1 Is double taxation a valid defense No, double taxation standing alone and not being General Double taxation

General Double taxation double 1

against the legality of a tax measure? forbidden by our fundamental law is not a valid defense principles taxation 9
against the legality of a tax measure (Pepsi Cola v. of taxation 9
Tanawan, 69 SCRA 7
460). However, if double taxation amounts to a direct
duplicate taxation,
1 in that the same subject is taxed twice when it should be
taxed but once,
2 in a fashion that both taxes are imposed for the same
purpose
3 by the same taxing authority, within the same
jurisdiction or taxing district,
4 for the same taxable period and
5 for the same kind or character of a tax then it becomes
legally objectionable for being
oppressive and inequitable.
2 When an item of income is taxed in Yes, but it is only a case of indirect duplicate taxation General double taxation double 1
the Philippines and the same income which is not legally prohibited because the taxes are principles taxation 9
is taxed in another country, is there a imposed by different taxing authorities. of taxation 9
case of double taxation? 7
3 What are the usual methods of The usual methods of avoiding the occurrence of double General double taxation methods 1
avoiding the occurrence of double taxation are: principles of 9
taxation? 1 Allowing reciprocal exemption either by law or by of taxation avoiding 9
treaty; 7
2 Allowance of tax credit for foreign taxes paid;
3 Allowance of deduction for foreign taxes paid; and
4 Reduction of the Philippine tax rate .
4 The House of Representatives There is no violation of the constitutional requirement that General power to limitations 1
introduced HB 7000 which all revenue bills should originate from the House of principles taxation 9
envisioned to levy a tax on various Representatives. What is prohibited is for the Senate to of taxation 9
transactions. After the bill was enact revenue measures on its own without a bill 7
approved by the House, the bill was originating from the House. But once the revenue bill was
sent to the Senate as so required by passed by the House and sent to the Senate, the latter can
the Constitution. In the upper house, pass its own
instead of a deliberation on the House version on the same subject matter consonant with the
Bill, the Senate introduced SB 8000 latter's power to propose or concur with amendments.
which was its own version of the This follows from the co-equality of the two chambers of
same tax. The Senate deliberated on Congress (Tolentino v. Secretary of Finance, GR No.
this Senate Bill and 115455, Oct. 30, 1995).
approved the same. The House Bill
and the Senate Bill were then
consolidated in the Bicameral
Committee. Eventually, the
consolidated bill was approved and
sent to the President who signed the
same. The private sectors affected by
the new law questioned the validity of
the enactment on the ground that the
constitutional provision requiring that
all revenue bills should originate from
the House of Representatives had
been violated.
Resolve the issue.
5 "X" Corporation was the recipient in Yes. The exempting statutes are both granted unilaterally General power to revocation 1
1990 of two tax exemptions both by Congress in the exercise of taxing powers. Since principles taxation of 9
from Congress, one law exempting taxation is the rule and tax exemption, the exception, any of taxation exempting 9
the company's bond issues from taxes tax exemption unilaterally granted can be withdrawn at statutes 7
and the other exempting the company the pleasure of the taxing authority without violating the
from taxes in the operation of its Constitution (Mactan Cebu International Airport
public utilities. The two laws Authority v, Marcos, G.R No. 120082, September 11,
extending the tax exemptions were 1996).
revoked by Congress before their
expiry dates. Neither of these were issued by the taxing authority in a
Were the revocations constitutional? contract lawfully entered by it so that their revocation
would not constitute an impairment of the obligations of
contracts.

ALTERNATIVE ANSWER:
No. The withdrawal of the tax exemption amounts to a
deprivation of property without due process of law, hence
unconstitutional.
9 a) Discuss the meaning of the Global a) A global system of taxation is one where the taxpayer is General systems of systems of 1
and Schedular systems of taxation required to lump up all items of income earned during a principles taxation taxation 9
taxable period and pay under a single set of income tax of taxation 9
rules on these different items of income. 7
A schedular system of taxation provides for a different tax
treatmet of different types of income so that a separate tax
return is required to be filed for each type of income and
the tax is computed on a per return or per schedule basis.

1 b) To which system would you say b) The method of taxation under the NIRC belongs to a General systems of systems of 1
0 that the method of taxation under the system which is partly secular and partly global principles taxation taxation 9
National Internal Revenue Code of taxation 9
belongs? 7
1 Explain the requirement of uniformity Uniformity in the imposition and/or collection of taxes General Collection of Uniformit 1
as a limitation in the imposition means that all taxable articles, or kinds of property of the Principles Taxes y 9
and/or collection of taxes. same class shall be taxed at the same rate. The OF 9
requirement of uniformity is complied with when the tax Taxation 8
operates with the same force and effect in every
place where the subject of it is found (Churchill & Tail v.
Conception, 34 Phil. 969). It does not mean that lands,
chattels, securities, income, occupations, franchises,
privileges, necessities and luxuries shall be assessed at the
same rate. Different articles maybe taxed at different
amounts provided that the rate is uniform on the same
class everywhere with all people at all times. Accordingly,
singling out one particular class for taxation purposes
does not infringe the requirement of uniformity.
FIRST ALTERNATIVE ANSWER:
The criteria is met when the tax laws operate equally and
uniformly on all persons under similar circumstances. All
persons are treated in the same manner, the conditions not
being different, both in privileges conferred and liabilities
imposed. Uniformity in taxation also refers to
geographical uniformity. Favoritism and preference is not
allowed.

SECOND ALTERNATIVE ANSWER:

A tax is deemed to have satisfied the uniformity rule when
it operates with the same force and effect in every place
where the subject maybe found. (Phil. Trust & Co. v.
Yatco, 69 Phil.
420).
1 Give the requisites for deducibility of The requisites for deducibility of a loss are 1) loss belongs General Deductions Deductibil 1
4 a loss. to the taxpayer; 2) actually sustained and charged off principles ity of a 9
during the taxable year; 3) evidenced by a closed and of taxation loss 9
completed transaction; 4) not compensated by Insurance 8
or other forms of indemnity; 5) not claimed as a deduction
for estate tax purposes in case of individual taxpayers; and
6) if it is a casualty loss it is evidenced by a declaration of
loss filed within 45 days with the BIR.
1 1 What is the proper allowance for 1. The proper allowance of depreciation of any property General Depreciation Proper 1
5 depreciation of any property used in used in trade or business refers to the reasonable principles allowance 9
trade or business? allowance for the exhaustion, wear and tear (including of taxation of 9
reasonable allowance for obsolescence) of said property. Depreciati 8
The reasonable allowance shall include, but not limited to, on
an allowance computed under any of the following
methods:
(a) straight-line method;
(b) declining-balance method;
(c) sum-of-years-digit method; and
(d) any other method which may be prescribed by the
Secretary of Finance upon recommendation of the
Commissioner of Internal Revenue (Sec. 34(F). NIRC).
1 2 What is the annual depreciation of a 2. The annual depreciation of the depreciable fixed asset General Depreciation Proper 1
6 depreciable fixed asset with a cost of may be computed on the straight-line method which will principles allowance 9
P100,000 and an estimated useful life allow the taxpayer to deduct an annual depreciation of of taxation of 9
of 20 years and salvage value of P Php4,500, arrived at by dividing the depreciable value Depreciati 8
10,000 after its useful life? (Php l00.000-Phpl0.000) of Php90,000 by the estimated on
useful life (20 years).
1 The power to tax is an inherent power of the sovereign General Doctrine of Constituti 2
which is exercised through the legislature, to impose Principles Taxation onal 0
burdens upon subjects and objects within its Jurisdiction of Taxation Limitation 0
for the purpose of raising revenues to carry out the 0
legitimate objects of government. The underlying basis
for its exercise is governmental necessity for without it no
government can exist nor endure. Accordingly, it has the
broadest scope of all the powers of government because in
the absence of limitations, it is considered as unlimited,
plenary, comprehensive and supreme. The two limitations
on the power of taxation are the inherent and
constitutional limitations which are intended to prevent
abuse on the exercise of the otherwise plenary and
unlimited power. It is the Court's role to see to it that the
exercise of the power does not transgress these
limitations.
2 Mr. Pascual's income from leasing his There is tax avoidance. Mr. Pascual has exploited a fully General Doctrine of Tax 2
property reaches the permissive alternative method to reduce his income tax by Principles Taxation Avoidanc 0
maximum rate of tax under the law. transferring part of his rental income to a tax exempt of Taxation e vs. Tax 0
He donated one-half of entity through a donation of one-half of the income Evasion 0
his said property to a non-stock, non- producing property. The donation is likewise exempt from
profit educational the donor's tax. The donation is the legal means employed
institution whose income and assets to transfer the incidence of income tax on the rental
are actually, directly income.
and exclusively used for educational
purposes, and therefore
qualified for tax exemption under
Article XIV, Section 4 (3)
of the Constitution and Section 30 (h)
of the Tax Code.
Having thus transferred a portion of
his said asset, Mr.
Pascual succeeded in paying a lesser
tax on the rental
income derived from his property. Is
there tax avoidance or
tax evasion? Explain. (2%)
3 (2000) An Executive Order was
issued pursuant to law, granting
tax and duty incentives only to
businesses and residents
within the "secured area" of the Subic
Economic Special
Zone, and denying said incentives to
those who live within
the Zone but outside such "secured
area". Is the
constitutional right to equal protection
of the law violated
by the Executive Order? Explain.
(3%)
6 Among the taxes imposed by the
Bureau of Internal Revenue are
income tax, estate and donor's tax,
value-added tax, excise tax, other
percentage taxes, and documentary
stamp tax. Classify these taxes into
direct and indirect taxes, and
differentiate direct from Indirect
taxes. (5%)
1 Under Article XIV, Section 4 (3) of
2 the 1987 Philippine
Constitution, all revenues and assets
of non-stock, nonprofit
educational institutions, used actually,
directly and
exclusively for educational purposes,
are exempt from taxes
and duties. Are income derived from
dormitories, canteens
and bookstores as well as interest
income on bank deposits
and yields from deposit substitutes
automatically exempt
from taxation? Explain. (5%)
1 What is meant by taxable income?
3 (2%)
No. Equal protection of the law clause is subject to General Doctrine of Equal 2
reasonable classification. Classification, to be valid, must Principles Taxation Protection 0
(1) rest on substantial distinctions, (2) be germane to the of Taxation of the 0
purpose of the law, (3) not be limited to existing Law 0
conditions only, (4) apply equally to all members of the
same class.
There are substantial differences between big investors
being enticed to the "secured area" and the business
operators outside that are in accord with the equal
protection clause that does not require territorial
uniformity of laws. The classification applies equally to
all the resident individuals and businesses within the
"secured area". The residents, being in like circumstances
to contributing directly to the achievement of the end
purpose of the law, are not categorized further. Instead,
they are similarly treated, both in privileges granted and
obligations required. (Tiu, et al, v. Court of 4npeals, et al,
G.R. No. 127410, January 20, 1999)
Income tax, estate and donor's tax are considered as direct General Kinds of Taxes According 2
taxes. On the other hand, value-added tax, excise tax, Principles to burden 0
other percentage taxes, and documentary stamp tax are of Taxation or 0
indirect incidence 0
taxes.
DIRECT 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 a
part of the purchase price.
No. The interest income on bank deposits and yields from General Doctrine of Tax 2
deposit substitutes are not automatically exempt from Principles Taxation Exemptio 0
taxation. There must be a showing that the incomes are of Taxation n 0
included in the school's annual information return and 0
duly audited financial statements together with:
1 Certifications from depository banks as to the amount of
interest income earned from passive investments not
subject to the 20% final withholding tax;
2 Certification of actual, direct and exclusive utilization of
said income for educational purposes;
3 Board resolution on proposed project to be funded out
of the money deposited in banks or placed in money
market placements (Finance Department Order No. 149-
95 issued November 24, 1995), which must be used
actually, directly and exclusively for educational
purposes.
The income derived from dormitories, canteens and
bookstores are not also automatically exempt from
taxation. There is still the requirement for evidence to
show actual, direct and exclusive use for educational
purposes. It is to be noted that the 1987 Philippine
Constitution does not distinguish with respect to the
source or origin of the income. The distinction is with
respect to the use which should be actual, direct and
exclusive for educational purposes.
Consequently, the provisions of Sec. 30 of the NIRC of
1997, that a non-stock and nonprofit educational
institution is exempt from taxation only "in respect to
income received by them as such" could not affect the
constitutional tax exemption. Where the Constitution does
not distinguish with respect to source or origin, the Tax
Code should not make distinctions.
TAXABLE INCOME means the pertinent items of gross General Doctrine of Exemptio 2
income specified in the Tax Code, less the deductions Principles Taxation ns: Non- 0
and/or personal and additional exemptions, if any, of Taxation Profit 0
authorized for such types of income by the Tax Code or Education 0
other special laws. (Sec. 31, NIRC of 1997) al
 Institution
s

