TAXATION LAW

2010

PART I

True or False.

a. In civil cases involving the collection of internal revenue taxes, prescription is

construed strictly against the government and liberally in favor of the taxpayer.
(1%)

b. In criminal cases involving tax offenses punishable under the National Internal
Revenue Code (NIRC), prescription is construed strictly against the government.
(1%)

c. In criminal cases where the Court of Tax Appeals (CTA) has exclusive original
jurisdiction, the right to file a separate civil action for the recovery of taxes may
be reserved. (1%)

d. Proceedings before the CTA in the exercise of its exclusive original jurisdiction
are in the nature of trial de novo. (1%)

e. Judgments, resolutions or orders of the Regional Trial Court in the exercise of

its original jurisdiction involving criminal offenses arising from violations of the
NIRC are appealable to the CTA, which shall hear the cases en banc. (1%)

II

a. What is the "all events test"? Explain briefly. (2%)

b. What is the "immediacy test"? Explain briefly. (2%)

c. What is the "rational basis" test? Explain briefly. (2%)

 d. What is the effect of the execution by a taxpayer of a "waiver of the statute of
limitations" on his defense of prescription? (2%)

e. What is the basis for the computation of business tax on contractors under the
Local Government Code? (2%)

f. How are retiring businesses taxed under the Local Government Code? (2%)

III

Mirador, Inc., a domestic corporation, filed its Annual Income Tax Return for its taxable
year 2008 on April 15, 2009. In the Return, it reflected an income tax overpayment of
P1,000,000.00 and indicated its choice to carry-over the overpayment as an automatic
tax credit against its income tax liabilities in subsequent years.

On April 15, 2010, it filed its Annual Income Tax Return for its taxable year 2009
reflecting a taxable loss and an income tax overpayment for the current year 2009 in the
amount of P500,000.00 and its income tax overpayment for the prior year 2008 of
P1,000,000.00.

In its 2009 Return, the corporation indicated its option to claim for refund the total
income tax overpayment of P1,500,000.00

Choose which of the following statements is correct.

a. Mirador, Inc. may claim as refund the total income tax overpayment of
P1,500,000.00 reflected in its income tax return for its taxable year 2009;

b. It may claim as refund the amount of P500,000.00 representing its income tax
overpayment for its taxable year 2009; or

c. No amount may be claimed as refund.

Explain the basis of your answer. (5%)
IV

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.

Is the CIR correct? Explain. (5%)

Does the Court of Appeals have the power to review compromise agreements forged by
the Commissioner of Internal Revenue and a taxpayer? Explain. (5%)

VI

Based on the Affidavit of the Commissioner of Internal Revenue (CIR), an Information

for failure to file income tax return under Section 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.

Is a prior assessment necessary before an Information for violation of Section 255 of the
NIRC could be filed in court? Explain. (4%)

VII

What are the conditions that must be complied with before the Court of Tax Appeals
may suspend the collection of national internal revenue taxes? (3%)
VIII

What is the rule on appeal from decisions of the Collector of Customs in protest and
seizure cases? When is the decision of the Collector of Customs appealable to the
Court of Tax Appeals? Explain. (5%)

IX

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).

a. Was the protest of the corporation filed on time? Explain. (3%)

b. Was the appeal with the Pasay RTC filed on time? Explain. (3%)

PART II

True or False. (1% each)

a. Gains realized by the investor upon redemption of shares of stock in a mutual

fund company are exempt from income tax.

b. A corporation can claim the optional standard deduction equivalent to 40% of its
gross sales or receipts, as the case may be.

c. Premium payment for health insurance of an individual who is an employee in an

amount of P2,500 per year may be deducted from gross income if his gross
salary per year is not more than P250,000.

d. The Tax Code allows an individual taxpayer to pay in two equal installments, the
first installment to be paid at the time the return is filed, and the second on or
before July 15 of the same year, if his tax due exceeds P2,000.
 e. An individual taxpayer can adopt either the calendar or fiscal period for purposes
of filing his income tax return.

f. The capitalization rules may be resorted to by the BIR in order to compel

corporate taxpayers to declare dividends to their stockholders regularly.

g. Informer’s reward is subject to a final withholding tax of 10%.

h. A non-resident alien who stays in the Philippines for less than 180 days during
the calendar year shall be entitled to personal exemption not to exceed the
amount allowed to citizens of the Philippines by the country of which he is subject
or citizen.

XI

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.

a. Construction by XYZ Construction Co. of concrete barriers for the Asian

Development Bank in Ortigas Center to prevent car bombs from ramming the
ADB gates along ADB Avenue in Mandaluyong City. (3%)

b. Call 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. (3%)

c. Sale of orchids by a flower shop which raises its flowers in Tagaytay. (3%)

XII

Ferremaro, Inc., a manufacturer of handcrafted shoes, maintains its principal office in

Cubao, Quezon City. It has branches/sales offices in Cebu and Davao. Its factory is
located in Marikina City where most of its workers live. Its principal office in Quezon City
is also a sales office.

Sales of finished products for calendar year 2009 in the amount of P10 million were
made at the following locations:
 i) Cebu branch 25%

ii) Davao branch 15%

iii) Quezon City branch 60%

Total 100%

Where should the applicable local taxes on the shoes be paid? Explain. (3%)

XIII

XYZ Shipping Corporation is a branch of an international shipping line with voyages

between Manila and the West Coast of the U.S. The company’s vessels load and
unload cargoes at the Port of Manila, albeit it does not have a branch or sales office in
Manila. All the bills of lading and invoices are issued by the branch office in Makati
which is also the company’s principal office.

The City of Manila enacted an ordinance levying a 2% tax on gross receipts of shipping
lines using the Port of Manila.

Can the City Government of Manila legally impose said levy on the corporation?
Explain. (3%)

XIV

A inherited a two-storey building in Makati from his father, a real estate broker in the
‘60s. A group of Tibetan monks approached A and offered to lease the building in order
to use it as a venue for their Buddhist rituals and ceremonies. A accepted the rental of
P1 million for the whole year.

The following year, the City Assessor issued an assessment against A for non-payment
of real property taxes.

Is the assessor justified in assessing A’s deficiency real property taxes? Explain. (3%)
XV

Don Sebastian, single but head of the family, Filipino, and resident of Pasig City, died
intestate on November 15, 2009. He left the following properties and interests:

House and lot (family home) in P

Pasig 800,000

Vacation house and lot in

Florida, USA 1,500,000

Agricultural land in Naic,

Cavite which he inherited from 2,000,000
his father

Car which is being used by his

brother in Cavite 500,000

Proceeds of life insurance

where he named his estate as
irrevocable beneficiary 1,000,000

Household furnitures and

appliances 1,000,000

Claims against a cousin who

has assets of P10,000 and
liabilities of P100,000 100,000

Shares of stock in ABC Corp,

a domestic enterprise 100,000
 The expenses and charges on the estate
are as follows:

P
Funeral Expenses 250,000

Legal fees for the settlement of

the estate 500,000

Medical expenses of last

illness 600,000

Claims against the estate 300,000

The compulsory heirs of Don Sebastian approach you and seek your assistance in the
settlement of his estate for which they have agreed to the above-stated professional
fees. Specifically, they request you to explain and discuss with them the following
questions. You oblige:

a. What are the properties and interests that should be included in the computation
of the gross estate of the decedent? Explain. (2.5%)

b. What is the net taxable estate of the decedent? Explain. (2.5%)

c. When is the due date for filing and payment of the applicable tax return and tax?
Are these dates extendible? If so, under what conditions or requirements? (2.5%)

d. If X, one of the compulsory heirs, renounces his share in the inheritance in favor
of the other co-heirs, is there any tax implication of X’s renunciation? What about
the other coheirs? (2.5%)
XVI

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. Explain the legal basis of your tax advice. (3%)

XVII

In 2009, Caruso, a resident Filipino citizen, received dividend income from a U.S.-based
corporation which owns a chain of Filipino restaurants in the West Coast, U.S.A. The
dividend remitted to Caruso is subject to U.S. withholding tax with respect to a non-
resident alien like Caruso.

a. What will be your advice to Caruso in order to lessen the impact of possible
double taxation on the same income? (3%)

b. Would your answer in A. be the same if Caruso became a U.S. immigrant in

2008 and had become a non-resident Filipino citizen? Explain the difference in
treatment for Philippine income tax purposes. (3%)

XVIII

ABC, a domestic corporation, entered into a software license agreement with XYZ, a
non-resident foreign corporation based in the U.S. Under the agreement which the
parties forged in the U.S., XYZ granted ABC the right to use a computer system
program and to avail of technical know-how relative to such program. In consideration
for such rights, ABC agreed to pay 5% of the revenues it receives from customers who
will use and apply the program in the Philippines.

Discuss the tax implication of the transaction. (5%)

2011

Set A

(1) A municipality may levy an annual ad valorem tax on real property such as land,
building, machinery, and other improvement only if

(A) the real property is within the Metropolitan Manila Area.

(B) the real property is located in the municipality.

(C) the DILG authorizes it to do so.

(D) the power is delegated to it by the province.

(2) Anne Lapada, a student activist, wants to impugn the validity of a tax on text
messages. Aside from claiming that the law adversely affects her since she sends
messages by text, what may she allege that would strengthen her claim to the right to
file a taxpayer’s suit?

(A) That she is entitled to the return of the taxes collected from her in case the court
nullifies the tax measure.

(B) That tax money is being extracted and spent in violation of the constitutionally
guaranteed right to freedom of communication.

(C) That she is filing the case in behalf of a substantial number of taxpayers.

(D) That text messages are an important part of the lives of the people she represents.

(3) There is no taxable income until such income is recognized. Taxable income is
recognized when the

(A) taxpayer fails to include the income in his income tax return.

(B) income has been actually received in money or its equivalent.

(C) income has been received, either actually or constructively.

(D) transaction that is the source of the income is consummated.

(4) Keyrand, Inc., a Philippine corporation, sold through the local stock exchange
10,000 PLDT shares that it bought 2 years ago. Keyrand sold the shares for P2 million
and realized a net gain of P200,000.00. How shall it pay tax on the transaction?

(A) It shall declare a P2 million gross income in its income tax return, deducting its cost
of acquisition as an expense.

(B) It shall report the P200,000.00 in its corporate income tax return adjusted by the
holding period.

(C) It shall pay 5% tax on the first P100,000.00 of the P200,000.00 and 10% tax on the
remaining P100,000.00.

(D) It shall pay a tax of one-half of 1% of the P2 million gross sales.

(5) Amaretto, Inc., imported 100 cases of Marula wine from South Africa. The shipment
was assessed duties and value-added taxes of P300,000 which Amaretto, Inc.
immediately paid. The Bureau of Customs did not, however, issue the release papers of
the shipment yet since the Food and Drug Administration (FDA) needed to test the
suitability of the wine for human consumption. Is the Bureau of Customs at fault for
refusing to release the shipment just as yet?

(A) Yes, because the importation was already terminated as a result of the payment of
the taxes due.

(B) Yes, the Bureau of Customs is estopped from holding the release of the shipment
after receiving the payment.

(C) No, if the amount paid as duties and value-added taxes due on the importation was
insufficient.

(D) No, because the Bureau of Customs has not yer issued the legal permit for
withdrawal pending the FDA's findings.

(6) Which theory in taxation states that without taxes, a government would be paralyzed
for lack of power to activate and operate it, resulting in its destruction?

(A) Power to destroy theory

(B) Lifeblood theory

(C) Sumptuary theory

(D) Symbiotic doctrine

(7) The spouses Helena and Federico wanted to donate a parcel of land to their son
Dondon who is getting married in December, 2011. The parcel of land has a zonal
valuation of P420,000.00. What is the most efficient mode of donating the property?

(A) The spouses should first donate in 2011 a portion of the property valued at
P20,000.00 then spread the P400,000.00 equally for 2012, 2013, 2014 and 2015.

(B) Spread the donation over a period of 5 years by the spouses donating P100,000.00
each year from 2011 to 2015.

(C) The spouses should each donate a P110,000.00 portion of the value of the property
in 2011 then each should donate P100,000.00 in 2012.

(D) The spouses should each donate a P100,000.00 portion of the value of the property
in 2011, and another P100,000.00 each in 2012. Then, in 2013, Helena should donate
the remaining P20,000.00.

(8) Mia, a compensation income earner, filed her income tax return for the taxable year
2007 on March 30, 2008. On May 20, 2011, Mia received an assessment notice and
letter of demand covering the taxable year 2007 but the postmark on the envelope
shows April 10, 2011. Her return is not a false and fraudulent return. Can Mia raise the
defense of prescription?

(A) No. The 3 year prescriptive period started to run on April 15, 2008, hence, it has not
yet expired on April 10, 2011.

(B) Yes. The 3 year prescriptive period started to run on April 15, 2008, hence, it had
already expired by May 20, 2011.

(C) No. The prescriptive period started to run on March 30, 2008, hence, the 3 year
period expired on April 10, 2011.
(D) Yes. Since the 3-year prescriptive period started to run on March 30, 2008, it
already expired by May 20, 2011.

(9) Double taxation in its general sense means taxing the same subject twice during the
same taxing period. In this sense, double taxation

(A) violates substantive due process.

(B) does not violate substantive due process.

(C) violates the right to equal protection.

(D) does not violate the right to equal protection.

(10) The payor of passive income subject to final tax is required to withhold the tax from
the payment due the recipient. The withholding of the tax has the effect of

(A) a final settlement of the tax liability on the income.

(B) a credit from the recipient's income tax liability.

(C) consummating the transaction resulting in an income.

(D) a deduction in the recipient's income tax return.

(11) Guidant Resources Corporation, a corporation registered in Norway, has a 50 MW

electric power plant in San Jose, Batangas. Aside from Guidant's income from its power
plant, which among the following is considered as part of its income from sources within
the Philippines?

(A) Gains from the sale to an Ilocos Norte power plant of generators bought from the
United States.

(B) Interests earned on its dollar deposits in a Philippine bank under the Expanded
Foreign Currency Deposit System.

(C) Dividends from a two-year old Norwegian subsidiary with operations in Zambia but
derives 60% of its gross income from the Philippines.
(D) Royalties from the use in Brazil of generator sets designed in the Philippines by its
engineers.

(12) Tong Siok, a Chinese billionaire and a Canadian resident, died and left assets in
China valued at P80 billion and in the Philippines assets valued at P20 billion. For
Philippine estate tax purposes the allowable deductions for expenses, losses,
indebtedness, and taxes, property previously taxed, transfers for public use, and the
share of his surviving spouse in their conjugal partnership amounted to P15 billion.
Tong's gross estate for Philippine estate tax purposes is

(A) P20 billion.

(B) P5 billion.

(C) P100 billion.

(D) P85 billion.

(13) Anktryd, Inc., bought a parcel of land in 2009 for P7 million as part of its inventory
of real properties. In 2010, it sold the land for P12 million which was its zonal valuation.
In the same year, it incurred a loss of P6 million for selling another parcel of land in its
inventory. These were the only transactions it had in its real estate business. Which of
the following is the applicable tax treatment?

(A) Anktryd shall be subject to a tax of 6% of P12 million.

(B) Anktryd could deduct its P6 million loss from its P5 million gain.

(C) Anktryd's gain of P5 million shall be subject to the holding period.

(D) Anktryd's P6 million loss could not be deducted from its P5 million gain.

(14) 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. Is the BIR correct?
(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.

(C) No. Aplets is a non-resident foreign corporation not engaged in trade or business in
the Philippines.

(D) Yes. Aplets is doing business in the Philippines through its exclusive distributor
Kim's Trading. Inc.

(15) In 2009, Spratz, Inc.’s net profit before tax was P35 million while its operating
expenses was P31 million. In 2010, its net profit before tax was P40 million and its
operating expenses was P38 million. It did not declare dividends for 2009 and 2010.
And it has no proposed capital expenditures for 2011 and the immediate future. May
Spratz be subject to the improperly accumulated tax on its retained profits for 2009 and
2010?

(A) Yes, since the accumulated amounts are reasonable for operations in relation to
what it usually needed annually.

(B) Yes, since the accumulation is not reasonably necessary for the immediate needs of
the business.

(C) No, because there is no showing that the taxpayer's 2009 and 2010 net profit before
tax exceeded its paid-up capital.

(D) No, because the taxpayer is not shown to be a publicly-listed corporation, a bank, or
an insurance company.

(16) The actual effort exerted by the government to effect the exaction of what is due
from the taxpayer is known as

(A) assessment.

(B) levy.

(C) payment.
(D) collection.

(17) Although the power of taxation is basically legislative in character, it is NOT the
function of Congress to

(A) fix with certainty the amount of taxes.

(B) collect the tax levied under the law.

(C) identify who should collect the tax.

(D) determine who should be subject to the tax.

(18) Passive income includes income derived from an activity in which the earner does
not have any substantial participation. This type of income is

(A) usually subject to a final tax.

(B) exempt from income taxation.

(C) taxable only if earned by a citizen.

