Taxation Faq

TAXATION FAQ
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San Beda College Alabang School of Law
Centralized Bar Operations 2018
TAXATION FAQ
EXECUTIVE COMMITTEE 2018 – 2019
CHAIRPERSON Catriona Janelle Gayatin
VICE CHAIRPERSON FOR ACADEMICS Jerekko Cadorna
VICE CHAIRPERSON FOR ACADEMIC OPERATIONS Rodel Cadorniga Jr.
VICE CHAIRPERSON FOR HOTEL OPERATIONS Emmanuel Josef Jovellanos
EXECUTIVE OFFICER FOR HOTEL OPERATIONS Christian Boy Benedict Tiangco
VICE CHAIRPERSON FOR FINANCE Katreena Frances Monje
VICE CHAIRPERSON FOR SECRETARIAT Odette Marie Jumao-as
VICE CHAIRPERSON FOR COMMUNICATIONS Maryll Ann Ragpala
VICE CHAIRPERSON FOR RECRUITMENT AND MEMBERSHIP Giulia Ingrid Calub
VICE CHAIRPERSON FOR ELECTRONIC DATA PROCESSING John Eli Zuriel Bitong
San Beda College Alabang School of Law Administration
Dr. Ulpiano P. Sarmiento III

Dean and Adviser
ATTY. Anna Marie Melanie B. Trinidad

Vice Dean
ATTY. Carlo D. Busmente

Prefect of Student Affairs
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TAXATION FAQ
TAXATION TEAM
Subject Head Philip Ebersole

Members Christian Adrienne Arbiol
John Cedric Comon
Jerekko Cadorna
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TAXATION FAQ
FREQUENTLY ASKED QUESTIONS employees in that division. A Co. has a

retirement plan approved by the BIR,
Tax Exemptions
which requires a minimum of 50 years of
Q: (2002)Mr. Sebastian is a Filipino age and 10 years of service in the same
seaman employed by a Norwegian employer at the time of retirement.
company which is engaged exclusively
in international shipping. He and his There are 2 groups of employees
wife, who manages their business, filed to be laid off:
a joint income tax return for 1997 on
March 15.1998. After an audit of the (a) Employees who are at
return, the BIR issued on April 20, 2001 a least 50 years of age and has at 10
deficiency income tax assessment for years of service at the time of
the sum of P250,000.00, inclusive of termination of employment.
interest and penalty. For failure of Mr.
and Mrs. Sebastian to pay the tax within (b) Employees who do no
the period stated in the notice of meet either the age or length of service
assessment, the BIR issued on August A Co. plans to give the following:
19,2001 warrants of distraint and levy to
enforce collection of the tax. For category (A) employees - the
benefits under the BIR approved plan
Suggested Answer: plus an ex gratia payment of one month
I will raise the defense of prescription. of every year of service.
The right of the BIR to assess prescribes
after three years counted from the last For category (B) employees - one
day prescribed by law for the filing of month for every year of service. For both
the income tax returns when the said categories, the cash equivalent of
return is filed on time. (Section 203, unused vacation and sick leave credits.
NIRC). The last day for filing the 1997
income tax return is April 15,1998. Since A Co. seeks your advice as to
the assessment was issued only on April whether or not it will subject any of
20, 2001, the BIR’s right to assess has these payments to WT. Explain your
already prescribed. advice. (5%)
SUGGESTED ANSWER:
Income Tax deductions/exclusions For category A employees, all the
benefits received on account of their
Q: (1999) A Co., a Philippine
separation are not subject to income
corporation, has two divisions —
tax, hence no withholding tax shall be
manufacturing and construction. Due to
imposed. The benefits received under
the economic situation, it had to close
the BIR-approved plan upon meeting
its construction division and lay-off the
the service requirement and age
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TAXATION FAQ
requirement are explicitly excluded from Prescription – Assessment and

gross income. The ex gratia payment Collection of Taxes
also qualifies as an exclusion from gross
income being in the nature of benefit Q: (2002) On August 5, 1997, Adamson
received on account of separation due Co., Inc. (Adamson) filed a request for
to causes beyond the employees' reconsideration of the deficiency
control. (Section 32(B), NIRC). The cash withholding tax assessment on July 10,
equivalent of unused vacation and sick 1997, covering the taxable year 1994.
After administrative hearings, the
leave credits qualifies as part of
separation benefits excluded from gross original assessment of P150,000.00 was
income (CIR v. Court of Appeals, GR No. reduced to P75,000.00 and a modified
assessment was thereafter issued on
96016, October 17, 1991).
August 05, 1999. Despite repeated
For category B employees, all the demands, Adamson failed and refused
benefits received by them will also be to pay the modified assessment.
Consequently, the BIR brought an
exempt from income tax, hence not
subject to withholding tax. These are action for collection in the Regional Trial
benefits received on account of Court on September 15,2000. Adamson
separation due to causes beyond the moved to dismiss the action on the
employees' control, which are ground that the government’s right to
specifically excluded from gross collect the tax by judicial action has
prescribed.
income. (Section 32(B), NIRC).
ALTERNATIVE ANSWER: Decide the case. (5%)
SUGGESTED ANSWER:
All of the payments are not
subject to income tax and should not
The right of the Government to
also be subject to WT. The employees
were laid off, hence separated for a collect by judicial action has not
prescribed. The filing of the request for
cause beyond their control.
Consequently, the amounts to be paid reconsideration suspended the running
by reason of such involuntary separation of the prescriptive period and
are excluded from gross income, commenced to run again when a
irrespective of whether the employee at decision on the protest was made on
the time of separation has rendered less August 5,1999. It must be noted that in
than ten years of service and/or is all cases covered by an assessment, the
below fifty years of age. (Section 32(B), period to collect shall be five (5) years
NIRC). 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
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TAXATION FAQ
internal Revenue (CIR v. Wyeth Suaco tax, it is required that not more than 30%
Laboratories, Inc., 202 SCRA 125 [1991]). of the said gifts shall be used by the
donee-institution for administration
purposes. (Sec. 101(A)(3), NIRC).
Donor’s Tax
Q: (2002) On December 06, 2001, LVN Taxable Income

Corporation donated a piece of vacant
lot situated in Mandafuyong City to an Q: (2001) In order to facilitate the
accredited and duty registered non- processing of its application for a license
stock, non-profit educational institution from a government office, Corporation
to be used by the latter in building a A found it necessary to pay the amount
sports complex for students. of Php 100,000 as a bribe to the
approving official. Is the Php 100,000
A. May the donor claim in full deductible from the gross income of
as deduction from its gross income for Corporation A? On the other hand, is
the taxable year 2001 the amount of the Php 100,000 taxable income of the
the donated lot equivalent to its fair approving official? Explain your answers.
market value/zonal value at the time of (5%)
the donation? Explain your answer. (2%)
B. in order that donations to Suggested Answer: Since the

non-stock, non-profit educational amount of Php 100,000 constitutes a
institution may be exempt from the bribe, it is not allowed as a deduction
donor’s gift tax, what conditions must from gross income of Corporation A-
be met by the donee? (3%) (Section 34(A)(1)(c), NIRC). However, to
the recipient government official, the
same constitutes a taxable income. All
Suggested Answer: income from legal or illegal sources are
A. No. Donations and/or taxable absent any clear provision of
contributions made to qualified donee law exempting the same. This is the
institutions consisting of property other reason why gross income had been
than money shall be based on the defined to include income from
acquisition cost of the property. The whatever source derived. (Section
donor is not entitled to claim as full 32(A), NIRC). Illegally acquired income
deduction the fairmarket value/zonal constitutes realized income under the
value of the lot donated. (Sec. 34(H), claim of right doctrine (Rutkin v. US, 343
NIRC). US 130).
B. In order that donations to non-

stock, non-profit educational institution Power to Tax: Local Governments
may be exempt from the donor’s gift
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TAXATION FAQ
Q. (2005) A city outside of metro manila rate not exceeding five percent (5%) of
plans to enact an ordinance that will the assessed value of the property
impose a special levy on idle lands which shall be in addition to the basic
located in residential subdivisions within real property tax. (Sec. 236, Local Gov't.
its territorial jurisdiction in addition to the Code) I would likewise advise them that
basic real property tax. If the lot owners the levy may apply to residential lots,
of a subdivision located in the said city regardless of land area, in subdivisions
seek your legal advice on the matter, duly approved by proper authorities,
what would your advice be? Discuss. the ownership of which has been
(5%) transferred to individual owners, who
shall be liable for the additional tax. (last
par., Sec. 237, ibid.)
SUGGESTED ANSWER:
Finally, I would advise them to
1. My advice would be that construct or place improvements on
the city's plan to enact an ordinance
their idle lands by making valuable
that will impose such special levy on idle additions to the property or
lands is not legally allowed, unless these ameliorations in the land’s conditions so
lands are specially benefited by a the lands would not be considered as
public works projects or improvements idle. (Sec. 199(m), ibid.) In this manner
funded by the city government. (Sec. their properties would not be subject to
240, Local Government Code). I will
the ad valorem tax on idle lands.
likewise advise them that before the city
council could enact an ordinance
imposing a special levy, it shall conduct Income Tax
a public hearing thereon; notify in
Q. (2005) JR was a passenger of an
writing the owners of the real property
to be affected or the persons having airline that crashed. He survived the
accident but sustained serious physical
legal interest therein as to the date and
place thereof and afford the latter the injuries which required hospitalization for
opportunity to express their positions or 3 months. Following negotiations with
objections relative to the proposed the airline and its insurer, an agreement
ordinance. (Sec. 242, Local Government was reached under the terms of which
JR was paid the following amounts:
Code).
P500, 000.00 for his hospitalization: P250,
ANOTHER SUGGESTED ANSWER: 000.00 as moral damages: P300, 000.00
for loss of income during the period of
I would advise the lot owners that his treatment and recuperation. In
the imposition is valid because a city, addition, JR received from his employer
even if it is outside Metro Manila, may the amount of P200,000.00 representing
levy an annual tax on idle lands at the the cash equivalent of his earned
vacation and sick leaves. Which, if any,
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TAXATION FAQ
of the amounts he received are subject which were not placed there by the
to income tax? Explain. (5%) owner of the land but which were
instead placed there by the lessee of
SUGGESTED ANSWER: the land, considered real property for
purposes of real property taxation under
The amount of P200,000.00 that the local Government Code? Explain.
JR received from his employer is subject
to income tax except the money SUGGESTED ANSWER:
equivalent of ten (10) days unutilized
vacation leave credits which is not Yes. The properties are considered as
taxable. Amounts of vacation necessary fixtures of the gasoline station,
allowances or sick leave credits which
without which the gasoline station
are paid to an employee constitutes would be useless. Machinery and
compensation (Sec. 2.78(A)(7), RR No. equipment installed by the lessee of
2-98, as amended by RR No. 10-2000). leased land is not real property for
purposes of execution of a final
The amounts that JR received judgment only. They are considered as
from the airline are excluded from gross real property for real property tax
income and not subject to income tax purposes as “other improvements to
because they are compensation for affixed or attached real property under
personal injuries suffered from an the Assessment Law and the Real
accident as well as damages received
Property Tax Code. (Cattex v. Central
as a result of an agreement Board of Assessment Appeals, 114 SCRA
(negotiation) on account of such
296 [1982]).
injuries. (Sec. 32(B)(4), NIRC).
Appeals in Tax Cases

