Professional Documents
Culture Documents
1. Calvin Dela Pisa was a Permits and Licensing Officer (rank-and-file) of Sta. Portia Realty Corporation (SPRC). He
invited the Regional Director of the Housing and Land Use Regulatory Board (HLURB) to lunch at the Sulo Hotel in
Quezon City to discuss the approval of SPRC's application for a development permit in connection with its subdivision
development project in Pasig City. At breakfast the following day, Calvin met a prospective client interested to enter
into a joint venture with SPRC for the construction of a residential condominium unit in Cainta, Rizal.
Calvin incurred expenses for the lunch and breakfast meetings he had with the Regional Director of HLURB and the
prospective client, respectively. The expenses were duly supported by official receipts issued in his name. At month's
end, he requested the reimbursement of his expenses, and SPRC granted his request.
(a) Can SPRC claim an allowable deduction for the expenses incurred by Calvin? Explain your answer. (2.5%)
(b) Is the reimbursement received by Calvin from SPRC subject to tax? Explain your answer. (2.5%)
Answers:
a. Under the Tax Code, business expenses are allowed as a deduction provided that they are ordinary and
necessary expenditures, directly connected with or pertaining to the taxpayer’s trade or business and that
such expenses are substantiated by adequate proof like official receipts. Applying the requisites in the case
at bar, Calvin’s incurred expenses with respect to the HLURB Director cannot be considered as ordinary and
necessary because the application and approval of a subdivision development permit need not be discussed
outside the place of work of the HLURB Regional Director. Although these are directly connected with the
taxpayer’s business and substantiated with official receipts, it fell short of the first requirement. With respect
to the expenses incurred in meeting a prospective client, those expenses are considered ordinary and
necessary because those are helpful in the development of the taxpayer’s business. Therefore, only the
expenses incurred with respect to the prospective client can be claimed as a deduction by SPRC.
b. No. As a general rule, allowances received by a public officer or employee of a private entity in addition to
his regular compensation is a compensation subject to withholding tax. However, any amount paid, either as
advances or reimbursements, are not considered as compensation subject to withholding tax if they were
incurred as ordinary and necessary or they are reasonably incurred by the employee in the performance of his
duties.
(b) Is the income earned by San Juan University for the year 2017 subject to income tax? Explain your answer. (5%)
Yes. Revenue or income from trade, business or other activity, the conduct of which is not related to the
exercise or performance of religious, educational and charitable purposes or functions shall be subject to
internal revenue taxes when the same is not actually, directly or exclusively used for the intended purposes.