Escolar Documentos
Profissional Documentos
Cultura Documentos
I
Gold and Silver Corporation gave extra 14th month bonus to all its officials and
employees in the total amount of P75 Million. When it filed its corporate income tax
return the following year, the corporation declared a net operating loss. When the
income tax return of the corporation was reviewed by the BIR the following year, it
disallowed as item of deduction the P75 Million bonus the corporation gave its
officials and employees on the ground of unreasonableness. The corporation
claimed that the bonus is an ordinary and necessary expense that should be
allowed.
If you were the BIR Commissioner, how will you resolve the issue? 2.5%
I will disallow the expense. A bonus is ordinary and
necessary where said expenditure is (1) appropriate and helpful in
the development of the taxpayers business (Martens, Law of Federal
Income Taxation, Volume IV, p. 315) and (2) is normal in relation to
the business of the taxpayer and the surrounding circumstances (p.
316, Ibid).
To determine the reasonableness of the bonus it must be
commensurate with services performed by the officials and
employees. Other factors to consider are whether the payment was
made in good faith; the character of the taxpayer's business; the
volume and amount of its net earnings; its locality; the type and
extent of the services rendered; the salary policy of the corporation; the
size of the particular business; the employees' qualification and
contributions to the business venture; and general economic
conditions (Atlas Mining v. CIR, G.R. No. L- 26911, January 27,
1981). However, since the business suffers from a net operating loss, I
will rule that the bonus is an unreasonable expense.
II
Quezon City published on January 30, 2006 a list of delinquent real property
taxpayers in 2 newspapers of general circulation and posted this in the main lobby
of the City Hall. The notice requires all owners of real properties in the list to pay the
real property tax due within 30 days from the date of publication, otherwise the
properties listed shall be sold at public auction.
Joachin is one of those named in the list. He purchased a real property in 1996 but
failed to register the document of sale with the Register of Deeds and secure a new
real property tax declaration in his name. He alleged that the auction sale of his
property is void for lack of due process considering that the City Treasurer did not
send him personal notice. For his part, the City Treasurer maintains that the
publication and posting of notice are sufficient compliance with the requirements of
the law.
1.
If you were the judge, how will you resolve this issue? 2.5%
Yes. The law requires that a notice of the auction sale must
be properly sent to Joachin and not merely through publication (Tan v.
Bantegui, G.R. No, 154027, October 24,2005; Estate of Mercedes Jacob
v. CA, G.R. No. 120435, Dec. 22, 1997).
III
XYZ Corporation, an export oriented company, was able to secure a Bureau of
Internal Revenue (BIR) ruling in June 2005 that exempts from tax the importation
some of its raw materials. The ruling is of first impression, which means the
interpretations made by the Commissioner of Internal Revenue is one without
established precedents. Subsequently, however, the BIR issued another ruling which
in effect would subject to tax such kind of importation. XYZ Corporation is
concerned that said ruling may have a retroactive effect, which means that all their
importations done before the issuance of the second ruling could be subject to tax.
a.
What is required to make a BIR ruling of first impression a valid one? 2.5%
A BIR ruling of first impression, to be a valid ruling, must be
issued within the scope of authority granted to the Commissioner of
Internal Revenue, and not contravene any law or decision of the Supreme
Court. (Michelle J. Lhuiller v. CIR, G.R. No. 150947, July 15, 2003; Sec. 7,
NIRC)
c.
Does a BIR ruling have a retroactive effect, considering the principle that tax
exemptions should be interpreted strictly against the taxpayer? 2.5%
A BIR ruling cannot be given retroactive effect if it would be
prejudicial to the taxpayer. Section 246 of the NIRC provides for
retroactive effect in the following cases: 1. Where the taxpayer
a.
Does the US$1, 000 pension become taxable because he is now residing
in the Philippines? Reason briefly. 2.5%
Answer: No, the US$1,000 pension is excluded from gross income
because it is received by a Filipino resident or non-resident from
a foreign private institution which under Section 32(B)(6) of the
NIRC is excluded from gross income.
