I

TOPIC:

Value-Added Tax (2014 Bar Question)

Kain Tayo Dito, Inc. (KTDI) is a Value-Added Tax (VAT)-registered

company which has been engaged in the catering business for the
past 10 years. It has invested a substantial portion of its capital
on flat wares, table linens, plates, chairs, catering equipment, and
delivery vans. KTDI sold its first delivery van, already 10 years old
and idle, to BiliAtBenta Corp. (BABC), a corporation engaged in
the business of buying and selling gravel and sand. The selling
price of the delivery van was way below its acquisition cost. Is the
sale of the delivery van by KTDI to BABC subject to VAT?
Suggested Answer
YES. The sale of the delivery van is subject to VAT being a
transaction incidental to the catering business which is a VATregistered activity of KTDI. Transactions that are undertaken
incidental to the pursuit of a commercial or economic activity are
considered as entered into in the course of trade or business
(Section 105, NIRC). A sale of a fully depreciated vehicle that has
been used in business is subject to VAT as an incidental
transaction, although such sale may be considered isolated
(Mindanao II Geothermal Partnership v. CIR)
INCIDENTAL TRANSACTION TO MAIN BUSINESS, TAXABLE
II
TOPIC:

Capital Gains Tax (2014 Bar Question)

Napoles Corporation obtained a loan from PIDAP Bank and

executed a mortgage on its real property to secure the loan.
When Napoles Corporation failed to pay the loan, PIDAP Bank
extrajudicially foreclosed the mortgage on the property and
acquired the same as the highest bidder. A month after the
foreclosure, Napoles Corporation exercised its right of redemption

and was able to redeem the property. Is PIDAP Bank liable to pay
capital gains tax as a result of the foreclosure sale? Explain.
Suggested Answer
NO. In a foreclosure of a real estate mortgage, the capital gains
tax accrues only after the lapse of the redemption period because
it is only then that there exists a transfer of property. Thus, if the
right to redeem the foreclosed property was exercised by the
mortgagor before expiration of the redemption period, as in the
case, the foreclosure is not a taxable event (RR No. 4-99;
Supreme Transliner, Inc. v. BPI Family Savings Bank, Inc.).
TAXABLE ONLY IF PERIOD OF REDEMPTION EXPIRED ALREADY

III
TOPIC:

Local Taxation / Tax Remedies (2014 Bar Question)

Gina Lao owns real property in Makati City. On July 1, 2014, she
received a notice of assessment from the City Assessor, informing
her of a deficiency tax on her property. She wants to contest the
assessment.
(A) What are the administrative remedies available to
Madam X in order to contest the assessment and their respective
prescriptive periods?
(B)
May Madam X refuse to pay the deficiency tax
assessment during the pendency of her appeal?
Suggested Answer

(A) The administrative remedies available to Gina Lao to

contest the assessment and their respective prescriptive
periods are as follows:
1. Pay the deficiency real property tax under protest
(Section 252, LGC);
2. File the protest in writing with the local treasurer
within thirty (30) days from payment of the tax. The
protest shall be decided within sixty (60) days from
receipt thereof (Sec. 252, LGC);
3. In case of denial of the protest or upon lapse of the
60-day period, the taxpayer may appeal to the Local
Board of Assessment Appeals within 60 days. The
LBAA has 120 days to decide the case (Section 226 &
229, LGC);
4. If unsatisfied with the decision of the LBAA, the
taxpayer may appeal to the Central Board of
Assessment Appeals within 30 days from receipt of
the decision. The decision of the CBAA shall be final
and executory (Section 229, LGC).
(B) NO. The payment of the deficiency tax is a condition
sine qua non for filing the protest of the deficiency
assessment. It is the decision on the protest or inaction
thereon that gives her the right to appeal. (Section 252,
LGC).

IV
TOPIC:

Tax Remedies (2013Bar Question)

In 2014, pursuant to a Letter of Authority (LA) issued by the

Regional Director, YayaDub Corp. was assessed for deficiency
income taxes by the BIR for the year 2012. He paid the deficiency.
In 2015, YayaDub Corp. received another LA for the same year
2012, this time from the National Investigation Division, on the
ground that YayaDubs 2012 tax return was fraudulent.

