Taxation Law (QuAMTO) - SBCA

University of Santo Tomas
FACULTY OF CIVIL LAW (1734)
TAXATION LAW
Questions Asked More Than Once
QuAMTO 2023
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Released in the Philippines, 2023.

Faculty of Civil Law (1734)
ACADEMICS COMMITTEE 2023

ANGELA BEATRICE S. PEÑA KATHERINE S. POLICARPIO
SECRETARIES-GENERAL
RON-SOPHIA NICOLE C. ANTONIO CRIMINAL LAW
HERLENE MAE D. CALILUNG LABOR LAW AND SOCIAL LEGISLATION
POLITICAL LAW AND

PATRISHA LOUISE E. DUMANIL
PUBLIC INTERNATIONAL LAW
LEGAL AND JUDICIAL ETHICS WITH

ALEXANDRA MAUREEN B. GARCIA
PRACTICAL EXERCISES
HANNAH JOY C. IBARRA COMMERCIAL LAW
JEDIDIAH R. PADUA CIVIL LAW
PAULINNE STEPHANY G. SANTIAGO TAXATION LAW
DIANNE MICAH ANGELA D. YUMANG REMEDIAL LAW
EXECUTIVE COMMITTEE
PAULA ANDREA F. PEÑAFLOR COVER DESIGN ARTIST

TAXATION LAW COMMITTEE 2023

JENELYN D. GALVEZ
TAXATION LAW SUBJECT HEAD
STEPHEN NICOLE R. ARAN ASST. HEAD, GENERAL PRINCIPLES

JEAN MARIELLE R. MANITO ASST. HEAD, NATIONAL TAXATION
PRISCILLA LEE V. MORALES ASST. HEAD, LOCAL TAXATION
MARY GRACE S. TEJADA ASST. HEAD, JUDICIAL REMEDIES
MEMBERS
THEA KLARISSE S. BALINAS
GEMINA DALE C. BORREO
MELVIN C. BUMAGAT
DIANA M. DELA CRUZ
SHARMAINE ELIZA T. MACASERO
JASMIN T. SANTIAGO
KATE NICOLE D. TALLA
ADVISERS
ATTY. JAMIE ANDREA MAE ARLOS-MARTINEZ
DR. VIRGINIA JEANNIE P. LIM, LLM, Ed.D.
ATTY. KENNETH GLENN L. MANUEL, CPA
FACULTY OF CIVIL LAW

UNIVERSITY OF SANTO TOMAS
ACADEMIC OFFICIALS
ATTY. NILO T. DIVINA REV. FR. ISIDRO C. ABAÑO, O.P.
DEAN REGENT
ATTY. ARTHUR B. CAPILI

FACULTY SECRETARY
ATTY. ELGIN MICHAEL C. PEREZ

LEGAL COUNSEL
UST CHIEF JUSTICE ROBERTO CONCEPCION LEGAL AID CLINIC
JUDGE PHILIP A. AGUINALDO

SWDB COORDINATOR
LENY G. GADIANA, R.G.C.

GUIDANCE COUNSELOR
OUR DEEPEST APPRECIATION TO OUR

MENTORS AND INSPIRATION
Justice Japar B. Dimaampao

Judge Noel M. Ortega
Dr. Virginia Jeannie P. Lim, LLM, Ed.D.
Atty. Abelardo T. Domondon
Atty. Prudence Angelita A. Kasala
Atty. Benedicta Du-Baladad
Atty. Rizalina V. Lumbera
Atty. Lean Jeff M. Magsombol
Atty. Kenneth Glenn L. Manuel
Atty. Clarice Angeline V. Questin
Atty. Danica Mae M. Godornes
For being our guideposts in understanding the intricate sphere of Taxation Law.
–Academics Committee 2023
SBCA 1611
DISCLAIMER
THE RISK OF USE OF THIS BAR

REVIEW MATERIAL SHALL BE
BORNE BY THE USER
QuAMTO (1987-2022)
edible oil, margarine, and other coconut oil-based
I. GENERAL PRINCIPLES OF TAXATION products. It has a warehouse in Sampaloc, Quezon, used
as storage space for copra purchased in Sampaloc and
nearby towns before the same is shipped to Makati.
MMC goes to court to challenge the validity of the
ordinance, demanding the refund of the storage fees it
A. POWER OF TAXATION AS DISTINGUISHED FROM
paid under protest.
POLICE POWER AND EMINENT DOMAIN
(2016, 2013, 2009,1996, 1989 BAR)
Is the ordinance valid? Explain your answer. (2009
BAR)
Q: Congress issued a law allowing a 20% discount on
the purchases of senior citizens from, among others, A: YES. The municipality is authorized to impose
recreation centers. This 20% discount can then be used reasonable fees and charges as regulatory measure in an
by the sellers as a “tax credit”. At the initiative of BIR, amount commensurate with the cost of regulation,
however, Republic Act No. (R.A.) 9257 was enacted inspection, and licensing. (Sec. 147, LGC) In the case at bar,
amending the treatment of the 20% discount as a “tax the storage of copra in any warehouse within the
deduction.” Equity Cinema filed a petition with the RTC municipality can be the proper subject of regulation
claiming that the R.A. 9257 is unconstitutional as it pursuant to the police power granted to municipalities
forcibly deprives sellers a part of the price without just under the Revised Administrative Code or the “general
compensation. welfare clause”. A warehouse used for keeping or storing
copra is an establishment likely to endanger the public
If you were the judge, how will you decide the case? safety or likely to give rise to conflagration because the oil
Briefly explain your answer. (2016 BAR) content of the copra, when ignited, is difficult to put under
control by water and the use of chemicals is necessary to
A: I will decide in favor of the constitutionality of the law. put out the fire. It is, thus, reasonable that the Municipality
The 20% discount as well as the tax deduction scheme is a impose storage fees for its own surveillance and lookout.
valid exercise of the police power of the State. (Manila (Procter & Gamble Philippine Manufacturing Corporation v.
Memorial Park Inc. v. DSWD, G.R. No. 175356, 03 Dec. 2013; Municipality of Jagna, Province of Bohol, G.R. No. L-24265, 28
UPLC Suggested Answers) Dec. 1979; UPLC Suggested Answers)
Q: Congress passed a sin tax law that increased the tax Q: The City of Manila passed an ordinance imposing an
rates on cigarettes by 1,000%. The law was thought to annual tax of P5,000.00 to be paid by an operator of a
be sufficient to drive many cigarette companies out of massage clinic and an annual fee of P50.00 to be paid by
business, and was questioned in court by a cigarette every attendant or helper in the said clinic.
company that would go out of business because it
would not be able to pay the increased tax. Is the imposition a tax or a license fee? (1989 BAR)
The cigarette company is? A: The imposition on the operator of the massage clinic is
both a tax and a license fee. The amount of P5,000.00
A) Wrong because taxes are the lifeblood of the exceeds the cost of regulation, administration, and control
government but it is likewise imposed to regulate a non-useful business
B) Wrong because the law recognizes that the in order to protect the health, safety and morals of the
power to tax is the power to destroy citizenry in general. The P50.00 impositions on the helpers
C) Correct because no government can deprive a or attendants are license fees sufficient only for regulation,
person of his livelihood administration, and control.
D) Correct because Congress, in this case,
exceeded its power to tax (2013 BAR)
B. INHERENT AND CONSTITUTIONAL LIMITATIONS OF
A: D) Wrong because the law recognizes that the power to TAXATION
(2019-2009, 2007, 2006, 2004, 2003, 2000, 1998-
tax is the power to destroy. (McCulloch v. Maryland, 17 U.S.
1996, 1994, 1992, 1991, 1989 BAR)
4 Wheat. 316, 1819; UPLC Suggested Answers)
Q: The Sangguniang Bayan of the Municipality of

