LAW 173 FINAL EXAMINATIONS

Taxation Law Review

February 26, 2021

INSTRUCTIONS. This Examination is in Two Part. Part I is a simple Multiple Choice

Question containing 30 Items each worth One (1) Point. Part II is an enhanced Multiple
Choice Test which is Jurisprudence Based. An Answer Sheet is provided. Indicate
your Answer in the Answer Sheet by typing in the LETTER representing your choice.

ONCE ACCOMPLISHED UPLOAD THE ANSWER SHEET TO THE GOOGLE

CLASSROOM SITE BEFORE THE TIME LIMIT WHICH IS 8:30 PM FEBRUARY 26,
2021. The Questionnaire will be uploaded to the Google Classroom Site by 4:30 PM by
which time you will be able to access it.
No extension on the time limit given.

PART I MCQ
30 Items worth 30 pts.

1 Taxation is the inherent power of the State

A. To regulate conduct of the people within its territorial jurisdiction
B. To apportion the cost of government among the privileged class
C. To impose burden among its subjects for the support of the State
D. To level the playing field in the exercise of economic undertaking

2 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

3 Which of the following is not entitled to claim the optional standard deduction
equivalent to 40% of gross receipts or income from business or profession:
A. A cardiologist with clinics at St. Lukes and Medical City
B. A British Rock Star holding 5 concerts in major Philippine Cities in May 2018
C. An unregistered partnership engaged in the realty business
D. A foreign corporation operating a chain of hotels in Boracay

4 A sound tax system based on ability to pay

A. Uniformity Principle
B. Fiscal Adequacy Principle
C. Equity Principle
D. Fiscal Autonomy Principle

5 Staple Corporation is registered under the laws of the Puerto Rico. It has
extensive operations in Southeast Asia. In the Philippines, Its products are
imported and sold at a mark-up by its exclusive distributor, Filmart's Trading, Inc.
The BIR compiled a record of all the imports of Filmart from Staple and imposed a
tax on Staple net income derived from its exports to Filmart. Is the BIR correct?
A. Yes. Staple is a non-resident foreign corporation engaged in trade or business
in the Philippines.

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 B. No. The tax should have been computed on the basis of gross revenues and
not net income.
C. No. Staple is a non-resident foreign corporation not engaged in trade or
business in the Philippines.
D. Yes. Staple is doing business in the Philippines through its exclusive distributor
Filmart's Trading. Inc.

6 To discourage corporations which are no longer in the start up stage from reporting back to back
losses and insulate itself from the burden of corporate taxation, the NIRC has devised this tax measure
A. Improperly Accumulated Earnings Tax (IAET)
B. Minimum Corporate Income Tax (MCIT)
C. Normal Corporate Income Tax (NCIT)
D. Net Operating Loss Carryover (NOLCO)

7 Double Taxation
A. Is prohibited for being unconstitutional
B. Allowed as long as it does not result in direct duplicate taxation
C. International juridical double taxation is minimized through tax credits
D. Is unavoidable because the power to tax includes the power to destroy

8 Which of the following transactions will not be subjected to the application of a capital gains tax
A. Sale of a family home in 2007 with the replacement home bought in 2010
B. Sale of land held for more than 12 months by the owner to his brother-in-law
C. Sale by a stockbroker of shares of stocks not traded in the stock exchange
D. Sale by a Japanese employed by the Asian Development bank of a condo unit

9 A fringe benefit tax (FBT) is a final withholding tax imposed on the grossed-up monetary
value of any good, service, or other benefit furnished or granted in cash or in kind by
an employer to an individual employee. The FBT is not applicable to benefits given to:
A. A female assembly line worker in an Integrated Circuits company in MEPZA
B. A resident alien who is an executive in the Manila HQ of a multinational corporation
C. A Filipino drilling expert employed by a sub-contractor of Shell Oil in Sulu.
D. A vice President of a joint venture consortium engaged in infrastructure projects

