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1992 Bar among other benefits, his terminal leave pay for which the BIR remedies, the

for which the BIR remedies, the laws and rules of procedure of general
withheld the sum of P56.000.00 a week following the date of his application shall then govern.
retirement. (b) Under the NIRC, an aggrieved taxpayer may either:
1992 Bar, Q. I(1): Mr. Dante Raymundo retired from the
government service as Director of Land Transportation on
On October 17, 1991, following the decision of the Supreme (1) Dispute an assessment within thirty (30) days from receipt
January 6, 1985. Upon retirement, Mr. Raymundo received,
Court that the money value of the accumulated leave thereof by filing with the Commissioner of Internal Revenue
among other benefits, his terminal leave pay for which the BIR
credits/terminal pay is not subject to withholding tax, Mr. a request for reconsideration of reinvestigation, or
withheld the sum of P56.000.00 a week following the date of his
Raymundo filed a claim for refund of P56.000.00 with the (2) Pay the assessment within the thirty days then file a written
retirement.
Commissioner of Internal Revenue. claim with the Commissioner of Internal Revenue for refund
within two years from full and final payment.
On October 17, 1991, following the decision of the Supreme
Assuming that the BIR denies the claim for refund, what could be
Court that the money value of the accumulated leave
the possible reason or statutory basis for such a denial? Upon an adverse decision of the Commissioner and within thirty
credits/terminal pay is not subject to withholding tax, Mr.
days from receipt of notice of denial, an appeal may be filed with
Raymundo filed a claim for refund of P56.000.00 with the
A: The possible reason for a denial would be that the written the Court of Tax Appeals. However, with respect to claims for
Commissioner of Internal Revenue.
claim has already prescribed or that the terminal pay leave is not refunds, an appeal must also be filed within two years from the
excluded from income tax. Sec. 230, NIRC (supra). date of full and final payment.
Is Mr. Raymundo within his rights in claiming a refund of taxes
withheld on his terminal leave following the Supreme Court
1992 Bar, Q. I(4): Mr. Dante Raymundo retired from the From the decision of the Court of Tax Appeals, an appeal or
decision?
government service as Director of Land Transportation on petition for review by certiorari may be taken to the Court of
January 6, 1985. Upon retirement, Mr. Raymundo received, Appeals and then to the Supreme Court in appropriate cases.
A: No. Under Section 230 of the NIRC, a suit for the recovery of
tax erroneously or illegally collected cannot be filed after the among other benefits, his terminal leave pay for which the BIR
expiration of two years from the date of payment of tax withheld the sum of P56.000.00 a week following the date of his 1992 Bar, Q. II(2): Distinguish between a taxpayer’s remedies in
regardless of any supervening cause that may arise after payment. retirement. connection with his tax assessment and/or demand and his
Thus, the right of Mr. Raymundo to claim for refund has already claim for refund of taxes alleged to have been erroneously or
prescribed. On October 17, 1991, following the decision of the Supreme illegally collected.
Court that the money value of the accumulated leave
credits/terminal pay is not subject to withholding tax, Mr. A: A tax assessment becomes final unless it is disputed or
1992 Bar, Q. I(2): Mr. Dante Raymundo retired from the
Raymundo filed a claim for refund of P56.000.00 with the contested within 30 days from receipt thereof by the taxpayer. If
government service as Director of Land Transportation on
Commissioner of Internal Revenue. the action taken by the Commissioner on the request for
January 6, 1985. Upon retirement, Mr. Raymundo received,
reconsideration is unacceptable to the taxpayer, the latter must
among other benefits, his terminal leave pay for which the BIR
Discuss the theory of supervening event as it applies to claims then appeal, by way of Petition for Review to the Court of Tax
withheld the sum of P56.000.00 a week following the date of his
for refund of erroneously/illegally collected taxes. Can the Appeals within thirty days from receipt of the decision of the
retirement.
retiree claim a refund under this theory? Explain. Commissioner of Internal Revenue. The taxpayer may also opt to
pay the tax before the finality of the assessment (e.g., within 30
On October 17, 1991, following the decision of the Supreme
A: The theory of supervening event expresses that an event which days from receipt of the assessment) and then file within two
Court that the money value of the accumulated leave
is beyond the control of the parties would allow the recovery of years a written claim for the refund of the tax. A denial by the
credits/terminal pay is not subject to withholding tax, Mr.
erroneously or illegally collected taxes provided the proceeding Commissioner of a claim for refund must be appealed to the CTA
Raymundo filed a claim for refund of P56.000.00 with the
for such recovery is made within the prescriptive period from the within thirty days from receipt of notice of denial and within two
Commissioner of Internal Revenue.
occurrence of such event. years from the day of full and final payment. Continued inaction
by the Commissioner on claims for refund may thus be taken as a
If the retiree is within his legal rights in claiming refund of the
The theory of the supervening event has been abrogated by denial appealable to the Court of Tax Appeals, in order to permit
taxes withheld, will the BIR automatically grant his claim?
Section 230 of the NIRC. the appeal to be considered or having been made within the two-
Explain your answer.
year mandatory period.
A: No. Because he must file a written claim. 1992 Bar, Q. II(1): What are the legal remedies of an aggrieved
taxpayer both at the administrative and judicial levels? Describe 1992 Bar, Q. II(3): What are the requisites before a taxpayer's
Comment: The question expresses that the retiree is “within his separately the procedures. request for reinvestigation may be granted by the BIR? Discuss
legal rights" in claiming the refund of the taxes withheld. briefly.
Accordingly, an examinee can assume that all the requirements A:
have been met with respect to the refund. In this sense, an A: A request for re-investigation refers to a plea for re- evaluation
examinee may be led to say it can be automatic. (a) The administrative and judicial remedies are such as may be of an assessment on the basis of newly-discovered evidence or
provided for in law imposing the tax. An expression of such additional evidence the taxpayer intends to present in the re-
remedies in the law should then be deemed exclusive by the investigation.
1992 Bar, Q. I(3): Mr. Dante Raymundo retired from the
taxpayer. When the law imposing the tax is silent on
government service as Director of Land Transportation on
January 6, 1985. Upon retirement, Mr. Raymundo received,
Alternative: He must file a written protest stating his grounds or none of the above because the corporation is not a real estate power vested by law on the Commissioner of Internal Revenue in
therefor so that his protest could be granted. dealer? Discuss. the exercise of which the regular courts may not interfere with.

A: ABC corporation must pay the 35% corporate income tax. 1992 Bar, Q. IV(3)(a): Which court acts on: disputed
1992 Bar, Q. II(4): If the request for re-investigation is denied, is
The National Internal Revenue Code does not provide for the assessments?
it possible or advisable to file a petition for review with any
payment by corporations of 5% capital gains tax on the sale of real
court or agency as a last resort?
property, whether considered capital assets or not. Such income is A: The CTA exercises exclusive appellate Jurisdiction over disputed
included in the computation of net income (Gross taxable income assessments.
A: A denial of a request for re-investigation on an assessment
less deductions) and is subject to the tax rate of 35%.
partakes the nature of a decision if made by the Commissioner. In
this a case, an appeal may be filed with the CTA within thirty days 1992 Bar, Q. IV(3)(b): Which court acts on tax collection cases
Alternative: The capital gains derived will only form part of the
from receipt of the notice of denial. filed by the BIR?
taxable income of the taxpayer susceptible to deductions.
