QUAMTO FOR TAXATION LAW (1991-2015)
Withholding Tax
Withholding of creditable tax at source
Q: Citing Sec. 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. (2004)
A: No. The contention is incorrect. The salaries of judges
are not tax-exempt and their taxability is not contrary to
the provisions of Sec. 10, Article VIII of the Constitution
on the non-diminution of the salaries of members of the
judiciary during their continuance in office. The clear
intent of the Constitutional Commission that framed the
Constitution is to subject their salaries to tax as in the
case of all taxpayers. Hence, the deduction of
withholding taxes, being a manner of collecting the
income tax on their salary, is not a diminution
contemplated by the fundamental law (Nitafan et. al. v.
CIR, 152 SCRA 284 [1987]).
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Withholding of final tax on certain incomes
Q: What is meant by income subject to "final tax"?
Give at least two examples of income of resident
individuals that is subject to the final tax. (2001)
A: Income subject to final tax refers to an income wherein
the tax due is fully collected through the withholding tax
system. Under this procedure, the payor of the income
withholds the tax and remits it to the government as a
final settlement of the income tax due on said income. The
recipient is no longer required to include the item of
income subjected to "final tax" as part of his gross income
in his income tax returns. Examples of income subject to
final tax are dividend income, interest from bank
deposits, royalties, etc.
Q: What do you think is the reason why cash
dividends, when received by a resident citizen or
alien from a domestic corporation, are taxed only at
the final tax of 10% and not at the progressive tax
rate schedule under Sec. 24(A) of the Tax Code?
Explain your answer. (2001)
A: The reason for imposing final withholding tax rather
than the progressive tax schedule on cash dividends
received by a resident citizen or alien from a domestic
corporation, is to ensure the collection of income tax
on said income. If we subject the dividend to the
progressive tax rate, which can only be done through the
filing of income tax returns, there is no assurance that the
taxpayer will declare the income, especially when there
are other items of gross income earned during the year.
It would be extremely difficult for the BIR to monitor
compliance considering the huge number of
stockholders. By shifting the responsibility to remit the
tax to the corporation, it is very easy to check compliance
because there are fewer withholding agents compared to
the number of income recipients. Likewise, the
imposition of a final withholding tax will make the tax
available to the government at an earlier time. Finally,
the final withholding tax will be a sure revenue to the
government unlike when the dividend is treated as a
returnable income where the recipient thereof who is in
a tax loss position is given the chance to offset such loss
against dividend income thereby depriving the
government of the tax on said dividend income.
Q: Is the prize of 1 million pesos awarded by the
Reader's Digest subject to withholding of final tax?
Who is responsible for withholding the tax? What are
the liabilities for failure to withhold such tax? (1998)
A:
1. It depends. If the prize is considered as winnings
derived from sources within the Philippines, it is
subject to withholding of final tax (Sec. 24[B] in
relation to Sec. 57[A], NIRC). If derived from sources
without the Philippines, it is not subject to
withholding of final tax because the Philippine tax
law and regulations could not reach out to foreign
jurisdictions.
2. The tax shall be withheld by the Reader's Digest or
local agent who has control over the payment of the
prize.
3. Any person required to withhold or who wilfully fails
to withhold, shall, in addition to the other
penalties provided under the Code, be liable upon
33
conviction to a penalty equal to the total amount of
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
tax not withheld (Sec. 251, NIRC). In case of failure to
withhold the tax or in the case of under Q: Don Sebastian, single but head of the family,
withholding, the deficiency tax shall be collected Filipino, and resident of Pasig City, died intestate on
from the payor/withholding agent (1st par., Sec. November 15, 2009. He left the following properties
2.57[A], R.R. No. 2-98). Any person required under the and interests:
Tax Code or by rules and regulations to withhold
taxes at the time or times required by law or rules House and lot (family
and regulations shall, in addition to other penalties home) in Pasig P800,000
provided by law, upon conviction be punished by a
fine of not less than Ten thousand pesos Vacation house and lot in
(Php10.0OO) and suffer imprisonment of not less Florida, USA 1,500,000
than one (1)year but not more than ten (10) years
(1st par., Sec. 255, NIRC). Agricultural land in Naic,
Cavite which he 2,000,000
Estate Tax inherited from his father
Car which is being used
Basic Principles by his brother in Cavite 500,000

Q: Are donations inter vivos and donations mortis Proceeds of life

causa subject to estate taxes? (1994) insurance where he
named his estate as
A: Donations inter vivos are not subject to estate taxes irrevocable beneficiary 1,000,000
because the transfer of the property takes effect during
Household furniture and
the lifetime of the donor. The transfer is therefore subject
appliances 1,000,000
to the donor’s tax. On the other hand, donations mortis
causa are subject to estate taxes since the transfer of the Claims against a cousin
properties takes effect after the death of the decedent. who has assets of
Such donated properties, real or personal, tangible or P10,000 and liabilities of
intangible, shall form part of the gross estate. P100,000 100,000

Q: Is the approval of the court, sitting as probate or Shares of stock in ABC

estate settlement court, required in the enforcement Corp, a domestic
and collection of estate tax? Explain. (1998, 2005) enterprise 100,000
The expenses and charges on the
A: No. The approval of the court, sitting in probate, is
estate are as follows:
not a mandatory requirement in the collection of
estate tax. On the contrary, under Sec. 94 of the NIRC, it Funeral Expenses P 250,000
is the probate or settlement court which is forbidden to
authorize the executor or judicial administrator of the Legal fees for the
decedent’s estate, to deliver any distributive share to any settlement of the estate 500,000
party interested in the estate, unless a certification from Medical expenses of last
the Commissioner of Internal Revenue that the estate tax illness 600,000
has been paid is shown. [Marcos U v. Court of Appeals, 273
SCRA 47 (1997)]. Claims against the estate 300,000

Classification of Decedent The compulsory heirs of Don Sebastian approach you

Q: 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. (2000)
A: The value of the gross estate of a non-resident
decedent who is a Filipino citizen at the time of his death
shall be determined by including the value at the time of
his death of all property, real or personal, tangible or
intangible, wherever situated to the extent of the interest
therein of the decedent at the time of his death [Sec. 85
(A), NIRC of 1997]. These properties shall have a situs of
taxation in the Philippines hence subject to Philippine
estate taxes.
On the other hand, in the case of a non-resident decedent
who at the time of his death was not a citizen of the
Philippines, only that part of the entire gross estate which
is situated in the Philippines to the extent of the interest
therein of the decedent at the time of his death shall be
included in his taxable estate. Provided, that, with respect
to intangible personal property, we apply the rule of
reciprocity. (Ibid)
and seek your assistance in the settlement of his
estate for which they have agreed to the above-stated
professional fees. Specifically, they request you to
explain and discuss with them the following
questions. You oblige:
a. What are the properties and interests that should
be included in the computation of the gross estate
of the decedent? Explain.
b. What is the net taxable estate of the decedent?
Explain.
c. When is the due date for filing and payment of the
applicable tax return and tax? Are these dates
extendible? If so, under what conditions or
requirements?
d. If X, one of the compulsory heirs, renounces his
share in the inheritance in favor of the other co-
heirs, is there any tax implication of X’s
renunciation? What about the other coheirs?
(2010)
34

Gross Estate vis-à-vis Net Estate A:

