University of Santo Tomas
FACULTY OF CIVIL LAW (1734)
TAXATION LAW
Questions Asked More Than Once
QuAMTO 2023
The UST GOLDEN NOTES is the annual student-edited bar review material of
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Released in the Philippines, 2023.
Faculty of Civil Law (1734)
ACADEMICS COMMITTEE 2023
ANGELA BEATRICE S. PEÑA
KATHERINE S. POLICARPIO
SECRETARIES-GENERAL
RON-SOPHIA NICOLE C. ANTONIO
CRIMINAL LAW
HERLENE MAE D. CALILUNG
LABOR LAW AND SOCIAL LEGISLATION
PATRISHA LOUISE E. DUMANIL
POLITICAL LAW AND
PUBLIC INTERNATIONAL LAW
ALEXANDRA MAUREEN B. GARCIA
LEGAL AND JUDICIAL ETHICS WITH
PRACTICAL EXERCISES
HANNAH JOY C. IBARRA
COMMERCIAL LAW
JEDIDIAH R. PADUA
CIVIL LAW
PAULINNE STEPHANY G. SANTIAGO
TAXATION LAW
DIANNE MICAH ANGELA D. YUMANG
REMEDIAL LAW
EXECUTIVE COMMITTEE
PAULA ANDREA F. PEÑAFLOR
COVER DESIGN ARTIST
Faculty of Civil Law (1734)
TAXATION LAW COMMITTEE 2023
JENELYN D. GALVEZ
TAXATION LAW SUBJECT HEAD
STEPHEN NICOLE R. ARAN
JEAN MARIELLE R. MANITO
PRISCILLA LEE V. MORALES
MARY GRACE S. TEJADA
ASST. HEAD, GENERAL PRINCIPLES
ASST. HEAD, NATIONAL TAXATION
ASST. HEAD, LOCAL TAXATION
ASST. HEAD, JUDICIAL REMEDIES
MEMBERS
THEA KLARISSE S. BALINAS
GEMINA DALE C. BORREO
MELVIN C. BUMAGAT
DIANA M. DELA CRUZ
SHARMAINE ELIZA T. MACASERO
JASMIN T. SANTIAGO
KATE NICOLE D. TALLA
ADVISERS
ATTY. JAMIE ANDREA MAE ARLOS-MARTINEZ
DR. VIRGINIA JEANNIE P. LIM, LLM, Ed.D.
ATTY. KENNETH GLENN L. MANUEL, CPA
Faculty of Civil Law (1734)
FACULTY OF CIVIL LAW
UNIVERSITY OF SANTO TOMAS
ACADEMIC OFFICIALS
ATTY. NILO T. DIVINA
DEAN
REV. FR. ISIDRO C. ABAÑO, O.P.
REGENT
ATTY. ARTHUR B. CAPILI
FACULTY SECRETARY
ATTY. ELGIN MICHAEL C. PEREZ
LEGAL COUNSEL
UST CHIEF JUSTICE ROBERTO CONCEPCION LEGAL AID CLINIC
JUDGE PHILIP A. AGUINALDO
SWDB COORDINATOR
LENY G. GADIANA, R.G.C.
GUIDANCE COUNSELOR
Faculty of Civil Law (1734)
OUR DEEPEST APPRECIATION TO OUR
MENTORS AND INSPIRATION
Justice Japar B. Dimaampao
Judge Noel M. Ortega
Dr. Virginia Jeannie P. Lim, LLM, Ed.D.
Atty. Abelardo T. Domondon
Atty. Prudence Angelita A. Kasala
Atty. Benedicta Du-Baladad
Atty. Rizalina V. Lumbera
Atty. Lean Jeff M. Magsombol
Atty. Kenneth Glenn L. Manuel
Atty. Clarice Angeline V. Questin
Atty. Danica Mae M. Godornes
For being our guideposts in understanding the intricate sphere of Taxation Law.
–Academics Committee 2023
DLSU 1611
DISCLAIMER
THE RISK OF USE OF THIS BAR
REVIEW MATERIAL SHALL BE
BORNE BY THE USER
QuAMTO (1987-2022)
edible oil, margarine, and other coconut oil-based
products. It has a warehouse in Sampaloc, Quezon, used
as storage space for copra purchased in Sampaloc and
nearby towns before the same is shipped to Makati.
MMC goes to court to challenge the validity of the
ordinance, demanding the refund of the storage fees it
paid under protest.
I. GENERAL PRINCIPLES OF TAXATION
A. POWER OF TAXATION AS DISTINGUISHED FROM
POLICE POWER AND EMINENT DOMAIN
(2016, 2013, 2009,1996, 1989 BAR)
Is the ordinance valid? Explain your answer. (2009
BAR)
Q: Congress issued a law allowing a 20% discount on
the purchases of senior citizens from, among others,
recreation centers. This 20% discount can then be used
by the sellers as a “tax credit”. At the initiative of BIR,
however, Republic Act No. (R.A.) 9257 was enacted
amending the treatment of the 20% discount as a “tax
deduction.” Equity Cinema filed a petition with the RTC
claiming that the R.A. 9257 is unconstitutional as it
forcibly deprives sellers a part of the price without just
compensation.
A: YES. The municipality is authorized to impose
reasonable fees and charges as regulatory measure in an
amount commensurate with the cost of regulation,
inspection, and licensing. (Sec. 147, LGC) In the case at bar,
the storage of copra in any warehouse within the
municipality can be the proper subject of regulation
pursuant to the police power granted to municipalities
under the Revised Administrative Code or the “general
welfare clause”. A warehouse used for keeping or storing
copra is an establishment likely to endanger the public
safety or likely to give rise to conflagration because the oil
content of the copra, when ignited, is difficult to put under
control by water and the use of chemicals is necessary to
put out the fire. It is, thus, reasonable that the Municipality
impose storage fees for its own surveillance and lookout.
(Procter & Gamble Philippine Manufacturing Corporation v.
Municipality of Jagna, Province of Bohol, G.R. No. L-24265, 28
Dec. 1979; UPLC Suggested Answers)
If you were the judge, how will you decide the case?
Briefly explain your answer. (2016 BAR)
A: 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. DSWD, G.R. No. 175356, 03 Dec. 2013;
UPLC Suggested Answers)
Q: Congress passed a sin tax law that increased the tax
rates on cigarettes by 1,000%. The law was thought to
be sufficient to drive many cigarette companies out of
business, and was questioned in court by a cigarette
company that would go out of business because it
would not be able to pay the increased tax.
Q: The City of Manila passed an ordinance imposing an
annual tax of P5,000.00 to be paid by an operator of a
massage clinic and an annual fee of P50.00 to be paid by
every attendant or helper in the said clinic.
The cigarette company is?
A: The imposition on the operator of the massage clinic is
both a tax and a license fee. The amount of P5,000.00
exceeds the cost of regulation, administration, and control
but it is likewise imposed to regulate a non-useful business
in order to protect the health, safety and morals of the
citizenry in general. The P50.00 impositions on the helpers
or attendants are license fees sufficient only for regulation,
administration, and control.
Is the imposition a tax or a license fee? (1989 BAR)
A) Wrong because taxes are the lifeblood of the
government
B) Wrong because the law recognizes that the
power to tax is the power to destroy
C) Correct because no government can deprive a
person of his livelihood
D) Correct because Congress, in this case,
exceeded its power to tax (2013 BAR)
B. INHERENT AND CONSTITUTIONAL LIMITATIONS OF
TAXATION
(2019-2009, 2007, 2006, 2004, 2003, 2000, 19981996, 1994, 1992, 1991, 1989 BAR)
A: D) Wrong because the law recognizes that the power to
tax is the power to destroy. (McCulloch v. Maryland, 17 U.S.
4 Wheat. 316, 1819; UPLC Suggested Answers)
Q: The Sangguniang Bayan of the Municipality of
Sampaloc, Quezon, passed an ordinance imposing a
storage fee of ten centavos (P0.10) for every 100 kilos
of copra deposited in any bodega within the
Municipality’s
jurisdiction.
The
Metropolitan
Manufacturing Corporation (MMC), with principal
office in Makati, is engaged in the manufacture of soap,
INHERENT LIMITATIONS
Q: Enumerate the four (4) inherent limitations on
taxation. Explain each item briefly. (2009 BAR)
1
A: The inherent limitations on the power to tax are:
1. Taxation is for a public purpose – The proceeds of the
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
2.
3.
4.
welfare clause”. A warehouse used for keeping or storing
copra is an establishment likely to endanger the public
safety o likely to give rise to conflagration xxx It is, thus,
reasonable that the Municipality impose storage fees for its
own surveillance and lookout.
tax must be used: (a) for the support of the State; or (b)
for some recognized objective of the government or to
directly promote the welfare of the community.
Taxation is inherently legislative – Only the
legislature has full discretion as to the persons,
property, occupation or business to be taxed, provided
these are all within the State’s territorial jurisdiction. It
can also finally determine the amount or rate of tax, the
kind of tax to be imposed and the method of collection.
(1 Cooley 176184)
Q: An ordinance of Quezon City on the operation of
market stalls and the collection of market stall fees
created a market committee “to formulate, recommend
and adopt, subject to the ratification of the Sangguniang
Panglungsod, regulations in the operations of the
market stalls.” It also entrusted the collection of the
market stall fees to a private corporation.
Taxation is territorial – Taxation may be exercised
only within the territorial jurisdiction of the taxing
authority. (61 Am. Jur. 88) Within the territorial
jurisdiction, the taxing authority may determine the
“place of taxation” or “tax situs."
Does the entrusting of the collection of the market stall
fees destroy the “public purpose” of the ordinance?
(1989 BAR)
A: YES, because a portion of the fees collected would be
diverted as fees to private corporation. Entrusting of the
collection of the market stall fees violates the limitation that
local government units shall in no case let to any private
person the collection of local taxes, fees, charges, and other
impositions. (Sec. 130(C), LGC) As a result of this
prohibition, public funds are therefore utilized for a private
purpose, which is to pay the private corporation for its
services.
Taxation is subject to international comity – This is a
limitation which is founded on reciprocity designed to
maintain harmonious and productive relationships
among the various states. Under international comity,
a state must recognize the generally accepted tenets of
international law, among which are the principles of
sovereign equality among states and of their freedom
from suit without their consent, that limit the authority
of a government to effectively impose taxes on a
sovereign state and its instrumentalities, as well as on
its property held, and activities undertaken in that
capacity. (UPLC Suggested Answers)
INHERENTLY LEGISLATIVE
(2012, 2009, 2007, 2003, 1994, 1991 BAR)
PUBLIC PURPOSE
(2009, 1991, 1989 BAR)
Q: May Congress, under the 1987 Constitution, abolish
the power to tax of local governments? (2003 BAR)
Q: The Sangguniang Bayan of the Municipality of
Sampaloc, Quezon, passed an ordinance imposing a
storage fee of ten centavos for every 100 kilos of copra
deposited in any bodega within the Municipality’s
jurisdiction.
The
Metropolitan
Manufacturing
Corporation (MMC), with principal office in Makati, is
engaged in the manufacture of soap, edible oil,
margarine, and other coconut oil-based products. It has
a warehouse in Sampaloc, Quezon, used as storage
space for the copra purchased in Sampaloc and nearby
towns before the same is shipped to Makati. MMC goes
to court to challenge the validity of the ordinance,
demanding the refund of the storage fees it paid under
protest.
A: NO. The Congress cannot abolish what is expressly
granted by the fundamental law. The only authority
conferred to Congress is to provide the guidelines and
limitations on the local government’s exercise of the power
to tax. (Sec. 5, Art. X, 1987 Constitution)
Is the ordinance valid? (2009 BAR)
A: NO. The imposition of a tax, fee, or charge, or the
generation of revenue under the LGC, shall be exercised by
the Sanggunian of the LGU concerned through an
appropriate ordinance. (Sec. 132, LGC) The city mayor alone
could not order the collection of the tax; as such, the
"elevator tax" is an invalid imposition.
Q: In order to raise revenue for the repair and
maintenance of the newly constructed City Hall of
Makati, the City Mayor ordered the collection of P1.00,
called “elevator tax”, every time a person rides any of
the high-tech elevators in the City Hall during the hours
of 8am to 10am, and 4pm to 6pm.
Is the imposition of elevator tax valid? (2003 BAR)
A: YES. The municipality is authorized to impose
reasonable fees and charges as a regulatory measure in an
amount commensurate with the cost of regulation,
inspection and licensing. (Sec. 147, LGC) In the case at bar,
the storage of copra in any warehouse within the
municipality can be the proper subject of regulation
pursuant to the police power granted to municipalities
under the Revised Administrative Code or the “general
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
Q: The Secretary of Finance, upon the recommendation
of the Commission of Internal Revenue, issued a
Revenue Regulation using gross income as the tax base
2
QuAMTO (1987-2022)
through ABC Agency for the year 2013, amounted to
P5,000,000.00, the BIR assessed XYZ Air deficiency
income taxes on the ground that the income from the
said sales constituted income derived from sources
within the Philippines.
for corporations doing business in the Philippines.
Is the revenue regulation valid? (1994 BAR)
A: The regulation establishing the gross income as the tax
base for corporations doing business in the Philippines
(domestic as well as resident foreign) is not valid. This is no
longer implementation of the law but actually it constitutes
legislation because among the powers that are exclusively
within the legislative authority to tax is the power to
determine -the amount of the tax. Certainly, if the tax is
limited to gross income without deductions of these
corporations, this is changing the amount of the tax as said
amount ultimately depends on the taxable base. (UPLC
Suggested Answers)
Aggrieved, XYZ Air filed a protest, arguing that, as a
non-resident foreign corporation, it should only be
taxed for income derived from sources within the
Philippines. However, since it only serviced passengers
outside the Philippine territory, the situs of the income
from its ticket sales should be considered outside the
Philippines. Hence, no income tax should be imposed
on the same.
Is XYZ Air’s protest meritorious? Explain. (2019 BAR)
Q: The Municipality of Malolos passed an ordinance
imposing a tax on any sale or transfer of real property
located within the municipality at a rate of ¼ of 1% of
the total consideration of the transaction. “X” sold a
parcel of land in Malolos which he inherited from his
deceased parents and refused to pay the aforesaid tax.
He instead filed an appropriate case asking that the
ordinance be declared null and void since such a tax can
only be collected by the national government, as in fact
he has paid the BIR the required capital gains tax.
A: NO. Under the law, an international air carrier with no
landing rights in the Philippines is a resident foreign
corporation if its local sales agent sells and issues tickets in
its behalf. An offline international carrier, selling package
tickets in the Philippines through a local general sales agent,
is considered a resident foreign corporation doing business
in the Philippines. As such, it is taxable on income derived
from sources within the Philippines and not on Gross
Philippines Billings subject to any applicable tax treaty. (Air
Canada v. CIR, G.R. No. 169507, 11 Jan. 2016)
The Municipality countered that under the
Constitution, each local government is vested with the
power to create its own sources of revenue and to levy
taxes, and it imposed the subject tax in the exercise of
said Constitutional authority.
In the case at bar, XYZ Air was able to sell its airplane tickets
in the Philippines through ABC Agency, its general agent in
the Philippines. As such, it is taxable on income derived
from sources within the Philippines and not on Gross
Philippines Billings, subject to any applicable tax treaty.
(UPLC Suggested Answers)
Resolve the controversy. (1991 BAR)
Q: Jennifer is the only daughter of Janina who was a
resident in Los Angeles, California, U.S.A. Janina died in
the U.S. leaving to Jennifer one million shares of Sun Life
(Philippines), Inc., a corporation organized and
existing under the laws of the Republic of the
Philippines. Said shares were held in trust for Janina by
the Corporate Secretary of Sun Life and the latter can
vote the shares and receive dividends for Janina. The
Internal Revenue Service (IRS) of the U.S. taxed the
shares on the ground that Janina was domiciled in the
U.S. at the time of her death.
A: THE ORDINANCE IS VOID. The LGC only allows
provinces and cities to impose a tax on the transfer of
ownership of real property. (Secs. 135 and 151, LGC)
Municipalities are prohibited from imposing said tax that
provinces are specifically authorized to levy.
While it is true that the Constitution has given broad powers
of taxation to LGUs, this delegation, however, is subject to
such limitations as may be provided by law. (Sec. 5, Art. X,
1987 Constitution)
TERRITORIAL
(2019, 2016, 2014, 2011, 2009 BAR)
Can the CIR of the Philippines also tax the same shares?
Explain. (2016 BAR)
Q: XYZ Air, a 100% foreign-owned airline company
based and registered in Netherlands, is engaged in the
international airline business and is a member
signatory of the International Air Transport
Association. Its commercial airplanes neither operate
within the Philippine territory nor are its service
passengers embarking from Philippine airports.
Nevertheless, XYZ Air is able to sell its airplane tickets
in the Philippines through ABC Agency, its general
agent in the Philippines. As XYZ Air’s ticket sales, sold
A: YES. The property being a property located in the
Philippines, it is subject to the Philippine’s estate tax
irrespective of the citizenship or residence of the decedent.
(Sec. 85, NIRC) However, if Janina is a non-resident alien at
the time of her death, the transmission of the shares of stock
can only be taxed applying the principle of reciprocity. (Sec.
104, NIRC; UPLC Suggested Answers)
Q: Triple Star, a domestic corporation, entered into a
3
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
withheld at source as tax on dividends earned was fixed
at 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.
Management Service Contract with Single Star, a nonresident foreign corporation with no property in the
Philippines. Under the contract, Single Star shall
provide managerial services for Triple Star’s Hongkong
branch. All said services shall be performed in Hong
Kong.
On January 17, 1985, ABCD filed a petition with the
Court of Tax Appeals (CTA) reiterating its demand for
refund.
Is the compensation for the services of Single Star
taxable as income from sources within the Philippines?
Explain. (2014 BAR)
Is the contention of ABCD Corporation correct? Why or
why not? (2009 BAR)
A: NO. The compensation for services rendered by Single
Star is an income derived from sources without the
Philippines. To be considered as income from within, the
labor or service must be performed within the Philippines.
(Sec. 42(A)(3) and (C)(3), NIRC) Since all the services
required to be performed by Single Star, a non-resident
foreign corporation, is to be performed in Hongkong, the
entire income is from sources without. (UPLC Suggested
Answers)
A: 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, 31 May 1988; UPLC Suggested Answers)
INTERNATIONAL COMITY
(2012, 2009, 2000, 1996, 1992 BAR)
ALTERNATIVE ANSWER:
Q: 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 laws.
The contention of ABCD Corporation that it overpaid the
withholding tax is correct provided it can establish: (1) The
existence of RP-US Tax Treaty imposing a lower rate of tax
of 25%; (2) The said tax treaty is applicable to its case; and
(3) Its payment with the BIR of a tax based on a higher rate
of 30% and 35%, respectively. (UPLC Suggested Answers)
Q: The President of the Philippines and the Prime
Minister of Japan entered into an executive agreement
in respect of a loan facility to the Philippines from Japan
whereby it was stipulated that interest on loans
granted by private Japanese financial institutions to
private financial Institutions in the Philippines shall
not be subject to Philippine income taxes.
Should the BIR Commissioner agree to obtain such
information from the bank and provide the same to the
IRS? Explain your answer. (2012 BAR)
A: YES. The Commissioner should agree to the request
pursuant to the principle of international comity. The
Commissioner of the 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. (Sec 3, R.A. No. 10021; UPLC Suggested Answers)
Is this tax exemption valid? Explain. (1992 BAR)
A: YES. The tax exemption is valid because an executive
agreement has the force and effect of a treaty under the
provision of the Revenue Code. Taxation is subject to
International Comity.
Q: ABCD Corporation (ABCD) is a domestic corporation
with individual and corporate shareholders who are
residents of the United States. For the 2nd quarter of
1983, these U.S.-based individual and corporate
stockholders received cash dividends from the
corporation. The corresponding withholding tax on
dividend income — 30% for individual and 35% for
corporate non-resident stockholders — was deducted
at source and remitted to the BIR.
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
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
EXEMPTION FROM TAXATION OF GOVERNMENT
ENTITIES
(2016, 2015, 1998 BAR)
Q: Philippine National Railways (PNR) operates the rail
transport of passengers and goods by providing train
stations and freight customer facilities from Tutuban,
Manila to the Bicol Province. As the operator of the
railroad transit, PNR administers the land,
improvements, and equipment within the main station
in Tutuban, Manila.
4
QuAMTO (1987-2022)
transferred to LLL, the Republic remains the owner of the
real property. Thus, such arrangement does not result in the
loss of the tax exemption. (Republic v. City of Paranaque, G.R.
No. 191109, 18 July 2012)
Invoking Sec. 193 of the Local Government Code (LGC)
expressly withdrawing the tax exemption privileges of
government-owned and controlled corporations upon
the effectivity of the Code in 1992, the City Government
of Manila issued Final Notices in the amount of
P624,000,000.00 for the taxable years 2006 to 2010. On
the other hand, PNR, seeking refuge under the principle
that the government cannot tax itself, insisted that the
PNR lands and buildings are owned by the Republic.
(b) Will your answer be the same in (a) if from 2010 to
the present time, LLL is leasing portions of the
reclaimed properties for the establishment and use
of popular fast-food restaurants J Burgers, G Pizza,
and K Chicken?
A: NO. As a rule, properties owned by the Republic of the
Philippines are exempt from real property tax except when
beneficial use thereof has been granted, for consideration,
or otherwise, to a taxable person. When LLL leased out
portions of the reclaimed properties to taxable entities,
such as popular fast-food restaurants, the reclaimed
properties are subject to real property tax. (Sec. 234(a), LGC;
GSIS v. City Treasurer, G.R. No. 186242, 23 Dec. 2009; UPLC
Suggested Answers)
Is the PNR exempt from real property tax? Explain your
answer. (2016 BAR)
A: YES. The properties of PNR are properties of public
dominion owned by the Republic of the Philippines, which
are exempt from real property tax. (Sec. 234, LGC)
In MIAA v. CA (G.R. No. 155650, 20 July 2006), the Supreme
Court held that MIAA is a government instrumentality and
is not a government-owned and controlled corporation,
therefore the real properties owned by MIAA are not
subject to real estate tax, except when MIAA leases its real
property to private parties. In the said case, PNR was cited
as an example of such government instrumentality which is
deemed exempt.
CONSTITUTIONAL LIMITATIONS
PROVISIONS DIRECTLY AFFECTING TAXATION
UNIFORMITY AND EQUALITY OF TAXATION
(2017, 2014, 2013, 2004, 2003, 2000, 1998 BAR)
NOTE: The Light Rail Transit Authority (LRTA) is also
exempt as it is a government instrumentality vested with
corporate powers. (LRTA v. Quezon City, G.R. No. 221626, 09
Oct. 2019; UPLC Suggested Answers)
Q: Explain the requirement of uniformity as a
limitation in the imposition and/or collection of taxes.
(1998 BAR)
Q: LLL is a government instrumentality created by
Executive Order to be primarily responsible for
integrating and directing all reclamation projects for
the National Government. It was not organized as a
stock or a non-stock corporation, nor was it intended to
operate commercially and compete in the private
market.
A: Uniformity in the imposition and/or collection of taxes
means that all taxable articles, or kinds of property of the
same class shall be taxed at the same rate. The requirement
of uniformity is complied with when the tax operates with
the same force and effect in every place where the subject
of it is found. (Churchill v. Concepcion, G.R. No. 11572, 22
Sept. 1916)
By virtue of its mandate, LLL reclaimed several
portions of the foreshore and offshore areas of the
Manila Bay, some of which were within the territorial
jurisdiction of Q City. Certificates of title to the
reclaimed properties in Q City were issued in the name
of LLL in 2008. In 2014, Q City issued Warrants of Levy
on said reclaimed properties of LLL based on the
assessment for delinquent property taxes for the years
2010 to 2013. (2015 BAR)
Different articles may be taxed at different amounts
provided that the rate is uniform on the same class
everywhere with all people at all times. Accordingly,
singling out one particular class for taxation purposes does
not infringe the requirement of uniformity.
Q: Heeding the pronouncement of the President that
the worsening traffic condition in the metropolis was a
sign of economic progress, the Congress enacted R.A.
10701, also known as An Act Imposing a Transport Tax
on the Purchase of Private Vehicles.
(a) Are the reclaimed properties registered in the
name of LLL subject to real property tax?
Under R.A. 10701, buyers of private vehicles are
required to pay a transport tax equivalent to 5% of the
total purchase price per vehicle purchased. R.A. 10701
provides that the Land Transportation Office (LTO)
shall not accept for registration any new vehicles
without proof of payment of the 5% transport tax. R.A.
10701 further provide that existing owners of private
A: NO. The reclaimed properties are not subject to real
property tax because LLL is a government instrumentality.
Under the law, real property owned by the Republic of the
Philippines is exempt from real property tax unless the
beneficial use thereof has been granted to a taxable person.
(Sec. 234, LGC) When the title of the real property is
5
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
vehicles shall be required to pay a tax equivalent to 5%
of the current fair market value of every vehicle
registered with the LTO. However, R.A. 10701 exempts
owners of public utility vehicles and the Government
from the coverage of the 5% transport tax.
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
condonation of all penalties on fines resulting from the
late payment.
A group of private vehicle owners sue on the ground
that the law is unconstitutional for contravening the
Equal Protection Clause of the Constitution.
Arguing that the ordinance rewards delinquent
taxpayers and discriminates against prompt ones, RC
demands that he be refunded an amount equivalent to
one-half of the real taxes he paid. The municipal
attorney rendered an opinion that RC cannot be
reimbursed because the ordinance did not provide for
such reimbursement. RC files suit to declare the
ordinance void on the ground that it is a class
legislation.
Rule on the constitutionality and validity of R.A. 10701.
(2017 BAR)
A: R.A. No. 10701 is VALID AND CONSTITUTIONAL. A
levy of tax is not unconstitutional because it is not
intrinsically equal and uniform in its operation. The
uniformity rule does not prohibit classification for purposes
of taxation. (British American Tobacco v. Camacho, G.R. No.
163583, 15 Apr. 2009)
Will his suit prosper? Explain your answer briefly.
(2004 BAR)
A: NO. The suit will not prosper. The remission or
condonation of taxes due and payable to the exclusion of
taxes already collected does not constitute unfair
discrimination. Each set of 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, G.R. No. L-3538, 28
May 1952)
Uniformity in taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in
privileges and liabilities. Uniformity does not forfend
classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary; (2) the
categorization is germane to achieve the legislative
purpose; (3) the law applies, all things being equal to both
present and future conditions; and (4) the classification
applies equally well to all those belonging to the same class.
(Rufino R. Tan v. Del Rosario, Jr., G.R. No. 109289, 03 Oct.
1994) All of the foregoing requirements of a valid
classification having been met and those which are singled
out are a class in themselves, there is no violation of the
“Equal Protection Clause” of the Constitution. (UPLC
Suggested Answers)
Q: A law was passed exempting doctors and lawyers
from the operation of the value-added tax. Other
professionals complained and filed a suit questioning
the law for 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. (2004
BAR)
Q: Choose the correct answer. Tax laws:
A: YES. 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 of 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 protection clause of the Constitution. While
singling out a class for taxation purposes will not infringe
upon this constitutional limitation (Shell v. Vano, G.R. No. L6093, 24 Feb. 1954), singling out a taxpayer from a class will
no doubt transgress the constitutional limitation. (Ormoc
Sugar Co. Inc. v. Treasurer of Ormoc City, G.R. No. L-23794,
17 Feb. 1968) Treating doctors and lawyers as a different
class of professionals will not comply with the
requirements of 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 requirement that it should be
germane to the purpose of the law either. (Pepsi-Cola
Bottling Co., Inc. v. City of Butuan, G.R. No. L-22814, 28 Aug.
A) Maybe enacted for the promotion of private
enterprise or business for as long as it gives;
B) Incidental advantage to the public or the State;
C) are inherently legislative, therefore, may not
be delegated;
D) Are territorial in nature; hence, they do not
recognize the generally-accepted tenets of
international law;
E) Adhere to uniformity and equality when all
taxable articles or kinds of property of the
same class are taxable at the same rate. (2014
BAR)
A: D) adhere to uniformity and equality when all taxable
articles or kinds of property of the same class are taxable at
the same rate. (City of Baguio v. de Leon, G.R. No. L-24756,
31 Oct. 1968; UPLC Suggested Answers)
Q: RC is a law-abiding citizen who pays his real estate
taxes promptly. Due to a series of typhoons and
UNIVERSITY OF SANTO TOMAS
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purposes. (CIR v. CA and YMCA, G.R. No. 124043, 14 Oct. 1998;
Bar Q&A by Mamalateo, 2019)
1968)
Q: An Executive Order was issued pursuant to a law
granting tax and duty incentives only to businesses and
residents within the “secured area” of the Subic
Economic Special Zone, and denying said incentives to
those who live within the Zone but outside such
“secured area”.
Q: Money collected from taxation shall not be paid to
any religious dignitary EXCEPT when: (2011 BAR)
A) Religious dignitary is assigned to the
Philippine Army;
B) It is paid by the local government unit;
C) The payment is passed in audit by the COA;
D) It is part of the lawmaker’s pork barrel.
Is the constitutional right of equal protection of the law
violated by the Executive Order? Explain. (2000 BAR)
A: A) religious dignitary is assigned to the Philippine Army
(UPLC Suggested Answers)
A: NO. Equal protection of the law clause is subject to
reasonable classification. Classification, to be valid, must:
(1) rest on substantial distinctions; (2) be germane to the
purpose of the law; (3) not be limited to existing conditions
only; and (4) apply equally to all members of the same class.
NOTE: Beginning July 1, 2020 up to June 30, 2023, the rate
of one percent (1%) shall apply to, among others, hospitals
which are non-profit. After June 30, 2023, the rate shall
revert to the preferential corporate income tax rate of 10%.
(RR No. 3-2022)
There are substantial differences between big investors
being enticed to the “secured area” and the business
operators outside in accord with the equal protection clause
that does not require territorial uniformity of laws. The
classification applies equally to all the resident individuals
and businesses within the “secured area". The residents,
being in like circumstances to contributing directly to the
achievement of the end purpose of the law, are not
categorized further. Instead, they are similarly treated both
in privileges granted and obligations required. (Tiu v. CA,
G.R. No. 127410, 20 Jan. 1999)
Q: A group of philanthropists organized a non-stock,
non-profit hospital for charitable purposes to provide
medical services to the poor. The hospital also
accepted paying patients although none of its income
accrued to any private individual; all income were
plowed back for the hospital’s use and not more than
30% of its funds were used for administrative
purposes.
Is the hospital subject to tax on its income? If it is, at
what rate? (2013 BAR)
PROHIBITION AGAINST TAXATION OF RELIGIOUS,
CHARITABLE ENTITIES, AND EDUCATIONAL ENTITIES
(2013, 2011, 2006, 2005, 2000, 1996, 1994, 1993 BAR)
A: YES. Although a non-stock, non-profit hospital organized
for charitable purposes is generally exempt from income
tax, it becomes taxable on income derived from activities
conducted for profit. Services rendered to paying patients
are considered activities conducted for profit which are
subject to income tax, regardless of the disposition of said
income. The hospital is subject to an income tax rate of 10%
of its net income derived from the paying patients
considering that the income earned appears to be derived
solely from hospital-related activities. (CIR v. St. Luke’s
Medical Center, Inc., G.R. No. 195909 and 195960, 26 Sept.
2012; UPLC Suggested Answers)
Q: The Constitution provides "charitable institutions,
churches, parsonages or convents appurtenant thereto,
mosques, and non-profit cemeteries and all lands,
buildings, and improvements actually, directly and
exclusively used for religious, charitable or educational
purposes shall be exempt from taxation."
This provision exempts charitable institutions and
religious institutions from what kind of taxes? Choose
the best answer. Explain. (2006 BAR)
A) from all kinds of taxes, i.e., income, VAT,
customs duties, local taxes, and real property
tax;
B) from income tax only;
C) from value-added tax only;
D) from real property tax only;
E) from capital gains tax only.
Q: The Constitution exempts from taxation charitable
institutions, churches, parsonages, or convents
appurtenant thereto, mosques and non-profit
cemeteries and lands, buildings and improvements
actually, directly and exclusively used for religious,
charitable and educational purposes. Mercy Hospital is
a 100-bed hospital organized for charity patients.
A: D) from real property tax only.
This exemption applies only to property taxes. What is
exempted is not the institution itself, but the lands,
buildings, and improvements actually, directly, and
exclusively used for religious, charitable, and educational
Can said hospital claim exemption from taxation under
the above-quoted constitutional provision? Explain.
(1996 BAR)
A: YES. Mercy Hospital can claim exemption from taxation
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UNIVERSITY OF SANTO TOMAS
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TAXATION LAW
educational institution. It owns a piece of land in
Caloocan City on which its three 3-storey school
building stood. Two of the buildings are devoted to
classrooms, laboratories, a canteen, a bookstore, and
administrative offices. The third building is reserved as
dormitory for student athletes who are granted
scholarships for a given academic year.
under the provision of the Constitution, but only with
respect to real property taxes provided that such real
properties are used actually, directly, and exclusively for
charitable purposes.
PROHIBITION AGAINST TAXATION OF NON-STOCK,
NON-PROFIT EDUCATIONAL INSTITUTIONS
(2018, 2017, 2004, 1996 BAR)
In 2017, San Juan University earned income from
tuition fees and from leasing a portion of its premises
to various concessionaires of food, books, and school
supplies.
Q: Kilusang Krus, Inc. (KKI) is a non-stock, non-profit
religious organization which owns a vast tract of land
in Kalinga.
(a) Can the City Treasurer of Caloocan City collect real
property taxes on the land and building of San Juan
University? Explain your answer. (2017 BAR)
KKI has devoted 1/2 of the land for various uses: a
church with a cemetery exclusive for deceased priests
and nuns, a school providing K to 12 education, and a
hospital which admits both paying and charity
patients. The remaining 1/2 portion has remained idle.
A: YES. The City Treasurer can collect real property taxes
but on the leased portion. Sec. 4(3), Art. XIV of the 1987
Constitution provides that a non-stock, non-profit
educational institution shall be exempt from taxes and
duties only if the same are used actually, directly, and
exclusively for educational purposes. The test of exemption
from taxation is the use of the property for purposes
mentioned in the Constitution. The leased portion of the
building may be subject to real property tax since such
lease is for commercial purposes, thereby, it removes the
asset from the property tax exemption granted under the
Constitution. (CIR v. De La Salle University, Inc., G.R. No.
196596, 09 Nov. 2016)
The KKI Board of Trustees decided to lease the
remaining 1/2 portion to a real estate developer which
constructed a community mall over the property.
Since the rental income from the lease of the property
was substantial, the KKI decided to use the amount to
finance: (1) the medical expenses of the charity
patients in the KKI Hospital; and (2) the purchase of
books and other educational materials for the students
of KKI School. (2018 BAR)
(a) Is KKI liable for real property taxes on the land?
(b) Is the income earned by San Juan University for the
year 2017 subject to income tax? Explain your
answer.
A: YES, but only on the leased portion. Sec. 28(3), Art. VI,
of the 1987 Constitution provides that “charitable
institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and
all lands, buildings, and improvements, actually, directly,
and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation”. The
test of exemption from taxation is the use of the property
for purposes mentioned in the Constitution. The leased
portion of the land may be subject to real property tax since
such lease is for commercial purposes, thereby, removing
the asset from the property tax exemption granted under
the Constitution. (CIR vs. De La Salle University, Inc., GR. Nos,
196596, 198841, 198941, 09 Nov. 2016; UPLC Suggested
Answers)
A: NO. The income earned is not subject to income tax
provided that the revenues are used actually, directly, and
exclusively for educational purposes as provided under
Sec. 4(3), Art. XIV of the 1987 Constitution. The requisites
for availing the tax exemption under Sec. 4(3), Art. XIV are
as follows: (1) the taxpayer falls under the classification
non-stock, non-profit educational institution; and (2) the
income it seeks to be exempted from taxation is used
actually, directly, and exclusively for educational purposes;
thus, so long as the requisites are met, the revenues are
exempt from tax. (CIR v. De La Salle University, Inc., G.R. Nos.
196596, 198841 and 198941, 09 Nov. 2016; UPLC Suggested
Answers)
(b) Is KKl's income from the rental fees subject to
income tax?
Q: XYZ Colleges is a non-stock, non-profit educational
institution run by the Archdiocese of BP City. It
collected and received the following:
A) Tuition fees;
B) Dormitory Fees;
C) Rentals from canteen concessionaires;
D) Interest from money-market placements of the
tuition fees;
E) Donation of a lot and building by school alumni.
Which of these above cited income and donation would
A: YES. Despite falling under the organizations enumerated
under Sec. 30 of the NIRC, the last paragraph of the same
provision makes KKI’s income of whatever kind and
character from any of its properties, real or personal, or
from any of its activities conducted for profit regardless of
the disposition made of such income, subject to income tax.
(Sec. 30, NIRC)
Q: San Juan University is a non-stock, non-profit
UNIVERSITY OF SANTO TOMAS
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not be exempt from taxation? Explain briefly. (2004
BAR)
on sales, barters or exchanges or similar transactions on
goods or services “except as otherwise provided herein”. As
an exception to the said rule, Sec. 143(b) of the LGC allows
the imposition of taxes on wholesalers, distributors, or
dealers in any article of commerce of whatever kind or
nature for municipalities. Moreover, Sec. 151 of the LGC
provides that cities may impose whatever the municipality
is imposing. Thus, City X may levy the said tax.
A: The following are not exempt from taxation, viz:
C) Rental income is considered as unrelated to the school
operations; hence, taxable.
D) The interest on the placement is taxable. (DOF Order No.
137-87)
Q: KM Corporation, doing business in the City of
Kalookan, has been a distributor and retailer of
clothing and household materials. It has been paying
the City of Kalookan local taxes based on Secs. 15 (Tax
on Wholesalers, Distributors or Dealers) and 17 (Tax
on Retailers) of the Revenue Code of Kalookan City
(Code). Subsequently, the Sangguniang Panglungsod
enacted an ordinance amending the Code by inserting
Sec. 21 which imposes a tax on “Businesses Subject to
Excise, Value-Added and Percentage Taxes under the
NIRC,” at the rate of 50% of 1% per annum on the gross
sales and receipts on persons “who sell goods and
services in the course of trade or business.” KM
Corporation paid the taxes due under Sec. 21 under
protest, claiming that: (a) local government units could
not impose a tax on businesses already taxed under the
NIRC; and (b) this would amount to double taxation,
since its business was already taxed under Secs. 15 and
17 of the Code.
If, however, the said rental income and/or interest are used
actually, directly, and exclusively for educational purposes
as proven by substantial evidence, the same will be exempt
from taxation. (CIR v. CA, G.R. No. 124043, 14 Oct. 1998)
The other items of income which were all derived from
school-related activities will be exempt from taxation in the
hands of the recipient if used actually, directly, and
exclusively for educational purposes. (Sec. 4(3), Art. XIV,
1987 Constitution)
The donation to a non-stock, non-profit educational
institution will be exempt from donor’s tax if used actually,
directly, and exclusively for educational purposes and
provided, that, not more than 30% of the donation is used
for administration purposes. (Sec. 4(4), Art. XIV, 1987
Constitution, in relation to Sec. 101(A)(3), NIRC)
May LGUs impose tax on businesses already subjected
to tax under the NIRC? (2018 BAR)
GRANT OF POWER TO THE LGUS TO CREATE ITS OWN
SOURCES OF REVENUE
(2019, 2018, 2003 BAR)
A: YES. Sec. 143 in relation to Sec. 151 of the LGC provides
for the power of cities to impose a local business tax, and
one of those which may be subjected to such tax are those
businesses that are subject to “excise tax, value-added tax
and percentage tax” under the NIRC, other than those
specifically enumerated by the same provision. The tax
imposed by the city shall not exceed 2% of the gross sales
or gross receipts of the preceding calendar year. (Sec.
143(h), in relation to Sec. 151, LGC; UPLC Suggested Answers)
Q: In 2018, City X amended its Revenue Code to include
a new provision imposing a tax on every sale of
merchandise by a wholesaler based on the total selling
price of the goods, inclusive of value-added taxes (VAT).
ABC Corp., a wholesaler operating within the city,
challenged the new provision based on the following
contentions: (1) The new provision is a form of
prohibited double taxation because it essentially
amounts to City X imposing VAT which was already
being levied by the national government; and (2) since
the tax being imposed is akin to VAT, it is beyond the
power of City X to levy the same.
Q: May Congress, under the 1987 Constitution, abolish
the power to tax of local governments? (2003 BAR)
A: NO. The Congress cannot abolish the local government’s
power to tax as it cannot abrogate what is expressly
granted by the fundamental law. The only authority
conferred to Congress is to provide the guidelines and
limitations on the local government’s exercise of the power
to tax.
Rule on ABC Corp.’s second contention. (2019 BAR)
A: ABC Corp. is INCORRECT. Under the LGC, LGUs are
empowered to enact ordinances that will aid in their
revenue generation, which is in consonance with the
principle of fiscal autonomy of LGUs. Although the tax to be
imposed is akin to VAT, the LGU may nevertheless impose
such local business tax. (UPLC Suggested Answers)
PROVISIONS INDIRECTLY AFFECTING TAXATION
EQUAL PROTECTION
(2017, 2013, 2010, 2009, 2004, 2000 BAR)
ALTERNATIVE ANSWER:
ABC Corp. is INCORRECT. Under Sec. 133(i) of the LGC,
cities may not impose percentage or value-added tax (VAT)
Q: Heeding the pronouncement of the President that
the worsening traffic condition in the metropolis was a
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
sign of economic progress, the Congress enacted R.A.