2 Distinguish a tax amnesty from a tax Tax amnesty is an immunity from all criminal, civil and General Doctrine in Tax 2
exemption. (3%) administrative liabilities arising from nonpayment of Principles Taxation amnesty 0
taxes. of Taxation and 0
It is a general pardon given to all taxpayers. It applies exemption 1
only to past tax periods, hence of retroactive application.
(People v. Costonedo, G.R. No. L-46881, 1988).
Tax exemption is an immunity from the civil liability
only. It is an immunity or privilege, a freedom from a
charge or
burden to which others are subjected. (Florer v. Sheridan,
137 Ind. 28, 36 ME 365). It is generally prospective in
application.

3 May the collection of taxes be barred Yes. The collection of taxes may be barred by General Collection of Prescripti 2
by prescription? prescription. Principles Taxes on 0
Explain your answer. (3%) The prescriptive periods for collection of taxes are of Taxation 0
governed by the tax law imposing the tax. However, if the 1
tax law
does not provide for prescription, the right of the
government to collect taxes becomes imprescriptible.
2 Congress, after much public hearing No. The law centralizing the imposition and collection of General Power of Limitation 2
3 and consultations with various sectors all taxes in the national government would contravene the Principles Taxation s of the 0
of society, came to the conclusion Constitution which mandates that: . . . "Each local of Taxation Congress 0
that it will be good for the country to government unit shall have the power to create their own 1
have only one system of taxation by sources of revenue and to levy taxes, fees, and charges
centralizing the imposition and subject to such guidelines and limitations as Congress
collection of all taxes in the national may provide consistent with the basic policy of local
government. autonomy." It is clear that Congress can only give the
Accordingly, it is thinking of passing guidelines and limitations on the exercise by the local
a law that would abolish the taxing governments of the power to tax but what was granted by
power of all local government units. the fundamental lawcannot be withdrawn by Congress.
In your opinion, would such a law be
valid under the present Constitution?
Explain your answer. (5%)
9 XYZ Foundation is a non-stock, non- The exemption contemplated in the Constitution covers General Doctrine in Tax 2
profit association duly real estate tax on real properties actually, directly and Principles Taxation Exemptio 0
organized for religious, charitable and exclusively used for religious, charitable or social welfare of Taxation n 0
social welfare purposes. It does not cover exemption from the imposition 2
purposes. Last January 3, 2000 it sold of the income tax which is within the context of Section
a portion of its lot 30 of the Tax Code. As a rule, non-stock nonprofit
used for religious purposes and corporations organized for religious, charitable or social
utilized the entire proceeds welfare purposes are exempt from income tax on their
for the construction of a building to income received by them as such. However, if these
house its free Day and religious, charitable or social welfare corporations derive
Night Care Center for children of income from their properties or any of their activities
single parents. In order to conducted for profit, the income tax shall be imposed on
subsidize the expenses of the Day and said items of income irrespective of their disposition.
Night Care Center (Sec. 30, NIRC; CIR v, YMCA, GR No. 124043, 1998).
and to support its religious, charitable
and social welfare
projects, the Foundation leased the
300square meter area of the second
and third floors of the building for use
as a
boarding house. The Foundation also
operates a canteen
and a gift shop within the premises,
all the income from
which is used actually, directly, and
exclusively for the
purposes for which the Foundation
was organized.
A. Considering the constitutional
provision granting
tax exemption to non-stock
corporations such as those
formed exclusively for religious,
charitable or social welfare
purposes, explain the meaning of the
last paragraph of said
Sec. 30 of the 1997 Tax Code which
states that “Income of
whatever kind and character of the
foregoing organizations from any of
their properties, real or personal, or
from any of their activities conducted
for profit regardless of the disposition
made of such income shall be subject
to tax imposed under this Code."
(5%)
1 XYZ Foundation is a non-stock, non- Yes. The income derived from the sale of lot and rentals General Doctrine in Tax 2
0 profit association duly from its boarding house are considered as income Principles Taxation Exemptio 0
organized for religious, charitable and from properties which are subject to tax. Likewise, the of Taxation n 0
social welfare income from the operation of the canteen and gift shop 2
purposes. Last January 3, 2000 it sold are income from its activities conducted for profit which
a portion of its lot are subject to tax. The income tax attaches irrespective of
used for religious purposes and the disposition of these incomes. (Sec. 30, NIRC; CIR v.
utilized the entire proceeds YMCA, GR No. 124043, 1998).
for the construction of a building to
house its free Day and
Night Care Center for children of
single parents. In order to
subsidize the expenses of the Day and
Night Care Center
and to support its religious, charitable
and social welfare
projects, the Foundation leased the
300square meter area of the second
and third floors of the building for use
as a
boarding house. The Foundation also
operates a canteen
and a gift shop within the premises,
all the income from
which is used actually, directly, and
exclusively for the
purposes for which the Foundation
was organized.Is the income derived
by XYZ Foundation from the sale of
a portion of its lot, rentals from its
boarding house and the operation of
its canteen and gift shop subject to
tax? Explain. (5%)
1 Why is the power to tax considered It is considered inherent in a sovereign State because it is General Power of Legislativ 2
inherent in a sovereign State? (4%) a necessary attribute of sovereignty. Without this power Principles Taxation e in 0
no sovereign State can exist or endure. The power to tax of Taxation Nature 0
proceeds upon the theory that the existence of a 3
government is a necessity and this power is an essential
and inherent attribute of sovereignty, belonging as a
matter of right to every independent state or government.
No sovereign state can continue to exist without the
means to pay its expenses; and that for those means, it has
the right to compel all citizens and property within its
limits to contribute, hence, the emergence of the power to
tax. (51 Am. Jur.,Taxation 40).
7 Distinguish a "capital asset" from an (a) The term "capital asset" regards all properties not General Capital Gain Capital 2
"ordinary asset". specifically excluded in the statutory definition of capital Principles Tax Asset vs. 0
assets, the profits or loss on the sale or the exchange of of Taxation Oridnary 0
which are treated as capital gains or capital losses. Asset 3
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":

(1) stock in trade of the taxpayer or other property of a

kind which would properly be included in the inventory of
the taxpayer if on hand at the close of the taxable year;
(2) property held by the taxpayer primarily for sale to
customers in the ordinary course of trade or business;
(3) property used in the trade or business of a character
which is subject to the allowance for depreciation
provided in Section 34 (F) of the Tax Code; or
(4) real property used in trade or business of the
taxpayer.

