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Answers to the BAR: Taxation 1994-2006 (Arranged by Topics [email protected] 1 of

73

ANSWERS TO BAR

EXAMINATION QUESTIONS

IN

TAXATION LAW* ARRANGED BY TOPIC *

(1994 – 2006)

E!"# $% A&&$%'#

ROMUALDO L. SEÑERIS IISilliman University - College of Law

From the ANSWERS TO BAR EXAMINATION QUESTIONS by the UP LAW COMPLEX

&

PILIPPINE ASSOCIATION OF LAW SCOOLS

June 3, 2007




73

FOREWARD

This work is NOT intended FOR SALE or COMMERCE. This work is a freeware. It may

be freely o!ied and distrib"ted# ne$ertheless# %ERMISSION TO CO%& from the editors

is A'(ISA)LE to !rotet the interest of the ORI*INAL SO+RCES,REFERENCES

of this material-. It is !rimarily intended for all those who desire to ha$e a

dee!er "nderstandin of the iss"es ommonly to"hed by the %hili!!ine )ar

E/aminations and its trend on s!eifially on Ta/ation Laws. It is s!eifially intended

for law st"dents from the !ro$ines who# $ery often# are rei!ients of deliberately

distorted notes from other "nsr"!"lo"s law shools and st"dents.

I wo"ld like to seek the ind"lene of the reader for some )ar 0"estions whih

are im!ro!erly lassified "nder a to!i and for some to!is whih are im!ro!erly

or inorantly !hrased# for the arraner is 1"st a )ar Re$iewee who has !re!ared this

work while re$iewin for the 2nd

time for the )ar E/ams 2334 "nder time

onstraints and within his limited knowlede of the law. I wo"ld like to seek the reader5s

ind"lene also for a n"mber of ty!ora!hial errors in this work.

The Arranger



Answers to the BAR: Taxation 1994-2006 (Arranged by Topics [email protected] + of

73

Detailed Table of ContentsGENERAL PRINCIPLES................................................................................................................... 8

Basic Features: Present Income Tax System (1996)....................................................................................... 8

Basic Stages or Aspects of Taxation (26).............................................................................................. 8

!o""ection of Taxes: Aut#ority$ %r&inary !ourts (21)................................................................................ 8!o""ection of Taxes: Prescription (21)..................................................................................................... 8'irect Tax s In&irect Tax (199*)............................................................................................................ 8'irect Tax s In&irect Tax (2)............................................................................................................ 8'irect Tax s In&irect Tax (21)............................................................................................................ 8'irect Tax s In&irect Tax (26)............................................................................................................ 9'ou+"e Taxation (199,).......................................................................................................................... 9'ou+"e Taxation: -#at !onstitutes 'T. (1996).......................................................................................... 9'ou+"e Taxation$ In&irect 'up"icate Taxation (199,).................................................................................... 9'ou+"e Taxation$ /icense Fee s /oca" Tax (2*)..................................................................................... 9'ou+"e Taxation$ 0et#o&s of Aoi&ing 'T (199,).......................................................................................... 9Imprescripti+i"ity of Tax /as (199,)......................................................................................................... 9Poer of Taxation: 3ua" Protection of t#e /a (2)................................................................................. 10

Poer of Taxation: In#erent in a Soereign State (24)............................................................................. 10Poer of Taxation: /ega"ity$ /oca" 5ot Taxation (24)............................................................................... 10Poer of Taxation: /egis"atie in 7ature (199*)........................................................................................... 10Poer of Taxation: /imitations of t#e !ongress (21).................................................................................. 10Poer of Taxation: /imitations: Passing of 8eenue Bi""s (199,)...................................................................... 11Poer of Taxation: /imitations$ Poer to 'estroy (2) ................................................................................11Poer of Taxation: 8eocation of xempting Statutes (199,)...................................................................... 11Poer of Taxation$ In#erent in a Soereign State (2)............................................................................. 11Poer of Taxation$ /egis"atie in 7ature (1996)........................................................................................... 12Purpose of Taxation$ Interpretation (2*).............................................................................................. 12Purpose of Taxation$ /egis"atie in 7ature (2*)........................................................................................ 128u"e on Set%ff or !ompensation of Taxes (1996)........................................................................................ 128u"e on Set%ff or !ompensation of Taxes (21)........................................................................................ 128u"e on Set%ff or !ompensation of Taxes (2)

........................................................................................13

8u"e on Set%ff or !ompensation on Taxes (2)....................................................................................... 13Tax Aoi&ance s Tax asion (1996)................................................................................................... 13Tax Aoi&ance s Tax asion (2)................................................................................................... 13Tax xemptions: 7ature ; !oerage$ Proper Party (2*).............................................................................. 13Tax /as$ BI8 8u"ing$ 7on8etroactiity of 8u"ings (2*)............................................................................. 14Tax Pyrami&ing$ 'efinition ; /ega"ity (26).............................................................................................. 14Taxpayer Suit$ -#en A""oe& (1996)........................................................................................................ 14<niformity in t#e !o""ection of Taxes (199=)............................................................................................ 14

INCOME TAXATION....................................................................................................................... 14

Basic: A""oa+"e 'e&uctions s Persona" xemptions (21)......................................................................... 14Basic: 0eaning of Taxa+"e Income (2).................................................................................................. 15Basic: Princip"e of Mobilia Sequuntur Personam (199*)................................................................................. 15

Basic: Proper A""oance of 'epreciation (199=).......................................................................................... 15Basic: Sources of Income: Taxa+"e Income (199=)....................................................................................... 15Basic: Tax Benefit 8u"e (24)............................................................................................................... 15Basic$ Basis of Income Tax (1996)........................................................................................................... 16

Basic$ 5ross Income: 'efine (199)....................................................................................................... 16Basic$ Income s !apita" (199)............................................................................................................. 16Basic$ Sc#e&u"ar Treatment s 5"o+a" Treatment (199*)............................................................................... 16!ompensation$ Income Tax: 'ue to Profita+"e Business 'ea" (199)..................................................................16!orporate: Income: 'onors tax$ Tax /ia+i"ity (1996)..................................................................................... 17!orporate$ Income Tax$ 8easona+"eness of t#e Bonus (26)......................................................................... 17!orporate$ Income: !oerage$ >%ff/ine> Air"ine (199*)................................................................................. 17!orporate$ Income: !oerage$ >%ff/ine> Air"ine (2)................................................................................. 17



'ii&en&s: 'isguise& &ii&en&s (199*)..................................................................................................... 18'ii&en&s$ Income Tax$ 'e&ucti+"e 5ross Income (1999)............................................................................... 18




73ffect$ !on&onation of /oan in Taxation (199)........................................................................................... 18

Fringe Benefit Tax: !oere& mp"oyees (21)........................................................................................... 18Fringe Benefit Tax: mp"oyer re3uire& to Pay (24)..................................................................................... 19Interest: 'eficiency Interest: &efine (199 Bar)......................................................................................... 19Interest: 'e"in3uency Interest: &efine (199)............................................................................................... 19IT8: Persona" Income$ xempte& to Fi"e IT8 (199,)...................................................................................... 19IT8$ 'omestic !orporate Taxation (199,)................................................................................................ 19

IT8$ 'omestic !orporate Taxation (21)................................................................................................ 20IT8$ Persona" Income: To mp"oyment (21)........................................................................................ 20IT8$ Persona" Income$ 5SIS Pension (2)............................................................................................ 20IT8$ Persona" Income$ 0arrie& In&ii&ua" (2*).......................................................................................... 20IT8$ Taxpayer$ /ia+i"ities$ Fa"sifie& Tax 8eturn (2)................................................................................... 20Partners#ip: Income Tax (199)............................................................................................................ 21Persona"$ Income Tax: 7on8esi&ent A"ien (2)........................................................................................ 21Persona"$ Income Tax: 7on8esi&ent !iti?en (1999)...................................................................................... 21Persona"$ Income Tax: TaxFree xc#ange (199,)........................................................................................ 22Persona"$ Income Tax$ !ontract of /ease (199).......................................................................................... 22Persona"$ Income Tax$ 0arrie& In&ii&ua" (199,).......................................................................................... 22Persona"$ Income Tax$ 8etiring A"ien mp"oyee (2).................................................................................. 23

Persona"$ Income Taxation: 7on8esi&ent !iti?en (199,)................................................................................23

Taxa+"e Income: I""ega" Income (199 Bar).............................................................................................. 23Taxa+"e or 7onTaxa+"e$ Income an& 5ains (2)....................................................................................... 23-it##o"&ing Tax: 7on8esi&ent A"ien (21)............................................................................................... 24-it##o"&ing Tax: 8etirement Benefit (2)............................................................................................. 24-it##o"&ing Tax: 8etirement Benefit (2)............................................................................................. 24-it##o"&ing Tax: 8oya"ty (22)............................................................................................................. 24-it##o"&ing Tax$ !oerage (2*)........................................................................................................... 25-it##o"&ing Tax$ 'omestic !orporation$ !as# 'ii&en&s (21)...................................................................... 25-it##o"&ing Tax$ Income su+@ect t#ereto (21)....................................................................................... 25-it##o"&ing Tax$ 7on8esi&ent A"ien (199*)............................................................................................... 25-it##o"&ing Tax$ 7on8esi&ent !orporation (199*)...................................................................................... 26-it##o"&ing Tax$ 8ea&ers 'igest Aar& (199=).......................................................................................... 26-it##o"&ing Tax$ Time 'eposit Interest$ 5SIS Pension (199*)......................................................................... 26

DEDUCTIONS, EXEMPTIONS, EXCLUSIONS - INCLUSIONS..................................................... 2'e&uction: Faci"itation Fees or >ic+ac> (199=)..................................................................................... 26'e&uctions: %r&inary Business xpenses (2*)........................................................................................ 26'e&uctions: Amount for Bri+e (21)....................................................................................................... 27'e&uctions: !apita" /osses$ Pro#i+itions (24)......................................................................................... 27'e&uctions: 'e&ucti+"e Items from 5ross Income (1999)............................................................................ 27'e&uctions: Income Tax: 'onation: 8ea" Property (22).............................................................................. 27

'e&uctions: 7on'e&ucti+"e Items$ 5ross Income (1999)........................................................................... 28'e&uctions: 8e3uisites$ 'e&uci+i"ity of a /oss (199=)................................................................................... 28'e&uctions$ Income Tax: A""oa+"e 'e&uctions (21).................................................................................. 28'e&uctions$ Canis#ing 'e&uction$ Purpose (26)....................................................................................... 28

xc"usion ; Inc"usion$ 5ross 8eceipts (26)............................................................................................. 28xc"usion s 'e&uction from 5ross Income (21)...................................................................................... 28

xc"usions ; Inc"usions: Benefits on Account of In@ury (199)..................................................................... 29xc"usions ; Inc"usions: xecutie Benefits (199)...................................................................................... 29xc"usions ; Inc"usions$ Assets$ 8esi&ent A"ien (2)................................................................................. 29xc"usions ; Inc"usions$ Benefits on Account of 'eat# (1996)........................................................................ 30xc"usions ; Inc"usions$ Benefits on Account of In@ury (2)..................................................................... 30xc"usions ; Inc"usions$ !ompensation for persona" in@uries or sicness (24).................................................. 30xc"usions ; Inc"usions$ Faci"ities or Prii"eges$ 0i"itary !amp (199).......................................................... 30xc"usions ; Inc"usions$ 5ifts oer an& a+oe t#e 8etirement Pay (199)........................................................... 31xc"usions ; Inc"usions$ IT8$ 14t# mont# pay an& &e minimis +enefits (2)......................................................31xc"usions ; Inc"usions$ IT8$ 'ii&en&s receie& +y a &omestic corporation (2).............................................. 31xc"usions ; Inc"usions$ IT8$ Income rea"i?e& from sa"e (2)....................................................................... 31xc"usions ; Inc"usions$ IT8$ Interest on &eposits (2)........................................................................... 31

xc"usions ; Inc"usions$ IT8$ Procee&s of "ife insurance (2)...................................................................32



xc"usions ; Inc"usions$ /ife Insurance Po"icy (24)................................................................................... 32



Answers to the BAR: Taxation 1994-2006 (Arranged by Topics [email protected] . of

73xemptions: !#arita+"e Institutions (2)................................................................................................. 32

xemptions: !#arita+"e Institutions$ !#urc#es (1996)................................................................................... 32xemptions: &ucationa" institution (2*)................................................................................................ 32xemptions: 5ifts ; 'onations (199*).................................................................................................... 32xemptions: Dea& of t#e Fami"y: (199=)................................................................................................... 33xemptions: 7onProfit &ucationa" Institutions (2)................................................................................. 33xemptions: 7onProfit ntity$ Anci""ary Actiity ; Inci&enta" %perations (199*) ................................................... 33

xemptions: 7onStocE 7onProfit Association (22)................................................................................. 34xemptions: Pri?e of Peace Poster !ontest (2).................................................................................... 34xemptions: Pri?es ; Aar&s$ At#"etes (1996)............................................................................................ 34xemptions: 8etirement Benefits: -or Separation (1999)............................................................................. 34xemptions: Separation Pay (199*)....................................................................................................... 35xemptions: Separation Pay (199)....................................................................................................... 35xemptions: Separation Pay (2)....................................................................................................... 36xemptions: Stoc 'ii&en&s (24)........................................................................................................ 36xemptions: Strict"y !onstrue& (1996)................................................................................................... 36xemptions: Termina" /eae Pay (1996).................................................................................................... 36xemptions$ !#arita+"e Institutions (26)................................................................................................. 36xemptions$ &ucationa" institution (2*)................................................................................................ 36

xemptions$ xemptions are <ni"atera" in 7ature (2*)................................................................................ 37

xemptions$ 5ot Bonus 5ifts ; A""oances (199*)................................................................................... 37xemptions$ Persona" ; A&&itiona" xemption (26)................................................................................... 37xemptions$ 8oman !at#o"ic !#urc#$ /imitations (2)........................................................................... 38

CAPITAL GAIN TAX....................................................................................................................... 38

!apita" Asset s %r&inary Asset (24).................................................................................................. 38!apita" 5ain Tax$ 7ature (21).............................................................................................................. 38%r&inary Sa"e of a !apita" Asset (199*)..................................................................................................... 38Sa"es of S#are of Stocs: !apita" 5ains Tax 8eturn (1999) ..............................................................................39Tax Basis: !apita" 5ains: 0erger of !orporations (199*)................................................................................39Tax Basis: !apita" 5ains: TaxFree xc#ange of Property (199*)...................................................................... 39

CORPORATION - PARTNERS/IP................................................................................................ 3!

Ba& 'e+ts$ Factors$ "ements t#ereof (2*)........................................................................................... 39

!on&ominium !orp$ Sa"e of !ommon Areas (199*).................................................................................. 40!orporation$ Sa"e$ !re&ita+"e -it##o"&ing Tax (199*)................................................................................... 40'ii&en&s: -it##o"&ing Tax (1999).......................................................................................................... 40ffect: 'isso"ution$ !orporate xistence (2*)........................................................................................... 410inimum !orporate Income Tax (21)..................................................................................................... 410inimum !orporate Income Tax$ xemption (21)...................................................................................... 41

ESTATE - DONORS TAXES......................................................................................................... 41

'onors Tax: "ection !ontri+utions (199=)................................................................................................ 41'onors Tax$ Basis for 'etermining 5ain (199).......................................................................................... 41'onors Tax$ 'acion en Pago$ ffect: Taxation (199,)................................................................................ 42'onors Tax$ 'onation to a Si+"ing (21).................................................................................................. 42'onors Tax$ 'onation to 7onStoc 7onProfit Priate &ucationa" Institutions (2)....................................42'onors Tax$ 'onation to Po"itica" !an&i&ate (24).................................................................................. 43

'onors Tax$ 'onee or Beneficiary$ Stranger (2)..................................................................................... 43'onors Tax$ Sa"e of s#ares of Stoc ; Sa"e of 8ea" Property (1999)............................................................. 43state Tax: !ompre#ensie Agrarian 8eform /a (199*)............................................................................ 43state Tax: 'onation 0ortis !ausa (21)................................................................................................. 43state Tax: 'onation 0ortis !ausa s Inter Cios (199*) ............................................................................... 44state Tax: 5ross state: A""oa+"e 'e&uction (21)................................................................................... 44state Tax: 5ross state: 'e&uctions (2).............................................................................................. 44state Tax: Inc"usion: 8esi&ent A"ien (199*)............................................................................................... 44state Tax: Payment s Pro+ate Procee&ings (2*).................................................................................... 45state Tax: Situs of Taxation: 7on8esi&ent 'ece&ent (2)...................................................................... 45state Tax: Canis#ing 'e&uctions (199*).................................................................................................. 45state Tax$ Payment s Pro+ate Procee&ings (2).................................................................................... 45



BUSINESS TAXES """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" 4#




73CAT: Basis of CAT (1996)..................................................................................................................... 45

CAT: !#aracteristics of CAT (1996).......................................................................................................... 45CAT: xempte& Transactions (1996)........................................................................................................ 45CAT: /ia+"e for Payment (1996).............................................................................................................. 46CAT: Transactions >'eeme& Sa"esG (199,)................................................................................................ 46CAT$ !oere& Transactions (199=)........................................................................................................ 46CAT$ xemption: !onstitutiona"ity (2*).................................................................................................. 46

CAT$ 7onCAT taxpayer$ !"aim for 8efun& (26)..................................................................................... 47

REMEDIES IN INTERNAL REENUE TAXES................................................................................ 47

BI8: Assessment: <nregistere& Partners#ip (199,)...................................................................................... 47BI8: !o""ection of Tax 'eficiency (1999).................................................................................................... 47BI8: !ompromise$ !on&itions (2)....................................................................................................... 48BI8: !ompromise$ xtent of Aut#ority (1996)............................................................................................. 48BI8: !ompromise$ -it##o"&ing Agent (199=).............................................................................................. 48BI8: !orporation: 'istraint ; /ey (22).................................................................................................. 48BI8: !ourt of Tax Appea"s: !o""ection of Taxes$ 5roun&s for !ompromise (1996)..................................................49BI8: !rimina" Prosecution: Tax asion (199=)........................................................................................ 49

BI8: xtinction$ !rimina" /ia+i"ity of t#e Taxpayer (22)............................................................................ 49BI8: Frau&u"ent 8eturn$ Prima Facie i&ence (199=)................................................................................ 50BI8: Frau&u"ent 8eturn$ Prima Facie i&ence (22)................................................................................ 50BI8: 5arnis#ment: Ban Account of a Taxpayer (199=).................................................................................. 50

BI8: PreAssessment 7otice not 7ecessary (22)....................................................................................... 51BI8: Prescriptie Perio&: !ii" Action (22)............................................................................................... 51BI8: Prescriptie Perio&$ Assessment ; !o""ection (1999).............................................................................. 51BI8: Prescriptie Perio&$ !rimina" Action (22).......................................................................................... 51BI8: Secrecy of Ban 'eposits /a (199=)................................................................................................. 52BI8: Summary 8eme&y: state Tax 'eficiencies (199=)................................................................................. 52BI8: <npai& Taxes s !"aims for <npai& -ages (199)................................................................................. 53BI8$ Assessment$ !rimina" !omp"aint (2)........................................................................................... 53BI8$ Aut#ority$ 8efun& or !re&it of Taxes (2)......................................................................................... 53BI8$ !ompromise (2*)...................................................................................................................... 53BI8$ !ompromise (2)...................................................................................................................... 54BI8$ 'eficiency Tax Assessment s Tax 8efun& E Tax !re&it (2)..............................................................54

BI8$ 'istraint$ Prescription of t#e Action (22)....................................................................................... 54BI8$ Fa"se s Frau&u"ent 8eturn (1996).................................................................................................... 55

BI8$ Huris&iction$ 8eie 8u"ings of t#e !ommissioner (26)........................................................................ 55BI8$ Prescriptie Perio&$ Assessment$ Frau&u"ent 8eturn (22)......................................................................55BI8$ Prescriptie Perio&$ !rimina" Action (26).......................................................................................... 55BI8$ Taxpayer: !ii" Action ; !rimina" Action (22).................................................................................... 55!ustom: Cio"ation of Tax ; !ustom 'uties (22)........................................................................................ 56!ustoms$ Basis$ Automatic 8eie (22).............................................................................................. 56'e"in3uent Tax 8eturn (199=)................................................................................................................. 57Huris&iction: !ustoms s !TA (2)................................................................................................... 57/5<: !o""ection of Taxes Fees ; !#arges (199,)........................................................................................ 57Tax Amnesty s Tax xemption (21)..................................................................................................... 57Taxpayer: A&ministratie ; Hu&icia" 8eme&ies (2)................................................................................... 57

Taxpayer: Assessment: Protest: !"aims for refun& (2).............................................................................. 58Taxpayer: Assessment$ In@unction (2*)............................................................................................... 58Taxpayer: BI8 Au&it or Inestigation (1999)............................................................................................. 58Taxpayer: !ity Boar& of Assessment 'ecision$ -#ere to appea" (1999).............................................................. 59Taxpayer: !"aim for 8efun&$ Proce&ure (22)......................................................................................... 59Taxpayer: 'eficiency Income Tax (199)................................................................................................... 59Taxpayer: x#austion of A&ministratie 8eme&ies (199,)........................................................................... 60

Taxpayer: Fai"ure to -it##e"& ; 8emit Tax (2)..................................................................................... 60Taxpayer: 7I8! s T!! 8eme&ies (1996).................................................................................................. 60Taxpayer: %erit#o"&ing !"aim for 8efun& (1999)....................................................................................... 61Taxpayer: Prescriptie Perio&: Suspen&e& (2)........................................................................................ 61Taxpayer: Prescriptie Perio&$ !"aim for 8efun& (199,)................................................................................. 61Taxpayer: Prescriptie Perio&$ !"aims for 8efun& (199*)................................................................................ 61



Taxpayer: Prescriptie Perio&$ !"aims for 8efun& (2*)................................................................................ 62



Answers to the BAR: Taxation 1994-2006 (Arranged by Topics [email protected] of

73Taxpayer: Protest against Assessment (199=)............................................................................................. 62

Taxpayer: Protest against Assessment (1999)............................................................................................. 62Taxpayer: Protest against Assessment (1999)............................................................................................. 62Taxpayer: Protest$ !"aim of 8efun& (1996)................................................................................................. 63Taxpayer$ Appea" to t#e !ourt of Tax Appea"s (2)................................................................................. 63Taxpayer$ !"aim for Tax !re&its (26)..................................................................................................... 63Taxpayer$ !ompromise after !rimina" Action (199=)..................................................................................... 63

Taxpayer$ Protest against Assessment$ 'onors Tax (199)............................................................................ 64Taxpayer$ -it##o"&ing Agent$ !"aim of Tax 8efun& (2)..............................................................................64

LOCAL - REAL PROPERTY TAXES............................................................................................. 4

/oca" Taxation: Actua" <se of Property (22)............................................................................................. 64/oca" Taxation: !oerage (22)............................................................................................................. 64/oca" Taxation: xemption$ 8ea" Property Taxes (22)................................................................................. 65/oca" Taxation: Imposition of A& Ca"orem Tax (2) .................................................................................... 65/oca" Taxation: /ega"ityE !onstitutiona"ity$ Tax %r&inance (24)................................................................. 65/oca" Taxation: /ega"ity$ Imposition of 8ea" Property Tax 8ate (22) ................................................................ 65/oca" Taxation: Poer to Impose (24).................................................................................................... 65

/oca" Taxation: 8emissionE!on&onation of Taxes (2*)............................................................................... 66/oca" Taxation: 8u"e of <niformity an& 3ua"ity (24).............................................................................. 66/oca" Taxation$ Situs of Professiona" Taxes (2)....................................................................................... 66/oca" Taxation$ Specia" /ey on I&"e /an&s (2)....................................................................................... 66

8ea" Property Tax: <n&ergroun& 5aso"ine Tans (24)............................................................................. 678ea" Property Tax$ 8e3uirements$ Auction Sa"es of Property for Tax 'e"in3uency (26) ........................................678ea" Property Taxation: !apita" Asset s %r&inary Asset (199)...................................................................... 678ea" Property Taxation: !apita" 5ains s %r&inary 5ains (199=)...................................................................... 678ea" Property Taxation: !oerage of %r&inary Income (199=).......................................................................... 678ea" Property Taxation: xc#ange of /ot$ !apita" 5ain Tax (199,).................................................................... 688ea" Property Taxation: xemptionE'e&uctions$ 'onors Tax (199=)............................................................. 688ea" Property Taxation: xemption: Ac3uiring 7e Principa" 8esi&ence (2).................................................... 688ea" Property Taxation: Fun&amenta" Princip"es (199,)................................................................................. 698ea" Property Taxation: Princip"es ; /imitations: /5< (2).......................................................................... 698ea" Property Taxation: Property So"& is an %r&inary Asset (199=)................................................................... 698ea" Property Taxation: <n&ergroun& 5aso"ine Tans (21).......................................................................... 69

8ea" Property Taxation$ xempte& Properties (26).................................................................................... 69

TARI33 AND CUSTOMS DUTIES................................................................................................... 70

!ustoms: F"exi+"e Tariff !"auseG (21)................................................................................................... 70!ustoms: A&ministratie s Hu&icia" 8eme&ies (199,)................................................................................. 70!ustoms: Importation (199)................................................................................................................. 70!ustoms: Huris&iction$ Sei?ure ; Forfeiture Procee&ings (1996)......................................................................70!ustoms: Jin&s of !ustom 'uties (199).................................................................................................. 70!ustoms: Jin&s of !ustom 'uties (199,).................................................................................................. 71!ustoms: 8eme&ies of an Importer (1996)................................................................................................. 71!ustoms: 8eturning 8esi&ents: TouristETrae"ers (24)................................................................................71!ustoms: Sei?ure ; Forfeiture: ffects (199*)............................................................................................. 71!ustoms: Steps ino"ing Protest !ases (199*)....................................................................................... 72

!ustoms$ Basis of 'utia+"e Ca"ue$ Importe& Artic"e (2).......................................................................... 72!ustoms$ !ounterai"ing 'uty s 'umping 'uty (2)................................................................................ 72!ustoms$ Taxa+i"ity$ Persona" ffects (2).............................................................................................. 72

OT/ER RELATED MATTERS......................................................................................................... 73

BI8: Ban 'eposits Secrecy Cio"ation (2)........................................................................................... 73

BI8: Secrecy of Ban 'eposit /a (24)............................................................................................... 73



Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

GENERAL PRINCIPLESBasic Features: Present Income Tax System (1996)What are the asic feat!res of the "resent incometa# s$stem%&SUGGESTED ANSWER

'!r "resent income ta# s$stem can e said to ha(ethe follo)ing asic feat!res*+a, -t has ado"ted a COMPREHENSIVE TAX

SITUS $ !sing the nationalit$ residenceand so!rce r!les. This ma/es citiens and residentaliens ta#ale on their income deri(ed fromall so!rces )hile nonresident aliens are ta#edonl$ on their income deri(ed from )ithinthe hili""ines. omestic cor"orations are

also ta#ed on !ni(ersal income )hile foreigncor"orations are ta#ed onl$ on income from)ithin.

+, The indi(id!al income ta# s$stem ismainl$

PROGRESSIVE IN NATURE in that it "ro(ides

a grad!ated rates of income ta#. or"orations

in general are ta#ed at a flat rate of thirt$ fi(e "ercent +35, of net income.

+c, -t has retained MORE SCHEDULAR THAN

GLOBAL FEATURES )ith res"ect to indi(id!al

ta#"a$ers !t has maintained a more gloal

treatment on cor"orations.$ote% The following might also be cited by the barcandidates as features of the income tax system:a. -ndi(id!al com"ensation income earners are ta#ed

on modified ross -ncome +ross com"ensation

income less "ersonal e#em"tions,. elf

em"lo$ed and "rofessionals are ta#ed on net

income )ith ded!ctions limited to se(en items or inlie! thereof the fort$ "ercent +40, ma#im!m

ded!ction "l!s the "ersonal e#em"tions.

or"orations are generall$ ta#ed on net income

e#ce"t for nonresident foreign cor"orations )hich

are ta#ed on gross income.

. The income ta# is generall$ im"osed (ia the self

assessment s$stem or "a$as$o!file conce"t

of im"osing the ta# altho!gh certain incomes.

-ncl!ding income of nonresidents are ta#ed on

the "a$as $o!earn conce"t or the so called

)ithholding ta#.

c. The cor"orate income ta# is a onela$er ta# in

that distri!tion of "rofits to stoc/holders

(except to nonresidents) are not s!ect to

income ta#.

Basic Stages or Aspects of Taxation (26)

n!merate the 3 stages or as"ects of ta#ation.#"lain each. +5,SUGGESTED ANSWER

The as"ects of ta#ation are*+1, :;<-= > the act of the legislat!re in choosing

the "ersons "ro"erties rights or "ri(ileges to e s!ected to ta#ation.

+2, A?=T and '::T-'= > This isthe act of e#ec!ting the la) thro!gh theadministrati(e agencies of go(ernment.

+3, A<?=T > the act of the ta#"a$er in settling his

ta# oligations.



[email protected] of

73!o""ection of Taxes: Aut#ority$ %r&inary !ourts (21)

?a$ the co!rts enoin the collection of re(en!eta#es& #"lain $o!r ans)er. +2,SUGGESTED ANSWER

As a general r!le the co!rts ha(e no a!thorit$ to enoin

the collection of re(en!e ta#es. +ec. 218 =-,.

o)e(er the o!rt of Ta# A""eals is em"o)ered toenoin the collection of ta#es thro!gh administrati(e

remedies )hen collection co!ld eo"ardie the interest of

the go(ernment or ta#"a$er. +ection 11 A 1125,.

!o""ection of Taxes: Prescription (21)

?a$ the collection of ta#es e arred $ "rescri"tion& #"lain $o!r ans)er. +3,SUGGESTED ANSWER

<es. The collection of ta#es ma$ e arred $ "rescri"tion. The "rescri"ti(e "eriods forcollection of ta#es are go(erned $ the ta# la)im"osing the ta#. o)e(er if the ta# la) does not "ro(ide for "rescri"tion the right of the go(ernmentto collect ta#es ecomes im"rescri"tile.

'irect Tax s In&irect Tax (199*)

isting!ish a direct from an indirect ta#.SUGGESTED ANSWER

A -T TAB is one in )hich the ta#"a$er )ho "a$s

the ta# is directl$ liale therefor that is the !rden

of "a$ing the ta# falls directl$ on the "erson "a$ing the

ta#.

An -=-T TAB is one "aid $ a "erson )ho is not

directl$ liale therefor and )ho ma$ therefore shift or

"ass on the ta# to another "erson or entit$

)hich !ltimatel$ ass!mes the ta# !rden. (Maceda v. Macaraig

!"# SCRA ##!$

'irect Tax s In&irect Tax (2)

Among the ta#es im"osed $ the C!rea! of-nternal e(en!e are income ta# estate and donorDsta# (al!e added ta# e#cise ta# other "ercentage ta#es and doc!mentar$ stam" ta#.lassif$ these ta#es into direct and indirect ta#esand differentiate direct from -ndirect ta#es. +5,SUGGESTED ANSWER

-ncome ta# estate and donorDs ta# are considered asdirect ta#es. 'n the other hand (al!eadded ta#e#cise ta# other "ercentage ta#es and doc!mentar$stam" ta# are indirect ta#es.

-T TAB are demanded from the (er$ "erson )ho as intended sho!ld "a$ the ta# )hich

he cannot shift to anotherE )hile an -=-T TABis demanded in the first instance from one "erson )ith

the e#"ectation that he can shift the !rden to someoneelse not as a ta# !t as a "art of the "!rchase "rice.


isting!ish direct ta#es from indirect ta#es andgi(e an e#am"le for each one. +2,

SUGGESTED ANSWER

-T TAB are ta#es )herein oth the incidence

+or liailit$ for the "a$ment of the ta#, as )ell as

the im"act or !rden of the ta# falls on the same "erson.

An




e#am"le of this ta# is income ta# )here the "ersons!ect to ta# cannot shift the !rden of the ta# toanother "erson.

-=-T TAB on the other hand are

ta#es )herein the incidence of or the liailit$ for the

"a$ment of the ta# falls on one "erson !t the !rdenthereof can e shifted or "assed on to another "erson.

#am"le of this ta# is the (al!eadded ta#.

ALTERNATIE ANSWER

A direct ta# is a ta# )hich is demanded from the "erson)ho also sho!lders the !rden of the ta#. #am"le*cor"orate and indi(id!al income ta#.

An indirect ta# is a ta# )hich is demanded from

one "erson in the e#"ectation and intention that he

shall indemnif$ himself at the e#"ense of another

and the !rden finall$ resting on the !ltimate

"!rchaser or cons!mer. #am"le* (al!e added ta#.


isting!ish %direct ta#es% from %indirect ta#es.%i(e e#am"les. +5,SUGGESTED ANSWER

-T TAB are demanded from the (er$ "erson )ho sho!ld "a$ the ta# and )hich he cannot shift to another. An -=-T TAB isdemanded from one "erson )ith the e#"ectation that

he can shift the !rden to someone else not as a ta# !tas "art of the "!rchase "rice. #am"les of directta#es are the income ta# the estate ta# and thedonorDs ta#. #am"les of indirect ta#es are the (al!eadded ta# the "ercentage ta# and the e#cise ta# one#ciseale articles.

'ou+"e Taxation (199,)

-s do!le ta#ation a (alid defense against the legalit$ ofa ta# meas!re&SUGGESTED ANSWER

=o do!le ta#ation standing alone and not eingforidden $ o!r f!ndamental la) is not a (alid defenseagainst the legalit$ of a ta# meas!re

o)e(er if do!leta#ation

amo!nts to a direct d!"licate ta#ation1. in that the same s!ect is ta#ed t)ice )hen it

sho!ld e ta#ed !t once2. in a fashion that oth ta#es are im"osed for the

same "!r"ose3. $ the same ta#ing a!thorit$ )ithin the

same !risdiction or ta#ing district4. for the same ta#ale "eriod and5. for the same /ind or character of a ta#

then it ecomes legall$ oectionale for

eing o""ressi(e and ineF!itale.

'ou+"e Taxation: -#at !onstitutes 'T. (1996)

B a lessor of a "ro"ert$ "a$s real estate ta# onthe "remises a real estate dealerDs ta# ased on rentalrecei"ts and income ta# on the rentals. B claims thatthis is do!le ta#ation& ecide.SUGGESTED ANSWER

Ta%a&a% '" SCRA ')$.

(Pe*+i C,-a v.



[email protected] 9 of 73There is no do!le ta#ation. 'GC:TABAT-'= means ta#ing for the same ta# "eriod the

same thing or acti(it$ t)ice )hen it sho!ld e ta#ed !t

once $ the same ta#ing a!thorit$ for the same "!r"ose

and )ith the same /ind or character of ta#. The

A: TAT TAB is a ta# on "ro"ert$E the A:

TAT A:D TAB is a ta# on the "ri(ilege to

engage in !sinessE )hile the -='? TAB is a ta#

on the "ri(ilege to earn an income. These ta#es are

im"osed $ different ta#ing a!thorities and are essentiall$of different /ind and character (Vi--a%eva v+. Ci/0 ,1 I-,i-,

2' SCRA

3#4$.

'ou+"e Taxation$ In&irect 'up"icate Taxation (199,)

When an item of income is ta#ed in the hili""ines andthe same income is ta#ed in another co!ntr$ isthere a case of do!le ta#ation&SUGGESTED ANSWER

<es !t it is onl$ a case of indirect d!"licateta#ation )hich is not legall$ "rohiited eca!se theta#es are im"osed $ different ta#ing a!thorities.

'ou+"e Taxation$ /icense Fee s /oca" Tax (2*)

A m!nici"alit$ CC has an ordinance )hich reF!iresthat all stores resta!rants and other estalishmentsselling liF!or sho!ld "a$ a fi#ed ann!al fee of20.000. !seF!entl$ the m!nici"al oard "ro"osedan ordinance im"osing a sales ta# eF!i(alent to 5 ofthe amo!nt "aid for the "!rchase or cons!m"tion ofliF!or in stores resta!rants and otherestalishments. The m!nici"al ma$or ref!sed tosign the ordinance on the gro!nd that it )o!ldconstit!te do!le ta#ation. -s the ref!sal of the ma$or !stified& eason riefl$. +5,SUGGESTED ANSWER

=o. The ref!sal of the ma$or is not !stified.The im"ositions are of different nat!re and character.

The fi#ed ann!al fee is in the nat!re of a license fee

im"osed thro!gh the e#ercise of "olice "o)er )hile the

5 ta# on "!rchase or cons!m"tion is a local ta# im"osed

thro!gh the e#ercise of ta#ing "o)ers. Coth a license fee

and a ta# ma$ e im"osed on the same !siness or

occ!"ation or for selling the same article and this is not in

(iolation of the r!le against do!le ta#ation HCa5*a%ia

Ge%era- de

Ta6ac,+ de Fi-i*i%,+ v. Ci/0 ,1 Ma%i-a 4 SCRA 7'#

8!"'79 ,.

'ou+"e Taxation$ 0et#o&s of Aoi&ing 'T (199,)What are the !s!al methods of a(oiding the occ!rrenceof do!le ta#ation&SUGGESTED ANSWER

The !s!al methods of a(oiding the occ!rrence of do!leta#ation are*1. Allo)ing reci"rocal e#em"tion either $ la)

or $ treat$E2. Allo)ance of ta# credit for foreign ta#es "aidE3. Allo)ance of ded!ction for foreign ta#es "aidE and4. ed!ction of the hili""ine ta# rate.

Note: Any three of the methods shall be given full

credit.

Imprescripti+i"ity of Tax /as (199,)

Ta#es )ere generall$ im"rescri"tileE stat!tesho)e(er ma$ "ro(ide other)ise. tate the r!lesthat ha(e een ado"ted on this score $





[email protected] 10 of 73There are s!stantial differences et)een igin(estors eing enticed to the %sec!red area% and the

!siness o"erators o!tside that are in accord )ith

the eF!al "rotection cla!se that does not reF!ire

territorial !niformit$ of la)s. The classification a""lies

eF!all$ to all the resident indi(id!als and !sinesses

)ithin the %sec!red area%. The residents eing in

li/e circ!mstances to contri!ting directl$ to the

achie(ement of the end "!r"ose of the la) are

not categoried f!rther. -nstead the$ are similarl$

treated oth in "ri(ileges granted and oligations

reF!ired. (Tiu et al v. !ourt of "npeals et al #.$. No.

%&'"% anuary & %***)

Poer of Taxation: In#erent in a Soereign State (24)

Wh$ is the "o)er to ta# considered inherentin a so(ereign tate& +4,SUGGESTED ANSWER

-t is considered inherent in a so(ereign tate eca!se itis a necessar$ attri!te of so(ereignt$. +ithout this

power no sovereign ,tate can exist or endure. The

power to tax proceeds upon the theory that the

existence of a government is a necessity and this power is an essential and inherent attribute of

sovereignty belonging as a matter of right to

every independent state or government. =oso(ereign state can contin!e to e#ist )itho!t themeans to "a$ its e#"ensesE and that for those means ithas the right to com"el all citiens and "ro"ert$)ithin its limits to contri!te hence the emergenceof the "o)er to ta#. (% Am. ur.Taxation ").

Poer of Taxation: /ega"ity$ /oca" 5ot Taxation (24)

?a$ ongress !nder the 1987 onstit!tionaolish the "o)er to ta# of local go(ernments& +4,SUGGESTED ANSWER

=o. ongress cannot aolish )hat is e#"ressl$ granted $ the f!ndamental la). The onl$ a!thorit$conferred to ongress is to "ro(ide the g!idelinesand limitations on the local go(ernmentDs e#ercise ofthe "o)er to ta# +ec. 5 Art. B 1987 onstit!tion,.

Poer of Taxation: /egis"atie in 7ature (199*)

The ecretar$ of Iinance !"on recommendationof the ommissioner of -nternal e(en!e iss!ed ae(en!e eg!lation !sing gross income as theta# ase for cor"orations doing !siness in thehili""ines. -s the e(en!e eg!lation (alid&SUGGESTED ANSWER

The reg!lation estalishing gross income as the ta# ase for cor"orations doing !siness in thehili""ines +domestic as )ell as resident foreign, isnot (alid. This is no longer im"lementation ofthe la) !t act!all$ it constit!tes legislation eca!se among the "o)ers that are e#cl!si(el$)ithin the legislati(e a!thorit$ to ta# is the "o)erto determine the amo!nt of the ta#. (,ee % !ooley

%'-%/"). ertainl$ if the ta# is limited to grossincome )itho!t ded!ctions of these cor"orations thisis changing the amo!nt of the ta# as said amo!nt!ltimatel$ de"ends on the ta#ale ase.

Poer of Taxation: /imitations of t#e !ongress (21)

ongress after m!ch "!lic hearing and cons!ltations

)ith (ario!s sectors of societ$ came to the

concl!sion that it )ill e good for the co!ntr$ to

ha(e onl$ one




s$stem of ta#ation $ centraliing the im"ositionand collection of all ta#es in the nationalgo(ernment. Accordingl$ it is thin/ing of "assing ala) that )o!ld aolish the ta#ing "o)er of all localgo(ernment !nits. -n $o!r o"inion )o!ld s!ch a la) e(alid !nder the "resent onstit!tion& #"lain $o!rans)er. +5,SUGGESTED ANSWER

=o. The la) centraliing the im"osition and collection of

all ta#es in the national go(ernment )o!ld contra(ene theonstit!tion )hich mandates that* . . . %ach

local go(ernment !nit shall ha(e the "o)er to create their

o)n so!rces of re(en!e and to le($ ta#es fees and

charges s!ect to s!ch g!idelines and limitations as

ongress ma$ "ro(ide consistent )ith the asic

"olic$ of local a!tonom$.% -t is clear that ongress

can onl$ gi(e the g!idelines and limitations on the

e#ercise $ the local go(ernments of the "o)er to ta#

!t )hat )as granted $ the f!ndamental la) cannot e

)ithdra)n $ ongress.

Poer of Taxation: /imitations: Passing of 8eenue Bi""s

(199,)The o!se of e"resentati(es introd!ced C 7000)hich en(isioned to le($ a ta# on (ario!s transactions.After the ill )as a""ro(ed $ the o!se the ill )assent to the enate as so reF!ired $ theonstit!tion. -n the !""er ho!se instead of adelieration on the o!se Cill the enateintrod!ced C 8000 )hich )as its o)n (ersion of thesame ta#. The enate delierated on this enateCill and a""ro(ed the same. The o!se Cill andthe enate Cill )ere then consolidated in theCicameral ommittee. (ent!all$ the consolidated ill)as a""ro(ed and sent to the resident )ho signedthe same. The "ri(ate sectors affected $ the ne)la) F!estioned the (alidit$ of the enactment on thegro!nd that the constit!tional "ro(ision reF!iring thatall re(en!e ills sho!ld originate from the o!se ofe"resentati(es had een (iolated. esol(e the iss!e.SUGGESTED ANSWER

There is no (iolation of the constit!tional reF!irement

that all re(en!e ills sho!ld originate from the o!se of

e"resentati(es. What is "rohiited is for the enate

to enact re(en!e meas!res on its o)n )itho!t a

ill originating from the o!se. C!t once the re(en!e ill

)as "assed $ the o!se and sent to the enate the latter

can "ass its o)n (ersion on the same s!ect

matter consonant )ith the latterDs "o)er to "ro"ose or

conc!r )ith amendments. This follo)s from the coeF!alit$ of the t)o chamers of ongress +T,-e%/i%,

v. Secre/ar0 ,1 Fi%a%ce GR N,. !!333 Oc/. 7) !""3,.

Poer of Taxation: /imitations$ Poer to 'estroy (2)

K!stice olmes once said* The power to tax is not the

power to destroy while this !ourt (the ,upreme !ourt)

sits.0 escrie the "o)er to ta# and its limitations. +5,SUGGESTED ANSWER

The "o)er to ta# is an inherent "o)er of the

so(ereign )hich is e#ercised thro!gh the legislat!re to

im"ose !rdens !"on s!ects and oects )ithin its

K!risdiction for the "!r"ose of raising re(en!es to

carr$ o!t the legitimate oects of go(ernment. The

!nderl$ing asis for its e#ercise is go(ernmental necessit$

for )itho!t it no go(ernment can e#ist nor end!re.

Accordingl$ it has the



[email protected] 11 of 73 roadest sco"e of all the "o)ers of go(ernment eca!se in the asence of limitations it isconsidered as !nlimited "lenar$ com"rehensi(e ands!"reme. The t)o limitations on the "o)er of ta#ationare the inherent and constit!tional limitations )hichare intended to "re(ent a!se on the e#erciseof the other)ise "lenar$ and !nlimited "o)er. -tis the o!rtDs role to see to it that the e#ercise ofthe "o)er does not transgress these

limitations.

Poer of Taxation: 8eocation of xempting

Statutes (199,)%B% or"oration )as the reci"ient in 1990 of t)o

ta# e#em"tions oth from ongress one la)

e#em"ting the com"an$Ds ond iss!es from ta#es

and the other e#em"ting the com"an$ from ta#es in

the o"eration of its "!lic !tilities. The t)o la)s

e#tending the ta# e#em"tions )ere re(o/ed $

ongress efore their e#"ir$ dates. Were the re(ocations

constit!tional&SUGGESTED ANSWER

<es. The e#em"ting stat!tes are oth granted!nilaterall$ $ ongress in the e#ercise of ta#ing "o)ers. ince ta#ation is the r!le and ta# e#em"tionthe e#ce"tion an$ ta# e#em"tion !nilaterall$ grantedcan e )ithdra)n at the "leas!re of the ta#inga!thorit$ )itho!t (iolating the onstit!tion+ Mac/a% Ce6 I%/er%a/i,%a- Air*,r/

A/:,ri/0 v Marc,+ G.R N,. !2))42 Se*/e56er !!

!""' ,.

=either of these )ere iss!ed $ the ta#ing a!thorit$ ina contract la)f!ll$ entered $ it so that their

re(ocation )o!ld not constit!te an im"airment of theoligations of contracts.ALTERNATIE ANSWER

=o. The )ithdra)al of the ta# e#em"tion amo!ntsto a de"ri(ation of "ro"ert$ )itho!t d!e "rocess ofla) hence !nconstit!tional.

Poer of Taxation$ In#erent in a Soereign State (2)

escrie the "o)er of ta#ation. ?a$ a legislati(e od$ enact la)s to raise re(en!es in theasence of a constit!tional "ro(ision granting said od$ the "o)er to ta#& #"lain.SUGGESTED ANSWER

<es the legislati(e od$ ma$ enact la)s e(en in the

asence of a constit!tional "ro(ision eca!se the

"o)er to ta# is inherent in the go(ernment and notmerel$ a constit!tional grant. The "o)er of ta#ation is

an essential and inherent attri!te of so(ereignt$

elonging as a matter of right to e(er$ inde"endent

go(ernment )itho!t eing e#"ressl$ granted $ the

"eo"le. (Pe*+i;C,-a B,//-i%g

C,5*a%0 ,1 /:e P:i-i**i%e+ I%c. v. M%ici*a-i/0,1 Ta%aa% Le0/e G.R. N,. L;7!!3' Fe6rar0 2#!"#'$

Ta#ation is the inherent "o)er of a tate to

collect enforced "ro"ortional contri!tion tos!""ort the e#"enses of go(ernment. Ta#ation is the

"o)er (ested in the legislat!re to im"ose !rdens orcharges !"on "ersons and "ro"ert$ in order to

raise re(en!e for "!lic "!r"oses.

The "o)er to ta# is so !nlimited in force and so

searching in e#tent that co!rts scarcel$ (ent!re to

declare it is




s!ect to an$ restrictions )hate(er e#ce"t s!ch as restin the discretion of the a!thorit$ )hich e#ercises it. (Ti,

v.Vide,gra5 Reg-a/,r0 B,ard G.R. N,. L;#3'"# <%e !4

!"4#$ o "otent is the "o)er to ta# that it )as once o"ined

that %the "o)er to ta# in(ol(es the "o)er to destro$.%(C.<. Mar+:a-- i% McC--,c: v. Mar0-a%d =:ea/ 7!' L.

Ed. 3#" ')#$

Poer of Taxation$ /egis"atie in 7ature (1996)What is the nat!re of the "o)er of ta#ation&SUGGESTED ANSWER

The 'W T' TAB is an attri!te of so(ereignt$ andis inherent in the tate. -t is a "o)er emanatingfrom necessit$ eca!se it im"oses a necessar$ !rden to "reser(e the tateDs so(ereignt$ (P:i-

Gara%/ee C,. v+. C,55i++i,%er L;22)# A*ri- 7)

!"'3$. -t is inherentl$ legislati(e in nat!re andcharacter in that the "o)er of ta#ation can onl$ e

e#ercised thro!gh the enactment of la).ALTERNATIE ANSWER

The nat!re of the "o)er of ta#ation refers to its o)n

limitations s!ch as the reF!irement that it sho!ld e for a

"!lic "!r"ose that it e legislati(e that it isterritorial and that it sho!ld e s!ect to international

comit$.

Purpose of Taxation$ Interpretation (2*)

Which of the follo)ing "ro"ositions ma$ no) e !ntenale*1, The co!rt sho!ld constr!e a la) granting

ta# e#em"tion strictl$ against the ta#"a$er.2, The co!rt sho!ld constr!e a la) granting a

m!nici"al cor"oration the "o)er to ta# moststrictl$.

3, The o!rt of Ta# A""eals has !risdiction o(er

decisions of the !stoms ommissioner incases in(ol(ing liailit$ for c!stoms d!ties.

4, The o!rt of A""eals has !risdiction to re(ie)decisions of the o!rt of Ta# A""eals.

5, The !"reme o!rt has !risdiction tore(ie) decisions of the o!rt of A""eals.

K!stif$ $o!r ans)er or choice riefl$. +5,SUGGESTED ANSWER

2. The court should construe a law granting a

municipal corporation the power to tax most strictly.This "ro"osition is no) !ntenale. The asic rationale for

the grant of ta# "o)er to local go(ernment !nits is to

safeg!ard their (iailit$ and selfs!fficienc$ $ directl$

granting them general and road ta# "o)ers (Ma%i-a

E-ec/ric C,5*a%0 v. Pr,vi%ce ,1 Lag%a e/. a-. 7)' SCRA #3)

8!"""9$. onsidering that inasm!ch as the "o)er to ta# ma$

e e#ercised $ local legislati(e odies no longer $ (alid

congressional delegation !t $ direct a!thorit$

conferred $ the onstit!tion in inter"reting stat!tor$

"ro(isions on m!nici"al fiscal "o)ers do!ts )ill

therefore ha(e to e resol(ed in fa(or of m!nici"al

cor"orations (Ci/0 G,ver%5e%/ ,1 Sa% Pa6-, Lag%a v.

Re0e+ 7)3 SCRA 737 8!"""9$. This means that the co!rt

m!st ado"t a lieral constr!ction of a la) granting a

m!nici"al cor"oration the "o)er to ta#.$ote% -f the e#aminee chose "ro"osition no" 4 as his

ans)er it sho!ld e gi(en f!ll credit considering that the

"resent TA Act +.A. =o. 9282, has made the

TA a coeF!al !dicial od$ of the o!rt of A""eals.

The F!estion %Which of the follo)ing "ro"ositions



[email protected] 12 of

73 ma$ no) e !ntenale% ma$ lead thee#aminee to choose a "ro"osition )hich is !ntenaleon the asis of the ne) la) des"ite the c!toffdate ado"ted $ the Car #amination ommittee..A. =o. 9282 )as "assed on ?arch 30 2004.

Purpose of Taxation$ /egis"atie in 7ature (2*)

Ta#es are assessed for the "!r"ose of generatingre(en!e to e !sed for "!lic needs. Ta#ation itself isthe "o)er $ )hich the tate raises re(en!e to defra$

the e#"enses of go(ernment. A !rist said that a ta# is)hat )e "a$ for ci(iliation.-n o!r !risdiction)hich of the follo)ing statements ma$ eerroneo!s*1, Ta#es are "ec!niar$ in nat!re.2, Ta#es are enforced charges and contri!tions.3, Ta#es are im"osed on "ersons and "ro"ert$

)ithin the territorial !risdiction of a tate.4, Ta#es are le(ied $ the e#ec!ti(e ranch of

the go(ernment.5, Ta#es are assessed according to a reasonale r!le

of a""ortionment.K!stif$ $o!r ans)er or choice riefl$. +5,-.E-TED A$-WER%

A" 4" Taxes are levied by the executive branch of

government . This statement is erroneo!s eca!se le($refers to the act of im"osition $ the legislat!re)hich is done thro!gh the enactment of a ta# la).:e($ is an e#ercise of the "o)er to ta# )hich ise#cl!si(el$ legislati(e in nat!re and character.learl$ ta#es are not le(ied $ the e#ec!ti(e ranch of go(ernment. (<VPC v. A-6a0 !4' SCRA

!"4 8!"")9$.

8u"e on Set%ff or !ompensation of Taxes (1996)

B is the o)ner of a residential lot sit!ated at

L!irino A(en!e asa$ it$. The lot has an area of

300 sF!are meters. 'n K!ne 1 1994 100 sF!aremeters of said lot o)ned $ B )as e#"ro"riated $

the go(ernment to e !sed in the )idening of L!irino

A(en!e for 300.000.00 re"resenting the estimated

assessed (al!e of said "ortion. Irom 1991 to 1995 B

)ho is a !sinessman has not een "a$ing his

income ta#es. B is no) eing assessed for the !n"aid

income ta#es in the total amo!nt of 150000.00.