Accordingly, the net capital gain on the sale may not necessarily
Alternative: On the assumption that the denial by the BIR was not A: Tax collection cases are filed by the BIR with regular courts.
be subject to the 35% tax. The taxpayer’s total income and
made by the Commissioner himself but by the regional officer, for
deductions for the year must be considered.
instance, or that the request for re-investigation is not on an
1992 Bar, Q. V: Your client. United Market Cooperative, is
assessment as yet, then it may not necessarily constitute a
It is immaterial whether the corporation is a real estate dealer or requesting the Commissioner of Internal Revenue to exempt it
decision on a disputed assessment from which an appeal may be
not. from the payment of VAT on its purchase of prime commodities
made to the Court of Tax Appeals.
from food suppliers/manufacturers on the ground that it is
1992 Bar, Q. IV(1): Pursuant to the National Internal Revenue exempt from all taxes, including VAT, under R.A. No. 6938, the
Comment: The problem did not indicate the subject matter of the
Code and under existing rules and regulations, the Commissioner Cooperative Code of the Philippines.
request for reinvestigation nor the officials acting for and in behalf
of the BIR in the denial of the request for re-investigation. of Internal Revenue is clothed with the authority/power to
evaluate facts of tax cases and issue assessments/demands Do you think your client can obtain the necessary exemption
Assuming that the subject matter of the request for
against a taxpayer for deficiency taxes. from the BIR? If your answer is in the affirmative, explain the
reinvestigation were not an assessment or that the denial was
basis for the grant. If in the negative, state the basis for the
made by a lower official, then there would still be a need for
If an RTC Judge, on motion of an informer, renders a decision rejection of the request.
pursuing administrative remedies.
ordering the Commissioner to assess and collect from the
taxpayer certain deficiency taxes when, in fact, the BIR has A:
1992 Bar, Q. III: ABC, a domestic corporation sold in 1989 two (2)
already ascertained that no deficiency taxes are due the
condominiun units of Legaspi Towers in Roxas Blvd. for (1) An exemption is not necessary. The value added tax is not on
taxpayer, what proper course of action would you advise your
P8,158,142.00. Taxpayer corporation declared in its income tax the purchase but on the sellers, except in importation.
informer-client to undertake?
return for taxable year 1989, its gains derived from the sale of (2) No. The exemption to which the taxpayers are entitled to
the two (2) condominium units as follows: refers to those taxes that are levied on the exempt taxpayer
A: The issue being disputed assessment, jurisdiction, if at all, lies
with the Court of Tax Appeals and not with the RTC. The court or directly imposed on the exempted goods. The value
Unit A Unit B Total added tax is imposed on the sellers of goods and services,
decision, in my view, can be voided. I would simply advice my
Proceeds from P3,933,679 P4,224,463 P8,158,142 not the purchaser.
client to pursue the matter administratively. If the evidence
Sale
warrants, I could have the matter investigated by the
Less: Ombudsman. Alternative: Yes. Under the NIRC, transactions which are
(a) Acquisition P1,501,295 P4,224,463 P3,031,050 exempted by special laws from the payment of value-added taxes
Costs Alternative: I will advice the client to go to the BIR to file an shall be so exempt. RA 6938.the Cooperative Code of the
(Deed of information under oath so that it may consider any evidence my Philippines is a special law entitling the United Market
Sale 9-9- client may have in his possession. Cooperative in the case at bar to exemption from VAT.
83)
(b) Payments P49,428 P55,413 P104,661 1992 Bar, Q. VI(1): On September 10, 1991, a Bank Manager of
1992 Bar, Q. IV(2): Pursuant to the National Internal Revenue
of Realty People’s Bank, Inc. (PBI), upon reading an obituary announcing
Code and under existing rules and regulations, the Commissioner
Tax the death of Mr. Roberto Diaz refused to allow one of his heirs
of Internal Revenue is clothed with the authority/power to
Total of (A) (B) P1,550,543 P1,585,168 P3,135,711 to withdraw Mr. Diaz’ deposit amounting to P2 Million.
evaluate facts of tax cases and issue assessments/demands
Gains P2,238,136 P2,639,295 P5,022,431
against a taxpayer for deficiency taxes.
A week later, immediately following said denial, the
Without going into computations, answer the following administrator of the estate sued the Bank/Bank Manager to
Do you think an action for mandamus with the RTC can prosper
question: compel them to release the money since such act was arbitrary
to compel the Commissioner to issue a deficiency assessment?
and constituted a denial of property/constitutional rights.
Since ABC derived gains from the sale of the condominium units,
A: No. It has been held that the assessment of taxes is not a
should it pay the 5% capital gains tax, 35% corporate income tax
ministerial duty compellable by mandamus. It is a discretionary
If you are retained as counsel by the Bank/Bank Manager to A: Before withdrawals on deposits of a decedent could be A: Gifts made to or for the use of the National Government or any
defend their stand in refusing to release the P2 Million to the permitted, the proper taxes should first be paid and a certification entity created by any of its agencies which is not conducted for
heirs, what would you raise as a legal defense? Discuss. of such payment secured from the Commissioner. However, the profit, or to any political subdivision of the said Government are
Commissioner may authorize the withdrawal without a exempt from gift tax with respect to both residents and non-
A: I would raise the defense that under Sec. 90 of the NIRC a bank certification provided the amount to be withdrawn shall not residents.
with knowledge of the death of a person who maintains a deposit exceed P 10,000.00.
account with such bank shall allow withdrawals therefrom only if 1992 Bar, Q. VIII(1): A disgruntled employee of Apache
the mandatory requirement of a certification from the Alternative: Payment of the tax or the filing of a bond would, in Corporation reported to the Commissioner of Customs that the
Commissioner that the taxes due thereon have been paid could be substance, be enough for the Commissioner to allow the company is illegally importing electronic equipment by way of
presented by an heir. Absent such certification, a bank is withdrawal. unlawful "shipside" activities thereby evading payment of
authorized to withhold the release of deposits of a decedent. customs duties and taxes on the goods.
1992 Bar, Q. VII(1): Mr. Bill Morgan, a Canadian citizen and a
1992 Bar, Q. VI(2): On September 10, 1991, a Bank Manager of resident of Scarborough, Ontario, sends a gift check of Accordingly, the Commissioner of Customs, upon the request of
People’s Bank, Inc. (PBI), upon reading an obituary announcing $20,000.00to his future Filipino daughter-in-law who Is to be the Economic Intelligence and Investigation Bureau (EIIB), issued
the death of Mr. Roberto Diaz refused to allow one of his heirs married to his only son in the Philippines. warrants of seizure and detention and directed EIIB to seize the
to withdraw Mr. Diaz’ deposit amounting to P2 Million. goods listed in the warrants.
Is the donation by Mr. Morgan subject to tax? Explain.
A week later, immediately following said denial, the After the seizure of the goods and considering the magnitude of
administrator of the estate sued the Bank/Bank Manager to A: Yes. While the gift has been made on account of marriage, to the value of the goods, counsel for Apache Corporation filed a
compel them to release the money since such act was arbitrary qualify for exemption to the extent of the first PIO.OOO.OO (now petition with the Supreme Court for certiorari, prohibition and
and constituted a denial of property/constitutional rights. P50.000.00) of the value thereof, such gift should have been given mandamus to enjoin the Commissioner of Customs and his
to a legitimate, recognized natural or adopted child of the donor. agents from continuing further with the forfeiture proceedings
Under the same set of facts, would you, as administrator of the and praying that the Commissioner return the confiscated
estate, rather file an administrative appeal with the Alternative: It is not subject to tax because the gift was made articles on the ground that the warrants were in violation of the
Commissioner of Internal Revenue or a petition for review with outside the Philippines. Rules of Court and the Bill of Rights.
the Court of Tax Appeals? Explain.
Note: The phrase “In the Philippines" is dangling and may be If you are a newly-appointed Solicitor in the office of the
A: An administrative appeal to the Commissioner of Internal interpreted by students to modify where the son is, where the Solicitor General representing the Commissioner of Customs,
Revenue would not be a proper remedy without an original marriage Is, or where the daughter-in-law is. Furthermore, the how would you defend the latter? Give the specific defenses.
proceeding having first been filed with the BIR question does not say where the daughter-in-law received the
gift. We recommend that any answer that discusses the problem A: Appurtenant to its power under the Tariff and Customs Code to
A petition for review with the Court of Tax Appeals, on the other of situs should be given full credit. enforce the provisions of such law, the Bureau of Customs may
hand, requires a final decision of the Commissioner, the CTA being conduct searches and seizures even without the benefit of a
a court of exclusive appellate jurisdiction. 1992 Bar, Q. VII(2): Mr. Bill Morgan, a Canadian citizen and a warrant issued by a judge upon probable cause. This is historically
resident of Scarborough, Ontario, sends a gift check of considered an exemption from the constitutional guarantee
As administrator, I would cause the payment of the proper taxes $20,000.00to his future Filipino daughter-in-law who Is to be against unreasonable searches and seizures.
on the deposits and thereafter, secure the required certification married to his only son in the Philippines.
from the Commissioner. 1992 Bar, Q. VIII(2): A disgruntled employee of Apache
What is the tax consequences, if any, to the donee (Filipino Corporation reported to the Commissioner of Customs that the
1992 Bar, Q. VI(3): On September 10, 1991, a Bank Manager of daughter-in-law of Mr. Morgan)? company is illegally importing electronic equipment by way of
People’s Bank, Inc. (PBI), upon reading an obituary announcing unlawful "shipside" activities thereby evading payment of
the death of Mr. Roberto Diaz refused to allow one of his heirs A: The gift, with respect to the donee, is excluded from gross customs duties and taxes on the goods.
