdiction, (C) What is the "rational basis" test? Explain
the right to file a separate civil -action for the briefly. (2%)
recovery of taxes may be reserved. (1%)
(D) What is the effect of the execution by a
(D) Proceedings before the CTA in the exercise taxpayer of a "waiver of the statute of limitations"
of its exclusive original jurisdiction are in the nature on his defense of prescription? (2%)
of trial de novo. (1%)
(E) What is the basis for the computation of
(E) Judgments, resolutions or orders of the business tax on contractors under the Local
Regional Trial Court in the exercise of its original Government Code? (2%)
jurisdiction involving criminal offenses arising from
violations of the NIRC are appealable to the CTA, (F) How are retiring businesses taxed under the
which shall hear the cases en bane. (1%) Local Government Code? (2%)
20
SUGGESTED ANSWERS:
E) Business tax on contractors is based on the
gross receipts for the preceding calendar year. (Section
A) The "all events test" is applied in the realization 143 (e), LGC)
of income and recognition of expense based on accrual
basis. To warrant the inclusion of the income and expense F) Retiring businesses under the LGC are taxed on
in the gross income or deductions during the taxable their gross sales or gross receipts in the current year. If
year, the test requires (1) the fixing of a right to the the tax paid in the current year is less than the tax due
income or liability to pay; and (2) the availability of on gross sales or receipts of the current year, the
reasonably accurate determination of such income or difference shall be paid before the business is considered
liability. (CIR v. lsabe/a Cultural Corp., 515 SCRA 556) officially retired. (Section 145, LGC).
B) The "immediacy test,' invented to determine the Ill.

reasonable needs of the business in order to justify
accumulation of earnings, construed the words "reasonable Mirador, Inc., a domestic corporation, filed its
needs of the business to mean the immediate of the Annual Income Tax Return for its taxable year 2008
business. (Mertens, Law of Federal Income Taxation, on April 15, 2009. In the Return, it reflected an
Vol. 7, Chapter 9, p. 103)
income tax overpayment of P1 ,000,000.00 and
C) The "rational basis test," designed to gauge indicated its choice to c..arry-over the overpayment
the constitutionality of an assailed law in the face of an as an automatic tax credit against its income tax
equal protection challenge, states that it is sufficient that liabilities in subsequent years.
the legislative classification is ratio.riaUy related to On April 15, 2010, it filed its Annual Income Tax
achieving some legislative state interest. (British Return for its taxable year 2009 reflecting a taxable
American Tobacco v. Camacho, 585 SCRA 36) loss and an income tax overpayment for the current
year 2009 in the amount of P500,000.00 and its
D) The execution by a taxpayer of a waiver of the
income tax overpayment for the prior year 2008 of
statute of limitations is not tantamount to a waiver of the
right to invoke the defense of prescription. It has been
P1 ,000,000.00.
held that if prescription has already set in at the time of In its 2009 Return, the corporation indicated its
the execution of the waiver, the taxpayer can still raise option to claim for refund the total income tax
prescription as a defense. This is so because the waiver overpayment of P1 ,500,000.00.
of the statute of limitations is merely an agreement in
Choose which of the following statements is
writing between the taxpayer and the BIR that the period
correct.
to assess and collect taxes due is extended to a certain
date. (Phil. Journalists Inc., v. CIR, 488 SCRA 218) (A) Mirador, Inc. may claim as refund the total
income tax overpayment of P1 ,500,000.00 reflected
in its income tax return for its taxable year 2009;
(8) It may claim as refund the amount of SUGGESTED ANSWER:

PS00,000.00 representing its income tax overpayment
for its taxable year 2009; or NO. Preliminary Assessment Notice (PAN) need
not be protested. It is the Final Assessment Notice
(C) No amount may be claimed as refund. (FAN) that is the subject of protest. Given that the FAN
Explain the basis of your answer. (5%) was timely protested within thirty (30) days from receipt
thereof, the assessment did not become final and
SUGGESTED ANSWER: executory (Section 228, NIRC, as amended).
(B). It may claim as refund the amount of PS00,000 V.

representing its income tax overpayment for ·1ts taxable
year 2009. Does the Court of Appeals have the power to
review compromise agreements forged by the
Rea.son: The option to carry over the Pi Million
Commissioner of Internal Revenue and a taxpayer?
overpaid income tax for the taxable year 2008 is
considered irrevocable and no application for cash refund Explain. (5%)
shall be allowed therefor. (Section 76, NIRC, as amended.
SUGGESl'ED ANSWER:
IV.
NO. The Court of Appeals does not have the
f power to review compromise agreements forged by the
On March 10, 2010, Continental, Inc. received a
preliminary assessment notice (PANJ dated March 1,
2010 issued by the Commissioner of Internal Revenue
(CIR) for deficiency income tax for its taxable year
I
f:
Commissioner of Internal Revenue and a taxpayer. If at
all, it is the Court of Tax Appeals that has the power to
review decisions of the Commissioner of Internal
2008. It failed to protest the PAN. The CIR thereupon f Revenue. Compromise is consid_ered as other matters
f
issued a final assessr,nent notice (FAN) with letter of arising under the NIRC.
demand on April 30, 2010. The FAN was received by
the corporation on May 10, 2010, following which or VI.
on May 25, 2010, it filed its protest against it.
Based on the Affidavit of the Commissioner of
The CIR denied the protest on the ground that Internal Revenue (CIR), an Information for failure to file
the assessment had already become final and income tax return under Section 255 of the National
executory, the corporation having failed to protest Internal Revenue Code (NIRC) was filed by the
the PAN. Department of Justice (DOJ) with the Manila Regional
Trial Court (RTC) against XX, a Manila resident.
Is the CIR correct? Explain. (5%)
26 BAR Q & A For The Past 10 Years 27
2010 TAXATION LAW
XX moved to quash the Information on the 2) The collection, in the opinion of the Court, wi:I
ground that the RTC has no jurisdiction in view of jeopardize the interest of the government and/or the
the absence of a formal deficiency tax assessment taxpayer; and
issued by the CIR.
3) The taxpayer is willing to deposit in Court the
Is a prior assessment necessary before an amount being collected or to file a surety bond for not
Information for violation of Section 255 of the NIRC more than double the amount of the tax (Section 11,
could be filed in court? Explain. (4%) R.A.1125, as amended by R.A.9282).
SUGGESTED ANSWER: VIII.
NO. Prior assessment is not necessary before an What is the rule on appeal from decisions of the
information for violation of Section 255 of the NIRC Collector of Customs in protest and seizure cases?
could be filed in Court. ::=or one thing, a criminal When is the decision of the Collector of Customs
complaint is instituted not to demand payment, but to appealable to the Court of Tax Appeals? Explain.
penalize the taxpayer for violation of the NIRC .. For (5%) .
another, the crime is complete when the violator has
knowingly and willfully filed a fraudulent return With SUGGESTED ANSWER:
intenfto evade and defeat a part or all of the tax ( Guzik
V. U.S., 54 F 2d. 618). Decisions of the Collector of Customs in protest
and seizure cases are appealable to the Commissioner
VII. of Customs within fifteen (15) days from payment of
customs duties (protest cases) and receipt of the decision
What are the conditions that must be complied (seizure cases), respectively. (Sections 1106, 1126.
with before the Court of Tax Appeals may suspend R.A.10863).
the collection of national internal revenue taxes?
(3%) Decisions of the Collector of Customs is not
appealable to the Court of Tax Appeals. Rather, it is
SUGGESTED ANSWER: the decision of the Commissioner of Customs on
customs duties, fees or other money charges, seizure,
The conditions under which the Court of Tax detention or other matters arising under the customs
Appeals may suspend the collection of national internal law that may be appealed to the Court of Tax Appeals
revenue taxes are as follows: within thirty (30) days from receipt thereof (Sections 7
and 11, R.A. 9282).
1) A petition for review is pending before the Court
of Tax Appeals;
1M
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;~
TAXATION LAW
ii
:·:·.,
IX.
ji PART II
I.·
On May 15, 2009, La Manga Trading Corporation
X.
received a deficiency business tax assessment of '.l·.
P1,500,000.00 from the Pasay City Treasurer. On June ; True or False. (1 % each)
30, 2009, the corporation contested the assessment
by filing a written protest with the City Treasurer.
On October 10, 2009, the corporation received a

I. '~,
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(A) Gains realized by the investor upon redemption
of shares of stock in a mutual fund company are
collection letter from the City Treasurer, drawing it to file t exempt from income tax.
on October 25, 2009 an appeal against the assessment
before the Pasay Regional Trial Court (RTC).
l
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(B) A corporation can claim the optional
standard deduction equivalent to 40% of its gross
j
sales or receipts, as the case may be.
(A) Was the protest of the corporation filed on
time? Explain. (3%) (C) Premium payment for health insurance of
an individual who is an employee in an amount of
(B) Was the appeal with the Pasay RTC filed on P2,500 per year may be deducted from gross
time? Explain. (3%) income if his gross salary per year is not more
than P250,000.
SUGGESTED ANSWERS: (D) The Tax Code allows an individual taxpayer
to pay in two equal installments, the first installment
(A) The protest was filed on time-. Section 195 of to be paid at the time the return is filed, and the
the Local Government Code (R.A. 7160) provides that second on or before July 15 of the same year, if his
the taxpayer may protest an assessment within sixty tax due exceeds P2,000.
(60) days fro:1 receipt thereof.
(E) An individual taxpayer can adopt either the
(B) The appeal was filed out of time. When an calendar or fiscal period for purposes of filing his
assessment is protested, the treasurer has sixty (60) income tax return.
days within which to decide. The taxpayer has thirty (30)
days from receipt of the denial of the protest or from the (F) The capitalization rules may be resorted to
lapse of the 60-day period to decide, whichever comes by the BIR in order to compel corporate taxpayers to
first, otherwise, the assessment becomes conclusive declare dividends to their stockholders regularly.
and unappealable. Considering that no decision on the
(G) Informer's reward is subject to a final
protest was 7ade, the taxpayer should have appealed
withholding tax of 10%.
to the RTC within 30 days from the lapse of the 60-day
period to decide the protest ( Section 195, LGC ).
TAXATION LAW
;t Bar Questions and Suggested Ans~;e r - s
;,t:
(H) A non-resident alien who stays in the XI.
•!.I
Philippines for less than 180 days during the calendar . ~~:
year shall be entitled to personal exemption not to Are the following transactions subjec=:t to VAT? If
exceed the amount allowed to citizens of the yes, what is the applicable rate for each transaction.
Philippines by the country of which he is subject State the relevant authority/ies for your an~wer.
or citizen. i(
;,
(a) Construction by XYZ Constru c ~ i o n Co. of

SUGGESTED ANSWERS: concrete barriers for the Asian Develop1 1 ent Bank in
Ortigas Center to prevent car bombs fre> m ramming
(A) TRUE (Section 32(B)(7)(h), NIRC, as amended) the ADS gates along ADS Avenue in M~ndaluyong
City. (3%)
(B) FALSE (Section 34(L), NIRC, as amended)
(b) Call Center operated by a domestic
(C) FALSE (Section 34(M), NIRC) enterprise in Makati that handles e:cc I usively the
*R.A. No. 10963 deleted premium payment for health reservations of a hotel chain which are a 11 located in
insurance. Hence, it is no longer deductible.
North America. The services are paid for in US$ and
(D) TRUE (Section 56(A)(2), NIRC) duly accounted for with the Bangko Sentral ng
*R.A. No. 10963 provides that individual taxpayers may pay Pilipinas. (3%)
a tax due in excess of P2,000 in two (2) equal installments,
the first installment shall be paid at the time the return is (c) Sale of orchids by a flower ~hop which
filed and the second installment on or before October 15 raises its flowers in Tagaytay. (3%)
following the close of the calendar year.
(E) FALSE (Section 43, NIRC, as amended) SUGGESTED ANSWERS:
(F) TRUE (Section 244, NIRC, as amended) (a) The transaction is subject to OYo "-.../AT. ADS is
(G) TRUE (Section 282, NIRC, as amended) exempt from direct and indirect taxes u ..-,der special
laws. (Section 108(8)(3), NIRC, as amendec:::=::I).
(H) FALSE (Section 25(A)(1) in relation to Section
35, NIRC) (b) The sale of services is subject to O 0 .,,---'o VAT. Zero-
'R.A. No. 10963 disallowed personal and additional
rated sale of services includes services rendered to
exemptions. persons engaged in business outside t h ~ Philippines
and the consideration is paid in accept__ able foreign
currency duly accounted for by the Bang k o Sentral ng
Pilipinas (Section 108(8)(2), NIRC, as amer--ided).
(3) There is no taxable income until such income (5) Amaretto, Inc., .imported 100 cases of
is recognized. Taxable income is recognized when the Marula wine from South Africa. The shipment was
assessed duties and value-added taxes of P300,000
(A) taxpayer fails to include the income in his which Amaretto, Inc. immediately paid. The Bureau
income tax return.
of Customs did not, however, issue the release
(B) income has been actually received in money or papers of the shipment yet since the Food and Drug
its equivalent. Administration (FDA) needed to test the suitability
of the wine for human consumption. Is the Bureau
(C) income has been received, either actually or of Customs at fault for refusing to release the
constructivelY.,, shipment just as yet?
(D) transaction that is the source of the income is
consummated.
(4) Keyrand, Inc., a Philippine corporation, sold

through the local stock exchange 10,000 PLOT
lI
:j,
(A) Yes, because the importation was already
terminated as a result of the payment of the taxes due.
(B) Yes, the Bureau of Customs is estopped from
holding the release of the shipment after receiving the
shares that it bought 2 years ago. Keyrand sold the
shares for P2 million and realized a net gain of
P200,000.00. How shall it pay tax on the transaction?
!J payment.
(C) No, if the amount paid as duties and value-
added taxes due on the importation was insufficient.
(A) It shall declare a P2 million gross income in its (0) No, because the Bureau of Customs has not
income tax return, deducting its cost-of- acquisition as issued the legal permit for withdrawal pending the
an expense. ·
FDA'sfindings.
(B) It shall report the P200,000.00 in its corporate
income tax return adjusted by the holding period. (6) Which theory in taxation states that without
taxes, a government would be paralyzed for lack of power
(C) It shall pay 5% tax on the first P100,000.00 of to activate and operate it, resulting in its destruction?
the P200,000.00 and 10% tax on the remaining
P100,000.00. (A) Power to destroy theory
(D) It shall pay a tax of one-half of 1% of till:) P2 f (B) Lifeblood theory
million gross sales. .,
.,.,
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•:t (C) Sumptuary theory
(D) Symbiotic doctrine
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TAXATION LAW
(B) Yes. The 3-year prescriptive period started to

(7) The spouses Helena and Federico wanted to
run on April 15, 2008, hence, it had already expired
donate a parcel of land to their son Dondon who is
getting married .in December, 2011. The parcel of by May 20, 2011.
land has a zonal valuation of P420,000.00. What is (C) No. The prescriptive period started to run on
the most efficient mode of donating the property? March 30, 2008, hence, the 3-year period expired on
April 10, 2011.
(A) The spouses should first donate in 2011 a
portion of the property valued at P20,000.00 then (D) Yes. Since the 3-year prescriptive period started
spread the P400,000.00 equally for 2012, 2013, 2014 to run on March 30, 2008, it already expired by May
and 2015. 20, 2011.
(8) Spread the donation over a period of 5 years (9) Double taxation in its general sense means
by the spouses donating P100,000.00 each year from taxing the same subject twice during the same
2011 to 2015. taxing period. In this sense, double taxation
(C_) The spouses should each donate a P110,000.00
(A) violates substantive due process.
portion of the value of the property in 2011 then each
should don at~ P1 Q_0,000.00 in 2012. (B) does not violate substantive due process.
(D) The spouses should each donate a P100,000.00 (C) violates the right to equal protection.
portion of the value of the property in 2011, and another
P100,000.00 each in 2012. Then, in 2013, Helena (D) does not violate the right to equal protection.
should donate the remaining P20,00e.oo.
(1 O) The payor of passive income subject to
(8) Mia, a compensation income earner, filed final tax is required to withhold the tax from the
her income tax return for the taxable year 2007 on payment due the recipient. The withholding of the
March 30, 2008. On May 20, 2011, Mia received an tax has the effect of
assessment notice and letter of demand covering
the taxable year 2007 but the postmark on the (A) a final settlement of the tax liability on the income.
envelope shows April 10, 2011. Her return is not a (8) a credit from the recipient's income tax liability.
false and fraudulent return. Can Mia raise the
defense of prescription? (C) consummating the transaction resulting in an
(A) No. The 3-year prescriptive period started to

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income.
(D) a deduction in the recipient's income tax return.
run 0:1 April 15, 2008, hence, it has not yet expired on
A.QIU_j_Q, 2 O11 . l~-
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(11) Guidant Resources Corporation, a corporation (13) Anktryd, Inc., bought a parcel of land in
registered in Norway, has a 50 MW electric power 2009 for P7 million as part of its inventory of real
plant in San Jose, Batangas. Aside from Guidant's properties. In 2010, it sold the land for P12 million
income from its power plant, which among the which was its zonal valuation. In the same year, it
following is considered as part of its income from incurred a loss of P6 million for selling another
sources within the Philippines? parcel of land in its inventory. These were the only
transactions it had in its real estate business. Which
(A) Gains from the sale to an llocos Norte power of the following is the applicable tax treatment?
plant of generators bought from the United States.
(A) Anktryd shall be subject to a tax of 6% of
(B) Interests earned on its dollar deposits in a
P12 million.
Philippine bank under the Expanded Foreign Currency
Deposit System. (8) Anktryd could deduct its P6 million loss from its
t PS million gain.
(C) Dividends from a two-year old Norwegian i~-
~
subsidiary with operations in Zambia but derives 60% ;fiJ (C) Anktryd's gain of P5 million shall be subject to
of its gross income from the Philippines. the holding period.
(D) Royalties from the use in Brazil of generator (D) Anktryd's P6 million loss could not be deducted
sets designed in the Philippines by its engineers. from its P5 million gain.
(12) Tong Siok, a Chinese billionaire and a (14) Aplets Corporation is registered under the
Canadian resident, died and left . ,assets in China laws of the Virgin Islands. It has extensive operations
valued at P80 billion and in the Philippines assets in Southeast Asia. In the Philippines, Its products
valued at P20 billion. For Philippine estate tax purposes are imported and sold at a mark-up by its exclusive
the allowable deductions for expenses, losses, distributor, Kim's Trading, Inc. The BIR compiled a
indebtedness, and taxes, property previously taxed,
transfers for public use, and the share of his surviving
spouse in their conjugal partnership amounted to
I[
record of all the imports of Kim from Aplets and
imposed a tax on Aplets' net income derived from
its exports to Kim. Is the BIR correct?
P15 billion. Tong's gross estate for Philippine estate
tax purposes is l (A) Yes. Aplets is a non-resident foreign corporation
(A) P20 billion. if

engaged in trade or business in the Philippines.
(8) No. The tax should have been computed on
(8) P5 billion. I
the basis of gross revenues and not net income.
I
(C) P'100 billion. r (C) No. Aplets is a non-resident foreign corporation
f,
(D) P85 billion. " not eo.9§9edjn trade or business in the Philippines.
Ifi
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TAXATION LAW Bar Questions and Suggeste.d Answers
(D) Yes. Aplets is doing business in the Philippines (17) Although the power of taxation is basically
through its exclusive distributor Kim's Trading. Inc. legislative in character, it is NOT the function of
Congress to
(15) In 2009, Spratz, Inc. 's net profit before tax
was P35 million while its operating expenses was (A) fix with certainty the amount of taxes.
P31 million. In 201 0, its net profit before tax was P40
million and its operating expenses was P38 million. (B) collect the tax levied under the law.
It did not declare dividends for 2009 and 2010. And it
(C) identify who should collect the tax.
has no proposed capital expenditures for 2011 and
the immediate future. May Spratz be subject to the (D) determine who should be subject to the tax.
improperly accumulated tax on its retained profits
for 2009 and 2010? (18) Passive income includes income derived
from an activity in which the earner does not have
(A) Yes, since the accumulated amounts are any substantial participation. This. type of income is
reasonable for operations in relation to what it usually
needed annually. (A) usually subject to a final tax.
(B) Yes, since the accumulation is not reasonably (B) exempt from income taxation.
necessary for the immediate needs of the business.
(C) taxable only if earned by a citizen.
(C) No, because there is no showing that _the
(D) included in the income tax return.
taxpayer's 2009 and 2010 net profit before tax
exceeded its paid-up capital. - -
(19) In 2010, Juliet Ulbod earned PS00,000.00 as
(D) No, because the taxpayer is not shown to be a income from her beauty parlor and received
publicly-listed corporation, a bank, or an insurance P250,000.00 as Christmas gift from her spinster aunt.
company. She had no other receipts for the year. She spent
P150,000.00 for the operation of her beauty parlor.
(16) The actual effort exerted by the government For tax purposes, her gross income for 201 0 is
to effect the exaction of what is due from the
taxpayer is known as (A) P750,000.00.
(A) assessment. (B) PS00,000.00.
(B) levy. ii (C) P350,000.00.

~{
(C) payment. (D) P600,000.00.
(D) collection.
(20) Exempted from donor's taxation are gifts (D) amusement tax on boxing exhibitions.
made
(23) A corporation may change its taxable year
(A) for the use of the barangay. to calendar or fiscal year in filing its annual income
(B) in consideration of marriage. tax return, provided
(C) to a school which is ,a stock corporation. (A) it seeks prior BIR approval of its proposed
change in accounting period.
(D) to a for-profit government corporation.
(B) it simultaneously seeks BIR approval of its new
(21) Federico, a Filipino citizen, migrated to the accounting period.
United States some six years ago and got a
permanent resident status or green card. He should (C) it should change its accounting period two
pay his Philippine income taxes on years prior to changing its taxable year.
(D) its constitution and by-laws authorizes the change.
(A) the gains derived from the sale in California,
U.S.A. of jewelry he purchased in the Philippines. (24) What is the rule on the taxability of income
(B) the proceeds he received from a Philippine that a government educational institution derives
insurance company as the sole beneficiary of life from its school operations? Such income is
insurance taken by his father who died recently.
(A) subject to 10% tax on its net taxable income as
(C) the gains derived from the sale in the New York if it is a proprietary educational institution.
Stock Exchange of shares of stock in PLOT, a
Philippine corporation. (B) Exempt from income taxation if it is actually,
directly, and exclusively used for educational purposes.
(D) dividends received from a two-year old foreign
(C) subject to the ordinary income tax rates with
corporation whose gross income was derived solely
from Philippine sources. respect to incomes derived from educational activities.
(D) Exempt from income taxation in the same manner
(22) An example of a tax where the concept of as government-owned and controlled corporations.
progressivity finds application is the
(25) Which among the following reduces the
(A) income tax on individuals.
gross estate (not the net estate) of a citizen of the
(B) excise tax on petroleum products. Philippines for purposes of estate taxation?.
(C) value-added tax on certain articles. (A) Transfers for public use
(B) Property previously taxed
(C) Standard deduction of P1 million (B) No, because he acted in bad faith when
(D) Capital of the surviving spouse he claimed a lower net retail price than what he
actua]y used.
(26) Ka Pedring Matibag, a sole proprietor,
(C) No, since he could avail of remedies available
buys and sells "kumot at kulambo" both of which
for disputing the assessment.
are subject to value-added tax. Since he is using the
calendar year as his taxable year, his taxable (D) Yes, since he had already acquired a vested
quarters end on the last day of March, June, right in the favorable BIR ruling.
September, and December. When-should Ka Pedring
file the VAT quarterly return for his gross sales or (28) Don Fortunato, a widower, died in May,
receipts for the period of June 1 to September 30? 2011. In his will, he left his estate of P100 million to
,,;: his four children. He named his compadre, Don
(A) Within 25 days from September 30 :};. Epitacio, to be the administrator of the estate. When
,t ~,: the BIR sent a demand letter to Don Epitacio for the
(B) Within 45 days from September 30 ; )'
payment of the estate tax, he refused to pay claiming
(C) Within 15 days from September 30
J" that he did not benefit from the estate, he not being
an heir. Forthwith, he resigned as administrator. As a
(D) Within 30 days from September 30 result of the resignation, who may be held liable for
the payment of the estate tax?
(27) In January 2011, the BIR issued a ruling
that Clemen's vodka imports were not subject to
increased excise tax based on his claim that his net
I(i.,~. (A) Don Epitacio since the tax became due prior to
retail price was only P200 per 750 milliliter bottle. i his resignation.
This ruling was applied to his imports for May, June, (B) The eldest child who would be reimbursed by
and July 2011. In September 2011, the BIR revoked the others.
its ruling and assessed him for deficiency taxes
(C) All the four children, the tax to be divided
respecting his May, June and July 2011 vodka
equally among them.
imports because it discovered that his net retail
price for the vodka was P250 per bott.le from (D) The person designated by the will as the one
January to September 2011. Does the retroactive liable.
application of the revocation violate Clemen's right ,f:.
to due process as a taxpayer? (29) On July 31, 2011, Esperanza received a
preliminary assessment notice from the BIR demanding
(A) Yes, since the presumption is that the BIR that she pays P180,000.00 deficiency income taxes on
ascertained the facts before it made its ruling. her 2009 income. How many days from July 31, 2011
should Esperanza respond to the notice?
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TAXATION LAW
(A) 180 days. lit

(D) Gains derived from the sale of his condominium
(B) 30 days. unit located in The Fort, Taguig City to another
resident alien.
(C) 60 days.
(32) Income is considered realized for tax
(D) 15 days.
purposes when
(30) The BIR could not avail itself of the remedy '!//,
~:' (A) it is recognized as revenue under accounting
of levy and distraint to implement, through collection, t,
w standards even if the law does not do so.
an assessment that has become final, executory,
and demandable where (B) the taxpayer retires from the business without
approval from the BIR.
(A) the subject of the assessment is an income tax.
(C) the taxpayer has been paid and has receiveo
(8) the amount of the tax involved does not exceed ( in cash or near cash the taxable income.
P100.00.
i
(D) the earning process is complete or virtually
(C) the corporate taxpayer has no other uncollected
tax liability.
(D) the taxpayer is an individual compensation

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complete and an exchange has taken place.
(33) Which among the following circumstances

negates the prima facie presumption of correctness
I
income earner.
{ of a BIR assessment?
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(31) Alain Descartes, a French citizen permanently ·! (A) The BIR assessment was seasonably protested
residing in the Philippines, received several items .:i.-,·
within 30 days from receipt.

during the taxable year. Which among the following is
NOT subject to Philippine income taxation? (B) No preliminary assessment notice was issued
(A) Consultancy fees received for designing a
computer program and installing the same in the ·; prior to the assessment notice.
(C) Proof that the assessment is utterly without
Shanghai facility of a Chinese firm.
(B) Interests from his deposits in a local bank of

I·-
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. foundation, arbitrary, and capricious.
(D) The BIR did not include a formal letter of
foreign currency earned abroad converted to Philippine demand to pay the alleged deficiency.
pesos.
(34) On March 30, 2005 Miguel Foods, Inc.
(C) Dividends received from an American received a notice of assessment and a letter of
corporation which derived 60% of its annual gross
receipts from Philippine sources for the past 7 years. i
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demand on its April 15, 2002 final adjustment return
from the BIR. Miguel Foods then filed a request for
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TAXATION LAW
reinvestigation together with the requisite supporting (36) Spanflex lnt'l Inc. received a notice of
documents on April 25, 2005. On June 2, 2005, the assessment from the BIR. It seasonably filed a
BIR issued a final assessment reducing the amount protest with all the necessary supporting documents
of the tax demanded. Since Miguel Foods was but the BIR failed to act on the protest. Thirty days
satisfied with the reduction, it did not do anything from the lapse of 180 days from the filing of its
anymore. On April 15, 2010 the BIR garnished the protest, Spanflex still has not elevated the matter to
corporation's bank deposits to answer for the tax
the CTA. What remedy, if any, can Spanflex take?
liability. Was the BIR action proper?
(A) It may file a motion to admit appeal if it could
(A) Yes. The BIR has 5 years from the filing of the
prove that its failure to appeal was due to the
protest within which to collect.
negligence of counsel.
(8) Yes. The BIR has 5 years from the issuance of
(8) It may no longer appeal since there is no BIR
the final assessment within which to collect.
decision from which it cou'id appeal.
(C) No. The taxpayer did not apply for a compromise.
(C) It may wait for the final decision of the BIR on
(D) No. Without the taxpayer's prior authority, the his protest and appeal it to the CTA within 30 days
BIR action violated the Bank Deposit Secrecy Law. from receiQt of such decision.
(D) None. Its right to appeal to the CTA has
(35) Which among the following taxpayers is
prescribed.
required to use only the calendar year for tax purposes?
(37) Gerardo died on July 31, 2011. His estate
(A) Partnership exclusively for the design of
tax return should be filed within
government infrastructure projects considered . as
practice of civil engineering. ·
(A) six months from filing of the notice of death.
(B) Joint-stock company formed for the purpose of
(B) sixty days from the appointment of an administrator.
undertaking constru.ction projects. ·
(C) six months from the time he died on July 31, 2011.
(C) Business partnership engaged in energy operations
under a service contract with the government. (D) sixty days from the time he died on July 31, 201-1.
(D) Joint account (cuentas en participacion) engaged
in the trading of mineral ores.
(38) Income from dealings in property (real, (40) Anion, Inc. received a notice of assessment
personal, or mixed) is the gain or loss derived and a letter from the BIR demanding the payment of P3
million pesos in deficiency income taxes for the taxable
(A) only from the cash sales of property.
year 2008. The financial statements of the company
(8) from cash and gratuitous receipts of property. show that it has been. suffering financial reverses from
the year 2009 up to the present. Its asset position
(C) from sale and lease of property. shows that it could pay only PS00,000.00 which it
(D) only from the sale of property. offered as a compromise to the BIR. Which among
the following may the BIR require to enable it to enter
(39) In March 2009, Tonette, who is fond of into a compromise with Anion, Inc.?
jewelries, bought a diamond ring for P750,000.00, a
bracelet for P250,000.00, a necklace for PS00,000.00, (A) Anjon must show it has faithfully paid taxes
and a brooch for PS00,000.00. Tonette derives income before 2009.
from the exercise of her profession as a licensed CPA. (B) Anion must promise to pay its deficiency when
In October 2009, Tonette sold her diamond ring, financially able.
bracelet, and necklace for only P1 .25 million incurring
a loss of P250,000.00. She used the P1 .25 million to (C) Anion must waive its right to the secrecy of its
buy a solo diamond ring in November 2009 which she bank deQOSits.
sold for P1.5 million in September 2010. Tonette had
(D) Anion must immediately deposit the
no other transaction in jewelry in 2010. Which among
PS00,000.00 with the BIR.
the following describes the tax implications arising
from the above transaGtions? (41) Real property owned by the national
government is exempt fi<om real property taxation
(A) Tonette may deduct his 2009 loss only from her unless the national government
2009 professional income.
'
(B) Tonette may carry over and deduct her 2009 (A) transfers it for the use of a local government unit.
loss only from her 2010 gain.
(B) leases the real property to a business
(C) Tonette may carry over and deduct her 2009 establishment.
loss from her 201 0 professional income as well as (C) gratuitously allows its use for educational
from her gain.
,i;.
purposes by a school established for profit.
(J) Tonette may not deduct her 2009 loss from r
[: (D) sells the property to a government-owned non-
bot1 her 2010 professional income and her gain. •t::
profit corporation.
(42) Dondon and Helena were legally separated. (44} When a BIR decision affirming an assessment
They had six minor children, all qualified to be is appealed to the CTA, the BIR's power to garnish
claimed as additional exemptions for income tax the taxpayer's bank deposits
purposes. The court awarded custody of two of the
children to Dondon and three to Helena, with (A) is suspended to await the finality of such
Dondon directed to provide full financial support for decision.
them as well. The court awarded the 6th child to (B) is suspended given that the CTA can reverse
Dondon's father with Dondon also providing full BIR decisions when prejudicial to the taxpayer.
financial support. Assuming that only Dondon is •Lt:
gainfully employed while Helena is not, for how 1f (C) is not suspended because only final decisions
many children could Dondon claim additional of the BIR are subject to appeal.
exemptions when he files his income tax return? -tr
~· (D) is not suspended since the continued existence
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of government depends on tax revenues.
(A) Six children.
(B) Five children. i
~ (45) Real property taxes should not disregard
increases in the value of real property occurring over
(C) Three children. a long period of time. To do otherwise would violate
(D) Two children. the canon of a sound tax system referred to as
(43) Political campaign contributions are NOT (A) theoretical justice.

deductible from gross income k-
~; (B) fiscal adequacy.
(A) if they are not reported to the Commission on • (C) administrative feasibility.
Elections.
(D) symbiotic relationship.
(B) if the candidate supported wins the election
t
'1:•.
because of possible corruption. t, (46} The power to tax is the power to destroy. Is
•'
this always so?
(C) since they do not help earn the inQome from
which they are to be deducted. (A) No. The Executive Branch may decide not to
(D) since such amounts are not considered as enforce a tax law which it believes to be confiscatory.
income of the candidate to whom given. (B) Yes. The tax collectors should enforce a tax law
even if it results to the' destruction of the property
rights of a taxpayer.
(C) Yes. Tax laws should always be enforced (D) interests derived from its dollar deposits in a
because without taxes the very existence of the State Philippine bank under the Expanded Foreign Currency
is endangered. Deposit System.
(D) No. The Supreme Court may nullify a taxk½', (49) As a general rule, within what period must
hence, property rights are not affe_cted. a taxpayer elevate to the Court of Tax Appeals a
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denial of his application for refund of income tax
(47) Jeopardy assessment is a valid ground to -(-: overpayment?
compromise a tax liability '.i-·
(A) involving deficiency income taxes only, but not

,·.
, :If
(A) Within 30 days from receipt of the
Commissioner's denial of his application for refund.
for other taxes. l (B) Within 30 days from receipt of the denial which
(B) because of doubt as to the validity of the must not exceed 2 years from payment of income tax.
a~sessment.
(C) Within 2 .Years from payment of the income
(C) if the compromise amount does not exceed I'·,
.;, taxes sought to be refunded.
10% of the basic tax.
(D) Within 30 days from receipt of the denial or
(D) only when there is an approval of the National within two years from payment.
Evaluation Board.
(50) After the province has constructed a
(48) Zygomite Minerals, Inc.,_ a corporation barangay road, the Sangguniang Panglalawigan may
registered and holding office in Australia, not impose a special levy upon the lands specifically
operating in the Philippines, may be subject to benefitted by the road up to an amount not to exceed
Philippine income taxation on
(A) 60% of the actual cost of the road without
(A) gains it derived from sale in Australia of an ore giving any portion to the barangay.
crusher it bought from the Philippines with the (B) 100% of the actual project cost without giving
proceeds converted to pesos.
any portion to the barangay.
(B) gains it derived from sale in Australia of shares (C) 100% of the actual project cost, keeping 60%
of stock of Philex Mining Corporation, a Philippine
for the province and giving 40% to the barangay.
cor_poration.
(D) 60% of the actual cost, dividing the same
(C) dividends earned from investment in a foreign
between the province and the barangay.
corporation that derived 40% of its gross income from
Philippine sources.
64 BAR Q & A For 'he Past 10 Years 2011 TAXATION LAW 65
TAXATON LAW
(51) Celia donated P110,000.00 to her friend (53) A violation of the tariff and customs laws is
Victoria who was getting married. Celia gave no the failure to
other gift during the calendar year. What is the
donor's tax implication on Celia's donation? (A) pay the customs duties and taxes and to comply
with the rules on customs procedures.
(A) The P100,000.00 portion of the donation is
exempt since given in corsideration of marriage. (B) pay the customs duties and taxes or to comply
with the rules on customs Qrocedures.
(B) A P10,000.00 porti•Jn of the donation is exempt
being a donation in consideration of marriage. (C) pay the customs duties and taxes.
(C) Celia shall pay a 30% donor's tax on the (D) comply with the rules on customs procedures.
P110,000.00 donation.
(54) What is the effect on the tax liability of a
(D) The P100,000.00 portion of the donation is taxpayer who does not protest an assessment for
exempt under the rate scf edule for donor's·tax. deficiency taxes?
(52) Levox Corporation wanted to donate PS t (A) The taxpayer may appeal his liability to the CTA
million as prize money for the world professional J,- since the ·assessment is a final decision of the
billiard championship to be held in the Philippines. Commissioner on the matter.
Since the Billiard Sports Confederation of the
Philippines does not recognize the event, it was held (B) The BIR could already enforce the collection of
under the auspices of the International Professional the taxpayer's liability if it could secure authority from
. Billiards Association, Inc. Is Levox subject to the ./ the CTA. ·
./j"
donor's tax on its donation? r'
-1;:_ (C) The taxpayer's liability becomes fixed and
1! subject to collection as the assessment becomes final
(A) No, so long as the donated money goes directly and collectible.
to the winners and not through the association.
(D) The taxpayer's liability remains suspended for
(8) Yes, since the nat onal sports association for 180 days from the expiration of the period to protest.
billiards does not sanction the event.
(C) No, because it is donated as prize for an

[ (55) A non-stock, non-profit school always had
international competition under the billiards association. ~:1 cash flow problems, resulting in failure to recruit well-
trained administrative personnel to effectively manage
(D) Yes, but only that part that exceeds the the school. In 2010, Don Leon donated P100 million
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first P100,000.00 of total Levox donations for the pesos to the school, provided the money shall be
calendar year.
I used solely for paying the salaries, wages, and
It
.
benefits of administrative personnel. The donation
'
represents less than 10% of Don Leon's taxable (D) deductipns claimed exceed by 30% the actual
income for the year. Is he subject to donor's taxes? deductions.
(A) No, since the donation is actually, directly, and (58) The proceeds received under a life insurance
exclusively used for educational purposes. endowment contract is ,NOT considered part of
gross income
(B) Yes, because the donation is to be wholly used
for administration !2.l:!..[QOSes. (A) if it is so stated in the life insurance endowment
(C) Yes, since he did not obtain the requisite NGO policy.
certification before he made the donation. (8) if the price for the endowment policy was not
(D) No, because the donation does not exceed fully paid.
10% of his taxable income for 2010. (C) where payment ·1s made as a result of the death
of the insured ..
(56) What is the tax base for the imposition by
the province of professional taxes? (D) where the beneficiary was not the one who took
out the endowment contract.
(A) That which Congress determined.
(59) The excess of allowable deductions over
(B) The pertinent provision of the local Government gross income of the business in a taxable year is
Code.
known as
(C) The reasonable classificatien · made by the
provincial sanggunian. (A) net operating loss.
.~·
(D) That which the Dept. of Interior and Local (8) ordinary loss.
Government determined. (C) net deductible loss.
(57) There is prima facie evidence of a false or (D) NOLCO.