B claims his income ta# liailit$ has alread$ een

com"ensated $ the amo!nt of 300.000.00 )hich

the go(ernment o)es him for the e#"ro"riation of

his "ro"ert$. ecide.SUGGESTED ANSWER

The income ta# liailit$ of B can not ecom"ensated )ith the amo!nt o)ed $ the

o(ernment as com"ensation for his "ro"ert$

e#"ro"riated ta#es are of distinct /ind essence and

nat!re than ordinar$ oligations. Ta#es and dets

cannot e the s!ect of com"ensation eca!se the

o(ernment and B are not m!t!all$ creditors and

detors of each other and a claim for ta#es is not a det

demand contract or K!dgment as is allo)ale to e set

off. (Fra%cia v+. IAC. G.R #'#" <%e

24. !"44$


?a$ a ta#"a$er )ho has "ending claims for ;ATin"!t credit or ref!nd setoff said claims against hisother ta# liailities& #"lain $o!r ans)er. +5,SUGGESTED ANSWER




=o. etoff is a(ailale onl$ if oth oligations

are liF!idated and demandale. :iF!idated dets are

those )here the e#act amo!nts ha(e alread$ een

determined. -n the instant case the claim of the

ta#"a$er for ;AT ref!nd is still "ending and the

amo!nt has still to e determined. A fortiori the

liF!idated oligation of the ta#"a$er to the go(ernment

can not therefore e setoff against the !nliF!idated

claim )hich the ta#"a$er concei(ed to e#ist in his

fa(or. + P:i-e> Mi%i%g C,r*. v. CIR GR N,. !23#) Ag+/ 2" !""4,.ALTERNATIE ANSWER

=o. Ta#es and claims for ref!nd cannot e the s!ect ofsetoff for the sim"le reason that the go(ernment and theta#"a$er are not creditors and detors of eachother. There is a material distinction et)een a ta# anda claim for ref!nd. laims for ref!nds !st li/e detsare d!e from the go(ernment in its cor"orate ca"acit$)hile ta#es are d!e to the go(ernment in its so(ereignca"acit$. + P:i-e>

Mi%i%g C,r*. v. CIR GR N,. !23#) Ag+/ 2"

!""4,.


?a$ ta#es e the s!ect of setoff orcom"ensation& #"lain.SUGGESTED ANSWER5

=o ta#es cannot e the s!ect of setoffor com"ensation for the follo)ing reasons*1, The lifelood theor$ reF!ires that there sho!ld e no

!nnecessar$ im"ediments to the collection of ta#es

to ma/e a(ailale to the go(ernment the )here)ithal to

meet its legitimate oecti(esE and

2,The "a$ment of ta#es is not a contract!al oligation !t

arises o!t of a d!t$ to "a$ and in res"ect of the "ositi(e

acts of go(ernment regarding the ma/ing andenforcing of ta#es the "ersonal consent of the indi(id!al

ta#"a$er is not reF!ired. (Re*6-ic v. Ma56-a, L56er

C,. G.R. N,. L;!##23 Fe6rar0 24 !"'2? Ca-/e> v. C,55i++i,% ,% Adi/ G.R. N,. "2343 Ma0 4 !""2? a%d P:i-e>v. C,55i++i,%er ,1 I%/er%a- Reve%e G.R. N,.!23#) Ag+/ 24 !""4$

o)e(er there is a "ossiilit$ that setoff ma$ arise if the

claims against the go(ernment ha(e een recognied and

an amo!nt has alread$ een a""ro"riated for that

"!r"ose. Where oth claims ha(e alread$ ecome o(erd!e

and demandale as )ell as f!ll$ liF!idated. om"ensation

ta/es "lace $ o"eration of la) !nder Art. 1200 in relationto Articles 1279 and 1290 of the =e) i(il

ode.

(D,5i%g, v. Gar-i/,+ G.R. N,. L;!4"" <%e 2" !"'7$

8u"e on Set%ff or !ompensation on Taxes (2)

an an assessment for a local ta# e the s!ect of setoff or com"ensation against a final !dgment for as!m of mone$ otained $ the ta#"a$er againstthe local go(ernment that made the assessment&#"lain.SUGGESTED ANSWER

=o ta#es cannot e the s!ect of setoff e(en )hen

there is a final !dgment for a s!m of mone$ against the

local go(ernment ma/ing the assessment. The

go(ernment and the ta#"a$er are not the %m!t!al

creditors and detors% of each other )ho can a(ail of the

remed$ of com"ensation )hich Art. 1278 +i(il ode, is

<%e 2"!"'7

D,5i%g, v. Gar-i/,+ G.R. N,. L;!4""



[email protected] 1+ of 73referring to Re*6-ic ,1 /:e P:i-i**i%e+ v.

Ma56-a, L56er C,. G.R. N,. L;!##23 Fe6rar024 !"'2? a%d Fra%cia v. I%/er5edia/e A**e--a/eC,r/ G.R. N,. L;'#'" <%e 24!""4.

There is ho)e(er legal asis to state that an assessment

for a local ta# ma$ e the s!ect of setoff

or com"ensation against a final !dgment for a s!m

of mone$ otained $ the ta#"a$er against the

local go(ernment $ o"eration of la) )here thelocal go(ernment and the ta#"a$er are in their o)n

right reci"rocall$ detors and creditors of each other

and that the dets are oth d!e and demandale. This is

consistent

)ith the r!ling inrel$ing !"on Arts. 1278 and 1279 of thei(il

ode )here these "ro(isions )ere a""lied in relationto the national ta# and sho!ld therefore ea""licale to a local ta#.

Tax Aoi&ance s Tax asion (1996)

isting!ish ta# e(asion from ta# a(oidance.SUGGESTED ANSWER

Ta# e(asion is a scheme !sed o!tside of thosela)f!l means to esca"e ta# liailit$ and )hena(ailed of it !s!all$ s!ects the ta#"a$er to f!rtheror additional ci(il or criminal liailities. Ta#a(oidance on the other hand is a ta# sa(ing de(ice)ithin the means sanctioned $ la) hence legal.

Tax Aoi&ance s Tax asion (2)

?r. asc!alDs income from leasing his "ro"ert$

reaches the ma#im!m rate of ta# !nder the la). e

donated one half of his said "ro"ert$ to a non

stoc/ non"rofit ed!cational instit!tion )hose

income and assets are act!all$ directl$ ande#cl!si(el$ !sed for ed!cational "!r"oses and

therefore F!alified for ta# e#em"tion !nder Article B-;

ection 4 +3, of the onstit!tion and ection 30 +h, of

the Ta# ode. a(ing th!s transferred a "ortion of his

said asset ?r. asc!al s!cceeded in "a$ing a lesser ta#

on the rental income deri(ed from his "ro"ert$. -s

there ta# a(oidance or ta# e(asion& #"lain. +2,SUGGESTED ANSWER

There is ta# a(oidance. ?r. asc!al has e#"loited af!ll$ "ermissi(e alternati(e method to red!ce hisincome ta# $ transferring "art of his rentalincome to a ta# e#em"t entit$ thro!gh a donationof onehalf of the income "rod!cing "ro"ert$. Thedonation is li/e)ise e#em"t from the donorDs ta#. Thedonation is the legal means em"lo$ed to transfer theincidence of income ta# on the rental income.

Tax xemptions: 7ature ; !oerage$ Proper Party (2*)

As an incenti(e for in(estors a la) )as "assed

gi(ing ne)l$ estalished com"anies in certain

economic one e#em"tion from all ta#es d!ties fees

im"osts and other charges for a "eriod of three $ears.

AC or". )as organied and )as granted s!ch

incenti(e. -n the co!rse of !siness AC or".

"!rchased mechanical eF!i"ment from B<J -nc.

=ormall$ the sale is s!ect to a sales ta#.

B<J -nc. claims ho)e(er that since it sold

the eF!i"ment to AC or". )hich is ta# e#em"t

B<J




sho!ld not e liale to "a$ the sales ta#. -s thisclaim tenale& +5,SUGGESTED ANSWER

A. =o. #em"tion from ta#es is "ersonal in nat!re

and co(ers onl$ ta#es for )hich the ta#"a$ergrantee is

directl$ liale. The sales ta# is a ta# on the seller

)ho is not e#em"t from ta#es. ince B<J -nc. is

directl$ liale for the sales ta# and no ta# e#em"tion

"ri(ilege is e(er gi(en to him therefore its claim that the

sale is ta# e#em"t is not tenale. A ta# e#em"tion isconstr!ed in strictissimi 1uris and it can not e

"ermitted to e#ist !"on (ag!e im"lications (A+ia/ic

Pe/r,-e5 C,. L/d. V. L-a%e+ " P:i-

'' 8!"2'9$.

Ass!me arg!endo that B<J had to and did "a$ the salesta#. AC or". later fo!nd o!t ho)e(er that B<Jmerel$ shifted or "assed on to AC the amo!nt ofthe sales ta# $ increasing the "!rchase "rice. ACor". no) claims for a ref!nd from the C!rea! of-nternal e(en!e in an amo!nt corres"onding to theta# "assed on to it since it is ta# e#em"t. -sthe claim of AC or". meritorio!s& +5,SUGGESTED ANSWER

C. =o. The claim of AC or". is not meritorio!s.Altho!gh the ta# )as shifted to AC or". $ theseller )hat is "aid $ it is not a ta# !t "art of the costit has ass!med. ence since AC or". is not ata#"a$er it has no ca"acit$ to file a claim for ref!nd.The ta#"a$er )ho can file a claim for ref!nd is the "erson stat!toril$ liale for the "a$ment of the ta#.

Tax /as$ BI8 8u"ing$ 7on8etroactiity of 8u"ings (2*)

!e to an !ncertaint$ )hether or not a ne) ta#la) is a""licale to "rinting com"anies I rinterss!mitted a legal F!er$ to the C!rea! of -nternal

e(en!e on that iss!e. The C- iss!ed a r!ling that "rinting com"anies are not co(ered $ the ne) la).el$ing on this r!ling I rinters did not "a$ saidta#.

!seF!entl$ ho)e(er the C- re(ersed the r!ling

and iss!ed a ne) one stating that the ta# co(ers "rinting com"anies. o!ld the C- no) assess I

rinters for ac/ ta#es corres"onding to the $ears efore the ne) r!ling& eason riefl$. +5,SUGGESTED ANSWER

=o. e(ersal of a r!ling shall not e gi(en a

retroacti(e a""lication if said re(ersal )ill e

"re!dicial to the ta#"a$er. Therefore the C- can not

assess I "rinters for ac/ ta#es eca!se it )o!ld

e (iolati(e of the "rinci"le of nonretroacti(it$ of

r!lings and doing so )o!ld res!lt in gra(e in!stice to

the ta#"a$er )ho relied on the first r!ling in good faith(Sec/i,% 2' NIRC? CIR v.

Brr,g:+ I%c. !2 SCRA 728!"4'9$.

Tax Pyrami&ing$ 'efinition ; /ega"ity (26)

What is ta# "$ramiding& What is its asis in la)& +5,SUGGESTED ANSWER

Ta# $ramiding is the im"osition of a ta# !"on

another ta#. -t has no asis in fact or in la)

(Pe,*-e v. Sa%diga%6a0a% G.R. N,. !32372 Ag+/ !' 2))3$.

There is also ta# "$ramiding )hen sales ta#es are

incorrectl$ a""lied to goods se(eral times from

"rod!ction to final

(P:i-. Tr+/ @ C,. v.

(C:rc:i-- @ Tai- v.




73 sale th!s shifting the ta# !rden to the !ltimatecons!mer.( NOTABENE : This concept pertains to the 2AT law

which is excluded from the bar coverage #uidelines

for & 3ar 4xaminations une % &)

Taxpayer Suit$ -#en A""oe& (1996)

When ma$ a ta#"a$erDs s!it e allo)ed&-.E-TED A$-WER%

A ta#"a$erDs s!it ma$ onl$ e allo)ed )hen an

act com"lained of )hich ma$ incl!de a legislati(eenactment directl$ in(ol(es the illegal dis!rsementof "!lic f!nds deri(ed from ta#ation + Pa+ca- v+.

Secre/ar0 ,1 P6-ic =,r+ !!) P:i-. 77!,.

<niformity in t#e !o""ection of Taxes (199=)

#"lain the reF!irement of !niformit$ as alimitation in the im"osition andMor collection ofta#es. +5NSUGGESTED ANSWER

Gniformit$ in the im"osition andMor collection ofta#es means that all ta#ale articles or /inds of "ro"ert$of the same class shall e ta#ed at the same

rate. The reF!irement of !niformit$ is com"lied )ith)hen the ta# o"erates )ith the same force and effect

in e(er$ "lace

)here the s!ect of it is fo!nd

C,%ce*/i,% 7 P:i-. "'"$. -t does not mean that lands

chattels sec!rities income occ!"ations

franchises "ri(ileges necessities and l!#!ries shall e

assessed at the same rate. ifferent articles ma$e

ta#ed at different amo!nts "ro(ided that the rate is

!niform on the same class e(er$)here )ith all "eo"le

at all times. Accordingl$ singling o!t one "artic!lar

class for ta#ation "!r"oses does not infringe the

reF!irement of !niformit$.

F&R-T A*TER$AT&/E A$-WER%

The criteria is met )hen the ta# la)s o"erate eF!all$and !niforml$ on all "ersons !nder similarcirc!mstances. All "ersons are treated in the samemanner the conditions not eing different oth in "ri(ileges conferred and liailities im"osed.Gniformit$ in ta#ation also refers to geogra"hical!niformit$. Ia(oritism and "reference is not allo)ed.

-ECO$D A*TER$AT&/E A$-WER%

A ta# is deemed to ha(e satisfied the !niformit$ r!le)hen it o"erates )ith the same force and effect ine(er$ "lace)here the s!ect ma$e fo!nd.

a/c, '" P:i-. 2)$.

INCOME TAXATIONBasic: A""oa+"e 'e&uctions s Persona"xemptions (21)isting!ish Allo)ale ed!ctions from

ersonal #em"tions. i(e an e#am"le of an allo)ale

ded!ction and another e#am"le for "ersonal e#em"tion.

+5,SUGGESTED ANSWER

The distinction et)een allo)ale ded!ctions

and "ersonal e#em"tions are as follo)s*a. A+ /, a5,%/ > Allo)ale ded!ctions generall$

refer to act!al e#"enses inc!rred in the "!rs!it of

trade !siness or "ractice of "rofession

)hile




"ersonal e#em"tions are aritrar$ amo!ntsallo)ed $ la).

. A+ /, %a/re > Allo)ale ded!ctionsconstit!te !siness e#"enses )hile "ersonale#em"tions "ertain to "ersonal e#"enses.

c. A+ /, *r*,+e > ed!ctions are allo)ed to

enale the ta#"a$er to reco!" his cost of doing

!siness )hile "ersonal e#em"tions are allo)ed to

co(er "ersonal famil$ and li(ing e#"enses.

d. A+ /, c-ai5a%/+ > Allo)ale ded!ctions can e claimed $ all ta#"a$ers cor"orate or

other)ise )hile "ersonal e#em"tions can e

claimed onl$ $ indi(id!al ta#"a$ers.

Basic: 0eaning of Taxa+"e Income (2)

What is meant $ ta#ale income& +2,SUGGESTED ANSWER

TABAC: -='? means the "ertinent items of gross

income s"ecified in the Ta# ode less the ded!ctions

andMor "ersonal and additional e#em"tions if an$

a!thoried for s!ch t$"es of income $ the Ta# ode or

other s"ecial la)s. (,ec. 5% N6$! of %**')

Basic: Princip"e of Mobilia Sequuntur Personam (199*)

What is the "rinci"le of mobilia se7uuntur

personam in income ta#ation&SUGGESTED ANSWER

rinci"le of 8obilia ,e7uuntur 9ersonam in incometa#ation refers to the "rinci"le that ta#ation follo)s the "ro"ert$ or "erson )ho shall e s!ect to the ta#.

Basic: Proper A""oance of 'epreciation (199=)

2. What is the "ro"er allo)ance for de"reciation ofan$ "ro"ert$ !sed in trade or !siness& O3,

3. What is the ann!al de"reciation of a de"recialefi#ed asset )ith a cost of 100000 and an

estimated !sef!l life of 20 $ears and sal(age (al!eof 10000 after its!sef!l life&

SUGGESTED ANSWER

1. The *r,*er a--,&a%ce ,1 de*recia/i,% of an$ "ro"ert$ !sed in trade or !siness refers to thereason ale allo)ance for the e#ha!stion )ear andtear (includ- ing reasonable allowance forobsolescence) of said "ro"ert$. The reasonaleallo)ance shall incl!de !t not limited to anallo)ance com"!ted !nder an$ of the follo)ingmethods*

+a, straightline methodE

+, decliningalance methodE+c, s!mof$earsdigit methodE and+d, an$ other method )hich ma$ e "rescried

$ the ecretar$ of Iinance !"on

recommendation of the ommissioner of

-nternal e(en!e +ec. 34+I,. =-,.

2. The ann!al de"reciation of the de"reciale fi#ed asset

ma$ e com"!ted on the straightline method )hich

)ill allo) the ta#"a$er to ded!ct an ann!al de"re

ciation of h"4500 arri(ed at $ di(iding the

de"reciale (al!e +h" l00.000h"l0.000, of

h"90000 $ the estimated !sef!l life +20 $ears,.

$OTE% The ar candidate ma$ gi(e a different fig!re de"ending on

the method he !sed in com"!ting the ann!al de"reciation.



[email protected] 1. of 73The facts gi(en in the "rolem are s!fficient tocom"!te the ann!al de"reciation either !nder the declining

alance method or s!mof$earsdigit method. An$

ans)er arri(ed at $ !sing an$ of the recognied methods

sho!ld e gi(en f!ll credit. -t is s!ggested that no

F!estion reF!iring com"!tation sho!ld e gi(en in f!t!re ar

e#aminations.

Basic: Sources of Income: Taxa+"e Income (199=)

Irom )hat so!rces of income are thefollo)ing "ersonsMcor"orations ta#ale $ thehili""ine go(ernment&2, itien of the hili""ines residing thereinE O1P3, =onresident citienE O114, An indi(id!al citien of the hili""ines )ho

is )or/ing and deri(ing income from aroadas an o(erseas contract )or/erE O1P

5, An alien indi(id!al )hether a resident or not ofthe hili""inesE O1P

6, A domestic cor"orationE O1PSUGGESTED ANSWER +ection 23 =- of 1997,1, A citien of the hili""ines residing

therein is ta#ale on all income deri(ed

from so!rces )ithin and )itho!t thehili""ines.

2, A nonresident citien is ta#ale onl$ onincome deri(ed from so!rces )ithin thehili""ines.

3, An indi(id!al citien of the hili""ines )hois )or/ing and deri(ing income from aroadas an o(erseas contract )or/er is ta#ale onl$on income from so!rces )ithin the hili""ines.

4, An alien indi(id!al )hether a resident or not ofthe hili""ines is ta#ale onl$ on incomederi(ed from so!rces )ithin the hili""ines.

5, A domestic cor"oration is ta#ale on all

income deri(ed from so!rces )ithin and)itho!t the hili""ines.

Basic: Tax Benefit 8u"e (24)

+a, What is meant $ the %ta# enefit r!le%&SUGGESTED ANSWER

+a, TAB C=I-T G: states that the ta#"a$eris oliged to declare as ta#ale income s!seF!entreco(er$ of ad dets in the $ear the$ )ere collectedto the e#tent of the ta# enefit eno$ed $ theta#"a$er )hen the ad dets )ere )rittenoff and

claimed as a ded!ction from income. -t also a""liesto ta#es "re(io!sl$ ded!cted from gross income !t)hich )ere s!seF!entl$ ref!nded or credited. Theta#"a$er is also reF!ired to re"ort as ta#ale incomethe s!seF!ent ta# ref!nd or ta# credit granted to thee#tent of the ta# enefit the ta#"a$er eno$ed)hen s!ch ta#es )ere "re(io!sl$ claimed asded!ction from income.

+, i(e an ill!stration of the a""lication of theta#

enefit r!le.SUGGESTED ANSWER

+, B om"an$ has a !siness connected recei(ale

amo!nting to 100000.00 from < )ho )as declared

an/r!"t $ a com"etent co!rt. es"ite earnest efforts to

collect the same < )as not ale to "a$ "rom"ting B

om"an$ to )riteoff the entire liailit$. !ring the $ear

of )riteoff the entire amo!nt )as claimed as a ded!ction

for income ta# "!r"oses red!cing the ta#ale net income

of B om"an$ to onl$ 1000000.00. Three $ears later <




(ol!ntaril$ "aid his oligation "re(io!sl$ )rittenoff toB om"an$. -n the $ear of reco(er$ the entireamo!nt constit!tes "art of gross income of B om"an$ eca!se it )as ale to get f!ll ta# enefit three $earsearlier.

Basic$ Basis of Income Tax (1996)

B is em"lo$ed as a dri(er of a cor"orate la)$erand recei(es a monthl$ salar$ of 5000.00 )ith free

oard and lodging )ith an eF!i(alent (al!e of1500.00.1. What )ill e the asis of BDs income ta#& Wh$2. Will $o!r ans)er in F!estion +a, e the same if

BDs

em"lo$er is an ostetrician& Wh$&SUGGESTED ANSWERS

1, The asis of BQs income ta# )o!ld de"endon )hether his em"lo$er is an em"lo$ee or a "racticing cor"orate la)$er.

• -f his em"lo$er is an em"lo$ee the asis of

BDs income ta# is 6500.00 eF!i(alent to the totalof the asic salar$ and the (al!e of the oard and

lodging. This is so eca!se the em"lo$erMcor"oratela)$er has no "lace of !siness )here the

free oard and lodging ma$ e gi(en.

• 'n the other hand if the cor"orate la)$er is a%"racticing la)$er +selfem"lo$ed, B sho!ld eta#ed onl$ on 5000.00 "ro(ided that the free oard and lodging is gi(en in the !siness "remises of the la)$er and for his con(enienceand that the free lodging )as gi(en to B asa condition for em"lo$ment.

2, -f the em"lo$er is an ostetrician )ho is selfem

"lo$ed the asis of BDs income )ill onl$ e 5000.00 if it

is "ro(en that the free oard and lodging is gi(en )ithin

the !siness "remises of said em"lo$er for his

con(enience and that the free lodging is reF!ired to

e acce"ted $ B as condition for em"lo$ment. 'ther)ise

B )o!ld e ta#ed on 6500.00.

Basic$ 5ross Income: 'efine (199)

What is %gross -ncome% for "!r"oses of the -ncome ta#&SUGGESTED ANSWER

' -='? means all income from )hate(er

so!rce deri(ed incl!ding +!t not limited

to, com"ensation for ser(ices incl!ding fees

commissions and similar itemsE gross income from

!sinessE gains deri(ed from dealings in "ro"ert$E

interestE rentsE ro$altiesE di(idendsE ann!itiesE "ries and)inningsE "ensionsE and "artnerDs distri!ti(e share of the

gross income of general "rofessional "artnershi" +ec. 28

=-,.ALTERNATIE ANSWER

a, ross income means all )ealth )hich flo)s into the

ta#"a$er other than as a mere ret!rn of ca"ital. -t

incl!des the forms of income s"ecificall$ descried

as gains and "rofits incl!ding gains deri(ed from

the sale or other dis"osition of ca"ital.

, ross income means income +in the road sense, less

income )hich is $ stat!tor$ "ro(ision or other)ise

e#em"t from the ta# im"osed $ la) +ec. 36 e(. eg.

=o. 2,. ross income from !siness means total sales

less cost of goods sold "l!s an$ income from in(estments




73 and from incidental or o!tside o"erations orso!rces +ec. 43 e(. eg. =o. 2,.

Basic$ Income s !apita" (199)

o) does %-ncome% differ from %ca"ital%& #"lain.SUGGESTED ANSWER

-ncome differs from ca"ital in that -='? is an$

)ealth )hich flo)s into the ta#"a$er other than a ret!rn

of ca"ital )hile ca"ital constit!tes the in(estment )hich

is the so!rce of income. Therefore ca"ital is f!nd

)hile income is the flo). a"ital is )ealth )hile

income is the ser(ice of )ealth. a"ital is the tree

)hile income is the fr!it +Vice%/e Madriga- e/ a- v. <a5e+

R11er/0 74 P:i-. !,.

Basic$ Sc#e&u"ar Treatment s 5"o+a" Treatment (199*)

isting!ish % schedular treatment % from % global

treatment % as !sed in income ta#ation.SUGGESTED ANSWER

Gnder a G: <T? the

(ario!s t$"esMitems of income (compensation

business;professional income) are classified

accordingl$ and are accorded different ta#

treatments in accordance )ith sched!les characteried $ grad!ated ta# rates. ince these t$"es of income are

treated se"aratel$ the allo)ale ded!ctions shall

li/e)ise (ar$ for each t$"e of income.

Gnder the :'CA: <T? all income recei(ed $

the ta#"a$er are gro!"ed together )itho!t an$

distinction as to the t$"e or nat!re of the income and

after ded!cting therefrom e#"enses and other

allo)ale ded!ctions are s!ected to ta# at a fi#ed

rate.

!ompensation$ Income Tax: 'ue to Profita+"e

Business 'ea" (199)

?r. 'sorio a an/ e#ec!ti(e )hile "la$ing golf )ith?r. ere a man!fact!ring firm e#ec!ti(e mentionedto the latter that his +'sorio, an/ had !st o"eneda !siness relationshi" )ith a ig foreign im"orterof goods )hich ereD com"an$ man!fact!res. erereF!ested 'sorio to introd!ce him to this foreignim"orter and "!t in a good )ord for him +ere,)hich 'sorio did. As a res!lt ere )as ale toma/e a "rofitale !siness deal )ith the foreign-m"orter.

-n gratit!de ere in ehalf of his man!fact!ring

firm sent 'sorio an e#"ensi(e car as a gift. 'sorio

called ere and told him that there )as reall$ nooligation on the "art of ere or his com"an$ to

gi(e s!ch an e#"ensi(e gift. C!t ere insistedthat 'sorio /ee" the car. The com"an$ of ere

ded!cted the cost of the car as a !sinesse#"ense.

The ommissioner of -nternal e(en!e incl!ded the

fair mar/et (al!e of the car as -ncome of'sorio )ho "rotested that the car )as a gift and

therefore e#cl!ded from income. Who is correctthe ommissioner or 'sorio& #"lain.

SUGGESTED ANSWER

The ommissioner is correct. The car ha(ing eengi(en to ?r. 'sorio in consideration of ha(ingintrod!ced ?r. ere to a foreign -m"orter )hichres!lted to a "rofitale !siness deal is considered to e a com"ensation for




ser(ices rendered. The transfer is not a gift eca!se it

is not made o!t of a detached or disinterested generosit$

!t for a enefit accr!ing to ?r. ere. The fact that

the com"an$ of ?r. ere ta/es a !siness ded!ction for

the "a$ment indicates that it )as considered as a "a$

rather than a gift. ence the fair mar/et (al!e of the

car is incl!dale in the gross income "!rs!ant to ection

28+a,+l, of the Ta# ode (,ee %*'" <ederal Tax

=andboo> p. %"). A "a$ment tho!gh (ol!ntar$ if it is

in ret!rn for ser(ices rendered or "roceeds from theconstraining force of an$ moral or legal d!t$ or a enefit

to the "a$er is antici"ated is a ta#ale income to the "a$ee

e(en if characteried as a DgiftD $ the "a$or (C,55i++i,%er

v+. D6er+/ei% 7'7 U.S.

2#4$.ALTERNATIE ANSWER

?r. 'sorio is correct. The car )as not "a$ment for

ser(ices rendered. There )as no "rior agreement

or negotiations et)een ?r. 'sorio and ?r. ere that the

former )ill e com"ensated for his ser(ices. ?r. ere in

ehalf of his com"an$ ga(e the car to ?r. 'sorio o!t of

gratit!de. The transfer ha(ing een made grat!ito!sl$

sho!ld e treated as a gift s!ect to donorDs ta# and

sho!ld e e#cl!ded from the gross income of the

reci"ient ?r. 'sorio. The ommissioner sho!ld cancel

the assessment of deficienc$ income ta# to ?r. 'sorio

and instead assess deficienc$ donorDs ta# on ?r ereD

com"an$. +ec. 28+,+3, =-E Pir,va%, v+.

C,55i++i,%er ,

!orporate: Income: 'onors tax$ Tax /ia+i"ity (1996)

B a m!ltinational cor"oration doing !siness in thehili""ines donated 100 shares of stoc/ ofsaid cor"oration to ?r. < its resident managerin the hili""ines.1, What is the ta# liailit$ if an$ of B cor"oration&

2, Ass!ming the shares of stoc/s )ere gi(en to ?r. <in consideration of his ser(ices to the

cor"oration

)hat are the ta# im"lications& #"lain.SUGGESTED ANSWERS

1, Ioreign cor"orations effecting a donation are s!ect

to donorDs ta# onl$ if the "ro"ert$ donated is located

in the hili""ines. Accordingl$ donation of a

foreign cor"oration of its o)n shares of stoc/s in

fa(or of resident em"lo$ee is not s!ect to donorDs

ta# +C- !ling =o. 01887 Kan!ar$ 26 1987,.

o)e(er if 85 of the !siness of the foreign cor"oration

is located in the hili""ines or the shares donated ha(e

acF!ired !siness sit!s in the hili""ines the donationma$ e ta#ed in the hili""ines s!ect to the r!le of

reci"rocit$.

2, -f the shares of stoc/s )ere gi(en to ?r. <

in consideration of his ser(ices to the cor"oration the

same shall constit!te ta#ale com"ensation

income to the reci"ient eca!se it is a

com"ensation for ser(ices rendered !nder an

em"lo$erem"lo$ee relationshi" hence s!ect to

income ta#.

The "ar (al!e or stated (al!e of the shares iss!ed also

constit!tes ded!ctile e#"ense to the cor"oration

"ro(ided it is s!ected to )ithholding ta# on )ages.



[email protected] 1 of 73!orporate$ Income Tax$ 8easona+"eness of t#e

Bonus (26)old and il(er or"oration ga(e e#tra 14th month

on!s to all its officials and em"lo$ees in the total

amo!nt of 75 ?illion. When it filed its cor"orate

income ta# ret!rn the follo)ing $ear the cor"oration

declared a net o"erating loss. When the income

ta# ret!rn of the cor"oration )as re(ie)ed $ the

C- the follo)ing $ear it disallo)ed as item of

ded!ction the 75 ?illion on!s the cor"oration ga(eits officials and em"lo$ees on the gro!nd of

!nreasonaleness. The cor"oration claimed that the

on!s is an ordinar$ and necessar$ e#"ense that

sho!ld e allo)ed. -f $o! )ere the C-

ommissioner ho) )ill $o! resol(e the iss!e& +5,SUGGESTED ANSWER

- )ill disallo) the e#"ense. A on!s is ordinar$ and

necessar$ )here said e#"endit!re is +1, a""ro"riate

and hel"f!l in the de(elo"ment of the ta#"a$ers

!siness

(8artens ?aw of <ederal 6ncome Taxation 2olume

62 p. 5%) and +2, is normal in relation to the

!siness of the ta#"a$er and the s!rro!ndingcirc!mstances (p. 5% 6bid).

To determine the reasonaleness of the on!s it m!st e

commens!rate )ith ser(ices "erformed $ the

officials and em"lo$ees. 'ther factors to consider are

)hether the "a$ment )as made in good faithE the

character of the ta#"a$erDs !sinessE the (ol!me and

amo!nt of its net earningsE its localit$E the t$"e and

e#tent of the ser(ices renderedE the salar$ "olic$ of the

cor"orationE the sie of the "artic!lar !sinessE the

em"lo$eesD F!alification and contri!tions to the

!siness (ent!reE and general economic conditions(A/-a+ Mi%i%g v. CIR G.R. N,. L; 2'"!! <a%ar0 2#

!"4!$. o)e(er since the !siness s!ffers from a net

o"erating loss - )ill r!le that the on!s is an

!nreasonale e#"ense.

!orporate$ Income: !oerage$ >%ff/ine> Air"ine (199*)

aledonia Aircargo is an offline international

carrier )itho!t an$ flight o"erations in the

hili""ines. -t has ho)e(er a liaison office in the

hili""ines )hich is d!l$ licensed )ith the ec!rities

and #change ommission estalished for the

"!r"ose of "ro(iding "assenger and flight

information reser(ation and tic/eting ser(ices.

Are the re(en!es of aledonia Aircargo fromtic/ets reser(ed $ its hili""ine office s!ect to ta#&SUGGESTED ANSWER

The re(en!es in the hili""ines of aledonia Aircargo as

an %offline% airline from tic/et reser(ation ser(ices

are ta#ale income from %)hate(er so!rce% !nder ec.

28+a, of the Ta# ode. This case is analogo!s toC,55i++i,%er v. BOAC G.R N,. N,. '3##7;# A*ri- 7)

!"4# )here the !"reme o!rt r!led that the income

recei(ed in the hili""ines from the sale of tic/ets $

an %offline% airline is ta#ale as income from )hate(er

so!rce.

!orporate$ Income: !oerage$ >%ff/ine> Air"ine (2)

An international airline )ith no landing rights inthe hili""ines sold tic/ets in the hili""inesfor air trans"ortation. -s income deri(ed from s!chsales of tic/ets considered ta#ale income of the saidinternational




air carrier from hili""ine so!rces !nder the Ta#ode& #"lain. +5,ALTERNATIE ANSWER

<es. The income deri(ed from the sales of tic/ets in thehili""ines is considered ta#ale income ofthe international air carrier from hili""ine so!rces.

The so!rce of income is the "ro"ert$ acti(it$ or ser(icethat "rod!ced the income. The sale of tic/ets in the

hili""ines is the acti(it$ that "rod!ces the income. Theasence of landing rights in the hili""ines cannotalter the fact that re(en!es )ere deri(ed from tic/etsales )ithin the hili""ines. (C,55i++i,%er ,1 I%/er%a-

Reve%e v. <a*a% Air Li%e+ G.R. N,. ')#! Oc/,6er

!""! rei/era/i%g Bri/i+: Over+ea+ Air&a0+ C,r*. Air

I%dia a%d A5erica% Air-i%e+ I%c.$ALTERNATIE ANSWER

=o !nder ,ec. 5 of $.$. No. %-&& an offline

airline ha(ing a ranch office or a sales agent in the

hili""ines )hich sells "assage doc!ments for

com"ensation or commission to co(er offline flights

of its "rinci"al or head office or for other airlines

co(ering flights originating from hili""ine "orts or off

line flights is not considered engaged in !siness as aninternational air carrier in the hili""ines and is

therefore not s!ect to ross hili""ine Cillings Ta#

nor to the 3 common carrierDs ta#.

Cased on the foregoing the international airlinecom"an$ is not considered as engaged in !siness inthe hili""ines and is therefore a nonresidentforeign cor"oration. A nonresident foreigncor"oration is s!ect to the gross income ta# on itsincome deri(ed from so!rces )ithin the hili""ines.The income from sale of tic/ets shall not form "artof ta#ale income eca!se the term %ta#ale

income% as defined !nder ec. 31 of the =- refersonl$ to income of those ta#"a$ers )ho "a$ $ )a$ ofthe net income ta#. Ta#ale income means the "ertinentitems of gross income s"ecified in the =- less theded!ctions andMor "ersonal and additionale#em"tions if an$ a!thoried for s!ch t$"es ofincome $ the =- or other s"ecial la)s.

'ii&en&s: 'isguise& &ii&en&s (199*)

isg!ised di(idends in income ta#ation& i(e ane#am"le.SUGGESTED ANSWER

isg!ised di(idends are those income "a$ments made $ a

domestic cor"oration )hich is a s!sidiar$ of a non

resident foreign cor"oration to the latter ostensil$ forser(ices rendered $ the latter to the former !t )hich

"a$ments are dis"ro"ortionatel$ larger than the act!al

(al!e of the ser(ices rendered. -n s!ch case the amo!nt

o(er and ao(e the tr!e (al!e of the ser(ice rendered shall

e treated as a di(idend and shall e s!ected to the

corres"onding ta# of 35 on hili""ine so!rced gross

income or s!ch other "referential rate as ma$ e "ro(ided

!nder a corres"onding Ta# Treat$.

E>a5*-e o$alt$ "a$ments !nder a

corres"onding licensing agreement.

'ii&en&s$ Income Tax$ 'e&ucti+"e 5ross Income (1999)

A o. a hili""ine cor"oration iss!ed "referred shares

of stoc/ )ith the follo)ing feat!res*

1 of 73






em"lo$er hence does not constit!te a ta#ale fringe

enefit. (,ection 55 N4$!).

Fringe Benefit Tax: mp"oyer re3uire& to Pay (24)

A %fringe enefit% is defined as eing an$ good ser(iceor other enefit f!rnished or granted in cash or in /ind $ an em"lo$er to an indi(id!al em"lo$ee. Wo!ld it e the em"lo$er or the em"lo$ee )ho is legall$reF!ired to "a$ an income ta# on it& #"lain. +4,SUGGESTED ANSWER

-t is the em"lo$er )ho is legall$ reF!ired to "a$ anincome ta# on the fringe enefit. The fringe enefit ta#is im"osed as a I-=A: W-T':-= TAB "lacing the legal oligation to remit the ta# on theem"lo$er s!ch that if the ta# is not "aid the legalreco!rse of the C- is to go after the em"lo$er. An$amo!nt or (al!e recei(ed $ the em"lo$ee as a fringe enefit is considered ta# "aid hence net of theincome ta# d!e thereon. The "erson )ho is legall$reF!ired to "a$ (same as statutory incidence as

distinguished from economic incidence) is that "erson )ho in case of non"a$ment can e legall$

demanded to "a$ the ta#.

Interest: 'eficiency Interest: &efine (199 Bar)

What is a %deficienc$ interest% for "!r"oses of theincome ta#& -ll!strate.SUGGESTED ANSWER

I--=< -=TT for "!r"oses of theincome ta# is the interest d!e on an$ amo!nt ofta# d!e or installment thereof )hich is not "aid on or efore the date "rescried for its "a$ment com"!tedat the rate of 20 "er ann!m or the ?anilaeference ate )hiche(er is higher from the date "rescried for its "a$ment !ntil it is f!ll$ "aid.

-f for e#am"le after the a!dit of the oo/s of B<J or".for ta#ale $ear 1993 there )as fo!nd to e d!e a

deficienc$ income ta# of 125000.00 incl!si(e of the 25

s!rcharge im"osed !nder ection 248 of the Ta#

ode the interest )ill e com"!ted on the

125.000.00 from A"ril 15 1994 !" to its date of

"a$ment.

Interest: 'e"in3uency Interest: &efine (199)

What is a %delinF!enc$ interest% for "!r"oses ofthe income ta#& -ll!strate.SUGGESTED ANSWER

elinF!enc$ interest is the interest of 20 or the ?anila

eference ate )hiche(er is higher reF!ired to e "aidin case of fail!re to "a$*+a, the amo!nt of the ta# d!e on an$ ret!rn reF!ired to

e filedE or+, the amo!nt of the ta# d!e for )hich ret!rn is

reF!iredE or+c, the deficienc$ ta# or an$ s!rcharge or interest

thereon on the d!e date a""earing in the notice and

demand of the ommissioner of -nternal e(en!e.

-f in the ao(e ill!stration the assessment notice )as

released on ecemer 31 1994 and the amo!nt

of deficienc$ ta# incl!si(e of s!rcharge and

deficienc$ interest )ere com"!ted !" to Kan!ar$ 30

1995 )hich is the d!e date for "a$ment "er assessment

notice fail!re to



[email protected] 19 of 73

"a$ on this latter date )ill render theta#

delinF!ent and )ill reF!ire the "a$ment of

delinF!enc$ interest.

IT8: Persona" Income$ xempte& to Fi"e IT8 (199,)

A achelor )as em"lo$ed $ or"oration A on the first

)or/ing da$ of Kan!ar$ 1996 on a "arttime asis )ith a

salar$ of 3500.00 a month. e then recei(ed the

13th month "a$. -n e"temer 1996 he acce"ted another "art time Ko from or"oration C from )hich he

recei(ed a total com"ensation of 14500.00 for the $ear

1996. The correct total ta#es )ere )ithheld from

oth earnings. With the )ithholding ta#es alread$ "aid

)o!ld he still e reF!ired to file an income ta# ret!rn for

his 1996 income&SUGGESTED ANSWER

<es eca!se )hat is e#em"t from filing are

those indi(id!als )ho ha(e total com"ensation

income not e#ceeding 60.000 )ith the ta#es correctl$

)ithheld onl$ $ one em"lo$er. -n this case e(en if

his aggregate com"ensation income from oth his

em"lo$ers does not e#ceed 60.000 and that total)ithholding ta#es )ere correctl$ )ithheld $ his

em"lo$ers the fact that he deri(es com"ensation

income conc!rrentl$ from t)o em"lo$ers at

an$time d!ring the ta#ale $ear does not e#em"t

him from filing his income ta# ret!rn ($A '"*' as

implemented by $$ No. "-*5).

IT8$ 'omestic !orporate Taxation (199,)

!ring the $ear a domestic cor"oration deri(ed the

follo)ing items of re(en!e* +a, gross recei"ts from a

trading !sinessE +, interests from mone$ "lacements in

the an/sE +c, di(idends from its stoc/ in(estments

in domestic cor"orationsE +d, gains from stoc/

transactions thro!gh the hili""ine toc/#changeE +e, "roceeds !nder an ins!rance "olic$

on the loss of goods. -n "re"aring the cor"orate

income ta# ret!rn )hat sho!ld e the ta# treatment on

each of the ao(e items&SUGGESTED ANSWER

The gr,++ recei*/+ 1r,5 /radi%g 6+i%e++ is incl!dileas an item of income in the cor"orate income ta#ret!rn and s!ect to cor"orate income ta# rate ased on net income.

The other items of re(en!e )ill not e incl!ded

in the cor"orate income ta# ret!rn.

The interest from mone$ mar/et "lacements is s!ect to a final )ithholding ta#

of 20E

The di(idends from domestic cor"oration aree#em"t from income ta#E andgains from stoc/ transactions )ith thehili""ine toc/ #change are s!ect totransaction ta# )hich is in lie! of the income ta#.The "roceeds !nder an ins!rance "olic$ on the

loss of goods is not an item of income !t merel$

a ret!rn of ca"ital hence not ta#ale.

ALTERNATIE ANSWER

The gross recei"ts from trading !siness is incl!dile

as an item of income in the cor"orate income ta#

ret!rn. :i/e)ise the gain or loss realied as a

conseF!ence of the recei"t of "roceeds !nder an ins!rance

"olic$ on the loss of goods )ill e incl!ded in the

cor"orate income ta#




ret!rn either as a ta#ale gain or a ded!ctile loss.

The gain or loss is arri(ed at $ ded!cting from the

"roceeds of ins!rance +amo!nt realied, the asis of the

good lost +ec. 34+a, =-,. The net income of the

cor"oration shall e s!ect to cor"orate income ta# rate of

35.

The other items of re(en!e )ill not e incl!ded in

the cor"orate income ta# ret!rn. The interest from

mone$ mar/et "lacements is s!ect to a final )ithholdingta# of 20E di(idends from domestic cor"orations are

e#em"t from income ta#E and gains from stoc/

transactions )ith the hili""ine toc/ #change are

s!ect to transaction ta# )hich is in lie! of the income

ta#.

IT8$ 'omestic !orporate Taxation (21)

a, o) often does a domestic cor"oration file

income ta# ret!rn for income earned d!ring a single

ta#ale

$ear& #"lain the "rocess. +3,SUGGESTED ANSWER

a, A domestic cor"oration is reF!ired to file income ta#ret!rns fo!r +4, times for income earned d!ring a single

ta#ale $ear. L!arterl$ ret!rns are reF!ired to e filed for

the first three F!arters )here the cor"oration shall declare

its F!arterl$ s!mmar$ of gross income and ded!ctions on a

c!m!lati(e asis. (,ection ' N6$!). Then a final

ad!stment ret!rn is reF!ired to e filed co(ering the total

ta#ale income for the entire $ear calendar or fiscal.

(,ection ' N6$!).

, What is the reason for s!ch "roced!re& +2,SUGGESTED ANSWER

, The reason for this "roced!re is to ens!re the

timeliness of collection to meet the !dgetar$ needs of the

go(ernment. :i/e)ise it is designed to ease the !rden onthe ta#"a$er $ "ro(iding it )ith an installment "a$ment

scheme rather than reF!iring the "a$ment of the ta# on a

l!m"s!m asis after the end of the $ear.ALTERNATIE ANSWER

, The reason for the F!arterl$ filing of ta# ret!rns is toallo) "artial collection of the ta# efore the end ofthe ta#ale $ear and also to im"ro(e theliF!idit$ of go(ernment

IT8$ Persona" Income: To mp"oyment (21)

-n the $ear 2000 B )or/ed "art time as a )aitressin a resta!rant in ?ega ?all from 8*00 a.m. to 4*00

".m. and then as a cashier in a 24ho!r con(eniencestore in her neighorhood. The total income of Bfor the $ear from the t)o em"lo$ers does not e#ceedher total "ersonal and additional e#em"tions for the$ear 2000. Was she reF!ired to file an income ta#ret!rn last A"ril& #"lain $o!r ans)er. +5,SUGGESTED ANSWER

<es. An indi(id!al deri(ing com"ensationconc!rrentl$ from t)o or more em"lo$ers at an$time d!ring the ta#ale $ear shall file an incometa# ret!rn +ec. 51+A,+2,+, =-.,ALTERNATIE ANSWER

-t de"ends. An indi(id!al )ith "!re com"ensation income

is not reF!ired to file an income ta# ret!rns )hen she

meets the follo)ing conditionsE +1, the total gross

com"ensation income does not e#ceed h"60000.00 and +2,

the income ta# has een correctl$ )ithheld meaning



[email protected] 20 of 73the ta# )ithheld is eF!al to the ta# d!e.(,ection

l(A@(&)(b) N6$!).

There is no mention in the "rolem of theamo!nt of "ersonal and additional "ersonale#em"tion to F!antif$ ho) m!ch is thatcom"ensation income that did not e#ceed the "ersonal and additional "ersonal e#em"tions. There

is no mention either of )hether or not theem"lo$ers )ithheld ta#es and that the amo!nt

)ithheld is eF!al to the ta# d!e. Whether or not she)ill e reF!ired to file an income ta# ret!rn lastA"ril 15 on the 2000 income )ill de"end onher com"liance )ith the reF!irements of the la).

IT8$ Persona" Income$ 5SIS Pension (2)

?r. Ka(ier is a nonresident senior citien. erecei(es a monthl$ "ension from the - )hichhe de"osits )ith the =C?a/ati Cranch. -s hee#em"t from income ta# and therefore notreF!ired to file an income ta# ret!rn& +5,

SUGGESTED ANSWER?r. Ka(ier is e#em"t from income ta# on his

monthl$ - "ension (,ec. 5&(3)()(f) N6$! of

%**') !t not on the interest income that might accr!e

on the "ensions de"osited )ith =C )hich are

s!ect to final )ithholding ta#. onseF!entl$

since ?r. Ka(ierDs sole ta#ale income )o!ld ha(e

een s!ected to a final )ithholding ta# he is not

reF!ired an$more to file an income ta# ret!rn. (,ec.

% (A) (&) (c). 6bid@.

IT8$ Persona" Income$ 0arrie& In&ii&ua" (2*)

A? got married to :-A last Kan!ar$ 2003.'n =o(emer 30 2003 :-A ga(e irthto t)ins. Gnfort!natel$ ho)e(er :-A died inthe co!rse of her deli(er$. !e to com"licationsone of the t)ins also died on ecemer 15 2003.

-n "re"aring his -ncome Ta# et!rn +-T, for the

$ear 2003 )hat sho!ld A? indicate in the -T as

his ci(il stat!s* +a, singleE +, marriedE +c, ead of the

famil$E +d, )ido)erE +e, none of the ao(e& Wh$&

eason. +5,SUGGESTED ANSWER

A? sho!ld indicate %+, married% as his ci(il

stat!s in "re"aring his -ncome Ta# et!rn for the $ear

2003. The death of his )ife d!ring the $ear )ill not

change his stat!s eca!se sho!ld the s"o!se die d!ringthe ta#ale $ear the ta#"a$er ma$ still claim the same

e#em"tions (that of being married) as if the s"o!se

died at the close of s!ch $ear

(,ection 5;!1 N6$!).

IT8$ Taxpayer$ /ia+i"ities$ Fa"sifie& Tax 8eturn (2)

anilo )ho is engaged in the trading !sinessentr!sted to his acco!ntant the "re"aration of hisincome ta# ret!rn and the "a$ment of the ta# d!e.The acco!ntant filed a falsified ta# ret!rn $!nderdeclaring the sales and o(erstating thee#"ense ded!ctions $ anilo.

-s anilo liale for the deficienc$ ta# and the "enalties thereon& What is the liailit$ if an$ ofthe acco!ntant& isc!ss. +5,SUGGESTED ANSWER

anilo is liale for the deficienc$ ta# as )ell as for

the deficienc$ interest. e sho!ld not e held liale

for the




fra!d "enalt$ eca!se the acco!ntant acted e$ondthe limits of his a!thorit$. There is no sho)ing in the "rolem that anilo signed the falsified ret!rn orthat it )as "re"ared !nder his direction.H'n the other hand the acco!ntant ma$ e held criminall$

liale for (iolation of the Ta# ode )hen he falsified the

ta# ret!rn $ !nderdeclaring the sale and o(erstating the

e#"ense ded!ctions. -f ann$Ds acco!ntant is a

ertified !lic Acco!ntant his certificate as a

A shall a!tomaticall$ e re(o/ed or cancelled !"on

con(iction.

Partners#ip: Income Tax (199)

Ii(e $ears ago ?arF!e ene$ra Ka$me osadas and

?ang!iat all la)$ers formed a "artnershi" )hich

the$ named ?arF!e and ene$ra :a) 'ffices. The

ommis sioner of -nternal e(en!e thereafter iss!ed

$evenue $egulation No. &-*5 implementing $A.

'"* /no)n as the im"lified =et -ncome

Ta#ation cheme +=-T,. e(en!e eg!lation =o. 2

93 "ro(ides in "art*

Sec. '. Ge%era- Pr,1e++i,%a- Par/%er+:i*. >

The general "rofessional "artnershi" and the "artners are co(ered $ .A. 7496. Th!s in

determining "rofit of the "artnershi" onl$ the

direct costs mentioned in said la) are to e

ded!cted from "artnershi" income. Also the

e#"enses "aid or -nc!rred $ "artners in their

indi(id!al ca"acities in the "ractice of

their "rofession )hich are not reim!rsed or "aid

$ the "artnershi" !t are not considered as

direct costs are not ded!ctile from his gross

income.

1, ?arF!e and ene$ra :a) 'ffices filed a ta#"a$erDs

s!it alleging that e(en!e eg!lation =o. 293

(iolates the "rinci"le of !niformit$ in

ta#ation eca!se general "rofessional "artnershi"s

are no) s!ect to "a$ment of income ta# and that

there is a difference in the ta# treatment et)een

indi(id!als engaged in the "ractice of their

res"ecti(e "rofes sions and "artners in

general "rofessional

"artnershi"s. -s this contention correct& #"lain.SUGGESTED ANSWER

1, The contention is not correct. eneral "rofessional

"artnershi"s remain to e a nonta#ale entit$. What

is ta#ale are the "artners com"rising the same and the$

are oligated to re"ort as income their share in the income

of the general "rofessional "artnershi" d!ring theta#ale $ear )hether distri!ted or not. The

=-T treat "rofessionals as one class of ta#"a$er so that

the$ shall e treated ali/e irres"ecti(e of )hether the$

"ractice their "rofession alone or in association )ith other

"rofessionals !nder a general "rofessional "artnershi".

What are ta#ed differentl$ are indi(id!als and

cor"orations. All indi(id!als similarl$ sit!ated are ta#ed

ali/e !nder the reg!lations therefore the "rinci"le of

!niformit$ in ta#ation is not (iolated. 'n the contrar$

all the reF!irements of a (alid classification ha(e een

com"lied )ith (T,% v+. De-

R,+ari, e/ a- G.R N,. !)"24" Oc/,6er+ !""$.

2, -s e(en!e eg!lation =o. 293 no) considered as

ha(ing ado"ted a gross income method instead of

retaining the net income ta#ation scheme& #"lain.SUGGESTED ANSWER



[email protected] 21 of 732, =o. e(en!e eg!lation =o. 293

im"lementing A =o. 7496 ha(e indeedsignificantl$ red!ced the items of ded!ction $limiting it to direct costs and e#"enses or the 40of gross recei"ts ma#im!m ded!ction in cases)here the direct costs are diffic!lt to determine.The allo)ance of limited ded!ctions ho)e(er is stillin consonance )ith the net income ta#ation schemerather than the gross income method. While it is tr!e

that not all the e#"enses of earning the incomemight e allo)ed this can )ell e !stified $the fact that ded!ctions are not matters of right !t are matters of legislati(e grace.

Persona"$ Income Tax: 7on8esi&ent A"ien (2)

?r. orte is a nonresident alien ased in ongRong. !ring the calendar $ear 1999 he came to thehili""ines se(eral times and sta$ed in the co!ntr$for an aggregated "eriod of more than 180 da$s.o) )ill ?r. orte e ta#ed on his incomederi(ed from so!rces )ithin the hili""ines andfrom aroad& +5,

SUGGESTED ANSWER?r. orte eing a nonresident alien indi(id!al )hohas sta$ed for an aggregated "eriod of more than180 da$s d!ring the calendar $ear 1999 shall for thatta#ale $ear e deemed to e a nonresident aliendoing !siness in the hili""ines.

onsidering the ao(e ?r. orte shall e s!ect toan income ta# in the same manner as anindi(id!al citien and a resident alien indi(id!al onta#ale income recei(ed from all so!rces )ithin thehili""ines. ,ec. & (A) (%) N6$! of %**'@ Th!she is allo)ed to a(ail of the itemied ded!ctionsincl!ding the "ersonal and additionale#em"tions !t s!ect to the r!le on reci"rocit$ onthe "ersonal e#em"tions. (,ec. 5" (A) to () and (8)

in relation to ,ec. & (A) (%) 6bid ,ec. 5 (B) 6bid.@ NCT4: 6t is suggested that full credit should

be given if the examineeDs answer only cover

the first two paragraphs.