YayaDub Corp. contested the LA received in 2015 on the ground

that it can only be investigated once in a taxable year. Decide.
Suggested Answer
The contention of YayaDub Corp is untenable. While the general
rule is that a taxpayer may be subjected to examination and
inspection by internal revenue officers only once in a taxable
year, this will not apply if there is fraud, irregularity, or mistakes
as determined by the Commissioner of Internal Revenue. In the
instant case, the second examination was triggered by the
findings of the BIR that YayaDubs 2012 return was fraudulent.
Accordingly, the examination is legally justified (Section 235,
NIRC).

V
TOPIC:

Income Taxation (2013Bar Question)

Atty. Tapat is a partner in Tapat Nah Poe & Associates, a general

professional partnership (GPP) engaged in the practice of the
legal profession. The partnership computes its gross revenues,
claims deductions allowed under the Tax Code, and distributes the
net income to the partners, including Atty. Tapat, in accordance
with its articles of partnership.
In filing his own income tax return, Atty. Tapat claimed deductions
that the partnership did not claim, such as purchase of law books,
entertainment expenses, car insurance and car depreciation. The
BIR disallowed the deductions.
Was the BIR correct?
Suggested Answer

NO. The BIR erroneously disallowed the deductions claimed by

Atty. Tapat. The share of a partner in the net income of the GPP
must be reported by him as part of his gross income from the
practice of his profession and he is allowed to claim further
deductions which are reasonable, ordinary and necessary in the
practice of the profession and were not claimed by the
partnership in computing its net income (Section 26, NIRC; RR 162008; RR 2-2010).

VI
TOPIC:

Tax Remedies(Original Question)

X Company was unable to file its income tax return for the taxable
year 2010. In 2012, the Bureau of Internal Revenue instituted an
action against X Company in court for the collection of unpaid
taxes for the taxable year 2010. X Company sought the dismissal
of the action on the ground that there was no assessment made
by the BIR prior to the institution of the court action. Decide.
Suggested Answer
The contention of X Company is untenable. Pursuant to Section
222 (a) of the NIRC:
In the case of a false or fraudulent return with intent to
evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of
such tax may be filed without assessment, at any time

within ten (10) years after the discovery of the falsity, fraud
or omission: Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action
for the collection thereof.(Emphasis supplied)

VII
TOPIC:

Income Taxation (Original Question)

Pastillas Corp. was assessed by the BIR for deficiency tax relating
to the withholding taxes on compensation of its employees for the
taxable year 2014. The findings of the BIR revealed that during
2014, Pastillas Corp. gave 13 th month pay and other benefits to its
employees amounting to P60,000. However, Pastillas Corp.
excluded the entire amount in the computation of their
employees gross income and did not apply the P30,000 ceiling
for exclusion provided under Section 32 of the NIRC. Pastillas paid
the deficiency tax assessment.
The BIR again made an assessment for the taxable year 2015
against Pastillas Corp. for the same issue and using the same
legal basis. Is the BIR correct?
Suggested Answer
NO. The BIR is not correct. R.A. No. 10653, which became
effective in March 2015, amended the ceiling for the exclusion of
13th month pay and other benefits under Section 32(B)(7)(e)(iv),
NIRC, to wit:
Gross benefits received by officials and employees of public
and private entities: Provided, however, That the total
exclusion under this subparagraph shall not exceed eightytwo thousand pesos (P82,000) xxx (Emphasis
supplied)

In 2014, the ceiling was only P30,000 which makes the

assessment correct. However, the amendment in 2015 increased
the ceiling and covered the entire amount of the 13 th month pay
and other benefits making the BIR assessment erroneous.
Revenue Regulation No. 3-2015 also clarified that the amended
ceiling shall apply to the 13th month pay and other benefits paid
or accrued beginning January 1, 2015.

VIII
TOPIC:

Local Taxation (2013 Bar Question)

Ms. Labajoleased a piece of land owned by the Municipality of

Tralala and built a warehouse on the property for her business
operations. The Municipal Assessor assessed Ms. Labajo for real
property taxes on the land and the warehouse. Ms. Labajo
objected to the assessment, contending that she should not be
asked to pay realty taxes on the land since it is municipal
property.
Was the assessment proper?
Suggested Answer
YES. The assessment is proper. The land, although owned by the
Municipality, is not exempt from real property tax because the
beneficial use has been granted to a taxable person (Section
234(a), LGC).
BENEFICIAL USE GRANTED
IX
TOPIC:

Tax Remedies (Original Question)

What are the cases wherein the issuance of a preassessment

notice (PAN) is not required?