(D) included in the income tax return.

(19) In 2010, Juliet Ulbod earned P500,000.00 as income from her beauty parlor and
received P250,000.00 as Christmas gift from her spinster aunt. She had no other
receipts for the year. She spent P150,000.00 for the operation of her beauty parlor. For
tax purposes, her gross income for 2010 is

(A) P750,000.00.

(B) P500,000.00.

(C) P350,000.00.

(D) P600,000.00.
(20) Exempted from donor’s taxation are gifts made

(A) for the use of the barangay.

(B) in consideration of marriage.

(C) to a school which is a stock corporation.

(D) to a for-profit government corporation.

(21) Federico, a Filipino citizen, migrated to the United States some six years ago and
got a permanent resident status or green card. He should pay his Philippine income
taxes on

(A) the gains derived from the sale in California, U.S.A. of jewelry he purchased in the
Philippines.

(B) the proceeds he received from a Philippine insurance company as the sole
beneficiary of life insurance taken by his father who died recently.

(C) the gains derived from the sale in the New York Stock Exchange of shares of stock
in PLDT, a Philippine corporation.

(D) dividends received from a two year old foreign corporation whose gross income was
derived solely from Philippine sources.

(22) An example of a tax where the concept of progressivity finds application is the

(A) income tax on individuals.

(B) excise tax on petroleum products.

(C) value-added tax on certain articles.

(D) amusement tax on boxing exhibitions.

(23) A corporation may change its taxable year to calendar or fiscal year in filing its
annual income tax return, provided

(A) it seeks prior BIR approval of its proposed change in accounting period.

(B) it simultaneously seeks BIR approval of its new accounting period.

(C) it should change its accounting period two years prior to changing its taxable year.

(D) its constitution and by-laws authorizes the change.

(24) What is the rule on the taxability of income that a government educational
institution derives from its school operations? Such income is

(A) subject to 10% tax on its net taxable income as if it is a proprietary educational
institution.

(B) Exempt from income taxation if it is actually, directly, and exclusively used for
educational purposes.

(C) subject to the ordinary income tax rates with respect to incomes derived from
educational activities.

(D) Exempt from income taxation in the same manner as government-owned and
controlled corporations.

(25) Which among the following reduces the gross estate (not the net estate) of a citizen
of the Philippines for purposes of estate taxation?

(A) Transfers for public use

(B) Property previously taxed

(C) Standard deduction of P1 million

(D) Capital of the surviving spouse

(26) Ka Pedring Matibag, a sole proprietor, buys and sells "kumot at kulambo" both of
which are subject to value-added tax. Since he is using the calendar year as his taxable
year, his taxable quarters end on the last day of March, June, September, and
December. When should Ka Pedring file the VAT quarterly return for his gross sales or
receipts for the period of June 1 to September 30?

(A) Within 25 days from September 30

(B) Within 45 days from September 30

(C) Within 15 days from September 30

(D) Within 30 days from September 30

(27) In January 2011, the BIR issued a ruling that Clemen's vodka imports were not
subject to increased excise tax based on his claim that his net retail price was only
P200 per 750 milliliter bottle. This ruling was applied to his imports for May, June, and
July 2011. In September 2011, the BIR revoked its ruling and assessed him for
deficiency taxes respecting his May, June and July 2011 vodka imports because it
discovered that his net retail price for the vodka was P250 per bottle from January to
September 2011. Does the retroactive application of the revocation violate Clemen's
right to due process as a taxpayer?

(A) Yes, since the presumption is that the BIR ascertained the facts before it made its
ruling.

(B) No, because he acted in bad faith when he claimed a lower net retail price than what
he actually used.

(C) No, since he could avail of remedies available for disputing the assessment.

(D) Yes, since he had already acquired a vested right in the favorable BIR ruling.
(28) Don Fortunato, a widower, died in May, 2011. In his will, he left his estate of P100
million to his four children. He named his compadre, Don Epitacio, to be the
administrator of the estate. When the BIR sent a demand letter to Don Epitacio for the
payment of the estate tax, he refused to pay claiming that he did not benefit from the
estate, he not being an heir. Forthwith, he resigned as administrator. As a result of the
resignation, who may be held liable for the payment of the estate tax?

(A) Don Epitacio since the tax became due prior to his resignation.

(B) The eldest child who would be reimbursed by the others.

(C) All the four children, the tax to be divided equally among them.

(D) The person designated by the will as the one liable.

(29) On July 31, 2011, Esperanza received a preliminary assessment notice from the
BIR demanding that she pays P180,000.00 deficiency income taxes on her 2009
income. How many days from July 31, 2011 should Esperanza respond to the notice?

(A) 180 days.

(B) 30 days.

(C) 60 days.

(D) 15 days.

(30) The BIR could not avail itself of the remedy of levy and distraint to implement,
through collection, an assessment that has become final, executory, and demandable
where

(A) the subject of the assessment is an income tax.

(B) the amount of the tax involved does not exceed P100.00.

(C) the corporate taxpayer has no other uncollected tax liability.

(D) the taxpayer is an individual compensation income earner.

(31) Alain Descartes, a French citizen permanently residing in the Philippines, received
several items during the taxable year. Which among the following is NOT subject to
Philippine income taxation?

(A) Consultancy fees received for designing a computer program and installing the
same in the Shanghai facility of a Chinese firm.

(B) Interests from his deposits in a local bank of foreign currency earned abroad
converted to Philippine pesos.

(C) Dividends received from an American corporation which derived 60% of its annual
gross receipts from Philippine sources for the past 7 years.

(D) Gains derived from the sale of his condominium unit located in The Fort, Taguig City
to another resident alien.

(32) Income is considered realized for tax purposes when

(A) it is recognized as revenue under accounting standards even if the law does not do
so.

(B) the taxpayer retires from the business without approval from the BIR.

(C) the taxpayer has been paid and has received in cash or near cash the taxable
income.

(D) the earning process is complete or virtually complete and an exchange has taken
place.

(33) Which among the following circumstances negates the prima facie presumption of
correctness of a BIR assessment?

(A) The BIR assessment was seasonably protested within 30 days from receipt.

(B) No preliminary assessment notice was issued prior to the assessment notice.

(C) Proof that the assessment is utterly without foundation, arbitrary, and capricious.

(D) The BIR did not include a formal letter of demand to pay the alleged deficiency.
(34) On March 30, 2005 Miguel Foods, Inc. received a notice of assessment and a letter
of demand on its April 15, 2002 final adjustment return from the BIR. Miguel Foods then
filed a request for reinvestigation together with the requisite supporting documents on
April 25, 2005. On June 2, 2005, the BIR issued a final assessment reducing the
amount of the tax demanded. Since Miguel Foods was satisfied with the reduction, it did
not do anything anymore. On April 15, 2010 the BIR garnished the corporation's bank
deposits to answer for the tax liability. Was the BIR action proper?

(A) Yes. The BIR has 5 years from the filing of the protest within which to collect.

(B) Yes. The BIR has 5 years from the issuance of the final assessment within which to
collect.

(C) No. The taxpayer did not apply for a compromise.

(D) No. Without the taxpayer’s prior authority, the BIR action violated the Bank Deposit
Secrecy Law.

(35) Which among the following taxpayers is required to use only the calendar year for
tax purposes?

(A) Partnership exclusively for the design of government infrastructure projects

considered as practice of civil engineering.

(B) Joint-stock company formed for the purpose of undertaking construction projects.

(C) Business partnership engaged in energy operations under a service contract with
the government.

(D) Joint account (cuentas en participacion) engaged in the trading of mineral ores.
(36) Spanflex Int’l Inc. received a notice of assessment from the BIR. It seasonably filed
a protest with all the necessary supporting documents but the BIR failed to act on the
protest. Thirty days from the lapse of 180 days from the filing of its protest, Spanflex still
has not elevated the matter to the CTA. What remedy, if any, can Spanflex take?

(A) It may file a motion to admit appeal if it could prove that its failure to appeal was due
to the negligence of counsel.

(B) It may no longer appeal since there is no BIR decision from which it could appeal.

(C) It may wait for the final decision of the BIR on his protest and appeal it to the CTA
within 30 days from receipt of such decision.

(D) None. Its right to appeal to the CTA has prescribed.

(37) Gerardo died on July 31, 2011. His estate tax return should be filed within

(A) six months from filing of the notice of death.

(B) sixty days from the appointment of an administrator.

(C) six months from the time he died on July 31, 2011.

(D) sixty days from the time he died on July 31, 2011.

(38) Income from dealings in property (real, personal, or mixed) is the gain or loss
derived

(A) only from the cash sales of property.

(B) from cash and gratuitous receipts of property.

(C) from sale and lease of property.

(D) only from the sale of property.

(39) In March 2009, Tonette, who is fond of jewelries, bought a diamond ring for
P750,000.00, a bracelet for P250,000.00, a necklace for P500,000.00, and a brooch for
P500,000.00. Tonette derives income from the exercise of her profession as a licensed
CPA. In October 2009, Tonette sold her diamond ring, bracelet, and necklace for only
P1.25 million incurring a loss of P250,000.00. She used the P1.25 million to buy a solo
diamond ring in November 2009 which she sold for P1.5 million in September 2010.
Tonette had no other transaction in jewelry in 2010. Which among the following
describes the tax implications arising from the above transactions?

(A) Tonette may deduct his 2009 loss only from her 2009 professional income.

(B) Tonette may carry over and deduct her 2009 loss only from her 2010 gain.

(C) Tonette may carry over and deduct her 2009 loss from her 2010 professional
income as well as from her gain.

(D) Tonette may not deduct her 2009 loss from both her 2010 professional income and
her gain.

(40) 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. Which among the
following may the BIR require to enable it to enter into a compromise with Anion, Inc.?

(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.
(41) Real property owned by the national government is exempt from real property
taxation unless the national government

(A) transfers it for the use of a local government unit.

(B) leases the real property to a business establishment.

(C) gratuitously allows its use for educational purposes by a school established for
profit.

(D) sells the property to a government-owned non-profit corporation.

(42) Dondon and Helena were legally separated. They had six minor children, all
qualified to be claimed as additional exemptions for income tax purposes. The court
awarded custody of two of the children to Dondon and three to Helena, with Dondon
directed to provide full financial support for them as well. The court awarded the 6th
child to Dondon's father with Dondon also providing full financial support. Assuming that
only Dondon is gainfully employed while Helena is not, for how many children could
Dondon claim additional exemptions when he files his income tax return?

(A) Six children.

(B) Five children.

(C) Three children.

(D) Two children.

(43) Political campaign contributions are NOT deductible from gross income

(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.
(44) When a BIR decision affirming an assessment is appealed to the CTA, the BIR's
power to garnish the taxpayer's bank deposits

(A) is suspended to await the finality of such decision.

(B) is suspended given that the CTA can reverse BIR decisions when prejudicial to the
taxpayer.

(C) is not suspended because only final decisions of the BIR are subject to appeal.

(D) is not suspended since the continued existence of government depends on tax
revenues.

(45) Real property taxes should not disregard increases in the value of real property
occurring over a long period of time. To do otherwise would violate the canon of a
sound tax system referred to as

(A) theoretical justice.

(B) fiscal adequacy.

(C) administrative feasibility.

(D) symbiotic relationship.

(46) The power to tax is the power to destroy. Is this always so?

(A) No. The Executive Branch may decide not to enforce a tax law which it believes to
be confiscatory.

(B) Yes. The tax collectors should enforce a tax law even if it results to the destruction
of the property rights of a taxpayer.

(C) Yes. Tax laws should always be enforced because without taxes the very existence
of the State is endangered.

(D) No. The Supreme Court may nullify a tax law, hence, property rights are not
affected.
(47) Jeopardy assessment is a valid ground to compromise a tax liability

(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.

(48) Zygomite Minerals, Inc., a corporation registered and holding office in Australia, not
operating in the Philippines, may be subject to Philippine income taxation on

(A) gains it derived from sale in Australia of an ore crusher it bought from the Philippines
with the proceeds converted to pesos.

(B) gains it derived from sale in Australia of shares of stock of Philex Mining
Corporation, a Philippine corporation.

(C) dividends earned from investment in a foreign corporation that derived 40% of its
gross income from Philippine sources.

(D) interests derived from its dollar deposits in a Philippine bank under the Expanded
Foreign Currency Deposit System.

(49) As a general rule, within what period must a taxpayer elevate to the Court of Tax
Appeals a denial of his application for refund of income tax overpayment?

(A) Within 30 days from receipt of the Commissioner’s denial of his application for
refund.

(B) Within 30 days from receipt of the denial which must not exceed 2 years from
payment of income tax.

(C) Within 2 years from payment of the income taxes sought to be refunded.

(D) Within 30 days from receipt of the denial or within two years from payment.
(50) After the province has constructed a barangay road, the Sangguniang
Panglalawigan may impose a special levy upon the lands specifically benefitted by the
road up to an amount not to exceed

(A) 60% of the actual cost of the road without giving any portion to the barangay.

(B) 100% of the actual project cost without giving any portion to the barangay.

(C) 100% of the actual project cost, keeping 60% for the province and giving 40% to the
barangay.

(D) 60% of the actual cost, dividing the same between the province and the barangay.

(51) Celia donated P110,000.00 to her friend Victoria who was getting married. Celia
gave no other gift during the calendar year. What is the donor's tax implication on
Celia’s donation?

(A) The P100,000.00 portion of the donation is exempt since given in consideration of
marriage.

(B) A P10,000.00 portion of the donation is exempt being a donation in consideration of

marriage.

(C) Celia shall pay a 30% donor's tax on the P110,000.00 donation.

(D) The P100,000.00 portion of the donation is exempt under the rate schedule for
donor's tax.

(52) Levox Corporation wanted to donate P5 million as prize money for the world
professional billiard championship to be held in the Philippines. Since the Billiard Sports
Confederation of the Philippines does not recognize the event, it was held under the
auspices of the International Professional Billiards Association, Inc. Is Levox subject to
the donor's tax on its donation?

(A) No, so long as the donated money goes directly to the winners and not through the
association.

(B) Yes, since the national sports association for billiards does not sanction the event.
(C) No, because it is donated as prize for an international competition under the billiards
association.

(D) Yes, but only that part that exceeds the first P100,000.00 of total Levox donations
for the calendar year.

(53) A violation of the tariff and customs laws is the failure to

(A) pay the customs duties and taxes and to comply with the rules on customs
procedures.

(B) pay the customs duties and taxes or to comply with the rules on customs
procedures.

(C) pay the customs duties and taxes.

(D) comply with the rules on customs procedures.

(54) What is the effect on the tax liability of a taxpayer who does not protest an
assessment for deficiency taxes?

(A) The taxpayer may appeal his liability to the CTA since the assessment is a final
decision of the Commissioner on the matter.

(B) The BIR could already enforce the collection of the taxpayer's liability if it could
secure authority from the CTA.

(C) The taxpayer's liability becomes fixed and subject to collection as the assessment
becomes final and collectible.

(D) The taxpayer's liability remains suspended for 180 days from the expiration of the
period to protest.
(55) A non-stock, non-profit school always had cash flow problems, resulting in failure to
recruit well-trained administrative personnel to effectively manage the school. In 2010,
Don Leon donated P100 million pesos to the school, provided the money shall be used
solely for paying the salaries, wages, and benefits of administrative personnel. The
donation represents less than 10% of Don Leon's taxable income for the year. Is he
subject to donor's taxes?

(A) No, since the donation is actually, directly, and exclusively used for educational
purposes.

(B) Yes, because the donation is to be wholly used for administration purposes.

(C) Yes, since he did not obtain the requisite NGO certification before he made the
donation.

(D) No, because the donation does not exceed 10% of his taxable income for 2010.

(56) What is the tax base for the imposition by the province of professional taxes?

(A) That which Congress determined.

(B) The pertinent provision of the local Government Code.

(C) The reasonable classification made by the provincial sanggunian.

(D) That which the Dept. of Interior and Local Government determined.

(57) There is prima facie evidence of a false or fraudulent return where the

(A) tax return was amended after a notice of assessment was issued.

(B) tax return was filed beyond the reglementary period.

(C) taxpayer changed his address without notifying the BIR.

(D) deductions claimed exceed by 30% the actual deductions.

(58) The proceeds received under a life insurance endowment contract is NOT
considered part of gross income

(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.

(59) The excess of allowable deductions over gross income of the business in a taxable
year is known as

(A) net operating loss.

(B) ordinary loss.

(C) net deductible loss.

(D) NOLCO.

(60) No action shall be taken by the BIR on the taxpayer’s disputed issues until the
taxpayer has paid the deficiency taxes

(A) when the assessment was issued against a false and fraudulent return.

(B) if there was a failure to pay the deficiency tax within 60 days from BIR demand.

(C) if the Regional Trial Court issues a writ of preliminary injunction to enjoin the BIR.

(D) attributable to the undisputed issues in the assessment notice.

(61) Is an article previously exported from the Philippines subject to the payment of
customs duties?