Persona"$ Income Tax: 7on8esi&ent !iti?en (1999)

A o. a hili""ine cor"oration has an e#ec!ti(e +, )ho

is a Iili"ino citien. A o. has a s!sidiar$ in ong Rong

+R o., and )ill assign for an indefinite "eriod

to )or/ f!ll time for R o. )ill ring his famil$ to

reside in R and )ill lease o!t his residence in the

hili""ines. The salar$ of )ill e sho!ldered 50 $A o. )hile the other 50 "l!s ho!sing cost of

li(ing and ed!cational allo)ances of Ds de"endents

)ill e sho!ldered $ R o. A o. )ill credit the

50 of Ds salar$ to Ds hili""ine an/ acco!nt.

)ill sign the contract of em"lo$ment in the

hili""ines. )ill also e recei(ing rental income for

the lease of his hili""ine residence. Are these salaries

allo)ances and rentals s!ect to the hili""ine

income ta#& +5,SUGGESTED ANSWER

The salaries and allo)ances recei(ed $ are not s!ect

to hili""ine income ta#. F!alifies as a nonresident

citien eca!se he lea(es the hili""ines for em"lo$ment

reF!iring him to e "h$sicall$ "resent aroad most of the

time d!ring the ta#ale $ear. (,ection &&(4) N6$!). A

non resident citien is ta#ale onl$ on income

deri(ed from hili""ine so!rces. (,ection &5 N6$!).

The salaries and




allo)ances recei(ed from eing em"lo$ed aroad

are incomes from )itho!t eca!se these arecom"ensation for ser(ices rendered o!tside of thehili""ines. (,ection "& N6$!).

o)e(er is ta#ale on rental income for the lease of

his hili""ine residence eca!se this is an income

deri(ed from )ithin the leased "ro"ert$ eing

located in the hili""ines. (,ection "& N6$!).

Persona"$ Income Tax: TaxFree xc#ange (199,)

Three rothers inherited in 1992 a "arcel of land (al!edfor real estate ta# "!r"oses at 3.0 million )hich the$held in coo)nershi". -n 1995 the$ transferred the "ro"ert$ to a ne)l$ organied cor"oration as theireF!it$ )hich )as "laced at the onal (al!e of 6.0million. -n e#change for the "ro"ert$ the three rothersth!s each recei(ed shares of stoc/ of the cor"oration)ith a total "ar (al!e of 2.0 million or altogether atotal of 6.0 million. =o !siness )as done $ theor"oration and the "ro"ert$ remained idle. -n theearl$ "art of 1997 one of the rothers )ho )as in

dire need of f!nds sold his shares to the t)o rothers for 2.0 million. -s the transaction s!ect toan$ internal re(en!e ta# +other than thedoc!mentar$ stam" ta#,&SUGGESTED ANSWER

<es. The e#change in 1995 is a ta#free e#change sothat the s!seF!ent sale of one of the rothers of hisshares to the other t)o +2, rothers in 1997 )ill es!ect to income ta#. This is so eca!se the ta#free e#change merel$ deferred the recognition ofincome on the e#change transaction. The gains!ect to income ta# in the sale is meas!red $ thedifference et)een the selling "rice of the shares +2

?illion, and the asis of the real "ro"ert$ in thehands of the transferor at the time of e#change)hich is the fair mar/et (al!e of his share in the real "ro"ert$ at the time of inheritance +ection 34+,+2, =-,. The net gain from the sale of shares ofstoc/ is s!ect to the sched!lar ca"ital gains ta# of10 for the first 100.000 and 20 for the e#cessthereof +ection 2l+d, =-,.ALTERNATIE ANSWER

The e#change effected in 1995 did not F!alif$ as a ta#free

e#change eca!se there is no sho)ing that the three

rothers gained control of the cor"oration $ acF!iring at

least 51 of the (oting rights. ince the entire gain on the

e#change )as "re(io!sl$ s!ected to income ta#

then the sale )ill also e ta#ale if a gain res!ltstherefrom. -n the instant case the sale )ill not e s!ect

to an$ internal re(en!e ta# other than the

doc!mentar$ stam" ta# eca!se the seller did not

realie an$ gain from the sale. The gain is meas!red $

the difference et)een the amo!nt realied +selling

"rice, and the asis of the "ro"ert$. -ncidentall$ the

asis to him is his share in the (al!e of the "ro"ert$

recei(ed at the time of e#change )hich is 2 ?illion

an amo!nt !st eF!al to the amo!nt realied from the sale.

Persona"$ Income Tax$ !ontract of /ease (199)

?r. omingo o)ns a (acant "arcel of land. e leases the

land to ?r. nriF!e for ten $ears at a rental of

12000.00 "er $ear. The condition is that ?r. nriF!e




)ill erect a !ilding on the land )hich)ill

ecome the "ro"ert$ of ?r. omingo at the end of thelease )itho!t com"ensation or reim!rsement)hatsoe(er for the (al!e of the !ilding.

?r. nriF!e erects the !ilding. G"on com"letion

the !ilding had a fair mar/et (al!e of 1 ?illion. At

the end of the lease the !ilding is )orth onl$

900.000.00 d!e to de"reciation.

Will ?r. omingo ha(e income )hen the leasee#"ires and ecomes the o)ner of the !ilding )ith a

fair mar/et (al!e of 900.000.00& o) m!ch income

m!st he re"ort on the !ilding& #"lain.SUGGESTED ANSWER

When a !ilding is erected $ a lessee in theleased "remises in "!rs!ance of an agreement)ith the lessor that the !ilding ecomes the "ro"ert$ of the lessor at the end of the lease thelessor has the o"tion to re"ort income as follo)s*1, The lessor ma$ re"ort as income the mar/et

(al!e of the !ilding at the time )hen s!ch !ilding is com"letedE or

2, The lessor ma$ s"read o(er the life of the lease

the estimated de"reciated (al!e of s!ch !ilding

at the termination of the lease and re"ort as

income for each $ear of the lease an aliF!ot

"art thereof +ec. 49 =o. 2,.

Gnder the first o"tion the lessor )ill ha(e no

income )hen the lease e#"ires and ecomes the

o)ner of the !ilding. The second o"tion )ill gi(e

rise to an income d!ring the $ear of lease e#"iration of

90.000.00 or 1M10 of the de"reciated (al!e of the

!ilding.

The a(ailment of the first o"tion )ill reF!ire?r. omingo to re"ort an income of

1.000000.00 d!ring the $ear )hen the !ilding)as com"leted. A total of 900.000.00 income

)ill e re"orted !nder the second o"tion !t )ill e s"read o(er the life of the lease or

90.000.00 "er $ear.

ALTERNATIE ANSWER

?r. omingo )ill realie an income )hen thelease e#"ires and ecomes the o)ner of the !ilding)ith a fair mar/et (al!e of 900.000.00 eca!se the

condition for the lease is the transfer of the !ildingat the e#"iration of the lease. The income to erealied $ ?r. omingo at the time of thee#"iration )ill consist of the (al!e of the !ilding )hich is 900.000.00 and an$ rental incomethat has accr!ed as of said date.

Persona"$ Income Tax$ 0arrie& In&ii&ua" (199,)

?ar and Ko$ got married in 1990. A )ee/ efore

their marriage. Ko$ recei(ed $ )a$ of

donation a condomini!m !nit )orth 750.000.00

from her "arents. After marriage some reno(ations

)ere made at a cost of 150.000.00. The s"o!ses )ere

oth em"lo$ed in 1991 $ the same com"an$. 'n 30

ecemer 1992 their first child )as orn and a

second child )as orn on 07 =o(emer 1993. -n 1994

the$ sold the condomini!m !nit and o!ght a ne) !nit.

Gnder the foregoing facts )hat




)ere the e(ents in the life of the s"o!ses that hadincome ta# incidences&SUGGESTED ANSWER

The e(ents in the life of s"o!ses. ?ar and Ko$ )hichha(e income ta# incidences are the follo)ing*1, Their marriage in 1990 F!alifies them to

claim "ersonal e#em"tion for married indi(id!alsE2, Their em"lo$ment in 1991 $ the same

com"an$ )ill ma/e them liale to the income ta#

im"osed on gross com"ensation incomeE3, Cirth of their first child in ecemer 1992

)o!ld gi(e rise to an additional e#em"tion of5000 for ta#ale $ear 1992E

4, Cirth of their second child in =o(emer 1993 )o!ld

li/e)ise entitle them to claim additional

e#em"tion of 5000 raising their additional

"ersonal e#em"tions to 10000 for ta#ale $ear

1993E and

5, ale of their condomini!m !nit in 1994 shall ma/e

the s"o!ses liale to the 5 ca"ital gains ta# on

the gain "res!med to ha(e een realied from the

sale.

Persona"$ Income Tax$ 8etiring A"ien mp"oyee (2)

An alien em"lo$ee of the Asian e(elo"mentCan/ +AC, )ho is retiring soon has offered to sell hiscar to $o! )hich he im"orted ta#free for his "ersonal!se. The "ri(ilege of e#em"tion from ta# is grantedto F!alified "ersonal !se !nder the AC harter )hichis recognied $ the ta# a!thorities. -f $o! decide to "!rchase the car is the sale s!ect to ta#& #"lain.+5,SUGGESTED ANSWER

The sales transaction is s!ect to (al!e added ta#+;AT, !nder ec. 107+C, of the =- altho!gh this "ro(ision is e#"ressl$ e#cl!ded from the co(erage ofthe 2005 ar e#am.

The "roceeds from the sale are s!ect to income ta#.

The car is considered a ca"ital asset of the retiringalien em"lo$ee eca!se he is not engaged in the

!siness of !$ing and selling cars. e therefore

deri(ed income )hich sho!ld e re"orted in his

income ta# ret!rn. +ees. 32 and 39 =-,

Persona"$ Income Taxation: 7on8esi&ent !iti?en (199,)

K!an a Iili"ino citien has immigrated to theGnited tates )here he is no) a "ermanentresident. e o)ns certain incomeearning "ro"ert$

in the hili""ines from )hich he contin!es to deri(es!stantial income. e also recei(es income from hisem"lo$ment in the Gnited tates on )hich the Gincome ta# is "aid. 'n )hich of the ao(e incomeis the ta#ale if at all in the hili""ines and ho)in general terms )o!ld s!ch income or incomes eta#ed&SUGGESTED ANSWER

K!an shall e ta#ed on oth his income from the

hili""ines and on his -ncome from the Gnited tates e

ca!se his eing a citien ma/es him ta#ale on all -ncome

)here(er deri(ed. Ior the income he deri(es from his

"ro"ert$ in the hili""ines K!an shall e ta#ed on his net

income !nder the Si5*-i1ied Ne/ I%c,5e Ta>a/i,%

Sc:e5e +=-T, )here$ he shall e considered as a

selfem"lo$ed indi(id!al. is -ncome as em"lo$ee in the

Gnited tates on the other hand shall e ta#ed in



[email protected] 2+ of 73accordance )ith the sched!lar grad!ated ratesof 1 2 and 3. ased on the ad!sted grossincome deri(ed $ nonresident citiens from allso!rces )itho!t the hili""ines d!ring each ta#ale$ear.

Taxa+"e Income: I""ega" Income (199 Bar)

?r. :aoo is a igtime s)indler. -n one $ear he )as

ale to earn 1 ?illion from his s)indling acti(ities.When the ommissioner of -nternal e(en!e disco(ered

his income from s)indling the ommissioner

assessed him a deficienc$ income ta# for s!ch

income. The la)$er of ?r. :aoo "rotested the

assessment on the follo)ing gro!nds*

1, The income ta# a""lies onl$ to legal income notto illegal incomeE

2, ?r. :aooDs recei"ts from his s)indling did not

constit!te income eca!se he )as !nder

oligation to ret!rn the amo!nt he had

s)indled hence his recei"t from s)indling )as

similar to a loan )hich is not income eca!se for

e(er$ "eso orro)ed he has a corres"ondingliailit$ to "a$ one "esoE and

3, -f he has to "a$ the deficienc$ income ta#assess

ment there )ill e hardl$ an$thing left to ret!rnto the (ictims of the s)indling.

o) )ill $o! r!le on each of the three gro!ndsfor the "rotest& #"lain.SUGGESTED ANSWERS

1, The contention that the income ta# a""lies to

legal income and not to illegal income is not

correct. ection 28+a, of the Ta# ode incl!des

)ithin the "!r(ie) of gross income all -ncome from

)hate(er so!rce deri(ed. ence the illegalit$ of the

income )ill not "recl!de the im"osition of the income

ta# thereon.

2, The contention that the recei"ts from his

s)indling did not constit!te income eca!se of hisoligation to ret!rn the amo!nt s)indled is li/e)ise

not correct. When a ta#"a$er acF!ires earningsla)f!ll$ or !nla)f!ll$ )itho!t the consens!alrecognition e#"ress or im"lied of an oligation tore"a$ and )itho!t restriction as to their dis"ositionhe has recei(ed ta#ale income e(en tho!gh it ma$still e claimed that he is not entitled to retain the

mone$ and e(en tho!gh he ma$ still e ad!dged

to restore its eF!i(alent (<a5e+ v+. U.S.7'' U.S. 2!7

!"'!$. To treat the emeled f!nds not as ta#aleincome )o!ld "er"et!ate in!stice $ relie(ingemelers of the d!t$ of "a$ing income ta#es on themone$ the$ enrich themsel(es )ith thro!ghemelement )hile honest "eo"le "a$ their ta#eson e(er$ concei(ale t$"e of income. (ames vs.

E.,.)

3, The deficienc$ income ta# assessment is a direct ta#

im"osed on the o)ner )hich is an e#cise on the "ri(ilege

to earn an income. -t )ill not necessaril$ e "aid o!t of

the same income that )ere s!ected to the ta#. ?r.

:aooDs liailit$ to "a$ the ta# is ased on his ha(ing

realied a ta#ale income from his s)indling acti(ities and

)ill not affect his oligation to ma/e restit!tion. a$ment

of the ta# is a ci(il oligation im"osed $ la) )hile

restit!tion is a ci(il liailit$ arising from a crime.

Taxa+"e or 7onTaxa+"e$ Income an& 5ains (2)




#"lain riefl$ )hether the follo)ing items are ta#aleor nonta#ale* +5,a, -ncome from <UETENG ESUGGESTED ANSWER

Ta#ale. ross income incl!des %all income deri(ed from

)hate(er so!rce% (,ec. 5&A@ N6$!) )hich

)as inter"reted as all income not e#"ressl$

e#cl!ded or e#em"ted from the class of ta#ale income

irres"ecti(e of the (ol!ntar$ or in(ol!ntar$ action of

the ta#"a$er in "rod!cing the income. Th!s theincome ma$ "roceed from a legal or illegal so!rce

s!ch as from !eteng. Gnla)f!l gains gamling

)innings etc. are s!ect to income ta#. The ta# code

stands as an indifferent ne!tral "art$ on the matter of

)here the income comes from.

(C,55i++i,%er ,1 I%/er%a- Reve%e v. Ma%%i%g G.R. N,. L;247"4 Ag+/ ' !"#3$

, ain arising from EXPROPRIATION OF

PROPERT ESUGGESTED ANSWER

Ta#ale. ale e#change or other dis"osition of "ro"ert$ to

the go(ernment of real "ro"ert$ is ta#ale. -t incl!des

ta/ing $ the go(ernment thro!gh condemnation "roceedings. (G,%a-e+ v. C,r/ ,1 Ta> A**ea-+ G.R. N,.

L;!372 Ma0 2' !"'3$

c, TAXES "aid and s!seF!entl$ ref!ndedESUGGESTED ANSWER

Ta#ale onl$ if the ta#es )ere "aid and claimed

as ded!ction and )hich are s!seF!entl$ ref!nded

or credited. -t shall e incl!ded as "art of gross income in

the $ear of the recei"t to the e#tent of the income ta#

enefit of said ded!ction. (,ec. 5"!@%@ N6$!) =ot

ta#ale if the ta#es ref!nded )ere not originall$ claimed

as ded!ctions.

d, eco(er$ of BAD DEBTS "re(io!sl$ charged offESUGGESTED ANSWER

Ta#ale !nder the TA E$EF&T R.*E. eco(er$ of ad dets "re(io!sl$ allo)ed as ded!ction inthe "receding $ears shall e incl!ded as "art of thegross income in the $ear of reco(er$ to the e#tent of theincome ta# enefit of said ded!ction. (,ec. 5"4@%@

N6$!) This is sometimes referred as theRECAT.RE R.*E-.

e, ain on the sale of a car !sed for "ersonal "!r"oses.SUGGESTED ANSWER

Ta#ale. ince the car is !sed for "ersonal "!r"oses itis considered as a ca"ital asset hence the gain is

considered income. (,ec. 5&A@5@ and ,ec. 5*A@%@

N6$!)

-it##o"&ing Tax: 7on8esi&ent A"ien (21)

-s a nonresident alien )ho is not engaged in tradeor !siness or in the e#ercise of "rofession in thehili""ines !t )ho deri(ed rental income from thehili""ines reF!ired to file an income ta# ret!rn onA"ril of the $ear follo)ing his recei"t of saidincome& -f not )h$ not& #"lain $o!r ans)er. +5,

SUGGESTED ANSWER

=o. The income ta# on all income deri(ed from

hili""ine so!rces $ a nonresident alien )ho is not

engaged in trade or !siness in the hili""ines is )ithheld

$ the lessee as a Iinal Withholding Ta#. (,ection

'(A) N6$!). The go(ernment can not reF!ire "ersons

o!tside



[email protected] 24 of 73of its territorial !risdiction to file a ret!rnE for

this reason the income ta# on income deri(edfrom )ithin m!st e collected thro!gh the)ithholding ta# s$stem and th!s relie(e thereci"ient of the income the d!t$ to file income ta#ret!rns. (,ection % N6$!).

-it##o"&ing Tax: 8etirement Benefit (2)

To start a !siness of his o)n ?r. ?ario de

!man o"ted for an earl$ retirement from a "ri(ate com"an$ after ten +10, $ears of ser(ice.!rs!ant to the com"an$Ds F!alified and a""ro(ed "ri(ate retirement enefit "lan he )as "aid hisretirement enefit )hich )as s!ected to)ithholding ta#. -s the em"lo$er correct in)ithholding the ta#& #"lain. +2,SUGGESTED ANSWER

+a, -t de"ends. An em"lo$ee retiring !nder acom"an$Ds F!alified and "ri(ate retirement "lan canonl$ e e#em"t from income ta# on hisretirement enefits if the follo)ing reF!isites aremet*

+1, that the retiring em"lo$ee m!st ha(e een inser(ice of the same em"lo$er for at least ten +10,$earsE

+2, that he is not less than 50 $ears of age at the timeof retirementE and

+3, the enefit is a(ailed of onl$ once.

-n the instant case there is no mention )hether

the em"lo$ee has li/e)ise com"lied )ith

reF!isites n!mer +2, and +3,.

-it##o"&ing Tax: 8etirement Benefit (2)

Gnder )hat conditions are retirement enefitsrecei(ed $ officials and em"lo$ees of "ri(atefirms e#cl!ded from gross income and e#em"t fromta#ation& +3,SUGGESTED ANSWER

The conditions to e met in order that retirement enefits recei(ed $ officials and em"lo$ees of "ri(ate firms are e#cl!ded from gross income ande#em"t from ta#ation are as follo)s*2. Gnder e"!lic Act =o. 4917 +those recei(ed

!ndera reasonale "ri(ate enefit "lan,*a. the retiring official or em"lo$ee m!st ha(e

een in ser(ice of the same em"lo$er for atleast ten

+10,$earsE . that he is not less than fift$ +50, $ears of age

at the time of retirementE andc. that the enefit is a(ailed of onl$ once.

3. Gnder e"!lic Act =o. 7641 +those recei(ed

from em"lo$ers )itho!t an$ retirement "lan,*

a. Those recei(ed !nder e#istingcollecti(e argaining agreement and otheragreements are e#em"tE and

. -n the asence of retirement "lan oragreement "ro(iding for retirement

enefits the enefits are e#cl!ded fromgross income and e#em"t from income ta#if*

i. retiring em"lo$ee m!st ha(e ser(edat least fi(e+5, $earsE and

ii. that he is not less than si#t$ +60, $ears

of age !t not more than si#t$ fi(e

+65,.

-it##o"&ing Tax: 8oya"ty (22)




The ?RChils. is a C'-registered domesticcor"oration licensed $ the ?RC of the GnitedRingdom to distri!te s!""ort and !se in thehili""ines its com"!ter soft)are s$stems incl!ding asic and related materials for an/s. The ?RChils. "ro(ides cons!ltanc$ and technicalser(ices incidental thereto $ entering intolicensing agreements )ith an/s. Gnder s!chagreements the ?RChils. )ill not acF!ire an$

"ro"rietar$ rights in the licensed s$stems. The ?RChils. "a$s ro$alt$ to the ?RCGR net of 15)ithholding ta# "rescried $ the GR Ta# Treat$.

-s the income of the ?RChils. !nder the

licensing agreement )ith an/s considered ro$alt$s!ect to 20 final )ithholding ta#& Wh$& -f not

)hat /ind of ta# )ill its income e s!ect to& #"lain.

+5,SUGGESTED ANSWER

<es. The income of ?RChils. !nder the

licensing agreement )ith an/s shall e considered

as ro$alt$ s!ect to the 20 final )ithholding ta#. The

term ro$alt$ is road eno!gh to incl!de technical ad(iceassistance or ser(ices rendered in connection

)ith technical management or administration of an$

scientific ind!strial or commercial !nderta/ing (ent!re

"roect or scheme. +ec. 42+4,+f, =-,. Accordingl$

the cons!ltanc$ and technical ser(ices rendered $

?RChils )hich are incidental to the distri!tion

s!""ort and !se of the com"!ter s$stems of ?RCGR

are ta#ale as ro$alt$.

-it##o"&ing Tax$ !oerage (2*)

iting ection 10 Article ;--- of the 1987

onstit!tion )hich "ro(ides that salaries of !dges shall e

fi#ed $ la) and that d!ring their contin!ance in officetheir salar$ shall not e decreased a !dge of ??

egional Trial o!rt F!estioned the ded!ction of

)ithholding ta#es from his salar$ since it res!lts into a net

ded!ction of his "a$. -s the contention of the !dge

correct& eason riefl$. +5,SUGGESTED ANSWER

=o. The contention is incorrect. The salaries of !dgesare not ta#e#em"t and their ta#ailit$ is not contrar$ tothe "ro(isions of ection 10 Article ;--- of theonstit!tion on the nondimin!tion of the salaries ofmemers of the !diciar$ d!ring their contin!ance inoffice. The clear intent of the onstit!tionalommission that framed the onstit!tion is to s!ect

their salaries to ta# as in the case of all ta#"a$ers.ence the ded!ction of )ithholding ta#es eing amanner of collecting the income ta# on theirsalar$ is not a dimin!tion contem"lated $ thef!ndamental la). (Ni/a1a% e/. a-. v. CIR !32 SCRA

24 8!"4# P,.

-it##o"&ing Tax$ 'omestic !orporation$ !as# 'ii&en&s

(21)

What do $o! thin/ is the reason )h$ cashdi(idends )hen recei(ed $ a resident citien oralien from a domestic cor"oration are ta#ed onl$

at the final ta# of 10 and not at the "rogressi(eta# rate sched!le !nder ection 24+A, of the Ta#ode& #"lain $o!r ans)er. +5,SUGGESTED ANSWER

The reason for im"osing final )ithholding ta# rather than

the "rogressi(e ta# sched!le on cash di(idends recei(ed $



[email protected] 2. of 73

a resident citien or alien from a

domestic

cor"oration is to ens!re the collection of income ta#on said income. -f )e s!ect the di(idend to the "rogressi(e ta# rate )hich can onl$ e donethro!gh the filing of income ta# ret!rns there is noass!rance that the ta#"a$er )ill declare the incomees"eciall$ )hen there are other items of grossincome earned d!ring the $ear. -t )o!ld e e#tremel$

diffic!lt for the C- to monitor com"lianceconsidering the h!ge n!mer of stoc/holders. C$shifting the res"onsiilit$ to remit the ta# to thecor"oration it is (er$ eas$ to chec/ com"liance eca!se there are fe)er )ithholding agentscom"ared to the n!mer of income reci"ients.

:i/e)ise the im"osition of a final )ithholding ta#

)ill ma/e the ta# a(ailale to the go(ernment at an

earlier time. Iinall$ the final )ithholding ta# )ill

e a s!re re(en!e to the go(ernment !nli/e )hen

the di(idend is treated as a ret!rnale income )here the

reci"ient thereof )ho is in a ta# loss "osition is gi(en the

chance to offset s!ch loss against di(idend incomethere$ de"ri(ing the go(ernment of the ta# on said

di(idend income. O$ote% 6t is recommended that any

of the foregoing answers can be given full credit

because the 7uestion involves a policy issue which can

only be found in the deliberations of !ongress.PALTERNATIE ANSWER

The reason )h$ cash di(idends recei(ed $ aresident citien or alien from a domestic cor"orationare s!ected to the final )ithholding ta# of 10and not at the "rogressi(e rate ta# sched!le is tolessen the im"act of a second la$er of ta# on the sameincome.

-it##o"&ing Tax$ Income su+@ect t#ereto (21)

What is meant $ income s!ect to %final ta#%& i(eat least t)o e#am"les of income of residentindi(id!als that is s!ect to the final ta#. +3,SUGGESTED ANSWER

-ncome s!ect to final ta# refers to an income

)herein the ta# d!e is f!ll$ collected thro!gh the

)ithholding ta# s$stem. Gnder this "roced!re the

"a$or of the income )ithholds the ta# and remits it

to the go(ernment as a final settlement of the

income ta# d!e on said income. The reci"ient is no

longer reF!ired to incl!de the item of income s!ected

to %final ta#% as "art of his gross income in his income

ta# ret!rns. #am"les of income s!ect to final ta# aredi(idend income interest from an/ de"osits ro$alties

etc.

-it##o"&ing Tax$ 7on8esi&ent A"ien (199*)

Io!r atholic "arishes hired the ser(ices of Iran/Cinatra a foreign nonresident entertainer to "erformfor fo!r +4, nights at the Iol/ Arts Theater.Cinatra )as "aid 200.000.00 a night. The "arishes earned 1000000.00 )hich the$ !sed forthe s!""ort of the or"hans in the cit$. Who are lialeto "a$ ta#es&

SUGGESTED ANSWER

The follo)ing are liale to "a$ income ta#es*+a, The fo!r catholic "arishes eca!se the income

recei(ed $ them not eing income earned %as s!ch%

in the "erformance of their religio!s f!nctions and

d!ties is ta#ale income !nder the last "aragra"h of

ec. 26 in relation to ec. 26+e, of the Ta# ode. -n




"romoting and o"erating the Cinatra ho)

the$ engaged in an acti(it$ cond!cted for "rofit.

+-id.,

+, The income of Iran/ Cinatra a nonresident alien

!nder o!r la) is ta#ale at the rate of 30 final

)ithholding ta# ased on the gross income from the

sho). ?r. Cinatra is not engaged in an$ trade or

!siness in the hili""ines.

-it##o"&ing Tax$ 7on8esi&ent !orporation (199*)

Cates Ad(ertising om"an$ is a nonresident cor"oration

d!l$ organied and e#isting !nder the la)s of inga"ore.

-t is not doing !siness and has no office in the

hili""ines. ili"inas arment -ncor"orated a domestic

cor"oration retained the ser(ices of Cates to do all

the ad(ertising of its "rod!cts aroad. Ior said ser(ices

CatesD fees are "aid thro!gh o!t)ard remittances. Are

the fees recei(ed $ Cates s!ect to an$ )ithholding ta#&

-.E-TED A$-WER%The fees "aid to Cates Ad(ertising o. a nonresident

foreign cor"oration are not s!ect to )ithholding ta#

since the$ are not s!ect to hili""ine ta#. The$ aree#em"t eca!se the$ do not constit!te income from

hili""ine so!rces the same eing com"ensation for

laor or "ersonal ser(ices "erformed o!tside the

hili""ines +ec. 36Hc, +3, and ec. 25+,+l, Ta# ode,.

-it##o"&ing Tax$ 8ea&ers 'igest Aar& (199=)

-s the "rie of one million "esos a)arded $ theeaderDs igest s!ect to )ithholding of finalta#& Who is res"onsile for )ithholding theta#& What are the liailities for fail!re to )ithholds!ch ta#& O5PSUGGESTED ANSWER

1, -t de"ends. -f the "rie is considered as

)innings deri(ed from so!rces )ithin the

hili""ines it is s!ect to )ithholding of final

ta# +ec. 24OCP in relation to ec. 57OAP

=-,. -f deri(ed from so!rces )itho!t the

hili""ines it is not s!ect to )ithholding of final

ta# eca!se the hili""ine ta# la) and

reg!lations co!ld not reach o!t to foreign

!risdictions.

2, The ta# shall e )ithheld $ the eaderDs igest

or local agent )ho has control o(er the "a$ment

of the "rie.

3, An$ "erson reF!ired to )ithhold or )ho)illf!ll$ fails to )ithhold shall in addition to

the other "enalties "ro(ided !nder the ode e

liale !"on con(iction to a "enalt$ eF!al to the total

amo!nt of ta# not )ithheld +ec. 251 =-,. -n

case of fail!re to )ithhold the ta# or in the

case of !nder )ithholding the deficienc$ ta#

shall e collected from the "a$orM)ithholding

agent +1st "ar.. ec. 2.57OAP .. =o. 298,.

An$ "erson reF!ired !nder the Ta# ode or $ r!les and

reg!lations to )ithhold ta#es at the time or times reF!ired

$ la) or r!les and reg!lations shall in addition to other

"enalties "ro(ided $ la) !"on con(iction e "!nished

$ a fine of not less than Ten tho!sand "esos +h"

10.0'', and s!ffer im"risonment of not less than one +1,




73 $ear !t not more than ten +10, $ears +1st "ar.ec. 255 =-,.

COE$T% -t is s!ggested that an$ of the follo)ing

ans)ers to the F!estion %What are the liailities for fail!re

to )ithhold s!ch a ta#&% e gi(en f!ll credit*

1, The "a$or shall e liale for the "a$ment of the ta#)hich )as not )ithheld.

2, The "a$erM)ithholding agent shall e liale to oth ci(iland criminal "enalties im"osed $ the Ta# ode.

-it##o"&ing Tax$ Time 'eposit Interest$ 5SIS

Pension (199*)

?ariel antos a retired "!lic school teacherrelies on her "ension from the - and the -nterest-ncome from a time de"osit of 500.000.00 )ithAC Can/. -s ?iss antos liale to "a$ an$ ta# onher -ncome&SUGGESTED ANSWER

?ariel antos is e#em"t from ta# on the "ensionfrom the - (,ec. &/(b((')(<) Tax !ode).o)e(er as regards her time de"osit the interestshe recei(es thereon is s!ect to 20 final

)ithholding ta#. (,ec. &%(a)(c) Tax !ode).

DEDUCTIONS, EXEMPTIONS,

EXCLUSIONS - INCLUSIONS'e&uction: Faci"itation Fees or >ic+ac> (199=)? arcia a contractor )ho )on the idfor the constr!ction of a "!lic high)a$ claimsas e#"enses facilitation fees )hich according tohim is standard o"erating "roced!re in transactions)ith the go(ernment. Are these e#"enses allo)aleas ded!ction from gross income& O5PSUGGESTED ANSWER

=o. The alleged facilitation fees )hich he claims as

standard o"erating "roced!re in transactions )ith thego(ernment comes in the form of ries or

%/ic/ac/% )hich are not allo)ed as ded!ctions from

gross income

(,ection 5"(A)(l)(c) N6$!).

'e&uctions: %r&inary Business xpenses (2*)

'B< is the "resident and chief e#ec!ti(e officer ofA om"!ters -nc. When 'B< )as as/edto oin the go(ernment ser(ice as director of a !rea! !nder the e"artment of Trade and-nd!str$ he too/ a lea(e of asence from A.Celie(ing that its !siness o!tloo/ good)ill and

o""ort!nities im"ro(ed )ith 'B< in thego(ernment A "ro"osed to otain a "olic$of ins!rance on his life. 'n ethical gro!nds 'B<oected to the ins!rance "!rchase !t A "!rchased the "olic$ an$)a$. -ts ann!al "remi!mamo!nted to 100000. -s said "remi!mded!ctile $ A om"!ters -nc.& eason.+5,SUGGESTED ANSWER

=o. The "remi!m is not ded!ctile eca!se it is not

an ordinar$ !siness e#"ense. The term %ordinar$% is

!sed in the income ta# la) in its common significance

and it has the connotation of eing normal !s!al or

c!stomar$

(De*/0 v. D P,%/ 7)4 US 44 8!")9$. a$ing "remi!msfor the ins!rance of a "erson not connected to thecom"an$ is not normal !s!al or c!stomar$.




Another reason for its nonded!ctiilit$ is the fact that itcan e considered as an illegal com"ensation madeto a go(ernment em"lo$ee. This is so eca!se ifthe ins!red his estate or heirs )ere made as the eneficiar$ (because of the re7uirement of insurable

interest) the "a$ment of "remi!m )ill constit!te ries)hich are not allo)ed as ded!ction from gross income(,ection 5"A@l@c@ N6$!).

'n the other hand if the com"an$ )as madethe eneficiar$ )hether directl$ or indirectl$ the

"remi!m is not allo)ed as a ded!ction from gross

income (,ection 5AF%"@ N6$!).

'e&uctions: Amount for Bri+e (21)

-n order to facilitate the "rocessing of its a""lication fora license from a go(ernment office or"oration Afo!nd it necessar$ to "a$ the amo!nt of h" 100000 asa rie to the a""ro(ing official. -s the h" 100000ded!ctile from the gross income of or"oration A& 'nthe other hand is the h" 100000 ta#ale income ofthe a""ro(ing official& #"lain $o!r ans)ers. +5,SUGGESTED ANSWER

ince the amo!nt of h"l00.000 constit!tes a rie it is

not allo)ed as a ded!ction from gross income of

or"oration A (,ection 5"(A)(l)(c) N6$!). o)e(er

to the reci"ient go(ernment official the same

constit!tes a ta#ale income. All income from legal or

illegal so!rces are ta#ale asent an$ clear "ro(ision

of la) e#em"ting the same. This is the reason )h$ gross

income had een defined to incl!de income from )hate(er

so!rce deri(ed. (,ection 5&(A) N6$!). -llegall$ acF!ired

income constit!tes realied income !nder the claim of

right doctrine (R/i% v. US 77 US !7)$.

'e&uctions: !apita" /osses$ Pro#i+itions (24)

What is the rationale for the r!le "rohiitingthe ded!ction of ca"ital losses from ordinar$ gains&#"lain.SUGGESTED ANSWER

-t is to ins!re that onl$ costs or e#"enses inc!rred in

earning the income shall e ded!ctile for income ta#

"!r"oses consonant )ith the reF!irement of the la) that

onl$ necessar$ e#"enses are allo)ed as ded!ctions

from gross income. The term % N4!4,,A$G

4H94N,4, % "res!""oses that in order to e allo)ed as

ded!ction the e#"ense m!st e !siness connected

)hich is not the case insofar as ca"ital losses are

concerned. This is also the reason )h$ all non!siness

connected e#"enses li/e "ersonal li(ing and famil$e#"enses are not allo)ed as ded!ction from gross

income (,ection 5(A)(%) of the %**' Tax !ode).

The "rohiition of ded!ction of ca"ital losses from

ordinar$ gains is designed to forestall the shifting of

ded!ctions from an area s!ect to lo)er ta#es to an area

s!ect to higher ta#es there$ !nnecessaril$ res!lting in

lea/age of ta# re(en!es. a"ital gains are generall$ ta#ed

at a lo)er rate to "re(ent among others the !nching

of income in one ta#ale $ear )hich is a lieralit$ in the

la) egotten from moti(es of "!lic "olic$ ($ule on

=olding 9eriod). -t stands to reason therefore that if the

transaction res!lts in loss the same sho!ld e allo)ed onl$

from and to the e#tent of ca"ital gains and not to e

ded!cted from



[email protected] 2 of 73ordinar$ gains )hich are s!ect to a higherrateof income ta#. (!hirelstein <ederal 6ncome

Taxation %*'' 4d.)

'e&uctions: 'e&ucti+"e Items from 5ross Income (1999)

#"lain if the follo)ing items are ded!ctile fromgross income for income ta# "!r"oses. isregard)ho is the "erson claiming the e#"ense. +5,

1, -nterest on loans !sed to acF!ire ca"italeF!i"ment or machiner$.

2, e"reciation of good)ill.SUGGESTED ANSWER

1, I%/ere+/ ,% -,a%+ +ed /, acire ca*i/a-

ei*; 5e%/ ,r 5ac:i%er0 is a ded!ctile item

from gross income. The la) gi(es the ta#"a$er theo"tion to claim as a ded!ction or treat as ca"ital

e#"endit!re interest in c!rred to acF!ire "ro"ert$!sed in trade !siness or e#ercise of a "rofession.

(,ection 5"(3) (5) N6$!).

2, De*recia/i,% 1,r g,,d&i-- is not allo)ed as de

d!ction from gross income. While intangilesma$e allo)ed to e de"reciated or amortied it is onl$

allo)ed to those intangiles )hose !se in the !siness or

trade is definitel$ limited in d!ration. + Ba+i-a%

E+/a/e+ I%c. v CIR 2! SCRA !# ,. !ch is not the case

)ith good)ill.

ALTERNATIE ANSWER

e"reciation of good)ill is allo)ed as a ded!ctionfrom gross income if the good)ill is acF!iredthro!gh ca"ital o!tla$ and is /no)n from e#"erienceto e of (al!e to the !siness for onl$ a limited "eriod. (,ection %' $evenue $egulations No. &).-n s!ch case the good)ill is allo)ed to e amortied

o(er its !sef!l life to allo) the ded!ction of thec!rrent "ortion of the e#"ense from gross incomethere$ "a(ing the )a$ for a "ro"er matching ofcosts against re(en!es )hich is an essentialfeat!re of the income ta# s$stem.

'e&uctions: Income Tax: 'onation: 8ea" Property (22)

'n ecemer 06 2001 :;= or"oration donateda "iece of (acant lot sit!ated in ?andal!$ongit$ to an accredited and d!l$ registered nonstoc/ non"rofit ed!cational instit!tion to e !sed $ the latter in !ilding a s"orts com"le# for st!dents.A. ?a$ the donor claim in f!ll as ded!ction from

its gross income for the ta#ale $ear 2001 theamo!nt of the donated lot eF!i(alent to its

fair mar/et (al!eMonal (al!e at the time of

the donation&

#"lain $o!r ans)er. +2,SUGGESTED ANSWER

A. =o. onations andMor contri!tions made to

F!alified donee instit!tions consisting of "ro"ert$

other than mone$ shall e ased on the

acF!isition cost of the "ro"ert$. The donor is

not entitled to claim as f!ll ded!ction the fair

mar/et (al!eMonal (al!e of the lot donated. +ec.

34+, =-,.

C. -n order that donations to nonstoc/ non"rofit

ed!cational instit!tion ma$ e e#em"t from

the donorDs gift ta# )hat conditions m!st e met $

the

donee& +3,SUGGESTED ANSWER




C. -n order that donations to nonstoc/ non"rofit

ed!cational instit!tion ma$ e e#em"t from the

donorDs gift ta# it is reF!ired that not more than 30

of the said gifts shall e !sed $ the doneeinstit!tion

for administration "!r"oses. +ec. 101+A,+3, =-,.

'e&uctions: 7on'e&ucti+"e Items$ 5ross Income (1999)

#"lain if the follo)ing items are ded!ctile fromgross income for income ta# "!r"oses. isregard

)ho is the "erson claiming the ded!ction. +5,1. eser(es for ad dets.2. Worthless sec!ritiesSUGGESTED ANSWER

1. RE-ER/E FOR AD DET- are not allo)ed as

ded!ction from gross income. Cad dets m!st

e charged off d!ring the ta#ale $ear to eallo)ed as ded!ction from gross income. The mere

setting !" of reser(es )ill not gi(e rise to an$ded!ction. +ection 34+,. =T,.

2. WORT*E-- -EC.R&T&E- )hich are ordinar$

assets are not allo)ed as ded!ction from

gross income eca!se the loss is not realied.o)e(er if these )orthless sec!rities are ca"ital

assets the o)ner is considered to ha(e inc!rred a

ca"ital loss as of the last da$ of the ta#ale $ear and

therefore ded!ctile to the e#tent of ca"ital gains.

(,ection 5"(B)(") N6$!). This ded!ction ho)e(er

is not allo)ed to a an/ or tr!st com"an$. (,ection

5"(4)(&) N6$!).

'e&uctions: 8e3uisites$ 'e&uci+i"ity of a /oss (199=)

i(e the reF!isites for ded!ciilit$ of a loss. +51SUGGESTED ANSWER

The reF!isites for ded!ciilit$ of a loss are1, loss elongs to the ta#"a$erE

2, act!all$ s!stained and charged off d!ring theta#ale $earE

3, e(idenced $ a closed and com"leted transactionE4, not com"ensated $ -ns!rance or other forms of

indemnit$E5, not claimed as a ded!ction for estate ta#

"!r"oses in case of indi(id!al ta#"a$ersE and6, if it is a cas!alt$ loss it is e(idenced $ a declaration

of loss filed )ithin 45 da$s )ith the C-.

COMMENT

The F!estion is (ag!e. There are different /inds of lossesrecognied as ded!ctile !nder the Ta# ode. These arelosses in general +ec. 34OP+1,E net o"erating losscarr$o(er +ec. 34OP+3,E ca"ital losses +ec. 34OP+4,E:osses from )ash sales of stoc/s or sec!rities +ec.34OP+5, in relation to ec. 38,E )agering losses +ec.34OP+6,E and aandonment losses +ec. 34+P+7,. :ossesare also ded!ctile from the gross estate +ec. 86OAP+l,+e,

=-,.

onsidering the time allotted for a fi(e +5, "oint F!estion is

onl$ nine +9, min!tes the candidates )o!ld not e ale to

)rite do)n a com"lete ans)er. -t is s!ggested that an$ ans)er

)hich states the reF!isites for the ded!ciilit$ of an$ of the

ao(e losses e gi(en f!ll credit.

'e&uctions$ Income Tax: A""oa+"e 'e&uctions (21)

Ta#"a$ers )hose onl$ income consists of salaries

and )ages from their em"lo$ers ha(e long een

com"laining



[email protected] 2 of 73that the$ are notallo)ed to ded!ct an$ item

from their gross income for "!r"oses of com"!tingtheir net ta#ale income. With the "assageof the om"rehensi(e Ta# eform Act of1997 is this com"laint still (alid& #"lain $o!rans)er. +5,SUGGESTED ANSWER

=o more. ross com"ensation income earners are

no) allo)ed at least an item of ded!ction in theform of "remi!m "a$ments on health andMor

hos"italiation ins!rance in an amo!nt not e#ceeding

2400 "er ann!m Oection 34+?,P. This ded!ction is

allo)ed if the aggregate famil$ income do not e#ceed

250.000 and $ the s"o!se in case of married

indi(id!al )ho claims additional "ersonal

e#em"tion for de"endents.

'e&uctions$ Canis#ing 'e&uction$ Purpose (26)

;anishing ded!ction is a(ailed of $ ta#"a$ers to*a. orrect his acco!nting records to reflect theact!al ded!ctions made

. ed!ce his gross incomec. ed!ce his o!t"!t (al!eadded ta# liailit$d. ed!ce his gross estatehoose the correct ans)er. #"lain. +5,SUGGESTED ANSWER

+, red!ce his gross estate. ;anishing ded!ction or "ro" ert$ "re(io!sl$ ta#ed is one of the items ofded!ction allo)ed in com"!ting the net estate of adecedent (,ection /A@&@ and /3@&@ N6$!).

xc"usion ; Inc"usion$ 5ross 8eceipts (26)

ongress enacts a la) im"osing a 5 ta# on gross

recei"ts of common carriers. The la) does not

define the term %gross recei"ts.% #"ress Trans"ort

-nc. a !s com"an$ "l$ing the ?anilaCag!io ro!te

has time de"osits )ith AC Can/. -n 2005 #"ress

Trans"ort earned 1 ?illion interest after ded!cting

the 20 final )ithholding ta# from its time de"osits

)ith the an/. The C- )ants to collect a 5 gross

recei"ts ta# on the interest income of #"ress Trans"ort

)itho!t ded!cting the 20 final )ithholding ta#. -s

the C- correct& #"lain. +5,ALTERNATIE ANSWER

<es. The term %ross ecei"ts% is road eno!gh to

incl!de income constr!cti(el$ recei(ed $ the

ta#"a$er. The amo!nt )ithheld is "aid to the

go(ernment on its ehalf in satisfaction of )ithholding

ta#es. The fact that it did not act!all$ recei(e the amo!ntdoes not alter the fact that it is remitted in satisfaction

of its ta# oligations. ince the income )ithheld

is an income o)ned $ #"ress Trans"ort the

same forms "art of its gross recei"ts (CIR v.

S,-id6a% C,r*. G.R. N,. !4!"!

N,ve56er 23 2))7$.ALTERNATIE ANSWER

=o. The term %gross recei"ts% as a""lied to the !siness of a common carrier consists of re(en!esfrom carriage of goods cargoes and "assengers. -tdoes not com"rehend or incl!de interest income)hich is "ro"erl$ descried as %'ther -ncome.%

( NOTA BENE : This 7uestion pertains to a percentage

tax on #ross $eceipts which is excluded from the 3ar

coverage)

xc"usion s 'e&uction from 5ross Income (21)




isting!ish %#cl!sion from ross -ncome%from %ed!ctions Irom ross -ncome%. i(e ane#am"le of each. +2,SUGGESTED ANSWER

EXCLUSIONS 1r,5 gr,++ i%c,5e refer to a flo) of

)ealth to the ta#"a$er )hich are not treated as "art

of gross income for "!r"oses of com"!ting the

ta#"a$erQs ta#ale income d!e to the follo)ing

reasons* +1, -t is e#em"ted $ the f!ndamental la)E +2,

-t is e#em"ted $ stat!teE and +3, -t does not come )ithinthe definition of income. +ection 61 =o. 2,.

DEDUCTIONS 1r,5 gr,++ i%c,5e on the other hand are

the amo!nts )hich the la) allo)s to e ded!cted from

gross income in order to arri(e at net income.

#cl!sions "ertain to the com"!tation of gross

income )hile ded!ctions "ertain to thecom"!tation of net income. #cl!sions are

something recei(ed or earned $ the ta#"a$er )hich

do not form "art of gross income )hile ded!ctions

are something s"ent or "aid in earning grossincome.

#am"le of an e#cl!sion from gross income is "roceeds

of life ins!rance recei(ed $ the eneficiar$ !"onthe death of the ins!red )hich is not an income or

13th month "a$ of an em"lo$ee not e#ceeding 30.000)hich is an income not recognied for ta# "!r"oses.

#am"le of a ded!ction is !siness rental.

xc"usions ; Inc"usions: Benefits on Account of

In@ury (199)?r. -nfante )as hit $ a )a$)ard !s )hile on his )a$ to

)or/. e s!r(i(ed !t had to "a$ 400.000.00 for his

hos"italiation. e )as !nale to )or/ for si# months

)hich meant that he did not recei(e his !s!al salar$ of

10000.00 a month or a total of 60.000.00. e s!ed the

!s com"an$ and )as ale to otain a final !dgment

a)arding him 400.000.00 as reim!rsement for

his hos"italiation 60.000 for the salaries he failed to

recei(e )hile hos"italied 200000.00 as moral damages

for his "ain and s!ffering and 100000.00 as

e#em"lar$ damages. e )as ale to collect in f!ll from

the !dgment. o) m!ch income did he realie )hen

he collected on the !dgment& #"lain.SUGGESTED ANSWER

=one. The 200.000 moral and e#em"lar$ damages

are com"ensation for in!ries s!stained $ ?r. -nfante.

The 400.000.00 reim!rsement for hos"italiation

e#"enses and the 60.000.00 for salaries he failed torecei(e are Damo!nts of an$ damages recei(ed )hether

$ s!it or agreement on acco!nt of s!ch in!ries.D ection

28+,+5, of the Ta# ode s"ecificall$ e#cl!de these

amo!nts from the gross income of the indi(id!al

in!red. +ection 28+, =- and ec. 63 e(. eg. =o.

2,ALTERNATIE ANSWER

The income realied from the !dgment is onl$

the reco(er$ for lost salaries. This constit!tes ta#ale

income eca!se )ere it not for the in!r$ he co!ld ha(e

recei(ed it from his em"lo$er as com"ensation

income. All the other amo!nts recei(ed are either

com"ensation for in!ries or damages recei(ed on acco!nt

of s!ch in!riesD




73 )hich are e#cl!sions from gross income "!rs!ant to ection 28+,+5, of the Ta# ode.

xc"usions ; Inc"usions: xecutie Benefits (199)

?r. Adrian is an e#ec!ti(e of a ig !siness cor"oration.

Aside from his salar$ his em"lo$er "ro(ides him )ith

the follo)ing enefits* free !se of a residential

ho!se in an e#cl!si(e s!di(ision free !se of a

limo!sine and memershi" in a co!ntr$ cl! )here

he can entertain c!stomers of the cor"oration. Which of

these enefits if an$ m!st ?r. Adrian re"ort as income&

#"lain.SUGGESTED ANSWER

?r. Adrian m!st re"ort the im"!ted rental (al!e of

the ho!se and limo!sine as income. -f the rental (al!e

e#ceeds the "ersonal needs of ?r. Adrian eca!se he is

e#"ected to "ro(ide accommodation in said ho!se for

com"an$ g!ests or the car is !sed "artl$ for !siness

"!r"ose then ?r. Adrian is entitled onl$ to a ratale

rental (al!e of the ho!se and limo!sine as e#cl!sion

from gross income and onl$ a reasonale amo!nt sho!ld

e re"orted as income. This is eca!se the free ho!sing

and !se of the limo!sine are gi(en "artl$ for the

con(enience and enefit of the em"lo$er (C,--ec/,r v+. He%der+,%$.ALTERNATIE ANSWER

em!neration for ser(ices altho!gh not gi(en in the form

of cash constit!tes com"ensation income.

Accordingl$ the (al!e for the !se of the residential

ho!se is "art of his com"ensation income )hich he

m!st re"ort for income ta# "!r"oses. o)e(er if the

residential ho!se gi(en to ?r. Adrian for his free !se

as an e#ec!ti(e is also !sed for the enefit of the

cor"orationMem"lo$er s!ch as for entertaining

c!stomers of the cor"oration onl$ 50 of the rental

(al!e or de"reciation +if the ho!se is o)ned $ the

cor"oration, shall form "art of com"ensation income

+A?' 187,.

The free !se of a limo!sine and the memershi"

in a co!ntr$ cl! is not "art of ?r. AdrianDscom"ensation income eca!se the$ )ere gi(en for

the enefit of the em"lo$er and are considered to enecessar$ incidents for the "ro"er "erformance of

his d!ties as an e#ec!ti(e of the cor"oration.

The memershi" fee in the co!ntr$ cl! needs to e

re"orted as income. -t a""ears that the memershi"

of ?r. Adrian to the co!ntr$ cl! is "rimaril$ for the

enefit and con(enience of the em"lo$er. This is to

enale ?r. Adrian to entertain com"an$ g!ests(C,--ec/,r v+.

He%der+,%$.

xc"usions ; Inc"usions$ Assets$ 8esi&ent A"ien (2)

al"h onald an American citien )as a to"

e#ec!ti(e of a G.. com"an$ in the hili""ines !ntil

he retired in 1999. e came to li/e the hili""ines

so m!ch that follo)ing his retirement he decided to

s"end the rest of his life in the co!ntr$. e a""lied for

and )as granted a "ermanent resident stat!s the

follo)ing $ear. -n the s"ring of 2004 )hile

(acationing in 'rlando Ilorida GA he s!ffered a

heart attac/ and died. At the time of his death he left the

follo)ing "ro"erties* +a, an/ de"osits )ith itian/

?a/ati and itian/ 'rlando IloridaE +, a restho!se

in 'rlando IloridaE +c, a condomini!m !nit in




?a/atiE +d, shares of stoc/ in the hili""ine s!sidiar$of the G.. om"an$ )here he )or/edE +e, shares ofstoc/ in an ?ig!el or". and :'TE +f, shares ofstoc/ in isne$ World in IloridaE +g, G.. treas!r$ ondsE and +g, "roceeds from a life ins!rance "olic$iss!ed $ a G.. cor"oration.Which of the foregoing assets shall e incl!ded inthe ta#ale gross estate in the hili""ines& #"lain.+5,SUGGESTED ANSWER

All of the "ro"erties en!merated e#ce"t +g, the "roceeds from life ins!rance are incl!ded in theta#ale gross estate in the hili""ines. al"h onald isconsidered a resident alien for ta# "!r"oses since he isan American itien and )as a "ermanent resident ofthe hili""ines at the time of his death. The (al!e of thegross estate of a resident alien decedent shall edetermined $ incl!ding the (al!e at the time of hisdeath of all "ro"ert$ real or "ersonal tangile orintangile )here(er sit!ated. +ec. 85 =-,The other item +g, "roceeds from a life ins!rance "olic$

ma$ also e incl!ded on the ass!m"tion that it )as al"h

onald )ho too/ o!t the ins!rance !"on his o)n life "a$ale !"on his death to his estate. +ec. 85OP =-,

xc"usions ; Inc"usions$ Benefits on Account of

'eat# (1996)

B an em"lo$ee of AC or"oration died.AC or"oration ga(e BQs )ido) an amo!nteF!i(alent to BQs salar$ for one $ear. -s the amo!ntconsidered ta#ale income to the )ido)& Wh$&SUGGESTED ANSWER

=o. The amo!nt recei(ed $ the )ido) fromthe decedentDs em"lo$er ma$ either e a gift or ase"aration enefit on acco!nt of death. Coth aree#cl!sions from gross income "!rs!ant to "ro(isionsof ection 28+, of the Ta# ode.ALTERNATIE ANSWER

=o. ince the amo!nt )as gi(en to the )ido) and not tothe estate it ecomes o(io!s that the amo!nt is moreof a gift. -n one G.. ta# case + E+/a/e ,1 He--+/r,5

v+. C,55i++i,%er 2 T.C. "!' , it )as held that "a$mentsto the )ido) of the "resident of a cor"oration ofthe amo!nt the "resident )o!ld ha(e recei(ed in salar$if he li(ed o!t the $ear constit!ted a gift and not anincome.