INHERENT LIMITATIONS
Sampaloc, Quezon, passed an ordinance imposing a
storage fee of ten centavos (P0.10) for every 100 kilos
Q: Enumerate the four (4) inherent limitations on
of copra deposited in any bodega within the
taxation. Explain each item briefly. (2009 BAR)
Municipality’s jurisdiction. The Metropolitan
Manufacturing Corporation (MMC), with principal
A: The inherent limitations on the power to tax are:
office in Makati, is engaged in the manufacture of soap,
1. Taxation is for a public purpose – The proceeds of the
1
FACULTY OF CIVIL L AW
TAXATION LAW
tax must be used: (a) for the support of the State; or (b) welfare clause”. A warehouse used for keeping or storing
for some recognized objective of the government or to copra is an establishment likely to endanger the public
directly promote the welfare of the community. safety o likely to give rise to conflagration xxx It is, thus,
reasonable that the Municipality impose storage fees for its
2. Taxation is inherently legislative – Only the own surveillance and lookout.
legislature has full discretion as to the persons,
property, occupation or business to be taxed, provided Q: An ordinance of Quezon City on the operation of
these are all within the State’s territorial jurisdiction. It market stalls and the collection of market stall fees
can also finally determine the amount or rate of tax, the created a market committee “to formulate, recommend
kind of tax to be imposed and the method of collection. and adopt, subject to the ratification of the Sangguniang
(1 Cooley 176184) Panglungsod, regulations in the operations of the
market stalls.” It also entrusted the collection of the
3. Taxation is territorial – Taxation may be exercised market stall fees to a private corporation.
only within the territorial jurisdiction of the taxing
authority. (61 Am. Jur. 88) Within the territorial Does the entrusting of the collection of the market stall
jurisdiction, the taxing authority may determine the fees destroy the “public purpose” of the ordinance?
“place of taxation” or “tax situs." (1989 BAR)
4. Taxation is subject to international comity – This is a A: YES, because a portion of the fees collected would be
limitation which is founded on reciprocity designed to diverted as fees to private corporation. Entrusting of the
maintain harmonious and productive relationships collection of the market stall fees violates the limitation that
among the various states. Under international comity, local government units shall in no case let to any private
a state must recognize the generally accepted tenets of person the collection of local taxes, fees, charges, and other
international law, among which are the principles of impositions. (Sec. 130(C), LGC) As a result of this
sovereign equality among states and of their freedom prohibition, public funds are therefore utilized for a private
from suit without their consent, that limit the authority purpose, which is to pay the private corporation for its
of a government to effectively impose taxes on a services.
sovereign state and its instrumentalities, as well as on
its property held, and activities undertaken in that INHERENTLY LEGISLATIVE
capacity. (UPLC Suggested Answers) (2012, 2009, 2007, 2003, 1994, 1991 BAR)
PUBLIC PURPOSE Q: May Congress, under the 1987 Constitution, abolish

(2009, 1991, 1989 BAR) the power to tax of local governments? (2003 BAR)
Q: The Sangguniang Bayan of the Municipality of A: NO. The Congress cannot abolish what is expressly
Sampaloc, Quezon, passed an ordinance imposing a granted by the fundamental law. The only authority
storage fee of ten centavos for every 100 kilos of copra conferred to Congress is to provide the guidelines and
deposited in any bodega within the Municipality’s limitations on the local government’s exercise of the power
jurisdiction. The Metropolitan Manufacturing to tax. (Sec. 5, Art. X, 1987 Constitution)
Corporation (MMC), with principal office in Makati, is
engaged in the manufacture of soap, edible oil, Q: In order to raise revenue for the repair and
margarine, and other coconut oil-based products. It has maintenance of the newly constructed City Hall of
a warehouse in Sampaloc, Quezon, used as storage Makati, the City Mayor ordered the collection of P1.00,
space for the copra purchased in Sampaloc and nearby called “elevator tax”, every time a person rides any of
towns before the same is shipped to Makati. MMC goes the high-tech elevators in the City Hall during the hours
to court to challenge the validity of the ordinance, of 8am to 10am, and 4pm to 6pm.
demanding the refund of the storage fees it paid under
protest. Is the imposition of elevator tax valid? (2003 BAR)
Is the ordinance valid? (2009 BAR) A: NO. The imposition of a tax, fee, or charge, or the
generation of revenue under the LGC, shall be exercised by
A: YES. The municipality is authorized to impose the Sanggunian of the LGU concerned through an
reasonable fees and charges as a regulatory measure in an appropriate ordinance. (Sec. 132, LGC) The city mayor alone
amount commensurate with the cost of regulation, could not order the collection of the tax; as such, the
inspection and licensing. (Sec. 147, LGC) In the case at bar, "elevator tax" is an invalid imposition.
the storage of copra in any warehouse within the
municipality can be the proper subject of regulation Q: The Secretary of Finance, upon the recommendation
pursuant to the police power granted to municipalities of the Commission of Internal Revenue, issued a
under the Revised Administrative Code or the “general Revenue Regulation using gross income as the tax base
UNIVERSITY OF SANTO TOMAS 2

2023 QuAMTO
QuAMTO (1987-2022)
for corporations doing business in the Philippines. through ABC Agency for the year 2013, amounted to
P5,000,000.00, the BIR assessed XYZ Air deficiency
Is the revenue regulation valid? (1994 BAR) income taxes on the ground that the income from the
said sales constituted income derived from sources
A: The regulation establishing the gross income as the tax within the Philippines.
base for corporations doing business in the Philippines
(domestic as well as resident foreign) is not valid. This is no Aggrieved, XYZ Air filed a protest, arguing that, as a
longer implementation of the law but actually it constitutes non-resident foreign corporation, it should only be
legislation because among the powers that are exclusively taxed for income derived from sources within the
within the legislative authority to tax is the power to Philippines. However, since it only serviced passengers
determine -the amount of the tax. Certainly, if the tax is outside the Philippine territory, the situs of the income
limited to gross income without deductions of these from its ticket sales should be considered outside the
corporations, this is changing the amount of the tax as said Philippines. Hence, no income tax should be imposed
amount ultimately depends on the taxable base. (UPLC on the same.
Suggested Answers)
Is XYZ Air’s protest meritorious? Explain. (2019 BAR)
Q: The Municipality of Malolos passed an ordinance
imposing a tax on any sale or transfer of real property A: NO. Under the law, an international air carrier with no
located within the municipality at a rate of ¼ of 1% of landing rights in the Philippines is a resident foreign
the total consideration of the transaction. “X” sold a corporation if its local sales agent sells and issues tickets in
parcel of land in Malolos which he inherited from his its behalf. An offline international carrier, selling package
deceased parents and refused to pay the aforesaid tax. tickets in the Philippines through a local general sales agent,
He instead filed an appropriate case asking that the is considered a resident foreign corporation doing business
ordinance be declared null and void since such a tax can in the Philippines. As such, it is taxable on income derived
only be collected by the national government, as in fact from sources within the Philippines and not on Gross
he has paid the BIR the required capital gains tax. Philippines Billings subject to any applicable tax treaty. (Air
Canada v. CIR, G.R. No. 169507, 11 Jan. 2016)
The Municipality countered that under the
Constitution, each local government is vested with the In the case at bar, XYZ Air was able to sell its airplane tickets
power to create its own sources of revenue and to levy in the Philippines through ABC Agency, its general agent in
taxes, and it imposed the subject tax in the exercise of the Philippines. As such, it is taxable on income derived
said Constitutional authority. from sources within the Philippines and not on Gross
Philippines Billings, subject to any applicable tax treaty.
Resolve the controversy. (1991 BAR) (UPLC Suggested Answers)
A: THE ORDINANCE IS VOID. The LGC only allows Q: Jennifer is the only daughter of Janina who was a
provinces and cities to impose a tax on the transfer of resident in Los Angeles, California, U.S.A. Janina died in
ownership of real property. (Secs. 135 and 151, LGC) the U.S. leaving to Jennifer one million shares of Sun Life
Municipalities are prohibited from imposing said tax that (Philippines), Inc., a corporation organized and
provinces are specifically authorized to levy. existing under the laws of the Republic of the
Philippines. Said shares were held in trust for Janina by
While it is true that the Constitution has given broad powers the Corporate Secretary of Sun Life and the latter can
of taxation to LGUs, this delegation, however, is subject to vote the shares and receive dividends for Janina. The
such limitations as may be provided by law. (Sec. 5, Art. X, Internal Revenue Service (IRS) of the U.S. taxed the
1987 Constitution) shares on the ground that Janina was domiciled in the
U.S. at the time of her death.
TERRITORIAL
(2019, 2016, 2014, 2011, 2009 BAR) Can the CIR of the Philippines also tax the same shares?
Explain. (2016 BAR)
Q: XYZ Air, a 100% foreign-owned airline company
based and registered in Netherlands, is engaged in the A: YES. The property being a property located in the
international airline business and is a member Philippines, it is subject to the Philippine’s estate tax
signatory of the International Air Transport irrespective of the citizenship or residence of the decedent.
Association. Its commercial airplanes neither operate (Sec. 85, NIRC) However, if Janina is a non-resident alien at
within the Philippine territory nor are its service the time of her death, the transmission of the shares of stock
passengers embarking from Philippine airports. can only be taxed applying the principle of reciprocity. (Sec.
Nevertheless, XYZ Air is able to sell its airplane tickets 104, NIRC; UPLC Suggested Answers)
in the Philippines through ABC Agency, its general
agent in the Philippines. As XYZ Air’s ticket sales, sold Q: Triple Star, a domestic corporation, entered into a
3
TAXATION LAW
Management Service Contract with Single Star, a non- withheld at source as tax on dividends earned was fixed
resident foreign corporation with no property in the at 25% of said income. Thus, ABCD asserted that it
Philippines. Under the contract, Single Star shall overpaid the withholding tax due on the cash dividends
provide managerial services for Triple Star’s Hongkong given to its non-resident stockholders in the U.S. The
branch. All said services shall be performed in Hong Commissioner denied the claim.
Kong.
On January 17, 1985, ABCD filed a petition with the
Is the compensation for the services of Single Star Court of Tax Appeals (CTA) reiterating its demand for
taxable as income from sources within the Philippines? refund.
Explain. (2014 BAR)
Is the contention of ABCD Corporation correct? Why or
A: NO. The compensation for services rendered by Single why not? (2009 BAR)
Star is an income derived from sources without the
Philippines. To be considered as income from within, the A: YES. The provision of a treaty must take precedence over
labor or service must be performed within the Philippines. and above the provisions of the local taxing statute
(Sec. 42(A)(3) and (C)(3), NIRC) Since all the services consonant with the principle of international comity. Tax
required to be performed by Single Star, a non-resident treaties are accepted limitations to the power of taxation.
foreign corporation, is to be performed in Hongkong, the Thus, the CTA should apply the treaty provision so that the
entire income is from sources without. (UPLC Suggested claim for refund representing the difference between the
Answers) amount actually withheld and paid to the BIR and the
amount due and payable under the treaty should be
INTERNATIONAL COMITY granted. (Hawaiian-Philippine Company v. CIR, CTA Case No.
(2012, 2009, 2000, 1996, 1992 BAR) 3887, 31 May 1988; UPLC Suggested Answers)
Q: In 2011, the Commissioner of the U.S. Internal ALTERNATIVE ANSWER:

Revenue Service (IRS) requested in writing the
Commissioner of Internal Revenue to get the The contention of ABCD Corporation that it overpaid the
information from a bank in the Philippines, regarding withholding tax is correct provided it can establish: (1) The
the deposits of a U.S. Citizen residing in the Philippines, existence of RP-US Tax Treaty imposing a lower rate of tax
who is under examination by the officials of the US IRS, of 25%; (2) The said tax treaty is applicable to its case; and
pursuant to the US-Philippine Tax Treaty and other (3) Its payment with the BIR of a tax based on a higher rate
existing laws. of 30% and 35%, respectively. (UPLC Suggested Answers)
Should the BIR Commissioner agree to obtain such Q: The President of the Philippines and the Prime
information from the bank and provide the same to the Minister of Japan entered into an executive agreement
IRS? Explain your answer. (2012 BAR) in respect of a loan facility to the Philippines from Japan
whereby it was stipulated that interest on loans
A: YES. The Commissioner should agree to the request granted by private Japanese financial institutions to
pursuant to the principle of international comity. The private financial Institutions in the Philippines shall
Commissioner of the Internal Revenue has the authority to not be subject to Philippine income taxes.
inquire into bank deposit accounts and related information
held by financial institutions of a specific taxpayer subject Is this tax exemption valid? Explain. (1992 BAR)
of a request for the supply of tax information from a foreign
tax authority pursuant to an international convention or A: YES. The tax exemption is valid because an executive
agreement to which the Philippines is a signatory or party agreement has the force and effect of a treaty under the
of. (Sec 3, R.A. No. 10021; UPLC Suggested Answers) provision of the Revenue Code. Taxation is subject to
International Comity.
Q: ABCD Corporation (ABCD) is a domestic corporation
with individual and corporate shareholders who are EXEMPTION FROM TAXATION OF GOVERNMENT
residents of the United States. For the 2nd quarter of ENTITIES
1983, these U.S.-based individual and corporate (2016, 2015, 1998 BAR)
stockholders received cash dividends from the
corporation. The corresponding withholding tax on Q: Philippine National Railways (PNR) operates the rail
dividend income — 30% for individual and 35% for transport of passengers and goods by providing train
corporate non-resident stockholders — was deducted stations and freight customer facilities from Tutuban,
at source and remitted to the BIR. Manila to the Bicol Province. As the operator of the
On May 15, 1984, ABCD filed with the Commissioner of railroad transit, PNR administers the land,
Internal Revenue a formal claim for refund, alleging improvements, and equipment within the main station
that under the RP-US Tax Treaty, the deduction in Tutuban, Manila.

2023 QuAMTO
QuAMTO (1987-2022)
transferred to LLL, the Republic remains the owner of the
Invoking Sec. 193 of the Local Government Code (LGC) real property. Thus, such arrangement does not result in the
expressly withdrawing the tax exemption privileges of loss of the tax exemption. (Republic v. City of Paranaque, G.R.
government-owned and controlled corporations upon No. 191109, 18 July 2012)
the effectivity of the Code in 1992, the City Government
of Manila issued Final Notices in the amount of (b) Will your answer be the same in (a) if from 2010 to
P624,000,000.00 for the taxable years 2006 to 2010. On the present time, LLL is leasing portions of the
the other hand, PNR, seeking refuge under the principle reclaimed properties for the establishment and use
that the government cannot tax itself, insisted that the of popular fast-food restaurants J Burgers, G Pizza,
PNR lands and buildings are owned by the Republic. and K Chicken?
Is the PNR exempt from real property tax? Explain your A: NO. As a rule, properties owned by the Republic of the
answer. (2016 BAR) Philippines are exempt from real property tax except when
beneficial use thereof has been granted, for consideration,
A: YES. The properties of PNR are properties of public or otherwise, to a taxable person. When LLL leased out
dominion owned by the Republic of the Philippines, which portions of the reclaimed properties to taxable entities,
are exempt from real property tax. (Sec. 234, LGC) such as popular fast-food restaurants, the reclaimed
properties are subject to real property tax. (Sec. 234(a), LGC;
In MIAA v. CA (G.R. No. 155650, 20 July 2006), the Supreme GSIS v. City Treasurer, G.R. No. 186242, 23 Dec. 2009; UPLC
Court held that MIAA is a government instrumentality and Suggested Answers)
is not a government-owned and controlled corporation,
therefore the real properties owned by MIAA are not CONSTITUTIONAL LIMITATIONS
subject to real estate tax, except when MIAA leases its real
property to private parties. In the said case, PNR was cited PROVISIONS DIRECTLY AFFECTING TAXATION
as an example of such government instrumentality which is
deemed exempt. UNIFORMITY AND EQUALITY OF TAXATION
(2017, 2014, 2013, 2004, 2003, 2000, 1998 BAR)
NOTE: The Light Rail Transit Authority (LRTA) is also
exempt as it is a government instrumentality vested with
Q: Explain the requirement of uniformity as a
corporate powers. (LRTA v. Quezon City, G.R. No. 221626, 09
limitation in the imposition and/or collection of taxes.
Oct. 2019; UPLC Suggested Answers)
(1998 BAR)
Q: LLL is a government instrumentality created by
A: Uniformity in the imposition and/or collection of taxes
Executive Order to be primarily responsible for
means that all taxable articles, or kinds of property of the
integrating and directing all reclamation projects for
same class shall be taxed at the same rate. The requirement
the National Government. It was not organized as a
of uniformity is complied with when the tax operates with
stock or a non-stock corporation, nor was it intended to
the same force and effect in every place where the subject
operate commercially and compete in the private
of it is found. (Churchill v. Concepcion, G.R. No. 11572, 22
market.
Sept. 1916)
By virtue of its mandate, LLL reclaimed several
Different articles may be taxed at different amounts
portions of the foreshore and offshore areas of the
provided that the rate is uniform on the same class
Manila Bay, some of which were within the territorial
everywhere with all people at all times. Accordingly,
jurisdiction of Q City. Certificates of title to the
singling out one particular class for taxation purposes does
reclaimed properties in Q City were issued in the name
not infringe the requirement of uniformity.
of LLL in 2008. In 2014, Q City issued Warrants of Levy
on said reclaimed properties of LLL based on the
Q: Heeding the pronouncement of the President that
assessment for delinquent property taxes for the years
the worsening traffic condition in the metropolis was a
2010 to 2013. (2015 BAR)
sign of economic progress, the Congress enacted R.A.
10701, also known as An Act Imposing a Transport Tax
(a) Are the reclaimed properties registered in the
on the Purchase of Private Vehicles.
name of LLL subject to real property tax?
Under R.A. 10701, buyers of private vehicles are