No. 10701, also known as An Act Imposing a Transport
Tax on the Purchase of Private Vehicles.
proceeds along suspect lines nor infringes constitutional
rights must be upheld against equal protection challenge if
there is any reasonably conceivable state of facts that could
provide a rational basis for the classification.” Under the
rational basis test, it is sufficient that the legislative
classification is rationally related to achieving some
legitimate State interest. (British American Tobacco v.
Camacho and Parayno, G.R. No. 163583, 15 Apr. 2009; UPLC
Suggested Answers)
Under R.A. No. 10701, buyers of private vehicles are
required to pay a transport tax equivalent to 5% of the
total purchase price per vehicle purchased. R.A. No.
10701 provides that the Land Transportation Office
(LTO) shall not accept for registration of any new
vehicles without proof of payment of the 5% transport
tax. R.A. No. 10701 further provide that existing
owners of private vehicles shall be required to pay a tax
equivalent to 5% of the current fair market value of
every vehicle registered with the LTO. However, R.A.
No. 10701 exempts owners of public utility vehicles
and the Government from the coverage of the 5%
transport tax.
Q: The City of Manila enacted Ordinance No. 55-66
which imposes a municipal occupation tax on persons
practicing various professions in the city. Among those
subjected to the occupation tax were lawyers. Atty.
Mariano Batas, who has a law office in Manila, pays the
ordinance-imposed occupation tax under protest. He
goes to court to assail the validity of the ordinance for
being discriminatory.
A group of private vehicle owners sue on the ground
that the law is unconstitutional for contravening the
Equal Protection Clause of the Constitution.
Decide with reasons. (2009 BAR)
A: The Ordinance is VALID. The tax imposed by the
ordinance is in the nature of a professional tax which is
authorized by law to be imposed by cities. (Sec. 151, in
relation to Sec. 139, LGC) The ordinance is not
discriminatory because the City Council has the power to
select the subjects of taxation and impose the same tax on
those belonging to the same class. The authority given by
law to cities is to impose a professional tax only on persons
engaged in the practice of their profession requiring
government examination and lawyers are included within
that class of professionals. (UPLC Suggested Answers)
Rule on the constitutionality and validity of R.A. No.
10701. (2017 BAR)
A: It is VALID AND CONSTITUTIONAL. A levy of tax is not
unconstitutional because it is not intrinsically equal and
uniform in its operation. The uniformity rule does not
prohibit classification for purposes of taxation. (British
American Tobacco v. Camacho, G.R. No. 163583, 20 Aug.
2008)
Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in
privileges and liabilities. Uniformity does not forfend
classification as long as: (1) the standards that are use
thereof are substantial and not arbitrary, (2) the
categorization is germane to achieve the legislative
purpose, (3) the law applies, all things being equal to both
present and future conditions, and (4) the classification
applies equally well to all those belonging to the same class.
(Tan v. Del Rosario, Jr., G.R. Nos. 109289 and 109446, 03 Oct.
1994) All of the foregoing requirement of a valid
classification having been met and those which are singled
out are a class in themselves, there is no violation of the
“Equal Protection Clause” of the Constitution. (UPLC
Suggested Answers)
Q: 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
condonation of all penalties on fines resulting from the
late payment. Arguing that the ordinance rewards
delinquent taxpayers and discriminates against
prompt ones, RC demands that he be refunded an
amount equivalent to ½ of the real taxes he paid. The
municipal attorney rendered an opinion that RC cannot
be reimbursed because the ordinance did not provide
for such reimbursements.
RC files suit to declare the ordinance void on the
ground that it is a class legislation. Will a suit prosper?
(2004 BAR)
A: NO. The remission or condonation of taxes due and
payable to the exclusion of taxes already collected does not
constitute unfair discrimination. Each set of 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,
G.R. L-3538, 28 May 1952)
Q: What is the “rational basis” test? Explain briefly.
(2010 BAR)
A: The rational basis test is applied to gauge the
constitutionality of an assailed law in the face of an equal
protection challenge. It has been held that “in areas of social
and economic policy, a statutory classification that neither
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exemptions both from Congress, one law exempting
the company’s bond issues from taxes and the other
exempting the company from taxes in the operation of
its public utilities. The two laws extending the tax
exemptions were revoked by Congress before their
expiry dates.
Q: An E.O. was issued pursuant to law, granting tax and
duty incentives only to businesses and residents within
the “secured area” of the Subic Economic Special Zone,
and denying said incentives to those who live within
the zone but outside such “secured area”.
Is the Constitutional right to equal protection of the law
violated by the Executive Order? (2000 BAR)
Were the revocations constitutional? (1997 BAR)
A: YES. The exempting statutes are both granted
unilaterally by Congress in the exercise of taxing powers.
Since taxation is the rule and tax exemption, the exception,
any tax exemptions unilaterally granted can be withdrawn
at the pleasure of the taxing authority without violating the
Constitution. (Mactan Cebu International Airport Authority
v. Marcos, G.R. No. 120082, 11 Sept. 1996)
A: NO. Equal protection of the law clause is subject to
reasonable classification. Classification, to be valid, must
(1) rest on substantial distinctions; (2) be germane to the
purpose of the law; (3) not be limited to existing conditions
only, (4) apply equally to all members of the same class.
There are substantial differences between big investors
being enticed to the “secured area” and the business
operators outside that are in accord with the equal
protection clause that does not require territorial
uniformity of laws.
C. REQUISITES OF A VALID TAX
The classification applies equally to all the resident
individuals and businesses within the “secured area.” The
residents, being in like circumstances to contributing
directly to the achievement of the end purpose of the law,
are not categorized further. Instead, they are similarly
treated, both in privileges granted and obligations
required. (Tiu v. CA, G.R. No. 127410, 20 Jan. 1999)
D. TAX AS DISTINGUISHED FROM OTHER FORMS OF
EXACTIONS
E. KINDS OF TAXES
(2007, 2006 BAR)
NON-IMPAIRMENT CLAUSE
(2004, 1997 BAR)
Q: What kind of taxes, fees and charges are considered
as National Internal Revenue Taxes under the National
Internal Revenue Code? (2007 BAR)
Q: 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.
A: The following taxes, fees and charges are considered to
be National Internal Revenue Taxes under the National
Internal Revenue Code:
1.
2.
3.
4.
5.
6.
7.
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 contention of the companies tenable or not?
Reason briefly. (2004 BAR)
Income tax;
Estate and donor’s taxes;
Value-added tax;
Other percentage taxes;
Excise taxes;
Documentary stamp taxes; and
Such other taxes as are or hereafter may be imposed
and collected by the Bureau of Internal Revenue. (Sec.
21, NIRC)
Q: Distinguish “direct taxes” from “indirect taxes." Give
examples. (2006 BAR)
A: The contention is not tenable. The exemption granted is
in the nature of a unilateral tax exemption. Since the
exemption given is spontaneous on the part of the
legislature and no service or duty or other remunerative
conditions have been imposed on the taxpayers receiving
the exemption, it may be revoked at will by the legislature.
(Manila Railroad Company v. Insular Collector of Customs,
G.R. No. L-30264, 12 Mar. 1929)
Q: X Corporation was the recipient in 1990 of two tax
11
A: Direct taxes are demanded from the very person who, as
intended, should pay the tax which he cannot shift to
another; while an indirect tax is demanded in the first
instance from one person with the expectation that he can
shift the burden to someone else, not as a tax, but as part of
the purchase price. (Maceda v. Macaraig, Jr., G.R. No. 88291,
08 June 1993) Examples of direct taxes are income tax,
estate tax and donor’s tax. On the other hand, examples of
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
that the filing of the Petition for Review is premature
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 a final judicial ruling in his favor would be accepted by
the BIR. The taxpayer cannot 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 right to appeal to the tax court accrues. Although
there were no direct references for the taxpayer to brim the
matter directly to the CTA, it cannot be denied that the word
“appeal” under prevailing tax laws refers to the filing of a
Petition for Review with the CTA. (UPLC Suggested Answers)
indirect taxes are value-added tax, percentage tax and
excise tax on excisable articles.
F. DOCTRINES IN TAXATION
(2019, 2018, 2017, 2016, 2015, 2014, 2013, 2012,
2009, 2008, 2007, 2006, 2005, 2004, 2001, 2000, 1997,
1996, 1992, 1990, 1989 BAR)
1. CONSTRUCTION AND INTERPRETATION OF TAX
LAWS, RULES, AND REGULATIONS
(2013, 2012, 2007, 2006, 2005, 2000, 1996 BAR)
Q: ABC Corporation is registered as a holding company
and has an office in the City of Makati. It has no actual
business operations. It invested in another company
and its earnings are limited to dividends from this
investment, interests on its bank deposits, and foreign
exchange gains from its foreign currency account. The
City of Makati assessed ABC Corporation as a contractor
or one that sells services for a fee.
Q: An alien employee of the Asian Development Bank
(ADB) who is retiring soon has offered to sell his car to
you which he imported tax-free for his personal use.
The privilege of exemption from tax is granted to
qualified personal use under the ADB Charter which is
recognized by the tax authorities.
Is the City of Makati correct? (2013 BAR)
A: NO. The corporation cannot be considered as a
contractor because it does not render services for others for
a fee. Contactor is one whose activity consists essentially in
the sale of all kinds of services for a fee, regardless of
whether or not the performance of the service calls for the
exercise or use of the physical or mental faculties of such
contractor or its employees. To be considered as a
contractor, the corporation must derive income from doing
active business of selling services and not from deriving
purely passive income. Accordingly, a mere holding
company cannot be assessed by the City of Makati as a
contractor. (UPLC Suggested Answers)
If you decide to purchase the car, is the sale subject to
tax? Explain. (2005 BAR)
A: YES. The sale is subject to tax. Sec. 107(B) of the NIRC
provides that: "In the case of tax-free importation of goods
into the Philippines by persons, entities or agencies exempt
from tax where such goods are subsequently sold,
transferred or exchanged in the Philippines to non-exempt
persons or entities, the purchasers, transferees or
recipients shall be considered the importer thereof, who
shall be liable for any internal revenue tax on such
importation”. Tax exemptions are to be construed strictly
and are not considered transferable in character.
Q: In the examination conducted by the revenue
officials against the corporate taxpayer in 2010, the BIR
issued a final assessment notice and demand letter
which states: “It is requested that the above deficiency
tax be paid immediately upon receipt hereof, inclusive
of penalties incident to delinquency. This is our final
decision based on investigation. If you disagree, you
may appeal this final decision within thirty (30) days
from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and
demandable.” The assessment was immediately
appealed by the taxpayer to the Court of Tax Appeals,
without filing its protest against the assessment and
without a denial thereof by the BIR.
If you were the judge, would you deny the petition for
review filed by the taxpayer and consider the case as
prematurely filed? (2012 BAR)
A: 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 estopped from claiming
UNIVERSITY OF SANTO TOMAS
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Q: Art. VII, Sec. 28(3) of the 1987 Philippine
Constitution provides that charitable institutions,
churches, parsonages, or convent appurtenant thereto,
mosques, and non–profit cemeteries and all lands,
buildings, and improvements actually, directly and
exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.
Is proof of actual use necessary for tax exemption
purposes under the Constitution? (2000 BAR)
A: YES, because tax exemptions are strictly construed
against the taxpayer. There must be evidence to show that
the taxpayer has complied with the requirements for
exemption. Furthermore, real property taxation is based on
use and not on ownership; hence, the same rule must also
be applied for real property tax exemptions. (Bar Q&A by
Mamalateo, 2019)
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QuAMTO (1987-2022)
Q: Why are tax exemptions strictly construed against
the taxpayer? (1996 BAR)
On the other hand, double taxation in the broad sense
pertains to indirect double taxation. This extends to all
cases in which there is a burden of two or more impositions.
It is the double taxation other than those covered by direct
double taxation. (CIR v. Solidbank Corp., G.R. No. 148191, 25
Nov. 2003) An example is subjecting the interest income of
banks on their deposits with other banks to the 5% Gross
Receipts Tax (GRT) despite of the same income having been
subjected to 20% Final Withholding Tax (FWT). The GRT is
a tax on the privilege of engaging in business, while the FWT
is a tax on the privilege of earning income. (CIR v. Bank of
Commerce, G.R. No. 149636, 08 June 2005; UPLC Suggested
Answers)
A: Tax exemptions are strictly construed against the
taxpayer because such provisions are highly disfavored
and may almost be said to be odious to the law. (Manila
Electric Company v. Vera, G.R. No. L-29987, 22 Oct. 1975)
The exception contained in the tax statutes must be
strictly construed against the one claiming the exemption
because the law does not look with favor on tax
exemptions, they, being contrary to the life-blood theory
which is the underlying basis for taxes.
2. PROSPECTIVITY OF TAX LAWS
Q: In 2018, City X amended its Revenue Code to include
a new provision imposing a tax on every sale of
merchandise by a wholesaler based on the total selling
price of the goods, inclusive of value-added taxes (VAT).
ABC Corp., a wholesaler operating within the city,
challenged the new provision based on the following
contentions: (1) The new provision is a form of
prohibited double taxation because it essentially
amounts to City X imposing VAT which was already
being levied by the national government; and (2) Since
the tax being imposed is akin to VAT, it is beyond the
power of City X to levy the same. Rule on ABC Corp.’s
first contention. (2019 BAR)
3. IMPRESCRIPTIBILITY OF TAXES
4. DOUBLE TAXATION
(2019, 2018, 2017, 2016, 2015, 2014, 2004, 1997,
1996 BAR)
Q: Jennifer is the only daughter of Janina who was a
resident in Los Angeles, California, U.S.A. Janina died in
the U.S. leaving to Jennifer one million shares of Sun Life
(Philippines), Inc., a corporation organized and
existing under the laws of the Republic of the
Philippines. Said shares were held in trust for Janina by
the Corporate Secretary of Sun Life and the latter can
vote the shares and receive dividends for Janina. The
Internal Revenue Service (IRS) of the U.S. taxed the
shares on the ground that Janina was domiciled in the
U.S. at the time of her death.
A: ABC Corp. is INCORRECT. Under the NIRC, direct double
taxation exists only when two taxes are imposed on the
same: (1) subject matter, (2) purpose, (3) by the same
taxing authority, (4) within the same jurisdiction, (5) during
the same taxing period, and (6) the taxes of the same kind
of nature. In this case, the taxing authorities are different.
Hence, the tax imposed by the LGU is not a form of direct
double taxation. (UPLC Suggested Answers)
Explain the concept of double taxation. (2016 BAR)
A: Double taxation occurs when the same subject or object
of taxation is taxed twice when it should be taxed but once.
Double taxation is prohibited when it is an imposition of
taxes on the same subject matter, for the same purpose, by
the same taxing authority, within the same jurisdiction,
during the same taxing period, with the same kind of
character of a tax. (84 C.J.S. 131-132) It is permissible if taxes
are of different nature or character, or the two taxes are
imposed by different taxing authorities. (Villanueva v. City
of Iloilo, G.R. No. L-26521, 28 Dec. 1968; UPLC Suggested
Answers)
Q: KM Corporation, doing business in the City of
Kalookan, has been a distributor and retailer of
clothing and household materials. It has been paying
the City of Kalookan local taxes based on Secs. 15 (Tax
on Wholesalers, Distributors or Dealers) and 17 (Tax
on Retailers) of the Revenue Code of Kalookan City
(Code). Subsequently, the Sangguniang Panglungsod
enacted an ordinance amending the Code by inserting
Sec. 21 which imposes a tax on “Businesses Subject to
Excise, Value-Added and Percentage Taxes under the
NIRC,” at the rate of 50% of 1% per annum on the gross
sales and receipts on persons “who sell goods and
services in the course of trade or business.” KM
Corporation paid the taxes due under Sec. 21 under
protest, claiming that (a) local government units could
not impose a tax on businesses already taxed under the
NIRC and (b) this would amount to double taxation,
since its business was already taxed under Secs. 15 and
17 of the Code.
Q: Differentiate between double taxation in the strict
sense and in a broad sense give an example of each.
(2015 BAR)
A: Double taxation in the strict sense pertains to the direct
double taxation. This means that the taxpayer is taxed twice
by the same taxing authority, within the same taxing
jurisdiction, for the same property and same purpose. An
example is the imposition of final withholding tax on cash
dividend and requiring the taxpayer to declare this tax-paid
income in his tax returns.
Does this amount to double taxation? (2018 BAR)
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A: YES. The three taxes are all in the nature of local business
taxes on wholesalers, retailers and service providers which
are imposed by the same taxing authority on the same
subject matter for the same tax period; hence, the elements
of double taxation are present. (Nursery Care Corp. v.
Acebedo, G.R. No. 180651, 30 July 2014; UPLC Suggested
Answers)
A) is a scheme used outside of those lawful means
and, when availed of, it usually subjects the
taxpayer to further or additional civil or
criminal liabilities;
Q: Upon his retirement, Alfredo transferred his savings
derived from his salary as a marketing assistant to a
time deposit with AAB Bank. The bank regularly
deducted 20% final withholding tax on the interest
income from the time deposit.
C) is employed by a corporation, the organization
of which is prompted more on the mitigation of
tax liabilities than for legitimate business
purpose;
B) is a tax saving device within the means
sanctioned by law;
D) is any form of tax deduction scheme, regardless
if the same is legal or not.
Alfredo contends that the 20% final tax on the interest
income constituted double taxation because his salary
had been already subjected to withholding tax.
A: B) is a tax saving device within the means sanctioned by
law. (Philip Manufacturing Corp. v. CIR, G.R. No. L-19737, 26
Aug. 1968; UPLC Suggested Answers)
Is Alfredo's contention correct? Explain your answer.
(2017 BAR)
Q: Maria Suerte, a Filipino citizen, purchased a lot in
Makati City in 1980 at a price of P1 million. Said
property has been leased to MAS Corporation, a
domestic corporation engaged in manufacturing paper
products, owned 99% by Maria Suerte. In October
2007, EIP Corporation, a real estate developer,
expressed its desire to buy the Makati property at its
fair market value of P300 million, payable as follows:
(a) P60 million down payment; and (b) balance,
payable equally in twenty-four (24) monthly
consecutive installments. Upon the advice of a tax
lawyer, Maria Suerte exchanged her Makati property
for shares of stock of MAS Corporation. A BIR ruling,
confirming the tax-free exchange of property for
shares of stock, was secured from the BIR National
Office and a Certificate Authorizing Registration was
issued by the Revenue District Officer (RDO) where the
property was located. Subsequently, she sold her
entire stockholdings in MAS Corporation to EIP
Corporation for P300 million. In view of the tax advice,
Maria Suerte paid only the capital gains tax of
P29,895,000 (P100,000 x 5% plus P298,900,000 x
10%), instead of the corporate income tax of
P104,650,000 (35% on P299 million gain from sale of
real property). After evaluating the capital gains tax
payment, the RDO wrote a letter to Maria Suerte,
stating that she committed tax evasion.
A: NO. Double taxation means taxing for the same tax period
the same thing or activity twice, when it should be taxed but
once, for the same purpose and with the same kind of
character of tax. (CIR vs. Citytrust Investment Phils., G.R. Nos.
139786 and 140857, 27 Sept. 2006) The 20% final tax is
imposed on the interest income, while the tax earlier
withheld is on the salary or compensation income. Thus,
though both pertain to income tax, they do not pertain to
the same thing or activity and consequently, no double
taxation exists. (UPLC Suggested Answers)
Q: X, a lessor of a property, pays real estate tax on the
premises, a real estate dealer’s tax based on rental
receipts and income tax on the rentals. X claims that
this is double taxation. (1996 BAR)
A: There is no double taxation. Double taxation means
taxing for the same tax period the same thing or activity
twice, when it should be taxed but once, by the same taxing
authority for the same purpose and with the same kind or
character of tax. The real estate tax is a tax on property; the
real estate dealer’s tax is a tax on the privilege to engage in
business; while the income tax is a tax on the privilege to
earn an income. These taxes are imposed by different taxing
authorities and are essentially of different kind and
character. (Villanueva v. City of Iloilo, G.R. No. L-26521, 28
Dec. 1968)
Is the contention of the RDO tenable? Or was it tax
avoidance that Maria Suerte had resorted to? Explain.
(2008 BAR)
A: The contention of the RDO is NOT TENABLE. Maria
Suerte resorted to tax avoidance and not tax evasion. Tax
avoidance is the use of legal means to reduce tax liability
and it is the legal right of a taxpayer to decrease the amount
of what otherwise would be his taxes by means which the
law permits. (Heng Tong Textiles Co., Inc. v. Commissioner,
G.R. No. L-19737, 26 Aug. 1968) There is nothing illegal
about transferring first the property to a corporation in a
5. ESCAPE FROM TAXATION
(2016, 2014, 2008, 2005, 1996, 1989 BAR)
a) SHIFTING OF TAX BURDEN
b) TAX AVOIDANCE
(2014, 2008 BAR)
Q: Choose the correct answer. Tax avoidance: (2014
BAR)
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tax-free exchange and later selling the shares obtained in
the exchange at a lower tax than what could have been
imposed if the property was sold directly.
6. EXEMPTION FROM TAXATION
(2016, 2004, 1992, 1989 BAR)
Q: Pursuant to Sec. 11 of the “Host Agreement” between
the United Nations and the Philippine government, it
was provided that the World Health Organization
(WHO), “its assets, income and other properties shall
be: (a) exempt from all direct and indirect taxes.”
Precision Construction Corporation (PCC) was hired to
construct the WHO Medical Center in Manila. Upon
completion of the building, the BIR assessed a 12% VAT
on the gross receipts of PCC derived from the
construction of the WHO building. The BIR contends
that the 12% VAT is not a direct nor an indirect tax on
the WHO but a tax that is primarily due from the
contractor and is therefore not covered by the Host
Agreement. The WHO argues that the VAT is deemed an
indirect tax as PCC can shift the tax burden to it.
c) TAX EVASION
(2016, 1996 BAR)
Q: Distinguish tax evasion from tax avoidance. (1996
BAR)
A: Tax evasion is a scheme used outside of those lawful
means to escape tax liability and, when availed of, it usually
subjects the taxpayer to further or additional civil or
criminal liabilities. Tax avoidance, on the other hand, is a tax
saving device within the means sanctioned by law, hence
legal.
Q: Lucky V Corporation (Lucky) owns a 10-storey
building in a 2,000 square meter lot in the City of
Makati. It sold the lot and building to Rainier for P80M.
One month after, Rainier sold the lot and building to
Healthy Smoke Company (HSC) for P200M. Lucky filed
its annual tax return and declared its gain from the sale
of the lot and building in the amount of P750,000.
Is the BIR correct? Explain. (2016 BAR)
A: NO. Since the WHO, the contractee, is exempt from
exempt from direct and indirect taxes pursuant to an
international agreement where the Philippines is a
signatory, the exemption from direct taxes should mean
that the entity or person exempt is the contractor itself
because the manifest intention of the government is to
exempt the contactor so that no tax may be shifted to the
contractee. (CIR v. John Gotamco & Sons, Inc., G.R. No. L31092, 27 Feb. 1987) The immunity of WHO from indirect
taxes extends to the contractor by treating the sale of
service as effectively zero-rated when the law provided that
– “services rendered to persons or entities whose
exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects
the supply to such service to zero percent rate”. (Sec.
108(B)(3), NIRC) Accordingly, the BIR is wrong in assessing
the 12% VAT from the contractor PCC. (UPLC Suggested
Answers)
An investigation conducted by the BIR revealed that
two months prior to the sale of the properties to
Rainier, Lucky received P40M from HSC and not from
Rainier. Said amount of P40M was debited by HSC and
reflected in its trial balance as “other inv. – Lucky Bldg.”
The month after, another P40M 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
issued an assessment for deficiency income tax in the
amount of P79M 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 Rainier. On the other
hand, Rainier and HSC also paid the prescribed taxes
arising from the sale by Rainier to HSC.
Q: The President of the Philippines and the Prime
Minister of Japan entered into an executive agreement
in respect of a loan facility to the Philippines from Japan
whereby it was stipulated that interest on loans
granted by private Japanese financial institutions to
private financial Institutions in the Philippines shall
not be subject to Philippine income taxes.
Is this tax exemption valid? Explain. (1992 BAR)
Is the BIR correct in assessing taxes on Lucky? Explain.
(2016 BAR)
Q: YES. The sale of the property of Lucky to Rainier and
consequently the sale by Rainier to HSC being prompted
more on the mitigation of tax liabilities than for legitimate
business purposes, therefore, constitutes tax evasion. The
real buyer from Lucky is HSC as evidenced by the direct
receipt of payments by the former from the latter where the
latter recorded “other inv. – Lucky Bldg.” 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. The Estate of Benigno Toda Jr., G.R. No. 147188,
14 Sept. 2004; UPLC Suggested Answers)
A: YES. The tax exemption is valid because an executive
agreement has the force and effect of a treaty under the
provision of the Revenue Code. Taxation is subject to
International Comity.
7. EQUITABLE RECOUPMENT
(2009 BAR)
Q: True or False: The doctrine of equitable recoupment
allows a taxpayer whose claim for refund has
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prescribed to offset tax liabilities with his claim of
overpayment. (2009 BAR)
of the two conditions is present: (1) the assessment is of
doubtful validity, or (2) the financial position of the
taxpayer demonstrates a clear inability to pay the tax. (Sec.
204(A), NIRC; Sec. 2, RR No. 30- 2002)
A: TRUE. The doctrine arose from common law allowing
offsetting of a prescribed claim for refund against a tax
liability arising from the same transaction on which an
overpayment is made and underpayment is due. The
doctrine finds no application to cases where the taxes
involved are totally unrelated, an although it seems
equitable, it is not allowed in our jurisdiction. (CIR v. UST,
G.R. No. L-11274, 28 Nov. 1958; UPLC Suggested Answers)
(b) Cases under administrative protest, after issuance
of the final assessment notice to the taxpayer,
which are still pending
A: YES. These may be compromised, provided that it is
premised upon doubtful validity of the assessment or
financial incapacity to pay. (Ibid.)
8. PROHIBITION ON COMPENSATION
AND SET OFF
(2009, 2005, 2001, 1996, 1992, 1990 BAR)
(c) Criminal tax fraud cases
A: NO. These may not be compromised, so that the taxpayer
may not profit from his fraud, thereby discouraging its
commission. (Ibid.)
Q: May taxes be the subject of set-off or compensation?
Explain. (2005 BAR)
(d) Criminal violations already filed in court
A: NO. Taxes cannot be the subject of set-off or
compensation for the following reasons: (1) taxes are of
distinct kind, essence and nature, and these impositions
cannot be classed in merely the same category as ordinary
obligations; (2) the applicable laws and principles
governing each are peculiar, not necessarily common, to
each; and (3) public policy is better subserved if the
integrity and independence of taxes are maintained.
(Republic v. Mambulao Lumber Company, G.R. No. L-17725,
28 Feb. 1962)
A: NO. These may not be compromised in order that the
taxpayer will not profit from his criminal acts. (Ibid.)
(e) Cases where final reports of reinvestigation or
reconsideration have been issued resulting in the
reduction of the original assessment agreed to by
the taxpayer when he signed the required
agreement form (2005 BAR)
A: NO. Cases where final reports of reinvestigation or
reconsideration have been issued resulting in the reduction
of the original assessment agreed to by the taxpayer when
he signed the required agreement form, cannot be
compromised. By giving his conformity to the revised
assessment, the taxpayer admits the validity of the
assessment and his capacity to pay the same. (Ibid.)
However, if the obligation to pay taxes and the taxpayer’s
claim against the government are both overdue,
demandable, as well as fully liquidated, compensation
takes place by operation of law and both obligations are
extinguished to their concurrent amounts. (Domingo v.
Garlitos, G.R. No. L-18994, 29 June 1963)
Q: Can an assessment for a local tax be the subject of
set-off or compensation against a final judgment for a
sum of money obtained by a taxpayer against the local
government that made the assessment? (2005 BAR)
Q: Under what conditions may the Commissioner of
Internal Revenue be authorized to compromise the
payment of any internal revenue tax? (2000 BAR)
A: The Commissioner of Internal Revenue may be
authorized to compromise the payment of any internal
revenue tax where: (a) a reasonable doubt as to the validity
of the claim against the taxpayer exists, or (b) the financial
position of the taxpayer demonstrates a clear inability to
pay the assessed tax. (Sec. 3, RR No. 30- 2002)
A: NO. Taxes and debts are of different nature and
character. Taxes cannot be subject to compensation for the
simple reason that the government and the taxpayers are
not creditors and debtors of each other, debts are due to
the government in its corporate capacity, while taxes are
due to the government in its sovereign capacity. (South
African Airways v. CIR, G.R. No. 180356, 16 Feb. 2010)
9. COMPROMISE AND TAX AMNESTY
(2005, 2000 BAR)
Q: State and discuss briefly whether the following cases
may be compromised or may not be compromised:
(a) Delinquent accounts
A: YES. Delinquent accounts may be compromised if either
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importation of some of its raw materials. The ruling is
of first impression, which means the interpretations
made by the Commissioner of Internal Revenue is one
without established
precedents.
Subsequently,
however, the BIR issued another ruling which in effect
would subject to tax such kind of importation. XYZ
Corporation is concerned that said ruling may have a
retroactive effect, which means that all their
importations done before the issuance of the second
ruling could be subject to tax. (2007 BAR)
II. NATIONAL TAXATION
A. TAXING AUTHORITY
(2019, 2018, 2017, 2015 BAR)
1. JURISDICTION, POWER, AND FUNCTIONS OF THE
COMMISSIONER OF INTERNAL REVENUE
(2019, 2018, 2007, 2005 BAR)
(a) What are BIR rulings?
A: BIR rulings are administrative opinions issued by the
Commissioner of Internal Revenue interpretative of a
provision of a tax law. (UPLC Suggested Answers)
a) INTERPRETING TAX LAWS AND DECIDING TAX
CASES
ALTERNATIVE ANSWER:
b) NON-RETROACTIVITY OF RULINGS
(2018, 2007 BAR)
They are the best guess of the moment and incidentally
often contain such well- considered and sound law, but the
courts have held that they do not prevent an entire change
of front at any time and are merely advisory – sort of an
information service to the taxpayer. (Aban, 2001; UPLC
Suggested Answers)
Q: In 2015, Kerwin bought a three-story house and lot
in Kidapawan, North Cotabato. The property has a floor
area of 600 sq.m. and is located inside a gated
subdivision. Kerwin initially declared the property as
residential for real property tax purposes.
(b) What is required to make a BIR ruling or first
impression a valid one?
In 2016, Kerwin started using the property in his
business of manufacturing garments for export. The
entire ground floor is now occupied by state-of-the-art
sewing machines and other equipment, while the
second floor is used as offices. The third floor is
retained by Kerwin as his family's residence. Kerwin's
neighbors became suspicious of the activities going on
inside the house, and they decided to report it to the
Kidapawan City Hall. Upon inspection, the local
government discovered that the property was being
utilized for commercial use. Immediately, the
Kidapawan Assessor reclassified the property as
commercial with an assessment level of 50% effective
January 2017, and assessed Kerwin back taxes and
interest. Kerwin claims that only 2/3 of the building
was used for commercial purposes since the third floor
remained as family residence. He argues that the
property should have been classified as partly
commercial and partly residential.
A: A BIR ruling of first impression to be valid must not be
against the law and it must be issued only by the
Commissioner of Internal Revenue. (Philippine Bank of
Communications v. CIR, G.R. No. 112024, 28 Jan. 1999; Sec. 7,
NIRC; UPLC Suggested Answers)
(c) Does a BIR ruling have a retroactive effect,
considering the principle that tax exemptions
should be interpreted strictly against the taxpayer?
A: NO. A BIR ruling cannot be given retroactive effect if its
retroactive application is prejudicial to the taxpayer. (Sec.
246, NIRC; CIR v. CA, G.R. No. 117982, 06 Feb. 1997; UPLC
Suggested Answers)
ALTERNATIVE ANSWER:
The general rule is that a BIR ruling does not have a
retroactive effect if giving it a retroactive application is
prejudicial to the taxpayer. However, if the first ruling is
tainted with either of the following: (1) misstatement or
omission of materials facts, (2) the facts gathered by the BIR
are materially different from the facts upon which the ruling
is based, or (3) the taxpayer acted in bad faith, a subsequent
ruling can have a retroactive application. (ABS-CBN
Broadcasting Co. v. CTA & CIR, G.R. No. L-52306, 12 Oct. 1981;
Sec. 246, NIRC; UPLC Suggested Answers)
Is the Kidapawan assessor correct in assessing back
taxes and interest? (2018 BAR)
A: NO. The assessor cannot assess back taxes and interest.
Since this involves a reassessment of real property due to a
major change in its actual use, the same cannot be given a
retroactive effect. The reassessment shall only be effective
at the beginning of the quarter next following the
reassessment. (Sec. 221, LGC)
Q: XYZ Corporation, an export-oriented company, was
able to secure a Bureau of Internal Revenue (BIR)
ruling in June 2005 that exempts from tax the
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
value of P20 million. Mr. Antonio Ayala, another
Filipino citizen, is very much interested in the property
and he offered to buy the same for P20 million. The
Assessor of Makati City re-assessed in 2011 the
property at P10 million.
2. RULE-MAKING AUTHORITY OF THE SECRETARY OF
FINANCE
B. INCOME TAX
(2019-2010, 2008, 2007, 2005, 2003, 2001, 2000
1996-1993, 1991, 1990, 1989-1987 BAR)
Is Mr. Castillo liable for income tax in 2011 based on the
offer to buy by Mr. Ayala? Explain your answer. (2012
BAR)
1. DEFINITION, NATURE, AND GENERAL PRINCIPLES
(2019 BAR)
A: NO. Mr. Castillo is not liable for income tax in 2011
because no income is realized by him during that year. Tax
liability for income tax attaches only if there is a gain
realized resulting from a closed and complete transaction.
(Madrigal v. Rafferty, G.R. No. L- 12287, 07 Aug. 1918)
a) CRITERIA IN IMPOSING PHILIPPINE INCOME TAX
b) TYPES OF PHILIPPINE INCOME TAXES
Q: What is the “all event test”? Explain Briefly. (2010
BAR)
c) TAXABLE PERIOD
(2019 BAR)
A: The “all events test” is a test applied in the realization of
income and expense by an accrual-basic taxpayer. The test
requires (1) the fixing to the right to the income or liability
to pay; and (2) the availability of reasonably accurate
determination of such income or liability, to warrant the
inclusion of the income or expense the gross income or
deductions during the taxable year. (CIR v. Isabela Cultural
Corporation, GR No. 172231, 12 Feb. 2007)
Q: Differentiate between a calendar year and a fiscal
year. (2019 BAR)
A: Calendar year means an accounting period of twelve
months ending on the last day of December. On the other
hand, fiscal year means an accounting period of twelve
months ending on the last day of any month other than the
month of December. (Sec. 22(Q), NIRC)
(2) ECONOMIC BENEFIT TEST, DOCTRINE OF
PROPRIETARY INTEREST
Q: When is the deadline for the filing of a corporation’s
final adjustment return for a calendar year? How about
for a fiscal year? (2019 BAR)
(3) SEVERANCE TEST
d) TAX-FREE EXCHANGES
(2019 BAR)
A: For a calendar year, the final return should be filed on or
before the 15th day of April following the close of the
taxable year. For a fiscal year, the final return is filed on or
before the 15th day of the 4th month following the close of
the taxable year. (Sec. 77, NIRC)
Q: B transferred his ownership over a 1,000-square
meter commercial land and three-door apartment to
ABC Corp., a family corporation of which B is a
stockholder. The transfer was in exchange of 10,000
shares of stock of ABC Corp. As a result, B acquired 51%
ownership of ABC Corp., with all the shares of stock
having the right to vote. B paid no tax on the exchange,
maintaining that it is a tax avoidance scheme allowed
under the law. The Bureau of Internal Revenue, on the
other hand, insisted that B's alleged scheme amounted
to tax evasion.
d) KINDS OF TAXPAYERS
2. INCOME
(2019, 2018, 2016, 2015, 2012, 2010 BAR)
a) DEFINITION AND NATURE
b) WHEN INCOME IS TAXABLE
Should B pay taxes on the exchange? Explain. (2019
BAR)
c) TESTS IN DETERMINING WHETHER INCOME IS
EARNED FOR TAX PURPOSES
(1) REALIZATION TEST
(2012, 2010 BAR)
Q: Mr. Jose Castillo is a resident Filipino Citizen. He
purchased a parcel of land in Makati City in 1970 at a
consideration of P1 million. In 2011, the land, which
remained undeveloped and idle, had a fair market
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
18
A: NO, B shall not pay taxes on the exchange. Sec. 40(C)(2)
of the Tax Code provides that no gain or loss shall be
recognized if property is transferred to a corporation by a
person in exchange for stocks in such corporation wherein
as a result of such exchange, such person, alone or together
with others, not exceeding four, gains control of the
corporation. When B transferred the properties for shares
in ABC Corporation, he acquired control (51% of voting
QuAMTO (1987-2022)
A: NO. Mr. J's income derived within the Philippines is
subject to a final tax of twenty five percent (25%) as a nonresident alien individual not engaged in trade or business in
the Philippines. (Sec. 25(8), NIRC, as amended) His stay in
the Philippines in calendar year 2018 was only for an
aggregate period of five (5) months or less than the
requirement of "more than 180 days) in order to qualify
him as having engaged in a trade or business in the
Philippines. (Sec. 25(A)(1), NIRC, as amended; Bar Q&A by J.
Dimaampao, 2020)
shares) over the corporation, thus, the transaction shall not
be subject to income tax, capital gains tax, and value added
tax.
e) SITUS OF INCOME TAXATION
(2019, 2018, 2016, 2015 BAR)
Q: JKL-Philippines is a domestic corporation affiliated
with JKL-Japan, a Japan-based information technology
company with affiliates across the world. Mr. F is a
Filipino engineer employed by JKL­Philippines. In
2018, Mr. F was sent to the Tokyo branch of JKL-Japan
based on a contract entered into between the two (2)
companies. Under the said contract, Mr. F would be
compensated by JKL­Philippines for the months spent
in the Philippines, and by JKL-Japan for months spent in
Japan. For the entirety of 2018, Mr. F spent ten (10)
months in the Tokyo branch.
Q: Patrick is a successful businessman in the United
States and he is a sole proprietor of a supermarket
which has a gross sales of $10 million and an annual
income of $3million. He went to the Philippines on a
visit and, in a party, he saw Atty. Agaton who boasts of
being a tax expert. Patrick asks Atty. Agaton: if he
(Patrick) decides to reacquire his Philippine
citizenship under RA 9225, establish residence in this
country, and open a supermarket in Makati City, will
the BIR tax him on the income he earns from his U.S.
business?
On the other hand, Mr. J, a Japanese engineer employed
by JKL-Japan, was sent to Manila to work with JKLPhilippines as a technical consultant. Based on the
contract between the two (2) companies, Mr. J's annual
compensation would still be paid by JKL-Japan.
However, he would be paid additional compensation by
JKL-Philippines for the months spent working as a
consultant. For 2018, Mr. J stayed in the Philippines for
five (5) months.
If you were Atty. Agaton, what advice will you give
Patrick? (2016 BAR)
A: 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 be a
‘resident citizen’. A resident citizen is taxable on all his
income, whether derived within or without the Philippines;
accordingly, the income he earns from his business abroad
will now be subject to the Philippine income tax, subject to
tax credits for foreign tax paid. (Sec. 23, NIRC)
In 2019, the Bureau of Internal Revenue (BIR) assessed
JKL-Philippines for deficiency withholding taxes for
both Mr. F and Mr. J for the year 2018. As to Mr. F, the
BIR argued that he is a resident citizen; hence, his
income tax should be based on his worldwide income.
As to Mr. J, the BIR argued that he is a resident alien;
hence, his income tax should be based on his income
from sources within the Philippines at the schedular
rate under Sec. 24 (A)(2) of the Tax Code, as amended
by Republic Act No. 10963, or the "Tax Reform for
Acceleration and Inclusion" Law. (2019 BAR)
ALTERNATIVE ANSWER:
If Patrick becomes a dual citizen under R.A. No. 9225 in our
country, he shall be allowed to acquire real properties and
engage himself in business here just like an ordinary
Filipino without renouncing his foreign citizenship. In
addition, his income abroad will not be taxed here. These
are among the incentives we have extended to former
Filipinos under the Dual Citizenship Law so that they will be
encouraged to come home and invest their money in our
country.
(a) Is the BIR correct in basing its income tax
assessment on Mr. F's worldwide income? Explain.
A: NO. Mr. F is considered as a non-resident citizen for the
taxable period 2018. Having stayed in Tokyo for ten (10)
months (more than 183 days) and rendered services
therein pursuant to an employment contract requiring him
to be present abroad most of the time. Mr. F should be taxed
as a non-resident citizen. As such, he is subject to tax only
for the income realized from Philippine sources and his
income "without" pertaining to his compensation for
services rendered in Tokyo, is not subject to Philippine
income tax. (Sec. 23, NIRC; Sec. 2, RR No.1-79; Bar Q&A by J.
