Taxation Law (2007-2013)
Taxation Law (2007-2013)
Taxation Law (2007-2013)
com
A Compilation of the
In the
In
TAXATION LAW
Compiled and Arranged By:
Baratbate-Ladot, Delight
&
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FOREWORD
This work is a compilation of the ANSWERS TO BAR
EXAMINATION QUESTIONS by the UP LAW COMPLEX ,
Philippine Association of Law Schools from 2007-2010 and
local law students and lawyers‟ forum sites from 2011-2013
and not an original creation or formulation of the author.
The Authors.
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TABLE OF CONTENTS
(Titles are based on Silliman’s Compilation [Arranged by Topic])
General Principles
Power of Taxation: Equal Protection of the Law; Rational Basis Test (2010).............. 11
Income Taxation
Corporate Income Tax: Sale of Real Property by a Real Estate Broker (2008)……..… 17
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Personal Income Tax: Passive Income (Interest Income); Situs of Taxation (2007).........23
Personal Income Tax: Passive Income (Rental Income); Situs of Taxation (2008)............23
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Sale of Shares of Stock Not Traded in the Local Stock Exchange (2008).........................36
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Sale of Shares of Stock Traded through the Local Stock Exchange (2008)......................37
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Business Taxes
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On May 15, 1984, ABCD filed with the Principle of Administrative Feasibility
Commissioner of Internal Revenue a formal (2009)
claim for refund, alleging that under the
RP-US Tax Treaty, the deduction withheld I(A) True or False. Explain your answer in
at source as tax on dividends earned was not more than two (2) sentences.
fixed at 25% of said income. Thus, ABCD
asserted that it overpaid the withholding A law that allows taxes to be paid either in
tax due on the cash dividends given to its cash or in kind is valid. (5%)
non-resident stockholders in the U.S. The
Commissioner denied the claim. SUGGESTED ANSWER:
On January 17, 1985, ABCD filed a petition True. There is no law which requires
with the Court of Tax Appeals (CTA) payment of taxes in cash only. However,
reiterating its demand for refund. a law allowing payment of taxes in kind,
although valid, may pose problems of
Is the contention of ABCD Corporation valuation, hence, will violate the
correct? Why or why not? (3%) principle of administrative feasibility.
SUGGESTED ANSWER:
Set-off; “Doctrine of Equitable
Yes. The provision of a treaty must take Recoupment” (2009)
precedence over and above the
provisions of the local taxing statute I(C ) True or False. Explain your answer in
consonant with the principle of not more than two (2) sentences.
international comity. Tax treaties are
accepted limitations to the power of The doctrine of equitable recoupment allows
taxation. Thus, the CTA should apply the a taxpayer whose claim for refund has
treaty provision so that the claim for prescribed to offset tax liabilities with his
refund representing the difference claim of overpayment. (5%)
between the amount actually withheld
and paid to the BIR and the amount due
and payable under the treaty, should be
granted
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120 Phil. 684, 691 [1964]). Said sale was Income Taxation
merely a tax ploy, a sham and without
business purpose and economic
Basic: Closed and Completed
substance (CIR v. Toda’s Estate, G.R. No.
Transaction (2012)
147188, 14 September 2004).
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of carryover of the excess income tax succeeding years, considering that there is
payment, the same shall be considered as a no prescriptive period provided for in the
claim for tax refund and the small box income tax law with respect to carry over of
shown as “refund” in the return will be excess income tax payments? Explain your
filled up. Within the year, the corporation answer. (5%)
will file the formal request for refund for the
excess payment. SUGGESTED ANSWERS:
(A) Will you recommend to the corporation Yes. The carry-over of excess income tax
such a course of action and justify that the payments is no longer limited to the
amended return is the latest official act of succeeding taxable year. Unutilized
the corporation as to how it may treat such excess income tax payments may now be
overpayment of tax or should you consider carried over to the succeeding taxable
the option granted to taxpayers as years until fully utilized. In addition, the
irrevocable, once previously exercised by it? option to carry-over excess income tax
Explain your answer. (5%) payments is now irrevocable. Hence,
unutilized excess income tax payments
SUGGESTED ANSWERS: may no longer be refunded (Belle Corp. v.
CIR, G.R. No. 181298, January 10,
Once the option to carry-over and apply 2011).
the excess quarterly income tax against
income tax against income tax due for Corporate Income Tax: Carry-Over
Option is Irrevocable (2013)
the taxable quarters of the succeeding
taxable years has been made such option (I)In its final adjustment return for the 2010
taxable year, ABC Corp. had excess tax
shall be considered IRREVOCABLE for credits arising from its over-withholding of
the taxable year period and no income payments. It opted to carry over the
excess tax credits to the following year.
application for tax refund or issuance of Subsequently, ABC Corp. changed its mind
tax credit certificate shall be allowed and applied for a refund of the excess tax
credits.
therefore (Section 76, NIRC).
Will the claim for refund prosper? (6%)
(B) Should the petition for review filed with
SUGGESTED ANSWER:
the CTA on the basis of the amended tax
return be denied by the BIR and the CTA, No. The claim for refund will not
prosper. While the law gives the taxpayer
could the corporation still carry over such
an option to whether carry-over or claim
excess payment of income tax in the as refund the excess tax credits shown
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on its final adjustment return, once the (B) Are the allocation and distribution of the
option to carry-over has been made,
saleable lots to Weber and Prime subject to
such option shall be considered
irrevocable for that taxable period and income tax and to expanded withholding
no application for cash refund or
tax? Explain briefly.
issuance of a tax credit certificate shall
be allowed. (Sec 76, NIRC; CIR v. PL
Management International Phils., Inc., SUGGESTED ANSWER:
April 4, 2011, 647 SCRA 72 (2011) G.R.
No. 160949). No. The allocation and distribution of
the saleable lots to Weber and Prime is a
Corporate Income Tax: Joint Venture
mere return of their capital contribution.
(2007)
The income tax and the expanded
withholding tax is not due on a capital
IX. Weber Realty Company which owns a
transaction because no income is
three-hectare land in Antipolo entered into
realized from it. (BIR Ruling No. DA-192-
a Joint Venture Agreement (JVA) with
2001, October 17, 2011).
Prime Development Company for the
development of said parcel of land. Weber (C) Is the sale by Weber or Prime of their
Realty as owner of the land contributed the respective shares in the saleable lots to
land to the Joint Venture and Prime third parties subject to income tax and to
Development agreed to develop the same expanded withholding tax? Explain briefly.
into a residential subdivision and construct
residential houses thereon. They agreed SUGGESTED ANSWER:
(A) Does the JVA entered into by and a closed and completed transaction
between Weber and Prime create a separate resulting in the realization of income,
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(2012)
SUGGESTED ANSWER:
II. Foster Corporation (FC) is a Singapore-
No. FC is not liable to Philippine income
based foreign corporation engaged in
tax. The revenues from the design and
construction and installation projects. In
supply contracts having been all done in
2010, Global Oil petroleum products,
Singapore are income from without,
awarded an anti-pollution project to Foster
hence, not taxable to a foreign
Corporation, whereby FC shall design,
corporation in the Philippines (Section
supply machinery and equipment, provided
42, NIRC; CIR v. Marubeni Corporation,
that the installation part of the project may
G.R. No. 137377, December 18, 2001).
be sub-contracted to a local construction
Also, With respect to the installation of
company. Pursuant to the contract, the
the project which are services performed
design and supply contracts were done in
within, the same is sub-contracted to
Singapore by FC, while the installation
PCC, a domestic corporation. Since FC
works were sub-contracted by FC with
has no branch or permanent
Philippine Construction Corporation (PCC),
establishment in the Philippines,
a domestic corporation. The project with a
business profits earned by it pursuant to
total cost of P100 Million was completed in
our treaty with Singapore are exempt
2011 at the following cost components:
from income tax.
(design - P20 Million; machinery and
equipment - P50 Million; and installation -
[Note: if the examinee answered that the
P30 Million). Assume that the project was
offshore portion of the contract (design and
40% complete in 2010 and 100% complete
supply) is not taxable in the Philippines
in 2011, based on the certificates issued by
while the onshore portion (installation) is
the architects and engineers working on the
taxable invoking the source rules, it should
project. GOC paid FC as follows: P60
be given full credit. The question might be
Million in 2010 and P40 Million in 2011
too technical for students and expected new
and FC paid PCC in foreign currency
entrants to tax practice to discern.]
through a Philippine bank as follows: P10
Million in 2010 and P20 Million in 2011.
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XV. In 2007, spouses Renato and Judy (B) Is the bank correct in withholding the
Garcia opened peso and dollar deposits at 20% final tax on the entire interest income?
works in Manila. During the year, the bank No, The bank should withhold only 7.5%
paid interest income of P10,000 on the peso on the final interest income of the wife.
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(Xh) A non-resident alien who stays in the No. The trustee has to pay the income
Philippines for less than 180 days during
tax in the trust’s net income determined
the calendar year shall be entitled to
personal exemption not to exceed the annually is the income is required to be
amount allowed to citizens of the
accumulated. Once a taxable trust is
Philippines by the country of which he is
subject or citizen. established, its net income is either
taxable to the trust, represented by the
SUGGESTED ANSWER:
False. (Sec 25 (A)(1) in relation to Sec 35, trustee, or to the beneficiary depending
NIRC) on the provision for distribution of
income following the one-layer taxation
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SUGGESTED ANSWER:
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donated to them? Explain. (4%) False. Congress can pass a law taxing
income of religious institutions from its
property or activities used for profit but
SUGGESTED ANSWER: not for their income from exercise of
No. The law classifies the donated religious activities. The imposition of a
tax on income of a religious institution
property as an exclusion from income from sale of religious articles is an
tax, and therefore exempt from income infringement of religious freedom which
is not allowed under the fundamental
tax (Sec. 32[B3] NIRC). law (American Bible Society v. City of
Manila, 101 Phil. 385 (1957)).
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(A) Will the proceeds of the insurance form Since the planned sale involves a real
property classified as a capital asset, the
part of the income of the parents of Noel material considerations to take into
and be subject to income tax? Reason account to compute the income tax are:
briefly.
1. The current fair market value
of the property to be sold. The
SUGGESTED ANSWER: current fair market value is
the higher between the zonal
No. The proceeds of life insurance value and the fair market
value per tax declaration.
policies paid to the heirs of beneficiaries 2. The gross selling price of the
upon the death of the insured are not property.
3. Determination of the tax base
included as part of the gross income of which is the higher between
the recipient. (Section 32 (B)(1), NIRC). the gross selling price and the
current fair market of the
There is no income realized because property.
nothing flows to Noel’s parents other
The income tax is computed as 6% of
than a mere return of capital, the capital
the tax base which is in the nature of a
being the life of the insured. final capital gains tax. (Sec 24 (D)(1),
NIRC).
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Exchange of Real Property by an paid based on the zonal value. The Revenue
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the capital gains tax and not the zonal ALTERNATIVE ANSWER:
value as determined by the Commissioner
The difference in value is not subject to
of Internal Revenue? Reason briefly.
donor’s tax, because the sale is not for
SUGGESTED ANSWER: an insufficient consideration. A deemed
gift subject to tax arises only if a tax is
No. The RDO has no authority to use a
avoided as a result of selling a property
fair market value other than that
at a price lower than its fair market
prescribed in the Tax Code. The fair
value. In a sale subject to the 6% capital
market value prescribed for the
gains tax, the tax is always based on the
computation of any internal revenue tax
gross selling price or fair market value,
shall be, whichever is the higher of: (1)
whichever is higher, and therefore, the
The fair market value as determined by
seller cannot avoid any tax by selling his
the Commissioner (referred to as zonal
property below its fair market value.
value); or (2) the fair market value as
This means that the deemed gift
shown in the schedule of values of the
provision provided for under the Tax
provincial and city assessors (FMV per
Code will not apply to a sale of real
tax declaration). (Section 6(E), NIRC).
property subject to the 6% capital gains
The use of the fair market value
tax. (Section 100, NIRC).
appearing in a nearby bank’s valuation
list, therefore, is not allowed for
purposes of computing internal revenue Nature of Real Properties; Capital or
taxes. Ordinary Asset (2008)
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property. Alpha Corporation acquired the (B) Is his purchase of the three
property in 2007 for P9 million. condominium units subject to any tax?
Reason briefly.
(A) What is the nature of the real
SUGGESTED ANSWER:
properties exchanged for tax
purposes - capital asset or ordinary Yes. The purchase will be subject to the
asset? Explain. (3%) capital gains tax imposed on the sale of
real property and the documentary
SUGGESTED ANSWER: stamp tax on conveyance of real
With regard to the Laguna property, it is property, if these units are acquired
a capital asset because it is agricultural from individual unit owners or domestic
land. The Batangas property, in contrast, corporations who hold them as capital
is an ordinary asset because it is either assets. (Section 24(D), 27(D)(5) and 196,
(1) held for sale to customers in the NIRC). If these properties, however were
ordinary course of business or (2) real acquired from dealers and/or lessors of
property used in the trade of business of real property the purchase will give rise
a realtor like Alpha Corp (Secs. 24[D1], to the imposition of the regular income
39[A1]2 NIRC; and RR No. 7-2003). tax, value added tax and documentary
stamp tax. (Section 24-28 and 196,
NIRC).
Purchase of Condominium (2007)
ALTERNATIVE ANSWER:
VI. Z is a Filipino immigrant living in the Yes, the purchase of the three
United States for more than 10 years. He is condominium units is subject to the
retired and he came back to the Philippines following taxes:
as a balikbayan. Every time he comes back
to the Philippines, he stays here for about a i. Capital gains tax, if held as
from his former employer in the United (Section 24(D) and 27(D)(5),
While in the Philippines, with his pension income tax (Section 24-28,
a month each.(5%)
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Is Melissa liable to pay capital gains tax on P100,000 net capital gain (Sec.24[C]
the transaction? If so, how much and why? NIRC).