10 A corporation which anticipates the reasonable needs for large fundings for future
expansion of the business or as a condition for the grant of loan from foreign funding
institutions may be excused from
A. Minimum Corporate Income Tax liability
B. Normal Corporate Income Tax liability
C. Improperly Accumulated Earnings Tax liability
D. Capital Gains Tax liability

11 Masarap Food Corporation (MFC) incurred substantial reversal in sales because of the drastic
increase in the production cost in one of its line products. To lift morale, the Board approved the
grant of three months incentive bonus to all officers and employees and P100 thousand hardship bonus
to the Directors. In its income tax return, MFC included the bonuses and allowance as deduction from
gross income, claiming it as an ordinary business expense. As a BIR examiner, the claim should
A. Be allowed as an ordinary and necessary expenses in the course of business
B. Be disallowed because the deduction claimed is unreasonable
C. Be allowed only if the corporation is liable for payment of NCIT

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 D. Be disallowed and strictly impose payment of MCIT

12 Which of the following is NOT an applicable rule in taxability of sales, barter or exchange
of shares of stocks?
A. Shares of stock which are capital assets and not listed and traded in the stock
exchange is subject to tax on net capital gain.
B. Shares of stock which are ordinary assets but are listed and traded in the
stock exchange are subject to the transaction tax on gross selling price.
C. Shares of stock which are ordinary assets but not listed and traded in the stock
exchange shall be subject to inclusion in the income tax return
D. Shares of stock which are capital assets and listed and traded in the
stock exchange are subject to the transaction tax on the gross selling price.

13 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 is expected to be paid 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.

14 The burdens of taxation can be minimized through legal means

A. By not declaring all income received
B. By deducting all costs incurred, legal or illegal
C. By availing of tax exemption privileges
D. BY not filing any return since tax payment is based on voluntary compliance

15 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.

16 Philwest 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. Philwest shall be subject to a tax of 6% of P12 million.
B. Philwest could deduct its P6 million loss from its P5 million gain.
C. Philwest's gain of P5 million shall be subject to the holding period.
D. Philwest's P6 million loss could not be deducted from its P5 million gain.

17 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.

18 The proceeds received under a life insurance endowment contract is NOT

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 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.

19 Income is taxable when there is gain or profit which is actually realized and not exempted
under any law or statute. Proceeds from illegal gambling for which the recipient has
no legal right but has unhampered command, control and disposition is still taxable under
A. The Severance Test Theory
B. The Claim of Right Doctrine
C. The Doctrine of Proprietary Interest
D. The Realization Test

20 Interest Income derived by a Resident Alien from a Long term Local Currency Placement with
a maturity of six years which was originally funded from a foreign currency account
with a local commercial bank shall be subject to a final tax rate of
A. Twenty percent (20%)
B. Ten percent (10%)
C. Seven and one-half percent (7.5%)
D. Zero percent (0.0 %)

21 Which among the following entities are taxable on income derived within and without the
Philippines?
A. Resident International air carriers incorporated abroad
B. Non-resident cinematographic film makers
C. Non-stock non-profit hospitals registered with the SEC
D. Non-resident owners or lessors of vessels

22 Emilio and Emma Custodio are husband and wife who are employed in the
same company having met at work five years ago and decided to marry last year.
Emilio's compensation income for the current year was P650,000.00. On the other hand
hand Emma earned P800,000. The couple has no children nor any other source of income.
For the purposes of filing the tax return the couple should
A. File separately since they earn pure compensation income
B. File a consolidated return as they are now married
C. File a consolidated return since they work for the same employer
D. File separately but the return should be consolidated at the BIR

23 The Destination principle applicable in the Value Added Tax Law is also known as
A. Territoriality Doctrine
B. Regalian Doctrine
C. Cross Border Principle or Doctrine
D. International Comity Doctrine

24 Vanishing deduction is availed of by taxpayers to:

A. correct his accounting records to reflect the actual deductions made
B. reduce his gross income
C. reduce his output value-added tax liability
D. reduce the gross estate for estate tax purposes

