Tax Bar QA 2013-2017

2013-2017
TAXATION BAR QUESTIONS AND SUGGESTED ANSWERS
2013 QUESTIONS
I. In its final adjustment return for the 2010 taxable year, ABC Corp. had excess tax credits
arising from its over-withholding of income payments. It opted to carry over the excess tax
credits to the following year. Subsequently, ABC Corp. changed its mind and applied for a
refund of the excess tax credits. Will the claim for refund prosper? (6%)
SUGGESTED ANSWER: NO. The claim for refund will not prosper as it is barred by the
irrevocability rule.
Paragraph 2, Section 76 of the 1997 NIRC embodies the irrevocability rule. This rule
provides that a corporation which is entitled to a tax credit or refund of the excess
estimated quarterly income taxes paid has two options: (1) to carry-over the excess credit;
or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. If the
corporation opts to carry-over its excess credit in the final adjustment return, its choice
shall be irrevocable for that taxable period. The purpose of this rule is to prevent a
taxpayer from claiming excess tax credits twice.
In the given problem, ABC Corp. opted to carry-over its excess tax credits for the 2010
taxable year. Consequently, ABC Corp. can no longer revoke its choice to carry-over the
excess tax credits and instead claim for a refund.
II. A group of philanthropists organized a non-stock, non-profit hospital for charitable

purposes to provide medical services to the poor. The hospital also accepted paying
patients although none of its income accrued to any private individual; all income were
plowed back for the hospital's use and not more than 30% of its funds were used for
administrative purposes.
Is the hospital subject to tax on its income? If it is, at what rate? (6%)
SUGGESTED ANSWER: YES. The hospital’s income is subject to income tax at preferential
rate of 10% for activities for profit like providing hospital services to paying patients. In
Commissioner of Internal Revenue vs. St. Luke’s Medical Center, the Supreme Court laid down
the rules on the treatment of income tax of non-profit hospitals. Pursuant to Sec. 30(E) and
(G) of the 1997 NIRC, these hospitals are exempt from income tax with respect to their
activities conducted exclusively for charitable or social welfare purposes. However, they
are subject to a preferential income tax rate of 10% for activities for profit (not conducted
under charitable or social welfare purposes).
III. ABC Corporation is registered as a holding company and has an office in the City of
Makati. It has no actual business operations. It invested in another company and its
earnings are limited to dividends from this investment, interests on its bank deposits, and
foreign exchange gains from its foreign currency account. The City of Makati assessed ABC
/archibald.manansala
Juris Doctor – 4A, Centro Escolar Univ. Makati
Taxation Law Review, Summer 2018-2019
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Corporation as a contractor or one that sells services for a fee. Is the City of Makati correct?
(6%)
SUGGESTED ANSWER: NO. The City of Makati is wrong in assessing ABC Corp. as a
contractor.
First, ABC Corp. is not a contractor as defined in Section 131(h) of Republic Act No. 7160 or
the 1991 Local Government Code (LGC). This provision defines a contractor as a person,
natural or juridical, not subject to professional tax under the 1991 LGC, but whose activity
consists essentially of the sale of all kinds of services for a fee, regardless of whether or not
the performance of the service calls for the exercise or use of the physical or mental
faculties of such contractor or his employees.
In the given problem, ABC Corp. is merely a holding company whose earnings are limited to
dividends, interests on bank deposits and foreign exchange gains from foreign currency
account.
Evidently, ABC Corp. is not engaged in the sale of services for a fee.
Second, Section 186 of LGC provides that local government units cannot levy taxes, fees or
charges on any base or subject tax under the provisions of the 1997 NIRC.
In the given problem, ABC Corp.’s dividends, interest income and foreign exchange gains
from foreign currency account are already subject to final income tax under the NIRC,
specifically, Sections 27(D)(4), 27(D)(1), 32(A), respectively. Consequently, the City of
Makati cannot levy from ABC Corp. taxes on these incomes.
IV. Atty. Gambino is a partner in a general professional partnership. The partnership

computes its gross revenues, claims deductions allowed under the Tax Code, and
distributes the net income to the partners, including Atty. Gambino, in accordance with its
articles of partnership.
In filing his own income tax return, Atty. Gambino claimed deductions that the partnership
did not claim, such as purchase of law books, entertainment expenses, car insurance and
car depreciation. The BIR disallowed the deductions. Was the BIR correct? (6%)
SUGGESTED ANSWER: NO. The BIR is wrong in disallowing the deductions.
Under Section 26 of the 1997 NIRC, a general professional partnership is exempt from
income tax and, thus, cannot claim deductions. However, partners in a general professional
partnership are liable, in their separate and individual capacities, for the payment of
income tax computed on their distributive share of the general professional partnership’s
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profits. Consequently, these partners may claim deductions under Section 34 of the NIRC
from their gross income.
In the given problem, Atty. Gambino’s expenses for the purchase of law books and the
availment of car insurance are allowable deductions because they are ordinary and
necessary expenses in the exercise of his profession. Law books are directly attributable to
Atty. Gambino’s development and conduct as a lawyer pursuant to Section 34(A)(1)(a) of
the 1997 NIRC. Meanwhile, car insurance is an ordinary and necessary expense in the
purchase of a car. It should be noted that cars are ordinarily used by lawyers who travel
from one place to another for purposes of attending hearings, meeting clients, signing
agreements, and the like. For these same reasons, a reasonable allowance for the car’s
depreciation is deductible under Section (34)(F)(1) of the 1997 NIRC. A reasonable
allowance for entertainment or representation expenses can also be claimed as deduction
from gross income, as these expenses are directly connected or in the furtherance of the
conduct of Atty. Gambino’s profession as a lawyer, applying Section (34)(A)(1)(a)(iv) of the
1997 NIRC and Revenue Regulation No. 10-2002.
V. Mr. Agustin, 75 years old and suffering from an incurable disease, decided to sell for
valuable and sufficient consideration a house and lot to his son. He died one year later.
In the settlement of Mr. Agustin's estate, the BIR argued that the house and lot were
transferred in contemplation of death and should therefore form part of the gross estate for
estate tax purposes. Is the BIR correct? (7%)
SUGGESTED ANSWER: NO. The BIR is not correct.
Pursuant to Section 85(B) of the NIRC, properties that are transferred in contemplation of
death form part of the gross estate of the decedent. An exception to this is a bona fide sale
for an adequate and full consideration in money.
Therefore, the house and lot which Mr. Agustin sold to his son for a valuable and sufficient
consideration should not be considered as forming part of Mr. Agustin’s gross estate.
VI. On October 15, 2005, ABC Corp. imported 1,000 kilos of steel ingots and paid customs
duties and VAT to the Bureau of Customs on the importation. On February 17, 2009, the
Bureau of Customs, citing provisions of the Tariff and Customs Code on post-audit,
investigated and assessed ABC Corp. for deficiency customs duties and VAT. Is the Bureau
of Customs correct? (7%)
SUGGESTED ANSWER: NO. The Bureau of Customs was not correct.
As to the VAT: The Bureau of Customs has no authority to assess ABC Corp. as this falls
under the jurisdiction of the Bureau of Internal Revenue (BIR). Under Sec. 2 of the 1997
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NIRC, the BIR’s powers and duties include, among others, the assessment and collection of
all national internal revenue taxes, fees and charges. VAT is a national internal revenue tax
under Title IV of the NIRC.
Under Sec. 12 of the 1997 NIRC, the Commissioner of Customs and his subordinates are
merely agents and deputies for collection, not assessment of national internal revenue
taxes.
As to the deficiency customs duties found on post-audit: The Bureau of Customs was not
correct in assessing deficiency customs duties. The facts show that the investigation and
assessment on post-audit were made on February 17, 2009, which is more than three (3)
years from October 15, 2005 which is the date of payment by ABC Corp.
Sec. 4 of Republic Act 91351 amended Section 1603 of the Tariff and Customs Code of the
Philippines. The provision states that when articles have been entered and passed free of
duty or final adjustments of duties made, with subsequent delivery, such entry and passage
free of duty or settlements of duties will, after the expiration of three (3) years from the
date of the final payment of duties, in the absence of fraud or protest or compliance audit
pursuant to the provisions of this Code, be final and conclusive upon all parties, unless the
liquidation of the import entry was merely tentative. Customs Administrative Order No. 5-
2001 which implements RA 9135, confirms the above conclusion.
VII. XYZ Law Offices, a law partnership in the Philippines and a VAT-registered taxpayer,
received a query by e-mail from Gainsburg Corporation, a corporation organized under the
laws of Delaware, but the e-mail came from California where Gainsburg has an office.
Gainsburg has no office in the Philippines and does no business in the Philippines.
XYZ Law Offices rendered its opinion on the query and billed Gainsburg US$1,000 for the
opinion. Gainsburg remitted its payment through Citibank which converted the remitted
US$1,000 to pesos and deposited the converted amount in the XYZ Law Offices account.
What are the tax implications of the payment to XYZ Law Offices in terms of VAT and
income taxes? (7%)
SUGGESTED ANSWER: Preliminarily, XYZ Law Offices is a general professional partnership

which is defined under Sec. 22(B) of the 1997 NIRC as a partnership formed by persons for
the sole purpose of exercising their common profession, no part of the income of which is
derived from engaging in any trade or business. On the other hand, Gainsburg is considered
as a nonresident foreign corporation under Sec. 22(I) of the 1997 NIRC. The tax
implications are as follows:
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As to VAT: XYZ Law Offices, as a general professional partnership, is subject to VAT as it

rendered services to Gainsburg. Pursuant to Sec. 105 of the 1997 NIRC, any person who, in
the course of business, renders services shall be subject to VAT.
In the given problem, the XYZ Law Offices rendered services to a nonresident person not
engaged in business and which is outside the Philippines. The consideration for the
services was paid in an acceptable foreign currency. Therefore, the transaction in the given
problem is subject to zero percent (0%) rate of VAT provided under Sec. 108 (B)(2) of the
1997 NIRC.
As to income tax: XYZ Law Office is not subject thereto because it is a general professional
partnership. Sec. 26 of the NIRC expressly provides that a general professional partnership
shall not be subject to the income tax. Persons engaging in business as partners in a general
professional partnership shall be liable for income tax only in their separate and individual
capacities.
VIII. Mr. Amado leased a piece of land owned by the Municipality of Pinagsabitan and built
a warehouse on the property for his business operations. The Municipal Assessor assessed
Mr. Amado for real property taxes on the land and the warehouse. Mr. Amado objected to
the assessment, contending that he should not be asked to pay realty taxes on the land
since it is municipal property. Was the assessment proper? (5%)
SUGGESTED ANSWER: YES. The assessment was proper.
Under Section 217 of the 1991 LGC, real property shall be classified, valued and assessed
on the basis of its actual use regardless of where located, whoever owns it, and whoever
uses it. A related and complementary provision is Section 234(a) of the 1991 LGC which
provides that a real property owned by the Republic of the Philippines or any of its political
subdivisions is exempt from realty taxes, except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.
In the given problem, Mr. Amado, as lessee of the land owned by the Municipality, is the
actual user of the land and is liable for the realty taxes. Therefore, the assessment was
proper.
IX. In the settlement of the estate of Mr. Barbera who died intestate, his wife renounced her
inheritance and her share of the conjugal property in favor of their children. The BIR
determined that there was a taxable gift and thus assessed Mrs. Barbera as a donor.
Was the BIR correct? (7%)
SUGGESTED ANSWER: NO. The BIR is not correct in imposing donor’s tax on the
renounced inheritance of Mrs. Barbera from Mr. Barbera. According to Section 11 of the RR
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No. 2-2003: “General renunciation by an heir, including the surviving spouse, of his/her
share in the hereditary estate left by the decedent is not subject to donor’s tax, unless
specifically and categorically done in favor of identified heir/s to the exclusion or
disadvantage of other co-heirs in the hereditary estate.”
On the other hand, the BIR is correct in imposing donor’s tax on the renounced conjugal
share of Mrs. Barbera. This is because Section 11 of RR No. 2-2003 provides that
“renunciation by the surviving spouse of his/her share in the conjugal partnership or
absolute community after the dissolution of the marriage in favor of the heirs of the
deceased spouse or any other person/s is subject to donor’s tax.” This proceeds from the
rule that the share of the conjugal property is the share of the surviving spouse. Thus, the
surviving spouse is effectively donating property when he or she makes a renunciation.
X. In 2010, pursuant to a Letter of Authority (LA) issued by the Regional Director, Mr.
Abcede was assessed deficiency income taxes by the BIR for the year 2009. He paid the
deficiency. In 2011, Mr. Abcede received another LA for the same year 2009, this time from
the National Investigation Division, on the ground that Mr. Abcede's 2009 return was
fraudulent.
Mr. Abcede contested the LA on the ground that he can only be investigated once in a
taxable year. Decide. (7%)
SUGGESTED ANSWER: Mr. Abcede’s contention is not correct; he may be re-investigated

because he filed a fraudulent tax return for 2009. Section 235 of the NIRC provides that the
books and records of taxpayers may be examined and inspected only once in a taxable year,
except in cases of fraud, irregularity or mistakes, as determined by the Commissioner.
XI. In 2000, Mr. Belen bought a residential house and lot for P1,000,000. He used the
property as his and his family's principal residence. It is now year 2013 and he is thinking
of selling the property to buy a new one. He seeks your advice on how much income tax he
would pay if he sells the property. The total zonal value of the property is P5,000,000 and
the fair market value per the tax declaration is P2,500,000. He intends to sell it for
P6,000,000.
What material considerations will you take into account in computing the income tax?
Please explain the legal relevance of each of these considerations. (7%)
SUGGESTED ANSWER: In computing the capital gains tax, a final tax of six percent (6%)
based on the gross selling price or current fair market value, whichever is higher, shall be
imposed. In this case, the basis of the tax is P6,000,000.00, the gross selling price, being
higher than P2,500,00.00, the fair market value of the residential house.
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Nevertheless, if within thirty (30) days from the date of sale or disposition, Mr. Belen
notifies the Commissioner that he intends to utilize the whole P6,000,000.00 in acquiring a
new house within eighteen (18) calendar months from the sale, the gross selling price shall
be exempt from the capital gains tax.
If Mr. Belen does not utilize the whole P6,000,000.00 in acquiring a new residence under
the conditions above, the portion of the gain presumed to have been realized from the sale
or disposition shall be subject to capital gains tax. For this purpose, P6,000,000.00 shall be
multiplied by a fraction which the unutilized amount bears to the gross selling price in
order to determine the taxable portion and the 6% capital gains tax shall be imposed
thereon under Section 24(D) of the NIRC.
XII. You are the retained tax counsel of ABC Corp. Your client informed you that they have
been directly approached with a proposal by a BIR insider (i.e., a middle rank BIR official)
on the tax matter they have referred to you for handling. The BIR insider's proposal is to
settle the matter by significantly reducing the assessment, but he will get 50% of the
savings arising from the reduced assessment.
What tax, criminal and ethical considerations will you take into account in giving your
advice? Explain the relevance of each of these considerations. (9%)
SUGGESTED ANSWER: As a lawyer, I have the responsibility to give only a lawful advice.
Canon I of the Code of Professional Responsibility mandates me to “uphold the
Constitution, obey the laws of the land and promote respect for law and legal processes.
Rule 1.01 states that “a lawyer shall not engage in unlawful, dishonest, immoral or deceitful
conduct.” Rule 1.02 provides that “a lawyer shall not counsel or abet activities aimed at
defiance of the law or at lessening confidence in the legal system.”
Therefore, I will advise my client not to agree with the proposal of the BIR officer. Agreeing
with the proposal will result in criminal prosecution under the following laws:
Under the 1997 NIRC, the officers of the board who authorized the tax evasion will be liable
under Section 253(C), while the corporation shall be liable under Section 256.
The BIR official is liable under Section 269 which provides for the violations committed by
government enforcement officers. Paragraph (d) of Section 269 provides that one of these
violations is “offering or undertaking to accomplish, file or submit a report or assessment
on a taxpayer without the appropriate examination of the books of accounts or tax liability,
or offering or undertaking to submit a report or assessment less than the amount due the
Government for any consideration or compensation, or conspiring or colluding with
another or others to defraud the revenues or otherwise violate the provisions of this Code.”
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Under the Revised Penal Code, the officers of the corporation shall be liable under Article
212 for corruption of public officials while the BIR official is liable for direct bribery.
Both my client and the BIR official will also be liable under Republic Act No. 3019 or the
Anti-Graft and Corrupt Practices Act.
MULTIPLE CHOICE QUESTIONS
I. ABC Corp. was dissolved and liquidating dividends were declared and paid to the
stockholders.
What tax consequence follows? (1%)
(A) ABC Corp. should deduct a final tax of 10% from the dividends.
(B) The stockholders should declare their gain from their investment and pay income tax at
the ordinary rates.
(C) The dividends are exempt from tax.
(D) ABC Corp. should withhold a 10% creditable tax.
SUGGESTED ANSWER: (C). The dividends are exempt from tax. The dividends are exempt
from tax. Liquidating dividends are not income and are thus not subject to income tax.
In Wise & Co., Inc. v. Meer (G.R. No. 48231, 30 June 1947), the Supreme Court defined
liquidating dividends as the dissolving corporation’s payments to the stockholders for their
surrender and relinquishment of interest in the dissolving corporation. They are generally
a return of capital. Liquidating dividends are unlike cash and property dividends which are
portions of corporate profits that are set aside for distribution to the stockholders in
proportion to their subscription to the capital stock of the corporation.
II. MGC Corp. secured an income tax holiday for 5 years as a pioneer industry. On the fourth
year of the tax holiday, MGC Corp. declared and paid cash dividends to its stockholders, all
of whom are individuals.
Are the dividends taxable? (1%)
(A) The dividends are taxable; the tax exemption of MGC Corp. does not extend to its
stockholders.
(B) The dividends are tax exempt because of MGC Corp.'s income tax holiday.
(C) The dividends are taxable if they exceed 50% of MGC Corp.'s retained earnings.
(D) The dividends are exempt if paid before the end of MGC Corp.'s fiscal year.
SUGGESTED ANSWER: (A) The dividends are taxable; the tax exemption of MGC Corp.
does not extend to its stockholders.
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MGC Corp. and its stockholders are separate tax entities under the 1997 NIRC.
Consequently, MGC Corp.’s tax exemption does not extend to its stockholders.
Under the 1997 NIRC, stockholders who receive dividends from a domestic corporation are
subject to the following scheduled income tax rates: 10% for resident Filipino citizens and
individual resident aliens, 20% for non-resident aliens engaged in trade or business, and
15% for non-resident foreign corporations. Thus, the stockholder’s claim for the tax
exemption is unmeritorious.
III. Mr. Alas sells shoes in Makati through a retail store. He pays the VAT on his gross sales
to the BIR and the municipal license tax based on the same gross sales to the City of Makati.
He comes to you for advice because he thinks he is being subjected to double taxation.
What advice will you give him? (1%)