*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
 QUAMTO FOR TAXATION LAW (1991-2015)
a. All the properties and interests enumerated in the
problem should be included in the gross estate of the
decedent. The composition of the gross estate of a
decedent who is a citizen of the Philippines includes
all properties, real or personal, tangible or intangible,
wherever situated and to the extent of the interest
that he has thereon at the time of his death (Sec. 85
NIRC)
b. The net taxable estate of the decedent is P3,600,000.
From the gross estate of P7 million the following
deductions are allowed: 1) funeral expenses of
P200,000 which is the maximum allowed by law; 2)
legal fees amounting to P500,000; 3) medical
expense not to exceed P500,000; 4)Claims against
the estate of P300,000; 5) family home equivalent to
its fair market value (not to exceed P1 million) of
P800,000; 6) standard deduction of P1 million; and
7) claim against insolvent person(from the cousin)
amounting to P100,000. The inherited property
cannot give rise to vanishing deduction for want of
sufficient factual basis (Sec. 86, NIRC).
Note: Judicial declaration of insolvency is not
necessary to claim a deduction in the gross estate.
c. The filing of return and payment of the tax is within
6 months from date of death following the pay-as-
you-file-concept. The period to file the return is
extendible for a maximum of 30 days under
meritorious cases as may be determined by the
Commissioner. The payment of the estate tax may
also be extended when the Commissioner finds that
the payment of the tax on the due date would impose
undue hardship upon the estate or any of the heirs.
The period of extension to pay shall not exceed 5
years if the estate is settled through the courts, or
shall not exceed 2 years if settled extrajudicially. The
Commissioner may require the executor, or
administrator, or the beneficiary to furnish a bond in
an amount not more than double the amount of
estate tax due (Sec. 91 NIRC).
d. If the renunciation is general renunciation such
that the share of the heir who waives his right to the
inheritance goes to the other co-heirs in accordance
with their respective interest in the inheritance, the
law on accretion applies and the property waived is
considered to pass through the other co-heirs by
inheritance; hence, it has no tax implication.
Undoubtedly, when the compulsory heir renounced
his share in the inheritance, he did not donate the
property which had never become his. Such being the
case, the renunciation is not subject to the donor’s
tax. If it is not general renunciation in favor of the
other co-heirs, the heir renouncing his right is
considered to have made a donation and the
renunciation is subject to donor’s tax. In both cases,
however, the renunciation has no tax implication to
the other co-heirs (BIR Ruling No. DA (DT-039) 396-
09, dated July 23, 2009).
Composition of Gross Estate
Q: Mr. X, a Filipino residing in Alabama, U.S.A., died on
January 2, 2013 after undergoing a major heart
surgery.
He left behind to his wife and two (2) kids several
properties, to wit: (2005, 2014)
1. Family home in Makati City;
2. Condominium unit in Las Piñas City;
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3. Proceeds of health insurance from Take Care, a
health maintenance organization in the
Philippines; and
4. Land in Alabama, U.S.A.
What are the items that must be considered as part of
the gross estate of Mr. X?
A: All the items of properties enumerated in the problem
shall form part of the gross estate of Mr. X. The
composition of the gross estate of a decedent who is a
Filipino citizen shall include all of his properties, real or
personal, tangible or intangible, wherever situated (Sec.
85, NIRC).
Q: A, aged 90 years and suffering from incurable
cancer, on August 1, 2001 wrote a will and, on the
same day, made several inter-vivos gifts to his
children. Ten days later, he died. In your opinion, are
the inter-vivos gifts considered transfers in
contemplation of death for purposes of determining
properties to be included in his gross estate? Explain
your answer. (2001)
A: Yes. When the donor makes his will within a short time
of, or simultaneously with, the making of gifts, the gifts
are considered as having been made in contemplation of
death. (Roces v. Posadas, 58 Phil. 108) Obviously, the
intention of the donor in making the inter-vivos gifts is to
avoid the imposition of the estate tax and since the
donees are likewise his forced heirs who are called upon
to inherit, it will create a presumption juris tantum that
said donations were made mortis causa, hence, the
properties donated shall be included as part of A's gross
estate.
Q: Jose Cerna, Filipino citizen, married to Maria
Cerna, died in a vehicular accident in NLEX on July 10,
2007. The spouses owned, among others, a 100-
hectare agricultural land in Sta. Rosa, Laguna with
current fair market value of P20 million, which was
subject to matter of a Joint Venture Agreement about
to be implemented with Star Land Corporation (SLC),
a well-known real estate development company. He
bought the said real property for P2 million fifty
years ago. On January 5, 2008, the administrator of
the estate and SLC jointly announced their big plans
to start conversion and development of the
agricultural lands in Sta. Rosa, Laguna, into first-class
residential and commercial centers. As a result, the
prices of real properties in the locality have doubled.
The administrator of the Estate of Jose Cernan filed
the estate tax return on January 9, 2008, by including
in the gross estate the real property at P2 million.
After 9 months, the BIR issued deficiency estate tax
assessment, by valuing the real property at P40
million.
a. Is the BIR correct in valuing the real property at
P40 million? Explain.
b. If you disagree, what is the correct value to be
used for estate tax purposes? Explain. (2008)
A:
a. No. The value of the property for estate tax purpose
shall be the fair market value thereof at the time of
death (Sec. 88 B NIRC).
b. The correct value to use for estate tax purposes is
35
P20 Million which is the current fair market value of
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ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
the property at the time of the decedent’s death (Sec.
88 B NIRC).
Q: 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%)
Are the proceeds of the insurance to form part of the
gross estate of X? Explain. (2000, 2003)
A: With respect to the life insurance proceeds, the
amount includible in the gross estate for Philippine tax
purposes would be to the extent of the amount receivable
by the estate of the deceased, his executor, or
administrator, under policies taken out by decedent upon
his own life, irrespective of whether or not the insured
retained the power of revocation, or to the extent of the
amount receivable by any beneficiary designated in the
policy of insurance, except when it is expressly stipulated
that the designation of the beneficiary is irrevocable (Sec.
85[E] NIRC of 1997).
Only the proceeds of P1,000,000.00 given to the son, Z,
shall form part of the Gross Estate of X. As stated in the
problem, only the designation of Y is irrevocable while
the insured/decedent reserved the right to substitute Z
as beneficiary for another person. Accordingly, the
proceeds received by Y shall be excluded while the
proceeds received by Z shall be included in the gross
estate of X (Sec. 85[E], NIRC).
Q: Cliff Robertson, an American citizen, was a
permanent resident of the Philippines. He died in
Miami, Florida. He left 10,000 shares of Meralco, a
condominium unit at the Twin Towers Building at
Pasig, Metro Manila and a house and lot in Los
Angeles, California. What assets shall be included in
the Estate Tax Return to be filed with the BIR? (1994)
A: All of Mr. Robertson's assets consisting of 10,000
shares in the Meralco, a condominium unit in Pasig, and
his house and lot in Los Angeles, California are taxable.
The properties of a resident alien decedent like Mr.
Robertson are taxable wherever situated.
Q: Antonia Santos, 30 years old, gainfully employed,
is the sister of Edgardo Santos. She died in an airplane
crash. Edgardo is a lawyer and he negotiated with the
airline company and insurance company and they
were able to agree total settlement of P10 Million.
This is what Antonia would have earned as somebody
who was gainfully employed. Edgardo was her only
heir. (2007)
a. Is the P10 Million subject to estate tax? Reason
briefly.
b. Should Edgardo report the P10 Million as his
income being Antonia's only heir? Reason briefly.
A:
a. No, the P10 million does not form part of Antonia’s
taxable estate because Antonia has no control over
the outcome of the negotiation/case as of the time of
her death. The settlement agreement was
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
determined and finalized after Antonia’s death,
therefore, it must be excluded in the gross estate.
b. No, the P10 million settlement need not be reported
by Edgardo since the amount qualifies as
compensation for personal injuries which is
excluded from gross income. (Sec. 32[B][4] of the
NIRC)
Q: 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.
A: No. The value of the gross estate shall be determined
at the time of death of the decedent. (Sec.s 85 and
90[A][1], NIRC)
B.5. Deductions from Gross Estate
Q: Mr. X, a Filipino residing in Alabama, U.S.A., died on
January 2, 2013 after undergoing a major heart
surgery.
He left behind to his wife and two (2) kids several
properties, to wit: (2014)
1. Family home in Makati City;
2. Condominium unit in Las Piñas City;
3. Proceeds of health insurance from Take Care, a
health maintenance organization in the
Philippines; and
4. Land in Alabama, U.S.A.
The following expenses were paid:
1. Funeral expenses;
2. Medical Expenses;
3. Judicial expenses in the testate proceedings
What are the items that may be considered as
deductions from the gross estate?
A: (A) All the items of expenses in the problem are
deductible from his gross estate. However, the allowable
amount of funeral expenses shall be 5% of the gross
estate or actual, whichever is lower, but in no case shall
the amount deductible go beyond P200,000.00 Likewise,
the deductible medical expense must be limited to those
incurred within one year prior to his death but not to
exceed P500,000.00. In addition to the items of expenses
mentioned in the problem, there is also allowed as a
deduction from the gross estate the standard deduction
amounting to P1million and deduction for family home
not to exceed P1million. (Sec. 86, NIRC)
Q: State the conditions for allowing the following as
deductions from the gross estate of a citizen or
resident alien for the purpose of imposing estate tax:
(2015)
a. Claims against the estate
b. Medical expenses
A:
a. In order that claims against the estate may be
allowed as deductions from the gross estate of a
citizen or resident alien for purposes of imposing the
estate tax, the law requires that at the time the
indebtedness was incurred, the debt instrument was
duly notarized. In addition, if the loan was contracted
36
within 3 years before the death of the decedent, the
executor or administrator shall submit a statement
 QUAMTO FOR TAXATION LAW (1991-2015)
showing the disposition of the proceeds of the loan
(Sec. 86(a)(1)(c), NIRC).
b. The conditions for the allowance of medical expenses
as deductions from the gross estate of a citizen or
resident alien are:
i. The medical expenses must have been
incurred within 1 year before death of the
decedent;
ii. The medical expenses are duly
substantiated with receipts; and
iii. The total amount thereof, whether paid or
unpaid, does not exceed P500,000 (Sec.
86A(6), NIRC).
Q: Mr. Felix de la Cruz, a bachelor resident citizen,
suffered from a heart attack while on a business trip
to the USA. He died intestate on June 15, 2000 in New
York City, leaving behind real properties situated in
New York; his family home in Valle Verde, Pasig
City; an office condominium in Makati City; shares of
stocks in San Miguel Corporation; cash in bank;
and personal belongings. The decedent is heavily
insured with Insular Life. He had no known debts at
the time of his death. What deductions may be
claimed by the estate (2000)
A: The DEDUCTIONS that may be claimed by the estate
are:
1. The actual funeral expenses or in an amount equal to
five percent (5%) of the gross estate, whichever is
lower, but in no case to exceed two hundred
thousand pesos (P200.000.00). [Sec. 86 (A)(1)(a).
NIRC]
2. The judicial expenses in the testate or intestate
proceedings. (Sec. 86(A)(1), NIRC)
3. The value of the decedent's family home located in
Valle Verde, Pasig City in an amount not exceeding
one million pesos (P1,000,000.00), and upon
presentation of a certification of the barangay
captain of the locality that the same have been the
decedent's family home. [Sec. 86 (A) (4), NIRC]
4. The standard deduction of P1,000,000. (Sec.
86(A)(5), NIRC)
5. Medical expenses incurred within one year prior
to the death in an amount not exceeding P500,000.
(Sec. 86(A)(6), NIRC)
Q: On the first anniversary of the death of Y, his heirs
hosted a sumptuous dinner for his doctors, nurses,
and others who attended to Y during his last illness.
The cost of the dinner amounted to Php 50,000.00.
Compared to his gross estate, the Php 50,000.00 did
not exceed five percent of the estate. Is the said cost
of the dinner to commemorate his one year death
anniversary deductible from his gross estate?
Explain your answer. (2001)
A: No. This expense will not fall under any of the
allowable deductions from gross estate. Whether viewed
in the context of either funeral expenses or medical
expenses, the same will not qualify as a deduction.
Funeral expenses may include medical expenses of
the last illness but not expenses incurred after burial
nor expenses incurred to commemorate the death
anniversary. (De Guzman V. De Guzman, 83 SCRA 256).
Medical expenses, on the other
hand, are allowed only if incurred by the decedent
within one year prior to his death. (Sec. 86(A)(6),
NIRC).
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Q: During his lifetime, Mr. Sakitin obtained a loan
amounting to P20 million from Bangko Uno for the
purchase of a parcel of land located in Makati City,
using such property as collateral for the loan. The
loan was evidenced by a duly notarized promissory
note. Subsequently, Mr. Sakitin died. At the time of his
death, the unpaid balance of the loan amounted to P2
million. The heirs of Mr. Sakitin deducted the amount
of P2 million from the gross estate, as part of the
“Claims against the Estate.” Such deduction was
disallowed by the Bureau of Internal Revenue (BIR)
Examiner, claiming that the mortgaged property was
not included in the computation of the gross estate.
Do you agree with the BIR? Explain. (2014)
A: Yes. Unpaid mortgages upon, or any indebtedness with
respect to property are deductible from the gross estate
only if the value of the decedent’s interest in said
property, undiminished by such mortgage or
indebtedness, is included in the gross estate (Sec. 86
(A)(l)(e), NIRC). In the instant case, the interest of the
decedent in the property purchased from the loan where
the said property was used as the collateral, was not
included in the gross estate. Accordingly, the unpaid
balance of the loan at the time of Mr. Sakitin’s death is not
deductible as “Claims against the Estate.”
Q: What is “Vanishing deductions” in estate taxation?
(1994)
A: Vanishing deductions or property previously taxed in
estate taxation refers to the diminishing deductibility/
exemption, at the rate of 20% over a period of five (5)
years until it is lost after the fifth year, of any property
(situated in the Philippines) forming part of the gross
estate, acquired by the decedent from a prior decedent
who died within a period of five (5) years from the
decedent’s death or received as gift from a donor within
a period of five (5) years from the decedent’s death where
the resulting gift tax has been paid.
Q: In 1999, Xavier purchased from his friend, Yuri, a
painting for P500,000.00. The fair market value
(FMV) of the painting at the time of the purchase was
P1-million. Yuri paid all the corresponding taxes on
the transaction. In 2001, Xavier died. In his last will
and testament, Xavier bequeathed the painting,
already worth P1.5-million, to his only son, Zandro.
The will also granted Zandro the power to appoint his
wife, Wilma, as successor to the painting in the event
of Zandro's death. Zandro died in 2007, and Wilma
succeeded to the property.
a. Should the painting be included in the gross
estate of Xavier in 2001 and thus, be subject to
estate tax? Explain.
b. Should the painting be included in the gross
estate of Zandro in 2007 and thus, be subject to
estate tax? Explain.
c. May a vanishing deduction be allowed in either or
both of the estates? Explain. (2009)
A:
a. Yes. The transmission of the property from Xavier to
Zandro is subject to the estate tax because this is a
property within Xavier’s control to dispose upon his
death. The composition of the gross estate pertains
to properties owned and existing as of the time of
death and to be transferred by the owner by death.
37
(Sec. 85, NIRC)
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ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
b. No. The transmission from the first heir, legatee or
donee in favor of another beneficiary, in accordance
with the desire of the predecessor is an exempt
transfer (Sec. 87, NIRC). Zandro has no control or
discretion over the disposition of the said property at
the time of his death; hence, the estate tax which is
imposed the privilege of transmitting properties
upon his death will not apply.
ALTERNATIVE ANSWER:
No. the property passes from Zandro to Wilma by
virtue of the special power of appointment granted
by Xavier. The law includes as part of the gross estate
of the decedent a property passing under general
(not special) power of appointment. The grantee of
the power to appoint, Zandro, has no control over the
disposition of the property because it is the desire of
the grantor of the power that the property will go to
a specific person. This being so, the painting should
not be included in the gross estate of Zandro, hence,
it is not subject to estate tax (Sec. 85[D] NIRC).
c. Vanishing deduction shall be allowed to the estate of
Xavier but only to the extent of ½ of the property
(P500,000) which is the portion acquired by gift (Sec.
100 NIRC). The donation took place within 5 years
(1999-2001) from the death of Xavier; hence, there is
vanishing deduction. However, Zandro’s estate will
not be entitled to claim vanishing deduction because,
first and foremost, the property previously taxed is
not includable in his gross estate. Second, even if it is
includable, the present decedent died more than 5
years from the death of the previous decedent, and
that a vanishing deduction is already claimed by the
previous estate involving the same property.
NOTE: The painting sold by Yuri to Xavier is subject to
donor’s tax under transfers for insufficient consideration.
Since the FMV of the painting at the time of donation is
P1M, albeit it was sold only for P500,000, the difference of
P500,000 is subject to donor’s tax. Thus, upon death of
Xavier, there is a vanishing deduction.
Exclusions from Gross Estate
Q: Mr. Agustin, 75 years old and suffering from an
incurable disease, decided to sell for valuable and
sufficient consideration a house and lot to his son. He
died one year later. In the settlement of Mr. Agustin's
estate, the BIR argued that the house and lot were
transferred in contemplation of death and should
therefore form part of the gross estate for estate tax
purposes. Is the BIR correct? (2013)
A : No. The house and lot were not transferred in
contemplation of death therefore, these properties
should not form part of the decedent’s gross estate. A
bona fide sale transaction cannot qualify as a transfer in
contemplation of death. Since the house and lot were sold
for valuable and sufficient consideration, there is no
transfer in contemplation of death for estate tax purposes
(Sec. 85 (B), NIRC).
Q: Jose Ortiz owns 100 hectares of agricultural land
planted with coconut trees. He died on May 30, 1994.
Prior to his death, the government, by operation of
law, acquired under the Comprehensive Agrarian
Reform Law all his agricultural lands except five (5)
hectares. Upon the death of Ortiz, his widow asked
you how she will consider the 100 hectares of
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
agricultural land in the preparation of the estate tax
return. What advice will you give her? (1999)
A: The 100 hectares of land that Jose Ortiz owned but
which prior to his death on May 30, 1994 were acquired
by the government under CARP are no longer part of his
taxable gross estate, with the exception of the remaining
five (5) hectares which under Sec. 78(a) of the Tax Code
still forms part of "decedent's interest".
Estate Tax Return
Q: 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. (2007)
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?
A: 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 not 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)
Q: Mr. Felix de la Cruz, a bachelor resident citizen,
suffered from a heart attack while on a business trip
to the USA. He died intestate on June 15, 2000 in New
York City, leaving behind real properties situated in
New York; his family home in Valle Verde, Pasig
City; an office condominium in Makati City; shares of
stocks in San Miguel Corporation; cash in bank;
and personal belongings. The decedent is heavily
insured with Insular Life. He had no known debts at
the time of his death. When and where shall the
return be filed and estate tax paid? (2000)
A: The ESTATE TAX RETURN shall be filed within six (6)
months from the decedent's death (Sec. 90 (B), NIRC of
1997], provided that the Commissioner of Internal
Revenue shall have authority to grant in meritorious
cases, a reasonable extension not exceeding thirty (30)
days for filing the return (Sec. 90 (c), Ibid]. Except in
cases where the Commissioner of Internal Revenue
otherwise permits, the estate tax return shall be filed
with an authorized agent bank, or Revenue District
Officer, Collection Officer, or duly authorized Treasurer of
Pasig City, the City in which the decedent Mr. de la Cruz
was domiciled at the time of his death. [Sec. 90 (D). NIRC
of 1997]
D onor’ s T ax
Q: When the donee or beneficiary is a stranger, the
tax payable by the donor shall be 30% of the net gifts.
For purposes of this tax, who is a stranger? (2000)
38
 QUAMTO FOR TAXATION LAW (1991-2015)
A: A stranger is a person who is not a:
a. Brother, sister (whether by whole or half-blood),
spouse, ancestor and lineal descendant; or
b. Relative by consanguinity in the collateral line
within the fourth degree of relationship. [Sec. 98 (B),
NIRC of 1997]
Transfers Which Maybe Constituted as Donation
Q: In the settlement of the estate of Mr. Barbera who
died intestate, his wife renounced her inheritance
and her share of the conjugal property in favour of
their children. The BIR determined that there was a
taxable gift and thus assessed Mrs. Barbera as a
donor. Was the BIR correct? (2013)
A: The BIR is correct that there was taxable gift only
insofar as the renunciation of the share of the wife in the
conjugal property is concerned. This is a transfer of
property without consideration which takes effect during
the lifetime of the transferor/wife and this qualifies as a
taxable gift (RR Mo. 2-2003). But the general renunciation
of the wife’s share in the inheritance during the
settlement of the estate is not a taxable gift considering
that the property is automatically transferred to the other
heirs by operation of law through accretion (BIR Ruling
DA No. 333-07).
Q: An insolvent company had an outstanding
obligation of P 100,000.00 from a creditor. Since it
could not pay the debt, the creditor agreed to accept
payment through dacion en pago a property which
had a market value of P30,000.00. In the dacion en
pago document, the balance of the debt was
condoned.
a. What is the tax effect of the discharge of the
unpaid balance of the obligation on the debtor
corporation?
Insofar as the creditor is concerned, how is he
affected tax-wise as a consequence of the
transaction? (1997)
A:
a. The condonation of the unpaid balance of the
obligation has the effect of a donation made on the
part of the creditor. It is obvious that the creditor
merely desires to benefit the debtor and without
any consideration therefore cancels the debt, the
amount of the debt cancelled is a gift from the
creditor to the debtor and need not be included in the
latter's gross income (Sec. 50, RR No. 2);
b. For the difference of P70,000 the creditor shall be
subject to donor's tax at the applicable rates
provided for under the National Internal Revenue
Code.
ALTERNATIVE ANSWER:
a. If the discharge was prompted by the insolvency of
the debtor company, then it is a clear case of a write-
off of bad debts which has no tax consequence to the
debtor.
b. The write-off of the bad debt will entitle the creditor
to claim the same as a deduction from its gross
income.
Valuation of Gifts Made in Property
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Q: Mr. L owned several parcels of land and he donated
a parcel each to his two children. Mr. L acquired both
parcels of land in 1975 for P200,000.00. At the time
of donation, the fair market value of the two parcels
of land, as determined by the CIR, was P2,300,000.00;
while the fair market value of the same properties as
shown in the schedule of values prepared by the City
Assessors was P2,500,000.00. What is the proper
valuation of Mr. L's gifts to his children for purposes
of computing donor's tax? (2015)
A: The valuation of Mr. L’s gift to his children is the fair
market value (FMV) of the property at the time of
donation. The FMV is the higher of the FMV as
determined by the Commissioner or the FMV as shown in
the schedule of values fixed by the provincial or city
assessors. In this case, for the purpose of computing
donor’s tax, the proper valuation is the value prepared by
the City Assessors amounting to P2,500,000 because it is
higher than the FMV determined by the CIR (Sec. 102 in
relation to Sec. 88(B), NIRC).
Q: Kenneth Yusoph owns a commercial lot which he
bought many years ago for P1 Million. It is now worth
P20 Million although the zonal value is only P15
Million. He donates one-half pro-indiviso interest in
the land to his son Dino on 31 December 1994, and
the other one-half pro-indiviso interest to the same
son on 2 January 1995. How much is the value of the
gifts in 1994 and 1995 for purposes of computing the
gift tax? Explain. (1995)
A: The value of the gifts for purposes of computing the gift
tax shall be P7.5million in 1994 and P7.5million in 1995.
In valuing a real property for gift tax purposes the
property should be appraised at the higher of two
values as of the time of donation which are (a) the fair
market value as determined by the Commissioner
(which is the zonal value fixed pursuant to Sec. 16(e)
of the Tax Code), or (b) the fair market value as
shown in the schedule of values fixed by the
Provincial and City Assessors (assessed value). The
fact that the property is worth P20 million as of the time
of donation is immaterial unless it can be shown that this
value is one of the two values mentioned as provided
under Sec. 81 of the Tax Code.
Q: The Revenue District Officer questions the
splitting of the donations into 1994 and 1995. He says
that since there were only two (2) days separating
the two donations they should be treated as one,
having been made within one year. Is he correct?
Explain. (1995)
A: The Revenue District Officer is not correct because the
computation of the gift tax is cumulative but only insofar
as gifts made within the same calendar year. Therefore,
there is no legal justification for treating two gifts affected
in two separate calendar years as one gift.
Q: Dino subsequently sold the land to a buyer for P20
Million. How much did Dino gain on the sale? Explain.
(1995)
A: Dino gained an income of P19 million from the sale.
Dino acquires a carry-over basis which is the basis of the
property in the hands of the donor or P1 million. The gain
from the sale or other disposition of property shall be the
39
excess of the amount realized therefrom over the basis or
adjusted basis for determining gain (Sec. 40(B)(3), NIRC).
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
Since the property was acquired by gift, the basis for
determining gain shall be the same as if it would be in the
hands of the donor or the last preceding owner by whom
the property was not acquired by gift. Hence, the gain is
computed by deducting the basis of P1 million from the
amount realized which is P20 million.
Q: Suppose, instead of receiving the lot by way of
donation, Dino received it by inheritance. What
would be his gain on the sale of the lot for P20
Million? Explain. (1995)
A: If the commercial lot was received by inheritance the
gain from the sale for P20 million is P5 million because
the basis is the fair market value as of the date of
acquisition. The stepped-up basis of P15 million which is
the value for estate tax purposes is the basis for
determining the gain (Sec. 34(b)(2), NIRC).
ALTERNATIVE ANSWER: If Dino held on to the
property as a capital asset in that it is neither for sale in
the ordinary course of business nor used in Dino's
business, then upon sale thereof there is presumed to be
realized an income of P20 million which is the gross
selling price of the property. The same would be
subject to the 6% capital gains tax.
Transfer for Less Than and Adequate Consideration
Q: A, an individual, sold to B, his brother-in-law, his
lot with a market value of P1,000,000 for P600,000.
A's cost in the lot is P100,000. B is financially capable
of buying the lot. A also owns X Co., which has a fast
growing business. A sold some of his shares of stock
in X Co. to his key executives in X Co. These executives
are not related to A. The selling price is P3,000,000,
which is the book value of the shares sold but with a
market value of P5,000,000. A's cost in the shares
sold is P1,000,000. The purpose of A in selling the
shares is to enable his key executives to acquire a
propriety interest in the business and have a
personal stake in its business. Explain if the above
transactions are subject to donor's tax. (1999)
A: The first transaction where a lot was sold by A to his
brother-in-law for a price below its fair market value will
not be subject to donor's tax if the lot qualifies as a capital
asset. The transfer for less than adequate and full
consideration, which gives rise to a deemed gift, does not
apply to a sale of property subject to capital gains tax (Sec.
100, NIRC). However, if the lot sold is an ordinary asset,
the excess of the fair market value over the consideration
received shall be considered as a gift subject to the
donor's tax.
The sale of shares of stock below the fair market value
thereof is subject to the donor's tax pursuant to the
provisions of Sec. 100 of the Tax Code. The excess of the
fair market value over the selling price is a deemed gift.
Q: ABC Corporation sold a real property in Malolos,
Bulacan to XYZ Corporation. The property has been
classified as residential and with a zonal valuation of
P1,000 per square meter. The capital gains tax was
paid based on the zonal value. The Revenue District
Officer (RDO), however, refused to issue the
Certificate Authorizing Registration for the reason
that based on his ocular inspection the property
should have a higher zonal valuation determined by
the Commissioner of Internal Revenue because the
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
area is already a commercial area. Accordingly, the
RDO wanted to make a recomputation of the taxes
due by using the fair market value appearing in a
nearby bank's valuation list which is practically
double the existing zonal value. The RDO also wanted
to assess a donor's tax on the difference between the
selling price based on the zonal value and the fair
market value appearing in a nearby bank's valuation
list. (2007)
a. Does the RDO have the authority or discretion to
unilaterally use the fair market value as the basis
for determining the capital gains tax and not the
zonal value as determined by the Commissioner
of Internal Revenue? Reason briefly.
b. Should the difference in the supposed taxable
value be legally subject to donor's tax? Reason
briefly.
A:
a. The RDO has no discretion. The only value that can
be applied is the zonal value as fixed and determined
by the Commissioner. (Sec.6[E], NIRC).
b. No. A deemed gift arises only if tax is avoided as a
result of selling property at a price lower than its fair
market value with the exception of sale of real
property held as capital asset which is subject to 6%
capital gains tax. In a sale subject to 6% capital gains
tax, the tax is always based on the gross selling price
or fair market value whichever is higher. This means,
therefore, that the deemed gift provision under the
Tax Code will not apply because the 6% capital gains
tax is applied to the higher value.
Exclusion to Gross Gifts/Exemption
from Donor’s Tax
Dowry
Q: Miguel, a citizen and resident of Mexico, donated
US$1,000.00 worth of stocks in Barack Motors
Corporation, a Mexican company, to his legitimate
son, Miguelito, who is residing in the Philippines and
about to be married to a Filipino girlfriend. Mexico
does not impose any transfer tax of whatever nature
on all gratuitous transfers of property.
a. Is Miguel entitled to claim a dowry exclusion?
Why or why not?
b. Is Miguel entitled to the rule of reciprocity in
order to be exempt from the Philippine donor's
tax? Why or why not? (2009)
A:
a. Miguel, a non-resident alien, is not allowed any
dowry exclusion. The dowry applies only to a
donor who is either a citizen or resident of the
Philippines. (Sec. 101(A)(1) NIRC)
b. No. the donation is not subject to the Philippine
donor’s tax because the donor is a non-resident alien
and the property donated is a property not situated
in the Philippines. The rule of reciprocity applies
only if the property transferred by a non-resident
alien is an intangible personal property situated
in the Philippines. This is designed to reciprocate
the exemption from donor’s tax granted by a foreign
country to Filipinos who are not residing thereat.
(Sec. 104, NIRC)
Donation to nonstock and non-profit institution
40
 QUAMTO FOR TAXATION LAW (1991-2015)
Q: What conditions must occur in order that all
grants, donations and contributions to non-stock,
non-profit private educational institutions may be
exempt from the donor's tax under Sec. 101 (a) of the
Tax Code? (2000, 2002)
A: The following are the conditions:
1. Not more than thirty percent (30%) of said gifts shall
be used by such donee for administration purposes;
2. The educational institution is incorporated as a non-
stock entity;
3. Paying no dividends;
4. Governed by trustees who receive no compensation;
and
5. Devoting all its income, whether students' fees or
gifts, donations, subsidies or other forms of
philanthropy, to the accomplishment and promotion
of the purposes enumerated in its Articles of
Incorporation. (Sec. 101 (A) (3), NIRC of 1997]
Q: The Congregation of the Mary Immaculate donated
a land a dormitory building located along España St.
in favor of the Sisters of the Holy Cross, a group of
nuns operating a free clinic and high SCHOOL
TEACHING basic spiritual values. Is the donation
subject to donor's tax? Reason Briefly. (2007)
A: The donation is not subject to donor’s tax. Gifts made
in favor of educational and/or charitable or religious
institutions shall be exempt from the donor’s tax
provided that not more than 30% of said gifts shall be
used by such donee for administration purposes. (Sec.
101[A][3]; CIR v. Court of Appeals, Court of Tax Appeals
and Ateneo de Manila University, G.R. No. 115349, April 18,
1997).
Q: In 1991, Imelda gave her parents a Christmas gift
of P 100,000.00 and a donation of P50,000.00 to her
parish church. She also donated a parcel of land for
the construction of a building to the PUP Alumni
Association, a non-stock, non-profit organization.
Portions of the building shall be leased to generate
income for the association.
a. Is the Christmas gift of P 100,000.00 to Imelda's
parents subject to tax?
b. How about the donation to the parish church?
c. How about the donation to the P.U.P, Alumni
Association? (1994)
A:
a. Under the current NIRC, the amount of net gift
donated to a relative is exempted from imposition of
donor’s tax if the donation does not exceed P100,000.
As such, the Christmas gift of P100,000 in the
problem above is exempt from donor’s tax.
b. The donation to parish church is exempt from
income tax. Gifts in favor of an educational and/or
charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment
organization, trust or philanthropic organization or
research institution or organization is exempt from
donor’s tax provided that not more than thirty
percent (30%) of said gifts shall be used by such
donee for administration purposes. (Sec. 101 [A][3],
NIRC)
c. The donation to the P.U.P. Alumni Association does
not also qualify for exemption both under the
Constitution and the aforecited law because it is not
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
an educational or research organization,
corporation, institution, foundation or trust.
ALTERNATIVE ANSWER: Donation to the P.U.P. Alumni
Association is exempt from donor's tax if it is proven that
the association is a nonstock, non-profit charitable
association, paying no dividends, governed by
trustees who receive no compensation, and devoting
all its income to the accomplishment and promotion
of the purposes enumerated in its articles of
incorporation. Not more than 30% of the gift should be
used for administration purposes by the donee.
Contributions for Election
Q: Are contributions to a candidate in an election
subject to donor's tax? On the part of the contributor,
is it allowable as a deduction from gross income?
(1998)
A: No, provided the recipient candidate had complied
with the requirement for filing of returns of contributions
with the Commission on Elections as required under the
Omnibus Election Code.
The contributor is not allowed to deduct the
contributions because the said expense is not
directly attributable to, the development,
management, operation and/or conduct of a trade,
business or profession (Sec. 34[Al(l)(a), NIRC).
Furthermore, if the candidate is an incumbent
government official or employee, it may even be
considered as a bribe or a kickback (Sec. 34[A](I)(c),
NIRC).
Q: Mr. De Sarapen is a candidate in the upcoming
Senatorial elections. Mr. De Almacen, believing in the
sincerity and ability of Mr. De Sarapen to introduce
much needed reforms in the country, contributed
P500,000.00 in cash to the campaign chest of Mr. De
Sarapen. In addition, Mr. De Almacen purchased
tarpaulins, t-shirts, umbrellas, caps and other
campaign materials that he also donated to Mr. De
Sarapen for use in his campaign. Is the contribution
of cash and campaign materials subject to donor’s
tax? (4%) (2014)
A: The Tax Code provides that any contribution in
cash or kind to any candidate, political party or
coalition of parties for campaign purposes shall be
governed by the Election Code (Sec. 99(c), NIRC). On the
other hand, the Omnibus Election Code provides, that any
provision of the law to the contrary notwithstanding, any
contribution in cash or kind to any candidate or
political party or coalition of parties for campaign
purposes, duly reported to the Commission shall not
be subject to any payment of gift tax (Sec. 13, RA 7166).
Hence the contributions will be exempt from donor’s tax
if they are duly reported to the Commission. Otherwise,
the contributions will be subject to donor’s tax.
Q: X is a friend of Y, the chairman of Political Party Z,
who wants to run for President in the 2004 elections.
Knowing that Y needs funds for posters and
streamers, X is thinking of donating to Y
P150,000.00 for his campaign. He asks you whether
his intended donation to Y will be subject to the
donor's tax. What would your answer be? Will your
answer be the same if he were to donate to Political
41
Party Z instead of to Y directly? (2003)
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
A: The donation to Y, once he becomes a candidate for an
elective post, is not subject to donor's tax provided that
he complies with the requirement of filing returns of
contributions with the Commission on Elections as
required under the Omnibus Election Code. The answer
would be the same if X had donated the amount to
Political Party Z instead of to Y directly because the law
places in equal footing any contribution to any candidate,
political party or coalition of parties for campaign
purposes. (Sec.99(C) of the 1997 Tax Code).
Contribution to National Government, its agencies or
Political Subdivisions
Q: Ace Tobacco Corporation bought a parcel of land
situated at Pateros and donated it to the Municipal
Government of Pateros for the sole purpose of
devoting the said land as a relocation site for the less
fortunate constituents of said municipality. In
accordance therewith, the Municipal Government of
Pateros issued to the occupants/beneficiaries
Certificates of Award giving to them the respective
areas where their houses are erected. Through
Ordinance No. 2, Series of 1998, the said municipal
government ordained that the lots awarded to the
awardees/donees be finally transferred and donated
to them. Determine the tax consequence of the
foregoing dispositions with respect to Ace Tobacco
Corporation, the Municipal Government of Pateros,
and the occupants/beneficiaries. (1998)
A: The donation by Ace Tobacco Corporation is exempt
from the donor's tax because it qualifies as a gift to or for
the use of any political subdivision of the National
Government (Sec. 101(2), NIRC). The conveyance is
likewise exempt from documentary stamp tax because it
is a transfer without consideration.
Since the donation is to be used as a relocation site for the
less fortunate constituents of the municipality. It may be
considered as an undertaking for human settlements,
hence the value of the land may be deductible in full from
the gross income of Ace Tobacco Corporation if in
accordance to a National Priority Plan determined by the
National Economic Development Authority (Sec.
34{H](2)(a), NIRC). If the utilization is not in accordance
to a National Priority Plan determined by the National
Economic Development Authority, then Ace Tobacco
Corporation may deduct the value of the land donated
only to the extent of five (5%) percent of its taxable
income derived from trade or business as computed
without the benefit of the donation. (Sec.34[H](2)(a) in
relation to Sec. 34[H](1), NIRC).
The Municipality of Pateros is not subject to any donor's
tax on the value of land it subsequently donated, it being
exempt from taxes as a political subdivision of the
National Government.
The occupants/beneficiaries are subject to real property
taxes because they now own the land.
ALTERNATIVE ANSWER:
On Taxability of Municipality and Awardees:
The awarding by the Municipal Government of lots to
specific awardees or donees is likewise exempt from the
donor's tax because it is only an implementation of the
purpose for which the property was given by Ace
Tobacco Corporation. The purpose of the first donation is
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
to devote the land as a relocation site for the less
fortunate constituents. If later on the Municipality gives
out Certificates of Award over specific lots occupied by
the qualified occupants/beneficiaries, this is intended to
perpetuate the purpose of the previous donor, the
Municipality acting merely as a conduit and not the true
donor. This is simply a donation by the Municipality in
form but not in substance. The receipt by the occupant
beneficiaries of their respective lots through the
Certificate of Award has no tax implications. They are,
however, liable for real property taxes.
Splitting the Gift
Q: Your bachelor client, a Filipino residing in Quezon
City, wants to give his sister a gift of Php 200,000.00.
He seeks your advice, for purposes of reducing if not
eliminating the donor's tax on the gift, on whether it
is better for him to give all of the Php 200,000.00 on
Christmas 2001 or to give Php 100,000.00 on
Christmas 2001 and the other Php 100,000.00 on
January 1, 2002. Please explain your advice. (2001)
A: I would advise him to split the donation. Giving the
P200,000 as a one-time donation would mean that it will
be subject to a higher tax bracket under the graduated tax
structure thereby necessitating the payment of donor's
tax. On the other hand, splitting the donation into two
equal amounts of P100,000 given on two different years
will totally relieve the donor from the donor’s tax because
the first Pl00,000 donation in the graduated brackets is
exempt (Sec. 99, NIRC). While the donor’s tax is computed
on the cumulative donations, the aggregation of all
donations made by a donor is allowed only over one
calendar year.
Q: Spouses Jose San Pedro and Clara San Pedro, both
Filipino citizens, are the owners of a residential
house and lot in Quezon City. After the recent
wedding of their son, Mario, to Maria, the spouses
donated said real property to them. At the time of
donation, the real property has a fair market value of
P2 million.
a. Are Mario and Maria subject to income tax the
value of the real property donated to them?
Explain.
b. Are Jose and Clara subject to donor's tax? If so,
how much is the taxable gift of each spouse and
what rate shall be applied to the gift? Explain.
(2008)
A:
a. No. the value of a property acquired by gift is an
exclusion from gross income (Sec. 32 B(3) NIRC).
b. Yes. Jose and Clara are subject to donor’s tax. Since
the real property is either conjugal or absolute
community property, each spouse is deemed to have
made separate donation of one half of the value of the
property (Tang Ho v Board of Tax appeals, 97 Phil 899
1955).
For Jose, he is considered to have made two
donations: one, is in favor of his son who is a relative,
and two, in favor of his son’s wife who is a stranger.
The taxable gift to the son is P490,000 computed by
deducting from the gross gift the dowry exclusion of
P10,000. The net gift is subject to the graduated tax
rates of 2% to 15%. The taxable gift to his son’s wife
42
 QUAMTO FOR TAXATION LAW (1991-2015)
is P500,000 subject to the 30% flat rate on donation
to strangers. (Sec. 99 and 101 NIRC)
Clara is subject to the donor’s tax in exactly the same
manner as Jose, being considered to have effected
likewise two donations.
Value Added Tax
Q: What are the characteristics of the Value-Added
Tax? (1996)
A: The value-added tax is an indirect tax and the amount
of tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services.
ALTERNATIVE ANSWER:
The value-added tax has the following characteristics:
a. It is an indirect tax where tax shifting is always
presumed:
b. It is consumption-based;
c. It is imposed on the value-added in each stage of
distribution;
d. It is a credit-invoice method value-added tax; and
e. It is not a cascading tax.
Q: What is tax pyramiding? What is its basis in law?
(2006)
A: Tax pyramiding refers to the imposition of a tax upon
a tax. This occurs when the tax is added as part of the tax
base. It has no basis in law (People v. Sandiganbayan, 467
SCRA 137 [2005]; CIR v. American Rubber Co., 18 SCRA 842
[1966]).
ANOTHER SUGGESTED ANSWER:
Tax pyramiding refers to a situation where some or all of
the stages of distribution of goods or services are taxed,
with the accumulation borne by the final consumer.
There is tax pyramiding when sales taxes are applied to
both inputs and outputs, thus shifting the tax burden to
the ultimate consumer. It has no basis in law because it
violates the principle of uniformity and neutrality in
taxation (R.G. Holcombe, Taxing Services, 30 Fla. St. U.L.
Rev. 467 [19966]).
Persons Liable
Q: Who are liable for the payment of Value-Added
Tax? (1996)
A: The persons liable for the value-added tax are:
a. Sellers of goods and properties in the course of trade
or business;
b. Sellers of services in the course of trade or business,
including lessors of goods and properties;
c. Importers of taxable goods, whether in the course of
business or not
VAT-Taxable Transactions
Q: State whether the following transactions are a)
VAT Exempt, b) subject to VAT at 10%; or c) subject
to VAT at 0%: Sale of tractors and other agricultural
implements by Bungkal Incorporated to local
farmers. (1998)
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
A: VAT at 10%. Tractors and other agricultural
implements fall under the definition of goods which
include all tangible objects which are capable of
pecuniary estimation (Sec. 106[A1(1), NIRC, the sales of
which are subject to VAT at 10%. (Note: VAT currently set
at 12%)
Q: Are the following transactions subject to VAT? If
yes, what is the applicable rate for each transaction.
State the relevant authority/ies for your answer. Sale
of orchids by a flower shop which raises its flowers in
Tagaytay? Explain. (2010)
A:The sale of orchids is subject to VAT at 12%. This is a
sale of agricultural non-food product in its original state
which is no longer one of the exempt transactions. (Sec.
109 NIRC, as amended by RA No. 9337)
Q: In June 2013, DDD Corp., a domestic corporation
engaged in the business of leasing real properties in
the Philippines, entered into a lease agreement of a
residential house and lot with EEE, Inc., a non-
resident foreign corporation. The residential house
and lot will be used by officials of EEE, Inc. during
their visit to the Philippines. The lease agreement
was signed by representatives from DDD Corp. and
EEE, Inc. in Singapore. DDD Corp. did not subject the
said lease to VAT believing that it was not a domestic
service contract. Was DDD Corp. correct? Explain.
(2015)
A: DDD Corp. is not correct. Lease of properties shall be
subject to VAT irrespective of the place where the
contract of lease was executed if the property is leased or
used in the Philippines (Sec. 108(A), NIRC).
Zero-rated Sale of Goods or Properties
Q: State whether the following transactions are a)
VAT Exempt, b) subject to VAT at 12%; or c) subject
to VAT at 0%: Services rendered by Jake's
Construction Company, a contractor to the World
Health Organization in the renovation of its offices in
Manila. (1998)
A: VAT at 0%. Since Jake's Construction Company has
rendered services to the World Health Organization,
which is an entity exempted from taxation under
international agreements to which the Philippines is a
signatory, the supply of services is subject to zero percent
(0%) rate. (Sec. 108[B1(3), NIRC).
Q: Are the following transactions subject to VAT? If
yes, what is the applicable rate for each transaction.
State the relevant authority/ies for your answer.
(2010)
a. Construction by XYZ Construction Co. of concrete
barriers for the Asian Development Bank in
Ortigas Center to prevent car bombs from
ramming the ADB gates along ADB Avenue in
Mandaluyong City.
b. Call Center operated by a domestic enterprise in
Makati that handles exclusively the reservations
of a hotel chain which are all located in North
America. The services are paid for in US$ and
duly accounted for with the Bangko Sentral ng
Pilipinas.
43
A:
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
a. The transaction is subject to VAT at the rate of zero
percent (0%). ADB is exempt from direct and indirect
taxes under a special law, thereby making the sale of
services to it by a VAT-registered construction
company effectively zero-rated (Sec. 108(B)(3),
NIRC).
b. The sale of services subject to VAT at zero percent
(0%). Zero-rated sale of services includes services
rendered to a person engaged in business outside the
Philippines and consideration is paid in acceptable
foreign currency duly accounted for by the Bangko
Sentral ng Pilipinas (Sec. 103(B)(2)NIRC).
Q: Royal Mining is a VAT-registered domestic mining
entity. One of its products is silver being sold to the
Bangko Sentral ng Pilipinas. It filed a claim with the
BIR for tax refund on the ground that under Sec. 106
of the Tax Code, sales of precious metals to the
Bangko Sentral ng Pilipinas are considered export
sales subject to zero-rated VAT. Is Royal Mining's
claim meritorious? Explain. (2006)
A: No, Royal Mining's claim is not meritorious because it
is the sale to the Bangko Sentral ng Pilipinas of gold
and not silver which is considered export sales at
Zero-rated VAT (Tax Reform Act, Title IV, Sec.
106[2][a][4]).
Zero-Rated Sale of Services
Q: Foster Corporation (FC) is a Singapore-based
foreign corporation engaged in construction and
installation projects. In 2010, Global Oil Corporation
(GOC), a domestic corporation engaged in the
refinery of petroleum products, awarded an anti-
pollution project to Foster Corporation, whereby FC
shall design, supply machinery and equipment, and
install an anti-pollution device for GOC’s refinery in
the Philippines, provided that the installation part of
the project may be sub-contracted to a local
construction company. Pursuant to the contract, the
design and supply contracts were done in Singapore
by FC, while the installation works were sub-
contracted by the FC with the Philippine Construction
Corporation (PCC), a domestic corporation. The
project with a total cost of P100 Million was
completed in 2011 at the following cost components:
(design – P20Million; machinery and equipment –
P50 Million; and installation –P30 Million). Assume
that the project was 40% complete in 2010 and 100%
complete in 2011, based on the certificates issued by
the certificates issued by the architects and
engineers working on the project. GOC paid FC as
follows: P60 Million in 2010 and P40 Million in 2011,
and FC paid PCC ion foreign currency through a
Philippine bank as follows: P10 Million in 2010 and
P20 Million in 2011.
Is PCC, which adopted the percentage of completion
method of reporting income and expenses, liable to
value added tax in 2010 and in 2011. Explain your
answer. (2012)
A: YES. PCC is liable to the VAT as seller of services for a
fee. However, the sale of services to FC is subject to VAT
at zero percent rate. Services rendered to a person
engaged in business outside the Philippines or to a non-
resident person not engaged in business who is outside
the Philippines when the services are performed paid in
foreign currency inwardly remitted through the banking
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
system are zero-rated sales of services (Sec. 108(B)(2),
NIRC).
Q: XYZ Law Offices, a law partnership in the
Philippines and a VAT-registered taxpayer, received
a query by e-mail from Gainsburg Corporation, a
corporation organized under the laws of Delaware,
but the e-mail came from California where Gainsburg
has an office. Gainsburg has no office in the
Philippines and does no business in the Philippines.
XYZ Law Offices rendered its opinion on the query
and billed Gainsburg US$1,000 for the opinion.
Gainsburg remitted its payment through Citibank
which converted the remitted US$ 1,000 to pesos and
deposited the converted amount in the XYZ Law
Offices account.
What are the tax implications of the payment to XYZ
Law Offices in terms of VAT and income taxes? (2013)
A: The payment to XYZ Law Office by Gainsburg
Corporation is subject to VAT and income tax in the
Philippines.
For VAT purposes, the transaction is a zero-rated sale of
services where the output tax is zero percent and XYZ is
entitled to claim as refund or tax credit certificate the
input taxes attributable to the zero-rated sale. The
services were rendered to a nonresident person, engaged
in business outside the Philippines, which services are
paid for in foreign currency inwardly remitted through
the banking system, thereby making the sale of services
subject to tax at zero-rate. (Sec. 108 (B)(2), NIRC)
VAT-Exempt Transactions
Q: State whether the following transactions are a)
VAT Exempt, b) subject to VAT at 10%; or c) subject
to VAT at 0%: (1998)
a. Sale of fresh vegetables by Aling Ining at the
Pamilihang Bayan ng Trece Martirez.
b. Fees for lodging paid by students to Bahay-
Bahayan Dormitory, a private entity operating
a student dormitory (monthly fee P1,500).
(1998)
A:
a. VAT exempt. Sale of agricultural products, such as
fresh vegetables, in their original state, of a kind
generally used as, or producing foods for human
consumption is exempt from VAT (Sec. 109(c), NIRC).
b. VAT Exempt. The monthly fee paid by each student
falls under the lease of residential units with a
monthly rental per unit not exceeding Php 8,000,
which is exempt from VAT regardless of the
amount of aggregate rentals received by the lessor
during the year. (Sec. 109(x), NIRC). The term unit
shall mean per person in the case of dormitories,
boarding houses and bed spaces (Sec. 4.103-1, RR. No.
7-95).
NOTE: Monthly rental per unit for the purpose of
exemption is currently set at P12,800.
Q: Give at least three (3) real estate transactions
which are not subject to the Value-Added Tax. (1996)
44
 QUAMTO FOR TAXATION LAW (1991-2015)
A: Real estate transactions which are exempt from the
value-added tax are:
a. Sale of real property not primarily held for sale or
lease in the ordinary course of trade or business
b. Sale of real property utilized for socialized housing
under RA. No. 7279;
c. Sale of real property utilized under the low-cost
housing under BP Big. 220.
Q: Greenhills Condominium Corporation
incorporated in 2001 as a non-stock, non-profit
association of unit owner in Greenhills Tower, San
Juan City. To be able to reduce the association dues
being collected from the unit owners, the Board of
Directors of the corporation agreed to lease part of
the ground floor of the condominium building to DEF
Saving Bank for P120,000 a month or P1.44 million
for the year, starting January 2007.
a. Is the non-stock, non-profit association liable for
value added tax in 2007? If your answer is in the
negative, is it liable for another kind of business
tax?
b. Will the association be liable for value added tax
in 2008 if it increases the rental to P150,000 a
month beginning January 2008? Explain. (2008)
A:
a. No. since the association’s annual gross receipts do
not exceed P1.5 million, it is exempt from the VAT.
(Sec. 109 V NIRC). It is however, liable to the 3%
percentage tax which is the imposed on persons
exempt from value-added tax on account of failure to
reach the P1.5 million threshold (Sec. 116 NIRC)
b. Yes. When it increased the rentals to P150,000 per
month, its gross annual receipts will now exceed P1.5
million. It is liable to the VAT beginning January
2008. (Sec. 109V NIRC)
NOTE: Threshold for VAT exemption was raised from
P1.5M to P1,919,500 effective January 1, 2012. Sale or
lease of goods or properties or the performance of services
of non-VAT-registered persons, other than the transactions
mentioned in paragraphs (A) to (U) of Sec. 109(1) of the
Tax Code, the gross annual sales and/or receipts of which
does not exceed the amount of One Million Nine Hundred
Nineteen Thousand Five Hundred Pesos (P1,919,500.00)
(RR 16-2011).
Q: Emiliano Paupahan is engaged in the business of
leasing out several residential apartment units he
owns. The monthly rental for each unit ranges from
P8,000.00 to P10,000.00. His gross rental income for
one year is P1,650,000.00. He consults you on
whether it is necessary for him to register as a VAT
taxpayer. What legal advice will you give him, and
why? (2009)
A: I will advise Emiliano that he is not required to register
as a VAT taxpayer. His transactions of leasing residential
units for an amount not exceeding P10,000 per unit per
month are exempt from VAT irrespective of the aggregate
amount of rentals received annually (Sec. 109(1)(Q)
NIRC)
NOTE: Threshold for VAT exemption was raised from
P10,000 to P12,800 effective January 1, 2012. Lease of
residential units with a monthly rental per unit not
exceeding Twelve Thousand Eight Hundred Pesos
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
(P12,800.00), regardless of the amount of aggregate
rentals received by the lessor during the year (R.R. No. 16-
2011)
Q: The Bureau of Internal Revenue (BIR) issued
Rvenue Memorandum Circular (RMC) No. 65-2012
imposing Value-Added Tax (VAT) on association dues
and membership fees collected by condominium
corporations from its member condominium-unit
owners. The RMC’s validity is challenged before the
Supreme Court (SC) by the condominium
corporations. The Solicitor General, counsel for BIR,
claims that association dues, membership fees, and
other assessment/ charges collected by a
condominium corporation are subject to VAT since
they constitute income payments or compensation
for the beneficial services it provides to its members
and tenants. On the other hand, the lawyer of the
condominium corporations argues that such dues
and fees are merely held in trust by the condominium
corporations exclusively for their members and used
solely for administrative expenses in implementing
the condominium corporations’ purposes.
Accordingly, the condominium corporations, do not
actually render services for a fee subject to VAT.
Whose argument is correct? Decide. (2014)
A: The lawyer of the condominium corporations is
correct. The association dues, membership fees, and
other assessment/charges do not constitute income
payments because they were collected for the benefit of
the unit owners and the condominium corporation is not
created as a business entity. The collection is the money
of the unit owners pooled together and will be spent
exclusively for the purpose of maintaining and
preserving the building and its premises which they
themselves own and possess. (First e-Bank Tower
Condominium Corp., v. BIR, Special Civil Action No. 12-
1236, RTC Br. 146, Makati City)
Refund or Tax Credit of Excess Input Tax
Q: For calendar year 2011, FFF, Inc., a VAT-registered
corporation, reported unutilized excess input VAT in
the amount of Pl,000,000.00 attributable to its zero-
rated sales. Hoping to impress his boss, Mr. G, the
accountant of FFF, Inc., filed with the Bureau of
Internal Revenue (BIR) on January 31, 2013 a claim
for tax refund/credit of the Pl,000,000.00 unutilized
excess input VAT of FFF, Inc. for 2011. Not having
received any communication from the BIR, Mr. G filed
a Petition for Review with the CTA on March 15, 2013,
praying for the tax refund/credit of the Pl,000,000.00
unutilized excess input VAT of FFF, Inc. for 2011.
(2015)
a. Did the CTA acquire jurisdiction over the Petition
of FFF, Inc.?
b. Discuss the proper procedure and applicable
time periods for administrative and judicial
claims for refund/credit of unutilized excess
input VAT.
A:
a. The CTA has not acquired jurisdiction over the
Petition of FFF, Inc. because the judicial claim has
been prematurely filed on March 15, 2013. The
45
Supreme Court ruled that the 30-day period after the
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
expiration of the 120-day period fixed by law for the
Commissioner of Internal Revenue to act on the claim
for refund is jurisdictional and failure to comply
would bar the appeal and deprive the Court of Tax
Appeals of its jurisdiction to entertain the appeal (CIR
v. Aichi Forging the Company of Asia, Inc. 632 SCRA
422 [2014]).
In this case, Mr. G filed the administrative claim on
January 31, 2013. The petition for relief should have
been filed within 30 days from May 31, 2013. Filing
the judicial claim on March 15, 2013 is premature,
thus the CTA did not acquire jurisdiction.
b. The administrative claim must be filed with the
Commissioner of Internal Revenue (CIR) within 2
years from the close of the taxable quarter when
the zero-rated sales were made. The CIR has 120
days from the date of submission of complete
documents in support of the claim to decide. If the
CIR decides within the 120-day period or the 120-
day period expires without the CIR rendering a
decision, the taxpayer has 30 days to file a petition
for review with the CTA reckoned from the
receipt of adverse decision or form the lapse of
the 120-day period.
As a general rule, the 30-day period to appeal is both
mandatory and jurisdictional. As an exception to the
general rule, premature filing is allowed only if filed
between December 10, 2003 and October 5, 2010,
when BIR Ruling No. DA-489-03 was still in force
prior to the reversal of the aforesaid ruling by the
CTA in the Aichi case on October 6, 2010 (CIR v.
Mindanao II Geothermal Partnership, 713 SCRA 645
[2014]).
Q: MMM, Inc., a domestic telecommunications
company, handles incoming telecommunications
services for non-resident foreign companies by
relaying international calls within the Philippines. To
broaden the coverage of its telecommunications
services throughout the country, MMM, Inc. entered
into various interconnection agreements with local
carriers. The non-resident foreign corporations pay
MMM, Inc. in US dollars inwardly remitted through
Philippine banks, in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas.
MMM, Inc. filed its Quarterly VAT Returns for 2000.
Subsequently, MMM, Inc. timely filed with the BIR an
administrative claim for the refund of the amount of
P6,321,486.50, representing excess input VAT
attributable to its effectively zero-rated sales in
2000. The BIR ruled to deny the claim for refund of
MMM, Inc. because the VAT official receipts
submitted by MMM, Inc. did not bear the words "zero-
rated" as required under Sec. 4.108-1 of Revenue
Regulations (RR) No. 7-95. On appeal, the CTA
division and the CTA en bane affirmed the BIR ruling.
MMM, Inc. appealed to the Supreme Court arguing
that the NIRC itself did not provide for such a
requirement. RR No. 7-95 should not prevail over a
taxpayer's substantive right to claim tax refund or
credit.
a. Rule on the appeal of MMM, Inc.
b. Will your answer in (a) be any different if MMM,
Inc. was claiming refund of excess input VAT
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
attributable to its effectively zero-rated sales in
2012? (2015)
A:
a. The appeal of MMM, Inc. must be denied. MMM, Inc.’s
position that the requirements under RR No. 7-95
should not prevail over a taxpayer’s substantive right
to claim tax refund is unmeritorious. The Secretary
of Finance has the authority to promulgate the
necessary rules and regulations for the effective
enforcement of the provisions of the NIRC. Such
rules and regulations are given weight and respect by
the courts in view of the rule-making authority given
to those who formulate them and their specific
expertise in their respective fields.
An applicant for a claim for tax refund or tax credit
must not only prove entitlement to the claim, but also
compliance with all the documentary and
evidentiary requirements. Consequently, the CTA
and the CTA en banc correctly ruled that the failure
to indicate the words “zero-rated” on the invoices
and receipts issued by a taxpayer would result in
the denial of the claim for refund or tax credit.
(Eastern Telecommunications Philippines, Inc. v. CIR,
2015)
b. No, my answer will not be different if the claim for
refund is for effectively zero-rated sales in 2012. The
requirement to print the word “zero-rated” is no
longer by mere regulations but is now clearly
provided by law as follows – “If the sale is subject
to zero percent (0%) value-added tax, the term
“zero-rated sale” shall be written or printed
prominently on the invoice receipt. Failure to
comply with this invoicing requirement is fatal to
a claim for refund of input taxes attributable to
the zero-rated sale (Sec. 113(B)(2)(c), NIRC).
Q: Gangwam Corporation (GC) filed its quarterly tax
returns for the calendar year 2012 as follows:
First quarter- April 25, 2012
Second quarter – July 23, 2012
Third quarter – October 25, 2012
Fourth quarter – January 27 2013
On December 22, 2013, GC filed with the Bureau of
Internal Revenue (BIR) an administrative claim for
refund of its unutilized input Value-Added (VAT) for
the calendar year 2012. After several months of
inaction by the BIR on its claim for refund, GC decided
to elevate its claim directly to the Court of Tax
Appeals (CTA) on April 22, 2014. In due time, the CTA
denied the tax refund relative to the input VAT of GC
for the first quarter of 2012, reasoning that the claim
was filed beyond the two-year period prescribed
under Sec. 112(A) of the National Internal Revenue
Code (NIRC). (2014)
a. Is the CA correct?
b. Assuming that GC filed its claim before the CTA
on February 22, 2014, would your answer be the
same?
A:
a. No. CTA is not correct. The two-year period to file
a claim for refund refers to the administrative
46
claim and does not refer to period within which
to elevate the claim to the CTA. The filing of the
 QUAMTO FOR TAXATION LAW (1991-2015)
enactment, directly involves the illegal disbursement
administrative claim for refund was timely done
because it is made within two years from the end of
the quarter when the zero-rate transaction took
place (Sec. 112(A), NIRC). When GC decided to
elevate its claim to the CTA on April 22, 2014, it
was after the lapse of 120 days from the filing of
the claim for refund with the BIR, hence, the
appeal is seasonably filed. The rule on VAT refund
is two years to file the claim with the BIR, plus 120
days for the Commissioner to act and inaction after
120 days is a deemed adverse decision on the claim,
appealable to the CTA within 30 days from the lapse
of the 120-day period (CIR v. Aichi Forging Company
of Asia, Inc. GR No. 184823, Oct. 6, 2010; CIR vs. San
Roque G.R. No. 187485 [Feb.12, 2013])
b. Yes. The two-year prescriptive period to file a claim
for refund refers to the administrative claim with the
BIR and not to the period to elevate the claim to the
CTA. Hence, the CTA cannot deny the refund for
reasons that the first quarter claim was filed beyond
the two-year period prescribed by law. However,
when the claim is made before the CTA on
February 22, there is definitely no appealable
decision as yet because the 120-day period for
the Commissioner to act on the claim for refund
has not yet lapsed. Hence, the act of the taxpayer
in elevating the claim to the CTA is premature
and the CTA has no jurisdiction to rule thereon.
(CIR vs. Aichi Forging Company of Asia, Inc. G.R. No.
184823, Oct. 6, 2010; CIR vs. San Roque, G.R. No.
187485 [Feb. 12, 2013])