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25 A characteristic of the VAT is that it is an indirect tax. This means that
A. The Tax is on the value added by the seller
B. The tax burden is shifted to the buyer
C. The tax is in accord with the progressive system of taxation
D. The tax is meant to discourage excessive consumption

26 Under the Value Added Tax System, which of the following transactions is subject to
a Zero Rating:
A. Regular monthly sales by Bounty Fresh, a poultry farm, to Chicken Kamayan
a native restaurant in Dumaguete City
B. Lease rental of Php 18,000 per month paid by a Norwegian couple staying in
beach house in Boracay but paid for in US currency
C. Importation of motorcycles from China by a local company RUSA, for sale
to the PNP Traffic Patrol Group
D. Sale of Carrier package type air conditioners to Nikita, a Japanese semi-
conductor assembly plant located in the Subic Bay Freeport Territory.

27 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.

28 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.

29 Carlo donated P360,000.00 to his friend Victor who got married in June 2020.
Carlo gave no other gift during the calendar year. What is the donor's tax
implication on Carlo’s donation?
A. The P110,000.00 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 . Carlo shall pay a 30% donor's tax on the P360,000.00 donation.
D. The P250,000.00 portion of the donation is exempt and the excess subject
to a 6% donor's tax.

30 The Collector of customs issued an assessment for unpaid custom duties and
on the importation of ABC Traders in the amount of Php 980,000. Where will the
protest be filed:
A. Court of Tax Appeals

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 B. Collector of Customs
C. Commissioner of Customs
D. Regional Trial Court
END OF PART
I

1 Taxation is the inherent power of the State

1 Taxation is the inherent power of the State

PART II
Ten Items (4 Points Each)

1. Tito, Vic and Joey were business graduates of Foundation University class of 2000.
Fifteen years after graduation, they discovered that they were all residing in Cebu City.
Each have gotten married and have two young children now in elementary school. The
three friends got together and decided to form a partnership, called TVJ Trading, to
engage in the selling of reconditioned and surplus Japanese vehicles and trucks. Tito
the more successful of the three, put up 60 % of the capital while Vic and Joey
contributed 20% each.

During the first four years of operation the partnership did not realize any income. For
the year 2019, however, the sales of TVJ Trading picked up and the partnership
realized a net income after tax of Php 10 million out of Gross Sales of Php 100 million.
The profits were then distributed to the partners in proportion to their capital
contribution.

The youngest partner, Joey is now preparing his income tax return for the year 2019.
Aside from his participation in the TVJ Trading, he is employed full time as a supervisor
in a family related business for which he received a compensation in the amount of Php
520,000. He also is the proprietor of a motorcycle repair shop in Danao City, with a net
income of Php 520,00 out of gross receipts of Php 880,000 for the year 2019. As a
mixed income earner, Joey wants to determine the most advantageous way in which he
can minimize his tax liability under the TRAIN Law. The ideal tax treatment is:

A. Compensation Income subject to graduated tax rates, Income from

Motorcycle repair subject to 8% on Gross, Partnership Income subject
to graduated tax rates;
B. Compensation Income subject to graduated tax rates, Income from
Motorcycle repair subject to graduated tax rates, Partnership Income
subject to final withholding tax;
C. Compensation Income subject to graduated tax rates, Income from
Motorcycle repair subject to 8% on Gross, Partnership Income subject
to subject to 8% rate;
D. Compensation Income subject to graduated tax rates, Income from
Motorcycle repair to be consolidated with partnership income subject to
graduated tax rates.