A: NO. The reclaimed properties are not subject to real
required to pay a transport tax equivalent to 5% of the
property tax because LLL is a government instrumentality.
total purchase price per vehicle purchased. R.A. 10701
Under the law, real property owned by the Republic of the
provides that the Land Transportation Office (LTO)
Philippines is exempt from real property tax unless the
shall not accept for registration any new vehicles
beneficial use thereof has been granted to a taxable person.
without proof of payment of the 5% transport tax. R.A.
(Sec. 234, LGC) When the title of the real property is
10701 further provide that existing owners of private
5
TAXATION LAW
vehicles shall be required to pay a tax equivalent to 5% adverse economic conditions, an ordinance is passed
of the current fair market value of every vehicle by MM City granting a 50% discount for payment of
registered with the LTO. However, R.A. 10701 exempts unpaid real estate taxes for the preceding year and the
owners of public utility vehicles and the Government condonation of all penalties on fines resulting from the
from the coverage of the 5% transport tax. late payment.
A group of private vehicle owners sue on the ground Arguing that the ordinance rewards delinquent
that the law is unconstitutional for contravening the taxpayers and discriminates against prompt ones, RC
Equal Protection Clause of the Constitution. demands that he be refunded an amount equivalent to
one-half of the real taxes he paid. The municipal
Rule on the constitutionality and validity of R.A. 10701. attorney rendered an opinion that RC cannot be
(2017 BAR) reimbursed because the ordinance did not provide for
such reimbursement. RC files suit to declare the
A: R.A. No. 10701 is VALID AND CONSTITUTIONAL. A ordinance void on the ground that it is a class
levy of tax is not unconstitutional because it is not legislation.
intrinsically equal and uniform in its operation. The
uniformity rule does not prohibit classification for purposes Will his suit prosper? Explain your answer briefly.
of taxation. (British American Tobacco v. Camacho, G.R. No. (2004 BAR)
163583, 15 Apr. 2009)
A: NO. The suit will not prosper. The remission or
Uniformity in taxation, like the kindred concept of equal condonation of taxes due and payable to the exclusion of
protection, merely requires that all subjects or objects of taxes already collected does not constitute unfair
taxation, similarly situated, are to be treated alike both in discrimination. Each set of taxes is a class by itself, and the
privileges and liabilities. Uniformity does not forfend law would be open to attack as class legislation only if all
classification as long as: (1) the standards that are used taxpayers belonging to one class were not treated alike.
therefor are substantial and not arbitrary; (2) the (Juan Luna Subdivision, Inc. v. Sarmiento, G.R. No. L-3538, 28
categorization is germane to achieve the legislative May 1952)
purpose; (3) the law applies, all things being equal to both
present and future conditions; and (4) the classification Q: A law was passed exempting doctors and lawyers
applies equally well to all those belonging to the same class. from the operation of the value-added tax. Other
(Rufino R. Tan v. Del Rosario, Jr., G.R. No. 109289, 03 Oct. professionals complained and filed a suit questioning
1994) All of the foregoing requirements of a valid the law for being discriminatory and violative of the
classification having been met and those which are singled equal protection clause of the Constitution since
out are a class in themselves, there is no violation of the complainants were not given the same exemption.
“Equal Protection Clause” of the Constitution. (UPLC
Suggested Answers) Is the suit meritorious or not? Reason briefly. (2004
BAR)
Q: Choose the correct answer. Tax laws:
A: YES. The VAT is designed for economic efficiency. Hence,
A) Maybe enacted for the promotion of private should be neutral to those who belong to the same class.
enterprise or business for as long as it gives; Professionals are a class of taxpayers by themselves who,
B) Incidental advantage to the public or the State; in compliance with the rule of equality of taxation, must be
C) are inherently legislative, therefore, may not treated alike for tax purposes. Exempting lawyers and
be delegated; doctors from a burden to which other professionals are
D) Are territorial in nature; hence, they do not subjected will make the law discriminatory and violative of
recognize the generally-accepted tenets of the equal protection clause of the Constitution. While
international law; singling out a class for taxation purposes will not infringe
E) Adhere to uniformity and equality when all upon this constitutional limitation (Shell v. Vano, G.R. No. L-
taxable articles or kinds of property of the 6093, 24 Feb. 1954), singling out a taxpayer from a class will
same class are taxable at the same rate. (2014 no doubt transgress the constitutional limitation. (Ormoc
BAR) Sugar Co. Inc. v. Treasurer of Ormoc City, G.R. No. L-23794,
17 Feb. 1968) Treating doctors and lawyers as a different
A: D) adhere to uniformity and equality when all taxable class of professionals will not comply with the
articles or kinds of property of the same class are taxable at requirements of a reasonable, hence valid classification,
the same rate. (City of Baguio v. de Leon, G.R. No. L-24756, because the classification is not based upon substantial
31 Oct. 1968; UPLC Suggested Answers) distinction which makes real differences. The classification
does not comply with the requirement that it should be
Q: RC is a law-abiding citizen who pays his real estate germane to the purpose of the law either. (Pepsi-Cola
taxes promptly. Due to a series of typhoons and Bottling Co., Inc. v. City of Butuan, G.R. No. L-22814, 28 Aug.

2023 QuAMTO
QuAMTO (1987-2022)
1968) purposes. (CIR v. CA and YMCA, G.R. No. 124043, 14 Oct. 1998;
Bar Q&A by Mamalateo, 2019)
Q: An Executive Order was issued pursuant to a law
granting tax and duty incentives only to businesses and Q: Money collected from taxation shall not be paid to
residents within the “secured area” of the Subic any religious dignitary EXCEPT when: (2011 BAR)
Economic Special Zone, and denying said incentives to
those who live within the Zone but outside such A) Religious dignitary is assigned to the
“secured area”. Philippine Army;
B) It is paid by the local government unit;
Is the constitutional right of equal protection of the law C) The payment is passed in audit by the COA;
violated by the Executive Order? Explain. (2000 BAR) D) It is part of the lawmaker’s pork barrel.
A: NO. Equal protection of the law clause is subject to A: A) religious dignitary is assigned to the Philippine Army
reasonable classification. Classification, to be valid, must: (UPLC Suggested Answers)
(1) rest on substantial distinctions; (2) be germane to the
purpose of the law; (3) not be limited to existing conditions NOTE: Beginning July 1, 2020 up to June 30, 2023, the rate
only; and (4) apply equally to all members of the same class. of one percent (1%) shall apply to, among others, hospitals
which are non-profit. After June 30, 2023, the rate shall
There are substantial differences between big investors revert to the preferential corporate income tax rate of 10%.
being enticed to the “secured area” and the business (RR No. 3-2022)
operators outside in accord with the equal protection clause
that does not require territorial uniformity of laws. The Q: A group of philanthropists organized a non-stock,
classification applies equally to all the resident individuals non-profit hospital for charitable purposes to provide
and businesses within the “secured area". The residents, medical services to the poor. The hospital also
being in like circumstances to contributing directly to the accepted paying patients although none of its income
achievement of the end purpose of the law, are not accrued to any private individual; all income were
categorized further. Instead, they are similarly treated both plowed back for the hospital’s use and not more than
in privileges granted and obligations required. (Tiu v. CA, 30% of its funds were used for administrative
G.R. No. 127410, 20 Jan. 1999) purposes.
PROHIBITION AGAINST TAXATION OF RELIGIOUS, Is the hospital subject to tax on its income? If it is, at
CHARITABLE ENTITIES, AND EDUCATIONAL ENTITIES what rate? (2013 BAR)
(2013, 2011, 2006, 2005, 2000, 1996, 1994, 1993 BAR)
A: YES. Although a non-stock, non-profit hospital organized
for charitable purposes is generally exempt from income
Q: The Constitution provides "charitable institutions,
tax, it becomes taxable on income derived from activities
churches, parsonages or convents appurtenant thereto,
conducted for profit. Services rendered to paying patients
mosques, and non-profit cemeteries and all lands,
are considered activities conducted for profit which are
buildings, and improvements actually, directly and
subject to income tax, regardless of the disposition of said
exclusively used for religious, charitable or educational
income. The hospital is subject to an income tax rate of 10%
purposes shall be exempt from taxation."
of its net income derived from the paying patients
considering that the income earned appears to be derived
This provision exempts charitable institutions and
solely from hospital-related activities. (CIR v. St. Luke’s
religious institutions from what kind of taxes? Choose
Medical Center, Inc., G.R. No. 195909 and 195960, 26 Sept.
the best answer. Explain. (2006 BAR)
2012; UPLC Suggested Answers)
A) from all kinds of taxes, i.e., income, VAT,