Q: Lily's Fashion, Inc. is a garment manufacturer

located and registered as a Subic Bay Freeport
Enterprise under Republic Act No. 7227 and a non-
VAT taxpayer. As such, it is exempt from payment of
all local and national internal revenue taxes. During
its operations, it purchased various supplies and
materials necessary in the conduct of its
manufacturing business. The suppliers of these
goods shifted to Lily's Fashion, Inc. the 10% VAT
on the purchased items amounting to P 500,000.00.
Lily's Fashion, Inc. filed with the BIR a claim for
refund for the input tax shifted to it by the suppliers.
If you were the Commissioner of Internal Revenue,
will you allow the refund? (2006)

A: No, I will not allow the refund. Only VAT-Registered

taxpayers are entitled to a refund of their
unapplied/unused Input VAT (Tax Reform Act, Sec.
112[A] [1997]).

ALTERNATIVE ANSWER: No. The exemption of Lily's

Fashion, Inc. is only for taxes for which it is directly liable.
Hence, it cannot claim exemption for a tax shifted to it,
which is not at all considered a tax to the buyer but a part
of the purchase price. Lily's fashion is not the taxpayer in
so far as the passed-on tax is concerned and therefore, it
cannot claim for a refund of a tax merely shifted to it (Phil.
Acetylene Co., Inc. v. CIR, L-19707,Aug. 17, 1987).

Tax Remedies under the NIRC

T axpayer’ s Remedies

Q: When may a taxpayer's suit be allowed? (2006)

A: A taxpayer's suit may only be allowed when an act

complained of, which may include a legislative

UNIVERSITY OF SANTO TOMAS TEAM BAROPS

FACULTY OF CIVIL LAW ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
Mayaman, another Filipino citizen residing in
of public funds derived from taxation (Pascual Quezon City, for P20 million. On February 9, 2006
vs. Secretary of Public Works, 110 Phil. 331). Manalo filed the capital gains tax return and paid
P1.2 million representing 6% capital gain tax. Since
Assessment Manalo did not derive any ordinary income, no
income tax return was filed by him for 2006. After the
Q: After examining the books and records of EDS tax audit conducted in 2007, the BIR officer assessed
Corporation, the 2004 final assessment notice, Manalo for deficiency income tax computed as
showing basic tax of P1,000,000 deficiency follows: P5 million (P20 million less P 15 million ) x
interest of P400,000 and due date for payment of
April 30, 2007, but without the demand letter,
was mailed and released by the BIR on April 15,
2007. The registered letter, containing the tax
assessment, was received by the EDS Corporation
on April 25, 2007

a. What is an assessment notice? What are

the requisites of a valid assessment? Explain
b. As tax lawyer of EDS Corporation, what
legal defense(s) would you raised against
the assessment? Explain. (2008)

A
:
a. An assessment notice is formal notice to the
taxpayer stating that the amount thereon is
due as a tax and containing a demand for the
payment thereof (Alhambra Cigar and
Cigarette Mfg. Co. v Collector,
105 PR 1337 (1959); CIR v. Pascor Realty
and
Development Corp., 309 SCRA 402 (1999). To be
valid, the taxpayer must be informed in
writing of the law and the facts on which
assessment is made (Sec. 228 NIRC).

ALTERNATIVE
ANSWER:
An assessment is written notice and demand
made by the Bureau on the taxpayer for the
settlement of a tax liability that is due,
definitely set and fixed therein. The requisites
of a valid assessment are:
1. It must be made within the prescriptive
period to assess (Sec. 203 NIRC);
2. There must be preliminary assessment
previously issued except in those instance
allowed by law (Sec. 228 NIRC);
3. The taxpayer must be informed in writing
about
the law and facts on which the
assessment is based (Sec. 228 NIRC); and
4. It must be served upon the taxpayer or any
of his authorized representative (Estate of
Juliana Diez vda. De Gabriel v. CIR 241 SCRA
266 (2004)

b. I will question the validity of the assessment

because of the failure to send the demand
letter which contains a statement of the law
and the facts upon which the assessment is
based. If an assessment notice is sent without
informing the taxpayer in writing about the
law and facts on which the assessment is
made, the assessment is void. (Sec. 228 NIRC,
Azucena T Reyes v. CIR 480 SCRA 382 2005)

Q: Pedro Manalo, A Filipino citizen residing in

Makati City, owns a vacation house and lot in
San Francisco, California, U.S.A, which he
acquired in 2000 for P15 million. On January
10, 2006 he sold said real property to Juan

