4.tax Suggested Answers (1994-2006), Word

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FOREWARD
ANSWERS TO BAR
EXAMINATION QUESTIONS
This work is NOT intended FOR SALE or COMMERCE. This work is a freeware. It may be
IN
freely copied and distributed, nevertheless, PERMISSION TO COPY from the editors is
TAXATION LAW
ADVISABLE to protect the interest of the ORIGINAL SOURCES/REFERENCES of this
material. It is primarily intended for all those who desire to have a deeper understanding of
the issues commonly touched by the Philippine Bar Examinations and its trend on specifically
* ARRANGED BY TOPIC *
on Taxation Laws. It is specifically intended for law students from the provinces who, very
often, are recipients of deliberately distorted notes from other unscrupulous law schools and
students. (1994 2006)

I would like to seek the indulgence of the reader for some Bar Questions which are improperly
Edited
classified under a topic and for some and
topics Arranged
which by:
are improperly or ignorantly phrased, for
ROMUALDO L. SEERIS II
Silliman
the arranger is just a Bar Reviewee who University - College
has prepared of while reviewing for the 2nd
this work
Law
time for the Bar Exams 2007 under time constraints and within his limited knowledge of the
law. From thetoANSWERS

I would like TOindulgence
seek the readers BAR EXAMINATION QUESTIONS
also for a number of typographical errors in
by the UP LAW COMPLEX & PHILIPPINE ASSOCIATION
this work. OF LAW SCHOOLS
The Arranger
June 3, 2007
Detailed Table of Contents

GENERAL PRINCIPLES........................................................................................................................... 8
Basic Features: Present Income Tax System
(1996).................................................................................................... 8 Basic Stages or Aspects of Taxation
(2006)................................................................................................................ 8 Collection of Taxes: Authority;
Ordinary Courts (2001)............................................................................................... 8 Collection of Taxes:
Prescription (2001) ..................................................................................................................... 8 Direct Tax vs.
Indirect Tax (1994)................................................................................................................................ 8 Direct Tax
vs. Indirect Tax (2000)................................................................................................................................ 8 Direct
Tax vs. Indirect Tax (2001)................................................................................................................................ 8
Direct Tax vs. Indirect Tax (2006)................................................................................................................................
9 Double Taxation (1997)...............................................................................................................................................
9 Double Taxation: What Constitutes DT?
(1996)........................................................................................................... 9 Double Taxation; Indirect Duplicate
Taxation (1997) ................................................................................................... 9 Double Taxation; License Fee vs.
Local Tax (2004)..................................................................................................... 9 Double Taxation; Methods of
Avoiding DT (1997) ....................................................................................................... 9 Imprescriptibility of Tax
Laws (1997) .......................................................................................................................... 9 Power of Taxation:
Equal Protection of the Law (2000) ............................................................................................ 10 Power of
Taxation: Inherent in a Sovereign State (2003) ........................................................................................... 10
Power of Taxation: Legality; Local Govt Taxation
(2003).......................................................................................... 10 Power of Taxation: Legislative in Nature
(1994) ........................................................................................................ 10 Power of Taxation: Limitations of the
Congress (2001) ............................................................................................. 10 Power of Taxation: Limitations:
Passing of Revenue Bills (1997) .............................................................................. 11 Power of Taxation:
Limitations; Power to Destroy (2000) .......................................................................................... 11 Power of
Taxation: Revocation of Exempting Statutes (1997) ................................................................................... 11
Power of Taxation; Inherent in a Sovereign State (2005) ...........................................................................................
11 Power of Taxation; Legislative in Nature (1996)
........................................................................................................ 12 Purpose of Taxation; Interpretation
(2004)................................................................................................................ 12 Purpose of Taxation; Legislative
in Nature (2004) ..................................................................................................... 12 Rule on Set-Off or
Compensation of Taxes (1996)..................................................................................................... 12 Rule on Set-Off
or Compensation of Taxes (2001)..................................................................................................... 12 Rule on Set-
Off or Compensation of Taxes (2005)..................................................................................................... 13 Rule on
Set-Off or Compensation on Taxes (2005).................................................................................................... 13 Tax
Avoidance vs. Tax Evasion (1996)...................................................................................................................... 13
Tax Avoidance vs. Tax Evasion (2000)......................................................................................................................
13 Tax Exemptions: Nature & Coverage; Proper Party (2004)
........................................................................................ 13 Tax Laws; BIR Ruling; Non-Retroactivity of Rulings
INCOME TAXATION................................................................................................................................ 14
(2004) ....................................................................................... 14 Tax Pyramiding; Definition & Legality (2006)
Basic: Allowable Deductions vs. Personal Exemptions (2001)
............................................................................................................ 14 Taxpayer Suit; When Allowed
.................................................................................. 14 Basic: Meaning of Taxable Income (2000)
(1996)......................................................................................................................... 14 Uniformity in the Collection
................................................................................................................. 15 Basic: Principle of Mobilia
of Taxes (1998) ............................................................................................................. 14
Sequuntur Personam (1994)............................................................................................ 15 Basic: Proper
Allowance of Depreciation (1998) ....................................................................................................... 15 Basic:
Sources of Income: Taxable Income (1998) .................................................................................................... 15
Basic: Tax Benefit Rule (2003) ..................................................................................................................................
15 Basic; Basis of Income Tax (1996) ............................................................................................................................
16 Basic; Gross Income: Define (1995)..........................................................................................................................
16 Basic; Income vs. Capital (1995)...............................................................................................................................
16 Basic; Schedular Treatment vs. Global Treatment (1994)
......................................................................................... 16 Compensation; Income Tax: Due to Profitable
Business Deal (1995) ........................................................................ 16 Corporate: Income: Donors tax; Tax
Liability (1996) ................................................................................................ 17 Corporate; Income Tax;
Reasonableness of the Bonus (2006) .................................................................................. 17 Corporate; Income:
Coverage; "Off-Line" Airline (1994)............................................................................................ 17 Corporate;
Income: Coverage; "Off-Line" Airline (2005)............................................................................................ 17
Dividends: Disguised dividends (1994)..................................................................................................................... 18
Dividends; Income Tax; Deductible Gross Income (1999) .........................................................................................
18
Effect; Condonation of Loan in Taxation (1995)
........................................................................................................ 18 Fringe Benefit Tax: Covered Employees
(2001)......................................................................................................... 18 Fringe Benefit Tax: Employer
required to Pay (2003) ................................................................................................ 19 Interest: Deficiency
Interest: define (1995 Bar).......................................................................................................... 19 Interest:
Delinquency Interest: define (1995)............................................................................................................. 19
ITR: Personal Income; Exempted to File ITR
(1997)................................................................................................... 19 ITR; Domestic Corporate Taxation
(1997).................................................................................................................. 19 ITR; Domestic Corporate
Taxation (2001).................................................................................................................. 20 ITR; Personal
Income: Two Employment (2001) ........................................................................................................ 20 ITR;
Personal Income; GSIS Pension (2000) ............................................................................................................. 20
ITR; Personal Income; Married Individual (2004)
....................................................................................................... 20 ITR; Taxpayer; Liabilities; Falsified Tax
Return (2005) .............................................................................................. 20 Partnership: Income Tax (1995)
................................................................................................................................ 21 Personal; Income Tax: Non-
Resident Alien (2000) .................................................................................................... 21 Personal; Income Tax:
Non-Resident Citizen (1999).................................................................................................. 21 Personal; Income
Tax: Tax-Free Exchange (1997)..................................................................................................... 22 Personal;
Income Tax; Contract of Lease (1995) ....................................................................................................... 22
Personal; Income Tax; Married Individual
(1997)....................................................................................................... 22 Personal; Income Tax; Retiring
Alien Employee (2005) ............................................................................................. 23 Personal; Income
Taxation: Non-Resident Citizen (1997) .......................................................................................... 23 Taxable
Income: Illegal Income (1995 Bar)................................................................................................................ 23
Taxable or Non-Taxable; Income and Gains (2005)
................................................................................................... 23 Withholding Tax: Non-Resident Alien
(2001)............................................................................................................. 24 Withholding Tax: Retirement
Benefit (2000).............................................................................................................. 24 Withholding Tax:
Retirement Benefit (2000).............................................................................................................. 24 Withholding
Tax: Royalty (2002) ............................................................................................................................... 24
Withholding Tax; Coverage (2004)
............................................................................................................................ 25 Withholding Tax; Domestic
Corporation; Cash Dividends (2001) .............................................................................. 25 Withholding Tax;
DEDUCTIONS,
Income subject thereto EXEMPTIONS, EXCLUSIONS & INCLUSIONS.....................................................
(2001) ....................................................................................................... 25 Withholding
Deduction: Facilitation 26 Fees or "kickback"
Tax; Non-Resident Alien (1994)............................................................................................................. 25
(1998)..................................................................................................... 26 Deductions: Ordinary Business
Withholding Tax; Non-Resident Corporation (1994)
Expenses (2004) ....................................................................................................
.................................................................................................. 26 Withholding Tax; 26 Deductions:
Reader's Digest Amount for
Award
Bribe (2001)........................................................................................................................ 27
(1998)........................................................................................................ 26 Withholding Tax; Time Deposit Deductions: Capital
Losses;
Interest; Prohibitions
GSIS Pension(2003) (1994) ......................................................................................................
.................................................................................. 26 27 Deductions:
Deductible Items from Gross Income (1999).......................................................................................... 27
Deductions: Income Tax: Donation: Real Property (2002)
........................................................................................ 27 Deductions: Non-Deductible Items; Gross Income
(1999) ......................................................................................... 28 Deductions: Requisites; Deducibility of a
Loss (1998) .............................................................................................. 28 Deductions; Income Tax: Allowable
Deductions (2001)............................................................................................. 28 Deductions; Vanishing
Deduction; Purpose (2006) ................................................................................................... 28 Exclusion &
Inclusion; Gross Receipts (2006) .......................................................................................................... 28
Exclusion vs. Deduction from Gross Income
(2001).................................................................................................. 28 Exclusions & Inclusions: Benefits on
Account of Injury (1995) ................................................................................. 29 Exclusions & Inclusions:
Executive Benefits (1995).................................................................................................. 29 Exclusions &
Inclusions; Assets; Resident Alien (2005) ........................................................................................... 29
Exclusions & Inclusions; Benefits on Account of Death (1996)
................................................................................. 30 Exclusions & Inclusions; Benefits on Account of Injury
(2005) ................................................................................. 30 Exclusions & Inclusions; Compensation for
personal injuries or sickness (2003) ..................................................... 30 Exclusions & Inclusions; Facilities
or Privileges; Military Camp (1995) ..................................................................... 30 Exclusions & Inclusions;
Gifts over and above the Retirement Pay (1995) ................................................................ 31 Exclusions &
Inclusions; ITR; 13th month pay and de minimis benefits (2005) ......................................................... 31
Exclusions & Inclusions; ITR; Dividends received by a domestic corporation (2005)
................................................ 31 Exclusions & Inclusions; ITR; Income realized from sale
(2005)................................................................................ 31 Exclusions & Inclusions; ITR; Interest on deposits
(2005)......................................................................................... 31 Exclusions & Inclusions; ITR; Proceeds of
life insurance (2005) ............................................................................... 32 Exclusions & Inclusions; Life
Insurance Policy (2003) .............................................................................................. 32
Exemptions: Charitable Institutions (2000)
............................................................................................................... 32 Exemptions: Charitable Institutions;
Churches (1996) .............................................................................................. 32 Exemptions: Educational
institution (2004)............................................................................................................... 32 Exemptions: Gifts &
Donations (1994) ...................................................................................................................... 32 Exemptions:
Head of the Family: (1998)................................................................................................................... 33
Exemptions: Non-Profit Educational Institutions (2000)
............................................................................................ 33 Exemptions: Non-Profit Entity; Ancillary
Activity & Incidental Operations (1994) ...................................................... 33 Exemptions: Non-Stock/ Non-
Profit Association (2002) ............................................................................................ 34 Exemptions: Prize of
Peace Poster Contest (2000).................................................................................................... 34 Exemptions:
Prizes & Awards; Athletes (1996) ......................................................................................................... 34
Exemptions: Retirement Benefits: Work Separation (1999)
....................................................................................... 34 Exemptions: Separation Pay (1994)
.......................................................................................................................... 35 Exemptions: Separation Pay
(1995) .......................................................................................................................... 35 Exemptions: Separation
Pay (2005) .......................................................................................................................... 36 Exemptions: Stock
Dividends (2003) ........................................................................................................................ 36 Exemptions:
Strictly Construed (1996) ..................................................................................................................... 36
Exemptions: Terminal Leave Pay (1996)
................................................................................................................... 36 Exemptions; Charitable Institutions
(2006) ............................................................................................................... 36 Exemptions; Educational
institution (2004)............................................................................................................... 36 Exemptions;
Exemptions are Unilateral in Nature (2004)........................................................................................... 37
CAPITAL
Exemptions; GAIN TAX................................................................................................................................
Govt Bonus, Gifts, & Allowances 38
(1994)
Capital Asset vs. Ordinary
.............................................................................................. 37 Exemptions; Personal & Additional Exemption Asset
(2003)....................................................................................................................
(2006) .............................................................................................. 37 Exemptions; 38 Capital
Roman Gain Tax;Church;
Catholic Nature
(2001) ................................................................................................................................
Limitations (2005) ......................................................................................... 38 38 Ordinary Sale of a
Capital Asset (1994)..................................................................................................................... 38 Sales of Share
of Stocks: Capital Gains Tax Return (1999) ....................................................................................... 39 Tax
Basis: Capital Gains: Merger of Corporations (1994) ..........................................................................................
39 Tax Basis: Capital Gains: Tax-Free Exchange of Property (1994)
CORPORATION & PARTNERSHIP......................................................................................................
.............................................................................. 39 39
Bad Debts; Factors; Elements thereof
(2004)............................................................................................................ 39 Condominium Corp.; Sale of
Common Areas (1994) ................................................................................................. 40 Corporation; Sale;
Creditable Withholding Tax (1994)............................................................................................... 40 Dividends:
Withholding Tax (1999) ........................................................................................................................... 40 Effect:
Dissolution; Corporate Existence (2004)........................................................................................................ 41
Minimum Corporate Income Tax
(2001)..................................................................................................................... 41 Minimum Corporate
ESTATE
Income Tax; & DONORS
Exemption (2001) TAXES ...............................................................................................................
.................................................................................................. 41
Donors Tax: Election 41 Contributions (1998)
.............................................................................................................. 41 Donors Tax; Basis for Determining
Gain (1995) ....................................................................................................... 41 Donors Tax; Dacion en Pago;
Effect: Taxation (1997) .............................................................................................. 42 Donors Tax; Donation
to a Sibling (2001)................................................................................................................. 42 Donors Tax;
Donation to Non-Stock, Non-Profit Private Educational Institutions (2000)........................................... 42
Donors Tax; Donation to Political Candidate (2003)
................................................................................................. 43 Donors Tax; Donee or Beneficiary; Stranger
(2000) ................................................................................................. 43 Donors Tax; Sale of shares of Stock &
Sale of Real Property (1999)......................................................................... 43 Estate Tax: Comprehensive
Agrarian Reform Law (1994).......................................................................................... 43 Estate Tax: Donation
Mortis Causa (2001) ................................................................................................................ 43 Estate Tax:
Donation Mortis Causa vs. Inter Vivos (1994) ......................................................................................... 44
Estate Tax: Gross Estate: Allowable Deduction
(2001).............................................................................................. 44 Estate Tax: Gross Estate: Deductions
(2000) ............................................................................................................ 44 Estate Tax: Inclusion: Resident
Alien (1994) ............................................................................................................. 44 Estate Tax: Payment vs.
Probate Proceedings (2004) ............................................................................................... 45 Estate Tax: Situs of
Taxation: Non-Resident Decedent (2000)................................................................................... 45 Estate Tax:
BUSINESS
Vanishing Deductions TAXES ..................................................................................................................................
(1994).................................................................................................................. 45 Estate
45
Tax; Payment vs. Probate Proceedings (2005) ............................................................................................... 45
VAT: Basis of VAT
(1996).......................................................................................................................................... 45 VAT:
Characteristics of VAT (1996)........................................................................................................................... 45
VAT: Exempted Transactions
(1996)......................................................................................................................... 45 VAT: Liable for Payment
(1996) ................................................................................................................................ 46 VAT: Transactions
"Deemed Sales (1997) ............................................................................................................... 46 VAT; Covered
BIR:
Transactions (1998) Assessment: Unregistered Partnership
........................................................................................................................... 46(1997)
VAT;
.................................................................................................. 47 BIR: Collection of Tax Deficiency (1999)
Exemption: Constitutionality (2004) ................................................................................................................. 46
REMEDIES
VAT; IN Non-VAT
INTERNAL REVENUE taxpayer; TAXES ...................................................................................
...................................................................................................................
Claim 47forBIR: Compromise; Refund Conditions
(2006)
47
(2000)........................................................................................................................
..................................................................................................... 47 48 BIR: Compromise; Extent
of Authority (1996) ........................................................................................................... 48 BIR: Compromise;
Withholding Agent (1998)............................................................................................................ 48 BIR:
Corporation: Distraint & Levy (2002) .................................................................................................................
48 BIR: Court of Tax Appeals: Collection of Taxes; Grounds for Compromise (1996)
.................................................... 49 BIR: Criminal Prosecution: Tax Evasion
(1998)......................................................................................................... 49 BIR: Extinction; Criminal Liability
of the Taxpayer (2002).......................................................................................... 49 BIR: Fraudulent Return;
Prima Facie Evidence (1998)............................................................................................... 50 BIR: Fraudulent
Return; Prima Facie Evidence (2002)............................................................................................... 50 BIR:
Garnishment: Bank Account of a Taxpayer (1998).............................................................................................
50 BIR: Pre-Assessment Notice not Necessary (2002)
................................................................................................... 51 BIR: Prescriptive Period: Civil Action (2002)
............................................................................................................. 51 BIR: Prescriptive Period; Assessment
& Collection (1999)........................................................................................ 51 BIR: Prescriptive Period;
Criminal Action (2002)....................................................................................................... 51 BIR: Secrecy of
Bank Deposits Law (1998) ............................................................................................................... 52 BIR:
Summary Remedy: Estate Tax Deficiencies (1998) ............................................................................................
52 BIR: Unpaid Taxes vs. Claims for Unpaid Wages
(1995)............................................................................................ 53 BIR; Assessment; Criminal Complaint
(2005)............................................................................................................ 53 BIR; Authority; Refund or Credit
of Taxes (2005) ...................................................................................................... 53 BIR; Compromise
(2004)........................................................................................................................................... 53 BIR;
Compromise (2005)........................................................................................................................................... 54
BIR; Deficiency Tax Assessment vs. Tax Refund / Tax Credit (2005)
......................................................................... 54 BIR; Distraint; Prescription of the Action
(2002)........................................................................................................ 54 BIR; False vs. Fraudulent Return
(1996).................................................................................................................... 55 BIR; Jurisdiction; Review
Rulings of the Commissioner (2006)................................................................................. 55 BIR; Prescriptive
Period; Assessment; Fraudulent Return (2002).............................................................................. 55 BIR;
Prescriptive Period; Criminal Action (2006)....................................................................................................... 55
BIR; Taxpayer: Civil Action & Criminal Action (2002)
................................................................................................ 55 Custom: Violation of Tax & Custom Duties
(2002)..................................................................................................... 56 Customs; Basis; Automatic Review
(2002)................................................................................................................ 56 Delinquent Tax Return (1998)
................................................................................................................................... 57 Jurisdiction: Customs vs.
CTA (2000)...................................................................................................................... 57 LGU: Collection of
Taxes, Fees & Charges (1997) ..................................................................................................... 57 Tax Amnesty
vs. Tax Exemption (2001) .................................................................................................................... 57
Taxpayer: Administrative & Judicial Remedies
(2000)............................................................................................... 57 Taxpayer: Assessment: Protest: Claims
for refund (2000)......................................................................................... 58 Taxpayer: Assessment; Injunction
(2004) ................................................................................................................. 58 Taxpayer: BIR Audit or
Investigation (1999).............................................................................................................. 58 Taxpayer: City
Board of Assessment Decision; Where to appeal (1999).................................................................... 59
Taxpayer: Claim for Refund; Procedure
(2002).......................................................................................................... 59 Taxpayer: Deficiency Income Tax
(1995)................................................................................................................... 59 Taxpayer: Exhaustion of
Administrative Remedies (1997)......................................................................................... 60 Taxpayer: Failure
to Withheld & Remit Tax (2000)..................................................................................................... 60 Taxpayer:
NIRC vs. TCC Remedies (1996)................................................................................................................. 60
Taxpayer: Overwitholding Claim for Refund (1999)
................................................................................................... 61 Taxpayer: Prescriptive Period: Suspended
(2000)..................................................................................................... 61 Taxpayer: Prescriptive Period; Claim
for Refund (1997) ............................................................................................ 61 Taxpayer: Prescriptive Period;
Claims for Refund (1994) .......................................................................................... 61 Taxpayer: Prescriptive
Period; Claims for Refund (2004) .......................................................................................... 62
Taxpayer: Protest against Assessment (1998)
.......................................................................................................... 62 Taxpayer: Protest against Assessment
(1999) .......................................................................................................... 62 Taxpayer: Protest against
Assessment (1999) .......................................................................................................... 62 Taxpayer: Protest;
Claim of Refund (1996)................................................................................................................ 63 Taxpayer;
Appeal to the Court of Tax Appeals (2005)................................................................................................ 63
Taxpayer; Claim for Tax Credits (2006)
..................................................................................................................... 63 Taxpayer; Compromise after
Criminal Action (1998) ................................................................................................. 63 Taxpayer; Protest
against Assessment; Donors Tax (1995) ..................................................................................... 64 Taxpayer;
LOCAL
Withholding & REAL Agent;PROPERTY
Claim of Tax TAXES..................................................................................................
Refund (2005) ....................................................................................... 64 64
Local Taxation: Actual Use of Property (2002)
.......................................................................................................... 64 Local Taxation: Coverage
(2002)............................................................................................................................... 64 Local Taxation:
Exemption; Real Property Taxes (2002) ........................................................................................... 65 Local
Taxation: Imposition of Ad Valorem Tax (2000) ............................................................................................... 65
Local Taxation: Legality/ Constitutionality; Tax Ordinance (2003)
............................................................................. 65 Local Taxation: Legality; Imposition of Real Property Tax
Rate (2002) ...................................................................... 65 Local Taxation: Power to Impose (2003)
................................................................................................................... 65 Local Taxation:
Remission/Condonation of Taxes (2004).......................................................................................... 66 Local
Taxation: Rule of Uniformity and Equality (2003)............................................................................................. 66
Local Taxation; Situs of Professional Taxes
(2005)................................................................................................... 66 Local Taxation; Special Levy on Idle
Lands (2005).................................................................................................... 66 Real Property Tax:
Underground Gasoline Tanks (2003)........................................................................................... 67 Real
Property Tax; Requirements; Auction Sales of Property for Tax Delinquency (2006)
......................................... 67 Real Property Taxation: Capital Asset vs. Ordinary Asset (1995)
.............................................................................. 67 Real Property Taxation: Capital Gains vs. Ordinary
Gains (1998) .............................................................................. 67 Real Property Taxation: Coverage of
Ordinary Income (1998) ................................................................................... 67 Real Property Taxation:
Exchange of Lot; Capital Gain Tax (1997)............................................................................ 68 Real Property
Taxation: Exemption/Deductions; Donors Tax (1998)......................................................................... 68 Real
Property Taxation: Exemption: Acquiring New Principal Residence (2000)
....................................................... 68 Real Property Taxation: Fundamental Principles (1997)
............................................................................................ 69 Real Property Taxation: Principles &
TARIFF
Limitations: ANDLGU CUSTOMS DUTIES ........................................................................................................
(2000)................................................................................... 69 Real Property Taxation:
Customs: Flexible 70Tariff
Property Sold is an Ordinary Asset (1998)........................................................................... Clause (2001)
69 Real Property
..................................................................................................................
Taxation: Underground Gasoline Tanks (2001) ................................................................................... Judicial
70 Customs: Administrative vs. 69 Real
Remedies
Property Taxation; (1997) ............................................................................................ 70 Customs: Importation (1995)
Exempted Properties (2006) ................................................................................................
....................................................................................................................................
69 70 Customs: Jurisdiction;
Seizure & Forfeiture Proceedings (1996) ............................................................................. 70 Customs: Kinds
of Custom Duties (1995) ................................................................................................................. 70 Customs:
Kinds of Custom Duties (1997) ................................................................................................................. 71
Customs: Remedies of an Importer (1996)
................................................................................................................ 71 Customs: Returning Residents:
Tourist/Travelers (2003) .......................................................................................... 71 Customs: Seizure &
Forfeiture: Effects (1994) .......................................................................................................... 71 Customs: Steps
involving Protest Cases (1994)........................................................................................................ 72 Customs;
Basis of Dutiable Value; Imported Article (2005) ....................................................................................... 72
Customs; Countervailing Duty vs. Dumping Duty
OTHER RELATED MATTERS...............................................................................................................
(2005)........................................................................................... 72 Customs; Taxability; Personal Effects 73
BIR: Bank Deposits
(2005)............................................................................................................ 72 Secrecy Violation
(2000)............................................................................................................ 73 BIR: Secrecy of Bank Deposit
Law (2003) ................................................................................................................. 73
Answers to the BAR: Taxation 1994-2006 (Arranged by Topics)
GENERAL PRINCIPLES
Basic Features: Present Income
Tax System
What are the(1996)
basic features of the present
income tax system"?
SUGGESTED ANSWER:
Our present income tax system can be said
to have the following basic features:
(a) It has adopted a COMPREHENSIVE
TAX SITUS by using the nationality,
residence, and source rules. This makes
citizens and resident aliens taxable on their
income derived from all sources while non-
resident aliens are taxed only on their income
derived from within the Philippines. Domestic
corporations are also taxed on universal
income while foreign corporations are taxed
only on income from within.
(b) The individual income tax system is
mainly PROGRESSIVE IN NATURE in that it
provides a graduated rates of income tax.
Corporations in general are taxed at a flat rate
of thirty five percent (35%) of net income.
(c) It has retained MORE SCHEDULAR

THAN GLOBAL FEATURES with respect to
individual taxpayers but has maintained a
more global treatment on corporations.
Note: The following might also be cited by
the bar candidates as features of the income
Individual
tax system: compensation income earners are taxed
on modified Gross Income (Gross compensation
income less personal exemptions). Self-employed
and professionals are taxed on net income with
deductions limited to seven items or in lieu thereof
the forty percent (40%) maximum deduction plus
the personal exemptions. Corporations are
generally taxed on net income except for non-
resident foreign corporations which are taxed on
gross income.
The income tax is generally imposed via the self-
assessment system or pay-as-you-file concept of
imposing the tax although certain incomes.
Including income of non-residents, are taxed on
the pay-asyou-earn concept or the so called
withholding tax.
The corporate income tax is a one-layer tax in that
distribution of profits to stockholders (except to
nonresidents) are not subject to income tax.
Basic Stages or Aspects of
Taxation
Enumerate(2006)the 3 stages or aspects of
taxation. Explain each. (5%)
SUGGESTED ANSWER:
The aspects of taxation are:
(1) LEVYING the act of the legislature in
choosing the persons, properties, rights or
privileges to be subjected to taxation.
(2) ASSESSMENT and COLLECTION This
is the act of executing the law through the
administrative agencies of government.
(3) PAYMENT the act of the taxpayer in
settling his tax obligations.
9
example of this tax is income tax where the There is no double taxation. DOUBLE
person subject to tax cannot shift the burden Collectionmeans
TAXATION of taxing Taxes: for theAuthority;
same tax
of the tax to another person. Ordinary
May
period the Courts
the courtsthing
same (2001)
enjoin the collection
or activity twice, whenof
revenue
it should taxes?
be taxed Explain
but once,your by answer.
the same (2%)
INDIRECT TAXES, on the other hand, are taxes SUGGESTED
taxing ANSWER:
authority for the same purpose and
wherein the incidence of or the liability for the As a the
with general
samerule,kindthe or courts
character have of no
tax.authority
The
payment of the tax falls on one person but the REAL ESTATE TAX is a tax on property; the(Sec.
to enjoin the collection of revenue taxes.
burden thereof can be shifted or passed on to 218, ESTATE
REAL NIRC). DEALER'S
However,TAX theis aCourt
tax onof the Tax
another person. Example of this tax is the Appeals is
privilege toempowered
engage in business; to enjoinwhilethe collection
the
value-added tax. of taxesTAX
INCOME through
is a tax on administrative
the privilege to remedies
earn
an income. These taxes are imposed byinterest
when collection could jeopardize the
ALTERNATIVE ANSWER:
A direct tax is a tax which is demanded from of the government or taxpayer.
different
Collection taxing authorities
of and are(Section
Taxes: essentially11,
the person who also shoulders the burden of RA 1125).
of different
Prescription
Double kind andIndirect
character (Villanueva vs.
the tax. Example: corporate and individual May theTaxation; (2001)
collection of taxesDuplicate
be barred by
City of Iloilo, 26 SCRA 578).
income tax. Taxation
prescription?
When an item(1997)
Explain
of income yourisanswer.
taxed in (3%) the
An indirect tax is a tax which is demanded SUGGESTED
PhilippinesANSWER:and the same income is taxed in
from one person in the expectation and Yes.
another Thecountry,
collection of taxes
is there mayofbe
a case barred by
double
intention that he shall indemnify himself at prescription.
SUGGESTED
taxation? ANSWER:The prescriptive periods for
the expense of another, and the burden finally Yes, but
collection it is
of only
taxes a case
are of indirect
governed duplicate
by the tax
resting on the ultimate purchaser or taxation
law imposing whichthe is nottax.legally
However, prohibited
if the tax law
consumer. Example: value added tax. because
does not the taxesfor
provide areprescription,
imposed by differentthe right of
Direct Tax vs. Indirect taxing authorities. to collect taxes becomes
the government
Tax (2006) "direct taxes" from "indirect
Distinguish Double Taxation; License Fee vs.
imprescriptible.
taxes." Give examples. (5%) Local
A
Direct Tax
Tax(2004)
municipality, vs.BB, has an ordinance which
Indirect
SUGGESTED ANSWER: requires
Tax (1994)
Distinguish thataalldirect
stores, restaurants,
from an indirect and other
DIRECT TAXES are demanded from the very establishments
tax.
SUGGESTED ANSWER: selling liquor should pay a
person who should pay the tax and which he A DIRECT
fixed annual TAX feeisofone in which
P20.000. the taxpayer
Subsequently,
can not shift to another. An INDIRECT TAX is who pays theboard
the municipal tax isproposed
directly an liable therefor,
ordinance
demanded from one person with the that
imposing a sales tax equivalent to 5%tax
is, the burden of paying the falls
of the
expectation that he can shift the burden to directly on the person paying
amount paid for the purchase or consumption the tax.
someone else, not as a tax but as part of the An INDIRECT
of liquor TAX isrestaurants
in stores, one paid by and a person
other who
purchase price. Examples of direct taxes are is not directly liable
establishments. therefor, mayor,
The municipal and who CC,may
the income tax, the estate tax and the therefore
refused toshift sign or thepass on theontax
ordinance thetoground
another
donor's tax. Examples of indirect taxes are SUGGESTED
person or ANSWER:
entity, which ultimately assumes
that it would constitute double taxation. Is the
the value-added tax, the percentage tax and No.
the The
tax refusal
burden. of the mayorv.is not
(Maceda justified.197
Macaraig,
refusal of the mayor justified? Reason briefly.
Double
the excise tax on exciseable articles. The
SCRA impositions
771) are of different nature and
Taxation (1997) a valid defense against the (5%)
Direct Tax vs. Indirect
Is double taxation character. The fixed annual fee is in the
legality of a tax measure? Tax (2000)
Among
nature ofthe taxes fee
a license imposed
imposed by through
the Bureau the of
SUGGESTED ANSWER: Internal Revenue
exercise of police power are income while thetax,5% estate
tax on and
No, double taxation standing alone and not donor's tax,
purchase value-added tax,
or consumption excise
is a local tax, other
tax
being forbidden by our fundamental law is not percentage
imposed taxes,
through theand documentary
exercise of taxing stamp
a valid defense against the legality of a tax tax. Classify
powers. Both a theselicense taxes
fee andinto a taxdirect
may be and
measure (Pepsi Cola v. Tanawan, 69 SCRA indirect taxes,
imposed on the same and differentiate direct from
business or occupation,
460). However, if double taxation amounts to SUGGESTED
Indirect
or for selling ANSWER:
taxes. the(5%)same article and this is not in
1in
a that duplicate
direct the same taxation,
subject is taxed twice when it Income tax, estate and donor's tax are
violation of the rule against double taxation
should be taxed but once, considered as direct taxes. On the other
{Campania General de Tabacos de
2in a fashion that both taxes are imposed for the Double Taxation; Methods
hand, value-added tax, excise of tax, other
Filipinos v. City of Manila, 8 SCRA 367
same purpose Avoiding
percentage
What are DTtaxes,
the (1997)
usual and documentary
methods of avoidingstamp the
[1963]).
3by the same taxing authority, within the same tax are indirect
occurrence taxes.taxation?
of double
jurisdiction or taxing district, DIRECT TAXES
SUGGESTED ANSWER: are demanded from the very
4for the same taxable period and The
personusual who, methods of avoiding
as intended, should thepay the tax
5for the same kind or character of a tax occurrence
which he of
cannotdouble taxation
shift to are:
another; while an
1Allowing
INDIRECT reciprocal
TAX is demandedexemption either in the by law
first
then it becomes legally objectionable for or by treaty;from
instance one person with the
being oppressive and inequitable. 2Allowance
expectation of tax he
that credit
canfor foreign
shift the taxes
burden to
paid;
someone else, not as a tax but as a part of
Double Taxation: What Direct
3Allowance
the purchaseTax of vs. Indirectfor foreign taxes
deduction
price.
Constitutes
X, a lessor of DT? (1996) pays real estate tax
a property, Tax (2001)
Distinguish
paid; and direct taxes from indirect taxes,
on the premises, a real estate dealer's tax and give an of
4Reduction example for each
the Philippine one.
tax rate.(2%)
based on rental receipts and income tax on SUGGESTED ANSWER:
the rentals. X claims that this is double DIRECT TAXES are taxes wherein both the
SUGGESTED ANSWER:
taxation? Decide. incidence (or liability for the payment of the
tax) as well as the impact or burden of the
tax falls on the same person. An
(a) The National Internal
(b) The Tariff
Revenue and Customs
Code;
(c)
Code;Theand
Local Government Code
Answer: ANSWERS:
SUGGESTED
The rules that have been adopted on
prescription are as follows:
(a) National Internal Revenue Code -
The statute of limitation for assessment of tax
if a return is filed is within three (3) years
from the last day prescribed by law for the
filing of the return or if filed after the last day,
within three years from date of actual filing. If
no return is filed or the return filed is false or
fraudulent, the period to assess is within TEN
YEARS from discovery of the omission, fraud
or falsity.
The period to collect the tax is within
THREE YEARS from date of assessment. In
the case, however, of omission to file or if
the return filed is false or fraudulent, the
period to collect is within TEN YEARS from
discovery without need of an assessment.
(b) Tariff and Customs Code - It does

not express any general statute of limitation;
it provided, however, that "when articles have
entered and passed free of duty or final
adjustment of duties made, with subsequent
delivery, such entry and passage free of duty
or settlement of duties will, after the
expiration of ONE (1) YEAR, from the date of
the final payment of duties, in the absence of
fraud or protest, be final and conclusive upon
all parties, unless the liquidation of Import
entry was merely tentative" (Sec 1603, TCC).
(c) Local Government Code - Local
taxes, fees, or charges shall be assessed
within FIVE (5) YEARS from the date they
became due. In case of fraud or intent to
evade the payment of taxes, fees or charges
the same maybe assessed within TEN YEARS
from discovery of the fraud or intent to evade
payment. They shall also be collected either
by administrative or judicial action within FIVE
(5) YEARS from date of assessment (Sec. 194,
LGC).
Note: Any three of the methods shall be