(A) Yes, because all articles that are imported from any foreign country are subject to
duty.

(B) No, because there is no basis for imposing duties on articles previously exported
from the Philippines.

(C) Yes, because exemptions are strictly construed against the importer who is the
taxpayer.

(D) No, if it is covered by a certificate of identification and has not been improved in
value.

(62) Prior to the enactment of the Local Government Code, consumer's cooperatives
registered under the Cooperative Development Act enjoyed exemption from all taxes
imposed by a local government. With the Local Government Code’s withdrawal of
exemptions, could these cooperatives continue to enjoy such exemption?

(A) Yes, because the Local Government Code, a general law, could not amend a
special law such as the Cooperative Development Act.

(B) No, Congress has not by the majority vote of all its members granted exemption to
consumers' cooperatives.

(C) No, the exemption has been withdrawn to level the playing field for all taxpayers and
preserve the LGUs' financial position.

(D) Yes, their exemption is specifically mentioned among those not withdrawn by the
Local Government Code.
(63) Under the Tariff and Customs Code, abandoned imported articles becomes the
property of the

(A) government whatever be the circumstances.

(B) insurance company that covered the shipment.

(C) shipping company in case the freight was not paid.

(D) bank if the shipment is covered by a letter of credit.

(64) Ka Tato owns a parcel of land in San Jose, Batangas declared for real property
taxation, as agricultural. In 1990, he used the land for a poultry feed processing plant
but continued to declare the property as agricultural. In March 2011, the local tax
assessor discovered Ka Tato’s change of use of his land and informed the local
treasurer who demanded payment of deficiency real property taxes from 1990 to 2011.
Has the action prescribed?

(A) No, the deficiency taxes may be collected within five years from when they fell due.

(B) No. The deficiency taxes for the period 1990 up to 2011 may still be collected within
10 years from March 2011.

(C) Yes. More than 10 years had lapsed for the period 1990 up to 2000, hence the right
to collect the deficiency taxes has prescribed.

(D) Yes. More than 5 years had lapsed for the collection of the deficiency taxes for the
period 1990 up to 2005.

(65) Pierre de Savigny, a Frenchman, arrived in the Philippines on January 1, 2010 and
continued to live and engage in business in the Philippines. He went on a tour of
Southeast Asia from August 1 to November 5, 2010. He returned to the Philippines on
November 6, 2010 and stayed until April 15, 2011 when he returned to France. He
earned during his stay in the Philippines a gross income of P3 million from his
investments in the country. For the year 2010, Pierre’s taxable status is that of

(A) a non-resident alien not engaged in trade or business in the Philippines.

(B) a non-resident alien engaged in trade or business in the Philippines.

(C) a resident alien not engaged in trade or business in the Philippines.

(D) a resident alien engaged in trade or business in the Philippines.

(66) Lualhati Educational Foundation, Inc., a stock educational institution organized for
profit, decided to lease for commercial use a 1,500 sq. m. portion of its school. The
school actually, directly, and exclusively used the rents for the maintenance of its school
buildings, including payment of janitorial services. Is the leased portion subject to real
property tax?

(A) Yes, since Lualhati is a stock and for profit educational institution.

(B) No, since the school actually, directly, and exclusively used the rents for educational
purposes.

(C) No, but it may be subject to income taxation on the rents it receives.

(D) Yes, since the leased portion is not actually, directly, and exclusively used for
educational purposes.

(67) Apparently the law does not provide for the refund of real property taxes that have
been collected as a result of an erroneous or illegal assessment by the provincial or city
assessor. What should be done in such instance to avoid an injustice?

(A) Question the legality of the no-refund rule before the Supreme Court.

(B) Enact a new ordinance amending the erroneous or illegal assessment to correct the
error.

(C) Subsequent adjustment in tax computation and the application of the excess
payment to future real property tax liabilities.

(D) Pass a new ordinance providing for the refund of real property taxes that have been
erroneously or illegally collected.
(68) What should the BIR do when the prescriptive period for the assessment of a tax
deficiency is about to prescribe but the taxpayer has not yet complied with the BIR
requirements for the production of books of accounts and other records to substantiate
the claimed deductions, exemptions or credits?

(A) Call the taxpayer to a conference to explain the delay.

(B) Immediately conduct an investigation of the taxpayer's activities.

(C) Issue a jeopardy assessment coupled with a letter of demand.

(D) Issue a notice of constructive distraint to protect government interest.

(69) Money collected from taxation shall not be paid to any religious dignitary EXCEPT
when

(A) the religious dignitary is assigned to the Philippine Army.

(B) it is paid by a local government unit.

(C) the payment is passed in audit by the COA.

(D) it is part of a lawmaker’s pork barrel.

(70) Discriminatory duties may NOT be imposed upon articles

(A) wholly manufactured in the discriminating country but carried by vessels of another
country.

(B) not manufactured in the discriminating country but carried by vessels of such
country.

(C) partly manufactured in the discriminating country but carried by vessels of another
country.

(D) not manufactured in the discriminating country and carried by vessels of another
country.
(71) The taxpayer seasonably filed his protest together with all the supporting
documents. It is already July 31, 2011, or 180 days from submission of the protest but
the BIR Commissioner has not yet decided his protest. Desirous of an early resolution
of his protested assessment, the taxpayer should file his appeal to the Court of Tax
Appeals not later than

(A) August 31, 2011.

(B) August 30, 2011.

(C) August 15, 2011.

(D) August 1, 2011.

(72) Which of the following are NOT usually imposed when there is a tax amnesty?

(A) Civil, criminal, and administrative penalties

(B) Civil and criminal penalties

(C) Civil and administrative penalties

(D) Criminal and administrative penalties

(73) Which among the following concepts of taxation is the basis for the situs of income
taxation?

(A) Lifeblood doctrine of taxation

(B) Symbiotic relation in taxation

(C) Compensatory purpose of taxation

(D) Sumptuary purpose of taxation

(74) In "Operation Kandado," the BIR temporarily closed business establishments,
including New Dynasty Corporation that failed to comply with VAT regulations. New
Dynasty contends that it should not be temporarily closed since it has a valid and
existing VAT registration, it faithfully issued VAT receipts, and filed the proper VAT
returns. The contention may be rejected if the BIR investigation reveals that

(A) the taxpayer has not been regularly filing its income tax returns for the past 4 years.

(B) the taxpayer deliberately filed a false and fraudulent return with deliberate intention
to evade taxes.

(C) the taxpayer used falsified documents to support its application for refund of taxes.

(D) there was an understatement of taxable sales or receipts by 30% or more for the
taxable quarter.

(75) The head priest of the religious sect Tres Personas Solo Dios, as the corporation
sole, rented out a 5,000 sq. m. lot registered in its name for use as school site of a
school organized for profit. The sect used the rentals for the support and upkeep of its
priests. The rented lot is

(A) not exempt from real property taxes because the user is organized for profit.

(B) exempt from real property taxes since it is actually, directly, and exclusively used for
religious purposes.

(C) not exempt from real property taxes since it is the rents, not the land, that is used for
religious purposes.

(D) exempt from real property taxes since it is actually, directly, and exclusively used for
educational purposes.
2012

1. Bank A deposit money with Bank B which earns interest that is subjected to the 20%
final withholding tax. At the same time, Bank A is subjected to the 5% gross receipts tax
on its interest income on loan transactions to customers. Which statement
below INCORRECTLY describes the transaction?

a) There is double taxation because two taxes – income tax and gross receipts tax are
imposed on the interest incomes described above and double taxation is prohibited
under the 1987 Constitution

b) There is no double taxation because the first tax is income tax, while the second tax
is business tax;

c) There is no double taxation because the income tax is on the interest income of Bank
A on its deposits with Bank B (passive income), while the gross receipts tax is on the
interest income received by Bank A from loans to its debtor-customers (active income);

d) Income tax on interest income of deposits of Bank A is a direct tax, while GRT on
interest income on loan transaction is an tax.

2. Which of the following statement is NOT correct?

a) In case of doubt, statutes levying taxes are constructed strictly the government;

b) The construction of a statute made by his predecessors is not binding upon the
successor, if thereafter he becomes satisfied that a different construction should be
given;

c) The reversal of a ruling shall not generally be given retroactive application, if said
reversal will be prejudicial to the taxpayer;

d) A memorandum circular promulgated by the CIR that imposes penalty for violations
of certain rules need not be published in a newspaper of general circulation or official
gazette because it has the force and effect of law.
3. Which statement below expresses the lifeblood theory?

a) The assessed taxes must be enforced by the government.

b) The underlying basis of taxation is government necessity, for without taxation, a

government can neither exist nor endure;

c) Taxation is an arbitrary method of exaction by those who are in the seat of power;

d) The power of taxation is an inherent power of the sovereign to impose burdens upon
subjects and objects within its jurisdiction for the purpose of raising revenues.

4. Which statement is WRONG?

a) The power of taxation may be exercised by the government, its political subdivisions,
and public utilities;

b) Generally, there is no limit on the amount of tax that may be imposed;

c) The money contributed as tax becomes part of the public funds;

d) The power of tax is subject to certain constitutional limitations.

5. The Philippines adopted the semi-global tax system, which means that:

a) All taxable incomes, regardless of the nature of income, are added together to arrive
at gross income, and all allowable deductions are deducted from the gross income to
arrive at the taxable income;

b) All incomes subject to final withholding taxes liable to income tax under the schedular
tax system, while all ordinary income as well as income not subject to final withholding
tax under the global tax system;

c) All taxable incomes are subject to final withholding taxes under the schedular tax
system;

d) All taxable incomes from sources within and without the Philippines are liable to
income tax.
6. Income from the performance of services is treated as income from within the
Philippines, if:

a) The payment of compensation for the service is made in the Philippines;

b) The contract calling for the performance of services is signed in the Philippines;

c) The service is actually performed in the Philippines;

d) The recipient of service income is a resident of the Philippines.

7. For income tax purposes, the source of the service income is important for the
taxpayer, who is a:

a) Filipino citizen residing in Makati City;

b) Non-resident Filipino citizen working residing in London, United Kingdom;

c) Japanese citizen who is married to a Filipino citizen and residing in their family home
located Fort Bonifacio, Taguig City;

d) Domestic corporation.

8. Interest income of a domestic commercial bank derived from a peso loan to a

domestic corporation in 2010 is :

a) Subject to the 30% income tax based on its net taxable income;

b) Subject to the 20% final withholding tax;

c) Subject to the 7.5% final withholding tax;

d) Subject to 10% final withholding tax.

9. A resident corporation is one that is:

a) Organized under the laws of the Philippines that does business in another country;

b) Organized under the laws of a foreign country that sets up a regional headquarter in
the Philippines doing product promotion and information dissemination;
c) Organized under the laws of the Philippines that engages business in a special
economic zone;

d) Organized under the laws of a foreign country that engages in business in Makati
City, Pihlippines.

10. A dealer in securities sold unlisted shares of stocks of a domestic corporation in

2010 and derived a gain of P1 Million therefrom. The gain is:

a) Taxable at 30% regular corporate income tax based on net taxable income;

b) Taxable at 5%/10% capital gains tax based on net capital gain;

c) Taxable at ½ of 1% stock transaction tax based on the gross selling price or fair
market value, whichever is higher

d) Exempt from income tax

11. An individual, who is a real estate dealer, sold a residential lot in Quezon City at a
gain of P100,000.00 (selling price of P900,000.00 and cost is P800,00.00). The sale is
subject to income tax as follows:

a) 6% capital gains tax on the gain;

b) 6% capital gains tax on the gross selling price of fair market value, whichever is
higher;

c) Ordinary income tax at the graduated rates of 5% to 32% of net taxable income;

d) 30% income tax on net taxable income.

12. During the audit conducted by the BIR official, it was found that the rental income
claimed by the corporation was not subjected to expanded withholding tax. Accordingly,
the claimed rental expense:

a) Is deductible from the gross income of the corporation, despite non-withholding of

income tax by the corporation;

b) Is deductible from the gross income of the corporation, provided that the 5%
expanded withholding tax is paid by the corporation during the audit;
c) Is not deductible from gross income of the corporation due to non-withholding of tax;

d) Is deductible, if it can be shown that the lessor has correctly reported the rental
income in his tax return.

13. A resident Filipino citizen (not a dealer in securities) sold shares of stocks of a
domestic corporation that are listed and traded in the Philippine Stock Exchange.

a) The sale is exempt from income tax but subject to the ½ of 1% stock transaction tax;

b) The sale is subject to income tax computed at the graduated income tax rates of 5%
to 32% on net taxable income;

c) The sale is subject to the stock transaction tax and income tax;

d) The sale is both exempt from the stock transaction tax and income tax.

14. The appropriate method of accounting for a contractor on his long-term construction
contract (i.e., it takes more than a year to finish) is:

a) Cash method;

b) Accrual method;

c) Installment sale method;

d) Percentage of completion method.

15. A general professional partnership (GPP) is one:

a) That is registered as such with the Securities and Exchange Commission and the
Bureau of Internal Revenue;

b) That is composed of individuals who exercise a common profession;

c) That exclusively derives income from the practice of the common profession;

d) That derives professional income and rental income from property owned by it.
16. The interest expense of a domestic corporation on a bank loan in connection with
the purchase of a production equipment:

a) Is not deductible from gross income of the borrower-corporation;

b) Is deductible from the gross income of the borrower-corporation during the year or it
may be capitalized as part of cost of the equipment;

c) Is deductible only for a period of five years from date of purchase;

d) Is deductible only if the taxpayer uses the cash method of accounting.

17. The "all events test" refers to:

a) A person who uses the cash method where all sales have been fully paid by the
buyers thereof;

b) A person who uses the installment sales method, where the full amount of
consideration is paid in full by the buyer thereof within the year of sale;

c) A person who uses the accrual method, whereby an expense is deductible for the
taxable year in which all the events had occurred which determined the fact of the
liability and the amount thereof could be determined with reasonable accuracy;

d) A person who uses the completed method, whereby the construction project has
been completed during the year the contract was signed.

18. All the items below are excluded from gross income, except:

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.
19. Which statement is correct? A non-stock, non-profit charitable association that sells
its idle agricultural property is:

a) Not required to file an income tax return nor pay income tax on the transaction to the
BIR, provided the sales proceeds are invested in another real estate during the year;

b) Required to pay the 6% capital gains tax on the gross selling price of fair market
value, whichever is higher;

c) Mandated to pay the 30% regular corporate income tax on the gain from sale;

d) Required to withhold the applicable expanded withholding tax rate on the transaction
and remit the same to the BIR.

20. ABS Corporation is a PEZA-registered export enterprise which manufactures

cameras and sells all its finished products abroad. Which statement is NOT correct?

a) ABS Corporation is subject to the 5% final tax on gross income earned, in lieu of all
national and local taxes;

b) ABS Corporation is exempt from the 30% corporate income tax on net income,
provided it pays value added tax;

c) ABS Corporation is subject to the 30% corporate income tax on net income;

d) ABS Corporation is exempt from all national and local taxes, except real property tax.

21. In May 2010, Mr. And Mrs. Melencio Antonio donated a house and lot with a fair
market value of P10 Million to their sob, Roberto, who is to be married during the same
year to Josefina Angeles. Which statement below is INCORRECT?

a) There are four (4) donations made – two (2) donations are made by Mr. Melencio
Antonio to Roberto and Josefina, and two (2) donations are made by Mrs. Antonio;

b) The four (4) donations are made by the Spouses Antonio to members of the family,
hence, subject to the graduated donor’s tax rates (2%-15%);

c) Two (2) donations are made by the spouses to members of the family, while two (2)
other donations are made to strangers;
d) Two (2) donations made by the spouses to Roberto are entitled to deduction from the
gross gift as donation proper nuptias.

22. While he was traveling with friends, Mr. Jose Francisco, resident Filipino citizen,
died on January 20, 2011 in a California Hospital, USA, leaving personal and real
properties with market values as follows: House and Lot in Quezon City – P10 Million;
Cash in bank in California – US$10,000.00; Citibank in New York – US$5,000.00; Cash
in BPI Makati – P4 Million; Car in Quezon City – P1 Million; Shares of stocks of Apple
Corporation, US corporation listed in NY Stock Exchange – US$1 = Php50. His gross
estate for the Philippine estate tax purposes shall be:

a) P13 Million;

b) P14 Million;

c) P15 Million;

d) P16 Million.