*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
 QUAMTO FOR TAXATION LAW (1991-2015)
35% = P1.75 million, without the capital gains tax
paid being allowed as tax credit. Manalo consulted a
real estate broker who said that the P1.2 million
capital gains tax should be credited from P1.75
million deficiency income tax.
a. Is the BIR officer's tax assessment correct?
Explain.
b. If you were hired by Manalo as his tax consultant,
what advice would you give him to protect his
interest? Explain. (2008)
A:
a. The BIR officer’s tax assessment is wrong for two
reasons. First, the rate of income tax used is the
corporate income tax although the taxpayer is an
individual. Second, the computation of the gain
recognized from the sale did not consider the
holding period of the asset. The capital asset
having been for more than 12 months, only 50% of
the gain is recognized (Sec. 39B, NIRC)
b. I will advise him to ask for the issuance of the final
assessment notice and request for the crediting of the
capital gains tax paid against the income tax due. The
taxpayer should explain that the capital gains tax was
paid in good faith because the property sold is a
capital asset and considering that what was paid is
also an income tax it should be credited against the
income tax assessment on the ground of equity. Once
the final assessment is made, I will advise him to
protest within 30 days from receipt, invoking the
holding period and the wrong tax rate used.
Tax delinquency and tax deficiency
Q: When is a revenue tax considered delinquent?
(1998)
A: A revenue tax is considered delinquent when it is
unpaid after the lapse of the last day prescribed by
law for its payment. Likewise, it could also be
considered as delinquent where an assessment for
deficiency tax has become final and the taxpayer has
not paid it within the period given in the notice of
assessment.
Prescriptive period for assessment and collection
Q: The Commissioner of Internal Revenue issued an
assessment for deficiency income tax for taxable year
2000 last July 31, 2006 in the amount of P 10 Million
inclusive of surcharge and interests. If the delinquent
taxpayer is your client, what steps will you take?
What is your defense? (2006)
A: As Counsel, I shall move to cancel the Assessment
because of prescription. The three (3) year period of
assessment for the Income Tax Returns of 2000 starts on
April 15, 2001. The assessment of July 31, 2006 is beyond
the three (3) year prescriptive period and can no longer
have any legal, binding effect (Tax Reform Act, Title VIII,
Chapter I, Sec. 203 [1997]).
ALTERNATIVE ANSWER: Since my client has lost his
right to protest, I will advise him to wait for a collection
action by the Commissioner. Then, I will file a petition for
review with the CTA to question the collection. Since the
assessment was issued beyond the prescriptive period to
assess, the action to collect an invalid assessment is not
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
warranted (Phil. Journalists, Inc. v. CIR, G.R. No. 162852,
December 16, 2004)
Q: A Co., a Philippine Corporation, filed its 1995
Income Tax Return (ITR) on April 15, 1996 showing a
net loss. On November 10, 1996, it amended its 1995
ITR to show more losses. After a tax investigation, the
BIR disallowed certain deductions claimed by A Co.,
putting A Co. in a net income position. As a result, on
August 5, 1999, the BIR issued a deficiency income
assessment against A Co. A Co. protested the
assessment on the ground that it has prescribed:
Decide. (2002)
A: The right of the BIR to assess the tax has not
prescribed. 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 (Sec. 203,
NIRC). However, if the return originally filed is
amended substantially, the counting of the three-
year period starts from the date the amended return
was filed (CIR v. Phoenix Assurance Co., Ltd., 14 SCRA 52).
There is a substantial amendment in this case because a
new return was filed declaring more losses, which can
only be done either (1) in reducing gross income or (2) in
increasing the items of deductions, claimed.
Q: Mr. Sebastian is a Filipino seaman employed by
a Norwegian company which is engaged exclusively
in international shipping. He and his wife, who
manages their business, filed a joint income tax
return for 1997 on March 15, 1998. After an audit of
the return, the BIR issued on April 20, 2001 a
deficiency income tax assessment for the sum of
P250.000.00, inclusive of interest and penalty. For
failure of Mr. and Mrs. Sebastian to pay the tax within
the period stated in the notice of assessment, the BIR
issued on August 19, 2001 warrants of distraint and
levy to enforce collection of the tax. If you are the
lawyer of Mr. and Mrs. Sebastian, what possible
defense or defenses will you raise in behalf of your
clients against the action of the BIR in enforcing
collection of the tax by the summary remedies of
warrants of distraints and levy? Explain your answer.
(2002)
A: I will raise the defense of prescription. The right of the
BIR to assess prescribes after three years counted from
the last day prescribed by law for the filing of the income
tax returns when the said return is filed on time (Sec. 203,
NIRC). The last day for filing the 1997 income tax return
is April 15, 1998. Since the assessment was issued only
on April 20, 2001, the BIR's right to assess has already
prescribed.
Q: TY Corporation filed its final adjusted income tax
return for 1993 on April 12, 1994 showing a net loss
from operations. After investigation, the BIR issued
a pre-assessment notice on March 30, 1996. A final
notice and demand letter dated April 15, 1997 was
issued, personally delivered to and received by the
company's chief accountant. For willful refusal and
failure of TY Corporation to pay the tax, warrants of
distraint and levy on its properties were issued and
served upon it. On January 10, 2002, a criminal
charge for violation of the Tax Code was instituted in
the Regional Trial Court with the approval of the
Commissioner.
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The company moved to dismiss the criminal
complaint on the ground that an act for violation of
any provision of the Tax Code prescribes after five (5)
years and, in this case, the period commenced to run
on March 30, 1996 when the pre-assessment was
issued. How will you resolve the motion? Explain
your answer. (2002)
A: The motion to dismiss should not be granted. It is only
when the assessment has become final and
unappealable that the 5-year period to file a criminal
action commences to run (Tupaz v. Ulop, 316 SCRA 118
[1999]). The pre-assessment notice issued on March 30,
1996 is not a final assessment which is enforceable by the
BIR. It is the issuance of the final notice and demand letter
dated April 15, 1997 and the failure of the taxpayer to
protest within
30 days from receipt thereof that made the assessment
final and unappealable. The earliest date that the
assessment has become final is May 16, 1997 and since
the criminal charge was instituted on January 10, 2002,
the same was timely filed.
Q: What is the effect of the execution by a taxpayer of
a "waiver of the statute of limitations" on his defense
of prescription? (2010)
A: The waiver of the statute of limitation executed by a
taxpayer is not a waiver of the right to invoke the
defense of prescription. The waiver of the statute of
limitation is merely an agreement in writing between
the taxpayer and the BIR that the period to assess and
collect taxes due is extended to a date certain. If
prescription has already set in at the time of the
execution of the waiver is invalid, the taxpayer can still
raise prescription as a defense (Phil. Journalists Inc., v.
CIR, GR No. 162852, Dec. 16, 2004)
Q: A final assessment notice was issued by the BIR on
June 13, 2000, and received by the taxpayer on June
15, 2000. The taxpayer protested the assessment on
July 31, 2000. The protest was initially given due
course, but was eventually denied by the
Commissioner of Internal Revenue in a decision
dated June 15, 2005. The taxpayer then filed a
petition for review with the Court of Tax Appeals
(CTA), but the CTA dismissed the same.
a. Is the CTA correct in dismissing the petition for
review? Explain your answer.
b. Assume that the CTA's decision dismissing the
petition for review has become final. May the
Commissioner legally enforce collection of the
delinquent tax? Explain. (2009)
A:
a. Yes. The protest was filed out of time, hence the CTA
does not acquire jurisdiction over the matter (CIR v
Atlas Mining and Development Corp, 2000)
b. No. the protest was filed out of time and therefore,
did not suspend the running of the prescriptive
period for the collection of the tax. Once the right
to collect has prescribed, the Commissioner can no
longer enforce collection of the tax liability against
the taxpayer (CIR v Atlas Mining and Development
Corp, 2000).
Suspension of running of statute of limitations
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
Q: Mr. Reyes, a Filipino citizen engaged in the real
estate business, filed his 1994 income tax return on
March 20, 1995. On December 15, 1995, he left the
Philippines as an immigrant to join his family in
Canada. After the investigation of said return, the BIR
issued a notice of deficiency income tax assessment
on April 15, 1998. Mr. Reyes returned to the
Philippines as a balikbayan on December 8, 1998.
Finding his name to be in the list of delinquent
taxpayers, he filed a protest against the assessment
on the ground that he did not receive the notice of
assessment and that the assessment had
prescribed. Will the protest prosper? Explain. (2000)
A: No. Prescription has not set in because the period of
limitations for the Bureau of Internal Revenue to
issue an assessment was SUSPENDED during the time
that Mr. Reyes was out of the Philippines or from the
period December 15, 1995 up to December 8, 1998 (Sec.
223 in relation to Sec. 203, NIRC)
False, fraudulent, and non-filing of returns
Q: Distinguish a false return from a fraudulent
return. (1996)
A: The distinction between a false return and a fraudulent
return is that the first merely implies a deviation from the
truth or fact whether intentional or not, whereas the
second is intentional and deceitful with the sole aim of
evading the correct tax due (Aznar vs. Commissioner, L-
20569. August 23, 1974).
ALTERNATIVE ANSWER:
A false return contains deviations from the truth which
may be due to mistakes, carelessness or ignorance of the
person preparing the return. A fraudulent return
contains an intentional wrongdoing with the sole object
of avoiding the tax and it may consist in the intentional
under declaration of income, intentional over declaration
of deductions or the recurrence of both. A false return is
not necessarily tainted with fraud because the fraud
contemplated by law is actual and not constructive. Any
deviation from the truth on the other hand, whether
intentional or not, constitutes falsity. (Aznar vs.
Commissioner, L-20569, August 23, 1974)
Q: Mr. Castro inherited from his father, who died on
June 10, 1994, several pieces of real property in
Metro Manila. The estate tax return was filed and the
estate tax due in the amount of P250.000.00 was paid
on December 06, 1994. The Tax Fraud Division of the
BIR investigated the case on the basis of confidential
information given by Mr. Santos on January 06, 1998
that the return filed by Mr. Castro was fraudulent and
that he failed to declare all properties left by his
father with intent to evade payment of the correct
tax. As a result, a deficiency estate tax assessment for
P1,250,000.00, inclusive of 50% surcharge for
fraud, interest and penalty, was issued against him
on January 10, 2001. Mr. Castro protested the
assessment on the ground of prescription.
a. Decide Mr. Castro's protest.
b. What legal requirement/s must Mr. Santos
comply with so that he can claim his reward?
Explain. (2002)
A:
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 QUAMTO FOR TAXATION LAW (1991-2015)
a. The protest should be resolved against Mr. Castro.
What was filed is a fraudulent return making the
prescriptive period for assessment ten (10) years
from discovery of the fraud (Sec. 222, NIRC).
Accordingly, the assessment was issued within that
prescriptive period to make an assessment based on
a fraudulent return.
b. The legal requirements that must be complied with
by Mr. Santos to entitle him to reward are as follows:
1. He should voluntarily file a confidential
information under oath with the Law Division of
the Bureau of Internal Revenue alleging
therein the specific violations constituting
fraud;
2. The information must not yet be in the
possession of the Bureau of Internal Revenue, or
refer to a case already pending or previously
investigated by the Bureau of Internal Revenue;
3. Mr. Santos should not be a government
employee or a relative of a government
employee within the sixth degree of
consanguinity; and
4. The information must result to collections
of revenues and/or fines and penalties. (Sec.
282, NIRC)
Q: In 2010, pursuant to a Letter of Authority (LA)
issued by the Regional Director, Mr. Abcede was
assessed deficiency income taxes by the BIR for the
year 2009. He paid the deficiency. In 2011, Mr.
Abcede received another LA for the same year 2009,
this time from the National Investigation Division, on
the ground that Mr. Abcede’s 2009 return was
fraudulent.
Mr. Abcede contested the LA on the ground that he
can only be investigated once in a taxable year.
Decide. (2013)
A: The contention of Mr. Abcede is not tenable. While the
general rule is to the effect that for income tax purposes,
a taxpayer must be subject to examination and inspection
by the internal revenue officers only once in a taxable
year, this will not apply if there is fraud, irregularity or
mistakes as determined by the Commissioner. In the
instant case, what triggered the second examination is
the findings by the BIR that Mr. Abcede’s 2009 return was
fraudulent, accordingly, the examination is legally
justified. (Sec. 235, NIRC)
Assessment Process
Q: Describe separately the procedures on the legal
remedies under the Tax Code available to an
aggrieved taxpayer both at the administrative and
judicial levels. (2000)
A: The legal remedies of an aggrieved taxpayer under the
Tax Code, both at the administrative and judicial levels,
may be classified into those for assessment, collection
and refund.
The procedures for the administrative remedies for
assessment are as follows:
a. After receipt of the Pre-Assessment Notice, he must
within fifteen (15) days from receipt explain why no
additional taxes should be assessed against him.
b. If the Commissioner of Internal Revenue Issues an
assessment notice, the taxpayer must
administratively protest or dispute the
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
assessment by filing a motion for reconsideration
or reinvestigation within thirty (30) days from
receipt of the notice of assessment. (4th par., Sec.
228, NIRC of 1997)
Within sixty (60) days from filing of the protest, the
taxpayer shall submit all relevant supporting
documents.
The judicial remedies of an aggrieved taxpayer relative to
an assessment notice are as follows:
a. Where the Commissioner of Internal Revenue has
not acted on the taxpayer’s protest within a period of
one hundred eighty (180) days from submission of
all relevant documents, then the taxpayer has a
period of thirty (30) days from the lapse of said 180
days within which to interpose a petition for review
with the Court of Tax Appeals.
b. Should the Commissioner deny the taxpayer's
protest, then he has a period of thirty (30) days from
receipt of said denial within which to interpose a
petition for review with the Court of Tax Appeals.
In both cases the taxpayer must apply with the Court of
Tax Appeals for the issuance of an injunctive writ to
enjoin the Bureau of Internal Revenue from collecting the
disputed tax during the pendency of the proceedings.
The adverse decision of the Court of Tax Appeals is
appealable to the Court of Appeals by means of a petition
for certiorari within a period of fifteen (15) days from
receipt of the adverse decision, extendible for another
period of fifteen (15) days for compelling reasons, but the
extension is not to exceed a total of thirty (30) days in all.
The adverse decision of the Court of Appeals is
appealable to the Supreme Court by means of a petition
for review on certiorari within a period of fifteen (15)
days from receipt of the adverse decision of the Court of
Appeals.
The employment by the Bureau of Internal Revenue of
any of the administrative remedies for the collection of
the tax like distraint, levy, etc. may be administratively
appealed by the taxpayer to the Commissioner whose
decision is appealable to the Court of Tax Appeals under
other matter arising under the provisions of the National
Internal Revenue Code.
The remedy of an aggrieved taxpayer on a claim for
refund is to appeal the adverse decision of the
Commissioner to the CTA in the same manner outlined
above.
Exceptions to issuance of preliminary assessment notice
Q: When is a pre-assessment notice required under
the following cases? (2014)
a. When the finding for an deficiency tax is the
result of mathematical error in the computation
of the tax as appearing on the face of the return.
b. When a discrepancy has been determined
between the tax withheld and the amount
actually remitted by the withholding agent.
c. When the excise tax due on excisable articles has
been paid.
d. When an article locally purchased or imported by
an exempt person, such as, but not limited to
50
vehicles, capital equipment, machineries and
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 QuAMTO for TAXATION LAW (1991-2015)
spare parts, has been sold, traded or transferred
to non-exempt persons.
A: (c) when the excise tax due on excisable articles
has been paid. (Sec. 228, NIRC)
Q: In the investigation of the withholding tax returns
of AZ Medina Security Agency (AZ Medina) for the
taxable years 1997 and 1998, a discrepancy between
the taxes withheld from its employees and the
amounts actually remitted to the government was
found. Accordingly, before the period of prescription
commenced to run, the BIR issued an assessment and
a demand letter calling for the immediate payment of
the deficiency withholding taxes in the total amount
of P250,000.00. Counsel for AZ Medina protested the
assessment for being null and void on the ground that
no pre-assessment notice had been issued. However,
the protest was denied. Counsel then filed a petition
for prohibition with the Court of Tax Appeals to
restrain the collection of the tax.
a. Is the contention of the counsel tenable? Explain
b. Will the special civil action for prohibition
brought before the CTA under Sec. 11 of R.A, No.
1125 prosper? Discuss your answer. (2002)
A:
a. No, the contention of the counsel is untenable. Sec.
228 of the Tax Code expressly provides that no pre-
assessment notice is required when a
discrepancy has been determined between the
tax withheld and the amount actually remitted by
the withholding agent. Since the amount assessed
relates to deficiency withholding taxes, the BIR is
correct in issuing the assessment and demand letter
calling for the immediate payment of the deficiency
withholding taxes (Sec. 228, NIRC).
b. The special civil action for prohibition will not
prosper, because the CTA has no jurisdiction to
entertain the same. The power to issue writ of
injunction provided for under Sec. 11 of RA 1125
is only ancillary to its appellate jurisdiction. The
CTA is not vested with original jurisdiction to
issue writs of prohibition or injunction
independently of and apart from an appealed
case. The remedy is to appeal the decision of the BIR.
(Collector v. Yuseco, 3 SCRA 313 [1961]).
Q: Mr. Tiaga has been a law-abiding citizen diligently
paying his income taxes. On May 5, 2014, he was
surprised to receive an assessment notice from the
Bureau of Internal Revenue (BIR) informing him of a
deficiency tax assessment as a result of a
mathematical error in the computation of his income
tax, as appearing on the face of his income tax return
for the year 2011, which was filed on April 15, 2012.
Mr. Tiaga believes that there was no such error in the
computation of his income tax for the year 2011.
Based on the assessment received by Mr. Tiaga, may
he already file a protest thereon? (2014)
A: Yes. Mr. Tiaga may consider the assessment notice as a
final assessment notice and his right to protest within 30
days from receipt may now be exercised by him. When
the finding of a deficiency tax is the result of
mathematical error in the computation of the tax
appearing on the face of the return, a pre-assessment
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
notice shall not be required, hence, the assessment
notice is a final assessment notice (Sec. 228, NIRC; RR
No. 18-2013).
Q: Is assessment necessary before a taxpayer may be
prosecuted for willfully attempting in any manner to
evade or defeat any tax imposed by the Internal
Revenue Code? (1998)
A: No. Assessment is not necessary before a taxpayer
maybe prosecuted if there is a prima facie showing of
a willful attempt to evade taxes as in the taxpayer's
failure to declare a specific item of taxable income in his
income tax returns (Ungab v. Cusi 97 SCRA 877). On the
contrary, if the taxes alleged to have been evaded is
computed based on reports approved by the BIR there is
a presumption of regularity of the previous payment of
taxes, so that unless and until the BIR has made a final
determination of what is supposed to be the correct taxes,
the taxpayer should not be placed in the crucible of
criminal prosecution (CIR v. Fortune Tobacco Corp., GK
No. 119322, June 4, 1996).
Protesting the assessment
Q: The BIR issued in 2010 a final assessment notice
and demand letter against X Corporation covering
deficiency income as for the year 2008 in the amount
of P10 Million. X Corporation earlier requested the
advice of a lawyer on whether or not it should file a
request for reconsideration or a request for
reinvestigation. The lawyer said it does not matter
whether the protest against the assessment is a
request for reconsideration or a request for
reinvestigation, because it has same consequences or
implications.
a. What are the differences between a request for
reconsideration and a request for
reinvestigation?
b. Do you agree with the advice of the lawyer?
Explain your answer (2012)
A:
a. Request for Reconsideration – plea for evaluation of
assessment on the basis of existing records
without need of presentation of additional
evidence. It does not suspend the period to collect
the deficiency tax.
Request for Reinvestigation – plea for re-evaluation
on the basis of newly discovered evidences which
are to be introduced for examination for the first
time. It suspends the prescriptive period to
collect.
b. NO, in view of the aforesaid difference between
Request for Reconsideration & Request for
Reinvestigation.
Q: On March 10, 2010, Continental, Inc. received a
preliminary assessment notice (PAN) dated March 1,
2010 issued by the Commissioner of Internal
Revenue (CIR) for deficiency income tax for its
taxable year 2008. It failed to protest the PAN. The
CIR thereupon issued a final assessment notice (FAN)
with letter of demand on April 30, 2010. The FAN was
received by the corporation on May 10, 2010,
following which or on May 25, 2010, it filed its protest
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 QUAMTO FOR TAXATION LAW (1991-2015)
The CIR denied the protest on the ground that the
assessment had already become final and executory,
the corporation having failed to protest the PAN.
Is the CIR correct? Explain. (2010)
A: No. The issuance of preliminary assessment notice
(PAN) does not give rise to the right of the taxpayer to
protest. What can be protested by a taxpayer is the
final assessment notice (FAN) or that assessment
issued following the PAN. Since the FAN was timely
protested within 30 days from receipt thereof, the
assessment did not become final and executory (Sec. 228
NIRC; RR No. 12-99).
Remedies of taxpayer to action by Commissioner
Q: A taxpayer received an assessment notice from the
BIR on February 3, 2009. The following day, he filed a
protest, in the form of a request for reinvestigation,
against the assessment and submitted all relevant
documents in support of the protest. On September
11, 2009, the taxpayer, apprehensive because he had
not yet received notice of a decision by the
Commissioner on his protest, sought your advice.
What remedy or remedies are available to the
taxpayer? Explain. (2009)
A: The remedy of a taxpayer is to avail of either of two
options:
1. File a petition for review with the CTA within 30 days
after the expiration of the 180 day period from
submission of all relevant documents, or
2. Await the final decision of the Commissioner on the
disputed assessment and appeal such final decision
to the CTA within 30 days after the receipt of a copy
of such decision.
These options are mutually exclusive such that resort
to one bare the application of the other (RCBC v CIR
522 SCRA 144 2007).
NOTE: Taxpayer can only avail of the 2nd remedy when
the 180-day period has already expired without any
decision from the CIR.
Q: On March 27, 2012, The Bureau of Internal
Revenue (BIR) issued a notice of assessment against
Blue Water Industries Inc. (BWI), a domestic
corporation, informing the latter of its alleged
deficiency corporate income tax for the year 2009. On
April 20, 2012, BWI filed a letter protest before the
BIR contesting said assessment and demanding that
the same be cancelled or set aside.
However, on May 19, 2013, that is, more than a year
from the filing of the letter protest, the BIR informed
BWI that the latter’s letter protest was denied on the
ground that the assessment had already become
final, executor and demandable. The BIR reasoned
that its failure to decide the case within 180 days
from filing of the letter protest should have prompted
BWI to seek recourse before the Court of Tax Appeals
(CTA) by filing a petition for review within thirty (30)
days after the expiration of the 180-day period as
mandated by the provisions of the last paragraph of
Sec. 228 of the National Internal Revenue Code
(NIRC). Accordingly, BWI’s failure to file a petition for
review before the CTA rendered the assessment final,
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
executor and demandable. Is the contention of the
BIR correct? Explain. (5%) (2014)
A: No, the contention of BIR is not correct. The right of
BWI to consider the inaction of the Commissioner on
the protest within 180 days as an appealable decision
is only optional and will not make the assessment
final, executor and demandable. (Sec. 228, NIRC;
Lacsona Land Co., Inc. vs. CIR, 667 SCRA 455 [March 5,
2012])
Q: CFB Corporation, a domestic corporation engaged
in food processing and other allied activities,
received a letter from the BIR assessing it for
delinquency income taxes. CFB filed a letter of
protest one month after a warrant of distraint and
levy was served on CFB Corporation. If you were the
lawyer engaged by CFB Corporation to contest the
assessment made by the BIR, what steps will you take
to protect your client? (1998)
A: I shall immediately file a motion for reconsideration of
the issuance of the warrant of distraint and levy and seek
from the BIR Commissioner a denial of the protest "in
clear and unequivocal language." This is so because the
issuance of a warrant of distraint and levy is not
considered as a denial by the BIR of the protest filed by
CFB Corporation (CIR v. Union Shipping Corp., 185 SCRA
547).Within thirty (30) days from receipt of such denial
"in clear and unequivocal language," I shall then file a
petition for review with the Court of Tax Appeals. (1998)
ALTERNATIVE ANSWER: Within thirty (30) days from
receipt of the warrant of distraint and levy, I shall file a
petition for review with the Court of Tax Appeals with an
application for issuance of a writ of preliminary
injunction to enjoin the Bureau of Internal Revenue from
enforcing the warrant. This is the action I shall take
because I shall consider the issuance of the warrant as
a final decision of the Commissioner of Internal
Revenue which could be the subject of appeal to the Court
of Tax Appeals (Yobes u. Flojo, 15 SCRA 278). The CTA
may, however, remand the case to the BIR and require the
Commissioner to specifically rule on the protest. The
decision of the Commissioner, if adverse to my client,
would then constitute an appealable decision.
Q: On June 1, 2003, Global Bank received a final notice
of assessment from the BIR for deficiency
documentary stamp tax in the amount of P5 Million.
On June 30, 2003, Global Bank filed a request for
reconsideration with the Commissioner of Internal
Revenue. The Commissioner denied the request for
reconsideration only on May 30, 2006, at the same
time serving on Global Bank a warrant of distraint to
collect the deficiency tax. If you were its counsel,
what will be your advice to the bank? Explain. (2006)
A: The denial for the request for reconsideration is the
final decision of the CIR. I would advise Global Bank to
appeal the denial to the Court of Tax Appeals (CTA)
within 30 days from receipt. I will further advise the
bank to file a motion for injunction with the Court of Tax
Appeals to enjoin the Commissioner from enforcing the
assessment pending resolution of the appeal. While an
appeal to the CTA will not suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for
the satisfaction of its tax liability, the CTA is authorized to
give injunctive relief if the enforcement would jeopardize
52
the interest of the taxpayer, as in this case, where the
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 QuAMTO for TAXATION LAW (1991-2015)
assessment has not become final (Lascona Land Co. v, CIR,
CTA Case No. 5777, January 4, 2000; See also Revised CTA
Rules, approved by the Supreme Court on December 15,
2005).
ALTERNATIVE ANSWER: I will advice the Bank to
promptly pay the deficiency documentary stamp tax and
the interest charges to avoid any further increase in the
tax liability. The Bank should have appealed to the Court
of Tax Appeals when the BIR failed to decide on its
Request for Reconsideration within thirty (30) days after
the inaction of the BIR for one hundred eighty (180) days
or on December 31, 2003. The Tax Assessment has
already become final, executory and unappealable at that
point (BPI v. CIR, G.R. No. 139736, October 17, 2005).
Q: A taxpayer received a tax deficiency assessment of
P1.2 Million from the BIR demanding payment within
10 days, otherwise, it would collect through summary
remedies. The taxpayer requested for a that it constitutes his final decision on the matter. On
reconsideration stating the grounds therefor.
Instead of resolving the request for
reconsideration, the BIR sent a Final Notice before
Seizure to the taxpayer. May this action of the
Commissioner of Internal Revenue be deemed a
denial of the request for reconsideration of the
taxpayer to entitle him to appeal to the Court of Tax
Appeals? Decide with reasons. (2005)
A: Yes, the final notice before seizure was in effect a
denial of the taxpayer's request for reconsideration.
Aside from being the only response received from the
request for reconsideration, the nature, content and
tenor of the the notice before seizure supports the theory
that it was the BIR's final act regarding the request for
reconsideration. (CIR v. Isabela Cultural Corporation, G.R.
No. 135210, July 11, 2001)
Q: In the examination conducted by the revenue
officials against the corporate taxpayer in 2010, the
BIR issued a final assessment notice and demand
letter which states: "It is requested that the above
deficiency tax be paid immediately upon receipt
hereof, inclusive of penalties incident to delinquency.
This is our final decision based on investigation. If
you disagree, you may appeal this final decision
within thirty (30) days from receipt hereof,
otherwise said deficiency tax assessment shall
become final, executory and demandable." The
assessment was immediately appealed by the
taxpayer to the Court of Tax Appeals, without filing its
protest against the assessment and without a denial
thereof by the BIR. If you were the judge, would your
deny the petition for review filed by the taxpayer and
consider the case as prematurely filed? Explain your
answer (2012)
A: NO, the Petition for Review should not be denied. The
case is an exception to the rule on exhaustion of
administrative remedies. The BIR is estopped from
claiming that the filing of the Petition for Review is
premature because the taxpayer failed to exhaust all
administrative remedies. The statement of the BIR in
its Final Assessment Notice and Demand Letter led
the taxpayer to conclude that only a final judicial
ruling in his favor would be accepted by the BIR. The
taxpayer cannot be blamed for not filing a protest against
the Formal Letter of Demand with Assessment Notices
since the language used and the tenor of the demand
letter indicate that it is the final decision of the
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
respondent on the matter. The CIR should indicate, in a
clear and unequivocal language, whether his action on a
disputed assessment constitutes his final determination
thereon in order for the taxpayer concerned to determine
when his or her right to appeal to the tax court accrues.
Although there was no direct reference for the taxpayer
to bring the matter directly to the CTA, it cannot be
denied that the word “appeal” under prevailing tax laws
refers to the filing of a Petition for Review with the CTA
(Allied Bank v. CIR, G.R. No. 175097, Feb. 5, 2010).
Q: A Co., a Philippine corporation, received an income
tax deficiency assessment from the BIR on November
25, 1996. On December 10, 1996, A Co. filed its
protest with the BIR. On May 20, 1997, the BIR issued
a warrant of distraint to enforce the assessment. This
warrant was served on A Co. on May 25, 1997. In a
letter dated June 4, 1997 and received by A Co. 5 days
later, the CIR formally denied A Co.'s protest stating
July 6, 1997, A Co. filed a Petition for Review with the
CTA. The BIR moved to dismiss the Petition on the
ground that the CTA has no jurisdiction over the case.
Decide. (1999)
A: The CTA has jurisdiction over the case. The appealable
decision is the one which categorically stated that the
Commissioner's action on the disputed assessment is
final and, therefore, the reckoning of the 30-day period to
appeal was on June 9, 1999. The filing of the petition for
review with the CTA was timely made. The Supreme
Court has ruled that the CIR must categorically state that
his action on a disputed assessment is final; otherwise,
the period to appeal will not commence to run. That final
action cannot be implied from the mere issuance of a
warrant "of distraint and levy (CIR v. Union Shipping
Corporation, 185 SCRA 547).
Collection
Q: May the courts enjoin the collection of revenue
taxes? Explain your answer. (2001)
A: As a general rule, the courts have no authority to enjoin
the collection of revenue taxes (Sec. 218, NIRC). However,
the Court of Tax Appeals is empowered to enjoin the
collection of taxes through administrative remedies
when collection could jeopardize the interest of the
government or taxpayer (Sec. 11, RA 1125).
Q: A died, survived by his wife and three children. The
estate tax was properly paid and the estate settled
and divided and distributed among the four heirs.
Later, the BIR found out that the estate failed to
report the income received by the estate during
administration. The BIR issued a deficiency income
tax assessment plus interest, surcharges and
penalties. Since the 3 children are residing abroad,
the BIR sought to collect the full tax deficiency only
against the widow. Is the BIR correct? (1999)
A: Yes, the BIR is correct. In a case where the estate has
been distributed to the heirs, the collection remedies
available to the BIR in collecting tax liabilities of an estate
may either (1) sue all the heirs and collect from each of
them the amount of tax proportionate to the inheritance
received or (2) by virtue of the lien created under Sec.
219, sue only one heir and subject the property he
received from the estate to the payment of the estate tax.
53
The BIR, therefore, is correct in pursuing the second
 QUAMTO FOR TAXATION LAW (1991-2015)
remedy although this will give rise to the right of the heir
who pays to seek reimbursement from the other heirs
(CIR v. Pineda, 21 SCRA 105). In no case, however, can the
BIR enforce the tax liability in excess of the share of the
widow in the inheritance.
Q: On August 5, 1997, Adamson Co., Inc. (Adamson)
filed a request for reconsideration of the deficiency
withholding tax assessment on July 10, 1997,
covering the taxable year 1994. After
administrative hearings, the original assessment of
P150,000.00 was reduced to P75,000.00 and a
modified assessment was thereafter issued on
August 05, 1999. Despite repeated demands,
Adamson failed and refused to pay the modified
assessment. Consequently, the BIR brought an action
for collection in the Regional Trial Court on
September 15, 2000. Adamson moved to dismiss the
action on the ground that the government's right to
collect the tax by judicial action has prescribed.
Decide the case. (2002)
A: The right of the Government to collect by judicial
action has not prescribed. The filing of the request for
reconsideration suspended the running of the
prescriptive period and commenced to run again when a
decision on the protest was made on August 5, 1999. It
must be noted that in all cases covered by an assessment,
the period to collect shall be five (5) years from the
date of the assessment but this period is suspended by
the filing of a request for reconsideration which was
acted upon by the Commissioner of Internal Revenue
(CIR v. Wyeth Suaco Laboratories, Inc., 202 SCRA 125
[1991]).
ALTERNATIVE ANSWER: Filing a motion for
reconsideration does not toll the running of the
prescriptive period for collection. However, the action to
collect has not yet prescribed because it must be
reckoned from the date of finality of assessment. Since
the assessment was only finalized in 1999, the filing of an
action to collect in 2000 is still within the statute of
limitations.
Q: On March 15, 2000, the BIR issued a deficiency
income tax assessment for the taxable year 1997
against the Valera Group of Companies (Valera) in
the amount of P10 million. Counsel for Valera
protested the assessment and requested a
reinvestigation of the case. During the investigation,
it was shown that Valera had been transferring its
properties to other persons. As no additional
evidence to dispute the assessment had been
presented, the BIR issued on June 16, 2000 warrants
of distraint and levy on the properties and ordered
the filing of an action in the Regional Trial Court for
the collection of the tax. Counsel for Valera filed an
injunctive suit in the Regional Trial Court to compel
the BIR to hold the collection of the tax in abeyance
until the decision on the protest was rendered.
(2002)
a. Can the BIR file the civil action for collection,
pending decision on the administrative protest?
Explain.
b. As counsel for Valera, what action would you take
in order to protect the interest of your client?
Explain your answer.
A:
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
a. Yes, because there is no prohibition for this
procedure considering that the filing of a civil
action for collection during the pendency of
administrative protest constitutes the final
decision of the Commissioner on the protest (CIR
v. Union Shipping Corp., 85 SCRA 548 [1990]).
b. I will wait for the filing of the civil action for
collection and consider the same as an
appealable decision. I will not file an injunctive suit
because it is not an available remedy. I would then
appeal the case to the Court of Tax Appeals and
move for the dismissal of the collection case with
the RTC. Once the appeal to the CTA is filed on time,
the CTA has exclusive jurisdiction over the case.
Hence, the collection case in the RTC should be
dismissed (Tabes v. Flojo, 115 SCRA 278 [1982]).
Distraint & Levy
Q: Is the BIR authorized to issue a warrant of
garnishment against the bank account of a taxpayer
despite the pendency of his protest against the
assessment with the BIR or appeal with the Court of
Tax Appeals? (1998)
A: The BIR is authorized to issue a warrant of
garnishment against the bank account of a taxpayer
despite the pendency of protest (Yabes v. Flojo, 15 SCRA
278). Nowhere in the Tax Code is the Commissioner
required to rule first on the protest before he can institute
collection proceedings on the tax assessed. The
legislative policy is to give the Commissioner much
latitude in the speedy and prompt collection of taxes
because it is in taxation that the Government depends to
obtain the means to carry on its operations (Republic u.
Tim TianTeng Sons, Inc., 16 SCRA 584).
ALTERNATIVE ANSWER: No, because the assessment
has not yet become final, executory and demandable. The
basic consideration in the collection of taxes is whether
the assessment is final and unappealable or the decision
of the Commissioner is final, executory and demandable,
the BIR has legal basis to collect the tax liability by either
administrative or judicial action.
Q: For failure of Oceanic Company, Inc. (OCEANIC), to
pay deficiency taxes of P20 Million, the
Commissioner of Internal Revenue issued warrants
of distraint on OCEANIC's personal properties and
levied on its real properties. Meanwhile, the
Department of Labor through the Labor Arbiter
rendered a decision ordering OCEANIC to pay unpaid
wages and other benefits to its employees. Four
barges belonging to OCEANIC were levied upon by the
sheriff and later sold at public auction. The
Commissioner of Internal Revenue filed a motion
with the Labor Arbiter to annul the sale and enjoin
the sheriff from disposing the proceeds thereof. The
employees of OCEANIC opposed the motion
contending that Art. 110 of the Labor Code gives first
preference to claims for unpaid wages. Resolve the
motion. Explain. (1995)
A: The motion filed by the Commissioner should be
granted because the claim of the government for
unpaid taxes are generally preferred over the claims
of laborers for unpaid wages. The provision of Article
110 of the Labor Code, which gives laborers' claims
for preference applies only in case of bankruptcy or
54
liquidation of the employer's business. In the instant
TEAM BAROPS
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 QuAMTO for TAXATION LAW (1991-2015)
case, Oceanic is not under bankruptcy or liquidation
at the time the warrants of distraint and levy were
issued hence, the opposition of the employees is
unwarranted (CIR vs. NLRC et al G.R. No.74965, November
9, 1994).
Civil and Criminal Actions
Q: Mr. Chan, a manufacturer of garments, was
investigated for failure to file tax returns and to pay
taxes for the taxable year 1997. Despite the subpoena
duces tecum issued to him, he refused to present
and submit his books of accounts and allied
records. Investigators, therefore, raided his factory
and seized several bundles of manufactured
garments, supplies and unpaid imported textile
materials. After his apprehension and based on the
testimony of a former employee, deficiency income
and business taxes were assessed against Mr. Chan on
April 15, 2000. It was then that he paid the taxes.
Criminal action was nonetheless instituted against
him in the Regional Trial Court for violation of the
Tax Code. Mr. Chan moved to dismiss the criminal
case on the ground that he had already paid the taxes
assessed against him. He also demanded the return of
the garments and materials seized from his factory.
How will you resolve Mr. Chan's motion? (2002)
A: The motion to dismiss should be denied. The
satisfaction of the civil liability is not one of the
grounds for the extinction of criminal action (People
v. Ildefonso Tierra, 12 SCRA 666 [1964]). Likewise, the
payment of the tax due after apprehension shall not
constitute a valid defense in any prosecution for
violation of any provision of the Tax Code (Sec. 253[a],
NIRC). However, the garments and materials seized from
the factory should be ordered returned because the
payment of the tax had released them from any lien that
the Government has over them.
Q: In 1995, the BIR filed before the Department of
Justice (DOJ) a criminal complaint against a
corporation and its officers for alleged evasion of
taxes. The complaint was supported by a sworn
statement of the BIR examiners showing the
computation of the tax liabilities of the erring
taxpayer. The corporation filed a motion to dismiss
the criminal complaint on the ground that there has
been, as yet, no assessment of its tax liability; hence,
the criminal complaint was premature. The DOJ
denied the motion on the ground that an assessment
of the tax deficiency of the corporation is not a
precondition to the filing of a criminal complaint
and that in any event, the joint affidavit of the BIR
examiners may be considered as an assessment of the
tax liability of the corporation. Is the ruling of the DOJ
correct? Explain. (2005)
A: The DOJ is correct in ruling that an assessment of
the tax deficiency of the corporation is not a
precondition to the filing of a criminal complaint.
There is no need for an assessment so long as there is a
prima facie showing of violation of the provisions of the
Tax Code. After all, a criminal charge is instituted not to
demand payment, but to penalize the tax payer for
violation of the Tax Code. (Commissioner of Internal
Revenue v. Pascor Realty and Development Corporation,
G.R. No. 128315, June 29, 1999) Furthermore, there is
nothing in the problem that shows that the BIR in filing
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
the case is also interested in collecting the tax deficiency.
However, it is in error when it ruled that the joint
affidavit of the BIR examiners may be considered as
an assessment of the tax liability of the corporation.
The joint affidavit showing the computation of the tax
liabilities of the erring taxpayer is not a tax assessment
because it was not sent to the taxpayer, and does not
demand payment of the tax within a certain period of
time. An assessment is deemed made only when the BIR
releases, mails or sends such notice to the taxpayer.
(Commissioner of Internal Revenue v. Pascor Realty and
Development Corporation, G.R. No. 128315, June 29, 1999)
Q: Gerry was being prosecuted by the BIR for failure
to pay his income tax liability for Calendar Year 1999
despite several demands by the BIR in 2002. The
Information was filed with the RTC only last June
2006. Gerry filed a motion to quash the Information
on the ground of prescription, the Information
having been filed beyond the 5-year reglementary
period. If you were the judge, will you dismiss the
Information? Why? (2006)
A: No. The trial court can exercise jurisdiction.
Prescription of a criminal action begins to run from
the day of the violation of the law. The crime was
committed when Gerry willfully refused to pay
despite repeated demands in 2002. Since the
information was filed in June 2006, the criminal case was
instituted within the five-year period required by law
(Tupaz v. Ulep, G.R. No. 127777, October 1, 1999; Sec. 281,
NIRC).
Q: Based on the Affidavit of the Commissioner of
Internal Revenue (CIR), an Information for failure to
file income tax return under Sec. 255 of the National
Internal Revenue Code (NIRC) was filed by the
Department of Justice (DOJ) with the Manila Regional
Trial Court (RTC) against XX, a Manila resident.bXX
moved to quash the Information on the ground that
the RTC has no jurisdiction in view of the absence of
a formal deficiency tax assessment issued by the CIR.
Is a prior assessment necessary before an
