1994-2006 Bar Exam Question in Taxation

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics sirdondee@gmail.
com
ANSWERS TO BAR
EXAMlNATlON QUESTlONS
lN
l of 73
TAXATION LAW
ARRANGED BY TOPlC
(l994 - 2006)
Edited and Arranged by:
ROMUALDO L. SEERIS II
Silliman University - College of Law
From the ANSWERS TO BAR EXAMINATION QUESTIONS
by the UP LAW COMPLEX
&
PHILIPPINE ASSOCIATION OF LAW SCHOOLS
June 3, 2007
Answers to the BAR: Taxation 1994-2006 (Arranged by Topics sirdondee@gmail.com
FOREWARD
2 of 73
This work is NOT intended FOR SALE or COMMERCE. This work is a freeware. It may
be freely o!ied and distrib"ted# ne$ertheless# %ERMISSION TO CO%& from the editors
is A'(ISA)LE to !rotet the interest of the ORI*INAL SO+RCES,REFERENCES of
this material-. It is !rimarily intended for all those who desire to ha$e a dee!er
"nderstandin. of the iss"es ommonly to"hed by the %hili!!ine )ar E/aminations and
its trend on s!eifially on Ta/ation Laws. It is s!eifially intended for law st"dents from
the !ro$ines who# $ery often# are rei!ients of deliberately distorted notes from other
"nsr"!"lo"s law shools and st"dents.
I wo"ld like to seek the ind"l.ene of the reader for some )ar 0"estions whih are
im!ro!erly lassified "nder a to!i and for some to!is whih are im!ro!erly or
i.norantly !hrased# for the arran.er is 1"st a )ar Re$iewee who has !re!ared this work
while re$iewin. for the 2
nd
time for the )ar E/ams 2334 "nder time onstraints and
within his limited knowled.e of the law. I wo"ld like to seek the reader5s ind"l.ene also
for a n"mber of ty!o.ra!hial errors in this work.
The Arranger
Detailed Table of Contents
3 of 73
GENERAL PRlNClPLES.............................................................................................................. 8
Basic Features: Present lncome Tax System (l996)............................................................................... 8
Basic Stages or Aspects of Taxation (2006)............................................................................................ 8
Collection of Taxes: Authority; Ordinary Courts (200l)............................................................................ 8
Collection of Taxes: Prescription (200l).................................................................................................. 8
Direct Tax vs. lndirect Tax (l994)............................................................................................................ 8
Direct Tax vs. lndirect Tax (2000)............................................................................................................ 8
Direct Tax vs. lndirect Tax (200l)............................................................................................................ 8
Direct Tax vs. lndirect Tax (2006)............................................................................................................
Double Taxation (l997)...........................................................................................................................
Double Taxation: What Constitutes DT? (l996)......................................................................................
Double Taxation; lndirect Duplicate Taxation (l997)...............................................................................
Double Taxation; License Fee vs. Local Tax (2004)................................................................................
Double Taxation; Methods of Avoiding DT (l997)...................................................................................
lmprescriptibility of Tax Laws (l997).......................................................................................................
Power of Taxation: Equal Protection of the Law (2000)........................................................................ !"
Power of Taxation: lnherent in a Sovereign State (2003)...................................................................... !"
Power of Taxation: Legality; Local Gov't Taxation (2003)...................................................................... !"
Power of Taxation: Legislative in Nature (l994).................................................................................... !"
Power of Taxation: Limitations of the Congress (200l)......................................................................... !"
Power of Taxation: Limitations: Passing of Revenue Bills (l997).......................................................... !!
Power of Taxation: Limitations; Power to Destroy (2000)...................................................................... !!
Power of Taxation: Revocation of Exempting Statutes (l997)............................................................... !!
Power of Taxation; lnherent in a Sovereign State (2005)...................................................................... !!
Power of Taxation; Legislative in Nature (l996).................................................................................... !#
Purpose of Taxation; lnterpretation (2004)............................................................................................ !#
Purpose of Taxation; Legislative in Nature (2004)................................................................................. !#
Rule on Set-Off or Compensation of Taxes (l996)................................................................................ !#
Rule on Set-Off or Compensation of Taxes (200l)................................................................................ !#
Rule on Set-Off or Compensation of Taxes (2005)................................................................................ !3
Rule on Set-Off or Compensation on Taxes (2005)............................................................................... !3
Tax Avoidance vs. Tax Evasion (l996).................................................................................................. !3
Tax Avoidance vs. Tax Evasion (2000).................................................................................................. !3
Tax Exemptions: Nature & Coverage; Proper Party (2004)................................................................... !3
Tax Laws; BlR Ruling; Non-Retroactivity of Rulings (2004)................................................................... !$
Tax Pyramiding; Definition & Legality (2006)......................................................................................... !$
Taxpayer Suit; When Allowed (l996)..................................................................................................... !$
Uniformity in the Collection of Taxes (l998).......................................................................................... !$
lNCOME TAXATlON.................................................................................................................. !$
Basic: Allowable Deductions vs. Personal Exemptions (200l).............................................................. !$
Basic: Meaning of Taxable lncome (2000)............................................................................................. !%
Basic: Principle of !obi"ia #e$%%nt%r &ersona' (l994)........................................................................ !%
Basic: Proper Allowance of Depreciation (l998).................................................................................... !%
Basic: Sources of lncome: Taxable lncome (l998)................................................................................ !%
Basic: Tax Benefit Rule (2003).............................................................................................................. !%
Basic; Basis of lncome Tax (l996)........................................................................................................ !&
Basic; Gross lncome: Define (l995)...................................................................................................... !&
Basic; lncome vs. Capital (l995)........................................................................................................... !&
Basic; Schedular Treatment vs. Global Treatment (l994).................................................................... !&
Compensation; lncome Tax: Due to Profitable Business Deal (l995)................................................... !&
Corporate: lncome: Donor's tax; Tax Liability (l996)............................................................................. !7
Corporate; lncome Tax; Reasonableness of the Bonus (2006)............................................................. !7
Corporate; lncome: Coverage; "Off-Line" Airline (l994)........................................................................ !7
Corporate; lncome: Coverage; "Off-Line" Airline (2005)........................................................................ !7
Dividends: Disguised dividends (l994).................................................................................................. !8
Dividends; lncome Tax; Deductible Gross lncome (l999)..................................................................... !8
4 of 73
Effect; Condonation of Loan in Taxation (l995)..................................................................................... !8
Fringe Benefit Tax: Covered Employees (200l).................................................................................... !8
Fringe Benefit Tax: Employer required to Pay (2003)............................................................................ !
lnterest: Deficiency lnterest: define (l995 Bar)...................................................................................... !
lnterest: Delinquency lnterest: define (l995)......................................................................................... !
lTR: Personal lncome; Exempted to File lTR (l997)............................................................................. !
lTR; Domestic Corporate Taxation (l997)............................................................................................. !
lTR; Domestic Corporate Taxation (200l)............................................................................................. #"
lTR; Personal lncome: Two Employment (200l)................................................................................... #"
lTR; Personal lncome; GSlS Pension (2000)........................................................................................ #"
lTR; Personal lncome; Married lndividual (2004)................................................................................... #"
lTR; Taxpayer; Liabilities; Falsified Tax Return (2005).......................................................................... #"
Partnership: lncome Tax (l995)............................................................................................................ #!
Personal; lncome Tax: Non-Resident Alien (2000)................................................................................ #!
Personal; lncome Tax: Non-Resident Citizen (l999)............................................................................. #!
Personal; lncome Tax: Tax-Free Exchange (l997)............................................................................... ##
Personal; lncome Tax; Contract of Lease (l995)................................................................................... ##
Personal; lncome Tax; Married lndividual (l997).................................................................................. ##
Personal; lncome Tax; Retiring Alien Employee (2005)......................................................................... #3
Personal; lncome Taxation: Non-Resident Citizen (l997)..................................................................... #3
Taxable lncome: lllegal lncome (l995 Bar)........................................................................................... #3
Taxable or Non-Taxable; lncome and Gains (2005).............................................................................. #3
Withholding Tax: Non-Resident Alien (200l)......................................................................................... #$
Withholding Tax: Retirement Benefit (2000).......................................................................................... #$
Withholding Tax: Retirement Benefit (2000).......................................................................................... #$
Withholding Tax: Royalty (2002)............................................................................................................ #$
Withholding Tax; Coverage (2004)........................................................................................................ #%
Withholding Tax; Domestic Corporation; Cash Dividends (200l).......................................................... #%
Withholding Tax; lncome subject thereto (200l).................................................................................... #%
Withholding Tax; Non-Resident Alien (l994)......................................................................................... #%
Withholding Tax; Non-Resident Corporation (l994).............................................................................. #&
Withholding Tax; Reader's Digest Award (l998)................................................................................... #&
Withholding Tax; Time Deposit lnterest; GSlS Pension (l994)............................................................. #&
DEDUCTlONS, EXEMPTlONS, EXCLUSlONS & lNCLUSlONS............................................... #&
Deduction: Facilitation Fees or "kickback" (l998).................................................................................. #&
Deductions: Ordinary Business Expenses (2004)................................................................................. #&
Deductions: Amount for Bribe (200l)..................................................................................................... #7
Deductions: Capital Losses; Prohibitions (2003)................................................................................... #7
Deductions: Deductible ltems from Gross lncome (l999)...................................................................... #7
Deductions: lncome Tax: Donation: Real Property (2002).................................................................... #7
Deductions: Non-Deductible ltems; Gross lncome (l999)..................................................................... #8
Deductions: Requisites; Deducibility of a Loss (l998)........................................................................... #8
Deductions; lncome Tax: Allowable Deductions (200l)......................................................................... #8
Deductions; Vanishing Deduction; Purpose (2006)................................................................................ #8
Exclusion & lnclusion; Gross Receipts (2006)....................................................................................... #8
Exclusion vs. Deduction from Gross lncome (200l).............................................................................. #8
Exclusions & lnclusions: Benefits on Account of lnjury (l995)............................................................... #
Exclusions & lnclusions: Executive Benefits (l995)............................................................................... #
Exclusions & lnclusions; Assets; Resident Alien (2005)........................................................................ #
Exclusions & lnclusions; Benefits on Account of Death (l996).............................................................. 3"
Exclusions & lnclusions; Benefits on Account of lnjury (2005)............................................................... 3"
Exclusions & lnclusions; Compensation for personal injuries or sickness (2003).................................. 3"
Exclusions & lnclusions; Facilities or Privileges; Military Camp (l995).................................................. 3"
Exclusions & lnclusions; Gifts over and above the Retirement Pay (l995)............................................ 3!
Exclusions & lnclusions; lTR; l3th month pay and de minimis benefits (2005)..................................... 3!
Exclusions & lnclusions; lTR; Dividends received by a domestic corporation (2005)............................ 3!
Exclusions & lnclusions; lTR; lncome realized from sale (2005)........................................................... 3!
Exclusions & lnclusions; lTR; lnterest on deposits (2005)..................................................................... 3!
Exclusions & lnclusions; lTR; Proceeds of life insurance (2005)........................................................... 3#
Exclusions & lnclusions; Life lnsurance Policy (2003)........................................................................... 3#
5 of 73
Exemptions: Charitable lnstitutions (2000)............................................................................................ 3#
Exemptions: Charitable lnstitutions; Churches (l996)........................................................................... 3#
Exemptions: Educational institution (2004)............................................................................................ 3#
Exemptions: Gifts & Donations (l994)................................................................................................... 3#
Exemptions: Head of the Family: (l998)............................................................................................... 33
Exemptions: Non-Profit Educational lnstitutions (2000)......................................................................... 33
Exemptions: Non-Profit Entity; Ancillary Activity & lncidental Operations (l994)................................... 33
Exemptions: Non-Stock/ Non-Profit Association (2002)......................................................................... 3$
Exemptions: Prize of Peace Poster Contest (2000)............................................................................... 3$
Exemptions: Prizes & Awards; Athletes (l996)...................................................................................... 3$
Exemptions: Retirement Benefits: Work Separation (l999)................................................................... 3$
Exemptions: Separation Pay (l994)...................................................................................................... 3%
Exemptions: Separation Pay (l995)...................................................................................................... 3%
Exemptions: Separation Pay (2005)...................................................................................................... 3&
Exemptions: Stock Dividends (2003)..................................................................................................... 3&
Exemptions: Strictly Construed (l996)................................................................................................... 3&
Exemptions: Terminal Leave Pay (l996)............................................................................................... 3&
Exemptions; Charitable lnstitutions (2006)............................................................................................ 3&
Exemptions; Educational institution (2004)............................................................................................ 3&
Exemptions; Exemptions are Unilateral in Nature (2004)...................................................................... 37
Exemptions; Gov't Bonus, Gifts, & Allowances (l994)........................................................................... 37
Exemptions; Personal & Additional Exemption (2006)........................................................................... 37
Exemptions; Roman Catholic Church; Limitations (2005)...................................................................... 38
CAPlTAL GAlN TAX................................................................................................................... 38
Capital Asset vs. Ordinary Asset (2003)................................................................................................ 38
Capital Gain Tax; Nature (200l)............................................................................................................ 38
Ordinary Sale of a Capital Asset (l994)................................................................................................. 38
Sales of Share of Stocks: Capital Gains Tax Return (l999).................................................................. 3
Tax Basis: Capital Gains: Merger of Corporations (l994)...................................................................... 3
Tax Basis: Capital Gains: Tax-Free Exchange of Property (l994)......................................................... 3
CORPORATlON & PARTNERSHlP........................................................................................... 3
Bad Debts; Factors; Elements thereof (2004)........................................................................................ 3
Condominium Corp.; Sale of Common Areas (l994)............................................................................. $"
Corporation; Sale; Creditable Withholding Tax (l994)........................................................................... $"
Dividends: Withholding Tax (l999)........................................................................................................ $"
Effect: Dissolution; Corporate Existence (2004).................................................................................... $!
Minimum Corporate lncome Tax (200l)................................................................................................ $!
Minimum Corporate lncome Tax; Exemption (200l).............................................................................. $!
ESTATE & DONOR'S TAXES.................................................................................................... $!
Donor's Tax: Election Contributions (l998)........................................................................................... $!
Donor's Tax; Basis for Determining Gain (l995)................................................................................... $!
Donor's Tax; Dacion en Pago; Effect: Taxation (l997).......................................................................... $#
Donor's Tax; Donation to a Sibling (200l)............................................................................................. $#
Donor's Tax; Donation to Non-Stock, Non-Profit Private Educational lnstitutions (2000)...................... $#
Donor's Tax; Donation to Political Candidate (2003)............................................................................. $3
Donor's Tax; Donee or Beneficiary; Stranger (2000)............................................................................. $3
Donor's Tax; Sale of shares of Stock & Sale of Real Property (l999)................................................... $3
Estate Tax: Comprehensive Agrarian Reform Law (l994)..................................................................... $3
Estate Tax: Donation Mortis Causa (200l)............................................................................................ $3
Estate Tax: Donation Mortis Causa vs. lnter Vivos (l994)..................................................................... $$
Estate Tax: Gross Estate: Allowable Deduction (200l)......................................................................... $$
Estate Tax: Gross Estate: Deductions (2000)........................................................................................ $$
Estate Tax: lnclusion: Resident Alien (l994)......................................................................................... $$
Estate Tax: Payment vs. Probate Proceedings (2004).......................................................................... $%
Estate Tax: Situs of Taxation: Non-Resident Decedent (2000).............................................................. $%
Estate Tax: Vanishing Deductions (l994).............................................................................................. $%
Estate Tax; Payment vs. Probate Proceedings (2005).......................................................................... $%
BUSlNESS TAXES.................................................................................................................... $%
6 of 73
VAT: Basis of VAT (l996)...................................................................................................................... $%
VAT: Characteristics of VAT (l996)....................................................................................................... $%
VAT: Exempted Transactions (l996)..................................................................................................... $%
VAT: Liable for Payment (l996)............................................................................................................. $&
VAT: Transactions "Deemed Sales" (l997)........................................................................................... $&
VAT; Covered Transactions (l998)........................................................................................................ $&
VAT; Exemption: Constitutionality (2004).............................................................................................. $&
VAT; Non-VAT taxpayer; Claim for Refund (2006)................................................................................ $7
REMEDlES lN lNTERNAL REVENUE TAXES.......................................................................... $7
BlR: Assessment: Unregistered Partnership (l997).............................................................................. $7
BlR: Collection of Tax Deficiency (l999)............................................................................................... $7
BlR: Compromise; Conditions (2000).................................................................................................... $8
BlR: Compromise; Extent of Authority (l996)........................................................................................ $8
BlR: Compromise; Withholding Agent (l998)........................................................................................ $8
BlR: Corporation: Distraint & Levy (2002).............................................................................................. $8
BlR: Court of Tax Appeals: Collection of Taxes; Grounds for Compromise (l996)................................ $
BlR: Criminal Prosecution: Tax Evasion (l998)..................................................................................... $
BlR: Extinction; Criminal Liability of the Taxpayer (2002)...................................................................... $
BlR: Fraudulent Return; Prima Facie Evidence (l998).......................................................................... %"
BlR: Fraudulent Return; Prima Facie Evidence (2002).......................................................................... %"
BlR: Garnishment: Bank Account of a Taxpayer (l998)........................................................................ %"
BlR: Pre-Assessment Notice not Necessary (2002).............................................................................. %!
BlR: Prescriptive Period: Civil Action (2002).......................................................................................... %!
BlR: Prescriptive Period; Assessment & Collection (l999).................................................................... %!
BlR: Prescriptive Period; Criminal Action (2002)................................................................................... %!
BlR: Secrecy of Bank Deposits Law (l998)........................................................................................... %#
BlR: Summary Remedy: Estate Tax Deficiencies (l998)....................................................................... %#
BlR: Unpaid Taxes vs. Claims for Unpaid Wages (l995)...................................................................... %3
BlR; Assessment; Criminal Complaint (2005)........................................................................................ %3
BlR; Authority; Refund or Credit of Taxes (2005)................................................................................... %3
BlR; Compromise (2004)....................................................................................................................... %3
BlR; Compromise (2005)....................................................................................................................... %$
BlR; Deficiency Tax Assessment vs. Tax Refund / Tax Credit (2005)................................................... %$
BlR; Distraint; Prescription of the Action (2002)..................................................................................... %$
BlR; False vs. Fraudulent Return (l996)............................................................................................... %%
BlR; Jurisdiction; Review Rulings of the Commissioner (2006)............................................................. %%
BlR; Prescriptive Period; Assessment; Fraudulent Return (2002)......................................................... %%
BlR; Prescriptive Period; Criminal Action (2006)................................................................................... %%
BlR; Taxpayer: Civil Action & Criminal Action (2002)............................................................................. %%
Custom: Violation of Tax & Custom Duties (2002)................................................................................. %&
Customs; Basis; Automatic Review (2002)............................................................................................ %&
Delinquent Tax Return (l998)................................................................................................................ %7
Jurisdiction: Customs vs. CTA (2000)................................................................................................... %7
LGU: Collection of Taxes, Fees & Charges (l997)................................................................................ %7
Tax Amnesty vs. Tax Exemption (200l)................................................................................................ %7
Taxpayer: Administrative & Judicial Remedies (2000)........................................................................... %7
Taxpayer: Assessment: Protest: Claims for refund (2000)..................................................................... %8
Taxpayer: Assessment; lnjunction (2004).............................................................................................. %8
Taxpayer: BlR Audit or lnvestigation (l999).......................................................................................... %8
Taxpayer: City Board of Assessment Decision; Where to appeal (l999)............................................... %
Taxpayer: Claim for Refund; Procedure (2002)..................................................................................... %
Taxpayer: Deficiency lncome Tax (l995).............................................................................................. %
Taxpayer: Exhaustion of Administrative Remedies (l997).................................................................... &"
Taxpayer: Failure to Withheld & Remit Tax (2000)................................................................................ &"
Taxpayer: NlRC vs. TCC Remedies (l996)........................................................................................... &"
Taxpayer: Overwitholding Claim for Refund (l999)............................................................................... &!
Taxpayer: Prescriptive Period: Suspended (2000)................................................................................. &!
Taxpayer: Prescriptive Period; Claim for Refund (l997)........................................................................ &!
Taxpayer: Prescriptive Period; Claims for Refund (l994)...................................................................... &!
Taxpayer: Prescriptive Period; Claims for Refund (2004)...................................................................... &#
7 of 73
Taxpayer: Protest against Assessment (l998)...................................................................................... &#
Taxpayer: Protest; Claim of Refund (l996)............................................................................................ &3
Taxpayer; Appeal to the Court of Tax Appeals (2005)........................................................................... &3
Taxpayer; Claim for Tax Credits (2006)................................................................................................. &3
Taxpayer; Compromise after Criminal Action (l998)............................................................................. &3
Taxpayer; Protest against Assessment; Donor's Tax (l995)................................................................. &$
Taxpayer; Withholding Agent; Claim of Tax Refund (2005)................................................................... &$
LOCAL & REAL PROPERTY TAXES......................................................................................... &$
Local Taxation: Actual Use of Property (2002)...................................................................................... &$
Local Taxation: Coverage (2002)........................................................................................................... &$
Local Taxation: Exemption; Real Property Taxes (2002)....................................................................... &%
Local Taxation: lmposition of Ad Valorem Tax (2000)........................................................................... &%
Local Taxation: Legality/ Constitutionality; Tax Ordinance (2003)......................................................... &%
Local Taxation: Legality; lmposition of Real Property Tax Rate (2002)................................................. &%
Local Taxation: Power to lmpose (2003)............................................................................................... &%
Local Taxation: Remission/Condonation of Taxes (2004)...................................................................... &&
Local Taxation: Rule of Uniformity and Equality (2003)......................................................................... &&
Local Taxation; Situs of Professional Taxes (2005)............................................................................... &&
Local Taxation; Special Levy on ldle Lands (2005)................................................................................ &&
Real Property Tax: Underground Gasoline Tanks (2003)...................................................................... &7
Real Property Tax; Requirements; Auction Sales of Property for Tax Delinquency (2006)................... &7
Real Property Taxation: Capital Asset vs. Ordinary Asset (l995).......................................................... &7
Real Property Taxation: Capital Gains vs. Ordinary Gains (l998)......................................................... &7
Real Property Taxation: Coverage of Ordinary lncome (l998).............................................................. &7
Real Property Taxation: Exchange of Lot; Capital Gain Tax (l997)....................................................... &8
Real Property Taxation: Exemption/Deductions; Donor's Tax (l998).................................................... &8
Real Property Taxation: Exemption: Acquiring New Principal Residence (2000).................................. &8
Real Property Taxation: Fundamental Principles (l997)........................................................................ &
Real Property Taxation: Principles & Limitations: LGU (2000)............................................................... &
Real Property Taxation: Property Sold is an Ordinary Asset (l998)...................................................... &
Real Property Taxation: Underground Gasoline Tanks (200l).............................................................. &
Real Property Taxation; Exempted Properties (2006)............................................................................ &
TARlFF AND CUSTOMS DUTlES............................................................................................. 7"
Customs: "Flexible Tariff Clause" (200l)............................................................................................... 7"
Customs: Administrative vs. Judicial Remedies (l997)........................................................................ 7"
Customs: lmportation (l995)................................................................................................................. 7"
Customs: Jurisdiction; Seizure & Forfeiture Proceedings (l996).......................................................... 7"
Customs: Kinds of Custom Duties (l995).............................................................................................. 7"
Customs: Kinds of Custom Duties (l997).............................................................................................. 7!
Customs: Remedies of an lmporter (l996)............................................................................................ 7!
Customs: Returning Residents: Tourist/Travelers (2003)...................................................................... 7!
Customs: Seizure & Forfeiture: Effects (l994)....................................................................................... 7!
Customs: Steps involving Protest Cases (l994).................................................................................... 7#
Customs; Basis of Dutiable Value; lmported Article (2005)................................................................... 7#
Customs; Countervailing Duty vs. Dumping Duty (2005)....................................................................... 7#
Customs; Taxability; Personal Effects (2005)........................................................................................ 7#
OTHER RELATED MATTERS................................................................................................... 73
BlR: Bank Deposits Secrecy Violation (2000)........................................................................................ 73
BlR: Secrecy of Bank Deposit Law (2003)............................................................................................. 73
Answers to the BAR: Taxation 1994-2006 (Arranged by Topics
GENERAL PRlNClPLES
sirdondee@gmail.com
8 of 73
Basic Features: Present lncome Tax System (l996)
What are the basic feat'res of the (resent income ta)
s*stem+,
SUGGESTED ANSWER:
O'r (resent income ta) s*stem can be said to ha-e the
follo.ing basic feat'res/
0a1 2t has ado(ted a CO34RE5E6728E TA9
72T:7 b* 'sing the nationalit*; residence; and
so'rce r'les. This ma<es citi=ens and resident
aliens
ta)able on their income deri-ed from all so'rces
.hile non>resident aliens are ta)ed onl* on
their
income deri-ed from .ithin the 4hili((ines.
Domestic cor(orations are also ta)ed on 'ni-ersal
income .hile foreign cor(orations are ta)ed onl*
on
income from .ithin.
0b1 The indi-id'al income ta) s*stem is
mainl*
4RO?RE7728E 26 6AT:RE in that it (ro-ides
a grad'ated rates of income ta). Cor(orations in
general are ta)ed at a flat rate of thirt* fi-e (ercent
03%@1 of net income.
0c1 2t has retained 3ORE 7C5ED:AAR T5A6
?AOBAA FEAT:RE7 .ith res(ect to indi-id'al
ta)(a*ers b't has maintained a more
global treatment on cor(orations.
6ote/ The following might also be cited by the bar
candidates as features of the income tax system:
a. 2ndi-id'al com(ensation income earners are ta)ed
on modified ?ross 2ncome 0?ross com(ensation
income less (ersonal e)em(tions1. 7elf>
em(lo*ed
and (rofessionals are ta)ed on net income .ith
ded'ctions limited to se-en items or in lie' thereof
the fort* (ercent 0$"@1 ma)im'm ded'ction (l's
the
(ersonal e)em(tions. Cor(orations are generall*
ta)ed on net income e)ce(t for non>resident
foreign
cor(orations .hich are ta)ed on gross income.
b. The income ta) is generall* im(osed -ia the
self>
assessment s*stem or (a*>as>*o'>file conce(t
of
im(osing the ta) altho'gh certain incomes.
2ncl'ding
income of non>residents; are ta)ed on the (a*>as>
*o'>earn conce(t or the so called .ithholding ta).
c. The cor(orate income ta) is a one>la*er ta) in that
distrib'tion of (rofits to stoc<holders
(except to non-
residents) are not s'bCect to income ta).
Basic Stages or Aspects of Taxation (2006)
En'merate the 3 stages or as(ects of ta)ation.
E)(lain each. 0%@1
SUGGESTED ANSWER:
The as(ects of ta)ation are/
0!1 AE8D26? E the act of the legislat're in
choosing
the (ersons; (ro(erties; rights or
(ri-ileges to be
s'bCected to ta)ation.
0#1 A77E773E6T and COAAECT2O6 E
This is the
act of e)ec'ting the la. thro'gh the
administrati-e
agencies of go-ernment.
031 4AD3E6T E the act of the ta)(a*er in
settling his
ta) obligations.
Collection of Taxes: Authority; Ordinary Courts (200l)
3a* the co'rts enCoin the collection of re-en'e ta)es, E)(lain
*o'r ans.er. 0#@1
SUGGESTED ANSWER:
As a general r'le; the co'rts ha-e no a'thorit* to enCoin
the collection of re-en'e ta)es. 07ec. #!8; 62RC1.
5o.e-er; the Co'rt of Ta) A((eals is em(o.ered to
enCoin the collection of ta)es thro'gh administrati-e
remedies .hen collection co'ld Ceo(ardi=e the interest of
the go-ernment or ta)(a*er. 07ection !!; RA !!#%1.
Collection of Taxes: Prescription (200l)
3a* the collection of ta)es be barred b* (rescri(tion, E)(lain
*o'r ans.er. 03@1
SUGGESTED ANSWER:
Des. The collection of ta)es ma* be barred b*
(rescri(tion. The (rescri(ti-e (eriods for collection of
ta)es are go-erned b* the ta) la. im(osing the ta).
5o.e-er; if the ta) la. does not (ro-ide for (rescri(tion;
the right of the go-ernment to collect ta)es becomes
im(rescri(tible.
Direct Tax vs. lndirect Tax (l994)
Disting'ish a direct from an indirect ta).
SUGGESTED ANSWER:
A D2RECT TA9 is one in .hich the ta)(a*er .ho (a*s
the ta) is directl* liable therefor; that is; the b'rden of
(a*ing the ta) falls directl* on the (erson (a*ing the ta).
An 26D2RECT TA9 is one (aid b* a (erson .ho is not
directl* liable therefor; and .ho ma* therefore shift or
(ass on the ta) to another (erson or entit*; .hich
'ltimatel* ass'mes the ta) b'rden. 03aceda -. 3acaraig;
!7 7CRA 77!1
Direct Tax vs. lndirect Tax (2000)
Among the ta)es im(osed b* the B'rea' of 2nternal
Re-en'e are income ta); estate and donorFs ta); -al'e>
added ta); e)cise ta); other (ercentage ta)es; and
doc'mentar* stam( ta). Classif* these ta)es into direct
and indirect ta)es; and differentiate direct from 2ndirect
ta)es. 0%@1
SUGGESTED ANSWER:
2ncome ta); estate and donorFs ta) are considered as direct
ta)es. On the other hand; -al'e>added ta); e)cise ta);
other (ercentage ta)es; and doc'mentar* stam( ta) are
indirect ta)es.
D2RECT TA9E7 are demanded from the -er* (erson
.ho; as intended; sho'ld (a* the ta) .hich he cannot
shift to anotherG .hile an 26D2RECT TA9 is demanded
in the first instance from one (erson .ith the e)(ectation
that he can shift the b'rden to someone else; not as a ta)
b't as a (art of the ('rchase (rice.
Direct Tax vs. lndirect Tax (200l)
Disting'ish direct ta)es from indirect ta)es; and gi-e an
e)am(le for each one. 0#@1
SUGGESTED ANSWER:
D2RECT TA9E7 are ta)es .herein both the incidence
0or liabilit* for the (a*ment of the ta)1 as .ell as the
im(act or b'rden of the ta) falls on the same (erson. An
9 of 73
e)am(le of this ta) is income ta) .here the (erson
s'bCect
to ta) cannot shift the b'rden of the ta) to another
(erson.
26D2RECT TA9E7; on the other hand; are ta)es
.herein the incidence of or the liabilit* for the (a*ment
of the ta) falls on one (erson b't the b'rden thereof can
be shifted or (assed on to another (erson. E)am(le of
this ta) is the -al'e>added ta).
ALTERNATlVE ANSWER:
A direct ta) is a ta) .hich is demanded from the (erson
.ho also sho'lders the b'rden of the ta). E)am(le/
cor(orate and indi-id'al income ta).
An indirect ta) is a ta) .hich is demanded from one
(erson in the e)(ectation and intention that he shall
indemnif* himself at the e)(ense of another; and the
b'rden finall* resting on the 'ltimate ('rchaser or
cons'mer. E)am(le/ -al'e added ta).
Direct Tax vs. lndirect Tax (2006)
Disting'ish +direct ta)es+ from +indirect ta)es.+ ?i-e
e)am(les. 0%@1
SUGGESTED ANSWER:
D2RECT TA9E7 are demanded from the -er* (erson
.ho sho'ld (a* the ta) and .hich he can not shift to
another. An 26D2RECT TA9 is demanded from one
(erson .ith the e)(ectation that he can shift the b'rden
to someone else; not as a ta) b't as (art of the ('rchase
(rice. E)am(les of direct ta)es are the income ta); the
estate ta) and the donorFs ta). E)am(les of indirect
ta)es
are the -al'e>added ta); the (ercentage ta) and the
e)cise
ta) on e)ciseable articles.
Double Taxation (l997)
2s do'ble ta)ation a -alid defense against the legalit* of
a ta) meas're,
SUGGESTED ANSWER:
6o; do'ble ta)ation standing alone and not being
forbidden b* o'r f'ndamental la. is not a -alid defense
against the legalit* of a ta) meas're 04e(si Cola -.
Tana.an; & 7CRA $&"1. 5o.e-er; if do'ble ta)ation
amo'nts to a direct d'(licate ta)ation;
!. in that the same s'bCect is ta)ed t.ice .hen it sho'ld
be ta)ed b't once;
#. in a fashion that both ta)es are im(osed for the same
('r(ose
3. b* the same ta)ing a'thorit*; .ithin the same
C'risdiction or ta)ing district;
$. for the same ta)able (eriod
and
%. for the same <ind or character of a ta)
then it becomes legall* obCectionable for
being o((ressi-e and ineH'itable.
Double Taxation: What Constitutes DT? (l996)
9; a lessor of a (ro(ert*; (a*s real estate ta) on
the (remises; a real estate dealerFs ta) based on rental
recei(ts and income ta) on the rentals. 9 claims
that this is do'ble ta)ation, Decide.
SUGGESTED ANSWER:
There is no do'ble ta)ation. DO:BAE
TA9AT2O6 means ta)ing for the same ta) (eriod the
same thing or acti-it* t.ice; .hen it sho'ld be ta)ed b't
once; b* the same ta)ing a'thorit* for the same ('r(ose
and .ith the same <ind or character of ta). The REAA
E7TATE TA9 is a ta) on (ro(ert*G the REAA E7TATE
DEAAERF7 TA9 is a ta) on the (ri-ilege to engage in
b'sinessG .hile the 26CO3E TA9 is a ta) on the
(ri-ilege to earn an income. These ta)es are im(osed b*
different ta)ing a'thorities and are essentiall* of different
<ind and character 08illan'e-a -s. Cit* of 2loilo; #& 7CRA
%781.
Double Taxation; lndirect Duplicate Taxation (l997)
When an item of income is ta)ed in the 4hili((ines and the same
income is ta)ed in another co'ntr*; is there a case of do'ble
ta)ation,
SUGGESTED ANSWER:
Des; b't it is onl* a case of indirect d'(licate ta)ation .hich is
not legall* (rohibited beca'se the ta)es are im(osed b*
different ta)ing a'thorities.
Double Taxation; License Fee vs. Local Tax (2004)
A m'nici(alit*; BB; has an ordinance .hich reH'ires that all
stores; resta'rants; and other establishments selling liH'or
sho'ld (a* a fi)ed ann'al fee of 4#".""". 7'bseH'entl*;
the m'nici(al board (ro(osed an ordinance im(osing a sales ta)
eH'i-alent to %@ of the amo'nt (aid for the ('rchase or
cons'm(tion of liH'or in stores; resta'rants and other
establishments. The m'nici(al ma*or; CC; ref'sed to sign the
ordinance on the gro'nd that it .o'ld constit'te do'ble ta)ation.
2s the ref'sal of the ma*or C'stified, Reason briefl*. 0%@1
SUGGESTED ANSWER:
6o. The ref'sal of the ma*or is not C'stified. The
im(ositions are of different nat're and character. The
fi)ed ann'al fee is in the nat're of a license fee im(osed
thro'gh the e)ercise of (olice (o.er .hile the %@ ta) on
('rchase or cons'm(tion is a local ta) im(osed thro'gh
the e)ercise of ta)ing (o.ers. Both a license fee and a ta)
ma* be im(osed on the same b'siness or occ'(ation; or
for selling the same article and this is not in -iolation of
the r'le against do'ble ta)ation ICam(ania ?eneral de
Tabacos de Fili(inos -. Cit* of 3anila; 8 7CRA 3&7
J!&3K1.
Double Taxation; Methods of Avoiding DT (l997)
What are the 's'al methods of a-oiding the occ'rrence of
do'ble ta)ation,
SUGGESTED ANSWER:
The 's'al methods of a-oiding the occ'rrence of do'ble
ta)ation are/
!. Allo.ing reci(rocal e)em(tion either b* la. or b*
treat*G
#. Allo.ance of ta) credit for foreign ta)es (aidG
3. Allo.ance of ded'ction for foreign ta)es (aidG and
$. Red'ction of the 4hili((ine ta) rate.
Note: Any three of the methods shall be given full credit.
lmprescriptibility of Tax Laws (l997)
Ta)es .ere generall* im(rescri(tibleG stat'tes; ho.e-er;
ma* (ro-ide other.ise. 7tate the r'les that ha-e been
ado(ted on this score b* >
l0 of 73
0a1 The 6ational 2nternal Re-en'e CodeG
0b1 The Tariff and C'stoms CodeG and
0c1 The Aocal ?o-ernment Code Ans.er/
SUGGESTED ANSWERS:
The r'les that ha-e been ado(ted on (rescri(tion are as
follo.s/
0a1 6ational 2nternal Re-en'e Code > The stat'te of
limitation for assessment of ta) if a ret'rn is filed
is
.ithin three 031 *ears from the last da* (rescribed
b*
la. for the filing of the ret'rn or if filed after the
last
da*; .ithin three *ears from date of act'al filing.
2f
no ret'rn is filed or the ret'rn filed is false or
fra'd'lent; the (eriod to assess is .ithin TE6
DEAR7 from disco-er* of the omission; fra'd or
falsit*.
The (eriod to collect the ta) is .ithin T5REE
DEAR7 from date of assessment. 2n the case;
ho.e-er; of omission to file or if the ret'rn filed is
false or fra'd'lent; the (eriod to collect is .ithin
TE6 DEAR7 from disco-er* .itho't need of an
assessment.
0b1 Tariff and C'stoms Code > 2t does not e)(ress an*
general stat'te of limitationG it (ro-ided;
ho.e-er;
that +.hen articles ha-e entered and (assed free of
d't* or final adC'stment of d'ties made; .ith
s'bseH'ent deli-er*; s'ch entr* and (assage free of
d't* or settlement of d'ties .ill; after the
e)(iration
of O6E 0!1 DEAR; from the date of the final
(a*ment of d'ties; in the absence of fra'd or
(rotest;
be final and concl'si-e '(on all (arties; 'nless
the
liH'idation of 2m(ort entr* .as merel* tentati-e+
07ec
!&"3; TCC1.
0c1 Aocal ?o-ernment Code > Aocal ta)es; fees; or
charges shall be assessed .ithin F28E 0%1
DEAR7
from the date the* became d'e. 2n case of fra'd or
intent to e-ade the (a*ment of ta)es; fees or
charges the same ma*be assessed .ithin TE6
DEAR7 from disco-er* of the fra'd or intent to
e-ade (a*ment. The* shall also be collected either
b* administrati-e or C'dicial action .ithin F28E
0%1 DEAR7 from date of assessment 07ec. !$;
A?C1.
Power of Taxation: Equal Protection of the Law (2000)
An E)ec'ti-e Order .as iss'ed ('rs'ant to
la.; granting ta) and d't* incenti-es onl* to
b'sinesses and residents .ithin the +sec'red
area+ of the 7'bic Economic 7(ecial Lone;
and den*ing said incenti-es to those .ho
li-e .ithin the Lone b't o'tside s'ch +sec'red
area+. 2s the constit'tional right to eH'al
(rotection of the la. -iolated b* the E)ec'ti-e
Order, E)(lain. 03@1
SUGGESTED ANSWER:
6o. EH'al (rotection of the la. cla'se is
s'bCect to
reasonable classification. Classification; to be
-alid; m'st
0!1 rest on s'bstantial distinctions; 0#1 be
germane to the
('r(ose of the la.; 031 not be limited to
e)isting
conditions onl*; 0$1 a((l* eH'all* to all
members of the
same class.
There are s'bstantial differences bet.een big
in-estors being enticed to the +sec'red area+ and the
b'siness o(erators o'tside that are in accord .ith the
eH'al (rotection cla'se that does not reH'ire territorial
'niformit* of la.s. The classification a((lies eH'all* to all
the resident indi-id'als and b'sinesses .ithin the +sec'red
area+. The residents; being in li<e circ'mstances to
contrib'ting directl* to the achie-ement of the end
('r(ose of the la.; are not categori=ed f'rther. 2nstead;
the* are similarl* treated; both in (ri-ileges granted and
obligations reH'ired. (Tiu et al v. !ourt of "npeals et al #.$.
No. %&'"%( )anuary &( %***)
Power of Taxation: lnherent in a Sovereign State (2003)
Wh* is the (o.er to ta) considered inherent in a so-ereign
7tate, 0$@1
SUGGESTED ANSWER:
2t is considered inherent in a so-ereign 7tate beca'se it is a
necessar* attrib'te of so-ereignt*. +ithout this power no
sovereign ,tate can exist or endure. The power to tax proceeds
upon
the theory that the existence of a government is a necessity and
this
power is an essential and inherent attribute of sovereignty
belonging
as a matter of right to every independent state or government. 6o
so-ereign state can contin'e to e)ist .itho't the means to
(a* its e)(ensesG and that for those means; it has the right
to com(el all citi=ens and (ro(ert* .ithin its limits to
contrib'te; hence; the emergence of the (o.er to ta). (-%
Am. )ur.Taxation "().
Power of Taxation: Legality; Local Gov't Taxation (2003)
3a* Congress; 'nder the !87 Constit'tion; abolish the
(o.er to ta) of local go-ernments, 0$@1
SUGGESTED ANSWER:
6o. Congress cannot abolish .hat is e)(ressl* granted b*
the f'ndamental la.. The onl* a'thorit* conferred to
Congress is to (ro-ide the g'idelines and limitations on
the local go-ernmentFs e)ercise of the (o.er to ta) 07ec.
%; Art. 9; !87 Constit'tion1.
Power of Taxation: Legislative in Nature (l994)
The 7ecretar* of Finance; '(on recommendation of the
Commissioner of 2nternal Re-en'e; iss'ed a Re-en'e
Reg'lation 'sing gross income as the ta) base for
cor(orations doing b'siness in the 4hili((ines. 2s the
Re-en'e Reg'lation -alid,
SUGGESTED ANSWER:
The reg'lation establishing gross income as the ta) base
for cor(orations doing b'siness in the 4hili((ines
0domestic as .ell as resident foreign1 is not -alid. This is
no longer im(lementation of the la. b't act'all* it
constit'tes legislation beca'se among the (o.ers that are
e)cl'si-el* .ithin the legislati-e a'thorit* to ta) is the
(o.er to determine >the amo'nt of the ta). (,ee % !ooley
%'.-%/"). Certainl*; if the ta) is limited to gross income
.itho't ded'ctions of these cor(orations; this is changing
the amo'nt of the ta) as said amo'nt 'ltimatel* de(ends
on the ta)able base.
Power of Taxation: Limitations of the Congress (200l)
Congress; after m'ch ('blic hearing and cons'ltations
.ith -ario's sectors of societ*; came to the concl'sion
that it .ill be good for the co'ntr* to ha-e onl* one
ll of 73
s*stem of ta)ation b* centrali=ing the im(osition
and collection of all ta)es in the national
go-ernment. Accordingl*; it is thin<ing of (assing a
la. that .o'ld abolish the ta)ing (o.er of all local
go-ernment 'nits. 2n *o'r o(inion; .o'ld s'ch a la. be
-alid 'nder the (resent Constit'tion, E)(lain *o'r
ans.er. 0%@1
SUGGESTED ANSWER:
6o. The la. centrali=ing the im(osition and collection
of
all ta)es in the national go-ernment .o'ld contra-ene
the
Constit'tion .hich mandates that/ . . . +Each local
go-ernment 'nit shall ha-e the (o.er to create their
o.n
so'rces of re-en'e and to le-* ta)es; fees; and
charges
s'bCect to s'ch g'idelines and limitations as Congress
ma*
(ro-ide consistent .ith the basic (olic* of local
a'tonom*.+ 2t is clear that Congress can onl* gi-e
the
g'idelines and limitations on the e)ercise b* the
local
go-ernments of the (o.er to ta) b't .hat .as granted
b*
the f'ndamental la. cannot be .ithdra.n b* Congress.
Power of Taxation: Limitations: Passing of
Revenue Bills
(l997)
The 5o'se of Re(resentati-es introd'ced 5B 7"""
.hich
en-isioned to le-* a ta) on -ario's transactions. After
the
bill .as a((ro-ed b* the 5o'se; the bill .as sent to the
7enate as so reH'ired b* the Constit'tion. 2n the '((er
ho'se; instead of a deliberation on the 5o'se Bill; the
7enate introd'ced 7B 8""" .hich .as its o.n -ersion
of
the same ta). The 7enate deliberated on this 7enate
Bill
and a((ro-ed the same. The 5o'se Bill and the 7enate
Bill .ere then consolidated in the Bicameral
Committee.
E-ent'all*; the consolidated bill .as a((ro-ed and sent
to
the 4resident .ho signed the same. The (ri-ate sectors
affected b* the ne. la. H'estioned the -alidit* of
the
enactment on the gro'nd that the constit'tional
(ro-ision
reH'iring that all re-en'e bills sho'ld originate from the
5o'se of Re(resentati-es had been -iolated. Resol-e
the
iss'e.
SUGGESTED ANSWER:
There is no -iolation of the constit'tional
reH'irement
that all re-en'e bills sho'ld originate from the
5o'se of
Re(resentati-es. What is (rohibited is for the
7enate to
enact re-en'e meas'res on its o.n
.itho't a bill
originating from the 5o'se. B't once the
re-en'e bill .as
(assed b* the 5o'se and sent to the 7enate; the
latter can
(ass its o.n -ersion on the same s'bCect
matter
consonant .ith the latterFs (o.er to (ro(ose or
conc'r
.ith amendments. This follo.s from the co>
eH'alit* of
the t.o chambers of Congress 0Tolentino -.
7ecretar*
of Finance; ?R 6o. !!%$%%; Oct. 3"; !%1.
Power of Taxation: Limitations; Power to
Destroy (2000) M'stice 5olmes once said/ The
power to tax is not the power to destroy while
this !ourt (the ,upreme !ourt) sits.0 Describe
the (o.er to ta) and its limitations. 0%@1
SUGGESTED ANSWER:
The (o.er to ta) is an inherent (o.er of the
so-ereign
.hich is e)ercised thro'gh the legislat're;
to im(ose
b'rdens '(on s'bCects and obCects .ithin its
M'risdiction
for the ('r(ose of raising re-en'es to carr*
o't the
legitimate obCects of go-ernment. The
'nderl*ing basis for
its e)ercise is go-ernmental necessit* for
.itho't it no
go-ernment can e)ist nor end're. Accordingl*;
it has the
broadest sco(e of all the (o.ers of go-ernment
beca'se in the absence of limitations; it is considered as
'nlimited; (lenar*; com(rehensi-e and s'(reme. The t.o
limitations on the (o.er of ta)ation are the inherent and
constit'tional limitations .hich are intended to (re-ent
ab'se on the e)ercise of the other.ise (lenar* and
'nlimited (o.er. 2t is the Co'rtFs role to see to it that the
e)ercise of the (o.er does not transgress these
limitations.
Power of Taxation: Revocation of Exempting Statutes
(l997)
+9+ Cor(oration .as the reci(ient in !" of t.o ta)
e)em(tions both from Congress; one la. e)em(ting the
com(an*Fs bond iss'es from ta)es and the other
e)em(ting the com(an* from ta)es in the o(eration of its ('blic
'tilities. The t.o la.s e)tending the ta) e)em(tions .ere
re-o<ed b* Congress before their e)(ir* dates. Were the
re-ocations constit'tional,
SUGGESTED ANSWER:
Des. The e)em(ting stat'tes are both granted 'nilaterall*
b* Congress in the e)ercise of ta)ing (o.ers. 7ince
ta)ation is the r'le and ta) e)em(tion; the e)ce(tion; an*
ta) e)em(tion 'nilaterall* granted can be .ithdra.n at the
(leas're of the ta)ing a'thorit* .itho't -iolating the
Constit'tion 03actan Ceb' 2nternational Air(ort
A'thorit* -; 3arcos; ?.R 6o. !#""8#; 7e(tember !!;
!&1.
6either of these .ere iss'ed b* the ta)ing a'thorit* in a
contract la.f'll* entered b* it so that their re-ocation
.o'ld not constit'te an im(airment of the obligations of
contracts.
ALTERNATlVE ANSWER:
6o. The .ithdra.al of the ta) e)em(tion amo'nts to a
de(ri-ation of (ro(ert* .itho't d'e (rocess of la.; hence
'nconstit'tional.
Power of Taxation; lnherent in a Sovereign State (2005)
Describe the (o.er of ta)ation. 3a* a legislati-e bod*
enact la.s to raise re-en'es in the absence of a
constit'tional (ro-ision granting said bod* the (o.er to
ta), E)(lain.
SUGGESTED ANSWER:
Des; the legislati-e bod* ma* enact la.s e-en in the
absence of a constit'tional (ro-ision beca'se the (o.er
to ta) is inherent in the go-ernment and not merel* a
constit'tional grant. The (o.er of ta)ation is an essential
and inherent attrib'te of so-ereignt* belonging as a matter
of right to e-er* inde(endent go-ernment .itho't being
e)(ressl* granted b* the (eo(le. 04e(si>Cola Bottling
Com(an* of the 4hili((ines; 2nc. -. 3'nici(alit* of
Tana'an; Ae*te; ?.R. 6o. A>3!!%&; Febr'ar* #7;!7&1
Ta)ation is the inherent (o.er of a 7tate to collect
enforced (ro(ortional contrib'tion to s'((ort the
e)(enses of go-ernment. Ta)ation is the (o.er -ested in
the legislat're to im(ose b'rdens or charges '(on (ersons
and (ro(ert* in order to raise re-en'e for ('blic
('r(oses.
The (o.er to ta) is so 'nlimited in force and so searching
in e)tent that co'rts scarcel* -ent're to declare it is
l2 of 73
s'bCect to an* restrictions .hate-er; e)ce(t s'ch as rest
in
the discretion of the a'thorit* .hich e)ercises it. 0Tio -.
8ideogram Reg'lator* Board; ?.R. 6o. A>7%&7; M'ne !8;
!871 7o (otent is the (o.er to ta) that it .as once
o(ined
that +the (o.er to ta) in-ol-es the (o.er to destro*.+
0C.M. 3arshall in 3cC'lloch -. 3ar*land; $ Wheat; 3!& $ A.
Ed. %7; &"71
Power of Taxation; Legislative in Nature (l996)
What is the nat're of the (o.er of ta)ation,
SUGGESTED ANSWER:
The 4OWER TO TA9 is an attrib'te of so-ereignt*
and
is inherent in the 7tate. 2t is a (o.er emanating from
necessit* beca'se it im(oses a necessar* b'rden
to
(reser-e the 7tateFs so-ereignt* 04hil ?'arantee Co. -s.
Commissioner; A>##"7$; A(ril 3"; !&%1. 2t is inherentl*
legislati-e in nat're and character in that the (o.er of
ta)ation can onl* be e)ercised thro'gh the enactment of
la..
ALTERNATlVE ANSWER:
The nat're of the (o.er of ta)ation refers to its o.n
limitations s'ch as the reH'irement that it sho'ld be for
a ('blic ('r(ose; that it be legislati-e; that it is
territorial and that it sho'ld be s'bCect to international
comit*.
Purpose of Taxation; lnterpretation (2004)
Which of the follo.ing (ro(ositions ma* no. be
'ntenable/
!1 The co'rt sho'ld constr'e a la. granting ta)
e)em(tion strictl* against the ta)(a*er.
#1 The co'rt sho'ld constr'e a la. granting a
m'nici(al
cor(oration the (o.er to ta) most strictl*.
31 The Co'rt of Ta) A((eals has C'risdiction o-er
decisions of the C'stoms Commissioner in cases
in-ol-ing liabilit* for c'stoms d'ties.
$1 The Co'rt of A((eals has C'risdiction to re-ie.
decisions of the Co'rt of Ta) A((eals.
%1 The 7'(reme Co'rt has C'risdiction to
re-ie.
decisions of the Co'rt of A((eals.
M'stif* *o'r ans.er or choice briefl*. 0%@1
SUGGESTED ANSWER:
#. The court should construe a law granting a
municipal corporation the power to tax most strictly.
This (ro(osition is no. 'ntenable. The basic rationale
for
the grant of ta) (o.er to local go-ernment 'nits is to
safeg'ard their -iabilit* and self>s'fficienc* b*
directl*
granting them general and broad ta) (o.ers 03anila
Electric Com(an* -. 4ro-ince of Aag'na et. al.; 3"& 7CRA
7%" J!K1. Considering that inasm'ch as the (o.er to
ta)
ma* be e)ercised b* local legislati-e bodies; no longer
b*
-alid congressional delegation b't b* direct
a'thorit*
conferred b* the Constit'tion; in inter(reting
stat'tor*
(ro-isions on m'nici(al fiscal (o.ers;
do'bts .ill;
therefore; ha-e to be resol-ed in fa-or of
m'nici(al
cor(orations 0Cit* ?o-ernment of 7an 4ablo;
Aag'na -.
Re*es; 3"% 7CRA 3%3 J!K1. This means that
the co'rt
m'st ado(t a liberal constr'ction of a la.
granting a
m'nici(al cor(oration the (o.er to ta).
6ote/ 2f the e)aminee chose (ro(osition
no. $ as his
ans.er; it sho'ld be gi-en f'll credit
considering that
the (resent CTA Act 0R.A. 6o. #8#1 has
made the
CTA a coeH'al C'dicial bod* of the Co'rt
of A((eals.
The H'estion +Which of the follo.ing
(ro(ositions
ma* no. be 'ntenable+ ma* lead the
e)aminee to choose a (ro(osition .hich is 'ntenable on the
basis of the ne. la. des(ite the c't>off date ado(ted b* the Bar
E)amination Committee. R.A. 6o. #8# .as (assed on 3arch
3"; #""$.
Purpose of Taxation; Legislative in Nature (2004)
Ta)es are assessed for the ('r(ose of generating re-en'e to be
'sed for ('blic needs. Ta)ation itself is the (o.er b* .hich the
7tate raises re-en'e to defra* the e)(enses of go-ernment. A
C'rist said that a ta) is .hat .e (a* for ci-ili=ation.2n o'r
C'risdiction; .hich of the follo.ing statements ma* be
erroneo's/
!1 Ta)es are (ec'niar* in nat're.
#1 Ta)es are enforced charges and contrib'tions.
31 Ta)es are im(osed on (ersons and (ro(ert* .ithin
the territorial C'risdiction of a 7tate.
$1 Ta)es are le-ied b* the e)ec'ti-e branch of the
go-ernment.
%1 Ta)es are assessed according to a reasonable r'le of
a((ortionment.
M'stif* *o'r ans.er or choice briefl*. 0%@1
7:??E7TED A67WER/
A. $. Taxes are levied by the executive branch of government.
This statement is erroneo's beca'se le-* refers to the act
of im(osition b* the legislat're .hich is done thro'gh the
enactment of a ta) la.. Ae-* is an e)ercise of the (o.er to
ta) .hich is e)cl'si-el* legislati-e in nat're and character.
Clearl*; ta)es are not le-ied b* the e)ec'ti-e branch of
go-ernment. 0M84C -. Alba*; !8& 7CRA !8 J!"K1.
Rule on Set-Off or Compensation of Taxes (l996)
9 is the o.ner of a residential lot sit'ated at N'irino
A-en'e; 4asa* Cit*. The lot has an area of 3"" sH'are
meters. On M'ne !; !$; !"" sH'are meters of said lot
o.ned b* 9 .as e)(ro(riated b* the go-ernment to be
'sed in the .idening of N'irino A-en'e; for 43"".""".""
re(resenting the estimated assessed -al'e of said (ortion.
From !! to !%; 9; .ho is a b'sinessman; has not
been (a*ing his income ta)es. 9 is no. being assessed
for
the 'n(aid income ta)es in the total amo'nt of
4!%";"""."". 9 claims his income ta) liabilit* has
alread*
been com(ensated b* the amo'nt of 43""."""."" .hich
the go-ernment o.es him for the e)(ro(riation of his
(ro(ert*. Decide.
SUGGESTED ANSWER:
The income ta) liabilit* of 9 can not be com(ensated
.ith the amo'nt o.ed b* the ?o-ernment as
com(ensation for his (ro(ert* e)(ro(riated; ta)es are of
distinct <ind; essence and nat're than ordinar*
obligations. Ta)es and debts cannot be the s'bCect of
com(ensation beca'se the ?o-ernment and 9 are not
m't'all* creditors and debtors of each other and a claim
for ta)es is not a debt; demand; contract; or M'dgment as
is allo.able to be set off. 0Francia -s. 2AC. ?.R 7&7$; M'ne
#8. !881
Rule on Set-Off or Compensation of Taxes (200l)
3a* a ta)(a*er .ho has (ending claims for 8AT in('t
credit or ref'nd; set>off said claims against his other ta)
liabilities, E)(lain *o'r ans.er. 0%@1
SUGGESTED ANSWER:
l3 of 73
6o. 7et>off is a-ailable onl* if both obligations
are liH'idated and demandable. AiH'idated debts are
those .here the e)act amo'nts ha-e alread* been
determined. 2n the instant case; the claim of the
ta)(a*er for 8AT ref'nd is still (ending and the
amo'nt has still to be determined. A fortiori; the
liH'idated obligation of the ta)(a*er to the go-ernment
can not; therefore; be set>off against the 'nliH'idated
claim .hich the ta)(a*er concei-ed to e)ist in his
fa-or. 04hile) 3ining Cor(. -. C2R; ?R 6o. !#%7"$;
A'g'st #; !81.
ALTERNATlVE ANSWER:
6o. Ta)es and claims for ref'nd cannot be the s'bCect
of
set>off for the sim(le reason that the go-ernment and
the
ta)(a*er are not creditors and debtors of each other.
There is a material distinction bet.een a ta) and a
claim
for ref'nd. Claims for ref'nds C'st li<e debts are d'e
from
the go-ernment in its cor(orate ca(acit*; .hile ta)es
are
d'e to the go-ernment in its so-ereign ca(acit*. 04hile)
3ining Cor(. -. C2R; ?R 6o. !#%7"$; A'g'st #;
!81.
Rule on Set-Off or Compensation of Taxes (2005)
3a* ta)es be the s'bCect of set>off or com(ensation,
E)(lain.
SUGGESTED ANSWER.
