University of Santo Tomas

Faculty of Civil Law

TAXATION LAW
Questions Asked More
Than Once
(QuAMTO 2017)

*QUAMTO is a compilation of past bar questions with answers as suggested by

UPLC and other distinct luminaries in the academe, and updated by the UST
Academics Committee to fit for the 2017 Bar Exams.

*Bar questions are arranged per topic in accordance with the bar syllabus
released by the Supreme Court and were selected based on their occurrence
on past bar examinations from 1987 to 2016.
 ACADEMICS COMMITTEE
CAMILLE ANGELICA B. GONZALES SECRETARY GENERAL

EMNIE VALERIE B. DURAN

IRVIN L. PALANCA
EXECUTIVE COMMITTEE
LARA NICOLE T. GONZALES
MARIELLA A. MARASIGAN

CAMILLE ANGELICA B. GONZALES LAYOUT AND DESIGN

QUAMTO COMMITTEE MEMBERS

JACKIELYN KRYSTYL NIHAMA BANA

KARL ANTHONY BULAONG
MERVIN MARCOS
KELLY ANN RUBIN
NESTOR FERNANDO SIAZON

ATTY. AL CONRAD B. ESPALDON

ADVISER
 QUAMTO (1987-2016)
TAXATION QUAMTO
GENERAL PRINCIPLES OF TAXATION
NATURE AND CHARACTERISTICS OF TAXATION (1996,
2003, 2005)
A:The power of taxation is inherent in the State being an
attribute of sovereignty. As an incident of sovereignty, the
power to tax has been described as unlimited in its range,
acknowledging in its very nature no limits, so that security
against its abuse is to be found only in the responsibility of
the legislature which imposes the tax on the constituents
who are to pay it. (Mactan Cebu International Airport
Authority v. Marcos, 261 SCRA 667)
Being an inherent power, the legislature can enact laws to
raise revenues even without the grant of said power in the
Constitution. It must be noted that Constitutional
provisions relating to the power of taxation do not operate
as grants of the power of taxation to the Government, but
instead merely constitute limitations upon a power which
would otherwise be practically without limit. (Cooley,
Constitutional Limitations, 1927 8th Ed., p. 787)
Power of Taxation as distinguished from Police Power
and Eminent Domain (1989, 1991, 2003)
A:The imposition on the operator of the massage clinic is
both a tax and a license fee. The amount of P5,000.00
exceeds the cost of regulation, administration and control
but it is likewise imposed to regulate a non-useful business
in order to protect the health, safety and morals of the
citizenry in general. The P50.00 impositions on the helpers
or attendants are license fees sufficient only for regulation,
administration and control.
Theory and Basis of Taxation (1991, 2016)
23 Briefly explain the following doctrines: lifeblood
doctrine xxx (2016 Bar)
23 Lifeblood doctrine. Taxes are the lifeblood of the
government [Chamber of Real Estate and Builders’
Associations, Inc. v. Romulo, 614 SCRA 605 (2010)] for
without taxes, the government can neither exist nor
endure. (National Power Corporation v. City of Cabanatuan,
G.R. No. 149110, April 9, 2003 citing various cases)
INHERENT LIMITATIONS
23 Enumerate the four (4) inherent limitations on
taxation. Explain each item briefly. (2009 Bar)
23The inherent limitations on the power to tax are:
23 Taxation is for a public purpose– The proceeds of the
tax must be used (a) for the support of the State or (b)
for some recognized objective of the government or to
directly promote the welfare of the community.
24 Taxation is inherently legislative– Only the legislature
has full discretion as to the persons, property,
1
occupation or business to be taxed provided these are
all within the State’s territorial jurisdiction. It can also
finally determine the amount or rate of tax, the kind of
tax to be imposed and the method of collection. (1
Cooley 176184)
23 Taxation is territorial– Taxation may be exercised only
within the territorial jurisdiction of the taxing
authority (61 Am. Jur. 88). Within the territorial
jurisdiction, the taxing authority may determine the
place of taxation” or “tax situs."
24 Taxation is subject to international comity– This is a
limitation which is founded on reciprocity designed to
maintain a harmonious and productive relationships
among the various states. Under international comity,
a state must recognize the generally-accepted tenets of
international law, among which are the principles of
sovereign equality among states and of their freedom
from suit without their consent, that limit the
authority of a government to effectively impose taxes
on a sovereign state and its instrumentalities, as well
as on its property held, and activities undertaken in
that capacity.
Public Purpose (1989, 1991)
23 Yes, because a portion of the fees collected would be
diverted as fees to private corporation. Entrusting of the
collection of the market stall fees violates the limitation
that local government units shall in no case let to any
private person the collection of local taxes, fees, charges
and other impositions. [Sec. 130 (c), R.A. No. 7160, The
Local Government Code] As a result of this prohibition,
public funds are therefore utilized for a private purpose,
which is to pay the private corporation for its services.
CONSTITUTIONAL LIMITATIONS
Equality and Uniformity (1988, 2000, 2003, 2004)
23 The suit will not prosper. The remission or
condonation of taxes due and payable to the exclusion of
taxes already collected does not constitute unfair
discrimination. Each set of taxes is a class by itself and the
law would be open to attack as class legislation only if all
taxpayers belonging to
 TAXATION LAW
one class were not treated alike. [Juan Luna Subdivision,
Inc., v. Sarmiento, 91 Phil 371 (1952)]
Non Impairment of Obligations of Contracts (1997,
2004)
23 A law was passed granting tax exemption to certain
industries and investments for a period of five years. But
three years later, the law was repealed. With the repeal,
the exemptions were considered revoked by the BIR,
which assessed the investing companies for unpaid taxes
effective on the date of the repeal of the law.
NPC and KTR companies questioned the assessments
on the ground that, having made their investments in
full reliance with the period of exemption granted by
the law, its repeal violated their constitutional right
against the impairment of the obligations and
contracts. Is the contention of the companies tenable
or not? Reason briefly.
23The contention is not tenable. The exemption granted is
in the nature of a unilateral tax exemption. Since the
exemption given is spontaneous on the part of the
legislature and no service or duty or other remunerative
conditions have been imposed on the taxpayers receiving
the exemption, it may be revoked at will by the legislature.
[Manila Railroad Company v. Insular Collector of Customs,
12 PhiL 146 (1915)]
KINDS OF TAXES
Direct and Indirect Taxes (1994, 2000, 2001, 2006)
23Distinguish “direct taxes” from “indirect taxes". Give
examples. (2006 Bar)
23Direct taxes are demanded from the very person who, as
intended, should pay the tax which he cannot shift to another;
while an indirect tax is demanded in the first instance from
one person with the expectation that he can shift the burden
to someone else, not as a tax, but as part of the purchase price.
(Maceda v. Macaraig, Jr., 223 SCRA 217 [1993]) Examples of
direct taxes are income tax, estate tax and donor’s tax.
Examples of indirect taxes are value-added tax, percentage tax
and excise tax on excisable articles.
CONSTRUCTION AND INTERPRETATION OF TAX LAWS
Tax Exemption and Exclusion (1996,2005, 2007)
23 Tax exemptions are strictly construed against the taxpayer
because such provisions are highly disfavored and may almost
be said to be odious to the law (Manila Electric Company vs.
Vera, 67 SCRA351). The exception contained in the tax statutes
must be strictly construed against the one claiming the
exemption because the law does not look with favor on tax
exemptions, they being contrary to the life-blood theory
which is the underlying basis for taxes.
23Yes. The sale is subject to tax. Section 107 (B) of the
NIRC provides that: "In the case of tax-free importation of
goods into the Philippines by persons, entities or agencies
exempt from tax where such goods are subsequently sold,
UST BAR OPERATIONS
transferred or exchanged in the Philippines to non-exempt
persons or entities, the purchasers, transferees or
recipients shall be considered the importer thereof, who
shall be liable for any internal revenue tax on such
importation”. Tax exemptions are to be construed strictly
and are not considered transferable in character.
DOUBLE TAXATION (1996, 1997, 2004, 2015)
23 Differentiate between double taxation in the strict
sense and in a broad sense and give an example of
each. (2015 Bar)
23Double taxation in the strict sense pertains to the direct
double taxation. This means that the taxpayer is taxed
twice by the same taxing authority, within the same taxing
jurisdiction, for the same property and same purpose.
Example: Imposition of final withholding tax on cash
dividend and requiring the taxpayer to declare this tax-
paid income in his income tax returns.
On the other hand, double taxation in the broad sense
pertains to indirect double taxation. This extends to all
cases in which there is a burden of two or more
impositions. It is the double taxation other than those
covered by direct double taxation (CIR v.Solidbank Corp.,
436 SCRA 416). Example: Subjecting the interest income of
banks on their deposits with other banks to the 5% gross
receipts tax (GRT) despite of the same income having been
subjected to 20% final withholding tax (FWT), is only a
case of indirect double taxation. The GRT is a tax on the
privilege of engaging in business while the FWT is a tax on
the privilege of earning income.
23X, a lessor of a property, pays real estate tax on the
premises, a real estate dealer’s tax based on rental
receipts and income tax on the rentals. X claims that
this is double taxation. (1996 Bar)
23 There is no double taxation. Double taxation means taxing
for the same tax period the same thing or activity twice, when
it should be taxed but once, by the same taxing authority for
the same purpose and with the same kind or character of tax.
The real estate tax is a tax on property; the real estate dealer’s
tax is a tax on the privilege to engage in business; while the
income tax is a tax on the privilege to earn an income. These
taxes are imposed by different taxing authorities and are
essentially of different kind and character (Villanueva v. City
of Iloilo, 26 SCRA 578).
ESCAPE FROM TAXATION (TAX AVOIDANCE V. TAX
EVASION)
Tax avoidance and Tax Evasion (1989, 1996, 2000,
2005, 2008, 2014, 2016)
A: Tax evasion is a scheme used outside of those lawful
means to escape tax liability and, when availed of, it
usually subjects the taxpayer to further or additional civil
or criminal liabilities. Tax avoidance, on the other hand, is a
tax saving device within the means sanctioned by law,
hence legal.
,
2
 QUAMTO (1987-2016)
) liabilities than for legitimate business purpose constitutes
A: The contention of the RDO is not tenable. Maria Suerte
resorted to tax avoidance and not tax evasion. Tax avoidance
is the use of legal means to reduce tax liability and it is the
legal right of a taxpayer to decrease the amount of what
otherwise would be his taxes by means which the law permits.
(Heng Tong Textiles Co., Inc. v. Commissioner). There is nothing
illegal about transferring first the property to a corporation in
a tax free exchange and later selling the shares obtained in the
exchange at a lower tax than what could have been imposed if
the property was sold directly.
23Yes. The BIR is correct in assessing the taxes on Lucky.
There was no tax avoidance, instead there was tax evasion
on the part of Lucky because of the simulated sale to
Rainier which had its apparent purpose to reduce the
income tax to be paid by Lucky on the sale to HSC.
The sale to Rainier was simulated as evidenced by the fact
that two months prior to the sale of the properties to
Rainier, Lucky received P40 million from HSC and not from
Rainier.
The intermediary transaction (the simulated sale to
Rainier), was prompted more on the mitigation of tax
3
one of tax evasion.
EXEMPTION FROM TAXATION
Constitutional Limitation to the power of Congress in
granting tax exemptions (1989, 1992)
A: Yes. The tax exemption is valid because an executive
agreement has the force and effect of a treaty under
the provision of the Revenue Code. Taxation is subject
to International Comity.
ALTERNATIVE ANSWER:
23The act of tax exemption is an act of taxation which is
inherently legislative. Therefore, a mere executive
agreement cannot provide for a tax exemption.
COMPENSATION AND SET-OFF (1990, 1992, 1996,
2001, 2005)
23 No. Taxes cannot be the subject of set-off or
compensation for the following reasons: (1) taxes are of
distinct kind, essence and nature, and these impositions
cannot be classed in merely the same category as ordinary
obligations; (2) the applicable laws and principles
governing each are peculiar, not necessarily common, to
each; and (3) public policy is better subserved if the
integrity and independence of taxes are maintained.
[Republic v. Mambulao Lumber Company, 4 SCRA 622
(1962)].
However, if the obligation to pay taxes and the taxpayer’s
claim against the government are both overdue,
demandable, as well as fully liquidated, compensation
takes place by operation of law and both obligations are
extinguished to their concurrent amounts. [Domingo v.
Garlitos, 8 SCRA 443 (1963)].
23 No. Taxes and debts are of different nature and
character; hence, no set-off or compensation between
these two different classes of obligations is allowed. The
taxes assessed are the obligations of the taxpayer arising
from law, while the money judgment against the
government is an obligation arising from contract, whether
express or implied. Inasmuch that taxes are not debts, it
follows that the two obligations are not susceptible to set-
off or legal compensation. [Francia v. Intermediate
Appellate Court, 162 SCRA 753 (1988)].
It is only when the local tax assessment and the final
judgment are both overdue, demandable, as well fully
 TAXATION LAW
liquidated may set-off or compensation be allowed.
[Domingo v. Garlitos, 8 SCRA 443 (1963)].
TAXPAYER’S SUIT (1990, 1996)
23 A taxpayer's suit may only be allowed when an act
complained of, which may include a legislative enactment,
directly involves the illegal disbursement of public funds
derived from taxation. (Pascual vs. Secretary of Public
Works, 110 Phil. 331)
23 No, because Atty. JN is not prejudiced by the law. It
is not his tax money that is being used. In short, he has no
locus standi. Furthermore, assistance to the prawn
industry is for a public purpose because the industry is one
of the pillars of the economy contribution to employment
and foreign exchange (Domondon, Remedies, pg 815)
POWERS AND FUNCTIONS OF THE COMMISSIONER OF
INTERNAL REVENUE
Power to inquire into bank deposits (1998, 1999,
2000, 2003, 2012)
23The Commissioner of Internal Revenue is authorized to
inquire into the bank deposits of:
23 any taxpayer upon his written consent;
24 a decedent to determine his gross estate;
25 any taxpayer who has filed an application for
compromise of his tax liability by means of financial
incapacity to pay his tax liability;
26 A specific taxpayer or taxpayers subject of a request
for the supply of tax information from a foreign tax
authority pursuant to an international convention or
agreement on tax matters to which the Philippines is a
signatory. [Sec. 6(F), NIRC]
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 legislation.
Furthermore, 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
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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
deposits of the taxpayer.
NATIONAL TAXATION
REALIZATION AND RECOGNITION OF INCOME (1989,
1993, 2009, 2010, 2012)
23 The “all events test” is a test applied in the
realization of income and expense by an accrual-basic
taxpayer. The test requires (1) the fixing to the right to the
income or liability to pay; and (2) the availability of
reasonably accurate determination of such income or
liability, to warrant the inclusion of the income or expense
the gross income or deductions during the taxable year.
(CIR v. Isabela Cultural Corporation, GR No. 172231, Feb 12,
2007)
23 No. Mr. Castillo is not liable for income tax in 2011
because no income is realized by him during that year. Tax
liability for income tax attaches only if there is a gain
realized resulting from a closed and complete transaction
(Madrigal v. Rafferty, G.R. No. L-12287, August 7, 1918)
CLASSIFICATION OF INCOME SUBJECT TO TAX
Taxable Income
A: It is the employer who is legally required to 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
theemployer. 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 that person
who, in case of non-payment, can be legally demanded to
pay the tax.
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 QUAMTO (1987-2016)

revenues. Capital gains are generally taxed at a lower rate

23 No. The assignments are not gratuitous, and there is no
intent to transfer ownership hence not subject to gift tax.
The value of the right to avail of the privileges attendant to
Mabuhay Golf Club, Inc. Membership Certificate is due to
David’s merits or services as a computer consultant. It is a
fringe benefit taxable to the employer. [NIRC of 1997, Sec.
33 (B) (6)]
to prevent, among others, the bunching of income in one
taxable year which is a liberality in the law begotten from
motives of public policy (Rule on Holding Period). It stands
to reason therefore, that if the transaction results in loss,
the same should be allowed only from and to the extent of
capital gains and not to be deducted from ordinary gains
which are subject to a higher rate of income tax.