Real Property Taxation
Q. (2005) A taxpayer received a tax
Q. (2003) Under Article 415 of the Civil deficiency assessment of P 1.2 Million
Code, in order for machinery and from the BIR demanding payment within
equipment to be considered real 10 days, otherwise, it would collect
property, the pieces must be placed by
through summary remedies. The
the owner of the land and, in addition, taxpayer requested for .a
must tend to directly meet the needs of reconsideration stating the grounds
the industry or works carried on by the therefor. Instead of resolving the request
owner. Oil companies install for reconsideration, the BIR sent a Final
underground tanks in the gasoline Notice Before Seizure to the taxpayer.
stations located on land leased by the
oil companies from the owners of the
May this action of the
land where the gasoline stations [are] Commissioner of Internal Revenue be
located. Are those underground tanks, deemed a denial of the request for
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TAXATION FAQ
reconsideration of the taxpayer to Levy. [CIR v. Union Shipping Corp., 185

entitle him to appeal to the Court of Tax SCRA 547, (1990)]. Since the final notice
Appeals? Decide with reasons. (5%) before seizure is issued ahead of a
Warrant of Distraint and Levy, with more
reason that this earlier action cannot be
SUGGESTED ANSWER: considered as a denial of the protest.
Yes. The action of the Principles and Aspects of Taxation

Commissioner of Internal Revenue is
deemed a denial of the request for Q. (2006) 1) Enumerate the 3 stages or
reconsideration of the taxpayer, thus aspects of taxation. Explain each. 5%
entitling him to appeal to the CTA. The
Notice was the only response received 2) Distinguish “direct taxes” from
by the taxpayer and its content and “indirect taxes". Give examples. 5%
tenor supports the theory that it was the
BIR’s final act regarding the request for SUGGESTED ANSWER:
reconsideration. The very title of the
notice indicated that it was a “Final 1) The three stages or aspects of
Notice Before Seizure" which means that taxation are:
the taxpayer’s properties will be
subjected to seizure to enforce the a. Levy. This refers to the
deficiency assessment. Thus, in one enactment of a law by Congress
decided case, the Supreme Court ruled authorizing the imposition of a
that the Final Notice Before Seizure is a tax.
final decision of the Commissioner on
the disputed assessment [CIR v. Isabela b. Assessment and
Cultural Corp., 361 SCRA 71 (2001)]. Collection. This is the act of
administration and
ANOTHER SUGGESTED ANSWER: implementation of the tax law by
the executive through its
No, the Final Notice Before administrative agencies.
Seizure does not constitute a denial of
the request for reconsideration. The c. Payment. This is the act of
Commissioner is mandated to come out compliance by the taxpayer,
with a decision clearly stating the facts including such options, schemes
and the law upon which it is based and or remedies as may be legally
that the same constitutes his final available to him.
decision. (Revenue Regulations No. 12-
99, Implementing Sec. 228, NIRC). It Direct taxes are demanded from the
cannot merely be implied from the very person who, as intended, should
issuance of a Warrant of Distraint and pay the tax which he cannot shift to
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TAXATION FAQ
another; while an indirect tax is not at all considered a tax to the buyer
demanded in the first instance from one but a part of the purchase price. Lily's
person with the expectation that he can Fashion, Inc. is not the taxpayer in so far
shift the burden to someone else, not as as the passed-on tax is concerned and
a tax, but as part of the purchase price therefore, it cannot claim for a refund of
(Maceda v. Macaraig, Jr., 223 SCRA 217 a tax merely shifted to it. Only taxpayers
[1993]). Examples of direct taxes are are allowed to file a claim for refund
income tax, estate tax and donor’s tax. (Phil. Acetylene Co., Inc. v. C£R, 20
Examples of indirect taxes are value- SCRA 1056 [1987]).
added tax, percentage tax and excise
tax on excisable articles. Value Added Tax
Tax Refund Q. (2006). Royal Mining is a VAT-

registered domestic mining entity. One
Q. (2006) Lily’s Fashion, Inc. is a garment of its products is silver being sold to the
manufacturer located and registered as
Bangko Sentral rig Pilipinas. It filed a
a Subic Bay Freeport Enterprise under claim with the BIR for tax refund on the
Republic Act No. 7227 and a non-VAT ground that under Section 106 of the
taxpayer. As such, it is exempt from Tax Code, sales of precious metals to
payment of all local and national the Bangko Sentral are considered
internal revenue taxes. During its export sales subject to zero-rated VAT.
operations, it purchased various supplies
and materials necessary , in the Is Royal Mining’s claim
conduct of its manufacturing business.
meritorious? Explain. 5%
The suppliers of these goods shifted to
Lily’s Fashion, Inc. the 10% VAT on the SUGGESTED ANSWER:
purchased items amounting to
P500,000.00. Lily’s Fashion, Inc. filed with
No, Royal Mining's claim is not
the BIR a claim for refund for the input meritorious because it is the sale to the
tax shifted to it by the suppliers.
Bangko Sentral ng Pilipinas of gold and
not silver which is considered as export
If you were the Commissioner of sale subject to zero-rated VAT fSection
Internal Revenue, will you allow the 106(2XaX4)t NIRC).
refund? 5%
SUGGESTED ANSWER: Tax Remedies
No. The exemption of lily's Q. (2006) The Commissioner of

Fashion, Inc. is only for taxes for which it Internal Revenue issued an assessment
is directly liable, hence, it cannot claim for deficiency income tax for taxable
exemption for a tax shifted to it, which is year 2000 last July 31, 2006 in the
amount of P10 Million inclusive of
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TAXATION FAQ
surcharge and interests. If the abatement or cancellation of the entire

delinquent taxpayer is your client, what assessment.
steps will you take? What is your
defense? 10% ANOTHERSUGGESTED ANSWER:
SUGGESTED ANSWER: I will immediately file a protest

within thirty (30) days from receipt of the
Since my client has already lost assessment by my client addressed to
his right to protest the assessment the Commissioner of Internal Revenue,
having been issued on Juky 31, 2006 alleging prescription as my defense
and that he is already categorized as a because the assessment was issued
delinquent tax payer). I will advise him beyond three (3) years as required by
to wait for a collection action to be law (Sec. 228 and 203, NIRC).
instituted by the commissioner. Once
colletion is pursued. I will file a petition Should the Commissioner deny
for review with the CTA to question the my protest, I will file an appeal to the
validity of the commissioner’s action. My Court of Tax Appeals (CTA) within thirty
defense would be prescription. Since (30) days from receipt of the decision
the assessment was issued beyond the (Sec. 228, NIRC).
prescriptive period to assess, the
assessment is invalid and any action to Should the CTA Division deny my
collect an invalid assessment is not petition for review, I will file a Motion for
warranted (Phil. Journalists, Inc. v. CIR, Reconsideration within 15 days from
447 SCRA 214 [2004]) receipt of the denial. Should the Division
deny my Motion for Reconsideration, I
ANOTHERSUGGESTED ANSWER: will appeal to the CTA en banc and
from the latter’s denial, I will appeal to
I will advise my client, who is a the Supreme Court by way of a petition
delinquent taxpayer, to file a request for certiorari within 15 days from receipt
with the Commissioner of Internal of the en banc decision.
Revenue for the abatement of the
entire assessment on the ground that Deficiency Tax
the same is unjustly assessed (Sec, 204,
NIRC), I will invoke prescription as a Q. (2005) Danilo, who is engaged in the
defense against the assessment. I will tell trading business, entrusted to his
the Commissioner that the assessment accountant the preparation of his
having been issued beyond the income tax return and the payment of
prescriptive period, the deficiency the tax due. The accountant filed a
income tax would appear to be unjustly falsified tax return by underdeclaring
assessed which would justify the the sales and overstating the expense
deductions by Danilo.
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TAXATION FAQ
any bookstore. The law allows

Is Danilo liable for the deficiency bookstores to claim in full the discount
tax and the penalties thereon? What is as a tax credit.
the liability, if any, of the accountant?
Discuss. (5%) 1. If in a taxable year a
bookstore has no tax due on which to
SUGGESTED ANSWER: apply the tax credits, can the bookstore
claim from the BIR a tax refund in lieu of
Yes, Danilo is liable for the tax credit? Explain. 2.5%
deficiency tax as well as for the
deficiency interest. However, he is not 2. Can the BIR require the
liable to the fraud penalty because the bookstores to deduct the amount of the
accountant acted beyond the limits of discount from their gross income?
his authority. A tax return which does not Explain. 2.5%
correctly reflect taxable income may
only be false but not necessarily 3. If a bookstore closes its
fraudulent where it appears that the business due to losses without being
return was not prepared by the able to recoup the discount, can it
taxpayer himself but by his accountant. claim reimbursement of the discount
Accordingly, the 50% surcharge for from the government on the ground
fraud could not be imposed. [Aznar v. that without such reimbursement, the
CTA, 58 SCRA 719, (1974)]. law constitutes taking of private
property for public use without just
On the other hand, the compensation? Explain. 5%
accountant may be held criminally
liable for violation of the Tax Code when SUGGESTED ANSWER:
he falsified the tax return by
underdeclaring the sale and overstating 1. No. The law is clear that
the expense deductions. (Sec. 257, bookstores can only claim the discount
NIRC). If Danny's accountant is a as a tax credit. The term tax credit
Certified Public Accountant, his connotes that the amount when
certificate as CPA shall automatically claimed shall only be treated as a
be revoked or cancelled upon reduction from any tax liability, plain
conviction. and simple. There is nothing in the law
that grants a refund when the bookstore
Tax Credit has no tax liability against which the tax
credit can be used (CIR v. Central Luzon
Q. (2006) Congress enacts a law Drug Corp., 456 SCRA 414 [2005]).
granting grade school and high school
students a 10% discount on all school- 2. No. Tax credit which
prescribed textbooks purchased from reduces the tax liability is different from
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TAXATION FAQ
a tax deduction which merely reduces purchased items amounting to