to withdraw Mr. Diaz’ deposit amounting to P2 Million. income and is exempt from Income taxation. There Is no donee’s
gift tax. Accordingly, the Commissioner of Customs, upon the request of
A week later, immediately following said denial, the the Economic Intelligence and Investigation Bureau (EIIB), issued
administrator of the estate sued the Bank/Bank Manager to 1992 Bar, Q. VII(3): Mr. Bill Morgan, a Canadian citizen and a warrants of seizure and detention and directed EIIB to seize the
compel them to release the money since such act was arbitrary resident of Scarborough, Ontario, sends a gift check of goods listed in the warrants.
and constituted a denial of property/constitutional rights. $20,000.00to his future Filipino daughter-in-law who Is to be
married to his only son in the Philippines. After the seizure of the goods and considering the magnitude of
If the Commissioner of Internal Revenue allows the the value of the goods, counsel for Apache Corporation filed a
administrator of the estate or the heirs of the decedent to Can you name one kind of gift that is exempt from donor’s tax petition with the Supreme Court for certiorari, prohibition and
withdraw from the deposit account, what are the conditions which is extendible to both residents and nonresidents or non- mandamus to enjoin the Commissioner of Customs and his
under the Tax Code which have to be met first? citizens of the Philippines? Include qualifications, If any. agents from continuing further with the forfeiture proceedings
and praying that the Commissioner return the confiscated
articles on the ground that the warrants were in violation of the satisfy her real estate tax delta-’ quencies amounting to delinquent taxpayer is given one year from the date of
Rules of Court and the Bill of Rights. P5,800.00. The highest bidder for the property was Angel Chua. registration of the sale within which to redeem the property
by paying the taxes due plus costs and interest.
Assuming that the enforcement of the warrant had been Edna was not present at the public auction although she later (3) On the claim that the public auction made on the property is
extended to the residence of the President of Apache admitted having received the notice of hearing for the petition void, the Real Property Tax Code provides (Sec. 83,2nd par.)
Corporation, is such enforcement valid? Explain. for entiy of a new certificate of title by AngelChua. (Both the that a court shall not declare a sale invalid due to
auction sale and the final bill of sale were annotated at the back irregularities in the proceedings unless such irregularities
A: No. The Tariff and Customs Code authorizes custom officials of TCT No. 4739 by the Register of Deeds.) have impaired the substantial rights of the taxpayer. In the
and agents to search any building, except dwelling houses. case at bar, the plaintiff received a notice of hearing for the
On March 15, 1979, Edna filed a complaint to annul the auction petition for entry of a new certificate of title during which
1992 Bar, Q. VIII(3): A disgruntled employee of Apache sale which was denied by the CFI Judge of Naga City. In fact, the she could have questioned any irregularity in the conduct of
Corporation reported to the Commissioner of Customs that the CFI Judge ordered the TCT # 4739 of Edna be cancelled and that a the sale.
company is illegally importing electronic equipment by way of new title be issued to Angel Chua.
unlawful "shipside" activities thereby evading payment of 1992 Bar, Q. X: Sometime in December 1980, a taxpayer donated
customs duties and taxes on the goods. On appeal, the Court of Appeals affirmed the CFI decision in to his son 3,000 shares of stock of San Miguel Corporation. For
toto. failure to file a donor’s return on the donation within the
Accordingly, the Commissioner of Customs, upon the request of statutory period, the taxpayer was assessed the sum of
the Economic Intelligence and Investigation Bureau (EIIB), issued Edna then elevated the case to the Supreme Court citing several PI02,000.00, as donor’s tax plus 25% surcharge or P25.500.00
warrants of seizure and detention and directed EIIB to seize the grave errors of law, among which are: and 20% interest or P20.400.00which he paid on June 24. 1985.
goods listed in the warrants.
(1) That her tax delinquencies (involving P5,800.00) for non- On April 10, 1986, he filed his income tax return for 1985
After the seizure of the goods and considering the magnitude of payment of real estate taxes were offset by the sum of claiming among others, a deduction for interest amounting to
the value of the goods, counsel for Apache Corporation filed a P6,700.00which the government of the Philippines owed P9.500.00 and reported a taxable income of P96.000.00.
petition with the Supreme Court for certiorari, prohibition and her. She claims that her tax delinquencies have been
mandamus to enjoin the Commissioner of Customs and his extinguished by legal compensation: On November 10. 1986, the taxpayer filed an amended income
agents from continuing further with the forfeiture proceedings (2) That the price of P5,800.00 paid by Angel Chua was grossly tax return for the same calendar year 1985, claiming therein an
and praying that the Commissioner return the confiscated inadequate and that because of its inadequacy, the same is additional deduction in the amount of P20.400.00 representing
articles on the ground that the warrants were in violation of the tantamount to deprivation of property without due process interest paid on the donor’s gift tax.
Rules of Court and the Bill of Rights. of law;
(3) That the public auction made on her property is void. A claim for refund of alleged overpaid income tax for 1985 was
Do you think the petition for certiorari, prohibition and filed with the Commissioner which was subsequently denied.
mandamus filed by Apache Corporation will prosper in the Discuss the merits of the appeal.
Supreme Court? Discuss. Upon appeal with the Court of Tax Appeals, the Commissioner
A: took Issue with the Court of Tax Appeal’s determination that the
A: No. The choice of remedy assumes want of authority and amount paid by the taxpayer for interest on his delinquent taxes
Jurisdiction. Warrantless searches and seizures are, however, (1) The decision of the Court of Appeals affirming the CFI is deductible from the gross income for the same year pursuant
authorized under TCC. Such searches and seizures are not decision must be affirmed. to Sec. 29 (b) (1) of the National Internal Revenue Code.
considered unreasonable within the meaning of the constitutional
guarantee. On the procedural aspect, it has not been shown, as required The Commissioner of Internal Revenue pointed out that a tax is
under the Real Property Tax Code that plaintiff has paid the not an indebtedness. He argued that there is a fundamental
amount for which the real property has been sold plus interest. distinction between a “tax" and a "debt". According to the
1992 Bar, Q. IX: Ms. Edna Dinoso is the registered owner of a
residential lot with a two-storey house situated in Naga City. The Commissioner, the deductibility of “interest on indebtedness
On the claim of extinction of tax liability by legal compensation, from a person’s income tax cannot extend to interest on taxes."
lot with an area of328 sq. meters is described and covered by there is jurisprudence to the effect that the doctrine of equitable
TCT No. 4739 of the Registry of Deeds of Naga City. recoupment does not apply in this Jurisdiction. Assuming it does, What is your opinion on the argument of the Commissioner that
the facts of the case bear out that the Government does not owe a tax is not an indebtedness so that deductibility on the interest
On September 12. 1977, a 115 sq. meter portion of Edna’s the plaintiff any amount.
property was expropriated by the Republic of the Philippines for on taxes should not be allowed?
the sum of P6.700.00 representing the assessed value of the (2) On the claim that the price for the property was grossly
aforesaid portion: This amount was deposited by the A: The Commissioner’s argument is misplaced because the
inadequate, the Real Property Tax Code specifically interest on the donor’s tax is not one that can be considered as
Government in Edna’s account. mentions that the sale of real property at public auction is having been incurred in connection with the taxpayer’s trade,
“to satisfy all the taxes and penalties due and costs of sale" business or exercise of profession.
For almost ten (10) years, Edna failed to pay her real estate taxes (Sec. 73). Thus, the selling price is based not on the fair
on the same property. Thus, on November 5, 1977, her property market value of the property sold at public auction but the
was sold at public auction by the City Treasurer of Naga City to Alternative:
amount of real property taxes due thereon. In any case, the
Alternative: could it maintain an action for refund in a representative
(a) While a tax may be considered a debt for purposes of capacity having failed to show proof of authorization.
deducting from gross income, the interest on taxes cannot (a) The act of tax exemption is an act of taxation which is
be so considered, as such interest is in the nature of a inherently legislative. Therefore, a mere executive Will Corporation X’s case prosper? Explain.
penalty, the imposition of which is designed to discourage agreement cannot provide for a tax exemption.
delinquent payment of taxes. To allow the deductibility of (b) No. Under the NIRC, for interest on investment in the A: Yes. A subsidiary, while not the real party in interest, could
such interest would be to diminish the punitive and Philippines in loans to be exempt from taxation, such prosecute a claim of refund in behalf of its non-resident
deterrent effects of the imposition, and thus to diminish the investment must have been made by foreign government- stockholders by virtue of its being the withholding agent for the
importance of the prompt payment of taxes. owned or controlled financing institutions or international government in respect of the cash dividends it declared [Comm.
