BAR 2023: Upon seeing the global popularity of Korean culture, the President of the

Philippines wanted to export Philippine culture as well. Thus, he met with both the
Secretary of Tourism and the Chairperson of the National Commission for Culture
and the Arts to come up with a plan to make Philippine culture the next big thing.
After a series of meetings with industry stakeholders and with a resolution of
support from Congress, the President issued a presidential proclamation granting tax
exemptions to members of the Philippine entertainment and culinary industries who
export 70% of their products and services. The proclamation also grants additional
tax incentives (such as an income tax holiday) to artists, directors, chefs, studios
(both TV and music), and authors who gain international acclaim. Is the proclamation
constitutional? Explain your answer.

BAR 2023: Pedro ran a gambling den in the basement of a bar called Apolaki in
Intramuros, Manila. His gambling operations consisted of a pastime from the late
1700’s called “Ratting”, where barrels of rats would be released in a fenced-off area
for a cat to eat. Bettors would then wager on how many rats would be killed by the
cat in a certain given time. As can be easily gathered, this is highly illegal. The
apparent illegality did not stop Pedro from making millions of pesos from onsite and
online bettors. Needless to say, Pedro did not file an income tax return to report his
income. Based on the complaint of the Commissioner of Internal Revenue, the
Department of Justice filed an information against Pedro for Failure to File Income
Tax Return under Section 255 of the National Internal Revenue Code. In his defense,
Pedro argued that the profits from the gambling operations are not income in the
first place because declaring such would violate his right against self-incrimination.
Hence, he is not required to file any income tax return. Is the argument of Pedro
tenable? Explain.

BAR 2023: Marites is the chief executive officer and sole shareholder of Tsismis
Ngayon OPC (TNO), a One Person Corporation that runs a popular blog about
showbiz news and juicy gossip. From March to April 2023, Marites asked her
daughter, Laya, to work as an intern in the corporation and help around the press
room. Her main duties were brewing coffee for the editorial staff and printing out
hard copies of TNO blog posts for filing purposes. Laya did a decent (but not
excellent) job as an intern in her two-month stint with TNO, except for the one time
when she added two packets of sugar to the cup of coffee of a diabetic senior officer.
Proud of the performance of Laya, Marites issued a TNO resolution granting a ₱2
million bonus to Laya. Laya used the ₱2 million bonus to buy a new car. Can TNO
claim the ₱2 million bonus as a deduction? Explain your answer.

BAR 2023: Quezon City assessed the Light Rail Transit Authority (LRTA) of real
property taxes on its properties consisting of lands, buildings, machineries, and
terminal stations. Despite repeated demands from Quezon City, LRTA failed to pay
its outstanding obligations, prompting the city to issue a notice of delinquency with
warrants of levy. LRTA questioned the assessments of Quezon City, claiming that it is
exempt from real property tax. LRTA argues that it is operating a light rail transit
system for the Philippines, which is the true owner of the subject real properties. Is
LRTA exempt from real property tax? Explain briefly.
BAR 2019: XYZ Air, a 100% foreign-owned airline company based and registered in
Netherlands, is engaged in the international airline business and is a member
signatory of the International Air Transport Association. Its commercial airplanes
neither operate within the Philippine territory nor are its service passengers
embarking from Philippine airports. Nevertheless, XYZ 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 ABC Agency for the year 2013, amounted to
P5,000,000.00, the Bureau of Internal Revenue (BIR) assessed XYZ Air deficiency
income taxes on the ground that the income from the said sales constituted income
derived from sources within the Philippines. Aggrieved, XYZ Air filed a protest,
arguing that, as a non-resident foreign corporation, it should only be taxed for
income derived from sources within the Philippines. However, since it only serviced
passengers outside the Philippine territory, the situs of the income from its ticket
sales should be considered outside the Philippines. Hence, no income tax should be
imposed on the same. Is XYZ Air's protest meritorious? Explain. (5%)