the income to arrive at the tax base. P500,000.00. Lily’s Fashion, Inc. filed with
Since the law allowed bookstores to the BIR a claim for refund for the input
claim in full the discount as a tax credit, tax shifted to it by the suppliers.
the BIR is not allowed to expand or
contract the legislative mandate (CIR v. If you were the Commissioner of
Central Luzon Drug Corp., Id.). Internal Revenue, will you allow the
refund? 5%
3. No, the bookstore cannot
claim reimbursement. The tax credit SUGGESTED ANSWER:
privilege given to it is the compensation
for the subsidy taken by the government No. The exemption of lily's
for the benefit of a class of taxpayers to Fashion, Inc. is only for taxes for which it
which the students belong. However, is directly liable, hence, it cannot claim
the privilege granted is limited only to exemption for a tax shifted to it, which is
the reduction of a present or future tax not at all considered a tax to the buyer
liability because by its nature, it is the but a part of the purchase price. Lily's
existence or lack of a tax liability that Fashion, Inc. is not the taxpayer in so far
determines whether the discount can as the passed-on tax is concerned and
be used as a tax credit. Accordingly, if therefore, it cannot claim for a refund of
the business continues to operate at a a tax merely shifted to it. Only taxpayers
loss and no other taxes are due, are allowed to file a claim for refund
compelling the business to close shop, (Phil. Acetylene Co., Inc. v. C£R, 20
the credit can never be applied and will SCRA 1056 [1987]).
be lost altogether. (CIR v. Central Luzon
Drug Corp., Id.) POWER OF TAXATION: LIMITATIONS
Tax Exemptions Q. (2009) Enumerate the four (4)

inherent limitations on taxation. Explain
Q. (2006) Lily’s Fashion, Inc. is a garment each item briefly. (4%)
manufacturer located and registered as
a Subic Bay Freeport Enterprise under SUGGESTED ANSWER
Republic Act No. 7227 and a non-VAT
taxpayer. As such, it is exempt from The inherent limitations on the power to
payment of all local and national tax are as follows:
internal revenue taxes. During its
operations, it purchased various supplies 1. Taxation is for public purpose. –
The proceeds of the tax must
and materials necessary , in the
be used (a) for the support of
conduct of its manufacturing business. the State or (b) for some
The suppliers of these goods shifted to recognized objective of the
Lily’s Fashion, Inc. the 10% VAT on the government or to directly
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TAXATION FAQ
promote the welfare of the property held, and activities

community. undertaken in that capacity.
2. Taxation is inherently legislative-
Only the legislature has the full CORPORATE INCOME TAX: IMMEDIACY
discretion as to the persons, TEST
property, occupation or Q. (2010)What is the “immediacy test?”
business to be taxed provided Explain briefly (2%).
these are all within the State’s
territorial jurisdiction. IT can also SUGGESTED ANSWER
finally determine the amount
rate of tax, the kind of tax to The “immediacy test” is applied to
be imposed and the method determine whether the accumulation of
of collection (1 Cooley 176, after tax profits by a domestic or
184). resident foreign corporation is really for
3. Taxation is territorial-Taxation the reasonable needs of the business.
may be exercised only within Under this test, the reasonable needs of
the territorial jurisdiction, the the business are construed to mean the
taxing authority (61 Am. Jur. immediate needs of the business,
88). Within the territorial including reasonably anticipated needs.
jurisdiction, the taxing authority The corporation should be able to prove
may determine the “place of an immediate need for the
taxation” or “tax situs”. accumulation of earnings and profits, or
4. Taxation is subject to the direct correlation of anticipated
international comity. –This is a needs to such accumulation of profits to
limitation which is founded on justify the said accumulation (Sec 3, RR
reciprocity designed to No. 2-2001; Mertens, Law of Federal
maintain harmonious and Income Taxation, Vol. 7, Chapter 39, p.
productive relationships among 103, cited in Manila Wine Merchants,
the various state. Under Inc. v. CIR, G.R. No. L-26145, Feb. 20,
international comity, a state 1984)
must recognize the generally-
accepted tenets of FOREIGN CORPORATE TAX: SINGLE
international law, among which ENTITY CONCEPT
are the principles of sovereign
equality among states and of Q. (2012) Anchor Banking Corporation,
their freedom from suit without which was organized in 2000 and
their consent, that limits that existing under the laws of the Philippines
authority of a government to and owned by the Sy Family of Makati
effectively impose taxes in a City, set up in 2010 a branch office in
sovereign state and its Shanghai City, China, to take
instrumentalities, as well as in its advantage of the presence of many
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TAXATION FAQ
Filipino workers in that area and its 28 (A)(5) of the Tax Code? Explain your
booming economy. During the year, the answer. (5%)
bank management decided not to
include the P20 Million net income of SUGGESTED ANSWER
the Shanghai Branch in the annual
Philippine income tax return filed with No. The branch profit remittance tax is
the BIR, which showed a net taxable imposed only on remittances by
income of P30 Million, because the branches of Foreign Corporation in the
Shanghai Branch is treated as a foreign Philippines to their Home Office abroad.
corporation and is taxed only on It is the outbound branch profits that is
income from sources within the subject to the tax not the inbound
Philippines, and since the loan and profits (Section 28(A)(5), NIRC).
other business transactions were done in
Shanghai, these incomes are not PERSONAL INCOME TAXATION: PASSIVE
taxable in the Philippines. INCOME (SITUS OF TAXATION)
A) Is the bank correct in excluding the Q. (2007)In 2007, spouses Renato and
net income of its Shanghai Branch in the Judy Garcia opened peso and dollar
computation of its annual corporate deposits at the Philippine branch of the
income tax for 2010? Explain your Hong Kong Bank in Manila. Renato is an
answer. (5%) overseas worker in Hong Kong while
Judy lives and works in Manila. During
SUGGESTED ANSWER the year, the bank paid interest income
of P10,000 on the peso deposit and
No. A Domestic Corporation is taxable US$1,000 on the dollar deposit. The bank
on all income derived from sources withheld final income tax equivalent to
within and without the Philippines 20% of the entire interest income and
(Section 23, NIRC). The income of the remitted the same to the BIR.
foreign branch and that of the Home
Office will be summed up for income A) Are the interest incomes on the bank
tax purposes following the “single entity” deposits of spouses Renato and Judy
concept and will all be included in the Garcia subject to income tax? Explain.
gross income of the domestic (4%)
corporation in the annual Philippine
income tax return. SUGGESTED ANSWER
(B) Should the Shanghai Branch of The interest income of Renato, who is a
Anchor bank remit profit to its Head non-resident, is exempt from income tax
Office in the Philippines in 2011, is the under Sec. 27(D3)(2) NIRC. Any bank
branch liable to the 15% branch profit interest of non-residents from an
remittance tax imposed under Section expanded foreign currency deposit
15
TAXATION FAQ
system is exempt from income tax (Sec.

24[B1] NIRC). An expanded foreign DEDUCTIONS: CASUALTY LOSS
currency deposit refers to any bank
authorized by the Central Bank to Q. (2010) A is a travelling salesman
transact business in local and working full time for Nu Skin Products. He
acceptable foreign currencies. Judy receives a monthly salary plus 3%
Garcia, who is a resident of the commission on his sales in a Southern
Philippines, is liable for 7.5% final income province where he is based. He
tax on interest income (Sec. 24[B1] regularly uses his own car to maximize
NIRC). his visits even to far flung areas. One fine
day a group of militants seized his car.
(B) Is the bank correct in withholding the He was notified the following day by the
20% final tax on the entire interest police that the marines and the militants
income? Explain. (4%) had a bloody encounter and his car
was completely destroyed after a
SUGGESTED ANSWER grenade hit it. A wants to file a claim for
casualty loss. Explain the legal basis of
No, The bank should withhold only 7.5% your tax advice. (3%)
on the final interest income of the wife.
The husband is exempt. SUGGESTED ANSWER
A is not entitled to claim a casualty loss

DEDUCTIONS: ALL EVENTS TEST because all of his income partake the
nature of compensation income.
Q. (2010) What is the "all events test"? Taxpayers earning compensation
Explain briefly. (2%) income arising from personal services
under an employee-employer
SUGGESTED ANSWER relationship are not allowed to claim
deduction except that allowed under
The “all events test” is a test applied in Sec 34(M) referring only to the P2,400
the realization of income and expense health and/or hospitalization insurance
by an accrual-basis taxpayer. The test premium; perforce the claim of casualty
requires (1) the fixing of a right to the loss has no legal basis (Sec 34, NIRC).
income or liability to pay; and (2) the
availability of reasonably accurate DEDUCTIONS: OPTIONAL STANDARD
determination of such income or DEDUCTIONS
liability, to warrant the inclusion of the
income or expense in the gross income Q. (2009) Ernesto, a Filipino citizen and a
or deductions during the taxable year. practicing lawyer, filed his income tax
(CIR v. Isabela Cultural Corporation, return for 2007 claiming optional
G.R. No. 172231, Feb. 12, 2007) standard deductions. Realizing that he
16
TAXATION FAQ
has enough documents to substantiate the employer is not a direct or indirect

his profession connected expenses, he beneficiary under the policy of
now plans to file an amended income insurance. (Section 36 (A)(4), NIRC).
tax return for 2007, in order to claim Since the parents of the employee were
itemized deductions, since no audit has made the beneficiaries, the prohibition
been commenced by the BIR on the for their deduction does not exist.
return he previously filed. Will Ernesto be
allowed to amend his return? Why or EXEMPTIONS: PERSONAL & ADDITIONAL
EXEMPTIONS
why not? (4%)
Q. (2012) Spouses Pablo Gonzales and
SUGGESTED ANSWER Teresita Gonzales, both resident citizens,
acquired during their marriage a
No. Since Ernesto has elected to claim residential house and lot located in
optional standard deduction, said Makati City, which is being leased to a
election is irrevocable for the taxable tenant for a monthly rental of
year for which the return is made (Sec P100,000.00. Mr. Pablo Gonzales is the
34(L), NIRC). President of PG Corporation and he
receives P50,000.00 salary per month.
DEDUCTIONS: PREMIUM FOR LIFE The spouses have only one (1) minor
child. In late June 2010, he was
INSURANCE
immediately brought to the hospital
Q. (2007) Noel Santos is a very bright because of a heart attack and he was
computer science graduate. He was pronounced dead on June 30, 2010.
hired by Hewlett Packard. To entice him With no liabilities, the estate of the late
to accept the offer of employment, he Pablo Gonzales was settled extra-
was offered the arrangement that part judicially in early 2011. (A) Is Mr. Pablo
of his compensation would be an Gonzales required to file income tax
insurance policy with a face value of return for 2010? IF so, how much income
P20 Million. The parents of Noel are must he declare for the year? How
made the beneficiaries of the insurance much personal and additional
policy. (10%) exemption is he entitled to? Explain your
answer. (5%)
(B) Can the company deduct from its
gross income the amount of the SUGGESTED ANSWER
premium? Reason briefly.
Yes. Income to be declared: P600,000
SUGGESTED ANSWER (Rental Income P300,000 & Salary
P300,000); Personal and Additional
Yes. The premiums paid are ordinary Exemption P75,000 (Basic of P50,000 &
and necessary business expenses of the P25,000 for one minor child)
company. They are allowed as a
deduction from gross income so long as
17
TAXATION FAQ
(B) Is Mrs. Teresita Gonzales required to and insurance company and they were
file income tax return for 2010? IF so, able to agree to a total settlement of
how much income must she declare for P10 Million. This is what Antonia would
the year? How much personal have earned as somebody who was
exemption is she entitle to? Explain your gainfully employed. Edgardo was her
answer. (5%) only heir. (10%)
SUGGESTED ANSWER (B) Should Edgardo report the P10