Information for violation of Sec. 255 of the NIRC could
be filed in court? Explain. (2010)
A: No. in the case of failure to file a return, a
proceeding in court for the collection of the tax may
be filed without an assessment (Sec. 222(a), NIRC). The
tax can be collected by filing a criminal action with the
RTC because a criminal action is mode of collecting the
tax liability (Sec. 205. NIRC). Besides, the Commissioner is
empowered to prepare a return on the basis of his own
knowledge, and upon such information as he can obtain
from testimony or otherwise, which shall be prima facie
correct and sufficient for legal purposes (Sec. 6(B), NIRC).
The issuance of a formal deficiency tax assessment,
therefore, is not required.
Q: Explain the following statements:
a. The acquittal of the taxpayer in a criminal action
under the Tax Code does not necessarily result in
an exoneration of said taxpayer from his civil
liability to pay taxes.
b. Should the accused be found guilty beyond
reasonable doubt for violation of Sec. 255 of the
Tax Code for failure to file tax return or to supply
correct information, the imposition of the civil
liability by the CTA should be automatic and no
55
 QUAMTO FOR TAXATION LAW (1991-2015)
assessment notice from the BIR is necessary?
(2012)
A:
a. In taxation, the taxpayer becomes criminally liable
because of a civil liability. While he may be acquitted
on the criminal case, his acquittal could not operate
to discharged him from the duty to pay tax, since that
duty is imposed by statute prior to and independent
of any attempt on the taxpayer to evade payment.
The obligation to pay the tax is not a mere
consequence of the felonious acts charged in the
information, nor is a mere civil liability derived from
crime that would be wiped out by the judicial
declaration that the criminal acts charged did not
exist (Castro v. Collector of Internal Revenue, L-12174,
April 26, 1962).
b. YES. If the failure to file tax return or to supply
correct information resulted to unpaid taxes the
amount of which is proven during trial, the CTA shall
not only impose the criminal penalty but must
likewise order the payment of the civil liability (Sec.
205(b), NIRC). As a matter of fact, it is well-
recognized that in the case of failure to file a return,
a proceeding in court for the collection of the tax may
be filed without the need of an assessment (Sec.
222(a), NIRC).
Q: You are the retained tax counsel of ABC Corp. Your
client informed you that they have been directly
approached with a proposal by a BIR insider (i.e. a
middle rank BIR official) on the tax matter they have
referred to you for handling. The BIR insider’s
proposal is to settle the matter by significantly
reducing the assessment, but he will get 50% of the
savings arising from the reduced assessment.
What tax, criminal and ethical considerations will
you take into account in giving your advice? Explain
the relevance of each of these considerations. (2013)
A: I will advise my client not to accept the settlement
proposal but instead pay the entire amount of tax that is
legally due to the government.
On the tax aspect, I will tell my client that a proposed
assessment covering deficiency taxes which are legally
due must be fully paid to exonerate the taxpayer from
further liabilities. The unwarranted reduction of the
proposed assessment into half and the payment thereof
will not close the case but can be re-opened anytime
within ten years from discovery so as to collect the
correct amount of taxes from ABC Corp.
The act of deliberately paying an amount of tax that is less
than what is known by my client to be legally due through
a cause of action that is unlawful is considered as tax
evasion. I will advise my client that conniving with a BIR
insider to reduce the proposed assessment for a fee us
unlawful which can expose the officers of the corporation
to criminal liability. Likewise, the payment to be made to
the BIR official of 50% of the savings constitutes direct
bribery punishable under the Revised Penal Code. Insofar
as the BIR officer is concerned he will also be a principal
to direct bribery and to the criminal violation penalized
under Sec. 269 of the Tax Code.
On ethical grounds, agreeing to the settlement scheme
being proposed by the BIR insider is agreeing to the
perpetration of a dishonest act. Since taxation is
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
symbiotic relationship, fair dealing on both sides is of
paramount importance. I will remind my client that
taxpayers owe honesty to government just as
government owes fairness to taxpayers. (CIR v. Tokyo
Shipping Co. Ltd., G.R. No. 68252, May 26, 1996)
Refund
Q: Is a deficiency tax assessment a bar to a claim for
tax refund or tax credit? Explain. (2005)
A: No. As a general rule, a deficiency tax assessment is not
a bar to a claim for tax refund or tax credit. It is logically
appropriate; however, that if the deficiency tax
assessment is already final, the Commissioner should not
grant the claim unless the taxpayer pays the deficiency.
Likewise, no tax refund or tax credit will be granted as
long as there is pending a deficiency tax assessment for
the same taxable period. To award a tax refund or tax
credit despite the existence of deficiency assessment for
the same taxable period is an absurdity and a polarity in
conceptual effects. A taxpayer cannot be entitled to a
refund and at the same time be liable for a tax deficiency
assessment. In order to avoid multiplicity of suits, it is
logically necessary and legally appropriate that the issue
of deficiency tax assessment be resolved jointly with the
taxpayer’s claim for tax refund, to determine once and for
all in a single proceeding the true and correct amount of
tax due or refundable [CIR v. CA, City trust Banking Corp.
and CTA, 234 SCRA 348 (1994)].
Q: Is protest at the time of payment of taxes and
duties a requirement to preserve the taxpayers' right
to claim a refund? Explain. (1996)
A: For taxes imposed under the NIRC, protest at the time
of payment is not required to preserve the taxpayers’
right to claim refund. This is clear under Sec. 230 of the
NIRC which provides that a suit or proceeding maybe
maintained for the recovery of national internal
revenue tax or penalty alleged to have been
erroneously assessed or collected, whether such tax
or penalty has been paid under protest or not.
For duties imposed under the Tariff and Customs Code, a
protest at the time of payment is required to preserve the
taxpayers’ claim for refund. The procedure under the TCC
is to the effect that when a ruling or decision of the
Collector of Customs is made whereby liability for duties
is determined, the party adversely affected may protest
such ruling or decision by presenting to the Collector, at
the time when payment is made, or within fifteen days
thereafter, a written protest setting forth his objections
to the ruling or decision in question (Sec. 2308, TCC).
Q: Minolta Philippines, Inc. (Minolta) is an EPZA-
registered enterprise enjoying preferential tax
treatment under a special law. After investigation of
its withholding tax returns for the taxable year
1997, the BIR issued a deficiency withholding tax
assessment in the amount of P150.000.00. On May
15, 1999, because of financial difficulty, the
deficiency tax remained unpaid, as a result of which
the assessment became final and executory. The BIR
also found that, in violation of the provisions of the
National Internal Revenue Code, Minolta did not file
its final corporate income tax return for the taxable
year 1998, because it allegedly incurred net loss
from its operations. On May 17, 2002, the BIR filed
56
with the Regional Trial Court an action for
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 QuAMTO for TAXATION LAW (1991-2015)
collection of the deficiency withholding tax for 1997.
Will the BIR's action for collection prosper? As
counsel of Minolta, what action will you take? Explain
your answer. (2002)
A:Yes, BIR's action for collection will prosper because the
assessment is already final and executor and hence, it can
already be enforced through judicial action.
As counsel of Minolta, I will introduce evidence that the
income payment was reported by the payee and the
income tax was paid thereon in 1997 so that my client
may only be allowed to pay the civil penalties for non-
withholding pursuant to RMO No. 38-83.
Grounds and requisites for refund
Q: What must a taxpayer do in order to claim a refund
of, or tax credit for, taxes and penalties which he
alleges to have been erroneously, illegally or
excessively assessed or collected? (2000, 2005)
A: The taxpayer must comply with the following
procedures in claiming a refund of, or tax credit for, taxes
and penalties which he alleges to have been erroneously,
illegally or excessively assessed or collected:
1. He should file a written claim for refund with the
Commissioner within two years after the date of
payment of the tax or penalty (Sec. 204, NIRC).
2. The claim filed must state a categorical demand for
reimbursement (Bermejo v. Collector, 87 Phil. 96
[1950]).
3. The suit or proceeding for recovery must be
commenced in court within two years from date of
payment of the tax or penalty regardless of any
supervening event that will arise after payment (Sec.
229, NIRC).
Q: Can the Commissioner grant a refund or tax credit
even without a written claim for it? (2000)
A: Yes. When the taxpayer files a return which on its
face shows an overpayment of the tax and the option
to refund/ claim a tax credit was chosen by the
taxpayer, the Commissioner shall grant the refund or tax
credit without the need for a written claim. This is so,
because a return filed showing an overpayment shall be
considered as a written claim for credit or refund. (Secs.
76 and 204, NIRC). Moreover, the law provides that the
Commissioner may, even without a written claim
therefore, refund or credit any tax where on the face of
the return upon which payment was made, such
payment appears clearly to have been erroneously
paid (Sec. 229, NIRC).
Q: On June 16, 1997, the Bureau of Internal Revenue
(BIR) issued against the Estate of Jose de la Cruz a
notice of deficiency estate tax assessment, inclusive
of surcharge, interest and compromise penalty. The
Executor of the Estate of Jose de la Cruz (Executor)
filed a timely protest against the assessment and
requested for waiver of the surcharge, interest and
penalty. The protest was denied by the Commissioner
of Internal Revenue (Commissioner) with finality on
September 13, 1997. Consequently, the Executor was
made to pay the deficiency assessment on October
10, 1997. The following day, the Executor filed a
Petition with the Court of Tax Appeals (CTA) praying
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
for the refund of the surcharge, interest and
compromise penalty. The CTA took cognizance of the
case and ordered the Commissioner to make a
refund. The Commissioner filed a Petition for Review
with the Court of Appeals assailing the jurisdiction of
the CTA and the Order to make refund to the Estate
on the ground that no claim for refund was filed with
the BIR.
a. Is the stand of the Commissioner correct? Reason.
b. Why is the filing of an administrative claim with
the BIR necessary? (2000)
A:
a. Yes. There was no claim for refund or credit that has
been duly filed with the Commissioner of Internal
Revenue which is required before a suit or
proceeding can be filed in any court (Sec. 229. NIRC of
1997). The denial of the claim by the Commissioner
is the one which will vest the Court of Tax Appeals
jurisdiction over the refund case should the taxpayer
decide to appeal on time.
b. The filing of an administrative claim for refund with
the BIR is necessary in order:
1. To afford the Commissioner an opportunity to
consider the claim and to have a chance to
correct the errors of subordinate officers
(Gonzales v. CTA, et al, 14 SCRA 79); and
2. To notify the Government that such taxes have
been questioned and the notice should be borne
in mind in estimating the revenue available for
expenditures (Bermejo v. Collector, G.R. No. L-
3028. July 29, 1950).
Q: On March 12, 2001, REN paid his taxes. Ten months
later, he realized that he had overpaid and so he
immediately filed a claim for refund with the
Commissioner of Internal Revenue. On February 27,
2003, he received the decision of the Commissioner
denying REN's claim for refund. On March 24, 2003,
REN filed an appeal with the Court of Tax Appeals.
Was his appeal filed on time or not? Reason. (2004)
A: The appeal was not filed on time. The two-year
period of limitation for filing a claim for refund is
not only a limitation for pursuing the claim at the
administrative level but also a limitation for
appealing the case to the Court of Tax Appeals. The
law provides that "no suit or proceeding shall be filed
after the expiration of two years from the date of the
payment of the tax or penalty regardless of any
supervening cause that may arise after payment (Sec. 229,
NIRCJ. Since the appeal was only made on March 24,
2003, more than two years had already elapsed from the
time the taxes were paid on March 12, 2003. Accordingly,
REN had lost his judicial remedy because of prescription.
Q: International Technologies, Inc. (ITI) filed a claim
for refund for unutilized input VAT with the Court of
Tax Appeals (CTA). In the course of the trial, ITI
engaged the services of an independent Certified
Public Accountant (CPA) who examined the
voluminous invoices and receipts of ITI. ITI offered in
evidence only the summary prepared by the CPA,
without the invoices and the receipts, and then
submitted the case for decision. Can the CTA grant
ITI's claim for refund based only on the CPA's
57
summary? Explain. (2009)
 QUAMTO FOR TAXATION LAW (1991-2015)
A: No. the summary prepared by the CPA does not prove
anything unless the documents which were the basis of
the summary are submitted to the CTA and adduced in
evidence. The invoices and receipts must be presented
because they are only the real and direct evidence that
would enable the court to determine with particular
certainty the basis of the refund (CIR v Rio Tuba Nickel
Mining Corp. 207 SCRA 549 [1992])
Who may claim for refund/apply for issuance of tax credit
certificate
Q: As an incentive for investors, a law was passed
giving newly established companies in certain
economic zone exemption from all taxes, duties, fees,
imposts and other charges for a period of three
years. ABC Corp. was organized and was granted
such incentive. In the course of business, ABC Corp.
purchased mechanical equipment from XYZ Inc.
Assume arguendo that XYZ had to and did pay the
sales tax. ABC Corp. later found out, however, that
XYZ merely shifted or passed on to ABC the amount of
the sales tax by increasing the purchase price. ABC
Corp. now claims for a refund from the Bureau of
Internal Revenue in an amount corresponding to the
tax passed on to it since it is tax exempt. Is the claim
of ABC Corp. meritorious? (2004)
A: No. The claim of ABC Corp. is not meritorious.
Although the tax was shifted to ABC Corp. by the seller,
what is paid by it is not a tax but part of the cost it has
assumed. Hence, since ABC Corp. is not a taxpayer, it has
no capacity to file a claim for refund. The taxpayer who
can file a claim for refund is the person statutorily liable
for the payment of the tax.
Q: ABCD Corporation (ABCD) is a domestic
corporation with individual and corporate
shareholders who are residents of the United States.
For the 2nd quarter of 1983, these U.S.-based
individual and corporate stockholders received cash
dividends from the corporation. The corresponding
withholding tax on dividend income --- 30% for
individual and 35% for corporate non-resident
stockholders --- was deducted at source and remitted
to the BIR.
On May 15, 1984, ABCD filed with the Commissioner
of Internal Revenue a formal claim for refund,
alleging that under the RP-US Tax Treaty, the
deduction withheld at source as tax on dividends
earned was fixed at 25% of said income. Thus, ABCD
asserted that it overpaid the withholding tax due on
the cash dividends given to its non-resident
stockholders in the U.S. The Commissioner denied
the claim.
On January 17, 1985, ABCD filed a petition with the
Court of Tax Appeals (CTA) reiterating its demand for
refund.
a. Does ABCD Corporation have the legal
personality to file the refund on behalf of its non-
resident stockholders? Why or why not?
b. Is the contention of ABCD Corporation correct?
Why or why not? (2009)
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
A:
a. Yes. A withholding agent is not only an agent of the
Government but also an agent of the
taxpayer/income earner. Hence, ABCD is also an
agent of the beneficial owner of the dividends with
respect to the actual payment of the tax to the
Government, such authority to file a claim for refund
and to bring an action for recovery of such claim (CIR
v. Procter & Gamble 204 SCRA 377 1991).
b. Yes. The provision of a treaty must take precedence
over and above the provision of the local taxing
statue consonant with the principle of international
comity. Tax treaties are accepted limitations to the
power of taxation. Thus, the CTA should apply the
treaty provision so that the claim for refund
representing the difference between the amount
actually withheld and paid to the BIR and the amount
due and payable under the treaty should be granted
(Hawaiin-Philippine Company v CIR, CTA Case No.
3887, May 31, 1988).
ALTERNATIVE ANSWER:
b. The contention of ABCD Corporation than it
overpaid the withholding tax is correct provided it
can establish: 1) the existence of RP-US Tax Treaty
imposing a lower rate of tax of 25%; 2) the said tax
treaty is applicable to its case; 3) its payment with the
BIR of a tax based on a higher rate of 30% and 35%,
respectively.
Q: Does a withholding agent have the right to file
an application for tax refund? Explain.(2005)
A: Yes. A withholding agent should be allowed to claim for
tax refund, because under the law said agent is the one
who is held liable for any violation of the withholding tax
law should such violation occur [Commissioner of Internal
Revenue v. Wander Philippines Inc., 160 SCRA 570, (1988)].
Furthermore, since the withholding agent is made
personally liable to deduct and withhold any tax under
Sec. 53(c) of the Tax Code, it is imperative that he be
considered the taxpayer for all legal intents and
purposes. Thus, by any reasonable standard, such person
should be regarded as a party in interest to bring suit for
refund of taxes [CIR v. Procter and Gamble Philippines
Manufacturing Corporation and CTA, 204 SCRA 377,
(1991)].
Q: DEF Corporation is wholly owned subsidiary of
DEF, Inc., California, USA. Starting December 15,
2004, DEF Corporation paid annual royalties to DEF,
Inc., for the use of the latter's software, for which the
former, as withholding agent of the government,
withheld and remitted to the BIR the 15% final tax
based on the gross royalty payments. The
withholding tax return was filed and tax remitted to
the BIR on January 10 of the following year. On April
10, 2007 DEF Corporation filed written claim for tax
credit with the BIR, arising from erroneously paid
income taxes covering the years 2004 and 2005. The
following day, DEF Corporation filed a petition for
review with the court of Tax Appeals involving the tax
credit claim for 2004 and 2005.
a. As a BIR lawyer handling the case, would you
raise the defense of prescription in your answer
to the claim for tax credit? Explain.
58
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
b. Can the BIR lawyer raise the defense that DEF
Corporation is not the proper party to file such
claim for tax credit? Explain. (2008)
A:
a. Yes. The claim for refund for the 2004 erroneously
paid income tax was filed out of time because the
claim was only filed after more than two years had
elapsed from the payment thereof (Sec. 204[c] and
229, NIRC).
b. No. The withholding agent who is mandated by law
to withhold and remit the tax on income of a non-
resident in the Philippines becomes directly liable for
the payment of tax. Therefore, it is the proper party
to file a claim for refund in case of over-withholding
(Commissioner v. Wander Philippines Inc. 160 SCRA
573 1988).
Q: A Co. is the wholly owned subsidiary of B Co., a non-
resident German company. A Co. has a trademark
licensing agreement with B Co. On Feb. 10, 1995, A Co.
remitted to B Co. royalties of P 10,000,000, which A
Co. subjected to a withholding tax of 25% or
P2,500,000. Upon advice of counsel, A Co. realized
that the proper withholding tax rate is 10%. On
March 20, 1996, A Co. filed a claim for refund of
P2,500.000 with the BIR. The BIR denied the claim on
Nov. 15, 1996. On Nov. 28, 1996, A Co. filed a petition
for review with the CTA. The BIR attacked the
capacity of A Co., as agent, to bring the refund case.
Decide the issue. (1999)
A: A Co., the withholding agent of the non-resident
foreign corporation is entitled to claim the refund of
excess withholding tax paid on the income of said
corporation in the Philippines. Being a withholding agent,
it is the one held liable for any violation of the
withholding tax law should such a violation occur. In the
same vein, it should be allowed to claim a refund in case
of over-withholding (CIR v. Wander Phils. Inc., GR No.
68378, April 15, 1988, 160 SCRA 573; CIR v. Procter &
Gamble PMC, 2O4 SCRA 377).
Other consideration affecting tax refunds
Q: On April 16, 2012, the corporation filed its annual
corporate income tax return for 2011, showing an
overpayment of income tax of P1 Million which is to
be carried over to the succeeding year(s). On May 15,
2012, the corporation sought advice from you and
said that it contemplates to file an amended return
for 2011, which shows that instead of carryover of the
excess income tax payment, the same shall be
considered as a claim for tax refund and the small box
shown as "refund" in the return will be filled up.
Within a year, the corporation will file the formal
request for refund for the excess payment.
a. Will you recommend to the corporation such a
course of action and justify that the amended
return is the latest official act of the corporation
as to how it may treat such overpayment of tax or
should you consider the option granted to
taxpayers as irrevocable, once previously
exercised by it? Explain your answer.
b. Should the petition for review filed with the CTA
on the basis of the amended tax return be denied
by the BIR and the CTA, could the corporations till
carry over such excess payment of income tax in
the succeeding years, considering that there is no
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
prescriptive period provided for in the income
tax law with respect to carry over of excess
income tax payments? Explain your answer
(2012)
A:
a. NO. Once the option to carry-over and apply the
excess quarterly income tax against income tax due
for the taxable quarters of the succeeding taxable
years has been made, such options shall be
considered IRREVOCABLE for the taxable year
period and no application for tax refund or issuance
of tax credit certificate shall be allowed therefor (Sec.
76, NIRC).
b. YES. The carry-over of excess income tax payments is
no longer limited to the succeeding taxable years
until fully utilized. In addition, the option to carry-
over excess income tax payments is now irrevocable.
Hence, unutilized excess income tax payments may
no longer be refunded (Belle Corp. v. CIR, G.R. No.
181298, Jan. 10, 2011).
Q: In its final adjustment return for the 2010 taxable
year, ABC Corp. had excess tax credits arising from its
over-withholding of income payments. It opted to
carry over the excess tax credits to the following year.
Subsequently, ABC Corp. changed its mind ad applied
for a refund of the excess tax credits to the following
year. Will the claim for refund prosper? (2013)
A: No. The claim for refund will not prosper. While the
law gives the taxpayer an option to whether carry-over
or claim as refund the excess tax credits shown on its final
adjustment return, once the option to carry-over has
been made, such option shall be considered irrevocable
for that taxable period and no application for cash refund
or issuance of a tax credit certificate shall be allowed.
(Sec. 76, NIRC; CIR v. PL Management International Phils.,
Inc., April 4, 2011, 647 SCRA 72 (2011) G.R. No. 160949).
Q: Congress enacts a law granting grade school and
highschool students a 10% discount on all school-
prescribed textbooks purchased from any bookstore.
The law allows bookstores to claim in full the
discount as a tax credit.
1. If in a taxable year a bookstore has no tax due on
which to apply the tax credits, can the bookstore
claim from the BIR a tax refund in lieu of tax
credit? Explain.
2. Can the BIR require the bookstores to deduct the
amount of the discount from their gross income?
Explain.
3. If a bookstore closes its business due to losses
without being able to recoup the discount, can
it claim reimbursement of the discount from the
government on the ground that without such
reimbursement, the law constitutes taking of
private property for public use without just
compensation? Explain.
A:
1. No, the bookstore cannot claim from the BIR a tax
refund in lieu of tax credit. There is nothing in the law
that grants a refund when the bookstore has no tax
liability against which the tax credit can be used (CIR
v. Central Luzon Drug, G.R. No 159647, April 15, 2005).
A tax credit is in the nature of a tax exemption
and in case of doubt, the doubt should be
resolved in strictissimi juris against the claimant.
59
 QUAMTO FOR TAXATION LAW (1991-2015)
2. No. Tax credit which reduces the tax liability is
different from a tax deduction which merely
reduces the tax base. Since the law allowed the
bookstores to claim in full the discount as a tax credit,
the BIR is not allowed to expand or contract the
legislative mandate (CIR v. Bicolandi aDrug Corp., G.R.
No. 148083, July 21, 2006; CIR v. Central Luzon Drug
Corp., G.R. No. 159647, April 15, 2005).
3. A bookstore, closing its business due to losses, cannot
claim reimbursement of the discount from the
government. If the business continues to operate at a
loss and no other taxes are due, thus compelling it to
close shop, the credit can never be applied and will
be lost altogether (CIR v. Central Luzon Drug, G.R. No.
159647, April 15, 2005). The grant of the discount to
the taxpayer is a mere privilege and can be revoked
anytime.
Penalties and Interests
Civil Penalties
Q: Danilo, who is engaged in the trading business,
entrusted to his accountant the preparation of his
income tax return and the payment of the tax due.
The accountant filed a falsified tax return by under-
declaring the sales and overstating the expense
deductions by Danilo. Is Danilo liable for the
deficiency tax and the penalties thereon? What is the
liability, if any, of the accountant? Discuss. (2005)
A: Danilo is liable for the deficiency tax as well as for the
deficiency interest. He should not be held liable for the
fraud penalty because the accountant acted beyond the
limits of his authority. There is no showing in the problem
that Danilo signed the falsified return or that it was
prepared under his direction. On the other hand the
accountant may be held criminally liable for violation of
the Tax Code when he falsified the tax return by under
declaring the sale and overstating the expense
deductions. If Danny's accountant is a Certified Public
Accountant, his certificate as a CPA shall automatically be
revoked or cancelled upon conviction.
Q: Businessman Stephen Yang filed an income tax
return for 1993 showing business net income of
P350,000.00 on which he paid an income tax of
P61,000.00. After filing the return he realized that he
forgot to include an item of business income in 1993
for P50,000.00. Being an honest taxpayer, he
included this income in his return for 1994 and paid
the corresponding income tax thereon. In the
examination of his 1993 return the BIR examiner
found that Stephen Yang failed to report this item of
P50,000.00 and assessed him a deficiency income tax
on this item, plus a 50% fraud surcharge.
a. Is the examiner correct? Explain.
b. If you were the lawyer of Stephen Yang, what
would you have advised your client before he
included in his 1994 return the amount of
P50.000.00 as 1993 income to avoid the fraud
surcharge? Explain.
c. Considering that Stephen Yang had already been
assessed a deficiency income tax for 1993 for his
failure to report the P50,000.00 income, what
would you advise him to do to avoid the penalties
for tax delinquency? Explain.
d. What would you advise Stephen Yang to do with
regard to the income tax he paid for the
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
P50,000.00 in his 1994 return? In case your
remedy fails, what is your other recourse? (1995)
A:
a. The examiner is correct in assessing a deficiency
income tax for taxable year 1993 but not in imposing
the 50% fraud surcharge. The amount of all items of
gross income must be included in gross income
during the year in which received or realized (Sec. 38,
NIRC). The 50% fraud surcharge attaches only if a
false or fraudulent return is willfully made by Mr.
Yang (Sec. 248, NIRC). The fact that Mr. Yang included
the income in his 1994 return belies any claim of
willfulness but is rather indicative of an honest
mistake which was sought to be rectified by a
subsequent act, that is the filing of the 1994 return.
b. Mr. Yang should have amended his 1993 Income tax
return to allow for the inclusion of the P50,000
income during the taxable period it was realized.
c. Mr. Yang should file a protest questioning the 50%
surcharge and ask for the abatement thereof.
ALTERNATIVE ANSWER:
Mr. Yang should pay the deficiency income tax on or
before the day prescribed for its payment per notice
of demand. After payment and within two years
thereafter, he should file a claim for refund of taxes
erroneously paid to recover the excessive surcharge
imposed.
Mr. Yang should file a written claim for refund with
the Commissioner of Internal Revenue of the taxes
paid on the P50,000 income included in 1994 within
two years from payment pursuant to Sec. 204(3) of
the Tax Code. Should this remedy fail in the
administrative level, a judicial claim for refund can
be instituted before the expiration of the two year
period.
Q: Mr. Rodrigo, an 80-year old retired businessman,
fell in love with 20-year old Tetchie Sonora, a night
club hospitality girl. Although she refused to marry
him she agreed to be his "live-in" partner. In
gratitude, Mr. Rodrigo transferred to her a
condominium unit, where they both live, under a
deed of sale for P10 Million. Mr. Rodrigo paid the
capital gains tax of 6% of P10 Million. The
Commissioner of Internal Revenue found that the
property was transferred to Tetchie Sonora by Mr.
Rodrigo because of the companionship she was
providing him. Accordingly, the Commissioner made
a determination that Sonora had compensation
income of P10 Million in the year the condominium
unit was transferred to her and issued a deficiency
income tax assessment.
Tetchie Sonora protests the assessment and claims
that the transfer of the condominium unit was a gift
and therefore excluded from income. How will you
rule on the protest of Tetchie Sonora? Explain. (1995)
A: I will grant the protest and cancel the assessment. The
transfer of the property by Mr. Rodrigo to Ms. Sonora was
gratuitous. The deed of sale indicating a P10 million
consideration was simulated because Mr. Rodrigo did not
receive anything from the sale. The problem categorically
states that the transfer was made in gratitude to Ms.
Sonora's companionship. The transfer being gratuitous is
subject to donor's tax. Mr. Rodrigo should be assessed
60
deficiency donor's tax and a 50% surcharge imposed for
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
fraudulently simulating a contract of sale to evade
donor's tax.
Q: What constitutes prima facie evidence of a false
or fraudulent return to justify the imposition of a
50% surcharge on the deficiency tax due from a
taxpayer? Explain. (2002)
A: There is a prima facie evidence of false or fraudulent
return when the taxpayer substantially underdeclared
his taxable sales, receipts or income, or substantially
overstated his deductions, the taxpayer’s failure to report
sales, receipts or income in an amount exceeding 30% of
that declared per return, and a claim of deduction in an
amount exceeding 30% of actual deduction shall render
the taxpayer liable for substantial underdeclaration and
overdeclaration, respectively, and will justify the
imposition of the 50% surcharge on the deficiency tax
due from the taxpayer (Sec. 248, NIRC).
Interests
Q: What is a "deficiency interest" for purposes of the
income tax? Illustrate. (1995)
A: Deficiency interest is the interest assessed and
collected on any deficiency in the tax due. The rate is at
20% and the interest is computed from the date
prescribed for the payment of the tax due until the full
payment thereof.
E.g. If after the audit of the books of XYZ Corp. for taxable
year 1993 there was found to be a deficiency income tax
of P100,000.00, the interest will be computed on the
P100,000.00 from April 15, 1994 (the time required to pay
the 1993 annual income tax due) up to its date of payment.
Q: What is a "delinquency interest" for purposes of
the income tax? Illustrate. (1995)
A: Delinquency interest is the interest of 20% required to
be paid in case of failure to pay:
a) the amount of the tax due on any return required to
be filed; or
b) the amount of the tax due for which return is
required; or
c) the deficiency tax or any surcharge or interest
thereon, on the due date appearing in the notice and
demand of the Commissioner of Internal Revenue.
If in the above illustration the assessment notice was
released on December 31, 1994 and the amount of
deficiency tax, inclusive of surcharge and deficiency
interest were computed up to January 30, 1995 which is
the due date for payment per assessment notice, failure
to pay on this latter date will render the tax delinquent
and will require the payment of delinquency interest.
Compromise and Abatement of Taxes
Q: Explain the extent of the authority of the
Commissioner of Internal Revenue to compromise
and abate taxes? (1996, 2000)
A: The authority of the Commissioner to compromise
encompasses both civil and criminal liabilities of the
taxpayer. The civil compromise is allowed only in cases
(a) where the tax assessment is of doubtful validity, or (b)
when the financial position of the taxpayer demonstrates
a clear inability to pay the tax. The compromise of the tax
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
liability is possible at any stage of litigation and the
amount of compromise is left to the discretion of the
Commissioner subject to the following minimum
amounts:
a. For cases of financial incapacity, a minimum
compromise rate equivalent to ten percent (10%) of
the basic assessed tax; and
b. For other cases, a minimum compromise rate
equivalent to forty percent (40%) of the basic
assessed tax.
All criminal violations except those involving fraud, can
be compromised by the Commissioner but only prior to
the filing of the information with the Court.
The Commissioner may also abate or cancel a tax liability
when (a) the tax or any portion thereof appears to have
been unjustly or excessively assessed; or (b) the
administrative and collection costs involved do not
justify collection of the amount due (Sec. 204, NIRC)
Q: May the tax liability of a taxpayer be compromised
during the pendency of an appeal? Explain. (1996)
A: Yes. During the pendency of the appeal, the taxpayer
may still enter into a compromise settlement of his tax
liability for as long as any of the grounds for a
compromise, ie. doubtful validity of assessment and
financial incapacity of taxpayer, is present. A compromise
of a tax liability is possible at any stage of litigation, even
during appeal, although legal propriety demands that
prior leave of court should be obtained (Pasudeco vs. CIR.
L-39387. June 29. 1982).
Q: Does the Court of Appeals have the power to
review compromise agreements forged by the
Commissioner of Internal Revenue and a taxpayer?
Explain. (2010)
A: No, for either of two reasons (1) In instances in which
the Commissioner of Internal Revenue is vested with
authority to compromise, such authority should be
exercised in accordance with the Commissioner's
discretion, and courts have no power, as a general rule, to
compel him to exercise such discretion one way or
another (Koppel Phils., Inc. v. CIR, 87 Phil. 351 [1950], (2)
If the Commissioner abuses his discretion by not
following the parameters set by law, the CTA, not the
Court of Appeals, may correct such abuse if the
matter is appealed to it. In case of arbitrary or
capricious exercise by the Commissioner of the power to
compromise, the compromise can be attacked and
reversed though the judicial process. It must be noted
however, that a compromise is considered as other
matters arising under the NIRC which vests the CTA with
jurisdiction, and since the decision of the CTA is
appealable to the Supreme Court, the Court of Appeals is
devoid of any power of review a compromise settlement
forged by the Commissioner (PNOC v. Savellano, G.R. No.
109976, April 26, 2005; RA No. 9282 on jurisdiction of the
CTA).
Q: A domestic corporation failed to withhold and
remit the tax on income received from Philippine
sources by a non-resident foreign corporation. In
addition to the civil penalties provided for under the
Tax Code, a compromise penalty was imposed for
violation of the withholding tax provisions. May the
Commissioner of Internal Revenue legally enforce
61
the collection of compromise penalty? (2000)
 QUAMTO FOR TAXATION LAW (1991-2015)
A: No. There is no showing that the compromise penalty
was imposed by the Commissioner of Internal Revenue
with the agreement and conformity of the taxpayer.
(Wonder Mechanical Engineering Corporation u. Court of
Tax Appeals, et. al., 64 SCRA 555).
Q: An information was filed in court for willful non-
payment of income tax the assessment of which has
become final. The accused, through counsel,
presented a motion that he be allowed to
compromise his tax liability subject of the
information. The prosecutor indicated his
conformity to the motion. Is this procedure correct?
(1998)
A: No. Criminal violations, if already filed in court,
may not be compromised (Sec. 204[B],NIRC).
Furthermore, the payment of the tax due after
apprehension shall not constitute a valid defense in any
prosecution for violation of any provisions of the Tax
Code (Sec.247 (a), NIRC). Finally, there is no showing that
the prosecutor in the problem is a legal officer of the
Bureau of Internal Revenue to whom the conduct of
criminal actions are lodged by the Tax Code.
Q: May the Commissioner of the Internal Revenue
compromise the payment of withholding tax (tax
deducted and withheld at source) where the
financial position of the taxpayer demonstrates a
clear inability to pay the assessed tax? (1998)
A: No. A taxpayer who is constituted as withholding agent
who has deducted and withheld at source the tax on the
income payment made by him holds the taxes as trust
funds for the government (Sec. 58[D]) and is obligated to
remit them to the BIR. The subsequent inability of the
withholding agent to pay/remit the tax withheld is
not a ground for compromise because the
withholding tax is not a tax upon the withholding
agent but it is only a procedure for the collection of a
tax.
Q: After the tax assessment had become final and
unappealable, the Commissioner of Internal
Revenue initiated the filing of a civil action to collect
the tax due from NX. After several years, a decision
was rendered by the court ordering NX to pay the tax
due plus penalties and surcharges. The judgment
became final and executory, but attempts to execute
the judgment award were futile. Subsequently, NX
offered the Commissioner a compromise settlement
of 50% of the judgment award, representing that this
amount is all he could really afford. Does the
Commissioner have the power to accept the
compromise offer? Is it legal and ethical? Explain
briefly. (2004)
A: Yes. The Commissioner has the power to accept the
offer of compromise if the financial position of the
taxpayer clearly demonstrates a clear inability to pay the
tax (Sec. 204, NIRC).
As represented by NX in his offer, only 50% of the
judgment award is all he could really afford. This is an
offer for compromise based on financial incapacity which
the Commissioner shall not accept unless accompanied
by a waiver of the secrecy of bank deposits (Sec. 6[F},
NIRC). The waiver will enable the Commissioner to
ascertain the financial position of the taxpayer, although
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
the inquiry need not be limited only to the bank deposits
of the taxpayer but also as to his financial position as
reflected in his financial statements or other records
upon which his property holdings can be ascertained.
If indeed, the financial position of NX as determined by
the Commissioner demonstrates a clear inability to pay
the tax, the acceptance of the offer is legal and ethical
because the ground upon which the compromise was
anchored is within the context of the law and the rate of
compromise is well within and far exceeds the minimum
prescribed by law which is only 10% of the basic tax
assessed.
Q: State and discuss briefly whether the following
cases may be compromised or may not be
compromised:
a. Delinquent accounts;
b. Cases under administrative protest, after
issuance of the final assessment notice to the
taxpayer, which are still pending;
c. Criminal tax fraud cases;
d. Criminal violations already filed in court;
e. Cases where final reports of reinvestigation or
reconsideration have been issued resulting in
the reduction of the original assessment agreed
to by the taxpayer when he signed the
required agreement form. (2005)
A:
The following cases may still be compromised (R.R. 30-02
[2002]) because of the taxpayer's financial incapacity to
pay the tax due or the assessment's doubtful validity:
a. DELINQUENT ACCOUNTS may be compromised
because there is no showing that there is a duly-
approved schedule of installment payments; and
b. Cases under administrative protest, after issuance of
the final assessment notice to the taxpayer, which are
still pending. Compromise can be had at any stage of
the proceeding.
The following cases MAY NO LONGER BE COMPROMISED
(R.R. 30-02 [2002]) because the taxpayer has not paid his
taxes for reasons other than his financial incapacity or the
doubtful validity of the assessment:
a. CRIMINAL TAX FRAUD cases as may be determined
by the Commissioner or his authorized agents may
not be compromised;
b. CRIMINAL VIOLATIONS ALREADY FILED IN COURT
because the NIRC prohibits compromise when there
is already a criminal case filed in court; and
c. Cases where final reports of reinvestigation or
reconsideration have been issued resulting in the
reduction of the original assessment agreed to by the
taxpayer when he signed the required agreement
form. The taxpayer is estopped from applying for a
compromise.
Q: Minolta Philippines, Inc. (Minolta) is an EPZA-
registered enterprise enjoying preferential tax
treatment under a special law. After investigation of
its withholding tax returns for the taxable year
1997, the BIR issued a deficiency withholding tax
assessment in the amount of P150.000.00. On May
15, 1999, because of financial difficulty, the
deficiency tax remained unpaid, as a result of which
the assessment became final and executory. The BIR
also found that, in violation of the provisions of the
62
National Internal Revenue Code, Minolta did not file
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ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
its final corporate income tax return for the taxable
year 1998, because it allegedly incurred net loss
from its operations. On May 17, 2002, the BIR filed
with the Regional Trial Court an action for
collection of the deficiency withholding tax for 1997.
May criminal violations of the Tax Code be
compromised? If Minolta makes a voluntary offer to
compromise the criminal violations for non- filing
and non-payment of taxes for the year 1998, may the
Commissioner accept the offer? Explain. (2002)
A: All criminal violations of the Tax Code may be
compromised except those already filed in court or those
involving fraud (Sec. 204, NIRC). Accordingly, if Minolta
makes a voluntary offer to compromise the criminal
violations for non-filing and non-payment of taxes for
the year 1998, the Commissioner may accept the offer
which is allowed by law. However, if it can be established
that a tax has not been paid as a consequence of non-filing
of the return, the civil liability for taxes may be dealt with
independently of the criminal violations. The
compromise settlement of the criminal violations
will not relieve the taxpayer from its civil liability.
But the civil liability for taxes may also be
compromised if the financial position of the taxpayer
demonstrates a clear inability to pay the tax.
Organization and Function of the BIR
Q: A taxpayer is suspected not to have declared his
correct gross income in his return filed for 1997. The
examiner requested the Commissioner to authorize
him to inquire into the bank deposits of the taxpayer
so that he could proceed with the net worth method
of investigation to establish fraud. May the examiner
be allowed to look into the taxpayer's bank deposits?
In what cases may the Commissioner or his duly
authorized representative be allowed to inquire or
look into the bank deposits of a taxpayer? (1998,
2000, 2012)
A: No. as this would be violative of Republic Act No. 1405,
the Bank Deposits Secrecy Law. The Commissioner of
Internal Revenue or his duly authorized representative
may be allowed to inquire or look into the bank deposits
of a taxpayer in the following cases:
a. For the purpose of determining the gross estate of a
decedent;
b. Where the taxpayer has filed an application for
compromise of his tax liability by reason of financial
incapacity to pay such tax liability. (Sec. 6 (F), NIRC]
c. Where the taxpayer has signed a waiver authorizing
the Commissioner or his duly authorized
representatives to Inquire into the bank deposits.
Q: X dies in year 2000 leaving a bank deposit of
P2,000,000.00 under joint account with his
associates in a law office. Learning of X's death from
the newspapers, the Commissioner of Internal
Revenue wrote to every bank in the country asking
them to disclose to him the amount of deposits that
might be outstanding in his name or jointly with
others at the date of his death. May the bank holding
the deposit refuse to comply on the ground of the
Secrecy of Bank Deposit Law? Explain. (2003)
A: No. The Commissioner of Internal Revenue has the
authority to inquire into bank deposit accounts of a
decedent to determine his gross estate notwithstanding
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
the provisions of the Bank Secrecy Law. Hence, the banks
holding the deposits in question may not refuse to
disclose the amount of deposits on the ground of secrecy
of bank deposits (Sec. 6(F) of the 1997 Tax Code). The fact
that the deposit is a joint account will not preclude
the Commissioner from inquiring thereon because
the law mandates that if a bank has knowledge of the
death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall not
allow any withdrawal from the said deposit account,
unless the Commissioner has certified that the
taxes imposed thereon have been paid (Sec. 97 of the
1997 Tax Code). Hence, to be able to give the required
certification, the inclusion of the deposit is imperative,
which may be made possible only through the inquiry
made by the Commissioner.
Q:
a. 2011, the Commissioner of the U.S. Internal