6o; ta)es cannot be the s'bCect of set>off or
com(ensation for the follo.ing reasons/
!1 The lifeblood theor* reH'ires that there sho'ld be no
'nnecessar* im(ediments to the collection of ta)es to
ma<e a-ailable to the go-ernment the .here.ithal to
meet its legitimate obCecti-esG and
#1 The (a*ment of ta)es is not a contract'al obligation
b't
arises o't of a d't* to (a*; and in res(ect of the (ositi-e
acts of go-ernment; regarding the ma<ing and enforcing
of ta)es; the (ersonal consent of the indi-id'al ta)(a*er
is
not reH'ired. 0Re('blic -. 3amb'lao A'mber Co.; ?.R.
6o. A>!77#%; Febr'ar* #8; !&#G Calte) -. Commission on
A'dit; ?.R. 6o. #%8%; 3a* 8; !#G and 4hile) -.
Commissioner of 2nternal Re-en'e; ?.R. 6o. !#%7"$;
A'g'st #8; !81
5o.e-er; there is a (ossibilit* that set>off ma* arise; if
the claims against the go-ernment ha-e been
recogni=ed and an amo'nt has alread* been
a((ro(riated for that ('r(ose. Where both claims ha-e
alread* become o-erd'e and demandable as .ell as
f'll* liH'idated. Com(ensation ta<es (lace b* o(eration
of la. 'nder Art. !#"" in relation to Articles !#7 and
!#" of the 6e. Ci-il Code.
0Domingo -. ?arlitos; ?.R. 6o. A>!8$; M'ne #; !&31
Rule on Set-Off or Compensation on Taxes (2005)
Can an assessment for a local ta) be the s'bCect of set>
off or com(ensation against a final C'dgment for a
s'm of mone* obtained b* the ta)(a*er
against the local go-ernment that made the
assessment, E)(lain.
SUGGESTED ANSWER:
6o; ta)es cannot be the s'bCect of set>off
e-en .hen
there is a final C'dgment for a s'm of mone*
against the
local go-ernment ma<ing the
assessment. The
go-ernment and the ta)(a*er are not the
+m't'al
creditors and debtors+ of each other .ho can
a-ail of the
remed* of com(ensation .hich Art. !#78
0Ci-il Code1 is
referring to Re('blic of the 4hili((ines -.
3amb'lao A'mber Co.; ?.R. 6o. A>!77#%; Febr'ar* #8; !&#G and
Francia -. 2ntermediate A((ellate Co'rt; ?.R. 6o. A>&7&$; M'ne
#8;!8.
There is; ho.e-er; legal basis to state that an assessment
for a local ta) ma* be the s'bCect of set>off or
com(ensation against a final C'dgment for a s'm of
mone* obtained b* the ta)(a*er against the local
go-ernment b* o(eration of la. .here the local
go-ernment and the ta)(a*er are in their o.n right
reci(rocall* debtors and creditors of each other; and that
the debts are both d'e and demandable. This is consistent
.ith the r'ling in Domingo -. ?arlitos; ?.R. 6o. A>!8$;
M'ne #;!&3; rel*ing '(on Arts. !#78 and !#7 of the Ci-il
Code; .here these (ro-isions .ere a((lied in relation to
the national ta); and sho'ld therefore be a((licable to a
local ta).
Tax Avoidance vs. Tax Evasion (l996)
Disting'ish ta) e-asion from ta) a-oidance.
SUGGESTED ANSWER:
Ta) e-asion is a scheme 'sed o'tside of those la.f'l
means to esca(e ta) liabilit* and; .hen a-ailed of; it
's'all* s'bCects the ta)(a*er to f'rther or additional ci-il
or criminal liabilities. Ta) a-oidance; on the other hand; is
a ta) sa-ing de-ice .ithin the means sanctioned b* la.;
hence legal.
Tax Avoidance vs. Tax Evasion (2000)
3r. 4asc'alFs income from leasing his (ro(ert* reaches
the ma)im'm rate of ta) 'nder the la.. 5e donated one>
half of his said (ro(ert* to a non>stoc<; non>(rofit
ed'cational instit'tion .hose income and assets are
act'all*; directl* and e)cl'si-el* 'sed for ed'cational
('r(oses; and therefore H'alified for ta) e)em(tion 'nder
Article 928; 7ection $ 031 of the Constit'tion and 7ection
3" 0h1 of the Ta) Code. 5a-ing th's transferred a (ortion
of his said asset; 3r. 4asc'al s'cceeded in (a*ing a
lesser ta) on the rental income deri-ed from his
(ro(ert*. 2s there ta) a-oidance or ta) e-asion, E)(lain.
0#@1
SUGGESTED ANSWER:
There is ta) a-oidance. 3r. 4asc'al has e)(loited a f'll*
(ermissi-e alternati-e method to red'ce his income ta) b*
transferring (art of his rental income to a ta) e)em(t
entit* thro'gh a donation of one>half of the income
(rod'cing (ro(ert*. The donation is li<e.ise e)em(t from
the donorFs ta). The donation is the legal means em(lo*ed
to transfer the incidence of income ta) on the rental
income.
Tax Exemptions: Nature & Coverage; Proper Party (2004)
As an incenti-e for in-estors; a la. .as (assed gi-ing
ne.l* established com(anies in certain economic =one
e)em(tion from all ta)es; d'ties; fees; im(osts and other
charges for a (eriod of three *ears. ABC Cor(. .as
organi=ed and .as granted s'ch incenti-e. 2n the co'rse
of b'siness; ABC Cor(. ('rchased mechanical eH'i(ment
from 9DL 2nc. 6ormall*; the sale is s'bCect to a sales ta).
9DL 2nc. claims; ho.e-er; that since it sold the
eH'i(ment to ABC Cor(. .hich is ta) e)em(t; 9DL
l4 of 73
sho'ld not be liable to (a* the sales ta). 2s this
claim tenable, 0%@1
SUGGESTED ANSWER:
A. 6o. E)em(tion from ta)es is (ersonal in nat're and
co-ers onl* ta)es for .hich the ta)(a*er>grantee is
directl*
liable. The sales ta) is a ta) on the seller .ho is
not
e)em(t from ta)es. 7ince 9DL 2nc. is directl* liable
for
the sales ta) and no ta) e)em(tion (ri-ilege is e-er
gi-en
to him; therefore; its claim that the sale is ta) e)em(t is
not tenable. A ta) e)em(tion is constr'ed in strictissimi
1uris
and it can not be (ermitted to e)ist '(on -ag'e
im(lications 0Asiatic 4etrole'm Co.; Atd. 8. Alanes; $ 4hil
$&& J!#&K1.
Ass'me arg'endo that 9DL had to and did (a* the sales
ta). ABC Cor(. later fo'nd o't; ho.e-er; that 9DL
merel* shifted or (assed on to ABC the amo'nt of the
sales ta) b* increasing the ('rchase (rice. ABC Cor(.
no.
claims for a ref'nd from the B'rea' of 2nternal
Re-en'e
in an amo'nt corres(onding to the ta) (assed on to it
since it is ta) e)em(t. 2s the claim of ABC Cor(.
meritorio's, 0%@1
SUGGESTED ANSWER;
B. 6o. The claim of ABC Cor(. is not meritorio's.
Altho'gh the ta) .as shifted to ABC Cor(. b* the
seller; .hat is (aid b* it is not a ta) b't (art of the
cost it has ass'med. 5ence; since ABC Cor(. is not a
ta)(a*er; it has no ca(acit* to file a claim for ref'nd.
The ta)(a*er .ho can file a claim for ref'nd is the
(erson stat'toril* liable for the (a*ment of the ta).
Tax Laws; BlR Ruling; Non-Retroactivity of Rulings
(2004)
D'e to an 'ncertaint* .hether or not a ne. ta) la. is
a((licable to (rinting com(anies; DEF 4rinters
s'bmitted a legal H'er* to the B'rea' of 2nternal
Re-en'e on that iss'e. The B2R iss'ed a r'ling that
(rinting com(anies are not co-ered b* the ne. la..
Rel*ing on this r'ling; DEF 4rinters did not (a* said
ta).
7'bseH'entl*; ho.e-er; the B2R re-ersed the r'ling and
iss'ed a ne. one stating that the ta) co-ers (rinting
com(anies. Co'ld the B2R no. assess DEF 4rinters for
bac< ta)es corres(onding to the *ears before the ne.
r'ling, Reason briefl*. 0%@1
SUGGESTED ANSWER:
6o. Re-ersal of a r'ling shall not be gi-en a retroacti-e
a((lication if said re-ersal .ill be (reC'dicial to
the ta)(a*er. Therefore; the B2R can not assess DEF
(rinters for bac< ta)es beca'se it .o'ld be
-iolati-e of the (rinci(le of non>retroacti-it* of
r'lings and doing so .o'ld res'lt in gra-e inC'stice to
the ta)(a*er .ho relied on the first r'ling in good faith
07ection #$&; 62RCG C2R -. B'rro'ghs; 2nc.; !$#
7CRA 3#$J!8&K1.
Tax Pyramiding; Definition & Legality (2006)
What is ta) (*ramiding, What is its basis in la.,
0%@1
SUGGESTED ANSWER:
Ta) 4*ramiding is the im(osition of a ta) '(on
another
ta). 2t has no basis in fact or in la.
04eo(le -.
7andiganba*an; ?.R. 6o. !%#%3#; A'g'st !&; #""%1.
There is
also ta) (*ramiding .hen sales ta)es are
incorrectl*
a((lied to goods se-eral times from
(rod'ction to final
sale; th's; shifting the ta) b'rden to the 'ltimate
cons'mer.
(6OTABE6E: This concept pertains to the 2AT law which is
excluded from the bar coverage #uidelines for &((. 3ar 4xaminations
)une %- &((.)
Taxpayer Suit; When Allowed (l996)
When ma* a ta)(a*erFs s'it be allo.ed,
7:??E7TED A67WER/
A ta)(a*erFs s'it ma* onl* be allo.ed .hen an act
com(lained of; .hich ma* incl'de a legislati-e enactment;
directl* in-ol-es the illegal disb'rsement of ('blic f'nds deri-ed
from ta)ation 04asc'al -s. 7ecretar* of 4'blic Wor<s; !!" 4hil.
33!1.
Uniformity in the Collection of Taxes (l998)
E)(lain the reH'irement of 'niformit* as a limitation in the
im(osition andOor collection of ta)es. 0%@P
SUGGESTED ANSWER:
:niformit* in the im(osition andOor collection of ta)es
means that all ta)able articles; or <inds of (ro(ert* of the
same class shall be ta)ed at the same rate. The
reH'irement of 'niformit* is com(lied .ith .hen the ta)
o(erates .ith the same force and effect in e-er* (lace
.here the s'bCect of it is fo'nd 0Ch'rchill Q Tail -.
Conce(tion; 3$ 4hil. &1. 2t does not mean that lands;
chattels; sec'rities; income; occ'(ations; franchises;
(ri-ileges; necessities and l')'ries shall be assessed at the
same rate. Different articles ma*be ta)ed at different
amo'nts (ro-ided that the rate is 'niform on the same
class e-er*.here .ith all (eo(le at all times. Accordingl*;
singling o't one (artic'lar class for ta)ation ('r(oses
does not infringe the reH'irement of 'niformit*.
F2R7T AATER6AT28E A67WER/
The criteria is met .hen the ta) la.s o(erate eH'all* and
'niforml* on all (ersons 'nder similar circ'mstances. All
(ersons are treated in the same manner; the conditions
not being different; both in (ri-ileges conferred and
liabilities im(osed. :niformit* in ta)ation also refers to
geogra(hical 'niformit*. Fa-oritism and (reference is not
allo.ed.
7ECO6D AATER6AT28E A67WER/
A ta) is deemed to ha-e satisfied the 'niformit* r'le .hen
it o(erates .ith the same force and effect in e-er* (lace
.here the s'bCect ma*be fo'nd. 04hil. Tr'st Q Co. -.
Datco; & 4hil. $#"1.
lNCOME TAXATlON
Basic: Allowable Deductions vs. Personal
Exemptions
(200l)
Disting'ish Allo.able Ded'ctions from 4ersonal
E)em(tions. ?i-e an e)am(le of an allo.able ded'ction
and another e)am(le for (ersonal e)em(tion. 0%@1
SUGGESTED ANSWER:
The distinction bet.een allo.able ded'ctions and
(ersonal e)em(tions are as follo.s/
a. As to amo'nt E Allo.able ded'ctions generall*
refer to act'al e)(enses inc'rred in the ('rs'it of
trade; b'siness or (ractice of (rofession .hile
l5 of 73
(ersonal e)em(tions are arbitrar* amo'nts
allo.ed b* la..
b. As to nat're E Allo.able ded'ctions constit'te
b'siness e)(enses .hile (ersonal
e)em(tions
(ertain to (ersonal e)(enses.
c. As to ('r(ose E Ded'ctions are allo.ed to
enable the ta)(a*er to reco'( his cost of doing
b'siness .hile (ersonal e)em(tions are allo.ed
to co-er (ersonal; famil* and li-ing e)(enses.
d. As to claimants E Allo.able ded'ctions can be
claimed b* all ta)(a*ers; cor(orate or
other.ise; .hile (ersonal e)em(tions can be
claimed onl* b* indi-id'al ta)(a*ers.
Basic: Meaning of Taxable lncome (2000)
What is meant b* ta)able income, 0#@1
SUGGESTED ANSWER:
TA9ABAE 26CO3E means the (ertinent items of
gross income s(ecified in the Ta) Code; less the
ded'ctions andOor (ersonal and additional
e)em(tions; if an*; a'thori=ed for s'ch t*(es of
income b* the Ta) Code or other s(ecial la.s. (,ec. 5%
N6$! of %**')
Basic: Principle of !obi"ia #e$%%nt%r &ersona'
(l994) What is the (rinci(le of mobilia se7uuntur
personam in income ta)ation,
SUGGESTED ANSWER:
4rinci(le of 8obilia ,e7uuntur 9ersonam in income
ta)ation refers to the (rinci(le that ta)ation follo.s the
(ro(ert* or (erson .ho shall be s'bCect to the ta).
Basic: Proper Allowance of Depreciation (l998)
#. What is the (ro(er allo.ance for de(reciation of an*
(ro(ert* 'sed in trade or b'siness, J3@1
3. What is the ann'al de(reciation of a de(reciable fi)ed
asset .ith a cost of 4!"";""" and an estimated
'sef'l life of #" *ears and sal-age -al'e of 4
!";""" after its 'sef'l life,
SUGGESTED ANSWER:
!. The (ro(er allo.ance of de(reciation of an*
(ro(ert* 'sed in trade or b'siness refers to the
reason>
able allo.ance for the e)ha'stion; .ear and tear
(includ-
ing reasonable allowance for obsolescence) of said
(ro(ert*.
The reasonable allo.ance shall incl'de; b't not
limited
to; an allo.ance com('ted 'nder an* of the
follo.ing
methods/
0a1 straight>line methodG
0b1 declining>balance methodG
0c1 s'm>of>*ears>digit methodG and
0d1 an* other method .hich ma* be (rescribed
b* the 7ecretar* of Finance '(on
recommendation of the Commissioner of
2nternal Re-en'e 07ec. 3$0F1. 62RC1.
#. The ann'al de(reciation of the de(reciable fi)ed asset
ma* be com('ted on the straight>line method .hich
.ill allo. the ta)(a*er to ded'ct an
ann'al de(re>
ciation of 4h($;%""; arri-ed at b*
di-iding the de(reciable -al'e 04h(
l"".""">4h(l"."""1 of 4h(";""" b* the
estimated 'sef'l life 0#" *ears1.
6OTE/ The bar candidate ma* gi-e a different fig're
de(ending
on the method he 'sed in com('ting the ann'al
de(reciation.
The facts gi-en in the (roblem are s'fficient to
com('te the ann'al de(reciation either 'nder the declining>
balance method or s'm>of>*ears>digit method. An* ans.er
arri-ed at b* 'sing an* of the recogni=ed methods sho'ld be
gi-en f'll credit. 2t is s'ggested that no H'estion reH'iring
com('tation sho'ld be gi-en in f't're bar e)aminations.
Basic: Sources of lncome: Taxable lncome (l998)
From .hat so'rces of income are the follo.ing
(ersonsOcor(orations ta)able b* the 4hili((ine
go-ernment,
#1 Citi=en of the 4hili((ines residing thereinG J!@K
31 6on>resident citi=enG J!@!
$1 An indi-id'al citi=en of the 4hili((ines .ho is
.or<ing and deri-ing income from abroad as an o-erseas
contract .or<erG J!@K
%1 An alien indi-id'al; .hether a resident or not of the
4hili((inesG J!@K
&1 A domestic cor(orationG J!@K
SUGGESTED ANSWER: 07ection #3; 62RC of !71 !1 A citi=en
of the 4hili((ines residing therein is
ta)able on all income deri-ed from so'rces .ithin and
.itho't the 4hili((ines.
#1 A nonresident citi=en is ta)able onl* on income
deri-ed from so'rces .ithin the 4hili((ines. 31 An
indi-id'al citi=en of the 4hili((ines .ho is
.or<ing and deri-ing income from abroad as an o-erseas
contract .or<er is ta)able onl* on income from so'rces
.ithin the 4hili((ines.
$1 An alien indi-id'al; .hether a resident or not of the
4hili((ines; is ta)able onl* on income deri-ed from so'rces
.ithin the 4hili((ines.
%1 A domestic cor(oration is ta)able on all income
deri-ed from so'rces .ithin and .itho't the
4hili((ines.
Basic: Tax Benefit Rule (2003)
0a1 What is meant b* the +ta) benefit r'le+,
SUGGESTED ANSWER:
0a1 TA9 BE6EF2T R:AE states that the ta)(a*er is
obliged to declare as ta)able income s'bseH'ent reco-er*
of bad debts in the *ear the* .ere collected to the e)tent
of the ta) benefit enCo*ed b* the ta)(a*er .hen the bad
debts .ere .ritten>off and claimed as a ded'ction from
income. 2t also a((lies to ta)es (re-io'sl* ded'cted from
gross income b't .hich .ere s'bseH'entl* ref'nded or
credited. The ta)(a*er is also reH'ired to re(ort as ta)able
income the s'bseH'ent ta) ref'nd or ta) credit granted to
the e)tent of the ta) benefit the ta)(a*er enCo*ed .hen
s'ch ta)es .ere (re-io'sl* claimed as ded'ction from
income.
0b1 ?i-e an ill'stration of the a((lication of the ta)
benefit r'le.
SUGGESTED ANSWER:
0b1 9 Com(an* has a b'siness connected recei-able
amo'nting to 4!"";"""."" from D .ho .as declared
ban<r'(t b* a com(etent co'rt. Des(ite earnest efforts to
collect the same; D .as not able to (a*; (rom(ting 9
Com(an* to .rite>off the entire liabilit*. D'ring the *ear
of .rite>off; the entire amo'nt .as claimed as a ded'ction
for income ta) ('r(oses red'cing the ta)able net income
of 9 Com(an* to onl* 4!;""";"""."". Three *ears later;
D
l6 of 73
-ol'ntaril* (aid his obligation (re-io'sl* .ritten>off to
9 Com(an*. 2n the *ear of reco-er*; the entire
amo'nt constit'tes (art of gross income of 9 Com(an*
beca'se it .as able to get f'll ta) benefit three *ears
earlier.
Basic; Basis of lncome Tax (l996)
9 is em(lo*ed as a dri-er of a cor(orate la.*er
and recei-es a monthl* salar* of 4%;"""."" .ith free
board and lodging .ith an eH'i-alent -al'e of
4!;%""."".
!. What .ill be the basis of 9Fs income ta), Wh*
#. Will *o'r ans.er in H'estion 0a1 be the same if 9Fs
em(lo*er is an obstetrician, Wh*,
SUGGESTED ANSWERS:
!1 The basis of 9Rs income ta) .o'ld de(end on
.hether his em(lo*er is an em(lo*ee or a
(racticing cor(orate la.*er.
6 2f his em(lo*er is an em(lo*ee; the basis of
9Fs
income ta) is 4&;%""."" eH'i-alent to the total of
the
basic salar* and the -al'e of the board and
lodging. This is so beca'se the em(lo*erOcor(orate
la.*er has no (lace of b'siness .here the free
board and lodging ma* be gi-en.
6 On the other hand; if the cor(orate la.*er is a
+(racticing la.*er 0self>em(lo*ed1; 9 sho'ld be
ta)ed
onl* on 4%;"""."" (ro-ided that the free board and
lodging is gi-en in the b'siness (remises of
the
la.*er and for his con-enience and that the free
lodging .as gi-en to 9 as a condition for
em(lo*ment.
#1 2f the em(lo*er is an obstetrician .ho is self>
em>
(lo*ed; the basis of 9Fs income .ill onl* be 4%;""".""
if it is (ro-en that the free board and lodging is gi-en
.ithin the b'siness (remises of said em(lo*er
for his con-enience and that the free lodging is
reH'ired to be acce(ted b* 9 as condition for
em(lo*ment. Other.ise; 9 .o'ld be ta)ed on
4&;%""."".
Basic; Gross lncome: Define (l995)
What is +gross 2ncome+ for ('r(oses of the 2ncome ta),
SUGGESTED ANSWER:
?RO77 26CO3E means all income from .hate-er
so'rce deri-ed; incl'ding 0b't not limited to1
com(ensation for ser-ices; incl'ding fees;
commissions; and similar itemsG gross income from
b'sinessG gains deri-ed from dealings in (ro(ert*G
interestG rentsG ro*altiesG di-idendsG ann'itiesG (ri=es and
.inningsG (ensionsG and (artnerFs distrib'ti-e share of
the gross income of general (rofessional (artnershi(
07ec. #8; 62RC1.
ALTERNATlVE ANSWER:
a1 ?ross income means all .ealth .hich flo.s into
the ta)(a*er other than as a mere ret'rn of ca(ital. 2t
incl'des the forms of income s(ecificall* described as
gains and (rofits incl'ding gains deri-ed
from the sale or other dis(osition of ca(ital.
b1 ?ross income means income 0in the broad
sense1 less
income .hich is; b* stat'tor* (ro-ision or
other.ise;
e)em(t from the ta) im(osed b* la. 07ec. 3&;
Re-. Reg.
6o. #1. ?ross income from b'siness means
total sales;
less cost of goods sold; (l's an* income from
in-estments
and from incidental or o'tside o(erations or so'rces
07ec. $3; Re-. Reg. 6o. #1.
Basic; lncome vs. Capital (l995)
5o. does +2ncome+ differ from +ca(ital+, E)(lain.
SUGGESTED ANSWER:
2ncome differs from ca(ital in that 26CO3E is an*
.ealth .hich flo.s into the ta)(a*er other than a ret'rn
of ca(ital .hile ca(ital constit'tes the in-estment .hich is
the so'rce of income. Therefore; ca(ital is f'nd .hile
income is the flo.. Ca(ital is .ealth; .hile income is the
ser-ice of .ealth. Ca(ital is the tree .hile income is the
fr'it 08icente 3adrigal et al -. Mames RHffert*; 38 4hil. $!$1.
Basic; Schedular Treatment vs. Global Treatment (l994)
Disting'ish +schedular treatment+ from +global treatment+ as
'sed in income ta)ation.
SUGGESTED ANSWER:
:nder a 7C5ED:AER 7D7TE3; the -ario's
t*(esOitems of income (compensation: business;professional
income) are classified accordingl* and are accorded
different ta) treatments; in accordance .ith sched'les
characteri=ed b* grad'ated ta) rates. 7ince these t*(es of income
are treated se(aratel*; the allo.able ded'ctions shall li<e.ise
-ar* for each t*(e of income.
:nder the ?AOBAA 7D7TE3; all income recei-ed b* the
ta)(a*er are gro'(ed together; .itho't an* distinction as to the
t*(e or nat're of the income; and after ded'cting therefrom
e)(enses and other allo.able ded'ctions; are s'bCected to ta) at a
fi)ed rate.
Compensation; lncome Tax: Due to Profitable
Business Deal (l995)
3r. Osorio; a ban< e)ec'ti-e; .hile (la*ing golf .ith
3r.
4ere=; a man'fact'ring firm e)ec'ti-e; mentioned to the
latter that his 0Osorio1 ban< had C'st o(ened a b'siness
relationshi( .ith a big foreign im(orter of goods .hich
4ere=F com(an* man'fact'res. 4ere= reH'ested Osorio to
introd'ce him to this foreign im(orter and ('t in a good
.ord for him 04ere=1; .hich Osorio did. As a res'lt; 4ere=
.as able to ma<e a (rofitable b'siness deal .ith the
foreign 2m(orter.
2n gratit'de; 4ere=; in behalf of his man'fact'ring firm;
sent Osorio an e)(ensi-e car as a gift. Osorio called 4ere=
and told him that there .as reall* no obligation on the
(art of 4ere= or his com(an* to gi-e s'ch an e)(ensi-e
gift. B't 4ere= insisted that Osorio <ee( the car. The
com(an* of 4ere= ded'cted the cost of the car as a
b'siness e)(ense.
The Commissioner of 2nternal Re-en'e incl'ded the fair
mar<et -al'e of the car as 2ncome of Osorio .ho
(rotested that the car .as a gift and therefore e)cl'ded
from income. Who is correct; the Commissioner or
Osorio, E)(lain.
SUGGESTED ANSWER:
The Commissioner is correct. The car ha-ing been gi-en
to 3r. Osorio in consideration of ha-ing introd'ced 3r.
4ere= to a foreign 2m(orter .hich res'lted to a (rofitable
b'siness deal is considered to be a com(ensation for
l7 of 73
ser-ices rendered. The transfer is not a gift beca'se it
is
not made o't of a detached or disinterested generosit*
b't
for a benefit accr'ing to 3r. 4ere=. The fact that the
com(an* of 3r. 4ere= ta<es a b'siness ded'ction for
the
(a*ment indicates that it .as considered as a (a*
rather
than a gift. 5ence; the fair mar<et -al'e of the car
is
incl'dable in the gross income ('rs'ant to 7ection #80a1
0l1
of the Ta) Code (,ee %*'" <ederal Tax =andboo> p.
%"-). A
(a*ment tho'gh -ol'ntar*; if it is in ret'rn for ser-ices
rendered; or (roceeds from the constraining force of
an*
moral or legal d't* or a benefit to the (a*er is
antici(ated;
is a ta)able income to the (a*ee e-en if characteri=ed
as a
FgiftF b* the (a*or 0Commissioner -s. D'berstein; 3&3 :.7.
#781.
ALTERNATlVE ANSWER:
3r. Osorio is correct. The car .as not (a*ment for
ser-ices rendered. There .as no (rior agreement or
negotiations bet.een 3r. Osorio and 3r. 4ere= that the
former .ill be com(ensated for his ser-ices. 3r. 4ere=;
in
behalf of his com(an*; ga-e the car to 3r. Osorio o't
of
gratit'de. The transfer ha-ing been made
grat'ito'sl*
sho'ld be treated as a gift s'bCect to donorFs ta) and
sho'ld be e)cl'ded from the gross income of the
reci(ient; 3r. Osorio. The Commissioner sho'ld cancel
the assessment of deficienc* income ta) to 3r. Osorio
and instead assess deficienc* donorFs ta) on 3r
4ere=F
com(an*. 07ec. #80b1031; 62RCG 4iro-ano -s.
Commissioner1
Corporate: lncome: Donor's tax; Tax Liability (l996)
9; a m'ltinational cor(oration doing b'siness in the
4hili((ines donated !"" shares of stoc< of said
cor(oration to 3r. D; its resident manager in the
4hili((ines.
!1 What is the ta) liabilit*; if an*; of 9 cor(oration,
#1 Ass'ming the shares of stoc<s .ere gi-en to 3r. D
in consideration of his ser-ices to the cor(oration;
.hat are the ta) im(lications, E)(lain.
SUGGESTED ANSWERS:
!1 Foreign cor(orations effecting a donation are
s'bCect to donorFs ta) onl* if the (ro(ert* donated is
located in the 4hili((ines. Accordingl*; donation of
a foreign cor(oration of its o.n shares of stoc<s in
fa-or of resident em(lo*ee is not s'bCect to
donorFs ta) 0B2R R'ling 6o. "!8>87; Man'ar*
#&; !871. 5o.e-er; if 8%@ of the b'siness
of the foreign cor(oration is located in the
4hili((ines or the shares donated ha-e
acH'ired b'siness sit's in the 4hili((ines; the
donation ma* be ta)ed in the 4hili((ines
s'bCect to the r'le of reci(rocit*.
#1 2f the shares of stoc<s .ere gi-en to
3r. D in consideration of his ser-ices to the
cor(oration; the same shall constit'te ta)able
com(ensation income to the reci(ient
beca'se it is a com(ensation for ser-ices
rendered 'nder an em(lo*er>em(lo*ee
relationshi(; hence; s'bCect to income ta).
The (ar -al'e or stated -al'e of the shares
iss'ed also constit'tes ded'ctible e)(ense
to the cor(oration (ro-ided it is s'bCected to
.ithholding ta) on .ages.
Corporate; lncome Tax; Reasonableness of the
Bonus (2006)
?old and 7il-er Cor(oration ga-e e)tra !$th month
bon's to all its officials and em(lo*ees in the total amo'nt
of 47% 3illion. When it filed its cor(orate income ta)
ret'rn the follo.ing *ear; the cor(oration declared a net
o(erating loss. When the income ta) ret'rn of the
cor(oration .as re-ie.ed b* the B2R the follo.ing *ear; it
disallo.ed as item of ded'ction the 47% 3illion bon's the
cor(oration ga-e its officials and em(lo*ees on the
gro'nd of 'nreasonableness. The cor(oration claimed that
the bon's is an ordinar* and necessar* e)(ense that
sho'ld be allo.ed. 2f *o' .ere the B2R Commissioner;
ho. .ill *o' resol-e the iss'e, 0%@1
SUGGESTED ANSWER:
2 .ill disallo. the e)(ense. A bon's is ordinar* and
necessar* .here said e)(endit're is 0!1 a((ro(riate and
hel(f'l in the de-elo(ment of the ta)(a*ers b'siness
(8artens ?aw of <ederal 6ncome Taxation 2olume 62 p. 5%-)
and 0#1 is normal in relation to the b'siness of the
ta)(a*er and the s'rro'nding circ'mstances (p. 5%. 6bid).
To determine the reasonableness of the bon's it m'st be
commens'rate .ith ser-ices (erformed b* the officials
and em(lo*ees. Other factors to consider are .hether the
(a*ment .as made in good faithG the character of the
ta)(a*erFs b'sinessG the -ol'me and amo'nt of its net
earningsG its localit*G the t*(e and e)tent of the ser-ices
renderedG the salar* (olic* of the cor(orationG the si=e of
the (artic'lar b'sinessG the em(lo*eesF H'alification and
contrib'tions to the b'siness -ent'reG and general
economic conditions 0Atlas 3ining -. C2R; ?.R. 6o. A>
#&!!; Man'ar* #7; !8!1. 5o.e-er; since the b'siness
s'ffers from a net o(erating loss; 2 .ill r'le that the bon's
is an 'nreasonable e)(ense.
Corporate; lncome: Coverage; "Off-Line" Airline (l994)
Caledonia Aircargo is an off>line international carrier
.itho't an* flight o(erations in the 4hili((ines. 2t has;
ho.e-er; a liaison office in the 4hili((ines .hich is d'l*
licensed .ith the 7ec'rities and E)change Commission;
established for the ('r(ose of (ro-iding (assenger and
flight information; reser-ation and tic<eting ser-ices.
Are the re-en'es of Caledonia Aircargo from tic<ets
reser-ed b* its 4hili((ine office s'bCect to ta),
SUGGESTED ANSWER:
The re-en'es in the 4hili((ines of Caledonia Aircargo as
an +off>line+ airline from tic<et reser-ation ser-ices are
ta)able income from +.hate-er so'rce+ 'nder 7ec. #80a1
of the Ta) Code. This case is analogo's to Commissioner
-. BOAC; ?.R 6o. 6o. &%773>7$; A(ril 3"; !87 .here the
7'(reme Co'rt r'led that the income recei-ed in the
4hili((ines from the sale of tic<ets b* an +off>line+ airline
is ta)able as income from .hate-er so'rce.
Corporate; lncome: Coverage; "Off-Line" Airline (2005)
An international airline .ith no landing rights in the
4hili((ines sold tic<ets in the 4hili((ines for air
trans(ortation. 2s income deri-ed from s'ch sales of
tic<ets considered ta)able income of the said international
air carrier from 4hili((ine so'rces 'nder the Ta) Code,
sirdondee@gmail.com
!1 6on>-otingG
l8 of 73
E)(lain. 0%@1
ALTERNATlVE ANSWER:
Des. The income deri-ed from the sales of tic<ets in the
4hili((ines is considered ta)able income of the
international air carrier from 4hili((ine so'rces.
The so'rce of income is the (ro(ert*; acti-it* or ser-ice
that (rod'ced the income. The sale of tic<ets in the
4hili((ines is the acti-it* that (rod'ces the income. The
absence of landing rights in the 4hili((ines cannot alter
the fact that re-en'es .ere deri-ed from tic<et
sales
.ithin the 4hili((ines. 0Commissioner of 2nternal Re-en'e
-. Ma(an Air Aines; ?.R. 6o. &"7!$; October $; !!
reiterating British O-erseas Air.a*s Cor(.; Air 2ndia and
American Airlines; 2nc.1
ALTERNATlVE ANSWER:
6o; 'nder ,ec. 5 of $.$. No. %--&((&; an off>line
airline
ha-ing a branch office or a sales agent in the 4hili((ines
.hich sells (assage doc'ments for com(ensation or
commission to co-er off>line flights of its (rinci(al or
head office; or for other airlines co-ering
flights
originating from 4hili((ine (orts or off>line flights; is
not
considered engaged in b'siness as an international
air
carrier in the 4hili((ines and is; therefore; not s'bCect to
?ross 4hili((ine Billings Ta) nor to the 3@ common
carrierFs ta).
Based on the foregoing; the international airline
com(an*
is not considered as engaged in b'siness in the
4hili((ines
and is therefore a non>resident foreign cor(oration. A
non>resident foreign cor(oration is s'bCect to the gross
income ta) on its income deri-ed from so'rces .ithin
the
4hili((ines. The income from sale of tic<ets shall not
form (art of ta)able income beca'se the term +ta)able
income+ as defined 'nder 7ec. 3! of the 62RC refers
onl*
to income of those ta)(a*ers .ho (a* b* .a* of the net
income ta). Ta)able income means the (ertinent items
of
gross income s(ecified in the 62RC; less the ded'ctions
andOor (ersonal and additional e)em(tions; if an*;
a'thori=ed for s'ch t*(es of income b* the
62RC or
other s(ecial la.s.
Dividends: Disguised dividends (l994)
Disg'ised di-idends in income ta)ation, ?i-e an
e)am(le.
SUGGESTED ANSWER:
Disg'ised di-idends are those income
(a*ments made b*
a domestic cor(oration; .hich is a s'bsidiar*
of a non>
resident foreign cor(oration; to the latter
ostensibl* for
ser-ices rendered b* the latter to the former;
b't .hich
(a*ments are dis(ro(ortionatel* larger than
the act'al
-al'e of the ser-ices rendered. 2n s'ch case; the
amo'nt
o-er and abo-e the tr'e -al'e of the ser-ice
rendered shall
be treated as a di-idend; and shall be
s'bCected to the
corres(onding ta) of 3%@ on 4hili((ine
so'rced gross
income; or s'ch other (referential rate as ma*
be (ro-ided
'nder a corres(onding Ta) Treat*.
E)am(le/ Ro*alt* (a*ments 'nder a
corres(onding licensing agreement.
Dividends; lncome Tax; Deductible Gross
lncome (l999)
A Co.; a 4hili((ine cor(oration; iss'ed
(referred shares of stoc< .ith the follo.ing
feat'res/
#1 4referred and c'm'lati-e di-idends at the rate of
!"@ (er ann'm; .hether or not in an* (eriod the amo'nt is
co-ered b* earnings or (roCectsG
31 2n the e-ent of dissol'tion of the iss'er; holders of
(referred stoc< shall be (aid in f'll or ratabl* as the
assets of the iss'er ma* (ermit before an*
distrib'tion shall be made to common stoc<holdersG
and
$1 The iss'er has the o(tion to redeem the (referred
stoc<.
A Co. declared di-idends on the (referred stoc< and
claimed the di-idends as interests ded'ctible from its
gross 2ncome for income ta) ('r(oses. The B2R
disallo.ed the ded'ction. A Co. maintains that the
(referred shares .ith their feat'res are reall* debt and
therefore the di-idends are realt* interests. Decide. 0!"@1
SUGGESTED ANSWER:
The di-idends are not ded'ctible from gross income. 4referred
shares shall be considered ca(ital regardless of the conditions
'nder .hich s'ch shares are iss'ed and; therefore; di-idends
(aid thereon are not considered FinterestF .hich are allo.ed to
be ded'cted from the gross income of the cor(oration. ($evenue
8emorandum !ircular No. %'-'% )uly %& %*'%).
Effect; Condonation of Loan in Taxation (l995)
3r. Francisco borro.ed 4!";"""."" from his friend 3r.
?'tierre= (a*able in one *ear .itho't interest. When the
loan became d'e 3r. Francisco told 3r. ?'tierre= that he
03r. Francisco1 .as 'nable to (a* beca'se of b'siness
re-erses. 3r. ?'tierre= too< (it* on 3r. Francisco and
condoned the loan. 3r. Francisco .as sol-ent at the time
he borro.ed the 4 !";"""."" and at the time the loan .as
condoned. Did 3r. Francisco deri-e an* income from the
cancellation or condonation of his indebtedness, E)(lain.
SUGGESTED ANSWER:
6o; 3r. Francisco did not deri-e an* income from the
cancellation or condonation of his indebtedness. 7ince it is
ob-io's that the creditor merel* desired to benefit the
debtor in -ie. of the absence of consideration for the
cancellation; the amo'nt of the debt is considered as a gift
from the creditor to the debtor and need not be incl'ded
in the latterFs gross income.
Fringe Benefit Tax: Covered Employees (200l)
9 .as hired b* D to .atch o-er 8Rs fish(onds .ith a
salar* of 4h( !";"""."". To enable him to (erform his
d'ties .ell; he .as also (ro-ided a small h't; .hich he
co'ld 'se as his residence in the middle of the fish(onds.
2s the fair mar<et -al'e of the 'se of the small h't b* 9 a
+fringe benefit+ that is s'bCect to the 3#@ ta) im(osed b*
7ection 33 of the 6ational 2nternal Re-en'e Code,
E)(lain *o'r ans.er. 0%@1
SUGGESTED ANSWER:
6o. 9 is neither a managerial nor a s'(er-isor*
em(lo*ee.
Onl* managerial or s'(er-isor* em(lo*ees are entitled to
a
fringe benefit s'bCect to the fringe benefits ta). E-en
ass'ming that he is a managerial or s'(er-isor*
em(lo*ee;
the small h't is (ro-ided for the con-enience of the
l9 of 73
em(lo*er; hence does not constit'te a ta)able fringe
benefit. (,ection 55 N4$!).
Fringe Benefit Tax: Employer required to Pay (2003)
A +fringe benefit+ is defined as being an* good; ser-ice
or other benefit f'rnished or granted in cash or in <ind
b* an em(lo*er to an indi-id'al em(lo*ee. Wo'ld it
be the em(lo*er or the em(lo*ee .ho is legall*
reH'ired to (a* an income ta) on it, E)(lain. 0$@1
SUGGESTED ANSWER:
2t is the em(lo*er .ho is legall* reH'ired to (a* an
income
ta) on the fringe benefit. The fringe benefit ta) is
im(osed
as a F26AA W2T55OAD26? TA9 (lacing the legal
obligation to remit the ta) on the em(lo*er; s'ch that; if
the ta) is not (aid the legal reco'rse of the B2R is to go
after the em(lo*er. An* amo'nt or -al'e recei-ed b* the
em(lo*ee as a fringe benefit is considered ta) (aid
hence;
net of the income ta) d'e thereon. The (erson .ho is
legall* reH'ired to (a* (same as statutory
incidence as
distinguished from economic incidence) is that (erson
.ho; in
case of non>(a*ment; can be legall* demanded to (a*
the
ta).
lnterest: Deficiency lnterest: define (l995 Bar)
What is a +deficienc* interest+ for ('r(oses of the
income ta), 2ll'strate.
SUGGESTED ANSWER:
DEF2C2E6CD 26TERE7T for ('r(oses of the income
ta) is the interest d'e on an* amo'nt of ta) d'e or
installment thereof .hich is not (aid on or before the
date
(rescribed for its (a*ment com('ted at the rate of #"@
(er ann'm or the 3anila Reference Rate; .hiche-er
is
higher; from the date (rescribed for its (a*ment 'ntil it
is
f'll* (aid.
2f for e)am(le after the a'dit of the boo<s of 9DL
Cor(. for ta)able *ear !3 there .as fo'nd to be
d'e a deficienc* income ta) of 4!#%;"""."" incl'si-e
of the #%@ s'rcharge im(osed 'nder 7ection #$8 of the
Ta) Code; the interest .ill be com('ted on the
4!#%."""."" from A(ril !%; !$ '( to its date of
(a*ment.
lnterest: Delinquency lnterest: define (l995)
What is a +delinH'enc* interest+ for ('r(oses of the
income ta), 2ll'strate.
SUGGESTED ANSWER:
DelinH'enc* interest is the interest of #"@ or the
3anila Reference Rate; .hiche-er is higher; reH'ired to
be (aid in case of fail're to (a*/
0a1 the amo'nt of the ta) d'e on an* ret'rn reH'ired to
be filedG or
0b1 the amo'nt of the ta) d'e for .hich
ret'rn is
reH'iredG or
0c1 the deficienc* ta) or an* s'rcharge or
interest
thereon; on the d'e date a((earing in the
notice and
demand of the Commissioner of 2nternal
Re-en'e.
2f in the abo-e ill'stration the assessment
notice .as
released on December 3!; !$ and the
amo'nt of
deficienc* ta); incl'si-e of s'rcharge and
deficienc*
interest .ere com('ted '( to Man'ar* 3"; !%
.hich is
the d'e date for (a*ment (er assessment notice;
fail're to
(a* on this latter date .ill render the ta)
delinH'ent and .ill reH'ire the (a*ment of delinH'enc*
interest.
lTR: Personal lncome; Exempted to File lTR (l997)
A bachelor .as em(lo*ed b* Cor(oration A on the first
.or<ing da* of Man'ar* !& on a (art>time basis .ith a
salar* of 43;%""."" a month. 5e then recei-ed the !3th
month (a*. 2n 7e(tember !&; he acce(ted another (art>
time Mob from Cor(oration B from .hich he recei-ed a
total com(ensation of 4!$;%""."" for the *ear !&. The
correct total ta)es .ere .ithheld from both earnings.
With the .ithholding ta)es alread* (aid; .o'ld he still be
reH'ired to file an income ta) ret'rn for his !& income,
SUGGESTED ANSWER:
Des; beca'se .hat is e)em(t from filing are those
indi-id'als .ho ha-e total com(ensation income not
e)ceeding 4&".""" .ith the ta)es correctl* .ithheld onl*
b* one em(lo*er. 2n this case; e-en if his aggregate
com(ensation income from both his em(lo*ers does not
e)ceed 4&".""" and that total .ithholding ta)es .ere
correctl* .ithheld b* his em(lo*ers; the fact that he
deri-es com(ensation income conc'rrentl* from t.o
em(lo*ers at an*time d'ring the ta)able *ear; does not
e)em(t him from filing his income ta) ret'rn ($A '"*'
as implemented by $$ No. "-*5).
lTR; Domestic Corporate Taxation (l997)
D'ring the *ear; a domestic cor(oration deri-ed the
follo.ing items of re-en'e/ 0a1 gross recei(ts from a
trading b'sinessG 0b1 interests from mone* (lacements in
the ban<sG 0c1 di-idends from its stoc< in-estments in
domestic cor(orationsG 0d1 gains from stoc< transactions
thro'gh the 4hili((ine 7toc< E)changeG 0e1 (roceeds
'nder an ins'rance (olic* on the loss of goods. 2n
(re(aring the cor(orate income ta) ret'rn; .hat sho'ld be
the ta) treatment on each of the abo-e items,
SUGGESTED ANSWER:
The gross recei(ts from trading b'siness is incl'dible
as an item of income in the cor(orate income ta) ret'rn
and s'bCect to cor(orate income ta) rate based on net
income.
The other items of re-en'e .ill not be incl'ded in the
cor(orate income ta) ret'rn.
7 The interest from mone* mar<et (lacements is
s'bCect to a final .ithholding ta) of #"@G
7 The di-idends from domestic cor(oration are e)em(t
from income ta)G and
7 gains from stoc< transactions .ith the 4hili((ine
7toc< E)change are s'bCect to transaction ta) .hich
is in lie' of the income ta).
7 The (roceeds 'nder an ins'rance (olic* on the loss
of goods is not an item of income b't merel* a ret'rn
of ca(ital hence not ta)able.
ALTERNATlVE ANSWER:
The gross recei(ts from trading b'siness is incl'dible as
an item of income in the cor(orate income ta) ret'rn.
Ai<e.ise; the gain or loss reali=ed as a conseH'ence of the
recei(t of (roceeds 'nder an ins'rance (olic* on the loss
of goods .ill be incl'ded in the cor(orate income ta)
20 of 73
ret'rn either as a ta)able gain or a ded'ctible loss.
The
gain or loss is arri-ed at b* ded'cting from the (roceeds
of ins'rance 0amo'nt reali=ed1 the basis of the good lost
07ec. 3$0a1; 62RC1. The net income of the cor(oration
shall be s'bCect to cor(orate income ta) rate of 3%@.
The other items of re-en'e .ill not be incl'ded in the
cor(orate income ta) ret'rn. The interest from mone*
mar<et (lacements is s'bCect to a final .ithholding ta)
of #"@G di-idends from domestic cor(orations are
e)em(t from income ta)G and gains from stoc<
transactions .ith the 4hili((ine 7toc< E)change are
s'bCect to transaction ta) .hich is in lie' of the income
ta).
lTR; Domestic Corporate Taxation (200l)
a1 5o. often does a domestic cor(oration file income
ta) ret'rn for income earned d'ring a single ta)able
*ear, E)(lain the (rocess. 03@1
SUGGESTED ANSWER:
a1 A domestic cor(oration is reH'ired to file income
ta)
ret'rns fo'r 0$1 times for income earned d'ring a
single
ta)able *ear. N'arterl* ret'rns are reH'ired to be filed
for
the first three H'arters .here the cor(oration shall
declare
its H'arterl* s'mmar* of gross income and ded'ctions
on
a c'm'lati-e basis. (,ection '- N6$!). Then; a
final
adC'stment ret'rn is reH'ired to be filed co-ering the
total
ta)able income for the entire *ear; calendar or
fiscal.
(,ection '. N6$!).
b1 What is the reason for s'ch (roced're, 0#@1
SUGGESTED ANSWER:
b1 The reason for this (roced're is to ens're the
timeliness of collection to meet the b'dgetar* needs of
the go-ernment. Ai<e.ise; it is designed to ease the
b'rden on the ta)(a*er b* (ro-iding it .ith an
installment (a*ment scheme; rather than reH'iring the
(a*ment of the ta) on a l'm(>s'm basis after the end of
the *ear.
ALTERNATlVE ANSWER:
b1 The reason for the H'arterl* filing of ta) ret'rns is to
allo. (artial collection of the ta) before the end of the
ta)able *ear and also to im(ro-e the liH'idit*
of
go-ernment
lTR; Personal lncome: Two Employment (200l)
2n the *ear #"""; 9 .or<ed (art time as a .aitress in
a
resta'rant in 3ega 3all from 8/"" a.m. to $/"" (.m.
and
then as a cashier in a #$>ho'r con-enience store in her
neighborhood. The total income of 9 for the
*ear from
the t.o em(lo*ers does not e)ceed her total
(ersonal and
additional e)em(tions for the *ear #""". Was
she reH'ired
to file an income ta) ret'rn last A(ril,
E)(lain *o'r
ans.er. 0%@1
SUGGESTED ANSWER:
Des. An indi-id'al deri-ing com(ensation
conc'rrentl* from t.o or more em(lo*ers at
an* time d'ring the ta)able *ear shall file
an income ta) ret'rn 07ec. %!0A10#10b1;
62RC.1
ALTERNATlVE ANSWER:
2t de(ends. An indi-id'al .ith ('re
com(ensation income
is not reH'ired to file an income ta) ret'rns
.hen she
meets the follo.ing conditionsG 0!1 the
total gross
com(ensation income does not e)ceed
4h(&";"""."" and
0#1 the income ta) has been correctl* .ithheld;
meaning
the ta) .ithheld is eH'al to the ta) d'e. (,ection - l(A@
(&)(b) N6$!).
There is no mention in the (roblem of the amo'nt of
(ersonal and additional (ersonal e)em(tion to H'antif*
ho. m'ch is that com(ensation income that did not
e)ceed the (ersonal and additional (ersonal e)em(tions.
There is no; mention; either; of .hether or not the
em(lo*ers .ithheld ta)es and that the amo'nt .ithheld is
eH'al to the ta) d'e. Whether or not she .ill be reH'ired
to file an income ta) ret'rn last A(ril !% on the #"""
income .ill de(end on her com(liance .ith the
reH'irements of the la..
lTR; Personal lncome; GSlS Pension (2000)
3r. Ma-ier is a non>resident senior citi=en. 5e recei-es a
monthl* (ension from the ?727 .hich he de(osits .ith
the 46B>3a<ati Branch. 2s he e)em(t from income ta)
and therefore not reH'ired to file an income ta) ret'rn,
0%@1
SUGGESTED ANSWER:
3r. Ma-ier is e)em(t from income ta) on his monthl* ?727
(ension (,ec. 5&(3)(.)(f) N6$! of %**') b't not on the interest
income that might accr'e on the (ensions de(osited .ith
46B .hich are s'bCect to final .ithholding ta).
ConseH'entl*; since 3r. Ma-ierFs sole ta)able income .o'ld
ha-e been s'bCected to a final .ithholding ta); he is not
reH'ired an*more to file an income ta) ret'rn. (,ec. -% (A) (&)
(c). 6bid@.
lTR; Personal lncome; Married lndividual (2004)
RA3 got married to A27A last Man'ar* #""3. On
6o-ember 3"; #""3; A27A ga-e birth to t.ins.
:nfort'natel*; ho.e-er; A27A died in the co'rse of her
deli-er*. D'e to com(lications; one of the t.ins also died
on December !%; #""3.
2n (re(aring his 2ncome Ta) Ret'rn 02TR1 for the *ear
#""3; .hat sho'ld RA3 indicate in the 2TR as his ci-il
stat's/ 0a1 singleG 0b1 marriedG 0c1 5ead of the famil*G 0d1
.ido.erG 0e1 none of the abo-e, Wh*, Reason. 0%@1
SUGGESTED ANSWER:
RA3 sho'ld indicate +0b1 married+ as his ci-il stat's in
(re(aring his 2ncome Ta) Ret'rn for the *ear #""3. The
death of his .ife d'ring the *ear .ill not change his
stat's
beca'se sho'ld the s(o'se die d'ring the ta)able *ear; the
ta)(a*er ma* still claim the same e)em(tions (that of
being
married) as if the s(o'se died at the close of s'ch *ear
(,ection 5-;!1 N6$!).
lTR; Taxpayer; Liabilities; Falsified Tax Return (2005)
Danilo; .ho is engaged in the trading b'siness; entr'sted
to his acco'ntant the (re(aration of his income ta) ret'rn
and the (a*ment of the ta) d'e. The acco'ntant filed a
falsified ta) ret'rn b* 'nderdeclaring the sales and
o-erstating the e)(ense ded'ctions b* Danilo.
2s Danilo liable for the deficienc* ta) and the (enalties
thereon, What is the liabilit*; if an*; of the acco'ntant,
Disc'ss. 0%@1
SUGGESTED ANSWER:
Danilo is liable for the deficienc* ta) as .ell as for the
deficienc* interest. 5e sho'ld not be held liable for the
fra'd (enalt* beca'se the acco'ntant acted be*ond the
sirdondee@gmail.com
#1 6o. Re-en'e Reg'lation 6o.
2l of 73
#>3
limits of his a'thorit*. There is no sho.ing in the
(roblem that Danilo signed the falsified ret'rn or
that it .as (re(ared 'nder his direction.
IOn the other hand the acco'ntant ma* be held
criminall*
liable for -iolation of the Ta) Code .hen he falsified
the
ta) ret'rn b* 'nderdeclaring the sale and o-erstating the
e)(ense ded'ctions. 2f Dann*Fs acco'ntant is a Certified
4'blic Acco'ntant; his certificate as a C4A
shall
a'tomaticall* be re-o<ed or cancelled '(on con-iction.
Partnership: lncome Tax (l995)
Fi-e *ears ago 3arH'e=; 4ene*ra; Ma*me; 4osadas
and
3ang'iat; all la.*ers; formed a (artnershi( .hich
the*
named 3arH'e= and 4ene*ra Aa. Offices. The
Commis>
sioner of 2nternal Re-en'e thereafter iss'ed $evenue
$egu-
lation No. &-*5 implementing $A. '"*. <no.n as
the
7im(lified 6et 2ncome Ta)ation 7cheme 0762T71.
Re-en'e Reg'lation 6o. #>3 (ro-ides in (art/
7ec. &. ?eneral 4rofessional 4artnershi(. E
The general (rofessional (artnershi( and the
(artners are co-ered b* R.A. 7$&. Th's; in
determining (rofit of the (artnershi(; onl* the
direct costs mentioned in said la. are to be
ded'cted from (artnershi( income. Also; the
e)(enses (aid or 2nc'rred b* (artners in their
indi-id'al ca(acities in the (ractice of
their
(rofession .hich are not reimb'rsed or (aid b*
the (artnershi( b't are not considered as direct
costs are not ded'ctible from his gross income.
!1 3arH'e= and 4ene*ra Aa. Offices filed a ta)(a*erFs
s'it alleging that Re-en'e Reg'lation 6o. #>3
-iolates the (rinci(le of 'niformit* in ta)ation
beca'se general (rofessional (artnershi(s are no.
s'bCect to (a*ment of income ta) and that there is
a
difference in the ta) treatment bet.een
indi-id'als
engaged in the (ractice of their res(ecti-e (rofes>
sions and (artners in general (rofessional
(artnershi(s. 2s this contention correct, E)(lain.
SUGGESTED ANSWER:
!1 The contention is not correct. ?eneral
(rofessional
(artnershi(s remain to be a non>ta)able entit*.
What is
ta)able are the (artners com(rising the same
and the* are
obligated to re(ort as income their share in the
income of
the general (rofessional (artnershi( d'ring
the ta)able
*ear .hether distrib'ted or not. The
762T7 treat
(rofessionals as one class of ta)(a*er so that
the* shall be
treated ali<e irres(ecti-e of .hether the*
(ractice their
(rofession alone or in association .ith other
(rofessionals
'nder a general (rofessional (artnershi(. What
are ta)ed
differentl* are indi-id'als and cor(orations. All
indi-id'als
similarl* sit'ated are ta)ed ali<e 'nder the
reg'lations;
therefore; the (rinci(le of 'niformit* in
ta)ation is not
-iolated. On the contrar*; all the reH'irements
of a -alid
classification ha-e been com(lied .ith 0Ton
-s. Del
Rosario et al ?.R 6o. !"#8; Octobers; !$1.
#1 2s Re-en'e Reg'lation 6o. #>3 no.
considered as
ha-ing ado(ted a gross income method
instead of
retaining the net income ta)ation scheme,
E)(lain.
SUGGESTED ANSWER:
im(lementing RA 6o. 7$& ha-e indeed significantl*
red'ced the items of ded'ction b* limiting it to direct
costs and e)(enses or the $"@ of gross recei(ts ma)im'm
ded'ction in cases .here the direct costs are diffic'lt to
determine. The allo.ance of limited ded'ctions ho.e-er;
is still in consonance .ith the net income ta)ation scheme
rather than the gross income method. While it is tr'e that
not all the e)(enses of earning the income might be
allo.ed; this can .ell be C'stified b* the fact that
ded'ctions are not matters of right b't are matters of
legislati-e grace.
Personal; lncome Tax: Non-Resident Alien (2000)
3r. Corte= is a non>resident alien based in 5ong Song. D'ring
the calendar *ear !; he came to the 4hili((ines se-eral times
and sta*ed in the co'ntr* for an aggregated (eriod of more than
!8" da*s. 5o. .ill 3r. Corte= be ta)ed on his income deri-ed
from so'rces .ithin the 4hili((ines and from abroad, 0%@1
SUGGESTED ANSWER:
3r. Corte= being a non>resident alien indi-id'al .ho has
sta*ed for an aggregated (eriod of more than !8" da*s
d'ring the calendar *ear !; shall for that ta)able *ear
be deemed to be a non>resident alien doing b'siness in
the 4hili((ines.
Considering the abo-e; 3r. Corte= shall be s'bCect to an income
ta) in the same manner as an indi-id'al citi=en and a resident
alien indi-id'al; on ta)able income recei-ed from all so'rces
.ithin the 4hili((ines. A,ec. &- (A) (%) N6$! of %**'@ Th's; he
is allo.ed to a-ail of the itemi=ed ded'ctions incl'ding the
(ersonal and additional e)em(tions b't s'bCect to the r'le on
reci(rocit* on the (ersonal e)em(tions. (,ec. 5" (A) to ()) and
(8) in relation to ,ec. &- (A) (%) 6bid ,ec. 5- (B) 6bid.@
NCT4: 6t is suggested that full credit should be
given if the examineeDs answer only cover the first two
paragraphs.
Personal; lncome Tax: Non-Resident Citizen (l999)
A Co.; a 4hili((ine cor(oration; has an e)ec'ti-e 041 .ho
is a Fili(ino citi=en. A Co. has a s'bsidiar* in 5ong Song
05S Co.1 and .ill assign 4 for an indefinite (eriod to
.or< f'll time for 5S Co. 4 .ill bring his famil* to
reside
in 5S and .ill lease o't his residence in the 4hili((ines.