Million as his income being Antonia‟s
Yes. Rental Income P600,000 (P300,000
only heir? Reason briefly.
share for January to June 2010 &
P300,000 representing his interest in the SUGGESTED ANSWER
income from the properties comprising
the estate for the period July to The P10M should not be reported by
December). The share of the minor child Edgardo as his income. The amount
in the rental income (P300,000) earned received in a settlement agreement
after death is not included in the return with the airline company and insurance
of the parent pursuant to Section 51(E) company is an amount received from
of the Tax Code. the accident insurance company is an
amount received from the accident
(C) Is the Estate of the late Pablo insurance covering the passengers of
Gonzales required to file income tax the airline company and is in the nature
return for 2010? If so, how much income of compensation for personal injuries
must it declare for the year? How much and for damages sustained on a
personal exemption is it entitled to? account of such injuries, which is
Explain your answer. (5%) excluded from the gross income of the
recipient. (Section 32(B)(4), NIRC).
SUGGESTED ANSWER
ALTERNATIVE ANSWER
No. It has acquired no tax personality
because the estate is not under judicial No. The P10M having been received for
settlement. The income of the properties the loss of life, is compensatory in
is taxable to the heirs in their individual nature, hence, is not considered as an
capacity in accordance with their income but a mere return of capital.
respective interest in the inheritance. Income is any wealth which flows to the
taxpayer other than a mere return of
EXEMPTIONS: PROCEEDS FROM
capital. (Madrigal v. Rafferty 38 Phil. 414
ACCIDENT INSURANCE
[1918]).
Q. (2007) Antonia Santos, 30 years old,
CAPITAL GAINS TAX: NATURE OF ASSETS
gainfully employed, is the sister of
Eduardo Santos. She died in an airplane Q. (2008)In January 1970, Juan Gonzales
crash. Edgardo is a lawyer and he bought one hectare of agricultural land
negotiated with the Airline Company
18
TAXATION FAQ
in Laguna for P100,000.This property has Makati stockbroker at a gain of

a current fair market value of P10 million P200,000.
in view of the construction of a
concrete road traversing the property. (B) If John McDonald directly sold the
Juan Gonzales agreed to exchange his shares to his best friend, who is another
agricultural lot in Laguna for a one-half U.S. citizen residing in Makati, at a gain
hectare residential property located in of P200,000, is he liable for Philippine
Batangas, with a fair market value of income tax? If so, what is the tax base
and rate? (3%)
P10 million, owned by Alpha
Corporation, a domestic corporation SUGGESTED ANSWER
engaged in the purchase and sale of
real property. Alpha Corporation Yes, He is liable for a final income tax of
acquired the property in 2007 for P9 5% on first P100,000 net capital gain,
million. and 10% for any amount in excess of
P100,000 net capital gain (Sec.24[C]
(A) What is the nature of the real NIRC).
properties exchanged for tax purposes -
capital asset or ordinary asset? Explain. DONOR’S TAX: DOWRY EXEMPTION
(3%)
Q. (2009) Miguel, a citizen and resident
SUGGESTED ANSWER of Mexico, donated US$1,000.00 worth
of stocks in Barack Motors Corporation,
With regard to the Laguna property, it is a Mexican company, to his legitimate
a capital asset because it is agricultural son, Miguelito, who is residing in the
land. The Batangas property, in contrast, Philippines and about to be married to
is an ordinary asset because it is either a Filipino girlfriend. Mexico does not
(1) held for sale to customers in the impose any transfer tax of whatever
ordinary course of business or (2) real nature on all gratuitous transfers of
property used in the trade of business of property. (a) Is Miguel entitled to claim
a realtor like Alpha Corp (Secs. 24[D1], a dowry exclusion? Why or why not?
39[A1]2 NIRC; and RR No. 7-2003). (3%)
CAPITAL GAINS TAX: SALE OF STOCK NOT SUGGESTED ANSWER
TRADED IN LOCAL STOCK EXCHANGE
Miguel, a non-resident alien, is not
Q. (2008) John McDonald, a U.S. citizen allowed any dowry exclusion. The dowry
residing in Makati City, bought shares of applies only to a donor who is either a
stock of a domestic corporation whose citizen or resident of the Philippines (Sec
shares are listed and traded in the 101(A)(1), NIRC).
Philippine Stock Exchange at the price
of P2 million. Yesterday, he sold the ESTATE TAX: INCLUSION IN THE
shares of stock through his favorite DECEDENT’S GROSS ESTATE
19
TAXATION FAQ
Q. (2007) Antonia Santos, 30 years old, painting, already worth P1.5-million, to

gainfully employed, is the sister of his only son, Zandro. The will also
Eduardo Santos. She died in an airplane granted Zandro the power to appoint
crash. Edgardo is a lawyer and he his wife, Wilma, as successor to the
negotiated with the Airline Company painting in the event of Zandro's death.
and insurance company and they were Zandro died in 2007, and Wilma
able to agree to a total settlement of succeeded to the property. Should the
P10 Million. This is what Antonia would painting be included in the gross estate
have earned as somebody who was of Xavier in 2001 and thus, be subject to
gainfully employed. Edgardo was her estate tax? Explain. (3%)
only heir.(10%) (A) Is the P10 Million
SUGGESTED ANSWER
subject to estate tax? Reason briefly.
SUGGESTED ANSWER Yes. The transmission of the property

from Xavier to Zandro is subject to the
No. The estate tax is a tax on the estate tax because this is a property
privilege enjoyed by an individual in within Xavier’s control to dispose upon
controlling the disposition of her his death. The composition of the gross
properties to take effect upon her estate pertains to properties owned and
death. The P10M is not a property existing as of the time of death and to
existing as of the time of decedent’s be transferred by the owner by death
death; hence, it cannot be said that she (Sec 85, NIRC).
exercised control over its disposition.
Since the privilege to transmit the ESTATE TAX: VANISHING DEDUCTIONS
property is not exercised by the Q. (2009) In 1999, Xavier purchased from
decedent, the estate tax cannot be his friend, Yuri, a painting for
imposed thereon. (Definition of Estate P500,000.00. The fair market value (FMV)
Tax p. 184, Vitug, Compendium of of the painting at the time of the
TaxLaw and Jurisprudence, Third purchase was P1-million. Yuri paid all the
Revised Edition). corresponding taxes on the transaction.
In 2001, Xavier died. In his last will and
ESTATE TAX: COMPOSITION OF
DECEDENT’S GROSS ESTATE testament, Xavier bequeathed the
painting, already worth P1.5-million, to
Q. (2009) In 1999, Xavier purchased from his only son, Zandro. The will also
his friend, Yuri, a painting for granted Zandro the power to appoint
P500,000.00. The fair market value (FMV) his wife, Wilma, as successor to the
of the painting at the time of the painting in the event of Zandro's death.
purchase was P1-million. Yuri paid all the Zandro died in 2007, and Wilma
corresponding taxes on the transaction. succeeded to the property.
In 2001, Xavier died. In his last will and
testament, Xavier bequeathed the
20
TAXATION FAQ
May a vanishing deduction be allowed (PCC), a domestic corporation. The