INCOME FROM DEALINGS IN PROPERTY (1987, 1988,
1989, 1991, 1992, 1993, 1994, 1997, 1998, 2001, 2003,
2005, 2007, 2008, 2009, 2012, 2014, 2015)
23 Distinguish a “capital asset" from an “ordinary
asset". (2003 Bar)
23 The term “capital asset” regards all properties not
specifically excluded in the statutory definition of capital
assets, the profits or loss on the sale or the exchange of
which are treated as capital gains or capital losses.
Conversely, all those properties specifically excluded are
considered as ordinary assets and the profits or losses
realized must have to be treated as ordinary gains or
ordinary losses. Accordingly, “capital assets” includes
property held by the taxpayer whether or not connected
with his trade or business, but the term does not include
any of the following, which are consequently considered
“ordinary assets:”
23 The land is a capital asset because it is neither for
sale in the ordinary course of business nor a property used
in the trade or business of the taxpayer. (Sec. 33. NIRC).
23 Yes. Mr. Naval is liable to the 6% capital gains tax
imposed under the Tax Code based on the gross selling
price of P800, 000.00 which is an amount higher than the
zonal value.
.
23 The one hectare agricultural land owned by Juan
Gonzales is a capital asset because it is not a real property
used in trade or business. The one-half hectare residential
property owned by Alpha Corporation is an ordinary asset
because the owner is engaged in the purchase and sale of
real property. (Section 39, NIRC, Revenue Regulations No. 7-
03)

23 stock in trade of the taxpayer or other property of a 23 Yes. The tax base in a taxable disposition of a real
kind which would properly be included in the property classified as a capital asset is the higher between
inventory of the taxpayer if on hand at the close of the two values: the fair market value of the property received
taxable year; in exchange and the fair market value of the property
24 property held by the taxpayer primarily for sale to exchanged. Since the fair market value of two properties
customers in the ordinary course of trade or business; are the same, the said fair market value should be taken as
25 property used in the trade or business of a character the tax base which is P10 million. The income tax rate is
which is subject to the allowance for depreciation 6%. [Section 24(D) (1), NIRC].
provided in Section 34 (F) of the Tax Code; or
26 real property used in trade or business of the taxpayer. 23Yes. The gain from the exchange constitutes an item of
gross income, and being a business income, it must be
The statutory definition of “capital assets” practically reported in the annual income tax return of Alpha
excludes from its scope, it will be noted, all property held
by the taxpayer if used in connection with his trade or
business.
23 )
A: It is to insure that only costs or expenses incurred in
earning the income shall be deductible for income tax
purposes consonant with the requirement of the law that
only necessary expenses are allowed as deductions from
gross income. The term “necessary expenses” presupposes
that in order to be allowed as deduction, the expense must
be business connected, which is not the case insofar as
capital losses are concerned. This is also the reason why all
nonbusiness connected expenses like personal, living and
family expenses, are not allowed as deduction from gross
income. [Section 36(A)(1) of the 1997 Tax Code]

ALTERNATIVE ANSWER:
The prohibition of deduction of capital losses from ordinary
gains is designed to forestall the shifting of deductions from
an area subject to lower taxes to an area subject to higher
taxes, thereby unnecessarily resulting in leakage of tax