given full credit.
Imprescriptibility of Tax
Laws (1997)
Taxes were generally imprescriptible;
statutes, however, may provide otherwise.
State the rules that have been adopted on
this score by -
Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail.com 10 of 73 of 73
11
system of taxation by centralizing the broadest
There arescope
substantialof all the differences
powers of between big
imposition and collection of all taxes in the investors being
government because
enticed in tothethe absence
"secured of area"
national government. Accordingly, it is and the business
limitations, it is considered
operators as outside
unlimited,that are in
thinking of passing a law that would abolish accord with
plenary, comprehensive
the equal protection and supreme. clauseThe that
the taxing power of all local government doeslimitations
two not require onterritorial
the power uniformity
of taxation of laws.
are
units. In your opinion, would such a law be The inherent
the classification and constitutional
applies equally limitations
to all the
SUGGESTED
valid under ANSWER:
the present Constitution? Explain resident
which areindividuals
intended to and prevent
businesses abusewithin on the the
No.
your The law (5%)
answer. centralizing the imposition and "secured of
exercise area".
the otherwise
The residents, plenary being andin like
collection of all taxes in the national circumstances
unlimited power. to Itcontributing
is the Court's directly
role to toseetheto
government would contravene the achievement
it that the exercise of the of end thepurpose
power does of thenot law,
Constitution which mandates that: . . . "Each Power of
are not categorized
transgress these Taxation:
limitations. Revocation
further. Instead, they are of
local government unit shall have the power to Exempting Statutes (1997)
similarly treated, both in privileges granted
create their own sources of revenue and to "X"
and Corporation
obligations required. was the (Tiu, recipient
et al, in 1990 of
v. Court
levy taxes, fees, and charges subject to such Power
two tax of Taxation: both
exemptions Inherent from in a
Congress, one
of 4npeals, et al, G.R. No. 127410, January 20,
guidelines and limitations as Congress may Sovereign
Why exempting
law is the power Statethe (2003)
to tax considered
company's inherent
bond issues
1999)
provide consistent with the basic policy of in
froma sovereign
taxes and State? the(4%) other exempting the
local autonomy." It is clear that Congress can SUGGESTED ANSWER:
company from taxes in the operation of its
only give the guidelines and limitations on the It is considered
public utilities. The inherent
two laws in a sovereign
extending State the tax
exercise by the local governments of the because it is a necessary
exemptions were revoked by Congress attribute of before
Power of Taxation: Limitations: Passing sovereignty. Without
power to tax but what was granted by the SUGGESTED
their expiry ANSWER:
dates. this Were power theno revocations
sovereign
of Revenue Bills (1997) Yes.
State Thecanexempting
exist or endure. statutes Theare power both togranted
tax
fundamental law cannot be withdrawn by constitutional?
The House of Representatives introduced HB unilaterally
proceeds upon by theCongress
theory that in the exercise of
the existence
Congress.
7000 which envisioned to levy a tax on taxing powers. Since
of a government taxation and
is a necessity is thethisrule and
various transactions. After the bill was tax
powerexemption,
is an essential theandexception,
inherent attribute any tax
approved by the House, the bill was sent to exemption
of sovereignty, unilaterally
belonging asgranted a matter of can rightbe
the Senate as so required by the Constitution. withdrawn
to every independent at the pleasure of the taxing
state or government.
In the upper house, instead of a deliberation authority
No sovereign without
state can violating
continue theto Constitution
exist
on the House Bill, the Senate introduced SB (Mactan
without the means to pay its expenses; Airport
Cebu International and
8000 which was its own version of the same Authority
that for those v,means,
Marcos, it hasG.R the rightNo. to 120082,
tax. The Senate deliberated on this Senate Power of
Neither
September of Taxation:
these were
11, 1996). Legality;
issued by Localthe its taxing
compel all citizens and property within
Bill and approved the same. The House Bill Govt
May
authority Taxation
Congress,in a (2003)
under
contract the 1987
lawfully Constitution,
entered byofit
limits to contribute, hence, the emergence
and the Senate Bill were then consolidated in abolish
so that the
their power to
revocation tax of local
would not constitute
the power ANSWER:
to tax. (51 Am. Jur.,Taxation 40).
the Bicameral Committee. Eventually, the governments?
SUGGESTED
an impairment (4%)
of the obligations of contracts.
No. Congress
ALTERNATIVE cannot abolish what is
ANSWER:
consolidated bill was approved and sent to No. The withdrawal
expressly granted by the of fundamental
the tax exemption law.
the President who signed the same. The amounts to a deprivation
The only authority conferred of property
to Congress without
is to
private sectors affected by the new law due process
provide of law, hence
the guidelines andunconstitutional.
limitations on the
questioned
SUGGESTED ANSWER:the validity of the enactment on local government's exercise of the power to
There is nothat
the ground the constitutional
violation provision
of the constitutional Power
tax (Sec. of 5, Art. Taxation; Inherent in a
X, 1987 Constitution).
requirement that all revenue bills should
requiring that all revenue bills should Power of Taxation:
Sovereign
Describe theState (2005)
power Legislative
of taxation. May a
originate from
originate from thethe House
House of of Representatives.
Representatives in Nature
The Secretary
legislative (1994)
body of enact
Finance, laws upon to raise revenues
had been
What violated. Resolve
is prohibited is for the theSenate
issue. to enact recommendation
in the absence of of the Commissionerprovision
a constitutional of
revenue measures on its own without a bill Internal Revenue,
granting said bodyissued the power a Revenueto tax? Explain.
originating from the House. But once the SUGGESTED
RegulationANSWER: using gross income as the tax
revenue bill was passed by the House and Yes,
basethe legislative body
for corporations doing may enact laws
business in the even
Power
sent of Taxation:
to the Senate, the Equal Protection
latter can pass its own in the
SUGGESTED absence
Philippines.ANSWER: of a constitutional
Is the Revenue Regulation valid? provision
of the
An Law
Executive (2000)
Order was issued pursuant to The regulation
because the power establishing
to tax gross incomeinasthe
is inherent
version on the same subject matter consonant
law, granting tax power
and duty incentives the tax base for
government andcorporations
not merelydoing business
a constitutional
with the latter's to propose or only
concurto
businesses and residents within the in the Philippines
grant. The power(domestic of taxation as well
is an as essential
with amendments. This follows from"secured
the co-
area" of of thetheSubic resident
and foreign) isattribute
inherent not valid. This of issovereignty
no longer
equality twoEconomic
chambersSpecialof CongressZone,
Power
and denyingof Taxation:
said Limitations;
incentives to those Power
who live implementation
belonging as aof matter
the law but of actually
right toit every
(Tolentino v. Secretary of Finance, GR
to Destroy
Justice
within Holmes (2000)
the Zone oncebut said: The power
outside such to tax is
"secured constitutes legislation
independent government becausewithout among thebeing
No. 115455, Oct. 30, 1995). Tanauan, Leyte, G.R. No.people.
L-31156, February
not
area".theIspower to destroy while
the constitutional rightthisto Court
equal powers that
expressly are exclusively
granted by the within the
(Pepsi-Cola
27,1976)
SUGGESTED
(the Supreme
protection ANSWER: Court)lawsits."
of the Describe
violated by the the Bottling Company of the Philippines, to
legislative authority to tax is the power Inc. v.
No. Equal protection of the law clause is Taxation is the inherent power of a State to
SUGGESTED
power
Executiveto taxANSWER:
and its
Order? limitations.
Explain. (3%) (5%) determine -the
Municipality of amount of the tax. (See 1
subject
The power to taxreasonable
is an inherent classification.
power of the collect enforced proportional contribution to
Cooley 176-184). Certainly, if the tax is limited
(1) rest onwhich
Classification,
sovereign substantial
to beisvalid, distinctions,
must through
exercised (2) the
be support the expenses of government. Taxation
to gross income without deductions of these
germane to to
legislature, theimpose
purpose of the law,
burdens upon(3) not be
subjects is the power vested in the legislature to
corporations, this is changing the amount of
limited
and objectsto existing
withinconditions only, (4)
its Jurisdiction forapply
the impose
Power of burdens
Taxation: or chargesLimitations upon persons of the and
the tax as said amount ultimately depends on
equally to all members of the same
purpose of raising revenues to carry out the class. property
Congressinafter
Congress, order
(2001) much to raise
public revenue
hearing for public
and
the taxable base.
legitimate objects of government. The purposes.
consultations with various sectors of society,
The
camepower to thetoconclusion
tax is so unlimited
that it will in beforce
good and for
underlying basis for its exercise is so
governmental necessity for without it no the searching
country to in have extent
only one that courts scarcely
venture to declare it is
government can exist nor endure.
Accordingly, it has the
subject to any restrictions whatever, except may now be untenable" may lead the
such as rest in the discretion of the authority examinee to choose a proposition which is
which exercises it. (Tio v. Videogram Regulatory untenable on the basis of the new law
Board, G.R. No. L-75697, June 18, 1987) So despite the cut-off date adopted by the
potent is the power to tax that it was once Bar Examination Committee. R.A. No.
9282 was passed on March 30, 2004.
opinedMarshall
(C.J. that "the power to tax
in McCulloch involves the
v. Maryland, 4
Purpose of Taxation; Legislative
power to316
Wheat, destroy."
4 L. Ed. 579, 607)
in Nature
Taxes (2004) for the purpose of
are assessed
Power of Taxation; Legislative generating revenue to be used for public
in Nature
What (1996)
is the nature of the power of needs. Taxation itself is the power by which
taxation? ANSWER:
SUGGESTED the State raises revenue to defray the
The POWER TO TAX is an attribute of expenses of government. A jurist said that a
sovereignty and is inherent in the State. It is a tax is what we pay for civilization.In our
power emanating from necessity because it jurisdiction, which of the following statements
imposes a necessary burden to preserve the may be erroneous: 1) Taxes are pecuniary in
State's sovereignty (Phil Guarantee Co. vs. nature. 2) Taxes are enforced charges and
Commissioner, L-22074, April 30, 1965). It is the territorial jurisdiction
contributions. of aimposed
3) Taxes are State. 4)on
Taxes
inherently legislative in nature and character are levied by the executive
persons and property within branch of the
in that the power of taxation can only be government. 5) Taxes are assessed according to
ALTERNATIVE ANSWER:
exercised through the enactment of law. a reasonable rule of apportionment. Justify your
The nature of the power of taxation refers to answer or choice briefly. (5%)
its own limitations such as the requirement
that it should be for a public purpose, that it SUGGESTED ANSWER:
be legislative, that it is territorial and that it A. 4. Taxes are levied by the executive
should be subject to international comity. branch of government. This statement is
Purpose of Taxation; erroneous because levy refers to the act of
Interpretation
Which (2004)
of the following propositions may now imposition by the legislature which is done
be untenable: 1) The court should construe a through the enactment of a tax law. Levy is
law granting tax an exercise of the power to tax which is
exemption strictly against the taxpayer. 2) exclusively legislative in nature and
The court should construe a law granting a character. Clearly, taxes are not levied by the
municipal corporation the power to tax most Rule on Set-Off
executive branch or Compensation
of government. (JVPC v.
3)
strictly.The Court of Tax Appeals has of
X Taxes
is the (1996)
owner of a residential lot situated at
Albay, 186 SCRA 198 [1990]).
jurisdiction over decisions of the Customs Quirino Avenue, Pasay City. The lot has an
Commissioner in cases involving liability for area of 300 square meters. On June 1, 1994,
4) The Court
customs of Appeals has jurisdiction to
duties. 100 square meters of said lot owned by X was
review decisions of the Court of Tax Appeals. expropriated by the government to be used in
5) The Supreme Court has jurisdiction to the widening of Quirino Avenue, for
review decisions of the Court of Appeals. P300.000.00 representing the estimated
Justify your answer or choice briefly. (5%) assessed value of said portion. From 1991 to
SUGGESTED ANSWER:
2. The court should construe a law granting a 1995, X, who is a businessman, has not been
municipal corporation the power to tax most paying his income taxes. X is now being
This proposition is now untenable. The basic
strictly. assessed for the unpaid income taxes in the
rationale for the grant of tax power to local total amount of P150,000.00. X claims his
government units is to safeguard their income tax liability has already been
SUGGESTED ANSWER:
viability and self-sufficiency by directly compensated
The income taxby the amount
liability ofnot
of X can P300.000.00
be
granting them general and broad tax powers which the government
compensated owes him
with the amount owedforbythe
the
(Manila Electric Company v. Province of expropriation
Government asofcompensation
his property.forDecide.
his property
Laguna et. al., 306 SCRA 750 [1999]). expropriated, taxes are of distinct kind, essence
Considering that inasmuch as the power to tax and nature than ordinary obligations. Taxes and
may be exercised by local legislative bodies, debts cannot be the subject of compensation
no longer by valid congressional delegation because the Government and X are not mutually
but by direct authority conferred by the creditors and debtors of each other and a claim
Constitution, in interpreting statutory for taxes is not a debt, demand, contract, or
provisions on municipal fiscal powers, doubts Judgment
28. 1988) as is allowable to be set off. (Francia
will, therefore, have to be resolved in favor of vs. IAC. G.R 76749, June
municipal corporations (City Government of Rule on Set-Off or Compensation
Note: If the examinee chose proposition of Taxes
May (2001)
a taxpayer who has pending claims for
San Pablo, Laguna v. Reyes, 305 SCRA 353
no. 4 as his answer, it should be given full VAT input credit or refund, set-off said claims
This means
[1999]).credit that that
considering the court must adopt
the present CTA
a liberal against his other tax liabilities? Explain your
Act (R.A. No. 9282) has madegranting
construction of a law the CTA aa SUGGESTED ANSWER:
answer. (5%)
municipal corporation
coequal judicial the power
body of to
thetax.
Court of
Appeals. The question "Which of the
following propositions
No. Set-off is available only if both obligations referring to Republic of the Philippines v.
are liquidated and demandable. Liquidated Mambulao Lumber Co., G.R. No. L-17725,
debts are those where the exact amounts February 28, 1962; and Francia v.
have already been determined. In the instant Intermediate Appellate Court, G.R. No. L-
case, the claim of the taxpayer for VAT refund 67649, June 28,1998.
There is, however, legal basis to state that an
is still pending and the amount has still to be
assessment for a local tax may be the subject
determined. A fortiori, the liquidated
of set-off or compensation against a final
obligation of the taxpayer to the government
judgment for a sum of money obtained by the
can not, therefore, be set-off against the
taxpayer against the local government by
unliquidated claim which the taxpayer
ALTERNATIVE ANSWER: operation of law where the local government
conceived to exist in his favor. (Philex Mining
No. Taxes and claims for refund cannot be the and the taxpayer are in their own right
Corp. v. CIR, GR No. 125704, August 29,
subject of set-off for the simple reason that reciprocally debtors and creditors of each
1998).
the government and the taxpayer are not other, and that the debts are both due and
creditors and debtors of each other. There is a demandable. This is consistent with the ruling
material distinction between a tax and a claim in Domingo v. Garlitos, G.R. No. L-18994, June
for refund. Claims for refunds just like debts 29,1963, relying upon Arts. 1278 and 1279 of
are due from the government in its corporate the Civil Code, where these provisions were
capacity, while taxes are due to the applied in relation to the national tax, and
Tax Avoidance vs. Tax
government in its sovereign capacity. (Philex should therefore be applicable to a local tax.
Mining Corp. v. CIR, GR No. 125704, Evasion (1996)
Distinguish tax evasion from tax
Rule on29,
August Set-Off
1998).or Compensation avoidance.
SUGGESTED ANSWER:
of
May Taxes (2005)
taxes be the subject of set-off or Tax evasion is a scheme used outside of
compensation? Explain. those lawful means to escape tax liability
SUGGESTED ANSWER. and, when availed of, it usually subjects the
No, taxes cannot be the subject of set-off or taxpayer to further or additional civil or
compensation for the following reasons: 1) criminal liabilities. Tax avoidance, on the
The lifeblood theory requires that there should other hand, is a tax saving device within the
be no unnecessary impediments to the means sanctioned by law, hence legal.
collection of taxes to make available to the Tax Avoidance vs. Tax
government the wherewithal to meet its Evasion
Mr. (2000) income from leasing his
Pascual's
legitimate objectives; and property reaches the maximum rate of tax
2) The payment of taxes is not a contractual under the law. He donated one-half of his said
obligation but arises out of a duty to pay, and property to a non-stock, non-profit
in respect of the positive acts of government, educational institution whose income and
regarding the making and enforcing of taxes, assets are actually, directly and exclusively
the personal consent of the individual used for educational purposes, and therefore
taxpayer is not required. (Republic v. qualified for tax exemption under Article XIV,
Mambulao Lumber Co., G.R. No. L-17725, Section 4 (3) of the Constitution and Section
February 28, 1962; Caltex v. Commission on 30 (h) of the Tax Code. Having thus
Audit, G.R. No. 92585, May 8, 1992; and transferred a portion of his said asset, Mr.
SUGGESTED ANSWER:
Philex v. there
Commissioner of Internal Revenue, Pascual
However, is a possibility that set-off may There issucceeded in paying
tax avoidance. Mr.a lesser
Pascualtaxhas
on
G.R. No. 125704, August 28, 1998)
arise, if the claims against the government have the rental income derived from his property.
exploited a fully permissive alternative
been recognized and an amount has already Is there to
method tax reduce
avoidance
his or tax evasion?
income tax by
been appropriated for that purpose. Where both Explain. (2%)
transferring part of his rental income to a tax
claims have already become overdue and exempt entity through a donation of one-half
demandable as well as fully liquidated. of the income producing property. The
Compensation takes place by operation of law donation is likewise exempt from the donor's
under Art. v.
(Domingo 1200 in relation
Garlitos, G.R. to Articles
No. 1279
L-18994, and29,
June tax. The donation is the legal means
1290 of the New Civil Code.
1963)
employed to transfer the incidence of income
Rule on Set-Off or Compensation Tax
tax onExemptions: Nature & Coverage;
the rental income.
on Taxes
Can (2005)
an assessment for a local tax be the Proper
As Party (2004)
an incentive for investors, a law was
subject of set-off or compensation against a passed giving newly established companies in
final judgment for a sum of money obtained certain economic zone exemption from all
by the taxpayer against the local government taxes, duties, fees, imposts and other charges
SUGGESTED
that made ANSWER:
the assessment? Explain. for a period of three years. ABC Corp. was
No, taxes cannot be the subject of set-off even
organized and was granted such incentive. In
when there is a final judgment for a sum of
the course of business, ABC Corp. purchased
money against the local government making
mechanical equipment from XYZ Inc.
the assessment. The government and the XYZ Inc. claims, however, that
Normally, the sale is subject to since it sold
a sales tax. the
taxpayer are not the "mutual creditors and equipment to ABC Corp. which is tax exempt,
debtors" of each other who can avail of the XYZ
remedy of compensation which Art. 1278 (Civil
Code) is
should not be liable to pay the sales tax. Is sale, thus, shifting the tax burden to
this claim tenable? (5%) the ultimate consumer.
SUGGESTED ANSWER: (NOTABENE: This concept pertains to the VAT law
A. No. Exemption from taxes is personal in which is excluded from the bar coverage,
nature and covers only taxes for which the Guidelines for 2006 Bar Examinations, June 15,
taxpayer-grantee is directly liable. The sales 2006)
tax is a tax on the seller who is not exempt Taxpayer Suit; When
from taxes. Since XYZ Inc. is directly liable for Allowed
When (1996)
may a taxpayer's suit be
the sales tax and no tax exemption privilege allowed?
SUGGESTED ANSWER:
is ever given to him, therefore, its claim that A taxpayer's suit may only be allowed when
the sale is tax exempt is not tenable. A tax an act complained of, which may include a
exemption is construed in strictissimi juris and legislative enactment, directly involves the
it can not be permitted to exist upon vague illegal disbursement of public funds derived
implications (Asiatic Petroleum Co., Ltd. V. from taxation (Pascual vs. Secretary of
Assume arguendo that XYZ had to and did Public Works, 110 Phil. 331).
Llanes, 49 Phil 466 [1926]).
pay the sales tax. ABC Corp. later found out, Uniformity in the Collection of
however, that XYZ merely shifted or passed Taxes (1998)
Explain the requirement of uniformity as a
on to ABC the amount of the sales tax by limitation in the imposition and/or collection
increasing the purchase price. ABC Corp. now of taxes. (5%|
SUGGESTED ANSWER:
claims for a refund from the Bureau of Uniformity in the imposition and/or collection of
Internal Revenue in an amount corresponding taxes means that all taxable articles, or kinds of
property of the same class shall be taxed at the
to the tax passed on to it since it is tax
SUGGESTED ANSWER; same rate. The requirement of uniformity is
exempt. Is the claim of ABC Corp.
B. No. The claim of ABC Corp. is not complied with when the tax operates with the same
meritorious? (5%)
meritorious. Although the tax was shifted to force and effect in every place where the subject of
ABC Corp. by the seller, what is paid by it is it is found (Churchill & Tail v. Conception, 34 Phil.
not a tax but part of the cost it has assumed. 969). It does not mean that lands, chattels,
Hence, since ABC Corp. is not a taxpayer, it securities, income, occupations, franchises,
has no capacity to file a claim for refund. The privileges, necessities and luxuries shall be
taxpayer who can file a claim for refund is the assessed at the same rate. Different articles maybe
person statutorily liable for the payment of taxed at different amounts provided that the rate is
Tax Laws; BIR Ruling; Non-Retroactivity
the tax. uniform on the same class everywhere with all
of Rulings
Due (2004)
to an uncertainty whether or not a new people at all times. Accordingly, singling out one
tax law is applicable to printing companies, FIRST ALTERNATIVE
particular ANSWER:
class for taxation purposes does not
DEF Printers submitted a legal query to the The criteria
infringe is met when
the requirement the tax laws operate
of uniformity.
Bureau of Internal Revenue on that issue. The equally and uniformly on all persons under
BIR issued a ruling that printing companies similar circumstances. All persons are treated in
are not covered by the new law. Relying on the same manner, the conditions not being
this ruling, DEF Printers did not pay said tax. different, both in privileges conferred and
Subsequently, however, the BIR reversed the liabilities imposed. Uniformity in taxation also
ruling and issued a new one stating that the refers to geographical uniformity. Favoritism
tax covers printing companies. Could the BIR and preference
SECOND is not allowed.
ALTERNATIVE ANSWER:
now assess DEF Printers for back taxes A tax is deemed to have satisfied the
corresponding to the years before the new uniformity rule when it operates with the
SUGGESTED ANSWER:
ruling? Reason briefly. (5%) same force and effect in every place where
No. Reversal of a ruling shall not be given a the subject maybe found. (Phil. Trust & Co. v.
retroactive application if said reversal will be Yatco, 69 Phil. 420).
prejudicial to the taxpayer. Therefore, the BIR
can not assess DEF printers for back taxes
because it would be violative of the principle INCOME TAXATION
of non-retroactivity of rulings and doing so Basic: Allowable Deductions vs. Personal
would result in grave injustice to the taxpayer Exemptions (2001)
who relied on the first ruling in good faith Distinguish Allowable Deductions from
(Section 246, NIRC; CIR v. Burroughs, Inc., Personal Exemptions. Give an example of an
Tax Pyramiding; Definition &
142 SCRA 324[1986]).
Legality
What (2006)
is tax pyramiding? What is its basis in law? allowable deduction and another example for
SUGGESTED ANSWER:
personal exemption. (5%)
(5%)
SUGGESTED ANSWER:
The distinction between allowable deductions
Tax Pyramiding is the imposition of a tax upon
another tax. It has no basis in fact or in law and personal exemptions are as follows:
(People v. Sandiganbayan, G.R. No. 152532,
a. As to amount Allowable
August 16, 2005). There is also tax pyramiding deductions generally refer to actual
when sales taxes are incorrectly applied to expenses incurred in the pursuit of trade,
goods several times from production to final business or practice of profession while
personal exemptions are arbitrary The facts given in the problem are sufficient to
amounts allowed by law. compute the annual depreciation either under the
As to nature Allowable deductions constitute declining-balance method or sum-of-years-digit
business expenses while personal exemptions method. Any answer arrived at by using any of the
pertain to personal expenses. recognized methods should be given full credit. It
As to purpose Deductions are allowed to is suggested that no question requiring
enable the taxpayer to recoup his cost of doing computation
Basic: Sources should be given in future bar
of Income: Taxable
business while personal exemptions are allowed examinations.
Income
From what (1998)
sources of income are the following
to cover personal, family and living expenses. persons/corporations taxable by the Philippine
As to claimants Allowable deductions can be government? 2) Citizen of the Philippines
claimed by all taxpayers, corporate or otherwise, residing therein; [1%] 3) Non-resident citizen;
while personal exemptions can be claimed only [1%1 4) An individual citizen of the Philippines
by individual taxpayers. who is
working and deriving income from abroad as
Basic: Meaning of Taxable
an overseas contract worker; [1%] 5) An alien
Income
What is (2000)
meant by taxable income?
individual, whether a resident or not of the
(2%)
SUGGESTED ANSWER:
Philippines; [1%] 6) A domestic corporation;
TAXABLE INCOME means the pertinent items
of gross income specified in the Tax Code, [1%] SUGGESTED ANSWER: (Section 23, NIRC of
less the deductions and/or personal and 1997) 1) A citizen of the Philippines residing
additional exemptions, if any, authorized for therein is
taxable on all income derived from sources
such types of income by the Tax Code or
within and without the Philippines. 2) A
other special laws. (Sec. 31, NIRC of 1997)
Basic: Principle of Mobilia Sequuntur nonresident citizen is taxable only on income
Personam
What is the(1994)
principle of mobilia sequuntur derived from sources within the Philippines.
3) An individual citizen of the Philippines
personam in income taxation?
SUGGESTED ANSWER: who is working and deriving income from
Principle of Mobilia Sequuntur Personam in abroad as an overseas contract worker is
income taxation refers to the principle that taxable only on income from sources within
taxation follows the property or person who 4) An alien individual, whether a resident
the Philippines.
shall be subject to the tax. or not of the Philippines, is taxable only on
Basic: Proper Allowance of income derived from sources within the
Depreciation
1What (1998)
is the proper allowance for depreciation of 5) A domestic corporation is taxable on all
Philippines.
any property used in trade or business? [3%) income derived from sources within and
2What is the annual depreciation of a depreciable without the Philippines.
fixed asset with a cost of P100,000 and an
Basic: Tax Benefit
estimated useful life of 20 years and salvage
Rule (2003)
(a) What is meant by the "tax benefit
value of P 10,000 after its useful life?
SUGGESTED ANSWER: rule"?
SUGGESTED ANSWER:
1. The proper allowance of depreciation
(a) TAX BENEFIT RULE states that the
of any property used in trade or business
taxpayer is obliged to declare as taxable
refers to the reasonable allowance for the
income subsequent recovery of bad debts in
exhaustion, wear and tear (including
the year they were collected to the extent of
reasonable allowance for obsolescence) of
the tax benefit enjoyed by the taxpayer when
said property. The reasonable allowance shall
the bad debts were written-off and claimed as
include, but not limited to, an allowance
(a) straight-line a deduction from income. It also applies to
computed under any of the following
(b)
method; declining-balance taxes previously deducted from gross income
methods:
(c)
method; sum-of-years-digit but which were subsequently refunded or
(d)
method; any
andother method which may be credited. The taxpayer is also required to
prescribed by the Secretary of Finance report as taxable income the subsequent tax
upon recommendation of the refund or tax credit granted to the extent of
Commissioner of Internal Revenue (Sec. (b)
the tax Give an the
benefit illustration
taxpayerof enjoyed
the application
when
34(F). NIRC). of the tax benefit rule.
such taxes were previously claimed as
2. The annual depreciation of the depreciable deduction from income.
fixed asset may be computed on the straight-
line method which will allow the taxpayer to
deduct an annual depreciation of Php4,500,
arrived at by dividing the depreciable value
(Php l00.000-Phpl0.000) of Php90,000 by the
estimated useful life (20 years).
NOTE: The bar candidate may give a different
figure depending on the method he used in
computing the annual depreciation.
voluntarily paid his obligation previously
written-off to X Company. In the year of
recovery, the entire amount constitutes part
of gross income of X Company because it was
able to get full tax benefit three years earlier.
Basic; Basis of Income
Tax
X is (1996)
employed as a driver of a corporate
lawyer and receives a monthly salary of
P5,000.00 with free board and lodging with
1What will be the
an equivalent basis
value of X's income tax? Why
of P1,500.00.
2Will your answer in question (a) be the same if
X's employer is an obstetrician? Why?
SUGGESTED ANSWERS:
1) The basis of Xs income tax would depend
on whether his employer is an employee or a
practicing corporate lawyer.
If his employer is an employee, the basis of X's
income tax is P6,500.00 equivalent to the total of
the basic salary and the value of the board and
lodging. This is so because the employer/corporate
lawyer has no place of business where the free
board and lodging may be given.
On the other hand, if the corporate lawyer is a
"practicing lawyer (self-employed), X should be
taxed only on P5,000.00 provided that the free
board and lodging is given in the business
premises of the lawyer and for his convenience and
that the free lodging was given to X as a condition
for employment.
SUGGESTED ANSWER:
(b) X Company has a business connected
receivable amounting to P100,000.00 from Y
who was declared bankrupt by a competent
court. Despite earnest efforts to collect the
same, Y was not able to pay, prompting X
Company to write-off the entire liability.
During the year of write-off, the entire
amount was claimed as a deduction for
income tax purposes reducing the taxable net
income of X Company to only P1,000,000.00.
Three years later, Y
17
services rendered. The transfer is not a gift Corporate;
and from incidental Incomeor outside Tax;
because it is not made out of a detached or Reasonableness
operations or sources of (Sec. the 43, BonusRev.
disinterested generosity but for a benefit accruing (2006)
Gold
Reg. No. and2). Silver Corporation gave extra 14th
to Mr. Perez. The fact that the company of Mr. Basic;
month bonus Income to all itsvs. officials and employees
Perez takes a business deduction for the payment Capital
How (1995)
in the total amount of differ
does "Income" P75 Million. from When "capital"? it
indicates that it was considered as a pay rather Explain.
SUGGESTED ANSWER:
filed its corporate income tax return the
than a gift. Hence, the fair market value of the car Income
followingdiffers year, from capital in that
the corporation INCOME
declared a netis
is includable in the gross income pursuant to any
operatingwealth loss. which
Whenflows the income into the tax taxpayer
return of
Section 28(a)(l) of the Tax Code (See 1974 Federal other than a return
the corporation of capitalbywhile
was reviewed the BIR capital
the
Tax Handbook, p. 145). A payment though constitutes
following year, it disallowed as item the
the investment which is of
voluntary, if it is in return for services rendered, or source
deduction of income.
the P75 Therefore, Millioncapital bonus is fundthe
proceeds from the constraining force of any moral while
corporationincome gaveis the flow. Capital
its officials is wealth,
and employees
or legal duty or a benefit to the payer is while income is the
on the ground of unreasonableness. service of wealth. Capital
The
anticipated, is a taxable income to the payee even is the
corporation tree while
claimed income that is the
the fruit
bonus (Vicente
is an
ALTERNATIVE
if ANSWER:
characterized as a 'gift' by the payor Basic;
SUGGESTED
Madrigal Schedular
ANSWER:
et al v. Treatment
Jamesexpense Rqfferty, vs. Global
38shouldPhil.
Mr. Osorio is correct. The car was not payment ordinary
Treatment
IDistinguish and
will disallow necessary
(1994)
"schedular
the expense. treatment" that
A bonus from is
(Commissioner vs. Duberstein, 363 U.S. 278). 414).
for services rendered. There was no prior be allowed.
"global
ordinary If you were
treatment"
and necessary
asthe usedBIR Commissioner,
where
in income said
agreement or negotiations between Mr. Osorio SUGGESTED how will you
taxation.
expenditure resolve the issue? (5%)
is (1) appropriate
ANSWER: and helpful in
and Mr. Perez that the former will be (Martens, Under a SCHEDULER
Law of
the development of the taxpayersFederal SYSTEM,
Income businessthe
Taxation,various Volume
compensated for his services. Mr. Perez, in and types/items
IV, p.(2)
315)is normal of in relation
income to the (compensation;
business of
behalf of his company, gave the car to Mr. the business/professional
taxpayer andincome) the are classified
surrounding
Osorio out of gratitude. The transfer having circumstances accordingly and are accorded
(p. 316, Ibid). different tax
been made gratuitously should be treated as a To treatments,
determine in the accordance
reasonableness with of the schedules
bonus
gift subject to donor's tax and should be characterized
it must be by graduated
commensurate taxwith rates. Since
services
excluded from the gross income of the these
performed types byof income
the are
officials treated
and separately,
employees.
recipient, Mr. Osorio. The Commissioner should Other the allowable
factors deductions
to consider shall arelikewise
whether varythe for
cancel the assessment of deficiency income tax Under
each
payment type the of
was GLOBAL
income. made SYSTEM,
in good all income
faith; the
to Mr. Osorio and instead assess deficiency character received by of the the taxpayer's
taxpayer are business;grouped the
together,
donor's tax on Mr Perez' company. (Sec. 28(b) volume and amount of its net earnings; without any distinction as to the its
Corporate: Income: Donors tax; type or the
locality; nature
type of andthe income,
extent of the and after
services
(3), NIRC; Pirovano vs. Commissioner)
Tax
X, Liability
2) aIfmultinational
the employer (1996)corporation doing business
is an obstetrician who is deducting the
rendered; therefrom
salary policy expenses and other
of the corporation;
in the Philippines donated 100
self-employed, the basis of X's income will shares of stock allowable deductions,
the size of the particular business; are subjected to tax the at
of said corporation to Mr. Y, its resident Compensation;
a fixed rate. Income Tax: Due to
only be P5,000.00 if it is proven that the free employees' qualification and contributions to
manager Profitable Business Deal (1995)
board andinlodgingthe Philippines.
is given within1) What theis business
the tax the business venture; and general economic
liability, if any, of X corporation? 2) Assuming Mr. Osorio, a bank executive, while playing
premises of said employer for his convenience conditions (Atlas Mining v. CIR, G.R. No. L-
the shares of stocks were given to Mr. Y golf with Mr. Perez, a manufacturing firm
and that the free lodging is required to be 26911, January 27, 1981). However, since the
in consideration of his services to the executive, mentioned to the latter that his
accepted
what byare X asthe condition for employment.
tax implications? business suffers from a net operating loss, I
corporation, Corporate;
(Osorio) bankIncome: had justCoverage; opened a business "Off-
Otherwise,
Explain.
SUGGESTED X would be taxed on P6,500.00.
ANSWERS: will rule that the bonus is an unreasonable
Basic; Gross Income: Line"
Caledonia Airline
relationship (1994)
with
Aircargo ais big foreigninternational
an off-line importer of
1) Foreign corporations effecting a donation expense.
Define
What "gross Income" for purposes of the Incomegoods
is (1995) carrier which
withoutPerez' any flight companyoperations manufactures.
in the
are subject to donor's tax only if the property Perez requested
Philippines. It has, Osorio
however, to introduce
a liaison him in
office to
tax?
SUGGESTED ANSWER:
donated
GROSS INCOME is located means in all the incomePhilippines.from this Philippines
the foreign importer which is and duly put in a good
licensed withword the
Accordingly,
whatever source donation of a foreign
derived, including corporation
(but not for him (Perez),
Securities which Osorio
and Exchange did. As a result,
Commission,
of its
limited own shares
to) of stocks
compensation in favor
for of resident
services, Perez was able
established for the to make
purpose a profitable
of providing business
employee
including fees, is not subject to and
commissions, donor'ssimilartaxitems;
(BIR In
deal gratitude,
with the
passenger and Perez,
foreign
flight Importer.in behalf
information, of his
reservation
Ruling No. 018-87, January
gross income from business; gains derived 26, 1987). manufacturing firm, sent
and ticketing services. Are the revenues of Osorio an expensive
However,
from dealings if 85% in of the businessinterest;
property; of the foreignrents; car as a gift.
SUGGESTED
Caledonia Osoriofrom
ANSWER:
Aircargo called Perezreserved
tickets and toldby him
corporation is located in the Philippines or the The
that revenues
there was in the
really Philippines
no obligation of onCaledonia
the part
royalties; dividends; annuities; prizes and its Philippine office subject to tax?
shares donated haveand acquired business situs Aircargo
of Perez as or an his "off-line"
companyairline to give from such ticketan
winnings; pensions; partner's distributive
in the Philippines,
ALTERNATIVE ANSWER: the donation may be taxed reservation
expensive services
gift. But are
Perez taxable
insisted income
that from
Osorio
share
2) If theof shares
the of gross
stocks income
were of to
given general
Mr.ofY
a)
in Gross
the income means
Philippines all wealth
subject to which flows "whatever
keep the car. source"
The company under Sec. of Perez 28(a) of the
deducted
professional
in consideration partnershipof his 28, the
(Sec.services NIRC). rule
to the v.
into the taxpayer other than as a mere return
reciprocity. theBOAC,
Tax Code.
cost of G.R
theThis No.asNo.
car case 65773-74,
a business is analogous April 30,
expense. to
corporation,
of capital. Itthe same shall
includes constitute
the forms taxable
of income The where
1987 Commissioner
Commissioner the Supreme of CourtInternal ruledRevenue
that the
compensation
specifically described income toasthegains recipient and because
profits income
includedreceivedthe fair in marketthe Philippines
value of the from cartheas
it is a compensation for services
including gains derived from the sale or other rendered sale
Income of oftickets
Osorio bywho an "off-line"
protested that airline
the is
car
under an employer-employee
disposition of capital. relationship, taxable
was a as income
gift and from whatever
therefore source.
excluded from
b) Gross
hence, income
subject to means
incomeincome tax. (in the broad Corporate;
income. Who Income: is correct, Coverage; the Commissioner "Off- or
The
sense) parless
value or stated
income which valueis, ofby the shares
statutory Line"
An Airline
international
SUGGESTED
Osorio? ANSWER:
Explain. (2005)
airline with no landing rights
issued
provision alsoor constitutes
otherwise, deductible
exempt from expense
the tax to The
in the Commissioner
Philippines sold is correct.
tickets inThe thecar having
Philippines
the corporation provided
imposed by law (Sec. 36, Rev. Reg. No. 2). it is subjected to been
for airgiven to Mr.
transportation. OsorioIs in
income consideration
derived of
from
withholding tax on wages.
Gross income from business means total having
such introduced
sales of ticketsMr. Perez
considered to a foreign
taxable
sales, less cost of goods sold, plus any Importerof the
income which said resulted
international to a profitable
income from investments business deal is considered to be a
compensation for
air carrier from Philippine sources under the 1) Non-voting;
Tax Code? Explain. (5%) 2) Preferred and cumulative dividends at the rate of
ALTERNATIVE ANSWER: 10% per annum, whether or not in any period
Yes. The income derived from the sales of amount
the is covered by earnings or projects; 3)
tickets in the Philippines is considered taxable In the event of dissolution of the issuer,
income of the international air carrier from preferred
holders of stock shall be paid in full or ratably as
Philippine sources. assets of the issuer may permit before any
the
The source of income is the property, activity or distribution shall be made to common
service that produced the income. The sale of and 4) The issuer has the option to redeem
stockholders;
tickets in the Philippines is the activity that the preferred
produces the income. The absence of landing stock.
rights in the Philippines cannot alter the fact
that revenues were derived from ticket sales A Co. declared dividends on the preferred
within
v. JapantheAir
Philippines. (Commissioner
Lines, G.R. of Internal
No. 60714, October 4, stock and claimed the dividends as interests
Revenue
1991 reiterating British Overseas Airways deductible from its gross Income for income
Corp., Air India and American Airlines, Inc.) tax purposes. The BIR disallowed the
ALTERNATIVE ANSWER:
No, under Sec. 3 of R.R. No. 15-2002, an off- deduction. A Co. maintains that the preferred
line airline having a branch office or a sales shares with their features are really debt and
SUGGESTED
therefore ANSWER:
the dividends are realty interests.
agent in the Philippines which sells passage The dividends
documents for compensation or commission Decide. (10%) are not deductible from gross
income. Preferred shares shall be considered
to cover off-line flights of its principal or head capital regardless of the conditions under
office, or for other airlines covering flights which such shares are issued and, therefore,
originating from Philippine ports or off-line dividends paid thereon are not considered
flights, is not considered engaged in business 'interest' which are allowed to be deducted
as an international air carrier in the Philippines from the gross income of the corporation.
and is, therefore, not subject to Gross (Revenue Memorandum Circular No. 17-71,
Philippine Billings Tax nor to the 3% common Effect; Condonation of Loan in
July 12, 1971).
Based ontax.
carrier's the foregoing, the international
Taxation
Mr. (1995)
Francisco borrowed P10,000.00 from his
airline company is not considered as engaged
friend Mr. Gutierrez payable in one year
in business in the Philippines and is therefore
without interest. When the loan became due
a non-resident foreign corporation. A non-
Mr. Francisco told Mr. Gutierrez that he (Mr.
resident foreign corporation is subject to the
Francisco) was unable to pay because of
gross income tax on its income derived from
business reverses. Mr. Gutierrez took pity on
sources within the Philippines. The income
Mr. Francisco and condoned the loan. Mr.
from sale of tickets shall not form part of
Francisco was solvent at the time he
taxable income because the term "taxable
borrowed the P 10,000.00 and at the time the
income" as defined under Sec. 31 of the NIRC SUGGESTED ANSWER:
loan was condoned. Did Mr. Francisco derive
refers only to income of those taxpayers who No, Mr. Francisco did not derive any income
any income from the cancellation or
pay by way of the net income tax. Taxable from the cancellation or condonation of his
condonation of his indebtedness? Explain.
income means the pertinent items of gross indebtedness. Since it is obvious that the
income specified in the NIRC, less the creditor merely desired to benefit the debtor
deductions and/or personal and additional in view of the absence of consideration for
Dividends: Disguised
exemptions, if any, authorized for such types the cancellation, the amount of the debt is
dividendsdividends
Disguised (1994) in income taxation? Give an
of income ANSWER:
by the NIRC or other special laws. considered as a gift from the creditor to the
example.
SUGGESTED
Disguised dividends are those income debtor and need not be included in the
Fringe Benefit
latter's gross Tax: Covered
income.
payments made by a domestic corporation, Employees
X was hired (2001)
by Y to watch over Vs fishponds
which is a subsidiary of a nonresident foreign
with a salary of Php 10,000.00. To enable him
corporation, to the latter ostensibly for
to perform his duties well, he was also
services rendered by the latter to the former,
provided a small hut, which he could use as
but which payments are disproportionately
his residence in the middle of the fishponds.
larger than the actual value of the services
Is the fair market value of the use of the small
rendered. In such case, the amount over and
hut by X a "fringe benefit" that is subject to
above the true value of the service rendered
the 32% tax imposed by Section 33 of the
shall be treated as a dividend, and shall be SUGGESTED ANSWER:
National Internal Revenue Code? Explain your
subjected to the corresponding tax of 35% on No. X is neither a managerial nor a
answer. (5%)
Philippine sourced gross income, or such supervisory employee. Only managerial or
other preferential rate as may be provided supervisory employees are entitled to a fringe
under a corresponding Tax Treaty. Example: benefit subject to the fringe benefits tax.
Dividends; Income Tax; Deductible
Royalty payments under a corresponding Even assuming that he is a managerial or
Gross
A Co., aIncome (1999)
Philippine corporation, issued
licensing agreement. supervisory employee, the small hut is
preferred shares of stock with the following
provided for the convenience of the
features:
employer, hence does not constitute a
taxable fringe benefit. (Section 33, NERC).
Fringe Benefit Tax: Employer