Q: The Constitution exempts from taxation charitable
customs duties, local taxes, and real property
institutions, churches, parsonages, or convents
tax;
appurtenant thereto, mosques and non-profit
B) from income tax only;
cemeteries and lands, buildings and improvements
C) from value-added tax only;
actually, directly and exclusively used for religious,
D) from real property tax only;
charitable and educational purposes. Mercy Hospital is
E) from capital gains tax only.
a 100-bed hospital organized for charity patients.
A: D) from real property tax only.

Can said hospital claim exemption from taxation under
the above-quoted constitutional provision? Explain.
This exemption applies only to property taxes. What is
(1996 BAR)
exempted is not the institution itself, but the lands,
buildings, and improvements actually, directly, and
A: YES. Mercy Hospital can claim exemption from taxation
exclusively used for religious, charitable, and educational
7
TAXATION LAW
under the provision of the Constitution, but only with educational institution. It owns a piece of land in
respect to real property taxes provided that such real Caloocan City on which its three 3-storey school
properties are used actually, directly, and exclusively for building stood. Two of the buildings are devoted to
charitable purposes. classrooms, laboratories, a canteen, a bookstore, and
administrative offices. The third building is reserved as
PROHIBITION AGAINST TAXATION OF NON-STOCK, dormitory for student athletes who are granted
NON-PROFIT EDUCATIONAL INSTITUTIONS scholarships for a given academic year.
(2018, 2017, 2004, 1996 BAR)
In 2017, San Juan University earned income from
Q: Kilusang Krus, Inc. (KKI) is a non-stock, non-profit tuition fees and from leasing a portion of its premises
religious organization which owns a vast tract of land to various concessionaires of food, books, and school
in Kalinga. supplies.
KKI has devoted 1/2 of the land for various uses: a (a) Can the City Treasurer of Caloocan City collect real
church with a cemetery exclusive for deceased priests property taxes on the land and building of San Juan
and nuns, a school providing K to 12 education, and a University? Explain your answer. (2017 BAR)
hospital which admits both paying and charity
patients. The remaining 1/2 portion has remained idle. A: YES. The City Treasurer can collect real property taxes
but on the leased portion. Sec. 4(3), Art. XIV of the 1987
The KKI Board of Trustees decided to lease the Constitution provides that a non-stock, non-profit
remaining 1/2 portion to a real estate developer which educational institution shall be exempt from taxes and
constructed a community mall over the property. duties only if the same are used actually, directly, and
exclusively for educational purposes. The test of exemption
Since the rental income from the lease of the property from taxation is the use of the property for purposes
was substantial, the KKI decided to use the amount to mentioned in the Constitution. The leased portion of the
finance: (1) the medical expenses of the charity building may be subject to real property tax since such
patients in the KKI Hospital; and (2) the purchase of lease is for commercial purposes, thereby, it removes the
books and other educational materials for the students asset from the property tax exemption granted under the
of KKI School. (2018 BAR) Constitution. (CIR v. De La Salle University, Inc., G.R. No.
196596, 09 Nov. 2016)
(a) Is KKI liable for real property taxes on the land?
(b) Is the income earned by San Juan University for the
A: YES, but only on the leased portion. Sec. 28(3), Art. VI, year 2017 subject to income tax? Explain your
of the 1987 Constitution provides that “charitable answer.
institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and A: NO. The income earned is not subject to income tax
all lands, buildings, and improvements, actually, directly, provided that the revenues are used actually, directly, and
and exclusively used for religious, charitable, or exclusively for educational purposes as provided under
educational purposes shall be exempt from taxation”. The Sec. 4(3), Art. XIV of the 1987 Constitution. The requisites
test of exemption from taxation is the use of the property for availing the tax exemption under Sec. 4(3), Art. XIV are
for purposes mentioned in the Constitution. The leased as follows: (1) the taxpayer falls under the classification
portion of the land may be subject to real property tax since non-stock, non-profit educational institution; and (2) the
such lease is for commercial purposes, thereby, removing income it seeks to be exempted from taxation is used
the asset from the property tax exemption granted under actually, directly, and exclusively for educational purposes;
the Constitution. (CIR vs. De La Salle University, Inc., GR. Nos, thus, so long as the requisites are met, the revenues are
196596, 198841, 198941, 09 Nov. 2016; UPLC Suggested exempt from tax. (CIR v. De La Salle University, Inc., G.R. Nos.
Answers) 196596, 198841 and 198941, 09 Nov. 2016; UPLC Suggested
Answers)
(b) Is KKl's income from the rental fees subject to
income tax? Q: XYZ Colleges is a non-stock, non-profit educational
institution run by the Archdiocese of BP City. It
A: YES. Despite falling under the organizations enumerated collected and received the following:
under Sec. 30 of the NIRC, the last paragraph of the same A) Tuition fees;
provision makes KKI’s income of whatever kind and B) Dormitory Fees;
character from any of its properties, real or personal, or C) Rentals from canteen concessionaires;
from any of its activities conducted for profit regardless of D) Interest from money-market placements of the
the disposition made of such income, subject to income tax. tuition fees;
(Sec. 30, NIRC) E) Donation of a lot and building by school alumni.
Q: San Juan University is a non-stock, non-profit Which of these above cited income and donation would

2023 QuAMTO
QuAMTO (1987-2022)
not be exempt from taxation? Explain briefly. (2004 on sales, barters or exchanges or similar transactions on
BAR) goods or services “except as otherwise provided herein”. As
an exception to the said rule, Sec. 143(b) of the LGC allows
A: The following are not exempt from taxation, viz: the imposition of taxes on wholesalers, distributors, or
dealers in any article of commerce of whatever kind or
C) Rental income is considered as unrelated to the school nature for municipalities. Moreover, Sec. 151 of the LGC
operations; hence, taxable. provides that cities may impose whatever the municipality
is imposing. Thus, City X may levy the said tax.
D) The interest on the placement is taxable. (DOF Order No.
137-87) Q: KM Corporation, doing business in the City of
Kalookan, has been a distributor and retailer of
If, however, the said rental income and/or interest are used clothing and household materials. It has been paying
actually, directly, and exclusively for educational purposes the City of Kalookan local taxes based on Secs. 15 (Tax
as proven by substantial evidence, the same will be exempt on Wholesalers, Distributors or Dealers) and 17 (Tax
from taxation. (CIR v. CA, G.R. No. 124043, 14 Oct. 1998) on Retailers) of the Revenue Code of Kalookan City
(Code). Subsequently, the Sangguniang Panglungsod
The other items of income which were all derived from enacted an ordinance amending the Code by inserting
school-related activities will be exempt from taxation in the Sec. 21 which imposes a tax on “Businesses Subject to
hands of the recipient if used actually, directly, and Excise, Value-Added and Percentage Taxes under the
exclusively for educational purposes. (Sec. 4(3), Art. XIV, NIRC,” at the rate of 50% of 1% per annum on the gross
1987 Constitution) sales and receipts on persons “who sell goods and
services in the course of trade or business.” KM
The donation to a non-stock, non-profit educational Corporation paid the taxes due under Sec. 21 under
institution will be exempt from donor’s tax if used actually, protest, claiming that: (a) local government units could
directly, and exclusively for educational purposes and not impose a tax on businesses already taxed under the
provided, that, not more than 30% of the donation is used NIRC; and (b) this would amount to double taxation,
for administration purposes. (Sec. 4(4), Art. XIV, 1987 since its business was already taxed under Secs. 15 and
Constitution, in relation to Sec. 101(A)(3), NIRC) 17 of the Code.
GRANT OF POWER TO THE LGUS TO CREATE ITS OWN May LGUs impose tax on businesses already subjected
SOURCES OF REVENUE to tax under the NIRC? (2018 BAR)
(2019, 2018, 2003 BAR)
A: YES. Sec. 143 in relation to Sec. 151 of the LGC provides
Q: In 2018, City X amended its Revenue Code to include for the power of cities to impose a local business tax, and
a new provision imposing a tax on every sale of one of those which may be subjected to such tax are those
merchandise by a wholesaler based on the total selling businesses that are subject to “excise tax, value-added tax
price of the goods, inclusive of value-added taxes (VAT). and percentage tax” under the NIRC, other than those
ABC Corp., a wholesaler operating within the city, specifically enumerated by the same provision. The tax
challenged the new provision based on the following imposed by the city shall not exceed 2% of the gross sales
contentions: (1) The new provision is a form of or gross receipts of the preceding calendar year. (Sec.
prohibited double taxation because it essentially 143(h), in relation to Sec. 151, LGC; UPLC Suggested Answers)
amounts to City X imposing VAT which was already
being levied by the national government; and (2) since Q: May Congress, under the 1987 Constitution, abolish
the tax being imposed is akin to VAT, it is beyond the the power to tax of local governments? (2003 BAR)
power of City X to levy the same.
A: NO. The Congress cannot abolish the local government’s
Rule on ABC Corp.’s second contention. (2019 BAR) power to tax as it cannot abrogate what is expressly
granted by the fundamental law. The only authority
A: ABC Corp. is INCORRECT. Under the LGC, LGUs are conferred to Congress is to provide the guidelines and
empowered to enact ordinances that will aid in their limitations on the local government’s exercise of the power
revenue generation, which is in consonance with the to tax.
principle of fiscal autonomy of LGUs. Although the tax to be
imposed is akin to VAT, the LGU may nevertheless impose PROVISIONS INDIRECTLY AFFECTING TAXATION
such local business tax. (UPLC Suggested Answers)
EQUAL PROTECTION
ALTERNATIVE ANSWER: (2017, 2013, 2010, 2009, 2004, 2000 BAR)
ABC Corp. is INCORRECT. Under Sec. 133(i) of the LGC,