5
 TAXATION LAW
Corporation. From the pertinent items of gross income,
deductions allowed by law from gross income can be
claimed to arrive at the net income which is the tax base
for the corporate income tax rate of 35%. (Section 27 (A)
and Section 31, NIRC)
Exemptions from capital gains tax
A: I would advise Mr. H that he may be exempted from the
payment of the capital gains tax on the sale or disposition
of the house and lot where his family lives because the sale
of principal residence by a natural person is exempt
provided the following conditions are complied with:
23 The proceeds of the sale is fully utilized in acquiring or
construction new principal residence within 18
calendar months from the date of the sale or
disposition;
23 The historical cost or adjusted basis of the real property
sold or disposed will be carried over to the new
principal residence built or acquired;
23 The Commissioner has been duly notified, through a
prescribed return, within 30 days from the date
of sale or disposition of the person’s intention to avail
of the tax exemption; and
23 The exemption was availed only once every 10 years.
[Sec 24 (d)(2), NIRC]
23 The transfer by Mr. Legaspi to the corporation of the
parcel of land in payment of his unpaid subscription did
not increase his stockholdings in the corporation. It cannot
be said that he acquired control of the corporation by
virtue of the transfer of the land. His percentage of
stockholdings in the capital stock of the corporation
remains the same after the transfer as before. Therefore,
Mr. Legaspi derived taxable gain for his economic gain
which was realized by virtue of the exchange of the land for
the liability for the subscription.
ALTERNATIVE ANSWER: Mr. Legaspi is not liable for any
taxable gain. The transaction amounted to an exchange of
shares of property for shares of stock as a result of which
the property transferor acquired control of the
corporation. The 13,000 shares of stock acquired in
exchange of property was more than fifty percent (50%) of
the total subscribed capital stock of Cebu Development,
Inc. (CDI) that qualified the transaction as a tax-exempt
under the provisions of Sec. 34 (c) (2) of the National
Internal Revenue Code.
UST BAR OPERATIONS
PASSIVE INVESTMENT INCOME (1994, 1995, 1997,
2000, 2003, 2005, 2015)
23 BBB, Inc., a domestic corporation, enjoyed a
particularly profitable year in 2014. In June 2015, its
Board of Directors approved the distribution of cash
dividend to its stockholders. BBB, Inc. has individual
and corporate stockholders. What is the tax treatment
of the cash dividends received from BBB, Inc. by the
following stockholders:
1. A resident citizen
23 A final withholding tax for ten percent (10%) shall be
imposed upon the cash dividends actually or constructively
received by a resident citizen from BBB, Inc. (Sec. 24 (b)
(2), NIRC).
2. Non-resident alien engaged in trade or business
23 A final withholding tax of twenty percent (20%)
shall be imposed upon the cash dividends actually or
constructively received by a non-resident alien engaged in
trade or business from BBB, Inc. (Sec. 25 (a)(2), NIRC).
3. Non-resident alien not engaged in trade or business
23 A final withholding tax equal to twenty-five percent
(25%) of the entire income received from all sources
within the Philippines, including the cash dividends
received from BBB, Inc. (Sec. 25(b), NIRC).
4. Domestic corporation
Dividends received by a domestic corporation from
another domestic corporation, such as BBB, Inc., shall not
be subject to tax (Sec. 27(d)(4), NIRC).
5. Non-resident foreign corporation
Dividends received by a non-resident foreign corporation
from a domestic corporation are generally subject to an
income tax of 30% to be withheld at source (Sec. 28(b)(1),
NIRC). However, a final withholding tax of fifteen percent
(15%) is imposed on the amount of cash dividends
received from a domestic corporation like BBB, Inc. if the
tax sparing rule applies (Sec. 28(B)(5)(b), NIRC). Pursuant
to this rule, the lower rate of tax would apply if the country
in which the non-resident foreign corporation is domiciled
would allow as tax credit against the tax due from it, taxes
deemed paid in the Philippines of 15% representing the
difference between the regular income tax rate and the
preferential rate.
Mr. Javier is exempt from income tax on his monthly GSIS
pension [Sec. 32(B)(6)(f). NIRC of 1997] but not on the
interest income that might accrue on the pensions
deposited with PNB which are subject to final withholding
tax.
Consequently, since Mr. Javier’s sole taxable income would
have been subjected to a final withholding tax, he is not
required anymore to file an income tax return. [Sec. 51 (A)
(2) (c)NIRC].
Disguised dividends are those income payments made by a
domestic corporation, which is a subsidiary of a non-
resident foreign corporation, to the latter ostensibly for
6
 QUAMTO (1987-2016)
services rendered by the latter to the former, but which
payments are disproportionately larger than the actual
value of the services rendered. In such case, the amount
over and above the true value of the service rendered shall
be treated as a dividend, and shall be subjected to the
corresponding tax of 35% on Philippine sourced gross
income, or such other preferential rate as may be provided
under a corresponding Tax Treaty.
Example: Royalty payments under a corresponding
licensing agreement.
ANNUITIES, PROCEEDS FROM LIFE INSURANCE OR
OTHER TYPES OF INSURANCE (1988, 1991, 2003, 2005,
2007)
A: No. The proceeds of life insurance policies paid to the
heirs or beneficiaries upon the death of the insured are not
included as part of the gross income of the recipient.
[Section 32(B)(1), NIRC] There is no income realized
because nothing flows to Noel’s parents other than a mere
return of capital, the capital being the life of the insured.
The P50, 000.00 insurance proceeds is not totally exempt
from income tax. The excluded amount is only that portion
which corresponds to the premiums that he had paid since
1965. At the rate of P1,520.00 per year multiplied by twenty
(20) years which was the period of the policy, he must have
paid a total of P30, 400.00. Accordingly, he will be subject to
report as taxable income the amount of P 19,600.00.
PRIZES AND AWARDS (1993, 1996, 2000, 2015)
Yes. Under the Tax Code, the income within and without of
a resident citizen is taxable. Since Mr. A is a resident
Filipino citizen, his income worldwide is taxable in the
Philippines. [Sec. 23 (A), NIRC]
7
No. Under the law, all prizes and awards granted to athletes in
local and international sports competitions and tournaments
whether held in the Philippines or abroad and sanctioned by
their national sports associations are excluded from gross
income. The exclusion find application only to amateur
athletes where the prize was given in an event sanctioned by
the appropriate national sports association affiliated with the
Philippine Olympic Committee and not to professional
athletes like Mr. A. Therefore, the prize money would not
qualify as an exclusion from Mr. A’s gross income. [SEC 32 B
(7)(d), NIRC]
The income taxes withheld and paid to the US government
maybe claimed by Mr. A, either as a deduction from his
gross income or as a tax credit from the income tax due
when he computes his Philippine income tax liability for
taxable year 2013. [Sec. 34 (C) (1) (b), NIRC]
PENSIONS, RETIREMENT BENEFIT OR SEPARATION
PAY (1988, 1991, 1994, 1995, 1996, 1999, 2000, 2005,
2007)
No. The provisions of any existing law to the contrary
notwithstanding, social security benefits, retirement
gratuities, pensions and other similar benefits received by
a resident citizens of the Philippines , such as Z, from a
foreign private institutions, is excluded from income
taxation. [Sec. 32 (B) (6) (c), NIRC]
No. The amount received by the widow from the
decedent’s employer may either be a gift or a separation
benefit on account of death. Both are exclusions from gross
income pursuant to provisions of Section 28(b) of the Tax
Code.
ALTERNATIVE ANSWER: No. Since the amount was given
to the widow and not to the estate, it becomes obvious that
the amount is more of a gift. In one U.S. tax case (Estate of
Hellstrom vs. Commissioner, 24 T.C. 916), it was held that
payments to the widow of the president of a corporation of
the amount the president would have received in salary if
he lived out the year constituted a gift and not an income.
The controlling facts which would lead to the conclusion
that the amount received by the widow is not an income
are as follows:
 TAXATION LAW
the gift was made to the widow rather than the estate:
there was no obligation for the corporation to make
further payments to the deceased;
the widow had never worked for the corporation;
the corporation received no economic benefit; and
the deceased had been fully compensated for his services.
[Estate of Sydney Carter us. Commissioner, 453 F. 2d 61
(2d Cir. 1971)]
No. The commutation of leave credits, more commonly
known as terminal leave pay, ie., the cash equivalent of
accumulated vacation and sick leave credits given to an
officer or employee who retires, or separated from the
service through no fault of his own, is exempt from income
tax. (BIR Ruling 238-91 dated November 8, 1991;
Commissioner v. CA and Efren Castaneda, GR No. 96016,
October 17, 1991)
Retirement benefits received under R.A. No. 7641 and those
received by officials and employees of private firms, whether,
individual or corporate, in accordance with the employer’s
reasonable private benefit plan approved by the
BIR, are excluded from gross income and exempt from
income taxation if the retiring official or employee was:
In service of same employer for at least 10 years;
Not less than fifty years of age at time of retirement;
Availed of the benefit of exclusion only once. [Sec. 32
(B) (6) (a), NIRC]
The retiring official or employee should not have
previously availed of the privilege under the
retirement plan of the same or another employer [RR
2-98, Section 2.78 (B) (1), 1st par.]
INCOME FROM ANY SOURCE WHATSOEVER (1989,
1995, 2001, 2005)
A: It is taxable. The law imposes a tax on income from any
source whatever which means that it includes income
whether legal or illegal. [Sec. 32(A), NIRC]
TAXABLE INCOME
Gross Income (2012, 2013, 2014, 2015)
UST BAR OPERATIONS
No. Section 50 of Rev. Regs. No. 2, otherwise known as Income
Tax Regulations, provides that if a debtor performs services
for a creditor who cancels the debt in consideration for such
services, the debtor realizes income to that amount as
compensation for his services. In the given problem, the
cancellation of Mr. Gipit’s indebtedness up to the amount of
Php 75,000.00 gave rise to compensation income subject to
income tax, since Mr. Maunawain condoned such amount
as consideration for the general cleaning services rendered
by Mr. Gipit.
In 2010, Mr. Platon sent his sister Helen $1, 000 via a
telegraphic transfer through the Bank of PI. The bank's
remittance clerk made a mistake and credited Helen
with $1,000,000 which she promptly withdrew. The
bank demanded the return of the mistakenly credited
excess, but Helen refused. The BIR entered the picture
and investigated Helen. Would the BIR be correct if it
determines that Helen earned taxable income under
these facts? (2013 Bar)
No, she had no income because she had no right to the
mistakenly credited funds.
Yes, income is income regardless of the source.
No, it was not her fault that the funds in excess of
$1,000 were credited to her.
No, the funds in excess of$1,000 were in effect donated
to her.
(B) Yes, income is income regardless of the source.
Section 32 of the NIRC defines gross income as all income
derived from whatever source. Consequently, the flow of
wealth, without any distinction as to the lawfulness of its
source, is subject to income tax. In other words, the phrase
“income from whatever source” discloses a legislative
policy to include all income not expressly exempted within
the class of taxable income under the law
EXCLUSIONS FROM GROSS INCOME
EXCLUSIONS UNDER THE TAX CODE
Proceeds of life insurance policy (1988, 1991, 2003,
2005, 2007)
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;
xxx (2005 Bar)
The proceeds of life insurance received by a child as
irrevocable beneficiary are not to be reported in the annual
income tax returns, because they are excluded from gross
income. This kind of receipt does not fall within the
definition of income –“Many wealth which flows into the
taxpayer other than a mere return of capital.” Since
insurance is compensatory in nature, the receipt is merely
considered as a return of capital. [Section 32(B)(1), NIRC;
Fisher v. Trinidad, 43 Phil. 73 (1922)]
Gifts, bequests and devises (1988, 1995, 1996, 1997,
2008)
8
 QUAMTO (1987-2016)
I will grant the protest and cancel the assessment. The
transfer of the property by Mr. Rodrigo to Ms. Sonora was
gratuitous. The deed of sale indicating a P10 million
consideration was simulated because Mr. Rodrigo did not
receive anything from the sale. The problem categorically
states that the transfer was made in gratitude to Ms.
Sonora’s companionship. The transfer being gratuitous is
subject to donor’s tax. Mr. Rodrigo should be assessed
deficiency donor’s tax and a 50% surcharge imposed for
fraudulently simulating a contract of sale to evade donor’s
tax. [Sec. 91(b), NIRC]
Awards and agreements for damages paid on account
of or resulting from injuries or sickness (1995, 2003,
2005, 2007)
None. The P200.000 moral and exemplary damages are
compensation for injuries sustained by Mr. Infante. The
P400, 000.00 reimbursement for hospitalization expenses
and the P60, 000.00 for salaries he failed to receive are
amounts of any damages received whether by suit or
agreement on account of such injuries. Section 28(b)(5) of
the Tax Code specifically exclude these amounts from the
gross income of the individual injured. [Section 28(b),
NIRC; Sec. 63 Rev. Reg. No. 2]
The amount of P200,000.00 that JR received from his
employer is subject to income tax except the money
9
equivalent of ten (10) days unutilized vacation leave
credits which is not taxable. Amounts of vacation
allowances or sick leave credits which are paid to an
employee constitutes compensation. [ Sec. 2.78(A)(7), RR
No. 2-98, as amended by RR No. 10-2000]
The amounts that JR received from the airline are excluded
from gross income and not subject to income tax because
they are compensation for personal injuries suffered from
an accident as well as damages received as a result of an
agreement (negotiation) on account of such injuries. [Sec.
32(B)(4), NIRC]
Retirement benefits, gratuities, pensions etc. (1988,
1991, 1994, 1995, 1996, 1999, 2000, 2005, 2007)
A Co., a Philippine corporation, has two divisions —
manufacturing and construction. Due to the economic
situation, it had to close its construction division and
lay-off the employees in that division. A Co. has a
retirement plan approved by the BIR, which requires a
minimum of 50 years of age and 10 years of service in
the same employer at the time of retirement.
There are 2 groups of employees to be laid off:
Employees who are at least 50 years of age and has at
10 years of service at the time of termination of
employment.
Employees who do not meet either the age or length of
service, A Co. plans to give the following:
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 every year
of service. For both categories, the cash equivalent of
unused vacation and sick leave credits.
A Co. seeks your advice as to whether or not it will
subject any of these payments to WT. Explain your
advice. (1999)
For category A employees, all the benefits received on
account of their separation are not subject to income tax,
hence no withholding tax shall be imposed. The benefits
received under the BIR-approved plan upon meeting the
service requirement and age requirement are explicitly
excluded from gross income. The ex gratia payment also
qualifies as an exclusion from gross income being in the
nature of benefit received on account of separation due to
causes beyond the employees' control. [Section 32(B),
NIRC] The cash equivalent of unused vacation and sick
leave credits qualifies as part of separation benefits
excluded from gross income. (CIR v. Court of Appeals, GR
No. 96016, October 17, 1991)
For category B employees, all the benefits received by them
will also be exempt from income tax, hence not subject to
withholding tax. These are benefits received on account of
separation due to causes beyond the employees' control,
which are specifically excluded from gross income. [Section
32(B), NIRC]
ALTERNATIVE ANSWER: All of the payments are not
subject to income tax and should not also be subject to WT.
The employees were laid off, hence separated for a cause
beyond their control. Consequently, the amounts to be paid
by reason of such involuntary separation are excluded
from gross income, irrespective of whether the employee
at the time of separation has rendered less than ten years
of service and/or is below fifty years of age. [Section 32(B),
NIRC]
 TAXATION LAW
Prizes and awards (1993, 1996, 2000, 2015)
Onyoc, an amateur boxer, won in a boxing competition
sponsored by the Gold Cup Boxing Council, a sports
association duly accredited by the Philippine Boxing
Association. Onyoc received the amount of P500,000 as
his prize which was donated by Ayala Land Corporation.
The BIR tried to collect income tax on the amount
received by Onyoc and donor’s tax from Ayala
Land Corporation, which taxes, Onyoc and Ayala Land
Corporation refuse to pay. Decide. (1996 Bar)
The prize will not constitute a taxable income to Onyoc, hence
the BIR is not correct in imposing the income tax. RA.
No. 7549 explicitly provides that “All prizes and awards
granted to athletes in local and International sports
tournaments and competitions held in the Philippines or
abroad and sanctioned by their respective national sports
associations shall be exempt from income tax".
Neither is the BIR correct in collecting the donor’s tax from
Ayala Land Corporation. The law is clear when it
categorically stated “That the donor’s of said prizes and
awards shall be exempt from the payment of the donor’s
tax."
DEDUCTIONS FROM GROSS INCOME
ITEMIZED DEDUCTIONS
Ordinary and necessary trade, business or professional
expenses (1988, 1989, 1990, 1993, 2006, 2009, 2016)
QPeter is the Vice-President for Sales of Golden Dragon
Realty Conglomerate, Inc. (Golden Dragon). A group of
five (5) foreign investors visited the country for
possible investment in the condominium units and
subdivision lots of Golden Dragon. After a tour of the
properties for sale, the investors were wined and
dined by Peter at the posh Conrad's Hotel at the cost of
P150,000.00. Afterward, the investors were brought to
a party in a videoke club which cost the company
P200,000.00 for food and drinks, and the amount of
P80,000.00 as tips for business promotion officers.
Expenses at Conrad's Hotel and the videoke club were
receipted and submitted to support the deduction for
representation and entertainment expenses. Decide if
all the representation and entertainment expenses
claimed by Golden Dragon are deductible. Explain.
(2016 Bar)
Not all of the representation and entertainment expenses
claimed by Golden Dragon are deductible. Only those that
are reasonable in amount and nature should be deductible.
It should be noted that the total expenses is P430,000.00
for the five (5) investors or P86,000.00 each.
I would allow only a deduction in such amounts as are
reasonable under the circumstances but in no case shall all
deductions for representation and entertainment
expenses, including those above enumerated, exceed
0.50% of net sales. [NIRC of 1997, Sec. 34 (A) (1) (iv); RR
10-2002] (Domondon)
A: No. The protection of taxpayer’s brand franchise is
analogous to the maintenance of goodwill or title to one’s
property which is in the nature of a capital expenditure. An
UST BAR OPERATIONS
advertising expense, of such nature does not qualify as an
ordinary business expense, because the benefit to be
enjoyed by the taxpayer goes beyond one taxable year. [CIR
v. General Foods Inc., 401 SCRA 545 (2003)]
Losses (1993, 1998, 1999, 2010)
A:
They must be ordinary losses that are incurred by a
taxable entity as a result of its day to day operations
conducted for profit or otherwise, or casualty losses.
They must have been losses that are actually sustained
during the taxable year.
Must not have been compensated for by insurance or other
forms of indemnity.
If they are casualty losses, they are of property connected
with trade, business, or profession and the lose arises
from fires, storms, shipwreck, or other casualties, or
from robbery, theft or embezzlement.
Must not have been claimed as a deduction for estate tax
purposes in the estate tax return.
A is a travelling salesman working full time for Nu Skin
Products. He receives a monthly salary plus 3%
commission on his sales in a Southern province where
he is based. He regularly uses his own car to maximize
his visits even to far flung areas. One fine day a group
of militants seized his car. He was notified the
following day by the police that the marines and the
militants had a bloody encounter and his car was
completely destroyed after a grenade hit it.
A wants to file a claim for casualty loss. Explain the
legal basis of your tax advice. (2010 Bar)
A is not entitled to claim a casualty loss because all of his
income partake the nature of compensation income.
Taxpayers earning compensation income arising from
personal services under an employer-employee relationship
are not allowed to claim deduction except that allowed under
Section 34(M) referring only to the P2,400 health and/or
hospitalization insurance premium; perforce, the claim of
casualty loss has no legal basis. (Sec. 34, NIRC)
Bad Debts (1999, 2004, 2016)
Rakham operates the lending company that made a
loan to Alfonso in the amount of P120,000.00 subject
of a promissory note which is due within one (1) year
from the note’s issuance. Three years after the loan
became due and upon information that Alfonso is
nowhere to be found, Rakham asks you for advice on
how to treat the obligation as “bad debt.” Discuss the
requisites for deductibility of a “bad debt.” (2016 Bar)
I shall advise Rakham to treat the obligation as “bad debt”
by deducting the same from his income tax return, and
proving compliance with the following requisites for the
deductibility of a “bad debt.”
The requisites for the deductibility of a “bad debt” are:
There must be an existing indebtedness due to the
taxpayer which must be valid and legally demandable.
The same must be connected with the taxpayer’s trade,
business or practice of profession.
The same must not be sustained in a transaction entered
into between related parties.
The same must be actually charged off the books of
accounts of the taxpayer as of the end of the taxable
year.
10
 QUAMTO (1987-2016)

e. The debt must be actually ascertained to be worthless contribution to the crippled girl cannot be claimed as a
and uncollectible during the taxable year. deduction.
The debts are uncollectible despite diligent effort exerted
by the taxpayer. [NIRC of 1997, Sec. 34 (E) (1), ALTERNATIVE ANSWER:
arrangement and numbering supplied; RR No. 5-99, Sec. The P100,000.00 donation may properly be deducted from
3, reiterated in RR No. 25-2002; Philippine Refining X’s gross income, but not the P5, 000.00 donated to the
Corporation v. Court of Appeals, et al., 256 SCRA 667] crippled girl, as charitable and other contributions
Must have been reported as receivables in the income tax that may be deducted from taxable income do not
return of the current or prior years. (RR No. 2, Sec. contemplate those given to individuals.
103) While it may be that X’s son is a patient in the hospital,
Depreciation (1989, 1998, 1999) it cannot be said that part of its net income inures to
the benefit of X as to be disallowed as a deduction
Explain if the following items are deductible from from taxable income.
gross income for income tax purposes. Disregard who Assuming X is a self-employed individual, he may not
is the person claiming the expense. deduct the donations made because under Section 29
of the NIRC as amended by RA 7496 better known as
xxx SNITS, only contribution to the government or to an
b. Depreciation of goodwill. (1999 Bar) accredited relief organization for the rehabilitation of
calamity stricken areas declared by the President may
Depreciation for goodwill is not allowed as deduction from be deducted for income tax purposes. Clearly, the
gross income. While intangibles maybe allowed to be donees do not qualify as relief organizations.
depreciated or amortized, it is only allowed to those Assuming X is receiving purely compensation income, he
intangibles whose use in the business or trade is definitely can only deduct from gross compensation income
limited in duration. (Basilan Estates, Inc. v. CIR, 21 SCRA 17) personal exemption, additional personal exemption
Such is not the case with goodwill. and special additional personal exemption. (Section
29, NIRC as amended)
ALTERNATIVE ANSWER: Depreciation of goodwill is
allowed as a deduction from gross income if the goodwill is OPTIONAL STANDARD DEDUCTION (2009, 2015)
acquired through capital outlay and is known from
experience to be of value to the business for only a limited In order to maximize his deductions, Dr. K may avail of the
period. (Section 107, Revenue Regulations No. 2) In such optional standard deduction (OSD) which is an amount not
case, the goodwill is allowed to be amortized over its
exceeding forty percent (40%) of his gross sales or gross
useful life to allow the deduction of the current portion of
receipts. The OSD can be claimed without being required
the expense from gross income, thereby paving the way for
to present proof or evidence of expenses paid or incurred
a proper matching of costs against revenues which is an
Sec. 34 (L), NIRC; Rev. Regs. 16-08, as amended by him. []
essential feature of the income tax system.
PERSONAL AND ADDITIONAL EXEMPTIONS (1993,
Charitable and other contributions (1993, 1996, 1998)
1998, 2004, 2006, 2012, 2014, 2015)
The Filipinas Hospital for Crippled Children is a
charitable organization. X visited the hospital, on his
birthday, as was his custom. He gave P100, 000.00 to For 2010, Mr. E and Ms. F are each entitled to personal
the hospital and P5, 000.00 to a crippled girl whom he exemptions of P50,000.00. [Sec. 35 (A), NIRC]
particularly pitied. A crippled son of X is in the
hospital as one of its patients. X wants to exclude both
the P100, 000.00 and the P5, 000.00 from his gross For 2011, Mr. E and Ms. F are each entitled to basic
income. Discuss. (1993 Bar) personal exemption of P50,000.00. In addition to his basic
personal exemption, Mr. E could claim additional personal
Under the National Internal Revenue Code, charitable
exemptions for three qualified dependent children in the
contributions to be deductible must be:
amount of P25, 000.00 for each child. [Sec. 35 (B), NIRC]
actually paid or made to domestic corporations or
For 2013
associations organized and operated exclusively for
religious, charitable, scientific, youth and sports
development, cultural or educational purposes or for
rehabilitation of veterans or to social welfare
institutions no part of which inures to the benefit of
any private individual;
made within the taxable year;
not more than 10% (for individuals) of 5% (for
corporations) of the taxpayer’s taxable income to be
computed without including the contribution.
Applying the above-provisions of law to the case at bar, it is
clear therefore that only the P100,000.00 contribution of X
to Filipinas Hospital for Crippled Children qualified as a
deductible contribution.
The NIRC expressly provides that the same must be actually
paid to a charitable organization to be deductible. Note that
the law accorded no privilege to similar contributions
extended to private individuals. Hence, the P5,000.00