(b) The argument of the Commissioner is wrong. Because while financing institutions established by governments. In the vs. Wander Phils.).
a tax as a general rule is not a debt, interest on a non- case at bar, the loans would be granted by private Japanese
payment of a tax has been considered like interest on financial institutions and therefore, the interest thereon Alternative: No. The tax is due on the non-resident stockholders.
indebtedness by the Supreme Court. (Note: Whether or not would not be exempt from taxation. The rule is that the refund may be claimed by the taxpayer on
the interest is deductible under the present aw no whom the tax is imposed and who effectively paid the tax.
apparently in question). 1992 Bar, Q. XI(2): In a loan agreement between the Central
Bank of the Philippines (as borrower) and private international 1992 Bar, Q. XIII: Under Section 2523 of the Tariff and Customs
1992 Bar, Q. X(2): Distinguish between the legal concept of bank (as lender), it is stipulated that all payments of Interest by Code, the duty of verifying the correct weight of a cargo
"taxes" and "debts". the Central Bank to the lenders shall be made free and clear shipment is imposed upon the vessel’s master, owner or
from all Philippine taxes which may be imposed thereon. employee. If a discrepancy between the actual gross weight and
A: A tax may be considered a debt in the Civil Code sense for the declared gross weight of manifested cargo exceeds 20% and “the
following purposes: Is the stipulation valid? Explain. Collector shall be of the opinion that such discrepancy was due
to the carelessness or incompetency of the master or pilot in
(a) Collection being enforced by court action: A: No. The act of tax exemption is an act of taxation which is command, owner or employee of the vessel, a fine of not more
(b) Statute of limitations: and inherently legislative and, therefore, a mere executive agreement than 15% of the value of the article may be imposed upon the
(c) Deduction from gross income. without concurrence by Congress, cannot provide for a tax importing vessel.”
exemption.
Strictly speaking, however, a tax is not a debt in that there can be ABC Corporation’s vessel was found, after appropriate
no set-off between the taxpayer and the Government. Alternative: It is valid. The stipulation in the agreement that the administrative proceedings, to have violated the said provision
lender “shall be made free and clear" from all Philippine taxes, far exceeding the 20% statutory limitation. The Collector of
simply meant that the Central Bank will assume the tax liability Customs imposed a dine of P22.600.00 (representing 15% of the
1992 Bar, Q. X(3): Pursuant to the National Internal Revenue
which is not contrary to law, morals, good customs, public order value of the discrepancy) which was affirmed by the
Code, for interest to be deductible, what are the requirements to
or public policy. Commissioner of Customs.
be met? Explain.

1992 Bar, Q. XII: Corporation X declared cash dividends in favor On appeal by ABC Corporation, the Court of Tax Appeals found
A: For interest to be deductible, the following requirements must
of its non-resident stockholders in the United States from which the fine of P22.600.00 harsh and unreasonable for a first offense
be met:
amount, the tax on dividend income was withheld. and reduced the same to P5.000.00.
(a) That there must be an indebtedness:
Under the RP-US Tax Treaty, deductions allowed as tax on The Commissioner of Customs questions the scope of authority
(b) That there is an interest on such indebtedness:
dividends earned at source were fixed at lower rates giving rise of the Court of Tax Appeals in the determination of the fine
(c) Such interest was paid or accrued within the taxable year
to overpayment of the tax on dividends paid to the nonresident imposable under Section 2523 of the Tariff and Customs Code.
(d) Interest was paid on a debt related to one’s profession,
US stockholders (representing the difference between the Whose judgment should prevail under the circumstances of the
trade or business.
amount of withholding tax paid and the amount supposed to case? Explain fully.
have been withheld under the mentioned tax covenant).
1992 Bar, Q. XI(1): The President of the Philippines and the A: The judgment of the Court of Tax Appeals should prevail.
Prime Minister of Japan entered into an executive agreement in
Corporation X filed a claim for refund of said overpayment with
respect of a loan facility to the Philippines from Japan whereby it The CTA has exclusive appellate jurisdiction over decisions of the
the Commissioner of Internal Revenue within the prescribed
was stipulated that interest on loans granted by private Commissioner of Customs in cases involving the imposition of
period which however, remained unacted upon, and before the
Japanese financial institutions to private financial Institutions in fines, forfeitures or other penalties.
expiration of the two (2) year reglementary period, it filed a
the Philippines shall not be subject to Philippine income taxes.
judicial claim for refund with the Court of Tax Appeals.
Is this tax exemption valid? Explain.
1991 Bar
Respondent Commissioner of Internal Revenue argues that
A: Yes. The tax exemption is valid because an executive
Corporation X is not the real party in interest to prosecute a 1991 Bar, Q. I(1): The police power, the power to tax and the
agreement has the force and effect of a treaty under the provision
claim for refund of the overpaid taxes of the nonresident US power of eminent domain are inherent powers of government.
of the Revenue Code. Taxation is subject to International Comity.
stockholders, who are the real parties in interest. But neither May a tax be validly imposed in the exercise of the police power
and not of the power to tax? If your answer is in the affirmative, under the law are to accrue to a special fund to be spent only for business that will provide his employer with the needed raw
give an example. the purposes enumerated therein, among which are to place the materials. On the day of his retirement on 30 April 1985. he
sugar industry in a position to maintain itself and ultimately to received P400.000.00 as retirement benefit. In addition, his
A: The police power may be exercised for the purpose of requiring insure its continued existence despite the loss of that quota, and endowment insurance policy, for which he was paying an annual
licenses for which license fees may have to be paid. The amount to afford laborers employed in the industry a living wage and to premium of PI.520.00 since 1965. also matured. He was then
of the license fees for the regulation of useful occupations should improve their working conditions. X, a sugar planter, files a suit paid the face value of his insurance policy in the amount of
only be sufficient to pay for the cost of the license and the questioning the constitutionality of the law alleging that the tax P50.000.00.
necessary expense of police surveillance and regulation. For non- is not for a public purpose as the same is being levied exclusively
useful occupations, the license fee may be sufficiently high to for the aid and support of the sugar industry. Is Mario’s P400.000.00 retirement benefit subject to income tax?
discourage the particular activity sought to be regulated. It is clear
from the foregoing that police power may not be exercised by Decide the case. A: Mario’s P400.000.00 retirement benefit is subject to income
itself alone for the purpose of raising taxes. However, police tax. To be exempt, the retirement pay must have been extended
power may be exercised jointly with the power of taxation for the A: The suit filed by the sugar planter questioning the to an employee who is at least 50 years of age and who would
purpose of raising revenues. (Lutz us. Araneta, 98 Phil. 148) constitutionality of the sugar industry stabilization measure is have worked for at least ten (10) years with the employer. The
untenable. Taxation is no longer merely for raising revenue to amount cannot be considered as a separation pay that would
Alternative: Taxation involves the power to raise revenue not only support the existence of government but the power may also be have exempted benefits from income tax since it was Mario who
in order to support the existence of government but likewise to exercised to carry out legitimate objects of the government It is a had decided to retire instead of being required to do so (Sec. 28.
carry out legitimate objects of government. Among such legitimate object of government to protect its local industries on NIRC)
legitimate objects are those that police power itself can cover. As which the national economy largely depends. Where the aim of
early as the case of Lutz vs. Araneta (98 Phil. 148), the Supreme the tax measure is to achieve such a governmental objective, the 1991 Bar, Q. IV(1): Born of a poor family on 14 February 1944.