The controlling facts )hich )o!ld lead to the

concl!sion that the amo!nt recei(ed $ the )ido) is

not an income are as follo)s*7, the gift )as made to the )ido) rather than

the estate*8, there )as no oligation for the cor"oration to

ma/e f!rther "a$ments to the deceasedE9, the )ido) had ne(er )or/ed for the cor"orationE10, the cor"oration recei(ed no economic enefitE and11, the deceased had een f!ll$ com"ensated for

his ser(ices + E+/a/e ,1 S0d%e0 Car/er

v+. C,55i++i,%er 37 F. 2d '! (2dCir. !"#!,.

xc"usions ; Inc"usions$ Benefits on Account of

In@ury (2)

K )as a "assenger of an airline that crashed. e s!r(i(edthe accident !t s!stained serio!s "h$sical in!ries )hichreF!ired hos"italiation for 3 months. Iollo)ingnegotiations )ith the airline and its ins!rer an agreement



[email protected] +0 of 73)as reached !nder the terms of )hich K)as

"aid the follo)ing amo!nts* 500000.00 for

his hos"italiationE 250000.00 as moral damagesE

and 300000.00 for loss of income d!ring the

"eriod of his treatment and rec!"eration. -n addition K

recei(ed from his em"lo$er the amo!nt of 200000.00

re"resenting the cash eF!i(alent of his earned (acation

and sic/ lea(es.

Which if an$ of the amo!nts he recei(ed are s!ectto income ta#& #"lain. +5,SUGGESTED ANSWER

All amo!nts recei(ed from the airline com"an$are e#cl!ded from gross income. Gnder ec. 32+C,+4,of the =- amo!nts of damages recei(ed )hether $ s!it or agreement on acco!nt of "ersonal in!riesor sic/ness are e#cl!ded from gross income. ince theamo!nts recei(ed from the airline com"an$ )ererecei(ed as damages $ agreement on acco!nt of "ersonal in!ries all shall e e#cl!ded from KDsgross income.

The amo!nt of 200000.00 less the eF!i(alent ofnot more than 10 da$s of (acation lea(e recei(ed $

K from his em"lo$er is s!ect to income ta# !nder

ec. 2.78.1 +a, +7, of .. =o. 298.

xc"usions ; Inc"usions$ !ompensation for

persona" in@uries or sicness (24)

B )hile dri(ing home from his office )asserio!sl$ in!red )hen his a!tomoile )as !m"edfrom ehind $ a !s dri(en $ a rec/less dri(er. As ares!lt he had to "a$ 200000.00 to his doctorand 100 000.00 to the hos"ital )here he )asconfined for treatment. e filed a s!it against the !sdri(er and the !s com"an$ and )as a)arded and "aid act!al damages of 300 000.00 (for his doctor

and hospitaliIation bills) 100000.00 $ )a$ ofmoral damages and 50000.00 for )hat he hadto "a$ his attorne$ for ringing his case to co!rt.Which if an$ of the foregoing a)ards are ta#aleincome to B and )hich are not& #"lain. +8,SUGGESTED ANSWER

=othing is ta#ale. Gnder the Ta# ode an$amo!nt recei(ed as com"ensation for "ersonalin!ries or sic/ness "l!s the amo!nts for an$damages recei(ed )hether $ s!it or agreement onacco!nt of s!ch in!ries or sic/ness shall ee#cl!ded from gross income. ince the entire

amo!nt of 450 000.00 recei(ed are a)ard ofdamages on acco!nt of the in!ries s!stainedE allshall e e#cl!ded from his gross income.'(io!sl$ these damages are considered $ la)as mere ret!rn of ca"ital. +ection 32+C,+4, 1997Ta# ode,

xc"usions ; Inc"usions$ Faci"ities or Prii"eges$

0i"itary !amp (199)

a"t. an!to is a memer of the Armed Iorcesof the hili""ines. Aside from his "a$ asca"tain the go(ernment gi(es him free !niforms

free li(ing F!arters in )hate(er militar$ cam" he isassigned and free meals inside the cam". Are these enefits income to a"t. an!to& #"lain.SUGGESTED ANSWER

=o the free !niforms free li(ing F!arters and the

free meals inside the cam" are not income to a"t.

an!te eca!se these are facilities or "ri(ileges

f!rnished $ the




em"lo$er for the em"lo$erDs con(enience )hich

are necessar$ incidents to "ro"er "erformance of themilitar$ "ersonnelDs d!ties.

xc"usions ; Inc"usions$ 5ifts oer an& a+oe

t#e 8etirement Pay (199)

?r. L!iro )or/ed as chief acco!ntant of a hos"ital for

fort$fi(e $ears. When he retired at 65 he

recei(ed retirement "a$ eF!i(alent to t)o monthsD salar$

for e(er$ $ear of ser(ice as "ro(ided in the hos"ital C-a""ro(ed retirement "lan. The Coard of irectors of

the hos"ital felt that the hos"ital sho!ld gi(e L!iro more

than )hat )as "ro(ided for in the hos"italDs retirement

"lan in (ie) of his lo$alt$ and in(al!ale ser(ices for

fort$fi(e $earsE hence it resol(ed to "a$ him a grat!it$ of

1 ?illion o(er and ao(e his retirement "a$.

The ommissioner of -nternal e(en!e ta#ed the 1

?il lion as "art of the gross com"ensation income ofL!iro )ho "rotested that it )as e#cl!ded from income

eca!se +a, it )as a retirement "a$ and +, it )as a gift.

1, -s ?r. L!iro correct in claiming that the

additional 1 ?illion )as retirement "a$and therefore e#cl!ded from income& #"lain.

2, -s ?r. L!iro correct in claiming that theadditional 1 ?illion )as gift and thereforee#cl!ded fromincome& #"lain.

SUGGESTED ANSWERS

1, =o. The additional 1 million is not a retirement "a$

!t a "art of the gross com"ensation income of ?r.

L!iro. This is not a retirement enefit recei(ed

in accordance )ith a reasonale "ri(ate enefit

"lan maintained $ the em"lo$er as it )as not "aid o!t of

the retirement "lan. Accordingl$ the amo!nt

recei(ed in e#cess of the retirement enefits that he is

entitled to recei(e !nder the C-a""ro(ed retirement

"lan )o!ld not F!alif$ as an e#cl!sion from gross

income.

2, =o. The amo!nt recei(ed )as in consideration of his

lo$alt$ and in(al!ale ser(ices to the com"an$ )hich

is clearl$ a com"ensation income recei(ed on acco!nt

of em"lo$ment. Gnder the em"lo$erDs Dmoti(ation

testD em"hasis sho!ld e "laced on the (al!e of ?r.

L!iro ser(ices to the com"an$ as the com"elling

reason for gi(ing him the grat!it$ hence it sho!ld

constit!te a ta#ale income. The "a$ment )o!ld onl$

F!alif$ as a gift if there is nothing !t Dgood )ill

esteem and /indnessD )hich moti(ated the em"lo$erto gi(e the grat!it$.

(S/,%/,% v+. U.S. !4' F. S**. 7"7$. !ch is not the case inthe herein "rolem.ALTERNATIE ANSWER

<es. The 1 million is not com"ensation income s!ect to

income ta# !t a gift from his em"lo$er. There )as

no e(idence "resented to sho) that he )as not f!ll$

com"en sated for his 45 $ears of ser(ice. -f his ser(ices

contri!ted in a large meas!re to the s!ccess of the

hos"ital it did not gi(e rise to a reco(erale det. The 1

million is "!rel$ a grat!it$ from the com"an$. -t is a

ta#ale gift to the transferor. Gnder the Ta# ode gifts

are e#cl!ded from gross income therefore e#em"t from

income ta#. +ec. 28H,+3, =-E Pir,va%, v+.

C,55i++i,%er ,






final ta# it is not to e incl!ded in the ann!al -T. +ec.

24OCPO1P =-, +!, ame as =o. +,.

xc"usions ; Inc"usions$ IT8$ Procee&s of "ife insurance

(2)

tate )ith reasons the ta# treatment of thefollo)ing in the "re"aration of ann!al income ta#ret!rns* roceeds of life ins!rance recei(ed $ achild as irre(ocale eneficiar$ESUGGESTED ANSWER

=ot to e re"orted in the ann!al income ta# ret!rns eca!se the "roceeds of the life ins!rance aree#cl!ded from gross income. roceeds of :ifeins!rance "olicies "aid to the heirs or eneficiaries!"on the death of the ins!red is an e#cl!sion from gross

income. (,ec.5&3@l@N6$!)

xc"usions ; Inc"usions$ /ife Insurance Po"icy (24)

'n 30 K!ne 2000 B too/ o!t a life ins!rance "olic$ onhis o)n life in the amo!nt of 2000000.00. edesignated his )ife < as irre(ocale eneficiar$ to1000000.00 and his son J to the alance of

1000000.00 !t in the latter designation reser(inghis right to s!stit!te him for another. 'n 01 e"temer2003 B died and his )ife and son )ent to the ins!rer tocollect the "roceeds of BDs life ins!rance "olic$. +8,+a, Are the "roceeds of the ins!rance s!ect

to income ta# on the "art of < and J fortheir res"ecti(e shares& #"lain.

+, Are the "roceeds of the ins!rance to form "art ofthe gross estate of B& #"lain.

SUGGESTED ANSWERS

+a, =o. The la) e#"licitl$ "ro(ides that "roceeds of life

ins!rance "olicies "aid to the heirs or eneficiaries !"on

the death of the ins!red are e#cl!ded from gross incomeand is e#em"t from ta#ation. The "roceeds of

life ins!rance recei(ed !"on the death of theins!red constit!te a com"ensation for the loss of

life hence a ret!rn of ca"ital )hich is e$ond thesco"e of income ta#ation. (,ection 5&(3)(%) %**' Tax

!ode)

+, 'nl$ the "roceeds of 1000000.00 gi(en to the son

J shall form "art of the ross state of B. Gnder

the Ta# ode "roceeds of life ins!rance shall form

"art of the gross estate of the decedent to the e#tent

of the amo!nt recei(ale $ the eneficiar$ designated

in the "olic$ of the ins!rance e#ce"t )hen it is

e#"ressl$ sti"!lated that the designation of the

eneficiar$ is irre(ocale. As stated in the "rolem onl$the designation of < is irre(ocale )hile the

ins!redMdecedent reser(ed the right to s!stit!te J as

eneficiar$ for another "erson. Accordingl$ the "roceeds

recei(ed $ < shall e e#cl!ded )hile the "roceeds

recei(ed $ J shall e incl!ded in the gross estate of B.

(,ect;on /(4) %**' Tax !ode)

xemptions: !#arita+"e Institutions (2)

Article ;- ection 28 +3, of the 1987 hili""ine

onstit!tion "ro(ides that charitale instit!tions

ch!rches and "ersonages or co(enants a""!rtenant

thereto mosF!es non"rofit cemeteries and all lands

!ildings and im"ro(ements act!all$ directl$ and



[email protected] +2 of

73 e#cl!si(el$ !sed for religio!s charitale ored!cational "!r"oses shall e e#em"t from ta#ation.a, To )hat /ind of ta# does this e#em"tion a""l$& +2,-.E-TED A$-WER%This e#em"tion a""lies onl$ to "ro"ert$ ta#es. What

is e#em"ted is not the instit!tion itself !t the

lands !ildings and im"ro(ements act!all$

directl$ and e#cl!si(el$ !sed for religio!s

charitale and ed!cational "!r"oses. (C,55i++i,%er ,1

I%/er%a- Reve%e v. C,r/ ,1 A**ea-+ e/ a- G.R. N,. !2)7 Oc/,6er ! !""4$.

, -s "roof of act!al !se necessar$ for ta#e#em"tion

"!r"oses !nder the onstit!tion& +3,SUGGESTED ANSWER

<es eca!se ta# e#em"tions are strictl$ constr!ed

against the ta#"a$er. There m!st e e(idence to

sho) that the ta#"a$er has com"lied )ith the

reF!irements for e#em"tion. I!rthermore real

"ro"ert$ ta#ation is ased on !se and not on

o)nershi" hence the same r!le m!st also e a""lied for

real "ro"ert$ ta# e#em"tions.

xemptions: !#arita+"e Institutions$ !#urc#es (1996)

The onstit!tion e#em"ts from ta#ation charitalein stit!tions ch!rches "arsonages or con(entsa""!rtenant thereto mosF!es arid non"rofitcemeteries and lands !ildings and im"ro(ementsact!all$ directl$ and e#cl! si(el$ !sed forreligio!s charitale and ed!cational "!r"oses.?erc$ os"ital is a 100ed hos"ital organied forcharit$ "atients. an said hos"ital claim e#em"tionfrom ta#ation !nder the ao(eF!otedconstit!tional "ro(ision& #"lain.SUGGESTED ANSWER

<es. ?erc$ os"ital can claim e#em"tion from

ta#ation !nder the "ro(ision of the onstit!tion !t onl$ )ith res"ect to real "ro"ert$ ta#es "ro(ided that s!ch real "ro"erties are !sedact!all$ directl$ and e#cl!si(el$ for charitale "!r"oses.

xemptions: &ucationa" institution (2*)

!""ose that B<J olleges is a "ro"rietar$ed!cational instit!tion o)ned $ the Archisho"Dsfamil$ rather than the Archdiocese )hich of thoseao(e cited income and donation )o!ld e e#em"tfrom ta#ation& #"lain riefl$. +5,SUGGESTED ANSWER

-f B<J olleges is a "ro"rietar$ ed!cationalinstit!tion all of its income from school related andnonschool related acti(ities )ill e s!ect to theincome ta# ased on its aggregate net incomederi(ed from oth acti(ities +ection 27+C, =?,.Accordingl$ all of the income en!merated in the "rolem )ill e ta#ale.

The donation of lot and !ilding )ill li/e)ise e

s!ect to the donorDs ta# eca!se a donation to

an ed!cational instit!tion is e#em"t onl$ if the school

is incor"orated as a nonstoc/ entit$ "a$ing no

di(idends.

ince the donee is a "ro"rietar$ ed!cational

instit!tion the donation is ta#ale +ection 101+AB3,

=K,.

xemptions: 5ifts ; 'onations (199*)

-n 1991 -melda ga(e her "arents a hristmas gift of

100000.00 and a donation of 50000.00 to her

"arish





[email protected] ++ of 73Gnder Article BT; ection 4 +3, of the 1987

hili""ine onstit!tion all re(en!es and assets ofnon stoc/ non"rofit ed!cational instit!tions !sedact!all$ directl$ and e#cl!si(el$ for ed!cational "!r"oses are e#em"t from ta#es and d!ties. Areincome deri(ed from dormitories canteens and oo/stores as )ell as interest income on an/de"osits and $ields from de"osit s!stit!tesa!tomaticall$ e#em"t from ta#ation& #"lain. +5,SUGGESTED ANSWER

=o. The interest income on an/ de"osits and $ields

from de"osit s!stit!tes are not a!tomaticall$ e#em"t

from ta#ation. There m!st e a sho)ing that the

incomes are incl!ded in the schoolDs ann!al

information ret!rn and d!l$ a!dited financial

statements together )ith*

1. ertifications from de"ositor$ an/s as tothe amo!nt of interest income earned from "assi(e in(estments not s!ect to the 20 final)ithholding ta#E

2. ertification of act!al direct and e#cl!si(e!tiliation of said income for ed!cational

"!r"osesE3. Coard resol!tion on "ro"osed "roect to e

f!nded o!t of the mone$ de"osited in an/s

or "laced in mone$ mar/et "lacements

(<inance Bepartment Crder No. %"*-* issued

November &" %**) )hich m!st e !sedact!all$ directl$ and e#cl!si(el$ for ed!cational

"!r"oses.

The income deri(ed from dormitories canteensand oo/stores are not also a!tomaticall$

e#em"t from ta#ation. There is still thereF!irement for e(idence to sho) act!al directand e#cl!si(e !se for ed!cational "!r"oses. -t isto e noted that the 1987 hili""ine onstit!tiondoes not disting!ish )ith res"ect to the so!rce ororigin of the income. The distinction is )ithres"ect to the !se )hich sho!ld e act!al directand e#cl!si(e for ed!cational "!r"oses.

onseF!entl$ the "ro(isions of ec. 30 of the =-of 1997 that a nonstoc/ and non"rofit

ed!cational instit!tion is e#em"t from ta#ation

onl$ %in res"ect to income recei(ed $ them as

s!ch% co!ld not affect the constit!tional ta#e#em"tion. Where the onstit!tion does not

disting!ish )ith res"ect to so!rce or origin the Ta#

ode sho!ld not ma/e distinctions.

xemptions: 7onProfit ntity$ Anci""ary Actiity

; Inci&enta" %perations (199*)

The Gni(ersit$ of Cigaa a nonstoc/ non"rofit

entit$ o"erates a canteen for its st!dents and a oo/store

inside the cam"!s. -t also o"erates t)o dormitories

for its st!dents one of )hich is in the cam"!s. -s the

Gni(ersit$ liale to "a$ income ta#es for the

o"eration of the* 1, canteen& 2, oo/store& 3, t)o

dormitories&SUGGESTED ANSWER

1, Ior the o"eration of the canteen inside the cam"!s

the income thereon eing incidental to the o"erations of

the Gni(ersit$ as a school is e#em"t (Art. H62 (")

(5) !onstitution B4!, $egulations No. %5'-/' Bec. %

%*/').

2, Ior the same reasons the Gni(ersit$ of Cigaa is not

liale to "a$ income ta#es for the o"eration of the




oo/store since this is an ancillar$ acti(it$ the cond!ct

of )hich is carried o!t )ithin the school "remises.

3, The Gni(ersit$ of Cigaa shall not e liale to "a$ income ta#es for the o"eration of the dormitor$

located in the cam"!s for same reasons as the

foregoing. o)e(er the latter shall e liale for

income ta#es on income from o"erations of thedormitor$ located o!tside the school "remises.

xemptions: 7onStocE 7onProfit Association (22)

B<J Io!ndation is a nonstoc/ non"rofit association

d!l$ organied for religio!s charitale and social )elfare

"!r"oses. :ast Kan!ar$ 3 2000 it sold a "ortion of its lot

!sed for religio!s "!r"oses and !tilied the entire

"roceeds for the constr!ction of a !ilding to ho!se

its free a$ and =ight are enter for children of

single "arents. -n order to s!sidie the e#"enses of the

a$ and =ight are enter and to s!""ort its religio!s

charitale and social )elfare "roects the Io!ndation

leased the 300 sF!are meter area of the second and

third floors of the !ilding for !se as a oarding ho!se.

The Io!ndation also o"erates a canteen and a gift sho")ithin the "remises all the income from )hich is !sed

act!all$ directl$ and e#cl!si(el$ for the "!r"oses for

)hich the Io!ndation )as organied.

A. onsidering the constit!tional "ro(ision granting ta#

e#em"tion to nonstoc/ cor"orations s!ch as those

formed e#cl!si(el$ for religio!s charitale or

social )elfare "!r"oses e#"lain the meaning of

the last "aragra"h of said ec. 30 of the 1997

Ta# ode )hich states that J6ncome of whatever

>ind and character of the foregoing organiIations

from any of their properties real or personal or

from any of their activities conducted for profit

regardless of the disposition made of such income

shall be

sub1ect to tax imposed under this !ode.0 +5,SUGGESTED ANSWER

A. The e#em"tion contem"lated in the onstit!tion

co(ers real estate ta# on real "ro"erties act!all$

directl$ and e#cl!si(el$ !sed for religio!s charitale

or social )elfare "!r"oses. -t does not co(er e#em"tion

from the im"osition of the income ta# )hich is )ithin the

conte#t of ection 30 of the Ta# ode. As a r!le non

stoc/ non "rofit cor"orations organied for religio!s

charitale or social )elfare "!r"oses are e#em"t from

income ta# on their income recei(ed $ them as s!ch.

o)e(er if these religio!s charitale or social )elfarecor"orations deri(e income from their "ro"erties or

an$ of their acti(ities cond!cted for "rofit the income

ta# shall e im"osed on said items of income

irres"ecti(e of their dis"osition. + Sec. 7) NIRC? CIR v

MCA GR N,. !2)7 !""4,.

C. -s the income deri(ed $ B<J Io!ndation from the

sale of a "ortion of its lot rentals from its oarding

ho!se and the o"eration of its canteen and gift sho"

s!ect to ta#& #"lain. +5,SUGGESTED ANSWER

C. <es. The income deri(ed from the sale of lot and

rentals from its oarding ho!se are considered as income

from "ro"erties )hich are s!ect to ta#. :i/e)ise the

income from the o"eration of the canteen and gift sho"



[email protected] +4 of 73are income from its acti(ities cond!cted for

"rofit )hich are s!ect to ta#. The income ta#attaches irres"ecti(e of the dis"osition of theseincomes. + Sec. 7) NIRC? CIR v. MCA GR N,.

!2)7 !""4,.

xemptions: Pri?e of Peace Poster !ontest (2)

Kose ?iranda a $o!ng artist and designer recei(ed a "rie of 100000.00 for )inning in the onthe

s"ot "eace "oster contest s"onsored $ a local :ionsl!. hall the re)ard e incl!ded in the grossincome of the reci"ient for ta# "!r"oses& #"lain.+3,SUGGESTED ANSWER

=o. -t is not incl!dale in the gross income of the

reci"ient eca!se the same is s!ect to a final ta# of

20 the amo!nt thereof eing in e#cess of 10.000

(,ec. &"(3)K%) N6$! of %**'). The "rie constit!tes

a ta#ale income eca!se it )as made "rimaril$ in

recognition of artistic achie(ement )hich he )on d!e to

an action on his "art to enter the contest. ,ec. 5& (3)

(') (c) N6$! of %**'@

ince it is an onthes"ot contest it is e(identthat he m!st ha(e oined the contest in order to earnthe "rie or a)ard.

xemptions: Pri?es ; Aar&s$ At#"etes (1996)

'n$oc an amate!r o#er )on in a o#ing

com"etition s"onsored $ the old !" Co#ing

o!ncil a s"orts association d!l$ accredited $

the hili""ine Co#ing Association. 'n$oc recei(ed

the amo!nt of 500000 as his "rie )hich )as

donated $ A$ala :and or"oration. The C- tried to

collect income ta# on the amo!nt recei(ed $

'n$oc and donorDs ta# from A$ala :and

or"oration )hich ta#es 'n$oc and A$ala :and

or"oration ref!se to "a$. ecide.SUGGESTED ANSWER

The "rie )ill not constit!te a ta#ale income to'n$oc hence the C- is not correct in im"osing theincome ta#. .A. =o. 7549 e#"licitl$ "ro(ides thatDAll "ries and a)ards granted to athletes in localand international s"orts to!rnaments and com"etitionsheld in the hili""ines or aroad and sanctioned $their res"ecti(e national s"orts associations shall ee#em"t from income ta#%.

=either is the C- correct in collecting the

donorDs ta# from A$ala :and or"oration. The

la) is clear )hen it categoricall$ stated %That thedonorDs of said "ries and a)ards shall e e#em"t

from the "a$ment of the donorDs ta#.%

xemptions: 8etirement Benefits: -or Separation (1999)

A o. a hili""ine cor"oration has t)o di(isions > man!fact!ring and constr!ction. !e to theeconomic sit!ation it had to close its constr!ctiondi(ision and la$ off the em"lo$ees in that di(ision. Ao. has a retirement "lan a""ro(ed $ the C- )hichreF!ires a minim!m of 50 $ears of age and 10$ears of ser(ice in the same em"lo$er at the time

of retirement. There are 2 gro!"s of em"lo$ees to elaid off*1, m"lo$ees )ho are at least 50 $ears of age and

has at 10 $ears of ser(ice at the time oftermination of em"lo$ment.

2, m"lo$ees )ho do no meet either the age or

length of ser(ice A o. "lans to gi(e the

follo)ing*




a. Ior categor$ +A, em"lo$ees the enefits

!nder the C- a""ro(ed "lan "l!s an e# gratia

"a$ment of one month of e(er$ $ear of

ser(ice. . Ior categor$ +C, em"lo$ees one monthfor

e(er$ $ear of ser(ice.Ior oth categories the cash eF!i(alent of

!n!sed (acation and sic/ lea(e credits.

A o. see/s $o!r ad(ice as to )hether or not it

)ill s!ect an$ of these "a$ments to WT. #"lain

$o!r ad(ice. +5,SUGGESTED ANSWER

Ior categor$ A em"lo$ees all the enefits recei(ed on

acco!nt of their se"aration are not s!ect to income ta#

hence no )ithholding ta# shall e im"osed. The enefits

recei(ed !nder the C-a""ro(ed "lan !"on meeting the

ser(ice reF!irement and age reF!irement are e#"licitl$

e#cl!ded from gross income. The e# gratia "a$ment also

F!alifies as an e#cl!sion from gross income eing in the

nat!re of enefit recei(ed on acco!nt of se"aration d!e to

ca!ses e$ond the em"lo$eesD control. +ection 32+C, =-,. The cash eF!i(alent of !n!sed (acation and sic/

lea(e credits F!alifies as "art of se"aration

enefits e#cl!ded from gross income +CIR v. C,r/ ,1

A**ea-+ GR N,. "'O!' Oc/,6er !# !""!,.

Ior categor$ C em"lo$ees all the enefits recei(ed $ them )ill also e e#em"t from income ta#hence not s!ect to )ithholding ta#. These are enefits recei(ed on acco!nt of se"aration d!e toca!ses e$ond the em"lo$eesD control )hich are

s"ecificall$ e#cl!ded from gross income. (,ection

5&(3) N6$!).ALTERNATIE ANSWER

All of the "a$ments are not s!ect to income ta# andsho!ld not also e s!ect to )ithholding ta#.

The em"lo$ees )ere laid off hence se"arated for a

ca!se e$ond their control. onseF!entl$ the amo!nts

to e "aid $ reason of s!ch in(ol!ntar$

se"aration are e#cl!ded from gross income irres"ecti(e

of )hether the em"lo$ee at the time of se"aration has

rendered less than ten $ears of ser(ice andMor is elo)

fift$ $ears of age.

(,ection 5&(3) N6$!).

xemptions: Separation Pay (199*)

edro e$es an official of or"oration B as/ed

for an %earlier retirement% eca!se he )asemigrating to A!stralia. e )as "aid 2.000.000.00 asse"aration "a$ in recognition of his (al!ale ser(ices tothe cor"oration.

K!an r! another official of the same com"an$

)as se"arated for occ!"$ing a red!ndant "osition.

e )as gi(en 1000.000.00 as se"aration "a$.

Kose Ca!tista )as se"arated d!e to his failing e$esight.

e )as gi(en 500.000.00 as se"aration "a$.

All the three +3, )ere not F!alified to retire !nderthe C-a""ro(ed "ension "lan of the cor"oration.

1, -s the se"aration "a$ gi(en to e$es s!ect to incometa#&2, o) ao!t the se"aration "a$ recei(ed $ r!&3, o) ao!t the se"aration "a$ recei(ed $ Ca!tista&



[email protected] +. of

73SUGGESTED ANSWER

1, The se"aration "a$ gi(en to e$es is s!ect

to income ta# as com"ensation income eca!se itarises from a ser(ice rendered "!rs!ant to an

em"lo$erem"lo$ee rela tionshi". -t is notconsidered an e#cl!sion from gross income

eca!se the r!le in ta#ation is ta# constr!ed in strictissimi 1uris or the r!le on strict -nter"retation

of ta# e#em"tions.

2, The se"aration "a$ recei(ed $ r! is not s!ect

to income ta# eca!se his se"aration from the

com"an$ )as in(ol!ntar$ +ec. 28 +7, Ta# ode,.

3, The se"aration "a$ recei(ed $ Ca!tista is li/e)ise

not s!ect to ta#. is se"aration is d!e to

disailit$ hence in(ol!ntar$. Gnder the la)

se"aration "a$ recei(ed thro!gh in(ol!ntar$ ca!ses

are e#em"t from ta#ation.

xemptions: Separation Pay (199)

?r. Kacoo )or/ed for a man!fact!ring firm. !eto !siness re(erses the firm offered (ol!ntar$red!ndanc$ "rogram in order to red!ce o(erheade#"enses. Gnder the "rogram an em"lo$ee )hooffered to resign )o!ld e gi(en se"aration "a$eF!i(alent to his three monthDs asic salar$ for e(er$$ear of ser(ice. ?r. Kacoo acce"ted the offer andrecei(ed 400.000.00 as se"aration "a$ !nder the "rogram.

After all the em"lo$ees )ho acce"ted the offer )ere "aid the firm fo!nd its o(erhead still e#cessi(e.

ence it ado"ted another red!ndanc$ "rogram. ;ario!s !n"rofitale de"artments )ereclosed. As a res!lt ?r. Rintanar )as se"aratedfrom the ser(ice. e also recei(ed 400.000.00 asse"aration "a$.1, id ?r. Kacoo deri(e income )hen he recei(edhis se"aration "a$& #"lain.2, id ?r. Rintanar deri(e income )hen he recei(edhis se"aration "a$& #"lain.SUGGESTED ANSWER

1, <es ?r. Kacoo deri(ed a ta#ale income )hen

he recei(ed his se"aration "a$ eca!se his se"aration

from em"lo$ment )as (ol!ntar$ on his "art in (ie) of

his offer to resign. What is e#cl!ded from grossincome is an$ amo!nt recei(ed $ an official or

em"lo$ee as a conseF!ence of se"aration of s!ch

official or em"lo$ee from the ser(ice of the em"lo$er

for an$ ca!se e$ond the control of the said official or

em"lo$ee +ec 28 =-,.ALTERNATIE ANSWER

=o ?r. Kacoo did not deri(e an$ ta#ale income eca!se the se"aration "a$ )as d!e to aretrenchment "olic$ ado"ted $ the com"an$ so thatan$ em"lo$ee terminated $ (irt!e thereof isconsidered to ha(e een se"arated d!e to ca!ses e$ond the em"lo$eeDs control. The (ol!ntar$

red!ndanc$ "rogram reF!iring em"lo$ees to ma/ean offer to resign is onl$ considered as a tool toe#"edite the la$off of e#cess man"o)er )hoseser(ices are no longer needed $ the em"lo$er !tis not the main reason or ca!se for the termination

SUGGESTED ANSWER

2, =o ?r. Rintanar did not deri(e an$ income )hen he

recei(ed his se"aration "a$ eca!se his se"aration

from




em"lo$ment is d!e to ca!ses e$ond his control.The se"aration )as in(ol!ntar$ as it )as a conseF!enceof the clos!re of (ario!s !n"rofitale de"artments "!rs!ant to the red!ndanc$ "rogram.

xemptions: Separation Pay (2)

om"an$ A decides to close its o"erations d!e to

contin!ing losses and to terminate the ser(ices of its

em"lo$ees. Gnder the :aor ode em"lo$ees )ho are

se"arated from ser(ice for s!ch ca!se are entitled to aminim!m of onehalf month "a$ for e(er$ $ear of ser(ice.

om"an$ A "aid the eF!i(alent of one month "a$ for

e(er$ $ear of ser(ice and the cash eF!i(alent of

!n!sed (acation and sic/ lea(es as se"aration enefits.

Are s!ch enefits ta#ale and s!ect to )ithholding ta#!nder the Ta# ode& ecide )ith reasons. +5,SUGGESTED ANSWER

All of the enefits are not ta#ale hence the$ arenot s!ect to )ithholding ta# !nder the Ta# ode.Cenefits recei(ed as a conseF!ence of se"arationfor an$ ca!se e$ond the control of the em"lo$eess!ch as clos!re of !siness are e#cl!ded from gross

income. (,ec. 5&3@@b@ N6$! in relation to ,ec.&b@&@ $.$. &-*/)

xemptions: Stoc 'ii&en&s (24)

'n 03 Kan!ar$ 1998 B a Iili"ino citien residing in the

hili""ines "!rchased one h!ndred +100, shares in the

ca"ital stoc/ of < or"oration a domestic com"an$. 'n

03 Kan!ar$ 2000 < or"oration declared o!t of the

"rofits of the com"an$ earned after 01 Kan!ar$ 1998

a h!ndred "ercent +100, stoc/ di(idends on

all stoc/holders of record as of 31 ecemer 1999 as a

res!lt of )hich B holding in < or"oration

ecame t)o h!ndred +200, shares. Are the stoc/

di(idends recei(ed $ B s!ect to income ta#& #"lain.

+8,SUGGESTED ANSWER

=o. toc/ di(idends are not realied income.Accordingl$ the different "ro(isions of the Ta# odeim"osing a ta# on di(idend income onl$ incl!des)ithin its "!r(ie) cash and "ro"ert$ di(idendsma/ing stoc/ di(idends e#em"t from income ta#.o)e(er if the distri!tion of stoc/ di(idends isthe eF!i(alent of cash or "ro"ert$ as )hen thedistri!tion res!lts in a change of o)nershi" interest ofthe shareholders the stoc/ di(idends )ill e s!ect toincome ta#. (,ection &"(3)(&) ,ection &(A)L(3),ection &/(3)()(b) %**' Tax !ode)

xemptions: Strict"y !onstrue& (1996)

Wh$ are ta# e#em"tions strictl$ constr!ed againstthe ta#"a$er&SUGGESTED ANSWER

Ta# e#em"tions are strictl$ constr!ed against theta#"a$er eca!se s!ch "ro(isions are highl$disfa(ored and ma$ almost e said to e odio!s to thela) + Ma%i-a E-ec/ric C,5*a%0 v+. Vera '# SCRA

73!,. The e#ce"tion contained in the ta# stat!tesm!st e strictl$ constr!ed against the one claimingthe e#em"tion eca!se the la) does not loo/ )ith

fa(or on ta# e#em"tions the$ eing contrar$ to thelifelood theor$ )hich is the !nderl$ing asis for ta#es.

xemptions: Termina" /eae Pay (1996)



[email protected] +6 of 73A an em"lo$ee of the o!rt of A""eals retired!"on reaching the com"!lsor$ age of 65 $ears.G"on com"!lsor$ retirement A recei(ed the mone$(al!e of his acc!m!lated lea(e credits in the amo!ntof 500.000.00. -s said amo!nt s!ect to ta#&#"lain.SUGGESTED ANSWER

=o. The comm!tation of lea(e credits more

commonl$ /no)n as terminal lea(e "a$ i.e. the

cash eF!i(alent of acc!m!lated (acation and sic/lea(e credits gi(en to an officer or em"lo$ee )ho

retires or se"arated from the ser(ice thro!gh no

fa!lt of his o)n is e#em"t from income ta#. + BIR

R-i%g 274;"! da/ed N,ve56er 4 !""!?

C,55i++i,%er v. CA a%d E1re% Ca+/a%eda GR N,. "')!'

Oc/,6er !# !""!,.

xemptions$ !#arita+"e Institutions (26)

The onstit!tion "ro(ides %charitaleinstit!tions ch!rches "ersonages or con(entsa""!rtenant thereto mosF!es and non"rofitcemeteries and all lands !ildings andim"ro(ements act!all$ directl$ and e#cl!si(el$!sed for religio!s charitale or ed!cational "!r"oses shall e e#em"t from ta#ation.% This "ro(ision e#em"ts charitale instit!tions andreligio!s instit!tions from )hat /ind of ta#es&hoose the est ans)er. #"lain. +5,

a. from all /inds of ta#es i.e. income ;ATc!stoms d!ties local ta#es and real "ro"ert$ ta#

. from local ta# onl$c. from (al!eadded ta#d. from real "ro"ert$ ta# onl$e. from ca"ital gains ta# onl$SUGGESTED ANSWER

The "ro(ision e#em"tions charitale instit!tions

and religio!s instit!tions from +d, A:'T< TAB onl$. The e#em"tion is onl$ for

ta#es assessed as "ro"ert$ ta#es as disting!ished from

e#cise ta#es (CIR v.

CA CTA @ MCA G.R. N,. !2)7 Oc/,6er !

!""4? L-ad,c v. C,55i++i,%er ,1 I%/er%a- Reve%e L;!"2)! <%e !'!"'3$.

xemptions$ &ucationa" institution (2*)

B<J olleges is a nonstoc/ non"rofited!cational instit!tion r!n $ the Archdiocese of Cit$. -t collected and recei(ed the follo)ing*+a, T!ition fees+, ormitor$ fees

+c, entals from canteen concessionaires+d, -nterest from mone$mar/et "lacements ofthe t!ition fees+e, onation of a lot and !ilding $ school al!mniWhich of these ao(e cited income and donation)o!ldnot e e#em"t from ta#ation& #"lain riefl$. +5,SUGGESTED ANSWER

A. All of the income deri(ed $ the nonstoc/non"rofit ed!cational instit!tion )ill e e#em"tfrom ta#ation "ro(ided the$ are !sed act!all$directl$ and e#cl!si(el$ for ed!cational "!r"oses.

The onstit!tion "ro(ides that all re(en!es andassets of nonstoc/ non"rofit ed!cationalinstit!tion )hich are act!all$ directl$ ande#cl!si(el$ !sed for ed!cational "!r"oses aree#em"t from ta#ation (,ection " par. 5 Article

H62 %*/' !onstitution).




The donation is li/e)ise e#em"t from the donorDs ta# if

act!all$ directl$ and e#cl!si(el$ !sed for

ed!cational "!r"oses "ro(ided not more than 30 of the

donation is !sed $ the donee for administration

"!r"oses. The donee eing a nonstoc/ non

"rofit ed!cational instit!tion is a F!alified entit$ to

recei(e an e#em"t donation s!ect to conditions

"rescried $ la) (,ection " par. " Art. H62 %*/'

!onstitution in relation to ,ection %%(AH5) N$!).

Accordingl$ none of the cited income and donation

collected and recei(ed $ the nonstoc/ non

"rofit ed!cational instit!tion )o!ld not ee#em"t from ta#ation.ALTERNATIE ANSWER

The follo)ing recei"ts $ the nonstoc/non"rofit ed!cational instit!tion are not e#em"t fromta#ation (i*+c, Re%/a-+ 1r,5 Ca%/ee% C,%ce++i,%aire+.

ental income is considered as !nrelated to the

school o"erationsE hence ta#ale (BC< Crder No.

%5'-/' Bec. % %*/')

+d, I%/ere+/ 1r,5 5,%e0;5are/ *-ace5e%/+ ,1 /:e

/i/i,% 1ee+. The interest on the "lacement is ta#ale

(BC< Crder No. %5'-/'). -f ho)e(er the said interest

is !sed act!all$ directl$ and e#cl!si(el$ for

ed!cational "!r"oses as "ro(en $ s!stantial e(idence

the same )ill e e#em"t from ta#ation (CIR v. CA 2"4

SCRA 47 !!""49.

The other items of income )hich )ere all deri(ed

from schoolrelated acti(ities )ill e e#em"t from

ta#ation in the hands of the reci"ient if !sed act!all$

directl$ and e#cl!si(el$ for ed!cational "!r"oses

+ection 4 "ar. 3 Article BT; 1987 onstit!tion,.

The donation to a nonstoc/ non"rofited!cational instit!tion )ill e e#em"t from the

donorDs ta# if !sed act!all$ directl$ and e#cl!si(el$for ed!cational "!r"oses and "ro(ided that not more

than 30 of the donation is !sed for administration

"!r"oses +ection 4 "ar. 4 Art. BK; 1987

onstit!tion in relation to ection 101+A?3, =K,.

xemptions$ xemptions are <ni"atera" in 7ature (2*)

A la) )as "assed granting ta# e#em"tion to certainind!stries and in(estments for a "eriod of fi(e $ears.C!t three $ears later the la) )as re"ealed. With the

re"eal the e#em"tions )ere considered re(o/ed $the C- )hich assessed the in(esting com"aniesfor !n"aid ta#es effecti(e on the date of the re"eal ofthe la).

= and RT com"anies F!estioned the assessmentson the gro!nd that ha(ing made their in(estmentsin f!ll reliance )ith the "eriod of e#em"tion granted $the la) its re"eal (iolated their constit!tional rightagainst the im"airment of the oligations andcontracts. -s the contention of the com"anies

tenale or not& eason riefl$. +5,

SUGGESTED ANSWER

The contention is not tenale. The e#em"tion granted is in

the nat!re of a !nilateral ta# e#em"tion. ince the

e#em"tion gi(en is s"ontaneo!s on the "art of the



[email protected] + of 73legislat!re and no ser(ice or d!t$ or other rem!nerati(e conditions ha(e een im"osed on

the ta#"a$ers recei(ing the e#em"tion it ma$ e

re(o/ed at )ill $ the legislat!re +C:ri+/ C:rc: v.

P:i-ade-*:ia 2 H,&. 7)) 8!4')9 ,. What constit!tes an

im"airment of the oligation of contracts is the

re(ocation of an e#em"tion )hich is fo!nded on a

(al!ale consideration eca!se it ta/es the form and

essence of a contract +Ca+a%,va+ v. H,rd 4 P:i-. !23

8!")#9? Ma%i-a Rai-r,ad C,5*a%0 v.

I%+-ar C,--ec/,r ,1 C+/,5+ !2 P:i-. !' 8!"!39$

xemptions$ 5ot Bonus 5ifts ; A""oances (199*)

-n ecemer 1993 the angg!niang Ca$an

a!thoried a hristmas on!s of 3000.00 a cash

gift of 5000.00 and trans"ortation and

re"resentation allo)ance of 6000.00 for each of the

m!nici"al em"lo$ees.

1, -s the hristmas on!s s!ect to an$ ta#&2, o) ao!t the cash gift&3, o) ao!t the trans"ortation and re"resentation

allo)ances&

SUGGESTED ANSWER1, The -T?A C'=G gi(en $

the angg!niang Ca$an to the m!nici"al

em"lo$ees is ta#ale as additional

com"ensation +ec. 21 +a,. Ta# ode,.

2, The cash gift "er em"lo$ee of 5.000.00 eing s!stantial ma$ e considered ta#ale

also. The$ "arta/e the nat!re of additionalcom"ensation income as it is highl$

do!tf!l if m!nici"al go(ernments area!thoried to ma/e gifts in s!stantial s!ms

s!ch as this. The$ are not f!rther more gifts of%small (al!e% )hich em"lo$ers might gi(e to

their em"lo$ees on s"ecial occasions li/ehristmas items )hich co!ld e e#em"t !nder

C- e(en!e A!dit ?emo =o. 187.

3, The trans"ortation and re"resentation allo)ances

are act!all$ reim!rsements for e#"enses

inc!rred $ the em"lo$ee for the em"lo$er. aid

allo)ances s"ent $ the em"lo$ee for the

em"lo$er are designed to enhance the F!alit$

of the ser(ice that the em"lo$er is s!""osed to

"erform for its clientele li/e the "eo"le of the

m!nici"alit$.

xemptions$ Persona" ; A&&itiona" xemption (26)harlie a )ido)er has t)o sons $ his "re(io!smarriage. harlie li(es )ith Kane )ho is legall$married to ?ario. The$ ha(e a child named Kill. Thechildren are all minors and not gainf!ll$ em"lo$ed.

!. H,& 5c: *er+,%a- e>e5*/i,% ca% C:ar-iec-ai5 E>*-ai%. (2.3$SUGGESTED ANSWER

harlie can claim the "ersonal e#em"tion of a ead of a

Iamil$ or 25000.00 "ro(ided that at least one of

his minor and not gainf!ll$ em"lo$ed children is

!nmarried and li(ing )ith and de"endent !"on him for

chief s!""ort

(Tax $eform Act $A /"&" !hapter 266 ,ection 5A@

36$ $evenue $egulation &-*/).

2. H,& 5c: addi/i,%a- e>e5*/i,% ca% C:ar-iec-ai5 E>*-ai%. (2.3$




SUGGESTED ANSWER

is children from his "re(io!s marriage )ho arele gitimate children and his illegitimate child )ith Kane)ill all entitle him to additional "ersonal e#em"tion of8000.00 for each de"endent if a"art from eingminor and not gainf!ll$ em"lo$ed the$ are!nmarried li(ing )ith and de"endent !"on harliefor their chief s!""ort (Tax $eform Act $A/"&"

!hapter 2= ,ection 5(A) 36$ $evenue

$egulation &-*/).

xemptions$ 8oman !at#o"ic !#urc#$ /imitations (2)

The oman atholic h!rch o)ns a 2hectare lot in

a to)n in Tarlac "ro(ince. The so!thern side and

middle "art are occ!"ied $ the h!rch and a

con(ent the eastern side $ a school r!n $ the

h!rch itself the so!theastern side $ some

commercial estalishments )hile the rest of the

"ro"ert$ in "artic!lar the north)estern side is idle or

!nocc!"ied.

?a$ the h!rch claim ta# e#em"tion on the entire land&ecide )ith reasons.SUGGESTED ANSWER

=o. The h!rch cannot claim ta# e#em"tion on the entire

land. 'nl$ the so!thern side and middle "art that are

occ!"ied $ the h!rch and a con(ent and the eastern

side occ!"ied $ a school r!n $ the h!rch itself

are e#em"t eca!se s!ch "arts of the 2hectare

lot are act!all$ directl$ and e#cl!si(el$ !sed for

religio!s and ed!cational "!r"oses. (,ec. &/5@

Art. 26 %*/' !onstitution ,ec. &5" ?ocal

#overnment !ode)

The so!theastern side occ!"ied $ some

commercial estalishment is not ta# e#em"t. -f real

"ro"ert$ is !sed for one or more commercial "!r"oses it

is not e#cl!si(el$ !sed for the e#em"ted "!r"ose !t iss!ect to ta#ation. Dolel$D is s$non$mo!s )ith

De#cl!si(el$.D (L%g Ce%/er ,1 /:e P:i-i**i%e+ v. e,% Ci/0

G.R. N,. !!) <%e 2" 2))$ The "ro"ert$ m!st e

e#cl!si(el$ +solel$, !sed for religio!s or ed!cational

"!r"oses.

'f co!rse it is a""arent that the north)estern side

)hich is idle or !nocc!"ied is not %act!all$

directl$ and e#cl!si(el$% !sed for religio!s or

ed!cational "!r"oses hence not e#em"t from ta#ation.

CAPITAL GAIN TAX!apita" Asset s %r&inary Asset (24)isting!ish a %ca"ital asset% from an %ordinar$ asset%.SUGGESTED ANSWER

+a, The term %ca"ital asset% regards all "ro"erties not

s"ecificall$ e#cl!ded in the stat!tor$ definition of ca"ital

assets the "rofits or loss on the sale or the e#change of

)hich are treated as ca"ital gains or ca"ital

losses. on(ersel$ all those "ro"erties s"ecificall$

e#cl!ded are considered as ordinar$ assets and the

"rofits or losses realied m!st ha(e to e treated as

ordinar$ gains or ordinar$ losses. Accordingl$

%Ca*i/a- A++e/+% incl!des "ro"ert$ held $ the ta#"a$er

)hether or not connected )ith his trade or !siness !t

the term does not incl!de an$ of the follo)ing )hich are

conseF!entl$ considered %ordinar$ assets%*

+1, stoc/ in trade of the ta#"a$er or other "ro"ert$ of a

/ind )hich )o!ld "ro"erl$ e incl!ded in the



[email protected] + of

73 in(entor$ of the ta#"a$er if on hand atthe close of the ta#ale $earE

+2, "ro"ert$ held $ the ta#"a$er "rimaril$ for

sale to c!stomers in the ordinar$ co!rse of

trade or !sinessE

+3, "ro"ert$ !sed in the trade or !siness

of a character )hich is s!ect to the

allo)ance for de"reciation "ro(ided inection 34 +I, of the Ta# odeE or

+4, real "ro"ert$ !sed in trade or !siness of

the ta#"a$er.

The stat!tor$ definition of %ca"ital assets%

"racticall$ e#cl!des from its sco"e it )ill e noted

all "ro"ert$ held $ the ta#"a$er if !sed in

connection )ith his trade or !siness.

!apita" 5ain Tax$ 7ature (21)

A a doctor $ "rofession sold in the $ear 2000 a "arcel of land )hich he o!ght as a form of

in(estment in 1990 for h" 1 million. The land )assold to C his colleag!e at a time )hen the real estate "rices had gone do)n and so the land )as sold onl$for h" 800000 )hich )as then the fair mar/et(al!e of the land. e !sed the "roceeds tofinance his tri" to the Gnited tates. e claimsthat he sho!ld not e made to "a$ the 6 final ta# eca!se he did not ha(e an$ act!al gain on thesale. -s his contention correct& Wh$& +5,SUGGESTED ANSWER

=o. The 6 ca"ital gains ta# on sale of a real "ro"ert$ held as ca"ital asset is im"osed on theincome "res!med to ha(e een realied from the

sale )hich is the fair mar/et (al!e or selling "ricethereof )hiche(er is higher. +ection 24+, =-,.Act!al gain is not reF!ired for the im"osition of theta# !t it is the gain $ fiction of la) )hich ista#ale.

%r&inary Sa"e of a !apita" Asset (199*)

=oel :angit and his rother Ko($ o!ght a "arcel of land

)hich the$ registered in their names as "ro

indi(iso o)ners +arcel A,. !seF!entl$ the$

formed a "artnershi" d!l$ registered )ith ec!rities

and #change ommission )hich o!ght another "arcel

of land +arcel C,. Coth "arcels of land )ere sold

realiing a net "rofit of 1000000.00 for "arcel A and500.000.00 for "arcel C.

The C- claims that the sale of "arcel A sho!ld e

ta#ed as a sale $ an !nregistered "artnershi". -s

the C- correct&SUGGESTED ANSWER

The C- is not correct since there is no sho)ing that the

acF!isition of the "ro"ert$ $ =oel and Ko($ :angit as

"ro indi(iso o)ners and "rior to the formation

of the "artnershi" )as !sed intended for !se or

ears an$ relation )hatsoe(er to the "!rs!it or

cond!ct of the "artnershi" !siness. The sale of "arcel

A shall therefore not e treated as a sale $ an

!nregistered "artnershi" !t an ordinar$ sale of a

ca"ital asset and hence )ill e s!ect to the 5

ca"ital gains ta# and doc!mentar$




stam" ta# on transfers of real "ro"ert$ said ta#esto e orne eF!all$ $ the coo)ners.ALTERNATIE ANSWER

The C- is correct in treating the gain from thesale of "arcel of land $ =oel and Ko($ :angit ata "rofit of 1000000.00. -n the case of Pa+ca-

a%d Drag,% v. C,55i++i,%er G.R. N,. #4!77

Oc/,6er !4 !"44 the !"reme o!rt r!led that thesharing of ret!rns does not in itself estalish a

"artnershi" )hether or not the "ersons sharingtherein ha(e a oint or common right or interest in the "ro"ert$. The decision in said case cannot e a""liedhere eca!se clearl$ the "arties organied a "artnershi" d!l$ registered )ith the ec!ritiesand #change ommission. The$ "ooled theirreso!rces together )ith the "!r"ose of di(iding the "rofit et)een them.

Sa"es of S#are of Stocs: !apita" 5ains Tax 8eturn (1999)

R o. is a ong Rong cor"oration not doing !siness in

the hili""ines. -t holds 40 of the shares of A o. a

hili""ine com"an$ )hile the 60 is o)ned $ o. a

Iili"inoo)ned hili""ine cor"oration. R o. also o)ns100 of the shares of C o. an -ndonesian com"an$

)hich has a d!l$ licensed hili""ine ranch. !e to

)orld)ide restr!ct!ring of the R o. gro!" R o.

decided to sell all its shares in A and C os. The

negotiations for the !$o!t and the signing of

the Agreement of ale )ere all done in the hili""ines.

The Agreement "ro(ides that the "!rchase "rice )ill e

"aid to R oDs an/ acco!nt in the G. . and that little to

A and C os. hares )ill "ass from R o. to o.

in R )here the stoc/ certificates )ill e deli(ered. o.

see/s $o!r ad(ice as to )hether or not it )ill s!ect

the "a$ments of "!rchase "rice to Withholding Ta#.

#"lain $o!r ad(ice. +10,SUGGESTED ANSWER

o. sho!ld not s!ect the "a$ments of the

"!rchase "rice to )ithholding ta#. While the seller is a

nonresident foreign cor"oration )hich is not normall$

reF!ired to file ret!rns in the hili""ines therefore

ordinaril$ all its income earned from hili""ine

so!rces is ta#ed (ia the )ithholding ta# s$stem this is

not the "roced!re a(ailing )ith res"ect to sales of shares

of stoc/. The ca"ital gains ta# on the sale of shares

of stoc/ of a domestic cor"oration is al)a$s reF!ired

to e "aid thro!gh a ca"ital gains ta# ret!rn filed. The

sale of the shares of stoc/ of the -ndonesian

or"oration is not s!ect to income ta# !nder o!r

!risdiction eca!se the income deri(ed there from isconsidered as a foreignso!rced income.ALTERNATIE ANSWER

<es !t onl$ on the shares of stoc/s of A o. and onl$on the "ortion of the "!rchase "rice )hichconstit!tes ca"ital gains. Gnder the Ta# ode of1997 the ca"ital gains ta# im"osed !nder ection28+C,+5,+c, is collectile (ia the )ithholding of ta# atso!rce "!rs!ant to ection 57 of the same ode.