BAR 2019: Differentiate tax exclusions from tax deductions. (3%)

BAR 2019: B transferred his ownership over a 1,000-square meter commercial land
and three-door apartment to ABC Corp., a family corporation of which B is a
stockholder. The transfer was in exchange of 10,000 shares of stock of ABC Corp. As
a result, B acquired 51% ownership of ABC Corp., with all the shares of stock having
the right to vote. B paid no tax on the exchange, maintaining that it is a tax
avoidance scheme allowed under the law. The Bureau of Internal Revenue, on the
other hand, insisted that B's alleged scheme amounted to tax evasion. Should B pay
taxes on the exchange? Explain.

BAR 2019: GHI, Inc. is a corporation authorized to engage in the business of

manufacturing ultra-high density microprocessor unit packages. After its registration
on July 5, 2005, GHI, Inc. constructed buildings and purchased machineries and
equipment. As of December 31, 2005, the total cost of the machineries and
equipment amounted to P250,000,000.00. However, GHI, Inc. failed to commence
operations. Its factory was temporarily closed effective September 15, 2010. On
October 1, 2010, it sold its machineries and equipment to JKL Integrated for
P300,000,000.00. Thereafter, GHI, Inc. was dissolved on November 30, 2010.

(a) Is the sale of the machineries and equipment to JKL Integrated subject to normal
corporate income tax or capital gains tax? Explain.

(b) Distinguish an ordinary asset from a capital asset.

BAR 2019: In 2018, City X amended its Revenue Code to include a new provision
imposing a tax on every sale of merchandise by a wholesaler based on the total
selling price of the goods, inclusive of value-added taxes (VAT). ABC Corp., a
wholesaler operating within City X, challenged the new provision based on the
following contentions: 1. the new provision is a form of prohibited double taxation
because it essentially amounts to City X imposing VAT which was already being
levied by the national government; and 2. since the tax being imposed is akin to VAT,
it is beyond the power of City X to levy the same. Rule on each of ABC Corp.'s
contentions. (5%)

BAR 2019: Mr. D, a Filipino amateur boxer, joined an Olympic qualifying tournament
held in Las Vegas, USA, where he won the gold medal. Pleased with Mr. D's
accomplishment, the Philippine Government, through the Philippine Olympic
Committee, awarded him a cash prize amounting to Pl,000,000.00. Upon receipt of
the funds, he went to a casino in Pasay City and won the P30,000,000.00 jackpot in
the slot machine. The next day, he went to a nearby Lotto outlet and bought a Lotto
ticket which won him a cash prize of P5,000.00. Which of the above sums of money
is/are subject to income tax? Explain.

BAR 2019: JKL-Philippines is a domestic corporation affiliated with JKL-Japan, a

Japan-based information technology company with affiliates across the world. Mr. F
is a Filipino engineer employed by JKL-Philippines. In 2018, Mr. F was sent to the
Tokyo branch of JKLJapan based on a contract entered into between the two (2)
companies. Under the said contract, Mr. F would be compensated by JKL- Philippines
for the months spent in the Philippines, and by JKL-Japan for months spent in Japan.
For the entirety of 2018, Mr. F spent ten (10) months in the Tokyo branch. On the
other hand, Mr. J, a Japanese engineer employed by JKL-Japan, was sent to Manila to
work with JKL-Philippines as a technical consultant. Based on the contract between
the two (2) companies, Mr. J's annual compensation would still be paid by JKL-Japan.
However, he would be paid additional compensation by JKL-Philippines for the
months spent working as a consultant. For 2018, Mr. J stayed in the Philippines for
five (5) months.

In 2019, the Bureau of Internal Revenue (BIR) assessed JKL-Philippines for deficiency
withholding taxes for both Mr. F and Mr. J for the year 2018. As to Mr. F, the BIR
argued that he is a resident citizen; hence, his income tax should be based on his
worldwide income. As to Mr. J, the BIR argued that he is a resident alien; hence, his
income tax should be based on his income from sources within the Philippines at the
schedular rate under Section 24 (A) (2) of the Tax Code, as amended by Republic Act
No. 10963, or the "Tax Reform for Acceleration and Inclusion" Law.