The statutory definition of "capital assets" practically

excludes from its scope, it will be noted, all property held
by the taxpayer if used in connection with his trade or
business.
1 (a) What is meant by the "tax benefit (a) TAX BENEFIT RULE states that the taxpayer is General Tax Benefit Priniciple 2
0 rule"? obliged to declare as taxable income subsequent recovery Principles Rule under the 0
of bad debts in the year they were collected to the extent of Taxation Tax 0
of the tax benefit enjoyed by the taxpayer when the bad Benefit 3
debts were written-off and claimed as a deduction from Rule
income. It also applies to taxes previously deducted from
gross income but which were subsequently refunded or
credited. The taxpayer is also required to report as taxable
income the subsequent tax refund or tax credit granted to
the extent of the tax benefit the taxpayer enjoyed when
such taxes were previously claimed as deduction from
income.
1 (b) Give an illustration of the (b) X Company has a business connected receivable General Tax Benefit Illustratio 2
1 application of the tax benefit rule. amounting to P100,000.00 from Y who was declared Principles Rule n of the 0
bankrupt by a competent court. Despite earnest efforts to of Taxation applicatio 0
collect the same, Y was not able to pay, prompting X n 3
Company to write-off the entire liability. During the year
of write-off, the entire amount was claimed as a deduction
for income tax purposes reducing the taxable net income
of X Company to only P1,000,000.00. Three years later,
Y voluntarily paid his obligation previously written-off to
X Company. In the year of recovery, the entire amount
constitutes part of gross income of X Company because it
was able to get full tax benefit three years earlier.
1 Taxes are assessed for the purpose of
9 generating revenue to be used for
public needs. Taxation itself is the
power by
which the State raises revenue to
defray the expenses of
government. A jurist said that a tax is
what we pay for
civilization.
In our jurisdiction, which of the
following statements may be
erroneous:
1) Taxes are pecuniary in nature.
2) Taxes are enforced charges and
contributions.
3) Taxes are imposed on persons and
property within the territorial
jurisdiction of a State.
4) Taxes are levied by the executive
branch of the government.
5) Taxes are assessed according to a
reasonable rule of apportionment.
Justify your answer or choice briefly.
(5%)
2 Which of the following propositions
0 may now be untenable:
1) The court should construe a law
granting tax exemption strictly
against the taxpayer.
2) The court should construe a law
granting a municipal corporation the
power to tax most strictly.
3) The Court of Tax Appeals has
jurisdiction over decisions of the
Customs Commissioner in cases
involving liability for customs duties.
4) The Court of Appeals has
jurisdiction to review decisions
of the Court of Tax Appeals.
5) The Supreme Court has
jurisdiction to review decisions of the
Court of Appeals.
Justify your answer or choice briefly.
(5%)
Taxes are levied by the executive branch of government. General Purpose of Legislativ 2
This statement is erroneous because levy refers to the act Principles Taxation e in 0
of imposition by the legislature which is done through the of Taxation Nature 0
enactment of a tax law. Levy is an exercise of the power 4
to tax which is exclusively legislative in nature and
character. Clearly, taxes are not levied by the executive
branch of government. (JVPC v. Albay, 186 SCRA 198
[1990]).
2. The court should construe a law granting a municipal General Purpose of Interpretat 2
corporation the power to tax most strictly. Principles Taxation ion 0
of Taxation 0
This proposition is now untenable. The basic rationale for 4
the grant of tax power to local government units is to
safeguard their viability and self-sufficiency by directly
granting them general and broad tax powers (Manila
Electric Company v. Province of Laguna et. al., 306
SCRA 750 [1999]). Considering that inasmuch as the
power to tax may be exercised by local legislative bodies,
no longer by valid congressional delegation but by direct
authority conferred by the Constitution, in interpreting
statutory provisions on municipal fiscal powers, doubts
will, therefore, have to be resolved in favor of municipal
corporations (City Government of San Pablo, Laguna v.
Reyes, 305 SCRA 353 [1999]). This means that the court
must adopt a liberal construction of a law granting a
municipal corporation the power to tax.
Note: If the examinee chose proposition no. 4 as his
answer, it should be given full credit considering that the
present CTA Act (R.A. No. 9282) has made the
CTA a coequal judicial body of the Court of Appeals. The
question "Which of the following propositions may now
be untenable" may lead the examinee to
choose a proposition which is untenable on the basis of
the new law despite the cut-off date adopted by the Bar
Examination Committee. R.A. No. 9282 was passed on
March 30, 2004.
2 A law was passed granting tax The contention is not tenable. The exemption granted is in General Tax Exemptions Exemptio 2
2 exemption to certain the nature of a unilateral tax exemption. Since the Principles ns are 0
industries and investments for a exemption given is spontaneous on the part of the of Taxation Unilateral 0
period of five years. But legislature and no service or duty or other remunerative in Nature 4
three years later, the law was conditions have been imposed on the taxpayers receiving
repealed. With the repeal, the the exemption, it may be revoked at will by the
exemptions were considered revoked legislature(Christ Church v. Philadelphia, 24 How. 300
by the BIR, which assessed the [1860]). What constitutes an impairment of the obligation
investing companies for unpaid taxes of contracts is the revocation of an exemption which is
effective on the date of the repeal of founded on a valuable consideration because it takes the
the law. form and essence of a contract (Casanovas v. Hord, 8 Phil.
125 [1907]; Manila Railroad Company v. Insular
NPC and KTR companies questioned Collector of Customs, 12 Phil. 146 [1915])
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.
(5%)
2 Due to an uncertainty whether or not No. Reversal of a ruling shall not be given retroactive General Non- Non- 2
7 a new tax law is applicable to printing application if said reversal will be prejudicial to the Principles Retroactivity of Retroactiv 0
companies, DEF Printers submitted a taxpayer. Therefore, the BIR cannot assess DEF Printers of Taxation Rulings ity of 0
legal query to the Burea of Internal for back taxes because it would be violative of the Rulings 4
Revenue on that issue. The BIR principle of non-retractivity of rulings and doing so would
issued a ruling that printing result in grave injustice to the taxpayer who relied on the
companies are not covered by the new first rulinhg in good faith. (Section 246, NIRC; CIR v.
tax law. Relying on this ruling, DEF Burroughs, Inc., 142 SCRA 324 [1986])
Printers did not pay said tax.