If not, why not? (4%)
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the income tax due on the transaction and the Local Stock Exchange (2008)
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No. R.A. 7717, now incorporated in Sec. P700,000. The basis of the property in
127 of the NIRC, provides that the sale the hands of the donee is the carry-over
of shares of stock traded in the local basis (Section 40 (B)(3), NIRC)
stock exchange is subject to a
percentage tax on the sales of shares, in (B) What is the nature of the old car –
lieu of any kind of income tax. capital asset or ordinary asset? Explain
your answer. (3%)
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(B) Are Jose and Clara subject to donor‟s XI. The Congregation of the Mary
tax? If so, how much is the taxable gift of Immaculate donated a land and a dormitory
each spouse and what rate shall be applied building located along España St. in favor
to the gift? Explain. (4%) of the Sisters of the Holy Cross, a group of
nuns operating a free clinic and high school
SUGGESTED ANSWER: teaching basic spiritual values. Is the
donation subject to donor‟s tax? Reason
Yes, because the value of the gift briefly. (5%)
exceeds P10,000 (Sec. 101 [A1] NIRC).
SUGGESTED ANSWER:
However, they are each entitled to a
deduction of P100,000 for the net value No. Gifts in favor of an educational
of the gift (Sec.99[B] NIRC). Each spouse and/or charitable, religious, social
shall be liable for a taxable gift worth welfare corporation, or cultural
P890,000 each at the progressive rate of institution, accredited non-government
2-15%, since the donee is a relative. organization, trust or philanthropic
organization or research institution or
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organization are exempt from the implication of X‟s renunciation? What about
the other co-heirs? (2.5%)
donor’s tax, provided, that, not more
than 30% of the gifts are used for SUGGESTED ANSWER:
administration purposes. The donation
If the renunciation is a general
being in the nature of a real property renunciation such that the share of the
complies with the utilization heir who waives his right to the
inheritance goes to the other co-heirs in
requirement. (Section 101 (A)(3). NIRC). accordance with their respective interest
in the inheritance, the law on accretion
Donor’s Tax: “Reciprocity Rule” (2009) applies and the property waived is
considered to pass through the other co-
heirs by inheritance; hence, it has no tax
(XV) Miguel, a citizen and resident of
implication. Undoubtedly, when the
Mexico, donated US$1,000.00 worth of
compulsory heir renounced his share in
stocks in Barack Motors Corporation, a
the inheritance, he did not donate the
Mexican company, to his legitimate son,
property which did not become his. Such
Miguelito, who is residing in the Philippines
being the case, the renunciation is not
and about to be married to a Filipino
subject to the donor’s tax. If it is not a
girlfriend. Mexico does not impose any
general renunciation in favor of the
transfer tax of whatever nature on all
other co-heirs, the heir renouncing his
gratuitous transfers of property.
right is considered to have made a
donation and the renunciation is subject
(b) Is Miguel entitled to the rule of to donor’s tax. In both cases, however,
reciprocity in order to be exempt the renunciation has no tax implication
from the Philippine donor's tax? to the other co-heirs (BIR Ruling No. DA
Why or why not? (3%) (DT-039) 396-09, dated July 23, 2009).
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But the renunciation of the wife‟s share it Law and Jurisprudence, Third Revised
the inheritance during the settlement of the
Edition).
estate is not a taxable gift considering that
the property is automatically transferred to
the other heirs by operation of law due to Estate Tax: Basis of Computation (2007)
her repudiation of her inheritance. (BIR
Ruling DA No. 333-07) XII. Remedios, a resident citizen, died on
November 10, 2006. She died leaving three
Estate Tax (2007)
condominium units in Quezon City valued
VII. Antonia Santos, 30 years old, gainfully at P5 Million each. Rodolfo was her only
employed, is the sister of Eduardo Santos. heir. He reported her death on December 5,
She died in an airplane crash. Edgardo is a 2006 and filed the estate tax return on
lawyer and he negotiated with the Airline March 30, 2007. Because he needed to sell
Company and insurance company and they one unit of the condominium to pay for the
were able to agree to a total settlement of estate tax, he asked the Commissioner of
P10 Million. This is what Antonia would Internal Revenue to give him one year to
have earned as somebody who was pay the estate tax due. The Commissioner
gainfully employed. Edgardo was her only approved the request for extension of time
heir.(10%) provided that the estate tax be computed
on the basis of the value of the property at
(A) Is the P10 Million subject to estate tax?
the time of payment of the tax. (10%)
Reason briefly.
(B) Does the condition that the basis of the
SUGGESTED ANSWER:
estate tax will be the value at the time of
No. The estate tax is a tax on the the payment have legal basis? Reason
privilege enjoyed by an individual in briefly.
controlling the disposition of her
SUGGESTED ANSWER:
properties to take effect upon her death.
The P10M is not a property existing as of No. The valuation of properties
the time of decedent’s death; hence, it comprising the estate of a decedent is
cannot be said that she exercised control the fair market as of the time of death.
over its disposition. Since the privilege No other valuation date is allowed by
to transmit the property is not exercised law. (Section 88, NIRC).
by the decedent, the estate tax cannot
be imposed thereon. (Definition of Estate
Tax p. 184, Vitug, Compendium of Tax
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Estate Tax: Basis of Computation (2008) which was the value at the time of the
death of Jose Cernan (Sec. 88[A] NIRC).
II. Jose Cernan, Filipino citizen, married to
Maria Cernan, died in a vehicular accident
(B) If you disagree, what is the correct value
in NLEX on July 10, 2007. The spouses
to use for estate tax purposes? Explain (3%)
owned, among others, a 100-hectare
agricultural land in Sta. Rosa, Laguna with
SUGGESTED ANSWER:
current fair market value of P20 million,
which was the subject matter of a Joint
For purposes of computing the estate
Venture Agreement about to be
tax, the value should have been P20
implemented with Star Land Corporation
million because that was the value of the
(SLC), a well-known real estate development
property at the time of death (Sec. 88[A]
company. He bought the said real property
NIRC).
for P2 million fifty years ago. On January 5,
2008, the administrator of the estate and Estate Tax: CIR’s Power to Extend
SLC jointly announced their big plans to Payment (2007)
start conversion and development of the
XII. Remedios, a resident citizen, died on
agricultural lands in Sta. Rosa, Laguna,
November 10, 2006. She died leaving three
into first-class residential and commercial
condominium units in Quezon City valued
centers. As a result, the prices of real
at P5 Million each. Rodolfo was her only
properties in the locality have doubled.
heir. He reported her death on December 5,
The Administrator of the Estate of Jose
2006 and filed the estate tax return on
Cernan filed the estate tax return on
March 30, 2007. Because he needed to sell
January 9, 2008, by including in the gross
one unit of the condominium to pay for the
estate the real property at P2 million. After
estate tax, he asked the Commissioner of
9 months, the BIR issued deficiency estate
Internal Revenue to give him one year to
tax assessment, by valuing the real
pay the estate tax due. The Commissioner
property at P40 million.
approved the request for extension of time
43(A) Is the BIR correct in valuing the real
provided that the estate tax be computed
property at P40 million? Explain (3%)
on the basis of the value of the property at
the time of payment of the tax. (10%)
SUGGESTED ANSWER:
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payment of estate tax? If so, what are the Estate Tax: Composition of Gross Estate
(2008)
requirements to allow such extension?
(XV(a)) What are the properties and
SUGGESTED ANSWER: interests that should be included in the
computation of the gross estate of the
Yes. The Commissioner may allow an decedent? Explain. (2.5%)
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(XV) Don Sebastian, single but head of the Legal fees for the
family, Filipino, and resident of Pasig City, settlement of the
died intestate on November 15, 2009. He estate 500,000
left the following properties and interests: Medical
expenses of last
House and lot illness 600,000
(family home) in
Claims against
Pasig P 800,000
the estate 300,000
Vacation house
and lot in The compulsory heirs of Don Sebastian
Florida, USA 1,500,000 approach you and seek your assistance in
Agricultural land the settlement of his estate for which they
in Naic, Cavite have agreed to the above-stated
which he 2,000,000 professional fees. Specifically, they request
inherited from you to explain and discuss with them the
his father following questions. You oblige:
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inherited property cannot give rise to a NIRC); funeral expenses not exceeding
vanishing deduction for want of
P200,000 and in no case, to exceed 5%
sufficient factual basis (Sec 86, NIRC).
of the gross estate (Sec. 86[A1a] NIRC);
and medical expenses not more than
Estate Tax: Deductions Allowed to Estate
P500,000 (Sec. 86[A6] NIRC), the result
of a Resident or Citizen (2008)
is a negative net estate. Therefore, there
VI. While driving his car to Baguio last is no estate tax liability.
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at the time of the purchase was P1-million. Estate Tax: Period for Filing and
Yuri paid all the corresponding taxes on the Payment (2010)
transaction. In 2001, Xavier died. In his
last will and testament, Xavier bequeathed (XV)(c)When is the due date for filing and
the painting, already worth P1.5-million, to payment of the applicable tax return and
his only son, Zandro. The will also granted tax? Are these dates extendible? If so,
Zandro the power to appoint his wife, under what conditions or requirements?
Wilma, as successor to the painting in the (2.5%)
event of Zandro's death. Zandro died in
2007, and Wilma succeeded to the SUGGESTED ANSWER:
property.
The filing of the return and payment of
Should the painting be included in the the tax is within 6 months from date of
gross estate of Zandro in 2007 and thus, be death following the pay-as-you-file
subject to estate tax? Explain. (3%) concept. The period to file return is
extendible for a maximum of 30 days
SUGGESTED ANSWER: under meritorious cases as maybe
determined by the Commissioner. The
No. The transmission from the first heir, payment of the estate tax may also be
legatee or donee in favor of another extended when the Commissioner finds
beneficiary, in accordance with the that the payment of the tax on the due
desire of the predecessor is an exempt date would impose undue hardship on
transfer (Sec 87, NIRC). Zandro has no the estate or any of the heirs. The period
control over the disposition of the of extension to pay shall not exceed 5
property at the time of his death; hence, years if the estate is settled through the
the estate tax which imposed the courts, or shall not exceed 2 years if
privilege of transmitting properties upon settled extrajudicially. The
his death will not apply. Commissioner may require the executor,
or administrator, or the beneficiary to
ALTERNATIVE ANSWER: furnish a bond in an amount not more
than double the amount of estate tax
No. The property passes from Zandro to due (Sec 91, NIRC).
Wilma by virtue of the special power of
appointment granted by Xavier. The law
includes as part of the gross estate of Estate Tax: Vanishing Deductions (2009)
the decedent a property passing under
general (not special) power of
appointment. The grantee of the power XIII (C) In 1999, Xavier purchased from his
to appoint, Zandro, has no control over friend, Yuri, a painting for P500,000.00.
the disposition of the property because The fair market value (FMV) of the painting
it is the desire of the grantor of the at the time of the purchase was P1-million.
power that the property will go to a Yuri paid all the corresponding taxes on the
specific person. This being so, the transaction. In 2001, Xavier died. In his
painting should not be included in the last will and testament, Xavier bequeathed
gross estate of Zandro, hence, it is not the painting, already worth P1.5-million, to
subject to estate tax (Sec 85(D), NIRC). his only son, Zandro. The will also granted
Zandro the power to appoint his wife,
Wilma, as successor to the painting in the
event of Zandro's death. Zandro died in
2007, and Wilma succeeded to the
property.
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May a vanishing deduction be allowed in (A) Are the importations of motor vehicles
either or both of the estates? Explain. (3%)
from abroad subject to customs duties and
SUGGESTED ANSWER: value added taxes? Explain. (4%)
is duly registered with the Subic Bay release of the vehicle from Customs’
December 2007, it imported several second- vehicles are based on the value being
hand motor vehicles from Japan and Korea, used by the Bureau for assessing
which it stores in a warehouse in Subic customs duties. VAT is also based on the
Bay. It sold these motor vehicles in April value being used by the Bureau for motor
2008, to persons residing in the customs vehicles (Sec. 107[A] NIRC). Duties must
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(XIV) Emiliano Paupahan is engaged in the No. Under RR No. 16-2005, liability for
business of leasing out several residential VAT arises only if the annual gross
apartment units he owns. The monthly
rental for each unit ranges from P8,000.00 receipts exceed P1.5 million. Secondly,
to P10,000.00. His gross rental income for under Sec. 106(A1a) NIRC, the lease
one year is P1,650,000.00. He consults you
on whether it is necessary for him to must be pursuant to the ordinary course
register as a VAT taxpayer. What legal of trade or business of the taxpayer. The
advice will you give him, and why? (4%)
lease of the ground floor to the bank is a
SUGGESTED ANSWER: casual transaction.
VAT: Liable for VAT (2008) added tax in 2008 if it increases the rental
to P150,000 a month beginning January
XII. Greenhills Condominium Corporation 2008? Explain. (3%)
incorporated in 2001 is a non-stock, non-
profit association of unit owners in SUGGESTED ANSWER:
Greenhills Tower, San Juan City. To be able
to reduce the association dues being Yes, because the gross receipts will
collected from the unit owners, the Board of exceed P1.5 million (RR No. 16-2005).
Directors of the corporation agreed to lease
part of the ground floor of the condominium ALTERNATIVE ANSWER:
building to DEF Savings Bank for P120,000
a month or P1.44 million for the year, No. Although the gross receipts will
starting January 2007. exceed P1.5 million, the lease of the
ground floor is not part of the ordinary
(A) Is the non-stock, non-profit association course of trade or business of the
liable for value added tax in 2007? If your association (RR No. 16-2005).
answer is in the negative, is it liable for
another kind of business tax? (4%)
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(XIa) Construction by XYZ Construction Co. III (B) Melissa inherited from her father a
of concrete barriers for the Asian 300-square-meter lot. At the time of her
Development Bank in Ortigas Center to father's death on March 14, 1995, the
prevent car bombs from ramming the ADB property was valued at P720,000.00. On
gates along ADB Avenue in Mandaluyong February 28, 1996, to defray the cost of the
City. (3%) medical expenses of her sick son, she sold
the lot for P600,000.00, on cash basis. The
SUGGESTED ANSWER: prevailing market value of the property at
the time of the sale was P3,000.00 per
The transaction is subject to VAT at the square meter.
rate of zero percent (0%). ADB is exempt
from direct and indirect taxes under a Is Melissa liable to pay Value Added Tax
special law, thereby making the sale of (VAT) on the sale of the property? If so, how
services to it by a VAT-registered much and why? If not, why not? (4%)
construction company, effectively zero-
rated (Sec 108 (B)(3), NIRC). SUGGESTED ANSWER:
(XIb) Call Center operated by a domestic No. The real property sold, being in the
enterprise in Makati that handles nature of a capital asset, is not subject
exclusively the reservations of a hotel chain to VAT. The sale is subject to VAT only if
which are all located in North America. The the real property sold is held primarily
services are paid for in US$ and duly for sale to customers or held for lease in
accounted for with the Bangko Sentral ng the ordinary course of trade or business.