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

(b) Is the BIR correct in basing its income tax assessment on Mr. J's income within
the Philippines at the schedular rate? Explain. (3%)

BAR 2019: As a way to augment the income of the employees of DEF, Inc., a private
corporation, the management decided to grant a special stipend of P50,000.00 for
the first vacation leave that any employee takes during a given calendar year. In
addition, the senior engineers were also given housing inside the factory compound
for the purpose of ensuring that there are available engineers within the premises
every time there is a breakdown in the factory machineries and equipment.
(a) Is the special stipend part of the taxable income of the employees receiving the
same? If so, what tax is applicable and what is the tax rate? Explain.

(b) Is the cash equivalent value of the housing facilities received by the senior
engineers subject to fringe benefits tax? Explain. (3%)

BAR 2019: Mr. C is employed as a Chief Executive Officer of MNO Company,

receiving an annual compensation of Pl0,000,000.00, while Mr. S is a security guard
in the same company earning an annual compensation of P200,000.00. Both of them
source their income only from their employment with MNO Company.

(a) At the end of the year, is Mr. C personally required to file an annual income tax
return? Explain. (2.5%)

(b) How about Mr. S? Is he personally required to file an annual income tax return?
Explain. (2.5%)

BAR 2019: (a) Differentiate between a calendar year and a fiscal year. (2.5%)

(b) When is the deadline for the filing of a corporation's final adjustment return for a
calendar year? How about for a fiscal year?

BAR 2018: KM Corporation, doing business in the City of Kalookan, has been a
distributor and retailer of clothing and household materials. It has been paying the
City of Kalookan local taxes based on Sections 15 (Tax on Wholesalers, Distributors
or Dealers) and 17 (Tax on Retailers) of the Revenue Code of Kalookan City (Code).
Subsequently, the Sangguniang Panlungsod enacted an ordinance amending the
Code by inserting Section 21 which imposes a tax on "Businesses Subject to Excise,
Value-Added and Percentage Taxes under the National Internal Revenue Code
(NIRC)," at the rate of 50% of 1 % per annum on the gross sales and receipts on
persons "who sell goods and services in the course of trade or business." KM
Corporation paid the taxes due under Section 21 under protest, claiming that (a)
local government units could not impose a tax on businesses already taxed under the
NIRC and (b) this would amount to double taxation, since its business was already
taxed under Sections 15 and 17 of the Code.

(b) Does this amount to double taxation? (2.5%)

BAR 2018: Kronge Konsult, Inc. (KKI) is a Philippine corporation engaged in

architectural design, engineering, and construction work. Its principal office is
located in Makati City, but it has various infrastructure projects in the country and
abroad. Thus, KKI employs both local and foreign workers. The company has adopted
a policy that the employees' salaries are paid in the currency of the country where
they are assigned or detailed.
Below are some of the employees of KKI. Determine whether the compensation they
received from KKI in 2017 is taxable under Philippine laws and whether they are
required to file tax returns with the Bureau of Internal Revenue (BIR). (2% each)

(a) Kris Konejero, a Filipino accountant in KKl's Tax Department in the Makati office,
and married to a Filipino engineer also working in KKI;

(b) Klaus Kloner, a German national who heads KKl's Design Department in its Makati
office;

(c) Krisanto Konde, a Filipino engineer in KKl's Design Department who was hired to
work at the principal office last January 2017. In April 2017, he was assigned and
detailed in the company's project in Jakarta, Indonesia, which project is expected to
be completed in April 2019;

(d) Kamilo Konde, Krisanto's brother, also an engineer assigned to KKl's project in
Taipei, Taiwan. Since KKI provides for housing and other basic needs, Kamila
requested that all his salaries, paid in Taiwanese dollars, be paid to his wife in Manila
in its Philippine Peso equivalent; and

(e) Karen Karenina, a Filipino architect in KKl's Design Department who reported
back to KKl's Makati office in June 2017 after KKl's project in Kuala Lumpur, Malaysia
was completed.