(A) Yes, there is double taxation and it is oppressive.
(B) The City of Makati does not have this power.
(C) Yes, there is double taxation and this is illegal in the Philippines.
(D) Double taxation is allowed where one tax is imposed by the national government and
the other by the local government.
SUGGESTED ANSWER: (D). Double taxation is allowed where one tax is imposed by the
national government and the other by the local government.
There is double taxation when one tax is imposed by the national government and the
other is imposed by a local government unit. However, the 1987 Constitution does not
forbid double taxation. In Pepsi-Cola Bottling Company of the Philippines, Inc. v. Municipality
of Tanauan (G.R. No. L-31156, 27 February 1976), the Supreme Court declared that double
taxation does not violate the uniformity rule nor does it infringe the equal protection
guarantee just because one tax is imposed by the national government and the other tax is
levied by a local government unit.
IV. Congress passed a sin tax law that increased the tax rates on cigarettes by 1,000%. The
law was thought to be sufficient to drive many cigarette companies out of business, and
was questioned in court by a cigarette company that would go out of business because it
would not be able to pay the increased tax.
The cigarette company is __________ (1%)
(A) wrong because taxes are the lifeblood of the government

(B) wrong because the law recognizes that the power to tax is the power to destroy
(C) correct because no government can deprive a person of his livelihood
(D) correct because Congress, in this case, exceeded its power to tax
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SUGGESTED ANSWER: (B) wrong because the law recognizes that the power to tax is the
power to destroy.
In McCulloch v. Maryland, Chief Justice Marshall declared that the power to tax involves the
power to destroy. This maxim only means that the power to tax includes the power to
regulate even to the extent of prohibition or destruction of businesses. The reason is that
the legislature has the inherent power to determine who to tax, what to tax and how much
tax is to be imposed. Pursuant to the regulatory purpose of taxation, the legislature may
impose tax in order to discourage or prohibit things or enterprises inimical to the public
welfare. In the given problem, the legislature’s imposition of prohibitive sin tax on
cigarettes is congruent with its purpose of discouraging the public from smoking cigarettes
which are hazardous to health.
V. Mr. Alvarez is in the retail business. He received a deficiency tax assessment from the
BIR containing only the computation of the deficiency tax and the penalties, without any
explanation of the factual and legal bases for the assessment.
Is the assessment valid? (1%)
(A) The assessment is valid; all that Mr. Alvarez has to know is the amount of the tax.
(B) The assessment is invalid; the law requires a statement of the facts and the law upon
which the assessment is based.
(C) The assessment is valid but Mr. Alvarez can still contest it.
(D) The assessment is invalid because Mr. Alvarez has no way to determine if the
computation is erroneous.
SUGGESTED ANSWER: (B) The assessment is invalid; the law requires a statement of the
facts and the law upon which the assessment is based.
Section 228 of the 1997 NIRC provides that a preliminary assessment notice (PAN) shall
inform the taxpayer in writing of the law and the facts on which the assessment is based as
part of due process. Otherwise, the assessment shall be void. In relation to this provision,
Section 3 of RR No. 12-99 states that the preliminary assessment notice shall show in detail
the facts and the law, rules and regulations, or jurisprudence on which the assessment is
based. (See also: Commissioner of Internal Revenue v. Reyes, G.R. No. 159694, January 27,
2006)
VI. In 2010, Mr. Platon sent his sister Helen $1 ,000 via a telegraphic transfer through the
Bank of PI. The bank's remittance clerk made a mistake and credited Helen with
$1,000,000 which she promptly withdrew. The bank demanded the return of the
mistakenly credited excess, but Helen refused. The BIR entered the picture and
investigated Helen.
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Would the BIR be correct if it determines that Helen earned taxable income under these
facts? (1%)
(A) No, she had no income because she had no right to the mistakenly credited funds.
(B) Yes, income is income regardless of the source.
(C) No, it was not her fault that the funds in excess of $1,000 were credited to her.
(D) No, the funds in excess of$1,000 were in effect donated to her.
SUGGESTED ANSWER: (B) Yes, income is income regardless of the source.
Section 32 of the 1997 NIRC defines gross income as all income derived from whatever
source. Consequently, the flow of wealth, without any distinction as to the lawfulness of its
source, is subject to income tax. In other words, the phrase “income from whatever source”
discloses a legislative policy to include all income not expressly exempted within the class
of taxable income under the law.
VII. The municipality of San Isidro passed an ordinance imposing a tax on installation
managers. At that time, there was only one installation manager in the municipality; thus,
only he would be liable for the tax.
Is the law constitutional? (1%)
(A) It is unconstitutional because it clearly discriminates against this person.

(B) It is unconstitutional for lack of legal basis.
(C) It is constitutional as it applies to all persons in that class.
(D) It is constitutional because the power to tax is the power to destroy.
SUGGESTED ANSWER: (C) It is constitutional as it applies to all persons in that class.
The ordinance imposing tax on installation managers does not violate the equal protection
clause under Section 1, Article III of the Constitution and the uniformity rule under Section
28, Article VI of the Constitution. The equal protection clause simply means that all persons
subject to legislation shall be treated alike under like circumstances and conditions both in
privileges conferred and liabilities imposed. On the other hand, the uniformity rule states
that a tax is uniform when it operates with the same force and effect in every place where
the subject of it is found. It does not signify an intrinsic but simply a geographical
uniformity. (See: British American Tobacco v. Camacho, G.R. No. 163583, April 15, 2009)
In the given problem, the ordinance applies to all installation manager. In other words, the
ordinance does not specifically identify who among the installation managers shall be liable
for tax. The fact that there is only one installation manager in the municipality does not
mean that the taxing authority singled him out as the only taxable person.
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VIII. XYZ Corporation manufactures glass panels and is almost at the point of insolvency. It
has no more cash and all it has are unsold glass panels. It received an assessment from the
BIR for deficiency income taxes. It wants to pay but due to lack of cash, it seeks permission
to pay in kind with glass panels.
Should the BIR grant the requested permission? (1%)
(A) It should grant permission to make payment convenient to taxpayers.

(B) It should not grant permission because a tax is generally a pecuniary burden.
(C) It should grant permission; otherwise, XYZ Corporation would not be able to pay.
(D) It should not grant permission because the government does not have the storage
facilities for glass panels.
SUGGESTED ANSWER: (B) It should not grant permission because a tax is generally a
pecuniary burden. This principle is one of the attributes or characteristics of tax.
IX. Prior to the VAT law, sales of cars were subject to a sales tax but the tax applied only to
the original or the first sale; the second and subsequent sales were not subject to tax.
Deltoid Motors, Inc. (Deltoid) hit on the idea of setting up a wholly-owned subsidiary,
Gonmad Motors, Inc. (Gonmad), and of selling its assembled cars to Gonmad at a low price
so it would pay a lower tax on the first sale. Gonmad would then sell the cars to the public
at a higher price without paying any sales tax on this subsequent sale.
Characterize the arrangement. (1%)
A. The plan is a legitimate exercise of tax planning and merely takes advantage of a
loophole in the law.
B. The plan is legal because the government collects taxes anyway.
C. The plan is improper; the veil of corporate fiction can be pierced so that the second sale
will be considered the taxable sale.
D. The government must respect Gonmad's separate juridical personality and Deltoid's
taxable sale to it.
SUGGESTED ANSWER: (C). The plan is improper; the veil of corporate fiction can be
pierced so that the second sale will be considered the taxable sale.
The given problem is similar to the case of Commissioner of Internal Revenue v. Norton and
Harrison Company (G.R. No. L-17618, 31 August 1964), where the Supreme Court held that
“a taxpayer may gain advantage of doing business thru a corporation if he pleases, but the
revenue officers in proper cases, may disregard the separate corporate entity where it
serves but as a shield for tax evasion and treat the person who actually may take benefits of
the transactions as the person accordingly taxable.
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To allow a taxpayer to deny tax liability on the ground that the sales were made through
another and distinct corporation when it is proved that the latter is virtually owned by the
former or that they are practically one and the same is to sanction a circumvention of our
tax laws.”
X. PRT Corp. purchased a residential house and lot with a swimming pool in an upscale
subdivision and required the company president to stay there without paying rent; it
reasoned out that the company president must maintain a certain image and be able to
entertain guests at the house to promote the company's business. The company president
declared that because they are childless, he and his wife could very well live in a smaller
house.
Was there a taxable fringe benefit? (1%)
(A) There was no taxable fringe benefit since it was for the convenience of the employer
and was necessary for its business.
(B) There was a taxable fringe benefit since the stay at the house was for free.
(C) There was a taxable fringe benefit because the house was very luxurious.
(D) There was no taxable fringe benefit because the company president was only required
to stay there and did not demand free housing.
SUGGESTED ANSWER: (B) There was a taxable fringe benefit since the stay at the house
was for free.
First, the company president is not a rank-and-file employee. Thus, the housing benefit is
subject to fringe benefits tax pursuant to Section 33 of the NIRC and Section 2.33 (A) of the
RR No. 03-98. Although the housing benefit to the President may be for the convenience of
the employer (PRT Corp.) or necessary to its business, still, it also inured to the benefit of
the President as his stay therein is for free. RR No. 03-98 also provides for the guidelines
and valuation of fringe benefits for purposes of computing the portion which shall be
subject to fringe benefits tax in cases where the fringe benefits entail joint benefits to the
employer and employee.
Thus, there was a taxable fringe benefit.
XI. Taxpayer A was required by the BIR to sign and submit a waiver of the statute of
limitations on the assessment period, to give the BIR more time to complete its
investigation. The BIR accepted the waiver but failed to indicate the date of its acceptance.
What is the legal status of the waiver? (1%)
(A) The waiver is valid because the date of acceptance is immaterial and unimportant.
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(B) The waiver is invalid; the taxpayer cannot be required to waive the statute of
limitations.
(C) The waiver is invalid; the date of acceptance is crucial in counting the start of the period
of suspension of the prescriptive period.
(D) The waiver is valid, having been accepted by the BIR.
SUGGESTED ANSWER: (C) The waiver is invalid; the date of acceptance is crucial in
counting the start of the period of suspension of the prescriptive period.
Section 2 of the Revenue Memorandum Order No. 20-90 provides that the date of such
acceptance by the BIR should be indicated. Both the date of execution by the taxpayer and
date of acceptance by the BIR should be before the expiration of the period of prescription
or before the lapse of the period agreed upon in case a subsequent agreement is executed.
XII. Taxpayer Andy received on January 3, 2010 a preliminary assessment notice (PAN)
from the BIR, stating that he had fifteen (15) days from its receipt to comment or to file a
protest. Eight (8) days later (or on January11, 2010), before he could comment or file a
protest, Andy received the final assessment notice (FAN).
Decide on the validity of the FAN. (1%)

(A) The FAN is invalid; Andy was not given the chance to respond to the PAN, in violation of
his due process rights.
(B) The FAN is invalid for being premature.
(C) The FAN is valid since it was issued before the right to assess prescribed.
(D) The FAN is valid. There is no legal requirement that the FAN should await the protest to
the PAN because protest to the PAN is not mandatory.
SUGGESTED ANSWER: (D) The FAN is valid. There is no legal requirement that the FAN
should await the protest to the PAN because protest to the PAN is not mandatory.
RR No. 12-99 provides for the due process requirement in the issuance of a deficiency tax
assessment pursuant to Section 228 of the 1997 NIRC. Under 3.1.1 of RR No. 12-99, if the
taxpayer is not amenable to the submitted report of investigation of the revenue officer, the
taxpayer shall be informed by the BIR, in writing, of the discrepancy/discrepancies for
purposes of the informal conference in order to afford the taxpayer with an opportunity to
present his side of the case. His failure to respond within 15 days from the date of the
receipt of the notice for the informal conference would result in the issuance of PAN.
Therefore, prior to the issuance of the PAN, the taxpayer is already given the opportunity to
present his side. Although the same RR provides that the taxpayer is given 15 days to file a
protest, his failure to do so or the issuance by the BIR of theFAN before the expiration of
the 15-day period, as in the given problem, shall not defeat Andy’s right to due process.
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Upon issuance of the FAN, Andy may still file an administrative protest within thirty (30)
days from the date of receipt thereof. In case of denial of the protest by the Commissioner’s
authorized representative, Andy may still elevate the adverse decision to the Commissioner
within 30 days from its receipt. He may, thereafter, elevate the adverse decision to the CTA
and, finally, to the Supreme Court.
Considering, therefore, that Andy could present his side before and after the issuance of the
PAN, the reply to the latter is mandatory.
XIII. MSI Corp. imports orange and lemon concentrates as raw materials for the fruit drinks
it sells locally. The Bureau of Customs (BOC) imposed a 1% duty rate on the concentrates.
Subsequently, the BOC changed its position and held that the concentrates should be taxed
at 7% duty rate. MSI disagreed with the ruling and questioned it in the CTA which upheld
MSI's position. The Commissioner of Customs appealed to the CTA en bane without filing a
motion for reconsideration.
Resolve the appeal. (1%)

(A) The appeal should be dismissed because a motion for reconsideration is mandatory.
(B) The appeal should be dismissed for having been filed out of time.
(C) The appeal should be given due course since a motion for reconsideration is a useless
exercise.
(D) The appeal should be upheld to be fair to the government which needs taxes.
SUGGESTED ANSWER: (A) The appeal should be dismissed because a motion for
reconsideration is mandatory.
The present case is similar to the case of Commissioner of Customs vs. Marina Sales, Inc.
(G.R. No. 183868, November 22, 2010) where the Supreme Court held that Rule 8, Section 1
of the Revised Rules of Court of Tax Appeals requires that “the petition for review of a
decision or resolution of the Court in Division must be preceded by the filing of a timely
motion for reconsideration or new trial with the Division.” The word “must” clearly
indicates the mandatory, not merely directory, nature of a requirement.”
XIV. The spouses Jun and Elvira Sandoval purchased a piece of land for P5,000,000 and
included their two (2) minor children as co-purchasers in the Deed of Absolute Sale. The
Commissioner of Internal Revenue (CIR) ruled that there was an implied donation and
assessed donors' taxes against the spouses.
Rule on the CIR's action. (1%)

(A) The CIR is wrong; a donation must be express.
(B) The CIR is wrong; financial capacity is not a requirement for a valid sale.
(C) The CIR is correct; the amount involved is huge and ultimately ends up with the
children.
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(D) The CIR is correct; there was animus donandi since the children had no financial
capacity to be co-purchasers.
SUGGESTED ANSWER: (D). The CIR is correct; there was animus donandi since the
children had no financial capacity to be co-purchasers.
The present case is similar to the case of Sps. Hordon H. Evono and Maribel C. Evono v. CIR,
et. al., [CTA EB No. 705, (CTA Case No. 7573), 4 June 2012]. The CTA held that the inclusion of
the minor children’s names in the transfer of the titles/properties shall be deemed a
donation or gift from their parents. This is so because the minor children, at an early age,
have no source of income. There is a clear animus donandi. Therefore, the imposition of
donor’s tax is in accordance with Section 98 of the NIRC.
XV. Pheleco is a power generation and distribution company operating mainly from the City
of Taguig. It owns electric poles which it also rents out to other companies that use poles
such as telephone and cable companies. Taguig passed an ordinance imposing a fee
equivalent to 1% of the annual rental for these poles. Pheleco questioned 'the legality of the
ordinance on the ground that it imposes an income tax which local government units
(LGUs) are prohibited from imposing.
Rule on the validity of the ordinance. (1%)