The salar* of 4 .ill be sho'ldered %"@ b* A Co. .hile the
other %"@ (l's ho'sing; cost of li-ing and ed'cational
allo.ances of 4Fs de(endents .ill be sho'ldered b* 5S
Co. A Co. .ill credit the %"@ of 4Fs salar* to 4Fs
4hili((ine ban< acco'nt. 4 .ill sign the contract of
em(lo*ment in the 4hili((ines. 4 .ill also be recei-ing
rental income for the lease of his 4hili((ine residence. Are
these salaries; allo.ances and rentals s'bCect to the
4hili((ine income ta), 0%@1
SUGGESTED ANSWER:
The salaries and allo.ances recei-ed b* 4 are not s'bCect
to 4hili((ine income ta). 4 H'alifies as a nonresident
citi=en beca'se he lea-es the 4hili((ines for em(lo*ment
reH'iring him to be (h*sicall* (resent abroad most of the
time d'ring the ta)able *ear. (,ection &&(4) N6$!). A
non>
resident citi=en is ta)able onl* on income deri-ed from
4hili((ine so'rces. (,ection &5 N6$!). The salaries and
22 of 73
allo.ances recei-ed from being em(lo*ed abroad are
incomes from .itho't beca'se these are com(ensation
for ser-ices rendered o'tside of the 4hili((ines.
(,ection
"& N6$!).
5o.e-er; 4 is ta)able on rental income for the lease of
his 4hili((ine residence beca'se this is an income
deri-ed from .ithin; the leased (ro(ert* being
located in the 4hili((ines. (,ection "& N6$!).
Personal; lncome Tax: Tax-Free Exchange (l997)
Three brothers inherited in !# a (arcel of land -al'ed
for real estate ta) ('r(oses at 43." million .hich the*
held
in co>o.nershi(. 2n !%; the* transferred the (ro(ert*
to
a ne.l* organi=ed cor(oration as their eH'it* .hich
.as
(laced at the =onal -al'e of 4&." million. 2n e)change
for
the (ro(ert*; the three brothers th's each recei-ed
shares
of stoc< of the cor(oration .ith a total (ar -al'e of 4#."
million or; altogether; a total of 4&." million. 6o
b'siness
.as done b* the Cor(oration; and the (ro(ert*
remained
idle. 2n the earl* (art of !7; one of the brothers; .ho
.as in dire need of f'nds; sold his shares to the t.o
brothers for 4#." million. 2s the transaction s'bCect to
an*
internal re-en'e ta) 0other than the doc'mentar* stam(
ta)1,
SUGGESTED ANSWER:
Des. The e)change in !% is a ta)>free e)change so
that
the s'bseH'ent sale of one of the brothers of his shares
to
the other t.o 0#1 brothers in !7 .ill be s'bCect to
income ta). This is so beca'se the ta)>free
e)change
merel* deferred the recognition of income on the
e)change transaction. The gain s'bCect to income ta)
in
the sale is meas'red b* the difference bet.een the
selling
(rice of the shares 04# 3illion1 and the basis of the
real
(ro(ert* in the hands of the transferor at the time of
e)change .hich is the fair mar<et -al'e of his share in
the
real (ro(ert* at the time of inheritance 07ection 3$0b1
0#1;
62RC1. The net gain from the sale of shares of stoc< is
s'bCect to the sched'lar ca(ital gains ta) of !"@ for the
first 4!"".""" and #"@ for the e)cess thereof
07ection
#l0d1; 62RC1.
ALTERNATlVE ANSWER:
The e)change effected in !% did not H'alif*
as a ta)>free
e)change beca'se there is no sho.ing that
the three
brothers gained control of the cor(oration b*
acH'iring at
least %!@ of the -oting rights. 7ince the entire
gain on the
e)change .as (re-io'sl* s'bCected to income
ta); then;
the sale .ill also be ta)able if a gain res'lts
therefrom. 2n
the instant case; the sale .ill not be s'bCect to
an* internal
re-en'e ta) other than the doc'mentar*
stam( ta);
beca'se the seller did not reali=e an* gain
from the sale.
The gain is meas'red b* the difference
bet.een the
amo'nt reali=ed 0selling (rice1 and the
basis of the
(ro(ert*. 2ncidentall*; the basis to him is his
share in the
-al'e of the (ro(ert* recei-ed at the time of
e)change;
.hich is 4# 3illion; an amo'nt; C'st eH'al to
the amo'nt
reali=ed from the sale.
Personal; lncome Tax; Contract of Lease
(l995)
3r. Domingo o.ns a -acant (arcel of land. 5e
leases the
land to 3r. EnriH'e= for ten *ears at a
rental of
4!#;"""."" (er *ear. The condition is that 3r.
EnriH'e=
.ill erect a b'ilding on the land .hich .ill
become the (ro(ert* of 3r. Domingo at the end of the lease
.itho't com(ensation or reimb'rsement .hatsoe-er for the -al'e
of the b'ilding.
3r. EnriH'e= erects the b'ilding. :(on com(letion the
b'ilding had a fair mar<et -al'e of 4! 3illion. At the end
of the lease the b'ilding is .orth onl* 4""."""."" d'e to
de(reciation.
Will 3r. Domingo ha-e income .hen the lease e)(ires and
becomes the o.ner of the b'ilding .ith a fair mar<et -al'e of
4""."""."", 5o. m'ch income m'st he re(ort on the b'ilding,
E)(lain.
SUGGESTED ANSWER:
When a b'ilding is erected b* a lessee in the leased
(remises in ('rs'ance of an agreement .ith the lessor that the
b'ilding becomes the (ro(ert* of the lessor at the end of the
lease; the lessor has the o(tion to re(ort income as follo.s/
!1 The lessor ma* re(ort as income the mar<et -al'e of
the b'ilding at the time .hen s'ch b'ilding is
com(letedG or
#1 The lessor ma* s(read o-er the life of the lease the
estimated de(reciated -al'e of s'ch b'ilding at the
termination of the lease and re(ort as income for each *ear
of the lease an aliH'ot (art thereof 07ec. $; RR 6o. #1.
:nder the first o(tion; the lessor .ill ha-e no income .hen the
lease e)(ires and becomes the o.ner of the b'ilding. The
second o(tion .ill gi-e rise to an income d'ring the *ear of lease
e)(iration of 4"."""."" or !O!" of the de(reciated -al'e of the
b'ilding.
The a-ailment of the first o(tion .ill reH'ire 3r.
Domingo to re(ort an income of 4!.""";"""."" d'ring
the *ear .hen the b'ilding .as com(leted. A total of
4""."""."" income .ill be re(orted 'nder the second
o(tion b't .ill be s(read o-er the life of the lease or
4"."""."" (er *ear.
ALTERNATlVE ANSWER:
3r. Domingo .ill reali=e an income .hen the lease
e)(ires and becomes the o.ner of the b'ilding .ith a fair
mar<et -al'e of 4""."""."" beca'se the condition for the
lease is the transfer of the b'ilding at the e)(iration of the
lease. The income to be reali=ed b* 3r. Domingo at the
time of the e)(iration .ill consist of the -al'e of the
b'ilding .hich is 4""."""."" and an* rental income
that has accr'ed as of said date.
Personal; lncome Tax; Married lndividual (l997)
3ar and Mo* got married in !". A .ee< before their
marriage. Mo* recei-ed; b* .a* of donation; a
condomini'm 'nit .orth 47%"."""."" from her (arents.
After marriage; some reno-ations .ere made at a cost of
4!%"."""."". The s(o'ses .ere both em(lo*ed in !! b*
the same com(an*. On 3" December !#; their first
child .as born; and a second child .as born on "7
6o-ember !3. 2n !$; the* sold the condomini'm 'nit
and bo'ght a ne. 'nit. :nder the foregoing facts; .hat
23 of 73
.ere the e-ents in the life of the s(o'ses that had
income ta) incidences,
SUGGESTED ANSWER:
The e-ents in the life of s(o'ses. 3ar and Mo*; .hich
ha-e income ta) incidences are the follo.ing/
!1 Their marriage in !" H'alifies them to claim
(ersonal e)em(tion for married indi-id'alsG
#1 Their em(lo*ment in !! b* the same com(an*
.ill ma<e them liable to the income ta) im(osed
on gross com(ensation incomeG
31 Birth of their first child in December !# .o'ld
gi-e rise to an additional e)em(tion of 4%;""" for
ta)able *ear !#G
$1 Birth of their second child in 6o-ember !3 .o'ld
li<e.ise entitle them to claim additional
e)em(tion
of 4%;""" raising their additional
(ersonal
e)em(tions to 4 !";""" for ta)able *ear !3G and
%1 7ale of their condomini'm 'nit in !$ shall
ma<e
the s(o'ses liable to the %@ ca(ital gains ta) on
the
gain (res'med to ha-e been reali=ed from the sale.
Personal; lncome Tax; Retiring Alien Employee (2005)
An alien em(lo*ee of the Asian De-elo(ment Ban<
0ADB1 .ho is retiring soon has offered to sell his car to
*o' .hich he im(orted ta)>free for his (ersonal 'se.
The (ri-ilege of e)em(tion from ta) is granted to
H'alified (ersonal 'se 'nder the ADB Charter .hich is
recogni=ed b* the ta) a'thorities. 2f *o' decide to
('rchase the car; is the sale s'bCect to ta), E)(lain.
0%@1
SUGGESTED ANSWER:
The sales transaction is s'bCect to -al'e added ta)
08AT1
'nder 7ec. !"70B1 of the 62RC; altho'gh this (ro-ision
is
e)(ressl* e)cl'ded from the co-erage of the #""%
bar
e)am.
The (roceeds from the sale are s'bCect to income ta).
The
car is considered a ca(ital asset of the retiring
alien
em(lo*ee beca'se he is not engaged in the b'siness of
b'*ing and selling cars. 5e therefore deri-ed
income;
.hich sho'ld be re(orted in his income ta) ret'rn.
07ees.
3# and 3; 62RC1
Personal; lncome Taxation: Non-Resident Citizen
(l997)
M'an; a Fili(ino citi=en; has immigrated to the
:nited
7tates .here he is no. a (ermanent resident. 5e o.ns
certain income>earning (ro(ert* in the 4hili((ines from
.hich he contin'es to deri-e s'bstantial income. 5e
also
recei-es income from his em(lo*ment in the
:nited 7tates
on .hich the :7 income ta) is (aid. On
.hich of the
abo-e income is the ta)able; if at all; in the
4hili((ines;
and ho.; in general terms; .o'ld s'ch income
or incomes
be ta)ed,
SUGGESTED ANSWER:
M'an; shall be ta)ed on both his income
from the
4hili((ines and on his 2ncome from the :nited
7tates be>
ca'se his being a citi=en ma<es him ta)able on
all 2ncome
.here-er deri-ed. For the income he deri-es
from his
(ro(ert* in the 4hili((ines; M'an shall be ta)ed
on his net
income 'nder the 7im(lified 6et 2ncome
Ta)ation
7cheme 0762T71 .hereb* he shall be
considered as a
self>em(lo*ed indi-id'al. 5is 2ncome as
em(lo*ee in the
:nited 7tates; on the other hand; shall be
ta)ed in
accordance .ith the sched'lar grad'ated rates of !@; #@ and
3@. based on the adC'sted gross income deri-ed b* non>
resident citi=ens from all so'rces .itho't the 4hili((ines d'ring
each ta)able *ear.
Taxable lncome: lllegal lncome (l995 Bar)
3r. AaCoCo is a big>time s.indler. 2n one *ear he .as able
to earn 4! 3illion from his s.indling acti-ities. When the
Commissioner of 2nternal Re-en'e disco-ered his income
from s.indling; the Commissioner assessed him a
deficienc* income ta) for s'ch income. The la.*er of 3r.
AaCoCo (rotested the assessment on the follo.ing gro'nds/
!1 The income ta) a((lies onl* to legal income; not to
illegal incomeG
#1 3r. AaCoCoFs recei(ts from his s.indling did not
constit'te income beca'se he .as 'nder obligation
to ret'rn the amo'nt he had s.indled; hence; his
recei(t from s.indling .as similar to a loan; .hich
is not income; beca'se for e-er* (eso borro.ed he
has a corres(onding liabilit* to (a* one (esoG and
31 2f he has to (a* the deficienc* income ta) assess>
ment; there .ill be hardl* an*thing left to ret'rn to the
-ictims of the s.indling.
5o. .ill *o' r'le on each of the three gro'nds for the (rotest,
E)(lain.
SUGGESTED ANSWERS:
!1 The contention that the income ta) a((lies to legal income
and not to illegal income is not correct. 7ection #80a1 of the Ta)
Code incl'des .ithin the ('r-ie. of gross income all 2ncome
from .hate-er so'rce deri-ed. 5ence; the illegalit* of the income
.ill not (recl'de the im(osition of the income ta) thereon.
#1 The contention that the recei(ts from his s.indling
did not constit'te income beca'se of his obligation to
ret'rn the amo'nt s.indled is li<e.ise not correct. When
a ta)(a*er acH'ires earnings; la.f'll* or 'nla.f'll*;
.itho't the consens'al recognition; e)(ress or im(lied; of
an obligation to re(a* and .itho't restriction as to their
dis(osition; he has recei-ed ta)able income; e-en tho'gh
it ma* still be claimed that he is not entitled to retain the
mone*; and e-en tho'gh he ma* still be adC'dged to
restore its eH'i-alent 0Mames -s. :.7.;3&& :.7. #!3; !&!1. To
treat the embe==led f'nds not as ta)able income .o'ld
(er(et'ate inC'stice b* relie-ing embe==lers of the d't* of
(a*ing income ta)es on the mone* the* enrich themsel-es
.ith thro'gh embe==lement; .hile honest (eo(le (a*
their ta)es on e-er* concei-able t*(e of income. ()ames
vs.
E.,.)
31 The deficienc* income ta) assessment is a direct ta)
im(osed on the o.ner .hich is an e)cise on the (ri-ilege
to earn an income. 2t .ill not necessaril* be (aid o't of
the same income that .ere s'bCected to the ta). 3r.
AaCoCoFs liabilit* to (a* the ta) is based on his ha-ing
reali=ed a ta)able income from his s.indling acti-ities
and
.ill not affect his obligation to ma<e restit'tion. 4a*ment
of the ta) is a ci-il obligation im(osed b* la. .hile
restit'tion is a ci-il liabilit* arising from a crime.
Taxable or Non-Taxable; lncome and Gains (2005)
24 of 73
E)(lain briefl* .hether the follo.ing items are ta)able
or non>ta)able/ 0%@1
a1 2ncome from M:ETE6?G
SUGGESTED ANSWER:
Ta)able. ?ross income incl'des +all income deri-ed
from
.hate-er so'rce+ (,ec. 5&AA@ N6$!) .hich .as
inter(reted as all income not e)(ressl* e)cl'ded or
e)em(ted from the class of ta)able income; irres(ecti-e
of
the -ol'ntar* or in-ol'ntar* action of the ta)(a*er
in
(rod'cing the income. Th's; the income ma* (roceed
from a legal or illegal so'rce s'ch as from
C'eteng.
:nla.f'l gains; gambling .innings; etc. are s'bCect
to
income ta). The ta) code stands as an indifferent ne'tral
(art* on the matter of .here the income comes from.
0Commissioner of 2nternal Re-en'e -. 3anning; ?.R. 6o. A>
#838; A'g'st &; !7%1
b1 ?ain arising from E94RO4R2AT2O6 OF
4RO4ERTDG
SUGGESTED ANSWER:
Ta)able. 7ale e)change or other dis(osition of (ro(ert*
to the go-ernment of real (ro(ert* is ta)able. 2t
incl'des ta<ing b* the go-ernment thro'gh
condemnation (roceedings. 0?on=ales -. Co'rt of Ta)
A((eals; ?.R. 6o. A>!$%3#; 3a* #&; !&%1
c1 TA9E7 (aid and s'bseH'entl* ref'ndedG
SUGGESTED ANSWER:
Ta)able onl* if the ta)es .ere (aid and claimed
as
ded'ction and .hich are s'bseH'entl* ref'nded or
credited. 2t shall be incl'ded as (art of gross income in
the
*ear of the recei(t to the e)tent of the income ta)
benefit
of said ded'ction. (,ec. 5"A!@A%@ N6$!) 6ot ta)able if
the
ta)es ref'nded .ere not originall* claimed as
ded'ctions.
d1 Reco-er* of BAD DEBT7 (re-io'sl* charged offG
SUGGESTED ANSWER:
Ta)able 'nder the TA9 BE6EF2T R:AE. Reco-er* of
bad debts (re-io'sl* allo.ed as ded'ction in
the
(receding *ears shall be incl'ded as (art of the
gross
income in the *ear of reco-er* to the e)tent of the
income
ta) benefit of said ded'ction. (,ec. 5"A4@A%@ N6$!)
This is
sometimes referred as the RECA4T:RE R:AE7.
e1 ?ain on the sale of a car 'sed for (ersonal ('r(oses.
SUGGESTED ANSWER:
Ta)able. 7ince the car is 'sed for (ersonal ('r(oses; it
is considered as a ca(ital asset hence the gain is
considered income. (,ec. 5&AA@A5@ and ,ec.
5*AA@A%@ N6$!)
Withholding Tax: Non-Resident Alien (200l)
2s a non>resident alien .ho is not engaged in
trade or b'siness or in the e)ercise of
(rofession in the 4hili((ines b't .ho deri-ed
rental income from the 4hili((ines reH'ired
to file an income ta) ret'rn on A(ril of the *ear
follo.ing his recei(t of said income, 2f not;
.h* not, E)(lain *o'r ans.er. 0%@1
SUGGESTED ANSWER:
6o. The income ta) on all income
deri-ed from
4hili((ine so'rces b* a non>resident alien
.ho is not
engaged in trade or b'siness in the 4hili((ines
is .ithheld
b* the lessee as a Final Withholding Ta).
(,ection -'(A)
N6$!). The go-ernment can not reH'ire
(ersons o'tside
of its territorial C'risdiction to file a ret'rnG for this reason; the
income ta) on income deri-ed from .ithin m'st be collected
thro'gh the .ithholding ta) s*stem and th's relie-e the
reci(ient of the income the d't* to file income ta) ret'rns.
(,ection -% N6$!).
Withholding Tax: Retirement Benefit (2000)
To start a b'siness of his o.n; 3r. 3ario de ?'=man
o(ted for an earl* retirement from a (ri-ate com(an*
after ten 0!"1 *ears of ser-ice. 4'rs'ant to the com(an*Fs
H'alified and a((ro-ed (ri-ate retirement benefit (lan; he
.as (aid his retirement benefit .hich .as s'bCected to
.ithholding ta). 2s the em(lo*er correct in .ithholding
the ta), E)(lain. 0#@1
SUGGESTED ANSWER:
0a1 2t de(ends. An em(lo*ee retiring 'nder a com(an*Fs H'alified
and (ri-ate retirement (lan can onl* be e)em(t from income ta)
on his retirement benefits if the follo.ing reH'isites are met/
0!1 that the retiring em(lo*ee m'st ha-e been in ser-ice
of the same em(lo*er for at least ten 0!"1 *earsG
0#1 that he is not less than %" *ears of age at the time of
retirementG and
031 the benefit is a-ailed of onl* once.
2n the instant case; there is no mention .hether the
em(lo*ee has li<e.ise com(lied .ith reH'isites n'mber
0#1 and 031.
Withholding Tax: Retirement Benefit (2000)
:nder .hat conditions are retirement benefits recei-ed b* officials
and em(lo*ees of (ri-ate firms e)cl'ded from gross income and
e)em(t from ta)ation, 03@1
SUGGESTED ANSWER:
The conditions to be met in order that retirement benefits
recei-ed b* officials and em(lo*ees of (ri-ate firms are
e)cl'ded from gross income and e)em(t from ta)ation
are as follo.s/
#. :nder Re('blic Act 6o. $!7 0those recei-ed 'nder
a reasonable (ri-ate benefit (lan1/
a. the retiring official or em(lo*ee m'st ha-e been
in ser-ice of the same em(lo*er for at least ten
0!"1 *earsG
b. that he is not less than fift* 0%"1 *ears of age at
the time of retirementG and
c. that the benefit is a-ailed of onl* once.
3. :nder Re('blic Act 6o. 7&$! 0those recei-ed from
em(lo*ers .itho't an* retirement (lan1/
a. Those recei-ed 'nder e)isting collecti-e
bargaining agreement and other agreements are
e)em(tG and
b. 2n the absence of retirement (lan or agreement
(ro-iding for retirement benefits the benefits
are e)cl'ded from gross income and e)em(t
from income ta) if/
i. retiring em(lo*ee m'st ha-e ser-ed at
least fi-e0%1 *earsG and
ii. that he is not less than si)t* 0&"1 *ears of
age b't not more than si)t* fi-e 0&%1.
Withholding Tax: Royalty (2002)
25 of 73
The 3SB>4hils. is a BO2>registered domestic
cor(oration
licensed b* the 3SB of the :nited Singdom to
distrib'te; s'((ort and 'se in the 4hili((ines its
com('ter
soft.are s*stems; incl'ding basic and related materials
for
ban<s. The 3SB>4hils. (ro-ides cons'ltanc* and
technical ser-ices incidental thereto b* entering into
licensing agreements .ith ban<s. :nder s'ch
agreements;
the 3SB>4hils. .ill not acH'ire an* (ro(rietar* rights
in
the licensed s*stems. The 3SB>4hils. (a*s ro*alt* to
the
3SB>:S; net of !%@ .ithholding ta) (rescribed b*
the
R4>:S Ta) Treat*.
2s the income of the 3SB>4hils. 'nder the licensing
agreement .ith ban<s considered ro*alt* s'bCect to #"@
final .ithholding ta), Wh*, 2f not; .hat <ind of ta)
.ill its income be s'bCect to, E)(lain. 0%@1
SUGGESTED ANSWER:
Des. The income of 3SB>4hils. 'nder the licensing
agreement .ith ban<s shall be considered as
ro*alt*
s'bCect to the #"@ final .ithholding ta). The term
ro*alt*
is broad eno'gh to incl'de technical ad-ice; assistance
or
ser-ices rendered in connection .ith technical
management or administration of an* scientific;
ind'strial
or commercial 'nderta<ing; -ent're; (roCect or scheme.
07ec. $#0$1 0f1; 62RC1. Accordingl*; the cons'ltanc*
and
technical ser-ices rendered b* 3SB>4hils; .hich
are
incidental to the distrib'tion; s'((ort and 'se of the
com('ter s*stems of 3SB>:S are ta)able as ro*alt*.
Withholding Tax; Coverage (2004)
Citing 7ection !"; Article 8222 of the !87
Constit'tion
.hich (ro-ides that salaries of C'dges shall be fi)ed b*
la.
and that d'ring their contin'ance in office their salar*
shall not be decreased; a C'dge of 33 Regional
Trial
Co'rt H'estioned the ded'ction of .ithholding ta)es
from
his salar* since it res'lts into a net ded'ction of his (a*.
2s
the contention of the C'dge correct, Reason briefl*. 0%@1
SUGGESTED ANSWER:
6o. The contention is incorrect. The salaries of C'dges
are
not ta)>e)em(t and their ta)abilit* is not contrar* to the
(ro-isions of 7ection !"; Article 8222 of the
Constit'tion
on the non>dimin'tion of the salaries of
members of the
C'diciar* d'ring their contin'ance in office.
The clear
intent of the Constit'tional Commission that
framed the
Constit'tion is to s'bCect their salaries to ta) as
in the case
of all ta)(a*ers. 5ence; the ded'ction of
.ithholding
ta)es; being a manner of collecting the income
ta) on
their salar*; is not a dimin'tion
contem(lated b* the
f'ndamental la.. 06itafan et. al. -. C2R; !%#
7CRA #8$
J!87K1.
Withholding Tax; Domestic Corporation;
Cash Dividends
(200l)
What do *o' thin< is the reason .h* cash
di-idends;
.hen recei-ed b* a resident citi=en or
alien from a
domestic cor(oration; are ta)ed onl* at the
final ta) of
!"@ and not at the (rogressi-e ta) rate
sched'le 'nder
7ection #$0A1 of the Ta) Code, E)(lain
*o'r ans.er.
0%@1
SUGGESTED ANSWER:
The reason for im(osing final .ithholding ta)
rather than
the (rogressi-e ta) sched'le on cash di-idends
recei-ed b*
a resident citi=en or alien from a domestic
cor(oration; is to ens're the collection of income ta) on
said income. 2f .e s'bCect the di-idend to the (rogressi-e
ta) rate; .hich can onl* be done thro'gh the filing of
income ta) ret'rns; there is no ass'rance that the ta)(a*er
.ill declare the income; es(eciall* .hen there are other
items of gross income earned d'ring the *ear. 2t .o'ld be
e)tremel* diffic'lt for the B2R to monitor com(liance
considering the h'ge n'mber of stoc<holders. B* shifting
the res(onsibilit* to remit the ta) to the cor(oration; it is
-er* eas* to chec< com(liance beca'se there are fe.er
.ithholding agents com(ared to the n'mber of income
reci(ients.
Ai<e.ise; the im(osition of a final .ithholding ta) .ill
ma<e the ta) a-ailable to the go-ernment at an earlier
time. Finall*; the final .ithholding ta) .ill be a s're
re-en'e to the go-ernment 'nli<e .hen the di-idend is
treated as a ret'rnable income .here the reci(ient thereof
.ho is in a ta) loss (osition is gi-en the chance to offset
s'ch loss against di-idend income thereb* de(ri-ing the
go-ernment of the ta) on said di-idend income. J6ote/ 6t
is recommended that any of the foregoing answers can be given
full
credit because the 7uestion involves a policy issue which can only
be
found in the deliberations of !ongress.K
ALTERNATlVE ANSWER:
The reason .h* cash di-idends recei-ed b* a resident citi=en
or alien from a domestic cor(oration are s'bCected to the final
.ithholding ta) of !"@ and not at the (rogressi-e rate ta)
sched'le is to lessen the im(act of a second la*er of ta) on the
same income.
Withholding Tax; lncome subject thereto (200l)
What is meant b* income s'bCect to +final ta)+, ?i-e at
least t.o e)am(les of income of resident indi-id'als that
is s'bCect to the final ta). 03@1
SUGGESTED ANSWER:
2ncome s'bCect to final ta) refers to an income .herein
the ta) d'e is f'll* collected thro'gh the .ithholding ta)
s*stem. :nder this (roced're; the (a*or of the income
.ithholds the ta) and remits it to the go-ernment as a
final settlement of the income ta) d'e on said income.
The reci(ient is no longer reH'ired to incl'de the item of
income s'bCected to +final ta)+ as (art of his gross income
in his income ta) ret'rns. E)am(les of income s'bCect to
final ta) are di-idend income; interest from ban< de(osits;
ro*alties; etc.
Withholding Tax; Non-Resident Alien (l994)
Fo'r Catholic (arishes hired the ser-ices of Fran< Binatra;
a foreign non>resident entertainer; to (erform for fo'r 0$1
nights at the Fol< Arts Theater. Binatra .as (aid
4#""."""."" a night. The (arishes earned 4!;""";""".""
.hich the* 'sed for the s'((ort of the or(hans in the cit*.
Who are liable to (a* ta)es,
SUGGESTED ANSWER:
The follo.ing are liable to (a* income ta)es/
0a1 The fo'r catholic (arishes beca'se the income
recei-ed b* them; not being income earned +as s'ch+
in the (erformance of their religio's f'nctions and
d'ties; is ta)able income 'nder the last (aragra(h of
7ec. #&; in relation to 7ec. #&0e1 of the Ta) Code. 2n
26 of 73
(romoting and o(erating the Binatra 7ho.; the*
engaged in an acti-it* cond'cted for (rofit. 02bid.1
0b1 The income of Fran< Binatra; a non>resident alien
'nder o'r la. is ta)able at the rate of 3"@;
final
.ithholding ta) based on the gross income from
the sho.. 3r. Binatra is not engaged in an*
trade or b'siness in the 4hili((ines.
Withholding Tax; Non-Resident Corporation (l994)
Bates Ad-ertising Com(an* is a non>resident
cor(oration
d'l* organi=ed and e)isting 'nder the la.s of
7inga(ore.
2t is not doing b'siness and has no office in the
4hili((ines. 4ili(inas ?arment 2ncor(orated; a domestic
cor(oration; retained the ser-ices of Bates to do all the
ad-ertising of its (rod'cts abroad. For said ser-ices;
BatesF
fees are (aid thro'gh o't.ard remittances. Are the fees
recei-ed b* Bates s'bCect to an* .ithholding ta),
7:??E7TED A67WER/
The fees (aid to Bates Ad-ertising Co.; a non>resident
foreign cor(oration are not s'bCect to .ithholding ta)
since the* are not s'bCect to 4hili((ine ta). The* are
e)em(t beca'se the* do not constit'te income from
4hili((ine so'rces; the same being com(ensation
for
labor or (ersonal ser-ices (erformed o'tside the
4hili((ines 07ec. 3&Ic1 031 and 7ec. #%0b10l1; Ta) Code1.
Withholding Tax; Reader's Digest Award (l998)
2s the (ri=e of one million (esos a.arded b* the
ReaderFs Digest s'bCect to .ithholding of final ta),
Who is res(onsible for .ithholding the ta), What
are the liabilities for fail're to .ithhold s'ch ta), J%@K
SUGGESTED ANSWER:
!1 2t de(ends. 2f the (ri=e is considered as .innings
deri-ed from so'rces .ithin the 4hili((ines; it is
s'bCect to .ithholding of final ta) 07ec. #$JBK
in
relation to 7ec. %7JAK; 62RC1. 2f deri-ed from
so'rces .itho't the 4hili((ines; it is not s'bCect to
.ithholding of final ta) beca'se the 4hili((ine ta)
la. and reg'lations co'ld not reach o't to foreign
C'risdictions.
#1 The ta) shall be .ithheld b* the ReaderFs Digest or
local agent .ho has control o-er the (a*ment of
the
(ri=e.
31 An* (erson reH'ired to .ithhold or .ho .illf'll*
fails to .ithhold; shall; in addition to
the other
(enalties (ro-ided 'nder the Code; be
liable '(on
con-iction to a (enalt* eH'al to the total
amo'nt of
ta) not .ithheld 07ec. #%!; 62RC1. 2n
case of fail're
to .ithhold the ta) or in the case
of 'nder
.ithholding; the deficienc* ta) shall be
collected
from the (a*orO.ithholding agent 0!st
(ar.. 7ec.
#.%7JAK; R.R. 6o. #>81.
An* (erson reH'ired 'nder the Ta) Code or b*
r'les and
reg'lations to .ithhold ta)es at the time or
times reH'ired
b* la. or r'les and reg'lations shall; in
addition to other
(enalties (ro-ided b* la.; '(on con-iction be
('nished
b* a fine of not less than Ten tho'sand
(esos 04h(
!"."OO1 and s'ffer im(risonment of not less than
one 0!1
*ear b't not more than ten 0!"1 *ears 0!st (ar.; 7ec. #%%;
62RC1.
CO33E6T/ 2t is s'ggested that an* of the follo.ing ans.ers to the
H'estion; +What are the liabilities for fail're to .ithhold s'ch a ta),+ be
gi-en f'll credit/
!1 The (a*or shall be liable for the (a*ment of the ta) .hich
.as not .ithheld.
#1 The (a*erO.ithholding agent shall be liable to both ci-il
and criminal (enalties im(osed b* the Ta) Code.
Withholding Tax; Time Deposit lnterest; GSlS Pension
(l994)
3aribel 7antos; a retired ('blic school teacher; relies on her
(ension from the ?727 and the 2nterest 2ncome from a time
de(osit of 4%""."""."" .ith ABC Ban<. 2s 3iss 7antos liable to
(a* an* ta) on her 2ncome,
SUGGESTED ANSWER:
3aribel 7antos is e)em(t from ta) on the (ension from
the ?727 (,ec. &/(b((')(<) Tax !ode). 5o.e-er; as regards
her time de(osit; the interest she recei-es thereon is
s'bCect to #"@ final .ithholding ta). (,ec. &%(a)(c) Tax
!ode).
DEDUCTlONS, EXEMPTlONS,
EXCLUSlONS & lNCLUSlONS
Deduction: Facilitation Fees or "kickback" (l998)
3C ?arcia; a contractor .ho .on the bid for the
constr'ction of a ('blic high.a*; claims as e)(enses;
facilitation fees .hich according to him is standard
o(erating (roced're in transactions .ith the go-ernment.
Are these e)(enses allo.able as ded'ction from gross
income, J%@K
SUGGESTED ANSWER:
6o. The alleged facilitation fees .hich he claims as
standard o(erating (roced're in transactions .ith the
go-ernment comes in the form of bribes or +<ic<bac<+
.hich are not allo.ed as ded'ctions from gross income
(,ection 5"(A)(l)(c) N6$!).
Deductions: Ordinary Business Expenses (2004)
O9D is the (resident and chief e)ec'ti-e officer of ADD
Com('ters; 2nc. When O9D .as as<ed to Coin the
go-ernment ser-ice as director of a b'rea' 'nder the
De(artment of Trade and 2nd'str*; he too< a lea-e of
absence from ADD. Belie-ing that its b'siness o'tloo<;
good.ill and o((ort'nities im(ro-ed .ith O9D in the
go-ernment; ADD (ro(osed to obtain a (olic* of
ins'rance on his life. On ethical gro'nds; O9D obCected
to the ins'rance ('rchase b't ADD ('rchased the (olic*
an*.a*. 2ts ann'al (remi'm amo'nted to 4!"";""". 2s
said (remi'm ded'ctible b* ADD Com('ters; 2nc.,
Reason. 0%@1
SUGGESTED ANSWER:
6o. The (remi'm is not ded'ctible beca'se it is not an
ordinar* b'siness e)(ense. The term +ordinar*+ is 'sed in
the income ta) la. in its common significance and it has
the connotation of being normal; 's'al or c'stomar*
0De('t* -. D' 4ont; 3"8 :7 $88 J!$"K1. 4a*ing (remi'ms
for the ins'rance of a (erson not connected to the
com(an* is not normal; 's'al or c'stomar*.
27 of 73
Another reason for its non>ded'ctibilit* is the fact that
it can be considered as an illegal com(ensation made
to a go-ernment em(lo*ee. This is so beca'se if the
ins'red; his estate or heirs .ere made as the beneficiar*
(because of the re7uirement of insurable interest); the
(a*ment of (remi'm .ill constit'te bribes .hich are
not allo.ed as ded'ction from gross income (,ection
5"AA@Al@Ac@ N6$!).
On the other hand; if the com(an* .as made the
beneficiar*; .hether directl* or indirectl*; the (remi'm
is not allo.ed as a ded'ction from gross income
(,ection 5.AAF%"@ N6$!).
Deductions: Amount for Bribe (200l)
2n order to facilitate the (rocessing of its a((lication for
a license from a go-ernment office; Cor(oration A
fo'nd it necessar* to (a* the amo'nt of 4h( !"";""" as
a bribe to the a((ro-ing official. 2s the 4h( !"";"""
ded'ctible from the gross income of Cor(oration A, On
the other hand; is the 4h( !"";""" ta)able income of the
a((ro-ing official, E)(lain *o'r ans.ers. 0%@1
SUGGESTED ANSWER:
7ince the amo'nt of 4h(l"".""" constit'tes a bribe; it is
not allo.ed as a ded'ction from gross income of
Cor(oration A; (,ection 5"(A)(l)(c) N6$!). 5o.e-er;
to
the reci(ient go-ernment official; the same constit'tes a
ta)able income. All income from legal or illegal
so'rces
are ta)able absent an* clear (ro-ision of la.
e)em(ting
the same. This is the reason .h* gross income had been
defined to incl'de income from .hate-er so'rce
deri-ed.
(,ection 5&(A) N6$!). 2llegall* acH'ired income
constit'tes
reali=ed income 'nder the claim of right doctrine
0R't<in
-. :7; 3$3 :7 !3"1.
Deductions: Capital Losses; Prohibitions (2003)
What is the rationale for the r'le (rohibiting the
ded'ction of ca(ital losses from ordinar* gains, E)(lain.
SUGGESTED ANSWER:
2t is to ins're that onl* costs or e)(enses inc'rred in
earning the income shall be ded'ctible for income ta)
('r(oses consonant .ith the reH'irement of the la.
that
onl* necessar* e)(enses are allo.ed as ded'ctions
from
gross income. The term +N4!4,,A$G 4H94N,4,+
(res'((oses that in order to be allo.ed as ded'ction;
the
e)(ense m'st be b'siness connected; .hich is not the
case insofar as ca(ital losses are concerned. This is
also
the reason .h* all non>b'siness connected e)(enses
li<e
(ersonal; li-ing and famil* e)(enses; are not
allo.ed as
ded'ction from gross income (,ection 5.(A)
(%) of the %**'
Tax !ode).
The (rohibition of ded'ction of ca(ital
losses from
ordinar* gains is designed to forestall the
shifting of
ded'ctions from an area s'bCect to lo.er ta)es
to an area
s'bCect to higher ta)es; thereb* 'nnecessaril*
res'lting in
lea<age of ta) re-en'es. Ca(ital gains are
generall* ta)ed at
a lo.er rate to (re-ent; among others; the
b'nching of
income in one ta)able *ear .hich is a liberalit*
in the la.
begotten from moti-es of ('blic (olic* ($ule
on =olding
9eriod). 2t stands to reason therefore; that if the
transaction
res'lts in loss; the same sho'ld be allo.ed
onl* from and
to the e)tent of ca(ital gains and not to be
ded'cted from
ordinar* gains .hich are s'bCect to a higher rate
of income ta). (!hirelstein <ederal 6ncome Taxation %*''
4d.)
Deductions: Deductible ltems from Gross lncome (l999)
E)(lain if the follo.ing items are ded'ctible from gross income
for income ta) ('r(oses. Disregard .ho is the (erson claiming
the e)(ense. 0%@1
!1 2nterest on loans 'sed to acH'ire ca(ital eH'i(ment
or machiner*.
#1 De(reciation of good.ill.
SUGGESTED ANSWER:
!1 2nterest on loans 'sed to acH'ire ca(ital eH'i(>
ment or machiner* is a ded'ctible item from gross income.
The la. gi-es the ta)(a*er the o(tion to claim as a ded'ction or
treat as ca(ital e)(endit're interest in>
c'rred to acH'ire (ro(ert* 'sed in trade; b'siness or e)ercise
of a (rofession. (,ection 5"(3) (5) N6$!).
#1 De(reciation for good.ill is not allo.ed as de>
d'ction from gross income. While intangibles ma*be
allo.ed to be de(reciated or amorti=ed; it is onl* allo.ed
to those intangibles .hose 'se in the b'siness or trade is
definitel* limited in d'ration. 0Basilan Estates; 2nc. -;
C2R; #! 7CRA !71. 7'ch is not the case .ith good.ill.
ALTERNATlVE ANSWER:
De(reciation of good.ill is allo.ed as a ded'ction from
gross income if the good.ill is acH'ired thro'gh ca(ital
o'tla* and is <no.n from e)(erience to be of -al'e to the
b'siness for onl* a limited (eriod. (,ection %(' $evenue
$egulations No. &). 2n s'ch case; the good.ill is allo.ed to
be amorti=ed o-er its 'sef'l life to allo. the ded'ction of
the c'rrent (ortion of the e)(ense from gross income;
thereb* (a-ing the .a* for a (ro(er matching of costs
against re-en'es .hich is an essential feat're of the
income ta) s*stem.
Deductions: lncome Tax: Donation: Real Property (2002)
On December "&; #""!; A86 Cor(oration donated a
(iece of -acant lot sit'ated in 3andal'*ong Cit* to an
accredited and d'l* registered non>stoc<; non>(rofit
ed'cational instit'tion to be 'sed b* the latter in b'ilding
a s(orts com(le) for st'dents.
A. 3a* the donor claim in f'll as ded'ction from its
gross income for the ta)able *ear #""! the amo'nt of
the donated lot eH'i-alent to its fair mar<et
-al'eO=onal -al'e at the time of the donation,
E)(lain *o'r ans.er. 0#@1
SUGGESTED ANSWER:
A. 6o. Donations andOor contrib'tions made to
H'alified donee instit'tions consisting of (ro(ert*
other than mone* shall be based on the acH'isition
cost of the (ro(ert*. The donor is not entitled to
claim as f'll ded'ction the fair mar<et -al'eO=onal
-al'e of the lot donated. 07ec. 3$051; 62RC1.
B. 2n order that donations to non>stoc<; non>(rofit
ed'cational instit'tion ma* be e)em(t from the
donorFs gift ta); .hat conditions m'st be met b* the
donee, 03@1
SUGGESTED ANSWER:
28 of 73
B. 2n order that donations to non>stoc<; non>(rofit
ed'cational instit'tion ma* be e)em(t from the
donorFs gift ta); it is reH'ired that not more than
3"@
of the said gifts shall be 'sed b* the donee>
instit'tion
for administration ('r(oses. 07ec. !"!0A1031;
62RC1.
Deductions: Non-Deductible ltems; Gross lncome
(l999)
E)(lain if the follo.ing items are ded'ctible from gross
income for income ta) ('r(oses. Disregard .ho is the
(erson claiming the ded'ction. 0%@1
!. Reser-es for bad debts.
#. Worthless sec'rities
SUGGESTED ANSWER:
!. RE7ER8E FOR BAD DEBT7 are not allo.ed as
ded'ction from gross income. Bad debts m'st be
charged off d'ring the ta)able *ear to be allo.ed
as
ded'ction from gross income. The mere setting '(
of
reser-es .ill not gi-e rise to an* ded'ction.
07ection
3$0E1. 6TRC1.
&. WORT5AE77 7EC:R2T2E7; .hich are ordinar*
assets; are not allo.ed as ded'ction from gross
income beca'se the loss is not reali=ed. 5o.e-er;
if these .orthless sec'rities are ca(ital assets; the
o.ner is considered to ha-e inc'rred a ca(ital loss
as of the last da* of the ta)able *ear and; therefore;
ded'ctible to the e)tent of ca(ital gains. (,ection
5"(B)(") N6$!). This ded'ction; ho.e-er; is not
allo.ed to a ban< or tr'st com(an*. (,ection 5"(4)
(&) N6$!).
Deductions: Requisites; Deducibility of a Loss (l998)
?i-e the reH'isites for ded'cibilit* of a loss. 0%@!
SUGGESTED ANSWER:
The reH'isites for ded'cibilit* of a loss are
!1 loss belongs to the ta)(a*erG
#1 act'all* s'stained and charged off d'ring the
ta)able
*earG
31 e-idenced b* a closed and com(leted transactionG
$1 not com(ensated b* 2ns'rance or other forms of
indemnit*G
%1 not claimed as a ded'ction for estate ta) ('r(oses in
case of indi-id'al ta)(a*ersG and
&1 if it is a cas'alt* loss it is e-idenced b* a declaration
of
loss filed .ithin $% da*s .ith the B2R.
COMMENT:
The H'estion is -ag'e. There are different <inds of losses
recogni=ed as ded'ctible 'nder the Ta) Code. These are
losses;
in general 07ec. 3$JDK0!1G net o(erating loss carr*o-er 07ec.
3$JDK031G ca(ital losses 07ec. 3$JDK0$1G Aosses from .ash
sales of
stoc<s or sec'rities 07ec. 3$JDK0%1 in relation to 7ec. 381G
.agering losses 07ec. 3$JDK0&1G and abandonment
losses 07ec.
3$0DK071. Aosses are also ded'ctible from the gross
estate 07ec.
8&JAK0l10e1; 62RC1.
Considering the time allotted for a fi-e 0%1 (oint
H'estion is onl*
nine 01 min'tes; the candidates .o'ld not be able to
.rite do.n
a com(lete ans.er. 2t is s'ggested that an* ans.er
.hich states
the reH'isites for the ded'cibilit* of an* of the abo-e
losses be
gi-en f'll credit.
Deductions; lncome Tax: Allowable Deductions
(200l)
Ta)(a*ers .hose onl* income consists of
salaries and
.ages from their em(lo*ers ha-e long been
com(laining
that the* are not allo.ed to ded'ct an* item
from their gross income for ('r(oses of com('ting their net
ta)able income. With the (assage of the Com(rehensi-e
Ta) Reform Act of !7; is this com(laint still -alid,
SUGGESTED ANSWER:
6o more. ?ross com(ensation income earners are no. allo.ed
at least an item of ded'ction in the form of (remi'm
(a*ments on health andOor hos(itali=ation ins'rance in an
amo'nt not e)ceeding 4#;$"" (er ann'm J7ection 3$031K. This
ded'ction is allo.ed if the aggregate famil* income do not e)ceed
4#%".""" and b* the s(o'se; in case of married indi-id'al; .ho
claims additional (ersonal e)em(tion for de(endents.
Deductions; Vanishing Deduction; Purpose (2006)
8anishing ded'ction is a-ailed of b* ta)(a*ers to/
a. Correct his acco'nting records to reflect the act'al
ded'ctions made
b. Red'ce his gross income
c. Red'ce his o't('t -al'e>added ta) liabilit*
d. Red'ce his gross estate
Choose the correct ans.er. E)(lain. 0%@1
SUGGESTED ANSWER:
0D1 red'ce his gross estate. 8anishing ded'ction or (ro(>
ert* (re-io'sl* ta)ed is one of the items of ded'ction allo.ed
in com('ting the net estate of a decedent (,ection /.AA@A&@ and
/.A3@A&@ N6$!).
Exclusion & lnclusion; Gross Receipts (2006)
Congress enacts a la. im(osing a %@ ta) on gross recei(ts
of common carriers. The la. does not define the term
+gross recei(ts.+ E)(ress Trans(ort; 2nc.; a b's com(an*
(l*ing the 3anila>Bag'io ro'te; has time de(osits .ith
ABC Ban<. 2n #""%; E)(ress Trans(ort earned 4! 3illion
interest; after ded'cting the #"@ final .ithholding ta)
from its time de(osits .ith the ban<. The B2R .ants to
collect a %@ gross recei(ts ta) on the interest income of
E)(ress Trans(ort .itho't ded'cting the #"@ final
.ithholding ta). 2s the B2R correct, E)(lain. 0%@1
ALTERNATlVE ANSWER:
Des. The term +?ross Recei(ts+ is broad eno'gh to
incl'de income constr'cti-el* recei-ed b* the ta)(a*er.
The amo'nt .ithheld is (aid to the go-ernment on its
behalf; in satisfaction of .ithholding ta)es. The fact that it
did not act'all* recei-e the amo'nt does not alter the fact
that it is remitted in satisfaction of its ta) obligations.
7ince the income .ithheld is an income o.ned b*
E)(ress Trans(ort; the same forms (art of its gross
recei(ts 0C2R -. 7olidban< Cor(.; ?.R. 6o. !$8!!;
6o-ember #%; #""31.
ALTERNATlVE ANSWER:
6o. The term +gross recei(ts;+ as a((lied to the b'siness
of a common carrier consists of re-en'es from carriage of
goods; cargoes; and (assengers. 2t does not com(rehend
or incl'de interest income .hich is (ro(erl* described as
+Other 2ncome.+
(6OTA BE6E: This 7uestion pertains to a percentage tax on
#ross $eceipts which is excluded from the 3ar coverage)
Exclusion vs. Deduction from Gross lncome (200l)
29 of 73
Disting'ish +E)cl'sion from ?ross 2ncome+
from +Ded'ctions From ?ross 2ncome+. ?i-e an
e)am(le of each. 0#@1
SUGGESTED ANSWER:
E9CA:72O67 from gross income refer to a flo. of
.ealth to the ta)(a*er .hich are not treated as (art of
gross income; for ('r(oses of com('ting the ta)(a*erRs
ta)able income; d'e to the follo.ing reasons/ 0!1 2t
is
e)em(ted b* the f'ndamental la.G 0#1 2t is e)em(ted b*
stat'teG and 031 2t does not come .ithin the definition of
income. 07ection &!; RR 6o. #1. DED:CT2O67 from
gross income; on the other hand; are the amo'nts; .hich
the la. allo.s to be ded'cted from gross income in
order
to arri-e at net income.
E)cl'sions (ertain to the com('tation of gross income;
.hile ded'ctions (ertain to the com('tation of net
income. E)cl'sions are something recei-ed or earned b*
the ta)(a*er .hich do not form (art of gross income
.hile ded'ctions are something s(ent or (aid in earning
gross income.
E)am(le of an e)cl'sion from gross income is (roceeds
of life ins'rance recei-ed b* the beneficiar* '(on
the death of the ins'red .hich is not an income or
!3th month (a* of an em(lo*ee not e)ceeding
43".""" .hich is an income not recogni=ed for ta)
('r(oses. E)am(le of a ded'ction is b'siness rental.
Exclusions & lnclusions: Benefits on Account of
lnjury
(l995)
3r. 2nfante .as hit b* a .a*.ard b's .hile on his .a*
to
.or<. 5e s'r-i-ed b't had to (a* 4$""."""."" for his
hos(itali=ation. 5e .as 'nable to .or< for si) months
.hich meant that he did not recei-e his 's'al salar* of 4
!";"""."" a month or a total of 4&"."""."". 5e s'ed the
b's com(an* and .as able to obtain a final C'dgment
a.arding him 4$""."""."" as reimb'rsement for
his
hos(itali=ation; 4&".""" for the salaries he failed to
recei-e
.hile hos(itali=ed; 4#"";"""."" as moral damages for
his
(ain and s'ffering; and 4 !"";"""."" as e)em(lar*
damages. 5e .as able to collect in f'll from the
C'dgment.
5o. m'ch income did he reali=e .hen he collected on
the C'dgment, E)(lain.
SUGGESTED ANSWER:
6one. The 4#"".""" moral and e)em(lar* damages
are
com(ensation for inC'ries s'stained b* 3r.
2nfante. The
4$""."""."" reimb'rsement for hos(itali=ation
e)(enses
and the 4&"."""."" for salaries he failed to
recei-e are
Famo'nts of an* damages recei-ed .hether
b* s'it or
agreement on acco'nt of s'ch inC'ries.F 7ection
#80b10%1 of
the Ta) Code s(ecificall* e)cl'de these
amo'nts from the
gross income of the indi-id'al inC'red.
07ection #80b1;
62RC and 7ec. &3 Re-. Reg. 6o. #1
ALTERNATlVE ANSWER:
The income reali=ed from the C'dgment is
onl* the
reco-er* for lost salaries. This constit'tes
ta)able income
beca'se .ere it not for the inC'r*; he co'ld
ha-e recei-ed
it from his em(lo*er as com(ensation
income. All the
other amo'nts recei-ed are either
com(ensation for
inC'ries or damages recei-ed on acco'nt of
s'ch inC'riesF
.hich are e)cl'sions from gross income ('rs'ant
to 7ection #80b10%1 of the Ta) Code.
Exclusions & lnclusions: Executive Benefits (l995)
3r. Adrian is an e)ec'ti-e of a big b'siness cor(oration. Aside
from his salar*; his em(lo*er (ro-ides him .ith the follo.ing
benefits/ free 'se of a residential ho'se in an e)cl'si-e
s'bdi-ision; free 'se of a limo'sine and membershi( in a
co'ntr* cl'b .here he can entertain c'stomers of the
cor(oration. Which of these benefits; if an*; m'st 3r. Adrian
re(ort as income, E)(lain.
SUGGESTED ANSWER:
3r. Adrian m'st re(ort the im('ted rental -al'e of the ho'se and
limo'sine as income. 2f the rental -al'e e)ceeds the (ersonal needs
of 3r. Adrian beca'se he is e)(ected to (ro-ide accommodation
in said ho'se for com(an* g'ests or the car is 'sed (artl* for
b'siness ('r(ose; then 3r. Adrian is entitled onl* to a ratable
rental -al'e of the ho'se and limo'sine as e)cl'sion from gross
income and onl* a reasonable amo'nt sho'ld be re(orted as
income. This is beca'se the free ho'sing and 'se of the limo'sine
are gi-en (artl* for the con-enience and benefit of the em(lo*er
0Collector -s. 5enderson1.
ALTERNATlVE ANSWER:
Rem'neration for ser-ices altho'gh not gi-en in the form
of cash constit'tes com(ensation income. Accordingl*;
the -al'e for the 'se of the residential ho'se is (art of his
com(ensation income .hich he m'st re(ort for income
ta) ('r(oses. 5o.e-er; if the residential ho'se gi-en to
3r. Adrian for his free 'se as an e)ec'ti-e is also 'sed for
the benefit of the cor(orationOem(lo*er; s'ch as for
entertaining c'stomers of the cor(oration; onl* %"@ of
the rental -al'e or de(reciation 0if the ho'se is o.ned b*
the cor(oration1 shall form (art of com(ensation income
0RA3O !>871.
The free 'se of a limo'sine and the membershi( in a
co'ntr* cl'b is not (art of 3r. AdrianFs com(ensation
income beca'se the* .ere gi-en for the benefit of the
em(lo*er and are considered to be necessar* incidents for
the (ro(er (erformance of his d'ties as an e)ec'ti-e of
the cor(oration.
The membershi( fee in the co'ntr* cl'b needs to be
re(orted as income. 2t a((ears that the membershi( of
3r. Adrian to the co'ntr* cl'b is (rimaril* for the benefit
and con-enience of the em(lo*er. This is to enable 3r.
Adrian to entertain com(an* g'ests 0Collector -s.
5enderson1.
Exclusions & lnclusions; Assets; Resident Alien (2005)
Ral(h Donald; an American citi=en; .as a to( e)ec'ti-e
of a :.7. com(an* in the 4hili((ines 'ntil he retired in
!. 5e came to li<e the 4hili((ines so m'ch that
follo.ing his retirement; he decided to s(end the rest of
his life in the co'ntr*. 5e a((lied for and .as granted a
(ermanent resident stat's the follo.ing *ear. 2n the s(ring
of #""$; .hile -acationing in Orlando; Florida; :7A; he
s'ffered a heart attac< and died. At the time of his death;
he left the follo.ing (ro(erties/ 0a1 ban< de(osits .ith
Citiban< 3a<ati and Citiban< Orlando; FloridaG 0b1 a
restho'se in Orlando; FloridaG 0c1 a condomini'm 'nit in
30 of 73
3a<atiG 0d1 shares of stoc< in the 4hili((ine s'bsidiar*
of
the :.7. Com(an* .here he .or<edG 0e1 shares of stoc<
in
7an 3ig'el Cor(. and 4AOTG 0f1 shares of stoc< in
Disne*
World in FloridaG 0g1 :.7. treas'r* bondsG and 0g1
(roceeds
from a life ins'rance (olic* iss'ed b* a :.7. cor(oration.
Which of the foregoing assets shall be incl'ded in
the
ta)able gross estate in the 4hili((ines, E)(lain. 0%@1
SUGGESTED ANSWER:
All of the (ro(erties en'merated e)ce(t 0g1; the
(roceeds
from life ins'rance; are incl'ded in the ta)able gross
estate
in the 4hili((ines. Ral(h Donald is considered a
resident
alien for ta) ('r(oses since he is an American Citi=en
and
.as a (ermanent resident of the 4hili((ines at the time
of
his death. The -al'e of the gross estate of a resident
alien
decedent shall be determined b* incl'ding the -al'e at
the
time of his death of all (ro(ert*; real or (ersonal;
tangible
or intangible; .here-er sit'ated. 07ec. 8%; 62RC1
The other item; 0g1 (roceeds from a life ins'rance
(olic*;
ma* also be incl'ded on the ass'm(tion that it .as
Ral(h
Donald .ho too< o't the ins'rance '(on his o.n life;
(a*able '(on his death to his estate. 07ec. 8%JEK; 62RC1
Exclusions & lnclusions; Benefits on Account of
Death
(l996)
9; an em(lo*ee of ABC Cor(oration died.
ABC Cor(oration ga-e 9Rs .ido. an amo'nt
eH'i-alent to 9Rs salar* for one *ear. 2s the amo'nt
considered ta)able income to the .ido., Wh*,
SUGGESTED ANSWER:
6o. The amo'nt recei-ed b* the .ido. from the
decedentFs em(lo*er ma* either be a gift or a se(aration
benefit on acco'nt of death. Both are e)cl'sions from
gross income ('rs'ant to (ro-isions of 7ection #80b1 of
the Ta) Code.
ALTERNATlVE ANSWER:
6o. 7ince the amo'nt .as gi-en to the .ido. and not
to
the estate; it becomes ob-io's that the amo'nt is more
of
a gift. 2n one :.7. ta) case 0Estate of 5ellstrom -s.
Commissioner; #$ T.C. !&1; it .as held that (a*ments to
the .ido. of the (resident of a cor(oration of the
amo'nt the (resident .o'ld ha-e recei-ed in salar* if he
li-ed o't the *ear constit'ted a gift and not an income.
The controlling facts .hich .o'ld lead to the
concl'sion that the amo'nt recei-ed b* the
.ido. is not an income are as follo.s/
71 the gift .as made to the .ido. rather than
the
estate/
81 there .as no obligation for the cor(oration to
ma<e
f'rther (a*ments to the deceasedG
1 the .ido. had ne-er .or<ed for the
cor(orationG
!"1 the cor(oration recei-ed no economic benefitG
and
!!1 the deceased had been f'll* com(ensated
for his
ser-ices 0Estate of 7*dne*
Carter -s. Commissioner; $%3 F. #d &!
0#dCir. !7!1.
Exclusions & lnclusions; Benefits on
Account of lnjury
(2005)
MR .as a (assenger of an airline that crashed.
5e s'r-i-ed
the accident b't s'stained serio's (h*sical
inC'ries .hich
reH'ired hos(itali=ation for 3 months.
Follo.ing
negotiations .ith the airline and its ins'rer; an
agreement
.as reached 'nder the terms of .hich MR .as
(aid the follo.ing amo'nts/ 4%"";"""."" for his
hos(itali=ationG 4#%";"""."" as moral damagesG and
43"";"""."" for loss of income d'ring the (eriod of his
treatment and rec'(eration. 2n addition; MR recei-ed from
his em(lo*er the amo'nt of 4#"";"""."" re(resenting the
cash eH'i-alent of his earned -acation and sic< lea-es.
Which; if an*; of the amo'nts he recei-ed are s'bCect to
income ta), E)(lain. 0%@1
SUGGESTED ANSWER:
All amo'nts recei-ed from the airline com(an* are e)cl'ded
from gross income. :nder 7ec. 3#0B10$1 of the 62RC; amo'nts of
damages recei-ed; .hether b* s'it or agreement; on acco'nt of
(ersonal inC'ries or sic<ness are e)cl'ded from gross income.
