Professional Documents
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TAX REMEDIES
If you were the Commissioner of Internal Revenue, would you grant the
claim for refund?
Answer:
If I were the Commissioner of Internal Revenue, I would allow the claim for
refund. The remittance tax should be computed on the amount actually remitted
(Marubeni Corporation vs. Commissioner , G.R. No. 76573, 14 September 1989).
In the refund of taxes, the claim therefor can be filed within two (2) years from the
time of payment so long as the tax payment was made before an assessment by the
Commissioner has become final (Sec. 230. NIRC).
On October 17, 1991, following the decision of the Supreme Court that the
money value of the accumulated leave credits/ terminal pay is not subject to
withholding tax. Mr. Raymundo filed a claim for refund of P56, 000.00 with the
Commissioner of Internal Revenue.
Answer:
No. Under section 230 of the NIRC, a suit for the recovery of tax erroneously or
illegally collected cannot be filed after the expiration of two years from the date
payment of tax of tax regardless of any supervening cause that may arise after
payment. Thus, the right of Mr. Raymundo to claim for refund has already
prescribed.
2. If the retiree is within his legal rights in claiming refund of the taxes withheld,
will the BIR automatically grant his claim? Explain your answer.
Answer:
Comment:
The question expresses that the retiree is “within his legal rights” in claiming
the refund of the taxes withheld. Accordingly, an examinee can assume that all the
requirements have been met with respect to the refund. In this sense, an examinee
may be led to say it can be automatic.
3. Assuming that the BIR denies the claim for refund. What could be the possible
reason or statutory basis for such a denial?
Answer:
The possible reason for a denial would be that the written claim has already
prescribed or that the terminal pay leave is not excluded from income tax. Sec.
230, NIRC (Supra).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Suggested Answer:
The theory of supervening event expresses that an event which is beyond the
control of the parties would allow the recovery of erroneously or illegally collected
taxes provided the proceeding for such recovery is made within the prescriptive
period from the occurrence of such event.
The theory of the supervening event has been abrogated by section 230 of the
NIRC.
ANSWER:
(a) The administrative and judicial remedies are such as may be provided for in
law imposing the tax. An expression of such remedies in the law should
then be deemed exclusive by the taxpayer. When the law imposing the tax is
silent on remedies, the law and rules and procedures of general application
shall then govern.
(b) Under the NIRC, an aggrieved taxpayer may either (1) dispute an
assessment within thirty days from receipt thereof by filling the
Commissioner of all Internal Revenue a request for reconsideration of
reinvestigation or (2) pay the assessment within the thirty days then file a
written claim with the Commissioner of Internal Revenue for refund within
two years from full and final payment.
Upon an adverse decision of the Commissioner and within thirty days from
receipt of notice of denial, an appeal may be filed with the Court of Tax
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Appeals. However, with respect to claims for refunds, an appeal must also
be filed respect to claims for refunds, an appeal must also be filed within
two years from the date of full and final payment.
From the decision of the Court of Tax Appeals, an appeal or petition for
review by certiorari nay be taken to the Court of Appeals and then to the
Supreme Court in Appropriate cases.
Comment:
An examinee should also be given credit if the remedies under the tariff
and Customs Code were instead discussed.
Answer:
3) What are the requisite before a taxpayers request for reinvestigation may be
granted by the BIR? Discuss briefly.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Answer:
Alternative Answer:
He must file a written protest stating his grounds therefor so that his protest
could be granted.
Comment:
This question involves knowledge of BIR Circulars which are not included in the
BAR Examination coverage.
Answer:
Alternative Answer:
On the assumption that the denial by the BIR was not made by the Commissioner
himself but by the regional officer, for instance or that the request for re-
investigation is not on an assessment as yet, then it may necessarily constitute a
decision on a disputed assessment from which an appeal may be made to the
Court of Tax Appeals.
The problem did not indicate the subject matter of the request for re-investigation
nor the officials acting for and in behalf of the BIR in the denial of the request for
re-investigation. Assuming that the matters of request for re-investigation were
not an assessment or that the denial was made by a lower official, then there
would still be a need for pursuing a administrative remedies.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Under the RP-US Tax Treaty, deductions allowed as tax on dividends earned at
source were fixed at lower rates giving rise to overpayment of the tax on dividends
paid to the non-resident US stockholders (Representing the difference between and
the amount supposed to have been withheld under the mentioned tax covenant).
Answer:
Yes. A subsidiary, while not the real party in interest, could prosecute a claim of
refund in behalf of its non0resident stockholders by virtue of its being the
withholding agent for the government in respect of the cash dividends it declared
(Comm. Vs. Wander Phils.)
Alternative Answer:
No. the tax is due on the non-resident stockholders. The rule is that the refund
may be claimed by the taxpayer on whom the tax is imposed and who effectively
paid the tax.
Fitness, Inc. was not satisfied and on January 18, 1980, it filed a petition for
review of the decision in the CTA to enjoin the enforcement of the assessment. On
February 7, 1980, the BIR issued a warrant of distraint against Fitness, Inc. The
CTA enjoined the collection of the deficiency taxes by virtue of the warrant of
distraint. It was argued by Fitness, Inc. that the right of the BIR to collect its
alleged deficiency taxes had already prescribed. Rule on the argument.
Answer:
The warrant of distraint was served on the taxpayer within the prescriptive
period [then 5 years, now three (3) years]. In Commissioner v. Wyeth Suaco (202
SCRA 125), the court ruled that the prescriptive period provided by law to make
collection by distraint and/or levy or by a proceeding in court is interrupted once a
taxpayer protests the assessment and requests for its cancellation. Thus, when the
taxpayer protested the assessment on 8 February 1975, the prescriptive to collect
was interrupted and resumed on 10 December 1979. When the Commissioner
issued the warrant of distraint on 7 February 1980 it was well within the five-year
(now 3 years) prescriptive period to collect.
Alternative Answers:
a) The Bureau of Internal Revenue (“BIR”) shall assess internal revenue taxes
within three (3) years after the last day in court without assessment for the
collection of such taxes shall be begun after the expiration of such period (Section
203 of the National Internal Revenue Code [“NIRC”]. However, this three (3)-year
prescriptive period shall be suspended when the taxpayer requests for a
reinvestigation and which is granted by the Commission (Section 224 of NIRC). In
case an assessment was made, the tax may be collected within three (3) years from
the date of assessment (Collector of Internal Revenue v. Pineda, 2 SCRA 401;
Umali, Roman A., Reviewer in Taxation, 1985 pp. 486-487; Vitug, Jose C.,
Compendium of Tax Law and Jurisprudence, 2nd Rev., Ed., 1989, p. 255). If the
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
taxpayer asks for a reinvestigation is made, and on the basis of which the BIR
makes another assessment, the three (3)-year period for collection is to be counted
from the last assessment (Rep. V. Lopez, 7 SCRA 566; Rep. V. Acebedo, 22
SCRA 1356; Umali, Roman A., Reviewer in Taxation, 1985 pp. 486-487; Vitug,
Jose C., Compendium of Tax Law and Jurisprudence, 2nd Rev., Ed., 1989, p. 255).
In the case at bar, the running of the three (3)-year prescriptive period for the
BIR to collect taxes started to run only on 10 December 1979, when a final
assessment was made by the BIR reducing the tax due to One Million Five
Hundred Thousand Pesos (P 1,500,000.00). The ccollesction was effected on 7
February 1980, by issuing a warrant of distraint against Fitness, Inc. Hence, the
action of the BIR to collect the deficiency taxes was clearly within the three (3)-
year prescriptive period.
b)The right of the BIR to collect the deficiency taxes has not prescribed, as the
prescriptive period is reckoned from the date of the reduced assessment, which is
December 10, 1979. The BIR has three (3) years from said date to collect.
Note:
Beginning 1984, the prescriptive period of the right of the government to assess
and collect internal revenue taxes was reduced from five (5) to three (3) years.
the BIR filed in the Testate Estate Proceedings of X a claim for P 200,000.00 the
unpaid forest charges left by X, the administrator of the estate opposed the claim
on the ground of prescription. Decide.
Answer:
Where assessment was made, the tax may be collected within five (5) years
(now 3 years) from the date of assessment (Collection of Internal Revenue v.
Pineda, 2 SCRA 401; Umali, Roman A., Reviewer in Taxation, 1985, pp. 486-487;
Vitug, Jose C., Compendium of Tax Law and Jurisprudence, 2nd Rev., Ed., 1986, p.
255).
In the case at bar, X on the bases of the notice of assessment, voluntarily made
a partial payment to the Bureau of Internal Revenue in the amount of One Hundred
Thousand Pesos (P 100,000.00). However, it took the BIR almost more than five
(5) years to take the necessary legal action to collect the remaining amount of taxes
due.
This is clearly beyond the five (5) now three (3) year period for the collection
of taxes. Hence, the claim filed by the BIR against the Estate of X for the payment
of Two Hundred Thousand Pesos (P 200,000.00) has prescribed.
Alternative Answers:
a) The claim has prescribed as the BIR has only three (3) years from the date
of the assessment to collect.
b) Taxes are money claims that must be filed with the probate court within the
period provided for in the Rules of Court (Section 1 and 2, Rule 86). In the case of
Domingo v. Garlitos (8 SCRA 443), the court ruled that the claims shall be barred
if filed beyond the prescribed period just like any other money claims. But the
ruling in Garlitos was superseded by Vera v. Fernandez which ruled that estate
taxes are payable even if presented beyond the period in the statute of non-claims
in the Rules of Court.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
The Commissioner of Internal Revenue filed a motion with the Labor Arbiter to
annul the sale and enjoin the sheriff from disposing the proceeds thereof. The
employees of OCEANIC opposed the motion contending the Art. 110 of the Labor
Code gives first preference to claims for unpaid wages.
Answer:
The motion filed by the Commissioner should be granted because the claim
of the government for unpaid taxes are generally preferred over the claims of the
laborers for unpaid wages. The provision of Article 110 of the Labor Code, which
give laborer’s claims for preference applies only in case of bankruptcy and
liquidation of the employer’s business. In the instant case, Oceanic is not under
bankruptcy or liquidation at the time the warrant distraint and levy were issued
hence, the opposition of the employees is unwarranted. (CIR vs. NLRC et al. G.R.
No. 74965, November 9, 1994).
Businessman Stephan Yang filed an income tax return for 1993 showing
business net income of P350,000.00 on which he paid an income tax of
P61,000.00. After filing the return he realized that he forgot to include an item of
business income in 1993 for P50,000.00. Being an honest tax payer, he included
this income in his return for 1994 and paid the corresponding income tax thereon.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
In the examination of his 1993 return the BIR examiner found that Stephen
Yang failed to report this item of P50,000.00 and assessed him a deficiency income
tax on this item, plus a 50% fraud surcharge.
1) The examiner is correct in assessing a deficiency income tax for taxable year
1993 but not imposing the 50% fraud surcharge. The amount of all items of
gross must be included in gross income during the year which is received or
realized (Sec. 38, NIRC). The 50% fraud surcharge attaches only if a false or
a fraudulent return is willfully made by Mr. Yang (Sec. 248, NIRC). The
fact that Mr. Yang included the income in his 1994 return any belies any
claim of willfulness but is rather indicative of an honest mistake which was
sought to be rectified by a subsequent act, that is the filing of the 1994
return.
2) Mr. Yang should have amended his 1993 income tax return to allow for the
inclusion of the P50,000 income during the taxable period it was realized.
3) Mr. Yang should file a protest questioning the 50% surcharge and ask for the
abatement thereof.
Alternative Answer:
Mr. Yang should pay the deficiency income tax on or before the day
prescribed for its payment per notice of demand. After payment and within two
years thereafter, he should file a claim for refund of taxes erroneously paid to
recover the excessive surcharge imposed.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
4) Mr. Yang should file a written claim for refund with the Commissioner of
Internal Revenue of the taxes paid on the P50,000.00 income included in
1994 within two years from payment pursuant to Section 204(3) of the Tax
Code. Should this remedy fail in the administrative level, a judicial claim for
refund can be instituted before the expiration of the two year period.
Answer:
The taxpayer’s remedies under the National Internal Revenue Code may be
categorized into remedies before payment and remedies after payment. The remedy
before payment consists of administrative remedy which is the filing of protest
within 30 days from receipt of assessment, and judicial remedy which is the appeal
of the adverse decision fot he Commissioner on the protest with the Court of
Appeals and finally with the Supreme Court.