fraudulent return where the
(60) No action shall be taken by the BIR on the
(A) tax return was amended after a notice of taxpayer's disputed issues until the taxpayer has
assessment was issued. :i' paid the deficiency taxes
(B) tax return was filed beyond the reglementary (A) when the assessment was issued against a
period. false and fraudulent return.
(C) taxpayer changed his address without notifying (B) if there was a failure to pay the deficiency tax
the BIR. within 60 days from BIR demand.
TAXATION LAW sa·r Questions and Suggested Answers
(C) if the Regional Trial Court issues a writ of (C) No, the exemption has been withdrawn to level
preliminary injunction to enjoin the BIR. the playing field for all taxpayers and preserve the
LGUs' financial position.
(D) attributable to the undisputed issues in the
assessment notice. (D) Yes, their exemption is specifically mentioned
among those not withdrawn by the Local Government
(61) Is an article previously exported from the Code.
Philippines subject to the payment of customs duties?
(63) Under the Tariff and Customs Code,
(A) Yes, because all articles that are imported from abandoned imported articles becomes the property
any foreign country are subject to duty.
of the:
(B) No, because there is no basis for imposing duties
on articles previously exported from the Philippines. (A) government whatever be the circumstances.
(C) Yes, because exemptions are strictly construed (B) insurance company that covered the shipment.
against the importer who is the taxpayer. (C) shipping company in cbse the freight was not paid.
(D) No, if it is covered by a certificate of identification (D) bank if the shipment is covered by a letter of credit.
and has not been improved in value.
(64) Ka Tato owns a parcel of land in San Jose,
(62) Prior to the enactment of the Local Batangas declared for real property taxation, as
Government Code, consumer's cooperatives registered agricultural. In 1990, he used the land for a poultry
under the Cooperative Development ·Act enjoyed feed processing plant but continued to declare the
exemption from all taxes imposed by a local property as agricultural. In March 2011, the local tax
government. With the Local Government Code's assessor discovered Ka Tate's change of use of
withdrawal of exemptions, could these cooperatives his land and informed the local treasurer who
continue to enjoy such exemption? demanded payment of deficiency real property taxes
from 1990 to 2011. Has the action prescribed?
(A) Yes, because the Local Government Code, a
general law, could not amend a special law such as (A) No, the deficiency taxes may be collected
the Cooperative Development Act. within five years from when they fell due.
(B) No, Congress has not by the majority vote of (8) No. The deficiency taxes for the period 1990 up
all its members granted exemption to consu·mers' to 2011 may still be collected within 10 years from
cooperatives.
March 2011.
TAXATION LAW
(C) Yes. More than 10 years had lapsed for the

(A) Yes, since Lualhati is a stock and for profit
period 1990 up to 2000, hence the right to collect the
educational institution.
deficiency taxes has prescribed.
(B) No, since the school actually, directly, and
(D) Yes. More than 5 years had lapsed for the
exclusively used the rents for educational purposes.
collection of the deficiency taxes for the period 1990
up to 2005. (C) No, but it may be subject to income taxation on
the rents it receives.
(65) Pierre de Savigny, a Frenchman, arrived in
the Philippines on January 1, 201 0 and continued to (D) Yes, since the leased portion is not actually,
live and engage in business in the Philippines. He directly, and exclusively used for educational purposes.
went on a tour of Southeast Asia from August 1 to
November 5, 2010. He returned to the Philippines on (67) Apparently the law does not provide for the
November 6, 2010 and stayed until April 15, 2011 refund of real property taxes that have been collected
when he returned to France. He earned during his as a result of an erroneous or illegal assessment by
stay in the Philippines a gross income of P3 million the provincial or city assessor. What should be done
from his investments in the country. For the year in such instance to avoid an injustice?
2010, Pierre's taxable status is that of
(A) Question the legality of the no-refund rule
before the Supreme Court.
(A) a non-resident alien not engaged in trade or
business in the Philippines. (B) Enact a new ordinance amending the erroneous
(B) a non-resident alien engaged irf trade or business or illegal assessment to correct the error.
in the Phili!2.Qines.
(C) Subsequent adjustment in tax computation and
(C) a resident alien not engaged in trade or the application of the excess payment to future real
business in the Philippines. property tax liabilities.
(D) a resident alien engaged in trade or business (D) Pass a new ordinance providing for the refund
in the Philippines. of real property taxes that have been erroneously or
illegally collected.
(66) Lualhati Educational Foundation, Inc., a stock
educational institution organized for profit, decided to (68) What should the BIR do when the prescriptive
lease for commercial use a 1,500 sq. m. portion of its period for the assessment of a tax deficiency is about
school. The school actually, directly, and exclusively to prescribe but the taxpayer has not yet complied
used the rents for the maintenance of its school with the BIR requirements for the production of books
'i:
:_'.•!+.
buildings, including payment of janitorial services. Is .i of accounts and other records to substantiate the
.i.i
the leased portion subject to real property tax? claimed deductions, exemptions or credits?
72 BAR Q & A For· The Past 10 Years 2011 TAXATION LAW 73
(A; Call the taxpayer to a conference to explain (71) The taxpayer seasonably filed his protest
the delay. together with all the supporting documents. It is
already July 31, 2011, or 180 days from submission of
(B) Immediately conduct an investigation of the
taxpayer's activities. the protest but the BIR Commissioner has not yet
decided his protest. Desirous of an early resolution of
(C;, Issue a jeopardy assessment coupled with a his protested assessment, the taxpayer should file his
letter of demand. appeal to the Court of Tax Appeals not later than
(D) Issue a notice of constructive distraint to (A) August 31, 2011.
protect government interest.
(B) August30,2011.
(69) Money collected from taxation shall not be
(C) August 15, 2011.
paid to any religious dignitary EXCEPT when
(D) August 1, 2011.
(A) the religious dignitary is assigned to the
Philippine Army. (72) Which of the following are NOT usually
imposed wh_en there is a tax amnesty?
(B) it is paid by a local government unit.
(C) the payment is passed in audit by the COA. (A) Civil. criminal, and administrative penalties
.:"Jl
·1).: (B) Civil and criminal penalties
(D) tis part of a lawmaker's pork barrel.
·:i:
(C) Civil and administrative penalties
(70) Discriminatory duties may NOT be imposed !
upon articles
l t
(D) Criminal and administrative penalties
(73) Which among the following concepts of

(A) wholly manufactured in the discriminating country
but carried by vessels of another country. '!Jif~:-. taxation is the basis for the situs of income taxation?
(B) 1ot manufactured in the discriminating country (A) Lifeblood doctrine of taxation
.:•;1\'
but carried by vessels of such country. ',
;·r;
{ (B) .§ymbiotic relation in taxation
(C) partiy manufactured in the discriminating country
but carried by vessels of another country. ii' .(C) Compensatory purpose of taxation
(D) 1ot manufactured in the discriminating country (D) Sumptuary purpose of taxation
and ca Tied by vessels of another country.
TAXATION LAW
(74) In "Operation Kandado," the BIR temporarily

2012 TAXATION LAW
closed business establishments, including New Dynasty
Corporation that failed to comply with VAT
regulations. New Dynasty contends that it should not
be temporarily closed since it has a valid and existing SETA
VAT registration, it faithfully issued VAT receipts, and
filed the proper VAT returns. The contention may be 1) Bank A deposit money with Bank 8 which
rejected if the BIR investigation reveals that earns interest that is subjected to the 20% final
withholding tax. At the same time, Bank A is subjected
(A) the taxpayer has not been regularly filing its to the 5% gross receipts tax on its interest income on
income tax returns for the past 4 years. loan transactions to customers. Which statement
(B) the taxpayer deliberately filed a false and fraudulent below INCORRECTLY describes the transaction?
return with deliberate intention to evade taxes.
a) There is double taxation because two taxes -
(C) the taxpayer used falsified documents to income tax and gross receipts tax are imposed on the
support its application for refund of taxes. interest incomes described above and double taxation
(D) there was an understatement of taxable sales is prohibited under the 1987 Constitution
or receipts by 30% or more for Jhe taxable quarter. b) There is no double taxation because the first tax
is income tax, while the second tax is business tax;
(75) The head priest of the religious sect Tres
Personas Solo Dios, as the corporation sole, rented c) There is no double taxation because the income
out a 5,000 sq. m. lot registered in its name for use tax is on the interest income of Bank A on its deposits
as school site of a school organized for profit. The with Bank B (passive income), while the gross receipts
sect used the rentals for the support and upkeep of tax is on the interest income received by Bank A from
its priests. The rented lot is loans to its debtor-customers (active income);
(A) not exempt from real property taxes because d) Income tax on interest income of deposits of
the user is organized for profit. Bank A is a direct tax, while GRT on interest income
on loan transaction is an tax.
(B) exempt from real property taxes since it is actually,
directly, and exclusively used for religious purposes. 2) Which of the following statement is NOT correct?
(C) not exempt from real property taxes since it is the a) In case of doubt, statutes levying taxes are
rents, not the land, that is used for religious purposes. constructed strictly the government;
(D) exempt from real property taxes since it is
actually, directly, and exclusively used for educational
Q.!dill.O Se S . 75
b) The construction of a statute made by his b) Generally, there is no limit on the amount of tax
predecessors is not binding upon the successor, if that may be imposed;
thereafter he becomes satisfied that a different
construction should be given; c) The money contributed as tax becomes part of
the public funds;
c) The reversal of a ruling shall not generally be
given retroactive application, if said reversal will be d) The power of tax is subject to certain constitutional
prejudicial to the taxpayer; limitations.
d) A memorandum circular promulgated by the CIR 5) The Philippines adopted the semi-global tax
that imposes penalty for violations of certain rules system, which means that:
need not be published in a newspaper of general
circulation or official gazette because it has the force a) Ali taxable incomes, regardless of the nature of
and effect of law. income, are added together to arrive at gross income,
and all allowable deductions are deducted from the
3) Which statement below expresses the lifeblood gross income to arrive at the taxable income;
theory?
b) All incomes subject to final withholding taxes
a) The assessed taxes must be enforced by the liable to income tax under the sched u lar tax system,
government. while all ordinary income as well as income not subject
to final withholding tax under the global tax system;
b) The underlying basis of taxation is government
necessity, for without taxation, a -government can c) All taxable incomes are subject to final
neither exist nor endure· withholding taxes under the schedular tax system:
c) Taxation is an arbitrary method of exaction by d) All taxable incomes from sources within and
those who are in the seat of power; without the Philippines are liable to income tax.
d) The power of taxation is an inherent power of the 6) Income from the performance of services is
sovereign to impose burdens upon subjects and treated as income from within the Philippines, if:
objects within its jurisdiction for the purpose of raising
revenues. a) The payment of compensation for the service is
made in the Philippines:
4) Which statement is WRONG?
b) The contract calling for the performance of
a) The power of taxation may be exercised by the services is signed in the Philippines;
government, its political subdivisions, and public utilities;
c) The service is actually performed in the Philippines;
;:
78 BAR Q & A For The Past 10 Years )' 2012 TAXATION LAW 79
T AXA T!ON LAW Bar Questions and Suggested Answers
:"·i
·i
d) The recipient of seryice income is a resident of

~i}f
c) Organized under the laws of the Philippines that
the Philippines. - '?J engages business in a special economic zone;
7) For income tax purposes, the source of the !: d) Organized under the laws of a foreign country
service income is important for the taxpayer, who is a: that engages in business in Makati City, Philippines.
a) Filipino citizen residing in Makati City; 10) A dealer in securities sold unlisted shares
of stocks of a domestic corporation in 2010 and
b) Non-resident Filipino citizen working residing in derived a gain of P1 Million therefrom. The gain is:
London, United Kingdom;
a) Taxable at 30% regular corporate income tax
c) Japanese citizen who is married to a Filipino
basec.i_g_D_Del taxable income;
citizen and residing in their family home located Fort
Bonifacio, Taguig City;
lit b) Taxable at 5%/10% capital gains tax based on
net capital gain;
d) Domestic corporation.
Ii·:it
c) Taxable at ½ of 1% stock transaction tax based
8) Interest income of a domestic commercial (
on the gross selling price or fair market value,
bank derived from a peso loan to a domestic whichever is higher
corporation in 2010 is :
·ii
d) Exempt from income tax
a) Subiect to the 30% income tax based on its net
taxable income; ;{ 11) An individual, who is a real estate dealer, sold
1::
j: a residential lot in Quezon City at a gain of P100,000.00
b) Subject to the 20% final withholding tax; (selling price of P900,000.00 and cost is P800,00.00).
c) Subject to the 7.5% final withholding tax;
l The sale is subject to income tax as follows:
d) Subject to 10% final withholding tax. f a) 6% capital gains tax on the gain;
9) A resident corporation is one that is:
a) Organized under the laws of the Philippines that

i b) 6% capital gains tax on the gross selling price of
fair market value, whichever is higher;
c) Ordinary income tax at the graduated rates of

does business in another -:ountry; •1~
.,JS 5% to 32%_oj_oet taxable incom_§~
b) Organized under the laws of a foreign country that
d) 30% income tax on net taxable income.
sets up a regional headquarter in the Philippines doing
product promotion and information dissemination;
'
12) During the audit conducted by the BIR official, 14) The appropriate method of accounting for a
it was found that the rental income claimed by the -?f:~ contractor on his long-term construction contract
corporation was not subjected to expanded withholding '-i'
~:; (i.e., it takes more than a year to finish) is:
-~
tax, Accordingly, the claimed rental expense:
a) Cash method;
a) Is deductible from the gross income of the
corporation, despite non-wifhholding of income tax by b) Accrual method;
the corporation;
c) Installment sale method;
b) Is deductible from the gross income of the
d) Percentage of completion method.
corporation, provided that the 5% expanded withholding
tax is paid by the corporation during the audit;
15) A general professional partnership (GPP)
c) Is not deductible from gross income of the is one:
corporation due to non-withholding of tax:
a) That is registered as such with the Securities
d) Is deductible, if it can,be shown that the lessor has and Exchange Commission and the Bureau of
correctly reported the renta! income in his tax return. Internal Revenue;
13} A resident Filipino citizen (not a dealer in b) That is composed of individuals who exercise a
securities) sold shares of stocks of a domestic
corporation that are listed and traded in the
;t common profession;
c) That exclusively derives income from the practice
Philippine Stock Exchange.
of the common profession:
a) The sale is exempt from income tax but subject d) That derives professional income and rental
to the ½ of 1% stock transaction tax· income from property owned by it.
6110
*Under R.A. No. 10963 it is now subject to of 1% of the
gross selling price.
16) The interest expense of a domestic
b) The sale is subject to income tax computed at corporation ori a bank loan in connection with the
the graduated income tax rates of 5% to 32% on net t~:l",i purchase of a production equipment:
taxable income; !f,
r a) Is not deductible from gross income of the
c) The sale is subject to the stock transaction tax borrower-corporation;
and income tax;
b) Is deductible from the gross income of the
d) The sale is both exempt from the stock transaction borrower-corporation during the year or it may be
tax and income tax. capitalized as part of cost of the equipment;
82 BAR Q & A For-The Past 10 Years 2012 TAXATION LAW 83
c) Is deductible only for a period of five years from 19) Which statement is correct? A non-stock,
date of purchase; non-profit charitable association that sells its idle
agricultural property is:
d) Is deductible only if the taxpayer uses the cash
method of accounting. a) Not required to file an income tax return nor pay
income tax on the transaction to the BIR, provided the
17) The "all events test" refers to: sales proceeds are invested in another real estate
during the year;
a) A person who uses the cash method where all
sales have been fully paid by the buyers thereof; b) Required to pay the 6% capital gains tax on
the gross selling price of fair market value, whichever
b) A person who uses the installment sales
is higher;
method, where the full amount of consideration is paid
in full by the buyer thereof within the year of sale; c) Mandated to pay the 30% regular corporate
income tax on the gain from sale;
c) A person who uses·the accrual method, whereby
an expense is deductible for the taxable year in which d) Required to withhold the applicable expanded
all the events had occurred which determined the fact withholding tax rate on the transaction and remit the
of the liability and the amount thereof could be same to the BIR.
determined with reasonable accuracy;
d) A person who uses the completed method, 20) ABS Corporation is a PEZA-registered export
whereby the construction project has been completed enterprise which manufactures cameras and sells
during the year the contract was signed.
all its finished products abroad. Which statement
is NOT correct? ·
18) All the items below are excluded from gross
income, except: a) ABS Corporation is subject to the 5% final tax
a) Gain from sale of long-term bonds, debentures

i.
l
on gross income earned, in lieu of all national and
local tf!xes;
t
and indebtedness; b) ABS Corporation is exempt from the 30%
.tiJ·
corporate income tax on net income, provided it pays
b) Value of property received by a person as
donation or inheritance;
·~.
~;; value added tax;
c) Retirement benefits received from the GSIS, c) ABS Corporation is subject to the 30% corporate
SSS, or accredited retirement plan; income tax on net income;
d) Separation pay received by a retiring employee d) ABS Corporation is exempt from all national and
under a voluntary retirement program of the corporate local taxes, except real property tax.
emQJQy_er.
,tif
84 BAR Q & A For The Past 10 Years Bar Questions and Suggested Answers
TAXATION LAW
21) In May 2010, Mr. And Mrs. Melencio Antonio c) P15 Million;
donated a house and lot with a fair market value of d) P16 Million.
P10 Million to their sob, Roberto, who is to be
married during the same year to Josefina Angeles. 23) In 2006, Mr. Vicente Tagle, a retiree, bought
Which statement below is INC_ORRECT? 10,000 CDA shares that are unlisted in the local
stock exchange for P10 per share. In 2010, the said
a) There are four (4) donations made - two (2) shares had a book value per share of P60 per share.
donations are made by Mr. Melencio Antonio to In view of a car accident in 2010, Mr. Vicente Tagle
Roberto and Josefina, and two (2) donations are had to sell his CDA shares but he could sell the
made by Mrs. Antonio; same only for PS0 per share. The sale is subject to
b) The four (4) donations are made by the Spouses tax as follows:
1;{
Antonio to members of the family, hence, subject to :~; a) 5%/10% capital gains tax on the capital gain
the graduated donor's tax rates (2%-15%); :~
'ifr from sale of P40 per share (P50 selling price less
~\.
c) Two (2) donations are made by the spouses to P1 0 cost):
members of the family, while two (2) other donations '·i'.;.fi'
b) 5%/10% capital gains tax on the capital gair of
are made to strangers; P50 per share, arrived at by deducting the cost (P10
d) Two (2) donations made by the spouses to per share) from the book value (P60 per share);
Roberto are entitled to deduction from the gross gift i. c) 5%/10% capital gains tax on the capital gain
ilf;
as donation proper nuptias. from sale of P40 per share (P50 selling price less P'1 O
·;):.t cost) plus· donor's tax on the excess of the fair market
22) While he was traveling with friends, Mr. Jose I '.t
value of the shares over the consideration;
Francisco, resident Filipino citizen, died on January
20, 2011 in a California Hospital, USA, leaving d) Graduated income tax rates of 5% to 32% on the
personal and real properties with market values as net taxable income from the sale of the shares.
follows: House and Lot in Quezon City - P10 Million;
Cash in bank in California - US$10,000.00; Citibank in 24) On January 10, 2011, Maria Reyes, single-
New York - US$5,000.00; Cash in BPI Makati - P4 mother, donated cash in the amount of PS0,000.00
Million; Car in Quezon City - P1 Million; Shares of
·;l: ;, to her daughter Cristina, and on December 20, 2011,
;lg she donated another PS0,000.00 to Cristina. Which
stocks of Apple Corporation, US corporation listed in
NY Stock Exchange - US$1 = Php50. His gross estate statement is correct?
for the Philippine estate tax purposes shall be:
a) Maria Reyes is subject to donor's tax in 20'11
a) P13 Million;
;\·;!
.j
because gross gift is P100,000.00;
b) P14 Million;
··1\;•.i.
:t
TAXATION LAW
b) Maria Reyes is exempt from donor's tax in 2011

c) Exempt from VAT because the seller is not a
because gross gift is P100,000.00: person engaged in real estate business;
c) Maria Reyes is exempt from donor's tax in 2011 d) Taxable at 12% VAT output tax on the gross
only to the extent of P50,000.00; selling price of P2.5 Million.
d) Maria Reyes is exempt from donor's tax in 2011 27) An importer of flowers from abroad in 2011:
because the donee is minor.
a) Is liable for VAT, if it registers as a VAT person:
25) Jose Ramos, single, died of a heart attack
on October 10, 2011, leaving a residential house and b) Is exempt from VAT, because the goods are
lot with a market value of P1 .8 Million and cash of treated as agricultural products;
P100,000.00. Funeral expenses paid amounted to c) Is exempt from VAT, provided that his total
P250,000.00 importation of flowers does not exceed P1 .5 Million;
a) His estate will be exempt from estate tax d) Is liable for VAT, despite the fact that it did not
becal.Jse the n~et ~state is zero: register as a VAT person and its total annual sales of
flowers do not exceed P1 .5 Million.
b) H s estate will be subject to estate tax because
net estate is P1 ,650,000.00; 28) A VAT-registered contractor performed
c) His estate will be subject to estate tax because services for his customer in 201 O and billed him P11.2
net estate is P1 ,700,00.00; Million, broken down as follows: P10 Million - cost of
services, plus P1.2 Million, 12% VAT. Of the contract
d) His estate will be subject to estate tax because price of P10 Million, only PB Million plus VAT thereon
net estate is PS00,000.00. was received from the customer in 2010, and the
balance of P4 Million plus VAT was received by the
26) Sale of residential house and lot by an contractor in 2011. How much is the taxable gross
official of a domestic corporation to another official receipts of the contractor for 2010, for VAT purposes?
in the same corporation for a consideration of P2.5
Million in 2011 is: a) P10 Millie:in, the total cost of services performed
a) Exempt from VAT because the gross sales do in 201 0;
not exceed P2.5 Million; b) PS Million, the amount received from the customer
b) Exempt from VAT because the property sold is a in 2010;
capital asset. regardless of the gross selling price; c) PS Million plus VAT received from the customer
;'§: in 201 O;
r('
I,
I!
TAXATION LAW
d) P11.2 Million, the total cost of services performed

plus12%VAT. 31) Under the VAT system, there is no cascading
because the tax itself is not again being taxed.
29) MBM Corporation is the owner-operator of However, in determining the tax base on sale of
movie houses in Cavite. During the year 2010, it taxable goods under the VAT system:
received a total gross receipts of P20 Million from
a) The professional tax paid by the professional is
the operation of movies. It did not register as a VAT
person. Which statement below is correct? included in gross rece-ipts;
b) The other percentage tax (e.g., gross receipts tax)
a) MBM Corporation is exempt from the 12% VAT, paid by the taxpayer is included in gross selling price;
but liable for the 20% amusement tax on admissions
under the Local Government Code; c) The excise tax paid by the taxpayer before
withdrawal of the goods from the place of production
b) MBM Corporation is both liable for the 12% VAT or from customs custody is included in the gross
and 20% amusement tax on admissions; sellinQ.Qrice:
c) MBM Corporation is both exempt from the 12% d) The documentary stamp tax paid by the taxpayer
VAT and 20% amusement tax on admissions; 'ls included in the gross selling price or gross receipts.
d) MBM Corporation is liable for the 12% VAT, but 32) Except for one transaction, the rest are exempt
exempt from the 20% amusement tax on admissions. from value added tax. Which one is VAT taxable?
30) A pawnshop shall now be treated, for a) Sales of chicken by a restaurant owneI· who did
business tax purposes:
not register as a VAT person and whose gross annual
sales is P1 .2 Million;
a) As a lending investor liable to the 12% VAT on
its gross receipts from interest income and from gross b) Sales of copra by a copra dealer to a coconut oil
selling price from sale of unclaimed properties; manufacturer who did not register as a VAT person
and whose gross annual sales is P5 Million;
b) Not as a lending investor, but liable to the 5%
gross receipts tax imposed on a non-bank financial c) Gross receipts of CPA during the year amounted
intermediary under Title VI (Other Percentage Taxes): to P1 Million; the CPA registered as a VAT person in
January 2011, before practicing his profession;
c) As exempt from 12% VAT and 5% gross receipts tax;
d) Sales of a book store during the year amounted
d) As liable to the 12% VAT and 5% gross receipts tax.
to P10 Million; it did not register as a VAT person with
the BIR.
~
I
91
2012 TAXATION LAW
90 BAR Q & A For The Past 10 Years Bar Questions and Suggested Answers
TAXATION LAW
c) Liable to both the 12% VAT and 7% gross

33) A lessor or real property is exempt from
value added tax in one of the transactions below. receipts tax;
Which one is it? d) Exempt from both the 12% VAT and 7% gross
a) Lessor leases commercial stalls located in the receipts tax.

Greenhills Commercial Center to VAT-registered sellers 35) Which transaction below is subject to VAT?
of cell phones; lessor's gross rental during the year
amounted to P12 Million; a) Sale of vegetables QY a farmer in Baguio City to
b) Lessor leases residential apartment units to a vegetable dealer;
individual tenants for P10,000.00 per month per unit; b) Sale of vegetables by a vegetable dealer in
his gross rental income during the year amounted to Baguio City to another vegetable dealer 1n Quezon City:
P2 Million;
c) Sale of vegetables by the QC vegetable dealer
c) Lessor leases commercial stalls at P10,000.00
to a restaurant in Manila;
per stall per month and residential units at P15,000.00
per unit per month; his gross rental income during the d) Sale of vegetables by the restaurant operator to_
year amounted to P3 Million; its customers.
d) Lessor leases two (2) residential houses and lots 36) Which importation in 2011 is subject to VAT?
at P50,000.00 per month per unit, but he registered ~;.
as a VAT person. a) Importation of fuels by a person engaged in
international shipping worth P20 Million;
34) IBP Bank extended loans to debtors during
the year, with real properties of the debtors being used b) Importation of raw, unprocessed, refrigerated
as collateral to secure the loans. When the debtors Kobe oeef from Japan by a beef dealer for sale to
failed to pay the unpaid principal and interests after hotels in Makati City with a fair market value of
several demand letters, the bank foreclosed the same P10 Million;
and entered into contracts of lease with tenants. The
c) Importation of wines by a wine dealer with a
bank is subject to the tax as follows:
fair market value of P2 million for sale to hotels in
a) 12% VAT on the rental income, but exempt from Makati City_;_
the 7% gross receipts tax; d) Importation of books worth P5 Million and school
b) 7% gross receipts tax on the rental income, but supplies worth P1 .2 million.
exemQ.t from_V-6 I;
TAXATION LAW
37) Input tax is available to a VAT-registered 39) A hotel operator that is a VAT-registered
buyer, provided that: person and who leases luxury vehicles to its hotel
customers is:
a) The seller is a VAT-registered person;
,, a) Subject to the 3% common carriers tax and 12%
b) The seller issues a VAT invoice or official receipt, VAT;
which separately indicates the VAT component:
b) Subject to the 3% common carriers tax only;
c) The goods or service is subject to or exempt
from VAT, but the sale is covered by a VAT invoice or '{ c) Subject to the 12% VAT only:
•rt~'
receipt issued by VAT-registered person; if d) Exempt from both the 3% common carriers tax
r
1 and 12% VAT.
d) The name and TIN of the buyer is not stated or
shown in the VAT invoice or receipt
40) Which statement is correct? A bar review
Which statement shown above is NOT correct? center owned and operated by lawyers is:
38) Claim for tax credit or refund of excess a) Exempt from VAT, regardless of its gross receipts
input tax is available only to: during the year because it is an educational center;
a) A VAT-registered person whose sales are made b) Exempt from VAT.' provided that its annual gross
to embassies of foreign governments and United receipts do not exceed P1 .5 Million in 2011:
Nations agencies located in th§ Philippines without c) Subject to VAT, regardless of its gross receipts
the Bl R approval of the application for zero-rating;
during the year;
b) Any person who has excess input tax arising d) Subject to VAT, if it is duly accredited by TESDA.
from local purchases of taxable goods and services;
c) A VAT-registered person whose sales are made 41) For 2012, input tax is not available as a
to clients in the Philippines; 1•·· credit against the output tax of the buyer of taxable
f
'F goods or services during the quarter, if:
d) A VAT-registered person whose sales are made to
customers outside the Philippines and who issued VAT a) The VAT invoice or receipt of the seller is
invoices or receipts with the words "ZERO RATED It? regis:ered with the BIR;
SALES" imprinted on the sales invoices or receipts. ~;
[ b) The VAT invoice or receipt of the seller does not
~-
separately indicate the gross selling price or gross
l receiQts and the VAT component therein;
if
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It
TAXATION LAW
c) The VAT invoice or receipt is issued in the name d) Once a doctor of medicine exercises his
of the VAT-registered buyer and his TIN is shown in profession during the year, he needs to register as a
said invoice or receipt;
VAT person and to issue VAT receipts for professional
d) The VAT invoice or receipt issued by the seller fees received.
shows the Taxpayer Identification Number plus the
word "VAT" or "VAT registered person". 44) The Commissioner of Internal Revenue
may NOT inquire into the bank deposits of a taxpayer,
42) The public market vendor below, who is not except:
a VAT-registered person is liable to VAT in 2010, if:
a) When the taxpayer files a fraudulent return;
a) She sells raw chicken and meats and her gross
b) When the taxpayer offers to compromise the
sales during the year is P2 Million;
assessed tax based on erroneous assessment;
b) She sells vegetables and fruits in her stall and
~i
.( c) When the taxpayer offers to compromise the
her gross sales during the year is P1 Million; -.::
assessed tax based on financial incapacity to pay and
c) She sells canned goods, processed coconut oils, he authorizes the Commissioner in writing to look into
and cut flowers in her stall and her gross sales during his bank records;
the year is P2.5 Million:
d) When the taxpayer did not file his income tax
d) She sells live fish, shrimps, and crabs and her \f return for the year.
gross sales during the year is P5 Milli.on.
45) The Commissioner of Internal Revenue issued
,1,
43) Which statement is FALSE under the VAT law? ,r,_t
a BIR ruling to the effect that the transaction is liable to
income tax and value added tax. Upon receipt of the
a) A VAT-registered person will be subject to VAT f;I
ruling, a taxpayer does not agree thereto. What is his
for his taxable transactions, regardless of his gross proper remedy?
sales or receipts; '1:
fi a) File a petition for review with the Court of Tax

b) A person engaged in trade or business selling •If!
Appeals within thirty (30) ,days from receipt thereof;
taxable goods or services must register as a VAT
person, when his gross sales or receipts for the year ;f b) File a motion for .reconsideration with the
2011 exceed P1 .5 Million; Commissioner of Internal Revenue;
.
c) A person who issued a VAT-registered invoice c) File an appeal to the Secretary 9f Finance within
( .(/
or receipt for a VAT-exempt transaction·is liable to the :l'i'

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thirty (30) days from receipt thereof;
12% VAT as a penalty for the wrong issua nee thereof; -~ ~1: d) File an appeal to the Secretary of Justice within
\,;
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thirty (30) days from receipt thereof.
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46) On April 15, 2011, the Commissioner of d) When the amount of discrepancy shown in the
Internal Revenue mailed by registered mail the final Letter Notice is not paid within thirty (30) days from
assessment notice and the demand letter covering date of receipt.
the calendar year 2007 with the QC Post Office. '.f
Which statement is correct? 48) When a protest against the deficiency income
a) The assessment rotice is void because it was

mailed beyond the prescriptive period;
t tax assessment was denied by the BIR Regional
Director of Quezon City, the appeal to the Court of
Tax Appeals must be filed by a taxpayer:
b) The assessment notice is void because it was

I: a) If the amount of basic tax assessed is P100,000.00
ti·
not received by the taxpayer within the three-year or more~
period from the date of filing of the tax return;
b) If the amount of basic tax assessed is P300,000.00
c) The assessment notice is void if the taxpayer can or more;
show that the same was received only after one (1)
month from date of mailing; c) If the amount of basic tax assessed is P500,000.00
or more;
d) The assessment notice is valid even if the taxpayer
received the same after the three-year period from the d) If the amount of basic tax assessed is Pi Million
date of filing of the tax return. or more:
*Decisions on disputed assessments are appealable to the
47) A preliminary Assessment Notice (PAN) CTA, irrespective of the amount (Section 3, R.A. No. 9282).
Hence, all the choices are correct.
is NOT required to be issued by l:he BIR before
issuing a Final Assessment Notice (FAN) on one of ,(
49) The taxpayer received an assessment notice
the following case;s: f{
on April 15, 2011 and filed its request for reinvestigation
against the assessment on April 30, 2011. Additional
a) When a taxpayer does not pay the 201 O
documentary evidence in support of its protest was
deficiency income tax liability on or before July 15
submitted by it on June 30, 2011. If no denial of the
of the year;
protest was received by the taxpayer, when is the
b) When the finding for any deficiency tax is the last day for the filing of its appeal to the CTA?
result of mathematical e.-ror in the computation of the
tax as appearing on the face of the return: a) November 30, 2011;
c) When a discrepancy has been determined b) December 30, 2011;

between the value added tax paid and the amount
c) January 30, 2012:
due for the year;
d) February 28, 2012.
98 BAR Q & A For The Past 1O Years 2012 TAXATION LAW 99
50) Using the same facts in the immediately d) Compromise of a tax liability is still available
preceding number, but assuming that the final even after the court decision has become final and
decision on the disputed assessment was received executory.
by the taxpayer on July 30, 2011, when is the last
day for filing of the appeal to the CTA? 53) In case of full or partial denial of the written
claim for refund or excess input tax directly attributable
a) August 30, 2011;
to zero-rated sales, or the failure on the part of the
b) September 30, 2011; Commissioner to act on the application within 120 days
from the date of submission of complete documents,
c) December 30, 2011;
an appeal must be filed with the CTA:
d) January 30, 2012.
a) Within thirty (30) days after filing the administrative
51) Which court has jurisdiction to determine if claim with the BIR;
the warrant of distraint and levy issued by the BIR is
b) Within sixty (60) days after filing the administrative
valid and to rule if the waiver of the Statute of
Limitations was validly effected? claim with the BIR;
c) Within one hundred twenty (120) days after filing
a) City Courts; the administrative claim with the BIR;
b) Regional Trial Court; d) Within thirty (30) days from the receipt of the
c) Court of Tax Appeals; decision denying the claim or after the expiration of
the 120-da.YJ2.eriod.
d) Court of Appeals.
54) The submission of the required documents
52) Which statement below on compromise of within sixty (60) days from the filing of the protest is
tax liability is correct? available only where:
a) Compromise of a tax liability is available only at a) The taxpayer previously filed a Motion for
the administrative level; Reconsideration with the Bl R official;
b) Compromise of a tax liability is available only b) The taxpayer previously filed a request for
before trial at the CT A; reconsideration with the BIR official;
c) Compromise of a tax liability is available even c) The taxpayer previously filed a request for
during appeal, provided that prior leave of court ,,
._;:
reinvestigation with the Bl R official:
is obtained·
I
d) The taxpayer previously filed an extension to file
a protest with the BIR official.
.f}:
100 BAR Q & A Fer The Past 10 Years 2012 TAXATION LAW 101
55) The prescriptive period for the collection of c) Three (3) years frbm the filing of the annual
the deficiency tax assessment will be tolled: tax return;
a) If the taxpayer files a request for reconsideration d) Five (5) years from the commission of the violation
with the Asst. Commiss·oner; ~·-
of the law, and if the same be not known at the time.
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·: i: from the discovery thereof and the institution of judicial
b) If the taxpayer files a request for reinvestigation proceedings for its investigation and punishment.
that is approved by tne Commissioner of Internal
Revenue; ·:~.
58) The accused's mere reliance on the
representations made by his accountant, with deliberate
c) If the taxpayer changes his address in the
Philippines that is communicated to the BIR official; Iii refusal or avoidance to verify the contents of his tax
return and to inquire on its authenticity constitutes:
d) If a warrant of levy is served upon the taxpayer's
:<
real property in Manila. a) Simple negligence;
56) Which statement is correct? The collection r~ b) Gross negligence;

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of a deficiency tax assessment by distraint and levy: c) Willful blindness;
1?
a) May be repeated, if necessary, until the full
amount due, including a.I expenses, is colfected;
b) Must be done successively, first by distraint and
i [{
d) Excusable negligence.
59) The acquittal of the accused in the criminal

action for the failure to file income tax return and
then by levy; - · $.
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(<, failure to supply correct information will have the
c) Automatically covers the bank deposits of a following consequence:
delinquent taxpayer; i:
:;i a) The CTA will automatically exempt the accused
d) May be done only once during the taxable year. :r
• (I_'
from any civil liability;