7ince the amo'nts recei-ed from the airline com(an* .ere
recei-ed as damages b* agreement on acco'nt of (ersonal
inC'ries; all shall be e)cl'ded from MRFs gross income.
The amo'nt of 4#"";""".""; less the eH'i-alent of not
more than !" da*s of -acation lea-e; recei-ed b* MR from
his em(lo*er; is s'bCect to income ta) 'nder 7ec. #.78.! 0a1
071 of R.R. 6o. #>8.
Exclusions & lnclusions; Compensation for personal
injuries or sickness (2003)
9; .hile dri-ing home from his office; .as serio'sl*
inC'red .hen his a'tomobile .as b'm(ed from behind b*
a b's dri-en b* a rec<less dri-er. As a res'lt; he had to (a*
4#"";"""."" to his doctor and 4!""; """."" to the
hos(ital .here he .as confined for treatment. 5e filed a
s'it against the b's dri-er and the b's com(an* and .as
a.arded and (aid act'al damages of 43""; """."" (for his
doctor and hospitaliIation bills) 4!"";"""."" b* .a* of
moral
damages; and 4%";"""."" for .hat he had to (a* his
attorne* for bringing his case to co'rt. Which; if an*; of
the foregoing a.ards are ta)able income to 9 and .hich
are not, E)(lain. 08@1
SUGGESTED ANSWER:
6othing is ta)able. :nder the Ta) Code; an* amo'nt
recei-ed as com(ensation for (ersonal inC'ries or sic<ness;
(l's the amo'nts for an* damages recei-ed .hether b*
s'it or agreement; on acco'nt of s'ch inC'ries or sic<ness
shall be e)cl'ded from gross income. 7ince the entire
amo'nt of 4$%"; """."" recei-ed are a.ard of damages on
acco'nt of the inC'ries s'stainedG all shall be e)cl'ded
from his gross income. Ob-io'sl*; these damages are
considered b* la. as mere ret'rn of ca(ital. 07ection
3#0B10$1; !7 Ta) Code1
Exclusions & lnclusions; Facilities or Privileges;
Military Camp (l995)
Ca(t. Can'to is a member of the Armed Forces of the
4hili((ines. Aside from his (a* as ca(tain; the
go-ernment gi-es him free 'niforms; free li-ing H'arters
in .hate-er militar* cam( he is assigned; and free meals
inside the cam(. Are these benefits income to Ca(t.
Can'to, E)(lain.
SUGGESTED ANSWER:
6o; the free 'niforms; free li-ing H'arters and the free
meals inside the cam( are not income to Ca(t. Can'te
beca'se these are facilities or (ri-ileges f'rnished b* the
3l of 73
em(lo*er for the em(lo*erFs con-enience .hich are
necessar* incidents to (ro(er (erformance of the
militar* (ersonnelFs d'ties.
Exclusions & lnclusions; Gifts over and above
the Retirement Pay (l995)
3r. N'iro= .or<ed as chief acco'ntant of a hos(ital for
fort*>fi-e *ears. When he retired at &% he recei-ed
retirement (a* eH'i-alent to t.o monthsF salar* for
e-er*
*ear of ser-ice as (ro-ided in the hos(ital B2R a((ro-ed
retirement (lan. The Board of Directors of the hos(ital
felt that the hos(ital sho'ld gi-e N'iro= more than .hat
.as (ro-ided for in the hos(italFs retirement (lan in
-ie.
of his lo*alt* and in-al'able ser-ices for fort*>fi-e
*earsG
hence; it resol-ed to (a* him a grat'it* of 4! 3illion
o-er
and abo-e his retirement (a*.
The Commissioner of 2nternal Re-en'e ta)ed the 4!
3il>
lion as (art of the gross com(ensation income of
N'iro=
.ho (rotested that it .as e)cl'ded from income
beca'se
0a1 it .as a retirement (a*; and 0b1 it .as a gift.
!1 2s 3r. N'iro= correct in claiming that the
additional
4! 3illion .as retirement (a* and
therefore e)cl'ded from income, E)(lain.
#1 2s 3r. N'iro= correct in claiming that the additional
4! 3illion .as gift and therefore e)cl'ded
from income, E)(lain.
SUGGESTED ANSWERS:
!1 6o. The additional 4! million is not a retirement
(a*
b't a (art of the gross com(ensation income of 3r.
N'iro=. This is not a retirement benefit recei-ed in
accordance .ith a reasonable (ri-ate benefit
(lan
maintained b* the em(lo*er as it .as not (aid o't of the
retirement (lan. Accordingl*; the amo'nt recei-ed in
e)cess of the retirement benefits that he is entitled to
recei-e 'nder the B2R>a((ro-ed retirement (lan .o'ld
not H'alif* as an e)cl'sion from gross income.
#1 6o. The amo'nt recei-ed .as in consideration of
his
lo*alt* and in-al'able ser-ices to the com(an* .hich
is
clearl* a com(ensation income recei-ed on acco'nt of
em(lo*ment. :nder the em(lo*erFs Fmoti-ation test;F
em(hasis sho'ld be (laced on the -al'e of 3r. N'iro=
ser-ices to the com(an* as the com(elling reason for
gi-ing him the grat'it*; hence it sho'ld
constit'te a
ta)able income. The (a*ment .o'ld onl*
H'alif* as a gift
if there is nothing b't Fgood .ill; esteem and
<indnessF
.hich moti-ated the em(lo*er to gi-e the
grat'it*.
07tonton -s. :.7.; !8& F. 7'((. 331. 7'ch is not
the case in
the herein (roblem.
ALTERNATlVE ANSWER:
Des. The ! million is not com(ensation income
s'bCect to
income ta) b't a gift from his em(lo*er.
There .as no
e-idence (resented to sho. that he .as not
f'll* com(en>
sated for his $% *ears of ser-ice. 2f his ser-ices
contrib'ted
in a large meas're to the s'ccess of the
hos(ital; it did not
gi-e rise to a reco-erable debt. The 4! million
is ('rel* a
grat'it* from the com(an*. 2t is a ta)able
gift to the
transferor. :nder the Ta) Code; gifts are
e)cl'ded from
gross income therefore e)em(t from income
ta). 07ec.
#8Ib1031; 62RCG 4iro-ano -s. Commissioner1
Exclusions & lnclusions; lTR; l3th month pay and
de minimis benefits (2005)
7tate .ith reasons the ta) treatment of the follo.ing in the
(re(aration of ann'al income ta) ret'rns/ !3th month (a* and de
minimis benefitsG
SUGGESTED ANSWER:
The !3th month (a* not e)ceeding 43";"""."" shall not be
re(orted in the income ta) ret'rn beca'se it is e)cl'ded from gross
income 0,ec. 5&A3@A'@ Ae@ N6$!1 The amo'nt of the !3th
month (a* in e)cess of 43";"""."" shall be re(orted in the ann'al
income ta) ret'rn.
De minimis benefits .hich do not e)ceed the ceilings
are e)cl'ded from gross income; and not to be considered
for determining the 43";"""."" ceiling hence not
re(ortable in the ann'al income ta) ret'rn. (,ec.
&.'/.%AA@A5@ $.$. &-*/ as amended by ,ec. &.55 A!@ and
further amended by $.$. No. /-&((()
Exclusions & lnclusions; lTR; Dividends received by a
domestic corporation (2005)
7tate .ith reasons the ta) treatment of the follo.ing in
the (re(aration of ann'al income ta) ret'rns/ Di-idends
recei-ed b* a domestic cor(oration from 0i1 another
domestic cor(orationG and 0ii1 a foreign cor(orationG
SUGGESTED ANSWER:
0i1 Di-idends recei-ed b* a domestic cor(oration from a
domestic cor(oration shall not be s'bCect to ta) 07ec.
#7JDKJ$K; 62RC1; hence; e)cl'ded from the income ta)
ret'rn.
0ii1 Di-idends recei-ed b* a domestic cor(oration from a foreign
cor(oration form (art of the gross income and are accordingl*
s'bCect to net income ta); hence incl'ded in the ann'al
2TR 07ec. $#JAKJ#KJbK; 62RC1; hence; m'st be incl'ded in
the income ta) ret'rn.
Exclusions & lnclusions; lTR; lncome realized from
sale
(2005)
the (re(aration of ann'al income ta) ret'rns/ 2ncome
reali=ed from sale of/ 0i1 ca(ital assetsG and 0ii1 ordinar*
assets.
SUGGESTED ANSWER:
0i1 2ncome reali=ed from sale of ca(ital assets is s'bCect to
the final .ithholding ta) at so'rce and therefore e)cl'ded
from the 2ncome Ta) Ret'rn 07ec. #$JCK and JDK; 62RC1G
0ii1 2ncome reali=ed from sale of ordinar* assets is (art of
?ross 2ncome; incl'ded in the 2ncome Ta) Ret'rn. 07ec.
3#JAKJ3K; 62RC1
Exclusions & lnclusions; lTR; lnterest on deposits (2005)
the (re(aration of ann'al income ta) ret'rns/ 2nterest on
de(osits .ith/ 0i1 B42 Famil* Ban<G and 0ii1 a local
offshore ban<ing 'nit of a foreign ban<G
SUGGESTED ANSWER:
Both items are e)cl'ded from the income ta) ret'rn/
0i1 2nterest income from an* c'rrenc* ban< de(osit is
considered (assi-e income from so'rces .ithin the
4hili((ines and s'bCect to final ta). 7ince it is s'bCect to
32 of 73
final ta) it is not to be incl'ded in the ann'al 2TR.
07ec. #$JBKJ!K; 62RC1 0'1 7ame as 6o. 0C1.
Exclusions & lnclusions; lTR; Proceeds of life
insurance
(2005)
the (re(aration of ann'al income ta) ret'rns/ 4roceeds
of
life ins'rance recei-ed b* a child as
irre-ocable
beneficiar*G
SUGGESTED ANSWER:
6ot to be re(orted in the ann'al income ta) ret'rns
beca'se the (roceeds of the life ins'rance are e)cl'ded
from gross income. 4roceeds of Aife ins'rance
(olicies (aid to the heirs or beneficiaries
'(on the death of the ins'red is an e)cl'sion from gross
income. (,ec.5&A3@Al@N6$!)
Exclusions & lnclusions; Life lnsurance Policy (2003)
On 3" M'ne #"""; 9 too< o't a life ins'rance (olic* on
his
o.n life in the amo'nt of 4#;""";"""."". 5e designated
his .ife; D; as irre-ocable beneficiar* to
4!;""";""".""
and his son; L; to the balance of 4!;""";"""."" b't; in
the
latter designation; reser-ing his right to s'bstit'te him
for
another. On "! 7e(tember #""3; 9 died and his .ife
and
son .ent to the ins'rer to collect the (roceeds of 9Fs
life
ins'rance (olic*. 08@1
0a1 Are the (roceeds of the ins'rance s'bCect to
income ta) on the (art of D and L for their
res(ecti-e shares, E)(lain.
0b1 Are the (roceeds of the ins'rance to form (art of
the gross estate of 9, E)(lain.
SUGGESTED ANSWERS:
0a1 6o. The la. e)(licitl* (ro-ides that (roceeds of
life ins'rance (olicies (aid to the heirs or beneficiaries
'(on the death of the ins'red are e)cl'ded from gross
income and is e)em(t from ta)ation. The (roceeds
of life ins'rance recei-ed '(on the death of the
ins'red constit'te a com(ensation for the loss of life;
hence a ret'rn of ca(ital; .hich is be*ond the sco(e
of income ta)ation. (,ection 5&(3)(%) %**' Tax !ode)
0b1 Onl* the (roceeds of 4!;""";"""."" gi-en to the
son;
L; shall form (art of the ?ross Estate of 9. :nder the
Ta) Code; (roceeds of life ins'rance shall form (art of
the gross estate of the decedent to the e)tent of the
amo'nt recei-able b* the beneficiar* designated in
the
(olic* of the ins'rance e)ce(t .hen it is
e)(ressl*
sti('lated that the designation of the beneficiar* is
irre-ocable. As stated in the (roblem; onl* the
designation
of D is irre-ocable .hile the ins'redOdecedent
reser-ed
the right to s'bstit'te L as beneficiar* for
another (erson.
Accordingl*; the (roceeds recei-ed b* D shall
be e)cl'ded
.hile the (roceeds recei-ed b* L shall be
incl'ded in the
gross estate of 9. (,ect;on /-(4) %**' Tax
!ode)
Exemptions: Charitable lnstitutions (2000)
Article 82; 7ection #8 031 of the !87
4hili((ine
Constit'tion (ro-ides that charitable
instit'tions;
ch'rches and (ersonages or co-enants
a(('rtenant
thereto; mosH'es; non>(rofit cemeteries and
all lands;
b'ildings and im(ro-ements act'all*;
directl* and
e)cl'si-el* 'sed for religio's; charitable or
ed'cational ('r(oses shall be e)em(t from ta)ation.
a1 To .hat <ind of ta) does this e)em(tion a((l*, 0#@1
7:??E7TED A67WER/
This e)em(tion a((lies onl* to (ro(ert* ta)es. What is e)em(ted
is not the instit'tion itself b't the lands; b'ildings and
im(ro-ements act'all*; directl* and e)cl'si-el* 'sed for
religio's; charitable and ed'cational ('r(oses. 0Commissioner of
2nternal Re-en'e -. Co'rt of A((eals; et al; ?.R. 6o. !#$"$3; October !$;
!81.
b1 2s (roof of act'al 'se necessar* for ta) e)em(tion ('r(oses
'nder the Constit'tion, 03@1
SUGGESTED ANSWER:
Des; beca'se ta) e)em(tions are strictl* constr'ed against the
ta)(a*er. There m'st be e-idence to sho. that the ta)(a*er has
com(lied .ith the reH'irements for e)em(tion. F'rthermore;
real (ro(ert* ta)ation is based on 'se and not on o.nershi(;
hence the same r'le m'st also be a((lied for real (ro(ert* ta)
e)em(tions.
Exemptions: Charitable lnstitutions; Churches (l996)
The Constit'tion e)em(ts from ta)ation charitable in>
stit'tions; ch'rches; (arsonages or con-ents a(('rtenant
thereto; mosH'es arid non>(rofit cemeteries and lands;
b'ildings and im(ro-ements act'all*; directl* and e)cl'>
si-el* 'sed for religio's; charitable and ed'cational
('r(oses. 3erc* 5os(ital is a !"">bed hos(ital organi=ed
for charit* (atients. Can said hos(ital claim e)em(tion
from ta)ation 'nder the abo-e>H'oted constit'tional
(ro-ision, E)(lain.
SUGGESTED ANSWER:
Des. 3erc* 5os(ital can claim e)em(tion from ta)ation
'nder the (ro-ision of the Constit'tion; b't onl* .ith
res(ect to real (ro(ert* ta)es (ro-ided that s'ch real
(ro(erties are 'sed act'all*; directl* and e)cl'si-el* for
charitable ('r(oses.
Exemptions: Educational institution (2004)
7'((ose that 9DL Colleges is a (ro(rietar* ed'cational
instit'tion o.ned b* the Archbisho(Fs famil*; rather than
the Archdiocese; .hich of those abo-e cited income and
donation .o'ld be e)em(t from ta)ation, E)(lain briefl*.
0%@1
SUGGESTED ANSWER:
2f 9DL Colleges is a (ro(rietar* ed'cational instit'tion;
all of its income from school related and non>school
related acti-ities .ill be s'bCect to the income ta) based
on its aggregate net income deri-ed from both acti-ities
07ection #70B1; 63C1. Accordingl*; all of the income
en'merated in the (roblem .ill be ta)able.
The donation of lot and b'ilding .ill li<e.ise be s'bCect
to the donorFs ta) beca'se a donation to an ed'cational
instit'tion is e)em(t onl* if the school is incor(orated as a
non>stoc< entit* (a*ing no di-idends.
7ince the donee is a (ro(rietar* ed'cational instit'tion;
the donation is ta)able 07ection !"!0A931; 6MRC1.
Exemptions: Gifts & Donations (l994)
2n !!; 2melda ga-e her (arents a Christmas gift of 4
!"";"""."" and a donation of 4%";"""."" to her (arish
33 of 73
ch'rch. 7he also donated a (arcel of land for the
constr'ction of a b'ilding to the 4:4 Al'mni
Association; a non>stoc<; non>(rofit organi=ation.
4ortions of the b'ilding shall be leased to generate
income for the association.
!1 2s the Christmas gift of 4 !"";"""."" to 2meldaFs
(arents s'bCect to ta),
#1 5o. abo't the donation to the (arish ch'rch,
31 5o. abo't the donation to the 4.:.4; Al'mni
Asso>
ciation,
SUGGESTED ANSWER:
!1 The Christmas gift of 4!"";"""."" gi-en b* 2melda
to
her (arents is ta)able '( to 4%";"""."" beca'se
'nder
the la. (,ec. *& (a) of the Tax !ode) net gifts
not e)ceeding 4%";"""."" are e)em(t.
#1 The donation of 4%";"""."" to the (arish ch'rch
e-en ass'ming that it is e)cl'si-el* for
religio's
('r(oses is not ta)>e)em(t beca'se the e)em(tion
granted 'nder Article 82; 7ec. #8031 of the
Constit'tion a((lies onl* to real estate ta)es
0Aladoc
-. Commissioner; !$7CRA##1.
31 The donation to the 4.:.4. Al'mni Association
does
not also H'alif* for e)em(tion both 'nder the
Constit'tion and the aforecited la. beca'se it is not
an ed'cational or research organi=ation;
cor(oration; instit'tion; fo'ndation or tr'st.
ALTERNATlVE ANSWER:
Donation to the 4.:.4. Al'mni Association is e)em(t
from donorFs ta) if it is (ro-en that the association is a
nonstoc<; non>(rofit charitable association; (a*ing
no
di-idends; go-erned b* tr'stees .ho recei-e no
com(ensation; and de-oting all its income to the
accom(lishment and (romotion of the ('r(oses
en'merated in its articles of incor(oration. 6ot more
than
3"@ of the gift sho'ld be 'sed for administration
('r(oses b* the donee.
Exemptions: Head of the Family: (l998)
Arnold; .ho is single; cohabits .ith 8ilma; .ho is
legall*
married to Lachar*. Arnold and 8ilma ha-e si)
minor
children .ho li-e and de(end '(on Arnold for their
chief
s'((ort. The children are not married and not gainf'll*
em(lo*ed.
!1 For income ta) ('r(oses; ma* Arnold be considered
as +head of a famil*,+ J3@K
#1 2s Arnold entitled to ded'ct from his gross income;
an additional e)em(tion for each of his
illegitimate child, J#@K
SUGGESTED ANSWER:
%) Des. An 'nmarried man .ho has illegitimate
minor
children .ho li-e .ith him and de(end
'(on him
for their chief s'((ort is considered as
+head of the
famil*+ 0$$ No. &-*/ implementing
,ection 5- N6$!).
#1 6o. Arnold is onl* entitled to ded'ct
additional
(ersonal e)em(tion for fo'r 0$1 o't of
the si) 0&1 illegitimate children. The
ma)im'm n'mber of de(endents for
('r(oses of the additional (ersonal
e)em(tion is fo'r. 07ec. 3%; 62RC1.
Exemptions: Non-Profit Educational lnstitutions
(2000)
:nder Article 9T8; 7ection $ 031 of the !87
4hili((ine Constit'tion; all re-en'es and assets of non>
stoc<; non(rofit ed'cational instit'tions; 'sed act'all*;
directl* and e)cl'si-el* for ed'cational ('r(oses; are
e)em(t from ta)es and d'ties. Are income deri-ed from
dormitories; canteens and boo<stores as .ell as interest
income on ban< de(osits and *ields from de(osit
s'bstit'tes a'tomaticall* e)em(t from ta)ation, E)(lain.
0%@1
SUGGESTED ANSWER:
6o. The interest income on ban< de(osits and *ields from de(osit
s'bstit'tes are not a'tomaticall* e)em(t from ta)ation. There
m'st be a sho.ing that the incomes are incl'ded in the schoolFs
ann'al information ret'rn and d'l* a'dited financial statements
together .ith/
!. Certifications from de(ositor* ban<s as to the
amo'nt of interest income earned from (assi-e
in-estments not s'bCect to the #"@ final .ithholding
ta)G
#. Certification of act'al; direct and e)cl'si-e 'tili=ation
of said income for ed'cational ('r(osesG
3. Board resol'tion on (ro(osed (roCect to be f'nded
o't of the mone* de(osited in ban<s or (laced in
mone* mar<et (lacements (<inance Bepartment Crder
No. %"*-*- issued November &" %**-) .hich m'st be
'sed act'all*; directl* and e)cl'si-el* for ed'cational
('r(oses.
The income deri-ed from dormitories; canteens and
boo<stores are not also a'tomaticall* e)em(t from ta)ation.
There is still the reH'irement for e-idence to sho. act'al;
direct and e)cl'si-e 'se for ed'cational ('r(oses. 2t is to be
noted that the !87 4hili((ine Constit'tion does not
disting'ish .ith res(ect to the so'rce or origin of the
income. The distinction is .ith res(ect to the 'se
.hich sho'ld be act'al; direct and e)cl'si-e for
ed'cational ('r(oses.
ConseH'entl*; the (ro-isions of 7ec. 3" of the 62RC of
!7; that a non>stoc< and non(rofit ed'cational
instit'tion is e)em(t from ta)ation onl* +in res(ect to
income recei-ed b* them as s'ch+ co'ld not affect the
constit'tional ta) e)em(tion. Where the Constit'tion
does not disting'ish .ith res(ect to so'rce or origin; the
Ta) Code sho'ld not ma<e distinctions.
Exemptions: Non-Profit Entity; Ancillary Activity
& lncidental Operations (l994)
The :ni-ersit* of Bigaa; a non>stoc<; non>(rofit entit*;
o(erates a canteen for its st'dents and a boo<store inside
the cam('s. 2t also o(erates t.o dormitories for its
st'dents; one of .hich is in the cam('s. 2s the :ni-ersit*
liable to (a* income ta)es for the o(eration of the/ !1
canteen, #1 boo<store, 31 t.o dormitories,
SUGGESTED ANSWER:
!1 For the o(eration of the canteen inside the cam('s;
the income thereon being incidental to the o(erations of
the :ni-ersit* as a school; is e)em(t (Art. H62 (") (5)
!onstitution: B4!, $egulations No. %5'-/' Bec. %.
%*/').
#1 For the same reasons; the :ni-ersit* of Bigaa is not
liable to (a* income ta)es for the o(eration of the
34 of 73
boo<store; since this is an ancillar* acti-it* the cond'ct
of .hich is carried o't .ithin the school (remises.
31 The :ni-ersit* of Bigaa shall not be liable to
(a*
income ta)es for the o(eration of the dormitor* located
in
the cam('s; for same reasons as the foregoing.
5o.e-er;
the latter shall be liable for income ta)es on income
from
o(erations of the dormitor* located o'tside the school
(remises.
Exemptions: Non-Stock/ Non-Profit Association (2002)
9DL Fo'ndation is a non>stoc<; non>(rofit association
d'l* organi=ed for religio's; charitable and social
.elfare
('r(oses. Aast Man'ar* 3; #""" it sold a (ortion of its lot
'sed for religio's ('r(oses and 'tili=ed the entire
(roceeds for the constr'ction of a b'ilding to ho'se its
free Da* and 6ight Care Center for children of single
(arents. 2n order to s'bsidi=e the e)(enses of the Da*
and
6ight Care Center and to s'((ort its religio's;
charitable
and social .elfare (roCects; the Fo'ndation leased the
3"">
sH'are meter area of the second and third floors of the
b'ilding for 'se as a boarding ho'se. The Fo'ndation
also
o(erates a canteen and a gift sho( .ithin the (remises;
all
the income from .hich is 'sed act'all*; directl*;
and
e)cl'si-el* for the ('r(oses for .hich the Fo'ndation
.as organi=ed.
A. Considering the constit'tional (ro-ision granting
ta)
e)em(tion to non>stoc< cor(orations s'ch as those
formed e)cl'si-el* for religio's; charitable or
social .elfare ('r(oses; e)(lain the meaning of
the last (aragra(h of said 7ec. 3" of the !7
Ta) Code .hich states that J6ncome of whatever
>ind and character of the foregoing organiIations
from any of their properties real or personal or
from any of their activities conducted for profit
regardless of the disposition made of such
income shall be sub1ect to tax imposed under this
!ode.0 0%@1
SUGGESTED ANSWER:
A. The e)em(tion contem(lated in the Constit'tion
co-ers real estate ta) on real (ro(erties act'all*;
directl*
and e)cl'si-el* 'sed for religio's; charitable or
social
.elfare ('r(oses. 2t does not co-er e)em(tion from the
im(osition of the income ta) .hich is .ithin the
conte)t
of 7ection 3" of the Ta) Code. As a r'le; non>stoc<
non>
(rofit cor(orations organi=ed for religio's;
charitable or
social .elfare ('r(oses are e)em(t from
income ta) on
their income recei-ed b* them as s'ch.
5o.e-er; if these
religio's; charitable or social .elfare
cor(orations deri-e
income from their (ro(erties or an* of their
acti-ities
cond'cted for (rofit; the income ta) shall be
im(osed on
said items of income irres(ecti-e of their
dis(osition.
07ec. 3"; 62RCG C2R -; D3CA; ?R 6o.
!#$"$3; !81.
B. 2s the income deri-ed b* 9DL Fo'ndation
from the
sale of a (ortion of its lot; rentals from its
boarding
ho'se and the o(eration of its canteen and
gift sho( s'bCect to ta), E)(lain. 0%@1
SUGGESTED ANSWER:
B. Des. The income deri-ed from the sale
of lot and
rentals from its boarding ho'se are considered
as income
from (ro(erties .hich are s'bCect to ta).
Ai<e.ise; the
income from the o(eration of the canteen and
gift sho(
are income from its acti-ities cond'cted for (rofit .hich are
s'bCect to ta). The income ta) attaches irres(ecti-e of the
dis(osition of these incomes. 07ec. 3"; 62RCG C2R -. D3CA; ?R
6o. !#$"$3; !81.
Exemptions: Prize of Peace Poster Contest (2000)
Mose 3iranda; a *o'ng artist and designer; recei-ed a (ri=e of
4!"";"""."" for .inning in the on>the>s(ot (eace (oster
contest s(onsored b* a local Aions Cl'b. 7hall the re.ard be
incl'ded in the gross income of the reci(ient for ta) ('r(oses,
E)(lain. 03@1
SUGGESTED ANSWER:
6o. 2t is not incl'dable in the gross income of the
reci(ient beca'se the same is s'bCect to a final ta) of #"@;
the amo'nt thereof being in e)cess of 4!".""" (,ec.
&"(3)K%) N6$! of %**'). The (ri=e constit'tes a ta)able
income beca'se it .as made (rimaril* in recognition of
artistic achie-ement .hich he .on d'e to an action on his
(art to enter the contest. A,ec. 5& (3) (') (c) N6$! of %**'@
7ince it is an on>the>s(ot contest; it is e-ident that he
m'st ha-e Coined the contest in order to earn the (ri=e or
a.ard.
Exemptions: Prizes & Awards; Athletes (l996)
On*oc; an amate'r bo)er; .on in a bo)ing com(etition
s(onsored b* the ?old C'( Bo)ing Co'ncil; a s(orts
association d'l* accredited b* the 4hili((ine Bo)ing
Association. On*oc recei-ed the amo'nt of 4%"";""" as his (ri=e
.hich .as donated b* A*ala Aand Cor(oration. The B2R tried
to collect income ta) on the amo'nt recei-ed b* On*oc and
donorFs ta) from A*ala Aand Cor(oration; .hich ta)es;
On*oc and A*ala Aand Cor(oration ref'se to (a*. Decide.
SUGGESTED ANSWER:
The (ri=e .ill not constit'te a ta)able income to On*oc;
hence the B2R is not correct in im(osing the income ta).
R.A. 6o. 7%$ e)(licitl* (ro-ides that FAll (ri=es and
a.ards granted to athletes in local and international s(orts
to'rnaments and com(etitions held in the 4hili((ines or
abroad and sanctioned b* their res(ecti-e national s(orts
associations shall be e)em(t from income ta)+.
6either is the B2R correct in collecting the donorFs ta)
from A*ala Aand Cor(oration. The la. is clear .hen it
categoricall* stated +That the donorFs of said (ri=es and
a.ards shall be e)em(t from the (a*ment of the donorFs
ta).+
Exemptions: Retirement Benefits: Work Separation (l999)
A Co.; a 4hili((ine cor(oration; has t.o di-isions E
man'fact'ring and constr'ction. D'e to the economic
sit'ation; it had to close its constr'ction di-ision and la*>
off the em(lo*ees in that di-ision. A Co. has a retirement
(lan a((ro-ed b* the B2R; .hich reH'ires a minim'm of
%" *ears of age and !" *ears of ser-ice in the same
em(lo*er at the time of retirement. There are # gro'(s of
em(lo*ees to be laid off/
!1 Em(lo*ees .ho are at least %" *ears of age and has
at !" *ears of ser-ice at the time of termination of
em(lo*ment.
#1 Em(lo*ees .ho do no meet either the age or length
of ser-ice A Co. (lans to gi-e the follo.ing/
a. For categor* 0A1 em(lo*ees > the benefits
'nder the B2R a((ro-ed (lan (l's an e) gratia
sirdondee@gmail.com
SUGGESTED ANSWER:
35 of 73
(a*ment of one month of e-er* *ear of
ser-ice.
b. For categor* 0B1 em(lo*ees > one month for
e-er* *ear of ser-ice.
For both categories; the cash eH'i-alent of
'n'sed -acation and sic< lea-e credits.
A Co. see<s *o'r ad-ice as to .hether or not it
.ill s'bCect an* of these (a*ments to WT. E)(lain
*o'r ad-ice. 0%@1
SUGGESTED ANSWER:
For categor* A em(lo*ees; all the benefits recei-ed
on
acco'nt of their se(aration are not s'bCect to income
ta);
hence no .ithholding ta) shall be im(osed. The benefits
recei-ed 'nder the B2R>a((ro-ed (lan '(on meeting
the
ser-ice reH'irement and age reH'irement are
e)(licitl*
e)cl'ded from gross income. The e) gratia (a*ment
also
H'alifies as an e)cl'sion from gross income being in
the
nat're of benefit recei-ed on acco'nt of se(aration d'e
to
ca'ses be*ond the em(lo*eesF control. 07ection 3#0B1;
62RC1. The cash eH'i-alent of 'n'sed -acation and sic<
lea-e credits H'alifies as (art of se(aration benefits
e)cl'ded from gross income 0C2R -. Co'rt of A((eals;
?R 6o. &O!&; October !7; !!1.
For categor* B em(lo*ees; all the benefits recei-ed
b* them .ill also be e)em(t from income ta); hence
not s'bCect to .ithholding ta). These are benefits
recei-ed on acco'nt of se(aration d'e to ca'ses
be*ond the em(lo*eesF control; .hich are s(ecificall*
e)cl'ded from gross income. (,ection 5&(3) N6$!).
ALTERNATlVE ANSWER;
All of the (a*ments are not s'bCect to income ta) and
sho'ld not also be s'bCect to .ithholding ta). The
em(lo*ees .ere laid off; hence se(arated for a
ca'se
be*ond their control. ConseH'entl*; the amo'nts to be
(aid b* reason of s'ch in-ol'ntar* se(aration are
e)cl'ded from gross income; irres(ecti-e of .hether the
em(lo*ee at the time of se(aration has rendered less
than
ten *ears of ser-ice andOor is belo. fift* *ears of
age.
(,ection 5&(3) N6$!).
Exemptions: Separation Pay (l994)
4edro Re*es; an official of Cor(oration 9; as<ed for an
+earlier retirement+ beca'se he .as emigrating
to
A'stralia. 5e .as (aid 4#."""."""."" as
se(aration (a* in
recognition of his -al'able ser-ices to the
cor(oration.
M'an Cr'=; another official of the same
com(an*; .as se(arated for occ'(*ing a
red'ndant (osition. 5e .as gi-en
4!;"""."""."" as se(aration (a*.
Mose Ba'tista .as se(arated d'e to his failing
e*esight. 5e .as gi-en 4%""."""."" as
se(aration (a*.
All the three 031 .ere not H'alified to retire
'nder the B2R>a((ro-ed (ension (lan of the
cor(oration.
!1 2s the se(aration (a* gi-en to Re*es s'bCect
to income
ta),
#1 5o. abo't the se(aration (a* recei-ed b* Cr'=,
31 5o. abo't the se(aration (a* recei-ed b*
Ba'tista,
!1 The se(aration (a* gi-en to Re*es is s'bCect to
income ta) as com(ensation income beca'se it arises from
a ser-ice rendered ('rs'ant to an em(lo*er>em(lo*ee rela>
tionshi(. 2t is not considered an e)cl'sion from gross
income beca'se the r'le in ta)ation is ta) constr'ed in
strictissimi 1uris or the r'le on strict 2nter(retation of ta)
e)em(tions.
#1 The se(aration (a* recei-ed b* Cr'= is not s'bCect to income
ta) beca'se his se(aration from the com(an* .as in-ol'ntar*
07ec. #8 b 071; Ta) Code1.
31 The se(aration (a* recei-ed b* Ba'tista is li<e.ise not
s'bCect to ta). 5is se(aration is d'e to disabilit*; hence
in-ol'ntar*. :nder the la.; se(aration (a* recei-ed
thro'gh in-ol'ntar* ca'ses are e)em(t from ta)ation.
Exemptions: Separation Pay (l995)
3r. Macobo .or<ed for a man'fact'ring firm. D'e to
b'siness re-erses the firm offered -ol'ntar* red'ndanc*
(rogram in order to red'ce o-erhead e)(enses. :nder the
(rogram an em(lo*ee .ho offered to resign .o'ld be
gi-en se(aration (a* eH'i-alent to his three monthFs basic
salar* for e-er* *ear of ser-ice. 3r. Macobo acce(ted the
offer and recei-ed 4$""."""."" as se(aration (a* 'nder
the (rogram.
After all the em(lo*ees .ho acce(ted the offer .ere (aid; the
firm fo'nd its o-erhead still e)cessi-e. 5ence it ado(ted
another red'ndanc* (rogram. 8ario's 'n(rofitable
de(artments .ere closed. As a res'lt; 3r. Sintanar .as
se(arated from the ser-ice. 5e also recei-ed 4$"".""".""
as se(aration (a*.
!1 Did 3r. Macobo deri-e income .hen he recei-ed his
se(aration (a*, E)(lain.
#1 Did 3r. Sintanar deri-e income .hen he recei-ed his
se(aration (a*, E)(lain.
SUGGESTED ANSWER:
!1 Des; 3r. Macobo deri-ed a ta)able income .hen he
recei-ed his se(aration (a* beca'se his se(aration from
em(lo*ment .as -ol'ntar* on his (art in -ie. of his offer
to resign. What is e)cl'ded from gross income is an*
amo'nt recei-ed b* an official or em(lo*ee as a
conseH'ence of se(aration of s'ch official or em(lo*ee
from the ser-ice of the em(lo*er for an* ca'se be*ond the
control of the said official or em(lo*ee 07ec #8; 62RC1.
ALTERNATlVE ANSWER:
6o; 3r. Macobo did not deri-e an* ta)able income beca'se
the se(aration (a* .as d'e to a retrenchment (olic*
ado(ted b* the com(an* so that an* em(lo*ee terminated
b* -irt'e thereof is considered to ha-e been se(arated d'e
to ca'ses be*ond the em(lo*eeFs control. The -ol'ntar*
red'ndanc* (rogram reH'iring em(lo*ees to ma<e an
offer to resign is onl* considered as a tool to e)(edite the
la*>off of e)cess man(o.er .hose ser-ices are no longer
needed b* the em(lo*er; b't is not the main reason or
ca'se for the termination
SUGGESTED ANSWER:
#1 6o; 3r. Sintanar did not deri-e an* income .hen he
recei-ed his se(aration (a* beca'se his se(aration from
36 of 73
em(lo*ment is d'e to ca'ses be*ond his control. The
se(aration .as in-ol'ntar* as it .as a conseH'ence of
the clos're of -ario's 'n(rofitable de(artments
('rs'ant to the red'ndanc* (rogram.
Exemptions: Separation Pay (2005)
Com(an* A decides to close its o(erations d'e to
contin'ing losses and to terminate the ser-ices of its
em(lo*ees. :nder the Aabor Code; em(lo*ees .ho are
se(arated from ser-ice for s'ch ca'se are entitled to a
minim'm of one>half month (a* for e-er* *ear of
ser-ice. Com(an* A (aid the eH'i-alent of one month
(a* for e-er* *ear of ser-ice and the cash eH'i-alent
of 'n'sed -acation and sic< lea-es as se(aration
benefits.
Are s'ch benefits ta)able and s'bCect to .ithholding ta)
'nder the Ta) Code, Decide .ith reasons. 0%@1
SUGGESTED ANSWER:
All of the benefits are not ta)able; hence the* are not
s'bCect to .ithholding ta) 'nder the Ta) Code. Benefits
recei-ed as a conseH'ence of se(aration for an* ca'se
be*ond the control of the em(lo*ees s'ch as clos're of
b'siness are e)cl'ded from gross income. (,ec. 5&A3@
A.@Ab@ N6$! in relation to ,ec. &Ab@A&@ $.$. &-*/)
Exemptions: Stock Dividends (2003)
On "3 Man'ar* !8; 9; a Fili(ino citi=en residing in
the
4hili((ines; ('rchased one h'ndred 0!""1 shares in the
ca(ital stoc< of D Cor(oration; a domestic com(an*.
On
"3 Man'ar* #"""; D Cor(oration declared; o't of the
(rofits of the com(an* earned after "! Man'ar* !8;
a h'ndred (ercent 0!""@1 stoc< di-idends on all
stoc<holders of record as of 3! December ! as a
res'lt of .hich 9 holding in D Cor(oration
became t.o h'ndred 0#""1 shares. Are the stoc<
di-idends recei-ed b* 9 s'bCect to income ta), E)(lain.
08@1
SUGGESTED ANSWER:
6o. 7toc< di-idends are not reali=ed income.
Accordingl*;
the different (ro-isions of the Ta) Code im(osing a ta)
on di-idend income onl* incl'des .ithin its ('r-ie.
cash
and (ro(ert* di-idends ma<ing stoc< di-idends e)em(t
from income ta). 5o.e-er; if the distrib'tion of stoc<
di-idends is the eH'i-alent of cash or (ro(ert*; as .hen
the distrib'tion res'lts in a change of o.nershi( interest
of the shareholders; the stoc< di-idends .ill be s'bCect
to
income ta). (,ection &"(3)(&): ,ection &-(A)L(3):
,ection
&/(3)(-)(b) %**' Tax !ode)
Exemptions: Strictly Construed (l996)
Wh* are ta) e)em(tions strictl* constr'ed against
the ta)(a*er,
SUGGESTED ANSWER:
Ta) e)em(tions are strictl* constr'ed against
the ta)(a*er
beca'se s'ch (ro-isions are highl* disfa-ored
and ma*
almost be said to be odio's to the la. 03anila
Electric
Com(an* -s. 8era; &7 7CRA 3%!1. The
e)ce(tion
contained in the ta) stat'tes m'st be strictl*
constr'ed
against the one claiming the e)em(tion
beca'se the la.
does not loo< .ith fa-or on ta) e)em(tions
the* being
contrar* to the life>blood theor* .hich is the
'nderl*ing
basis for ta)es.
Exemptions: Terminal Leave Pay (l996)
A; an em(lo*ee of the Co'rt of A((eals; retired
'(on reaching the com('lsor* age of &% *ears. :(on
com('lsor* retirement; A recei-ed the mone* -al'e of his
acc'm'lated lea-e credits in the amo'nt of 4%""."""."". 2s said
amo'nt s'bCect to ta), E)(lain.
SUGGESTED ANSWER:
6o. The comm'tation of lea-e credits; more commonl*
<no.n as terminal lea-e (a*; i.e.; the cash eH'i-alent of
acc'm'lated -acation and sic< lea-e credits gi-en to an
officer or em(lo*ee .ho retires; or se(arated from the
ser-ice thro'gh no fa'lt of his o.n; is e)em(t from
income ta). 0B2R R'ling #38>! dated 6o-ember 8; !!G
Commissioner -. CA and Efren Castaneda; ?R 6o. &"!&;
October !7; !!1.
Exemptions; Charitable lnstitutions (2006)
The Constit'tion (ro-ides +charitable instit'tions;
ch'rches; (ersonages or con-ents a(('rtenant thereto;
mosH'es; and non>(rofit cemeteries and all lands;
b'ildings; and im(ro-ements act'all* directl* and
e)cl'si-el* 'sed for religio's; charitable or ed'cational
('r(oses shall be e)em(t from ta)ation.+ This (ro-ision
e)em(ts charitable instit'tions and religio's instit'tions
from .hat <ind of ta)es, Choose the best ans.er.
E)(lain. 0%@1
a. from all <inds of ta)es; i.e.; income; 8AT; c'stoms d'ties;
local ta)es and real (ro(ert* ta)
b. from local ta) onl*
c. from -al'e>added ta)
d. from real (ro(ert* ta) onl*
e. from ca(ital gains ta) onl*
SUGGESTED ANSWER:
The (ro-ision e)em(tions charitable instit'tions and
religio's instit'tions from 0d1 REAA 4RO4ERTD
TA9E7 onl*. The e)em(tion is onl* for ta)es assessed as
(ro(ert* ta)es; as disting'ished from e)cise ta)es 0C2R -.
CA; CTA Q D3CA; ?.R. 6o. !#$"$3; October !$; !8G
Aladoc -. Commissioner of 2nternal Re-en'e; A>!#"!; M'ne
!&;!&%1.
Exemptions; Educational institution (2004)
9DL Colleges is a non>stoc<; non>(rofit ed'cational
instit'tion r'n b* the Archdiocese of B4 Cit*. 2t collected
and recei-ed the follo.ing/
0a1 T'ition fees
0b1 Dormitor* fees
0c1 Rentals from canteen concessionaires
0d1 2nterest from mone*>mar<et (lacements of the
t'ition fees
0e1 Donation of a lot and b'ilding b* school al'mni
Which of these abo-e cited income and donation .o'ld
not be e)em(t from ta)ation, E)(lain briefl*. 0%@1
SUGGESTED ANSWER:
A. All of the income deri-ed b* the non>stoc<; non(rofit
ed'cational instit'tion .ill be e)em(t from ta)ation
(ro-ided the* are 'sed act'all*; directl* and e)cl'si-el*
for ed'cational ('r(oses. The Constit'tion (ro-ides that
all re-en'es and assets of non>stoc<; non>(rofit
ed'cational instit'tion .hich are act'all*; directl* and
e)cl'si-el* 'sed for ed'cational ('r(oses are e)em(t
from ta)ation (,ection " par. 5 Article H62 %*/'
!onstitution).
37 of 73
The donation is; li<e.ise; e)em(t from the donorFs ta)
if
act'all*; directl* and e)cl'si-el* 'sed for
ed'cational
('r(oses; (ro-ided not more than 3"@ of the donation
is
'sed b* the donee for administration ('r(oses. The
donee; being a non>stoc<; non>(rofit ed'cational
instit'tion; is a H'alified entit* to recei-e an
e)em(t
donation s'bCect to conditions (rescribed b* la.
(,ection "
par. " Art. H62 %*/' !onstitution in relation to
,ection
%(%(AH5) N)$!).
Accordingl*; none of the cited income and donation
collected and recei-ed b* the non>stoc<; non>(rofit
ed'cational instit'tion .o'ld not be e)em(t
from
ta)ation.
ALTERNATlVE ANSWER:
The follo.ing recei(ts b* the non>stoc<; non(rofit
ed'cational instit'tion are not e)em(t from ta)ation; -i=/
0c1 Rentals from Canteen Concessionaires. Rental
income is considered as 'nrelated to the school
o(erationsG hence; ta)able (BC< Crder No. %5'-/'
Bec. %.
%*/')
0d1 2nterest from mone*>mar<et (lacements of the
t'ition fees. The interest on the (lacement is ta)able
(BC< Crder No. %5'-/'). 2f ho.e-er; the said interest
is
'sed act'all*; directl* and e)cl'si-el* for
ed'cational
('r(oses as (ro-en b* s'bstantial e-idence; the same
.ill
be e)em(t from ta)ation 0C2R -. CA; #8 7CRA 83
!!8KT.
The other items of income .hich .ere all deri-ed from
school>related acti-ities .ill be e)em(t from ta)ation
in the hands of the reci(ient if 'sed act'all*; directl*
and e)cl'si-el* for ed'cational ('r(oses 07ection $
(ar. 3; Article 9T8; !87 Constit'tion1.
The donation to a non>stoc<; non>(rofit ed'cational
instit'tion .ill be e)em(t from the donorFs ta) if 'sed
act'all*; directl* and e)cl'si-el* for ed'cational
('r(oses
and (ro-ided; that; not more than 3"@ of the donation is
'sed for administration ('r(oses 07ection $; (ar. $; Art.
9M8; !87 Constit'tion; in relation to 7ection
!"!0A331;
6MRC1.
Exemptions; Exemptions are Unilateral in Nature
(2004)
A la. .as (assed granting ta) e)em(tion to
certain ind'stries and in-estments for a (eriod of fi-e
*ears. B't three *ears later; the la. .as
re(ealed. With the re(eal; the e)em(tions .ere
considered re-o<ed b* the B2R; .hich assessed
the in-esting com(anies for 'n(aid ta)es
effecti-e on the date of the re(eal of the la..
64C and STR com(anies H'estioned the
assessments on
the gro'nd that; ha-ing made their
in-estments in f'll
reliance .ith the (eriod of e)em(tion granted
b* the la.;
its re(eal -iolated their constit'tional right
against the
im(airment of the obligations and
contracts. 2s the
contention of the com(anies tenable or not,
Reason
briefl*. 0%@1
SUGGESTED ANSWER:
The contention is not tenable. The e)em(tion
granted is
in the nat're of a 'nilateral ta) e)em(tion.
7ince the
e)em(tion gi-en is s(ontaneo's on the (art
of the
legislat're and no ser-ice or d't* or other
rem'nerati-e conditions ha-e been im(osed on the
ta)(a*ers recei-ing the e)em(tion; it ma* be re-o<ed at
.ill b* the legislat're 0Christ Ch'rch -. 4hiladel(hia; #$
5o.. 3"" J!8&"K1. What constit'tes an im(airment of the
obligation of contracts is the re-ocation of an e)em(tion
.hich is fo'nded on a -al'able consideration beca'se it
ta<es the form and essence of a contract 0Casano-as -.
5ord; 8 4hil. !#% J!"7KG 3anila Railroad Com(an* -.
2ns'lar Collector of C'stoms; !# 4hil. !$& J!!%K1
Exemptions; Gov't Bonus, Gifts, & Allowances (l994)
2n December !3; the 7angg'niang Ba*an a'thori=ed a
Christmas bon's of 43;""".""; a cash gift of 4%;"""."" and
trans(ortation and re(resentation allo.ance of 4&;"""."" for
each of the m'nici(al em(lo*ees.
!1 2s the Christmas bon's s'bCect to an* ta),
#1 5o. abo't the cash gift,
31 5o. abo't the trans(ortation and re(resentation
allo.ances,
SUGGESTED ANSWER:
!1 The C5R27T3A7 BO6:7 gi-en b* the
7angg'niang Ba*an to the m'nici(al em(lo*ees is
ta)able as additional com(ensation 07ec. #! 0a1. Ta)
Code1.
#1 The cash gift (er em(lo*ee of 4%."""."" being
s'bstantial ma* be considered ta)able also. The* (arta<e
the nat're of additional com(ensation income as it is
highl* do'btf'l if m'nici(al go-ernments are
a'thori=ed to ma<e gifts in s'bstantial s'ms s'ch as this.
The* are not f'rther>
more gifts of +small -al'e+ .hich em(lo*ers might
gi-e to their em(lo*ees on s(ecial occasions li<e
Christmas > items .hich co'ld be e)em(t 'nder B2R
Re-en'e A'dit 3emo 6o. !>87.
31 The trans(ortation and re(resentation allo.ances
are act'all* reimb'rsements for e)(enses inc'rred
b* the em(lo*ee for the em(lo*er. 7aid allo.ances
s(ent b* the em(lo*ee for the em(lo*er are
designed to enhance the H'alit* of the ser-ice that
the em(lo*er is s'((osed to (erform for its clientele
li<e the (eo(le of the m'nici(alit*.
Exemptions; Personal & Additional Exemption (2006)
Charlie; a .ido.er; has t.o sons b* his (re-io's
marriage. Charlie li-es .ith Mane .ho is legall* married
to 3ario. The* ha-e a child named Mill. The children are
all minors and not gainf'll* em(lo*ed.
!. 5o. m'ch (ersonal e)em(tion can Charlie claim,
E)(lain. 0#.%@1
SUGGESTED ANSWER:
Charlie can claim the (ersonal e)em(tion of a 5ead of a
Famil* or 4#%;"""."" (ro-ided that; at least one of his
minor and not gainf'll* em(lo*ed children is 'nmarried
and li-ing .ith and de(endent '(on him for chief s'((ort
(Tax $eform Act $A /"&" !hapter 266 ,ection 5-AA@:
36$ $evenue $egulation (&-*/).
#. 5o. m'ch additional e)em(tion can Charlie
claim, E)(lain. 0#.%@1
38 of 73
SUGGESTED ANSWER:
5is children from his (re-io's marriage .ho are le>
gitimate children and his illegitimate child .ith Mane .ill
all
entitle him to additional (ersonal e)em(tion of
48;""".""
for each de(endent; if a(art from being minor and not
gainf'll* em(lo*ed; the* are 'nmarried; li-ing .ith
and
de(endent '(on Charlie for their chief s'((ort (Tax
$eform Act $A/"&" !hapter 2= ,ection 5-(A):
36$
$evenue $egulation (&-*/).
Exemptions; Roman Catholic Church; Limitations
(2005)
The Roman Catholic Ch'rch o.ns a #>hectare lot; in a
to.n in Tarlac (ro-ince. The so'thern side and middle
(art are occ'(ied b* the Ch'rch and a con-ent; the
eastern side b* a school r'n b* the Ch'rch itself; the
so'theastern side b* some commercial
establishments; .hile the rest of the (ro(ert*; in
(artic'lar the north.estern side; is idle or 'nocc'(ied.
3a* the Ch'rch claim ta) e)em(tion on the entire land,
Decide .ith reasons.
SUGGESTED ANSWER:
6o. The Ch'rch cannot claim ta) e)em(tion on the
entire land. Onl* the so'thern side and middle (art
that are occ'(ied b* the Ch'rch and a con-ent and
the eastern side occ'(ied b* a school r'n b* the
Ch'rch itself are e)em(t; beca'se s'ch (arts of the
#>hectare lot are act'all*; directl* and e)cl'si-el*
'sed for religio's and ed'cational ('r(oses. (,ec.
&/A5@ Art. 26 %*/'
!onstitution: ,ec. &5" ?ocal #overnment !ode)
The so'theastern side occ'(ied b* some
commercial establishment is not ta) e)em(t. 2f real
(ro(ert* is 'sed for one or more commercial ('r(oses;
it is not e)cl'si-el* 'sed for the e)em(ted ('r(ose b't
is s'bCect to ta)ation. F7olel*F is s*non*mo's .ith
Fe)cl'si-el*.F 0A'ng Center of the 4hili((ines -. N'e=on
Cit*; ?.R. 6o. !$$!"$; M'ne #; #""$1 The (ro(ert* m'st
be e)cl'si-el* 0solel*1 'sed for religio's or ed'cational
('r(oses.
Of co'rse; it is a((arent that the north.estern side;
.hich is idle or 'nocc'(ied is not +act'all*;
directl* and e)cl'si-el*+ 'sed for religio's or
ed'cational ('r(oses; hence not e)em(t from ta)ation.
CAPlTAL GAlN TAX
Capital Asset vs. Ordinary Asset (2003)
Disting'ish a +ca(ital asset+ from an +ordinar* asset+.
SUGGESTED ANSWER:
0a1 The term +ca(ital asset+ regards all (ro(erties not
s(ecificall* e)cl'ded in the stat'tor* definition of
ca(ital
assets; the (rofits or loss on the sale or the e)change of
.hich are treated as ca(ital gains or ca(ital
losses.
Con-ersel*; all those (ro(erties s(ecificall* e)cl'ded
are
considered as ordinar* assets and the (rofits
or losses
reali=ed m'st ha-e to be treated as ordinar*
gains or
ordinar* losses. Accordingl*; +Ca(ital Assets+
incl'des
(ro(ert* held b* the ta)(a*er .hether or not
connected
.ith his trade or b'siness; b't the term does not
incl'de
an* of the follo.ing; .hich are conseH'entl*
considered
+ordinar* assets+/
0!1 stoc< in trade of the ta)(a*er or other
(ro(ert* of
a <ind .hich .o'ld (ro(erl* be
incl'ded in the
in-entor* of the ta)(a*er if on hand at the close
of the ta)able *earG
0#1 (ro(ert* held b* the ta)(a*er (rimaril* for sale to
c'stomers in the ordinar* co'rse of trade or
b'sinessG
031 (ro(ert* 'sed in the trade or b'siness of a
character .hich is s'bCect to the allo.ance for
de(reciation (ro-ided in 7ection 3$ 0F1 of the Ta) CodeG or
0$1 real (ro(ert* 'sed in trade or b'siness of the
ta)(a*er.
The stat'tor* definition of +ca(ital assets+ (racticall*
e)cl'des from its sco(e; it .ill be noted; all (ro(ert* held
b* the ta)(a*er if 'sed in connection .ith his trade or
b'siness.
Capital Gain Tax; Nature (200l)
A; a doctor b* (rofession; sold in the *ear #""" a (arcel of
land .hich he bo'ght as a form of in-estment in !" for
4h( ! million. The land .as sold to B; his colleag'e; at a
time .hen the real estate (rices had gone do.n and so the
land .as sold onl* for 4h( 8"";""" .hich .as then the
fair mar<et -al'e of the land. 5e 'sed the (roceeds to
finance his tri( to the :nited 7tates. 5e claims that he
sho'ld not be made to (a* the &@ final ta) beca'se he did
not ha-e an* act'al gain on the sale. 2s his contention
correct, Wh*, 0%@1
SUGGESTED ANSWER:
6o. The &@ ca(ital gains ta) on sale of a real (ro(ert*
held as ca(ital asset is im(osed on the income (res'med
to ha-e been reali=ed from the sale .hich is the fair
mar<et -al'e or selling (rice thereof; .hiche-er is
higher.
07ection #$0D1; 62RC1. Act'al gain is not reH'ired for the
im(osition of the ta) b't it is the gain b* fiction of la.
.hich is ta)able.
Ordinary Sale of a Capital Asset (l994)
6oel Aangit and his brother; Mo-*; bo'ght a (arcel of land
.hich the* registered in their names as (ro>indi-iso
o.ners 04arcel A1. 7'bseH'entl*; the* formed a
(artnershi(; d'l* registered .ith 7ec'rities and E)change
Commission; .hich bo'ght another (arcel of land 04arcel
B1. Both (arcels of land .ere sold; reali=ing a net (rofit of
4!;""";"""."" for (arcel A and 4%""."""."" for (arcel B.
The B2R claims that the sale of (arcel A sho'ld be ta)ed
as a sale b* an 'nregistered (artnershi(. 2s the B2R
correct,
SUGGESTED ANSWER:
The B2R is not correct; since there is no sho.ing that the
acH'isition of the (ro(ert* b* 6oel and Mo-* Aangit as (ro
indi-iso o.ners; and (rior to the formation of the
(artnershi(; .as 'sed; intended for 'se; or bears an*
relation .hatsoe-er to the ('rs'it or cond'ct of the
(artnershi( b'siness. The sale of (arcel A shall therefore
not be treated as a sale b* an 'nregistered (artnershi(; b't
an ordinar* sale of a ca(ital asset; and hence .ill be
s'bCect to the %@ ca(ital gains ta) and doc'mentar*
39 of 73
stam( ta) on transfers of real (ro(ert*; said ta)es to be
borne eH'all* b* the co>o.ners.
ALTERNATlVE ANSWER:
The B2R is correct in treating the gain from the sale of
(arcel of land b* 6oel and Mo-* Aangit at a (rofit
of
4!;""";"""."". 2n the case of 4asc'al and Dragon -.
Commissioner; ?.R. 6o. 78!33; October !8; !88; the
7'(reme Co'rt r'led that the sharing of ret'rns does
not
in itself establish a (artnershi(; .hether or not the
(ersons sharing therein ha-e a Coint or common right or
interest in the (ro(ert*. The decision in said case cannot
be a((lied here beca'se clearl* the (arties organi=ed
a
(artnershi( d'l* registered .ith the 7ec'rities
and
E)change Commission. The* (ooled their reso'rces
together .ith the ('r(ose of di-iding the (rofit bet.een
them.
Sales of Share of Stocks: Capital Gains Tax Return
(l999)
5S Co. is a 5ong Song cor(oration not doing b'siness
in the 4hili((ines. 2t holds $"@ of the shares of A Co.;
a
4hili((ine com(an*; .hile the &"@ is o.ned b* 4 Co.;
a
Fili(ino>o.ned 4hili((ine cor(oration. 5S Co. also
o.ns
!""@ of the shares of B Co.; an 2ndonesian com(an*
.hich has a d'l* licensed 4hili((ine branch. D'e to
.orld.ide restr'ct'ring of the 5S Co. gro'(; 5S Co.
decided to sell all its shares in A and B Cos. The
negotiations for the b'*>o't and the signing of the
Agreement of 7ale .ere all done in the 4hili((ines. The
Agreement (ro-ides that the ('rchase (rice .ill be (aid
to
5S CoFs ban< acco'nt in the :. 7. and that little to A
and
B Cos. 7hares .ill (ass from 5S Co. to 4 Co. in 5S
.here the stoc< certificates .ill be deli-ered. 4 Co.
see<s
*o'r ad-ice as to .hether or not it .ill s'bCect the
(a*ments of ('rchase (rice to Withholding Ta).