Court has ruled that taxation may be used to implement an object tax Imposition can be said to be for a public purpose (Gaston vs. Mario worked his way through college. After working for more
of police power. An illustration of such exercise would be an Republic Bank, 158 SCRA 626). than 2 years in X Manufacturing Corporation, Mario decided to
imposition of taxes on gambling, the rates of which are made retire and avail of the benefits under the very reasonable
somewhat onerous in order to discourage gambling instead of an 1991 Bar, Q. III: Apple Computer Corp. (ACC) is a foreign retirement plan maintained by his employer. He planned to
outright prohibition thereof by an exercise of a police power corporation doing business in the Philippines through a local invest whatever retirement benefits he would receive in a
measure such as by present provisions of the Revised Penal Code. branch located at Makati, Metro Manila. In 1985, the local business that will provide his employer with the needed raw
branch applied with the Central Bank for authority to remit to materials. On the day of his retirement on 30 April 1985. he
1991 Bar, Q. I(2): Discuss the meaning and the implications of ACC branch profits amounting to P8,000,000.00. After paying the received P400.000.00 as retirement benefit. In addition, his
the following statement: “Taxes are the lifeblood of government 15% branch remittance tax of P1,200,000.00, the branch office endowment insurance policy, for which he was paying an annual
and their prompt and certain availability is an imperious need." remitted to ACC the balance of P6.800.000.00. In January 1986, premium of PI.520.00 since 1965. also matured. He was then
the branch office was advised by its. legal counsel that it paid the face value of his insurance policy in the amount of
A: The phrase, “taxes are the lifeblood of government, etc." overpaid the branch remittance tax since the basis of the P50.000.00.
expresses the underlying basis of taxation which is governmental computation thereof should be the amount actually remitted
necessity, for indeed, without taxation, a government can neither and not the amount applied for. Accordingly, the branch office Is his P50.000.00 insurance proceeds exempt from income
exists nor endure. Taxation is the indispensable and inevitable applied for a refund in the amount of P180.000.00. taxation?
price for civilized society: without taxes, the government would be
paralyzed. This phrase has been used, for instance, to justify the If you were the Commissioner of Internal Revenue, would you A: The P50.000.00 insurance proceeds is not totally exempt from
validity of the laws providing for summary remedies in the grant the claim for refund? income tax. The excluded amount is only that portion which
collection of taxes. As a consequence of the above rule, an corresponds to the premiums that he had paid since 1965. At the
injunction against the assessment and collection of taxes is A: If I were the Commissioner of Internal Revenue, I would allow rate of PI,520.00 per year multiplied by twenty (20) years which
generally withheld be the laws imposing such taxes. Even when it the claim for refund. The remittance tax should be computed on was the period of the policy, he must have paid a total of
is not so, under procedural laws such an injunction may not be the amount actually remitted (Marubeni Corporation vs. P30.400.00. Accordingly, he will be subject to report as taxable
obtained as held in the case of Valley Trading Co. vs. CFI (G.R. No. Commissioner, G.R No. 76573, 14 September 1989). In the refund income the amount of P 19,600.00 (Sec. 28. NIRC)
49529, 31 March 1989), where the Supreme Court ruled that the of taxes, the claim therefor can be filed within two (2) years from
damages that may be caused to the taxpayer by being made to the time of payment so long as the tax payment was made before 1991 Bar, Q. V: Delstar Emmanuel Perez, a government
pay the taxes cannot be said to be as irreparable as it would be an assessment by the Commissioner has become final (Sec. 230, employee, retires from the service upon reaching the
against the government’s inability to collect taxes. NIRC). compulsory retirement age of 65. Would the amount he is
entitled to receive by way of commutation of his accumulated
1991 Bar, Q. II: To provide means for rehabilitation and 1991 Bar, Q. IV(1): Born of a poor family on 14 February 1944. leave credits, of his terminal leave pay, be subject to income
stabilization of the sugar industry so as to prepare it for the Mario worked his way through college. After working for more tax?
eventuality of the loss of the quota allocated to the Philippines than 2 years in X Manufacturing Corporation, Mario decided to
resulting from the lifting of U.S. sanctions against an African retire and avail of the benefits under the very reasonable A: The amount that Emmanuel Perez is to receive should not be
country. Congress passes a law increasing the existing tax on the retirement plan maintained by his employer. He planned to subjected to income tax, and such was the ruling by the Supreme
manufacture of sugar on a graduated basis. All collections made invest whatever retirement benefits he would receive in a Court in the In Re Zialcita Administrative Case (Adm. Matter No.
90-6015-SC, 18 Oct. 1990). The ruling apparently repudiated, or at co-owners; no corporate income tax is due on mere co-
least is inconsistent with, its earlier decision in Commissioner vs. ownerships. It was, therefore correct for Ruiz and Cruz to merely A: The assignment can neither be held to be a gift. To be
Victoriano (G.R. No. 83176, 10 August 1989). pay their individual income tax liabilities on the real estate considered a gift within the context of the NIRC, there must be a
transactions. transfer of ownership or a quantifiable interest. More
1991 Bar, Q. VI: Robert Patterson is an American who first importantly, the transfer of the membership certificate was
arrived in the Philippines in 1944 as a member of the U.S. Armed 1991 Bar, Q. VIII(1): ABC Computer Corp. purchased some years merely a designation of the consultant to be the “playing
Forces that liberated the Philippines. After the war, he returned ago Membership Certificate No. 7 from the Calabar Golf Club, representative" of ABC Computer Corporation in the Calabar Golf
to the United States but came back to the Philippines in 1958 Inc. for P300.000.00. In 4 September 1985, it transferred the Club.
and stayed here up to the present He is presently employed in same to Mr. John Johnson, its American computer consultant, to
the United States Naval Base. Olongapo City. For the year 1985, enable him to avail of the facilities of the Club during his stay 1991 Bar, Q. IX(1): Newtex International (Phils.) Inc. is an
he earned US$10,856.00. Sometime in 1986, the District Revenue here. The consultancy agreement expired two (2) years later. In American firm duly authorized to engage in business in the
Office of the Bureau of Internal Revenue served him a notice the meantime, the value of the Club share appreciated and what Philippines as a branch office. In its activity of acting as a buying
informing him that he did not file his income tax return for the was purchased by the corporation at P300,000.00, commanded a agent for foreign buyers of shirts and dresses abroad and
year 1985 and directing him to file said return in 10 days. He market value of P800.000.00 in 1987. Before he returned home a performing liason work between its home office and the Filipino
refused to file any return claiming that he is not a resident alien few days after his tenure ended, Mr. Johnson transferred the garment manufacturers and exporters. Newt ex does not
and is therefore not required to file any income tax return. subject share to Mr. Robert James, the new consultant of the generate any income. To finance its office expenses here, its
firm and the newly designated playing representative, under a head office abroad regularly remits to it the needed amount. To
Is Patterson’s claim correct? Deed of Declaration of Trust and Assignment of Shares wherein oversee its operations and manage its office here, which had
the former acknowledged the absolute ownership of ABC been in operation for two (2) years, the head office assigned
A: Patterson’s claim is not correct. While Paterson is exempt from Computer Corp. over the share, that the assignment was without three (3) foreign personnel.
income tax, an exemption from income tax does not, however, any consideration, and that the share was placed in his name
necessarily mean an exemption likewise from the filing of an because the Club required it to be done. Is Newtex International (Phils.) Inc. subject to VAT?
income tax return {Garrison vs. Court of Appeals, 187 SCRA 525).
Is the assignment/transfer of the shares from Johnson to James A: Newtex International (Phils.) Inc. is not subject to VAT. The VAT
1991 Bar, Q. VII: Roberto Ruiz and Conrado Cruz bought three (3) subject to Income tax? is imposed on sellers and not on buyers. The branch office did not
parcels of land from Rodrigo Sabado on 4 May 1976. Then on 8 derive any income or compensation so as to possibly permit the
July 1977, they bought two (2) parcels of land from Miguel A: The assignment or transfer of shares from Johnson to James is imposition of a VAT on compensation for services rendered. In
Sanchez. In 1988, they sold the first three parcels of land to not subject to income tax. There had been no real change of addition, since the transactions are direct export sales, the VAT
Central Realty, Inc. In 1989, they sold the two parcels to Jose ownership that took place. There having been no actual sale or does not apply. Export sales are among those that are either zero
Guerrero. Ruiz and Cruz realized a net profit of P100,000.00 for exchange, no income tax incidence can be said to have occurred, rated or exempt from VAT (Secs. 99-100, NIRC).