Dimaampao, 2020)
Q: Indicate whether each of the following individuals is
required or not required to file an income tax return:
(a) Filipino citizen residing outside the Philippines on
his income from sources outside the Philippines.
A: NOT REQUIRED. The income of a non-resident Filipino
citizen are taxable only on income sourced within the
Philippines. Accordingly, his income from sources outside
the Philippines is exempt from income tax. (Sec. 51A (1)(b),
NIRC)
(b) Is the BIR correct in basing its income tax
assessment on Mr. J's income within the Philippines
at the schedular rate? Explain.
19
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
C) No, it was not her fault that the funds in excess
of $1,000 were credited to her;
D) No, the funds in excess of $1,000 were in effect
donated to her.
(b) Resident alien on income derived from sources
within the Philippines.
A: REQUIRED. A resident alien is taxable only for income
derived from sources within the Philippines. (Sec. 51(A)
(1)(c), NIRC)
A: B) Yes, income is income regardless of the source. Sec.
32 of the NIRC defines gross income as all income derived
from whatever source. Consequently, the flow of wealth,
without any distinction as to the lawfulness of its source, is
subject to income tax. In other words, the phrase “income
from whatever source” discloses a legislative policy to
include all income not expressly exempted within the class
of taxable income under the law.
(c) Resident citizen earning purely compensation
income from two employers within the Philippines,
whose income taxes have been correctly withheld.
A: REQUIRED. A resident citizen who is earning purely
compensation income from two employers should file
income tax return. If the compensation income is received
concurrently from two employers during the taxable year,
the employee is not qualified for substituted filing. (Sec.
51(A)(2)(b), NIRC)
Q: Explain briefly whether the following items are
taxable or non- taxable:
(a) Income from jueteng
(d) Resident citizen who falls under the classification
of minimum wage earners.
xxx (2005 BAR)
A: NOT REQUIRED. Under the law, all minimum wage
earners in the private and public sector shall be exempt
from payment of income tax. (Sec. 51(A)(2)(d), NIRC, in
relation to R.A. No. 9504)
A: It is taxable. The law imposes a tax on income from any
source whatever which means that it includes income
whether legal or illegal. (Sec. 32(A), NIRC)
c) GROSS INCOME VS. NET INCOME VS. TAXABLE
INCOME
(e) An individual whose sole income has been
subjected to final withholding tax. (2015 BAR)
d) SOURCES OF INCOME SUBJECT TO TAX
(2019, 2018, 2016, 2015, 2014, 2008, 2007, 2005
2003, 2001, 2000, 1996, 1995, 1994, 1993, 1991 BAR)
A: NOT REQUIRED. Under the law, an individual whose
sole income has been subjected of final withholding tax
pursuant to Sec. 57(A), NIRC, need not file a return. What he
received is a tax-paid income. (Sec. 51A (2)(c), NIRC)
(1) COMPENSATION INCOME
(2014 BAR)
3. GROSS INCOME
(2019, 2018, 2016, 2015, 2014, 2013, 2012, 2008,
2007, 2005, 2003, 2001, 2000, 1996, 1995, 1994, 1993,
1991 BAR)
Q: Mr. Gipit borrowed from Mr. Maunawain
P100,000.00, payable in five (5) equal monthly
installments. Before the first installment became due,
Mr. Gipit rendered general cleaning services in the
entire office building of Mr. Maunawain, and as
compensation therefor, Mr. Maunawain cancelled the
indebtedness of Mr. Gipit up to the amount of
P75,000.00. Mr. Gipit claims that the cancellation of his
indebtedness cannot be considered as gain on his part
which must be subject to income tax, because
according to him, he did not actually receive payment
from Mr. Maunawain or the general cleaning services.
a) DEFINITION
b) CONCEPT OF INCOME FROM WHATEVER SOURCE
DERIVED
(2013, 2005 BAR)
Q: In 2010, Mr. Platon sent his sister Helen $1, 000 via a
telegraphic transfer through the Bank of PI. The bank's
remittance clerk made a mistake and credited Helen
with $1,000,000 which she promptly withdrew. The
bank demanded the return of the mistakenly credited
excess, but Helen refused. The BIR entered the picture
and investigated Helen.
Is Mr. Gipit correct? Explain. (2014 BAR)
A: NO. Sec. 50 of RR No. 02-40, otherwise known as Income
Tax Regulations, provides that if a debtor performs services
for a creditor who cancels the debt in consideration for
such services, the debtor realizes income to that amount as
compensation for his services. In the given problem, the
cancellation of Mr. Gipit’s indebtedness up to the amount of
P75,000.00 gave rise to compensation income subject to
income tax since Mr. Maunawain condoned such amount as
Would the BIR be correct if it determines that Helen
earned taxable income under these facts? (2013 BAR)
A) No, she had no income because she had no right
to the mistakenly credited funds;
B) Yes, income is income regardless of the source;
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
20
QuAMTO (1987-2022)
assignment was without any consideration; and that
the share was placed in his name because the Club
required it to be done. In 2013, the value of the share
increased to P800,000.00.
consideration for the general cleaning services rendered by
Mr. Gipit.
(2) FRINGE BENEFITS
(2019, 2016, 2003, 2001, 1995, 1993, 1991 BAR)
Is the said assignment a “gift” and, therefore, subject to
gift tax? Explain. (2016 BAR)
Q: As a way to augment the income of the employees of
DEF, Inc., a private corporation, the management
decided to grant a special stipend of P50,000.00 for the
first vacation leave that any employee takes during a
given calendar year. In addition, the senior engineers
were also given housing inside the factory compound
for the purpose of ensuring that there are available
engineers within the premises every time there is a
breakdown in the factory machineries and equipment.
A: NO. The assignments are not gratuitous, and there is no
intent to transfer ownership hence not subject to gift tax.
The value of the right to avail of the privileges attendant to
Mabuhay Golf Club, Inc. Membership Certificate is due to
David’s merits or services as a computer consultant. It is a
fringe benefit taxable to the employer. (Sec. 33(B)(6), NIRC)
Q: Mapagbigay Corporation grants all its employees
(rank and file, supervisors, and managers) 5% discount
of the purchase price of its products. During an audit
investigation, the BIR assessed the company the
corresponding tax on the amount equivalent to the
courtesy discount received by all the employees,
contending that the courtesy discount is considered as
additional compensation for the rank-and-file
employees and additional fringe benefit for the
supervisors and managers. In its defense, the company
argues that the discount given to the rank-and-file
employees is a de minimis benefit and not subject to
tax. As to its managerial employees, it contends that the
discount is nothing more than a privilege and its
availment is restricted. Is the BIR assessment correct?
Explain. (2016 BAR)
(a) Is the special stipend part of the taxable income of
the employees receiving the same? If so, what tax is
applicable and what is the tax rate? Explain.
A: The special stipend is a taxable income of an employee. If
the individual is a rank-and- file employee, the same forms
part of his compensation income and it is subject to income
tax (or withholding tax on compensation) at a schedular
rate. However, if the stipend allowance, if lumped-up with
13th month pay and other benefits, the aggregate amount
do not exceed the exclusion threshold of P90,000.00, the
same shall be excluded from gross income and not subject
to income tax.
If the employee is not a rank-and-file employee (but a
managerial or supervisory), the same is subject to fringe
benefits tax or final tax at 35% based on the grossed-up
monetary value of the special stipend. (Sec. 33, NIRC, as
amended)
A: NO. The courtesy discounts given to rank and file
employees are considered “de minimis benefits” falling
under the category of other facilities and privileges
furnished or offered by an employer to his employees which
are of relatively small value intended to promote the health,
goodwill, contentment, or efficiency of the employee. These
benefits are not considered as compensation subject to
income tax and consequently to the withholding tax.
(Sec.2.78.1, RR No. 10-2008) If these “de minimis benefits”
are furnished to supervisors and managers, the same are
also exempt from the fringe benefits tax. (RR No. 3-98; Sec.
33, NIRC)
(b) Is the cash equivalent value of the housing facilities
received by the senior engineers subject to fringe
benefits tax? Explain. (2019 BAR)
A: NO, the cash equivalent value of the housing facilities
inside the factory granted to the senior engineers are not
considered as fringe benefits subject to tax. The housing
facility is furnished by the employer for his convenience or
advantage because it is furnished to ensure that the senior
engineers are always available to attend to possible
breakdown of machineries and equipment. Benefits which
are granted for the convenience or advantage of the
employer are exempt from the fringe benefits tax. (Sec.
2.33(A), RR No. 03-98 implementing Sec. 33, NIRC)
ALTERNATIVE ANSWER:
YES, the BIR assessment is correct. De minimis benefits are
benefits of relatively small values provided by the
employers to the employee on top of the basic
compensation intended for the general welfare of the
employees. It is considered exempt from income tax on
compensation as well as from fringe benefit tax, provided it
does not exceed P10,000 per employee per taxable year.
Tax exemption is not strictly against the taxpayer. The
discount in not listed among the benefits under the tax code
and RR 11-2018, and thus cannot be considered a tax
exempt benefit.
Q: In 2011, Solar Computer Corporation (Solar)
purchased a proprietary membership share covered by
Membership certificate No. 8 from the Mabuhay Golf
Club, Inc. for P500, 000.00. On December 27, 2012, it
transferred the same to David, its American consultant,
to enable him to avail of the facilities of the Club. David
executed a Deed of Declaration of Trust and
Assignment of Shares wherein he acknowledged the
absolute ownership of Solar over the share; that the
21
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
Concerned about the capital gains tax that will be due
on the sale of their house, Mr. H approaches you as a
friend for advice if it is possible for the sale of their
house to be exempted from capital gains tax and the
conditions they must comply with to avail themselves
of said exemption. (2015 BAR)
Q: A “fringe benefit” is defined as being any good,
service or other benefit furnished or granted in cash or
in kind by an employer to an individual employee.
Would it be the employer or the employee who is legally
required to pay an income tax on it? Explain. (2003
BAR)
A: 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:
A: It is the employer who is legally required to pay an
income tax on the fringe benefit. The fringe benefit tax is
imposed as a final withholding tax placing the legal
obligation to remit the tax on the employer, such that, if the
tax is not paid the legal recourse of the BIR is to go after the
employer. Any amount or value received by the employee
as a fringe benefit is considered tax paid hence, net of the
income tax due thereon. The person who is legally required
to pay (same as statutory incidence as distinguished from
economic incidence) is that person who, in case of nonpayment, can be legally demanded to pay the tax.
1.
2.
(3) PROFESSIONAL INCOME
(4) INCOME FROM BUSINESS
3.
(5) INCOME FROM DEALINGS IN PROPERTY
(2019, 2015, 2008, 2003, 1994, 1991 BAR)
Q: GHI, Inc. is a corporation authorized to engage in the
business of manufacturing ultra- high density
microprocessor unit packages. After its registration on
July 5, 2005, GHI, Inc. constructed buildings and
purchased machineries and equipment. As of
December 31, 2005, the total cost of the machineries
and equipment amounted to P250,000,000.00.
However, GHI, Inc. failed to commence operations. Its
factory was temporarily closed effective September 15,
2010. On October 1, 2010, it sold its machineries and
equipment to JKL Integrated for P300,000,000.00.
Thereafter, GHI, Inc. was dissolved on November 30,
2010.
4.
The proceeds of the sale is fully utilized in acquiring or
construction new principal residence within 18
calendar months from the date of the sale or
disposition;
The historical cost or adjusted basis of the real property
sold or disposed will be carried over to the new
principal residence built or acquired;
The Commissioner has been duly notified, through a
prescribed return, within 30 days from the date of sale
or disposition of the person’s intention to avail of the
tax exemption; and
The exemption was availed only once every ten (10)
years. (Sec. 24(D)(2), NIRC)
Q: In January 1970, Juan Gonzales bought one hectare
of agricultural land in Laguna for P 100, 000. This
property has a current fair market value of P 10 million
in view of the construction of a concrete road traversing
the property. Juan Gonzales agreed to exchange his
agricultural lot in Laguna for a one-half hectare
residential property located in Batangas, with a fair
market value of P10 million, owned by Alpha
Corporation, a domestic corporation engaged in the
purchase and sale of real property. Alpha Corporation
acquired the property in 2007 for P9 million.
Is the sale of the machineries and equipment to JKL
Integrated subject to normal corporate income tax or
capital gains tax? Explain. (2019 BAR)
(a) What is the nature of the real properties exchanged
for tax purposes - capital asset or ordinary asset?
Explain.
A: The sale of machineries and equipment is subject to
normal corporate income tax and not to the capital gains
tax. As explained by the Supreme Court in one case, the
capital gains tax of 6% imposed under Sec. 27(D)(5) of the
NIRC, as amended, is on the presumed gain from the sale of
a land and/or building only. (SMI-ED Philippines
Technology, Inc. v. CIR, G.R. No. 175410, 12 Nov. 2014)
A: The one-hectare agricultural land owned by Juan
Gonzales is a capital asset because it is not a real property
used in trade or business. The one-half hectare residential
property owned by Alpha Corporation is an ordinary asset
because the owner is engaged in the purchase and sale of
real property.(Sec. 39, NIRC; RR No. 07-03)
(b) Is Juan Gonzales subject to income tax on the
exchange of property? If so, what is the tax base and
rate? Explain.
Q: 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.
A: YES. The tax base in a taxable disposition of a real
property classified as a capital asset is the higher between
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
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QuAMTO (1987-2022)
3.
two values: the fair market value of the property received
in exchange and the fair market value of the property
exchanged. Since the fair market value of two properties are
the same, the said fair market value should be taken as the
tax base which is P 10 million. The income tax rate is 6%.
(Sec. 24(D)(1), NIRC)
4.
Q: What is the rationale for the rule prohibiting the
deduction of capital losses from ordinary gains?
Explain. (2003 BAR)
A: YES. The gain from the exchange constitutes an item of
gross income, and being a business income, it must be
reported in the annual income tax return of Alpha
Corporation. From the pertinent items of gross income,
deductions allowed by law from gross income can be
claimed to arrive at the net income which is the tax base for
the corporate income tax rate of 35%. (Secs. 27(A) & 31,
NIRC)
A: It is to ensure that only costs or expenses incurred in
earning the income shall be deductible for income tax
purposes consonant with the requirement of the law that
only necessary expenses are allowed as deductions from
gross income. The term “necessary expenses” presupposes
that in order to be allowed as deduction, the expense must
be business connected, which is not the case insofar as
capital losses are concerned. This is also the reason why all
nonbusiness connected expenses like personal, living and
family expenses, are not allowed as deduction from gross
income. (Sec. 36(A)(1), NIRC)
NOTE: That from January 1, 2009 to June 30, 2020 the tax
rate is 30%. (R.A. No. 9337; R.A. No. 11534 – CREATE Act)
Starting July 1, 2020, the tax rate for Domestic Corporations
in general is 25%, and the tax rate for Domestic
Corporations classified as Micro, Small and Medium
Enterprise, is 20%. (Sec. 27(A), NIRC as amended by R.A. No.
11534 – CREATE Act) For a corporation to be classified as
Micro, Small and Medium Enterprise, during the taxable
year for which the tax is imposed, the net taxable income
does not exceed P5,000,000 and the total assets does not
exceed P100,000,000, excluding land on which the
particular business entity’s office, plant, and equipment are
situated.
ALTERNATIVE ANSWER:
The prohibition of deduction of capital losses from ordinary
gains is designed to forestall the shifting of deductions from
an area subject to lower taxes to an area subject to higher
taxes, thereby unnecessarily resulting in leakage of tax
revenues. Capital gains are generally taxed at a lower rate
to prevent, among others, the bunching of income in one
taxable year which is a liberality in the law begotten from
motives of public policy (Rule on Holding Period). It stands
to reason therefore, that if the transaction results in loss, the
same should be allowed only from and to the extent of
capital gains and not to be deducted from ordinary gains
which are subject to a higher rate of income tax.
Q: Distinguish a “capital asset" from an “ordinary
asset". (2003 BAR)
A: The term “capital asset” regards all properties not
specifically excluded in the statutory definition of capital
assets, the profits or loss on the sale or the exchange of
which are treated as capital gains or capital losses.
Conversely, all those properties specifically excluded are
considered as ordinary assets and the profits or losses
realized must have to be treated as ordinary gains or
ordinary losses. Accordingly, “capital assets” includes
property held by the taxpayer whether or not connected
with his trade or business, but the term does not include any
of the following, which are consequently considered
“ordinary assets:”
2.
Real property used in trade or business of the taxpayer.
The statutory definition of “capital assets” practically
excludes from its scope, it will be noted, all property held by
the taxpayer if used in connection with his trade or
business.
(c) Is Alpha Corporation subject to income tax on the
exchange of property? If so, what is the tax base and
rate? Explain. (2008 BAR)
1.
Property used in the trade or business of a character
which is subject to the allowance for depreciation
provided in Sec. 34(F) of the Tax Code; or
Q: In 1990, Mr. Naval bought a lot for P1,000,000.00 in
a subdivision with the intention of building his
residence on it. In 1994, he abandoned his plan to build
his residence on it because the surrounding area
became a depressed area and land values in the
subdivision went down; instead, he sold it for
P800,000.00. At the time of the sale, the zonal value was
P500,000.00.
Stock in trade of the taxpayer or other property of a
kind
which
would
properly
be
included in the inventory of the taxpayer if
on hand at the close of the taxable year;
(a) Is the land a capital asset or an ordinary asset?
Explain.
A: The land is a capital asset because it is neither for sale in
the ordinary course of business nor a property used in the
trade or business of the taxpayer. (Sec. 33, NIRC)
Property held by the taxpayer primarily for sale to
customers in the ordinary course of trade or business;
23
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
large Filipino communities. Each store abroad was in
the name of a corporation organized under the laws of
the state or country in which the store was located. All
stores had identical capital structures: 60% of the
outstanding capital stock was owned by Karina's, Inc.,
while the remaining 40% was owned directly by the
spouses Konstantino and Korina.
(b) Is there any income tax due on the sale? Explain.
(1994 BAR)
A: YES. Mr. Naval is liable to the 6% capital gains tax
imposed under the Tax Code based on the gross selling
price of P800,000.00 which is an amount higher than the
zonal value.
Beginning 2017, in light of the immigration policy
enunciated by US President Donald Trump, many
Filipinos have since returned to the Philippines and the
number of Filipino immigrants in the US dropped
significantly. On account of these developments,
Konstantino and Karina decided to sell their shares of
stock in the five (5) US corporations that were doing
poorly in gross sales. The spouses' lawyer-friend
advised them that they will be taxed 5% on the first
P100,000 net capital gain, and 10% on the net capital
gain in excess of P 100,000.
Q: Cebu Development Inc. (CDI) has an authorized
capital stock of P5,000,000.00 divided into 50,000
shares with a par value of One Hundred Pesos (P
100.00) per share. Of the authorized capital stock,
twenty-five thousand (25,000) shares have been
subscribed. Mr. Juan Legaspi is a stockholder of CDI
where he has subscription amounting to 13,000 shares.
To fully pay his unpaid subscription in the amount of
P950,000.00, Mr. Legaspi transferred to the
corporation a parcel of land that he owns by virtue of a
Deed of Assignment. Upon investigation, the BIR
discovered that Mr. Legaspi acquired said property for
only P500,000.00. Is Mr. Legaspi liable for any taxable
gain? (1991 BAR)
Is the lawyer correct? If not, how should the spouses
Konstantino and Karina be taxed on the sale of their
shares? (2018 BAR)
A: The transfer by Mr. Legaspi to the corporation of the
parcel of land in payment of his unpaid subscription did not
increase his stockholdings in the corporation. It cannot be
said that he acquired control of the corporation by virtue of
the transfer of the land. His percentage of stockholdings in
the capital stock of the corporation remains the same after
the transfer as before. Therefore, Mr. Legaspi derived
taxable gain for his economic gain which was realized by
virtue of the exchange of the land for the liability for the
subscription.
A: The lawyer’s advice is wrong. The capital gains tax of 5%
for the first P100,000 net capital gain, and 10% on the net
capital gain in excess of P100,000 applies only to the net
capital gains realized from the sale, barter, exchange or
other disposition of shares of stock in a domestic
corporation. (Sec. 24(C), NIRC) Since the shares of stock sold
are shares of foreign corporations held as capital assets, the
recognized portion of the capital gain realized from the sale
must be reported as part of their gross income in their
income tax returns where the taxable income will be subject
to the graduated income tax rates for individuals. (Sec.
24(A)(1)(a), in relation to Sec. 39, NIRC)
ALTERNATIVE ANSWER:
Mr. Legaspi is not liable for any taxable gain. The
transaction amounted to an exchange of shares of property
for shares of stock as a result of which the property
transferor acquired control of the corporation. The 13,000
shares of stock acquired in exchange of property was more
than fifty percent (50%) of the total subscribed capital stock
of Cebu Development, Inc. (CDI) that qualified the
transaction as a tax-exempt under the provisions of Sec.
40(C)(2) of the NIRC, as amended by R.A. No. 8424.
NOTE: Starting January 1, 2018, a final tax rate of 15% is
imposed upon the net capital gains realized during the
taxable year from the sale, barter, exchange, or other
disposition of shares of stock in a domestic corporation,
except shares sold, or disposed of through the stock
exchange. (Sec. 24(C), NIRC, as amended by TRAIN Law)
Q: BBB, Inc., a domestic corporation, enjoyed a
particularly profitable year in 2014. In June 2015, its
Board of Directors approved the distribution of cash
dividend to its stockholders. BBB, Inc. has individual
and corporate stockholders.
(6) PASSIVE INVESTMENT INCOME
(2018, 2015, 1994 BAR)
Q: Spouses Konstantino and Karina are Filipino citizens
and are principal shareholders of a restaurant chain,
Karina's, Inc. The restaurant's principal office is in
Makati City, Philippines.
What is the tax treatment of the cash dividends
received from BBB, Inc. by the following stockholders:
(a) A resident citizen
Karina's became so popular as a Filipino restaurant
that the owners decided to expand its operations
overseas. During the period 2010-2015 alone, it opened
ten (10) stores throughout North America and five (5)
stores in various parts of Europe where there were
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
A: A final withholding tax for ten percent (10%) shall be
imposed upon the cash dividends actually or constructively
received by a resident citizen from BBB, Inc. (Sec. 24(B)(2),
NIRC)
24
QuAMTO (1987-2022)
(b) Non-resident alien engaged in trade or business
(7) ANNUITIES, PROCEEDS FOR LIFE INSURANCE OR
OTHER TYPES OF INSURANCE
(1991 BAR)
A: A final withholding tax of twenty percent (20%) shall be
imposed upon the cash dividends actually or constructively
received by a non-resident alien engaged in trade or
business from BBB, Inc. (Sec. 25(A)(2), NIRC)
Q: Born of a poor family on 14 February 1944. Mario
worked his way through college. After working for
more than 2 years in X Manufacturing Corporation,
Mario decided to retire and avail of the benefits under
the very reasonable retirement plan maintained by his
employer. He planned to invest whatever retirement
benefits he would receive in a business that will
provide his employer with the needed raw materials.
On the day of his retirement on 30 April 1985, he
received P400,000.00 as retirement benefit. In
addition, his endowment insurance policy, for which he
was paying an annual premium of P1,520.00 since
1965 also matured. He was then paid the face value of
his insurance policy in the amount of P50,000.00.
(c) Non-resident alien not engaged in trade or business
A: A final withholding tax equal to twenty- five percent
(25%) of the entire income received from all sources within
the Philippines, including the cash dividends received from
BBB, Inc. (Sec. 25(B), NIRC)
(d) Domestic corporation
A: Dividends received by a domestic corporation from
another domestic corporation, such as BBB, Inc., shall not
be subject to tax. (Sec. 27(D)(4), NIRC)
Is his P50,000.00 insurance proceeds exempt from
income taxation? (1991 BAR)
(e) Non-resident foreign corporation (2015 BAR)
A: Dividends received by a non-resident foreign
corporation from a domestic corporation are generally
subject to an income tax of 30% to be withheld at source.
(Sec. 28(B)(1), NIRC) However, a final withholding tax of
fifteen percent (15%) is imposed on the amount of cash
dividends received from a domestic corporation like BBB,
Inc. if the tax sparing rule applies. (Sec. 28(B)(5)(b), NIRC)
Pursuant to this rule, the lower rate of tax would apply if the
country in which the non- resident foreign corporation is
domiciled would allow as tax credit against the tax due from
it, taxes deemed paid in the Philippines of 15% representing
the difference between the regular income tax rate and the
preferential rate.
A: The P50,000.00 insurance proceeds is not totally exempt
from income tax. The excluded amount is only that portion
which corresponds to the premiums that he had paid since
1965. At the rate of P1,520.00 per year multiplied by
twenty (20) years which was the period of the policy, he
must have paid a total of P30,400.00. Accordingly, he will
be subject to report as taxable income the amount of
P19,600.00.
(8) PRIZES AND AWARDS
(2019, 2015 BAR)
Q: Mr. D, a Filipino amateur boxer, joined an Olympic
qualifying tournament held in Las Vegas, USA, where he
won the gold medal. Pleased with Mr. D's
accomplishment, the Philippine Government, through
the Philippine Olympic Committee, awarded him a cash
prize amounting to P1,000,000.00. Upon receipt of the
funds, he went to a casino in Pasay City and won the
P30,000,000.00 jackpot in the slot machine. The next
day, he went to a nearby Lotto outlet and bought a Lotto
ticket which won him a cash prize of P5,000.00.
NOTE: Starting July 1, 2020, the income tax rate for nonresident foreign corporations is 25%. (Sec. 28(B)(1), as
amended by R.A. No. 11534)
Q: What are disguised dividends in income taxation?
Give an example. (1994 BAR)
A: Disguised dividends are those income payments made by
a domestic corporation, which is a subsidiary of a nonresident foreign corporation, to the latter ostensibly for
services rendered by the latter to the former, but which
payments are disproportionately larger than the actual
value of the services rendered. In such case, the amount
over and above the true value of the service rendered shall
be treated as a dividend and shall be subjected to the
corresponding tax on Philippine sourced gross income, or
such other preferential rate as may be provided under a
corresponding Tax Treaty. An example is royalty payment
under a corresponding licensing agreement.
Which of the above sums of money is/are subject to
income tax? Explain. (2019 BAR)
A: Only the amount of P30,000,000.00, constituting the
winnings from casino, is subject to income tax, specifically
to a final tax at the rate of 20%. (Sec. 24(B)(1), NIRC, as
amended)
The cash prize of P1,000,000 is exempt from taxation under
Sec. 32(B)(7)(d) of the NIRC, as amended, considering that
it is in the nature of a prize granted to Mr. D as an athlete
after winning an international sports competition, i.e., an
Olympic qualifying tournament, sanctioned by his national
sports association.
25
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
Rule on the taxability of the separation pay and
indemnity that will be received by the affected
employees as the result of their separation from
service. Explain your answer. (2017 BAR)
Meanwhile, under Sec. 24(B)(1) of the NIRC, the winnings
amounting to P10,000 or less from Lotto shall be exempt
from tax, therefore the Lotto prize of P5,000 is not subject
to income tax. (NIRC, Sec. 24(B)(1), amended by TRAIN Law)
A: It shall be tax-exempt. Sec. 30(B)(6)(b) of the 1997 NIRC,
as amended, provides that any amount received by an
official or employee or by his heirs from the employer as a
consequence of separation of such official or employee from
the service of the employer because of death, sickness, or
other physical disability or for any cause beyond the control
of the said official or employee shall be exempt from
taxation.
Q: Mr. A, a citizen and resident of the Philippines is a
professional boxer. In a professional boxing match held
in 2013, he won prize money in United States (US)
dollars equivalent to P300,000.00.
(a) Is the prize money paid to and received by Mr. A in
the US taxable in the Philippines? Why?
A: YES. Under the Tax Code, the income within and without
of a resident citizen is taxable. Since Mr. A is a resident
Filipino citizen, his income worldwide is taxable in the
Philippines. (Sec. 23(A)(1), NIRC)
Q: Z is a Filipino immigrant living in the United States
for more than 10 years. He is retired and he came back
to the Philippines as a balikbayan. Every time he comes
to the Philippines, he stays here for about a month. He
regularly receives a pension from his former employer
in the United States, amounting to US$1,000 a month.
While in the Philippines, with his pension pay from his
former employer, he purchased three condominium
units in Makati which he is renting out for P15,000 a
month each.
(b) May Mr. A’s prize money qualify as an exclusion
from his gross income? Why?
A: NO. Under the law, all prizes and awards granted to
athletes in local and international sports competitions and
tournaments whether held in the Philippines or abroad and
sanctioned by their national sports associations are
excluded from gross income. The exclusion find application
only to amateur athletes where the prize was given in an
event sanctioned by the appropriate national sports
association affiliated with the Philippine Olympic
Committee and not to professional athletes like Mr. A.
Therefore, the prize money would not qualify as an
exclusion from Mr. A’s gross income. (Sec. 32(B)(7)(d),
NIRC)
Does the US$1,000 pension become taxable because he
is now residing in the Philippines? Reason briefly.
(2007 BAR)
A: NO. The provisions of any existing law to the contrary
notwithstanding, social security benefits, retirement
gratuities, pensions and other similar benefits received by
a resident citizen of the Philippines, such as Z, from a
foreign private institution, is excluded from income
taxation. (Sec. 32(B)(6)(c), NIRC)
(c) The US already imposed and withheld income taxes
from Mr. A’s prize money. How may Mr. A use or
apply the income taxes he paid on his prize money
to the US when he computes his income tax liability
in the Philippines for 2013? (2015 BAR)
Q: Mr. Javier is a non-resident senior citizen. He
receives a monthly pension from the GSIS which he
deposits with the PNB-Makati Branch.
A: The income taxes withheld and paid to the US
government maybe claimed by Mr. A, either as a deduction
from his gross income (Sec. 34(C)(1)(b), NIRC) or as a tax
credit (Sec. 34(C)(3)(a), NIRC) from the income tax due
when he computes his Philippine income tax liability for
taxable year 2013.
Is he exempt from income tax and therefore not
required to file an income tax return? (2000 BAR)
A: Mr. Javier is exempt from income tax on his monthly GSIS
pension, but not on the interest income that might accrue
on the pensions deposited with PNB which are subject to
final withholding tax. (Sec. 32(B)(6)(f), NIRC)
(9) PENSIONS, RETIREMENT BENEFIT OF SEPARATION
PAY
(2017, 2007, 2000, 1996 BAR)
Consequently, since Mr. Javier’s sole taxable income would
have been subjected to a final withholding tax, he is not
required anymore to file an income tax return. (Sec.
51(A)(2)(c), NIRC)
Q: The Board of Directors of Sumo Corporation, a
company primarily engaged in the business of
marketing and distributing pest control products,
approved the partial cessation of its commercial
operations, resulting in the separation of 32 regular
employees. Only half of the affected employees were
notified of the board resolution.
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
Q: Under what conditions are retirement benefits
received by officials and employees of private firms
excluded from gross income and exempt from taxation?
(2000 BAR)
A: Retirement benefits received under R.A. No. 7641 and
those received by officials and employees of private firms,
26
QuAMTO (1987-2022)
A: NO. The commutation of leave credits, more commonly
known as terminal leave pay, i.e., the cash equivalent of
accumulated vacation and sick leave credits given to an
officer or employee who retires or separated from the
service through no fault of his own, is exempt from income
tax. (BIR Ruling 238-91; Commissioner v. CA, GR No. 96016,
17 Oct. 1991)
whether, individual or corporate, in accordance with the
employer’s reasonable private benefit plan approved by the
BIR, are excluded from gross income and exempt from
income taxation if the retiring official or employee was:
1.
2.
3.
4.
In service of same employer for at least 10 years;
Not less than fifty years of age at time of retirement;
Availed of the benefit of exclusion only once (Sec.
32(B)(6)(a), NIRC); and
The retiring official or employee should not have
previously availed of the privilege under the
retirement plan of the same or another employer (Sec.
2.78(B)(1), RR. No. 02-98)
(10) INCOME FROM ANY SOURCE
(2005 BAR)
Q: Explain briefly whether the following items are
taxable or non- taxable:
Q: X, an employee of ABC Corporation died. ABC
Corporation gave X’s widow an amount equivalent to
X’s salary for one year.
(a) Income from jueteng
xxx (2005 BAR)
Is the amount considered taxable income to the widow?
Why? (1996 BAR)
A: It is taxable. The law imposes a tax on income from any
source whatever which means that it includes income
whether legal or illegal. (Sec. 32(A), NIRC)
A: NO. The amount received by the widow from the
decedent’s employer may either be a gift or a separation
benefit on account of death. Both are exclusions from gross
income pursuant to provisions of Sec. 32(B)(6)(b) of the
NIRC, as amended.
e) EXCLUSIONS
(2015, 2014, 2013, 2012, 2011 BAR)
Q: Mr. A, a citizen and resident of the Philippines, is a
professional boxer. In a professional boxing match held
in 2013, he won prize money in United States (US)
dollars equivalent to P300,000,000.
ALTERNATIVE ANSWER:
NO. Since the amount was given to the widow and not to
the estate, it becomes obvious that the amount is more of a
gift. In one U.S. tax case (Estate of Hellstrom vs.
Commissioner, 24 T.C. 916), it was held that payments to the
widow of the president of a corporation of the amount the
president would have received in salary if he lived out the
year constituted a gift and not an income.
May Mr. A’s prize money qualify as an exclusion from
his gross income? Why? (2015 BAR)
A: NO. Under the law, all prizes and awards granted to
athletes in local and international sports competitions and
tournaments whether held in the Philippines or abroad and
sanctioned by their national sports associations are
excluded from gross income. The exclusion find application
only to amateur athletes where the prize was given in an
event sanctioned by the appropriate national sports
association affiliated with the Philippine Olympic
Committee and not to professional athletes like Mr. A.
Therefore, the prize money would not qualify as an
exclusion from Mr. A’s gross income. (Sec. 32 B(7)(d), NIRC)
The controlling facts which would lead to the conclusion
that the amount received by the widow is not an income are
as follows:
1.
2.
3.
4.
5.
the gift was made to the widow rather than the estate;
there was no obligation for the corporation to make
further payments to the deceased;
the widow had never worked for the corporation;
the corporation received no economic benefit; and
the deceased had been fully compensated for his
services. (Estate of Sydney Carter vs. Commissioner, 453
F. 2d 61, 2d Cir. 1971)
Q: What are de minimis benefits and how are these
taxed? Give three (3) examples of de minimis benefits.
(2015 BAR)
Q: A, an employee of the Court of Appeals, retired upon
reaching the compulsory age of 65 years. Upon
compulsory retirement, A received the money value of
his accumulated leave credits in the amount of
P500,000.00.
Is said amount subject to tax? Explain. (1996 BAR)
27
A: De minimis benefits are facilities and privileges
furnished or offered by an employer to his employees,
which are not considered as compensation subject to
income tax and consequently to withholding tax, if such
facilities or privileges are of relatively small value and are
offered or furnished by the employer merely as means of
promoting the health, goodwill, contentment, or efficiency
of his employees. If received by rank-and-file employees
they are exempt from income tax on wages; if received by
supervisory or managerial employees, they are exempt
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
A) She had a taxable income of PIOO,OOO since
income is income from whatever source;
B) She had no taxable income because it was a
donation;
C) She had taxable income since she made a profit;
D) She had no taxable income since moral
damages are compensatory.
from the fringe benefits tax. (RR No. 2-98, as amended by RR
No. 8-2000)
The following shall be considered as de minimis benefits:
1.
Monetized unused vacation leave credits of private
employees not exceeding 10 days during the year;
2. Monetized value of vacation and sick leave credits paid
to government officials and employees;
3. Medical cash allowance to dependents of employees,
not exceeding P1,500 per employee per semester or
P250 per month;
4. Rice subsidy of P2,000 or 1 sack of 50 kg rice per month
amounting to not more than P2,000;
5. Uniform and clothing allowance not exceeding P6,000
per annum;
6. Actual medical assistance not exceeding P10,000 per
annum;
7. Laundry allowance not exceeding P300 per month;
8. Employees achievement awards, e.g., for length of
service or safety achievement, which must be in the
form of a tangible personal property other than cash or
gift certificate, with an annual monetary value not
exceeding P10,000 received by the employee under an
established written plan which does not discriminate in
favor of highly paid employees;
9. Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per
annum;
10. Daily meal allowance for overtime work and
night/graveyard shift not exceeding 25% of the basic
minimum wage on a per region basis; and
11. Benefits received by an employee by virtue of a
collective
bargaining
agreement
(CBA)
and
productivity incentive schemes provided that the total
annual monetary value received from both CBA and
productivity incentive schemes combined do not
exceed P10,000 per employee per taxable year. (RR No.
11-2018)
A: D) She had no taxable income since moral damages are
compensatory. (Sec. 32(B)(4), NIRC)
Q: All the items below are excluded from gross income,
except: (2012 BAR)
A) Gain from sale of long-term bonds, debentures
and indebtedness;
B) Value of property received by a person as
donation or inheritance;
C) Retirement benefits received from the GSIS,
SSS, or accredited retirement plan;
D) Separation pay received by a retiring employee
under a voluntary retirement program of the
corporate employer.
A: D) Separation pay received by a retiring employee under
a voluntary retirement program of the corporate employer.
(Sec. 32(B)(6), NIRC)
Q: The proceeds received under a life insurance
endowment contract is NOT considered part of gross
income: (2011 BAR)
A) if it is so stated in the life insurance endowment
policy;
B) if the price for the endowment policy was not
fully paid;
C) where payment is made as a result of the death
of the insured;
D) where the beneficiary was not the one who took
out the endowment contract.
Q: Which of the following is an exclusion from gross
income? (2014 BAR)
A) Salaries and wages;
B) Cash dividends;
C) Liquidating dividends after dissolution of a
corporation;
D) De minimis benefits;
E) Embezzled money.
A: C) where payment is made as a result of the death of the
insured. (UPLC Suggested Answers)
(1) TAXPAYERS WHO MAY AVAIL
(2) DISTINGUISHED FROM DEDUCTIONS AND TAX
CREDITS
(2019 BAR)
A: D) De minimis benefits (Sec. 33(C)(4); RR No. 3-98)
Q: Congress issued a law allowing a 20% discount on
the purchases of senior citizens from, among others,
recreation centers. This 20% discount can then be used
by the sellers as a "tax credit." At the initiative of BIR,
however, R.A. No. 9257 was enacted amending the
treatment of the 20% discount as a "tax deduction."
Equity Cinema filed a petition with the RTC claiming
that R.A. No. 9257 is unconstitutional as it forcibly
Q: Aleta sued Boboy for breach of promise to marry.
Boboy lost the case and duly paid the court's award that
included, among others, P100,000 as moral damages
for the mental anguish Aleta suffered.
Did Aleta earn a taxable income? (2013 BAR)
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
28
QuAMTO (1987-2022)
deprives sellers a part of the price without just
compensation.
a) CONCEPT AS RETURN OF CAPITAL
(2007 BAR)
(a) What is the effect of converting the 20%
discount from a "tax credit" to a "tax
deduction"? (2019 BAR)
Q: Antonia Santos, 30 years old, gainfully employed, is
the sister of Edgardo Santos. She died in an airplane
crash. Edgardo is a lawyer and he negotiated with the
airline company and insurance company, and they
were able to agree a total settlement of P10 Million.
This is what Antonia would have earned as somebody
who was gainfully employed. Edgardo was her only
heir.
A: The effect of converting the twenty percent (20%)
discount from a tax credit to a tax deduction is that the tax
benefit is effectively reduced. This is because a tax credit
reduces the tax liability, while a tax deduction merely
reduces the tax base (taxable income). (Bar Q&A by J.
Dimaampao, 2020)
Is the P10 Million subject to estate tax? Reason briefly.
Should Edgardo report the P10 Million as his income
being Antonia's only heir? Reason briefly. (2007 BAR)
4. DEDUCTIONS FROM GROSS INCOME
(2019, 2017, 2016, 2009, 2007, 2006, 1993, 1990,
1989, 1988 BAR)
A: NO. The P10M having been received for the loss of life, is
compensatory in nature, hence, is not considered as an
income but a mere return of capital. Income is any wealth
which flows to the taxpayer other than a mere return of
capital. (Madrigal v. Rafferty, G.R. No. L-12287, 07 Aug. 1918)
Q: Differentiate tax exclusions from tax deductions.
(2019 BAR)
A: Tax exclusions refer to income received or earned but is
not taxable as such since it is exempted by law or by treaty,
thus, the same is not included in the computation of gross
income. Meanwhile, tax deductions are those which are
subtracted from gross income to arrive at the taxable
income.
Q: Noel Santos is a very bright computer science
graduate. He was hired by Hewlett Packard. To entice
him to accept the offer of employment, he was offered
the arrangement that part of his compensation would
be an insurance policy with a face value of P20 million.
The parents of Noel are made the beneficiaries of the
insurance policy.
ALTERNATIVE ANSWER:
Will the proceeds of the insurance form part of the
income of the parents of Noel and be subject to income
tax? Reason briefly. (2007 BAR)
The distinction between tax exclusions and tax deductions
are as follows:
1.