57) The prescriptive period to file a criminal b) The CTA will still hold the taxpayer liable for deficiency
action is: income tax liability in all cases, since preponderance
of evidence is merely required for tax cases;
a) Ten (10) years fron the date of discovery of the
commission of fraud or non-filing of tax return; c) The CTA will impose civil or tax liability only if
t
~-. there was a final assessment notice issued by the BIR
b) Five (5) years from the date of issuance of the against the accused in accordance with the prescribed
final assessment notice; t procedures for issuing assessments, which was
presented during the trial;
il
f;
,,, 2012 TAXATION LAW 103
~
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d) The CTA will impose civil or tax liability, provided b) Legislative acts passed by the municipal council in
that a computation of the tax liability is presented .~ the exercise of its lawmaking authority are denominated
during the trial. as resolutions;
*Either (c) or (d) is correct. (Republic v. Patanao, 20 SCRA 712).
c) Legislative acts passed by the municipal council
60) X Corporation had excess income tax payment in the exercise of its lawmaking authority are
for the year 2008, which it chose to carry over in 2009. denominated as ordinances:
In filing its 2009 corporate income tax return, it d) Both ordinances and resolutions are solemn and
signified its intention (by checking the small box
formal acts.
"refund" at the bottom of the return) to get a refund
of the overpaid amount in 2008. Can the refund be 62) Which of the folfowing statements is NOT a
allowed or not, and if disallowed, does X Corporation test of a valid ordinance?
lose the claimed amount?
a) It must not contravene the Constitution or any
a) X Corporation may not get the refund because f statute;
the decision to carry over in 2008 was irrevocable for
that year, and it may not change that decision in b) It must not be unfair or oppressive;
succeeding years;
c) It must not be partial or discriminatory;
b) X Corporation may not get the refund in 2009,
d) It may prohibit or regulate trade,
but the amount being claimed as refund may be
utilized in succeeding years until_ fulry exhausted
63) Taxing power of local government units
because there is no prescriptive period for carry over
shall NOT extend to the following taxes, except one:
of excess income tax payments:
c) X Corporation may get the refund, provided that a) Income tax on banks and other financial institutions,,
it will no longer carry over such amount or utilize the b) Taxes of any kind on the national government,
same against its income tax liability in the future; its agencies and instrumentalities, and local government
d) X Corporation may file instead a claim of tax units;
credit, in lieu of refund. c) Taxes on agricultural and aquatic products when
sold by the marginal farmers or fishermen;
61) Which statement is correct?
d) Excise taxes on articles enumerated under the
a) Legislative acts passed by the municipal council National Internal Revenue Code.
in the exercise of its lawmaking authority are
denominated as resolutions and ordinances;
TAXATION LAW
l
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2012 TAXATION LAW
105
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64) Which statement on prescriptive periods 66) The Manila International Airport Authority
is true? (MIAA) is exempt from real property tax. Which
statement below is NOT correct?
a) The prescriptive periods to assess· taxes in the
National Internal Revenue Code and the Local a) MIAA is not a government-owned or controlled
Government Code are the same; corporation because it is not organized as a stock or
non-stock corporation;
b) Local taxes shall be assessed within five (5)
years from the date they became due; b) MIAA is a government instrumentality vested
with corporate powers and performing essential public
c) Action for the collection of local taxes may be services;
instituted after the expiration of the period to assess
c) MIAA is not a taxable entity because the real
and to collect the tax;
property is owned by the Republic of the Philippines
d) Local taxes may be assessed within ten .(10) and the beneficial use of such property has not been
years from discovery of the underpayment of tax granted to a private entity;
which does not constitute fraud.
irl}.- d) MIAA is a government-owned or controlled
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65) The appraisal, assessment, levy and collection corporation because it is required to meet the test of
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economic viability.
of real property tax shall be guided by the following
principles. Which statement does NOT belong here? \ }.
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67) For purposes of real property taxes, the tax
a) Real prope"rty shall be appraised at its current rates are applied on:
and fair market value;
a) Zonal values;
b) Real property shall be classified for assessment
b) Fair market value;
purposes on the basis of its actual use;
c) Real property shall be assessed on the basis of c) Assessed values:
a uniform classification within each local political d) Reproduction values.
subdivision;
68) One of the local government units below
d) The appraisal and assessment of real property
does NOT have the power to impose real property tax:
shall be based on audited financial statements of
the owner.
a) Bacoor. Cavite;
b) Davao City;
c) Tarlac Province;
2012 TAXATION LAW "107
TAXATION LAW
d) Malabon, Metro Manila. 71) Importation of goods is deemed terminated:
69) Where the real property tax assessment is a) When the customs duties are paid, even if the
erroneous, the remedy of the property owner is: goods remain within the customs premises;
b) When the goods are released or withdrawn from
a) To file a claim for refund in the Court of Tax the customs house upon payment of the customs
Appeals if he has paid the tax, within thirty (30) days duties or with legal permit to withdraw:
from date of payment;
c) When the goods enter Philippines territory and
b) To file an appeal with the Provincial Board of remain within the customs house within thirty (30)
Assessment Appeals within thirty (30) days from
days from date of entry;
receipt of the assessment;
d) When there is part payment of duties on the
c) To file an appeal with the Provincial Board of imported goods located in the customs area.
Assessment Appeals within sixty (60) days from
receipt of the assessment; 72) A protest against an assessment issued by
d) To file an appeal with the Provincial Board of the Collector of Customs for unpaid customs duties
Assessment Appeals within sixty (60) days from on imported goods shall be filed with:
receipt of the assessment and playing the assessed
tax under protest. a) The Commissioner of Customs;
b) The Regional Trial Court;
70) The City Government of Manila may NOT
impose: ·1:·w· c) The Court of Tax Appeals;
a) Basic real property tax at 2% of the assessed d) The Collector of Customs.

value of real property;
73) The dutiable value of an imported article
b) Additional levy on real property for the special subject to an ad valorem rate of duty under existing
education fund at 1% of the assessed value of real law shall be:
property;
a) The home consumption value;
c) Additional ad valorem tax on idle lands at a rate
not exceeding 5% of the assessed value; b) Thetotalvalue;
d) Special levy on lands within its territory specially c) The total landed cost;
benefited by public works projects or improvements
funded by it at 80% of the actual cost of the projects d) The transaction value.
or imQrovements.
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TAXATION LAW
74) The imported articles shall in any case be 2012 TAXATION LAW
subject to the regular physical examination when: BAR EXAMINATIONS
a) The importer disagrees with the findings as
SET B
contained in the government SUN.eyor's report;
b) The number, weight and nature of packages I.
indicated in the customs entry declaration and Anchor Banking Corporation, which was
supporting documents differ from that in the manifest; organized in 2000 and existing under the laws of the
c) The container is not leaking or damaged; Phi1ippines and owned by the Sy Family of Makati
City, set up in 2010 a branch office in Shanghai City,
d) The shipment is covered by alert/hold orders China, to take advantage of the presence of many
issued pursuant to an existing order. Filipino workers in that area and its booming
economy. During the year, the bank, management
75) Which cases are appealable to the CTA? decided not to include the P20 Million net income of
the Shanghai Branch in the annual Philippine income
a) Decisions of the Secretary of Finance in cases l'- tax return filed with the BIR, which showed a net
involving liability for customs duties, seizure, detention taxable income of P30 Million, because the Shanghai
or release of property affected;
I Branch is treated as a foreign corporation and is
taxed only on income from sources within the
b) Decisions of the Commissioner of Customs in
cases involving liability for customs duties, seizure,
detention or release of property affected;
c) Decisions of the Collector of Customs in cases
involving liability for customs duties, seizure, detention
'
i~;•
I
Philippines, and since the loan and other business
transactions were done in Shanghai, these incomes
are not taxable in the Philippines.
a) Is the bank correct in excluding the net
or release of property affected; income of its Shanghai Branch in the computation
of its annual corporate income tax for 201 O? Explain
d) Decisions of the BIR Commissioner in cases your answer. (5%)
involving liability for customs duties, seizure, detention
or release of property affected.
~t b) Should the Shanghai Branch of Anchor Bank
remit profit to its Head Office in the Philippines in
2011? Is the branch liable to the 15% branch profit
remittance tax imposed under Section 28 (A)(5) of
the 1997 Tax Code? Explain your answer (5%)
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110 BAR Q & A For The Past 10 Years 111

2012 TAXATION LAW
SUGGESTED ANSWERS: and equipment - P50 Million; and installation -P30

Million). Assume that the project was 40% complete in
(a) No. Anchor Banking Corporation (ABC), a 2010 and 100% complete in 2011, based on the
domestic corporation, is taxable on income derived from certificates issued by the certificates issued by the
sources within and without the Philippines. Under the architects and engineers working on the project. GOC
"single entity" concept, P-1e income of the home office paid FC as follows: P60 Million in 2010 and P40 Million
and foreign branch office in Shanghai City must be in 2011, and FC paid PCC in foreign currency through
summed up and included in the gross income of ABC in a Philippine bank as follows: P10 Million in 2010 and
the corporate income tax return (Sections 23 and 27, P20 Million in 2011.
NIRC, as amended),
a) Is FC liable to Philippine income tax, and if
(b) No. The brancr profit remittance tax is not so, how much revenue shall be reported by it in
applicable. Anchor Banki1g Corporation (ABC) is not a
foreign corporation. The branch profits remitted by the
~-
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201 O and in 2011? Explain your answer. (5%)
Shanghai Branch are inbound profits, not outbound b) Is PCC, which adopted the percentage of
profits (Section 28(A)(5), NIRC, as amended). completion method of reporting income and expenses,
liable to value added tax in 2010 and in 2011.
II. Explain your answer. (5%)
Foster Corporation (FC) is a Singapore-based SUGGESTED ANSWERS:

foreign corporation engaged in construction and
installation projects. In 2010, Glebal Oil Corporation (a) No. FC is not liable to Philippine income tax. It
(GOC), a domestic corporation engaged in the refinery is a foreign corporation whose incomes from sources
of petroleum products: awarded an anti-pollution without are not taxable. The revenues from the design
project to Foster Corporation, whereby FC shall and supply contracts which were all done in Singapore
design, supply machinery and equipment, and install are not taxable. As regards the installation works sub-
an anti-pollution device for GOC's refinery in the contracted to PCC, a domestic corporation, the busin.ess
Philippines, provided that the installation part of the profits earned therefrom are tax-exempt pursuant to our
project may be sub-contracted to a local construction tax treaty with Singapore:
company. Pursuant to the contract, the design and
supply contracts were done in Singapore by FC, while l (b) Yes. PCC is liable to pay value-added tax (VAT)
the installation works were sub-contracted by the FC as seller of services for a fee. However, the sale of
with the Philippine Construction Corporation (PCC), a services to FC is subject to 0% value-added tax (VAT).
domestic corporation. The project with a total cost of Zero-rated sales include services to a person engaged
P100 Million was completed iri 2011 at the following in business conducted outside the Philippines or to a
fi non-resident person nor engaged in business outside
cost components: (design - P20Million; machinery '!)
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s 2012 TAXATION LAW 113
TAXATION LAW
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the Philippines and paid in acceptable foreign currency effect on the first day of January of the succeeding year
inwardly remitted through the banking system.
(Section 221, LGC). ,
111. (b) No. Mr. Castillo is not liable for income tax in
2011 because he realized no income during that year.
Mr. Jose Castillo is a resident Filipino Citizen. Settled is the rule that tax liability for income tax
He purchased a parcel of land in Makati City in 1970 attaches only if there is a gain realized from a closed
at a consideration of P1 Million. In 2011, the land, and completed transaction.
which remained undeveloped and idle, had a fair
market value of P20Million. Mr. Antonio Ayala, another (c) Mr. Castillo is liable to pay six percent (6%)
Filipino citizen, is very much interested in the property capital gains tax (CGT) based on the P20 million gross
and he offered to buy the same for P20 Million. The selling price plus the CGT assumed by the buyer. He
Assessor of Makati City re-assessed in 2011 the should file the return within thirty (30) days from the date
property at P10 Million. of sale and pay the tax as he files the return (Sections
24(0), 51(C)(2)(b), NIRC, as amended).
a) When is Mr. Castillo liable for real property
tax on the land beginning 2011 or beginning 2012? IV.
Explain your answer. (2%)
Mr. Pedro Aguirre, a resident citizen, is working
b) Is Mr. Castillo liable for income tax in 2011
for a large real estate. development company in the
based on the offer to buy by Mr. Ayala? Explain your
answer. (3%) country and in 2010, he was promoted to Vice-
President of the company. With more responsibilities
c) Should Mr. Castillo agree to sell the land to comes higher pay. In 2011, he decided to buy a new
Mr. Ayala in 2012 for P20 Million, subject to the car worth P2 Mil Hon and he traded-in his old car with a
condition as stated in The Deed of Sale that the market value of PS00,000.00 and paid the difference of
buyer shall assume the capital gains tax thereon, j P1.2 Million to the car company. The old car, which
how much is the income tax due on the transaction
'./
was bought three (3) years ago by the father of Mr.
and when must the tax return be filed and the tax be Pedro Aguirre at a price of P700,000.00 was donated
paid by the taxpayer? Explain your answer. (5%) by him and registered in the name of his son.
The corresponding donor's tax thereon was duly paid
SUGGESTED ANSWERS: by the father.
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Jr a) How much is the cost basis of the old car to
(a) Mr. Castillo is liable for real property tax based Mr. Aguirre? Explain your answer (2%)
--~
on the reassessment beginning 2012. It is presumed }1
that he is the owner of the real property, the reassessments b) What is the nature of the old car - capital
;l,~·1 asset or ordinary asset? Explain your answer. (3%)
of which made after the first day of any year shall take
JI
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TAXATION LAW ,,
'If Bar Questions and Suggested Answers
i@·: b) Is Mrs. Teresita Gonzales required to file income

c) Is Mr. Aguirre liable to pay income tax on the
;·:~,. tax return for 201 0? If so, how much income must she
gain from the sale of his old car? Explain your
declare for the year? How much personal exemption is
answer. (5%) l~1 she entitled to? Explain your answer. (5%)
SUGGESTED ANSWERS:
(a) P?00,000 which is the basis of the property in the

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.
c) Is the Estate of the late Pablo Gonzales
required to file income tax return for 2010? If so,
how much income must it declare for the year? How
hands of the donee ( Section 40(8)(3), NIRC, as amended). much personal exemption is it entitled to? Explain
. (b) The old car is capital asset. It is not one of the Ii your answer. (5%)
:·t;
four (4) exclusive ordinary assets. (Section 39(A)(1), .' ,}'
N!RC, as amended).
l f SUGGESTED ANSWERS:
t'
(c) Yes. Mr. Aguirre is liable to pay tax on the iA (a) Yes. Mr. Gonzales should declare in 2010 his
capital gain of P100,000 (PS00,000-700,000). The salary (P300,000) and rent income (P300,000) in the
X
taxable capital gain is subject to the holding period rule <\ total amount of P600,000. He could claim total personal
'II?
under Section 39(8), NIRC, as amended.
v.
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exemption of P75,000 (basic personal exemption of
P50,000 and P25,000 additional personal exemption for
one minor child).
*R.A. No. 10963 which took effect on January 1, 2018 deleted
Spouses Pablo Gonzales and Teresita Gonzales, basic and add'itional personal exemptions.
both resident citizens acquired during their marriage a (b) Yes. Mrs. Gonzales must declare rent income of
residential house and lot located in Makati City, which
P600,000 itemized as follows:
is being leased to a tenant for a monthly rental of
P100,000.00. Mr. Pablo Gonzales is the President of P300,000 share from January 2010 to June 2010
PG Corporation and he receives PS0,000.00 salary per and P300,000 representing her interest in the income
month. The spouses have only one (1) minor child. In from the properties comprising the estate for the period
late June 2010, he was immediately brought to the covering July 2010 to December 2010.
hospital because of the heart attack and he was
pronounced dead on June 30, 2010. With no liabilities, (c) No. Given that the estate of Pablo Gonzales was
the estate of the late Pablo Gonzales was settled not under judicial settlement, the income of the properties
extrajudicially in early 2011. would be taxable to the heirs in their individual capacity in
accordance with their" respective interest in the estate.
a) Is Mr. Pablo Gonzales required to file income
tax for 201 O? If so, how much income must he declare
for the year? How much personal and additional
"?i
exemption is he entitled to? Explain your answer. (5%)
I Ji
2012 TAXATION LAW 1 '17
TAXATION LAW
VI. VII.
The BIR issued in 2010 a final assessment a) May the bank deposits - peso and foreign
notice and demand letter against X Corporation currency of an individual taxpayer be disclosed by a
covering deficiency income tax for the year 2008 in commercial bank to the Commissioner of Internal
the amount of P10 Million. X Corporation earlier Revenue, in connection with a tax investigation
requested the advice of a lawyer on whether or not it being conducted by revenue officials, without
should file a request for reconsideration or a violating the relevant Qank secrecy laws? Explain
request for reinvestigation. The lawyer said it does your answer. (5%)
not matter whether the protest files against the
assessment is a request for reconsideration or a b) In 2011, the Commissioner of the U.S.
request for reinvestigation, because it has same .•,
;, t..V~· Internal Revenue Service (IRS) requested in writing
:{ the Commissioner of Internal Revenue to get
consequences or implications.
·1 I. the information from a bank in the Philippines,
a) What are the differences between a request for
reconsideration and a request for reinvestigation?
:: ~ regarding the deposits of a U.S. Citizen residing in
the Philippines, who is under examination by the
(5%) officials of the US IRS, pursuant to the US-Philippine
Tax Treaty and other existing laws. Should the BIR
b) Do you agree with the advice of the lawyer?
Explain your answer (5%) Commissioner agree to obtain such information
from the bank and provide the same to the IRS?
SUGGESTED ANSWERS:
)~a
c) Is the bank secrecy law in the Philippines
(a) Request for reconsideration is differentiated
,1j
_: i!;
violated when the BIR issues a Warrant of
'.,
'·:11
from request for reinvestigation as follows: Garnishment directed against a domestic bank,
requiring it not to allow any withdrawal from any
As to basis - request for reconsideration is based
existing bank deposit of the delinquent taxpayer
on existing records, whereas request for reinvestigation
mentioned in the Warrant and to freeze the same
is based on newly discovered evidence;
until the tax delinquency of said taxpayer is settled
As to suspension of prescriptive period - request with the BIR? Explain your answer. (5%)
for reconsideration does not suspend the prescription
period while request for reinvestigation suspends the SUGGESTED ANSWERS:
prescriptive period.
'i; (a) No. As a general rule, bank deposits of an
(b) No. It really matters in light of these aforestated
notable distinctions. ~l individual taxpayer may not be disclosed by a commercial
bank to the Commissioner of Internal Revenue (CIR).
However, the CIR is authorized to inquire into the bank
2012 TAXATION LAW 1 "t 9
TAXATION LAW
dep:::isits under two (2) exceptions - one, to determine SUGGESTED ANSWER:

the decedent's gross estate and, two, when a taxpayer
NO. If I were the judge, I would grant the Petition
has filed an application for compromise of his tax liability
by reason of financial incapacity (Section 6(F), N!RC, for Review. For one thing, the case is an exception to
the rule on exhaustion of administrative remedies. No
as emended).
protest is required in view of the language used and
(b) Yes. The CIR should agree to the request in tenor of the demand letter that it is the final decision of
accordance with an international agreement or convention the BIR. For another, the word "appeaf' refers to the
to which the Philippines is a signatory or party ( Section filing of a Petition for Review with the CT A (Allied
3, R.A. No. 10021). Banking Corporation v. CIR, 611 SCRA 692).
(c) No. Garnishment is an administrative remedy IX.
allovted by law to enforce tax liability. Since batik accounts
are Jarni:shed by seNing a warrant of garnishment upon On April 16, 2012, the corporation filed its
the taxp3yer and upon the responsible officer of the annual corporate income tax return for 2011, showing
bank, garnishment constitutes no violation of the Bank an overpayment of ·income tax of P1 Million, which is
Secrecy Law. · to be carried over to the succeeding year(s). On May
15, 2012, the corporation sought advice from you
VIII. and said that it contemplates to file an amended
return for 2011, which shows that instead of carry
In the examination conducted by the revenue ov~r of the excess income tax payment, the same
officials against the corporate taxpayer in 2010, the shall be considered as a claim for tax refund and the
BIR issued a final assessment notice and demand small box shown as "refund" in the return will be
letter which states: "It is requested that fhe above filled up. Within a year, the corporation will file the
deficiency tax be paid immediately upon receipt formal request for refund for the excess payment.
hereof, inclusive of penalties incident to delinquency.
This is our final decision based on investigation. If a) Will you recommend to the corporation such
you disagree, you may appeal this final decision a course of action and justify that the amended
within thirty (30) days from receipt hereof, otherwise return is the latest official act of the corporation as
said deficiency tax assessment shall become final, to how it may treat such overpayment of tax or
executory and demandable." The assessment was should you consider the option granted to taxpayers
immediately appealed by the taxpayer to the Court as irrevocable, once previously exercised by it?
of Tax Appeals, without filing its protest against the Explain your answer. (5%)
assessment and without a denial thereof by the BIR.
If you were the judge, would your deny the petition
for review filed by the taxpayer and consider the
case as prematurely filed? Explain your answer (5%)
f
b) Should the petition for review filed with the X.

CTA on the basis of the amended tax return be
denied by the BIR and the CTA? Could the corporation Explain the following statements:
still carry over such excess payment of income tax in
the succeeding years, considering that there is no a) The acquittal of the taxpayer in a criminal
prescriptive period provided for in the income tax law action under the Tax Code does not necessarily
with respect to carry over of excess income tax result in exoneration of said taxpayer from his civil
payments? Explain your answer. (5%) liability to pay taxes. (3%)
b) Should the accused be found guilty beyond
SUGGESTED ANSWERS: reasonable doubt for violation of Section 255 of the
Tax Code for failure to file tax return or to supply
(a) The option to carry-over shall be considered correct information, the imposition of the civil
IRREVOCABLE for the taxable period and no application ,%.· liability by the CTA should be automatic and no
for cash refund or issuance of tax credit certificate shall ~
assessment notice from the BIR is necessary? (2%)
be allowed therefor ( Section 76, NIRC, as amended). J:
(b) Yes. The corporation could still carry over the SUGGESTED ANSWERS:
tax excess payment of income tax to the succeeding
taxable years. It has been held that the taxpayer may (a) Civil liability arises not as consequence of a
apply the unutilized excess income tax payments as a felonious act but because of the taxpayer's failure to pay
tax credit to the succeeding taxable years until such has taxes. Hence, the extinction of one's criminal liability does
been fully applied pursuant to Section "76 of the NIRC, not necessarily result in exoneration of his civil liability.
as amended. (Belle Corporation v. CIR, 644 SCRA 433) Under the Penal Code, criminal liability gives rise to
the civil obligation. In contrast, under the Tax Code, the
criminal liability arises upon failure of the taxpayer to
satisfy his civil obligation. (Republic v. Patanao, 20
SCRA 712)
(b) Yes. Section 222(a) of the NIRC, as amended.
provides that in case of failure to file a return, the tax
may be assessed, or a proceeding in court for the
collection of such tax may be filed without assessment.
Ergo, assessment notice from BIR is not necessary.
I
2013 TAX/>TION LAW 123
2013 TAXATION LAW Is the hospital subject to tax on its income? If it

BAR QUESTIONS AND SUGGESTED ANSWERS is, at what rate? (6%)
:f
ESSAY QUESTIONS .;Ii,, SUGGESTED ANSWER:
I. Yes. The hospital is subject to income tax of ten

percent (10%) of its net income derived from the paying
In its final adjustment return for the 2010 taxable patients as the income earned appears to be derived
year, ABC Corp. had excess tax credits arising from solely from hospital-related activities. Its being a non-
its over-withholding of income payments. It opted to stock, non-profit hospital does not exempt it from
carry over the excess tax credits to the following year. income tax inasmuch as the services rendered to paying
Subsequently, ABC Corp. changed its mind and patients are considered activities conducted for profit.
applied for a refund of the excess tax credits. (CIR v. St. Luke's Medical Center, 682 SCRA 66)
Will the claim for refund prosper? (6%) 111.
SUGGESTED ANSWER: ABC Corporation is registered as a holding
company and has an office in the City of Makati. It has
No. The claim for refund will not prosper. Once the no actual business operations. It invested in another
option to carry over has been made, such option shall be company and its earnings are limited to dividends
considered irrevocable for the taxable period and no from this investment, interests on its bank deposits,
application for cash refund or issuance of a tax credit shall and foreign exchange gains from its foreign currency
be allowed therefor. (Section 76, NIRC, as amended). account. The City of Makati assessed ABC Corporation
as a contractor or one that sells services for a fee. Is
II. the City of Makati correct? (6%)
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A group of philanthropists organized a non- SUGGESTED ANSWER:
'
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stock, non-profit hospital for charitable purposes to : _!~
provide medical services to the poor. The hospital -4ii•

No. ABC Corporation cannot be considered as a
also accepted paying patients although none of its
income accrued to any private individual; all income
were plowed back for the - hospital's use and
l
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contractor because it does not render services for others
for a fee. To be considered as a contractor, the corporation
not more than 30% of its funds were used for
administrative purposes. ·~ must derive income from doing active business of selling
services and not from deriving purely passive income.
Ergo, the City of Makati erred in assessing local
business on ABC Corporation, a mere holding company
122 (Section 131(h), LGC).
IV. V.
Atty: Gambino is a partner in a general Mr. Agustin, 75 years old and suffering from an
professional partnership. The partnership computes incurable disease, decided to sell for valuable and
its gross revenues, claims deductions allowed under sufficient consideration a house and lot to his son.
the Tax Code, and distributes the net income to the He died one year later.
partners, including Atty. Gambino, in accordance with
its articles of partnership. In the settlement of -Mr. Agustin's estate, the
BIR argued that the house and lot were transferred
In filing his own income tax return, Atty. Gambino in contemplation of death and should therefore form
claimed deductions that the partnership did not claim, part of the gross estate for estate tax purposes.
such as purchase of law books, entertainment
expenses, car insurance and car depreciation. The Is the BIR correct? (7%)
BIR disallowed the deductions.
SUGGESTED ANSWER:
Was the BIR correct? (6%)
No. The BIR is not correct. It appearing that the
SUGGESTED ANSWER: house and lot were sold for'. valuable and sufficient
consideration, the transfer cannot be considered transfer
No. The BIR was not correct. General Professional in contemplation of death. As such, the house and lot
Partnership (GPP) can claim itemized deductions from should not form part of the gross estate of decedent
its gross income in arriving at its dlsttibutable income. Agustin ( Section 85(8), NIRC, as amended).
As partner, Atty. Gambino who received a share in the
net income of the GPP is allowed to claim deductions VI.
which are reasonable, ordinary and necessary in the
practice of profession and were not claimed by the GPP On October 15, 2005, ABC Corp. imported 1,000
in computing its net income (Section 26, NIRC, as kilos of steel ingots and paid customs duties and
amended; RR No.2-2010). VAT to the Bureau of Customs on the importation.
On February 17, 2009, the Bureau of Customs, citing
provisions of the Tariff and· Customs Code on post-
audit, investigated and assessed ABC Corp. for
deficiency customs duties and VAT.
Is the Bureau of Customs correct? (7%)

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TAXATION LAW
t 2013 TAXATION LAW
1 27
SUGGESTED ANSWER: (a) It i.s subject to 0% VAT because the services

were rendered to a non-resident person, engaged in
No. The Bureau of Customs is not correct. The business outside the Philippines which services are
customs duties on the importation of steel ingots were paid for in acceptable foreign currency inwardly remitted
paid in 2005 thereby making the liquidation of the through the banking system. As there is no VAT due, XYZ
importation final and conclusive upon all parties after the is entitled to claim as refund or tax credit the input taxes
expiratio1 of three years from the date of final payment attributable to the zero-rated sale (Section 108(8)(2),
of duties and taxes ( Section 1603, TCC as amended by N/RC, as amended).
R.A. No. 9135; now Section 430, R.A. No. 10963).
(b) It is subject to income tax. The partnership is
VII. taxable on its income derived within and without the
Philippines. On the other hand, the partners must report
XYZ Law Offices, a law partnership in the their distributive share in the net income of the
Philippines and a VAT-registered taxpayer, received partnership (Section 26, N/RC, as amended).
a query by e-mail from Gainsburg Corporation, a
corporation organized under the laws of Delaware, VIII.
but the e-mail came from California where Gainsburg
has an office. Gainsburg has no offi~- in the Mr. Amado leased a piece of land owned by the
Philippines and does no business in the Philippines. Municipality of Pinagsabitan and built a warehouse
on the property for his business operations. The
XYZ Law Offices rendered its opinion on the Municipal Assessor assessed Mr. Amado for real
query and billed Gainsburg US$1,.000 for the opinion. property taxes on the land and the warehouse. Mr.
Gainsburg remitted its payment through Citibank Amado objected to the assessment, contending that
which converted the remitted US$1,000 to pesos he should not be asked to pay realty taxes on the
and deposited the converted amQunt in the XYZ Law land since it is a municipal property.
Offices account.
Was the assessment proper? (5%)
What are the tax implications of the payment to
XYZ Law Offices in terms of VAT and income taxes? SUGGESTED ANSWER:
(7%) ·{.
i
Yes. The assessment was proper. Although the
SUGGESTED ANSWER: ;~ land is owned by the Municipality of Pinagsabitan, it is
j not exempt from real property tax as the beneficial
11
The payment of XYZ Law offices is subject to VAT -~ use has been granted to a taxable person ( Section
and incone tax in the Philippines. J
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234(a), LGC).
1
IX. SUGGESTED ANSWER:

~t
In the settlement of the estate of Mr. Barbera who The contention of Mr. Abcede holds no water. The
died intestate, his wife renounced her inheritance and rule that a taxpayer may be subjected to examination and
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her share of the conjugal property in favor of their in-spection by internal revenue officer only once in a
children. The BIR determined that there was a taxable taxable year admits of exception - if there is fraud,
gift and thus assessed Mrs. Barbera as a donor.
irregularity or mistake as determined by the Commission.
Was the BIR correct? (7%)
In the instant case, the investigation is legally
justified in light of the finding that Mr. Abcede's 2009
SUGGESTED ANSWER: return was fraudulent (Section 235, N!RC, as amended).
The BIR was correct in assessing donor's tax as XI.

regards the renunciation of Mrs. Barbera in her share in
the conjugal property. It constitutes taxable gift which In 2000, Mr. Belen bought a residential house
takes effect during the lifetime of the wife (IRR No.2- and lot for P-1,000,000. He used the property as his
2003). However, the BIR was not correct in assessing and his family's principal residence. It is now year
donor's tax on the renunciation of Mrs. Barbera's share 2013 and he is thinking of selling the property to
in the inheritance. The share is automatically transferred
.,,,' ;,1,
buy a new one. He seeks your advice on how much

to the other heirs by operation of law. Hence, there is no iK
-. '. income tax he would pay if he sells the property.
taxable gift (BIR Ruling DA No.333-07). The total zonal value of the property is P-5,000,000
.).,.:.
~ ~: and the fair market value per the tax declaration
:/
X. .:1,,1,\1 is P-2,500,000. He intends to sell it for .P.6,000,000.
-~•.• 'f1l'_:_
In 2010, pursuant to a Letter of Authority (LA) i..: ;,,t- What material considerations will you take into
issued by the Regional Director, Mr. Abcede was account in computing the income tax? Please explain
assessed for deficiency income taxes by the BIR for ::1•·
ti'< the legal relevance of each of these considerations.
l!
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the year 2009. He paid the deficiency. In 2011, Mr. (7%)

Abcede received another LA for the same year 2009,
this time from the National Investigation Division, ;'I\
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SUGGESTED ANSWER:
on the ground that Mr. Abcede's 2009 return :f (.
was fraudulent. i!',
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classified as capital asset, the income tax may be
Mr. Abcede contested the LA on the ground that computed taking into account the following material
he can only be investigated once in a taxable year. J:J,· considerations:
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Decide. (7%)
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1) The gross selling price and the current fair What tax, criminal and ethical considerations will
market value (zonal value). you take into account in giving your advice? Explain
the relevance of each of these considerations. (9%)
2) Tax base is the higher amount between the
current fair market value (zonal value) and the gross
selling price. · SUGGESTED ANSWER:
3) Final tax rate of six percent (6%) (Section I will advise my client taking into account the
24(D)(1 ), NIRC, as amended). following considerations:
Considering, however, that the purpose of the sale is (1) Tax aspect - I will urge my client to pay the
to buy a new principal residence, I will advise Mr. Belen deficiency taxes in full and not to accept the settlement
that the sale is exempt from six percent (6%) capital gains proposal. Since the fifty percent (50%) reduction of
tax upon the concurrence of the following conditions: assessment is illegal, the BIR can still collect the
deficiency tax within ten (10) years from the discovery of
1 ) The proceeds of the sale must be used to such fraud.
acquire a new principal residence within eighteen (18)
months from date of disposition; (2) Criminal liability - I will apprise my client that
connivance with the BIR insider to reduce the proposed
2) Notice to the BIR within thirty (30) days from the assessment for a fee is unlawful thereby making the
date of sale; officer of the corporation criminally liable. Specifically,
payment of the reduced 50% assessment constitutes
3) Open an escrow account witl} a_bank and deposit
direct bribery under the Penal Code. The BIR insider
the 6% capital gains tax due on the sale (IRR, 17-2003)
can be charged with direct bribery - principal by direct
XII. cooperation.
(3) Ethical grounds - the proposed settlement is
You are the retained tax counsel of ABC Cor·p. an immoral and dishonest scheme to reduce the
Your client informed you that they have been directly payment of taxes. I will tell my client that taxpayers owe
approached with a proposal by a BIR insider (i.e., a honesty to the government just as government owes
middle rank BIR official) on the tax matter they have fairness to taxpayers.
referred to you for handling. The BIR insider's
proposal is to settle the matter by significantly
reducing the assessment, but he will get 50% of the
savings arising from the reduced assessment.
MULTIPLE CHOICE QUESTIONS Ill. Mr. Alas sells shoes in Makati through a
retail store. He pays the VAT on his gross sales to
I. ABC Corp. was dissolved and liquidating the BIR and the municipal license tax based on the
dividends were declared and paid to the stockholders. same gross sales to the City of Makati. He comes to
you for advice because he thinks he is being
What tax consequence follows? (1%) subjected to double taxation.
(A) ABC Corp. should deduct a final tax of 10% What advice will you give him? (1%)
from the dividends.
(A) Yes, there is double taxation and it is oppressive.
(B) The stockholders should declare their gain from
their investment and pay income tax at the ordinary (B) The City of Makati does not have this power.
rates (BIR Ruling 39-02, 11 November 2002).
(C) Yes, there is double taxation and this is illegal
(C) The dividends are exempt from tax. in the Philippines.
(D) ABC Corp. should withhold a 10% creditable tax. (D) Double taxation is allowed where one tax is
imposed by the national government and the other by
II. MGC Corp. secured an income tax holiday the local government (CIR v. Solidbank Corp., G.R.
for 5 years as a pioneer industry. On the fourth year ,:~ No. 148191, 25 November 2003).
of the tax holiday, MGC Corp. declared and paid {t
cash dividends to its stockholders, all of whom ,_,iJt IV. Congress passed a sin tax law that increased
are individuals. the tax rates on cigarettes by 1,000%. The law was
thought to be sufficient to drive many cigarette
Are the dividends taxable? (1 %) companies out of business, and was questioned in
court by a cigarette company that would go out of
(A) The dividends are taxable: the tax exemption of
business because it would not be able to pay the
MGC Corp. does not extend to its stockholders (Sun)o
v. NLRC, G.R. No. 57767, 31 January 1984). ,, increased tax.
The cigarette company is _____ (1 %)
(B) The dividends are tax exempt because of MGC
Corp.'s income tax holiday. (A) wrong because taxes are the lifeblood of the
(C) The dividends are taxable if they exceed 50% government
of MGC Corp.'s retained earnings. (B) wrong because the law recognizes that the
(D) The dividends are exempt if paid before the power to tax is the power to destroy (McCulloch v.
end of MGC Corp.'s fiscal year. Maryland, 17 U.S. 4 Wheat. 316., 1819).
,.4
·i
(C) correct because no government can deprive a (A) No, she had no income because she had no
person of his livelihood
ii right to the mistakenly credited funds.
(D) correct because Congress, in this case, exceeded
its power to tax
V. Mr. Alvarez is in the retail business. He