Suggested Answer
Pursuant to the NIRC, the following are the cases:
Section 228. Protesting of Assessment. - When the
Commissioner or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify the
taxpayer of his findings: provided, however, That a
preassessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result
of mathematical error in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been determined between
the tax withheld and the amount actually remitted by
the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a taxable
period was determined to have carried over and
automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or
quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has
not been paid; or
(e) When the article locally purchased or imported by
an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has
been sold, traded or transferred to non-exempt persons.

TOPIC:

Income Taxation (2012 Bar Question)

Competitive Banking Corporation, which was organized in 2000

and existing under the laws of the Philippines and owned by the
Snob Family of Manila City, set up in 2010 a branch office in
Shanghai City, China, to take advantage of the presence of many
Filipino workers in that area and its booming economy. During the
year, the bankmanagement decided not to include the P20 Million
net income of the Shanghai Branch in the annual Philippine
income tax return filed with the BIR, which showed a net taxable
income of P30 Million, because the Shanghai Branch is treated as
a foreign corporation and is taxed only on income from sources
within the Philippines, and since the loan and other business
transactions were done in Shanghai, these incomes are not
taxable in the Philippines.
(A) Is the bank correct in excluding the net income of its
Shanghai Branch in the computation of its annual corporate
income tax for 2010? Explain your answer.
(B) Should the Shanghai Branch of Anchor Bank remit profit
to its Head Office in the Philippines in 2011, is the branch
liable to the 15% branch profit remittance tax imposed under
Section 28 (A)(5) of the 1997 Tax Code? Explain your answer.
Suggested Answer
(A) NO. A domestic corporation is taxable on all income
derived from sources within and without the Philippines
(Section 23, NIRC). The income of the foreign branch and
that of the Home Office will be summed up for income tax
purposes following the single entity concept and will all
be included in the gross income of the domestic
corporation in the annual Philippine income tax return.
(B) NO. The branch profit remittance tax is imposed only on
remittances by branches of Foreign Corporation in the

Philippines to their Home Office abroad. It is the outbound

branch profits that is subject to the tax, not the inbound
profits (Section 28 (A)(5), NIRC)
XI
TOPIC:

Tax Remedies (Original Question)

What is a jeopardy assessment and its relation to the taxpayers

availment of compromise settlement pursuant to Section 204(A)
of the NIRC?
Suggested Answer
A jeopardy assessment shall refer to a tax assessment which was
assessed without the benefit of complete or partial audit by an
authorized revenue officer, who has reason to believe that the
assessment and collection of deficiency tax will be jeopardized by
delay because of the taxpayers failure to comply with the audit
and investigation requirements to present his books of accounts
and/or pertinent records, or to substantiate all or any of the
deductions, exemptions or credits claimed in his return (R.M.C.
No. 34-2014).
A taxpayer may avail of compromise settlement only under two
grounds pursuant to Section 204(A) of the NIRC, namely:
financial incapacity and doubtful validity of the assessment.
The existence of a jeopardy assessment may give rise to the
second ground.

XII
TOPIC:

Tax Remedies (Original Question)

During the first quarter of 2015, Elizaga Happy Products, Inc., a

company duly organized under the laws of the Philippines and
engaged in VAT zero-rated sales, sought your services as a tax

lawyer. The company is an exporter and, by virtue of its zerorated transactions, has excess input VAT amounting to
P20,000,000. The company also disclosed that it was assessed by
the BIR for delinquent taxes amounting to P1,500,000 the year
before and that it is planning to expand its operations abroad.
(A) They want to know how and when they can institute an
administrative and/or judicial claim for the refund of its
excess input VAT. What would be your advice?
(B) Would your advice be the same if, instead of claiming a
refund for excess input VAT, the claim for refund is based
on wrongful collection of taxes?
Suggested Answer
(A) Since Elizaga Happy Products, Inc. is a taxpayer who is
engaged in zero-rated sales, the provisions of Section 112
(a), NIRC would be applicable. The case of CIR v San
Roque Power Corporation shed light on the application of
the said provision:
Section 112(a) and (a) must be interpreted according to
its clear, plain, and unequivocal language. The
taxpayer can file his administrative claim for
refund or credit at anytime within the two year
prescriptive period. If he files his claim on the
last day of the two-year prescriptive period, his
claim is still filed on time. The Commissioner will
have 120 days from such filing to decide the
claim. If the Commissioner decides the claim on
the 120th day, or does not decide it on that day,
the taxpayer still has 30 days to file his judicial
claim with the CTA. This is not only the plain meaning
but also the only logical interpretation of Section 112(a)
and (c).