Tax exclusions refer to a flow of wealth to the taxpayer
which are not treated as part of gross income for
purposes of computing the taxpayer’s taxable income,
due to the following reasons:
a.
b.
c.
2.
3.
A: NO. The proceeds of life insurance policies paid to the
heirs or beneficiaries upon the death of the insured are not
included as part of the gross income of the recipient. (Sec.
32(B)(1), NIRC) There is no income realized because
nothing flows to Noel’s parents other than a mere return of
capital, the capital being the life of the insured.
It is exempted by the fundamental law;
It is exempted by statute; and
It does not come within the definition of income
(Sec. 61, RR No. 2);
b) ITEMIZED DEDUCTIONS VS. OPTIONAL STANDARD
DEDUCTION
(2017, 2016, 2010, 2009, 2006, 2004, 1999, 1998
1996, 1993, 1990, 1989, 1988 BAR)
While tax deductions are the amounts which the law
allows to be subtracted from gross income in order to
arrive at net income.
ORDINARY AND NECESSARY TRADE, BUSINESS, OR
PROFESSIONAL EXPENSES
(2017, 2016, 2009, 2006, 1993, 1990, 1989, 1988)
Tax exclusions pertain to the computation of gross
income, while deductions pertain to the computation
of net income; and
Q: 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
Tax exclusions are something received or earned by
the taxpayer which do not form part of gross income,
while deductions are something spent or paid in
earning gross income.
29
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
for possible investment in the condominium units and
subdivision lots of Golden Dragon. After a tour of the
properties for sale, the investors were wined and dined
by Peter at the posh Conrad's Hotel at the cost of
P150,000.00. Afterward, the investors were brought to
a party in a videoke club which cost the company
P200,000.00 for food and drinks, and the amount of
P80,000.00 as tips for business promotion officers.
Expenses at Conrad's Hotel and the videoke club were
receipted and submitted to support the deduction for
representation and entertainment expenses.
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.
Decide if all the representation and entertainment
expenses claimed by Golden Dragon are deductible.
Explain. (2016 BAR)
A: SPRC cannot claim as a deduction, the amount spent for
lunch in the meeting with the Regional Director of HLURB.
While the expense is business connected, the same is not
allowed as deduction because it was incurred as an indirect
payment to a government official which, not only amounts
to a violation of the Anti-Graft and Corrupt Practices Act, but
also constitutes bribes, kickbacks and similar payments.
(Sec. 34(A)(1)(c), NIRC)
A: Not all of the representation and entertainment
expenses claimed by Golden Dragon are deductible. Only
those that are reasonable in amount and nature should be
deductible. It should be noted that the total expenses are
P430,000.00 for the five (5) investors or P86,000.00 each.
With respect, however, to the amount spent for breakfast
with a prospective client, the same is deductible from gross
income of SPRC. The expense complies with the
requirements for deductibility, namely: (a) the expense
must be ordinary and necessary; (b) it must have been paid
or incurred during the taxable year; (c) it must have been
paid or incurred in carrying on the trade or business of the
taxpayer, and (d) it must be supported by receipts, records
or other pertinent papers. (CIR v. General Foods (Phils.), Inc.,
G.R. No. 143672, 24 Apr. 2003)
I would allow only a deduction in such amounts as are
reasonable under the circumstances but in no case shall all
deductions for representation and entertainment
expenses, including those above enumerated, exceed
0.50% of net sales. (Sec. 34(A)(1)(iv), NIRC; RR No. 10-2002;
Bar Q&A by Domondon, 2018)
Q: Masarap Food Corporation (MFC) incurred
substantial advertising expenses in order to protect its
brand franchise for one of its line products. In its
income tax return, MFC included the advertising
expense as deduction from gross income, claiming it as
an ordinary business expense. Is MFC correct? Explain.
(2009 BAR)
Sec. 34(A)(1)(b) of the NIRC, as amended, does not require
that the substantiation be in the form of official receipts or
invoices issued in the name of the taxpayer claiming the
expense. It must only be proven that there is a “direct
connection or relation of the expense being deducted to the
development, management, operation and/or conduct of
the trade, business or profession of the taxpayer”.
A: NO. The protection of taxpayer’s brand franchise is
analogous to the maintenance of goodwill or title to one’s
property which is in the nature of a capital expenditure. An
advertising expense, of such nature does not qualify as an
ordinary business expense, because the benefit to be
enjoyed by the taxpayer goes beyond one taxable year. (CIR
v. General Foods Inc., G.R. No. 143672, 24 Apr. 2003)
(b) Is the reimbursement received by Calvin from SPRC
subject to tax? Explain your answer. (2017 BAR)
A: NO. Any amount paid as reimbursements for
representation incurred by the employee in the
performance of his duties is not compensation subject to
withholding, if the following conditions are satisfied: (i) It is
for ordinary and necessary representation expense paid or
incurred by the employee in the pursuit of the trade,
business or profession, and (ii) The employee is required to
account/liquidate for the such expense in accordance with
the specific requirements of substantiation pursuant to Sec.
34 of the NIRC, as amended. The amounts are actually spent
by the employee for the benefit of his employer, so no
income is considered to have flowed to the employee.
LOSSES
(2010, 1999, 1998, 1993)
Q: A is a travelling salesman working full time for Nu
Skin Products. He receives a monthly salary plus 3%
commission on his sales in a Southern province where
he is based. He regularly uses his own car to maximize
his visits even to far flung areas. One fine day a group of
militants seized his car. He was notified the following
day by the police that the marines and the militants had
a bloody encounter, and his car was completely
destroyed after a grenade hit it. A wants to file a claim
for casualty loss.
Q: Peter is the Vice-President for Sales of Golden
Dragon Realty Conglomerate, Inc. (Golden Dragon). A
group of five (5) foreign investors visited the country
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
30
QuAMTO (1987-2022)
Explain the legal basis of your tax advice. (2010 BAR)
3.
A: A is not entitled to claim a casualty loss because all of his
income partakes the nature of compensation income.
Taxpayers earning compensation income arising from
personal services under an employer-employee
relationship are not allowed to claim deduction except that
allowed under Sec. 34(M) referring only to the P2,400
health and/or hospitalization insurance premium;
perforce, the claim of casualty loss has no legal basis. (Sec.
34(M), NIRC)
4.
5.
2.
3.
4.
5.
They must be ordinary losses that are incurred by a
taxable entity as a result of its day-to-day operations
conducted for profit or otherwise, or casualty losses.
The debts are uncollectible despite diligent effort
exerted by the taxpayer (Sec. 34(E)(1), NIRC; Sec. 3, RR.
No. 05-99, reiterated in RR. No. 25-2002; Philippine
Refining Corporation v. CA, G.R. No. 118794, 08 May
1996); and
7.
Must have been reported as receivables in the income
tax return of the current or prior years. (Sec. 103, RR No.
2)
DEPRECIATION
(1999, 1998, 1989)
They must have been losses that are actually
sustained during the taxable year.
Q: Explain if the following items are deductible from
gross income for income tax purposes. Disregard who
is the person claiming the expense.
Must not have been compensated for by insurance or
other forms of indemnity.
(a) xxx
If they are casualty losses, they are of property
connected with trade, business, or profession and the
lose arises from fires, storms, shipwreck, or other
casualties, or from robbery, theft or embezzlement.
(b) Depreciation of goodwill. (1999 BAR)
A: Depreciation for goodwill is not allowed as deduction
from gross income. While intangibles maybe allowed to be
depreciated or amortized, it is only allowed to those
intangibles whose use in the business or trade is definitely
limited in duration. (Basilan Estates, Inc. v. CIR, G.R. No. L22492, 05 Sept. 1967) Such is not the case with goodwill.
Must not have been claimed as a deduction for estate
tax purposes in the estate tax return.
BAD DEBTS
(2016, 2004, 1999)
ALTERNATIVE ANSWER:
Q: Rakham operates the lending company that made a
loan to Alfonso in the amount of P120,000.00 subject of
a promissory note which is due within one (1) year
from the note’s issuance. Three years after the loan
became due and upon information that Alfonso is
nowhere to be found, Rakham asks you for advice on
how to treat the obligation as “bad debt.”
Depreciation of goodwill is allowed as a deduction from
gross income if the goodwill is acquired through capital
outlay and is known from experience to be of value to the
business for only a limited period. (Sec. 107, RR. No. 02-40)
In such case, the goodwill is allowed to be amortized over
its useful life to allow the deduction of the current portion
of the expense from gross income, thereby paving the way
for a proper matching of costs against revenues which is
an essential feature of the income tax system.
Discuss the requisites for deductibility of a “bad debt.”
(2016 BAR)
A: I shall advise Rakham to treat the obligation as “bad
debt” by deducting the same from his income tax return
and proving compliance with the following requisites for
the deductibility of a “bad debt”:
1.
2.
The debt must be actually ascertained to be worthless
and uncollectible during the taxable year;
6.
Q: Give the requisites for deductibility of a loss. (1998
BAR)
A:
1.
The same must not be sustained in a transaction
entered into between related parties;
The same must be actually charged off the books of
accounts of the taxpayer as of the end of the taxable
year;
CHARITABLE AND OTHER CONTRIBUTIONS
(2018, 1998, 1996, 1993)
Q: Years ago, Krisanto bought a parcel of land in
Muntinlupa for only P65,000. He donated the land to
his son, Kornelio, in 1980 when the property had a fair
market value of P75,000, and paid the corresponding
donor's tax.
There must be an existing indebtedness due to the
taxpayer which must be valid and legally demandable;
The same must be connected with the taxpayer’s trade,
business or practice of profession;
Kornelio, in turn, sold the property in 2000 to Katrina
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
for P6.5 million and paid the capital gains tax,
documentary stamp tax, local transfer tax, and other
fees and charges. Katrina, in turn, donated the land to
Klaret School last August 30, 2017 to be used as the site
for additional classrooms. No donor's tax was paid,
because Katrina claimed that the donation was exempt
from taxation. At the time of the donation to Klaret
School, the land had a fair market value of P65 million.
3.
Applying the above provisions of law to the case at bar, it is
clear therefore that only the P100,000.00 contribution of X
to Filipinas Hospital for Crippled Children qualified as a
deductible contribution.
(a) xxx
The NIRC expressly provides that the same must be actually
paid to a charitable organization to be deductible. Note that
the law accorded no privilege to similar contributions
extended to private individuals. Hence, the P5,000.00
contribution to the crippled girl cannot be claimed as a
deduction.
(b) How much in deduction from gross income
may Katrina claim on account of the said
donation? (2018 BAR)
A: If Klaret School is an accredited ‘non-government
organization, having been established as a non-profit
domestic corporation, organized, and operated exclusively
for educational purposes, the donation to it as a qualified
donee-institution is deductible in full. (Sec. 34(H)(2)(c),
NIRC) The deduction from gross income shall be the
acquisition cost of said property by the donor which is P6.5
million. (Sec. 34(H)(3), NIRC)
ALTERNATIVE ANSWER:
The P100,000.00 donation may properly be deducted from
X’s gross income, but not the P5,000.00 donated to the
crippled girl, as charitable and other contributions that
may be deducted from taxable income do not contemplate
those given to individuals. While it may be that X’s son is a
patient in the hospital, it cannot be said that part of its net
income inures to the benefit of X as to be disallowed as a
deduction from taxable income.
ALTERNATIVE ANSWER:
Katrina may claim a deduction from her gross income an
amount not in excess of ten percent (10%) of her taxable
income derived from trade, business, or profession as
computed price to the deduction of the value of the
donation made to Klaret School, and other charitable
contributions that may have been made by Katrina during
the taxable year, after compliance with the substantiation
requirements. (Sec. 34(H), NIRC)
Assuming X is a self-employed individual, he may not
deduct the donations made because under Sec. 29 of the
NIRC as amended by R.A. No. 7496 better known as SelfEmployed and Professionals Engaged in the Practice of
their Profession (SNITS), only contribution to the
government or to an accredited relief organization for the
rehabilitation of calamity-stricken areas declared by the
President may be deducted for income tax purposes.
Clearly, the donees do not qualify as relief organizations.
Q: The Filipinas Hospital for Crippled Children is a
charitable organization. X visited the hospital, on his
birthday, as was his custom. He gave P100,000.00 to
the hospital and P5,000.00 to a crippled girl whom he
particularly pitied. A crippled son of X is in the
hospital as one of its patients. X wants to exclude both
the P100,000.00 and the P5,000.00 from his gross
income.
Assuming X is receiving purely compensation income, he
can only deduct from gross compensation income premium
on Health and/or Hospitalization Insurance. (Sec. 34(M),
NIRC)
NOTE: Personal exemption, additional personal
exemption, and special additional personal exemption have
been repealed by Sec. 12 of R.A. No. 10963 – TRAIN Law.
Discuss. (1993 BAR)
A: Under the National Internal Revenue Code, charitable
contributions to be deductible must be:
1.
2.
OPTIONAL STANDARD DEDUCTION
(2015, 2009)
Q: In 2012, Dr. K decided to return to his hometown to
start his own practice. At the end of 2012, Dr. K found
that he earned gross professional income in the
amount of P1,000,000.00. While he incurred expenses
amounting to P560,000.00 constituting mostly of his
office space rent, utilities, and miscellaneous expenses
related to his medical practice. However, to Dr. K’s
dismay, only P320,000.00 of his expenses were duly
covered by receipts.
Actually paid or made to domestic corporations or
associations organized and operated exclusively for
religious, charitable, scientific, youth and sports
development, cultural or educational purposes or for
rehabilitation of veterans or to social welfare
institutions no part of which inures to the benefit of
any private individual;
Made within the taxable year; and
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
Not more than 10% (for individuals) of 5% (for
corporations) of the taxpayer’s taxable income to be
computed without including the contribution.
32
QuAMTO (1987-2022)
A: YES. The premiums paid are ordinary and necessary
business expenses of the company. They are allowed as a
deduction from gross income so long as the employer is not
a direct or indirect beneficiary under the policy of
insurance. (Sec. 36(A)(4), NIRC) Since the parents of the
employee were made the beneficiaries, the prohibition for
their deduction does not exist.
What are the options available for Dr. K so he could
maximize the deductions from his gross income? (2015
BAR)
A: In order to maximize his deductions, Dr. K may avail of
the optional standard deduction (OSD) which is an amount
not exceeding forty percent (40%) of his gross sales or
gross receipts. The OSD can be claimed without being
required to present proof or evidence of expenses paid or
incurred by him. (Sec. 34(L), NIRC; RR. No. 16-08, as
amended)
Q: OXY is the president and chief executive officer of
ADD Computers Inc. When OXY was asked to join the
government service as director of a bureau under the
Department of Trade and Industry, he took a leave of
absence from ADD. Believing that its business outlook,
goodwill and opportunities improved with OXY in the
government, ADD proposed to obtain a policy of
insurance on his life. On ethical grounds, OXY objected
to the insurance purchase but ADD purchased the
policy anyway. Its annual premium amounted to
P100,000.
Q: Ernesto, a Filipino citizen and a practicing lawyer,
filed his income tax return for 2007 claiming optional
standard deductions. Realizing that he has enough
documents to substantiate his profession-connected
expenses, he now plans to file an amended income tax
return for 2007, in order to claim itemized deductions,
since no audit has been commenced by the BIR on the
return he previously filed.
Is said premium deductible by ADD Computers, Inc.?
Reason. (2004 BAR)
Will Ernesto be allowed to amend his return? Why or
why not? (2009 BAR)
A: NO. The premium is not deductible because it is not an
ordinary business expense. The term "ordinary” is used in
the income tax law in its common significance and it has the
connotation of being normal, usual, or customary. (Deputy
v. Du Pont, 308 US 48) Paying premiums for the insurance
of a person not connected to the company is not normal,
usual, or customary.
A: No. Since Ernesto has elected to claim the optional
standard deduction, said election is irrevocable for the
taxable year for which the return is made. (Sec. 34(L), NIRC)
c) ITEMS NOT DEDUCTIBLE
(2014, 2007, 2004, 1998, 1993, 1989 BAR)
Another reason for its non-deductibility is the fact that it
can be considered as an illegal compensation made to a
government employee. This is so because if the insured, his
estate, or heirs were made as the beneficiary (because of
the requirement of insurable interest), the payment of
premium will constitute bribes which are not allowed as
deduction from gross income. (Sec. 34(A)(1)(c), NIRC)
Q: Political campaign contributions are NOT deductible
from gross income: (2011 BAR)
A) if they are not reported to the Commission on
Elections;
B) if the candidate supported wins the election
because of possible corruption;
C) since they do not help earn the income from
which they are to be deducted;
D) since such amounts are not considered as
income of the candidate to whom given.
On the other hand, if the company was made the
beneficiary, whether directly or indirectly, the premium is
not allowed as a deduction from gross income. (Sec.
36(A)(4), NIRC)
A: C) since they do not help earn the income from which
they are to be deducted. (UPLC Suggested Answers)
BRIBES
(2014, 1998, 1993 BAR)
PREMIUMS PAID ON LIFE INSURANCE POLICY
(2007, 2004, 1989 BAR)
Q: Freezy Corporation, a domestic corporation engaged
in the manufacture and sale of ice cream, made
payments to an officer of Frosty Corporation, a
competitor in the ice cream business, in exchange for
said officer’s revelation of Frosty Corporation’s trade
secrets.
Q: Noel Santos is a very bright computer science
graduate. He was hired by Hewlett Packard. To entice
him to accept the offer of employment, he was offered
the arrangement that part of his compensation would
be an insurance policy with a face value of P20 million.
The parents of Noel are made the beneficiaries of the
insurance policy.
May Freezy Corporation claim the payment to the
officer as deduction from its gross income? Explain.
(2014 BAR)
Can the company deduct from its gross income the
amount of the premium? Reason briefly. (2007 BAR)
A: NO. The payments made in exchange for the revelation
33
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
they are assigned or detailed.
of a competitor’s trade secrets is considered as an expense
which is against law, morals, good customs, or public policy,
which is not deductible. (3M Philippines, Inc. v. CIR, GR No.
82833, 26 Sept. 1988) Also, the law will not allow the
deduction of bribes, kickbacks, and other similar payments.
Applying the principle of ejusdem generis, payment made by
Freezy Corporation would fall under “other similar
payments” which are not allowed as deduction from gross
income. (Sec. 34(A)(1)(c), NIRC)
Below are some of the employees of KKI. Determine
whether the compensation they received from KKI in
2017 is taxable under Philippine laws and whether
they are required to file tax returns with the Bureau of
Internal Revenue (BIR).
(a) Kris Konejero, a Filipino accountant in KKl's Tax
Department in the Makati office, and married to a
Filipino engineer also working in KKI;
5. INCOME TAX ON INDIVIDUALS
(2019, 2018, 2016, 2015. 2014, 2009, 2008, 2005,
2003, 2002, 1996, 1994, 1991 BAR )
A: TAXABLE. (Secs. 23 & 24(A), NIRC) Kris must file tax
returns with the BIR, unless she qualifies for substituted
filing of income tax returns because the tax was correctly
withheld by the employer. (Sec. 51(A)(2)(b), NIRC)
a) RESIDENT CITIZENS, NON-RESIDENT CITIZENS, AND
RESIDENT ALIENS
(2019, 2018, 2016, 2015, 2002 BAR)
(b) Klaus Kloner, a German national who heads KKl's
Design Department in its Makati office;
Q: Mr. C is employed as a Chief Executive Officer of MNO
Company, receiving an annual compensation of
P10,000,000.00, while Mr. S is a security guard in the
same company earning an annual compensation of
P200,000.00. Both of them source their income only
from their employment with MNO Company.
A: Taxable being an income earned by a resident alien from
Philippine sources. (Secs. 23 & 24(A), NIRC) Klaus is
required to file a tax return unless the compensation
income from KKJ is his only returnable income and the
withholding tax thereon was correctly withheld by his
employer. (Sec. 51(A)(2)(b), NIRC)
(a) At the end of the year, is Mr. C personally required
to file an annual income tax return? Explain.
(c) Krisanto Konde, a Filipino engineer in KKl's Design
Department who was hired to work at the principal
office last January 2017. In April 2017, he was
assigned and detailed in the company's project in
Jakarta, Indonesia, which project is expected to be
completed in April 2019;
A: NO, Mr. C is not required, as he is qualified for
substituted filing of income tax return under Sec. 51(A) of
the NIRC, since he is receiving purely compensation income
from one employer (MNO Company) in the Philippines for
a given calendar year; provided the employer has correctly
withheld the tax on the said compensation income.
A: His compensation from January 1 up to the time he left
the Philippines is taxable and he must file tax returns,
unless the compensation income is his only returnable
income, and the withholding tax thereon was correctly
withheld by KKI. (Sec. 51(A)(2)(b), NIRC) The
compensation for his services abroad from the date of bis
actual assignment thereat up to the time of the completion
of the project is not taxable being an income from a source
without the Philippines earned by a non-resident citizen.
(Secs. 23 & 42, NIRC) He is not required to file a return for
this income derived from without, because said income is
not subject to income tax in the Philippines. (Sec. 23, NIRC)
(b) How about Mr. S? Is he personally required to file
an annual income tax return? Explain. (2019 BAR)
A: NO, Mr. S is also not required. Since the only income
earned (P200,000) during the taxable year did not exceed
the exemption threshold of P250,000 provided in the NIRC,
the employee need not file the income tax return. (Sec.
51(A)(2)(a), NIRC, as amended by TRAIN Law)
ALTERNATIVE ANSWER:
Based on the amount of annual compensation income Mr. S
received, he is considered a minimum wage earner. Being a
minimum wage earner, he is not required to file an income
tax return. (Sec. 51(A)(2)(d), NIRC)
(d) Kamilo Konde, Krisanto's brother, also an engineer
assigned to KKl's project in Taipei, Taiwan. Since
KKI provides for housing and other basic needs,
Kamila requested that all his salaries, paid in
Taiwanese dollars, be paid to his wife in Manila in
its Philippine Peso equivalent; and
Q: Kronge Konsult, Inc. (KKI) is a Philippine
corporation engaged in architectural design,
engineering, and construction work. Its principal office
is located in Makati City, but it has various
infrastructure projects in the country and abroad.
Thus, KKI employs both local and foreign workers. The
company has adopted a policy that the employees'
salaries are paid in the currency of the country where
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
A: Not taxable and no need to file tax returns. Kamilo is a
non-resident citizen who is taxable only on income from
sources within the Philippines. Compensation for services
rendered outside of the Philippines is an income from a
source without the Philippines which is not subject to the
34
QuAMTO (1987-2022)
Q: Mr. Sebastian is a Filipino seaman employed by a
Norwegian company which is engaged exclusively in
international shipping. He and his wife, who manages
their business, filed a joint income tax return for 1997
on March 15,1998. After an audit of the return, the BIR
issued on April 20, 2001 a deficiency income tax
assessment for the sum of P250,000.00, inclusive of
interest and penalty. For failure of Mr. and Mrs.
Sebastian to pay the tax within the period stated in the
notice of assessment, the BIR issued on August 19, 2001
warrants of distraint and levy to enforce collection of
the tax.
Philippine income tax. (Secs. 23 & 42, NIRC)
(e) Karen Karenina, a Filipino architect in KKl's Design
Department who reported back to KKI's Makati
office in June 2017 after KKl's project in Kuala
Lumpur, Malaysia was completed. (2018 BAR)
A: Compensation from January 1 up to the time of her
return in June 2017 is an income from a source without the
Philippines which is not taxable if received by a
nonresident citizen. (Secs. 23 & 42, NIRC) Compensation
from June 2017 to December 31, 2017 is an income from a
source within the Philippines and taxable to Karen, who is
taxable on worldwide income from the time she regained
the status of a resident citizen and accordingly, must file
returns to pay for the tax, unless she is purely
compensation income earner for which the withholding tax
on wages was correctly withheld by KKI. (Sec. 51(A)(2)(b),
NIRC)
What is the rule of income taxation with respect to Mr.
Sebastian's income in 1997 as a seaman on board the
Norwegian vessel engaged in international shipping?
Explain your answer. (2002 BAR)
A: Mr. Sebastian’s income as seaman on board the
Norwegian vessel engaged in international shipping shall
not be subjected to income tax. An individual citizen of the
Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable only on
income derived from sources within the Philippines:
provided, that a seaman who is a citizen of the Philippines
and who receives compensation for services rendered
abroad as a member of the complement of a vessel engaged
exclusively in international trade shall be treated as an
overseas contract worker. (Sec. 23(C), NIRC) Mr. Sebastian
shall be considered as an overseas contract worker. His
income as seaman, which is an income from without the
Philippines, shall not be liable for income tax in the
Philippines.
Q: Patrick is a successful businessman in the United
States and he is a sole proprietor of a supermarket
which has a gross sales of $10 million and an annual
income of $3 million. He went to the Philippines on a
visit and in a party, he saw Atty. Agaton who boasts of
being a tax expert.
Patrick asks Atty. Agaton: if he (Patrick) decides to
reacquire his Philippine citizenship under RA 9225,
establish residence in this country, and open a
supermarket in Makati City, will the BIR tax him on the
income he earns from his U.S. business? If you were
Atty. Agaton, what advice will you give Patrick? (2016
BAR)
(1) INCLUSIONS AND EXCLUSIONS FOR TAXATION ON
COMPENSATION INCOME
A: I will advise Patrick that if he reacquires his Philippine
citizenship and establish residence in the Philippines, he
shall be considered as a resident citizen subject to tax on
incomes derived from sources within or without the
Philippines. (Sec. 23(A), NIRC)
Consequently, the BIR could now tax him on his income
derived from sources without the Philippines which is the
income he earns from his U.S. business. (Bar Q&A by
Domondon, 2018)
De Minimis Benefits (2016, 2015, 2005, 1994 BAR)
Q: Mapagbigay Corporation grants all its employees
(rank and file, supervisors, and managers) 5% discount
of the purchase price of its products. During an audit
investigation, the BIR assessed the company the
corresponding tax on the amount equivalent to the
courtesy discount received by all the employees,
contending that the courtesy discount is considered as
additional compensation for the rank-and-file
employees and additional fringe benefit for the
supervisors and managers. In its defense, the company
argues that the discount given to the rank-and-file
employees is a de minimis benefit and not subject to
tax. As to its managerial employees, it contends that the
discount is nothing more than a privilege and its
availment is restricted.
Q: Ms. C, a resident citizen, bought ready-to-wear goods
from Ms. B, a non-resident citizen. If Ms. B is an alien
individual and the goods were produced in her factory
in China, is Ms. B’s income from the sale of the goods to
Ms. C taxable in the Philippines? Explain. (2015 BAR)
A: YES, assuming the sale was made in the Philippines.
Gains, profits and income from the sale of personal property
produced by the taxpayer without and sold within the
Philippines, shall be treated as derived partly from sources
within and partly from sources without the Philippines.
(Sec. 42(E), NIRC) B, being a non-resident citizen, is taxable
on income from sources within the Philippines.
Is the BIR assessment correct? Explain. (2016 BAR)
35
A: NO. The 5% discount of the purchase price of its
products, so-called “courtesy discounts” on purchases,
granted by Mapagbigay Corporation to all its employees
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
9.
(rank and file, supervisors, and managers) otherwise
known as “de minimis benefits,” furnished or offered by an
employer to his employees merely as a means of promoting
the health, goodwill, contentment, or efficiency of his
employees, are not considered as compensation subject to
income tax and consequently to withholding tax. (Sec.
2.78.1(A)(3), RR. No. 02-98, as amended)
10. Daily meal allowance for overtime work and
night/graveyard shift not exceeding 25% of the basic
minimum wage on a per region basis; and
11. Benefits received by an employee by virtue of a
collective
bargaining
agreement
(CBA)
and
productivity incentive schemes combined do not
exceed P10,000 per employee per taxable year. (RR. No.
02-98, as amended)
As such, de minimis benefits, if given to supervisors and
managerial employees, they are also exempt from the fringe
benefits tax.
Q: What are de minimis benefits and how are these
taxed? Give three (3) examples of de minimis benefits.
(2015 BAR)
Leave Credits (1996, 1991 BAR)
A: De minimis benefits are facilities and privileges
furnished or offered by an employer to his employees,
which are not considered as compensation subject to
income tax and consequently to withholding tax, if such
facilities or privileges are of relatively small value and are
offered or furnished by the employer merely as means of
promoting the health, goodwill, contentment, or efficiency
of his employees. If received by rank-and-file employees,
they are exempt from income tax on wages; if received by
supervisory or managerial employees, they are exempt
from the fringe benefits tax. (RR. No. 02-98, as amended by
RR. No. 08-2000)
Q: A, an employee of the Court of Appeals, retired upon
reaching the compulsory age of 65 years. Upon
compulsory retirement, A received the money value of
his accumulated leave credits in the amount of
P500,000.00. Is said amount subject to tax? Explain.
(1996 BAR)
A: NO. The accumulated leave credits in the amount of
P500,000.00 is not subject to tax. The monetized value of
leave credits paid to government officials and employees
shall not be subject to income tax and consequently to
withholding tax. (Sec. 2.78.1(A)(7), RR. No. 03-98, as
amended by RR No. 10- 2000)
The following shall be considered as de minimis benefits:
1.
2.
3.
4.
5.
6.
7.
8.
Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per
annum;
(2) TAXATION OF BUSINESS INCOME/INCOME FROM
PRACTICE OF PROFESSION
Monetized unused vacation leave credits of private
employees not exceeding 10 days during the year;
(3) TAXATION OF PASSIVE INCOME
(2015 BAR)
Monetized value of vacation and sick leave credits paid
to government officials and employees;
Q: BBB, Inc., a domestic corporation, enjoyed a
particularly profitable year in 2014. In June 2015, its
Board of Directors approved the distribution of cash
dividends to its stockholders. BBB, Inc. has individual
and corporate stockholders. What is the tax treatment
of the cash dividends received from BBB, Inc. by the
following stockholders: (2015 BAR)
Medical cash allowance to dependents of employees,
not exceeding P1,500 per employee per semester or
P250 per month;
Rice subsidy pf P2,000 or 1 sack of 50 kg. rice per month
amounting to not more than P2,000;
Uniform and clothing allowance not exceeding P6,000
per annum;
(a) A resident citizen
Actual medical assistance not exceeding P10,000 per
annum;
A: A final withholding tax for ten percent (10%) shall be
imposed upon the cash dividends actually or constructively
received by a resident citizen from BBB, Inc. (Sec. 24 (b)(2),
NIRC)
Employees achievement awards, e.g., for length of
service or safety achievement, which must be in the
form of a tangible personal property other than cash or
gift certificate, with an annual monetary value not
exceeding P10,000 received by the employee under an
established written plan which does not discriminate in
favor of highly paid employees;
(b) Non-resident alien engaged in trade or business
Laundry allowance not exceeding P300 per month;
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
A: A final withholding tax of twenty percent (20%) shall be
imposed upon the cash dividends actually or constructively
received by a non-resident alien engaged in trade or
business from BBB, Inc. (Sec. 25(a)(2), NIRC)
(c) Non-resident alien not engaged in trade or business
36
QuAMTO (1987-2022)
(b) Is Melissa liable to pay Value Added Tax
(VAT) on the sale of the property? If so, how
much and why? If not, why not? (2009 BAR)
A: A final withholding tax equal to twenty-five percent
(25%) of the entire income received from all sources within
the Philippines, including the cash dividends received from
BBB, Inc. (Sec. 25(b), NIRC)
A: NO. The real property sold, being in the nature of a
capital asset, is not subject to VAT. The sale is subject to VAT
only if the real property sold is held primarily for sale to
customers or held for lease in the ordinary course of trade
or business. A real property classified as a capital asset does
not include a real property held for sale or for lease, hence,
its sale is not subject to VAT. (Secs. 39 & 106, NIRC)
(4) TAXATION OF CAPITAL GAINS
Capital Gains Tax (2019, 2009, 2008 BAR)
Q: GHI, Inc. is a corporation authorized to engage in the
business of manufacturing ultra-high density
microprocessor unit packages. After its registration on
July 5, 2005, GHI, Inc. constructed buildings and
purchased machineries and equipment. As of
December 31, 2005, the total cost of the machineries
and equipment amounted to P250,000,000.00.
However, GHI, Inc. failed to commence operations. Its
factory was temporarily closed effective September 15,
2010. On October 1, 2010, it sold its machineries and
equipment to JKL Integrated for P300,000,000.00.
Thereafter, GHI, Inc. was dissolved on November 30,
2010.
Exemptions from Capital Gains Tax (2015, 2014, 1991
BAR)
Q: 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 be due on the sale of their house, Mr. H
approaches you as a friend for advice if it is possible for
the sale of their house to be exempted from capital
gains tax and the conditions, they must comply with to
avail themselves of said exemption. (2015 BAR)
(a) Is the sale of the machineries and
equipment to JKL Integrated subject to
normal corporate income tax or capital
gains tax? Explain.
A: 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:
(b) xxx (2019 BAR)
A: The sale of machineries and equipment is subject to
normal corporate income tax and not to the capital gains
tax. As explained by the Supreme Court in one case, the
capital gains tax of 6% imposed under Sec. 27(D)(5) of the
NIRC, as amended, is on the presumed gain from the sale of
a land and/or building only. (SMI-ED Philippines
Technology, Inc. vs. CIR, G.R. No. 175410, 12 Nov. 2014)
1.
2.
Q: Melissa inherited from her father a 300-squaremeter lot. At the time of her father’s death on March 14,
1995, the property was valued at P720,000.00. On
February 28, 1996, to defray the cost of the medical
expenses of her sick son, she sold the lot for
P600.000.00, on cash basis. The prevailing market
value of the property at the time of the sale was
P3.000.00 per square meter.
3.
4.
(a) Is Melissa liable to pay Value Added Tax
(VAT) on the sale of the property? If so, how
much and why? If not, why not?
The proceeds of the sale are fully utilized in acquiring
or construction new principal residence within 18
calendar months from the date of the sale or
disposition;
The historical cost or adjusted basis of the real property
sold or disposed will be carried over to the new
principal residence built or acquired;
The Commissioner has been duly notified, through a
prescribed return, within 30 days from the date of sale
or disposition of the person’s intention to avail of the
tax exemption; and
The exemption was availed only once every 10 years.
(Sec. 24(D)(2), NIRC)
Q: Hopeful Corporation obtained a loan from Generous
Bank and executed a mortgage on its real property to
secure the loan. When Hopeful Corporation failed to
pay the loan, Generous Bank extrajudicially foreclosed
the mortgage on the property and acquired the same as
the highest bidder. A month after the foreclosure,
Hopeful Corporation exercised its right of redemption
and was able to redeem the property. Is Generous Bank
liable to pay capital gains tax as a result of the
foreclosure sale? Explain. (2014 BAR)
A: NO. The real property sold, being in the nature of a
capital asset, is not subject to VAT. The sale is subject to VAT
only if the real property sold is held primarily for sale to
customers or held for lease in the ordinary course of trade
or business. A real property classified as a capital asset does
not include a real property held for sale or for lease, hence,
its sale is not subject to VAT. (Secs. 39 and 106, NIRC)
37
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
(b) Is there any income tax due on the sale? Explain.
(1994 BAR)
A: 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 forclosed property
was exercised by the mortgagor before expiration of the
redemption period, as in this case, the foreclosure is not a
taxable event. (RR No. 4–99; Supreme Transliner, Inc. v. BPI
Family Savings Bank, Inc., G.R. No. 165617, 25 Feb. 2011)
A: YES. Mr. Naval is liable to the 6% capital gains tax
imposed under the Tax Code based on the gross selling
price of P800,000.00 which is an amount higher than the
zonal value.
b) INCOME TAX ON NON-RESIDENT ALIENS ENGAGED
IN TRADE OR BUSINESS
(5) CAPITAL ASSET VS. ORDINARY ASSET
(2019, 2003, 1994 BAR)
c) INCOME TAX ON NON-RESIDENT ALIENS NOT
ENGAGED IN TRADE OR BUSINESS
Q: Distinguish a “capital asset" from an “ordinary
asset". (2003 BAR)
d) INDIVIDUAL TAXPAYERS EXEMPT FROM INCOME
TAX
A: The term “capital asset” regards all properties not
specifically excluded in the statutory definition of capital
assets, the profits or loss on the sale or the exchange of
which are treated as capital gains or capital losses.
Conversely, all those properties specifically excluded are
considered as ordinary assets and the profits or losses
realized must have to be treated as ordinary gains or
ordinary losses. Accordingly, “capital assets” includes
property held by the taxpayer whether or not connected
with his trade or business, but the term does not include any
of the following, which are consequently considered
“ordinary assets:”
1.
2.
3.
4.
(1) SENIOR CITIZENS
(2) MINIMUM WAGE EARNERS
(3) EXEMPTIONS GRANTED UNDER INTERNATIONAL
AGREEMENTS
6. INCOME TAX ON CORPORATIONS
(2019, 2017, 2015, 2014, 2011, 2009, 2005, 2001,
1994, 1990, 1987
Stock in trade of the taxpayer or other property of a
kind which would properly be included in the inventory
of the taxpayer if on hand at the close of the taxable
year;
a) INCOME TAX ON DOMESTIC CORPORATIONS AND
RESIDENT FOREIGN CORPORATIONS
Minimum Corporate Income Tax (2015, 2001 BAR)
Property held by the taxpayer primarily for sale to
customers in the ordinary course of trade or business;
Q: KKK Corp. secured its Certificate of Incorporation
from the Securities and Exchange Commission on June
3, 2013. It commenced business operations on August
12, 2013. In April 2014, Ms. J, an employee of KKK Corp.
in charge of preparing the annual income tax return of
the corporation for 2013, got confused on whether she
should prepare payment for the regular corporate
income tax or the minimum corporate income tax.
Property used in the trade or business of a character
which is subject to the allowance for depreciation
provided in Sec. 34(F) of the Tax Code; or
Real property used in trade or business of the taxpayer.
The statutory definition of “capital assets” practically
excludes from its scope, it will be noted, all property held by
the taxpayer if used in connection with his trade or
business.
(a) As Ms. J’s supervisor, what will be your advice?
A: As Ms. J’s supervisor, I will advise that KKK Corp. should
prepare payment for the regular corporate income tax and
not the minimum corporate income tax. Under the Tax
Code, minimum corporate income tax is only applicable
beginning on the fourth taxable year following the
commencement of business operation. (Sec. 27(E)(1), NIRC)
Q: In 1990, Mr. Naval bought a lot for P1,000,000.00 in
a subdivision with the intention of building his
residence on it. In 1994, he abandoned his plan to build
his residence on it because the surrounding area
became a depressed area and land values in the
subdivision went down; instead, he sold it for
P800,000.00. At the time of the sale, the zonal value was
P500,000.00.
(a) Is the land a capital asset or an ordinary asset?
Explain.
A: The land is a capital asset because it is neither for sale in
the ordinary course of business nor a property used in the
trade or business of the taxpayer. (Sec. 33, NIRC)
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
(b) What are the distinctions between regular
corporate income tax and minimum corporate
income tax? (2015 BAR)
A:
1.
38
As to taxpayer – Regular corporate income tax applies
to all corporate taxpayers, while minimum corporate
QuAMTO (1987-2022)
2.
outside the Philippine territory, the situs of the income
from its ticket sales should be considered outside the
Philippines. Hence, no income tax should be imposed
on the same.
income tax applies to domestic corporations (DCs) and
resident foreign corporations.
As to tax rate – Regular corporate income tax is 30%;
while minimum corporate income tax is 2%.
Is XYZ Air’s protest meritorious? Explain. (2019 BAR)
NOTE:
a.
A: NO. XYZ Air's protest is not meritorious. As an offline
international carrier, selling of passage tickets in the
Philippines, through a general sales agent, XYZ Air is
considered as resident foreign corporation doing business
in the Philippines. As such, it is taxable under Sec. 28(A)(1)
of the National Internal Revenue Code. (Air Canada v. CIR,
G.R. No. 169507, 11 Jan. 2016)
Effective July 1, 2020, an income tax rate of 25%
shall be imposed upon the taxable income derived
during each taxable year from all sources within
and without the Philippines by DCs.
For DCs with net taxable income not exceeding
P5,000,000 and with total assets not exceeding
P100,000,000, excluding the land on which the
particular business entity's office, plant, and
equipment are situated during the taxable year for
which the tax is imposed, shall be taxed at 20%.
(Sec. 27, NIRC, as amended by CREATE Act)
b.
3.
4.
5.
Q: Kenya International Airlines (KIA) is a foreign
corporation, organized under the laws of Kenya. It is
not licensed to do business in the Philippines. Its
commercial airplanes do not operate within Philippine
territory, or service passengers embarking from
Philippine airports. The firm is represented in the
Philippines by its general agent, Philippine Airlines
(PAL), a Philippine corporation.
From July 1, 2020 to June 30, 2023, the MCIT rate
imposable upon DCs and RFCs shall be at 1%. (Secs.
27(E) & 28(A), NIRC, as amended by CREATE Act)
As to tax base – Regular corporate income tax is based
on the net taxable income, while minimum corporate
income tax is based on gross income.
KIA sells airplane tickets through PAL, and these
tickets are serviced by KIA airplanes outside the
Philippines. The total sales of airline tickets transacted
by PAL for KIA in 1997 amounted to P2,968,156.00. The
Commissioner of Internal Revenue assessed KIA
deficiency income taxes at the rate of 35% on its
taxable income, finding that KIA’s airline ticket sales
constituted income derived from sources within the
Philippines.