11
 TAXATION LAW
A: For 2013, Mr. E and Ms. F are each entitled basic personal
exemptions of P50,000.00. Mr E could claim additional
personal exemptions for four qualified dependent children
in the amount of P25,000.00 for each child. [Sec 35 (B),
NIRC]
ITEMS NOT DEDUCTIBLE
Premiums paid on life insurance policy(1989, 2004,
2007)
A: No. The premium is not deductible because it is not an
ordinary business expense. The term "ordinary’ is used in
the income tax law in its common significance and it has the
connotation of being normal, usual or customary. (Deputy v.
Du Pont, 308 US 48) Paying premiums for the insurance of a
person not connected to the company is not normal, usual
or customary.
Another reason for its non-deductibility is the fact that it
can be considered as an illegal compensation made to a
government employee. This is so because if the insured, his
estate or heirs were made as the beneficiary (because of the
requirement of insurable interest), the payment of
premium will constitute bribes which are not allowed as
deduction from gross income. [Section 34(A)(1)(c), NIRC]
On the other hand, if the company was made the
beneficiary, whether directly or indirectly, the premium is
not allowed as a deduction from gross income. [Section
36(A)(4), NIRC]
xxx
A: Yes. The premiums paid are ordinary and necessary
business expenses of the company. They are allowed as a
deduction from gross income so long as the employer is not
a direct or indirect beneficiary under the policy of
insurance. [Section 36(A)(4), NIRC] Since the parents of the
employee were made the beneficiaries, the prohibition for
their deduction does not exist.
Bribes (1993, 1998, 2014)
UST BAR OPERATIONS
A: No. The payments made in exchange for the revelation of
a competitor’s trade secrets is considered as an expense
which is against law, morals, good customs or public policy,
which is not deductible. (3M Philippines, Inc. v. CIR, GR No.
82833, 1988) Also, the law will not allow the deduction of
bribes, kickbacks and other similar payments. Applying the
principle of ejusdem generis, payment made by Freezy
Corporation would fall under “other similar payments”
which are not allowed as deduction from gross income.
[Section 34(A)(1)(c). NIRC]
INCOME TAX ON INDIVIDUALS
Income tax on Resident Citizens, Non-resident Citizens
and Resident Aliens(1997, 1999, 2000, 2001, 2002,
2007, 2015, 2016)
A: I will advise Patrick that if he reacquires his Philippine
citizenship and establish residence in the Philippines, he
shall be considered as a resident citizen subject to tax on
incomes derived from sources within or without the
Philippines. [NIRC of 1997, Sec. 23 (A)]
Consequently, the BIR could now tax him on his income
derived from sources without the Philippines which is the
income he earns from his U.S. business. (Domondon)
A: Mr. Sebastian’s income as seaman on board the
Norwegian vessel engaged in international shipping shall
not be subjected to income tax. An individual citizen of the
Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable only on
income derived from sources within the Philippines:
Provided, That a seaman who is a citizen of the Philippines
and who receives compensation for services rendered
abroad as a member of the complement of a vessel engaged
exclusively in international trade shall be treated as an
overseas contract worker. [Sec. 23(C), NIRC] Mr. Sebastian
shall be considered as an overseas contract worker. His
income as seaman, which is an income from without the
12
 QUAMTO (1987-2016)
Philippines, shall not be liable for income tax in the
Philippines.
EXCLUSIONS
De minimis benefits (1994, 2005, 2015, 2016)
No. The 5% discount of the purchase price of its products, so-
called “courtesy discounts” on purchases, granted by
Mapagbigay Corporation to all its employees (rank and file,
supervisors, and managers) otherwise known as “de minimis
benefits,” furnished or offered by an employer to his
employees merely as a means of promoting the health,
goodwill, contentment, or efficiency of his employees, are not
considered as compensation subject to income tax and
consequently to withholding tax. [Rev. Regs. 2-98, Sec. 2.78.1
(A) (3), as amended by RR No. 8-2000, RR No. 5-2008, RR
No. 10-2008, RR No. 5-2011, and RR No. 8-2012]
As such, de minimis benefits, if given to supervisors and
managerial employees, they are also exempt from the
fringe benefits tax.
De minimis benefits are facilities and privileges furnished
or offered by an employer to his employees, which are not
considered as compensation subject to income tax and
consequently to withholding tax, if such facilities or
privileges are of relatively small value and are offered or
furnished by the employer merely as means of promoting
the health, goodwill, contentment, or efficiency of his
employees. If received by rank-and-file employees, they are
exempt from income tax on wages; if received by
supervisory or managerial employees, they are exempt
from the fringe benefits tax (RR No. 2-98, as amended by
RR No. 8-2000).
The following shall be considered as de minimis benefits:
Monetized unused vacation leave credits of private
employees not exceeding 10 days during the year;
Monetized value of vacation and sick leave credits paid to
government officials and employees;
Medical cash allowance to dependents of employees, not
exceeding P750 per employee per semester or P125
per month;
Rice subsidy pf P1,500 or 1 sack of 50 kg rice per month
amounting to not more than P1,500;
Uniform and clothing allowance not exceeding P5,000 per
annum;
Actual medical assistance not exceeding PP10,000 per
annum;
Laundry allowance not exceeding P300 per month
13
Employees achievement awards, e.g., for length of service
or safety achievement, which must be in the form of a
tangible personal property other than cash or gift
certificate, with an annual monetary value not
exceeding P10,000 received by the employee under an
established written plan which does not discriminate
in favor of highly paid employees;
Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per
annum’
Daily meal allowance for overtime work and
night/graveyard shift not exceeding 25% of the basic
minimum wage on a per region basis;
Benefits received by an employee by virtue of a collective
bargaining agreement (CBA) and productivity
incentive schemes combined do not exceed P10,000
per employee per taxable year (Rev. Regs. 2-98, as
amended).
Leave Credits (1991, 1996)
A, an employee of the Court of Appeals, retired upon
reaching the compulsory age of 65 years. Upon
compulsory retirement, A received the money value of
his accumulated leave credits in the amount of
P500,000.00.
No. The accumulated leave credits in the amount of
P500,000.00 is not subject to tax. The monetized value of
leave credits paid to government officials and employees
shall not be subject to income tax and consequently to
withholding tax. [RR No. 3-98, Sec. 2.78.1 (A) (7), 3 rd
sentence, as amended by RR No. 10-2000]
INCOME TAX ON CORPORATIONS
Minimum Corporate Income Tax (2001, 2015)
As Ms. J’s supervisor, I will advise that KKK Corp. should
prepare payment for the regular corporate income tax and
not the minimum corporate income tax. Under the Tax
Code, minimum corporate income tax is only applicable
beginning on the fourth taxable year following the
commencement of business operation. [Sec. 27 (e) (1),
NIRC]
As to taxpayer: Regular corporate income tax applies to all
corporate taxpayers; while minimum corporate income tax
applies to domestic corporations and resident foreign
corporations.
As to tax rate: Regular corporate income tax is 30%; while
minimum corporate income tax is 2%.
As to tax base: Regular corporate income tax is based on
the net taxable income; while minimum corporate income
tax is based on gross income.
As to period of applicability: Regular corporate income tax is
applicable beginning on the fourth taxable year following
 TAXATION LAW
the commencement of business operation, while minimum
corporate income tax is applicable beginning on the fourth
taxable year following the commencement of business
operation.
As to imposition: The minimum corporate income tax is
imposed whenever it is greater than the regular corporate
income tax of the corporation [Sec. 27 (A) and (E), NIRC; RR
No. 9-98]
Off-line International carriers (1987, 1990, 1994,
2005, 2009)
KIA’s position is not tenable. The revenue it derived in
1997 from sales of airplane tickets in the Philippines,
through its agent PAL, is considered as income from within
the Philippines, subject to the 35% tax based on its taxable
income pursuant to the Tax Code. The transacting of
business in the Philippines through its local sales agent,
makes KIA a resident foreign corporation despite the
absence of landing rights, thus, it is taxable on income
derived from within. The source of an income is the
property, activity or service that produced the income. In
the instant case, it is the sale of tickets in the Philippines
which is the activity that produced the income. KIA’s
income being derived from within, is subject to Philippine
income tax. [CIR v. British Overseas Airways Corporation,
149 SCRA 395, (1987)]
Tax on Co-ownerships (1990, 1991, 1994, 1997)
Yes. the assessments were justified because for income tax
purposes, the co-ownership of inherited property is
automatically converted into an unregistered partnership
from the moment the said properties are used as a
common fund with intent to produce profits for the heirs
In proportion to their shares in the inheritance.
From the moment of such partition, the heirs are entitled
already to their respective definite shares of the estate and
the income thereof, for each of them to manage and
dispose of as exclusively his own without the intervention
of the other heirs, and, accordingly, he becomes liable
individually for all taxes in connection therewith. If after
such partition, he allows his shares to be held in common
with his co-heir under a single management to be used
with the intent of making profit thereby in proportion to
his share, there can be no doubt that, even if no document
UST BAR OPERATIONS
or instrument were executed for the purpose, for tax
purposes, at least, an unregistered partnership is formed
(Lorenzo Ona, et al v. CIR, 45 SCRA 74).
ALTERNATIVE ANSWER: No, the assessments are not
justified. The mere sharing of income does not of itself
establish a partnership absent any clear intention of the
co-owners who are only awaiting liquidation of the estate.
Tax on General Professional Partnerships (1988, 1989,
1990, 2013, 2014)
A, B, and C, all lawyers, formed a partnership called
ABC Law Firm so that they can practice their
profession as lawyers. For the year 2012, ABC Law
Firm received earnings and paid expenses, among
which are as follows:
Earnings:
Professional/legal fees from various clients;
Cash prize received from a religious society in
recognition of the exemplary service of ABC Law
Firm;
Gains derived from sale of excess computers and
laptops.
Payments:
Salaries of office staff;
Rentals for office space;
Representation expenses incurred in meetings with
clients.
The three (3) items of earnings should be included in the
computation of ABC Law Firm’s gross income. The
professional/legal fees from various clients is included as
part of gross income being in the nature of compensation
for services. [Section 32(A)(1), NIRC] The cash prize from a
religious society in recognition of its exemplary services is
also included there being no law providing for its
exclusion. This is not a prize in recognition of any of the
achievements enumerated under the law hence, should
form part of gross income. [Section 32(B)(7)(c), NIRC] The
gains from sale of excess computers and laptops should
also be included as part of the firm’s gross income because
the term gross income specifically includes gains derived
from dealings in property. [Section 32(A)(3), NIRC]
14
 QUAMTO (1987-2016)
The law firm being formed as general professional
partnership is entitled to the same deductions allowed to
corporation. (Section 26, NIRC) Hence, the three (3) items
of deductions mentioned in the problem are all deductible,
they being in the nature of ordinary and necessary
expenses incurred in the practice of profession. [Section
34(A), NIRC] However, the amount deductible for
representation expenses incurred by a taxpayer engaged in
sale of services, including a law firm, is subject to a ceiling
of 1% of net revenue. (RR No. 10-2002)
The net income having been earned by the law firm which
is formed and qualifies as a general professional
partnership, is not subject to income tax because the
earner is devoid of any income tax personality. Each
partner shall report as gross income his distributive
shares, actuality or constructively received, in the net
income of the partnership. The partnership is merely
treated for income tax purposes as a pass-through entity
so that its net income is not taxable at the level of the
partnership but saidnet income should be attributed to the
partners, whether or not distributed to them, and they are
liable to pay the income tax based on their respective
taxable income as individual taxpayers. (Section 26, NIRC)
TRANSFER TAXES
TIME AND TRANSFER OF PROPERTIES (DATE OF
DEATH VALUATION RULE) (1994, 2007, 2008,)
Jose Cernan, Filipino citizen, married to Maria Ceman,
died in a vehicular accident in NLEX on July 10, 2007.
The spouses owned, among others, a 100-hectare
agricultural land in Sta. Rosa, Laguna with current fair
market value of P20 million, which was the subject
matter of a Joint Venture Agreement about to be
implemented with Star Land Corporation (SLC), a well-
known real estate development company. He bought
the said real property for P2 million fifty years ago. On
January 5, 2008, the administrator of the estate and
SLC jointly announced their big plans to start
conversion and development of the agricultural lands
in Sta. Rosa, Laguna, into first-class residential and
commercial centers. As a result, the prices of real
properties in the locality have doubled.
The Administrator of the Estate of Jose Cernan filed the
estate tax return on January 9,2008, by including in the
gross estate the real property at P2 million. After 9
months, the BIR issued deficiency estate tax assessment,
by valuing the real property at P40 million.
No. The value of the property for estate tax purposes shall
be the fair market value thereof at the time of death.
[Section 88(B), NIRC]
15
The correct value to use for estate tax purposes is P20
million which is the current fair market value of the
property at the time of the decedent's death. [Section
88(B), NIRC]
CLASSIFICATION OF DECEDENT FOR PURPOSES OF
DETERMINING COMPOSITION OF GROSS ESTATE
(1987, 1990, 1994, 2010)
All of Mr. Robertson’s assets consisting of 10, 000 shares in
the Meralco, a condominium unit in Pasig, and his house
and lot in Los Angeles, California are taxable. The
properties of a resident alien decedent like Mr. Robertson
are taxable wherever situated.
ITEMS TO BE INCLUDED AS PART OF GROSS ESTATE
Transfers in Contemplation of Death (2001, 2013)
, made several inter-vivos gifts to his children. Ten days)
Yes. When the donor makes his will within a short time of,
or simultaneously with, the making of gifts, the gifts are
considered as having been made in contemplation of death.
(Roces v. Posadas, 58 Phil. 108) Obviously, the intention of
the donor in making the inter-vivos gifts is to avoid the
imposition of the estate tax and since the donees are
likewise his forced heirs who are called upon to inherit, it
will create a presumption juris tantum that said donations
were made mortis causa, hence, the properties donated
shall be included as part of A's gross estate.
Proceeds of Life Insurance Policy(2003, 2005, 2007)
Antonia Santos, 30 years old, gainfully employed, is the
sister of Eduardo Santos. She died in an airplane crash.
Edgardo is a lawyer and he negotiated with the airline
company and insurance company and they were able to
agree to a total settlement of P10 Million. This is what
Antonia would have earned as somebody who was
gainfully employed. Edgardo was her only heir.
No. The estate tax is a tax on the privilege enjoyed by an
individual in controlling the disposition of her properties to
take effect upon her death. The P10M is not a property
existing as of the time of decedent’s death; hence, it cannot be
said that she exercised control over its disposition. Since the
privilege to transmit the property is not exercised by the
decedent, the estate tax cannot be imposed thereon.
(Definition of Estate Tax p. 184, Vitug, Compendium of Tax Law
and Jurisprudence, Third Revised Edition).
DEDUCTIONS FROM GROSS ESTATE
Vanishing Deduction (2008, 2009)
 TAXATION LAW
xxx
A: Vanishing deduction shall be allowed to the estate of
Xavier but only to the extent of the property which is the
portion acquired by gift. (Section 100, NIRC) The donation
took place within 5 years (1999 to 2001) from the death of
Xavier; hence, there is a vanishing deduction. However,
Zandro’s estate will not be entitled to claim vanishing
deduction because, first and foremost, the property
previously taxed is not includable in his gross estate and
second, even if it is includable, the present decedent died
more than 5 years from the death of the previous decedent,
and that a vanishing deduction is already claimed by the
previous estate involving the same property.
Standard Deduction (2000, 2008)
A: No. The estate comprised of properties of only P1.2
million is not liable to any estate tax. The estate is entitled
to a standard deduction of P1 million deductible from the
gross estate without the benefit of substantiation, thereby
placing the net estate at only P200,000. Under the
graduated tax rates of the estate tax, a net estate of P200,
000 is exempt. [Section 86(A)(5) and Section 84, NIRC]
Medical Expenses (2010, 2015)
xxx
b. Medical Expenses (2015 Bar)
UST BAR OPERATIONS
A: The conditions for the allowance of medical expenses as
deductions from the gross estate of a citizen or resident
alien are:
1. The medical expenses must have been incurred within
one (1) year before the death of the decedent;
2. That the medical expenses are duly substantiated with
receipts; and
3. The total amount thereof, whether paid or unpaid, does
not exceed P500, 000.00. [Sec. 86A(6), NIRC]
Claims against the Estate (2010, 2015)
A: In order that claims against the estate may be allowed as
deductions from the gross estate of a citizen or resident
alien for purposes of imposing the estate tax, the law
requires at the time the indebtedness was incurred, the
debt instrument was duly notarized. In addition, if the loan
was contracted within three (3) years before the death of
the decedent, the executor or administrator shall submit a
statement showing the disposition of the proceeds of the
loan. [Sec. 86 (a) (1) (c), NIRC]
Period for Filing of Estate Tax Return, Payment and
Extension (2000, 2007, 2010)
A: The estate tax return shall be filed within six (6) months
from the decedent’s death [Sec. 90 (B), NIRC of 1997],
provided that the Commissioner of Internal Revenue shall
have authority to grant in meritorious cases, a reasonable
extension not exceeding thirty (30) days for filing the
return. [Sec. 90 (c) Ibid]
Except in cases where the Commissioner of Internal
Revenue otherwise permits, the estate tax return shall be
filed with an authorized agent bank, or Revenue District
Officer, Collection Officer, or duly authorized Treasurer of
Pasig City, the City in which the decedent Mr. de la Cruz was
domiciled at the time of his death. [Sec. 90 (D), NIRC of 1997]
A: Yes. The Commissioner may allow an extension of time
to pay the estate tax if the payment on the due date would
impose undue hardship upon the estate or any of the heirs.
The extension, in any case, will not exceed two years if the
estate is not under judicial settlement or five years if it is
under judicial settlement. The Commissioner may also
16
 QUAMTO (1987-2016)
require the posting of a bond to secure the payment of the
tax. [Section 91(B), NIRC]
ALTERNATIVE ANSWER: Yes. The requirements to be
complied with so that an extension may be allowed are: (1)
a request for extension must be filed before the expiration
of the original period to pay which is within 6 months from
death; (2) there must be a finding that the payment on the
due date of the estate tax would impose undue hardship
upon the estate or any of the heirs; (3) the extension must
be for a period of not exceeding 5 years if the estate is
settled judicially or 2 years if settled extrajudicially; and
(4) the Commissioner may require the posting of a bond in
an amount not exceeding double the amount of tax to
secure the payment thereof. [Section 91(B), NIRC]
Collection of Estate Taxes pending probate proceeding
(1998, 2004, 2005)
No. The approval of the court, sitting in probate, is not a
mandatory requirement in the collection of estate tax. On
the contrary, under Section 94 of the NIRC, it is the probate
or settlement court which is forbidden to authorize the
executor or judicial administrator of the decedent’s estate,
to deliver any distributive share to any party interested in
the estate, unless a certification from the Commissioner of
Internal Revenue that the estate tax has been paid is
shown. [Marcos II v. Court of Appeals, 273 SCRA 47 (1997)].
Power of the Commissioner of Internal Revenue to
inquire into bank accounts for purposes of determining
the Gross Estate of a Decedent (1992, 2003)
No. The Commissioner of Internal Revenue has the
authority to inquire into bank deposit accounts of a
decedent to determine his gross estate notwithstanding
the provisions of the Bank Secrecy Law. Hence, the banks
holding the deposits in question may not refuse to disclose
the amount of deposits on the ground of secrecy of bank
deposits. [Section 6(F) of the 1997 Tax Code] The fact that
the deposit is a joint account will not preclude the
Commissioner from inquiring thereon because the law
mandates that if a bank has knowledge of the death of a
person, who maintained a bank deposit account alone, or
jointly with another, it shall not allow any withdrawal from
the said deposit account, unless the Commissioner has
certified that the taxes imposed thereon have been paid.
(Sec. 97, 1997 Tax Code) Hence, to be able to give the
required certification, the inclusion of the deposit is
imperative, which may be made possible only through the
inquiry made by the Commissioner.
DONOR’S TAX
TRANSFERS WHICH MAY BE CONSTITUTED AS
DONATION
17
A: The P1, 500.00 is not compensation income because
compensation income arises out of employer-employee
relationship as payment for services without compensation.
The P1, 500.00 is a gift from the labor union. According to
Section 28 (b) (3) of the NIRC, gifts are to be excluded from
gross income. Thus, the BIR's denial is not valid.
ALTERNATIVE ANSWER: Under the law, gross income
consists of all gains, profits, and income of the taxpayer during
a taxable year of whatever kind and in whatever form derived
from any source, whether legal or illegal, except items of gross
income subject to final income tax and income exempt from
taxation under Sec. 28 (b) of the NIRC.
Moreover, in the case of Gutierrez vs. Collector of Internal
Revenue, CTA Case No. 65, 31 August 1965, it was held that
the phrase income from whatever source derived covers all
other forms of income. It discloses a legislative policy to
include all income not expressly exempted, as within the
class of taxable income under our laws, irrespective of the
voluntary or involuntary action of the taxpayer in
producing the gain.
Therefore based on the foregoing considerations, the
benefits subject in the case at bar, not expressly exempted
by law, are considered as income.
A, an individual, sold to B, his brother-in-law, his lot
with a market value of P1, 000.000 for P600.000. A’s
cost in the lot is P100, 000. B is financially capable of
buying the lot.
A also owns X Co., which has a fast growing business. A
sold some of his shares of stock in X Co. to his key
executives in X Co. These executives are not related to
A. The selling price is P3, 000.000, which is the book
value of the shares sold but with a market value of
P5,000,000. A’s cost in the shares sold is P1 , 000, 000.
The purpose of A in selling the shares is to enable his
key executives to acquire a propriety interest in the
business and have a personal stake in its business.
Explain if the above transactions are subject to donor's
tax. (1999)
The first transaction where a lot was sold by A to his
brother-in-law for a price below its fair market value will
not be subject to donor's tax if the lot qualifies as a capital
asset. The transfer for less than adequate and full
consideration, which gives rise to a deemed gift, does not
apply to a sale of property subject to capital gains tax.
(Section 100, NIRC). However, if the lot sold is an ordinary
asset, the excess of the fair market value over the
consideration received shall be considered as a gift subject
to the donor's tax.
The sale of shares of stock below the fair market value
thereof is subject to the donor's tax pursuant to the
 TAXATION LAW