Revenue Service (IRS) requested in writing the
Commissioner of Internal Revenue to get the
information from a bank in the Philippines,
regarding the deposits of a U.S. Citizen residing in
the Philippines, who is under examination by the
officials of the US IRS, pursuant to the US-
Philippine Tax Treaty and other existing laws.
Should the BIR Commissioner agree to obtain
such information from the bank and provide the
same to the IRS? Explain your answer
b. Is the bank secrecy law in the Philippines
violated when the BIR issues a Warrant of
Garnishment directed against a domestic bank,
requiring it not to allow any withdrawal from any
existing bank deposit of the delinquent taxpayer
mentioned in the Warrant and to freeze the same
until the tax delinquency of said taxpayer is
settled with the BIR? Explain your answer.
(2012)
A:
a. YES. The Commissioner should agree to the request
pursuant to the principle of international comity. The
Commissioner of Internal Revenue has the authority
to inquire into bank deposits accounts and related
information held by financial institutions of a specific
taxpayer subject of a request for the supply of tax
information from a foreign tax authority pursuant to
an international convention or agreement to which
the Philippines is a signatory or party of (Sec. 3, RA
10021).
b. NO. Garnishment is an administrative remedy
allowed by law to enforce a tax liability. Bank
accounts shall be garnished by serving a warrant of
garnishment upon the taxpayer and upon the
president, manager, treasurer or other responsible
officer of the bank. Upon receipt of the warrant of
garnishment, the bank shall turnover to the
Commissioner so much of the bank accounts as may
be sufficient to satisfy the claim of the Government
(Sec. 208, NIRC).
Q: A Co., a Philippine corporation, is a big
manufacturer of consumer goods and has several
suppliers of raw materials. The BIR suspects that
some of the suppliers are not properly reporting
their income on their sales to A Co. The CIR therefore:
63
 QUAMTO FOR TAXATION LAW (1991-2015)
1. Issued an access letter to A Co. to furnish the BIR
information on sales and payments to its
suppliers.
2. Issued an access letter to a bank (X Bank) to
furnish the BIR on deposits of some suppliers of
A Co. on the alleged ground that the suppliers are
committing tax evasion.
A Co., X Bank and the suppliers have not been issued
by the BIR letter of authority to examine. A Co. and X
Bank believe that the BIR is on a "fishing expedition"
and come to you for counsel. What is your advice?
(1999)
A: I will advise A Co. and X Bank that the BIR is justified
only in getting information from the former but not from
the latter. The BIR is authorized to obtain information
from other persons other than those whose internal
revenue tax liability is subject to audit or investigation.
However, this power shall not be construed as
granting the Commissioner the authority to inquire into
bank deposits (Sec. 5. NIRC).
Non-retroactivity of rulings
Q: Due to an uncertainty whether or not a new tax law
is applicable to printing companies, DEF Printers
submitted a legal query to the Bureau of Internal
Revenue on that issue. The BIR issued a ruling that
printing companies are not covered by the new law.
Relying on this ruling, DEF Printers did not pay said
tax. Subsequently, however, the BIR reversed the
ruling and issued a new one stating that the tax
covers printing companies. Could the BIR now assess
DEF Printers for back taxes corresponding to the
years before the new ruling? Reason briefly. (2004)
A: No. Reversal of a ruling shall not be given a retroactive
application if said reversal will be prejudicial to the
taxpayer. Therefore, the BIR cannot assess DEF printers
for back taxes because it would be violative of the
principle of non-retroactivity of rulings and doing so
would result in grave injustice to the taxpayer who relied
on the first ruling in good faith (Sec. 246, NIRC; CIR v.
Burroughs, Inc., 142 SCRA 324[1986]).
Q: 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 interpretation
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. (2007)
a. What is the BIR Ruling?
b. What is required to make a BIR ruling of first
impression a valid one?
c. Does a BIR ruling have a retroactive effect,
considering the principle that tax exemptions
should be interpreted strictly against the
taxpayer?
A:
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
a. A BIR ruling is an administrative interpretation of the
Revenue Law as applied and implemented by the
Bureau. They can be relied upon by taxpayers and are
valid until otherwise determined by the courts or
modified or revoked by a subsequent ruling or
opinion. They are accorded great weight and respect,
but not binding on the courts. (Commission v.
Ledesma, L-17509, January 30, 1970).
b. 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. A BIR ruling cannot be given retroactive effect if it
would be prejudicial to the taxpayer. Sec. 246 of the
NIRC provides for retroactive effect in the following
cases:
1. Where the taxpayer deliberately misstates or
omits material facts from his return or any
document required of him by the Bureau of
Internal Revenue;
2. Where the facts subsequently gathered by the
Bureau of Internal Revenue are materially
different from the facts on which the rulings is
based; or
3. Where the taxpayer acted in bad faith (Sec. 246,
NIRC).
Local Government Code of 1991, as amended
Q: Which of the following propositions may now be
untenable?
1. The court should construe a law granting tax
exemption strictly against the taxpayer.
2. The court should construe a law granting a
municipal corporation the power to tax most
strictly.
3. The Court of Tax Appeals has jurisdiction over
decisions of the Customs Commissioner in
cases involving liability for customs duties.
4. The Court of Appeals has jurisdiction to review
decisions of the Court of Tax Appeals.
5. The Supreme Court has jurisdiction to review
decisions of the Court of Appeals.
Justify your answer or choice briefly. (2004)
A: 2. The court should construe a law granting a
municipal corporation the power to tax most strictly.
This proposition is now untenable. The basic rationale for
the grant of tax power to local government units is to
safeguard their viability and self-sufficiency by directly
granting them general and broad tax powers
(ManilaElectric Company v. Province of Laguna et. al., 306
SCRA 750 [1999]). Considering that inasmuch as the
power to tax may be exercised by local legislative bodies,
no longer by valid congressional delegation but by
direct authority conferred by the Constitution, in
interpreting statutory provisions on municipal fiscal
powers, doubts will, therefore, have to be resolved in
favor of municipal corporations (City Government of San
Pablo, Laguna v. Reyes, 305 SCRA 353 [1999]). This means
that the court must adopt a liberal construction of a law
granting a municipal corporation the power to tax.
Note: If the examinee chose proposition no. 4 as his answer,
64
it should be given full credit considering that the present
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
CTA Act (R.A. No. 9282) has made the CTA a coequal
judicial body of the Court of Appeals. The question
"Which of the following propositions may now be
untenable" may lead the examinee to choose a proposition
which is untenable on the basis of the new law despite the
cut-off date adopted by the Bar Examination Committee.
R.A. No. 9282 was passed on March 30, 2004.
Q: RC is a law-abiding citizen who pays his real estate
taxes promptly. Due to a series of typhoons and
adverse economic conditions, an ordinance is passed
by MM City granting a 50% discount for payment of
unpaid real estate taxes for the preceding year and
the condonation of all penalties on fines resulting
from the late payment. Arguing that the ordinance
rewards delinquent taxpayers and discriminates
against prompt ones, RC demands that he be
refunded an amount equivalent to one-half of the real
taxes he paid. The municipal attorney rendered an
opinion that RC cannot be reimbursed because the
ordinance did not provide for such reimbursement.
RC files suit to declare the ordinance void on the
ground that it is a class legislation. Will his suit
prosper? Explain your answer briefly. (2004)
A: The suit will not prosper. The remission or
condonation of taxes due and payable to the exclusion of
taxes already collected does not constitute unfair
discrimination. Each set of taxes is a class by itself and the
law would be open to attack as class legislation only if all
taxpayers belonging to one class were not treated alike
(Juan Luna Subdivision, Inc., v. Sarmiento, 91 Phil. 371
[1952]).
Q: The City of Makati, in order to solve the traffic
problem in its business districts, decided to impose a
tax, to be paid by the driver, on all private cars
entering the city during peak hours from 8:00 a.m. to
9:00 a.m. from Mondays to Fridays, but exempts
those cars carrying more than two occupants,
excluding the driver. Is the ordinance valid? Explain.
(2003)
A: The ordinance is in violation of the Rule of Uniformity
and Equality, which requires that all subjects or objects
of taxation, similarly situated must be treated alike in
equal footing and must not classify the subjects in an
arbitrary manner. In the case at bar, the ordinance
exempts cars carrying more than two occupants from
coverage of the said ordinance. Furthermore, the
ordinance only imposes the tax on private cars and
exempts public vehicles from the imposition of the tax,
although both contribute to the traffic problem. There
exists no substantial standard used in the classification
by the City of Makati.
Another issue is the fact that the tax is imposed on the
driver of the vehicle and not on the registered owner of
the same. The tax does not only violate the requirement
of uniformity, but the same is also unjust because it places
the burden on someone who has no control over the
route of the vehicle. The ordinance is, therefore, invalid
for violating the rule of uniformity and equality as well as
for being unjust.
Nature and Source of Taxing Power
Q: What is the nature of the taxing power of
the provinces, municipalities and cities? How will the
local government units be able to exercise their
taxing powers? (2007)
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
A: The taxing power of local governments is not an
inherent power but one delegated under the
Philippine Constitution (1987 Constitution, Article X;
Manila Electric Co., v. Province of Laguna, G.R. No. 131359,
May 5, 1999; Mactan Cebu International Airport Authority
v. Marcos, G.R. No. 120082, September 11, 1996; Basco v.
PAGCOR, G.R. No. 150947, July 15, 2003).
Q: Congress, after much public hearing and
consultations with various sectors of society, came to
the conclusion that it will be good for the country to
have only one system of taxation by centralizing the
imposition and collection of all taxes in the national
government. Accordingly, it is thinking of passing a
law that would abolish the taxing power of all local
government units. In your opinion, would such a law
be valid under the present Constitution? Explain your
answer. (2001)
A: No. The law centralizing the imposition and
collection of all taxes in the national government
would contravene the Constitution which mandates
that:. "Each local government unit shall have the
power to create their own sources of revenue and to
levy taxes, fees, and charges subject to such guidelines
and limitations as Congress may provide consistent with
the basic policy of local autonomy." It is clear that
Congress can only give the guidelines and limitations on
the exercise by the local governments of the power to tax
but what was granted by the fundamental law cannot be
withdrawn by Congress.
Q: May Congress, under the 1987 Constitution,
abolish the power to tax of local governments?
(2003)
A: No. Congress cannot abolish what is expressly granted
by the fundamental law. The only authority conferred to
Congress is to provide the guidelines and limitations on
the local government’s exercise of the power to tax (Sec.
5, Art X, 1987 Constitution).
Withdrawal of Exemptions
Q: The Local Government Code took effect on January
1, 1992. PLDT's legislative franchise was granted
sometime before 1992. Its FRANCHISE provides that
PLDT will only pay 3% franchise tax in lieu of all
taxes. The legislative franchises of Smart and Globe
Telecoms were granted in 1998. Their
legislative FRANCHISES state that they will pay only
5% franchise tax in lieu of all taxes. The Province of
Zamboanga del Norte passed an ordinance in 1997
that imposes a local FRANCHISE tax on all
telecommunication companies operating within the
province. The tax is 50% of 1% of the gross annual
receipts of the preceding calendar year based on the
incoming receipts, or receipts realized, within
territorial jurisdiction. Is the ordinance valid? Are
PLDT, Smart and Globe liable to pay FRANCHISE
taxes? Reason briefly. (2007)
A: The ordinance is valid as it was passed pursuant to the
powers of provinces and cities to impose taxes on
businesses with franchises under the Local Government
Code (LGC). The LGC, which took effect on January 1,
1992, withdrew tax exemptions or incentives previously
enjoyed by all persons, except certain entities (Sec. 193,
65
LGC).
 QUAMTO FOR TAXATION LAW (1991-2015)
PLDT is liable to pay the local franchise taxes because its
legislative franchise was granted by Congress prior to the
passage of the LGC. Thus, the provision of the LGC
withdrawing tax exemptions or incentives applies to
PLDT. Smart and Globe are exempt from the
local franchise taxes imposed by the province since their
respective legislative franchises were granted in 1998, or
after the enactment of the LGC. Therefore, with respect to
Smart and Globe, the withdrawal of tax exemptions or
incentives under the LGC was superseded by the
legislative franchise requiring payment of the
5% franchise tax “in lieu of all taxes” (PLDT v. City of
Davao, G.R. No. 143867, August 22, 2001 and March 25,
2003).
Authority to issue local tax ordinances
Q: In order to raise revenue for the repair and
maintenance of the newly constructed City Hall of
Makati, the City Mayor ordered the collection of
P1.00, called "elevator tax", every time a person
rides any of the high-tech elevators in the city hall
during the hours of 8:00 a.m. to 10:00 a.m. and 4:00
p.m. to 6:00 p.m. Is the "elevator tax" a valid
imposition? Explain. (2003)
A: No. The imposition of a tax, fee or charge or the
generation of revenue under the Local Government Code,
shall be exercised by the SANGUNIAN of the local
government unit concerned through an appropriate
ordinance (Sec. 132 of the Local Government Code). The
city mayor alone could not order the collection of the tax;
as such, the "elevator tax" is an invalid imposition.
Specific Taxing Power of LGUs
Taxing powers of cities
Note: Except as otherwise provided in this Code, the city,
may levy the taxes, fees, and charges which the province or
municipality may impose xxxxx (Sec. 151, LGC)
Q: The City of Manila enacted an ordinance, imposing
a 5% tax on gross receipts on rentals of space in
privately-owned public markets. BAT Corporation
questioned the validity of the ordinance, stating that
the tax is an income tax, which cannot be imposed by
the city government. Do you agree with the position
of BAT Corporation? Explain. (2008)
A: No. the tax imposed is not an income tax but a license
tax or fee for the regulation of the business in which the
taxpayers are engaged, that is the leasing of spaces in
privately-owned public markets (Progressive
Development Corporation v Quezon City, 172 SCRA 629
1989). The income tax imposed under the National
Internal Revenue Code which pre-empts the imposition
by the City is one which is imposed on the privilege
enjoyed by a taxpayer in earning income and not a tax on
business
Q: The City of Manila enacted Ordinance No. 55-66
which imposes a municipal occupation tax on
persons practicing various professions in the city.
Among those subjected to the occupation tax were
lawyers. Atty. Mariano Batas, who has a law office in
Manila, pays the ordinance-imposed occupation tax
under protest. He goes to court to assail the validity
of the ordinance for being discriminatory. Decide
with reasons. (2009)
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
A: The ordinance is valid. The tax imposed by the
ordinance is in the nature of a professional tax which is
authorized by law to be imposed by cities (Sec. 151 in
relation to Sec. 139 LGC). The ordinance is not
discriminatory because the City Council has the power to
select the subject of taxation and impose the same tax on
those belonging to the same class. The authority given by
law to cities is to impose a professional tax only on
persons engaged in the practice of their profession
requiring government examination and lawyers are
included within that class of professionals.
ALTERNATIVE ANSWER:
The ordinance is valid. The ordinance is not
discriminatory because it complies with the rule of
equality and uniformity in taxation. Equality and
uniformity in local taxation means that all subjects or
objects of taxation belonging to the same class shall be
taxed at the same rate within the territorial jurisdiction
of the taxing authority or local government unit or not
necessarily in comparison with other unit although
belonging to the same political subdivision. In fine,
uniformity is required only within the geographical limits
of the taxing authority. It is not for the court to judge what
particular cities or municipalities should be empowered
to impose occupation tax. In the case at bar, the
imposition of the occupation tax to persons exercising
various professions in the city is well within the authority
of the City of Manila (Punsalan et al v City of Manila, 95
Phil 46, 1954)
Taxing power of municipalities
Q: What is the basis for the computation of business
tax on contractors under the Local Government
Code? (2010)
A: The business tax on contractors is a graduated annual
fixed tax based on the gross receipts for the preceding
calendar year. However, when the gross receipts amount
to P2 million or more, the business tax on contractors is
imposed as a percentage tax at the rate of 50% of 1% (Sec.
143(e), LGC).
Q: ABC Corporation is registered as a holding
company and has an office in th e C ity of
Makati. It has no actual bus ines s
operatio ns. It inves ted in another company and
its earnings are limited to dividends from this
inves tment, intere sts on i ts Bank Deposi ts,
and foreign exchange gai ns f rom
its foreign currency account. The City of Makati
asses sed ABC Corporation as a contractor or one
that sells services for a fee. Is the City of Makati
correct? ( 2 0 1 3 )
A: No. the corporation cannot be considered as a
contractor because it does not render services for
others for a fee. A contractor is one whose activity
consists essentially in the sale of all kinds of services for
a fee, regardless of whether or not the performance of the
service calls for the exercise or use of the physical or
mental faculties of such contractor or its employees. To
be considered as a contractor, the corporation must
derive income from doing active business of selling
services and not from deriving purely passive
income. Accordingly, a mere holding company cannot be
assessed by the City of Makati as a contractor (Sec. 131
66
(h), LGC).
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
Q: Ferremaro, Inc., a manufacturer of handcrafted
shoes, maintains its principal office in Cubao, Quezon
City. It has branches/sales offices in Cebu and Davao.
Its factory is located in Marikina City where most of
its workers live. Its principal office in Quezon City is
also a sales office. Sales of finished products for
calendar year 2009 in the amount of P10 million
were made at the following locations:
i) Cebu branch 25%
ii) Davao branch 15%
iii) Quezon City branch 60%
Total 100%
Where should the applicable local taxes on the shoes
be paid? Explain. (2010)
A: Twenty five percent (25%) of total sales or P2.5 million
shall be taxed in Cebu and 15% of the total sales or
P1.5million shall be taxed in Davao. For the remaining
60% sales amounting to P 6 million which are recorded
in the principal office, 30% thereof or P1.8 million is
taxable in Quezon City where the principal office is
located and 70% or P4.2 million is taxable in Marikina
City where the factory is located.
Under the law, manufacturers maintaining a branch or
sales outlet shall record the sale in the branch or sales
outlet making the sale and pay the tax in the city or
municipality where the branch or sales outlet is located.
Since Ferremaro, Inc. maintains one factory, the sales
recorded in the principal office shall be allocated and
30% of said sales are taxable in the place where the
principal office is located while 70% is taxable in the
place where the factory is located (Sec. 150 LGC).
Q: How are retiring businesses taxed under the Local
Government Code? (2010)
A: Retiring business under the LGC are taxed on their
gross sales or gross receipts in the current year and not
on the preceding year. If the tax paid in the current year
is less than the tax due on gross sales or receipts of the
current year, the difference shall be paid before the
business is considered officially retired (Sec. 145, LGC).
Q: The Sangguniang Bayan of the Municipality of
Sampaloc, Quezon, passed an ordinance imposing a
storage fee of ten centavos (P0.10) for every 100 kilos
of copra deposited in any bodega within the
Municipality's jurisdiction. The Metropolitan
Manufacturing Corporation (MMC), with principal
office in Makati, is engaged in the manufacture of
soap, edible oil, margarine, and other coconut oil-
based products. It has a warehouse in Sampaloc,
Quezon, used as storage space for the copra
purchased in Sampaloc and nearby towns before the
same is shipped to Makati. MMC goes to court to
challenge the validity of the ordinance, demanding
the refund of the storage fees it paid under protest.
Is the ordinance valid? Explain your answer. (2009)
A: Yes. The municipality is authorized to impose
reasonable fees and charges as a regulatory measure in
an amount commensurate with the cost of regulation,
inspection, and licensing (Sec. 147 LGC). In the case at
bar, the storage of copra in any warehouse within the
municipality can be the proper subject of regulation
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
pursuant to the police power granted to
municipalities under the Revised Administrative
Code or the “general welfare clause”. A warehouse
used for keeping or storing copra is an establishment
likely to endanger the public safety or likely to give
rise to conflagration because the oil content of the
copra, when ignited, is difficult to put under control
by water and the use of chemicals is necessary to put
out the fire. It is, thus reasonable that the Municipality
impose storage fees for its own surveillance and lookout
(Procter & Gamble Philippine Manufacturing Corp vs.
Municipality of Jagna Province of Bohol, 94 SCRA 894
1979).
Taxing power of provinces
Q: Aside from the basic real estate tax, give three (3)
other taxes which may be imposed by provincial and
city governments as well as by municipalities in the
Metro Manila area. (2002)
A: The following real property taxes aside from the basic
real property tax may be imposed by provincial and city
governments as well as by municipalities in the Metro
Manila area:
1. Additional levy on real property for the Special
Education Fund (Sec. 235, LGC);
2. Additional Ad-valorem tax on Idle lands (Sec. 236, LGC);
and
3. Special levy (Sec, 240).
Note: The question is susceptible to dual interpretation
because it is asking for three other taxes and not three
other real property taxes. Accordingly, an alternative
answer should be considered and given full credit.
ALTERNATIVE ANSWER:
The following taxes, aside from basic real estate tax, may
be imposed by provincial government
a. Printer’s or publisher’s tax
b. Franchise Tax
c. Professional tax
Common Limitations on the Taxing Powers of LGU
Q: XYZ Shipping Corporation is a branch of an
international shipping line with voyages between
Manila and the West Coast of the U.S. The company’s
vessels load and unload cargoes at the Port of Manila,
albeit it does not have a branch or sales office in
Manila. All the bills of lading and invoices are issued
by the branch office in Makati which is also the
company’s principal office. The City of Manila
enacted an ordinance levying a 2% tax on gross
receipts of shipping lines using the Port of Manila.
Can the City Government of Manila legally impose
said levy on the corporation? Explain. (2010)
A: No. Manila cannot legally levy the Gross Receipts Tax
on the shipping line, because taxes on the gross receipts
of transportation contactors and persons engaged in the
transportation of passengers or freight by hire and
common carriers by air, land or water is a limitation on
the exercise of the taxing power of the local government
units (Sec. 133, LGC).
ALTERNATIVE ANSWER:
No. since the gross receipts of an international shipping
67
company is subject to tax under the National Internal
 QUAMTO FOR TAXATION LAW (1991-2015)
Revenue Code, the power to tax is impliedly withheld
from local government units. This is the “rule on
preemption or exclusionary rule” which applies unless by
express provision of law, LGUs are given the power to tax
that field already covered by the taking power of the
National Government (Victorias Milling Co. Inc v Mun, of
Victorias, L-21183, Sept 27, 1968; Sec. 133 LGC).
Q: In 2014, M City approved an ordinance levying
customs duties and fees on goods coming into the
territorial jurisdiction of the city. Said city ordinance
was duly published on February 15, 2014 with
effectivity date on March 1, 2014.
a. Is there a ground for opposing said ordinance?
b. What is the proper procedural remedy and
applicable time periods for challenging the
ordinance? (2015)
A:
a. Yes, on the ground that the ordinance is ultra vires.
The taxing powers of local government units, such as
M City, cannot extend to the levy of taxes, fees and
charges already imposed by the national
government, and this includes, among others, the
levy of customs duties under the Tariff and Customs
Code (Sec. 133(e), LGC).
b. Any question on the constitutionality or legality of
tax ordinance may be raised on appeal within 30
days from effectivity to the Secretary of Justice. The
Secretary of Justice shall render a decision within 60
days from the date of receipt of the appeal.
Thereafter, within 30 days after receipt of the
decision or the lapse of the 60 day period without the
Secretary of Justice acting upon the appeal, the
aggrieved party may file the appropriate proceedings
with the Regional Trial Court (Sec. 187, LGC).
Collection of Business Tax
Tax period and manner of payment
Q: MNO Corporation was organized on July 1, 2006, to
engage in trading of school supplies, with principal
place of business in Cubao, Quezon City. Its book of
account and income statement showing gross sales as
follows:
July 1, 2006 to December 31, 2006 P 5,0000,000.
January 1, 2007 to June 30, 2007 P 10,000,000.
July 1, 2007 to December 31, 2007 P 15,000,000.
Since MNO Corporation adopted fiscal year ending
June 30 as its taxable year for income tax purpose, it
paid its 2% business tax for fiscal year ending June
30, 2007 based on gross sales of P15 million.
However, the Quezon City Treasurer assessed the
corporation for deficiency business tax for 2007
based on gross sales of P25 million alleging that local
business taxes shall be computed based on calendar
year.
a.) Is the position of the city treasurer tenable?
Explain.
b.) May the deficiency business tax be paid in
installments without surcharge and interest?
Explain. (2008)
A:
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
a.) Yes. The tax period for local taxes is generally the
calendar year (Sec. 165, LGC).
b.) Yes. Local Government Units may, through
ordinances duly approved, grant reliefs to taxpayers
under such terms and conditions as they may deem
necessary. Such reliefs may take the form of
condonation or extension of time for payment or
non-imposition of surcharge or interest (Sec. 192,
LGC). Accordingly, the deficiency business taxes may
be paid in installment without surcharge and interest
through the passage of an ordinance for that purpose.
Taxpayer’s Remedies
Q: On May 15, 2009, La Manga Trading Corporation
received a deficiency business tax assessment of
P1,500,000.00 from the Pasay City Treasurer. On
June 30, 2009, the corporation contested the
assessment by filing a written protest with the City
Treasurer. On October 10, 2009, the corporation
received a collection letter from the City Treasurer,
drawing it to file on October 25, 2009 an appeal
against the assessment before the Pasay Regional
Trial Court (RTC).
a. Was the protest of the corporation filed on time?
Explain.
b. Was the appeal with the Pasay RTC filed on time?
Explain. (2010)
A:
a. The protest was filed on time. The taxpayer has the
right to protest an assessment within 60 days
from receipt thereof (Sec. 195, LGC).
b. The appeal was not filed on time. When an
assessment is protested, the treasurer has 60 days
within which to decide. The taxpayer has 30 days
from receipt of the denial of protest or from the
lapse of the 60 day period to decide, whichever
comes first, otherwise the assessment becomes
conclusive an unappeallable. Since no decision on
the protest was made, the taxpayer should have
appealed to the RTC within 30 days from the lapse of
the period to decide the protest (Sec. 195, LGC).
Q: X, a taxpayer who believes that an ordinance
passed by the City Council of Pasay is
unconstitutional for being discriminatory against
him, wants to know from you, his tax lawyer, whether
or not he can file an appeal. In the affirmative, he asks
you where such appeal should be made: the Secretary
of Finance, or the Secretary of Justice, or the Court of
Tax Appeals, or the regular courts. What would your
advice be to your client, X? (2003)
A: The appeal should be made with the Secretary of
Justice. Any question on the constitutionality or
legality of a tax ordinance may be raised on appeal
with the Secretary of Justice within 30 days from the
effectivity thereof. (Sec. 187, LGC; Hagonoy Market
Vendor Association v. Municipality of Hagonoy, 376 SCRA
376 [2002]).
Q: In accordance with the Local Government Code
(LGC), the Sangguniang Panglungsod (SP) of Baguio
City enacted Tax Ordinance No.19, Series of 2014,
imposing a P50.00 tax on all the tourists and
travellers going to Baguio City. In imposing the local
tax, the SP reasoned that the tax collected will be used
68
to maintain the cleanliness of Baguio City and for the
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
beautification of its tourist attractions. Claiming the
tax to be unjust, Baguio Travellers Association (BTA),
an association of travel agencies in Baguio City, filed
a petition for declaratory relief before the Regional
Trial Court (RTC) because BTA was apprehensive
that tourists might cancel their bookings with BTA’s
member agencies. BTA also prayed for the issuance
of a Temporary Restraining Order (TRO) to enjoin
Baguio City from enforcing the local tax on their
customers and on all tourists going to Baguio City.
The RTC issued a TRO enjoining Baguio City from
imposing the local tax. Aggrieved, Baguio City filed a
petition for certiorari before the Supreme Court (SC)
seeking to set aside the TRO issued by the RTC on the
ground that collection of taxes cannot be enjoined.
Will the Petition prosper? (2014)
A: Yes. The petition for certiorari will prosper. The RTC
has no jurisdiction to entertain any action concerning the
validity of a Tax Ordiance and to enjoin the imposition of
taxes levied by it. Any question on the legality of the tax
ordinance can only be raised on appeal with the Secretary
of Justice and the appeal shall not have the effect of
suspending the effectivity of the ordinance and the
accrual and the payment of the tax levied therein (Sec.
187, LGC).
Q: Doña Evelina, a rich widow engaged in the
business of currency exchange, was assessed a
considerable amount of local business taxes by the
City Government of Bagnet by virtue of Tax
Ordinance No. 24. Despite her objections thereto,
Doña Evelina paid the taxes. Nevertheless,
unsatisfied with said Tax Ordinance, Doña Evelina,
through her counsel Atty. ELP, filed a written claim
for recovery of said local business taxes and
contested the assessment. Her claim was denied, and
so Atty. ELP elevated her case to the Regional Trial
Court (RTC).
The RTC declared Tax Ordinance No. 24 null and void
and without legal effect for having been enacted in
violation of the publication requirement of tax
ordinances and revenue measures under the Local
Government Code (LGC) and on the ground of double
taxation. On appeal, the Court of Tax Appeals (CTA)
affirmed the decision of the RTC. No motion for
reconsideration was filed and the decision became
final and executory.
a. If you are Atty. ELP, what advice will you give
Doña Evelina so that she can recover the subject
local business taxes?
b. if Doña Evelina eventually recovers the local
business taxes, must the same be considered as
income taxable by the national government?
(2014)
A:
a. The remedy availed of by Doña Evelina to question
the validity of the assessment was to file a written
claim for recovery which was denied by the city
treasurer. It appears that after the denial, the judicial
remedies were properly pursued. Since the decision
by the CTA had already become final and executory,
the counsel should advice Doña Evelina to press for
the execution of the judgment. Should the city
treasurer refuse to refund the local taxes paid, they
should push for the issuance of a writ of execution by
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
the CTA to force the local treasurer to make the
refund.
b. Yes, subject to the tax benefit rule. The local business
tax paid is a business connected tax hence, deductible
from gross income. If at the time of its deduction it
resulted to a tax benefit to Doña Evelina, then the
recovery will form part of gross income to the extent
of the tax benefit on the previous deduction (Sec.
34(C)(l), NIRC).
Civil Remedies by the LGU for Collection of Revenues
Q: Give the remedies available to local government
units to enforce the collection of taxes, fees, and
charges? (1997)
A: The remedies available to the local government units
to enforce collection of taxes, fees, and charges are:
a. Administrative remedies of distraint of personal
property of whatever kind whether tangible or
intangible, and levy of real property and interest
therein; and
b. Judicial remedy by institution of an ordinary civil
action for collection with the regular courts of proper
jurisdiction.
Real Property Taxation
Q: State the fundamental principles underlying real
property taxation in the Philippines. (1997, 2000)
A: The following are the fundamental principles
governing real property taxation:
a. Real property shall be appraised at its current and
fair market value;
b. Real property shall be classified for assessment
purposes on the basis of its actual use:
c. Real property shall be assessed on the basis of a
uniform classification within each local government
unit;
d. The appraisal, assessment, levy, and collection of real
property tax shall not be let to any private person;
and
e. The appraisal and assessment of real property shall
be equitable.
Imposition of Real Property Tax
Q: May local governments impose an annual realty
tax in addition to the basic real property tax on idle
or vacant lots located in residential subdivisions
within their respective territorial jurisdictions?
(2000)
A: Not all local government units may do so. Only
provinces, cities, and municipalities within the Metro
Manila area (Sec. 232, LGC), may impose an ad valorem
tax not exceeding five percent (5%) of the assessed value
(Sec. 236, LGC) of idle or vacant residential lots in a
subdivision, duly approved by proper authorities
regardless of area (Sec. 237, LGC).
Q: An Ordinance was passed by the Provincial Board
of a Province in the North, increasing the rate of basic
real property tax from 0.006% to 1% of the assessed
value of the real property effective January 1, 2000.
Residents of the municipalities of the said province
protested the Ordinance on the ground that no
public hearing was conducted and, therefore, any
69
increase in the rate of real property tax is void. Is
 QUAMTO FOR TAXATION LAW (1991-2015)
there merit in the protest? Explain your answer.
(2002)
A: The protest is devoid of merit. No public hearing is
required before the enactment of a local tax
ordinance levying the basic real property tax (Art.
324, LGC Regulations).
ALTERNATIVE ANSWER:
Yes, there is merit in the protest provided that sufficient
proof could be introduced for the non-observance of
public hearing. By implication, the Supreme Court
recognized that public hearings are required to be
conducted prior to the enactment of an ordinance
imposing real property taxes. Although it was concluded
by the highest tribunal that presumption of validity of a
tax ordinance cannot be overcome by bare assertions of
procedural defects on its enactment, it would seem that if
the taxpayer had presented evidence to support the
allegation that no public hearing was conducted, the
Court should have ruled that the tax ordinance is invalid.
(Belen Figuerres v. Court of Appeals, GRNo. 119172, March
25, 1999).
Q: Republic Power Corporation (RPC) is a
government-owned and controlled corporation
engaged in the supply, generation and transmission
of electric power. In 2005, in order to provide
electricity to Southern Tagalog provinces, RPC
entered into an agreement with Jethro Energy
Corporation (JEC), for the lease of JEC's power barges
which shall be berthed at the port of Batangas City.
The contract provides that JEC shall own the power
barges and the fixtures, fittings, machinery, and
equipment therein, all of which JEC shall supply at its
own cost, and that JEC shall operate, manage and
maintain the power barges for the purpose of
converting the fuel of RPC into electricity. The
contract also stipulates that all real estate taxes and
assessments, rates and other charges, in respect of
the power barges, shall be for the account of RPC.
In 2007, JEC received an assessment of real property
taxes on the power barges from the Assessor of
Batangas City. JEC sought reconsideration of the
assessment on the ground that the power barges are
exempt from real estate taxes under Sec. 234 [c] of
R.A. 7160 as they are actually, directly and
exclusively used by RPC, a government-owned and
controlled corporation. Furthermore, even assuming
that the power barges are subject to real property
tax, RPC should be held liable therefor, in accordance
with the terms of the lease agreement. Is the
contention of JEC correct? Explain your answer.
(2009)
A: The contention of JEC is not correct. The owner of the
power barges is JEC which is required to operate, manage
and maintain the power barges for the purpose of
converting the fuel of RPC into electricity. This belies the
claim that RPC, a government-owned and controlled
corporation engaged in the supply, generation and
transmission of electric power, is the actual, direct and
exclusive user of the barge, hence, does not fall within the
purview of exempting provision of Sec. 234 (c) of RA
7160. Likewise, the argument that RPC should be liable to
the real property taxes consonant with the contract is
devoid of merit. The liability for the payment of the
real estate taxes is determined by law and not by the
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
agreement of the parties (FELS Energy Inc. v The
Province of Batangas, 516 SCRA 186, 2007).
Q: Under Article 415 of the Civil Code, in order for
machinery and equipment to be considered real
property, the pieces must be placed by the owner of
the land and, in addition, must tend to directly meet
the needs of the industry or works carried on by the
owner. Oil companies install underground tanks in
the gasoline stations located on land leased by the oil
companies from the owners of the land where the
gasoline stations [are] located. Are those
underground tanks, which were not placed there by
the owner of the land but which were instead placed
there by the lessee of the land, considered real
property for purposes of real property taxation
under the local Government Code? Explain. (2001,
2003)
A: Yes. The properties are considered as necessary
fixtures of the gasoline station, without which the
gasoline station would be useless. Machinery and
equipment installed by the lessee of leased land is not
real property for purposes of execution of a final
judgment only. They are considered as real property
for real property tax purposes as "other
improvements to affixed or attached real property
under the Assessment Law and the Real Property Tax
Code (Caltex v. Central Board of Assessment Appeals, 114
SCRA 296 [1982]).
Exemption from Real Property Tax
Q: Under the Local Government Code, what
properties are exempt from real property taxes?
(2002, 2006)
A: The following properties are exempt from real
property taxes: (Sec. 234, LGC).
1. Real property owned by the Republic of the
Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
2. All lands, buildings and improvements actually,
directly, and exclusively used for religious, charitable
or educational purposes by charitable institutions,
churches, parsonages or convents appurtenant
thereto, mosques, nonprofit or religious cemeteries;
3. All machineries and equipment that are actually,
directly and exclusively used by local water districts
and government-owned or controlled corporations
engaged in the supply and distribution of water
and/or generation and transmission of electric
power;
4. All real property owned by duly registered
cooperatives as provided for under R.A. No. 6938;
and
5. Machinery and equipment used for pollution control
and environmental protection.
Q: A inherited a two-storey building in Makati from
his father, a real estate broker in the ‘60s. A group of
Tibetan monks approached A, and offered to lease
the building in order to use it as a venue for their
Buddhist rituals and ceremonies. A accepted the
rental of P1 million for the whole year. The following
year, the City Assessor issued an assessment against
A for non-payment of real property taxes. Is the
assessor justified in assessing A’s deficiency real
70
property taxes? Explain. (2010)
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
A: No. the property is exempt from real property tax by
virtue of the beneficial use thereof by the Tibetan monks
for their religious rituals and ceremonies. All lands,
buildings and improvements actually, directly, and
exclusively used for religious, charitable or educational
purposes by charitable institutions, churches, parsonages
or convents appurtenant thereto, mosques, nonprofit or
religious cemeteries are exempt from real property tax
(Sec. 234 LGC; Sec. 28(3), Art IV, Phil Constitution). The
test of exemption from the tax is not ownership but
the beneficial use of the property (City of Baguio v
Busuego, L-29772, Sept 18, 1980).
Q: LLL is a government instrumentality created by
Executive Order to be primarily responsible for
integrating and directing all reclamation projects for
the National Government. It was not organized as a
stock or a non-stock corporation, nor was it intended
to operate commercially and compete in the private
market. By virtue of its mandate, LLL reclaimed
several portions of the foreshore and offshore areas
of the Manila Bay, some of which were within the
territorial jurisdiction of Q City. Certificates of title to
the reclaimed properties in Q City were issued in the
name of LLL in 2008. In 2014, Q City issued Warrants
of Levy on said reclaimed properties of LLL based on
the assessment for delinquent property taxes for the
years 2010 to 2013.
a. Are the reclaimed properties registered in the
name of LLL subject to real property tax?
b. Will your answer be the same in (a) if from 2010
to the present time, LLL is leasing portions of the
reclaimed properties for the establishment and
use of popular fastfood restaurants J Burgers, G
Pizza, and K Chicken? (2015)
A:
a. The reclaimed properties are not subject to real
property tax because LLL is a government
instrumentality. Under the law, real property
owned by the Republic of the Philippines is exempt
from real property tax unless the beneficial use
thereof has been granted to a taxable person (Sec.
234, LGC). When the title of the real property is
transferred to LLL, the Republic remains the owner
of the real property. Thus, such arrangement does
not result in the loss of the tax exemption (Republic
of the Philippines, represented by The Philippine
Reclamation Authority v. City of Paranaque, 677 SCRA
246 [2012]).
ALTERNATIVE ANSWER:
No. LLL is an instrumentality of the national
government which cannot be taxed by local
government units. LLL is not a GOCC taxable for real
property taxes (City of Lapu-Lapu v. PEZA, GR No.
184203, November 26, 2014).
b. No. As a rule, properties owned by the Republic of
the Philippines are exempt from real property
tax except when beneficial use thereof has been
granted, for consideration or otherwise, to a
taxable person. When LLL leased out portions of the
reclaimed properties to taxable entities, such as
popular fast food restaurants, the reclaimed
properties are subject to real property tax (Sec.
234(a), LGC; GSIS v. City Treasurer and City Assessor of
the City of Manila, 2009).
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
Q: Mr. Amado leased a piece of land owned by the
Municipality of Pinagsabitan and built a warehouse
on the property for his business operations. The
Municipal Assessor assessed Mr. Amado for real
property taxes on the land and the warehouse. Mr.
Amado objected to the assessment, contending that
he should not be asked to pay realty taxes on the land
since it is municipal property.
Was the assessment proper? (2013)
A: Yes, the assessment is proper. The land, although
owned by the municipality, is not exempt from real
property tax because the beneficial use has been granted
to a taxable person (Sec. 234 (a), LGC).
Q: A city outside of Metro Manila plans to enact an
ordinance that will impose a special levy on idle lands
located in residential subdivisions within its
territorial jurisdiction in addition to the basic real
property tax. If the lot owners of a subdivision
located in the said city seek your legal advice on the
matter, what would your advice be? Discuss. (2005)
A: I would advise the lot owners that a city, even if it is
outside Metro Manila, may levy an annual tax on idle
lands at the rate not exceeding five percent (5%) of the
assessed value of the property which shall be in addition
to the basic real property tax (Sec. 236, Local Government
Code). I would likewise advise them that the levy may
apply to residential lots, regardless of land area, in
subdivisions duly approved by proper authorities, the
ownership of which has been transferred to individual
owners who shall be liable for the additional tax (Last
par., Sec. 237, LGC).
The term "Idle Lands" means, land not devoted directly to
any crop or to any definite purpose for at least one year
prior to the notice of expropriation, except for reasons
other than force majeure or any fortuitous event, but
used to be devoted or is suitable to such crop or is
contiguous to land devoted directly to any crop and does
not include land devoted permanently or regularly to
other essential and more productive purpose. (Philippine
Legal Encyclopedia, by Sibal, 1986 Ed.)
Finally, I would advise them to construct or place
improvements on their idle lands by making valuable