E)(lain
*o'r ad-ice. 0!"@1
SUGGESTED ANSWER:
4 Co. sho'ld not s'bCect the (a*ments of the ('rchase
(rice to .ithholding ta). While the seller is a non>
resident
foreign cor(oration .hich is not normall* reH'ired to
file
ret'rns in the 4hili((ines; therefore; ordinaril* all
its
income earned from 4hili((ine so'rces is ta)ed -ia the
.ithholding ta) s*stem; this is not the
(roced're a-ailing
.ith res(ect to sales of shares of stoc<. The
ca(ital gains
ta) on the sale of shares of stoc< of a
domestic
cor(oration is al.a*s reH'ired to be (aid
thro'gh a ca(ital
gains ta) ret'rn filed. The sale of the shares of
stoc< of
the 2ndonesian Cor(oration is not s'bCect to
income ta)
'nder o'r C'risdiction beca'se the income
deri-ed there
from is considered as a foreign>so'rced income.
ALTERNATlVE ANSWER:
Des; b't onl* on the shares of stoc<s of A Co.
and onl*
on the (ortion of the ('rchase (rice; .hich
constit'tes
ca(ital gains. :nder the Ta) Code of !7;
the ca(ital
gains ta) im(osed 'nder 7ection #80B10%10c1 is
collectible
-ia the .ithholding of ta) at so'rce ('rs'ant to
7ection %7
of the same Code.
06ote/ The bar candidate might ha-e
relied on the
(ro-ision of the Ta) Code of !7 .hich
(ro-ides
that the ca(ital gains ta) is im(osed as
.ithholding
ta)es 07ection %7; 62RC1. This
(roced're is
im(ractical and; therefore; not follo.ed
in (ractice
beca'se the b'*erO .ithholding agent .ill
not be in a
(osition to determine ho. m'ch income is
reali=ed b*
the seller from the sale. For this reason; an*
of the foregoing s'ggested ans.ers sho'ld be gi-en f'll credit1.
Tax Basis: Capital Gains: Merger of Corporations (l994)
2n a H'alified merger 'nder 7ection 3$ 0c1 0#1 of the Ta) Code;
.hat is the ta) basis for com('ting the ca(ital gains on/ 0a1 the
sale of the assets recei-ed b* the s'r-i-ing cor(oration from
the absorbed cor(orationG and 0b1 the sale of the shares of stoc<
recei-ed b* the stoc<holders from the s'r-i-ing cor(oration,
SUGGESTED ANSWER:
2n a H'alified merger 'nder 7ection 3$ 0c1 0#1 of the Ta) Code;
the ta) basis for com('ting the ca(ital gains on/
0a1 the sale of the assets recei-ed b* the s'r-i-ing
cor(oration from the absorbed cor(oration shall be the
originalOhistorical cost of the assets .hen still in the hands of
the absorbed cor(oration.
0b1 the sale of the shares of stoc< recei-ed b* the
stoc<holders from the s'r-i-ing cor(oration shall be
the acH'isitionOhistorical cost of assets transferred to the
s'r-i-ing cor(oration.
Tax Basis: Capital Gains: Tax-Free Exchange of Property
(l994)
2n a H'alified ta)>free e)change of (ro(ert* for shares
'nder 7ection 3$ 0c1 0#1 of the Ta) Code; .hat is the ta)
basis for com('ting the ca(ital gains on/ 0a1 the sale of the
assets recei-ed b* the Cor(orationG and 0b1 the sale of the
shares recei-ed b* the stoc<holders in e)change of the
assets,
SUGGESTED ANSWER:
2n a H'alified ta) free e)change of (ro(ert* for shares
'nder 7ection 3$ 0c1 0#1 of the Ta) Code; the ta) basis for
com('ting the gain on the/
0a1 sale of the assets recei-ed b* the cor(oration shall be
the originalOhistorical cost 0('rchase (rice (l's
e)(enses of acH'isition1 of the (ro(ert*O assets gi-en
in e)change of the shares of stoc<.
0b1 sale of the shares of stoc< recei-ed b* the
stoc<holders in e)change of the assets shall be the
originalOhistorical cost of the (ro(ert* gi-en in
e)change of the shares of stoc<.
ALTERNATlVE ANSWER:
The basis in com('ting ca(ital gains ta) in a H'alified
ta)>
free e)change 'nder 7ec. 3$ 0c1 0#1 is/
0a1 With res(ect to the asset recei-ed b* the cor(oration
the same as it .o'ld be in the hands of the transferor
increased b* the amo'nt of the gain recogni=ed to
the transferor on the transfer.
0b1 With res(ect to the shares recei-ed b* the
stoc<holders in e)change of the assets > the same as
the basis of the (ro(ert*; stoc< or sec'rities
e)changed; decreased b* the mone* recei-ed and the
fair mar<et -al'e of the other (ro(ert* recei-ed; and
increased b* the amo'nt treated as di-idend of the
shareholder and the amo'nt of an* gain that .as
recogni=ed on the e)change.
CORPORATlON & PARTNERSHlP
Bad Debts; Factors; Elements thereof (2004)
4NR Cor(. claimed as a ded'ction in its ta) ret'rns the
sirdondee@gmail.com
40 of 73
amo'nt of 4!;""";""" as bad debts. The cor(oration
.as assessed b* the Commissioner of 2nternal
Re-en'e for deficienc* ta)es on the gro'nd that the
debts cannot be considered as +.orthless;+ hence the*
do not H'alif* as bad debts. The com(an* as<s for *o'r
ad-ice on +What factors .ill held in determining
.hether or not the debts are bad debts,+ Ans.er and
e)(lain briefl*. 0%@1
SUGGESTED ANSWER:
2n order that debts be considered as bad debts beca'se
the* ha-e become .orthless; the ta)(a*er sho'ld
establish
that d'ring the *ear for .hich the ded'ction is so'ght; a
sit'ation de-elo(ed as a res'lt of .hich it became
e-ident
in the e)ercise of so'nd; obCecti-e b'siness C'dgment
that
there remained no (ractical; b't onl* -ag'el*
theoretical;
(ros(ect that the debt .o'ld e-er be (aid 0Collector of
2nternal Re-en'e -. ?oodrich 2nternational R'bber Co.; #!
7CRA !33& J!&7K1. +Worthless+ is not determined b* an
infle)ible form'la or slide r'le calc'lation; b't '(on the
e)ercise of so'nd b'siness C'dgment. The factors to be
considered incl'de; b't are not limited to; the follo.ing/
!. The debtor has no (ro(ert* nor -isible incomeG
#. The debtor has been adC'dged ban<r'(t or
insol-entG
3. Collateral shares ha-e become .orthlessG and
$. There are n'mero's debtors .ith small amo'nts of
debts and f'rther action on the acco'nts .o'ld
entail e)(enses e)ceeding the amo'nts so'ght to
be
collected.
ALTERNATlVE ANSWER:
The follo.ing are the factors to be considered in
determining .hether or not the debts are bad debts/
!. The debt m'st be -alid and s'bsistingG
#. The debt is connected .ith the ta)(a*erFs trade or
b'siness; and is not bet.een related (artiesG
3. There is an act'al ascertainment that the debt is
.orthlessG and
$. The debt is charged>off .ithin the ta)able *ear.
04RC -. CA; #%& 7CRA &&7 J!&KG Re-en'e Regs.
6o. %>1.
Condominium Corp.; Sale of Common Areas (l994)
9>land Condomini'm Cor(oration .as organi=ed b*
the
o.ners of 'nits in 9>land B'ilding in accordance .ith
the
3aster Deed .ith Declaration of Restrictions. The 9>
land
B'ilding Cor(oration; the de-elo(er of the b'ilding;
con-e*ed the common areas in fa-or of the 9>land
Condomini'm Cor(oration. 2s the con-e*ance s'bCect
to
an* ta),
SUGGESTED ANSWER:
The con-e*ance is not s'bCect to an* ta). The
same is .itho't consideration; and not in
connection .ith a sale made to 9>land
Condomini'm Cor(oration; and the ('r(ose
of the con-e*ance to the latter is for the
management of the common areas for the
common benefit of the 'nit o.ners.
The same is not s'bCect to income ta) since no
income
.as reali=ed as a res'lt of the con-e*ance;
.hich .as
made ('rs'ant to the Condomini'm Act 0R.A.
6o. $&#&;
and the ('r(ose of .hich .as merel* to -est
title to the
common areas in fa-or of the Aand
Condomini'm
Cor(oration.
There being no monetar* consideration; neither is the
con-e*ance s'bCect to the creditable .ithholding ta) im>
(osed 'nder Re-en'e Reg'lations !>"; as amended.
The second con-e*ance .as act'all* no con-e*ance at all
beca'se .hen the 'nits .ere sold to the -ario's b'*ers; the
common areas .ere alread* (art and (arcel of the sale of said
'nits ('rs'ant to the Condomini'm Act. 5o.e-er; the
Deed of Con-e*ance is s'bCect to doc'mentar* stam( ta).
N.3. Bocumentary stamps tax and !ondominium ?aw are
excluded from the coverage of the 3ar 4xaminations.
Corporation; Sale; Creditable Withholding Tax (l994)
6oel Aangit and his brother; Mo-*; bo'ght a (arcel of land
.hich the* registered in their names as (ro>indi-iso
o.ners 04arcel A1. 7'bseH'entl*; the* formed a
(artnershi(; d'l* registered .ith 7ec'rities and E)change
Commission; .hich bo'ght another (arcel of land 04arcel
B1. Both (arcels of land .ere sold; reali=ing a net (rofit of
4!;""";"""."" for (arcel A and 4%""."""."" for (arcel B.
The B2R also claims that the sale of (arcel B sho'ld be ta)ed as
a sale b* a cor(oration. 2s the B2R correct,
SUGGESTED ANSWER:
The B2R is correct; since a +cor(oration+ as defined 'nder
7ection #" 0a1 of the Ta) Code incl'des (artnershi(s; no
matter ho. created or organi=ed; e)ce(t general (rofes>
sional (artnershi(s. The b'siness (artnershi(; in the in>
stant case; shall therefore be ta)ed in the same manner as
a cor(oration on the sale of (arcel B. The sale shall th's
be s'bCect to the creditable .ithholding ta) 'nder
Re-en'e Reg'lations !>"; as amended b* !#>$; on the
sale of (arcel B; and the (artnershi( shall re(ort the gain
reali=ed from the sale .hen it files its income ta) ret'rn.
Dividends: Withholding Tax (l999)
5S Co.; is a 5ong Song com(an*; .hich has a d'l*
licensed 4hili((ine branch; engaged in trading acti-ities
in the 4hili((ines. 5S Co. also in-ested directl* in $"@
of the shares of stoc< of A Co.; a 4hili((ine
cor(oration. These shares are boo<ed in the 5ead Office
of 5S Co. and are not reflected as assets of the 4hili((ine
branch. 2n !8; A Co. declared di-idends to its
stoc<holders. Before remitting the di-idends to 5S Co.;
A Co. see<s *o'r ad-ice as to .hether it .ill s'bCect the
remittance to WT. 6o need to disc'ss WT rates; if
a((licable. Foc's *o'r disc'ssion on .hat is the iss'e.
0!"@1
SUGGESTED ANSWER:
2 .ill ad-ise A Co. to .ithhold and remit the .ithholding
ta) on the di-idends. While the general r'le is that a
foreign cor(oration is the same C'ridical entit* as its
branch office in the 4hili((ines; .hen; ho.e-er; the
cor(oration transacts b'siness in the 4hili((ines directl*
and inde(endentl* of its branch; the ta)(a*er .o'ld be
the foreign cor(oration itself and s'bCect to the di-idend
ta) similarl* im(osed on non>resident foreign cor(oration.
The di-idends attrib'table to the 5ome Office .o'ld not
H'alif* as di-idends earned b* a resident foreign
cor(oration; .hich is e)em(t from ta). 03ar'beni
Cor(oration -. Commissioner; ?R 6o. 7&%73; 7e(tember
!$; !81.
4l of 73
s(ecial ta) rates. 7o is .ith 4ELA enter(rises;
Effect: Dissolution; Corporate Existence (2004)
For fail're to com(l* .ith certain cor(orate
reH'irements;
the stoc<holders of ABC Cor(. .ere notified b* the
7ec'rities and E)change Commission that the
cor(oration
.o'ld be s'bCect to in-ol'ntar* dissol'tion. The
stoc<holders did not do an*thing to com(l* .ith the
reH'irements; and the cor(oration .as dissol-ed. Can
the
stoc<holders be held (ersonall* liable for the 'n(aid
ta)es
of the dissol-ed cor(oration, E)(lain briefl*. 0%@1
SUGGESTED ANSWER:
6o. As a general r'le; stoc<holders cannot be held
(ersonall* liable for the 'n(aid ta)es of a dissol-ed
cor(oration. The r'le (re-ailing 'nder o'r C'risdiction is
that a cor(oration is -ested b* la. .ith a (ersonalit*
that
is se(arate and distinct from those of the (ersons
com(osing it 07'nio -. 6ARC; !#7 7CRA 3"I!8$KT.
6OTE/ additional (oint sho'ld be gi-en to the
e)aminee if he ans.ers in the follo.ing
that/
5o.e-er; stoc<holders ma* be held liable for
the
'n(aid ta)es of a dissol-ed cor(oration if it
a((ears that the cor(orate assets ha-e (assed
into their hands 0Tan Tiong Bio -. CFR; $ 7CRA
8& J!&#K1. Ai<e.ise; .hen stoc<holders
ha-e
'n(aid s'bscri(tions to the ca(ital of the
cor(oration the* can be made liable for 'n(aid
ta)es of the cor(oration to the e)tent of their
'n(aid s'bscri(tions.
Minimum Corporate lncome Tax (200l)
What is the rationale of the la. in im(osing .hat
is <no.n as the 3inim'm Cor(orate 2ncome ta)
on Domestic Cor(orations, 03@1
SUGGESTED ANSWER:
The im(osition of the 3inim'm Cor(orate 2ncome
Ta)
03C2T1 is designed to forestall the (re-ailing (ractice
of
cor(orations of o-er claiming ded'ctions in order to
red'ce their income ta) (a*ments. The filing of
income
ta) ret'rns sho.ing a ta) loss e-er* *ear goes against
the
b'siness moti-e .hich im(elled the stoc<holders to
form the cor(oration. This is the reason .h* domestic
cor(orations 0and resident foreign cor(orations1 after
the reco-er* (eriod of fo'r *ears from the time the*
commence b'siness o(erations; the* become liable to
the
3C2T .hene-er this ta) im(osed at #@ of
gross income
e)ceeds the normal cor(orate income ta)
im(osed on
net income. 07(onsorshi( 7(eech; Chairman
of 7enate
Wa*s and 3eans Committee1.
Minimum Corporate lncome Tax; Exemption
(200l)
2s a cor(oration .hich is e)em(ted from the
minim'm
cor(orate income ta) a'tomaticall* e)em(ted
from the
reg'lar cor(orate income ta), E)(lain *o'r
ans.er. 0#@1
SUGGESTED ANSWER:
6o. The minim'm cor(orate income ta) is a
(ro)* for the
normal cor(orate income ta); not the reg'lar
cor(orate
income ta) (aid b* a cor(oration. For
instance; a
(ro(rietar* ed'cational instit'tion ma* be
s'bCect to a
reg'lar cor(orate income ta) of !"@
0de(ending on its
dominant income1; b't it is e)em(t from the
im(osition
of 3C2T beca'se the latter is not intended to
s'bstit'te
CDA enter(rises etc.
J6ote/ 2f .hat is meant b* reg'lar income ta) is the
3#@ ta) rate im(osed on ta)able income of
cor(orations; the ans.er .o'ld be in the affirmati-e;
beca'se domestic cor(orations and resident foreign
cor(orations are either liable for the #@ of gross
income 03C2T1 or 3#@ of net income 0the normal
cor(orate income ta)1 .hiche-er is higher.K
ALTERNATlVE ANSWER:
6o. A cor(oration .hich is e)em(ted from the minim'm
cor(orate income ta) is not a'tomaticall* e)em(ted from the
reg'lar cor(orate income ta). The reason for this is that 3C2T is
im(osed onl* beginning on the fo'rth ta)able *ear immediatel*
follo.ing the *ear in .hich s'ch cor(oration commenced its
b'siness o(erations. Th's; a cor(oration ma* be e)em(t from
3C2T beca'se it is onl* on its third *ear of o(erations
follo.ing its commencement of b'siness o(erations.
ESTATE & DONOR'S TAXES
Donor's Tax: Election Contributions (l998)
Are contrib'tions to a candidate in an election s'bCect to donorFs
ta), On the (art of the contrib'tor; is it allo.able as a ded'ction
from gross income, J%@M
SUGGESTED ANSWER:
!1 6o; (ro-ided the reci(ient candidate had com(lied
.ith the reH'irement for filing of ret'rns of contri>
b'tions .ith the Commission on Elections as reH'ired
'nder the Omnib's Election Code.
#1 The contrib'tor is not allo.ed to ded'ct the
contrib'tions beca'se the said e)(ense is not
directl* attrib'table to; the de-elo(ment;
management; o(eration andOor cond'ct of a trade;
b'siness or (rofession K,ec. 5"AA)(l)(a) N6$!).
F'rthermore; if the candidate is an inc'mbent
go-ernment official or em(lo*ee; it ma* e-en be
considered as a bribe or a <ic<bac< 07ec. 3$JAM0l1
0c1;
62RC1.
CO33E6T/ 2t is s'ggested that f'll credit sho'ld
be gi-en for an* ans.er to the first H'estion beca'se
the ans.er reH'ires an inter(retation of the Election
Code. 4'rs'ant to the (ro-isions of 7ection 0C1 of
the 62RC; the ta)abilit* of this t*(e of
contrib'tionsOdonations is go-erned b* the Election
Code.
Donor's Tax; Basis for Determining Gain (l995)
0!1 Senneth D'so(h o.ns a commercial lot .hich he
bo'ght man* *ears ago for 4! 3illion. 2t is no.
.orth 4#" 3illion altho'gh the =onal -al'e is onl*
4!% 3illion. 5e donates one>half (ro>indi-iso
interest in the land to his son Dino on 3! December
!$; and the other one>half (ro>indi-iso interest to
the same son on # Man'ar* !%.
5o. m'ch is the -al'e of the gifts in !$ and !% for
('r(oses of com('ting the gift ta), E)(lain.
SUGGESTED ANSWER:
!1 The -al'e of the gifts for ('r(oses of com('ting the
gift ta) shall be 47.%million in !$ and 47.%million in
42 of 73
!%. 2n -al'ing a real (ro(ert* for gift ta) ('r(oses
the
(ro(ert* sho'ld be a((raised at the higher of t.o -al'es
as of the time of donation .hich are 0a1 the fair mar<et
-al'e as determined b* the Commissioner 0.hich is
the
=onal -al'e fi)ed ('rs'ant to 7ection !&0e1 of the Ta)
Code1; or 0b1 the fair mar<et -al'e as sho.n in the
sched'le of -al'es fi)ed b* the 4ro-incial and
Cit*
Assessors. The fact that the (ro(ert* is .orth 4#"
million
as of the time of donation is immaterial 'nless it can be
sho.n that this -al'e is one of the t.o -al'es
mentioned
as (ro-ided 'nder 7ection 8! of the Ta) Code.
0#1 The Re-en'e District Officer H'estions the s(litting
of the donations into !$ and !%. 5e sa*s that
since there .ere onl* t.o 0#1 da*s se(arating the
t.o donations the* sho'ld be treated as one; ha-ing
been made .ithin one *ear. 2s he correct, E)(lain.
SUGGESTED ANSWER:
#1 The Re-en'e District Officer is not correct beca'se
the com('tation of the gift ta) is c'm'lati-e b't onl*
insofar as gifts made .ithin the same calendar
*ear.
Therefore; there is no legal C'stification for treating
t.o
gifts effected in t.o se(arate calendar *ears as one gift.
031 Dino s'bseH'entl* sold the land to a b'*er for 4 #"
3illion. 5o. m'ch did Dino gain on the
sale,
E)(lain.
SUGGESTED ANSWER:
31 Dino gained an income of ! million from the sale.
Dino acH'ires a carr*>o-er basis .hich is the basis of
the
(ro(ert* in the hands of the donor or 4! million. The
gain
from the sale or other dis(osition of (ro(ert* shall be
the
e)cess of the amo'nt reali=ed therefrom o-er the basis
or
adC'sted basis for determining gain 07ec. 3$0a1;
62RC1.
7ince the (ro(ert* .as acH'ired b* gift; the basis
for
determining gain shall be the same as if it .o'ld be in
the
hands of the donor or the last (receding o.ner b*
.hom
the (ro(ert* .as not acH'ired b* gift. 5ence; the gain is
com('ted b* ded'cting the basis of 4! million from the
amo'nt reali=ed .hich is 4#" million.
0$1 7'((ose; instead of recei-ing the lot
b* .a* of
donation; Dino recei-ed it b*
inheritance. What
.o'ld be his gain on the sale of the lot
for 4#" 3illion, E)(lain.
SUGGESTED ANSWER:
$1 2f the commercial lot .as recei-ed b*
inheritance the gain from the sale for 4#"
million is 4% million beca'se the basis is the
fair mar<et -al'e as of the date of
acH'isition. The ste((ed>'( basis of 4!%
million .hich is the -al'e for estate ta)
('r(oses is the basis for determining the
gain 07ec. 3$0b10#1; 62RC1.
ALTERNATlVE ANSWER:
2f Dino held on to the (ro(ert* as a ca(ital asset
in that it
is neither for sale in the ordinar* co'rse of
b'siness nor
'sed in DinoFs b'siness; then '(on sale thereof
there is
(res'med to be reali=ed an income of 4#"
million .hich
is the gross selling (rice of the (ro(ert*.
07ec. #!0e1;
62RC1. The same .o'ld be s'bCect to the
%@ ca(ital
gains ta).
Donor's Tax; Dacion en Pago; Effect: Taxation
(l997)
An insol-ent com(an* had an o'tstanding
obligation of 4 l"";"""."" from a creditor. 7ince it co'ld not (a*
the debt; the creditor agreed to acce(t (a*ment thro'gh dacion en
(ago a (ro(ert* .hich had a mar<et -al'e of 43"."""."". 2n the
dacion en (ago doc'ment; the balance of the debt .as condoned.
A. What is the ta) effect on the discharge of the 'n(aid
balance of the obligation on the debtor cor(oration,
B. 2nsofar as the creditor is concerned; ho. is he
effected ta)>.ise as a conseH'ence of the transaction,
SUGGESTED ANSWERS:
0a1 The condonation of the 'n(aid balance of the
obligation has the effect of a donation made on the (art
of the creditor. 2t is ob-io's that the creditor merel*
desires to benefit the debtor and .itho't an*
consideration therefore cancels the debt; the amo'nt of
the debt cancelled is a gift from the creditor to the debtor
and need not be incl'ded in the latterFs gross income 07ec.
%"; RR 6o. #1G
0b1 For the difference of 47";""" the creditor shall be s'bCect to
donorFs ta) at the a((licable rates (ro-ided for 'nder the 6ational
2nternal Re-en'e Code.
ALTERNATlVE ANSWER:
0a1 2f the discharge .as (rom(ted b* the insol-enc* of the
debtor com(an*; then it is a clear case of a .rite>off of a
bad debts .hich has no ta) conseH'ence to the debtor.
0b1 The .rite>off of the bad debt .ill entitle the creditor to claim
the same as a ded'ction from its gross income.
Donor's Tax; Donation to a Sibling (200l)
Do'r bachelor client; a Fili(ino residing in N'e=on Cit*;
.ants to gi-e his sister a gift of 4h( #"";"""."". 5e see<s
*o'r ad-ice; for ('r(oses of red'cing if not eliminating
the donorFs ta) on the gift; on .hether it is better for him
to gi-e all of the 4h( #"";"""."" on Christmas #""! or to
gi-e 4h( !"";"""."" on Christmas#""! and the other 4h(
!"";"""."" on Man'ar* !; #""#. 4lease e)(lain *o'r
ad-ice.
0%@1
SUGGESTED ANSWER:
2 .o'ld ad-ice him to s(lit the donation. ?i-ing the
4h(#"";""" as a one>time donation .o'ld mean that it
.ill be s'bCect to a higher ta) brac<et 'nder the grad'ated
ta) str'ct're thereb* necessitating the (a*ment of donorFs
ta). On the other hand; s(litting the donation into t.o
eH'al amo'nts of 4h( !"";""" gi-en on t.o different
*ears .ill totall* relie-e the donor from the donorRs ta)
beca'se the first 4h(l"".""" donation in the grad'ated
brac<ets is e)em(t. 07ection ; 62RC1. While the donorRs
ta) is com('ted on the c'm'lati-e donations; the
aggregation of all donations made b* a donor is allo.ed
onl* o-er one calendar *ear.
Donor's Tax; Donation to Non-Stock, Non-Profit
Private Educational lnstitutions (2000)
What conditions m'st occ'r in order that all grants;
donations and contrib'tions to non>stoc<; non>(rofit
(ri-ate ed'cational instit'tions ma* be e)em(t from the
donorFs ta) 'nder 7ection !"! 0a1 of the Ta) Code, 03@1
SUGGESTED ANSWER:
The follo.ing are the conditions/
43 of 73
!. 6ot more than thirt* (ercent 03"@1 of said gifts
shall be 'sed b* s'ch donee for administration
('r(osesG
#. The ed'cational instit'tion is incor(orated as a non>
stoc< entit*;
3. (a*ing no di-idends;
$. go-erned b* tr'stees .ho recei-e no com(ensation;
and
%. de-oting all its income; .hether st'dentsF fees or
gifts; donations; s'bsidies or other forms
of
(hilanthro(*; to the accom(lishment and
(romotion
of the ('r(oses en'merated in its Articles of
2ncor(oration. 07ec. !"! 0A1 031; 62RC of !7K
Donor's Tax; Donation to Political Candidate (2003)
9 is a friend of D; the chairman of 4olitical 4art* L;
.ho .ants to r'n for 4resident in the #""$ elections.
Sno.ing that D needs f'nds for (osters and
streamers; 9 is thin<ing of donating to D 4!%";""".""
for his cam(aign. 5e as<s *o' .hether his intended
donation to D .ill be s'bCect to the donorFs ta). What
.o'ld *o'r ans.er be, Will *o'r ans.er be the same
if he .ere to donate to 4olitical 4art* L instead of to D
directl*, 08@1
SUGGESTED ANSWER:
The donation to D; once he becomes a candidate for an
electi-e (ost; is not s'bCect to donorFs ta) (ro-ided that
he com(lies .ith the reH'irement of filing ret'rns
of contrib'tions .ith the Commission on Elections
as reH'ired 'nder the Omnib's Election Code.
The ans.er .o'ld be the same if 9 had donated the
amo'nt to 4olitical 4art* L instead of to D
directl*
beca'se the la. (laces in eH'al footing an*
contrib'tion
to an* candidate; (olitical (art* or coalition of (arties
for
cam(aign ('r(oses. (,ection **(!) of the %**' Tax
!ode).
Donor's Tax; Donee or Beneficiary; Stranger (2000)
When the donee or beneficiar* is a stranger; the ta)
(a*able b* the donor shall be 3"@ of the net gifts. For
('r(oses of this ta); .ho is a stranger, 0#@1
SUGGESTED ANSWER:
A 7TRA6?ER is a (erson .ho is not a/
A. Brother; sister 0.hether b* .hole or half>blood1;
s(o'se; ancestor and lineal descendantG or
B. Relati-e b* consang'init* in the collateral line
.ithin
the fo'rth degree of relationshi(.+ J7ec. 8 0B1;
62RC
of !7K
Donor's Tax; Sale of shares of Stock & Sale of
Real Property (l999)
A; an indi-id'al; sold to B; his brother>in>la.; his lot
.ith
a mar<et -al'e of 4!;""";""" for 4&"".""". AFs cost in
the
lot is 4!"".""". B is financiall* ca(able of
b'*ing the lot.
A also o.ns 9 Co.; .hich has a fast gro.ing
b'siness. A
sold some of his shares of stoc< in 9 Co. to
his <e*
e)ec'ti-es in 9 Co. These e)ec'ti-es are not
related to A.
The selling (rice is 43;""";"""; .hich is the
boo< -al'e of
the shares sold b't .ith a mar<et -al'e of
4%;""";""". AFs
cost in the shares sold is 4!;""";""". The
('r(ose of A in
selling the shares is to enable his <e*
e)ec'ti-es to acH'ire
a (ro(riet* interest in the b'siness and ha-e a
(ersonal
sta<e in its b'siness. E)(lain if the abo-e
transactions are s'bCect to donorFs ta). 0%@1
SUGGESTED ANSWER:
The first transaction .here a lot .as sold b* A to his brother>
in>la. for a (rice belo. its fair mar<et -al'e .ill not be s'bCect to
donorFs ta) if the lot H'alifies as a ca(ital asset. The transfer for
less than ade7uate and full consideration which gives rise to a
deemed gift does not apply to a sale of property sub1ect to capital
gains tax. 07ection !""; 62RC1. 5o.e-er; if the lot sold is an
ordinar* asset; the e)cess of the fair mar<et -al'e o-er the
consideration recei-ed shall be considered as a gift s'bCect to the
donorFs ta).
The sale of shares of stoc< belo. the fair mar<et -al'e
thereof is s'bCect to the donorFs ta) ('rs'ant to the
(ro-isions of 7ection !"" of the Ta) Code. The e)cess of
the fair mar<et -al'e o-er the selling (rice is a deemed
gift.
ALTERNATlVE ANSWER:
The sale of shares of stoc< belo. the fair mar<et -al'e
.ill not gi-e rise to the im(osition of the donorFs ta). 2n
determining the gain from the transfer; the selling (rice of
the shares of stoc<s shall be the fair mar<et -al'e of the
shares of stoc<s transferred. 07ection &; RR 6o. #>8#1. 2n
.hich case; the reason for the im(osition of the donorFs
ta) on sales for inadeH'ate consideration does not e)ist.
Estate Tax: Comprehensive Agrarian Reform Law (l994)
Mose Orti= o.ns !"" hectares of agric'lt'ral land (lanted to
cocon't trees. 5e died on 3a* 3"; !$. 4rior to his death; the
go-ernment; b* o(eration of la.; acH'ired 'nder the
Com(rehensi-e Agrarian Reform Aa. all his agric'lt'ral lands
e)ce(t fi-e 0%1 hectares. :(on the death of Orti=; his .ido. as<ed
*o' ho. she .ill consider the !"" hectares of
agric'lt'ral land in the (re(aration of the estate ta)
ret'rn. What ad-ice .ill *o' gi-e her,
SUGGESTED ANSWER:
The !"" hectares of land that Mose Orti= o.ned b't .hich
(rior to his death on 3a* 3"; !$ .ere acH'ired b* the
go-ernment 'nder CAR4 are no longer (art of his ta)able
gross estate; .ith the e)ce(tion of the remaining fi-e 0%1
hectares .hich 'nder 7ec. 78Ia1 of the Ta) Code still
forms (art of +decedentFs interest+.
Estate Tax: Donation Mortis Causa (200l)
A; aged " *ears and s'ffering from inc'rable cancer; on
A'g'st !; #""! .rote a .ill and; on the same da*; made
se-eral inter>-i-os gifts to his children. Ten da*s later; he
died. 2n *o'r o(inion; are the inter>-i-os gifts considered
transfers in contem(lation of death for ('r(oses of
determining (ro(erties to be incl'ded in his gross estate,
SUGGESTED ANSWER:
Des. When the donor ma<es his .ill .ithin a short time
of; or sim'ltaneo'sl* .ith; the ma<ing of gifts; the gifts
are considered as ha-ing been made in contem(lation of
death. 0Roces -. 4osadas; %8 4hil. !"81. Ob-io'sl*; the
intention of the donor in ma<ing the inter>-i-os gifts is to
a-oid the im(osition of the estate ta) and since the donees
are li<e.ise his forced heirs .ho are called '(on to
inherit; it .ill create a (res'm(tion 1uris tantum that said
donations .ere made mortis causa; hence; the (ro(erties
donated shall be incl'ded as (art of AFs gross estate.
44 of 73
The gross estate shall be determined b* incl'ding
Estate Tax: Donation Mortis Causa vs. lnter Vivos
(l994)
Are donations inter -i-os and donations mortis ca'sa
s'bCect to estate ta)es,
SUGGESTED ANSWER:
Donations inter -i-os are s'bCect to donorFs gift ta) 07ec.
! 0a1. Ta) Code1 .hile donations mortis ca'sa are
s'bCect
to estate ta) 07ec. 77; Ta) Code1. 5o.e-er; donations
inter -i-os; act'all* constit'ting ta)able lifetime li<e
trans>
fers in contem(lation of death or re-ocable transfers
07ec.
78 0b1 and 0c1; Ta) Code1 ma* be ta)ed for estate
ta) ('r(oses; the theor* being that the transferorFs
control thereon e)tends '( to the time of his death.
ALTERNATlVE ANSWER:
Donations inter -i-os are not s'bCect to estate ta)es
beca'se the transfer of the (ro(ert* ta<e effect d'ring
the lifetime of the donor. The transfer is therefore
s'bCect to the donorFs ta).
On the other hand; donations mortis ca'sa are s'bCect
to
estate ta)es since the transfer of the (ro(erties ta<es
effect
after the death of the decedent. 7'ch donated
(ro(erties;
real or (ersonal; tangible or intangible; shall form (art
of
the gross estate.
Estate Tax: Gross Estate: Allowable Deduction (200l)
On the first anni-ersar* of the death of D; his heirs
hosted
a s'm(t'o's dinner for his doctors; n'rses; and others
.ho attended to D d'ring his last illness. The cost of the
dinner amo'nted to 4h( %";"""."". Com(ared to his
gross estate; the 4h( %";"""."" did not e)ceed fi-e
(ercent of the estate. 2s the said cost of the dinner to
commemorate his one *ear death anni-ersar* ded'ctible
from his gross estate, E)(lain *o'r ans.er. 0%@1
SUGGESTED ANSWER:
6o. This e)(ense .ill not fall 'nder an* of the
allo.able
ded'ctions from gross estate. Whether -ie.ed in the
conte)t of either f'neral e)(enses or medical e)(enses;
the same .ill not H'alif* as a ded'ction. F'neral
e)(enses
ma* incl'de medical e)(enses of the last illness b't
not
e)(enses inc'rred after b'rial nor e)(enses inc'rred to
commemorate the death anni-ersar*. 0De ?'=man 8. De
?'=man; 83 7CRA #%&1. 3edical e)(enses; on the other
hand; are allo.ed onl* if inc'rred b* the decedent
.ithin
one *ear (rior to his death. 07ection 8&0A10&1; 62RC1.
Estate Tax: Gross Estate: Deductions (2000)
3r. Feli) de la Cr'=; a bachelor resident
citi=en; s'ffered
from a heart attac< .hile on a b'siness tri( to
the :7A.
5e died intestate on M'ne !%; #""" in 6e.
Dor< Cit*;
lea-ing behind real (ro(erties sit'ated in 6e.
Dor<G his
famil* home in 8alle 8erde; 4asig Cit*G
an office
condomini'm in 3a<ati Cit*G shares of
stoc<s in 7an
3ig'el Cor(orationG cash in ban<G and
(ersonal
belongings. The decedent is hea-il* ins'red
.ith 2ns'lar
Aife. 5e had no <no.n debts at the time of
his death.
As the sole heir and a((ointed Administrator;
ho. .o'ld
*o' determine the gross estate of the
decedent, What
ded'ctions ma* be claimed b* the estate and
.hen and
.here shall the ret'rn be filed and estate ta)
(aid, 03@1
SUGGESTED ANSWER:
the -al'e at the time of his death all of the (ro(erties
mentioned; to the e)tent of the interest he had at the time of his
death because he is a <ilipino citiIen . J7ec. 8% 0A1; 62RC of
!7K
With res(ect to the life ins'rance (roceeds; the amo'nt
incl'dible in the gross estate for 4hili((ine ta) ('r(oses
.o'ld be to the e)tent of the amo'nt recei-able b* the
estate of the deceased; his e)ec'tor; or administrator;
'nder (olicies ta<en o't b* decedent '(on his o.n life;
irres(ecti-e of .hether or not the ins'red retained the
(o.er of re-ocation; or to the e)tent of the amo'nt
recei-able b* an* beneficiar* designated in the (olic* of
ins'rance; e)ce(t .hen it is e)(ressl* sti('lated that the
designation of the beneficiar* is irre-ocable. J7ec. 8% 0E1
62RC of !7K
The DED:CT2O67 that ma* be claimed b* the estate
are/
!1 The act'al f'neral e)(enses or in an amo'nt eH'al to
fi-e (ercent 0%@1 of the gross estate; .hiche-er is
lo.er; b't in no case to e)ceed t.o h'ndred tho'sand
(esos 04#"".""".""1. J7ec. 8& 0A1 0!1 0a1. 62RC of !7K
#1 The C'dicial e)(enses in the testate or intestate
(roceedings.07ec. 8&0A10!1
31 The -al'e of the decedentFs famil* home located in
8alle 8erde; 4asig Cit* in an amo'nt not e)ceeding
one million (esos 04!;""";""".""1; and '(on
(resentation of a certification of the baranga* ca(tain of the
localit* that the same ha-e been the decedentFs famil*
home. J7ec. 8& 0A1 0$1; 2bidK
$1 The standard ded'ction of 4!;""";""". 07ec. 8&0A10%1
%1 3edical e)(enses inc'rred .ithin one *ear from
death in an amo'nt not e)ceeding 4%"";""".07ec.
8&0A10&1
The E7TATE TA9 RET:R6 shall be filed .ithin si)
0&1 months from the decedentFs death 07ec. " 0B1; 62RC
of !7K; (ro-ided that the Commissioner of 2nternal
Re-en'e shall ha-e a'thorit* to grant in meritorio's cases;
a reasonable e)tension not e)ceeding thirt* 03"1 da*s for
filing the ret'rn 07ec. " 0c1; 2bidK
E)ce(t in cases .here the Commissioner of 2nternal
Re-en'e other.ise (ermits; the estate ta) ret'rn shall be
filed .ith an a'thori=ed agent ban<; or Re-en'e District
Officer; Collection Officer; or d'l* a'thori=ed Treas'rer
of 4asig Cit*; the Cit* in .hich the decedent 3r. de la
Cr'= .as domiciled at the time of his death. J7ec. " 0D1.
62RC of !7K
Estate Tax: lnclusion: Resident Alien (l994)
Cliff Robertson; an American citi=en; .as a (ermanent
resident of the 4hili((ines. 5e died in 3iami; Florida. 5e
left !";""" shares of 3eralco; a condomini'm 'nit at the
T.in To.ers B'ilding at 4asig; 3etro 3anila and a ho'se
sirdondee@gmail.com
SUGGESTED ANSWER:
45 of 73
and lot in Aos Angeles; California.
What assets shall be incl'ded in the Estate Ta) Ret'rn
to be filed .ith the B2R,
SUGGESTED ANSWER:
All of 3r. RobertsonFs assets consisting of !";"""
shares
in the 3eralco; a condomini'm 'nit in 4asig; and his
ho'se and lot in Aos Angeles; California are ta)able.
The
(ro(erties of a resident alien decedent li<e 3r.
Robertson
are ta)able .here-er sit'ated 07ees. 77; 78 and 8;
Ta)
Code1.
Estate Tax: Payment vs. Probate Proceedings (2004)
8CC is the administrator of the estate of his father
6?C;
in the estate (roceedings (ending before the 33
Regional Trial Co'rt. Aast *ear; he recei-ed from
the
Commissioner of 2nternal Re-en'e a deficienc* ta)
assessment for the estate in the amo'nt of 4!;""";""".
B't he ignored the notice. Aast month; the B2R effected
a
le-* on the real (ro(erties of the estate to (a* the
delinH'ent ta). 8CC filed a motion .ith the (robate
co'rt
to sto( the enforcement and collection of the ta) on the
gro'nd that the B2R sho'ld ha-e sec'red first the
a((ro-al of the (robate co'rt; .hich had C'risdiction
o-er
the estate; before le-*ing on its real (ro(erties. 2s 8CCFs
contention correct, 0%@1
SUGGGESTED ANSWER:
6o. 8CCFs contention is not correct. The a((ro-al of
the (robate co'rt is not necessar*. 4a*ment of estate
ta)es is a condition (recedent for the distrib'tion of the
(ro(erties of the decedent and the collection of
estate ta)es is e)ec'ti-e in nat're for .hich the co'rt
is de-oid of an* C'risdiction. 5ence; the a((ro-al of
the co'rt; sitting in (robate; or as a settlement trib'nal
is not a mandator* reH'irement in the collection of
estate ta)es 03arcos 5 -. Co'rt of A((eals; #73 7CRA $7
J!7K1.
Estate Tax: Situs of Taxation: Non-Resident
Decedent
(2000)
Disc'ss the r'le on situs of taxation .ith res(ect to
the im(osition of the estate ta) on (ro(ert* left behind
b* a non>resident decedent. 0#@1
SUGGESTED ANSWER:
The -al'e of the gross estate of a non>resident decedent
.ho is a Fili(ino citi=en at the time of his death shall be
determined b* incl'ding the -al'e at the time of his
death
of all (ro(ert*; real or (ersonal; tangible or
intangible;
.here-er sit'ated to the e)tent of the interest
therein of
the decedent at the time of his death J7ec. 8%
0A1; 62RC
of !71. These (ro(erties shall ha-e a sit's of
ta)ation in
the 4hili((ines hence s'bCect to 4hili((ine
estate ta)es.
On the other hand; in the case of a non>resident
decedent .ho at the time of his death .as
not a citi=en of the 4hili((ines; only that
part of the entire gross estate which is
situated in the 9hilippines to the extent of the
interest therein of the decedent at the time of
his death shall be included in his taxable
estate. 4ro-ided; that; .ith res(ect to
intangible (ersonal (ro(ert*; .e a((l* the r'le
of reci(rocit*. 02bid1
Estate Tax: Vanishing Deductions (l994)
8anishing ded'ctions in estate>ta)ation,
8anishing ded'ctions or (ro(ert* (re-io'sl* ta)ed in
estate ta)ation refers to the diminishing ded'cibilit*O
e)em(tion; at the rate of #"@ o-er a (eriod of fi-e 0%1
*ears 'ntil it is lost after the fifth *ear; of an* (ro(ert*
0sit'ated in the 4hili((ines1 forming (art of the gross
estate; acH'ired b* the decedent from a (rior decedent
.ho died .ithin a (eriod of fi-e 0%1 *ears from the
decedentFs death.
Estate Tax; Payment vs. Probate Proceedings (2005)
2s the a((ro-al of the co'rt; sitting as (robate or estate settlement
co'rt; reH'ired in the enforcement and collection of estate
ta), E)(lain.
SUGGESTED ANSWER:
6o; the a((ro-al of the co'rt; sitting in (robate; or as a
settlement trib'nal o-er the deceased is not a mandator*
reH'irement in the collection of estate ta)es. There is
nothing in the Ta) Code; and in the (ertinent remedial
la.s that im(lies the necessit* of the (robate or estate
settlement co'rtFs a((ro-al of the stateFs claim for estate
ta)es; before the same can be enforced and collected.
03arcos -. Co'rt of A((eals; ?.R. 6o. !#"88"; M'ne %; !71
BUSlNESS TAXES
VAT: Basis of VAT (l996)
What is the basis of the 8al'e>Added Ta) on ta)able sales of real
(ro(ert*,
SUGGESTED ANSWER:
The basis of the 8al'e>Added Ta) on ta)able sale of real (ro(ert*
is +?RO77 7EAA26? 4R2CE+ .hich is either selling (rice stated
in the sale doc'ment or the +Lonal 8al'e+; .hiche-er
is higher. 2n the absence of =onal -al'es; the gross
selling (rice shall refer to the mar<et -al'e as sho.n
in the latest ta) declaration or the consideration;
.hiche-er is higher.
VAT: Characteristics of VAT (l996)
What are the characteristics of the 8al'e>Added Ta),
SUGGESTED ANSWER:
The -al'e>added ta) is an indirect ta) and the amo'nt of
ta) ma* be shifted or (assed on to the b'*er; transferee or
lessee of the goods; (ro(erties or ser-ices.
ALTERNATlVE ANSWER:
The -al'e>added ta) has the follo.ing characteristics/
!1 2t is an indirect ta) .here ta) shifting is al.a*s
(res'med/
#1 2t is cons'm(tion>basedG
31 2t is im(osed on the -al'e>added in each stage of
distrib'tionG
$1 2t is a credit>in-oice method -al'e>added ta)G and
%1 2t is not a cascading ta).
VAT: Exempted Transactions (l996)
?i-e at least three 031 real estate transactions .hich are
not s'bCect to the 8al'e>Added Ta).
SUGGESTED ANSWER:
Real estate transactions .hich are e)em(t from the -al'e>
added ta) are/
0a1 7ale of real (ro(ert* not (rimaril* held for sale or
lease in the ordinar* co'rse of trade or b'sinessG
46 of 73
0b1 7ale of real (ro(ert* 'tili=ed for sociali=ed
ho'sing
'nder RA. 6o. 7#7G
0c1 7ale of real (ro(ert* 'tili=ed 'nder the lo.>
cost
ho'sing 'nder B4 Big. ##".
6ote/ The other real estate transactions .hich are
e)em(t from the -al'e>added ta) .hich ma* be cited
b* the bar candidates are as follo.s/
0a1 Transfer of real (ro(ert* to a tr'stee if the (ro(ert*
is to be held merel* in tr'st for the tr'stor.
0b1 Transfer of real (ro(ert* to a cor(oration in
e)change for its shares of stoc< 'nder 7ection
3$0c10#1 and 0&10#1 of the Ta) Code.
0c1 Ad-ance (a*ment b* the lessee in a lease
contract;
.hen the same is act'all* a loan to the lessor from
the lessee.
0d1 7ec'rit* de(osits for lease arrangements to
ins're
the faithf'l (erformance of certain obligations of
the lessee to the lessor.
0e1 Aease of residential 'nits; boarding ho'ses;
dormito>
ries; rooms and bed s(aces offered for rent b*
their
o.ners at a monthl* rental not e)ceeding
43;%"."" (er 'nit.
VAT: Liable for Payment (l996)
Who are liable for the (a*ment of 8al'e>Added Ta),
SUGGESTED ANSWER:
The (ersons liable for the -al'e>added ta) are/
a. 7ellers of goods and (ro(erties in the co'rse of trade
or b'sinessG
b. 7ellers of ser-ices in the co'rse of trade or b'siness;
incl'ding lessors of goods and (ro(ertiesG
c. 2m(orters of ta)able goods; .hether in the co'rse of
b'siness or not
VAT: Transactions "Deemed Sales" (l997)
:nder the 8al'e Added ta) 08AT1; the ta) is im(osed
on sales; barter; or e)change of goods and ser-ices. The
8AT is also im(osed on certain transactions +deemed>
sales+. What are these so>called transactions +deemed
salesF,
SUGGESTED ANSWER:
The follo.ing transactions shall be deemed sale/
a1 Transfer; 'se; or cons'm(tion not in the co'rse of
b'siness of goods originall* intended for sale or
for 'se in the co'rse of b'sinessG
b1 Distrib'tion or transfer to/
0!1 7hareholders or in-estors as share in
the (rofits of 8AT>registered (ersonsG or
0#1 Creditors in (a*ment of debtG
c1 Consignment of goods if act'al sale is not made
.ithin &" da*s follo.ing the date s'ch goods
.ere consignedG and
d1 Retirement from or cessation of b'siness; .ith
res(ect to in-entories of ta)able goods
e)isting as
of s'ch retirement or cessation.
VAT; Covered Transactions (l998)
7tate .hether the follo.ing transactions are a1
8AT E)em(t; b1 s'bCect to 8AT at !"@G or c1 s'bCect to 8AT at
"@/
!1 7ale of fresh -egetables b* Aling 2ning at the
4amilihang Ba*an ng Trece 3artire=. J!@K
#1 7er-ices rendered b* Ma<eFs Constr'ction Com(an*;
a contractor to the World 5ealth Organi=ation in the
reno-ation of its offices in 3anila. J!@K
31 7ale of tractors and other agric'lt'ral im(lements b*
B'ng<al 2ncor(orated to local farmers. J!@K $1 7ale of
RTW b* Cel*Fs Bo'tiH'e; a Fili(ino dress
designer; in her dress sho( and other o'tlets. J!@K %1 Fees
for lodging (aid b* st'dents to Baha*>Baha*an
Dormitor*; a (ri-ate entit* o(erating a st'dent dormitor*
0monthl* fee 42;%""1. J!@K
SUGGESTED ANSWER:
!1 8AT e)em(t. 7ale of agric'lt'ral (rod'cts; s'ch as
fresh -egetables; in their original state; of a <ind
generall* 'sed as; or (rod'cing foods for h'man
cons'm(tion is e)em(t from 8AT. 07ection !"0c1;
62RC1.
#1 8AT at "@. 7ince Ma<eFs Constr'ction Com(an* has
rendered ser-ices to the World 5ealth Organi=ation; .hich is
an entit* e)em(ted from ta)ation 'nder international
agreements to .hich the 4hili((ines is a signator*; the
s'((l* of ser-ices is s'bCect to =ero (ercent 0"@1 rate. 07ec.
!"8JB!031; 62RC1.
31 8AT at !"@. Tractors and other agric'lt'ral
im(lements fall 'nder the definition of goods .hich incl'de
all tangible obCects .hich are ca(able of (ec'niar*
estimation 07ec. !"&JA!0!1; 62RC; the sales of
.hich are s'bCect to 8AT at !"@.
$1 This is s'bCect to 8AT at !"@. This transaction also
falls 'nder the definition of goods .hich incl'de all
tangible obCects .hich are ca(able of (ec'niar*
estimation 07ec. !"&JA!0!1; 62RC; the sales of
.hich are s'bCect to 8AT at !"@.
%1 8AT E)em(t. The monthl* fee (aid b* each st'dent
falls 'nder the lease of residential 'nits .ith a
monthl* rental (er 'nit not e)ceeding 4h( 8;""";
.hich 2s e)em(t from 8AT regardless of the
amo'nt of aggregate rentals recei-ed b* the lessor
d'ring the *ear. 07ec. !"0)1; 62RC1. The term 'nit
shall mean (er (erson in the case of dormitories;
boarding ho'ses and bed s(aces 07ec. $.!"3>!;
RR6o. 7>%1.
CO33E6T/ The (roblems do not call for a *es or no ans.er.
Accordingl*; a bar candidate .ho ans.ered onl* 8AT e)em(t.
8AT at !"@ or 8AT at "@. as called for in the (roblem .itho't
f'rther reasons; sho'ld be gi-en f'll credit.
VAT; Exemption: Constitutionality (2004)
A la. .as (assed e)em(ting doctors and la.*ers from the
o(eration of the -al'e added ta). Other (rofessionals
com(lained and filed a s'it H'estioning the la. for being
discriminator* and -iolati-e of the eH'al (rotection cla'se
of the Constit'tion since com(lainants .ere not gi-en the
47 of 73
same e)em(tion. 2s the s'it meritorio's or not, Reason
briefl*. 0%@1
SUGGESTED ANSWER:
B. Des; the s'it is meritorio's. The 8AT is designed for
economic efficienc*G hence; sho'ld be ne'tral to those
.ho belong to the same class. 4rofessionals are a class
of
ta)(a*ers b* themsel-es .ho; in com(liance .ith the
r'le
of eH'alit* of ta)ation; m'st be treated ali<e for
ta)
('r(oses. E)em(ting la.*ers and doctors from a
b'rden
to .hich other (rofessionals are s'bCected .ill ma<e
the
la. discriminator* and -iolati-e of the eH'al
(rotection
cla'se of the Constit'tion. While singling o't a class
for
ta)ation ('r(oses .ill not infringe '(on this
constit'tional limitation 07hell -. 8ano; $ 4hil. 38
J!%$K1; singling o't a ta)(a*er from a class .ill no
do'bt
transgress the constit'tional limitation 0Ormoc 7'gar
Co.
2nc.; -. Treas'rer of Ormoc Cit*; ## 7CRA &"3 J!&8K1.
Treating doctors and la.*ers as a different class of
(rofessionals .ill not com(l* .ith the reH'irements of a
reasonable; hence -alid classification; beca'se
the
classification is not based '(on s'bstantial distinction
.hich ma<es real differences. The classification does
not
com(l* .ith the reH'irement that it sho'ld be germane
to
the ('r(ose of the la. either. 04e(si>Cola Bottling Co.;
2nc. -. Cit* of B't'an; #$ 7CRA 78 J!&8K1.
ANOTHER ANSWER:
6o. The s'it is not meritorio's. The eH'al (rotection
cla'se of the Constit'tion merel* reH'ires that all
(ersons
s'bCected to legislation shall be treated ali<e; 'nder
li<e
circ'mstances and conditions; both in the (ri-ileges
conferred and in the liabilities im(osed. The eH'alit*
in
ta)ation r'le is not -iolated if classifications or
distinctions
are made as long as the same are based on reasonable
and
s'bstantial differences. I4e(si>Cola Bottling Co.; 2nc.
-. Cit* of B't'an; #$ 7CRA 78 J!&8K1.
2n the instant case; the (rofessions of doctors and
la.*ers are not (rinci(all* aimed at earning mone*
b't for the ser-ice of the (eo(le. The e)em(tion
granted to doctors and la.*ers from the o(eration of the
8AT is C'stified; as it is not discriminator* against the
other (rofessionals beca'se the* ha-e
reasonable and s'bstantial differences in the
cond'ct of their (rofessions.
VAT; Non-VAT taxpayer; Claim for Refund
(2006)
Ail*Fs Fashion; 2nc. is a garment man'fact'rer
located and
registered as a 7'bic Ba* Free(ort
Enter(rise 'nder
Re('blic Act 6o. 7##7 and a non>8AT
ta)(a*er. As s'ch;
it is e)em(t from (a*ment of all local and
national internal
re-en'e ta)es. D'ring its o(erations; it
('rchased -ario's
s'((lies and materials necessar* in the
cond'ct of its
man'fact'ring b'siness. The s'((liers of
these goods
shifted to Ail*Fs Fashion; 2nc. the !"@ 8AT
on the
('rchased items amo'nting to 4
%"";"""."". Ail*Fs
Fashion; 2nc. filed .ith the B2R a claim for
ref'nd for the
in('t ta) shifted to it b* the s'((liers. 2f *o'
.ere the
Commissioner of 2nternal Re-en'e; .ill *o'
allo. the
ref'nd, 0%@1
ALTERNATlVE ANSWER:
6o; 2 .ill not allo. the ref'nd. Onl* 8AT>
Registered
ta)(a*ers are entitled to a ref'nd
of their
'na((liedO'n'sed 2n('t 8AT 0Ta) Reform Act; 7ection
!!#JAK J!7K1.
ALTERNATlVE ANSWER:
6o. The e)em(tion of Ail*Fs Fashion; 2nc. is onl* for ta)es for
.hich it is directl* liable. 5ence; it can not claim e)em(tion
for a ta) shifted to it; .hich is not at all considered a ta) to
the b'*er b't a (art of the ('rchase (rice. Ail*Fs fashion is not
the ta)(a*er in so far as the (assed>on ta) is concerned and
therefore; it can not claim for a ref'nd of a ta) merel* shifted to it
04hil. Acet*lene Co.; 2nc. -. C2R; A>!7"7;A'g. !7; !871.
(NCTA 34N4: This concept pertains to the 2AT law which
is excluded from the 3ar coverage #uidelines for &((. 3ar
4xaminations )une %- &((.)
REMEDlES lN lNTERNAL
REVENUE TAXES
BlR: Assessment: Unregistered Partnership (l997)
3r. 7antos died intestate in !8 lea-ing his s(o'se and
fi-e children as the onl* heirs. The estate consisted of a
famil* home and a fo'r>door a(artment .hich .as being
rented to tenants. Within the *ear; an e)traC'dicial settle>
ment of the estate .as e)ec'ted from the heirs; each of
them recei-ing hisOher d'e share. The s'r-i-ing s(o'se
ass'med administration of the (ro(ert*. Each *ear; the
net income from the rental (ro(ert* .as distrib'ted to all;
(ro(ortionatel*; on .hich the* (aid res(ecti-el*; the
corres(onding income ta).
2n !$; the income ta) ret'rns of the heirs .ere e)amined
and deficienc* income ta) assessments .ere is>
s'ed against each of them for the *ears !8 to !3; incl'si-e;
as ha-ing entered into an 'nregistered (artnershi(.
Were the assessments C'stified,
SUGGESTED ANSWER:
Des; the assessments .ere C'stified beca'se for income ta)
('r(oses; the co>o.nershi( of inherited (ro(ert* is
a'tomaticall* con-erted into an 'nregistered (artnershi(
from the moment the said (ro(erties are 'sed as a
common f'nd .ith intent to (rod'ce (rofits for the heirs
in (ro(ortion to their shares in the inheritance.
From the moment of s'ch (artition; the heirs are entitled
alread* to their res(ecti-e definite shares of the estate and
the income thereof; for each of them to manage and
dis(ose of as e)cl'si-el* his o.n .itho't the inter-ention
of the other heirs; and; accordingl*; he becomes liable
indi-id'all* for all ta)es in connection there.ith. 2f after
s'ch (artition; he allo.s his shares to be held in common
.ith his co>heir 'nder a single management to be 'sed
.ith the intent of ma<ing (rofit thereb* in (ro(ortion to
his share; there can be no do'bt that; e-en if no doc'ment
or instr'ment .ere e)ec'ted for the ('r(ose; for ta)
('r(oses; at least; an 'nregistered (artnershi( is formed
0Aoren=o Ona; et al -. C2R; $% 7CRA 7$1.
ALTERNATlVE ANSWER:
6o; the assessments are not C'stified. The mere sharing of
income does not of itself establish a (artnershi( absent
an* clear intention of the co>o.ners .ho are onl* a.aiting
liH'idation of the estate.