I·.<
(B) Yes, income is income regardless of the source.
(Javier v. CIR. 199 SCRA 824 ).
(C) No, it was not her fault that the funds in excess
received a deficiency tax assessment from the BIR of $1,000 were credited to her.
containing only the computation of the deficiency
(D) No, the funds in excess of$1,000 were in effect
tax and the penalties, without any explanation of the
donated to her.
factual and legal bases for the assessment.
Is the assessment valid? (1 %) VII. The municipality of San Isidro passed an
ordinance imposing a tax on installation managers.
(A) The assessment is valid; all that Mr. Alvarez At that time, there was only one installation manager
has to know is the amount of the tax. in the municipality; thus, only he would be liable
for the tax.
(B) The assessment is invalid: the law requires a
statement of the facts and the law upon which the Is the law constitutional? (1%)
assessment is based (Section 228 1 NIRC, as amended).
(A) It is unconstitutional because it clearly discriminates
(C) The assessment is valid but Mr. Alvarez can still against this person.
contest it.
(B) It is unconstitutional for lack of legal basis
(D) The assessment is invalid because Mr. Alvarez
has no way to determine if the computation is erroneous. (C) It is constitutional as it applies to all persons in
that class (Shell Company of P.I. v. Vaflo, 94 Phil. 387).
VI. In 2010, Mr. Platon sent his sister Helen
$1,000 via a telegraphic transfer through the Bank of (D) It is constitutional because the powe·r to tax is
the power to destroy.
Pl. The bank's remittance clerk made a mistake and
credited Helen with $1,000,000 which she promptly
ll:
VIII. XYZ Corporation manufactures glass panels
withdrew. The bank demanded the return of the
and is almost at the point of insolvency. It has no
mistakenly credited excess, but Helen refused. The
BIR entered the picture and investigated Helen.
more cash and all it has are unsold glass panels. It
received an assessment from the BIR for deficiency
Would the BIR be correct if it determines that income taxes. It wants to pay but due to lack of cash,
Helen earned taxable income under these facts? (1 %) it seeks permission to pay in kind with glass panels.
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Should the BIR grant the requested permission? (C) The plan is improper: the veil of corporate
(1 %)
fiction can be pierced so that the second sale will
be considered the taxable sale (Koppel Philippines
(A) It should grant permission to make payment
Incorporated Inc. v. Yatco. 727 Phil. 496).
convenient to taxpayers.
(D) The government must respect Gonmad's
(B) It should not grant permission because~~Uax is
separate juridical personality and Deltoid's taxable
generally a pecuniary burden.
sale to it.
(C) It should grant permission; otherwise, XYZ
X. PRT Corp. purchased a residential house and
Corporation would not be able to pay
lot with a swimming pool in an upscale subdivision
(D) It should not grant permission because the and required the company president to stay there
government does not have the storage facilities for ]fl without paying rent; it reasoned out that the company
glass panels. president must maintain .a certain image and be able
to entertain guests at the house to promote the
IX. Prior to the VAT law, sales of cars were company's business. The company president declared
subject to a sales tax but the tax applied only to the that because they are childless, he and his wife could
original or the first sale; the second and subsequent very well live in a smaller house.
sales were not subject to tax.
Was there a taxable fringe benefit? (1 %)
Deltoid Motors, Inc. (Deltoid) hit on the idea of
setting up a wholly-owned sub§id_iary, Gonmad (A) There was no 1axable fringe benefit since it was
Motors, Inc. (Gonmad), and of selling its assembled for the convenience of the employer and was necessary
cars to Gonmad at a low price so it would pay a for its business (Section 33, NIRC: RR No. 3-98).
lower tax on the first sale. Gonmad would then sell
(B) There was a taxable fringe benefit since the
the cars to the public at a higher price without
stay at the house was for free.
paying any sales tax on this subsequent sale.
(C) There was a taxable fringe benefit because the
Characterize the arrangement. (1 %)
house was very luxurious.
(A) The plan is a legitimate exercise of tax planning (D) There was no taxable fringe benefit because
and merely takes advantage of a loophole in the law. the company president was only required to stay
there and did not demand free housing.
(B) The plan is legal because the government
collects taxes anyway.
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XI. Taxpayer A was required by the BIR to sign (C) The FAN is valid since it was issued before the
and submit a waiver of the statute of limitations on the right to assess prescribed.
assessment period, to give the BIR more time to (D) The FAN is valid. There is no legal requirement
complete its investigation. The BIR accepted the that the FAN should await the protest to the PAN
waiver but failed to indicate the date of its acceptance.
because protest to the PAN is not mandatory.
What is the legal status of the waiver? (1 %)
XIII. MSI Corp. imports orange and lemon
(A) The waiver is valid because the date of concentrates as raw materials for the fruit drinks it
acceptance is immaterial and unimportant. sells locally. The Bureau of Customs (BOC) imposed
a 1 % duty rate on the concentrates. Subsequently,
(B) The waiver is invalid; the taxpayer cannot be the BOC changed its position and held that the
required to waive the statute of limitations. concentrates should be taxed at 7% duty rate. MSI
disagreed with the ruling and questioned it in the
(C) The waiver is invalid: the date of acceptance is CTA which upheld MSl's position. The Commissioner
crucial in counting the start of the period of suspension
of Customs appealed to· the CTA en bane without
of the prescriptive period ( CIR v. Kudos Metal Corp.,
filing a motion for reconsideration.
620 SCRA 232).
Resolve the appeal. (1%)
(D) The waiver is valid, having been accepted by
the BIR. (A) The appeal shoula'· be dismissed because a
motion for reconsideration is mandatory (Ru~.a,
XII. Taxpayer Andy received 011 January 3, 2010 Revised Rules of the CTA).
a preliminary assessment notice (PAN) from the
BIR, stating that he had fifteen (15) days from its (B) The appeal should be dismissed for having
receipt to comment or to file a protest. Eight (8) been filed out of time.
days later (or on January 11, 201 0), before he could
comment or file a protest, Andy received the final (C) The appeal should be given due course since a
assessment notice (FAN). ~ motion for reconsideration is a useless exercise.
'.i
Decide on the validity of the FAN. (1%) (D) The appeal should be upheld to be fair to the
government which needs taxes.
(A) The FAN is invalid; Andy was not given the
chance to respond to the PAN, in violation of his due
process rights (Section 228, NIRC; RR No. 12-99).
(B) The FAN is invalid for being premature.
XIV. The spouses Jun and Elvira Sandoval (B) The ordinance is valid as a legitimate exercise
purchased a piece of land for PS,000,000 and included of police power to regulate electric poles (Section
their two (2) minor children as co-purchasers in the 129. R.A. No. 7160).
Deed of Absolute Sale. T.he Commissioner of Internal
Revenue (CIR) ruled that there was an implied donation (C) The ordinance is void; 1 % of annual rental is
and assessed donors' taxes against the spouses. excessive and oppressive.
Rule on the CIR's action. (1%) (D) The ordinance is valid; an LGU may impose a
tax on income.
(A) The CIR is wrong; a donation must be express.
XVI. Aleta sued Boboy for breach of promise to
(B) The CIR is wrong; financial capacity is not a marry. Boboy lost the case and duly paid the court's
requirement for a valid sale. award that included, among others, PI00,000 as moral
(C) The CIR is correct; the amount involved is damages for the mental anguish Aleta suffered.
huge and ultimately ends up with the children. Did Aleta earn a taxable income? (1 %)
(D) The CIR is correct: there was animus donandi (A) She had a taxable income of P-100,000 since
since the children had no financial capacity to be income is income from whatever source.
co-purchasers (Spouses Evono v. DOF, CTA EB
Case No. 705, 4 June 2012). (B) She had no taxable income because it was a
donation.
XV. Pheleco is a power genera!joo and distribution
(C) She had taxable income since she made a profit.
company operating mainly from the City of Taguig.
It owns electric poles which it also rents out to other
companies that use poles such as telephone and
cable companies. Taguig passed an ordinance
l
cl
Ii
(D) She had no taxable income since moral damages
are compensatory (Section 32 (8)(4). NIRC).
imposing a fee equivalent to 1% of the annual rental g XVII. Mr. Mayuga donated his residential house
for these poles. Pheleco questioned 'the legality of and lot to his son and duly paid the donor's tax. In
,-1
the ordinance on the ground that it imposes ·an ?,, the Deed of Donation, Mr. Mayuga expressly reserved
income tax which local government units (LGUs) are for himself the usufruct over the property for as
prohibited from imposing. long as he lived. '
Rule on the validity of the ordinance. (1 %) Describe the donated property from the taxation
perspective. (1 %)
(A) The ordinance is void; the fee is based on
rental income and is therefore a tax on income. (A) The property will form part of Mr. Mayuga's
gross estate when he dies (Section 85 (8), NIRC).
(8) The property will not form part of Mr. Mayuga's Is Mr. A guilty of fraud? (1%)
gross estate when he dies because he paid the
donor's tax. (A) Mr. A is not guilty of fraud as he simply followed
the advice of his lawyer (CIR v. CA, G.R. No. 119322,
(C) The property will form part of Mr. Mayuga's 4 June~ 1996).
gross estate because he died soon after the donation.
(8) Mr. A is guilty of fraud; he deliberately did not
(D) The property will not form part of Mr. Mayuga's report the commission in the current year when he
gross estate because it is no longer his. should have done so.
XVIII. Mr. 2 made an importation which he declared (C) Mr. A's lawyer should pay the tax for giving the
at the Bureau of Customs (BOC} as "Used Truck wrong advice.
Replacement Parts". Upon investigation, the container
vans contained 15 units of Porsche and Ferrari cars. (D) Mr. A is guilty for failing to consult his accountant.
Characterize Mr. Z's action. (1%) XX. The BIR, through the Commissioner, instituted
a system requiring taxpa·yers to submit to the BIR a
(A) Mr. Z committed smuggling (Rieta v. People,
summary list of their sales and purchases during
436 SCRA 273}.
the year, indicating the name of the seller or the
(B) Mr. Z did not commit smuggling because he '!i buyer and the amount. Based on these lists, the BIR
submitted his shipment to BOC examination. discovered that in 2004 ABC Corp. purchased from
XYZ Corp. goods worth P.5,000,000. XYZ Corp. did
(C) Mr. Z only made a misdecl 9 ration, but did not not declare these for income tax purposes as its
commit smuggling. reported gross sales for 2004 was only Pl,000,000.
(D) Mr. Z did not commit smuggling because the Which of the following defenses may XYZ
shipment has not left the customs area. Corp. interpose in an assessment against it by the
BIR? (1%)
XIX. Mr. A was preparing his income tax return
and had some doubt on whether a commission he •
11j (A) The BIR has no authority to obtain third party
earned should be declared for the current year or for information to assess taxpayers.
I
the succeeding year. He sought the opinion of his
lawyer who advised him to report the commission in
the succeeding year. He heeded his lawyer's advice
•
I
.,/},
1?
(B) The third party information is inadmissible as
hearsay evidence. ·
and reported the commission in the succeeding I
·.1i
year. The lawyer's advice turned out to be wrong; in ~ (C) The system of requiring taxpayers to submit third
party information is illegal for violating the right to privacy.
Mr. A's petition against the BIR assessment, the
court ruled against Mr. A. (D) None of the above. (Sections 5 and 6 1 NIRC).
II.,I ,
2014 TAXATION LAW SUGGESTED ANSWER:

No. The contention of BIR is not correct. Settled is
I. the rule that the taxpayer has the option to await the
final decision of the Commissioner on the disputed
On March 27, 2012, the Bureau of Internal assessment and appeal such final decision to the CT A
Revenue (BIR) issued a notice of assessment within thi:iy (30) days after receipt of a copy thereof
against Blue Water Industries Inc. (BWI), a domestic (Lascona Land Co., Inc. v. CIR, 667 SCRA 455).
corporation, informing the latter of its alleged
deficiency corporate income tax for the year 2009. II.
On April 20, 2012, BWI filed a letter protest before
the BIR contesting said assessment and demanding Mr. De Sarapen is a candidate in the upcoming
that the same be cancelled or set aside. Senatorial elections. Mr. De Almacen, believing in
the sincerity and ability of Mr. De Sarapen to introduce
However, on May 19, 2013, that is, after more much needed reforms in the country, contributed
than a year from the filing of the letter protest, the PS00,000.00 in cash to the campaign chest of Mr. De
BIR informed BWI that the latter's letter protest was Sarapen. In addition, Mr. De Almacen purchased
denied on the ground that the assessment had tarpaulins, t-shirts, umbrellas, caps and other
already become final, executory and demandable. campaign materials that he also donated to Mr. De
The BIR reasoned that its failure to decide the case Sarapen for use in his campaign. Is the contribution
within 180 days from filing of the letter protest of cash and campaign materials subject to donor's
should have prompted BWI to seek recourse before ill: tax? (4%)
·(,
the Court of Tax Appeals (CTA) by filing a petition
for review within thirty (30) days after the expiration SUGGESTED ANSWER:
of the 180-day period as mandated by the provisions
of the last paragraph of Section 228 of the National No. The contribution of cash and campaign material
Internal Revenue Code (NIRC). Accordingly, BWl's is not subject to donor's tax provided that such
failure to file a petition for review before the CTA contribution is duly reported to the Commission on
rendered the assessment final, executory and Elections as required under Section 13, R.A. No. 7166
demandable. Is the contention of the BIR correct? (Section 99(C), N/RC, as amended).
Explain. (5%)
144
:ii
1.:
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146 BAR Q & A. For The Past 1O Years

TAXATION LAW
1 2014 TAXATION LAW
147
111.
Dr. Taimtim is an alumnus of the College of

1½JI
:wl
i
IV ...
Gangwam Corporation (GC) filed its quarterly

Medicine of Universal University (UU), a privately- ~I1~1
·.¾.·
tax returns for the calendar year 2012 as follows:

owned center for learning which grants yearly
First quarter • April 25, 2012
dividends to its stockholders.
Second quarter - July 23, 2012
UU has a famous chapel located within the
campus where the old folks used to say that anyone Third quarter - October 25, 2012
who wanted to pass the medical board examinations Fourth quarter - January 27, 2013
should offer a dozen roses on all the Sundays of
October. This was what Dr. Taimtim did when he On December 22, 2013, GC filed with the Bureau
was still reviewing for the board examinations. In of Internal Revenue (BIR) an administrative claim for
his case, the folk saying proved to be true because refund of its unutilized input Value-Added Tax (VAT)
he is now a successful cardiologist. Wanting to give for the calendar year 2012. After several months of
back to the chapel and help defray the costs of its inaction by the BIR on its claim for refund, GC
maintenance, Dr. Taimtim donated PS0,000.00 to the decided to elevate its claim directly to the Court of
caretakers of the chapel which was evidenced by an Tax Appeals (CTA) on April 22, 2014.
acknowledgment receipt. In due time, the CTA denied the tax refund
relative to the input VAT of GC for the first quarter of
In computing his net taxable income, can Dr. 2012, reasoning that the claim was filed beyond the
Taimtim use his donation to the- chapel as an two-year period prescribed under Section 112(A) of
allowable deduction from his gross income under the National Internal Revenue Code (NIRC).
the National Internal Revenue Code (NIRC)? (4%)
(A) Is the CTA correct? (3%)
SUGGESTED ANSWER: {B) Assuming that GC filed its claim before the
CTA on February 22, 2014, would your answer be
No. The donation is not deductible. The "private the same? (3%)
inurement doctrine" dictates that any donation or
contribution that inures to the benefit of any private SUGGESTED ANSWERS:
stockholder or individual is not deductible. In this case, it is
clear that the chapel having been owned by the Universal (A) No. The CTA is not correct. When GC appealed
University, the donation is in effect given to the benefit of its claim-for refund to the CTA on April 22, 2014, it was
its stockholders (Section(H)(1), NIRC, as amended). after the lapse of the requisite 120-day period (C/R v.
San Roque Power Corporation, Inc., 690 SCRA 336)
•R.A. No. 10963 which took effect on January 1, 2018 reduced
the 120-day period to 90 days.
(B) Yes. The answer would be the same. The CTA SUGGESTED ANSWER:
cannot deny the claim for refund on the ground that it was
filed beyond the two-year period. The two-year period 'to Atty. Frank is correct It is now settled that the CTA
file for refund applies to the administrative claim and not to by constitutional mandate is vested with jurisdiction to
the period to elevate the claim to the CTA. However, the issue writs of certiorari in cases falling within its
appeal before the CTA was premature. There was •no exclusive appellate jurisdiction. It is more in consonance
appealable decision yet when GC filed its judicial claim with logic and legal soundness to conclude that the
with the CTA because the 120-day period for the grant of appellate jurisdiction to the CTA over tax cases
Commissioner to act on the claim for refund had not yet filed and decided by the RTC carries with it the power to
lapsed. Hence, the CTA acquired no jurisdiction thereover issue a writ of certiorari when necessary in aid of such
(CIR v. San Roque Power Corporation, 690 SCRA 336). appellate jurisdiction. (City of ,_Manila v. Grecia-Cuerdo,
*R.A. No. 10963 which took effect on January 1, 2018 provides 715 SCRA 182),
for 90-day period.
v. r
::(f
VI.
~I.
·;•.,, Choose the correct answer. Smuggling - (1 %)

The City of Liwliwa assessed local business 'J
taxes against Talin Company. Claiming that there is ,1 (A) does not extend to the entry of imported or
double taxation, Talin Company filed a Complaint for ,re~
exported articles by means of any false or
Refund or Recovery of Illegally and/or Erroneously- -if fraudulent invoice, statement or practices; the entry
{
collected Local Business Tax; Prohibition with of goods at less than the. true weight or measure; or
Prayer to Issue Temporary Restraining Order and the filing of any false or fraudulent entry for the
Writ of Preliminary Injunction with the Regional Trial payment of drawback or refund of duties.
Court (RTC). The RTC denied the application for a
Writ of Preliminary Injunction. Since its motion for (B) is limited to the import of contraband or
reconsideration was denied, Talin Company filed a highly dutiable cargo beyond the reach of customs
special civil action for certiorari with the Court of authorities.
Appeals (CA). The government lawyer representing ~\.
~ (C) is committed by any person who shall
the City of Liwliwa prayed for the dismissal of the fraudulently import or bring into the Philippines, or
petition on the ground that the same should have assist in so doing, any article, contrary to law, or
been filed with the Court of Tax Appeals (CTA). Talin shall receive, conceal, buy, sell or any manner
Company, through its lawyer, Atty. Frank, countered ~i,
facilitate the transportation, concealment or sale of
that the CTA cannot entertain a petition for certiorari such article after importation, knowing the same to
since it is not one of its powers and authorities under have been imported contrary to law.
existing laws and rules.
Decide. (5%) I
150 BAR Q & A For The Past 1 O Years 2014 TAXATION LAW 151
·~
j
j
SUGGESTED ANSWER: Court (SC) seeking to set aside the TRO issued by
tu? the RTC on the ground that collection of taxes
(C). Is committed by any person who shall 1
't cannot be enjoined. Will the petition prosper? (5%)
fraudulently import or bring into the Philippines, or assist
in so doing, any article, contrary to law, or shall receive,
SUGGESTED ANSWER:
conceal, buy, sell or any manner facilitate the
transportation, concealment or sale of such article after
Yes. The petition for certiorari will prosper. Any
importation, knowing the same to have been imported
question on the legality of the tax ordinance can only be
contrary to law. (Section 3601, Tariff and Customs Code;
raised on appeal with the Secretary or Justice and the
Section 102 (nn), R.A. No. 10863 (CMTA).
appeal shall not have the effect of suspending the effectivity
of the ordinance and the accrual and the payment of the
VII.
tax levied therein. Hence, the RTC acquired no jurisdiction
over such petition for declaratory relief.
In accordance with the Local Government Code
(LGC), the Sangguniang Panglungsod (SP) of
VIII.
Baguio City enacted Tax Ordinance No. 19, Series of
2014, imposing a PS0.00 tax on all the tourists and
Masarap Kumain, Inc. (MKI) is a Value-Added Tax
travelers going to Baguio City. In imposing the local
(VAT)-registered company which has been engaged in
tax, the SP reasoned that the tax collected will be
used to maintain the cleanliness of Baguio City and
the catering business for the past 10 years. It has
for the beautification of its tourist attractions.
invested a substantial portion of its capital on flat
wares, table linens, plates, chairs, catering equipment,
Claiming the tax to be unjust, Baguio Travelers and delivery vans. MKI sold its first delivery van,
Association (BTA), an association of travel agencies already 1 O years old and idle, to Mag papa la Gravel
in Baguio City, filed a petition for declaratory relief and Sand Corp. (MGSC), a corporation engaged in the
before the Regional Trial Court (RTC) because BTA business of buying and selling gravel and sand. The
was apprehensive that tourists might cancel their ft'."
selling price of the delivery van was way below its
bookings with BTA's member agencies. BTA also %'.:
i:l',-
acquisition cost. Is the sale of the delivery van by MKI
prayed for the issuance of a Temporary Restraining ~1' to MGSC subject to VAT? (4%)
r:
Order (TRO) to enjoin Baguio City from enforcing
the local tax on their customers and on all tourists
going to Baguio City.
,~
~I
t
SUGGESTED ANSWER:
i'.t
Yes. The sale of the delivery van is subject to VAT as
The RTC issued a TRO enjoining Baguio City
it is considered as transaction incidental to the catering
from imposing the local tax. Aggrieved, Baguio.City
business of the VAT-registered activity of MKI. (Section
filed a petition for certiorari before the Supreme
105, NIRC, as amended). Jurisprudence dictates that a
sale of- a fully depreciated vehicle that has been used in
business is subject to VAT as an incidental transaction, X.

although such sale may be considered isolated (Mindanao
II Geothermal Partnership v. CIR, 693 SCRA 49). Which of the following is an exclusion from
gross income? (1 %)
IX.
(A) Salaries and wages
Mr. Gipit borrowed from Mr. Maunawain (B) Cash dividends
P100,000.00, payable in five (5) equal monthly
(C) Liquidating dividends after dissolution of a
installments. Before the first installment became
due, Mr. Gipit rendered general cleaning services in
] corporation
·t
the entire office building of Mr. Maunawain, and as '"'Ii'
?,rit (D) De minimis benefits
compensation therefor, Mr. Maunawain cancelled
the indebtedness of Mr. Gipit up to the amount of (E) Embezzled money
P75,000.00. Mr. Gipit claims that the cancellation of
his indebtedness cannot be considered as gain on SUGGESTED ANSWER:
his part which must be subject to income tax,
because according to him, -he did not actually (D) De minimis benefit (Section 33(C)(4); RR No. 3-98).
receive payment from Mr. Maunawain for the general
cleaning services. Is Mr. Gipit correct? Explain. (4%) XI.
SUGGESTED ANSWER: Triple Star, a domestic corporation, entered into

a Management Service Contract with Single Star, a
No. Mr. Gipit is not correct. Taxable compensation non-resident foreign corporation with no property in
income covers compensation for services in whatever the Philippines. Under the contract, Single Star shall
form paid. The cancellation of the indebtedness is made provide managerial services for Triple Star's Hongkong
in consideration of the services rendered which amounted ii branch. All said. services shall be performed in
to taxabie compensation income ( Section 32(A), NIRC, Hongkong.
as amended).
Is the compensation for the services of Single
Star taxable as income from sources within the
Philippines? Explain. (4%) ,
:1
SUGGESTED ANSWER: XIII.
No. The compensation for services rendered by Hopeful Corporation obtained a loan from
Single Star is considered an income derived from Generous Bank and executed a mortgage on its real
sources without the Philippines. The income tax situs of property to secure the loan. When Hopeful Corporation
income derived from labor or service is the place of failed to pay the loan, Generous Bank extrajudicialiy
performance thereof. Given that as required by the foreclosed the mortgage on the property and acquired
contract, all the services must be performed in Hongkong, the same as the highest bidder. A month after the
the entire income is considered income from services foreclosure, Hopeful Corporation exercised its right of
without (Section 42A(3), and Section 42C(3), NIRC, redemption and was able to redeem the property. Is
as amended). Generous Bank liable to pay capital gains tax as a
result of the foreclosure sale? Explain. (4%)
XII.
,.,
Which of the following should not be claimed as
·'.] SUGGESTED ANSWER:
~~
deductions from gross income? (1 %)
No. Generous Bank is not liable to pay capital gains
(A) discounts given to senior citizens on certain tax because Hopeful Corporation, having exercised its
goods and services. right of redemption, no capital gain has been derived there
being no sale or transfer of property (Supreme Trans/Iner,
(8) advertising expense to maintain some form Inc., v. BPI Family Savings Bank, Inc., 644 SCRA 59).
of goodwill for the taxpayer's busi~e~s.
(C) salaries and bonuses paid to employees. XIV.
(D) interest payment on loans for the purchase Mr. X, a Filipino residing in Alabama, U.S.A.,
of machinery and equipment used in business. died OA January 2, 2013 after undergoing a major
heart surgery. He left behind to his wife and two (2)
SUGGESTED ANSWER: ~~: kids several properties, to wit: (4%)
i;;:
(1) family home in Makati City;
(B) Advertising expense to maintain some form of
goodwill for the taxpayer's business ( General Foods
Corporation y. CIR, 401 SCRA 545).
I (2) Condominium unit in Las Piiias City;
(3) Proceeds of health insurance from Take
Care, a health maintenance organization in the
Philippines; and
(4) Land in Alabama, U.S.A.
i;
XIX. xx.
The Bureau of Internal Revenue (BIR) issued During his lifetime, Mr. Sakitin obtained a loan
Revenue Memorandum Circular (RMC) No. 65-2012 amounting to P10 million from Bangko Uno for the
imposing Value-Added Tax (VAT} on association purchase of a parcel of land located in Makati City,
dues and membership fees collected by condominium using such property as collateral for the loan. The
corporations from its member condominium-unit loan was evidenced by a duly notarized promissory
owners. The RMC's validity is challenged before the note. Subsequently, Mr. Sakitin died. At the time of
Supreme Court (SC) by the condominium corporations. his death, the unpaid balance of the loan amounted
to P2 million. The heirs of Mr. Sakitin deducted the
The Solicitor General, counsel for BIR, claims
that association dues, membership fees, and other
assessment/charges collected by a condominium
corporation are subject to VAT since they constitute
;
J
amount of P2 million from the gross estate, as part of
the "Claims against the Estate." Such deduction was
disallowed by the Bureau ,.of Internal Revenue (BIR)
income payments or compensation for the beneficial
services it provides to its members and tenants.
;
A
Examiner, claiming that the mortgaged property was
not included in the computation of the gross estate.
Do you agree with the BIR? Explain. (4%)
On the other hand, the lawyer of the condominium
corporations argues that such dues and fees are t., SUGGESTED ANSWER:
merely held in trust by the condominium corporations
exclusively for their members and used solely ,., Yes. I agree with the BIR. Unpaid mortgages upon
for administrative expenses in Jmplementing the i):·
property are deductible from the gross estate if the value
condominium corporations' purposes. Accordingly, f. of the decedent's interest therein is included in the gross
the condominium corporations do not actually
~.
estate (Section 86-A(1 )(e), NIRC, as amended). Since
render services for a fee subject to VAT. ~ the mortgaged property was not included in the gross
)i'l
~:) estate, the unpaid balance of the loan in the amount of
Whose argument is correct? Decide. (5%} ,,11,,
P2Million is not deductible as "claims against the estate."
SUGGESTED ANSWER:
·,i l
-.,.~ ...
XXI.
The lawyer of the condominium corporation is correct.
The association dues, membership fees and assessmenU On August 31, 2014, Haelton Corporation (HC),
charges do not constitute income payments for services thru its authorized representative Ms. Pares, sold a
as they are used solely for the benefit of the unit owners. 16-storey commercial building known as Haeltown
*R.A. No. 10963 which took effect on January 1, 2018 explicitly Building to Mr. Belly for P100 million. Mr. Belly, in
exempts association dues and membership fees collected by turn, sold the same property on the same day to Bell
condominium corporations from VAT. Gates, Inc. (BGI} for P200 million. These two (2)
transactions were evidenced by two (2) separate
Deeds of Absolute Sale notarized on the same day XXII.

by the same notary public.
Investigations by the Bureau of Internal Revenue Choose the correct answer. Double Taxation - (1 %)
{BIR) showed that:
{A) is one of direct duplicate taxations wherein
{1) the Deed of Absolute Sale between Mr. Belly two (2) taxes must be imposed on the same subject
and BGI was notarized ahead of the sale between matter, by the same taxing authority, within the
HC and Mr. Belly; (2) as early as May 17, 2014, HC same jurisdiction, during the same period, with the
received P40 million from BGI, and not from Mr. same kind or character of tax, even if the purposes
Belly; (3) the said payment of P40 million was of imposing the same are different.
recorded by BGI in its books as of June 30, 2014 as
(8) is forbidden by law; and therefore, it is a
investment in Haeltown Building; and (4) the
valid defense against the validity of a _tax measure.
substantial portion of P40 million was withdrawn by
Ms. Pares through the declaration of cash dividends (C) means taxing the same property twice when
to all its stockholders. it should be taxed only once; it is tantamount to
taxing the same person twice by the same jurisdiction
Based on the foregoing, the BIR sent Haelton
for the same thing.
Corporation a Notice of Assessment for deficiency
income tax arising from an alleged simulated sale of (D) exists when a corporation is assessed with
the aforesaid commercial building to escape the J local business tax as a manufacturer, and at the
higher corporate income tax rate of thirty percent ~
same time, value-added tax as a person selling
(30%). What is the 1iability of Hae1town Corporation, goods in the course of trade or business.
if any? (4%)
SUGGESTED ANSWER:
SUGGESTED ANSWER:
(C) means taxing the same property twice when it
.'fl
Haelton Corporation is liable for the deficiency should be taxed only once; it is tantamount to taxing the
income tax. Inasmuch as the purpose of the first sale of same person twice by the same jurisdiction for the
the property to Mr. Belly is to create a tax shelter, the same thing (Victorias Milling Co. · v. Municipality of
scheme amounted to tax evasion. Mr. Belly having no Victorias, Negros Occidental, 25 SCRA '192).
control over the property, the sale to him was merely a
tax ploy to evade tax liability (CIR v. Benigro Toda, Jr.,
438 SCRA 290).
XXIII. (3) Gains derived from sale of excess computers

and laptops
Choose the correct answer. Tax Avoidance - (1 %)
·Payments:
(A) is a scheme used outside of those lawful
means and, when availed of, it usually subjects the (1) Salaries of office staff
taxpayer to further or additional civil or criminal
(2) Rentals for office space
liabilities.
(3) Representation expenses incurred in meetings
(B) is a tax saving device within the means
sanctioned by law. with clients
(C) is employed by a corporation, the organization (A) What are the items in the above mentioned
of which is prompted more on the mitigation of tax earnings which should be included in the computation
liabilities than for legitimate business purpose. of ABC Law Firm's gross income? Explain.
f1:t
.if,
(D) is any form of tax deduction scheme, }1 ~1 (B) What are the items in the above-mentioned
regardless if the same is legal or not. :.~ . payments which may be considered as deductions
from the gross income of ABC Law Firm? Explain.
SUGGESTED ANSWER: (C) If ABC Law Firm earns net income in 2012,
what, if any, is the tax consequence on the part of
(B) is a tax saving device within the means ABC Law Firm insofar as the payment of inc0me tax
sanctioned by law (Benny v. Commissioner, 25 T.CI. 78). is concerned? What, if any, is the tax consequence
lilc\
t!t
,t on the part of A, B, and C as individual partners,
} ,, .
XXIV. insofar as the payment of income tax is concerned?
A, B, and C, all lawyer~, formed a partnership SUGGESTED ANSWERS:

called ABC Law Firm so that they can practice their
profession as lawyers. For the year 2012, ABC Law A) Items (1 ), (2) and (3) should be included in the
Firm received earnings and paid expenses, among ABC Law Firm's gross income.
which are as follows: (6%) .,.,
1) Professional/legal fees from various client is a

Earnings:
compensation for services rendered;
(1) Professional/legal fees from various clients 2) Cash prize received , from religious society is
(2) Cash prize received from a religious society in
recognition of the exemplary service of ABC Law Firm
i~l received not in recognition of the achievement enumerated
under Section 32(8)(7)(C), NIRC, as amended);
,,r
3) Gains derived from sale of excess computers and SUGGESTED ANSWER:

laptops are gains derived from dealings in property.
(B) Importation of personal and household effects
(B) Items (1 ), (2) and (3) are deductible from the belonging to residents of the Philippines returning from
gross income of ABC Law Firm. They are considered abroad subject to customs duties under the Tariff and
ordinary and necessary expenses. Customs Code.
(C) ABC Law Firm's net income in 2012 is not Reason: The importation is subject to VAT because
subject to tax because it is a general professional the same is not exempt from customs duties. It is
partnership declared exempt from income tax ( Section exempt from VAT if exempt from customs duties
22(8), NIRC, as amended). (Section 109(1 )(c), NIRC, as amended).
However, professional partners A, B, and C are
XXVI.
required to report their distributive shares from the net
income of ABC Law Firm as part of their gross income
li
(Section 26, NIRC, as amended).
XXV.
l!:t
;l
Freezy Corporation, a domestic corporation
engaged in the manufacture and sale of ice cream,
made payments to an officer of Frosty Corporation,
a competitor in the ice cream business, in exchange
) ;?
'},:;-, for said officer's revelation of Frosty Corporation's
Which of the following transactions is subject
to Value-Added Tax (VAT)? (1%) trade secrets.
(A) Sale of shares of stock 1isted and traded

lf May Freezy Corporation claim the payment to
through the local stock exchange; t the officer as deduction from its gross income?
t:i Explain. (4%)
(8) Importation of personal and household effects
belonging to residents of the Philippines returning SUGGESTED ANSWER:
from abroad subject to custom duties under the
Tariff and Customs Code; No. Freezy Corporation may not claim the payments
as deduction from gross income because the same are
(C) Services rendered by individuals pursuant
to an employer-employee relationship; contrary to law, morals or public policy. They fall within the
phrase "other similar payments" which are non-deductible
(D) Gross receipts from lending activities. by under Section 34(A)(1 )(C), NIRC, as amended.
credit or multi-purpose cooperatives duly registered
with the Cooperative Development Authority;
;I
•Ji
TAXATION LAW
<lil
iii Bar Questions and Suggested Answers
Iii
XXVII. XXVIII.
In January 2013, your friend got his first job as Choose the correct answer. Tax laws - (1 %)
an office clerk. He is single and lives with his family
who depends upon him for financial support. His (A) may be enacted for the promotion of private
parents have long retired from their work, and his enterprise or business for as long as it gives
two (2) siblings are still minors and studying in incidental advantage to the public or the State
grade school. In February 2014, he consulted you as
he wanted to comply with all the rules pertaining to (B) are inherently legislative; therefore, may not
the preparation and filing of his income tax return. be delegated
He now asks you the following: (C) are territorial in nature; hence, they do
(A) Is he entitled to personal exemptions? If so, not recognize the generally-accepted tenets of
how much? (1%) international law
(8) Is he entitled to additional exemptions? If (D) adhere to uniformity and equality when all
so, how much? (1 %) taxable articles or kinds of property of the same
class are taxable at the same rate
(C) What is the effect of the taxes withheld from
his salaries on his taxable income? (2%) SUGGESTED ANSWER:
SUGGESTED ANSWERS: j~, (D) adhere to uniformity and equality when all
:Ji
:;I taxable articles or kinds of property of the same class
(A) Yes. As individual taxpayer, he is entitled to a ·:11 are taxable at the same rate (City of Baguio v. De Leon,
basic personal exemption of P50,000; 25 SCRA 938).
(B) No. His parents and minor siblings are not XXIX.
qualified or dependents for purposes of additional
personal exemption. ·
Dona Evelina, a rich widow engaged in the
(C) The taxes withheld from his salaries will not business of currency exchange, was assessed a
affect his taxable income because they are not allowed considerable amount of local business taxes by the
as tax deductions. City Government of Bagnet by virtue of Tax Ordinance
*R.A. No. 10963 which took effect on January 1, 2018 No. 24. Despite her objections thereto, Doria Evelina
disallowed basic and additional personal exemptions. paid the taxes. Nevertheless, unsatisfied with said Tax
Ordinance, Dona Evelina, through her counsel Atty.
ELP, filed a written claim for recovery of said local
business taxes and contested the assessment. Her
TAXATION LAW
claim was denied, and so Atty. ELP elevated her 2015 T AXA Tl ON LAW
case to the Regional Trial Court (RTC). BAR QUESTIONS AND SUGGESTED ANSWERS
The RTC declared Tax Ordinance No. 24 null
and void and without legal effect for having been I.
enacted in violation of the publication requirement
of tax ordinances and revenue measures under the Explain the principles of a 'sound tax system. (3%)
Local Government Code (LGC) and on the ground of
double taxation. On appeal, the Court of Tax Appeals SUGGESTED ANSWER:
(CTA) affirmed the decision of the RTC. No motion
for reconsideration was filed and the decision The principles of a sound tax system are as follows:
became final and executory. (4%)
(1) Fiscal adequacy means that the sources of
(A) If you are Atty. ELP, what advice will you revenue must be sufficient to meet government
give Doria Evelina so that she can recover the expenditures and other public needs ( Chavez v. Ongpin,
subject local business taxes? \rn, 186 SCRA 331).
(8) If Doria Evelina eventually recovers the local (2) Administrative feasibility means that the tax
business taxes, must the same be considered as law must be capable of effective, efficient, just and
income taxable by the national government? convenient administration.'
SUGGESTED ANSWERS: (3) Theoretical justice or equality means that the

taxes must be based ~pon the ability of the citizens to pay.
(A) Atty. ELP should move for the execution of the
judgment, it having become final and executory. The 11.
issuance of a writ of execution may eventually force the
local treasurer to make the re~und. Mr. A, a citizen and resident of the Philippines,
is a professional boxer. In a professional boxing
(8) It depends. If the local tax recovered is a match held in 2013, he won prize money in United
business-connected tax in that it is deductible from gross States (US) dollars equivalent to P300,000,000.
income, it is taxable applying the tax benefit rule. This is so
because having been claimed as deduction from gross (A) Is the prize money paid to and received by Mr.
income, it resulted in a tax benefit to Dona Evelina. A in the US taxable in the Philippines? Why? (2%)
On the other hand, it is not taxable if the local tax (B) May Mr. A's prize money qualify as an
recovered is not deductible because Dona Evelina exclusion from his gross income? Why? (2%)
received no tax benefit.
~!
j
11;:1···
171
fl.:j
',~~
I
(C) The US already imposed and withheld income SUGGESTED ANSWERS:
taxes from Mr. A's prize money. How may Mr. A use or
apply the income taxes he paid on his prize money (A) Yes, Ms. B's income from sale to Ms. C is
to the US when he computes his income tax liability taxable. The goods are produced and sold within the
in the Philippines for 2013? (4%) Philippines. Hence, the income derived therefrom is
taxable to Ms. C, a non-resident citizen (Section 23(8),
SUGGESTED ANSWERS: NIRC, as amended).
(A) Yes. The prize money is taxable. Mr. A, a resident (B) Yes. A proportionate part of the income is taxable.
citizen, is taxable on his income derived from sources This is so because the goods were produced without and
within and without (Section 23 (A), NIRC, as amended). sold within (Section 42(E), NIRC, as amended).
(B) No. The prize money may not qualify as an IV.

exclusion from Mr. A's gross income. It is not one of the
exempt prizes under Se:::tion 32(8)(7)(d), NIRC, as Mr. E and Ms. F are both employees of AAA
amended. Corp. They got married on February 14, 2011. On
(C) The income taxes withheld and paid to ·the December 29, 2011, the couple gave birth to triplets.
United States government must be claimed by Mr. A On June 25, 2013, they had twins. What were the
either as a deduction from his gross income or as a tax personal exemptions/deductions which Mr. E and
credit from the income tax due when he computes his Ms. F could claim in the following taxable years:
-'f
Philippine income tax liability for ..ta¼able year 2013
(Section 34(C)(1)(b), NIRC, as amended). (A) For 2010 (2%)
(B) For 2011 (3%)