(A) The ordinance is void; the fee is based on rental income and is therefore a tax on
income.
(B) The ordinance is valid as a legitimate exercise of police power to regulate electric poles.
(C) The ordinance is void; 1% of annual rental is excessive and oppressive.
(D) The ordinance is valid; an LGU may impose a tax on income.
SUGGESTED ANSWER: (A) The ordinance is void; the fee is based on rental income and is
therefore a tax on income.
The Sec. 32(A)(5) of the 1991 NIRC includes “rents” in the enumeration of taxable income.
Under Section 1331 of the 1991 LGC, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of income tax except when levied
on banks and other financial institutions.
XVI. Aleta sued Boboy for breach of promise to marry. Boboy lost the case and duly paid the
court's award that included, among others, Pl00,000 as moral damages for the mental
anguish Aleta suffered.
Did Aleta earn a taxable income? (1%)
(A) She had a taxable income of P100,000 since income is income from whatever source.
(B) She had no taxable income because it was a donation.
(C) She had taxable income since she made a profit.
(D) She had no taxable income since moral damages are compensatory.
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SUGGESTED ANSWER: (D) She had no taxable income since moral damages are
compensatory.
Exemplary and moral damages awarded to a party-litigant are not considered taxable
income (America N.A.-Manila Branch vs. Commissioner of Internal Revenue, CTA Case No.
6144, 14 March 2005)
XVII. Mr. Mayuga donated his residential house and lot to his son and duly paid the donor's
tax. In the Deed of Donation, Mr. Mayuga expressly reserved for himself the usufruct over
the property for as long as he lived.
Describe the donated property from the taxation perspective. (1%)

(A) The property will form part of Mr. Mayuga's gross estate when he dies.
(B) The property will not form part of Mr. Mayuga's gross estate when he dies because he
paid the donor's tax.
(C) The property will form part of Mr. Mayuga's gross estate because he died soon after the
donation.
(D) The property will not form part of Mr. Mayuga's gross estate because it is no longer his.
SUGGESTED ANSWER: (A) The property will form part of Mr. Mayuga's gross estate when
he dies.
Applying Section 85 (B) of the 1997 NIRC, the donated property will still form part of the
gross estate of the decedent when in the deed of donation, the donor “has retained for his
life or for any period which does not in fact end before his death the possession or
enjoyment of, or the right to the income from the property.”
Therefore, the property will form part of Mr. Mayuga’s gross estate when he dies because
he donated the property in contemplation of death.
XVIII. Mr. Z made an importation which he declared at the Bureau of Customs (BOC) as
"Used Truck Replacement Parts". Upon investigation, the container vans contained 15 units
of Porsche and Ferrari cars.
Characterize Mr. Z's action. (1%)

(A) Mr. Z committed smuggling.
(B) Mr. Z did not commit smuggling because he submitted his shipment to BOC
examination.
(C) Mr. Z only made a misdeclaration, but did not commit smuggling.
(D) Mr. Z did not commit smuggling because the shipment has not left the customs area.
SUGGESTED ANSWER: (A) Mr. Z committed smuggling.
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Under Section 36021 of the Tariff and Customs Code of the Philippines, fraudulent or false
declaration of imported or exported articles is smuggling.
XIX. Mr. A was preparing his income tax return and had some doubt on whether a
commission he earned should be declared for the current year or for the succeeding year.
He sought the opinion of his lawyer who advised him to report the commission in the
succeeding year. He heeded his lawyer's advice and reported the commission in the
succeeding year. The lawyer's advice turned out to be wrong; in Mr. A's petition against the
BIR assessment, the court ruled against Mr. A.
Is Mr. A guilty of fraud? (1%)

(A) Mr. A is not guilty of fraud as he simply followed the advice of his lawyer.
(B) Mr. A is guilty of fraud; he deliberately did not report the commission in the current
year when he should have done so.
(C) Mr. A's lawyer should pay the tax for giving the wrong advice.
(D) Mr. A is guilty for failing to consult his accountant.
SUGGESTED ANSWER: (A) Mr. A is not guilty of fraud as he simply followed the advice of
his lawyer.
In Santos v. People of the Philippines and BIR, the Court of Tax Appeals (CTA) acquitted
Santos from the criminal case of tax evasion and ruled that failure to supply correct and
accurate information must be fully established as a positive act or state of mind; it cannot
be presumed nor attributed to mere inadvertent or negligent acts. Moreover, the CTA
reiterated the doctrine in Yulivo Sons hardware v. Court of Tax Appeals (G.R. No. L- 13203,
January 28, 1961, 1 SCRA 169) that mere understatement of a tax is not itself proof of fraud
for the purpose of tax evasion.
In the present case, Mr. A relied in good faith on the expertise of his lawyer in not declaring
his income for that year. Therefore, he is not guilty of fraud.
XX. The BIR, through the Commissioner, instituted a system requiring taxpayers to submit
to the BIR a summary list of their sales and purchases during the year, indicating the name
of the seller or the buyer and the amount. Based on these lists, the BIR discovered that in
2004 ABC Corp. purchased from XYZ Corp. goods worth P5,000,000. XYZ Corp. did not
declare these for income tax purposes as its reported gross sales for 2004was only
Pl,000,000.
Which of the following defenses may XYZ Corp. interpose in an assessment against it by the
BIR? (1%)
(A) The BIR has no authority to obtain third party information to assess taxpayers.
(B) The third party information is inadmissible as hearsay evidence.
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(C) The system of requiring taxpayers to submit third party information is illegal for
violating the right to privacy.
(D) None of the above.
SUGGESTED ANSWER: (D) None of the above.
Section 6(B) of the NIRC authorizes the Commissioner to assess the property tax due from
a taxpayer when he believes that the report the taxpayer submitted is false, incomplete, or
erroneous. The same provision authorizes the Commissioner to amend the return from his
own knowledge and from such information he can obtain through testimony or otherwise,
which is deemed prima facie correct and sufficient for all legal purposes.
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2014 QUESTIONS
(1) On March 27, 2012, the Bureau of Internal Revenue (BIR) issued a notice of assessment
against Blue Water Industries Inc. (BWI), a domestic corporation, informing the latter of its
alleged deficiency corporate income tax for the year 2009. On April 20, 2012, BWI filed a
letter protest before the BIR contesting said assessment and demanding that the same be
cancelled or set aside.
However, on May 19, 2013, that is, after more than a year from the filing of the letter
protest, the BIR informed BWI that the latter’s letter protest was denied on the ground that
the assessment had already become final, executory and demandable. The BIR reasoned
that its failure to decide the case within 180 days from filing of the letter protest should
have prompted BWI to seek recourse before the Court of Tax Appeals (CTA) by filing a
petition for review within thirty (30) days after the expiration of the 180-day period as
mandated by the provisions of the last paragraph of Section 228 of the National Internal
Revenue Code (NIRC). Accordingly, BWI’s failure to file a petition for review before the CTA
rendered the assessment final, executory and demandable. Is the contention of the BIR
correct? Explain. (5%)
SUGGESTED ANSWER: NO. Notwithstanding the lapse of the 180-day period, BWI had the
option to await the BIR’S final decision on its protest before filing a Petition for Review
with the CTA. Pursuant to the case of Lascona Land Co., Inc. v. Commissioner of Internal
Revenue (G.R. No. 171251, March 5, 2012), in case the Commissioner fails to act on a
taxpayer’s protest within the 180-day period, a taxpayer can either: (i) file a petition for
review with the Court of Tax Appeals within 30 days after the expiration of the 180-day
period; or (ii) await the final decision of the Commissioner on the disputed assessments,
and thereafter appeal such final decision to the CTA within 30 days after the receipt of a
copy of such decision. In the present case, BWI simply availed itself of the second option.
(2) Mr. De Sarapen is a candidate in the upcoming Senatorial elections. Mr. De Almacen,
believing in the sincerity and ability of Mr. De Sarapen to introduce much needed reforms
in the country, contributed P500,000.00 in cash to the campaign chest of Mr. De Sarapen. In
addition, Mr. De Almacen purchased tarpaulins, t-shirts, umbrellas, caps and other
campaign materials that he also donated to Mr. De Sarapen for use in his campaign. Is the
contribution of cash and campaign materials subject to donor’s tax? (4%)
SUGGESTED ANSWER: NO, if Mr. De Almacen reported his campaign contributions of

PhP500,000.00 in cash, tarpaulins, t-shirts, umbrellas, caps, and other campaign materials
to the COMELEC, then the BIR cannot impose donor’s tax on such contributions because
section 99(C) of the 1997 NIRC explicitly provides that any contribution in cash or in kind
to any candidate, political party or coalition of parties for campaign purposes shall be
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governed by the Election Code, as amended. On the other hand, Section 13 of the Republic
Act No. 7166 specifically states that any provision of law to the contrary notwithstanding,
any contribution in cash or kind to any candidate or political party or coalition of parties
for campaign purposes, duly reports to the Commission on Elections (COMELEC) shall not
be subject to the payment of any gift tax. However, if Mr. De Almacen failed to report these
campaign contributions to the COMELEC, such contributions would be subject to donor’s
tax.
(3) Dr. Taimtim is an alumnus of the College of Medicine of Universal University (UU), a
privately-owned center for learning which grants yearly dividends to its stockholders.
UU has a famous chapel located within the campus where the old folks used to say that
anyone who wanted to pass the medical board examinations should offer a dozen roses on
all the Sundays of October. This was what Dr. Taimtim did when he was still reviewing for
the board examinations. In his case, the folk saying proved to be true because he is now a
successful cardiologist. Wanting to give back to the chapel and help defray the costs of its
maintenance, Dr. Taimtim donated P50,000.00 to the caretakers of the chapel which was
evidenced by an acknowledgment receipt.
In computing his net taxable income, can Dr.Taimtim use his donation to the chapel as an
allowable deduction from his gross income under the National Internal Revenue Code
(NIRC)? (4%)
SUGGESTED ANSWER: NO. The donation is not deductible. The chapel is owned by a
privately-owned university hence, the donation for the maintenance of the chapel is a
donation to the university. The donation to be deductible must comply with the
requirement that the net income of the done must not inure to the benefit of any private
stockholder or individual. In the instant case, the university is granting yearly dividends to
its stock holders which is a clear violation of the law appertaining to the so-called “private
inurement doctrine” thereby making the donation non-deductible (Section 34(H)(1), NIRC).
(4) Gangwam Corporation (GC) filed its quarterly tax returns for the calendar year 2012 as
follows:
First quarter - April 25, 2012
Second quarter - July 23, 2012
Third quarter - October 25, 2012
Fourth quarter - January 27, 2013
On December 22, 2013, GC filed with the Bureau of Internal Revenue (BIR) an
administrative claim for refund of its unutilized input Value-Added Tax (VAT) for the
calendar year 2012. After several months of inaction by the BIR on its claim for refund, GC
decided to elevate its claim directly to the Court of Tax Appeals (CTA) on April 22, 2014.
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In due time, the CTA denied the tax refund relative to the input VAT of GC for the first
quarter of 2012, reasoning that the claim was filed beyond the two-year period prescribed
under Section 112(A) of the National Internal Revenue Code (NIRC).
(A) Is the CTA correct? (3%)
(B) Assuming that GC filed its claim before the CTA on February 22, 2014, would your
answer be the same? (3%)
SUGGESTED ANSWER: (A) NO. The CTA is not correct. The two-year period to file a claim
for refund refers to the administrative claim and does not refer to the period within which
to elevate the claim to the CTA. The filing of the administrative claim for refund was timely
done because it is made within two years from the end of the quarter when the zero-rated
transaction took place (Section112 (A), NIRC). When GC decided to elevate its claim to the
CTA on April 22, 2014, it was after the lapse of 120 days from the filing of the claim for
refund with the BIR, hence, the appeal is seasonably filed. The rule on VAT refunds is two
years to file the claim with the BIR, plus 120 for the Commissioner to act and inaction after
120 days is a deemed adverse decision on the claim, appealable to the CTA within thirty
(30) days from the lapse of the 120-day period. (CIR v. Aichi Forging Company of Asia, Inc.,
G.R. No. 184823, October 6, 2010).
(B) YES. The two-year prescriptive period to file a claim for refund refers to the
administrative claim with the BIR and not the period to elevate the claim to the CTA. Hence,
the CTA cannot deny the refund for reasons that the first quarter claim was filed beyond
the two-year period prescribed by law. However, when the claim is made before the CTA
on February 24, there is definitely no appealable decision as yet because the 120-day
period for the Commissioner to act on the claim for refund has not yet lapsed. Hence, the
act of the taxpayer in elevation the claim to the CTA is premature and the CTA has no
jurisdiction to rile thereon. (CIR v. Aichi Forging Company of Asia, Inc., G.R. No. 184823,
October 6, 2010).
(5) The City of Liwliwa assessed local business taxes against Talin Company. Claiming that
there is double taxation, Talin Company filed a Complaint for Refund or Recovery of
Illegally and/or Erroneously-collected Local Business Tax; Prohibition with Prayer to Issue
Temporary Restraining Order and Writ of Preliminary Injunction with the Regional Trial
Court (RTC). The RTC denied the application for a Writ of Preliminary Injunction. Since its
motion for reconsideration was denied, Talin Company filed a special civil action for
certiorari with the Court of Appeals (CA). The government lawyer representing the City of
Liwliwa prayed for the dismissal of the petition on the ground that the same should have
been filed with the Court of Tax Appeals (CTA). Talin Company, through its lawyer, Atty.
Frank, countered that the CTA cannot entertain a petition for certiorari since it is not one of
its powers and authorities under existing laws and rules. Decide. (5%)
SUGGESTED ANSWER: The petition for certiorari before the CA must be dismissed, since
such petition should have been filed with the CTA. As stated in City of Manila v. Caridad H.
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Grecia-Cuerdo (G.R. No. 175723, February 2, 2014, 715 SCRA 182), the CTA has the power
to determine whether or not there has been grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the RTC in issuing interlocutory orders in cases falling
within the CTA’s exclusive appellate jurisdiction. The CTA therefore has jurisdiction to
issue writs of certiorari in such cases. Furthermore, its authority to entertain petitions for
certiorari questioning interlocutory orders issued by the RTC is included in the powers
granted by the Constitution and inherent in the exercise of its appellate jurisdiction.
(6) Choose the correct answer. Smuggling - (1%)

(A) does not extend to the entry of imported or exported articles by means of any false or
fraudulent invoice, statement or practices; the entry of goods at less than the true weight or
measure; or the filing of any false or fraudulent entry for the payment of drawback or
refund of duties.
(B) is limited to the import of contraband or highly dutiable cargo beyond the reach of
customs authorities.
(C) is committed by any person who shall fraudulently import or bring into the Philippines,
or assist in so doing, any article, contrary to law, or shall receive, conceal, buy, sell or any
manner facilitate the transportation, concealment or sale of such article after importation,
knowing the same to have been imported contrary to law.
SUGGESTED ANSWER: (C) Smuggling is committed by any person who shall fraudulently
import or bring into the Philippines, or assist in so doing, any article, contrary to law, or
shall receive, conceal, buy, sell or any manner facilitate the transportation, concealment or
sale of such article after importation, knowing the same to have been imported contrary to
law.
(7) In accordance with the Local Government Code (LGC), the Sangguniang Panglungsod
(SP) of Baguio City enacted Tax Ordinance No. 19, Series of 2014, imposing a P50.00 tax on
all the tourists and travellers going to Baguio City. In imposing the local tax, the SP
reasoned that the tax collected will be used to maintain the cleanliness of Baguio City and
for the beautification of its tourist attractions. (D) is punishable by administrative penalty
only.
Claiming the tax to be unjust, Baguio Travellers Association (BTA), an association of travel
agencies in Baguio City, filed a petition for declaratory relief before the Regional Trial Court
(RTC) because BTA was apprehensive that tourists might cancel their bookings with BTA’s
member agencies. BTA also prayed for the issuance of a Temporary Restraining Order
(TRO) to enjoin Baguio City from enforcing the local tax on their customers and on all
tourists going to Baguio City.
The RTC issued a TRO enjoining Baguio City from imposing the local tax. Aggrieved, Baguio
City filed a petition for certiorari before the Supreme Court (SC) seeking to set aside the
TRO issued by the RTC on the ground that collection of taxes cannot be enjoined. Will the
petition prosper? (5%)
2013-2017
SUGGESTED ANSWER: NO. The petition for certiorari filed by Baguio City will not prosper.
As stated in Valley Trading Co., Inc. v. CFI of Isabela (G.R. No. L-49529, March 31, 1989) and
Angeles City v. Angeles City Electric Corporation (G.R. No. 166134, June 29, 2010), the
prohibition on the issuance of an order or writ enjoining the collection of taxes applies only
to national internal revenue taxes, and not to local taxes.
Unlike the 1997 NIRC, there is no express provision in the 1991 Local Government Code
which prohibits courts from enjoining the collection of such taxes. Therefore, the RTC was
properly vested with authority to issue the assailed Temporary Restraining Order (TRO)
enjoining Baguio City from imposing the local tax.
(8) Masarap Kumain, Inc. (MKI) is a Value-Added Tax (VAT)-registered company which has
been engaged in the catering business for the past 10 years. It has invested a substantial
portion of its capital on flat wares, table linens, plates, chairs, catering equipment, and
delivery vans. MKI sold its first delivery van, already 10 years old and idle, to Magpapala
Gravel and Sand Corp. (MGSC), a corporation engaged in the business of buying and selling
gravel and sand. The selling price of the delivery van was way below its acquisition cost. Is
the sale of the delivery van by MKI to MGSC subject to VAT? (4%)
SUGGESTED ANSWER: YES. The sale of the delivery van by MKI to MGSC was incidental to
its trade or business, and therefore subject to VAT. Pursuant to the case of Mindanao
Geothermal Partnership II v. Commissioner of Internal Revenue (G.R. No. 193301, 194637,
March 11, 2013), an isolated transaction may be considered a transaction incidental to the
taxpayer’s.
(9) Mr. Gipit borrowed from Mr. Maunawain P100,000.00, payable in five (5) equal
monthly installments. Before the first installment became due, Mr. Gipit rendered general
cleaning services in the entire office building of Mr. Maunawain, and as compensation
therefor, Mr. Maunawain cancelled the indebtedness of Mr. Gipit up to the amount of
P75,000.00. Mr. Gipit claims that the cancellation of his indebtedness cannot be considered
as gain on his part which must be subject to income tax, because according to him, he did
not actually receive payment from Mr. Maunawain for the general cleaning services. Is Mr.
Gipit correct? Explain. (4%)
SUGGESTED ANSWER: NO. Section 50 of Rev. Regs. No. 2, otherwise known as Income Tax
Regulations, provides that if a debtor performs services for a creditor who cancels the debt
in consideration for such services, the debtor realizes income to that amount as
compensation for his services. In the given problem, the cancellation of Mr. Gipit’s
indebtedness up to the amount of PhP75,000.00 gave rise to compensation income subject
to income tax, since Mr. Maunawain condoned such amount as consideration for the
general cleaning services rendered by Mr. Gipit.
(10) Which of the following is an exclusion from gross income? (1%)
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(A) Salaries and wages

(B) Cash dividends
(C) Liquidating dividends after dissolution of a corporation
(D) De minimis benefits
(E) Embezzled money
SUGGESTED ANSWER: (D) De minimis benefits.
(11) Triple Star, a domestic corporation, entered into a Management Service Contract with
Single Star, a non-resident foreign corporation with no property in the Philippines. Under
the contract, Single Star shall provide managerial services for Triple Star’s Hongkong
branch. All said services shall be performed in Hongkong.
Is the compensation for the services of Single Star taxable as income from sources within
the Philippines? Explain. (4%)
SUGGESTED ANSWER: NO. Pursuant to the case of Commissioner of Internal Revenue v.