As to period of applicability – Regular corporate
income tax is applicable beginning on the fourth
taxable year following the commencement of business
operation, while minimum corporate income tax is
applicable beginning on the fourth taxable year
following the commencement of business operation.
As to imposition – The minimum corporate income tax
is imposed whenever it is greater than the regular
corporate income tax of the corporation. (Sec. 27(A) &
(E), NIRC; RR. No. 09-98)
KIA filed a protest on the ground that the
P2,968,156.00 should be considered as income derived
exclusively from sources outside the Philippines since
KIA only serviced passengers outside Philippine
territory.
Off-line International Carriers (2019, 2009, 2005, 1994,
1990, 1987 BAR)
Q: XYZ Air, a 100% foreign-owned airline company
based and registered in Netherlands, is engaged in the
international airline business and is a member
signatory of the International Air Transport
Association. It’s commercial airplanes neither operate
within the Philippine territory nor as its service
passengers embarking from Philippine airports.
Nevertheless, XYZ Air is able to sell its airplane tickets
in the Philippines through ABC Agency, it’s general
agent in the Philippines. As XYZ Air’s ticket sales, sold
through ABC Agency for the year 2013, amounted to
5,000,000. 00, the Bureau of Internal Revenue (BIR)
assessed XYZ Air deficiency income taxes on the ground
that the income from the said sales constituted income
derived from sources within the Philippines.
Is the position of KIA tenable? Reasons. (2009 BAR)
A: KIA’s position is not tenable. The revenue it derived in
1997 from sales of airplane tickets in the Philippines,
through its agent PAL, is considered as income from within
the Philippines, subject to the 35% tax based on its taxable
income pursuant to the Tax Code. The transacting of
business in the Philippines through its local sales agent,
makes KIA a resident foreign corporation despite the
absence of landing rights, thus, it is taxable on income
derived from within. The source of an income is the
property, activity or service that produced the income. In
the instant case, it is the sale of tickets in the Philippines
which is the activity that produced the income. KIA’s
income being derived from within, is subject to Philippine
income tax. (CIR v. British Overseas Airways Corporation,
G.R. No. L-65773-74, 30 Apr. 1987)
Aggrieved, XYZ Air filed a protest, arguing that, as a
non-resident foreign corporation, it should only be
taxed for income derived from sources within the
Philippines. However, since it only serviced passengers
39
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
D) interests derived from its dollar deposits in a
Philippine bank under the Expanded Foreign
Currency Deposit System.
NOTE:
a.
Effective July 1, 2020, the tax rate for Resident Foreign
Corporations shall be at 25%. (Sec. 28, NIRC, as
amended by CREATE Act)
b.
Effective January 1, 2021, a RCIT rate of 25% shall be
imposed upon offshore banking units and regional
operating headquarters of muti-national corporations.
(Secs. 28(A)(4) and 28(A)(6)(b), NIRC, as amended by
CREATE Act)
A: B) gains it derived from sale in Australia of shares of
stock of Philex Mining Corporation, a Philippine
corporation. (UPLC Suggested Answers)
Q: Aplets Corporation is registered under the laws of
the Virgin Islands. It has extensive operations in
Southeast Asia. In the Philippines, its products are
imported and sold at a mark-up by its exclusive
distributor, Kim's Trading, Inc. The BIR compiled a
record of all the imports of Kim from Aplets and
imposed a tax on Aplets net income derived from its
exports to Kim.
(1) BRANCH PROFIT REMITTANCE TAX
(2) ITEMIZED DEDUCTIONS VS. OPTIONAL STANDARD
DEDUCTIONS
b) INCOME TAX ON NON-RESIDENT FOREIGN
CORPORATIONS
(2014, 2011 BAR)
Is the BIR correct? (2011 BAR)
A) Yes. Aplets is a non-resident foreign
corporation engaged in trade or business in the
Philippines;
B) No. The tax should have been computed on the
basis of gross revenues and not net income;
Q: Triple Star, a domestic corporation, entered into a
Management Service Contract with Single Star, a nonresident foreign corporation with no property in the
Philippines. Under the contract, Single Star shall
provide managerial services for Triple Star’s Hongkong
branch. All said services shall be performed in Hong
Kong.
C) No. Aplets is a non-resident foreign corporation
not engaged in trade or business in the
Philippines;
Is the compensation for the services of Single Star
taxable as income from sources within the Philippines?
Explain. (2014 BAR)
D) Yes. Aplets is doing business in the Philippines
through its exclusive distributor Kim's Trading.
Inc.
A: NO. The compensation for services rendered by Single
Star is an income derived from sources without the
Philippines. To be considered as income from within, the
labor or service must be performed within the Philippines.
(Sec. 42(A)(3) and (C)(3), NIRC) Since all the services
required to be performed by Single Star, a non-resident
foreign corporation, is to be performed in Hongkong, the
entire income is from sources without. (UPLC Suggested
Answers)
A: C) No. Aplets is a non-resident foreign corporation not
engaged in trade or business in the Philippines. (UPLC
Suggested Answers)
NOTE: Effective January 1, 2021, a corporate income tax of
25% shall be imposed on gross income received during each
taxable year from all sources within the Philippines by
NRFCs. (Sec. 28(B), NIRC, as amended by CREATE Act)
Q: Zygomite Minerals, Inc., a corporation registered and
holding office in Australia, not operating in the
Philippines, may be subject to Philippine income
taxation on: (2011 BAR)
c) INCOME TAX ON SPECIAL CORPORATIONS
d) EXEMPTIONS FROM TAX ON CORPORATIONS
e) PERIOD WITHIN WHICH TO FILE INCOME TAX
RETURN OF INDIVIDUALS AND CORPORATIONS
(2019, 2011 BAR)
A) gains it derived from sale in Australia of an ore
crusher it bought from the Philippines with the
proceeds converted to pesos;
Q: Differentiate between a calendar year and a fiscal
year. (2019 BAR)
B) gains it derived from sale in Australia of shares
of stock of Philex Mining Corporation, a
Philippine corporation;
A: Calendar year refers to the accounting period of twelve
(12) months ending on December 31. On the other hand,
fiscal year means an accounting period of twelve (12)
months ending on the last day of any month other than
December. (Sec. 22(Q), NIRC)
C) dividends earned from investment in a foreign
corporation that derived 40% of its gross
income from Philippine sources;
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
40
QuAMTO (1987-2022)
Is Daryl qualified for substituted filing for taxable year
2015? Explain your answer. (2017 BAR)
Q: When is the deadline for the filing of a corporation's
final adjustment return for a calendar year? How about
for a fiscal year? (2019 BAR)
A: NO. Following the relevant revenue issuance, only an
individual receiving purely compensation income,
regardless of amount, from only one employer in the
Philippines for the calendar year, the income tax of which
has been withheld correctly by the said employer, shall
qualify for substituted filing of income tax return. (RR No. 32002) Daryl, within the same calendar year, derived income
from producing short films; thus, she did not receive purely
compensation income for calendar year 2015. Accordingly,
the amount withheld from her compensation income is not
equal to the income tax due on his aggregate taxable income
during the taxable year.
A: The due date for the filing of the corporation’s final
adjusted return for calendar year is 15' day of April of the
succeeding year. When a corporation uses fiscal year, the
due date is the 15th day of the fourth month following the
close of the fiscal year. (Sec. 77, NIRC)
f) SUBSTITUTED FILING
(2019, 2017 BAR)
Q: Mr. C is employed as a Chief Executive Officer of MNO
Company, receiving an annual compensation of
P10,000,000.00, while Mr. S is a security guard in the
same company earning an annual compensation of
P200,000.00. Both of them source their income only
from their employment with MNO Company.
g) FAILURE TO FILE RETURNS
7. WITHHOLDING TAXES
(2019 BAR)
(a) At the end of the year, is Mr. C personally
required to file an annual income tax
return? Explain.
a) CONCEPT
b) CREDITABLE VS. WITHHOLDING TAXES
(2019 BAR)
A: NO, Mr. C is not required, as he is qualified for
substituted filing of income tax return under Sec. 51(A) of
the NIRC, since he is receiving purely compensation income
from one employer (MNO Company) in the Philippines for
a given calendar year; provided the employer has correctly
withheld the tax on the said compensation income.
Q: XYZ Corp. is listed as a top 20,000 Philippine
corporation by the Bureau of Internal Revenue. It
secured a loan from ABC Bank with a 6% per annum
interest. All interest payments made by XYZ Corp. to
ABC Bank is subject to a 2% creditable withholding tax.
At the same time, XYZ Corp. has a trust deposit with ABC
Bank in the amount of P100,000,000.00, which earns
2% interest per annum, but is subject to a 20% final
withholding tax on the interest income received by XYZ
Corp.
(b) How about Mr. S? Is he personally required
to file an annual income tax return?
Explain. (2019 BAR)
A: NO, Mr. S is also not required. Since the only income
earned (P200,000) during the taxable year did not exceed
the exemption threshold of P250,000 provided in the NIRC,
the employee need not file the income tax return. (Sec.
51(A)(2)(a), NIRC, as amended by TRAIN Law)
(a) Who are the withholding agents in the case of: 1. the
20% final withholding tax; and 2. the 2% creditable
withholding tax? Explain.
ALTERNATIVE ANSWER:
A:
1. The 20% final withholding tax- The Final Withholding
Tax (FWT) should be withheld and remitted to the BIR
by the withholding agent/payor corporation. (Sec.
57(A), NIRC) In this case, ABC Bank shall withhold the
FWT due on the interest income arising from the trust
deposit of XYZ Corp.
Based on the amount of annual compensation income Mr. S
received, he is considered a minimum wage earner. Being a
minimum wage earner, he is not required to file an income
tax return. (Sec. 51(A)(2)(d), NIRC)
Q: On April 30, 2015, Daryl resigned as the production
manager of 52nd Avenue, a television studio owned by
SSS Entertainment Corporation. 52nd Avenue issued to
her a Certificate of Withholding Tax on Compensation
(BIR Form No. 2316), which showed that the tax
withheld from her compensation was equal to her
income tax due for the period from January 2015 to
April 30, 2015.
A month after her resignation, Daryl put up her own
studio and started producing short films. She was able
to earn a meager income from her short films but did
not keep record of her production expenses.
2.
The 2% creditable withholding tax- The Creditable
Withholding Tax (CWT) due on the interest payments
made by XYZ Corp. to ABC Bank should be withheld by
XYZ Corp. Under the withholding tax system, whether
final creditable tax, the withholding agent is the person
who has control over the funds from which the
payment of the income is made.
(b) When is the deadline for filing a judicial claim for
refund for any excess or erroneous taxes paid in the
41
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
A: NO. Association dues collected by homeowners'
association are not subject to VAT under Sec. 109(Y) of the
NIRC as amended by TRAIN Law. (Bar Q&A by J. Dimaampao,
2020)
case of: 1. the 20% final withholding tax; and 2. the
2% creditable withholding tax? (2019 BAR)
A: The deadline for filing a judicial claim for refund for any
excess or erroneous taxes paid are as follows:
1.
The 20% final withholding tax- The judicial claim for
refund should be filed within two (2) years from the
date of actual remittance of the tax or from the last day
of the month following the close of the quarter during
which withholding was made, whichever comes first.
(Secs. 204 & 229, in relation to Sec. 58, NIRC, as amended
by TRAIN Law)
2.
The creditable withholding tax- The filing of the judicial
claim is within two (2) years from filing of the final
income tax return of the payee, or last day for its filing,
whichever comes first. It is only upon filing of the final
income tax return can it be determined with certainty
whether there is a refundable amount. (ACCRA
Investments Corp. v. CA, G.R. No. 96322, 20 Dec. 1991)
Q: Melissa inherited from her father a 300-squaremeter lot. At the time of her father’s death on March 14,
1995, the property was valued at P720,000.00. On
February 28, 1996, to defray the cost of the medical
expenses of her sick son, she sold the lot for
P600.000.00, on cash basis. The prevailing market
value of the property at the time of the sale was
P3.000.00 per square meter. Is Melissa liable to pay
Value Added Tax (VAT) on the sale of the property? If
so, how much and why? If not, why not? (2019 BAR)
A: NO, Melissa is not liable to pay the VAT because she is not
in the real estate business. A sale, of real property not in the
course of trade or business is not subject to VAT. (Secs. 105
& 109(1)(P), NIRC)
Q: On September 17, 2015, Data Realty, Inc., a realestate corporation duly organized and existing under
Philippine law, sold to Jenny Vera a condominium unit
at Freedom Residences in Malabon City with an area of
32.31 square meters for a contract price of P4,213,000.
The condominium unit had a zonal value amounting to
P2,877,000 and fair market value amounting to
P550,000.
C. VALUE-ADDED TAX (VAT)
(2019, 2017- 2012, 2010-2008 BAR)
1. CONCEPT AND ELEMENTS OF VATABLE
TRANSACTIONS
(2019, 2017, 2015, 2014, 2012, 2010, 2009, 2008 BAR)
(a) Is the transaction subject to value-added tax and
documentary stamp tax? Explain your answer.
Q: All the homeowners belonging to ABC Village
Homeowners' Association elected a new set of
members of the Board of Trustees for the Association
effective January 2019. The first thing that the Board
looked into is the need to increase the prevailing
association dues. Mr. X, one of the trustees, proposed an
increase of 100% to account for the payment of the 12%
value-added tax (VAT) on the association dues which
were being collected for services allegedly rendered "in
the course of trade or business" by ABC Village
Homeowners' Association.
A: YES. As to the VAT liability, sale of real properties held
primarily for sale to customer or held for lease in the
ordinary course of trade or business is subject to VAT [Sec.
106 (A)(1)(a), 1997 NIRC, as amended]; further, the
contract price, which is the highest compared to the zonal
value and the fair market value, is beyond the transactional
threshold amount for residential dwellings thereby making
the sale transaction VATable. As to the DST liability, all
deeds of sale and conveyances of real property are likewise
subject to DST [Sec. 196, 1997 NIRC, as amended].
(a) What constitutes transactions done "in the course
of trade or business" for purposes of applying VAT?
(b) Would your answer be the same if the property was
sold by a bank in a foreclosure sale? Explain your
answer. (2017 BAR)
A: "In the course of trade or business" means the regular
conduct or pursuit of a commercial or an economic activity,
including · transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is
a nonstock, nonprofit private organization (irrespective of
the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government
entity. (Sec. 105, NIRC, as amended; Bar Q&A by J.
Dimaampao, 2020)
A: NO, the sale made by the bank is exempt from VAT. Banks
are exempt from VAT because they are subject to
percentage tax under Title V of the NIRC. (Sec. 109, in
relation to Sec. 121, NIRC, as amended) The sale, however,
will still be subject to DST because conveyances of real
property are generally subject to DST. (Sec. 196, NIRC)
Q: In June 2013, DDD Corp., a domestic corporation
engaged in the business of leasing real properties in the
Philippines, entered into a lease agreement of a
residential house and lot with EEE, Inc., a non-resident
foreign corporation. The residential house and lot will
(b) Is Mr. X correct in stating that the association dues
are subject to VAT? Explain. (2019 BAR)
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be used by officials of EEE, Inc. during the visit to the
Philippines. The lease agreement was signed by
representatives from DDD Corp. and EEE, Inc. in
Singapore. DDD Corp did not subject the said lease to
VAT believing that it was not a domestic service
contract.
undertaken incidental to the pursuit of a commercial or
economic activity are considered as entered into in the
course of trade or business. (Sec. 105, NIRC) A sale of a fully
depreciated vehicle that has been used in business is
subject to VAT as an incidental transaction, although such
sale may be considered isolated. (Mindanao II Geothermal
Partnership v. CIR, G.R. Nos. 193301 &. 194637, 11 Mar.
2013)
Was DDD Corp. correct? Explain. (2015 BAR)
Q: The Bureau of Internal Revenue (BIR) issued
Revenue Memorandum Circular (RMC) No. 65- 2012
imposing Value-Added Tax (VAT) on association dues
and membership fees collected by condominium
corporations from its member condominium-unit
owners. The RMC’s validity is challenged before the
Supreme Court (SC) by the condominium corporations.
The Solicitor General, counsel for BIR, claims that
association dues, membership fees, and other
assessment/charges collected by a condominium
corporation are subject to VAT since they constitute
income payments or compensation for the beneficial
services it provides to its members and tenants. On the
other hand, the lawyer of the condominium
corporations argues that such dues and fees are merely
held in trust by the condominium corporations
exclusively for their members and used solely for
administrative expenses in implementing the
condominium corporations’ purposes. Accordingly, the
condominium corporations do not actually render
services for a fee subject to VAT.
A: DDD Corp. is not correct. Lease of properties shall be
subject to VAT irrespective of the place where the contract
of lease was executed if the property is leased or used in the
Philippines. (Sec. 108(A), NIRC)
Q: Which of the following transactions is subject to
Value-Added Tax (VAT)? (2014 BAR)
A) Sale of shares of stock-listed and traded
through the local stock exchange;
B) Importation of personal and household effects
belonging to residents of the Philippines
returning from abroad subject to custom duties
under the Tariff and Customs Code;
C) Services rendered by individuals pursuant to
an employer-employee relationship;
D) Gross receipts from lending activities by credit
or multi-purpose cooperatives duly registered
with the Cooperative Development Authority.
Whose argument is correct? Decide. (2014 BAR)
A: B) Importation of personal and household effects
belonging to residents of the Philippines returning from
abroad subject to custom duties under the Tariff and
Customs Code (exempt from VAT only if exempt from
customs duties). (Sec. 109(1)(C), NIRC)
A: The lawyer of the condominium corporations is correct.
The association dues, membership fees, and other
assessments/charges do not constitute income payments
because they were collected for the benefit of the unit
owners and the condominium corporation is not created as
a business entity. The collection is the money of the unit
owners pooled together and will be spent exclusively for the
purpose of maintaining and preserving the building and its
premises which they themselves own and possess. (First eBank Tower Condominium Corp., v. BIR, Special Civil Action
No. 12-1236, RTC Br. 146, Makati City)
ALTERNATIVE ANSWER:
NOTE: Condominium association dues are no longer
subject to VAT under the TRAIN Law.
Q: Masarap Kumain, Inc. (MKI) is a Value-Added Tax
(VAT)-registered company which has been engaged in
the catering business for the past 10 years. It has
invested a substantial portion of its capital on flat
wares, table linens, plates, chairs, catering equipment,
and delivery vans. MKI sold its first delivery van,
already 10 years old and idle, to Magpapala Gravel and
Sand Corp. (MGSC), a corporation engaged in the
business of buying and selling gravel and sand. The
selling price of the delivery van was way below its
acquisition cost.
In the case of Office Metro Philippines, Inc. (formerly Regus
Centres, Inc.) v. CIR (CTA Case No. 8382, 07 Mar. 2016), the
Court only dealt with the EWT issue as the VAT issue was
not raised. However, the CTA held that in the payment of
association dues to a condominium corporation, these dues
are merely held in trust and used solely for administrative
expenses from which does not realize any gain or profit. The
BIR, on the other hand, views these payments as income or
compensation for beneficial services.
Is the sale of the delivery van by MKI to MGSC subject to
VAT? (2014 BAR)
A: YES, the sale of the delivery van is subject to VAT being a
transaction incidental to the catering business which is a
VAT-registered activity of MKI. Transactions that are
However, a perusal of Sec. 105 shows that transactions in
the course of a trade or business (sells, barters, exchanges,
leases goods or properties, renders services, imports
43
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TAXATION LAW
Center to prevent car bombs from ramming the
ADB gates along ADB Avenue in Mandaluyong City.
goods) are those subject to VAT. In the case of a
condominium corporation, the function of the entity is
merely for administrative purposes and not a trade or
business. Thus, payments in the form of association dues
should not be subjected to VAT.
A: The transaction is subject to VAT at the rate of zero
percent (0%). ADB is exempt from direct and indirect taxes
under a special law, thereby making the sale of services to
it by a VAT-registered construction company, effectively
zero-rated. (Sec. 108(B)(3), NIRC)
Q: Under the VAT system, there is no cascading because
the tax itself is not again being taxed. However, in
determining the tax base on sale of taxable goods under
the VAT system: (BAR 2012)
(b) Center operated by a domestic enterprise in Makati
that handles exclusively the reservations of a hotel
chain which are all located in North America. The
services are paid for in US$ and duly accounted for
with the Bangko Sentral ng Pilipinas.
A) The professional tax paid by the professional is
included in gross receipts;
B) The other percentage tax (e.g., gross receipts
tax) paid by the taxpayer is included in gross
selling price;
C) The excise tax paid by the taxpayer before
withdrawal of the goods from the place of
production or from customs custody is included
in the gross selling price;
D) The documentary stamp tax paid by the
taxpayer is included in the gross selling price or
gross receipts.
A: The sale of services is subject to VAT at zero percent
(0%). Zero-rated sale of services includes services rendered
to a person engaged in business outside the Philippines and
the consideration is paid in acceptable foreign currency
duly accounted for by the Bangko Sentral ng Pilipinas. (Sec.
108(B)(2), NIRC)
(c) Sale of orchids by a flower shop which raises its
flowers in Tagaytay. (2010 BAR)
A: C) The excise tax paid by the taxpayer before withdrawal
of the goods from the place of production or from customs
custody is included in the gross selling price. (Sec. 106, NIRC;
RR No. 16-2005)
A: The sale of orchids is subject to VAT at 12%. This is a sale
of agricultural non-food product in its original state which
is no longer one of the exempt transactions. (Sec. 109, NIRC,
as amended).
Q: Which statement is FALSE under the VAT law? (2012
BAR)
Q: Emiliano Paupahan is engaged in the business of
leasing out several residential apartment units he
owns. The monthly rental for each unit ranges from
P8,000.00 to PI0,000.00. His gross rental income for
one year is PI,650,000.00. He consults you on whether
it is necessary for him to register as a VAT taxpayer.
A) A VAT-registered person will be subject to VAT
for his taxable transactions, regardless of his
gross sales or receipts;
B) A person engaged in trade or business selling
taxable goods or services must register as a
VAT person, when his gross sales or receipts for
the year 2011 exceed P3 Million;
What legal advice will you give him, and why? (4%)
(2009 BAR)
A: I will advise Emiliano that he is not required to register
as a VAT taxpayer. His transactions of leasing residential
units for an amount not exceeding P10,000.00 per unit per
month are exempt from VAT irrespective of the aggregate
amount of rentals received annually. (Sec. 109(1)(Q), NIRC)
C) A person who issued a VAT-registered invoice
or receipt for a VAT-exempt transaction is
liable to the 12% VAT as a penalty for the wrong
issuance thereof;
D) Once a doctor of medicine exercises his
profession during the year, he needs to register
as a VAT person and to issue VAT receipts for
professional fees received.
Q: Greenhills Condominium Corporation incorporated
in 2001 is a non-stock, non-profit association of unit
owner in Greenhills Tower, San Juan City. To be able to
reduce the association dues being collected from the
unit owners, the Board of Directors of the corporation
agreed to lease part of the ground floor of the
condominium building to DEF Saving Bank for
P120,000 a month or P1.44 million for the year, starting
January 2007.
A: D) Once a Doctor of Medicine exercises his profession
during the year, he needs to register as a VAT person and to
issue VAT receipts for professional fees received. (Sec.
236(G)(1)(b), NIRC)
Q: Are the following transactions subject to VAT? If yes,
what is the applicable rate for each transaction. State
the relevant authority/ies for your answer.
Is the non-stock, non-profit association liable for value
added tax in 2007? If your answer is in the negative, is
it liable for another kind of business tax? (2008 BAR)
(a) Construction by XYZ Construction Co. of concrete
barriers for the Asian Development Bank in Ortigas
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for the VAT zero-rating of its sale of services to HP
International. However, the BIR denies SMZ, Inc.’s
application on the ground that HP International
already enjoys income tax holiday.
A: NO. Since the association’s annual gross receipts do not
exceed P3 million, it is exempt from the VAT. (Sec. 109(V),
NIRC) It is, however, liable to the 3% percentage tax which
is imposed on persons exempt from value-added tax on
account of failure to reach the P3 million threshold. (Sec.
116, NIRC)
Is the BIR correct in denying SMZ, Inc.’s application?
Explain your answer. (2017 BAR)
A: NO. All sales of goods, properties, and services made by
a VAT-registered supplier from the Customs Territory to an
ecozone enterprise shall be subject to VAT, at zero percent
(0%) rate, regardless of the latter’s type or class of PEZA
registration. (Coral Bay Nickel Corporation v. CIR, G.R. No.
190506, 13 June 2016) Moreover, under Sec. 108 (B)(3) of
the 1997 NIRC, as amended, services rendered to persons
or entities whose exemption under special laws effectively
subjects the supply of such services to zero percent (0%)
rate are considered zero-rated. Considering the law does
not provide for any additional qualification or
disqualification, the BIR cannot deny the application on the
ground that HP International already enjoys income tax
holiday. An administrative agency may not enlarge, alter, or
restrict a provision of law. It cannot add to the requirements
provided by law. To do so constitutes lawmaking, which is
generally reserved for Congress. (Soriano v. SOF, G.R. Nos.
184450, 184508, 184538 & 185234, 24 Jan. 2017)
2. IMPACT AND INCIDENCE OF TAX
3. DESTINATION PRINCIPLE AND CROSS-BORDER
DOCTRINE
4. IMPOSITION OF VAT ON TRANSFER OF GOODS BY
TAX EXEMPT PERSONS
5. TRANSACTIONS DEEMED SALE SUBJECT TO VAT
6. ZERO-RATED AND EFFECTIVELY ZERO-RATED
SALES OF GOODS OR PROPERTIES
(2019, 2017, 2013, 2012 BAR)
Q: For purposes of value-added tax, define, explain or
distinguish the following terms:
ALTERNATIVE ANSWER:
(a) xxx
(b) Zero-rated
and
transactions
effectively
The BIR is wrong. Under Sec 108(B)(3) of the NIRC, the sale
is effectively zero-rated and there is no need to file an
application for zero-rating with the BIR. The BIR in pointing
out that HP International enjoys income tax holiday is of no
moment, because a sale of services to an ecozone enterprise
by a supplier from the customs territory is considered as an
effectively zero-rated sale of service in view of the
exemption enjoyed by the PEZA enterprise from indirect
taxes.
zero-rated
(c) xxx (2019 BAR)
A: A zero-rated sale of goods or properties covering export
sale and effectively zero-rated sale is a taxable transaction
for VAT purposes, although the VAT rate applied is zero
percent (0%). In other words, a sale by a VAT-registered
taxpayer of goods and/or services taxed at 0% shall not
result in any output tax.
Q: XYZ Law Offices, a law partnership in the Philippines
and a VAT registered taxpayer, received a query by email from Gainsburg Corporation, a corporation
organized under the laws of Delaware, but the e-mail
came from California where Gainsburg has an office.
Gainsburg has no office in the Philippines and does no
business in the Philippines. XYZ Law Offices rendered
its opinion on the query and billed Gainsburg US$1,000
for the opinion. Gainsburg remitted its payment
through Citibank which converted the remitted
US$1,000 to pesos and deposited the converted amount
in the XYZ Law Offices account.
On the other hand, an effectively zero-rated transaction
does not cover export sales. It includes local sale of goods or
supply of services by a VAT-registered person or persons or
entities • who were granted tax exemption under special
laws or international agreement to which the Philippines is
a signatory. (CIR v. Seagate Technology Phils., G.R. No.
153866, 11 Feb. 2005; Bar Q&A by J. Dimaampao, 2020)
Q: SMZ, Inc., is a VAT-registered enterprise engaged in
the general construction business. HP International
contracts the services of SMZ, Inc. to construct HP
International’s factory building located in the Laguna
Techno Park, a special economic zone. HP International
is registered with the Philippine Economic Zone
Authority (PEZA) as an ecozone export enterprise, and,
as such, enjoys income tax holiday pursuant to the
Special Economic Zone Act of 1995. SMZ, Inc., files an
application with the Bureau of Internal Revenue (BIR)
What are the tax implications of the payment to XYZ
Law Offices in terms of VAT and income taxes? (2013
BAR)
A: The payment to XYZ Law Offices by Gainsburg
Corporation is subject to VAT and income tax in the
Philippines. For VAT purposes, the transaction is a zero45
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
that is primarily due from the contractor and is
therefore not covered by the Host Agreement. The WHO
argues that the VAT is deemed an indirect tax as PCC
can shift the tax burden to it.
rated sale of services where the output tax is zero percent
and XYZ is entitled to claim as refund or tax credit certificate
the input taxes attributable to the zero-rated sale. The
services were rendered to a nonresident person, engaged in
business outside the Philippines, which services are paid for
in foreign currency inwardly remitted through the banking
system, thereby making the sale of services subject to tax at
zero-rate. (Sec. 108(B)(2), NIRC) For income tax purposes,
the compensation for services is part of the gross income of
the law partnership. From its total gross income derived
within and without, it has to compute its net income in the
same manner as a corporation. The net income of the
partnership whether distributed or not will be declared by
the partners as part of their gross income who are to pay
the income tax thereon in their individual capacity. (Sec. 26,
NIRC)
Is the BIR correct? Explain. (2016 BAR)
A: The immunity of WHO from indirect taxes extends to the
contractor by treating the sale of service as effectively zerorated when the law provided that, “services rendered to
persons or entities whose exemption under special laws or
international agreements to which the Philippines is a
signatory effectively subjects the supply of such service to
zero percent (0%) rate”. (Sec. 108(B)(3), NIRC) Accordingly,
the BIR is wrong in assessing the 12% VAT from the
contractor, Precision Construction Corporation.
Q: Except for one transaction, the rest are exempt from
value added tax. Which one is VAT taxable? (BAR 2012)
Q: Claim for tax credit or refund of excess input tax is
available only to: (2012 BAR)
A) Sales of chicken by a restaurant owner who did
not register as a VAT person and whose gross
annual sales is P1.2 Million;
A) A VAT-registered person whose sales are made
to embassies of foreign governments and
United Nations agencies located in the
Philippines without the BIR approval of the
application for zero-rating;
B) Sales of copra by a copra dealer to a coconut oil
manufacturer who did not register as a VAT
person and whose gross annual sales is P5
Million;
B) Any person who has excess input tax arising
from local purchases of taxable goods and
services;
C) Gross receipts of CPA during the year amounted
to P1 Million; the CPA registered as a VAT
person in January 2011, before practicing his
profession;
C) A VAT-registered person whose sales are made
to clients in the Philippines;
D) Sales of a book store during the year amounted
to P10 Million; it did not register as a VAT
person with the BIR.
D) A VAT-registered person whose sales are made
to customers outside the Philippines and who
issued VAT invoices or receipts with the words
"ZERO RATED SALES" imprinted on the sales
invoices or receipts.
A: C) Gross receipts of CPA during the year amounted to P1
Million; the CPA registered as a VAT person in January
2011, before practicing his profession Sec. 108 of the NIRC.
A: D) A VAT-registered person whose sales are made to
customers outside the Philippines and who issued VAT
invoices or receipts with the words "ZERO RATED SALES"
imprinted on the sales invoices or receipts. (KepcoPhils.
Corp. v. CIR, G.R. No. 179961, 31 Jan. 2011)
Q: A lessor or real property is exempt from value added
tax in one of the transactions below. Which one is it?
(2012 BAR)
A) Lessor leases commercial stalls located in the
Greenhills Commercial Center to VATregistered sellers of cell phones; lessor’s gross
rental during the year amounted to P12 Million;
7. VAT-EXEMPT TRANSACTIONS
(2016, 2012 BAR)
Q: Pursuant to Sec. 11 of the “Host Agreement between
the United Nations and the Philippine government, it
was provided that the World Health Organization
(WHO), “its assets, income and other properties shall
be: exempt from all direct and indirect taxes.” Precision
Construction Corporation (PCC) was hired to construct
the WHO Medical Center in Manila. Upon completion of
the building, the BIR assessed a 12% VAT on the gross
receipts of PCC derived from the construction of the
WHO building. The BIR contends that the 12% VAT is
not a direct nor an indirect tax on the WHO but a tax
UNIVERSITY OF SANTO TOMAS
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B) Lessor leases residential apartment units to
individual tenants for P10,000.00 per month
per unit; his gross rental income during the
year amounted to P2 Million;
C) Lessor leases commercial stalls at P10,000.00
per stall per month and residential units at
P15,000.00 per unit per month; his gross rental
income during the year amounted to P3 Million;
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D) Lessor leases two (2) residential houses and
lots at P50,000.00 per month per unit, but he
registered as a VAT person.
A: C) Importation of wines by a wine dealer with a fair
market value of P2 million for sale to hotels in Makati City
(Secs. 107 & 109, NIRC)
A: B) Lessor leases residential apartment units to individual
tenants for P10,000.00 per month per unit; his gross rental
income during the year amounted to P2 Million. (Sec.
109(Q), NIRC)
ALTERNATIVE ANSWER:
D) may also be a correct choice because only importation of
books is exempt from VAT. The importation of school
supplies is not exempt.
Q: IBP Bank extended loans to debtors during the year,
with real properties of the debtors being used as
collateral to secure the loans. When the debtors failed
to pay the unpaid principal and interests after several
demand letters, the bank foreclosed the same and
entered into contracts of lease with tenants. The bank
is subject to the tax as follows: (BAR 2012)
Q: Which statement is correct? A bar review center
owned and operated by lawyers is: (2012 BAR)
A) Exempt from VAT, regardless of its gross
receipts during the year because it is an
educational center;
B) Exempt from VAT, provided that its annual
gross receipts do not exceed P3 Million in 2011;
C) Subject to VAT, regardless of its gross receipts
during the year;
D) Subject to VAT, if it is duly accredited by TESDA.
A) 12% VAT on the rental income, but exempt
from the 7% gross receipts tax;
B) 7% gross receipts tax on the rental income, but
exempt from VAT;
C) Liable to both the 12% VAT and 7% gross
receipts tax;
D) Exempt from both the 12% VAT and 7% gross
receipts tax.
A: B) Exempt from VAT, provided that its annual gross
receipts do not exceed P1.5 million in 2011. (Sec. 109(V),
NIRC)
A: B) 7% gross receipts tax on the rental income, but
exempt from VAT. (Sec. 121, NIRC.)
8. INPUT AND OUTPUT TAX
(2019, 2012 BAR)
Q: Which transaction below is subject to VAT? (BAR
2012)
Q: For purposes of value-added tax, define, explain or
distinguish the following terms:
A) Sale of vegetables by a farmer in Baguio City to
a vegetable dealer;
B) Sale of vegetables by a vegetable dealer in
Baguio City to another vegetable dealer in
Quezon City;
C) Sale of vegetables by the QC vegetable dealer to
a restaurant in Manila;
D) Sale of vegetables by the restaurant operator to
its customers.
(a) Input and output tax
(b) xxx
(c) xxx (2019 BAR)
A: Input tax means the value-added tax due from or paid by
a VAT-registered person in the course of his trade or
business on importation of goods or local purchase of goods
or services, including lease or use of properties from a VATregistered person. It includes transitional input tax and
presumptive input tax.
A: D) Sale of vegetables by the restaurant operator to its
customers. (Sec. 109, NIRC)
Q: Which importation in 2011 is subject to VAT? (BAR
2012)
In contrast, output tax means the value-added tax due on
the sale or lease of taxable goods, properties or services by
a VAT-registered or VAT-registrable seller. (Bar Q&A by J.
Dimaampao, 2020)
A) Importation of fuels by a person engaged in
international shipping worth P20 Million;
B) Importation of raw, unprocessed, refrigerated
Kobe beef from Japan by a beef dealer for sale
to hotels in Makati City with a fair market value
of P10 Million;
C) Importation of wines by a wine dealer with a
fair market value of P2 million for sale to hotels
in Makati City;
D) Importation of books worth P5 Million and
school supplies worth P1.2 million.
Q: Input tax is available to a VAT-registered buyer,
provided that:
A) The seller is a VAT-registered person;
B) The seller issues a VAT invoice or official
receipt, which separately indicates the VAT
component;
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UNIVERSITY OF SANTO TOMAS
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TAXATION LAW
A: NO. BIR’s contention is not meritorious. The taxpayer
here had only until May 10, 2013 within which to file its
judicial claim for refund pursuant to Sec. 229 of the NIRC.
The provision requires that the judicial claim be filed before
the expiration of the 2-year prescriptive period, without
having to wait for the BIR’s decision on the earlier filed
administrative claim for refund. Thus, the taxpayer was
only complying with the provisions of the NIRC when it filed
a petition for review one week after filing its administrative
claim for refund. (UPLC Suggested Answers)
C) The goods or service is subject to or exempt
from VAT, but the sale is covered by a VAT
invoice or receipt issued by VAT-registered
person;
D) The name and TIN of the buyer is not stated or
shown in the VAT invoice or receipt.
Which statement shown above is NOT correct? (2012
BAR)
A: B) The seller issues a VAT invoice or official receipt,
which separately indicates the VAT component. (Sec.
113(B), NIRC)
(b) Assuming that the claim for refund filed by W Corp.
is for excess and/or unutilized input VAT for the
second quarter of 2011, and for which the return
was timely filed on July 25, 2011, would your
answer be the same? Explain.
Q: For 2012, input tax is not available as a credit against
the output tax of the buyer of taxable goods or services
during the quarter, if: (BAR 2012)
A: NO. The answer would be different. Since the present
refund case happened prior to the effectivity of the TRAIN
Law, the pronouncement made by the SC in the case of CIR
v. Aichi Forging Company (G.R. No. 184823, 06 Oct. 2010) in
2013 shall apply, that is, the observance of the 120+30 days
period is mandatory and jurisdictional. Thus, counting 120
days from May 3, 2013, the last day for the CIR to act on the
claim for refund fell on August 31, 2013. Only after the
expiration of such 120-day period, and within the 30-day
period, thereafter, may T Corp. appeal such inaction, which
is a “deemed denial” before the CTA. (UPLC Suggested
Answers)
A) The VAT invoice or receipt of the seller is
registered with the BIR;
B) The VAT invoice or receipt of the seller does not
separately indicate the gross selling price or
gross receipts and the VAT component therein;
C) The VAT invoice or receipt is issued in the name
of the VAT-registered buyer and his TIN is
shown in said invoice or receipt;
D) The VAT invoice or receipt issued by the seller
shows the Taxpayer Identification Number plus
the word "VAT" or "VAT registered person".
NOTE: The mandatory period shall be 90 days (from 120
days) upon the effectivity of TRAIN Law.
A: B) The VAT invoice or receipt of the seller does not
separately indicate the gross selling price or gross receipts
and the VAT component therein. (Sec. 113, NIRC)
Q: Explain the procedure for claiming refunds or tax
credits of input Value Added Tax (VAT) for zero-rated
or effectively zero-rated sales under Sec. 112 of the
National Internal Revenue Code (NIRC) from the filing
of an application with the CIR up to the CTA. (2016 BAR)
9. TAX REFUND OR TAX CREDIT
(2019, 2016, 2015, 2014 BAR)
A: In order to be entitled to a refund/tax credit of excess
input VAT attributable to zero-rated or effectively zerorated sales, the following requisites must be complied with:
Q: On May 10, 2011, the final withholding tax for certain
income payments to W Corp. was withheld and
remitted to the BIR and the corresponding return
therefor was concomitantly filed on the same date.
Upon discovering that the amount withheld was
excessive, W Corp. filed with the BIR a claim for refund
for erroneously withheld and collected final
withholding income tax on May 3, 2013. A week after,
and without waiting for any decision from the CIR, W
Corp. filed a petition for review before the CTA to make
sure that the petition was filed within the 2-year period
for claiming refunds. In resisting the claim, the BIR
contended that the claim must be dismissed by the CTA
on the ground of non-exhaustion of administrative
remedies because it did not give the CIR the
opportunity to act on the claim of refund. (2019 BAR)
The claim for refund must be filed with the
Commissioner within 2 years counted from the last day
of the quarter when the zero-rated sale was made (Sec.
112, NIRC);
2.
The claim for refund must be accompanied by a
statement under oath that all documents to support the
claim has been submitted at the time of filing of the
claim for refund (RMC 54-14);
The Commissioner must decide on the claim within 120
days from date of filing and the adverse decision is
appealable to the CTA within 30 days from receipt (Sec.
112, NIRC; CIR v. Aichi Forging of Asia, Inc., G.R. No.
184823, 06 Oct. 2010); and
3.
(a) Is the BIR’s contention meritorious? Explain.
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
1.
48
QuAMTO (1987-2022)
4.
MMM, Inc. filed its Quarterly VAT Returns for 2000.
Subsequently, MMM, Inc. timely filed with the BIR an
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 Sec. 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. 795 should not prevail over a taxpayer’s substantive
right to claim tax refund or credit.
If no decision is made within the 120-day period, there
is a deemed denial or adverse decision which is
appealable to the CTA within 30 days from the lapse of
the 120-day period. (Sec. 112, NIRC; Sec. 7(a)(1), R.A.
1125, as amended)
NOTE: The mandatory period shall be 90 days (from 120
days) upon the effectivity of TRAIN Law.