BlR: Collection of Tax Deficiency (l999)
48 of 73
A died; s'r-i-ed b* his .ife and three children. The
estate
ta) .as (ro(erl* (aid and the estate settled and di-ided
and distrib'ted among the fo'r heirs. Aater; the B2R
fo'nd o't that the estate failed to re(ort the income
recei-ed b* the estate d'ring administration. The
B2R
iss'ed a deficienc* income ta) assessment (l's
interest;
s'rcharges and (enalties. 7ince the 3 children are
residing
abroad; the B2R so'ght to collect the f'll ta) deficienc*
onl* against the .ido.. 2s the B2R correct, 0!"@1
SUGGESTED ANSWER:
Des; the B2R is correct. 2n a case .here the estate
has
been distrib'ted to the heirs; the collection remedies
a-ailable to the B2R in collecting ta) liabilities of an
estate
ma* either 0!1 s'e all the heirs and collect from each
of
them the amo'nt of ta) (ro(ortionate to the inheritance
recei-ed or 0#1 b* -irt'e of the lien created 'nder
7ection
#!; s'e onl* one heir and s'bCect the (ro(ert* he
recei-ed from the estate to the (a*ment of the estate
ta).
The B2R; therefore; is correct in ('rs'ing the second
remed* altho'gh this .ill gi-e rise to the right of the
heir
.ho (a*s to see< reimb'rsement from the other heirs.
0C2R -. 4ineda; #! 7CRA !"%1. 2n no case; ho.e-er; can
the
B2R enforce the ta) liabilit* in e)cess of the share of the
.ido. in the inheritance.
BlR: Compromise; Conditions (2000)
:nder .hat conditions ma* the Commissioner of
2nternal Re-en'e be a'thori=ed to/
A. Com(romise the (a*ment of an* internal re-en'e
ta), 0#@1
SUGGESTED ANSWER:
The Commissioner of 2nternal Re-en'e ma* be
a'thori=ed to com(romise the (a*ment of an* internal
re-en'e ta) .here/
!1 A reasonable do'bt as to the -alidit* of the claim
against the ta)(a*er e)istsG or
#1 the financial (osition of the ta)(a*er demonstrates a
clear inabilit* to (a* the assessed ta).
B. Abate or cancel a ta) liabilit*, 03@1
SUGGESTED ANSWER:
The Commissioner of 2nternal Re-en'e ma* abate or
cancel a ta) liabilit* .hen/
!1 The ta) or an* (ortion thereof a((ears to
be 'nC'stl*
or e)cessi-el* assessedG or
#1 The administration and collection costs
in-ol-ed do
not C'stif* the collection of the amo'nt
d'e. J7ec.
#"$ 0B1; 62RC of !7K
BlR: Compromise; Extent of Authority (l996)
E)(lain the e)tent of the a'thorit* of the
Commissioner of 2nternal Re-en'e to
com(romise and abate ta)es,
SUGGESTED ANSWER:
The a'thorit* of the Commissioner to
com(romise encom(asses both ci-il and
criminal liabilities of the ta)>
(a*er. The ci-il com(romise is allo.ed onl* in
cases
!#1 .here the ta) assessment is of do'btf'l
-alidit*; or
!31 .hen the financial (osition of the
ta)(a*er
demonstrates a clear inabilit* to (a* the ta).
The com(romise of the ta) liabilit* is (ossible
at an* stage
of litigation and the amo'nt of com(romise is
left to the
discretion of the Commissioner e)ce(t .ith
res(ect to
final assessments iss'ed against large ta)(a*ers
.herein the Commissioner cannot com(romise for less than fift*
(ercent 0%"@1. An* com(romise in-ol-ing large ta)(a*ers lo.er
than fift* (ercent 0%"@1 shall be s'bCect to the a((ro-al of the
7ecretar* of Finance.
All criminal -iolations e)ce(t those in-ol-ing fra'd; can
be com(romised b* the Commissioner b't onl* (rior to
the filing of the information .ith the Co'rt. The
Commissioner ma* also abate or cancel a ta) liabilit*
.hen
!. the ta) or an* (ortion thereof a((ears to ha-e been
'nC'stl* or e)cessi-el* assessedG or
#. the administrati-e and collection costs in-ol-ed do
not M'stif* collection of the amo'nt d'e. 07ec. #"$; 62RC1
BlR: Compromise; Withholding Agent (l998)
3a* the Commissioner of the 2nternal Re-en'e com(ro>
mise the (a*ment of .ithholding ta) (tax deducted and
withheld at source) .here the financial (osition of the
ta)(a*er demonstrates a clear inabilit* to (a* the assessed
ta), J%@!
SUGGESTED ANSWER:
6o. A ta)(a*er .ho is constit'ted as .ithholding agent .ho has
ded'cted and .ithheld at so'rce the ta) on the income (a*ment
made b* him holds the ta)es as tr'st f'nds for the go-ernment
07ec. %8JDK1 and is obligated to remit them to the B2R. The
s'bseH'ent inabilit* of the .ithholding agent to (a*Oremit the ta)
.ithheld is not a gro'nd for com(romise beca'se the
.ithholding ta) is not a ta) '(on the .ithholding agent b't it
is onl* a (roced're for the collection of a ta).
BlR: Corporation: Distraint & Levy (2002)
On 3arch !%; #"""; the B2R iss'ed a deficienc* income
ta) assessment for the ta)able *ear !7 against the 8alera
?ro'( of Com(anies 08alera1 in the amo'nt of 4!"
million. Co'nsel for 8alera (rotested the assessment and
reH'ested a rein-estigation of the case. D'ring the
in-estigation; it .as sho.n that 8alera had been
transferring its (ro(erties to other (ersons. As no
additional e-idence to dis('te the assessment had been
(resented; the B2R iss'ed on M'ne !&; #""" .arrants of
distraint and le-* on the (ro(erties and ordered the filing
of an action in the Regional Trial Co'rt for the collection
of the ta). Co'nsel for 8alera filed an inC'ncti-e s'it in
the Regional Trial Co'rt to com(el the B2R to hold the
collection of the ta) in abe*ance 'ntil the decision on the
(rotest .as rendered.
A. Can the B2R file the ci-il action for collection;
(ending decision on the administrati-e (rotest,
E)(lain. 03@1
SUGGESTED ANSWER:
A. Des; beca'se there is no (rohibition for this
(roced're considering that the filing of a ci-il action for
collection d'ring the (endenc* of an administrati-e
(rotest constit'tes the final decision of the Commissioner
on the (rotest 0C2R -. :nion 7hi((ing Cor(.; 8% 7CRA
%$8 J!"K1.
49 of 73
B. As co'nsel for 8alera; .hat action .o'ld *o' ta<e
in order to (rotect the interest of *o'r client,
E)(lain *o'r ans.er. 0#@1
SUGGESTED ANSWER:
B. 2 .ill .ait for the filing of the ci-il action
for
collection and consider the same as an
a((ealable
decision. 2 .ill not file an inC'ncti-e s'it beca'se it is
not
an a-ailable remed*. 2 .o'ld then a((eal the case to the
Co'rt of Ta) A((eals and mo-e for the dismissal of the
collection case .ith the RTC. Once the a((eal to the
CTA
is filed on time; the CTA has e)cl'si-e C'risdiction
o-er
the case. 5ence; the collection case in the RTC sho'ld
be
dismissed 0Tabes -. FloCo; !!% 7CRA #78 J!8#K1.
BlR: Court of Tax Appeals: Collection of Taxes;
Grounds for Compromise (l996)
!. 3a* the Co'rt of Ta) A((eals iss'e an inC'nction to
enCoin the collection of ta)es b* the B'rea' of
2nternal Re-en'e, E)(lain.
SUGGESTED ANSWER:
Des. When a decision of the Commissioner on a ta)
(rotest is a((ealed to the CTA ('rs'ant to ,ec. %% of
$A.
No. %%&- (law creating the !TA) in relation to ,ec.
&&* of the
N6$!; s'ch a((eal does not s's(end the (a*ment; le-*;
distraint andOor sale of an* of the ta)(a*erFs (ro(ert*
for
the satisfaction of his ta) liabilit*. 5o.e-er; .hen in
the
o(inion of the CTA the collection of the ta) ma*
Ceo(ardi=e the interest of the ?o-ernment andOor the
ta)(a*er; the Co'rt at an* stage of the (roceedings
ma*
s's(end or restrain the collection of the ta) and reH'ire
the ta)(a*er either to de(osit the amo'nt claimed or to
file a s'ret* bond for not more than do'ble the amo'nt
.ith the Co'rt.
#. 3a* the ta) liabilit* of a ta)(a*er be com(romised
d'ring the (endenc* of an a((eal, E)(lain.
SUGGESTED ANSWER:
Des. D'ring the (endenc* of the a((eal; the ta)(a*er
ma*
still enter into a com(romise settlement of his ta)
liabilit*
for as long as an* of the gro'nds for a com(romise i.e.G
doubtful validity of assessment and financial incapacity
of taxpayer ;
is (resent. A com(romise of a ta) liabilit* is (ossible
at
an* stage of litigation; e-en d'ring a((eal; altho'gh
legal
(ro(riet* demands that (rior lea-e of co'rt
sho'ld be
obtained 04as'deco -s. C2R A>3387; M'ne #;
!8#1.
BlR: Criminal Prosecution: Tax Evasion (l998)
2s assessment necessar* before a ta)(a*er
ma* be
(rosec'ted for .illf'll* attem(ting in an*
manner to e-ade
or defeat an* ta) im(osed b* the 2nternal
Re-en'e Code,
J%@1
SUGGESTED ANSWER:
6o. Assessment is not necessar* before a
ta)(a*er ma*be
(rosec'ted if there is a (rima facie sho.ing of
a .illf'l
attem(t to e-ade ta)es as in the ta)(a*erFs
fail're to
declare a s(ecific item of ta)able income in his
income ta)
ret'rns 0:ngab -. C'si 7 7CRA 8771. On the
contrar*;
if the ta)es alleged to ha-e been e-aded is
com('ted
based on re(orts a((ro-ed b* the B2R
there is a
(res'm(tion of reg'larit* of the (re-io's
(a*ment of
ta)es; so that 'nless and 'ntil the B2R has
made a final
determination of .hat is s'((osed to be the
correct ta)es;
the ta)(a*er sho'ld not be (laced in the
cr'cible of
criminal (rosec'tion 0C2R -. Fort'ne Tobacco Cor(.; ?R
6o. !!3##; M'ne $; !&1.
BlR: Extinction; Criminal Liability of the Taxpayer (2002)
3r. Chan; a man'fact'rer of garments; .as in-estigated
for fail're to file ta) ret'rns and to (a* ta)es for the
ta)able *ear !7. Des(ite the subpoena duces tecum iss'ed to
him; he ref'sed to (resent and s'bmit his boo<s of
acco'nts and allied records. 2n-estigators; therefore;
raided his factor* and sei=ed se-eral b'ndles of
man'fact'red garments; s'((lies and 'n(aid im(orted
te)tile materials. After his a((rehension and based on the
testimon* of a former em(lo*ee; deficienc* income and
b'siness ta)es .ere assessed against 3r. Chan on A(ril
!%; #""". 2t .as then that he (aid the ta)es. Criminal
action .as nonetheless instit'ted against him in the
Regional Trial Co'rt for -iolation of the Ta) Code. 3r.
Chan mo-ed to dismiss the criminal case on the gro'nd
that he had alread* (aid the ta)es assessed against him. 5e
also demanded the ret'rn of the garments and materials
sei=ed from his factor*. 5o. .ill *o' resol-e 3r. ChanFs
motion, 0%@1
SUGGESTED ANSWER:
The motion to dismiss sho'ld be denied. The satisfaction
of the ci-il liabilit* is not one of the gro'nds for the
e)tinction of criminal action 04eo(le -. 2ldefonso
Tierra; !# 7CRA &&& J!&$K1. Ai<e.ise; the (a*ment of
the ta) d'e after a((rehension shall not constit'te a -alid
defense in an* (rosec'tion for -iolation of an* (ro-ision
of the Ta) Code 07ec. #%3JaK; 62RC1. 5o.e-er; the
garments and materials sei=ed from the factor* sho'ld be
ordered ret'rned beca'se the (a*ment of the ta) had
released them from an* lien that the ?o-ernment has
o-er them.
Customs; Jurisdiction; Assessment; Unpaid
Customs Duties/Taxes (2006)
The Collector of C'stoms iss'ed an assessment for 'n>
(aid c'stoms d'ties and ta)es on the im(ortation of *o'r
client in the amo'nt of 48";"""."". Where .ill *o' file
*o'r case to (rotect *o'r clientFs right, Choose the correct
co'rtsO agencies; obser-ing their (ro(er hierarch*. 0%@1
!. Co'rt of Ta) A((eals
#. Collector of C'stoms
3. Commissioner of C'stoms
$. Regional Trial Co'rt
%. 3etro(olitan Trial Co'rt
&. Co'rt of A((eals
7. 7'(reme Co'rt
SUGGESTED ANSWER:
!. 4rotest .ith the Collector of C'stoms (,ec. &5(/ T!!)
#. A((eal to the Commissioner of C'stoms (,ec. &5%5
T!!).
3. A((eal to the CTA ($A *&/&)
$. 4etition for Re-ie. on Certiorari 7'(reme Co'rt ($ule
"- of the %**' $ules of !ivil 9rocedure ($A *&/&).
Taxpayer; Prescriptive Period; Assessment;
Deficiency lncome Tax (2006)
The Commissioner of 2nternal Re-en'e iss'ed an assess>
ment for deficienc* income ta) for ta)able *ear #""" last
M'l* 3!; #""& in the amo'nt of 4 !" 3illion incl'si-e of
50 of 73
s'rcharge and interests. 2f the delinH'ent ta)(a*er is
*o'r
client; .hat ste(s .ill *o' ta<e, What is *o'r
defense,
0!"@1
ALTERNATlVE ANSWER:
As Co'nsel; 2 shall mo-e to cancel the Assessment
beca'se of (rescri(tion. The three 031 *ear (eriod of
assessment for the 2ncome Ta) Ret'rns of #""" starts
on
A(ril !%; #""! and ends on A(ril !&; #""$. The
assessment of M'l* 3!; #""& is be*ond the three 031
*ear
(rescri(ti-e (eriod and can no longer ha-e an*
legal;
binding effect (Tax $eform Act Title 2666 !hapter 6
,ection
&(5 A%**'@).
ALTERNATlVE ANSWER:
7ince m* client has lost his right to (rotest; 2 .ill
ad-ise
him to .ait for a collection action b* the Commissioner.
Then; 2 .ill file a (etition for re-ie. .ith the CTA
to
H'estion the collection. 7ince the assessment .as
iss'ed
be*ond the (rescri(ti-e (eriod to assess; the action to
collect an in-alid assessment is not .arranted 04hil.
Mo'r>
nalists; 2nc. -. C2R; ?.R. 6o. !&#8%#; December !&; #""$1.
Taxpayer; Assessment; Deficiency Tax (2006)
On M'ne !; #""3; ?lobal Ban< recei-ed a final notice
of
assessment from the B2R for deficienc* doc'mentar*
stam( ta) in the amo'nt of 4% 3illion. On M'ne 3";
#""3;
?lobal Ban< filed a reH'est for reconsideration .ith the
Commissioner of 2nternal Re-en'e. The Commissioner
denied the reH'est for reconsideration onl* on 3a* 3";
#""&; at the same time ser-ing on ?lobal Ban< a
.arrant
of distraint to collect the deficienc* ta). 2f *o' .ere
its
co'nsel; .hat .ill be *o'r ad-ice to the ban<,
E)(lain.
0%@1
ALTERNATlVE ANSWER:
The denial for the reH'est for reconsideration is the
final
decision of the C2R.. 2 .o'ld ad-ise ?lobal Ban< to
a((eal the denial to the Co'rt of Ta) A((eals 0CTA1
.ithin 3" da*s from recei(t. 2 .ill f'rther ad-ise the
ban<
to file a motion for inC'nction .ith the Co'rt of Ta)
A((eals to enCoin the Commissioner from enforcing the
assessment (ending resol'tion of the a((eal. While an
a((eal to the CTA .ill not s's(end the
(a*ment; le-*;
distraint; andOor sale of an* (ro(ert* of the
ta)(a*er for
the satisfaction of its ta) liabilit*; the CTA is
a'thori=ed to
gi-e inC'ncti-e relief if the enforcement .o'ld
Ceo(ardi=e
the interest of the ta)(a*er; as in this case;
.here the
assessment has not become final 0Aascona
Aand Co. -;
C2R; CTA Case 6o. %777; Man'ar* $; #"""G 7ee also
Re-ised
CTA R'les; a((ro-ed b* the 7'(reme Co'rt on
December
!%; #""%1.
ALTERNATlVE ANSWER:
2 .ill ad-ice the Ban< to (rom(tl* (a* the
deficienc*
doc'mentar* stam( ta) and the interest charges
to a-oid
an* f'rther increase in the ta) liabilit*. The
Ban< sho'ld
ha-e a((ealed to the Co'rt of Ta) A((eals
.hen the B2R
failed to decide on its ReH'est for
Reconsideration .ithin
thirt* 03"1 da*s after the inaction of the B2R
for one
h'ndred eight* 0!8"1 da*s or on December 3!;
#""3. The
Ta) Assessment has alread* become final;
e)ec'tor* and
'na((ealable at that (oint 0B42 -. C2R; ?.R. 6o.
!373&;
October !7; #""%1.
Taxpayer; VAT-registered; Claim for Tax
Refund (2006)
Ro*al 3ining is a 8AT>registered domestic
mining entit*. One of its (rod'cts is sil-er being sold to
the Bang<o 7entral ng 4ili(inas. 2t filed a claim .ith the
B2R for ta) ref'nd on the gro'nd that 'nder 7ection !"&
of the Ta) Code; sales of (recio's metals to the Bang<o
7entral ng 4ili(inas are considered e)(ort sales s'bCect to
=ero>rated 8AT. 2s Ro*al 3iningFs claim meritorio's,
E)(lain. 0%@1
SUGGESTED ANSWER:
6o; Ro*al 3iningFs claim is not meritorio's beca'se it is
the sale to the Bang<o 7entral ng 4ili(inas of gold and not
sil-er .hich is considered e)(ort sales at Lero>rated 8AT
(Tax $eform Act Title 62 ,ection %(.A&@Aa@A"@).
(6OTA BE6E: 42AT is excluded from the 3ar coverage #uidelines for
&((. 3ar 4xaminations )une %- &((.)
BlR: Fraudulent Return; Prima Facie Evidence (l998)
What constit'tes (rima facie e-idence of a false or fra'd'lent
ret'rn, J#@K
SUGGESTED ANSWER:
There is (rima facie e-idence of a false or fra'd'lent ret'rn
.hen the ta)(a*er has .illf'll* and <no.ingl* filed it .ith the
intent to e-ade a (art or all of the ta) legall* d'e from him
0:ngab -. C'si;; 7 7CRA 8771. There m'st a((ear a design to
mislead or decei-e on the (art of the ta)(a*er; or at least c'l(able
negligence. A mista<e not c'l(able in res(ect of its -al'e .o'ld
not constit'te a false ret'rn. (+ords and 9hrases 2ol. %. page
%'5).
BlR: Fraudulent Return; Prima Facie Evidence (2002)
What constit'tes prima facie e-idence of a false or
fra'd'lent ret'rn to C'stif* the im(osition of a %"@
s'rcharge on the deficienc* ta) d'e from a ta)(a*er,
E)(lain. 0%@1
SUGGESTED ANSWER:
There is a (rima facie e-idence of false or fra'd'lent
ret'rn .hen the ta)(a*er ,E3,TANT6A??G ENB4$-
B4!?A$4B his ta)able sales; recei(ts or income; or
,E3,TANT6A??G C24$,TAT4B his ded'ctions; the
ta)(a*erFs fail're to re(ort sales; recei(ts or income in an
amo'nt e)ceeding 3"@ of that declared (er ret'rn; and a
claim of ded'ction in an amo'nt e)ceeding 3"@ of act'al
ded'ction shall render the ta)(a*er liable for s'bstantial
'nderdeclaration and o-erdeclaration; res(ecti-el*; and
.ill C'stif* the im(osition of the %"@ s'rcharge on the
deficienc* ta) d'e from the ta)(a*er. (,ec. &"/ N6$!).
BlR: Garnishment: Bank Account of a Taxpayer (l998)
2s the B2R a'thori=ed to iss'e a .arrant of garnishment
against the ban< acco'nt of a ta)(a*er des(ite the
(endenc* of his (rotest against the assessment .ith the
B2R or a((eal .ith the Co'rt of Ta) A((eals, J%@K
SUGGESTED ANSWER:
The B2R is a'thori=ed to iss'e a .arrant of garnishment
against the ban< acco'nt of a ta)(a*er des(ite the
(endenc* of (rotest 0Dabes -. FloCo; !% 7CRA #781.
6o.here in the Ta) Code is the Commissioner reH'ired
to r'le first on the (rotest before he can instit'te
collection (roceedings on the ta) assessed. The legislati-e
(olic* is to gi-e the Commissioner m'ch latit'de in the
s(eed* and (rom(t collection of ta)es beca'se it is in
ta)ation that the ?o-ernment de(ends to obtain the
5l of 73
means to carr* on its o(erations 0Re('blic '. Tim Tian
Teng 7ons; 2nc.; !& 7CRA %8$1.
ALTERNATlVE ANSWER:
6o; beca'se the assessment has not *et become final;
e)ec'tor* and demandable. The basic consideration in
the
collection of ta)es is .hether the assessment is final and
'na((ealable or the decision of the Commissioner is
final;
e)ec'tor* and demandable; the B2R has legal basis
to
collect the ta) liabilit* b* either administrati-e or
C'dicial
action.
BlR: Pre-Assessment Notice not Necessary (2002)
2n the in-estigation of the .ithholding ta) ret'rns of
AL
3edina 7ec'rit* Agenc* 0AL 3edina1 for the
ta)able
*ears !7 and !8; a discre(anc* bet.een the
ta)es
.ithheld from its em(lo*ees and the amo'nts
act'all*
remitted to the go-ernment .as fo'nd. Accordingl*;
before the (eriod of (rescri(tion commenced to r'n;
the
B2R iss'ed an assessment and a demand letter calling
for
the immediate (a*ment of the deficienc*
.ithholding
ta)es in the total amo'nt of 4#%";"""."". Co'nsel for
AL
3edina (rotested the assessment for being n'll and -oid
on the gro'nd that no (re>assessment notice had been
iss'ed. 5o.e-er; the (rotest .as denied. Co'nsel then
filed a (etition for (rohibition .ith the Co'rt of Ta)
A((eals to restrain the collection of the ta).
A. 2s the contention of the co'nsel tenable, E)(lain
0#@1
SUGGESTED ANSWER:
A. 6o; the contention of the co'nsel is 'ntenable.
7ection ##8 of the Ta) Code e)(ressl* (ro-ides that no
(re>assessment notice is reH'ired .hen a discre(anc*
has
been determined bet.een the ta) .ithheld and the
amo'nt act'all* remitted b* the .ithholding agent.
7ince
the amo'nt assessed relates to deficienc*
.ithholding
ta)es; the B2R is correct in iss'ing the assessment
and
demand letter calling for the immediate (a*ment of the
deficienc* .ithholding ta)es. 07ec. ##8; 62RC1.
B. Will the s(ecial ci-il action for (rohibition bro'ght
before the CTA 'nder 7ec. !! of R.A; 6o. !!#%
(ros(er, Disc'ss *o'r ans.er. 03@1
SUGGESTED ANSWER:
B. The s(ecial ci-il action for (rohibition
.ill not
(ros(er; beca'se the CTA has no C'risdiction to
entertain
the same. The (o.er to iss'e .rit of inC'nction
(ro-ided
for 'nder 7ection !! of RA !!#% is onl*
ancillar* to its
a((ellate C'risdiction. The CTA is not -ested
.ith original
C'risdiction to iss'e .rits of (rohibition or
inC'nction
inde(endentl* of and a(art from an a((ealed
case. The
remed* is to a((eal the decision of the B2R.
0Collector -.
D'seco; 3 7CRA 3!3 J!&!K1.
BlR: Prescriptive Period: Civil Action (2002)
On A'g'st %; !7; Adamson Co.; 2nc.
0Adamson1 filed a
reH'est for reconsideration of the deficienc*
.ithholding
ta) assessment on M'l* !"; !7; co-ering the
ta)able *ear
!$. After administrati-e hearings; the
original
assessment of 4!%";"""."" .as red'ced to
47%."""."" and
a modified assessment .as thereafter iss'ed on
A'g'st "%;
!. Des(ite re(eated demands; Adamson
failed and
ref'sed to (a* the modified assessment.
ConseH'entl*; the B2R bro'ght an action for collection in the
Regional Trial Co'rt on 7e(tember !%; #""". Adamson
mo-ed to dismiss the action on the gro'nd that the go-ernmentFs
right to collect the ta) b* C'dicial action has (rescribed. Decide the
case. 0%@1
SUGGESTED ANSWER:
The right of the ?o-ernment to collect b* C'dicial action has not
(rescribed. The filing of the reH'est for reconsideration
s's(ended the r'nning of the (rescri(ti-e (eriod and commenced
to r'n again .hen a decision on the (rotest .as made on A'g'st %;
!. 2t m'st be noted that in all cases co-ered b* an assessment;
the (eriod to collect shall be fi-e 0%1 *ears from the date of
the assessment b't this (eriod is s's(ended b* the filing of a
reH'est for reconsideration .hich .as acted '(on b* the
Commissioner of 2nternal Re-en'e 0C2R -. W*eth 7'aco
Aaboratories; 2nc.; #"# 7CRA !#% J!!K1.
BlR: Prescriptive Period; Assessment & Collection (l999)
A Co.; a 4hili((ine Cor(oration; filed its !% 2ncome
Ta) Ret'rn 02TR1 on A(ril !%; !& sho.ing a net loss.
On 6o-ember !"; !&; it amended its !% 2TR to sho.
more losses. After a ta) in-estigation; the B2R disallo.ed
certain ded'ctions claimed b* A Co.; ('tting A Co. in a
net income (osition. As a res'lt; on A'g'st %; !; the
B2R iss'ed a deficienc* income assessment against A Co.
A Co. (rotested the assessment on the gro'nd that it has
(rescribed/ Decide. 0%@1
SUGGESTED ANSWER:
The right of the B2R to assess the ta) has not (rescribed.
The rule is that internal revenue taxes shall be assessed within
three
years after the last day prescribed by law for the filing of the
return.
0,ection &(5 N6$!1; 5o.e-er; if the ret'rn originall*
filed
is amended s'bstantiall*; the co'nting of the three>*ear
(eriod starts from the date the amended ret'rn .as filed.
0C2R -. 4hoeni) Ass'rance Co.; Atd.; !$ 7CRA %#1. There is
a s'bstantial amendment in this case beca'se a ne. ret'rn
.as filed declaring more losses; .hich can onl* be done
either 0!1 in red'cing gross income or 0#1 in increasing
the
items of ded'ctions; claimed.
BlR: Prescriptive Period; Criminal Action (2002)
TD Cor(oration filed its final adC'sted income ta) ret'rn
for !3 on A(ril !#; !$ sho.ing a net loss from
o(erations. After in-estigation; the B2R iss'ed a (re>
assessment notice on 3arch 3"; !&. A final notice and
demand letter dated A(ril !%; !7 .as iss'ed;
(ersonall*
deli-ered to and recei-ed b* the com(an*Fs chief
acco'ntant. For .illf'l ref'sal and fail're of TD
Cor(oration to (a* the ta); .arrants of distraint and le-*
on its (ro(erties .ere iss'ed and ser-ed '(on it. On
Man'ar* !"; #""#; a criminal charge for -iolation of the
Ta) Code .as instit'ted in the Regional Trial Co'rt .ith
the a((ro-al of the Commissioner.
The com(an* mo-ed to dismiss the criminal com(laint on
the gro'nd that an act for -iolation of an* (ro-ision of
the Ta) Code (rescribes after fi-e 0%1 *ears and; in this
case; the (eriod commenced to r'n on 3arch 3"; !&
.hen the (re>assessment .as iss'ed. 5o. .ill *o' resol-e
the motion, E)(lain *o'r ans.er. 0%@1
52 of 73
4#." 3illion as the selling (rice. Disc'ss the ta)
SUGGESTED ANSWER:
The motion to dismiss sho'ld not be granted. 2t is onl*
.hen the assessment has become final and 'na((ealable
that the %>*ear (eriod to file a criminal action
commences
to r'n 0T'(a= -. :lo(; 3!& 7CRA !!8 J!K1. The
(re>
assessment notice iss'ed on 3arch 3"; !& is not a
final
assessment .hich is enforceable b* the B2R. 2t is
the
iss'ance of the final notice and demand letter dated
A(ril
!%; !7 and the fail're of the ta)(a*er to (rotest .ithin
3" da*s from recei(t thereof that made the assessment
final and 'na((ealable. The earliest date that
the assessment has become final is 3a* !&; !7 and
since the criminal charge .as instit'ted on Man'ar* !";
#""#; the same .as timel* filed.
BlR: Secrecy of Bank Deposits Law (l998)
Can the Commissioner of 2nternal Re-en'e inH'ire into
the ban< de(osits of a ta)(a*er, 2f so; does this (o.er
of the Commissioner conflict .ith R.A. !$"%
07ecrec* of Ban< De(osits Aa.1 J%@K
SUGGESTED ANSWER:
The Commissioner of 2nternal Re-en'e is a'thori=ed to
inH'ire into the ban< de(osits of/
!1 a decedent to determine his gross estateG
#1 an* ta)(a*er .ho has filed an a((lication for
com(romise of his ta) liabilit* b* means of
financial
inca(acit* to (a* his ta) liabilit* 07ec. &0F1.
62RC1.
5) Where the ta)(a*er has signed a .ai-er a'thori=ing
the Commissioner or his d'l* a'thori=ed
re(resentati-es to 2nH'ire into the ban< de(osits.
(Note: This answer was not part of the answers
enumerated in the E9 ?aw Answers to the 3ar
in this but was later added in the recent E9 ?aw
Answers to the 3ar as a result of A8?A ?aw of
&((%)
The limited (o.er of the Commissioner does not
conflict .ith R.A. 6o. !$"% beca'se the (ro-isions of
the Ta) Code granting this (o.er is an e)ce(tion to the
7ecrec* of Ban< De(osits Aa. as embodied in a later
legislation.
F'rthermore; in case a ta)(a*er a((lies for an
a((lication to com(romise the (a*ment of his ta)
liabilities on his claim that his financial (osition
demonstrates a clear inabilit* to (a* the ta) assessed;
his a((lication shall not be considered 'nless and 'ntil
he .ai-es in .riting his (ri-ilege 'nder R.A. 6o.
!$"%; and s'ch .ai-er shall constit'te the a'thorit*
of the Commissioner to inH'ire into the ban< de(osits
of the ta)(a*er.
BlR; Consequence; Taxpayer guilty of Tax
Evasion (2005)
Mosel agreed to sell his condomini'm 'nit to
Mess for 4#.%
3illion. At the time of the sale; the (ro(ert*
had a =onal
-al'e of 4#." 3illion. :(on the ad-ice of a ta)
cons'ltant;
the (arties agreed to e)ec'te t.o deeds of
sale; one
indicating the =onal -al'e of 4#." 3illion as
the selling
(rice and the other sho.ing the tr'e selling
(rice of 4#.%
3illion. The ta) cons'ltant filed the ca(ital
gains ta)
ret'rn 'sing the deed of sale sho.ing the =onal
-al'e of
im(lications and conseH'ences of the action. 0%@1
ALTERNATlVE ANSWER:
The action of the (arties constit'tes ta) e-asion and e)(oses
Mosel to/
0!1 DEF2C2E6CD F26AA 26CO3E TA9 on the sale
of real (ro(ert* in the 4hili((ines classified as a
ca(ital asset. :nder 7ec. #$0D1 of the 62RC; the final ta) of
si) (ercent 0&@1 shall be based on the gross selling (rice of
4#.% 3illion or =onal -al'e of 4#." 3illion; .hiche-er is
higher; i.e.; 4#.% 3illionG
0#1 FRA:D 4E6AATD amo'nting to %"@ s'rcharge on
the amo'nt e-aded 07ec. #$8JBK 62RC1G and
031 DEF2C2E6CD 26TERE7T of #"@ (er ann'm on
the deficienc*. 07ec. #$JAKJBK; 62RC1
ALTERNATlVE ANSWER:
There is ta) e-asion beca'se of the conc'rrence of the follo.ing
factors/
!1 The (a*ment of less than that <no.n b* the ta)(a*er to be
legall* d'e; or the non>(a*ment of ta) .hen it is sho.n that a ta)
is d'e. 2t is e-ident that the (arties that the ta) d'e sho'ld be
com('ted based on the -al'ation of 4#.% million and not 4#."
millionG
#1 An accom(an*ing state of mind .hich is described
as being +e-il+ on +bad faith;+ +.illf'l;+ or +deliberate and
not accidental.+ Des(ite the abo-e <no.ledge; the (arties
deliberatel* misre(resented the tr'e basis of the saleG and
31 A co'rse of action or fail're of action .hich is
'nla.f'l. This is sho.n b* the (re(aration of the t.o
deeds of sale .hich sho.ed different -al'es.
0Commissioner of 2nternal Re-en'e -. The Estate
ofBenigno 4; Tbda; Mr.; ?.R. 6o. !$7!88; 7e(tember !$;
#""$1
The ta) e-asion committed sho'ld res'lt to the
im(osition of a %"@ fra'd s'rcharge on the amo'nt
e-aded (,ec. &"/A3@ N6$!) (a*ment of the Deficienc*
Ta); and interest of #"@ (er ann'm on the deficienc*.
(,ec. &"*AA@A3@ N6$!) The (arties ma* li<e.ise be
s'bCect to criminal (rosec'tion for .illf'll* failing to
(a*
the ta); as .ell as for filing a false and fra'd'lent ret'rn.
(,ees. &-" &-- and &-' N6$!)
BlR: Summary Remedy: Estate Tax Deficiencies (l998)
2s the B2R a'thori=ed to collect estate ta) deficiencies b*
the s'mmar* remed* of le-* '(on and sale of real
(ro(erties of the decedent .itho't first sec'ring the
a'thorit* of the co'rt sitting in (robate o-er the s'((osed
.ill of the decedent,
SUGGESTED ANSWER:
Des. The B2R is a'thori=ed to collect estate ta) deficienc*
thro'gh the s'mmar* remed* of le-*ing '(on and sale of
real (ro(erties of a decedent; .itho't the cognition and
a'thorit* of the co'rt sitting in (robate o-er the s'((osed
.ill of the deceased; beca'se the collection of estate ta) is
e)ec'ti-e in character. As s'ch the estate ta) is e)em(ted
from the a((lication of the stat'te of non>claims; and this
is C'stified b* the necessit* of go-ernment f'nding;
immortali=ed in the ma)im that ta)es are the lifeblood of
the go-ernment 03arcos -. C2R; ?.R. 6o. !#"88"; M'ne
%; !71.
ALTERNATlVE ANSWER:
53 of 73
Des; if the ta) assessment has alread* become
final; e)ec'tor* and enforceable. The a((ro-al of the
co'rt sitting in (robate o-er the s'((osed .ill of the
deceased is not a mandator* reH'irement for the
collection of the estate ta). The (robate co'rt is
determining iss'es .hich are not against the (ro(ert*
of the decedent; or a claim against the estate as s'ch;
b't is against the interest or (ro(ert* right .hich the
heir; legatee; de-isee; etc. has in the (ro(ert* formerl*
held b* the decedent. 03arcos -. C2R; ?.R; 6o. !#"88";
M'ne %; !71.
BlR: Unpaid Taxes vs. Claims for Unpaid Wages
(l995)
For fail're of Oceanic Com(an*; 2nc. 0OCEA62C1; to
(a* deficienc* ta)es of 4#" 3illion; the Commissioner
of
2nternal Re-en'e iss'ed .arrants of distraint on
OCEA62CFs (ersonal (ro(erties and le-ied on its real
(ro(erties. 3ean.hile; the De(artment of Aabor
thro'gh
the Aabor Arbiter rendered a decision ordering
OCEA62C to (a* 'n(aid .ages and other benefits to
its
em(lo*ees. Fo'r barges belonging to OCEA62C .ere
le-ied '(on b* the sheriff and later sold at ('blic
a'ction.
The Commissioner of 2nternal Re-en'e filed a motion
.ith the Aabor Arbiter to ann'l the sale and enCoin the
sheriff from dis(osing the (roceeds thereof. The
em(lo*ees of OCEA62C o((osed the motion contending
that Art. !!" of the Aabor Code gi-es first (reference to
claims for 'n(aid .ages.
Resol-e the motion. E)(lain.
SUGGESTED ANSWER:
The motion filed b* the Commissioner sho'ld be
granted
beca'se the claim of the go-ernment for 'n(aid ta)es
are
generall* (referred o-er the claims of laborers for
'n(aid
.ages. The (ro-ision of Article !!" of the Aabor
Code;
.hich gi-es laborersF claims for (reference a((lies onl*
in
case of ban<r'(tc* or liH'idation of the em(lo*erFs
b'siness. 2n the instant case; Oceanic is not 'nder
ban<r'(tc* or liH'idation at the time the .arrants of
distraint and le-* .ere iss'ed hence; the o((osition of
the
em(lo*ees is 'n.arranted. 0C2R -s. 6ARC et al ?.R. 6o.
7$&%; 6o-ember ; !$1.
BlR; Assessment; Criminal Complaint (2005)
2n !%; the B2R filed before the De(artment of M'stice
0DOM1 a criminal com(laint against a cor(oration and its
officers for alleged e-asion of ta)es. The com(laint
.as
s'((orted b* a s.orn statement of the B2R e)aminers
sho.ing the com('tation of the ta) liabilities of the
erring
ta)(a*er. The cor(oration filed a motion to
dismiss the
criminal com(laint on the gro'nd that there has
been; as
*et; no assessment of its ta) liabilit*G hence;
the criminal
com(laint .as (remat're. The DOM denied the
motion on
the gro'nd that an assessment of the ta)
deficienc* of the
cor(oration is not a (recondition to the
filing of a
criminal com(laint and that in an* e-ent;
the Coint
affida-it of the B2R e)aminers ma* be
considered as an
assessment of the ta) liabilit* of the
cor(oration. 2s the
r'ling of the DOM correct, E)(lain. 0%@1
SUGGESTED ANSWER:
The DOM is correct in r'ling that an assessment
of the ta)
deficienc* of the cor(oration is not a
(recondition to the
filing of a criminal com(laint. There is no
need for an
assessment so long as there is a (rima facie
sho.ing of -iolation of the (ro-isions of the Ta) Code. After all;
a criminal charge is instit'ted not to demand (a*ment; b't to
(enali=e the ta) (a*er for -iolation of the Ta) Code.
0Commissioner of 2nternal Re-en'e -. 4ascor Realt* and De-elo(ment
Cor(oration; ?.R. 6o. !#83!%; M'ne #; !1 F'rthermore; there is
nothing in the (roblem that sho.s that the B2R in filing the case
is also interested in collecting the ta) deficienc*.
5o.e-er; it is in error .hen it r'led that the Coint affida-it
of the B2R e)aminers ma* be considered as an assessment
of the ta) liabilit* of the cor(oration. The Coint affida-it
sho.ing the com('tation of the ta) liabilities of the erring
ta)(a*er is not a ta) assessment beca'se it .as not sent to
the ta)(a*er; and does not demand (a*ment of the ta)
.ithin a certain (eriod of time. An assessment is deemed
made onl* .hen the B2R releases; mails or sends s'ch
notice to the ta)(a*er. 0Commissioner of 2nternal Re-en'e
-. 4ascor Realt* and De-elo(ment Cor(oration; ?.R. 6o. !#83!%; M'ne
#; !1
6otes and Comments/ A plea is made for liberality in
correcting the examinees answers because the examination is
very
long.
BlR; Authority; Refund or Credit of Taxes (2005)
7tate the conditions reH'ired b* the Ta) Code before the
Commissioner of 2nternal Re-en'e co'ld a'thori=e the
ref'nd or credit of ta)es erroneo'sl* or illegall* recei-ed.
SUGGESTED ANSWER:
:nder 7ec. #"$0C1; 62RC; the follo.ing conditions m'st be met/
!. There m'st be a .ritten claim for ref'nd filed b* the
ta)(a*er .ith the Commissioner.
#. The claim for ref'nd m'st be a categorical demand
for reimb'rsement.
3. The claim for ref'nd m'st be filed .ithin t.o 0#1
*ears from date of (a*ment of the ta) or (enalt*
regardless of an* s'(er-ening ca'se.
BlR; Compromise (2004)
After the ta) assessment had become final and
'na((ealable; the Commissioner of 2nternal Re-en'e
initiated the filing of a ci-il action to collect the ta) d'e
from 69. After se-eral *ears; a decision .as rendered b*
the co'rt ordering 69 to (a* the ta) d'e (l's (enalties
and s'rcharges. The C'dgment became final and
e)ec'tor*; b't attem(ts to e)ec'te the C'dgment a.ard
.ere f'tile.
7'bseH'entl*; 69 offered the Commissioner a
com(romise settlement of %"@ of the C'dgment a.ard;
re(resenting that this amo'nt is all he co'ld reall* afford.
Does the Commissioner ha-e the (o.er to acce(t the
com(romise offer, 2s it legal and ethical, E)(lain
briefl*.
0%@1
SUGGESTED ANSWER:
Des. The Commissioner has the (o.er to acce(t the offer
of com(romise if the financial (osition of the ta)(a*er
clearl* demonstrates a clear inabilit* to (a* the ta)
07ection #"$; 62RC1.
As re(resented b* 69 in his offer; onl* %"@ of the
sirdondee@gmail.com
54 of 73
C'dgment a.ard is all he co'ld reall* afford. This is
an
offer for com(romise based on financial inca(acit*
.hich
the Commissioner shall not acce(t 'nless accom(anied
b*
a .ai-er of the secrec* of ban< de(osits 07ection
&JFT;
62RC1. The .ai-er .ill enable the Commissioner
to
ascertain the financial (osition of the ta)(a*er;
altho'gh
the inH'ir* need not be limited onl* to the ban<
de(osits
of the ta)(a*er b't also as to his financial (osition
as
reflected in his financial statements or other records
'(on
.hich his (ro(ert* holdings can be ascertained.
2f indeed; the financial (osition of 69 as determined b*
the Commissioner demonstrates a clear inabilit* to (a*
the ta); the acce(tance of the offer is legal and ethical
beca'se the gro'nd '(on .hich the com(romise .as
anchored is .ithin the conte)t of the la. and the rate of
com(romise is .ell .ithin and far e)ceeds the
minim'm (rescribed b* la. .hich is onl* !"@ of the
basic ta) assessed.
BlR; Compromise (2005)
7tate and disc'ss briefl* .hether the follo.ing cases
ma* be com(romised or ma* not be com(romised/
a1 DelinH'ent acco'ntsG
b1 Cases 'nder administrati-e (rotest; after iss'ance
of
the final assessment notice to the ta)(a*er; .hich
are
still (endingG
c1 Criminal ta) fra'd casesG
d1 Criminal -iolations alread* filed in co'rtG
e1 Cases .here final re(orts of rein-estigation or
reconsideration ha-e been iss'ed res'lting in the
red'ction of the original assessment agreed to b*
the
ta)(a*er .hen he signed the reH'ired agreement
form. 0%@1
SUGGESTED ANSWERS:
The follo.ing cases ma* still be com(romised ($.$.
5(-(& A&((&@) beca'se of the ta)(a*erFs financial
inca(acit* to (a* the ta) d'e or the assessmentFs
do'btf'l -alidit*/
a1 DEA26N:E6T ACCO:6T7 ma* be
com(romised beca'se there is no sho.ing that there is a
d'l*>a((ro-ed sched'le of installment (a*mentsG and
b1 Cases 'nder administrati-e (rotest; after iss'ance
of
the final assessment notice to the ta)(a*er; .hich are
still
(ending.
The follo.ing cases 8AG NC ?CN#4$ 34
!C89$O327ED ($.$. 5(-(& A&((&@) beca'se the
ta)(a*er has not (aid his ta)es for reasons
other than his
financial inca(acit* or the do'btf'l
-alidit* of the
assessment/
a1 CR2326AA TA9 FRA:D cases
as ma* be determined b* the Commissioner or
his a'thori=ed agents ma* not be com(romisedG
b1 CR2326AA 82OAAT2O67
AAREADD F2AED 26 CO:RT so that the
ta)(a*er .ill not (rofit from his fra'd .hich
.o'ld enco'rage ta) e-asionG and
c1 Cases .here final re(orts of
rein-estigation or
reconsideration ha-e been iss'ed res'lting
in the
red'ction of the original assessment agreed
to b* the
ta)(a*er .hen he signed the reH'ired
agreement form.
The ta)(a*er is esto((ed from a((l*ing
for a
com(romise.
BlR; Deficiency Tax Assessment vs. Tax Refund / Tax
Credit (2005)
2s a deficienc* ta) assessment a bar to a claim for ta) ref'nd or
ta) credit, E)(lain.
SUGGESTED ANSWER:
Des; the deficienc* ta) assessment is a bar to a ta) ref'nd
or credit. The Ta)(a*er cannot be entitled to a ref'nd and
at the same time liable for a ta) deficienc* assessment for
the same *ear. The deficienc* assessment creates a do'bt
as to the tr'th and acc'rac* of the Ta) Ret'rn. 7aid
Ret'rn cannot therefore be the basis of the ref'nd
0Commissioner of 2nternal Re-en'e -. Alltel J#""#K; citing
Commissioner of 2nternal Re-en'e -. Co'rt of A((eals; Cit* Tr'st
Ban<ing Cor(oration and Co'rt of Ta) A((eals; ?.R. 6o. !"&&!!; M'l*
#!; !$1
BlR; Distraint; Prescription of the Action (2002)
3r. 7ebastian is a Fili(ino seaman em(lo*ed b* a
6or.egian com(an* .hich is engaged e)cl'si-el* in
international shi((ing. 5e and his .ife; .ho manages
their b'siness; filed a Coint income ta) ret'rn for !7 on
3arch !%; !8. After an a'dit of the ret'rn; the B2R
iss'ed on A(ril #"; #""! a deficienc* income ta)
assessment for the s'm of 4#%".""".""; incl'si-e of
interest and (enalt*. For fail're of 3r. and 3rs. 7ebastian
to (a* the ta) .ithin the (eriod stated in the notice of
assessment; the B2R iss'ed on A'g'st !; #""! .arrants
of distraint and le-* to enforce collection of the ta).
A. What is the r'le of income ta)ation .ith res(ect to
3r. 7ebastianFs income in !7 as a seaman on
board the 6or.egian -essel engaged in
international shi((ing, E)(lain *o'r ans.er. 0#@1
SUGGESTED ANSWER:
A. The income of 3r. 7ebastian as a seaman is
considered
as income of a non>resident citi=en deri-ed from .itho't
the 4hili((ines. The total gross income; in :7 dollars 0or
if in other foreign c'rrenc*; its dollar eH'i-alent1 from
.itho't shall be declared b* him for income ta) ('r(oses
'sing a se(arate income ta) ret'rn .hich .ill not incl'de
his income from b'siness deri-ed .ithin 0to be co-ered
b* another ret'rn1. 5e is entitled to ded'ct from his dollar
gross income a (ersonal e)em(tion of U$;%"" and foreign
national income ta)es (aid to arri-e at his adC'sted income
d'ring the *ear. 5is adC'sted income .ill be s'bCect to the
grad'ated ta) rates of !@ to 3@. (,ec. &% (b) Tax !ode
of
%*/.A9B %%-/@ as amended by 9B %**").
J6ote/ The bar candidates are not e)(ected to be familiar .ith
ta) histor*. Considering that this is alread* the fo'rth *ear of
im(lementation of the Ta) Code of !7; bar candidates .ere
ta'ght and (re(ared to ans.er H'estions based on the (resent
la.. 2t is therefore reH'ested that the e)aminer be more lenient
in chec<ing the ans.ers to this H'estion. 4erha(s; an ans.er
based on the (resent la. be gi-en f'll credit.K
B. 2f *o' are the la.*er of 3r. and 3rs. 7ebastian;
.hat (ossible defense or defenses .ill *o' raise in
behalf of *o'r clients against the action of the B2R
in enforcing collection of the ta) b* the s'mmar*
remedies of .arrants of distraints and le-*,
E)(lain *o'r ans.er. 03@1
SUGGESTED ANSWER:
55 of 73
B. 2 .ill raise the defense of (rescri(tion. The right of
the
B2R to assess (rescribes after three *ears co'nted from
the last da* (rescribed b* la. for the filing of the
income
ta) ret'rns .hen the said ret'rn is filed on time.
07ection
#"3; 62RC1. The last da* for filing the !7 income
ta)
ret'rn is A(ril !%; !8. 7ince the assessment .as
iss'ed
onl* on A(ril #"; #""!; the B2RFs right to assess
has
alread* (rescribed.
BlR; False vs. Fraudulent Return (l996)
Disting'ish a false ret'rn from a fra'd'lent ret'rn.
SUGGESTED ANSWER:
The distinction bet.een a false ret'rn and a fra'd'lent
ret'rn is that the first merel* im(lies a de-iation from
the tr'th or fact .hether intentional or not; .hereas
the second is intentional and deceitf'l .ith the sole
aim of e-ading the correct ta) d'e 0A=nar 's.
Commissioner; A>#"%&; A'g'st #3; !7$1.
ALTERNATlVE ANSWER:
A false ret'rn contains de-iations from the tr'th .hich
ma* be d'e to mista<es; carelessness or ignorance of the
(erson (re(aring the ret'rn. A fra'd'lent ret'rn
contains
an intentional .rongdoing .ith the sole obCect of
a-oiding
the ta) and it ma* consist in the intentional
'nderdeclaration of income; intentional o-erdeclaration
of
ded'ctions or the rec'rrence of both. A false ret'rn is
not
necessaril* tainted .ith fra'd beca'se the
fra'd
contem(lated b* la. is act'al and not constr'cti-e.
An*
de-iation from the tr'th on the other hand; .hether
intentional or not; constit'tes falsit*. 0A=nar -s.
Commissioner; A>#"%&; A'g'st #3; !7$1
BlR; Jurisdiction; Review Rulings of the
Commissioner
(2006)
3r. Abraham E'genio; a (a.nsho( o(erator; after
ha-ing
been reH'ired b* the Re-en'e District Officer to (a*
-al'e added ta) ('rs'ant to a Re-en'e 3emorand'm
Order 0R3O1 of the Commissioner of 2nternal
Re-en'e;
filed .ith the Regional Trial Co'rt an action
H'estioning
the -alidit* of the R3O. 2f *o' .ere the C'dge; .ill
*o'
dismiss the case, 0%@1
SUGGESTED ANSWER:
Des. The R3O is in realit* a r'ling of the
Commissioner in im(lementing the (ro-isions
of the Ta) Code on the ta)abilit* of
(a.nsho(s. M'risdiction to re-ie. r'lings of the
Commissioner is lodged .ith the Co'rt of
Ta) A((eals and not .ith the Regional Trial
Co'rt 0C2R -. Mosefina Aeal; ?.R. 6o. !!3$%;
6o-ember !8; #""#G Ta) Reform Act; RA 8$#$;
Title 2; 7ec. $ J!7K1.
(6OTA BE6E/ This concept pertains to
the 2AT law which is excluded from the
bar coverage #uidelines for &((. 3ar
4xaminations )une %- &((.)
BlR; Prescriptive Period; Assessment;
Fraudulent Return
(2002)
3r. Castro inherited from his father; .ho died
on M'ne !";
!$; se-eral (ieces of real (ro(ert* in 3etro
3anila. The
estate ta) ret'rn .as filed and the estate ta)
d'e in the
amo'nt of 4#%"."""."" .as (aid on December
"&; !$.
The Ta) Fra'd Di-ision of the B2R in-estigated
the case
on the basis of confidential information
gi-en b* 3r.
7antos on Man'ar* "&; !8 that the ret'rn
filed b* 3r.
Castro .as fra'd'lent and that he failed to
declare all
(ro(erties left b* his father .ith intent to e-ade
(a*ment of the correct ta). As a res'lt; a deficienc* estate ta)
assessment for 4!;#%";""".""; incl'si-e of %"@ s'rcharge for
fra'd; interest and (enalt*; .as iss'ed against him on Man'ar*
!"; #""!. 3r. Castro (rotested the assessment on the gro'nd of
(rescri(tion.
A. Decide 3r. CastroFs (rotest. 0#@1
SUGGESTED ANSWER:
A. The (rotest sho'ld be resol-ed against 3r. Castro.
What .as filed is a fra'd'lent ret'rn ma<ing the
(rescri(ti-e (eriod for assessment ten 0!"1 *ears from
disco-er* of the fra'd 07ection ###; 62RC1. Accordingl*;
the assessment .as iss'ed .ithin that (rescri(ti-e (eriod
to ma<e an assessment based on a fra'd'lent ret'rn.
B. What legal reH'irementOs m'st 3r. 7antos com(l*
.ith so that he can claim his re.ard, E)(lain. 03@1
SUGGESTED ANSWER:
The legal reH'irements that m'st be com(lied b* 3r. 7antos to
entitle him to re.ard are as follo.s/
!1 5e sho'ld -ol'ntaril* file a confidential information
'nder oath .ith the Aa. Di-ision of the B'rea' of 2nternal
Re-en'e alleging therein the s(ecific -iolations
constit'ting fra'dG
#1 The information m'st not *et be in the (ossession of
the B'rea' of 2nternal Re-en'e; or refer to a case
alread* (ending or (re-io'sl* in-estigated b* the B'rea'
of 2nternal Re-en'eG
31 3r. 7antos sho'ld not be a go-ernment em(lo*ee or
a relati-e of a go-ernment em(lo*ee .ithin the si)th
degree of consang'init*G and
$1 The information m'st res'lt to collections of
re-en'es andOor fines and (enalties. 07ec. #8#;
62RC1
BlR; Prescriptive Period; Criminal Action (2006)
?err* .as being (rosec'ted b* the B2R for fail're to (a*
his income ta) liabilit* for Calendar Dear ! des(ite
se-eral demands b* the B2R in #""#. The 2nformation .as
filed .ith the RTC onl* last M'ne #""&. ?err* filed a
motion to H'ash the 2nformation on the gro'nd of
(rescri(tion; the 2nformation ha-ing been filed be*ond
the %>*ear reglementar* (eriod. 2f *o' .ere the C'dge;
.ill *o' dismiss the 2nformation, Wh*, 0%@1
SUGGESTED ANSWER:
6o. The trial co'rt can e)ercise C'risdiction. 4rescri(tion
of a criminal action begins to r'n from the da* of the
-iolation of the la.. The crime .as committed .hen
?err* .illf'll* ref'sed to (a* des(ite re(eated demands in
#""#. 7ince the information .as filed in M'ne #""&; the
criminal case .as instit'ted .ithin the fi-e>*ear (eriod
reH'ired b* la. 0T'(a= -. :le(; ?.R. 6o. !#7777; October !;
!G 7ection #8!; 62RC1.
BlR; Taxpayer: Civil Action & Criminal Action (2002)
3inolta 4hili((ines; 2nc. 03inolta1 is an E4LA>registered
enter(rise enCo*ing (referential ta) treatment 'nder a
s(ecial la.. After in-estigation of its .ithholding ta)
ret'rns for the ta)able *ear !7; the B2R iss'ed a
deficienc* .ithholding ta) assessment in the amo'nt of
4!%"."""."". On 3a* !%; !; beca'se of financial
diffic'lt*; the deficienc* ta) remained 'n(aid; as a res'lt
of .hich the assessment became final and e)ec'tor*. The
56 of 73
B2R also fo'nd that; in -iolation of the (ro-isions of the
6ational 2nternal Re-en'e Code; 3inolta did not file its
final cor(orate income ta) ret'rn for the ta)able *ear
!8; beca'se it allegedl* inc'rred net loss from
its o(erations. On 3a* !7; #""#; the B2R filed .ith
the Regional Trial Co'rt an action for collection of
the deficienc* .ithholding ta) for !7.
A. Will the B2RFs action for collection (ros(er, As
co'nsel of 3inolta; .hat action .ill *o'
ta<e, E)(lain *o'r ans.er. 0%@1
SUGGESTED ANSWER:
A. Des; B2RFs action for collection .ill (ros(er
beca'se the assessment is alread* final and
e)ec'tor*; it can alread* be enforced thro'gh C'dicial
action.
As co'nsel of 3inolta; 2 .ill introd'ce e-idence that the
income (a*ment .as re(orted b* the (a*ee and the
income ta) .as (aid thereon in !7 so that m*
client ma* onl* be allo.ed to (a* the ci-il (enalties
for non>
.ithholding ('rs'ant to R3O 6o. 38>83.
J6ote/ 6t is not clear whether this is a case
of non-
withholding; underwithholding or non-
remittance of tax withheld. As such the tax
counsel may be open to other remedies against
the assessment.K
B. 3a* criminal -iolations of the Ta) Code be
com(romised, 2f 3inolta ma<es a -ol'ntar*
offer
to com(romise the criminal -iolations for non>
filing and non>(a*ment of ta)es for the *ear
!8;
ma* the Commissioner acce(t the offer, E)(lain
0%@1
SUGGESTED ANSWER:
B. All criminal -iolations of the Ta) Code ma* be
com(romised e)ce(t those alread* filed in co'rt or
those
in-ol-ing fra'd 07ection #"$; 62RC1. Accordingl*; if
3inolta ma<es a -ol'ntar* offer to com(romise the
criminal -iolations for non>filing and non>(a*ment of
ta)es for the *ear !8; the Commissioner ma* acce(t
the
offer .hich is allo.ed b* la.. 5o.e-er; if it can
be
established that a ta) has not been (aid as a
conseH'ence
of non>filing of the ret'rn; the ci-il liabilit* for ta)es
ma*
be dealt .ith inde(endentl* of the criminal -iolations.
The
com(romise settlement of the criminal -iolations .ill
not
relie-e the ta)(a*er from its ci-il liabilit*. B't the
ci-il
liabilit* for ta)es ma* also be com(romised if the
financial
(osition of the ta)(a*er demonstrates a clear inabilit*
to
(a* the ta).