The remedy after payment is availed of by paying the assessed tax within 30
days from receipt of assessment and the filing of a claim for refund or tax credit of
these taxes on grounds that thye are erroneously paid within two years form date of
payment. If there is a denial of the claim, appeal to the CTA shall be made within
thirty days from denial but within two years from date of payment. If the
Commissioner fails to tact on the claim for refund or tax credit and the two year
period ids about to expire, the taxpayer should consider the continuous inaction of
the Commissioner as a denial and elevate the case to the CTA before the expiration
to f two year period.
Under the Tariff and Customs Code., taxpayer’s remedies arise only after
payment of duties. The administrative remedies consists of filing a claim for refund
which may take the form of abatement or drawback. The taxpayer can also file a
protest within 15 days from payment if he disagrees with the ruling or decision of
the Collector of Customs regarding the legality or correctness of the assessment of
customs duties. If the decision for the Collector is adverse to the taxpayer, he can
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
notify the Collector within 15 days from receipt of said decision for his desire to
have his case reviewed by the Commissioner. The decision of the Collector on the
taxpayer’s protest. If adverse to the Government, is automatically elevated to the
Commissioner for review: and if such decision is affirmed by the Commissioner,
the same shall be automatically elevated to an finally reviewed by the Secretary of
Finance.
Resort to judicial relief can be had by the taxpayer by appealing the decision
for the Commissioner or of the Secretary of Finance for cases subject to automatic
review within 30day s form the promulgation of the adverse decision to CTA.
Answers:
During the pendency of seizure proceedings the importer may secure the
release of the imported property for legitimate use by posting a bond in an amount
to be fixed by the Collector, conditioned for the payment of the appraised value of
the article and/or any fine, expenses and costs which may be adjudged in the case;
provided that articles the importation of which prohibited by law shall not be
released under bond.
The importer may also offer to pay to the collector a fine imposed by him
upon the property to secure its release or in case of forfeiture, the importer shal
offer to pay for the domestic market value of the seized article, which offer subject
to the approval of the Commissioner may be accepted by the Collector in
settlement of the seizure case, except when there is fraud. Upon payment of the
fine or domestic market value, the property shall be forthwith released and all
liabilities which may or might attach to the property by virtue of the offense which
was the occasion of the seizure and all liability which might have been incurred
under any bond given by the importer in respect to such property shall thereupon
be deemed to be discharged.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
For the first quarter of 1993, it paid on 30 May 1993 its quarterly income tax
in the amount of P3.0 million. On 20 August 1993, it paid the second quarterly
income tax of P0.5 million. The third quarter resulted in a net loss, and no tax was
paid. For the fourth and final return for 1993, the company reported a net loss for
the year, and the taxpayer indicated in the income tax return that it opted to claim
refund of the quarterly income tax payments.
Answer:
The claim for refund has prescribed. The counting of the two year
prescriptive period for filing a claim for refund is counted not from the date when
the quarterly income taxes were paid but on the date when the final adjustment
return of annual income tax return was filed (CIR v. TMX Sales Inc., G.R. No.
83736, January 15, 1992; CIR v. Philam Life Insurance Co., Inc. G.R. No. 105208,
May 29, 1995). It is obvious that the annual income tax return was filed before
January 10, 1994 because the written claim for refund was filed with the BIR on
January 10, 1994. Since the two year prescriptive period is not only a limitation of
action in the administrative stage but also a limitation of action for bringing the
case to the judicial stage, the petition for review filed with the CTA on March 02,
1996 is beyond the reglementary period.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
(b) Under the above factual setting, the taxpayer, instead of questioning the
assessment he received in 15 January 1996 paid, on 01 March 1996 the
“deficiency tax” assessed. The taxpayer requested a refund from the Commissioner
by submitting a written claim on
01 March 1997. It was denied. The taxpayer, on 15 March 1997, filed a petition
for review with the Court of Appeals. Could the petition still be entertained?
Answer:
(a) No. Before taxpayer can avail of judicial remedy he must first exhaust
administrative remedies by filing a protest within 30 days from receipt of the
assessment. It is the Commissioner’s decision on the protest that give the Tax
Court jurisdiction over the case provided that the appeal is filed within 30 days
from receipt of the Commissioner’s decision.
An assessment by the BIR is not the Commissioner’s decision from which a
petition for review may be filed with the Court of Tax Appeals. Rather, it is the
action taken by the Commissioner in response to the taxpayer’s protest on the
assessment that would constitute the appealable decision (Section 7, RA 1125).
(b) No, the petition for review can not be entertained by the Court of
Appeals, since decisions of the Commissioner on cases involving claim for tax
refunds are within the exclusive and primary jurisdiction of the Court of Tax
Appeals (Section 7, RA 1125).
VIII. (1998)
Suggested Answer:
Yes. The BIR is authorized to collect estate tax deficiency through the
summary remedy of levying upon and sale of real properties of a decedent, without
the cognition and authority of the court sitting in probate over the supposed will of
the deceased, because the collection of estate tax is executive in character. As such
the estate tax is exempted from the application of the statute of non-claims, and
this is justified by the necessity of government funding, immortalized in the maxim
that taxes are the lifeblood of the government (Marcos v. CIR. G.R. No. 120880,
June 5, 1997).
Alternative Answer:
Yes, if the tax assessment has already become final, executor and
enforceable. The approval of the court sitting in probate over the supposed will of
the deceased is not a mandatory requirement for the collection of the estate tax.
The probate court is determining issues which are not against the property of
the decedent, or a claim against the estate as such, but is against the interest or
property right which the heir, legatee, devisee, etc. has in the property formerly
held by the decedent. (Marcos v. CIR. G.R. No. 120880, June 5, 1997).
XV. (1998)
An information was filed in court for willful non-payment of income tax the
assessment of which has become final. The accused, through counsel, presented a
motion that he be allowed to compromise his tax liability subject of the
information. The prosecutor indicated his conformity to the motion. Is this
procedure correct? [5%]
Suggested Answer:
Alternative Answer
No. If the compromise referred to is the civil aspect, the procedure followed
is not correct. Compromise for the payment of any internal revenue tax shall be
made only by the Commissioner of Internal Revenue or in a proper case the
Evaluation Board of the BIR (Sec. 204, NIRC). Applying the law to the case at bar,
compromise settlement can only be effected by leave of Court.
XVII. (1998)
Suggested Answer:
XVIII. (1998)
Suggested Answer:
Alternative Answer
No. because the assessment has not yet become final, executor and
demandable. The basic consideration in the collection of taxes is whether the
assessment is final and unappealable or the decision of the Commissioner is final,
executor and demandable, the BIR has legal basis to collect the tax liability by
either administrative of judicial action.
XIX. (1998)
Suggested Answer:
warrant of distraint and levy is not considered as a denial by the BIR of the protest
filed by CFB Corporation (CIR v. Union Shipping Corp,. 185 SCRA 547).
Within thirty (30) days from receipt of such denial “in clear and unequivocal
language,” I shall then file a petition for review with the Court of Tax Appeals.
Alternative Answer:
Within thirty (30) days from receipt of the warrant of distraint and levy. I
shall file a petition for review with the Court of Tax Appeals with an application
for issuance of a writ of preliminary injunction to enjoin the Bureau of Internal
Revenue from enforcing the warrant.
This is the action I shall take because I shall consider the issuance of the
warrant as a final decision of the Commissioner of Internal Revenue which could
be the subject of appeal to the Court of Tax Appeals (Yabes v.Flojo, 15 SCRA
278). The CTA may, however, remand the case to the BIR and require the
Commissioner to specifically rule on the protest. The decision of the
Commissioner, if adverse to my client, would then constitute an appealable
decision.
XX. (1998)
Suggested Answer:
I. (1999)
A. Co., a Philippine Corporation, filed its 1995 Income Tax Return (ITR) on April
15, 1996 Income Tax Return (ITR) on April 15, 1996, showing a net loss. On
November 10, 1996, it amended its 1995 ITR to show more losses. After a tax
investigation, the BIR disallowed certain deductions claimed by A Co. putting A
Co. in a net income position. As a result, on August 5, 1999. The BIR issued a
deficiency income assessment against A Co. A Co. protested the assessment on the
ground that it has prescribed: Decide (5%)
Suggested Answer:
The right of the BIR to assess the tax has not prescribed. The rule is that
internal revenue taxes shall be assessed within three years after the last day
prescribed by law for the filing of the return. (Section 203, NIRC). However, if the
return originally filed is amended substantially, the counting of the three-year
period starts from the date the emended return was filed. (CIR v. Phoenix
Assurance Co., Ltd., 14 SCRA 52). There is a substantial amendment in this case
because a new return was filed declaring more losses, which can only be done
either (1) in reducing gross income or (2) in increasing the items of deductions,
claimed.
VI. (1999)
1. Issued an access letter to A Co., to furnish the BIR information on sales and
payments to its suppliers.
2. Issued an access letter to a bank (CX Bank) to furnish the BIR on deposits of
some suppliers of A Co. on the alleged ground that the suppliers are
committing tax evasion.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
A Co., X Bank and the suppliers have not been issued by the BIR letter of
authority to examine. A Co. and X Bank believe that the BIR is on a “fishing
expedition” and come to you for counsel. What is your advice? (10%)
Suggested Answer:
I will advise A Co. and B Co. that the BIR is justified only in getting
information from the former but not from the latter. The BIR is authorized to
obtain information from other persons other than those whose internal revenue tax
liability is subject to audit or investigation. However, this power shall not be
construed as granting the Commissioner the authority to inquire in to bank
deposits. (Section 5, NIRC).
VIII. (1999)
Suggested Answer:
V. (2000)
Suggested Answer:
No. there is no showing that the compromise penalty was imposed by the
Commissioner of internal Revenue with the agreement and conformity of the
taxpayer. (Wonder mechanical Engineering Corporation u. Court of Tax Appeals,
et al., 64 SCRA 555).
XIV. (2000)
Mr. Reyes, a Filipino citizen engaged in the real estate business, filed his
1994 income tax return on March 20, 1995. On December 15, 1995, he left the
Philippines as an immigrant to join his Canada. After the investigation of said
return, the BIR issued a notice of deficiency income tax assessment on April 15,
1998. Mr. Reyes returned to the Philippines as a balikbayan on December 8, 1998.
Finding his name to be in the list of delinquent taxpayers, he filed a protest against
the assessment on the ground that he did not receive the notice of assessment and
that the assessment had prescribed. Will the protest prosper? Explain. (5%)
Suggested Answer:
No. Prescription has not set in because the period of limitations for the
Bureau of Internal Revenue to issue an assessment was suspended during the time
that Mr. Reyes was out of the Philippines or from the period December 15, 1995
up to December 8, 1998. (Sec. 203, both of the NIRC of 1997)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
XVI. (2000)
Suggested Answer:
Suggested Answer:
The Commissioner of Internal Revenue may abate or cancel a tax liability when:
XVII. (2000)
A taxpayer is suspected not to have declared his correct gross income in his
return filed for 1997. The examiner requested the Commissioner to authorize him
to inquire into the bank deposits of the taxpayer so that he could proceed with the
net worth method of investigation to establish fraud. May the examiner be allowed
to look into the taxpayer’s bank deposits? In what cases may the Commissioner or
his duly authorized representative be allowed to inquire or look into the bank
deposits of a taxpayer? (5%)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Suggested Answer:
No. as this would be violative of Republic Act No. 1405, the Bank Deposits
Secrecy Law.
a) Where the taxpayer has filed an application for compromise of his tax
liability by reason of financial incapacity to pay, such tax liability. [Sec. 6
(F). NIRC of 1997]
b) Where the taxpayer has signed a waiver authorizing the Commissioner or his
duly authorized representatives to inquire into the bank deposits.
XVIII. (2000)
Describe separately the procedures on the legal remedies under the Tax
Code available to an aggrieved taxpayer both at the administrative and judicial
levels. (5%)
Suggested Answer:
The legal remedies of an aggrieved taxpayer under the Tax Code, both at the
administrative and judicial levels, may be classified into those for assessment,
collection and refund.
The procedures for the administrative remedies for assessment are as follows:
After receipt of the Pre-Assessment Notice, he must within fifteen (15) days
from receipt explain why no additional taxes should be assessed against him.
for reconsideration or reinvestigation within thirty (30) days from receipt of the
notice of assessment. (4th par., Sec. 228, NIRC of 1997)
Within sixty (60) days from filing of the protest, the taxpayer shall submit
all relevant supporting documents.
Should the Commissioner deny the taxpayer’s protest, then he has a period
of thirty (30) days from receipt of said dental within which to interpose a petition
for review with the Court of Tax Appeals.
In both cases the taxpayer must apply with the Court of Tax Appeals for the
issuance of an injunctive writ to enjoin the Bureau of Internal Revenue from
collecting the disputed tax during the pendency of the proceedings.