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2. Pierre Martens, a Swiss national, but a resident of Paris, and a world-renowned art
connoisseur, has been a regular visitor to the Philippines where he has acquired real
and personal properties. He also maintained a private art museum and auction
house Beau Monde, which is a byword in the world of arts and culture, located in his
Penthouse condominium in One Plaza Tower, Bonifacio Global City. The center
piece of Marten’s Collection is a painting by Juan Luna which was valued at over
Php 50 million. This valuable work of art was acquired by Martens from his close
friend and confidante Don Manuel Ponce. In consideration of their friendship, the
piece was acquired by Martens for only Php 25 million with the donor’s and capital
gains tax generously paid by Don Manuel in 2019.
During the New Year’s Eve 2021 celebration in New York City, Pierre Martens
suffered a fatal stroke and died. At the time of his death the following are the
properties he owned which were found in his Penthouse unit:

1. Stocks in San Miguel Corporation Php 6,000,000

2. Jewelry and Cash 2,000,000.
3. Various Art Works (to be donated
to the Philippine Museum) 15,000,000
4. Juan Luna Painting now valued at 55,000,000
5. Penthouse Condominium
18,000.000

The value of Pierre Martens net taxable estate for the purpose of payment of
Estate Tax by his executor after considering the provision of the new TRAIN Law
should be computed at:

A Php 105.5 Million

B. Php 74.5 Million
C. Php 69.5 Million
D. Php 90.5 Million

3. Lambert Torres is engaged in the real estate business, owning land in Mactan
Island, Cebu and in the neighboring city of Mandaue. In June 2013, the local
government of Mandaue, through the DPWH, expropriated a property owned by
Torres, acquired in 2008 for Php 1 million, to be used for the city’s road widening
projects. He was paid the fair market value of the property which was Php 3
million, while the BIR zonal valuation was set at Php 2.5 million. In November
2013, typhoon Haiyan caused damage to several low-cost housing units owned
by Torres located in Lapu-lapu City. For the taxable year 2013, his real estate
business is reporting a net loss in the amount of Php 1.5 million. His accountant
now informed Lambert Torres that he has to pay the capital gains tax of Php
180,000 on the proceeds from the expropriated property despite his operating
loss for the year as well as the payment of the documentary stamp tax on the
same transaction. What is the tax liability of the Lambert Torres in so far as the
treatment of his income from the property expropriated by the local government
of Mandaue City, the payment of the Capital Gains Tax, the Documentary Stamp
Tax and the loss on his real estate business for the taxable year 2013.
A. Proceeds from the expropriation sale to be treated separately
and the capital gains and documentary stamp tax shall be paid
by Torres. Net loss will be declared for the year 2013;

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 B. Proceeds from the expropriation sale to be consolidated with the
gross income from real estate to determine profit or loss,
documentary stamp tax to be paid by Torres and treated as an
expense;
C. Proceeds from the expropriation sale to be treated separately
and the capital gains and documentary stamp tax will be paid by
the DPWH. Net loss will be declared for the year 2013;
D. Proceeds from the expropriation sale to be treated separately.
The capital gains will be paid by the Torres and documentary
stamp tax will be paid by DPWH. Net loss will be declared for
the year 2013;

4. Union Tire Company (UTC) of Zamboanga City, is operating a factory for its tire
manufacturing operations out of a one-hectare property with a long term lease
from the Ong family of Kabasalan, Zamboanga Sibugay. The terms of the lease
agreement provides that the Ong family will continue to pay the Real Property tax
due on the land during the subsistence of the agreement. The principal office of
UTC is located at Zamboanga City with branches in Davao and Cagayan de Oro
City respectively. In 2015 it acquired an equipment and machinery designed to
eliminate fly ash from the smoke stack in its Kabasalan factory as required by the
DENR. The new equipment and machinery were acquired at a cost of Php 5
million bringing its total factory investment for machinery and equipment at Php
25 million.
For the year 2015 the Sales of UTC is broken down as follow:

Principal Office (Zamboanga City) - Php 40 Million

Branch Office Davao 40 Million
Branch Office Cagayan de Oro 20 Million

The municipal Treasurer of Kabasalan now intend to assess UTC for business
and real property taxes for the calendar year 2016, given that the Business tax is
pegged at 1% of Gross Sales and Receipts of the preceding calendar year and
the Real Property Tax Rate to be collected for the province is also at !% of Fair
Market Value based on an assessment level of 80% for machineries. What is the
Tax Liability of UTC due to the local government of Kabasalan.