required
A "fringe to Pay (2003)
benefit" is defined as being any
good, service or other benefit furnished or
granted in cash or in kind by an employer to
an individual employee. Would it be the
employer or the employee who is legally
SUGGESTED
required toANSWER:
pay an income tax on it? Explain.
It is the employer who is legally required to
(4%)
pay an income tax on the fringe benefit. The
fringe benefit tax is imposed as a FINAL
WITHHOLDING TAX placing the legal
obligation to remit the tax on the employer,
such that, if the tax is not paid the legal
recourse of the BIR is to go after the
employer. Any amount or value received by
the employee as a fringe benefit is considered
tax paid hence, net of the income tax due
thereon. The person who is legally required to
pay (same as statutory incidence as
distinguished from economic incidence) is
Interest: Deficiency Interest:
that person who, in case of non-payment, can
defineis(1995
What Bar)
a "deficiency interest" for purposes
be legally demanded to pay the tax.
of the income tax? Illustrate.
SUGGESTED ANSWER:
DEFICIENCY INTEREST for purposes of the
income tax is the interest due on any amount
of tax due or installment thereof which is not
paid on or before the date prescribed for its
payment computed at the rate of 20% per
annum or the Manila Reference Rate,
whichever is higher, from the date prescribed
for its payment until it is fully paid.
If for example after the audit of the books of
XYZ Corp. for taxable year 1993 there was
found to be due a deficiency income tax of
P125,000.00 inclusive of the 25% surcharge
imposed under Section 248 of the Tax Code,
the interest will be computed on the
P125.000.00 from April 15, 1994 up to its
Interest:
date of payment. Delinquency
Interest:
What define (1995)
is a "delinquency interest" for purposes
of the income tax? Illustrate.
SUGGESTED ANSWER:
Delinquency interest is the interest of 20% or
the Manila Reference Rate, whichever is
higher, required to be paid in case of failure
(a)
to pay: the amount of the tax due on any
return required to be filed; or
(b) the amount of the tax due for which
return is required; or
(c) the deficiency tax or any surcharge or
interest thereon, on the due date appearing in
the notice and demand of the Commissioner
of Internal Revenue.
20
return either as a taxable gain or a deductible the
pay on taxthis withheld
latter date is equal to thethe
will render taxtax
loss. The gain or loss is arrived at by due. (Section
delinquent and 5 will
l(A](2)(b),
requireNIRC). the payment of
deducting from the proceeds of insurance delinquency interest.
(amount realized) the basis of the good lost There is no mention in the problem of the
(Sec. 34(a), NIRC). The net income of the ITR: Personal
amount of personal Income; andExempted
additional to personal
corporation shall be subject to corporate File
A ITR
bachelor
exemption (1997)
wasto employed
quantify by
how Corporation
much is Athat
on
The other items
income tax rate of 35%. of revenue will not be the first
compensation working day
income of January
that did 1996
not on
exceed a the
included in the corporate income tax return. part-time and
personal basisadditional
with a salary personalof P3,500.00
exemptions. a
The interest from money market placements month.isHe
There no,then received
mention, the of
either, 13th monthor
whether pay.
not
is subject to a final withholding tax of 20%; In September
the employers1996, withheld he acceptedtaxes and another that the
dividends from domestic corporations are part-timewithheld
amount Job from Corporation
is equal toB the fromtax which due.
exempt from income tax; and gains from he received
Whether or not a total shecompensation
will be required of to file an
stock transactions with the Philippine Stock P14,500.00
income tax for the year
return last 1996.
April 15 Theon correct
the 2000
Exchange are subject to transaction tax total taxes
income willwere depend withheld on her fromcompliance
both earnings. with
ITR;
which isDomestic
in lieu of theCorporate
income tax. ITR;
SUGGESTED
With
the Personal
the ANSWER:Income; GSIS
withholding
requirements of taxes
the law. already paid,
Taxation (2001) Yes,Javier
Pension because is awhat is exempt from filing are
a) How often does a domestic corporation file income would he (2000)
Mr. still benon-resident
required to senior file an citizen.
income He
tax return for income earned during a single those individuals
receives a monthly whopensionhave total from the GSIS
tax return for his 1996 income?
year? Explain the process. (3%)
taxable compensation
which he deposits income not withexceeding P60.000
the PNB-Makati
SUGGESTED ANSWER: with the taxes
Branch. Is he correctly
exempt from withheld incomeonly taxby one and
a) A domestic corporation is required to file employer.
therefore not In this case, even
required to file if his
an aggregate
income tax
income tax returns four (4) times for income compensation
SUGGESTED
return? (5%) ANSWER: income from both his
earned during a single taxable year. Quarterly Mr. Javier is
employers does exempt
not exceed from incomeP60.000tax andon that his
returns are required to be filed for the first monthly
total withholdingGSIS pension taxes were (Sec. correctly
32(B)(6)(f), NIRC
three quarters where the corporation shall of 1997) by
withheld buthis not on the interest
employers, the factincome that hethat
declare its quarterly summary of gross might
derivesaccrue compensation on the pensions deposited with
income concurrently
income and deductions on a cumulative basis. PNB
from which
two employersare subject at to final withholding
anytime during the tax.
(Section 75, NIRC). Then, a final adjustment Consequently,
taxable year, does not exempt himsole
since Mr. Javier's fromtaxable
filing
ITR;
income Domestic Corporate
return is required to be filed covering the his income tax return (RA 7497, as to a final
would have been subjected
Taxation
During
withholding the(1997)year,
tax, a domestic corporation
total taxable income for the entire year, implemented by he RR is
No.not required
4-93). anymore to
b) What is the reason for such
calendar or fiscal. (Section 76, NIRC). procedure? derived the following
file an income tax return. (Sec. items of revenue:
51 (A) (a) (2) (c).
(2%)
SUGGESTED ANSWER: ITR;
gross Personal
Ibid]. receipts from Income;
a tradingMarried business; (b)
b) The reason for this procedure is to ensure Individual
RAM
interestsgot married
from (2004)
money to LISA last January
placements in the2003. On
the timeliness of collection to meet the November
banks; (c) dividends 30, 2003,from LISAits gavestock birth to twins.
budgetary needs of the government. Unfortunately,
investments in domestic however,corporations; LISA died (d) in the
Likewise, it is designed to ease the burden on course
gains from of her stock delivery.
transactions Due to complications,
through the
the taxpayer by providing it with an one of theStock
Philippine twinsExchange;
also died(e) onproceeds
December 15,
installment payment scheme, rather than 2003.
under an insurance policy on the loss of
ALTERNATIVE
requiring the ANSWER:
payment of the tax on a lump- In preparing
SUGGESTED his Income
ANSWER: Tax Return (ITR)tax for
b) The reason for the quarterly filing of tax goods. In preparing the corporate income
The
the gross2003, receipts from trading business
sum basis after the end of the year.
returns is to allow partial collection of the tax return, what should be the tax treatment onin
year what should RAM indicate
is
theincludible as
hisancivilitemstatus:
of income (a) insingle;
the
before the end of the taxable year and also to eachITR of the as above items? (b)
corporate income tax return
married; (c) Head of the family; (d) widower; and subject to
improve the liquidity of government corporate
none ofincome
SUGGESTED
(e) ANSWER:
the above? tax rate Why? based on net
Reason. (5%)
RAM
income. should indicate "(b) married" as his civil
ITR; Personal Income: Two The other
status items of revenue
in preparing his Income will Tax
not be Return for
Employment
In the year 2000,(2001) X worked part time as a included
the year in the corporate
2003. The death income
of his tax wifereturn.
during.
waitress in a restaurant in Mega Mall from The year
the interest willfrom not money
changemarket his statusplacements
because
8:00 a.m. to 4:00 p.m. and then as a cashier subject to
is
should thea final spouse withholding
die during tax of the 20%; .
taxable
in a 24-hour convenience store in her The dividends
year, the taxpayer from domestic
may still corporation
claim the same are
neighborhood. The total income of X for the from
exempt income (that
exemptions tax; and of being. gainsmarried)
from stock as if the
year from the two employers does not exceed transactions
spouse diedwith at the thePhilippine
close of such year
her total personal and additional exemptions ITR; Taxpayer;
Stock Exchange
(Section 35/Cj, NIRC). Liabilities;
are subject to Falsified
transaction tax
for the year 2000. Was she required to file an Tax
Danilo, Return
is inwhich
lieu whoof the is(2005)
engaged
income tax. in the trading
. The proceeds
SUGGESTED ANSWER:
income tax return last April? Explain your business,
under an insurance entrusted policy to his accountant
on the loss the
Yes. An individual deriving compensation
answer. (5%) preparation
of goods of is his
not income
an itemtax return and
of income but the
merely a
concurrently from two or more employers at
payment
of capital
return of the hence
tax due. not taxable.
The accountant filed
any time during the taxable year shall file an
a falsified tax return by underdeclaring the
income tax return (Sec. 51(A)(2)(b), NIRC.)
ALTERNATIVE ANSWER: sales and overstating
ALTERNATIVE ANSWER: the expense deductions
If in the above illustration the assessment The
by gross receipts
Danilo. Is Danilo from
liable trading
for thebusiness
deficiency is
It
noticedepends.
was releasedAn on individual
December with pure
31, 1994 includible as an item
tax and the penalties thereon? What is theof income in the
compensation
and the amount income is not required
of deficiency to file an
tax, inclusive of SUGGESTED income
corporate
liability, if any, ANSWER: tax return. Likewise, the
of the accountant? Discuss.
income
surchargetax and returns when she meets werethe Danilo is liable for the
deficiency interest gain
(5%) or loss realized as adeficiency
consequence tax as well
of the
following conditions; (1) the
computed up to January 30, 1995 which is the total gross as for the deficiency interest. He should not
(2) the income income
tax has does been notcorrectly receipt of proceeds under an insurance policy
withheld,
compensation
due date for payment per assessment notice, exceed be held liable for the
meaning on the loss of goods will be included in the
Php60,000.00
failure to and
corporate income tax
fraud penalty because the accountant acted 2) No. Revenue Regulation No. 2-93
beyond the limits of his authority. There is no implementing RA No. 7496 have indeed
showing in the problem that Danilo signed the significantly reduced the items of deduction
falsified return or that it was prepared under by limiting it to direct costs and expenses or
his direction. {On the other hand the the 40% of gross receipts maximum
accountant may be held criminally liable for deduction in cases where the direct costs are
violation of the Tax Code when he falsified the difficult to determine. The allowance of
tax return by underdeclaring the sale and limited deductions however, is still in
overstating the expense deductions. If consonance with the net income taxation
Danny's accountant is a Certified Public scheme rather than the gross income method.
Accountant, his certificate as a CPA shall While it is true that not all the expenses of
Partnership:
automatically beIncome
revoked or cancelled upon earning the income might be allowed, this can
Tax
Five (1995)
years ago Marquez, Peneyra, Jayme,
conviction. well be justified by the fact that deductions
Posadas and Manguiat, all lawyers, formed a Personal; Income Tax: Non-
are not matters of right but are matters of
partnership which they named Marquez and Resident
Mr. Cortez Alien (2000)
is a non-resident alien based in
legislative grace.
Peneyra Law Offices. The Commissioner of Hong Kong. During the calendar year 1999,
Internal Revenue thereafter issued Revenue he came to the Philippines several times and
Regulation No. 2-93 implementing RA. 7496 stayed in the country for an aggregated
known as the Simplified Net Income Taxation period of more than 180 days. How will Mr.
Scheme Sec.
(SNITS).6. Revenue
General Professional
Regulation No. 2-93 Cortez be taxed on his income derived from
providesPartnership.
in part: The general SUGGESTED ANSWER:
sources within the Philippines and from
professional partnership and the Mr. Cortez
abroad? (5%) being a non-resident alien
partners are covered by R.A. 7496. individual who has stayed for an aggregated
Thus, in determining profit of the period of more than 180 days during the
partnership, only the direct costs calendar year 1999, shall for that taxable
mentioned in said law are to be year be deemed to be a non-resident alien
deducted from partnership income. doing business in the Philippines.
Considering the above, Mr. Cortez shall be
Also, the expenses paid or Incurred by
subject to an income tax in the same manner
partners in their individual capacities
as an individual citizen and a resident alien
in the practice of their profession
individual, on taxable income received from all
which are not reimbursed or paid by
1) Marquez and Peneyra sources within the Philippines. [Sec. 25 (A) (1),
the partnership but areLawnot Offices filed
considered
a taxpayer's suit alleging that Revenue NIRC of 1997] Thus, he is allowed to avail of
as direct costs are not deductible from
Regulation No. 2-93 violates the principle of the itemized deductions including the personal
his gross income.
uniformity in taxation because general and additional exemptions but subject to the
professional partnerships are now subject to rule on reciprocity on the personal
NOTE: (Sec.
It is suggested
payment of income tax and that there is a exemptions. 34 (A) tothat full credit
(J) and (M) in
should be given if the examinee's answer
difference in the tax treatment between relationonly
to Sec. 25 (A) (1), Ibid, Sec.
cover the first two paragraphs.
35 (D),
individuals engaged in the practice of their Ibid.]
Personal; Income Tax: Non-
respective professions and partners in general Resident
A Citizen corporation,
Co., a Philippine (1999) has an
SUGGESTED ANSWER:
professional partnerships. Is this contention executive (P) who is a Filipino citizen. A Co.
1) The contention is not correct. General
correct? Explain. has a subsidiary in Hong Kong (HK Co.) and
professional partnerships remain to be a non-
taxable entity. What is taxable are the will assign P for an indefinite period to work
partners comprising the same and they are full time for HK Co. P will bring his family to
obligated to report as income their share in reside in HK and will lease out his residence in
the income of the general professional the Philippines. The salary of P will be
partnership during the taxable year whether shouldered 50% by A Co. while the other 50%
distributed or not. The SNITS treat plus housing, cost of living and educational
professionals as one class of taxpayer so that allowances of P's dependents will be
they shall be treated alike irrespective of shouldered by HK Co. A Co. will credit the
whether they practice their profession alone or 50% of P's salary to P's Philippine bank
in association with other professionals under a account. P will sign the contract of
general professional partnership. What are employment in the Philippines. P will also be
SUGGESTED ANSWER:
taxed differently are individuals and receiving
The salaries andincome
rental for the
allowances lease of
received byhis
P are
corporations. All individuals similarly situated Philippine residence. Are these salaries,
not subject to Philippine income tax. P
are taxed alike under the regulations, allowances
qualifies as and rentals subject
a nonresident tobecause
citizen the he
therefore, the principle of No.
uniformity Philippine income tax? (5%)
2) Is Revenue Regulation 2-93 nowin leaves the Philippines for employment
taxation
considered is as
nothaving
violated. On the
adopted contrary,
a gross income all requiring him to be physically present abroad
the requirements of a valid classification
method instead of retaining the net income have most of the time during the taxable year.
been complied
SUGGESTED
taxation with
ANSWER:
scheme? (Ton vs. Del Rosario et al
Explain. (Section 22(E), NIRC). A nonresident citizen is
G.R No. 109289, Octobers, 1994). taxable only on income derived from
Philippine sources. (Section 23, NIRC). The
salaries and
allowances received from being employed will erect a building on the land which will
abroad are incomes from without because become the property of Mr. Domingo at the
these are compensation for services rendered end of the lease without compensation or
outside of the Philippines. (Section 42, NIRC). reimbursement whatsoever for the value of
the building.
However, P is taxable on rental income for Mr. Enriquez erects the building. Upon
the lease of his Philippine residence because completion the building had a fair market
this is an income derived from within, the value of P1 Million. At the end of the lease
leased property being located in the the building is worth only P900.000.00 due to
Philippines. (Section 42, NIRC). depreciation.
Personal; Income Tax: Tax-Free Will Mr. Domingo have income when the
Exchange
Three (1997)
brothers inherited in 1992 a parcel of lease expires and becomes the owner of the
land valued for real estate tax purposes at building with a fair market value of
P3.0 million which they held in co-ownership. P900.000.00? How much income must he
In 1995, they transferred the property to a SUGGESTED ANSWER:
report on the building? Explain.
newly organized corporation as their equity When a building is erected by a lessee in the
which was placed at the zonal value of P6.0 leased premises in pursuance of an
million. In exchange for the property, the agreement with the lessor that the building
three brothers thus each received shares of becomes the property of the lessor at the end
stock of the corporation with a total par value of the lease, the lessor has the option to
of P2.0 million or, altogether, a total of P6.0 report income as follows: 1) The lessor may
theasbuilding
report income at the
the time when
market valuesuch
of building is
million. No business was done by the completed; or 2) The lessor may spread over
Corporation, and the property remained idle. the life of the lease the
In the early part of 1997, one of the brothers, estimated depreciated value of such building at
who was in dire need of funds, sold his shares
SUGGESTED ANSWER: termination of the lease and report as income
the
to the
Yes. The twoexchange
brothers for P2.0 million.
in 1995 Is the
is a tax-free each year of the lease an aliquot part thereof
for
transaction subject to any internal revenue
exchange so that the subsequent sale of one 49, RR No. 2).
(Sec.
tax (other
of the than the
brothers documentary
of his stamp
shares to the tax)?
other two
(2) brothers in 1997 will be subject to income Under the first option, the lessor will have no
tax. This is so because the tax-free exchange income when the lease expires and becomes
merely deferred the recognition of income on the owner of the building. The second option
the exchange transaction. The gain subject to will give rise to an income during the year of
income tax in the sale is measured by the lease expiration of P90.000.00 or 1/10 of the
difference between the selling price of the depreciated value of the building.
shares (P2 Million) and the basis of the real The availment of the first option will require
property in the hands of the transferor at the Mr. Domingo to report an income of
time of exchange which is the fair market P1.000,000.00 during the year when the
value of his share in the real property at the building was completed. A total of
time of inheritance (Section 34(b)(2), NIRC). P900.000.00 income will be reported under
The net gain from the sale of shares of stock the second option but will be spread over the
ALTERNATIVE ANSWER: life of the lease or P90.000.00 per year.
is
Thesubject to the
exchange schedular
effected capital
in 1995 didgains tax of
not qualify ALTERNATIVE ANSWER:
10%
as a tax-free exchange because there is the
for the first P100.000 and 20% for no Mr. Domingo will realize an income when the
excess
showingthereof
that (Section
the three 2l(d),brothers
NIRC). gained lease expires and becomes the owner of the
control of the corporation by acquiring at building with a fair market value of
least 51% of the voting rights. Since the P900.000.00 because the condition for the
entire gain on the exchange was previously lease is the transfer of the building at the
subjected to income tax, then, the sale will expiration of the lease. The income to be
also be taxable if a gain results therefrom. In realized by Mr. Domingo at the time of the
the instant case, the sale will not be subject expiration will consist of the value of the
to any internal revenue tax other than the building which is P900.000.00 and any rental
documentary stamp tax, because the seller Personal;
income thatIncome Tax; as
has accrued Married
of said date.
did not realize any gain from the sale. The Individual
Mar and Joy(1997)
got married in 1990. A week
gain is measured by the difference between before their marriage. Joy received, by way of
the amount realized (selling price) and the donation, a condominium unit worth
basis of the property. Incidentally, the basis to P750.000.00 from her parents. After marriage,
him is his share in the value of the property some renovations were made at a cost of
Personal; Income Tax; Contract P150.000.00. The spouses were both
received
of Lease at the
(1995) time of exchange, which is P2
Mr. Domingo owns a vacant parcel of land. He employed in 1991 by the same company. On
Million, an amount, just equal to the amount
leases the land to Mr. Enriquez for ten years 30 December 1992, their first child was born,
realized from the sale.
at a rental of P12,000.00 per year. The and a second child was born on 07 November
condition is that Mr. Enriquez 1993. In 1994, they sold the condominium unit
and bought a new unit. Under the foregoing
facts, what
were the events in the life of the spouses accordance with the schedular graduated
that had income tax incidences? rates of 1%, 2% and 3%. based on the
SUGGESTED ANSWER: adjusted gross income derived by non-
The events in the life of spouses. Mar and Joy, resident citizens from all sources without the
which have income tax incidences are the Philippines during each taxable year.
following: 1) Their marriage in 1990 qualifies Taxable Income: Illegal
personal exemption for married individuals;
them to claim Income
Mr. Lajojo(1995 Bar) swindler. In one year
is a big-time
2) Their employment in 1991 by the same he was able to earn P1 Million from his
will make them liable to the income tax imposed
company swindling activities. When the Commissioner
grossoncompensation income; 3) Birth of their of Internal Revenue discovered his income
first child in December 1992 would from swindling, the Commissioner assessed
give rise to an additional exemption of P5,000 him a deficiency income tax for such income.
taxable
for year 1992; 4) Birth of their second The lawyer of Mr. Lajojo protested the
child in November 1993 would illegal income;
assessment on 2)
theMr. Lajojo'sgrounds:
following receipts from
1) The
likewise entitle them to claim additional his swindling did notonly to legal income, not
income tax applies
of P5,000 raising their additional personal
exemption
to constitute income because he was under
exemptions to P 10,000 for taxable year to return the amount he had swindled, hence,
obligation
1993; and 5) Sale of their condominium unit receipt from swindling was similar to a loan,
his
the shall
in 1994 spouses
makeliable to the 5% capital gains tax on which
is not income, because for every peso borrowed
gain presumed to have been realized from thehas ahecorresponding liability to pay one
the
sale. peso; and 3) If he has to pay the deficiency
Personal; Income Tax; Retiring Alien incomement,taxthere
assess will be hardly anything left to return
Employee (2005) of the Asian Development
An alien employee the victims
to of the swindling. How will you rule
Bank (ADB) who is retiring soon has offered to on each of the three grounds for the protest?
sell his car to you which he imported tax-free Explain.
for his personal use. The privilege of SUGGESTED ANSWERS:
exemption from tax is granted to qualified 1) The contention that the income tax
personal use under the ADB Charter which is applies to legal income and not to illegal
recognized by the tax authorities. If you income is not correct. Section 28(a) of the
SUGGESTED ANSWER: the car, is the sale subject Tax Code includes within the purview of gross
decide to purchase
The sales transaction is subject to value income all Income from whatever source
to tax? Explain. (5%)
added tax (VAT) under Sec. 107(B) of the derived. Hence, the illegality of the income
NIRC, although this provision is expressly will not preclude the imposition of the income
excluded from the coverage of the 2005 bar 2)
taxThe contention that the receipts from his
thereon.
exam. swindling did not constitute income because
The proceeds from the sale are subject to of his obligation to return the amount
income tax. The car is considered a capital swindled is likewise not correct. When a
asset of the retiring alien employee because taxpayer acquires earnings, lawfully or
he is not engaged in the business of buying unlawfully, without the consensual
and selling cars. He therefore derived income, recognition, express or implied, of an
which should be reported in his income tax obligation to repay and without restriction as
return. (Sees. 32 and 39, NIRC) to their disposition, he has received taxable
Personal; Income Taxation: Non-
income, even though it may still be claimed
Resident
Juan, Citizen
a Filipino (1997)
citizen, has immigrated to the
that he is not entitled to retain the money,
United States where he is now a permanent
and even though he may still be adjudged to
resident. He owns certain income-earning
restore its equivalent (James vs. U.S.,366 U.S.
property in the Philippines from which he
213, 1961). To treat the embezzled funds not
continues to derive substantial income. He
as taxable income would perpetuate injustice
also receives income from his employment in
by relieving embezzlers of the duty of paying
the United States on which the US income tax
income taxes on the
3) The deficiency money
income taxthey enrich is a
assessment
is paid. On which of the above income is the
themselves with through embezzlement,
direct tax imposed on the owner which is an
taxable, if at all, in the Philippines, and how,
SUGGESTED ANSWER: while
excisehonest
on thepeople
privilegepaytotheir
earntaxes on every
an income. It
in general terms, would such income or
Juan, shall be taxed on both his income from conceivable type of income. (James vs. U.S.)
incomes be taxed? will not necessarily be paid out of the same
the Philippines and on his Income from the income that were subjected to the tax. Mr.
United States because his being a citizen
Lajojo's liability to pay the tax is based on his
makes him taxable on all Income wherever having realized a taxable income from his
derived. For the income he derives from his
swindling activities and will not affect his
property in the Philippines, Juan shall be taxed obligation to make restitution. Payment of the
on his net income under the Simplified Net
tax is a civil obligation imposed by law while
Income Taxation Scheme (SNITS) whereby Taxable
restitutionorisNon-Taxable; Income
a civil liability arising from a
he shall be considered as a self-employed and Gains (2005)
crime.
individual. His Income as employee in the
United States, on the other hand, shall be
taxed in
Explain briefly whether the following items of its territorial jurisdiction to file a return; for
are taxable or non-taxable: (5%) a) Income this reason, the income tax on income
from JUETENG; derived from within must be collected
SUGGESTED ANSWER: through the withholding tax system and thus
Taxable. Gross income includes "all income derived relieve the recipient of the income the duty to
from whatever source" (Sec. 32[A], NIRC), which file income tax returns. (Section 51, NIRC).
was interpreted as all income not expressly Withholding Tax: Retirement
excluded or exempted from the class of taxable Benefit
To start (2000)
a business of his own, Mr. Mario de
income, irrespective of the voluntary or involuntary Guzman opted for an early retirement from a
action of the taxpayer in producing the income. private company after ten (10) years of
Thus, the income may proceed from a legal or service. Pursuant to the company's qualified
illegal source such as from jueteng. Unlawful gains, and approved private retirement benefit plan,
gambling winnings, etc. are subject to income tax. he was paid his retirement benefit which was
The tax code stands as an indifferent neutral party subjected to withholding tax. Is the employer
on the matter of where
(Commissioner of the income comes
Internal from. v.
Revenue SUGGESTED ANSWER:
correct in withholding the tax? Explain. (2%)
Manning, G.R. No. L-28398, August 6, 1975)
(a) It depends. An employee retiring under a
b) Gain arising from EXPROPRIATION OF company's qualified and private retirement
PROPERTY; plan can only be exempt from income tax on
SUGGESTED ANSWER: his retirement
(1) that thebenefits
retiring if the following
employee must have
Taxable. Sale exchange or other disposition of requisites are met:
been in service of the same employer for at
property to the government of real property is (2)
least ten that
(10)heyears;
is not less than 50 years of
taxable. It includes taking by the government age at the time of retirement; and
through condemnation proceedings. (Gonzales (3) the benefit is availed
v. Court of Tax Appeals, G.R. No. L-14532, of only once.
May 26, 1965) In the instant case, there is no mention
c) TAXES paid and subsequently
whether the employee has likewise complied
refunded;
SUGGESTED ANSWER:
Taxable only if the taxes were paid and (2)
withandrequisites number
claimed as deduction and which are (3).
subsequently refunded or credited. It shall be Withholding Tax: Retirement
included as part of gross income in the year of Benefit what
Under (2000) conditions are retirement
the receipt to the extent of the income tax benefits received by officials and employees
benefit of said deduction. (Sec. 34[C][1], of private firms excluded from gross income
SUGGESTED
and exempt ANSWER:
from taxation? (3%)
NIRC) Not taxable if the taxes refunded were The conditions to be met in order that
d) Recovery of BAD DEBTS
not originally claimed as deductions. previously
retirement benefits received by officials and
charged off;
SUGGESTED ANSWER:
Taxable under the TAX BENEFIT RULE. employees of private firms are excluded from
Recovery of bad debts previously allowed as gross income and exempt from taxation are
deduction in the preceding years shall be 2.
as follows:Under Republic Act No. 4917 (those
included as part of the gross income in the received under a reasonable private benefit
year of recovery to the extent of the income plan):
tax benefit of said deduction. (Sec. 34[E][1], a. the retiring official or employee
must (10)
have been in service of the same
NIRC) This is sometimes referred as the
e) Gain on the sale of a car used for personal b. that
years;
employer forheatisleast
not less
ten than fifty (50)
RECAPTURE RULES.
purposes.
SUGGESTED ANSWER: years of age at the time of retirement;
Taxable. Since the car is used for personal c.
and that the benefit is availed
purposes, it is considered as a capital asset of only once.
hence the gain is considered income. (Sec. 3. Under Republic Act No. 7641 (those
32[A][3] and Sec. 39[A][1], NIRC) received from employers without any
Withholding Tax: Non- Those received
retirement plan): under existing collective
Resident
Is Alien (2001)
a non-resident alien who is not engaged in bargaining agreement and other
trade or business or in the exercise of agreements are exempt; and
profession in the Philippines but who derived In the absence of retirement plan or
rental income from the Philippines required to agreement providing for retirement
file an income tax return on April of the year benefits the benefits are excluded from
following his receipt of said income? If not, gross income and exempt from income tax
SUGGESTED ANSWER:
why not? Explain your answer. (5%) if:
No. The income tax on all income derived
from Philippine sources by a non-resident
alien who is not engaged in trade or business
in the Philippines is withheld by the lessee as
a Final Withholding Tax. (Section 57(A), NIRC).
The government can not require persons
outside
The MKB-Phils. is a BOI-registered domestic a resident citizen or alien from a domestic
corporation licensed by the MKB of the United corporation, is to ensure the collection of
Kingdom to distribute, support and use in the income tax on said income. If we subject the
Philippines its computer software systems, dividend to the progressive tax rate, which
including basic and related materials for can only be done through the filing of income
banks. The MKB-Phils. provides consultancy tax returns, there is no assurance that the
and technical services incidental thereto by taxpayer will declare the income, especially
entering into licensing agreements with banks. when there are other items of gross income
Under such agreements, the MKB-Phils. will earned during the year. It would be extremely
not acquire any proprietary rights in the difficult for the BIR to monitor compliance
licensed systems. The MKB-Phils. pays royalty considering the huge number of stockholders.
to the MKB-UK, net of 15% withholding tax By shifting the responsibility to remit the tax
Is the income
prescribed ofRP-UK
by the the MKB-Phils.
Tax Treaty.under the to the corporation, it is very easy to check
licensing agreement with banks considered compliance because there are fewer
royalty subject to 20% final withholding tax? Likewise, the imposition of a final withholding
withholding agents compared to the number
Why? If not, what kind of tax will its income tax will make the tax available to the
SUGGESTED of income recipients.
be subject ANSWER:
to? Explain. (5%) government at an earlier time. Finally, the
Yes. The income of MKB-Phils. under the final withholding tax will be a sure revenue to
licensing agreement with banks shall be the government unlike when the dividend is
considered as royalty subject to the 20% final treated as a returnable income where the
withholding tax. The term royalty is broad recipient thereof who is in a tax loss position
enough to include technical advice, assistance is given the chance to offset such loss against
or services rendered in connection with dividend income thereby depriving the
technical management or administration of government of the tax on said dividend
any scientific, industrial or commercial income. [Note: It is recommended that any
undertaking, venture, project or scheme. (Sec. ALTERNATIVE ANSWER:
of
Thethe foregoing
reason answers
why cash can bereceived
dividends given fullby a
42(4)(f), NIRC). Accordingly, the consultancy credit because the question involves a policy
and technical services rendered by MKB-Phils, resident citizen or alien from a domestic
issue which can only be found in the
corporation are subjected to the final
which are incidental to the distribution, support deliberations of of
Congress.]
Withholding
and use of the computer Tax; systems of MKB-UK withholding tax 10% and not at the
Coverage
Citing (2004)
Section
are taxable 10, Article VIII of the 1987
as royalty. progressive rate tax schedule is to lessen the
Constitution which provides that salaries of impact of a second layer of tax on the same
judges shall be fixed by law and that during Withholding
income. Tax; Income subject
their continuance in office their salary shall thereto
What (2001)
is meant by income subject to "final
not be decreased, a judge of MM Regional tax"? Give at least two examples of income
Trial Court questioned the deduction of of resident individuals that is subject to the
SUGGESTED ANSWER:
final tax. (3%)
withholding taxes from his salary since it Income subject to final tax refers to an
SUGGESTED
results intoANSWER:
a net deduction of his pay. Is the income wherein the tax due is fully collected
No. The contention is incorrect. The salaries
contention of the judge correct? Reason through the withholding tax system. Under
of judges are not tax-exempt and their
briefly. (5%) this procedure, the payor of the income
taxability is not contrary to the provisions of
Section 10, Article VIII of the Constitution on withholds the tax and remits it to the
the non-diminution of the salaries of members government as a final settlement of the
of the judiciary during their continuance in income tax due on said income. The recipient
office. The clear intent of the Constitutional is no longer required to include the item of
Commission that framed the Constitution is to income subjected to "final tax" as part of his
subject their salaries to tax as in the case of gross income in his income tax returns.
all taxpayers. Hence, the deduction of Examples of income subject to final tax are
Withholding
dividend income, Tax; Non- from bank deposits,
interest
withholding taxes, being a manner of Resident Alien (1994)
Four Catholic
royalties, etc. parishes hired the services of
collecting the income tax on their salary, is Frank Binatra, a foreign non-resident
not a diminution contemplated by the
Withholding Tax; Domestic Corporation; entertainer, to perform for four (4) nights at
fundamental law. (Nitafan et. al. v. CIR, the Folk Arts Theater. Binatra was paid
Cash Dividends(2001)
152 SCRA 284 [1987]).
What do you think is the reason why cash P200.000.00 a night. The parishes earned
dividends, when received by a resident citizen P1,000,000.00 which they used for the
SUGGESTED
support of ANSWER:
the orphans in the city. Who are
or alien from a domestic corporation, are
The following
liable to pay are liable
i. taxes? to pay
retiring income
employee must
taxed only at the final tax of 10% and not at
(a)
taxes: Thehave
four catholic parishes because
served at least five(5) the
years;
the progressive tax rate schedule under
income received
ii.
and by them,
that he not
is being
not income
less than
Section 24(A) of the Tax Code? Explain your
SUGGESTED ANSWER: earned "assixty
such"(60)
in theyears
performance
of age ofbuttheir
not
answer. (5%)
The reason for imposing final withholding tax religious functions
more than andsixty
duties,
fiveis(65).
taxable
rather than the progressive tax schedule on income under the last
Withholding paragraph of Sec. 26, in
Tax:
cash dividends received by relation
Royaltyto (2002)
Sec. 26(e) of the Tax Code. In
promoting and operating the Binatra
Show, they engaged in an activity
conducted for profit. (Ibid.)
(b) The income of Frank Binatra, a non-
resident alien under our law is taxable at the
rate of 30%, final withholding tax based on
the gross income from the show. Mr. Binatra
is not engaged in any trade or business in the
Philippines.
Withholding Tax; Non-Resident
Corporation
Bates (1994)
Advertising Company is a non-resident
corporation duly organized and existing under
the laws of Singapore. It is not doing business
and has no office in the Philippines. Pilipinas
Garment Incorporated, a domestic corporation,
retained the services of Bates to do all the
advertising of its products abroad. For said
services, Bates' fees are paid through outward
remittances. Are
SUGGESTED the fees received by Bates
ANSWER:
The fees
subject to paid to Bates Advertising
any withholding tax? Co., a non-
resident foreign corporation are not subject to
withholding tax since they are not subject to
Philippine tax. They are exempt because they
1) not constitute income from Philippine
do
It depends.
sources, theIf the
sameprize is considered
being as winnings
compensation for
labor or personal services performed outside
derived
the from sources
Philippines within(3)
(Sec. 36{c) theand
Philippines, it is
Sec. 25(b)
Withholding
(l), Tax Code). Tax; Reader's
Digest
Is
subject Award
the prize (1998)
of one million
to withholding pesos
of final tax awarded byin
(Sec. 24[B]
the Reader's Digest subject to withholding of
final tax? Who is responsible for withholding
relation to Sec. 57[A], NIRC). If derived from
the tax? What are the liabilities for failure to
SUGGESTED
withhold suchANSWER:
tax? [5%]
sources without the Philippines, it is not subject to
withholding of final tax because the Philippine tax
law and regulations could not reach out to foreign
jurisdictions.
2)
The tax shall be withheld by the Reader's Digest or
local agent who has control over the payment of the
prize.
3)
Any person required to withhold or who willfully
fails to withhold, shall, in addition to the other
penalties provided under the Code, be liable upon
conviction to a penalty equal to the total amount of
tax not withheld (Sec. 251, NIRC). In case of failure
to withhold the tax or in

the
case of under
withholding, the deficiency tax shall be collected
from the payor/withholding agent (1st par.. Sec.

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail.com 26
27 of 73
Another reason for its non-deductibility is the ordinary
year but gains
not more
whichthan
areten
subject
(10) to
years
a higher
fact that it can be considered as an illegal (1st par.,
rate of income
Sec. 255,
tax. (Chirelstein,
NIRC). Federal
compensation made to a government Income Taxation, 1977 Ed.)
employee. This is so because if the insured, COMMENT: It is suggested that any of the
his estate or heirs were made as the Deductions:
following answersDeductible
to the question,Items
"What arefromthe
beneficiary (because of the requirement of liabilitiesIncome
Gross
Explain iffor
the (1999)
following
failure itemssuch
to withhold are adeductible
tax?" be
insurable interest), the payment of premium given gross
from full credit: 1) The
income forpayor shalltax
income be purposes.
liable for
was not withheld.
the payment of the2)tax
Thewhich
payer/withholding agent
will constitute bribes which are not allowed Disregard who is the person claiming the
On shall be liable to both civil
as the other hand,
deduction fromif gross
the company
income was made
(Section expense. (5%) 1) penalties
and criminal Interest onimposed
loans used to Tax
by the
the beneficiary,
34[A][l][c], whether directly or indirectly,
NIRC). or machinery.
acquireCode.capital2) equipment
the premium is not allowed as a deduction Depreciation
WithholdingofTax; Time Deposit Interest;
from gross income (Section 36[A}14], NIRC). goodwill.
SUGGESTED
GSIS Pension ANSWER:
(1994)
1) Interest on loans used to acquire
Maribel Santos, a retired public school
Deductions: Amount for capital equipment or machinery is a
teacher, relies on her pension from the GSIS
Bribe
In (2001)
order to facilitate the processing of its deductible item from gross income. The law
and the Interest Income from a time deposit
application for a license from a government gives the taxpayer the option to claim as a
of P500.000.00 with ABC Bank. Is Miss Santos
office, Corporation A found it necessary to deduction
SUGGESTED or treat as capital expenditure
ANSWER:
liable to pay any tax on her Income?
pay the amount of Php 100,000 as a bribe to interest
Maribel incurred
Santos istoexempt acquire from propertytax used on thein
the approving official. Is the Php 100,000 trade,
pensionbusiness
from theorGSIS exercise
(Sec. of a profession.
28(b((7)(F), Tax
2) Depreciation
(Section
Code). 34(B) (3),as
However, for
NIRC). goodwill
regards her istime
not deposit,
allowed
deductible from the gross income of
as deduction from gross
the interest she receives thereon is subject income. While
to
Corporation A? On the other hand, is the Php
SUGGESTED ANSWER: income of the approving intangibles maybe allowed to
20% final withholding tax. (Sec. 21(a)(c), Tax be depreciated
100,000 taxable
Since the amount of Phpl00.000 constitutes a or amortized, it is only allowed to those
Code).
official? Explain your answers. (5%)
bribe, it is not allowed as a deduction from gross intangibles whose use in the business or trade
income of Corporation A, (Section 34(A)(l)(c),
DEDUCTIONS, EXEMPTIONS,
is definitely limited in duration. (Basilan
NIRC). However, to the recipient government EXCLUSIONS
Estates, Inc. v, CIR,&21 INCLUSIONS
SCRA 17). Such is
ALTERNATIVE
official, the same constitutes a taxable income. All not the caseANSWER:
Deduction: Facilitation
with goodwill. Fees or
income from legal or illegal sources are taxable
Depreciation
"kickback"
MC Garcia, a(1998)of goodwill
contractor who is wonallowed
the bid as fora
absent any clear provision of law exempting the deduction from gross income
the construction of a public highway, claims if the goodwill is
same. This is the reason why gross income had acquired
as expenses, through capital fees
facilitation outlay and according
which is known
been defined to include income from whatever from experience to be
to him is standard operating procedure of value to the in
source derived. (Section 32(A), NIRC). Illegally business for only a limited
transactions with the government. Are these period. (Section
acquired
v. US, 343 income constitutes realized income under
US 130). 107,
expenses RevenueallowableRegulations
as deductionNo. 2). from In gross
such
the claim of right doctrine (Rutkin case,
SUGGESTEDthe
income? [5%] goodwill
ANSWER: is allowed to be amortized
Deductions: Capital Losses; No. The
over alleged
its useful lifefacilitation
to allow the fees which he
deduction of
Prohibitions
What (2003) for the rule prohibiting
is the rationale claims
the as standard
current portion of operating
the expense procedure
from gross in
the deduction of capital losses from ordinary transactions
income, therebywithpaving
the government
the way forcomes a proper in
gains? Explain.
SUGGESTED ANSWER: the form ofofbribes
matching costs or "kickback"
against revenueswhichwhich are notis
It is to insure that only costs or expenses Deductions:
allowed
an essential Income
as deductions
feature of Tax:
from Donation:
the gross
income income
tax
incurred in earning the income shall be Real
On
(Section
system. Property
December
34(A)(l)(c),(2002)
06, NIRC).
2001, LVN Corporation
deductible for income tax purposes donated
Deductions: a pieceOrdinary of vacantBusiness lot situated in
consonant with the requirement of the law Mandaluyong
Expenses
OXY is the City to an and
(2004)
president accredited and duly
chief executive
that only necessary expenses are allowed as registered
officer of ADD non-stock,
Computers, non-profit
Inc. When educational
OXY was
deductions from gross income. The term institution
asked to to be the
join usedgovernment
by the latter servicein building as
"NECESSARY EXPENSES" presupposes that in A.
a sportsMay
director complex
of the for
a bureau donor
under claim
students. in full as
the Department of
order to be allowed as deduction, the deduction
Trade and from Industry,its gross he took income a leave for the of
expense must be business connected, which taxable
absenceyear from2001ADD.the amountthat
Believing of the donated
its business
is not the case insofar as capital losses are lot equivalent
outlook, goodwill to andits fair market value/zonal
opportunities improved
concerned. This is also the reason why all value OXYat in
withSUGGESTED thethe time of the donation?
government, ADD proposed Explain
to
your answer. ANSWER:
(2%)
non-business connected expenses like obtain a policy of insurance
A. No. Donations and/or contributions on his life. On
personal, living and family expenses, are not ethical
made grounds,
to qualified OXY donee objectedinstitutions
to the
The prohibition of deduction of capital losses insurance purchase but ADD purchased the
allowed as deduction from gross income consisting of property other than money
from ordinary gains is designed to forestall policy anyway. Its annual premium amounted
(Section 36(A)(1) of the 1997 Tax Code). shall be based on the acquisition cost of
the shifting of deductions from an area SUGGESTED
to P100,000.
ANSWER:
Is said premium deductible
subject to lower taxes to an area subject to No. the
The property.
premium The
is not donor is not
deductible becauseby
entitled toit
ADD
is not Computers,
claim Inc.?
as full business
an ordinary Reason.
deductionexpense. (5%)
the fairThe market
term
higher taxes, thereby unnecessarily resulting
Any person required
in leakage under the Tax
of tax revenues. Code or
Capital by rules
gains are value/zonal
"ordinary" value
is used of the
in the lot donated.
income tax law (Sec.
in its
and regulations B. 34(H),
common In order
NIRC). that donations
significance and itto non-stock,
has the
generally taxedto at withhold
a lower taxes
rateat to
theprevent,
time or
times required bythe
law bunching
or rules and non-profit educational
connotation of being institution
normal, usual may be or
among others, ofregulations
income inshall,
one
in additionyear
taxable to other
which penalties provided by
is a liberality inlaw,
theuponlaw customary (Deputy v. Du Pont, 308 US what
exempt from the donor's gift tax, 488
conviction be punished by of
a fine of not less(Rule
than conditions
[1940]) mustpremiums
. Paying be met byfor thethe
donee? (3%) of
insurance
begotten from motives public policy SUGGESTED ANSWER:
Ten Holding
on thousand Period).
pesos (Php 10.0OO) to
It stands andreason
suffer a person not connected to the company is not
imprisonment
therefore, thatof notif less
thethan one (1)
transaction results in normal, usual or customary.
loss, the same should be allowed only from
and to the extent of capital gains and not to
be deducted from
B. In order that donations to non-stock, that they are not allowed to deduct any item
non-profit educational institution may be from their gross income for purposes of
exempt from the donor's gift tax, it is computing their net taxable income. With the
required that not more than 30% of the passage of the Comprehensive Tax Reform Act
said gifts shall be used by the donee- of 1997, is this complaint still valid? Explain
institution for administration purposes. SUGGESTED
your answer.ANSWER:
(5%)
Deductions: Non-Deductible
(Sec. 101(A)(3), NIRC). Items; No more. Gross compensation income earners
Gross Income
Explain (1999) items are deductible
if the following are now allowed at least an item of deduction
from gross income for income tax purposes. in the form of premium payments on health
Disregard who is the person claiming the and/or hospitalization insurance in an amount
1. Reserves
deduction. (5%) for bad not exceeding P2,400 per annum [Section
2. Worthless
debts. 34(M)]. This deduction is allowed if the
securities
SUGGESTED ANSWER: aggregate family income do not exceed
1RESERVE FOR BAD DEBTS are not allowed as P250.000 and by the spouse, in case of
deduction from gross income. Bad debts must be married individual, who claims additional
charged off during the taxable year to be allowed Deductions; Vanishing
personal exemption Deduction;
for dependents.
Purpose (2006)
as deduction from gross income. The mere setting Vanishing deduction is availed of by
Correct histo:
up of reserves will not give rise to any deduction. taxpayers accounting records to reflect the
(Section 34(E). NTRC). actual deductions made
2WORTHLESS SECURITIES, which are ordinary Reduce his gross income
assets, are not allowed as deduction from gross Reduce his output value-added tax liability
income because the loss is not realized. However, Reduce his gross estate Choose the correct
if these worthless securities are capital assets, the answer. Explain. (5%)
owner is considered to have incurred a capital loss
as of the last day of the taxable year and,
therefore, deductible to the extent of capital gains.
(Section 34(D)(4), NIRC). This deduction, however,
is not allowed to a bank or trust company. (Section
34(E)(2), NIRC).
Deductions: Requisites; Deducibility
of a Loss
Give (1998) for deducibility of a loss.
the requisites
(5%1
SUGGESTED ANSWER:
The requisites for deducibility of a loss are 1)
loss belongs to the taxpayer; 2) actually
sustained and charged off during the taxable
year; 3) evidenced by a closed and completed
transaction; 4) not compensated by
Insurance or other forms of
indemnity; 5) not claimed as a deduction for
estate tax purposes in case of individual
taxpayers; and 6) if it is a casualty loss it is
evidenced by a declaration of loss filed within
45 days with the BIR.
COMMENT:
The question is vague. There are different kinds of
losses recognized as deductible under the Tax
Code. These are losses, in general (Sec. 34[D](1);
net operating loss carryover (Sec. 34[D](3); capital
losses (Sec. 34[D](4); Losses from wash sales of
stocks or securities (Sec. 34[D](5) in relation to
Sec. 38); wagering losses (Sec. 34[D](6); and
abandonment losses (Sec. 34(D](7). Losses are
also deductible
Considering thefrom
timethe gross estate
allotted (Sec.
for a five (5)86[A](l)
point
(e), NIRC).is only nine (9) minutes, the candidates
question
would not be able to write down a complete
answer. It is suggested that any answer which
states the requisites for the deducibility of any of
the above losses be given full credit.
Deductions; Income Tax: Allowable
Deductionswhose
Taxpayers (2001)only income consists of
salaries and wages from their employers
have long been complaining
Distinguish "Exclusion from Gross Income" which are exclusions from gross income
from "Deductions From Gross Income". Give pursuant to Section 28(b)(5) of the Tax
an example of each. (2%) Code.
SUGGESTED ANSWER: Exclusions & Inclusions: Executive
EXCLUSIONS from gross income refer to a Benefits
Mr. Adrian(1995)
is an executive of a big business
flow of wealth to the taxpayer which are not corporation. Aside from his salary, his
treated as part of gross income, for purposes employer provides him with the following
of computing the taxpayers taxable income, benefits: free use of a residential house in an
due to the following reasons: (1) It is exclusive subdivision, free use of a limousine
exempted by the fundamental law; (2) It is and membership in a country club where he
exempted by statute; and (3) It does not can entertain customers of the corporation.
come within the definition of income. (Section SUGGESTED
Which of ANSWER:
these benefits, if any, must Mr.
61, RR No. 2). DEDUCTIONS from gross Mr. Adrian must report the imputed rental
Adrian report as income? Explain.
income, on the other hand, are the amounts, value of the house and limousine as income.
which the law allows to be deducted from If the rental value exceeds the personal
Exclusions
gross incomepertain
in orderto the computation
to arrive at net income. of needs of Mr. Adrian because he is expected
gross income, while deductions pertain to the to provide accommodation in said house for
computation of net income. Exclusions are company guests or the car is used partly for
something received or earned by the business purpose, then Mr. Adrian is entitled
taxpayer which do not form part of gross only to a ratable rental value of the house
income while deductions are something spent and limousine as exclusion from gross
or paid in earning gross income. income and only a reasonable amount should
Example of an exclusion from gross income is be reported as income. This is because the
proceeds of life insurance received by the ALTERNATIVE
SUGGESTED
free housing
ANSWER:
ANSWER:
and use of although
the limousine are
beneficiary upon the death of the insured Remuneration
(D) reduce for services
his gross estate. and not given
Vanishing
given partly for
in the formorofproperty the convenience
cash constitutes benefit
compensation
which is not an income or 13th month pay of deduction
of the employer (Collector previously taxed is one
vs. Henderson).
an employee not exceeding P30.000 which is income.
of the Accordingly,
items of the value
deduction forallowed
the use in of
an income not recognized for tax purposes. the residential house
computing the net estate of a decedent is part of his
Example of a deduction is business rental. compensation
(Section 86[A][2] income which he
and 86[B][2], must report
NIRC).
Exclusions & Inclusions: Benefits on for income &
Exclusion taxInclusion;
purposes. Gross However, if the
Account of Injury (1995) residential
Receipts enacts
Congress house agiven
(2006) to Mr. Adrian
law imposing a 5% fortax his
on
Mr. Infante was hit by a wayward bus while on free
grossuse as an executive
receipts of common is carriers.
also usedThe for the
law
his way to work. He survived but had to pay benefit
does not of define
the corporation/employer,
the term "gross receipts." such as
P400.000.00 for his hospitalization. He was for entertaining
Express Transport, customers
Inc., a bus of the corporation,
company plying
unable to work for six months which meant only 50% of the rental
the Manila-Baguio route,valuehasortimedepreciation
deposits
that he did not receive his usual salary of P (if
withthe house
ABC Bank. is Inowned
2005,byExpress
the corporation)
Transport
10,000.00 a month or a total of P60.000.00. The
shall free use part of of acompensation
limousine and the
earnedformP1 Million interest, after deducting incomethe
He sued the bus company and was able to membership
(RAMO in a country club
1-87).withholding tax from its time is not part of
20% final
obtain a final judgment awarding him Mr. Adrian's compensation income because
deposits with the bank. The BIR wants to
P400.000.00 as reimbursement for his they were given for the benefit of the
collect a 5% gross receipts tax on the interest
hospitalization, P60.000 for the salaries he employer and
ALTERNATIVE are considered to be necessary
ANSWER:
income
Yes. The term
of Express Transport without
failed to receive while hospitalized, incidents for "Gross Receipts"
the proper is broad enough
performance of histo
deducting
include
the 20% final withholding tax. Is
P200,000.00 as moral damages for his pain duties asincome constructively
an executive received by the
of the corporation.
the BIR
The
taxpayer. correct?
membership
The amount Explain. (5%)
fee inwithheld
the country club to
is paid needs
the
and suffering, and P 100,000.00 as exemplary to be reported
government on asitsincome.
behalf, It in
appears that the
satisfaction of
SUGGESTED ANSWER:
damages.
None. TheHe was ablemoral
P200.000 to collect
and in full from
exemplary membership
withholding of Mr.
taxes. TheAdrian to the
fact that it didcountry club
not actually
the judgment. How much income
damages are compensation for injuries did he is primarily
receive for thedoes
the amount benefit and the
not alter convenience
fact that it of
is
realize when he collected on the judgment?
sustained by Mr. Infante. The P400.000.00 the employer.
remitted This is oftoitsenable
in satisfaction Mr. Adrian
tax obligations. Sinceto
Explain.
reimbursement for hospitalization expenses the income withheld
entertain company is anguests
income owned by Express
(Collector vs.
and the P60.000.00 for salaries he failed to Transport,
Henderson).the same forms part of its gross receipts
receive are 'amounts of any damages Exclusions
(CIR v. Solidbank&Corp.,
Inclusions; Assets;
G.R. No. 148191, November
received whether by suit or agreement on Resident
Ralph
ALTERNATIVE
25, 2003). Alien
Donald, an(2005)
American
ANSWER: citizen, was a top
No. The term
executive of a "gross receipts,"
U.S. company as Philippines
in the applied to
account of such injuries.' Section 28(b)(5) of
the business
until he retiredof a
in common
1999. Hecarrier
came consists of
to like the
the Tax Code specifically exclude these
ALTERNATIVE ANSWER: revenues from
Philippines so carriage
much thatof goods, cargoes,
following his
amounts from the gross income of the
The income realized from the judgment is and passengers.
retirement, It doestonot
he decided comprehend
spend the rest orof
individual injured. (Section 28(b), NIRC and
only the recovery for lost salaries. This include
his life ininterest income
the country. which is
He applied for properly
and was
Sec. 63 Rev. Reg. No. 2) (NOTA
constitutes taxable income because were it granted BENE:
described This Income."
aaspermanent
"Other question
residentpertains
statusto thea
not for the injury, he could have received it percentage tax on Gross Receipts
following year. In the spring of 2004, while which is
from his employer as compensation income. excluded from the Bar coverage)
vacationing
Exclusion vs.inDeduction
Orlando, from
Florida,GrossUSA, he
All the other amounts received are either suffered (2001)
a heart attack and died. At the time
Income
compensation for injuries or damages of his death, he left the following properties:
received on account of such injuries' (a) bank deposits with Citibank Makati and
Citibank Orlando, Florida; (b) a resthouse in
Orlando, Florida; (c) a condominium unit in
Makati; (d) shares of stock in the Philippine was reached under the terms of which JR was
subsidiary of the U.S. Company where he paid the following amounts: P500,000.00 for
worked; (e) shares of stock in San Miguel his hospitalization; P250,000.00 as moral
Corp. and PLOT; (f) shares of stock in Disney damages; and P300,000.00 for loss of income
World in Florida; (g) U.S. treasury bonds; and during the period of his treatment and
(g) proceeds from a life insurance policy recuperation. In addition, JR received from his
issued by a U.S. corporation. Which of the employer the amount of P200,000.00
SUGGESTED ANSWER:
foregoing assets shall be included in the representing the cash equivalent of his earned
All of the properties enumerated except (g),
taxable gross estate in the Philippines? vacation and sick leaves. Which, if any, of the
the proceeds from life insurance, are included SUGGESTED ANSWER:
Explain. (5%) amounts he received are subject to income
in the taxable gross estate in the Philippines. All amounts received from the airline
tax? Explain. (5%)
Ralph Donald is considered a resident alien company are excluded from gross income.
for tax purposes since he is an American Under Sec. 32(B)(4) of the NIRC, amounts of
Citizen and was a permanent resident of the damages received, whether by suit or
Philippines at the time of his death. The value agreement, on account of personal injuries or
of the gross estate of a resident alien sickness are excluded from gross income.
decedent shall be determined by including Since the amounts received from the airline
the value at the time of his death of all company were received as damages by
property, real or personal, tangible or agreement on account of personal injuries, all
intangible, wherever situated. (Sec. 85, NIRC) The amount
shall be excluded offrom
P200,000.00, less the
JR's gross income.
The other item, (g) proceeds from a life equivalent of not more than 10 days of
insurance policy, may also be included on the vacation leave, received by JR from his
Exclusions & Inclusions; Benefits on (7) of R.R. No.
employer, 2-98. to income tax under Sec.
is subject
assumption that it was Ralph Donald who
Account of Death (1996) 2.78.1 (a)
took out the insurance upon his own life, Exclusions & Inclusions; Compensation
X, an employee of ABC Corporation died. ABC
payable upon his death to his estate. (Sec. for personal injuries or sickness (2003)
Corporation gave Xs widow an amount
85[E], NIRC)
equivalent to Xs salary for one year. Is the X, while driving home from his office, was
amount considered taxable income to the seriously injured when his automobile was
SUGGESTED
widow? Why? ANSWER: bumped from behind by a bus driven by a
No. The amount received by the widow from reckless driver. As a result, he had to pay
the decedent's employer may either be a gift P200,000.00 to his doctor and P100, 000.00
or a separation benefit on account of death. to the hospital where he was confined for
Both are exclusions from gross income treatment. He filed a suit against the bus
pursuant to provisions of Section 28(b) of the driver and the bus company and was awarded
ALTERNATIVE
Tax Code. ANSWER:
No. Since the amount was given to the widow and paid actual damages of P300, 000.00 (for
and not to the estate, it becomes obvious that his doctor and hospitalization bills),
the amount is more of a gift. In one U.S. tax P100,000.00 by way of moral damages, and
case (Estate of Hellstrom vs. Commissioner, P50,000.00 for what he had to pay his
SUGGESTED ANSWER:
24 T.C. 916), it was held that payments to the attorney
Nothing isfortaxable.
bringingUnder
his case
theto court.
Tax Code,Which,
any
widow of the president of a corporation of the if any, of the foregoing awards
amount received as compensation for are taxable
amount the president would have received in income
personalto Xinjuries
and whichor are not? Explain.
sickness, plus (8%)
the
salary if he lived out the year constituted a amounts for any damages received whether
The and
gift controlling facts which would lead to the
not an income. by suit or agreement, on account of such
conclusion that the amount received by the injuries or sickness shall be excluded from
widow is not an income are as follows: 7) the gross income. Since the entire amount of
gift was made to the widow rather than the P450, 000.00 received are award of damages
estate: 8) there was no obligation for the
on account of the injuries sustained; all shall
corporation to make
be excluded from his gross income.
further payments to the deceased; 9) the
Obviously, these damages are considered by
widow had never worked for the corporation; Exclusions
law as mere & Inclusions;
return of capital. Facilities or
(Section 32(B)
10) the corporation received no economic Privileges; MilitaryCamp (1995)
(4), 1997 Tax Code)
benefit; and 11) the deceased had been fully Capt. Canuto is a member of the Armed Forces
services (Estate
compensated for his of Sydney Carter vs. of the Philippines. Aside from his pay as
Commissioner, 453 F. 2d 61 (2dCir. captain, the government gives him free
1971). uniforms, free living quarters in whatever
Exclusions & Inclusions; Benefits on military camp he is assigned, and free meals
Account of Injury (2005) inside the camp. Are these benefits income to
JR was a passenger of an airline that crashed. SUGGESTED ANSWER:
Capt. Canuto? Explain.
He survived the accident but sustained serious No, the free uniforms, free living quarters and
physical injuries which required hospitalization the free meals inside the camp are not
for 3 months. Following negotiations with the income to Capt. Canute because these are
airline and its insurer, an agreement facilities or privileges furnished by the
employer for the employer's convenience Exclusions & Inclusions; ITR; 13th
which are necessary incidents to proper month pay and de minimis
performance of the military personnel's benefits
State with(2005)
reasons the tax treatment of the
duties. following in the preparation of annual income
Exclusions & Inclusions; Gifts over and tax returns: 13th month pay and de minimis
above the Retirement Pay (1995) SUGGESTED
benefits; ANSWER:
Mr. Quiroz worked as chief accountant of a The 13th month pay not exceeding
hospital for forty-five years. When he retired P30,000.00 shall not be reported in the
at 65 he received retirement pay equivalent income tax return because it is excluded
to two months' salary for every year of from gross income (Sec. 32[B][7], [e], NIRC)
service as provided in the hospital BIR The amount of the 13th month pay in excess
approved retirement plan. The Board of of P30,000.00 shall be reported in the annual
Directors of the hospital felt that the hospital De
incomeminimis benefits which do not exceed
tax return.
should give Quiroz more than what was the ceilings are excluded from gross income,
provided for in the hospital's retirement plan and not to be considered for determining the
in view of his loyalty and invaluable services P30,000.00 ceiling hence not reportable in the
for forty-five years; hence, it resolved to pay annual income tax return. (Sec. 2.78.1[A][3],
The Commissioner of Internal Revenue
him a gratuity of P1 Million over and above his taxed R.R. 2-98 as amended by Sec. 2.33 [C] and
the P1
retirement pay.Million as part of the gross further amended by R.R. No. 8-2000)
compensation income of Quiroz who Exclusions & Inclusions; ITR; Dividends
(a) it was a retirement pay, and
protested that it was excluded from income (b) it was a received by a domestic corporation
1)
gift.
because Is Mr. Quiroz correct in claiming that (2005)
State with reasons the tax treatment of the
the
P1 Million was retirement pay and therefore following in the preparation of annual income
additional
excluded from income? Explain. tax returns: Dividends received by a domestic
2) Is Mr. Quiroz correct in claiming that corporation from (i) another domestic
the additional P1 Million was gift and SUGGESTED
corporation; ANSWER:
and (ii) a foreign corporation;
therefore excluded from income? Explain. (i) Dividends received by a domestic
SUGGESTED ANSWERS:
1) No. The additional P1 million is not a corporation from a domestic corporation shall
retirement pay but a part of the gross not be subject to tax (Sec. 27[D][4], NIRC),
compensation income of Mr. Quiroz. This is hence, excluded from the income tax return.
not a retirement benefit received in (ii) Dividends received by a domestic
accordance with a reasonable private benefit corporation from a foreign corporation form
plan maintained by the employer as it was not part of the gross income and are accordingly
paid out of the retirement plan. Accordingly, subject to net income tax, hence included in
the amount received in excess of the the annual ITR (Sec. 42[A][2][b], NIRC),
retirement benefits that he is entitled to hence, must be included in the income tax
Exclusions
return. & Inclusions; ITR; Income
receive under the BIR-approved retirement
2) realized from sale (2005)
plan No. wouldThenot amount
qualify as received
an exclusion wasfrom in
consideration of his loyalty and invaluable State with reasons the tax treatment of the
gross income.
services to the company which is clearly a following in the preparation of annual income
compensation income received on account of tax returns: Income realized from sale of: (i)
employment. Under the employer's capital assets; and (ii) ordinary assets.
SUGGESTED ANSWER:
'motivation test,' emphasis should be placed
(i) Income realized from sale of capital assets
on the value of Mr. Quiroz services to the
is subject to the final withholding tax at
company as the compelling reason for giving
source and therefore excluded from the
him the gratuity, hence it should constitute a
Income Tax Return (Sec. 24[C] and [D],
taxable income. The payment would only (ii) Income realized from sale of ordinary
NIRC);
qualify as a gift if there is nothing but 'good assets is part of Gross Income, included in
will, esteem and kindness' which motivated the Income Tax Return. (Sec. 32[A][3], NIRC)
ALTERNATIVE ANSWER:
the
Yes. employer to give is
The 1 million the not
gratuity. (Stonton
compensation
vs.
incomeU.S.,subject
186 F.toSupp.
income tax Such
393). but aisgift
notfrom
the
case in the herein problem.
his employer. There was no evidence
presented to show that he was not fully
compensated for his 45 years of service. If his
services contributed in a large measure to
the success of the hospital, it did not give rise
to a recoverable debt. The P1 million is purely
a gratuity from the company. It is a taxable
gift to the transferor. Under the Tax Code,
gifts are excluded from gross income
therefore exempt from income tax. (Sec.
28{b)(3), NIRC; Pirovano vs.
Commissioner)
final tax it is not to be included in the annual
ITR. (Sec. 24[B][1], NIRC) (u) Same as No. (j).
Exclusions & Inclusions; ITR; Proceeds