Subsequently, however, the BIR

reversed the ruling and issued a new
one stating that the tax covers printing
companies. Could the BIR now assess
DEF Printers for back taxes
corresponding to the years before the
new ruling? Reason briefly. (5%)
2 PQR Corp. claimed as a deduction in
8 its tax returns the
amount of P1,000,000 as bad debts.
The corporation was
assessed by the Commissioner of
Internal Revenue for
deficiency taxes on the ground that
the debts cannot be
considered as "worthless," hence they
do not qualify as bad debts. The
company asks for your advice on
"What factors will held in
determining whether or not the debts
are bad debts?" Answer and explain
briefly. (5%)
3 For failure to comply with certain
1 corporate requirements,
the stockholders of ABC Corp. were
notified by the
Securities and Exchange Commission
that the corporation
would be subject to involuntary
dissolution. The
stockholders did not do anything to
comply with the
requirements, and the corporation was
dissolved. Can the
stockholders be held personally liable
for the unpaid taxes of the dissolved
corporation? Explain briefly. (5%)
In order that debts be considered as bad debts because General Bad Debt Elements 2
they have become worthless, the taxpayer should establish Principles of a Bad 0
that during the year for which the deduction is sought, a of Taxation Debt 0
situation developed as a result of which it became evident 4
in the exercise of sound, objective business judgment that
there remained no practical, but only vaguely theoretical,
prospect that the debt would ever be paid (Collector of
Internal Revenue v. Goodrich International Rubber Co.,
21 SCRA 1336 [1967]). "Worthless" is not determined by
an inflexible formula or slide rule calculation, but upon
the exercise of sound business judgment. The factors to be
considered include, but are not limited to, the following:
1 The debtor has no property nor visible income;
2 The debtor has been adjudged bankrupt or insolvent;
3 Collateral shares have become worthless; and
4 There are numerous debtors with small amounts of debts
and further action on the accounts would entail expenses
exceeding the amounts sought to be collected.
ALTERNATIVE ANSWER:
The following are the factors to be considered in
determining whether or not the debts are bad debts:
1 The debt must be valid and subsisting;
2 The debt is connected with the taxpayer's trade or
business, and is not between related parties;
3 There is an actual ascertainment that the debt is
worthless; and
4 The debt is charged-off within the taxable year.
(PRC v. CA, 256 SCRA 667 [1996]; Revenue Regs. No.
5-99).
No. As a general rule, stockholders cannot be held General Corporate Effect of 2
personally liable for the unpaid taxes of a dissolved Principles Existence Dissolutio 0
corporation. The rule prevailing under our jurisdiction is of Taxation n 0
that a corporation is vested by law with a personality that 4
is separate and distinct from those of the persons
composing it (Sunio v. NLRC, 127 SCRA 390{1984]}.
NOTE: additional point should be given to the examinee
if he answers in the following that: However, stockholders
may be held liable for the unpaid taxes of a dissolved
corporation if it appears that the corporate assets have
passed into their hands (Tan Tiong Bio v. CFR, 4 SCRA
986 [1962]). Likewise, when stockholders have unpaid
subscriptions to the capital of the corporation they can be
made liable for unpaid taxes of the corporation to the
extent of their
unpaid subscriptions.
4 Describe the power of taxation. May
8 a legislative body enact laws to raise
revenues in the absence of a
constitutional provision granting said
body the power to tax? Explain.
4 The Roman Catholic Church owns a
9 2-hectare lot in a town in Tarlac
province. The southern side and
middle part are occupied by the
Church and a convent, the eastern
side by a school run by the Church
itself, the southeastern side by some
commercial establishments, while the
rest of the property, in particular the
northwestern side, is idle or
unoccupied.
May the Church claim tax exemption
on the entire land?
Decide with reasons.
5 An alien employee of the Asian
0 Development Bank (ADB) who is
retiring soon has offered to sell his
car to you which he imported tax-free
for his personal use. The privilege of
exemption from tax is granted to
qualified personal use under the ADB
Charter which is recognized by the
tax
authorities.
If you
decide to purchase the car, is the sale
subject to tax? Explain.
Yes, the legislative body may enact laws even in the General Nature of Power of 2
absence of a constitutional provision because the power to Principles Taxation taxation 0
tax is inherent in the government and not merely a of Taxation 0
constitutional grant. The power of taxation is an essential 5
and inherent attribute of sovereignty belonging as a matter
of right to every independent government without being
expressly granted by the people. (Pepsi-Cola Bottling
Company of the Philippines, Inc. v. Municipality of
Tanauan, Leyte, G.R. No. L-31156, February 27,1976)
Taxation is the inherent power of a State to collect
enforced proportional contribution to support the expenses
of government. Taxation is the power vested in the
legislature to impose burdens or charges upon persons and
property in order to raise revenue for public purposes. The
power to tax is so unlimited in force and so searching in
extent that courts scarcely venture to declare it is subject
to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. (Tio v.
Videogram Regulatory Board, G.R. No. L-75697, June
18, 1987) So potent is the power to tax that it was once
opined that "the power to tax involves the power to
destroy." (C.J. Marshall in McCulloch v. Maryland, 4
Wheat, 316 4 L. Ed. 579, 607) (UP; PALS)
No. The Church cannot claim tax exemption on the entire General Doctrines in Exemptio 2
land. Only the southern side and middle part that are principles Taxation n from 0
occupied by the Church and a convent and the eastern side of taxation taxation 0
occupied by a school run by the Church itself are exempt, 5
because such parts of the 2-hectare lot are actually,
directly and exclusively used for religious and educational
purposes. (Sec. 28[3], Art. VI, 1987 Constitution; Sec.
234, Local Government Code) The southeastern side
occupied by some commercial establishment is not tax
exempt. If real property is used for one or more
commercial purposes, it is not exclusively used for the
exempted purpose but is subject to taxation. 'Solely' is
synonymous with 'exclusively.' (Lung Center of the
Philippines v. Quezon City, G.R. No. 144104, June 29,
2004) The property must be exclusively (solely) used for
religious or educational purposes. Of course, it is apparent
that the northwestern side, which is idle or unoccupied is
not "actually, directly and exclusively" used for religious
or educational purposes, hence not exempt from taxation.
(UP; PALS)
The sales transaction is subject to value added tax (VAT) General Doctrines in Exemptio 2
under Sec. 107(B) of the NIRC, although this provision is principles Taxation n from 0
expressly excluded from the coverage of the 2005 bar of taxation taxation 0
exam. The proceeds from the sale are subject to income 5
tax. The car is considered a capital asset of the retiring
alien employee because he is not engaged in the business
of buying and selling cars. He therefore derived income,
which should be reported in his income tax return. (Sees.
32 and 39, NIRC) (UP; PALS)
5 May taxes be the subject of set-off or No, taxes cannot be the subject of set-off or compensation General Doctrines in Set-off 2
1 compensation? Explain. for the following reasons: 1) The lifeblood theory requires Principles Taxation 0
that there should be no unnecessary impediments to the of Taxation 0
collection of taxes to make available to the government 5
the wherewithal to meet its legitimate objectives; and 2)
The payment of taxes is not a contractual obligation but
arises out of a duty to pay, and in respect of the positive
acts of government, regarding the making and enforcing
of taxes, the personal consent of the individual taxpayer is
not required. (Republic v. Mambulao Lumber Co., G.R.
No. L-17725, February 28, 1962; Caltex v. Commission
on Audit, G.R. No. 92585, May 8, 1992; and Philex v.
Commissioner of Internal Revenue, G.R. No. 125704,
August 28, 1998) However, there is a
possibility that set-off may arise, if the claims against the
government have been recognized and an amount has
already been appropriated for that purpose. Where both
claims have already become overdue and demandable as
well as fully liquidated. Compensation takes place by
operation of law under Art. 1200 in relation to Articles
1279 and 1290 of the New Civil Code. (Domingo v.
Garlitos, G.R. No. L-18994, June 29, 1963) (UP; PALS)
1 What is tax pyramiding? What is its Tax Pyramiding is the imposition of a tax upon another General Doctrines in Escape 2
8 basis in law? tax. It has no basis in fact or in law (People v. principles Taxation from 0
Sandiganbayan, G.R. No. 152532, August 16, 2005). of taxation taxation: 0
There is also tax pyramiding when sales taxes are Tax 6
incorrectly applied to goods several times from production pyramidin
to final sale, thus, shifting the tax burden to the ultimate g
consumer. (UP; PALS)
1 1. The Constitution provides The provision exemptions charitable institutions and General Doctrines in Exemptio 2
9 "charitable institutions, churches, religious institutions from (d) REAL PROPERTY principles Taxation n from 0
parsonages or convents appurtenant TAXES only. The exemption is only for taxes assessed as of taxation taxation 0
thereto, mosques, and non- profit property taxes, as distinguished from excise taxes (CIR v. 6
cemeteries and all lands, buildings, CA, CTA & YMCA, G.R. No. 124043, October 14, 1998;
and improvements actually, directly Lladoc v. Commissioner of Internal Revenue, L-19201,
and exclusively used for religious, June 16,1965). (UP; PALS)
charitable or educational purposes
shall be exempt from taxation." This
provision exempts charitable
institutions and religious institutions
from what kind of taxes? Choose the
best answer. Explain.
a. from all kinds of taxes, i.e.,
income, VAT, customs duties, local
taxes and real property tax
b. from income tax only
c. from value-added tax only
d. from real property tax only
e. from capital gains tax only
2 Congress enacts a law granting grade No. Tax credit which reduces the tax liability is different General Doctrines in Power of 2
0 school and high school students a from a tax deduction which merely reduces the tax base. principles Taxation BIR 0
10% discount on all school-prescribed Since the law allowed the bookstores to claim in full the of taxation 0
textbooks purchased from any discount as a tax credit, the BIR is not allowed to expand 6
bookstore. The law allows bookstores or contract the legislative mandate (CIR v. Bicolandia
to claim in full the discount as a tax Drug Corp., G.R. No. 148083, July 21, 2006; CIR v.
credit. Central Luzon Drug Corp., G.R. No. 159647, April 15,
2005). (UP; PALS)
Can the BIR require the bookstores to
deduct the amount of the discount
from their gross income? Explain.
2 Mr. Abraham Eugenio, a pawnshop Yes. The RMO is in reality a ruling of the Commissioner General Doctrines in Power of 2
1 operator, after having been required in implementing the provisions of the Tax Code on the principles Taxation BIR 0
by the Revenue District Officer to pay taxability of pawnshops. Jurisdiction to review rulings of of taxation 0
value added tax pursuant to a the Commissioner is lodged with the Court of Tax 6
Revenue Memorandum Order (RMO) Appeals and not with the Regional Trial Court (CIR v.
of the Commission.er of Internal Josefina Leal, G.R. No. 113459, November 18, 2002; Tax
Revenue, filed with the Regional Reform Act, RA 8424, Title I, Sec. 4 [1997]). (UP; PALS)
Trial Court an action questioning the
validity of the RMO.
 If you were the judge, will you
dismiss the case?

2 Enumerate the 3 stages or aspects of The aspects of taxation are: (1) LEVYING — the act of General Stages of Levying; 2
2 taxation. Explain each. the legislature in choosing the persons, properties, rights principles Taxation Assessme 0
or privileges to be subjected to taxation. (2) of taxation nt and 0
ASSESSMENT and COLLECTION — This is the act of Collection 6
executing the law through the administrative agencies of ; Payment
government. (3) PAYMENT — the act of the taxpayer in
settling his tax obligations. (UP; PALS)
2 Distinguish "direct taxes" from DIRECT TAXES are demanded from the very person General Kinds of taxes According 2
3 "Indirect taxes". Give examples. who should pay the tax and which he can not shift to principles to burden 0
another. An INDIRECT TAX is demanded from one of taxation or 0
person with the expectation that he can shift the burden to incidence 6
someone else, not as a tax but as part of the purchase
price. Examples of direct taxes are the income tax, the
estate tax and the donor's tax. Examples of indirect taxes
are the value-added tax, the percentage tax and the excise
tax on exciseable articles. (UP; PALS)
2 XYZ Corporation, an export oriented BIR rulings are administrative opinions issued by the General Doctrines in BIR 2
5 company, was able to secure a Bureau Commissioner of Internal Revenue interpretative of a Principles Taxation Rulings; 0
of Internal Revenue (BIR) ruling in provision of a tax law. They are usually rendered upon the OF "Rulings 0
June 2005 that exempts from tax the request of taxpayers to clarify or interpret certain Taxation of First 7
importation some of its raw materials. provisions of a tax law or revenue regulations or other Impressio
The ruling is of first impression, issuances of the BIR. They state the official position of n"
which means the interpretations made the BIR to the specific queries raised by a taxpayer. BIR
by the Commissioner of Internal rulings rendered by the BIR, like other administrative
Revenue is one without established bodies, do not partake of the character of legislative rules
precedents. Subsequently, however, which require publication for their effectivity. Copies
the BIR issued another ruling which thereof are furnished only to the parties involved in the
in effect would subject to tax such proceedings. (NIRC ANNOTATED - DE LEON)
kind of importation. XYZ
Corporation is concerned that said ALTERNATIVE ANSWER: They are the best guess of
ruling may have a retroactive effect, the moment and incidentally often contain such well-
which means that all their considered and sound law, but the courts have held that
importations done before the issuance they do not prevent an entire change of front at any
of the second ruling could be subject time and are merely advisory – sort of an information
to tax. service to the taxpayer. (Aban, Law of Basic Taxation in
the Philippines, p. 149 citing Quiazon and Lukban). (UP;
What are BIR rulings? PALS)
2 XYZ Corporation, an export oriented A BIR ruling of first impression to be valid must not be General Doctrines in BIR 2
6 company, was able to secure a Bureau against the law and it must be issued only by the Principles Taxation Rulings; 0
of Internal Revenue (BIR) ruling in Commissioner of Internal Revenue. (Philippine Bank of OF "Rulings 0
June 2005 that exempts from tax the Communications v. CIR, 302 SCRA 241 [1999]; Section Taxation of First 7
importation some of its raw materials. 7, NIRC). (UP; PALS) Impressio
The ruling is of first impression, n"
which means the interpretations made
by the Commissioner of Internal
Revenue is one without established
precedents. Subsequently, however,
the BIR issued another ruling which
in effect would subject to tax such
kind of importation. XYZ
Corporation is concerned that said
ruling may have a retroactive effect,
which means that all their
importations done before the issuance
of the second ruling could be subject
to tax.