Q: Heeding the pronouncement of the President that
cities may not impose percentage or value-added tax (VAT)
the worsening traffic condition in the metropolis was a
9
TAXATION LAW
sign of economic progress, the Congress enacted R.A. proceeds along suspect lines nor infringes constitutional
No. 10701, also known as An Act Imposing a Transport rights must be upheld against equal protection challenge if
Tax on the Purchase of Private Vehicles. there is any reasonably conceivable state of facts that could
provide a rational basis for the classification.” Under the
Under R.A. No. 10701, buyers of private vehicles are rational basis test, it is sufficient that the legislative
required to pay a transport tax equivalent to 5% of the classification is rationally related to achieving some
total purchase price per vehicle purchased. R.A. No. legitimate State interest. (British American Tobacco v.
10701 provides that the Land Transportation Office Camacho and Parayno, G.R. No. 163583, 15 Apr. 2009; UPLC
(LTO) shall not accept for registration of any new Suggested Answers)
vehicles without proof of payment of the 5% transport
tax. R.A. No. 10701 further provide that existing Q: The City of Manila enacted Ordinance No. 55-66
owners of private vehicles shall be required to pay a tax which imposes a municipal occupation tax on persons
equivalent to 5% of the current fair market value of practicing various professions in the city. Among those
every vehicle registered with the LTO. However, R.A. subjected to the occupation tax were lawyers. Atty.
No. 10701 exempts owners of public utility vehicles Mariano Batas, who has a law office in Manila, pays the
and the Government from the coverage of the 5% ordinance-imposed occupation tax under protest. He
transport tax. goes to court to assail the validity of the ordinance for
being discriminatory.
A group of private vehicle owners sue on the ground
that the law is unconstitutional for contravening the Decide with reasons. (2009 BAR)
Equal Protection Clause of the Constitution.
A: The Ordinance is VALID. The tax imposed by the
Rule on the constitutionality and validity of R.A. No. ordinance is in the nature of a professional tax which is
10701. (2017 BAR) authorized by law to be imposed by cities. (Sec. 151, in
relation to Sec. 139, LGC) The ordinance is not
A: It is VALID AND CONSTITUTIONAL. A levy of tax is not discriminatory because the City Council has the power to
unconstitutional because it is not intrinsically equal and select the subjects of taxation and impose the same tax on
uniform in its operation. The uniformity rule does not those belonging to the same class. The authority given by
prohibit classification for purposes of taxation. (British law to cities is to impose a professional tax only on persons
American Tobacco v. Camacho, G.R. No. 163583, 20 Aug. engaged in the practice of their profession requiring
2008) government examination and lawyers are included within
that class of professionals. (UPLC Suggested Answers)
Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of Q: RC is a law-abiding citizen who pays his real estate
taxation, similarly situated, are to be treated alike both in taxes promptly. Due to a series of typhoons and
privileges and liabilities. Uniformity does not forfend adverse economic conditions, an ordinance is passed
classification as long as: (1) the standards that are use by MM City granting a 50% discount for payment of
thereof are substantial and not arbitrary, (2) the unpaid real estate taxes for the preceding year and the
categorization is germane to achieve the legislative condonation of all penalties on fines resulting from the
purpose, (3) the law applies, all things being equal to both late payment. Arguing that the ordinance rewards
present and future conditions, and (4) the classification delinquent taxpayers and discriminates against
applies equally well to all those belonging to the same class. prompt ones, RC demands that he be refunded an
(Tan v. Del Rosario, Jr., G.R. Nos. 109289 and 109446, 03 Oct. amount equivalent to ½ of the real taxes he paid. The
1994) All of the foregoing requirement of a valid municipal attorney rendered an opinion that RC cannot
classification having been met and those which are singled be reimbursed because the ordinance did not provide
out are a class in themselves, there is no violation of the for such reimbursements.
“Equal Protection Clause” of the Constitution. (UPLC
Suggested Answers) RC files suit to declare the ordinance void on the
ground that it is a class legislation. Will a suit prosper?
(2004 BAR)
A: NO. The remission or condonation of taxes due and

Q: What is the “rational basis” test? Explain briefly. payable to the exclusion of taxes already collected does not
(2010 BAR) constitute unfair discrimination. Each set of taxes is a class
by itself, and the law would be open to attack as class
A: The rational basis test is applied to gauge the legislation only if all taxpayers belonging to one class were
constitutionality of an assailed law in the face of an equal not treated alike. (Juan Luna Subdivision, Inc., v. Sarmiento,
protection challenge. It has been held that “in areas of social G.R. L-3538, 28 May 1952)
and economic policy, a statutory classification that neither

2023 QuAMTO
QuAMTO (1987-2022)
Q: An E.O. was issued pursuant to law, granting tax and exemptions both from Congress, one law exempting
duty incentives only to businesses and residents within the company’s bond issues from taxes and the other
the “secured area” of the Subic Economic Special Zone, exempting the company from taxes in the operation of
and denying said incentives to those who live within its public utilities. The two laws extending the tax
the zone but outside such “secured area”. exemptions were revoked by Congress before their
expiry dates.
Is the Constitutional right to equal protection of the law
violated by the Executive Order? (2000 BAR) Were the revocations constitutional? (1997 BAR)
A: NO. Equal protection of the law clause is subject to A: YES. The exempting statutes are both granted
reasonable classification. Classification, to be valid, must unilaterally by Congress in the exercise of taxing powers.
(1) rest on substantial distinctions; (2) be germane to the Since taxation is the rule and tax exemption, the exception,
purpose of the law; (3) not be limited to existing conditions any tax exemptions unilaterally granted can be withdrawn
only, (4) apply equally to all members of the same class. at the pleasure of the taxing authority without violating the
There are substantial differences between big investors Constitution. (Mactan Cebu International Airport Authority
being enticed to the “secured area” and the business v. Marcos, G.R. No. 120082, 11 Sept. 1996)
operators outside that are in accord with the equal
protection clause that does not require territorial
uniformity of laws. C. REQUISITES OF A VALID TAX
The classification applies equally to all the resident

individuals and businesses within the “secured area.” The
residents, being in like circumstances to contributing D. TAX AS DISTINGUISHED FROM OTHER FORMS OF
directly to the achievement of the end purpose of the law, EXACTIONS
are not categorized further. Instead, they are similarly
treated, both in privileges granted and obligations
required. (Tiu v. CA, G.R. No. 127410, 20 Jan. 1999)
E. KINDS OF TAXES
NON-IMPAIRMENT CLAUSE (2007, 2006 BAR)
(2004, 1997 BAR)
Q: What kind of taxes, fees and charges are considered