23. In 2006, Mr. Vicente Tagle, a retiree, bought 10,000 CDA shares that are unlisted in
the local stock exchange for P10 per share. In 2010, the said shares had a book value
per share of P60 per share. In view of a car accident in 2010, Mr. Vicente Tagle had to
sell his CDA shares but he could sell the same only for P50 per share. The sale is
subject to tax as follos:

a) 5%/10% capital gains tax on the capital gain from sale of P40 per share (P50 selling
price less P10 cost);

b) 5%/10% capital gains tax on the capital gain of P50 per share, arrived at by
deducting the cost (P10 per share) from the book value (P60 per share);

c) 5%/10% capital gains tax on the capital gain from sale of P40 per share (P50 selling
price less P10 cost) plus donor’s tax on the excess of the fair market value of the shares
over the consideration;

d) Graduated income tax rates of 5% to 32% on the net taxable income from the sale of
the shares.
24. On January 10, 2011, Maria Reyes, single-mother, donated cash in the amount of
P50,000.00 to her daughter Cristina, and on December 20, 2011, she donated another
P50,000.00 to Cristina. Which statement is correct?

a) Maria Reyes is subject to donor’s tax in 2011 because gross gift is P100,000.00;

b) Maria Reyes is exempt from donor’s tax in 2011 because gross gift is P100,000.00;

c) Maria Reyes is exempt from donor’s tax in 2011 only to the extent of P50,000.00;

d) Maria Reyes is exempt from donor’s tax in 2011 because the donee is minor.

25. Jose Ramos, single, died of a heart attack on October 10, 2011, leaving a
residential house and lot with a market value of P1.8 Million and cash of P100,000.00.
Funeral expenses paid amounted to P250,000.00

a) His estate will be exempt from estate tax because the net estate is zero;

b) His estate will be subject to estate tax because net estate is P1,650,000.00;

c) His estate will be subject to estate tax because net estate is P1,700,00.00;

d) His estate will be subject to estate tax because net estate is P800,000.00.

26. Sale of residential house and lot by an official of a domestic corporation to another
official in the same corporation for a consideration of P2.5 Million in 2011 is:

a) Exempt from VAT because the gross sales do not exceed P2.5 Million;

b) Exempt from VAT because the property sold is a capital asset, regardless of the
gross selling price;

c) Exempt from VAT because the seller is not a person engaged in real estate business;

d) Taxable at 12% VAT output tax on the gross selling price of P2.5 Million.

27. An importer of flowers from abroad in 2011:

a) Is liable for VAT, if it registers as a VAT person;

b) Is exempt from VAT, because the goods are treated as agricultural products;
c) Is exempt from VAT, provided that his total importation of flowers does not exceed
P1.5 Million;

d) Is liable for VAT, despite the fact that it did not register as a VAT person and its total
annual sales of flowers do not exceed P1.5 Million.

28. A VAT-registered contractor performed services for his customer in 2010 and billed
him P11.2 Million, broken down as follows: P10 Million – cost of services, plus P1.2
Million, 12% VAT. Of the contract price of P10 Million, only P8 Million plus VAT thereon
was received from the customer in 2010, and the balance of P4 Million plus VAT was
received by the contractor in 2011. How much is the taxable gross receipts of the
contractor for 2010, for VAT purposes?

a) P10 Million, the total cost of services performed in 2010;

b) P8 Million, the amount received from the customer in 2010;

c) P8 Million plus VAT received from the customer in 2010;

d) P11.2 Million, the total cost of services performed plus 12% VAT.

29. MBM Corporation is the owner-operator of movie houses in Cavite. During the year
2010, it received a total gross receipts of P20 Million from the operation of movies. It did
not register as a VAT person. Which statement below is correct?

a) MBM Corporation is exempt from the 12% VAT, but liable for the 20% amusement
tax on admissions under the Local Government Code;

b) MBM Corporation is both liable for the 12% VAT and 20% amusement tax on
admissions;

c) MBM Corporation is both exempt from the 12% VAT and 20% amusement tax on
admissions;

d) MBM Corporation is liable for the 12% VAT, but exempt from the 20% amusement
tax on admissions.
30. A pawnshop shall now be treated, for business tax purposes:

a) As a lending investor liable to the 12% VAT on its gross receipts from interest income
and from gross selling price from sale of unclaimed properties;

b) Not as a lending investor, but liable to the 5% gross receipts tax imposed on a non-
bank financial intermediary under Title VI (Other Percentage Taxes);

c) As exempt from 12% VAT and 5% gross receipts tax;

d) As liable to the 12% VAT and 5% gross receipts tax.

31. 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:

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.

32. Except for one transaction, the rest are exempt from value added tax. Which one is
VAT taxable?

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;

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;

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;
d) Sales of a book store during the year amounted to P10 Million; it did not register as a
VAT person with the BIR.

33. A lessor or real property is exempt from value added tax in one of the transactions
below. Which one is it?

a) Lessor leases commercial stalls located in the Greenhills Commercial Center to VAT-
registered sellers of cell phones; lessor’s gross rental during the year amounted to P12
Million;

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;

d) Lessor leases two (2) residential houses and lots at P50,000.00 per month per unit,
but he registered as a VAT person.

34. 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:

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.
35. Which transaction below is subject to VAT?

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.

36. Which importation in 2011 is subject to VAT?

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.

37. 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;

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?

38. Claim for tax credit or refund of excess input tax is available only to:

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) Any person who has excess input tax arising from local purchases of taxable goods
and services;

c) A VAT-registered person whose sales are made to clients in the Philippines;

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.

39. A hotel operator that is a VAT-registered person and who leases luxury vehicles to
its hotel customers is:

a) Subject to the 3% common carriers tax and 12% VAT;

b) Subject to the 3% common carriers tax only;

c) Subject to the 12% VAT only;

d) Exempt from both the 3% common carriers tax and 12% VAT.

40. Which statement is correct? A bar review center owned and operated by lawyers is:

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 P1.5 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.

41. 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:

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".

42. The public market vendor below, who is not a VAT-registered person is liable to
VAT in 2010, if:

a) She sells raw chicken and meats and her gross sales during the year is P2 Million;

b) She sells vegetables and fruits in her stall and her gross sales during the year is P1
Million;

c) She sells canned goods, processed coconut oils, and cut flowers in her stall and her
gross sales during the year is P2.5 Million;

d) She sells live fish, shrimps, and crabs and her gross sales during the year is P5
Million.

43. Which statement is FALSE under the VAT law?

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
P1.5 Million;

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.

44. The Commissioner of Internal Revenue may NOT inquire into the bank deposits of a
taxpayer, except:

a) When the taxpayer files a fraudulent return;

b) When the taxpayer offers to compromise the assessed tax based on erroneous
assessment;

c) When the taxpayer offers to compromise the assessed tax based on financial
incapacity to pay and he authorizes the Commissioner in writing to look into his bank
records;

d) When the taxpayer did not file his income tax return for the year.

45. 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?

a) File a petition for review with the Court of Tax Appeals within thirty (30) days from
receipt thereof;

b) File a motion for reconsideration with the Commissioner of Internal Revenue;

c) File an appeal to the Secretary of Finance within thirty (30) days from receipt thereof;

d) File an appeal to the Secretary of Justice within thirty (30) days from receipt thereof.

46. 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. Which statement is correct?

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
three-year period from the date of filing of the tax return;
c) The assessment notice is void if the taxpayer can show that the same was received
only after one (1) month from date of mailing;

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.

47. 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:

a) When a taxpayer does not pay the 2010 deficiency income tax liability on or before
July 15 of the year;

b) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing 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.

48. When a protest against the deficiency income tax assessment was denied by the
BIR Regional Director of Quezon City, the appeal to the Court of Tax Appeals must be
filed by a taxpayer:

a) If the amount of basic tax assessed is P100,000.00 or more;

b) If the amount of basic tax assessed is P300,000.00 or more;

c) If the amount of basic tax assessed is P500,000.00 or more;

d) If the amount of basic tax assessed is P1 Million or more;

49. The taxpayer received an assessment notice on April 15, 2011 and filed its request
for reinvestigation against the assessment on April 30, 2011. Additional documentary
evidence in support of its protest was submitted by it on June 30, 2011. If no denial of
the protest was received by the taxpayer, when is the last day for the filing of its appeal
to the CTA?

a) November 30, 2011;

b) December 30, 2011;

c) January 30, 2012;

d) February 28, 2012.

50. Using the same facts in the immediately preceding number, but assuming that the
final decision on the disputed assessment was received by the taxpayer on July 30,
2011, when is the last day for filing of the appeal to the CTA?

a) August 30, 2011;

b) September 30, 2011;

c) December 30, 2011;

d) January 30, 2012.

51. Which court has jurisdiction to determine if the warrant of distraint and levy issued
by the BIR is valid and to rule if the waiver of the Statute of Limitations was validly
effected?

a) City Courts;

b) Regional Trial Court;

c) Court of Tax Appeals;

d) Court of Appeals.
52. Which statement below on compromise of tax liability is correct?

a) Compromise of a tax liability is available only at the administrative level;

b) Compromise of a tax liability is available only before trial at the CTA;

c) Compromise of a tax liability is available even during appeal, provided that prior leave
of court is obtained;

d) Compromise of a tax liability is still available even after the court decision has
become final and executory.

53. In case of full or partial denial of the written claim for refund or excess input tax
directly attributable to zero-rated sales, or the failure on the part of the Commissioner to
act on the application within 120 days from the date of submission of complete
documents, an appeal must be filed with the CTA:

a) Within thirty (30) days after filing the administrative claim with the BIR;

b) Within sixty (60) days after filing the administrative claim with the BIR;

c) Within one hundred twenty (120) days after filing the administrative claim with the
BIR;

d) Within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the 120-day period.

54. The submission of the required documents within sixty (60) days from the filing of
the protest is available only where:

a) The taxpayer previously filed a Motion for Reconsideration with the BIR official;

b) The taxpayer previously filed a request for reconsideration with the BIR official;

c) The taxpayer previously filed a request for reinvestigation with the BIR official;

d) The taxpayer previously filed an extension to file a protest with the BIR official.
55. The prescriptive period for the collection of the deficiency tax assessment will be
tolled:

a) If the taxpayer files a request for reconsideration with the Asst. Commissioner;

b) If the taxpayer files a request for reinvestigation that is approved by the

Commissioner of Internal Revenue;

c) If the taxpayer changes his address in the Philippines that is communicated to the
BIR official;

d) If a warrant of levy is served upon the taxpayer’s real property in Manila.

56. Which statement is correct? The collection of a deficiency tax assessment by

distraint and levy:

a) May be repeated, if necessary, until the full amount due, including all expenses, is
collected;

b) Must be done successively, first by distraint and then by levy;

c) Automatically covers the bank deposits of a delinquent taxpayer;

d) May be done only once during the taxable year.

57. The prescriptive period to file a criminal action is:

a) Ten (10) years from the date of discovery of the commission of fraud or non-filing of
tax return;

b) Five (5) years from the date of issuance of the final assessment notice;

c) Three (3) years from the filing of the annual tax return;

d) Five (5) years from the commission of the violation of the law, and if the same be not
known at the time, from the discovery thereof and the institution of judicial proceedings
for its investigation and punishment.
58. The accused’s mere reliance on the representations made by his accountant, with
deliberate refusal or avoidance to verify the contents of his tax return and to inquire on
its authenticity constitutes:

a) Simple negligence;

b) Gross negligence;

c) Willful blindness;

d) Excusable negligence.

59. The acquittal of the accused in the criminal action for the failure to file income tax
return and failure to supply correct information will have the following consequence:

a) The CTA will automatically exempt the accused from any civil liability;

b) The CTA will still hold the taxpayer liable for deficiency income tax liability in all
cases, since preponderance of evidence is merely required for tax cases;

c) The CTA will impose civil or tax liability only if there was a final assessment notice
issued by the BIR against the accused in accordance with the prescribed procedures for
issuing assessments, which was presented during the trial;

d) The CTA will impose civil or tax liability, provided that a computation of the tax liability
is presented during the trial.

60. X Corporation had excess income tax payment for the year 2008, which it chose to
carry over in 2009. In filing its 2009 corporate income tax return, it signified its intention
(by checking the small box "refund" at the bottom of the return) to get a refund of the
overpaid amount in 2008. Can the refund be allowed or not, and if disallowed, does X
Corporation lose the claimed amount?

a) X Corporation may not get the refund because the decision to carry over in 2008 was
irrevocable for that year, and it may not change that decision in succeeding years;

b) X Corporation may not get the refund in 2009, but the amount being claimed as
refund may be utilized in succeeding years until fully exhausted because there is no
prescriptive period for carry over of excess income tax payments;
c) X Corporation may get the refund, provided that it will no longer carry over such
amount or utilize the same against its income tax liability in the future;

d) X Corporation may file instead a claim of tax credit, in lieu of refund.

61. Which statement is correct?

a) Legislative acts passed by the municipal council in the exercise of its lawmaking
authority are denominated as resolutions and ordinances;

b) Legislative acts passed by the municipal council in the exercise of its lawmaking
authority are denominated as resolutions;

c) Legislative acts passed by the municipal council in the exercise of its lawmaking
authority are denominated as ordinances;

d) Both ordinances and resolutions are solemn and formal acts.

62. Which of the following statements is NOT a test of a valid ordinance?

a) It must not contravene the Constitution or any statute;

b) It must not be unfair or oppressive;

c) It must not be partial or discriminatory;

d) It may prohibit or regulate trade.

63. Taxing power of local government units shall NOT extend to the following taxes,
except one:

a) Income tax on banks and other financial institutions;

b) Taxes of any kind on the national government, its agencies and instrumentalities, and
local government units;

c) Taxes on agricultural and aquatic products when sold by the marginal farmers or
fishermen;

d) Excise taxes on articles enumerated under the National Internal Revenue Code.
64. Which statement on prescriptive periods is true?

a) The prescriptive periods to assess taxes in the National Internal Revenue Code and
the Local Government Code are the same;

b) Local taxes shall be assessed within five (5) years from the date they became due;

c) Action for the collection of local taxes may be instituted after the expiration of the
period to assess and to collect the tax;

d) Local taxes may be assessed within ten (10) years from discovery of the
underpayment of tax which does not constitute fraud.

65. The appraisal, assessment, levy and collection of real property tax shall be guided
by the following principles. Which statement does NOT belong here?

a) Real property shall be appraised at its current and fair market value;

b) Real property shall be classified for assessment purposes on the basis of its actual
use;

c) Real property shall be assessed on the basis of a uniform classification within each
local political subdivision;

d) The appraisal and assessment of real property shall be based on audited financial
statements of the owner.

66. The Manila International Airport Authority (MIAA) is exempt from real property tax.
Which statement below is NOT correct?

a) MIAA is not a government-owned or controlled corporation because it is not

organized as a stock or non-stock corporation;

b) MIAA is a government instrumentality vested with corporate powers and performing

essential public services;

c) MIAA is not a taxable entity because the real property is owned by the Republic of
the Philippines and the beneficial use of such property has not been granted to a private
entity;
d) MIAA is a government-owned or controlled corporation because it is required to meet
the test of economic viability.

67. For purposes of real property taxes, the tax rates are applied on:

a) Zonal values;

b) Fair market value;

c) Assessed values;

d) Reproduction values.

68. One of the local government units below does NOT have the power to impose real
property tax:

a) Bacoor, Cavite;

b) Davao City;

c) Tarlac Province;

d) Malabon, Metro Manila.

69. Where the real property tax assessment is erroneous, the remedy of the property
owner is:

a) To file a claim for refund in the Court of Tax Appeals if he has paid the tax, within
thirty (30) days from date of payment;

b) To file an appeal with the Provincial Board of Assessment Appeals within thirty (30)
days from receipt of the assessment;

c) To file an appeal with the Provincial Board of Assessment Appeals within sixty (60)
days from receipt of the assessment;

d) To file an appeal with the Provincial Board of Assessment Appeals within sixty (60)
days from receipt of the assessment and playing the assessed tax under protest.
70. The City Government of Manila may NOT impose:

a) Basic real property tax at 2% of the assessed value of real property;

b) Additional levy on real property for the special education fund at 1% of the assessed
value of real property;

c) Additional ad valorem tax on idle lands at a rate not exceeding 5% of the assessed
value;

d) Special levy on lands within its territory specially benefited by public works projects or
improvements funded by it at 80% of the actual cost of the projects or improvements.

71. Importation of goods is deemed terminated:

a) When the customs duties are paid, even if the goods remain within the customs
premises;

b) When the goods are released or withdrawn from the customs house upon payment of
the customs duties or with legal permit to withdraw;

c) When the goods enter Philippines territory and remain within the customs house
within thirty (30) days from date of entry;

d) When there is part payment of duties on the imported goods located in the customs
area.

72. A protest against an assessment issued by the Collector of Customs for unpaid
customs duties on imported goods shall be filed with:

a) The Commissioner of Customs;

b) The Regional Trial Court;

c) The Court of Tax Appeals;

d) The Collector of Customs.

73. The dutiable value of an imported article subject to an ad valorem rate of duty under
existing law shall be:

a) The home consumption value;

b) The total value;

c) The total landed cost;

d) The transaction value.

74. The imported articles shall in any case be subject to the regular physical
examination when:

a) The importer disagrees with the findings as contained in the government surveyor’s
report;

b) The number, weight and nature of packages indicated in the customs entry
declaration and supporting documents differ from that in the manifest;

c) The container is not leaking or damaged;

d) The shipment is covered by alert/hold orders issued pursuant to an existing order.