A. No Business Tax Due and Php 200,000 Real Property Tax

B. Php 1 Million Business Tax and Php 160,000 Real Property Tax
C. Php 280,000 Business Tax and Php 160,000 Real Property Tax
D. Php 400,000 Business Tax and Php 200,000 Real Property Tax

5. In January 1990, Juan Gonzales inherited one hectare of agricultural land in

Laguna valued at Php 800,000. In the year 2005, this property had a fair market
value of Php 9 million in view of the construction of a concrete road traversing the
property. That year Juan Gonzales decided to exchange this agricultural lot in
Laguna for 10,000 shares of stock in Banana Republic Corporation (BRC), a
company engaged in fruit export, thereby giving him 51% ownership of the
company. In 2015, with the approval of Gonzales, as majority owner, BRC then

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 sold the property to Alfonso Corona, a landed entrepreneur engaged in the
purchase and sale of real property at a price of Php 20.5 million Corona then
resold the property in 2017 for Php 26 million to a property developer to be
developed into Phase II of the Laguna Heights Subdivision. Which of the
transactions is subject to the capital gains tax of 6%.

A. 2005 Transaction when the value of the property was Php 9 million
B. 2015 Transaction when the value of the property was Php 20.5
million
C. 2017 Transaction when the value of the property was Php 26
million
D. All of the above

6. On June 10, 1993, the legislature enacted Republic Act No. 7654 (RA 7654).
Prior to its effectivity, cigarette brands ‘Champion," "Hope," and "More" were
considered local brands subjected to an ad valorem tax at the rate of 20-45%. Two
days before RA 7654 took effect, CIR Vinzons, issued RMC 37-93 reclassifying
"Champion," "Hope," and "More" as locally manufactured cigarettes bearing a
foreign brand subject to the 55% ad valorem tax. The circular in effect subjected
"Hope," "More," and "Champion" cigarettes to the provisions of RA 7654, specifically
on locally manufactured cigarettes which are currently classified and taxed at 55%.

Fortune Tobacco received, by ordinary mail, a copy of RMC 37-93. and filed a
motion for reconsideration requesting the recall of the memorandum circular, which
the CIR denied in a letter and thereafter assessed Fortune for ad valorem tax
deficiency amounting to P9,598,334.00 and demanded payment within 10 days from
receipt thereof. Fortune then filed a petition for review with the Court of Tax Appeals
(CTA), which issued an injunction enjoining the implementation of RMC 37-93,
where it ruled that the circular is defective, invalid, and unenforceable and further
enjoined petitioner from collecting the deficiency tax assessment issued. This ruling
was affirmed by the Court of Appeals, and finally by this Supreme Court. The high
court held, among others, that RMC 37-93, has fallen short of the requirements for a
valid administrative issuance.

Notwithstanding, in 1997, Fortune Tobacco filed before the RTC a complaint for

damages against BIR Commissioner Vinzons, in her private capacity, contending
that the CIR should be held liable for damages under Article 32 of the Civil Code
considering that the issuance of RMC 37-93 violated its constitutional right against
deprivation of property without due process of law and the right to equal protection of
the laws. Which among the following should be the appropriate ruling on the case:

A. The CTA has enjoined the implementation of RMC 37-93 and

therefore the issue is moot
B. Since RMC 37-93 is in line with the CIR’s quasi-legislative power it
requires notice and hearing, the CIR is liable for ultra vires acts
C. The CIR’s issuance of RMC 37-93 is in accord with the powers of
the Commissioner as provided for in the NIRC
D. The liability of the CIR in her personal capacity is a matter of proof
that has to be determined in a full-blown trial

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7. Chevron sold and delivered petroleum products to Clark Development Corporation
(CDC) located in a Special Economic Zone in Pampanga. Chevron did not pass on to
CDC the excise taxes paid on the importation of the petroleum products sold in taxable
year 2007 hence, on 2009, it filed an administrative claim for tax refund or issuance of
tax credit certificate in the amount of P6,542,400.00. Considering that the
Commissioner of Internal Revenue (CIR) did not act on the administrative claim for tax
refund or tax credit, Chevron elevated its claim to the CTA by petition for review.