Pilipinas. (3%) A real property classified as a capital
asset does not include a real property
SUGGESTED ANSWER: held for sale or for lease, hence, its sale
is not subject to VAT (Sec 39 and 106,
The transaction is subject to VAT at the NIRC).
rate of zero percent (0%). Zero-rated sale
of services includes services rendered to ALTERNATIVE ANSWER:
a person engaged in business outside the
Philippines and the consideration is paid No. Melissa is not liable to pay the VAT
in acceptable foreign currency duly because she is not in the real estate
accounted for by the Bangko Sentral ng business. A sale of real property not in
Pilipinas (Sec 108 (B)(2), NIRC). the course of trade or business is not
subject to VAT (Sec 105 and 109,(1)(P),
NIRC).
(XIc) Sale of orchids by a flower shop which
raises its flowers in Tagaytay. (3%)
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When the financial position of the taxpayer acts charged did not exist (Castro v.
demonstrates a clear inability to pay the
Collector of Internal Revenue, L-12174,
tax, the Commissioner of Internal Revenue
may validly compromise the tax liability. April 26, 1962).
SUGGESTED ANSWER:
BIR: Criminal Prosecution; Tax Evasion;
True. Financial incapacity is a ground
Bribery (2013)
allowed by law in order that the
Commissioner of Internal Revenue may
validly compromise a tax liability. (Sec (XII) You are the retained tax counsel of
204, NIRC) ABC Corp. Your client informed you that
they have been directly approached with a
proposal by a BIR insider (i.e., a middle
BIR: Criminal Prosecution; Duty to Pay rank BIR official) on the tax matter they
Tax despite Acquittal (2012) have referred to you for handling. The BIR
insider's proposal is to settle the matter by
X. Explain the following statements: significantly reducing the assessment, but
he will get 50% of the savings arising from
(A) The acquittal of the taxpayer in a the reduced assessment.
criminal action under the Tax Code does
What tax, criminal and ethical
not necessarily result in exoneration of said considerations will you take into account in
taxpayer from his civil liability to pay taxes. giving your advice? Explain the relevance of
each of these considerations. (9%)
(3%)
SUGGESTED ANSWER:
SUGGESTED ANSWERS:
I will advise my client not to accept the
settlement proposal but instead pay the
In taxation, the taxpayer becomes entire amount of tax that is legally due
to the government.
criminally liable because of a civil
liability. While he may be acquitted on On the tax aspect, I will tell my client
that a proposed assessment covering
the criminal case, his acquittal could not
deficiency taxes which are legally due
operate to discharge him from the duty must be fully paid to exonerate the
taxpayer from further liabilities. The
to pay tax, since that duty is imposed by
unwarranted reduction of the proposed
statute prior to and independent of any assessment into half and the payment
thereof will not close the case but can be
attempt on the taxpayer to evade
re-opened anytime within ten years from
payment. The obligation to pay the tax discovery so as to collect the correct
amount of taxes from ABC Corp.
is not a mere consequence of the
felonious acts charged in the The act of deliberately paying an amount
information, nor is a mere civil liability of tax that is less than what is known by
my client to be legally due through a
derived from crime that would be wiped cause of action that is unlawful is
out by the declaration that the criminal considered as tax evasion. I will advise
my client that conniving with a BIR
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BIR: False Return v. Fraudulent Return proven during trial, the CTA shall not
(2009) only impose the criminal penalty but
must likewise order the payment of the
I(E) True or False. Explain your answer in
not more than two (2) sentences. civil liability (Section 205(b), NIRC). As a
matter of fact, it is well-recognized that
A false return and a fraudulent return are
one and the same. (5%) in the case of failure to file a return, a
proceeding in court for the collection of
SUGGESTED ANSWER:
the tax may be filed without the need of
False. There is a different between a an assessment, which recognizes that
false return and a fraudulent return. The
the civil liability of a taxpayer maybe
first merely implies a deviation from the
truth or fact whether intentional or not, established without the need of an
whereas the second is intentional and
assessment (Section 222(a), NIRC).
deceitful with the aim of evading the
correct tax due (Aznar v. Commissioner,
GR NO. L-20569, Aug 23, 1974, 58 SCRA BIR: Failure to File Return; Criminal
519 (1974)). Actions in RTC (2010)
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return under Section 255 of the National CTA: Jurisdiction of the CTA (2010)
Internal Revenue Code (NIRC) was filed by
the Department of Justice (DOJ) with the (Ic) In criminal cases where the Court of
Manila Regional Trial Court (RTC) against Tax Appeals (CTA) has exclusive original
XX, a Manila resident. jurisdiction, the right to file a separate civil
action for the recovery of taxes may be
XX moved to quash the Information on the reserved. (1%)
ground that the RTC has no jurisdiction in
view of the absence of a formal deficiency SUGGESTED ANSWER:
tax assessment issued by the CIR.
False. (Sec. 11, Rule 9, 2005 Rules of the
Is a prior assessment necessary before an Court of Tax Appeals, as amended)
Information for violation of Section 255 of
the NIRC could be filed in court? Explain.
(4%)
CTA: Jurisdiction of the CTA (2010)
SUGGESTED ANSWER:
(Ie) Judgments, resolutions or orders of the
No. In the case of failure to file a return, Regional Trial Court in the exercise of
a proceeding in court for the collection its original jurisdiction involving criminal
of the tax may be filed without an offenses arising from violations of the NIRC
assessment (Sec 222 (a), NIRC). The tax are appealable to the CTA, which shall hear
can be collected by filing a criminal the cases en banc. (1%)
action with the RTC because a criminal
action is a mode of collecting the tax SUGGESTED ANSWER:
liability. (Sec. 205, NIRC). Besides, the
Commissioner is empowered to prepare a False. (Sec. 3(b)(2), Rule 4, 2005 Revised
return on the basis if his own knowledge, Rules of the Court of Tax Appeals)
and upon such information as he can
obtain from testimony or otherwise,
which shall be prima facie correct and CTA: Jurisdiction; Appeals from
sufficient for legal purposes (Sec 6 (B), Decisions of the Collector of Customs
NIRC; the issuance of a formal deficiency (2010)
tax assessment, therefore, is not
required.
(VIII) What is the rule on appeal from
decisions of the Collector of Customs in
protest and seizure cases? When is the
decision of the Collector of Customs
BIR: Prescription; Construction in appealable to the Court of Tax Appeals?
Criminal Cases (2010) Explain. (5%)
False. (Lim v. Court of Appeals, G.R. No. As a rule, decisions of the Collector of
48134-37, Oct. 18, 1990) Customs are not appealable to the Court
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Customs: Prescription Period to Assess and applied for a refund of the excess tax
(2013) credits.
(VI) On October 15, 2005, ABC Corp. Will the claim for refund prosper? (6%)
imported 1,000 kilos of steel ingots and
paid customs duties and VAT to the Bureau SUGGESTED ANSWER:
of Customs on the importation. On
February 17, 2009, the Bureau of Customs, No. The claim for refund will not
citing provisions of the Tariff and Customs prosper. While the law gives the taxpayer
Code on post-audit, investigated and an option to whether carry-over or claim
assessed ABC Corp. for deficiency customs as refund the excess tax credits shown
duties and VAT. on its final adjustment return, once the
option to carry-over has been made,
Is the Bureau of Customs correct? (7%) such option shall be considered
irrevocable for that taxable period and
SUGGESTED ANSWER: no application for cash refund or
issuance of a tax credit certificate shall
No. The Bureau of Customs (BOC) has be allowed. (Sec 76, NIRC; CIR v. PL
lost its right to assess deficiency Management International Phils., Inc.,
customs duties and VAT. The imported April 4, 2011, 647 SCRA 72 (2011) G.R.
steel ingots in 2005 have been entered No. 160949).
and the customs duties thereon had
been paid by thereby making the Taxpayer: Claim for Refund;
liquidation of the importation final and Substantiation Requirement (2009)
conclusive upon all parties after the
expiration of three (3) years from the (IV) International Technologies, Inc. (ITI)
date of final payment of duties and taxes filed a claim for refund for unutilized input
(Sec 1603, TCC, as amended by RA VAT with the Court of Tax Appeals (CTA). In
9135). the course of the trial, ITI engaged the
services of an independent Certified Public
[Note: Insofar as VAT on importation is Accountant (CPA) who examined the
concerned, the underpayment will be voluminous invoices and receipts of ITI. ITI
automatically cured when these are credited offered in evidence only the summary
against the output tax due upon sale by the prepared by the CPA, without the invoices
imported when the VAT return is filed. Be and the receipts, and then submitted the
that as it may, an assessment for deficiency case for decision.
VAT can only be made by the BIR (not by
BOC), VAT being an internal revenue tax, Can the CTA grant ITI's claim for refund
within three (3) years from the last day based only on the CPA's summary?
prescribed by law for filing of the VAT Explain. (4%)
return. (Sec 203, NIRC)].
SUGGESTED ANSWER:
Taxpayer: Claim for Refund; Carry-Over
Option is Irrevocable (2013) No. The summary prepared by the CPA
does not prove anything unless the
(I)In its final adjustment return for the 2010 documents which were the basis of the
taxable year, ABC Corp. had excess tax summary are submitted to the CTA and
credits arising from its over-withholding of adduced in evidence. The invoices and
income payments. It opted to carry over the receipts must be presented because they
excess tax credits to the following year. are the only real and direct evidence
Subsequently, ABC Corp. changed its mind that would enable the Court to
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determine with particular certainty the authority to file a claim for refund and
basis of the refund (CIR v. Rio Tuba to bring an action for recovery of such
Nickel Mining Corp., 207 SCRA 549 claim (CIR v. Procter & Gamble, 204
(1992)). SCRA 377, (1991)).
Taxpayer: Claim for Refund; Withholding Taxpayer: Tax Credit; Off-Setting (2007)
Agent as a Proper Party (2009)
XIII. ABC Corporation won a tax refund
X(A) ABCD Corporation (ABCD) is a
domestic corporation with individual and case for P150 Million. Upon execution of the
corporate shareholders who are residents of judgment and when trying to get the Tax
the United States. For the 2nd quarter of
1983, these U.S.-based individual and Credit Certificates (TCC) representing the
corporate stockholders received cash refund, the Bureau of Internal Revenue
dividends from the corporation. The
corresponding withholding tax on dividend (BIR) refused to issue the TCC on the basis
income --- 30% for individual and 35% for of the fact that the corporation is under
corporate non-resident stockholders --- was
deducted at source and remitted to the BIR. audit by the BIR and it has a potential tax
liability. Is there a valid justification for the
On May 15, 1984, ABCD filed with the
BIR to withhold the issuance of the TCC?
Commissioner of Internal Revenue a formal
claim for refund, alleging that under the Explain your answer briefly? (5%)
RP-US Tax Treaty, the deduction withheld
at source as tax on dividends earned was SUGGESTED ANSWER:
fixed at 25% of said income. Thus, ABCD
asserted that it overpaid the withholding
tax due on the cash dividends given to its The BIR has no valid justification to
non-resident stockholders in the U.S. The withhold the TCC. Offsetting the amount
Commissioner denied the claim.
of TCC against a potential tax liability is
On January 17, 1985, ABCD filed a petition not allowed, because both obligations are
with the Court of Tax Appeals (CTA)
no yet fully-liquidated. While the amount
reiterating its demand for refund.
of the TCC has been determined; the
Does ABCD Corporation have the legal amount of deficiency tax is yet to be
personality to file the refund on behalf of its
non-resident stockholders? Why or why determined through the completion of
not? (3%) the audit. (Philex Mining Corporation v.
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under one proceeding to avoid (A) As a BIR lawyer handling the case,
multiplicity of suits, will not apply since would you raise the defense of
the determination of the entitlement to prescription in your answer to the
the refund was already removed from the claim for tax credit? Explain. (4%)
BIR. To reopen the claim for refund in
order to give way to the introduction of SUGGESTED ANSWER:
evidence of a deficiency assessment will
lead to an endless litigation, which is not Yes. The defense of prescription is
allowed. (CIR v. Citytrust Banking available as against the 2004 tax credit.
Corporation, 499 SCRA 477 [2006]). Under Sec. 229 NIRC, the prescriptive
period is 2 years reckoned from the
filing of the annual return (CIR v. TMX
Taxpayer: Claim for Tax Credit;
Sales, G.R. No. 83736, 15 January 1992;
Prescription (2008)
CIR v. PhilAm Life, G.R. No. 105208, 29
May 1995; CIR v. CTA, G.R. No. 117254,
III. DEF Corporation is a wholly owned
21 January 1999). However, the 2005
subsidiary of DEF, Inc., California, USA.
claim has not yet prescribed since its
Starting December 15, 2004, DEF
prescriptive period ends on January 11,
Corporation paid annual royalties to DEF,
2008 while the claim was filed on April
Inc., for the use the latter‟s software, for
10, 2007. The filing of the Petition for
which the former, as withholding agent of
Review with the Tax Appeals on the
the government, withheld and remitted to
2005 Claim is premature (Sec. 57[A]
the BIR the 15% final tax based on the
NIRC).
gross royalty payments. The withholding
tax return was filed and the tax remitted to
(B) Can the BIR lawyer raise the defense
the BIR on January 10 of the following
that DEF Corporation is not the
year, On April 10, 2007, DEF Corporation
proper party to file such claim for tax
filed a written claim for tax credit with the
credit? Explain. (3%)
BIR, arising from erroneously paid income
taxes covering the years 2004 and 2005.