Q: A law was passed granting tax exemption to certain
as National Internal Revenue Taxes under the National
industries and investments for a period of five years.
Internal Revenue Code? (2007 BAR)
But three years later, the law was repealed. With the
repeal, the exemptions were considered revoked by
A: The following taxes, fees and charges are considered to
the BIR, which assessed the investing companies for
be National Internal Revenue Taxes under the National
unpaid taxes effective on the date of the repeal of the
Internal Revenue Code:
law.
1. Income tax;
NPC and KTR companies questioned the assessments
2. Estate and donor’s taxes;
on the ground that, having made their investments in
3. Value-added tax;
full reliance with the period of exemption granted by
4. Other percentage taxes;
the law, its repeal violated their constitutional right
5. Excise taxes;
against the impairment of the obligations and
6. Documentary stamp taxes; and
contracts.
7. Such other taxes as are or hereafter may be imposed
and collected by the Bureau of Internal Revenue. (Sec.
Is the contention of the companies tenable or not?
21, NIRC)
Reason briefly. (2004 BAR)
Q: Distinguish “direct taxes” from “indirect taxes." Give

A: The contention is not tenable. The exemption granted is
examples. (2006 BAR)
in the nature of a unilateral tax exemption. Since the
exemption given is spontaneous on the part of the A: Direct taxes are demanded from the very person who, as
legislature and no service or duty or other remunerative intended, should pay the tax which he cannot shift to
conditions have been imposed on the taxpayers receiving another; while an indirect tax is demanded in the first
the exemption, it may be revoked at will by the legislature. instance from one person with the expectation that he can
(Manila Railroad Company v. Insular Collector of Customs, shift the burden to someone else, not as a tax, but as part of
G.R. No. L-30264, 12 Mar. 1929) the purchase price. (Maceda v. Macaraig, Jr., G.R. No. 88291,
08 June 1993) Examples of direct taxes are income tax,
Q: X Corporation was the recipient in 1990 of two tax estate tax and donor’s tax. On the other hand, examples of
11
TAXATION LAW
indirect taxes are value-added tax, percentage tax and that the filing of the Petition for Review is premature
excise tax on excisable articles. because the taxpayer failed to exhaust all administrative
remedies. The statement of the BIR in its Final Assessment
Notice and Demand Letter led the taxpayer to conclude that
F. DOCTRINES IN TAXATION only a final judicial ruling in his favor would be accepted by
(2019, 2018, 2017, 2016, 2015, 2014, 2013, 2012, the BIR. The taxpayer cannot be blamed for not filing a
2009, 2008, 2007, 2006, 2005, 2004, 2001, 2000, 1997, protest against the Formal Letter of Demand with
1996, 1992, 1990, 1989 BAR) Assessment Notices since the language used and the tenor
of the demand letter indicate that it is the final decision of
the respondent on the matter. The CIR should indicate, in a
1. CONSTRUCTION AND INTERPRETATION OF TAX clear and unequivocal language, whether his action on a
LAWS, RULES, AND REGULATIONS disputed assessment constitutes his final determination
(2013, 2012, 2007, 2006, 2005, 2000, 1996 BAR) thereon in order for the taxpayer concerned to determine
when his right to appeal to the tax court accrues. Although
Q: ABC Corporation is registered as a holding company there were no direct references for the taxpayer to brim the
and has an office in the City of Makati. It has no actual matter directly to the CTA, it cannot be denied that the word
business operations. It invested in another company “appeal” under prevailing tax laws refers to the filing of a
and its earnings are limited to dividends from this Petition for Review with the CTA. (UPLC Suggested Answers)
investment, interests on its bank deposits, and foreign
exchange gains from its foreign currency account. The Q: An alien employee of the Asian Development Bank
City of Makati assessed ABC Corporation as a contractor (ADB) who is retiring soon has offered to sell his car to
or one that sells services for a fee. you which he imported tax-free for his personal use.
The privilege of exemption from tax is granted to
Is the City of Makati correct? (2013 BAR) qualified personal use under the ADB Charter which is
recognized by the tax authorities.
A: NO. The corporation cannot be considered as a
contractor because it does not render services for others for If you decide to purchase the car, is the sale subject to
a fee. Contactor is one whose activity consists essentially in tax? Explain. (2005 BAR)
the sale of all kinds of services for a fee, regardless of
whether or not the performance of the service calls for the A: YES. The sale is subject to tax. Sec. 107(B) of the NIRC
exercise or use of the physical or mental faculties of such provides that: "In the case of tax-free importation of goods
contractor or its employees. To be considered as a into the Philippines by persons, entities or agencies exempt
contractor, the corporation must derive income from doing from tax where such goods are subsequently sold,
active business of selling services and not from deriving transferred or exchanged in the Philippines to non-exempt
purely passive income. Accordingly, a mere holding persons or entities, the purchasers, transferees or
company cannot be assessed by the City of Makati as a recipients shall be considered the importer thereof, who
contractor. (UPLC Suggested Answers) shall be liable for any internal revenue tax on such
importation”. Tax exemptions are to be construed strictly
Q: In the examination conducted by the revenue and are not considered transferable in character.
officials against the corporate taxpayer in 2010, the BIR
issued a final assessment notice and demand letter Q: Art. VII, Sec. 28(3) of the 1987 Philippine
which states: “It is requested that the above deficiency Constitution provides that charitable institutions,
tax be paid immediately upon receipt hereof, inclusive churches, parsonages, or convent appurtenant thereto,
of penalties incident to delinquency. This is our final mosques, and non–profit cemeteries and all lands,
decision based on investigation. If you disagree, you buildings, and improvements actually, directly and
may appeal this final decision within thirty (30) days exclusively used for religious, charitable or educational
from receipt hereof, otherwise said deficiency tax purposes shall be exempt from taxation.
assessment shall become final, executory and
demandable.” The assessment was immediately Is proof of actual use necessary for tax exemption
appealed by the taxpayer to the Court of Tax Appeals, purposes under the Constitution? (2000 BAR)
without filing its protest against the assessment and
without a denial thereof by the BIR. A: YES, because tax exemptions are strictly construed
If you were the judge, would you deny the petition for against the taxpayer. There must be evidence to show that
review filed by the taxpayer and consider the case as the taxpayer has complied with the requirements for
prematurely filed? (2012 BAR) exemption. Furthermore, real property taxation is based on
use and not on ownership; hence, the same rule must also
A: NO. The Petition for Review should not be denied. The be applied for real property tax exemptions. (Bar Q&A by
case is an exception to the rule on exhaustion of Mamalateo, 2019)
administrative remedies. The BIR is estopped from claiming