What is required to make a BIR

ruling of first impression a valid
one?
2 XYZ Corporation, an export oriented No. A BIR ruling cannot be given retroactive effect if its General Doctrines in BIR 2
7 company, was able to secure a Bureau retroactive application is prejudicial to the taxpayer. Principles Taxation Rulings; 0
of Internal Revenue (BIR) ruling in (Section 246, NIRC; CIR v. Court of Appeals et. Al. 267 OF "Rulings 0
June 2005 that exempts from tax the SCRA 557 [1997]). Taxation of First 7
importation some of its raw materials. Impressio
The ruling is of first impression, ALTERNATIVE ANSWER: The general rule is that a n"
which means the interpretations made BIR ruling does not have a retroactive effect if giving it a
by the Commissioner of Internal retroactive application is prejudicial to the taxpayer.
Revenue is one without established However, if the first ruling is tainted with either of the
precedents. Subsequently, however, following: (1) misstatement or omission of materials facts,
the BIR issued another ruling which (2) the facts gathered by the BIR are materially different
in effect would subject to tax such from the facts upon which the ruling is based, or (3) the
kind of importation. XYZ taxpayer acted in bad faith, a subsequent ruling can have a
Corporation is concerned that said retroactive application. (ABS-CBN Broadcasting Co. v.
ruling may have a retroactive effect, CTA & CIR, 08 SCRA 142 [1981]; Sec 246, NIRC).
which means that all their (UP; PALS)
importations done before the issuance
of the second ruling could be subject Note: Non-Retroactivity of Rulings- Sec. 246 NIRC
to tax. General Rule: Any revocation, modification or reversal
of any of the rules and regulations rulings and circulars
Does a BIR ruling have a promulgated by the Commissioner shall NOT be given
retroactive effect, considering the retroactive application, if it will be prejudicial to the
principle that tax exemptions taxpayers.
should be interpreted strictly Exceptions:
against the taxpayer? 1. Where the taxpayer deliberately misstates or omits
material facts from his return or any document;
2. where the facts subsequently gathered by the BIR are
materially different from the facts on which the ruling is
based; or
3. where the taxpayer acted in bad faith
2 What kind of taxes, fees and The following taxes, fees and charges are considered to be General Kinds of taxes Taxes 2
8 charges are considered as National National Internal Revenue Taxes under the National Principles Considere 0
Internal Revenue Taxes under the Internal Revenue Code: (A) Income tax; (B) Estate and OF d as NIRC 0
National Internal Revenue Code donor’s taxes; (C) Value-added tax; (D) Other percentage Taxation Taxes 7
(NIRC)? taxes; (E) Excise taxes; (F) Documentary stamp taxes; and
Such other taxes as are or hereafter may be imposed and
collected by the Bureau of Internal Revenue. (Section 21,
NIRC). (UP; PALS)
3 Maria Suerte, a Filipino citizen, No. The exchange of the real estate property for the shares General Doctrines in Escape 2
5 purchased a lot in Makati City in of stocks is considered as a legitimate tax avoidance Principles Taxation from 0
1980 at a price of P1 million. Said scheme (Sec. 40 [C2b] NIRC]. OF taxation: 0
property has been leased to MAS Taxation Tax 8
Corporation, a domestic corporation The sale of the shares of stocks of domestic corporation, Avoidanc
engaged in manufacturing paper which is a capital asset, is subject to final tax 5% on the e
products, owned 99% by Maria first P100,000 and 10 % on the amount in excess of Exchange
Suerte. In October 2007, EIP P100,000 (Sec. 24[C]NIRC]. UP LAW COMPLEX & of Real
Corporation, a real estate developer, PHILIPPINE ASSOCIATION Property
expressed its desire to buy the Makati OF LAW SCHOOLS and
property at its fair market value P300 Shares of
million, payable as follows : (a) P60 Stock
million down payment; and (b)
balance, payable equally in twenty
four (24) monthly consecutive
installments. Upon the advice of a tax
lawyer, Maria Suerte exchanged her
Makati property for shares of stock of
MAS Corporation. A BIR ruling,
confirming the tax-free exchange of
property for shares of stock, was
secured from the BIR National Office
and a Certificate Authorizing
Registration was issued by the
Revenue District Officer (RDO)
where the property was located.
Subsequently, she sold her entire
stock holdings in MAS Corporation
to EIP Corporation for P300 million.
In view of the tax advice, Maria
Suerte paid only the capital gains tax
of P29,895,000 ( P100,000 x 5% plus
P298,900,00 x 10% ), instead of the
corporate income tax of P104,650,00
( 35% on P299 million gain from sale
of real property ). After evaluating the
capital gains tax payment, the RDO
wrote a letter to Maria Suerte, Slating
that she commited tax evasion.

Is the contention of the RDO

tenable? Or was it tax avoidance
that Maria Suerte had resorted to?
Explain. ( 6% )
1 ABCD Corporation (ABCD) is a Yes, The provision of a treaty must take precedence over General Doctrines in Tax 2
9 domestic corporation with individual and above the provisions of the local taxing statute Principles Taxation treaties 0
and corporate shareholders who are consonant with the principle of international comity. Tax OF 0
residents of the United States. For the treaties are accepted limitations to the power of taxation. Taxation 9
2nd quarter of 1983, these U.S.-based Thus, the CTA could apply the treaty provision so that the
individual and corporate stockholders claim for refund representing the difference between the
received cash dividends from the amount actually withheld and paid to the BIR and the
corporation. The corresponding amount due and payable under the treaty, should be
withholding tax on dividend income - granted. UP LAW COMPLEX & PHILIPPINE
-- 30% for individual and 35% for ASSOCIATION
corporate non-resident stockholders -- OF LAW SCHOOLS
- was deducted at source and remitted
to the BIR.On May 15, 1984, ABCD
filed with the Commissioner of
Internal Revenue a formal claim for
refund, alleging that under the RP-US
Tax Treaty, the deduction withheld at
source as tax on dividends earned was
fixed at 25% of said income. Thus,
ABCD asserted that it overpaid the
withholding tax due on the cash
dividends given to its non-resident
stockholders in the U.S. The
Commissioner denied the claim.On
January 17, 1985, ABCD filed a
 petition with the Court of Tax
Appeals (CTA) reiterating its demand
for refund. Is the contention of
ABCD Corporation correct? Why or
why not? (3%)
2 Enumerate the four (4) inherent
0 limitations on taxation. Explain each
item briefly. (4%)
The inherent limitations on the power to General Scope and Inherent 2
tax are: Principles Limitation of Limitation 0
1. Taxation is for public purpose. – The OF Taxation s of 0
proceeds of the tax must be used (a) Taxation Taxation 9
for the support of the State or (b) for
some recognized objective of the
government or to directly promote
the welfare of the community.
2. Taxation is inherently legislative. Only the legislature
has the full
discretion as to the persons,
property, occupation or business to
be axed 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 176-184).
3. Taxation is territorial- Taxation may
be exercised only within the
territorial jurisdiction, the taxing
authority (61 Am. Jur. 88). Within
the territorial jurisdiction, the taxing
authority may determine the “place
of taxation” or “tax situs”.
4. Taxation is subject to international
comity. – This is a limitation which is
founded on reciprocity designed to
maintain harmonious and productive
relationships among the various
state. Under international comity, a
state must recognize the generallyaccepted tenets of
international law,
among which are the principles of
sovereign equality among states and
of their freedom from suit without
their consent, that limits that
authority of a government to
effectively impose taxes in a
sovereign state and its
instrumentalities,, as well as in its property held, and
activities
undertaken in that capacity. UP LAW COMPLEX &
PHILIPPINE ASSOCIATION
OF LAW SCHOOLS
2 A law that allows taxes to be paid False. Tax is a pecuniary burden payable in money, but General Stages of How taxes 2
1 either in cash or in kind is valid. True backpay certificates may be used in payment of tax. Principles Taxation are paid 0
or False (Borja v. Gella, 8 SCRA 602) The taxpayer is not allowed OF 0
to settle his tax liability by conveying property (real or Taxation 9
personal) in view of the problem of assigning value to
such property. REVIEWER ON TAXATION -
MAMALATEO
1 Money collected from taxation shall (A) the religious dignitary is assigned to the Philippine General Doctrines in No 2
0 not be paid to any religious dignitary Army. (UP LAW COMPLEX & PHILIPPINE Principles Taxation appropriat 0
EXCEPT when ASSOCIATION of Taxation ion or use 1
(A) the religious dignitary is assigned OF LAW SCHOOLS) of public 1
to the Philippine Army. money for
(B) it is paid by a local government religious
unit. purposes
(C) the payment is passed in audit by
the COA.
(D) it is part of a lawmaker‟s pork
barrel.
7 Real property taxes should not (B) fiscal adequacy. (UP LAW COMPLEX & General Principles of Fiscal 2
8 disregard increases in the value of PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Principles sound tax adequacy 0
real property occurring over a long of Taxation system 1
period of time. To do otherwise 1
would violate the canon of a sound
tax system referred to as
(A) theoretical justice.
(B) fiscal adequacy.
(C) administrative feasibility.
(D) symbiotic relationship.
7 Which theory in taxation states that (B) Lifeblood theory (UP LAW COMPLEX & General Theory and Lifeblood 2
9 without taxes, a government would be PHILIPPINE ASSOCIATION Principles Basis of theory 0
paralyzed for lack of power to OF LAW SCHOOLS) of Taxation Taxation 1
activate and operate it, resulting in its 1
destruction?
(A) Power to destroy theory
(B) Lifeblood theory
(C) Sumptuary theory
(D) Symbiotic doctrine