+=ote* The ar candidate might ha(e relied on the

"ro(ision of the Ta# ode of 1997 )hich "ro(ides

that the ca"ital gains ta# is im"osed as )ithholding

ta#es +ection 57 =-,. This "roced!re is

im"ractical and therefore not follo)ed in "ractice

eca!se the !$erM )ithholding agent )ill not e in a

"osition to determine ho) m!ch income is realied $



[email protected] +9 of73 the seller from the sale. Ior this reason an$of the foregoing s!ggested ans)ers sho!ld e

gi(en f!ll credit,.

Tax Basis: !apita" 5ains: 0erger of !orporations (199*)

-n a F!alified merger !nder ection 34 +c, +2, of theTa# ode )hat is the ta# asis for com"!ting theca"ital gains on* +a, the sale of the assets recei(ed $ the s!r(i(ing cor"oration from the asoredcor"orationE and +, the sale of the shares ofstoc/ recei(ed $ the stoc/holders from thes!r(i(ing cor"oration&SUGGESTED ANSWER

-n a F!alified merger !nder ection 34 +c, +2, of theTa# ode the ta# asis for com"!ting the ca"italgains on*+a, the sale of the assets recei(ed $ the

s!r(i(ing cor"oration from the asored

cor"oration shall e the originalMhistorical cost of

the assets )hen still in the hands of the asored

cor"oration.

+, the sale of the shares of stoc/ recei(ed $

the stoc/holders from the s!r(i(ing cor"oration

shall e the acF!isitionMhistorical cost of assetstransferred to the s!r(i(ing cor"oration.

Tax Basis: !apita" 5ains: TaxFree xc#ange of

Property (199*)

-n a F!alified ta#free e#change of "ro"ert$ forshares !nder ection 34 +c, +2, of the Ta# ode )hatis the ta# asis for com"!ting the ca"ital gains on* +a,the sale of the assets recei(ed $ the or"orationE and+, the sale of the shares recei(ed $ thestoc/holders in e#change of the assets&SUGGESTED ANSWER

-n a F!alified ta# free e#change of "ro"ert$ forshares !nder ection 34 +c, +2, of the Ta# ode theta# asis for com"!ting the gain on the*+a, sale of the assets recei(ed $ the cor"oration shall

e the originalMhistorical cost +"!rchase "rice "l!s e#"enses of acF!isition, of the "ro"ert$M assets gi(en in e#change of the sharesof stoc/.

+, sale of the shares of stoc/ recei(ed $ the

stoc/holders in e#change of the assets shall e

the originalMhistorical cost of the "ro"ert$

gi(en in

e#change of the shares of stoc/.ALTERNATIE ANSWER

The asis in com"!ting ca"ital gains ta# in a F!alified

ta# free e#change !nder ec. 34 +c, +2, is*+a, With res"ect to the asset recei(ed $ the

cor"oration the same as it )o!ld e in the handsof the transferor increased $ the amo!nt ofthe gain recognied to the transferor on thetransfer.

+, With res"ect to the shares recei(ed $

the stoc/holders in e#change of the assets the

same as the asis of the "ro"ert$ stoc/ or

sec!rities e#changed decreased $ the mone$

recei(ed and the fair mar/et (al!e of the other

"ro"ert$ recei(ed and increased $ the amo!nt

treated as di(idend of the shareholder and the

amo!nt of an$ gain that )as recognied on the

e#change.

CORPORATION - PARTNERS/IP

Ba& 'e+ts$ Factors$ "ements t#ereof (2*)




L or". claimed as a ded!ction in its ta# ret!rns

the amo!nt of 1000000 as ad dets. The cor"oration

)as assessed $ the ommissioner of -nternal

e(en!e for deficienc$ ta#es on the gro!nd that the

dets cannot e considered as %)orthless% hence the$

do not F!alif$ as ad dets. The com"an$ as/s for

$o!r ad(ice on %What factors )ill held in determining

)hether or not the dets are ad dets&% Ans)er and

e#"lain riefl$. +5,

SUGGESTED ANSWER

-n order that dets e considered as ad dets eca!se

the$ ha(e ecome )orthless the ta#"a$er sho!ld estalish

that d!ring the $ear for )hich the ded!ction is so!ght a

sit!ation de(elo"ed as a res!lt of )hich it ecame e(ident

in the e#ercise of so!nd oecti(e !siness !dgment that

there remained no "ractical !t onl$ (ag!el$ theoretical

"ros"ect that the det )o!ld e(er e "aid (C,--ec/,r ,1

I%/er%a- Reve%e v. G,,dric: I%/er%a/i,%a- R66er C,. 2!

SCRA !77' 8!"'#9$. %Worthless% is not determined $

an infle#ile form!la or slide r!le calc!lation !t

!"on the e#ercise of so!nd !siness !dgment. The

factors to e considered incl!de !t are not limited to

the follo)ing*1. The detor has no "ro"ert$ nor (isile incomeE2. The detor has een ad!dged an/r!"t

or insol(entE3. ollateral shares ha(e ecome )orthlessE and4. There are n!mero!s detors )ith small amo!nts of

dets and f!rther action on the acco!nts)o!ld entail e#"enses e#ceeding the amo!ntsso!ght to ecollected.

ALTERNATIE ANSWER

The follo)ing are the factors to e consideredin determining )hether or not the dets are ad dets*1. The det m!st e (alid and s!sistingE

2. The det is connected )ith the ta#"a$erDstrade or !siness and is not et)een related "artiesE

3. There is an act!al ascertainment that the detis )orthlessE and

4. The det is chargedoff )ithin the ta#ale $ear.(PRC v. CA 23' SCRA ''# 8!""'9? Reve%e

Reg+. N,. 3;""$.

!on&ominium !orp$ Sa"e of !ommon Areas (199*)

Bland ondomini!m or"oration )as organied $ theo)ners of !nits in Bland C!ilding in accordance )iththe ?aster eed )ith eclaration of estrictions. The

Bland C!ilding or"oration the de(elo"er ofthe !ilding con(e$ed the common areas in fa(orof the Bland ondomini!m or"oration. -s thecon(e$ance s!ect to an$ ta#&SUGGESTED ANSWER

The con(e$ance is not s!ect to an$ ta#. Thesame is )itho!t consideration and not in connection)ith a sale made to Bland ondomini!mor"oration and the "!r"ose of the con(e$anceto the latter is for the management of thecommon areas for the common enefit of the !nito)ners.

The same is not s!ect to income ta# since no

income )as realied as a res!lt of the con(e$ance

)hich )as made "!rs!ant to the ondomini!m Act+.A. =o. 4626 and the "!r"ose of )hich )as merel$ to

(est title to the common areas in fa(or of the:and ondomini!m or"oration.




73There eing no monetar$ consideration neither is

the con(e$ance s!ect to the creditale )ithholding

ta# im "osed !nder e(en!e eg!lations 190 as

amended.

The second con(e$ance )as act!all$ no con(e$ance at

all eca!se )hen the !nits )ere sold to the(ario!s !$ers the common areas )ere alread$ "art

and "arcel of the sale of said !nits "!rs!ant to

the ondomini!m Act. o)e(er the eed of

on(e$ance is s!ect to doc!mentar$ stam" ta#.

N.3. Bocumentary stamps tax and

!ondominium ?aw are excluded from the

coverage of the 3ar 4xaminations.

!orporation$ Sa"e$ !re&ita+"e -it##o"&ing Tax (199*)

=oel :angit and his rother Ko($ o!ght a "arcel of land

)hich the$ registered in their names as "ro

indi(iso o)ners +arcel A,. !seF!entl$ the$formed a "artnershi" d!l$ registered )ith ec!rities

and #change ommission )hich o!ght another "arcel

of land +arcel C,. Coth "arcels of land )ere sold

realiing a net "rofit of 1000000.00 for "arcel A and

500.000.00 for "arcel C.

The C- also claims that the sale of "arcel C

sho!ld e ta#ed as a sale $ a cor"oration. -s the C-

correct&SUGGESTED ANSWER

The C- is correct since a %cor"oration% as defined !nder

ection 20 +a, of the Ta# ode incl!des "artnershi"s no

matter ho) created or organied e#ce"t general

"rofes sional "artnershi"s. The !siness "artnershi"in the in stant case shall therefore e ta#ed in the same

manner as a cor"oration on the sale of "arcel C. The sale

shall th!s e s!ect to the creditale )ithholding

ta# !nder e(en!e eg!lations 190 as amended $

1294 on the sale of "arcel C and the "artnershi" shall

re"ort the gain realied from the sale )hen it files its

income ta# ret!rn.

'ii&en&s: -it##o"&ing Tax (1999)R o. is a ong Rong com"an$ )hich has a

d!l$ licensed hili""ine ranch engaged in trading

acti(ities in the hili""ines. R o. also in(ested

directl$ in 40 of the shares of stoc/ of A o. a

hili""ine cor"oration. These shares are oo/ed in theead 'ffice of R o. and are not reflected as assets of

the hili""ine ranch. -n 1998 A o. declared di(idends

to its stoc/holders. Cefore remitting the di(idends to

R o. A o. see/s $o!r ad(ice as to )hether it )ill

s!ect the remittance to WT. =o need to disc!ss WT

rates if a""licale. Ioc!s $o!r disc!ssion on )hat is

the iss!e. +10,SUGGESTED ANSWER

- )ill ad(ise A o. to )ithhold and remit the )ithholding

ta# on the di(idends. While the general r!le is that

a foreign cor"oration is the same !ridical entit$ as

its ranch office in the hili""ines )hen ho)e(er

the cor"oration transacts !siness in the hili""ines

directl$ and inde"endentl$ of its ranch the ta#"a$er

)o!ld e the foreign cor"oration itself and s!ect to the

di(idend ta# similarl$ im"osed on nonresident foreign

cor"oration. The di(idends attri!tale to the ome 'ffice

)o!ld not F!alif$ as di(idends earned $ a resident

foreign cor"oration )hich is e#em"t from ta#.(Mar6e%i

C,r*,ra/i,% v. C,55i++i,%er GR N,. #'3#7 Se*/e56er ! !"4"$.




ffect: 'isso"ution$ !orporate xistence (2*)

Ior fail!re to com"l$ )ith certain cor"orate reF!irements

the stoc/holders of AC or". )ere notified $ the

ec!rities and #change ommission that the cor"oration

)o!ld e s!ect to in(ol!ntar$ dissol!tion. The

stoc/holders did not do an$thing to com"l$ )ith the

reF!irements and the cor"oration )as dissol(ed. an the

stoc/holders e held "ersonall$ liale for the !n"aid ta#es

of the dissol(ed cor"oration& #"lain riefl$. +5,SUGGESTED ANSWER

=o. As a general r!le stoc/holders cannot e

held "ersonall$ liale for the !n"aid ta#es of adissol(ed cor"oration. The r!le "re(ailing !nder o!r

!risdiction is that a cor"oration is (ested $ la) )ith a

"ersonalit$ that is se"arate and distinct from thoseof the "ersons

com"osing it

='T* additional "oint sho!ld e gi(en to thee#aminee if he ans)ers in the follo)ing that*

o)e(er stoc/holders ma$ e held liale for the!n"aid ta#es of a dissol(ed cor"oration if it

a""ears that the cor"orate assets ha(e "assed

into their hands

"4' 8!"'29$. :i/e)ise )hen stoc/holders

ha(e !n"aid s!scri"tions to the ca"italof the cor"oration the$ can e made lialefor !n"aid ta#es of the cor"oration to thee#tent of their !n"aid s!scri"tions.

0inimum !orporate Income Tax (21)

What is the rationale of the la) in im"osing )hatis /no)n as the ?inim!m or"orate -ncome ta#on omestic or"orations& +3,SUGGESTED ANSWER

The im"osition of the ?inim!m or"orate -ncome Ta#

+?-T, is designed to forestall the "re(ailing "ractice of

cor"orations of o(er claiming ded!ctions in order to

red!ce their income ta# "a$ments. The filing of income

ta# ret!rns sho)ing a ta# loss e(er$ $ear goes against the

!siness moti(e )hich im"elled the stoc/holders to

form the cor"oration. This is the reason )h$ domestic

cor"orations +and resident foreign cor"orations, after

the reco(er$ "eriod of fo!r $ears from the time the$

commence !siness o"erations the$ ecome liale to the

?-T )hene(er this ta# im"osed at 2 of gross income

e#ceeds the normal cor"orate income ta# im"osed on

net income. +"onsorshi" "eech hairman of enate

Wa$s and ?eans ommittee,.

0inimum !orporate Income Tax$ xemption (21)

-s a cor"oration )hich is e#em"ted from the minim!m

cor"orate income ta# a!tomaticall$ e#em"ted from the

reg!lar cor"orate income ta#& #"lain $o!r ans)er. +2,SUGGESTED ANSWER

=o. The minim!m cor"orate income ta# is a "ro#$ for the

normal cor"orate income ta# not the reg!lar cor"orate

income ta# "aid $ a cor"oration. Ior instance a

"ro"rietar$ ed!cational instit!tion ma$ e s!ect to a

reg!lar cor"orate income ta# of 10 +de"ending on its

dominant income, !t it is e#em"t from the im"osition

of ?-T eca!se the latter is not intended to s!stit!te(Ta% Ti,%g Bi, v. CFR SCRA

(S%i, v. NLRC !2# SCRA 7")J!"49.



[email protected] 41 of 73s"ecial ta# rates. o is )ith JAenter"rises

A enter"rises etc.

O=ote* -f )hat is meant $ reg!lar income ta# is

the 32 ta# rate im"osed on ta#ale

income of cor"orations the ans)er )o!ld e in the

affirmati(e eca!se domestic cor"orations and

resident foreign cor"orations are either liale for

the 2 of gross income +?-T, or 32 of net

income +the normal cor"orate income ta#,

)hiche(er is higher.P

ALTERNATIE ANSWER

=o. A cor"oration )hich is e#em"ted from the minim!m

cor"orate income ta# is not a!tomaticall$ e#em"ted from

the reg!lar cor"orate income ta#. The reason for this

is that ?-T is im"osed onl$ eginning on the

fo!rth ta#ale $ear immediatel$ follo)ing the $ear in

)hich s!ch cor"oration commenced its !siness

o"erations. Th!s a cor"oration ma$ e e#em"t from

?-T eca!se it is onl$ on its third $ear of

o"erations follo)ing its commencement of !siness

o"erations.

ESTATE - DONORS TAXES'onors Tax: "ection !ontri+utions (199=)Are contri!tions to a candidate in an election s!ectto donorDs ta#& 'n the "art of the contri!tor is itallo)ale as a ded!ction from gross income& O5KSUGGESTED ANSWER

1, =o "ro(ided the reci"ient candidate had

com"lied )ith the reF!irement for filing of

ret!rns of contri !tions )ith the

ommission on lections as reF!ired !nder

the 'mni!s lection ode.

2, The contri!tor is not allo)ed to ded!ct

the contri!tions eca!se the said e#"ense is

not directl$ attri!tale to the

de(elo"ment management o"eration andMor

cond!ct of a trade !siness or "rofession K,ec.

5"A(l)(a) N6$!). I!rthermore if the

candidate is an inc!ment go(ernment official

or em"lo$ee it ma$ e(en e considered as a

rie or a /ic/ac/ +ec. 34OAK+l,+c,

=-,.COE$T% -t is s!ggested that f!ll creditsho!ld e gi(en for an$ ans)er to the firstF!estion eca!se the ans)er reF!ires aninter"retation of the lection ode. !rs!ant tothe "ro(isions of ection 99+, of the =-the ta#ailit$ of this t$"e ofcontri!tionsMdonations is go(erned $ thelection ode.

'onors Tax$ Basis for 'etermining 5ain (199)

+1, Renneth <!so"h o)ns a commercial lot )hich

he o!ght man$ $ears ago for 1 ?illion. -t is

no) )orth 20 ?illion altho!gh the onal (al!e

is onl$ 15 ?illion. e donates onehalf

"roindi(iso interest in the land to his son ino on

31 ecemer 1994 and the other onehalf "ro

indi(iso interest to

the same son on 2 Kan!ar$ 1995.o) m!ch is the (al!e of the gifts in 1994 and 1995 for "!r"oses of com"!ting the gift ta#& #"lain.SUGGESTED ANSWER

1, The (al!e of the gifts for "!r"oses of com"!ting the

gift ta# shall e 7.5million in 1994 and 7.5million

in




1995. -n (al!ing a real "ro"ert$ for gift ta# "!r"oses the

"ro"ert$ sho!ld e a""raised at the higher of t)o (al!es as

of the time of donation )hich are +a, the fair mar/et

(al!e as determined $ the ommissioner +)hich is

the onal (al!e fi#ed "!rs!ant to ection 16+e, of the

Ta# ode, or +, the fair mar/et (al!e as sho)n in

the sched!le of (al!es fi#ed $ the ro(incial and

it$ Assessors. The fact that the "ro"ert$ is )orth 20

million as of the time of donation is immaterial !nless it

can e sho)n that this (al!e is one of the t)o (al!esmentioned as "ro(ided !nder ection 81 of the Ta# ode.

+2, The e(en!e istrict 'fficer F!estions the s"litting

of the donations into 1994 and 1995. e sa$s

that since there )ere onl$ t)o +2, da$s se"arating the

t)o donations the$ sho!ld e treated as one ha(ing

een

made )ithin one $ear. -s he correct& #"lain.SUGGESTED ANSWER

2, The e(en!e istrict 'fficer is not correct eca!se

the com"!tation of the gift ta# is c!m!lati(e !t onl$

insofar as gifts made )ithin the same calendar $ear.

Therefore there is no legal !stification for treatingt)o gifts effected in t)o se"arate calendar $ears as one

gift.

+3, ino s!seF!entl$ sold the land to a !$er for 20

?illion. o) m!ch did ino gain on the

sale&


3, ino gained an income of 19 million from the sale.ino acF!ires a carr$o(er asis )hich is the asis ofthe "ro"ert$ in the hands of the donor or 1 million.The gain from the sale or other dis"osition of "ro"ert$shall e the e#cess of the amo!nt realied therefrom

o(er the asis or ad!sted asis for determining gain+ec. 34+a, =-,. ince the "ro"ert$ )as acF!ired $ gift the asis for determining gain shall e thesame as if it )o!ld e in the hands of the donor or thelast "receding o)ner $ )hom the "ro"ert$ )as notacF!ired $ gift. ence the gain is com"!ted $ded!cting the asis of 1 million from the amo!ntrealied )hich is 20 million.

+4, !""ose instead of recei(ing the lot $ )a$ of

donation ino recei(ed it $ inheritance.

What )o!ld e his gain on the sale of the lot

for 20

?illion& #"lain.SUGGESTED ANSWER

4, -f the commercial lot )as recei(ed $ inheritancethe gain from the sale for 20 million is 5 million eca!se the asis is the fair mar/et (al!e as of thedate of acF!isition. The ste""ed!" asis of 15million )hich is the (al!e for estate ta# "!r"osesis the asis for determining the gain +ec. 34+,+2, =-,.ALTERNATIE ANSWER

-f ino held on to the "ro"ert$ as a ca"ital asset in thatit is neither for sale in the ordinar$ co!rse of !sinessnor !sed in inoDs !siness then !"on sale thereof

there is "res!med to e realied an income of 20million )hich is the gross selling "rice of the "ro"ert$. +ec. 21+e, =-,. The same )o!ld es!ect to the 5 ca"ital gains ta#.

'onors Tax$ 'acion en Pago$ ffect: Taxation (199,)



[email protected] 42 of 73An insol(ent com"an$ had an o!tstanding

oligation of l00000.00 from a creditor. ince itco!ld not "a$ the det the creditor agreed toacce"t "a$ment thro!gh dacion en "ago a "ro"ert$)hich had a mar/et (al!e of 30.000.00. -n thedacion en "ago doc!ment the alance of the det )ascondoned.A. What is the ta# effect on the discharge of the

!n"aid alance of the oligation on the detor

cor"oration&C. -nsofar as the creditor is concerned ho) is

he

effected ta#)ise as a conseF!ence of thetransaction&

SUGGESTED ANSWERS

+a, The condonation of the !n"aid alance ofthe oligation has the effect of a donation made on the "art of the creditor. -t is o(io!s that the creditormerel$ desires to enefit the detor and)itho!t an$ consideration therefore cancels the

det the amo!nt of the det cancelled is a gift fromthe creditor to the detor and need not e incl!ded in

the latterDs gross income +ec. 50 =o. 2,E

+, Ior the difference of 70000 the creditor

shall e s!ect to donorDs ta# at the a""licale rates

"ro(ided for !nder the =ational -nternal e(en!e

ode.

ALTERNATIE ANSWER

+a, -f the discharge )as "rom"ted $ the insol(enc$ of

the detor com"an$ then it is a clear case of a )riteoff

of a ad dets )hich has no ta# conseF!ence to the

detor.

+, The )riteoff of the ad det )ill entitle the

creditor to claim the same as a ded!ction from its

gross income.

'onors Tax$ 'onation to a Si+"ing (21)

<o!r achelor client a Iili"ino residing in L!eonit$ )ants to gi(e his sister a gift of h" 200000.00.e see/s $o!r ad(ice for "!r"oses of red!cing ifnot eliminating the donorDs ta# on the gift on)hether it is etter for him to gi(e all of the h"200000.00 on hristmas 2001 or to gi(e h"100000.00 on hristmas2001 and the other h"100000.00 on Kan!ar$ 1 2002. lease e#"lain $o!rad(ice. +5,SUGGESTED ANSWER

- )o!ld ad(ice him to s"lit the donation. i(ing the

h"200000 as a onetime donation )o!ld mean that

it )ill e s!ect to a higher ta# rac/et !nder the

grad!ated ta# str!ct!re there$ necessitating the

"a$ment of donorDs ta#. 'n the other hand s"litting

the donation into t)o eF!al amo!nts of h" 100000

gi(en on t)o different $ears )ill totall$ relie(e the

donor from the donorQs ta# eca!se the first

h"l00.000 donation in the grad!ated rac/ets is

e#em"t. +ection 99 =-,. While the donorQs ta# is

com"!ted on the c!m!lati(e donations the

aggregation of all donations made $ a donor is allo)ed

onl$ o(er one calendar $ear.

'onors Tax$ 'onation to 7onStoc 7onProfit

Priate &ucationa" Institutions (2)What conditions m!st occ!r in order that all grants

donations and contri!tions to nonstoc/ non"rofit

"ri(ate ed!cational instit!tions ma$ e e#em"t from

the donorDs ta# !nder ection 101 +a, of the Ta# ode&

+3,SUGGESTED ANSWER

The follo)ing are the conditions*




1. =ot more than thirt$ "ercent +30, of saidgifts shall e !sed $ s!ch donee foradministration "!r"osesE

2. The ed!cational instit!tion is incor"orated as anon stoc/ entit$

3. "a$ing no di(idends4. go(erned $ tr!stees )ho recei(e no

com"ensation and5. de(oting all its income )hether st!dentsD fees or

gifts donations s!sidies or other forms of

"hilanthro"$ to the accom"lishment and "romotion

of the "!r"oses en!merated in its Articles of

-ncor"oration. +ec. 101 +A, +3, =- of 1997P

'onors Tax$ 'onation to Po"itica" !an&i&ate (24)

B is a friend of < the chairman of olitical art$ J)ho )ants to r!n for resident in the 2004 elections.Rno)ing that < needs f!nds for "osters andstreamers B is thin/ing of donating to < 150000.00for his cam"aign. e as/s $o! )hether his intendeddonation to < )ill e s!ect to the donorDs ta#.What )o!ld $o!r ans)er e& Will $o!r ans)er e

the same if he )ere to donate to olitical art$ Jinstead of to < directl$& +8,SUGGESTED ANSWER

The donation to < once he ecomes a candidate for an

electi(e "ost is not s!ect to donorDs ta# "ro(ided that he

com"lies )ith the reF!irement of filing ret!rns of

contri!tions )ith the ommission on lections as

reF!ired !nder the 'mni!s lection ode.

The ans)er )o!ld e the same if B had donated the

amo!nt to olitical art$ J instead of to < directl$

eca!se the la) "laces in eF!al footing an$

contri!tion to an$ candidate "olitical "art$ or coalition

of "arties for cam"aign "!r"oses. (,ection **(!) of the%**' Tax !ode).

'onors Tax$ 'onee or Beneficiary$ Stranger (2)

When the donee or eneficiar$ is a stranger theta# "a$ale $ the donor shall e 30 of the netgifts. Ior "!r"oses of this ta# )ho is a stranger& +2,SUGGESTED ANSWER

A TA= is a "erson )ho is not a*A. Crother sister +)hether $ )hole or half

lood, s"o!se ancestor and lineal descendantE orC. elati(e $ consang!init$ in the collateral line

)ithin the fo!rth degree of relationshi".% Oec. 98

+C, =- of 1997P

'onors Tax$ Sa"e of s#ares of Stoc ; Sa"e of 8ea"

Property (1999)

A an indi(id!al sold to C his rotherinla) his lot)ith a mar/et (al!e of 1000000 for 600.000. ADscost in the lot is 100.000. C is financiall$ ca"ale of

!$ing the lot.

A also o)ns B o. )hich has a fast gro)ing !siness. A

sold some of his shares of stoc/ in B o. to his /e$

e#ec!ti(es in B o. These e#ec!ti(es are not related to A.

The selling "rice is 3000000 )hich is the oo/ (al!e of

the shares sold !t )ith a mar/et (al!e of 5000000. ADs

cost in the shares sold is 1000000. The "!r"ose of A in

selling the shares is to enale his /e$ e#ec!ti(es to acF!ire a

"ro"riet$ interest in the !siness and ha(e a "ersonal



[email protected] 4+ of 73sta/e in its !siness. #"lain if the ao(e

transactions are s!ect to donorDs ta#. +5,SUGGESTED ANSWER

The first transaction )here a lot )as sold $ A to

his rotherinla) for a "rice elo) its fair mar/et (al!e

)ill not e s!ect to donorDs ta# if the lot F!alifies as a

ca"ital asset. The transfer for less than ade7uate

and full consideration which gives rise to a deemed

gift does not apply to a sale of property sub1ect to

capital gains tax. +ection 100 =-,. o)e(er if thelot sold is an ordinar$ asset the e#cess of the fair

mar/et (al!e o(er the consideration recei(ed shall e

considered as a gift s!ect to the donorDs ta#.

The sale of shares of stoc/ elo) the fair mar/et

(al!e thereof is s!ect to the donorDs ta# "!rs!ant to the "ro(isions of ection 100 of the Ta#

ode. The e#cess of the fair mar/et (al!e o(er theselling "rice is a deemed gift.ALTERNATIE ANSWER

The sale of shares of stoc/ elo) the fair mar/et

(al!e )ill not gi(e rise to the im"osition of the donorDs

ta#. -n determining the gain from the transfer the selling "rice of the shares of stoc/s shall e the fair mar/et

(al!e of the shares of stoc/s transferred. +ection 6

=o. 282,. -n )hich case the reason for the im"osition

of the donorDs ta# on sales for inadeF!ate consideration

does not e#ist.

state Tax: !ompre#ensie Agrarian 8eform /a (199*)

Kose 'rti o)ns 100 hectares of agric!lt!ral land "lanted

to cocon!t trees. e died on ?a$ 30 1994. rior to his

death the go(ernment $ o"eration of la) acF!ired

!nder the om"rehensi(e Agrarian eform :a) all

his agric!lt!ral lands e#ce"t fi(e +5, hectares. G"on the

death of 'rti his )ido) as/ed $o! ho) she )ill

consider the 100 hectares of agric!lt!ral land in the "re"aration of the estate ta# ret!rn. What ad(ice )ill $o!

gi(e her&SUGGESTED ANSWER

The 100 hectares of land that Kose 'rti o)ned !t)hich "rior to his death on ?a$ 30 1994 )ereacF!ired $ the go(ernment !nder A are nolonger "art of his ta#ale gross estate )ith thee#ce"tion of the remaining fi(e +5, hectares )hich!nder ec. 78Ha, of the Ta# ode still forms "artof %decedentDs interest%.

state Tax: 'onation 0ortis !ausa (21)

A aged 90 $ears and s!ffering from inc!rale canceron A!g!st 1 2001 )rote a )ill and on the same da$made se(eral inter(i(os gifts to his children. Tenda$s later he died. -n $o!r o"inion are the inter(i(os gifts considered transfers in contem"lationof death for "!r"oses of determining "ro"ertiesto e incl!ded in his gross estate& #"lain $o!rans)er. +5,SUGGESTED ANSWER

<es. When the donor ma/es his )ill )ithin a short time

of or sim!ltaneo!sl$ )ith the ma/ing of gifts the

gifts are considered as ha(ing een made in

contem"lation of death. + R,ce+ v. P,+ada+ 34 P:i-.

!)4,. '(io!sl$ the intention of the donor in ma/ing the

inter(i(os gifts is to a(oid the im"osition of the estate ta#

and since the donees are li/e)ise his forced heirs )ho

are called !"on to inherit it )ill create a "res!m"tion

1uris tantum that said donations )ere made mortis

causa hence the "ro"erties donated shall e incl!ded as

"art of ADs gross estate.




state Tax: 'onation 0ortis !ausa s Inter Cios (199*)

Are donations inter (i(os and donations mortisca!sa s!ect to estate ta#es&SUGGESTED ANSWER

onations inter (i(os are s!ect to donorDs gift ta# +ec.

91 +a,. Ta# ode, )hile donations mortis ca!sa are s!ect

to estate ta# +ec. 77 Ta# ode,. o)e(er donations

inter (i(os act!all$ constit!ting ta#ale lifetime li/e trans

fers in contem"lation of death or re(ocale transfers +ec.78 +, and +c, Ta# ode, ma$ e ta#ed for estate

ta# "!r"oses the theor$ eing that the transferorDs

control thereon e#tends !" to the time of his death.ALTERNATIE ANSWER

onations inter (i(os are not s!ect to estate ta#es eca!se the transfer of the "ro"ert$ ta/e effect d!ringthe lifetime of the donor. The transfer is therefores!ect to the donorDs ta#.

'n the other hand donations mortis ca!sa are s!ect to

estate ta#es since the transfer of the "ro"erties ta/es

effect after the death of the decedent. !ch donated

"ro"erties real or "ersonal tangile or intangile shallform "art of the gross estate.

state Tax: 5ross state: A""oa+"e 'e&uction (21)

'n the first anni(ersar$ of the death of < his heirs hosted

a s!m"t!o!s dinner for his doctors n!rses and others

)ho attended to < d!ring his last illness. The cost of the

dinner amo!nted to h" 50000.00. om"ared to his

gross estate the h" 50000.00 did not e#ceed

fi(e "ercent of the estate. -s the said cost of the

dinner to commemorate his one $ear death anni(ersar$

ded!ctile from his gross estate& #"lain $o!r ans)er.

+5,SUGGESTED ANSWER

=o. This e#"ense )ill not fall !nder an$ of the allo)aleded!ctions from gross estate. Whether (ie)ed in the

conte#t of either f!neral e#"enses or medical e#"enses

the same )ill not F!alif$ as a ded!ction. I!neral e#"enses

ma$ incl!de medical e#"enses of the last illness !t

not e#"enses inc!rred after !rial nor e#"enses

inc!rred to commemorate the death anni(ersar$. (De

G5a% V. De G5a% 47 SCRA 23'$. ?edical e#"enses

on the other hand are allo)ed onl$ if inc!rred $ the

decedent )ithin one $ear "rior to his death. +ection 86+A,

+6, =-,.

state Tax: 5ross state: 'e&uctions (2)

?r. Ieli# de la r! a achelor resident citien s!fferedfrom a heart attac/ )hile on a !siness tri" to the GA. e

died intestate on K!ne 15 2000 in =e) <or/ it$

lea(ing ehind real "ro"erties sit!ated in =e) <or/E

his famil$ home in ;alle ;erde asig it$E an

office condomini!m in ?a/ati it$E shares of stoc/s

in an ?ig!el or"orationE cash in an/E and

"ersonal elongings. The decedent is hea(il$ ins!red

)ith -ns!lar :ife. e had no /no)n dets at the time

of his death. As the sole heir and a""ointed

Administrator ho) )o!ld $o! determine the gross

estate of the decedent& What ded!ctions ma$ e

claimed $ the estate and )hen and )here shall the

ret!rn e filed and estate ta# "aid& +3,SUGGESTED ANSWER



[email protected] 44 of 73The gross estate shall e determined $incl!dingthe (al!e at the time of his death a-- ,1 /:e

*r,*er/ie+ 5e%/i,%ed to the e#tent of the interesthe had at the time of his death because he is a

<ilipino citiIen. Oec. 85 +A, =- of 1997P

With res"ect to the -i1e i%+ra%ce *r,ceed+ theamo!nt incl!dile in the gross estate for hili""ine

ta# "!r"oses )o!ld e to the e#tent of the amo!ntrecei(ale $ the estate of the deceased hise#ec!tor or administrator !nder "olicies ta/en o!t $ decedent !"on his o)n life irres"ecti(e of

)hether or not the ins!red retained the "o)er ofre(ocation or to the e#tent of the amo!ntrecei(ale $ an$ eneficiar$ designated in the "olic$ of ins!rance e#ce"t )hen it is e#"ressl$sti"!lated that the designation of the eneficiar$ isirre(ocale. Oec. 85 +, =- of 1997P

The DEDUCTIONS that ma$ e claimed $ the estate

are*

1, The act!al f!neral e#"enses or in an amo!nt eF!alto fi(e "ercent +5, of the gross estate

)hiche(er is lo)er !t in no case to

e#ceed t)o h!ndred tho!sand "esos

+200.000.00,. Oec. 86 +A, +1, +a,. =- of

1997P

2, The !dicial e#"enses in the testate or

intestate "roceedings.+ec. 86+A,+1,

3, The (al!e of the decedentDs famil$ home located

in ;alle ;erde asig it$ in an amo!nt not

e#ceeding one million "esos +1000000.00,

and !"on "resentation of a certification of the aranga$ ca"tain of the localit$ that the same ha(e

een the decedentDs famil$ home. Oec. 86 +A, +4,

-idP

4, The standard ded!ction of 1000000. +ec. 86+A,+5,

5, ?edical e#"enses inc!rred )ithin one $ear

from death in an amo!nt not e#ceeding

500000.+ec. 86+A,+6,

The ESTATE TAX RETURN shall e filed )ithin si#

+6, months from the decedentDs death +ec. 90 +C,

=- of 1997P "ro(ided that the ommissionerof -nternal e(en!e shall ha(e a!thorit$ to grant inmeritorio!s cases a reasonale e#tension not

e#ceeding thirt$ +30, da$s for filing the ret!rn +ec.90 +c, -idP

#ce"t in cases )here the ommissioner of-nternal e(en!e other)ise "ermits the estate ta#

ret!rn shall e filed )ith an a!thoried agent an/ ore(en!e istrict 'fficer ollection 'fficer or

d!l$ a!thoried Treas!rer of asig it$ the it$

in )hich the decedent ?r. de la r! )as domiciled

at the time of his death. Oec. 90 +,. =- of 1997P

state Tax: Inc"usion: 8esi&ent A"ien (199*)

liff oertson an American citien )as a "ermanent

resident of the hili""ines. e died in ?iami Ilorida. e

left 10000 shares of ?eralco a condomini!m !nit at the




T)in To)ers C!ilding at asig ?etro ?anila and aho!se and lot in :os Angeles alifornia.What assets shall e incl!ded in the state Ta# et!rnto e filed )ith the C-&SUGGESTED ANSWER

All of ?r. oertsonDs assets consisting of 10000shares in the ?eralco a condomini!m !nit inasig and his ho!se and lot in :os Angelesalifornia are ta#ale. The "ro"erties of a resident alien

decedent li/e ?r. oertson are ta#ale )here(ersit!ated +ees. 77 78 and 98 Ta# ode,.

state Tax: Payment s Pro+ate Procee&ings (2*)

; is the administrator of the estate of his father =

in the estate "roceedings "ending efore the ??

egional Trial o!rt. :ast $ear he recei(ed from the

ommissioner of -nternal e(en!e a deficienc$ ta#

assessment for the estate in the amo!nt of 1000000.

C!t he ignored the notice. :ast month the C- effected a

le($ on the real "ro"erties of the estate to "a$ the

delinF!ent ta#. ; filed a motion )ith the "roate co!rt

to sto" the enforcement and collection of the ta# on the

gro!nd that the C- sho!ld ha(e sec!red first thea""ro(al of the "roate co!rt )hich had !risdiction o(er

the estate efore le($ing on its real "ro"erties. -s ;Ds

contention correct& +5,SUGGGESTED ANSWER

=o. ;Ds contention is not correct. The a""ro(al of the "roate co!rt is not necessar$. a$ment of estate ta#esis a condition "recedent for the distri!tion of the "ro"erties of the decedent and the collection ofestate ta#es is e#ec!ti(e in nat!re for )hich the co!rtis de(oid of an$ !risdiction. ence the a""ro(al ofthe co!rt sitting in "roate or as a settlementtri!nal is not a mandator$ reF!irement in thecollection of estate ta#es + Marc,+ H v. C,r/ ,1 A**ea-+

2#7 SCRA # 8!""# P,.

state Tax: Situs of Taxation: 7on8esi&ent 'ece&ent

(2)

isc!ss the r!le on situs of taxation )ith res"ect tothe im"osition of the estate ta# on "ro"ert$ left ehind $ a nonresident decedent. +2,SUGGESTED ANSWER

The (al!e of the gross estate of a nonresident decedent

)ho is a Iili"ino citien at the time of his death shall e

determined $ incl!ding the (al!e at the time of his death

of all "ro"ert$ real or "ersonal tangile or intangile

)here(er sit!ated to the e#tent of the interest therein of the

decedent at the time of his death Oec. 85 +A, =- of1997,. These "ro"erties shall ha(e a sit!s of ta#ation in the

hili""ines hence s!ect to hili""ine estate ta#es.

'n the other hand in the case of a nonresident decedent

)ho at the time of his death )as not a citien of the

hili""ines only that part of the entire gross estate

which is situated in the 9hilippines to the extent of the

interest therein of the decedent at the time of his death

shall be included in his taxable estate. ro(ided that

)ith res"ect to intangile "ersonal "ro"ert$ )e a""l$

the r!le of reci"rocit$. +-id,

state Tax: Canis#ing 'e&uctions (199*)

;anishing ded!ctions in estateta#ation&



[email protected] 4. of 73SUGGESTED ANSWER

;anishing ded!ctions or "ro"ert$ "re(io!sl$ ta#edin estate ta#ation refers to the diminishingded!ciilit$M e#em"tion at the rate of 20 o(er a "eriod of fi(e +5, $ears !ntil it is lost after thefifth $ear of an$ "ro"ert$ +sit!ated in thehili""ines, forming "art of the gross estateacF!ired $ the decedent from a "rior decedent)ho died )ithin a "eriod of fi(e +5, $ears from

the decedentDs death.

state Tax$ Payment s Pro+ate Procee&ings (2)

-s the a""ro(al of the co!rt sitting as "roate orestate settlement co!rt reF!ired in theenforcement and collection of estate ta#& #"lain.SUGGESTED ANSWER

=o the a""ro(al of the co!rt sitting in "roate or as a

settlement tri!nal o(er the deceased is not a mandator$

reF!irement in the collection of estate ta#es. There is

nothing in the Ta# ode and in the "ertinent

remedial la)s that im"lies the necessit$ of the

"roate or estate settlement co!rtDs a""ro(al of the

stateDs claim for estate ta#es efore the same can eenforced and collected.

(Marc,+ v. C,r/ ,1 A**ea-+ G.R. N,. !2)44) <%e 3!""#$

BUSINESS TAXES

CAT: Basis of CAT (1996)

=:a/ i+ /:e 6a+i+ ,1 /:e Va-e;Added Ta> ,% /a>a6-e+a-e+ ,1 rea- *r,*er/0SUGGESTED ANSWER

The asis of the ;al!eAdded Ta# on ta#ale sale ofreal "ro"ert$ is %' ::-= -%)hich is either selling "rice stated in the saledoc!ment or the %Jonal ;al!e% )hiche(er ishigher. -n the asence of onal (al!es the grossselling "rice shall refer to the mar/et (al!e assho)n in the latest ta# declaration or theconsideration )hiche(er is higher.

CAT: !#aracteristics of CAT (1996)

=:a/ are /:e c:arac/eri+/ic+ ,1 /:e Va-e;Added Ta>SUGGESTED ANSWER

The (al!eadded ta# is an indirect ta# and the amo!ntof ta# ma$ e shifted or "assed on to the !$ertransferee or lessee of the goods "ro"erties orser(ices.

ALTERNATIE ANSWERThe (al!eadded ta# has the follo)ing characteristics*1, -t is an indirect ta# )here ta# shifting is

al)a$s "res!med*2, -t is cons!m"tionasedE3, -t is im"osed on the (al!eadded in each

stage of distri!tionE4, -t is a creditin(oice method (al!eadded ta#E and5, -t is not a cascading ta#.

CAT: xempte& Transactions (1996)

i(e at least three +3, real estate transactions)hich are not s!ect to the ;al!eAdded Ta#.

SUGGESTED ANSWER

eal estate transactions )hich are e#em"t from the(al!e added ta# are*+a, ale of real "ro"ert$ not "rimaril$ held for

sale or lease in the ordinar$ co!rse of trade or

!sinessE




+, ale of real "ro"ert$ !tilied for socialiedho!sing !nder A. =o. 7279E

+c, ale of real "ro"ert$ !tilied !nder the lo)

cost ho!sing !nder C Cig. 220.

$ote% The other real estate transactions )hich are

e#em"t from the (al!eadded ta# )hich ma$ e cited

$ the ar candidates are as follo)s*

+a, Transfer of real "ro"ert$ to a tr!stee if the "ro"ert$

is to e held merel$ in tr!st for the tr!stor.+, Transfer of real "ro"ert$ to a cor"oration

in e#change for its shares of stoc/ !nderection 34+c,+2, and +6,+2, of the Ta# ode.

+c, Ad(ance "a$ment $ the lessee in a lease contract)hen the same is act!all$ a loan to the lessor fromthe lessee.

+d, ec!rit$ de"osits for lease arrangements toins!re the faithf!l "erformance of certainoligations of the lessee to the lessor.

+e, :ease of residential !nits oarding ho!ses

dormito ries rooms and ed s"aces offered for

rent $ their o)ners at a monthl$ rental not

e#ceeding 3950.00 "er !nit.

CAT: /ia+"e for Payment (1996)

=:, are -ia6-e 1,r /:e *a05e%/ ,1 Va-e;Added Ta>SUGGESTED ANSWER

The "ersons liale for the (al!eadded ta# are*a. ellers of goods and "ro"erties in the co!rse of tradeor !sinessE . ellers of ser(ices in the co!rse of trade or !sinessincl!ding lessors of goods and "ro"ertiesEc. -m"orters of ta#ale goods )hether in the co!rse of

!siness or not

CAT: Transactions >'eeme& Sa"esG (199,)

Gnder the ;al!e Added ta# +;AT, the ta# is im"osed on

sales arter or e#change of goods and ser(ices. The ;AT

is also im"osed on certain transactions %deemedsales%.

What are these socalled transactions %deemed salesD&SUGGESTED ANSWER

The follo)ing transactions shall e deemed sale*a, Transfer !se or cons!m"tion not in the co!rse of

!siness of goods originall$ intended for sale or

for !se in the co!rse of !sinessE

, istri!tion or transfer to*

+1, hareholders or in(estors as share inthe "rofits of ;ATregistered "ersonsE or

+2, reditors in "a$ment of detE

c, onsignment of goods if act!al sale is not

made )ithin 60 da$s follo)ing the date s!ch

goods )ere consignedE and

d, etirement from or cessation of !siness

)ith res"ect to in(entories of ta#ale goods

e#isting as of s!ch retirement or cessation.

CAT$ !oere& Transactions (199=)


tate )hether the follo)ing transactions area,

;AT #em"t , s!ect to ;AT at 10E or c, s!ectto ;AT at 0*1, ale of fresh (egetales $ Aling -ning at

the amilihang Ca$an ng Trece ?artire. O1P2, er(ices rendered $ Ka/eDs onstr!ction

om"an$ a contractor to the World ealth'rganiation in the reno(ation of its offices in

?anila. O1P3, ale of tractors and other agric!lt!ral im"lements

$ C!ng/al -ncor"orated to local farmers. O1P4, ale of TW $ el$Ds Co!tiF!e a Iili"ino

dress designer in her dress sho" and other o!tlets.

O1P

5, Iees for lodging "aid $ st!dents to Caha$Caha$an

ormitor$ a "ri(ate entit$ o"erating a

st!dent

dormitor$ +monthl$ fee -500,. O1PSUGGESTED ANSWER

1, ;AT e#em"t. ale of agric!lt!ral "rod!cts s!ch

as fresh (egetales in their original state of a

/ind generall$ !sed as or "rod!cing foods forh!man cons!m"tion is e#em"t from ;AT.

+ection 109+c, =-,.

2, ;AT at 0. ince Ka/eDs onstr!ction om"an$ has

rendered ser(ices to the World ealth 'rganiation

)hich is an entit$ e#em"ted from ta#ation !nder

international agreements to )hich the hili""ines is

a signator$ the s!""l$ of ser(ices is s!ect to ero

"ercent +0, rate. +ec. 108OC1+3, =-,.

3, ;AT at 10. Tractors and other

agric!lt!ral im"lements fall !nder the definition

of goods )hich incl!de all tangile oects

)hich are ca"ale of "ec!niar$ estimation

+ec. 106OA1+1, =- the sales of )hich are

s!ect to ;AT at 10.

4, This is s!ect to ;AT at 10. This transaction

also falls !nder the definition of goods )hich

incl!de all tangile oects )hich are ca"ale

of "ec!niar$ estimation +ec. 106OA1+1,

=- the sales of )hich are s!ect to ;AT

at 10.

5, ;AT #em"t. The monthl$ fee "aid $ eachst!dent falls !nder the lease of residential

!nits )ith a monthl$ rental "er !nit note#ceeding h" 8000 )hich -s e#em"t from

;AT regardless of the amo!nt of aggregate

rentals recei(ed $ the lessor d!ring the $ear.

+ec. 109+#, =-,. The term !nit shall mean "er "erson in the case of dormitories oarding

ho!ses and ed s"aces +ec. 4.1031=o. 795,.

COE$T% The "rolems do not call for a $es or no

ans)er. Accordingl$ a ar candidate )ho ans)ered onl$

;AT e#em"t. ;AT at 10 or ;AT at 0. as called for in the



"rolem )itho!t f!rther reasons sho!ld e gi(en f!ll credit.

CAT$ xemption: !onstitutiona"ity (2*)

A la) )as "assed e#em"ting doctors and la)$ers from

the o"eration of the (al!e added ta#. 'ther

"rofessionals com"lained and filed a s!it F!estioning the

la) for eing discriminator$ and (iolati(e of the eF!al

"rotection cla!se of the onstit!tion since com"lainants

)ere not gi(en the




same e#em"tion. -s the s!it meritorio!s or not& eason riefl$. +5,SUGGESTED ANSWER

C. <es the s!it is meritorio!s. The ;AT is designed for

economic efficienc$E hence sho!ld e ne!tral to those

)ho elong to the same class. rofessionals are a class of

ta#"a$ers $ themsel(es )ho in com"liance )ith the r!le

of eF!alit$ of ta#ation m!st e treated ali/e for ta#

"!r"oses. #em"ting la)$ers and doctors from a !rden to

)hich other "rofessionals are s!ected )ill ma/e the la)discriminator$ and (iolati(e of the eF!al "rotection

cla!se of the onstit!tion. While singling o!t a class for

ta#ation "!r"oses )ill not infringe !"on this

constit!tional limitation + S:e-- v. Va%, " P:i-. 74"

8!"39 , singling o!t a ta#"a$er from a class )ill no do!t

transgress the constit!tional limitation +Or5,c Sgar C,.

I%c. v. Trea+rer ,1 Or5,c Ci/0 22 SCRA ')7 8!"'4P,.

Treating doctors and la)$ers as a different class

of "rofessionals )ill not com"l$ )ith the reF!irements of

a reasonale hence (alid classification eca!se

the classification is not ased !"on s!stantial

distinction )hich ma/es real differences. The

classification does not com"l$ )ith the reF!irement that itsho!ld e germane to the "!r"ose of the la) either.

+ Pe*+i;C,-a B,//-i%g C,. I%c. v. Ci/0 ,1 B/a% 2

SCRA #4" 8!"'49 ,.ANOT/ER ANSWER

=o. The s!it is not meritorio!s. The eF!al "rotection

cla!se of the onstit!tion merel$ reF!ires that all "ersons

s!ected to legislation shall e treated ali/e !nder

li/e circ!mstances and conditions oth in the

"ri(ileges conferred and in the liailities im"osed. The

eF!alit$ in ta#ation r!le is not (iolated if classifications or

distinctions are made as long as the same are ased on

reasonale and s!stantial differences. H Pe*+i;C,-a

B,//-i%g C,. I%c. v. Ci/0 ,1 B/a% 2 SCRA #4"

8!"'4P,.

-n the instant case the "rofessions of doctors and la)$ers

are not "rinci"all$ aimed at earning mone$ !t for the

ser(ice of the "eo"le. The e#em"tion granted to doctors

and la)$ers from the o"eration of the ;AT is !stified as

it is not discriminator$ against the other "rofessionals

eca!se the$ ha(e reasonale and s!stantial

differences in the cond!ct of their "rofessions.

CAT$ 7onCAT taxpayer$ !"aim for 8efun& (26)

:il$Ds Iashion -nc. is a garment man!fact!rer locatedand registered as a !ic Ca$ Iree"ort

nter"rise !nder e"!lic Act =o. 7227 and a non;AT ta#"a$er. As s!ch it is e#em"t from "a$ment ofall local and national internal re(en!e ta#es. !ring itso"erations it "!rchased (ario!s s!""lies and materialsnecessar$ in the cond!ct of its man!fact!ring !siness. The s!""liers of these goods shifted to:il$Ds Iashion -nc. the 10 ;AT on the "!rchaseditems amo!nting to 500000.00. :il$Ds Iashion-nc. filed )ith the C- a claim for ref!nd for the in"!tta# shifted to it $ the s!""liers. -f $o! )ere theommissioner of -nternal e(en!e )ill $o! allo)the ref!nd& +5,ALTERNATIE ANSWER

=o - )ill not allo) the ref!nd. 'nl$ ;ATegistered

ta#"a$ers are entitled to a ref!nd of their



[email protected] 4 of 73!na""liedM!n!sed -n"!t ;AT +Ta# eform Actection 112OAP O1997P,.ALTERNATIE ANSWER

=o. The e#em"tion of :il$Ds Iashion -nc. is onl$ forta#es for )hich it is directl$ liale. ence it cannot claim e#em"tion for a ta# shifted to it )hichis not at all considered a ta# to the !$er !t a "artof the "!rchase "rice. :il$Ds fashion is not theta#"a$er in so far as the "assedon ta# is concerned

and therefore it can not claim for a ref!nd of a ta#merel$ shifted to it +hil. Acet$lene o. -nc. (. -:19707A!g. 17 1987,.

(NCTA 34N4: This concept pertains to the

2AT law which is excluded from the 3ar

coverage #uidelines for & 3ar

4xaminations une % &)

REMEDIES IN

INTERNAL REENUE

TAXESBI8: Assessment: <nregistere& Partners#ip (199,)

?r. antos died intestate in 1989 lea(ing his s"o!se andfi(e children as the onl$ heirs. The estate consisted

of a famil$ home and a fo!rdoor a"artment )hich )as

eing rented to tenants. Within the $ear an e#tra!dicial

settle ment of the estate )as e#ec!ted from the

heirs each of them recei(ing hisMher d!e share. The

s!r(i(ing s"o!se ass!med administration of the

"ro"ert$. ach $ear the net income from the rental

"ro"ert$ )as distri!ted to all "ro"ortionatel$ on

)hich the$ "aid res"ecti(el$ the corres"onding

income ta#.

-n 1994 the income ta# ret!rns of the heirs

)ere e#amined and deficienc$ income ta# assessments

)ere is s!ed against each of them for the $ears1989 to 1993 incl!si(e as ha(ing entered into

an !nregistered "artnershi". Were the assessments

!stified&SUGGESTED ANSWER

<es the assessments )ere !stified eca!se for income

ta# "!r"oses the coo)nershi" of inherited

"ro"ert$ is a!tomaticall$ con(erted into an

!nregistered "artnershi" from the moment the said

"ro"erties are !sed as a common f!nd )ith intent to

"rod!ce "rofits for the heirs in "ro"ortion to their shares

in the inheritance.

Irom the moment of s!ch "artition the heirs are entitledalread$ to their res"ecti(e definite shares of the estate and

the income thereof for each of them to manage and

dis"ose of as e#cl!si(el$ his o)n )itho!t the

inter(ention of the other heirs and accordingl$ he

ecomes liale indi(id!all$ for all ta#es in connection

there)ith. -f after s!ch "artition he allo)s his shares to

e held in common )ith his coheir !nder a single

management to e !sed )ith the intent of ma/ing

"rofit there$ in "ro"ortion to his share there can e no

do!t that e(en if no doc!ment or instr!ment )ere

e#ec!ted for the "!r"ose for ta# "!r"oses at least

an !nregistered "artnershi" is formed

+ L,re%, O%a e/ a- v. CIR 3 SCRA #,.ALTERNATIE ANSWER

=o the assessments are not !stified. The mere sharingof income does not of itself estalish a "artnershi"asent an$ clear intention of the coo)ners )ho areonl$ a)aiting liF!idation of the estate.