111.
(C) For 2013 (2%)
Ms. C, a resident citizen, bought ready-to-wear
goods from Ms. B, a nonresident citizen. SUGGESTED ANSWERS:
(A) If the goods were produced from Ms. B's (A) For 2010, Mr. E and Ms. F could claim basic
factory in the Philippines, is Ms. B's income from the personal exemption of PS0,000 each (Section 35A, NIRC).
sale to Ms. C taxable in the Philippines? Explain. (2%)
(8) For 2011, Mr. E and Ms. F could claim a basic
(8) If Ms. B is an alien individual and the goods personal exemption of P50,000 each. In addition, they
were produced in her factory in China, is Ms. B's could claim P25,000 additional personal exemption for
in.come from the sale of the goods to Ms. C taxable each child, totaling P75,000 for the three (3) qualified
in the Philippines? Explain. (2%) dependent children.
174' BAR Q & A For The Past 1.0 Years 2015 TAXATION LAW 175
T fa.XATION LAW Bar Questions and Suggested Answers
(C) For 2013, Mr. E and Ms. F could claim a basic (8) Non-resident alien engaged in trade or business
personal exemption of PSO,OOO each. Likewise, they (NRA-ETB) is subject to twenty percent (20%) final
could claim P25,OOO additional personal exemption for withholding tax on the receipt thereof (Section 25 (a)(2),
each of the four (4) qualified dependent children totaling NIRC, as amended).
P10O,OOO.
*R.A. No. 10963 which took effect on January 1, 2018 (C) Non-resident alien not engaged in trade or
disallowed basic and personal exemptions. business (NRA-NETB) is subject to twenty-five percent
(25%) final withholding tax on all income including cash
V. dividends (Section 25(b), NIRC, as amended).
BBB, Inc., a domestic corporation, enjoyed a · (D) It is tax-exempt (Section 27(d)(4), NIRC, as
particularly profitable year in 2014. In June 2015, its amended).
Board of Directors approved the distribution of cash (E) It is subject to final withholding tax of fifteen
dividends to its stockholders. BBB, Inc. has individual percent (15%) provided that the foreign government
and corporate stockholders. What is the tax where the non-resident foreign corporation is domic"rled
treatment of the cash dividends received from BBB, would allow tax credit against the tax due from it
Inc. by the following stockholders: (Section 28(D)(5)(b), NIRC, as amended).
(A) A resident citizen (1%)
VI.
(8) Non-resident alien engaged in trade or
business (1 %) Differentiate between double taxation in the
strict sense and in a broad sense and give an
(C) Non-resident alien not engaged in trade or example of each. (4%)
business (1 % )
SUGGESTED ANSWER:
(D) Domestic corporation (1 %)
Double taxation, in the'strict sense, refers to direct
(E) Non-resident foreign corporation (1 %) double taxation. This occurs when the same property is
taxed twice where it should be taxed but once; both
SUGGESTED ANSWERS: taxes must be imposed on the same property or subject
matter, for the same purpose, by the same state or
(A) Since the recipient is a resident citizen, it is government, or taxing authority, within the same
subject to a final withholding tax of ten percent (10%) jurisdiction or taxing district, during the same taxing
(Section 25(8)(2), NIRC, as amended). period, and they must be of the same kind or character
of tax (84 C.J.S. 131-132).
On the other hand, double taxation, in a broad the Philippines, entered into a lease agreement of a
sense, refers to indirect double taxation. It is one not residential house and lot with EEE, Inc., a non-
covered by direct double taxation although it imposes two resident foreign corporation. The residential house
or more taxes (Villanueva v. /loilo City, 26 SCRA 578). and lot will be used by officials of EEE, Inc. during
their visit to the Philippines. The lease agreement was
VII. signed by representatives from DOD Corp. and EEE,
)~ Inc. in Singapore. DOD Corp. did not subject the
On May 15, 2013, CCC, Inc. received the Final said lease to VAT believing that _it was not a
Decision on Disputed Assessment issued by the
t
domestic service contract. Was DOD Corp. correct?
Commissioner of Internal Revenue (CIR) dismissing Explain. (3%)
the protest of CCC, Inc. and affirming the assessment
against said corporation. On June 10, 2013, CCC, Inc. SUGGESTED ANSWER:
filed a Petition for Review with the Court of Tax MW:..
Appeals (CTA) in division. On July 31, 2015, CCC, Inc. :·:r1
DOD was not correct. The lease is subject to VAT
received a copy of the Decision dated July 22, 2015 of
;~
because though the contract of lease was executed in
the CTA division dismissing its Petition. CCC, Inc. Singapore, the property is leased or used in the
immediately filed a Petition for Review with the CTA en Philippines (Section 108(A), NIRC, as amended).
bane on August 6, 2015. Is the immediate appeal by
CCC, Inc. to the CTA en bane of the adverse Decision IX.
of the CTA division the proper remedy? (3%)
SUGGESTED ANSWER: E- For calendar year 2011, FFF, Inc., a VAT-
,.r registered corporation, reported unutilized excess
No. It is not the proper remedy. Rule 8, Section 1 of
the Revised Rules of Cour: of Tax Appeals requires as
condition sine qua non the filing of a Motion for
Reconsideration of the CTA Division Decision before a
;;
-:i I
input VAT in the amount of P 1,000,000.00 attributable
to its zero-rated sales. Hoping to impress his boss,
Mr. G,· the accountant of FFF, Inc., filed with the
Bureau of Internal Revenue (BIR) on January 31,
l
Petition for Review may be filed with the CTA en bane 2013 a claim for tax refund/credit of the Pl,000,000.00
( Commissioner of Customs v. Marina Sales, Inc., 635 unutilized excess input VAT of FFF, Inc. for 2011. Not
SCRA 606). having received any communication from the BIR,
\i }._ Mr. G filed a Petition for Review with the CTA on
VIII.
'~
~·J March :15, 2013, praying for the tax refund/credit of

the Pl,000,000.00 unutilized excess input VAT of
In June 2013, DOD Corp., a domestic corporation
engaged in the business of leasing real properties in
;r
ii
i •;
FFF, Inc. for 2011.
(A) Did the CTA acquire jurisdiction over the
1 Petition of FFF, Inc.? (2%)
l1·
(8) Discuss the proper procedure and applicable (8) Resident alien on income derived fro,n
time periods for administrative and judicial claims for sources within the Philippines. (1%)
refund/credit of unutilized excess input VAT. (4%)
(C) Resident citizen earning purely compensation
income from two employers within the Philippines,
SUGGESTED ANSWERS:
whose income taxes have been correctly withheld. (1 %)
(A) CTA did not acquire jurisdiction over the petition (D) Resident citizen who falls under the
of FFF. Filing the judicial claim on March 15, 2013 was classification of minimum wage earners. (1%)
premature. The jurisdictional 120-day period had not yet
expired when the petition of FFF was filed (CIR v. Aichi (E) An individual whose sole income has been
Forging Company of Asia, 634 SCRA 422). subjected to final withholding tax. (1 %) · ·
(B) The procedure and applicable prescriptive SUGGESTED ANSWERS:

periods are as follows:
(A) Not required. Non-resident citizen is taxable only
(1) The administrative claim must be filed with the on his income derived within the Philippines (Section
CIR within two (2) years from the close of the taxable 51 (A)(1 ), NIRC, as amended).
. quarter when the zero-rated sales were made.
(B) Required. A resident alien is taxable only on
(2) The CIR has 120 days (*now 90 days under income derived within the Philippines (Section 51 (A)(1 )( c),
R.A. No. 10963) from the submission of complete
J :f:
NIRC, as amended).
documents, in support of the clairo., to decide .
(3) The taxpayer may appeal the decision or

H (C) Required. A resident citizen earning pure Iy
compensation income from two employers is not qualified
inaction of the CIR within thirty (30) days from receipt under the substituted filing of income tax return. Hence, he
or lapse of the 120-day period (*now 90-day period
under R.A. No. 10963). The 30-day period to appeal l1 must file his income tax return.
is both mandatory and jurisdictional.
X.
r1
-~
(D) Not required. Minimum wage earners in the
private and public sector are exempt from payment of
income tax (Section 51(A)(2)(d), NIRC, as amended, in
relation to R.A.9504 ).
.:i
Indicate whether each of the following individuals -:f (E) Not required. The final tax constitutes full settlement
is required or not required to file an income tax return: :1
i of the taxpayer's liability (Section 51(A)(2)(C), NIRC,
1~; as amended).
(A) Filipino citizen residing outside the Philippines
on his income from sources outside the Philippines.
(1 %)
TAXATION LAW Bar Questions and Sl,1ggested Answers
XI. they must comply with to avail themselves of said

exemption. How. will you respond? (4%)
What are de minimis benefits and how are these
taxed? Give three (3} examples of de minimis benefits. SUGGESTED ANSWER:
(4%)
I would advise Mr. H that he may be exempted from
SUGGESTED ANSWER: the payment of tF\e capital gains tax on the sale of the
house and lot where he and his family lived provided
De minimis benefits are facilities or privileges which that the following·conditions are complied with:
are of relatively small value and are offered or furnished
1) The proceeds of the sale may be fully utilized in
by the employer as a means of promoting contentment,
acquiring or constructing a new principal residence
health, efficiency and goodwill. They are exempt from
within . eighteen (18) calendar months from the
income tax.
date of sale;
These are the three (3) examples of de minimis
2) Notify the BIR, through a prescribed return,
benefits:
within thirty (;30) days from the date of sale, of the
1) Monetized value of vacation and sick leave intention to avail of the tax exemption;
credits paid to government officials and employees;
3) The exemption may be availed of only once every
2) Monetized unusec vacation leave credits of ten (10) years (Section 24(0)(2), NIRC, as amended);
private employees not exceeding ten (10) days during
the year; - · 4) Deposit the six percent (6%) capital gains tax
under an escrow account with authorized agent bank
3) Uniform and clothing allowance not exceeding (RR 17-2003).
· PS,000 per annum.
XIII.
XII.
GG'G, Inc. offered to sell through competitive
Mr. H decided to sell the house and lot wherein bidding its shares in HHH Corp., equivalent to 40%
he and his family have lived for the past 10 years, of the total outstanding capital stock of the latter.
hoping to buy and move to a new house and lot JJJ, Inc. acquired the said shares in HHH Corp. as
closer to his children's school. Concerned about the the highest bidder. Before it could secure a
capital gains tax that will be due on the sale of their certificate authorizing registration/tax clearance for
house, Mr. H approaches you as a friend for advice the transfer of the shares of stock to JJJ, Inc., GGG,
if it is possible for the sale of their house to be Inc. had to request a ruling from the BIR confirming
exempted from capital gains tax and the conditions that its sale of the said shares was at fair market
TAXATION LAW
XIV.
value and was thus not subject to donor's tax. In
BIR Ruling No. 012-14, the CIR held that the selling
KKK Corp. secured its Certificate of Incorporation
price for the shares of stock of HHH Corp. was lower
than their book value, so the difference between the from the Securities and Exchange Commission on
selling price and the book value of said shares was June 3, 2013. It commenced business operations on
a taxable donation. GGG, Inc. requested the August 12, 2013. In April 2014, Ms. J, an employee of
Secretary of Finance to review BIR Ruling No. 012- KKK Corp. in charge of preparing the annual income
14, but the Secretary affirmed said ruling. GGG, Inc. tax return of the corporatio~ for 2013, got confused
filed with the Court of Appeals a Petition for Review on whether she should prepare payment for the
under Rule 43 of the Revised Rules of Court. The regular corporate income tax or the minimum
Court of Appeals, however, dismissed the Petition corporate income tax.
for lack of jurisdiction declaring that it is the CTA (A) As Ms. J's supervisor, what will be your
which has jurisdiction over the issues raised. Before
advice? (2%)
which Court should GGG, Inc. seek recourse from
the adverse ruling of the Secretary of Finance in the (B) What are the distinctions between regular
exercise of the latter's power of review? (3%) corporate income tax and minimum corporate
income tax? (3%)
SUGGESTED ANSWER:
SUGGESTED ANSWERS:
GGG, Inc., should seek recourse with the Court of
Tax Appeals. Prevailing jurisprudence dictates that the (A) As Ms. J's supervisor, I will advise that KKK
Court of Tax Appeals has jurisdiction in the exercise of Corporation having commenced its business operations
its appellate jurisdiction, to review rulings of the on August 12, 2013, should prepare payment for the
Secretary of Finance on issues raised against the ruling regular corporate income. The minimum corporate income
of the CIR. (Phi!am!ife v. Secretary of Finance, 741 tax is applicable only beginning on the fourth taxable year
SCRA 578). This has been echoed in the case of Banco immediately following the commencement of the business
de Oro v. Secretary of Finance, 800 SCRA 392, wherein operations (Section 27(e)(1 ), NIRC, as amended).
the Supreme Court held that the determination of the
(8) Regular corporate income tax may be differentiated
validity of BIR rulings falls within the exclusive appellate
·:~\ from minimum corporate income tax as follows:
jurisdiction of the Court of Tax Appeals under Section
7(1) of R.A. No. 1125 as amended, subject to prior
review by the Secretary of Finance, as required under
R.A. No. 8424. h
;I~
1) As to tax rate: Regular corporate income tax rate
is 30% while minimum corporate income tax rate is 2%;
2) As to taxpayers: Regular corporate income tax
rate applies to all corporate taxpayers, while minimum
l
184 BAR Q & A Fo· The Past 10 Years
TAXATION LAW
corporate income tax applies only to domestic XVI.

corporations and resident foreign corporations;
3) As to tax base: Regular corporate income tax is LLL is a government instrumentality created by
based on the taxable income, while minimum corporate Executive Order to be primarily responsible for
income tax is based on gross income; integrating and directing all reclamation projects fqr
the National Government. It was not organized as a
4) As to applicability: Regular corporate income tax stock or a non-stock corporation, nor was it
is applicable once the corporation commenced its intended to operate commercially and compete in
business operations, while minimum corporate income the private market.
tax is applicable beginning on the fourth taxable year
following the commencement of business operations. By virtue of its mandate, LLL reclaimed several
portions of the foreshore and offshore areas of the
xv. Manila Bay, some of which were within the territorial
jurisdiction of Q City. Certificates of title to the
In 2012, Dr. K decided to return to his hometown reclaimed properties in Q City were issued in the
to start his own practice. At the end of 2012, Dr. K name of LLL in 2008. In 2014, Q City issued
found that he earned gross professional income in the Warrants of Levy on said r!:)claimed properties of
amount of P1,000,000.00; while he incurred expenses LLL based on the assessment for delinquent
amounting to P560,000.00 constituting mostly of property taxes for the years 201 Oto 2013.
his office space rent, utilities, and miscellaneous
expenses related to his medical prsictice. However, to (A) Are the reclaimed properties registered in
Dr. K's dismay, only P320,000.00 of his expenses were the name of LLL subject to real property tax? (4 % )
duly covered by receipts. What are the options (B) Will your answer be the same in (a) if from
available for Dr. K so he could maximize the 2010 to the present time, LLL is leasing portions of
deductions from his gross income? (3%) the reclaimed properties for the establishment and
use of popular fastfood restaurants J Burgers, G
SUGGESTED ANSWER: Pizza, and K Chicken? (2%)
Dr. K may avail of the optional standard deduction SUGGESTED ANSWERS:

(OSD) in order to maximize the deduction from his gross
income. OSD, which is forty percent (40%) of his 'gross (A) No. The reclaimed properties are not subject to
sales or receipts, requires no proof or evidence of real property tax. LLL is an instrumentality of the national
expenses paid or incurred by him (Section 34(L), NIRC, government which cannot be taxed by local government
as amended). units (PRA v. City of Paraflaque, 677 SCRA 246).
(8) No. The answer will not be the same. When LLL XVIII.
leased out portions of the reclaimed properties to
popular fast food restaurants, the beneficial use of the Under the Tariff and Customs Code, as amended:
reclaimed properties is granted to taxable persons,
(A) When does importation begin and when is it
thereby subjecting the same to real property tax
(Section 234(a), LGC). deemed terminated? (2%)
(B) In what easels is the decision of the Collector
XVII. automatically reviewed by the Commissioner of
Customs? In what instance/s is the decision of the
Mr. L owned several parcels of land_ and he Commissioner automatically appealed to the Secretary
donated a parcel each to his two childref1. Mr. L of Finance? (4%)
acquired both parcels of land in 1975 for P 200,000.00.
At the time of donation, the fair market value of the
.,,
11·
SUGGESTED ANSWERS:
two parcels of land, as determined by the CIR, was
P2,300,000.00; while the fair market value of the same
j..,.
,\i (A) Importation begins when the carrying vessel or
properties as shown in the schedule of values aircraft enters the jurisdiction of the Philippines with the
prepared by the City Assessors was P2,500,000.00. intention to unload therein. It is deemed terminated upon
What is the proper valuation of Mr. L's gifts to his payment of the duties, taxes and other charges at a port
children for purposes of computing donor's tax? (3%) of entry. In the case of duty-free goods, it is deemed
terminated upon the issuance of the legal permit for
SUGGESTED ANSWER: withdrawal. In both cases, the goods must have legally
left the jurisdiction of the Bureau of Customs (Section
The fair market value (FMV) of the property at the 103, RA 10863).
time of donation is the valuation of Mr. L's gift to his
(B) The decision of the Collector of Customs is
children. This refers to the higher amount between the
FMV as determined by the Commissioner of Internal automatically appealed to Customs Commissioner when
Revenue (CIR) and the FMV as shown in the schedule the same is adverse to the government. If the Customs
of values fixed by provincial and city assessor. Applying Commissioner affirmed su,ch decision, then it is
this rule to the instant case, the gift should be valued at automatically appealed to the Secretary of Finance
P2,500,000 (Section 102 in relation to Section 88(6), (Sections 1127 & 1'128, R.A.10863)
NIRC, as amended).
TAXATION LAW
XIX. xx.
In 2014, M City approved an ordinance levying After filing an Information for violation of
customs duties and fees on goods coming into the Section 254 of the National Internal Revenue Code
territorial jurisdiction of the city. Said city ordinance (Attempt to Evade or Defeat Tax) with the CTA, the
was duly published on February 15, 2014 with Public Prosecutor manifested that the People is
effectivity date on March 1, 2014.
reserving the right to file the corresponding civil
(A) Is there a ground for opposing said ordinance? action for the recovery of the civil liability for taxes.
(2%) As counsel for the accused, comment on the
People's manifestation. (3%)
(B) What is the proper procedural remedy and
applicable time periods for challenging the ordinance? SUGGESTED ANSWER:
(4%)
The People's manifestation is improper. The filing
SUGGESTED ANSWERS: of the criminal action and the corresponding civil action
for the recovery of the civil liability shall be deemed
(A) Yes. The ordinance may be opposed on the jointly instituted. No right to reserve the filing of such
ground that the M City has no jurisdiction to impose civil action separately from the criminal action shall be
customs duties and fees on goods coming into its recognized (Section 7(b)(, ), RA No. 9282).
territorial jurisdiction (Section 133-{e), LGC).
XXI.
(B) The procedural remedy ancf the applicable
prescriptive periods are as follows:
MMM, Inc., a domestic telecommunications
1) The constitutionality or legality of tax ordinance company, handles incoming telecommunications
may be raised on appeal before the Secretary of services for non-resident foreign companies by
Justice within thirty (30) days from its effectivity; relaying international calls within the Philippines. To
broaden the coverage of its telecommunications
2) The Secretary of Justice shall render a decision services throughout the country, MMM, Inc. entered
within sixty (60) days from the date of receipt of into various interconnection agreements with local
the appeal;
carriers. The non-resident foreign corporations pay
3) The aggrieved party may file the appropriate MMM, Inc. in US dollars inwardly remitted through
proceedings with the RTC within thirty (30) days from Philippine banks, in accordance with the rules and
receipt of the decision or the lapse of the sixty (60)- regulations of the Bangko Sentra/ ng Pilipinas.
day period without the Secretary acting on the appeal
(Section 187, LGC).
MMM, Inc. filed its Quarterly VAT Returns for (B) No. The answer will not be different if the claim
2000. Subsequently, MMM, Inc. timely filed with the for refund is for effectively zero-rated sales in 2012. The
BIR an administrative claim for the refund of the subsequent incorporation of RR 7-95 requiring the
amount of PG,321,486.50, representing excess input printing of the words "zero-rated" in Section 113 of the
VAT attributable to its effectively zero-rated sales in NIRC as introduced by R.A. No. 9337 falls under
2000. The BIR ruled to deny the claim for refund of the principle of legislative approval of administrative
MMM, Inc. because the VAT official receipts submitted interpretation (Northern Mindanao Power Corp. v. Cf R,
by MMM, Inc. to substantiate said claim did not bear 750 SCRA 733).
the words "zero-rated" as required under Section XXII.
4.108-1 of Revenue Regulations (RR) No. 7-95. On
appeal, the CTA division and the CTA en bane
State the conditions for allowing the following as
affirmed the BIR ruling.
deductions from the gross estate of a citizen or
MMM, Inc. appealed to the Supreme Court resident alien for the purpose of imposing estate tax:
arguing that the NIRC itself did not provide for such
a requirement. RR No. 7-95 should not prevail over a (A) Claims against the estate (2%)
taxpayer's substantive right to claim tax refund (B) Medical expenses (2%)
or credit.
(A) Rule on the appeal of MMM, Inc. (3%) SUGGESTED ANSWERS:
(B) Will your answer in (a) be any different if (A) Claims against the estate may be allowed as
MMM, Inc. was claiming refund of"excess input VAT deduction from the gross estate of a citizen or resident
attributable to its effectively zero-rated sales in alien upon the concurrence of the following conditions:
2012? (2%)
1) The debt instrument must be duly notarized;
SUGGESTED ANSWERS:
2) The executor or administrator shall submit a
statement showing the disposition of the loan
(A) The appeal of MMM, Inc. must be denied. For
proceeds if the loan was contracted within three (3)
one thing, RR No.7-95 was promulgated by the Secretary
of Finance having developed expertise in such field for years before the death of the decedent.
the effective enforcement of the provisions of the NIRC. (B) Medical expenses are deductible from the estate
For another, the CTA division and CTA en bane correctly of a citizen or resident alien under the following conditions:
affirmed the BIR ruling thereby denying the claim for
refund for failure to comply with all the documentary and
evidentiary requirements (Eastern Telecommunications
Philippines, Inc. v. CIR, 679 SCRA 305).
TAXATION LAW
1) The amount must have been incurred within one

2016 TAXATION LAW
(1) year before the decedent's death;
B.AR QUESTIONS AND SUGGESTED ANSWERS
2) The amount must be duly substantiated by
receipts; I.
3) The amount incurred or paid must not exceed Briefly explain the following doctrines: lifeblood
P500,000.
doctrine; necessity theory; benefits received principle;
*R.A. No. 10963 which took effect on January 1, 2018
disallowed medical expenses as deductions from gross estate. and, doctrine of symbiotic relationship. (5%)
SUGGESTED ANSWERS:
t
-,;li!
!!re,
Lifeblood Doctrine means that taxes are the
lifeblood of the government and their prompt and certain
availability is an impervious need (Bull v. United States,
295 U.S. 247). This means that the government can
,~
neither exist nor endure without taxes.

Necessity Theory means that the power of
[/ taxation is predicated on necessity (Phil. Guaranty
Co., Inc. v. CIR, 13 SCRA 775). Without taxes, the
l government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.
Benefits received principle dictates that the
citizens support the State in order that they may, by
means thereof, be secured in the enjoyment of the
benefits of an organized society.
Doctrine of symbiotic relationship enunciates that
every person who is able to must contribute his share in
the burden of running the government. The government,
for its part is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of
the people and enhance their material and moral values
(CIR v. Algue, Inc., 158 SCRA 9).
193
~i t
ii
II. 5) Decisions of the Central Board of Assessment

Appeals (CBAA) in the exercise of its appellate jurisdiction
State at least five (5) cases under the exclusive over assessment cases originally decided by the
appellate jurisdiction of the Court of Tax Appeals provincial or city board of assessment appeals.
(CTA). (5%)
Ill.
SUGGESTED ANSWER:
Rakham operates the lending company that
The Court of Tax Appeals (CTA) has exclusive made a loan to Alfonso in the amount of Pl20,000.00
jurisdiction over the following cases: subject of a promissory r:1ote which is due within
one (1) year from the note's issuance. Three years
1) Decisions of the Commissioner of Internal
after the loan became due and upon information that
Revenue (CIR) in disputed assessments, refunds of
Alfonso is nowhere to be found, Rakham asks· you
internal revenues taxes, fees or other charges, penalties
for advice on how to treat the obligation as "bad
in relation thereto, or other matters arising under the
debt." Discuss the requisites for deductibility of a
NIRC or other laws administered by the CIR;
,.,1•,_
"bad debt?" (5%)
t f,
2) Inaction of the CIR in cases involving disputed f ");
\ \:;,
assessments, refunds of internal revenue taxes, fees or "·'ii
t; $ SUGGESTED ANSWER:
other charges, penalties in relation thereto or other -:'.i ;;:
matters arising under the NIRC, or other law~ :-,1··

'::!:f.
/~ f:. I will advise Rakham that applying the sound
administered by the CIR where the NIRC provides a ~J f: judgment rule, there may be genuine ascertainment of
.·:( f/
specific period; worthlessness of the obligation; hence, it may be
claimed as deductible bad debt
3) Decisions, orders or resolutions of the Regional
Trial Court (RTC) in local tax cases originally decided or A bad debt is deductible upon the concurrence of
resolved by them in the exercise of their original or the following requisites:
appellate jurisdiction; ·
a) There must be a valid and subsisting debt;
4) Decisions of the Commissioner of Customs in
b) The bad debt must arise from business contracts;
cases involving liability of customs duties, seizures,
detention, fines or forfeitures or other penalties in relation -ti c) The debt must not arise from transactions
:/• fi
thereto, or other matters arising under the Customs Law
or other-laws administered by the Bureau of Customs.
ii~ -(;·_ between related taxpayers;
d) The debt must be ascertained to be worthless;
I
. ! i·- e) The debt must be charged off within the taxable year;
1: ·J
:J,
·1'; •"{ i
:1
f) The taxpayer must show that the debt is indeed V.

uncollectible in the future (PRC v. CIR, 256 SCRA 667).
Sure Arrival Airways (SAA) is a foreign corporation,
IV. organized under the laws of the Republic of Nigeria.
Its commercial airplanes do not operate within
The City of Maharlika passed an ordinance Philippine territory, or service passengers embarking
imposing a tax on any sale or transfer of real from Philippine airports. The firm is represented in
property located within the city at a rate of fifty the Philippines by its general agent, Narotel.
percent (50%) of one percent (1 %) of the total
consideration of the transaction. Jose sold a parcel SAA sells airplane tickets through Narotel, and
of land in the city, which he inherited from his these tickets are serviced by SAA airplanes outside
deceased parents, and refused to pay the aforesaid the Philippines. The total sales of airplane tickets
tax. He instead filed a case asking that the transacted by Narotel for SAA in 2012 amounted to
ordinance be declared null and void since the tax it PI0,000,000.00. The Commissioner of Internal Revenue
imposed can only be collected by the national {CIR) assessed SAA deficiency income taxes at the
government, as· in fact he has paid the Bureau of
Internal Revenue (BIR) the required capital gains
tax. If you were the City Legal Officer of Maharlika,
what defenses would you raise to sustain the
validity of the ordinance? {5%)
' rate of 30% on its taxable income, finding that SAA's
airline ticket sales constituted income derived from
sources within the Philippines.
SAA filed a protest on the ground that the alleged
deficiency income taxes,. should be considered as
income derived exclusively from sources outside the
SUGGESTED ANSWER:
Philippines since SAA only serviced passengers
outside Philippine territory. It, thus, asserted that the
As City Legal Officer of Maharlika, I would argue
imposition of such income taxes violated the principle
that, one, under Section 135 of the LGC, the City of of territoriality in taxation.
Maharlika may impose a tax on transfer of real property
ownership; two, the local tax is different from the capital Is the theory of SAA tenable? Explain. (5%)
gains tax imposed by the national government; and
three, there being no specific provision under the LGC SUGGESTED ANSWER:
conferring such power upon the national government,
the City of Maharlika may validly impose such local tax. The theory of SAA is not tenable. It is hornbook
doctrine that the income from sale of tickets is
considered an income derived from the Philippines
f (Air Cargo v. CIR, 778 SCRA 131 ). Since the flow of
wealth, sale and payment of airplane tickets enjoyed the
2016 TAXATION LAW \99
protection of the Philippine Government, the income VII.

derived therefrom is subject to Philippine income tax
(CIR v. BOAC, 149 SCR.L\ 395). Philippine National Railways (PNR) operates the
rail transport of passengers and goods by providing
VI. train stations and freight customer facilities from
Tutuban, Manila to the Bicol Province. As the
Mapagbigay Corporation grants all its employees operator of the railroad transit, PNR administers the
(rank and file, supervisors, and managers) 5% land, improvements and equipment within its main
discount of the purchase price of its products. During station in Tutuban, Manila.
an audit investigation, the BIR assessed the company
the corresponding tax on the amount equivalent to the Invoking Section 193 of the Local Government
courtesy discount received by all the employees, Code (LGC) expressly withdrawing the tax exemption
contending that the courtesy discount is considered privileges of government-owned and controlled
as additional compensation for the rank and file corporations upon the effectivity of the Code in
employees and additional fringe benefit for the 1992, the City Government of Manila issued Final
supervisors and managers. In its defense, the company Notices of Real Estate Tax Deficiency in the amount
argues that the dis-count given to the rank and file of P624,000,000.00 for the taxable years 2006 to
employees is a de minimis benefit and not subject to 2010. On the other hand, PNR, seeking refuge under
tax. As to its managerial employees, it contends that the principle that the government cannot tax itself,
the discount is nothing more than a privilege and its insisted that the PNR lands and buildings are owned
availment is restricted. by the Republic.
Is the BIR assessment correct? Explain. (5%) Is the PNR exempt from real property tax?
SUGGESTED ANSWER:
SUGGESTED ANSWER:
Yes. The BIR assessment is correct. The courtesy
discounts given to rank and file employees are not Yes. The PNR is exempt from real property tax. It
considered de minimis benefits because they are not has been held that PNR is considered a government
included in the exclusive enumeration of de minimis instrumentality and is not a government-owned or
benefits under RR 5-2014. If these courtesy discounts controlled corporation. Its real properties are owned by the
are given to managerial employees, they are likewise Republic of the Philippines declared exempt from real
property tax under Section 234 of the LGC (MIAA v. CA,
taxable as they do not qualify as tax exempt de
minimis benefits. 495 SCRA 591 ).
:iJ
VIII. (B) Explain the procedure for claiming refunds

of tax erroneously or illegally collected under Sec.
In 2011, Solar Computer Corporation (Solar) 229 of the NIRC from the filing of the claim for
purchased a proprietary membership share covered refunds with the CIR up to the CTA. (2.5%)
by Membership Certificate No. 8 from the Mabuhay
Golf Club, Inc. for PS00,000.00. On December 27, SUGGESTED ANSWERS:
2012, it transferred the same to David, its American
consultant, to enable him to avail of the facilities of (A) The procedure is as follows:
the Club. David executed a Deed of Declaration of
Trust and Assignment of Shares wherein he 1) The claim for refund must be filed with the CIR
acknowledged the absolute ownership of Solar over within two (2) years from the last day of the quarter
the share; that the assignment was without any when the zero-rated sale was made;
consideration; and that the share was placed in his 2) The CIR must decide the claim within 120
name because the Club required it to be done. In days (*now 90 days under R.A. No. 10963) from the
2013, the value of the share increased to P800,000.00.
date of filing.
Is the said assignment a "gift" and, therefore,
3) The taxpayer must appeal to the CTA within
subject to gift tax? Explain. (5%)
thirty (30) days from receipt of the CIR's decision or
the expiration of the 120 days (*now 90 days under
SUGGESTED ANSWER: R.A. No. 10963). ·
No. The assignment of shares· is not a taxable (B) The procedure is as follows:
donation. First, there is no divestment of ownership by
the transferor. Second, the purpose of the transfer is 1) A written claim for refund must be filed with the
simply to allow David to avail of the club facilities. Third, CIR within two (2) years from the date of payment
the transfer is merely in form but not in substance. (Section 204, NIRC, as amended).
IX. ~2) The decision of the CIR must be appealed to

the CTA within thirty (30) days from receipt thereof and
(A) Explain the procedure for claiming refunds within two (2) years from the date of payment (Section
or tax credits of input Value Added Tax (VAT) for 3a(2), Revised Rules of the Court of Tax Appeals).
zero-rated or effectively zero-rated sales under Sec.
112 of the National Internal Revenue Code (NIRC)
from the filing of an application with the CIR up to
the CTA. (2.5%)
202 BAR Q & A For The Past 1 0 Years 2016 TAXATION LAW 203
X. XI.
Congress issued a law allowing a 20% discount Soaring Eagle paid its excise tax liabilities with Tax
on the purchases of senior citizens from, among Credit Certificates (TCCs) which it purchased through
others, recreation centers. This 20% discount can the One Stop Shop Inter-Agency Tax Credit Center
then be used by the sellers as a "tax credit." At the (Center) of the Department of Finance. The Center is a
initiative of BIR, howev:e_r! Republic Act No. (RA) composite body of the DOF, BIR, BOC and the B01. The
9257 was enacted amending l:he treatment of the TCCs were accepted by the BIR as payments. A year
20% discount as a "tax deduction." Equity Cinema after, the BIR demanded the payment of alleged
filed a petition with the RTC claiming that RA 9257 is deficiency excise taxes on the ground that Soaring
unconstitutional as it forcibly deprives sellers a part Eagle is not a qualified transferee of the TCCs it
of the price without just compensation. purchased from other B01-registered companies. The
(A) What is the effect of converting the 20% BIR argued that the TCCs are subject to post-audit as a
discount from a "tax credit" to a "tax deduction"? suspensive condition. On the other hand, Soaring
(2.5%) Eagle countered that it is a buyer in good faith and for
value who merely relied on the Center's representation
/j_
(B) If you are the judge, how will you decide the of the genuineness and validity of the TC Cs. Ordered to
case? Briefly explain your answer. (2.5%)
~j,
}~
!~
pay the deficiency, Soaring Eagle claims that the same
1/l is confiscatory and a violation of due process. Is the
SUGGESTED ANSWERS: \~: assessment against Soaring Eagle valid? Explain. (5%)
- - -~
'~I
(A) The effect •of converting the twenty percent

(20%) discount from a tax credit to a tax deduction is that
t~1,.
,ji!lil[
~
SUGGESTED ANSWER:
the tax benefit is effectively reduced. This is because a ')1 . No. The assessment is not valid. Since the Tax
tax credit reduces the tax liability, while a tax deduction Credit Certificates (TCC) are based on the government's
merely reduces the tax base (taxable income). undertaking through the BIR or BOF acknowledging the
taxpayer's entitlement to a tax credit, they are valid
(B) I will decide in favor of the constitutionality of
arid effective.
the law. The Supreme Court ruled that the treatment of
the twenty percent (20%) discount as a tax deduction This being so, the TCCs are transferable in
is a valid exercise of the police power of the State accordance with pertinent laws, rules and regulations
(Manila Memorial Park, Inc. v. DSWD, 711 SCRA 302). (Pilipinas Shell Petroleum Corp. v. CIR, 541 SCRA 316).
XII. XIII.
The Philippine-British Association, Inc. (Association) Pursuant to Sec. 11 of the "Host Agreement"
is a non-stock, non-profit organization which owns between the United Nations and the Philippine
the St. Michael's Hospital (Hospital). Sec. 216 in government, it was provided that the World Health
relation to Sec. 215 of the LGC classifies all lands, Organization (WHO), "its assets, income and other
buildings and other improvements thereon actually, properties shall be : a) exempt from all direct and
directly, and exclusively used for hospitals as indirect taxes." Precision Construction Corporation
"special." A special classification prescribes a lower (PCC) was hired to construct the WHO Medical
assessment than a commercial classification. Center in Manila. Upon completion of the building,
Within the premises of the Hospital, the Association the BIR assessed a 12% VAT on the gross receipts
constructed the St. Michael's Medical Arts Center of PCC derived from the construction of the WHO
(Center) which will house medical practitioners who building. The BIR contends that the 12% VAT is
will lease the spaces therein for their clinics at neither a direct nor an indirect tax on the WHO but a
prescribed rental rates. The doctors who treat the tax that is primarily due from the contractor and is
patients confined in the Hospital are accredited by therefore not covered by the Host Agreement. The
the Association. WHO argues that the VAT is deemed an indirect tax
as PCC can shift the tax burden to it. Is the BIR
The City Assessor classified the Center as correct? Explain. (5%)
"commercial" instead of "special" on the ground
that the Hospital owner gets incQ.me from the lease SUGGESTED ANSWER:
of its spaces to doctors who also entertain out-
patients. Is the City Assessor correct in classifying
,, No. The BIR is not correct. The manifest intention of
the Center as "commercial?" Explain. (5%) it,\
the "Host Agreement" is to exempt the contractor so that
~.
no tax may be shifted to the contractee. As such, the
SUGGESTED ANSWER:
No. The City Assessor is not correct in classifying