in either or both of the estates? Explain. project with a total cost of P100 Million
(3%) was completed in 2011 at the following
cost components: (design - P20 Million;
SUGGESTED ANSWER machinery and equipment - P50 Million;
Vanishing deduction shall be allowed to and installation - P30 Million). Assume
the estate of Xavier but only to the that the project was 40% complete in
extent of ½ of the property which is the 2010 and 100% complete in 2011, based
portion acquired by gifts (Sec 100, on the certificates issued by the
NIRC). The donation took place within 5 architects and engineers working on the
years (1999 to 2001) from the death of project. GOC paid FC as follows: P60
Xavier; hence, there is a vanishing Million in 2010 and P40 Million in 2011
deduction. However, Zandro’s estate and FC paid PCC in foreign currency
will not be entitled to claim because, through a Philippine bank as follows: P10
first and foremost, the property Million in 2010 and P20 Million in 2011.
previously taxed is not includable in his (B) Is PCC, which adopted the
gross estate and second, even if it is
percentage of completion method of
includable, the present decedent died reporting income and expenses, liable
more than 5 years from the death of the to value added tax in 2010 and in 2011.
previous decedent, and that a
Explain your answer. (5%)
vanishing deduction is already claimed
by the previous estate involving the SUGGESTED ANSWER
same property.
Yes, PCC is liable to the VAT as seller of
VAT: ZERO-RATED TRANSACTION services for a fee. However, the sale of
services to FC is subject to VAT at zero
Q. (2012) Foster Corporation (FC) is a percent rate. Services rendered to a
Singaporebased foreign corporation person engaged in business conducted
engaged in construction and installation outside the Philippines or to nonresident
projects. In 2010, Global Oil petroleum person not engaged in business who is
products, awarded an anti-pollution
outside the Philippines when the services
project to Foster Corporation, whereby are performed paid in foreign currency
FC shall design, supply machinery and inwardly remitted through the banking
equipment, provided that the system are zero-rated sales of services
installation part of the project may be (Section 108(B)(2), NIRC)
sub-contracted to a local construction
company. Pursuant to the contract, the CTA: APPEALS FROM DECISIONS OF
design and supply contracts were done COLLECTOR OF CUSTOMS
in Singapore by FC, while the installation
works were sub-contracted by FC with Q. (2010) What is the rule on appeal
Philippine Construction Corporation from decisions of the Collector of
Customs in protest and seizure cases?
21
TAXATION FAQ
When is the decision of the Collector of compel him to exercise such discretion
Customs appealable to the Court of Tax one way or another (Koppel Phils., Inc.
Appeals? Explain. (5%) v. CIR, 87 Phil, 351 (1950); (2) If the
Commissioner abuses his discretion by
SUGGESTED ANSWER not following the parameters set by law,
Decisions of the Collector of Customs in the CTA, not the Court of Appeals, may
protest and seizure cases are correct such abuse if the matter is
appealable to the Commissioner of appealed to it. In case of arbitrary or
Customs within 15 days from receipt of capricious exercise by the
notice of the written decision. As a rule, Commissioner of the power to
decisions of the Collector of Customs compromise, the compromise can be
are not appealable to the Court of Tax attacked and reversed through the
Appeals. If the Collector of Customs, judicial process. It must be noted
however, does not decide a protest for however, that a compromise is
a long period of time, the inaction may considered as other matters arising
be considered as an adverse decision under the NIRC which vests the CTA with
by the Collector of Customs and the jurisdiction, and since the decision of
aggrieved taxpayer may appeal to the the CTA is appealable to the Supreme
CTA even without the Collector’s and Court, the Court of Appeals is devoid of
Commissioner’s actual decision any power of review a compromise
(Commissioner of Customs v. Planters settlement forged by the Commissioner
Products, Inc. G.R. No. 82018, March 16, (PNOC v. Savellano, G.R. No. 109976,
1989). April 26, 2005; RA 9282 on jurisdiction of
CTA).
CTA: JURISDICTION AS TO POWER OF
REVIEW LOCAL TAXATION:
CONSTITUTIONALITY/FRANCHISE
Q. (2010)Does the Court of Appeals
have the power to review compromise Q. (2007) The Local Government Code
agreements forged by the took effect on January 1, 1992. PLDT‟s
Commissioner of Internal Revenue and legislative franchise was granted
a taxpayer? Explain. (5%) sometime before 1992. Its franchise
provides that PLDT will only pay 3%
SUGGESTED ANSWER franchise tax in lieu of all taxes. The
legislative franchises of Smart and
No, for either of two reasons (1) in
Globe Telecoms were granted in 1998.
instances in which the Commissioner of
Their legislative franchises state that they
Internal Revenue is vested with authority
will pay only 5% franchise tax in lieu of all
to compromise, such authority should
taxes. The Province of Zamboanga del
be exercised in accordance with the
Norte passed an ordinance in 1997 that
Commissioner’s discretion, and courts
imposes a local franchise tax on all
have no power, as a general rule, to
telecommunication companies
22
TAXATION FAQ
operation within the province. The tax is LOCAL TAXATION: CONSTITUTIONALITY

50% of 1% of the gross annual receipts of OF PROFESSIONAL OR OCCUPATION
the preceding calendar year based on TAXES
the incoming receipts, or receipts
realized, within its territorial jurisdiction. Is Q. (2009) The City of Manila enacted
the ordinance valid? Are PLDT, Smart Ordinance No. 55-66 which imposes a
and Globe liable to pay franchise municipal occupation tax on persons
taxes? Reason briefly. (10%) practicing various professions in the city.
Among those subjected to the
SUGGESTED ANSWER occupation tax were lawyers. Atty.
Mariano Batas, who has a law office in
The ordinance is valid. The Local Manila, pays the ordinanceimposed
Government Code explicitly authorizes occupation tax under protest. He goes
provincial governments, to court to assail the validity of the
notwithstanding any law or other
ordinance for being discriminatory.
special law, to impose a tax on business Decide with reasons. (3%)
enjoying a franchise at the rate of 50%
of 1% based on the gross annual SUGGESTED ANSWER
receipts during the preceding year
The ordinance is valid. The tax imposed
within the province. (Section 137, LGC).
PLDT is liable to the franchise tax levied by the ordinance is in the nature of a
by the province of Zamboanga del professional tax which is authorized by
Norte. The tax exemption privileges on law to be imposed by cities (Sec 151 in
franchises granted before the passage relation o Sec 139, LGC). The ordinance
of the Local Government Code are is not discriminatory because the City
effectively repealed by the latter law. Council has the power to select the
(PLDT v. City of Davao, 363 SCRA 522 subjects of taxation and impose the
same tax on those belonging to the
[2001]). Smart and Globe, however, are
not liable to the franchise tax imposed same class. The authority given by law
under the provincial ordinance. The to cities is to impose a professional tax
legislative franchises of Smart and only on persons engaged in the
Globe were granted in 1998, long after practice of their profession requiring
government examination and lawyers
the Local Government Code took
effect. Congress is deemed to have are included within that class of
been aware of the provisions of the professionals.
earlier law, when it granted the ALTERNATIVE ANSWER
exemption. Accordingly, the latest will of
the legislature to grant tax exemption The ordinance is valid. The ordinance is
must be respected. 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
23
TAXATION FAQ
objects of taxation belonging to the No, Manila cannot legally levy the 2%
same class shall be taxed at the same Gross Receipts Tax on the shipping line,
rate within the territorial jurisdiction of because taxes on the gross receipts of
the taxing authority or local government transportation contractors and
unit and not necessarily in comparison passengers or freight by hire and
with other units although belonging to common carriers by air, land or water is
the same political subdivision. In fine, a limitation on the exercise of taxing
uniformity is required only within the powers by local government units (Sec
geographical limits of the taxing 133 (j), LGC).
authority. It is not for the Court to judge
what particular cities or municipalities ALTERNATIVE ANSWER
should be empowered to impose No. Since the gross receipts of an
occupation tax. In case at bar, the international shipping company is
imposition of the occupation tax to subject to tax under the Internal
persons exercising various professionals Revenue Code, the power to tax is
in the city is well within the authority of impliedly withheld from local
the City of Manila (Punsalan et. al. v. government units. This is the “rule on
City of Manila, 95 Phil. 46 (1954)). preemption or exclusionary rule” which
LOCAL TAXATION: LIMITATION OF applies unless by express provision of
law, LGUs are given the power to tax
TAXING POWERS
that field already covered by the taxing
Q. (2010) XYZ Shipping Corporation is a power of the National government
branch of an international shipping line (Victorias Milling Co., Inc. v. Mun. of
with voyages between Manila and the Victorias, L2113, Sept 27, 1968; Sec 133,
West Coast of the U.S. The company‟s LGC).
vessels load and unload cargoes at the
LOCAL TAXATION: NATURE OF TAXING
Port of Manila, albeit it does not have a
POWER
branch or sales office in Manila. All the
bills of lading and invoices are issued by Q. (2007) What is the nature of the
the branch office in Makati which is also taxing power of the provinces,
the company‟s principal office. municipalities and cities? How will the
local government units be able to
The City of Manila enacted an
exercise their taxing powers? (5%)
ordinance levying a 2% tax on gross
receipts of shipping lines using the Port SUGGESTED ANSWER
of Manila.
The taxing power of the provinces,
Can the City Government of Manila municipalities and cities is directly
legally impose said levy on the conferred by the Constitution by giving
corporation? Explain. (3%) them the authority to create their own
sources of revenue. The local
SUGGESTED ANSWER
24
TAXATION FAQ
government units do not exercise the and maintain the power barges for the
power to tax as an inherent power or by purpose of converting the fuel of RPC
a valid delegation of the power by the into electricity. The contract also
Congress, but pursuant to a direct stipulates that all real estate taxes and
authority conferred by the Constitution. assessments, rates and other charges, in
(Mactan Cebu International Airport respect of the power barges, shall be for
Authority v. Marcos, 261 SCRA 667 the account of RPC.
[1996]; NPC v. City of Cabanatuan, 401
In 2007, JEC received an assessment of
SCRA 259 [2003]).
real property taxes on the power barges
The local government units exercise the from the Assessor of Batangas City. JEC
power to tax by levying taxes, fees and sought reconsideration of the
charges consistent with the basic policy assessment on the ground that the
of local autonomy, and to assess and power barges are exempt from real
collect all these taxes, fees and charges estate taxes under Section 234 [c] of
which will exclusively accrue to them. R.A. 7160 as they are actually, directly
The local government units are and exclusively used by RPC, a
authorized to pass tax ordinances (levy) government-owned and controlled
and to pursue actions for the corporation. Furthermore, even
assessment and collection of the taxes assuming that the power barges are
imposed in the said ordinances. (Section subject to real property tax, RPC should
129, and 132, Local Government Code). be held liable therefor, in accordance
with the terms of the lease agreement.
REAL PROPERTY TAXATION: LIABILITY FOR
PAYMENT Is the contention of JEC correct? Explain
your answer. (4%)
Q. (2009) Republic Power Corporation
(RPC) is a government-owned and SUGGESTED ANSWER
controlled corporation engaged in the
supply, generation and transmission of No, the contention of JEC is not correct.
electric power. In 2005, in order to The owner of the power barges is JEC
which is required to operate, manage
provide electricity to Southern Tagalog
provinces, RPC entered into an and maintain the power barges for the
agreement with Jethro Energy purpose of converting the fuel of RPC
Corporation (JEC), for the lease of JEC's into electricity. This belies the claim that
power barges which shall be berthed at RPC, a government-owned and
the port of Batangas City. The contract controlled corporation engaged in the
provides that JEC shall own the power supply, generation and transmission of
barges and the fixtures, fittings, electric power, is the actual, direct and
machinery, and equipment therein, all exclusive user of the barge, hence,
of which JEC shall supply at its own cost, does not fall within the purview of the
and that JEC shall operate, manage exempting provision of Sec 234(c) of RA
25
TAXATION FAQ
7160. Likewise, the argument that RPC 3. Determination of the tax base
should be liable to the real property which is the higher between the
taxes consonant with the contract is gross selling price and the current
fair market of the property.
devoid of merit. The liability for the
The income tax is computed as 6% of
payment of the real estate taxes is the tax base which is in the nature of a
determined by law and not by the final capital gains tax. (Sec 24 (D)(1),
agreement of the parties (FELS Energy NIRC).However, since the property to be
Inc. v. The Province of Batangas, 516 sold is a principal residence and the
SCRA 186 (2007)). purpose is to buy a new one, I will
advise Mr. Belen that the sale can be
Exemption of Family Home; Conditions exempt from 6% capital gains tax if he is
willing to comply with the following
Q: (2013) In 2000, Mr. Belen bought a conditions:
residential house and lot for P1,000,000. a. He must utilize the proceeds of
He used the property as his and his sale acquiring a new principal
family's principal residence. It is now residence within 18 months from
year 2013 and he is thinking of selling the date of disposition;
the property to buy a new one. He b. He should notify the
seeks your advice on how much income Commissioner of his intention to
avail of the exemption within 30
tax he would pay if he sells the property.
days from date of sale;
The total zonal value of the property is
P5,000,000 and the fair market value per c. He should open an escrow
the tax declaration isP2,500,000. He account with a bank and deposit
intends to sell it for P6,000,000. What the 6% capital gains tax due on
material considerations will you take into the sale. If he complies with the
utilization requirement he will be
account in computing the income tax?
entitled to get back his deposit;
Please explain the legal relevance of otherwise, the deposit will be
each of these considerations. applied against the capital gains
tax due. (Sec 24 (D)(2), NIRC)
Suggested Answer: Since the planned
sale involves a real property classified as Charitable Institutions: Income Tax for
a capital asset, the material Profit-Driven Activities
considerations to take into account to
compute the income tax are: A group of philanthropists organized a
non-stock, non-profit hospital for
1. The current fair market value of charitable purposes to provide medical
the property to be sold. The services to the poor. The hospital also
current fair market value is the
accepted paying patients although
higher between the zonal value
and the fair market value per tax none of its income accrued to any
declaration. private individual; all income were
2. The gross selling price of the plowed back for the hospital's use and
property. not more than 30% of its funds were
26
TAXATION FAQ
used for administrative purposes. Is the SUGGESTED ANSWER:No, CCC, Inc.