The adverse decision of the Court of Tax Appeals is appealable to the Court
of Appeals by means of a petition for certiorari within a period of fifteen (15) days
from receipt of the adverse decision, extendible for another period of fifteen (15)
days for compelling reasons, but the extension is not to exceed a total of thirty (30)
days in all.
provisions of the National Internal Revenue Code. The judicial appeals starts with
the Court of tax Appeals, and continues in the same manner as shown above.
Should the Bureau of Internal Revenue decide to utilize its judicial tax
remedies for collecting the taxes by means of an ordinary suit filed with the regular
courts for the collection of a sum of money, the taxpayer could oppose the same
going up the ladder of judicial processes from the Municipal Trial Court (as the
case may be) to the Regional Trial Court, to the Court of Appeals, thence to the
Supreme Court.
III. (2001)
Suggested Answer:
II. (2002)
Mr. Castro inherited from his father, who died on June 10, 1994, several pieces
of real property in Metro Manila. The estate tax return was filed and the estate tax
due in the amount of P250,000.00 was pain on December 06, 1994. The tax fraud
division of BIR investigated the case on the basis of confidential information given
by Mr. Santos on January 06, 1998 that the return filed by Mr. Castro was
fraudulent and that he failed to declare all properties left by his father with intent to
evade payment of the corrct tax. As a result, a deficiency estate tax assessment of
P1,250,000.00 inclusive of 50% surcharge for fraud, interest and penalty was
issued against him on January 10, 2001. Mr. Castro protested the assessment on the
ground of prescription.
Suggested Answer:
A. The protest should be resolve against Mr. Castro. What was filed is
fraudulent return making the prescriptive period for assessment ten (10)
years from discovery of the fraud (Section 222, NIRC). Accordingly, the
assessment was issued within the prescriptive period to make an assessment
based on a fraudulent return.
B. The legal requirements that must be complied by Mr. Santos to the entitle
him to reward are as follows:
1. He should voluntarily file a confidential information under oath with the
Law Division of the Bureau of Internal Revenue alleging therein the
specific violations constituting fraud;
2. The information must not yet be in the possession of the Bureau of
Internal Revenue, or refer to a case already pending of previously
investigated by the Bureau of Internal Revenue;
3. Mr. Santos should not be government employee or a relative of a
government employee within the sixth degree of consanguinity; and
4. The information must result to collection of revenues and/or fines and
penalties (Sec. 282, NIRC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
V. (2002)
A. What must taxpayer to do in order to claim a refund of or tax credit for taxes
and penalties which he alleges to have been erroneously, illegally or
excessively assessed or collected. (3%)
B. Can the Commissioner grant a refund or tax credit even without a written
claim for it? (2%)
Suggested Answer:
Note: if the answer is given only number 1, it is suggested that the same
shall be given full credit considering that this is the only requirement for
the Commissioner to acquire jurisdiction over the claim.
B. Yes. When the taxpayer files a return which on its face shows an
overpayment of the tax and the option to refund/claim a tax credit was
chosen by the taxpayer, the Commissioner shall grant the refund or tax credit
without the need for a written claim. This is so, because a return filed
showing an overpayment shall be considered as a written claim for credit or
refund. (Secs. 76 and 204, NIRC). Moreover, the law provides 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 (Sec. 229, NIRC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
VII. (2002)
Suggested Answer:
XIII. (2002)
On March 15, 2000, the BIR issued a deficiency income tax assessment for
the taxable year 1997 against the Valera group of companies in the amount of P10
million. Counsel for Valera protested the assessment and requested a
reinvestigation of the case. During the investigation, it was shown that Valera had
been transferring its properties to other persons. As no additional evidence to
dispute the assessment had been presented, the BIR issued on June 16, 2000
warrants of distant and levy on the properties and ordered the filing of an action in
the Regional Trial Court for the collection of the tax. Counsel for Valera filed an
injunctive suit in Regional Trial Court for the collection of the tax in abeyance
until the decision on the protest was rendered.
a. Can the BIR file the civil action for collection, pending decision on the
administrative protest? Explain. (3%)
b. As counsel for Valera, what action would you take in order to protect the
interest of your client? Explain your answer. (2%)
Suggested Answer:
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
a. Yes, because there is no prohibition for this procedure considering that the
filing of a civil action for collection during the pendency of an
administrative protest constitutes the final decision of the Commissioner on
the protest (CIR v. Union Shipping Corporation, 85 SCRA 548 (1990))0
b. I will wait for the filing of the civil action for collection and consider the
same as an appealable decision. I will not file an injunctive suit because it is
not an available remedy. I would then appeal the case to the court of tax
appeals and move for dismissal of the collection case with the RTC. Once
the appeal to the CTA is filed on time, the CTA has exclusive jurisdiction
over the case. Hence, the collection case in the RTC should be dismissed
(Yabes v. Flojo, 115 SCRA 278 (1982)).
XV. (2002)
Suggested Answer:
The right of the Government to collect by judicial action has not prescribed.
The filing of the request for reconsideration suspended the running of the
prescriptive period and commenced to run again when a decision on the protest
was made on August 5, 999. It must note that in all cases covered by an assessment
the period to collect shall be five (5) years from the date of the assessment but this
period is suspended by the filing of a request for reconsideration which was acted
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
XVI. (2002)
Suggested Answer:
a. No. the contention of the counsel is untenable. Section 228 of the Tax Code
expressly provides that no pre-assessment notice is required when a
discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent. Since the amount assessed
relates to be deficiency withholding taxes, the BIR is correct in issuing the
assessment and demand letter calling for the immediate payment of the
deficiency withholding taxes. (Sec. 228, NIRC).
b. The special civil action for prohibition will not prosper, because the CTA
has no jurisdiction to entertain the same. The power to issue writ of
injunction provided for under Section 11 of RA 1125 is only ancillary to its
appellate jurisdiction. The CTA is not vested with original jurisdiction to
issue writs of prohibitions or injunction independently of and apart from an
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
appealed case. The remedy is to appeal the decision of the BIR. (Collector v.
Yuseco, 3 SCRA 313 (1961)).
XVII. (2002)
a. Will the BIR’s action for collection prosper? As counsel of Minolta, what
action will you take? Explain your answer. (5%)
b. May criminal violation of the Tax Code be compromised? If Minolta makes
voluntary offer to compromise the criminal violations for non-filing and
non-payment of taxes for the year 1998, may the commissioner accept the
offer? Explain (5%)
Suggested Answer:
a. Yes, BIR’s action for collection will prosper because the assessment is
already final and executor. It can already be enforced through judicial action.
As counsel of Minolta, I will introduce evidence that the income payment
was reported by the payees and the income tax was paid thereon in 1997 so
that my client may only be allowed to pay the civil penalties for non-
withholding pursuant to RMO No- 38-83.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
b. All criminal violation of the Tax Code may be compromised except those
already filed in court or those involving fraud (Section 204, NIRC).
Accordingly, if Minolta makes a voluntary offer to compromise the criminal
violations for non-filing and non-payment of taxes for the year 1998, the
Commissioner may accept the offer which is allowed by law. However, if it
can be established that a tax has not been paid as consequence of non-filing
of the return, the civil liability for taxes may be dealt with independently of
the criminal violations. The compromise settlement of the criminal
violations will not relieve the taxpayers from its civil liability. But the civil
liability for taxes may also be compromised if the financial position of the
taxpayer demonstrates a clear inability to pay the tax.
XVIII. (2002)
Mr. Chan, a manufaturer of garments, was investigated for failure to file tax
returns and to pay taxes for the taxable year 1997 despite the subpoena duces
tecum issued to him; he refused to present and submit his books of accounts and
allied records. Investigators, therefored, raided his factory and seized several
bundles of manufacture garments, supplies and unpaid imported textile materials.
After his apprehension and based on the testimony of a formcer employee,
deficiency income and business taxes were assesed against Mr. Chan on April 15,
2000. It was then that he paid the taxes. Criminal action was nonetheless institutes
against him in the Regional Trial Court for violation of the Tax Code. Mr. Chan
moved to dismiss the criminal case on the ground that he had already paid the taxes
assessed against him. He also demanded the return of the garments and materials
seized from his factory.
Suggested Answer:
The motion to dismiss should be denied. The satisfaction of the civil liability
is not one of the grounds for the extinction of criminal action (People v. Ildefonso
Tierra, 12 SCRA 666 (1964)). Likewise, the payment of the tax due after
apprehension shall not constitute a valid defense in any prosecution for vioaltion of
any provision of the Tax Code (Sec. 253(a), NIRC). However, the garments and
maerials seized from the factory should be ordered returned because the payment
of the tax had release them from any lien that the Government has over them.
IX. (2003)
8%
Suggested Answer:
No. The Commissioner of Internal Revenue has the authority to inquire into
bank deposit accounts of a decedent to determine his gross estate notwithstanding
the provision s of the Bank Secrecy Law. Hence, the banks holding the deposits in
question may not refuse to disclose the amount of deposits on the ground of
secrecy of bank deposits. (Section 6(F) of the 1997 Tax Code). Th fact that the
deposit is a joint account will not preclude the Commissioner from inquiring
thereon because the law mandates that if a bank has knowledge of the death of a
person, who maintained a bank deposit account alone, or jointly with anotherd, it
shall not allow any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon have been paid.
(Section 97 of the 1997 Tax Code). Hence, to be able to give the required
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
XIV. 2003
8%
Suggested Answer:
The appeal should be made with the Secretary of Justice, any question on the
constitutionality or legality of tax ordinance ay be raised on appeal with the
Secretary of Justice within 30 days fromthe effectivity thereof. (Sec. 187, LGC;
Hagonoy Market Vendor Association v. Municipality of Hagonoy, 376 SCRA 376
(2002)).
II. (2004)
RC is a law-abiding citizen who pays his real estate taxes promptly. Due to a
series of typhoons and adverse economic conditions, an ordinance is passed by
MM city granting a 50% discount for payment of unpaid real estate taxes for the
preceding year and the condination of all penalties on fines resulting from the late
payment.
ground that it is a class legislation. Will his suit prosper? Explain your answer
briefly. (5%)
Suggested Answer:
a) The suit will prosper. The remission or condonation of taxes due and
payable to the exclusion of taxes already collected does not constitute unfair
discrimination. Each set taxes is a class by itself and the law would be open
to attack as class legislation only if all taxpayers belonging to one class were
not treated alike. (Juan Luna Subdivision, Inc. v. Sarmiento, 91 Phil. 371
(1952)).
b) A law was passed granting tax exemption to certain industries and
investments for a period of five years. But three years later, the law was
repealed. With the repeal, the exemptions were considered revoked by the
BIR, which assessed the investing companies for unpaid taxes effective on
the date of the repeal of the law.
III. (2004)
NPC and KTR companies questioned the assessments on the ground that,
having made their investments in full reliance with the period of exemption
granted by the law, its repeal violated their constitutional right against the
impairment of the obligations and contracts. Is the connection of the companies
tenable or not? Reason briefly.
Suggested Answer:
V. (2004)
Suggested Answer:
Suggested Answer:
B. In other that debts be considered as bad debts because they have become
worthless, the taxpayer should establish that during the year for which the
deduction is sought, a situation developed as a result of which it became
evident in the exercise of sound, objective business judgment that there
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
remained no practical, but only vaguely theoretical, prospect that the debt
would ever be paid (Collector of Internal Revenue v. Goodrich International
Rubber, Co. 21 SCRA 1336 (1967)). “Worthless” is not determined by an
inflexible formula or slide rule calculation, but upon the exercise of sound
business judgment. The factors to be considered include, but are not limited
to the following:
1. The debtor has no property nor visible income;
2. The debtor has been adjudged bankrupt or insolvent;
3. Collateral shares have become worthless; and
4. There are numerous debtors with small amounts of debts and further
action on the accounts sought to be collected.
Alternative Answer:
The following are the factors to be considered in determining whether or not the
debts are bad debts:
IX. (2004)
A. VCC is the administrator of the estate of his father NGC, in the estate
proceedings pending before the MM regional Trial Court. Last year, he
received from the Commissioner of Internal Revenue a deficiency tax
assessment for the estate in the of P1,000,000. But he ignored the notice.
Last month, the BIR effected a levy on the real properties of the estate to pay
the delinquent tax. VCC filed a motion with the probate court to stop the
enforcement and collection of the tax on the ground that the BIR should
have secured first the approval of the probate court, which had jurisdiction
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
over the estate, before levying on its real properties. Is VCC’s contention
correct? (5%)
Suggested Answer:
A. No. VCC’s contention is not correct. The approval of the probate court is
necessary. Payment of estate taxes is a condition precedent for the
distribution of the properties of the decedent and the collection of estate
taxes is executive in nature for which the court is devoid of any jurisdiction.