Ii exemption from indirect taxation should mean that the
entity or person exempt is the contractor itself. Besides,
the exemption of WHO from indirect taxes which include
the Medical Arts Center as commercial. The Medical
Arts Center is an integral part of the hospital and should
f
1t VAT is enshrined under Section 108(8)(3), NIRC, as
amended. The exemption is based on international
11
be classified for assessment purposes as special. As a
tertiary hospital, St. Michael's is required by law to have
;: agreement to which the Philippines is a signatory.
'
a pool of physicians who comprise the required medical
departments in various medical fields (City Assessor of
Cebu City v. Association of Benevola de Cebu, 524
SCRA 128).
~
· XIV.
two-step transaction in selling the property to· HBC is
considered as unlawful means in mitigating the tax
Lucky V Corporation (Lucky) owns a IC-storey
liabilities of Lucky (CIR v. Estate of Benigro Toda, Jr.,
building on a 2,000 square meter lot in the City of
438 SCRA 290)
Makati. It sold the lot and building to Rainier for P80
million. One month after, Rainier sold the lot and
building to Healthy Smoke Company (HSC) for P200
xv.
million. Lucky filed its annual tax return and
Peter is the Vice-President for Sales of Golden
declared its gain from the sale of the lot and
Dragon ·Realty Conglomerate, Inc. (Golden Dragon).
building in the amount of P750,000.00.
A group of five (5) foreign investors visited the
An investigation conducted by the BIR revealed country for possible investment in the condominium
that two months prior to the sale of the properties to units and subdivision lots ,,:,f Golden Dragon. After a
Rainier, Lucky received P40 million from HSC and not tour of the properties for sale, the investors were
from Rainier. Said amount of P40 million was debited wined and dined by Peter at the posh Conrad's Hotel
by HSC and reflected in its trial balance as "other inv. - at the cost of P150,000.00. Afterward, the investors
Lucky Bldg." The month after, another P40 million was were brought to a party in a videoke club which cost
reflected in HSC's trial balance as "other inv. - Lucky the company P200,000.00 for food and drinks, and
Bldg." The BIR concluded that there is tax evasion the all"!ount of P80,000.00 as tips for business
since the real buyer of the properties of Lucky is HSC promotion officers. Expenses at Conrad's Hotel and
and not Rainier. It issued an assessment for the videoke club were receipted and submitted to
deficrency income tax in the amount of P79 million support the deduction for representation and
against Lucky. Lucky argues that it resorted to tax entertainment expenses. Decide if all the representation
avoidance or a tax saving device, which is allowed by and entertainment expenses claimed by Golden
the NIRC and BIR rules since it paid the correct taxes &
Dragon are deductible. Explain. (5%)
i1
based on its sale to Rainier. On the other hand, t
t:i-
Rainier and HSC also paid the prescribed taxes '/t.
SUGGESTED ANSWER:
I~
arising from the sale by Rainier to HSC. Is the BIR ·-~
correct in assessing taxes on Lucky? Explain. (5%) Golden Dragon can only claim reasonable representation
;11
and entertainment expenses incurred during the taxable
SUGGESTED ANSWER: year that are directly connected or related to the
operation or conduct of the trade or business. The rule
Yes. The BIR is correct in assessing the taxes on of substantiation must be complied with, that is, the
Lucky. The sale of the property by Lucky to Rainier expenses must be substantiated by receipts stating the
consttutes tax evasion. It is clear that HBC is the real purpose therefor, and the date and place where they
buyer as evidenced by the receipt of P40 million. The were incurred.
XVI. SUGGESTED ANSWER:
Amor Powers, Inc. (API) is a domestic corporation Yes. The Petition for Review will prosper. Since the
registered with the BIR as a value-added taxpayer. API claim for refund was filed from the time of the issuance
incurred excess input VAT in the amount of of BIR Ruling No. DA-489-03 on December 10, 2003
PS00,000,000.00 on August 3, 2008. Hence, it filed with and before its reversal by the Supreme Court on 6
the BIR an administrative claim for the refund or credit October 2010, the Petition for Review falls within
of these input taxes on August 15, 2010. Without the exemption from the mandatory 120+30 day periods
waiting for the CIR to act on its claim, API filed a (CIR v. Toledo Power Company, 765 SCRA 511 ).
Petition for Review with the CTA on September 15,
2010 before the lapse of two years after the close of XVII.
the taxable quarter concerned. ?
i:;-
'~:,
The requisites for a valid waiver of the three-
In its Comment on the Petition, the CIR argues :~ year (3-year) prescriptive period for the BIR to
that APl's Petition should be dismissed as it was
assess taxes due in the taxable year are prescribed
filed before the lapse of the 120-day period given to
by Revenue Memorandum Order (RMO) No. 20-90:
the CIR by Sec. 112(0) of the NIRC, which became
effective on January 1, 1998. For the CIR, the 120- 1) The waiver must be in the proper form
day period is mandatory and jurisdictional so that prescribed by RMO 20-90. ·
any suit filed before its expiration is premature and,
therefore, dismissible. 2) The waiver must be signed by the taxpayer
himself or his duly authorized representative. In the
API, on the other hand, invokes BIR Ruling No. case of a corporation, tho waiver must be signed by
DA-489-03 issued by the CIR on December 10, 2003 any of its responsible officials. In case the authority is
in answer to a query posed by the Department of delegated by the taxpayer to a representative, such
Finance regarding the propriety of the actions taken delegation should be in writing and duly notarized.·
by Lazi Bay Resources Development, Inc., which
3) The waiver should be duly notarized.
filed an administrative claim for refund with the CIR
and, before the lapse of the 120-day period from its 4) The CIR or the revenue official authorized by
filing, filed a judicial claim with the CTA. BIR Ruling him must sign the waiver indicating that the BIR has
No. DA-489-03 stated that the, taxpayer-claimant accepted and agreed to the waiver. The date of such
need not wait for the lapse of the 120-day period acceptance by the BIR should be indicated.
before it could seek judicial relief with the CTA. However, before signing the waiver, the CIR or the
revenue official authorized· by him must make sure
Will APl's Petition for Review prosper? Decide that the waiver is in the prescribed form, duly
with reasons. (5%)
notarized, and executed by the taxpayer or his duly
authorized representative.
5) Both the date of execution by the taxpayer SUGGESTED ANSWER:

and date of acceptance by the Bureau should be
before the expiration of the period of prescription or No. Prescription had set in. The waiver was executed
before the lapse of the period agreed upon in case a after VVV Corp. (VW) was assessed for deficiency
subsequent agreement is executed. income taxes to justify the assessment. It is well-settled
that a waiver executed beyond the prescription period is
6) The waiver must be executed in three copies, ineffective. ( CIR v. The Stanley Works (Phils. ), 743
the original copy to be attached to the docket of the SCRA 642)
case, the second copy for the taxpayer and the third
copy for the Office accepting the waiver. The fact of XVIII.
receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the Henry, a U.S. naturalized citizen, went home to
taxpayer was notified of the acceptance of the BIR the Philippines to reacquire Philippine citizenship
and the perfection of the agreement. under RA 9225. His mother left him a lot and
building in Makati City and he wants to make use of
After being assessed by the BIR with alleged
it in his trading business. Considering that he needs
deficiency income taxes, VW Corporation (VW) money for the busihess, he wants to sell his lot and
through Enrique, its President, executed a waiver of building and make use of the consideration. However,
the prescriptive period. The waiver was signed by
the lot has sentimental value and he wants to
Revenue District Officer (RDO) Alfredo. However, the
reacquire it in the future. A friend of Henry told him
waiver did not state the date of execution by the
of the ".sale-leaseback transaction" commonly used
taxpayer and date of acceptance by the BIR. Enrique
in the U.S., which is also used for tax reduction.
was also not furnished a copy of the waiver
Under said transaction, the lot owner sells his
by the BIR.
property to a buyer on the condition that he leases it
VW claims that the waiver is void due to non- back from the buyer. At the same time, the property
compliance with RMO 20-90. H:ence, the period for owner is granted an option to repurchase the lot on
assessment had already prescribed. Moreover, or before an agreed date. Henry approaches you as
since the assessment involves P2 million, the a tax lawyer for advice.
waiver should have been signed by the CIR and Explain what tax benefits, if any, can be
instead of a mere RDO. On the other hand, the BIR
obtained by Henry and the buyer from the sale-
contends that the requirements of RMO No. 20-90
leaseback transaction? (5%)
are merely directory; that the execution of the
waiver by VW was a renunciation of its right to
invoke prescription and that the government cannot
be estopped by the mistakes committed by its
revenue officers. Is WV liable?-Explain. (5%)
SUGGESTED ANSWER: residence of the decedent. However, the principle of

reciprocity applies if Janina is a nonresident alien at the
Henry, as the lessee -of the real property, can claim time of her death (Section 104, NIRC, as amended).
rent expense as a deduction from his gross income. On
the other hand, the buyer, as the lessor of the real (B) Double taxation occurs when the subject or
property may claim as deduction from gross income the object of taxation is taxed twice when it should be taxed
depreciation and other necessary expenses for the but once. There are two (2) kinds of double taxation -
renting out of the property. In addition, he can claim the direct double taxation and indirect double taxation.
interest on the loan obtained to acquire the property as
deduction from gross income. Direct double taxation which is the prohibited type,
arises when two taxes are imposed on the same subject
matter or property, for the same purpose, by the same
XIX.
taxing authority, within the same jurisdiction, during the
same taxing period and they must be of the same kind
Jennifer is the only daughter of Janina who was a
or character of tax (84 C.J .S. 131-132).
resident in Los Angeles, California, U.S.A. Janina died
in the U.S. leaving to Jennifer one million shares of Indirect double taxation, on the other hand, is
Sun Life (Philippines), Inc., a corporation organized permissible as two taxes of different nature or character
and existing under. the laws of the Republic of the are imposed by two different taxing authorities
Philippines. Said shares were held in trust for Janina (Villanueva c. City of lloilo, 26 SCRA 578),
by the Corporate Secretary of Sun Life and the latter
can vote the shares and receive dividends for Janina. xx.
The Internal Revenue Service (IRS) of the U.S. taxed
the shares on the ground that Janina was domiciled in Patrick is a successful businessman in the United
the U.S. at the time of her death. States and he is a sole proprietor of a supermarket
which has a gross sales of $10 million and an annual
(A) Can the CIR of the Philippines also tax the
same shares? Explain. (2.5%) income of $3 million. He went to the Philippines on' a
visit and, in a party, he saw Atty. Agaton who boasts
(B) Explain the concept of double taxation. (2.5%) of being a tax expert. Patrick asks Atty. Agaton: if he
(Patrick) decides to reacquire his Philippine citizenship
SUGGESTED ANSWERS: under RA 9225, establish residence in this coul'.'try,
and open a supermarket in Makati City, will the BIR tax
(A) Yes. The CIR.can tax the subject shares. Since I~: him on the income he earns from his U.S. business?
the intangible personal property (shares of Sun Life ff; If you were Atty. Agaton, what advice will you
(Philippines)) is situated in the Philippines, it is subject [~ give Patrick? (5%)
to Philippine estate tax regardless of the citizenship or
TAXATION LAW
SUGGESTED ANSWER:
2017 TAXATION LAW
I will advise Patrick that his status for purposes of
income tax would be a resident citizen once he
reacquires his Philippine citizenship A resident citizen is I.
taxa,ble on his income derived from sources within and
without the Philippines. Ergo, Patrick's income that may SMZ, Inc. is a VAT-registered enterprise engaged
be derived from his business abroad will be subject to in the general construction business. HP international
Philippine income tax (Section 23, NIRC, as amende~). contracts the services of SMZ, Inc. to construct
HP lnternational's factory building located in the
Laguna Techno Park, a special economic zone. HP
International is registered with the Philippine Economic
Zone Authority (PEZA) as an ecozone export
enterprise, and, as such, enjoys income tax holiday
pursuantto the Special Economic Zone Act of 1995.
SMZ, Inc. files an application with the Bureau of
Internal Revenue {BIR) for the VAT zero-rating of its
sale of services to HP International. However, the BIR
denies SMZ, lnc.'s application on the ground that HP
International already enjoys income tax holiday.
Is the BIR correct in denying SMZ, lnc.'s
application? Explain your answer. (6%)
SUGGESTED ANSWER:
No. The BIR is not correct in denying SMZ, lnc.'s

application for the VAT zero-rating of its sale of services. It
is jurisprudentially settled that all sales of goods., properties
and services made by a VAT-registered supplier from the
customs territory to an ecozone enterprise shall be subject
to VAT at zero percent (0%) rate, regardless of the latter's
type or class of PEZA registration (Cora/ Bay Nickel
Corporation v. CIR, 793 SCRA 190).
215
Moreover, BIR's denial of the application on the

ground that HP International enjoys income tax holiday
holds no water. Section 1'J8(B)(3), NIRC, as amended,
clearly provides that services rendered to persons or
,~, SUGGESTED ANSWER.:
Yes. I will grant Wreck Corporation's administrative

claim for refund correspoi'1ding to the seventy-five
percent (75%) total volume of aviation fuel imported that
entities whose exemption under special laws effectively
subjects the supply of such services to zero percent H
xii were actually sold to the international carriers.
(0%) rate are considered zero-rated. The BIR cannot
provide additional requirements.
H International carriers are granted exemption from the
payment of excise tax under Section 135(a) of the
NIRC, as amended. This being so, Wreck Corporation,.
::Y.
·:ii;,
..J\'..
•.• :;
II.
~
.:l,t. as the statutory taxpayer who is directly liable to pay the
}f excise tax on its petroleum products, is entitled to a
di refund or credit of the excise taxes it paid for petroleum
Wreck Corporation is a domestic corporation ''·'.f
engaged in the business of importing, refining and products sold to international carriers ( CIR v. Pilipinas
selling petroleum products. During the period from Shell Petroleum Corp., 717 SC RA 53).
September 1, 2014 to December 31, 2014, Wreck
Corporation imported 225 million liters of Jet A-1 111.
aviation fuel and paid the excise taxes thereon.
Seventy-five percent (75%) of the total volume of Vanderful, lnc.'s income tax return for taxable
aviation fuel imported were actually sold to year 2015 showed an overpayment due to excess
international carriers of Philippine and foreign creditable withholding taxes in the amount of
registries for their use or consumf)tion outside of P750,000.00. The company opted to carry over the
the Philippines in the period from -November 1, 2014 excess income tax credits as tax credit against its
to December 31, 2014. Wreck Corporation did not quarterly income tax liabilities for the next succeeding
pass on to the international carriers the excise taxes years. For taxable year 2016, the company's income.
it paid on the importation of petroleum products. tax return showed an· overpayment due to excess
creditable withholding taxes in the amount of
On June 25, 2015, Wreck Corporation filed an P1,100,000.00, which included the carry-over from
administrative claim for refund or issuance of tax ,61 year 2015 in the amount of P750,000.00 because its
credit certificate amounting to the excise taxes it operations resulted in a net loss; hence, there was no
had paid on the importation of 225 million liters of l1.:.;I application for any tax liability. This time, the company
Jet A-1 aviation fuel. opted and marked the box "To be refunded' in respect
,;!~
If you were the Commissioner of Internal Revenue, '.:~ of the total amount of P1,100,000.00. ·
will you grant Wreck Corporation's administrative '!;
-;i Vanderful, Inc. now files in the BIR a claim for
claim for refund or issuance of tax credit certificate? •,V
refund of unutilized overpayments of P1, 100,00.00.
-tJ
ii,'?
Is the claim meritorious? (4%)
.,
,1
I
<;:,.1
SUGGESTED ANSWER: original jurisdiction over seizure and forfeiture cases in

the enforcement of the customs laws (Agrix Co. Ltd. v.
The claim for refund of unutilized overpayment to Villanueva, 734 SCRA 533).
the extent of P750,000 is not meritorious. Once the
option to carry-over and apply the excess quarterly V.
income tax against income tax due for the taxable
quarter of the succeeding taxable year has been made, On March 30, 2016, XL Co. filed an administrative
such option shall be considered irrevocable for the claim for refund of unutilized input VAT for taxable
taxable period and no application for cash refund or year 2014, together with supporting documents. XL
issuance of tax credit certificate shall be allowed Co. claimed that its sale of generated power and
therefor (Section 76, NIRC, as amended; University delivery of electric capacity and energy was VAT
Physicians Services, Inc. v. CIR, 858 SCRA 1 ). zero-rated. Due to the inaction of the Commissioner
of Internal Revenue (CIR), XL Co. filed with the Court
IV. of Tax Appeals (CTA) the· following judicial claims
for refund:
On the basis of a warrant of seizure and detention
issued by the Collector of Customs for the purpose of Period Covered Date F.iled
enforcing the Tariff and Customs Code, assorted • --•-• •H•••--• •••- -•--••••••• •••• •••••-•• -•• -••• •
brands of liquor and cigarettes said to have been __ ·-···-1st Qua_rter of2014 . March 31, 2016
illegally imported into the Philippines were seized June 30, 2016
2nd ..........
.. ·---·· -- --·····-·· Quarter of 2014
•-·· ·--·-·- ... ... .
from a store operating in a Freeport zone. The store
owner moved for the quashal of the warrant on the L. .... }.rq_~_nd jth_9_tJ§!Jt9.r g_f 2014 Au_g_L1st 12, 2.016
ground that the Collector of Customs had no
jurisdiction to enforce it within the Freeport zone. Is XL Co.'s claim for VAT refund timely filed?
Should the motion to quash be granted? (3%)
SUGGESTED ANSWER:
SUGGESTED ANSWER:
All the administrative claims for refund were filed on
No. The motion should not be granted. Settled is time. The administrative claim for refund on March 30,
the rule that the treatment of the freeport as a separate 2016 covering the four quarters of 2014, was filed within
customs territory cannot completely divest the government two (2) years from the end of the quarter when the sale
of its right to intervene in the operations and was made (Section 112(A), NIRC, as amended).
management of such freeport, especially when patent
violations of the customs and tax laws are discovered. However, as regards the judicial claims, only the
Upon this point, the Bureau of Customs has exclusive judicial claim filed on August 12, 2016 was.timely filed.
Jurisprudence dictates that the CIR has been granted by A group of private vehicle owners sue on the
law 120 days (*now 90 days per R.A. No. 10963) within ground that the law is unconstitutional for contravening
which to decide the taxpayer's claim. If the CIR does not the Equal Protection Clause of the Constitution.
act on the taxpayer's claim within the 120-day (now 90- Rule on the constitutionality and validity of RA
day) period, XL Co. may appeal to the CTA within thirty
10701. (5%)
(30) days from the expiration of the 120-day period.
th
In the instant case, the 120 day from the filing of SUGGESTED ANSWER:
the administrative claim fell on July 28, 2016. XL Co.
'may file the judicial claim from July 29, 2016 to August R.A. No. 10701 is valid and constitutional. The
27, 2016. Thus, only the judicial claim filed on August uniformity rule does not prohibit classification for purposes
12, 2016 was timely filed. of taxation (British American Tobacco v. Camacho, 562
SCRA 511 ). There is no violation of the "equal protection
VI. clause" even if the subjects of taxation are singled out as
a class in themselves. The test is the presence of valid
Heeding the pronouncement of the President classification which requires that (a) the classification
that the worsening traffic condition in the metropolis must be based on substantial and material distinction; (b)
was a sign of economic progress, the Congress the law applies both to. the present and future conditions;
enacted Republic Act No. 10701 (RA 10701), also (c) the classification must be germane to the purpose of
known as An Act Imposing a Transport Tax on the the law; and (d) the categorization must apply equally to
Purchase of Private Vehicles. all those belonging to the same class.
Under R.A. No. 10701, buyers of private vehicles In the instant case, all the foregoing requisites are
are required to pay a transport tax equivalent to 5% present. Ergo, R.A. No. 10701 does not violate the
of the total purchase price per vehicle purchased. equal protection clause under the Constitution.
R.A. No. 10701 provides that the Land Transportation
Office (L TO) shall not accept for registration any VII.
new vehicles without proof of payment of the 5%
transport tax. R.A. No. 10701 further provides that Calvin Dela Pisa was a Permits and Licensing
existing owners of private vehicles shall be required Officer (rank-and-file) of Sta. Portia Realty Corporation
to pay a tax equivalent to 5% of the current fair (SPRC). He invited the Regional Director of the
market value of every vehicle registered with the Housing and Land Use Regulatory Board (HLURB)
L TO. However, R.A. No. 10701 exempts owners of to a lunch at the Sulo Hotel in Quezon City to
public utility vehicles and the Government from the discuss the approval of SPRC's application for a
coverage of the 5% transport tax. development permit in connection with its subdivision
development project in Pasig City. At breakfast the
following day, Calvin met a prospective client records or other pertinent papers (Pilmico-Mauri Foods
interested to enter into a joint venture with SPRC for Corp. v. CIR, 802 SCRA 618).
the construction of a residential condominium unit in
b) No. Any amount paid or reimbursement for
Cainta, Rizal.
representation incurred by the employee in the performance
Calvin incurred expenses for the lunch and of his duties does not amount to compensation subject to
breakfast meetings he had with the Regional Director tax. In the instant case, the amounts were actually spent by
of HLURB and the prospective client, respectively. the employee for the benefit of the employer. Clearly, there
The expenses were duly supported by official receipts was no income to speak of.
issued in his name. At month's end, he requested
the reimbursement of his expenses, and SPRC VIII.
granted his request.
On April 30, 2015, Daryl resigned as the
(a) Can SPRC claim an allowable deduction for production manager of 52nd Avenue, a television
the expenses incurred by Calvin? Explain your studio owned by SSS Entertainment Corporation.
answer. (2.5%) 52nd Avenue issued to her a Certificate of Withholding
(b) Is the reimbursemerit received by Calvin from Tax on Compensation (BIR Form No. 2316), which
SPRC subject to tax? Explain your answer. (2.5%) showed that the tax withheld from her compensation
was equal to her income tax due for the period from
SUGGESTED ANSWERS: January 2015 to April 30, 2015.
A month after her resignation, Daryl put up her
(a) SPRC cannot claim as deduction the amount own studio and started producing short films. She
spent for lunch in the meeting with the Regional Director was able to earn a meager income from her short films
of HLURB. It was unlawful because it constituted an but did not keep record of her production expenses.
indirect payment to a government official which amounts
to a violation of the Anti-Graft and Corrupt Practices Act. Is Daryl qualified for substituted filing for
taxable year 2015? Explain your answer. (3%)
However, the amount spent for breakfast with a
prospective client is deductible from the gross income of
SUGGESTED ANSWER:
SPRC provided that all the requisites for deductibility
were complied with - (a) the expense must be ordinary
No. Daryl is not qualified for substituted filing
and necessary; (b) it must have been paid or incurred
for taxable year 2015. He did not receive purely
during the taxable year; (c) it must have been paid or
compensation income for calendar year 2015 because he
incurred in connection with the trade or business of the ·l
also derived income from pmducing films. To qualify under
taxpayer; and (d) it must be supported by receipts, ti the substituted filing of income tax return, the taxpayer
'.1i must be purely compensation income earner; received
:i
]
·1'
:i
,;_1,
compensation income from one employer; and the income X.

tax has been correctly withheld by said employer (RR No.
3-2002, now incorporated in RA. No. 10963). On January 27, 2017, Ramon, the comptroller
of Vantage Point, Inc., executed a document entitled
IX. Waiver of the Statute of Limitations in connection
with the BIR's investigation of the tax liabilities of
Upon his retirement, Alfredo transferred his the company f6r the year 2012. However, the Board
savings derived from his salary as a marketing of Directors of Vantage Point, Inc. did not adopt
assistant to a time deposit with AAB Bank. The bank a board resolution authorizing Ramon to execute
regularly deducted 20% final withholding tax on the the waiver.
interest income from the time deposit.
On October 14, 2017, Vantage Point, Inc.
Alfredo contends that the 20% final tax on received a preliminary assessment notice from the
the interest income constituted double taxation BIR indicating its deficiency withholding taxes for
because his salary had been already subjected to the year 2012. Vantage· Point, Inc. filed its protest.
withholding tax. On October 30, 2017, the BIR issued a formal letter
of demand and final assessment notice. Vantage
Is Alfredo's contention correct? Explain your Point, Inc. again filed a protest. The Commissioner
answer. (3%) of Internal Revenue denied the protests and directed
the collection of the assessed deficiency taxes.
SUGGESTED ANSWER:
Accordingly, Vantage Point, Inc. filed a petition
No. Alfredo's contention is not correct. No double for review in the CTA to seek the cancellation
taxation exists because the twenty percent (20%) final and withdrawal of the assessment on the ground
tax is imposed on the interest income, while the tax of prescription.
withheld pertains to his salary or compensation income.
(a) What constitutes a valid waiver of the
Although they are both income tax, they do not pertain
statute of limitations for the assessment and
to the same thing or activity.
collection of taxes? Explain your answer. (3%)
(b) Has the right of the Government to assess
and collect deficiency taxes from Vantage Point, Inc.
for the year 2012 prescribed? Explain your answer.
(3%)
t 227
226 BAR Q & A For The Past 1 O Years
IIi
{( 2017 TAXATION LAW
TAXATION LAW
SUGGESTED ANSWERS: SUGGESTED ANSWER:

f
(a) A valid waiver of the statute of limitations ,.,,
(! The separation pay and indemnity are tax-exempt.
Section 32(B)(6)(b) of the NIRC, as amended, provides
requires the concurrence of the following requisites:
that any amount received by an official or employee or by
1) The waiver must be executed by the taxpayer his heirs from the employer as a consequence of
and accepted by the BIR: '.i:Jj separation of such official or employee from the service of
the employer because of death, sickness or physical
2) In the case of a corporation, the waiver must be disability or for any cause beyond the control of the said
executed by a duly authorized representative or any official or employee shall be exempt from taxation,
of its responsible officers; Cessation of commercial operation is considered a cause
3) The waiver must be executed before the beyond the control of the employer,
expiration of the prescriptive period (CIR v. Kudos
XII.
Metal, 620 SCRA 232).
(b) Yes. The right of the government to assess On September 17, 2015, Data Realty, Inc., a real-
and collect deficiency taxes from Vantage Point has estate corporation duly organized and existing under
prescribed. It is obvious that since the waiver was Philippine law, sold to Jenny Vera a condominium
executed after the expiration of the prescriptive period, it unit at Freedom Residences in Malabon City with an
did not extend the three-year prescriptive period. area of 32.31 square meters for a contract price of
P4,213,000.00. The condominium unit had a zonal
XI. value amounting to P2,877,000.00 and fair market
value amounting to P550,000.00.
The Board of Directors of Sumo Corporation, a
company primarily engaged in the business of (a) Is the transaction subject to value~added tax
marketing and distributing pest control products, and documentary stamp tax? Explain your answer.
approved the partial cessation of its commercial (3%)
operations, resulting in the separation of 32 regular (b) Would your answer be the same if the
employees. Only half of the affected employees property was sold by a bank in a foreclosure sale?
were notified of the board resolution.
Rule on the taxability of the separation pay and
indemnity that will be received by the affected
employees as the result of their separation from
service. Explain your answer. (3%)
TAXATION LAW j 2017 TAXATION LAW
229
SUGGESTED ANSWERS: Ji SUGGESTED ANSWER:

(a) Yes. It is subje:t to value-added tax (VAT)
JI
No. BATAS Law is not liable to pay percentage
because, one - the transaction involves sale of real if business tax. The local government units are devoid of
property primarily held for sale to customer in the }~
fl taxing power to impose percentage tax on sales, barters
ordinary course of trade or business; and, two - the zonal .:.~j
or exchanges or similar 'transactions on goods or
value is beyond the transactional threshold amount for services (Section 133(i), LGC).
residential dwellers. (Section 106 (A)(1 )(a), NIRC, as
amended). Likewise, it is subject to· documentary stamp XIV.
tax (DST) as the transaction is covered by a deed of sale
(Section 196, NIRC, as amended). Globesmart Services, Inc. received a final
assessment notice with formal letter of demand
(b) No. The answe- would· not be the same.
from the BIR for deficiency income tax, value-added
Section 109 in relation to Section 121 of the NIRC, as
tax and withholding tax for the taxable year 2016
amended, provides that sale made by a bank is VAT-
amounting to P48 million. Globesmart Services, Inc.
exempt. Nonetheless, the sale is still subject to DST
filed a protest against the assessment, but the
because conveyances of real property are subject to
DST (Section 196, N!RC, as amended). Commissioner of Internal Revenue denied the
protest. Hence, Globesmart Services, Inc. filed a
XIII.
petition for review in the CTA with an urgent motion
to suspend the collection of tax.
BATAS Law is a general professional partnership After hearing, the CTA Division issued a
operating in the City of Valenzuela. It regularly pays resolution granting the motion to suspend but
value-added tax on its services. All its lawyers have requi.red Globesmart Services, Inc. to post a surety
individually paid the required professional tax for the bond equivalent to the deficiency assessment within
year 2017. However, as a condition for the renewal of 15 days from notice of the resolution. Globesmart
its business permit for the year 2017, the City Services, Inc. moved for the partial reconsideration
Treasurer of Valenzuela assessed BATAS Law for the of the resolution and for the reduction of the bond to
payment of percentage business tax on its gross an amount it could obtain. The CTA Division issued
receipts for the year 2016 in accordance with another resolution reducing the amount of the surety
the Revenue Tax Code of Valenzuela. bond to P24 million. The latter amount was still more
than the net worth of Globesmart Services, Inc. as
Is BATAS Law liable to pay the assessed
reported in its audited financial statements.
percentage business tax? Explain your answer. (3%)
(a)· May the collection of taxes be suspended?
(b) Is the CTA Division justified in· requmng her real properties. Her heirs are still in the process
Globesmart Services, Inc. to post a surety bond as a of making an inventory of her assets that can be
condition for the suspension of the deficiency tax used to pay the estate taxes, if any, which are due
collection? Explain your answer. (3%) on December 19, 2017.
(a). Are the medical expenses, personal loans
SUGGESTED ANSWERS: and mortgages incurred by Casimira deductible
from her gross estate? Explain your answer.(5%)
(a) Yes. The collection of taxes may be suspended.
R.A. 1125, as amended by R.A. 9282 provides that when (b) May the heirs of Casimira file the estate tax
in the opinion of the Court of Tax Appeals, the collection return and pay the corresponding estate tax beyond
of taxes may jeopardize the interest of the government December 19, 2017 without incurring interest and
and/or the taxpayer, the CTA at any stage of the surcharge? Explain your answer. (3%)
proceedings may suspend the collection and require the
taxpayer either to deposit the amount claimed or to file a SUGGESTED ANSWERS:
surety bond for not more than double the amount with
the Court. (a) Yes. With respect to medical expenses, the
amount must not exceed P500,000 paid or incurred within
(b) No. The CTA Division is not justified. It has been one (1) year from Casimira's death. As regards the
held that the CTA should first conduct a preliminary personal loans, the loan document must be notarized and
hearirg for the proper determination of the necessity of the executor or administrator shall submit a statement
a surety bond or the reduction thereof (Pacquiao v. showing the disposition of the loan proceeds if incurred
CTA, 789 SCRA 19). This is ne-cessary to give the within three (3) years from the date of death. As to
taxpa:;er an opportunity· to prove its inability to raise mortgages, it is required that the fair market value of the
such amount. In this case, the CTA failed to consider property must be included in the gross estate. The claims
that the amount of the surety bond is more than the net for personal loans and mortgages must have been
worth of Globesmart Services resulting in violation of the !f contracted bona fide and for an adequate consideration in
due process clause and the equal protection clause {
I money or money's worth (Section 86, NIRC, as amended).
under the Constitution. r
*R.A. No. 10963 disallowed medical expenses as deductions
' from gross estate.
xv. b) The heirs of Casimira may file the estate tax
Casimira died on June 19, 2017 after three return beyond December 19, 2017 provided that· they
filed a request for a reasonable extension not exceeding
weeks of confinement due to an unsuccessful liver
transplant. For her confinement, she had incurred thirty (30) days (Section 90(c), NIRC, as amended).
*R.A. No. 10963 provides that the estate tax return must be
substantial medical expenses that she financed filed within one (1) year from decedent's death.
through personal loans secured by mortgages on
XVI. a special law creating CTA, prevails over P.O. 242, a

general law, conferring upon the OOJ jurisdiction over
The BIR assessed the Babuyan Water District disputes, claims, and controversies between or among
(BWD) with deficiency income taxes amounting to government offices, agencies and instrumentalities
P8.5 million, inclusive of interest and surcharge. The including GOCCs.
BWD disputed the assessment, and argued that it
*On August 8, 2017, the Supreme Court en bane
was a wholly-owned government entity performing ruled in the case of PSALM v. CIR, 835 SCRA 235, that
essential government functions. However, the BIR the Secretary of Justice has jurisdiction over dispute
denied the protest.
between PSALM (Power Sector Assets and Liabilities
The BWD filed a petition for arbitration in the Corporation) and NPC and BIR over the imposition of
Office of the Secretary of Justice pursuant to Sections VAT on the sale of two power plants.
66 to 71, Chapter 14, Book IV of the Administrative
Code of 1987 to assail the denial of its protest, and to XVII.
seek the proper interpretation of Section 32(8)(7)(b) of
the Tax Code that excluded from gross income the San Juan University is a non-stock, non-profit
income derived by the Government or its political educational institution. It owns a piece of land in
subdivisions. The Secretary of Justice rendered a Caloocan City on which its three 2-storey school
decision declaring the BWD .exempt from the payment buildings stood. Two of the buildings are devoted to
of income tax. classrooms, laboratories, a canteen, a bookstore
and administrative offices. The third building is
The Commissioner of Internal Revenue appealed reserved as dormitory for student athletes who are
to the CTA on the sole groynd that the Secretary of granted scholarships for a given academic year.
Justice had no jurisdiction to review the assessment
of the BIR. In 2017, -San Juan University earned income
from tuition fees and from leasing a portion of its
Is the appeal meritorious? Explain your answer. premises to various concessionaires of food, books,
(4%)
and school supplies.
SUGGESTED ANSWER: (a) Can the City Treasurer of Caloocan City

collect real property taxes on the land and building
Yes. The appeal is meritorious. GOCCs are taxable of San Juan University? Explain your answer. (5%)
entities and they are not tax-exempt unless their charter (b) Is the income earned by San Juan University
or the law creating them provides otherwise. CTA, as a
for the year 2017 subject to income tax? Explain
specialized court, has jurisdiction over tax disputes
your answer. (5%)
between GOCC and BIR. The Secretary of Justice
cannot take cognizance of such tax issue. R.A. No. 1125,
·2017 TAXATION LAW 235
SUGGESTED ANSWERS: duties, and other government charges (Section 102(ff)

CMTA) On the other hand, technical smuggling refers to
(a) Yes, as regards the leased portion. The assets the act of importing goods into the country by means of
of a non-stock, non profit ~ducation institutions shall be fraudulent, falsified or erroneous declaration of the
exempt from taxes and duties provided that they are goods as to its nature, kind, quality, quantity or weight,
actually, directly, and exclusively used for educational for the purpose of reducing or evading payment of
purposes (Article XIV, Section 4(3 ), 1987 Constitution). prescribed taxes, duties and other charges (Section 102
Indeed, the test of exemption is the use of the property. (pp), CMTA).
Since the building is leased for commercial purposes,
b) Compromise of tax is a remedy upon the
the same is no longer exempt and therefore, it is subject
presence of any of these grounds: (1) doubtful validity of
to real property tax. '~·
the assessment; (2) financial incapacity of the taxpayer.
b) No, provided that the income is actually, directly, In contrast, abatement of tax is an available remedy
and exclusively used for educational purposes. It has when the tax or any portion thereof appears to be
been held that the requisites for exemption are as unjustly or excessively assessed, or when the
follows: ,:1) the taxpayer is a non-stock, non-profit administration and collection costs involved do not justify
educatioral institution; and (2) the income is actually, the collection of the amount due (Section 204, NIRC,
directly. and exclusively used or educational purposes as amended).
(CIR v. De La Salle University, 808 SCRA 156). XIX.
XVIII.
CMI School, Inc., a non-stock, non-profit
corporation, donated its three parcels of idle land
(a) Differentiate outright smuggling from situated in the Municipality of Cuyapo, Nueva Eclja
technical smuggling. (3%) to SLC University, another non-stock, non-profit
(b) Distinguish compromise from corporation, in recognition of the latter's contribution
abatement of taxes. (3%) to and participation in the spiritual and educational
·:,
:t. development of the former.
.?,
;
' (a) Is CMI School, Inc. liable for the payment of
SUGGESTED ANSWERS: }(?
donor's tax? Explain your answer. (2.5%)
'.f,
1'
;;
a) Outright smuggling refers to an act of importing (b) If SLC University later sells the three parcels
'1i:
goods into the country without complete customs ~
of idle land to Puregold Supermarket, Inc., a stock
prescribed importation documents, or without being l corporation, will SLC University be liable for capital
cleared by customs or regulatory government agencies, Ii gains tax? Explain your answer. (3%)
for the purpose of evading payment of prescribed taxes, W.,
$
!!,
Ir
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TAXATION LAW
(c) If SLC University donates the three parcels

2018 T AXA Tl ON LAW
of idle land in favor of the Municipality of Cuyapo,
Nueva Ecija, will SLC University be liable for donor's
tax? Explain your answer. (2.5%)
I.
SUGGESTED ANSWERS:
KM Corporation, doing business in the City of
(a) No. CMI School, Inc. is not liable for the Kalookan, has been a distributor and retailer of
payment of donor's tax. Gifts made by a resident in clothing and household materials. It has been
favor of an educational institution is exempt (Section paying the City of Kalookan local taxes based on
101 (A)(3), NIRC, as amended). Since the do nee SLC Sections 15 (Tax on Wholesalers, Distributors or
University is a non-stock, non-profit educational institution, Dealers) and 17 (Tax on Retailers) of the Revenue
the donation is tax-exempt. Code of Kalookan City (Code). Subsequently, the
Sangguniang Panlungsod enacted an ordinance
(b) Yes. SLC University is liable for capital gains tax. amending the Code by inserting Section 21 which
Section 30, last paragraph of the NIRC, as amended, imposes a tax on "Businesses Subject to Excise,
provides that the income of whatever kind and character Value-Added and Percentage Taxes under the
of the exempt corporations from any of their properties, National Internal Revenue Code (NIRC)," at the rate
real or personal, or from any of their activities conducted of 50% of 1 % per annum on the gross sales and
for profit regardless of the disposition made of such receipts on persons "who sell goods and services in
income, shall be subject to tax. This may include capital the course of trade or business." KM Corporation
gains derived from the sale of property,. - paid the taxes due under Section 21 under protest,
claiming that (a) local government units could not
(c) No. SLC will not be liable for donor's tax. Gifts impose a tax on businesses already taxed under the
made by a resident to any political subdivision of the NIRC and (b) this would amount to double taxation,
National Government shall be exempt from donor's tax
since its business was already taxed under Sections
(Section 101 (A)(2), NIRC, as amended).
15 and 17 of the Code.
(a) May local government units impose a tax on

businesses already subjected to tax under the
NIRC? (2.5%)
(b) Does this amount to double taxation? (2.5%)
237
n.B BAR Q & A For The Past 10 Years 2018 TAXATION LAW 239
TAXATION LAW Bar Quesf1ons and Suggested Answers
SUGGESTED ANSWERS: (a) Kris Konejero, a Filipino accountant in KKl's