hospital subject to tax on its income? If it should first file a motion for
is, at what rate? reconsideration with the CTA Division.
Petition for review of a decision or
SUGGESTED ANSWER: Yes. Although a resolution of the Court in Division must
non-stock non-profit hospital organized
be preceded by the filing of a timely
for charitable purposes, is generally
exempt from income tax, it becomes motion for reconsideration or new trial
taxable on income derived from with the Division. Before the CTA En
activities conducted for profit. Services Banc could take cognizance of the
rendered to paying patients are petition for review concerning a case
considered activities conducted for falling under its exclusive appellate
profit which are subject to income tax,
jurisdiction, the litigant must sufficiently
regardless of the disposition of said
income. The hospital is subject to show that it sought prior reconsideration
income tax of 10% of its net income or moved for a new trial with the
derived from the paying patients concerned CTA division.
considering that the income earned
appears to be derived solely from Exemption of government
hospital-related activities (CIR v. St. instrumentalities from local tax
Luke’s Medical Center, Inc., G.R. Nos.
195909 & 195960, Sept 26, 2012). Q: (2016)Philippine National Railways
(PNR) operates the rail transport of
Rules of Procedure before the CTA passengers and goods by providing
train stations and freight customer
Q: (2015)On May 15, 2013, CCC, Inc.
facilities from Tutuban, Manila to the
received the Final Decision on
Bicol Province. As the operator of the
Disputed Assessment issued by the
railroad transit, PNR administers the land,
Commissioner of Internal Revenue (CIR)
improvements and equipment within its
dismissing the protest of CCC, Inc. and
main station in Tutuban, Manila.
affirming the assessment against said
corporation. On June 10, 2013, CCC, Invoking Section 193 of the Local
Inc. filed a Petition for Review with the Government Code (LGC) expressly
Court of Tax Appeals (CTA) in division. withdrawing the tax exemption
On July 31, 2015, CCC, Inc. received a privileges of government-owned and
copy of the Decision dated July 22, 2015 controlled corporations upon the
of the CTA division dismissing its Petition. effectivity of the Code in 1992, the City
CCC, Inc. immediately filed a Petition Government of Manila issued Final
for Review with the CTA en banc on Notices of Real Estate Tax Deficiency in
August 6, 2015. Is the immediate appeal the amount of P624,000,000.00 for the
by CCC, Inc. to the CTA en banc of the taxable years 2006 to 2010. On the other
adverse Decision of the CTA division the hand, PNR, seeking refuge under the
proper remedy? (3%) principle that the government cannot
27
TAXATION FAQ
tax itself, insisted that the PNR lands and consideration of the transaction. Jose
buildings are owned by the Republic. sold a parcel of land in the city, which
he inherited from his deceased parents,
Is the PNR exempt from real property and refused to pay the aforesaid tax.
tax? Explain your answer. (5%) He instead filed a case asking that the
ordinance be declared null and void
Suggested Answer: Yes, PNR is exempt since the tax it imposed can only be
from real property tax. PNR is a collected by the national government,
corporation created to serve as the as in fact he was paid the Bureau of
instrumentality of the Government of Internal Revenue (BIR) the required
the Philippines in providing a nationwide Capital Gain Tax. If you were the city
railroad and transport system, and legal officer of Maharlika what defenses
under Section 133(o) of the Local would you raise to sustain the validity of
Government Code, PNR as a the ordinance?
government instrumentality as such it is
Suggested Answer: The Ordinance
not taxable because it is not subject to
passed by the City Council of
taxes, fees or charges of any kind by
Maharlikaimposing a Transfer Tax on the
local governmentspursuant to the Local
sale, or any other mode of transferring
Government Code the only exception is
ownership at the rate of 50% of 1% of
when PNR leases its real property to a
the total consideration involved in the
taxable person as provided in Section
acquisition of the property cannot be
234(a) of the Local Government Code,
declared null and void as Petitioned by
in which case the specific real property
Jose with his contention that he already
leased becomes subject to real estate
paid the Capital Gain Tax. Said City
tax. Thus, only portions of the PNR Lands
Ordinance is a Taxing Power granted to
and Buildings leased to taxable persons
the Provincial, Municipality or Cities,
like private parties are subject to real
pursuant to Section 135 of the Local
estate tax by the City of Manila.
Government Code of 1991 (LGC).
Section 193 does not apply with PNR
Transfer Tax paid in the Bureau of
since its charter is not listed as
Internal Revenue (BIR) can be either
Government owned and controlled
donor’s or estate taxes which is far
corporation.
different with the Transfer tax imposed
by the Local Government, hence, there
is no reason to be confuse. Also, the
Taxing power of LGUs transfer tax paid to the provincial or city
assessor’s office, its evidence of
Q: (2016) The City of Maharlika passed payment or the official receipt is
an ordinance imposing a tax on any
required by the Register of Deeds of the
sale or transfer of real property located
province concerned before registering
within the city at a rate of fifty percent
any deed. This is also required by the
(50%) of one percent (1%) of the total
provincial assessor before cancelling an
28
TAXATION FAQ
old tax declaration and issuing a new not bear the words "zero-rated" as
one in its place. The payment of the required under Section 4.108-1 of
transfer tax is the responsibility of the Revenue Regulations (RR) No. 7-95. On
seller, donor, transferor, executor or and appeal, the CTA division and the CTAen
administrator. As to the rate of tax banc affirmed the BIR ruling.MMM, Inc.
imposed it is also compliant to Section appealed to the Supreme Court
151 of the LGC. arguing that the NIRC itself did not
provide for such a requirement. RR No.
Therefore, Jose has no reason not to
7-95 should not prevail over a taxpayer's
pay nor to question the transfer tax substantive right to claim tax refund or
imposed on him and seek declaration credit.
of which to be null and void.
a. Rule on the appeal of MMM, Inc.
Zero-rated transactions;
b. Will your answer in (a) be any
substantiation requirements different if MMM, Inc. was
Q: (2015)MMM, Inc., a domestic claiming refund of excess input
VAT attributable to its effectively
telecommunications company,
zero-rated sales in 2012
handlesincoming telecommunications
services for non-resident foreign SUGGESTED ANSWER:
companies by relaying international a. Theappeal of MMM, Inc. must be
calls within the Philippines. To broaden denied. MMM, Inc.’s position that
the coverage of its telecommunications the requirements under RR No. 7-
services throughout the country, MMM, 95 should not prevail over a
taxpayer’s substantive right to
Inc. entered into various
claim tax refund or credit is
interconnection agreements with local unmeritorious.The Secretary of
carriers. The non-resident foreign Finance has the authority to
corporations pay MMM, Inc. in US dollars promulgate the necessary rules
inwardly remitted through Philippine and regulations for the effective
banks, in accordance with the rules and enforcement of the provisions of
regulations of theBangko Sentral ng the NIRC. Such rules and
regulations are given weight and
Pilipinas.MMM, Inc. filed its Quarterly VAT
respect by the courts in view of
Returns for 2000. Subsequently, MMM, the rule-making authority given to
Inc. timely filed with the BIR an those who formulate them and
administrative claim for the refund of their specific expertise in their
the amount of P6,321,486.50, respective fields.An applicant for
representing excess input VAT a claim for tax refund or tax
credit must not only prove
attributable to its effectively zero-rated
entitlement to the claim but also
sales in 2000. The BIR ruled to deny the compliance with all the
claim for refund of MMM, Inc. because documentary and evidentiary
the VAT official receipts submitted by requirements. Consequently, the
MMM, Inc. to substantiate said claim did CTA and the CTA en banc
correctly ruled that the failure to
29
TAXATION FAQ
indicate the words “zero-rated” for refund/credit of unutilized