75. Which cases are appealable to the CTA?

a) Decisions of the Secretary of Finance in cases involving liability for customs duties,
seizure, detention or release of property affected;

b) Decisions of the Commissioner of Customs in cases involving liability for customs

duties, seizure, detention or release of property affected;

c) Decisions of the Collector of Customs in cases involving liability for customs duties,
seizure, detention or release of property affected;

d) Decisions of the BIR Commissioner in cases involving liability for customs duties,
seizure, detention or release of property affected.
Part II

Anchor Banking Corporation, which was organized in 2000 and existing under the laws
of the Philippines and owned by the Sy Family of Makati City, set up in 2010 a branch
office in Shanghai City, China, to take advantage of the presence of many Filipino
workers in that area and its booming economy. During the year, the bank ,management
decided not to include the P20 Million net income of the Shanghai Branch in the annual
Philippine income tax return filed with the BIR, which showed a net taxable income of
P30 Million , because the Shanghai Branch is treated as a foreign corporation and is
taxed only on income from sources within the Philippines, and since the loan and other
business transactions were done in Shanghai, these incomes are not taxable in the
Philippines.

a) Is the bank correct in excluding the net income of its Shanghai Branch in the
computation of its annual corporate income tax for 2010? Explain your answer. (5%)

b) Should the Shanghai Branch of Anchor Bank remit profit to its Head Office in the
Philippines in 2011, is the branch liable to the 15% branch profit remittance tax imposed
under Section 28 (A)(5) of the 1997 Tax Code? Explain your answer (5%)

II

Foster Corporation (FC) is a Singapore-based foreign corporation engaged in

construction and installation projects. In 2010, Global Oil Corporation (GOC), a
domestic corpoartion engaged in the refinery of petroleum products, awarded an anti-
pollution project to Foster Corporation, whereby FC shall design, supply machinery and
equipment, and install an anti-pollution device for GOC’s refinery in the Philippines,
provided that the installation part of the project may be sub-contracted to a local
construction company. Pursuant to the contract, the design and supply contracts were
done in Singapore by FC, while the installation works were sub-contracted by the FC
with the Philippine Construction Corporation (PCC), a domestic corporation. The project
with a total cost of P100 Million was completed in 2011 at the following cost
components: (design – P20Million; machinery and equipment – P50 Million; and
installation –P30 Million). Assume that the project was 40% complete in 2010 and 100%
complete in 2011, based on the certificates issued by the certificates issued by the
architects and engineers working on the project. GOC paid FC as follows: P60 Million in
2010 and P40 Million in 2011, and FC paid PCC ion foreign currency through a
Philippine bank as follows: P10 Million in 2010 and P20 Million in 2011.

a) Is FC liable to Philippines income tax, and if so, how much revenue shall be reported
by it in 2010 and in 2011? Explain your answer. (5%)

b) Is PCC, which adopted the percentage of completion method of reporting income and
expenses, liable to value added tax in 2010 and in 2011. Explain your answer. (5%)

III

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 value of P20Million. 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.

a) When is Mr. Castillo liable for real property tax on the land beginning 2011 or
beginning 2012? Explain your answer. (2%)

b) Is Mr. Castillo liable for income tax in 2011 based on the offer to buy by Mr. Ayala?
Explain your answer. (3%)

c) Should Mr. Castillo agree to sell the land to Mr. Ayala in 2012 for P20 Million, subject
to the condition as stated in The Deed of Sale that the buyer shall assume the capital
gains tax thereon, how musch is the income tax due on the transaction and when must
the tax return be filed and the tax be paid by the taxpayer? Explain your answer. (5%)
IV

Mr. Pedro Aguirre, a resident citizen, is working for a large real estate development
company in the country and in 2010, he was promoted to Vice-President of the
company. With more responsibilities comes higher pay. In 2011, he decided to buy a
new car worth P2 Million and he traded-in his old car with a market value of
P800,000.00 and paid the difference of P1.2 Million to the car company. The old car,
which was bought three (3) years ago by the father of Mr. Pedro Aguirre at price of
P700,000.00 was donated by him and registered in the name of his son. The
corresponding donor’s tax thereon was duly paid by the father.

a) How much is the cost basis of the old car to Mr. Aguirre? Explain your answer (2%)

b) What is the nature of the old car – capital asset or ordinary asset? Explain your
answer. (3%)

c) Is Mr. Aguirre liable to pay income tax on the gain from the sale of his old car?
Explain your answer. (5%)

Spouses Pablo Gonzales and Teresita Gonzales, both resident citizens acquire during
their marriage a residential house and lot located in Makati City, which is being leased
to a tenant for a monthly rental of P100,000.00. Mr. Pablo Gonzales is the President of
PG Corporation and he receives P50,000.00 salary per month. The spouses have only
one (1) minor child. In late June 2010, he was immediately brought to the hospital
because of the heart attack and he was pronounced dead on June 30, 2010.With no
liabilities, the estate of the late Pablo Gonzales was settled extra-judicially in early 2011.

a) Is Mr. Pablo Gonzales required to file income tax for 2010? If so, how much income
must he declare for the year? How much personal and additional exemption is he
entitled to? Explain your answer. (5%)

b) Is Mrs. Teresita Gonzales required to file income tax return fot 2010? If so, how much
income must she declare for the year? How much personal exemption is she entitled
to? Explain your answer. (5%)
c) Is the Estate of the late Pablo Gonzales required to file income tax return for 2010? If
so, how much income must it declare for the year? How much personal exemption is it
entitled to? Explain your answer. (5%)

VI

The BIR issude in 2010 a final assessment notice and demand letter against X
Corporation covering deficiency income tas for the year 2008 in the amount of P10
Million. X Corporation earlier requested the advice of a lawyer on whether or not it
should file a request for reconsideration or a request for reinvestigation. The lawyer said
it does not matter wheteher the protest files against the assessment is a request for
reconsideration or a request for reinvestigation, because it has same consequences or
implications.

a) What are the differences between a request for reconsideration and a request for
reinvestigation? (5%)

b) Do you agree with the advice of the lawyer? Explain your answer (5%)

VII

a) May the bank deposits – peso and foreign currency of the an individual taxpayer be
disclosed by a commercial bank to the Commissioner of Internal Revenue, in
connection with a tax investigation being conducted by revenue officials, without
violating the relevant bank secrecy laws? Explain your answer. (5%)

b) In 2011, the Commissioner of the U.S. Internal Revenue Service (IRS) requested in
writing the Commissioner of Internal Reveneu to get the informatrion from a bank in the
Philippines, regarding the deposits of a U.S. Citizen residing in the Philippines, who is
under examiniation by the officials of the US IRS, pursuant to the US-Philippine Tax
Treaty and othert existing laws. Should the BIR Commissioner agree to obtain such
informarion from the bank and provide the same to the IRS? Explain your answer. (5%)

c) Is the bank secrecy lawq in the Philippines violated when the BIR issues a Warrant of
Garnishment directed against a domestic bank, requiring it not to allow any withdrawal
from any existing bank deposit of he delinquent taxpayer mentioned in the Warrant and
to freeze the same until the tax delinquency of said taxpayer is settled with the BIR?
Explain your answer. (5%)

VIII

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 your deny the
petition for review filed by the taxpayer and consider the case as prematurely filed?
Explain your answer (5%)

IX

On April 16, 2012, the corporation filed its annual corporate income tax return for 2011,
showing an overpayment of income tax of P1 Million. Which is to be carried over to the
succeeding year(s). On May 15, 2012, the corporation sought advice from you and said
that it contemplates to file an amended return for 2011, which shows that instead of
carry over of the execss income tax payment, the same shall be considenred as a claim
for tax refund and the small box shown as "refund" in the return will be filled up. Withi a
year, the corporation will file the formal request for refund for the excess payment.

a) Will you recommend to the corporation such a course of action and justify that the
amended return is the latest official act of the corporation as to how it may treat such
overpayment of tax or should you consider the option granted to taxpayers as
irrevocable, once previously exercised by it? Explain your answer. (5%)

b) Should the petition for review filed with the CTA on the basisof the amended tax
return be denied by the BIR and the CTA, could the corporationstill carry over such
excess payment of income tax in the succeeding years, considering that there is no
precriptive period provided for in the income tax law with respect to carry over of excess
income tax payments? Explain your answer. (5%)

Explain the following statements:

a) The acquittal of the taxpayer in a criminal action under the Tax Code does not
necessarily result in a exeoneration of said taxpayer from his civil liability to pay taxes.
(3%)

b) Should the accused be found guilty beyond reasonable doubt for violation of Section
255 of the Tax Code for failure to file tax return or to to spply correct information), the
imposition of the civil liability by the CTA should be automatic and no assessment notice
from the BIR is necessary? (2%)

2013

ESSAY QUESTIONS

I.

In its final adjustment return for the 2010 taxable year, ABC Corp. had excess tax
credits arising from its over-withholding of income payments. It opted to carry over the
excess tax credits to the following year. Subsequently, ABC Corp. changed its mind and
applied for a refund of the excess tax credits.

Will the claim for refund prosper? (6%)

II.

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? (6%)

III.

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. Is the
City of Makati correct? (6%)

IV.

Atty. Gambino is a partner in a general professional partnership. The partnership

computes its gross revenues, claims deductions allowed under the Tax Code, and
distributes the net income to the partners, including Atty. Gambino, in accordance with
its articles of partnership.

In filing his own income tax return, Atty. Gambino claimed deductions that the
partnership did not claim, such as purchase of law books, entertainment expenses, car
insurance and car depreciation. The BIR disallowed the deductions.

Was the BIR correct? (6%)

V.

Mr. Agustin, 75 years old and suffering from an incurable disease, decided to sell for
valuable and sufficient consideration a house and lot to his son. He died one year later.

In the settlement of Mr. Agustin's estate, the BIR argued that the house and lot were
transferred in contemplation of death and should therefore form part of the gross estate
for estate tax purposes.

Is the BIR correct? (7%)

VI.

On October 15, 2005, ABC Corp. imported 1,000 kilos of steel ingots and paid customs
duties and VAT to the Bureau of Customs on the importation. On February 17, 2009,
the Bureau of Customs, citing provisions of the Tariff and Customs Code on post-audit,
investigated and assessed ABC Corp. for deficiency customs duties and VAT.

Is the Bureau of Customs correct? (7%)

VII.

XYZ Law Offices, a law partnership in the Philippines and a VAT-registered taxpayer,
received a query by e-mail 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.

What are the tax implications of the payment to XYZ Law Offices in terms of VAT and
income taxes? (7%)

VIII.

Mr. Amado leased a piece of land owned by the Municipality of Pinagsabitan and built a
warehouse on the property for his business operations. The Municipal Assessor
assessed Mr. Amado for real property taxes on the land and the warehouse. Mr. Amado
objected to the assessment, contending that he should not be asked to pay realty taxes
on the land since it is municipal property.

Was the assessment proper? (5%)

IX.

In the settlement of the estate of Mr. Barbera who died intestate, his wife renounced her
inheritance and her share of the conjugal property in favor of their children. The BIR
determined that there was a taxable gift and thus assessed Mrs. Barbera as a donor.

Was the BIR correct? (7%)

X.

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. Decide. (7%)

XI.

In 2000, Mr. Belen bought a residential house and lot for P1,000,000. He used the
property as his and his family's principal residence. It is now year 2013 and he is
thinking of selling the property to buy a new one. He seeks your advice on how much
income tax he would pay if he sells the property. The total zonal value of the property
is P5,000,000 and the fair market value per the tax declaration is P2,500,000. He
intends to sell it for P6,000,000.

What material considerations will you take into account in computing the income tax?
Please explain the legal relevance of each of these considerations. (7%)

XII.

You are the retained tax counsel of ABC Corp. Your client informed you that they have
been directly approached with a proposal by a BIR insider (i.e., a middle rank BIR
official) on the tax matter they have referred to you for handling. The BIR insider's
proposal is to settle the matter by significantly reducing the assessment, but he will get
50% of the savings arising from the reduced assessment.

What tax, criminal and ethical considerations will you take into account in giving your
advice? Explain the relevance of each of these considerations. (9%)

MULTIPLE CHOICE QUESTIONS

I. ABC Corp. was dissolved and liquidating dividends were declared and paid to the
stockholders.

What tax consequence follows? (1%)

(A) ABC Corp. should deduct a final tax of 10% from the dividends.

(B) The stockholders should declare their gain from their investment and pay income tax
at the ordinary rates.

(C) The dividends are exempt from tax.

(D) ABC Corp. should withhold a 10% creditable tax.

II. MGC Corp. secured an income tax holiday for 5 years as a pioneer industry. On the
fourth year of the tax holiday, MGC Corp. declared and paid cash dividends to its
stockholders, all of whom are individuals.

Are the dividends taxable? (1%)

(A) The dividends are taxable; the tax exemption of MGC Corp. does not extend to its
stockholders.

(B) The dividends are tax exempt because of MGC Corp.'s income tax holiday.

(C) The dividends are taxable if they exceed 50% of MGC Corp.'s retained earnings.

(D) The dividends are exempt if paid before the end of MGC Corp.'s fiscal year.
III. Mr. Alas sells shoes in Makati through a retail store. He pays the VAT on his gross
sales to the BIR and the municipal license tax based on the same gross sales to the
City of Makati. He comes to you for advice because he thinks he is being subjected to
double taxation.

What advice will you give him? (1%)

(A) Yes, there is double taxation and it is oppressive.

(B) The City of Makati does not have this power.

(C) Yes, there is double taxation and this is illegal m the Philippines.

(D) Double taxation is allowed where one tax is imposed by the national government
and the other by the local government.

IV. 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.

The cigarette company is __________ (1%)

(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

V. Mr. Alvarez is in the retail business. He received a deficiency tax assessment from
the BIR containing only the computation of the deficiency tax and the penalties, without
any explanation of the factual and legal bases for the assessment.

Is the assessment valid? (1%)

(A) The assessment is valid; all that Mr. Alvarez has to know is the amount of the tax.
(B) The assessment is invalid; the law requires a statement of the facts and the law
upon which the assessment is based.

(C) The assessment is valid but Mr. Alvarez can still contest it.

(D) The assessment is invalid because Mr. Alvarez has no way to determine if the
computation is erroneous.

VI. 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.

Would the BIR be correct if it determines that Helen earned taxable income under these
facts? (1%)

(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.

(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.

VII. The municipality of San Isidro passed an ordinance imposing a tax on installation
managers. At that time, there was only one installation manager in the municipality;
thus, only he would be liable for the tax.

Is the law constitutional? (1%)

(A) It is unconstitutional because it clearly discriminates against this person.

(B) It is unconstitutional for lack of legal basis.

(C) It is constitutional as it applies to all persons in that class.

(D) It is constitutional because the power to tax is the power to destroy.

VIII. XYZ Corporation manufactures glass panels and is almost at the point of
insolvency. It has no more cash and all it has are unsold glass panels. It received an
assessment from the BIR for deficiency income taxes. It wants to pay but due to lack of
cash, it seeks permission to pay in kind with glass panels.

Should the BIR grant the requested permission? (1%)

(A) It should grant permission to make payment convenient to taxpayers.

(B) It should not grant permission because a tax is generally a pecuniary burden.

(C) It should grant permission; otherwise, XYZ Corporation would not be able to pay.

(D) It should not grant permission because the government does not have the storage
facilities for glass panels.

IX. Prior to the VAT law, sales of cars were subject to a sales tax but the tax applied
only to the original or the first sale; the second and subsequent sales were not subject
to tax.

Deltoid Motors, Inc. (Deltoid) hit on the idea of setting up a wholly-owned subsidiary,
Gonmad Motors, Inc. (Gonmad), and of selling its assembled cars to Gonmad at a low
price so it would pay a lower tax on the first sale. Gonmad would then sell the cars to
the public at a higher price without paying any sales tax on this subsequent sale.

Characterize the arrangement. (1%)

A. The plan is a legitimate exercise of tax planning and merely takes advantage of a
loophole in the law.

B. The plan is legal because the government collects taxes anyway.

C. The plan is improper; the veil of corporate fiction can be pierced so that the second
sale will be considered the taxable sale.

D. The government must respect Gonmad's separate juridical personality and Deltoid's
taxable sale to it.
X. PRT Corp. purchased a residential house and lot with a swimming pool in an upscale
subdivision and required the company president to stay there without paying rent; it
reasoned out that the company president must maintain a certain image and be able to
entertain guests at the house to promote the company's business. The company
president declared that because they are childless, he and his wife could very well live
in a smaller house.

Was there a taxable fringe benefit? (1%)

(A) There was no taxable fringe benefit since it was for the convenience of the employer
and was necessary for its business.

(B) There was a taxable fringe benefit since the stay at the house was for free.

(C) There was a taxable fringe benefit because the house was very luxurious.

(D) There was no taxable fringe benefit because the company president was only
required to stay there and did not demand free housing.

XI. Taxpayer A was required by the BIR to sign and submit a waiver of the statute of
limitations on the assessment period, to give the BIR more time to complete its
investigation. The BIR accepted the waiver but failed to indicate the date of its
acceptance.