BAR 2018: Spouses Konstantino and Karina are Filipino citizens and are principal
shareholders of a restaurant chain, Karina's, Inc. The restaurant's principal office is in
Makati City, Philippines.

Korina's became so popular as a Filipino restaurant that the owners decided to

expand its operations overseas. During the period 2010-2015 alone, it opened ten
(10) stores throughout North America and five (5) stores in various parts of Europe
where there were large Filipino communities. Each store abroad was in the name of
a corporation organized under the laws of the state or country in which the store
was located. All stores had identical capital structures: 60% of the outstanding
capital stock was owned by Karina's, Inc., while the remaining 40% was owned
directly by the spouses Konstantino and Korina.

Beginning 2017, in light of the immigration policy enunciated by US President Donald

Trump, many Filipinos have since returned to the Philippines and the number of
Filipino immigrants in the US dropped significantly. On account of these
developments, Konstantino and Karina decided to sell their shares of stock in the five
(5) US corporations that were doing poorly in gross sales. The spouses' lawyer-friend
advised them that they will be taxed 5% on the first PhP100,000 net capital gain, and
10% on the net capital gain in excess of PhP100,000.

Is the lawyer correct? If not, how should the spouses Konstantino and Karina be
taxed on the sale of their shares? (5%)
BAR 2018: Karlito, a Filipino businessman, is engaged in the business of metal
fabrication and repair of LPG cylinder tanks. He conducts business under the name
and style of "Karlito's Enterprises," a single proprietorship. Started only five (5) years
ago, the business has grown so enormously that Karlito decided to incorporate it by
transferring all the assets of the business, particularly the inventory of goods on
hand, machineries and equipment, supplies, parts, raw materials, office furniture
and furnishings, delivery trucks and other vehicles, buildings, and tools to the new
corporation, Karlito's Enterprises, Inc., in exchange for 100% of the capital stock of
the new corporation, the stock subscription to which shall be deemed fully paid in
the form of the assets transferred to the corporation by Karlito.

As a result, Karlito's Enterprises, the sole proprietorship, ceased to do business and

applied for cancellation of its BIR Certificate of Registration. The BIR, however,
assessed Karlito VAT on account of the cessation of business based on the current
market price of the assets transferred to Karlito's Enterprises, Inc.

(b) Is the transfer subject to income tax? (2.5%)

BAR 2018: Klaus, Inc., a domestic, VAT-registered corporation engaged in the land
transportation business, owns a house and lot along Katipunan St., Quezon City. This
property is being used by Klaus, lnc.'s president and single largest shareholder, Atty.
Krimson, as his residence. No business activity transpires there except for the
company's Christmas party which is 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 sell the house and lot. The sale was recorded in the
books of Klaus, Inc. as investment in real property.

(b) Is the sale subject to 6% capital gains tax or regular corporate income tax of 30%?
(2.5%)

BAR 2018: Kilusang Krus, Inc. (KKI) is a non-stock, non-profit religious organization
which owns a vast tract of land in Kalinga.

KKI has devoted 1 /2 of the land for various uses: a church with a cemetery exclusive
for deceased priests and nuns, a school providing K to 12 education, and a hospital
which admits both paying and charity patients. The remaining 1/2 portion has
remained idle.

The KKI Board of Trustees decided to lease the remaining 1 /2 portion to a real
estate developer which constructed a community mall over the property.

Since the rental income from the lease of the property was substantial, the KKI
decided to use the amount to finance (1) the medical expenses of the charity
patients in the KKI Hospital and (2) the purchase of books and other educational
materials for the students of KKI School.
(b) Is KKl's income from the rental fees subject to income tax? (2.5%)

BAR 2017: Heeding the pronouncement of the President that the worsening traffic
condition in the metropolis was a sign of economic progress, the Congress enacted
Republic Act No. 10701 (RA 10701), also known as An Act Imposing a Transport Tax
on the Purchase of Private Vehicles.