of life insurance (2005)
State with reasons the tax treatment of the
following in the preparation of annual income
tax returns: Proceeds of life insurance
received by a child as irrevocable beneficiary;
SUGGESTED ANSWER:
Not to be reported in the annual income tax
returns because the proceeds of the life
insurance are excluded from gross income.
Proceeds of Life insurance policies paid to the
heirs or beneficiaries upon the death of the
insured is an exclusion from gross income.
(Sec.32[B][l],NIRC)
Exclusions & Inclusions; Life
Insurance
On 30 June Policy
2000, X(2003)
took out a life insurance
policy on his own life in the amount of
P2,000,000.00. He designated his wife, Y, as
irrevocable beneficiary to P1,000,000.00 and
his son, Z, to the balance of P1,000,000.00
but, in the latter designation, reserving his
right to substitute him for another. On 01
September 2003, X died and his wife and son
(a)
went toAre thethe proceeds
insurer of thethe
to collect insurance
proceeds of
subject to income tax on the
X's life insurance policy. (8%) part of Y and Z
for their respective shares? Explain.
(b) Are the proceeds of the insurance to
form part of the gross estate of X? Explain.
SUGGESTED ANSWERS:
(a) No. The law explicitly provides that
proceeds of life insurance policies paid to the
heirs or beneficiaries upon the death of the
insured are excluded from gross income and
is exempt from taxation. The proceeds of life
insurance received upon the death of the
insured constitute a compensation for the loss
of life, hence a return of capital, which is
beyond the scope of income taxation. (Section
(b) Only the
32(B)(1) proceeds
1997 of P1,000,000.00 given
Tax Code)
to the son, Z, shall form part of the Gross
Estate of X. Under the Tax Code, proceeds of
life insurance shall form part of the gross
estate of the decedent to the extent of the
amount receivable by the beneficiary
designated in the policy of the insurance
except when it is expressly stipulated that the
designation of the beneficiary is irrevocable.
As stated in the problem, only the designation
of Y is irrevocable while the insured/decedent
Exclusions & Inclusions; ITR; Interest
reserved the right to substitute Z as
on deposits
State (2005)the tax treatment of the
with reasons
beneficiary for another person. Accordingly,
following in the preparation of annual income
the proceeds received by Y shall be excluded
tax returns: Interest on deposits with: (i) BPI
while the proceeds received by Z shall be
Family Bank; and (ii) a local offshore banking
included in the gross estate of X. (Sect/on SUGGESTED ANSWER:
unit of a foreign bank;
85(E), 1997 Tax Code) Both items are excluded from the income tax
(i) Interest income from any currency bank
return:
deposit is considered passive income from
sources within the Philippines and subject to
final tax. Since it is subject to
33
church. She also donated a parcel of land for Under Article
exclusively used
XTV, forSection
religious,4 (3)
charitable
of the 1987
or
the construction of a building to the PUP educational
Philippine Constitution,
purposes shall all revenues
be exempt and
from
Alumni Association, a non-stock, non-profit taxation.
assets of a)
non-stock,
To what nonprofit
kind of tax educational
does this
organization. Portions of the building shall be exemption apply?
institutions,
SUGGESTED used
ANSWER:actually,
(2%) directly and
leased to generate income for the association. This exemption
exclusively applies onlypurposes,
for educational to property
aretaxes.
1) Is the Christmas gift of P 100,000.00 to What
exempt from taxes and duties. Are incomeitself
is exempted is not the institution
Imelda's parents subject to tax? 2) How about but the from
derived lands, buildings canteens
dormitories, and improvements
and
the donation to the parish church? 3) How actually,
bookstoresdirectly
as well as and exclusively
interest income used
on bank for
about the donation to the P.U.P, Alumni Asso- religious,
deposits and charitable
yields from and educational purposes.
deposit substitutes
SUGGESTED ANSWER:
(Commissioner of Internal
ciation? automatically exempt fromRevenue
taxation?v.Explain.
Court of
SUGGESTED ANSWER: No. The interest
Appeals, et al, G.R. income No.on bank deposits
124043, Octoberand 14,
(5%)
yields
b) Is proof
1998). fromof deposit
actual use substitutes
necessaryare not
for tax
automatically
exemption purposes exemptunder fromthe taxation. There
Constitution?
must
(3%) be ANSWER:
SUGGESTED a showing that the incomes are
Yes, because
included in the tax exemptions
school's are strictly
annual information
construed
return and against
1Certifications duly from the taxpayer.
depository
audited There
banks
financial as tomust
statements
be evidence
the amount
together with:ofto show income
interest that the taxpayer
earned from has
complied
passive investmentswith the requirements
not subject to the 20% for
exemption.
final withholding
cause under the law (Sec. 92 (a) of the Tax Code), net gifts not exceeding Furthermore,
P50,000.00 tax; are exempt. real property
taxation is of
2Certification basedactual,on useand
direct and not on
exclusive
ownership,
utilization ofhence
said the
income
s purposes is not tax-exempt because the exemption granted under Article VI, Sec. 28(3) of the Constitutionsame for rule must
educational alsoapplies
be only to
Exemptions:
applied for realCharitable
purposes; property taxInstitutions;
exemptions.
Churches
The (1996) exempts from taxation
Constitution
e Constitution and the aforecited law because it is not 3 Board resolution on proposed project to be
charitable institutions, churches, parsonages
funded out of the money deposited in banks
or convents appurtenant thereto, mosques
or placed in money market placements
arid non-profit cemeteries and lands,
(Finance Department Order No. 149-95 issued
buildings and improvements actually, directly
November 24, 1995), which must be used
and exclusively used for religious, charitable
ALTERNATIVE ANSWER: actually, directly and exclusively for
and educational purposes. Mercy Hospital is a
Donation to the P.U.P. Alumni Association is educational purposes.
100-bed hospital organized for charity
exempt from donor's tax if it is proven that the
patients. Can said hospital claim exemption
association is a nonstock, non-profit charitable SUGGESTED ANSWER:
from taxation under the above-quoted
association, paying no dividends, governed by Yes. Mercy Hospital can claim exemption
constitutional provision? Explain.
trustees who receive no compensation, and from taxation under the provision of the
devoting all its income to the accomplishment Constitution, but only with respect to real
and promotion of the purposes enumerated in property taxes provided that such real
its articles of incorporation. Not more than properties are used actually, directly and
30% of the gift should be used for exclusively for charitable purposes.
administration purposes by the donee. Exemptions: Educational
Exemptions: Head of the institution
Suppose that(2004)
XYZ Colleges is a proprietary
Family:who
Arnold, (1998)
is single, cohabits with Vilma, educational institution owned by the
who is legally married to Zachary. Arnold and Archbishop's family, rather than the
Vilma have six minor children who live and Archdiocese, which of those above cited
depend upon Arnold for their chief support. income and donation would be exempt from
The children are not married and not gainfully SUGGESTED ANSWER:briefly. (5%)
taxation? Explain
employed. 1) For income tax purposes, may If XYZ Colleges is a proprietary educational
as "head of
Arnold be considereda family?" [3%] institution, all of its income from school
2) Is Arnold entitled to deduct from his related and non-school related activities will
gross income, an additional exemption for be subject to the income tax based on its
each of his illegitimate child? [2%] aggregate net income derived from both
SUGGESTED ANSWER: activities (Section 27(B), NMC). Accordingly,
1) Yes. An unmarried man who has all of the income enumerated in the problem
illegitimate minor children who live with him The donation
will be taxable.of lot and building will likewise
and depend upon him for their chief support be subject to the donor's tax because a
is considered as "head of the family" (RR No. donation to an educational institution is
2)
2-98 No. Arnold
implementing
Exemptions: is only
Sectionentitled
35,
Charitable to deduct
NIRC). exempt only if the school is incorporated as a
additional
Institutions
Article personal
(2000)
VI, Section exemption for four (4)
28 (3) of the 1987 Philippineout non-stock entity paying no dividends.
of the six
Constitution(6) illegitimate
provides children.
that Thecharitable Since the donee is a proprietary educational
maximum number of dependents
institutions, churches and personages or for purposes institution, the donation is taxable (Section
of the additional personal exemption
covenants appurtenant thereto, mosques, non- is four. 101(AX3), NJRC).
(Sec. Exemptions: Gifts &
profit 35, NIRC). and all lands, buildings and
cemeteries
Exemptions: Non-Profit Educational Donations
In 1991, Imelda (1994) gave her parents a Christmas
improvements actually, directly and
Institutions (2000) gift of P 100,000.00 and a donation of
P50,000.00 to her parish
bookstore, since this is an ancillary activity are income from its activities conducted for
the conduct of which is carried out within the profit which are subject to tax. The income
school premises. tax attaches irrespective of the disposition of
3) The University of Bigaa shall not be liable these incomes. (Sec. 30, NIRC; CIR v.
to pay income taxes for the operation of the YMCA, GR No. 124043, 1998).
dormitory located in the campus, for same Exemptions: Prize of Peace Poster
reasons as the foregoing. However, the latter Contest
Jose (2000)
Miranda, a young artist and designer,
shall be liable for income taxes on income received a prize of P100,000.00 for winning in
from operations of the dormitory located the on-the-spot peace poster contest
outside the school premises. sponsored by a local Lions Club. Shall the
Exemptions: Non-Stock/ Non-Profit reward be included in the gross income of the
Association
XYZ (2002)
Foundation is a non-stock, non-profit SUGGESTED
recipient for ANSWER:
tax purposes? Explain. (3%)
association duly organized for religious, No. It is not includable in the gross income of
charitable and social welfare purposes. Last the recipient because the same is subject to a
January 3, 2000 it sold a portion of its lot used final tax of 20%, the amount thereof being in
for religious purposes and utilized the entire excess of P10.000 (Sec. 24(B){1), NIRC of
proceeds for the construction of a building to 1997). The prize constitutes a taxable income
house its free Day and Night Care Center for because it was made primarily in recognition
children of single parents. In order to of artistic achievement which he won due to
subsidize the expenses of the Day and Night an action on his part to enter the contest.
Care Center and to support its religious, [Sec. 32 (B) (7) (c), NIRC of 1997] Since it is
charitable and social welfare projects, the an on-the-spot contest, it is evident that he
Foundation leased the 300square meter area must have joined the contest in order to earn
Exemptions:
the prize or award. Prizes & Awards;
of the second and third floors of the building Athletes
Onyoc, an (1996)
amateur boxer, won in a boxing
for use as a boarding house. The Foundation competition sponsored by the Gold Cup
also operates a canteen and a gift shop within Boxing Council, a sports association duly
the premises, all the income from which is accredited by the Philippine Boxing
A. Considering the constitutional
used actually, directly, and exclusively for the The income
Association. Onyoc derived
received from dormitories,
the amount of
provision granting tax exemption to non-
purposes for which the Foundation was canteens and bookstores
P500,000 as his prize which was donated are not by also
stock corporations such as those formed
organized. automatically exempt from
Ayala Land Corporation. The BIR tried to taxation. There is
exclusively for religious, charitable or social
welfare purposes, explain the meaning of the still the requirement for
collect income tax on the amount received byevidence to show
last paragraph of said Sec. 30 of the 1997 actual,
Onyoc anddirect donor'sand tax from exclusive
Ayala Land use for
SUGGESTED
educational ANSWER:
purposes. It Onyoc
is to be noted
Tax Code which states that Income of Corporation, which taxes, and Ayalathat
The
the prize
1987 will not constitute
Philippine a taxabledoes
Constitution income not
whatever kind and character of the foregoing Land Corporation refuse to pay. Decide.
to Onyoc, hence the BIR is
distinguish with respect to the source or not correct in origin
organizations from any of their properties, R.A. No. 7549 explicitly providesisthat
real or personal, or from any of their
imposing
of the the income
income. tax.
The distinction with'Allrespect
SUGGESTED ANSWER: prizes and awards granted
to the use which should be actual, direct to athletes in local
and
activities conducted for profit regardless of and international
Consequently, thesports tournaments
provisions of Sec. 30 andof the
A. The exemption contemplated in the exclusive for educational purposes.
the disposition made of such income shall be competitions
NIRC of 1997,held thatinathe Philippines
non-stock andornonprofit
abroad
Constitution covers real estate tax on real
subject to tax imposed under this Code." (5%) and sanctionedinstitution
educational by their respective
is exempt national from
properties actually, directly and exclusively
used for religious, charitable or social welfare sports
taxation associations shall betoexempt
only "in respect incomefrom received
purposes. It does not cover exemption from Neither
income
by them is the
tax". as BIR correct
such" in collecting
could not affect the the
the imposition of the income tax which is donor's
constitutional tax exemption. Where The
tax from Ayala Land Corporation. the
within the context of Section 30 of the Tax law is clear when
Constitution does itnotcategorically
distinguishstated "That
with respect
Code. As a rule, non-stock nonprofit the donor'soroforigin,
to source said prizes
the Tax and Code
awards shall be
should not
corporations organized for religious, Exemptions:
exempt from
make distinctions. Non-Profit
the payment of Entity;
the Ancillary
donor's
charitable or social welfare purposes are Activity & Incidental Operations (1994)
tax."
Exemptions:
The UniversityRetirement of Bigaa, aBenefits: non-stock, Worknon-
exempt from income tax on their income
Separation
A Co., a (1999)
Philippine corporation,
profit entity, operates a canteen for its has two
received by them as such. However, if these
divisions
students and manufacturing
a bookstore inside and construction.
the campus.
religious, charitable or social welfare
Due
It also to the economictwo
operates situation, it had tofor
dormitories close its
corporations derive income from their
its construction
students, one of division
which and is in layoff
the thecampus. Is
properties or any of their activities conducted
B. Is the income derived by XYZ employees
the University in that division.
liable to payA income
Co. has taxes
a for
for profit, the income tax shall be imposed on
Foundation from the sale of a portion of its retirement
SUGGESTED
the operation plan approved
ANSWER: of the: by1) the canteen?
BIR, which 2)
said items of income irrespective of their 1) For the
lot, rentals from its boarding house and the requires
bookstore? a operation
minimum of 50
of theyears
3) two dormitories? canteen inside
of age andthe
disposition. (Sec. 30, NIRC; CIR v, YMCA, campus,
operation of its canteen and gift shop subject 10 years the incomeinthereon
of service the same being incidental
employer at
GR No. 124043, 1998). to the
SUGGESTED
to ANSWER:
tax? Explain. (5%) the time operations
of retirement. of There
the University
are 2 groups asofa
B. Yes. The income derived from the sale school,at 10isyears
employees beof
to exempt service
laid 1)atEmployees
off:(Art. the
XIV time(4)ofwho
termination
(3),
of lot and rentals from its boarding house are employment.
are of
Constitution;
at least 50DECS 2) Employees
yearsRegulations who
of age and has do no meet
No. 137-87,
considered as income from properties which 2) For
either
Dec. the
the
16, age
1987).same reasons, the University of
or length
are subject to tax. Likewise, the income from Bigaa ofisservice
not liable A Co.to plans
pay incometo give taxes
the for the
the operation of the canteen and gift shop following:
operation of the
For category (A) employees - the benefits
under the BIR approved plan plus an ex gratia
payment of one month of every year of
service.
For category (B) employees - one month for
36
employment is due to causes beyond his A, an employee of the Court of Appeals,
control. The separation was involuntary as it retired upon
SUGGESTED reaching the compulsory age of
ANSWER:
was a consequence of the closure of various 1) The separation
65 years. Upon compulsory pay given to Reyes
retirement, A is
unprofitable departments pursuant to the subject to income tax
received the money value of his accumulated as compensation
redundancy program. income
leave credits because
in theitamount arises offrom a service
P500.000.00. Is
Exemptions:every year Separation
of service. For both rendered
SUGGESTED pursuant
ANSWER: to
said amount subject to tax? Explain.an employer-employee
Pay (2005)
Company A decidesthe
categories, to cash
closeequivalent
its operations of No. The commutation
relationship. of leave credits,
It is not considered an exclusion more
due to continuing
unused vacation lossesand andsickto terminate
leave the commonly
from gross income because the rulei.e.,
known as terminal leave pay, in
servicescredits.
of its employees. Under the Labor the
taxation isequivalent
cash tax construed of accumulated
in strictissimivacationjuris or
A Co. seeks
Code, employeesyour advicewho are asseparated
to whether or not
from and
the sickrule leave credits Interpretation
on strict given to an officer of tax or
it
service for such cause are entitled to a WT.
will subject any of these payments to 2) The
employee
exemptions.separation
who pay
retires, received
or by
separated Cruzfromis not
the
Explain
minimum your advice. (5%)
of one-half month pay for every subject through
service to income notaxfaultbecause
of his own, his separation
is exempt
SUGGESTED ANSWER:
year of service. Company A paid the from theincomecompany tax. was (BIR involuntary
Ruling 238-91 (Sec.dated
28 b
For category ofAone employees, allfor
theevery
benefits (7), Tax Code).
November 8, 1991; Commissioner v. CA and
equivalent month pay year of
received on account of their separation are 3) TheCastaneda,
Efren separation GR payNo. received
96016,by Bautista17,
October is
service and the cash equivalent of unused Exemptions; Charitable
not subject tosick
income tax,ashence no likewise not subject to
1991). tax. His separation is
vacation and leaves separation Institutions
The (2006)
Constitution
withholding
SUGGESTED ANSWER: tax shall be imposed. The benefits due to disability, hence provides
involuntary. "charitable
Under the
benefits. Are such benefits taxable and institutions,
All of the under
received benefits theare not taxable,plan
BIR-approved hence upon they law, separation pay receivedor convents
churches, personages through
subject to withholding tax under the Tax appurtenant thereto,
meeting the service requirement and age the
are not subject to withholding tax under involuntary causes aremosques,
exempt from and taxation.
non-profit
Code? Decide with reasons. (5%) cemeteries
Exemptions:and all lands, buildings, and
Separation
Tax
requirementCode. areBenefitsexplicitly excludedreceivedfrom as a
consequence of separation
gross income. The ex gratia payment also for any cause improvements
PayJacobo
Mr. (1995)worked actuallyfor directly and exclusively
a manufacturing firm.
beyond the
qualifies as an control
exclusionof the employees
from gross income such as used
Due to forbusiness
religious,reversescharitable theorfirm educational
offered
closure
being in of
thebusiness
nature ofare excluded
benefit receivedfromongross purposes
voluntary shall be exempt
redundancy from taxation."
program in order This to
income. of
account (Sec. 32[B][6][b],
separation due to NIRCcausesin relation
beyondto provision
reduce overheadexempts charitable expenses.institutions Under the and
Exemptions:
Sec.employees'
the 2[b][2], R.R. 2-98)Stock
control. (Section 32(B), NIRC). religious
program institutions
an employee fromwhowhat kindto
offered of resign
taxes?
Dividends
On 03 January (2003) 1998, X, a vacation
Filipino and citizen from
wouldallbe
Choose kinds
the best
given of separation
taxes,
answer. i.e., income,
Explain. (5%)VAT,
pay equivalent to
The cash equivalent of unused customs
residing in the Philippines,
sick leave credits qualifies as part of purchased one his threeduties,
month's local taxes
basic salaryand forrealevery
propertyyear
For category
hundred (100) B employees,
shares in theallcapital
the benefits
stock of Y tax
of service. Mr. Jacobo accepted the offer and
separation benefits excluded from gross from local tax only
received
Corporation, by them a will also becompany.
domestic exempt from On 03 received P400.000.00 as separation pay
income (CIR v. Court of Appeals, GR No.
income
January tax,
96O16, 2000, hence
October
not subject to withholding
Y Corporation
17, 1991). declared, out of under the program.tax who accepted the offer
from
After value-added
all the employees
tax. These are benefits
the profits of the company received on account
earned after of 01 frompaid,
were real property
the firm found tax only its overhead still
SUGGESTED
from capital ANSWER:
gainsittax only another
separation
January 1998,dueato causes percent
hundred beyond the (100%) stock excessive. Hence adopted
The provision exemptions charitable
employees'on
dividends control, which are specifically
all stockholders of record as of redundancy program. Various unprofitable
ALTERNATIVE ANSWER; institutions and religious institutions from (d)
excluded
31 December from gross
1999 income.
as a result (Section of 32(B),
which X departments were closed. As a result, Mr.
All of the payments are not subject to income REAL PROPERTY TAXES only. The exemption is
NIRC).
holding in Y Corporation became two hundred Kintanar was separated from the service. He
tax and should
SUGGESTED ANSWER: not also be subject to only for taxes assessed as property taxes, as
(200) shares. Are the stock dividends received also received P400.000.00 as separation pay.
No. Stock dividends
withholding are not realized
tax. The employees were laidincome.
off, distinguished from excise taxes (CIR v. CA,
by X subject to income tax? Explain. (8%) 1) Did v.
Lladoc Mr.Commissioner
Jacobo derive of income
Internal when he
Revenue,
Accordingly,
hence separated the for different
a causeprovisions
beyond their of the CTA & YMCA, G.R. No. 124043, October 14,
received his
L-19201, June separation
16,1965). pay? Explain. 2) Did Mr.
Tax Code
control. imposing a tax
Consequently, theon dividend
amounts to income
be paid 1998;
Kintanar derive income when he received his
only includes
by reason of such within its purview
involuntary separationcash are and SUGGESTED ANSWER:
Exemptions;
separation pay? Explain. Educational
property
excluded from dividends making irrespective
gross income, stock dividends of 1) Yes, Mr. Jacobo derived a taxable income
institution
XYZ Colleges (2004) is a non-stock, non-profit
exempt
whether the from income at
employee tax.
the However,
time of if the when he received his separation pay because
(Section 32(B), NIRC). educational institution run by the Archdiocese
distribution
separation hasofrendered stock less dividends
than ten years is the of his separation from employment was
of BP City. It collected and received the
equivalent
service and/or of cash
is below or property,
fifty yearsas of when
age. the voluntary
(a) Tuition on his part in view of his offer to
Exemptions: Separation following:
distribution results in a change of ownership resign. What
(b) Dormitory
fees is excluded from gross income is
Pay
Pedro (1994)
interest of theofficial
Reyes, an of Corporation
shareholders, the X, stock any amount received by an official or
(c) Rentals from canteen
fees
asked
dividends will be subject to income he
for an "earlier retirement" because employee
tax. (d) Interestas
concessionaires from a consequence
money-market of placements
separation of
was emigrating
Exemptions:
(Section 24(B)(2); to Australia.
Strictly
Section He was paid
25(A)&(B); Section such official or employee from the service of
of the tuition
ALTERNATIVE fees
ANSWER:
P2.000.000.00
Construed
Why are tax
28(B)(5)(b), 1997 as separation
(1996)
exemptions
Tax Code)strictly pay in construed the
(e) employer for any cause beyond the
recognition of his valuable services to the No, Donation
Mr. Jacobo of a did lot and
not building
derive by anyschool
taxable
against the taxpayer? control
alumni of the said official or employee (Sec
Juan Cruz, ANSWER:
corporation.
SUGGESTED another official of the same income Whichbecause of these above cited
the separation payincome
was due
28, NIRC).
and
company,
Tax exemptionswas separated
are strictly forconstrued
occupyingagainst a to adonation
retrenchmentwould not be exempt
policy adopted from by the
taxation?
company so Explain
that any briefly. (5%) terminated by
employee
redundant
the taxpayer position.
because He was such given provisions are
P1,000.000.00
highly disfavored as separation
and may almost pay. be said to virtue thereof is considered to have been
Jose odious
be Bautistato wasthe separated
law (Manila due to hisElectricfailing separated due to causes beyond the
eyesight. Hevs.
Company wasVera,given P500.000.00
67 SCRA 351). as The employee's control. The voluntary
separationcontained
exception pay. All the inthree
the tax (3) statutes
were not must redundancy program requiring employees to
qualified
be strictlytoconstrued
retire under againstthe BIR-approved
the one claiming make an offer to resign is only considered as
pension
the plan ofbecause
exemption the corporation.the law 1) doesIs the
not look a tool to expedite the lay-off of excess
separation
with favor pay on given to Reyes subject
tax exemptions theytobeing manpower whose services are no longer
SUGGESTED ANSWER:
income tax?
contrary to the2) How about theory
life-blood the separation
which ispay the needed
2) No, Mr. byKintanar
the employer, did notbut is not
derive anythe main
income
Exemptions:
received by Cruz?
underlying basis for taxes. 3) Terminal
How about the reason or cause for the termination
Leave Paypay (1996) when he received his separation pay because
separation received by Bautista? his separation from
The donation is, likewise, exempt from the
donor's tax if actually, directly and exclusively
used for educational purposes, provided not
more than 30% of the donation is used by the
donee for administration purposes. The donee,
being a non-stock, non-profit educational
institution, is a qualified entity to receive an
exempt donation subject to conditions
prescribed by law (Section 4 par. 4, Art. XIV,
1987 Constitution, in relation to Section
Accordingly, none of the cited income and
101(AX3), NJRC).
donation collected and received by the non-
stock, non-profit educational institution would
not be exempt from taxation.
ALTERNATIVE ANSWER:
The following receipts by the non-stock,
nonprofit educational institution are not
(c) Rentals
exempt fromfrom Canteen
taxation, viz:
Concessionaires. Rental income is
considered as unrelated to the school
operations; hence, taxable (DOF Order No.
137-87, Dec. 16, 1987)
(d) Interest from money-market
placements of the tuition fees. The
interest on the placement is taxable (DOF
Order No. 137-87). If however, the said
interest is used actually, directly and
exclusively for educational purposes as proven
by substantial evidence, the same will be
exempt from taxation (CIR v. CA, 298 SCRA 83
11998]}.
SUGGESTED ANSWER:
A. All of the income derived by the non-stock,
nonprofit educational institution will be
exempt from taxation provided they are used
actually, directly and exclusively for
educational purposes. The Constitution
provides that all revenues and assets of non-
stock, non-profit educational institution which
are actually, directly and exclusively used for
educational purposes are exempt from
taxation (Section 4 par. 3, Article XIV, 1987
Constitution).
38
SUGGESTED ANSWER: legislature
inventory
and noof service
the taxpayer
or dutyif or
onother
hand at
His children from his previous marriage who the close
remunerative of the taxable
conditions year; imposed
have been
are legitimate children and his illegitimate on the taxpayers receiving the exemption, it
child with Jane will all entitle him to additional may(2)be revoked
property atheld by the
will by the legislature
taxpayer
personal exemption of P8,000.00 for each primarily
(Christ for sale
Church to customers in24
v. Philadelphia, theHow.
dependent, if apart from being minor and not ordinary course of trade or business;
300 [1860]). What constitutes an impairment
gainfully employed, they are unmarried, living of the obligation of contracts is the revocation
with and dependent upon Charlie for their of (3) property
an exemption usedisinfounded
which the trade onora
chief support (Tax Reform Act, RA8424, business
valuable of a character
consideration which itistakes
because subject
theto
Chapter VH, Section 35(A); BIR Revenue theand
form allowance
essencefor ofdepreciation provided in
a contract (Casanovas
Exemptions; Roman Catholic Church;
Regulation 02-98). v. Section
Hord, 834 (F) of
Phil. 125the[1907];
Tax Code; or
Manila
Limitations
The (2005)Church owns a 2-hectare
Roman Catholic Exemptions; Govt v.Bonus, Gifts, &
Railroad Company Insular Collector of
lot, in a town in Tarlac province. The southern Allowances
In (4)
Decemberreal (1994)
property
1993, the used in trade
Sangguniang or
Bayan
Customs, 12 Phil. 146 [1915])
side and middle part are occupied by the business aofChristmas
authorized the taxpayer.
bonus of P3,000.00, a
Church and a convent, the eastern side by a cash gift of P5,000.00 and transportation and
school run by the Church itself, the representation allowance of P6,000.00 for
southeastern side by some commercial each of the municipal employees. 1) Is the
establishments, while the rest of the property, Christmas bonus subject to any tax? 2) How
in particular the northwestern side, is idle or about the cash gift? 3) How about the
unoccupied. May the Church claim tax allowances?and representation
transportation
SUGGESTED ANSWER: SUGGESTED ANSWER:
exemption on the entire land? Decide with
No. The Church cannot claim tax exemption on 1) The CHRISTMAS BONUS given by the
reasons.
the entire land. Only the southern side and Sangguniang Bayan to the municipal
middle part that are occupied by the Church employees is taxable as additional
and a convent and the eastern side occupied compensation (Sec. 21 (a). Tax Code).
by a school run by the Church itself are
exempt, because such parts of the 2-hectare 2) The cash gift per employee of
lot are actually, directly and exclusively used P5.000.00 being substantial may be
for religious and educational purposes. (Sec. considered taxable also. They partake the
The other
28[3], Art. items
VI, 1987 of income
Constitution; which Sec. were234,all nature of additional compensation income as
The
derived
Local southeastern side occupied
from school-related
Government Code) activities by will
somebe it is highly doubtful if municipal governments
commercial
exempt from establishment
taxation in is the nothands
tax exempt.
of the are authorized to make gifts in substantial
If real property is used
recipient if used actually, directly for one or moreand sums such as this. They are not furthermore
commercial
exclusively for purposes,
educational it ispurposes
not exclusively
(Section gifts of "small value" which employers might
used
4 par.for 3, the
Articleexempted
XTV, 1987 purpose but is subject
Constitution). give to their employees on special occasions
The taxation.
to donation 'Solely'
to a is non-stock,
synonymous non-profit
with like Christmas - items which could be exempt
educational institution
'exclusively.' (Lung Center will of bethe exempt from
Philippines under BIR Revenue Audit Memo No. 1-87.
theQuezon
v. donor's City,tax ifG.R.
usedNo. actually,
144104, directly
June and29, 3) The transportation and representation
exclusively
2004) The for property must be
educational exclusively
purposes and allowances are actually reimbursements for
Of
(solely)course,
provided, that,it
used notisreligious
for moreapparentthanor 30% thatof the
educational the expenses incurred by the employee for the
northwestern
purposes. side, which is
donation is used for administration purposesidle or unoccupied employer. Said allowances spent by the
is not "actually,
(Section 4, par. 4, directly
Art. XJV,and1987 exclusively" used
Constitution, employee for the employer are designed to
for religious or educational
in relation to Section 101(AM3), NJRC). purposes, hence enhance the quality of the service that the
not exempt from taxation.
Exemptions; Exemptions are employer is supposed to perform for its
CAPITAL GAIN TAX
Unilateral
A law was in Nature
passed (2004)
granting tax exemption to clientele like the people of the municipality.
certain industries
Capital Asset vs. Ordinary and investments for a Exemptions; Personal & Additional
period (2003)
Asset of five
Distinguish a years.
"capitalBut threefrom
asset" yearsan later, the
"ordinary Exemption
Charlie, (2006)has two sons by his
a widower,
law was ANSWER:
asset".
SUGGESTED repealed. With the repeal, the previous marriage. Charlie lives with Jane
(a) The term were
exemptions "capital asset" regards
considered revoked all by the who is legally married to Mario. They have a
properties
BIR, which not specifically
assessed excluded companies
the investing in the child named Jill. The children are all minors
statutory
for unpaiddefinition of capital
taxes effective onassets,
the date the of the 1.
and How
not much personal
gainfully exemption can
employed.
NPC
profits and
or KTR
loss
repeal of the law. on companies
the sale or thequestioned
exchange the
of Charlie claim? Explain. (2.5%)
assessments
which are treated on as the ground
capital gainsthat, having
or capital SUGGESTED ANSWER:
made their
losses. investments
Conversely, all those in properties
full reliance with Charlie can claim the personal exemption of a
the period of
specifically exemption
excluded granted byasthe law,
are considered Head of a Family or P25,000.00 provided
its repeal
ordinary violated
assets and thetheir constitutional
profits or losses right that, at least one of his minor and not
against the
realized must impairment
have to beoftreated the obligations
as ordinary and gainfully employed children is unmarried and
contracts. Is the contention of the companies (Tax
livingReform Act,
with and RA 8424, upon
dependent Chapter
himVII,
for chief
gains or ordinary losses. Accordingly,
SUGGESTED ANSWER:
tenable Section
support 35[A]; BIR Revenue Regulation 02-
"CapitalorAssets"
not? Reasonincludes briefly.
property(5%) held by
The contention is not tenable. The exemption 98).
the taxpayer whether or not connected with
granted is in the nature of taxpayer
a unilateral tax 2. How much additional exemption can
his(1)
trade stock in trade
or business, of the
but the term doesor not
exemption.
other propertySince of the
a kind exemption
which would given is Charlie claim? Explain. (2.5%)
include any of the following, which are
spontaneous
properly beon the part
included inof thethe
consequently considered "ordinary assets":
stamp tax on transfers of real property, said the seller from the sale. For this reason,
taxes to be borne equally by the co-owners. any of the foregoing suggested answers
ALTERNATIVE ANSWER: should be given full credit).
The BIR is correct in treating the gain from the
sale of parcel of land by Noel and Jovy Langit Tax Basis: Capital Gains: Merger of
at a profit of P1,000,000.00. In the case of Corporations
In a qualified merger (1994)under Section 34 (c) (2)
Pascual and Dragon v. Commissioner, G.R. of the Tax Code, what is the tax basis for
No. 78133, October 18, 1988, the Supreme computing the capital gains on: (a) the sale of
Court ruled that the sharing of returns does the assets received by the surviving
not in itself establish a partnership, whether or corporation from the absorbed corporation;
not the persons sharing therein have a joint or and (b) the sale of the shares of stock
SUGGESTED
received ANSWER: by the stockholders from the
common right or interest in the property. The
In a qualified
surviving merger under Section 34 (c) (2)
corporation?
decision in said case cannot be applied here
of the Tax Code, the tax basis for computing
because clearly the parties organized a
the capital gains on:
partnership duly registered with the Securities (a) the sale of the assets
and Exchange Commission. They pooled their The statutory definition of received
"capital by the
assets"
surviving corporation from the
practically excludes from its scope, it will be absorbed
resources together with the purpose of corporation shall be the original/historical cost
Sales of Share of Stocks: Capital Gains noted, all property held by the taxpayer if
dividing the profit between them. (b)
of the the sale
assets when of the shares
still in the of stockof the
hands
TaxCo.
HK Return (1999)
is a Hong Kong corporation not doing used in connection with his trade or business.
business in the Philippines. It holds 40% of received
absorbedby the stockholders from the
corporation.
the shares of A Co., a Philippine company, surviving
Capital corporation
Gain shall be the
Tax;
while the 60% is owned by P Co., a Filipino- acquisition/historical
Nature
A, (2001)
a doctor cost
by profession, of assets
sold in the year
owned Philippine corporation. HK Co. also transferred
2000 a parcelto the
of surviving
land which corporation.
he bought as a
Tax Basis: Capital Gains: Tax-Free
owns 100% of the shares of B Co., an form of investment in 1990 for Php 1 million.
Exchange of Property (1994)
Indonesian company which has a duly The
In a land was tax-free
sold to B, his colleague, at a
qualified exchange of property
licensed Philippine branch. Due to worldwide time when the real estate prices had gone
for shares under Section 34 (c) (2) of the Tax
restructuring of the HK Co. group, HK Co. down
Code, andwhatso is the landbasiswas for
sold only for Php
the tax computing the
decided to sell all its shares in A and B Cos. 800,000 which was then the fair market value
capital gains on: (a) the sale of the assets
The negotiations for the buy-out and the of the land. by He the used the proceeds to the
finance
received Corporation; and (b) sale
signing of the Agreement of Sale were all his trip to the United States. He claims that
of the shares received by the stockholders
done in the Philippines. The Agreement he should ANSWER:
SUGGESTED not be made to pay the 6% final
in exchange
SUGGESTED of the
ANSWER: assets?
provides that the purchase price will be paid taxabecause
In hetax didfree
not exchange
have any of actual gain
No. The 6% capital gains tax on sale property
qualified of a real
to HK Co's bank account in the U. S. and that on the
for sharessale. Is his
under contention
Section 34 (c) correct?
(2) of the Why?
Tax
property held as capital asset is imposed on
little to A and B Cos. Shares will pass from HK (5%) the tax basis for computing the gain on
Code,
the income presumed to have been realized
Co. to P Co.
SUGGESTED in HK where the stock certificates
ANSWER: (a)
the: sale of the assets received by the
from the sale which is the fair market value
will
P Co.beshould
delivered. P Co. seeks
not subject your advice
the payments as
of the corporation shall be the original/historical cost
or selling price thereof, whichever is higher.
to whetherprice
purchase or notto itwithholding
will subject tax.
the payments
While the (purchase price plus expenses of acquisition)
(Section 24(D), NIRC). Actual gain is not
of purchase
seller price to Withholding
is a non-resident foreign Tax. Explain
corporation of the property/ assets given in exchange of
required
(b) forof
sale thetheimposition
shares of of the received
stock tax but itby is
your advice.
which is not (10%)
normally required to file returns the shares of stock.
the
the gain by
stockholdersfiction of law
in exchange which is taxable.
in the Philippines, therefore, ordinarily all its Ordinary Sale of a Capitalof the assets
income earned from Philippine sources is shall be
AssetLangit
Noel the
(1994) original/historical
and his brother,cost Jovy,of the
bought a
taxed via the withholding tax system, this is property
parcel ofgiven
land in exchange
which they of the
registeredshares in oftheir
ALTERNATIVE
stock. ANSWER:
not the procedure availing with respect to names
The basis in computing capital gains tax in aA).
as pro-indiviso owners (Parcel
sales of shares of stock. The capital gains tax Subsequently,
qualified tax-free theyexchange
formed a partnership,
under Sec. 34 duly
on the sale of shares of stock of a domestic registered
(a)
(c) with Securities
With respect
(2) is: to the asset and Exchange
received by
corporation is always required to be paid Commission,
the corporation which
the samebought as itanother
would be parcel
in of
through a capital gains tax return filed. The land (Parcel
the hands ofB).theBoth parcelsincreased
transferor of land wereby the sold,
sale of the shares of stock of the Indonesian realizing a net profit
amount of the gain recognized to the of P1,000,000.00 for
ALTERNATIVE ANSWER: The BIR claims that
Corporation is not subject to income
Yes, but only on the shares of stocks of A Co. tax under parcel
(b)
transferorA and
With P500.000.00
onrespect to the shares received byA
the transfer.
the sale
for parcelof parcel
B.
our jurisdiction because the income derived should
the be taxed as
stockholders in a sale by of
exchange anthe unregistered
assets -
and only on the portion of the purchase price, partnership. Is the BIR correct?
there from is considered as a
which constitutes capital gains. Under theforeign-sourced the same as the basis of the property, stock or
SUGGESTED ANSWER:
income.
Tax Code of 1997, the capital gains tax securities exchanged, decreased by the
The BIR is not correct, since there is no
imposed under Section 28(B)(5)(c) is money
showingreceived
that theand the fair market
acquisition of thevalue
propertyof
collectible via the withholding of tax at the other property received,
by Noel and Jovy Langit as pro indiviso and increased by
(Note: The bar candidate
source pursuant to Section 57 of the samemight have relied on the
the amount treated as dividend
owners, and prior to the formation of the of the
Code. provision of the Tax Code of 1997 which providesshareholder and
wasthe amount of anyfor gain thator
that the capital gains tax is imposed partnership, as recognized
was on
used,
the
intended
exchange.
use,
taxes (Section 57, NIRC). This procedure is
withholding bears any relation whatsoever to the pursuit
or conduct of the partnership business. The
impractical and, therefore, not followed in practice
because the buyer/ withholding agent will not be sale of parcel A shall therefore not be treated
in a
position to determine how much income as is a sale by an unregistered partnership, but
realized by an ordinary sale of a capital asset, and hence
will be subject to the 5% capital gains tax and
documentary
PQR Corp. claimed as a deduction in its tax
returns the amount of P1,000,000 as bad
debts. The corporation was assessed by the
Commissioner of Internal Revenue for
deficiency taxes on the ground that the debts
cannot be considered as "worthless," hence
they do not qualify as bad debts. The
company asks for your advice on "What
SUGGESTED ANSWER:
factors will held in determining whether or
In order that debts be considered as bad
not the debts are bad debts?" Answer and
debts because they have become worthless,
explain briefly. (5%)
the taxpayer should establish that during the
year for which the deduction is sought, a
situation developed as a result of which it
became evident in the exercise of sound,
objective business judgment that there
remained no practical, but only vaguely
theoretical, prospect that the debt would ever
be paid (Collector of Internal Revenue v.
Goodrich International Rubber Co., 21 SCRA
1336 [1967]). "Worthless" is not determined
1The debtor has no property nor visible income;
by an inflexible formula or slide rule
2The debtor has been adjudged bankrupt or
calculation, but upon the exercise of sound
insolvent;
business judgment. The factors to be
3Collateral shares have become worthless; and
considered include, but are not limited to, the
4There are numerous debtors with small amounts
following:
of debts and further action on the accounts would
entail expenses exceeding the amounts sought to
be collected.
ALTERNATIVE ANSWER:
The following are the factors to be considered
in determining whether or not the debts are
1The debt must be valid and subsisting;
bad debts:
2The debt is connected with the taxpayer's trade
or business, and is not between related parties;
3There is an actual ascertainment that the debt is
worthless; and
4The debt is charged-off within the taxable year.
CORPORATION & PARTNERSHIP