provisions of the Tax Code. The excess of the fair market
value over the selling price is a deemed gift.
ALTERNATIVE ANSWER: The sale of shares of stock below
the fair market value will not give rise to the imposition of the
donor's tax. In determining the gain from the transfer, the
selling price of the shares of stocks shall be the fair market
value of the shares of stocks transferred. (Section 6,
No. 2- 82). In which case, the reason for the imposition of
the donor's tax on sales for inadequate consideration does
not exist.
CLASSIFICATION OF DONORS (1992, 1996, 2009)
Situs of Donor’s Tax
A: Yes. While the gift has been made on account of
marriage, to qualify for exemption to the extent of the first
P10, 000.00 (now P50, 000.00) of the value thereof, such
gift should have been given to a legitimate, recognized
natural or adopted child of the donor.
ALTERNATIVE ANSWER: It is not subject to tax because
the gift was made outside the Philippines.
DETERMINATION OF GROSS GIFT
Renunciation of share of surviving spouse (2010, 2013)
In the settlement of the estate of Mr. Barbera who died
intestate, his wife renounced her inheritance and her
share of the conjugal property in favor of their
children. The BIR determined that there was a taxable
gift and thus assessed Mrs. Barbera as a donor.
The BIR is correct that there was a taxable gift but only
insofar as the renunciation of the share of the wife in the
conjugal property is concerned. This is a transfer of
property without any consideration which takes effect
during the lifetime of the transferor/wife and thus
qualifies as a taxable gift (RR No. 2-2003).
But the renunciation of the wife’s share in the inheritance
during the settlement of the estate is not a taxable gift
considering that the property is automatically transferred
to the other heirs by operation of law due to her
repudiation of her inheritance (BIR Ruling DA No. 333-07)
totally relieve the donor from the donor’s tax because the
first Php100,000 donation in the graduated brackets is
exempt. (Section 99, NIRC) While the donor’s tax is
computed on the cumulative donations, the aggregation of
all donations made by a donor is allowed only over one
calendar year.
Donations in favor of the government, educational,
charitable, religious etc. insitutions (1992, 1994, 2000,
2002, 2007, 2014)
No. Donations and/or contributions made to qualified
donee institutions consisting of property other than money
shall be based on the acquisition cost of the property. The
donor is not entitled to claim as full deduction the
fairmarket value/zonal value of the lot donated. [Sec.
34(H), NIRC]
)
In order that donations to non-stock, non-profit
educational institution may be exempt from the donor’s
gift tax, it is required that not more than 30% of the said
gifts shall be used by the donee-institution for
administration purposes. [Sec. 101(A)(3), NIRC]
VALUE ADDED TAX
CONCEPT, NATURE AND CHARACTERISTICS OF VAT
(1988, 1996, 2015)
)
DDD Corp. is not correct. Lease of properties shall be
subject to VAT irrespective of the place where the contract
of lease was executed if the property is leased or used in
the Philippines [Sec. 108(A), NIRC].
The value-added tax is an indirect tax and the amount of
tax may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services.
ALTERNATIVE ANSWER: The value-added tax has the
following characteristics:

EXEMPTION OF GIFTS FROM DONOR’S TAXES

Gift Splitting (1995, 2001, 2008)

A: I would advice him to split the donation. 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
Php100, 000 given on two different years will

UST BAR OPERATIONS 18

 QUAMTO (1987-2016)
It is an indirect tax where tax shifting is always presumed;
It is consumption-based;
It is imposed on the value-added in each stage of
distribution;
It is a credit-invoice method value-added tax; and
It is not a cascading tax.
VAT on Sale of Properties (1988, 1998, 2014)
Yes, the sale of the delivery van is subject to VAT being a
transaction incidental to the catering business which is a
VAT-registered activity of MKI. Transactions that are
undertaken incidental to the pursuit of a commercial or
economic activity are considered entered into in the course
of trade or business. (Sec 105, NIRC) A sale of a fully
depreciated vehicle that has been used in business is
subject to VAT as an incidental transaction, although such
sale may be considered isolated. (Mindanao II Geothermal
Partnership v. CIR)
VAT ON SERVICES
Zero-rated Sale of Services (1998, 2010, 2013, 2015
2016)
No. The BIR is not correct.
While it is true that the VAT is an indirect tax, it is clear from
the agreement that WHO is “exempt from all direct and
indirect taxes.” Since the 12% VAT is an indirect tax whose
burden was shifted by PCC to WHO then it is evident that the
BIR is not correct. [CIR v. John Gotamco & Sons, Inc., G.R. No. L-
31092, Feb. 27, 1987, 148 SCRA 36 (1987)]
To allow the shifting of the burden to WHO would negate
its exemption and in violation of the international
agreement entered into by the Philippines. (Domondon)
MMM, Inc., a domestic telecommunications company,
handles incoming telecommunications services for non-
resident foreign companies by relaying international calls
within the Philippines. To broaden
19
the coverage of its telecommunications services
throughout the country, MMM, Inc. entered into
various interconnection agreements with local
carriers. The non-resident foreign corporations pay
MMM, Inc. in US dollars inwardly remitted through
Philippine banks, in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas.
MMM, Inc. filed its Quarterly VAT Returns for 2000.
Subsequently, MMM, Inc. timely filed with the BIR an
administrative claim for the refund of the amount of
P6,321,486.50, representing excess input VAT
attributable to its effectively zero- rated sales in 2000.
The BIR ruled to deny the claim for refund of MMM, Inc.
because the VAT official receipts submitted by MMM, Inc.
to substantiate said claim did not bear the words "zero-
rated" as required under Section 4.108-1 of Revenue
Regulations (RR) No. 7-95. On appeal, the CTA division
and the CT A en bane affirmed the BIR ruling.
MMM, Inc. appealed to the Supreme Court arguing that
the NIRC itself did not provide for such a requirement.
No. 7-95 should not prevail over a taxpayer's
substantive right to claim tax refund or credit. (2015)
1. Rule on the appeal of MMM, Inc.
The appeal of MMM, Inc. must be denied. MMM, Inc.’s
position that the requirements under RR No. 7-95 should
not prevail over a taxpayer’s substantive right to claim tax
refund or credit is unmeritorious. The Secretary of Finance
has the authority to promulgate the necessary rules and
regulations for the effective enforcement of the provisions
of the National Internal Revenue Code (NIRC). Such rules
and regulations are given weight and respect by the courts
in view of the rule-making authority given to those who
formulate them and their specific expertise in their
respective fields.
An applicant for a claim for tax refund or tax credit must not
only prove entitlement tot eh claim, but also compliance with
all the documentary and evidentiary requirements.
Consequently, the Court of Tax Appeal (CTA), and the CTA en
banc correctly ruled that the failure to indicate the words
“zero-rated” on the invoices and receipts issued by a taxpayer,
would result in the denial of the claim for refund or tax credit
(Eastern Telecommunications Philippines, Inc. v. CIR, G.R. No.
183531, March 25, 2015).
No, my answer will not be different if the claim for refund
is for effectively zero-rated sales in 2012. The requirement
to print the word “zero-rated” is no loinger by mere
regulations, but is now clearly provided by law as follows –
“If the sale is subject to zero percent (0%) value-added tax,
the term “zero-rated sale” shall be written or printed
prominently on the invoice or receipt. Failure to comply
with this invoicing requirement is fatal to a claim for
refund of input taxes attributable to the zero-rated sale
(Sec. 113B)(2)(c), NIRC).
Moreover, as recently ruled by the Supreme Court, the
subsequent incorporation of Sec. 4.108-1 of RR 7-95 in Sec.
113 of the NIRC as introduced in R.A. No. 9337, actually
confirmed the validity of the imprinting requirement on
VAT invoices or official receipts – a case falling under the
principle of legislative approval of administrative
interpretation by reenactment (Northern Mindanao Power
Corp. v. CIR, G.R. No. 185115, February 18, 2015).
 TAXATION LAW