the sale in 1988 and PI50,000.00for the sale in 1989. The in addition, there was really no income realized or received
corresponding capital gains taxes were individually paid by Ruiz considering that in the Deed of Declaration of Trust and 1991 Bar, Q. IX(1): Newtex International (Phils.) Inc. is an
and Cruz. Assignment of Shares, the absolute ownership of ABC Computer American firm duly authorized to engage in business in the
Corporation was explicitly recognized. Philippines as a branch office. In its activity of acting as a buying
On 20 September 1990, however, Ruiz and Cruz received a letter agent for foreign buyers of shirts and dresses abroad and
from the Commissioner of Internal Revenue assessing them 1991 Bar, Q. VIII(2): ABC Computer Corp. purchased some years performing liason work between its home office and the Filipino
deficiency corporate income taxes for the years 1988 and 1989 ago Membership Certificate No. 7 from the Calabar Golf Club, garment manufacturers and exporters. Newt ex does not
because, according to the Commissioner, during said years they, Inc. for P300.000.00. In 4 September 1985, it transferred the generate any income. To finance its office expenses here, its
as co-owners in the real estate transactions, formed an same to Mr. John Johnson, its American computer consultant, to head office abroad regularly remits to it the needed amount. To
unregistered partnership or joint venture taxable as a enable him to avail of the facilities of the Club during his stay oversee its operations and manage its office here, which had
corporation and that the unregistered partnership was subject to here. The consultancy agreement expired two (2) years later. In been in operation for two (2) years, the head office assigned
corporate income tax, as distinguished from profits derived from the meantime, the value of the Club share appreciated and what three (3) foreign personnel.
the partnership by them, which is subject to individual income was purchased by the corporation at P300,000.00, commanded a
tax. market value of P800.000.00 in 1987. Before he returned home a Are the three foreign personnel subject to Philippine income
few days after his tenure ended, Mr. Johnson transferred the tax?
Are Robert Ruiz and Conrado Cruz liable for deficiency corporate subject share to Mr. Robert James, the new consultant of the
income tax? firm and the newly designated playing representative, under a A: The three (3) foreign personnel are subject to tax on the
Deed of Declaration of Trust and Assignment of Shares wherein income that they receive for services rendered in the Philippines.
A: Roberto Ruiz and Conrado Cruz are not liable for corporate the former acknowledged the absolute ownership of ABC Non-resident aliens are subject to tax on income from sources
income tax. Abandoning evidently the Gatchalian rule, the Computer Corp. over the share, that the assignment was without within the Philippines., Income is deemed derived from sources
Supreme Court in a recent ruling (Pascual vs. Court of Tax Appeals, any consideration, and that the share was placed in his name within the country when it is earned for services rendered in the
G.R No. 78133, 18 Oct. 1988), held that isolated transactions by because the Club required it to be done. Philippines (Sec. 22. in relation to Sec. 36, NIRC).
two or more persons do not warrant their being considered as an
unregistered partnership. They will instead be considered as mere Is the said assignment a gift and, therefore, subject to gift tax?
1991 Bar, Q. X: Colawin Marketing Corp. (CMC) sells goods and of P950.000.00, Mr. Legaspi transferred to the corporation a does not bar the collection of the NIRC taxes, and no injunction
renders services to Pinatubo Inc., a contractor for the U.S. Base. parcel of land that he owns by virtue of a Deed of Assignment. maybe issued by any court (except by the Court of Tax Appeals as
CMC applies for zero rate. Is it qualified for zero rating under the Upon investigation, the BIR discovered that Mr. Legaspi acquired an incident to a timely petition for review). In the absence of a
pertinent Tax Code provisions on VAT? said property for only P500,000.00. petition for review with the Court of Tax Appeals which may be
brought by a taxpayer within thirty (30) days from the receipt of
A: CMC is not qualified for zero rating. The goods and services Is the CDI liable for any taxable gain? the final decision of the Commissioner, the Court of Tax Appeals
rendered to Pinatubo, Inc.. evidently a domestic corporation, has no jurisdiction to take cognizance thereof (See Sec. 11, RA.
cannot be considered as an export sale. Pinatubo Inc. is but a A: CDI Itself Is not liable for any taxable gain since subscription 1125). Premises considered, the action taken by the
contractor for the U.S. Base. The sales which are subject to zero payments are not considered as taxable income being merely Commissioner with the Regional Trial Court was appropriate and
percent are export sales and sales to persons or entities whose investments in the corporation. However, a taxable incidence may in accordance with law.
exemption under special laws or by an International Agreement occur as and when the corporation sells the parcel of land for a
where the Philippines is a signatory effectively subjects such sales price over and above the value of the shares of stock or in this Alternative: Once a request for reconsideration is made by the
to zero rate (Sec. 100, NIRC). case over and above P950,000.00. Until such time, however, there taxpayer on an assessment of the BIR within 30 days from receipt
is no realizable income on the part of the corporation. thereof, the Commissioner is bound to make a decision thereon.
That decision is the one appealable to the Court of Tax Appeals.
1991 Bar, Q. XI(1): Cebu Development Inc. (CDI) has an
1991 Bar, Q. XII: Antonio Cruz was appointed by the Regional But if the taxpayer does not appeal within the 30day period, the
authorized capital stock of P5,000,000,00 divided into 50,000
Trial Court as Administrator in the testate proceedings for the assessment becomes final and executory and demandable. The
shares with a par value of One Hundred Pesos (P100.00) per
settlement of the estate of his deceased father. On 12 February implication of this new provision in the NIRC is that the
share. Of the authorized capital stock, twenty-five thousand
1987, the Commissioner of Internal Revenue issued a deficiency Commissioner cannot collect the tax as long as the taxpayer has
(25,000) shares have been subscribed. Mr. Juan Legaspi is a
estate tax assessment for the estate in question in the amount still the right to appeal from the Commissioner’s action.
stockholder of CDI where he has subscription amounting to
13,000 shares. To fully pay his unpaid subscription in the amount of P2.816,514.60. The notice of deficiency assessment was
of P950.000.00, Mr. Legaspi transferred to the corporation a received by the Administrator on 19 February 1987. In his letter 1991 Bar, Q. XIII(1): Sometime in 15 September 1990, a shipment
parcel of land that he owns by virtue of a Deed of Assignment. to the Commissioner, dated 21 February 1987, which was of 150 packages of imported goods and personal effects arrived
Upon investigation, the BIR discovered that Mr. Legaspi acquired received by the latter’s office two (2) days later, the and . was unloaded at the Port of Manila. After the amount of
said property for only P500,000.00. Administrator requested for a reconsideration of the assessment P15,887.00 was paid by the consignee as customs duties.
on the ground that the same is contrary to law and is not internal revenue taxes, fees and other charges, the packages
Is Mr. Legaspi liable for any taxable gain? supported by sufficient evidence. He also requested for a period were released from the Customs house. As the packages were
of fifteen (15) days within which to submit the estate’s position being transported from the Customs area to their destination,
A: The transfer by Mr. Legaspi to the corporation of the parcel of paper. the truck carrying them was intercepted at T.M, Kalaw St.,
land in payment of his unpaid subscription did not increase his Ermita, Manila by agents of the Economic Intelligence &
stockholdings in the corporation. It cannot be said that he On 4 August 1988, not having received the promise position Investigation Bureau (EIIB). In a formal communication. EIIB
acquired control of the corporation by virtue of the transfer of the paper, the Commissioner filed with the Court a motion for informed the Collector of Customs that the packages were
land. His percentage of stockholdings in the capital stock of the allowance of claim and for an order of payment of estate taxes, released from the customs zone without proper appraisal to the
corporation remains the same after the transfer as before. praying therein that the administrator be directed to pay the BIR damage of the Government and requested for the issuance of
Therefore, Mr. Legaspi derived taxable gain for his economic gain the aforementioned deficiency tax. The Administrator opposed the necessary warrant of seizure. Seizure proceedings (S.I. No.
which was realized by virtue of the exchange of the land for the the motion alleging that by reasons of the pendency of his 796) was then instituted and the Collector of Customs issued a
liability for the subscription. request for reconsideration, the deficiency assessment has not warrant of seizure and detention.
become final and executory and, therefore, the absence of a
Alternative: Mr. Legaspi is not liable for any taxable gain. The decision on the disputed' assessment is a bar against collection During the progress of the search and seizure, and while the
transaction amounted to an exchange of shares of property for of taxes. He further argued that it is the Court of Tax Appeals, goods were being removed by the Customs agents from the
shares of stock as a result of which the property transferor and not the Regional Trial Court, which has exclusive jurisdiction bodegas where they were stored, the consignee filed a Petition
acquired control of the corporation. The 13,000 shares of stock over the claim. (Civil Case No. 234) with the Regional Trial Court of Manila
acquired in exchange of property was more than fifty percent asking that the Collector of Customs and all his agents be
(50%) of the total subscribed capital stock of Cebu Development, Resolve the motion and issues raised. restrained from further enforcing the aforesaid warrant and
Inc. (CDI) that qualified the transaction as a tax-exempt under the from proceeding with the trial of S.I. 796, and that said warrant
provisions of Sec. 34 (c) (2) of the National Internal Revenue Code. A: Evidently, the request for reconsideration did not express or be declared null and void since the Collector no longer had
specify the grounds therefor. A request for reconsideration in the jurisdiction to issue the same considering that the customs
tenor stated in the problem is insufficient, not being duties and taxes had already been paid and the goods had left
1991 Bar, Q. XI(2): Cebu Development Inc. (CDI) has an
substantiated, to stop the running of the 30-day period within the control and jurisdiction of the Bureau of Customs
authorized capital stock of P5,000,000,00 divided into 50,000
which the assessment may be disputed (Dayrit vs. Cruz, G.R No.
shares with a par value of One Hundred Pesos (P100.00) per
39919, 26 September 1988). The failure of the taxpayer to submit Did the Collector of Customs have Jurisdiction to issue the
share. Of the authorized capital stock, twenty-five thousand
the promised position paper within the said 30-day period had the warrant of seizure and detention?