8 Which among the following concepts (B) Symbiotic relation in taxation (UP LAW COMPLEX General Theory and Symbiotic 2
0 of taxation is the basis for the situs of & PHILIPPINE ASSOCIATION OF LAW SCHOOLS) Principles Basis of relationshi 0
income taxation? of Taxation Taxation p 1
(A) Lifeblood doctrine of taxation 1
(B) Symbiotic relation in taxation
(C) Compensatory purpose of
taxation
(D) Sumptuary purpose of taxation

8 Double taxation in its general sense (C) violates the right to equal protection. (UP LAW General Doctrines in Double 2
1 means taxing the same subject twice COMPLEX & PHILIPPINE ASSOCIATION Principles Taxation taxation 0
during the same taxing period. In this OF LAW SCHOOLS) of Taxation 1
sense, double taxation 1
(A) violates substantive due process.
(B) does not violate substantive due
process.
(C) violates the right to equal
protection.
(D) does not violate the right to equal
protection.
8 The power to tax is the power to (D) No. The Supreme Court may nullify a tax law, hence, General Doctrines in Power to 2
2 destroy. Is this always so? property rights are not affected. (UP LAW COMPLEX & Principles Taxation tax 0
(A) No. The Executive Branch may PHILIPPINE ASSOCIATION OF LAW SCHOOLS) of Taxation involves 1
decide not to enforce a tax law which the power 1
it believes to be confiscatory. to destroy
(B) Yes. The tax collectors should
enforce a tax law even if it results to
the destruction of the property rights
of a taxpayer.
(C) Yes. Tax laws should always be
enforced because without taxes the
very existence of the State is
endangered.
(D) No. The Supreme Court may
nullify a tax law, hence, property
rights are not affected.
8 Anne Lapada, a student activist, (B) That tax money is being extracted and spent in General Doctrines in Taxpayer 2
3 wants to impugn the validity of a tax violation of the constitutionally guaranteed right to Principles Taxation suit 0
on text messages. Aside from freedom of communication. (UP LAW COMPLEX & of Taxation 1
claiming that the law adversely PHILIPPINE ASSOCIATION 1
affects her since she sends messages OF LAW SCHOOLS)
by text, what may she allege that
would strengthen her claim to the
right to file a taxpayer‟s suit?
(A) That she is entitled to the return
of the taxes collected from her in case
the court nullifies the tax measure.
(B) That tax money is being extracted
and spent in violation of the
constitutionally guaranteed right to
freedom of communication.
(C) That she is filing the case in
behalf of a substantial number of
taxpayers.
(D) That text messages are an
important part of the lives of the
people she represents.
8 The actual effort exerted by the (D) collection. (UP LAW COMPLEX & PHILIPPINE General Stages of Collection 2
4 government to effect the exaction of ASSOCIATION Principles Taxation 0
what is due from the taxpayer is OF LAW SCHOOLS) of Taxation 1
known as 1
(A) assessment.
(B) levy.
(C) payment.
(D) collection.