Bad Debts; Factors; Elements
thereof (2004)
41
special tax rates. So is with PEZA
Effect: Dissolution; Corporate There beingCDA
enterprises, noenterprises
monetaryetc.consideration,
Existence
For failure (2004)
to comply with certain corporate neither is the conveyance subject to the
requirements, the stockholders of ABC Corp. creditable [Note: If what is meant
withholding tax by regular income
imposed under
tax is the 32%
Revenue Regulations 1-90, as amended. tax rate imposed on taxable
were notified by the Securities and Exchange
The second income of corporations,was
conveyance the answer
actuallywould no
Commission that the corporation would be be in at the all affirmative, because domestic
subject to involuntary dissolution. The conveyance because when the units
corporations and resident foreign
stockholders did not do anything to comply were sold to the various buyers, the common
corporations are either liable for the 2% of
with the requirements, and the corporation areas were already part and parcel of the sale
gross income (MCIT) or 32% of net income
was dissolved. Can the stockholders be held of said units
(the pursuant
normal to the Condominium
corporate income tax)
SUGGESTED ANSWER:
personally liable for the unpaid taxes of the Act. However,
ALTERNATIVEwhicheverANSWER: the
is Deed
higher.] of Conveyance is
No. As a general rule, stockholders cannot be No. A corporation
subject to documentary whichstamp is exempted
tax. from the
dissolved corporation? Explain briefly. (5%) N.B. corporate
Documentary stampstaxtax is and
held personally liable for the unpaid taxes of a minimum income not
dissolved corporation. The rule prevailing Condominium
automatically exempted Law are from excluded thefrom the
regular
under our jurisdiction is that a corporation is coverage of the Bar Examinations.
corporate income tax. The reason for this is
Corporation; Sale; Creditable
vested by law with a personality that is that MCIT is imposed only beginning on the
Withholding
Noel Langit Taxhis
and (1994)brother, Jovy, bought a
separate and distinct from those of the fourth taxable year immediately following the
NOTE: additional point
persons composing it (Sunio v. NLRC, 127 should be given to parcel
the of land which they registered in their
year in which such corporation commenced its
examinee if he answers in the following names
that: as pro-indiviso owners (Parcel A).
SCRA 390{1984]}. business operations. Thus, a corporation may
However, stockholders may be held liable for Subsequently, they formed a partnership, duly
be exempt from MCIT because it is only on its
unpaid taxes of a dissolved corporation if it registered
the with Securities and Exchange
third year of operations following its
appears that the corporate assets have Commission, which bought another parcel of
into their hands (Tan Tiong Bio v. CFR, 4 SCRA
passed ESTATE
land (Parcel&
commencement
B).DONORS
Both parcelsTAXES
of business operations.
of land were sold,
986 [1962]). Likewise, when stockholders Donors
realizing a net Tax: profit Election
of P1,000,000.00 for
unpaid subscriptions to the capital of the Are
have Contributions
The
parcel contributions
BIR A also (1998)
claims
and P500.000.00 to
thata the candidate
for sale ofB.
parcel in an
parcel B
corporation they can be made liable for election
should be subject
taxed to
as adonor's
sale by tax?
a On the
corporation. partIs
taxes
unpaidof the corporation to the extent of their of
the the contributor,
BIR correct?
SUGGESTED ANSWER: is it allowable as a
unpaid subscriptions. The BIR
SUGGESTED is
deduction ANSWER:from correct,
grosssince income? a "corporation"
[5%J as
1)
definedNo, under provided
Sectionthe 20 recipient
(a) of the candidate
Tax Code
had complied
includes with theno
partnerships, requirement
matter howfor filing
created
Minimum Corporate of returns ofexcept contributions with the
or organized, general professional
Income
What is Tax (2001) of the law in imposing
the rationale Commission
partnerships. on TheElections
business as required under
partnership, in the
what is known as the Minimum Corporate the Omnibus
instant case, Election
shall thereforeCode. be taxed in the
Income tax on Domestic Corporations? (3%) 2) The contributor is not allowed
SUGGESTED ANSWER: same manner as a corporation on thetosale deductof
the contributions
parcel B. The sale because
shall thus thebe said
subject expense
to the is
The imposition of the Minimum Corporate
not directlywithholding
creditable attributable tax to, theunder development,
Revenue
Income Tax (MCIT) is designed to forestall the
management,
Regulations 1-90, operation
as amended and/or by conduct
12-94, of on a
prevailing practice of corporations of over Dividends: Withholding
trade,
the sale business
of parcel orB,profession
and the {Sec. 34[AJ(l)(a),
partnership shall
claiming
(PRC deductions in order
SCRAto 667 reduce their Tax
HK (1999)
Co., is againHong Kongif company, whichwhen has
v. CA, 256 [1996]; NIRC)
report . theFurthermore, realized the the
from candidate
sale is aitan
income tax payments.
Revenue Regs. No. 5-99). The filing of income duly licensed Philippine branch, engaged in
incumbent government
files its income tax return. official or employee, it
tax returns showing a tax loss every year trading activities in the Philippines. HK Co.
Condominium may even be considered as a bribe or a
goes against the Corp.; business Sale motive of which also invested directly in 40% of the shares of
Common Condominium
Areas kickback (Sec. 34[AJ(l)(c), NIRC).
X-land
impelled the (1994)
stockholders Corporation
to form was the stock ofCOMMENT:
A Co., a Philippine It is suggested that full
corporation. credit
These
organized byThis
corporation. theisowners
the reason of units
why in X-land
domestic should be given for any answer to the first
shares are booked in the Head Office of HK
Building in accordance
corporations (and with the Master
resident Deed
foreign question because the answer requires an
Co. and are not reflected as assets of the
with Declaration
corporations) afterofthe Restrictions.
recovery period The of X-land
four interpretation of the Election Code.
Philippine Pursuantbranch. to the In provisions
1998, A of Co. declared
Section 99(C)
Building
years from Corporation,
the time they thecommence
developerbusiness of the dividends of to
the its stockholders.
NIRC, the taxability Before
of remitting
this type of
building, conveyed
operations, they becomethe common liableareasto the in favor
MCIT the dividends to HK Co., A isCo.
contributions/donations seeks by
governed your the
of the X-land
whenever this Condominium
tax imposed at Corporation.
2% of gross Is
SUGGESTED ANSWER: advice Election
as to Code. whether it will subject the
the conveyance
income exceeds subject
the normal to any tax?
corporate income SUGGESTED
Donors ANSWER: Tax; Basis for
Minimum
The conveyance Corporate
is not subjectIncome to any Tax; tax. The remittance
IDetermining
will advise A Gain to WT.
Co. to Nowithhold
need toand discuss
remit WT the
tax imposed on net income. (Sponsorship (1)
rates, Kenneth
if applicable. Yusoph (1995)
Focus owns your a commercial
discussion lot
on
Exemption
Is a corporation
same (2001)
is without which is exempted
consideration, andfrom notthe in withholding tax on the dividends. While the
Speech, Chairman of Senate Ways and Means which
what is he
the bought
issue. many years ago for P1
(10%)
minimum
connectioncorporate
with a income sale madetax automatically
to X-land general rule is that a foreign corporation is the
Committee). Million. It is now worth P20 Million although
exempted
Condominium from the regularand
Corporation, corporate
the purposeincome of same juridical entity as its branch office in the
SUGGESTED
tax?
the Explain ANSWER:
conveyance your answer.
to the (2%) latter is for the the zonal value is only P15 Million. He donates
No. The minimum corporate income tax is a Philippines, when, however, the corporation
management of the common areas for the one-half pro-indiviso interest in the land to his
proxy for the normal corporate income tax, transacts business in the Philippines directly
common benefit of the unit owners. son Dino on 31 December 1994, and the other
not the regular and independently of its branch, the taxpayer
The same is notcorporate
subject to income
income taxtaxpaidsinceby one-half pro-indiviso interest to the same son
a corporation. would
How muchbe the is1995.foreign
the valuecorporation
of the giftsitself in 1994 and
no income was For instance,
realized as a aresult proprietary
of the on 2 January
educational subject
and 1995 to the
for dividend
purposes oftax similarly
computing imposed
the gift
conveyance, institution
which was may madebe subjecttotothe
pursuant a
regular corporate income tax of on
tax? non-resident
Explain.
SUGGESTED ANSWER: foreign corporation. The
Condominium Act (R.A. No. 4626, and 10% the
(depending on its wasdominant income), 1) The
dividends value of the gifts
attributable to the for Home
purposes Officeof
purpose of which merely to vestbut titleit to
is
exempt from the imposition of MCIT because computing
would not the
qualify gift tax
as shall
dividends be P7.5million
earned by ina
the common areas in favor of the Land 14, 1989).
the latter is notCorporation.
intended to substitute 1994
resident and P7.5million
foreign in
corporation, which is exempt
Condominium
from tax. (Marubeni Corporation v.
Commissioner, GR No. 76573, September
1995. In valuing a real property for gift tax An insolvent company had an outstanding
purposes the property should be appraised at obligation of P l00,000.00 from a creditor.
the higher of two values as of the time of Since it could not pay the debt, the creditor
donation which are (a) the fair market value agreed to accept payment through dacion en
as determined by the Commissioner (which is pago a property which had a market value of
the zonal value fixed pursuant to Section P30.000.00. In the dacion en pago document,
16(e) of the Tax Code), or (b) the fair market A. Whatof is
the balance the the tax condoned.
debt was effect on the
value as shown in the schedule of values discharge of the unpaid balance of the
fixed by the Provincial and City Assessors. B. Insofar
obligation on theasdebtor
the creditor is concerned,
corporation?
The fact that the property is worth P20 million how is he effected tax-wise as a consequence
SUGGESTED ANSWERS:
of the transaction?
as of the time of donation is immaterial unless
it can be shown that this value is one of the (a) The condonation of the unpaid balance of
(2) The Revenue
two values mentionedDistrict
as Officer questions
provided under
the splitting of the donations into 1994 and the obligation has the effect of a donation
Section 81 of the Tax Code. made on the part of the creditor. It is obvious
1995. He says that since there were only two
(2) days separating the two donations they that the creditor merely desires to benefit the
should be treated as one, having been made debtor and without any consideration
SUGGESTED
within one ANSWER:
year. Is he correct? Explain. therefore cancels the debt, the amount of the
2) The Revenue District Officer is not correct debt cancelled is a gift from the creditor to the
because the computation of the gift tax is debtor and need not be included in the latter's
cumulative but only insofar as gifts made (b) Forincome
gross the difference
(Sec. 50,ofRR
P70,000
No. 2);the creditor
within the same calendar year. Therefore, shall be subject to donor's tax at the
there is no legal justification for treating two applicable rates provided for under the
gifts effected in two separate calendar years National Internal Revenue Code.
(3) Dino
as one gift.subsequently sold the land to a ALTERNATIVE ANSWER:
buyer for P 20 Million. How much did Dino (a) If the discharge was prompted by the
gain on the sale? Explain. insolvency of the debtor company, then it is
SUGGESTED ANSWER: a clear case of a write-off of a bad debts
3) Dino gained an income of 19 million from which has no tax consequence to the debtor.
the sale. Dino acquires a carry-over basis (b) The write-off of the bad debt will entitle
which is the basis of the property in the the creditor to claim the same as a deduction
hands of the donor or P1 million. The gain from its gross income.
from the sale or other disposition of property
shall be the excess of the amount realized
therefrom over the basis or adjusted basis for
determining gain (Sec. 34(a), NIRC). Since the
property was acquired by gift, the basis for
determining gain shall be the same as if it
would be in the hands of the donor or the last
preceding owner by whom the property was
not acquired by gift. Hence, the gain is
(4) Suppose, instead of receiving the lot by
computed by deducting the basis of P1
way of donation, Dino received it by
million from the amount realized which is P20
inheritance. What would be his gain on the
million.
sale of the lot for P20 Million? Explain.
SUGGESTED ANSWER:
4) If the commercial lot was received by
inheritance the gain from the sale for P20
million is P5 million because the basis is the
fair market value as of the date of acquisition.
The stepped-up basis of P15 million which is
the value for estate tax purposes is the basis
ALTERNATIVE ANSWER:
for determining the gain (Sec. 34(b)(2), NIRC).
If Dino held on to the property as a capital
asset in that it is neither for sale in the
ordinary course of business nor used in Dino's
business, then upon sale thereof there is
presumed to be realized an income of P20
million which is the gross selling price of the
property. (Sec. 21(e), NIRC). The same would
be subject to the 5% capital gains tax.
Donors Tax; Dacion en Pago; Effect:
Taxation (1997)
1Not more than thirty percent (30%) of said gifts
shall be used by such donee for administration
purposes;
2The educational institution is incorporated as a
non-stock entity,
3paying no dividends,
4governed by trustees who receive no
compensation, and
5devoting all its income, whether students' fees or
gifts, donations, subsidies or other forms of
philanthropy, to the accomplishment and
promotion of the purposes enumerated in its
Articles of Incorporation. (Sec. 101 (A) (3), NIRC of
1997]
Donors Tax; Donation to a

Sibling
Your (2001) client, a Filipino residing in
bachelor
Quezon City, wants to give his sister a gift of
Php 200,000.00. He seeks your advice, for
purposes of reducing if not eliminating the
donor's tax on the gift, on whether it is better
for him to give all of the Php 200,000.00 on
Christmas 2001 or to give Php 100,000.00 on
Christmas2001 and the other Php 100,000.00
SUGGESTED ANSWER:
on January 1, 2002. Please explain your
I would advice him to split the donation.
advice. (5%)
Giving the Php200,000 as a one-time donation
would mean that it will be subject to a higher
tax bracket under the graduated tax structure
thereby necessitating the payment of donor's
tax. On the other hand, splitting the donation
into two equal amounts of Php 100,000 given
on two different years will totally relieve the
donor from the donors tax because the first
Phpl00.000 donation in the graduated
brackets is exempt. (Section 99, NIRC). While
the donors tax is computed on the
cumulative donations, the aggregation of all
Donors Tax; Donation to Non-Stock,
donations made by a donor is allowed only
Non-Profit Private Educational
over one calendar year.
Institutions
What (2000)
conditions must occur in order that all
grants, donations and contributions to non-
stock, non-profit private educational
institutions may be exempt from the donor's
SUGGESTED
tax under ANSWER:
Section 101 (a) of the Tax Code?
The
(3%)following are the conditions:
44 of 73
The
stake gross
in estate
its business.shall beExplaindetermined if the by
Estate Tax: Donation Mortis Causa vs. including
above transactions
the value at the aretime subject
of his deathto all
Interdonations
Are Vivos (1994)
inter vivos and donations of the properties
SUGGESTED
donor's tax. (5%) mentioned, to the extent
ANSWER:
The
of thefirst transaction
interest he hadwhere at theatime lot was of hissold by A
death
mortis causa subject to estate taxes?
SUGGESTED ANSWER: because he is a Filipino citizen. [Sec. 85 (A),fair
to his brother-in-law for a price below its
Donations inter vivos are subject to donor's market
NIRC value will not be subject to donor's
of 1997]
gift tax (Sec. 91 (a). Tax Code) while tax if the
With lot qualifies
respect to the as a capital asset. The
life insurance
donations mortis causa are subject to estate transfer fortheless
proceeds, amount thanincludible
adequate andgross
in the full
tax (Sec. 77, Tax Code). However, donations consideration,
estate for Philippine whichtax givespurposesrise towould a deemed be to
inter vivos, actually constituting taxable gift, extent
the does not of the apply amountto a receivable
sale of property by the
lifetime like transfers in contemplation of subject
estate of to the capital gains tax.
deceased, his (Section
executor,100, or
death or revocable transfers (Sec. 78 (b) and NIRC). However,under
administrator, if the policies
lot sold taken is an ordinary
out by
(c), Tax Code) may be taxed for estate tax asset, the upon
decedent excess his ofown thelife, fair irrespective
market value of
ALTERNATIVE ANSWER: The
over sale
whether the or ofconsideration
shares
not theof insured stockreceived below the fair
shall
retained be
the
purposes, the theory being that the
Donations
Donors inter vivos
Tax; Donation are not subject to estate market value asthereof
a gift is subject
to thetoto the donor's
donor's
transferor's control thereonto Political
extends up to the considered
power of revocation, subject
or the
extent of the
taxes
Candidate
X is a because
friend (2003)
oftheY, transfer
the chairmanof theof property
Political tax
tax.
amountpursuant to the provisions
receivable by any beneficiary of Section 100
time of his death.
take
Party effect
Z, whoduring
wants the to runlifetime of the donor.
for President in the of the Tax Code. The
designated in the policy of insurance, exceptexcess of the fair
The
2004 transfer
elections.isKnowing therefore thatsubject
Y needstofunds the market
when value
it isANSWER: over the selling
expressly stipulated that the price is a
donor's tax. and streamers, X is thinking of ALTERNATIVE
deemed
The DEDUCTIONS
gift. that may be claimed by
for posters designation of the beneficiary is irrevocable.
On the other The sale of shares ofactual
stockfuneral below the fair
donating to Y hand,
P150,000.00donations mortis
for his causa
campaign. the
[Sec.estate
85 (E) are:
NIRC 1) of
The 1997]
are subject to estate taxes since the transfer market value will
expenses or in an amount equal to not give rise to the
He asks you whether his intended donation to
of the properties imposition of the donor's tax. In determining
Y will be subjecttakes to the effect after tax.
donor's the death
What five percent (5%) of the gross estate,
of the decedent. Such donated properties, the whichever
gain from the is transfer,
lower, but the in selling
no price
case of to
would your answer be? Will your answer be
real or personal,
SUGGESTED ANSWER:tangible or intangible, shall the exceed
shares oftwo stocks hundred thousand market
shall be the fair pesos
the same if he were to donate to Political
The
form donation
part of theofto
gross Y, once he becomes a value of the shares of86stocks(A) (1)transferred.
Party Z instead to Y estate.
directly? (8%) (P200.000.00). [Sec. (a). NIRC of
Estate
candidate Tax:
for Gross
an elective Estate: post,Allowable
is not subject (Section
1997] 6, RR No. 2-82). In which case, the
Deduction
On the firsttax
to donor's (2001)
anniversary
provided that of the hedeath
compliesof Y,with
his reason The
2) for thejudicialimposition
expenses of in thethe donor's
testatetax or
heirs
the hosted a sumptuous
requirement of filingdinner for his
returns of Estate
on salesTax:
intestate Comprehensive
for inadequate
proceedings.(Sec. consideration
86(A)(1) Agrarian does
doctors,
contributions nurses,with and others the who attended toon
Commission Y Reform
Jose Ortiz
not exist. Law owns (1994)
100 hectares of agricultural
during
Elections his aslast required
illness. The undercost theof the dinner
Omnibus land
3) planted to
The value of thecoconut trees. He died onfamily
decedent's May
The
amounted
Election answer would
to Php
Code. be the Compared
50,000.00. same if Xtohad his 30, 1994. Prior to his death,
home located in Valle Verde, Pasig City in an the government,
donated
gross estate, the Php 50,000.00 Party
the amount to Political did not Z by operation
amount of law, acquired
not exceeding one million underpesos the
instead five
exceed of to Y directly
percent becauseIs the
of the estate. law
the said Comprehensive Agrarian
(P1,000,000.00), and upon Reform Law all of
presentation hisa
places
cost of in
theequal
dinner footing any contribution
to commemorate his oneto agricultural
certification lands of theexcept barangay five captain
(5) hectares. of the
SUGGESTED
any candidate,
year death ANSWER: political party
anniversary or coalition
deductible from his of Upon
locality the that
death the of Ortiz,
same his widow
have asked been you the
No. Thisfor
parties expense
campaign will not fall under any of the how she will consider the 100 hectares of
gross estate? Explain purposes.
your answer. (Section
(5%) 99(C) decedent's
SUGGESTED ANSWER: family home. [Sec. 86 (A) (4), Ibid]
allowable
Donors
of the 1997 Tax;deductions
Code). orfrom
TaxDonee gross estate.
Beneficiary; agricultural
4) land in deduction
The standard the preparation of the (Sec.
of P1,000,000.
Whether
Stranger
When the viewed
donee orinbeneficiary
(2000) the context is a of either
stranger, The 100 hectares of land that Jose Ortiz
estate tax return. What advice will you give
86(A)(5)
funeral expensesbyor
the tax payable themedical
donor shall expenses,
be 30%the of owned but which prior to his death on May
5)
her? Medical expenses incurred within one
same
the net will not For
gifts. qualify as a deduction.
purposes of this tax,Funeral
who is 30, 1994 were acquired by the government
year from death in an amount not exceeding
expenses
SUGGESTED may
a stranger?ANSWER: (2%)include medical expenses of under CARP are no longer part of his taxable
P500,000.(Sec. 86(A)(6)
A STRANGER
the last illness is a but
person notwho is not a: incurred
expenses gross estate, with the exception of the
A.
after Brother,
burial nor sisterexpenses
(whether incurredby whole or to remaining
The ESTATE fiveTAX (5) RETURN
hectares shall whichbeunder Sec. six
filed within
half-blood), spouse,
commemorate the death anniversary. ancestor and lineal 78{a)
(6) monthsof the Tax Code still forms part of
B. Relative
(De
Estate Tax:from the decedent's
Donation Mortis death (Sec.
descendant;
Guzman V. or De by Guzman,consanguinity
83 SCRAin 256). the "decedent's
90 interest".
(B), NIRC of 1997], provided that the
collateral line within the fourth degree of Causa
A, aged(2001)90 years and suffering from incurable
Medical expenses, on the other hand, are Commissioner of Internal Revenue shall have
relationship."
Estate Tax: [Sec. 98
Gross (B), NIRC
Estate: of 1997] cancer, on August 1, 2001 wrote a will and,
allowed only if incurred by the decedent authority to grant in meritorious cases, a
Deductions
Mr. Felix (2000) on the same day, made several inter-vivos
within one de year la prior
Cruz,to ahisbachelor resident
death. (Section reasonable extension not exceeding thirty
Donors
citizen, Tax; Sale
suffered from of
a shares
heart attack of while
Stockon&a gifts to his children. Ten days later, he died.
86(A)(6), NIRC). (30) days for filing the return (Sec. 90 (c),
Sale
business of Real
trip toProperty
the USA.(1999) He died intestate on In yourin opinion,
Except cases where are the inter-vivos gifts
the Commissioner of
Ibid]
A, an individual,
June 15, 2000 in New sold to YorkB, City,
his brother-in-law,
leaving behind considered transfers
Internal Revenue otherwise permits, the in contemplation of
his lot with a market
real properties situated in New value of P1,000,000
York; his familyfor death
estate for purposes
taxANSWER: of determining
return shall be filed with an properties
SUGGESTED
P600.000. A's cost in the lot
home in Valle Verde, Pasig City; an office is P100.000. B is to be included
authorized agent in bank,
his gross or Revenueestate? ExplainDistrict
Yes. When the donor makes his will within a
financially capable of buying the lot. your answer.
Officer,time Collection(5%)
condominium in Makati City; shares of stocks
A also owns X Co., which has a fast growing short of, or Officer,
simultaneouslyor duly authorized
with, the
in San Miguel Corporation; cash in bank; and Treasurer
making of ofgifts, Pasigthe City,
gifts theare Cityconsidered
in which the as
business. A sold some of his shares of stock decedent Mr. de la Cruz was domiciled at the
personal belongings. The decedent is heavily having been made in contemplation of death.
in X Co. to his key executives in X Co. These
insured with Insular Life. He had no known time
(Roces of hisv.death. [Sec. 90 (D).
Posadas, 58 NIRC Phil. of 1997]108).
executives are not related to A. The selling Estate Tax: Inclusion:
debts at the time of his death. As the sole heir Obviously, the intention of the donor in
price is P3,000,000, which is the book value Resident
Cliff Robertson,Alien (1994)an American citizen, was a
and appointed Administrator, how would you making the inter-vivos gifts is to avoid the
of the shares sold but with a market value of permanent resident of the Philippines. He
determine the gross estate of the decedent? imposition of the estate tax and since the
P5,000,000.
SUGGESTED A's cost in the shares sold is
ANSWER: died in Miami, Florida. He left 10,000 shares
What deductions may be claimed by the donees are likewise his forced heirs who are
P1,000,000. The purpose of A in selling the of Meralco, a condominium unit at the
estate and when and where shall the return be called upon to inherit, it will create a
shares is to enable his key executives to
filed and estate tax paid? (3%) presumption juris tantum that said donations
acquire a propriety interest in the business
and have a personal were made mortis causa, hence, the
properties donated shall be included as part
of A's gross estate.
Twin Towers Building at Pasig, Metro Manila SUGGESTED ANSWER:
and a house and lot in Los Angeles, Vanishing deductions or property previously
California. What assets shall be included in taxed in estate taxation refers to the
the Estate Tax Return to be filed with the diminishing deducibility/ exemption, at the
SUGGESTED
BIR? ANSWER: rate of 20% over a period of five (5) years
All of Mr. Robertson's assets consisting of until it is lost after the fifth year, of any
10,000 shares in the Meralco, a condominium property (situated in the Philippines) forming
unit in Pasig, and his house and lot in Los part of the gross estate, acquired by the
Angeles, California are taxable. The decedent from a prior decedent who died
properties of a resident alien decedent like within a period of five (5) years from the
Mr. Robertson are taxable wherever situated Estate
decedent'sTax; Payment vs. Probate
death.
(Sees. 77, 78 and 98, Tax Code). Proceedings
Is the approval(2005)
of the court, sitting as probate
Estate Tax: Payment vs. Probate or estate settlement court, required in the
Proceedings
VCC (2004)
is the administrator of the estate of his enforcement and collection of estate tax?
father NGC, in the estate proceedings pending SUGGESTED
Explain. ANSWER:
before the MM Regional Trial Court. Last year, No, the approval of the court, sitting in probate,
he received from the Commissioner of Internal or as a settlement tribunal over the deceased is
Revenue a deficiency tax assessment for the not a mandatory requirement in the collection
estate in the amount of P1,000,000. But he of estate taxes. There is nothing in the Tax
ignored the notice. Last month, the BIR Code, and in the pertinent remedial laws that
implies the necessity of the probate or estate
effected a levy on the real properties of the
settlement court's approval of the state's claim
estate to pay the delinquent tax. VCC filed a
for estate
(Marcos taxes,ofbefore
v. Court theG.R.
Appeals, same
No. can be June
120880,
motion with the probate court to stop the
enforced
5, 1997) and collected.
enforcement and collection of the tax on the
ground that the BIR should have secured first BUSINESS TAXES
the approval of the probate court, which had
SUGGGESTED ANSWER: VAT: Basis of VAT
jurisdiction
No. VCC's over the estate,
contention before
is not levyingThe
correct. on
its real properties. Is VCC's contention (1996)is the basis of the Value-Added Tax
What
approval of the probate court is not
correct? (5%) on taxable sales of real property?
necessary. Payment of estate taxes is a SUGGESTED ANSWER:
condition precedent for the distribution of the The basis of the Value-Added Tax on taxable
properties of the decedent and the collection sale of real property is "GROSS SELLING
of estate taxes is executive in nature for PRICE" which is either selling price stated in
which the court is devoid of any jurisdiction. the sale document or the "Zonal Value",
Hence, the approval of the court, sitting in whichever is higher. In the absence of zonal
probate, or as a settlement tribunal is not a values, the gross selling price shall refer to
mandatory requirement in the collection of the market value as shown in the latest tax
Estatetaxes
estate Tax:(Marcos
Situs Hofv. Court
Taxation: Non-
of Appeals, declaration or the consideration, whichever is
Resident Decedent
273 SCRA 47 [1997]). (2000) VAT:
higher.Characteristics of
Discuss the rule on situs of taxation with VAT (1996)
What are the characteristics of the Value-
respect to the imposition of the estate tax on SUGGESTED
Added ANSWER:
Tax?
property left behind by a non-resident The value-added tax is an indirect tax and
SUGGESTED
decedent. ANSWER:
(2%) the amount of tax may be shifted or passed
The value of the gross estate of a non- on to the buyer, transferee or lessee of the
resident decedent who is a Filipino citizen at ALTERNATIVE ANSWER:
goods, properties or services.
the time of his death shall be determined by The value-added tax has the following
including the value at the time of his death of characteristics: 1) It is an indirect tax where
all property, real or personal, tangible or presumed:
tax shifting 2)
is It is consumption-based; 3) It is
always
intangible, wherever situated to the extent of imposed on the value-added in each stage of
the interest therein of the decedent at the
time of his death [Sec. 85 (A), NIRC of 1997). distribution; 4) It is a credit-invoice
These properties shall have a situs of method value-added tax; and 5) It is not
On the other
taxation in thehand, in thehence
Philippines case subject
of a non-
to a cascading tax.
resident
Philippinedecedent who at the time of his
estate taxes.
death was not a citizen of the Philippines, VAT: Exempted
only that part of the entire gross estate which Transactions
Give at least(1996)
three (3) real estate
is situated in the Philippines to the extent of transactions which are not subject to the
the interest therein of the decedent at the Value-Added
SUGGESTED Tax.
ANSWER:
time of his death shall be included in his Real estate transactions which are exempt
taxable estate. Provided, that, with respect to from the value-added tax are:
Estate Tax: Vanishing (a) Sale of real property not primarily
intangible personal property, we apply the
Deductions
Vanishing (1994) held for sale or lease in the ordinary course
rule of reciprocity. (Ibid) in
deductions estate-
taxation? of trade or business;
(b) Sale of real property utilized for
socialized housing under RA. No. 7279;
(c) Sale of real property utilized under
the low-cost housing under BP Big. 220.
Note: The other real estate transactions

which are exempt from the value-added tax
which may be cited by the bar candidates are
(a)follows:
as Transfer of real property to a trustee
if the property is to be held merely in trust
(b) Transfer
for the of real property to a corporation
trustor.
in exchange for its shares of stock under
Section 34(c)(2) and (6)(2) of the Tax Code.
(c) Advance payment by the lessee in a
lease contract, when the same is actually a
loan to the lessor from the lessee.
(d) Security deposits for lease
arrangements to insure the faithful
performance of certain obligations of the
(e) Lease
lessee to of residential units, boarding
the lessor.
houses, dormitories, rooms and bed spaces
offered for rent by their owners at a monthly
rental not exceeding P3,950.00 per unit.
VAT: Liable for