Hence, the approval of the court sitting in probate, or as a settlement tribunal
is not a mandatory requirement in the collection of estate taxes (Marcos II v.
Court of Appeals, 273 SCRA 47 (1997)).
Suggested Answer:
B. RR should file a motion for injunction with the Court of Tax Appeals to stop
the administrative collection process. An appeal to the CTA shall not
suspend the enforcement of the tax liability, unless a motion to that effect
shall have been presented in court and granted by it on the basis that such
collection will jeopardize the interest of the taxpayer or the Government
(Pirovano v. CIR, 14 SCRA 832 (1965)).
The CTA is empowered to suspend the collection of internal revenue taxes
and customs duties in cases pending appeal only when: (1) in the opinion of
the court the collection by the BIR will jeopardized the interest of the
Government and/or the taxpayer; and (2) the taxpayer is willing to deposit
the amount being collected or to file a surely bond for not more than double
the amount of the tax to be fixed by the court. (Section 11, RA No. 1125).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
X. (2004)
A. On March 12, 2001, REN paid his taxes. Ten months later, he realized that
he had overpaid and so he immediately filed a claim for refund with the
Commissioner of Internal Revenue.
On February 27, 2003, he received the decision of the Commissioner
denying REN’s claim for refund. On March 24, 2003, REN filed an appeal
with the Court of Tax Appeals. Was his appeal filed on time or not? Reason.
(5%)
Suggested Answer:
A. The appeal was not filed on time. The two-year period of limitation for filing
a claim for refund is not only da limitation for pursing the claim at the
administrative level but also a limitation for appealing the case to the Court
of Tax Appeals. The law provides that “no suit or proceeding shall be filed
after the expiration of two years from the date of the payment of the tax or
penalty regardless of any supervening cause that may arise after payment
(Section 229, NIRC). Since the appeal was only made on March 24, 2003,
more than two years had already elapsed from the time the taxes were paid
on March 12, 2003. Accordingly, REN had lost his judicial remedy because
of prescription.
B. A law was passed exempting doctors and lawyers from the operation of the
value added tax. Other professional complained and filed a suit questioning
the law being discriminatory and violative of the equal protection clause of
the Constitution since complainants were not given the same exemption. Is
the suit meritorious or not? Reason briefly. (5%)
Suggested Answer:
B. Yes, the suit is meritorious. The VAT is designed for economic efficiency;
hence, should be neutral to those who belong to the same class.
Professionals are a class of taxpayers by themselves who, in compliance
with the rule of equality to taxation, must be treated alike for tax purposes.
Exempting lawyers and doctors from a burden to which other professionals
are subjected will make the law discriminatory and violative of the equal
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
protection clause of the Constitution. While singling out a class for taxation
purposes will not infringe upon this constitutional limitation (Shall v. Vaño,
94 Phil. 389 (1954)), singling out a taxpayer from a class will no doubt
transgress the constitutional limitation (Ormoc Sugar Co. Inc., v. Treasurer
of Ormoc City, 22 SCRA 603 (1968)). Treating doctors and lawyers as a
different class of professionals will not comply with the requirements a
reasonable, hence, valid classification, because the classification is not based
upon substantial distinction which makes real differences. The classification
does not comply with the requirements that it should be germane to the
purpose of the law either. (Pepsi-Cola Bottling Co., Inc. v. City of Butuan,
24 SCRA 789 (1968)).
Another Answer:
No. The suit is not meritorious. The equal protection clause of the
Constitution merely requires that all persons subjected to legislation shall be
treated alike, under like circumstances and conditions, both and in the privileges
conferred and in the liabivlities imposed. The equality in taxation rule is not
violated if classifications or distinctions are made as long as the same based on
rewasonable and substantial differences. (Pepsi-Cola Bottling Co., Inc. V. City of
Butuan, 24 SCRA 789 (1968)).
In the instant case, the professional of doctors and lawyers are not
principally aimed at earning money but for the service of the people. The
exemption granted to doctots and lawyers from the operation of VAT is
justified, as it is not discriminatory against the other professionals because
they have reasonable asnd substantial differences in the conduct of their
professions.
V. (2005)
A taxpayer received a tax deficiency assessment of P1.2 million from the BIR
demanding payment within 10 days, otherwise, it would collect through summary
remedies. The taxpayer requested for reconsidereation stating the grounds therefor.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Instead of resolving the request for reconsideration, the BIR sent a Final Notice
Before Seizure to the taxpayer.
Suggested Answer:
No, the Final Notice Before Seizure does not consitute a denial of the
request for reconsideration. The Commissioner is mandated to come out with a
decision clearly stating the facts nd the law upon which it is based and that the
same constitutes his final decision. (Revenue Regulations No. 12-99,
Implementing Sec. 228, NIRC). It cannot merely be implied from the issuance of a
Warrant of Distraint and Levy, (CIR v. Union Shipping Corp., 185 SCRA 547,
(1990)). Since the final notice before seizure is issued ahead of a Warrant of
Distraint and Levy, with more reason that this earlier action cannot be considered
as a denial of the protest.
XIV.(2005)
office in Makati City and maintains a branch office is Pasig City; Mr.
Fermin pays his professional tax as a CPA in Makati City and his
professional tax as a lawyer in Pasig City.
a) May Makati City, where he has his main office, require him to pay his
professional tax as a lawyer? Explain.
b) May Quezon City, where he has his residence and where he has also
practices his two professions, go after him for the payment of his
professional tax as a CPA and a lawyer?
Explain. (5%)
Suggested Answer:
a) No. Fermin is given the option to pay either in the city where he practices
his profession or where he maintains his principal office in case he
practices his profession in several places. The professional tax paid as a
lawyer in Pasig City, a place where he practices his profession, will
entitle him to practice his profession in any part of the Philippines
without being subjected to any other national or local tax, license, or fee
for the practice of such profession. (Sec. 139 in relation to 151, Local
Government Code).
b) No. The professional tax shall be paid only once for every taxable year
and the payment shall be made either in the city where he practices his
profession or where he maintains his principal office. The city of
residence cannot require him to pay his professional taxes. (Sec. 139 in
relation to Sec. 151, Local Government Code).
In 1995, the BIR filed before the Department of Justice (DOJ) a criminal complaint
against a corporation and its officers for alleged evasion of taxes. The complaint
was supported by a sworn statement of the BIR examiners showing the
computation of the tax liabilities of the erring taxpayer. The corporation filed a
motion to dismiss the criminal complaint on the ground that there has been, as yet,
no assessment of its tax liability; hence, the criminal complaint was premature. The
DOJ denied the motion on the ground that an assessment of the tax deficiency of
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
the corporation is not a precondition to the filing of a criminal complaint and that
in any event, the joint affidavit of the BIR examiners may be considered as an
assessment of the tax liability of the corporation.
Suggested Answer:
Yes. The ruling of the DOJ in dednying the motion is correct. The issuance
of the deficiency assessment notice prior to prosecution is not necessary because
the facts of the case show that the crime of evasion is complete since the violator
has knowingly and willfully filed a fradulent return ewith intent to evade/defeat a
part or all of the tax. (Ungab v. Cusi, Jr., 97 dSCRA 877 (1980)). What is involved
here is not the collection of taxes but a criminal prosecution for violation of the
National Internal Revenue Code.
However, the contention that the joint affidavit of the BIR examiners
showing the computation of tax liabilities maybe considered an assessment is
erroneous. It is not an assessment which may be entitle the taxpayer to protest.
(CIR v. Pasco Realty & Development Corp., 309 SCRA 402 (1999)). An
assessment is a formal notice to the taxpayer stating that the amount thereon is due
as a tax and containing demand for the payment thereof. (Alhambra Cigar &
Cigarette Mfg. Co. v. Collector, 105 Phil. 1337 (1959)).
VIII. (2006)
On June 1, 2003, Global Bank received a final notice of assessment from the
BIR for deficiency documentary stamp tax in the amount of P5 Million. On June
30, 2003, Global Bank filed a request for reconsideration with the Commissioner
of Internal Revenue. The Commissioner denied the request for reconsideration
only on May 30, 2006, at the same time serving on Global Bank a warrant of
distraint to collect the deficiency tax. If you were its counsel, what will be your
advice to the bank? Explain. 5%
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Suggested Answer:
Since the denial of the protest was made on May 30, 2006, I would assume
that global bank has already lost its right to appeal. The assessment having become
final to failure to file a timely appeal, I will now advise my client to file a request
with the Commissioner of Internal Revenue for a compromise settlement of the tax
assessed, which has already become final by invoking doubtful validity of the
assessment (Sec. 204, NIRC)
Since the assessment has already become final, I will now advise Global Bank
to pay the assessment in order to save on the 20% interest which continues to run
indefinitely until the entire obligation is paid (Sec. 249 NIRC). This will also save
the taxpayer and its officers from possible criminal prosecution for non-payment of
taxes considering that in taxation, criminal liability arises as a result of the civil
liability to pay taxes (Republic v. Patanao, L-22356,20 SCRA 712 [1967]).
IX. (2006)
inclusive of surcharge and interest. If the delinquent taxpayer is your client, what
steps will you take? What is your defense? 10%.
Suggested Answer:
Since my client has already lost his right to protest (the assessment having
been issued on July 31, 2006 and that he is already categorize as a delinquent
taxpayer), I will advise him to wait for a collection action to be instituted by the
Commissioner. Once collection is pursued, I will file a petition for review with the
CTA to question the validity of the Commissioner’s action. My defense would be
prescription. Since the assessment was issued beyond the prescriptive period to
assess, the assessment is invalid and any action to collect an invalid assessment is
not warranted (Phil. Journalists, Inc. v. CIR, 447 SCRA 214 [2004]).
I will advise my client, who is delinquent taxpayer, to file a request with the
Commissioner of Internal Revenue for the abatement of the entire assessment on
the ground that the same is unjustly assessed (Sec.204, NIRC). I will tell the
commissioner that the assessment having been issued beyond the prescriptive
period, the deficiency income tax would appear to be unjustly assessed which
would justify the abatement or cancellation of the entire assessment.
I will immediately file a protest within thirty (30) days form receipt of the
assessment by my client addressed to the Commissioner of Internal Revenue,
alleging prescription as my defense because the assessment was issued beyond
there (3) years as required by law (Sec. 228 and 203, NIRC).
Should the Commissioner deny my protest, I will file an appeal to the court
of Tax Appeals (CTA) within thirty (30) days from receipt of the decision
(Sec.228,NIRC).
Should the CTA Division deny my petition for review, I will file a motion for
reconsideration within 15 days from receipt of the denial. Should at the division
deny my motion for reconsideration, I will appeal to the CTA en banc and from
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
latter’s denial, I will appeal to the supreme court by way of a petition for certiorari
within 15 days from receipt of the en banc decision.
XII. (2006)
Suggested Answer:
XIII. (2006)
Gerry was being prosecuted by the BIR for failure to pay his income tax
liability for calendar year 1999 despite sedveral demand by the BIR in 2002. The
information was filed with the RTC only last June 2006. Gerry filed a motion to
quash the information on the ground or prescription, the information having been
filed beyond the 5-year reglementary period.
Suggested Answer:
No, the trial court can exercise jurisdiction. Prescription of a criminal action begins
to rum from the fay of the commission of the violation of the law. The criminal
violation was committed when Gerry willfully refused to pay despite repeated
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
demands in 2002. Since the information was filed in June 2006, the criminal case
was instituted within the five-year period required by law (Tupaz v. Ulep, 316
SCRA 118 (1999); Sec. 281, NIRC).
XIV. (2006)
Gold and Silver Corporation gave extra 14th month bonus to all its official
employees in the total amount of P75 Million bonus. The corporation was
reviewed by the BIR the following year, it disallowed as item of deduction the P75
Million bonus the corporation gave its officials and employees on the ground of
unreasonableness. The corporation claimed that the bonus is an ordinary and
necessary expense that should be allowed.
If you were the BIR Commisisoner, how will you resolve the issue? 5%
Suggested Answer:
I will rule against the deductibility of the bonus. The extra bonus is both not
normal to the business and reasonable. Admittedly, there is no fixed test for
determining the reasonableness of a bonus an additional compensation. This
depends upon many factors such as: the payment must bemade in good fait; the
character of the taxpayer’s business; the volume and amount of its net earning; its
locality; the type and extent of the services rendered; the salary policy of the
corporation; the size of the particular business venture, and general economic
conditions (CM Hoskins & Co., Inc. V. CIR, 30 SCRA 434(1969)). Giving an
extra bonus at a time that the company suffers operating losses is not a payment in
good faith and is not normal t the business, hence unreasonable and would not
qualify as ordinary and necessary expense.