Pursuant to Section 112 (a), NIRC, the two year period

shall commence after the close of the taxable quarter
when the sales were made.
(B) NO. The provisions of Section 112, NIRC applies only for
excess input VAT by reason of an entitys zero-rated sales.
The input VAT covered under that section is the correct
and proper amount. It contemplates a situation where the
input VAT available as credit exceeds the output VAT
payable.Since the basis of the claim for refund is wrongful
collection of taxes, Section 229, NIRC and not Section 112,
NIRC would be applied.
According to Section 229, NIRC:
no suit or proceeding shall be maintained in any court
for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have
been collected without authority, of any sum alleged to
have been excessively or in any manner wrongfully
collected without authority, or of any sum alleged to
have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or
duress.
In any case, no such suit or proceeding shall be filed
after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any
supervening cause that may arise after payment:
Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any
tax, where on the face of the return upon which

payment was made, such payment appears clearly to

have been erroneously paid.
It means that both administrative and judicial claim must
be filed within the two (2) year period.

XIII
TOPIC:

Tax Remedies (2012 Bar Question)

What are the differences between a Request for Reconsideration

and a Request for Reinvestigation?
Suggested Answer
A Request for
assessment on
presentation of
period to collect

Reconsideration is a plea for evaluation of

the basis of existing records without need of
additional evidence. It does not suspend the
the deficiency tax.

A Request for Reinvestigation is a plea for evaluation on the basis

of newly discovered evidence which are to be introduced for
examination for the first time. It suspends the prescriptive period.

XIV
TOPIC:

Income Taxation(2012 Bar Question)

Ms. Marianne Reginaldo is a resident Filipino Citizen. She

purchased a parcel of land in Makati City in 1970 at a
consideration of P1 Million. In 2011, the land, which remained
undeveloped and idle, had a fair market value of P20Million. Mr.

Kim Villanueva, another Filipino citizen, is very much interested in

the property and he offered to buy the same for P20 Million. The
Assessor of Makati City re-assessed in 2011 the property at P10
Million.
Is Ms. Reginaldo liable for income tax in 2011 based on the offer
to buy by Mr. Villanueva? Explain your answer.
Suggested Answer
NO. Ms. Reginaldois not liable for income tax in 2011 because no
income is realized by him during that year. Tax liability for income
tax attaches only if there is a gain realized resulting from a closed
and completed transaction (Madrigal v. Rafferty)

XV
TOPIC:

Estate Tax (2010 Bar Question)

Don Rogelio, single but head of the family, Filipino, and resident of
Pasig City, died intestate on November 15, 2009. He left the
following properties and interests:
House and lot (family home)
in Pasig

P 800,000

Vacation house and lot in

Florida, USA

1,500,000

Agricultural land in Naic,

Cavite which he inherited
from his father
Car which is being used by
his brother in Cavite
Proceeds of life insurance
where he named his estate

2,000,000

500,000
1,000,000

as irrevocable beneficiary
Household
appliances

furnitures

and
1,000,000

Claims against a cousin who

has assets of P10,000 and
liabilities of P100,000

100,000

Shares of stock in ABC Corp,

a domestic enterprise

100,000

The expenses and charges on the estate

are as follows:
Funeral Expenses

P 250,000

Legal fees for the settlement

of the estate

500,000

Medical
illness

600,000

expenses

of

last

Claims against the estate

300,000
The compulsory heirs of Don Rogelio approach you and seek your
assistance in the settlement of his estate for which they have
agreed to the above-stated professional fees. Specifically, they
request you to explain and discuss with them the following
questions. You oblige:
(A) What are the properties and interests that should be
included in the computation of the gross estate of the
decedent? Explain.
(B)

What is the net taxable estate of the decedent? Explain.