Payment (1996)
Who are liable for the payment of Value-Added
SUGGESTED ANSWER:
Tax?
The persons liable for the value-added tax
Sellers
are: of goods and properties in the course of
trade or business;
Sellers of services in the course of trade or
business, including lessors of goods and
properties;
Importers of taxable goods, whether in the course
of business or not
VAT: Transactions "Deemed
Salesthe
Under (1997)
Value Added tax (VAT), the tax is
imposed on sales, barter, or exchange of
goods and services. The VAT is also imposed
on certain transactions "deemed-sales". What
SUGGESTED
are theseANSWER:
so-called transactions "deemed
The following transactions shall be deemed
sales'?
a)
sale: Transfer, use, or consumption not in
the course of business of goods originally
intended for sale or for use in the course of
business;
b) Distribution or transfer
to: (1) Shareholders or investors as share
in the profits of VAT-registered
(2) Creditors
persons; or in payment
of debt;
47
same exemption. Is the suit meritorious or unapplied/unused
State whether the following Input VAT (Tax
transactions are
not? Reason briefly. (5%) VAT Exempt,
a)
Reform b) subject
Act, Section 112[A] to VAT
[1997]).at 10%; or c) subject
SUGGESTED ANSWER: VAT at 0%: ANSWER:
to
ALTERNATIVE
B. Yes, the suit is meritorious. The VAT is No.
1) The exemption
Sale of Lily's Fashion,
of fresh vegetables by AlingInc. Ining is
designed for economic efficiency; hence, only
at the forPamilihang
taxes for which Bayan itngis Trece directly liable.
Martirez.
should be neutral to those who belong to the Hence,
2)
[1%] it can not claim
Services rendered exemption by for Jake'sa tax
same class. Professionals are a class of shifted
Constructionto it, which
Company, is nota at all considered
contractor to thea
taxpayers by themselves who, in compliance tax
World to Health
the buyer but a partinofthe
Organization therenovation
purchase
with the rule of equality of taxation, must be price.
3) Lily's
Sale of
of its offices fashion
in tractors
Manila. is [1%]
not
andthe other taxpayer
agriculturalin so
treated alike for tax purposes. Exempting implements
far as the passed-on
by Bungkaltax Incorporated
is concerned to localand
lawyers and doctors from a burden to which 4)
therefore,
farmers. Sale it of
[1%] canRTW not claim by Cely'sfor a Boutique,
refund of a a
other professionals are subjected will make the Filipino
tax (NOTA
merelydress BENE:
designer,
shifted This
to itinconcept
her dress
(Phil. pertains
Acetyleneshop to and
the
Co.,
5) VAT law
FeesL-19707,Aug.
for which
lodging is excluded by from
paid1987). the Bar
students to
law discriminatory and violative of the equal other
Inc. v.outlets.
CIR, [1%] 17,
coverage, Guidelines for 2006 Bar
protection clause of the Constitution. While Bahay-Bahayan Dormitory, a private entity
Examinations, June 15, 2006)
singling out a class for taxation purposes will operating a student dormitory (monthly fee
not infringe upon this constitutional limitation REMEDIES
SUGGESTED
PI,500). [1%] ANSWER: IN INTERNAL
1) VAT exempt. Sale of agricultural
(Shell v. Vano, 94 Phil. 389 [1954]), REVENUE TAXES
products, such as fresh vegetables, in their
singling out a taxpayer from a class will no BIR: Assessment: Unregistered
original state, of a kind generally used as, or
doubt transgress the constitutional limitation Partnership
Mr. Santos died (1997)
intestate in 1989 leaving his
producing foods for human consumption is
(Ormoc Sugar Co. Inc., v. Treasurer of spouse and five children as the only heirs.
exempt from VAT. (Section 109(c), NIRC).
Ormoc City, 22 SCRA 603 [1968]). Treating The estate consisted of a family home and a
doctors and lawyers as a different class of four-door
2) VATapartment
at 0%. Since whichJake's
was being rented
Construction
professionals will not comply with the to tenants.
Company hasWithinrendered the year,
services an to extrajudicial
the World
requirements of a reasonable, hence valid settlement of the estate
Health Organization, was executed
which is an entity from
classification,
ANOTHER ANSWER: because the classification is not the heirs, each of them
exempted from taxation under international receiving his/her due
based
No. Theupon suit issubstantial distinction
not meritorious. which
The equal share. The surviving
agreements to which the Philippines is a spouse assumed
makes real clause
protection differences.
of theThe classification
Constitution does
merely administration
signatory, the supply of the property.
of services Each year, the
is subject to
not complythat
requires with the
all requirement
persons subjectedthat it should
to net income from the
zero percent (0%) rate. (Sec. 108[B1(3), rental property was
be germaneshall
legislation to thebe purpose
treated of the under
alike, law either.
like distributed
3)
NIRC). VAT toatall,10%. proportionately,
Tractors and on whichother
(Pepsi-Cola
circumstancesBottling Co., Inc.both
and conditions, v. City
in theof In
they1994,paidtherespectively,
income tax returns of the heirs
agricultural implements the fall corresponding
under the
Butuan,
privileges24conferred
SCRA 789and [1968]).
in the liabilities were
income examined
tax. and deficiency income tax
definition of goods which include all tangible
imposed. The equality in taxation rule is not assessments were issued against each of
objects which are capable of pecuniary
violated if classifications or distinctions are them for the years 1989 to 1993, inclusive, as
estimation (Sec. 106[A1(1), NIRC, the sales of
v.
made Cityas of
longButuan,
as the 24 sameSCRA are 789
based on having entered into an unregistered
which
SUGGESTED are subject
ANSWER: to VAT at 10%.
[1968]).
reasonable and substantial differences. partnership.
4) This Were the
is subject were assessments
to VAT justified?
at 10%. This
In the instant Bottling
case, the Co.,
professions of doctors Yes, the assessments justified because
{Pepsi-Cola Inc. transaction
for income tax purposes, the co-ownership of
also falls under the definition of
and lawyers are not principally aimed at goods which includeisall tangible objects which
earning money but for the service of the inherited property automatically converted
are
into capable
an unregistered of pecuniary estimation
partnership from(Sec. the
people. The exemption granted to doctors 106[A1(1),
and lawyers from the operation of the VAT is moment the said properties are used asare
NIRC, the sales of which a
subject
common tofund
VAT at 10%.
with intent to produce profits
justified, as it is not discriminatory against 5) VAT Exempt. The monthly fee paid by
the other professionals because they have for
each the student
heirs in proportion
falls under to their
the leaseshares of in
From
the the moment
inheritance. of such partition, the heirs
reasonable and substantial differences in the residential
are entitled unitsalready
with a monthlyto their rental per unit
respective
VAT;
conductNon-VAT
of their taxpayer;
professions.Claim for not
Refund
Lily's (2006)
Fashion, Inc. is a garment manufacturer definite shares of the estate and the exempt
exceeding Php 8,000, which Is income
from
thereof, VAT for regardless
each of them of theto manageamountand of
located and registered as a Subic Bay aggregate rentals received by without
the lessor
Freeport Enterprise under Republic Act No. dispose of as exclusively his own the
during the year.
intervention of(Sec. the109(x), otherNIRC). heirs, The termand,
7227 and a non-VAT taxpayer. As such, it is unit shall mean per person in the case of
exempt from payment of all local and national accordingly, he becomes liable individually
dormitories,
for all taxes boardingin connection houses and bed Ifspaces
therewith. after
internal revenue taxes. During its operations, (Sec. 4.103-1, RRNo. 7-95).
itc)purchased
Consignment
various of goods and
supplies if actual sale
materials such partition, he allows
COMMENT: The problems do not call for a yeshis shares to be heldor
is not made
necessary in the within
conduct 60 ofdays following the
its manufacturing in common
no with his co-heir
answer. Accordingly, a bar under candidate a singlewho
date such
business. Thegoods were consigned;
suppliers of these goods and shifted management
answered only VAT to beexempt.usedVAT with the intent
at 10% or VAT at of
to Lily's Fashion, Inc. the 10% VAT on the making
0%. profitforthereby
as called in the problemin proportion to his
without further
d) Retirement from or reasons,
share, should
there can be be
given nofull credit.
doubt that, even if no
purchased items amounting to Pcessation
500,000.00.of ALTERNATIVE ANSWER:
VAT; Exemption:
business, with respect to inventories
Lily's Fashion, Inc. filed with the BIR a claim of document
No, or instrument
the assessments are were executedThe
not justified. for
Constitutionality
A
thelaw was passed
purpose, (2004)
exempting doctors and
taxable goods existing as of such retirement
for refund for the input tax shifted to it by the mere sharing for of tax
income purposes,
does not at least,
of itself an
ALTERNATIVE ANSWER: lawyers
unregistered frompartnership
the operation of the value
or cessation.
suppliers. establish a partnership is formed
absent any(Lorenzo
clear
No, I will Ifnot
VAT;
youallow
werethe
Covered
the refund.
Commissioner
Only VAT-of addedet tax.
Ona, Other professionals
SCRA 74). whocomplained
Internal Revenue, will are
youentitled
allow the refund? intentional v. of CIR, the 45co-owners are only
Registered taxpayers
Transactions (1998) to a refund and filed a suit questioning the law for being
(5%) awaiting liquidation of the estate.
of their discriminatory
BIR: Collection and violative
of Tax of the equal
protection
Deficiency (1999) clause of the Constitution since
complainants were not given the
A died, survived by his wife and three final assessments issued against large
children. The estate tax was properly paid taxpayers wherein the Commissioner cannot
and the estate settled and divided and compromise for less than fifty percent (50%).
distributed among the four heirs. Later, the Any compromise involving large taxpayers
BIR found out that the estate failed to report lower than fifty percent (50%) shall be
the income received by the estate during subject to the approval of the Secretary of
administration. The BIR issued a deficiency All criminal violations except those involving
Finance.
income tax assessment plus interest, fraud, can be compromised by the
surcharges and penalties. Since the 3 Commissioner but only prior to the filing of
SUGGESTED ANSWER: the information with the Court. The
children are residing abroad, the BIR sought
Yes, the BIR is correct. In a case where the Commissioner may also abate or cancel a tax
to collect the full tax deficiency only against
estate has been distributed to the heirs, the 1the taxwhen
liability or any portion thereof appears to
the widow. Is the BIR correct? (10%)
collection remedies available to the BIR in have been unjustly or excessively assessed;
collecting tax liabilities of an estate may or
either (1) sue all the heirs and collect from 2the administrative and collection costs
each of them the amount of tax proportionate involved do not Justify collection of the
to the inheritance received or (2) by virtue of amount due. (Sec. 204, NIRC)
the lien created under Section 219, sue only
one heir and subject the property he received
from the estate to the payment of the estate
tax. The BIR, therefore, is correct in pursuing
the second remedy although this will give rise
to the right of the heir who pays to seek
reimbursement from the other heirs. (CIR v.
Pineda, 21 SCRA 105). In no case, however,
BIR: Compromise;
can the BIR enforce the tax liability in excess
Conditions
Under (2000)
what conditions may the
of the share of the widow in the inheritance.
Commissioner of Internal Revenue be
A. Compromise
authorized to: the payment of any
internal revenue tax? (2%)
SUGGESTED ANSWER:
The Commissioner of Internal Revenue may be
authorized to compromise the payment of any
internal revenue tax where: 1) A reasonable
doubt as to the validity of the claim
against the taxpayer exists; or 2) the
financial position of the taxpayer
clear inability
demonstrates a to pay the assessed
tax.
B. Abate or cancel a tax liability?
(3%)
SUGGESTED ANSWER:
The Commissioner of Internal Revenue may
abate or cancel a tax liability when: 1) The
tax or any portion thereof appears to be
or excessively assessed; or 2) The
unjustly
administration and collection costs involved
do not justify the collection of the amount due.
204 (B), NIRC of 1997]
[Sec.
BIR: Compromise; Extent of

Authority
Explain the (1996)
extent of the authority of the
Commissioner of Internal Revenue to
compromise
SUGGESTED and abate taxes?
ANSWER:
The authority of the Commissioner to
compromise encompasses both civil and
criminal liabilities of the taxpayer. The civil
compromise is allowed only in cases 12)
where the tax assessment is of doubtful
demonstrates
validity, or 13) whena the
clear inabilityposition
financial to pay the
of
the taxpayer tax.
The compromise of the tax liability is possible
at any stage of litigation and the amount of
compromise is left to the discretion of the
Commissioner except with respect to
B. As counsel for Valera, what action criminal prosecution (CIR v. Fortune
would you take in order to protect the interest Tobacco Corp., GR No. 119322,
of your client? Explain your answer. (2%) June 4, 1996).
SUGGESTED ANSWER: BIR: Extinction; Criminal Liability of
B. I will wait for the filing of the civil action for the Chan,
Mr. Taxpayer (2002)
a manufacturer of garments, was
collection and consider the same as an investigated for failure to file tax returns and
appealable decision. I will not file an injunctive to pay taxes for the taxable year 1997.
suit because it is not an available remedy. I Despite the subpoena duces tecum issued to
would then appeal the case to the Court of him, he refused to present and submit his
Tax Appeals and move for the dismissal of the books of accounts and allied records.
collection case with the RTC. Once the appeal Investigators, therefore, raided his factory and
to the CTA is filed on time, the CTA has seized several bundles of manufactured
exclusive jurisdiction over the case. Hence, garments, supplies and unpaid imported
the collection case in the RTC should be textile materials. After his apprehension and
BIR: Court(Tabes
dismissed of Taxv.Appeals: Collection
Flojo, 115 SCRA 278 of
Taxes; Grounds for Compromise (1996) based on the testimony of a former employee,
[1982]). deficiency income and business taxes were
1. May the Court of Tax Appeals issue an
assessed against Mr. Chan on April 15, 2000.
injunction to enjoin the collection of taxes by BIR: Compromise; Withholding
It was then that he paid the taxes. Criminal
the Bureau of Internal Revenue? Explain. Agentthe
May (1998) Commissioner of the Internal
SUGGESTED ANSWER: action was nonetheless instituted against him
Revenue compromise the payment of
Yes. When a decision of the Commissioner on in the Regional Trial Court for violation of the
withholding tax (tax deducted and withheld at
a tax protest is appealed to the CTA pursuant Tax Code. Mr. Chan moved to dismiss the
source) where the financial position of the
to Sec. 11 of RA. No. 1125 (law creating the criminal case
SUGGESTEDdemonstrates
ANSWER: on the ground that he had
taxpayer a clear inability to pay
CTA) in relation to Sec. 229 of the NIRC, such already
The paid
motion tothe taxes assessed against him.
SUGGESTED
the assessed tax? [5%1 should be denied. The
ANSWER: dismiss
appeal does not suspend the payment, levy, He
No. also
A demanded
taxpayer
satisfaction of the civil the
who return of the one
is constituted
liability is not garments
of asthe
distraint and/or sale of any of the taxpayer's and materials
withholding
grounds for the seized
agent from has
who
extinction hisoffactory.
deducted
criminal How will
and
action
property for the satisfaction of his tax liability. you resolve
withheld
(People at Mr.
v. Chan's
source
Ildefonso the motion?
tax on(5%)
Tierra, 12the income
SCRA 666
However, when in the opinion of the CTA the payment Likewise,
[1964]). made bythe him holds the
payment of thetaxes as
tax due
collection of the tax may jeopardize the trust apprehension
after funds for the shall government (Sec. 58[D])
not constitute a valid
interest of the Government and/or the and is obligated
defense to remit them
in any prosecution for to the BIR.ofThe
violation any
taxpayer, the Court at any stage of the subsequent
provision of inability
the Tax Code of the(Sec.
withholding
253[a], agent
NIRC).
proceedings may suspend or restrain the to pay/remit
However, thethe tax withheld
garments is not a ground
and materials seized
collection of the tax and require the taxpayer for compromise
from the factorybecause should be the ordered
withholding tax
returned
either to deposit the amount claimed or to file is not a tax
because theupon paymentthe withholding
of the tax had agent but it
released
2. May the tax liability of a taxpayer be BIR: Corporation: Distraint
a surety bond for not more than double the is onlyfrom
them a procedure
any lienfor thethe
that collection
Governmentof a tax. has
compromised during the pendency of an Customs;
&
On Levy (2002)
March Jurisdiction;
15, 2000, the Assessment;
BIR issued a
amount
SUGGESTEDwith the Court.
ANSWER: over them.
appeal? Explain. Unpaid
deficiencyCustomsDuties/Taxes
income tax assessment (2006) for the
Yes. During the pendency of the appeal, the The
taxableCollector
year 1997ofagainst Customs
the Valera issued
Groupanof
taxpayer may still enter into a compromise assessment
Companies (Valera)for unpaid in customs
the amount duties of and
P10
settlement of his tax liability for as long as taxes
million.on Counsel
the importation for Valeraof yourprotested
client in the the
any of the grounds for a compromise i.e.; amount
assessment of P980,000.00.
and requested Where will you file
a reinvestigation
doubtful validity of assessment and financial your
of thecase
case.toDuring protect the your client's right?
investigation, it was
incapacity of taxpayer, is present. A 1. Court
Choose of Tax
the correct
shown that Valera had been transferringcourts/ agencies, its
compromise of a tax liability is possible at 2. Collectortheir
Appeals
observing
properties of other
to proper hierarchy.
persons. As no (5%) additional
any stage of litigation, even during appeal, 3. Commissioner
Customs
evidence to dispute of the assessment had been
although legal propriety demands that prior 4. Regional Trial
Customs
presented, the BIR issued on June 16, 2000
BIR:
leave Criminal Prosecution:
of court should be obtainedTax(Pasudeco 5. Metropolitan Trial
Court
warrants of distraint and levy on the
Evasion
Is (1998)
vs. CIR L-39387, June 29, 1982).a taxpayer
assessment necessary before 6. Court
Court of
may be prosecuted for willfully attempting in properties and ordered the filing of an action
7.
in Supreme
Appeals
the Regional Trial Court for the collection of
any manner to evade or defeat any tax Court
SUGGESTED ANSWER:
imposed by the Internal Revenue Code? [5%) the tax. Counsel for Valera filed an injunctive
1.
A. Protest
Canwith thethe BIR Collector
file theof civil
Customs action(Sec.for
SUGGESTED ANSWER: suit in the Regional Trial Court to compel the
No. Assessment is not necessary before a collection,
2308, TCC)pending decision on the
BIR to hold the collection of the tax in
taxpayer maybe prosecuted if there is a prima administrative
2. Appeal to the protest?
CommissionerExplain.of (3%)
Customs
abeyance
SUGGESTED until
ANSWER: the decision on the protest was
facie showing of a willful attempt to evade (Sec.
rendered. 2313, TCC).
A. Yes, because there is no prohibition for this
taxes as in the taxpayer's failure to declare a 3. Appeal to
procedure the CTA (RA
considering 9282)
that the filing of a civil
specific item of taxable income in his income 4. Petition
action for Review
for collection on Certiorari
during the pendency Supreme of an
tax returns (Ungab v. Cusi 97 SCRA 877). Court (Rule 45
administrative of the constitutes
protest 1997 Rules of theCivilfinal
On the contrary, if the taxes alleged to have Procedure
decision of the(RA 9282).
Commissioner on the protest
been evaded is computed based on reports (CIR v. Union Shipping Corp., 85 SCRA
approved by the BIR there is a presumption of 548 [1990]).
regularity of the previous payment of taxes,
so that unless and until the BIR has made a
final determination of what is supposed to be
the correct taxes, the taxpayer should not be
placed in the crucible of
surcharge and interests. If the delinquent Royal Mining is a VAT-registered domestic
taxpayer is your client, what steps will you mining entity. One of its products is silver
take? What is your defense? (10%) being sold to the Bangko Sentral ng Pilipinas.
ALTERNATIVE ANSWER: It filed a claim with the BIR for tax refund on
As Counsel, I shall move to cancel the the ground that under Section 106 of the Tax
Assessment because of prescription. The Code, sales of precious metals to the Bangko
three (3) year period of assessment for the Sentral ng Pilipinas are considered export
Income Tax Returns of 2000 starts on April 15, sales subject to zero-rated VAT. Is Royal
2001 and ends on April 16, 2004. The SUGGESTED ANSWER:
Mining's claim meritorious? Explain. (5%)
assessment of July 31, 2006 is beyond the No, Royal Mining's claim is not meritorious
three (3) year prescriptive period and can no because it is the sale to the Bangko Sentral
longer have any legal, binding effect (Tax ng Pilipinas of gold and not silver which is
ALTERNATIVE ANSWER:
Reform Act, Title VIII, Chapter I, Section 203 (Tax Reformexport
considered Act, Title
salesIV,atSection 106[2][a]
Zero-rated VAT
Since my client has lost his right to protest, I [4]). (NOTA BENE: EVAT is excluded from the
[1997]).
will advise him to wait for a collection action Bar coverage, Guidelines for 2006 Bar
by the Commissioner. Then, I will file a Examinations, June 15, 2006)
petition for review with the CTA to question BIR: Fraudulent Return; Prima Facie
the collection. Since the assessment was Evidence
What (1998)prima facie evidence of a
constitutes
issued beyond the prescriptive period to false or fraudulent return? [2%]
assess, the action to collect an invalid SUGGESTED ANSWER:
assessment is not warranted (Phil. Jour- There is prima facie evidence of a false or
Taxpayer; Assessment;
nalists, Inc. v. CIR, G.R. No. 162852,
fraudulent return when the taxpayer has
Deficiency
On June 1, Tax
2003,
December 16, 2004). (2006)
Global Bank received a final willfully and knowingly filed it with the intent
notice of assessment from the BIR for to evade a part or all of the tax legally due
deficiency documentary stamp tax in the from him (Ungab v. Cusi,, 97 SCRA 877).
amount of P5 Million. On June 30, 2003, There must appear a design to mislead or
Global Bank filed a request for deceive on the part of the taxpayer, or at
reconsideration with the Commissioner of least culpable negligence. A mistake not
Internal Revenue. The Commissioner denied culpable in respect of its value would not
the request for reconsideration only on May BIR: Fraudulent
constitute Return;
a false return. Prima
(Words Facie
and Phrases,
30, 2006, at the same time serving on Global Evidence
What (2002)
constitutes
Vol. 16, page 173). prima facie evidence of a
Bank a warrant of distraint to collect the false or fraudulent return to justify the
ALTERNATIVE ANSWER:
deficiency tax. If you were its counsel, what imposition of a 50% surcharge on the
The denial for the request for reconsideration deficiency tax due from a taxpayer? Explain.
will be your advice to the bank? Explain. (5%)
is the final decision of the CIR.. I would advise SUGGESTED
(5%) ANSWER:
Global Bank to appeal the denial to the Court There is a prima facie evidence of false or
of Tax Appeals (CTA) within 30 days from fraudulent return when the taxpayer
receipt. I will further advise the bank to file a SUBSTANTIALLY UNDERDECLARED his taxable
motion for injunction with the Court of Tax sales, receipts or income, or SUBSTANTIALLY
Appeals to enjoin the Commissioner from OVERSTATED his deductions, the taxpayer's
enforcing the assessment pending resolution failure to report sales, receipts or income in
of the appeal. While an appeal to the CTA will an amount exceeding 30% of that declared
not suspend the payment, levy, distraint, per return, and a claim of deduction in an
and/or sale of any property of the taxpayer for amount exceeding 30% of actual deduction
the satisfaction of its tax liability, the CTA is shall render the taxpayer liable for substantial
authorized to give injunctive relief if the underdeclaration and overdeclaration,
enforcement would jeopardize the interest of respectively, and will justify the imposition of
CTA Rules, approved by the Supreme Court BIR: Garnishment: Bank Account of a
the taxpayer, as in this case, where the the 50% surcharge on the deficiency tax due
on December 15, 2005). Taxpayer
Is thethe (1998) to issue a warrant of
BIRtaxpayer.
authorized
assessment has not become final (Lascona
ALTERNATIVE ANSWER: from (Sec. 248, NIRC).
garnishment against the bank account of a
I will Co.
Land advice the CTA
v, CIR, Bank to promptly
Case No. 5777, pay the
January
taxpayer despite the pendency of his protest
deficiency
4, 2000; See documentary
also Revised stamp tax and the
against the assessment with the BIR or appeal
interest charges to avoid any further increase SUGGESTED ANSWER:
with the Court of Tax Appeals? [5%]
in the tax liability. The Bank should have The BIR is authorized to issue a warrant of
appealed to the Court of Tax Appeals when garnishment against the bank account of a
the BIR failed to decide on its Request for taxpayer despite the pendency of protest
Reconsideration within thirty (30) days after (Yabes v. Flojo, 15 SCRA 278). Nowhere in
the inaction of the BIR for one hundred eighty the Tax Code is the Commissioner required to
Taxpayer; Prescriptive Period;
(180) days or on December 31, 2003. The Tax rule first on the protest before he can institute
Assessment; DeficiencyIncome Tax
Assessment has already become final, collection proceedings on the tax assessed.
(2006)
The Commissioner of Internal Revenue issued
executory and unappealable at that point (BPI The legislative policy is to give income
the
Taxpayer; VAT-registered; Claim for an assessment for deficiency tax for
v. CIR, G.R. No. 139736, October 17, 2005). Commissioner
Tax Refund (2006) taxable year 2000 last July 31,the
much latitude in speedy
2006 in the
and prompt
amount of P collection
10 Million of taxes because
inclusive of it is in
taxation that the Government depends to
obtain the
means to carry on its operations (Republic u. refused to pay the modified assessment.
Tim Tian Teng Sons, Inc., 16 SCRA 584). Consequently, the BIR brought an action for
ALTERNATIVE ANSWER: collection in the Regional Trial Court on
No, because the assessment has not yet September 15, 2000. Adamson moved to
become final, executory and demandable. dismiss the action on the ground that the
The basic consideration in the collection of government's right to collect the tax by
taxes is whether the assessment is final and SUGGESTED ANSWER:
judicial action has prescribed. Decide the
unappealable or the decision of the The
case.right
(5%) of the Government to collect by
Commissioner is final, executory and judicial action has not prescribed. The filing of
demandable, the BIR has legal basis to collect the request for reconsideration suspended the
the tax liability by either administrative or running of the prescriptive period and
BIR:
judicialPre-Assessment
action. Notice not commenced to run again when a decision on
Necessary
In (2002) of the withholding tax
the investigation the protest was made on August 5, 1999. It
returns of AZ Medina Security Agency (AZ must be noted that in all cases covered by an
Medina) for the taxable years 1997 and 1998, assessment, the period to collect shall be five
a discrepancy between the taxes withheld (5) years from the date of the assessment but
from its employees and the amounts actually this period is suspended by the filing of a
remitted to the government was found. request for reconsideration which was acted
Accordingly, before the period of prescription upon by the Commissioner of Internal
commenced to run, the BIR issued an BIR: Prescriptive Period; Assessment &
Revenue (CIR v. Wyeth Suaco Laboratories,
assessment and a demand letter calling for Collection
A (1999) Corporation, filed its 1995
Co., a Philippine
Inc., 202 SCRA 125 [1991]).
the immediate payment of the deficiency Income Tax Return (ITR) on April 15, 1996
withholding taxes in the total amount of showing a net loss. On November 10, 1996, it
P250,000.00. Counsel for AZ Medina amended its 1995 ITR to show more losses.
protested the assessment for being null and After a tax investigation, the BIR disallowed
void on the ground that no pre-assessment certain deductions claimed by A Co., putting
A. Is the contention of the counsel A Co. in a net income position. As a result, on
notice had been issued. However, the protest
tenable? Explain (2%) August 5, 1999, the BIR issued a deficiency
was denied.
SUGGESTED Counsel then filed a petition for
ANSWER:
prohibition with the Court of of Tax income assessment against A Co. A Co.
A. No, the contention the Appeals
counsel tois SUGGESTED ANSWER:
protested the assessment on the ground that
restrain the collection of the tax.
untenable. Section 228 of the Tax Code The right of the BIR to assess the tax has not
it has prescribed: Decide. (5%)
expressly provides that no pre-assessment The rule is that internal revenue taxes shall
prescribed.
notice is required when a discrepancy has be assessed within three years after the last
been determined between the tax withheld day prescribed by law for the filing of the
and the amount actually remitted by the return. (Section 203, NIRC), However, if the
withholding agent. Since the amount return originally filed is amended
assessed relates to deficiency withholding substantially, the counting of the three-year
taxes, the BIR is correct in issuing the period starts from the date the amended
assessment and demand letter calling for the return was filed. (CIR v. Phoenix Assurance
B. Will the
immediate specialof civil
payment the action for
deficiency Co., Ltd., 14 SCRA 52). There is a substantial
prohibition brought before the
withholding taxes. (Sec. 228, NIRC). CTA under amendment in this case because a new
Sec. 11 of R.A, No. 1125 prosper? Discuss return was filed declaring more losses, which
your answer. (3%) BIR:
can only be Prescriptive
done either (1) in Period;
reducing gross
SUGGESTED ANSWER: Criminal
TY Action (2002)
income or (2) in increasingadjusted
Corporation filed its final income
the items of
B. The special civil action for prohibition will tax return for 1993 on April 12, 1994 showing
deductions, claimed.
not prosper, because the CTA has no a net loss from operations. After investigation,
jurisdiction to entertain the same. The power the BIR issued a pre-assessment notice on
to issue writ of injunction provided for under March 30, 1996. A final notice and demand
Section 11 of RA 1125 is only ancillary to its letter dated April 15, 1997 was issued,
appellate jurisdiction. The CTA is not vested personally delivered to and received by the
with original jurisdiction to issue writs of company's chief accountant. For willful refusal
prohibition or injunction independently of and and failure of TY Corporation to pay the tax,
apart from an appealed case. The remedy is warrants of distraint and levy on its properties
to appeal the decision of the BIR. (Collector were issued and served upon it. On January
BIR:
v. Prescriptive
Yuseco, 3 SCRA Period: Civil
313 [1961]). 10, 2002, a criminal charge for violation of the
Action
On (2002)5, 1997, Adamson Co., Inc.
August
Tax Code was instituted in the Regional Trial
(Adamson) filed a request for reconsideration The company moved to dismiss the criminal
Court with the approval of the Commissioner.
of the deficiency withholding tax assessment complaint on the ground that an act for
on July 10, 1997, covering the taxable year violation of any provision of the Tax Code
1994. After administrative hearings, the prescribes after five (5) years and, in this
original assessment of P150,000.00 was case, the period commenced to run on March
reduced to P75.000.00 and a modified 30, 1996 when the pre-assessment was
assessment was thereafter issued on August issued. How will you resolve the motion?
05, 1999. Despite repeated demands, Explain your answer. (5%)
Adamson failed and
P2.0 Million as the selling price.
SUGGESTED ANSWER: Discuss the tax implications and
The motion to dismiss should not be granted. ALTERNATIVE
consequencesANSWER:
of the action. (5%)
It is only when the assessment has become The action of the parties constitutes tax
final and unappealable that the 5-year period evasion and exposes Josel to:
to file a criminal action commences to run
(Tupaz v. Ulop, 316 SCRA 118 [1999]). (1) DEFICIENCY FINAL INCOME TAX on the
The pre-assessment notice issued on March sale of real property in the Philippines
30, 1996 is not a final assessment which is classified as a capital asset. Under Sec. 24(D)
enforceable by the BIR. It is the issuance of of the NIRC, the final tax of six percent (6%)
the final notice and demand letter dated April shall be based on the gross selling price of
15, 1997 and the failure of the taxpayer to (2) FRAUD
P2.5 Million or PENALTY
zonal valueamounting to 50%
of P2.0 Million,
protest within 30 days from receipt thereof surcharge
whichever on the amount
is higher, evaded
i.e., P2.5 (Sec.
Million;
that made the assessment final and (3)
248[B] DEFICIENCY
NIRC); and INTEREST of 20% per
unappealable. The earliest date that the annum on the deficiency. (Sec. 249[A][B],
assessment has become final is May 16, 1997 NIRC)
BIR: Secrecy of Bank
and since the criminal charge was instituted
Deposits
Can Law (1998) of Internal Revenue
the Commissioner
on January 10, 2002, the same was timely
inquire into the bank deposits of a taxpayer?
filed.
If so, does this power of the Commissioner
conflict with R.A. 1405 (Secrecy of Bank
SUGGESTED ANSWER:
Deposits Law) [5%]
The Commissioner of Internal Revenue is
authorized to inquire into the bank deposits
of:
of financial incapacity to pay his tax liability (Sec. 6(F). NIRC).
orized representatives to Inquire into the bank deposits. (Note: This answer was not part of the answers enumerated in the
The limited power of the Commissioner does

not conflict with R.A. No. 1405 because the
provisions of the Tax Code granting this
power is an exception to the Secrecy of Bank
Deposits Law as embodied in a later
Furthermore,
legislation. in case a taxpayer applies for
an application to compromise the payment of
his tax liabilities on his claim that his financial
position demonstrates a clear inability to pay
the tax assessed, his application shall not be
considered unless and until he waives in
writing his privilege under R.A. No. 1405, and
such waiver shall constitute the authority of
the Commissioner to inquire into the bank
BIR; Consequence;
deposits of the taxpayer. Taxpayer guilty of
Tax Evasion
Josel agreed to (2005)
sell his condominium unit to
Jess for P2.5 Million. At the time of the sale,
the property had a zonal value of P2.0 Million.
Upon the advice of a tax consultant, the
parties agreed to execute two deeds of sale,
one indicating the zonal value of P2.0 Million
as the selling price and the other showing the
true selling price of P2.5 Million. The tax
consultant filed the capital gains tax return
using the deed of sale showing the zonal
value of
Yes, if the tax assessment has already assessment so long as there is a prima facie
become final, executory and enforceable. The showing of violation of the provisions of the
approval of the court sitting in probate over Tax Code. After all, a criminal charge is
the supposed will of the deceased is not a instituted not to demand payment, but to
mandatory requirement for the collection of penalize the tax payer for violation of the Tax
the estate tax. The probate court is Code. (Commissioner of Internal Revenue v.
determining issues which are not against the Pascor Realty and Development Corporation,
property of the decedent, or a claim against G.R. No. 128315, June 29, 1999) Furthermore,
the estate as such, but is against the interest there is nothing in the problem that shows
or property right which the heir, legatee, that the BIR in filing the case is also interested
However, it is in error when it ruled that the
devisee, etc. has in the property formerly held in collecting the tax deficiency.
BIR: joint affidavit of the BIR examiners may be
by the Unpaid
decedent.Taxes
(Marcos vs. v.Claims forNo.
CIR, G.R,
Unpaid
For Wages
failure of(1995)
Oceanic Company, Inc. considered as an assessment of the tax liability
120880, June 5, 1997). of the corporation. The joint affidavit showing
(OCEANIC), to pay deficiency taxes of P20
Million, the Commissioner of Internal Revenue the computation of the tax liabilities of the
issued warrants of distraint on OCEANIC's erring taxpayer
ALTERNATIVE is not a tax assessment
ANSWER:
There is tax evasion
because it was not sent because
to theof the concurrence
taxpayer, and of
personal properties and levied on its real the following factors: 1) The of payment
properties. Meanwhile, the Department of does not demand payment the taxofwithin
less than
a
that known
certain by the
period taxpayer
of time. to be legally is
An assessment due, or the
Labor through the Labor Arbiter rendered a non-payment ofonly
tax when itthe
is shown that a tax is
deemed
v. Pascormade Realty andwhen
DevelopmentBIR releases,
Corporation, G.R.
decision ordering OCEANIC to pay unpaid due. It is evident that the parties that
mails or sends
128315,
No. such
June 29, notice
1999) to the
Notes taxpayer. due
and the tax
wages and other benefits to its employees. should be computed
Comments:
(Commissioner A plea isbased
made
of Internal on
forthe
Revenue valuation
liberality in of P2.5
Four barges belonging to OCEANIC were levied million andthe
correcting notexaminees
P2.0 million; 2)
answers An accompanying
because the
The
uponCommissioner
by the sheriff of Internal
and later Revenue
sold atfiled a
public state of mindiswhich
examination is described as being "evil" on
very long.
motion
auction. with the Labor Arbiter to annul the sale
"bad faith," "willful," or "deliberate and not
and enjoin the sheriff from disposing the BIR; Authority;
accidental." DespiteRefund
the aboveorknowledge,
Credit the
proceeds thereof. The employees of OCEANIC of Taxes
State
partiesthe (2005) misrepresented
conditions
deliberately required by the the true
Tax basis
Codeof
opposed the motion contending that Art. 110 before
the sale;the
andCommissioner
3) A course ofofaction
Internal Revenue
or failure of
of the Labor Code gives first preference to could
action authorize the refund
which is unlawful. orshown
This is creditbyofthe
taxes
claims for unpaid wages. Resolve the motion. SUGGESTED
preparationANSWER:
erroneously ofor
theillegally received.
two deeds of sale which showed
SUGGESTED
Explain. ANSWER: Under Sec. 204(C), NIRC, the following
The motion filed by the Commissioner should different values.
(Commissioner of Internal Revenue v. The
conditions must be met:
be granted because the claim of the Estate ofBenigno P, Tbda, Jr., G.R. No. 147188,
1. There must be a written claim for refund
government for unpaid taxes are generally September 14, 2004)
filed by the taxpayer with the Commissioner.
preferred over the claims of laborers for 2.
The tax The claim for
evasion refund must
committed be result
should a to
unpaid wages. The provision of Article 110 of categorical
the imposition demand for reimbursement.
of a 50% fraud surcharge on
the Labor Code, which gives laborers' claims 3.
theThe claimevaded
amount for refund must
(Sec. be filed
248[B], within
NIRC)
for preference applies only in case of two (2) years from date of payment
payment of the Deficiency Tax, and interestof the tax
of
bankruptcy or liquidation of the employer's or penalty regardless of any supervening
20% per annum on the deficiency. (Sec.
business. In the instant case, Oceanic is not cause.
249[A][B], NIRC) The parties may likewise be
under bankruptcy or liquidation at the time subject to criminal prosecution for willfully
the warrants of distraint and levy were issued (Sees. 254,
failing to pay255
theand
tax,257,
as well as for filing a
hence, the opposition of the employees is NIRC)
false and fraudulent return.
BIR; Assessment; Criminal
unwarranted. (CIR vs. NLRC et al G.R. No. BIR: Summary Remedy: Estate Tax
Complaint
In 1995, the(2005)BIR filed before the Department
74965, November 9, 1994). Deficiencies
Is (1998)to collect estate tax
the BIR authorized
of Justice (DOJ) a criminal complaint against a
corporation and its officers for alleged evasion deficiencies by the summary remedy of levy
upon and sale of real properties of the
of taxes. The complaint was supported by a
sworn statement of the BIR examiners decedent without first securing the authority
of the court sitting in probate over the
showing the computation of the tax liabilities SUGGESTED ANSWER:
of the erring taxpayer. The corporation filed a supposed will of the decedent?
Yes. The BIR is authorized to collect estate tax
motion to dismiss the criminal complaint on deficiency through the summary remedy of
the ground that there has been, as yet, no levying upon and sale of real properties of a
assessment of its tax liability; hence, the decedent, without the cognition and authority
criminal complaint was premature. The DOJ of the court sitting in probate over the
denied the motion on the ground that an supposed will of the deceased, because the
assessment of the tax deficiency of the collection of estate tax is executive in
corporation is not a precondition to the filing character. As such the estate tax is exempted
of a criminal complaint and that in any event,
SUGGESTED ANSWER: from the application of the statute of non-
the
The joint
DOJ affidavit of theinBIRruling
is correct examiners
that may an claims, and this is justified by the necessity of
be
assessment of the tax deficiency the
considered as an assessment of of the tax government funding, immortalized in the
liability of the corporation. Is the ruling ALTERNATIVE ANSWER:
corporation is not a precondition to the of the
filing maxim that taxes are the lifeblood of the
DOJ correct? Explain. (5%)
of a criminal complaint. There is no need for government (Marcos v. CIR, G.R. No.
an 120880, June 5, 1997).
As represented by NX in his offer, only 50% of
the judgment award is all he could really BIR; Deficiency Tax Assessment vs. Tax
afford. This is an offer for compromise based Refund / Tax Credit (2005)
on financial incapacity which the Is a deficiency tax assessment a bar to a
Commissioner shall not accept unless claim for tax refund or tax credit? Explain.
accompanied by a waiver of the secrecy of SUGGESTED ANSWER:
bank deposits (Section 6[F}, NIRC). The Yes, the deficiency tax assessment is a bar to a
waiver will enable the Commissioner to tax refund or credit. The Taxpayer cannot be
entitled to a refund and at the same time liable
ascertain the financial position of the
for a tax deficiency assessment for the same
taxpayer, although the inquiry need not be
year. The deficiency assessment creates a
limited only to the bank deposits of the
doubt as to the truth and accuracy of the Tax
taxpayer but also as to his financial position
If Return. Said Return
(Commissioner cannot Revenue
of Internal thereforev.beAlltel
the
asindeed,
reflectedtheinfinancial position
his financial of NX asor
statements
determined by the Commissioner basis of the
[2002], refundCommissioner of Internal
citing
other records upon which his property Revenue v. Court of Appeals, City Trust
demonstrates
holdings can be a clear inability to pay the tax,
ascertained. G.R. No. Corporation
Banking 106611, Julyand
21, Court of Tax
the acceptance of the offer is legal and
Appeals,
1994)
ethical because the ground upon which the BIR; Distraint; Prescription of
compromise was anchored is within the the Sebastian
Mr. Action (2002) is a Filipino seaman employed
context of the law and the rate of by a Norwegian company which is engaged
compromise is well within and far exceeds exclusively in international shipping. He and
BIR; Compromise
the minimum prescribed by law which is only
(2005)
State and his wife, who manages their business, filed a
10% of thediscuss
basic taxbriefly whether the
assessed. joint income tax return for 1997 on March 15,
following cases may be compromised or may
not be compromised: a) Delinquent accounts; 1998. After an audit of the return, the BIR
b) Cases under administrative protest, after issued on April 20, 2001 a deficiency income
the final
issuance of assessment notice to the taxpayer, tax assessment for the sum of P250.000.00,
still which
pending;
are c) Criminal tax fraud cases; d) inclusive of interest and penalty. For failure of
Criminal violations already filed in court; e) Mr. and Mrs. Sebastian to pay the tax within
Cases where final reports of reinvestigation or the period stated in the notice of assessment,
A.
the BIRWhat
issued is on
theAugust
rule of19,income
2001taxation
warrantswith of
respect
distraint to Mr.
and Sebastian's
levy to enforceincome in
collection 1997of as
the a
reconsideration have been issued resulting in the
seaman on board the Norwegian vessel
reduction of the original assessment agreed to tax.
taxpayer when he signed the required engaged in international shipping? Explain
by the SUGGESTED ANSWER:
form. (5%)
agreement your answer. (2%)
A. The income of Mr. Sebastian as a seaman
SUGGESTED ANSWERS:
is considered as income of a non-resident
The following cases may still be compromised
citizen derived from without the Philippines.
(R.R. 30-02 [2002]) because of the taxpayer's
The total gross income, in US dollars (or if in
financial incapacity to pay the tax due or the
other foreign currency, its dollar equivalent)
assessment's doubtful validity: a)
from without shall be declared by him for
DELINQUENT ACCOUNTS may be compromised BIR; Compromise
income tax purposes using a separate income
because there is no showing that there is a (2004)
After the tax assessment
tax return which will nothad become
include his final
income
duly-approved schedule of installment and
from business derived within (to be of
unappealable, the Commissioner covered
payments; and b) Cases under Internal Revenue initiated
by another return). He is the filing of
entitled to adeduct
civil
administrative protest, after issuance of the action to collect the tax due from NX. After
from his dollar gross income a personal
final assessment notice to the taxpayer, which several years,
The following cases MAY NO LONGER BE exemption of a$4,500
decisionand was foreign
renderednational
by the
are still pending. court ordering NX to pay the tax due plus
COMPROMISED (R.R. 30-02 [2002]) because income taxes paid to arrive at his adjusted
the taxpayer has not paid his taxes for reasons penalties
income during and surcharges.
the year. His Theadjusted
judgment income
[Note:
became The bar and
final candidates
executory, are notbut expected
attempts totobe
other than his financial incapacity or the will be
familiar subject
with tax to the
history. graduated
Considering taxthatrates
this of
is
doubtful validity of the assessment: a) execute
1% to 3%. the(Sec.
judgment21 (b),award
Tax were of
Code futile.
1986[PD
already the fourth year of implementation
Subsequently, NX offered the Commissioner a of the
CRIMINAL TAX FRAUD cases as may be 1158],
Tax Codeasofamended
compromise 1997, barby
settlement PDof 1994).
candidates
50%were of thetaught and
determined by the Commissioner or his prepared to answer
judgment award, representing thatquestions based thison the
authorized agents may not be compromised; present law. It is therefore requested that the
amount is all he could really afford. Does the
b) CRIMINAL VIOLATIONS ALREADY FILED IN examiner be more lenient in checking the answers
Commissioner
to this question. have Perhaps,the anpower
answer to accept
based on the
the
COURT so that the taxpayer will not profit from compromise
B. If you offer?
are the Is it legal and ethical?
lawyer of Mr. and Mrs.
present law be given full credit.]
his fraud which would encourage tax evasion; SUGGESTED
Explain
Sebastian,
ANSWER:
briefly.
what(5%) possible defense or defenses
and c) Cases where final reports of Yes. The Commissioner has the power to
will you raise in behalf of your clients against
reinvestigation or reconsideration have been accept the offer of compromise if the financial
the action of of
thethe BIR in enforcing collection of
issued resulting in the reduction of the original position taxpayer clearly demonstrates
the tax by the summary remedies of warrants
assessment agreed to by the taxpayer when a clear inability to pay the tax (Section 204,
of distraints and levy? Explain your answer.
he signed the required agreement form. The NIRC).
SUGGESTED ANSWER:
(3%)
taxpayer is estopped from applying for a
compromise.
B. I will raise the defense of prescription. The properties left by his father with intent to
right of the BIR to assess prescribes after evade payment of the correct tax. As a result,
three years counted from the last day a deficiency estate tax assessment for
prescribed by law for the filing of the income P1,250,000.00, inclusive of 50% surcharge for
tax returns when the said return is filed on fraud, interest and penalty, was issued
time. (Section 203, NIRC). The last day for against him on January 10, 2001. Mr. Castro
filing the 1997 income tax return is April 15, A. Decide
protested Mr. Castro's on
the assessment protest.
the ground of
1998. Since the assessment was issued only (2%)
SUGGESTED ANSWER:
prescription.
A. The protest should be resolved against Mr.
on April 20, 2001, the BIR's right to assess
BIR; False prescribed.
vs. Fraudulent Castro. What was filed is a fraudulent return
has already
Return (1996)
Distinguish a false return from a fraudulent making the prescriptive period for assessment
return.
SUGGESTED ANSWER: ten (10) years from discovery of the fraud
The distinction between a false return and a (Section 222, NIRC). Accordingly, the
fraudulent return is that the first merely assessment was issued within that
implies a deviation from the truth or fact prescriptive period to make an assessment
whether intentional or not, whereas the B.
based onWhat legal requirement/s
a fraudulent return. must Mr.
second is intentional and deceitful with the Santos comply with so that he can claim his
sole aim of evading the correct tax due reward? Explain.
SUGGESTED ANSWER: (3%)
ALTERNATIVE
(Aznar ANSWER:
us. Commissioner, L-20569, The legal requirements that must be
A false return
August 23, 1974). contains deviations from the complied by Mr. Santos to entitle him to
truth which may be due to mistakes, reward are as follows: 1) He should
carelessness or ignorance of the person under oath
voluntarily file awith the Law Division
confidential of the Bureau of
information
preparing the return. A fraudulent return Internal Revenue alleging therein the specific
contains an intentional wrongdoing with the violations constituting fraud; 2) The
sole object of avoiding the tax and it may information must not yet be in the
consist in the intentional underdeclaration of the Bureau
possession of of Internal Revenue, or refer to a case
income, intentional overdeclaration of already pending or previously investigated by the
deductions or the recurrence of both. A false Bureau of Internal Revenue; 3) Mr. Santos
return is not necessarily tainted with fraud should not be a government employee or
because the fraud contemplated by law is a relative of a government employee within the
actual and not constructive. Any deviation from degree
sixthof consanguinity; and 4) The
the truth on the other hand, whether information must result to collections of
BIR; Jurisdiction; Review Rulings of the revenues and/or fines and penalties. (Sec. 282,
intentional or not, constitutes falsity. (Aznar
Commissioner (2006) NIRC)
vs. Commissioner, L-20569, August 23,
Mr. Abraham Eugenio, a pawnshop operator,
1974) BIR; Prescriptive Period;
after having been required by the Revenue
District Officer to pay value added tax Criminal
Gerry wasAction (2006)
being prosecuted by the BIR for
pursuant to a Revenue Memorandum Order failure to pay his income tax liability for
(RMO) of the Commissioner of Internal Calendar Year 1999 despite several demands
Revenue, filed with the Regional Trial Court by the BIR in 2002. The Information was filed
an action questioning the validity of the RMO. with the RTC only last June 2006. Gerry filed a
SUGGESTED ANSWER: motion to quash the Information on the
If you were the judge, will you dismiss the
Yes. The RMO is in reality a ruling of the ground of prescription, the Information having
case? (5%)
Commissioner in implementing the provisions been filed beyond the 5-year reglementary
of the Tax Code on the taxability of SUGGESTED ANSWER:
period. If you were the judge, will you dismiss
pawnshops. Jurisdiction to review rulings of No. The trial court can exercise jurisdiction.
the Information? Why? (5%)
the Commissioner is lodged with the Court of Prescription of a criminal action begins to run
Tax Appeals and not with the Regional Trial from the day of the violation of the law. The
Reform
Court Act,
(CIR v. RA 8424,Leal,
Josefina Title I, Sec.
G.R. 4
No. 113459, crime was committed when Gerry willfully
[1997]).(NOTA BENE: This concept pertains to the VAT
refused to pay despite repeated demands in
November 18, 2002; Tax
which is excluded from the bar coverage,
law
Bar Examinations,
Guidelines for 2006 June 15,
2002. Since the information was filed in June
2006) 2006, the criminal case was instituted within
BIR; Prescriptive Period; Assessment; the five-year period required by law (Tupaz v.
Fraudulent Return (2002) Ulep, G.R. No. 127777, October 1, 1999;
BIR; Taxpayer:
Section Civil Action &
281, NIRC).
Mr. Castro inherited from his father, who died Criminal
Minolta Action (2002)
Philippines, Inc. (Minolta) is an EPZA-
on June 10, 1994, several pieces of real registered enterprise enjoying preferential tax
property in Metro Manila. The estate tax treatment under a special law. After
return was filed and the estate tax due in the investigation of its withholding tax returns for
amount of P250.000.00 was paid on the taxable year 1997, the BIR issued a
December 06, 1994. The Tax Fraud Division deficiency withholding tax assessment in the
of the BIR investigated the case on the basis amount of P150.000.00. On May 15, 1999,
of confidential information given by Mr. because of financial difficulty, the deficiency
Santos on January 06, 1998 that the return tax remained unpaid, as a result of which the
filed by Mr. Castro was fraudulent and that he assessment became final and executory. The
failed to declare all
BIR also found that, in violation of the with the Collector of Customs. The Bureau of
provisions of the National Internal Revenue Customs moved to dismiss the case for lack
Code, Minolta did not file its final corporate of jurisdiction of the Court of Tax Appeals.
income tax return for the taxable year 1998,
because it allegedly incurred net loss from its A. Does the Court of Tax Appeals have
operations. On May 17, 2002, the BIR filed jurisdiction over the petition for review and
with the Regional Trial Court an action for writ of prohibition? Explain (3%)
A. Willof the
collection BIR's action
the deficiency for collection
withholding tax for SUGGESTED ANSWER:
prosper? As counsel of Minolta, what action A. No, because there is no decision as yet by
1997.
will you take? Explain your answer. (5%) the Commissioner of Customs which can be
SUGGESTED ANSWER: appealed to the CTA. Neither the remedy of
A. Yes, BIR's action for collection will prosper prohibition would lie because the CTA has not
because the assessment is already final and acquired any appellate jurisdiction over the
executory, it can already be enforced through seizure case. The writ of prohibition being
judicial action. merely ancillary to the appellate jurisdiction,
As counsel of Minolta, I will introduce the CTA has no jurisdiction over it until it has
evidence that the income payment was acquired jurisdiction on the petition for review.
reported by the payee and the income tax Since there is no appealable decision, the CTA
was paid thereon in 1997 so that my client has no jurisdiction over the petition for review
may only be allowed to pay the civil penalties and writ of prohibition. (Commissioner of
[Note: It is not
for non-withholding clear whether
pursuant to RMOthisNo.is38-
a Customs v. Alikpala, 36 SCRA 208 [1970]).
83. case of non-withholding/ B. Will an appeal to the CTA for tax
underwithholding or non-remittance of refund be possible? Explain (2%)
tax withheld. As such, the tax counsel SUGGESTED ANSWER:
may be open to other remedies against B. No, because the Commissioner of Customs
B. May
the criminal violations of the Tax
assessment.] has not yet rendered a decision on the claim
Code be compromised? If Minolta makes a for refund. The jurisdiction of the
voluntary offer to compromise the criminal Commissioner and the CTA are not
violations for non-filing and non-payment of concurrent in so far as claims for refund are
taxes for the year 1998, may the concerned. The only exception is when the
Commissioner accept the offer? Explain (5%) Collector has not acted on the protested
SUGGESTED ANSWER: payment for a long time, the continued
B. All criminal violations of the Tax Code inaction of the Collector or Commissioner
may be compromised except those already should not be allowed to prejudice the
filed in court or those involving fraud (Section Customs; Basis; Phils.,
taxpayer. (Nestle Automatic
Inc. v. Court of
204, NIRC). Accordingly, if Minolta makes a Review
Whenever (2002)
the decision
Appeals, GR No. 134114, July of the Collector of
6, 2001).
voluntary offer to compromise the criminal Customs is adverse to the government, it is
violations for non-filing and non-payment of automatically elevated to the Commissioner
taxes for the year 1998, the Commissioner for review and, if it is affirmed by him, it is
may accept the offer which is allowed by law. automatically elevated to the Secretary of
However, if it can be established that a tax Finance for review. What is the basis of the
has not been paid as a consequence of non- automatic review procedure in the Bureau of
SUGGESTED ANSWER: your answer. (5%)
filing of the return, the civil liability for taxes Customs? Explain
Automatic review is intended to protect the
may be dealt with independently of the
interest of the Government in the collection of
criminal violations. The compromise
taxes and customs duties in seizure and
settlement of the criminal violations will not
protest cases. Without such automatic review,
relieve the taxpayer from its civil liability. But
neither the Commissioner of Customs nor the
the civil liability
Custom: Violationfor taxes
of Tax may &also be
Secretary of Finance would know about the
compromised
Custom Dutiesif the financial position of the
The Collector of (2002)
Customs of the Port of Cebu decision laid down by the Collector favoring
taxpayer demonstrates a clear inability to pay
issued warrants of seizure and detention the taxpayer. The power to decide seizure and
the tax.
against the importation of machineries and protest cases may be abused if no checks are
equipment by LLD Import and Export Co. instituted. Automatic review is necessary
(LLD) for alleged nonpayment of tax and because nobody is expected to appeal the
customs duties in violation of customs laws. decision of the Collector which is favorable to
LLD was notified of the seizure, but, before it the taxpayer and adverse to the Government.
could be heard, the Collector of Customs This is the reason why whenever the decision
issued a notice of sale of the articles. In order of the Collector is adverse to the Government,
to restrain the Collector from carrying out the the said decision is automatically elevated to
order to sell, LLD filed with the Court of Tax the Commissioner for review; and if such
Appeals a petition for review with application decision is affirmed by the Commissioner, the
for the issuance of a writ of prohibition. It also same shall be automatically elevated to and
filed with the CTA an appeal for refund of be finally reviewed by the Secretary of
overpaid taxes on its other importations of Finance (Yaokasin v. Commissioner of
raw materials which has been pending Customs, 180 SCRA 591 [1989]).
Delinquent Tax functions It has been Instituted to perform.
Return
When is (1998)
a revenue tax considered delinquent? (Jao, et al, Court of Appeals, et al, and
[3%)
SUGGESTED ANSWER: companion case, 249 SCRA 35, 43)
A revenue tax is considered delinquent when
it is unpaid after the lapse of the last day LGU: Collection of Taxes, Fees &
prescribed by law for its payment. Likewise, it Charges
Give the(1997)
remedies available to local
could also be considered as delinquent where government units to enforce the collection of
an assessment for deficiency tax has become taxes, fees,
SUGGESTED and charges?
ANSWER:
final and the taxpayer has not paid it within The remedies available to the local
the period given in the notice of assessment. government units to enforce collection of
Jurisdiction: Customs vs. taxes, fees, and charges are: 1)
CTA
a) On(2000)
the basis of a warrant of seizure and personal property
ADMINISTRATIVE of whatever
REMEDIES of distraintkind
of whether
detention issued by the Collector of Customs or intangible, and levy of real property and
tangible
for the purpose of enforcing the Tariff and therein; and 2) JUDICIAL REMEDY by
interest
Customs Laws, assorted brands of cigarettes institution of an ordinary
said to have been illegally imported into the civil action for collection with the regular courts
Philippines were seized from a store where proper jurisdiction.
of
they were openly offered for sale. Dissatisfied
with the decision rendered after hearing by Tax Amnesty vs. Tax
the Collector of Customs on the confiscation Exemptiona(2001)
Distinguish tax amnesty from a tax exemption.
of the articles, the importer filed a petition for (3%)
SUGGESTED ANSWER:
Tax amnesty is an immunity from all criminal,
review with the Court of Tax Appeals. The
civil and administrative liabilities arising from
Collector moved to dismiss the petition for
SUGGESTED ANSWER: nonpayment of taxes. It is a general pardon
lack of Jurisdiction.
Motion granted. The Rule on of
Court theTax
motion. (2%)
Appeals has given to all taxpayers. It applies only to past
jurisdiction only over decisions of the tax periods, hence of retroactive application.
Commissioner of Customs in cases involving (People v. Costonedo, G.R. No. L-46881,
seizures, detention or release of property Tax
1988).exemption is an immunity from the civil
affected. (Sec. 7, R.A. No. 1125). There is no liability only. It is an immunity or privilege, a
decision yet of the Commissioner which is freedom from a charge or burden to which
ALTERNATIVE ANSWER:
subject to review by the Court of Tax Appeals. others are subjected. (Florer v. Sheridan,
Motion granted. The Court of Tax Appeals has 137 Ind. 28, 36 ME 365). It is generally
no jurisdiction because there is no decision prospective in application.
rendered by the Commissioner of Customs on Taxpayer: Administrative & Judicial
the seizure and forfeiture case. The taxpayer Remediesseparately
Describe (2000) the procedures on the
should have appealed the decision rendered legal remedies under the Tax Code available
by the Collector within fifteen (15) days from to an aggrieved taxpayer both at the
receipt of the decision to the Commissioner of SUGGESTED ANSWER:
administrative and judicial levels. (5%)
Customs. The Commissioners adverse The legal remedies of an aggrieved taxpayer
decision would then be the subject of an under the Tax Code, both at the
appeal to the Court of Tax Appeals. administrative and judicial levels, may be
b) Under the same facts, could the importer classified into those for assessment,
file an action in the Regional Trial Court for collection and refund.
replevin on the ground that the articles are The procedures for the ADMINISTRATIVE
being wrongfully detained by the Collector of REMEDIES for ASSESSMENT are as follows:
Customs since the importation was not illegal a. After receipt of the Pre-Assessment
and therefore exempt from seizure? Explain. Notice, he must within fifteen (15) days from
SUGGESTED ANSWER:
(3%) receipt explain why no additional taxes
No. The legislators intended to divest the should be assessed against him.
Regional Trial Courts of the jurisdiction to b. If the Commissioner of Internal
replevin a property which is a subject of Revenue issues an assessment notice, the
seizure and forfeiture proceedings for taxpayer must administratively protest or
violation of the Tariff and Customs Code dispute the assessment by filing a motion for
otherwise, actions for forfeiture of property for (30) days from
reconsideration receipt of the notice
or reinvestigation withinof
violation of the Customs laws could easily be assessment. (4th par.. Sec. 228, NIRC of
thirty
undermined by the simple device of replevin. 1997)
(De la Fuente v. De Veyra, et. al, 120 c. Within sixty (60) days from filing of the
There should
SCRA 455) be no unnecessary hindrance on protest, the taxpayer shall submit all relevant
the government's drive to prevent smuggling supporting documents.
and other frauds upon the Customs.
Furthermore, the Regional Trial Court do not
have Jurisdiction in order to render effective
and efficient the collection of Import and
export duties due the State, which enables
the government to carry out the
a.
Where the Commissioner of Internal Revenue has
not acted
Answers onBAR:
to the theTaxation
taxpayer's protest
1994-2006 within
(Arranged a period of
by Topics)
one hundred eighty (180) days from submission of all
relevant documents, then the taxpayer has a period of
thirty (30) days from the lapse of said 180 days within
which to interpose a petition for review with the
Court of Tax Appeals.