What is the legal status of the waiver? (1%)

(A) The waiver is valid because the date of acceptance is immaterial and unimportant.

(B) The waiver is invalid; the taxpayer cannot be required to waive the statute of
limitations.

(C) The waiver is invalid; the date of acceptance is crucial in counting the start of the
period of suspension of the prescriptive period.

(D) The waiver is valid, having been accepted by the BIR.

XII. Taxpayer Andy received on January 3, 2010 a preliminary assessment notice (PAN)
from the BIR, stating that he had fifteen (15) days from its receipt to comment or to file a
protest. Eight (8) days later (or on January11, 2010), before he could comment or file a
protest, Andy received the final assessment notice (FAN).

Decide on the validity of the FAN. (1%)

(A) The FAN is invalid; Andy was not given the chance to respond to the PAN, in
violation of his due process rights.

(B) The FAN is invalid for being premature.

(C) The FAN is valid since it was issued before the right to assess prescribed.

(D) The FAN is valid. There is no legal requirement that the FAN should await the
protest to the PAN because protest to the PAN is not mandatory.

XIII. MSI Corp. imports orange and lemon concentrates as raw materials for the fruit
drinks it sells locally. The Bureau of Customs (BOC) imposed a 1% duty rate on the
concentrates. Subsequently, the BOC changed its position and held that the
concentrates should be taxed at 7% duty rate. MSI disagreed with the ruling and
questioned it in the CTA which upheld MSI's position. The Commissioner of Customs
appealed to the CTA en bane without filing a motion for reconsideration.

Resolve the appeal. (1%)

(A) The appeal should be dismissed because a motion for reconsideration is mandatory.

(B) The appeal should be dismissed for having been filed out of time.

(C) The appeal should be given due course since a motion for reconsideration is a
useless exercise.

(D) The appeal should be upheld to be fair to the government which needs taxes.
XIV. The spouses Jun and Elvira Sandoval purchased a piece of land for P5,000,000
and included their two (2) minor children as co-purchasers in the Deed of Absolute Sale.
The Commissioner of Internal Revenue (CIR) ruled that there was an implied donation
and assessed donors' taxes against the spouses.

Rule on the CIR's action. (1%)

(A) The CIR is wrong; a donation must be express.

(B) The CIR is wrong; financial capacity is not a requirement for a valid sale.

(C) The CIR is correct; the amount involved is huge and ultimately ends up with the
children.

(D) The CIR is correct; there was animus donandi since the children had no financial
capacity to be co-purchasers.

XV. Pheleco is a power generation and distribution company operating mainly from the
City of Taguig. It owns electric poles which it also rents out to other companies that use
poles such as telephone and cable companies. Taguig passed an ordinance imposing a
fee equivalent to 1% of the annual rental for these poles. Pheleco questioned 'the
legality of the ordinance on the ground that it imposes an income tax which local
government units (LGUs) are prohibited from imposing.

Rule on the validity of the ordinance. (1%)

(A) The ordinance is void; the fee is based on rental income and is therefore a tax on
income.

(B) The ordinance is valid as a legitimate exercise of police power to regulate electric
poles.

(C) The ordinance is void; 1% of annual rental is excessive and oppressive.

(D) The ordinance is valid; an LGU may impose a tax on income.

XVI. Aleta sued Boboy for breach of promise to marry. Boboy lost the case and duly
paid the court's award that included, among others, Pl00,000 as moral damages for the
mental anguish Aleta suffered.

Did Aleta earn a taxable income? (1%)

(A) She had a taxable income of P100,000 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.

XVII. Mr. Mayuga donated his residential house and lot to his son and duly paid the
donor's tax. In the Deed of Donation, Mr. Mayuga expressly reserved for himself the
usufruct over the property for as long as he lived.

Describe the donated property from the taxation perspective. (1%)

(A) The property will form part of Mr. Mayuga's gross estate when he dies.

(B) The property will not fom1 part of Mr. Mayuga's gross estate when he dies because
he paid the donor's tax.

(C) The property will form part of Mr. Mayuga's gross estate because he died soon after
the donation.

(D) The property will not form part of Mr. Mayuga's gross estate because it is no longer
his.
XVIII. Mr. Z made an importation which he declared at the Bureau of Customs (BOC) as
"Used Truck Replacement Parts". Upon investigation, the container vans contained 15
units of Porsche and Ferrari cars.

Characterize Mr. Z's action. (1%)

(A) Mr. Z committed smuggling.

(B) Mr. Z did not commit smuggling because he submitted his shipment to BOC
examination.

(C) Mr. Z only made a misdeclaration, but did not commit smuggling.

(D) Mr. Z did not commit smuggling because the shipment has not left the customs
area.

XIX. Mr. A was preparing his income tax return and had some doubt on whether a
commission he earned should be declared for the current year or for the succeeding
year. He sought the opinion of his lawyer who advised him to report the commission in
the succeeding year. He heeded his lawyer's advice and reported the commission in the
succeeding year. The lawyer's advice turned out to be wrong; in Mr. A's petition against
the BIR assessment, the court ruled against Mr. A.

Is Mr. A guilty of fraud? (1%)

(A) Mr. A is not guilty of fraud as he simply followed the advice of his lawyer.

(B) Mr. A is guilty of fraud; he deliberately did not report the commission in the current
year when he should have done so.

(C) Mr. A's lawyer should pay the tax for giving the wrong advice.

(D) Mr. A is guilty for failing to consult his accountant.

XX. The BIR, through the Commissioner, instituted a system requiring taxpayers to
submit to the BIR a summary list of their sales and purchases during the year, indicating
the name of the seller or the buyer and the amount. Based on these lists, the BIR
discovered that in 2004 ABC Corp. purchased from XYZ Corp. goods worth P5,000,000.
XYZ Corp. did not declare these for income tax purposes as its reported gross sales for
2004was only Pl,000,000.

Which of the following defenses may XYZ Corp. interpose in an assessment against it
by the BIR? (1%)

(A) The BIR has no authority to obtain third party information to assess taxpayers.

(B) The third party information is inadmissible as hearsay evidence.

(C) The system of requiring taxpayers to submit third party information is illegal for
violating the right to privacy.

(D) None of the above.

2014

I.

On March 27, 2012, the Bureau of Internal Revenue (BIR) issued a notice of
assessment against Blue Water Industries Inc. (BWI), a domestic corporation, informing
the latter of its alleged deficiency corporate income tax for the year 2009. On April 20,
2012, BWI filed a letter protest before the BIR contesting said assessment and
demanding that the same be cancelled or set aside.

However, on May 19, 2013, that is, after more than a year from the filing of the letter
protest, the BIR informed BWI that the latter’s letter protest was denied on the ground
that the assessment had already become final, executory and demandable. The BIR
reasoned that its failure to decide the case within 180 days from filing of the letter
protest should have prompted BWI to seek recourse before the Court of Tax Appeals
(CTA) by filing a petition for review within thirty (30) days after the expiration of the 180-
day period as mandated by the provisions of the last paragraph of Section 228 of the
National Internal Revenue Code (NIRC). Accordingly, BWI’s failure to file a petition for
review before the CTA rendered the assessment final, executory and demandable. Is
the contention of the BIR correct? Explain. (5%)

II.

Mr. De Sarapen is a candidate in the upcoming Senatorial elections. Mr. De Almacen,

believing in the sincerity and ability of Mr. De Sarapen to introduce much needed
reforms in the country, contributed P500,000.00 in cash to the campaign chest of Mr.
De Sarapen. In addition, Mr. De Almacen purchased tarpaulins, t-shirts, umbrellas, caps
and other campaign materials that he also donated to Mr. De Sarapen for use in his
campaign. Is the contribution of cash and campaign materials subject to donor’s tax?
(4%)

III.

Dr. Taimtim is an alumnus of the College of Medicine of Universal University (UU), a

privately-owned center for learning which grants yearly dividends to its stockholders.

UU has a famous chapel located within the campus where the old folks used to say that
anyone who wanted to pass the medical board examinations should offer a dozen roses
on all the Sundays of October. This was what Dr. Taimtim did when he was still
reviewing for the board examinations. In his case, the folk saying proved to be true
because he is now a successful cardiologist. Wanting to give back to the chapel and
help defray the costs of its maintenance, Dr. Taimtim donated P50,000.00 to the
caretakers of the chapel which was evidenced by an acknowledgment receipt.

In computing his net taxable income, can Dr.Taimtim use his donation to the chapel as
an allowable deduction from his gross income under the National Internal Revenue
Code (NIRC)? (4%)
IV.

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

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.

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 Section 112(A) of the National Internal Revenue Code (NIRC).

(A) Is the CTA correct? (3%)

(B) Assuming that GC filed its claim before the CTA on February 22, 2014, would your
answer be the same? (3%)

V.

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 prayed for the dismissal of the petition on the ground that the same
should have been filed 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.

Decide. (5%)

VI.

Choose the correct answer. Smuggling - (1%)

(A) does not extend to the entry of imported or exported articles by means of any false
or fraudulent invoice, statement or practices; the entry of goods at less than the true
weight or measure; or the filing of any false or fraudulent entry for the payment of
drawback or refund of duties.

(B) is limited to the import of contraband or highly dutiable cargo beyond the reach of
customs authorities.

(C) is committed by any person who shall fraudulently import or bring into the
Philippines, or assist in so doing, any article, contrary to law, or shall receive, conceal,
buy, sell or any manner facilitate the transportation, concealment or sale of such article
after importation, knowing the same to have been imported contrary to law.

VII.

In accordance with the Local Government Code (LGC), the Sangguniang Panglungsod
(SP) of Baguio City enacted Tax Ordinance No. 19, Series of 2014, imposing a P50.00
tax on all the tourists and travellers going to Baguio City. In imposing the local tax, the
SP reasoned that the tax collected will be used to maintain the cleanliness of Baguio
City and for the beautification of its tourist attractions. (D) is punishable by
administrative penalty only.

Claiming the tax to be unjust, Baguio Travellers Association (BTA), an association of

travel agencies in Baguio City, filed a petition for declaratory relief before the Regional
Trial Court (RTC) because BTA was apprehensive that tourists might cancel their
bookings with BTA’s member agencies. BTA also prayed for the issuance of a
Temporary Restraining Order (TRO) to enjoin Baguio City from enforcing the local tax
on their customers and on all tourists going to Baguio City.

The RTC issued a TRO enjoining Baguio City from imposing the local tax. Aggrieved,
Baguio City filed a petition for certiorari before the Supreme Court (SC) seeking to set
aside the TRO issued by the RTC on the ground that collection of taxes cannot be
enjoined. Will the petition prosper? (5%)

VIII.

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. Is the sale of the delivery van by MKI to MGSC
subject to VAT? (4%)

IX.

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 for the general
cleaning services. Is Mr. Gipit correct? Explain. (4%)

X.

Which of the following is an exclusion from gross income? (1%)

(A) Salaries and wages

(B) Cash dividends

(C) Liquidating dividends after dissolution of a corporation

(D) De minimis benefits

(E) Embezzled money

XI.

Triple Star, a domestic corporation, entered into a Management Service Contract with
Single Star, a non-resident 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 Hongkong.

Is the compensation for the services of Single Star taxable as income from sources
within the Philippines? Explain. (4%)

XII.

Which of the following should not be claimed as deductions from gross income? (1%)

(A) discounts given to senior citizens on certain goods and services.

(B) advertising expense to maintain some form of goodwill for the taxpayer’s business.

(C) salaries and bonuses paid to employees.

(D) interest payment on loans for the purchase of machinery and equipment used in
business.

XIII.

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. (4%)
XIV.

Mr. X, a Filipino residing in Alabama, U.S.A., died on January 2, 2013 after undergoing
a major heart surgery. He left behind to his wife and two (2) kids several properties, to
wit: (4%)

(1) Family home in Makati City;

(2) Condominium unit in Las Piñas City;

(3) Proceeds of health insurance from Take Care, a health maintenance organization in
the Philippines; and

(4) Land in Alabama, U.S.A.

The following expenses were paid:

(1) Funeral expenses;

(2) Medical expenses; and

(3) Judicial expenses in the testate proceedings.

(A) What are the items that must be considered as part of the gross estate income of
Mr. X?

(B) What are the items that may be considered as deductions from the gross estate?

XV.

When is a pre-assessment notice required under the following cases? (1%)

(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.

(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.

XVI.

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?
(4%)

XVII.

In a civil case for Annulment of Contract of Sale, plaintiff Ma. Reklamo presented in
evidence the Contract of Sale which she sought to be annulled. No documentary stamp
tax on the Contract of Sale was paid because according to plaintiff Ma. Reklamo, there
was no need to pay the same since the sale was not registered with the Register of
Deeds. Plaintiff Ma. Reklamo is now offering the Contract of Sale as her evidence. Is
the Contract of Sale admissible? (4%)

XVIII.

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. (4%)

(A) What are the administrative remedies available to Madam X in order to contest the
assessment and their respective prescriptive periods?

(B) May Madam X refuse to pay the deficiency tax assessment during the pendency of
her appeal?
XIX.

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.

Whose argument is correct? Decide. (5%)

XX.

During his lifetime, Mr. Sakitin obtained a loan amounting to P10 million from Bangko
Uno for the purchase of a parcel of land located in Makati City, using such property as
collateral for the loan. The loan was evidenced by a duly notarized promissory note.
Subsequently, Mr. Sakitin died. At the time of his death, the unpaid balance of the loan
amounted to P2 million. The heirs of Mr. Sakitin deducted the amount of P2 million from
the gross estate, as part of the "Claims against the Estate." Such deduction was
disallowed by the Bureau of Internal Revenue (BIR) Examiner, claiming that the
mortgaged property was not included in the computation of the gross estate. Do you
agree with the BIR? Explain. (4%)
XXI.

On August 31, 2014, Haelton Corporation (HC), thru its authorized representative Ms.
Pares, sold a 16-storey 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.

Investigations by the Bureau of Internal Revenue (BIR) showed that:

(1) the Deed of Absolute Sale between Mr. Belly and BGI was notarized ahead of the
sale between HC and Mr. Belly; (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.

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%). What is the liability of Haeltown Corporation, if any? (4%)

XXII.

Choose the correct answer. Double Taxation - (1%)

(A) is one of direct duplicate taxations wherein two (2) taxes must be imposed on the
same subject matter, by the same taxing authority, within the same jurisdiction, during
the same period, with the same kind or character of tax, even if the purposes of
imposing the same are different.

(B) is forbidden by law; and therefore, it is a valid defense against the validity of a tax
measure.

(C) means taxing the same property twice when it should be taxed only once; it is
tantamount to taxing the same person twice by the same jurisdiction for the same thing.
(D) exists when a corporation is assessed with local business tax as a manufacturer,
and at the same time, value-added tax as a person selling goods in the course of trade
or business.

XXIII.

Choose the correct answer. Tax Avoidance ‒ (1%)

(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.

(B) is a tax saving device within the means sanctioned by law.

(C) is employed by a corporation, the organization of which is prompted more on the

mitigation of tax liabilities than for legitimate business purpose.

(D) is any form of tax deduction scheme, regardless if the same is legal or not.

XXIV.

A, B, and C, all lawyers, formed a partnership called ABC Law Firm so that they can
practice their profession as lawyers. For the year 2012, ABC Law Firm received
earnings and paid expenses, among which are as follows: (6%)

Earnings:

(1) Professional/legal fees from various clients

(2) Cash prize received from a religious society in recognition of the exemplary service
of ABC Law Firm

(3) Gains derived from sale of excess computers and laptops

Payments:

(1) Salaries of office staff

(2) Rentals for office space

(3) Representation expenses incurred in meetings with clients

(A) What are the items in the above mentioned earnings which should be included in the
computation of ABC Law Firm’s gross income? Explain.

(B) What are the items in the above-mentioned payments which may be considered as
deductions from the gross income of ABC Law Firm? Explain.

(C) If ABC Law Firm earns net income in 2012, what, if any, is the tax consequence on
the part of ABC Law Firm insofar as the payment of income tax is concerned? What, if
any, is the tax consequence on the part of A, B, and C as individual partners, insofar as
the payment of income tax is concerned?

XXV.

Which of the following transactions is subject to Value-Added Tax (VAT)? (1%)

(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 employeremployee relationship

(D) Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority

XXVI.

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.

May Freezy Corporation claim the payment to the officer as deduction from its gross
income? Explain. (4%)
XXVII.

In January 2013, your friend got his first job as an o ffice clerk. He is single and lives
with his family who depends upon him for financial support. His parents have long
retired from their work, and his two (2) siblings are still minors and studying in grade
school. In February 2014, he consulted you as he wanted to comply with all the rules
pertaining to the preparation and filing of his income tax return. He now asks you the
following:

(A) Is he entitled to personal exemptions? If so, how much? (1%)

(B) Is he entitled to additional exemptions? If so, how much? (1%)

(C) What is the effect of the taxes withheld from his salaries on his taxable income?
(2%)

XXVIII.