8 Although the power of taxation is (B) collect the tax levied under the law. (UP LAW General Stages of Collection 2
5 basically legislative in character, it is COMPLEX & PHILIPPINE ASSOCIATION Principles Taxation 0
NOT the function of Congress to OF LAW SCHOOLS) of Taxation 1
(A) fix with certainty the amount of 1
taxes.
(B) collect the tax levied under the
law.
(C) identify who should collect the
tax.
(D) determine who should be subject
to the tax.
8 An example of a tax where the (A) income tax on individuals. (UP LAW COMPLEX & General Kinds of taxes According 2
6 concept of progressivity finds PHILIPPINE ASSOCIATION Principles to 0
application is the OF LAW SCHOOLS) of Taxation graduation 1
(A) income tax on individuals. 1
(B) excise tax on petroleum products.
(C) value-added tax on certain
articles.
(D) amusement tax on boxing
exhibitions.
7 Which statement is WRONG?
8 (A) The power of taxation may be
exercised by the government, its
political subdivisions, and public
utilities;
(B) Generally, there is no limit on the
amount of tax that may be imposed;
(C) The money contributed as tax
becomes part of the public funds;
(D) The power of tax is subject to
certain constitutional limitations.
7 Which statement below expresses the
9 lifeblood theory?
(A) The assessed taxes must be
enforced by the government.
(B) The underlying basis of taxation
is government necessity, for without
taxation, a government can neither
exist nor endure;
(C) Taxation is an arbitrary method of
exaction by those who are in the seat
of power;
(D) The power of taxation is an
inherent power of the sovereign to
impose burdens upon subjects and
objects “within its jurisdiction for the
purpose of raising revenues”.
8 Bank A deposited money with Bank
0 B which earns interest that is
subjected to the 20% final
withholding tax. At the same time,
Bank A is subjected to the 5% gross
receipts tax on its interest income on
loan transactions to customers. Which
statement below INCORRECTLY
describes the transaction?
(A) There is double taxation because
two taxes - income tax and gross
receipts tax are imposed on the
interest incomes described above, and
double taxation is prohibited under
the 1987 Constitution.
(B) There is no double taxation
because the first tax is income tax,
while the second tax is business tax;
(C) There is no double taxation
because the income tax is on the
interest income of Bank A on its
deposits with Bank B (passive
income), while the gross receipts tax
is on the interest Income received by
Bank A from loans to its debtor-
customers (active income);
(D) Income tax on interest income of
deposits of Bank A is a direct tax,
while GRT on interest income on loan
transaction is an indirect tax.
(A) The power of taxation may be exercised by the General Scope and Inherent 2
government, its political subdivisions, and public utilities; Principles Limitation of Limitation 0
of Taxation Taxation s of 1
According to Inherent Powers of the State Taxation 2
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION
OF LAW SCHOOLS)
(B) The underlying basis of taxation is government General Theory and Lifeblood 2
necessity, for without taxation, a government can neither Principles Basis of theory 0
exist nor endure; of Taxation Taxation 1
2
Explanation: Taxes are the lifeblood of the government,
for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise
of taxing power derives its source from the very existence
of the state whose social contract with its citizens obliges
it to promote public interest and common good. The
theory behind the exercise of the power to tax emanates
from necessity; without taxes, government cannot fulfil its
mandate of promoting the general welfare and well-being
of the people. (National Power Corporation vs. City of
Cabanatuan, G.R. No. 149110 April 9, 2003).
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION
OF LAW SCHOOLS)
(A) There is double taxation because two taxes - income General Doctrines in Double 2
tax and gross receipts tax are imposed on the interest Principles Taxation taxation 0
incomes described above, and double taxation is of Taxation 1
prohibited under the 1987 Constitution. 2
Explanation: There is no double taxation if the law
imposes two different taxes on the same income, business
or property. First, the taxes herein are imposed on two
different subject matters. The subject matter of the FWT
[Final Withholding Tax] is the passive income generated
in the form of interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT [Gross
Receipts Tax] is the privilege of engaging in the business
of banking. Second, although both taxes are national in
scope because they are imposed by the same taxing
authority - the national government under the Tax Code -
and operate within the same Philippine jurisdiction for the
same purpose of raising revenues, the taxing periods they
affect are different. The FWT is deducted and withheld as
soon as the income is earned, and is paid after every
calendar quarter in which it is earned. On the other hand,
the GRT is neither deducted nor withheld, but is paid only
after every taxable quarter in which it is earned.
(Commissioner of Internal Revenue vs. BPI, G.R. No.
147375 dated June 26, 2006)
(UP LAW COMPLEX & PHILIPPINE ASSOCIATION
OF LAW SCHOOLS)
3 Congress passed a sin tax law that (C) correct because no government can deprive a person General Nature of Nature of 2
2 increased the tax rates on cigarettes of his livelihood Principles Taxation Taxation 0
by 1,000%. The law was thought to No person shall be deprived of life, liberty, or property of Taxation 1
be sufficient to drive many cigarette without due process of law, nor shall any person be denied 3
companies out of business, and was the equal protection of the laws. (Art. III, Sec. 1 of the
questioned in court by a cigarette Constitution)
company that would go out of
business because it would not be able
to pay the increased tax. The cigarette
company is __________ (1%)
(A) wrong because taxes are the
lifeblood of the government
(B) wrong because the law recognizes
that the power to tax is the power to
destroy
(C) correct because no government
can deprive a person of his livelihood
(D) correct because Congress, in this
case, exceeded its power to tax
3 Mr. Alas sells shoes in Makati (D) Double taxation is allowed where one tax is imposed General Doctrines in Double 2
3 through a retail store. He pays the by the national government and the other by the local Principles Taxation taxation 0
VAT on his gross sales to the BIR government. of Taxation 1
and the municipal license tax based 3
on the same gross sales to the City of According to CIR v. Solidbank Corp., G.R. No. 148191,
Makati. He comes to you for advice Nov. 25, 2003
because he thinks he is being (UP LAW COMPLEX & PHILIPPINE ASSOCIATION
subjected to double taxation. What OF LAW SCHOOLS)
advice will you give him? (1%)
(A) Yes, there is double taxation and
it is oppressive.
(B) The City of Makati does not have
this power.
(C) Yes, there is double taxation and
this is illegal in the Philippines.
(D) Double taxation is allowed where
one tax is imposed by the national
government and the other by the local
government.
3 Prior to the VAT law, sales of cars (C) The plan is improper; the veil of corporate fiction can General Doctrines in Escape 2
4 were subject to a sales tax but the tax be pierced so that the second sale will be considered the Principles Taxation from 0
applied only to the original or the first taxable sale. of Taxation taxation: 1
sale; the second and subsequent sales Tax 3
were not subject to tax. Deltoid According to Koppel Philippines Inc. v. Yatco, 77 Phil Evasion
Motors, Inc. (Deltoid) hit on the idea 496 vis-à-vis
of setting up a wholly-owned (UP LAW COMPLEX & PHILIPPINE ASSOCIATION Tax
subsidiary, Gonmad Motors, Inc. OF LAW SCHOOLS) Avoidanc
(Gonmad), and of selling its e
assembled cars to Gonmad at a low
price so it would pay a lower tax on
the first sale. Gonmad would then sell
the cars to the public at a higher price
without paying any sales tax on this
subsequent sale. Characterize the
arrangement. (1%)
A. The plan is a legitimate exercise of
tax planning and merely takes
advantage of a loophole in the law.
B. The plan is legal because the
government collects taxes anyway.
C. The plan is improper; the veil of
corporate fiction can be pierced so
that the second sale will be
considered the taxable sale.
D. The government must respect
Gonmad's separate juridical
personality and Deltoid's taxable sale
to it.
3 The municipality of San Isidro passed (C) It is constitutional as it applies to all persons in that General Scope and Constituti 2
5 an ordinance imposing a tax on class. Principles Limitation of onal 0
installation managers. At that time, of Taxation Taxation limitations 1
there was only one installation According to Shell Co. of P.I. v. Vaño, 94 Phil 387 3
manager in the municipality; thus, (UP LAW COMPLEX & PHILIPPINE ASSOCIATION
only he would be liable for the tax. Is OF LAW SCHOOLS)
the law constitutional? (1%)
(A) It is unconstitutional because it
clearly discriminates against this
person.
(B) It is unconstitutional for lack of
legal basis.
(C) It is constitutional as it applies to
all persons in that class.
(D) It is constitutional because the
power to tax is the power to destroy.
3 A group of philanthropists organized Yes. Accordingly, Justice Hilario G. Davide, Jr., a former General Scope and Constituti 2
6 a non-stock, non-profit hospital for constitutional commissioner, who is now a member of this Principles Limitation of onal 0
charitable purposes to provide Court, stressed during the Concom debates that ". . . what of Taxation Taxation limitations 1
medical services to the poor. The is exempted is not the institution itself . . .; those 3
hospital also accepted paying patients exempted from real estate taxes are lands, buildings and
although none of its income accrued improvements actually, directly and exclusively used for
to any private individual; all income religious, charitable or educational purposes." Father
were plowed back for the hospital's Joaquin G. Bernas, an eminent authority on the
use and not more than 30% of its Constitution and also a member of the Concom, adhered
funds were used for administrative to the same view that the exemption created by said
purposes. provision pertained only to property taxes. In his treatise
Is the hospital subject to tax on its on taxation, Mr. Justice Jose C. Vitug concurs, stating that
income? If it is, at what rate? (6%) "[t]he tax exemption covers property taxes only." Indeed,
the income tax exemption claimed by private respondent
finds no basis in Article VI, Section 26, par. 3 of the
Constitution. (CIR v. CA, GR No. 124043. October 14,
1998)
3 Mr. Amado leased a piece of land Yes, the assessment is proper. The land, although owned General Scope and Constituti 2
7 owned by the Municipality of by the municipality, is not exempt from real property tax Principles Limitation of onal 0
Pinagsabitan and built a warehouse because the beneficial use has been granted to a taxable of Taxation Taxation Limitation 1
on the property for his business person. (Sec 234 (a), LGC) s; Usage 3
operations. The Municipal Assessor (UP LAW COMPLEX & PHILIPPINE ASSOCIATION and not
assessed Mr. Amado for real property OF LAW SCHOOLS) Ownershi
taxes on the land and the warehouse. p as basis
Mr. Amado objected to the
assessment, contending that he should
not be asked to pay realty taxes on the
land since it is municipal property.
Was the assessment proper? (5%)
3 XYZ Corporation manufactures glass (B) It should not grant permission because a tax is General Attributes or Attributes 2
8 panels and is almost at the point of generally a pecuniary burden. Principles Characteristics or 0
insolvency. It has no more cash and According to Characteristics of Taxes of Taxation of Taxes Characteri 1
all it has are unsold glass panels. It (UP LAW COMPLEX & PHILIPPINE ASSOCIATION stics of 3
received an assessment from the BIR OF LAW SCHOOLS) Taxes
for deficiency income taxes. It wants
to pay but due to lack of cash, it seeks
permission to pay in kind with glass
panels. Should the BIR grant the
requested permission? (1%)
(A) It should grant permission to
make payment convenient to
taxpayers.
(B) It should not grant permission
because a tax is generally a pecuniary
burden.
(C) It should grant permission;
otherwise, XYZ Corporation would
not be able to pay.
(D) It should not grant permission
because the government does not
have the storage facilities for glass
panels.
3 Choose the correct answer. Tax laws - D.Tax laws adhere to uniformity and equality when all General Nature of Nature of 2
5 (1%) taxable articles or kinds of property Principles Taxation Taxation 0
(A) may be enacted for the promotion of the same class are taxable at the same rate. (UST) of Taxation 1
of private enterprise or business for as 4
long as it gives incidental advantage
to the public or the State
(B) are inherently legislative;
therefore, may not be delegated
(C) are territorial in nature; hence,
they do not recognize the
generally-accepted tenets of
international law
(D) adhere to uniformity and equality
when all taxable articles or
kinds of property of the same class
are taxable at the same rate
3 Choose the correct answer. Double (C) means taxing the same property twice when it should General Doctrines in Double 2
6 Taxation ‒ (1%) be taxed only once; it is tantamount to taxing the same Principles Taxation taxation 0
(A) is one of direct duplicate person twice by the same jurisdiction for the same thing. of Taxation 1
taxations wherein two (2) taxes must "In order to constitute double taxation in the objectionable 4
be imposed on the same subject or prohibited sense, the same property must be taxed
matter, by the same taxing authority, twice when it should be taxed but once; both taxes must
within the same jurisdiction, during be imposed on the same property or subject matter, for the
the same period, with the same kind same purpose, by the same State, Government, or taxing
or character of tax, even if the authority, within the same jurisdiction or taxing district,
purposes of imposing the same are during the same taxing period, and they must be the same
different. kind or character of tax." (Villanueva v. City of Iloilo, 26
(B) is forbidden by law; and SCRA 578)
therefore, it is a valid defense against
the validity of a tax measure.
(C) means taxing the same property
twice when it should be taxed only
once; it is tantamount to taxing the
same person twice by the same
jurisdiction for the same thing.
(D) exists when a corporation is
assessed with local business tax as a
manufacturer, and at the same time,
value-added tax as a person selling
goods in the course of trade or
business.
3 Choose the correct answer. Tax B. Tax avoidance is a tax-saving device within the means General Doctrines in Escape 2
7 Avoidance ‒ (1%) sanctioned by law. (UST) Principles Taxation from 0
(A) is a scheme used outside of those of Taxation taxation: 1
lawful means and, when availed of, it Tax 4
usually subjects the taxpayer to Avoidanc
further or additional civil or criminal e
liabilities.
(B) is a tax saving device within the
means sanctioned by law.
(C) is employed by a corporation, the
organization of which is prompted
more on the mitigation of tax
liabilities than for
legitimate business purpose.
(D) is any form of tax deduction
scheme, regardless if the same is
legal or not.
3 Explain the principles of a sound tax The principles of a sound tax system are the following: General Principles of Fiscal 2
7 system. (3%) a.Fiscal adequacy which means that the sources of Principles Sound tax adequacy, 0
revenue should be sufficient to meet the demands of of Taxation system administra 1
public expenditures; tive 5
b.Equality or theoretical justice which means that the tax feasibility,
burden should be proportionate to the taxpayer’s ability to theoretical
pay (this is the so-called ability to pay principle); and justice
c.Administrative feasibility which means that the
tax law should be capable of convenience, just and
effective administration. (UST)
3 Differentiate between double taxation
8 in the strict sense and in a broad sense
and give an example ofeach. (4%)
3 Give three (3) examples of de
9 minimis benefits. (4%)
4 What are de minimis benefits and
0 how are these taxed?
Double taxation in the strict sense pertains to the General Doctrines in Double 2
direct double taxation. This means that the taxpayer is Principles Taxation taxation 0
taxed twice by the same taxing authority, within the of Taxation 1
same taxing jurisdiction, for the same property and 5
same purpose.
On the other hand, double taxation in 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. (UST)
The following shall be considered as “de minimis” General Doctrines in Exemptio 2
benefits: Principles Taxation n from 0
of Taxation taxation: 1
1.Monetized unused vacation leave credits of private De 5
employees not exceeding 10 days during the year; minimis
2.Monetized unused vacation and sick leave credits benefits
paid to government officials and employees, regardless
of the number of days;
3.Medical cash allowance to dependents of
employees, not exceeding P750 per employee per
semester or P125 per month;
4.Rice subsidy of P1,500 or one (1) sack of 50 kg.
rice per month amounting to not more than P1,500;
5.Uniform and clothing allowance not exceeding P5,000
per annum;
6.Actual medical assistance not exceeding P10,000 per
annum;
7.Laundry allowance not exceeding P300 per month;
8.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;
9.Gifts given during Christmas and major anniversary
celebrations not exceeding P50,000 per employee per
annum;
10.Daily meal allowance for overtime work and
night/graveyard shift not exceeding 25% of the basic
minimum wage on a per region basis;
11.Benefits received by an employee by virtue of a
collective bargaining agreement (CBA) and
productivity incentive schemes provided that the total
annual monetary value received from both CBA and
productivity incentive schemes combined do not
exceed ten thousand pesos (P10,000.00) per employee
per taxable year. (UST)
De minimis benefits are facilities, and privileges General Doctrines in Exemptio 2
furnished or offered by an employer to his employees, Principles Taxation n from 0
which are not considered as compensation subject to of Taxation taxation: 1
income tax and consequently to withholding tax, if such De 5
facilities or privileges are of relatively small value and are minimis
offered or furnished by the employer merely as means benefits
of promoting the health, goodwill, contentment, or
efficiency of his employees.
The excess over the de minimis limit prescribed shall
be considered, along with the “other benefits” under
Section 32(B)(7)(e)(iv), NIRC, in determining whether or
not the P82,000 threshold has been exceeded. Any
excess over the de minimis ceiling may be exempt if
itis covered by the unused portion of the P82,000.00
non-taxable “other benefits”. Otherwise, any amount
in excess of the P82,000.00 threshold becomes subject
to tax. (UST)
1 Briefly explain the following The following doctrines, explained: General Doctrines in Lifeblood 2
doctrines: lifeblood doctrine; Principles Taxation Theory; 0
necessity theory; benefits received Lifeblood doctrine - Without revenue raised from of Taxation Neccessit 1
principle; and, doctrine of symbiotic taxation, the government will not survive, resulting in y Theory; 6
relationship. (5%) detriment to society. Without taxes, the government Benefits
would be paralyzed for lack of motive power to activate Received
and operate it (CIR v. Algue, Inc. 158 SCRA 9 [1988]) Principle;
Necessity theory - The exercise of the power to tax and
emanates from necessity, because without taxes, Doctrine
government cannot fulfill its mandate of promoting the of
general welfare and well being of the people (CIR v. Bank Symbiotic
of the Philippine Islands, 521 SCRA 373 [2007]) Relationsh
Benefits received principle - Taxpayers receive benefits ip
from taxes through the protection the State affords to
them. For the protection they get arises their obligation to
support the government through payment of taxes (CIR v.
Algue, Inc, 158 SCRA 9 [1988])
Doctrine of symbiotic relationship - Taxation arises
because of the reciprocal relation of protection and
support between the state and taxpayers. The state gives
protection and for it to continue giving protection, it must
be supported by the taxpayers in the form of taxes (CIR v.
Algue, Inc. 15 SCRA 9 [1988]).
5 Sure Arrival Airways (SAA) is a No. The activity which gives rise to the income is the sale General Principle of Principle 2
foreign corporation, organized under of ticket in the Philippines, hence, the income from sale of Principles Territoriality in of 0
the laws of the Republic of Nigeria. tickets is an income derived from Philippine sources of Taxation Taxation Territorial 1
Its commercial airplanes do not which is subject to the Philippine income tax. ity in 6
operate within Philippine territory, or Accordingly, there is no violation of the principle of Taxation
service passengers embarking from territoriality in taxation (Air Canada v. CIR, 778 SCRA
Philippine airports. The firm is 131, [2016])
represented in the Philippines by its
general agent, Narotel. [Note: As the case which is the basis of the answer was
decided beofre the cut-off date for the 2016 Bar
SAA sells airplane tickets through Examinations, it is recommended that this question be
Narotel, and these tickets are serviced considered a bonus question, with any answer to be given
by SAA airplanes outside the full credit].
Philippines. The total sales of airplane
tickets transacted by Narotel for SAA
in 2012 amounted to Pl0,000,000.00.
The Commissioner of Internal
Revenue (CIR) assessed SAA
deficiency income taxes at the rate of
30% on its taxable income, finding
that SAA's airline ticket sales
constituted income derived from
sources within the Philippines.

