2009 BAR EXAMINATION IN TAXATION

9 August 2009 2:00PM-5:00PM

INSTRUCTIONS

This questionnaire consists of fifteen (15) questions

contained in four (4) pages. Read each question very
carefully. Answer legibly, clearly and concisely. Start each
number on a separate page; an answer to a subquestion
under the same number may be written continuously on the
same page and on the immediately succeeding pages until
completed. Do not repeat the question.

You will be given credit for your knowledge of legal doctrine

and for the quality of your legal reasoning. A mere “Yes” or
“No” answer without any corresponding discussion will not
be given any credit.

Hand in your notebook with this questionnaire.

Good Luck!

_____________________
J. Antonio Eduardo Nachura
Chairperson
2009 Bar Examinations Committee
 2

1. Enumerate the 3 stages or aspects of taxation. Explain each.

2. Can an assessment for a local tax be the subject of set-off or

compensation against a final judgment for a sum of money obtained by the
taxpayer against the local government that made the assessment? Explain.

3. X is employed as a driver of a corporate lawyer and receives a monthly

salary of P5,000.00 with free board and lodging with an equivalent value of
P1,500.00.

A. What will be the basis of X's income tax? Why?

B. Will your answer in question (a) be the same if X's employer is an
obstetrician? Why?

4. X, a multinational corporation doing business in the Philippines donated

100 shares of stock of said corporation to Mr. Y, its resident manager in the
Philippines.

A. What is the tax liability, if any, of X corporation?

B. Assuming the shares of stocks were given to Mr. Y in consideration of
his services to the corporation, what are the tax implications? Explain.

5. What are “Disguised dividends” in income taxation and give an

example.

6. During the year, a domestic corporation derived the following items of

revenue: (a) gross receipts from a trading business; (b) interests from
money placements in the banks; (c) dividends from its stock investments in
domestic corporations; (d) gains from stock transactions through the
Philippine Stock Exchange; (e) proceeds under an insurance policy on the
loss of goods. In preparing the corporate income tax return, what should be
the tax treatment on each of the above items?

7. To start a business of his own, Mr. Mario de Guzman opted for an early
retirement from a private company after ten (10) years of service. Pursuant
to the company's qualified and approved private retirement benefit plan, he
 3

was paid his retirement benefit which was subjected to withholding tax. Is
the employer correct in withholding the tax? Explain. (2%)

8. Citing Section 10, Article VIII of the 1987 Constitution which provides
that salaries of judges shall be fixed by law and that during their
continuance in office their salary shall not be decreased, a judge of MM
Regional Trial Court questioned the deduction of withholding taxes from his
salary since it results into a net deduction of his pay. Is the contention of
the judge correct? Reason briefly. (5%)

9. Bates Advertising Company is a non-resident corporation duly organized

and existing under the laws of Singapore. It is not doing business and has
no office in the Philippines. Pilipinas Garment Incorporated, a domestic
corporation, retained the services of Bates to do all the advertising of its
products abroad. For said services, Bates' fees are paid through outward
remittances. Are the fees received by Bates subject to any withholding tax?

10. JR was a passenger of an airline that crashed. He survived the

accident but sustained serious physical injuries which required
hospitalization for 3 months. Following negotiations with the airline and its
insurer, an agreement was reached under the terms of which JR was paid
the following amounts: P500,000.00 for his hospitalization; P250,000.00 as
moral damages; and P300,000.00 for loss of income during the period of
his treatment and recuperation. In addition, JR received from his employer
the amount of P200,000.00 representing the cash equivalent of his earned
vacation and sick leaves. Which, if any, of the amounts he received are
subject to income tax? Explain.

11. Mr. Quiroz worked as chief accountant of a hospital for forty-five years.
When he retired at 65 he received retirement pay equivalent to two months'
salary for every year of service as provided in the hospital BIR approved
retirement plan. The Board of Directors of the hospital felt that the hospital
should give Quiroz more than what was provided for in the hospital's
retirement plan in view of his loyalty and invaluable services for forty-five
years; hence, it resolved to pay him a gratuity of P1 Million over and above
his retirement pay. The Commissioner of Internal Revenue taxed the P1
Million as part of the gross compensation income of Quiroz who protested
that it was excluded from income because (a) it was a retirement pay, and
(b) it was a gift.
 4

A. Is Mr. Quiroz correct in claiming that the additional P1 Million was

retirement pay and therefore excluded from income? Explain.
B. Is Mr. Quiroz correct in claiming that the additional P1 Million was gift
and therefore excluded from income? Explain.

12. On 30 June 2000, X took out a life insurance policy on his own life in
the amount of P2,000,000.00. He designated his wife, Y, as irrevocable
beneficiary to P1,000,000.00 and his son, Z, to the balance of
P1,000,000.00 but, in the latter designation, reserving his right to substitute
him for another. On 01 September 2003, X died and his wife and son went
to the insurer to collect the proceeds of X's life insurance policy. (8%)

A. Are the proceeds of the insurance subject to income tax on the part of Y
and Z for their respective shares? Explain.
B. Are the proceeds of the insurance to form part of the gross estate of X?
Explain.

13. XYZ Colleges is a non-stock, non-profit educational institution run by

the Archdiocese of BP City. It collected and received the following:
(a) Tuition fees
(b) Dormitory fees
(c) Rentals from canteen concessionaires
(d) Interest from money-market placements of the tuition fees
(e) Donation of a lot and building by school alumni

Which of these above cited income and donation would not be exempt from
taxation? Explain briefly.

14. PQR Corp. claimed as a deduction in its tax returns the amount of
P1,000,000 as bad debts. The corporation was assessed by the
Commissioner of Internal Revenue for deficiency taxes on the ground that
the debts cannot be considered as "worthless," hence they do not qualify
as bad debts. The company asks for your advice on "What factors will held
in determining whether or not the debts are bad debts?" Answer and
explain briefly.

15. Discuss the rule on situs of taxation with respect to the imposition of
the estate tax on property left behind by a non-resident decedent.
 5

NOTHING FOLLOWS.