Choose the correct answer. Tax laws - (1%)

(A) may be enacted for the promotion of private enterprise or business for as long as it
gives incidental advantage to the public or the State

(B) are inherently legislative; therefore, may not be delegated

(C) are territorial in nature; hence, they do not recognize the generally-accepted tenets
of international law

(D) adhere to uniformity and equality when all taxable articles or kinds of property of the
same class are taxable at the same rate

XXIX.

Doña 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, Doña Evelina
paid the taxes. Nevertheless, unsatisfied with said Tax Ordinance, Doña Evelina,
through her counsel Atty. ELP, filed a written claim for recovery of said local business
taxes and contested the assessment. Her claim was denied, and so Atty. ELP elevated
her case to the Regional Trial Court (RTC).

The RTC declared Tax Ordinance No. 24 null and void and without legal effect for
having been enacted in violation of the public ation requirement of tax ordinances and
revenue measures under the Local Government Code (LGC) and on the ground of
double taxation. On appeal, the Court of Tax Appeals (CTA) affirmed the decision of the
RTC. No motion for reconsideration was filed and the decision became final and
executory. (4%)

(A) If you are Atty. ELP, what advice will you give Doña Evelina so that she can recover
the subject local business taxes?

(B) If Doña Evelina eventually recovers the local business taxes, must the same be
considered as income taxable by the national government?

2015

I. Explain the principles of a sound tax system. (3%)

II. 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.

a) Is the prize money paid to and received by Mr. A in the US taxable in the Philippines?
Why? (2%)

b) May Mr. A's prize money qualify as an exclusion from his gross income? Why? (2%)

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? (4%)
III. Ms. C, a resident citizen, bought ready-to-wear goods from Ms. B, a nonresident
citizen.

a) If the goods were produced from Ms. B's factory in the Philippines, is Ms. B's income
from the sale to Ms. C taxable in the Philippines? Explain. (2%)

b) 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.
(2%)

IV. Mr. E and Ms. F are both employees of AAA Corp. They got married on February
14, 2011. On December 29, 2011, the couple gave birth to triplets. On June 25,
2013, they had twins. What were the personal exemptions/deductions which Mr.
E and Ms. F could claim in the following taxable years:

a) For2010 (2%)

b) For 2011 (3%)

c) For 2013 (2%)

V. 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:

a) A resident citizen (1%)

b) Non-resident alien engaged in trade or business (1%)

c) Non-resident alien not engaged in trade or business (1% )

d) Domestic corporation (1%)

e) Non-resident foreign corporation (1%)

VI. Differentiate between double taxation in the strict sense and in a broad sense
and give an example of each. (4%)
VII. 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 CT A 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? (3%)

VIII. 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 be used by officials of EEE, Inc. during their 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. Was DDD Corp.
correct? Explain. (3%)

IX. For calendar year 2011, FFF, Inc., a VAT-registered corporation, reported
unutilized excess input VAT in the amount of Pl ,000,000.00 attributable to its
zero-rated 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.

a) Did the CTA acquire jurisdiction over the Petition of FFF, Inc.? (2%)

b) Discuss the proper procedure and applicable time periods for administrative and
judicial claims for refund/credit of unutilized excess input VAT. (4%)
 X. 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. (1%)

b) Resident alien on income derived from sources within the Philippines. (1%)

c) Resident citizen earning purely compensation income from two employers within the
Philippines, whose income taxes have been correctly withheld. (1%)

d) Resident citizen who falls under the classification of minimum wage earners. (1%)

e) An individual whose sole income has been subjected to final withholding tax. (1%)

XI. What are de minim is benefits and how are these taxed? Give three (3) examples
of de minimis benefits. (4%)

XII. 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. How will
you respond? (4%)

XIII. 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. Before which Court should GGG, Inc. seek recourse from the adverse
ruling of the Secretary of Finance in the exercise of the latter's power of review?
(3%)

XIV. 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.

a) As Ms. J's supervisor, what will be your advice? (2%)

b) What are the distinctions between regular corporate income tax and minimum
corporate income tax? (3%)

XV. 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. What are the options available for
Dr. K so he could maximize the deductions from his gross income? (3%)

XVI. 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.

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.

a. Are the reclaimed properties registered in the name of LLL subject to real property
tax? (4 % )

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 fastfood
restaurants J Burgers, G Pizza, and K Chicken? (2%)

XVII. Mr. L owned several parcels of land and he donated a parcel each to his two
children. Mr. L acquired both parcels of land in 1975 for ll200,000.00. At the time
of donation, the fair market value of the two parcels of land, as determined by the
CIR, was 112,300,000.00; while the fair market value of the same properties as
shown in the schedule of values prepared by the City Assessors was
112,500,000.00. What is the proper valuation of Mr. L's gifts to his children for
purposes of computing donor's tax? (3%)

XVIII. Under the Tariff and Customs Code, as amended:

a. When does importation begin and when is it deemed terminated? (2%)

b. In what easels is the decision of the Collector automatically reviewed by the

Commissioner of Customs? In what instance/s is the decision of the Commissioner
automatically appealed to the Secretary of Finance? (4%)

XIX. 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.

a. Is there a ground for opposing said ordinance? (2%)

b. What is the proper procedural remedy and applicable time periods for challenging the
ordinance? (4%)
 XX. After filing an Information for violation of Section 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. (3%)

XXI. 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.

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 Section 4.108-1 of Revenue Regulations (RR) No. 7-95. On
appeal, the CTA division and the CT A en bane affirmed the BIR ruling.

MMM, Inc. appealed to the Supreme Court arguing that the NIRC itself did not provide
for such a requirement. RR No. 7-95 should not prevail over a taxpayer's substantive
right to claim tax refund or credit.

a. Rule on the appeal of MMM, Inc. (3%)

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? (2%)

XXII. State the conditions for allowing the following as deductions from the gross
estate of a citizen or resident alien for the purpose of imposing estate tax:
a. Claims against the estate (2%)

b. Medical expenses (2%)

2016

Briefly explain the following doctrines: lifeblood doctrine; necessity theory; benefits
received principle; and, doctrine of symbiotic relationship. (5%)

II

State at least five (5) cases under the exclusive appellate jurisdiction of the Court of Tax
Appeals (CTA). (5%)

III

Rakham operates the lending company that made a loan to Alfonso in the amount of
Pl20,000.00 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." Discuss the requisites for deductibility of a "bad debt?" (5%)

IV

The City of Maharlika passed an ordinance imposing a tax on any sale or transfer of
real property located within the city at a rate of fifty percent (50%) of one percent (1%)
of the total consideration of the transaction. Jose sold a parcel of land in the city, which
he inherited from his deceased parents, and refused to pay the aforesaid tax. He
instead filed a case asking that the ordinance be declared null and void since the tax it
imposed can only be collected by the national government, as in fact he has paid the
Bureau of Internal Revenue (BIR) the required capital gains tax. If you were the City
Legal Officer of Maharlika, what defenses would you raise to sustain the validity of the
ordinance? (5%)
V

Sure Arrival Airways (SAA) is a foreign corporation, organized under the laws of the
Republic of Nigeria. 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, Narotel.

SAA sells airplane tickets through Narotel, and these tickets are serviced by SAA
airplanes outside the Philippines. The total sales of airplane tickets transacted by
Narotel for SAA in 2012 amounted to Pl0,000,000.00. The Commissioner of Internal
Revenue (CIR) assessed SAA deficiency income taxes at the rate of 30% on its taxable
income, finding that SAA's airline ticket sales constituted income derived from sources
within the Philippines.

SAA filed a protest on the ground that the alleged deficiency income taxes should be
considered as income derived exclusively from sources outside the Philippines since
SAA only serviced passengers outside Philippine territory. It, thus, asserted that the
imposition of such income taxes violated the principle of territoriality in taxation.

Is the theory of SAA tenable? Explain. (5%)

VI

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. (5%)

VII

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.

Invoking Section 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.

Is the PNR exempt from real property tax? Explain your answer. (5%)

VIII

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 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.

Is the said assignment a "gift" and, therefore, subject to gift tax? Explain. (5%)

IX

[a] 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. (2.5%)
[b] Explain the procedure for claiming refunds of tax erroneously or illegally collected
under Sec. 229 of the NIRC from the filing of the claim for refunds with the CIR up to the
CTA. (2.5%)

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. (RA) 9257
was enacted amending the treatment of the 20% discount as a "tax deduction." Equity
Cinema filed a petition with the RTC claiming that RA 9257 is unconstitutional as it
forcibly deprives sellers a part of the price without just compensation.

[a] What is the effect of converting the 20% discount from a "tax credit" to a "tax
deduction"? (2.5%)

[b] If you are the judge, how will you decide the case? Briefly explain your answer.
(2.5%)

XI

Soaring Eagle paid its excise tax liabilities with Tax Credit Certificates (TCCs) which it
purchased through the One Stop Shop Inter-Agency Tax Credit Center (Center) of the
Department of Finance. The Center is a composite body of the DOF, BIR, BOC and the
BOI. The TCCs ~ere accepted by the BIR as payments. A year after, the BIR demanded
the payment of alleged deficiency excise taxes on the ground that Soaring Eagle is not
a qualified transferee of the TCCs it purchased from other BOI-registered companies.
The BIR argued that the TCCs are subject to post-audit as a suspensive condition. On
the other hand, Soaring Eagle countered that it is a buyer in good faith and for value
who merely relied on the Center's representation of the genuineness and validity of the
TCCs. If it is ordered to pay the deficiency, Soaring Eagle claims the same is
confiscatory and a violation of due process. Is the assessment against Soaring Eagle
valid? Explain. (5%)
XII

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 (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.

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. (5%)

XIII

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. Is the BIR correct? Explain. (5%)
XIV

Lucky V Corporation (Lucky) owns a IO-storey building on a 2,000 square meter lot in
the City of Makati. It sold the lot and building to Rainier. for P80 million. One month
after, Rainier sold the lot and building to Healthy Smoke Company (HSC) for P200
million. Lucky filed its annual tax return and declared its gain from the sale of the lot and
building in the amount of P750,000.00.

An investigation conducted by the BIR revealed that two months prior to the sale of the
properties to Rainier, Lucky received P40 million from HSC and not from Rainier. Said
amount of P40 million was debited by HSC and reflected in its trial balance as "other
inv. - Lucky Bldg." The month after, another P40 million was reflected in HSC's trial
balance as "other inv. - Lucky Bldg." The BIR concluded that there is tax evasion since
the real buyer of the properties of Lucky is HSC and not Rainier. It issued an
assessment for deficiency income tax in the amount of P79 million against Lucky. Lucky
argues that it resorted to tax avoidance or a tax saving device, which is allowed by the
NIRC and BIR rules since it paid the correct taxes based on its sale to Rainier. On the
other hand, Rainier and HSC also paid the prescribed taxes arising from the sale by
Rainier to HSC. Is the BIR correct in assessing taxes on Lucky? Explain. (5%)

XV

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 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 Pl 50,000.00. 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. Decide if all the representation and
entertainment expenses claimed by Golden Dragon are deductible. Explain. (5%)
XVI

Amor Powers, Inc. (API) is a domestic corporation registered with the BIR as a value-
added taxpayer. API incurred excess input VAT in the amount of P500,000,000.00 on
August 3, 2008. Hence, it filed with the BIR an administrative claim for the refund or
credit of these input taxes on August 15, 2010. Without waiting for the CIR to act on its
claim, API filed a Petition for Review with the CT A on September 15, 2010 before the
lapse of two years after the close of the taxable quarter concerned.

In its Comment on the Petition, the CIR argues that API's Petition should be dismissed
as it was filed before the lapse of the 120-day period given to the CIR by Sec. 112(D) of
the NIRC, which became effective on January 1, 1998. For the CIR, the 120- day period
is mandatory and jurisdictional so that any suit filed before its expiration is premature
and, therefore, dismissible.

API, on the other hand, invokes BIR Ruling No. DA-489-03 issued by the CIR on
December 10, 2003 in answer to a query posed by the Department of Finance
regarding the propriety of the actions taken by Lazi Bay Resources Development, Inc.,
which filed an administrative claim for refund with the CIR and, before the lapse of the
120-day period from its filing, filed a judicial claim with the CTA. BIR Ruling No. DA-489-
03 stated that the taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA.

Will API's Petition for Review prosper? Decide with reasons. (5%)

XVII

The requisites for a valid waiver of the three-year (3-year) prescriptive period for the BIR
to assess taxes due in the taxable year are prescribed by Revenue Memorandum Order
(RMO) No. 20-90:

1. The waiver must be in the proper form prescribed by RMO 20-90.

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.

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.

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.

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 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.

VVV claims that the waiver is void due to non-compliance with RMO 20-90. Hence, the
period for assessment had already prescribed. Moreover, since the assessment
involves P2 million, the waiver should have been signed by the CIR and instead of a
mere RDO. On the other hand, the BIR contends that the requirements ofRMO No. 20-
90 are merely directory; that the execution of the waiver by VVV was a renunciation of
its right to invoke prescription and that the government cannot be estopped by the
mistakes committed by its revenue officers. Is VVV liable? Explain. (5%)
XVIII

Henry, a U.S. naturalized citizen, went home to the Philippines to reacquire Philippine
citizenship under RA 9225. His mother left him a lot and building in Makati City and he
wants to make use of it in his trading business. Considering that he needs money for
the business, he wants to sell his lot and building and make use of the consideration.
However, the lot has sentimental value and he wants to reacquire it in the future. A
friend of Henry told him of the "sale-leaseback transaction" commonly used in the U.S.,
which is also used for tax reduction. Under said transaction, the lot owner sells his
property to a buyer on the condition that he leases it back from the buyer. At the same
time, the property owner is granted an option to repurchase the lot on or before an
agreed date. Henry approaches you as a tax lawyer for advice.

Explain what tax benefits, if any, can be obtained by Henry and the buyer from the sale-
leaseback transaction? (5%)

XIX

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] Can the CIR of the Philippines also tax the same shares? Explain. (2.5%)

[b] Explain the concept of double taxation. (2.5%)

XX

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? (5%)

2017

I.

SMZ, Inc. is a VAT-registered enterprise engaged in the general construction business.

HP International contracts the services of SMZ, Inc. to construct HP lnternational'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) for the VAT
zero-rating of its sale of services to HP International. However, the BIR denies SMZ,
lnc.'s application on the ground that HP International already enjoys income tax holiday.

Is the BIR correct in denying SMZ, lnc.'s application? Explain your answer. (6%)

II.

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 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.

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.

If you were the Commissioner of Internal Revenue, will you grant Wreck Corporation's
administrative claim for refund or issuance of tax credit certificate? Explain your answer.
(6%)

III.

Vanderful, lnc.'s income tax return for taxable year 2015 showed an overpayment due to
excess creditable withholding taxes in the amount of ₱750,000.00. 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 ₱1,100,000.00, which included the carry-over from year 2015 in the amount
of ₱750,000.00 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 ₱1,100,000.00.

Vanderful, Inc. now files in the BIR a claim for refund of unutilized overpayments of
₱1,100,00.00. Is the claim meritorious? (4%)

IV.

On the basis of a warrant of seizure and detention issued by the Collector of Customs
for the purpose of enforcing the Tariff and Customs Code, assorted brands of liquor and
cigarettes said to have been illegally imported into the Philippines were seized from a
store operating in a Freeport zone. The store owner moved for the quashal of the
warrant on the ground that the Collector of Customs had no jurisdiction to enforce it
within the Freeport zone.

Should the motion to quash be granted? (3%)

V.

On March 30, 2016, XL Co. filed an administrative claim for refund of unutilized input
VAT for taxable year 2014, together with supporting documents. XL Co. claimed that its
sale of generated power and delivery of electric capacity and energy was VAT zero-
rated. Due to the inaction of the Commissioner of Internal Revenue (CIR), XL Co. filed
with the Court of Tax Appeals (CTA) the following judicial claims for refund:

Period Covered Date Filed

1st Quarter of 2014 March 31, 2016

2nd Quarter of 2014 June 30, 2016

3rd and 4th Quarter of 2014 August 12, 2016

Is XL Co.'s claim for VAT refund timely filed? Explain your answer. (5%)

VI.

Heeding the pronouncement of the President that the worsening traffic condition in the
metropolis was a sign of economic progress, the Congress enacted Republic Act No.
10701 (RA 10701), also known as An Act Imposing a Transport Tax on the Purchase of
Private Vehicles.

Under RA 10701, buyers of private vehicles are required to pay a transport tax
equivalent to 5°/o of the total purchase price per vehicle purchased. RA 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. RA 10701 further provides
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, RA
10701 exempts owners of public utility vehicles and the Government from the coverage
of the 5% transport tax.
A group of private vehicle owners sue on the ground that the law is unconstitutional for
contravening the Equal Protection Clause of the Constitution.

Rule on the constitutionality and validity of RA 10701. (5%)

VII.