on the invoices and excess input VAT.
receiptsissued by a taxpayer
would result in the denial of the SUGGESTED ANSWER:
claim for refund or tax credit. a. The CTA has not acquired
jurisdiction over the Petition of
b. No. In Kepco Philippines FFF, Inc. because the juridical
Corporation v. Commissioner of claim has been prematurely filed
Internal Revenue, the Supreme on March 15, 2013. The Supreme
Court ruled that the subsequent Court ruled that the 30-day
incorporation of Section 4.108-1 periodafter the expiration of the
of RR 7-95 in Section 113(B)(2)(c) 120-day period fixed by law for
of RA 9337 actually confirmed the Commissioner of Internal
the validity of the imprinting Revenue to act on the claim for
requirement on VAT invoices or refund is jurisdictional and failure
official receipts –a case falling to comply would bar the appeal
under the principle of legislative and deprive the CTA of its
approval of administrative jurisdiction to entertain the
interpretation by reenactment. appeal.In this case, Mr. G filed
the administrative claim on
January 31, 2013. The petition for
Administrative claims; Prescriptive review should have been should
period have been filed on June 30, 2013.
Filing the judicial claim on March
Q: (2015)For calendar year 2011, FFF,
15, 2013 is premature, thus the
Inc., a VAT-registered corporation,
CTA did not acquire jurisdiction.
reported unutilized excess input VAT in
the amount of Pl,000,000.00attributable
b. The administrative claim must be
to its zero-rated sales. Hoping to impress
filed with the Commissioner of
his boss, Mr. G, the accountant of FFF,
Internal Revenue (CIR) within the
Inc., filed with the Bureau of Internal
two-year prescriptive period. The
Revenue (BIR) on January 31, 2013 a
proper reckoning period date for
claim for tax refund/credit of the
the two-year prescriptive period
P1,000,000.00 unutilized excess input VAT
is the close of the taxable quarter
of FFF, Inc. for 2011. Not having received
when the relevant sales were
any communication from the BIR, Mr. G
made. However, as an
filed a Petition for Review with the CTA
exception, are claims applied
on March 15, 2013, praying for the tax
only from June 8, 2007 to
refund/credit of the Pl,000,000.00
September 12, 2008, wherein the
unutilized excess input VAT of FFF, Inc.
two-year prescriptive period for
for 2011.
filing a claim for tax refund or
a. Did the CTA acquire jurisdiction
credit of unutilized input VAT
over the Petition of FFF, Inc.?
payments should be counted
from the date of filing of theVAT
b. Discuss the proper procedure
return and payment of the
and applicable time periods for
tax.The taxpayer can file a
administrative and judicial claims
judicial claim in one of two ways:
30
TAXATION FAQ
(1) file the judicial claim within

thirty days after the Commissioner
of Internal Revenue denies the OBJECTIVE QUESTIONS
claim within the120-day period,
or (2) file the judicial claim within Real Estate Tax
30 days from the expiration of the
120-day period if the Q: (2002) Under the Local
Commissioner does not act Government Code, what properties are
withinthe 120-day period.As a exempt from real property taxes? (5%)
general rule, the 30-day period to
appeal is both mandatory and Suggested Answer: The following
jurisdictional. As an exception,
properties are exempt from real
premature filing is allowed only if
property taxes: (Sec. 234, LGC).
filed between December 10,
2003 and October 5, 2010, when
the BIR Ruling No. DA-489-03 was 1. Real property owned by
still in force. 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
31
TAXATION FAQ
Gross Income”. Give an example of

5. Machinery and each. (2%)
equipment used for pollution control
and environmental protection. Suggested Answer: Exclusions
from gross income refer to a flow of
Assessment and Collection wealth to the taxpayer which are not
treated as part of gross income, for
Q: (2001) a) May the collection purposes of computing the taxpayeris
of taxes be barred by prescription? taxable income, due to the following
Explain your answer. (3%) reasons: (1) It is exempted by the
fundamental law; (2) It is exempted by
b) May the courts enjoin the statute; and (3) It does not come within
collection of revenue taxes? Explain the definition of income. (Section 61, RR
your answer. (2%) No. 2).
SUGGESTED ANSWER: Deductions from gross income,

on the other hand, are the amounts,
a) Yes. The collection of which the law allows to be deducted
taxes may be barred by prescription. from gross income in order to arrive at
The prescriptive periods for collection of net income.
taxes are governed by the tax law
imposing the tax. However, if the tax law Exclusions pertain to the
does not provide for prescription, the computation of gross income, while
right of the government to collect taxes deductions pertain to the computation
becomes imprescriptible. of net income.
b) As a general rule, the Exclusions are something

courts have no authority to enjoin the received or earned by the taxpayer
collection of revenue taxes. (Sec. 218, which do not form part of gross income
NIRC). However, the Court of Tax while deductions are something spent
Appeals is empowered to enjoin the or paid in earning gross income.
collection of taxes through
administrative remedies when collection Example of an exclusion from
could jeopardize the interest of the gross income is proceeds of life
government or taxpayer. (Section 11, insurance received by the beneficiary
RA 1125) upon the death of the insured which is
not an income or 13th month pay of an
employee not exceeding P30.000 which
Income Tax Deductions and Exclusions is an income not recognized for tax
Q: (2001) Distinguish “Exclusion from purposes. Example of a deduction is
Gross Income" from “Deductions From business rental.
32
TAXATION FAQ
It is considered inherent in a
sovereign State because it is a
Power of Taxation Limitations
necessary attribute of sovereignty.
Q: (2000) Justice Holmes once Without this power no sovereign State
said: “The power to tax is not the power can exist or endure. The power to tax
to destroy while this Court (the Supreme proceeds upon the theory that the
Court) sits." Describe the power to tax existence of a government is a necessity
and its limitations. (5%) and this power is an essential and
inherent attribute of sovereignty,
belonging as a matter of right to every
Suggested Answer: The power to independent state or government. No
tax is an inherent power of the sovereign state can continue to exist
sovereign which is exercised through the without the means to pay its expenses;
legislature, to impose burdens upon and that for those means, it has the right
subjects and objects within its jurisdiction to compel all citizens and property
for the purpose of raising revenues to within its limits to contribute, hence, the
carry out the legitimate objects of emergence of the power to tax. (51 Am.
government. The underlying basis for its Jur.,Taxation 40).
exercise is governmental necessity for
without it no government can exist nor
endure. Accordingly, it has the broadest Set-off/Compromise
scope of all the powers of government Q. (2004) State and discuss briefly
because in the absence of limitations, it whether the following cases may be
is considered as unlimited, plenary, compromised or may not be
comprehensive and supreme. The two compromised:
limitations on the power of taxation are
the inherent and constitutional
a) Delinquent accounts:
limitations which are intended to
prevent abuse on the exercise of the b) Cases under
otherwise plenary and unlimited power. administrative protest, after issuance of
It is the Court's role to see to it that the the final assessment notice to the
exercise of the power does not
taxpayer, which are still pending:
transgress these limitations.
Principles of Taxation c) Criminal tax fraud cases;
Q. (2003) Why is the power to tax
considered inherent in a sovereign d) Criminal violations already
State? filed in court;
SUGGESTED ANSWER: e) Cases where final reports

of reinvestigation or reconsideration
have been issued resulting in the
33
TAXATION FAQ
reduction of the original assessment revised assessment, the taxpayer

agreed to by the taxpayer when he admits the validity of the
signed the required agreement form. assessment and his capacity to
(5%) pay the same. (Sec. 2 of
Revenue Regulations No. 30-
2002).
SUGGESTED ANSWER:
a) Delinquent accounts may be

compromised if either of the two
conditions is present: (1) the assessment
is of doubtful validity, or (2) the financial
position of the taxpayer demonstrates a
clear inability to pay the tax. (Sec.
204(A), NIRC; Sec. 2 of Revenue
Regulations No. 30- 2002).
b) These may be
compromised, provided that it is
premised upon doubtful validity of the
assessment or financial incapacity to
pay (ibid).
c) These may not be

compromised, so that the taxpayer may
not profit from his fraud, thereby
discouraging its commission (ibid).
d) These may not be

compromised in order that the taxpayer
will not profit from his criminal acts (ibid).
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,
cannot be compromised. By
giving his conformity to the
34
TAXATION FAQ
Unusually Asked Questions of the corporation they can be made

liable for unpaid taxes of the
Stockholder’s Liability over Unpaid Taxes
corporation to the extent of their unpaid
Q. (2004) For failure to comply with subscriptions
certain corporate requirements, the Fringe Benefit
stockholders of ABC Corp. were notified
by the Securities and Exchange Q. (2003) A “fringe benefit’ is defined as
Commission that the corporation would being any good, service or other benefit
be subject to involuntary dissolution. The furnished or granted in cash or in kind by
stockholders did not do anything to an employer to an individual employee.
comply with the requirements, and the Would it be the employer or the
corporation was dissolved. Can the employee who is legally required to pay
stockholders be held personally liable an income tax on it? Explain.
for the unpaid taxes of the dissolved
corporation? Explain briefly. (5%) SUGGESTED ANSWER:
SUGGESTED ANSWER: It is the employer who is legally

required to pay an income tax on the
A. No. As a general rule, fringe benefit. The fringe benefit tax is
stockholders cannot be held personally imposed as a final withholding tax
liable for the unpaid taxes of a dissolved placing the legal obligation to remit the
corporation. The rule prevailing under tax on the employer, such that, if the tax
our jurisdiction is that a corporation is is not paid the legal recourse of the BIR
vested bylaw with a personality that is is to go after the employer. Any amount
separate and distinct from those of the or value received by the employee as a
persons composing it (Sunio v. NLRC, fringe benefit is considered tax paid
127 SCRA 390 [1984]). hence, net of the income tax due
thereon. The person who is legally
Note: required to pay (same as statutory
incidence as distinguished from
Additional point should be given economic incidence) is that person
to the examinee if he answers in the who, in case of non-payment, can be
following that: legally demanded to pay the tax.
However, stockholders may be held

liable for the unpaid taxes of a dissolved Tax Treatment of dividends
corporation if it appears that the Q: (2015)BBB, Inc., a domestic
corporate assets have passed into their corporation, enjoyed a particularly
hands (Tan Tiong Bio v. CIR, 4 SCRA 986 profitable year in 2014. In June 2015, its
[1962D. Likewise, when stockholders Board of Directors approved the
have unpaid subscriptions to the capital
35
TAXATION FAQ
distribution of cash dividends to its theapplicable tax rate is thirty percent

stockholders. BBB, Inc. has individual (30%) of the gross income received
and corporate stockholders. What is the during each taxable year from all
sources within the Philippines.
tax treatment of the cash dividends
received from BBB, Inc. by the following Requirement of individual taxpayers to
stockholders: file income tax return
a) A resident citizen Q: (2015)Indicate whether each of the