additions to the property or ameliorations in the land's
conditions so the lands would not be considered as idle
(Sec. 199[m]). In this manner their properties would not
be subject to the ad valorem tax on idle lands.
Appraisal and Assessment of Real Property Tax
Q: Mr. Jose Castillo is a resident Filipino Citizen. He
purchased a parcel of land in Makati City in 1970 at a
consideration of P1 Million. In 2011, the land, which
remained undeveloped and idle, had a fair market
value of P20Million. Mr. Antonio Ayala, another
Filipino citizen, is very much interested in the
property and he offered to buy the same for P20
Million. The Assessor of Makati City re-assessed in
2011 the property at P10 Million.
a. When is Mr. Castillo liable for real property tax
on the land beginning 2011 or beginning 2012?
Explain your answer.
71
 QUAMTO FOR TAXATION LAW (1991-2015)
b. Is Mr. Castillo liable for income tax in 2011 based
on the offer to buy by Mr. Ayala? Explain your
answer.
c. Should Mr. Castillo agree to sell the land to Mr.
Ayala in 2012 for P20 Million, subject to the
condition as stated in The Deed of Sale that the
buyer shall assume the capital gains tax thereon,
how much is the income tax due on the
transaction and when must the tax return be filed
and the tax be paid by the taxpayer? Explain your
answer. (2012)
A:
a. Mr. Castillo shall be liable to the real property tax
based on the re-assessment beginning 2012. All re-
assessment made after the first day of any year shall
take effect on the first day of January of the
succeeding year (Sec. 221, LGC).
b. NO. Mr. Castillo is not liable for income tax in 2011
because no income is realized by him during that
year. Tax liability for income tax attaches only if there
is a gain realized resulting from a closed and
complete transaction (Madrigal v. Rafferty, G.R. No. L-
12287, August 7, 1918).
c. He shall be liable to pay 6% capital gains tax (CGT)
based on the Gross Selling Price of the Property
which is 20 Million plus the GCT assumed by the
buyer. He should file the return within 30 days from
date of the sale (date of notarization) and shall pay
the tax as he files the return (Sec. 24(D), NIRC).
ALTERNATIVE ANSWER:
c. The income tax due on the transaction is
P1,276,595.74 which is computed as 6% of the Gross
Selling Price (GSP). The tax based of the 6% capital
gains tax (CGT) is the higher between the GSP and the
fair market value (FMV). The GSP is 20 Million plus
the CGT to be assumed by the buyer, following the
doctrine of constructive receipt of income or a total
of P21,276,595.74, which amount is higher than the
FMV of P20 Million.
Q: The real property of Mr. and Mrs Angeles, situated
in a commercial area in front of the public market,
was declared in their Tax Declaration as residential
because it had been used by them as their family
residence from the time of its construction in 1990.
However, since January 1997, when the spouses left
for the United States to stay there permanently with
their children, the property has been rented to a
single proprietor engaged in the sale of appliances
and agri-products. The Provincial Assessor
reclassified the property as commercial for tax
purposes starting January 1998. Mr. and Mrs. Angeles
appealed to the Local Board of Assessment Appeals,
contending that the Tax Declaration previously
classifying their property as residential is binding.
How should the appeal be decided? (2002)
A: The appeal should be decided against Mr. and Mrs.
Angeles. The law focuses on the actual use of the
property for classification, valuation and assessment
purposes regardless of ownership. Sec. 217 of the
Local Government Code provides that "real property
shall be classified, valued, and assessed on the basis of its
actual use regardless of where located, whoever owns it,
and whoever uses it".
Collection of Real Property Tax
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Issuance of notice of delinquency for real property tax
payment
Q: 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.
a. If you were the judge, how will you resolve this
issue?
b. Assuming Joachin is a registered owner, will your
answer be the same? (2006)
A:
a. I will resolve the issue in favor of Joachin. In auction
sales of property for tax delinquency, notice to
delinquent landowners and to the public in
general is an essential and indispensable
requirement of law, the non-fulfillment of which
vitiates the same (Tiongco v. Phil. Veterans Bank,
G.R. No. 82782, Aug. 5, 1992). The failure to give notice
to the right person i.e., the real owner, will render an
auction sale void (Tan v. Bantegui, G.R. No, 154027,
October 24, 2005; City Treasurer of Q.C. v. CA, G.R. No.
120974, Dec. 22, 1997).
b. 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).
T axpayer’ s R emedies
Q: Madam X owns real property in Caloocan City. On
July 1, 2014, she received a notice of assessment from
the City Assessor, informing her of a deficiency tax on
her property. She wants to contest the assessment.
a. What are the administrative remedies available
to Madam X in order to contest the assessment
and their respective prescriptive periods?
b. May Madam X refuse to pay the deficiency tax
assessment during the pendency of her appeal?
(2014)
A:
a. The administrative remedies available to Madam X
to contest the assessment and their respective
prescriptive periods are as follows:
1. Pay the deficiency real property tax under
protest (Sec. 252, LGC);
2. File the protest with local treasurer – The protest
in writing must be filed within thirty (30) days
from payment of the tax to the provincial, city
treasurer or municipal treasurer, in the case of a
municipality within Metropolitan Manila Area,
72
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ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
who shall decide the protest within sixty (60)
days from receipt (Sec. 252, LGC);
3. Appeal to the LBAA – if protest is denied or upon
the lapse of the 60-day period for the treasurer
to decide, the taxpayer may appeal to the LBAA
within 60 days and the case to be decided within
120 days (Sec. 226 & 229, LGC);
4. Appeal to the CBAA – if not satisfied with the
decision of the LBAA, appeal to the CBAA within
30 days from receipt of a copy of the decision
(Sec. 229(c), LGC).
b. No. The payment of the deficiency tax is a
condition before she can protest the deficiency
assessment. It is the decision on the protest or
inaction thereon that gives her the right to appeal.
This means that she cannot refuse to pay the
deficiency tax assessment during the pendency of the
appeal because it is the payment itself which gives
rise to the remedy. The law provides that no
protest (which is the beginning of the disputation
process) shall be entertained unless the taxpayer
first pays the tax (Sec. 252, LGC).
Q: A Co., a Philippine corporation, is the owner of
machinery, equipment and fixtures located at its
plant in Muntinlupa City. The City Assessor
characterized all these properties as real properties
subject to the real property tax. A Co. appealed the
matter to the Muntinlupa Board of Assessment
Appeals. The Board ruled in favor of the City. In
accordance with RA 1125 (An Act creating the Court
of Tax Appeals). A Co. brought a petition for review
before the CTA to appeal the decision of the City
Board of Assessment Appeals. Is the Petition for
Review proper? Explain. (1999)
A: No. The CTA is devoid of jurisdiction to entertain
appeals from the decision of the City Board of Assessment
Appeals. Said decision is instead appealable to the
Central Board of Assessment Appeals, which under the
Local Government Code, has appellate jurisdiction
over decisions of Local Board of Assessment Appeals
(Caltex Phils, foe. v. Central Board of Assessment Appeals,
L-50466, May 31, 1982).
Tariff and Customs Code of 1978, as amended
Beginning and End of Importation
Q: Under the Tariff and Customs Code, as amended:
a. When does importation begin and when is it
deemed terminated?
b. In what easels is the decision of the Collector
automatically reviewed by the Commissioner of
Customs? In what instance/s is the decision of the
Commissioner automatically appealed to the
Secretary of Finance? (1995, 2015)
A:
a. Importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines with
the intention to unlade therein. Importation is
deemed terminated upon payment of the duties,
taxes, and other charges due upon the articles, or
secured to be paid, at a port of entry and the legal
permit for withdrawal shall have been granted, or in
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
case said articles are free of duties, taxes and other
charges, until they have legally left the jurisdiction of
Customs (Sec. 1202 of the Tariff and Customs Code).
Importation begins from the time the carrying vessel
or aircraft enters Philippine territorial jurisdiction
with the intention to unload therein and ends at the
time the goods are released or withdrawn from the
customhouse upon payment of the customs duties or
with legal permit to withdraw (Viduya vs. Berdiago,
73 SCRA 553).
b. Whenever the decision of the Collector of Customs in
any seizure proceedings is adverse to the
government, the said decision is automatically
elevated to the Commissioner of Customs for review,
and if such decision is affirmed by the Commissioner
of Customs, the same shall be elevated to and finally
reviewed by the Secretary of Finance (Sec. 2315 of the
Tariff and Customs Code).
General Rule: All Imported Articles are
Subject to Duty
Exceptions:
Q: Jacob, after serving a 5-year tour of duty as
military attaché in Jakarta, returned to the
Philippines bringing with him his personal effects
including a personal computer and a car. Would
Jacob be liable for taxes on these items? Discuss fully.
(2005)
A: No, Jacob is not liable for taxes on his personal
computer and the car because he is tax-exempt by law. He
has met the following requirements for exemption under
P.D. No. 922 (1976):
c. He was a military attaché assigned to Jakarta;
d. He has served abroad for not less than two (2) years;
e. He is returning to the Philippines after serving his
tour of duty; and
f. He has not availed of the tax exemption for the past
four (4) years.
He is entitled to tax exemption on his personal and
household effects including a car; provided,
a. The car must have been ordered or purchased prior
to the receipt by the Philippine mission or consulate
in Jakarta of Jacob's recall order;
b. the car is registered in Jacob's name;
c. the exemption shall apply to the value of the car;
d. the exemption shall apply to the aggregate value of
his personal and household effects (including the
personal computer) not exceeding thirty per centum
(30%) of the total amount received by Jacob as salary
and allowances during his assignment in Jakarta, but
not to exceed four (4) years;
e. Jacob must not have availed of the exemption more
oftener than one every four years. (Last par., Sec. 105,
Tariff and Customs Code)
Q: JKL Corporation is a domestic corporation engaged
in the importation and sale of motor vehicles in the
Philippines and is duly registered with the Subic Bay
Metropolitan Authority ( SBMA ). In December 2007,
it imported several second-hand motor vehicles from
Japan and Korea, which it stores in a warehouse in
Subic Bay. It sold these motor vehicles in April 2008,
73
to persons residing in the customs territory.
 QUAMTO FOR TAXATION LAW (1991-2015)
a. Are the importations of motor vehicles from
abroad subject to customs duties and value
added taxes? Explain.
b. If they are taxable, when must the duties and
taxes be paid? What are the bases for and
purposes of computing customs duties and VAT?
To whom must the duties and VAT be paid?
Explain. (2008)
A:
a. No. The importation from abroad to the Subic Bay
Freeport Zone is exempt from customs duties and
value-added taxes. The Freeport Zone is an extension
of a foreign territory so that the vehicles imported
while still within its secured perimeter is not subject
to Philippine Taxes (RMC No. 50-2007; Seagate
Technology Inc., v. Commissioner, 451 SCRA 132
[2005]).
b. When these motor vehicles are sold to the customs
territory, the duties and taxes must be paid before
they are physically brought out of the Freeport Zone.
The introduction of the motor vehicles to the
customs territory is considered as technical
importation subject to the customs duties and VAT.
The tax base for the customs duties is the transaction
value while for VAT purposes, the tax base is the
value used in computing custom duties plus custom
duties, excise taxes and other charges incident to
importation (Sec. 107[A], NIRC). These taxes on
importation must be paid to the Bureau of Customs
before the Authority to Release Imported Goods will
be issued by the BIR (Revenue Regulations No. 16-
2005).
Importation in Violation of Tax Credit Certificate
Smuggling
Q: In smuggling a shipment of garlic, the smugglers
used an eight-wheeler truck which they hired for the
purpose of taking out the shipment from the customs
zone. Danny, the truck owner, did not have a
certificate of public convenience to operate his
trucking business. Danny did not know that the
shipment of garlic was illegally imported.
Can the Collector of Customs of the port seize and
forfeit the truck as an instrument in the smuggling?
(1994)
A: Yes, the Collector of Customs of the port can seize and
forfeit the truck as an instrument in the smuggling
activity, since the same was used unlawfully in the
importation of smuggled articles. The mere carrying of
such articles on board the truck (in commercial
quantities) shall subject the truck to forfeiture, since it
was not being used as a duly authorized common carrier,
which was chartered or leased as such. (Sec. 2530 [a],
TCC) Moreover, although forfeiture of the vehicle will not
be effected if it is established that the owner thereof had
no knowledge of or participation in the unlawful act,
there arises a prima facie presumption or knowledge
or participation if the owner is not in the business for
which the conveyance is generally used. Thus, not
having a certificate of public convenience to operate a
trucking business, he is legally deemed not to have been
engaged in the trucking business (Sec. 2531, Tariff and
Customs Code).
Classification of Goods
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Conditionally-free importation
Q: X and his wife, Y, Filipinos living in the Philippines,
went on a three-month pleasure trip around the
world during the months of June, July and August
2002. In the course of their trip, they accumulated
some personal effects which were necessary,
appropriate and normally used in leisure trips, as
well as souvenirs in non-commercial quantities. Are
they "returning residents" for purposes of Sec. 105 of
the Tariff and Customs Code? Explain. (2003)
A: No. The term "returning residents" refers to nationals
who have stayed in a foreign country for a period of at
least six (6) months (Sec. 105(f) of the Tariff and Customs
Code). Due to their limited duration of stay abroad X and
Y are not considered as "returning residents" but they are
merely considered as travellers or tourists who enjoy the
benefit of conditionally free importation.
Classification of Duties
Ad valorem; methods of valuation
Q: State and explain the basis of dutiable value of an
imported article subject to an ad valorem tax under
the Tariff and Customs Code. (2005)
A: The basis of dutiable value of an imported article
subject to an ad valorem tax under the Tariff and Customs
Code is its transaction value (Sec. 201 (A), Tariff and
Customs Code, as amended by R.A. No. 9135). If such value
could not be determined, then the following values are to
be utilized in their sequence: (1) Transaction value of
identical goods (Secs. 201 (B), Ibid; Sec. II. C.l, C.A.O. No. 4-
2004); (2) Transaction value of similar goods (Sec. 201
(C), Ibid.; Sec. II, D. 1, C.A.O. No. 4-2004); (3) Deductive
value (Sec. II, E. 1, C.A.O. No. 4-2004); (4) Computed value
(Sec. n, F.l, C.A.O. No. 4-2004) and (5) Fallback value (Sec.
201 (F), Ibid.).
ALTERNATIVE ANSWER:
The basis of dutiable value of an imported article subject
to an ad valorem tax under the Tariff and Customs Code
is its transaction value which shall be the price actually
paid or payable for the goods when sold for export to the
Philippines, adjusted by adding certain cost elements to
the extent that they are incurred by the buyer but are not
included in the price actually paid or payable for the
imported goods (Sec. 201(A), Tariff and Customs Code, as
amended by R.A. No. 9135). ). If such value could not be
determined, then the following values are to be utilized in
their sequence: (1) Transaction value of identical goods
(Secs. 201 (B), Ibid; Sec. II. C.l, C.A.O. No. 4-2004); (2)
Transaction value of similar goods (Sec. 201 (C), Ibid.; Sec.
II, D. 1, C.A.O. No. 4-2004); (3) Deductive value (Sec. II, E.
1, C.A.O. No. 4-2004); (4) Computed value (Sec. n, F.l, C.A.O.
No. 4-2004) and (5) Fallback value (Sec. 201 (F), Ibid.).
Special duties
Q: Under the Tariff and Customs Code, what are:
a. Dumping duties
b. Countervailing duties
c. Marking duties
d. Discriminatory duties? (1995)
Q: Explain briefly each of the special customs duties
authorized under the Tariff and Customs Code.
74
(1997)
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
A: The following are the special duties imposed under the
Tariff and Customs Code:
a. Dumping Duty - This is a duty levied on imported
goods where it appears that a specific kind or class of
foreign article is being imported into or sold or is
likely to be sold in the Philippines at a price less than
its fair value:
b. Countervailing Duty - This is a duty equal to the
ascertained or estimated amount of the subsidy or
bounty or subvention granted by the foreign country
on the production, manufacture, or exportation into
the Philippines of any article likely to injure an
industry in the Philippines or retard or considerable
retard the establishment of such industry:
c. Marking Duty - This is a duty on an ad valorem basis
imposed for improperly marked articles. The law
requires that foreign Importations must be marked
in any official language of the Philippines the name of
the country of origin of the article:
d. Discriminatory or Retaliatory Duty - This is a duty
imposed on imported goods whenever it is found as
a fact that the country of origin discriminates against
the commerce of the Philippines in such a manner as
to place the commerce of the Philippines at a
disadvantage compared with the commerce of any
foreign country.
Q: Distinguish countervailing duty from dumping
duty. (2005)
A: Countervailing duty is a duty imposed in an amount
equal to the ascertained or estimated amount of the
subsidy or bounty or subvention granted by the foreign
country on the production, manufacture or exportation
into the Philippines of any article likely to injure an
industry in the Philippines or retard or considerably
retard the establishment of such industry (Sec. 302, Tariff
and Customs Code). On the other hand. Dumping Duty is a
duty levied on imported goods where it appears that a
specific kind or class of foreign article is being imported
into or sold or is likely to be sold in the Philippines at a
price , less than its fair value (Sec. 301, Tariff and Customs
Code).
Remedies
Q: On October 15, 2005, ABC Corp. imported 1,000
kilos of steel ingots and paid customs duties and VAT
to the Bureau of Customs on the importation. On
February 17, 2009, the Bureau of Customs, citing
provisions of the Tariff and Customs Code on post-
audit, investigated and assessed ABC Corp. for
deficiency customs duties and VAT. Is the Bureau of
Customs correct? (2013)
A: No. The Bureau of Customs (BOC) has lost its right to
assess deficiency customs duties and VAT. The imported
steel ingots in 2005 have been entered and the customs
duties thereon had been paid thereby making the
liquidation of the importation final and conclusive upon
all parties after the expiration of three (3) years from the
date of final payment of duties and taxes (Sec. 1603, TCC,
as amended by RA 9135).
Note: Insofar as VAT on importation is concerned, the
underpayment will be automatically cured when these are
credited against the output tax due upon sale by the
imported when the VAT return is filed. Be that as it may, an
assessment for deficiency VAT can only be made by the BIR
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
(not by BOC), VAT being an internal revenue tax, within
three (3) years from the last day prescribed by law for filing
of the VAT return (Sec. 203, NIRC).
Administrative Remedy
Q: The Tariff and Customs Code allows the Bureau
of Customs to resort to the administrative remedy of
seizure, such as by enforcing the tax lien on the
imported article, and to the judicial remedy of filing
an action in court. When does the Bureau of Customs
normally avail itself;
(a) of the administrative, instead of the judicial
remedy, or
A: (a) The Bureau of Customs normally avails itself of the
ADMINISTRATIVE REMEDY of seizure, such as by
enforcing the tax lien on the imported articles, instead of
the judicial remedy when the goods to which the tax lien
attaches, regardless of ownership, is still in the custody
or control of the Government. In the case, however, of
importations which are prohibited or undeclared, the
remedy of seizure and forfeiture may still be exercised by
the Bureau of Customs even if the goods are no longer in
its custody.
Q: On January 1, 1996, armed with warrants of
seizure and detention issued by the Bureau of
Customs, members of the customs enforcement
and security services coordinated with the Quezon
City police to search the premises owned by a certain
Mr. Ho along Kalayaan Avenue, Quezon City, which
allegedly contained untaxed vehicles and parts.
While inside the premises, the member of the
customs enforcement and security services noted
articles which were not included in the list contained
in the warrant. Hence, on January 15, 1996, an
amended warrant and seizure was issued. On January
25, 1996, the customs personnel started hauling the
articles pursuant to the amended warrant. This
prompted Mr. Ho to file a case for injunction and
damages with a prayer for a restraining order before
the Regional Trial Court of Quezon City against the
Bureau of Customs on January 27, 1996. On the same
date, the Trial Court issued a temporary restraining
order. A motion to dismiss was filed by the Bureau of
Customs on the ground that the Regional Trial Court
has no jurisdiction over the subject matter of the
complaint claiming that it was the Bureau of Customs
that has exclusive jurisdiction over it. Decide. (1996)
A: The motion to dismiss should be granted. Seizure and
forfeiture proceedings are within the exclusive
jurisdiction of the Collector of Customs to the exclusion of
regular Courts. Regional Trial Courts are devoid of
competence to pass upon the validity or regularity of
seizure and forfeiture proceedings conducted by the
Bureau of Customs and to enjoin or otherwise interfere
with these proceedings (Republic vs. CFI of Manila
[Branch XXII], G.R. No. 43747, September 2, 1992; Jao vs.
CA,G.R. No. 104604, October 6, 1995).
Q: Discuss briefly the remedies of an importer during
the pendency of seizure proceedings. (1996)
A: During the pendency of seizure proceedings the
importer may secure the release of the imported
property for legitimate use by posting a bond in an
75
amount to be fixed by the Collector, conditioned for the
 QUAMTO FOR TAXATION LAW (1991-2015)
payment of the appraised value of the article and/or any
fine, expenses and costs which may be adjudged in the
case; provided, that articles the importation of which is
prohibited by law shall not be released under bond.
The importer may also offer to pay to the collector a fine
imposed by him upon the property to secure its release
or in case of forfeiture, the importer shall offer to pay for
the domestic market value of the seized article, which
offer subject to the approval of the Commissioner maybe
accepted by the Collector in settlement of the seizure
case, except when there is fraud. Upon payment of the
fine or domestic market value, the property shall be
forthwith released and all liabilities which may or might
attach to the property by virtue of the offense which was
the occasion of the seizure and all liability which might
have been incurred under any bond given by the importer
in respect to such property shall thereupon be deemed to
be discharged.
Q: The Collector of Customs instituted seizure
proceedings against a shipment of motor vehicles for
having been misdeclared as second-hand vehicles.
State the procedure for the review of the decision up
to the Supreme Court of the Collector of Customs
adverse to the importer. (1994)
A: The procedure in seizure cases may be summarized as
follows:
a. The collector issues a warrant for the detention or
forfeiture of the imported articles; (Sec. 2301, Tariff
and Customs Code)
b. The Collector gives the importer a written notice of
the seizure and fixes a hearing date to give the
importer an opportunity to be heard; (Sec. 2303,
TCC)
c. A formal hearing is conducted; (Sec. 2312, TCC) (d)
The Collector renders a declaration of forfeiture; (Sec.
2312, TCC)
d. The Importer aggrieved by the action of the Collector
in any case of seizure may appeal to the
Commissioner for his review within fifteen (15) days
from written notice of the Collector's decision; (Sec.
2313, TCC)
e. The importer aggrieved by the action or ruling of the
Commissioner in any case of seizure may appeal to
the Court of Tax Appeals; (Sec. 2402, TCC)
f. The importer adversely affected by the decision of
the Court of Tax Appeals (Division) may appeal to the
Court of Tax Appeals (en banc) within fifteen (15)
days which may be extended for another fifteen (15)
days or such period as the Court of Tax Appeals may
decide.
Q: William Antonio imported into the Philippines a
luxury car worth US$100,000. This car was, however,
declared only for US$20,000 and corresponding
customs duties and taxes were paid thereon.
Subsequently, the Collector of Customs discovered
the underdeclaration and he initiated forfeiture
proceedings of the imported car.
a. May the Collector of Customs declare the
imported car forfeited in favor of the
government? Explain.
b. Are forfeiture proceedings of goods illegally
imported criminal in nature? Explain (2008)
A:
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
a. Yes. The Collector of Customs may declare forfeiture
on imported goods which are undervalued or
entered and valued through fraudulent means or
device to the prejudice of the Government. Since the
undervaluation is more than 30 % of the actual value
of the vehicle, it gives rise to a prima facie evidence
of fraud which subjects the vehicle to forfeiture. (Sec.
2530 TCC)
b. No. an action for forfeiture is an action in rem or an
action directed against the imported goods
themselves independently of any criminal action,
which is in the nature of an action in personam,that
may result as a consequence of a violation of an
existing law. (C.F. Sharp and Co. Inc v. Commissioner
of Customs 22 SCRA 760 [1968])
Q: Jessie brought into the Philippines a foreign-made
luxury car, and paid less than the actual taxes and
duties due. Due to the discrepancy, the Bureau of
Customs instituted seizure proceedings and issued a
warrant of seizure and detention. The car, then
parked inside a pay parking garage, was seized and
brought by government agents to a government
impounding facility. The Collector of Customs denied
Jessie's request for the withdrawal of the warrant.
Aggrieved, Jessie filed against the Collector a criminal
complaint for usurpation of judicial functions on the
ground that only a judge may issue a warrant of
search and seizure.
a. Resolve with reasons Jessie's criminal complaint.
b. Would your answer be the same if the luxury car
was seized while parked inside the garage of
Jessie's residence? Why or why not? (2009)
A:
a. The criminal complaint is bereft of merit. The
issuance of a warrant of seizure and detention by the
Collector of Custom for goods released contrary to
law, as when there is underpayment of taxes and
duties, is his primary and exclusive jurisdiction and
precludes the judge of regular courts from taking
cognizance of the subject matter. Accordingly, what
was done by the Collector could not be a basis of a
prosecution for the usurpation of judicial function.
(Commissioner v. Navarro, 77 SCRA 264 [1977])
b. No. the luxury car being in a dwelling house, cannot
be seized by officers of the Bureau of Customs
exercising police authority without a search warrant
issued by a judge of competent court (Sec. 2209, TCC;
Pacis v. Pamaran, 56 SCRA 16 [1974])
Judicial Remedy
Q: The Tariff and Customs Code allows the Bureau
of Customs to resort to the administrative remedy of
seizure, such as by enforcing the tax lien on the
imported article, and to the judicial remedy of filing
an action in court. When does the Bureau of Customs
normally avail itself;
(b) of the judicial, instead of the administrative
remedy?
A: (b) On the other hand, when the goods are properly
released and thus beyond the reach of tax lien, the
government can seek payment of the tax liability through
judicial action since the tax liability of the importer
constitutes a personal debt to the government, therefore,
76
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
enforceable by action. In this case judicial remedy is
normally availed of instead of the administrative remedy.
Q: The Collector of Customs of the Port of Cebu issued
warrants of seizure and detention against the
importation of machineries and equipment by LLD
Import and Export Co. (LLD) for alleged non-
payment of tax and customs duties in violation of
customs laws. LLD was notified of the seizure, but,
before it could be heard, the Collector of Customs
issued a notice of sale of the articles. In order to
restrain the Collector from carrying out the order to
sell, LLD filed with the Court of Tax Appeals a petition
for review with application for the issuance of a writ
of prohibition. It also filed with the CTA an appeal for
refund of overpaid taxes on its other importations of
raw materials which has been pending with the
Collector of Customs. The Bureau of Customs moved
to dismiss the case for lack of jurisdiction of the Court
of Tax Appeals.
A. Does the Court of Tax Appeals have jurisdiction
over the petition for review and writ of prohibition?
Explain
B. Will an appeal to the CTA for tax refund be
possible? Explain (2002)
A:
A. No, because there is no decision as yet by the
Commissioner of Customs which can be appealed to
the CTA. Neither the remedy of prohibition would
lie because the CTA has not acquired any appellate
jurisdiction over the seizure case. The writ of
prohibition being merely ancillary to the appellate
jurisdiction, the CTA has no jurisdiction over it until
it has acquired jurisdiction on the petition for
review. Since there is no appealable decision, the CTA
has no jurisdiction over the petition for review and
writ of prohibition. (Commissioner of Customs v.
Alikpala, 36 SCRA 208 [1970]).
B. No, because the Commissioner of Customs has not
yet rendered a decision on the claim for refund. The
jurisdiction of the Commissioner and the CTA are not
concurrent in so far as claims for refund are
concerned. The only exception is when the Collector
has not acted on the protested payment for a long
time, the continued inaction of the Collector or
Commissioner should not be allowed to prejudice the
taxpayer. (Nestle Phils., Inc. v. Court of Appeals, GR No.
134114, July 6, 2001).
Q: Whenever the decision of the Collector of Customs
is adverse to the government, it is automatically
elevated to the Commissioner for review and, if it is
affirmed by him, it is automatically elevated to the
Secretary of Finance for review. What is the basis
of the automatic review procedure in the Bureau
of Customs? Explain your answer. (2002)
A: Automatic review is intended to protect the interest of
the Government in the collection of taxes and customs
duties in seizure and protest cases. Without such
automatic review, neither the Commissioner of Customs
nor the Secretary of Finance would know about the
decision laid down by the Collector favouring the
taxpayer. The power to decide seizure and protest cases
may be abused if no checks are instituted. Automatic
review is necessary because nobody is expected to appeal
the decision of the Collector which is favorable to the
taxpayer and adverse to the Government. This is the
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
reason why whenever the decision of the Collector is
adverse to the Government, the said decision is
automatically elevated to the Commissioner for review;
and if such decision is affirmed by the Commissioner, the
same shall be automatically elevated to and be finally
reviewed by the Secretary of Finance (Yaokasin v.
Commissioner of Customs, 180 SCRA 591 [1989]).
Q: a) On the basis of a warrant of seizure and
detention issued by the Collector of Customs for the
purpose of enforcing the Tariff and Customs Laws,
assorted brands of cigarettes said to have been
illegally imported into the Philippines were seized
from a store where they were openly offered for sale.
Dissatisfied with the decision rendered after hearing
by the Collector of Customs on the confiscation of
the articles, the importer filed a petition for review
with the Court of Tax Appeals. The Collector moved
to dismiss the petition for lack of Jurisdiction. Rule on
the motion.
b) Under the same facts, could the importer file an
action in the Regional Trial Court for replevin on the
ground that the articles are being wrongfully
detained by the Collector of Customs since the
importation was not illegal and therefore exempt
from seizure? Explain. (2000)
A: a) Motion granted. The Court of Tax Appeals has
jurisdiction only over decisions of the Commissioner of
Customs in cases involving seizures, detention or release
of property affected (Sec. 7, R.A. No. 1125). There is no
decision yet of the Commissioner which is subject to
review by the Court of Tax Appeals.
ALTERNATIVE ANSWER:
Motion granted. The Court of Tax Appeals has no
jurisdiction because there is no decision rendered by the
Commissioner of Customs on the seizure and forfeiture
case. The taxpayer should have appealed the decision
rendered by the Collector within fifteen (15) days from
receipt of the decision to the Commissioner of Customs.
The Commissioner’s adverse decision would then be the
subject of an appeal to the Court of Tax Appeals.
b) No. The legislators intended to divest the Regional
Trial Courts of the jurisdiction to replevin a property
which is a subject of seizure and forfeiture proceedings
for violation of the Tariff and Customs Code otherwise,
actions for forfeiture of property for violation of the
Customs laws could easily be undermined by the simple
device of replevin (De la Fuente v. De Veyra, et. al, 120
SCRA 455). There should be no unnecessary hindrance on
the government's drive to prevent smuggling and other
frauds upon the Customs. Furthermore, the Regional
Trial Court do not have Jurisdiction in order to render
effective and efficient the collection of Import and export
duties due the State, which enables the government to
carry out the functions It has been Instituted to perform
(Jao, et al, Court of Appeals, et al, and companion case, 249
SCRA 35, 43).
Q: What is the rule on appeal from decisions of the
Collector of Customs in protest and seizure cases?
When is the decision of the Collector of Customs
appealable to the Court of Tax Appeals? Explain.
(2010)
A: Decisions of the Collector of Customs in protest and
seizure cases are appealable to the Commissioner of
77
Customs within 15 days from receipt of notice of the
 QUAMTO FOR TAXATION LAW (1991-2015)
written decision. As a rule, decisions of the Collector of
Customs are not appealable to the Court of Tax Appeals.
If the Collector of Customs, however, does not decide a
protest for a long period of time, the inaction may be
considered as an adverse decision by the Collector of
Customs and the aggrieved taxpayer may appeal to the
CTA even without the Collector’s and Commissioner’s
actual decision (Commissioner of Customs v. Planters
Products, Inc. G.R. No. 82018, March 16, 1989).
Q: The Collector of Customs issued an assessment for
unpaid customs duties and taxes on the importation
of your client in the amount of P980,000.00. Where
your case to protect your client's right? Choose the
correct courts/ agencies, observing their proper
hierarchy.
1. Court of Tax Appeals
2. Collector of Customs
3. Commissioner of Customs
5. Regional Trial Court
6. Metropolitan Trial Court
7. Court of Appeals
8. Supreme Court (2006)
A:
1. Protest with the Collector of Customs (Sec. 2308,
TCC).
2. Appeal to the Commissioner of Customs (Sec. 2313,
TCC).
3. Appeal to the CTA (RA 9282)
4. Petition for Review on Certiorari Supreme Court
(Rule 45 of the 1997 Rules of Civil Procedure; RA
9282).
Judicial Remedies
Jurisdiction of the Court of Tax Appeals
Q: GGG, Inc. offered to sell through competitive
bidding its shares in HHH Corp., equivalent to 40% of
the total outstanding capital stock of the latter. JJJ,
Inc. acquired the said shares in HHH Corp. as the
highest bidder. Before it could secure a certificate
authorizing registration/tax clearance for the
transfer of the shares of stock to JJJ, Inc., GGG, Inc. had
to request a ruling from the BIR confirming that its
sale of the said shares was at fair market value and
was thus not subject to donor's tax. In BIR Ruling No.
012-14, the CIR held that the selling price for the
shares of stock of HHH Corp. was lower than their
book value, so the difference between the selling
price and the book value of said shares was a taxable
donation. GGG, Inc. requested the Secretary of
Finance to review BIR Ruling No. 012-14, but the
Secretary affirmed said ruling. GGG, Inc. filed with the
Court of Appeals a Petition for Review under Rule 43
of the Revised Rules of Court. The Court of Appeals,
however, dismissed the Petition for lack of
jurisdiction declaring that it is the CTA which has
jurisdiction over the issues raised. Before which
Court should GGG, Inc. seek recourse from the
adverse ruling of the Secretary of Finance in the
exercise of the latter's power of review? (2015)
A: GGG, Inc. should seek recourse with the Court of Tax
Appeals (CTA) which has jurisdiction.
There is no provision in law that expressly provides
where exactly the adverse ruling of the Secretary of
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Finance under Sec. 4 of the NIRC is appealable. However,
RA 1125, as amended, addresses the seeming gap in the
law as it vests upon the CTA, albeit impliedly, with
jurisdiction over the case as “other matters” arising
under the NIRC or other laws administered by the
BIR. Furthermore, the Supreme Court held that the
jurisdiction to review the rulings of the Secretary of
Finance on the issues raised against a ruling of the
Commissioner of Internal Revenue, pertains to the CTA in
the exercise of its appellate jurisdiction (Philamlife v. The
Sec. of Finance and CIR, GR No. 210987, November 24,
2014)
Q:
a. A taxpayer received, on 15 January 1996 an
assessment for an internal revenue tax
deficiency. On 10 February 1996, the taxpayer
forthwith filed a petition for review with the
Court of Tax Appeals. Could the Tax Court
entertain the petition?
b. Under the above factual setting, the taxpayer,
instead of questioning the assessment he
received on 15 January 1996 paid, on 01 March
1996 the "deficiency tax" assessed. The taxpayer
requested a refund from the Commissioner by
submitting a written claim on 01 March 1997. It
was denied. The taxpayer, on 15 March 1997,
filed a petition for review with the Court of
Appeals. Could the petition still be entertained?
(1997)
A:
a. No. Before taxpayer can avail of judicial remedy he
must first exhaust administrative remedies by filing
a protest within 30 days from receipt of the
assessment. It is the Commissioner's decision on the
protest that give the Tax Court jurisdiction over the
case provided that the appeal is filed within 30 days
from receipt of the Commissioner's decision. An
assessment by the BIR is not the Commissioner's
decision from which a petition for review may be
filed with the Court of Tax Appeals. Rather, it is
the action taken by the Commissioner in
response to the taxpayer's protest on the
assessment that would constitute the appealable
decision (Sec. 7, RA 1125).
b. No, the petition for review cannot be entertained by
the Court of Appeals, since decisions of the
Commissioner on cases involving claim for tax
refunds are within the exclusive and primary
jurisdiction of the Court of Tax Appeals (Sec. 7, RA
1125).
Q: A Co., a Philippine corporation, received an income
tax deficiency assessment from the BIR on May 5,
1995. On May 31, 1995, A Co. filed its protest with the
BIR. On July 30, 1995, A Co. submitted to the BIR all
relevant supporting documents. The CIR did not
formally rule on the protest but on January 25, 1996,
A Co. was served a summons and a copy of the
complaint for collection of the tax deficiency filed by
the BIR with the Regional Trial Court (RTC). On
February 20, 1996, A Co. brought a Petition for
Review before the CTA. The BIR contended that the
Petition is premature since there was no formal
denial of the protest of A Co. and should therefore be
dismissed.
78
TEAM BAROPS
ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
a. Has the CTA jurisdiction over the case?
b. Has the RTC jurisdiction over the collection case
filed by the BIR? Explain. (1998)
A:
a. Yes, the CTA has jurisdiction over the case because
this qualifies as an appeal from the Commissioner's
decision on disputed assessment. When the
Commissioner decided to collect the tax assessed
without first deciding on the taxpayer's protest, the
effect of the Commissioner’s action of filing a
judicial action for collection is a decision of
denial of the protest, in which event the taxpayer
may file an appeal with the CTA. (Republic v. Lim
Tian Teng & Sons, Inc., 16 SCRA 584; Dayrit v. Cruz, L-
39910, Sept. 26, 1988).
b. The RTC has no jurisdiction over the collection case
filed by the BIR. The filing of an appeal with the CTA
has the effect of divesting the RTC of jurisdiction over
the collection case. At the moment the taxpayer
appeals the case to the Court of Tax Appeals in
view of the Commissioner's filing of the collection
case with the RTC which was considered as a
decision of denial, it gives a justifiable basis for the
taxpayer to move for dismissal in the RTC of the
Government's action to collect the tax liability under
dispute. (Yabes v. Flojo, 15 SCRA 278; San Juan v.
Vasquez, 3 SCRA 92). There is no final, executory and
demandable assessment which can be enforced by
the BIR, once a timely appeal is filed.
Q: The City of Liwliwa assessed local business taxes
against Talin Company. Claiming that there is double
taxation, Talin Company filed a Complaint for Refund
or Recovery of Illegally and/or Erroneously-collected
Local Business Tax; Prohibition with Prayer to Issue
Temporary Restraining Order and Writ of
Preliminary Injuction with the Regional Trial Court
(RTC). The RTC denied the application for a Writ of
Preliminary Injunction. Since its motion for
reconsideration was denied, Talin Company filed a
special civil action for certiorari with the Court of
Appeals (CA). The government laywer representing
the City of Liwliwa prayed for the dismissal of the
petition on the ground that the same should have
been filed with the Court of Tax Appeals (CTA). Talin
Company through its lawyer, Atty. Frank, countered
that the CTA cannot entertain a petition for certiorari
since it is not one of its powers and authorities under
existing laws and rules. Decide. (2014)
A: The government lawyer is correct that it is the Court of
Tax Appeals that is vested with proper jurisdiction. The
law is clear when it said that – “The Court of Tax Appeals
shall have exclusive appellate jurisdiction to review by
appeal decisions, orders or resolutions of the Regional
Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or
appellate jurisdiction (Sec. 7(3), RA 9282). In a recent case
decided by the Supreme Court, it was held that the CTA
has certiorari powers over the issue of grave abuse of
discretion on the part of the RTC in issuing an
interlocutory order in cases falling within the exclusive
appellate jurisdiction of the tax court, as this is inherent
to its exercise of appellate jurisdiction (City of Manila v.
Hon. Caridad H. Grecia-Cuerdo, G.R. No. 175723, February
4, 2014).
Q: Mr. Abraham Eugenio, a pawnshop operator, after
having been required by the Revenue District Officer
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
to pay value added tax pursuant to a Revenue
Memorandum Order (RMO) of the Commissioner of
Internal Revenue, filed with the Regional Trial Court
an action questioning the validity of the RMO. If you
were the judge, will you dismiss the case? (2006)
A: Yes. The RMO is in reality a ruling of the Commissioner
in implementing the provisions of the Tax Code on the
taxability of pawnshops. Jurisdiction to review rulings
of the Commissioner is lodged with the Court of Tax
Appeals and not with the Regional Trial Court (CIR v.
Josefina Leal, G.R. No. 113459, November 18, 2002; Tax
Reform Act, RA 8424, Title I, Sec. 4 [1997]).
Judicial Procedures
Motion for reconsideration or new trial
Q: On May 15, 2013, CCC, Inc. received the Final
Decision on Disputed Assessment issued by the
Commissioner of Internal Revenue (CIR) dismissing
the protest of CCC, Inc. and affirming the assessment
against said corporation. On June 10, 2013, CCC, Inc.
filed a Petition for Review with the Court of Tax
Appeals (CTA) in division. On July 31, 2015, CCC, Inc.
received a copy of the Decision dated July 22, 2015 of
the CTA division dismissing its Petition. CCC, Inc.
immediately filed a Petition for Review with the CTA
en banc on August 6, 2015. Is the immediate appeal
by CCC, Inc. to the CTA en banc of the adverse Decision
of the CTA division the proper remedy? (2015)
A: No, CCC, Inc, should first file a motion for
reconsideration or motion for new trial with the CTA
Division. Before the CTA En Banc could take cognizance
of the petition for review concerning a case falling under
its exclusive appellate jurisdiction, the litigant must
sufficiently show that it sought prior reconsideration or
moved for a new trial with the concerned CTA division
(Commissioner of Customs v. Marina Sale, 635 SCRA 606
[2010]; Rule 8, Sec. 1 of the Revised Rules of Court of tax
Appeals).
Injunction not available to restrain collection; exception
Q: May the Court of Tax Appeals issue an injunction to
enjoin the collection of taxes by the Bureau of
Internal Revenue? Explain. (1996)
A: Yes. When a decision of the Commissioner on a tax
protest is appealed to the CTA pursuant to Sec. 11 of RA
No. 1125 (law creating the CTA) in relation to Sec. 229 of
the NIRC, such appeal does not suspend the payment,
levy, distraint and/or sale of any of the taxpayer’s
property for the satisfaction of his tax liability. However,
when in the opinion of the CTA the collection of the tax
may jeopardize the interest of the Government and/or
the taxpayer, the Court at any stage of the proceedings
may suspend or restrain the collection of the tax and
require the taxpayer either to deposit the amount
claimed or to file a surety bond for not more than double
the amount with the Court.
Q: RR disputed a deficiency tax assessment and upon
receipt of an adverse decision by the Commissioner
of Internal Revenue, filed an appeal with the Court of
Tax Appeals. While the appeal is pending, the BIR
served a warrant of levy on the real properties of RR
79
to enforce the collection of the disputed tax. Granting
 QUAMTO FOR TAXATION LAW (1991-2015)