Baier-Nickel (G.R. No. 153793, 29 August 2006), the factor which determines the source of
income for personal services is the place where the services were actually rendered. Since
Single Star, a non-resident foreign corporation, will perform all the managerial services for
Triple Star’s branch in Hong Kong, all compensation income arising from the performance
of such services will be considered income from sources outside the Philippines, and
therefore not subject to Philippine income tax.
(12) Which of the following should not be claimed as deductions from gross income? (1%)
(A) discounts given to senior citizens on certain goods and services.
(B) advertising expense to maintain some form of goodwill for the taxpayer’s business.
(C) salaries and bonuses paid to employees.
(D) interest payment on loans for the purchase of machinery and equipment used in
business.
SUGGESTED ANSWER: (B) Advertising expense to maintain some form of goodwill for the
taxpayer’s business.
(13) Hopeful Corporation obtained a loan from Generous Bank and executed a mortgage on
its real property to secure the loan. When Hopeful Corporation failed to pay the loan,
Generous Bank extrajudicially foreclosed the mortgage on the property and acquired the
same as the highest bidder. A month after the foreclosure, Hopeful Corporation exercised
its right of redemption and was able to redeem the property. Is Generous Bank liable to pay
capital gains tax as a result of the foreclosure sale? Explain. (4%)
SUGGESTED ANSWER: NO. Since Hopeful Corporation exercised its right to redeem the
property, Generous Bank is not liable to pay capital gains tax on the foreclosure sale. As
stated in the analogous case of Supreme Transliner, Inc., v. BPI Family Savings Bank, Inc.
(G.R. No. 165617, February 25, 2011, 644 SCRA 59), Rev. Regs. No. 4-99 expressly provides
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that if a mortgagor exercises his right of redemption within one year from the issuance of
the certificate of sale, no capital gains tax shall be imposed because no sale or transfer of
real property was realized. It is only in case of non-redemption by Hopeful Corporation that
the obligation to pay capital gains tax arises, which shall be based on the bid price of the
highest bidder.
The tax will be imposed only upon the expiration of the one-year period of redemption.
Furthermore, the obligation to pay the capital gains tax would primarily fall on the
mortgagor, Hopeful Corporation, and not on Generous Bank.
(14) Mr. X, a Filipino residing in Alabama, U.S.A., died on January 2, 2013 after undergoing a
major heart surgery. He left behind to his wife and two (2) kids several properties, to wit:
(4%)
(1) Family home in Makati City;
(2) Condominium unit in Las Piñas City;
(3) Proceeds of health insurance from Take Care, a health maintenance organization in the
Philippines; and
(4) Land in Alabama, U.S.A.
The following expenses were paid:
(1) Funeral expenses;
(2) Medical expenses; and
(3) Judicial expenses in the testate proceedings.
(A) What are the items that must be considered as part of the gross estate income of Mr. X?
(B) What are the items that may be considered as deductions from the gross estate?
SUGGESTED ANSWER: (A) All the items of properties enumerated in the problem shall
form part of the gross estate of Mr. X. The composition of the gross estate of a decedent
who is a Filipino citizen shall include all of his properties, real or personal, tangible or
intangible, wherever situated (Section 85, NIRC).
(B) All the items of expenses are deductible from his gross estate. However, the allowable
amount of funeral expenses shall be 5% of the gross estate or actual, whichever is lower,
but in no case shall the amount deductible go beyond Php 200,000.00. Likewise, the
deductible medical expenses must be limited to those incurred within one year prior to his
death but not to exceed Php 500,000.00 (Section 86, NIRC).
(15) When is a pre-assessment notice required under the following cases? (1%)
(A) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return.
(B) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent.
(C) When the excise tax due on excisable articles has been paid.
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(D) When an article locally purchased or imported by an exempt person, such as, but not
limited to vehicles, capital equipment, machineries and spare parts, has been sold, traded
or transferred to non-exempt persons.
SUGGESTED ANSWER: (C) When the excise tax due on excisable articles has been paid.
(16) Mr. Tiaga has been a law-abiding citizen diligently paying his income taxes. On May 5,
2014, he was surprised to receive an assessment notice from the Bureau of Internal
Revenue (BIR) informing him of a deficiency tax assessment as a result of a mathematical
error in the computation of his income tax, as appearing on the face of his income tax
return for the year 2011, which he filed on April 15, 2012. Mr. Tiaga believes that there was
no such error in the computation of his income tax for the year 2011. Based on the
assessment received by Mr. Tiaga, may he already file a protest thereon? (4%)
SUGGESTED ANSWER: YES. Mr. Tiaga may already file a protest. Rev. Regs. No. 18-2013,
implementing Sec. 228 of the Tax Code, states that no PAN is required if the deficiency tax
is a result of a mathematical error in the computation of tax as appearing on the face of the
tax return. In such case, an FLD/FAN shall be issued outright. Thus, the assessment notice
sent by the BIR is deemed an FLD/FAN which may be the subject of a protest.
(17) In a civil case for Annulment of Contract of Sale, plaintiff Ma. Reklamo presented in
evidence the Contract of Sale which she sought to be annulled. No documentary stamp tax
on the Contract of Sale was paid because according to plaintiff Ma. Reklamo, there was no
need to pay the same since the sale was not registered with the Register of Deeds. Plaintiff
Ma. Reklamo is now offering the Contract of Sale as her evidence. Is the Contract of Sale
admissible? (4%)
SUGGESTED ANSWER: NO. The Contract of Sale cannot be admitted in evidence. The
document is clearly taxable because the law imposes a documentary stamp tax (DST) on
Sales and Agreements to Sell, and Memoranda of Sale (Section 175, NIRC). Since the DST
thereon is not paid, the effect is that the instrument, document or paper which require by
law to be stamped and which has been signed, issues, accepted and transferred without
being duly stamped shall not be recorded, nor shall it be used in evidence in any court until
the requisite stamp or stamps shall have been affixed thereto and cancelled (Section 201,
NIRC). In the case at bar, no documentary stamp tax was paid on the Contract of Sale,
hence, it cannot be used as her evidence in court.
(18) Madam X owns real property in Caloocan City. On July 1, 2014, she received a notice of
assessment from the City Assessor, informing her of a deficiency tax on her property. She
wants to contest the assessment. (4%)
(A) What are the administrative remedies available to Madam X in order to contest the
assessment and their respective prescriptive periods?
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(B) May Madam X refuse to pay the deficiency tax assessment during the pendency of her
appeal?
SUGGESTED ANSWER: (A) The administrative remedies available to Madam X to contest

the assessment and their respective prescriptive periods are as follows:
1. Pay the deficiency real property tax under protest (Section 252, LGC);
2. File the protest with the local treasurer – The protest in writing must be filed within
thirty (30) days from payment of the tax to the provincial, city, or municipal treasurer, in
the case of a municipality within Metropolitan Manila Area, who shall decide the protest
within sixty (60) days from receipt (Section 252, LGC);
3. Appeal to the LBAA – If protest is denied or upon the lapse of the 60-day period for the
treasurer to decide, the taxpayer may appeal to the LBAA within 60 days and the case
decided within 120 days (Section 226 & 229, LGC)
4. Appeal to the CBAA – If not satisfied with the decision of the LBAA, appeal to the CBAA
within 30 days from receipt of a copy of the decision (Section 229(c), LGC).
(B) NO. The payment of the deficiency tax is a condition before she can protest the
deficiency assessment. It is the decision on the protest or inaction thereon that gives her
the right to appeal. This means that she cannot refuse to pay the deficiency tax assessment
during the pendency of the appeal because it is the payment itself which gives rise to the
remedy. The law provides that no protest (which is the beginning of the disputation
process) shall be entertained unless the taxpayer first pays the tax (Section 252, LGC)
(19) The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC)
No. 65-2012 imposing Value-Added Tax (VAT) on association dues and membership fees
collected by condominium corporations from its member condominium-unit owners. The
RMC’s validity is challenged before the Supreme Court (SC) by the condominium
corporations.
The Solicitor General, counsel for BIR, claims that association dues, membership fees, and
other assessment/charges collected by a condominium corporation are subject to VAT
since they constitute income payments or compensation for the beneficial services it
provides to its members and tenants.
On the other hand, the lawyer of the condominium corporations argues that such dues and
fees are merely held in trust by the condominium corporations exclusively for their
members and used solely for administrative expenses in implementing the condominium
corporations’ purposes. Accordingly, the condominium corporations do not actually render
services for a fee subject to VAT.
Whose argument is correct? Decide. (5%)
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SUGGESTED ANSWER: The argument of the condominium corporation is correct –

association dues should not be subject to VAT because the condominium corporation does
not realize any gain or profit. They merely hold the fees in trust for administrative
expenses. This, it does not form part of the gross income of the corporation, and
consequently, is not subject to VAT. (RTC Resolution SCA No.12-1236 on RMC 65-2012,
Petition for Declaratory Relief)
(20) During his lifetime, Mr. Sakitin obtained a loan amounting to P10 million from Bangko
Uno for the purchase of a parcel of land located in Makati City, using such property as
collateral for the loan. The loan was evidenced by a duly notarized promissory note.
Subsequently, Mr. Sakitin died. At the time of his death, the unpaid balance of the loan
amounted to P2 million. The heirs of Mr. Sakitin deducted the amount of P2 million from
the gross estate, as part of the "Claims against the Estate." Such deduction was disallowed
by the Bureau of Internal Revenue (BIR) Examiner, claiming that the mortgaged property
was not included in the computation of the gross estate. Do you agree with the BIR?
Explain. (4%)
SUGGESTED ANSWER: YES. Unpaid mortgages upon, or any indebtedness with respect to
property are deductible from the gross estate only if the value of the decedent’s interest in
said property, undiminished by such mortgage or indebtedness, is included in the gross
estate (Section 86(A)(1)(e)). In the instant case, the interest of the decedent in the property
purchased from the loan where the said property was used as the collateral, was not
included in the gross estate. Accordingly, the unpaid balance of the loan at the time of Mr.
Sakitin’s death is not deductible as “Claims against the Estate.”
(21) On August 31, 2014, Haelton Corporation (HC), thru its authorized representative Ms.
Pares, sold a 16-storey commercial building known as Haeltown Building to Mr. Belly for
P100 million. Mr. Belly, in turn, sold the same property on the same day to Bell Gates, Inc.
(BGI) for P200 million. These two (2) transactions were evidenced by two (2) separate
Deeds of Absolute Sale notarized on the same day by the same notary public.
Investigations by the Bureau of Internal Revenue (BIR) showed that:
(1) the Deed of Absolute Sale between Mr. Belly and BGI was notarized ahead of the sale
between HC and Mr. Belly; (2) as early as May 17, 2014, HC received P40 million from BGI,
and not from Mr. Belly; (3) the said payment of P40 million was recorded by BGI in its
books as of June 30, 2014 as investment in Haeltown Building; and (4) the substantial
portion of P40 million was withdrawn by Ms. Pares through the declaration of cash
dividends to all its stockholders.
Based on the foregoing, the BIR sent Haeltown Corporation a Notice of Assessment for
deficiency income tax arising from an alleged simulated sale of the aforesaid commercial
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building to escape the higher corporate income tax rate of thirty percent (30%). What is
the liability of Haeltown Corporation, if any? (4%)
SUGGESTED ANSWER: The tax planning scheme adopted by Haeltown Corporation

constitutes tax evasion. According to CIR v. Estate of Benigno Toda (G.R. No. 147188,
September 14, 2004), a transaction where a taxpayer made it appear that there were two
sales of the property was considered “tainted with fraud.” The sole purpose of acquiring
and transferring title of the property on the same day was to create a tax shelter. The sale
to Mr. Belly (which is subject to individual capital gains tax) was to mislead the BIR and
avoid the higher corporate income tax.
(22) Choose the correct answer. Double Taxation - (1%)

(A) is one of direct duplicate taxations wherein two (2) taxes must be imposed on the same
subject matter, by the same taxing authority, within the same jurisdiction, during the same
period, with the same kind or character of tax, even if the purposes of imposing the same
are different.
(B) is forbidden by law; and therefore, it is a valid defense against the validity of a tax
measure.
(C) means taxing the same property twice when it should be taxed only once; it is
tantamount to taxing the same person twice by the same jurisdiction for the same thing.
(D) exists when a corporation is assessed with local business tax as a manufacturer, and at
the same time, value-added tax as a person selling goods in the course of trade or business.
SUGGESTED ANSWER: (A). Double taxation is one of direct duplicate taxations wherein
two (2) taxes must be imposed on the same subject matter, by the same taxing authority,
within the same jurisdiction, during the same period, with the same kind of character of
tax, even if the purposes of imposing the same are different.
(23) Choose the correct answer. Tax Avoidance ‒ (1%)

(A) is a scheme used outside of those lawful means and, when availed of, it usually subjects
the taxpayer to further or additional civil or criminal liabilities.
(B) is a tax saving device within the means sanctioned by law.
(C) is employed by a corporation, the organization of which is prompted more on the
mitigation of tax liabilities than for legitimate business purpose.
(D) is any form of tax deduction scheme, regardless if the same is legal or not.
SUGGESTED ANSWER: B. Tax avoidance is a tax-saving device within the means

sanctioned by law.
(24) A, B, and C, all lawyers, formed a partnership called ABC Law Firm so that they can
practice their profession as lawyers. For the year 2012, ABC Law Firm received earnings
and paid expenses, among which are as follows: (6%)
Earnings:
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(1) Professional/legal fees from various clients