(C) When is the due date for filing and payment of the
applicable tax return and tax? Are these dates extendible?
If so, under what conditions or requirements?
Suggested Answer

(A) All the properties and interestsenumerated in the

problem should be included in the gross estate of the
decedent. The composition of the gross estate of a
decedent who is a citizen of the Philippines includes all
properties, real or personal, tangible or intangible,
wherever situated and to the extent of the interest that he
has thereon at the time of his death (Section 85, NIRC).
(B) The net taxable estate of the decedent is P3,700,000.
From the gross estate of P7,000,000, the following
deductions are allowed:
Funeral Expenses (up to the
maximum limit)
P 200,000
Legal fees for the settlement
of the estate

500,000

Medical expenses of last

illness (up to the maximum
limit)

500,000

Claims against the estate

300,000

Family home equivalent to its

fair market value (not to
exceed P1,000,000)

800,000

Standard deduction

1,000,000

P3,300,00
Total Allowable Deduction
0
The claim against the cousin amounting to P100,000,
although included in the gross estate, cannot be claimed
as a deduction because the debtor is not yet declared
insolvent. The inherited property cannot give rise to a
vanishing deduction for want of sufficient factual basis.

(C) The filing of the return and payment of the tax is within
6 months from the date of death. The period to file the
return is extendible for a maximum of 30 days under
meritorious cases as maybe determined by the
Commissioner. The payment of the estate tax may also be
extended when the Commissioner finds that the payment
of the tax on the due date would impose undue hardship
upon the estate or any of their heirs. The period of
extension to pay shall not exceed five (5) years if the
estate is settled through the courts, or shall not exceed
two (2) years if settled extrajudicially. The Commissioner
may require the executor, or administrator, or the
beneficiary to furnish a bond in an amount not more than
double the amount of estate tax due (Sec. 91, NIRC).

XVI
TOPIC:

Estate Tax (2010 Bar Question)

In 2009, Baliwag, a resident Filipino citizen, received dividend

income from a U.S.-based corporation which owns a chain of
Filipino balut restaurants in the West Coast, U.S.A. The dividend
remitted to Baliwag is subject to U.S. withholding tax with respect
to a non-resident alien like Baliwag.
(A) What will be your advice to Caruso in order to lessen
the impact of possible double taxation on the same
income?
(B) Would your answer in A. be the same if Baliwag
became a U.S. immigrant in 2008 and had become a nonresident Filipino citizen? Explain the difference in
treatment for Philippine income tax purposes.
Suggested Answer

(A) Baliwag has the option either to claim the amount of

income tax withheld in the U.S. as a deduction from his
gross income in the Philippines, or to claim it as a tax
credit (Section 34(C)(1)(b), NIRC).
(B) NO. The income from abroad of a non-resident citizen is
exempt from the Philippine income tax (Section 23, NIRC).

XVII
TOPIC:

Local Taxation (2010 Bar Question)

Pickup Lines Corporation is a branch of an international shipping

line with voyages between Manila and the West Coast of the U.S.
The companys vessels load and unload cargoes at the Port of
Manila, albeit it does not have a branch or sales office in Manila.
All the bills of lading and invoices are issued by the branch office
in Makati which is also the companys principal office.
The City of Manila enacted an ordinance levying a 2% tax on
gross receipts of shipping lines using the Port of Manila.
Can the City Government of Manila legally impose said levy on
the corporation?
Suggested Answer
NO. The City Government of Manila cannot legally levy the 2%
gross receipts tax on the shipping line, because taxes on the
gross receipts of transportation contractors and persons engaged
in the transportation of passengers or freight by hire and common
carriers by air, land or water is a limitation on the exercise of
taxing powers by local government units (Section 133(j), LGC).

XVIII
TOPIC:

Income Taxation (2009 Bar Question)

Velacha Food Corporation (VFC) incurred substantial advertising

expenses in order to protect its brand franchise for one of its line
products. In its income tax return, VFC included the advertising
expense as deduction from gross income, claiming it as an
ordinary business expense. Is VFC correct? Explain.
Suggested Answer
NO. The protection of taxpayers brand franchise is analogous to
the maintenance of goodwill or title to ones property which is in
the nature of a capital expenditure. An advertising expense of
such nature does not qualify as an ordinary business expense
because the benefit to be enjoyed by the taxpayer goes beyond
one taxable year (CIR v. General Foods, Inc.)