BI8: !o""ection of Tax 'eficiency (1999)




A died s!r(i(ed $ his )ife and three children. The estate

ta# )as "ro"erl$ "aid and the estate settled and

di(ided and distri!ted among the fo!r heirs. :ater

the C- fo!nd o!t that the estate failed to re"ort the

income recei(ed $ the estate d!ring administration.

The C- iss!ed a deficienc$ income ta# assessment

"l!s interest s!rcharges and "enalties. ince the 3

children are residing aroad the C- so!ght to collect

the f!ll ta# deficienc$ onl$ against the )ido). -s the

C- correct& +10,SUGGESTED ANSWER

<es the C- is correct. -n a case )here the estate

has een distri!ted to the heirs the collection

remedies a(ailale to the C- in collecting ta# liailities of

an estate ma$ either +1, s!e all the heirs and collect

from each of them the amo!nt of ta# "ro"ortionate to the

inheritance recei(ed or +2, $ (irt!e of the lien created

!nder ection 219 s!e onl$ one heir and s!ect

the "ro"ert$ he recei(ed from the estate to the "a$ment

of the estate ta#. The C- therefore is correct in

"!rs!ing the second remed$ altho!gh this )ill gi(e rise

to the right of the heir )ho "a$s to see/ reim!rsement

from the other heirs.(CIR v. Pi%eda 2! SCRA !)3$. -n no case ho)e(er canthe C- enforce the ta# liailit$ in e#cess of the shareof the )ido) in the inheritance.

BI8: !ompromise$ !on&itions (2)

Gnder )hat conditions ma$ the ommissioner of-nternal e(en!e e a!thoried to*A" om"romise the "a$ment of an$ internal

re(en!e ta#& +2,SUGGESTED ANSWER

The ommissioner of -nternal e(en!e ma$ e a!thoried to com"romise the "a$ment of an$internal re(en!e ta# )here*

1, A reasonale do!t as to the (alidit$ of theclaim against the ta#"a$er e#istsE or

2, the financial "osition of the ta#"a$er demonstrates

a clear inailit$ to "a$ the assessed ta#.

C. Aate or cancel a ta# liailit$& +3,SUGGESTED ANSWER

The ommissioner of -nternal e(en!e ma$ aateor cancel a ta# liailit$ )hen*1, The ta# or an$ "ortion thereof a""ears to e

!n!stl$ or e#cessi(el$ assessedE or2, The administration and collection costs in(ol(ed

do not !stif$ the collection of the amo!nt d!e.

Oec. 204 +C, =- of 1997P

BI8: !ompromise$ xtent of Aut#ority (1996)

#"lain the e#tent of the a!thorit$ of the ommissionerof -nternal e(en!e to com"romise and aate ta#es&SUGGESTED ANSWER

The a!thorit$ of the ommissioner to com"romise

encom"asses oth ci(il and criminal liailities of the ta#

"a$er. The ci(il com"romise is allo)ed onl$ in cases

12, )here the ta# assessment is of do!tf!l (alidit$ or13, )hen the financial "osition of the

ta#"a$er demonstrates a clear inailit$ to "a$ the

ta#.

The com"romise of the ta# liailit$ is "ossile at an$ stage

of litigation and the amo!nt of com"romise is left to the

discretion of the ommissioner e#ce"t )ith res"ect to




final assessments iss!ed against largeta#"a$er s

)herein the ommissioner cannot com"romise forless than fift$ "ercent +50,. An$ com"romisein(ol(ing large ta#"a$ers lo)er than fift$ "ercent+50, shall e s!ect to the a""ro(al of the ecretar$of Iinance.

All criminal (iolations e#ce"t those in(ol(ing

fra!d can e com"romised $ the ommissioner !tonl$ "rior to the filing of the information )ith

the o!rt. The ommissioner ma$ also aate or

cancel a ta# liailit$ )hen1. the ta# or an$ "ortion thereof a""ears to ha(e

een !n!stl$ or e#cessi(el$ assessedE or2. the administrati(e and collection costs

in(ol(ed do not K!stif$ collection of the

amo!nt d!e. +ec. 204 =-,

BI8: !ompromise$ -it##o"&ing Agent (199=)

?a$ the ommissioner of the -nternal e(en!ecom"ro mise the "a$ment of )ithholding ta# (tax

deducted and withheld at source) )here thefinancial "osition of the ta#"a$er demonstrates aclear inailit$ to "a$ the assessed ta#& O51SUGGESTED ANSWER

=o. A ta#"a$er )ho is constit!ted as )ithholding

agent )ho has ded!cted and )ithheld at so!rce the ta#

on the income "a$ment made $ him holds the ta#es

as tr!st f!nds for the go(ernment +ec. 58OP, and is

oligated to remit them to the C-. The s!seF!ent

inailit$ of the )ithholding agent to "a$Mremit the ta#

)ithheld is not a gro!nd for com"romise eca!se the

)ithholding ta# is not a ta# !"on the )ithholding

agent !t it is onl$ a "roced!re for the collection of a

ta#.

BI8: !orporation: 'istraint ; /ey (22)

'n ?arch 15 2000 the C- iss!ed a deficienc$income ta# assessment for the ta#ale $ear 1997against the ;alera ro!" of om"anies +;alera, inthe amo!nt of 10 million. o!nsel for ;alera "rotested the assessment and reF!ested arein(estigation of the case. !ring thein(estigation it )as sho)n that ;alera had een transferring its "ro"erties to other "ersons.As no additional e(idence to dis"!te theassessment had een "resented the C- iss!ed onK!ne 16 2000 )arrants of distraint and le($ on the

"ro"erties and ordered the filing of an action in theegional Trial o!rt for the collection of the ta#.o!nsel for ;alera filed an in!ncti(e s!it in theegional Trial o!rt to com"el the C- to holdthe collection of the ta# in ae$ance !ntil the decisionon the "rotest )as rendered.A. an the C- file the ci(il action for

collection "ending decision on theadministrati(e "rotest&#"lain. +3,

SUGGESTED ANSWER

A. <es eca!se there is no "rohiition forthis "roced!re considering that the filing of a ci(il

action for collection d!ring the "endenc$ of anadministrati(e "rotest constit!tes the final decision ofthe ommissioner on the "rotest +CIR v. U%i,%

S:i**i%g C,r*. 43 SCRA 34 8!"")9 ,.




C. As co!nsel for ;alera )hat action )o!ld $o!ta/e in order to "rotect the interest of $o!rclient&#"lain $o!r ans)er. +2,

SUGGESTED ANSWER

C. - )ill )ait for the filing of the ci(il action for

collection and consider the same as an a""ealale

decision. - )ill not file an in!ncti(e s!it eca!se it is not

an a(ailale remed$. - )o!ld then a""eal the case to the

o!rt of Ta# A""eals and mo(e for the dismissal of thecollection case )ith the T. 'nce the a""eal to the TA

is filed on time the TA has e#cl!si(e !risdiction

o(er the case. ence the collection case in the T

sho!ld e dismissed +Ta6e+ v. F-,K, !!3 SCRA 2#4

8!"429 ,.

BI8: !ourt of Tax Appea"s: !o""ection of Taxes$ 5roun&s

for !ompromise (1996)

1. ?a$ the o!rt of Ta# A""eals iss!e an in!nction to

enoin the collection of ta#es $ the C!rea!

of

-nternal e(en!e& #"lain.

SUGGESTED ANSWER<es. When a decision of the ommissioner on a ta#

"rotest is a""ealed to the TA "!rs!ant to ,ec. %% of $A.

No. %%& (law creating the !TA) in relation to ,ec.

&&* of the N6$! s!ch a""eal does not s!s"end the

"a$ment le($ distraint andMor sale of an$ of the

ta#"a$erDs "ro"ert$ for the satisfaction of his ta# liailit$.

o)e(er )hen in the o"inion of the TA the

collection of the ta# ma$ eo"ardie the interest of

the o(ernment andMor the ta#"a$er the o!rt at an$

stage of the "roceedings ma$ s!s"end or restrain the

collection of the ta# and reF!ire the ta#"a$er either to

de"osit the amo!nt claimed or to file a s!ret$ ond for

not more than do!le the amo!nt )ith the o!rt.

2. ?a$ the ta# liailit$ of a ta#"a$er e

com"romised d!ring the "endenc$ of an a""eal&


<es. !ring the "endenc$ of the a""eal the ta#"a$er ma$

still enter into a com"romise settlement of his ta# liailit$

for as long as an$ of the gro!nds for a com"romise i.e.E

doubtful validity of assessment and financial incapacity of

taxpayer is "resent. A com"romise of a ta# liailit$

is "ossile at an$ stage of litigation e(en d!ring a""eal

altho!gh legal "ro"riet$ demands that "rior lea(e of

co!rt sho!ld e otained + Pa+dec, v+. CIR L;7"74#

<%e 2" !"42,.

BI8: !rimina" Prosecution: Tax asion (199=)

-s assessment necessar$ efore a ta#"a$er ma$ e "rosec!ted for )illf!ll$ attem"ting in an$ manner toe(ade or defeat an$ ta# im"osed $ the -nternale(en!e ode& O5,SUGGESTED ANSWER

=o. Assessment is not necessar$ efore a ta#"a$er ma$e

"rosec!ted if there is a "rima facie sho)ing of a

)illf!l attem"t to e(ade ta#es as in the ta#"a$erDs

fail!re to declare a s"ecific item of ta#ale income in his

income ta# ret!rns +U%ga6 v. C+i "# SCRA 4## ,. 'n the

contrar$ if the ta#es alleged to ha(e een e(aded is

com"!ted ased on re"orts a""ro(ed $ the C-

there is a "res!m"tion of reg!larit$ of the "re(io!s

"a$ment of ta#es so that !nless and !ntil the C- has

made a final determination of )hat is s!""osed to e the

correct ta#es the ta#"a$er sho!ld not e "laced in the

cr!cile of




73 criminal "rosec!tion +CIR v. F,r/%e T,6acc, C,r*. GR N,. !!"722 <%e !""' ,.

BI8: xtinction$ !rimina" /ia+i"ity of t#e Taxpayer (22)

?r. han a man!fact!rer of garments )as

in(estigated for fail!re to file ta# ret!rns and to "a$

ta#es for the ta#ale $ear 1997. es"ite the subpoena

duces tecum iss!ed to him he ref!sed to "resent and

s!mit his oo/s of acco!nts and allied records.

-n(estigators therefore raided his factor$ and

seied se(eral !ndles of man!fact!red garments

s!""lies and !n"aid im"orted te#tile materials. After

his a""rehension and ased on the testimon$ of a

former em"lo$ee deficienc$ income and !siness

ta#es )ere assessed against ?r. han on A"ril 15

2000. -t )as then that he "aid the ta#es. riminal

action )as nonetheless instit!ted against him in

the egional Trial o!rt for (iolation of the Ta#

ode. ?r. han mo(ed to dismiss the criminal case on

the gro!nd that he had alread$ "aid the ta#es assessed

against him. e also demanded the ret!rn of the

garments and materials seied from his factor$. o)

)ill $o! resol(e ?r. hanDs motion& +5,

SUGGESTED ANSWER

The motion to dismiss sho!ld e denied. Thesatisfaction of the ci(il liailit$ is not one of thegro!nds for the e#tinction of criminal action+ Pe,*-e v. I-de1,%+, Tierra !2 SCRA ''' 8!"'9 ,.:i/e)ise the "a$ment of the ta# d!e aftera""rehension shall not constit!te a (alid defense inan$ "rosec!tion for (iolation of an$ "ro(ision of theTa# ode +ec. 253OaP =-,. o)e(er thegarments and materials seied from the factor$ sho!ld e ordered ret!rned eca!se the "a$ment of theta# had released them from an$ lien that theo(ernment has o(er them.

!ustoms$ Huris&iction$ Assessment$ <npai&

!ustoms 'utiesETaxes (26)The ollector of !stoms iss!ed an assessment for

!n "aid c!stoms d!ties and ta#es on the im"ortation of

$o!r client in the amo!nt of 980000.00. Where )ill

$o! file $o!r case to "rotect $o!r clientDs right& hoose

the correct co!rtsM agencies oser(ing their "ro"er

hierarch$. +5,

1. o!rt of Ta# A""eals2. ollector of !stoms3. ommissioner of !stoms4. egional Trial o!rt5. ?etro"olitan Trial o!rt6. o!rt of A""eals7. !"reme o!rtSUGGESTED ANSWER

1. rotest )ith the ollector of !stoms (,ec. &5/

T!!) 2. A""eal to the ommissioner of !stoms (,ec.

&5%5 T!!).3. A""eal to the TA ($A *&/&) 4. etition for e(ie) on ertiorari !"reme o!rt

($ule " of the %**' $ules of !ivil 9rocedure ($A *&/&).

Taxpayer$ Prescriptie Perio&$ Assessment$

'eficiency Income Tax (26)

The ommissioner of -nternal e(en!e iss!ed anassess ment for deficienc$ income ta# for ta#ale $ear2000 last K!l$ 31 2006 in the amo!nt of 10 ?illionincl!si(e of




s!rcharge and interests. -f the delinF!ent ta#"a$er is$o!r client )hat ste"s )ill $o! ta/e& What is $o!rdefense& +10,ALTERNATIE ANSWER

As o!nsel - shall mo(e to cancel theAssessment eca!se of "rescri"tion. The three +3,$ear "eriod of assessment for the -ncome Ta# et!rnsof 2000 starts on A"ril 15 2001 and ends onA"ril 16 2004. The assessment of K!l$ 31 2006

is e$ond the three +3, $ear "rescri"ti(e "eriod andcan no longer ha(e an$ legal inding effect (Tax

$eform Act Title 2666 !hapter 6 ,ection &5 %**'@).ALTERNATIE ANSWER

ince m$ client has lost his right to "rotest - )ill ad(ise

him to )ait for a collection action $ the ommissioner.

Then - )ill file a "etition for re(ie) )ith the TA

to F!estion the collection. ince the assessment )as

iss!ed e$ond the "rescri"ti(e "eriod to assess the

action to collect an in(alid assessment is not )arranted(P:i-. <,r; %a-i+/+ I%c. v. CIR G.R. N,. !'2432 Dece56er

!' 2))$.

Taxpayer$ Assessment$ 'eficiency Tax (26)

'n K!ne 1 2003 loal Can/ recei(ed a final notice ofassessment from the C- for deficienc$doc!mentar$ stam" ta# in the amo!nt of 5 ?illion. 'nK!ne 30 2003 loal Can/ filed a reF!est forreconsideration )ith the ommissioner of -nternale(en!e. The ommissioner denied the reF!est forreconsideration onl$ on ?a$ 30 2006 at the sametime ser(ing on loal Can/ a )arrant of distraint tocollect the deficienc$ ta#. -f $o! )ere its co!nsel)hat )ill e $o!r ad(ice to the an/& #"lain.+5,ALTERNATIE ANSWER

The denial for the reF!est for reconsideration is the final

decision of the -.. - )o!ld ad(ise loal Can/ toa""eal the denial to the o!rt of Ta# A""eals +TA,

)ithin 30 da$s from recei"t. - )ill f!rther ad(ise the an/

to file a motion for in!nction )ith the o!rt of Ta#

A""eals to enoin the ommissioner from enforcing the

assessment "ending resol!tion of the a""eal. While an

a""eal to the TA )ill not s!s"end the "a$ment

le($ distraint andMor sale of an$ "ro"ert$ of the ta#"a$er

for the satisfaction of its ta# liailit$ the TA is

a!thoried to gi(e in!ncti(e relief if the enforcement

)o!ld eo"ardie the interest of the ta#"a$er as in this

case )here the assessment has not ecome final(La+c,%a La%d C,. v

CIR CTA Ca+e N,. 3### <a%ar0 2)))? See a-+, Revi+edCTA R-e+ a**r,ved 60 /:e S*re5e C,r/ ,% Dece56er!3 2))3$.ALTERNATIE ANSWER

- )ill ad(ice the Can/ to "rom"tl$ "a$ thedeficienc$ doc!mentar$ stam" ta# and the interestcharges to a(oid an$ f!rther increase in the ta# liailit$.The Can/ sho!ld ha(e a""ealed to the o!rt of Ta#A""eals )hen the C- failed to decide on its eF!estfor econsideration )ithin thirt$ +30, da$s after theinaction of the C- for one h!ndred eight$ +180,da$s or on ecemer 31 2003. The Ta# Assessmenthas alread$ ecome final e#ec!tor$ and !na""ealale

at that "oint (BPI v. CIR G.R. N,. !7"#7'

Oc/,6er !# 2))3$.

Taxpayer$ CATregistere&$ !"aim for Tax 8efun& (26)



[email protected] .0 of 73o$al ?ining is a ;ATregistered domestic

mining entit$. 'ne of its "rod!cts is sil(er eing soldto the Cang/o entral ng ili"inas. -t filed a claim)ith the C- for ta# ref!nd on the gro!nd that !nderection 106 of the Ta# ode sales of "recio!s metalsto the Cang/o entral ng ili"inas are considerede#"ort sales s!ect to erorated ;AT. -s o$al?iningDs claim meritorio!s& #"lain. +5,SUGGESTED ANSWER

=o o$al ?iningDs claim is not meritorio!s eca!se itis the sale to the Cang/o entral ng ili"inas of goldand not sil(er )hich is considered e#"ort sales atJerorated ;AT(Tax $eform Act Title 62 ,ection %&@a@"@).( NOTA BENE : 42AT is excluded from the 3ar coverage

#uidelines for & 3ar 4xaminations une % &)

BI8: Frau&u"ent 8eturn$ Prima Facie i&ence (199=)

What constit!tes "rima facie e(idence of afalse or fra!d!lent ret!rn& O2PSUGGESTED ANSWER

There is "rima facie e(idence of a false or

fra!d!lent ret!rn )hen the ta#"a$er has )illf!ll$ and

/no)ingl$ filed it )ith the intent to e(ade a "art or all ofthe ta# legall$ d!e from him +U%ga6 v. C+i "#

SCRA 4## ,. There m!st a""ear a design to mislead or

decei(e on the "art of the ta#"a$er or at least c!l"ale

negligence. A mista/e not c!l"ale in res"ect of its (al!e

)o!ld not constit!te a false ret!rn. (+ords and 9hrases

2ol. % page %'5).

BI8: Frau&u"ent 8eturn$ Prima Facie i&ence (22)

What constit!tes prima facie e(idence of afalse or fra!d!lent ret!rn to !stif$ the im"ositionof a 50 s!rcharge on the deficienc$ ta# d!efrom a ta#"a$er& #"lain. +5,

SUGGESTED ANSWERThere is a "rima facie e(idence of false or

fra!d!lent ret!rn )hen the ta#"a$er

,E3,TANT6A??G ENB4$- B4!?A$4B his ta#ale

sales recei"ts or income or

,E3,TANT6A??G C24$,TAT4B his ded!ctions the

ta#"a$erDs fail!re to re"ort sales recei"ts or income in an

amo!nt e#ceeding 30 of that declared "er ret!rn and a

claim of ded!ction in an amo!nt e#ceeding 30 of act!al

ded!ction shall render the ta#"a$er liale for

s!stantial !nderdeclaration and o(erdeclaration

res"ecti(el$ and )ill !stif$ the im"osition of the

50 s!rcharge on the deficienc$ ta# d!e from the

ta#"a$er. (,ec. &"/ N6$!).

BI8: 5arnis#ment: Ban Account of a Taxpayer (199=)

-s the C- a!thoried to iss!e a )arrant of

garnishment against the an/ acco!nt of a

ta#"a$er des"ite the "endenc$ of his "rotest against

the assessment )ith the C- or a""eal )ith the o!rt

of Ta# A""eals& O5PSUGGESTED ANSWER

The C- is a!thoried to iss!e a )arrant of garnishment

against the an/ acco!nt of a ta#"a$er des"ite

the "endenc$ of "rotest +a6e+ v. F-,K, !3 SCRA

2#4,. =o)here in the Ta# ode is the ommissioner

reF!ired to r!le first on the "rotest efore he can

instit!te collection "roceedings on the ta# assessed. The

legislati(e "olic$ is to gi(e the ommissioner m!ch

latit!de in the s"eed$ and "rom"t collection of ta#es

eca!se it is in ta#ation that the o(ernment de"ends

to otain the




means to carr$ on its o"erations + Re*6-ic . Ti5 Tia%

Te%g S,%+ I%c. !' SCRA 34,.ALTERNATIE ANSWER

=o eca!se the assessment has not $et ecomefinal e#ec!tor$ and demandale. The asicconsideration in the collection of ta#es is )hether theassessment is final and !na""ealale or the decision ofthe ommissioner is final e#ec!tor$ and demandalethe C- has legal asis to collect the ta# liailit$ $

either administrati(e or !dicial action.

BI8: PreAssessment 7otice not 7ecessary (22)

-n the in(estigation of the )ithholding ta# ret!rns of AJ

?edina ec!rit$ Agenc$ +AJ ?edina, for the ta#ale

$ears 1997 and 1998 a discre"anc$ et)een the ta#es

)ithheld from its em"lo$ees and the amo!nts act!all$

remitted to the go(ernment )as fo!nd.

Accordingl$ efore the "eriod of "rescri"tion commenced

to r!n the C- iss!ed an assessment and a demand letter

calling for the immediate "a$ment of the deficienc$

)ithholding ta#es in the total amo!nt of 250000.00.

o!nsel for AJ ?edina "rotested the assessment for eing

n!ll and (oid on the gro!nd that no "reassessmentnotice had een iss!ed. o)e(er the "rotest )as

denied. o!nsel then filed a "etition for "rohiition

)ith the o!rt of Ta# A""eals to restrain the collection

of the ta#.

A. -s the contention of the co!nsel tenale& #"lain+2,

SUGGESTED ANSWER

A. =o the contention of the co!nsel is !ntenale.

ection 228 of the Ta# ode e#"ressl$ "ro(ides that

no "reassessment notice is reF!ired )hen a discre"anc$

has een determined et)een the ta# )ithheld and

the amo!nt act!all$ remitted $ the )ithholding agent.

ince the amo!nt assessed relates to deficienc$

)ithholding ta#es the C- is correct in iss!ing the

assessment and demand letter calling for the

immediate "a$ment of the deficienc$ )ithholding ta#es.

+ec. 228 =-,.

C. Will the s"ecial ci(il action for "rohiition

ro!ght efore the TA !nder ec. 11 of

.A =o. 1125 "ros"er& isc!ss $o!r ans)er.

+3,

SUGGESTED ANSWER

C. The s"ecial ci(il action for "rohiition )ill not

"ros"er eca!se the TA has no !risdiction to entertain

the same. The "o)er to iss!e )rit of in!nction "ro(idedfor !nder ection 11 of A 1125 is onl$ ancillar$ to

its a""ellate !risdiction. The TA is not (ested )ith

original !risdiction to iss!e )rits of "rohiition or

in!nction inde"endentl$ of and a"art from an

a""ealed case. The remed$ is to a""eal the decision of

the C-. +C,--ec/,r v. +ec, 7 SCRA 7!7 8!"'!9 ,.

BI8: Prescriptie Perio&: !ii" Action (22)

'n A!g!st 5 1997 Adamson o. -nc. +Adamson, fileda reF!est for reconsideration of the deficienc$)ithholding ta# assessment on K!l$ 10 1997 co(ering

the ta#ale $ear 1994. After administrati(ehearings the original assessment of 150000.00 )asred!ced to 75.000.00 and a modified assessment )asthereafter iss!ed on A!g!st 05 1999. es"ite re"eateddemands Adamson failed and



[email protected] .1 of 73

ref!sed to "a$ the modified

assessment.

onseF!entl$ the C- ro!ght an action forcollection in the egional Trial o!rt one"temer 15 2000. Adamson mo(ed to dismissthe action on the gro!nd that the go(ernmentDs rightto collect the ta# $ !dicial action has "rescried.ecide the case. +5,SUGGESTED ANSWER

The right of the o(ernment to collect $ !dicialaction has not "rescried. The filing of thereF!est for reconsideration s!s"ended the r!nning ofthe "rescri"ti(e "eriod and commenced to r!n again)hen a decision on the "rotest )as made on A!g!st 51999. -t m!st e noted that in all cases co(ered $ anassessment the "eriod to collect shall e fi(e +5,$ears from the date of the assessment !t this "eriod is s!s"ended $ the filing of a reF!est forreconsideration )hich )as acted !"on $ theommissioner of -nternal e(en!e +CIR v. =0e/:

Sac, La6,ra/,rie+ I%c. 2)2 SCRA !23 8!""!9 ,.

BI8: Prescriptie Perio&$ Assessment ; !o""ection (1999)A o. a hili""ine or"oration filed its 1995-ncome Ta# et!rn +-T, on A"ril 15 1996sho)ing a net loss. 'n =o(emer 10 1996 itamended its 1995 -T to sho) more losses. After ata# in(estigation the C- disallo)ed certainded!ctions claimed $ A o. "!tting A o. in a netincome "osition. As a res!lt on A!g!st 5 1999 theC- iss!ed a deficienc$ income assessment against Ao. A o. "rotested the assessment on the gro!nd thatit has "rescried* ecide. +5,SUGGESTED ANSWER

The right of the C- to assess the ta# has not "rescried.

The rule is that internal revenue taxes shall be

assessed within three years after the last day

prescribed by law for the filing of the return.+,ection &5 N6$! , o)e(er if the ret!rn originall$filed is amended s!stantiall$ the co!nting of thethree$ear "eriod starts from the date the amendedret!rn )as filed. +CIR v. P:,e%i> A++ra%ce C,. L/d.

! SCRA 32,. There is a s!stantial amendment in thiscase eca!se a ne) ret!rn )as filed declaring morelosses )hich can onl$ e done either +1, in red!cinggross income or +2, in increasing the items ofded!ctions claimed.

BI8: Prescriptie Perio&$ !rimina" Action (22)

T< or"oration filed its final ad!sted income ta#ret!rn for 1993 on A"ril 12 1994 sho)ing a netloss from o"erations. After in(estigation the C-iss!ed a "re assessment notice on ?arch 30 1996.A final notice and demand letter dated A"ril 15 1997)as iss!ed "ersonall$ deli(ered to and recei(ed $ the com"an$Ds chief acco!ntant. Ior )illf!lref!sal and fail!re of T< or"oration to "a$ theta# )arrants of distraint and le($ on its "ro"erties)ere iss!ed and ser(ed !"on it. 'n Kan!ar$ 102002 a criminal charge for (iolation of the Ta#ode )as instit!ted in the egional Trial o!rt )ith

the a""ro(al of the ommissioner.

The com"an$ mo(ed to dismiss the criminal com"lainton the gro!nd that an act for (iolation of an$

"ro(ision of the Ta# ode "rescries after fi(e +5,$ears and in this case the "eriod commenced to

r!n on ?arch 30 1996 )hen the "reassessment )asiss!ed. o) )ill $o! resol(e the motion& #"lain $o!r

ans)er. +5,




SUGGESTED ANSWER

The motion to dismiss sho!ld not e granted. -t is

onl$ )hen the assessment has ecome final and

!na""ealale that the 5$ear "eriod to file a criminal

action commences to r!n +T*a v. U-,* 7!' SCRA !!4

8!"""9 ,. The "re assessment notice iss!ed on ?arch 30

1996 is not a final assessment )hich is enforceale $

the C-. -t is the iss!ance of the final notice and

demand letter dated A"ril 15 1997 and the fail!re of theta#"a$er to "rotest )ithin 30 da$s from recei"t thereof

that made the assessment final and !na""ealale.

The earliest date that the assessment has ecome final

is ?a$ 16 1997 and since the criminal charge )as

instit!ted on Kan!ar$ 10 2002 the same )as timel$

filed.

BI8: Secrecy of Ban 'eposits /a (199=)

an the ommissioner of -nternal e(en!e inF!ireinto the an/ de"osits of a ta#"a$er& -f so does this "o)er of the ommissioner conflict )ith .A. 1405+ecrec$ of Can/ e"osits :a), O5PSUGGESTED ANSWER

The ommissioner of -nternal e(en!e isa!thoried to inF!ire into the an/ de"osits of*1, a decedent to determine his gross estateE

2, an$ ta#"a$er )ho has filed an a""lication

for com"romise of his ta# liailit$ $ means of

financial inca"acit$ to "a$ his ta# liailit$ +ec.

6+I,. =-,.

3, Where the ta#"a$er has signed a )ai(er a!thoriing

the ommissioner or his d!l$ a!thoried

re"resentati(es to -nF!ire into the an/ de"osits.

(Note: This answer was not part of the answers

enumerated in the E9 ?aw Answers to the 3ar in this but was later added in the recent

E9 ?aw Answers to the 3ar as a result of A8?A

?aw of &%)

The limited "o)er of the ommissioner does not conflict

)ith .A. =o. 1405 eca!se the "ro(isions of the Ta#

ode granting this "o)er is an e#ce"tion to the ecrec$ of

Can/ e"osits :a) as emodied in a later legislation.

I!rthermore in case a ta#"a$er a""lies for an a""lication

to com"romise the "a$ment of his ta# liailities on

his claim that his financial "osition demonstrates a

clear inailit$ to "a$ the ta# assessed his a""lication shallnot e considered !nless and !ntil he )ai(es in

)riting his "ri(ilege !nder .A. =o. 1405 and s!ch

)ai(er shall constit!te the a!thorit$ of the

ommissioner to inF!ire into the an/ de"osits of the

ta#"a$er.

BI8$ !onse3uence$ Taxpayer gui"ty of Tax asion (2)

Kosel agreed to sell his condomini!m !nit to Kess for 2.5

?illion. At the time of the sale the "ro"ert$ had a onal

(al!e of 2.0 ?illion. G"on the ad(ice of a ta# cons!ltant

the "arties agreed to e#ec!te t)o deeds of sale one

indicating the onal (al!e of 2.0 ?illion as the selling

"rice and the other sho)ing the tr!e selling "rice of 2.5

?illion. The ta# cons!ltant filed the ca"ital gains ta#

ret!rn !sing the deed of sale sho)ing the onal (al!e of



[email protected] .2 of 732.0 ?illion as the selling "rice. isc!ss theta#im"lications and conseF!ences of the action. +5,ALTERNATIE ANSWER

The action of the "arties constit!tes ta# e(asionand e#"oses Kosel to*+1, I--=< I-=A: -='? TAB on the sale

of real "ro"ert$ in the hili""ines classified as a

ca"ital asset. Gnder ec. 24+, of the =- the

final ta# of si# "ercent +6, shall e ased onthe gross selling "rice of 2.5 ?illion or onal

(al!e of 2.0 ?illion )hiche(er is higher i.e.

2.5 ?illionE

+2, IAG =A:T< amo!nting to 50 s!rchargeon the amo!nt e(aded +ec. 248OCP =-,E and

+3, I--=< -=TT of 20 "er ann!monthe deficienc$. +ec. 249OAPOCP =-,

ALTERNATIE ANSWER

There is ta# e(asion eca!se of the conc!rrenceof the follo)ing factors*1, The "a$ment of less than that /no)n $ the

ta#"a$er to e legall$ d!e or the non"a$ment of ta#)hen it is sho)n that a ta# is d!e. -t is e(ident that the "arties that the ta# d!e sho!ld e com"!ted ased onthe (al!ation of 2.5 million and not 2.0 millionE2, An accom"an$ing state of mind )hich isdescried as eing %e(il% on %ad faith% %)illf!l% or%delierate and not accidental.% es"ite the ao(e/no)ledge the "arties delieratel$ misre"resented thetr!e asis of the saleE and3, A co!rse of action or fail!re of action )hich

is !nla)f!l. This is sho)n $ the "re"aration of the

t)o deeds of sale )hich sho)ed different

(al!es.(C,55i++i,%er ,1 I%/er%a- Reve%e v. T:e

E+/a/e ,1Be%ig%, P T6da <r. G.R. N,. !#!44 Se*/e56er ! 2))$

The ta# e(asion committed sho!ld res!lt to

the im"osition of a 50 fra!d s!rcharge on the

amo!nt e(aded (,ec. &"/3@ N6$!) "a$ment of the

eficienc$ Ta# and interest of 20 "er ann!m on

the deficienc$. (,ec. &"*A@3@ N6$!) The "arties

ma$ li/e)ise e s!ect to criminal "rosec!tion for

)illf!ll$ failing to "a$ the ta# as )ell as for filing a

false and fra!d!lent ret!rn.

(,ees. &" & and &' N6$!)

BI8: Summary 8eme&y: state Tax 'eficiencies (199=)

-s the C- a!thoried to collect estate ta# deficiencies $ the s!mmar$ remed$ of le($ !"on and saleof real "ro"erties of the decedent )itho!t firstsec!ring the a!thorit$ of the co!rt sitting in "roateo(er the s!""osed )ill of the decedent&SUGGESTED ANSWER

<es. The C- is a!thoried to collect estate ta#deficienc$ thro!gh the s!mmar$ remed$ of le($ing!"on and sale of real "ro"erties of a decedent)itho!t the cognition and a!thorit$ of the co!rtsitting in "roate o(er the s!""osed )ill of the

deceased eca!se the collection of estate ta# ise#ec!ti(e in character. As s!ch the estate ta# ise#em"ted from the a""lication of the stat!te of nonclaims and this is !stified $ the necessit$ ofgo(ernment f!nding immortalied in the ma#im thatta#es are the lifelood of the go(ernment + Marc,+ v.

CIR G.R. N,. !2)44) <%e 3 !""# ,.ALTERNATIE ANSWER




<es if the ta# assessment has alread$ ecome final

e#ec!tor$ and enforceale. The a""ro(al of the co!rt

sitting in "roate o(er the s!""osed )ill of the deceased is

not a mandator$ reF!irement for the collection of the

estate ta#. The "roate co!rt is determining iss!es )hich

are not against the "ro"ert$ of the decedent or a

claim against the estate as s!ch !t is against the

interest or "ro"ert$ right )hich the heir legatee de(isee

etc. has in the "ro"ert$ formerl$ held $ the decedent.

+ Marc,+ v. CIR G.R N,. !2)44) <%e 3 !""7,.

BI8: <npai& Taxes s !"aims for <npai& -ages (199)

Ior fail!re of 'ceanic om"an$ -nc. +'A=-, to

"a$ deficienc$ ta#es of 20 ?illion the ommissioner of

-nternal e(en!e iss!ed )arrants of distraint on

'A=-Ds "ersonal "ro"erties and le(ied on its real

"ro"erties. ?ean)hile the e"artment of :aor thro!gh

the :aor Ariter rendered a decision ordering

'A=- to "a$ !n"aid )ages and other enefits to its

em"lo$ees. Io!r arges elonging to 'A=- )ere

le(ied !"on $ the sheriff and later sold at "!lic a!ction.

The ommissioner of -nternal e(en!e filed amotion )ith the :aor Ariter to ann!l the saleand enoin the sheriff from dis"osing the "roceeds thereof. The em"lo$ees of 'A=-

o""osed the motion contending that Art. 110 of the:aor ode gi(es first "reference to claims for !n"aid)ages.

esol(e the motion. #"lain.SUGGESTED ANSWER

The motion filed $ the ommissioner sho!ld e granted

eca!se the claim of the go(ernment for !n"aid ta#es are

generall$ "referred o(er the claims of laorers for !n"aid

)ages. The "ro(ision of Article 110 of the :aor

ode )hich gi(es laorersD claims for "reference a""lies

onl$ in case of an/r!"tc$ or liF!idation of the

em"lo$erDs !siness. -n the instant case 'ceanic is

not !nder an/r!"tc$ or liF!idation at the time the

)arrants of distraint and le($ )ere iss!ed hence the

o""osition of the em"lo$ees is !n)arranted. (CIR v+.

NLRC e/ a- G.R. N,.

#"'3 N,ve56er " !""$.

BI8$ Assessment$ !rimina" !omp"aint (2)

-n 1995 the C- filed efore the e"artment of

K!stice +'K, a criminal com"laint against a cor"oration

and its officers for alleged e(asion of ta#es. The

com"laint )as s!""orted $ a s)orn statement of the

C- e#aminers sho)ing the com"!tation of the ta#liailities of the erring ta#"a$er. The cor"oration filed a

motion to dismiss the criminal com"laint on the gro!nd

that there has een as $et no assessment of its ta#

liailit$E hence the criminal com"laint )as "remat!re.

The 'K denied the motion on the gro!nd that an

assessment of the ta# deficienc$ of the cor"oration is

not a "recondition to the filing of a criminal

com"laint and that in an$ e(ent the oint affida(it

of the C- e#aminers ma$ e considered as an

assessment of the ta# liailit$ of the cor"oration. -s

the r!ling of the 'K correct& #"lain. +5,SUGGESTED ANSWER

The 'K is correct in r!ling that an assessment of the ta#

deficienc$ of the cor"oration is not a "recondition to the

filing of a criminal com"laint. There is no need for an



[email protected] .+ of 73assessment so long as there is a "rima facie

sho)ing of (iolation of the "ro(isions of the Ta# ode.

After all a criminal charge is instit!ted not to

demand "a$ment !t to "enalie the ta# "a$er for

(iolation of the Ta# ode. (C,55i++i,%er ,1 I%/er%a-

Reve%e v. Pa+c,r

Rea-/0 a%d Deve-,*5e%/ C,r*,ra/i,% G.R. N,.

!247!3 <%e 2" !""", I!rthermore there isnothing in the "rolem that sho)s that the C- in

filing the case is also interested in collecting the ta#deficienc$.

o)e(er it is in error )hen it r!led that the ointaffida(it of the C- e#aminers ma$ e considered asan assessment of the ta# liailit$ of thecor"oration. The oint affida(it sho)ing thecom"!tation of the ta# liailities of the erringta#"a$er is not a ta# assessment eca!se it )as notsent to the ta#"a$er and does not demand "a$ment of the ta# )ithin a certain "eriod of time.An assessment is deemed made onl$ )hen the C-releases mails or sends s!ch notice to the ta#"a$er.

(C,55i++i,%er ,1 I%/er%a- Reve%e v. Pa+c,r Rea-/0 a%d Deve-,*5e%/ C,r*,ra/i,% G.R. N,. !247!3 <%e 2"

!"""$

N,/e+ a%d C,55e%/+ A plea is made for

liberality in correcting the examinees answers

because the examination is very long.

BI8$ Aut#ority$ 8efun& or !re&it of Taxes (2)

tate the conditions reF!ired $ the Ta# ode efore the

ommissioner of -nternal e(en!e co!ld a!thorie

the ref!nd or credit of ta#es erroneo!sl$ or illegall$

recei(ed.SUGGESTED ANSWER

Gnder ec. 204+, =- the follo)ing conditions

m!st e met*1. There m!st e a )ritten claim for ref!nd filed $the ta#"a$er )ith the ommissioner.2. The claim for ref!nd m!st e a categoricaldemand for reim!rsement.3. The claim for ref!nd m!st e filed )ithin

t)o +2, $ears from date of "a$ment of the

ta# or "enalt$ regardless of an$ s!"er(ening ca!se.

BI8$ !ompromise (2*)

After the ta# assessment had ecome finaland !na""ealale the ommissioner of -nternale(en!e initiated the filing of a ci(il action to collectthe ta# d!e from =B. After se(eral $ears a decision

)as rendered $ the co!rt ordering =B to "a$ theta# d!e "l!s "enalties and s!rcharges. The !dgment ecame final and e#ec!tor$ !tattem"ts to e#ec!te the !dgment a)ard )eref!tile.

!seF!entl$ =B offered theommissioner a com"romise settlement of 50of the !dgment a)ard re"resenting that thisamo!nt is all he co!ld reall$ afford. oes theommissioner ha(e the "o)er to acce"t the

com"romise offer& -s it legal and ethical& #"lain

riefl$. +5,SUGGESTED ANSWER

<es. The ommissioner has the "o)er to acce"t theoffer of com"romise if the financial "osition of theta#"a$er clearl$ demonstrates a clear inailit$ to "a$ the ta# +ection 204 =-,.




As re"resented $ =B in his offer onl$ 50 of the

!dgment a)ard is all he co!ld reall$ afford. This is

an offer for com"romise ased on financial inca"acit$

)hich the ommissioner shall not acce"t !nless

accom"anied $ a )ai(er of the secrec$ of an/

de"osits +ection 6OIS =-,. The )ai(er )ill enale

the ommissioner to ascertain the financial "osition of

the ta#"a$er altho!gh the inF!ir$ need not e limited

onl$ to the an/ de"osits of the ta#"a$er !t also as to

his financial "osition as reflected in his financialstatements or other records !"on )hich his "ro"ert$

holdings can e ascertained.

-f indeed the financial "osition of =B as determined $the ommissioner demonstrates a clear inailit$ to "a$

the ta# the acce"tance of the offer is legal and ethical eca!se the gro!nd !"on )hich the com"romise )as

anchored is )ithin the conte#t of the la) and the rate ofcom"romise is )ell )ithin and far e#ceeds the

minim!m "rescried $ la) )hich is onl$ 10 of the

asic ta# assessed.

BI8$ !ompromise (2)tate and disc!ss riefl$ )hether the follo)ing casesma$ e com"romised or ma$ not e com"romised*a, elinF!ent acco!ntsE , ases !nder administrati(e "rotest after iss!ance

of the final assessment notice to the ta#"a$er)hich are still "endingE

c, riminal ta# fra!d casesEd, riminal (iolations alread$ filed in co!rtEe, ases )here final re"orts of rein(estigation

or reconsideration ha(e een iss!ed res!lting inthe red!ction of the original assessment agreed to $ the ta#"a$er )hen he signed the reF!ired

agreementform. +5,SUGGESTED ANSWERS

The follo)ing cases ma$ still e com"romised ($.$. 5-& &&@) eca!se of the ta#"a$erDs financialinca"acit$ to "a$ the ta# d!e or the assessmentDsdo!tf!l (alidit$*a, :-=LG=T A 'G=T ma$ ecom"romised eca!se there is no sho)ing that there is ad!l$a""ro(ed sched!le of installment "a$mentsE and , ases !nder administrati(e "rotest after iss!ance

of the final assessment notice to the ta#"a$er )hich are

still "ending.

The follo)ing cases 8AG NC ?CN#4$ 34 !C89$'?- ($.$. 5-& &&@)

eca!se the ta#"a$er has not "aid his ta#es forreasons other than his financial inca"acit$ or the

do!tf!l (alidit$ of the assessment*

a, -?-=A: TAB IAG cases as ma$ edetermined $ the ommissioner or his a!thoriedagents ma$ not e com"romisedE , -?-=A: ;-':AT-'= A:A<I-: -= 'GT so that the ta#"a$er )ill not "rofitfrom his fra!d )hich )o!ld enco!rage ta# e(asionE andc, ases )here final re"orts of rein(estigation

or reconsideration ha(e een iss!ed res!lting in

the red!ction of the original assessment agreed to $

the ta#"a$er )hen he signed the reF!ired agreementform. The ta#"a$er is esto""ed from a""l$ing

for a com"romise.



[email protected] .4 of

73BI8$ 'eficiency Tax Assessment s Tax 8efun& E

Tax !re&it (2)

-s a deficienc$ ta# assessment a ar to a claimfor ta# ref!nd or ta# credit& #"lain.SUGGESTED ANSWER

<es the deficienc$ ta# assessment is a ar to a ta# ref!nd

or credit. The Ta#"a$er cannot e entitled to a ref!nd andat the same time liale for a ta# deficienc$ assessment for

the same $ear. The deficienc$ assessment creates a do!t

as to the tr!th and acc!rac$ of the Ta# et!rn. aid

et!rn cannot therefore e the asis of the

ref!nd(C,55i++i,%er ,1 I%/er%a- Reve%e v. A--/e- 82))29 ci/i%gC,55i++i,%er ,1 I%/er%a- Reve%e v. C,r/ ,1

A**ea-+ Ci/0 Tr+/ Ba%i%g C,r*,ra/i,% a%d C,r/ ,1Ta> A**ea-+ G.R. N,. !)''!! <-0 2! !""$

BI8$ 'istraint$ Prescription of t#e Action (22)

?r. eastian is a Iili"ino seaman em"lo$ed $

a =or)egian com"an$ )hich is engaged

e#cl!si(el$ in international shi""ing. e and his)ife )ho manages their !siness filed a oint income

ta# ret!rn for 1997 on ?arch 15 1998. After an a!dit

of the ret!rn the C- iss!ed on A"ril 20 2001 a

deficienc$ income ta# assessment for the s!m of

250.000.00 incl!si(e of interest and "enalt$. Ior

fail!re of ?r. and ?rs. eastian to "a$ the ta# )ithin

the "eriod stated in the notice of assessment the C-

iss!ed on A!g!st 19 2001 )arrants of distraint and le($

to enforce collection of the ta#.

A. What is the r!le of income ta#ation )ith res"ect

to ?r. eastianDs income in 1997 as a

seaman on oard the =or)egian (essel

engaged ininternational shi""ing& #"lain $o!r ans)er.+2,

SUGGESTED ANSWER

A. The income of ?r. eastian as a seaman is

considered as income of a nonresident citien deri(ed

from )itho!t the hili""ines. The total gross income in

G dollars +or if in other foreign c!rrenc$ its dollar

eF!i(alent, from )itho!t shall e declared $ him for

income ta# "!r"oses !sing a se"arate income ta# ret!rn

)hich )ill not incl!de his income from !siness

deri(ed )ithin +to e co(ered $ another ret!rn,. e is

entitled to ded!ct from his dollar gross income a

"ersonal e#em"tion of 4500 and foreign national

income ta#es "aid to arri(e at his ad!sted income d!ringthe $ear. is ad!sted income )ill e s!ect to the

grad!ated ta# rates of 1 to 3. (,ec. &% (b) Tax !ode

of %*/9B %%/@ as amended by 9B %**").

O=ote* The ar candidates are not e#"ected to e familiar )ith

ta# histor$. onsidering that this is alread$ the fo!rth $ear

of im"lementation of the Ta# ode of 1997 ar

candidates )ere ta!ght and "re"ared to ans)er F!estions

ased on the "resent la). -t is therefore reF!ested that the

e#aminer e more lenient in chec/ing the ans)ers to this

F!estion. erha"s an ans)er ased on the "resent la) e

gi(en f!ll credit.P

C. -f $o! are the la)$er of ?r. and ?rs. eastian

)hat "ossile defense or defenses )ill $o! raise in

ehalf of $o!r clients against the action of the C- in

enforcing collection of the ta# $ the s!mmar$

remedies of )arrants of distraints and le($&





C. - )ill raise the defense of "rescri"tion. The right ofthe C- to assess "rescries after three $earsco!nted from the last da$ "rescried $ la) for thefiling of the income ta# ret!rns )hen the said ret!rn isfiled on time. +ection 203 =-,. The last da$ forfiling the 1997 income ta# ret!rn is A"ril 15 1998.ince the assessment )as iss!ed onl$ on A"ril 202001 the C-Ds right to assess has alread$ "rescried.

BI8$ Fa"se s Frau&u"ent 8eturn (1996)

isting!ish a false ret!rn from a fra!d!lent ret!rn.SUGGESTED ANSWER

The distinction et)een a false ret!rn and afra!d!lent ret!rn is that the first merel$ im"lies ade(iation from the tr!th or fact )hether intentionalor not )hereas the second is intentional anddeceitf!l )ith the sole aim of e(ading the correctta# d!e + A%ar +. C,55i++i,%er L;2)3'" Ag+/

27 !"#,.ALTERNATIE ANSWER

A false ret!rn contains de(iations from the tr!th

)hich ma$ e d!e to mista/es carelessness or ignoranceof the "erson "re"aring the ret!rn. A fra!d!lent ret!rn

contains an intentional )rongdoing )ith the sole oect of

a(oiding the ta# and it ma$ consist in the

intentional !nderdeclaration of income intentional

o(erdeclaration of ded!ctions or the rec!rrence of oth. A

false ret!rn is not necessaril$ tainted )ith fra!d

eca!se the fra!d contem"lated $ la) is act!al and

not constr!cti(e. An$ de(iation from the tr!th on the

other hand )hether intentional or not constit!tes

falsit$. + A%ar v+. C,55i++i,%er L;2)3'" Ag+/

27 !"#,

BI8$ Huris&iction$ 8eie 8u"ings of t#e

!ommissioner (26)?r. Araham !genio a "a)nsho" o"erator afterha(ing een reF!ired $ the e(en!e istrict'fficer to "a$ (al!e added ta# "!rs!ant to ae(en!e ?emorand!m 'rder +?', of theommissioner of -nternal e(en!e filed )ith theegional Trial o!rt an action F!estioning the (alidit$of the ?'. -f $o! )ere the !dge )ill $o! dismissthe case& +5,SUGGESTED ANSWER

<es. The ?' is in realit$ a r!ling of the ommissioner

in im"lementing the "ro(isions of the Ta# ode on

the ta#ailit$ of "a)nsho"s. K!risdiction to re(ie) r!lings

of the ommissioner is lodged )ith the o!rt ofTa# A""eals and not )ith the egional Trial o!rt(CIR v.

<,+e1i%a Lea- G.R. N,. !!73" N,ve56er !4 2))2?Ta> Re1,r5 Ac/ RA 42 Ti/-e I Sec. 8!""#9$.

( NOTA BENE This concept pertains to the

2AT law which is excluded from the bar

coverage #uidelines for & 3ar 4xaminations

une % &)

BI8$ Prescriptie Perio&$ Assessment$ Frau&u"ent 8eturn

(22)?r. astro inherited from his father )ho died on K!ne 10

1994 se(eral "ieces of real "ro"ert$ in ?etro ?anila. The

estate ta# ret!rn )as filed and the estate ta# d!e in the

amo!nt of 250.000.00 )as "aid on ecemer 06 1994.

The Ta# Ira!d i(ision of the C- in(estigated the case on

the asis of confidential information gi(en $ ?r.

antos on Kan!ar$ 06 1998 that the ret!rn filed $ ?r.

astro )as fra!d!lent and that he failed to declare all



[email protected] .. of 73 "ro"erties left $ his father )ith intent to e(ade "a$ment of the correct ta#. As a res!lt a deficienc$estate ta# assessment for 1250000.00incl!si(e of 50 s!rcharge for fra!d interestand "enalt$ )as iss!ed against him on Kan!ar$10 2001. ?r. astro "rotested the assessment on thegro!nd of "rescri"tion.A. ecide ?r. astroDs "rotest. +2,SUGGESTED ANSWER

A. The "rotest sho!ld e resol(ed against ?r. astro.What )as filed is a fra!d!lent ret!rn ma/ing

the "rescri"ti(e "eriod for assessment ten +10, $ears

from disco(er$ of the fra!d +ection 222 =-,.

Accordingl$ the assessment )as iss!ed )ithin that

"rescri"ti(e "eriod to ma/e an assessment ased on a

fra!d!lent ret!rn.

C. What legal reF!irementMs m!st ?r. antoscom"l$

)ith so that he can claim his re)ard& #"lain. +3,SUGGESTED ANSWER

The legal reF!irements that m!st e com"lied $?r. antos to entitle him to re)ard are as follo)s*1, e sho!ld (ol!ntaril$ file a confidential

information !nder oath )ith the :a) i(isionof the C!rea! of -nternal e(en!e allegingtherein the s"ecific (iolations constit!tingfra!dE

2, The information m!st not $et e in the "ossessionof the C!rea! of -nternal e(en!e or refer toa case alread$ "ending or "re(io!sl$in(estigated $ the C!rea! of -nternal e(en!eE

3, ?r. antos sho!ld not e a go(ernment em"lo$eeor a relati(e of a go(ernment em"lo$ee )ithinthe si#th degree of consang!init$E and

4, The information m!st res!lt to collections

of re(en!es andMor fines and "enalties.

+ec. 282 =-,

BI8$ Prescriptie Perio&$ !rimina" Action (26)

err$ )as eing "rosec!ted $ the C- for fail!re to "a$

his income ta# liailit$ for alendar <ear 1999

des"ite se(eral demands $ the C- in 2002. The

-nformation )as filed )ith the T onl$ last K!ne

2006. err$ filed a motion to F!ash the -nformation

on the gro!nd of "rescri"tion the -nformation ha(ing

een filed e$ond the 5$ear reglementar$ "eriod. -f

$o! )ere the !dge )ill $o! dismiss the -nformation&

Wh$& +5,

SUGGESTED ANSWER =o. The trial co!rt can e#ercise !risdiction. rescri"tion

of a criminal action egins to r!n from the da$ of

the (iolation of the la). The crime )as committed

)hen err$ )illf!ll$ ref!sed to "a$ des"ite re"eated

demands in 2002. ince the information )as filed in

K!ne 2006 the criminal case )as instit!ted )ithin

the fi(e$ear "eriod reF!ired $ la) (T*a v. U-e* G.R.

N,. !2#### Oc/,6er

! !"""? Sec/i,% 24! NIRC$.

BI8$ Taxpayer: !ii" Action ; !rimina" Action (22)

?inolta hili""ines -nc. +?inolta, is an JA

registered enter"rise eno$ing "referential ta#

treatment !nder a s"ecial la). After in(estigation of

its )ithholding ta# ret!rns for the ta#ale $ear 1997

the C- iss!ed a deficienc$ )ithholding ta#

assessment in the amo!nt of 150.000.00. 'n ?a$

15 1999 eca!se of financial diffic!lt$ the

deficienc$ ta# remained !n"aid as a res!lt of )hich the

assessment ecame final and e#ec!tor$. The




C- also fo!nd that in (iolation of the "ro(isions of the =ational -nternal e(en!e ode ?inolta did notfile its final cor"orate income ta# ret!rn for theta#ale $ear 1998 eca!se it allegedl$ inc!rrednet loss from its o"erations. 'n ?a$ 17 2002the C- filed )ith the egional Trial o!rt anaction for collection of the deficienc$ )ithholdingta# for 1997.A. Will the C-Ds action for collection "ros"er&

As co!nsel of ?inolta )hat action )ill $o!ta/e&


A. <es C-Ds action for collection )ill "ros"er eca!se the assessment is alread$ final ande#ec!tor$ it can alread$ e enforced thro!gh !dicialaction.