xxx xxx xxx

A: I will advise Emiliano that he is not required to register

as a VAT taxpayer. His transactions of leasing residential
units for an amount not exceeding P12,800.00 per unit per
A: VAT at 0%. Since Jake's Construction Company has month are exempt from VAT irrespective of the aggregate
rendered services to the World Health Organization, which amount of rentals received annually.
is an entity exempted from taxation under international
agreements to which the Philippines is a signatory, the
supply of services is subject to zero percent (0%) rate.
VAT EXEMPT TRANSACTIONS
Sale or importation of agricultural and marine food
products in their original state and certain kinds of
livestock, poultry, breeding stock and genetic materials
(1998, 2010)

a. Sale of fresh vegetables by AlingIning at the

Pamilihang Bayan ngTreceMartirez. (1998 Bar)
A: VAT exempt. Sale of agricultural products, such as fresh
vegetables, in their original state, of a kind generally used
as, or producing foods for human consumption is exempt
from VAT.
Sale of certain Real Estate (1996, 2009)
A: No. Since the association’s annual gross receipts do not
exceed P1, 919,500.00, it is exempt from the VAT. It is,
however, liable to the 3% percentage tax which is imposed
on persons exempt from value-added tax on account of
failure to reach the P1, 919, 500 threshold.

A: Yes. When it increased the rentals to P150,000 per

month, its gross annual receipts will now exceed
P1,919,500.00. It is liable to the VAT beginning January
2008.
Refund or tax credit of excess input tax (2014, 2015,
2016)
xxxxxxxxx

A: No. The real property sold, being in the nature of a capital

asset, is not subject to VAT. The sale is subject to VAT only
if the real property sold is held primarily for sale to
customers or held for lease in the ordinary course of trade
or business. A real property classified as a capital asset does
not include a real property held for sale or for lease, hence,
its sale is not subject to VAT. (Section 39 and Section 106,
NIRC)

A: Real estate transactions which are exempt from the

value-added tax are:
a. Sale of real property not primarily held for sale or lease
in the ordinary course 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.
Lease of residential unit (1998, 2008, 2009)

UST BAR OPERATIONS 20

 QUAMTO (1987-2016)
Yes. API’s petition for review will prosper. Since API’s
petition for review was filed on September 15, 2010, it is
an exception to the general rule. The premature filing is
allowed because it was filed between 10 December 2003
and 5 October 2010, when BIR Ruling No. DA-489-03 was
still in force. (Mindanao II Geothermal Partnership v.
Commissioner of Internal Revenue, G.R. No. 193301, March
11, 2013 and companion case)
For calendar year 2011, FFF, Inc., a VAT-registered
corporation, reported unutilized excess input VAT in the
amount of Pl ,000,000.00 attributable to its zero-rated
sales. Hoping to impress his boss, Mr. G, the accountant of
FFF, Inc., filed with the Bureau of Internal Revenue (BIR)
on January 31, 2013 a claim for tax refund/credit of the
Pl,000,000.00 unutilized excess input VAT of FFF, Inc. for
2011. Not having received any communication from the
BIR, Mr. G filed a Petition for Review with the CTA on
March 15, 2013, praying for the tax refund/credit of the
Pl,000,000.00 unutilized excess input VAT of FFF, Inc. for
2011. (2015)
The CTA has not acquired jurisdiction over the Petition of
FFF, Inc. because the judicial claim has been prematurely
filed on March 15, 2013. The Supreme Court ruled that the
30-day period after the expiration of the 120-day period
fixed by law for the Commissioner of Internal Revenue to
act on the claim for refund is jurisdictional and failure to
comply would bar the appeal and deprive the Court of Tax
Appeals of its jurisdiction to entertain the appeal (CIR v.
Aichi Forgin Company of Asia, Inc., G.R. No. 183421,
October 22, 2014, 632 SCRA 422).
In this case, Mr. G filed the administrative claim on January
31, 2013. The petition for relief should have been filed on
June 30, 2013. Filing the judicial claim on March 15, 2013
is premature, this the CTA did not acquire jurisdiction.
Discuss the proper procedure and applicable time
periods for administrative and judicial claims for
refund/credit of unutilized excess input VAT.
The administrative claim must be filed with the Commissioner
of Internal Revenue (CIR) within two years from the close of
the taxable quarter when the zero-rated sales were made. The
CIR has 120 days from the date of submission of the complete
documents in support of the claim to decide. If the CIR decides
within the 120-day period or the 120-day period expires
without the CIR rendering a decision, the taxpayer has 30
days to file a petition for review with the CTA reckoned from
the receipt of adverse decision or from the lapse of the 120-
day period.
As a general rule, the 30-day period to appeal is both
mandatory and jurisdictional. As an exception to the
general rule, premature filing is allowed only if filed
between December 10, 2003 and October 5, 2010, when
BIR Ruling No. DA-489-03 was still in force prior to the
reversal of the aforesaid ruling by the CTA in the Aichi case
on October 6, 2010 (Mindanao II Geothermal Partnership
v. CIR, G.R. No. 204745, December 8, 2014, 713 SCRA 645).
TAX REMEDIES
REMEDIES AVAILABLE TO TAXPAYERS UNDER THE
NIRC, IN GENERAL (1992, 2000)
21
Describe separately the procedures on the legal
remedies under the Tax Code available to an aggrieved
taxpayer both at the administrative and judicial levels.
(Bar)
The legal remedies of an aggrieved taxpayer under the Tax
Code, both at the administrative and judicial levels, may be
classified into those for assessment, collection and refund.
The procedures for the administrative remedies for
assessment are as follows:
After receipt of the Pre-Assessment Notice, he must within
fifteen (15) days from receipt explain why no
additional taxes should be assessed against him.
If the Commissioner of Internal Revenue issues an
assessment notice, the taxpayer must administratively
protest or dispute the assessment by filing a motion
for reconsideration or reinvestigation within thirty
(30) days from receipt of the notice of assessment.
(4th par., Sec. 228, NIRC of 1997)
Within sixty (60) days from filing of the protest, the
taxpayer shall submit all relevant supporting
documents.
The judicial remedies of an aggrieved taxpayer relative to
an assessment notice are as follows:
Where the Commissioner of Internal Revenue has not
acted on the taxpayer’s protest within a period of 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.
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.
In both cases the taxpayer must apply with the Court of Tax
Appeals for the issuance of an injunctive writ to enjoin the
Bureau of Internal Revenue from collecting the disputed
tax during the pendency of the proceedings.
The adverse decision of the Court of Tax Appeals is
appealable to the Court of Appeals by means of a petition
for certiorari within a period of fifteen (15) days from
receipt of the adverse decision, extendible for another
period of fifteen (15) days for compelling reasons, but the
extension is not to exceed a total of thirty (30) days in all.
The adverse decision of the Court of Appeals is appealable
to the Supreme Court by means of a petition for review on
certiorari within a period of fifteen (15) days from receipt
of the adverse decision of the Court of Appeals.
The employment by the Bureau of Internal Revenue of any
of the administrative remedies for the collection of the tax
like distraint, levy, etc. may be administratively appealed
by the taxpayer to the Commissioner whose decision is
appealable to the Court of Tax Appeals under other matter
arising under the provisions of the National Internal
Revenue Code. The judicial appeals starts with the Court of
Tax Appeals, and continues in the same manner as shown
above.
Should the Bureau of Internal Revenue decide to utilize Its
judicial tax remedies for collecting the taxes by means of an
ordinary suit filed with the regular courts for the collection of
a sum of money, the taxpayer could oppose the same by going
up the ladder of judicial processes from the Municipal
 TAXATION LAW
Trial Court (as the case may be) to the Regional Trial Court,
to the Court of Appeals, thence to the Supreme Court.
The remedies of an aggrieved taxpayer on a claim for refund
is to appeal the adverse decision of the Commissioner to the
CTA in the same manner outlined above.
ASSESSMENT
Requisites of a valid assessment (2008, 2013)
A: An assessment notice is a formal notice to the taxpayer
stating that the amount thereon is due as a tax and
containing a demand for the payment thereof. [Alhambra
Cigar and Cigarette Mfg. Co. v. Collector, 105 PR 1337 (1959);
CIR v. Pascor Realty and Development Corp., 309 SCRA 402
(1999)] To be valid, the taxpayer must be informed in
writing of the law and the facts on which the assessment is
made. (Section 228, NIRC)
ANOTHER SUGGESTED ANSWER: An assessment is a
written notice and demand made by the Bureau on the
taxpayer for the settlement of a tax liability that is due,
definitely set and fixed therein. The requisites of a valid
assessment are:
1. It must be made within the prescriptive period to
assess; (Section 203, NIRC)
2. There must be a preliminary assessment previously
issued, except in those instances allowed by law;
(Section 228, NIRC)
3. The taxpayer must be informed in writing about the law
and facts on which the assessment is based; (Section
228, NIRC) and
4. It must be served upon the taxpayer or any of his
authorized representatives. [Estate of Juliana Diezvda.
De Gabriel v. CIR, 421 SCRA 266(2004)]
tax lawyer of EDS Corporation, what legal
A: I will question the validity of the assessment because of
the failure to send the demand letter which contains a
statement of the law and the facts upon which the
assessment is based. If an assessment notice is sent without
informing the taxpayer in writing about the law and facts on
which the assessment is made, the assessment is void.
[Section 228, NIRC; Azucena T. Reyes v. CIR, 480 SCRA 382
(2006)].
Prescriptive Period for Assessment
General Rule (1989, 1997, 1999, 2000, 2002, 2006)
UST BAR OPERATIONS
A: I will raise the defense of prescription. The right of the
BIR to assess prescribes after three years counted from the
last day prescribed by law for the filing of the income tax
returns when the said return is filed on time. (Section 203,
NIRC) The last day for filing the 1997 income tax return is
April 15,1998. Since the assessment was issued only on
April 20, 2001, the BIR’s right to assess has already
prescribed.
False or fraudulent returns and non-filing of returns
(1989, 1996, 1998, 2002, 2009)
A: The distinction between a false return and a fraudulent
return is that the first merely implies a deviation from the
truth or fact whether intentional or not, whereas the second
is intentional and deceitful with the sole aim of evading the
correct tax due. (Aznar vs. Commissioner, L-20569. August
23, 1974)
ALTERNATIVE ANSWER: A false return contains
deviations from the truth which may be due to mistakes,
carelessness or ignorance of the person preparing the
return. A fraudulent return contains an intentional
wrongdoing with the sole object of avoiding the tax and it
may consist in the intentional under declaration of income,
intentional over declaration of deductions or the
recurrence of both. A false return is not necessarily tainted
with fraud because the fraud contemplated by law is actual
and not constructive. Any deviation from the truth on the
other hand, whether intentional or not, constitutes falsity.
(Aznar vs. Commissioner, L-20569, August 23, 1974)
on the
A: The protest should be resolved against Mr. Castro. What
was filed is a fraudulent return making the prescriptive
period for assessment ten (10) years from discovery of the
fraud. (Section 222, NIRC) Accordingly, the assessment was
issued within the prescriptive period to make an
assessment based on a fraudulent return.
Issuance of Preliminary Assessment Notice (2002,
2014)
22
 QUAMTO (1987-2016)
Yes. Mr. Tiaga may consider the assessment notice as a final
assessment notice and his right to protest within 30 days from
receipt may now be exercised by him. When the finding of a
deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the return, a
pre-assessment notice shall not be required, hence the
assessment notice is a final assessment notice.
COLLECTION
Prescriptive Periods (1994, 1997, 2001, 2002, 2009)
No. The protest was filed out of time and, therefore, did not
suspend the running of the prescriptive period for the
collection of the tax. Once the right to collect has
prescribed, the Commissioner can no longer enforce
collection of the tax liability against the taxpayer. (CIR v.
Atlas Mining and Development Corp., February 14, 2000)
TAXPAYERS REMEDIES
PROTESTING AN ASSESSMENT
Forms of Administrative Protest (1992, 2012)
A:
A request for reinvestigation suspends the running of the
prescriptive period for collection of taxes while a
motion for reconsideration does not.
A request for reinvestigation requires the presentation of
newly discovered or additional evidence while a
motion for reconsideration does not.
The period of 60 days for submission of the relevant
supporting documents finds application only to a
request for reinvestigation and not to a request for
reconsideration.
The failure of the Commissioner of Internal Revenue to act on
the request for reconsideration after a period of 180 days
from filing thereof authorizes the taxpayer to file a
petition for review with the CTA within a period
23
of 30 days from the expiration of such 180 day period
while for a request for reinvestigation the period is the
expiration of the 180 day period from the submission
of the complete supporting documents.
Effect of failure to file protest (1997, 2009)
Yes. The protest was filed out of time, hence the CTA does
not acquire jurisdiction over the matter. [CIR v. Atlas
Mining and Development Corp. (2000)]
No. Before taxpayer can avail of judicial remedy he must
first exhaust administrative remedies by filing a protest
within 30 days from receipt of the assessment. It is the
Commissioner's decision on the protest that give the Tax
Court jurisdiction over the case provided that the appeal is
filed within 30 days from receipt of the Commissioner’s
decision. An assessment by the BIR is not the
Commissioner's decision from which a petition for review
may be filed with the Court of Tax Appeals. Rather, it is the
action taken by the Commissioner in response to the
taxpayer's protest on the assessment that would constitute
the appealable decision.
No, the petition for review cannot be entertained by the
Court of Appeals, since decisions of the Commissioner on
cases involving claim for tax refunds are within the
exclusive and primary jurisdiction of the Court of Tax
Appeals.
Decision/Inaction of the Commissioner on the protest
filed (1987, 1999, 2005, 2009, 2012, 2014)
In the examination conducted by the revenue officials
against the corporate taxpayer in 2010, the BIR issued
a final assessment notice and demand letter which
states: “It is requested that the above deficiency tax be
paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final
decision based on investigation. If you disagree, you
may appeal this final decision within 30 days from
receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and
demandable.” The assessment was immediately
appealed by the taxpayer to the Court of Tax Appeals,
 TAXATION LAW
without filing its protest against the assessment and
without a denial thereof by the BIR. If you were the
judge, would you deny the petition for review filed by
the taxpayer and consider the case as prematurely
filed? Explain you answer. (2012 Bar)
No, the Petition for Review should not be denied. The case is
an exception to the rule on exhaustion of administrative
remedies. The BIR is estopped from claiming that the filing of
the Petition for Review is premature because the taxpayer
failed to exhaust all administrative remedies. The statement of
the BIR in its Final Assessment Notice and Demand Letter led
the taxpayer to conclude that only a final judicial ruling in his
favor would be accepted by the BIR. The taxpayer cannot be
blamed for not filing a protest against the Formal Letter of
Demand with Assessment Notices since the language used
and the tenor of the demand letter indicate that it is the final
decision of the respondent on the matter. The CIR should
indicate, in a clear and unequivocal language, whether his
action on a disputed assessment constitutes his final
determination thereon in order for the taxpayer concerned to
determine when his or her right to appeal to the tax court
accrues. Although there was no direct reference for the
taxpayer to bring the matter directly to the CTA, it cannot be
denied that the word “appeal” under prevailing tax laws refers
to the filing of a Petition for Review with the CTA. (Allied Bank
vs CIR, GR No 175097, February 5, 2010)
A:No, the contention of BIR is not correct. The right of BWI
to consider the inaction of the Commissioner on the
protest within 180 days as an appealable decision is only
optional and will not make the assessment final, executory
and demandable. (Sec 228, NIRC; Lacsona Land Co., Inc. v.
CIR, GR No. 171251, March 5 2012)
COMPROMISE OF TAXES
Authority, Grounds and Conditions to Compromise
taxes (1989, 1996, 2000, 2009)
24
UST BAR OPERATIONS
The Commissioner of Internal Revenue may be authorized
to compromise the payment of any internal revenue tax
where:
A reasonable doubt as to the validity of the claim against
the taxpayer exists; or
The financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax.
Tax cases which may be subject of compromise (1998,
2002, 2005)
State and discuss briefly whether the following cases may
be compromised or may not be compromised:
Delinquent accounts;
Cases under administrative protest, after issuance of
the final assessment notice to the taxpayer, which
are still pending;
Criminal tax fraud cases;
Criminal violations already filed in court;
Cases where final reports of reinvestigation or
reconsideration have been issued resulting in the
reduction of the original assessment agreed to by
the taxpayer when he signed the required
agreement form. (2005 Bar)
A:
Delinquent accounts may be compromised if either of the
two conditions is present: (1) the assessment is of
doubtful validity, or (2) the financial position of the
taxpayer demonstrates a clear inability to pay the tax.
[Sec. 204(A), NIRC; Sec. 2 of Revenue Regulations No.
30-2002]
These may be compromised, provided that it is premised
upon doubtful validity of the assessment or financial
incapacity to pay. (ibid)
These may not be compromised, so that the taxpayer may
not profit from his fraud, thereby discouraging its
commission. (ibid)
These may not be compromised in order that the taxpayer
will not profit from his criminal acts. (ibid)
Cases where final reports of reinvestigation or
reconsideration have been issued resulting in the
reduction of the original assessment agreed to by the
taxpayer when he signed the required agreement form,
cannot be compromised. By giving his conformity to the
revised assessment, the taxpayer admits the validity of
the assessment and his capacity to pay the same. (Sec. 2
of Revenue Regulations No. 30-2002)
ABATEMENT OF TAXES
Authority and Conditions to abate taxes (1989, 1996,
2000)
A: The Commissioner of Internal Revenue may abate or
cancel a tax liability when:
The tax or any portion thereof appears to be unjustly or
excessively assessed; or
The administration and collection costs involved do not
justify the collection of the amount due. [Sec. 204 (B).
NIRC of 1997]
RECOVERY OF TAX ERROUNEOUSLY OR ILLEGALY
COLLECTED
 QUAMTO (1987-2016)