(2) Cash prize received from a religious society in recognition of the exemplary service of
ABC Law Firm
(3) Gains derived from sale of excess computers and laptops
Payments:
(1) Salaries of office staff
(2) Rentals for office space
(3) Representation expenses incurred in meetings with clients
(A) What are the items in the above mentioned earnings which should be included in
the computation of ABC Law Firm’s gross income? Explain.
(B) What are the items in the above-mentioned payments which may be considered as
deductions from the gross income of ABC Law Firm? Explain.
(C) If ABC Law Firm earns net income in 2012, what, if any, is the tax consequence on
the part of ABC Law Firm insofar as the payment of income tax is concerned? What,
if any, is the tax consequence on the part of A, B, and C as individual partners,
insofar as the payment of income tax is concerned?
SUGGESTED ANSWER: (A) The three (3) items of earnings should be included in the
computation of ABC Law Firm’s gross income. The professional/legal fees from various
clients is included as part of gross income being in the nature of compensation for services
(Section 32(A)(1), NIRC). The cash prize from a religious society in recognition of its
exemplary services is also included there being no law providing for its exclusion.
This is not a prize in recognition of any of the achievements enumerated under the law
hence, should form part of gross income (Section 32(B)(7)(c), NIRC). The gains from sale of
excess computers and laptops should also be included as part of the firm’s gross income
because the term gross income specifically includes gains derived from dealings in
property (Section 32(A)(3), NIRC).
(B) The law firm being formed as general professional partnership is entitled to the same
deductions allowed to corporation (Section 26, NIRC). Hence, the three (3) items of
deductions mentioned in the problem are all deductible, they being in the nature of
ordinary and necessary expenses incurred in the practice of profession (Section 34(A),
NIRC). However, the amount deductible for representation expenses incurred by a taxpayer
engaged in sale of services, including a law firm, is subject to a ceiling of 1% of net revenue.
(RR No. 10-2002)
(C) The net income having been earned by the law firm which is formed and qualifies as a
general professional partnership, is not subject to income tax because the earner is devoid
of any income tax personality. Each partner shall report as gross income his distributive
shares, actuality or constructively received, in the net income of the partnership. The
partnership is merely treated for income tax purposes as a pass-through entity so that its
net income is not taxable at the level of the partnership bur said net income should be
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attributed to the partners, whether or not distributed to them, and they are liable to pay
the income tax based on their respective taxable income as individual taxpayers (Section
26, 1997 NIRC).
(25) Which of the following transactions is subject to Value-Added Tax (VAT)? (1%)
(A) Sale of shares of stock-listed and traded through the local stock exchange
(B) Importation of personal and household effects belonging to residents of the Philippines
returning from abroad subject to custom duties under the Tariff and Customs Code
(C) Services rendered by individuals pursuant to an employer-employee relationship
(D) Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority
SUGGESTED ANSWER: (B) Importation of personal and household effects belonging to

residents of the Philippines returning from abroad subject to custom duties under the
Tariff and Customs Code.
(26) Freezy Corporation, a domestic corporation engaged in the manufacture and sale of
ice cream, made payments to an officer of Frosty Corporation, a competitor in the ice cream
business, in exchange for said officer’s revelation of Frosty Corporation’s trade secrets.
May Freezy Corporation claim the payment to the officer as deduction from its gross
income? Explain. (4%)
SUGGESTED ANSWER: NO. The payments made in exchange for the revelation of a
competitors trade secrets is considered an expense which is against law, morals, good
customs, or public policy, which is not deductible (3M Philippines, Inc. v. CIR, G.R. No. 82833,
September 26, 1988). Also, the law will not allow the deduction of bribes, kickback, and
other similar payments. Applying the principle of ejusdem generis, payment made by Freezy
Corporation would fall under “other similar payments” which are not allowed as deduction
from gross income (Section 34(A)(1)(c), 1997 NIRC).
(27) In January 2013, your friend got his first job as an office clerk. He is single and lives
with his family who depends upon him for financial support. His parents have long retired
from their work, and his two (2) siblings are still minors and studying in grade school. In
February 2014, he consulted you as he wanted to comply with all the rules pertaining to
the preparation and filing of his income tax return. He now asks you the following:
(A) Is he entitled to personal exemptions? If so, how much? (1%)
(B) Is he entitled to additional exemptions? If so, how much? (1%)
(C) What is the effect of the taxes withheld from his salaries on his taxable income? (2%)
SUGGESTED ANSWER: (A) YES. The law allows a basic personal exemption of Php
50,000.00 for each individual taxpayer (Section 35(A), 1997 NIRC).
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(B) NO. While his parents and minor sibling are living with and dependent upon him for
financial support, they are not qualified dependents for purposes of additional exemptions.
The term “dependent” for purposes of the additional personal exemption would include
only legitimate, illegitimate, or legally adopted children (Section 35(B), NIRC).
(C) The taxes withheld from his salaries will not affect his taxable income because they are
not allowed as tax deductions but as tax credits. Tax deductions reduce taxable income
while tax credits reduce the tax liability (Central Drug Corporation v. CIR)
(28) Choose the correct answer. Tax laws - (1%)

(A) may be enacted for the promotion of private enterprise or business for as long as it
gives incidental advantage to the public or the State
(B) are inherently legislative; therefore, may not be delegated
(C) are territorial in nature; hence, they do not recognize the generally-accepted tenets of
international law
(D) adhere to uniformity and equality when all taxable articles or kinds of property of the
same class are taxable at the same rate
SUGGESTED ANSWER: (D) Tax laws adhere to uniformity and equality when all taxable
articles or kinds of property of the same class are taxable at the same rate
(29) Doña Evelina, a rich widow engaged in the business of currency exchange, was
assessed a considerable amount of local business taxes by the City Government of Bagnet
by virtue of Tax Ordinance No. 24. Despite her objections thereto, Doña Evelina paid the
taxes. Nevertheless, unsatisfied with said Tax Ordinance, Doña Evelina, through her counsel
Atty. ELP, filed a written claim for recovery of said local business taxes and contested the
assessment. Her claim was denied, and so Atty. ELP elevated her case to the Regional Trial
Court (RTC).
The RTC declared Tax Ordinance No. 24 null and void and without legal effect for having
been enacted in violation of the publication requirement of tax ordinances and revenue
measures under the Local Government Code (LGC) and on the ground of double taxation.
On appeal, the Court of Tax Appeals (CTA) affirmed the decision of the RTC. No motion for
reconsideration was filed and the decision became final and executory. (4%)
1. If you are Atty. ELP, what advice will you give Doña Evelina so that she can recover
the subject local business taxes?
2. If Doña Evelina eventually recovers the local business taxes, must the same be
considered as income taxable by the national government?
SUGGESTED ANSWER: (A) Move for the execution of the judgment which has already
become final.
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(B) YES, subject to the tax benefit rule. The local business tax paid is a business-connected
tax hence, deductible from gross income. If at the time of its deduction it resulted to a tax
benefit to Dona Evelina, then the recovery will form part of gross income to the extent of
the tax benefit on the previous deduction (Section 34(C)(1), 1997 NIRC).
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2015 QUESTIONS
I. Explain the principles of a sound tax system. (3%)
SUGGESTED ANSWER: The principles of a sound tax system are the following:
a. Fiscal adequacy which means that the sources of revenue should be sufficient to
meet the demands of public expenditures;
b. Equality or theoretical justice which means that the tax burden should be
proportionate to the taxpayer’s ability to pay (this is the so-called ability to pay
principle); and
c. Administrative feasibility which means that the tax law should be capable of
convenience, just and effective administration.
II. Mr. A, a citizen and resident of the Philippines, is a professional boxer. In a

professional boxing match held in 2013, he won prize money in United States (US)
dollars equivalent to P300,000,000.
a) Is the prize money paid to and received by Mr. A in the US taxable in the
Philippines? Why? (2%)
b) May Mr. A's prize money qualify as an exclusion from his gross income?
Why? (2%)
c) The US already imposed and withheld income taxes from Mr. A's prize
money. How may Mr. A use or apply the income taxes he paid on his prize
money to the US when he computes his income tax liability in the Philippines
for 2013? (4%)
SUGGESTED ANSWER: a. Yes. Under the Tax Code, the income within and without
of a resident citizen is taxable. Since Mr. A is a resident Filipino citizen, his income
worldwide is taxable in the Philippines.
b. No. Under the law, all prizes and awards granted to athletes in local and
international sports competitions whether held in the Philippines or abroad and
sanctioned by their national sports association are excluded from gross income.
However, in this case, there is no showing that the boxing match was sanctioned by
the Philippine National Sports Commission. Therefore, the prize money is not
excluded.
c. Mr. A may avail of tax credit against his tax liability in the Philippines for taxes
paid in foreign countries. He has to signify in his income tax return his desire to avail
the deduction.
III. Ms. C, a resident citizen, bought ready-to-wear goods from Ms. B, a nonresident
citizen.
a) If the goods were produced from Ms. B's factory in the Philippines, is Ms.
B's income from the sale to Ms. C taxable in the Philippines? Explain. (2%)
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b) If Ms. B is an alien individual and the goods were produced in her factory
in China, is Ms. B's income from the sale of the goods to Ms. C taxable in the
Philippines? Explain. (2%)
SUGGGESTED ANSWER: a. Yes, the income of Ms. B from the sale of ready-
to-wear goods to Ms. C is taxable. A nonresident citizen is taxable only on
income derived from sources within the Philippines. In line with the source
rule of income taxation, since the goods are produced and sold within the
Philippines, Ms. B’s Philippine-sourced income is taxable in the Philippines.
b. Yes, but only a proportionate part of the income. Gains, profits and income
from the sale of personal property produced by the taxpayer without and
sold within the Philippines, shall be treated as derived partly from sources
within and partly without the Philippines.
IV. Mr. E and Ms. F are both employees of AAA Corp. They got married on February 14,
2011. On December 29, 2011, the couple gave birth to triplets. On June 25, 2013,
they had twins. What were the personal exemptions/deductions which Mr. E and
Ms. F could claim in the following taxable years:
a) For2010 (2%)
b) For 2011 (3%)
c) For 2013 (2%)
SUGGESTED ANSWER: a. Both Mr. E and Ms. F can claim for personal exemption up
to P50,000.00.
b. Either Mr. E or Ms. F can claim for additional exemption of P25,000.00 each for
their children. This is in addition to the personal exemption of P50,000.00 which
they can respectively claim. According to the Tax Code, only one of the spouses can
claim for additional exemption for every dependent.
c. Mr. E and Ms. F can claim for personal exemptions, respectively. In addition, any
one of them, exclusively, can claim for the additional exemptions in relation to their
four dependents amounting to P25,000.00 each. Under the Tax Code, an individual
may claim up to four additional exemptions in connection with his/her dependents.
V. BBB, Inc., a domestic corporation, enjoyed a particularly profitable year in 2014. In

June 2015, its Board of Directors approved the distribution of cash dividends to its
stockholders. BBB, Inc. has individual and corporate stockholders. What is the tax
treatment of the cash dividends received from BBB, Inc. by the following
stockholders:
a) A resident citizen (1%)
b) Non-resident alien engaged in trade or business (1%)
c) Non-resident alien not engaged in trade or business (1% )
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d) Domestic corporation (1%)

e) Non-resident foreign corporation (1%)
SUGGESTED ANSWER: a. A final withholding tax of ten percent (10%) shall be

imposed upon the cash dividends actually or constructively received by a resident
citizen from BBB, Inc.
b. A final withholding tax of twenty percent (20%) shall be imposed upon the cash
dividends actually or constructively received by a nonresident alien engaged in
trade or business from BBB, Inc.
c. A final withholding tax equal to twenty-five percent (25%) of the entire income
received from all sources within the Philippines, including the cash dividends
received from BBB, Inc.
d. Dividends received by a domestic corporation from another corporation, such as
BBB, Inc., shall not be subject to tax.
e. A final withholding tax of fifteen percent (15%) is imposed on the amount of cash
dividends received from BBB, Inc., subject to the tax sparing credit provision
(Section 28(B)(5)(b), 1997 NIRC).
The application of the tax sparing credit is that the country-domicile of the recipient
corporation allows a credit against the tax due from the non-resident foreign
corporation. Otherwise, the applicable tax rate is thirty percent (30%) of the gross
income received during each taxable year from all sources within the Philippines.
VI. Differentiate between double taxation in the strict sense and in a broad sense and
give an example of each. (4%)
SUGGESTED ANSWER: Double taxation in the strict sense pertains to the direct
double taxation. This means that the taxpayer is taxed twice by the same taxing
authority, within the same taxing jurisdiction, for the same property and same
purpose.
On the other hand, double taxation in broad sense pertains to indirect double
taxation. This extends to all cases in which there is a burden of two or more
impositions. It is the double taxation other than those covered by direct double
taxation.
VII. On May 15, 2013, CCC, Inc. received the Final Decision on Disputed Assessment
issued by the Commissioner of Internal Revenue (CIR) dismissing the protest of CCC,
Inc. and affirming the assessment against said corporation. On June 10, 2013, CCC,
Inc. filed a Petition for Review with the Court of Tax Appeals (CTA) in division. On
July 31, 2015, CCC, Inc. received a copy of the Decision dated July 22, 2015 of the CT
A division dismissing its Petition. CCC, Inc. immediately filed a Petition for Review
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with the CT A en banc on August 6, 2015. Is the immediate appeal by CCC, Inc. to the
CTA en banc of the adverse Decision of the CTA division the proper remedy? (3%)
SUGGESTED ANSWER: NO. CCC, Inc. should first file a motion for reconsideration
with the CTA Division. Petition for review of a decision or resolution of the Court in
Division must be preceded by the filing of a timely motion for reconsideration or
new trial with the Division. Before the CTA En Banc could take cognizance of the
petition for review concerning a case falling under its exclusive appellate
jurisdiction, the litigant must sufficiently show that it sought prior reconsideration
or moved for a new trial with the concerned CTA division.
VIII. In June 2013, DDD Corp., a domestic corporation engaged in the business of leasing
real properties in the Philippines, entered into a lease agreement of a residential
house and lot with EEE, Inc., a non-resident foreign corporation. The residential
house and lot will be used by officials of EEE, Inc. during their visit to the
Philippines. The lease agreement was signed by representatives from DDD Corp.
and EEE, Inc. in Singapore. DDD Corp. did not subject the said lease to VAT believing
that it was not a domestic service contract. Was DDD Corp. correct? Explain. (3%)
SUGGESTED ANSWER: DDD Corp. is not correct. Any person who, in the ordinary
course of trade or business, leases properties, whether personal or real, shall be
subject to value-added tax (VAT), except for unless the gross annual receipts of the
lessor do not exceed P1,919,500.00 or that the monthly rental does not exceed
P12,800, for residential units. Based on the destination principle, goods and services
are taxed only in the country where they are consumed. Here , the services rendered
to the officials of EEE are within the Philippines.
Hence, DDD Corp. is subject to VAT.
IX. For calendar year 2011, FFF, Inc., a VAT-registered corporation, reported unutilized
excess input VAT in the amount of Pl ,000,000.00 attributable to its zero-rated sales.
Hoping to impress his boss, Mr. G, the accountant of FFF, Inc., filed with the Bureau
of Internal Revenue (BIR) on January 31, 2013 a claim for tax refund/credit of the
Pl,000,000.00 unutilized excess input VAT of FFF, Inc. for 2011. Not having received
any communication from the BIR, Mr. G filed a Petition for Review with the CTA on
March 15, 2013, praying for the tax refund/credit of the Pl,000,000.00 unutilized
excess input VAT of FFF, Inc. for 2011.
a) Did the CTA acquire jurisdiction over the Petition of FFF, Inc.? (2%)
b) Discuss the proper procedure and applicable time periods for
administrative and judicial claims for refund/credit of unutilized excess
input VAT. (4%)
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SUGGESTED ANSWER: a. The CTA has not acquired jurisdiction over the Petition of FFF,
Inc. because the juridical claim has been prematurely filed on March 15, 2013. The
Supreme Court ruled that the 30-day period after the expiration of the 120-day period fixed
by law for the Commissioner of Internal Revenue to act on the claim for refund is
jurisdictional and failure to comply would bar the appeal and deprive the CTA of its
jurisdiction to entertain the appeal.
In this case, Mr. G filed the administrative claim on January 31, 2013. The petition for
review should have been should have been filed on June 30, 2013. Filing the judicial claim
on March 15, 2013 is premature, thus the CTA did not acquire jurisdiction.
b. The administrative claim must be filed with the Commissioner of Internal Revenue (CIR)
within the two-year prescriptive period. The proper reckoning period date for the two-year
prescriptive period is the close of the taxable quarter when the relevant sales were made.
However, as an exception, are claims applied only from June 8, 2007 to September 12,
2008, wherein the two-year prescriptive period for filing a claim for tax refund or credit of
unutilized input VAT payments should be counted from the date of filing of the VAT return
and payment of the tax.
The taxpayer can file a judicial claim in one of two ways: (1) file the judicial claim within
thirty days after the Commissioner of Internal Revenue denies the claim within the 120-day
period, or (2) file the judicial claim within 30 days from the expiration of the 120-day
period if the Commissioner does not act within the 120-day period.
As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. As an
exception, premature filing is allowed only if filed between December 10, 2003 and October
5, 2010, when the BIR Ruling No. DA-489-03 was still in force.
X. Indicate whether each of the following individuals is required or not required to file
an income tax return:
a) Filipino citizen residing outside the Philippines on his income from
sources outside the Philippines. (1%)
b) Resident alien on income derived from sources within the Philippines.
(1%)
c) Resident citizen earning purely compensation income from two employers
within the Philippines, whose income taxes have been correctly withheld.
(1%)
d) Resident citizen who falls under the classification of minimum wage
earners. (1%)
e) An individual whose sole income has been subjected to final withholding
tax. (1%)
2013-2017
SUGGESTED ANSWER: a. NO, because a non-resident Filipino citizen is

taxable only in income sourced within the Philippines.
b. YES, because a resident alien is taxable for income derived from sources
within the Philippines.
c. YES. A resident citizen who is earning purely compensation income from
two employers should file income tax return for not being qualified for
substituted filing.
d. NO. Under the law, all minimum wage earners in the private and public
sector shall be exempt from payment of income tax.
e. NO. Under the law, an individual whose sole income has been subjected to
final withholding tax pursuant to Section 57(A) of the NIRC need not file a
return.
XI. What are de minimis benefits and how are these taxed? Give three (3) examples of de
minimis benefits. (4%)
SUGGESTED ANSWER: De minimis benefits are facilities, and privileges furnished or

offered by an employer to his employees, which are not considered as compensation
subject to income tax and consequently to withholding tax, if such facilities or
privileges are of relatively small value and are offered or furnished by the employer
merely as means of promoting the health, goodwill, contentment, or efficiency of his
employees.
The excess over the de minimis limit prescribed shall be considered, along with the
“other benefits” under Section 32(B)(7)(e)(iv), NIRC, in determining whether or not
the P82,000 threshold has been exceeded. Any excess over the de minimis ceiling
may be exempt if it is covered by the unused portion of the P82,000.00 non-taxable
“other benefits”. Otherwise, any amount in excess of the P82,000.00 threshold
becomes subject to tax.
The following shall be considered as “de minimis” benefits:

1. Monetized unused vacation leave credits of private employees not exceeding 10
days during the year;
2. Monetized unused vacation and sick leave credits paid to government officials and
employees, regardless of the number of days;
3. Medical cash allowance to dependents of employees, not exceeding P750 per
employee per semester or P125 per month;
4. Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not
more than P1,500;
5. Uniform and clothing allowance not exceeding P5,000 per annum;
6. Actual medical assistance not exceeding P10,000 per annum;
7. Laundry allowance not exceeding P300 per month;
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8. Employees achievement awards, e.g., for length of service or safety achievement,

which must be in the form of a tangible personal property other than cash or gift
certificate, with an annual monetary value not exceeding P10,000 received by the
employee under an established written plan which does not discriminate in favor of
highly paid employees;
9. Gifts given during Christmas and major anniversary celebrations not exceeding
P50,000 per employee per annum;
10. Daily meal allowance for overtime work and night/graveyard shift not exceeding
25% of the basic minimum wage on a per region basis;
11. Benefits received by an employee by virtue of a collective bargaining agreement
(CBA) and productivity incentive schemes provided that the total annual monetary
value received from both CBA and productivity incentive schemes combined do not
exceed ten thousand pesos (P10,000.00) per employee per taxable year
XII. Mr. H decided to sell the house and lot wherein he and his family have lived for the
past 10 years, hoping to buy and move to a new house and lot closer to his children's
school. Concerned about the capital gains tax that will be due on the sale of their
house, Mr. H approaches you as a friend for advice if it is possible for the sale of
their house to be exempted from capital gains tax and the conditions they must
comply with to avail themselves of said exemption. How will you respond? (4%)
SUGGESTED ANSWER: Mr. H may avail the exemption from capital gains tax on sale
of principal residence by natural persons. Under the law, the following are the
requisites: (1) proceeds of the sale of the principal residence have been fully utilized
in acquiring or constructing new principal residence within eighteen (18) calendar
months from the date of sale or disposition; (2) The historical cost or adjusted basis
of the real property sold or disposed will be carried over to the new principal
residence built or acquired; (3) The Commissioner has been duly notified, through a
prescribed return, within thirty (30) days from the date of sale or disposition of the
person’s intention to avail of the tax exemption; and (4) Exemption was availed only
once every ten (10) years.
XIII. GGG, Inc. offered to sell through competitive bidding its shares in HHH Corp.,
equivalent to 40% of the total outstanding capital stock of the latter. JJJ, Inc.
acquired the said shares in HHH Corp. as the highest bidder. Before it could secure a
certificate authorizing registration/tax clearance for the transfer of the shares of
stock to JJJ, Inc., GGG, Inc. had to request a ruling from the BIR confirming that its
sale of the said shares was at fair market value and was thus not subject to donor's
tax. In BIR Ruling No. 012-14, the CIR held that the selling price for the shares of
stock of HHH Corp. was lower than their book value, so the difference between the
selling price and the book value of said shares was a taxable donation. GGG, Inc.
requested the Secretary of Finance to review BIR Ruling No. 012-14, but the
Secretary affirmed said ruling. GGG, Inc. filed with the Court of Appeals a Petition for
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Review under Rule 43 of the Revised Rules of Court. The Court of Appeals, however,
dismissed the Petition for lack of jurisdiction declaring that it is the CTA which has
jurisdiction over the issues raised. Before which Court should GGG, Inc. seek
recourse from the adverse ruling of the Secretary of Finance in the exercise of the
latter's power of review? (3%)
SUGGESTED ANSWER: GGG should file its petition with the Court of Tax Appeals.
The Supreme Court held that the jurisdiction to review the rulings of the
Commissioner of Internal Revenue pertains to the CTA which has the authority to
issue, among others, a writ of certiorari in the exercise of its appellate jurisdiction.
XIV. KKK Corp. secured its Certificate of Incorporation from the Securities and Exchange
Commission on June 3, 2013. It commenced business operations on August 12,
2013. In April 2014, Ms. J, an employee of KKK Corp. in charge of preparing the
annual income tax return of the corporation for 2013, got confused on whether she
should prepare payment for the regular corporate income tax or the minimum
corporate income tax.
a) As Ms. J's supervisor, what will be your advice? (2%)
b) What are the distinctions between regular corporate income tax and
minimum corporate income tax? (3%)
SUGGESTED ANSWER: a. As Ms. J’s supervisor, I will advise that KKK Corp. should
prepare payment for the regular corporate income tax. Under the Tax Code,
Minimum Corporate Income Tax (MCIT) is applicable beginning on the fourth
taxable year following the commencement of operation. Thus, in this case, KKK
Corp. will only apply MCIT starting taxable year 2017.
b. Distinction as to taxpayer: Regular corporate income tax applies to all corporate

taxpayers; while minimum corporate income tax applies to domestic corporations
and resident foreign corporations.
Distinction as to rate: Regular income tax is 30%; while minimum corporate income
tax is 2%.
Distinction as to tax base: Regular corporate income tax is based on the net taxable
income, except nonresident foreign corporation which is based on gross income;
while minimum corporate income tax is based on gross income.
Distinction as to period of applicability: Regular corporate income tax is applicable

once the corporation commenced its operation, while MCIT is applicable beginning
the fourth taxable year following the commencement of operation.
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XV. In 2012, Dr. K decided to return to his hometown to start his own practice. At the
end of 2012, Dr. K found that he earned gross professional income in the amount of
P1,000,000.00; while he incurred expenses amounting to P560,000.00 constituting
mostly of his office space rent, utilities, and miscellaneous expenses related to his
medical practice. However, to Dr. K's dismay, only P320,000.00 of his expenses were
duly covered by receipts. What are the options available for Dr. K so he could
maximize the deductions from his gross income? (3%)
SUGGESTED ANSWER: Dr. K may opt to use the optional standard deduction (OSD)
in lieu of the itemized deduction. OSD is a maximum of forty percent (40%) of gross
receipts during the taxable year. Proof of actual expenses is not required, but Dr. K
shall keep such records pertaining to his gross receipts.
XVI. LLL is a government instrumentality created by Executive Order to be primarily

responsible for integrating and directing all reclamation projects for the National
Government. It was not organized as a stock or a non-stock corporation, nor was it
intended to operate commercially and compete in the private market.
By virtue of its mandate, LLL reclaimed several portions of the foreshore and
offshore areas of the Manila Bay, some of which were within the territorial
jurisdiction of Q City. Certificates of title to the reclaimed properties in Q City were
issued in the name of LLL in 2008. In 2014, Q City issued Warrants of Levy on said
reclaimed properties of LLL based on the assessment for delinquent property taxes
for the years 2010 to 2013.
a. Are the reclaimed properties registered in the name of LLL subject to real
property tax? (4 % )
b. Will your answer be the same in (a) if from 2010 to the present time, LLL is
leasing portions of the reclaimed properties for the establishment and use of
popular fastfood restaurants J Burgers, G Pizza, and K Chicken? (2%)
SUGGESTED ANSWER: a. The reclaimed properties are not subject to real

property tax because LLL is a government instrumentality. Instrumentality
refers to any agency of the National Government, not integrated within the
department framework vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds,
and enjoying operational autonomy, usually through a charter. Under the
law, real property owned by the Republic of the Philippines (Republic) is
exempt from real property tax unless the beneficial use thereof has been
granted to a taxable person. When the title of the real property is transferred
to LLL, the Republic remains the owner of the real property. Thus, such
arrangement does not result in the loss of the tax exemption.
b. NO. As a rule, properties owned by the Republic of the Philippines are

exempt from real property tax except when the beneficial use thereof has
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been granted, for consideration or otherwise, to a taxable person. LLL leased

out portions of the reclaimed properties to a taxable entity, such as the
popular fastfood restaurant, hence the reclaimed properties are subject to
real property tax.
XVII. Mr. L owned several parcels of land and he donated a parcel each to his two
children. Mr. L acquired both parcels of land in 1975 for ll200,000.00. At the time of
donation, the fair market value of the two parcels of land, as determined by the CIR,
was 112,300,000.00; while the fair market value of the same properties as shown in
the schedule of values prepared by the City Assessors was 112,500,000.00. What is
the proper valuation of Mr. L's gifts to his children for purposes of computing
donor's tax? (3%)
SUGGESTED ANSWER: The valuation of Mr. L’s gift to his children is the fair market
value (FMV) of the property at the time of donation. It is the higher of the FMV as
determined by the Commissioner or the FMV as shown in the schedule of values
fixed by the provincial or city assessors. In this case, for the purpose of computing
donor’s tax, the proper valuation is the value prepared by the City Assessors
amounting to P2,500,00.00 because it is higher than the FMV determined by the CIR.
XVIII. Under the Tariff and Customs Code, as amended:

a. When does importation begin and when is it deemed terminated? (2%)
b. In what easels is the decision of the Collector automatically reviewed by
the Commissioner of Customs? In what instance/s is the decision of the
Commissioner automatically appealed to the Secretary of Finance? (4%)
SUGGESTED ANSWER: a. Importation begins when the carrying vessel or aircraft

enters the jurisdiction of the Philippines with intention to unlade therein.
Importation is deemed terminated upon payment of the duties, taxes and other
charges upon the articles, or secured to be paid, at a port of entry and the legal
permit for withdrawal shall have been granted, or incase said articles are free of
duties, taxes and other charges, until they have legally left the jurisdiction of the
customs.
b. Whenever the decision of the Collector of Customs is adverse to the government,
the said decision is automatically elevated to the Commissioner of Customs for
review, and if such decision is affirmed by the Commissioner of Customs, the same
will be automatically elevated to and be finally reviewed by the Secretary of Finance.
XIX. In 2014, M City approved an ordinance levying customs duties and fees on goods
coming into the territorial jurisdiction of the city. Said city ordinance was duly
published on February 15, 2014 with effectivity date on March 1, 2014.
a. Is there a ground for opposing said ordinance? (2%)
2013-2017
b. What is the proper procedural remedy and applicable time periods for
challenging the ordinance? (4%)
SUGGESTED ANSWER: a. Yes, on the ground that the ordinance is ultra-vires. The
taxing powers of local government units, such as M City, cannot extend to the levy of
taxes, fees and charges already imposed by the national government, and this
include, among others, the levy of customs duties under the Tariff and Customs
Code.
b. Any question on the constitutionality or legality of tax ordinances may be raised
on appeal within thirty (30) days from the effectivity to the Secretary of Justice. The
Secretary of Justice shall render a decision within sixty (60) days from the date of
receipt of the appeal. Thereafter, within thirty (30) days after receipt of the decision
or the lapse of the sixty-day period without the Secretary of Justice acting upon the
appeal, the aggrieved party may file the appropriate proceedings with the Regional
Trial Court.
XX. After filing an Information for violation of Section 254 of the National Internal
Revenue Code (Attempt to Evade or Defeat Tax) with the CTA, the Public Prosecutor
manifested that the People is reserving the right to file the corresponding civil
action for the recovery of the civil liability for taxes. As counsel for the accused,
comment on the People's manifestation. (3%)
SUGGESTED ANSWER: I will move for the denial of the manifestation. Any
provision of law or the Rules of Court to the contrary notwithstanding, the criminal
action and the corresponding civil action for the recovery of civil liability for taxes
and penalties shall at all times be simultaneously instituted with, and jointly
determined in the same proceeding by the CTA, the filing of the criminal action
being deemed to necessarily carry with it the filing of the civil action, and no right to
reserve the filing of such civil action separately from the criminal action shall be
recognized.
XXI. MMM, Inc., a domestic telecommunications company, handles incoming

telecommunications services for non-resident foreign companies by relaying
international calls within the Philippines. To broaden the coverage of its
telecommunications services throughout the country, MMM, Inc. entered into
various interconnection agreements with local carriers. The non-resident foreign
corporations pay MMM, Inc. in US dollars inwardly remitted through Philippine
banks, in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas.
MMM, Inc. filed its Quarterly VAT Returns for 2000. Subsequently, MMM, Inc. timely
filed with the BIR an administrative claim for the refund of the amount of
P6,321,486.50, representing excess input VAT attributable to its effectively zero-
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rated sales in 2000. The BIR ruled to deny the claim for refund of MMM, Inc. because
the VAT official receipts submitted by MMM, Inc. to substantiate said claim did not
bear the words "zero-rated" as required under Section 4.108-1 of Revenue
Regulations (RR) No. 7-95. On appeal, the CTA division and the CT A en bane
affirmed the BIR ruling.
MMM, Inc. appealed to the Supreme Court arguing that the NIRC itself did not
provide for such a requirement. RR No. 7-95 should not prevail over a taxpayer's
substantive right to claim tax refund or credit.
a. Rule on the appeal of MMM, Inc. (3%)
b. Will your answer in (a) be any different if MMM, Inc. was claiming refund
of excess input VAT attributable to its effectively zero-rated sales in 2012?
(2%)
SUGGESTED ANSWER: a. The appeal of MMM, Inc. must be denied. MMM, Inc.’s
position that the requirements under RR No. 7-95 should not prevail over a
taxpayer’s substantive right to claim tax refund or credit is unmeritorious.
The Secretary of Finance has the authority to promulgate the necessary rules and
regulations for the effective enforcement of the provisions of the NIRC. Such rules
and regulations are given weight and respect by the courts in view of the rule-
making authority given to those who formulate them and their specific expertise in
their respective fields.
An applicant for a claim for tax refund or tax credit must not only prove entitlement
to the claim but also compliance with all the documentary and evidentiary
requirements. Consequently, the CTA and the CTA en banc correctly ruled that the
failure to indicate the words “zero-rated” on the invoices and receipts issued by a
taxpayer would result in the denial of the claim for refund or tax credit.
b. NO. In Kepco Philippines Corporation v. Commissioner of Internal Revenue, the