Custom: Violation of Tax & Custom Duties
(2002)
The Collector of C'stoms of the 4ort of
Ceb' iss'ed
.arrants of sei='re and detention against the
im(ortation
of machineries and eH'i(ment b* AAD
2m(ort and
E)(ort Co. 0AAD1 for alleged non(a*ment of
ta) and
c'stoms d'ties in -iolation of c'stoms la.s.
AAD .as
notified of the sei='re; b't; before it co'ld be
heard; the
Collector of C'stoms iss'ed a notice of
sale of the
articles. 2n order to restrain the Collector from
carr*ing
o't the order to sell; AAD filed .ith the
Co'rt of Ta)
A((eals a (etition for re-ie. .ith
a((lication for the
iss'ance of a .rit of (rohibition. 2t also filed
.ith the
CTA an a((eal for ref'nd of o-er(aid ta)es on
its other
im(ortations of ra. materials .hich has been
(ending
.ith the Collector of C'stoms. The B'rea' of C'stoms mo-ed to
dismiss the case for lac< of C'risdiction of the Co'rt of Ta)
A((eals.
A. Does the Co'rt of Ta) A((eals ha-e C'risdiction o-er
the (etition for re-ie. and .rit of (rohibition,
E)(lain 03@1
SUGGESTED ANSWER:
A. 6o; beca'se there is no decision as *et b* the
Commissioner of C'stoms .hich can be a((ealed to the
CTA. 6either the remed* of (rohibition .o'ld lie
beca'se the CTA has not acH'ired an* a((ellate
C'risdiction o-er the sei='re case. The .rit of (rohibition
being merel* ancillar* to the a((ellate C'risdiction; the
CTA has no C'risdiction o-er it 'ntil it has acH'ired
C'risdiction on the (etition for re-ie.. 7ince there is no
a((ealable decision; the CTA has no C'risdiction o-er the
(etition for re-ie. and .rit of (rohibition.
0Commissioner of C'stoms -. Ali<(ala; 3& 7CRA #"8
J!7"K1.
B. Will an a((eal to the CTA for ta) ref'nd be (ossible,
E)(lain 0#@1
SUGGESTED ANSWER:
B. 6o; beca'se the Commissioner of C'stoms has not
*et rendered a decision on the claim for ref'nd. The
C'risdiction of the Commissioner and the CTA are not
conc'rrent in so far as claims for ref'nd are concerned.
The onl* e)ce(tion is .hen the Collector has not acted on
the (rotested (a*ment for a long time; the contin'ed
inaction of the Collector or Commissioner sho'ld not be
allo.ed to (reC'dice the ta)(a*er. 06estle 4hils.; 2nc. -.
Co'rt of A((eals; ?R 6o. !3$!!$; M'l* &; #""!1.
Customs; Basis; Automatic Review (2002)
Whene-er the decision of the Collector of C'stoms is
ad-erse to the go-ernment; it is a'tomaticall* ele-ated to
the Commissioner for re-ie. and; if it is affirmed b* him;
it is a'tomaticall* ele-ated to the 7ecretar* of Finance for
re-ie.. What is the basis of the a'tomatic re-ie.
(roced're in the B'rea' of C'stoms, E)(lain *o'r
ans.er. 0%@1
SUGGESTED ANSWER:
A'tomatic re-ie. is intended to (rotect the interest of the
?o-ernment in the collection of ta)es and c'stoms d'ties
in sei='re and (rotest cases. Witho't s'ch a'tomatic
re-ie.; neither the Commissioner of C'stoms nor the
7ecretar* of Finance .o'ld <no. abo't the decision laid
do.n b* the Collector fa-oring the ta)(a*er. The (o.er
to decide sei='re and (rotest cases ma* be ab'sed if no
chec<s are instit'ted. A'tomatic re-ie. is necessar*
beca'se nobod* is e)(ected to a((eal the decision of the
Collector .hich is fa-orable to the ta)(a*er and ad-erse
to the ?o-ernment. This is the reason .h* .hene-er the
decision of the Collector is ad-erse to the ?o-ernment;
the said decision is a'tomaticall* ele-ated to the
Commissioner for re-ie.G and if s'ch decision is affirmed
b* the Commissioner; the same shall be a'tomaticall*
ele-ated to and be finall* re-ie.ed b* the 7ecretar* of
Finance 0Dao<asin -. Commissioner of C'stoms; !8"
7CRA %! J!8K1.
57 of 73
Delinquent Tax Return (l998)
When is a re-en'e ta) considered delinH'ent, J3@1
SUGGESTED ANSWER:
A re-en'e ta) is considered delinH'ent .hen it is
'n(aid after the la(se of the last da* (rescribed b*
la. for its (a*ment. Ai<e.ise; it co'ld also be
considered as delinH'ent .here an assessment for
deficienc* ta) has become final and the ta)(a*er has
not (aid it .ithin the (eriod gi-en in the notice of
assessment.
Jurisdiction: Customs vs. CTA (2000)
a1 On the basis of a .arrant of sei='re and detention
iss'ed b* the Collector of C'stoms for the ('r(ose
of
enforcing the Tariff and C'stoms Aa.s; assorted
brands of cigarettes said to ha-e been illegall*
im(orted
into the 4hili((ines .ere sei=ed from a store .here
the* .ere o(enl* offered for sale. Dissatisfied .ith
the
decision rendered after hearing b* the Collector of
C'stoms on the confiscation of the articles; the
im(orter filed a (etition for re-ie. .ith the Co'rt of
Ta) A((eals. The Collector mo-ed to dismiss the
(etition for lac< of M'risdiction. R'le on the motion.
0#@1
SUGGESTED ANSWER:
3otion granted. The Co'rt of Ta) A((eals has
C'risdiction onl* o-er decisions of the Commissioner of
C'stoms in cases in-ol-ing sei='res; detention or
release of (ro(ert* affected. 07ec. 7; R.A. 6o. !!#%1.
There is no decision *et of the Commissioner .hich
is s'bCect to re-ie. b* the Co'rt of Ta) A((eals.
ALTERNATlVE ANSWER:
3otion granted. The Co'rt of Ta) A((eals has no
C'risdiction beca'se there is no decision rendered b*
the
Commissioner of C'stoms on the sei='re and forfeit're
case. The ta)(a*er sho'ld ha-e a((ealed the decision
rendered b* the Collector .ithin fifteen 0!%1 da*s
from
recei(t of the decision to the Commissioner of
C'stoms.
The CommissionerRs ad-erse decision .o'ld then be the
s'bCect of an a((eal to the Co'rt of Ta) A((eals.
b1 :nder the same facts; co'ld the im(orter file an
action
in the Regional Trial Co'rt for re(le-in on the
gro'nd
that the articles are being .rongf'll* detained b*
the
Collector of C'stoms since the im(ortation .as not
illegal and therefore e)em(t from sei='re,
E)(lain.
03@1
SUGGESTED ANSWER:
6o. The legislators intended to di-est the
Regional Trial
Co'rts of the C'risdiction to re(le-in a (ro(ert*
.hich is a
s'bCect of sei='re and forfeit're (roceedings
for -iolation
of the Tariff and C'stoms Code other.ise;
actions for
forfeit're of (ro(ert* for -iolation of the
C'stoms la.s
co'ld easil* be 'ndermined b* the sim(le
de-ice of
re(le-in. 0De la F'ente -. De 8e*ra; et. al; !#"
7CRA
$%%1
There sho'ld be no 'nnecessar* hindrance
on the
go-ernmentFs dri-e to (re-ent sm'ggling and
other fra'ds
'(on the C'stoms. F'rthermore; the Regional
Trial Co'rt
do not ha-e M'risdiction in order to render
effecti-e and
efficient the collection of 2m(ort and e)(ort
d'ties d'e
the 7tate; .hich enables the go-ernment to
carr* o't the
f'nctions 2t has been 2nstit'ted to (erform. 0Mao;
et al; Co'rt of A((eals; et al; and com(anion case; #$ 7CRA 3%;
$31
LGU: Collection of Taxes, Fees & Charges (l997)
?i-e the remedies a-ailable to local go-ernment 'nits to enforce
the collection of ta)es; fees; and charges,
SUGGESTED ANSWER:
The remedies a-ailable to the local go-ernment 'nits to enforce
collection of ta)es; fees; and charges are/
!1 AD32627TRAT28E RE3ED2E7 of distraint of
(ersonal (ro(ert* of .hate-er <ind .hether tangible or
intangible; and le-* of real (ro(ert* and interest thereinG and
#1 M:D2C2AA RE3EDD b* instit'tion of an ordinar*
ci-il action for collection .ith the reg'lar co'rts of
(ro(er C'risdiction.
Tax Amnesty vs. Tax Exemption (200l)
Disting'ish a ta) amnest* from a ta) e)em(tion. 03@1
SUGGESTED ANSWER:
Ta) amnest* is an imm'nit* from all criminal; ci-il and
administrati-e liabilities arising from non(a*ment of ta)es. 2t is a
general (ardon gi-en to all ta)(a*ers. 2t a((lies onl* to (ast ta)
(eriods; hence of retroacti-e a((lication. 04eo(le -. Costonedo;
?.R. 6o. A>$&88!; !881.
Ta) e)em(tion is an imm'nit* from the ci-il liabilit* onl*.
2t is an imm'nit* or (ri-ilege; a freedom from a charge or
b'rden to .hich others are s'bCected. 0Florer -.
7heridan; !37 2nd. #8; 3& 3E 3&%1. 2t is generall*
(ros(ecti-e in a((lication.
Taxpayer: Administrative & Judicial Remedies (2000)
Describe se(aratel* the (roced'res on the legal remedies
'nder the Ta) Code a-ailable to an aggrie-ed ta)(a*er
both at the administrati-e and C'dicial le-els. 0%@1
SUGGESTED ANSWER:
The legal remedies of an aggrie-ed ta)(a*er 'nder the Ta)
Code; both at the administrati-e and C'dicial le-els; ma*
be classified into those for assessment; collection and
ref'nd.
The (roced'res for the AD32627TRAT28E
RE3ED2E7 for A77E773E6T are as follo.s/
a. After recei(t of the 4re>Assessment 6otice; he m'st
.ithin fifteen 0!%1 da*s from recei(t e)(lain .h* no
additional ta)es sho'ld be assessed against him.
b. 2f the Commissioner of 2nternal Re-en'e iss'es an
assessment notice; the ta)(a*er m'st
administrati-el*
(rotest or dis('te the assessment b* filing a motion
for reconsideration or rein-estigation .ithin thirt*
03"1 da*s from recei(t of the notice of assessment.
0$th (ar.. 7ec. ##8; 62RC of !71
c. Within si)t* 0&"1 da*s from filing of the (rotest; the
ta)(a*er shall s'bmit all rele-ant s'((orting
doc'ments.
The M:D2C2AA RE3ED2E7 of an aggrie-ed ta)(a*er
relati-e to an A77E773E6T 6OT2CE are as follo.s/
58 of 73
a. Where the Commissioner of 2nternal Re-en'e has
not acted on the ta)(a*erFs (rotest .ithin a (eriod
of one h'ndred eight* 0!8"1 da*s from s'bmission
of all rele-ant doc'ments; then the ta)(a*er has a
(eriod of thirt* 03"1 da*s from the la(se of said !8"
da*s .ithin .hich to inter(ose a (etition for
re-ie. .ith the Co'rt of Ta) A((eals.
b. 7ho'ld the Commissioner den* the ta)(a*erFs
(rotest;
then he has a (eriod of thirt* 03"1 da*s from recei(t
of said denial .ithin .hich to inter(ose a (etition
for re-ie. .ith the Co'rt of Ta) A((eals.
2n both cases the ta)(a*er m'st a((l* .ith the Co'rt of
Ta) A((eals for the 2ss'ance of an 2nC'ncti-e .rit to
enCoin the B'rea' of 2nternal Re-en'e from collecting
the dis('ted ta) d'ring the (endenc* of the (roceedings.
6OTE/ A #""$ Amendment > The decision of the
di-ision of CTA is in t'rn a((eallable .ithin fifteen
0!%1 da*s to the CTA en banc. The decision of the
CTA en banc is directl* a((eallable to the 7'(reme
Co'rt on H'estion of la. on certiorari.
The em(lo*ment b* the B'rea' of 2nternal Re-en'e of
an* of the Administrati-e Remedies for the collection
of the ta) li<e distraint; le-*; etc. ma* be
administrati-el* a((ealed b* the ta)(a*er to the
Commissioner .hose decision is a((ealable to the
Co'rt of Ta) A((eals 'nder other matter arising 'nder
the (ro-isions of the 6ational 2nternal Re-en'e Code.
The C'dicial a((eals starts .ith the Co'rt of Ta)
A((eals; and contin'es in the same manner as sho.n
abo-e.
7ho'ld the B'rea' of 2nternal Re-en'e decide to 'tili=e
its
M'dicial ta) remedies for collecting the ta)es b* means
of
an ordinar* s'it filed .ith the reg'lar co'rts for the
collection of a s'm of mone*; the ta)(a*er co'ld
o((ose
the same going '( the ladder of C'dicial (rocesses from
the 3'nici(al Trial Co'rt 0as the case ma* be1 to the
Regional Trial Co'rt; to the Co'rt of A((eals; thence to
the 7'(reme Co'rt.
The remedies of an aggrie-ed ta)(a*er on a claim
for
ref'nd is to a((eal the ad-erse decision of the
Commissioner to the CTA in the same manner o'tlined
abo-e.
Taxpayer: Assessment: Protest: Claims for refund
(2000)
On M'ne !&; !7; the B'rea' of 2nternal Re-en'e
0B2R1
iss'ed against the Estate of Mose de la Cr'= a notice of
deficienc* estate ta) assessment; incl'si-e of
s'rcharge;
interest and com(romise (enalt*. The
E)ec'tor of the
Estate of Mose de la Cr'= 0E)ec'tor1 filed a
timel* (rotest
against the assessment and reH'ested for
.ai-er of the
s'rcharge; interest and (enalt*. The (rotest .as
denied b*
the Commissioner of 2nternal Re-en'e
0Commissioner1
.ith finalit* on 7e(tember !3; !7.
ConseH'entl*; the
E)ec'tor .as made to (a* the deficienc*
assessment on
October !"; !7. The follo.ing da*; the
E)ec'tor filed a
4etition .ith the Co'rt of Ta) A((eals 0CTA1
(ra*ing for
the ref'nd of the s'rcharge; interest and
com(romise (enalt*. The CTA too< cogni=ance of the case and
ordered the Commissioner to ma<e a ref'nd. The Commissioner
filed a 4etition for Re-ie. .ith the Co'rt of A((eals assailing the
C'risdiction of the CTA and the Order to ma<e ref'nd to the
Estate on the gro'nd that no claim for ref'nd .as filed .ith the
B2R.
A. 2s the stand of the Commissioner correct, Reason.
0#@1
SUGGESTED ANSWER:
Des. There .as no claim for ref'nd or credit that has been d'l*
filed .ith the Commissioner of 2nternal Re-en'e .hich is
reH'ired before a s'it or (roceeding can be filed in an* co'rt 07ec.
##. 62RC of !71. The denial of the claim b* the Commissioner
is the one .hich .ill -est the Co'rt of Ta) A((eals C'risdiction
o-er the ref'nd case sho'ld the ta)(a*er decide to a((eal on time.
B. Wh* is the filing of an administrati-e claim .ith the
B2R necessar*, 03@1
SUGGESTED ANSWER:
The filing of an administrati-e claim for ref'nd .ith the B2R is
necessar* in order/
!1 To afford the Commissioner an o((ort'nit* to
consider the claim and to ha-e a chance to correct the errors
of s'bordinate officers 0?on=ales -. CTA; et al; !$ 7CRA
71G and
#1 To notif* the ?o-ernment that s'ch ta)es ha-e
been H'estioned and the notice sho'ld be borne in mind in
estimating the re-en'e a-ailable for e)(endit'res.
0BermeCo -. Collector; ?.R. 6o. A>
3"#8. M'l* #; !%"1
Taxpayer: Assessment; lnjunction (2004)
RR dis('ted a deficienc* ta) assessment and '(on recei(t
of an ad-erse decision b* the Commissioner of 2nternal
Re-en'e; filed an a((eal .ith the Co'rt of Ta) A((eals.
While the a((eal is (ending; the B2R ser-ed a .arrant of
le-* on the real (ro(erties of RR to enforce the collection
of the dis('ted ta). ?ranting arguendo that the B2R can
legall* le-* on the (ro(erties; .hat co'ld RR do to sto(
the (rocess, E)(lain briefl*. 0%@1
SUGGESTED ANSWER:
RR sho'ld file a motion for inC'nction .ith the Co'rt of
Ta) A((eals to sto( the administrati-e collection (rocess.
An a((eal to the CTA shall not s's(end the enforcement
of the ta) liabilit*; 'nless a motion to that effect shall ha-e
been (resented in co'rt and granted b* it on the basis that
s'ch collection .ill Ceo(ardi=e the interest of the ta)(a*er
or the ?o-ernment 04iro-ano -. C2R; !$ 7CRA 83#
J!&%K1.
The CTA is em(o.ered to s's(end the collection of
internal re-en'e ta)es and c'stoms d'ties in cases (ending
a((eal onl* .hen/ 0!1 in the o(inion of the co'rt the
collection b* the B2R .ill Ceo(ardi=e the interest of the
?o-ernment andOor the ta)(a*erG and 0#1 the ta)(a*er is
.illing to de(osit the amo'nt being collected or to file a
s'ret* bond for not more than do'ble the amo'nt of the
ta) to be fi)ed b* the co'rt (,ection %% )$.A. No. %%&-).
Taxpayer: BlR Audit or lnvestigation (l999)
A Co.; a 4hili((ine cor(oration; is a big man'fact'rer of
cons'mer goods and has se-eral s'((liers of ra.
materi>
als. The B2R s's(ects that some of the s'((liers are not
(ro(erl* re(orting their income on their sales to A Co.
The C2R therefore/
!1 2ss'ed an access letter to A Co. to f'rnish the B2R
information on sales and (a*ments to its s'((liers.
#1 2ss'ed an access letter to a ban< 0C9 Ban<1 to
f'rnish the B2R on de(osits of some s'((liers of
A Co. on the alleged gro'nd that the s'((liers
are committing ta) e-asion.
A Co.; 9 Ban< and the s'((liers ha-e not been iss'ed
b* the B2R letter of a'thorit* to e)amine. A Co. and 9
Ban< belie-e that the B2R is on a +fishing e)(edition+
and come to *o' for co'nsel. What is *o'r ad-ice,
0!"@1
SUGGESTED ANSWER:
2 .ill ad-ise A Co. and B Co. that the B2R is C'stified
onl*
in getting information from the former b't not from the
latter. The B2R is a'thori=ed to obtain information from
other (ersons other than those .hose internal re-en'e
ta)
liabilit* is s'bCect to a'dit or in-estigation. 5o.e-er;
this
(o.er shall not be constr'ed as granting the
Commissioner the a'thorit* to inH'ire into ban<
de(osits.
(,ection -. N6$!).
Taxpayer: City Board of Assessment Decision;
Where to appeal (l999)
A Co.; a 4hili((ine cor(oration; is the o.ner of machin>
er*; eH'i(ment and fi)t'res located at its (lant in
3'ntinl'(a Cit*. The Cit* Assessor characteri=ed all
these
(ro(erties as real (ro(erties s'bCect to the real (ro(ert*
ta). A Co. a((ealed the matter to the 3'ntinl'(a Board
of Assessment A((eals. The Board r'led in fa-or of the
Cit*. 2n accordance .ith RA !!#% 0An Act creating
the
Co'rt of Ta) A((eals1. A Co. bro'ght a (etition for
re-ie. before the CTA to a((eal the decision of the
Cit*
Board of Assessment A((eals. 2s the 4etition for
Re-ie.
(ro(er, E)(lain. 0%@1
SUGGESTED ANSWER:
6o. The CTARs de-oid of C'risdiction to entertain
a((eals
from the decision of the Cit* Board of Assessment
A((eals. 7aid decision is instead a((ealable to the
Central
Board of Assessment A((eals; .hich 'nder the Aocal
?o-ernment Code; has a((ellate C'risdiction o-er deci>
sions of Aocal Board of Assessment A((eals. 0Calte)
4hils; foe. -. Central Board of Assessment
A((eals; A>
%"$&&; 3a* 3!; !8#1.
Taxpayer: Claim for Refund; Procedure (2002)
A. What m'st a ta)(a*er do in order to claim a
ref'nd of;
or ta) credit for; ta)es and (enalties .hich he
alleges to
ha-e been erroneo'sl*; illegall* or
e)cessi-el* assessed or collected, 03@1
SUGGESTED ANSWER:
The ta)(a*er m'st com(l* .ith the follo.ing
(roced'res in claiming a ref'nd of; or ta)
credit for; ta)es and (enalties .hich he
alleges to ha-e been erroneo'sl*; illegall* or
e)cessi-el* assessed or collected/
#. 5e sho'ld file a .ritten claim for ref'nd .ith
the
Commissioner .ithin t.o *ears after
the date of (a*ment of the ta) or (enalt*
07ec. #"$; 62RC1G
sirdondee@gmail.com 59 of 73
3. The claim filed m'st state a categorical
demand for reimb'rsement 0BermeCo -. Collector; 87 4hil. &
J!%"K1.
$. The s'it or (roceeding for reco-er* m'st be
commenced in co'rt .ithin t.o *ears from date of
(a*ment of the ta) or (enalt* regardless of an*
s'(er-ening e-ent that .ill arise after (a*ment 07ec.
##; 62RC1.
ANote: 6f the answer given is only number % it is suggested that the
same shall be given full credit considering that this is the only
re7uirement for the !ommissioner to ac7uire 1urisdiction over the
claim.@
B. Can the Commissioner grant a ref'nd or ta) credit
e-en .itho't a .ritten claim for it, 0#@1
SUGGESTED ANSWER:
B. Des. When the ta)(a*er files a ret'rn .hich on its face
sho.s an o-er(a*ment of the ta) and the o(tion to
ref'ndO claim a ta) credit .as chosen b* the ta)(a*er; the
Commissioner shall grant the ref'nd or ta) credit .itho't
the need for a .ritten claim. This is so; beca'se a ret'rn
filed sho.ing an o-er(a*ment shall be considered as a
.ritten claim for credit or ref'nd. 0,ees. '. and &("
N6$!1. 3oreo-er; the la. (ro-ides that the
Commissioner ma*; e-en .itho't a .ritten claim therefor;
ref'nd or credit an* ta) .here on the face of the ret'rn
'(on .hich (a*ment .as made; s'ch (a*ment a((ears
clearl* to ha-e been erroneo'sl* (aid. 0,ec. &&* N6$!1.
Taxpayer: Deficiency lncome Tax (l995)
B'sinessman 7te(hen Dang filed an income ta) ret'rn for
!3 sho.ing b'siness net income of 43%";"""."" on
.hich he (aid an income ta) of 4&!;"""."". After filing
the ret'rn he reali=ed that he forgot to incl'de an item of
b'siness income in !3 for 4%"."""."". Being an honest
ta)(a*er; he incl'ded this income in his ret'rn for !$
and (aid the corres(onding income ta) thereon. 2n the
e)amination of his !3 ret'rn the B2R e)aminer fo'nd
that 7te(hen Dang failed to re(ort this item of 4%".""".""
and assessed him a deficienc* income ta) on this item;
(l's a %"@ fra'd s'rcharge.
!1 2s the e)aminer correct, E)(lain.
#1 2f *o' .ere the la.*er of 7te(hen Dang; .hat .o'ld
*o' ha-e ad-ised *o'r client before he incl'ded in
his !$ ret'rn the amo'nt of 4%"."""."" as !3
income to a-oid the fra'd s'rcharge, E)(lain.
31 Considering that 7te(hen Dang had alread* been
assessed a deficienc* income ta) for !3 for his
fail're to re(ort the 4%"."""."" income; .hat .o'ld
*o' ad-ise him to do to a-oid the (enalties for ta)
delinH'enc*, E)(lain.
$1 What .o'ld *o' ad-ise 7te(hen Dang to do .ith
regard to the income ta) he (aid for the 4%".""".""
in his !$ ret'rn, 2n case *o'r remed* fails; .hat is
*o'r other reco'rse, E)(lain.
SUGGESTED ANSWERS:
!1 The e)aminer is correct in assessing a deficienc*
income ta) for ta)able *ear !3 b't not in im(osing the
%"@ fra'd s'rcharge. The amo'nt of all items of gross
income m'st be incl'ded in gross income d'ring the *ear
in .hich recei-ed or reali=ed 07ec. 38; 62RC1. The %"@
60 of 73
fra'd s'rcharge attaches onl* if a false or
fra'd'lent
ret'rn is .illf'll* made b* 3r. Dang 07ec.#$8; 62RC1.
The
fact that 3r. Dang incl'ded the income in his !$
ret'rn
belies an* claim of .illf'lness b't is rather indicati-e of
an
honest mista<e .hich .as so'ght to be rectified b* a
s'bseH'ent act; that is the filing of the !$ ret'rn.
#1 3r. Dang sho'ld ha-e amended his !3 2ncome
ta) ret'rn to allo. for the incl'sion of the 4%"."""
income d'ring the ta)able (eriod it .as reali=ed.
31 3r. Dang sho'ld file a (rotest H'estioning the %"@
s'rcharge and as< for the abatement thereof.
ALTERNATlVE ANSWER:
3r. Dang sho'ld (a* the deficienc* income ta) on or
before the da* (rescribed for its (a*ment (er notice of
demand. After (a*ment and .ithin t.o *ears thereafter;
he sho'ld file a claim for ref'nd of ta)es erroneo'sl*
(aid to reco-er the e)cessi-e s'rcharge im(osed.
$1 3r. Dang sho'ld file a .ritten claim for ref'nd
.ith the Commissioner of 2nternal Re-en'e of the ta)es
(aid on the 4%".""" income incl'ded in !$ .ithin
t.o *ears from (a*ment ('rs'ant to 7ection #"$031
of the Ta) Code. 7ho'ld this remed* fail in the
administrati-e le-el; a C'dicial claim for ref'nd can
be instit'ted before the e)(iration of the t.o *ear
(eriod.
Taxpayer: Exhaustion of Administrative Remedies
(l997)
0a1 A ta)(a*er recei-ed; on !% Man'ar* !& an as>
sessment for an internal re-en'e ta) deficienc*. On
!" Febr'ar* !&; the ta)(a*er forth.ith filed a
(etition for re-ie. .ith the Co'rt of Ta) A((eals.
Co'ld the Ta) Co'rt entertain the (etition,
0b1 :nder the abo-e fact'al setting; the ta)(a*er;
instead
of H'estioning the assessment he recei-ed on !%
Man'ar* !& (aid; on "! 3arch !& the
+deficienc*
ta)+ assessed. The ta)(a*er reH'ested a ref'nd
from
the Commissioner b* s'bmitting a .ritten claim on
"! 3arch !7. 2t .as denied. The ta)(a*er; on
!%
3arch !7; filed a (etition for re-ie. .ith
the
Co'rt of A((eals. Co'ld the (etition still be
entertained,
SUGGESTED ANSWER:
0a1 6o. Before ta)(a*er can a-ail of M'dicial remed*
he
m'st first e)ha'st administrati-e remedies b* filing
a
(rotest .ithin 3" da*s from recei(t of the assessment. 2t
is
the CommissionerFs decision on the (rotest that
gi-e the
Ta) Co'rt C'risdiction o-er the case (ro-ided
that the
a((eal is filed .ithin 3" da*s from recei(t
of the
CommissionerFs decision. An assessment b*
the B2R is
not the CommissionerFs decision from .hich a
(etition
for re-ie. ma* be filed .ith the Co'rt of Ta)
A((eals.
Rather; it is the action ta<en b* the
Commissioner in
res(onse to the ta)(a*erFs (rotest on the
assessment that
.o'ld constit'te the a((ealable decision
07ection 7; RA
!!#%1.
0b1 6o; the (etition for re-ie. can not be
entertained b*
the Co'rt of A((eals; since decisions
of the
Commissioner on cases in-ol-ing claim for ta) ref'nds are .ithin
the e)cl'si-e and (rimar* C'risdiction of the Co'rt of Ta) A((eals
07ection 7.RA!!#%1.
Taxpayer: Failure to Withheld & Remit Tax (2000)
A domestic cor(oration failed to .ithhold and remit the
ta) on income recei-ed from 4hili((ine so'rces b* a non>
resident foreign cor(oration. 2n addition to the ci-il
(enalties (ro-ided for 'nder the Ta) Code; a com(romise
(enalt* .as im(osed for -iolation of the .ithholding ta)
(ro-isions. 3a* the Commissioner of 2nternal Re-en'e
legall* enforce the collection of com(romise (enalt*,
0%@1
SUGGESTED ANSWER:
6o. There is no sho.ing that the com(romise (enalt* .as im(osed
b* the Commissioner of 2nternal Re-en'e .ith the agreement and
conformit* of the ta)(a*er. 0Wonder 3echanical Engineering
Cor(oration '. Co'rt of Ta) A((eals; et. al.; &$ 7CRA %%%1.
Taxpayer: NlRC vs. TCC Remedies (l996)
Com(are the ta)(a*erFs remedies 'nder the 6ational
2nternal Re-en'e Code and the Tariff and C'stoms Code.
SUGGESTED ANSWER:
The ta)(a*erFs remedies 'nder the 6AT2O6AA
26TER6AA RE8E6:E CODE ma* be categori=ed
into remedies before (a*ment and remedies after
(a*ment. The remed* BEFORE 4AD3E6T consists of
0a1 Administrati-e Remed* .hich is the filing of
(rotest .ithin 3" da*s from recei(t of assessment;
and
0b1 M'dicial Remed* .hich is the a((eal of the ad-erse
decision of the Commissioner on the (rotest .ith the
Co'rt of Ta) A((eals; and finall* .ith the 7'(reme
Co'rt.
The remed* AFTER 4AD3E6T is a-ailed of
0c1 b* (a*ing the assessed ta) .ithin 3" da*s from
recei(t of assessment and
0d1 the filing of a claim for ref'nd or ta) credit of these
ta)es on gro'nds that the* are erroneo'sl* (aid
.ithin t.o *ears from date of (a*ment.
0e1 6f there is a denial of the claim; a((eal to the CTA
shall
be made .ithin 3" da*s from denial b't .ithin t.o
*ears from date of (a*ment.
8 2f the Commissioner fails to act on the claim for
ref'nd or ta) credit and the t.o>*ear (eriod is
abo't to e)(ire; the ta)(a*er sho'ld consider the
contin'o's inaction of the Commissioner as a
denial and ele-ate the case to the CTA before
the e)(iration of the t.o>*ear (eriod.
:nder the Tariff and C'stoms Code; ta)(a*erFs reme>
dies arise onl* after (a*ment of d'ties.
$1 The administrati-e remedies consist of filing a claim
for ref'nd .hich ma* ta<e the form of abatement or
dra.bac<.
%1 The ta)(a*er can also file a (rotest .ithin !% da*s
from (a*ment if he disagrees .ith the r'ling or
decision of the Collector of C'stoms regarding the
legalit* or correctness of the assessment of c'stoms
d'ties.
6l of 73
&1 2f the decision of the Collector is ad-erse to the
ta)(a*er; he can notif* the Collector .ithin !%
da*s
from recei(t of said decision of his desire to ha-e
his case re-ie.ed b* the Commissioner.
8 The decision of the Collector on the ta)(a*erFs
(rotest; if ad-erse to the ?o-ernment; is
a'tomaticall* ele-ated to the Commissioner
for
re-ie.G and if s'ch decision is affirmed b*
the
Commissioner; the same shall be
a'tomaticall*
ele-ated to and finall* re-ie.ed b* the
7ecretar*
of Finance.
8 Resort to C'dicial relief can be had b* the
ta)(a*er b* a((ealing the decision of
the
Commissioner or of the 7ecretar* of Finance
0for cases s'bCect to a'tomatic re-ie.1 .ithin
3" da*s from the (rom'lgation of the
ad-erse decision to the CTA.
Taxpayer: Overwitholding Claim for Refund (l999)
A Co. is the .holl* o.ned s'bsidiar* of B Co.; a
non>
resident ?erman com(an*. A Co. has a trademar<
licensing agreement .ith B Co. On Feb. !"; !%; A
Co.
remitted to B Co. ro*alties of 4 !";""";"""; .hich A
Co.
s'bCected to a .ithholding ta) of #%@ or 4#;%"";""".
:(on ad-ice of co'nsel; A Co. reali=ed that the (ro(er
.ithholding ta) rate is !"@. On 3arch #"; !&; A
Co.
filed a claim for ref'nd of 4#.%"".""" .ith the B2R. The
B2R denied the claim on 6o-. !%; !&. On 6o-. #8;
!&; A Co. filed a (etition for re-ie. .ith the CTA.
The
B2R attac<ed the ca(acit* of A Co.; as agent; to bring
the
ref'nd case. Decide the iss'e. 0%@1
SUGGESTED ANSWER:
A Co.; the .ithholding agent of the non>resident foreign
cor(oration is entitled to claim the ref'nd of e)cess
.ithholding ta) (aid on the income of said cor(oration
in
the 4hili((ines. Being a .ithholding agent; it is the one
held liable for an* -iolation of the .ithholding ta)
la.
sho'ld s'ch a -iolation occ'r. 2n the same -ein; it
sho'ld
be allo.ed to claim a ref'nd in case of
o-er.itholding.
0C2R -. Wander 4hils. 2nc.; ?R 6o. &8378; A(ril
!%; !88;
!&" 7CRA %73G C2R -. 4rocter Q ?amble 43C;
#O$ 7CRA
3771.
Taxpayer: Prescriptive Period: Suspended
(2000)
3r. Re*es; a Fili(ino citi=en engaged in the
real estate
b'siness; filed his !$ income ta) ret'rn on
3arch #";
!%. On December !%; !%; he left the
4hili((ines as an
immigrant to Coin his famil* in Canada.
After the
in-estigation of said ret'rnOthe B2R iss'ed a
notice of
deficienc* income ta) assessment on A(ril !%;
!8. 3r.
Re*es ret'rned to the 4hili((ines as a
bali<ba*an on
December 8; !8. Finding his name to be in
the list of
delinH'ent ta)(a*ers; he filed a (rotest
against the
assessment on the gro'nd that he did not
recei-e the
notice of assessment and that the
assessment had
(rescribed. Will the (rotest (ros(er, E)(lain.
0%@1
SUGGESTED ANSWER:
6o. 4rescri(tion has not set in beca'se the
(eriod of
limitations for the B'rea' of 2nternal Re-en'e
to iss'e an
assessment .as 7:74E6DED d'ring the time
that 3r.
Re*es .as o't of the 4hili((ines or from
the (eriod
December !%; !% '( to December 8; !8.
(,ec. &&5 in relation to ,ec. &(5 both of the N6$! of %**')
Taxpayer: Prescriptive Period; Claim for Refund (l997)
A cor(oration files its income ta) ret'rn on a calendar
*ear basis. For the first H'arter of !3; it (aid on 3" 3a*
!3 its H'arterl* income ta) in the amo'nt of 43."
million. On #" A'g'st !3; it (aid the second H'arterl*
income ta) of 4".% million. The third H'arter res'lted in a
net loss; and no ta) .as (aid. For the fo'rth and final
ret'rn for !3; the com(an* re(orted a net loss for the
*ear; and the ta)(a*er indicated in the income ta) ret'rn
that it o(ted to claim a ref'nd of the H'arterl* income ta)
(a*ments. On !" Man'ar* !$; the cor(oration filed .ith
the B'rea' of 2nternal Re-en'e a .ritten claim for the
ref'nd of 43.% million.
B2R failed to act on the claim for ref'ndG hence; on "#
3arch !&; the cor(oration filed a (etition for re-ie.
.ith the Co'rt of Ta) A((eals on its claim for ref'nd of
the o-er(a*ment of its !3 H'arterl* income ta). B2R; in
its ans.er to the (etition; alleged that the claim for ref'nd
.as filed be*ond the reglementar* (eriod. Did the claim
for ref'nd (rescribe,
SUGGESTED ANSWER:
The claim for ref'nd has (rescribed. The co'nting of the
t.o>*ear (rescri(ti-e (eriod for filing a claim for
ref'nd is co'nted not from the date .hen the H'arterl*
income ta)es .ere (aid b't on the date .hen the final
adC'stment ret'rn or ann'al income ta) ret'rn .as filed
0C2R -. T39 7ales 2nc.; ?.R. 6o. 8373&; Man'ar* !%; !#G
C2R -. 4hiOAm Aife 2ns'rance Co.; 2nc.; ?.R. 6o. !"%#"8;
3a* #; !%1. 2t is ob-io's that the ann'al income ta)
ret'rn .as filed before Man'ar* !"; !$ beca'se the
.ritten claim for ref'nd .as filed .ith the B2R on Man'ar*
!"; !$. 7ince the t.o>*ear (rescri(ti-e (eriod is not
onl* a limitation of action in the administrati-e stage b't
also a limitation of action for bringing the case to the
C'dicial stage; the (etition for re-ie. filed .ith the CTA
on 3arch "#; !& is be*ond the reglementar* (eriod.
Taxpayer: Prescriptive Period; Claims for Refund (l994)
9CEA Cor(oration filed its H'arterl* income ta) ret'rn
for the first H'arter of !8% and (aid an income ta) of
4%""."""."" on 3a* !%; !8%. 2n the s'bseH'ent H'arters;
9CEA s'ffered losses so that on A(ril !%; !8& it declared
a net loss of 4!;""";"""."" in its ann'al income ta) ret'rn.
After failing to get a ref'nd; 9CEA filed on 3arch !; !88
a case .ith the Co'rt of Ta) A((eals to reco-er the
4%""."""."" in ta)es (aid on 3a* !%; !8%.
2s the action to reco-er the ta)es filed timel*,
SUGGESTED ANSWER:
The action for ref'nd .as filed in the Co'rt of Ta)
A((eals on time. 2n the case of Commissioner -. T39
7ales; 2nc.; #"% 7CRA !8$; .hich is similar to this case; the
7'(reme Co'rt r'led that in the case of o-er(aid H'arterl*
cor(orate income ta); the t.o>*ear (eriod for filing claims
for ref'nd in the B2R as .ell as in the instit'tion of an
action for ref'nd in the CTA; the t.o>*ear (rescri(ti-e
(eriod for ta) ref'nds 07ec. #3"; Ta) Code1 is co'nted
from the filing of the final; adC'stment ret'rn 'nder 7ec.
&7 of the Ta) Code; and not from the filing of the
62 of 73
H'arterl* ret'rn and (a*ment of the H'arterl* ta). The
CTA action on 3arch !; !88 .as clearl* .ithin
the
reglementar* t.o>*ear (eriod from the filing of the final
adC'stment ret'rn of the cor(oration on A(ril !%; !8&.
Taxpayer: Prescriptive Period; Claims for Refund
(2004)
On 3arch !#; #""!; RE6 (aid his ta)es. Ten months
later; he reali=ed that he had o-er(aid and so he
immediatel* filed a claim for ref'nd .ith the
Commissioner of 2nternal Re-en'e.
On Febr'ar* #7; #""3; he recei-ed the decision of the
Commissioner den*ing RE6Fs claim for ref'nd. On
3arch #$; #""3; RE6 filed an a((eal .ith the Co'rt of
Ta) A((eals. Was his a((eal filed on time or not,
Reason.
0%@1
SUGGESTED ANSWER:
The a((eal .as not filed on time. The t.o>*ear (eriod
of
limitation for filing a claim for ref'nd is not onl*
a
limitation for ('rs'ing the claim at the administrati-e
le-el
b't also a limitation for a((ealing the case to the Co'rt
of
Ta) A((eals. The la. (ro-ides that +no s'it or
(roceeding
shall be filed after the e)(iration of t.o *ears from the
date of the (a*ment of the ta) or (enalt* regardless of
an*
s'(er-ening ca'se that ma* arise after (a*ment
07ection
##; M8LRCM. 7ince the a((eal .as onl* made on
3arch
#$; #""3; more than t.o *ears had alread* ela(sed
from
the time the ta)es .ere (aid on 3arch !#; #""3.
Accordingl*; RE6 had lost his C'dicial remed* beca'se
of
(rescri(tion.
Taxpayer: Protest against Assessment (l998)
CFB Cor(oration; a domestic cor(oration engaged in
food (rocessing and other allied acti-ities; recei-ed a
letter from the B2R assessing it for delinH'enc* income
ta)es. CFB filed a letter of (rotest. One month after; a
.arrant of distraint and le-* .as ser-ed on CFB
Cor(oration. 2f *o' .ere the la.*er engaged b* CFB
Cor(oration to contest the assessment made b* the
B2R; .hat ste(s .ill *o' ta<e to (rotect *o'r client,
0%@1
SUGGESTED ANSWER:
2 shall immediatel* file a motion for reconsideration of
the
iss'ance of the .arrant of distraint and le-* and see<
from
the B2R Commissioner a denial of the (rotest +in clear
and 'neH'i-ocal lang'age.+ This is so beca'se
the iss'ance
of a .arrant of distraint and le-* is not
considered as a
denial b* the B2R of the (rotest filed b* CFB
Cor(oration
0C2R -. :nion 7hi((ing Cor(.; !8% 7CRA %$71.
Within thirt* 03"1 da*s from recei(t of s'ch
denial +in clear and 'neH'i-ocal lang'age;+ 2
shall then file a (etition for re-ie. .ith the
Co'rt of Ta) A((eals.
AATER6AT28E A67WER/
Within thirt* 03"1 da*s from recei(t of the
.arrant of distraint and le-*; 2 shall file a
(etition for re-ie. .ith the Co'rt of Ta)
A((eals .ith an a((lication for iss'ance of a
.rit of (reliminar* inC'nction to enCoin the
B'rea' of 2nternal Re-en'e from enforcing the
.arrant.
This is the action 2 shall ta<e beca'se 2 shall
consider the
iss'ance of the .arrant as a final
decision of the
Commissioner of 2nternal Re-en'e .hich
co'ld be the
s'bCect of a((eal to the Co'rt of Ta) A((eals
0Dobes '. FloCo; !% 7CRA #781. The CTA ma*; ho.e-er; remand
the case to the B2R and reH'ire the Commissioner to s(ecificall*
r'le on the (rotest. The decision of the Commissioner; if
ad-erse to m* client; .o'ld then constit'te an a((ealable
decision.
A Co.; a 4hili((ine cor(oration; recei-ed an income ta)
deficienc* assessment from the B2R on 3a* %; !%. On
3a* 3!; !%; A Co. filed its (rotest .ith the B2R. On
M'l* 3"; !%; A Co. s'bmitted to the B2R all rele-ant
s'((orting doc'ments. The C2R did not formall* r'le on
the (rotest b't on Man'ar* #%; !&; A Co. .as ser-ed a
s'mmons and a co(* of the com(laint for collection of
the ta) deficienc* filed b* the B2R .ith the Regional Trial
Co'rt 0RTC1. On Febr'ar* #"; !&; A Co. bro'ght a
4etition for Re-ie. before the CTA. The B2R contended
that the 4etition is (remat're since there .as no formal
denial of the (rotest of A Co. and sho'ld therefore be
dismissed.
!. 5as the CTA C'risdiction o-er the case,
SUGGESTED ANSWER;
Des; the CTA has C'risdiction o-er the case beca'se this
H'alifies as an a((eal from the CommissionerFs decision
on dis('ted assessment. When the Commissioner decided
to collect the ta) assessed .itho't first deciding on the
ta)(a*erFs (rotest; the effect of the CommissionerRs action
of filing a C'dicial action for collection is a decision of
denial of the (rotest; in .hich e-ent the ta)(a*er ma* file
an a((eal .ith the CTA. 0Re('blic -. Aim Tian Teng Q
7ons; 2nc.; !& 7CRA %8$G Da*rit -. Cr'=; A>3!";
7e(t. #&; !881.
#. 5as the RTC C'risdiction o-er the collection case
filed b* the B2R, E)(lain.
SUGGESTED ANSWER;
The RTC has no C'risdiction o-er the collection case filed
b* the B2R. The filing of an a((eal .ith the CTA has the
effect of di-esting the RTC of C'risdiction o-er the
collection case. At the moment the ta)(a*er a((eals the
case to the Co'rt of Ta) A((eals in -ie. of the
CommissionerFs filing of the collection case .ith the RTC
.hich .as considered as a decision of denial; it gi-es a
C'stifiable basis for the ta)(a*er to mo-e for dismissal in
the RTC of the ?o-ernmentFs action to collect the ta)
liabilit* 'nder dis('te. 0Dabes -. FloCo; !% 7CRA #78G 7an
M'an -. 8asH'e=; 3 7CRA #1. There is no final; e)ec'tor*
and demandable assessment .hich can be enforced b* the
B2R; once a timel* a((eal is filed.
A Co.; a 4hili((ine cor(oration; recei-ed an income ta)
deficienc* assessment from the B2R on 6o-ember #%;
!&. On December !"; !&; A Co. filed its (rotest .ith
the B2R On 3a* #"; !7; the B2R iss'ed a .arrant of
distraint to enforce the assessment. This .arrant .as
ser-ed on A Co. on 3a* #%; !7. 2n a letter dated M'ne $;
!7 and recei-ed b* A Co. % da*s later; the C2R
formall*
denied A Co.Fs (rotest stating that it constit'tes his final
decision on the matter. On M'l* &; !7; A Co. filed a
4etition for Re-ie. .ith the CTA. The B2R mo-ed to
dismiss the 4etition on the gro'nd that the CTA has no
C'risdiction o-er the case. Decide. 0!"@1
sirdondee@gmail.com
Taxpayer; Claim for Tax Credits (2006)
63 of 73
SUGGESTED ANSWER:
The CTA has C'risdiction o-er the case. The
a((ealable
decision is the one .hich categoricall* stated that
the
CommissionerFs action on the dis('ted assessment is
final
and; therefore; the rec<oning of the 3">da* (eriod to
a((eal .as on M'ne ; !. The filing of the (etition
for
re-ie. .ith the CTA .as timel* made. The
7'(reme
Co'rt has r'led that the C2R m'st categoricall* state
that
his action on a dis('ted assessment is finalG other.ise;
the
(eriod to a((eal .ill not commence to r'n. That final
action cannot be im(lied from the mere iss'ance of a
.arrant +of distraint and le-*. 0C2R -. :nion 7hi((ing
Cor(oration; !8% 7CRA %$71.
Taxpayer: Protest; Claim of Refund (l996)
2s (rotest at the time of (a*ment of ta)es and d'ties a
reH'irement to (reser-e the ta)(a*ersF right to claim a
ref'nd, E)(lain.
SUGGESTED ANSWER:
For TA9E7 im(osed 'nder the 62RC; (rotest at the
time of (a*ment is not reH'ired to (reser-e the
ta)(a*ersF
right to claim ref'nd. This is clear 'nder ,ection &5( of
the
N6$! .hich (ro-ides that a s'it or (roceeding ma*be
maintained for the reco-er* of national internal re-en'e
ta) or (enalt* alleged to ha-e been erroneo'sl*
assessed
or collected; .hether s'ch ta) or (enalt* has been (aid
'nder (rotest or not.
For D:T2E7 im(osed 'nder the Tariff and C'stoms
Code; a (rotest at the time of (a*ment is reH'ired to
(reser-e the ta)(a*ersF claim for ref'nd. The (roced're
'nder the TCC is to the effect that .hen a r'ling or
decision of the Collector of C'stoms is made .hereb*
liabilit* for d'ties is determined; the (art*
ad-ersel*
affected ma* (rotest s'ch r'ling or decision b*
(resenting
to the Collector; at the time .hen (a*ment is made; or
.ithin !% da*s thereafter; a .ritten (rotest setting forth
his obCections to the r'ling or decision in H'estion
07ec.
#3"8. TCC1.
Taxpayer; Appeal to the Court of Tax Appeals (2005)
A ta)(a*er recei-ed a ta) deficienc*
assessment of 4!.# 3illion from the B2R
demanding (a*ment .ithin !" da*s; other.ise;
it .o'ld collect thro'gh s'mmar* remedies.
The ta)(a*er reH'ested for a reconsideration
stating the gro'nds therefor. 2nstead of
resol-ing the reH'est for reconsideration; the
B2R sent a Final 6otice before 7ei='re to
the ta)(a*er.
3a* this action of the Commissioner of
2nternal Re-en'e be deemed a denial of the
reH'est for reconsideration of the ta)(a*er to
entitle him to a((eal to the Co'rt of Ta)
A((eals, Decide .ith reasons. 0%@1
SUGGESTED ANSWER:
Des; the final notice before sei='re .as in
effect a denial
of the ta)(a*erFs reH'est for reconsideration;
not onl* .as
the notice the onl* res(onse recei-ed; its
nat're; content
and tenor s'((orts the theor* that it .as the
B2RFs final
act regarding the reH'est for reconsideration.
0C2R -.
2sabela C'lt'ral Cor(oration; ?.R. 6o. !3%#!";
M'l* !!;
#""!1
Congress enacts a la. granting grade school and high
school st'dents a !"@ disco'nt on all school>(rescribed
te)tboo<s ('rchased from an* boo<store. The la. allo.s
boo<stores to claim in f'll the disco'nt as a ta) credit.
!. 2f in a ta)able *ear a boo<store has no ta) d'e on
.hich to a((l* the ta) credits; can the boo<store claim
from the B2R a ta) ref'nd in lie' of ta) credit, E)(lain.
0#.%@1
SUGGESTED ANSWER:
6o; the boo<store cannot claim from the B2R a ta)
ref'nd in lie' of ta) credit. There is nothing in the la.
that grants a ref'nd .hen the boo<store has no ta) liabil>
it* against .hich the ta) credit can be 'sed 0C2R -. Central
A'=on Dr'g; ?.R. 6o !%&$7; A(ril !%; #""%1. A ta) credit is
in the nat're of a ta) e)em(tion and in case of do'bt; the
do'bt sho'ld be resol-ed in strictissimi 1uris against the
claimant.
#. Can the B2R reH'ire the boo<stores to ded'ct the
amo'nt of the disco'nt from their gross income, E)(lain.
0#.%@1
SUGGESTED ANSWER:
6o. Ta) credit .hich red'ces the ta) liabilit* is different
from a ta) ded'ction .hich merel* red'ces the ta) base.
7ince the la. allo.ed the boo<stores to claim in f'll the
disco'nt as a ta) credit; the B2R is not allo.ed to e)(and
or contract the legislati-e mandate 0C2R -. Bicolandia
Dr'g Cor(.; ?.R. 6o. !$8"83; M'l* #!; #""&G C2R -. Central
A'=on Dr'g Cor(.; ?.R. 6o. !%&$7; A(ril !%; #""%1.
3. 2f a boo<store closes its b'siness d'e to losses .ith>
o't being able to reco'( the disco'nt; can it claim
reimb'rsement of the disco'nt from the go-ernment on
the gro'nd that .itho't s'ch reimb'rsement; the la.
constit'tes ta<ing of (ri-ate (ro(ert* for ('blic 'se
.itho't C'st com(ensation, E)(lain. 0%@1
SUGGESTED ANSWER:
A boo<store; closing its b'siness d'e to losses; cannot
claim reimb'rsement of the disco'nt from the
go-ernment. 2f the b'siness contin'es to o(erate at a loss
and no other ta)es are d'e; th's com(elling it to close
sho(; the credit can ne-er be a((lied and .ill be lost
altogether 0C2R -. Central A'=on Dr'g; ?.R. 6o. !%&$7;
A(ril !%; #""%1. The grant of the disco'nt to the ta)(a*er is
a mere (ri-ilege and can be re-o<ed an*time.
Taxpayer; Compromise after Criminal Action (l998)
An information .as filed in co'rt for .illf'l non>(a*ment
of income ta) the assessment of .hich has become final.
The acc'sed; thro'gh co'nsel; (resented a motion that he
be allo.ed to com(romise his ta) liabilit* s'bCect of the
information. The (rosec'tor indicated his conformit* to
the motion. 2s this (roced're correct, J%@K
SUGGESTED ANSWER:
6o. Criminal -iolations; if alread* filed in co'rt; ma* not
be com(romised (,ec. &("A3@ N6$!). F'rthermore; the
(a*ment of the ta) d'e after a((rehension shall not
constit'te a -alid defense in an* (rosec'tion for -iolation
of an* (ro-isions of the Ta) Code (,ec. &"'(a) N6$!).
Finall*; there is no sho.ing that the (rosec'tor in the
(roblem is a legal officer of the B'rea' of 2nternal
Re-en'e to .hom the cond'ct of criminal actions are
lodged b* the Ta) Code.
ALTERNATlVE ANSWER:
6o. 2f the com(romise referred to is the ci-il as(ect; the
(roced're follo.ed is not correct. Com(romise for the
sirdondee@gmail.com
LOCAL & REAL PROPERTY
TAXES
Local Taxation: Actual Use of Property
(2002)
64 of 73
(a*ment of an* internal re-en'e ta) shall be made onl*
b*
the Commissioner of 2nternal Re-en'e or in a (ro(er
case
the E-al'ation Board of the B2R 07ec. #"$; 62RC1.
A((l*ing the la. to the case at bar; com(romise
settlement can onl* be effected b* lea-e of Co'rt.
Taxpayer; Protest against Assessment;
Donor's Tax
(l995)
3r. Rodrigo; an 8">*ear old retired b'sinessman; fell
in
lo-e .ith #">*ear old Tetchie 7onora; a night cl'b
hos(italit* girl. Altho'gh she ref'sed to marr* him she
agreed to be his +li-e>in+ (artner. 2n gratit'de; 3r.
Rodrigo transferred to her a condomini'm 'nit; .here
the* both li-e; 'nder a deed of sale for 4!" 3illion.
3r.
Rodrigo (aid the ca(ital gains ta) of %@ of 4!" 3illion.
The Commissioner of 2nternal Re-en'e fo'nd that the
(ro(ert* .as transferred to Tetchie 7onora b* 3r.
Rodrigo beca'se of the com(anionshi( she .as
(ro-iding
him. Accordingl*; the Commissioner made a
determination that 7onora had com(ensation income of
4!" 3illion in the *ear the condomini'm 'nit .as
transferred to her and iss'ed a deficienc* income ta)
assessment.
Tetchie 7onora (rotests the assessment and claims that
the transfer of the condomini'm 'nit .as a gift and
therefore e)cl'ded from income. 5o. .ill *o' r'le on
the (rotest of Tetchie 7onora, E)(lain.
SUGGESTED ANSWER:
2 .ill grant the (rotest and cancel the assessment. The
transfer of the (ro(ert* b* 3r. Rodrigo to 3s. 7onora
.as grat'ito's. The deed of sale indicating a 4!"
million
consideration .as sim'lated beca'se 3r. Rodrigo did
not
recei-e an*thing from the sale. The (roblem
categoricall*
states that the transfer .as made in gratit'de to 3s.
7onoraFs com(anionshi(. The transfer being grat'ito's
is
s'bCect to donorFs ta). 3r. Rodrigo sho'ld be assessed
deficienc* donorFs ta) and a %"@ s'rcharge
im(osed for
fra'd'lentl* sim'lating a contract of sale to
e-ade donorFs
ta). (,ec. *%(b) N6$!).
Taxpayer; Withholding Agent; Claim of Tax
Refund (2005)
Does a .ithholding agent ha-e the right to
file an a((lication for ta) ref'nd, E)(lain.
SUGGESTED ANSWER:
Des. A ta)(a*er is +an* (erson s'bCect to ta).+
7ince; the
.ithholding ta) agent .ho is +reH'ired to
ded'ct and
.ithheld an* ta)+ is made +(ersonall* liable
for s'ch ta)+
sho'ld the amo'nt of the ta) .ithheld be
finall* fo'nd to
be less than that reH'ired to be .ithheld b* la.;
then he is
a ta)(a*er. Th's; he has s'fficient legal interest
to file an
a((lication for ref'nd; of the amo'nt he
belie-es .as
illegall* collected from him. 0Commissioner of
2nternal
Re-en'e -. 4rocter Q ?amble; ?.R. 6o. &&838;
December
#; !!1
The real (ro(ert* of 3r. and 3rs Angeles; sit'ated in a
commercial area in front of the ('blic mar<et; .as
declared in their Ta) Declaration as residential beca'se it
had been 'sed b* them as their famil* residence from the
time of its constr'ction in !". 5o.e-er; since Man'ar*
!7; .hen the s(o'ses left for the :nited 7tates to sta*
there (ermanentl* .ith their children; the (ro(ert* has
been rented to a single (ro(rietor engaged in the sale of
a((liances and agri>(rod'cts. The 4ro-incial Assessor
reclassified the (ro(ert* as commercial for ta) ('r(oses
starting Man'ar* !8. 3r. and 3rs. Angeles a((ealed to
the Aocal Board of Assessment A((eals; contending that
the Ta) Declaration (re-io'sl* classif*ing their (ro(ert*
as residential is binding. 5o. sho'ld the a((eal be
decided, 0%@1
SUGGESTED ANSWER:
The a((eal sho'ld be decided against 3r. and 3rs.
Angeles. The la. foc'ses on the act'al 'se of the (ro(ert*
for classification; -al'ation and assessment ('r(oses
regardless of o.nershi(. 7ection #!7 of the Aocal
?o-ernment Code (ro-ides that +real (ro(ert* shall be
classified; -al'ed; and assessed on the basis of its act'al
'se regardless of .here located; .hoe-er o.ns it; and
.hoe-er 'ses it+.
Local Taxation: Coverage (2002)
Aside from the basic real estate ta); gi-e three 031 other ta)es
.hich ma* be im(osed b* (ro-incial and cit* go-ernments
as .ell as b* m'nici(alities in the 3etro 3anila area. 03@1
SUGGESTED ANSWER:
The follo.ing real (ro(ert* ta)es aside from the basic
real
(ro(ert* ta) ma* be im(osed b* (ro-incial and cit*
go-ernments as .ell as b* m'nici(alities in the 3etro
3anila area/
!. Additional le-* on real (ro(ert* for the 7(ecial
Ed'cation F'nd 07ec. #3%; A?C1G
#. Additional Ad>-alorem ta) on 2dle lands 07ec. #3V;
A?C1G and
3. 7(ecial le-* 07ec. #$"1.