Conditions for the grant of a refund or credit (2002,

2005)
State the conditions required by the Tax Code before
the Commissioner of Internal Revenue could authorize
the refund or credit of taxes erroneously or illegally
received. (2005 Bar)
The conditions are:
A written claim for refund is filed by the taxpayer with the
Commissioner of Internal Revenue. (NIRC);
The claim for refund must be a categorical demand for
reimbursement. [Bermejo v. Collector of Internal
Revenue, 87 Phil. 96 (1950)];
The claim for refund or tax credit must be filed with the
Commissioner, or the suit or proceeding therefore
must be commenced in court within 2 years from date
of payment of the tax or penalty regardless of any
supervening cause (NIRC).
OPTION TO CARRY OVER EXCESS QUARTERLY INCOME
TAX PAID(2012, 2013)
No. The claim for refund will not prosper. While the law
gives the taxpayer an option whether to carry-over or
claim as refund the excess tax credits shown on its final
adjustment return, once the option to carry over has been
made, such option shall be considered irrevocable for that
taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed (Sec. 76,
NIRC; CIR v. PL Management International Phils, Inc., GR No.
160949, April 4, 2011)
Period for filing claim for refund or credit (1992, 1994,
1997, 2008)
YesThe claim for refund for the 2004 erroneously paid
income tax was filed out of time because the claim was
only filed after more than two years had elapsed from the
payment thereof. [Section 204 (c) and 229, NIRC]
WITHHOLDING AGENT AS A PROPER PARTY TO FILE A
CLAIM FOR REFUND OR CREDIT (1992, 1999, 2995,
2008, 2009)
Yes, withholding agents is not only an agent of the
government but is also an agent of the taxpayer/income
earner. Hence, ABCD is also an agent of the beneficial
owner of the dividends with respect to the actual payment
of the tax to the government, such authority may
reasonably be held to include the authority to file a claim
for refund and to bring an action for recovery of such for
refund and to bring an action for recovery of such claim
[CIR v. Procter& Gamble, 204 SCRA 377, (1991)]
GOVERNMENT REMEDIES
Non-availability of injunction to restrain collection of
tax (1996, 1998, 2001)
As a general rule, the courts have no authority to enjoin the
collection of revenue taxes. (NIRC) However, the Court of
Tax Appeals is empowered to enjoin the collection of taxes
through administrative remedies when collection could
jeopardize the interest of the government or taxpayer. (RA
1125)
JUDICIAL REMEDIES
JURISDICTION OF THE COURT OF TAX APPEALS (1989,
1997, 1998, 2004, 2006, 2014, 2015, 2016)
Exclusive original or appellate jurisdiction to review by
appeal the following:
Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue;

25
 TAXATION LAW

Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue where
the National Internal Revenue Code or other
applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the
inaction of the Commissioner of Internal Revenue
within the one hundred eighty day-period under
Section 228 of the National Internal Revenue Code
shall be deemed a denial for purposes of allowing the
taxpayer to appeal his case to the Court and does not
necessarily constitute a formal decision of the
Commissioner of Internal Revenue on the tax case;
Provided, further, that should the taxpayer opt to await
the final decision of the Commissioner of Internal
Revenue on the disputed assessments beyond the one
hundred eighty day-period abovementioned, the
taxpayer may appeal such final decision to the Court
under Section 3 (a),Rule 8 of these Rules; and
Provided, still further, that in the case of claims for
refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court
prior to the expiration of the two-year period under
Section 229 of the National Internal Revenue Code.
Decisions, resolutions or orders of the Regional Trial
Courts in local tax cases decided or resolved by them
in the exercise of their original jurisdiction;
Decisions of the Commissioner of Customs in cases
involving liability for customs duties,fees or other
money charges, seizure, detention or release of
property affected, fines, forfeitures or other penalties
in relation thereto or other matters arising under the
Customs Law or other laws administered by the
Bureau of Customs;
Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from
decisions of the Commissioner of Customs adverse to
the Government under Section 2325 of the Tariff and
Customs Code; and
Decisions of the Secretary of Trade and Industry, in the case of
nonagricultural product, commodity or article, and the
Secretary of Agriculture, in the case of agricultural
product, commodity or article, involving dumping and
countervailing duties under Sections 301 and 302,
respectively, of the Tariff and Customs Code, and
safeguard measures under Republic Act No. 8800, where
either party may appeal the decision to impose or not to
impose said duties. ”[RRCTA, Rule 4, Sec. 3 (a)]
Decisions, resolutions or orders of the Regional Trial
Courts in tax collection cases decided or resolved by
them in the exercise of their appellate jurisdiction;
Decisions, resolutions or orders on motions for
reconsideration or new trial of the Court in division in
the exercise of its exclusive original jurisdiction over
tax collection cases;
Decisions of the Central Board of Assessment Appeals
(CBAA) in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real
property originally decided by the provincial or city
board of assessment appeals;
Decisions, resolutions or orders on motions for
reconsideration or new trial of the Court in Division in
the exercise of its exclusive original jurisdiction over
cases involving criminal offenses arising from
violations of the National Internal Revenue Code or the
Tariff and Customs Code and other laws administered
by the Bureau of Internal Revenue or Bureau of
Customs;
Decisions, resolutions or orders on motion for
reconsideration or new trial of the Court in Division in
the exercise of its exclusive appellate jurisdiction over
criminal offenses mentioned in the preceding
subparagraph; and
Decisions, resolutions or orders of the Regional Trial Courts in
the exercise of their appellate jurisdiction over criminal
offenses mentioned in subparagraph (f).”
(RRCTA, Rule 4, Sec. 2)
No. CCC, Inc. should first file a motion for reconsideration
or motion for new trial with the CTA Division. Before the
CTA en banc could take cognizance of the petition for
review concerning a case falling under its exclusive
appellate jurisdiction, the litigant must sufficiently show
that it sought prior reconsideration or moved for a new
trial with the concerned CTA Division (Commissioner of
Customs v. Marina Sale, G.R. No. 183868, November 22,
2010, 635 SCRA 606; Rule 8, Sec. 1 of the Revised Rules of
Court of Tax Appeals).

The Court en banc shall exercise exclusive appellate

jurisdiction to review by appeal the following:
Decisions or resolutions on motion for reconsideration or
new trial of the Court in Divisions in the exercise of its
exclusive appellate jurisdiction over:
0 Cases arising from administrative agencies –
Bureau of Internal Revenue, Bureau of Customs,
Department of Finance, Department of Trade and
Industry, Department of Agriculture;
1 Local tax cases decided by the Regional Trial Courts
in the exercise of their original jurisdiction; and
2 Tax collection cases decided by the Regional Trial
Court in the exercise of their original jurisdiction
involving final and executory assessments for
taxes, fees, charges and penalties, where the
principal amount of taxes and penalties claimed is
less than one million pesos;
Decisions, resolutions or orders of the Regional Trial
Courts in local tax cases decided or resolved by them
in the exercise of their appellate jurisdiction;