XIX
TOPIC:
Question)

Capital Gains Tax / Value-Added Tax(2009 Bar

Ms. Alvarez inherited from her father a 300-square-meter lot. At

the time of her father's death on March 14, 1995, the property
was valued at P720,000.00. On February 28, 1996, to defray the
cost of the medical expenses of her sick son, she sold the lot for
P600,000.00, on cash basis. The prevailing market value of the
property at the time of the sale was P3,000.00 per square meter.
(A) Is Ms. Alvarez liable to pay capital gains tax on the
transaction? If so, how much and why? If not, why not?
(B) Is Ms. Alvarez liable to pay Value Added Tax (VAT) on
the sale of the property? If so, how much and why? If not,
why not?

Suggested Answer
(A) YES. The capital gains tax is due to on the sale of a real
property classified as a capital asset (Section 24(D)(1),
NIRC)
The tax is 6% of the higher value between the selling
price (P600,000) and fair market value of the real property
(P900,000) or a tax in the amount of P54,000.
(B) NO. The real property sold, being in the nature of a
capital asset, is not subject to VAT. The sale is subject to
VAT only if the real property sold is held primarily for sale
to customers or held for lease in the ordinary course of
trade or business. A real property classified as a capital
asset does not include a real property held for sale or for
lease, hence, its sale is not subject to VAT (Section 39 and
Section 106, NIRC).

XX
TOPIC:

Tax Remedies (2009 Bar Question)

Cudalap Technologies, Inc. (CTI) filed a claim for refund for

unutilized input VAT with the Court of Tax Appeals (CTA). In the
course of the trial, ITI engaged the services of an independent
Certified Public Accountant (CPA) who examined the voluminous
invoices and receipts of ITI. ITI offered in evidence only the
summary prepared by the CPA, without the invoices and the
receipts, and then submitted the case for decision.
Can the CTA grant CTI's claim for refund based only on the CPA's
summary? Explain.
Suggested Answer

NO. The summary prepared by the CPA does not prove anything
unless the documents which were the basis of the summary are
submitted to the CTA and adduced in evidence. The invoices and
receipts must be presented because they are the only real and
direct evidence that would enable the Court to determine with
particular certainty the basis of the refund (CIR v Rio Tuba Nickel
Mining).

XXI
TOPIC:

General Principle(Original Question)

The City of Manila assessed and collected taxes from Perez

Retailers, Inc. pursuant to Section 17 (Tax on Retailers) of the
Revenue Code of Manila. The City Government amended the
Revenue Code and imposed additional taxes as a condition for the
renewal of business licenses. The amendment imposes tax on
businesses subject to excise, VAT or percentage tax under the
NIRC based on a certain percentage of gross sales or receipts.
Perez Retailers, Inc. was one of the businesses affected by the
abovementioned amendment of the Revenue Code of Manila. It
protested against the imposition of the additional tax on the
ground that it amounts to double taxation. Decide on the matter.
Suggested Answer
All the elements of double taxation are present in the instant
case.
Firstly, Section 17 imposed tax on a person who sold goods and
services in the course of trade or business but only identified such
person with particularity, namely, retailers.The additional tax,
likewise, imposed tax on a person who sold goods and services in
the course of trade or business based on a certain percentage of
his gross sales or receipts. Both taxes being imposed on the

privilege of doing business in the City of Manila in order to make

the taxpayers contribute to the citys revenues were imposed on
the same subject matter and for the same purpose.
Secondly, the taxes were imposed by the same taxing authority
(the City of Manila) and within the same jurisdiction in the same
taxing period (i.e., per calendar year).
Thirdly, the taxes were all in the nature of local business taxes.
In fine, the imposition of the new tax of the Revenue Code of
Manila constituted double taxation, and the taxes collected
pursuant thereto must be refunded. (Nursery Care Corporation v.
Acevedo)

XXII
TOPIC:

Income Taxation(Original Question)

If an employer gives de minimis benefits to rank-and-file

employees in excess of the ceilings provided for under relevant
rules and regulations, is the excess automatically considered
taxable and, as such, subject to the graduated income tax rate?
Suggested Answer
NO. The excess of the de minimis benefits over their respective
ceilings, as prescribed by relevant regulations, shall be considered
as part of other benefits and the employee receiving it will be
subject to tax only on the excess over the P82,000 ceiling under
Section 32(B)(7)(e)(iv), NIRC (as amended) (R.R. No. 10-2008)

XXIII

TOPIC:

Income Taxation (Original Question)

What are the conditions for deductibility of business expenses for

purposes of income taxation?
Suggested Answer
The conditions are the following:
1. It must be ordinary and necessary;
2. It must be paid or incurred during the taxable year;
3. It must be paid or incurred in carrying on or which are
directly attributable to the development, management,
operation and/or conduct of the trade, business, or
exercise of profession;
4. It must be supported by adequate invoices or receipts;
5. It is not contrary to law, public policy or morals; and
6. The tax required to be withheld on the expense paid or
payable is shown to have been remitted to the BIR (R.R.
No. 2-98).