Tax Department in the Makati office, and married to
(a) Yes. Cities may impose a local business tax on a Filipino engineer also working in KKI;
those businesses that are subject to "excise tax, value- (b) Klaus Kiener, a German national who heads
added tax or percentage tax" under the NIRC. The tax to
KKl's Design Department in its Makati office;
be imposed by the City of Kalookan shall not exceed
two percent (2%) of gross sales or gross receipts of the (c) Krisanto Konde, a Filipino engineer in KKl's
preceding calendar year (Sec. 143(h), in relation to Design Department who was hired to work at the
Sec.151, LGC). principal office last January 2017. In April 2017, he
was assigned and detailed in the company's project
(b) Yes. The three taxes are all in the nature of in Jakarta, Indonesia, which project is expected to
local business taxes on wholesalers, retailers and
be completed in April 2019;
service providers which are imposed by the same taxing
authority on the same subject matter for the same tax (d) Kamilo Konde, Krisanto's brother, also an
period; hence, the elements of double taxation are engineer assigned to KKl's project in Taipei, Taiwan.
present (Nursery Care Corporation v. Anthony Acebedo, Since KKI provides for housing and other basic
731 SCRA 280). needs, Kamila requested that all his salaries, paid in
Taiwanese dollars, be paid to his wife in Manila in its
II. Philippine Peso equivalent; and
(e) Karen Karenina, a Filipino architect in KKl's
Kronge Konsult, Inc. (KKI) is a Philippine corporation
engaged in architectural design,-engineering, and Design Department who reported back to KKl's
construction work. Its principal office is located in Makati office in June 2017 after KKl's project in
Makati City, but it has various infrastructure projects Kuala Lumpur, Malaysia was completed.
in the country and abroad. Thus, KKI employs both
local and foreign workers. The company has adopted SUGGESTED ANSWERS:
a policy that the employees' salaries are paid in
the currency of the country where they are assigned (a) As a resident citizen, Kris must file income tax
or detailed. return with the BIR, unless she qualifies under the
substituted filing of income tax return as the tax was
Below are some of the employees of KKI. correctly withheld by the employer (Sections 23, 24(A),
Determine whether the compensation they received 51 (A)(2)(b), NIRC, as amended).
from KKI in 2017 is taxable under Philippine laws
and whether they ar.e required to file tax returns with (b) Taxable. As a resident alien who derived
the Bureau of Internal Revenue (BIR). (2% each) income from Philippine sources, Klaus is required to file
income tax return, unless the compensation income
from KKI is his only returnable income and the withholding Ill.
tax thereon was correctly withheld by his employer
(Sections 23, 24, 5t(A)(2)(b), NIRC, as amended). Kim, a Filipino national, worked with K-Square,
Inc. (KSI), and was seconded to various KSl-
(c) The compensation for his services abroad from
affiliated corporations:
the date of his actual assignment thereat up to the time
i1i
of the completion of the project is tax-exempt as it is an '~
1) from 1999 to 2004 as Vice President of K-Gold
income from sources without earned by a non-resident
l~
Inc.,
citizen (Sections 23 and 24, NIRC, as amended). He is
not required to file a return for this income derived from 2) from 2004 to 2007 as Vice President of
sources without, because said income is not subject to KPB Bank;
income tax in the Philippines (Section 23, NIRC, as
3), from 2007 to 2011 as CEO of K-Com Inc.;
amended).
4) from 2011 to 2017 as CEO of K-Water
(d) Not taxable and no need to file income tax
Corporation, where Kim served as CEO for seven
return. Kamilo is a non-resident citizen who is taxable
years until his retirement last December 12, 2017 upon
only on income from sources within. Compensation for
reaching the compulsory retirement age of 60 years.
services rendered outside the Philippines is an income
from without, which is not subject to Philippine income All the corporations mentioned are majority-
tax (Sections 23 and 42, NIRC, as amended). owned in common by the Koh family and covered by
a BIR-qualified multi employer-employee retirement
(e) Compensation from January 1 up to the time of
plan (MEERP), under which the employees may be
her return in June 2017 is not taxable· as it is an income
moved around within the controlled group (i.e., from
from sources without. (Sections 23 and 42, NIRC, as
one KSI subsidiary or affiliate to another) without
amended). However, compensation from June to
loss of seniority rights or break in the tenure. Kim
December 2017 is taxable to Karen as it is an income from
was well-loved by his employer and colleagues, so
sources within. Karen regained the status of a resident
upon retirement, and on his last day in office, KSI
citizen and accordingly, must file income tax return to pay
gave him a Mercedes Benz car worth P5 million as a
for the tax, unless. she is a purely compensation income
surprise, with a streamer that reads: "You'll be
earner for which the withholding tax on wages
missed. Good luck, Sir Kim."
was correctly withheld by KKI (Section 51 (A)(2)(b), NIRC,
as amended). (a) Are the retirement benefits paid to Kim
pursuant to the MEERP taxable? (2.5%)
(b) Which internal revenue tax, if any, will apply
to the grant of the car to Kim by the company?
(2.5%)
TAXATION LAW
SUGGESTED ANSWERS:
(a) Is Katrina liable for donor's tax? (2.5%)
(a) No. It is evident that Kim served the group of (b) How much in deduction from gross income
companies covered by the BIR-Qualified Retirement may Katrina claim on account of the said donation?
Plan for at least ten (10) years, not less than fifty (50) (2.5%)
years of age at the time of retirement and avails of the
benefit only once. Hence, his retirement benefits are not SUGGESTED ANSWERS:
taxable (Section 32(8)(6)(a), NIRC, as amended).
(a) No. Katrina is not liable for donor's tax. Donation
(b) The grant of the car to Kim is subject to income tax.
in favor of an educational institution is exempt from
The value of the Mercedes Benz car is an income to Kim as
donor's tax (Section 101(A)(3), NIRC, as amended).
it is in recompense for Kim's past services. Compensation
for services in whatever form paid forms part of (b) The donation is fully deductible. Klaret School is
gross income (Section 32(A)(1 ), NIRC, as amended; an accredited non-government organization, having
Commissioner v. Duberstein, 363 US 278 (1960). been established as a non-profit domestic corporation,
organized and operated exclusively for educational
IV. purposes. (Section 34(H)(2)(c), NIRC, as amended).
Katrina may deduct P6.5 mil.lion from her gross income
Years ago, Krisanto bought a parcel of land in which represents the acquisition cost of said property
Muntinlupa for only P65,000. He donated the land to (Section 34(H)(3), NIRC, as amended).
his son, Kornelio, in 1980 when the property had
a fair market value of P75,000 ·and paid the V.
corresponding donor's tax.
Spouses Konstantine and Karina are Filipino
Kornelio, in turn, sold the property in 2000 to
citizens and are principal shareholders of a restaurant
Katrina for P6.5 million and paid the capital gains
chain, Karina's, Inc. The restaurant's principal office
tax, documentary stamp tax, local transfer tax, and
is in Makati City, Philippines.
other fees and charges. Katrina, in turn, donated the ~
land to Klaret School last August 30, 2017 to be Korina's became so popular as a Filipino
used as the site for additional classrooms. No restaurant that the owners decided to expand its
donor's tax was paid, because Katrina claimed that operations overseas. During the period 2010-2015
the donation was exempt from taxation. At the time alone, it opened ten (10) stores throughout North
of the donation to Klaret School, the land had a fair America and five (5) stores in various parts of
market value of P65 million. Europe where there were large Filipino communities.
Each store abroad was in the name of a corporation
TAXATION LAW
organized under the laws of the state or country in

realized from the sale must be reported as part of their
which the store was located. All stores had identical
gross income in their income tax returns subject to the
capital structures: 60% of the outstanding capital
graduated income tax rates for individuals (Section
stock was owned by Karina's, Inc., while the
24(A)(1 )(a) in relation to Section 39, NIRC).
remaining 40% was owned directly by the spouses *R.A. No. 10963 which took effect on January 1, 2018
Konstantino and Korina. imposed a final tax at the rate of fifteen percent (15%) upon the net
capital gains realized from the sale, barter, exchange or other
Beginning 2017, in light of the immigrati.on disposition of shares of stock in a domestic corporation.
policy enunciated by U_S President Donald Trump,
many Filipinos have since returned to the VI.
Philippines and the number of Filipino immigrants in
the US dropped significantly. On account of these Kriq, Inc., a Korean corporation engaged in
developments, Konstantino and Karina decided to the business of manufacturing electric vehicles,
sell their shares of stock in the five (5) US established a branch office in the Philippines in 2010.
corporations that were doing p·oorly in gross sales. The Philippine branch constructed a manufacturing
The spouses' lawyer-friend advised them that they plant in Kabuyao, Laguna,. and the construction
will be taxed 5% on the first PhP100,000 net capital lasted three (3) years. Commercial operations in the
gain, and 10% on the net capital gain in excess of Laguna plant began in 2014.
PhP 100,000.
In just two (2) years of operation, the Philippine
Is the lawyer correct? If not, how should the branch had remittable profits in an amount exceeding
spouses Konstantine and Karine!!. Qe taxed on the 175% of its capital. However, the head office in
sale of their shares? (5%) Korea instructed the branch not to remit the profits
to the Korean head office until instructed otherwise.
SUGGESTED ANSWER: The branch chief finance officer is concerned that
the BIR might hold the Philippine branch liable for
The lawyer's advice is not correct. The capital gains the 10% improperly accumulated earnings tax (IAET)
tax of five percent (5%) for the first P100,000 net capital for permitting its profits to accumulate beyond
gain, and ten percent (10%) on the net capital gain in reas·onable business needs.
excess of P100,000 applies only to the net capital gains
realized from the sale, barter,· exchange or other .(a) Is the Philippine branch of Kria subject to
disposition of shares of stock in a domestic corporation the 10% IAET under the circumstances stated
(Section 24(C), NIRC, as amended). In the instant case, above? (2.5%)
since the shares of stock sold are shares of foreign (b) Is it subject to 15% branch profit remittance
corporations held as capital assets, the capital gain tax (BPRT)? (2.5%)
TAXATION LAW
SUGGESTED ANSWERS:
return for her sister's estate. The following were
claimed as deductions in the estate tax return:
(a) No, The IAET applies only to domestic
corporations which allow their profits to accumulate · 1) Funeral expenses amounting to PhP250,000;
beyond its reasonable business needs, instead of being
distributed as dividends. Since Kria, Inc. is a resident 2) Medical expenses amounting to PhP100,000,
foreign corporation (RFC), the IAET is inapplicable to a incurred when Karissa was hospitalized for
branch of RFC. pneumonia a month before her death; and
(b) No. It will be subject to BPRT only upon actual 3) Loss valued at PhP6 million arising from the
or constructive remittance of branch profits. The law destruction of Karissa's condominium unit due to
provides that profits applied for or earmarked for fire which occurred on September 15, 2017.
remittance shall be subject to BPRT (Section 28(A)(5), N
NIRC, as amended).
(I (a) Should the beachfront property be included
in Karissa's gross estate? (2.5%)
VII.
t
¥ (b) Are the claimed deductions proper? (2.5%)
Karissa is the registered owner of a beachfront SUGGESTED ANSWERS:

property in Kawayan, Quezon which she acquired in
2015. Unknown to many, Karissa was only holding the (a) Yes. Given that the beachfront property is
property in trust for a rich politician who happened to registered in the name of the decedent as of the time of
be her lover. It was the politician who paid for the full death, the extent of her interest in the property, wh1c.h Is
purchase price of the Kawayan property. No deed of full ownership, must form part of her gross estate
trust or any other document showing that Karissa was (Section 85(A), NIRC, as amended).
only holding the property in trust for the politician was
executed between him and Karissa. (b) The claim of funeral expenses amounting to
P250,000 is improper being excessive in amount. The
Karissa died single on May 1, 2017 due to a freak amount allowable as deduction for funeral expenses is
surfing accident. She left behind a number of \. actual funeral expenses or five percent (5%) of the gross
Wi
personal properties as well as real properties, ;1 estate, whichever is lower but in no case shall it exceed
including the Kawayan property. Karissa's sister, Jit1
P200,000 (Section 86(a)(1 )(a), NIRC, as amended). The
Karen, took charge of registering Karissa's estate as ii
'ii
law allows the claim of medical expenses within one (1)
a taxpayer and reporting, for income tax and VAT
purposes, the rental income received by the estate
from real properties. However, it was only on October
1, 2017 when Karen managed to file an estate tax
j
:m
year prior to the decedent's death in an amount not
exceeding PS00,000. Since the amount claimed as
deduction was only P100,000 and was incurred within
one month from the decedent's death, it constitutes a
Ji proper deduction (Section 86(A)(6), NIRC, as amended).
i
248 BAR Q & A For The Past 1O Years 249
2018 TAXATION LAW
Likewise, the loss incurred during the settlement of the SUGGESTED ANSWER:
estate (after de!:3th) but not beyond the last day
prescribed by law for payment of the estate tax (six (6) I would advise them that the proposed donation to
months from date), is a proper deduction from the gross Kanlaon City Water District, a government entity, will be
estate, provided, it is not compensated by insurance and exempt from donor's tax (Section 101 (A)(2), NIRC, as
not claimed as deduction for, income tax purposes amended). Donations to KCHS AA and donation to
(Section 86(A)(1 )(e), NIRC, as amended). Kikay, the siblings' second cousin, are both donations to
*R.A. No. 10963 which took effect on January 1, 2018 strangers, which will expose them to a donor's tax of
disallowed funeral and medical expenses as deductions from
gross estate. thirty percent (30%) based on the fair market value of
the property to be donated (Sec;;tion 99(8), NIRC, as
VIII. amended).
*R.A, No. 10963 which took effect on January 1, 2018 deleted
the provision on donation to a stranger in that the six percent (6%)
Upon the death ·of their beloved parents in 2009, tax rate is imposed on the total gifts in excess of P250,000.
Karla, Karla, and Karlie inherited a huge tract of
farm land in Kanlaon City. The siblings had no plans IX.
to use the property. Thus, they decided to donate
the land, but were not sure to whom the donation Karlito, a Filipino businessman, is engaged in
should be made. They consult you, a well-known tax the business of metal fabrication and repair of LPG
law expert, on the tax implications of the possible cylinder tanks. He conducts business under the
donations they plan to make,·by giving you a list of name and style of "Karlito's Enterprises," a single
the possible donees: proprietorship. Started only five (5) years ago, the
1) The Kanlaon City High School Alumni business has grown so enormously that Karlito
Association (KCHS AA), since the siblings are all decided to incorporate it by transferring all the assets
alumni of the same school and are active members of the business, particularly the inventory of goods on
of the organization. KCHS AA is an organization hand, machineries and equipment, supplies, parts,
intended to promote and strengthen ties between raw materials, office furniture and furnishings,
the school and its alumni; delivery trucks and other vehicles, buildings, and
tools to the new corporation, Karlito's Enterprises,
2) The Kanlaon City Water District which Inc., in exchange for 100% of the capital stock of the
intends to use the land for its offices; or new corporation, the stock subscription to which
shall be deemed fully paid in the form of the assets
3) Their second cousin on the maternal side,
transferred to the corporation by Karlito.
Kikay, who serves as the caretaker of the property.
Advise the siblings which donation would
expose them to the least tax liability. (5%)
As a result, Karlito's Enterprises, the sole X.

proprietorship, ceased to do business and applied
for cancellation of its BIR Certificate of Registration. Klaus, Inc., a domestic, VAT-registered corporation
The BIR, however, assessed Karlito VAT on account engaged in the land transportation business, owns a
of the cessation of business based on the current house and lot along Katipunan St., Quezon City.
market price of the assets transferred to Karlito's This property is being used by Klaus, lnc.'s president
Enterprises, Inc. and single largest shareholder, Atty. Krimson, as his
residence. No business activity transpires there
(a) Is the transfer subject to VAT? (2.5%) except for the company's Christmas party which is
(b) Is the transfer subject to income tax? (2.5%) held there every December. Atty. Krimson recently
grew tired of the long commute from Katipunan to
his office in Makati City and caused the company to
SUGGESTED ANSWERS: ,iiJf; sell the house and lot. The sale was recorded in the
(a) Yes, the transfer is subject to VAT as books of Klaus, Inc. as investment in real property.
"transaction deemed sale" due to the retirement from or
(a) Is the sale of the said property subject to
cessation of business with respect to all goods on hands,
whether capital goods, stock-in-trade, et al., such as in VAT? (2.5%)
the case of a change of ownership of business when a (b) Is the sale subject to 6% capital gains tax or
sole proprietorship incorporates (Section 106(8 )(4 ), regular corporate income tax of 30%? (2.5%)
NIRC, as amended, in rela:ion to Section 4.106-7(a)(4)(i),
RR No. 16-2005). SUGGESTED ANSWERS:
(b) No. The transfer is considered as tax-free
(a) Yes. It is subject to VAT. The real property sold
exchange. No gain or loss shall be recognized· in a
is used in trade or business as it is utilized to extend a
transfer of property to a corporation by a person in
fringe benefit, free use of housing unit, to the presid_ent
exchange for stock or nterest in such corporation
of Klaus, Inc. It is considered as a transaction incidental
resulting in a corporate control. In this case, Karlito
gained control of said corporation (Section (40)(C)(2), to the VAT-registered business of the seller.
NIRC, as amended). (b) The gain from the sale is subject to the regular
corporate income tax of thirty percent (30%) because
the property subject of the sale is not a capital asset
Rather, it is an ordinary asset.
TAXATION LAW
otherwise, the sale of the rented property will not be

XI.
subject to VAT.
Koko's primary source of income is his employment (b) Yes. The answer will be the same. Since the
with the government. He earns extra from the land sale will take place at a time when the seller is already
he inherited from his parents, and which land he has !~
i~
VAT-registered, the sale is subject to VAT. All
been leasing to a private, non-stock, non-profit !~ transactions involving real property for sale or for lease
school since 2005. I"!,;, in the course of trade or business by a VAT-registered
person are subject to VAT (Section 106(A)(l)(a).
Last January, the school offered to buy the land
from Koko for an amount equivalent to its zonal
XII.
value plus 15% of such zonal value. Koko agreed
but required the school to pay, in addition to the
The BIR Commissioner, in his relentless
purchase price, the 12% VAT. The school refused
Koko's proposal to pass on the VAT contending that enforcement of the Run After Tax Evaders (RA TE)
it was an entity exempt from such tax. Moreover, it program, filed with the Department of Justice (DOJ)
charges against a movie and television celebrity. The
said that Koko was not regularly engaged in the real
estate business and, therefore, was not subject to Commissioner alleged that the celebrity earned
VAT. Consequently, Koko should not charge any around PhP 50 million in fees from product
endorsements in 2016 which she failed to report in
VAT to the school.
her income tax and VAT returns for said year. The
(a) Is the contention of the school correct? (2.5%) celebrity questioned the proceeding before the DOJ
on the ground that she was denied due process
(b) Will your answer be the same if Koko signed since the BIR never issued any Preliminary
up as a VAT-registered person only in 2017? (2.5%) Assessment Notice (PAN) or a Final Assessment
Notice (FAN), both of which are required under
SUGGESTED ANSWERS: Section 228 of the NIRC whenever the Commissioner
finds that proper taxes should be assessed.
(a) No. The contention of the school is not correct.
The exemption of the buyer pertains only to taxes for Is the celebrity's contention tenable? {2.5%)
which it is legally liable. Considering that VAT is not a
tax on tre buyer but merely considered as part of the SUGGESTED ANSWER:
purchase price, the tax-exempt buyer cannot invoke its
exemption in order to avoid the imposition of the VAT on No. The celebrity's contention is not tenable.
the transaction. All the same, the transaction will be Assessment is not necessary before the filing of a
subject to VAT only if Koko is either (1) VAT-registered, criminal complaint for tax evasion ( CIR v. Pascor Realty
or (2) VAT-registrable person at the time of the sale; and Development Corp., 309 SCRA 402). In cases
2018 TAXATION LAW . 255
TAXATION LAW
j
where a fraudulent return is filed with the intent to evade

*!,1 Local Business Tax, Prohibition with Prayer to Issue
;~
a tax, a proceeding in court for the collection of such !fe TRO and Writ of Preliminary Injunction" with the
tax may be filed without assessment (Sec.222(a), NIRC, RTC of Negros Occidental.
as amended). The RTC denied the application for TRO. Its
motion for reconsideration having been denied as
XIII. well, KKK filed a petition for certiorari with the Court
~
!i\'.
.\l~ of Appeals (CA) assailing the denial of the TRO.
The Collector at the Port of Koronadal seized "{:i
100 second-hand right-hand drive buses imported $ Will the petition prosper? (5%)
from Japan. He issued warrants of distraint and -~1
scheduled the vehicles for auction sale. Kamila, the ~~ SUGGESTED ANSWER:
importer of the second-hand buses, filed a replevin ;~!
suit with the Regional Trial Court (RTC). The RTC No. The petition will not prosper. It is the CTA which
granted the replevin upon filing of a bond. ,1, has exclusive appellate jurisdiction over cases involving
-,'f.;'
local taxes decided by the RTC in the exercise of the
Did the RTC err in granting the replevin? (2.5%) J latter's original jurisdiction. The Court of Appeals (CA) is
).
r11 devoid of su·ch jurisdiction.
SUGGESTED ANSWER:
) The power of the CTA includes that of determining
Yes. The RTC erred in granting the replevin. The whether or not there has been 'grave abuse of discretion
Collector of Customs has primary and exclusive .:%-~ amounting to lack or excess of jur·1sdiction on the part of
jurisdiction in seizure cases. This exctusive jurisdiction the RTC in issuing an interlocutory order in cases falling
precludes the regular courts from taking cognizance of within the exclusive appellate jurisdiction of the tax
the subject matter and divests such courts of the
prerogative to replevin property subject to seizure and
~-~i
·:;,:
court. It thus, follows that it is the CTA, by constitutional
mandate, which is vested with jurisdiction tp issue writs
forfeiture proceedings for violation of the Tariff and of certiorari in these cases (City of Manila v. Grecia-
Customs Code (Ratios v. Gako, Jr., 344 SCRA 178). Cuerdo, 715 SCRA 182).
XIV. xv.
The City of Kabankalan issued a notice of ::tJ; In 2015, Kerwin bought a three-story house and
assessment against KKK, Inc. for deficiency real lot in Kidapawan, North Cotabato. The property has a
property taxes for the taxable years 2013 to 2017 in ;;!;. floor area of 600 sq.m. and is located inside a gated
the amount of P20 million. KKK paid the taxes subdivision. Kerwin initially declared the property as
under protest and instituted a complaint entitled
"Recovery of Illegally and/or Erroneously-Collected
'?_·
\:
';:•..
;~i.
residential for real property tax purposes.
I 2018 TAXATION LAW
257
TAXATION LAW
effective at the beginning of the quarter next follow·ing

In 2016, Kerwin started using the property in his
the reassessment (Section 221, LGC).
business of manufacturing garments for export. The
entire ground floor is now occupied by state-of-the- (b) Yes. Kerwin is correct. The rule is that the
art sewing machines and other equipment, while the property must be classified, valued and assessed on the
second floor is used as offices. The third floor is basis of its actual use regardless of where located,
retained by Kerwin as his family's residence. whoever owns it, and whoever uses it (Section 217, LGC).
Kerwin's neighbors became susplcious of the
(c) Yes. Kerwin is required to pay the assessment
activities going on inside the house, and they
decided to report it to the Kidapawan City Hall. Upon taxes first before filing an administrative protest. The
inspection, the local government discovered that the words "paid under protest" must be annotated on the tax
property was being utilized for commercial use. receipt, issued by the treasurer. The protest in writing must
Immediately, the Kidapawan Assessor reclassified be filed with the treasurer yvithin 30 days from payment of
the property as commercial with an assessment level the tax (Section 252, LGC).
of 50% effective January 2017, and assessed Kerwin
back taxes and interest. Kerwin claims that only 2/3 XVI.
of the building was used for commercial purposes
since the third floor remained as family residence. He In an action for ejectment filed by Kurt, the lessor-
argues that the property should have been classified owner, against Kaka, the lessee, the trial court ruled in
as partly commercial and partly reside11tial. favor of Kurt. However, the trial court first required
Kurt to pay the realty taxes due on the property for
(a) Is the Kidapawan assessor correct in 2016 before he may recover possession thereof.
assessing back taxes and interest?-'(2:5%)
Kurt objected, arguing that the delinquent realty
(b) Is Kerwin correct that only 2/3 of the taxes were never raised as an issue in the ejectment
property should be considered·commercial? (2.5%) ;~
,11 case. At any rate, Kurt claimed that it should be
Kaka who should be made liable for the realty taxes
(c) If Kerwin wants to file an administrative .r(,
protest against the assessment, is he required to
J.H
·:;~ ,; since it was Kaka who possessed the property
pay the assessment taxes first? With whom shall throughout 2016.
the protest be filed and within what period? (2.5%) Is Kurt correct in re~isting the trial court's
requirement to pay the taxes first? (2.5%)
SUGGESTED ANSWERS:
SUGGESTED ANSWER:
(a) No. The Kidapawan assessor is not correct.
This involves a reassessment of real property due to a No. The trial court was correct in requiring the
major change in its actual use, which cannot be given a !~ payment of delinquent real property taxes before ruling
retroactive effect. The reassessment shall only be 't
I
;r.
i:
l
., ..
:(:·1··
;);
258 BAR Q & A For The Past 10 Years. J 2018 TAXATION LAW 259
TAXATION LAW
'I Bar Questions and Suggested Answers
on the ejectment case. The laws provides that in any · (a) Is KKI liable for real property taxes on the
action involving the ownership or possession of, or land? (2.5%)
succession to, real property, the Court· may, motu
· (b) Is KKl's income from the rental fees subject
proprio, upon representation of the local treasurer,
to income tax? (2.5%)
award such ownership, possession or succession to any
party to the action upon payment to the court of the i SUGGESTED ANSWERS:
taxes with interest due on the property (Section 268,
LGC). Kurt cannot invoke the possession by Kaka in
order to escape payment because the delinquent real
l (a) KKI is liable for real property taxes to the extent
of the leased portion. Article VI, Section 28(3) of the
property tax is a lien on the property superior to all liens
(Section 257, LGC). 1987 Constitution provides that "charitable institutions,
churches and parsonages or convents appurtenant
XVII. thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and
exclusively used for religious, charitable and educational
Kilusang Krus, Inc. (KKI) is a non-stock, non-
purposes shall be exempt from taxation." The test of
profit religious organization which owns a vast tract
exemption from taxation is the use of the property for
of land in Kalinga.
purposes mentioned in the Constitution. The leased
KKI has devoted 1 /2 of the land for various uses: portion of the land may be subject to real property tax
a church with a cemetery exclusive for deceased ,):·•~· since the lease is for commercial purposes, thereby
•;,1-t
priests and nuns, a school providing K to 12 removing the asset from the property tax exemption
education, and a hospital which admits both paying l granted under the Constitution (CIR v. De La Salle
and charity patients. The remaining 1/2 portion has
remained idle.
l University Inc., 808 SCRA 156).
;;
·i,1.1. (b) Yes. KKl's income from the rentalfees is subject to
The KKI Board of Trustees decided to lease the i/:.
income tax. Last paragraph of Section 30 of the NIRC
remaining 1 /2 portion to a real estate developer which tl provides that the income of whatever kind and character from
constructed a community mall over the property.
Since the rental income from the· Iease of the

property was substantial, the KKI decided to use the
amount to finance (1) the medical expenses of the
i
:~ i
~-
any of the properties, real or personal, or from any of its
activities conducted for profit regardless of the disposition
made of such income, shall be subject to income tax.
XVIII.
charity patients in the KKI Hospital and (2) the
purchase of books and other educational materials Kathang Isip, Inc. (KIi) is a domestic corporation
for the students of KKI School. engaged in the business of manufacturing, importing,
) exporting, and distributing toys both locally and
:,1.
abroad. Its principal office is located in Kalookan
TAXATION LAW
'
l•· 2018 TAXATION LAW
261
City, Philippines. It has 50 branches in different ~·

,!i
-:;- purposes of collection of taxes on business, when the

cities and municipalities in the country. When KIi .,j taxpayer is operating a branch or sales outlet
ti
applied for renewal of its mayor's permit and elsewhere, the tax on the sales made therein shall
licenses in its principal office in January this year, accrue and shall be paid to the city or municipality
Kalookan City demanded payment of the local where such branch or sales outlet is located.
business tax on the basis of the gross sales
(b) No. The Kalookan City counsel is not correct.
reported by the corporation in its audited financial
Section 139 of the LGC provides that payment of PTR
statements for the preceding year. KIi protested,
entitles the professional to practice his or her profession
contending that Kalookan City may tax only the
in any part of the Philippines. Hence, Atty. Kabuyao's
sales consummated by its principal office but not
payment of her PTR in Aklan would suffice.
the sales consummated by its branch offices
located outside Kalookan City.
XIX.
When Kalookan City denied the protest, KIi
engaged the services of Atty. Kristeta Kabuyao to The BIR assessed Kosc9, Inc., an importer of
file the necessary judicial proceedings to appeal the "'.11
food products, deficiency income and value-added
decision of Kalookan City. Atty. Kabuyao is a legal ~I
./ii
taxes, plus 50% surcharge after determining that
expert, but resides in Kalibo, Aklan where her \j)
"[ Kosco, Inc. had under-declared its sales by an
husband operates a resort. She, however, practices {! amount exceeding 30% of that declared in its
.',)'
in Metro Manila, including Kalookan City. The income tax and VAT returns. Kosco, Inc. denied the
counsel representing the city, in the case filed in i11
alleged under-declaration, protested the deficiency
Kalookan City by KIi, questioned the use of Atty. assessment for income and value-added taxes and
Kabuyao's Professional Tax Receipt (PTR) issued in challenged the imposition of the 50% surcharge on
Aklan for a case filed in Kalookan City. the ground that the surcharge may only be imposed
(a) Is Kll's contention that Kalookan City can only
collect local business taxes based on sales consummated . .
if Kosco, Inc. fails to pay the deficiency taxes within
the time prescribed for their payment in the notice
in the principal office meritorious? (2.5%)'
(b) Is the Kalookan City counsel correct in
saying that Atty. Kabuyao's PTR issued in Aklan
I
.< ·.
'.
-~
'f
.
of assessment.
(a) Is the imposition of the 50% surcharge
proper? (2.5%)
cannot be used in Kalookan? (2.5%) (b) If your-answer to {a) is yes, may Kosco, inc.
enter into a compromise with the BIR for reduction
SUGGESTED ANSWERS: of the amount of surcharge to be paid? (2.5%)
(a) Yes. Kll's contention is meritorious. Section 150
of the Local Government Code (LGC) provides that for h>
--~
·.1;
l
~f
SUGGESTED ANSWERS: (b) Will your answer b.e the same if KKI filed its
t: appeal on March 20, 2011 and CIR had not yet acted
11:
(a) Yes. The imposition of the fifty percent (50%) on its claim? (2.5%)
surcharge is proper. Section 248(8) of the NIRC,
provides that 50% surcharge on tax or on deficiency tax SUGGESTED ANSWERS:
is imposable in case a false or fraudulent return is willfully
made. Failure to report sales, receipts or income in an (a) No. CTA cannot act on KKi's appeal. It is
amount exceeding thirty percent (30%) of that declared settled that the observance of the "120+30 day" period
per return constitutes substantial underdeclaration of is jurisdictional (CIR v. Aichi Forging Company of Asia,
sales and is prima facie evidence of a false or fraudulent 632 SCRA 422). Counting 120 days from October 10,
return. Kosco, lnc.'s under-declaration of sales is 2010, the last day for the CIR to act on the claim for
considered substantial as to consider the tax return it filed refund/credit fell on February 7, 2011, thus making the
as falsified or fraudulent. February 1, 2011 filing premature.
(b) No. Koska may not enter into a compromise with (b) Yes. The answer will be the same. The filing on
the BIR. Surcharge is in the nature of a penalty. Only an March 20, 2011. still failed to observe the "120+30-day"
internal revenue tax may be subject to compromise rule. The CIR had until February 7, 2011 to decide on
pursuant to Section 204 of the NIRC, as amended. the claim for refund/credit of input VAT. After the lapse
of the 120-day period, the taxpayer-claimant has thirty
xx. (30) days to file an appeal before the CTA. In the
present case, inasmuch as KKI had until March 9, 2011
Krisp Kleen, Inc. (KKI) is a corporation engaged to file the appeal based on a deemed adverse decision
in the manufacturing and processing of steel and its on the claim for refund/credit, the filing on March 20,
by-products. It is both registered with the Board of 2011 was behind time. Hence, the CTA has no
Investments with a pioneer status, and with the BIR jurisdiction over such claim for refund/credit.
as a VAT entity. On October 10, 2010, it filed a claim *R.A. No. 10963 which took effect on January 1, 2018 reduced
the 120-day period to 90-day period.
for refund/credit of input VAT for the period January
1 to March 31, 2009 before the Commissioner of
Internal Revenue (CIR). On February 1, 2011, as the
CIR had not yet made any ruling on its claim for "
refund/credit, KKI, fearful that its period to appeal to
the courts might prescribe, filed an appeal with the
Court of Tax Appeals (CTA).
(a) Can the CTA act on KKl's appeal? (2.5%)

2019 TAXATION LAW 2) The Bureau of Internal Revenue's (BIR's)

BAR QUESTIONS AND SUGGESTED ANSWERS rejection of the taxpayer's reply to PAN needs no
action, while the denial of a protest against a FAN
PARTI should be appealed by the taxpayer to the Court of
Tax Appeals (CTA) Division. (RR No. 12-99; Section
228, NIRC, as amended).
A.1.
b) No. Both the deficiency tax. assessment and
On October 5, 2016, the Bureau of Internal the warrant of distraint and/or levy issued are invalid.
Revenue (BIR) sent KLM Corp. a Final Assessment The deficiency tax assessment issued against KLM
Notice (FAN), stating that after its audit pursuant to Corp., is invalid because of the absence of a
a Letter of Authority duly issued therefor, KLM Corp. preliminary assessment n"otice (PAN), which is
had deficiency value-added and withholding taxes. required by law for the validity of the assessment.
Subsequently, a warrant of distraint and/or levy was (Section 228, NIRC). It is settled that sending a PAN
issued against KLM Corp. KLM Corp. opposed the to the taxpayer to inform him of the assessment made
actions of the BIR on the ground that it was not is but a part of the "due process requirement in the
accorded due process because it did not even issuance of a deficiency tax·. assessment," the
receive a Preliminary Assessment Notice (PAN) after absence of which renders nugatory any assessment
the BIR' s investigation, which the BIR admitted. made by the tax authorities. ( CIR v. Metro Star
(a) Distinguish a PAN from a FAN.(2%) Superama, 637 SCRA 633).
(b) Are the deficiency tax -as·sessment and The warrant of distraint and/or levy cannot be
warrant of distraint and/or levy issued against KLM issued to enforce an invalid assessment. The invalidity
Corp. valid? Explain. (3%) of an assessment as a preliminary step for the
collection of taxes renders the entire collection process
SUGGESTED ANSWERS: invalid which includes the warrant of distraint and/or
levy issued.
a) The following are the distinctions between a PAN
and a FAN:
1) A PAN must be replied within fifteen (15) days_

from receipt while a FAN must be protested within
thirty (30) days from receipt. (RR No. 12-99; Section
228, NIRC, as amended).
264
...,,.,.,
X
'
A.2. to which the Philippines is a signatory. (CIR v. Seagate

Technology Phils., 451 SCRA 132).
For purposes of value-added tax, define, explain
or distinguish the following terms: c) The destination principle states that goods and
services are taxed only in the country where these are
(a) Input tax and output tax (3%) consumed. (Atlas Consolidated Mining and Development
Corporation, 524 SCRA 73).
(b) Zero-rated and effectively zero-rated transactions
(3%)
A.3.
(c) Destination principle (3%)
All the homeowners belonging to ABC Village
SUGGESTED ANSWERS: Homeowners' Association elected a new set of
members of the Board of Trustees for the Association
(a) Input tax means the value-added tax due from effective January 2019. The first thing that the Board
or paid by a VAT-registered person in the course of his looked into is the need to increase the prevailing
trade or business on importation of goods or local association dues. Mr. X, one of the trustees, proposed
purchase of goods or services, including lease or use of an increase of 100% to account for the payment of the
properties from a VAT-registered person. It includes 12% value-added tax (VAT) on the association dues
transitional input tax and presumptive input tax. which were being collected for services allegedly
rendered "in the course of trade or business" by ABC
In contrast, output tax means the value-added tax
Village Homeowners' Association.
due on the sale or lease of taxable goods, properties or '
services by a VAT-registered or VAT-registrable seller. (a) What constitutes transactions done "in the
(b) A zero-rated sale of goods or properties course of trade or business" for purposes of
covering export sale and effectively zero-rated sale is a applying VAT?(2%)
taxable transaction for VAT purposes, although the VAT (b) Is Mr. X correct in stating that the association
rate applied is zero percent (0%). In other words, a sale dues are subject to VAT? Explain. (3%)
by a VAT-registered taxpayer of goods and/or services
taxed at 0% shall not result in any output tax.
SUGGESTED ANSWERS:
On the other hand, an effectively zero-rated
transaction does not cover export sales. It includes local (a) "In the course of trade or business" means the
sale of goods or supply of services by a VAT-registered regular conduct or pursuit of a commercial or an
person or persons or entities who were granted tax economic activity, including transactions incidental
exemption under special laws or international agreement thereto, by any person regardless of whether or not the
person engaged
I
therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net 1) Total net gifts not in excess of Two Hundred
income and whether or not it sells exclusively to Fifty Thousand Pesos (P250,000.00) made during the
members or their guests), or government entity. (Section calendar year .
105, N/RC, as amended).
2) Sale or exchange for insufficient consideration
(b) No. Association dues collected by homeowners' where said sale, exchange, or other transfer of
association are not subject to VAT under Section 109(Y) property is made in the ordinary course of trade or
of the NIRC as amended by R.A. No. 10963. business, a transaction which is bona fide, at arm's
length, and free from any donative intent.
A.4.
3) Gifts made to or for the use of the national
Due to rising liquidity problems and pressure government or any entity created by any of its
from its concerned suppliers, P Corp. instituted a agencies which is not conducted for profit, or to any
flash auction sale of its shares of stock. P Corp. was political subdivision of the said government.
then able to sell its treasury shares to Z, Inc., an
4) Gifts in favor of an educational and/or charitable,
unrelated corporation, for Pl,000,000.00, which was
religious, cultural or social welfare corporation,
only a little below the valuation of P Corp. 's shares
institution, accredited non-government organization,
based on its latest audited financial statements. ii
;~ trust or philanthropic organization or research
In connection therewith, P Corp. sought a Bureau
:~
institution or organization: Provided, however, that not
of Internal Revenue ruling to confirm that,
more than thirty percent (30%) of said gifts shall be
notwithstanding the price difference between the
used by such donee for administration 'purposes.
selling price of the shares and their book value, the
said transaction falls under one of the recognized (b) Yes. The transaction is not subject to donor's
exemptions to donor's tax under the Tax Code. tax. If the sale of property is made in the ordinary course
of business (i.e.,) (i) a transaction which is bona fide, (ii)
(a) Cite the instances under the Tax Code
at arm's length, and (iii) free from any donative intent,
where gifts made are exempt from donor's tax.(3%)
the sale will be considered made for an adequate and
(b) Does the above transaction fall under any of full consideration in money or money's worth and will not
the exemptions? Explain. (2%) be subject to donor's tax. In this case, the transfer was
made in the ordinary course of business since it was
SUGGESTED ANSWERS: done for a valid business purpose, which is to address
liquidity problems and 1·elieve pressure from the
(a) The following gifts are exempt from the donor's company's suppliers.
tax under the NIRC as amended by R.A.10963:
•
A.5. (c) Yes. The heirs should include A's house in Los
Angeles. Gross estate is defined as the value of all the
A, a resident Filipino citizen, died in December properties, real or personal, tangible or intangible,
2018. A's only assets consist of a house and lot in wherever situated, provided that in the case of a non-
Alabang, where his heirs currently reside, as well as resident alien decedent, only those properties located
a house in Los Angeles, California, USA. In computing within the Philippines shall be included in the gross estate.
A's taxable net estate, his heirs only deducted: 1.
P10,000,000.00 constituting the value of their house Given that A is a resident citizen at the time of his
death, the fair market value of the house located in Los
in Alabang as their family home; and 2. P200,000.00
funeral expenses because no other expenses could Angeles, California, USA is included in his gross estate.
be substantiated.
A.6.
(a) Are both deductions claimed by A's heirs
correct? Explain.(2%) XYZ Air, a 100% foreign-owned airline company
based and registered in Netherlands, is engaged in the
(b) May a standard deduction be claimed by A's international airline business and is a member
heirs? If so, how much and what proof nee€1s to be signatory of the International Air Transport Association.
presented for the same to be validly made?(2%) Its commercial airplanes neither operate within the
(c) In determining the gross estate of A, should Philippine territory nor are its service passengers
the heirs include A's house in Los Angeles, embarking from Philippine airports. Nevertheless, XYZ
California, USA? Explain. (2%) Air is able to sell its airplane tickets in the Philippines
through ABC Agency, its general agent in the
Philippines. As XYZ Air's ticket sales, sold through
SUGGESTED ANSWERS:
ABC Agency for the year 2013, amounted to
(a) No. A's heirs are not correct. Only the claim for 11 PS,000,000.00, the Bureau of Internal Revenue (BIR)
the deduction of the family home worth P10,000,000.00 is
,,
assessed XYZ Air deficiency income taxes on the
·l.
·1·
deductible, if the property is the decedent's family home as

ground that the income from the said sales constituted
income derived from sources within the Philippines.
of the time of his death. Under R.A. No. 10963 amending t
the NIRC, funeral expenses are no longer deductible.
Aggrieved, XYZ Air filed a protest, arguing that,
(b) Yes. A standard deduction of P5,000,000.00 is as a non-resident foreign corporation, it should only
allowed under Section 86(A)(1) of the NIRC, as ) be taxed for income derived from sources within
amended by R.A. No. 10963. There is no further proof the Philippines.· However, since it only serviced
needed for the heirs to claim this. passengers outside the Philippine territory, the situs
of the income from its ticket sales should be A.8.