(25,000) shares have been subscribed. Mr. Juan Legaspi is a
effect of rendering the assessment final and executory. In
stockholder of CDI where he has subscription amounting to
addition, the pendency of a decision on a disputed assessment
13,000 shares. To fully pay his unpaid subscription in the amount
A: On the assumption that the goods were released from Customs Ermita, Manila by agents of the Economic Intelligence & Ricardo San Miguel, an importer, questions the legality of the
custody without proper appraisal as contended by EIIB, the Investigation Bureau (EIIB). In a formal communication. EIIB Executive Order on the grounds that only Congress has the
Collector of Customs had Jurisdiction to issue the warrant of informed the Collector of Customs that the packages were authority to fix the rates of import duties and, in any event, such
seizure and detention. This remedy is generally available in released from the customs zone without proper appraisal to the an Executive Order can take effect only thirty (30) days after
importations tainted with irregularity (Sec. 2531, TCC: Viduya vs. damage of the Government and requested for the issuance of promulgation and the President has no authority to shorten said
Berdiago. 73 SCRA 553). the necessary warrant of seizure. Seizure proceedings (S.I. No. period.
796) was then instituted and the Collector of Customs issued a
warrant of seizure and detention. Are the objections of Mr. San Miguel tenable?
1991 Bar, Q. XIII(2): Sometime in 15 September 1990, a shipment
of 150 packages of imported goods and personal effects arrived
During the progress of the search and seizure, and while the A: No. the objections are not tenable as the Executive Order
and . was unloaded at the Port of Manila. After the amount of
goods were being removed by the Customs agents from the cannot take effect “immediately". Being an “external” law and
P15,887.00 was paid by the consignee as customs duties.
bodegas where they were stored, the consignee filed a Petition having the effect of law, the Executive Order cannot become
internal revenue taxes, fees and other charges, the packages
(Civil Case No. 234) with the Regional Trial Court of Manila effective without publication, a requirement of due process
were released from the Customs house. As the packages were
asking that the Collector of Customs and all his agents be (Tanada vs. Tuvera, 136 SCRA27; Executive Order No. 202).
being transported from the Customs area to their destination,
restrained from further enforcing the aforesaid warrant and
the truck carrying them was intercepted at T.M, Kalaw St.,
from proceeding with the trial of S.I. 796, and that said warrant Alternative: Under the Flexible Tariff Clause (Sec. 401, Tariff and
Ermita, Manila by agents of the Economic Intelligence &
be declared null and void since the Collector no longer had Customs Code), any order issued by the President thereunder can
Investigation Bureau (EIIB). In a formal communication. EIIB
jurisdiction to issue the same considering that the customs generally take effect only thirty (30) days after its issuance. In
informed the Collector of Customs that the packages were
duties and taxes had already been paid and the goods had left cases however of an order imposing additional import duties, the
released from the customs zone without proper appraisal to the
the control and jurisdiction of the Bureau of Customs. law provides that the same can take effect immediately.
damage of the Government and requested for the issuance of
the necessary warrant of seizure. Seizure proceedings (S.I. No.
Has the Regional Trial Court jurisdiction to hear and decide Civil 1991 Bar, Q. XV: The Municipality of Malolos passed an
796) was then instituted and the Collector of Customs issued a
Case No. 234? ordinance imposing a tax on any sale or transfer of real property
warrant of seizure and detention.
located within the municipality at a rate of one-fourth (1/4) of
A: No. the RTC has no jurisdiction. In the case of seizures and one percentum (1%) of the total consideration of such
During the progress of the search and seizure, and while the
forfeitures, an ordinary court may not take cognizance of the case transaction. X sold a parcel of land in Malolos which he inherited
goods were being removed by the Customs agents from the
and. therefore, said courts would be bereft of jurisdiction to hear from his deceased parents and refused to pay the aforesaid tax.
bodegas where they were stored, the consignee filed a Petition
and decide the same. The jurisdiction of the Collector of Customs He instead filed appropriate case asking that the ordinance be
(Civil Case No. 234) with the Regional Trial Court of Manila
in seizure and forfeiture proceedings is exclusive of all other declared null and void since such a tax can only be collected by
asking that the Collector of Customs and all his agents be
courts. The proper remedy would be to go through with the the national government, as in fact he has paid BIR the required
restrained from further enforcing the aforesaid warrant and
hearing of the case with the Collector of Customs from whose capital gains tax. The Municipality countered that under the
from proceeding with the trial of S.I. 796, and that said warrant
decision an appeal may be made to the Commissioner of Customs Constitution, each local government is vested with the power to
be declared null and void since the Collector no longer had
and. thereafter, if the taxpayer still feels aggrieved, to the Court of create its own sources of revenue and to levy taxes, and it
jurisdiction to issue the same considering that the customs
Tax Appeals. imposed the subject tax in the exercise of said constitutional
duties and taxes had already been paid and the goods had left
the control and jurisdiction of the Bureau of Customs. authority.
Observations: The problem does not indicate that the claim of
EIIB was in fact the case. Since the factual settings did not state Resolve the controversy.
Did the payment of the customs duties, taxes, etc. render illegal
categorically that the importation was irregular, it is possible that
and improper the issuance of said warrant?
an examinee would have considered the importation as falling A: The ordinance passed by the Municipality of Malolos imposing
under the administrative remedy of enforcement of tax lien. In a tax on the sale or transfer of real property is void. The Local Tax
A: In seizure and forfeiture, the payment of customs duties, taxes,
this remedy, the collector’s jurisdiction lies only while the goods Code only allows provinces and cities to impose a tax on the
etc., does not necessarily render as irregular and improper the
are in customs custody; hence, upon the release of the goods transfer of ownership of real property (Sec. 7 and Sec. 23, Local
issuance of a warrant of seizure and detention. What is legally
from customs custody a warrant of seizure and forfeiture would Tax Code). Municipalities are prohibited from imposing said tax
consequential is whether there was, in fact, an irregularity
not be justified. The problem did not indicate that there was any that provinces are specifically authorized to levy. (Sec. 22, Local
committed in the importation of the articles and their release
intention to smuggle or even an attempt to smuggle the imported Tax Code).
from customs.
goods.
While it is true that the Constitution has given broad powers of
1991 Bar, Q. XIII(3): Sometime in 15 September 1990, a shipment
1991 Bar, Q. XIV: In view of the unfavorable balance of payment taxation to local government units, this delegation, however, is
of 150 packages of imported goods and personal effects arrived
condition and the increasing budget deficit, the President of the subject to such limitations as may be provided by law (Sec. 5, Art
and . was unloaded at the Port of Manila. After the amount of
Philippines. upon recommendation of the National Economic X, 1987 Constitution).