XXIV
TOPIC:

Local Taxation (2008 Bar Question)

The City of Manila enacted an ordinance, imposing a 5% tax on

gross receipts on rentals of space in privately-owned public
markets. Galicia Corporation questioned the validity of the
ordinance, stating that the tax is an income tax, which cannot be
imposed by the city government.
Do you agree with the position of Galicia Corporation? Explain.
Suggested Answer
NO. The tax imposed is not an income tax but a license tax or fee
for the regulation of the business in which the taxpayers are

engaged that is the leasing of spaces privately-owned public

markets (Progressive Development Corporation v Quezon City).
The income tax imposed under the National Internal Revenue
Code which preempts the imposition by the City is one which is
imposed on the privilege enjoyed by a taxpayer in earning income
and not a tax on business.

XXV
TOPIC:

Income Taxation (Original Question)

According to the NIRC, what are the items included as gross

income?
Suggested Answer
Section 32. Gross Income. (A) General Definition. - Except when otherwise provided in
this Title, gross income means all income derived from
whatever source, including (but not limited to) the following
items:
(1) Compensation for services in whatever form paid,
including, but not limited to fees, salaries, wages,
commissions, and similar items;
(2) Gross income derived from the conduct of trade or
business or the exercise of a profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;

(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of
the general professional partnership.
XXVI
TOPIC:

Estate Tax (1994 Bar Question)

What is the principle of mobilia sequuntur personam?

Suggested Answer
It refers to the principle that taxation of intangible personal
property generally follows the residence or domicile of the owner
thereof.

XXVII
TOPIC:

Estate Tax (Original Question)

Justin Timber, a Filipino citizen, obtained a life insurance on his

own life and designated Summer Mendiola, a Brazilian national, as
the beneficiary.
(A) In the event that Justin dies, will the proceeds from his
life insurance form part of his gross estate?
(B) In case the designation was expressly designated as
revocable, would the proceeds form part of the gross
estate?

Suggested Answer
(A)

YES. Section 85(E), NIRC provides that:

(E) Proceeds of Life Insurance. - To the extent of the

amount receivable by the estate of the deceased, his
executor, or administrator, as insurance under policies
taken out by the decedent upon his own life, irrespective
of whether or not the insured retained the power of
revocation, or to the extent of the amount receivable
by any beneficiary designated in the policy of
insurance, except when it is expressly stipulated
that the designation of the beneficiary is
irrevocable.(Emphasis supplied)
In the instant case, there is no express stipulation that the
designation of the beneficiary, Summer Mendiola, was
irrevocable. As such, it must form part of the gross estate
of Justin Timber.
(B) YES. It would still form part of Justin Timbers gross
estate. The express designation was revocable. As
stated in Section 85(E), NIRC, in order for the proceeds of
life insurance to be excluded in the gross estate, the
designation of a beneficiary other than the estate of the
deceased, his executor, or administrator must be
expressly stipulated as irrevocable.

XXVIII
TOPIC:

Value-Added Tax (Original Question)

For purposes of imposition of value-added tax, what does the

phrase in the course of trade or business mean?
Suggested Answer

Pursuant to Section 105, NIRC:

The phrase 'in the course of trade or business' means the
regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged
therein is a nonstock, nonprofit private organization
(irrespective of the disposition of its net income and whether
or not it sells exclusively to members or their guests), or
government entity.

XXIX
TOPIC:

General Principles (Original Question)

What is the Benefits-Protection Theory?

Suggested Answer
It is said that taxes are what we pay for civilized society. Without
taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the
taxing authorities, every person who is able to must contribute his
share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance
their moral and material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that it
is an arbitrary method of exaction by those in the seat of power
(Commissioner v. Algue).