The CTA en banc finally denied the claim stating that there was nothing in Section
135(c) of the NIRC that explicitly exempted Chevron as the seller of the imported
petroleum products from the payment of the excise taxes; and holding that because it
did not fall under any of the categories exempted from paying excise tax, Chevron was
not entitled to the tax refund or tax credit. Furthermore, the CTA noted that an excise
tax is in the nature of an indirect tax where the tax burden can be shifted, Section 135(c)
of the NIRC of 1997, as amended, should be construed as prohibiting the shifting of the
burden of the excise tax to tax-exempt entities who buys petroleum products from the
manufacturer/seller by incorporating the excise tax component as an added cost in the
price fixed by manufacturer/seller.

Chevron then appealed to the Supreme Court citing the recent decision in the case of
Pilipinas Shell wherein the Court granted the manufacturer’s entitlement to refund or
credit of the excise taxes paid on the petroleum products sold to international carriers
exempt from excise taxes. Can Chevron be granted the refund it is claiming?

A. No, Shell’s exemption was granted under a separate Section of the NIRC
than the one Chevron is covered;

B. Yes, under the principle of solutio indebiti or unjust enrichment;

C. No, tax exemptions or refunds is construed stricitssimi juris against the

taxpayer;

D. Yes, Excise tax on petroleum products is essentially a tax on property and

the exemption granted by the NIRC must be construed in favor of the
property itself.

8. The 2010 Aichi (G.R. No. 1848230) case established the doctrine of strict

observance of the period for filing the judicial claim by way of petition for review with the
CTA, the non-observance of which will make the judicial claim premature. The 120 + 30
day period is not only mandatory, but also jurisdictional. It was also clarified that the
phrase “within two years after the close of the taxable quarter when the zero-rated or
effectively zero-rated sales were made” refers to claims filed with the BIR, and not to
appeals filed with the CTA.

Foxtrot Consolidated Inc. (FCI), a BIR registered value-added taxpayer, incurred excess
input VAT in the amount of P25,000,000.00 at the end of the fourth quarter of 2006.
The excess input VAT was in relation to its sales to its biggest customer in MEPZA
which was zero rated. FCI filed with the BIR an administrative claim for the refund of
these input taxes on October 15, 2008. Without waiting for the CIR to act on its claim,
FCI filed a Petition for Review with the CTA on November 29, 2008 relying on a Dec.
10, 2003 BIR Ruling which is to be considered as a general interpretative rule that may
be relied upon by the taxpayers, expressly stating that the taxpayer need not wait for

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the lapse of the 120-day period before it could seek judicial relief with the CTA by way
of petition for review. FCI was also motivated by a concern on the that its petition has to
filed with the CTA before the lapse of the two-year period after the close of the taxable
quarter concerned. Will FCI's Petition for Review prosper?

A. No. The 120 + 30 day period enunciated in Aichi is not only mandatory,
but also jurisdictional
B. No., the claim of FCI has already prescribed
C. Yes. The Aichi ruling is discretionary on the part of the CTA
D. Yes. FCI judicial claim based on the 2003 BIR ruling had been timely filed
and should be given due course and consideration by the CTA.

9. Palacio Shipping, Inc. (Palacio) was the owner of the M/V Don Martin, a vessel of
Philippine registry engaged in coastwise trade. On January 25, 1999, the M/V Don
Martin docked at the port of Cagayan de Oro City with its cargo of 6,500 sacks of
rice consigned to a certain petitioner Leopoldo.  According to the Palacio, the vessel
left Calbayog City loaded with the 6,500 sacks of rice purchased in Sablayan,
Occidental Mindoro.