considered outside the Philippines. Hence, no
income tax should be imposed on the same. B transferred his ownership over a 1,000-square
meter commercial land and three-door apartment to
Is XYZ Air's protest meritorious? Explain. (5%)
ABC Corp., a family corporation of which B is a
stockholder. The transfer was in exchange of 10,000
SUGGESTED ANSWER:
shares of stock of ABC Corp. As a result, 8 acquired
51 % ownership of ABC Corp., with all the shares of
No. XYZ Air's protest is not meritorious. As an stock having the right to vote. B paid no tax on 'the
offline international carrier, selling of passage tickets in
exchange, maintaining that it is a tax avoidance
the Philippines, through a general sales agent, XYZ Air scheme allowed under the law. The Bureau of
is considered as resident foreign corporation doing Internal Revenue, on the other hand, insisted that
business in the Philippines. As such, it is taxable under B's alleged scheme amounted to tax evasion.
Section 28(A)(1) of the National Internal Revenue Code.
(Air Canada v. CIR, 778 SCRA 131 ). Should B pay taxes on the exchange? Explain.
(3%)
A.7.
SUGGESTED ANSWER:
Differentiate tax exclusions from tax deductions.
(3%) No. 8 should not. pay taxes on the exchange.
Section· 40(c)(2) of the Tax Code provides that no gain
SUGGESTED ANSWER: or loss shall be r~cognized if property is transferred to a
corporation by a person in exchange for stocks in such
Tax exclusions refer to receipts or items of income corporation wherein as a result of such exchange, such
received or earned which are not included in the person, alone or together with others, not exceeding
computation of gross income because they are exempted four, gains control of the corporation. Since B acquired
by law or treaty. In contrast, tax deductions are amounts control (51 % of voting shares) over the corporation, as a
which are subtracted from gross income to arrive at the result of the exchange, the income or gain derived
taxable income. therefrom is not taxable.
274 BAR Q & A For The Past 1 0 Years 2019 TAXATION LAW 275
A.9. held by the taxpayer primarily for sale to customers in

the ordinary course of his trade or business, or property
GHI, Inc. is a corporation authorized to engage in used in the trade or busin8ss, of a character which is
the business of manufacturing ultra-high density subject to the allowance for depreciation, or a real
microprocessor unit packages. After its registration on property used in trade or business. On the other hand,
July 5, 2005, GHI, Inc. constructed buildings and capital assets pertain to properties held by the taxpayer,
purchased machineries and equipment. As of December whether or not connected with his trade or business, but
31, 2005, the total cost of the machineries and which are excluded from the aforestated ordinary
equipment amounted to P250,000,000.00. However, GHI, assets. (Section 39(A)(1 ), NIRC, as amended).
Inc. failed to commence operations. Its factory was
temporarily closed effective September 15, 2010. On A.10.
October 1, 2010, it sold its machineries and equipment
to JKL Integrated for P300,000,000.00. Thereafter, GHI, In 2018, City X amended its Revenue Code to
Inc. was dissolved on November 30, 201 O. include a new provision imposing a tax on every sale
of merchandise by a wholesaler based on the total
(a) Is the sale of the machineries and equipment selling price of the goods, inclusive of value-added
to JKL Integrated subject to normal corporate taxes (VAT). ABC Corp., a wholesaler operating within
income tax or capital gains tax? Explain. (3%) City X, challenged the new provision based on the
following contentions: ~. the new provision is a form
(b) Distinguish an ordinary asset from a capital
of prohibited double taxation because it essentially
asset. (2%)
amounts to City X imposing VAT which was already
being levied by the national government; and 2. since
SUGGESTED ANSWERS: the tax being imposed is akin to VAT, it is beyond the
power of City X to levy the same.
(a) The sale of machineries and equipment is
subject to normal corporate income tax. It is not subject Rule on each of ABC Corp.'s contentions. (5%)
to capital gains tax of six percent (6%) under Section
27(0)(5) of the NIRC, as amended, because such SUGGESTED ANSWERS:
capital gains tax is imposed on the presumed gain from
the sale of a land and/or building only. (SM!-ED ji
;I
1) ABC's first contention is untenable. There is no
Philippines Technology, Inc., v. CIR, 739 SCRA 691 ). ;tj prohibited double taxation because the taxing authorities
are different. The local tax is imposed on the total selling
(b) Ordinary assets include stock-in-trade of the
price, while VAT is imposed on gross sales/receipts. To
taxpayer or other property of a kind which would
J constitute prohibited double taxation, the two taxes must
properly be included in the inventory of the taxpayer if
be imposed on 1) the same subject matter; 2) for the
on hand at the close of the taxable year, or property
'.~
J
\lj:
same purpose; 3) by the same taxing authority; 4) within The cash prize of P1 ,000,000 is exempt from
the same jurisdiction; 5) during the same taxing period; taxation under Section 32(B)(7)(d) of the NIRC, as
and 6) the taxes must be of the same kind or character. amended, as it is in the nature of a prize granted to Mr.
D as an athlete after winning an international sports
2) However, ABC's second contention is tenable.
competition, i.e. an Olympic qualifying tournament,
Under Section 133 of the Local Government Code local
sanctioned by national sports association.
government units may not levy VAT on sales, barters or
exchanges of goods or services. Hence, City X may not The Lotto prize of PS,000 is not subject to income
impose tax on such sale of merchandise. tax as it is not more than P10,000. (Section 24(8)(1 ).
NIRC, as amended by R.A. No. 10963).
PART II
B.12.
B.11.
JKL-Philippines is a domestic corporation
Mr. D, a Filipino amateur boxer, joined an affiliated with JKL-Jqpan, a Japan-based information
Olympic qualifying tournament held in Las Vegas, technology company with affiliates across the world.
USA, where he won the gold medal. Pleased with Mr. Mr. F is a Filipino engineer employed by JKL-
D's accomplishment, the Philippine Government, Philippines. In 2018, Mr. F was sent· to the Tokyo
through the Philippine Olympic Committee, awarded branch of JKL-Japan based on a contract entered
him a cash prize amounting to P1 ,000,000.00. Upon into between the two (2) companies. Under the said
receipt of the funds, he went to a casino in Pasay contract, Mr. F would be compensated by. JKL-
City and won the P30,000,000.00 jackpot in the slot Philippines for the months spent in the Philippines,
machine. The next day, he went to a nearby Lotto and by JKL-Japan for months spent in Japan. For
outlet and bought a Lotto ticket which won him a the entirety of 2018, Mr. F spent ten (10) months in
cash prize of P5,000.00. the Tokyo branch.
Which of the above sums of money is/are On the other hand, Mr. J, a Japanese engineer
subject to income tax? Explain. (5%) employed by JKL-Japan, was sent to Manila to work
with JKL-Philippine$ as a technical consultant.
SUGGESTED ANSWER: Based on the contract between the two (2)
companies, Mr. J's annual compensation would still
The amount of P30,000,000.00, constituting the be paid by JKL-Japan. However, he would be paid
winnings from casino, is subject to income tax- additional compensation by JKL-Philippines for the
specifically final tax at the rate of twenty percent (20%). months spent working as a consultant. For 2018, Mr.
(Section 24(8)(1 ), NIRC, as amended). J stayed in the Philippines for five (5) months.
T AXA Tl ON LAW Bar Questions and Suggested Answers
In 2019, the Bureau of Internal Revenue (BIR) (b) No. Mr. J's income derived within the Philippines
assessed JKL-Philippines for deficiency withholding is subject to a final tax of twenty five percent (25%) as a
taxes for both Mr. F and Mr. J for the year 2018. As non-resident alien individual not engaged in trade or
to Mr, F, the BIR argued that he is a resident citizen; business in the Philippines. (Section 25(B), NIRC, as
hence, his income tax should be based on his amended). His stay in the Philippines in calendar year
worldwide income. As to Mr. J, the BIR argued that 2018 was only for an aggregate period of five (5)
he is a resident alien; hence, his income tax should months or less than the requirement of "more than 180
be based on his income from sources within the days) in order to qualify him as having engaged in a
Philippines at the schedular rate under Section 24 trade or business in the Philippines. (Section 25(A)(1 ),
(A) (2) of the Tax Code, as amended by Republic Act NIRC, as amended).
No. 10963, or the "Tax Reform for Acceleration and
Inclusion" Law. B.13.
(a) Is the BIR correct in basing its income tax As a way to augment the income of' the
assessment on Mr. F's worldwide income? Explain. employees of DEF, Inc:, a private corporation, the
(3%) management decided to grant a special stipend of
PS0,000.00 for the first vacation leave that any
(b) Is the BIR correct in basing its income tax
employee takes during a given calendar year. In
assessment on Mr. J's income within the Philippines
addition, the senior engineers were also given
at the schedular rate? Explain. (3%)
housing inside the factory compound for the purpose
of ensuring that there are available engineers within
SUGGESTED ANSWERS: the premises every time there is a breakdown in the
factory machineries and equipment.
(a) No. Mr. F is considered as a non-resident
citizen for the taxable period 2018. Having stayed in (a) Is the special stipend part of the taxable
Tokyo br ten (10) months (more than 183 days) and income of the employees receiving the same? If so,
rendered services therein pursuant to an employment what tax is applicable and what is the tax rate?
contract requiring him to be present abroad most of the Explain. (3%)
time. Mr. F should be taxed as a non-resident citizen. As
such, he is subject to tax only for the income realized (b) Is the cash equivalent value of the housing
from P'lilippine sources and his income "without" facilities received by the senior engineers subject to
pertaining to his compensation for services rendered in fringe benefits tax? Explain. (3%)
Tokyo, is not subject to Philippine income tax. (Section
23, NIRC; Section 2, RR No.1-79).
SUGGESTED ANSWERS: B.14.
a) The special stipend is a taxable income of an City R owns a piece of land which it leased to V
employee.
Corp. In turn, V Corp. constructed a public market
If the individual is a rank and file employee, the thereon and leased the stalls to vendors and small
same forms part of his compensation income and it is storeowners. The City Assessor then issued a
subject to income tax at a schedular rate (0% to 35%). notice of assessment against V Corp. for the
However, if the stipend allowance is lumped-up with 13 th payment of real property taxes (RPT) accruing on
month pay and other benefits, the aggregate amount of the public market building, as well as on the land
which does not exceed the exclusion threshold of where said market stands.
P90,000, the amount shall be excluded from gross Is the City Assessor correct in including the
income and not subject to income tax. land in its assessment of RPT against V Corp., even
If the individual is a managerial or supervisory if the same is owned by City R? Explain. (3%)
employee, the same is subject to fringe benefits tax or
final tax at thirty five percent (35%) based on grossed- SUGGESTED ANSWER:
up monetary value of the special stipend. (Section 33,
NIRC, as amended by R.A. No.10963). Yes. City R is correct in including the land in the
RPT assessment. Section 234 of the Local Government
b) No. The cash equivalent value of the housing Code of 1991 (R.A. 7160) provides that properties owned
facilities inside the factory granted to the senior by the government of the Philippines and any of its
engineers is not considered as fringe-benefits subject to instrumentalities shall be exempt from RPT except when
tax. The housing facility is furnished to ensure that the the beneficial use thereof pertains to a non-exempt entity
senior engineers are always available to attend to for a consideration. It is clear that City R leased the
possible breakdown of machineries and equipment. property to V Corp., the beneficial use of the otherwise
Benefits which are granted for the convenience or exempt property, now pertains to a non-exempt entity.
advantage of the employer are exempt from the fringe
benefits tax. (Section 2.33(A), RR No.3-98 implementing 8.15.
Section 33, NIRC).
Mr. C is employed as a Chief Executive Officer of
MNO Company, receiving an annual compensation of
P10,000,000.00, while Mr.Sis a security guard in the
same company earning ;,:m annual compensation of
P200,000.00. Both of them source their income only
from their employment with MNO Company.
T AXA Tl ON LAW ~ar Questions and Suggested Answers
(a) At the end of the year, is Mr. C personally SUGGESTED ANSWERS:

required to file an annual income tax return?
Explain. (2.5%) (a) Calendar year refers to the accounting period
of twelve (12) months ending on December 31. On the
(b) How about Mr. S? Is he personally required other hand, fiscal year means an accounting period of
to file an annual income tax return? Explain. (2.5%) twelve (12) months ending on the last day of any month
other than December. (Section 22(0), NIRC).
SUGGESTED ANSWERS:
(b) The due date for the filing of the corporation's
th
(a) No. Mr. C is not required to file an annual final adjusted return for calendar year is 15 day of April
income tax return, as he is qualified for the substituted of the succeeding year. When a corporation uses fiscal
th
filing of income tax return under Section 51-A of the year, the due date is the 15 day of the fourth month
NIRC, as amended by RA. 10963 considering that he is following the close of the fiscal year. (Section 77, NIRC).
receiving purely compensation income from one
employer (MNO Company) in the Philippines for a given B.17.
calendar year, provided the employer has correctly
withheld the tax on the said compensation income. XYZ Corp. is listed as a top 20,000 Philippine
corporation by the Bureau of Internal Revenue. It
(b) No. Mr. S is likewise not required to file an secured a loan from ABC Bank with a 6% per annum
annual income tax return. Since the only income earned interest. All interest payments made by XYZ Corp. to
(P200,000) during the taxable year did not exc~ed the ABC Bank are subject to a 2% creditable withholding
exemption threshold of P250,000 proviGled in the NIRC, tax. At the same time, XYZ Corp. has a trust deposit
the employee need not file the income tax return. with ABC Bank in the amount of P100,000,ooo.oo,
(Section 51 (A)(2)(a), NIRC, as amended by R.A. )!; which earns 2% interest per annum, but is subject to
Of'
No. 10963). ,'!,.
a 20% final withholding tax on the interest income
}~
received by XYZ Corp.
8.16. ·l
:a
(a) Who are the withholding agents in the case
(a) Differentiat~ between a calendar year and a of: 1. the 20% final withholding tax; and 2. the 2%
fiscal year. (2.5%) · creditable withholding tax? Explain. (2.5%)
(b) When is the deadline for the filing of a (b) When is the deadline for filing a judicial
corporation's final adjustment return for a calendar claim for refund for any excess or erroneous taxes
year? How about for a fiscal year? (2.5%) paid in the case of: 1. the 20% final withholding tax;
and 2. the 2% creditable withholding tax? (2.5%)
I;
.}'
'·1· 2019 TAXATION LAW 285
TAXATION LAW
~ Bar Questions and Suggested Answers
SUGGESTED ANSWERS: 2) The creditable withholding tax -

(a) The filing of the judicial claim is within two (2) years
from filing of the final income tax return of the payee,
1) The 20% final withholding tax- or last day for its filing, whichever comes first. It is
only upon filing of the final income tax return can it be
The Final Withholding Tax (FWT) should be withheld j,
determined with certainty whether there is a
and remitted to the BIR by the withholding agent/payor .t
;:t refundable amount. (ACCRA Investments Corp. v.
corporation. (Section 57(A), NIRC). In this case, ABC Court of Appeals, 204 SCRA 957).
Bank shall withhold the FWT due on the interest income
arising from the trust deposit of XYZ Corp. tit
B.18.
2) The 2% creditable withholding tax -
After a Bureau of Internal Revenue (BIR) audit, T
The Creditable Withholding Tax (CWT) due on the Corp., a domestic corporation engaged in buying and
\, selling of scrap metals, was found to have deficiency
interest payments made by XYZ Corp. to ABC .Bank :!,i:
should be withheld by XYZ Corp. income tax of P25,000,000.00, including interests and
penalties, for the year 2012. For 2012, T Corp. filed its
Under the withholding tax system, whether final or income tax return (ITR) on April 15, 2013 because it
creditable tax, the withholding agent is the person used the calendar year for its accounting. The BIR
who has control over the funds from which the sent the Preliminary Assessment Notice (PAN) on
payment of the income is made. December 23, 2015, and eventually, the Final
- "
b) The deadline for filing a judicial claim for refund Assessment Notice (FAN) on April 11, 2016, which
for any excess or erroneous taxes paid are as follows: l:i1 were received by T Corp. on the same dates that they
were sent. Upon receipt of the FAN, T Corp. filed its
1) The 20% final withholding tax - )! protest letter on June 25, 2016.
The judicial claim for refund should be filed within Thereafter, and without action from the
two (2) years from the date of actual remittance of the Commissioner of Internal Revenue (CIR), T Corp.
tax or from the last day of the month following the filed a petition for review before the Court of Tax
close of the quarter during which withholding was Appeals, -alleging that the assessment has
made, whichever comes first. (Section 204 and Section :t,
,,, .
.·•1·
prescribed. For its part, the CIR moved to dismiss
229 in relation to Section 58, NIRC, as amended by ·]jj. the case, pointing out that the assessment had
R.A. No. 10963). already become final because the protest was filed
beyond the allowable period.
(a) Is T Corp.'s contention regarding the prescription

of the assessment meritorious? Explain. (2.5%)
.~·
(b) Should the CIR's motion to dismiss be Appeals (CTA) to make sure _that the petition was filed
granted? Explain. (2.5%)
'i within the two (2)-year period for claiming refunds.
·i In resisting the claim, the BIR contended that
SUGGESTED ANSWERS:
l
the claim must be dismi,ssed by the CTA on the
)-~f
ground of non-exhaustion of administrative remedies
a) No. The three-year prescriptive period for the because it did not give the CIR the opportunity to
assessment of tax shall start to run from the last day act on the claim for refund.
prescribed by law for the filing of the return, or the day
the return was filed, whichever comes later. (Section (a) Is the BIR's contention meritorious? Explain.
203, NIRC, as amended). Given that T. Corp. filed its (2.5%)
annual income tax return on April 15, 2013, which is
also the last day to file said return, the last day to (b) Assuming that the claim for refund filed by
assess fell on April 15, 2016. The FAN having been W Corp. is for excess and/or unutilized input VAT
issued on April 11, 2016, the right to assess deficiency for the second quarter of 2011, and for which the
income tax for the year 2012 has not yet prescribed. return was timely filed on July 25, 2011, would your
11 answer be the same? Explain. (2.5%)
b) Yes, the motion should be granted. Since the .;~~
taxpayer failed to file a protest within thirty (30) days .{\· SUGGESTED ANSWERS:
from the date of receipt of the FAN, the assessment had
become final, executory and demandable. (Section 228,
NIRC; RR No. 18-2013).
'
-?j.;
a) No. The BIR's contention is not meritorious. W

Corp ha9_ only until May 10, 2013 within which to file its
,1 judicial claim for refund. The judicial claim must be filed
B.19. 11 before the expiration of the 2-year prescriptive period,
J without having to wait for the Bl R's decision on the
On May 10, 2011, the final withholding tax for ;j administrative claim for refund. (Section 229, N/RC,
certain income payments to W Corp. was withheld and \1
'J1, Rule 4, Section 3{a)(2).
remitted to the Bureau of Internal Revenue (BIR), and
the corresponding return therefor was concomitantly i. b) No. The answer would be different. Given that
the refund was filed prior to the effectivity of the TRAIN
filed on the same date. Upon discovering that the
amount withheld was excessive, W Corp. filed with the Law, the ruling in the case of CIR v. Aichi Forging
BIR a claim for refund for erroneously withheld and JIJ
•'},
Company of Asia, inc. (632 SCRA 422) applies, that is,
);:
collected final withholding income tax on May 3, 2013. } . the observance of the "120 +30 days" period is
A week after, and without waiting for any decision mandatory and jurisdiction. Thus, counting 120 days from
from the Commissioner of Internal Revenue (CIR), W May 3, 2013, the last day for the CIR to act on the claim
Corp. filed a petition for review before the Court of Tax for refund fell on August 31, 2013. In this case, T Corp
\f
:.ti:
'!,
·.$
288 BAR Q & A For The Past 10 Years m
TAXATION LAW l
,~
;~
may appeal such inaction only after the expiration of the
120-day period, and within the 30-day period thereafter.
B.20.
ABC, Inc. owns a 950-square meter commercial

lot in Quezon City. It received a notice of assessment
from the City Assessor, subjecting the property to real
property taxes (RPT). Believing that the assessment
was erroneous, ABC, Inc. filed a protest with the City
Treasurer. However, for failure to pay the RPT, the City
Treasurer dismissed the protest.
(a) Was the City Treasurer correct in dismissing !~ APPENDIX

ABC, lnc.'s protest? Explain. (2.5%)
(b) Assuming that ABC, Inc. decides to appeal
the dismissal, where should the appeal be filed?
(2.5%)
SUGGESTED ANSWERS:
a) Yes. The City Treasurer correctly dismissed the .,,{
protest. No protest shall be entertained unless the &

taxpayer first pays the real property tax. (Section 252, R.A. ..~~
No. 7160, LGC). ABC, Inc. must show proof of payment by Jl
presenting a tax receipt with the notation "paid under
protest" before the local treasurer would take cognizance .,:~
of its protest.
b) ABC Inc. should appeal the dismissal with the
Local Board of Assessment Appeals of Quezon City
within sixty (60) days from such denial or sixty (60) days
from the lapse of the period to act on the protest
(Section 226, R.A. 7160, LGC).
rora
;~"
SYLLABUS FOR THE
l 2020 BAR EXAMINATIONS
I
:'.ffl: TAXATION LAW
_lJ
i:
l
Notes: All Bar candidates should be guided that
only laws with their respective amendments and canonical
;1,
doctrines pertinent to these topics as of June 30, 2019 will

be covered in the 2020 Bar Examinations, except when
provided in this syllabus. Principles of law are not
covered by the cut-off period.
This syllabus is only a guide for the bar examinations. It
should not be mistaken for a course syllabus.
I. GENERAL PRINCIPLES
Wt
;~
:½ii
A. CONCEPT AND PURPOSE OF TAXATION
1) Definition
2) Purpose
3) Distinguish: tax and other forms of exactions
B. DISTINGUISH: POWER OF-TAXATION, POLICE POWER,

AND EMINENT DOMAIN
C. THEORY AND BASIS OF TAXATION
1) Lifeblood theory
2) Necessity theory
3) Benefits - received theory
291
~
/,
'.t
'·~i
} Appendix 293
TAXATION LAW Syllabus for the 2020 Bar Examinations
D. JURISDICTION OVER SUBJECT AND OBJECTS 8) Prohibition on compensation and set-off
E. PRINCIPLES OF A SOUND TAX SYSTEM 9) Compromise

10) Taxamnesty
1) Fiscal adequacy !1~
2)
3)
Theoretical justice
Administrative feasibility iri
.}M
-~•:
K. CONSTRUCTION AND INTERPRETATION OF TAX
LAWS, RULES AND REGULATIONS
F. INHERENT AND CONSTITUTIONAL LIMITATIONS 11. NATIONAL TAXATION

ON TAXATION
A. TAXING AUTHORITY
G. STAGES OR ASPECTS OF TAXATION
Ji
v
1) Jurisdiction, power, and. functions of the Commissioner
H. REQUlSITES OF A VALID TAX ·]
'. ~J of Internal Revenue
I. KINDS OF TAXES ]
--~
2) Rule-making authority of the Secretary of Finance
J. GENERAL CONCEPTS IN TAXATION :if
., 8. INCOME TAX
'~
..'l
1) Prospectivity of tax laws
1) Definition, nature, and general principles
2) lmprescriptibility
a) Income tax system
3) Situs of taxation
4) DoL ble taxation i) Global
.ii ii) Schedular
a) Strict sense
b) Broad sense iii) Others
c) Tax treaties as relief from double taxation b) Features of the Philippine income tax law
5) Escape from taxation c) Criteria in imposing Philippine income tax
a) Shifting of tax burden i) Citizenship

b) Distinguish: tax avoidance and tax evasion ii) Residence
6) Exemption from taxation iii) Source

-:~
,J.f
7) Equitable recoupment d) General principles o.f income taxation
Q
i~;
,,;
:1
294 BAR Q & A For The Past 10 Years Appendix 295
e) Types of Philippine income taxes 3) Gross income

f) Kinds of taxpayers ] a) Definition
ill
g) Taxable period J1·
,"f,,
b) Distinguish: gross income, net income, and taxable
!
-'k
income
2) Concept of income
i!!
f~'; c) Sources of income subject to tax
a) Definition
;I i) Compensation income
b) When income is taxable
ii) Fringe benefits
i) Existence of income
iii) Professional income
ii) Realization of income
iv) Income from business
iii) Recognition of income j v) Income from dealings in property
c) Tests in determining whether income is earned
for tax purposes (a) Distinguish ordinary asset and capital asset
i) Realization test (b) Types of gains

·~
ii) Claim of right doctrine or doctrine of ownership, (c) Special rules pertaining to income or loss from
command or control dealings in property classified as capital asset (loss
limitation rule, loss carry-over rule, holding period rule)
iii) Economic benefit test or doctrine of proprietary
interest (d) Tax-free exchanges
iv) Severance test vi) Passive investment income
d) Methods of accounting (a) Interest
i) Distinguish: cash and accrual method (b) Dividend
ii) Special method: installment, deferred payment, (c) Royalty income

percentage of completion (in long-term contracts) (d) Rental income
e) Situs of Income
vii) Annuities and proceeds from life insurance or
other types of insurance
viii) Prizes and awards
·\·:
,~
TAXATIO\J LAW ·~ Syllabus for the 2020 Bar Examinations
ix) Pension, retirement benefit, or separation pay (b) Exclusions

x) Income from any source
iii) Taxation of business income/income fror;
(a) Condonation of indebtedness practice of profession
(b) Recovery of accc unts previously written off (a) Schedular
(c) Receipt of tax refunds or credit (b) 8% option

} iv) Taxation of partners in a general professional
d) Exclusions
partnership
i) Rationale
v) Taxation of passive income
ii) Taxpayers who may avail vi) Taxation of capital gains
iii) Distinguish: exclusions, deductions, and tax
credits (a) Income from sale of shares of stock of a
Philippine corporation
iv) Exclusions under the Constitution
(b) Income from sale of real property situated in
4) Deductions the Philippines
(c) Income from sale,· exchange, and other
a) General rule
disposition of other capital assets
b) Concept of return of capital __
b) Non-resident aliens engaged in trade or
c) Distinguish: itemized deductions and optional
standard deduction business
,,11
\\
d) Requirements for deductible items ,,,
;_*
c) Non-resident aliens not engaged in trade or
e) Items not deductible 11}, business
·;;
d) Aliens employed by regional headquarters,
5) Income tax on individuals
I regional operating headquarters, offshore banking
units, and petroleum service contractors
a) Resident citizens, non-resident citizens, and
resident aliens
i) Coverage
I
·~1i
e) Individual taxpayers exempt from income tax
i) Minimum wage earner

'ji
ii) Taxation on compensation income
ii) Exemptions granted under international
(a) Inclusions
-~ agreements
,:_,ji
'.i
''1

6) Income tax on corporations (b) Foreign currency deposit units and offshore
banking units
a) Resident citizens, non-resident citizens, and
resident aliens (c) Regional or area headquarters and regional
operating headquarters
i) Taxation - in general
c) Non-resident foreig,.n corporations (NRFC)
(a) Regular Corporate Income Tax (RCIT)
.j·;:: i) Taxation of NRFC in general
(b) Minimum Corporate Income Tax (MCIT) :~
(c) Taxation of passive income :l

:.:
;
ii) NRFCs subject to preferential tax rates
(d) Taxation of capital gains I' d) Corporations exempt from income tax
ti
(e) Improperly accumulated earnings tax e) Tax on other business entities general
partnerships, general professional partnerships, co-
ii) Proprietary educational institutions and non- ownerships, joint-ventures, and consortia
profit hospitals
7) Filing of returns and payment
iii) Government-owned or controlled corporations,
agencies, instrumentalities a) Individual return
iv) Foreign currency deposit units i) Who are required to file; exceptions
b) Resident foreign corporations ii) Substituted filing
'
i) Taxation - in general iii) When and where to file
(a) Regular Corporate Income Tax (RCIT) b) Corporate returns

]
(b) Minimum Corporate Income Tax (MCIT)
i) Quarterly income tax
(c) Branch Profits Remittance Tax (BPRT) ~]
ii) Final adjustment return
(d) Taxation of passive income j
iii) When and where to file
(e) Taxation of capital gains j' I
i iv) Return of corporations contemplating dissolutions
ii) Resident foreign corporations subject to ii1
t: or reorganization
preferential tax rates
(a) International carriers tf

·!~
ii
.~
,);
'(•
:,!7i
c) Return on capital gains realized from sale of vii) Transfers for insufficient consideration
shares of stock and real estate
b) Allowable deductions from gross estate
8) Withholding tax
c) Exclusions from gross estate and exempt'1ons
a) Concept of certain acquisitions and transmission
b) Final withholding tax d) Tax credit for estate taxes paid to a foreign
country
c) Creditable withholding tax
e) Filing of estate tax returns and payment of
i) Expanded withholding tax estate tax
✓
ii) Withholding tax on compensation
D. DONOR'S TAX
d) Fringe benefits tax
1) Basic principles, concept, and definition
e) Duties of a withholding agent
2) Requisites of a valid donation
'
C. ESTATE TAX 3) Transfers which may be considered as donation
1) Basic principles, concept, and definition a) Sale, exchange, or transfer of property for
less than adequate and full consideration; exception
2) Classification of decedent _ _
b) Condonation or remission of debt
3) Co11position of gross estate
c) Renunciation of inheritance; exception
a) Items to be included in determining gross
estate 4) Classification of donor
i) Decedent's interest 5) Determination of gross gift

ii) Transfers in contemplation of death a) Composition of gross gift
iii) Revocable transfers b) Valuation of gifts made in property
iv) Property passing under a general power of c) Exemption of certain gifts
appointment
v) Proceeds of life insurance 6) Tax credit for donor's taxes paid to a foreign country
vi) Prior interests 7) Filing of return and payment

E. VALUE-ADDED TAX 8) Compliance requirements
1) Nature and characteristics of value-added tax a) Registration
a) Tax on value added b) Invoicing requirements
b) Sales tax c) Filing of returns and payment
c) Tax on consumption d) Withholding of final value-added tax on sales to

government
d) Indirect tax: impact and incidence tax
e) Administrative and penal sanctions
e) Tax credit method
f) Destination principle and cross-border doctrine F. PERCENTAGE TAXES: CONCEPT AND NATURE
2) Persons liable to value-added tax G. EXCISE TAX: CONCEPT AND NATURE
3) Imposition of value-added tax H. DOCUMENTARY STAMP TAX: CONCEPT AND NATURE
a) On sale of goods or properties

I. TAX REMEDIES UNDER THE NATIONAL INTERNAL
i) Tax base:·gross selling price REVENUE CODE
ii) Transactions deemed sale 1) Assessment of internal revenue taxes

iii) Change or cessation of status as value-added a) Procedural due process in tax assessments
tax-registered person
i) Letter of authority and tax audit
b) On importation of goods
ii) Informal conference
c) On sale of services and use or lease of
properties iii) Preliminary assessment notice
iv) Formal letter of demand and final assessment
4) Zero-rated and effectively zero-rated sales of
notice
goods or properties, and services
v) Disputed assessment
5) Value-added tax-exempt transactions
vi) Administrative decision on a disputed
6) Input and Oi,Jtput tax assessment
7) Refund or tax credit of excess input tax; procedure vii) Appeal from an administrative decision on
disputed assessment
··•,1
I
304 BAR Q & A For The Past 10 Years :l Appendix 305

TAXATION LAW .il Syllabus for the 2020 Bar Examinations
i]
:i
~
b) Requisites of a valid assessment c) Power of Commissioner of internal Revenue
to compromise
c) Tax delinquency and tax deficiency )
i d) Non-retroactivity of rulings
d) Prescriptive period for assessment
i) General rule i taxes

3) Government remedies for collection of delinquent
ii) Distinguish: false returns, fraudulent returns,
and non-filing of returns a) Requisites
iii) Suspension of statute of limitations b) Prescriptive periods; suspension of running of
statute of limitations
2) Taxpayer's remedies
c) Administrative remedies
a) Protesting an assessment
i) Tax lien
i) Period to file protest
ii) Distraint and levy
:i:
ii) Kinds of protest - request for reconsideration i,
or reinvestigation '.ii
iii) Forfeiture of real property
iii) Submission of supporting documents iv) Suspension of business operation
iv) Effect of failure to file protest v) Judicial remedies
v) Action of the Commissioner ori the protest filed d) No injunction rule; exceptions
(a) Period to act upon or decide on protest filed 4) Civil penalties

f
·•1;
(b) Remedies of the taxpayer in case of denial :t a) Delinquency interest and deficiency interest
or inaction of the Commissioner It
b) Surcharge
(c) Effect of failure to appeal
c) Compromise penalty
b) Recovery of tax erroneously or illegally
collected ' d) Fraud penalty
i) Grounds, requisites, and periods for filing a

claim for refund or issuance of a tax credit certificate
ii) Proper party to file claim for refund or tax credit
iii) Distinguish from input value-added tax refund
Ill. LOCAL TAXATION 10) Assessment and collection of local taxes
a) Remedies of local government units

A. LOCAL GOVERNMENT TAXATION
b) Prescriptive period
1) Fundamental principles
2) Nature and source of taxing power B. REAL PROPERTY TAXATION
a) Grant of local taxing power under the Local 1) Fundamental principles

Government Code 2) Nature
b) Authority to prescribe penalties for tax violations 3) Imposition
'i
c) Authority to grant local tax exemptions 'l
;) a) Power to levy
d) Withdrawal of exemptions j b) Exemption from real property tax
1
e) Authority to adjust local tax rates u
J] 4) Appraisal and assessment
f) Residual taxing power of local governments I a) Classes of real property
3) Scope of taxing power
., b) Assessment based on actual use
,!
4) Specific taxing power of local government units Jj
1 5) Collection
1
5) Common revenue raising powers
a) Date of accrual
6) Community tax
~'I
,:,
;
b) Periods to collect
7) Common limitations on the taxing powers of local
c) Remedies of local government units
government units
8) Requirements for a valid tax ordinance

:j
~ 6) Taxpayer's remedies
9) Taxpayer's remedies a) Contesting an assessment
a) Protest i) Payment under protest; exceptions
b) Refund ii) File protest with Treasurer
c) Action before the Secretary of Justice iii) Refunds or credits of real property taxes
i
,,;1
il
TAXATION LAW Syllabus for the 2q20 Bar Examinations
b) Contesting a valuation of real property 3) Criminal cases

i) Appeal to the Local Board of Assessment a) Institution and prosecution of criminal action
Appeals (LBAA)
b) Institution of civil action in criminal action
ii) Appeal to the Central Board of Assessment
Appeals (CBAA) c) Period to appeal
iii) Effect of payment of taxes 4) Appeal to the Court of Tax Appeals en bane
c) Compromising real property tax assessment 5) Petition for review on certiorari to the Supreme
Court
IV. JUDICIAL REMEDIES
LIST OF RELEVANT MATERIALS
A. JURISDICTION OF THE COURT OF TAX APPEALS
I. 1987CONSTITUTION
1) Exclusive original and appellate jurisdiction over
civil cases II. LAWS
2) Exclusive original and appellate jurisdiction over Rep. Act No. 8424 The National Internal Revenue
criminal cases as amended by Code of the Philippines
B. PROCEDURE Rep. Act No. 10963
1) Filing of an action for collection of taxes including:

a. Revenue Regulations No.
a) Internal revenue ta_xes 6-2008, as amended
b) Local taxes
b. Revenue Regulations No.
2) Civil cases 12-99, as amended
a) Who may appeal, mode of appeal, and effect Rep. Act No. 7160 Local Government Code
of appeal Rep. Act No. 1125 An Act Expanding the
b) Suspension of collection of taxes as amended by Jurisdiction of the Court of
Rep. Act No. 9282 Appeals, Elevating its Rank
c) Injunction not available to restrain collection
to the Level of a Collegiate
Court with Special Jurisdiction
and Enlarging its Membership
TAXATION LAW
Rep. Act No. 7916 An Act Amending Rep. Act.

as amended by No. 7916, Otherwise Known
Rep. Act No. 8748 as the Special Economic
Zone Act of 1995
Fep. Act No. 9505 Personal Equity and

Retirement Account of 2008
Executive Order Omnibus Investments Code of

l\o. 226 as amended 1987, as Amended, and For
by Rep. Act No. 7918 Other Purposes
Rep. Act No. 7227 Bases Conversion and

as amended by Development Act of 1992
Rep. Act No. 9400
-NOTHING FOLLOWS-

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BARQ&A

FOR THE PAST 10 YEARS

Published and Printed by JBD

CENTRAL BOOK SUPPLY, INC.

(MCQ) ... ............................... : :: ..... ~................. .·:.~:-:.... 41 2013 TAXATION LAW

XIV ........................................................................ 155 ·1t

2015 TAXATION LAW XVI ........................................................................ 185

TABLE OF CONTENTS TABLE OF CONTENTS

(b) NO. The real property sold is a capital asset

SUGGESTED ANSWER: (a) The criminal complaint is unmeritorious. It is

IX. JEC's contention is not correct. The exempting

(a) Does ABCD Corporation have the legal

SUGGESTED ANSWER: In 1999, Xavier purchased from his friend, Yuri,

Emiliano Paupahan is engaged in the business SUGGESTED ANSWERS:

(b) No. -he rule of reciprocity applies only if the

amount of income to be distributed annually to the

These options are mutually exclusive and resort to

2010 TAXATION LAW SUGGESTED ANSWERS:

I. C) FALSE. (Section 11, Rule 9, 2005 Revised

B) The "immediacy test,' invented to determine the Ill.

(8) It may claim as refund the amount of SUGGESTED ANSWER:

(B). It may claim as refund the amount of PS00,000 V.

SUGGESTED ANSWER: VIII.

28 BAR Q & A For The Past 10 Years

On October 10, 2009, the corporation received a

(a) Construction by XYZ Constru c ~ i o n Co. of

(E) FALSE (Section 43, NIRC, as amended) SUGGESTED ANSWERS:

(4) Keyrand, Inc., a Philippine corporation, sold

(B) Yes. The 3-year prescriptive period started to

(A) No. The 3-year prescriptive period started to

(A) P20 billion. if

(A) assessment. (B) PS00,000.00.

(B) levy. ii (C) P350,000.00.

(C) payment. (D) P600,000.00.

(A) 180 days. lit

(D) the taxpayer is an individual compensation

(33) Which among the following circumstances

within 30 days from receipt.

(B) Interests from his deposits in a local bank of

(43) Political campaign contributions are NOT (A) theoretical justice.

(A) involving deficiency income taxes only, but not

(C) No, because it is donated as prize for an

(57) There is prima facie evidence of a false or (D) NOLCO.

(C) Yes. More than 10 years had lapsed for the

(73) Which among the following concepts of

(74) In "Operation Kandado," the BIR temporarily

d) The recipient of seryice income is a resident of

9) A resident corporation is one that is:

a) Organized under the laws of the Philippines that

c) Ordinary income tax at the graduated rates of

a) Gain from sale of long-term bonds, debentures

b) Maria Reyes is exempt from donor's tax in 2011

d) P11.2 Million, the total cost of services performed

c) Liable to both the 12% VAT and 7% gross

a) Lessor leases commercial stalls located in the receipts tax.

fi a) File a petition for review with the Court of Tax

or receipt for a VAT-exempt transaction·is liable to the :l'i'

a) The assessment rotice is void because it was

b) The assessment notice is void because it was

c) When a discrepancy has been determined b) December 30, 2011;

56) Which statement is correct? The collection r~ b) Gross negligence;

59) The acquittal of the accused in the criminal

from any civil liability;