XXIX
TOPIC:

Donors Tax (Original Question)

Popoy donated a car, worth P1,000,000, to Basha, his sister-inlaw. He gave no other gift during the calendar year. How much is
the donors tax on Popoys donation?
Suggested Answer
The donors tax on Popoys donation is P300,000.
Basha, being a sister-in-law, is considered as a stranger to
Popoy. Section 99(B), NIRC states that:
(B) Tax Payable by Donor if Donee is a Stranger. - When the
donee or beneficiary is stranger, the tax payable by the
donor shall be thirty percent (30%) of the net gifts. For the
purpose of this tax, a 'stranger,' is a person who is not a:
(1) Brother, sister (whether by whole or half-blood),
spouse, ancestor and lineal descendant; or
(2) Relative by consanguinity in the collateral line within
the fourth degree of relationship.
The proper tax rate to be used is 30% and not the schedular rates
provided in Section 99(A), NIRC.

1. ABC Corporation is a merchandising concern and has an

inventory of goods for sale amounting to Php 10 Million. XYZ
Corporation, a real estate developer, exchanged its real
properties for shares of stocks of ABC Corporation resulting
in the acquisition of corporate control of ABC Corporation. (a)
Is the inventory of goods owned by ABC Corporation subject
to VAT despite the change in corporate control? (b) Is the
exchange of real properties held for sale or lease by XYZ
Corporation, for the shares of stocks of ABC Corporation
subject to VAT? (22 sa actual mock bar questionnaire)
a. No. The inventory of goods owned by ABC Corporation
is not subject to VAT despite the change in corporate
control because the same corporation still owns them.
This is in recognition of the separate and distinct
personality of the corporation from its stockholders.VAT
shall not applyto goods/properties which are originally
intended for sale or use in businessin case of change of
control of a corporation by the acquisition of the
controlling interest of such corporation by another
stockholder (individual or corporate) or group of
stockholders. The goods or properties used in the
business (including those held for lease) or those
comprising the stock-in trade of the corporation will not
be considered sold, bartered or exchanged despite the
change in the ownership interest. (RR 16-2005)
b. Yes. The exchange of real properties held for sale or
lease by XYZ Corporation, for the shares of stocks of
ABC Corporation, whether resulting in corporate control
of not, is subject to VAT. The 12% VAT on sale of goods
or properties shall also apply to goods disposed of or
existing as of a certain date if, under circumstances,
the status of a person as a VAT-registered person
changes or is terminated [Section 106(C), NIRC; RR 162005]
2. X Corporation filed with the BIR a claim for tax refund or
credit for excise taxes paid on its purchases of aviation jet
fuel from Y Corporation, the manufacturer of the said
petroleum product. Since the BIR took no action on the claim

for refund, X Corporation sought judicial recourse and filed a

petition for review with the CTA to prevent the lapse of the
two-year prescriptive period within which to judicially claim a
refund under Section 229of the NIRC, as amended, claiming
that it was exempt from payment of excise tax by virtue of
Section 135(b) of the 1997 Tax Code and Article 4(2) of the
RP-Singapore Air Transport Agreement. In support of its
claim, X Corporation contended that in reality, it paid the
excise taxes due on the transactions and Y Corporation
merely remitted the payment to BIR; thus, it can rightfully
claim a refund for the excise taxes paid. Decide. (23 sa
actual mock bar questionnaire)
a. The claim for refund should be denied. The proper
party to question, or seek a refund of an indirect tax is
the statutory taxpayer, the person on whom the tax is
imposed by law and who paid the same even if he shifts
the burden thereof to another. Here, Y Corporation,
being the manufacturer, is the person subject to the
excise tax as it is the person liable for tax. Even if the
tax is shifted by Y Corporation to its customers, Y
Corporation remains the taxpayer because the excise
tax is imposed directly on Y Corporation as the
manufacturer. Hence, Y Corporation, as the statutory
taxpayer, is the proper party that can claim the refund
of the excise taxes paid to the BIR.[Silkair (Singapore)
Pte. Ltd. v. CIR, GR No. 171383, 14 November 2008;
Silkair (Singapore) Pte. Ltd. v. CIR, GR No. 184398, 25
February 2010]
3. The BIR discovered that the proper estate tax liability of
a person has not been paid. After learning that some of the
heirs had already left the Philippines, the BIR is now
collecting the estate tax from only one of the heirs. Is this
action of the BIR proper? (27 sa actual mock bar
questionnaire)

Yes. The BIR may collect the deficiency estate tax from all
or some or any of the heirs. However, the said heir may be
liable only up to the extent of his distributive share in the
estate. (BAR)