SUGGESTED ANSWER:
The following day, DEF Corporation filed a
petition for review with the Court of Tax
No. the BIR cannot raise the defense
Appeals involving the tax credit claim for
that DEF Corporation is not the proper
2004 and 2005.
party. In CIR v. Procter & Gamble, G.R.
No. 66838, 02 December 1991, the Court
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VIII. In the examination conducted by the of the BIR in its Final Assessment Notice
revenue officials against the corporate and Demand Letter led the taxpayer to
taxpayer in 2010, the BIR issued a final conclude that only a final judicial ruling
assessment notice and demand letter which in his favor would be accepted by the
states: “It is requested that the above BIR. The taxpayer cannot be blamed for
deficiency tax be paid immediately upon not filing a protest against the Formal
incident to delinquency. This is our final Notices since the language used and the
decision based on investigation. If you tenor of the demand letter indicate that
disagree you may appeal this time, decision it is the final decision of the respondent
within thirty (30) days from receipt hereof, on the matter. The CIR should indicate,
the Court of Tax Appeals, without filing its taxpayer concerned to determine when
protest against the assessment and without his or her right to appeal to the tax
a denial thereof by the BIR. If you were the court accrues. Although there was no
judge, would you deny the petition for direct reference for the taxpayer to bring
review filed by the taxpayer and consider the matter directly to the CTA, it cannot
the case as prematurely filed? Explain your be denied that the word “appeal” under
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b. Assume that the CTA's decision (IV) On March 10, 2010, Continental, Inc.
dismissing the petition for review received a preliminary assessment notice
has become final. May the (PAN) dated March 1, 2010 issued by the
Commissioner legally enforce Commissioner of Internal Revenue (CIR) for
collection of the delinquent tax? deficiency income tax for its taxable year
Explain. (4%) 2008. It failed to protest the PAN. The CIR
thereupon issued a final assessment notice
(FAN) with letter of demand on April 30,
2010. The FAN was received by the
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SUGGESTED ANSWER:
Local & Real Property Taxes Yes. Under Sec. 165 of the Local
Government Code, the taxable period for
Local Taxation: Business Tax: Taxable
the payment of business taxes is the
Period, Payment in Instalment (2008)
calendar year.
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interest on any taxes not paid (Sec. 192, legislative franchises state that they will
Local Government Code). pay only 5% franchise tax in lieu of all
taxes.
ALTERNATIVE ANSWER:
The Province of Zamboanga del Norte
No, There is no ordinance authorizing
passed an ordinance in 1997 that imposes
the instalment payment of business
a local franchise tax on all
taxes without interest and surcharges
telecommunication companies operation
(See Sec. 192, Local Government Code).
within the province. The tax is 50% of 1% of
the gross annual receipts of the preceding
Local Taxation: Business Tax on
Contractors (2010) calendar year based on the incoming
receipts, or receipts realized, within its
(IIe) What is the basis for the computation
of business tax on contractors under the territorial jurisdiction.
Local Government Code? (2%)
Is the ordinance valid? Are PLDT, Smart
SUGGESTED ANSWER: and Globe liable to pay franchise taxes?
The business tax on contractors is a Reason briefly. (10%)
graduated annual fixed tax based on the
gross receipts for the preceding calendar SUGGESTED ANSWER:
year. However, when the gross receipts
amount to P2 million or more, the
The ordinance is valid. The Local
business tax on contractors is imposed
as a percentage tax at the rate of 50% of Government Code explicitly authorizes
1% (Sec 143 (e), LGC).
provincial governments, notwithstanding
any law or other special law, to impose a
Local Taxation: Legality/
tax on business enjoying a franchise at
Constitutionality; Legislative Franchise
the rate of 50% of 1% based on the gross
(2007)
annual receipts during the preceding
year within the province. (Section 137,
II. The Local Government Code took effect
LGC).
on January 1, 1992.
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(PLDT v. City of Davao, 363 SCRA 522 examination and lawyers are included
within that class of professionals.
[2001]).
ALTERNATIVE ANSWER:
Smart and Globe, however, are not liable
to the franchise tax imposed under the The ordinance is valid. The ordinance is
not discriminatory because it complies
provincial ordinance. The legislative with the rule of equality and uniformity
franchises of Smart and Globe were in taxation. Equality and uniformity in
local taxation means that all subjects or
granted in 1998, long after the Local objects of taxation belonging to the same
Government Code took effect. Congress class shall be taxed at the same rate
within the territorial jurisdiction of the
is deemed to have been aware of the taxing authority or local government
provisions of the earlier law, when it unit and not necessarily in comparison
with other units although belonging to
granted the exemption. Accordingly, the the same political subdivision. In fine,
latest will of the legislature to grant tax uniformity is required only within the
geographical limits of the taxing
exemption must be respected. authority. It is not for the Court to judge
what particular cities or municipalities
should be empowered to impose
Local Taxation; Constitutionality;
occupation tax. In case at bar, the
Professional or Occupation Taxes (2009)
imposition of the occupation tax to
persons exercising various professionals
(VIII) The City of Manila enacted Ordinance in the city is well within the authority of
No. 55-66 which imposes a municipal the City of Manila (Punsalan et. al. v.
occupation tax on persons practicing City of Manila, 95 Phil. 46 (1954)).
various professions in the city. Among
those subjected to the occupation tax were
lawyers. Atty. Mariano Batas, who has a Local Taxation; Legality/
law office in Manila, pays the ordinance- Constitutionality; Regulatory Measures
imposed occupation tax under protest. He (2009)
goes to court to assail the validity of the
ordinance for being discriminatory. Decide (VI) The Sanggunian Bayan of the
with reasons. (3%) Municipality of Sampaloc, Quezon, passed
an ordinance imposing a storage fee of ten
SUGGESTED ANSWER: centavos (P0.10) for every 100 kilos of copra
deposited in any bodega within the
The ordinance is valid. The tax imposed Municipality's jurisdiction. The
by the ordinance is in the nature of a Metropolitan Manufacturing Corporation
professional tax which is authorized by (MMC), with principal office in Makati, is
law to be imposed by cities (Sec 151 in engaged in the manufacture of soap, edible
relation o Sec 139, LGC). The ordinance oil, margarine, and other coconut oil-based
is not discriminatory because the City products. It has a warehouse in Sampaloc,
Council has the power to select the Quezon, used as storage space for the copra
subjects of taxation and impose the purchased in Sampaloc and nearby towns
same tax on those belonging to the same before the same is shipped to Makati. MMC
class. The authority given by law to goes to court to challenge the validity of the
cities is to impose a professional tax ordinance, demanding the refund of the
only on persons engaged in the practice storage fees it paid under protest.
of their profession requiring government
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them the authority to create their own Was the assessment proper? (5%)
sources of revenue. The local
SUGGESTED ANSWER:
government units do not exercise the
power to tax as an inherent power or by Yes, the assessment is proper. The land,
a valid delegation of the power by the although owned by the municipality, is
not exempt from real property tax
Congress, but pursuant to a direct because the beneficial use has been
authority conferred by the Constitution. granted to a taxable person. (Sec 234 (a),
LGC)
(Mactan Cebu International Airport
Authority v. Marcos, 261 SCRA 667 Real Property Tax; Exemption; Religious
Activities (2010)
[1996]; NPC v. City of Cabanatuan, 401
SCRA 259 [2003]). (XIV) A inherited a two-storey building in
Makati from his father, a real estate broker
The local government units exercise the in the „60s. A group of Tibetan monks
approached A and offered to lease the
power to tax by levying taxes, fees and building in order to use it as a venue for
charges consistent with the basic policy their Buddhist rituals and ceremonies. A
accepted the rental of P1 million for the
of local autonomy, and to assess and whole year.
collect all these taxes, fees and charges
The following year, the City Assessor issued
which will exclusively accrue to them.
an assessment against A for non-payment
The local government units are of real property taxes.
authorized to pass tax ordinances (levy)
Is the assessor justified in assessing A‟s
and to pursue actions for the assessment deficiency real property taxes? Explain.
and collection of the taxes imposed in (3%)
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Baguio v. Busuego, L-29772, Sept 18, into electricity. This belies the claim
1980). that RPC, a government-owned and
controlled corporation engaged in the
Real Property Taxation: Liable for supply, generation and transmission of
Payment; Taxpayer (2009) electric power, is the actual, direct and
exclusive user of the barge, hence, does
(IX) Republic Power Corporation (RPC) is a not fall within the purview of the
government-owned and controlled exempting provision of Sec 234(c) of RA
corporation engaged in the supply, 7160. Likewise, the argument that RPC
generation and transmission of electric should be liable to the real property
power. In 2005, in order to provide taxes consonant with the contract is
electricity to Southern Tagalog provinces, devoid of merit. The liability for the
RPC entered into an agreement with Jethro payment of the real estate taxes is
Energy Corporation (JEC), for the lease of determined by law and not by the
JEC's power barges which shall be berthed agreement of the parties (FELS Energy
at the port of Batangas City. The contract Inc. v. The Province of Batangas, 516
provides that JEC shall own the power SCRA 186 (2007)).
barges and the fixtures, fittings, machinery,
and equipment therein, all of which JEC
shall supply at its own cost, and that JEC
shall operate, manage and maintain the Real Property Taxation: Liable for
power barges for the purpose of converting Payment; Period (2012)
the fuel of RPC into electricity. The contract
also stipulates that all real estate taxes and III. Mr. Jose Castillo is a resident Filipino
assessments, rates and other charges, in citizen. He purchased a parcel of land in
respect of the power barges, shall be for the Makati City in 1970 at a consideration of
account of RPC. P1 Million. In 2011, the land, which
remained undeveloped and idle had a fair
In 2007, JEC received an assessment of market value of P20 Million. Mr. Antonio
real property taxes on the power barges Ayala, another Filipino citizen, is very much
from the Assessor of Batangas City. JEC interested in the property and he offered to
sought reconsideration of the assessment buy the same for P20 Million. The Assessor
on the ground that the power barges are of Makati City re-assessed in 2011 the
exempt from real estate taxes under Section property at P10 Million.
234 [c] of R.A. 7160 as they are actually,
directly and exclusively used by RPC, a (A) When is Mr. Castillo liable for real
government-owned and controlled property tax on the land beginning 2011 or
corporation. Furthermore, even assuming beginning 2012? Explain your answer. (2%)
that the power barges are subject to real
property tax, RPC should be held liable
SUGGESTED ANSWER:
therefor, in accordance with the terms of
the lease agreement. Is the contention of
JEC correct? Explain your answer. (4%) Mr. Castillo shall be liable to the real
property tax based on the re-assessment
SUGGESTED ANSWER: beginning 2012. All re-assessments made
after the first day of any year shall take
No, the contention of JEC is not correct. effect on the first day of January of the
The owner of the power barges is JEC succeeding year (Section 221,LGC).
which is required to operate, manage
and maintain the power barges for the [Note: The question is misleading. Mr.
purpose of converting the fuel of RPC Castillo is liable to the real property tax on
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the property when he became the owner and unappeallable. Since no decision on
thereof although his liability increases upon the protest was made, the taxpayer
re-assessment of the property.] should have appealed to the RTC within
30 days from the lapse of the period to
decide the protest (Sec 195, LGC).
Remedies in Local Taxes
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parked inside the garage of Jessie's he waives in writing his privilege under
residence? Why or why not? (4%) Republic Act No. 1405 (Bank Secrecy
Law) or under other general or special
SUGGESTED ANSWER: laws, and such waiver shall constitute
the authority of the Commissioner to
No. The luxury car being in a dwelling inquire into the bank deposits of the
house, cannot be seized by officers of taxpayer (Section 6, NIRC).
the Bureau of Customs exercising police
authority without a search warrant (B) In 2011 the Commissioner of the US
issued by a judge of a competent court Internal Revenue Service (IRS) requested in
(Sec 2209, TCC; Pacis v. Pamaran, 56 writing the Commissioner of Internal
SCRA 16 (1974)). Revenue to get the information from a bank
in the Philippines, regarding the deposits of
a US Citizen residing in the Philippines,
who is under examination by the officials of
Other Related Matters the US IRS, pursuant to the US- Philippine
Tax Treaty and other existing laws. Should
the BIR Commissioner agree to obtain such
information from the bank and provide the
same to the IRS? Explain your answer. (5%)
BIR: Bank Deposits Secrecy Violation
(2012) SUGGESTED ANSWER:
VII. (A) May the bank deposits – peso and Yes. The Commissioner should agree to
foreign currency – of an individual taxpayer the request pursuant to the principle of
be disclosed by a commercial bank to the international comity. The Commissioner
Commissioner of Internal Revenue, in of Internal Revenue has the authority to
connection with a tax investigation being inquire into bank deposit accounts and
conducted by revenue officials, without related information held by financial
violating the relevant bank secrecy laws? institutions of a specific taxpayer
Explain your answer. (5%) subject of a request for the supply of tax
information from a foreign tax authority
SUGGESTED ANSWER: pursuant to an international convention
or agreement to which the Philippines is
No. As a general rule, bank deposits of an a signatory or party of (Section 3, RA
individual taxpayer may not be disclosed 10021).
by a commercial bank to the
Commissioner. As exceptions, the (C) Is the bank secrecy law in the
Commissioner is authorized to inquire Philippines violated when the BIR issues a
into the bank deposits of: (1) a decedent Warrant of Garnishment directed against a
to determine his gross estate; and (2) domestic bank requiring it not to allow any
any taxpayer who has filed an withdrawal from any existing bank deposit
application for compromise of his tax of the delinquent taxpayer mentioned in the
liability by reason of financial incapacity Warrant and to freeze the same until the
to pay his tax liability. tax delinquency of said taxpayer is settled
with the BIR? Explain your answer. (5%)
In case a taxpayer files an application to
compromise the payment of his tax SUGGESTED ANSWER:
liabilities on his claim that his financial
position demonstrates a clear inability No. Garnishment is an administrative
to pay the tax assessed, his application remedy allowed by law to enforce a tax
shall not be considered unless and until liability. Bank accounts shall be
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have the storage facilities for glass convenience of the employer and
panels. was necessary for its business.