b) Non-resident alien engaged in trade following individuals is required or not
or business required to file an income tax return:
c) Non-resident alien not engaged in
trade or business a) Filipino citizen residing outside the
d) Domestic corporation Philippines on his income from sources
e) Non-resident foreign corporation outside the Philippines.
b) Resident alien on income derived
SUGGESTED ANSWER: from sources within the Philippines.
a. A final withholding tax of ten percent c) Resident citizen earning purely
(10%) shall be imposed upon the cash compensation income from two
dividends actually or constructively employers within the Philippines, whose
received by a resident citizen from BBB, income taxes have been correctly
Inc. withheld.
b. A final withholding tax of twenty d) Resident citizen who falls under the
percent (20%) shall be imposed upon classification of minimum wage earners.
the cash dividends actually or e) An individual whose sole income has
constructively received by a been subjected to final withholding tax.
nonresident alien engaged in trade or
business from BBB, Inc.
c. A final withholding tax equal to SUGGESTED ANSWER:
twenty-five percent (25%) of the entire a. No, because a non-resident
income received from all sources within Filipino citizen is taxable only in
the Philippines, including the cash income sourced within the
dividends received from BBB, Inc. Philippines.
d. Dividends received by a domestic
corporation from another corporation, b. Yes because a resident alien is
such as BBB, Inc., shall not be subject to taxable for income derived from
tax. sources within the Philippines.
e. A final withholding tax of fifteen
percent (15%) is imposed on the c. Yes. A resident citizen who is
amount of cash dividends received earning purely compensation
from BBB, Inc., subject to the tax sparing income from two employers
credit provision (Section 28(B)(5)(b), should file income tax return for
NIRC). The application of the tax sparing not being qualified for substituted
credit is that the country-domicile of the filing.
recipient corporation allows a credit
against the tax due from the non-
d. No. Under the law, all minimum
resident foreign corporation. Otherwise,
wage earners in the private and
36
TAXATION FAQ
public sector shall be exempt individual may claim up to four

from payment of income tax. additional exemptions in
connection with his/her
e. No. Under the law, an individual dependents.
whose sole income has been
subjected to final withholding tax De Minimis benefits
pursuant to Section 57(A) of the
NIRC need not file a return. Q: (2015)What are de minimis benefits
and how are these taxed? Give three
(3) examples of de minimis benefits.
Personal Exemptions
Q: (2015) Mr. E and Ms. F are both

employees of AAA Corp. They got SUGGESTED ANSWER:
married on February 14, 2011. On De minimis benefits are facilities, and
December 29, 2011, the couple gave privileges furnished or offered by an
birth to triplets. On June 25, 2013, they employer to hisemployees, which are
had twins. What were the personal not considered as compensation
exemptions/deductions which Mr. E and subject to income tax and
Ms. F could claim in the following consequently to withholding tax, if such
taxable years: facilities or privileges are of relatively
a) For 2010 (2%) small value and are offered or furnished
b) For 2011 (3%) by the employer merely as means of
c) For 2013 (2%) promoting the health, goodwill,
contentment, or efficiency of his
SUGGESTED ANSWER: employees. The excess over the de
a. Both Mr. E and Ms. F can claim for minimis limit prescribed shall be
personal exemption up to considered, along with the “other
P50,000.00. benefits” under Section 32(B)(7)(e)(iv),
b. Either Mr. E or Ms. F can claim for NIRC, in determining whether or not the
additional exemption of P82,000 threshold has been exceeded.
P25,000.00 each for their children. Any excess over the de minimis ceiling
This is in addition to the personal may be exempt if it is covered by the
exemption of P50,000.00 which unused portion of the P82,000.00 non-
they can respectively claim. taxable “other benefits”. Otherwise, any
According to the Tax Code, only amount in excess of the P82,000.00
one of the spouses can claim for threshold becomes subject to tax. The
additional exemption for every following shall be considered as “de
dependent. minimis” benefits:
c. Mr. E and Ms. F can claim for 1. Monetized unused vacation leave
personal exemptions, credits of private employees not
respectively. In addition, any one exceeding 10 days during the year;
of them, exclusively, can claim 2. Monetized unused vacation and sick
for the additional exemptions in leave credits paid to government
relation to their four dependents officials and employees, regardless of
amounting to P25,000.00 each. the number of days;
Under the Tax Code, an
37
TAXATION FAQ
3. Medical cash allowance to February 15, 2014 with effectivity date

dependents of employees, not on March 1, 2014.
exceeding P750 per employee per a. Is there a ground for opposing said
semester or P125 per month; ordinance?
4. Rice subsidy of P1,500 or one (1) sack b. What is the proper procedural
of 50 kg. rice per month amounting to remedy and applicable time periods for
not more than P1,500; challenging the ordinance?
5. Uniform and clothing allowance not
exceeding P5,000 per annum; Suggested Answer:
6. Actual medical assistance not a. Yes, on the ground that the
exceeding P10,000 per annum; ordinance is
7. Laundry allowance not exceeding ultra-vires. The taxing powers of local
P300 per month; government units, such as M City,
8.Employees achievement awards, e.g., cannot extend to the levy of taxes, fees
for length of service or safety and charges already imposed by the
achievement, which must be in the form national government, and this include,
of a tangible personal property other among others, the levy of customs
than cash or gift certificate, with an duties under the Tariff and Customs
annual monetary value not exceeding Code.
P10,000 received by the employee b. Any question on the constitutionality
under an established written plan which or legality of tax ordinances may be
does not discriminate in favor of highly raised on appeal within thirty (30) days
paid employees; from the effectivity to the Secretary of
9.Gifts given during Christmas and major Justice. The Secretary of Justice shall
anniversary celebrations not exceeding render a decision within sixty (60) days
P50,000 per employee per annum; from the date of receipt of the appeal.
10.Daily meal allowance for overtime Thereafter, within thirty (30) days after
work and night/graveyard shift not receipt of the decision or the lapse of
exceeding 25% of the basic minimum the sixty-day period without the
wage on a per region basis; Secretary of Justice acting upon the
11.Benefits received by an employee by appeal, the aggrieved party may file
virtue of a collective bargaining the appropriate proceedings with the
agreement (CBA) and productivity Regional Trial Court.
incentive schemes provided that the
total annual monetary value received
from both CBA and productivity Corporate income tax; contractor
incentive schemes combined do not
exceed ten thousand pesos (P10,000.00) ABC Corporation is registered as a
per employee per taxable year holding company and has an office in
the City of Makati. It has no actual
Remedy to challenge tax ordinance business operations. It invested in
another company and its earnings are
Q: (2015)In 2014, M City approved an limited to dividends from this investment,
ordinance levying customs duties and interests on its bank deposits, and
fees on goods coming into the territorial foreign exchange gains from its foreign
jurisdiction of the city. Said city currency account. The City of Makati
ordinance was duly published on assessed ABC Corporation as a
38
TAXATION FAQ
contractor or one that sells services for a The contention of Mr. Abecede is not
fee. Is the City of Makati correct? tenable. While the general rule is to the
effect that for income tax purposes, a
Suggested answers:
taxpayer must be subject to
No. the corporation cannot be examination andinspection by the
considered as a contractor because it internal revenue officers only once in a
does not render services for others for a taxable year, this will not apply if there is
fee. A contractor is one whose activity fraud, irregularity or mistakes as
consists essentially in the sale of all kinds determined by the Commissioner. In the
of services for a fee, regardless of instant case, what triggered the second
whether or not the performance of the examination is the findings by the BIR
service calls for the exercise or use of that Mr. Abcede’s 2009 return was
the physical or mental faculties of such fraudulent, accordingly, the
contractor or its employees. To be examination is legally justified. (Sec 235,
considered as a contractor, the NIRC
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
(h), LGC).
BIR: Assessment; Exemption to Examine

Once a Year
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
theground 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.
Suggested Answer:
39
TAXATION FAQ
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EXECUTIVE COMMITTEE 2018 – 2019

CHAIRPERSON Catriona Janelle Gayatin

VICE CHAIRPERSON FOR ACADEMICS Jerekko Cadorna

VICE CHAIRPERSON FOR ACADEMIC OPERATIONS Rodel Cadorniga Jr.

VICE CHAIRPERSON FOR HOTEL OPERATIONS Emmanuel Josef Jovellanos

EXECUTIVE OFFICER FOR HOTEL OPERATIONS Christian Boy Benedict Tiangco

VICE CHAIRPERSON FOR FINANCE Katreena Frances Monje

VICE CHAIRPERSON FOR SECRETARIAT Odette Marie Jumao-as

VICE CHAIRPERSON FOR COMMUNICATIONS Maryll Ann Ragpala

VICE CHAIRPERSON FOR RECRUITMENT AND MEMBERSHIP Giulia Ingrid Calub

San Beda College Alabang School of Law Administration

Dr. Ulpiano P. Sarmiento III

ATTY. Anna Marie Melanie B. Trinidad

ATTY. Carlo D. Busmente

Subject Head Philip Ebersole

John Cedric Comon

FREQUENTLY ASKED QUESTIONS employees in that division. A Co. has a

requirement are explicitly excluded from Prescription – Assessment and

ALTERNATIVE ANSWER: Decide the case. (5%)

Q: (2002) On December 06, 2001, LVN Taxable Income

B. in order that donations to Suggested Answer: Since the

B. In order that donations to non-

Appeals in Tax Cases

reconsideration of the taxpayer to Levy. [CIR v. Union Shipping Corp., 185

Yes. The action of the Principles and Aspects of Taxation

Tax Refund Q. (2006). Royal Mining is a VAT-

SUGGESTED ANSWER: Tax Remedies

No. The exemption of lily's Q. (2006) The Commissioner of

surcharge and interests. If the abatement or cancellation of the entire

SUGGESTED ANSWER: I will immediately file a protest

any bookstore. The law allows

a tax deduction which merely reduces purchased items amounting to

Tax Exemptions Q. (2009) Enumerate the four (4)

promote the welfare of the property held, and activities

system is exempt from income tax (Sec.

A is not entitled to claim a casualty loss

has enough documents to substantiate the employer is not a direct or indirect

SUGGESTED ANSWER (B) Should Edgardo report the P10

in Laguna for P100,000.This property has Makati stockbroker at a gain of

Q. (2007) Antonia Santos, 30 years old, painting, already worth P1.5-million, to

SUGGESTED ANSWER Yes. The transmission of the property

May a vanishing deduction be allowed (PCC), a domestic corporation. The

operation within the province. The tax is LOCAL TAXATION: CONSTITUTIONALITY

used for administrative purposes. Is the SUGGESTED ANSWER:No, CCC, Inc.

indicate the words “zero-rated” for refund/credit of unutilized

(1) file the judicial claim within

2. All lands, buildings and

3. All machineries and

4. All real property owned

Gross Income”. Give an example of

SUGGESTED ANSWER: Deductions from gross income,

b) As a general rule, the Exclusions are something

SUGGESTED ANSWER: e) Cases where final reports

reduction of the original assessment revised assessment, the taxpayer

a) Delinquent accounts may be

c) These may not be

d) These may not be

e) Cases where final

Unusually Asked Questions of the corporation they can be made

SUGGESTED ANSWER: It is the employer who is legally

However, stockholders may be held

distribution of cash dividends to its theapplicable tax rate is thirty percent