Supreme Court ruled that the subsequent incorporation of Section 4.108-1 of RR 7-
95 in Section 113(B)(2)(c) of RA 9337 actually confirmed the validity of the
imprinting requirement on VAT invoices or official receipts – a case falling under the
principle of legislative approval of administrative interpretation by reenactment.
XXII. State the conditions for allowing the following as deductions from the gross estate of
a citizen or resident alien for the purpose of imposing estate tax:
a. Claims against the estate (2%)
b. Medical expenses (2%)
SUGGESTED ANSWER: a. In order that the claims against the estate may be
deducted, the following are the requisites:
2013-2017
1. The liability represents a personal obligation of the deceased existing at the time
of his death except unpaid obligations incurred incident to his death such as unpaid
funeral expenses and unpaid medical expenses;
2. The liability was contracted in good faith and for adequate and full consideration
in money or money’s worth;
3. The claim must be a debt or claim which is valid in law and enforceable in court;
4. The indebtedness must not have been condoned by the creditor or the action to
collect from the decedent must not have prescribed.
At the time the indebtedness was incurred, the debt instrument was duly notarized
and if the loan was contracted within three (3) years before the death of the
decedent, the administrator or executor shall submit a statement showing the
disposition of the proceeds of the loan.
b. All medical expenses incurred within one (1) year before the death of the
decedent which are duly substantiated with receipts, provided that the total amount
thereof, whether paid or unpaid, does not exceed Five Hundred Pesos
(P500,000.00).
2013-2017
2016 BAR QUESTIONS
(1) Briefly explain the following doctrines: lifeblood doctrine; necessity theory; benefits
received principle; and, doctrine of symbiotic relationship. (5%)
(2) State at least five (5) cases under the exclusive appellate jurisdiction of the Court of Tax
Appeals (CTA). (5%)
(3) Rakham operates the lending company that made a loan to Alfonso in the amount of
Pl20,000.00 subject of a promissory note which is due within one (1) year from the note's
issuance. Three years after the loan became due and upon information that Alfonso is
nowhere to be found, Rakham asks you for advice on how to treat the obligation as "bad
debt." Discuss the requisites for deductibility of a "bad debt?" (5%)
(4) The City of Maharlika passed an ordinance imposing a tax on any sale or transfer of real
property located within the city at a rate of fifty percent (50%) of one percent (1%) of the
total consideration of the transaction. Jose sold a parcel of land in the city, which he
inherited from his deceased parents, and refused to pay the aforesaid tax. He instead filed a
case asking that the ordinance be declared null and void since the tax it imposed can only
be collected by the national government, as in fact he has paid the Bureau of Internal
Revenue (BIR) the required capital gains tax. If you were the City Legal Officer of
Maharlika, what defenses would you raise to sustain the validity of the ordinance? (5%)
SUGGESTED ANSWER: The Ordinance passed by the City Council of Maharlika imposing a
Transfer Tax on the sale, or any other mode of transferring ownership at the rate of 50% of
1% of the total consideration involved in the acquisition of the property cannot be declared
null and void as Petitioned by Jose with his contention that he already paid the Capital Gain
Tax. Said City Ordinance is a Taxing Power granted to the Provincial, Municipality or Cities,
pursuant to Section 135 of the Local Government Code of 1991 (LGC).
Transfer Tax paid in the Bureau of Internal Revenue (BIR) can be either donor’s or estate
taxes which is far different with the Transfer tax imposed by the Local Government, hence,
there is no reason to be confuse. Also, the transfer tax paid to the provincial or city
assessor’s office, its evidence of payment or the official receipt is required by the Register
of Deeds of the province concerned before registering any deed. This is also required by the
provincial assessor before cancelling an old tax declaration and issuing a new one in its
place. The payment of the transfer tax is the responsibility of the seller, donor, transferor,
executor or and administrator. As to the rate of tax imposed it is also compliant to Section
151 of the LGC.
Therefore, Jose has no reason not to pay nor to question the transfer tax imposed on him
and seek declaration of which to be null and void.
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(5) Sure Arrival Airways (SAA) is a foreign corporation, organized under the laws of the
Republic of Nigeria. Its commercial airplanes do not operate within Philippine territory, or
service passengers embarking from Philippine airports. The firm is represented in the
Philippines by its general agent, Narotel.
SAA sells airplane tickets through Narotel, and these tickets are serviced by SAA airplanes
outside the Philippines. The total sales of airplane tickets transacted by Narotel for SAA in
2012 amounted to Pl0,000,000.00. The Commissioner of Internal Revenue (CIR) assessed
SAA deficiency income taxes at the rate of 30% on its taxable income, finding that SAA's
airline ticket sales constituted income derived from sources within the Philippines.
SAA filed a protest on the ground that the alleged deficiency income taxes should be
considered as income derived exclusively from sources outside the Philippines since SAA
only serviced passengers outside Philippine territory. It, thus, asserted that the imposition
of such income taxes violated the principle of territoriality in taxation.
Is the theory of SAA tenable? Explain. (5%)
(6) Mapagbigay Corporation grants all its employees (rank and file, supervisors, and
managers) 5% discount of the purchase price of its products. During an audit investigation,
the BIR assessed the company the corresponding tax on the amount equivalent to the
courtesy discount received by all the employees, contending that the courtesy discount is
considered as additional compensation for the rank and file employees and additional
fringe benefit for the supervisors and managers. In its defense, the company argues that the
discount given to the rank and file employees is a de minimis benefit and not subject to tax.
As to its managerial employees, it contends that the discount is nothing more than a
privilege and its availment is restricted.
Is the BIR assessment correct? Explain. (5%)
(7) Philippine National Railways (PNR) operates the rail transport of passengers and goods
by providing train stations and freight customer facilities from Tutuban, Manila to the Bicol
Province. As the operator of the railroad transit, PNR administers the land, improvements
and equipment within its main station in Tutuban, Manila.
Invoking Section 193 of the Local Government Code (LGC) expressly withdrawing the tax
exemption privileges of government-owned and controlled corporations upon the
effectivity of the Code in 1992, the City Government of Manila issued Final Notices of Real
Estate Tax Deficiency in the amount of P624,000,000.00 for the taxable years 2006 to 2010.
On the other hand, PNR, seeking refuge under the principle that the government cannot tax
itself, insisted that the PNR lands and buildings are owned by the Republic.
Is the PNR exempt from real property tax? Explain your answer. (5%)
SUGGESTED ANSWER: Yes, PNR is exempt from real property tax. PNR is a corporation
created to serve as the instrumentality of the Government of the Philippines in providing a
nationwide railroad and transport system, and under Section 133 (o) of the Local
Government Code, PNR as a government instrumentality as such it is not taxable because it
2013-2017
is not subject to taxes, fees or charges of any kind by local governments pursuant to the
Local Government Code the only exception is when PNR leases its real property to a taxable
person as provided in Section 234(a) of the Local Government Code, in which case the
specific real property leased becomes subject to real estate tax. Thus, only portions of the
PNR Lands and Buildings leased to taxable persons like private parties are subject to real
estate tax by the City of Manila.
Section 193 does not apply with PNR since its charter is not listed as Government owned
and controlled corporation.
(8) In 2011, Solar Computer Corporation (Solar) purchased a proprietary membership

share covered by Membership Certificate No. 8 from the Mabuhay Golf Club, Inc. for
P500,000.00. On December 27, 2012, it transferred the same to David, its American
consultant, to enable him to avail of the facilities of the Club. David executed a Deed of
Declaration of Trust and Assignment of Shares wherein he acknowledged the absolute
ownership of Solar over the share; that the assignment was without any consideration; and
that the share was placed in his name because the Club required it to be done. In 2013, the
value of the share increased to P800,000.00.
Is the said assignment a "gift" and, therefore, subject to gift tax? Explain. (5%)
(9) [a] Explain the procedure for claiming refunds or tax credits of input Value Added Tax
(VAT) for zero-rated or effectively zero-rated sales under Sec. 112 of the National Internal
Revenue Code (NIRC) from the filing of an application with the CIR up to the CTA. (2.5%)
[b] Explain the procedure for claiming refunds of tax erroneously or illegally collected
under Sec. 229 of the NIRC from the filing of the claim for refunds with the CIR up to the
CTA. (2.5%)
(10) Congress issued a law allowing a 20% discount on the purchases of senior citizens
from, among others, recreation centers. This 20% discount can then be used by the sellers
as a "tax credit." At the initiative of BIR, however, Republic Act No. (RA) 9257 was enacted
amending the treatment of the 20% discount as a "tax deduction." Equity Cinema filed a
petition with the RTC claiming that RA 9257 is unconstitutional as it forcibly deprives
sellers a part of the price without just compensation.
[a] What is the effect of converting the 20% discount from a "tax credit" to a "tax
deduction"? (2.5%)
[b] If you are the judge, how will you decide the case? Briefly explain your answer. (2.5%)
(11) Soaring Eagle paid its excise tax liabilities with Tax Credit Certificates (TCCs) which it
purchased through the One Stop Shop Inter-Agency Tax Credit Center (Center) of the
Department of Finance. The Center is a composite body of the DOF, BIR, BOC and the BOI.
The TCCs were accepted by the BIR as payments. A year after, the BIR demanded the
payment of alleged deficiency excise taxes on the ground that Soaring Eagle is not a
qualified transferee of the TCCs it purchased from other BOI-registered companies. The BIR
argued that the TCCs are subject to post-audit as a suspensive condition. On the other hand,
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Soaring Eagle countered that it is a buyer in good faith and for value who merely relied on
the Center's representation of the genuineness and validity of the TCCs. If it is ordered to
pay the deficiency, Soaring Eagle claims the same is confiscatory and a violation of due
process. Is the assessment against Soaring Eagle valid? Explain. (5%)
(12) The Philippine-British Association, Inc. (Association) is a non-stock, non-profit

organization which owns the St. Michael's Hospital (Hospital). Sec. 216 in relation to Sec.
215 of the LGC classifies all lands, buildings and other improvements thereon actually,
directly, and exclusively used for hospitals as "special." A special classification prescribes a
lower assessment than a commercial classification.
Within the premises of the Hospital, the Association constructed the St. Michael's Medical
Arts Center (Center) which will house medical practitioners who will lease the spaces
therein for their clinics at prescribed rental rates. The doctors who treat the patients
confined in the Hospital are accredited by the Association.
The City Assessor classified the Center as "commercial" instead of "special" on the ground
that the Hospital owner gets income from the lease of its spaces to doctors who also
entertain out-patients. Is the City Assessor correct in classifying the Center as
"commercial?" Explain. (5%)
SUGGESTED ANSWER: Real Property shall be classified for purposes of assessment as

provided by Sec.215 of the Local Government Code. In the same code, Sec. 216 All lands,
buildings, and other improvements thereon actually, directly and exclusively used for
hospitals, cultural, or scientific purposes, and those owned and used by local water
districts, and government-owned or controlled corporations rendering essential public
services in the supply and distribution of water and/or generation and transmission of
electric power shall be classified as special. However, in Section 217 it is provided that Real
property shall be classified, valued and assessed on the basis of actual use regardless if
where located, whoever owns it, and who ever uses it.
St. Michael's Medical Arts Center (Center) which will house medical practitioners who will
lease the spaces therein for their clinics at prescribed rental rates and the doctors who
treat the patients confined in the Hospital are accredited by the Association, was classified
by the City Assessor as “Commercial” instead of “Special” because the Hospital owner gets
income from the lease of its spaces to doctors who also entertain out-patients.
The City Assessor on the foregoing arguments, classified it as commercial, however, in the
case of City Assessor of Cebu vs. Association of Benevola de Cebu, the court ruled that
Center the importance of CHHMAC in the operation of CHH cannot be over-emphasized nor
disputed. Clearly, it plays a key role and provides critical support to hospital operations.
Charging rentals for the offices used by its accredited physicians cannot be equated to a
commercial venture. Finally, respondents charge of rentals for the offices and clinics its
accredited physicians occupy cannot be equated to a commercial venture, which is mainly
for profit.
Respondents explanation on this point is well taken. First, CHHMAC is only for its
consultants or accredited doctors and medical specialists. Second, the charging of rentals is
2013-2017
a practical necessity: (1) to recoup the investment cost of the building, (2) to cover the
rentals for the lot CHHMAC is built on, and (3) to maintain the CHHMAC building and its
facilities. Third, as correctly pointed out by respondent, it pays the proper taxes for its
rental income. And, fourth, if there is indeed any net income from the lease income of
CHHMAC, such does not inure to any private or individual person as it will be used for
respondent’s other charitable projects.
The Supreme Court affirmed the decision of CA that CHHMAC building should be classified
as special and not commercial and should be accorded the 10% special assessment for it is
not operated primarily for profit but as an integral part of CHH and CHHMAC operations
being devoted for the benefit of the CHHs patients.
In the instant case being similarly situated the City Assessor is incorrect for classifying the
Center as commercial instead of special on the proper application of Sec. 216 in relation to
Section 215 of the Local Government Code.
(13) Pursuant to Sec. 11 of the "Host Agreement" between the United Nations and the
Philippine government, it was provided that the World Health Organization (WHO), "its
assets, income and other properties shall be : a) exempt from all direct and indirect taxes."
Precision Construction Corporation (PCC) was hired to construct the WHO Medical Center
in Manila. Upon completion of the building, the BIR assessed a 12% VAT on the gross
receipts of PCC derived from the construction of the WHO building. The BIR contends that
the 12% VAT is not a direct nor an indirect tax on the WHO but a tax that is primarily due
from the contractor and is therefore not covered by the Host Agreement. The WHO argues
that the VAT is deemed an indirect tax as PCC can shift the tax burden to it. Is the BIR
correct? Explain. (5%)
(14) Lucky V Corporation (Lucky) owns a IO-storey building on a 2,000 square meter lot in
the City of Makati. It sold the lot and building to Rainier. for P80 million. One month after,
Rainier sold the lot and building to Healthy Smoke Company (HSC) for P200 million. Lucky
filed its annual tax return and declared its gain from the sale of the lot and building in the
amount of P750,000.00.
An investigation conducted by the BIR revealed that two months prior to the sale of the
properties to Rainier, Lucky received P40 million from HSC and not from Rainier. Said
amount of P40 million was debited by HSC and reflected in its trial balance as "other inv. -
Lucky Bldg." The month after, another P40 million was reflected in HSC's trial balance as
"other inv. - Lucky Bldg." The BIR concluded that there is tax evasion since the real buyer of
the properties of Lucky is HSC and not Rainier. It issued an assessment for deficiency
income tax in the amount of P79 million against Lucky. Lucky argues that it resorted to tax
avoidance or a tax saving device, which is allowed by the NIRC and BIR rules since it paid
the correct taxes based on its sale to Rainier. On the other hand, Rainier and HSC also paid
the prescribed taxes arising from the sale by Rainier to HSC. Is the BIR correct in assessing
taxes on Lucky? Explain. (5%)
2013-2017
(15) Peter is the Vice-President for Sales of Golden Dragon Realty Conglomerate, Inc.
(Golden Dragon). A group of five (5) foreign investors visited the country for possible
investment in the condominium units and subdivision lots of Golden Dragon. After a tour of
the properties for sale, the investors were wined and dined by Peter at the posh Conrad's
Hotel at the cost of Pl 50,000.00. Afterward, the investors were brought to a party in a
videoke club which cost the company P200,000.00 for food and drinks, and the amount of
P80,000.00 as tips for business promotion officers. Expenses at Conrad's Hotel and the
videoke club were receipted and submitted to support the deduction for representation
and entertainment expenses. Decide if all the representation and entertainment expenses
claimed by Golden Dragon are deductible. Explain. (5%)
(16) Amor Powers, Inc. (API) is a domestic corporation registered with the BIR as a value-
added taxpayer. API incurred excess input VAT in the amount of P500,000,000.00 on
August 3, 2008. Hence, it filed with the BIR an administrative claim for the refund or credit
of these input taxes on August 15, 2010. Without waiting for the CIR to act on its claim, API
filed a Petition for Review with the CT A on September 15, 2010 before the lapse of two
years after the close of the taxable quarter concerned.
In its Comment on the Petition, the CIR argues that API's Petition should be dismissed as it
was filed before the lapse of the 120-day period given to the CIR by Sec. 112(D) of the NIRC,
which became effective on January 1, 1998. For the CIR, the 120- day period is mandatory
and jurisdictional so that any suit filed before its expiration is premature and, therefore,
dismissible.
API, on the other hand, invokes BIR Ruling No. DA-489-03 issued by the CIR on December
10, 2003 in answer to a query posed by the Department of Finance regarding the propriety
of the actions taken by Lazi Bay Resources Development, Inc., which filed an administrative
claim for refund with the CIR and, before the lapse of the 120-day period from its filing,
filed a judicial claim with the CTA. BIR Ruling No. DA-489-03 stated that the taxpayer-
claimant need not wait for the lapse of the 120-day period before it could seek judicial
relief with the CTA.
Will API's Petition for Review prosper? Decide with reasons. (5%)
(17) The requisites for a valid waiver of the three-year (3-year) prescriptive period for the
BIR to assess taxes due in the taxable year are prescribed by Revenue Memorandum Order
(RMO) No. 20-90:
1. The waiver must be in the proper form prescribed by RMO 20-90.
2. The waiver must be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any of its
responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating
that the BIR has accepted and agreed to the waiver. The date of such acceptance by
the BIR should be indicated. However, before signing the waiver, the CIR or the
2013-2017
revenue official authorized by him must make sure that the waiver is in the
prescribed form, duly notarized, and executed by the taxpayer or his duly
authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau
should be before the expiration of the period of prescription or before the lapse of
the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the
docket of the case, the second copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was notified of the
acceptance of the BIR and the perfection of the agreement.
After being assessed by the BIR with alleged deficiency income taxes, VVV Corporation
(VVV) through Enrique, its President, executed a waiver of the prescriptive period. The
waiver was signed by Revenue District Officer (RDO) Alfredo. However, the waiver did not
state the date of execution by the taxpayer and date of acceptance by the BIR. Enrique was
also not furnished a copy of the waiver by the BIR.
VVV claims that the waiver is void due to non-compliance with RMO 20-90. Hence, the
period for assessment had already prescribed. Moreover, since the assessment involves P2
million, the waiver should have been signed by the CIR and instead of a mere RDO. On the
other hand, the BIR contends that the requirements ofRMO No. 20-90 are merely directory;
that the execution of the waiver by VVV was a renunciation of its right to invoke
prescription and that the government cannot be estopped by the mistakes committed by its
revenue officers. Is VVV liable? Explain. (5%)
(18) Henry, a U.S. naturalized citizen, went home to the Philippines to reacquire Philippine
citizenship under RA 9225. His mother left him a lot and building in Makati City and he
wants to make use of it in his trading business. Considering that he needs money for the
business, he wants to sell his lot and building and make use of the consideration. However,
the lot has sentimental value and he wants to reacquire it in the future. A friend of Henry
told him of the "sale-leaseback transaction" commonly used in the U.S., which is also used
for tax reduction. Under said transaction, the lot owner sells his property to a buyer on the
condition that he leases it back from the buyer. At the same time, the property owner is
granted an option to repurchase the lot on or before an agreed date. Henry approaches you
as a tax lawyer for advice.
Explain what tax benefits, if any, can be obtained by Henry and the buyer from the sale-
leaseback transaction? (5%)
(19) Jennifer is the only daughter of Janina who was a resident in Los Angeles, California,
U.S.A. Janina died in the U.S. leaving to Jennifer one million shares of Sun Life (Philippines),
Inc., a corporation organized and existing under the laws of the Republic of the Philippines.
Said shares were held in trust for Janina by the Corporate Secretary of Sun Life and the
latter can vote the shares and receive dividends for Janina. The Internal Revenue Service
2013-2017
(IRS) of the U.S. taxed the shares on the ground that Janina was domiciled in the U.S. at the
time of her death.
[a] Can the CIR of the Philippines also tax the same shares? Explain. (2.5%)
[b] Explain the concept of double taxation. (2.5%)
(20) Patrick is a successful businessman in the United States and he is a sole proprietor of a
supermarket which has a gross sales of $10 million and an annual income of $3 million. He
went to the Philippines on a visit and, in a party, he saw Atty. Agaton who boasts of being a
tax expert. Patrick asks Atty. Agaton: if he (Patrick) decides to reacquire his Philippine
citizenship under RA 9225, establish residence in this country, and open a supermarket in
Makati City, will the BIR tax him on the income he earns from his U.S. business? If you were
Atty. Agaton, what advice will you give Patrick? (5%)
2013-2017
2017 QUESTIONS
(1) SMZ, Inc. is a VAT-registered enterprise engaged in the general construction business.
HP International contracts the services of SMZ, Inc. to construct HP lnternational's factory
building located in the Laguna Techno Park, a special economic zone. HP International is
registered with the Philippine Economic Zone Authority (PEZA) as an ecozone export
enterprise, and, as such, enjoys income tax holiday pursuant to the Special Economic Zone
Act of 1995.
SMZ, Inc. files an application with the Bureau of Internal Revenue (BIR) for the VAT zero-
rating of its sale of services to HP International. However, the BIR denies SMZ, lnc.'s
application on the ground that HP International already enjoys income tax holiday.
Is the BIR correct in denying SMZ, lnc.'s application? Explain your answer. (6%)
(2) Wreck Corporation is a domestic corporation engaged in the business of importing,