Calvin Dela Pisa was a Permits and Licensing Officer (rank-and-file) of Sta. Portia
Realty Corporation (SPRC). He invited the Regional Director of the Housing and Land
Use Regulatory Board (HLURB) to lunch at the Sulo Hotel in Quezon City to discuss the
approval of SPRC's application for a development permit in connection with its
subdivision development project in Pasig City. At breakfast the following day, Calvin met
a prospective client interested to enter into a joint venture with SPRC for the
construction of a residential condominium unit in Cainta, Rizal.

Calvin incurred expenses for the lunch and breakfast meetings he had with the Regional
Director of HLURB and the prospective client, respectively. The expenses were duly
supported by official receipts issued in his name. At month's end, he requested the
reimbursement of his expenses, and SPRC granted his request.

(a) Can SPRC claim an allowable deduction for the expenses incurred by Calvin?
Explain your answer. (2.5%)

(b) Is the reimbursement received by Calvin from SPRC subject to tax? Explain your
answer. (2.5%)

VIII.

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.
Is Daryl qualified for substituted filing for taxable year 2015? Explain your answer. (3%)

IX.

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.

Alfredo contends that the 20% final tax on the interest income constituted double
taxation because his salary had been already subjected to withholding tax.

Is Alfredo's contention correct? Explain your answer. (3%)

X.

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.

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
Commissioner of Internal Revenue denied the protests and directed the collection of the
assessed deficiency taxes.

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.

(a) What constitutes a valid waiver of the statute of limitations for the assessment and
collection of taxes? Explain your answer. (3%)

(b) Has the right of the Government to assess and collect deficiency taxes from Vantage
Point, Inc. for the year 2012 prescribed? Explain your answer. (3%)
XI.

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.

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.
(3%)

XII.

On September 17, 2015, Data Realty, Inc., a real-estate 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
₱4,213,000.00. The condominium unit had a zonal value amounting to ₱2,877,000.00
and fair market value amounting to ₱550,000.00.

(a) Is the transaction subject to value-added tax and documentary stamp tax? Explain
your answer. (3%)

(b) Would your answer be the same if the property was sold by a bank in a foreclosure
sale? Explain your answer. (3%)

XIII.

BATAS Law is a general professional partnership operating in the City of Valenzuela. It

regularly pays value-added tax on its services. All its lawyers have individually paid the
required professional tax for the year 2017. However, as a condition for the renewal of
its business permit for the year 2017, the City Treasurer of Valenzuela assessed BAT
AS Law for the payment of percentage business tax on its gross receipts for the year
2016 in accordance with the Revenue Tax Code of Valenzuela.

Is BATAS Law liable to pay the assessed percentage business tax? Explain your
answer. (3%)
XIV.

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 Jl24 million. The latter amount was still more than the net
worth of Globesmart Services, Inc. as reported in its audited financial statements.

(a) May the collection of taxes be suspended? Explain your answer. (3%)

(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. (3%)

XV.

Casimira died on June 19, 2017 after three weeks of confinement due to an
unsuccessful liver transplant. For her confinement, she had incurred substantial medical
expenses that she financed through personal loans secured by mortgages on her real
properties. Her heirs are still in the process of making an inventory of her assets that
can be used to pay the estate taxes, if any, which are due on December 19, 2017.

(a) Are the medical expenses, personal loans and mortgages incurred by Casimira
deductible from her gross estate? Explain your answer.(5%)
(b) May the heirs of Casimira file the estate tax return and pay the corresponding estate
tax beyond December 19, 2017 without incurring interest and surcharge? Explain your
answer.(3%)

XVI.

The BIR assessed the Babuyan Water District (BWD) with deficiency income taxes
amounting to P8.5 million, inclusive of interest and surcharge. The BWD disputed the
assessment, and argued that it was a wholly-owned government entity performing
essential government functions. However, the BIR denied the protest.

The BWD filed a petition for arbitration in the Office of the Secretary of Justice pursuant
to Sections 66 to 71, Chapter 14, Book IV of the Administrative Code of 1987 to assail
the denial of its protest, and to seek the proper interpretation of Section 32(8)(7)(b) of
the Tax Code that excluded from gross income the income derived by the Government
or its political subdivisions. The Secretary of Justice rendered a decision declaring the
BWD exempt from the payment of income tax.

The Commissioner of Internal Revenue appealed to the CTA on the sole ground that
the Secretary of Justice had no jurisdiction to review the assessment of the BIR.

Is the appeal meritorious? Explain your answer. (4%)

XVII.

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.

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.

(a) Can the City Treasurer of Caloocan City collect real property taxes on the land and
building of San Juan University? Explain your answer. (5%)
(b) Is the income earned by San Juan University for the year 2017 subject to income
tax? Explain your answer. (5%)

XVIII.

(a) Differentiate outright smuggling from technical smuggling. (3%)

(b)Distinguish compromise from abatement of taxes. (3%)

XIX.

CMI School, Inc., a non-stock, non-profit corporation, donated its three parcels of idle
land situated in the Municipality of Cuyapo, Nueva Ecija to SLC University, another non-
stock, non-profit corporation, in recognition of the latter's contribution to and
participation in the spiritual and educational development of the former.

(a) Is CMI School, Inc. liable for the payment of donor's tax? Explain your answer.
(2.5%)

(b) If SLC University later sells the three parcels of idle land to Puregold Supermarket,
Inc., a stock corporation, will SLC University be liable for capital gains tax? Explain your
answer. (3%)

(c) If SLC University donates the three parcels of idle land in favor of the Municipality of
Cuyapo, Nueva Ecija, will SLC University be liable for donor's tax? Explain your answer.
(2.5%)
2018

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 Sections 15 (Tax on Wholesalers, Distributors or Dealers) and
17 (Tax on Retailers) of the Revenue Code of Kalookan City (Code). Subsequently, the
Sangguniang Panlungsod enacted an ordinance amending the Code by inserting
Section 21 which imposes a tax on "Businesses Subject to Excise, Value-Added and
Percentage Taxes under the National Internal Revenue Code (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
Section 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 Sections 15 and 17 of the Code.

(a) May local government units impose a tax on businesses already subjected to tax
under the NIRC? (2.5%)

(b) Does this amount to double taxation? (2.5%)

II

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 they are assigned or detailed.

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). (2% each)

(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;
(b) Klaus Kloner, a German national who heads KKl's Design Department in its Makati
office;

(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;

(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

(e) Karen Karenina, a Filipino architect in KKl's Design Department who reported back
to KKl's Makati office in June 2017 after KKl's project in Kuala Lumpur, Malaysia was
completed.

III

Kim, a Filipino national, worked with K-Square, Inc. (KSI), and was seconded to various
KSl-affiliated corporations:

1. from 1999 to 2004 as Vice President of K-Gold Inc.,

2. from 2004 to 2007 as Vice President of KPB Bank;

3. from 2007 to 2011 as CEO of K-Com Inc.;

4. from 2011 to 2017 as CEO of K-Water Corporation, where Kim served as CEO for
seven years until his retirement last December 12, 2017 upon reaching the compulsory
retirement age of 60 years.

All the corporations mentioned are majority-owned in common by the Koh family and
covered by a BIR-qualified multiemployer-employee retirement plan (MEE RP), under
which the employees may be moved around within the controlled group (i.e., from one
KSI subsidiary or affiliate to another) without loss of seniority rights or break in the
tenure. Kim was well-loved by his employer and colleagues, so upon retirement, and on
his last day in office, KSI gave him a Mercedes Benz car worth PhP 5 million as a
surprise, with a streamer that reads: "You'll be missed. Good luck, Sir Kim."

(a) Are the retirement benefits paid to Kim pursuant to the MEERP taxable? (2.5%)

(b) Which internal revenue tax, if any, will apply to the grant of the car to Kim by the
company? (2.5%)

IV

Years ago, Krisanto bought a parcel of land in Muntinlupa for only PhP65,000. He
donated the land to his son, Kornelio, in 1980 when the property had a fair market value
of PhP75,000, and paid the corresponding donor's tax.

Kornelio, in turn, sold the property in 2000 to Katrina for PhP 6.5 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 PhP 65 million.

(a) Is Katrina liable for donor's tax? (2.5%)

(b) How much in deduction from gross income may Katrina claim on account of the said
donation? (2.5%)

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.

Korina'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 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.

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 PhP100,000 net capital gain, and 10% on
the net capital gain in excess of PhP100,000.

Is the lawyer correct? If not, how should the spouses Konstantino and Karina be taxed
on the sale of their shares? (5%)

VI

Kria, Inc., a Korean corporation engaged in the business of manufacturing electric

vehicles, established a branch office in the Philippines in 2010. The Philippine branch
constructed a manufacturing plant in Kabuyao, Laguna, and the construction lasted
three (3) years. Commercial operations in the Laguna plant began in 2014.

In just two (2) years of operation, the Philippine branch had remittable profits in an
amount exceeding 175% of its capital. However, the head office in Korea instructed the
branch not to remit the profits to the Korean head office until instructed otherwise. The
branch chief finance officer is concerned that the BIR might hold the Philippine branch
liable for the 10% improperly accumulated earnings tax (IAET) for permitting its profits
to accumulate beyond reasonable business needs.

(a) Is the Philippine branch of Kria subject to the 10% IAET under the circumstances
stated above? (2.5%)

(b) Is it subject to 15% branch profit remittance tax (BPRT)? (2.5%)

VII

Karissa is the registered owner of a beachfront property in Kawayan, Quezon which she
acquired in 2015. Unknown to many, Karissa was only holding the property in trust for a
rich politician who happened to be her lover. It was the politician who paid for the full
purchase price of the Kawayan property. No deed of trust or any other document
showing that Karissa was only holding the property in trust for the politician was
executed between him and Karissa.

Karissa died single on May 1, 2017 due to a freak surfing accident. She left behind a
number of personal properties as well as real properties, including the Kawayan
property. Karissa's sister, Karen, took charge of registering Karissa's estate as a
taxpayer and reporting, for income tax and VAT purposes, the rental income received
by the estate from real properties. However, it was only on October 1, 2017 when Karen
managed to file an estate tax return for her sister's estate. The following were claimed
as deductions in the estate tax return:

1. Funeral expenses amounting to PhP250,000;

2. Medical expenses amounting to PhP100,000, incurred when Karissa was

hospitalized for pneumonia a month before her death; and

3. Loss valued at PhP6 million arising from the destruction of Karissa's condominium
unit due to fire which occurred on September 15, 2017.

(a) Should the beachfront property be included in Karissa's gross estate? (2.5%)

(b) Are the claimed deductions proper? (2.5%)

VIII

Upon the death of their beloved parents in 2009, Karla, Karla, and Karlie inherited a
huge tract of farm land in Kanlaon City. The siblings had no plans to use the property.
Thus, they decided to donate the land, but were not sure to whom the donation should
be made. They consult you, a well-known tax law expert, on the tax implications of the
possible donations they plan to make, by giving you a list of the possible donees:
1. The Kanlaon City High School Alumni Association (KCHS AA), since the siblings are
all alumni of the same school and are active members of the organization. KCHS AA is
an organization intended to promote and strengthen ties between the school and its
alumni;

2. The Kanlaon City Water District which intends to use the land for its offices; or

3. Their second cousin on the maternal side, Kikay, who serves as the caretaker of the
property.

Advise the siblings which donation would expose them to the least tax liability. (5%)

IX

Karlito, a Filipino businessman, is engaged in the business of metal fabrication and

repair of LPG cylinder tanks. He conducts business under the name and style of
"Karlito's Enterprises," a single proprietorship. Started only five (5) years ago, the
business has grown so enormously that Karlito decided to incorporate it by transferring
all the assets of the business, particularly the inventory of goods on hand, machineries
and equipment, supplies, parts, raw materials, office furniture and furnishings, delivery
trucks and other vehicles, buildings, and tools to the new corporation, Karlito's
Enterprises, Inc., in exchange for 100% of the capital stock of the new corporation, the
stock subscription to which shall be deemed fully paid in the form of the assets
transferred to the corporation by Karlito.

As a result, Karlito's Enterprises, the sole proprietorship, ceased to do business and

applied for cancellation of its BIR Certificate of Registration. The BIR, however,
assessed Karlito VAT on account of the cessation of business based on the current
market price of the assets transferred to Karlito's Enterprises, Inc.

(a) Is the transfer subject to VAT? (2.5%)

(b) Is the transfer subject to income tax? (2.5%)

X

Klaus, Inc., a domestic, VAT-registered corporation engaged in the land transportation

business, owns a house and lot along Katipunan St., Quezon City. This property is
being used by Klaus, lnc.'s president and single largest shareholder, Atty. Krimson, as
his residence. No business activity transpires there except for the company's Christmas
party which is held there every December. Atty. Krimson recently grew tired of the long
commute from Katipunan to his office in Makati City and caused the company to sell the
house and lot. The sale was recorded in the books of Klaus, Inc. as investment in real
property.

(a) Is the sale of the said property subject to VAT? (2.5%)

(b) Is the sale subject to 6% capital gains tax or regular corporate income tax of 30%?
(2.5%)

XI

Koko's primary source of income is his employment with the government. He earns
extra from the land he inherited from his parents, and which land he has been leasing to
a private, non-stock, non-profit school since 2005.

Last January, the school offered to buy the land from Koko for an amount equivalent to
its zonal value plus 15% of such zonal value. Koko agreed but required the school to
pay, in addition to the purchase price, the 12% VAT. The school refused Koko's
proposal to pass on the VAT contending that it was an entity exempt from such tax.
Moreover, it said that Koko was not regularly engaged in the real estate business and,
therefore, was not subject to VAT. Consequently, Koko should not charge any VAT to
the school.

(a) Is the contention of the school correct? (2.5%)

(b) Will your answer be the same if Koko signed up as a VAT-registered person only in
2017? (2.5%)
XII

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
PhP 50 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 Section 228 of the NIRC whenever the Commissioner
finds that proper taxes should be assessed.

Is the celebrity's contention tenable? (2.5%)

XIII

The Collector at the Port of Koronadal seized 100 second-hand right-hand drive buses
imported from Japan. He issued warrants of distraint and scheduled the vehicles for
auction sale. Kamila, the importer of the second-hand buses, filed a replevin suit with
the Regional Trial Court (RTC). The RTC granted the replevin upon filing of a bond.

Did the RTC err in granting the replevin? (2.5%)

XIV

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 PhP 20 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.

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? (5%)

XV

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.

(a) Is the Kidapawan assessor correct in assessing back taxes and interest? (2.5%)

(b) Is Kerwin correct that only 2/3 of the property should be considered commercial?
(2.5%)

(c) 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? (2.5%)

XVI

In an action for ejectment filed by Kurt, the lessor-owner, against Kaka, the lessee, the
trial court ruled in favor of Kurt. However, the trial court first required Kurt to pay the
realty taxes due on the property for 2016 before he may recover possession thereof.

Kurt objected, arguing that the delinquent realty taxes were never raised as an issue in
the ejectment case. At any rate, Kurt claimed that it should be Kaka who should be
made liable for the realty taxes since it was Kaka who possessed the property
throughout 2016.

Is Kurt correct in resisting the trial court's requirement to pay the taxes first? (2.5%)

XVII

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.

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.

(a) Is KKI liable for real property taxes on the land? (2.5%)

(b) Is KKl's income from the rental fees subject to income tax? (2.5%)

XVIII

Kathang Isip, Inc. (Kii) is a domestic corporation engaged in the business of

manufacturing, importing, exporting, and distributing toys both locally and abroad. Its
principal office is located in Kalookan City, Philippines. It has 50 branches in different
cities and municipalities in the country. When Kii applied for renewal of its mayor's
permit and licenses in its principal office in January this year, Kalookan City demanded
payment of the local business tax on the basis of the gross sales reported by the
corporation in its audited financial statements for the preceding year. Kil protested,
contending that Kalookan City may tax only the sales consummated by its principal
office but not the sales consummated by its branch offices located outside Kalookan
City.

When Kalookan City denied the protest, Kil engaged the services of Atty. Kristeta
Kabuyao to file the necessary judicial proceedings to appeal the decision of Kalookan
City. Atty. Kabuyao is a legal expert, but resides in Kalibo, Aklan where her husband
operates a resort. She, however, practices in Metro Manila, including Kalookan City.
The counsel representing the city, in the case filed in Kalookan City by KII, questioned
the use of Atty. Kabuyao's Professional Tax Receipt (PTR) issued in Aklan for a case
filed in Kalookan City.

(a) Is Kll's contention that Kalookan City can only collect local business taxes based on
sales consummated in the principal office meritorious? (2.5%)'

(b) Is the Kalookan City counsel correct in saying that Atty. Kabuyao's PTR issued in
Aklan cannot be used in Kalookan? (2.5%)

XIX

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.

(a) Is the imposition of the 50% surcharge proper? (2.5%)

(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? (2.5%)

XX

Krisp Kleen, Inc. (KKI) is a corporation engaged in the manufacturing and processing of
steel and its by-products. 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? (2.5%)

(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? (2.5%)