XV. (2006)
If you were the Commissione of Internal Revenue, will you allow the
refund? 5%
Suggested Answer:
No. The exemption of Lily’s Fashion, Inc. is not only for taxes for which it
is directly liable, hence, i cannot claim exemption for a tax shifted to it, which is
not all considered a tax to the buyers but a part of the purchase price. Lily’s
Fashion Inc. is not the taxpayer in so far as the passed on tax merely shifted to it.
Only taxpayers are allowed to file a claim for refund (Phil. Acetylene Co. , Inc. v.
CIR, 20 SCRA 1056 (1987)).
III. (2008)
a.) As a BIR lawyer handling the case, would you raise the defense of
prescription in your answer to the claim for tax credit? Explain. (3%)
Suggested Answer:
a.) Yes. The claim for refund for the 2004 erroneously paid income tax was
filed out of time because the claim was only filed after more than two
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
years had elapsed from the payment thereof. (Section 204 (c) and 229,
NIRC).
b.) Can the BIR lawyer raise the defense that DEF Corporation is not the
proper party to file such claim for tax credit? Explain (3%)
Suggested Answer:
b.) No. The withholding agent who is mandated by law to withhold and
remit the tax on the income of a non-resident in the Philippines becomes
directly liable for the payment of the tax. Therefore, it is the proper party
to file a claim for refund in case of over-withholding, (Commissioner v.
Wander Philippines, Inc., 160 SCRA 573 (1988).
VII. (2008)
After examining the books and records of EDS Corporation, the 2004 final
assessment notice, showing basic tax of P1,000,000, deficiency interest of
P400,000, and due date for payment of April 30, 2007 but without the demand
letter, was ,mailed and released by the BIR on April 15, 2007. The registered letter,
containing the tax assessment, was received by the EDS Corporation on April 25,
2007.
Suggested Answers:
a.) An assessment notice is a formal notice to the taxpayers stating that the
amount thereon is due as a tax and containing a demand for the payment
thereof, (Alhambra Cigar and Cigarette Mfg. Co. v. Collector, 105 PR
1337[1959] CIR v. Pascor Realty and Development Corp., 309 SCRA
402 (1999). To be valid, the taxpayer must be informed in writing of the
law and the facts on which the assessment is made. (section 228, NIRC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
a.) An assessment is a written notice and demand made by the Bureau on the
taxpayer for the settlement of a tax liability that is due, definitely set and
fixed therein. The requisites of a valid assessment are:
1. It must be made within the prescriptive period to asses; (Section 203,
NIRC)
2. There must be a preliminary assessment previously issued. Except in
those instances allowed by law; 9section 228, NIRC)
3. The taxpayer must be informed in writing about the law and facts on
which the assessment is based; (Section 228, NIRC) and
4. It must be served upon the taxpayer or any of his authorized
representatives. (Estate of Juliana Diez vda. De Gabriel v. CIR, 421
SCRA 266[2004].
b.) As a tax lawyer of EDS Corporation, what legal defense(s) would you
raise against the assessment? Explain. (3%)
Suggested Answer:
b.) I will question the validity of the assessment because of the failure to
send the demand letter which contains a statement of the law and the
facts upon which the assessment is based. If an assessment notice is sent
without informing the taxpayer in writing about the law and facts on
which the assessment is made, the assessment is void. (section 228,
NIRC; Azucena T. Reyes v. CIR,480 SCRA 382 (2006).
XI. (2008)
6% capital gains tax. Since Manalo did not derive any ordinary income, no income
tax return was filed by him for 2006. After the tax audit conducted in 2007, the
BIR officer assessed Manalo for deficiency income tax computed as follows: P5
million (P20 million less P15 million)x35%=P1.75 million, without the capital
gain tax paid being allowed as tax credit. Manalo consulted a real estate broker
who said that the P1.2 million capital gains tax should be credited from the P1.75
million deficiency income tax.
Suggested Answer:
a.) The BIR officers’ tax assessment is wrong for two reasons. First, the rate
of income tax used is the corporate income tax although the taxpayer is
an individual. Second, the computation of the gain recognized from the
sale did not consider the holding period of the asset. The capital asset
having been held for more than twelve months, only 50% of the gain is
recognized. (Section 39 (B), NIRC).
b.) If you were hired by Manalo as his tax consultant, what advice would
you give him to protect his interest? Explain (3%)
Suggested Answer:
b.) I will advise him to ask for the issuance of the final assessment notice
and request for the crediting of the capital gains tax paid against the
income tax due. The taxpayer should explain that the capital gains tax
was paid in good faith because the property sold is a capital asset, and
considering that was paid is also an income tax it should be credited on
grounds of equity against the income tax assessment. Once the final
assessment is made, I will advise him to protest it within thirty days from
receipt, invoking the holding period and the wrong rate used.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
I. (2009)
True or False
Suggested Answer:
X. (2009)
On May 15, 1984, ABCD filed with the Commissioner of Internal Revenue
a formal claim for refund, alleging that under the RP-US tax treaty, the deduction
withheld at source as tax on dividends earned was fixed 25% of said income. Thus,
ABCD asserted that it overpaid the withholding tax due on the cash dividends
given to its non-resident stockholders in the U.S. the Commissioner denied the
claim.
On January 17, 1985, ABCD filed a petition with the Court of Tax Appeals
(CTA) reiterating its demand for refund.
(a) Does ABCD Corporation have the legal personality to file the refund on
behalf of its non-resident stockholders? Why or why not? (3%)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Suggested Answer:
Yes. A withholding agent is not only an agent of the Government but is also
an agent of the taxpayer/ income earner. Hence, ABCD is also an agent of the
beneficial owner of the dividends with respect to the actual payment of the tax to
the Government; such authority may reasonably be held to include the authority to
file a claim for refund and to bring an action for recovery of such claim (CIR v.
Procter & Gamble, 204 SCRA 377, [1991]).
(b) Is the contention of ABCD Corporation correct? Why or why not? (3%)
Suggested Answer:
Yes. The provision of a treaty must take precedence over and above the
provisions of the local taxing statute consonant with the principle of international
comity. Tax treaties are accepted limitations to the power of taxation. Thus, the
CTA should apply the treaty provision so that the claim for refund representing the
difference between the amount actually withheld and paid to the BIR and the
amount due and payable under the treaty, should be granted (Hawaiian-Philippine
Company v. CIR, CTA Case No. 3887, May 31, 1988).
I. (2010)
True or False
B. In criminal cases involving tax offenses punishable under the National Internal
Revenue Code (NIRC), presription is construed strictly against the government.
(1%)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Suggested Answer:
FALSE
IV. (2010)
The CIR denied the protest on the ground that the assessment had already
become final and executory, the corporation having failed to protest the PAN.
Suggested Answer:
No. The issuance of preliminary assessment notice (PAN) does not give rise
to the right of the taxpayer to protest. What can be protested by a taxpayer is the
final assessment notice (FAN) or that assessment issued following the PAN. Since
the FAN was timely protested (within 30 days from receipt thereof, the assessment
did not become final and executory (Sec. 228, NIRC; RR No. 12-99).
VI. (2010)
XX moved to quash the Information on the ground that the RTC has no
jurisdiction in view of the absence of a formal deficiency tax assessment issued by
the CIR.
Suggested Answer:
No. In the case of failure to file a return, a proceeding in court for the
collection of the tax, may be filed without an assessment. (Sec. 222(a), NIRC) The
tax can be collected by filing a criminal action with the RTC because a criminal
action is a mode of collecting the tax liability. (Sec 205, NIRC). Besides, the
Commissioner is empowered to prepare a return on the basis of his own
knowledge, and upon such information as he can obtain from testimony or
otherwise, which shall be prima facie correct and sufficient for legal purposes (Sec.
6(B), NIRC; The issuance of a formal deficiency tax assessment, therefore, is not
required.
IX. (2010)
On October 10, 2009, the corporation received a collection letter from the
City Treasurer, drawing it to file on October 25, 2009 an appeal against the
assessment before the Pasay Regional Trial Court (RTC).
Suggested Answer:
The protest was filed on time. The taxpayer has the right to protest an
assessment within 60 days from receipt thereof (Sec. 195,LGC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
B. Was the Appeal with the Pasay RTC filed on time? Explain. (3%)
Suggested Answer:
The appeal was not filed on time. When an assessment is protested, the
treasurer has 60 days within which to decide. The taxpayer has 30 days from
receipt of the denial of the protest or from the lapse of the 60 day period to decide,
whichever comes first, otherwise the assessment becomes conclusive and
unappealable. Since no decision on the protest was made, the taxpayer should have
appealed to the RTC within 30 days from the lapse of the period to decide the
protest (Sec. 195,LGC).
II. (2010)
True or False
Suggested Answer:
TRUE.
[Sec. 244, NIRC; Rev. Reg. No. 2-2001 implementing Sec. 29, NIRC.]
The Commissioner of Internal Revenue may not inquire into the bank deposits of a
taxpayer, except:
c. When the taxpayer offers to compromise the assessed tax based on financial
incapacity to pay and he authorizes the Commissioner in writing to lock into
his bank record;
d. When the taxpayer did not file his income tax return for the year.
Suggested Answer:
The Commissioner of Internal Revenue issued a BIR ruling to the effect that the
transaction is liable to income tax and value added tax. Upon receifpt of the ruling,
a taxpayer does not agree thereto. What is his proper remedy?
a. File a petition with the Court of Tax Appeals within thirty (30) days from
receipt thereof;
b. File a motion for reconsideration with the Commissioner of Internal
Revenue;
c. File an appeal to the Secretary of Finance within thirty (30) days from
receipt thereof;
d. File an appeal to the Secretary of Justice within thirty (30) days from receipt
thereof.
Suggested Answer:
c. Section 4, NIRC
a. The assessment notice is void because it was mailed beyond the prescriptive
period;
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
b. The assessment notice is void because it was not received by the taxpayer
within the three-year period from the date of filing of the tax return;
c. The assessment notice is void if the taxpayer can show that the same was
received only after one (1) month from date of filing of the tax return.
Suggested Answer:
d. Section 203, NIRC; BPI v. CIR, GR No. 139736, October 17, 2005.
a. When a taxpayer does not pay the 2010 deficiency income tax liability on or
before July 15 of the year;
b. When the finding for any deficiency tax is the result of mathematical error in
the computation of the tax as appearing of the face of the return;
c. When a discrepancy has been determined between the value added tax paid
and the amount due for the year;
d. When the amount of discrepancy shown in the Letter Notice is not paid
within thirty (30) days from date of receipt.
Suggested Answer:
When a proteset against the deficiency income tax assessment was denied by the
BIR Regional Director of Quezon City, the appeal to the Court of Tax Appeals
must be filed by a taxpayer:
Suggested Answer:
All the choices are correct. All decisions on diputed assessments are appealable to
the CTA (in division) irrespective of the amount (Section 3, RA 9282).
The dtaxpayer received an assessment notice on April 15, 2011 and cfiled its
requests for reinvestigation against the assessment on April 30, 2011. Additional
documentary evidence in support of its protest was submitted by it on June 30,
2011. If no denial of the protest was received by the taxpayer, when is the last day
for the filing of its appeal to the CTA?
Suggested Answer:
Using the same facts in the immediately preceding number, but assuming that the
final decision on the disputed assessment was received by the taxpayer on july 30,
2011, when is the last day for filing of the appeal to the CTA.
Suggested Answer:
(Note: The period to appeal is within 30 days from receipt of the final decision by
the Commissioner. The decision was received on July 30, 2011 so the last day to
perfect an appeal with the CTA is August 29, 2011. It is thus clear that the question
did not provide for the CORRECT answer. Hence, it should be treated as a bonus
question.)
Which Court has jurisdiction to determine if the warrant of distraint and levy
issued by the BIR is valid and to rule if the waiver nof the Statute of Limitations
was validly effected?
a. City Court;
b. Regional Trial Court;
c. Court of Tax Appeals;
d. Court of Appeals.
Suggested Answer:
c. Section 7, RA 9282
Suggested Answer:
c. RR 30-2002
In case of fill or partial denial of the written claim for refund or excess input tax
directly attributable to zero-rated sales, or the failure on the part of the
Commissioner to act on the application within 120 days from the date of
submission of complete documents, an appeal must be filed with the CTA:
a. Within thirty (30) days after filing the administrative claim with the BIR;
b. Within sixty (60) days after filing the administrative claim with the BIR;
c. Within one hundred twenty (120) days after filing the administrative claim
with the BIR;
d. Within thirty (30) days from the receipt of the decision denying the claim or
after the expiration of the 120-day period.