Q: For calendar year 2011, FFF, Inc., a VAT-registered
corporation, reported unutilized excess input VAT in
the amount of P1,000,000.00 attributable to its zerorated sales. Hoping to impress his boss, Mr. G, the
accountant of FFF, Inc., filed with the Bureau of Internal
Revenue (BIR) on January31, 2013 a claim for tax
refund/credit of the P1,000,000.00 unutilized excess
input VAT of FFF, Inc. for 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) Rule on the appeal of MMM, Inc.
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 substantive 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 NIRC. Such rules and regulations are given weight and
respect 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 entitlement
to the claim, but also compliance with all the documentary
and evidentiary requirements. Consequently, the 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. 163835, 07 July 2010)
Discuss the proper procedure and applicable time
periods for administrative and judicial claims for
refund/credit of unutilized excess input VAT. (2015
BAR)
A: The administrative claim must be filed the Commissioner
of Internal Revenue (CIR) within the two years from the
close of the taxable quarter when the zero-rated sales were
made. The CIR has 90 days from the date of submission of
complete documents in support of the claim to decide. If the
CIR decides within the 90-day period or the 90-day period
expires without the CIR rendering a decision, the taxpayer
has 30 days to file a petition for review with the CTA
reckoned from the receipt of adverse decision or from the
lapse of the 120-day period. As a general rule, the 30-day
period to appeal is both mandatory and jurisdictional. As an
exception to the general rule, premature filing is allowed
only if filed between December 10, 2003 and October 5,
2010, when BIR Ruling No. DA-489-03 was still in force
prior to the reversal of the aforesaid ruling by the CTA in the
Aichi case on October 6, 2010. (CIR v. Mindanao II
Geothermal Partnership, 713 SCRA 645 [2014])
(b) Will your answer in (a) be any different if MMM, Inc.
was claiming refund of excess input VAT
attributable to its effectively zero-rated sales in
2012? (2015 BAR)
A: NO, my answer will not be different if the claim for refund
is for effectively zero-rated sales in 2012. The requirement
to print the word “zero-rated” is no longer by mere
regulations but is now clearly provided by law as follows –
“If the sale is subject to zero percent (0%) value-added tax,
the term “zero-rated sale” shall be written or printed
prominently on the invoice or receipt. Failure to comply
with this invoicing requirement is fatal to a claim for refund
of input taxes attributable to the zero-rated sale. (Sec.
113(B)(2)(c), NIRC)
NOTE: The mandatory period shall be 90 days (from 120
days) upon the effectivity of TRAIN Law.
Q: MMM, Inc., a domestic telecommunications company,
handles incoming telecommunications services for
non-resident
foreign
companies
by
relaying
international calls within the Philippines. To broaden
the coverage of its telecommunications services
throughout the country, MMM, Inc. entered into various
interconnection agreements with local carriers. The
non-resident foreign corporations pay MMM, Inc. in US
dollars inwardly remitted through Philippine banks, in
accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas.
Moreover, as recently ruled by the Supreme Court, the
subsequent incorporation of Sec. 4.108-1 of RR No. 7-95 in
Sec. 113 of the NIRC as introduced in R.A. No. 9337, actually
confirmed the validity of the imprinting requirement on
VAT invoices or official receipts – a case falling under the
principle of legislative approval of administrative
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TAXATION LAW
interpretation by reenactment. (Northern Mindanao Power
Corp. v. CIR, G.R. No. 185115, 18 Feb. 2015)
to the CTA is premature and the CTA has no jurisdiction to
rule thereon. (Ibid.)
NOTE: The mandatory period shall be 90 days (from 120
days) upon the effectivity of TRAIN Law.
Q: Gangwam Corporation (GC) filed its quarterly tax
returns for the calendar year 2012 as follows:
First quarter - April 25, 2012
Second quarter - July 23, 2012
Third quarter - October 25, 2012
Fourth quarter - January 27, 2013
10. FILING OF RETURNS AND PAYMENT
D. TAX REMEDIES UNDER THE NATIONAL INTERNAL
REVENUE
(2019-2017, 2014, 2013, 2009, 2008, 2006, 2002,
2000, 1999-1996, 1989 BAR)
On December 22, 2013, GC filed with the Bureau of
Internal Revenue (BIR) an administrative claim for
refund of its unutilized input Value-Added Tax (VAT)
for the calendar year 2012. After several months of
inaction by the BIR on its claim for refund, GC decided
to elevate its claim directly to the Court of Tax Appeals
(CTA) on April 22, 2014.
1. ASSESSMENT OF INTERNAL REVENUE TAXES
(2019, 2018, 2017, 2015-2008, 2006, 2005, 2002,
2000, 1999-1996, 1989, 1987 BAR)
In due time, the CTA denied the tax refund relative to
the input VAT of GC for the first quarter of 2012,
reasoning that the claim was filed beyond the two-year
period prescribed under Sec. 112(A) of the National
Internal Revenue Code (NIRC).
a) PROCEDURAL DUE PROCESS IN TAX ASSESSMENTS
(2014, 2012, 2011, 2010, 2009 BAR)
Q: When is a pre-assessment notice required under the
following cases? (2014 BAR)
(a) Is the CTA correct?
A) When the finding for any deficiency tax is the
result of mathematical error in the
computation of the tax as appearing on the face
of the return;
A: NO. CTA is not correct. The two-year period to file a claim
for refund refers to the administrative claim and does not
refer to period within which to elevate the claim to the CTA.
The filing of the administrative claim for refund was timely
done because it is made within two years from the end of
the quarter when the zero-rated transaction took place.
(Sec. 112(A), NIRC) When GC decided to elevate its claim to
the CTA on April 22, 2014, it was after the lapse of 120 days
from the filing of the claim for refund with the BIR, hence,
the appeal is seasonably filed. The rule on VAT refunds is
two years to file the claim with the BIR, plus 120 days for
the Commissioner to act and inaction after 120 days is a
deemed adverse decision on the claim, appealable to the
CTA within 30 days from the lapse of the 120-day period.
(CIR v. Aichi Forging Company of Asia, Inc., G.R. No. 184823,
Oct. 6, 2010; CIR v. San Roque, G.R. No. 187485, 12 Feb. 2013)
B) When a discrepancy has been determined
between the tax withheld and the amount
actually remitted by the withholding agent;
C) When the excise tax due on excisable articles
has been paid;
D) When an article locally purchased or imported
by an exempt person, such as, but not limited to
vehicles, capital equipment, machineries and
spare parts, has been sold, traded or
transferred to non-exempt persons.
A: A) When the excise tax due on excisable articles has been
paid. (Sec. 228, NIRC)
(b) Assuming that GC filed its claim before the CTA on
February 22, 2014, would your answer be the
same? (2014 BAR)
Q: On April 15, 2011, the Commissioner of Internal
Revenue mailed by registered mail the final
assessment notice and the demand letter covering the
calendar year 2007 with the QC Post Office.
A: YES. The two-year prescriptive period to file a claim for
refund refers to the administrative claim with the BIR and
not to the period to elevate the claim to the CTA. Hence, the
CTA cannot deny the refund for reasons that the first
quarter claim was filed beyond the two-year period
prescribed by law. However, when the claim is made before
the CTA on February 24, there is definitely no appealable
decision as yet because the 120-day period for the
Commissioner to act on the claim for refund has not yet
lapsed. Hence, the act of the taxpayer in elevating the claim
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
Which statement is correct? (2012 BAR)
A) The assessment notice is void because it was
mailed beyond the prescriptive period;
B) The assessment notice is void because it was
not received by the taxpayer within the threeyear period from the date of filing of the tax
50
QuAMTO (1987-2022)
return;
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)
C) The assessment notice is void if the taxpayer
can show that the same was received only after
one (1) month from date of mailing;
Q: A final assessment notice was issued by the BIR on
June 13, 2000, and received by the taxpayer on June 15,
2000. The taxpayer protested the assessment on July
31, 2000. The protest was initially given due course,
but was eventually denied by the Commissioner of
Internal Revenue in a decision dated June 15, 2005.
The taxpayer then filed a petition for review with the
Court of Tax Appeals (CTA), but the CTA dismissed the
same. Is the CTA correct in dismissing the petition for
review? Explain your answer. (2009 BAR)
D) The assessment notice is valid even if the
taxpayer received the same after the threeyear period from the date of filing of the tax
return.
A: D) The assessment notice is valid even if the taxpayer
received the same after the three-year period from the date
of filing of the tax return. (Sec. 203, NIRC; BPI v. CIR, G.R. No.
139736, October 17, 2005)
Q: A preliminary Assessment Notice (PAN) is NOT
required to be issued by the BIR before issuing a Final
Assessment Notice (FAN) on one of the following cases:
(2012 BAR)
A: YES. The protest was filed out of time; hence the CTA
does not acquire jurisdiction over the matter. (CIR v. Atlas
Mining and Development Corp., G.R. No. 140488, 24 Jan.
2000)
A) When a taxpayer does not pay the 2010
deficiency income tax liability on or before July
15 of the year;
b) REQUISITES OF A VALID ASSESSMENT
(2019, 2013, 2008 BAR)
Q: On October 5, 2016, the Bureau of Internal Revenue
(BIR) sent KLM Corp. a Final Assessment Notice (FAN),
stating that after its audit pursuant to a Letter of
Authority duly issued therefor, KLM Corp. had
deficiency value-added and withholding taxes.
Subsequently, a warrant of distraint and/or levy was
issued against KLM Corp. KLM Corp. opposed the
actions of the BIR on the ground that it was not
accorded due process because it did not even receive a
Preliminary Assessment Notice (PAN) after the BIR's
investigation, which the BIR admitted:
B) When the finding for any deficiency tax is the
result of mathematical error in the
computation of the tax as appearing on the face
of the return;
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.
(a) Distinguish a PAN from a FAN.
A: B) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as
appearing on the face of the return. (Sec. 228, NIRC)
A: A PAN must be replied within fifteen (15) days from
receipt while a FAN must be protested within thirty (30)
days from receipt. (RR No. 12-99; Sec. 228, NIRC, as
amended)
Q: On March 10, 2010, Continental, Inc. received a
preliminary assessment notice (PAN) dated March 1,
2010 issued by the Commissioner of Internal Revenue
(CIR) for deficiency income tax for its taxable year
2008. It failed to protest the PAN. The CIR thereupon
issued a final assessment notice (FAN) with letter of
demand on April 30, 2010. The FAN was received by the
corporation on May 10, 2010, following which or on
May 25, 2010, it filed its protest against it. 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.
The Bureau of Internal Revenue’s (BIR’s) ‘rejection of the
taxpayer’s reply to PAN needs no action, while the denial of
a protest against a FAN should be appealed by the taxpayer
to the Court of Tax Appeals (CTA) Division. (RR No. 12-99;
Sec. 228, NIRC, as amended).
(b) Are the deficiency tax assessment and warrant of
distraint and/or levy issued against KLM Corp.
valid? Explain. (2019 BAR)
Is the CIR correct? Explain. (2010 BAR)
A: The issuance of preliminary assessment notice (PAN)
does not give rise to the right of the taxpayer to protest.
51
A: NO. Both the deficiency tax assessment and the warrant
issued are invalid. The deficiency tax assessment issued
against KLM Corp. is invalid due to the absence of a
preliminary assessment notice (PAN), which is required by
law for the validity of the assessment. (Sec. 228, NIRC)
Sending a PAN to the taxpayer to inform him of the
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
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:
assessment made is but a part of the “due process
requirement in the issuance of a deficiency tax
assessment,” the absence of which renders nugatory any
assessment made by the tax authorities. (CIR v. Metro Star
Superama, Inc., G.R. No. 185371, 08 Dec. 2010)
1.
The warrant of distraint and/or levy cannot be issued to
enforce an invalid assessment. An assessment is a
preliminary step for the collection of taxes. If the
preliminary step in the collection process is invalid, the
entire collection process is also invalid which includes the
warrant issued. (UPLC Suggested Answers)
2.
3.
Q: Mr. Tiaga has been a law-abiding citizen diligently
paying his income taxes. On May 5, 2014, he was
surprised to receive an assessment notice from the
Bureau of Internal Revenue (BIR) informing him of a
deficiency tax assessment as a result of a mathematical
error in the computation of his income tax, as
appearing on the face of his income tax return for the
year 2011, which he filed on April 15, 2012. Mr. Tiaga
believes that there was no such error in the
computation of his income tax for the year 2011.
4.
There must be a preliminary assessment
previously issued, except in those instances
allowed by law (Sec. 228, NIRC);
The taxpayer must be informed in writing about
the law and facts on which the assessment is based
(Sec. 228, NIRC); and
It must be served upon the taxpayer or any of his
authorized representatives. (Estate of Juliana Diez
vda. De Gabriel v. CIR, G.R. No. 155541, 27 Jan. 2004)
(b) As tax lawyer of EDS Corporation, what legal
defense(s) would you raise against the assessment?
Explain. (2008 BAR)
A: 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.
(Sec. 228, NIRC; Reyes v. CIR, G.R. No. 163581, 27 Jan. 2006)
Based on the assessment received by Mr. Tiaga, may he
already file a protest thereon? (2014 BAR)
A: YES. Mr. Tiaga may consider the assessment notice as a
final assessment notice and his right to protest within 30
days from receipt may now be exercised by him. When the
finding of a deficiency tax is the result of mathematical
error in the computation of the tax appearing on the face of
the return, a pre-assessment notice shall not be required,
hence the assessment notice is a final assessment notice.
c) TAX DELINQUENCY VS. TAX DEFICIENCY
d) PRESCRIPTIVE PERIOD FOR ASSESSMENT
(2019, 2017, 2016, 2006, 2002, 2000, 1999, 1997,
1989 BAR)
Q: 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.
Q: After a Bureau of Internal Revenue (BIR) audit, T
Corp., a domestic corporation engaged in buying and
selling of scrap metals, was found to have deficiency
income tax of P25,000,000.00, including interests and
penalties, for the year 2012. For 2012, T Corp. filed its
income tax return (ITR) on April 15, 2013 because it
used the calendar year for its accounting. The BIR sent
the Preliminary Assessment Notice (PAN) on December
23, 2015, and eventually, the Final Assessment Notice
(FAN) on April 11, 2016, which were received by T Corp.
on the same dates that they were sent. Upon receipt of
the FAN, T Corp. filed its protest letter on June 25, 2016.
(a) What is an assessment notice? What are the
requisites of a valid assessment? Explain.
A: An assessment notice is a formal notice to the taxpayer
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, G.R. No. L-23226, 28
Nov. 1967; CIR v. Pascor Realty and Development Corp., G.R.
No. 128315, 29 June 1999) To be valid, the taxpayer must be
informed in writing of the law and the facts on which the
assessment is made. (Sec. 228, NIRC)
Thereafter, and without action from the Commissioner
of Internal Revenue (CIR), T Corp. filed a petition for
review before the CTA, alleging that the assessment has
prescribed.
For its part, the CIR moved to dismiss the case, pointing
out that the assessment had already become final
because the protest was filed beyond the allowable
period.
ALTERNATIVE ANSWER:
An assessment is a written notice and demand made by the
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
It must be made within the prescriptive period to
assess (Sec. 203, NIRC);
(a) Is T Corp.'s contention regarding the prescription
52
QuAMTO (1987-2022)
of the assessment meritorious? Explain.
must therefore be carefully and strictly construed.
(Philippine Journalists, Inc. v. CIR, G.R. No. 162852, 16 Dec.
2004)
A: NO. The three-year prescriptive period for the
assessment of tax shall start to run from the last day
prescribed by law for the filing of the return, or the day the
return was filed, whichever comes later. (Sec. 203, NIRC) In
the present case, since T. Corp. filed its annual income tax
return on April 15, 2013, which is also the last day to file
the said return, the last day to assess shall fall on April 15,
2016. By issuing the FAN on April 11, 2016, the right to
assess deficiency income tax for year 2012 has not yet
prescribed. (UPLC Suggested Answers)
(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.
(2017 BAR)
A: YES, the final assessment was issued beyond the threeyear prescriptive period to make an assessment. (Sec. 203,
NIRC, as amended) The Waiver did not extend the threeyear prescriptive period, since it was executed after the
expiration of such period. (UPLC Suggested Answers)
(b) Should the CIR's motion to dismiss be granted?
Explain. (2019 BAR)
Q: The requisites for a valid waiver of the three-year (3year) prescriptive period for the BIR to assess taxes
due in the taxable year are prescribed by Revenue
Memorandum Order No. 20-90:
A: YES. Since the taxpayer failed to file a protest against the
FAN within 30 days from date of receipt, the assessment
had become final, executory, and demandable. (Sec. 228,
NIRC; RR No. 18-13; UPLC Suggested Answers)
1. The waiver must be in the proper form prescribed
by RMO 20-90.
Q: On January 27, 2017, Ramon, the comptroller of
Vantage Point, Inc., executed a document entitled
“Waiver of the Statute of Limitations” in connection
with the BIR’s investigation of the tax liabilities of the
company for the year 2012. However, the Board of
Directors of Vantage Point, Inc., did not adopt a board
resolution authorizing Ramon to execute the waiver.
2. The waiver must be signed by the taxpayer himself
or his duly authorized representative. In the case of
a corporation, the waiver must be signed by any of
its responsible officials. In case the authority is
delegated by the taxpayer to a representative, such
delegation should be in writing and duly notarized.
On October 14, 2017, Vantage Point, Inc., received a
preliminary assessment notice from the BIR indicating
its deficiency withholding taxes for the year 2012.
Vantage Point, Inc., filed its protest. On October 30,
2017, the BIR issued a formal letter of demand and
final assessment notice. Vantage Point, Inc., again filed
a protest. The CIR denied the protest and directed the
collection of the assessed deficiency taxes.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him
must sign the waiver indicating that the BIR has
accepted and agreed to the waiver. The date of such
acceptance by the BIR should be indicated.
However, before signing the waiver, the CIR or the
revenue official authorized by him must make sure
that the waiver is in the prescribed form, duly
notarized, and executed by the taxpayer or his duly
authorized representative.
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.
5. Both the date of execution by the taxpayer and date
of acceptance by the Bureau should be before the
expiration of the period of prescription or before
the lapse of the period agreed upon in case a
subsequent agreement is executed.
(a) What constitutes a valid waiver of the statute of
limitations for the assessment and collection of
taxes? Explain your 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, G.R. No. 178087, 05 May 2010)
Such requirements must be met considering that a waiver
of the statute of limitations under the NIRC, to a certain
extent, is a derogation of the taxpayer’s right to security
against prolonged and unscrupulous investigations and
6. The waiver must be executed in three copies, the
original copy to be attached to the docket of the
case, the second copy for the taxpayer and the third
copy for the Office accepting the waiver. The fact of
receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the
taxpayer was notified of the acceptance of the BIR
and the perfection of the agreement.
After being assessed by the BIR with alleged deficiency
income taxes, VVV Corporation (VVV) through Enrique,
its President, executed a waiver of the prescriptive
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
period. The waiver was signed by Revenue District
Officer (RDO) Alfredo. However, the waiver did not
state the date of execution by the taxpayer and date of
acceptance by the BIR. Enrique was also not furnished
a copy of the waiver by the BIR.
April 15,1998. Since the assessment was issued only on
April 20, 2001, the BIR’s right to assess has already
prescribed.
(1) FALSE RETURNS VS. FRAUDULENT RETURNS VS.
NON-FILING OF RETURNS
(2018, 2009, 2002, 1998, 1996, 1989 BAR)
VVV claims that the waiver ‘is void due to noncompliance 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 by VVV was a
enunciation of its right to invoke prescription and that
the government cannot be estopped by the mistakes
committed by its revenue officers.
Q: True or False: A false return and a fraudulent return
are one and the same. (2009 BAR)
A: FALSE. There is a difference between a false return and
a fraudulent return. The first merely implies a deviation
from the truth or fact whether intentional or not, whereas
the second is intentional and deceitful with the aim of
evading the correct tax due (Aznar v. Commissioner, G.R. No.
L-20569, 23 Aug. 1974; UPLC Suggested Answers)
Is VVV liable? Explain. (2016 BAR)
Q: Distinguish a false return from a fraudulent return.
(1996 BAR)
A: NO. A waiver executed beyond the prescriptive period is
ineffective. (CIR v. The Stanley Works Sales (Phils), Inc., G.R.
No. 187589, 03 Dec. 2014) 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 VVV is
invoking prescription due to the alleged invalidity of the
waiver for failure to comply with the requisites set forth
under RMO 20-90.
A: The distinction between a false return and a fraudulent
return is that the first merely implies a deviation from the
truth or fact whether intentional or not, whereas the
second is intentional and deceitful with the sole aim of
evading the correct tax due. (Aznar vs. Commissioner, G.R.
No. L-20569, 23 Aug. 1974)
ALTERNATIVE ANSWER:
NOTE: Recent guidelines governing the execution of
Waivers of the Defense of Prescription are provided under
RMC No. 141-2019.
A false return contains deviations from the truth which
may be due to mistakes, carelessness or ignorance of the
person preparing the return. A fraudulent return contains
an intentional wrongdoing with the sole object of avoiding
the tax and it may consist in the intentional under
declaration of income, intentional over declaration of
deductions or the recurrence of both. A false return is not
necessarily tainted with fraud because the fraud
contemplated by law is actual and not constructive. Any
deviation from the truth on the other hand, whether
intentional or not, constitutes falsity. (Ibid.)
Q: Mr. Sebastian is a Filipino seaman employed by a
Norwegian company which is engaged exclusively in
international shipping. He and his wife, who manages
their business, filed a joint income tax return for 1997
on March 15, 1998. After an audit of the return, the BIR
issued on April 20, 2001 a deficiency income tax
assessment for the sum of P250,000.00, inclusive of
interest and penalty. For failure of Mr. and Mrs.
Sebastian to pay the tax within the period stated in the
notice of assessment, the BIR issued on August 19, 2001
warrants of distraint and levy to enforce collection of
the tax.
Q: The BIR Commissioner, in his relentless
enforcement of the Run After Tax Evaders (RATE)
program, filed with the Department of Justice (DOJ)
charges against a movie and television celebrity. The
Commissioner alleged that the celebrity earned
around P50 million in fees from product endorsements
in 2016 which she failed to report in her income tax
and VAT returns for said year. The celebrity
questioned the proceeding before the DOJ on the
ground that she was denied due process since the BIR
never issued any Preliminary Assessment Notice (PAN)
or a Final Assessment Notice (FAN), both of which are
required under Sec. 228 of the NIRC whenever the
Commissioner finds that proper taxes should be
assessed.
If you are the lawyer of Mr. and Mrs. Sebastian, what
possible defense or defenses will you raise in behalf of
your clients against the action of the BIR in enforcing
collection of the tax by the summary remedies of
warrants of distraints and levy? Explain your answer.
(2002 BAR)
A: I will raise the defense of prescription. The right of the
BIR to assess prescribes after three years counted from the
last day prescribed by law for the filing of the income tax
returns when the said return is filed on time. (Sec. 203,
NIRC) The last day for filing the 1997 income tax return is
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
Is the celebrity's contention tenable? (2018 BAR)
54
QuAMTO (1987-2022)
(a) May the collection of taxes be suspended? Explain
your answer.
A: NO. In cases where a fraudulent return is filed with the
intent to evade a tax, a proceeding in court for the collection
of such tax maybe filed without assessment. (Sec. 222(a),
NIRC) Assessment is not necessary before the filing of a
criminal complaint for tax evasion. (CIR v. Pascor Realty and
Development Corp., G.R. No. 128315, 29 June 1999; UPLC
Suggested Answers)
A: YES. As provided by R.A. No. 1125, as amended by R.A.
No. 9282, that when in the opinion of the Court the
collection by the aforementioned government agencies may
jeopardize the interest of the Government and/or the
taxpayer, the Court at any stage of the proceeding may
suspend the collection and require the taxpayer either to
deposit the amount claimed or to file a surety bond for not
more than double the amount with the Court.
Q: 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 paid on
December 6, 1994. The Tax Fraud Division of the BIR
investigated the case on the basis of confidential
information given by Mr. Santos on January 6, 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 correct tax. As a result, a
deficiency estate tax assessment for 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.
(b) Is the CTA Division justified in requiring
Globesmart Services, Inc., to post a surety bond as a
condition for the suspension of the deficiency tax
collection? Explain your answer. (2017 BAR)
A: NO. The Supreme Court in the Tridharma Case cited the
case of Pacquiao v. CTA (G.R. No. 213394, 06 Apr. 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. In 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.
Decide Mr. Castro’s protest. (2002 BAR)
A: The protest should be resolved against Mr. Castro. What
was filed is a fraudulent return making the prescriptive
period for assessment ten (10) years from discovery of the
fraud. (Sec. 222, NIRC) Accordingly, the assessment was
issued within the prescriptive period to make an
assessment based on a fraudulent return.
(2) SUSPENSION OF THE RUNNING OF STATUTE OF
LIMITATIONS
(2017, 2016 BAR)
2. TAXPAYER’S REMEDIES
(2018, 2017, 2014, 2012, 2009, 2008, 2005, 2002,
2000-1996, 1989, 1987 BAR)
Q: Globesmart Services, Inc. received a final assessment
notice with formal letter of demand from the BIR for
deficiency income tax, value-added tax and withholding
tax for the taxable year 2016 amounting to P48 million.
Globesmart Services, Inc., filed a protest against the
assessment, but the Commissioner of Internal Revenue
denied the protest. Hence, Globesmart Services, Inc.
filed a petition for review in the CTA with an urgent
motion to suspend the collection of tax. 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.
a) PROTESTING AN ASSESSMENT
(2014, 2012, 2009, 2008, 2005, 2000, 1999, 1997,
1992, 1987 BAR)
Q: Mr. Tiaga has been a law-abiding citizen diligently
paying his income taxes. On May 5, 2014, he was
surprised to receive an assessment notice from the
Bureau of Internal Revenue (BIR) informing him of a
deficiency tax assessment as a result of a mathematical
error in the computation of his income tax, as
appearing on the face of his income tax return for the
year 2011, which he filed on April 15, 2012. Mr. Tiaga
believes that there was no such error in the
computation of his income tax for the year 2011.
Based on the assessment received by Mr. Tiaga, may he
already file a protest thereon? (2014 BAR)
55
A: YES. Mr. Tiaga may consider the assessment notice as a
final assessment notice and his right to protest within 30
days from receipt may now be exercised by him. When the
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
introduced for examination for the first time. It
suspends the prescriptive period to collect. (UPLC
Suggested Answers)
finding of a deficiency tax is the result of mathematical
error in the computation of the tax appearing on the face of
the return, a pre-assessment notice shall not be required
hence, the assessment notice is a final assessment notice.
(Sec. 228, NIRC; RR No. 18-2013)
ALTERNATIVE ANSWER:
Q: 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.
1.
2.
3.
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 Sec. 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. Is the contention of
the BIR correct? Explain. (2014 BAR)
4.
The period of 60 days for submission of the relevant
supporting documents finds application only to a
request for reinvestigation and not to a request for
reconsideration.
The failure of the Commissioner of Internal Revenue to
act on the request for reconsideration after a period of
180 days from filing thereof authorizes the taxpayer to
file a petition for review with the CTA within a period
of 30 days from the expiration of such 180-day period
while for a request for reinvestigation the period is the
expiration of the 180-day period from the submission
of the complete supporting documents.
(a) What is an assessment notice? What are the
requisites of a valid assessment? Explain.
A: An assessment notice is a formal notice to the taxpayer
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, G.R. No. L-23226, 28
Nov. 1967; CIR v. Pascor Realty and Development Corp., G.R.
No. 128315, 29 June 1999) To be valid, the taxpayer must be
informed in writing of the law and the facts on which the
assessment is made. (Sec. 228, NIRC)
A: File an appeal to the Secretary of Justice within thirty
(30) days from receipt thereof. (Sec. 4, NIRC)
Q: What are the differences between a request for
reconsideration and a request for reinvestigation?
(2012 BAR)
ALTERNATIVE ANSWER:
A:
1. Request for Reconsideration – plea for evaluation of
assessment on the basis of existing records without
need of presentation of additional evidence. It does not
suspend the period to collect the deficiency tax.
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.
Request for Reinvestigation – plea for re-evaluation on
the basis of newly discovered evidence which are to be
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
A request for reinvestigation requires the presentation
of newly discovered or additional evidence while a
motion for reconsideration does not.
Q: 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.
A: 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
demandable. (Sec. 228, NIRC; Lascona Land Co., Inc. v. CIR,
G.R. No. 171251, 05 Mar. 2012)
Q: 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 receipt of the
ruling, a taxpayer does not agree thereto. What is his
proper remedy? (2012 BAR)
2.
A request for reinvestigation suspends the running of
the prescriptive period for collection of taxes while a
motion for reconsideration does not.
56
It must be made within the prescriptive period to
assess (Sec. 203, NIRC);
QuAMTO (1987-2022)
2.
There must be a preliminary assessment previously
issued, except in those instances allowed by law Sec.
228, NIRC);
3.
The taxpayer must be informed in writing about the
law and facts on which the assessment is based (Sec.
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, G.R. No. 155541, 27 Jan. 2004)
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. (UPLC
Suggested Answers)
Q: Describe separately the procedures on the legal
remedies under the Tax Code available to an aggrieved
taxpayer both at the administrative and judicial levels.
(2000 BAR)
(b) As tax lawyer of EDS Corporation, what legal
defense(s) would you raised against the
assessment? Explain. (2008 BAR)
A: 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.
A: 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.
(Sec. 228, NIRC; Reyes v. CIR, G.R. No. 163581, 27 Jan. 2006)
The procedures for the administrative remedies for
assessment are as follows:
1.
Q: Pedro Manalo, A Filipino citizen residing in Makati
City, owns a vacation house and lot in San Francisco,
California, U.S.A, which he acquired in 2000 for P15
million. On January 10, 2006 he sold said real property
to Juan Mayaman, another Filipino citizen residing in
Quezon City, for P20 million. On February 9, 2006
Manalo filed the capital gains tax return and paid P1.2
million representing 6% capital gain 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 P 15 million) x 35% = P1.75 million,
without the capital gains 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 P1.75 million deficiency income tax.
2.
3.
After receipt of the Pre-Assessment Notice (PAN), he
must within fifteen (15) days from receipt explain
why no additional taxes should be assessed against
him.
If the CIR issues an assessment notice, the taxpayer
must administratively protest or dispute the
assessment by filing a motion for reconsideration or
reinvestigation within thirty (30) days from receipt of
the notice of assessment. (4th par., Sec. 228, NIRC)
Within sixty (60) days from filing of the protest, the
taxpayer shall submit all relevant supporting
documents.
The judicial remedies of an aggrieved taxpayer relative to
an assessment notice are as follows:
1.
A) Is the BIR officer's tax assessment correct? Explain.
A: The BIR officer’s 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 for more than twelve months, only 50%
of the gain is recognized. (Sec. 39(B), NIRC)
2.
Where the CIR has not acted on the taxpayer’s protest
within a period of 180 days from submission of all
relevant documents, then the taxpayer has a period of
thirty (30) days from the lapse of said 180 days within
which to interpose a petition for review with the CTA.
Should the Commissioner deny the taxpayer's protest,
then he has a period of thirty (30) days from receipt of
said denial within which to interpose a petition for
review with the CTA.
In both cases the taxpayer must apply with the CTA for the
issuance of an injunctive writ to enjoin the Bureau of
Internal Revenue (BIR) from collecting the disputed tax
during the pendency of the proceedings.
B) If you were hired by Manalo as his tax consultant,
what advice would you give him to protect his
interest? Explain. (2008 BAR)
A: 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
The adverse decision of the CTA is appealable to the CA by
means of a petition for certiorari within a period of fifteen
(15) days from receipt of the adverse decision, extendible
57
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
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 CTA. 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.
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.
The adverse decision of the CA is appealable to the SC by
means of a petition for review on certiorari within a period
of fifteen (15) days from receipt of the adverse decision of
the CA.
The employment by the BIR of any of the administrative
remedies for the collection of the tax, like distraint, levy, etc.
may be administratively appealed by the taxpayer to the
Commissioner whose decision is appealable to the CTA
under other matter arising under the provisions of the
Code. The judicial appeals start with the CTA and continues
in the same manner as shown above.
Q: Under the above factual setting, the taxpayer, instead
of questioning the assessment he received on 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 CA.
Should the BIR 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 by going up the ladder of
judicial processes from the MTC (as the case may be) to the
RTC, to the CA, thence to the SC.
Could the petition still be entertained? (1997 BAR)
A: NO, the petition for review cannot be entertained by the
CA, since decisions of the Commissioner on cases involving
claim for tax refunds are within the exclusive and primary
jurisdiction of the CTA.
The remedies of an aggrieved taxpayer on a claim for
refund is to appeal the adverse decision of the
Commissioner to the CTA in the same manner outlined
above.
(4) ACTION OF THE COMMISSIONER ON THE PROTEST
FILED
(2014, 2012, 2010, 2009, 2005, 1999 BAR)
(1) PERIOD TO FILE PROTEST
(2) SUBMISSION OF SUPPORTING DOCUMENTS
Q: 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.
(3) EFFECT OF FAILURE TO FILE PROTEST
(2009, 1997 BAR)
Q: A final assessment notice was issued by the BIR on
June 13, 2000 and received by the taxpayer on June 15,
2000. The taxpayer protested the assessment on July
31, 2000. The protest was initially given due course but
was eventually denied by the Commissioner of Internal
Revenue in a decision dated June 15, 2005. The
taxpayer then filed a petition for review with the CTA,
but the CTA dismissed the same.
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 CTA by
filing a petition for review within 30 days after the
expiration of the 180-day period as mandated by the
provisions of the last paragraph of Sec. 228 of the NIRC.
Accordingly, BWI’s failure to file a petition for review
before the CTA rendered the assessment final,
executory and demandable.
Is the CTA correct in dismissing the petition for review?
Explain your answer. (2009 BAR)
A: YES. The protest was filed out of time; hence the CTA
does not acquire jurisdiction over the matter. (CIR v. Atlas
Mining and Development Corp., G.R. No. 140488, 24 Jan.
2000; UPLC Suggested Answers)
Q: A taxpayer received, on 15 January 1996, an
assessment for an internal revenue tax deficiency. On
10 February 1996, the taxpayer forthwith filed a
petition for review with the CTA.
Is the contention of the BIR correct? Explain. (2014
BAR)
Could the Tax Court entertain the petition? (1997 BAR)
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
58
QuAMTO (1987-2022)
protest the PAN.
A: 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
demandable. (Sec 228, NIRC; Lacsona Land Co., Inc. v. CIR,
GR No. 171251, 05 Mar. 2012; UPLC Suggested Answers)
Is the CIR correct? (2010 BAR)
A: NO. The CIR is incorrect. The issuance of PAN does not
give rise to the right of the taxpayer to protest. What can be
protested by a taxpayer is the 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. (UPLC
Suggested Answers)
Q: In the examination conducted by the revenue
officials against the corporate taxpayer in 2010, the
BIR issued a final assessment notice and demand letter
which states: “It is requested that the above deficiency
tax be paid immediately upon receipt hereof, inclusive
of penalties incident to delinquency. This is our final
decision based on investigation. If you disagree, you
may appeal this final decision within 30 days from
receipt hereof, otherwise said deficiency tax
assessment shall become final, executory, and
demandable.” The assessment was immediately
appealed by the taxpayer to the CTA, without filing its
protest against the assessment and without a denial
thereof by the BIR. If you were the judge, would you
deny the petition for review filed by the taxpayer and
consider the case as prematurely filed? Explain you
answer. (2012 BAR)
b) COMPROMISE AND ABATEMENT OF TAXES
(2017, 2009, 2005, 2002, 2000, 1998, 1996, 1989
BAR)
COMPROMISE OF TAXES
(2017, 2009, 2005, 2002, 2000, 1998, 1996, 1989
BAR)
Q: State and discuss briefly whether the following cases
may be compromised or may not be compromised:
(a) Delinquent accounts
A: 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 estopped from
claiming that the filing of the Petition for Review is
premature 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 a final judicial ruling in his
favor would be accepted by the BIR. The taxpayer cannot
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 to
the CTA, it cannot be denied that the word “appeal” under
prevailing tax laws refers to the filing of a Petition for
Review with the CTA. (Allied Bank vs CIR, G.R. No. 175097,
05 Feb. 2010; UPLC Suggested Answers)
A: Delinquent accounts may be compromised if either of
the two conditions is present: (1) the assessment is of
doubtful validity, or (2) the financial position of the
taxpayer demonstrates a clear inability to pay the tax. (Sec.
204(A), NIRC; Sec. 2, RR. No. 30-02)
(b) Cases under administrative protest, after issuance
of the final assessment notice to the taxpayer,
which are still pending
A: These may be compromised, provided that it is premised
upon doubtful validity of the assessment or financial
incapacity to pay. (Ibid)
(c) Criminal tax fraud cases
A: These may not be compromised, so that the taxpayer
may not profit from his fraud, thereby discouraging its
commission. (Ibid)
(d) Criminal violations already filed in court
A: These may not be compromised in order that the
taxpayer will not profit from his criminal acts. (Ibid)
Q: On March 10, 2010, Continental Inc., received a
preliminary assessment notice dated March 1, 2010
issued by the CIR for deficiency income tax for its
taxable year 2008. It failed to protest the PAN. The CIR
thereupon issued a FAN with letter of demand on April
30, 2010. The FAN was received by the corporation on
May 10, 2010, following which or on May 25, 2010, it
filed its protest against it. The CIR denied the protest
on the ground that the assessment had already become
final and executory, the corporation having failed to
(e) Cases where final reports of reinvestigation or
reconsideration have been issued resulting in the
reduction of the original assessment agreed to by
the taxpayer when he signed the required
agreement form (2005 BAR)
A: Cases where final reports of reinvestigation or
reconsideration have been issued resulting in the reduction
of the original assessment agreed to by the taxpayer when
59
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
aviation fuel imported were actually sold to
international carriers of Philippine and foreign
registries for their use or consumption outside of the
Philippines in the period from November 1, 2014 to
December 31, 2014. Wreck Corporation did not pass on
to the international carriers the excise taxes it paid on
the importation of petroleum products.
he signed the required agreement form, cannot be
compromised. By giving his conformity to the revised
assessment, the taxpayer admits the validity of the
assessment and his capacity to pay the same. (Sec. 2, RR No.
30-02)
Q: Under what conditions may the Commissioner of
Internal Revenue be authorized to compromise the
payment of any internal revenue tax? (2000 BAR)
On June 25, 2015, Wreck Corporation filed an
administrative claim for refund or issuance of tax credit
certificate amounting to the excise taxes it had paid on
the importation of 225 million liters of Jet A-1 aviation
fuel.
A: The Commissioner of Internal Revenue may be
authorized to compromise the payment of any internal
revenue tax where:
1.
2.
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. (2017 BAR)
A reasonable doubt as to the validity of the claim
against the taxpayer exists; or
The financial position of the taxpayer demonstrates a
clear inability to pay the assessed tax.
A: 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, G.R. No. 188497, 19 Feb. 2014; UPLC
Suggested Answers)
ABATEMENT OF TAXES
(2017, 2000, 1996, 1989 BAR)
Q: Distinguish compromise from abatement of taxes.
(2017 BAR)
A: Compromise of tax is a remedy upon the presence of any
of these grounds: (1) doubtful validity of the assessment;
(2) financial incapacity of the taxpayer. In contrast,
abatement of tax is an available remedy when the tax or any
portion thereof appears to be unjustly or excessively
assessed, or when the administration and collection costs
involved do not justify the collection of the amount due.
(Sec. 204, NIRC, as amended; Bar Q&A by J. Dimaampao,
2020)
CONDITIONS FOR THE GRANT OF A REFUND OR
CREDIT
(2019, 2005, 2002 BAR)
Q: XYZ Corp. is listed as a top 20,000 Philippine
corporation by the BIR. It secured a loan from ABC
Bank with a 6% per annum interest. All interest
payments made by XYZ Corp. to ABC Bank is subject to
a 2% creditable withholding tax. At the same time, XYZ
Corp. has a trust receipt deposit with ABC Bank in the
amount of 100 Million, which earns 2% interest per
annum, but is subject to a 20% final withholding tax on
the interest income received by XYZ Corp.
Q: Under what conditions may the Commissioner of
Internal Revenue be authorized to abate or cancel a tax
liability? (2000 BAR)
A: The Commissioner of Internal Revenue may abate or
cancel a tax liability when:
1.
2.
The tax or any portion thereof appears to be unjustly
or excessively assessed; or
When is the deadline for filing a judicial claim for
refund for any excess or erroneous taxes paid in the
case of: 1) the 20% final withholding tax; and 2) the 2%
creditable withholding tax. (2019 BAR)
The administration and collection costs involved do
not justify the collection of the amount due. (Sec.
204(B), NIRC)
c) RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY
COLLECTED
(2018, 2017, 2014, 2005, 2002 BAR)
A: The deadline for filing a judicial claim for refund for any
excess or erroneous taxes paid pertaining to withholding
taxes paid are as follows:
Q: Wreck Corporation is a domestic corporation
engaged in the business of importing, refining, and
selling petroleum products. During the period from
September 1, 2014 to December 31, 2014, Wreck
Corporation imported 225 million liters of Jet A-1
aviation fuel and paid the excise taxes thereon.
Seventy-five percent (75%) of the total volume of
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
1.
60
The 20% final withholding tax – For final withholding
taxes, the 2-year period to file a judicial claim for
refund (petition for Review with the CTA) is within 2
years from the date of actual remittance of the tax or
from the last day of the month following the close of the
QuAMTO (1987-2022)
which was carried over from year 2015. Sec. 76 of the NIRC
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.