Alternative Answer: No, the US$1,000 pension is excluded from
gross income because it is derived from sources outside of the
Philippines by a non-resident citizen. He may only be taxed for
income from sources within the Philippines. (Section 42[A][3] in
relation to Section 23, NIRC)
b.
Is his purchase of the three condominium units subject to any tax? Reason
briefly. 2.5%
Answer: Yes, the purchase of the 3 condominium units is subject
to: 1. Documentary stamp tax (payable by either seller or
purchaser) (Section 196, NIRC);2. Local transfer tax imposed
under the Local Government Code (Sec. 134, LGC) 3. Value added
tax, if Z purchased the units from real estate developers and/or
real estate lessors; and 4. Income tax, either capital gains tax or
regular income tax, depending on whether the condominium is
regarded as a capital asset or an ordinary asset of the seller
Alternative Answer: Strictly speaking, purchase is not a
taxable event under the Internal Revenue Code, except for the
requirement of documentary stamp tax in the case of real
property. (Sec. 196, NIRC) c. Will Z be liable to pay income tax on
the P45,000 monthly income? Reason briefly. Yes, Z shall be liable
to pay income tax since he is now a taxpayer engaged in the
business of leasing real property (Section 42[A][4], NIRC
VI
Weber Realty Company which owns a three-hectare land in Antipolo entered into a
Joint Venture Agreement (JVA) with Prime Development Company for the
development of said parcel of land. Weber Realty as owner of the land contributed
the land to the Joint Venture and Prime Development agreed to develop the same
into a residential subdivision and construct residential houses thereon. They agreed
that they would divide the lots between them.
a.
Does the JVA entered into by and between Weber and Prime create a
separate taxable entity? Explain briefly. 2.5%
The JVA entered into between Weber and Prime does not create a
separate taxable entity. The joint venture is formed for the purpose of
undertaking construction projects; hence, is not considered as a
corporation for income tax purposes. (Section 22(B), NIRC).
b.
Are the allocation and distribution of the saleable lots to Weber and prime
subject to income tax and to expanded withholding tax? Explain briefly. 2.5%
No. The allocation and distribution of the saleable lots to Weber and
Prime is a mere return of their capital contribution. The income tax and
the expanded withholding tax is not due on a capital transaction because
no income is realized from it. (BIR Ruling No. DA-192-200, October 17,
2001).
c.
Is the sale by Weber or Prime of their respective shares in the saleable lots to
third parties subject to income tax and to expanded withholding tax? Explain briefly.
2.5%
Yes, the sale by Weber and Prime of their respective shares results
in the realization of income subject to income tax and expanded
withholding tax. (BIR Ruling DA-228-2006).
VII
Remedios, a resident citizen, died on November 10, 2006. She died leaving three
condominium units in Quezon City valued at P5 Million each. Rodolfo was her only
heir. He reported her death on December 5, 2006 and filed the estate tax, he asked
the Commissioner of Internal Revenue to give him one year to pay the estate tax
due. The Commissioner approved the request for extension of time provided that
the estate tax be computed on the basis of the value of the property at the time of
payment of the tax.
a.
Does the Commissioner of Internal Revenue have the power to extend the
payment of estate tax? If so, what are the requirements to allow such extension?
2.5%
Yes, the Commissioner may extend the payment of the tax subject to
the following conditions: 1. Timely payment would impose undue hardship
upon the estate or the heirs; 2. Posting of a bond exceeding double the
amount of the tax may be required by the Commissioner; 3. The extension
shall not exceed 2 years in case of extrajudicial settlement of the estate or
5 years in case of judicial settlement. (Sec. 91, NIRC)
b.
Does the condition that the basis of the estate tax will be the value at the
time of the payment have legal basis? Reason briefly. 2.5%
No. The value of the gross estate shall be determined at the time
of death of the decedent. (Sections 85 and 90[A][1], NIRC)