SUGGESTED ANSWER: (B) There was a taxable fringe
(B)Characteristics of Taxes benefit since the stay at the house
was for free.
IX. Prior to the VAT law, sales of cars were (C) There was a taxable fringe
subject to a sales tax but the tax applied benefit because the house was very
only to the original or the first sale; the luxurious.
second and subsequent sales were not (D) There was no taxable fringe
subject to tax. benefit because the company
Deltoid Motors, Inc. (Deltoid) hit on the idea president was only required to stay
of setting up a wholly-owned subsidiary, there and did not demand free
Gonmad Motors, Inc. (Gonmad), and of housing.
selling its assembled cars to Gonmad at a SUGGESTED ANSWER:
low price so it would pay a lower tax on the (A)Section 33, NIRC; RR No. 3-98
first sale. Gonmad would then sell the cars
to the public at a higher price without XI. Taxpayer A was required by the BIR to
paying any sales tax on this subsequent sign and submit a waiver of the statute of
sale. limitations on the assessment period, to
Characterize the arrangement. (1%) give the BIR more time to complete its
A. The plan is a legitimate exercise investigation. The BIR accepted the waiver
of tax planning and merely takes but failed to indicate the date of its
advantage of a loophole in the law. acceptance.
B. The plan is legal because the What is the legal status of the waiver? (1%)
government collects taxes anyway. (A) The waiver is valid because the
C. The plan is improper; the veil date of acceptance is immaterial and
of corporate fiction can be unimportant.
pierced so that the second sale (B) The waiver is invalid; the
will be considered the taxable taxpayer cannot be required to
sale. waive the statute of limitations.
D. The government must respect (C) The waiver is invalid; the date
Gonmad's separate juridical of acceptance is crucial in
personality and Deltoid's taxable counting the start of the period of
sale to it. suspension of the prescriptive
SUGGESTED ANSWER: period.
(C)Koppel Philippines Inc. v. Yatco, 77 (D) The waiver is valid, having been
Phil 496 accepted by the BIR.
SUGGESTED ANSWER:
X. PRT Corp. purchased a residential house (C)Commissioner v. Kudos Metal Corp.,
and lot with a swimming pool in an upscale G.R. No. 178087, May 5, 2010
subdivision and required the company
president to stay there without paying rent; XII. Taxpayer Andy received on January 3,
it reasoned out that the company president 2010 a preliminary assessment notice (PAN)
must maintain a certain image and be able from the BIR, stating that he had fifteen
to entertain guests at the house to promote (15) days from its receipt to comment or to
the company's business. The company file a protest. Eight (8) days later (or on
president declared that because they are January11, 2010), before he could
childless, he and his wife could very well comment or file a protest, Andy received the
live in a smaller house. final assessment notice (FAN).
Was there a taxable fringe benefit? (1%) Decide on the validity of the FAN. (1%)
(A) There was no taxable fringe (A) The FAN is invalid; Andy was
benefit since it was for the not given the chance to respond
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to the PAN, in violation of his due Rule on the CIR's action. (1%)
process rights. (A) The CIR is wrong; a donation
(B) The FAN is invalid for being must be express.
premature. (B) The CIR is wrong; financial
(C) The FAN is valid since it was capacity is not a requirement for a
issued before the right to assess valid sale.
prescribed. (C) The CIR is correct; the amount
(D) The FAN is valid. There is no involved is huge and ultimately ends
legal requirement that the FAN up with the children.
should await the protest to the PAN (D) The CIR is correct; there was
because protest to the PAN is not animus donandi since the
mandatory. children had no financial capacity
SUGGESTED ANSWER: to be co-purchasers.
(A)Section 228, NIRC; RR No. 12-99 SUGGESTED ANSWER:
(D)Spouse Evono v. Department of
XIII. MSI Corp. imports orange and lemon Finance, et. al., CTA EB Case No. 705,
concentrates as raw materials for the fruit June 4, 2012
drinks it sells locally. The Bureau of
Customs (BOC) imposed a 1% duty rate on XV. Pheleco is a power generation and
the concentrates. Subsequently, the BOC distribution company operating mainly
changed its position and held that the from the City of Taguig. It owns electric
concentrates should be taxed at 7% duty poles which it also rents out to other
rate. MSI disagreed with the ruling and companies that use poles such as
questioned it in the CTA which upheld telephone and cable companies. Taguig
MSI's position. The Commissioner of passed an ordinance imposing a fee
Customs appealed to the CTA en bane equivalent to 1% of the annual rental for
without filing a motion for reconsideration. these poles. Pheleco questioned 'the legality
Resolve the appeal. (1%) of the ordinance on the ground that it
(A) The appeal should be imposes an income tax which local
dismissed because a motion for government units (LGUs) are prohibited
reconsideration is mandatory. from imposing.
(B) The appeal should be dismissed Rule on the validity of the ordinance. (1%)
for having been filed out of time. (A) The ordinance is void; the fee is
(C) The appeal should be given due based on rental income and is
course since a motion for therefore a tax on income.
reconsideration is a useless (B) The ordinance is valid as a
exercise. legitimate exercise of police
(D) The appeal should be upheld to power to regulate electric poles.
be fair to the government which (C) The ordinance is void; 1% of
needs taxes. annual rental is excessive and
SUGGESTED ANSWER: oppressive.
(A)RA 9282; Rule 8, Revised Rules of the (D) The ordinance is valid; an LGU
CTA may impose a tax on income.
SUGGESTED ANSWER:
XIV. The spouses Jun and Elvira Sandoval (B)Section 129, RA 7160
purchased a piece of land for P5,000,000
and included their two (2) minor children as XVI. Aleta sued Boboy for breach of promise
co-purchasers in the Deed of Absolute Sale. to marry. Boboy lost the case and duly paid
The Commissioner of Internal Revenue the court's award that included, among
(CIR) ruled that there was an implied others, Pl00,000 as moral damages for the
donation and assessed donors' taxes mental anguish Aleta suffered.
against the spouses. Did Aleta earn a taxable income? (1%)
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(A) She had a taxable income (D) Mr. Z did not commit smuggling
of P100,000 since income is income because the shipment has not left
from whatever source. the customs area.
(B) She had no taxable income SUGGESTED ANSWER:
because it was a donation. (A)Section 3601, TCCP; Rieta v. People
(C) She had taxable income since of the Philippines, 436 SCRA 273
she made a profit.
(D) She had no taxable income XIX. Mr. A was preparing his income tax
since moral damages are return and had some doubt on whether a
compensatory. commission he earned should be declared
SUGGESTED ANSWER: for the current year or for the succeeding
(D)Section 32 (B)(4), NIRC year. He sought the opinion of his lawyer
who advised him to report the commission
XVII. Mr. Mayuga donated his residential in the succeeding year. He heeded his
house and lot to his son and duly paid the lawyer's advice and reported the
donor's tax. In the Deed of Donation, Mr. commission in the succeeding year. The
Mayuga expressly reserved for himself the lawyer's advice turned out to be wrong; in
usufruct over the property for as long as he Mr. A's petition against the BIR
lived. assessment, the court ruled against Mr. A.
Describe the donated property from the Is Mr. A guilty of fraud? (1%)
taxation perspective. (1%) (A) Mr. A is not guilty of fraud as
(A) The property will form part of he simply followed the advice of
Mr. Mayuga's gross estate when his lawyer.
he dies. (B) Mr. A is guilty of fraud; he
(B) The property will not fom1 part deliberately did not report the
of Mr. Mayuga's gross estate when commission in the current year
he dies because he paid the donor's when he should have done so.
tax. (C) Mr. A's lawyer should pay the tax
(C) The property will form part of for giving the wrong advice.
Mr. Mayuga's gross estate because (D) Mr. A is guilty for failing to
he died soon after the donation. consult his accountant.
(D) The property will not form part of SUGGESTED ANSWER:
Mr. Mayuga's gross estate because it (A)CIR v. CA, G.R. No. 119322, June 4,
is no longer his. 1996
SUGGESTED ANSWER:
(A)Section 85(B), NIRC XX. The BIR, through the Commissioner,
instituted a system requiring taxpayers to
XVIII. Mr. Z made an importation which he submit to the BIR a summary list of their
declared at the Bureau of Customs (BOC) sales and purchases during the year,
as "Used Truck Replacement Parts". Upon indicating the name of the seller or the
investigation, the container vans contained buyer and the amount. Based on these
15 units of Porsche and Ferrari cars. lists, the BIR discovered that in 2004 ABC
Characterize Mr. Z's action. (1%) Corp. purchased from XYZ Corp. goods
(A) Mr. Z committed smuggling. worthP5,000,000. XYZ Corp. did not
(B) Mr. Z did not commit smuggling declare these for income tax purposes as its
because he submitted his shipment reported gross sales for 2004was only
to BOC examination. Pl,000,000.
(C) Mr. Z only made a Which of the following defenses may XYZ
misdeclaration, but did not commit Corp. interpose in an assessment against it
smuggling. by the BIR? (1%)
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(A) The BIR has no authority to Bank A from loans to its debtor-customers
obtain third party information to
(active income);
assess taxpayers.
(B) The third party information is (D) Income tax on interest income of
inadmissible as hearsay evidence.
deposits of Bank A is a direct tax, while
(C) The system of requiring
taxpayers to submit third party GRT on interest income on loan transaction
information is illegal for violating the
is an indirect tax.
right to privacy.
(D) None of the above. SUGGESTED ANSWER:
SUGGESTED ANSWER:
(A) There is no double taxation if the law
(D)Sections 5 and 6, NIRC
imposes two different taxes on the same
income, business or property. First, the
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BPI, G.R. No. 147375 dated June 26, (A) The assessed taxes must be enforced by
2006) the government.
(B) The underlying basis of taxation is
(2) Which of the following statements is government necessity, for without
NOT correct? taxation, a government can neither exist
nor endure;
(A) In case of doubt, statutes levying taxes (C) Taxation is an arbitrary method of
are construed strictly against the exaction by those who are in the seat of
government; power;
(B) The construction of a statute made by (D) The power of taxation is an inherent
his predecessors is not binding upon the power of the sovereign to impose burdens
successor, if thereafter he becomes satisfied upon subjects and objects “within its
that a different construction should be jurisdiction for the purpose of raising
given; revenues”.
(C) The reversal of a ruling shall not SUGGESTED ANSWER:
generally be given retroactive application, if (B) Taxes are the lifeblood of the
said reversal will be prejudicial to the government, for without taxes, the
taxpayer; government can neither exist nor
(D) A memorandum circular promulgated endure. A principal attribute of
by the CIR that imposes penalty for sovereignty, the exercise of taxing power
violations of certain rules needed not be derives its source from the very
published in a newspaper of general existence of the state whose social
circulation or official gazette because it contract with its citizens obliges it to
has the force and effect of law. promote public interest and common
SUGGESTED ANSWER: good. The theory behind the exercise of
(D) A revenue memorandum circular the power to tax emanates from
shall not begin to be operative until after necessity; without taxes, government
due notice thereof may be fairly cannot fulfil its mandate of promoting
presumed (Commissioner of Internal the general welfare and well-being of the
Revenue vs. Philippine Airlines, G.R. No. people. (National Power Corporation vs.
180066 dated July 8, 2009). City of Cabanatuan, G.R. No. 149110
April 9, 2003).
(3) Which statement below expresses the
lifeblood theory? (4) Which statement is WRONG?
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(A) All taxable incomes, regardless of the (7) For income tax purposes, the source of
nature of income, are added together to the service income is important for the
arrive at gross income, and all allowable taxpayer, who is a:
taxable income;
(B) All incomes subject to final (A) Filipino citizen residing in Makati City;
withholding taxes are liable to income (B) Non-resident Filipino citizen working
tax under the schedular tax system, and residing in London, United Kingdom;
while all ordinary income as well as (C) Japanese citizen who is married to a
income not subject to final withholding Filipina citizen and residing in their family
taxes are liable to income tax under’ the, home located in Fort Bonifacio, Taguig City;
global tax system; (D) Domestic corporation.
(C) All taxable incomes are subject to final SUGGESTED ANSWER:
withholding taxes under the schedular tax (B) Section 23 in relation to Section 42,
system; NIRC
(D) All taxable incomes from sources within [NOTE: C is also a correct answer
and without the Philippines are liable to considering that resident aliens are also
income tax. taxable only on income derived from
SUGGESTED ANSWER: within the Philippines]
(B) General Principles of Taxation
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(9) A resident foreign corporation is one (11) An individual, who is a real estate
that is: dealer, sold a residential lot in Quezon City
at a gain of P100,000.00 (selling price of
(A) Organized under the laws of the P900,000.00 and cost is P800,000.00). The
Philippines that does business in another sale is subject to income tax as follows:
country;
(B) Organized under the laws of a foreign (A) 6% capital gains tax on the gain;
country that sets up a regional headquarter (B) 6% capital gains tax on the gross selling
in the Philippines doing product promotion price or fair market value, whichever is
and information dissemination; higher;
(C) Organized under the laws of the (C) Ordinary income tax at the graduated
Philippines that engages business in special rates of 5% to 32% of net taxable
economic zone; income;
(D) Organized under the laws of a foreign (D) 30% income tax on net taxable income.
country that engages in business in SUGGESTED ANSWER:
Makati City, Philippines. (C) Section 24, NIRC
SUGGESTED ANSWER:
(D) Section 22(H), NIRC (12) During the audit conducted by the BIR
official, it was found that the rental income
(10) A dealer in securities sold unlisted claimed by the corporation was not
shares of stocks of a domestic corporation
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of the choices which might not be the amount thereof could be determined
noticed by the examinee.] with reasonable accuracy;
(D) A person who uses the completed
(16) The interest expense of a domestic method, whereby the construction project
corporation on a bank loan in connection has been completed during the year the
with the purchase of a production contract was signed.
equipment: SUGGESTED ANSWER:
(C) The accrual of income and expense is
(A) Is not deductible from gross income of permitted when the all-events test has
the borrower corporation; been met. This test requires: (1) fixing of
(B) Is deductible from the gross income a right to income or liability to pay; and
of the borrower-corporation during the (2) the availability of the reasonable
year or it may be capitalized as part of accurate determination of such income
cost of the equipment; or liability.
