I.

In 2009, Caruso, a resident Filipino citizen, received dividend income from a U.S.-based corporation
which owns a chain of Filipino restaurants in the West Coast, U.S.A. The dividend remitted to Caruso is
subject to U.S. withholding tax with respect to a non-resident alien like Caruso.
a. What will be your advice to Caruso in order to lessen the impact of possible double taxation on
the same income? (3%)
b. Would your answer in A. be the same if Caruso became a U.S. immigrant in 2008 and had
become a non-resident Filipino citizen? Explain the difference in treatment for Philippine income
tax purposes. (3%)
II.
A is a travelling salesman working full time for Nu Skin Products. He receives a monthly salary plus 3%
commission on his sales in a Southern province where he is based. He regularly uses his own car to
maximize his visits even to far flung areas. One fine day a group of militants seized his car. He was
notified the following day by the police that the marines and the militants had a bloody encounter and his
car was completely destroyed after a grenade hit it.
A wants to file a claim for casualty loss. Explain the legal basis of your tax advice. (3%)
III.
A inherited a two-storey building in Makati from his father, a real estate broker in the 60s. A group of
Tibetan monks approached A and offered to lease the building in order to use it as a venue for their
Buddhist rituals and ceremonies. A accepted the rental of P1 million for the whole year.
The following year, the City Assessor issued an assessment against A for non-payment of real property
taxes.
Is the assessor justified in assessing As deficiency real property taxes? Explain. (5%)
IV.
Are the following transactions subject to VAT? If yes, what is the applicable rate for each transaction.
State the relevant authority/ies for your answer.
a. Construction by XYZ Construction Co. of concrete barriers for the Asian Development Bank in
Ortigas Center to prevent car bombs from ramming the ADB gates along ADB Avenue in
Mandaluyong City. (3%)
b. Call Center operated by a domestic enterprise in Makati that handles exclusively the reservations
of a hotel chain which are all located in North America. The services are paid for in US$ and duly
accounted for with the Bangko Sentral ng Pilipinas. (3%)
c. Sale of orchids by a flower shop which raises its flowers in Tagaytay. (3%)
V.
On May 15, 2009, La Manga Trading Corporation received a deficiency business tax assessment of
P1,500,000.00 from the Pasay City Treasurer. On June 30, 2009, the corporation contested the
assessment by filing a written protest with the City Treasurer.
On October 10, 2009, the corporation received a collection letter from the City Treasurer, drawing it to file
on October 25, 2009 an appeal against the assessment before the Pasay Regional Trial Court (RTC).
a. Was the protest of the corporation filed on time? Explain. (4%)
b. Was the appeal with the Pasay RTC filed on time? Explain. (4%)
VI.
Josel agreed to sell his condominium unit to Jess for P2.5 Million. At the time of the sale, the property
had a zonal value of P2.0 Million. Upon the advice of a tax consultant, the parties agreed to execute
two deeds of sale, one indicating the zonal value of P2.0 Million as the selling price and the other
showing the true selling price of P2.5 Million. The tax consultant filed the capital gains tax return using
the deed of sale showing the zonal value of P2.0 Million as the selling price.

Discuss the tax implications and consequences of the action taken by the parties. (6%)
VII.
Company A decides to close its operations due to continuing losses and to terminate the services of
its employees. Under the Labor Code, employees who are separated from service for such cause are
entitled to a minimum of one-half month pay for every year of service. Company A paid the equivalent
of one month pay for every year of service and the cash equivalent of unused vacation and sick
leaves as separation benefits.

Are such benefits taxable and subject to withholding tax under the Tax Code?

Decide with reasons. (6%)
VIII.
JR was a passenger of an airline that crashed. He survived the accident but sustained serious
physical injuries which required hospitalization for 3 months. Following negotiations with the airline
and its insurer, an agreement was reached under the terms of which JR was paid the following
amounts: P500,000.00 for his hospitalization; P250,000.00 as moral damages; and P300,000.00 for
loss of income during the period of his treatment and recuperation. In addition, JR received from his
employer the amount of P200,000.00 representing the cash equivalent of his earned vacation and
sick leaves.

Which, if any, of the amounts he received are subject to income tax? Explain. (6%)
IX.
Danilo, who is engaged in the trading business, entrusted to his accountant the preparation of his
income tax return and the payment of the tax due. The accountant filed a falsified tax return by
underdeclaring the sales and overstating the expense deductions by Danilo.

Is Danilo liable for the deficiency tax and the penalties thereon? (3%)

What is the liability, if any, of the accountant? Discuss. (5%)


X.
A taxpayer received a tax deficiency assessment of P1.2 Million from the BIR demanding payment
within 10 days, otherwise, it would collect through summary remedies. The taxpayer requested for a
reconsideration stating the grounds therefor. Instead of resolving the request for reconsideration, the
BIR sent a Final Notice Before Seizure to the taxpayer. May this action of the Commissioner of
Internal Revenue be deemed a denial of the request for reconsideration of the taxpayer to entitle him
to appeal to the Court of Tax Appeals?

Decide with reasons. (6%)
XI.
In its final adjustment return for the 2010 taxable year, ABC Corp. had excess tax credits arising from its
over-withholding of income payments. It opted to carry over the excess tax credits to the following year.
Subsequently, ABC Corp. changed its mind and applied for a refund of the excess tax credits.
Will the claim for refund prosper? (8%)
XII.
(a) Discuss the meaning of the Global and Schedular systems of taxation. (4%)

(b) To which system would you say that the method of taxation under the National Internal Revenue Code
belongs? (4%)

XIII.
A bachelor was employed by Corporation A on the first working day of January 1996 on a part-time basis
with a salary of P3,500.00 a month. He then received the 13th month pay. In September 1996, he
accepted another part-time job from Corporation B from which he received a total compensation of
P14,500.00 for the year 1996. The correct total taxes were withheld from both earnings.

With the withholding taxes already paid, would he still be required to file an income tax return for his 1996
income? (8%)
XIV.
A corporation, engaged in real estate development, executed deeds of sale on various subdivided lots.
One buyer, after going around the subdivision, bought a corner lot with a good view of the surrounding
terrain. He paid P1.2 million, and the title to the property was issued. A year later, the value of the lot
appreciated to a market value of P1.6 million, and the buyer decided to build his house thereon. Upon
inspection, however, he discovered that a huge tower antennae had been erected on the lot frontage
totally blocking his view. When he complained, the realty company exchanged his lot with another corner
lot with an equal area but affording a better view. (8%)



XV.
ABC Corporation won a tax refund case for P50 Million. Upon execution of the judgement and when
trying to get the tax Credit Certificates (TCC) representing the refund, the Bureau of Internal Revenue
(BIR) refused to issue the TCC on the basis of the fact that the corporation is under audit by the BIR and
it has a potential tax liability. Is there a valid justification for the BIR to withhold the issuance of the TCC?
Explain your answer briefly (8%)