b.
Should the Commissioner deny the taxpayer's protest,
then he has a period of thirty (30) days from receipt
of said denial within which to interpose a petition for
review with the Court of Tax Appeals.
The JUDICIAL REMEDIES of an aggrieved

taxpayer relative to an ASSESSMENT
NOTICE are as follows:
59 of 73
A Co., a Philippine corporation, is a big the
1Therefund
claimof themust
filed surcharge,
state ainterest and
categorical
manufacturer of consumer goods and has compromise penalty. The
demand for reimbursement (Bermejo v. CTA took
several suppliers of raw materials. The BIR cognizance87ofPhil.
Collector, the case and ordered the
96 [1950]).
suspects that some of the suppliers are not Commissioner
2The to make afor
suit or proceeding refund.
recoveryThe must be
properly reporting their income on their sales Commissioner
commenced in filed
courta within
Petition foryears
two Review with
from
to A Co. The CIR therefore: 1) Issued an the Court
date of Appeals
of payment assailing
of the the jurisdiction
tax or penalty
information
access letteron tosales
A Co.and payments
to furnish the toBIRits of the CTA and
regardless of any thesupervening
Order to make refund
event that to
will
suppliers. 2) Issued an access letter to a bank A.
the Estate
arise Is the
after on stand of
the ground
payment the that
(Sec. Commissioner
229,no claim for
NIRC).
furnishtothe BIR on deposits of some suppliers correct?
(CX Bank) of
refund Reason.
was (2%)the BIR.
filed with
Co.
A on the alleged ground that the suppliers are SUGGESTED ANSWER:
committing tax evasion. Yes. There was no claim for refund or credit
that has been duly filed with the
A Co., X Bank and the suppliers have not Commissioner of Internal Revenue which is
In bothissued
been casesby thethe taxpayer
BIR letter mustofapply with the
authority to required before a suit or proceeding can be
Court of Tax
examine. A Co. Appeals
and X for Bank thebelieve
Issuance thatof thean filed in any court (Sec. 229. NIRC of 1997).
Injunctive writ to enjoin the
BIR is on a "fishing expedition" and come to Bureau of Internal The denial of the claim by the Commissioner
SUGGESTED
Revenue
you fromANSWER:
for counsel. collecting
What the disputed
is your advice?tax during
(10%)the is the one which will vest the Court of Tax
Ipendency
will adviseof theAproceedings.
Co. and B Co. that the BIR is Appeals jurisdiction over the refund case
justified
NOTE: Aonly 2004inAmendment
getting information - The decision from the of B.
should Why is the filing
the taxpayer of antoadministrative
decide appeal on time.
former but not from the
the division of CTA is in turn appeallable latter. The BIR is claim with the BIR necessary? (3%)
authorized to (15)
obtain information SUGGESTED ANSWER:
within fifteen days to the CTAfrom other
en banc.
persons other thanCTA those whose internal The filing of an administrative claim for
The decision of the en banc is directly
revenue taxto liability is subject to question
audit or refund with the BIR is necessary in order: 1)
appeallable the Supreme Court on
investigation. However, this power shall not be To afford the Commissioner an opportunity to
of law on certiorari.
(Section
The
construed 5.
employmentNIRC).
as granting by the theBureau of Internal
Commissioner the consider the claim and to have a chance to
Revenue ofinquire
any into of the the errors of subordinate officers (Gonzales v.
correct
authority to bank Administrative
deposits.
Taxpayer: for City Board of ofAssessment CTA, et al, 14 SCRA 79); and 2) To notify
Remedies the collection the tax like
Decision;levy,
distraint, Where etc.tomay appeal (1999)
be administratively the Government that such taxes have
A Co., a Philippine corporation, is the owner of been questioned and the notice should be borne
appealed by the taxpayer to the
machinery, equipment and fixtures located at mind in estimating the revenue available for
in
Commissioner whose decision is appealable
its plant in Muntinlupa City. The City Assessor expenditures. (Bermejo v. Collector, G.R. No.
to the Court of Tax Appeals under other 3
characterized L028. July 29, 1950)
matter arising all under these the properties
provisions as of real
the
The judicial
properties
National appeals
subject
Internal to starts
Revenue the real with
Code. the Court
property tax.ofA
Tax appealed
Co. Appeals, the and matter
continues to the in theMuntinlupa
same Taxpayer: Assessment;
mannerof as shown above.Appeals. The Board Injunction
RR disputed(2004) a deficiency tax assessment and
Board Assessment
Shouldinthe
ruled favor Bureauof the of City.
Internal Revenue decide
In accordance with upon receipt of an adverse decision by the
to utilize its Judicial tax remedies
RA 1125 (An Act creating the Court of Tax for collecting Commissioner of Internal Revenue, filed an
the taxes by means of an
Appeals). A Co. brought a petition for review ordinary suit filed appeal with the Court of Tax Appeals. While
with
before thethe regular
CTA to courts
appeal forthethedecision
collection of of
thea the appeal is pending, the BIR served a
SUGGESTED ANSWER:
sum of
City money,
Board of the taxpayer could oppose
Assessment the warrant of levy on the real properties of RR to
No. The CTAs devoid of Appeals. jurisdiction Is the to enforce the collection of the disputed tax.
same going
Petition up the proper?
forappeals
Review ladder ofExplain.judicial(5%) processes
entertain from the decision of the Granting arguendo that the BIR can legally
from the Municipal Trial Court (as the case SUGGESTED ANSWER:
City Board of Assessment Appeals. Said levy on the properties, what could RR do to
may be) to the Regional Trial Court, to the RR should file a motion for injunction with the
decision is instead appealable to the Central stop the process? Explain briefly. (5%)
Court of Appeals, thence to the Supreme Court of Tax Appeals to stop the administrative
Board
The of Assessment
remedies of an aggrievedAppeals, taxpayerwhich under on a
Court. collection process. An appeal to the CTA shall
the
claimLocal Government
for refund is to Code, appealhas theappellate
adverse
jurisdiction not suspend the enforcement of the tax
decision of over decisions of Local
the Commissioner to the Board
CTA of in
Assessment Appeals. (Caltex Phils, foe. v. liability, unless a motion to that effect shall
the same manner outlined above.
Central Board of Assessment Appeals, L- have been presented in court and granted by it
Taxpayer: Claim for Refund; on the basis that such collection will jeopardize
Taxpayer:
50466, May Assessment:
31, 1982). Protest: Claims
Procedure
A. What must (2002)
a taxpayer do in order to claim the interest of the taxpayer or the Government
for refund
On June 16, (2000)
1997, the Bureau of Internal
a refund of, or tax credit for, taxes and (Pirovano v. CIR, 14 SCRA 832 [1965]).
Revenue (BIR) issued against the Estate of The CTA is empowered to suspend the
penalties which he alleges to have been
Jose de la Cruz a notice of deficiency estate collection of internal revenue taxes and
erroneously, illegally or excessively assessed
tax assessment,
SUGGESTED ANSWER: inclusive of surcharge, customs duties in cases pending appeal only
or collected? (3%)
interest
The taxpayer and must compromise
comply withpenalty. the following The when: (1) in the opinion of the court the
Executor
proceduresof inthe Estate aof refund
claiming Jose de of,laorCruz tax collection by the BIR will jeopardize the
(Executor)
credit for, filed taxes a timely protest against
and penalties which the he interest of the Government and/or the
assessment
alleges to have and beenrequested for waiver
erroneously, of the
illegally or taxpayer; and (2) the taxpayer is willing to
surcharge,
2. interest
He should
excessively assessed and
file apenalty.
writtenThe
or collected: protest
claim for deposit the amount being collected or to file a
was denied
refund with bythe theCommissioner
Commissioner within of Internaltwo surety bond for not more than double the
Revenue
years after(Commissioner)
the date of payment with offinality
the tax on or Taxpayer:
amount of the BIRtax Audit
to beor fixed by the court
September
penalty (Sec. 13, 204, 1997.
NIRC); Consequently, the Investigation (1999)
(Section 11, JR.A. No. 1125).
Executor was made to pay the deficiency
assessment on October 10, 1997. The
following day, the Executor filed a Petition
with the Court of Tax Appeals (CTA) praying
for
fraud surcharge attaches only if a false or Commissioner on cases involving claim for
fraudulent return is willfully made by Mr. Yang tax refunds are within the exclusive and
(Sec.248, NIRC). The fact that Mr. Yang primary jurisdiction of the Court of Tax
included the income in his 1994 return belies Appeals (Section 7.RA1125).
any claim of willfulness but is rather Taxpayer: Failure to Withheld &
indicative of an honest mistake which was Remit
A Tax (2000)
domestic corporation failed to withhold and
sought to be rectified by a subsequent act, remit the tax on income received from
2)
thatMr. Yang
is the should
filing have
of the amended
1994 return. his 1993 Philippine sources by a nonresident foreign
Income tax return to allow for the inclusion of corporation. In addition to the civil penalties
the P50.000 income during the taxable provided for under the Tax Code, a
period it was realized. [Note: If the answer
compromise penaltygiven was is only number 1, for
imposed it
3) Mr. Yang should file a protest questioning is suggested that the same shall be given full
violation of the withholding tax provisions.
the 50% surcharge and ask for the credit considering that this is the only
Mayrequirement
the Commissioner of Internal
for the Commissioner Revenue
to acquire
abatement thereof.
ALTERNATIVE ANSWER: SUGGESTED ANSWER:
legally enforce thethecollection of compromise
Mr. Yang should pay the deficiency income jurisdiction over claim.]
No. There is no showing that the compromise
penalty?
B. Can the (5%)
tax on or before the day prescribed for its penalty wasCommissioner
imposed by the grant a refund or of
Commissioner
payment per notice of demand. After tax credit even without
Internal Revenue with the agreement a written claim for and it?
payment and within two years thereafter, he (2%)
SUGGESTED
conformity
ANSWER:
B. Yes. When of the taxpayer.
the taxpayer files a return (Wonder
which
should file a claim for refund of taxes Mechanical
on its face shows an overpayment of the taxu.
Engineering Corporation
erroneously paid to recover the excessive Court
and theof Tax to
option Appeals,
refund/ et. al., 64 SCRA
surcharge imposed. Taxpayer:
555). NIRC vs. claim TCCa tax credit
4) Mr. Yang should file a written claim for was chosen
Remedies
Compare the bytaxpayer's
(1996) the taxpayer, the Commissioner
remedies under the
refund with the Commissioner of Internal shall grant the refund
National Internal Revenue Code and or tax credit without the
the Tariff
Revenue of the taxes paid on the P50.000 need for
and Customs
SUGGESTED a written
Code.
ANSWER: claim. This is so, because a
income included in 1994 within two years return
The filed showing
taxpayer's an overpayment
remedies under shall be
the
from payment pursuant to Section 204(3) of considered
NATIONAL as a written claim
INTERNAL REVENUE for credit
CODE or may
the Tax Code. Should this remedy fail in the refund. (Sees. 76
be categorized andremedies
into 204, NIRC). Moreover,
before payment
administrative level, a judicial claim for the law
and providesafter
remedies that the Commissioner
payment. The remedy may,
refund can be instituted before the expiration even without
BEFORE a written
PAYMENT claim therefor,
consists of refund
Taxpayer:
of the two yearExhaustion
period. of Administrative or credit
(a) Administrative
any tax where on Remedy
the face which
of the is the
Remedies
(a) (1997)received, on 15 January
A taxpayer returnofupon
filing protestwhich within
payment
30 days was from
made,receipt
suchof
Taxpayer:
(b) Deficiency
Judicial
1996 an assessment for an internal revenue payment
assessment, andRemedy
appears clearly to which
haveisbeen
the appeal
Income
Businessman
of the Tax
adverse (1995)
Stephen
decision Yang
of thefiled an income
Commissioner
tax deficiency. On 10 February 1996, the erroneously paid. (Sec. 229, NIRC).
tax return
on the for 1993
protest with the showing
Courtbusiness net
of Tax Appeals,
taxpayer forthwith filed a petition for review
income of P350,000.00
and finally with the Supreme Court. on which he paid an
with the Court of Tax Appeals. Could the Tax
income tax of P61,000.00. After filing the
Court entertain the petition?
(b) Under the above factual setting, the return
The he realized
remedy AFTER that he forgotisto include an
PAYMENT
taxpayer, instead of questioning the item of by
(c)
availed business
of payingincome in 1993
the assessed taxforwithin 30
assessment he received on 15 January 1996 P50.000.00.
days from receiptBeingof anassessment
honest taxpayer, and he
paid, on 01 March 1996 the "deficiency tax" included
(d) thethis income
filing in his for
of a claim return for 1994
refund or tax
assessed. The taxpayer requested a refund and paid
credit the corresponding
of these taxes on grounds income thattax they are
from the Commissioner by submitting a thereon.
erroneously In the
paid examination
within two years of his from
1993 date
written claim on 01 March 1997. It was (e)
return If there
the
of payment. is a denialfound
BIR examiner of thethat claim, appeal
Stephen
denied. The taxpayer, on 15 March 1997, to
Yangthefailed
CTA shall
to reportbe made within
this item of30 days from
P50.000.00
filed a petition for review with the Court of denial but within
and assessed himtwo years from
a deficiency date oftax on
income
you have
payment. If advised
the your client fails
Commissioner before to he
SUGGESTED ANSWER:
Appeals. Could the petition still be this item, plus a 50% fraud surcharge. 1)act
Is
(a) No. Before taxpayer can avail of Judicial on included in his 1994 return the amount
entertained? thethe claim for
examiner correct? Explain. 2) If you were
remedy he must first exhaust administrative of P50.000.00 as 1993 income to avoid
the lawyer of Stephen Yang, what would
remedies by filing a protest within 30 days 3) theConsidering
fraud surcharge? that Stephen
Explain.Yang had
from receipt of the assessment. It is the already been assessed a deficiency income
Commissioner's decision on the protest that tax for 1993 for his failure to report the
give the Tax Court jurisdiction over the case P50.000.00 income, what would you advise
provided that the appeal is filed within 30 him to do to avoid the penalties for tax
4) What would
delinquency? Explain. you advise Stephen Yang
days from receipt of the Commissioner's
to do with regard to the income tax he paid
decision. An assessment by the BIR is not the
for the P50.000.00 in his 1994 return? In case
Commissioner's decision from which a petition
your remedy fails, what is your other
for review may be filed with the Court of Tax SUGGESTED ANSWERS:
recourse? Explain.
Appeals. Rather, it is the action taken by the 1) The examiner is correct in assessing a
Commissioner in response to the taxpayer's deficiency income tax for taxable year 1993
protest on the assessment that would but not in imposing the 50% fraud surcharge.
(b) No, the petition for review can not be
constitute the appealable decision (Section 7, The amount of all items of gross income must
entertained by the Court of Appeals, since
RA 1125). be included in gross income during the year
decisions of the
in which received or realized (Sec. 38, NIRC).
The 50%
6) If the decision of the Collector is adverse Decemberto 15, 1995 up to December 8, 1998.
the taxpayer, he can notify the Collector within (Sec. 15 223 in relation to Sec. 203, both of the
from receipt of said decision of his desire to have
days NIRC of 1997)
case
his reviewed by the Taxpayer: Prescriptive Period; Claim
The decision of the Collector on the
Commissioner. for
A Refund (1997)
corporation files its income tax return on a
protest, if adverse to the Government, is calendar year basis. For the first quarter of
taxpayer's
automatically elevated to the Commissioner 1993, it paid on 30 May 1993 its quarterly
review; and if such decision is affirmed by the
for income tax in the amount of P3.0 million. On
Commissioner, the same shall be August 1993, it paid the second quarterly
20
elevated to and finally reviewed by the
automatically income tax of P0.5 million. The third quarter
of Finance.
Secretary resulted in a net loss, and no tax was paid.
For the fourth and final return for 1993, the
Resort to judicial relief can be had company reported a net loss for the year, and
by the taxpayer by appealing the decision the taxpayer indicated in the income tax
of the Commissioner or of the Secretary of return that it opted to claim a refund of the
Finance (for cases subject to automatic quarterly income tax payments. On 10
review) within 30 days from the January 1994, the corporation filed with the
promulgation of the adverse decision to BIR failed to act on the claim for refund;
Bureau of Internal Revenue a written claim
the CTA. hence, on 02 March 1996, the corporation
for the refund of P3.5 million.
Taxpayer: Overwitholding Claim filed a petition for review with the Court of
for
A Refund
Co. (1999)owned subsidiary of B Co.,
is the wholly Tax Appeals on its claim for refund of the
a nonresident German company. A Co. has a overpayment of its 1993 quarterly income
trademark licensing agreement with B Co. On tax. BIR, in its answer to the petition, alleged
Feb. 10, 1995, A Co. remitted to B Co. that the claim for refund was filed beyond the
royalties of P 10,000,000, which A Co. SUGGESTED ANSWER:
reglementary period. Did the claim for refund
subjected to a withholding tax of 25% or The claim for refund has prescribed. The counting of
prescribe?
P2,500,000. Upon advice of counsel, A Co. the
two-year prescriptive period for filing a
realized that the proper withholding tax rate claim for refund is counted not from the
is 10%. On March 20, 1996, A Co. filed a claim date when the quarterly income taxes were
for refund of P2.500.000 with the BIR. The BIR paid but on the date when the final
denied the claim on Nov. 15, 1996. On Nov. adjustment return or annual income tax return
28, 1996, A Co. filed a petition for review with was filed (CIR v. TMX Sales Inc., G.R. No.
SUGGESTED ANSWER: 83736, January 15, 1992; CIR v. Phi/Am Life
theCo.,
A CTA.the Thewithholding
BIR attacked the capacity
agent of A
of the non-
Co., as agent, to bring the refund case. Insurance Co., Inc., G.R. No. 105208, May 29,
resident foreign corporation is entitled to 1995). It is obvious that the annual income tax
Decidethe
claim the refund
issue. (5%)
of excess withholding tax return was filed before January 10, 1994
paid on the income of said corporation in the because the written claim for refund was filed
Philippines. Being a withholding agent, it is with the BIR on January 10, 1994. Since the
the one held liable for any violation of the two-year prescriptive period is not only a
withholding tax law should such a violation limitation of action in the administrative stage
occur. In the same vein, it should be allowed but also a limitation of action for bringing
Taxpayer: Prescriptive Period; Claimsthe
to claim a refund in case of overwitholding. case to the(1994) judicial
for Refund
XCEL Corporation filed stage, the petition
its quarterly income for
(CIR v. Wander Phils. Inc., GR No. 68378, review filedforwith
tax return thethefirstCTA on March
quarter of 1985 02,and
1996 is
April 15, 1988, 160 SCRA 573;Period: CIR v. Procter beyond
Taxpayer: Prescriptive paid an the incomereglementary period. on May
tax of P500.000.00
& Gamble
Mr. Reyes,PMC,
Suspended 2O4 SCRA
a(2000)
Filipino 377).
citizen engaged in the 15, 1985. In the subsequent quarters, XCEL
real estate business, filed his 1994 income tax sufferedrefund lossesor sotax
thatcredit
on Apriland15,the two-year
1986 it
return on March 20, 1995. On December 15, declared period
a netislossabout to expire, the taxpayer
of P1,000,000.00 in its
1995, he left the Philippines as an immigrant annual should
income tax consider
return. After the failing
continuous
to get
to join his family in Canada. After the inaction of the Commissioner
a refund, XCEL filed on March 1, 1988 a case as a
investigation of said return/the BIR issued a denial and elevate the
with the Court of Tax Appeals to recover the case to the CTA
notice of deficiency income tax assessment SUGGESTED ANSWER:
before
P500.000.00 inthe
taxesexpiration
paid on May of the15,two-year
1985.
The
Under action
the for refund
Tariff and was Customsfiled in the Court of
on April 15, 1998. Mr. Reyes returned to the Is period.
the action to recover the taxesCode,filed timely?
Philippines as a balikbayan on December 8, Tax Appeals
taxpayer's remedieson time.
arise In after
only the payment
case of
Commissioner
of duties. 4) Thev. administrative
TMX Sales, Inc., 205 SCRA
remedies
1998. Finding his name to be in the list of
delinquent taxpayers, he filed a protest 184 ,for
consist whichrefundis similar
of filing which
a claim tomaythis case,
take the Supreme
form of
against the assessment on the ground that he Court ruled
abatement that
or in the
drawback. case of overpaid
SUGGESTED ANSWER:
did quarterly
5) Thecorporate
taxpayerincome can also tax,file
theatwo-year
protest
No. not receive the
Prescription hasnotice
not setof assessment
in because andthe period for filing claims
within 15 days from payment if he for refund in the BIR as
disagrees
that the assessment had prescribed.
period of limitations for the Bureau of Internal Will the
protest well
with as
the in the
ruling orinstitution
decision of
of an
the action
Collector for
of
Revenueprosper? to issueExplain.
an(5%) assessment was refund
Customs in regarding
the CTA, the the legality
two-year or prescriptive
correctness
SUSPENDED during the time that Mr. Reyes period for tax refunds
of the assessment (Sec. 230,
of customs Tax Code) is
duties.
was out of the Philippines or from the period counted from the filing of the final,
adjustment return under Sec. 67 of the Tax
Code, and not from the filing of the
quarterly return and payment of the quarterly subject of appeal to the Court of Tax Appeals
tax. The CTA action on March 1, 1988 was (Yobes u. Flojo, 15 SCRA 278). The CTA
clearly within the reglementary two-year may, however, remand the case to the BIR
period from the filing of the final adjustment and require the Commissioner to specifically
return of the corporation on April 15, 1986. rule on the protest. The decision of the
Taxpayer: Prescriptive Period; Claims Commissioner, if adverse to my client, would
for March
On Refund12,(2004)
2001, REN paid his taxes. Ten then constitute an appealable decision.
months later, he realized that he had overpaid Taxpayer: Protest against
and so he immediately filed a claim for refund Assessment
A (1999)corporation, received an
Co., a Philippine
with the Commissioner of Internal Revenue. income tax deficiency assessment from the
BIR on May 5, 1995. On May 31, 1995, A Co.
On February 27, 2003, he received the filed its protest with the BIR. On July 30,
decision of the Commissioner denying REN's 1995, A Co. submitted to the BIR all relevant
claim for refund. On March 24, 2003, REN supporting documents. The CIR did not
filed an appeal with the Court of Tax Appeals. formally rule on the protest but on January
Was his appeal filed on time or not? Reason. 25, 1996, A Co. was served a summons and a
SUGGESTED
(5%) ANSWER:
copy of the complaint for collection of the tax
The appeal was not filed on time. The two-
deficiency filed by the BIR with the Regional
year period of limitation for filing a claim for
Trial Court (RTC). On February 20, 1996, A
refund is not only a limitation for pursuing the
Co. brought a Petition for Review before the
claim at the administrative level but also a
CTA. The BIR contended that the Petition is
limitation for appealing the case to the Court 1. Has the CTA jurisdiction over the
premature since there was no formal denial
of Tax Appeals. The law provides that "no suit case?
SUGGESTED ANSWER;
of thethe
Yes, protest of A jurisdiction
CTA has Co. and should
over therefore
the case
or proceeding shall be filed after the
be dismissed.
because this qualifies as an appeal from the
expiration of two years from the date of the
payment of the tax or penalty regardless of Commissioner's decision on disputed
any supervening cause that may arise after assessment. When the Commissioner decided
payment (Section 229, JVZRCJ. Since the to collect the tax assessed without first
appeal was only made on March 24, 2003, deciding on the taxpayer's protest, the effect
more than two years had already elapsed of the Commissioners action of filing a judicial
from the time the taxes were paid on March action for collection is a decision of denial of
Taxpayer: Protest against the protest, in which event the taxpayer may
12, 2003. Accordingly, REN had lost his
Assessment
CFB (1998)
Corporation, a domestic corporation file an appeal with the CTA. (Republic v. Lim
judicial remedy because of prescription.
engaged in food processing and other allied Tian Teng & Sons, Inc., 16 SCRA 584;
activities, received a letter from the BIR 2.
Dayrit Has the L-39910,
v. Cruz, RTC jurisdiction
Sept. 26,over the
1988).
assessing it for delinquency income taxes. collection case filed by the BIR? Explain.
CFB filed a letter of protest. One month after, SUGGESTED ANSWER;
a warrant of distraint and levy was served on The RTC has no jurisdiction over the collection
CFB Corporation. If you were the lawyer case filed by the BIR. The filing of an appeal
engaged by CFB Corporation to contest the with the CTA has the effect of divesting the
SUGGESTED ANSWER:
assessment made by the BIR, what steps will RTC of jurisdiction over the collection case. At
I shall immediately file a motion for the moment the taxpayer appeals the case to
you take to protect your client? (5%)
reconsideration of the issuance of the the Court of Tax Appeals in view of the
warrant of distraint and levy and seek from Commissioner's filing of the collection case
the BIR Commissioner a denial of the protest with the RTC which was considered as a
"in clear and unequivocal language." This is decision of denial, it gives a justifiable basis
so because the issuance of a warrant of for the taxpayer to move for dismissal in the
distraint and levy is not considered as a RTC of the Government's action to collect the
denial by the BIR of the protest filed by CFB tax liability under dispute. (Yabes v. Flojo, 15
Within thirty(CIR
Corporation (30)v.days from
Union receipt of
Shipping such
Corp., SCRA 278; San Juan v. Vasquez, 3 SCRA 92).
denial "in clear
185 SCRA 547). and unequivocal language," I There is no final, executory and demandable
shall then file a petition for review with the Taxpayer: Protest against
assessment which can be enforced by the BIR,
Court of Tax Appeals.
ALTERNATIVE ANSWER: Assessment
A (1999)corporation, received an
Co., a Philippine
once a timely appeal is filed.
Within thirty (30) days from receipt of the income tax deficiency assessment from the
warrant of distraint and levy, I shall file a BIR on November 25, 1996. On December 10,
petition for review with the Court of Tax 1996, A Co. filed its protest with the BIR On
Appeals with an application for issuance of a May 20, 1997, the BIR issued a warrant of
writ of preliminary injunction to enjoin the distraint to enforce the assessment. This
Bureau of Internal Revenue from enforcing warrant was served on A Co. on May 25,
This is the action I shall take because I shall
the warrant. 1997. In a letter dated June 4, 1997 and
consider the issuance of the warrant as a final received by A Co. 5 days later, the CIR
decision of the Commissioner of Internal formally denied A Co.'s protest stating that it
Revenue which could be the constitutes his final decision on the matter.
On July 6, 1997, A Co. filed a Petition for
Review with the CTA. The BIR moved to
dismiss the Petition on the ground that the
CTA has no jurisdiction over the case. Decide. Taxpayer; Claim for Tax
(10%)
SUGGESTED ANSWER: Credits (2006)
Congress enacts a law granting grade school
The CTA has jurisdiction over the case. The and high school students a 10% discount on
appealable decision is the one which all school-prescribed textbooks purchased
categorically stated that the Commissioner's from any bookstore. The law allows
action on the disputed assessment is final 1. If in a taxable
bookstores yearina full
to claim bookstore has noas
the discount tax
a
and, therefore, the reckoning of the 30-day due on which to apply the tax credits, can the
tax credit.
period to appeal was on June 9, 1999. The bookstore claim from the BIR a tax refund in
filing of the petition for review with the CTA lieu of tax credit? Explain. (2.5%)
was timely made. The Supreme Court has SUGGESTED ANSWER:
ruled that the CIR must categorically state No, the bookstore cannot claim from the BIR a
that his action on a disputed assessment is tax refund in lieu of tax credit. There is
final; otherwise, the period to appeal will not nothing in the law that grants a refund when
commence to run. That final action cannot be the bookstore has no tax liability against
implied from the mere issuance of a warrant which the tax credit can be used (CIR v.
Taxpayer: Protest; Claim of Central Luzon Drug, G.R. No 159647, April 15,
"of distraint and levy. (CIR v. Union
Refund
Is protest(1996)
at the time of payment of taxes and 2005). A tax credit is in the nature of a tax
Shipping Corporation, 185 SCRA 547).
duties a requirement to preserve the exemption and in case of doubt, the doubt
taxpayers' right to claim a refund? Explain. should be resolved in strictissimi juris against
SUGGESTED ANSWER: 2. Can
the the BIR require the bookstores to
claimant.
For TAXES imposed under the NIRC, protest deduct the amount of the discount from their
at the time of payment is not required to gross income? Explain. (2.5%)
preserve the taxpayers' right to claim refund. SUGGESTED ANSWER:
This is clear under Section 230 of the NIRC No. Tax credit which reduces the tax liability is
which provides that a suit or proceeding different from a tax deduction which merely
maybe maintained for the recovery of reduces the tax base. Since the law allowed
national internal revenue tax or penalty the bookstores to claim in full the discount as
alleged to have been erroneously assessed or a tax credit, the BIR is not allowed to expand
collected, whether such tax or penalty has or contract the legislative mandate (CIR v.
For
been DUTIES imposed
paid under under
protest the Tariff and
or not. Luzon DrugDrug
Bicolandia Corp., G.R. G.R.
Corp., No. 159647, AprilJuly
No. 148083, 15,
Customs Code, a protest at the time of 2005).
21, 2006; CIR v. Central
payment is required to preserve the 3. If a bookstore closes its business due to
taxpayers' claim for refund. The procedure losses without being able to recoup the
under the TCC is to the effect that when a discount, can it claim reimbursement of the
ruling or decision of the Collector of Customs discount from the government on the ground
is made whereby liability for duties is that without such reimbursement, the law
determined, the party adversely affected may constitutes taking of private property for
SUGGESTED
public use ANSWER:
without just compensation?
protest such ruling or decision by presenting A
to the Collector, at the time when payment is Explain. (5%)closing its business due to losses,
bookstore,
cannot claim reimbursement of the discount
made, or within 15 days thereafter, a written from the government. If the business
protest setting forth his objections to the continues to operate at a loss and no other
Taxpayer; Appeal to the Court of
ruling or decision in question (Sec. 2308. taxes are due, thus compelling it to close shop,
Tax
A Appeals
taxpayer (2005)a tax deficiency
received
TCC). the credit can never be applied and will be lost
assessment of P1.2 Million from the BIR
demanding payment within 10 days, altogether (CIR v. Central Luzon Drug, G.R. No.
otherwise, it would collect through summary 159647, April 15, 2005). The grant of the
remedies. The taxpayer requested for a discount to the taxpayer is a mere privilege
Taxpayer;
and Compromise
can be revoked anytime. after
reconsideration stating the grounds therefor. Criminal
An Actionwas
information (1998)
filed in court for willful
Instead of resolving the request for non-payment of income tax the assessment
reconsideration, the BIR sent a Final Notice of which has become final. The accused,
before Seizure to the taxpayer. May this through counsel, presented a motion that he
action of the Commissioner of Internal be allowed to compromise his tax liability
Revenue be deemed a denial of the request subject of the information. The prosecutor
SUGGESTED ANSWER:
for reconsideration
Yes, the final noticeof the taxpayer
before to entitle
seizure was in SUGGESTED ANSWER:
indicated his conformity to the motion. Is this
him to appeal to the Court of Tax Appeals?
effect a denial of the taxpayer's request for No. Criminal violations,
procedure correct? [5%] if already filed in
Decide with reasons.
reconsideration, (5%)was the notice the
not only court, may not be compromised (Sec. 204[B],
only response received, its nature, content NIRC). Furthermore, the payment of the tax
and tenor supports the theory that it was the due after apprehension shall not constitute a
BIR's final act regarding the request for valid defense in any prosecution for violation
2001)
reconsideration. (CIR v. Isabela Cultural of any provisions of the Tax Code (Sec.
Corporation, G.R. No. 135210, July 11, 247(a), NIRC). Finally, there is no showing
that the prosecutor in the problem is a legal
officer of the Bureau of Internal
64sirdondee@gmail.com
of 73 LOCAL & REAL PROPERTY
Revenue to whom the conduct of criminal
actions are lodged by the Tax Code. TAXES
ALTERNATIVE ANSWER:
No. If the compromise referred to is the civil
aspect, the procedure followed is not correct. Local Taxation: Actual Use of
Compromise for the payment of any internal Property
The (2002) of Mr. and Mrs Angeles,
real property
revenue tax shall be made only by the situated in a commercial area in front of the
Commissioner of Internal Revenue or in a public market, was declared in their Tax
proper case the Evaluation Board of the BIR Declaration as residential because it had been
(Sec. 204, NIRC). Applying the law to the case used by them as their family residence from
at bar, compromise settlement can only be the time of its construction in 1990. However,
Taxpayer; Protest
effected by leave against Assessment;
of Court. since January 1997, when the spouses left for
Donors Tax (1995) the United States to stay there permanently
Mr. Rodrigo, an 80-year old retired with their children, the property has been
businessman, fell in love with 20-year old rented to a single proprietor engaged in the
Tetchie Sonora, a night club hospitality girl. sale of appliances and agri-products. The
Although she refused to marry him she Provincial Assessor reclassified the property
agreed to be his "live-in" partner. In gratitude, as commercial for tax purposes starting
Mr. Rodrigo transferred to her a condominium January 1998. Mr. and Mrs. Angeles appealed
unit, where they both live, under a deed of to the Local Board of Assessment Appeals,
sale for P10 Million. Mr. Rodrigo paid the SUGGESTED ANSWER:
contending
The that bethe
appeal should Taxagainst
decided Declaration
Mr. and
The Commissioner
capital of Internal
gains tax of 5% Revenue found
of P10 Million. previously
Mrs. Angeles.classifying their on
The law focuses property as
the actual
that the property was transferred to Tetchie
residential is binding. How should the appeal
use of the property for classification, valuation
Sonora by Mr. Rodrigo because of the
be
anddecided? (5%) purposes regardless of
assessment
companionship she was providing him.
Accordingly, the Commissioner made a ownership. Section 217 of the Local
determination that Sonora had compensation Government Code provides that "real property
income of P10 Million in the year the shall be classified, valued, and assessed on
condominium unit was transferred to her and the basis of its actual use regardless of where
issued a deficiency income tax assessment. located, whoever owns it, and whoever uses
Tetchie Sonora protests the assessment and Local
it". Taxation:
claims that the transfer of the condominium Coverage
Aside from(2002)
the basic real estate tax, give
unit was a gift and therefore excluded from three (3) other taxes which may be imposed
income. How will you rule on the protest of by provincial and city governments as well as
SUGGESTED ANSWER:
Tetchie Sonora? Explain. by municipalities in the Metro Manila area.
I will grant the protest and cancel the SUGGESTED
(3%) ANSWER:
assessment. The transfer of the property by The following real property taxes aside from
Mr. Rodrigo to Ms. Sonora was gratuitous. The the basic real property tax may be imposed
deed of sale indicating a P10 million by provincial and city governments as well as
consideration was simulated because Mr. by municipalities in the Metro Manila area:
Rodrigo did not receive anything from the 1Additional levy on real property for the
sale. The problem categorically states that Special Education Fund (Sec. 235, LGC);
the transfer was made in gratitude to Ms. 2Additional Ad-valorem tax on Idle lands (Sec.
Sonora's companionship. The transfer being 23, LGC); and
gratuitous is subject to donor's tax. Mr. 3Special levy (Sec. 240).
Rodrigo should be assessed deficiency
[Note: The question is susceptible to dual
donor's tax and a 50% surcharge imposed for
Taxpayer; Withholding Agent; Claim of interpretation because it is asking for three
fraudulently simulating a contract of sale to
Tax Refund
Does (2005) agent have the right to other taxes and not three other real property
evade adonor's
withholding
tax. (Sec. 91(b), NIRC).
file an application for tax refund? Explain. taxes. Accordingly, an alternative answer
SUGGESTED ANSWER: A.
shouldThe following taxes,
be considered aside
and given fullfrom basic
credit]
Yes. A taxpayer is "any person subject to tax." real estate tax, may be imposed by:
Since, the withholding tax agent who is 1. Provincial Government
"required to deduct and withheld any tax" is Printer's or publisher's tax
made "personally liable for such tax" should Franchise Tax
the amount of the tax withheld be finally Professional tax
found to be less than that required to be 2. City Government - may levy taxes which
withheld by law, then he is a taxpayer. Thus, the province or municipality are authorized
he has sufficient legal interest to file an Printer's
to levy or publisher's
(Sec. 151, LGC) tax
application for refund, of the amount he Franchise tax
2, 1991) was illegally collected from him.
believes Professional tax
(Commissioner of Internal Revenue v. Procter
& Gamble, G.R. No. 66838, December
3. Municipalities in the Metro Manila Area -
may levy taxes at rates which shall not
exceed by 50% the maximum rates
prescribed in the Local Government Code.
Annual fixed tax on manufacturers, assemblers,
repackers, processors, brewers, distillers, rectifiers
and compounders of liquors, distilled spirits, and
wines or manufacture of any article of commerce
of whatever kind or nature;
Annual fixed tax on wholesalers, distributors, or
dealers in any article of commerce of whatever
kind or nature;
Percentage tax on retailers
[Note: Other taxes may comprise the enumeration
because many other taxes are authorized to be
imposed by LGUs.]
Local Taxation: Exemption; Real
Property
Under theTaxes
Local(2002)
Government Code, what
properties are exempt from real property
taxes? (5%)
SUGGESTED ANSWER:
The following properties are exempt from
real property taxes: (Sec. 234, LGC).
1Real property owned by the Republic of the
Philippines or any of its political subdivisions
except when the beneficial use thereof has been
granted, for consideration or otherwise, to a
taxable person;
2All lands, buildings and improvements actually,
directly, and exclusively used for religious,
charitable or educational purposes by charitable
institutions, churches, parsonages or convents
appurtenant thereto, mosques, nonprofit or
religious cemeteries;
3All machineries and equipment that are actually,
directly and exclusively used by local water
districts and government-owned or controlled
corporations engaged in the supply and distribution
of water and/or generation and transmission of
electric power;
4All real property owned by duly registered
cooperatives as provided for under R.A. No. 6938;
and
5Machinery and equipment used for pollution
control and environmental protection.
66
ordinance (Section 132 of the Local Local
two professions. Taxation:
He has his main Legality/
office in
Government Code). The city mayor alone Constitutionality;
Makati City and maintains Tax aOrdinance
branch office in
could not order the collection of the tax; as (2003)
X, a taxpayer
Pasig City. Mr. who Fermin believes
pays his that an ordinance
professional
such, the "elevator tax" is an invalid passed
tax as a CPA by in theMakati
City City Council
and his of Pasay is
Local
imposition. Taxation: unconstitutional
professional tax asfor beingin Pasig
a lawyer discriminatory
City.
Remission/Condonation
RC is a law-abiding citizen who of paysTaxes
his real against
(5%) a) Mayhim, Makati
want to know
City, where from heyou,has his tax
(2004) taxes promptly. Due to a series of
estate lawyer,
main office, whether require or not
him he can his
to pay file an appeal.
typhoons and adverse economic conditions, SUGGESTED ANSWER:
In the affirmative,
professional tax as ahe asks you
lawyer? Explain. where such
an ordinance is passed by MM City granting a No. Makati
appeal City where
should be made: Mr. Fermin has his main
the Secretary of
office
Finance,may
50% discount for payment of unpaid real not Secretary
require of himJustice,to pay his
or the or the
estate taxes for the preceding year and the professional
SUGGESTED
Court of Tax tax
ANSWER: as a lawyer.
Appeals, or the Mr. regularFermin courts.has
The
the appeal should be made with the Secretary of
What would your advice be to your client, X?a
condonation of all penalties on fines resulting option of paying his professional tax as
Justice.
lawyer Any
in question
Pasig City on theheconstitutionality
where practices law or
or
from the late payment. Arguing that the (8%)
legality
in MakatiofCity a tax where ordinance
he maintains may be his raised
principal on
ordinance rewards delinquent taxpayers and
appeal with the Secretary
office. (Sec. 139[b], Local Government Code) of Justice within 30
discriminates against prompt ones, RC
b) May
days from Quezon
the effectivity City,thereof.
where (Sec. he 187, has LGC; his
demands that he be refunded an amount Municipality
residenceMarket
Hagonoy andof Hagonoy,
where
Vendor he also 376 SCRA
practices
Association v.his 376two
equivalent to one-half of the real taxes he [2002]).
professions, go after him for the payment of
paid. The municipal attorney rendered an Local Taxation:tax Legality;
his professional as a CPAImpositionand a lawyer? of
opinion that RC cannot be reimbursed Real Property
SUGGESTED ANSWER: Tax Rate (2002)
Explain.
because the ordinance did not provide for
SUGGESTED ANSWER: No, the situs ofwas
An Ordinance the professional
passed by the tax Provincial
is the city
such reimbursement.
The suit will not prosper. RC files Thesuit to declare
remission or where
Board of the a Province professional
in the North, practices
increasing his
the ordinance void on the
condonation of taxes due and payable to ground that it is
thea profession
the rate of or where
basic he realmaintains
propertyhistax principal
from
class legislation.
exclusion of taxesWill his suit
already prosper?
collected Explain
does not office
0.006%intocase 1 %he of practices
the assessed his profession
value of the in
your answer
constitute briefly.
unfair (5%)
discrimination. Each set of several
real property places. effective
The local Januarygovernment 1, 2000. of
taxes is a class by itself and the law would be Quezon
ResidentsCity of the has municipalities
no right to of collect
the said the
open to attack as class legislation only if all professional
province protested tax from the Mr. Fermin
Ordinance as the on place
the
taxpayers belonging to one class were not of residence
ground that no of the
publictaxpayer
hearingiswas not conducted
the proper
treated alike (Juan Luna Subdivision, Inc., v. situs in the collection
and, therefore, of the professional
any increase in the rate oftax. real
Local Taxation: Rule of Uniformity Local
SUGGESTED
property Taxation;
ANSWER: Special Levy on
tax is void. Is there merit in the
Sarmiento, 91 Phil. 371 [1952]).
and City
The Equality (2003)
of Makati, in order to solve the traffic The
Idle
A protest
cityLands
outside isof devoid
(2005) Metro of merit.
Manila plansNoto public enact
protest? Explain your answer. (2%)
problem in its business districts, decided to hearing
an ordinanceis requiredthat willbefore the enactment
impose a special levy of a
impose a tax, to be paid by the driver, on all local idle
on tax ordinance
lands levying in
located the basic
residential real
private cars entering the city during peak property tax within
subdivisions (Art. 324, LGC Regulations).
its territorial jurisdiction in
ALTERNATIVE ANSWER:
hours from 8:00 a.m. to 9:00 a.m. from addition to the basic real property tax. If the
Yes, there is merit in the protest provided that
Mondays to Fridays, but exempts those cars lot owners of a subdivision located in the said
sufficient proof could be introduced for the
carrying more than two occupants, excluding city seek your legal advice on the matter,
SUGGESTED non-observance
SUGGESTED ANSWER: of public hearing. By
the driver.ANSWER:
Is the ordinance valid? Explain. what would your advice be? Discuss. (5%)
implication, the
The ordinance is in violation of the Rule of I would advise theSupreme
lot ownersCourt that arecognized
city, even
(8%) that public hearings are required to an be
Uniformity and Equality, which requires that if it is outside Metro Manila, may levy
all subjects or objects of taxation, similarly conducted
annual tax prior on idle to lands
the enactment
at the rateof not an
situated must be treated alike in equal ordinance
exceeding five imposing
percent real (5%) property
of the assessed taxes.
footing and must not classify the subjects in Although
value of itthewas concluded
property which by shallthe highest
be in
an arbitrary manner. In the case at bar, the tribunal
addition that to the presumption of validity
basic real property tax. of (Sec.
a tax
ordinance exempts cars carrying more than ordinance
236, LocalcanGovernment not be overcome Code) Ibywould bare
two occupants from coverage of the said assertions
likewise advise of them procedural
that thedefects levy mayon apply its
ordinance. Furthermore, the ordinance only enactment,
to residential it would seem thatofif land
lots, regardless the taxpayer
area, in
imposes the tax on private cars and exempts had presentedduly
subdivisions evidence
approved to support
by proper the
Local vehicles
public Taxation: from Imposition
the imposition ofof Ad
the tax, allegation
authorities, the thatownership
no public of which hearing has been was
Valorem
May local Tax (2000)
governments impose an annual The term to
conducted,
transferred "Idle
the Lands"
Court
individual should means,
owners have land
whoruled not
shallthatbe
although both contribute to the traffic Local Taxation: Power to
Another
realty taxissue is the devoted directly to any crop or to any definite
problem. in addition
There exists tonofact
the that real
basic
substantial the tax is
property
standard the
liable
Impose
In
tax
for
order (2003)
the
to
ordinance
additional is
tax. invalid.
(Last par., (Belen
Sec.
imposed on orthe driver of located
theby vehicle and purpose for raise
at Courtrevenue
least one for the
of year
repair
prior to and
the
tax on in
used idlethe vacant lots
classification the City not
in residential of Figuerres
237)
maintenance
v.
of the newly
Appeals,
constructed
GRNo.
City
on the registered owner of the same.
subdivisions within their respective territorial The tax notice of expropriation,
119172, March 25, 1999). except for reasons
Makati. Hall ofthan Makati,
does
SUGGESTEDnot ANSWER:
jurisdictions? only
(3%) violate the requirement of other forcethe City Mayor
majeure or any ordered
fortuitous the
Not all local government
uniformity, but the same units is may do so.
also Only
unjust collection
event, but of used P1.00,
to be called
devoted"elevatoror is suitable tax",
provinces, cities, and municipalities
because it places the burden on someone within the every
to suchtime cropaorperson rides any
is contiguous to landof the high-
devoted
Metro Manila area (Sec.
who has no control over the route of the 232, Local 10:00
tech a.m.
elevators and in4:00
the p.m.
city to
hall
directly to any crop and does not include land 6:00
during p.m.the Is the
hours
Government Code) may impose an ad "elevator
of 8:00 a.m. tax"
to a valid
devoted permanently or regularly to other imposition? Explain.
vehicle. The ordinance is, therefore, invalid
valorem tax not exceeding five percent (5%) (8%)
SUGGESTED
essential
ANSWER:
and more
for violating the rule of uniformity and
Local No. The
Finally, imposition
I would adviseof a productive
tax, fee
them to or purpose.
charge
construct or
or
of
equality asTaxation;
the assessed well as value (Sec.
for being Situs
236, Ibid.)
unjust. of of idle (Philippine
the generation Legal Encyclopedia,
of revenue by
under Sibal,
the 1986
Local
Professional
Mr.
or Fermin,
vacant a Taxes
resident
residential (2005)
lots ofin Quezon City, isduly
a subdivision, a place
Ed.) improvements on their idle lands by
Certified Public Accountant-Lawyer engagedof Government
making valuable Code, shall betoexercised
additions the property by the or
approved by proper authorities regardless
in the(Sec.237,
practice of his SANGUNIAN
ameliorations of theland's
in the local government unit
area. Ibid.)
concerned through an appropriate
conditions so the lands would not be
considered as idle. (Sec. 199[m]) In this 2. Assuming Joachin is a registered owner,
manner their properties would not be subject will your answer be the same? (2.5%)
to the ad valorem tax on idle lands. SUGGESTED ANSWER:
Real Property Tax: Underground Yes. The law requires that a notice of the
Gasoline
Under Tanks
Article 415(2003)
of the Civil Code, in order auction sale must be properly sent to Joachin
for machinery and equipment to be and not merely through publication (Tan v.
considered real property, the pieces must be Bantegui, G.R. No, 154027, October 24,2005;
placed by the owner of the land and, in Dec. 22,of
Estate 1997).
Mercedes Jacob v. CA, G.R. No.
addition, must tend to directly meet the needs 120435,
Real Property Taxation: Capital Asset
of the industry or works carried on by the vs. Ordinary Asset (1995)
owner. Oil companies install underground In 1990, Mr. Naval bought a lot for
tanks in the gasoline stations located on land P1,000,000.00 In a subdivision with the
leased by the oil companies from the owners intention of building his residence on it. In
of the land where the gasoline stations [are] 1994, he abandoned his plan to build his
located. Are those underground tanks, which residence on it because the surrounding area
were not placed there by the owner of the became a depressed area and land values in
land but which were instead placed there by the subdivision went down; instead, he sold it
SUGGESTED ANSWER:
the lessee
Yes. The of the
properties land, considered
are considered real
as necessary for P800.000.00. At the time of the sale, the
property for purposes of real property
fixtures of the gasoline station, without which zonal value was P500.000.00. 1) Is the land a
taxation under
the gasoline thewould
station localbe
Government
useless. Code? SUGGESTED ANSWERS:
capital asset or an ordinary asset? Explain. 2)
Explain. (8%)
Machinery and equipment installed by the 1) The land is a capital asset because it is
Is there any income tax due on the sale?
lessee of leased land is not real property for neither for sale in the ordinary course of
Explain.
purposes of execution of a final judgment only. business nor a property used in the trade or
They are considered as real property for real business of the taxpayer. (Sec. 33. NIRC).
property tax purposes as "other improvements 2) Yes, Mr. Naval is liable to the 5% capital
to affixed or attached real property under the gains tax imposed under Section 21(e) of the
Assessment
(Caltex v. Law and the
Central Real Property
Board Tax
of Assessment Tax Code based on the gross selling price of
Code.
Appeals, 114 SCRA 296 [1982]). P800.000.00 which is an amount higher than
the zonal value.
Real Property Tax; Requirements; Real Property Taxation: Capital Gains
Auction Sales of Property for Tax vs. Ordinary Gains(1998)
Delinquency
Quezon (2006) on January 30, 2006 a
City published What is the difference between capital gains
list of delinquent real property taxpayers in 2 and ordinary gains? [3%]
newspapers of general circulation and posted SUGGESTED ANSWER:
CAPITAL GAINS are gains realized from the
this in the main lobby of the City Hall. The
sale or exchange of capital assets, while
notice requires all owners of real properties in
ORDINARY GAINS refer to gains realized from
the list to pay the real property tax due within
the sale or disposition of ordinary assets.
30 days from the date of publication,
otherwise the properties listed shall be sold at Real Property Taxation: Coverage of
Joachin is one of those named in the list. He
public auction.
purchased a real property in 1996 but failed Ordinary Income(1998)
to register the document of sale with the What does the term "ordinary income" include?
register of Deeds and secure a new real [2%]
SUGGESTED ANSWER:
The term ordinary income includes any gain
property tax declaration in his name. He from the sale or exchange of property which
alleged that the auction sale of his property is is not a capital asset. These are the gains
void for lack of due process considering that derived from the sale or exchange of property
the City Treasurer did not send him personal such as stock in trade of the taxpayer or
notice. For his part, the City Treasurer other property of a kind which would properly
1. If you were
maintains thatthe
thejudge, how will
publication andyou resolve
posting of
this issue? (2.5%) be included in the inventory of the taxpayer if
notice are sufficient compliance with the on hand at the close of the taxable year, or
SUGGESTED ANSWER:
requirements of the
I will resolve the law.in favor of Joachin. In
issue property held by the taxpayer primarily for
auction sales of property for tax delinquency, sale to customers in the course of his trade or
notice to delinquent landowners and to the business, or property used in trade or
public in general is an essential and business of a character which is subject to the
ALTERNATIVE ANSWER:
indispensable requirement of law, the non- allowance
The term for depreciation,
ordinary income or real property
includes income
G.R. No. 82782, Aug. 5, 1992). The failure to used
fulfillment of which vitiates the same (Tiongco from performance of services, taxpayer.
in trade or business of the whether
give notice to the right person i.e., the real (Sec. 22 [Z] in
v. Phil. Veterans Bank, professional or relation to gains
personal, Sec. 39[A](1),
accruing both
from
owner, will render an auction sale void (Tan v. of the NIRC).
business, and profit arising from the sale or
Bantegui, G.R. No, 154027, October 24, 2005;
22, exchange of ordinary assets.
City1997).
Treasurer of Q.C. v. CA, G.R. No. 120974,
Dec.
Real Property Taxation: Exchange of hence the value of the land may be
Lot; Capital Gain Tax (1997) deductible in full from the gross income
A corporation, engaged in real estate' of Ace Tobacco Corporation if in accordance to
development, executed deeds of sale on a National Priority Plan determined by the
various subdivided lots. One buyer, after National Economic Development Authority.
going around the subdivision, bought a corner (Sec. 34{H](2)(a), NIRC). If the utilization is
lot with a good view of the surrounding not in accordance to a National Priority Plan
terrain. He paid P1.2 million, and the title to determined by the National Economic
the property was issued. A year later, the Development Authority, then Ace Tobacco
value of the lot appreciated to a market value Corporation may deduct the value of the land
of P1.6 million, and the buyer decided to build donated only to the extent of five (5%)
his house thereon. Upon inspection, however, percent of its taxable income derived from
he discovered that a huge tower antennae trade or business as computed without the
had been erected on the lot frontage totally The Municipality of Pateros is not subject to
benefit of the donation. (Sec. 34[H](2)(a) in
blocking his view. When he complained, the any donor's tax on the value of land it
relation to Sec. 34[H](1), NIRC).
realty company exchanged his lot with subsequently donated, it being exempt from
SUGGESTED ANSWER:
another corner islot with to
an capital
equal gains
area taxbut taxes as a political subdivision of the National
Yes, the buyer subject Government.
affording
on a better view.
the exchange Is the
of lots onbuyer liable for
the basis of The occupants/beneficiaries are subject to
capital gains
prevailing tax
fair on the value
market exchange of the
of the lots?
property real property taxes because they now own
transferred at the time of the exchange or the the land.
fair market value of the property received, ALTERNATIVE ANSWER on Taxability of Municipality
whichever is higher (Section 21(e), NIRC). and Awardees:
Real property transactions subject to capital The awarding by the Municipal Government of
gains tax are not limited to sales but also lots to specific awardees or donees is likewise
ALTERNATIVE ANSWER:
exchanges of property unless exempted by a exempt from the donor's tax because it is
No. The exchange is not subject to capital only an implementation of the purpose for
specific provision of law.
gains tax because it is merely done to comply which the property was given by Ace Tobacco
with the intentions of the parties to the Corporation. The purpose of the first donation
previous contract regarding the sale and is to devote the land as a relocation site for
acquisition of a property with a good view. the less fortunate constituents. If later on the
This is a simple substitution of the object of Municipality gives out Certificates of Award
sale and since the previous transaction was over specific lots occupied by the qualified
already subjected to tax, no new tax should occupants/beneficiaries, this is intended to
be imposed on the exchange (BIR Ruling No. perpetuate the purpose of the previous donor,
Real Property
21(e) 053-89 008-95). Taxation:
the Municipality acting merely as a conduit
Exemption/Deductions; Donors Tax
and not the true donor. This is simply a
(1998)
Ace Tobacco Corporation bought a parcel of The receipt by the occupant beneficiaries of
donation by the Municipality in form but not in
land situated at Pateros and donated it to the their respective lots through the Certificate of
substance.
Municipal Government of Pateros for the sole Award has no tax implications. They are,
purpose of devoting the said land as a however, liable for real property taxes.
relocation site for the less fortunate
constituents of said municipality. In Real Property Taxation: Exemption:
accordance therewith, the Municipal Gov- Acquiring New Principal Residence
ernment of Pateros issued to the (2000)
Last July 12, 2000, Mr. & Mrs. Peter Camacho
occupants/beneficiaries Certificates of Award sold their principal residence situated in
giving to them the respective areas where Tandang Sora, Quezon City for Ten Million
their houses are erected. Through Ordinance Pesos (P10,000,000.00) with the intention of
No. 2, Series of 1998, the said municipal using the proceeds to acquire or construct a
government ordained that the lots awarded to new principal residence in Aurora Hills,
the awardees/donees be finally transferred Baguio City. What conditions must be met in
SUGGESTED ANSWER:
and donated by
to Ace
them. Determine the tax order that the capital gains presumed to have
The donation Tobacco Corporation is SUGGESTED ANSWER:
consequence of the foregoing dispositions been realized from such sale may not be
exempt from the donor's tax because it The conditions are:
with respect subject to capital gains tax? (5%)
qualifies as atogift
Aceto Tobacco
or for Corporation,
the use of anythe 1. The proceeds are fully utilized in
Municipal
political Government
subdivision of
of Pateros,
the and the
National acquiring or constructing a new principal
occupants/beneficiaries. [5%]
Government (Section 101(2), NIRC). The residence within eighteen (18) calendar
conveyance is likewise exempt from months from the sale or disposition of the
documentary stamp tax because it is a principal residence or eighteen (18) months
Since the
transfer donation
without is to be used as a
consideration. from July 12, 2000.
relocation site for the less fortunate
constituents of the municipality. It may be
considered as an undertaking for human
settlements,
1The historical cost or adjusted basis of the real Real Property Taxation: Property
property sold or disposed shall be carried over to Sold is an Ordinary Asset (1998)
the new principal residence built or acquired. An individual taxpayer who owns a ten (10)
2The Commissioner of Internal Revenue must havedoor apartment with a monthly rental of
been informed by Mr. & Mrs. Peter Camacho withinP10,000 each residential unit, sold this
thirty (30) days from the date of sale or dispositionproperty to another individual taxpayer. Is
on July 12, 2000 through a prescribed return of SUGGESTED ANSWER:
the seller liable to pay the capital gains tax?
their intention to avail of the tax exemption. No.
[5%]The seller is not liable to pay the capital
3That the said exemption can only be availed of gains tax because the property sold is an
once every ten (10) years. ordinary asset, i.e. real property used in trade
or business. It is apparent that the taxpayer
4If there is no full utilization of the proceeds of is engaged in the real estate business,
sale or disposition, the portion of the gain
regularly renting out the ten (10) door
presumed to have been realized from the sale or Real Property Taxation: Underground
apartment.
disposition shall be subject to capital gains tax Gasoline Tanks (2001)
[Sec. 24 (D) (2), NIRC of 1997] Under Article 415 of the Civil Code, in order
for machinery and equipment to be
considered real property, they must be placed
by the owner of the land and, in addition,
Real Property Taxation: Fundamental must tend to directly meet the needs of the
Principles
State (1997)
the fundamental principles underlying industry or works carried on by the owner. Oil
real property taxation in the Philippines. companies, such as Caltex and Shell, install
SUGGESTED ANSWER: underground tanks in the gasoline stations
The following are the fundamental principles located on land leased by the oil companies
governing real property taxation: 1) Real from others. Are those underground tanks
property shall be appraised at its current and which were not placed there by the owner of
fair market value; 2) Real property shall be
the land but which were instead placed there
classified for assessment purposes on the
by the lessee of the land, considered real
basis of its actual use: SUGGESTED ANSWER:
property
Yes. for purposes
The underground tanksofalthough
real property
installed
3) Real property shall be assessed on the
taxation under the Local Government Code?
by the lessee, Shell and Caltex, are considered
basis of a uniform classification within each
Explain your answer. (5%)
as real property for purposes of the imposition
local government unit;
4) The appraisal, assessment, levy, and of real property taxes. It is only for purposes of
collection of real property tax shall not be let executing a final judgment that these
to any private person; and machinery and equipment, installed by the
5) The appraisal and assessment of real lessee on a leased land, would not be
property shall be equitable. considered as real property. But in the
imposition of the real property tax, the
Real Property Taxation: Principles & underground tanks are taxable as necessary
Limitations: LGU (2000) fixtures of the gasoline station without which
Give at least two (2) fundamental principles the gasoline station would not be operational.
governing real property taxation, which are Real Property Taxation; Exempted
(Caltex Phils., Inc v. CBAA, 114 SCRA.
limitations on the taxing power of local Properties
What (2006)
properties are exempt from the real
296).
governments insofar as the levying of the property tax? (5%)
SUGGESTED ANSWER: SUGGESTED ANSWER:
realty tax is concerned. (2%)
Two (2) fundamental principles governing The following properties are exempt from the
real property taxation are: 1) The appraisal real property tax (Section 234, Local
must be at the current and fair market (1) Real property
Government owned by the REPUBLIC OF
Code):
value; and 2) Classification for assessment THE PHILIPPINES or any of its political
must be on the basis of actual use. (Sec. 198, subdivisions except when the beneficial use
Local Government Code) thereof has been granted for consideration or
ALTERNATIVE ANSWER: otherwise to a taxable person;
The examinee should be given credit if he (2) CHARITABLE INSTITUTIONS, churches,
chooses the above two (2) or any two (2) of parsonages or convents appurtenant thereto,
those enumerated below: 1) Assessment mosques, non-profit or religious cemeteries, and
must be on the basis of uniform classification; all lands, buildings, and improvements actually,
2) Appraisal, assessment, levy and collection directly and exclusively used for religious,
shall not be let to private persons; and 3) charitable or educational purposes;
Appraisal and assessment must be equitable. (3) All machineries and equipment that
(Sec. 198, Local Government Code) are actually, directly and exclusively used by
LOCAL WATER UTILITIES and government-
owned or controlled corporations engaged in
the supply and distribution
of water and/or generation and
transmission of electric power;
(4) All real property owned by duly
REGISTERED COOPERATIVES as provided for
under R.A. 6938; and
(5) Machinery and equipment used for
POLLUTION CONTROL and ENVIRONMENTAL
PROTECTION.
TARIFF AND CUSTOMS DUTIES