As co!nsel of ?inolta - )ill introd!ce e(idence that the

income "a$ment )as re"orted $ the "a$ee and the

income ta# )as "aid thereon in 1997 so that m$

client ma$ onl$ e allo)ed to "a$ the ci(il

"enalties for non )ithholding "!rs!ant to ?' =o.3883.

O$ote% 6t is not clear whether this is a case

of non- withholding; underwithholding or

non-remittance of tax withheld. As such the

tax counsel may be open to other remedies

against the assessment .P

C. ?a$ criminal (iolations of the Ta# ode

e com"romised& -f ?inolta ma/es a (ol!ntar$

offer to com"romise the criminal (iolations for

non filing and non"a$ment of ta#es for the $ear

1998 ma$ the ommissioner acce"t the offer&

#"lain

+5,SUGGESTED ANSWER

C. All criminal (iolations of the Ta# ode ma$

e com"romised e#ce"t those alread$ filed in co!rt or

those in(ol(ing fra!d +ection 204 =-,.

Accordingl$ if ?inolta ma/es a (ol!ntar$ offer to

com"romise the criminal (iolations for nonfiling and

non"a$ment of ta#es for the $ear 1998 the

ommissioner ma$ acce"t the offer )hich is allo)ed $

la). o)e(er if it can e estalished that a ta# has not

een "aid as a conseF!ence of nonfiling of the ret!rn the

ci(il liailit$ for ta#es ma$ e dealt )ith inde"endentl$ of

the criminal (iolations. The com"romise settlement of the

criminal (iolations )ill not relie(e the ta#"a$er from itsci(il liailit$. C!t the ci(il liailit$ for ta#es ma$ also

e com"romised if the financial "osition of the ta#"a$er

demonstrates a clear inailit$ to "a$ the ta#.

!ustom: Cio"ation of Tax ; !ustom 'uties (22)

The ollector of !stoms of the ort of e! iss!ed

)arrants of sei!re and detention against the im"ortation

of machineries and eF!i"ment $ :: -m"ort and

#"ort o. +::, for alleged non"a$ment of ta# and

c!stoms d!ties in (iolation of c!stoms la)s. :: )as

notified of the sei!re !t efore it co!ld e heard the

ollector of !stoms iss!ed a notice of sale of the

articles. -n order to restrain the ollector from carr$ing

o!t the order to sell :: filed )ith the o!rt of Ta#

A""eals a "etition for re(ie) )ith a""lication for the

iss!ance of a )rit of "rohiition. -t also filed )ith the

TA an a""eal for ref!nd of o(er"aid ta#es on its other

im"ortations of ra) materials )hich has een "ending



[email protected] .6 of 73)ith the ollector of !stoms. The C!rea! of

!stoms mo(ed to dismiss the case for lac/ of

!risdiction of the o!rt of Ta# A""eals.

A. oes the o!rt of Ta# A""eals ha(e !risdiction

o(er the "etition for re(ie) and )rit of

"rohiition&

#"lain +3,SUGGESTED ANSWER

A. =o eca!se there is no decision as $et $the ommissioner of !stoms )hich can e a""ealedto the TA. =either the remed$ of "rohiition)o!ld lie eca!se the TA has not acF!iredan$ a""ellate !risdiction o(er the sei!re case. The)rit of "rohiition eing merel$ ancillar$ to thea""ellate !risdiction the TA has no !risdictiono(er it !ntil it has acF!ired !risdiction on the "etition for re(ie). ince there is no a""ealaledecision the TA has no !risdiction o(er the "etitionfor re(ie) and )rit of "rohiition.+C,55i++i,%er ,1 C+/,5+ v. A-i*a-a 7' SCRA 2)4

8!"#)9 ,.

C. Will an a""eal to the TA for ta# ref!nd e "ossile&

#"lain +2,SUGGESTED ANSWER

C. =o eca!se the ommissioner of !stoms has not

$et rendered a decision on the claim for ref!nd. The

!risdiction of the ommissioner and the TA are

not conc!rrent in so far as claims for ref!nd are

concerned. The onl$ e#ce"tion is )hen the ollector has

not acted on the "rotested "a$ment for a long time

the contin!ed inaction of the ollector or ommissioner

sho!ld not e allo)ed to "re!dice the ta#"a$er.

+=estle hils. -nc. (. o!rt of A""eals =o.

134114 K!l$ 6 2001,.

!ustoms$ Basis$ Automatic 8eie (22)

Whene(er the decision of the ollector of!stoms is ad(erse to the go(ernment it isa!tomaticall$ ele(ated to the ommissioner forre(ie) and if it is affirmed $ him it is a!tomaticall$ele(ated to the ecretar$ of Iinance for re(ie).What is the asis of the a!tomatic re(ie) "roced!re in the C!rea! of !stoms& #"lain$o!r ans)er. +5,SUGGESTED ANSWER

A!tomatic re(ie) is intended to "rotect the interest of the

o(ernment in the collection of ta#es and c!stoms d!tiesin sei!re and "rotest cases. Witho!t s!ch a!tomatic

re(ie) neither the ommissioner of !stoms nor the

ecretar$ of Iinance )o!ld /no) ao!t the decision laid

do)n $ the ollector fa(oring the ta#"a$er. The "o)er

to decide sei!re and "rotest cases ma$ e a!sed if

no chec/s are instit!ted. A!tomatic re(ie) is

necessar$ eca!se nood$ is e#"ected to a""eal the

decision of the ollector )hich is fa(orale to the

ta#"a$er and ad(erse to the o(ernment. This is the

reason )h$ )hene(er the decision of the ollector is

ad(erse to the o(ernment the said decision is

a!tomaticall$ ele(ated to the ommissioner for

re(ie)E and if s!ch decision is affirmed $ the

ommissioner the same shall e a!tomaticall$

ele(ated to and e finall$ re(ie)ed $ the ecretar$

of Iinance +a,a+i% v. C,55i++i,%er ,1 C+/,5+

!4) SCRA 3"! 8!"4"9 ,.




'e"in3uent Tax 8eturn (199=)When is a re(en!e ta# considered delinF!ent& O3,SUGGESTED ANSWER

A re(en!e ta# is considered delinF!ent )hen it is !n"aidafter the la"se of the last da$ "rescried $ la)for its "a$ment. :i/e)ise it co!ld also econsidered as delinF!ent )here an assessment fordeficienc$ ta# has ecome final and the ta#"a$er hasnot "aid it )ithin the "eriod gi(en in the notice of

assessment.

Huris&iction: !ustoms s !TA (2)

a, 'n the asis of a )arrant of sei!re and detention

iss!ed $ the ollector of !stoms for the "!r"ose of

enforcing the Tariff and !stoms :a)s assorted

rands of cigarettes said to ha(e een illegall$ im"orted

into the hili""ines )ere seied from a store )here

the$ )ere o"enl$ offered for sale. issatisfied )ith the

decision rendered after hearing $ the ollector of

!stoms on the confiscation of the articles the

im"orter filed a "etition for re(ie) )ith the o!rt of

Ta# A""eals. The ollector mo(ed to dismiss the

"etition for lac/ of K!risdiction. !le on themotion.

+2,SUGGESTED ANSWER

?otion granted. The o!rt of Ta# A""eals

has !risdiction onl$ o(er decisions of the

ommissioner of !stoms in cases in(ol(ing sei!res

detention or release of "ro"ert$ affected. +ec. 7 .A. =o.

1125,. There is no decision $et of the ommissioner

)hich is s!ect to re(ie) $ the o!rt of Ta# A""eals.ALTERNATIE ANSWER

?otion granted. The o!rt of Ta# A""eals has

no !risdiction eca!se there is no decision rendered $

the ommissioner of !stoms on the sei!re and

forfeit!re case. The ta#"a$er sho!ld ha(e a""ealed thedecision rendered $ the ollector )ithin fifteen +15,

da$s from recei"t of the decision to the ommissioner of

!stoms. The ommissionerQs ad(erse decision )o!ld

then e the s!ect of an a""eal to the o!rt of Ta#

A""eals.

, Gnder the same facts co!ld the im"orter file an action

in the egional Trial o!rt for re"le(in on the gro!nd

that the articles are eing )rongf!ll$ detained $

the ollector of !stoms since the im"ortation )as

not illegal and therefore e#em"t from sei!re&

#"lain.+3,SUGGESTED ANSWER

=o. The legislators intended to di(est the egional Trialo!rts of the !risdiction to re"le(in a "ro"ert$ )hich isa s!ect of sei!re and forfeit!re "roceedings for(iolation of the Tariff and !stoms ode other)iseactions for forfeit!re of "ro"ert$ for (iolation ofthe !stoms la)s co!ld easil$ e !ndermined $the sim"le de(ice of re"le(in. + De -a Fe%/e v. De

Ve0ra e/. a- !2) SCRA 33,

There sho!ld e no !nnecessar$ hindrance on the

go(ernmentDs dri(e to "re(ent sm!ggling and other fra!ds

!"on the !stoms. I!rthermore the egional Trial o!rt do

not ha(e K!risdiction in order to render effecti(e and

efficient the collection of -m"ort and e#"ort d!ties d!e

the tate )hich enales the go(ernment to carr$ o!t the






a. Where the ommissioner of -nternal e(en!e

has not acted on the ta#"a$erDs "rotest )ithin a

"eriod of one h!ndred eight$ +180, da$s froms!mission of all rele(ant doc!ments then the

ta#"a$er has a "eriod of thirt$ +30, da$s from the

la"se of said 180 da$s )ithin )hich to inter"osea "etition for re(ie) )ith the o!rt of Ta#

A""eals.

. ho!ld the ommissioner den$ the ta#"a$erDs "rotest then he has a "eriod of thirt$ +30, da$s

from recei"t of said denial )ithin )hich to

inter"ose a "etition for re(ie) )ith the o!rt of

Ta# A""eals.

-n oth cases the ta#"a$er m!st a""l$ )ith the o!rt of

Ta# A""eals for the -ss!ance of an -n!ncti(e )rit

to enoin the C!rea! of -nternal e(en!e from

collecting the dis"!ted ta# d!ring the "endenc$ of the

"roceedings.

$OTE% A 2004 Amendment The decision of the

di(ision of TA is in t!rn a""eallale )ithin fifteen+15, da$s to the TA en anc. The decision of the

TA en anc is directl$ a""eallale to the !"reme

o!rt on F!estion of la) on certiorari.

The em"lo$ment $ the C!rea! of -nternal e(en!e

of an$ of the Ad)inist'ati(e Re)edies for the

c,--ec/i,% ,1 /:e /a> li/e distraint le($ etc. ma$ e

administrati(el$ a""ealed $ the ta#"a$er to theommissioner )hose decision is a""ealale to the

o!rt of Ta# A""eals !nder other matter arising !nderthe "ro(isions of the =ational -nternal e(en!e ode.

The !dicial a""eals starts )ith the o!rt of Ta#A""eals and contin!es in the same manner as sho)n

ao(e.

ho!ld the C!rea! of -nternal e(en!e decide to !tilieits K!dicial ta# remedies for collecting the ta#es $means of an ordinar$ s!it filed )ith the reg!larco!rts for the collection of a s!m of mone$ the

ta#"a$er co!ld o""ose the same going !" the ladderof !dicial "rocesses from the ?!nici"al Trial o!rt+as the case ma$ e, to the egional Trial o!rt tothe o!rt of A""eals thence to the !"reme o!rt.

The remedies of an aggrie(ed ta#"a$er on a claim

for ref!nd is to a""eal the ad(erse decision of

the ommissioner to the TA in the same manner

o!tlined ao(e.

Taxpayer: Assessment: Protest: !"aims for refun& (2)

'n K!ne 16 1997 the C!rea! of -nternal e(en!e +C-,

iss!ed against the state of Kose de la r! a notice

of deficienc$ estate ta# assessment incl!si(e of

s!rcharge interest and com"romise "enalt$. The

#ec!tor of the state of Kose de la r! +#ec!tor, filed

a timel$ "rotest against the assessment and reF!ested

for )ai(er of the s!rcharge interest and "enalt$. The

"rotest )as denied $ the ommissioner of -nternal

e(en!e +ommissioner, )ith finalit$ on e"temer 13

1997. onseF!entl$ the #ec!tor )as made to "a$ the

deficienc$ assessment on 'ctoer 10 1997. The follo)ing

da$ the #ec!tor filed a etition )ith the o!rt of Ta#

A""eals +TA, "ra$ing for



[email protected] . of 73the ref!nd of the s!rcharge interest andcom"romise "enalt$. The TA too/ cogniance of

the case and ordered the ommissioner to ma/e a

ref!nd. The ommissioner filed a etition for

e(ie) )ith the o!rt of A""eals assailing the

!risdiction of the TA and the 'rder to ma/e ref!nd

to the state on the gro!nd that no claim for ref!nd

)as filed )ith the C-.

A" -s the stand of the ommissioner correct&

eason. +2,SUGGESTED ANSWER

<es. There )as no claim for ref!nd or credit that has een d!l$ filed )ith the ommissioner of -nternale(en!e )hich is reF!ired efore a s!it or "roceedingcan e filed in an$ co!rt +ec. 229. =- of 1997,.The denial of the claim $ the ommissioner is theone )hich )ill (est the o!rt of Ta# A""eals !risdiction o(er the ref!nd case sho!ld theta#"a$er decide to a""eal on time.

" Wh$ is the filing of an administrati(e claim )ith

the C- necessar$& +3,SUGGESTED ANSWER

The filing of an administrati(e claim for ref!nd )iththe C- is necessar$ in order*1, To afford the ommissioner an o""ort!nit$

to consider the claim and to ha(e a chance tocorrect the errors of s!ordinate officers+G,%a-e+ v. CTA e/ a- ! SCRA #",E and

2, To notif$ the o(ernment that s!ch ta#es

ha(e een F!estioned and the notice sho!ld e

orne in mind in estimating the re(en!e

a(ailale for e#"endit!res. + Ber5eK, v.

C,--ec/,r G.R. N,. L; 7)24. <-0 2" !"3),

Taxpayer: Assessment$ In@unction (2*)

dis"!ted a deficienc$ ta# assessment and !"onrecei"t of an ad(erse decision $ theommissioner of -nternal e(en!e filed an a""eal)ith the o!rt of Ta# A""eals. While the a""eal is "ending the C- ser(ed a )arrant of le($ on the real "ro"erties of to enforce the collection of thedis"!ted ta#. ranting arguendo that the C- canlegall$ le($ on the "ro"erties )hat co!ld do tosto" the "rocess& #"lain riefl$. +5,SUGGESTED ANSWER

sho!ld file a motion for in!nction )ith the o!rtof Ta# A""eals to sto" the administrati(e collection "rocess. An a""eal to the TA shall not s!s"end the

enforcement of the ta# liailit$ !nless a motion tothat effect shall ha(e een "resented in co!rt andgranted $ it on the asis that s!ch collection )ill eo"ardie the interest of the ta#"a$er or theo(ernment + Pir,va%, v. CIR ! SCRA 472

8!"'39 ,.

The TA is em"o)ered to s!s"end the collection of

internal re(en!e ta#es and c!stoms d!ties in cases

"ending a""eal onl$ )hen* +1, in the o"inion of the

co!rt the collection $ the C- )ill eo"ardie the

interest of the o(ernment andMor the ta#"a$erE and +2,

the ta#"a$er is )illing to de"osit the amo!nt eing

collected or to file a s!ret$ ond for not more than do!le

the amo!nt of the ta# to e fi#ed $ the co!rt (,ection %%

$.A. No. %%&).

Taxpayer: BI8 Au&it or Inestigation (1999)




A o. a hili""ine cor"oration is a ig man!fact!rer ofcons!mer goods and has se(eral s!""liers of ra)materi als. The C- s!s"ects that some of the s!""liersare not "ro"erl$ re"orting their income on theirsales to A o. The - therefore*1, -ss!ed an access letter to A o. to f!rnish the C-

information on sales and "a$ments to its s!""liers.2, -ss!ed an access letter to a an/ +B Can/,

to f!rnish the C- on de"osits of some s!""liers

of A o. on the alleged gro!nd that the

s!""liers are committing ta# e(asion.

A o. B Can/ and the s!""liers ha(e not een iss!ed $ the C- letter of a!thorit$ to e#amine. A o. and B

Can/ elie(e that the C- is on a %fishing e#"edition%

and come to $o! for co!nsel. What is $o!r ad(ice&

+10,SUGGESTED ANSWER

- )ill ad(ise A o. and C o. that the C- is !stifiedonl$ in getting information from the former !t notfrom the latter. The C- is a!thoried to otaininformation from other "ersons other than those )hose

internal re(en!e ta# liailit$ is s!ect to a!dit orin(estigation. o)e(er this "o)er shall not econstr!ed as granting the ommissioner thea!thorit$ to inF!ire into an/ de"osits.(,ection . N6$!).

Taxpayer: !ity Boar& of Assessment 'ecision$ -#ere to

appea" (1999)

A o. a hili""ine cor"oration is the o)ner of machiner$ eF!i"ment and fi#t!res located at its "lantin ?!ntinl!"a it$. The it$ Assessor characteried allthese "ro"erties as real "ro"erties s!ect to thereal "ro"ert$ ta#. A o. a""ealed the matter to the?!ntinl!"a Coard of Assessment A""eals. The Coardr!led in fa(or of the it$. -n accordance )ith A1125 +An Act creating the o!rt of Ta# A""eals,.A o. ro!ght a "etition for re(ie) efore the TAto a""eal the decision of the it$ Coard of AssessmentA""eals. -s the etition for e(ie) "ro"er& #"lain.+5,SUGGESTED ANSWER

=o. The TAQs de(oid of !risdiction to entertain a""eals

from the decision of the it$ Coard of Assessment

A""eals. aid decision is instead a""ealale to the entral

Coard of Assessment A""eals )hich !nder the :ocal

o(ernment ode has a""ellate !risdiction o(er deci

sions of :ocal Coard of Assessment A""eals. +Ca-/e>

P:i-+ 1,e. v. Ce%/ra- B,ard ,1 A++e++5e%/ A**ea-+ L;3)'' Ma0 7! !"42,.

Taxpayer: !"aim for 8efun&$ Proce&ure (22)

A.What m!st a ta#"a$er do in order to claim a ref!ndof or ta# credit for ta#es and "enalties )hich healleges to ha(e een erroneo!sl$ illegall$ ore#cessi(el$ assessedor collected& +3,

SUGGESTED ANSWER

The ta#"a$er m!st com"l$ )ith the follo)ing "roced!res in claiming a ref!nd of or ta# creditfor ta#es and "enalties )hich he alleges to ha(e

een erroneo!sl$ illegall$ or e#cessi(el$ assessed orcollected*2. e sho!ld file a )ritten claim for ref!nd )ith

the ommissioner )ithin t)o $ears after the date

of "a$ment of the ta# or "enalt$ +ec. 204 =-,E



[email protected] .9 of 733. The claim filed m!st state a categorical

demand for reim!rsement (Ber5eK, v. C,--ec/,r 4#

P:i-. "' 8!"3)9$.

4. The s!it or "roceeding for reco(er$ m!st e

commenced in co!rt )ithin t)o $ears from date of

"a$ment of the ta# or "enalt$ regardless of an$s!"er(ening e(ent that )ill arise after "a$ment +ec.229 =-,.

Note: 6f the answer given is only number % it is suggestedthat the

same shall be given full credit considering that this is

the onlyre7uirement for the !ommissioner to ac7uire 1urisdictionover the

claim.@

C. an the ommissioner grant a ref!nd or ta#

credit e(en )itho!t a )ritten claim for it& +2,SUGGESTED ANSWER

C. <es. When the ta#"a$er files a ret!rn )hich on its face

sho)s an o(er"a$ment of the ta# and the o"tion to

ref!ndM claim a ta# credit )as chosen $ the ta#"a$er the

ommissioner shall grant the ref!nd or ta# credit )itho!tthe need for a )ritten claim. This is so eca!se a ret!rn

filed sho)ing an o(er"a$ment shall e considered as

a )ritten claim for credit or ref!nd. +,ees. ' and

&" N6$! ,. ?oreo(er the la) "ro(ides that

the ommissioner ma$ e(en )itho!t a )ritten claim

therefor ref!nd or credit an$ ta# )here on the face of the

ret!rn !"on )hich "a$ment )as made s!ch "a$ment

a""ears clearl$ to ha(e een erroneo!sl$ "aid. +,ec.

&&* N6$! ,.

Taxpayer: 'eficiency Income Tax (199)

C!sinessman te"hen <ang filed an income ta# ret!rn for

1993 sho)ing !siness net income of 350000.00

on )hich he "aid an income ta# of 61000.00.After filing the ret!rn he realied that he forgot to

incl!de an item of !siness income in 1993 for

50.000.00. Ceing an honest ta#"a$er he incl!ded this

income in his ret!rn for 1994 and "aid the

corres"onding income ta# thereon. -n the e#amination

of his 1993 ret!rn the C- e#aminer fo!nd that

te"hen <ang failed to re"ort this item of 50.000.00

and assessed him a deficienc$ income ta# on this

item "l!s a 50 fra!d s!rcharge.

1, -s the e#aminer correct& #"lain.2, -f $o! )ere the la)$er of te"hen <ang )hat

)o!ld $o! ha(e ad(ised $o!r client efore he

incl!ded in his 1994 ret!rn the amo!nt of50.000.00 as 1993 income to a(oid the fra!ds!rcharge& #"lain.

3, onsidering that te"hen <ang had alread$ een assessed a deficienc$ income ta# for1993 for his fail!re to re"ort the 50.000.00income )hat )o!ld $o! ad(ise him to do toa(oid the "enalties for ta# delinF!enc$&#"lain.

4, What )o!ld $o! ad(ise te"hen <ang to do

)ith regard to the income ta# he "aid for the

50.000.00 in his 1994 ret!rn& -n case $o!r

remed$ fails )hat is

$o!r other reco!rse& #"lain.SUGGESTED ANSWERS

1, The e#aminer is correct in assessing a

deficienc$ income ta# for ta#ale $ear 1993 !t not in

im"osing the 50 fra!d s!rcharge. The amo!nt of all

items of gross income m!st e incl!ded in gross income

d!ring the $ear in )hich recei(ed or realied +ec. 38

=-,. The 50




fra!d s!rcharge attaches onl$ if a false orfra!d!lent ret!rn is )illf!ll$ made $ ?r. <ang+ec.248 =-,. The fact that ?r. <ang incl!ded theincome in his 1994 ret!rn elies an$ claim of)illf!lness !t is rather indicati(e of an honest mista/e)hich )as so!ght to e rectified $ a s!seF!entact that is the filing of the 1994 ret!rn.

2, ?r. <ang sho!ld ha(e amended his 1993 -ncome

ta# ret!rn to allo) for the incl!sion of the 50.000

income d!ring the ta#ale "eriod it )as realied.

3, ?r. <ang sho!ld file a "rotest F!estioning the 50

s!rcharge and as/ for the aatement thereof.ALTERNATIE ANSWER

?r. <ang sho!ld "a$ the deficienc$ income ta# on or

efore the da$ "rescried for its "a$ment "er notice

of demand. After "a$ment and )ithin t)o $ears

thereafter he sho!ld file a claim for ref!nd of ta#es

erroneo!sl$ "aid to reco(er the e#cessi(e s!rcharge

im"osed.

4, ?r. <ang sho!ld file a )ritten claim for ref!nd

)ith the ommissioner of -nternal e(en!e of the ta#es "aid on the 50.000 income incl!ded in 1994 )ithin

t)o $ears from "a$ment "!rs!ant to ection 204+3,of the Ta# ode. ho!ld this remed$ fail in the

administrati(e le(el a !dicial claim for ref!nd can e instit!ted efore the e#"iration of the t)o $ear

"eriod.

Taxpayer: x#austion of A&ministratie 8eme&ies (199,)

+a, A ta#"a$er recei(ed on 15 Kan!ar$ 1996 an as

sessment for an internal re(en!e ta# deficienc$.

'n

10 Ier!ar$ 1996 the ta#"a$er forth)ith filed

a "etition for re(ie) )ith the o!rt of Ta#

A""eals. o!ld the Ta# o!rt entertain the

"etition&

+, Gnder the ao(e fact!al setting the ta#"a$er instead

of F!estioning the assessment he recei(ed on 15

Kan!ar$ 1996 "aid on 01 ?arch 1996 the %deficienc$

ta#% assessed. The ta#"a$er reF!ested a ref!nd from

the ommissioner $ s!mitting a )ritten claim

on

1 ?arch 1997. -t )as denied. The ta#"a$er on15 ?arch 1997 filed a "etition for re(ie)

)ith the o!rt of A""eals. o!ld the "etition still eentertained&

SUGGESTED ANSWER

+a, =o. Cefore ta#"a$er can a(ail of K!dicial remed$

he m!st first e#ha!st administrati(e remedies $ filing

a "rotest )ithin 30 da$s from recei"t of the assessment. -t

is the ommissionerDs decision on the "rotest that gi(e the

Ta# o!rt !risdiction o(er the case "ro(ided that the

a""eal is filed )ithin 30 da$s from recei"t of

the ommissionerDs decision. An assessment $ the

C- is not the ommissionerDs decision from )hich a

"etition for re(ie) ma$ e filed )ith the o!rt of Ta#

A""eals. ather it is the action ta/en $ the

ommissioner in res"onse to the ta#"a$erDs "rotest on the

assessment that )o!ld constit!te the a""ealale decision

+ection 7 A 1125,.

+, =o the "etition for re(ie) can not e entertained $

the o!rt of A""eals since decisions of the



[email protected] 60 of 73ommissioner on cases in(ol(ing claim forta#ref!nds are )ithin the e#cl!si(e and "rimar$

!risdiction of the o!rt of Ta# A""eals +ection

7.A1125,.

Taxpayer: Fai"ure to -it##e"& ; 8emit Tax (2)

A domestic cor"oration failed to )ithhold and remitthe ta# on income recei(ed from hili""ine so!rces

$ a non resident foreign cor"oration. -naddition to the ci(il "enalties "ro(ided for !nderthe Ta# ode a com"romise "enalt$ )as im"osed for(iolation of the )ithholding ta# "ro(isions. ?a$ theommissioner of -nternal e(en!e legall$ enforcethe collection of com"romise "enalt$& +5,SUGGESTED ANSWER

=o. There is no sho)ing that the com"romise "enalt$

)as im"osed $ the ommissioner of -nternal

e(en!e )ith the agreement and conformit$ of the

ta#"a$er. +=,%der

Mec:a%ica- E%gi%eeri%g C,r*,ra/i,% . C,r/ ,1

Ta> A**ea-+ e/. a-. ' SCRA 333,.

Taxpayer: 7I8! s T!! 8eme&ies (1996)

om"are the ta#"a$erDs remedies !nder the

=ational -nternal e(en!e ode and the Tariff and

!stoms ode.SUGGESTED ANSWER

The ta#"a$erDs remedies !nder the $AT&O$A*

&$TER$A* RE/E$.E CODE ma$ e categoried

into remedies efore "a$ment and remedies after

"a$ment. The remed$ BEFORE PAMENT consists of

+a, Ad5i%i+/ra/ive Re5ed0 )hich is the filingof "rotest )ithin 30 da$s from recei"t ofassessment and

+, <dicia- Re5ed0 )hich is the a""eal of the

ad(erse decision of the ommissioner on the "rotest )ith the o!rt of Ta# A""eals and

finall$ )ith the !"reme o!rt.

The remed$ AFTER PAMENT is a(ailed of

+c, $ "a$ing the assessed ta# )ithin 30 da$sfrom recei"t of assessment and

+d, the filing of a claim for ref!nd or ta# credit ofthese ta#es on gro!nds that the$ areerroneo!sl$ "aid )ithin t)o $ears from date of "a$ment.

+e, 6f there is a denial of the claim a""eal to theTA shall e made )ithin 30 da$s from denial

!t )ithin t)o $ears from date of "a$ment.¾ -f the ommissioner fails to act on the claim

for ref!nd or ta# credit and the t)o$ear "eriod is ao!t to e#"ire the ta#"a$ersho!ld consider the contin!o!s inaction ofthe ommissioner as a denial and ele(atethe case to the TA efore the e#"irationof the t)o$ear "eriod.

Gnder the Ta'iff and Custo)s Code ta#"a$erDs

reme dies arise onl$ after "a$ment of d!ties.

4, The administrati(e remedies consist of filing a

claim for ref!nd )hich ma$ ta/e the form ofaatement or dra)ac/.

5, The ta#"a$er can also file a "rotest )ithin 15

da$s from "a$ment if he disagrees )ith the

r!ling or decision of the ollector of !stoms

regarding the legalit$ or correctness of the

assessment of c!stoms d!ties.




6, -f the decision of the ollector is ad(erse tothe ta#"a$er he can notif$ the ollector )ithin15 da$s from recei"t of said decision of his desireto ha(e his case re(ie)ed $ the ommissioner.

¾ The decision of the ollector on theta#"a$erDs "rotest if ad(erse to theo(ernment is a!tomaticall$ ele(ated tothe ommissioner for re(ie)E and if s!chdecision is affirmed $ the ommissioner

the same shall e a!tomaticall$ ele(ated toand finall$ re(ie)ed $ the ecretar$ ofIinance.

¾ esort to !dicial relief can e had $

the ta#"a$er $ a""ealing the decision

of the ommissioner or of the ecretar$

of Iinance +for cases s!ect to a!tomatic

re(ie), )ithin 30 da$s from the "rom!lgation of the ad(erse decision to

the TA.

Taxpayer: %erit#o"&ing !"aim for 8efun& (1999)

A o. is the )holl$ o)ned s!sidiar$ of C o. anon resident erman com"an$. A o. has a

trademar/ licensing agreement )ith C o. 'n Ie. 10

1995 A o. remitted to C o. ro$alties of 10000000

)hich A o. s!ected to a )ithholding ta# of 25 or

2500000. G"on ad(ice of co!nsel A o. realied

that the "ro"er )ithholding ta# rate is 10. 'n ?arch

20 1996 A o. filed a claim for ref!nd of 2.500.000

)ith the C-. The C- denied the claim on =o(. 15

1996. 'n =o(. 28 1996 A o. filed a "etition for

re(ie) )ith the TA. The C- attac/ed the ca"acit$ of A

o. as agent to ring the ref!nd case. ecide the iss!e.

+5,SUGGESTED ANSWER

A o. the )ithholding agent of the nonresident foreign

cor"oration is entitled to claim the ref!nd of e#cess

)ithholding ta# "aid on the income of said cor"oration in

the hili""ines. Ceing a )ithholding agent it is the

one held liale for an$ (iolation of the )ithholding

ta# la) sho!ld s!ch a (iolation occ!r. -n the same (ein it

sho!ld e allo)ed to claim a ref!nd in case of

o(er)itholding.

+CIR v. =a%der P:i-+. I%c. GR N,. '47#4 A*ri- !3 !"44

!') SCRA 3#7? CIR v. Pr,c/er @ Ga56-e PMC 2O SCRA

7## ,.

Taxpayer: Prescriptie Perio&: Suspen&e& (2)

?r. e$es a Iili"ino citien engaged in the realestate !siness filed his 1994 income ta# ret!rn on

?arch 20 1995. 'n ecemer 15 1995 he left the

hili""ines as an immigrant to oin his famil$ in

anada. After the in(estigation of said ret!rnMthe C-

iss!ed a notice of deficienc$ income ta# assessment on

A"ril 15 1998. ?r. e$es ret!rned to the hili""ines

as a ali/a$an on ecemer 8 1998. Iinding his name

to e in the list of delinF!ent ta#"a$ers he filed a

"rotest against the assessment on the gro!nd that he

did not recei(e the notice of assessment and that

the assessment had "rescried. Will the "rotest

"ros"er& #"lain. +5,SUGGESTED ANSWER

=o. rescri"tion has not set in eca!se the "eriod of

limitations for the C!rea! of -nternal e(en!e to iss!e an

assessment )as SUSPENDED d!ring the time that ?r.

e$es )as o!t of the hili""ines or from the "eriod



[email protected] 61 of 73ecemer 15 1995 !" to ecemer 8 1998.

(,ec. &&5 in relation to ,ec. &5 both of the N6$! of %**')

Taxpayer: Prescriptie Perio&$ !"aim for 8efun& (199,)

A cor"oration files its income ta# ret!rn on a

calendar $ear asis. Ior the first F!arter of 1993 it "aid

on 30 ?a$ 1993 its F!arterl$ income ta# in the

amo!nt of 3.0 million. 'n 20 A!g!st 1993 it "aid the

second F!arterl$ income ta# of 0.5 million. The third

F!arter res!lted in a net loss and no ta# )as "aid.Ior the fo!rth and final ret!rn for 1993 the com"an$

re"orted a net loss for the $ear and the ta#"a$er

indicated in the income ta# ret!rn that it o"ted to claim a

ref!nd of the F!arterl$ income ta# "a$ments. 'n 10

Kan!ar$ 1994 the cor"oration filed )ith the C!rea! of

-nternal e(en!e a )ritten claim for the ref!nd of

3.5 million.

C- failed to act on the claim for ref!ndE henceon 02 ?arch 1996 the cor"oration filed a "etitionfor re(ie) )ith the o!rt of Ta# A""eals on its claim

for ref!nd of the o(er"a$ment of its 1993 F!arterl$

income ta#. C- in its ans)er to the "etition allegedthat the claim for ref!nd )as filed e$ond thereglementar$ "eriod. id the claim for ref!nd "rescrie&SUGGESTED ANSWER

The claim for ref!nd has "rescried. The co!nting of the

/&,;0ear *re+cri*/ive *eri,d 1,r 1i-i%g a c-ai5 1,r

re1%d is co!nted not from the date )hen the F!arterl$

income ta#es )ere "aid !t on the date )hen the

final ad!stment ret!rn or ann!al income ta# ret!rn

)as filed+CIR v. TMX Sa-e+ I%c. G.R. N,. 47#7' <a%ar0 !3 !""2?CIR v. P:iA5 Li1e I%+ra%ce C,. I%c. G.R. N,. !)32)4

Ma0 2" !""3,. -t is o(io!s that the ann!al income

ta# ret!rn )as filed efore Kan!ar$ 10 1994 eca!sethe )ritten claim for ref!nd )as filed )ith the C- on

Kan!ar$ 10 1994. ince the t)o$ear "rescri"ti(e

"eriod is not onl$ a limitation of action in the

administrati(e stage !t also a limitation of action for

ringing the case to the !dicial stage the "etition for

re(ie) filed )ith the TA on ?arch 02 1996 is e$ond

the reglementar$ "eriod.

Taxpayer: Prescriptie Perio&$ !"aims for 8efun& (199*)

B: or"oration filed its F!arterl$ income ta#

ret!rn for the first F!arter of 1985 and "aid an

income ta# of 500.000.00 on ?a$ 15 1985. -n the

s!seF!ent F!arters B: s!ffered losses so that onA"ril 15 1986 it declared a net loss of 1000000.00 in

its ann!al income ta# ret!rn. After failing to get a ref!nd

B: filed on ?arch 1 1988 a case )ith the o!rt

of Ta# A""eals to reco(er the 500.000.00 in ta#es

"aid on ?a$ 15 1985.

-s the action to reco(er the ta#es filed timel$&SUGGESTED ANSWER

The action for ref!nd )as filed in the o!rt of Ta#

A""eals on time. -n the case of C,55i++i,%er v. TMX

Sa-e+ I%c. 2)3 SCRA !4 )hich is similar to this case the

!"reme o!rt r!led that in the case of o(er"aid F!arterl$

cor"orate income ta# the t)o$ear "eriod for filing claims

for ref!nd in the C- as )ell as in the instit!tion of an

action for ref!nd in the TA the t)o$ear "rescri"ti(e

"eriod for ta# ref!nds +ec. 230 Ta# ode, is co!nted

from the filing of the final ad!stment ret!rn !nder ec. 67

of the Ta# ode and not from the filing of the




F!arterl$ ret!rn and "a$ment of the F!arterl$ ta#. The

TA action on ?arch 1 1988 )as clearl$ )ithin the

reglementar$ t)o$ear "eriod from the filing of the final

ad!stment ret!rn of the cor"oration on A"ril 15 1986.

Taxpayer: Prescriptie Perio&$ !"aims for 8efun& (2*)

'n ?arch 12 2001 = "aid his ta#es. Tenmonths later he realied that he had o(er"aidand so he immediatel$ filed a claim for

ref!nd )ith the ommissioner of -nternal e(en!e.

'n Ier!ar$ 27 2003 he recei(ed the decision ofthe ommissioner den$ing =Ds claim for

ref!nd. 'n ?arch 24 2003 = filed an a""eal)ith the o!rt of Ta# A""eals. Was his a""eal filed

on time or not& eason. +5,SUGGESTED ANSWER

The a""eal )as not filed on time. The t)o$ear "eriodof limitation for filing a claim for ref!nd is notonl$ a limitation for "!rs!ing the claim at theadministrati(e le(el !t also a limitation for a""ealingthe case to the o!rt of Ta# A""eals. The la) "ro(ides

that %no s!it or "roceeding shall e filed after thee#"iration of t)o $ears from the date of the "a$mentof the ta# or "enalt$ regardless of an$ s!"er(eningca!se that ma$ arise after "a$ment +ection 229K;JK. ince the a""eal )as onl$ made on ?arch 242003 more than t)o $ears had alread$ ela"sed fromthe time the ta#es )ere "aid on ?arch 122003. Accordingl$ = had lost his !dicial remed$ eca!se of "rescri"tion.

Taxpayer: Protest against Assessment (199=)

IC or"oration a domestic cor"oration engagedin food "rocessing and other allied acti(ities recei(ed aletter from the C- assessing it for delinF!enc$income ta#es. IC filed a letter of "rotest. 'ne monthafter a )arrant of distraint and le($ )as ser(ed on ICor"oration. -f $o! )ere the la)$er engaged $IC or"oration to contest the assessment made $the C- )hat ste"s )ill $o! ta/e to "rotect $o!r client&+5,SUGGESTED ANSWER

- shall immediatel$ file a motion for reconsideration of the

iss!ance of the )arrant of distraint and le($ and see/ from

the C- ommissioner a denial of the "rotest %in

clear and !neF!i(ocal lang!age.% This is so eca!se the

iss!ance of a )arrant of distraint and le($ is not

considered as a denial $ the C- of the "rotest filed $

IC or"oration +CIR v. U%i,% S:i**i%g C,r*. !43 SCRA 3# ,.

Within thirt$ +30, da$s from recei"t of s!ch denial

%in clear and !neF!i(ocal lang!age% - shall then file a

"etition for re(ie) )ith the o!rt of Ta# A""eals.

A*TER$AT&/E A$-WER%

Within thirt$ +30, da$s from recei"t of the )arrantof distraint and le($ - shall file a "etition for re(ie))ith the o!rt of Ta# A""eals )ith an a""lication foriss!ance of a )rit of "reliminar$ in!nction to enointhe C!rea! of -nternal e(en!e from enforcing the

)arrant.

This is the action - shall ta/e eca!se - shall consider the

iss!ance of the )arrant as a final decision of the

ommissioner of -nternal e(en!e )hich co!ld e the



[email protected] 62 of 73s!ect of a""eal to the o!rt of Ta#A""eals

+,6e+ . F-,K, !3 SCRA 2#4,. The TA ma$ho)e(er remand the case to the C- and reF!ire theommissioner to s"ecificall$ r!le on the "rotest.The decision of the ommissioner if ad(erse tom$ client )o!ld then constit!te an a""ealaledecision.

Taxpayer: Protest against Assessment (1999)A o. a hili""ine cor"oration recei(ed an income

ta# deficienc$ assessment from the C- on ?a$ 5 1995.

'n ?a$ 31 1995 A o. filed its "rotest )ith the

C-. 'n K!l$ 30 1995 A o. s!mitted to the C-

all rele(ant s!""orting doc!ments. The - did not

formall$ r!le on the "rotest !t on Kan!ar$ 25 1996 A

o. )as ser(ed a s!mmons and a co"$ of the

com"laint for collection of the ta# deficienc$ filed $

the C- )ith the egional Trial o!rt +T,. 'n

Ier!ar$ 20 1996 A o. ro!ght a etition for

e(ie) efore the TA. The C- contended that the

etition is "remat!re since there )as no formal

denial of the "rotest of A o. and sho!ld therefore e dismissed.

1. as the TA !risdiction o(er the case&SUGGESTED ANSWER

<es the TA has !risdiction o(er the case eca!se this

F!alifies as an a""eal from the ommissionerDs

decision on dis"!ted assessment. When the

ommissioner decided to collect the ta# assessed

)itho!t first deciding on the ta#"a$erDs "rotest the

effect of the ommissionerQs action of filing a !dicial

action for collection is a decision of denial of the

"rotest in )hich e(ent the ta#"a$er ma$ file an a""eal

)ith the TA. + Re*6-ic v. Li5 Tia% Te%g @

S,%+ I%c. !' SCRA 34? Da0ri/ v. Cr L;

7""!) Se*/. 2' !"44,.

2. as the T !risdiction o(er the collection

case filed $ the C-& #"lain.SUGGESTED ANSWER

The T has no !risdiction o(er the collection case filed

$ the C-. The filing of an a""eal )ith the TA has the

effect of di(esting the T of !risdiction o(er

the collection case. At the moment the ta#"a$er

a""eals the case to the o!rt of Ta# A""eals in

(ie) of the ommissionerDs filing of the collection

case )ith the T )hich )as considered as a

decision of denial it gi(es a !stifiale asis for the

ta#"a$er to mo(e for dismissal in the T of theo(ernmentDs action to collect the ta# liailit$ !nder

dis"!te. +a6e+ v. F-,K, !3 SCRA 2#4? Sa% <a% v. Va+e

7 SCRA "2,. There is no final e#ec!tor$ and demandale

assessment )hich can e enforced $ the C- once a

timel$ a""eal is filed.

Taxpayer: Protest against Assessment (1999)

A o. a hili""ine cor"oration recei(ed an income

ta# deficienc$ assessment from the C- on

=o(emer 25 1996. 'n ecemer 10 1996 A o.

filed its "rotest )ith the C- 'n ?a$ 20 1997 the

C- iss!ed a )arrant of distraint to enforce the

assessment. This )arrant )as ser(ed on A o. on ?a$

25 1997. -n a letter dated K!ne 4 1997 and recei(ed $ A

o. 5 da$s later the - formall$ denied A o.Ds "rotest

stating that it constit!tes his final decision on the matter.

'n K!l$ 6 1997 A o. filed a etition for e(ie)

)ith the TA. The C- mo(ed to




dismiss the etition on the gro!nd that the TA has no !risdiction o(er the case. ecide. +10,SUGGESTED ANSWER

The TA has !risdiction o(er the case. The

a""ealale decision is the one )hich categoricall$

stated that the ommissionerDs action on the dis"!ted

assessment is final and therefore the rec/oning of the

30da$ "eriod to a""eal )as on K!ne 9 1999. The filing

of the "etition for re(ie) )ith the TA )as timel$

made. The !"reme o!rt has r!led that the - m!stcategoricall$ state that his action on a dis"!ted assessment

is finalE other)ise the "eriod to a""eal )ill not

commence to r!n. That final action cannot e im"lied

from the mere iss!ance of a )arrant %of distraint and

le($. +CIR v. U%i,% S:i**i%g C,r*,ra/i,% !43 SCRA

3# ,.

Taxpayer: Protest$ !"aim of 8efun& (1996)

-s "rotest at the time of "a$ment of ta#es andd!ties a reF!irement to "reser(e the ta#"a$ersD rightto claim a ref!nd& #"lain.SUGGESTED ANSWER

Ior TAE- im"osed !nder the $&RC, "rotest at the

time of "a$ment is not reF!ired to "reser(e the ta#"a$ersD

right to claim ref!nd. This is clear !nder ,ection &5 of the

N6$! )hich "ro(ides that a s!it or "roceeding ma$e

maintained for the reco(er$ of national internal

re(en!e ta# or "enalt$ alleged to ha(e een

erroneo!sl$ assessed or collected )hether s!ch ta# or

"enalt$ has een "aid !nder "rotest or not.

Ior D.T&E- im"osed !nder the Ta'iff and Custo)s

Code a "rotest at the time of "a$ment is reF!ired to

"reser(e the ta#"a$ersD claim for ref!nd. The

"roced!re !nder the T is to the effect that )hen a

r!ling or decision of the ollector of !stoms is

made )here$ liailit$ for d!ties is determined the "art$ ad(ersel$ affected ma$ "rotest s!ch r!ling or

decision $ "resenting to the ollector at the time

)hen "a$ment is made or )ithin 15 da$s thereafter

a )ritten "rotest setting forth his oections to the

r!ling or decision in F!estion +ec. 2308. T,.

Taxpayer$ Appea" to t#e !ourt of Tax Appea"s (2)

A ta#"a$er recei(ed a ta# deficienc$ assessment of1.2 ?illion from the C- demanding "a$ment )ithin10 da$s other)ise it )o!ld collect thro!ghs!mmar$ remedies. The ta#"a$er reF!ested for areconsideration stating the gro!nds therefor. -nstead

of resol(ing the reF!est for reconsideration theC- sent a Iinal =otice efore ei!re to theta#"a$er.?a$ this action of the ommissioner of -nternale(en!e e deemed a denial of the reF!est forreconsideration of the ta#"a$er to entitle him to a""ealto the o!rt of Ta# A""eals& ecide )ith reasons.+5,SUGGESTED ANSWER

<es the final notice efore sei!re )as in effect a denialof the ta#"a$erDs reF!est for reconsideration not onl$)as the notice the onl$ res"onse recei(ed its nat!recontent and tenor s!""orts the theor$ that it )as the

C-Ds final act regarding the reF!est forreconsideration. (CIR v.

I+a6e-a C-/ra- C,r*,ra/i,% G.R. N,. !732!) <-0 !!2))!$



[email protected] 6+ of

73Taxpayer$ !"aim for Tax !re&its (26)

ongress enacts a la) granting grade school and

high school st!dents a 10 disco!nt on all school

"rescried te#too/s "!rchased from an$ oo/store. The

la) allo)s oo/stores to claim in f!ll the disco!nt as a

ta# credit.

1. -f in a ta#ale $ear a oo/store has no ta# d!eon )hich to a""l$ the ta# credits can the oo/store claim from the C- a ta# ref!nd in lie! ofta# credit& #"lain. +2.5,SUGGESTED ANSWER

=o the oo/store cannot claim from the C- ata# ref!nd in lie! of ta# credit. There is nothingin the la) that grants a ref!nd )hen the oo/storehas no ta# liail it$ against )hich the ta# credit can e !sed (CIR v. Ce%/ra- L,% Drg G.R. N, !3"'#

A*ri- !3 2))3$. A ta# credit is in the nat!re of a ta#e#em"tion and in case of do!t the do!t sho!ld eresol(ed in strictissimi 1uris against the claimant.

2. an the C- reF!ire the oo/stores to ded!ct

the amo!nt of the disco!nt from their gross income&

#"lain. +2.5,SUGGESTED ANSWER

=o. Ta# credit )hich red!ces the ta# liailit$ isdifferent from a ta# ded!ction )hich merel$ red!cesthe ta# ase. ince the la) allo)ed the oo/stores toclaim in f!ll the disco!nt as a ta# credit the C- isnot allo)ed to e#"and or contract the legislati(emandate (CIR v. Bic,-a%dia

Drg C,r*. G.R. N,. !4)47 <-0 2! 2))'? CIR v.Ce%/ra- L,% Drg C,r*. G.R. N,. !3"'# A*ri- !32))3$.

3. -f a oo/store closes its !siness d!e to losses

)ith o!t eing ale to reco!" the disco!nt can itclaim reim!rsement of the disco!nt from thego(ernment on the gro!nd that )itho!t s!chreim!rsement the la) constit!tes ta/ing of "ri(ate "ro"ert$ for "!lic !se )itho!t !stcom"ensation& #"lain. +5,SUGGESTED ANSWER

A oo/store closing its !siness d!e to losses

cannot claim reim!rsement of the disco!nt

from the go(ernment. -f the !siness contin!es to

o"erate at a loss and no other ta#es are d!e th!s

com"elling it to close sho" the credit can ne(er e

a""lied and )ill e lost altogether (CIR v. Ce%/ra-

L,% Drg G.R. N,. !3"'# A*ri- !3 2))3$. The grant of

the disco!nt to the ta#"a$er is a mere "ri(ilege and can

e re(o/ed an$time.

Taxpayer$ !ompromise after !rimina" Action (199=)

An information )as filed in co!rt for )illf!l non "a$ment of income ta# the assessment of )hich has ecome final. The acc!sed thro!gh co!nsel "resented a motion that he e allo)ed to com"romisehis ta# liailit$ s!ect of the information. The "rosec!tor indicated his conformit$ to the motion.

-s this "roced!re correct& O5PSUGGESTED ANSWER

=o. riminal (iolations if alread$ filed in co!rt ma$ not

e com"romised (,ec. &"3@ N6$!). I!rthermore

the "a$ment of the ta# d!e after a""rehension shall

not constit!te a (alid defense in an$ "rosec!tion for

(iolation of an$ "ro(isions of the Ta# ode (,ec.

&"'(a) N6$!). Iinall$ there is no sho)ing that the

"rosec!tor in the "rolem is a legal officer of the

C!rea! of -nternal




e(en!e to )hom the cond!ct of criminal actionsare lodged $ the Ta# ode.ALTERNATIE ANSWER

=o. -f the com"romise referred to is the ci(il as"ect the

"roced!re follo)ed is not correct. om"romise for the

"a$ment of an$ internal re(en!e ta# shall e made onl$ $

the ommissioner of -nternal e(en!e or in a "ro"er case

the (al!ation Coard of the C- +ec. 204 =-,.

A""l$ing the la) to the case at ar com"romise

settlement can onl$ e effected $ lea(e of o!rt.

Taxpayer$ Protest against Assessment$ 'onors Tax

(199)?r. odrigo an 80$ear old retired !sinessman fell

in lo(e )ith 20$ear old Tetchie onora a night

cl! hos"italit$ girl. Altho!gh she ref!sed to marr$

him she agreed to e his %li(ein% "artner. -n

gratit!de ?r. odrigo transferred to her a

condomini!m !nit )here the$ oth li(e !nder a deed of

sale for 10 ?illion. ?r. odrigo "aid the ca"ital gains

ta# of 5 of 10 ?illion.

The ommissioner of -nternal e(en!e fo!nd thatthe "ro"ert$ )as transferred to Tetchie onora $ ?r. odrigo eca!se of the com"anionshi" she)as "ro(iding him. Accordingl$ theommissioner made a determination that onorahad com"ensation income of 10 ?illion in the$ear the condomini!m !nit )as transferred to herand iss!ed a deficienc$ income ta# assessment.

Tetchie onora "rotests the assessment and claims

that the transfer of the condomini!m !nit )as agift and therefore e#cl!ded from income. o) )ill $o!

r!le on the "rotest of Tetchie onora& #"lain.SUGGESTED ANSWER

- )ill grant the "rotest and cancel the assessment.The transfer of the "ro"ert$ $ ?r. odrigo to ?s.onora )as grat!ito!s. The deed of sale indicating a10 million consideration )as sim!lated eca!se ?r.odrigo did not recei(e an$thing from the sale. The "rolem categoricall$ states that the transfer )asmade in gratit!de to ?s. onoraDs com"anionshi".The transfer eing grat!ito!s is s!ect to donorDs ta#.?r. odrigo sho!ld e assessed deficienc$ donorDsta# and a 50 s!rcharge im"osed for fra!d!lentl$sim!lating a contract of sale to e(ade donorDs ta#. (,ec.

*%(b) N6$!).

Taxpayer$ -it##o"&ing Agent$ !"aim of Tax 8efun& (2)oes a )ithholding agent ha(e the right to filean a""lication for ta# ref!nd& #"lain.SUGGESTED ANSWER

<es. A ta#"a$er is %an$ "erson s!ect to ta#.% incethe )ithholding ta# agent )ho is %reF!ired toded!ct and )ithheld an$ ta#% is made %"ersonall$liale for s!ch ta#% sho!ld the amo!nt of the ta#)ithheld e finall$ fo!nd to e less than that reF!ired to e )ithheld $ la) then he is a ta#"a$er. Th!s he hass!fficient legal interest to file an a""lication for

ref!nd of the amo!nt he elie(es )as illegall$collected from him. (C,55i++i,%er ,1 I%/er%a-

Reve%e v. Pr,c/er @ Ga56-e G.R. N,. ''474 Dece56er 2!""!$



[email protected] 64 of 73LOCAL - REAL PROPERTY

TAXES

/oca" Taxation: Actua" <se of Property (22)

The real "ro"ert$ of ?r. and ?rs Angeles sit!ated

in a commercial area in front of the "!lic

mar/et )as declared in their Ta# eclaration as

residential eca!se it had een !sed $ them as their

famil$ residence from the time of its constr!ction in1990. o)e(er since Kan!ar$ 1997 )hen the s"o!ses

left for the Gnited tates to sta$ there "ermanentl$ )ith

their children the "ro"ert$ has een rented to a single

"ro"rietor engaged in the sale of a""liances and agri

"rod!cts. The ro(incial Assessor reclassified the

"ro"ert$ as commercial for ta# "!r"oses starting

Kan!ar$ 1998. ?r. and ?rs. Angeles a""ealed to the

:ocal Coard of Assessment A""eals contending that the

Ta# eclaration "re(io!sl$ classif$ing their "ro"ert$

as residential is inding. o) sho!ld the a""eal

e decided& +5,SUGGESTED ANSWER

The a""eal sho!ld e decided against ?r. and?rs. Angeles. The la) foc!ses on the act!al !se ofthe "ro"ert$ for classification (al!ation andassessment "!r"oses regardless of o)nershi".ection 217 of the :ocal o(ernment ode "ro(ides that %real "ro"ert$ shall e classified(al!ed and assessed on the asis of its act!al!se regardless of )here located )hoe(er o)ns itand )hoe(er !ses it%.