refining and selling petroleum products. During the period from September 1, 2014 to
December 31, 2014, Wreck Corporation imported 225 million liters of Jet A-1 aviation fuel
and paid the excise taxes thereon. Seventy-five percent (75%) of the total volume of
aviation fuel imported were actually sold to international carriers of Philippine and foreign
registries for their use or consumption outside of the Philippines in the period from
November 1, 2014 to December 31, 2014. Wreck Corporation did not pass on to the
international carriers the excise taxes it paid on the importation of petroleum products.
On June 25, 2015, Wreck Corporation filed an administrative claim for refund or issuance of
tax credit certificate amounting to the excise taxes it had paid on the importation of 225
million liters of Jet A-1 aviation fuel.
If you were the Commissioner of Internal Revenue, will you grant Wreck Corporation's
administrative claim for refund or issuance of tax credit certificate? Explain your answer.
(6%)
(3) Vanderful, lnc.'s income tax return for taxable year 2015 showed an overpayment due
to excess creditable
withholding taxes in the amount of ₱750,000.00. The company opted to carry over the
excess income tax
credits as tax credit against its quarterly income tax liabilities for the next succeeding
years. For taxable year
2016, the company's income tax return showed an overpayment due to excess creditable
withholding taxes in
the amount of ₱1,100,000.00, which included the carry-over from year 2015 in the amount
of ₱750,000.00
because its operations resulted in a net loss; hence, there was no application for any tax
liability. This time, the
2013-2017
company opted and marked the box "To be refunded' in respect of the total amount of
₱1,100,000.00.
Vanderful, Inc. now files in the BIR a claim for refund of unutilized overpayments of
₱1,100,00.00. Is the
claim meritorious? (4%)
IV.
On the basis of a warrant of seizure and detention issued by the Collector of Customs for
the purpose of
enforcing the Tariff and Customs Code, assorted brands of liquor and cigarettes said to
have been illegally
imported into the Philippines were seized from a store operating in a Freeport zone. The
store owner moved for
the quashal of the warrant on the ground that the Collector of Customs had no jurisdiction
to enforce it within
the Freeport zone.
Should the motion to quash be granted? (3%)
V.
On March 30, 2016, XL Co. filed an administrative claim for refund of unutilized input VAT
for taxable year
2014, together with supporting documents. XL Co. claimed that its sale of generated power
and delivery of
electric capacity and energy was VAT zero-rated. Due to the inaction of the Commissioner
of Internal Revenue
(CIR), XL Co. filed with the Court of Tax Appeals (CTA) the following judicial claims for
refund:
Period Covered Date Filed
1st Quarter of 2014 March 31, 2016
2nd Quarter of 2014 June 30, 2016
3rd and 4th Quarter of 2014 August 12, 2016
Is XL Co.'s claim for VAT refund timely filed? Explain your answer. (5%)
VI. Heeding the pronouncement of the President that the worsening traffic condition in the
metropolis was a sign of economic progress, the Congress enacted Republic Act No. 10701
(RA 10701), also known as An Act Imposing a Transport Tax on the Purchase of Private
Vehicles.
Under RA 10701, buyers of private vehicles are required to pay a transport tax equivalent
to 5°/o of the total purchase price per vehicle purchased. RA 10701 provides that the Land
Transportation Office (LTO) shall not accept for registration any new vehicles without
proof of payment of the 5% transport tax. RA 10701 further provides that existing owners
of private vehicles shall be required to pay a tax equivalent to 5% of the current fair market
value of every vehicle registered with the LTO. However, RA 10701 exempts owners of
public utility vehicles and the Government from the coverage of the 5% transport tax.
2013-2017
A group of private vehicle owners sue on the ground that the law is unconstitutional for
contravening the Equal Protection Clause of the Constitution.
Rule on the constitutionality and validity of RA 10701. (5%)
VII. Calvin Dela Pisa was a Permits and Licensing Officer (rank-and-file) of Sta. Portia Realty
Corporation (SPRC). He invited the Regional Director of the Housing and Land Use
Regulatory Board (HLURB) to lunch at the Sulo Hotel in Quezon City to discuss the
approval of SPRC's application for a development permit in connection with its subdivision
development project in Pasig City. At breakfast the following day, Calvin met a prospective
client interested to enter into a joint venture with SPRC for the construction of a residential
condominium unit in Cainta, Rizal.
Calvin incurred expenses for the lunch and breakfast meetings he had with the Regional
Director of HLURB and the prospective client, respectively. The expenses were duly
supported by official receipts issued in his name. At month's end, he requested the
reimbursement of his expenses, and SPRC granted his request.
(a) Can SPRC claim an allowable deduction for the expenses incurred by Calvin? Explain
your answer.
(2.5%)
(b) Is the reimbursement received by Calvin from SPRC subject to tax? Explain your
answer. (2.5%)
VIII. On April 30, 2015, Daryl resigned as the production manager of 52nd Avenue, a
television studio owned by SSS Entertainment Corporation. 52nd Avenue issued to her a
Certificate of Withholding Tax on Compensation (BIR Form No. 2316), which showed that
the tax withheld from her compensation was equal to her income tax due for the period
from January 2015 to April 30, 2015.
A month after her resignation, Daryl put up her own studio and started producing short
films. She was able to earn a meager income from her short films but did not keep record of
her production expenses.
Is Daryl qualified for substituted filing for taxable year 2015? Explain your answer. (3%)
IX. Upon his retirement, Alfredo transferred his savings derived from his salary as a
marketing assistant to a time deposit with AAB Bank. The bank regularly deducted 20%
final withholding tax on the interest income from the time deposit.
Alfredo contends that the 20% final tax on the interest income constituted double taxation
because his salary had been already subjected to withholding tax.
Is Alfredo's contention correct? Explain your answer. (3%)
X. On January 27, 2017, Ramon, the comptroller of Vantage Point, Inc., executed a document
entitled Waiver of the Statute of Limitations in connection with the BIR's investigation of
the tax liabilities of the company for the year 2012. However, the Board of Directors of
2013-2017
Vantage Point, Inc. did not adopt a board resolution authorizing Ramon to execute the
waiver.
On October 14, 2017, Vantage Point, Inc. received a preliminary assessment notice from the
BIR indicating its deficiency withholding taxes for the year 2012. Vantage Point, Inc. filed
its protest. On October 30, 2017, the BIR issued a formal letter of demand and final
assessment notice. Vantage Point, Inc. again filed a protest. The Commissioner of Internal
Revenue denied the protests and directed the collection of the assessed deficiency taxes.
Accordingly, Vantage Point, Inc. filed a petition for review in the CTA to seek the
cancellation and withdrawal of the assessment on the ground of prescription.
(a) What constitutes a valid waiver of the statute of limitations for the assessment and
collection of taxes? Explain your answer. (3%)
(b) Has the right of the Government to assess and collect deficiency taxes from Vantage
Point, Inc. for the year 2012 prescribed? Explain your answer. (3%)
XI. The Board of Directors of Sumo Corporation, a company primarily engaged in the
business of marketing and distributing pest control products, approved the partial
cessation of its commercial operations, resulting in the separation of 32 regular employees.
Only half of the affected employees were notified of the board resolution.
Rule on the taxability of the separation pay and indemnity that will be received by the
affected employees as the result of their separation from service. Explain your answer.
(3%)
XII. On September 17, 2015, Data Realty, Inc., a real-estate corporation duly organized and
existing under Philippine law, sold to Jenny Vera a condominium unit at Freedom
Residences in Malabon City with an area of 32.31 square meters for a contract price of
₱4,213,000.00. The condominium unit had a zonal value amounting
to ₱2,877,000.00 and fair market value amounting to ₱550,000.00.
(a) Is the transaction subject to value-added tax and documentary stamp tax? Explain your
answer. (3%)
(b) Would your answer be the same if the property was sold by a bank in a foreclosure
sale? Explain
your answer. (3%)
XIII.
BATAS Law is a general professional partnership operating in the City of Valenzuela. It
regularly pays valueadded
tax on its services. All its lawyers have individually paid the required professional tax for
the year 2017.
However, as a condition for the renewal of its business permit for the year 2017, the City
Treasurer of
Valenzuela assessed BAT AS Law for the payment of percentage business tax on its gross
receipts for the year
2016 in accordance with the Revenue Tax Code of Valenzuela.
2013-2017
Is BATAS Law liable to pay the assessed percentage business tax? Explain your answer.
(3%)
XIV. Globesmart Services, Inc. received a final assessment notice with formal letter of
demand from the BIR for
deficiency income tax, value-added tax and withholding tax for the taxable year 2016
amounting to P48
million. Globesmart Services, Inc. filed a protest against the assessment, but the
Commissioner of Internal
Revenue denied the protest. Hence, Globesmart Services, Inc. filed a petition for review in
the CTA with an
urgent motion to suspend the collection of tax.
After hearing, the CTA Division issued a resolution granting the motion to suspend but
required Globesmart
Services, Inc. to post a surety bond equivalent to the deficiency assessment within 15 days
from notice of the
resolution. Globesmart Services, Inc. moved for the partial reconsideration of the resolution
and for the
reduction of the bond to an amount it could obtain. The CTA Division issued another
resolution reducing the
amount of the surety bond to Jl24 million. The latter amount was still more than the net
worth of Globesmart
Services, Inc. as reported in its audited financial statements.
(a) May the collection of taxes be suspended? Explain your answer. (3%)
(b) Is the CTA Division justified in requiring Globesmart Services, Inc. to post a surety bond
as a
condition for the suspension of the deficiency tax collection? Explain your answer. (3%)
XV. Casimira died on June 19, 2017 after three weeks of confinement due to an
unsuccessful liver transplant. For
her confinement, she had incurred substantial medical expenses that she financed through
personal loans
secured by mortgages on her real properties. Her heirs are still in the process of making an
inventory of her
assets that can be used to pay the estate taxes, if any, which are due on December 19, 2017.
(a) Are the medical expenses, personal loans and mortgages incurred by Casimira
deductible from her
gross estate? Explain your answer.(5%)
(b) May the heirs of Casimira file the estate tax return and pay the corresponding estate tax
beyond
December 19, 2017 without incurring interest and surcharge? Explain your answer.(3%)
2013-2017
XVI. The BIR assessed the Babuyan Water District (BWD) with deficiency income taxes
amounting to P8.5 million, inclusive of interest and surcharge. The BWD disputed the
assessment, and argued that it was a wholly-owned
government entity performing essential government functions. However, the BIR denied
the protest.
The BWD filed a petition for arbitration in the Office of the Secretary of Justice pursuant to
Sections 66 to 71,
Chapter 14, Book IV of the Administrative Code of 1987 to assail the denial of its protest,
and to seek the
proper interpretation of Section 32(8)(7)(b) of the Tax Code that excluded from gross
income the income
derived by the Government or its political subdivisions. The Secretary of Justice rendered a
decision declaring
the BWD exempt from the payment of income tax.
The Commissioner of Internal Revenue appealed to the CTA on the sole ground that the
Secretary of Justice
had no jurisdiction to review the assessment of the BIR.
Is the appeal meritorious? Explain your answer. (4%)
XVII. San Juan University is a non-stock, non-profit educational institution. It owns a piece
of land in Caloocan City
on which its three 2-storey school buildings stood. Two of the buildings are devoted to
classrooms,
laboratories, a canteen, a bookstore and administrative offices. The third building is
reserved as dormitory for
student athletes who are granted scholarships for a given academic year.
In 2017, San Juan University earned income from tuition fees and from leasing a portion of
its premises to
various concessionaires of food, books, and school supplies.
(a) Can the City Treasurer of Caloocan City collect real property taxes on the land and
building of San
Juan University? Explain your answer. (5%)
(b) Is the income earned by San Juan University for the year 2017 subject to income tax?
Explain your
answer. (5%)
XVIII. (a) Differentiate outright smuggling from technical smuggling. (3%)

(b)Distinguish compromise from abatement of taxes. (3%)
XIX. CMI School, Inc., a non-stock, non-profit corporation, donated its three parcels of idle
land situated in the Municipality of Cuyapo, Nueva Ecija to SLC University, another non-
stock, non-profit corporation, in recognition of the latter's contribution to and participation
in the spiritual and educational development of the former.
2013-2017
(a) Is CMI School, Inc. liable for the payment of donor's tax? Explain your answer. (2.5%)
(b) If SLC University later sells the three parcels of idle land to Puregold Supermarket, Inc.,
a stock corporation, will SLC University be liable for capital gains tax? Explain your
answer.(3%)
(c) If SLC University donates the three parcels of idle land in favor of the Municipality of
Cuyapo, Nueva Ecija, will SLC University be liable for donor's tax? Explain your answer.
(2.5%)

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2013-2017

TAXATION BAR QUESTIONS AND SUGGESTED ANSWERS

II. A group of philanthropists organized a non-stock, non-profit hospital for charitable

IV. Atty. Gambino is a partner in a general professional partnership. The partnership

SUGGESTED ANSWER: NO. The BIR is wrong in disallowing the deductions.

SUGGESTED ANSWER: NO. The BIR is not correct.

SUGGESTED ANSWER: NO. The Bureau of Customs was not correct.

SUGGESTED ANSWER: Preliminarily, XYZ Law Offices is a general professional partnership

As to VAT: XYZ Law Offices, as a general professional partnership, is subject to VAT as it

SUGGESTED ANSWER: YES. The assessment was proper.

Was the BIR correct? (7%)

SUGGESTED ANSWER: Mr. Abcede’s contention is not correct; he may be re-investigated

MULTIPLE CHOICE QUESTIONS

Are the dividends taxable? (1%)

What advice will you give him? (1%)

The cigarette company is __________ (1%)

(A) wrong because taxes are the lifeblood of the government

Is the assessment valid? (1%)

SUGGESTED ANSWER: (B) Yes, income is income regardless of the source.

Is the law constitutional? (1%)

(A) It is unconstitutional because it clearly discriminates against this person.

SUGGESTED ANSWER: (C) It is constitutional as it applies to all persons in that class.

Should the BIR grant the requested permission? (1%)

(A) It should grant permission to make payment convenient to taxpayers.

Was there a taxable fringe benefit? (1%)

Thus, there was a taxable fringe benefit.

What is the legal status of the waiver? (1%)

Decide on the validity of the FAN. (1%)

Resolve the appeal. (1%)

Rule on the CIR's action. (1%)

Rule on the validity of the ordinance. (1%)

Describe the donated property from the taxation perspective. (1%)

Characterize Mr. Z's action. (1%)

SUGGESTED ANSWER: (A) Mr. Z committed smuggling.

Is Mr. A guilty of fraud? (1%)

SUGGESTED ANSWER: (D) None of the above.

SUGGESTED ANSWER: NO, if Mr. De Almacen reported his campaign contributions of

(6) Choose the correct answer. Smuggling - (1%)

(10) Which of the following is an exclusion from gross income? (1%)

(A) Salaries and wages

SUGGESTED ANSWER: (D) De minimis benefits.

SUGGESTED ANSWER: NO. Pursuant to the case of Commissioner of Internal Revenue v.

SUGGESTED ANSWER: (A) The administrative remedies available to Madam X to contest

Whose argument is correct? Decide. (5%)

SUGGESTED ANSWER: The argument of the condominium corporation is correct –

Investigations by the Bureau of Internal Revenue (BIR) showed that:

SUGGESTED ANSWER: The tax planning scheme adopted by Haeltown Corporation

(22) Choose the correct answer. Double Taxation - (1%)

(23) Choose the correct answer. Tax Avoidance ‒ (1%)

SUGGESTED ANSWER: B. Tax avoidance is a tax-saving device within the means

(1) Professional/legal fees from various clients

SUGGESTED ANSWER: (B) Importation of personal and household effects belonging to

(28) Choose the correct answer. Tax laws - (1%)

II. Mr. A, a citizen and resident of the Philippines, is a professional boxer. In a

V. BBB, Inc., a domestic corporation, enjoyed a particularly profitable year in 2014. In

d) Domestic corporation (1%)

SUGGESTED ANSWER: a. A final withholding tax of ten percent (10%) shall be

Hence, DDD Corp. is subject to VAT.

SUGGESTED ANSWER: a. NO, because a non-resident Filipino citizen is