J6ote/ The H'estion is s'sce(tible to d'al inter(retation
beca'se it is as<ing for three other ta)es and not three
other real (ro(ert* ta)es. Accordingl*; an alternati-e
ans.er sho'ld be considered and gi-en f'll creditK
A. The follo.ing ta)es; aside from basic real estate ta);
ma* be im(osed b*/
!. 4ro-incial ?o-ernment
a. 4rinterFs or ('blisherFs ta)
b. Franchise Ta)
c. 4rofessional ta)
#. Cit* ?o-ernment > ma* le-* ta)es .hich the (ro-ince
or m'nici(alit* are a'thori=ed to le-* 07ec. !%!; A?C1
a. 4rinterFs or ('blisherFs ta)
b. Franchise ta)
c. 4rofessional ta)
65 of 73
3. 3'nici(alities in the 3etro 3anila Area > ma*
le-*
ta)es at rates .hich shall not e)ceed b* %"@ the
ma)im'm rates (rescribed in the Aocal ?o-ernment
Code.
a. Ann'al fi)ed ta) on man'fact'rers;
assemblers;
re(ac<ers; (rocessors; bre.ers; distillers; rectifiers
and
com(o'nders of liH'ors; distilled s(irits; and .ines
or man'fact're of an* article of commerce of
.hate-er <ind or nat'reG
b. Ann'al fi)ed ta) on .holesalers; distrib'tors;
or
dealers in an* article of commerce of .hate-er <ind
or nat'reG
c. 4ercentage ta) on retailers
J6ote/ Other ta)es ma* com(rise the en'meration beca'se
man* other ta)es are a'thori=ed to be im(osed b* A?:s.K
Local Taxation: Exemption; Real Property Taxes (2002)
:nder the Aocal ?o-ernment Code; .hat (ro(erties are
e)em(t from real (ro(ert* ta)es, 0%@1
SUGGESTED ANSWER:
The follo.ing (ro(erties are e)em(t from real (ro(ert*
ta)es/ 07ec. #3$; A?C1.
!. Real (ro(ert* o.ned b* the Re('blic of the
4hili((ines or an* of its (olitical s'bdi-isions
e)ce(t
.hen the beneficial 'se thereof has been granted;
for consideration or other.ise; to a ta)able (ersonG
#. All lands; b'ildings and im(ro-ements act'all*;
directl*; and e)cl'si-el* 'sed for religio's;
charitable
or ed'cational ('r(oses b* charitable instit'tions;
ch'rches; (arsonages or con-ents
a(('rtenant
thereto; mosH'es; non(rofit or religio's
cemeteriesG
3. All machineries and eH'i(ment that are act'all*;
directl* and e)cl'si-el* 'sed b* local .ater
districts
and go-ernment>o.ned or controlled
cor(orations
engaged in the s'((l* and distrib'tion of .ater
andOor generation and transmission of electric
(o.erG
$. All real (ro(ert* o.ned b* d'l* registered
coo(erati-es as (ro-ided for 'nder R.A. 6o. &38G
and
%. 3achiner* and eH'i(ment 'sed for (oll'tion control
and en-ironmental (rotection.
Local Taxation: lmposition of Ad Valorem Tax (2000)
3a* local go-ernments im(ose an ann'al realt* ta)
in addition to the basic real (ro(ert* ta) on idle or
-acant lots located in residential
s'bdi-isions .ithin their res(ecti-e territorial
C'risdictions, 03@1
SUGGESTED ANSWER:
6ot all local go-ernment 'nits ma* do so. Onl*
(ro-inces; cities; and m'nici(alities .ithin the
3etro 3anila area (,ec. &5& ?ocal
#overnment !ode) ma* im(ose an ad -alorem
ta) not e)ceeding fi-e (ercent 0%@1 of the
assessed -al'e (,ec. &5. 6bid.) of idle or
-acant residential lots in a s'bdi-ision;
d'l* a((ro-ed b* (ro(er a'thorities
regardless of area. (,ec.&5' 6bid.)
Local Taxation: Legality/ Constitutionality; Tax
Ordinance (2003)
9; a ta)(a*er .ho belie-es that an ordinance (assed b* the Cit*
Co'ncil of 4asa* is 'nconstit'tional for being discriminator*
against him; .ant to <no. from *o'; his ta) la.*er; .hether or
not he can file an a((eal. 2n the affirmati-e; he as<s *o' .here
s'ch a((eal sho'ld be made/ the 7ecretar* of Finance; or the
7ecretar* of M'stice; or the Co'rt of Ta) A((eals; or the reg'lar
co'rts. What .o'ld *o'r ad-ice be to *o'r client; 9, 08@1
SUGGESTED ANSWER:
The a((eal sho'ld be made .ith the 7ecretar* of M'stice. An*
H'estion on the constit'tionalit* or legalit* of a ta) ordinance
ma* be raised on a((eal .ith the 7ecretar* of M'stice .ithin 3"
da*s from the effecti-it* thereof. 07ec. !87; A?CG 5agono*
3ar<et 8endor Association -. 3'nici(alit* of 5agono*; 37& 7CRA
37& J#""#K1.
Local Taxation: Legality; lmposition of Real Property Tax
Rate (2002)
An Ordinance .as (assed b* the 4ro-incial Board of a
4ro-ince in the 6orth; increasing the rate of basic real
(ro(ert* ta) from ".""&@ to ! @ of the assessed -al'e of
the real (ro(ert* effecti-e Man'ar* !; #""". Residents of
the m'nici(alities of the said (ro-ince (rotested the
Ordinance on the gro'nd that no ('blic hearing .as
cond'cted and; therefore; an* increase in the rate of real
(ro(ert* ta) is -oid. 2s there merit in the (rotest, E)(lain
*o'r ans.er. 0#@1
SUGGESTED ANSWER:
The (rotest is de-oid of merit. 6o ('blic hearing is
reH'ired before the enactment of a local ta) ordinance
le-*ing the basic real (ro(ert* ta) 0Art. 3#$; A?C
Reg'lations1.
ALTERNATlVE ANSWER:
Des; there is merit in the (rotest (ro-ided that s'fficient
(roof co'ld be introd'ced for the non>obser-ance of
('blic hearing. B* im(lication; the 7'(reme Co'rt
recogni=ed that ('blic hearings are reH'ired to be
cond'cted (rior to the enactment of an ordinance
im(osing real (ro(ert* ta)es. Altho'gh it .as concl'ded
b* the highest trib'nal that (res'm(tion of -alidit* of a
ta) ordinance can not be o-ercome b* bare assertions of
(roced'ral defects on its enactment; it .o'ld seem that if
the ta)(a*er had (resented e-idence to s'((ort the
allegation that no ('blic hearing .as cond'cted; the Co'rt
sho'ld ha-e r'led that the ta) ordinance is in-alid. 0Belen
Fig'erres -. Co'rt of A((eals; ?R6o. !!!7#; 3arch
#%; !1.
Local Taxation: Power to lmpose (2003)
2n order to raise re-en'e for the re(air and maintenance of
the ne.l* constr'cted Cit* 5all of 3a<ati; the Cit*
3a*or ordered the collection of 4!.""; called +ele-ator
ta)+; e-er* time a (erson rides an* of the high>tech
ele-ators in the cit* hall d'ring the ho'rs of 8/"" a.m. to
!"/"" a.m. and $/"" (.m. to &/"" (.m. 2s the +ele-ator ta)+
a -alid im(osition, E)(lain. 08@1
SUGGESTED ANSWER:
6o. The im(osition of a ta); fee or charge or the
generation of re-en'e 'nder the Aocal ?o-ernment Code;
shall be e)ercised b* the 7A6?:62A6 of the local
go-ernment 'nit concerned thro'gh an a((ro(riate
66 of 73
ordinance (,ection %5& of the ?ocal #overnment !ode).
The cit* ma*or alone co'ld not order the collection of
the ta)G as s'ch; the +ele-ator ta)+ is an in-alid
im(osition.
Local Taxation: Remission/Condonation of Taxes
(2004)
RC is a la.>abiding citi=en .ho (a*s his real estate
ta)es
(rom(tl*. D'e to a series of t*(hoons and ad-erse
economic conditions; an ordinance is (assed b* 33
Cit*
granting a %"@ disco'nt for (a*ment of 'n(aid real
estate
ta)es for the (receding *ear and the condonation of all
(enalties on fines res'lting from the late
(a*ment.
Arg'ing that the ordinance re.ards delinH'ent
ta)(a*ers
and discriminates against (rom(t ones; RC demands
that
he be ref'nded an amo'nt eH'i-alent to one>half of the
real ta)es he (aid. The m'nici(al attorne* rendered an
o(inion that RC cannot be reimb'rsed beca'se the
ordinance did not (ro-ide for s'ch reimb'rsement. RC
files s'it to declare the ordinance -oid on the gro'nd
that
it is a class legislation. Will his s'it (ros(er, E)(lain
*o'r
ans.er briefl*. 0%@1
SUGGESTED ANSWER:
The s'it .ill not (ros(er. The remission or condonation
of ta)es d'e and (a*able to the e)cl'sion of ta)es
alread* collected does not constit'te 'nfair
discrimination. Each set of ta)es is a class b* itself and
the la. .o'ld be o(en to attac< as class legislation onl*
if all ta)(a*ers belonging to one class .ere not treated
ali<e 0M'an A'na 7'bdi-ision; 2nc.; -. 7armiento; ! 4hil. 37!
J!%#K1.
Local Taxation: Rule of Uniformity and Equality (2003)
The Cit* of 3a<ati; in order to sol-e the traffic (roblem
in its b'siness districts; decided to im(ose a ta); to be
(aid
b* the dri-er; on all (ri-ate cars entering the cit*
d'ring
(ea< ho'rs from 8/"" a.m. to /"" a.m. from 3onda*s
to
Frida*s; b't e)em(ts those cars carr*ing more than t.o
occ'(ants; e)cl'ding the dri-er. 2s the ordinance
-alid,
E)(lain. 08@1
SUGGESTED ANSWER:
The ordinance is in -iolation of the R'le of :niformit*
and EH'alit*; .hich reH'ires that all s'bCects or obCects
of ta)ation; similarl* sit'ated m'st be treated ali<e in
eH'al footing and m'st not classif* the s'bCects in an
arbitrar* manner. 2n the case at bar; the ordinance
e)em(ts cars carr*ing more than t.o occ'(ants from
co-erage of the said ordinance. F'rthermore; the
ordinance onl* im(oses the ta) on (ri-ate cars and
e)em(ts ('blic -ehicles from the im(osition of
the ta); altho'gh both contrib'te to the traffic
(roblem. There e)ists no s'bstantial standard
'sed in the classification b* the Cit* of 3a<ati.
Another iss'e is the fact that the ta) is
im(osed on the
dri-er of the -ehicle and not on the registered
o.ner of
the same. The ta) does not onl* -iolate the
reH'irement of
'niformit*; b't the same is also 'nC'st beca'se
it (laces
the b'rden on someone .ho has no control
o-er the
ro'te of the -ehicle. The ordinance is;
therefore; in-alid
for -iolating the r'le of 'niformit* and
eH'alit* as .ell as
for being 'nC'st.
Local Taxation; Situs of Professional Taxes
(2005)
3r. Fermin; a resident of N'e=on Cit*; is a
Certified
4'blic Acco'ntant>Aa.*er engaged in the
(ractice of his
t.o (rofessions. 5e has his main office in
3a<ati Cit* and maintains a branch office in 4asig Cit*.
3r. Fermin (a*s his (rofessional ta) as a C4A in 3a<ati
Cit* and his (rofessional ta) as a la.*er in 4asig Cit*.
0%@1
a1 3a* 3a<ati Cit*; .here he has his main office; reH'ire him to
(a* his (rofessional ta) as a la.*er, E)(lain.
SUGGESTED ANSWER:
6o. 3a<ati Cit* .here 3r. Fermin has his main office ma* not
reH'ire him to (a* his (rofessional ta) as a la.*er. 3r.
Fermin has the o(tion of (a*ing his (rofessional ta) as a
la.*er in 4asig Cit* .here he (ractices la. or in 3a<ati Cit*
.here he maintains his (rinci(al office. (,ec. %5*Ab@ ?ocal
#overnment !ode)
b1 3a* N'e=on Cit*; .here he has his residence and .here he
also (ractices his t.o (rofessions; go after him for the (a*ment of
his (rofessional ta) as a C4A and a la.*er, E)(lain.
SUGGESTED ANSWER:
6o; the sit's of the (rofessional ta) is the cit* .here the
(rofessional (ractices his (rofession or .here he
maintains his (rinci(al office in case he (ractices his
(rofession in se-eral (laces. The local go-ernment of
N'e=on Cit* has no right to collect the (rofessional ta)
from 3r. Fermin as the (lace of residence of the ta)(a*er
is not the (ro(er sit's in the collection of the (rofessional
ta).
Local Taxation; Special Levy on ldle Lands (2005)
A cit* o'tside of 3etro 3anila (lans to enact an
ordinance that .ill im(ose a s(ecial le-* on idle lands
located in residential s'bdi-isions .ithin its territorial
C'risdiction in addition to the basic real (ro(ert* ta). 2f the
lot o.ners of a s'bdi-ision located in the said cit* see<
*o'r legal ad-ice on the matter; .hat .o'ld *o'r ad-ice
be, Disc'ss. 0%@1
SUGGESTED ANSWER:
2 .o'ld ad-ise the lot o.ners that a cit*; e-en if it is
o'tside 3etro 3anila; ma* le-* an ann'al ta) on idle
lands
at the rate not e)ceeding fi-e (ercent 0%@1 of the assessed
-al'e of the (ro(ert* .hich shall be in addition to the
basic real (ro(ert* ta). (,ec. &5. ?ocal #overnment
!ode) 2
.o'ld li<e.ise ad-ise them that the le-* ma* a((l* to
residential lots; regardless of land area; in s'bdi-isions
d'l* a((ro-ed b* (ro(er a'thorities; the o.nershi( of
.hich has been transferred to indi-id'al o.ners .ho shall
be liable for the additional ta). 0Aast (ar.; 7ec. #371
The term +2dle Aands+ means; land not de-oted directl* to
an* cro( or to an* definite ('r(ose for at least one *ear
(rior to the notice of e)(ro(riation; e)ce(t for reasons
other than force ma1eure or an* fort'ito's e-ent; b't 'sed
to
be de-oted or is s'itable to s'ch cro( or is contig'o's to
land de-oted directl* to an* cro( and does not incl'de
land de-oted (ermanentl* or reg'larl* to other essential
and more (rod'cti-e ('r(ose. (9hilippine ?egal
4ncyclopedia
by ,ibal %*/. 4d.)
Finall*; 2 .o'ld ad-ise them to constr'ct or (lace
im(ro-ements on their idle lands b* ma<ing -al'able
additions to the (ro(ert* or ameliorations in the landFs
conditions so the lands .o'ld not be considered as idle.
07ec. !JmK1 2n this manner their (ro(erties .o'ld not
be s'bCect to the ad valorem tax on idle lands.
Real Property Tax: Underground Gasoline Tanks
(2003)
:nder Article $!% of the Ci-il Code; in order for
machiner* and eH'i(ment to be considered real
(ro(ert*;
the (ieces m'st be (laced b* the o.ner of the land and;
in
addition; m'st tend to directl* meet the needs of the
ind'str* or .or<s carried on b* the o.ner. Oil
com(anies
install 'ndergro'nd tan<s in the gasoline stations
located
on land leased b* the oil com(anies from the o.ners of
the land .here the gasoline stations JareK located. Are
those 'ndergro'nd tan<s; .hich .ere not (laced there
b*
the o.ner of the land b't .hich .ere instead (laced
there
b* the lessee of the land; considered real (ro(ert* for
('r(oses of real (ro(ert* ta)ation 'nder the local
?o-ernment Code, E)(lain. 08@1
SUGGESTED ANSWER:
Des. The (ro(erties are considered as necessar* fi)t'res
of
the gasoline station; .itho't .hich the gasoline station
.o'ld be 'seless. 3achiner* and eH'i(ment installed
b*
the
lessee of leased land is not real (ro(ert* for ('r(oses of
e)ec'tion of a final C'dgment onl*. The* are considered
as
real (ro(ert* for real (ro(ert* ta) ('r(oses as +other
im(ro-ements to affi)ed or attached real (ro(ert* 'nder
the Assessment Aa. and the Real 4ro(ert* Ta) Code.
0Calte) -. Central Board of Assessment A((eals; !!$ 7CRA
#& J!8#K1.
Real Property Tax; Requirements; Auction
Sales of Property for Tax Delinquency (2006)
N'e=on Cit* ('blished on Man'ar* 3"; #""& a list
of delinH'ent real (ro(ert* ta)(a*ers in # ne.s(a(ers
of general circ'lation and (osted this in the main lobb*
of the Cit* 5all. The notice reH'ires all o.ners of
real (ro(erties in the list to (a* the real (ro(ert*
ta) d'e .ithin 3" da*s from the date of ('blication;
other.ise the (ro(erties listed shall be sold at ('blic
a'ction.
Moachin is one of those named in the list. 5e ('rchased
a real (ro(ert* in !& b't failed to register the
doc'ment of sale .ith the register of Deeds and sec're
a ne. real (ro(ert* ta) declaration in his name. 5e
alleged that the a'ction sale of his (ro(ert* is -oid for
lac< of d'e (rocess considering that the Cit*
Treas'rer did not send him (ersonal notice. For his
(art; the Cit* Treas'rer maintains that the
('blication and (osting of notice are s'fficient
com(liance .ith the reH'irements of the la..
!. 2f *o' .ere the C'dge; ho. .ill *o'
resol-e this iss'e, 0#.%@1
SUGGESTED ANSWER:
2 .ill resol-e the iss'e in fa-or of Moachin. 2n
a'ction sales
of (ro(ert* for ta) delinH'enc*; notice to
delinH'ent
lando.ners and to the ('blic in general is an
essential and
indis(ensable reH'irement of la.; the non>
f'lfillment of
.hich -itiates the same 0Tiongco -. 4hil.
8eterans Ban<;
?.R. 6o. 8#78#; A'g. %; !#1. The fail're to gi-e
notice to
the right (erson i.e.; the real o.ner; .ill render
an a'ction
sale -oid 0Tan -. Banteg'i; ?.R. 6o; !%$"#7;
October #$;
#""%G Cit* Treas'rer of N.C. -. CA; ?.R. 6o.
!#"7$; Dec.
##; !71.
#. Ass'ming Moachin is a registered o.ner; .ill *o'r ans.er
be the same, 0#.%@1
SUGGESTED ANSWER:
Des. The la. reH'ires that a notice of the a'ction sale
m'st be (ro(erl* sent to Moachin and not merel* thro'gh
('blication 0Tan -. Banteg'i; ?.R. 6o; !%$"#7; October
#$;#""%G Estate of 3ercedes Macob -. CA; ?.R. 6o. !#"$3%;
Dec. ##; !71.
Real Property Taxation: Capital Asset vs. Ordinary Asset
(l995)
2n !"; 3r. 6a-al bo'ght a lot for 4!;""";"""."" 2n a
s'bdi-ision .ith the intention of b'ilding his residence on it. 2n
!$; he abandoned his (lan to b'ild his residence on it beca'se
the s'rro'nding area became a de(ressed area and land -al'es
in the s'bdi-ision .ent do.nG instead; he sold it for
48""."""."". At the time of the sale; the =onal -al'e .as
4%""."""."".
!1 2s the land a ca(ital asset or an ordinar* asset, E)(lain.
#1 2s there an* income ta) d'e on the sale, E)(lain.
SUGGESTED ANSWERS:
!1 The land is a ca(ital asset beca'se it is neither for sale in the
ordinar* co'rse of b'siness nor a (ro(ert* 'sed in the trade or
b'siness of the ta)(a*er. 07ec. 33. 62RC1.
#1 Des; 3r. 6a-al is liable to the %@ ca(ital gains ta) im(osed
'nder 7ection #!0e1 of the Ta) Code based on the gross selling
(rice of 48""."""."" .hich is an amo'nt higher than the =onal
-al'e.
Real Property Taxation: Capital Gains vs. Ordinary
Gains
(l998)
What is the difference bet.een ca(ital gains and ordinar*
gains, J3@K
SUGGESTED ANSWER:
CA42TAA ?A267 are gains reali=ed from the sale or
e)change of ca(ital assets; .hile ORD26ARD ?A267
refer to gains reali=ed from the sale or dis(osition of
ordinar* assets.
Real Property Taxation: Coverage of Ordinary
lncome
(l998)
What does the term +ordinar* income+ incl'de, J#@K
SUGGESTED ANSWER:
The term ordinar* income incl'des an* gain from the sale
or e)change of (ro(ert* .hich is not a ca(ital asset. These
are the gains deri-ed from the sale or e)change of
(ro(ert* s'ch as stoc< in trade of the ta)(a*er or other
(ro(ert* of a <ind .hich .o'ld (ro(erl* be incl'ded in
the in-entor* of the ta)(a*er if on hand at the close of the
ta)able *ear; or (ro(ert* held b* the ta)(a*er (rimaril* for
sale to c'stomers in the co'rse of his trade or b'siness; or
(ro(ert* 'sed in trade or b'siness of a character .hich is
s'bCect to the allo.ance for de(reciation; or real (ro(ert*
'sed in trade or b'siness of the ta)(a*er. (,ec. && AM@ in
relation to ,ec. 5*AA@(%) both of the N6$!).
ALTERNATlVE ANSWER:
The term ordinar* income incl'des income from
(erformance of ser-ices; .hether (rofessional or (er>
sonal; gains accr'ing from b'siness; and (rofit arising
from the sale or e)change of ordinar* assets.
68 of 73
Real Property Taxation: Exchange of Lot; Capital
Gain Tax (l997)
A cor(oration; engaged in real estateF de-elo(ment;
e)ec'ted deeds of sale on -ario's s'bdi-ided lots. One
b'*er; after going aro'nd the s'bdi-ision; bo'ght a
corner
lot .ith a good -ie. of the s'rro'nding terrain. 5e (aid
4!.# million; and the title to the (ro(ert* .as iss'ed.
A
*ear later; the -al'e of the lot a((reciated to a mar<et
-al'e of 4!.& million; and the b'*er decided to b'ild
his
ho'se thereon. :(on ins(ection; ho.e-er; he
disco-ered
that a h'ge to.er antennae had been erected on the lot
frontage totall* bloc<ing his -ie.. When he
com(lained;
the realt* com(an* e)changed his lot .ith another
corner
lot .ith an eH'al area b't affording a better -ie.. 2s the
b'*er liable for ca(ital gains ta) on the e)change of the
lots,
SUGGESTED ANSWER:
Des; the b'*er is s'bCect to ca(ital gains ta) on
the
e)change of lots on the basis of (re-ailing fair mar<et
-al'e of the (ro(ert* transferred at the time of the
e)change or the fair mar<et -al'e of the (ro(ert*
recei-ed;
.hiche-er is higher (,ection &%(e) N6$!). Real
(ro(ert*
transactions s'bCect to ca(ital gains ta) are not limited
to
sales b't also e)changes of (ro(ert* 'nless e)em(ted b*
a
s(ecific (ro-ision of la..
ALTERNATlVE ANSWER:
6o. The e)change is not s'bCect to ca(ital gains ta)
beca'se it is merel* done to com(l* .ith the intentions
of
the (arties to the (re-io's contract regarding the sale
and
acH'isition of a (ro(ert* .ith a good -ie.. This is
a
sim(le s'bstit'tion of the obCect of sale and since the
(re-io's transaction .as alread* s'bCected to ta); no
ne.
ta) sho'ld be im(osed on the e)change (36$ $uling
No.
&%(e) (-5-/* ((/-*-).
Real Property Taxation: Exemption/Deductions;
Donor's Tax (l998)
Ace Tobacco Cor(oration bo'ght a (arcel of land
sit'ated
at 4ateros and donated it to the 3'nici(al ?o-ernment
of
4ateros for the sole ('r(ose of de-oting the
said land as a
relocation site for the less fort'nate
constit'ents of said
m'nici(alit*. 2n accordance there.ith; the
3'nici(al ?o->
ernment of 4ateros iss'ed to the
occ'(antsObeneficiaries
Certificates of A.ard gi-ing to them the
res(ecti-e areas
.here their ho'ses are erected. Thro'gh
Ordinance 6o. #;
7eries of !8; the said m'nici(al go-ernment
ordained
that the lots a.arded to the a.ardeesOdonees
be finall*
transferred and donated to them. Determine
the ta)
conseH'ence of the foregoing dis(ositions .ith
res(ect to
Ace Tobacco Cor(oration; the 3'nici(al
?o-ernment of
4ateros; and the occ'(antsObeneficiaries. J%@K
SUGGESTED ANSWER:
The donation b* Ace Tobacco Cor(oration is
e)em(t from the donorFs ta) beca'se it
H'alifies as a gift to or for the 'se of an*
(olitical s'bdi-ision of the 6ational
?o-ernment 07ection !"!0#1; 62RC1. The
con-e*ance is li<e.ise e)em(t from
doc'mentar* stam( ta) beca'se it is a transfer
.itho't consideration.
7ince the donation is to be 'sed as a relocation
site for the
less fort'nate constit'ents of the m'nici(alit*.
2t ma* be
considered as an 'nderta<ing for h'man
settlements;
hence the -al'e of the land ma* be ded'ctible
in f'll from the gross income of Ace Tobacco
Cor(oration if in accordance to a 6ational 4riorit* 4lan
determined b* the 6ational Economic De-elo(ment
A'thorit*. (,ec. 5"K=@(&)(a) N6$!). 2f the 'tili=ation is not
in accordance to a 6ational 4riorit* 4lan determined b*
the 6ational Economic De-elo(ment A'thorit*; then Ace
Tobacco Cor(oration ma* ded'ct the -al'e of the land
donated onl* to the e)tent of fi-e 0%@1 (ercent of its
ta)able income deri-ed from trade or b'siness as
com('ted .itho't the benefit of the donation. (,ec.
5"A=@(&)(a) in relation to ,ec. 5"A=@(%) N6$!).
The 3'nici(alit* of 4ateros is not s'bCect to an* donorFs ta) on
the -al'e of land it s'bseH'entl* donated; it being e)em(t from
ta)es as a (olitical s'bdi-ision of the 6ational ?o-ernment.
The occ'(antsObeneficiaries are s'bCect to real (ro(ert* ta)es
beca'se the* no. o.n the land.
ALTERNATlVE ANSWER on Taxability of 8unicipality and
Awardees:
The a.arding b* the 3'nici(al ?o-ernment of lots to
s(ecific a.ardees or donees is li<e.ise e)em(t from the
donorFs ta) beca'se it is onl* an im(lementation of the
('r(ose for .hich the (ro(ert* .as gi-en b* Ace
Tobacco Cor(oration. The ('r(ose of the first donation
is to de-ote the land as a relocation site for the less
fort'nate constit'ents. 2f later on the 3'nici(alit* gi-es
o't Certificates of A.ard o-er s(ecific lots occ'(ied b*
the H'alified occ'(antsObeneficiaries; this is intended to
(er(et'ate the ('r(ose of the (re-io's donor; the 3'>
nici(alit* acting merel* as a cond'it and not the tr'e
donor. This is sim(l* a donation b* the 3'nici(alit* in
form b't not in s'bstance.
The recei(t b* the occ'(ant beneficiaries of their
res(ecti-e lots thro'gh the Certificate of A.ard has no
ta) im(lications. The* are; ho.e-er; liable for real (ro(>
ert* ta)es.
Real Property Taxation: Exemption: Acquiring
New Principal Residence (2000)
Aast M'l* !#; #"""; 3r. Q 3rs. 4eter Camacho sold their
(rinci(al residence sit'ated in Tandang 7ora; N'e=on Cit*
for Ten 3illion 4esos 04!";""";""".""1 .ith the intention
of 'sing the (roceeds to acH'ire or constr'ct a ne.
(rinci(al residence in A'rora 5ills; Bag'io Cit*. What
conditions m'st be met in order that the ca(ital gains
(res'med to ha-e been reali=ed from s'ch sale ma* not
be s'bCect to ca(ital gains ta), 0%@1
SUGGESTED ANSWER:
The conditions are/
!. The (roceeds are f'll* 'tili=ed in acH'iring or
constr'cting a ne. (rinci(al residence .ithin
eighteen 0!81 calendar months from the sale or
dis(osition of the (rinci(al residence or eighteen 0!81
months from M'l* !#; #""".
69 of 73
#. The historical cost or adC'sted basis of the real
(ro(ert* sold or dis(osed shall be carried o-er to
the ne. (rinci(al residence b'ilt or acH'ired.
3. The Commissioner of 2nternal Re-en'e m'st ha-e
been informed b* 3r. Q 3rs. 4eter Camacho
.ithin thirt* 03"1 da*s from the date of sale or
dis(osition on M'l* !#; #""" thro'gh a (rescribed
ret'rn of their intention to a-ail of the ta)
e)em(tion.
$. That the said e)em(tion can onl* be a-ailed of once
e-er* ten 0!"1 *ears.
%. 2f there is no f'll 'tili=ation of the (roceeds of sale or
dis(osition; the (ortion of the gain (res'med to
ha-e
been reali=ed from the sale or dis(osition shall be
s'bCect to ca(ital gains ta) A,ec. &" (B) (&) N6$!
of
%**'@
Real Property Taxation: Fundamental Principles (l997)
7tate the f'ndamental (rinci(les 'nderl*ing real
(ro(ert* ta)ation in the 4hili((ines.
SUGGESTED ANSWER:
The follo.ing are the f'ndamental (rinci(les go-erning
real (ro(ert* ta)ation/
!1 Real (ro(ert* shall be a((raised at its c'rrent and
fair mar<et -al'eG
#1 Real (ro(ert* shall be classified for assessment
('r(oses on the basis of its act'al 'se/
31 Real (ro(ert* shall be assessed on the basis of a
'niform classification .ithin each local
go-ernment
'nitG
$1 The a((raisal; assessment; le-*; and collection of
real (ro(ert* ta) shall not be let to an*
(ri-ate (ersonG and
%1 The a((raisal and assessment of real (ro(ert* shall
be eH'itable.
Real Property Taxation: Principles & Limitations:
LGU
(2000)
?i-e at least t.o 0#1 f'ndamental (rinci(les go-erning
real (ro(ert* ta)ation; .hich are limitations on the
ta)ing (o.er of local go-ernments insofar as the
le-*ing of the realt* ta) is concerned. 0#@1
SUGGESTED ANSWER:
T.o 0#1 f'ndamental (rinci(les go-erning real (ro(ert*
ta)ation are/
!1 The a((raisal m'st be at the c'rrent and fair mar<et
-al'eG and
#1 Classification for assessment m'st be on the basis
of act'al 'se. (,ec. %*/ ?ocal #overnment !ode)
ALTERNATlVE ANSWER:
The e)aminee sho'ld be gi-en credit if he chooses the
abo-e t.o 0#1 or an* t.o 0#1 of those en'merated belo./
!1 Assessment m'st be on the basis of 'niform
classificationG
#1 A((raisal; assessment; le-* and collection shall not
be let to (ri-ate (ersonsG and
31 A((raisal and assessment m'st be
eH'itable. (,ec. %*/ ?ocal #overnment !ode)
Real Property Taxation: Property Sold is an
Ordinary Asset (l998)
An indi-id'al ta)(a*er .ho o.ns a ten 0!"1 door a(art>
ment .ith a monthl* rental of 4!";""" each residential 'nit; sold
this (ro(ert* to another indi-id'al ta)(a*er. 2s the seller liable to
(a* the ca(ital gains ta), J%@K
SUGGESTED ANSWER:
6o. The seller is not liable to (a* the ca(ital gains ta) beca'se
the (ro(ert* sold is an ordinar* asset; i.e. real (ro(ert* 'sed in
trade or b'siness. 2t is a((arent that the ta)(a*er is engaged in
the real estate b'siness; reg'larl* renting o't the ten 0!"1 door
a(artment.
Real Property Taxation: Underground Gasoline Tanks
(200l)
:nder Article $!% of the Ci-il Code; in order for
machiner* and eH'i(ment to be considered real (ro(ert*;
the* m'st be (laced b* the o.ner of the land and; in
addition; m'st tend to directl* meet the needs of the
ind'str* or .or<s carried on b* the o.ner. Oil com(anies;
s'ch as Calte) and 7hell; install 'ndergro'nd tan<s in the
gasoline stations located on land leased b* the oil
com(anies from others. Are those 'ndergro'nd tan<s
.hich .ere not (laced there b* the o.ner of the land b't
.hich .ere instead (laced there b* the lessee of the land;
considered real (ro(ert* for ('r(oses of real (ro(ert*
ta)ation 'nder the Aocal ?o-ernment Code, E)(lain *o'r
ans.er. 0%@1
SUGGESTED ANSWER:
Des. The 'ndergro'nd tan<s altho'gh installed b* the
lessee; 7hell and Calte); are considered as real (ro(ert* for
('r(oses of the im(osition of real (ro(ert* ta)es. 2t is
onl* for ('r(oses of e)ec'ting a final C'dgment that these
machiner* and eH'i(ment; installed b* the lessee on a
leased land; .o'ld not be considered as real (ro(ert*. B't
in the im(osition of the real (ro(ert* ta); the
'ndergro'nd tan<s are ta)able as necessar* fi)t'res of the
gasoline station .itho't .hich the gasoline station .o'ld
not be o(erational. 0Calte) 4hils.; 2nc -. CBAA; !!$
7CRA. #&1.
Real Property Taxation; Exempted Properties (2006)
What (ro(erties are e)em(t from the real (ro(ert* ta),
0%@1
SUGGESTED ANSWER:
The follo.ing (ro(erties are e)em(t from the real
(ro(ert* ta) 07ection #3$; Aocal ?o-ernment Code1/
0!1 Real (ro(ert* o.ned b* the RE4:BA2C OF T5E
452A24426E7 or an* of its (olitical s'bdi-isions
e)ce(t .hen the beneficial 'se thereof has been
granted for consideration or other.ise to a ta)able
(ersonG
0#1 C5AR2TABAE 267T2T:T2O67; ch'rches;
(arsonages or con-ents a(('rtenant thereto;
mosH'es; non>(rofit or religio's cemeteries; and all
lands; b'ildings; and im(ro-ements act'all*; directl*
and e)cl'si-el* 'sed for religio's; charitable or
ed'cational ('r(osesG
031 All machineries and eH'i(ment that are act'all*;
directl* and e)cl'si-el* 'sed b* AOCAA WATER
:T2A2T2E7 and go-ernment>o.ned or controlled
cor(orations engaged in the s'((l* and distrib'tion
70 of 73
of .ater andOor generation and transmission of
electric (o.erG
0$1 All real (ro(ert* o.ned b* d'l* RE?27TERED
COO4ERAT28E7 as (ro-ided for 'nder R.A.
&38G
and
(-) 3achiner* and eH'i(ment 'sed for 9C??ET6CN
!CNT$C? and 4N26$CN84NTA?
9$CT4!T6CN.
TARlFF AND CUSTOMS DUTlES
Customs: "Flexible Tariff Clause" (200l)
What do *o' 'nderstand b* the term +fle)ible tariff
cla'se+ as 'sed in the Tariff and C'stoms Code, 0%@1
7:??E7TED A67WER/
The term +fle)ible tariff cla'se +refers to the a'thorit*
gi-en to the 4resident to adC'st tariff rates 'nder 7ection
$"! of the Tariff and C'stoms Code; .hich is the
enabling la. that made effecti-e the delegation of
the
ta)ing (o.er to the 4resident 'nder the Constit'tion.
J6ote/ 6t is suggested that if the examinee cites
the entire provision of ,ec. "(% of the Tariff L
!ustoms !ode he should also be given full
credit.K
Customs: Administrative vs. Judicial Remedies (l997)
The Tariff and C'stoms Code allo.s the B'rea' of
C'stoms to resort to the administrati-e remed* of
sei='re;
s'ch as b* enforcing the ta) lien on the im(orted article;
and to the C'dicial remed* of filing an action in
co'rt.
When does the B'rea' of C'stoms normall* a-ail itselfG
0a1 of the administrati-e; instead of the C'dicial remed*;
or
0b1 of the latter; instead of the former; remed*,
SUGGESTED ANSWER:
0a1 The B'rea' of C'stoms normall* a-ails itself of
the
AD32627TRAT28E RE3EDD of sei='re; s'ch as b*
enforcing the ta) lien on the im(orted articles; instead
of
the C'dicial remed* .hen the goods to .hich the ta)
lien
attaches; regardless of o.nershi(; is still in the c'stod*
or
control of the ?o-ernment. 2n the case; ho.e-er; of
im(ortations .hich are (rohibited or 'ndeclared;
the
remed* of sei='re and forfeit're ma* still be e)ercised
b*
the B'rea' of C'stoms e-en if the goods are no longer
in
its c'stod*.
0b1 On the other hand; .hen the goods are
(ro(erl* released and th's be*ond the reach of
ta) lien; the go-ern>
ment can see< (a*ment of the ta) liabilit*
thro'gh C'dicial action since the ta) liabilit* of
the im(orter constit'tes a (ersonal debt to the
go-ernment; therefore; enforceable b* action.
2n this case C'dicial remed* is normall* a-ailed
of instead of the administrati-e remed*.
Customs: lmportation (l995)
When does im(ortation begin and .hen does it end,
SUGGESTED ANSWER:
234ORTAT2O6 begins from the time the
carr*ing -essel
or aircraft enters 4hili((ine territorial
C'risdiction .ith the
intention to 'nload therein and ends at the time
the goods
are released or .ithdra.n from the
c'stomho'se '(on
(a*ment of the c'stoms d'ties or .ith legal
(ermit to .ithdra. 08id'*a -s. Berdiago; 73 7CRA
%%31.
Customs: Jurisdiction; Seizure & Forfeiture Proceedings
(l996)
On Man'ar* !; !&; armed .ith .arrants of sei='re and
detention iss'ed b* the B'rea' of C'stoms; members of
the c'stoms enforcement and sec'rit* ser-ices
coordinated .ith the N'e=on Cit* (olice to search the
(remises o.ned b* a certain 3r. 5o along Sala*aan
A-en'e; N'e=on Cit*; .hich allegedl* contained 'nta)ed
-ehicles and (arts. While inside the (remises; the member
of the c'stoms enforcement and sec'rit* ser-ices noted
articles .hich .ere not incl'ded in the list contained in
the .arrant. 5ence; on Man'ar* !%; !&; an amended
.arrant and sei='re .as iss'ed.
On Man'ar* #%; !&; the c'stoms (ersonnel started
ha'ling the articles ('rs'ant to the amended .arrant. This
(rom(ted 3r. 5o to file a case for inC'nction and
damages .ith a (ra*er for a restraining order before the
Regional Trial Co'rt of N'e=on Cit* against the B'rea'
of C'stoms on Man'ar* #7; !&. On the same date; the
Trial Co'rt iss'ed a tem(orar* restraining order.
A motion to dismiss .as filed b* the B'rea' of C'stoms on the
gro'nd that the Regional Trial Co'rt has no C'ris>
diction o-er the s'bCect matter of the com(laint claiming that it
.as the B'rea' of C'stoms that has e)cl'si-e C'risdiction o-er
it. Decide.
SUGGESTED ANSWER:
The motion to dismiss sho'ld be granted. 7ei='re and
forfeit're (roceedings are .ithin the e)cl'si-e
C'risdiction
of the Collector of C'stoms to the e)cl'sion of reg'lar
Co'rts. Regional Trial Co'rts are de-oid of com(etence
to (ass '(on the -alidit* or reg'larit* of sei='re and
forfeit're (roceedings cond'cted b* the B'rea' of
C'stoms and to enCoin or other.ise interfere .ith these
(roceedings 0Re('blic -s. CF2 of 3anila JBranch
9922K; ?.R. 6o. $37$7; 7e(tember #; !#G Mao -s. CA;
?.R. 6o. !"$&"$; October &; !%1.
Customs: Kinds of Custom Duties (l995)
:nder the Tariff and C'stoms Code; .hat are
a1 d'm(ing d'ties
b1 co'nter-ailing d'ties
c1 mar<ing d'ties
d1 discriminator* d'ties,
SUGGESTED ANSWER:
&1 D'm(ing d'ties are s(ecial d'ties im(osed b* the
7ecretar* of Finance '(on recommendation of the
Tariff Commission .hen it is fo'nd that the (rice of
the im(orted articles is deliberatel* or contin'all*
fi)ed at less than the fair mar<et -al'e or cost of
(rod'ction; and the im(ortation .o'ld ca'se or
li<el* ca'se an inC'r* to local ind'stries engaged in
the man'fact're or (rod'ction of the same or
similar articles or (re-ent their establishment.
71 Co'nter-ailing d'ties are s(ecial d'ties im(osed
sirdondee@gmail.com
SUGGESTED ANSWER:
7l of 73
b* the 7ecretar* of Finance '(on (rior
in-estigation and re(ort of the Tariff
Commission to offset an e)cise or inland
re-en'e ta) '(on articles of the same class
man'fact'red at home or s'bsidies to foreign
(rod'cers or man'fact'rers b* their
res(ecti-e go-ernments.
81 3ar<ing d'ties are s(ecial d'ties eH'i-alent to %@
ad -alorem im(osed on articles not (ro(erl*
mar<ed. These are collected b* the Commissioner
of
C'stoms e)ce(t .hen the im(ro(erl* mar<ed
articles are e)(orted or destro*ed 'nder c'stoms
s'(er-ision and (rior to final liH'idation of the
corres(onding entr*. These d'ties are designed to
(re-ent (ossible dece(tion of the c'stomers.
1 Discriminator* d'ties are s(ecial d'ties collected
in an amo'nt not e)ceeding !""@ ad -alorem;
im(osed b* the 4resident of the 4hili((ines
against
goods of a foreign co'ntr* .hich discriminates
against 4hili((ine commerce or against
goods
coming from the 4hili((ines and shi((ed to a
foreign co'ntr*.
Customs: Kinds of Custom Duties (l997)
E)(lain briefl* each of the s(ecial c'stoms
d'ties a'thori=ed 'nder the Tariff and C'stoms Code.
SUGGESTED ANSWER:
The follo.ing are the 7(ecial D'ties im(osed 'nder the
Tariff and C'stoms Code/
0a1 D'm(ing D't* > This is a d't* le-ied on im(orted
goods .here it a((ears that a s(ecific <ind or class
of
foreign article is being im(orted into or sold or is
li<el* to be sold in the 4hili((ines at a (rice less
than its fair -al'eG
0b1 Co'nter-ailing D't* > This is a d't* eH'al to the
ascertained or estimated amo'nt of the s'bsid* or
bo'nt* or s'b-ention granted b* the foreign
co'ntr* on the (rod'ction; man'fact're; or
e)(ortation into the 4hili((ines of an* article
li<el* to inC're an ind'str* in the 4hili((ines or
retard or considerable retard the establishment of
s'ch ind'str*G
0c1 3ar<ing D't* > This is a d't* on an ad -alorem
basis im(osed for im(ro(erl* mar<ed articles. The
la. reH'ires that foreign im(ortations m'st be
mar<ed in an* official lang'age of the 4hili((ines
the name of the co'ntr* of origin of the articleG
0d1 Discriminator* or Retaliator* D't* > This
is a d't*
im(osed on im(orted goods .hene-er it is
fo'nd as
a fact that the co'ntr* of origin
discriminates against
the commerce of the 4hili((ines in s'ch a
manner as
to (lace the commerce of the
4hili((ines at a
disad-antage com(ared .ith the
commerce of an*
foreign co'ntr*.
Customs: Remedies of an lmporter (l996)
Disc'ss briefl* the remedies of an im(orter
d'ring the (endenc* of sei='re (roceedings.
D'ring the (endenc* of sei='re (roceedings the im(orter
ma* sec're the release of the im(orted (ro(ert* for
legitimate 'se b* (osting a bond in an amo'nt to be fi)ed
b* the Collector; conditioned for the (a*ment of the
a((raised -al'e of the article andOor an* fine; e)(enses
and costs .hich ma* be adC'dged in the caseG provided that
articles the importation of which is prohibited by law shall not
be
released under bond.
The im(orter ma* also offer to (a* to the collector a fine
im(osed b* him '(on the (ro(ert* to sec're its release or
in case of forfeit're; the im(orter shall offer to (a* for the
domestic mar<et -al'e of the sei=ed article; .hich offer
s'bCect to the a((ro-al of the Commissioner ma* be
acce(ted b* the Collector in settlement of the sei='re case;
e)ce(t .hen there is fra'd. :(on (a*ment of the fine or
domestic mar<et -al'e; the (ro(ert* shall be forth.ith
released and all liabilities .hich ma* or might attach to the
(ro(ert* b* -irt'e of the offense .hich .as the occasion
of the sei='re and all liabilit* .hich might ha-e been
inc'rred 'nder an* bond gi-en b* the im(orter in res(ect
to s'ch (ro(ert* shall there'(on be deemed to be
discharged.
Customs: Returning Residents: Tourist/Travelers (2003)
9 and his .ife; D; Fili(inos li-ing in the 4hili((ines; .ent
on a three>month (leas're tri( aro'nd the .orld d'ring
the months of M'ne; M'l* and A'g'st #""#. 2n the co'rse
of their tri(; the* acc'm'lated some (ersonal effects
.hich .ere necessar*; a((ro(riate and normall* 'sed in
leis're tri(s; as .ell as so'-enirs in non>commercial
H'antities. Are the* +ret'rning residents+ for ('r(oses of
7ection !"% of the Tariff and C'stoms Code, E)(lain.
08@1
SUGGESTED ANSWER:
6o. The term +ret'rning residents+ refers to nationals
.ho ha-e sta*ed in a foreign co'ntr* for a (eriod of at
least si) 0&1 months. (,ection %(-(f) of the Tariff and
!ustoms !ode). D'e to their limited d'ration of sta*
abroad 9 and D are not considered as +ret'rning
residents+ b't the* are merel* considered as tra-elers or
to'rists .ho enCo* the benefit of conditionall* free
im(ortation.
ANote: !redit must li>ewise be given if the candidate
answered in the affirmative considering that travelers
or tourists are given the same tax treatment as that of
returning residents treating their personal effects
not in commercial 7uantities as conditionally
free importation.@
Customs: Seizure & Forfeiture: Effects (l994)
2n sm'ggling a shi(ment of garlic; the sm'gglers 'sed an
eight>.heeler tr'c< .hich the* hired for the ('r(ose of
ta<ing o't the shi(ment from the c'stoms =one. Dann*;
the tr'c< o.ner; did not ha-e a certificate of ('blic
con-enience to o(erate his tr'c<ing b'siness. Dann* did
not <no. that the shi(ment of garlic .as illegall*
im(orted.
Can the Collector of C'stoms of the (ort sei=e and forfeit
the tr'c< as an instr'ment in the sm'ggling,
SUGGESTED ANSWER:
Des; the Collector of C'stoms of the (ort can sei=e and
forfeit the tr'c< as an instr'ment in the sm'ggling acti-it*;
since the same .as 'sed 'nla.f'll* in the im(ortation of
72 of 73
sm'ggled articles. The mere carr*ing of s'ch articles
on board the tr'c< 0in commercial H'antities1 shall
s'bCect the tr'c< to forfeit're; since it .as not being
'sed as a d'l* a'thori=ed common carrier; .hich .as
chartered or leased as s'ch. 07ec. #%3" JaK; TCC1
3oreo-er; altho'gh forfeit're of the -ehicle .ill not be
effected if it is established that the o.ner thereof had no
<no.ledge of or (artici(ation in the 'nla.f'l act; there
arises a prima facie (res'm(tion or <no.ledge
or
(artici(ation if the o.ner is not in the b'siness for
.hich
the con-e*ance is generall* 'sed. Th's; not ha-ing
a
certificate of ('blic con-enience to o(erate a tr'c<ing
b'siness; he is legall* deemed not to ha-e been engaged
in
the tr'c<ing b'siness. (,ec. &-5% Tariff and !ustoms
!ode)
Customs: Steps involving Protest Cases (l994)
The Collector of C'stoms instit'ted sei='re (roceedings
against a shi(ment of motor -ehicles for ha-ing been
misdeclared as second>hand -ehicles. 7tate the
(roced're for the re-ie. of the decision '( to the
7'(reme Co'rt of the Collector of C'stoms ad-erse to
the im(orter.
SUGGESTED ANSWER:
The (roced're in sei='re cases ma* be s'mmari=ed
as follo.s/
0a1 The collector iss'es a .arrant for the detention or
forfeit're of the im(orted articlesG 07ec. #3"!;
Tariff
and C'stoms Code1
0b1 The Collector gi-es the im(orter a .ritten notice of
the sei='re and fi)es a hearing date to gi-e
the
im(orter an o((ort'nit* to be heardG 07ec. #3"3;
TCC1
0c1 A formal hearing is cond'ctedG 07ec. #3!#; TCC1
0d1 The Collector renders a declaration of forfeit'reG
07ec. #3!#; TCC1
0e1 The 2m(orter aggrie-ed b* the action of the
Collector in an* case of sei='re ma* a((eal to
the
Commissioner for his re-ie. .ithin fifteen 0!%1
da*s from .ritten notice of the CollectorFs
decisionG 07ec. #3!3; TCC1
0f1 The im(orter aggrie-ed b* the action or r'ling of
the
Commissioner in an* case of sei='re ma* a((eal
to
the Co'rt of Ta) A((ealsG 07ec. #$"#; TCC1
0g1 The im(orter ad-ersel* affected b* the decision
of
the Co'rt of Ta) A((eals 0Di-ision1 ma* a((eal to
the Co'rt of Ta) A((eals 0en banc1 .ithin fifteen
0!%1 da*s .hich ma* be e)tended for another
fifteen
0!%1 da*s or s'ch (eriod as the Co'rt of
Ta) A((eals ma* decide.
Customs; Basis of Dutiable Value; lmported
Article (2005)
7tate and e)(lain the basis of d'tiable
-al'e of an im(orted article s'bCect to an ad
-alorem ta) 'nder the Tariff and C'stoms
Code.
ALTERNATlVE ANSWER:
The basis of d'tiable -al'e of an im(orted
article s'bCect to an ad valorem tax 'nder the
Tariff and C'stoms Code is its
TRA67ACT2O6 8AA:E. 0,ec. &(%AA@
Tariff and !ustoms !ode as amended by $.A.
No. *%5-) 2f s'ch -al'e co'ld not be
determined; then the follo.ing -al'es are to be
'tili=ed in their seH'ence/ Transaction -al'e
of identical goods (,ec. &(%A3@): Transaction
-al'e of
similar goods (,ec. &(%A!@): Ded'cti-e -al'e
(,ec. 66.4.% !A.C. No. "-&(("): Com('ted -al'e 0,ec.
66.<.l !.A.C. No. %-&(("(1 and Fallbac< -al'e. 0,ec.
&(%A<@1
ALTERNATlVE ANSWER:
The basis of d'tiable -al'e of an im(orted article s'bCect
to an ad -alorem ta) 'nder the Tariff and C'stoms Code
is its transaction -al'e; .hich shall be the (rice act'all*
(aid or (a*able for the goods .hen sold for e)(ort to the
4hili((ines; adC'sted b* adding certain cost elements to
the e)tent that the* are inc'rred b* the b'*er b't are not
incl'ded in the (rice act'all* (aid or (a*able for the
im(orted goods. (,ec. &(%AA@ Tariff and !ustoms !ode as
amended by $.A. *%5-)
2f s'ch -al'e co'ld not be determined; then the follo.ing
-al'es are to be 'tili=ed in their seH'ence/ Transaction
-al'e of identical goods 07ec. #"!JBK1G Transaction -al'e
of similar goods 07ec. #"!JCK1G Ded'cti-e -al'e 07ec.
22.E.!; CA.O. 6o. $>#""$1G Com('ted -al'e 07ec. 22.F.l;
C.A.O. 6o. !>#""$"1 and Fallbac< -al'e. 07ec. #"!JFK1
Customs; Countervailing Duty vs. Dumping Duty (2005)
Disting'ish co'nter-ailing d't* from d'm(ing d't*. 0%@1
SUGGESTED ANSWER:
The distinctions bet.een co'nter-ailing d't* and d'm(ing
d't* are the follo.ing/
0!1 Basis/ The co'nter-ailing d't* is im(osed .hene-er there is
granted '(on the im(orted article b* the co'ntr* of origin a
s(ecific s'bsid* '(on its (rod'ction; man'fact're or
e)(ortation and this res'lts or threatens inC'r* to local ind'str*
.hile the basis for the im(osition of d'm(ing d't* is the
im(ortation and sale of im(orted items at belo. their
normal -al'e ca'sing or li<el* to ca'se inC'r* to local
ind'str*.
0#1 Amo'nt/ The co'nter-ailing d't* im(osed is
eH'i-alent to the -al'e of the s(ecific s'bsid* .hile the
d'm(ing d't* is eH'i-alent to the margin of d'm(ing
.hich is eH'al to the difference bet.een the e)(ort (rice
to the 4hili((ines and the normal -al'e of the im(orted
article.
Customs; Taxability; Personal Effects (2005)
Macob; after ser-ing a %>*ear to'r of d't* as militar*
attache in Ma<arta; ret'rned to the 4hili((ines bringing
.ith him his (ersonal effects incl'ding a (ersonal
com('ter and a car. Wo'ld Macob be liable for ta)es on
these items, Disc'ss f'll*. 0%@1
SUGGESTED ANSWER:
6o; Macob is not liable for ta)es on his (ersonal com('ter
and the car beca'se he is ta)>e)em(t b* la.. 5e has met
the follo.ing reH'irements for e)em(tion 'nder 4.D. 6o.
## 0!7&1/
a1 5e .as a militar* attache assigned to Ma<artaG
b1 5e has ser-ed abroad for not less than t.o 0#1 *earsG
c1 5e is ret'rning to the 4hili((ines after ser-ing his
to'r of d't*G and
d1 5e has not a-ailed of the ta) e)em(tion for the (ast
fo'r 0$1 *ears.
5e is entitled to ta) e)em(tion on his (ersonal and
ho'sehold effects incl'ding a carG (ro-ided;
a1 The car m'st ha-e been ordered or ('rchased (rior
to the recei(t b* the 4hili((ine mission or cons'late
in Ma<arta of MacobFs recall orderG
b1 the car is registered in MacobFs nameG
c1 the e)em(tion shall a((l* to the -al'e of the carG
d1 the e)em(tion shall a((l* to the aggregate -al'e of
his (ersonal and ho'sehold effects 0incl'ding the
(ersonal com('ter1 not e)ceeding thirt* (er cent'm
03"@1 of the total amo'nt recei-ed b* Macob as
salar* and allo.ances d'ring his assignment in
Ma<arta; b't not to e)ceed fo'r 0$1 *earsG
e1 Macob m'st not ha-e a-ailed of the e)em(tion more
oftener than one e-er* fo'r *ears. 0?ast par. ,ec.
%(-
Tariff and !ustoms !ode1
OTHER RELATED MATTERS
BlR: Bank Deposits Secrecy Violation (2000)
A ta)(a*er is s's(ected not to ha-e declared his
correct
gross income in his ret'rn filed for !7. The e)aminer
reH'ested the Commissioner to a'thori=e him to inH'ire
into the ban< de(osits of the ta)(a*er so that he co'ld
(roceed .ith the net .orth method of in-estigation to
establish fra'd. 3a* the e)aminer be allo.ed to loo<
into
the ta)(a*erFs ban< de(osits, 2n .hat cases ma*
the
Commissioner or his d'l* a'thori=ed re(resentati-e be
allo.ed to inH'ire or loo< into the ban< de(osits of a
ta)(a*er, 0%@1
SUGGESTED ANSWER:
6o. as this .o'ld be -iolati-e of Re('blic Act 6o.
!$"%; the Ban< De(osits 7ecrec* Aa..
The Commissioner of 2nternal Re-en'e or his d'l*
a'thori=ed re(resentati-e ma* be allo.ed to inH'ire
or
loo< into the ban< de(osits of a ta)(a*er in the
follo.ing
cases/
a1 For the ('r(ose of determining the gross estate of a
decedentG
b1 Where the ta)(a*er has filed an a((lication for
com(romise of his ta) liabilit* b* reason of
financial
inca(acit* to (a* s'ch ta) liabilit*. 07ec. & 0F1;
62RC
of !7K
c1 Where the ta)(a*er has signed a .ai-er
a'thori=ing the Commissioner or his d'l*
a'thori=ed re(resentati-es to 2nH'ire into the ban<
de(osits.
BlR: Secrecy of Bank Deposit Law (2003)
9 dies in *ear #""" lea-ing a ban< de(osit of
4#;""";"""."" 'nder Coint acco'nt .ith his associates in a
la. office. Aearning of 9Fs death from the ne.s(a(ers;
the Commissioner of 2nternal Re-en'e .rote to e-er*
ban< in the co'ntr* as<ing them to disclose to him the
amo'nt of de(osits that might be o'tstanding in his name
or Cointl* .ith others at the date of his death. 3a* the
ban< holding the de(osit ref'se to com(l* on the gro'nd
of the 7ecrec* of Ban< De(osit Aa., E)(lain. 08@1
SUGGESTED ANSWER:
6o. The Commissioner of 2nternal Re-en'e has the
a'thorit* to inH'ire into ban< de(osit acco'nts of a
decedent to determine his gross estate not.ithstanding
the (ro-isions of the Ban< 7ecrec* Aa.. 5ence; the ban<s
holding the de(osits in H'estion ma* not ref'se to
disclose the amo'nt of de(osits on the gro'nd of secrec*
of ban< de(osits. 07ection &0F1 of the !7 Ta) Code1.
The fact that the de(osit is a Coint acco'nt .ill not
(recl'de the Commissioner from inH'iring thereon
beca'se the la. mandates that if a ban< has <no.ledge of
the death of a (erson; .ho maintained a ban< de(osit
acco'nt alone; or Cointl* .ith another; it shall not allo.
an* .ithdra.al from the said de(osit acco'nt; 'nless the
Commissioner has certified that the ta)es im(osed
thereon ha-e been (aid. 07ection 7 of the !7 Ta)
Code1. 5ence; to be able to gi-e the reH'ired certification;
the incl'sion of the de(osit is im(erati-e; .hich ma* be
made (ossible onl* thro'gh the inH'ir* made b* the
Commissioner.

1994-2006 Bar Exam Question in Taxation

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1994-2006 Bar Exam Question in Taxation

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

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