(C) Is deductible only for a period of five
years from date of purchase; The all-events test requires the right to
(D) Is deductible only if the taxpayer uses income or liability be fixed, and the
the cash method of accounting. amount of such income or liability be
SUGGESTED ANSWER: determined with reasonable accuracy.
(B) Section 34(B)(3), NIRC However, the test does not demand that
the amount of income or liability be
(17) The “all events test” refers to: known absolutely, only that a taxpayer
has at his disposal the information
(A) A person who uses the cash method necessary to compute the amount with
where all sales have been fully paid by the reasonable accuracy. The all-events test
buyers thereof; is satisfied where computation remains
(B) A person who uses the instalment sales uncertain, if its basis is unchangeable;
method, where the full amount of the test is satisfied where a computation
consideration is paid in full by the buyer may be unknown, but is not as much
thereof within the year of sale; unknowable, within the taxable year. The
(C) A person who uses the accrual amount of liability does not have to be
method, whereby an expense is determined exactly; it must be
deductible for the taxable year in which determined with “reasonable accuracy.”
all the events had occurred which (Commissioner of Internal Revenue vs.
determined the fact of the liability and
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(18) All the items below are excluded from (20) ABS Corporation is a PEZA-registered
gross income, except: export enterprise which manufactures
cameras and sells all its finished products
(A) Gain from sale of long-term bonds, abroad. Which statement is NOT correct?
debentures and indebtedness;
(B) Value of property received by a person (A) ABS Corporation is subject to the 5%
as donation or inheritance; final tax on gross income earned, in lieu
(C) Retirement benefits received from the of all national and local taxes;
GSIS, SSS, or accredited retirement plan; (B) ABS Corporation is exempt from the
(D) Separation pay received by a retiring 30% corporate income tax on net income,
employee under a voluntary retirement provided it pays value added tax.
program of the corporate employer. (C) ABS Corporation is subject to the 30%
SUGGESTED ANSWER: corporate income tax on net income;
(D) Section 32(B)(6) (D) ABS Corporation is exempt from all
national and local taxes, except real
(19) Which statement is correct? A non- property tax.
stock, non-profit charitable association that SUGGESTED ANSWER:
sells its idle agricultural property is: (A) Sections 23 & 24, RA 7916
(A) Not required to file an income tax (21) In May 2010, Mr. and Mrs. Melencio
return, nor pay income tax one the Antonio donated a house and lot with a fair
transaction to the BIR, provided the sales market value of P10 million to their son,
proceeds are invested in another real estate Roberto, who is to be married during the
during the year; same year to Josefina Angeles. Which
(B) Required to pay the 6% capital gains statement below is INCORRECT?
tax on the gross selling price or fair
market value, whichever is higher; (A) There are four (4) donations made - two
(C) Mandated to pay the 30% regular (2) donations are made by Mr. Melencio
corporate income tax on the gain from sale; Antonio to Roberto and Josefina, and two
(D) Required to withhold the applicable (2) donations are made by Mrs. Antonio;
expanded withholding tax rate on the (B) The four (4) donations are made by the
transaction and remit the same to the BIR. Spouses Antonio to members of the family,
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of P50,000.00 to her daughter Cristina, and (26) Sale of residential house and lot by an
on December 20, 2011, she donated official of a domestic corporation to another
another P50,000.00 to Cristina. Which official in the same corporation for a
statement is correct? consideration of P2.5 million in 2011 is:
(A) Maria Reyes is subject to donor‟s tax in (A) Exempt from VAT because the gross
2011 because gross gift is P100,000.00; sales do not exceed P2.5 million;
(B) Maria Reyes is exempt from donor’s (B) Exempt from VAT because the
tax in 2011 because gross gift is property sold is a capital asset,
P100,000.00; regardless of the gross selling price;
(C) Maria Reyes is exempt from donor‟s tax (C) Exempt from VAT because the seller is
in 2011 only to the extent of P50,000.00; not a person engaged in real estate
(D) Maria Reyes is exempt from donor‟s tax business;
in 2011 because the donee is minor. (D) Taxable at 12% VAT output tax on the
SUGGESTED ANSWER: gross selling price of P2.5 million.
(B) Section 99(A), NIRC Which statement above is INCORRECT?
SUGGESTED ANSWER:
(25) Jose Ramos, single, died of a heart (B) Section 106, NIRC
attack on October 10, 2011. leaving a
residential house and lot with a market (27) An importer of flowers from abroad in
value of P1.8 million and cash of 2011:
P100,000.00. Funeral expenses paid
amounted to P250,000.00. (A) Is liable for VAT, if it registers as a VAT
person;
(A) His estate will be exempt from estate (B) Is exempt from VAT, because the goods
tax because the net estate is zero; are treated as agricultural products;
(B) His estate will be subject to estate tax (C) Is exempt from VAT, provided that his
because net estate is P1,650,000.00; total importation of flowers does not exceed
(C) His estate will be subject to estate tax P1.5 Million;
because net estate is P1,700,000.00; (D) Is liable for VAT, despite the fact that
(D) His estate will be subject to estate tax it did not register as a VAT person and
because net estate is P800,000.00. its total annual sales of flowers do not
SUGGESTED ANSWER: exceed P1.5 Million.
(A) Section 85 & 86, NIRC SUGGESTED ANSWER:
(D) Section 107, NIRC
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(31) Under the VAT system, there is no (C) Gross receipts of a CPA during the
cascading because the tax itself is not again year amounted to P1 Million; the CPA
being taxed. However, in determining the registered as a VAT person in January
tax base on sale of taxable goods under the 2011, before practicing his profession;
VAT system: (D) Sales of a book store during the year
amounted to P10 Million; it did not register
(A) The professional tax paid by the as a VAT person with the BIR.
professional is included in gross receipts; SUGGESTED ANSWER:
(B) The other percentage tax (e.g., gross (C) Section 108, NIRC
receipts tax) paid by the taxpayer is
included in gross selling price; (33) A lessor of real property is exempt from
(C) The excise tax paid by the taxpayer value added tax in one of the transactions
before withdrawal of the goods from the below. Which one is it?
place of production or from customs
custody is included in the gross selling (A) Lessor leases commercial stalls located
price; in the Greenhills Commercial Center to
(D) The documentary stamp tax paid by the VAT-registered sellers of cell phones;
taxpayer is included in the gross selling lessor‟s gross rental during the year
price or gross receipts. amounted to P12 Million;
(B) Lessor leases residential apartment
SUGGESTED ANSWER: units to individual tenants for
(C) Section 106, NIRC; RR No. 16-2005 P10,000.00 per month per unit; his gross
rental income during the year amounted
(32) Except for one transaction, the rest are to P2 Million;
exempt from value added tax. Which one is (C) Lessor leases commercial stalls at
VAT taxable? P10,000.00 per stall per month and
residential units at P15,000.00 per unit per
(A) Sales of chicken by a restaurant owner month;
who did not register as a VAT person and (D) Lessor leases two (2) residential houses
whose gross annual sales is P1.2 Million; and lots at P50,000.00 per month per unit,
(B) Sales of copra by a copra dealer to a but he registered as a VAT person.
coconut oil manufacturer who did not SUGGESTED ANSWER:
register as a VAT person and whose gross (B) Section 109 (Q), NIRC
annual sales is P5 Million;
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(34) IBP Bank extended loans to debtors [Note: This is not absolutely true because a
during the year, with real properties of the restaurant may sell the vegetables in their
debtors being used as collateral to secure original state which will be exempt from
the loans. When the debtors failed to pay VAT under Section 109(A), irrespective of
the unpaid principal and interests after who is the seller.]
several demand letters, the bank foreclosed
the same and entered into contracts of (36) Which importation in 2011 is subject
lease with tenants. The bank is subject to to VAT?
the tax as follows:
(A) Importation of fuels by a person engaged
(A) 12% VAT on the rental income, but in international shipping worth P20 Million;
exempt from the 7% gross receipts tax; (B) Importation of raw, unprocessed,
(B) 7% gross receipts tax on the rental refrigerated Kobe beef from Japan by a beef
income, but exempt from VAT; dealer for sale to hotels in Makati City with
(C) Liable to both the 12% VAT and 7% a fair market value of P1.2 Million;
gross receipts tax; (C) Importation of wines by a wine dealer
(D) Exempt from both the 12% VAT and 7% with a fair market value of P2 Million for
gross receipts tax. sale to hotels in Makati City;
SUGGESTED ANSWER: (D) Importation of books worth P5 Million
(B) Section 121, NIRC and school supplies worth P1.2 Million.
SUGGESTED ANSWER:
(35) Which transaction below is subject to (C) Sections 107 & 109, NIRC
VAT? [Note: d) may also be a correct choice
because only importation of books is
(A) Sale of vegetables by a farmer in Baguio exempt from VAT. The importation of
City to a vegetable dealer; school supplies is not exempt.]
(B) Sale of vegetables by a vegetable dealer
in Baguio City to another vegetable dealer (37) Input tax is available to a VAT -
in Quezon City; registered buyer, provided that:
(C) Sale of vegetables by the QC vegetable
dealer to a restaurant in Manila; (A) The seller is a VAT - registered person;
(D) Sale of vegetables by the restaurant (B) The seller issues a VAT invoice or
operator to its customers. official receipt, which separately
SUGGESTED ANSWER: indicates the VAT component;
(D) Section 109, NIRC
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(C) The goods or service is subject to or (39) A hotel operator that is a VAT -
exempt from VAT, but the sale is covered by registered person and who leases luxury
a VAT invoice or receipt issued by VAT- vehicles to its hotel customers is:
registered person;
(D) The name and TIN of the buyer is not (A) Subject to the 3% common carriers tax
stated or shown in the VAT invoice or and 12% VAT;
receipt. (B) Subject to the 3% common carriers tax
SUGGESTED ANSWER: only;
(B) Section 113(B), NIRC (C) Subject to the 12% VAT only;
(D) Exempt from both the 3% common
(38) Claim for tax creditor refund of excess carriers tax and 12% VAT.
input tax is available only to: SUGGESTED ANSWER:
(C) Section 108, NIRC
(A) A VAT - registered person whose sales
are made to embassies of foreign (40) Which statement is correct? A bar
governments and United Nations agencies review center owned and operated by
located in the Philippines without the BIR lawyers is:
approval of the application for zero-rating;
(B) Any person who has excess input tax (A) Exempt from VAT, regardless of its gross
arising from local purchases of taxable receipts during the year because it is an
goods and services; educational center;
(C) A VAT - registered person whose sales (B) Exempt from VAT, provided that its
are made to clients in the Philippines; annual gross receipts do not exceed P1.5
(D) A VAT - registered person whose sales Million in 2011;
are made to customers outside the (C) Subject to VAT, regardless of its gross
Philippines and who issued VAT invoices’ receipts during the year;
or receipts with the words “ZERO RATED (D) Subject to VAT, if it is duly accredited
SALES” imprinted on the sales invoices by TESDA.
or receipts. SUGGESTED ANSWER:
SUGGESTED ANSWER: (B) Section 109 (V), NIRC
(D) Kepco Phils. Corp. v. CIR, G.R. No.
179961, January 31, 2011 (41) For 2012, input tax is not available as
a credit against the output tax of the buyer
of taxable goods or services during the
quarter, if:
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(C) When the taxpayer offers to 2007 with the QC Post Office. Which
compromise the assessed tax based on statement is correct?
financial incapacity to pay and he
authorizes the Commissioner in writing (A) The assessment notice is void because it
to look into his bank records; was mailed beyond the prescriptive period;
(D) When the taxpayer did not file his (B) The assessment notice is void because it
income tax return for the year. was not received by the taxpayer within the
SUGGESTED ANSWER: three-year period from the date of filing of
(C) Section 6(F), NIRC the tax return;
(C) The assessment notice is void if the
(45) The Commissioner of Internal Revenue taxpayer can show that the same was
issued a BIR ruling to the effect that the received only after one(1) month from date
transaction is liable to income tax and of mailing;
value added tax. Upon receipt of the ruling, (D) The assessment notice is valid even if
a taxpayer does not agree thereto. What is the taxpayer received, the same after the
his proper remedy? three-year period from the date of filing
of the tax return.
(A) File a petition for review with the Court SUGGESTED ANSWER:
of Tax Appeals within thirty(30) days from (D) Section 203, NIRC; BPI v. CIR, G.R.
receipt thereof; No. 139736, October 17, 2005
(B) File a motion for reconsideration with
the Commissioner of Internal Revenue; (47) A Preliminary Assessment Notice (PAN)
(C) File an appeal to the Secretary of is NOT required to be issued by the BIR
Finance within thirty(30) days from before issuing a Final Assessment Notice
receipt thereof; (FAN) in one of the following cases:
(D) File an appeal to the Secretary of
Justice within thirty(30) days from receipt (A) When a taxpayer does not pay the 2010
thereof. deficiency income tax liability on or before
SUGGESTED ANSWER: July 15 of the year;
(C) Section 4, NIRC (B) When the finding for any deficiency
tax is the result mathematical error in
(46) On April 15, 2011, the Commissioner the computation of the tax as appearing
of Internal Revenue mailed by registered on the face of the return;
mail the final assessment notice and the
demand letter covering the calendar year
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(C) When a discrepancy has been protest was submitted by it on June 30,
determined between the value added tax 2011. If no denial of the protest was
paid and the amount due for the year; received by the taxpayer, when is the last
(D) When the amount of discrepancy shown day for the filing of its appeal to the CTA?
in the Letter Notice is not paid within thirty
(30) days from date of receipt. (A) November 30, 2011;
SUGGESTED ANSWER: (B) December 30, 2011;
(B) Section 228, NIRC (C) January 30, 2012;
(D) February 28, 2012.
(48) When a protest against the deficiency SUGGESTED ANSWER:
income tax assessment was denied by the (C) Section 228, NIRC
BIR Regional Director of Quezon City, the
appeal to the Court of Tax Appeals must be (50) Using the same facts in the
filed by a taxpayer: immediately preceding number, but
assuming that the final decision on the
(A) If the amount of basic tax assessed is disputed assessment was received by the
P100,000.00 or more; taxpayer on July 30, 2011, when is the last
(B) If the amount of basic tax assessed is day for filing of the appeal to the CTA.