Under RA 10701, buyers of private vehicles are required to pay a transport tax
equivalent to 5°/o of the total purchase price per vehicle purchased. RA 10701
provides that the Land Transportation Office (LTO) shall not accept for registration
any new vehicles without proof of payment of the 5% transport tax. RA 10701
further provides that existing owners of private vehicles shall be required to pay a
tax equivalent to 5% of the current fair market value of every vehicle registered with
the LTO. However, RA 10701 exempts owners of public utility vehicles and the
Government from the coverage of the 5% transport tax.

A group of private vehicle owners sue on the ground that the law is unconstitutional
for contravening the Equal Protection Clause of the Constitution.

Rule on the constitutionality and validity of RA 10701. (5%)

BAR 2017: Calvin Dela Pisa was a Permits and Licensing Officer (rank-and-file) of Sta.
Portia Realty Corporation (SPRC). He invited the Regional Director of the Housing and
Land Use Regulatory Board (HLURB) to lunch at the Sulo Hotel in Quezon City to
discuss the approval of SPRC's application for a development permit in connection
with its subdivision development project in Pasig City. At breakfast the following day,
Calvin met a prospective client interested to enter into a joint venture with SPRC for
the construction of a residential condominium unit in Cainta, Rizal.

Calvin incurred expenses for the lunch and breakfast meetings he had with the
Regional Director of HLURB and the prospective client, respectively. The expenses
were duly supported by official receipts issued in his name. At month's end, he
requested the reimbursement of his expenses, and SPRC granted his request.

(a) Can SPRC claim an allowable deduction for the expenses incurred by Calvin?
Explain your answer. (2.5%)

(b) Is the reimbursement received by Calvin from SPRC subject to tax? Explain your
answer. (2.5%)

BAR 2017: Upon his retirement, Alfredo transferred his savings derived from his
salary as a marketing assistant to a time deposit with AAB Bank. The bank regularly
deducted 20% final withholding tax on the interest income from the time deposit.

Alfredo contends that the 20% final tax on the interest income constituted double
taxation because his salary had been already subjected to withholding tax.
Is Alfredo's contention correct? Explain your answer. (3%)

BAR 2017: The BIR assessed the Babuyan Water District (BWD) with deficiency
income taxes amounting to P8.5 million, inclusive of interest and surcharge. The
BWD disputed the assessment, and argued that it was a wholly-owned government
entity performing essential government functions. However, the BIR denied the
protest.

The BWD filed a petition for arbitration in the Office of the Secretary of Justice
pursuant to Sections 66 to 71, Chapter 14, Book IV of the Administrative Code of
1987 to assail the denial of its protest, and to seek the proper interpretation of
Section 32(8)(7)(b) of the Tax Code that excluded from gross income the income
derived by the Government or its political subdivisions. The Secretary of Justice
rendered a decision declaring the BWD exempt from the payment of income tax.

The Commissioner of Internal Revenue appealed to the CTA on the sole ground that
the Secretary of Justice had no jurisdiction to review the assessment of the BIR.

Is the appeal meritorious? Explain your answer. (4%)

BAR 2017: San Juan University is a non-stock, non-profit educational institution. It

owns a piece of land in Caloocan City on which its three 2-storey school buildings
stood. Two of the buildings are devoted to classrooms, laboratories, a canteen, a
bookstore and administrative offices. The third building is reserved as dormitory for
student athletes who are granted scholarships for a given academic year.

In 2017, San Juan University earned income from tuition fees and from leasing a
portion of its premises to various concessionaires of food, books, and school
supplies.

(b) Is the income earned by San Juan University for the year 2017 subject to income
tax? Explain your answer. (5%)