Customs: Flexible Tariff
Clause
What (2001)
do you understand by the term "flexible
tariff clause" as used in the Tariff and
Customs Code?
SUGGESTED (5%)
ANSWER: The term "flexible
tariff clause "refers to the authority given to
the President to adjust tariff rates under
Section 401 of the Tariff and Customs Code,
which is the enabling law that made effective
the delegation of the taxing power to the
President[Note:
underIttheis Constitution.
suggested that if the
examinee cites the entire provision of
Sec. 401 of the Tariff &, Customs
Code, he should also be given full
Customs: Administrative vs. Judicial
credit.]
Remedies
The Tariff (1997)
and Customs Code allows the
Bureau of Customs to resort to the
administrative remedy of seizure, such as by
enforcing the tax lien on the imported article,
and to the judicial remedy of filing an action
(a)
in court.of When
the administrative,
does the Bureauinstead
of of the
Customs
judicial
normally remedy, or
avail itself;
(b) of the latter, instead of the
former, remedy?
SUGGESTED ANSWER:
(a) The Bureau of Customs normally avails
itself of the ADMINISTRATIVE REMEDY of
seizure, such as by enforcing the tax lien on
the imported articles, instead of the judicial
remedy when the goods to which the tax lien
attaches, regardless of ownership, is still in
the custody or control of the Government. In
the case, however, of importations which are
prohibited or undeclared, the remedy of
seizure and forfeiture may still be exercised
by the Bureau of Customs even if the goods
(b)
are On
no the
longerother hand,
in its when the goods are
custody.
properly released and thus beyond the reach
of tax lien, the government can seek
payment of the tax liability through judicial
action since the tax liability of the importer
constitutes a personal debt to the
government, therefore, enforceable by
action. In this case judicial remedy is
normally availed of instead of the
administrative remedy.
7) Countervailing duties are special payment of the customs duties or with legal
duties imposed by the Secretary of Finance permit to withdraw (Viduya vs. Berdiago,
upon prior investigation and report of the 73 SCRA 553).
Tariff Commission to offset an excise or inland
revenue tax upon articles of the same class Customs: Jurisdiction; Seizure &
manufactured at home or subsidies to foreign Forfeiture Proceedings (1996)
producers or manufacturers by their On January 1, 1996, armed with warrants of
respective governments. seizure and detention issued by the Bureau of
8) Marking duties are special duties Customs, members of the customs
equivalent to 5% ad valorem imposed on enforcement and security services coordinated
articles not properly marked. These are with the Quezon City police to search the
collected by the Commissioner of Customs premises owned by a certain Mr. Ho along
except when the improperly marked articles Kalayaan Avenue, Quezon City, which allegedly
are exported or destroyed under customs contained untaxed vehicles and parts. While
supervision and prior to final liquidation of the inside the premises, the member of the
corresponding entry. These duties are customs enforcement and security services
designed to prevent possible deception of the noted articles which were not included in the
9) Discriminatory duties are special
customers. list contained in the warrant. Hence, on
duties collected in an amount not exceeding On January
January 15, 25, 1996,
1996, an the customswarrant
amended personnel
and
100% ad valorem, imposed by the President started hauling
seizure was issued. the articles pursuant to the
of the Philippines against goods of a foreign amended warrant. This prompted Mr. Ho to
country which discriminates against Philippine file a case for injunction and damages with a
commerce or against goods coming from the prayer for a restraining order before the
Philippines and shipped to a foreign country. Regional Trial Court of Quezon City against
the Bureau of Customs on January 27, 1996.
Customs: Kinds of Custom On the same date, the Trial Court issued a
Duties (1997)
Explain briefly each of the special customs A motion to
temporary dismiss was
restraining filed by the Bureau
order.
duties authorized under the Tariff and of Customs on the ground that the Regional
Customs Code.
SUGGESTED ANSWER: Trial Court has no jurisdiction over the subject
The following are the Special Duties matter of the complaint claiming that it was
imposed under the Tariff and Customs Code: the Bureau of Customs that has exclusive
(a) Dumping Duty - This is a duty levied SUGGESTED
jurisdictionANSWER:
over it. Decide.
on imported goods where it appears that a The motion to dismiss should be granted.
specific kind or class of foreign article is Seizure and forfeiture proceedings are within
being imported into or sold or is likely to be the exclusive jurisdiction of the Collector of
sold in the Philippines at a price less than its Customs to the exclusion of regular Courts.
fair value; Regional Trial Courts are devoid of
(b) Countervailing Duty - This is a duty competence to pass upon the validity or
equal to the ascertained or estimated amount regularity of seizure and forfeiture
of the subsidy or bounty or subvention proceedings conducted by the Bureau of
granted by the foreign country on the Customs and to enjoin or otherwise interfere
production, manufacture, or exportation into G.R. No. proceedings
with these 104604, October
(Republic6,vs. CFI of
the Philippines of any article likely to injure an 1995).
Manila [Branch XXII], G.R. No. 43747,
industry in the Philippines or retard or Customs: Kinds
September 2, 1992; of Jao
Custom
vs. CA,
considerable retard the establishment of such Duties
Under the(1995)
Tariff and Customs Code,
(c)
industry;Marking Duty - This is a duty on an what are a) dumping duties b)
ad valorem basis imposed for improperly countervailing duties c) marking
marked articles. The law requires that foreign duties d) discriminatory duties?
importations must be marked in any official
language of the Philippines the name of the
country of origin of the article; SUGGESTED ANSWER:
(d) Discriminatory or Retaliatory Duty 6) Dumping duties are special duties
- This is a duty imposed on imported goods imposed by the Secretary of Finance upon
whenever it is found as a fact that the country recommendation of the Tariff Commission
of origin discriminates against the commerce when it is found that the price of the imported
Customs:
of the Philippines in suchbegin
a manner as to does it articles is deliberately or continually fixed at
Importation
When (1995)
does importation and when
place the commerce of the Philippines at a less than the fair market value or cost of
end?
SUGGESTED ANSWER:
disadvantage
IMPORTATION compared with the
begins from thecommerce
time the production, and the importation would cause
of any foreign
carrying vesselcountry.
or aircraft enters Philippine or likely cause an injury to local industries
territorial jurisdiction with the intention to engaged in the manufacture or production of
unload therein and ends at the time the the same or similar articles or prevent their
goods are released or withdrawn from the establishment.
customhouse upon
72 of 73
smuggled articles. The mere carrying of such similar
SUGGESTED goods
ANSWER: (Sec. 201[C]); Deductive
articles on board the truck (in commercial During(Sec.
value the pendency
II.E.1, CA.O. ofNo.
seizure
4-2004); proceedings
quantities) shall subject the truck to Computed value (Sec., II.F.l, C.A.O. No.of1-the
the importer may secure the release
forfeiture, since it was not being used as a imported
20040) andproperty
Fallback for value. legitimate
(Sec. 201[F]) use by
duly authorized common carrier, which was posting a bond
ALTERNATIVE ANSWER: in an amount to be fixed by
chartered or leased as such. (Sec. 2530 [a], The basis of dutiable
the Collector, conditionedvalue for of antheimported
payment of
Moreover,
TCC) although forfeiture of the vehicle article subject to
the appraised an ad
value of valorem
the article taxand/or
under the any
will not be effected if it is established that the Tariff
fine, and Customs
expenses andCode is its which
costs transaction may be
owner thereof had no knowledge of or value,
adjudged which shallcase;
in the be the price actually
provided, paid
that articles
participation in the unlawful act, there arises a or payable for the goods when
the importation of which is prohibited by law sold for export
prima facie presumption or knowledge or The
to theimporter
shall notPhilippines, mayadjusted
be released also
under offer
by to paycertain
adding
bond. to the
participation if the owner is not in the collector
cost elementsa fine to theimposed
extent by thathim theyuponare the
business for which the conveyance is property by
incurred to the
secure
buyeritsbut release
are notorincluded
in caseinof
generally used. Thus, not having a certificate forfeiture, the importer
the price actually paid orshallpayable offerfortothe pay for
of public convenience to operate a trucking the
imported goods. (Sec. 201[A], Tariff andseized
domestic market value of the
If such value
article,
Customs which
Code, could
offer not be determined,
subject
as amended to
bytheR.A.approvalthen of
9135)
business, he is legally deemed not to have
Customs: the
the following valuesmay are to bebeaccepted
utilized inby their
been engaged Steps involving
in the trucking business. (Sec. Commissioner the
Protest
The Cases
Collector of(1994)
Customs instituted seizure sequence:
Collector in Transaction
settlementvalue of the of identical
seizure case,
2531, Tariff and Customs Code)
proceedings against a shipment of motor goods
except(Sec. when201[B]);
there isTransaction
fraud. Uponvalue paymentof of
vehicles for having been misdeclared as similar
the fine goods or (Sec.
domestic201[C]); Deductive
market value,value the
second-hand vehicles. State the procedure C.A.O.
(Sec.
property No.shall
II.E.1, 1-20040)
CA.O. beNo. and Fallback
4-2004);
forthwith value.and
Computed
released (Sec. all
for the review of the decision up to the 201[F])
value (Sec. II.F.l,
liabilities which may or might attach to the
SUGGESTED ANSWER:
Supreme Court of the Collector of Customs Customs; Countervailing Duty vs.
property by virtue of the offense which was
The
adverseprocedure in seizure cases may be
to the importer. Dumping Duty
Distinguish (2005) duty from dumping duty.
countervailing
the occasion of the seizure and all liability
summarized as follows: (5%)
SUGGESTED ANSWER:
which might have been countervailing
incurred under any
(a) The collector issues a warrant for the The distinctions
Customs: between
Returning Residents: duty
bond
and given
dumping by the
duty are importer
the in respect
following: to such
detention or forfeiture of the imported Tourist/Travelers
X and his wife, (2003)
Y, Filipinos living in the
property
(1) Basis: shall
The thereupon beduty
countervailing deemedis imposedto be
articles; (Sec. 2301, Tariff and Customs Code) Philippines, went on a three-month pleasure
discharged.
whenever there
(b) The Collector gives the importer a trip around the isworld
granted duringuponthe themonths
imported of
written notice of the seizure and fixes a article by the country of origin
June, July and August 2002. In the course of a specific
hearing date to give the importer an subsidy
their trip, uponthey its production,
accumulatedmanufacturesome personal or
opportunity to be heard; (Sec. 2303, TCC) exportation
effects which andwere this results or threatens
necessary, injury
appropriate
(c) A formal hearing is conducted; to
and local industry
normally usedwhilein the basis
leisure for the
trips, as well as
(d) The Collector
(Sec. 2312, TCC) renders a declaration of imposition
souvenirs in of dumping
non-commercial duty is the importation
quantities. Are
forfeiture; (Sec. 2312, TCC) and
theysale of imported
"returning items atfor
residents" below their
purposes of
(e) The Importer aggrieved by the action (2) Amount:
SUGGESTED
normal The
ANSWER: countervailing duty imposed
Section value105 ofcausing
the Tariffor likely
and to cause
Customs injury
Code?
of the Collector in any case of seizure may No.
is
to Theindustry.
equivalent
local termto"returning
the value of residents"
the specific refers to
Explain. (8%)
appeal to the Commissioner for his review nationalswhile
subsidy who thehavedumping stayedduty in a foreign
is equivalent
within fifteen (15) days from written notice of country
to for a period
the margin of dumpingof at least
whichsix is (6)
equalmonths.
to the
the Collector's decision; (Sec. 2313, TCC) (Section 105(f)
difference between of the
theexport
Tariff priceand to Customs
the
(f) The importer aggrieved by the action Code). Dueand
Philippines to the
theirnormal
limited duration
value of theof stay
or ruling of the Commissioner in any case of abroad Xarticle.
imported and Y are not considered as
seizure may appeal to the Court of Tax "returning residents" but they are merely
(g)
Appeals;The importer
(Sec. 2402, adversely
TCC) affected by considered [Note:asCredit must or
travelers likewise
tourists be who
givenenjoyif the
the decision of the Court of Tax Appeals candidate answered in the affirmative,
the benefit of conditionally free importation.
considering that travelers or tourists are
(Division) may appeal to the Court of Tax
given the same tax treatment as that of
(15) days
Appeals whichwithin
(en banc) may be extended for
fifteen returning residents, treating their personal
(15) daysfifteen
another or such period as the Court of effects, not in commercial quantities, as
Tax Appeals may decide. Customs: Seizurefree
conditionally & importation.]
Forfeiture:
Effects
In (1994)
smuggling a shipment of garlic, the
Customs; Basis of Dutiable Value; smugglers used an eight-wheeler truck which
Imported
State Article the
and explain (2005)
basis of dutiable value they hired for the purpose of taking out the
of an imported article subject to an ad shipment from the customs zone. Danny, the
valorem tax under the Tariff and Customs truck owner, did not have a certificate of
ALTERNATIVE
Code. ANSWER:
The basis of dutiable value of an imported public convenience to operate his trucking
article subject to an ad valorem tax under the business. Danny did not know that the
Tariff and Customs Code is its TRANSACTION shipment of garlic was illegally imported. Can
VALUE. (Sec. 201[A], Tariff and Customs Code, the Collector of Customs of the port seize and
SUGGESTED ANSWER:
Customs:
as amendedRemedies
by R.A. No. of an If such value
9135) forfeit the truck as an instrument in the
Yes, the Collector of Customs of the port can
Importer
could
Discuss (1996)
notbriefly
be determined,
the remediesthen
of the following
an importer smuggling?
seize and forfeit the truck as an instrument in
values are pendency
during the to be utilized in their
of seizure sequence:
proceedings. the smuggling activity, since the same was
Transaction value of identical goods (Sec. used unlawfully in the importation of
201[B]); Transaction value of

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Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail.

students. (1994 2006)

law. From thetoANSWERS

Detailed Table of Contents

(c) It has retained MORE SCHEDULAR

(b) Tariff and Customs Code - It does

Note: Any three of the methods shall be

Fringe Benefit Tax: Employer

withholding of final tax because the Philippine tax

law and regulations could not reach out to foreign

local agent who has control over the payment of the

fails to withhold, shall, in addition to the other

penalties provided under the Code, be liable upon

conviction to a penalty equal to the total amount of

tax not withheld (Sec. 251, NIRC). In case of failure

to withhold the tax or in

withholding, the deficiency tax shall be collected

from the payor/withholding agent (1st par.. Sec.

Exclusions & Inclusions; ITR; Proceeds

CORPORATION & PARTNERSHIP

Donors Tax; Donation to a

Note: The other real estate transactions

VAT: Liable for

BIR: Compromise; Extent of

of financial incapacity to pay his tax liability (Sec. 6(F). NIRC).

The limited power of the Commissioner does

one hundred eighty (180) days from submission of all

relevant documents, then the taxpayer has a period of

which to interpose a petition for review with the

Court of Tax Appeals.

then he has a period of thirty (30) days from receipt

of said denial within which to interpose a petition for

review with the Court of Tax Appeals.

The JUDICIAL REMEDIES of an aggrieved

TARIFF AND CUSTOMS DUTIES

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