SAN BEDA UNIVERSITY

COLLEGE OF LAW
RGCT – BAR OPERATIONS CENTER

MOCK BAR QUESTIONS AND SUGGESTED ANSWERS – TAXATION LAW

1. Mr. A is an avid gamer of the Defense of the Ancients (DOTA) franchise. In order to
play the game more smoothly, he imported a high-powered computer from
Germany. On his purchase, VAT was imposed. According to Mr. A, the imposition of
VAT is erroneous because his importation is not done in the course of trade or
business. He merely imported the computer for purposes of leisure. Is Mr. A correct?

Suggested Answer: NO, Mr. A is not correct.

Sec. 107(A) of the NIRC, as amended, provides that there shall be levied, assessed, and
collected, on every importation, a value added tax equivalent to 12%. The use of the word
"every" means that all importation, whether for business or not, are subject to VAT.
Accordingly, Mr. A is not correct.

2. Mr. B, a wealthy businessman, donated P1 million to Gawad Aruga Philippines, a

charitable institution providing free medical assistance to indigent patients. Gawad
Aruga used 20% of the funds for administration. Is the transfer subject to donor's
tax?

Suggested Answer: NO, the transfer is not subject to donor's tax.

Sec. 101 of the NIRC provides that transfers to charitable organizations shall be exempt
from donor’s tax provided that the institution does not use more than 30% of the gifts for
administrative purposes. Here, Gawad Aruga, being a charitable organization, used only
20% of the funds given by Mr. B. Accordingly, the transfer is not subject to donor’s tax.

3. Father C owns a piece of land. On it, he built a religious congregation for purposes
of undertaking charitable missions. In order to raise funds to defray the expenses of
the congregation, Father C invited Mr. D to put up a canteen. He proposed that Mr.
D lease a portion of his land. Mr. D agreed and he now occupies a portion the land
for his canteen wherein he serves delicious food to the priests belonging to the
congregation. Thereafter, City X sent an assessment to Father C for real property

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 taxes on the portion of the property leased to Mr. D. Father C contends that the
property cannot be assessed for real property taxes because the income earned
from the lease of the canteen is used for charitable purposes. Without the income
from the lease of the canteen, the congregation cannot continue its charitable
missions. Is Father C correct?

Suggested Answer: NO, Father C is not correct.

In the case of Lung Center of the Philippines v. Quezon City, the Supreme Court ruled that
it is not the use of the income from real property, but the direct, immediate, and actual
application of the property to the purposes for which the charitable institution is organized,
that is determinative of whether the property is used for tax-exempt purposes. In this case,
the direct and immediate use of the property is not for a charitable purpose but for a
commercial purpose which is the operation of a canteen. There is no doubt that the portion
of the land on which the canteen is built is not actually, directly, and exclusively used for a
religious, charitable, or educational purpose which would make it tax-exempt. Accordingly,
Father C is not correct.

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