Based on an intelligence report to the effect that the cargo of rice being unloaded
from the M/V Don Martin had been smuggled, the Economic Intelligence and
Investigation Bureau (EIIB), with the assistance of the Bureau of Customs (BOC),
apprehended and seized the vessel and its entire rice cargo. The District Collector
of Customs in Cagayan de Oro City then issued a warrant of seizure and detention
pursuant to the Tariff and Customs Code of the Philippines (TCCP). At the hearing
on the seizure, Palacio represented that the vessel was a common carrier; and that
the 6,500 sacks of rice had been locally produced and acquired. In substantiation,
they submitted several documents that show that seized cargo of rice was produced,
milled and acquired locally

The Customs Collector however concluded that the 6,500 sacks of rice are of foreign
origin and therefore subject to seizure and forfeiture in the absence of showing of its
lawful entry into the country. The Customs further ruled that the presentation of the
supporting documents was a strategy to conceal the true nature and origin of the
cargoes and to mislead the Customs Authorities into believing that subject rice are
locally produced and locally purchased. Moreover, Secretary of Finance Edgardo B.
Espiritu reversed the order for the release of the vessel based on the finding that
"the operator of the vessel is the shipper of the smuggled goods. Rule on the
forfeiture of the cargo and the vessel:

A. The authority of the Bureau of Customs in forfeiture cases is absolute

and cannot be reversed by judicial authority;

B. The shipper was not accorded due process and documents presented
were not given due consideration;

C. Forfeiture proceeding is an administrative proceeding and the rules on

evidence is not applicable;

D. Forfeiture is a remedy to discourage rampant smuggling of rice.

10. Global Asia (Global) is a domestic corporation with principal office at Tradewinds
Boulevard, Taguig, Metro Manila engaged in the business of real estate
development. For the calendar year ending 31 December 2011, Global filed its

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Annual Income Tax Return (ITR) on 5 April 2012. The company declared a minimum
corporate income tax (MCIT) due in the amount of ₱1,222,066.00, but with a
refundable income tax payment in the sum of ₱6,473,959.00 computed as follows:

Income

Realized Gross Profit ₱49,234,453.00

Add: Other Income 11,868,847.00
Gross Income ₱61,103,300.00

Less: Deductions 58,148,630.00

Taxable Income ₱ 2,954,670.00

Tax Due (MCIT) ₱1,222,066.00

Less: Tax Credit/Payments:

a. Prior Year’s Excess Credit ₱7,468,061.00
b. Tax Payments for the
c. First 3 Quarters -
d. Creditable Tax Withheld
for the First 3 Quarters ₱160,000.00
e. Creditable Tax Withheld
for the 4th Quarter 67,964.00 ₱7,696,025.00

Total Amount of Overpayment ₱6,473,959.00

In its 2011 ITR, Global stated that the amount of ₱7,468,061.00 representing
Prior Year’s Excess Credits was net of year 2009 excess creditable withholding
tax to be refunded in the amount of ₱18,477,144.00, which it opted to apply as
tax credit to the succeeding taxable year in its 2009 income tax return. Global
also indicated in its 2011 ITR its option to carry-over as tax credit for next
year/quarter the overpayment of ₱6,473,959.00.

On 9 April 2012, Global filed with the Revenue District Office in Taguig a request
for refund in the amount of ₱18,477,144.00, allegedly representing partial excess
creditable tax withheld for the year 2009, claiming that it is entitled to the refund
of its unapplied creditable withholding taxes since there was no opportunity to
apply it in taxable year 2010. On 12 April 2012, Global filed a Petition for Review
with the Court of Tax Appeals to toll the running of the two-year prescriptive
period for its excess creditable withholding tax in 2009. The ruling of the CTA on
this claim for tax refund should be:

A. Global is entitled to the refund of the entire creditable withholding tax

as the claim was filed prior to the 2-year prescriptive period;
B. Global is entitled to the refund since the option to carry-over and apply
the excess income tax paid in 2009 was not applied in the next taxable
year 2010;
C. Global is not entitled to the refund since the claim has prescribed. It
can only be credited the current excess tax withheld in the amount of P
6,473,959.00;
D. Global is not entitled to the refund as the option chosen in 2009 to
credit the excess payment against income tax due of the succeeding
taxable years shall be considered irrevocable.

NOTHING FOLLOWS

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