Sec. 76 expressly states that the option shall be considered
irrevocable for that taxable period referring to the period
comprising the succeeding taxable years. Sec. 76 further
states that no application for cash refund or issuance of a
tax credit certificate shall be allowed, referring to that
taxable period comprising the succeeding taxable years.
(Asiaworld Properties Philippine Corporation vs. CIR, G.R. No.
171766, 29 July 2010; UPLC Suggested Answers)
quarter during which withholding was made,
whichever comes first. (Secs. 204 & 229, in relation to
Sec. 58, NIRC)
2.
The 2% creditable withholding tax –For excess
creditable withholding taxes, the filing of the judicial
claim is within 2 years from filing of the final income
tax return of the payee, or last day for its filing,
whichever comes first. It is only upon filing of the final
income tax return can it be determined with certainty
whether there is a refundable amount. (ACCRA
Investments Corp. v. CA, G.R. No. 96322, 20 Dec. 1991;
UPLC Suggested Answers)
Q: State the conditions required by the Tax Code before
the Commissioner of Internal Revenue could authorize
the refund or credit of taxes erroneously or illegally
received. (2005 BAR)
Q: In its final adjustment return for the 2010 taxable
year, ABC Corp. had excess tax credits arising from its
overwithholding 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.
A: The conditions are:
1.
2.
3.
A written claim for refund is filed by the taxpayer with
the Commissioner of Internal Revenue;
Will the claim for refund prosper? (2013 BAR)
The claim for refund must be a categorical demand for
reimbursement (Bermejo v. CIR, G.R. No. L-3029,
25 July 1950);
A: 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. (Sec. 76,
NIRC; CIR v. PL Management International Phils, Inc., GR No.
160949, 04 Apr. 2011; UPLC Suggested Answers)
The claim for refund or tax credit must be filed with
the Commissioner, or the suit or proceeding therefore
must be commenced in court within 2 years from date
of payment of the tax or penalty regardless of any
supervening cause.
OPTION TO CARRY OVER EXCESS QUARTERLY INCOME
TAX PAID
(2017, 2013 BAR)
PERIOD FOR FILING CLAIM FOR REFUND OR CREDIT
(2008, 1997, 1994, 1992 BAR)
Q: Vanderful, lnc.'s income tax return for taxable year
2015 showed an overpayment due to excess creditable
withholding taxes in the amount of P750,000.00. 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 2016, the company's income tax return showed an
overpayment due to excess creditable withholding
taxes in the amount of P1,100,000.00, which included
the carry-over from year 2015 in the amount of
P750,000.00 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
P1,100,000.00. Vanderful, Inc. now files in the BIR a
claim for refund of unutilized overpayments of
P1,100,00.00.
Q: DEF Corporation is a wholly owned subsidiary of
DEF, Inc., California, USA. Starting December 15, 2004.
DEF Corporation paid annual royalties to DEF, Inc., for
the use of the latter's software, for which the former, as
withholding agent of the government, withheld and
remitted to the BIR the 15% final tax based on the gross
royalty payments. The withholding tax return was filed
and the tax remitted to the BIR on January 10 of the
following year. On April 10, 2007, DEF Corporation
filed a written claim for tax credit with the BIR, arising
from erroneously paid income taxes covering the years
2004 and 2005. The following day, DEF Corporation
filed a petition for review with the CTA involving the
tax credit claim for 2004 and 2005.
As a BIR lawyer handling the case, would you raise the
defense of prescription in your answer to the claim for
tax credit? Explain. (2008 BAR)
Is the claim meritorious? (2017 BAR)
A: YES. The claim for refund for the 2004 erroneously paid
income tax was filed out of time because the claim was only
A: NO, but only to the extent of the amount of P750,000.00
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UNIVERSITY OF SANTO TOMAS
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TAXATION LAW
use of the latter's software, for which the former, as
with holding agent of the government, withheld, and
remitted to the BIR the 15% final tax based on the gross
royalty payments. The withholding tax return was filed
and tax remitted to the BIR on January 10 of the
following year. On April 10, 2007 DEF Corporation filed
written claim for tax credit with the BIR, arising from
erroneously paid income taxes covering the years 2004
and 2005. The following day, DEF Corporation filed a
petition for review with the court of Tax Appeals
involving the tax credit claim for 2004 and 2005.
filed after more than two years had elapsed from the
payment thereof. (Secs. 204(C) & 229, NIRC)
WITHHOLDING AGENT AS A PROPER PARTY TO FILE A
CLAIM FOR REFUND OR CREDIT
(2009, 2008, 2005, 1999, 1992 BAR)
Q: ABCD Corporation (ABCD) is a domestic corporation
with individual and corporate shareholders who are
residents of the United States. For the 2nd quarter of
1983, these U.S.-based individual and corporate
stockholders received cash dividends from the
corporation. The corresponding withholding tax on
dividend income 30% for individual and 35% for
corporate non- resident stockholders – was deducted
at source and remitted to the BIR.
Can the BIR lawyer raise the defense that DEF Corp. is
not the proper party to file such claims for tax credit?
(2008 BAR)
A: NO, the BIR cannot raise the defense that DEF
Corporation is not the proper party. In CIR v. Procter and
Gamble Philippine Manufacturing Corp (G.R. No. L-66838,
02 Dec. 1991), the Court ruled that a final withholding agent
is a proper party “with sufficient legal interest” because it
will be liable in the event that the final income tax cannot
be paid by the taxpayer. (Philippine Guaranty Co. v. CIR, G.R.
No. L-22074, 30 Apr. 1965)
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 at 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.
Q: Does a withholding agent have the right to file an
application for tax refund? (2005 BAR)
On January 17, 1985, ABCD filed a petition with the CTA
reiterating its demand for refund. (2009 BAR)
A: YES, a withholding agent should be allowed to claim for
a tax refund, because under the law, said agent is the one
who is liable for any violation of the withholding tax law
should such violation occur. (CIR v. Wander Philippines, Inc.,
G.R. No. L-68375, 15 Apr. 1988)
(a) Does ABCD Corporation have the legal personality
to file the refund on behalf of its non-resident
stockholders? Why or why not?
A: YES, withholding agents 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 for refund and to
bring an action for recovery of such claim (CIR v. Procter &
Gamble, G.R. No. L-66838, 02 Dec. 1991; UPLC Suggested
Answers)
Furthermore, since the withholding agent is made
personally liable to deduct and withhold any tax under the
NIRC, it is imperative that he be considered the taxpayer for
all legal intents and purposes. Thus, by any reasonable
standard, such person should be regarded as a party in
interest to bring suit for refund of taxes (CIR v. Procter and
Gamble Philippine Manufacturing Corp., G.R. No. L-66838, 02
Dec. 1991)
3. GOVERNMENT REMEDIES FOR COLLECTION OF
DELINQUENT TAXES
(2015, 2013, 2010 BAR)
(b) Is the contention of ABCD Corporation correct?
Why or why not? (2009 BAR)
A: YES. The contention of ABCD Corporation is correct. The
principle of international comity dictates that a tax treaty
must prevail over the local taxing statute. Thus, the RP-US
Tax Treaty must be applied thereby resulting in a claim for
refund representing the difference between the amount
actually withheld and paid to the BIR and the amount due
and payable under the said treaty. (Bar Q&A by J.
Dimaampao, 2020)
Q: On August 31, 2014, Haelton Corporation (HC), thru
its authorized representative Ms. Pares, sold a 16storey commercial building known as Haeltown
Building to Mr. Belly for P100 million. Mr. Belly, in turn,
sold the same property on the same day to Bell Gates,
Inc. (BGI) for P200 million. These two (2) transactions
were evidenced by two (2) separate Deeds of Absolute
Sale notarized on the same day by the same notary
public.
Q: DEF Corporation is wholly owned subsidiary of DEF,
Inc., California, USA. Starting December 15, 2004, DEF
Corporation paid annual royalties to DEF, Inc., for the
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
Investigations by the Bureau of Internal Revenue (BIR)
showed that:
62
QuAMTO (1987-2022)
1. the Deed of Absolute Sale between Mr. Belly and
BGI was notarized ahead of the sale between HC and
Mr. Belly;
Q: Based on the Affidavit of the Commissioner of
Internal Revenue (CIR), an Information for failure to
file income tax return under Sec. 255 of the National
Internal Revenue Code (NIRC) was filed by the
Department of Justice (DOJ) with the Manila Regional
Trial Court (RTC) against XX, a Manila resident. 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.
2. as early as May 17, 2014, HC received P40 million
from BGI, and not from Mr. Belly;
3. the said payment of P40 million was recorded by
BGI in its books as of June 30, 2014 as investment in
Haeltown Building; and
4. the substantial portion of P40 million was
withdrawn by Ms. Pares through the declaration of
cash dividends to all its stockholders.
Is a prior assessment necessary before an Information
for violation of Sec. 255 of the NIRC could be filed in
court? Explain. (2010 BAR)
Based on the foregoing, the BIR sent Haeltown
Corporation a Notice of Assessment for deficiency
income tax arising from an alleged simulated sale of the
aforesaid commercial building to escape the higher
corporate income tax rate of thirty percent (30%).
A: 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.
What is the liability of Haeltown Corporation, if any?
(2015 BAR)
A: Haelton Corporation is liable for the deficiency income
tax as a result of tax evasion. The purpose of selling first the
property to Mr. Belly is to create a tax shelter. He never
controlled the property and did not enjoy the normal
benefits and burdens of ownership. The sale to him was
merely a tax ploy, a sham, and without business purpose
and economic substance. The intermediary transaction,
which was prompted more on the mitigation of tax
liabilities than for legitimate business purpose constitutes
one of tax evasion. However, being a corporation, Haelton
can only be liable for civil fraud which is a civil liability
rather than a criminal fraud which can only be committed
by natural persons. (CIR v. Toda, Jr., G.R. No. 147188, 14 Sept.
2004)
a) REQUISITES
NON-AVAILABILITY OF INJUNCTION TO RESTRAIN
COLLECTION OF TAX
(2014, 2001, 1998, 1996 BAR)
Q: May the courts enjoin the collection of revenue
taxes? Explain your answer. (2001 BAR)
A: As a rule, the courts have no authority to enjoin the
collection of revenue taxes. (Sec. 218, NIRC) However, the
CTA is empowered to enjoin the collection of taxes through
administrative remedies when collection could jeopardize
the interest of the government or taxpayer. (RA. No. 1125)
Q: In 2010, pursuant to a Letter of Authority (LA) issued
by the Regional Director, Mr. Abcede was assessed
deficiency income taxes by the BIR for the year 2009. He
paid the deficiency. In 2011, Mr. Abcede received
another LA for the same year 2009, this time from the
National Investigation Division, on the ground that Mr.
Abcede's 2009 return was fraudulent. Mr. Abcede
contested the LA on the ground that he can only be
investigated once in a taxable year.
b) PRESCRIPTIVE PERIODS
(2010, 2009, 2002, 2001, 1997, 1994 BAR)
Q: A final assessment notice was issued by the BIR on
June 13, 2000 and received by the taxpayer on June 15,
2000. The taxpayer protested the assessment on July
31, 2000. The protest was initially given due course but
was eventually denied by the Commissioner of Internal
Revenue in a decision dated June 15, 2005. The
taxpayer then filed a petition for review with the Court
of Tax Appeals (CTA), but the CTA dismissed the same.
Decide. (2013 BAR)
A: 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. (Sec. 235, NIRC)
Assume that the CTA’s decision dismissing the petition
for review has become final. May the Commissioner
legally enforce collection of the delinquent tax? Explain.
(2009 BAR)
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UNIVERSITY OF SANTO TOMAS
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TAXATION LAW
A) involving deficiency income taxes only, but not
for other taxes.
B) because of doubt as to the validity of the
assessment.
C) if the compromise amount does not exceed
10% of the basic tax.
D) only when there is an approval of the National
Evaluation Board.
A: NO. The protest was filed out of time and, therefore, did
not suspend the running of the prescriptive period for the
collection of the tax. Once the right to collect has prescribed,
the Commissioner can no longer enforce collection of the
tax liability against the taxpayer. (CIR v. Atlas Mining and
Development Corp., G.R. No. 140488, 24 Jan. 2000)
4. CIVIL PENALTIES
(2018, 2017, 2011 BAR)
A: B) because of doubt as to the validity of the assessment.
(Sec. 204, NIRC, as amended)
a) DELINQUENCY INTEREST AND DEFICIENCY
INTEREST
Q: Anion, Inc. received a notice of assessment and a
letter from the BIR demanding the payment of P3
million pesos in deficiency income taxes for the taxable
year 2008. The financial statements of the company
show that it has been suffering financial reverses from
the year 2009 up to the present. Its asset position shows
that it could pay only P500,000.00 which it offered as a
compromise to the BIR.
b) SURCHARGE
(2018, 2017 BAR)
Q: The BIR assessed Kosco, Inc., an importer of food
products, deficiency income and value-added taxes,
plus 50% surcharge after determining that Kosco, Inc.
had under-declared its sales by an amount exceeding
30% of that declared in its income tax and VAT returns.
Kosco, Inc. denied the alleged under-declaration,
protested the deficiency assessment for income and
value-added taxes and challenged the imposition of the
50% surcharge on the ground that the surcharge may
only be imposed if Kosco, Inc. fails to pay the deficiency
taxes within the time prescribed for their payment in
the notice of assessment.
Which among the following may the BIR require to
enable it to enter into a compromise with Anion, Inc.?
(2011 BAR)
A) Anion must show it has faithfully paid taxes
before 2009.
B) Anion must promise to pay its deficiency when
financially able.
C) Anion must waive its right to the secrecy of its
bank deposits.
D) Anion must immediately deposit the
P500,000.00 with the BIR.
(a) Is the imposition of the 50% surcharge proper?
A: YES. The imposition of the fifty percent (50%) surcharge
is proper. Sec. 248(B) of the NIRC, provides that 50%
surcharge on tax or on deficiency tax is imposable in case a
false or fraudulent return is willfully made. Failure to report
sales, receipts or income in an amount exceeding thirty
percent (30%) of that declared per return constitutes
substantial under declaration of sales and is prima facie
evidence of a false or fraudulent return. Kosco, lnc.'s underdeclaration of sales is considered substantial as to consider
the tax return it filed as falsified or fraudulent. (Bar Q&A by
J. Dimaampao, 2020)
A: C) Anion must waive its right to the secrecy of its bank
deposits. (Sec. 6(F)(2), NIRC, as amended)
(b) If your answer to {a) is yes, may Kosco, Inc. enter
into a compromise with the BIR for reduction of the
amount of surcharge to be paid? (2018 BAR)
A: NO. Kosko may not enter into a compromise with the BIR.
Surcharge is in the nature of a penalty. Only an internal
revenue tax may be subject to compromise pursuant to Sec.
204 of the NIRC, as amended. (Bar Q&A by J. Dimaampao,
2020)
c) COMPROMISE PENALTY
(2018, 2011 BAR)
Q: Jeopardy assessment is a valid ground to
compromise a tax liability. (2011 BAR)
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
64
QuAMTO (1987-2022)
predominantly utilized by the person in possession thereof.
Hence, considering that, as admitted by Kerwin, 2/3 of the
property ‘s used for commercial purposes, the entire
property must be classified as “commercial” for real
property tax purposes. (UPLC Suggested Answers)
III. LOCAL TAXATION
A. LOCAL GOVERNMENT TAXATION
(2022, 2019-2014, 2010-2005, 2003-2000, 1998,
1996, 1991-1987 BAR)
Q: The Roman Catholic Church owns a 2- hectare lot in
a town in Tarlac province. The southern side and
middle part are occupied by the Church and a convent,
the eastern side by a school run by the Church itself, the
southeastern
side
by
some
commercial
establishments, while the rest of the property, in
particular the northwestern side, is idle or unoccupied.
1. GENERAL PRINCIPLES
(2018, 2009, 2005, 2003, 2001, 2000, 1990, 1988 BAR)
Q: In 2015, Kerwin bought a three-story house and lot
in Kidapawan, North Cotabato. The property has a floor
area of 600 sq.m. and is located inside a gated
subdivision. Kerwin initially declared the property as
residential for real property tax purposes.
May the Church claim tax exemption on the entire
land? Decide with reasons. (2005 BAR)
A: NO. The portions of the land occupied and used by the
church, convent and school run by the church are exempt
from real property taxes while the portion of the land
occupied by commercial establishments and the portion,
which is idle, are subject to real property taxes. The “usage”
of the property and not the “ownership" is the determining
factor whether or not the property is taxable. (Lung Center
of the Philippines v. Q.C., G.R. No. 144104, 29 June 2004)
In 2016, Kerwin started using the property in his
business of manufacturing garments for export. The
entire ground floor is now occupied by state-of-the-art
sewing machines and other equipment, while the
second floor is used as offices. The third floor is
retained by Kerwin as his family's residence. Kerwin's
neighbors became suspicious of the activities going on
inside the house, and they decided to report it to the
Kidapawan City Hall. Upon inspection, the local
government discovered that the property was being
utilized for commercial use. Immediately, the
Kidapawan Assessor reclassified the property as
commercial with an assessment level of 50% effective
January 2017, and assessed Kerwin back taxes and
interest. Kerwin claims that only 2/3 of the building
was used for commercial purposes since the third floor
remained as family residence. He argues that the
property should have been classified as partly
commercial and partly residential.
2. NATURE AND SOURCE OF
TAXING POWER
(2022, 2019-2015, 2009, 2007-2005, 2003-2000,
1998, 1996, 1990-1987 BAR)
a) GRANT OF LOCAL TAXING POWER UNDER THE
LOCAL GOVERNMENT CODE
(2007, 2003, 2001, 1998, 1987 BAR)
Q: What is the nature of the taxing power of the
provinces, municipalities, and cities? How will the local
government units be able to exercise their taxing
powers? (2007 BAR)
(a) xxx
A: The taxing power of the provinces, municipalities, and
cities is directly conferred by the Constitution by giving
them the authority to create their own sources of revenue.
The local government units do not exercise the power to tax
as an inherent power or by a valid delegation of the power
by Congress, but pursuant to a direct authority conferred
by the Constitution. (Mactan Cebu International Airport
Authority v. Marcos, G.R. No. 120082, 11 Sept. 1996; NPC v.
City of Cabanatuan, G.R. No. 149110, 09 Apr. 2003)
(b) Is Kerwin correct that only 2/3 of the
property
should
be
considered
commercial?
(c) xxx (2018 BAR)
A: YES. The property must be classified, valued, and
assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it. (Sec. 217,
LGC; UPLC Suggested Answers)
The local government units exercise the power to tax by
levying taxes, fees, and charges consistent with the basic
policy of local autonomy, and to assess and collect all these
taxes, fees and charges which will exclusively accrue to
them. The local government units are authorized to pass
tax ordinances (levy) and to pursue actions for the
assessment and collection of the taxes imposed in said
ordinances. (Secs. 129 & 132, LGC)
ALTERNATIVE ANSWER:
NO. One of the fundamental principles in the appraisal,
assessment, levy, and collection of real property tax under
Sec. 198 of the LGC is that the real property shall be
classified for assessment purposes on the basis of its actual
use. Sec. 199 of the LGC defines “actual use” as referring to
the purpose for which the property is principally or
65
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
Q: May Congress, under the 1987 Constitution, abolish
the power to tax of local governments? (2003 BAR)
beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person. A gov­ernment
instrumentality, though vested with corporate powers, are
exempt from real property tax but the ex­emption shall not
extend to taxable private entities to whom the beneficial use
of the government instrumen­tality's properties has been
vested. (Philippine Heart Center v. Local Government of
Quezon City, G.R. No. 225409, 11 Mar. 2020; G.R. No. 144104,
29 June 2004; GSIS v. City Treasurer of Manila, G.R. No. 18624,
23 Dec. 2009; MWSS v. Local Government of Quezon, G.R. No.
194388, 07 Nov. 2018; LRTA v. City of Pasay, G.R. No. 211299,
28 June 2022; Bar Q&A by Cruz, 2023)
A: NO. Congress cannot abolish what is expressly granted
by the fundamental law. The only authority conferred to
Congress is to provide the guidelines and limitations on the
local government’s exercise of the power to tax. (Sec. 5, Art
X, 1987 Constitution)
b) AUTHORITY TO PRESCRIBE PENALTIES FOR TAX
VIOLATIONS
c) AUTHORITY TO GRANT LOCAL TAX EXEMPTIONS
(2022, 2019, 2018, 2017, 2016, 2015, 2009, 2006,
2005, 2002, 2000, 1996, 1990, 1989, 1987 BAR)
Q: City R owns a piece of land which it leased to V Corp.
In turn, V Corp. constructed a public market there on
and leased the stalls to vendors and small storeowners.
The City Assessor then issued a notice of assessment
against V Corp. for the payment of real property taxes
(RPT) accruing on the public market building, as well
as on the land where said market stands.
Q: Philippine Medical Center (PMC) is a government
hospital created by law to provide healthcare to the
gen­eral public, especially the less fortunate. To enable
PMC to perform its mandate, the national government
provided the initial capital, land, buildings, and
equipment to PMC. PMC's charter also authorized it,
acting through its Board of Trustees: to acquire
property; to enter into con­tracts; to mortgage,
encumber, lease, sell, convey, or dispose of its
properties; and to do other acts necessary to
accomplish its purposes and objectives.
Is the City Assessor correct in including the land in its
assessment of RPT against V Corp., even if the same is
owned by City R? Explain. (2019 BAR)
A: YES. City R is correct in including the land in the RPT
Assessment. Sec. 234 of the LGC provides that the
properties owned by the government of the Philippines and
any of its instrumentalities shall be exempt from RPT
except when the beneficial use thereof pertains to a nonexempt entity for a consideration.
Among the properties of PMC are five lands and
buildings located in Quezon City. The Quezon City
assessor issued notices of assessment for real property
taxes (RPT) against PMC's properties that are being
leased to private concessionaires. According to the city
assessor, PMC's properties leased to private entities are
subject to RPT because these properties are not being
exclusively used for charitable purposes. PMC, on the
other hand, claims that, as a government
instrumentality imbued with corporate powers, it is
exempt from RPT.
When City R leased the property to V Corp., the beneficial
use of the otherwise exempt property, now pertains to a
non-exempt entity. (UPLC Suggested Answers)
Q: Kilusang Krus, Inc. (KKI) is a non-stock, non-profit
religious organization which owns a vast tract of land
in Kalinga.
KKI has devoted 1/2 of the land for various uses: a
church with a cemetery exclusive for deceased priests
and nuns, a school providing K to 12 education, and a
hospital which admits both paying and charity
patients. The remaining 1/2 portion has remained idle.
(a) Is PMC liable for the assessed RPT over the leased
properties? Explain briefly.
A: YES, it is liable for real property taxes. Even if it were a
government hospital basically established as a charitable
institution, those portions of its real property that are
leased to private entities are not exempt from real property
taxes as these are not actually, directly, and exclusively used
for charitable purposes. (Lung Center of the Philippines v.
Quezon City, G.R. No. 144104, 29 June 2004; Bar Q&A by Cruz,
2023)
The KKI Board of Trustees decided to lease the
remaining 1/2 portion to a real estate developer which
constructed a community mall over the property.
Since the rental income from the lease of the property
was substantial, the KKI decided to use the amount to
finance: (1) the medical expenses of the charity
patients in the KKI Hospital; and (2) the purchase of
books and other educational materials for the students
of KKI School. (2018 BAR)
(b) Supposing PMC is correct that it is not li­able for
RPT, may the city assessor assess the lessees for the
RPT due on PMC's leased properties? Explain
briefly. (2022 BAR)
A: YES, the lessees may be so assessed by the city assessor.
Sec. 234(a) of R.A. No. 7160 exempts real property owned
by the Republic from real property taxes except when the
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
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66
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(Center) which will house medical practitioners who
will lease the spaces therein for their clinics at
prescribed rental rates. The doctors who treat the
patients confined in the Hospital are accredited by the
Association.
A: YES, but only on the leased portion. Art. VI, Sec. 28(3) of
the 1987 Constitution provides that “charitable
institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and
all lands, buildings, and improvements, actually, directly,
and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation”. The
test of exemption from taxation is the use of the property
for purposes mentioned in the Constitution. The leased
portion of the land may be subject to real property tax since
such lease is for commercial purposes, thereby, removing
the asset from the property tax exemption granted under
the Constitution. (CIR vs. De La Salle University, Inc., GR. Nos,
196596, 198841 & 198941, 09 Nov. 2016; UPLC Suggested
Answers)
The City Assessor classified the Center as "commercial"
instead of "special" on the ground that the Hospital
owner gets income from the lease of its spaces to
doctors who also entertain out-patients.
Is the City Assessor correct in classifying the Center as
"commercial?" Explain. (2016 BAR)
A: NO. The City Assessor is not correct in classifying the
Center as “commercial”. The fact alone that the separate St.
Michael’s Medical Arts Center will house medical
practitioners who shall treat the patients confined in the
Hospital and are accredited by the Association takes away
the said Medical Arts Center from being categorized as
“commercial” since a tertiary hospital is required by law to
have a pool of physicians who comprise the required
medical departments in various medical fields. (City
Assessor of Cebu City v. Association of Benevola de Cebu, Inc.,
G.R. No. 152904, 08 June 2007; UPLC Suggested Answers)
Q: San Juan University is a non-stock, non-profit
educational institution. It owns a piece of land in
Caloocan City on which its three 3-storey school
building stood. Two of the buildings are devoted to
classrooms, laboratories, a canteen, a bookstore, and
administrative offices. The third building is reserved as
dormitory for student athletes who are granted
scholarships for a given academic year.
In 2017, San Juan University earned income from
tuition fees and from leasing a portion of its premises
to various concessionaires of food, books, and school
supplies. (2017 BAR)
Q: LLL is a government instrumentality created by
Executive Order to be primarily responsible for
integrating and directing all reclamation projects for
the National Government. It was not organized as a
stock corporation, nor was it intended to operate
commercially and compete in the private market.
Can the City Treasurer of Caloocan City collect real
property taxes on the land and building of San Juan
University? Explain your answer.
By virtue of its mandate, LLL in 2008 reclaimed several
portions of the foreshore and offshore areas of the
Manila Bay, some of which were within the territorial
jurisdiction of Q City. Certificates of titles to the
reclaimed properties in Q City were issued in the name
of LLL in 2008. In 2014, Q City issued warrants of Levy
on said reclaimed properties of LLL based on the
assessment for delinquent property taxes for the years
2010 to 2013.
A: YES. The City Treasurer can collect real property taxes
but on the leased portion. Sec. 4(3), Art. XIV of the 1987
Constitution provides that a non-stock, non-profit
educational institution shall be exempt from taxes and
duties only if the same are used actually, directly, and
exclusively for educational purposes. The test of exemption
from taxation is the use of the property for purposes
mentioned in the Constitution. The leased portion of the
building may be subject to real property tax since such
lease is for commercial purposes, thereby, it removes the
asset from the property tax exemption granted under the
Constitution. (CIR v. De La Salle University, Inc., G.R. No.
196596, 09 Nov. 2016; UPLC Suggested Answers)
(a) Are the reclaimed properties registered in the
name of LLL subject to real property tax?
A: The reclaimed properties are not subject to real property
tax because LLL is a government instrumentality. Under the
law, real property owned by the Republic of the Philippines
is exempt from real property tax unless the beneficial use
thereof has been granted to a taxable person. (Sec. 234,
LGC) When the title of the real property is transferred to
LLL, the Republic remains the owner of the real property.
Thus, such arrangement does not result in the loss of the
tax exemption. (Republic v. City of Paranaque, G.R. No.
191109, 18 July 2012; UPLC Suggested Answers)
Q: The Philippine-British Association, Inc. (Association)
is a non-stock, non-profit organization which owns the
St. Michael's Hospital (Hospital). Sec. 216 in relation to
Sec. 215 of the LGC classifies all lands, buildings, and
other improvements thereon actually, directly, and
exclusively used for hospitals as "special." A special
classification prescribes a lower assessment than a
commercial classification.
Within the premises of the Hospital, the Association
constructed the St. Michael's Medical Arts Center
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TAXATION LAW
ALTERNATIVE ANSWER:
electric power, is the actual, direct, and exclusive user of the
barge, hence, does not fall within the purview of the
exempting provision of Sec. 234(c) of R.A. No. 7160.
Likewise, the argument that RPC should be liable to the real
property taxes consonant with the contract is devoid of
merit. The liability for the payment of the real estate taxes
is determined by law and not by the agreement of the
parties. (FELS Energy Inc. v. The Province of Batangas, G.R.
No. 168557, 16 Feb. 2007; UPLC Suggested Answers)
NO. LLL is an instrumentality of the national government
which cannot be taxed by local government units. LLL is not
a government-owned or controlled corporation taxable for
real property taxes. (City of Lapu-Lapu v. PEZA, G.R. No.
184203, 26 Nov. 2014)
(b) Will your answer be the same in (a) if from 2010 to
the present time, LLL is leasing portions of the
reclaimed properties for the establishment and use
of popular fast-food restaurants J Burgers, G Pizza,
and K Chicken? (2015 BAR)
Q: Under Art. 415 of the Civil Code, in order for
machinery and equipment to be considered real
property, the pieces must be placed by the owner of the
land and, in addition, must tend to directly meet the
needs of the industry or works carried on by the owner.
Oil companies install underground tanks in the
gasoline stations located on land leased by the oil
companies from the owners of the land where the
gasoline stations (are) located. Are those underground
tanks, which were not placed there by the owner of the
land, but which were instead placed there by the lessee
of the land, considered real property for purposes of
real property taxation under the local Government
Code? Explain. (2003 BAR)
A: NO. As a rule, properties owned by the Republic of the
Philippines are exempt from real property tax except when
the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person. When LLL
leased out portions of the reclaimed properties to taxable
entities, such as the popular fast-food restaurants, the
reclaimed properties are subject to real property tax. (Sec.
234(a), LGC; GSIS v. City Treasurer of Manila, G.R. No. 18624,
23 Dec. 2009; UPLC Suggested Answers)
Q: Republic Power Corporation (RPC) is a governmentowned and controlled corporation engaged in the
supply, generation, and transmission of electric power.
In 2005, in order to provide electricity to Southern
Tagalog provinces, RPC entered into an agreement with
Jethro Energy Corporation (JEC), for the lease of JEC’s
power barges which shall be berthed at the port of
Batangas City. The contract provides that JEC shall own
the power barges and the fixtures, fittings, machinery,
and equipment therein, all of which JEC shall supply at
its own cost, and that JEC shall operate, manage, and
maintain the power barges for the purpose of
converting the fuel of RPC into electricity. The contract
also stipulates that all real estate taxes and
assessments, rates, and other charges, in respect of the
power barges, shall be for the account of RPC.
A: YES. The properties are considered as necessary fixtures
of the gasoline station, without which the gasoline station
would be useless. Machinery and equipment installed by
the lessee of leased land is not real property for purposes
of execution of a final judgment only. They are considered
as real property for real property tax purposes as “other
improvements to affixed or attached real property under
the Assessment Law and the Real Property Tax Code.
(Caltex v. Central Board of Assessment Appeals, G.R. No. L50466, 31 May 1982)
d) WITHDRAWAL OF EXEMPTIONS
3. SCOPE OF TAXING POWER
4. SPECIFIC TAXING POWER TO LOCAL GOVERNMENT
UNITS
In 2007, JEC received an assessment of real property
taxes on the power barges from the Assessor of
Batangas City. JEC sought reconsideration of the
assessment on the ground that the power barges are
exempt from real estate taxes under Sec. 234 (c) of R.A.
7160 as they are actually, directly, and exclusively used
by RPC, a government- owned and controlled
corporation. Furthermore, even assuming that the
power barges are subject to real property tax, RPC
should be held liable therefore, in accordance with the
terms of the lease agreement. Is the contention of JEC
correct? Explain your answer. (2009 BAR)
5. COMMON REVENUE RAISING POWERS
6. COMMUNITY TAX
7. COMMON LIMITATIONS ON THE TAXING POWERS OF
LOCAL GOVERNMENT UNITS
(2019, 2015, 1987 BAR)
(Sec. 133, LGC)
Q: In 2018, City X amended its Revenue Code to include
a new provision imposing a tax on every sale of
merchandise by a wholesaler based on the total selling
price of the goods, inclusive of value-added taxes
(VAT). ABC Corp., a wholesaler operating within City X,
challenged the new provision based on the following
A: The contention of JEC is not correct. The owner of the
power barges is JEC which is required to operate, manage,
and maintain the power barges for the purpose the claim
that RPC, a government-owned and controlled corporation
engaged in the supply, generation, and transmission of
UNIVERSITY OF SANTO TOMAS
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QuAMTO (1987-2022)
A: The appeal was filed out of time. When an assessment is
protested, the treasurer has sixty (60) days within which to
decide. The taxpayer has thirty (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.
Considering that no decision on the protest was made, the
taxpayer should have appealed to the RTC within 30 days
from the lapse of the 60-day period to decide the protest.
(Sec. 195, LGC)
contentions: xxx 2. since the tax being imposed is akin
to VAT, it is beyond the power of City X to levy the same.
Rule on each of ABC Corp.'s contentions. (2019 BAR)
A: ABC’s second contention is meritorious. One of the
common limitations of the local government unit’s (such as
City X) taxing power under Sec. 133 of the LGC is that it may
not levy VAT on sales, barters or exchanges on goods or
services. Hence, ABC Corp. is correct in saying that the local
tax, which is imposed on every sale transaction, is akin to
VAT; and necessarily, it may not be imposed by City X.
b) REFUND
(2018, 2014 BAR)
Q: In 2014, M City approved an ordinance levying
customs duties and fees on goods coming into the
territorial jurisdiction of the city. Said city ordinance
was duly published on February 15, 2014 with
effectivity date on March 1, 2014.
Q: The City of Kabankalan issued a notice of assessment
against KKK, Inc., for deficiency real property taxes for
the taxable years 2013 to 2017 in the amount of P20
million. KKK paid the taxes under protest and
instituted a complaint entitled "Recovery of Illegally
and/or Erroneously Collected Local Business Tax,
Prohibition with Prayer to Issue TRO and Writ of
Preliminary Injunction" with the RTC of Negros
Occidental.
Is there a ground for opposing said ordinance? (2015
BAR)
A: YES, on the ground that the ordinance is ultra vires. The
taxing powers of local government units such as M City,
cannot extend to the levy of taxes, fees and charges already
imposed by the national government, and this includes,
among others, the levy of customs duties under the Tariff
and Customs Code. (Sec. 133(e), LGC)
The RTC denied the application for TRO. Its motion for
reconsideration having been denied as well, KKK filed
a petition for certiorari with the Court of Appeals (CA)
assailing the denial of the TRO.
Will the petition prosper? (2018 BAR)
8. REQUIREMENTS FOR A VALID TAX ORDINANCE
A: NO. The petition will not prosper. It is the CTA which has
exclusive appellate jurisdiction over cases involving local
taxes decided by the RTC in the exercise of the latter's
original jurisdiction. The Court of Appeals (CA) is devoid of
such jurisdiction.
9. TAXPAYER’S REMEDIES
(2018, 2015, 2014, 2010, 2003, 1991 BAR)
a) PROTEST
(2018, 2010 BAR)
The power of the CTA includes that of determining whether
or not there has been grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of the RTC in
issuing an interlocutory order in cases falling within the
exclusive appellate jurisdiction of the tax court. It, thus,
follows that it is the CTA, by constitutional mandate, which
is vested with jurisdiction to issue writs of certiorari in
these cases. (City of Manila v. Grecia­Cuerdo, G.R. No.
175723, 04 Feb. 2014; Bar Q&A by J. Dimaampao, 2020)
On May 15, 2009, La Manga Trading Corporation
received a deficiency business tax assessment of
P1,500,000.00 from the Pasay City Treasurer. On June
30, 2009, the corporation contested the assessment by
filing a written protest with the City Treasurer.
On October 10, 2009, the corporation received a
collection letter from the City Treasurer, drawing it to
file on October 25, 2009 an appeal against the
assessment before the Pasay Regional Trial Court
(RTC).
Q: The City of Liwliwa assessed local business taxes
against Talin Company. Claiming that there is double
taxation, Talin Company filed a Complaint for Refund
or Recovery of Illegally and/or Erroneously collected
Local Business Tax; Prohibition with Prayer to Issue
Temporary Restraining Order and Writ of Preliminary
Injunction with the Regional Trial Court (RTC). The
RTC denied the application for a Writ of Preliminary
Injunction. Since its motion for reconsideration was
denied, Talin Company filed a special civil action for
certiorari with the Court of Appeals (CA). The
government lawyer representing the City of Liwliwa
(a) Was the protest of the corporation filed on time?
Explain.
A: The protest was filed on time. Sec. 195 of the Local
Government Code (R.A. No. 7160) provides that the
taxpayer may protest an assessment within sixty (60) days
from receipt thereof.
(b) Was the appeal with the Pasay RTC filed on time?
Explain. (2010 BAR)
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
prayed for the dismissal of the petition on the ground
that the same should have been fi!eci with the Court of
Tax Appeals (CTA). Talin Company, through its lawyer,
Atty. Frank, countered that the CTA cannot entertain a
petition for certiorari since it is not one of its powers
and authorities under existing laws and rules.
On the other hand, it is not taxable if the local tax recovered
is not deductible because Dona Evelina received no tax
benefit. (Ibid.)
Decide. (2014 BAR)
Q: What is the proper procedural remedy and
applicable time periods for challenging a tax
ordinance? (2015 BAR)
c) ACTION BEFORE THE SECRETARY OF JUSTICE
(2015, 2003, 1991 BAR)
A: Atty. Frank is CORRECT. It is now settled that the CTA
by constitutional mandate is vested with jurisdiction to
issue writs of certiorari in cases falling within its exclusive
appellate jurisdiction. It is more in consonance with logic
and legal soundness to conclude that the grant of appellate
jurisdiction to the CTA over tax cases filed and decided by
the RTC carries with it the power to issue a writ of
certiorari when necessary in aid of such appellate
jurisdiction. (Ibid.; Bar Q&A by J. Dimaampao, 2020)
A: Any question on the constitutionality or legality of tax
ordinances may be raised on appeal within 30 days from
the effectivity to the Secretary of Justice. The Secretary of
Justice shall render a decision within 60 days from the date
of receipt of the appeal. Thereafter, within 30 days after
receipt of the decision or the lapse of the sixty-day period
without the Secretary of Justice acting upon the appeal, the
aggrieved party may file the appropriate proceedings with
the RTC. (Sec. 187, LGC)
Q: Dona Evelina, a rich widow engaged in the business
of 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, Dona Evelina paid the taxes.
Nevertheless, unsatisfied with said Tax Ordinance,
Dona 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).
Q: X, a taxpayer who believes that an ordinance passed
by the City Council of Pasay is unconstitutional for
being discriminatory against him, want to know from
you, his tax lawyer, whether or not he can file an
appeal. In the affirmative, he asks you where such
appeal should be made: the Secretary of Finance, or the
Secretary of Justice, or the CTA, or the regular courts.
What would your advice be to your client, X? (2003
BAR)
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.
A: The appeal should be made with the Secretary of Justice.
Any question on the constitutionality or legality of a tax
ordinance may be raised on appeal with the Secretary of
Justice within 30 days from the effectivity thereof (Sec. 187,
LGC; Hagonoy Market Vendors Association v. Municipality of
Hagonoy, Bulacan, G.R. No. 137621, 06 Feb. 2002)
10. ASSESSMENT AND COLLECTION OF LOCAL TAXES
(2010, 2008 BAR)
(a) If you are Atty. ELP, what advice will you give Dona
Evelina so that she can recover the subject local
business taxes?
a) REMEDIES OF LOCAL GOVERNMENT UNITS
A: Atty. ELP should move for the execution of the judgment,
it having become final and executory. The issuance of a writ
of execution may eventually force the local treasurer to
make the refund. (Bar Q&A by J. Dimaampao, 2020)
b) PRESCRIPTIVE PERIOD
(2010, 2008 BAR)
Q: MNO Corporation was organized on July 1, 2006, to
engage in trading of school supplies, with principal
place of business in Cubao, Quezon City. Its book of
account and income statement showing gross sales as
follows: July 1, 2006 to December 31, 2006 P
5,0000,000. January 1, 2007 to June 30, 2007 P
10,000,000. July 1, 2007 to December 31, 2007 P
15,000,000. Since MNO Corporation adopted fiscal year
ending June 30 as its taxable year for income tax
purpose, it paid its 2% business tax for fiscal year
ending June 30, 2007 based on gross sales of P15
(b) If Dona Evelina eventually recovers the local
business taxes, must the same be considered as
income taxable by the national government? (2014
BAR)
A: It depends. If the local tax recovered is a businessconnected tax in that it is deductible from gross income, it
is taxable applying the tax benefit rule. This is so because
having been claimed as deduction from gross income, it
resulted in a tax benefit to Dona Evelina.
UNIVERSITY OF SANTO TOMAS
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by RPC, a government- owned and controlled
corporation. Furthermore, even assuming that the
power barges are subject to real property tax, RPC
should be held liable therefore, in accordance with the
terms of the lease agreement. Is the contention of JEC
correct? Explain your answer. (2009 BAR)
million. However, the Quezon City Treasurer assessed
the corporation for deficiency business tax for 2007
based on gross sales of P25 million alleging that local
business taxes shall be computed based on calendar
year.