arguendo that the BIR can legally levy on the

properties, what could RR do to stop the process?
Explain briefly. (2004, 2010)

A: RR should file a motion for injunction with the Court of

Tax Appeals to stop the administrative collection process.
An appeal to the CTA shall not suspend the
enforcement of the tax liability, unless a motion to
that effect shall have been presented in court and
granted by it on the basis that such collection will
jeopardize the interest of the taxpayer or the
Government (Pirovano v. CIR, 14 SCRA 832 [1965]). The
CTA is empowered to suspend the collection of internal
revenue taxes and customs duties in cases pending
appeal only when: (1) in the opinion of the court the
collection by the BIR will jeopardize the interest of the
Government and/or the taxpayer; and (2) the taxpayer is
willing to deposit the amount being collected or to file a
surety bond for not more than double the amount of the
tax to be fixed by the court (Sec. 11, JR.A. No. 1125).

Institution and Prosecution of Criminal Actions

Q: After filing an Information for violation of Sec. 254

of the National Internal Revenue Code (Attempt to
Evade or Defeat Tax) with the CTA, the Public
Prosecutor manifested that the People is reserving
the right to file the corresponding civil action for the
recovery of the civil liability for taxes. As counsel for
the accused, comment on the People's manifestation.
(2015)

A: The manifestation is not proper. The corresponding

civil action for the recovery of the civil liability for
taxes is not allowed to be reserved separately.

Any provision of law or the Rules of Court to the contrary

notwithstanding, the criminal action and the
corresponding civil action for the recovery of civil
liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in
the same proceeding by the CTA, the filing of the criminal
action being deemed to necessarily carry with it the filing
of the civil action, and no right to reserve the filling of
such civil action separately from the criminal action will
be recognized (Sec. 7[b][1], RA 1125, as amended). 80

UNIVERSITY OF SANTO TOMAS TEAM BAROPS

FACULTY OF CIVIL LAW ACADEMICS COMMITTEE 2016