Suggested Answer:
In case of full or partial denial by the CIR, the taxpayer’s recourse is to file
an appeal before the CTA within 30 days from receipt of the decision of the
CIR. However, if after the 120-day period of the CIR fails to act on the
application for tax refund/credit the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days. (CIR v. Aichi Forging Company
of Asia, Inc., GR No. 184823, October 6, 2010).
The submission of the required documents within sixty (60) days from the filing of
the protest is available only where:
a. The taxpayer previously filed a Motion for Reconsideration with the BIR
official;
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
b. The taxpayer previously filed a request for reconsideration with the BIR
official;
c. The taxpayer previously filed a request for reinvestigation with the BIR
official
d. The taxpayer previously filed an extension to file a protest with the BIR
official.
Suggested Answer:
The prescriptive for the collection of the deficiency tax assessment will be toiled:
Suggested Answer:
a. May be repeated, if necessary, until the full amount due, including all
expenses, is collected;
b. Must be done successively, first by distraint and then by levy;
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Suggested Answer:
a. Ten (10) years from the date of discovery of the commission of fraud or
non-filing of tax return;
b. Five (5) years from the date of issuance of the final assessment notice;
c. Three (3) years from the filing of the annual tax return;
d. Five (5) years from the commission of the violation of the law, and if the
same be not known at the time, from the discovery thereof and the institution
of judicial proceedings for its investigation and punishment.
Suggested Answer:
The accused’s mere reliance on the representations made by his accountant, with
deliberate refusal or avoidance to verify the contents of mhis tax return and to
inquire on its authenticity constitutes:
a. Simple negligence;
b. Gross negligence;
c. Willful blindness;
d. Excusable negligence.
Suggested Answer:
c. People v. Kintanar, CTA E.B. Criminal Case No. 006, December 3, 2010
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
The acquittal of the accused in the criminal action for the failure to file income tax
return and failure to supple correct informationwill have the following
consequence;
a. The CTA will automatically exempt the accused from any civil liability;
b. The CTA will still hold the taxpayer liable for deficiency income tax
liability in all cases, since preponderance of evidence is merely required for
tax cases;
c. The CTA will impose civil or tax liability only if there was a final
assessment notice issued by the BIR against the accused in accordance with
the prescribed procedures for issuing assessments, which was presented
during the trial;
d. The CTA will impose civil or tax liability, provided that a computation of
the tax liability is presented during the trial.
Suggested Answer:
X Corporation has excess income payment for the year 2008, which it chose to
carry over in 2009. Infiling its 2009 corporate income tax return, ir signified its
intention (by checking the small box “refund” at the bottom of the return) to get a
refund of the overpaid amount in 2008. Can the refund be allowed or not, and if
disallowed, does X Corporation lose the claimed amount?
a. X Corporation may not get the refund because the decision to carry over in
2008 was irrevocable for that year, and it may not change that decision in
succeeding years;
b. X Corporation may not get the refund in 2009, but the amount being claimed
as refund may be utilized in succeeding years until fully exhausted because
there is no prescriptive period for carry over of excess income tax payments;
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
c. X Corporation may get the refund, provided that it will no longer carry over
such amount or utilize the same against its income tax liability in the future;
d. X Corporation may file instead a claim of tax credit, in lieu or refund.
Suggested Answer:
The carry over of excess income tax payment is no longer limited to the
succeeding taxable year. Utilized excess income tax payments may now be
carried over to the succeeding taxable years until fully utilized. In addition,
the option to carry over excess income tax payments is now revocable.
Hence, unutilized excess income tax payments may no longer be refunded.
(Belle Corp. v. CIR, GR No. 181298, January 10, 2011).
Suggested Answer:
The BIR issued in 2010 a final assessment notice and demand letter against
X Corporation covering deficiency income tax for the year 2008 in the maount of
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
a. What are the differences between a request for reconsideration and a request
for reinvestigation? (5%)
b. Do you agree with the advice of the lawyer? Explain your answer. (5%)
Suggested Answer:
a. May the bank deposit peso and foreign currency – of an individual taxpayer
be disclosed by a commercial bank to the Commissioner of Internal
Revenue, in connection with a tax investigation being conducted by revenue
official, without violating the relevant bank secrecy laws? Explain your
answer. (5%)
b. In 2011 the Commissioner of the U.S. Internal Revenue Service (IRS)
requested in writing the Commissioner of Internal Revenue to get the
information from a bank in the Philippines, regarding the deposits of a U.S.
Citizen residing in the Philippines, who is under examination by the officials
of the US IRS, pursuant to the US-Philippine Tax Treaty and other existing
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
laws. Should the BIR Commissioner agree to obtain such information from
the bank and provide the same to the IRS? Explain your answer. (5%)
c. Is the bank secrecy law in the Philippines violated when the BIR issues a
Warrant of Garnishment directed against a domestic bank, requiring it not to
allow any withdrawal from any existing bank deposit of the delinquent
taxpayer mentioned in the Warrant and to freeze the same until the tax
delinquency of said taxpayer is settled with the BIR? Explain your answer.
(5%)
Suggested Answer:
b. Yes. The Commissioner should agree to the request pursuant to the principle
of international comity. The Commissioner of Internal Revenue has the
authority to inquire into bank deposit accounts and related information held
by financial institutions of a specific taxpayer subject of a request for the
supply of tax information from a foreign tax authority pursuant to an
international convention or agreement to which the Philippines is a signatory
or party of (Section 3, RA 10021).
receipt of the warrant of garnishment, the bank shall turn over to the
Commissioner so much of the bank accounts as may be sufficient to satisfy
the claim of the Government (Section 208, NIRC).
Suggested Answer:
No, the petition for review should not be denied. The case is an exception to
the rule on exhaustion of administrative remedies. The BIR is stopped from
caliming that the filing of the petition for review is prematuren because the
taxpayer failed to exhaust all administrative remedies. The statement of the BIR in
its Final Assessment Notice and Demand Letter led the taxpayer to conclude that
only the final judicial ruling in his favor would be accepted by the BIR. The
taxpayer cannnot be blamed for not filing a protest against the Formal Letter of
Demand with Assessment Notices since the language used and the tenor of the
demand letter indicate that it is the final decision of the respondent on the matter.
The CIR should indicate, in a clear and unequivocal language, whether his action
on a disputed assessment constitutes his final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the tax court
accrues. Although there was no direct reference for the taxpayer to bring the matter
directly reference for the taxpayer to bring the matter directly ttothe CTA, it cannot
be denid that the word “appeal” under prevailing tax laws refers to the filing of a
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
petition for review with the CTA (Allied Bank vs. CIR, GR No. 175097, February
5, 2010).
On April 16, 2012, the corporation filed its annual corporate income tax
return for 2011 showing an overpayment of income tax of P1 Million, which is to
be carried over the succeeding year(s). On May 15, 2012, the corporation sought
advice from you and said that it contemplates to file an amended return for 2011,
which shows tha tinsted of carryover of the excess income tax payment, the same
shall be considered as a claim for tax refund and the small box shown “refund” in
the return will be filled up. Within the year, the corporation will file the formal
request for refund for the excess payment.
a. Will you recommend to the corporation such a course of action and justify
that the amended return is the latest official act of the corporation as to how
it may treat such overpayment of tax or should you consider the option
granted to taxpayers as irrevocable, once previously exercised by it? Explain
your answer (5%);
b. Should the petition for review filed with the CTA on the basis on the
amended tax return be denied by the BIR and the CTA, could the
corporation still carry over such excess payment for income tax in the
succeeding years, considering that there is no prescriptive period provided
for in the income tax law with respect to carry over of excess income tax
payments? Explain your answer. (5%)
Suggested Answers:
a. Once the option to carry-over and apply the excess quarterly income tax
against income tax due for the taxable quarters of the succeeding taxable
years has been made, such option shall be considered IRREVOCABLE for
the taxable year period and no application for tax refund or issuance of tax
credit certificate shall be allowed therefor (Section 76, NIRC).
b. Yes. The carry-over of excess income tax payments is no longer limited to
the succeeding taxable years until full utilized. In addition, the option to
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
a. The acquittal of the taxpayer in a criminal action under the Tax Code does
not necessarily result in exoneration of said taxpayer from his civil liability
to pay (3%);
b. Should the accused be found guilty beyond reasonable doubt for violation of
Section 225 of the Tax Code (for failure to file tax return or to supply correct
information), the imposition of the imposition of the civil liability by the
CTA should be automatic and no assessment notice from the BIR is
necessary. (2%)
Suggested Answers:
recognizes that the civil liability of a taxpayer maybe established without the
need of an assessment (Section 222 (a) NIRC).
I. (2013)
In its final adjustment return for the 2010 taxable year, ABC Corp. had
excess tax credits arising from its over withholding of income payments. It opted
to carry over the excess tax credits to the following year. Subsequently, ABC Corp.
changed its mind and applied for a refund of the excess tax credits.
Suggested Answer:
No. The claim for refund will not prosper. While the law gives the taxpayer
an option whether to carry-over or claim as refund the excess tax credits shown
on its final adjustment return, once the option to carry-over has been made, such
option shall be considered irrevocable for that taxable period and no application for
cash refund or issuance of a tax credit certificate shall be allowed (section 76,
NICR; CIR v. PL Management International Phils., Inc., G.R. No. 160949, April 4,
2011, 647 SCRA 721).
VIII. (2013)
Suggested Answer:
X. (2013)
Mr. Abcede contested the LA on the ground that he can only be investigated
once in a taxable year. Decide. (7%)
Suggested Answer:
The contention of Mr. Abcede is not tenable. While the general rule is to the
effect that for income tax purposes, a taxpayer must be subject 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.
In the instant case, what triggered the second examination is the findings by the
BIR that Mr. Abcede’s 2009 return was fraudulent, accordingly, the examination
is legally justified (Section 235, NIRC).
XII. (2013)
You are the retained tax counsel of ABC Corp. Your client informed you
that they have been directly approached with a proposal by a BIR insider (i.e., a
middle rank NIR official) on the tax matter they have referred to you for handling.
The BIR insider’s proposal is to settle the matter the matter by significantly
reducing the assessment, but he will get 50% of the savings arising from the
reduced assessment.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
What the tax, criminal and ethical considerations will you take into account
in giving your advice? Explain the relevance of each of these considerations. (9%)
Suggested Answer:
I will advise my client not to accept the settlement proposal but instead pay
entire amount of tax that is legally due to the government.
On the tax aspect, I will tell my client that a proposed assessment covering
deficiency taxes which are legally due must be full paid to exonerate the taxpayer
from further tax liabilities. The unwarranted reduction of the proposed assessment
into half and the payment thereof will not close the case but can be re-opened
anytime within ten years from discovery so as to collect the correct amount of
taxes from ABC Corp.
The act of deliberately paying an amount of tax that is less than what is
known by client to be legally due through a cause of action that is unlawful is
considered as tax evasion. I will advise my client that conniving with a BIR insider
to reduce the proposed assessment for a fee is unlawful which can expose the
officers of the corporation to criminal liability. Likewise, the payment to be made
to the BIR official of 50% of the savings constitutes direct bribery punishable
under the revised penal code.
V. (2013)
(a) The assessment is valid; all that Mr. Alvarez has to know is the amount
of the tax.
(b) The assessment is invalid; the law requires a statement of the facts and
the law upon which the assessment is based.
(c) The assessment is valid but Mr. Alvarez can still contest it.
(d) The assessment is invalid because Mr. Alvarez has no way to determine
if the computation is erroneous.
Suggested Answer:
b) The assessment is invalid; the law requires a statement of the facts and
the law upon which the assessment is based (Section 228, NIRC,
Azucena Reyes v. Commissioner of the Internal Revenue, G.R. No.
163581, January 27, 2006).
XI. (2013)
Taxpayer A was required by the BIR to sign and submit a waiver of the
statute of limitations on the assessment period to give the BIR more time to
complete its investigation. The BIR accepted the waiver but failed to indicate the
date of its acceptance.
(a) The waiver is valid because of the date of acceptance is immaterial and
unimportant.
(b) The waiver is invalid; the taxpayer cannot be required to waive the
statute of limitations.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
(c) The waiver is invalid; the date of acceptance is crucial in accounting the
start of the period of suspension of the prescriptive periods.
(d) The waiver is valid, having been accepted by the BIR.