SAA filed a protest on the ground that

the alleged deficiency income taxes
should be considered as income
derived exclusively from sources
outside the Philippines since SAA
only serviced passengers outside
Philippine territory. It, thus, asserted
that the imposition of such income
taxes violated the principle of
territoriality in taxation.

Is the theory of SAA tenable?

Explain. (5%)
1 Congress issued a law allowing a The effect of coverting the 20% discount from a "tax General Tax Credit 20% 2
1 20% discount on the purchases of credit" to a "tax deduction" is that the tax benefit enjoyed Principles Senior 0
senior citizens from, among others, by sellers of goods and services to senior citizens is of Taxation Citizen 1
recreation centers. This 20% discount effectively reduced. A tax credit reduces the tax liability Discount 6
can then be used by the sellers as a while a tax deduction merely reduces the tax base.
"tax credit." At the initiative of BIR,
however, Republic Act No. (RA) Under the tax credit scheme, the establishments are paid
9257 was enacted amending the back 100% of the discount they give to senior citizens
treatment of the 20% discount as a while under the tax deduction scheme, they are only paid
"tax deduction." Equity Cinema filed back about 32% of the 20% discount granted to senior
a petition with the RTC claiming that citizens.
RA 9257 is unconstitutional as it
forcibly deprives sellers a part of the
price without just compensation.

[a] What is the effect of converting

the 20% discount from a "tax credit"
to a "tax deduction"? (2.5%)
1 Congress issued a law allowing a I will decide in favor of the Constitutionality of the law. General Tax Credit 20% 2
2 20% discount on the purchases of The 20% Principles Senior 0
senior citizens from, among others, discount as well as the tax deduction sheme is a valid of Taxation Citizen 1
recreation centers. This 20% discount exercise of the police power of the State (Manila Park Inc. Discount 6
can then be used by the sellers as a v. Department of Social Welfare and Development, 711
"tax credit." At the initiative of BIR, SCRA 302 [2013]).
however, Republic Act No. (RA)
9257 was enacted amending the
treatment of the 20% discount as a
"tax deduction." Equity Cinema filed
a petition with the RTC claiming that
RA 9257 is unconstitutional as it
forcibly deprives sellers a part of the
price without just compensation.

b] If you are the judge, how will you

decide the case? Briefly explain your
answer. (2.5%)
6 Heeding the pronouncement of the
President that the worsening traffic
condition in the metropolis was a sign
of economic progress, the Congress
enacted Republic Act No. 10701 (RA
10701), also known as An Act
Imposing a Transport Tax on the
Purchase of Private Vehicles.
Under RA 10701, buyers of private
vehicles are required to pay a
transport tax equivalent to 5°/o of the
total purchase price per vehicle
purchased. RA 10701 provides that
the Land Transportation Office (LTO)
shall not accept for registration any
new vehicles without proof of
payment of the 5% transport tax. RA
10701 further provides that existing
owners of private vehicles shall be
required to pay a tax equivalent to 5%
of the current fair market value of
every vehicle registered with the
LTO. However, RA 10701 exempts
owners of public utility vehicles and
the Government from the coverage of
the 5% transport tax.
VI. RA 10701 is valid and constitutional. A levy of tax is General Requisites of a Uniformit 2
not unconstitutional because it is not intrinsically equal Principles valid tax y 0
and uniform in its operation. The uniformity rule does not of Taxation 1
prohibit classification for purposes of taxation (British 7
American Tobacco v. Camacho GR 163583, 2008).
Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in
privileges and liabilities. Uniformity does not forfend
classification as long as : 1. The standards that are used
therefore are substantial and not arbitrary, 2. The
categorization is germane to achieve the legislative
purpose, 3. The law applies, all things being equal, to both
present and future conditions, and 4. The classification
applies equally well to all those belonging to the same
class (Rufino Tan v. Ramon Del Rosario, GR 109289 and
109446, 1994). All of the foregoing requirements of a
valid classification having been met an those which are
singled out are a class in themselves, there is no violation
of the “Equal Protection Clause” of the Constitution.

A group of private vehicle owners sue

on the ground that the law is
unconstitutional for contravening the
Equal Protection Clause of the
Constitution.
 Rule on the constitutionality and
validity of RA 10701. (5%)

1 Upon his retirement, Alfredo IX. No. Double taxation means taxing for the same tax General Doctrines in Double 2
0 transferred his savings derived from period the same thing or activity twice, when it should be Principles Taxation taxation 0
his salary as a marketing assistant to a taxed but once, for the same purpose and with the same of Taxation 1
time deposit with AAB Bank. The kind of character of tax (CIR v. City Trust Investment 7
bank regularly deducted 20% final Phils. GR 139786, 140857, 2006). The 20% final tax is
withholding tax on the interest imposed on the interest income, while the tax earlier
income from the time deposit. withheld is on the salary or compensation income. Thus,
though both pertain to income tax, they do not pertain to
Alfredo contends that the 20% final the same thing or activity and consequently, no double
tax on the interest income constituted taxation exists.
double taxation because his salary
had been already subjected to
withholding tax.

Is Alfredo's contention correct?

Explain your answer. (3%)