/oca" Taxation: !oerage (22)

Aside from the asic real estate ta# gi(e three+3, other ta#es )hich ma$ e im"osed $ "ro(incial and cit$ go(ernments as )ell as $

m!nici"alities in the ?etro ?anila area. +3,SUGGESTED ANSWER

The follo)ing real "ro"ert$ ta#es aside from the asicreal "ro"ert$ ta# ma$ e im"osed $ "ro(incialand cit$ go(ernments as )ell as $ m!nici"alitiesin the ?etro ?anila area*1. Additional le($ on real "ro"ert$ for the

"ecial d!cation I!nd +ec. 235 :,E2. Additional Ad(alorem ta# on -dle lands +ec.

23U :,E and3. "ecial le($ +ec. 240,.

O$ote% The F!estion is s!sce"tile to d!al

inter"retation eca!se it is as/ing for three otherta#es and not three other real "ro"ert$ ta#es.Accordingl$ an alternati(e ans)er sho!ld econsidered and gi(en f!ll creditP A. The follo)ingta#es aside from asic real estate ta# ma$ eim"osed $*

1. ro(incial o(ernmenta. rinterDs or "!lisherDs ta# . Iranchise Ta#c. rofessional ta#

2. it$ o(ernment ma$ le($ ta#es )hich the

"ro(ince or m!nici"alit$ are a!thoried to le($ +ec. 151

:,

a. rinterDs or "!lisherDs ta# . Iranchise ta#c. rofessional ta#




3. ?!nici"alities in the ?etro ?anila Area ma$le($ ta#es at rates )hich shall not e#ceed $50 the ma#im!m rates "rescried in the :ocalo(ernment ode.a. Ann!al fi#ed ta# on man!fact!rers

assemlers re"ac/ers "rocessors re)ersdistillers rectifiers and com"o!nders of liF!orsdistilled s"irits and )ines or man!fact!re of an$article of commerce of )hate(er /ind or nat!reE

. Ann!al fi#ed ta# on )holesalers distri!torsor dealers in an$ article of commerce of)hate(er /ind or nat!reE

c. ercentage ta# on retailers

O=ote* 'ther ta#es ma$ com"rise the en!meration eca!se

man$ other ta#es are a!thoried to e im"osed $ :Gs.P

/oca" Taxation: xemption$ 8ea" Property Taxes (22)

Gnder the :ocal o(ernment ode )hat "ro"ertiesare e#em"t from real "ro"ert$ ta#es& +5,SUGGESTED ANSWER

The follo)ing "ro"erties are e#em"t from real "ro"ert$ ta#es* +ec. 234 :,.1. eal "ro"ert$ o)ned $ the e"!lic of the

hili""ines or an$ of its "olitical s!di(isions e#ce"t

)hen the eneficial !se thereof has een granted

for consideration or other)ise to a ta#ale "ersonE

2. All lands !ildings and im"ro(ements

act!all$ directl$ and e#cl!si(el$ !sed for religio!s

charitale or ed!cational "!r"oses $ charitale

instit!tions ch!rches "arsonages or con(ents

a""!rtenant thereto mosF!es non"rofit or religio!s

cemeteriesE

3. All machineries and eF!i"ment that are

act!all$ directl$ and e#cl!si(el$ !sed $ local)ater districts and go(ernmento)ned or

controlled cor"orations engaged in the s!""l$

and distri!tion of )ater andMor generation

and transmission of electric "o)erE

4. All real "ro"ert$ o)ned $ d!l$

registered coo"erati(es as "ro(ided for !nder

.A. =o. 6938E and

5. ?achiner$ and eF!i"ment !sed for "oll!tion

control and en(ironmental "rotection.

/oca" Taxation: Imposition of A& Ca"orem Tax (2)?a$ local go(ernments im"ose an ann!al realt$ ta#in addition to the asic real "ro"ert$ ta# on idle or(acant lots located in residential s!di(isions)ithin their res"ecti(e territorial !risdictions& +3,SUGGESTED ANSWER

=ot all local go(ernment !nits ma$ do so. 'nl$ "ro(inces cities and m!nici"alities )ithin the ?etro?anila area (,ec. &5& ?ocal #overnment !ode) ma$im"ose an ad va-,re5 /a> not e#ceeding fi(e "ercent+5, of the assessed (al!e (,ec. &5 6bid.) of idle or(acant residential lots in a s!di(ision d!l$a""ro(ed $ "ro"er a!thorities regardless of area.

(,ec.&5' 6bid.)



[email protected] 6. of 73/oca" Taxation: /ega"ityE !onstitutiona"ity$ Tax

%r&inance (24)B a ta#"a$er )ho elie(es that an ordinance "assed

$ the it$ o!ncil of asa$ is !nconstit!tional for

eing discriminator$ against him )ant to /no) from

$o! his ta# la)$er )hether or not he can file an

a""eal. -n the affirmati(e he as/s $o! )here s!ch

a""eal sho!ld e made* the ecretar$ of Iinance or the

ecretar$ of K!stice or the o!rt of Ta# A""eals or the

reg!lar co!rts. What )o!ld $o!r ad(ice e to $o!rclient B& +8,SUGGESTED ANSWER

The a""eal sho!ld e made )ith the ecretar$ of K!stice.

An$ F!estion on the constit!tionalit$ or legalit$ of a

ta# ordinance ma$ e raised on a""eal )ith the ecretar$

of K!stice )ithin 30 da$s from the effecti(it$

thereof. (Sec.

!4# LGC? Hag,%,0 Mare/ Ve%d,r A++,cia/i,%

v. M%ici*a-i/0 ,1 Hag,%,0 7#' SCRA 7#' 82))29$.

/oca" Taxation: /ega"ity$ Imposition of 8ea" Property

Tax 8ate (22)

An 'rdinance )as "assed $ the ro(incial Coardof a ro(ince in the =orth increasing the rate of asic real "ro"ert$ ta# from 0.006 to 1 of theassessed (al!e of the real "ro"ert$ effecti(eKan!ar$ 1 2000. esidents of the m!nici"alitiesof the said "ro(ince "rotested the 'rdinance onthe gro!nd that no "!lic hearing )as cond!ctedand therefore an$ increase in the rate of real "ro"ert$ta# is (oid. -s there merit in the "rotest& #"lain $o!rans)er. +2,SUGGESTED ANSWER

The "rotest is de(oid of merit. =o "!lic hearingis reF!ired efore the enactment of a local ta#ordinance le($ing the asic real "ro"ert$ ta#

+Art. 324 : eg!lations,.ALTERNATIE ANSWER

<es there is merit in the "rotest "ro(ided that s!fficient

"roof co!ld e introd!ced for the nonoser(ance of

"!lic hearing. C$ im"lication the !"reme

o!rt recognied that "!lic hearings are reF!ired

to e cond!cted "rior to the enactment of an

ordinance im"osing real "ro"ert$ ta#es. Altho!gh it

)as concl!ded $ the highest tri!nal that

"res!m"tion of (alidit$ of a ta# ordinance can not e

o(ercome $ are assertions of "roced!ral defects on its

enactment it )o!ld seem that if the ta#"a$er had

"resented e(idence to s!""ort the allegation that no

"!lic hearing )as cond!cted the o!rt sho!ld ha(e

r!led that the ta# ordinance is in(alid. (Be-e%

Figerre+ v. C,r/ ,1 A**ea-+ GRN,. !!"!#2

Marc: 23 !"""$.

/oca" Taxation: Poer to Impose (24)

-n order to raise re(en!e for the re"air andmaintenance of the ne)l$ constr!cted it$ all of?a/ati the it$ ?a$or ordered the collection of1.00 called %ele(ator ta#% e(er$ time a "ersonrides an$ of the hightech ele(ators in the cit$ halld!ring the ho!rs of 8*00 a.m. to 10*00 a.m. and 4*00 ".m. to 6*00 ".m. -s the %ele(ator ta#% a (alid

im"osition& #"lain. +8,SUGGESTED ANSWER

=o. The im"osition of a ta# fee or charge or the

generation of re(en!e !nder the :ocal o(ernment ode

shall e e#ercised $ the A=G=-A= of the local

go(ernment !nit concerned thro!gh an a""ro"riate




ordinance (,ection %5& of the ?ocal #overnment !ode).

The cit$ ma$or alone co!ld not order the collection ofthe ta#E as s!ch the %ele(ator ta#% is an in(alidim"osition.

/oca" Taxation: 8emissionE!on&onation of Taxes (2*)

is a la)aiding citien )ho "a$s his real estate ta#es

"rom"tl$. !e to a series of t$"hoons and

ad(erse economic conditions an ordinance is "assed $

?? it$ granting a 50 disco!nt for "a$ment of !n"aidreal estate ta#es for the "receding $ear and the

condonation of all "enalties on fines res!lting from

the late "a$ment. Arg!ing that the ordinance re)ards

delinF!ent ta#"a$ers and discriminates against "rom"t

ones demands that he e ref!nded an amo!nt

eF!i(alent to onehalf of the real ta#es he "aid. The

m!nici"al attorne$ rendered an o"inion that

cannot e reim!rsed eca!se the ordinance did not

"ro(ide for s!ch reim!rsement. files s!it to declare

the ordinance (oid on the gro!nd that it is a class

legislation. Will his s!it "ros"er& #"lain $o!r ans)er

riefl$. +5,

SUGGESTED ANSWERThe s!it )ill not "ros"er. The remission or condonation of

ta#es d!e and "a$ale to the e#cl!sion of ta#es alread$

collected does not constit!te !nfair discrimination. ach

set of ta#es is a class $ itself and the la) )o!ld e o"en

to attac/ as class legislation onl$ if all ta#"a$ers elonging

to one class )ere not treated ali/e 5 <a% L%a S6divi+i,%

I%c. v. Sar5ie%/, "! P:i-. 7#! 8!"329$"

/oca" Taxation: 8u"e of <niformity an& 3ua"ity (24)

The it$ of ?a/ati in order to sol(e the traffic "rolemin its !siness districts decided to im"ose a ta# to e "aid $ the dri(er on all "ri(ate cars entering the cit$d!ring "ea/ ho!rs from 8*00 a.m. to 9*00 a.m. from

?onda$s to Irida$s !t e#em"ts those cars carr$ingmore than t)o occ!"ants e#cl!ding the dri(er. -sthe ordinance (alid& #"lain. +8,SUGGESTED ANSWER

The ordinance is in (iolation of the !le of

Gniformit$ and F!alit$ )hich reF!ires that all s!ects

or oects of ta#ation similarl$ sit!ated m!st e treated

ali/e in eF!al footing and m!st not classif$ the s!ects

in an aritrar$ manner. -n the case at ar the

ordinance e#em"ts cars carr$ing more than t)o

occ!"ants from co(erage of the said ordinance.

I!rthermore the ordinance onl$ im"oses the ta# on

"ri(ate cars and e#em"ts "!lic (ehicles from the

im"osition of the ta# altho!gh oth contri!te to thetraffic "rolem. There e#ists no s!stantial standard !sed

in the classification $ the it$ of ?a/ati.

Another iss!e is the fact that the ta# is im"osed onthe dri(er of the (ehicle and not on the registered o)nerof the same. The ta# does not onl$ (iolate thereF!irement of !niformit$ !t the same is also

!n!st eca!se it "laces the !rden on someone)ho has no control o(er the ro!te of the (ehicle.The ordinance is therefore in(alid for (iolating ther!le of !niformit$ and eF!alit$ as )ell as for eing

!n!st.

/oca" Taxation$ Situs of Professiona" Taxes (2)

?r. Iermin a resident of L!eon it$ is a ertified!lic Acco!ntant:a)$er engaged in the "ractice of his



[email protected] 66 of 73t)o "rofessions. e has his main office in

?a/ati it$ and maintains a ranch office inasig it$. ?r. Iermin "a$s his "rofessional ta# as aA in ?a/ati it$ and his "rofessional ta# as ala)$er in asig it$. +5,a, ?a$ ?a/ati it$ )here he has his main officereF!ire him to "a$ his "rofessional ta# as a la)$er&#"lain.SUGGESTED ANSWER

=o. ?a/ati it$ )here ?r. Iermin has his mainoffice ma$ not reF!ire him to "a$ his "rofessional

ta# as a la)$er. ?r. Iermin has the o"tion of

"a$ing his "rofessional ta# as a la)$er in asig

it$ )here he "ractices la) or in ?a/ati it$

)here he maintains his "rinci"al office. (,ec. %5*b@

?ocal #overnment !ode)

, ?a$ L!eon it$ )here he has his residence

and )here he also "ractices his t)o "rofessions goafter him for the "a$ment of his "rofessional ta#

as a A and a la)$er& #"lain.SUGGESTED ANSWER

=o the sit!s of the "rofessional ta# is the cit$ )herethe "rofessional "ractices his "rofession or)here he maintains his "rinci"al office in casehe "ractices his "rofession in se(eral "laces. Thelocal go(ernment of L!eon it$ has no right tocollect the "rofessional ta# from ?r. Iermin as the "lace of residence of the ta#"a$er is not the "ro"ersit!s in the collection of the "rofessional ta#.

/oca" Taxation$ Specia" /ey on I&"e /an&s (2)

A cit$ o!tside of ?etro ?anila "lans toenact an ordinance that )ill im"ose a s"ecialle($ on idle lands located in residentials!di(isions )ithin its territorial !risdiction in

addition to the asic real "ro"ert$ ta#. -f the loto)ners of a s!di(ision located in the said cit$see/ $o!r legal ad(ice on the matter )hat )o!ld$o!r ad(ice e& isc!ss. +5,SUGGESTED ANSWER

- )o!ld ad(ise the lot o)ners that a cit$ e(en if it

is o!tside ?etro ?anila ma$ le($ an ann!al ta# on idle

lands at the rate not e#ceeding fi(e "ercent +5, of the

assessed (al!e of the "ro"ert$ )hich shall e in

addition to the asic real "ro"ert$ ta#. (,ec. &5

?ocal #overnment !ode) - )o!ld li/e)ise ad(ise

them that the le($ ma$ a""l$ to residential lots

regardless of land area in s!di(isions d!l$

a""ro(ed $ "ro"er a!thorities the o)nershi" of)hich has een transferred to indi(id!al o)ners )ho

shall e liale for the additional ta#. +:ast "ar. ec. 237,

The term %-dle :ands% means land not de(oteddirectl$ to an$ cro" or to an$ definite "!r"ose for atleast one $ear "rior to the notice of e#"ro"riatione#ce"t for reasons other than force ma1eure or an$fort!ito!s e(ent !t !sed to e de(oted or is s!italeto s!ch cro" or is contig!o!s to land de(oteddirectl$ to an$ cro" and does not incl!de landde(oted "ermanentl$ or reg!larl$ to other essential

and more "rod!cti(e "!r"ose. (9hilippine ?egal

4ncyclopedia by ,ibal %*/ 4d.)

Iinall$ - )o!ld ad(ise them to constr!ct or

"lace im"ro(ements on their idle lands $ ma/ing

(al!ale additions to the "ro"ert$ or ameliorations in

the landDs




conditions so the lands )o!ld not e considered as idle.+ec. 199OmP, -n this manner their "ro"erties )o!ld not

e s!ect to the ad valorem tax on idle lands.

8ea" Property Tax: <n&ergroun& 5aso"ine Tans (24)

Gnder Article 415 of the i(il ode in order

for machiner$ and eF!i"ment to e considered real

"ro"ert$ the "ieces m!st e "laced $ the o)ner of the

land and in addition m!st tend to directl$ meet the

needs of the ind!str$ or )or/s carried on $ the o)ner.'il com"anies install !ndergro!nd tan/s in the gasoline

stations located on land leased $ the oil com"anies from

the o)ners of the land )here the gasoline stations OareP

located. Are those !ndergro!nd tan/s )hich )ere not

"laced there $ the o)ner of the land !t )hich )ere

instead "laced there $ the lessee of the land

considered real "ro"ert$ for "!r"oses of real

"ro"ert$ ta#ation !nder the local o(ernment ode&

#"lain. +8,SUGGESTED ANSWER

<es. The "ro"erties are considered as necessar$ fi#t!resof the gasoline station )itho!t )hich the gasoline

station )o!ld e !seless. ?achiner$ and eF!i"mentinstalled $ thelessee of leased land is not real "ro"ert$ for "!r"oses of

e#ec!tion of a final !dgment onl$. The$ are considered as

real "ro"ert$ for real "ro"ert$ ta# "!r"oses as %other

im"ro(ements to affi#ed or attached real "ro"ert$ !nder

the Assessment :a) and the eal ro"ert$ Ta# ode.5Ca-/e> v. Ce%/ra- B,ard ,1 A++e++5e%/ A**ea-+ !! SCRA 2"' 8!"429 6"

8ea" Property Tax$ 8e3uirements$ Auction Sa"es of

Property for Tax 'e"in3uency (26)

L!eon it$ "!lished on Kan!ar$ 30 2006 a list of

delinF!ent real "ro"ert$ ta#"a$ers in 2 ne)s"a"ers of

general circ!lation and "osted this in the main lo$of the it$ all. The notice reF!ires all o)ners of

real "ro"erties in the list to "a$ the real "ro"ert$ ta#

d!e )ithin 30 da$s from the date of "!lication other)ise

the "ro"erties listed shall e sold at "!lic a!ction.

Koachin is one of those named in the list. e "!rchased a

real "ro"ert$ in 1996 !t failed to register the doc!ment of

sale )ith the register of eeds and sec!re a ne) real

"ro"ert$ ta# declaration in his name. e alleged that the

a!ction sale of his "ro"ert$ is (oid for lac/ of d!e "rocess

considering that the it$ Treas!rer did not send him

"ersonal notice. Ior his "art the it$ Treas!rer maintains

that the "!lication and "osting of notice are s!fficientcom"liance )ith the reF!irements of the la).

1. -f $o! )ere the !dge ho) )ill $o! resol(ethis iss!e& +2.5,SUGGESTED ANSWER

- )ill resol(e the iss!e in fa(or of Koachin. -n a!ction sales

of "ro"ert$ for ta# delinF!enc$ notice to delinF!ent

lando)ners and to the "!lic in general is an essential and

indis"ensale reF!irement of la) the nonf!lfillment

of )hich (itiates the same (Ti,%gc, v. P:i-. Ve/era%+ Ba%

G.R. N,. 42#42 Ag. 3 !""2$. The fail!re to gi(e notice to

the right "erson i.e. the real o)ner )ill render an a!ction

sale (oid (Ta% v. Ba%/egi G.R. N, !3)2# Oc/,6er 2

2))3? Ci/0 Trea+rer ,1 .C. v. CA G.R. N,. !2)"# Dec. 22!""#$.




732. Ass!ming Koachin is a registered o)ner

)ill $o!r ans)er e the same& +2.5,SUGGESTED ANSWER

<es. The la) reF!ires that a notice of the a!ction

sale m!st e "ro"erl$ sent to Koachin and not merel$

thro!gh "!lication (Ta% v. Ba%/egi G.R. N, !3)2#

Oc/,6er 22))3? E+/a/e ,1 Mercede+ <ac,6 v. CA G.R. N,.!2)73 Dec. 22 !""#$.

8ea" Property Taxation: !apita" Asset s %r&inary

Asset (199)-n 1990 ?r. =a(al o!ght a lot for 1000000.00

-n a s!di(ision )ith the intention of !ilding his

residence on it. -n 1994 he aandoned his "lan to !ild

his residence on it eca!se the s!rro!nding area

ecame a de"ressed area and land (al!es in the

s!di(ision )ent do)nE instead he sold it for

800.000.00. At the time of the sale the onal (al!e )as

500.000.00.

1, -s the land a ca"ital asset or an ordinar$ asset&#"lain.

2, -s there an$ income ta# d!e on the sale& #"lain.SUGGESTED ANSWERS

1, The land is a ca"ital asset eca!se it is neither for

sale in the ordinar$ co!rse of !siness nor a "ro"ert$

!sed in the trade or !siness of the ta#"a$er. +ec.

33. =-,.

2, <es ?r. =a(al is liale to the 5 ca"ital

gains ta# im"osed !nder ection 21+e, of the Ta#

ode ased on the gross selling "rice of

800.000.00 )hich is an amo!nt higher than the

onal (al!e.

8ea" Property Taxation: !apita" 5ains s %r&inary

5ains (199=)

What is the difference et)een ca"ital gains andordinar$ gains& O3PSUGGESTED ANSWER

A-TA: A-= are gains realied from thesale or e#change of ca"ital assets )hile'-=A< A-= refer to gains realied fromthe sale or dis"osition of ordinar$ assets.

8ea" Property Taxation: !oerage of %r&inary

Income (199=)

What does the term %ordinar$ income% incl!de& O2PSUGGESTED ANSWER

The term ordinar$ income incl!des an$ gain from the sale

or e#change of "ro"ert$ )hich is not a ca"ital asset.

These are the gains deri(ed from the sale or

e#change of "ro"ert$ s!ch as stoc/ in trade of the

ta#"a$er or other "ro"ert$ of a /ind )hich )o!ld

"ro"erl$ e incl!ded in the in(entor$ of the ta#"a$er if

on hand at the close of the ta#ale $ear or "ro"ert$ held

$ the ta#"a$er "rimaril$ for sale to c!stomers in the

co!rse of his trade or !siness or "ro"ert$ !sed in trade

or !siness of a character )hich is s!ect to the

allo)ance for de"reciation or real "ro"ert$ !sed in

trade or !siness of the ta#"a$er. (,ec. && M@ in

relation to ,ec. 5*A@(%) both of the N6$!).ALTERNATIE ANSWER

The term ordinar$ income incl!des income

from "erformance of ser(ices )hether "rofessional or

"er sonal gains accr!ing from !siness and "rofit

arising from the sale or e#change of ordinar$ assets.




8ea" Property Taxation: xc#ange of /ot$ !apita"5ain Tax (199,)A cor"oration engaged in real estateD de(elo"ment

e#ec!ted deeds of sale on (ario!s s!di(ided lots.

'ne !$er after going aro!nd the s!di(ision o!ght a

corner lot )ith a good (ie) of the s!rro!nding terrain. e

"aid 1.2 million and the title to the "ro"ert$ )as

iss!ed. A $ear later the (al!e of the lot a""reciated

to a mar/et (al!e of 1.6 million and the !$er decided

to !ild his ho!se thereon. G"on ins"ection ho)e(er hedisco(ered that a h!ge to)er antennae had een

erected on the lot frontage totall$ loc/ing his (ie).

When he com"lained the realt$ com"an$ e#changed his

lot )ith another corner lot )ith an eF!al area !t affording

a etter (ie). -s the !$er liale for ca"ital gains ta#

on the e#change of the lots&

SUGGESTED ANSWER

<es the !$er is s!ect to ca"ital gains ta# onthe e#change of lots on the asis of "re(ailing fairmar/et (al!e of the "ro"ert$ transferred at the timeof the e#change or the fair mar/et (al!e of the "ro"ert$

recei(ed )hiche(er is higher (,ection &%(e) N6$!).eal "ro"ert$ transactions s!ect to ca"ital gains ta#are not limited to sales !t also e#changes of "ro"ert$!nless e#em"ted $ a s"ecific "ro(ision of la).ALTERNATIE ANSWER

=o. The e#change is not s!ect to ca"ital gainsta# eca!se it is merel$ done to com"l$ )ith theintentions of the "arties to the "re(io!s contractregarding the sale and acF!isition of a "ro"ert$ )itha good (ie). This is a sim"le s!stit!tion of theoect of sale and since the "re(io!s transaction )asalread$ s!ected to ta# no ne) ta# sho!ld eim"osed on the e#change (36$ $uling No. &%(e)5-/* /-*).

8ea" Property Taxation: xemptionE'e&uctions$

'onors Tax (199=)Ace Toacco or"oration o!ght a "arcel of land sit!ated

at ateros and donated it to the ?!nici"al o(ernment of

ateros for the sole "!r"ose of de(oting the said land as a

relocation site for the less fort!nate constit!ents of

said m!nici"alit$. -n accordance there)ith the ?!nici"al

o( ernment of ateros iss!ed to the

occ!"antsMeneficiaries ertificates of A)ard gi(ing to

them the res"ecti(e areas )here their ho!ses are erected.

Thro!gh 'rdinance =o. 2 eries of 1998 the said

m!nici"al go(ernment ordained that the lots a)arded

to the a)ardeesMdonees e finall$ transferred anddonated to them. etermine the ta# conseF!ence of

the foregoing dis"ositions )ith res"ect to Ace Toacco

or"oration the ?!nici"al o(ernment of ateros and

the occ!"antsMeneficiaries. O5PSUGGESTED ANSWER

The donation $ Ace Toacco or"oration is

e>e5*/ 1r,5 /:e d,%,r+ /a> eca!se it F!alifies as agift to or for the !se of an$ "olitical s!di(ision ofthe =ational o(ernment +ection 101+2, =-,.The con(e$ance is li/e)ise e#em"t from doc!mentar$stam" ta# eca!se it is a transfer )itho!t consideration.

ince the donation is to e !sed as a relocation site for the

less fort!nate constit!ents of the m!nici"alit$. -t ma$ e

considered as an !nderta/ing for h!man settlements



[email protected] 6 of 73hence the (al!e of the land 5a0 6e dedc/i6-ei% 1-- 1r,5 /:e gr,++ i%c,5e of Ace Toacco

or"oration if in accordance to a =ational riorit$

lan determined $ the =ational conomic

e(elo"ment A!thorit$. (,ec. 5"K=@(&)(a) N6$!). -f the

!tiliation is not in accordance to a =ational riorit$

lan determined $ the =ational conomic

e(elo"ment A!thorit$ then Ace Toacco or"oration

ma$ ded!ct the (al!e of the land donated onl$ to

the e#tent of fi(e +5, "ercent of its ta#ale

income deri(ed from trade or !siness as

com"!ted )itho!t the enefit of the donation.

(,ec. 5"=@(&)(a) in relation to ,ec. 5"=@(%) N6$!).

The ?!nici"alit$ of ateros is not s!ect to an$

donorDs ta# on the (al!e of land it s!seF!entl$

donated it eing e#em"t from ta#es as a

"olitical s!di(ision of the =ational o(ernment.

The occ!"antsMeneficiaries are s!ect to real

"ro"ert$ ta#es eca!se the$ no) o)n the land.

ALTERNATIE ANSWER on Taxability of 8unicipalityand Awardees:

The a)arding $ the ?!nici"al o(ernment of lots

to s"ecific a)ardees or donees is li/e)ise e#em"t

from the donorDs ta# eca!se it is onl$ an

im"lementation of the "!r"ose for )hich the

"ro"ert$ )as gi(en $ Ace Toacco or"oration.

The "!r"ose of the first donation is to de(ote the land

as a relocation site for the less fort!nate constit!ents.

-f later on the ?!nici"alit$ gi(es o!t ertificates of

A)ard o(er s"ecific lots occ!"ied $ the F!alified

occ!"antsMeneficiaries this is intended to "er"et!ate

the "!r"ose of the "re(io!s donor the ?! nici"alit$

acting merel$ as a cond!it and not the tr!e donor.

This is sim"l$ a donation $ the ?!nici"alit$ in

form !t not in s!stance.

The recei"t $ the occ!"ant eneficiaries of

their res"ecti(e lots thro!gh the ertificate of

A)ard has no ta# im"lications. The$ are ho)e(er

liale for real "ro" ert$ ta#es.

8ea" Property Taxation: xemption: Ac3uiring

7e Principa" 8esi&ence (2)

:ast K!l$ 12 2000 ?r. V ?rs. eter amacho soldtheir "rinci"al residence sit!ated in Tandang oraL!eon it$ for Ten ?illion esos +10000000.00,

)ith the intention of !sing the "roceeds to acF!ireor constr!ct a ne) "rinci"al residence in A!roraills Cag!io it$. What conditions m!st e metin order that the ca"ital gains "res!med to ha(e een realied from s!ch sale ma$ not e s!ectto ca"ital gains ta#& +5,SUGGESTED ANSWER

The conditions are*1. The "roceeds are f!ll$ !tilied in

acF!iring or constr!cting a ne) "rinci"al

residence )ithin eighteen +18, calendar

months from the sale or dis"osition of the

"rinci"al residence or eighteen +18, months from

K!l$ 12 2000.




2. The historical cost or ad!sted asis of the real

"ro"ert$ sold or dis"osed shall e carried o(er to

the ne) "rinci"al residence !ilt or acF!ired.

3. The ommissioner of -nternal e(en!e m!st ha(e

een informed $ ?r. V ?rs. eter amacho )ithin

thirt$ +30, da$s from the date of sale or

dis"osition on K!l$ 12 2000 thro!gh a "rescried

ret!rn of their intention to a(ail of the ta# e#em"tion.

4. That the said e#em"tion can onl$ e a(ailed of once

e(er$ ten +10, $ears.

5. -f there is no f!ll !tiliation of the "roceeds of sale

or dis"osition the "ortion of the gain "res!med to

ha(e een realied from the sale or dis"osition

shall e s!ect to ca"ital gains ta# ,ec. &"

(B) (&) N6$! of %**'@

8ea" Property Taxation: Fun&amenta" Princip"es (199,)

tate the f!ndamental "rinci"les !nderl$ing real "ro"ert$ ta#ation in the hili""ines.

SUGGESTED ANSWERThe follo)ing are the f!ndamental "rinci"lesgo(erning real "ro"ert$ ta#ation*1, eal "ro"ert$ shall e a""raised at its c!rrent

and fair mar/et (al!eE2, eal "ro"ert$ shall e classified for

assessment "!r"oses on the asis of its act!al !se*3, eal "ro"ert$ shall e assessed on the asis

of a !niform classification )ithin each localgo(ernment !nitE

4, The a""raisal assessment le($ and collectionof real "ro"ert$ ta# shall not e let to an$ "ri(ate "ersonE and

5, The a""raisal and assessment of real "ro"ert$

shall e eF!itale.

8ea" Property Taxation: Princip"es ; /imitations: /5<

(2)

i(e at least t)o +2, f!ndamental "rinci"les go(erningreal "ro"ert$ ta#ation )hich are limitations on theta#ing "o)er of local go(ernments insofar as thele($ing of the realt$ ta# is concerned. +2,SUGGESTED ANSWER

T)o +2, f!ndamental "rinci"les go(erning real "ro"ert$ ta#ation are*1, The a""raisal m!st e at the c!rrent and fair

mar/et (al!eE and

2, lassification for assessment m!st e on the asis

of act!al !se. (,ec. %*/ ?ocal #overnment !ode)ALTERNATIE ANSWER

The e#aminee sho!ld e gi(en credit if he chooses

the ao(e t)o +2, or an$ t)o +2, of those en!merated

elo)*

1, Assessment m!st e on the asis of!niform classificationE2, A""raisal assessment le($ and collection shall not e let to "ri(ate "ersonsE and3, A""raisal and assessment m!st e eF!itale. (,ec.

%*/ ?ocal #overnment !ode)



[email protected] 69 of 738ea" Property Taxation: Property So"& is an

%r&inary Asset (199=)An indi(id!al ta#"a$er )ho o)ns a ten +10, door

a"art ment )ith a monthl$ rental of 10000 each

residential !nit sold this "ro"ert$ to another indi(id!al

ta#"a$er. -s the seller liale to "a$ the ca"ital gains ta#&

O5PSUGGESTED ANSWER

=o. The seller is not liale to "a$ the ca"ital gains

ta# eca!se the "ro"ert$ sold is an ordinar$ asseti.e. real "ro"ert$ !sed in trade or !siness. -t is a""arent

that the ta#"a$er is engaged in the real estate

!siness reg!larl$ renting o!t the ten +10, door

a"artment.

8ea" Property Taxation: <n&ergroun& 5aso"ine

Tans (21)

Gnder Article 415 of the i(il ode inorder for machiner$ and eF!i"ment to e consideredreal "ro"ert$ the$ m!st e "laced $ the o)nerof the land and in addition m!st tend to directl$meet the needs of the ind!str$ or )or/s carried on

$ the o)ner. 'il com"anies s!ch as alte# andhell install !ndergro!nd tan/s in the gasolinestations located on land leased $ the oilcom"anies from others. Are those !ndergro!ndtan/s )hich )ere not "laced there $ the o)ner of theland !t )hich )ere instead "laced there $ the lesseeof the land considered real "ro"ert$ for "!r"osesof real "ro"ert$ ta#ation !nder the :ocalo(ernment ode& #"lain $o!r ans)er. +5,SUGGESTED ANSWER

<es. The !ndergro!nd tan/s altho!gh installed $the lessee hell and alte# are considered as real "ro"ert$ for "!r"oses of the im"osition of real "ro"ert$ ta#es. -t is onl$ for "!r"oses of e#ec!ting afinal !dgment that these machiner$ and eF!i"mentinstalled $ the lessee on a leased land )o!ld not e considered as real "ro"ert$. C!t in theim"osition of the real "ro"ert$ ta# the!ndergro!nd tan/s are ta#ale as necessar$ fi#t!res ofthe gasoline station )itho!t )hich the gasolinestation )o!ld not e o"erational. +Ca-/e> P:i-+.

I%c v. CBAA !! SCRA. 2"' ,.

8ea" Property Taxation$ xempte& Properties (26)

What "ro"erties are e#em"t from the real "ro"ert$ta#& +5,SUGGESTED ANSWER

The follo)ing "ro"erties are e#em"t from thereal "ro"ert$ ta# +ection 234 :ocal o(ernmentode,*+1, eal "ro"ert$ o)ned $ the GC:- 'I

T -:--= or an$ of its "oliticals!di(isions e#ce"t )hen the eneficial !sethereof has een granted for consideration orother)ise to a ta#ale "ersonE

+2, A-TAC: -=T-TGT-'=

ch!rches "arsonages or con(ents

a""!rtenant thereto mosF!es non"rofit or

religio!s cemeteries and all lands !ildings

and im"ro(ements act!all$ directl$ and

e#cl!si(el$ !sed for religio!s charitale or

ed!cational "!r"osesE

+3, All machineries and eF!i"ment that are

act!all$ directl$ and e#cl!si(el$ !sed $ :'A:

WAT GT-:-T- and go(ernmento)ned or

controlled cor"orations engaged in the s!""l$ and

distri!tion




of )ater andMor generation and transmissionof electric "o)erE

+4, All real "ro"ert$ o)ned $ d!l$ -T''AT-; as "ro(ided for !nder .A.6938E and

+5, ?achiner$ and eF!i"ment !sed for

9C??ET6CN !CNT$C? and

4N26$CN84NTA? 9$CT4!T6CN.

TARI33 AND CUSTOMS DUTIES

!ustoms: F"exi+"e Tariff !"auseG (21)

What do $o! !nderstand $ the term %fle#ile tariffcla!se% as !sed in the Tariff and !stoms ode& +5,-.E-TED A$-WER%The term % 1-e>i6-e /ari11 c-a+e %refers to the a!thorit$

gi(en to the resident to ad!st tariff rates !nder ection

401 of the Tariff and !stoms ode )hich is

the enaling la) that made effecti(e the delegation of

the ta#ing "o)er to the resident !nder the onstit!tion.

O$ote* 6t is suggested that if the examinee cites

the entire provision of ,ec. "% of the Tariff

L !ustoms !ode he should also be given full

credit .P

!ustoms: A&ministratie s Hu&icia" 8eme&ies (199,)

The Tariff and !stoms ode allo)s the C!rea! of

!stoms to resort to the administrati(e remed$ of sei!re

s!ch as $ enforcing the ta# lien on the im"orted article

and to the !dicial remed$ of filing an action in

co!rt. When does the C!rea! of !stoms normall$ a(ail

itselfE

+a, of the administrati(e instead of the !dicialremed$ or

+, of the latter instead of the former remed$&SUGGESTED ANSWER

+a, The C!rea! of !stoms normall$ a(ails itself of the

A?-=-TAT-; ?< of sei!re s!ch as $ enforcing the ta# lien on the im"orted articlesinstead of the !dicial remed$ )hen the goods to )hichthe ta# lien attaches regardless of o)nershi" is still inthe c!stod$ or control of the o(ernment. -n thecase ho)e(er of im"ortations )hich are "rohiited

or !ndeclared the remed$ of sei!re and forfeit!rema$ still e e#ercised $ the C!rea! of !stoms e(en ifthe goods are no longer in its c!stod$.

+, 'n the other hand )hen the goods are "ro"erl$

released and th!s e$ond the reach of ta# lien the go(ern

ment can see/ "a$ment of the ta# liailit$ thro!gh !dicial

action since the ta# liailit$ of the im"orter constit!tes a

"ersonal det to the go(ernment therefore enforceale

$ action. -n this case !dicial remed$ is normall$ a(ailed

of instead of the administrati(e remed$.

!ustoms: Importation (199)

When does im"ortation egin and )hen does it end&SUGGESTED ANSWER

-?'TAT-'= egins from the time the carr$ing (essel

or aircraft enters hili""ine territorial !risdiction )ith the

intention to !nload therein and ends at the time the goods

are released or )ithdra)n from the c!stomho!se !"on






7, C,%/ervai-i%g d/ie+ are s"ecial d!ties im"osed

$ the ecretar$ of Iinance !"on "rior in(estigation

and re"ort of the Tariff ommission to offset an

e#cise or inland re(en!e ta# !"on articles of the

same class man!fact!red at home or s!sidies to

foreign "rod!cers or man!fact!rers $ their

res"ecti(e go(ernments.

8, Mari%g d/ie+ are s"ecial d!ties eF!i(alent to 5

ad (alorem im"osed on articles not "ro"erl$ mar/ed. These are collected $ the

ommissioner of !stoms e#ce"t )hen the

im"ro"erl$ mar/ed articles are e#"orted or

destro$ed !nder c!stoms s!"er(ision and "rior

to final liF!idation of the corres"onding entr$.

These d!ties are designed to "re(ent "ossile

dece"tion of the c!stomers.

9, Di+cri5i%a/,r0 d/ie+ are s"ecial d!ties

collected in an amo!nt not e#ceeding 100

ad (alorem im"osed $ the resident of the

hili""ines against goods of a foreign co!ntr$

)hich discriminates against hili""inecommerce or against goods coming from

the hili""ines and shi""ed to a foreign

co!ntr$.

!ustoms: Jin&s of !ustom 'uties (199,)

#"lain riefl$ each of the s"ecial c!stomsd!ties a!thoried !nder the Tariff and !stoms ode.SUGGESTED ANSWER

The follo)ing are the S*ecia- D/ie+ im"osed !nder theTariff and !stoms ode*+a, D5*i%g D/0 This is a d!t$ le(ied on im"orted

goods )here it a""ears that a s"ecific /ind or class

of foreign article is eing im"orted into or sold

or is li/el$ to e sold in the hili""ines at a "rice

less than its fair (al!eE

+, C,%/ervai-i%g D/0 This is a d!t$ eF!al to

the ascertained or estimated amo!nt of the

s!sid$ or o!nt$ or s!(ention granted $ the

foreign co!ntr$ on the "rod!ction man!fact!re or

e#"ortation into the hili""ines of an$ article

li/el$ to in!re an ind!str$ in the hili""ines or

retard or considerale retard the estalishment of

s!ch ind!str$E

+c, Mari%g D/0 This is a d!t$ on an ad (alorem

asis im"osed for im"ro"erl$ mar/ed articles. Thela) reF!ires that foreign im"ortations m!st e

mar/ed in an$ official lang!age of the hili""ines the

name of the co!ntr$ of origin of the articleE

+d, Di+cri5i%a/,r0 ,r Re/a-ia/,r0 D/0 This is a d!t$

im"osed on im"orted goods )hene(er it is fo!nd as

a fact that the co!ntr$ of origin discriminatesagainst the commerce of the hili""ines in s!ch a

manner as to "lace the commerce of the

hili""ines at a disad(antage com"ared )ith

the commerce of an$ foreign co!ntr$.

!ustoms: 8eme&ies of an Importer (1996)

isc!ss riefl$ the remedies of an im"orter d!ringthe "endenc$ of sei!re "roceedings.



[email protected] 1 of 73SUGGESTED ANSWER

!ring the "endenc$ of sei!re "roceedings theim"orter ma$ sec!re the release of the im"orted "ro"ert$ for legitimate !se $ "osting a ond in anamo!nt to e fi#ed $ the ollector conditionedfor the "a$ment of the a""raised (al!e of thearticle andMor an$ fine e#"enses and costs )hichma$ e ad!dged in the caseE provided that articles

the importation of which is prohibited by law

shall not be released under bond.

The im"orter ma$ also offer to "a$ to the collector afine im"osed $ him !"on the "ro"ert$ to sec!re itsrelease or in case of forfeit!re the im"orter shall offerto "a$ for the domestic mar/et (al!e of the seiedarticle )hich offer s!ect to the a""ro(al of theommissioner ma$ e acce"ted $ the ollector insettlement of the sei!re case e#ce"t )hen there isfra!d. G"on "a$ment of the fine or domestic mar/et(al!e the "ro"ert$ shall e forth)ith released andall liailities )hich ma$ or might attach to the "ro"ert$ $ (irt!e of the offense )hich )as the

occasion of the sei!re and all liailit$ )hichmight ha(e een inc!rred !nder an$ ond gi(en $the im"orter in res"ect to s!ch "ro"ert$ shallthere!"on e deemed to e discharged.

!ustoms: 8eturning 8esi&ents: TouristETrae"ers (24)

B and his )ife < Iili"inos li(ing in the hili""ines)ent on a threemonth "leas!re tri" aro!nd the)orld d!ring the months of K!ne K!l$ and A!g!st2002. -n the co!rse of their tri" the$ acc!m!latedsome "ersonal effects )hich )ere necessar$a""ro"riate and normall$ !sed in leis!re tri"s as)ell as so!(enirs in noncommercial F!antities.Are the$ %ret!rning residents% for "!r"oses of ection105 of the Tariff and !stoms ode& #"lain.+8,SUGGESTED ANSWER

=o. The term %ret!rning residents% refers to nationals

)ho ha(e sta$ed in a foreign co!ntr$ for a "eriod

of at least si# +6, months. (,ection %(f) of the Tariff

and !ustoms !ode). !e to their limited d!ration of sta$

aroad B and < are not considered as %ret!rning

residents% !t the$ are merel$ considered as tra(elers

or to!rists )ho eno$ the enefit of conditionall$ free

im"ortation.Note: !redit must li>ewise be given if thecandidate answered in the affirmative

considering that travelers or tourists are giventhe same tax treatment as that of returningresidents treating their personal effects notin commercial 7uantities as conditionally

free importation.@

!ustoms: Sei?ure ; Forfeiture: ffects (199*)

-n sm!ggling a shi"ment of garlic the sm!gglers !sedan eight)heeler tr!c/ )hich the$ hired for the "!r"ose of ta/ing o!t the shi"ment from the c!stomsone. ann$ the tr!c/ o)ner did not ha(e acertificate of "!lic con(enience to o"erate histr!c/ing !siness. ann$ did not /no) that the

shi"ment of garlic )as illegall$ im"orted.an the ollector of !stoms of the "ort seie andforfeit the tr!c/ as an instr!ment in the sm!ggling&SUGGESTED ANSWER

<es the ollector of !stoms of the "ort can seie andforfeit the tr!c/ as an instr!ment in the sm!gglingacti(it$ since the same )as !sed !nla)f!ll$ in theim"ortation of




sm!ggled articles. The mere carr$ing of s!charticles on oard the tr!c/ +in commercialF!antities, shall s!ect the tr!c/ to forfeit!re sinceit )as not eing !sed as a d!l$ a!thoried commoncarrier )hich )as chartered or leased as s!ch. +ec.2530 OaP T,

?oreo(er altho!gh forfeit!re of the (ehicle )ill not

e effected if it is estalished that the o)ner thereof had

no /no)ledge of or "artici"ation in the !nla)f!l actthere arises a prima facie "res!m"tion or

/no)ledge or "artici"ation if the o)ner is not in the

!siness for )hich the con(e$ance is generall$ !sed.

Th!s not ha(ing a certificate of "!lic con(enience to

o"erate a tr!c/ing !siness he is legall$ deemed not to

ha(e een engaged in the tr!c/ing !siness. (,ec. &5%

Tariff and !ustoms !ode)

!ustoms: Steps ino"ing Protest !ases (199*)

The ollector of !stoms instit!ted sei!re

"roceedings against a shi"ment of motor (ehicles for

ha(ing een misdeclared as secondhand (ehicles. tate

the "roced!re for the re(ie) of the decision !" to the!"reme o!rt of the ollector of !stoms ad(erse to the

im"orter.SUGGESTED ANSWER

The "roced!re in sei!re cases ma$ e s!mmariedas follo)s*+a, The collector iss!es a )arrant for the detention

or forfeit!re of the im"orted articlesE +ec. 2301Tariff and !stoms ode,

+, The ollector gi(es the im"orter a )ritten notice ofthe sei!re and fi#es a hearing date to gi(e theim"orter an o""ort!nit$ to e heardE +ec.2303 T,

+c, A formal hearing is cond!ctedE +ec. 2312 T,+d, The ollector renders a declaration of

forfeit!reE +ec. 2312 T,+e, The -m"orter aggrie(ed $ the action of

the ollector in an$ case of sei!re ma$a""eal to the ommissioner for his re(ie) )ithinfifteen +15, da$s from )ritten notice of theollectorDs decisionE +ec. 2313 T,

+f, The im"orter aggrie(ed $ the action or r!ling ofthe ommissioner in an$ case of sei!re ma$a""eal to the o!rt of Ta# A""ealsE +ec. 2402T,

+g, The im"orter ad(ersel$ affected $ the decision

of the o!rt of Ta# A""eals +i(ision, ma$

a""eal to the o!rt of Ta# A""eals +en anc,)ithin fifteen

+15,da$s )hich ma$ e e#tended for anotherfifteen

+15,da$s or s!ch "eriod as the o!rt of Ta#

A""eals ma$ decide.

!ustoms$ Basis of 'utia+"e Ca"ue$ Importe& Artic"e (2)

tate and e#"lain the asis of d!tiale (al!e ofan im"orted article s!ect to an ad (alorem ta#!nder the Tariff and !stoms ode.ALTERNATIE ANSWER

The asis of d!tiale (al!e of an im"orted article s!ect to

an ad valorem tax !nder the Tariff and !stoms ode is its

TA=AT-'= ;A:G. +,ec. &%A@ Tariff and

!ustoms !ode as amended by $.A. No. *%5) -f s!ch

(al!e co!ld not e determined then the follo)ing (al!es are

to e !tilied in their seF!ence* Tra%+ac/i,% va-e

,1 ide%/ica- g,,d+ (,ec. &%3@) Tra%+ac/i,% va-e ,1



[email protected] 2 of 73+i5i-ar g,,d+ (,ec.

&%!@) Dedc/ive va-e

(,ec. 66.4.% !A.C. No. "-&") C,5*/ed va-e

+,ec. 66.<.l !.A.C. No. %-&", and Fa--6ac

va-e. +,ec. &%<@,ALTERNATIE ANSWER

The asis of d!tiale (al!e of an im"orted articles!ect to an ad (alorem ta# !nder the Tariff and!stoms ode is its transaction (al!e )hich shall

e the "rice act!all$ "aid or "a$ale for the goods)hen sold for e#"ort to the hili""ines ad!sted $adding certain cost elements to the e#tent that the$are inc!rred $ the !$er !t are not incl!ded in the "rice act!all$ "aid or "a$ale for the im"ortedgoods. (,ec. &%A@ Tariff and !ustoms !ode as

amended by $.A. *%5)

-f s!ch (al!e co!ld not e determined then the follo)ing

(al!es are to e !tilied in their seF!ence*

Transaction (al!e of identical goods +ec. 201OCP,E

Transaction (al!e of similar goods +ec. 201OP,E

ed!cti(e (al!e +ec. --..1 A.'. =o. 42004,E

om"!ted (al!e +ec. --.I.l .A.'. =o. 120040, andIallac/ (al!e. +ec. 201OIP,

!ustoms$ !ounterai"ing 'uty s 'umping 'uty (2)

isting!ish co!nter(ailing d!t$ from d!m"ing d!t$.+5,SUGGESTED ANSWER

The distinctions et)een co!nter(ailing d!t$and d!m"ing d!t$ are the follo)ing*+1, Casis* The co!nter(ailing d!t$ is im"osed)hene(er there is granted !"on the im"orted article $ the co!ntr$ of origin a s"ecific s!sid$ !"onits "rod!ction man!fact!re or e#"ortation andthis res!lts or threatens in!r$ to local ind!str$

)hile the asis for the im"osition of d!m"ing d!t$ isthe im"ortation and sale of im"orted items at elo)their normal (al!e ca!sing or li/el$ to ca!sein!r$ to local ind!str$.+2, Amo!nt* The co!nter(ailing d!t$ im"osedis eF!i(alent to the (al!e of the s"ecific s!sid$

)hile the d!m"ing d!t$ is eF!i(alent to themargin of d!m"ing )hich is eF!al to the difference

et)een the e#"ort "rice to the hili""ines and thenormal (al!e of the im"orted article.

!ustoms$ Taxa+i"ity$ Persona" ffects (2)

Kaco after ser(ing a 5$ear to!r of d!t$ as

militar$ attache in Ka/arta ret!rned to thehili""ines ringing )ith him his "ersonaleffects incl!ding a "ersonal com"!ter and a car.Wo!ld Kaco e liale for ta#es on these items&isc!ss f!ll$. +5,SUGGESTED ANSWER

=o Kaco is not liale for ta#es on his "ersonalcom"!ter and the car eca!se he is ta#e#em"t $la). e has met the follo)ing reF!irements fore#em"tion !nder .. =o. 922 +1976,*a, e )as a militar$ attache assigned to Ka/artaE , e has ser(ed aroad for not less than t)o +2,

$earsEc, e is ret!rning to the hili""ines after ser(inghis to!r of d!t$E andd, e has not a(ailed of the ta# e#em"tion for the

"ast fo!r +4, $ears.

e is entitled to ta# e#em"tion on his "ersonal and

ho!sehold effects incl!ding a carE "ro(ided




a, The car m!st ha(e een ordered or "!rchased "riorto the recei"t $ the hili""ine mission or cons!latein Ka/arta of KacoDs recall orderE

, the car is registered in KacoDs nameEc, the e#em"tion shall a""l$ to the (al!e of the carEd, the e#em"tion shall a""l$ to the aggregate

(al!e of his "ersonal and ho!sehold effects+incl!ding the "ersonal com"!ter, not e#ceedingthirt$ "er cent!m +30, of the total amo!nt

recei(ed $ Kaco as salar$ and allo)ances d!ringhis assignment in Ka/arta !t not to e#ceed fo!r+4, $earsE

e, Kaco m!st not ha(e a(ailed of the e#em"tion more

oftener than one e(er$ fo!r $ears. + ?ast par. ,ec.

% Tariff and !ustoms !ode,

OT/ER RELATED MATTERSBI8: Ban 'eposits Secrecy Cio"ation (2)A ta#"a$er is s!s"ected not to ha(e declared hiscorrect gross income in his ret!rn filed for 1997.The e#aminer reF!ested the ommissioner toa!thorie him to inF!ire into the an/ de"osits ofthe ta#"a$er so that he co!ld "roceed )ith the net)orth method of in(estigation to estalish fra!d.?a$ the e#aminer e allo)ed to loo/ into theta#"a$erDs an/ de"osits& -n )hat cases ma$ theommissioner or his d!l$ a!thoried re"resentati(e e allo)ed to inF!ire or loo/ into the an/de"osits of a ta#"a$er& +5,SUGGESTED ANSWER

=o. as this )o!ld e (iolati(e of e"!lic Act =o.1405 the Can/ e"osits ecrec$ :a).The ommissioner of -nternal e(en!e or hisd!l$ a!thoried re"resentati(e ma$ e allo)ed toi i l / i t th / d it f t i

[email protected] + of 73c, Where the ta#"a$er has signed a )ai(er

a!thoriing the ommissioner or his d!l$a!thoried re"resentati(es to -nF!ire into the an/ de"osits.

BI8: Secrecy of Ban 'eposit /a (24)

B dies in $ear 2000 lea(ing a an/ de"osit of

2000000.00 !nder oint acco!nt )ith his associates in a

la) office. :earning of BDs death from the

ne)s"a"ers the ommissioner of -nternal e(en!e

)rote to e(er$ an/ in the co!ntr$ as/ing them todisclose to him the amo!nt of de"osits that might e

o!tstanding in his name or ointl$ )ith others at the

date of his death. ?a$ the an/ holding the de"osit

ref!se to com"l$ on the gro!nd of the ecrec$ of Can/

e"osit :a)& #"lain. +8,SUGGESTED ANSWER

=o. The ommissioner of -nternal e(en!e has thea!thorit$ to inF!ire into an/ de"osit acco!nts of adecedent to determine his gross estatenot)ithstanding the "ro(isions of the Can/ ecrec$:a). ence the an/s holding the de"osits inF!estion ma$ not ref!se to disclose the amo!nt of

de"osits on the gro!nd of secrec$ of an/ de"osits.+ection 6+I, of the 1997 Ta# ode,. The fact thatthe de"osit is a oint acco!nt )ill not "recl!de theommissioner from inF!iring thereon eca!se thela) mandates that if a an/ has /no)ledge of the deathof a "erson )ho maintained a an/ de"ositacco!nt alone or ointl$ )ith another it shall notallo) an$ )ithdra)al from the said de"osit acco!nt!nless the ommissioner has certified that theta#es im"osed thereon ha(e een "aid. +ection 97of the 1997 Ta# ode,. ence to e ale to gi(e thereF!ired certification the incl!sion of the de"osit isim"erati(e )hich ma$ e made "ossile onl$

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