Suggested Answer:
(c) The waiver is invalid; the date of acceptance is crucial in accounting the
start of the period of suspension of the perspective period (Commissioner
v. Kudos Metal Corp., G.R. No. 178087, May 5, 2010.
XII. (2013)
(A) The FAN is invalid; Andy was not given the chance to respond to the
FAN, in violation of his due process right to assess prescribed;
(B) The FAN is invalid for being premature;
(C) The FAN is valid since it was issued before the right to assess
prescribed;
(D) The FAN is valid. There is no legal requirement that the FAN should
await the protest to the PAN because protest to the PAN is not
mandatory.
Suggested Answer:
(A) The FAN is invalid; Andy was not given the chance to respond to the
PAN, in violation of his due process rights (Section 228, NICR; RR No.
12-99).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
XIX. (2013)
Mr. A was preparing his income tax return and had some doubt on whether a
commission he earned should be declared for the current year of the succeeding
year. He sought the opinion of his lawyer who advised him to report the
commission in the succeeding year. He heeded his lawyer’s advice and reported
the commission in the succeeding year. The lawyer’s advice turned out to be
wrong; in Mr. A’s petition against the BIR assessment, the court ruled against Mr.
A.
(A) Mr. A is not guilty of fraud as he simply followed the advice of his
lawyer;
(B) Mr. A is guilty of fraud; he deliberately did not report the commission in
the current year when he should have done so;
(C) Mr. A’s lawyer should pay the tax for giving the wrong advice;
(D) Mr. A is guilty for failing to consult his accountant.
Suggested Answer:
(A) Mr. A is not guilty of fraud as he simply followed the advice of his
lawyer (CIR v. CA, G.R. No. 119322, June 4, 1996).
XX. (2013)
(A) The BIR has no authority to obtain third party information to assess
taxpayers;
(B) The third-party information is inadmissible as hearsay evidence;
(C) The system of requiring taxpayers to submit third party information is
illegal for violating the right to privacy;
(D) None of the above.
Suggested Answer:
I. (2014)
On March 27, 2012, the Bureau of Internal Revenue (BIR) issued a notice of
assessment against Blue Water Industries Inc. (BWI), a domestic corporation,
informing the latter of its alleged deficiency corporate income tax for the year
2009. On April 20, 2012, BWI filed a letter protest before the BIR contesting said
assessment and demanding that the same be cancelled or set aside.
However, on May 19, 2013, that is, after more than a year from the filing of
the letter protest, the BIR informed BWI that the latter’s letter protest was denied
on the ground that the assessment had already become final, executory and
demandable. The BIR reasoned that its failure to decide the case within 180 days
from filing of the letter protest should have prompted BWI to seek recourse before
the Court of Tax Appeals (CTA) by filing a petition for review within thirty (30)
days after the expiration of the 180-day period as mandated by the provisions of
the last paragraph of Section 228 of the National Internal Revenue Code (NIRC).
Accordingly, BWI’s failure to file a petition for review before the CTA rendered
the assessment final, executory and demandable.
Suggested Answer:
No, the contention of BIR is not correct. The right of BWI to consider the
inaction of the Commissioner on the protest within 180 days as an appealable
decision is only optional and will not make the assessment final, executory and
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
demandable (Section 228, NIRC; Lascona Land Co., Inc. v. CIR,G.R. No. 171251,
March 5, 2012, 667 SCRA 455).
XIII. (2014)
Is Generous Bank liable to pay capital gains tax as a result of the foreclosure
sale? Explain. (4%)
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
this case, the foreclosure is not a taxable event (See RR No. 4-99; Supreme
Transliner, Inc. v. BPI Family Savings Bank, Inc., G.R. No. 165617, February 25,
2011).
XXIX. (2014)
Doña Evelina, a rich widow engaged in the business currency exchange, was
assessed a considerable amount of local business taxes by the City Government of
Bagnet by virtue of Tax Ordinance No. 24. Despite her objections thereto, Doña
Evelina paid the taxes. Nevertheless, unsatisfied with the said Tax Ordinance ,
Doña Evelina, through her counsel Atty. ELP, filed a written claim for recovery of
said local business taxes and contested the assessment. Her claim was denied, and
so Atty. ELP elevated her case to the Regional Trial Court (RTC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
The RTC declared Tax Ordinance No. 24 null and void and without legal
effect for having been enacted in violation of the publication requirement of tax
ordinances and revenue measures under the Local Government Code (LGC) and on
the ground of double taxation. On appeal, the Court of Tax Appeals (CTA)
affirmed the decision of the RTC. No motion for reconsideration was filed and the
decision became final and executory. (4%)
(A) If you are Atty. ELP, what advice will you give Doña Evelina so that she
can recover the subject local business taxes?
(B) If Doña Evelina eventually recovers the local business taxes, must the same
be considered as income taxable by the national government?
Suggested Answer:
(A) The remedy availed of by Doña Evelina to question the validity of the
assessment was to file a written claim for recovery which was denied by
the city treasurer. It appears that after the denial, the judicial remedies were
properly pursued. Since the decision by the CTA had already become final
and executory, the counsel should advice Doña Evelina to press for the
execution of the judgement. Should the city treasurer refuse to refund the
local taxes paid, they should push for the issuance of a writ of execution by
the CTA to force the local treasurer to make the refund.
(B) Yes, subject to the tax benefit rule. The local business tax paid is a
business connected tax hence, deductible from gross income. If at the time
of its deduction it resulted to a tax benefit to Doña Evelina, then the
recovery will form part of gross income to the extent of the tax benefit on
the previous deduction (Section 34(C)(1), NIRC).
IX. (2015)
2011. Not having received any communication from the BIR, Mr. G filed a
Petition for Review with the CTA on March 15, 2013, praying for the tax
refund/credit of the P1,000,000.00 unutilized excess input VAT of FFF, Inc, for
2011.
(A) Did the CTA acquire jurisdiction over the petition of FFF, Inc? (2%)
(B) Discuss the proper procedure and applicable time periods for
administrative and judicial claims for refund/credit of unutilized excess
input VAT. (4%)
Suggested Answers:
(A) The CTA has not acquired jurisdiction over the Petition of FFF, Inc.,
because the judicial claim has been prematurely filed on March 15, 2013.
The Supreme Court ruled that the 30-day period after the expiration of
the 120-day period fixed by law for the Commissioner of Internal
Revenue to act on the claim for refund is jurisdictional and failure to
comply would bar the appeal and deprive the Court of Tax Appeals of its
jurisdiction to entertain the appeal (CIR v. Aichi Forging Company of
Asia, Inc., G.R. No. 183421, October 22, 2014, 632 SCRA 422).
In this case, Mr. G filed the administrative claim on January 31, 2013.
The petition for relief should have been filed on June 30,2013. Filing the
judicial claim on March 15, 2013 is premature, thus the CTA did not
acquire jurisdiction.
(B) The administrative claim must be filed with the Commissioner of Internal
Revenue (CIR) within two years from the close of the taxable quarter
when the zero –rated sales were made. The CIR has 120 days from the
date of submission of complete documents in support of the claim to
decide. If the CIR decides within the 120-days period or the 120-day
period expires without the CIR rendering a decision, the taxpayer has 30
days to file petition for review with the CTA reckoned from the receipt of
adverse decision or from the lapse of the 120-day period.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
XII. (2015)
Mr. H decided to sell the house and lot wherein he and his family have lived
for the past 10 years, hoping to buy and move to a new house and lot closer to his
children’s school. Concerned about the capital gains tax that will due on the sale of
their house, Mr. H approaches you as a friend advise, if it is possible for the sale of
their house to be exempted from capital gains tax and the condition they must
comply with the avail themselves of said exemption. How will you respond? (4%)
Suggested Answer:
I would advise Mr. H, that he may be exempted from the payment of the
capital gains tax on the sale or disposition of the house and lot where his family
lives because the sale of principal residence by a natural person is exempt,
provided the following conditions are complied with, viz:
XIII. (2015)
GGG, Inc. offered to sell through competitive bidding its shares in HHH
Corp. equivalent to 40% of the total outstanding capital stock of the latter. JJJ, Inc.
acquired the said shares in HHH Corp. as the highest bidder. Before it could secure
a certificate authorizing registration/tax clearance for the transfer of the shares of
stock to JJJ, Inc., GGG, Inc. had to request a ruling from the BIR confirming that
its sale of the said shares was at fair market value and was thus not subject to
donor’s tax. In BIR ruling No. 012-14, the CIR held that the selling price for the
shares of stock of HHH Corp. was lower than their book value, so the difference
between the selling price and the book value of said shares was a taxable donation.
GGG, Inc. requested the Secretary of Finance to Review BIR Ruling No.012-14,
but the Secretary affirmed said ruling. GGG, Inc, filed with court of appeals a
Petition for Review under Rule 43 of the Revised Rules of Court. The Court of
Appeals, However, dismissed the Petition for lack of jurisdiction declaring that it is
the CTA which has jurisdiction over the issues raised. Before which court should
GGG, Inc. seek recourse from the adverse ruling of the Secretary of Finance in the
exercise of the latter’s power of review? (3%)
Suggested Answer:
GGG, Inc should seek revourse with the court of Tax Appeals (CTA) which
has jurisdiction .
XX. (2015)
Suggested Answer:
The manifestation is not proper. The criminal action and the corresponding
civil action for the recovery of the civil liability for taxes for taxes and penalties
shall at all times be simultaneously instituted with, and jointly determined in the
same proceeding before the Court of Tax Appeal (CTA). The filing of the criminal
action is deemed to necessarily carry with it the filing of the civil action, and no
right to reserve the filing of such civil action separately from the criminal action
shall be recognized (Sec. 7(b) (1) of Republic Act. No. 9282; Judy Anne Santos v.
People, G.R. No.173176, August 26, 2008,563 SCRA 341).
XXI. (2015)
MMM, Inc. filed its Quarterly VAT Returns for 2000. Subsequently, MMM,
Inc. timely filed with the BIR and administrative claim for the refund of the
amount of P6,321,486.50, representing excess input VAT attributable to its
effectively zero-rated sales in 2000. The BIR ruled to deny the claim for refund of
MMM, Inc. because the VAT official receipts submitted by MMM, Inc. to
substantiate said claim did not bear the words “zero-rated” as required under
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Section 4.108-1 of Revenue Regulations (RR) No. 7-95. On appeal, the CTA
division and the CTA en banc affirmed the BIR ruling.
MMM, Inc. appealed to the Supreme Court arguing that the NIRC itself did
not provide for such a requirement. RR No. 7-95 should not prevail over a
taxpayer’s substantiate right to claim tax refund or credit.
Suggested Answer:
(A) The appeal of MMM, Inc. must be denied. MMM, Inc’s position that the
requirements under RR No. 7-95 should not prevail over a taxpayer’s
substantiate right to claim tax refund or credit is unmeritorious. The
Secretary of Finance has the authority to promulgate the necessary rules
and regulations for the effective enforcement of the provisions of the
National Internal Revenue Code (NIRC). Such rules and regulations are
given weight and respects by the courts in view of the rule-making
authority given to those who formulate them and their specific expertise
in their respective fields.
An applicant for a claim for tax refund or tax credit must not only prove
entitled to the claim, but also compliance with all the documentary and
evidentiary requirements. Consequently, the Court of Tax Appeal (CTA),
and the CTA en banc correctly ruled that the failure to indicate the words
‘zero-rated’ on the invoices and receipts issued by a taxpayer, would
result in the denial of the claim for refund or tax credit (Eastern
Telecommunications Philippines, Inc. v. CIR, G.R. No. 183531, March
25,2015).
(B) No, my answer will not be different if the claim for refund is for
effectively zero-rated sales in 2012. The requirements to print the word
“zero-rated” is no longer by mere regulations, but it’s now clearly
provided by law as follows- “If the sale is subject to zero percent (0%)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
X. (2016)
(a) What is the effect of converting the 20% discount form a “tax credit”
to a “tax deduction”? (2.5%)
(b) If you are the judge, how will you decide the case? Briefly explain
your answer. (2.5%)
Suggested Answer:
(a) The effect of converting the 20% discount form a “tax credit” to a
“tax deduction” is that the tax benefit enjoyed by sellers of goods and
services to senior citizens is effectively reduced. A tax credit reduces
the tax liability while a tax deduction merely reduces the tax base.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Under the tax credit scheme, the establishments are paid back 100%
of the discount they give to senior citizens.
(b) I will decide in favor of the Constitutionality of the law. The 20%
discount as well as the tax deduction scheme is a valid exercise of the
police power of the State (Manila Memorial Park Inc. v. Department
of Social Welfare and Development, 711 SCRA 302 (2013).