P300,000.00 or more;
(C) If the amount of basic tax assessed is (A) August 30, 2011;
P500,000.00 or more; (B) September 30, 2011;
(D) If the amount of basic tax assessed is (C) December 30, 2011;
P1 Million or more. (D) January 30, 2012.
SUGGESTED ANSWER: SUGGESTED ANSWER:
All the choices are correct. All the (A) Section 228, NIRC (nearest answer
decisions on disputed assessments are but not a correct answer)
appealable to the CTA (in Division) [Note: The period to appeal is within 30
irrespective of the amount (Section 3, days from receipt of the final decision by
RA 9282). the Commissioner. The decision was
received on July 30, 2011 so the last day
(49) The taxpayer received an assessment to perfect an appeal with the CTA is
notice on April 15, 2011 and filed its August 29, 2011. It is thus clear that the
request for reinvestigation against the question did not provide for the
assessment on April 30, 2011. Additional CORRECT answer. Hence, it should be
documentary evidence in support of its treated as a bonus question.]
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(53) In case of full or partial denial of the (54) The submission of the required
written claim for refund or excess input tax documents within sixty (60) days from the
directly attributable to zero-rated sales, or filing of the protest is available only where:
the failure on the part of the Commissioner
to act on the application within 120 days
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(A) The taxpayer previously filed a Motion (56) Which statement is correct? The
for Reconsideration with the BIR official; collection of a deficiency tax assessment by
(B) The taxpayer previously filed a request distraint and levy:
for reconsideration with the BIR official;
(C) The taxpayer previously filed a (A) May be repeated, if necessary, until
request for reinvestigation with the BIR the full amount due, including all
official; expenses, is collected;
(D) The taxpayer previously filed an (B) Must be done successively, first by
extension to file a protest with the BIR distraint and then by levy;
official. (C) Automatically covers the bank deposits
SUGGESTED ANSWER: of a delinquent taxpayer;
(C) Section 228, NIRC; RCBC v. CIR (D) May be done only once during the
taxable year.
(55) The prescriptive period for the SUGGESTED ANSWER:
collection of the deficiency tax assessment (A) Section 217, NIRC
will be tolled:
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(A) The CTA will automatically exempt the (A) X Corporation may not get the refund
accused from any civil liability; because the decision to carryover in 2008
(B) The CTA will still hold the taxpayer was irrevocable for that year, and it may
liable for deficiency income tax liability in not change that decision in succeeding
all cases, since preponderance of evidence years;
is merely required for tax cases; (B) X Corporation may not get the refund
(C) The CTA will impose civil or tax in 2009, but the amount being claimed
liability only if there was a final as refund may be utilized in succeeding
assessment notice issued by the BIR years until fully exhausted because there
against the accused in accordance with is no prescriptive period for carryover of
the prescribed procedures for issuing excess income tax payments;
assessments, which was presented (C) X Corporation may get the refund,
during the trial; provided that it will no longer carryover
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such amount or utilize the same against its (C) Section 2227, Revised Administrative
income tax liability in the future; Code of 1917
(D) X Corporation may file instead a claim
of tax credit, in lieu of refund. (62) Which of the following statements is
SUGGESTED ANSWER: NOT a test of a valid ordinance?
(B) Section 76, NIRC
The carryover of excess income tax (A) It must not contravene the Constitution
payments is no longer limited to the or any statute;
succeeding taxable year. Unutilized (B) It must not be unfair or oppressive;
excess income tax payments may now be (C) It must not be partial or discriminatory;
carried over to the succeeding taxable (D) It may prohibit or regulate trade.
years until fully utilized. In addition, the SUGGESTED ANSWER:
option to carryover excess income tax (D) To be valid, an ordinance must not
payments is now irrevocable. Hence, prohibit but may regulate trade.
unutilized excess income tax payments (Magtajas v. Pryce Properties
may no longer be refunded. (Belle Corp. Corporation, Inc., G.R. No. 111097, July
v. CIR, G.R. No. 181298, January 10, 20, 1994)
2011)
(63) Taxing power of local government units
(61) Which statement is correct? shall NOT extend to the following taxes,
except one:
(A) Legislative acts passed by the municipal (A) Income tax on banks and other
council in the exercise of its lawmaking financial institutions;
authority are denominated as resolutions (B) Taxes of any kind on the national
and ordinances; government, its agencies and
(B) Legislative acts passed by the municipal instrumentalities, and local government
council in the exercise of its lawmaking units;
authority are denominated as resolutions; (C) Taxes on agricultural and aquatic
(C) Legislative acts passed by the products when sold by the marginal
municipal council in the exercise of its farmers or fishermen;
lawmaking authority are denominated as (D) Excise taxes on articles enumerated
ordinances; under the National Internal Revenue Code.
(D) Both ordinances and resolutions are SUGGESTED ANSWER:
solemn and formal acts. (A) Section 186, RA 7160
SUGGESTED ANSWER:
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(A) The prescriptive periods to assess taxes (66) The Manila International Airport
in the National Internal Revenue Code and Authority (MIAA) is exempt from real
the Local Government Code are the same; property tax. Which statement below is
(B) Local taxes shall be assessed within NOT correct?
five (5) years from the date they became
due; (A) MIAA is not a government-owned or
(C) Action for the collection of local taxes controlled corporation because it is not
may be instituted after the expiration of the organized as a stock or non-stock
period to assess and to collect the tax; corporation;
(D) Local taxes may be assessed within ten (B) MIAA is a government instrumentality
(10) years from discovery of the vested with corporate powers and
underpayment of tax which does not performing essential public services;
constitute fraud. (C) MIAA is not a taxable entity because the
SUGGESTED ANSWER: real property is owned by the Republic of
(B) Section 194, RA 7160 the Philippines and the beneficial use of
such property has not been granted to a
(65) The appraisal, assessment, levy and private entity;
collection of real property tax shall be (D) MIAA is a government-owned or
guided by the following principles. Which controlled corporation because it is
statement does NOT belong here? required to meet the test of economic
viability.
(A) Real property shall be appraised at its SUGGESTED ANSWER:
current and fair market value; (D) MIAA vs. City of Pasay, G.R. No.
(B) Real property shall be classified for 163072, April 2, 2009
assessment purposes on the basis of its
actual use; (67) For purposes of real property taxes, the
(C) Real property shall be assessed on the tax rates are applied on:
basis of a uniform classification within each
local political subdivision; (A) Zonal values;
(D) The appraisal and assessment of real (B) Fair market value;
property shall be based on audited (C) Assessed values;
financial statements of the owner. (D) Reproduction values,
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(A) When the customs duties are paid, even (A) The home consumption value;
if the goods remain within the customs (B) The total value;
premises; (C) The total landed cost;
(B) When the goods are released or (D) The transaction value.
withdrawn from the customs house upon SUGGESTED ANSWER:
payment of the customs duties or with (D) Section 201, Tariff and Customs
legal permit to withdraw; Code, as amended by RA 8181 dated
(C) When the goods enter Philippine March 28, 1996.
territory and remain within the customs
house within thirty (30) days from date of (74) The imported articles shall in any case
entry; be subject to the regular physical
(D) When there is part payment of duties on examination when:
the imported goods located in the customs
area. (A) The importer disagrees with the findings
SUGGESTED ANSWER: as contained in the government surveyor‟s
(B) Section 1202, Tariff and Customs report‟
Code (B) The number, weight and nature of
packages indicated in the customs entry
(72) A protest against an assessment issued declaration and supporting documents
by the Collector of Customs for unpaid differ from that in the manifest;
customs duties on imported goods shall be (C) The container is not leaking or
filed with: damaged;
(D) The shipment is covered by alert/hold
(A) The Commissioner of Customs; orders issued pursuant to an existing order.
(B) The Regional Trial Court; SUGGESTED ANSWER:
(C) The Court of Tax Appeals; (B) Sec. 1401, Tariff and Customs Code,
(D) The Collector of Customs. as amended by RA 7650.
SUGGESTED ANSWER:
(D) Section 2308, Tariff and Customs (75) Which cases are appealable to the
Code CTA?
(73) The dutiable value of an imported (A) Decisions of the Secretary of Finance in
article subject to an ad valorem rate of duty cases involving liability for customs duties,
under existing law shall be: seizure, detention or release of property
affected;
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(B) Decisions of the Commissioner of (2) Anne Lapada, a student activist, wants
Customs in cases involving liability for to impugn the validity of a tax on text
customs duties, seizure, detention or messages. Aside from claiming that the law
release of property affected; adversely affects her since she sends
(C) Decisions of the Collector of Customs in messages by text, what may she allege that
cases involving liability for customs duties, would strengthen her claim to the right to
seizure, detention or release of property file a taxpayer‟s suit?
affected;
(D) Decisions of the BIR Commissioner in (A) That she is entitled to the return
cases involving liability for customs duties, of the taxes collected from her in
seizure, detention or release of property case the court nullifies the tax
affected. measure.
SUGGESTED ANSWER:
(B) That tax money is being
(B) Section 7, RA 9282.
extracted and spent in violation
of the constitutionally guaranteed
right to freedom of
2011 Taxation Law Exam communication.
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(C) income has been received, papers of the shipment yet since the Food
either actually or constructively. and Drug Administration (FDA) needed to
test the suitability of the wine for human
(D) transaction that is the source of consumption. Is the Bureau of Customs at
the income is consummated. fault for refusing to release the shipment
just as yet?
(4) Keyrand, Inc., a Philippine corporation,
sold through the local stock exchange (A) Yes, because the importation was
10,000 PLDT shares that it bought 2 years already terminated as a result of the
ago. Keyrand sold the shares for P2 million payment of the taxes due.
and realized a net gain of P200,000.00.
How shall it pay tax on the transaction? (B) Yes, the Bureau of Customs is
estopped from holding the release of
(A) It shall declare a P2 million gross the shipment after receiving the
income in its income tax return, payment.
deducting its cost of acquisition as
an expense. (C) No, if the amount paid as duties
and value-added taxes due on the
(B) It shall report the P200,000.00 importation was insufficient.
in its corporate income tax return
adjusted by the holding period. (D) No, because the Bureau of
Customs has not yet issued the
(C) It shall pay 5% tax on the first legal permit for withdrawal
P100,000.00 of the P200,000.00 pending the FDA's findings.
and 10% tax on the remaining
P100,000.00. (6) Which theory in taxation states that
without taxes, a government would be
(D) It shall pay a tax of one-half of paralyzed for lack of power to activate and
1% of the P2 million gross sales. operate it, resulting in its destruction?
(5) Amaretto, Inc., imported 100 cases of (A) Power to destroy theory
Marula wine from South Africa. The
shipment was assessed duties and value- (B) Lifeblood theory
added taxes of P300,000 which Amaretto,
Inc. immediately paid. The Bureau of (C) Sumptuary theory
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(7) The spouses Helena and Federico and letter of demand covering the taxable
wanted to donate a parcel of land to their year 2007 but the postmark on the
son Dondon who is getting married in envelope shows April 10, 2011. Her return
December, 2011. The parcel of land has a is not a false and fraudulent return. Can
zonal valuation of P420,000.00. What is the Mia raise the defense of prescription?
most efficient mode of donating the
property? (A) No. The 3 year prescriptive
period started to run on April 15,
(A) The spouses should first donate 2008, hence, it has not yet
in 2011 a portion of the property expired on April 10, 2011.
valued at P20,000.00 then spread
the P400,000.00 equally for 2012, (B) Yes. The 3 year prescriptive
of the property in 2011, and another means taxing the same subject twice during
P100,000.00 each in 2012. Then, in the same taxing period. In this sense,
remaining P20,000.00.
(A) violates substantive due process.
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(C) violates the right to equal (B) Interests earned on its dollar
protection. deposits in a Philippine bank under
the Expanded Foreign Currency
(D) does not violate the right to Deposit System.
equal protection.
(C) Dividends from a two-year old
(10) The payor of passive income subject to Norwegian subsidiary with
final tax is required to withhold the tax operations in Zambia but derives
from the payment due the recipient. The 60% of its gross income from the
withholding of the tax has the effect of Philippines.
(A) a final settlement of the tax (D) Royalties from the use in Brazil
liability on the income. of generator sets designed in the
Philippines by its engineers.
(B) a credit from the recipient's
income tax liability. (12) Tong Siok, a Chinese billionaire and a
Canadian resident, died and left assets in
(C) consummating the transaction
China valued at P80 billion and in the
resulting in an income.
Philippines assets valued at P20 billion. For
Philippine estate tax purposes the allowable
(D) a deduction in the recipient's
deductions for expenses, losses,
income tax return.
indebtedness, and taxes, property
(11) Guidant Resources Corporation, a previously taxed, transfers for public use,
corporation registered in Norway, has a 50 and the share of his surviving spouse in
MW electric power plant in San Jose, their conjugal partnership amounted to P15
Batangas. Aside from Guidant's income billion. Tong's gross estate for Philippine
from its power plant, which among the estate tax purposes is
(B) P5 billion.
(A) Gains from the sale to an
Ilocos Norte power plant of
(C) P100 billion.
generators bought from the
United States. (D) P85 billion.
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(13) Anktryd, Inc., bought a parcel of land (A) Yes. Aplets is a non-resident
in 2009 for P7 million as part of its foreign corporation engaged in trade
inventory of real properties. In 2010, it sold or business in the Philippines.
the land for P12 million which was its zonal
valuation. In the same year, it incurred a (B) No. The tax should have been
loss of P6 million for selling another parcel computed on the basis of gross
of land in its inventory. These were the only revenues and not net income.
of 6% of P12 million.
(D) Yes. Aplets is doing business in
(B) Anktryd could deduct its P6 the Philippines through its exclusive
gain.