P15,887.00 was paid by the consignee as customs duties.
and Development Authority, issues during a recess of Congress
internal revenue taxes, fees and other charges, the packages
an Executive Order imposing an additional duty on all imports at 1991 Bar, Q. XVI(1): The Municipality of Argao, Province of Cebu
were released from the Customs house. As the packages were
the rate of ten (10%) percent ad valorem. The Executive Order passed a tax ordinance requiring all professionals practicing in
being transported from the Customs area to their destination,
also provides that the same shall take effect immediately. the municipality to pay a tax equivalent to two (2%) percent of
the truck carrying them was intercepted at T.M, Kalaw St.,
their gross income. A certified true copy of the ordinance was their gross income. A certified true copy of the ordinance was Alternative: On the basis of the facts of the problem. It would
sent to the Secretary of Finance for review on 1 March 1989 and sent to the Secretary of Finance for review on 1 March 1989 and appear that the administrative remedy is no longer available since
was received by him on the same day. On 15 August 1989, even was received by him on the same day. On 15 August 1989, even there is already an attempt to enforce collection. The only remedy
as the tax ordinance remained unacted upon by the Secretary of as the tax ordinance remained unacted upon by the Secretary of of the taxpayer is to pay the tax and sue for its recovery in the
Finance, the municipality started collecting the tax in question. Finance, the municipality started collecting the tax in question. ordinary court.
The members of the Philippine Bar in the municipality The members of the Philippine Bar in the municipality
questioned the legality of the ordinance and sought the questioned the legality of the ordinance and sought the 1991 Bar, Q. XVII: In view of the street widening and cementing
suspension of the collection of the tax. but the municipality suspension of the collection of the tax. but the municipality of roads and the improvement of drainage and sewers in the
argued that since the Secretary has not taken any action on the argued that since the Secretary has not taken any action on the district of Ermita, the City Council of the City of Manila passed an
ordinance for more than one hundred twenty days after his ordinance for more than one hundred twenty days after his ordinance imposing and collecting a special levy on lands in the
receipt thereof, the legality of the ordinance can no longer be receipt thereof, the legality of the ordinance can no longer be district. Jose Reyes, a landowner and resident of Ermita,
questioned and insisted on the collection of the tax. questioned and insisted on the collection of the tax. submitted a protest against the special levy fifteen (15) days
after the last publication of the ordinance alleging that the
Is the tax ordinance in question legal? Will the inaction of the Secretary of Finance bar the special levy was exorbitant since the rate thereof was more than
professionals in the Municipality from questioning the legality of the maximum rate of two (2%) percent of the assessed value of
A: No. the tax ordinance is not legal as the Local Tax Code allows that ordinance? the real properties allowed by Section 39 of P.D. 464, as
provinces and cities, to the exclusion of municipalities, to impose amended.
an annual occupation tax on all persons engaged in the exercise or A: The inaction of the Secretary of Finance does not bar the
practice of their profession or calling in specified amounts which professionals in the Municipality from questioning the legality of Assuming that Jose Reyes is able to prove that the rate of the
in the case of lawyers is P75.00 per annum (Secs. 11 and 12 in the ordinance. While it is true that the Secretary of Finance may special levy is more than the aforesaid percentage limitation of
relation to Sec. 23, Local Tax Code). A person authorized to himself suspend the tax ordinance within a 120-day period from 2%, will his protest prosper?
practice his profession or calling shall pay the tax to the province receipt thereof, his failure to do so, however, has no preclusive
where he practices his profession or calling or maintains his office. effect on taxpayers who may be adversely affected by the A: The special levy under the Real Property Tax Code on lands,
No local government unit can impose a tax on income (Sec. 5, ordinance. specially benefited by the proposed infrastructure, may not
Local Tax Code). exceed sixty per cent (60%) of the cost of said improvement. All
1991 Bar, Q. XVI(2): The Municipality of Argao, Province of Cebu lands comprised within the district benefited are subject to the
1991 Bar, Q. XVI(2): The Municipality of Argao, Province of Cebu passed a tax ordinance requiring all professionals practicing in special levy except lands exempt from the real property tax (Sec.
passed a tax ordinance requiring all professionals practicing in the municipality to pay a tax equivalent to two (2%) percent of 47. RPT). The protest shall be filed not later than 30 days after the
the municipality to pay a tax equivalent to two (2%) percent of their gross income. A certified true copy of the ordinance was publication of the ordinance and may be submitted to the City
their gross income. A certified true copy of the ordinance was sent to the Secretary of Finance for review on 1 March 1989 and Sanggunian signed by a majority of the landowners affected by
sent to the Secretary of Finance for review on 1 March 1989 and was received by him on the same day. On 15 August 1989, even the proposed work. If no such protest is filed in the manner above
was received by him on the same day. On 15 August 1989, even as the tax ordinance remained unacted upon by the Secretary of specified, the city ordinance shall become final and effective. The
as the tax ordinance remained unacted upon by the Secretary of Finance, the municipality started collecting the tax in question. levy imposed under the ordinance should be within the limit of
Finance, the municipality started collecting the tax in question. The members of the Philippine Bar in the municipality sixty percent (60%) of the total cost of the proposed
The members of the Philippine Bar in the municipality questioned the legality of the ordinance and sought the improvement. The rate of two percent (2%) of the assessed value
questioned the legality of the ordinance and sought the suspension of the collection of the tax. but the municipality under Sec. 39 of P.D. 464refers to the real property tax and not to
suspension of the collection of the tax. but the municipality argued that since the Secretary has not taken any action on the special levies.
argued that since the Secretary has not taken any action on the ordinance for more than one hundred twenty days after his
ordinance for more than one hundred twenty days after his receipt thereof, the legality of the ordinance can no longer be 1991 Bar, Q. XVIII(1): Dagat-dagatan Shipping Corp. (DSC)
receipt thereof, the legality of the ordinance can no longer be questioned and insisted on the collection of the tax. brought into the country two (2) non-propelled foreign barges
questioned and insisted on the collection of the tax. which DSC chartered for use in the Philippine coastwise trade
What remedies are available to the taxpayer to enable him to under a Temporary Certificate of Philippine Registration, to be
Is the Municipality correct in insisting on collecting the tax? question the legality of that ordinance? returned to the foreign owner upon termination of the charter
period but not beyond 1999, pursuant to P.D. No. 760, as
A: No, the Municipality was incorrect in insisting on the collection A: The taxpayer may pursue his remedies either administratively amended. Upon their arrival, the barges were subjected to duty
of the tax. Once the tax on occupation is paid as stated in or Judicially. He may, as the case warrants, file a formal protest by the Bureau of Customs. DSC refused to pay any customs duty
paragraph (a), above, the lawyer is entitled to practice his with the Secretary of Finance or query with the Provincial Fiscal contending that the charter or lease of the barges, which will be
profession or calling in all parts of the Philippines without being whose opinion is appealable to the Secretary of Justice whose returned to the foreign owner when the charter expires, is not
subject to any other national or local tax, license or fee for the decision may be contested in the proper court. The other remedy an importation and, therefore cannot be subjected to any
practice of such profession or calling. would be to file a special civil action for declaratory relief (if customs duty.
circumstances still warrant) or to pay the tax and thereafter to file
1991 Bar, Q. XVI(3): The Municipality of Argao, Province of Cebu an action for refund within six (6) years after such payment. Is DSC's refusal with or without legal basis?
passed a tax ordinance requiring all professionals practicing in
the municipality to pay a tax equivalent to two (2%) percent of
A: DSC’s refusal is without legal basis. The term imposition
includes the entry into the country of any article from a foreign
country. The fact that imported goods are to be re-exported does
not mean that the customs duties may not be imposed, although,
in certain cases and subject to limitations prescribed by the Tariff
and Customs Code a drawback may be available to the taxpayer
so as to be able to obtain their refund. An example of which are
articles which are used in the manufacture of products for export
within three (3) years after the importation.

1991 Bar, Q. XVIII(1): Dagat-dagatan Shipping Corp. (DSC)


brought into the country two (2) non-propelled foreign barges
which DSC chartered for use in the Philippine coastwise trade
under a Temporary Certificate of Philippine Registration, to be
returned to the foreign owner upon termination of the charter
period but not beyond 1999, pursuant to P.D. No. 760, as
amended. Upon their arrival, the barges were subjected to duty
by the Bureau of Customs. DSC refused to pay any customs duty
contending that the charter or lease of the barges, which will be
returned to the foreign owner when the charter expires, is not
an importation and, therefore cannot be subjected to any
customs duty.

On what is the dutiable value of any imported article based?

A: The dutiable value of imported articles is the home


consumption cost value, i.e., the cost or fair market value or price
of the imported articles in wholesale quantities in the principal
market of the exporting country or country of origin, including
expenses collected from importation such as insurance, freight,
packaging, loading and unloading charges but excluding internal
excise taxes. In case such value is unascertainable, the
Commissioner may also determine the home consumption value
from any reliable and available data (Sec. 20l.TCC, as amended:
Commissioner vs. Court of Tax Appeals, G.R No. 72069,21 May
1988).