XI. (2016)
Soaring Eagle paid its excise tax liabilities with Tax Credit Certificates
(TCCs) which it purchased through the One Stop Shop Inter-Agency Tax Credit
Center (Center) of the Department of Finance. The Center is a composited body of
the DOF, BIR, BOC and the BOI. The TCCs were accepted by the BIR as
payments. A year after, the BIR demanded the payment of alleged deficiency
excise taxes on the ground that Soaring Eagle is not qualified transferee of the
TCCs it purchased from other BOI-registered companies. The BIR argued that the
TCCs are subject to post-audit as a suspensive condition. On the other hand,
Soaring Eagle countered that it is a buyer in good faith and for value who merely
relied on the Center’s representation of the genuineness and validity of the TCCs.
If it is ordered to pay the deficiency, Soaring Eagle claims the same is confiscatory
and a violation of due process. Is the assessment against Soaring Eagle valid?
Explain (5%)
Suggested Answer:
No. The assessment is invalid because the TCC’s used by Soaring Eagle are
valid and effective. A TCC is an undertaking by the government through the BIR
or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit
form either an overpayment of income taxes, a direct benefit granted by law or
other sources and instances granted by law such as on specific unused input taxes
and excise taxes on certain goods. As such, tax credit is transferable in accordance
with pertinent laws, rules, and regulations (Pilipinas Shell Petroleum Corp. v.
Commissioner of Internal Revenue, 541 SCRA 315 (2007).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
XIV. (2016)
An investigation conducted by the BIR revealed that two months prior to the
sale of the properties to Rainier, Lucky received P40 million from HSC and not
from Rainier. Said amount of P40 million was debited by HSC and reflected in its
trial balance as “other inv. – Lucky Bldg.” The month after, another P40 million
was reflected in HSC’s trial balance as “other inv. - Lucky Bldg.” The BIR
concluded that there is tax evasion since the real buyer of the properties of Lucky
is HSC and not Rainier. It is issued an assessment for deficiency income tax in the
amount of P79 million against Lucky. Lucky argues that it resorted to tax
avoidance or a tax saving device which is allowed by the NIRC and BIR rules
since it paid the correct taxes based on its sale to Rainer. On the other hand,
Rainier and HSC also paid the prescribed taxes arising from the sale by Rainier to
HSC. Is the BIR correct in assessing taxes on Lucky? Explain (5%)
Suggested Answer:
Yes. The sale of the property by Lucky V Corporation (Lucky) to Rainer and
consequently the sale by Rainer to HSC being prompted more on the mitigation of
tax liabilities than for legitimate business purposes, therefore, constitute tax
evasion. The real buyer form Lucky is HBC as evidenced by the direct receipt of
payments by the former form the latter where the latter recorded “other
investments - Lucky Building”. The scheme of resorting to a two-step transaction
in selling the property to the ultimate buyer in order to escape paying higher taxes
is considered as outside of those lawful means allowed in mitigating tax liabilities
which makes Lucky criminally and civilly liable. Hence, the BIR is correct in
assessing taxes on Lucky (CIR v. Estate of Benigno P. Toda Jr., 438 SCRA 290
(2004).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
XVI. (2016)
Amor Powers, Inc. (API) is a domestic corporation registered with the BIR
as a value-added taxpayer. API incurred excess input VAT in the amount of P500,
000,000.00 on August 3, 2008. Hence, it filed with the BIR an administrative claim
for the refund or credit of these input taxes on August 5, 2010. Without waiting for
the CIR to act on its claim, API filed a Petition for Review with the CTA on
September 15, 2010 before the lapse of two years after the close of the taxable
quarter concerned.
In its Comment on the Petition, the CIR argues that API’s Petition should be
dismisses as it was filed before the lapse of the 120-day period given to the CIR by
Sec. 112 (D) of the NIRC, which became effective on January 1, 1998. For the
CIR, the 120-day period is mandatory and jurisdictional so that any suit filed
before its expiration is premature and, therefore dismissible.
API, on the other hand, invokes BIR Ruling NO. DA-489-03 issued by the
CIR on Decembver 10, 2003 in answer to a query posed by the Department of
Finance regarding the propriety of the actions taken by Lazi Bay Resources
Development Inc., which filed an administrative calim for refund with the CIR
with the CTA, BIR Ruling NO. DA-489-03 stated that the taxpayer-claimant need
not wait for the lapse of the 120-day period before it could seek judicial relief with
the CTA.
Will API’s Petition for Review prosper? Decide with reasons. (5%)
Suggested Answer:
Yes. The petition for review filed by API falls within the exmption formt eh
mandatory 120 + 30-day requirement in pursuing a judicial remedy for a claim of
refund of input taxes attributable to zero-rated sales. All claims for refund filed
between October 6, 2003 when BIR Ruling No. DA-489-03 was issued until the
promulgation of the decision by the Supreme Court ruling on the period by which a
taxpayer may pursue a judicial remedy for a claim for refund, must follow the
period prescribed in the BIR Ruling (CIR v. Aichi Forging of Asia, Inc., 632
SCRA 422 (2010).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
XVII. (2016)
After being assessed by the BIR will alleged deficiency income taxes, VVV
Corporation (VVV) through Enrique, its President executed a waiver of the
prescriptive period. The waiver was signed by Revenue District Officer (RDO)
Alfredo. However, the waiver did not state the date of execution by the taxpayer
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
and date of acceptance by the BIR. Enrique was also not furnished a copy of the
waiver by the BIR.
VVV claims that the waiver is void due to non-compliance with RMO 20-
90. Hence, the period for assessment had already prescribed. Moreover, since the
assessment involves P2 million, the waiver should have been signed by the CIR
and instead of a mere RDO. On the other hand, the BIR contends that the
requirements of RMO NO. 20-90 are merely directory; that the execution of the
waiver VVV was a enunciation of its right to invoke prescription and that the
government cannot be stopped by the mistakes committed by its revenue officers.
Is the VVV liable? Explain, (5%)
Suggested Answer:
No. The waiver was executed after VVV Corporation (VVV) was assessed
for deficiency income taxes obviously to justify the assessment made after
prescription had set in. This is the reason why VV is invoking prescription due to
the alleged invalidity of the waiver for failure to comply with requisites set forth
under RMO 20-90. A waiver executed beyond the prescriptive period is ineffective
(CIR v. The Stanley Works Sales (Phil’s), Inc. 743 SCRA 642 (2014).
XX. (2016)
Suggested Answer:
I will advise Patrick that once he re-acquires his Philippine citizenship and
establishes his residence in this country, his income tax classification would then
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Alternative Answer:
II. (2017)
If you were the Commissioner of Internal Revenue, will you grant Wreck
Corporation’s administrative claim for refund or issuance of tax credit certificate?
Explain your answer. (6%)
Suggested Answer:
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
Yes, but only the excise tax which corresponds to the 75% of the total
volume of aviation fuel imported that were actually sold to the international
carriers. Wreck Corporation, as the statutory taxpayer who is directly liable to pay
the excise tax on its petroleum products, is entitled to a refund or credit of the
excise taxes it paid for petroleum products sold to international carriers, the latter
having been granted exemption from the payment of said excise tax under Sec.
135(a) of the NIRC (CIR v. Pilipinas Shell Petroleum Corporation, GR No.
188497, February 19, 2014).
III. (2017)
Vanderful, Inc.’s income tax return for taxable year 2015 showed an
overpayment due to excess creditable withholding taxes in the amount of
P750,000. The company opted to carry over the excess income tax credits as tax
credit against its quarterly income tax liabilities for the next succeeding years. For
taxable year 216, the company’s income tax return showed an overpayment due to
excess creditable withholding taxes in the amount of P1,100,000, which included
the carry-over from year 2015 in the amount of P750,000 because its operations
resulted in a net loss hence, there was no application for any tax liability. This
time, the company opted and marked the box “To be refunded” in respect of the
total amount of P1,100,000.
Vanderful, Inc. now files in the BIR a claim for refund of unutilized
overpayments of P1,100,000. Is the claim meritorious? (4%)
Suggested Answer:
No, but only to the extent of the amount of P750,000 which was carried over
from year 2015. Section 76 of the NIRC of 19997 clearly states: Once the option to
carry-over and apply the excess quarterly income tax against income tax due for
the taxable quarters of the succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed therefor. Section 76
expressly states that the option shall be considered irrevocable for that taxable
period referring to the period comprising the succeeding taxable years. Section 76
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
further states that no application for cash refund or issuance of a tax credit
certificate shall be allowed therefor referring to that taxable period comprising the
succeeding taxable years (Asiaworld Properties Philippine Corporation v. CIR, GR
No. 171766, July 29, 2010).
X. (2017)
Accordingly, Vantage Point, Inc., filed a petition for review in the CTA to seek
the cancellation and withdrawal of the assessment on the ground of prescription.
Suggested Answer:
a) Generally, a valid waiver of the statute of limitations for the assessment and
collection of taxes must be executed by the taxpayer and accepted by the
BIR prior to the expiration of the period which it seeks to extend. The same
must also be executed by the taxpayer or his duly authorized representative,
or in the case of a corporation, it must be signed by any of its responsible
officers (CIR v. Kudos Metal Corporation, GR No. 178087, May 5, 2010,
620 SCRA 232, 243, 244). Such requirements must be met considering that a
waiver of the statute of limitation under the NIRC, to a certain extent, is a
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
b) Has the right of the Government to assess and collect deficiency taxes from
Vantage Point, Inc. for the year 2012 prescribed? Explain your answer. (3%)
Suggested Answer:
b) Yes, the final assessment was issued beyond the three-year prescriptive
period to make an assessment (Section 203, 1997 NIRC, as amended). The
Waiver did not extend the three-year prescriptive period, since it was
executed after the expiration of such period.
XIV. (2017)
After hearing, the CTA Division issued a resolution granting the motion to
suspend but required Globesmart Services, Inc., to post a surety bond equivalent to
the deficiency assessment within 15 days from notice of the resolution. Globesmart
Services, Inc. moved for the partial reconsideration of the resolution and for the
reduction of the bond to an amount it could obtain.
The CTA division issued another resolution reducing the amount of the surety
bond to P24 million. The latter amount was still more than the net worth of
Globesmart Services, Inc., as reported in its audited financial statements.
Suggested Answer:
Suggested Answer:
b) No. Supreme Court in the Tridharma Case cited the case of Pacquiao v.
Court of Tax Appeals (GR No. 213394, April 6, 2016) where it ruled that the
CTA should first conduct a preliminary hearing for the proper determination
of the necessity of a surety bond or the reduction thereof. If the conduct of
its preliminary hearing, the CTA must balance the scale between the
inherent power of the State to tax and its right to prosecute perceived
transgressors of the law, on one side, and the constitutional rights of
petitioners to due process of law and the equal protection of the laws, on the
other. In this case, the CTA failed to consider that the amount of the surety
bond that it is asking Globesmart Services, Inc. to pay is more than its net
worth. It is, thus, necessary for the CTA to first conduct a preliminary
hearing to give the taxpayer an opportunity to prove its inability to come up
with such amount.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION
XVI. (2017)
The BIR assessed the Babuyan Water District (BWD) with deficiency
income taxes amounting to P8.5 million, inclusive of interest and surcharge. The
BWD disputed the assessment, and argued that it was a wholly-owned government
entity performing essential government functions. However, the BIR denied the
protest.
The BWD filed a petition for arbitration in the Office of the Secretary of
Justice pursuant to Sections 66 to 71, Chapter 14, Book IV of the Administrative
Code of 1987 to assail the denial of its protest, and to seek the proper interpretation
of Section 32(B)(7)(b) of the Tax Code that excluded from gross income the
income derived by the Government or its political subdivisions. The Secretary of
Justice rendered a decision declaring the BWD exempt from the payment of
income tax.
Suggested Answer:
Alternative Answer:
Yes. GOCCs are taxable entities and they are not exempt from BIR
assessment and collection, unless their charter or the law creating them provides
otherwise. Hence, is case of tax dispute between a GOCC and the BIR, the
controversy is cognizable and appealable to the CTA. The issue cannot be resolved
by the DOJ.
[Note: (on recent jurisprudence not covered by the 2017 Bar Syllabus) The
Supreme Court held in Commissioner of Internal Revenue v. Secretary of Justice
and PAGCOR (GR No. 177387, November 9, 2016) that the Secretary of Justice
does not have any jurisdiction to review any disputed assessments arising under the
Tax Code. The Secretary of Justice should have desisted from dealing with the
petition and referred the matter to the Court of Tax Appeals that has jurisdiction
over appeals on the decisions of the BIR in tax assessment cases].