(a) Is the position of the city treasurer tenable?
Explain.
A: The contention of JEC is not correct. The owner of the
power barges is JEC which is required to operate, manage,
and maintain the power barges for the purpose the claim
that RPC, a government-owned and controlled corporation
engaged in the supply, generation, and transmission of
electric power, is the actual, direct and exclusive user of the
barge, hence, does not fall within the purview of the
exempting provision of Sec. 234(c) of RA. No. 7160.
Likewise, the argument that RPC should be liable to the real
property taxes consonant with the contract is devoid of
merit. The liability for the payment of the real estate taxes
is determined by law and not by the agreement of the
parties. (FELS Energy Inc. v. The Province of Batangas, G.R.
No. 168557, 16 Feb. 2007)
A: YES. The tax period for local taxes is generally the
calendar year. (Sec. 165, LGC)
(b) May the deficiency business tax be paid in
installments without surcharge and interest?
Explain. (2008 BAR)
A: YES. Local government units may, through ordinances
duly approved, grant reliefs to taxpayers under such terms
and conditions as they may deem necessary. Such reliefs
may take the form of condonation or extension of time for
payment or non-imposition of surcharge or interest. (Sec.
192, LGC) Accordingly, the deficiency business taxes may be
paid in installment without surcharge and interest through
the passage of an ordinance for that purpose.
Q: Under Art. 415 of the Civil Code, in order for
machinery and equipment to be considered real
property, the pieces must be placed by the owner of the
land and, in addition, must tend to directly meet the
needs of the industry or works carried on by the owner.
Oil companies install underground tanks in the
gasoline stations located on land leased by the oil
companies from the owners of the land where the
gasoline stations (are) located. Are those underground
tanks, which were not placed there by the owner of the
land but which were instead placed there by the lessee
of the land, considered real property for purposes of
real property taxation under the local Government
Code? Explain. (2003 BAR)
B. REAL PROPERTY TAXATION
(2022, 2019-2014, 2009, 2006, 2005, 2003-2000,
1996, 1993, 1991, 1990, 1988, 1987 BAR)
1. FUNDAMENTAL PRINCIPLES
2. NATURE
(2009, 2003 BAR)
Q: Republic Power Corporation (RPC) is a governmentowned and controlled corporation engaged in the
supply, generation and transmission of electric power.
In 2005, in order to provide electricity to Southern
Tagalog provinces, RPC entered into an agreement with
Jethro Energy Corporation (JEC), for the lease of JEC’s
power barges which shall be berthed at the port of
Batangas City. The contract provides that JEC shall own
the power barges and the fixtures, fittings, machinery,
and equipment therein, all of which JEC shall supply at
its own cost, and that JEC shall operate, manage and
maintain the power barges for the purpose of
converting the fuel of RPC into electricity. The contract
also stipulates that all real estate taxes and
assessments, rates and other charges, in respect of the
power barges, shall be for the account of RPC.
A: YES. The properties are considered as necessary fixtures
of the gasoline station, without which the gasoline station
would be useless. Machinery and equipment installed by
the lessee of leased land is not real property for purposes
of execution of a final judgment only. They are considered
as real property for real property tax purposes as “other
improvements to affixed or attached real property under
the Assessment Law and the Real Property Tax Code.
(Caltex v. Central Board of Assessment Appeals, G.R. No. L50466, 31 May 1982)
3. IMPOSITION
(2019-2015, 2009, 2006, 2005, 2003, 2002, 1996,
1990, 1988, 1987 BAR)
a) POWER TO LEVY
In 2007, JEC received an assessment of real property
taxes on the power barges from the Assessor of
Batangas City. JEC sought reconsideration of the
assessment on the ground that the power barges are
exempt from real estate taxes under Sec. 234 (c) of R.A.
7160 as they are actually, directly and exclusively used
b) EXEMPTION FROM REAL PROPERTY TAX
CONSTITUTIONAL EXEMPTIONS
(2018, 2017, 2006, 2005, 2000, 1996, 1990, 1988,
1987 BAR)
71
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
Q: Kilusang Krus, Inc. (KKI) is a non-stock, non-profit
religious organization which owns a vast tract of land
in Kalinga.
stock, non-profit educational institution shall be exempt
from taxes and duties only if the same are used actually,
directly, and exclusively for educational purposes. The test
of exemption from taxation is the use of the property for
purposes mentioned in the Constitution. The leased portion
of the building may be subject to real property tax since
such lease is for commercial purposes, thereby, it removes
the asset from the property tax exemption granted under
the Constitution. (Ibid.)
KKI has devoted 1 /2 of the land for various uses: a
church with a cemetery exclusive for deceased priests
and nuns, a school providing K to 12 education, and a
hospital which admits both paying and charity
patients. The remaining 1/2 portion has remained idle.
Q: The Constitution exempts from taxation charitable
institutions, churches, parsonages or convents
appurtenant thereto, mosques and non-profit
cemeteries and lands, buildings and improvements
actually, directly and exclusively used for religious,
charitable and educational purposes. Mercy Hospital is
a 100-bed hospital organized for charity patients.
The KKI Board of Trustees decided to lease the
remaining 1 /2 portion to a real estate developer which
constructed a community mall over the property.
Since the rental income from the lease of the property
was substantial, the KKI decided to use the amount to
finance (1) the medical expenses of the charity patients
in the KKI Hospital and (2) the purchase of books and
other educational materials for the students of KKI
School.
Can said hospital claim exemption from taxation under
the above-quoted constitutional provision? Explain.
(1996 BAR)
Is KKI liable for real property taxes on the land? (2018
BAR)
A: YES. Mercy Hospital can claim exemption from taxation
under the provision of the Constitution, but only with
respect to real property taxes provided that such real
properties are used actually, directly and exclusively for
charitable purposes.
A: YES, but only on the leased portion. Art. VI, Sec. 28(3) of
the 1987 Constitution provides that “charitable
institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and
all lands, buildings, and improvements, actually, directly,
and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation”. The
test of exemption from taxation is the use of the property
for purposes mentioned in the Constitution. The leased
portion of the land may be subject to real property tax since
such lease is for commercial purposes, thereby, removing
the asset from the property tax exemption granted under
the Constitution. (CIR vs. De La Salle University, Inc., GR. Nos,
196596, 198841 & 198941, 09 Nov. 2016)
EXEMPTIONS UNDER THE LGC
(2019, 2016, 2015, 2009, 2006, 2002, 1990, 1987
BAR)
Q: Philippine National Railways (PNR) operates the rail
transport of passengers and goods by providing train
stations and freight customer facilities from Tutuban,
Manila to the Bicol Province. As the operator of the
railroad transit, PNR administers the land,
improvements and equipment within its main station
in Tutuban, Manila.
Q: San Juan University is a non-stock, non-profit
educational institution. It owns a piece of land in
Caloocan City on which its three 2-storey school
buildings stood. Two of the buildings are devoted to
classrooms, laboratories, a canteen, a bookstore and
administrative offices. The third building is reserved as
dormitory for student athletes who are granted
scholarships for a given academic year.
Invoking Sec. 193 of the Local Government Code (LGC)
expressly withdrawing the tax exemption privileges of
government-owned and controlled corporations upon
the effectivity of the Code in 1992, the City Government
of Manila issued Final Notices of Real Estate
Tax Deficiency in the amount of P624,000,000.00 for
the taxable years 2006 to 2010. On the other hand,
PNR, seeking refuge under the principle that the
government cannot tax itself, insisted that the PNR
lands and buildings are owned by the Republic.
In 2017, San Juan University earned income from
tuition fees and from leasing a portion of its premises
to various concessionaires of food, books, and school
supplies.
Is the PNR exempt from real property tax? Explain your
answer. (2016 BAR)
Can the City Treasurer of Caloocan City collect real
property taxes on the land and building of San Juan
University? Explain your answer. (2017 BAR)
A: YES. The Philippine National Railways (PNR) was
created as a corporation to serve as an instrumentality of
the Government of the Philippines (R.A. No. 10638,
amending Sec. 1, R.A. No. 4156) upon which the local
A: YES, but only on the leased portion. Art. XIV, Sec. 4(3) of
the 1987 Constitution provides that the assets of a non-
UNIVERSITY OF SANTO TOMAS
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governments are not allowed to levy taxes, fees or other
charges including real property taxes. (MIAA v. CA, G.R. No.
155650, 20 July 2006; MIAA v. City of Pasay, G.R. No. 163072,
02 Apr. 2009)
integrating and directing all reclamation projects for
the National Government. It was not organized as a
stock corporation, nor was it intended to operate
commercially and compete in the private market.
PNR is not a government and controlled corporation but an
instrumentality of the government hence it is not included
in the withdrawal of exemptions. Finally, under the
common limitations on local government units’ power of
taxation, it shall not extend to the levy of “taxes, fees or
charges of any kind on the National Government, its
agencies and instrumentalities, and local government
units.” (Sec. 133(o), LGC)
By virtue of its mandate, LLL in 2008 reclaimed several
portions of the foreshore and offshore areas of the
Manila Bay, some of which were within the territorial
jurisdiction of Q City. Certificates of titles to the
reclaimed properties in Q City were issued in the name
of LLL in 2008. In 2014, Q City issued warrants of Levy
on said reclaimed properties of LLL based on the
assessment for delinquent property taxes for the years
2010 to 2013.
The railroad tracks, train stations, freight customer
facilities, land improvements, and equipment within its
main station in Tutuban, Manila are properties of public
dominion intended for public use, and as such are exempt
from real property tax under Sec. 234(a) of the LGC. (MIAA
v. City of Pasay, G.R. No. 163072, 02 Apr. 2009)
(a) Are the reclaimed properties registered in the
name of LLL subject to real property tax?
A: The reclaimed properties are not subject to real property
tax because LLL is a government instrumentality. Under the
law, real property owned by the Republic of the Philippines
is exempt from real property tax unless the beneficial use
thereof has been granted to a taxable person. (Sec 234, LGC)
When the title of the real property is transferred to LLL, the
Republic remains the owner of the real property. Thus,
such arrangement does not result in the loss of the tax
exemption. (Republic v. City of Paranaque, G.R. No. 191109,
18 July 2012)
Q: The Philippine-British Association, Inc. (Association)
is a non-stock, non-profit organization which owns the
St. Michael's Hospital (Hospital). Sec. 216 in relation to
Sec. 215 of the LGC classifies all lands, buildings and
other improvements thereon actually, directly, and
exclusively used for hospitals as "special." A special
classification prescribes a lower assessment than a
commercial classification.
ALTERNATIVE ANSWER:
Within the premises of the Hospital, the Association
constructed the St. Michael's Medical Arts Center
(Center) which will house medical practitioners who
will lease the spaces therein for their clinics at
prescribed rental rates. The doctors who treat the
patients confined in the Hospital are accredited by the
Association.
NO. LLL is an instrumentality of the national government
which cannot be taxed by local government units. LLL is not
a government-owned or controlled corporation taxable for
real property taxes. (City of Lapu-Lapu v. PEZA, GR No.
184203, Nov. 26, 2014)
(b) Will your answer be the same in (a) if from 2010 to
the present time, LLL is leasing portions of the
reclaimed properties for the establishment and
use of popular fast-food restaurants J Burgers, G
Pizza, and K Chicken? (2015 BAR)
The City Assessor classified the Center as "commercial"
instead of "special" on the ground that the Hospital
owner gets income from the lease of its spaces to
doctors who also entertain out-patients. Is the City
Assessor correct in classifying the Center as
"commercial?" Explain. (2016 BAR)
A: NO. As a rule, properties owned by the Republic of the
Philippines are exempt from real property tax except when
the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person. When LLL
leased out portions of the reclaimed properties to taxable
entities, such as the popular fast food restaurants, the
reclaimed properties are subject to real property tax. (Sec.
234(a), LGC; GSIS v. City Treasurer, G.R. No. 186242, 23 Dec.
2009)
A: NO. The City Assessor is not correct in classifying the
Center as “commercial.” The fact alone that the separate St.
Michael’s Medical Arts Center will house medical
practitioners who shall treat the patients confined in the
Hospital and are accredited by the Association takes away
the said Medical Arts Center from being categorized as
“commercial” since a tertiary hospital is required by law to
have a pool of physicians who comprise the required
medical departments in various medical fields. (City
Assessor of Cebu City v. Association of Benevola de Cebu, Inc.,
G.R. No. 152904, 08 June 2007; Bar Q&A by Domondon, 2018)
Q: LLL is a government instrumentality created by
Executive Order to be primarily responsible for
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UNIVERSITY OF SANTO TOMAS
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TAXATION LAW
middle part are occupied by the Church and a convent,
the eastern side by a school run by the Church itself, the
southeastern
side
by
some
commercial
establishments, while the rest of the property, in
particular the northwestern side, is idle or unoccupied.
May the Church claim tax exemption on the entire
land? Decide with reasons. (2005 BAR)
4. APPRAISAL AND ASSESSMENT
(2018, 2009, 2005, 2003, 2001, 2000, 1990, 1988 BAR)
a) CLASSES OF REAL PROPERTY
b) ASSESSMENT BASED ON ACTUAL USE
(2018, 2009, 2005, 2003, 2001, 2000, 1990, 1988
BAR)
A: NO. The portions of the land occupied and used by the
church, convent and school run by the church are exempt
from real property taxes while the portion of the land
occupied by commercial establishments and the portion,
which is idle, are subject to real property taxes. The “usage”
of the property and not the “ownership" is the determining
factor whether or not the property is taxable. (Lung Center
of the Philippines v. Quezon City, G.R. No. 144104, 29 June
2004)
Q: In 2015, Kerwin bought a three-story house and lot
in Kidapawan, North Cotabato. The property has a floor
area of 600 sq.m. and is located inside a gated
subdivision. Kerwin initially declared the property as
residential for real property tax purposes.
In 2016, Kerwin started using the property in his
business of manufacturing garments for export. The
entire ground floor is now occupied by state-of-the-art
sewing machines and other equipment, while the
second floor is used as offices. The third floor is
retained by Kerwin as his family's residence. Kerwin's
neighbors became suspicious of the activities going on
inside the house, and they decided to report it to the
Kidapawan City Hall. Upon inspection, the local
government discovered that the property was being
utilized for commercial use. Immediately, the
Kidapawan Assessor reclassified the property as
commercial with an assessment level of 50% effective
January 2017, and assessed Kerwin back taxes and
interest. Kerwin claims that only 2/3 of the building
was used for commercial purposes since the third floor
remained as family residence. He argues that the
property should have been classified as partly
commercial and partly residential.
5. COLLECTION
a) DATE OF ACCRUAL
b) PERIOD OF COLLECT
c) REMEDIES OF LOCAL GOVERNMENT UNITS
6. TAXPAYER’S REMEDIES
(2022, 2019, 2018, 2014, 1993, 1991, 1988 BAR)
a) CONTESTING AN ASSESSMENT
(1) PAYMENT UNDER PROTEST; EXCEPTIONS
(2018, 2014, 1993, 1991, 1988 BAR)
Is Kerwin correct that only 2/3 of the property should
be considered commercial? (2018 BAR)
Q: In 2015, Kerwin bought a three-story house and lot
in Kidapawan, North Cotabato. The property has a floor
area of 600 sq.m. and is located inside a gated
subdivision. Kerwin initially declared the property as
residential for real property tax purposes.
A: YES. The property must be classified, valued, and
assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it. (Sec. 217,
LGC; UPLC Suggested Answers)
In 2016, Kerwin started using the property in his
business of manufacturing garments for export. The
entire ground floor is now occupied by state-of-the-art
sewing machines and other equipment, while the
second floor is used as offices. The third floor is
retained by Kerwin as his family's residence. Kerwin's
neighbors became suspicious of the activities going on
inside the house, and they decided to report it to the
Kidapawan City Hall. Upon inspection, the local
government discovered that the property was being
utilized for commercial use. Immediately, the
Kidapawan Assessor reclassified the property as
commercial with an assessment level of 50% effective
January 2017 and assessed Kerwin back taxes and
interest. Kerwin claims that only 2/3 of the building
was used for commercial purposes since the third floor
remained as family residence. He argues that the
property should have been classified as partly
ALTERNATIVE ANSWER:
NO. One of the fundamental principles in the appraisal,
assessment, levy, and collection of real property tax under
Sec. 198 of the LGC is that the real property shall be
classified for assessment purposes on the basis of its actual
use. Sec. 199 of the LGC defines “actual use” as referring to
the purpose for which the property is principally or
predominantly utilized by the person in possession thereof.
Hence, considering that, as admitted by Kerwin, 2/3 of the
property ‘s used for commercial purposes, the entire
property must be classified as “commercial” for real
property tax purposes. (UPLC Suggested Answers)
Q: The Roman Catholic Church owns a 2- hectare lot in
a town in Tarlac province. The southern side and
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commercial and partly residential.
to the remedy. The law provides that no protest (which is
the beginning of the disputation process) shall be
entertained unless the taxpayer first pays the tax. (Sec. 252,
LGC; UPLC Suggested Answers)
If Kerwin wants to file an administrative protest against
the assessment, is he required to pay the assessment
taxes first? With whom shall the protest be filed and
within what period? (2018 BAR)
A: YES. No protest shall be entertained unless Kerwin first
pays the tax. The words “paid under protest” must be
annotated on the tax receipts issued by the treasurer. The
protest in writing must be filed with the treasurer within 30
days from payment of the tax. (Sec. 252, LGC; UPLC
Suggested Answers)
b) CONTESTING A VALUATION OF PROPERTY
(1) APPEAL TO THE LOCAL BOARD OF ASSESSMENT
APPEALS
(2022, 2019 BAR)
Q: Fides filed a case before the Regional Trial Court
(RTC) questioning the authority of the local
government unit (LGU) to assess real property taxes
(RPT) on a certain property she owns. She also prayed
for a writ of preliminary injunction (WPI) to restrain
the LGU from collecting the RPT. The LGU moved to
dismiss Fides' case arguing that since the matter
involves RPT, her remedy was to file an appeal to the
Local Board of Assessment Appeals.
Q: Madam X owns real property in Caloocan City. On
July 1, 2014, she received a notice of assessment from
the City Assessor, informing her of a deficiency tax on
her property. She wants to contest the assessment.
(a) What are the administrative remedies available to
Madam X in order to contest the assessment and
their respective prescriptive periods?
(a) Is the LGU correct? Explain briefly.
A: The administrative remedies available to Madam X to
contest the assessment and their respective prescriptive
periods are as follows:
1.
Pay the deficiency real property tax under protest (Sec
252, LGC);
2.
File the protest with the local treasurer – The protest
in writing must be filed within 30 days from payment
of the tax to the provincial, city or municipal treasurer,
in the case of municipality within Metro Manila Area,
who shall decide the protest within 60 days from
receipt (Sec. 252, LGC);
3.
4.
A: NO, the LGU is not correct. The Supreme Court has held
that an appeal to the Local Board of Assessment Appeals is
not required where the taxpayer is questioning the very
authority and power of the LGU to assess and collect the
real property tax and that a court case in such a situation
may be properly resorted to. (Ty v. Trampe, G.R. No. 117577,
01 Dec. 1995; Bar Q&A by Riguera, 2023)
(b) If the RTC issues an order denying the application
for a WPI, and thereafter denies Fides' subsequent
motion for reconsideration, what is her remedy?
Explain briefly. (2022 BAR)
A: Fides' remedy is to file a petition for certiorari under
Rule 65 with the Court of Tax Appeals. The Supreme Court
has held that the remedy of an aggrieved party from an
interlocutory order of the RTC in a local tax case is a
petition for certiorari under Rule 65 filed with the Court of
Tax Appeals.
Appeal to the LBAA – If the protest is denied or upon
the lapse of the 60-day period for the treasurer to
decide, the taxpayer may appeal to the LBAA within
60 days and the case decided within 120 days (Sec.
226 and 229); and
Appeal to the CBAA – If not satisfied with the decision
of the LBAA, appeal to the CBAA within 30 days from
receipt of a copy of the decision. (Sec. 229 (c), LGC)
Here, the order denying the application for a WPI is an
interlocutory order since it does not completely dispose of
the case. Fides should show that the denial of the
application for a WPI was made with grave abuse of
discretion amounting to lack of or excess of jurisdiction.
NOTE: The mandatory period shall be 90 days (from 120
days) upon the effectivity of TRAIN Law.
(b) May Madam X refuse to pay the deficiency tax
assessment during the pendency of her appeal?
(2014 BAR)
Hence, Fides' remedy is to file a petition for certiorari under
Rule 65 with the Court of Tax Appeals. (City of Manila v.
Grecia-Cuerdo, G.R. No. 175723, 04 Feb. 2014; Bar Q&A by
Riguera, 2023)
A: NO. The payment of the deficiency tax is a condition
before she can protest the deficiency assessment. It is the
decision on the protest or inaction thereon that gives her
the right to appeal. This means that she cannot refuse to
pay the deficiency tax assessment during the pendency of
the appeal because it is the payment itself which gives rise
Q: ABC, Inc. owns a 950-square meter commercial lot in
Quezon City. It received a notice of assessment from the
City Assessor, subjecting the property to real property
taxes (RPT). Believing that the assessment was
erroneous, ABC, Inc. filed a protest with the City
75
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
Treasurer. However, for failure to pay the RPT, the City
Treasurer dismissed the protest.
(a) Was the City Treasurer correct in dismissing ABC,
lnc.'s protest? Explain.
A: YES. The City Treasurer correctly dismissed the protest.
No protest shall be entertained unless the taxpayer first
pays the real property tax. (Sec. 252, R.A No. 7160, LGC) ABC,
Inc. must show proof of payment by presenting a tax receipt
with the notation "paid under protest" before the local
treasurer would take cognizance of its protest. (Bar Q&A by
J. Dimaampao, 2020)
(b) Assuming that ABC, Inc. decides to appeal the
dismissal, where should the appeal be filed?
A: ABC Inc. should appeal the dismissal with the Local
Board of Assessment Appeals of Quezon City within sixty
(60) days from such denial or sixty (60) days from the lapse
of the period to act on the protest. (Sec. 226, R.A. 7160, LGC;
Bar Q&A by J. Dimaampao, 2020)
(2) APPEAL TO THE CENTRAL BOARD OF ASSESSMENT
APPEALS
(3) EFFECT OF PAYMENT OF TAXES
c) COMPROMISE OF REAL PROPERTY TAX
ASSESSMENT
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A: Exclusive appellate jurisdiction to review by appeal:
IV. JUDICIAL REMEDIES
1.
A. COURT OF TAX APPEALS (CTA)
(2018-2014, 2012, 2009, 2006 BAR)
2.
1. EXCLUSIVE ORIGINAL AND APPELLATE
JURISDICTION OVER CIVIL CASES
(2018, 2017, 2016, 2015, 2014, 2012, 2009, 2006 BAR)
Q: Krisp Kleen, Inc. (KKI) is a corporation engaged in
the manufacturing and processing of steel and its byproducts. It is both registered with the Board of
Investments with a pioneer status, and with the BIR as
a VAT entity. On October 10, 2010, it filed a claim for
refund/credit of input VAT for the period January 1 to
March 31, 2009 before the Commissioner of Internal
Revenue (CIR). On February 1, 2011, as the CIR had not
yet made any ruling on its claim for refund/credit, KKI,
fearful that its period to appeal to the courts might
prescribe, filed an appeal with the Court of Tax Appeals
(CTA).
(a) Can the CTA act on KKl's appeal?
A: NO. Pursuant to the pronouncement made the Supreme
Court in the case of Commissioner of Internal Revenue v.
Aichi Forging Company of Asia, Inc. (G.R. No. 184823,
February 12, 2013), the observance of the “120+30-day”
period is jurisdictional. Now, counting 120 days from
October 10, 2010, the last day for the CIR to act on the claim
for refund/credit fell on February 7, 2011, thus musing the
February 1, 2011 filing premature.
3.
4.
NOTE: The mandatory period shall be 90 days (from 120
days) upon the effectivity of TRAIN Law.
(b) Will your answer be the same if KKI filed its appeal
on March 20, 2011 and CIR had not yet acted on its
claim? (2018 BAR)
5.
A: YES. The filing of March 20, 2011 is still not compliant
with the “120+30-day” rule. As mentioned, the CIR has until
February 7, 2011 to decide on the claim for refund/credit of
input VAT. After the lapse of the 120-day period, the
taxpayer-claimant has 30 days to file an appeal before the
CTA. In the present ease. KKI had until March 9, 2011 to file
the appeal based on a deemed adverse decision on the claim
fer refund/credit; hence, the filing on March 26, 2011 was
belatedly done, and the CTA has no jurisdiction over such
claim for refund/credit. (UPLC Suggested Answers)
6.
Q: State at least five (5) cases under the exclusive
appellate jurisdiction of the Court of Tax Appeals (CTA)
(2016 BAR)
77
Decisions of the CIR in cases involving disputed
assessments, refunds of internal revenue taxes, fees
or other charges, penalties in relation thereto, or
other matters arising under the NIRC or other laws
administered by the BIR;
Inaction by the CIR in cases involving disputed
assessments, refunds of internal revenue taxes, fees
or other charges, penalties in relation thereto, or
other matters arising under the NIRC or other laws
administered by the BIR where the NIRC or other
applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the
inaction of the CIR within the one hundred eighty dayperiod under Sec. 228 of the NIRC shall be deemed a
denial for purposes of allowing the taxpayer to appeal
his case to the Court and does not necessarily
constitute a formal decision of the CIR on the tax case;
Provided, further, that should the taxpayer opt to
await the final decision of the CIR on the disputed
assessments beyond the one hundred eighty (180)day period abovementioned, the taxpayer may appeal
such final decision to the Court under Sec. 3(a), Rule 8
of these Rules; and Provided, still further, that in the
case of claims for refund of taxes erroneously or
illegally collected, the taxpayer must file a petition for
review with the Court prior to the expiration of the
two-year period under Sec. 229 of the NIRC;
Decisions, resolutions or orders of the Regional Trial
Courts in local tax cases decided or resolved by them
in the exercise of their original jurisdiction;
Decisions of the Commissioner of Customs in cases
involving liability for customs duties, fees or other
money charges, seizure, detention or release of
property affected, fines, forfeitures or other penalties
in relation thereto or other matters arising under the
Customs Law or other laws administered by the
Bureau of Customs;
Decisions of the Secretary of Finance on customs
cases elevated to him automatically for review from
decisions of the Commissioner of Customs adverse to
the Government under Sec. 2325 of the Tariff and
Customs Code; and
Decisions of the Secretary of Trade and Industry, in
the case of nonagricultural product, commodity or
article, and the Secretary of Agriculture, in the case of
agricultural product, commodity or article, involving
dumping and countervailing duties under Secs. 301
and 302, respectively, of the Tariff and Customs Code,
and safeguard measures under RA. No. 8800, where
either party may appeal the decision to impose or not
to impose said duties.” (Sec. 3(a), Rule 4, RRCTA)
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
The Court En Banc shall exercise exclusive appellate
jurisdiction to review by appeal the following:
1.
Decisions
or
resolutions
on
motion
for
reconsideration or new trial of the Court in Divisions
in the exercise of its exclusive appellate jurisdiction
over:
a.
b.
c.
2.
3.
4.
5.
6.
7.
8.
NOTE: It is recommended that any five (5) of the aboveenumerated cases be given credit.
Q: For calendar year 2011, FFF, Inc., a VAT­registered
corporation, reported unutilized excess input VAT in
the amount of P 1,000,000.00 attributable to its zerorated sales. Hoping to impress his boss, Mr. G, the
accountant of FFF, Inc., filed with the Bureau of Internal
Revenue (BIR) on January 31, 2013 a claim for tax
refund/credit of the Pl,000,000.00 unutilized excess
input VAT of FFF, Inc. for 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 Pl,000,000.00 unutilized
excess input VAT of FFF, Inc. for 2011.
Cases arising from administrative agencies –
Bureau of Internal Revenue, Bureau of Customs,
Department of Finance, Department of Trade
and Industry, Department of Agriculture;
Local tax cases decided by the Regional Trial
Courts in the exercise of their original
jurisdiction; and
Tax collection cases decided by the Regional
Trial Court in the exercise of their original
jurisdiction involving final and executory
assessments for taxes, fees, charges and
penalties, where the principal amount of taxes
and penalties claimed is less than one million
pesos;
Did the CTA acquire jurisdiction over the Petition of
FFF, Inc.? (2015 BAR)
A: CTA did not acquire jurisdiction over the petition of FFF.
Filing the judicial claim on March 15, 2013 was premature.
The jurisdictional 120-day period had not yet expired when
the petition of FFF was filed. (CIR v. Aichi Forging Company
of Asia, G.R. No. 184823, 06 Oct. 2010)
Decisions, resolutions or orders of the Regional Trial
Courts in local tax cases decided or resolved by them
in the exercise of their appellate jurisdiction;
Decisions, resolutions or orders of the Regional Trial
Courts in tax collection cases decided or resolved by
them in the exercise of their appellate jurisdiction;
Q: 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 the 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.
Decisions, resolutions or orders on motions for
reconsideration or new trial of the Court in division in
the exercise of its exclusive original jurisdiction over
tax collection cases;
Decisions of the Central Board of Assessment Appeals
(CBAA) in the exercise of its appellate jurisdiction
over cases involving the assessment and taxation of
real property originally decided by the provincial or
city board of assessment appeals;
Decisions, resolutions or orders on motions for
reconsideration or new trial of the Court in Division in
the exercise of its exclusive original jurisdiction over
cases involving criminal offenses arising from
violations of the National Internal Revenue Code or
the Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or
Bureau of Customs;
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? (2014
BAR)
Decisions, resolutions or orders on motion for
reconsideration or new trial of the Court in Division in
the exercise of its exclusive appellate jurisdiction over
criminal offenses mentioned in the preceding
subparagraph; and
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
Decisions, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction
over criminal offenses mentioned in subparagraph
(f).” (Sec. 2, Rule 4, RRCTA)
A: GGG, Inc. should seek recourse with the Court of Tax
Appeals (CTA) which has jurisdiction.
78
QuAMTO (1987-2022)
Are the deficiency tax assessment and warrant of
distraint and/or levy issued against KLM Corp. valid?
Explain. (2019 BAR)
There is no provision in law that expressly provides where
exactly the adverse ruling the Secretary of Finance under
Sec. 4 of the NIRC is appealable. However, RA. No. 1125, as
amended, addresses the seeming gap in the law as it vests
upon the CTA, albeit impliedly, with jurisdiction over the
case as “other matters” arising under the NIRC or other
laws administered by the BIR. Furthermore, the Supreme
Court held that the jurisdiction to review the rulings of the
Secretary of Finance on the issues raised against a ruling of
the Commissioner of Internal Revenue, pertains to the
Court of Tax Appeals in the exercise of its appellate
jurisdiction. (Philamlife v. The Sec. of Finance, G.R. No.
210987, 24 Nov. 2014; UPLC Suggested Answers)
A: NO. Both the deficiency tax assessment and the warrant
issued are invalid. The deficiency tax assessment issued
against KLM Corp. is invalid due to the absence of a
preliminary assessment notice (PAN), which is required by
law for the validity of the assessment. (Sec. 228, NIRC)
Sending a PAN to the taxpayer to inform him of the
assessment made is but a part of the “due process
requirement in the issuance of a deficiency tax
assessment,” the absence of which renders nugatory any
assessment made by the tax authorities. (CIR v. Metro Star
Superama, Inc., G.R. No. 185371, 08 Dec. 2010)
Q: Mr. Abraham Eugenio, a pawnshop operator, after
having been required by the Revenue District Officer to
pay value-added tax pursuant to a Revenue
Memorandum Order (RMO) of the Commissioner of
Internal Revenue, filed with the Regional Trial Court an
action questioning the validity of the RMO.
The warrant of distraint and/or levy cannot be issued to
enforce an invalid assessment. An assessment is a
preliminary step for the collection of taxes. If the
preliminary step in the collection process is invalid, the
entire collection process is also invalid which includes the
warrant issued.
If you were the judge, will you dismiss the case? (2006
BAR)
Q: The BIR Commissioner, in his relentless
enforcement of the Run After Tax Evaders (RATE)
program, filed with the Department of Justice (DOJ)
charges against a movie and television celebrity. The
Commissioner alleged that the celebrity earned
around P50 million in fees from product endorsements
in 2016 which she failed to report in her income tax
and VAT returns for said year. The celebrity
questioned the proceeding before the DOJ on the
ground that she was denied due process since the BIR
never issued any Preliminary Assessment Notice (PAN)
or a Final Assessment Notice (FAN), both of which are
required under Sec. 228 of the NIRC whenever the
Commissioner finds that proper taxes should be
assessed.
A: YES. A RMO is in reality a ruling, or an opinion issued by
the Commissioner in implementing the provisions of the
Tax Code dealing with the taxability of pawnshops. The
power to review rulings issued by the Commissioner is
lodged with the Court of Tax Appeals (CTA) and not with
the Regional Trial Court. A ruling falls within the purview
of “other matters arising under the Tax Code,’’ appealable
only to the CTA. (CIR v. Leal, G.R. No. 113459, 18 Nov. 2002)
2. EXCLUSIVE ORIGINAL AND APPELLATE
JURISDICTION OVER CRIMINAL CASES
B. PROCEDURES
(2019-2017, 2015-2009, 2005, 2001, 1998, 1996 BAR)
Is the celebrity's contention tenable? (2018 BAR)
A: NO. In cases where a fraudulent return is filed with the
intent to evade a tax, a proceeding in court for the collection
of such tax maybe filed without assessment. (Sec. 222(a),
NIRC) Assessment is not necessary before the filing of a
criminal complaint for tax evasion. (CIR v. Pascor Realty and
Development Corp., G.R. No. 128315, June 29, 1999; UPLC
Suggested Answers)
1. FILING OF AN ACTION FOR COLLECTION OF TAXES
(2019-2017, 2012, 2011 BAR)
a) INTERNAL REVENUE TAXES
(2019, 2018, 2017, 2012, 2011 BAR)
Q: On October 5, 2016, the Bureau of Internal Revenue
(BIR) sent KLM Corp. a Final Assessment Notice (FAN),
stating that after its audit pursuant to a Letter of
Authority duly issued therefor, KLM Corp. had
deficiency value-added and withholding taxes.
Subsequently, a warrant of distraint and/or levy was
issued against KLM Corp. KLM Corp. opposed the
actions of the BIR on the ground that it was not
accorded due process because it did not even receive a
Preliminary Assessment Notice (PAN) after the BIR’ s
investigation, which the BIR admitted:
b) LOCAL TAXES
2. CIVIL CASES
(2017, 2014, 2010, 2009, 2001, 1998, 1996 BAR)
a) WHO MAY APPEAL, MODE OF APPEAL, AND EFFECT
OF APPEAL
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW
TAXATION LAW
Q: What are the conditions that must be complied with
before the Court of Tax Appeals may suspend the
collection of national internal revenue taxes?
A: The conditions under which the Court of Tax Appeals
may suspend the collection of national internal revenue
taxes are as follows:
b) SUSPENSION OF COLLECTION OF TAXES
(2017, 2010, 2009 BAR)
Q: Globesmart Services, Inc. received a final assessment
notice with formal letter of demand from the BIR for
deficiency income tax, value-added tax and withholding
tax for the taxable year 2016 amounting to P48 million.
Globesmart Services, Inc. filed a protest against the
assessment, but the Commissioner of Internal Revenue
denied the protest. Hence, Globesmart Services, Inc.
filed a petition for review in the CTA with an urgent
motion to suspend the collection of tax.
1.
2.
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. (2017 BAR)
3.
The collection, in the opinion of the Court, will
jeopardize the interest of the government and/or the
taxpayer; and
The taxpayer is willing to deposit in Court the amount
being collected or to file a surety bond for not more
than double the amount of the tax (Sec. 11, R.A.1125, as
amended; Bar Q&A by J. Dimaampao, 2020)
c) INJUNCTION NOT AVAILABLE TO RESTRAIN
COLLECTION
(2014, 2001, 1998, 1996 BAR)
Q: May the courts enjoin the collection of revenue
taxes? Explain your answer. (2001 BAR)
A: As a general rule, the courts have no authority to enjoin
the collection of revenue taxes. (Sec. 218, NIRC) However,
the Court of Tax Appeals is empowered to enjoin the
collection of taxes through administrative remedies when
collection could jeopardize the interest of the government
or taxpayer. (RA. No. 1125)
(a) May the collection of taxes be suspended? Explain
your answer.
A: YES. As provided by RA. No. 1125, as amended by RA. No.
9282, that when in the opinion of the Court the collection by
the aforementioned government agencies may jeopardize
the interest of the Government and/or the taxpayer, the
Court at any stage of the proceeding may suspend the
collection and require the taxpayer either to deposit the
amount claimed or to file a surety bond for not more than
double the amount with the Court.
3. CRIMINAL CASES
(2018, 2015, 2010, 2005 BAR)
a) INSTITUTION AND PROSECUTION OF CRIMINAL
ACTION
(2018, 2010, 2005 BAR)
(b) Is the CTA Division justified in requiring
Globesmart Services, Inc. to post a surety bond as a
condition for the suspension of the deficiency tax
collection? Explain your answer.
Q: Based on the Affidavit of the Commissioner of
Internal Revenue (CIR), an Information for failure to
file income tax return under Sec. 255 of the National
Internal Revenue Code (NIRC) was filed by the
Department of Justice (DOJ) with the Manila Regional
Trial Court (RTC) against XX, a Manila resident.
A: NO. The Supreme Court in the Tridharma Case cited the
case of Pacquiao v. Court of Tax Appeals (G.R. No. 213394,
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. In 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. (UPLC Suggested Answers)
UNIVERSITY OF SANTO TOMAS
2023 QuAMTO
A petition for review is pending before the Court of Tax
Appeals;
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.
Is a prior assessment necessary before an Information
for violation of Sec. 255 of the NIRC could be filed in
court? Explain. (2010 BAR)
80
A: NO. Prior assessment is not necessary before an
information for violation of Sec. 255 of the NIRC could be
filed in Court. For one thing, a criminal complaint is
instituted not to demand payment, but to penalize the
QuAMTO (1987-2022)
liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in
the same proceeding before the Court of Tax Appeals (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), RA. No.
9282; Santos v. People, G.R. No. 173176, 26 Aug. 2008)
taxpayer for violation of the NIRC. For another, the crime is
complete when the violator has knowingly and willfully
filed a fraudulent return with intent to evade and defeat a
part or all of the tax. (Guzik v. U.S., 54 F 2d. 618; Bar Q&A by
J. Dimaampao, 2020)
Q: 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 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.
c) PERIOD TO APPEAL
4. APPEAL TO THE CTA EN BANC
(2015, 2013, 2010 BAR)
Q: On May 15, 2013, CCC, Inc. received the Final Decision
on Disputed Assessment issued by the Commissioner of
Internal Revenue (CIR) dismissing the protest of CCC,
Inc. and affirming the assessment against said
corporation. On June 10, 2013, CCC, Inc. filed a Petition
for Review with the Court of Tax Appeals (CTA) in
division. On July 31, 2015, CCC, Inc. received a copy of
the Decision dated July 22, 2015 of the CT A division
dismissing its Petition. CCC, Inc. immediately filed a
Petition for Review with the CTA En Banc on August 6,
2015. Is the immediate appeal by CCC, Inc. to the CTA En
Banc of the adverse Decision of the CTA division the
proper remedy? (2015 BAR)
Is the ruling of the DOJ correct? Explain. (2005 BAR)
A: YES. The ruling of the DOJ in denying 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 fraudulent
return with intent to evade/defeat a part or all of the tax.
(Ungab v. Cusi, Jr., G.R. No. L-41919-24, 30 May 1980) What
is involved here is not the collection of taxes but a criminal
prosecution for violation of the NIRC.
A: NO. CCC, Inc. should first file a motion for reconsideration
or motion for new trial with the CTA Division. Before the
CTA En banc could take cognizance of the petition for
review concerning a case falling under its exclusive
appellate jurisdiction, the litigant must sufficiently show
that it sought prior reconsideration or moved for a new trial
with the concerned CTA Division. (Commissioner of Customs
v. Marina Sale, G.R. No. 183868, 22 Nov. 2010; Sec. 1, Rule 8,
RRCTA)
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 entitle the taxpayer to protest. (CIR
v. Pascor Realty and Development Corp., G.R. No. 128315, 29
June 1999) An assessment is a formal notice to the taxpayer
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, G.R. No. L-23226, 28
Nov. 1967)
5. PETITION FOR REVIEW ON CERTIORARI TO THE SC
b) INSTITUTION OF CIVIL ACTION IN CRIMINAL
ACTION
(2015, 2010 BAR)
Q: After filing an Information for violation of Sec. 254 of
the National Internal Revenue Code (Attempt to Evade
or Defeat Tax) with the CTA, the Public Prosecutor
manifested that the People is reserving the right to file
the corresponding civil action for the recovery of the
civil liability for taxes. As counsel for the accused,
comment on the People's manifestation. (2015 BAR)
A: The manifestation is not proper. The criminal action and
the corresponding civil action for the recovery of the civil
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL L AW