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 QUAMTO (1987-2016)
)
GGG, Inc. should seek recourse with the Court of Tax
Appeals (CTA) which has jurisdiction.
There is no provision in law that expressly provides where
exactly the adverse ruling the Secretary of Finance under
Section 4 of the NIRC is appealable. However, RA No. 1125,
as amended, addresses the seeming gap in the law as it
vests upon the CTA, albeit impliedly, with jurisdiction over
the case as “other matters” arising under the NIRC or other
laws administered by the BIR. Furthermore, the Supreme
Court held that the jurisdiction to review the rulings of the
Secretary of finance on the issues raised against a ruling of
the Commissioner of Internal Revenue, pertains to the
Court of Tax Appeals in the exercise of its appellate
jurisdiction (Philamlife v. The Sec. of Finance and CIR, G.R.
No. 210987, November 24, 2014).
Yes. A RMO is in reality a ruling or an opinion issued by the
Commissioner in implementing the provisions of the Tax Code
dealing with the taxability of pawnshops. The power to review
rulings issued by the Commissioner is lodged with the Court
of Tax Appeals (CTA) and not with the Regional Trial Court. A
ruling falls within the purview of
“other matters arising under the Tax Code, ’’ appealable
only to the CTA. [CIR v. Leal, 392 SCRA 9 (2002)]
CRIMINAL ACTIONS
The manifestation is not proper. The criminal action and
the corresponding civil action for the recovery of the civil
liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in
the same proceeding before the Court of Tax Appeals
(CTA). The filing of the criminal action is deemed to
necessarily carry with it the filing of the civil action, and no
right to reserve the filing of such civil action separately
from the criminal action shall be recognized (Sec. 7(b)(1)
of Republic Act No. 9282; Judy Ann Santos v. People, G.R.
No. 173176, August 26, 2008, 563 SCRA 341).
Necessity of an assessment in criminal prosecution
(1998, 2005)
27
A: Yes. The ruling of the DOJ in denying the motion is correct.
The issuance of the deficiency assessment notice prior to
prosecution is not necessary because the facts of the case
show that the crime of evasion is complete since the violator
has knowingly and willfully filed a fraudulent return with
intent to evade/defeat a part or all of the tax. [Ungab v.Cusi, Jr.,
97 SCRA 877 (1980)] What is involved here is not the
collection of taxes but a criminal prosecution for violation of
the National Internal Revenue Code.
However, the contention that the joint affidavit of the BIR
examiners showing the computation of tax liabilities maybe
considered an assessment is erroneous. It is not an
assessment which may entitle the taxpayer to protest. [CIR v.
Pascor Realty 81 Development Corp., 309 SCRA402 (1999)] An
assessment is a formal notice to the taxpayer stating that the
amount thereon is due as a tax and containing a demand for
the payment thereof. [Alhambra Cigar & Cigarette Mfg. Co. v.
Collector, 105 Phil. 1337 (1959)]
LOCAL GOVERNMENT CODE OF 1991
NATURE AND SOURCE OF TAXING POWER
Grant of Local Taxing power under the local
government code (1987, 1998, 2001, 2003, 2007)
The taxing power of the provinces, municipalities and
cities is directly conferred by the Constitution by giving
them the authority to create their own sources of revenue.
The local government units do not exercise the power to
tax as an inherent power or by a valid delegation of the
power by Congress, but pursuant to a direct authority
conferred by the Constitution. (Mactan Cebu International
Airport Authority v. Marcos, 261 SCRA 667 [1996]; NPC v.
City of Cabanatuan, 401 SCRA 259 [2003])
The local government units exercise the power to tax by
levying taxes, fees and charges consistent with the basic
policy of local autonomy, and to assess and collect all these
taxes, fees and charges which will exclusively accrue to
them. The local government units are authorized to pass
tax ordinances (levy) and to pursue actions for the
assessment and collection of the taxes imposed in said
ordinances. (Section 129, and 132, Local Government Code)
)
A: No. Congress cannot abolish what is expressly granted
by the fundamental law. The only authority conferred to
Congress is to provide the guidelines and limitations on the
local government’s exercise of the power to tax. (Sec. 5, Art
X, 1987 Constitution)
 TAXATION LAW
CHALLENGING LOCAL TAX ORDINANCES (1991, 2003,
2015)
Any question on the constitutionality or legality of tax
ordinances may be raised on appeal within 30 days from the
effectivity to the Secretary of Justice. The Secretary of Justice
shall render a decision within 60 days from the date of receipt
of the appeal. Thereafter, within 30 days after receipt of the
decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved
party may file the appropriate proceedings with the Regional
Trial Court. (Section 187, LGC)
TAXING POWER OF PROVINCES
Tax on transfer of real property ownership (1991,
2016)
The defenses I would raise are the following:
Cities like the City of Maharlika have the power to pass an
ordinance imposing a tax on the sale, donation, barter,
or on any other mode of transferring ownership of title
to real property located within its territorial
boundaries; (LGC, Sec. 135, in relation to Secs. 142 and
151)
The required capital gains tax collected by the national
government is different from the tax that is imposable
by the local government units such as the City of
Maharlika;
The transfer tax imposed and collected by cities are not
among those included in the common limitations on
the power of taxation which are reserved solely for the
exercise by the national government;
There is no direct duplicate taxation because there are two
different taxing authorities, the national government
and a local government unit. (Domondon)
PROFESSIONAL TAX (1991, 2005)
No. Mr. Fermin is given the option to pay either in the city
where he practices his profession or where he maintains his
principal office in case he practices his profession in several
places. The professional tax paid as a lawyer in Pasig City, a
place where he practices his profession, will entitle him to
UST BAR OPERATIONS
practice his profession in any part of the Philippines
without being subjected to any other national or local tax,
license, or fee for the practice of such profession. (Sec. 139
in relation to 151, Local Government Code)
No. The professional tax shall be paid only once for every
taxable year and the payment shall be made either in the
city where he practices his profession or where he
maintains his principal office. The city of residence cannot
require him to pay his professional taxes. (Sec. 139 in
relation to Sec. 151, Local Government Code)
TAXING POWERS OF MUNICIPALITIES
Fees and charges for regulation and licensing (2008,
2009)
)
Yes. The municipality is authorized to impose reasonable fees
and charges as a regulatory measure in an amount
commensurate with the cost of regulation, inspection and
licensing. (Section 147, LGC) In the case at bar, the storage of
copra in any warehouse within the municipality can be the
proper subject of regulation pursuant to the police power
granted to municipalities under the Revised
Administrative Code or the “general welfare clause.” A
warehouse used for keeping or storing copra is an
establishment likely to endanger the public safety or likely
to give rise to conflagration because the oil content of the
copra, when ignited, is difficult to put under control by
water and the use of chemicals is necessary to put out the
fire. It is, thus, reasonable that the Municipality impose
storage fees for its own surveillance and lookout (Procter
& Gamble Philippine Manufacturing Corporation v.
Municipality of Jagna, Province of Bohol, 94 SCRA 894
[1979]).
COMMON LIMITATIONS ON THE TAXING POWERS OF
LGU’S
Levy upon goods carried into, leaving or passing
through and LGU’s territorial boundaries (1987, 2015)
Yes, on the ground that the ordinance is ultra vires. The
taxing powers of local government units such as M City,
cannot extend to the levy of taxes, fees and charges already
28
 QUAMTO (1987-2016)
imposed by the national government, and this includes,
among others, the levy of customs duties under the Tariff
and Customs Code (Sec. 133 (e), LGC)
REAL PROPERTY TAXATION
Actual Use Principle (1988, 1990, 2000, 2005)
No. The portions of the land occupied and used by the church,
convent and school run by the church are exempt from real
property taxes while the portion of the land occupied by
commercial establishments and the portion, which is idle, are
subject to real property taxes. The “usage” of the property and
not the “ownership" is the determining factor whether or not
the property is taxable. [Lung Center of the Philippines v. Q.C.,
433 SCRA 119 (2004)].
Real properties for purposes of taxation (2001, 2003,
2009)
Yes. The properties are considered as necessary fixtures of
the gasoline station, without which the gasoline station
would be useless. Machinery and equipment installed by
the lessee of leased land is not real property for purposes
of execution of a final judgment only. They are considered
as real property for real property tax purposes as “other
improvements to affixed or attached real property under
the Assessment Law and the Real Property Tax Code.
[Caltex v. Central Board of Assessment Appeals, 114 SCRA
296 (1982)]
29
The contention of JEC is not correct. The owner of the
power barges is JEC which is required to operate, manage
and maintain the power barges for the purpose the claim
that RPC, a government-owned and controlled corporation
engaged in the supply, generation and transmission of
electric power, is the actual, direct and exclusive user of the
barge, hence, does not fall within the purview of the
exempting provision of Section 234[c] of R.A. 7160.
Likewise, the argument that RPC should be liable to the
real property taxes consonant with the contract is devoid
of merit. The liability for the payment of the real estate
taxes is determined by law and not by the agreement of the
parties. [FELS Energy Inc. v. The Province of Batangas, 516
SCRA 186 (2007)]
EXEMPTION FROM REAL PROPERTY TAX
Constitutional Exemptions (1987, 1988, 1990, 1996,
2000, 2005, 2006)
Yes. Mercy Hospital can claim exemption from taxation
under the provision of the Constitution, but only with
respect to real property taxes provided that such real
properties are used actually, directly and exclusively for
charitable purposes.
Exemptions under the LGC (1987, 1990 2002, 2006,
2009, 2015, 2016)
 TAXATION LAW

A: Yes. The Philippine National Railways (PNR) was No. As a rule, properties owned by the Republic of the
created as a corporation to serve as an instrumentality of Philippines are exempt from real property tax except when
the Government of the Philippines (Rep. Act No. 10638, the beneficial use thereof has been granted, for
amending Sec. 1 of Rep. Act No. 4156) upon which the local consideration or otherwise, to a taxable person. When LLL
governments are not allowed to levy taxes, fees or other leased out portions of the reclaimed properties to taxable
charges including real property taxes. [Manila entities, such as the popular fast food restaurants, the
International Airport Authority v. Court of Appeals, et al., G. reclaimed properties are subject to real property tax. [Sec.
R. No. 155650, July 20, 2006; Manila International Airport 234(a), LGC; GSIS v. City Treasurer and City Assessor of the
Authority v. City of Pasay, G. R. No. 163072, April 2, 2009, City of Manila]
583 SCRA 234 (2009) citing Philippine Fisheries
Development Authority v. Court of Appeals, G.R. No. 150301,
No. The City Assessor is not correct in classifying the
2 October 2007, 534 SCRA 490]
Center as “commercial.”
PNR is not a government and controlled corporation but an
The fact alone that the separate St. Michael’s Medical Arts
instrumentality of the government hence it is not included
Center will house medical practitioners who shall treat the
in the withdrawal of exemptions. Finally, under the
patients confined in the Hospital and are accredited by the
common limitations on local government units’ power of
Association takes away the said Medical Arts Center from
taxation, it shall not extend to the levy of “taxes, fees or
being categorized as “commercial” since a tertiary hospital
charges of any kind on the National Government, its
is required by law to have a pool of physicians who
agencies and instrumentalities, and local government
comprise the required medical departments in various
units.” [LGC, Sec. 133 (o), paraphrasing supplied)
medical fields. [City Assessor of Cebu City v Association of
The railroad tracks, train stations, freight customer Benevola de Cebu, Inc., 524 SCRA 128 (2007)] (Domondon)
facilities, land improvements, and equipment within its
REFUND OR CREDIT OF REAL PROPERTY TAX
main station in Tutuban, Manila are properties of public
dominion intended for public use, and as such are exempt Payment under protest (1988, 1991, 1993, 2014)
from real property tax under Section 234 (a) of the Local
Government Code (LGC). (Manila International Airport )
Authority v. City of Pasay, supra)
The administrative remedies available to Madam X to
The reclaimed properties are not subject to real property tax contest the assessment and their respective prescriptive
because LLL is a government instrumentality. Under the law, periods are as follows:
real property owned by the Republic of the Philippines is
Pay the deficiency real property tax under protest (Sec
exempt from real property tax unless the beneficial use
252, LGC);
thereof has been granted to a taxable person. (Sec 234, LGC)
File the protest with the local treasurer – The protest in
When the title of the real property is transferred to LLL, the
writing must be filed within 30 days from payment of
Republic remains the owner of the real property. Thus, such
the tax to the provincial, city or municipal treasurer, in
arrangement does not result in the loss of the tax exemption.
the case of municipality within Metro Manila Area,
(Republic of the Philippines, represented by The Philippine
who shall decide the protest within 60 days from
Reclamation Authority v. City of Paranaque)
receipt (Sec. 252, LGC)
ALTERNATIVE ANSWER: No. LLL is an instrumentality of
the national government which cannot be taxed by local
government units. LLL is not a government-owned or
controlled corporation taxable for real property taxes.
(City of Lapu-Lapu v. PEZA, GR No. 184203, Nov. 26, 2014)

UST BAR OPERATIONS 30

 QUAMTO (1987-2016)

Appeal to the LBAA – If the protest is denied or upon the

lapse of the 60-day period for the treasurer to decide,
the taxpayer may appeal to the LBAA within 60 days
and the case decided within 120 days (Sec. 226 and
229)
Appeal to the CBAA – If not satisfied with the decision of
the LBAA, appeal to the CBAA within 30 days from
receipt of a copy of the decision. [Sec. 229 (c), LGC]
Marking duties are special duties equivalent to 5% ad
valorem imposed on articles not properly marked. These
are collected by the Commissioner of Customs except when
the improperly marked articles are exported or destroyed
under customs supervision and prior to final liquidation of
the corresponding entry. These duties are designed to
prevent possible deception of the customers.

Discriminatory duties (1995, 1997)

No. The payment of the deficiency tax is a condition before
she can protest the deficiency assessment. It is the decision on
the protest or inaction thereon that gives her the right to
appeal. This means that she cannot refuse to pay the
deficiency tax assessment during the pendency of the appeal
because it is the payment itself which gives rise to the remedy.
The law provides that no protest (which is the beginning of
the disputation process) shall be entertained unless the
taxpayer first pays the tax. (Section 252, LGC)
TARIFF AND CUSTOMS CODE
Basis of dutiable value (1989, 2005, 2008)
) duty on all import not exceeding 10% ad valorem
A: The tax base for the customs duties is the transaction
value while for VAT purposes, the tax base is the value used
in computing customs duties plus customs duties, excise
taxes and other charges incident to importation. [Section
107 (A), NIRC] These taxes on importation must be paid to
the Bureau of Customs before the Authority to Release
Imported Goods will be issued by the BIR. (Revenue
Regulations No. 16-2005)
Discriminatory duties are special duties collected in an
amount not exceeding 100% ad valorem, imposed by the
President of the Philippines against goods of a foreign
country which discriminates against Philippine commerce
or against goods coming from the Philippines and shipped
to a foreign country.
FLEXIBLE TARIFF CLAUSE (1991, 2001)
The term "flexible tariff clause "refers to the power of the
President upon recommendation of the NEDA to increase,
reduce or remove existing protective tariff rates of import
duty, but in no case shall be higher than 100% ad valorem,
to establish import quota or to ban importation of any
commodity as may be necessary and to impose additional
whenever necessary. (Sec. 102, CMTA)
No. Under the Flexible Tariff clause, any order issued by
the President pursuant to the provision shall take effect
thirty (30) days after promulgation, except in the
imposition or additional duty not exceeding ten (10)
percent ad valorem which shall take effect at the discretion
of the President. [Section 1608 (d), CMTA]

SPECIAL DUTIES BEGINNING AND ENDING OF IMPORTATION (1995,

2015)
Dumping Duties (1995, 1997, 2005)

dumping duties
Dumping duties are special duties imposed by the
Secretary of Finance upon recommendation of the Tariff
Commission when it is found that the price of the imported
articles is deliberately or continually fixed at less than the
fair market value or cost of production, and the
importation would cause or likely cause an injury to local
industries engaged in the manufacture or production of the
same or similar articles or prevent their establishment.

Countervailing Duties (1995,1997, 2005)

Countervailing duties are special duties imposed by the

Secretary of Finance upon prior investigation and report of
the Tariff Commission to offset an excise or inland revenue
tax upon articles of the same class manufactured at home
or subsidies to foreign producers or manufacturers by
their respective governments.
Marking duties (1995, 1997)

31
 TAXATION LAW

Importation begins when the carrying vessel or aircraft

enters the jurisdiction of the Philippines with intention to
unload therein. (Sec. 103, 1st par., CMTA) Importation is
deemed terminated upon payment of the duties, taxes and
other charges due upon the articles or secured to be paid
at a port of entry and the legal permit for withdrawal shall
have been granted [Sec. 103 (a), CMTA], or in case said
articles are free of duties, taxes and other charges, until
they have legally left the jurisdiction of Customs. [Sec. 103
(b), CMTA]

32
UST BAR OPERATIONS