(15) In 2009, Spratz, Inc.‟s net profit before
(C) Anktryd's gain of P5 million shall tax was P35 million while its operating
be subject to the holding period. expenses was P31 million. In 2010, its net
profit before tax was P40 million and its
(D) Anktryd's P6 million loss could operating expenses was P38 million. It did
not be deducted from its P5 million not declare dividends for 2009 and 2010.
gain. And it has no proposed capital
expenditures for 2011 and the immediate
(14) Aplets Corporation is registered under future. May Spratz be subject to the
the laws of the Virgin Islands. It has improperly accumulated tax on its retained
extensive operations in Southeast Asia. In profits for 2009 and 2010?
the Philippines, Its products are imported
and sold at a mark-up by its exclusive (A) Yes, since the accumulated
distributor, Kim's Trading, Inc. The BIR amounts are reasonable for
compiled a record of all the imports of Kim operations in relation to what it
from Aplets and imposed a tax on Aplets usually needed annually.
net income derived from its exports to Kim.
Is the BIR correct?
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(B) Yes, since the accumulation is (C) identify who should collect the
not reasonably necessary for the tax.
immediate needs of the business.
(D) determine who should be subject
(C) No, because there is no showing to the tax.
that the taxpayer's 2009 and 2010
net profit before tax exceeded its (18) Passive income includes income
insurance company.
(B) exempt from income taxation.
(B) levy.
(19) In 2010, Juliet Ulbod earned
(D) P600,000.00.
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(20) Exempted from donor‟s taxation are gross income was derived solely
gifts made from Philippine sources.
(A) for the use of the barangay. (22) An example of a tax where the concept
of progressivity finds application is the
(B) in consideration of marriage.
(A) income tax on individuals.
(C) to a school which is a stock
corporation. (B) excise tax on petroleum
products.
(D) to a for-profit government
corporation. (C) value-added tax on certain
articles.
(21) Federico, a Filipino citizen, migrated to
the United States some six years ago and (D) amusement tax on boxing
got a permanent resident status or green exhibitions.
card. He should pay his Philippine income
taxes on (23) A corporation may change its taxable
year to calendar or fiscal year in filing its
(A) the gains derived from the sale in annual income tax return, provided
California, U.S.A. of jewelry he
purchased in the Philippines. (A) it seeks prior BIR approval of
its proposed change in accounting
(B) the proceeds he received from a period.
Philippine insurance company as
the sole beneficiary of life insurance (B) it simultaneously seeks BIR
recently. period.
(C) the gains derived from the sale (C) it should change its accounting
in the New York Stock Exchange period two years prior to changing
Philippine corporation.
(D) its constitution and by-laws
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(24) What is the rule on the taxability of which are subject to value-added tax. Since
income that a government educational he is using the calendar year as his taxable
institution derives from its school year, his taxable quarters end on the last
operations? Such income is day of March, June, September, and
December. When should Ka Pedring file the
(A) subject to 10% tax on its net VAT quarterly return for his gross sales or
taxable income as if it is a receipts for the period of June 1 to
proprietary educational institution. September 30?
(D) Exempt from income taxation in (D) Within 30 days from September
the same manner as government- 30
owned and controlled corporations.
(27) In January 2011, the BIR issued a
(25) Which among the following reduces the ruling that Clemen's vodka imports were
gross estate (not the net estate) of a citizen not subject to increased excise tax based on
of the Philippines for purposes of estate his claim that his net retail price was only
taxation? P200 per 750 milliliter bottle. This ruling
was applied to his imports for May, June,
(A) Transfers for public use and July 2011. In September 2011, the BIR
revoked its ruling and assessed him for
(B) Property previously taxed
deficiency taxes respecting his May, June
and July 2011 vodka imports because it
(C) Standard deduction of P1 million
discovered that his net retail price for the
(D) Capital of the surviving spouse vodka was P250 per bottle from January to
September 2011. Does the retroactive
(26) Ka Pedring Matibag, a sole proprietor, application of the revocation violate
buys and sells "kumot at kulambo" both of
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Clemen's right to due process as a (B) The eldest child who would be
taxpayer? reimbursed by the others.
(A) Yes, since the presumption is (C) All the four children, the tax
that the BIR ascertained the facts to be divided equally among
before it made its ruling. them.
(B) No, because he acted in bad (D) The person designated by the
faith when he claimed a lower net will as the one liable.
retail price than what he actually
used. (29) On July 31, 2011, Esperanza received
a preliminary assessment notice from the
(C) No, since he could avail of BIR demanding that she pays P180,000.00
remedies available for disputing the deficiency income taxes on her 2009
assessment. income. How many days from July 31, 2011
should Esperanza respond to the notice?
(D) Yes, since he had already
acquired a vested right in the (A) 180 days.
favorable BIR ruling.
(B) 30 days.
(28) Don Fortunato, a widower, died in May,
2011. In his will, he left his estate of P100 (C) 60 days.
(A) Don Epitacio since the tax (B) the amount of the tax involved
became due prior to his resignation. does not exceed P100.00.
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from Philippine sources for the past notice was issued prior to the
(D) Gains derived from the sale of (C) Proof that the assessment is
resident alien.
(D) The BIR did not include a formal
(32) Income is considered realized for tax letter of demand to pay the alleged
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(34) On March 30, 2005 Miguel Foods, Inc. (A) Partnership exclusively for the
received a notice of assessment and a letter design of government
of demand on its April 15, 2002 final infrastructure projects considered
adjustment return from the BIR. Miguel as practice of civil engineering.
Foods then filed a request for
reinvestigation together with the requisite (B) Joint-stock company formed for
(C) No. The taxpayer did not apply can Spanflex take?
for a compromise.
(A) It may file a motion to admit
(D) No. Without the taxpayer‟s prior appeal if it could prove that its
authority, the BIR action violated failure to appeal was due to the
(35) Which among the following taxpayers is (B) It may no longer appeal since
required to use only the calendar year for there is no BIR decision from which
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(C) It may wait for the final (39) In March 2009, Tonette, who is fond of
decision of the BIR on his protest jewelries, bought a diamond ring for
and appeal it to the CTA within P750,000.00, a bracelet for P250,000.00, a
30 days from receipt of such necklace for P500,000.00, and a brooch for
decision. P500,000.00. Tonette derives income from
the exercise of her profession as a licensed
(D) None. Its right to appeal to the CPA. In October 2009, Tonette sold her
CTA has prescribed. diamond ring, bracelet, and necklace for
only P1.25 million incurring a loss of
(37) Gerardo died on July 31, 2011. His
P250,000.00. She used the P1.25 million to
estate tax return should be filed within
buy a solo diamond ring in November 2009
which she sold for P1.5 million in
(A) six months from filing of the
September 2010. Tonette had no other
notice of death.
transaction in jewelry in 2010. Which
(B) sixty days from the appointment among the following describes the tax
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(40) Anion, Inc. received a notice of (C) gratuitously allows its use for
assessment and a letter from the BIR educational purposes by a school
demanding the payment of P3 million pesos established for profit.
in deficiency income taxes for the taxable
year 2008. The financial statements of the (D) sells the property to a
(A) Anion must show it has faithfully with Dondon directed to provide full
paid taxes before 2009. financial support for them as well. The
court awarded the 6th child to Dondon's
(B) Anion must promise to pay its father with Dondon also providing full
deficiency when financially able. financial support. Assuming that only
Dondon is gainfully employed while Helena
(C) Anion must waive its right to is not, for how many children could Dondon
the secrecy of its bank deposits. claim additional exemptions when he files
his income tax return?
(D) Anion must immediately deposit
the P500,000.00 with the BIR. (A) Six children.
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(B) if the candidate supported wins time. To do otherwise would violate the
the election because of possible canon of a sound tax system referred to as
corruption.
(A) theoretical justice.
(C) since they do not help earn
the income from which they are (B) fiscal adequacy.
to be deducted.
(C) administrative feasibility.
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(C) if the compromise amount does (A) Within 30 days from receipt of
not exceed 10% of the basic tax. the Commissioner‟s denial of his
application for refund.
(D) only when there is an approval of
the National Evaluation Board. (B) Within 30 days from receipt of
the denial which must not exceed
(48) Zygomite Minerals, Inc., a corporation 2 years from payment of income
registered and holding office in Australia, tax.
not operating in the Philippines, may be
subject to Philippine income taxation on (C) Within 2 years from payment of
the income taxes sought to be
(A) gains it derived from sale in refunded.
Australia of an ore crusher it bought
from the Philippines with the (D) Within 30 days from receipt of
proceeds converted to pesos. the denial or within two years from
payment.
(B) gains it derived from sale in
Australia of shares of stock of (50) After the province has constructed a
Philex Mining Corporation, a barangay road, the Sangguniang
Philippine corporation. Panglalawigan may impose a special levy
upon the lands specifically benefitted by the
(C) dividends earned from road up to an amount not to exceed
investment in a foreign corporation
that derived 40% of its gross income (A) 60% of the actual cost of the
from Philippine sources. road without giving any portion
to the barangay.
(D) interests derived from its dollar
deposits in a Philippine bank under (B) 100% of the actual project cost
the Expanded Foreign Currency without giving any portion to the
Deposit System. barangay.
(49) As a general rule, within what period (C) 100% of the actual project cost,
must a taxpayer elevate to the Court of Tax keeping 60% for the province and
giving 40% to the barangay.
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(D) 60% of the actual cost, dividing (A) No, so long as the donated
the same between the province and money goes directly to the winners
the barangay. and not through the association.
(51) Celia donated P110,000.00 to her (B) Yes, since the national sports
friend Victoria who was getting married. association for billiards does not
Celia gave no other gift during the calendar sanction the event.
year. What is the donor's tax implication on
Celia‟s donation? (C) No, because it is donated as
prize for an international
(A) The P100,000.00 portion of the competition under the billiards
donation is exempt since given in association.
consideration of marriage.
(D) Yes, but only that part that
(B) A P10,000.00 portion of the exceeds the first P100,000.00 of
donation is exempt being a donation total Levox donations for the
in consideration of marriage. calendar year.
(C) Celia shall pay a 30% donor's (53) A violation of the tariff and customs
tax on the P110,000.00 donation. laws is the failure to
(D) The P100,000.00 portion of the (A) pay the customs duties and
donation is exempt under the rate taxes and to comply with the rules
schedule for donor's tax. on customs procedures.
(52) Levox Corporation wanted to donate P5 (B) pay the customs duties and
million as prize money for the world taxes or to comply with the rules
professional billiard championship to be on customs procedures.
held in the Philippines. Since the Billiard
Sports Confederation of the Philippines (C) pay the customs duties and
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(54) What is the effect on the tax liability of (A) No, since the donation is
a taxpayer who does not protest an actually, directly, and exclusively
assessment for deficiency taxes? used for educational purposes.
(A) The taxpayer may appeal his (B) Yes, because the donation is to
liability to the CTA since the be wholly used for administration
assessment is a final decision of the purposes.
Commissioner on the matter.
(C) Yes, since he did not obtain the
(B) The BIR could already enforce requisite NGO certification before he
the collection of the taxpayer's made the donation.
liability if it could secure authority
from the CTA. (D) No, because the donation does
not exceed 10% of his taxable
(C) The taxpayer's liability income for 2010.
becomes fixed and subject to
collection as the assessment (56) What is the tax base for the imposition
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(B) tax return was filed beyond the (60) No action shall be taken by the BIR on
reglementary period. the taxpayer‟s disputed issues until the
taxpayer has paid the deficiency taxes
(C) taxpayer changed his address
without notifying the BIR. (A) when the assessment was issued
against a false and fraudulent
(D) deductions claimed exceed by return.
30% the actual deductions.
(B) if there was a failure to pay the
(58) The proceeds received under a life deficiency tax within 60 days from
insurance endowment contract is NOT BIR demand.
considered part of gross income
(C) if the Regional Trial Court issues
(A) if it is so stated in the life a writ of preliminary injunction to
insurance endowment policy. enjoin the BIR.
(B) if the price for the endowment (D) attributable to the undisputed
policy was not fully paid. issues in the assessment notice.
(D) NOLCO.
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(D) No, if it is covered by a (63) Under the Tariff and Customs Code,
certificate of identification and abandoned imported articles becomes the
has not been improved in value. property of the
(62) Prior to the enactment of the Local (A) government whatever be the
Government Code, consumer's cooperatives circumstances.
registered under the Cooperative
Development Act enjoyed exemption from (B) insurance company that covered
(C) No, the exemption has been who demanded payment of deficiency real
withdrawn to level the playing field property taxes from 1990 to 2011. Has the
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(C) Yes. More than 10 years had (D) a resident alien engaged in trade
lapsed for the period 1990 up to or business in the Philippines.
2000, hence the right to collect the
deficiency taxes has prescribed. (66) Lualhati Educational Foundation, Inc.,
a stock educational institution organized
(D) Yes. More than 5 years had for profit, decided to lease for commercial
lapsed for the collection of the use a 1,500 sq. m. portion of its school. The
deficiency taxes for the period 1990 school actually, directly, and exclusively
up to 2005. used the rents for the maintenance of its
school buildings, including payment of
(65) Pierre de Savigny, a Frenchman, janitorial services. Is the leased portion
arrived in the Philippines on January 1, subject to real property tax?
2010 and continued to live and engage in
business in the Philippines. He went on a (A) Yes, since Lualhati is a stock and
tour of Southeast Asia from August 1 to for profit educational institution.
November 5, 2010. He returned to the
Philippines on November 6, 2010 and (B) No, since the school actually,
stayed until April 15, 2011 when he directly, and exclusively used the
trade or business in the Philippines. city assessor. What should be done in such
instance to avoid an injustice?
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(A) Question the legality of the no- (D) Issue a notice of constructive
refund rule before the Supreme distraint to protect government
Court. interest.
(B) Enact a new ordinance (69) Money collected from taxation shall not
amending the erroneous or illegal be paid to any religious dignitary EXCEPT
assessment to correct the error. when
illegally collected.
(D) it is part of a lawmaker‟s pork
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(A) Civil, criminal, and (A) the taxpayer has not been
administrative penalties regularly filing its income tax
returns for the past 4 years.
(B) Civil and criminal penalties
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(A) not exempt from real property On April 15, 2010, it filed its Annual
taxes because the user is organized Income Tax Return for its taxable year 2009
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References:
UP LAW Review
lawphil.net
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