2023 QuAMTO
QuAMTO (1987-2022)
Q: Why are tax exemptions strictly construed against On the other hand, double taxation in the broad sense
the taxpayer? (1996 BAR) pertains to indirect double taxation. This extends to all
cases in which there is a burden of two or more impositions.
A: Tax exemptions are strictly construed against the It is the double taxation other than those covered by direct
taxpayer because such provisions are highly disfavored double taxation. (CIR v. Solidbank Corp., G.R. No. 148191, 25
and may almost be said to be odious to the law. (Manila Nov. 2003) An example is subjecting the interest income of
Electric Company v. Vera, G.R. No. L-29987, 22 Oct. 1975) banks on their deposits with other banks to the 5% Gross
The exception contained in the tax statutes must be Receipts Tax (GRT) despite of the same income having been
strictly construed against the one claiming the exemption subjected to 20% Final Withholding Tax (FWT). The GRT is
because the law does not look with favor on tax a tax on the privilege of engaging in business, while the FWT
exemptions, they, being contrary to the life-blood theory is a tax on the privilege of earning income. (CIR v. Bank of
which is the underlying basis for taxes. Commerce, G.R. No. 149636, 08 June 2005; UPLC Suggested
Answers)
2. PROSPECTIVITY OF TAX LAWS
Q: In 2018, City X amended its Revenue Code to include
a new provision imposing a tax on every sale of
3. IMPRESCRIPTIBILITY OF TAXES
merchandise by a wholesaler based on the total selling
price of the goods, inclusive of value-added taxes (VAT).
4. DOUBLE TAXATION ABC Corp., a wholesaler operating within the city,
(2019, 2018, 2017, 2016, 2015, 2014, 2004, 1997, challenged the new provision based on the following
1996 BAR) contentions: (1) The new provision is a form of
prohibited double taxation because it essentially
Q: Jennifer is the only daughter of Janina who was a amounts to City X imposing VAT which was already
resident in Los Angeles, California, U.S.A. Janina died in being levied by the national government; and (2) Since
the U.S. leaving to Jennifer one million shares of Sun Life the tax being imposed is akin to VAT, it is beyond the
(Philippines), Inc., a corporation organized and power of City X to levy the same. Rule on ABC Corp.’s
existing under the laws of the Republic of the first contention. (2019 BAR)
Philippines. Said shares were held in trust for Janina by
the Corporate Secretary of Sun Life and the latter can A: ABC Corp. is INCORRECT. Under the NIRC, direct double
vote the shares and receive dividends for Janina. The taxation exists only when two taxes are imposed on the
Internal Revenue Service (IRS) of the U.S. taxed the same: (1) subject matter, (2) purpose, (3) by the same
shares on the ground that Janina was domiciled in the taxing authority, (4) within the same jurisdiction, (5) during
U.S. at the time of her death. the same taxing period, and (6) the taxes of the same kind
of nature. In this case, the taxing authorities are different.
Explain the concept of double taxation. (2016 BAR) Hence, the tax imposed by the LGU is not a form of direct
double taxation. (UPLC Suggested Answers)
A: Double taxation occurs when the same subject or object
of taxation is taxed twice when it should be taxed but once. Q: KM Corporation, doing business in the City of
Double taxation is prohibited when it is an imposition of Kalookan, has been a distributor and retailer of
taxes on the same subject matter, for the same purpose, by clothing and household materials. It has been paying
the same taxing authority, within the same jurisdiction, the City of Kalookan local taxes based on Secs. 15 (Tax
during the same taxing period, with the same kind of on Wholesalers, Distributors or Dealers) and 17 (Tax
character of a tax. (84 C.J.S. 131-132) It is permissible if taxes on Retailers) of the Revenue Code of Kalookan City
are of different nature or character, or the two taxes are (Code). Subsequently, the Sangguniang Panglungsod
imposed by different taxing authorities. (Villanueva v. City enacted an ordinance amending the Code by inserting
of Iloilo, G.R. No. L-26521, 28 Dec. 1968; UPLC Suggested Sec. 21 which imposes a tax on “Businesses Subject to
Answers) Excise, Value-Added and Percentage Taxes under the
NIRC,” at the rate of 50% of 1% per annum on the gross
Q: Differentiate between double taxation in the strict sales and receipts on persons “who sell goods and
sense and in a broad sense give an example of each. services in the course of trade or business.” KM
(2015 BAR) Corporation paid the taxes due under Sec. 21 under
protest, claiming that (a) local government units could
A: Double taxation in the strict sense pertains to the direct not impose a tax on businesses already taxed under the
double taxation. This means that the taxpayer is taxed twice NIRC and (b) this would amount to double taxation,
by the same taxing authority, within the same taxing since its business was already taxed under Secs. 15 and
jurisdiction, for the same property and same purpose. An 17 of the Code.
example is the imposition of final withholding tax on cash
dividend and requiring the taxpayer to declare this tax-paid Does this amount to double taxation? (2018 BAR)
income in his tax returns.
13
TAXATION LAW
A: YES. The three taxes are all in the nature of local business A) is a scheme used outside of those lawful means
taxes on wholesalers, retailers and service providers which and, when availed of, it usually subjects the
are imposed by the same taxing authority on the same taxpayer to further or additional civil or
subject matter for the same tax period; hence, the elements criminal liabilities;
of double taxation are present. (Nursery Care Corp. v.
Acebedo, G.R. No. 180651, 30 July 2014; UPLC Suggested B) is a tax saving device within the means
Answers) sanctioned by law;
Q: Upon his retirement, Alfredo transferred his savings C) is employed by a corporation, the organization
derived from his salary as a marketing assistant to a of which is prompted more on the mitigation of
time deposit with AAB Bank. The bank regularly tax liabilities than for legitimate business
deducted 20% final withholding tax on the interest purpose;
income from the time deposit.
D) is any form of tax deduction scheme, regardless
Alfredo contends that the 20% final tax on the interest if the same is legal or not.
income constituted double taxation because his salary
had been already subjected to withholding tax. A: B) is a tax saving device within the means sanctioned by
law. (Philip Manufacturing Corp. v. CIR, G.R. No. L-19737, 26
Is Alfredo's contention correct? Explain your answer. Aug. 1968; UPLC Suggested Answers)
(2017 BAR)
Q: Maria Suerte, a Filipino citizen, purchased a lot in
A: NO. Double taxation means taxing for the same tax period Makati City in 1980 at a price of P1 million. Said
the same thing or activity twice, when it should be taxed but property has been leased to MAS Corporation, a
once, for the same purpose and with the same kind of domestic corporation engaged in manufacturing paper
character of tax. (CIR vs. Citytrust Investment Phils., G.R. Nos. products, owned 99% by Maria Suerte. In October
139786 and 140857, 27 Sept. 2006) The 20% final tax is 2007, EIP Corporation, a real estate developer,
imposed on the interest income, while the tax earlier expressed its desire to buy the Makati property at its
withheld is on the salary or compensation income. Thus, fair market value of P300 million, payable as follows:
though both pertain to income tax, they do not pertain to (a) P60 million down payment; and (b) balance,
the same thing or activity and consequently, no double payable equally in twenty-four (24) monthly
taxation exists. (UPLC Suggested Answers) consecutive installments. Upon the advice of a tax
lawyer, Maria Suerte exchanged her Makati property
Q: X, a lessor of a property, pays real estate tax on the for shares of stock of MAS Corporation. A BIR ruling,
premises, a real estate dealer’s tax based on rental confirming the tax-free exchange of property for
receipts and income tax on the rentals. X claims that shares of stock, was secured from the BIR National
this is double taxation. (1996 BAR) Office and a Certificate Authorizing Registration was
issued by the Revenue District Officer (RDO) where the
A: There is no double taxation. Double taxation means property was located. Subsequently, she sold her
taxing for the same tax period the same thing or activity entire stockholdings in MAS Corporation to EIP
twice, when it should be taxed but once, by the same taxing Corporation for P300 million. In view of the tax advice,
authority for the same purpose and with the same kind or Maria Suerte paid only the capital gains tax of
character of tax. The real estate tax is a tax on property; the P29,895,000 (P100,000 x 5% plus P298,900,000 x
real estate dealer’s tax is a tax on the privilege to engage in 10%), instead of the corporate income tax of
business; while the income tax is a tax on the privilege to P104,650,000 (35% on P299 million gain from sale of
earn an income. These taxes are imposed by different taxing real property). After evaluating the capital gains tax
authorities and are essentially of different kind and payment, the RDO wrote a letter to Maria Suerte,
character. (Villanueva v. City of Iloilo, G.R. No. L-26521, 28 stating that she committed tax evasion.
Dec. 1968)
Is the contention of the RDO tenable? Or was it tax
5. ESCAPE FROM TAXATION avoidance that Maria Suerte had resorted to? Explain.
(2016, 2014, 2008, 2005, 1996, 1989 BAR) (2008 BAR)
A: The contention of the RDO is NOT TENABLE. Maria
a) SHIFTING OF TAX BURDEN Suerte resorted to tax avoidance and not tax evasion. Tax
avoidance is the use of legal means to reduce tax liability
b) TAX AVOIDANCE and it is the legal right of a taxpayer to decrease the amount
(2014, 2008 BAR) of what otherwise would be his taxes by means which the
law permits. (Heng Tong Textiles Co., Inc. v. Commissioner,
Q: Choose the correct answer. Tax avoidance: (2014 G.R. No. L-19737, 26 Aug. 1968) There is nothing illegal
BAR) about transferring first the property to a corporation in a

2023 QuAMTO
QuAMTO (1987-2022)
tax-free exchange and later selling the shares obtained in 6. EXEMPTION FROM TAXATION
the exchange at a lower tax than what could have been (2016, 2004, 1992, 1989 BAR)
imposed if the property was sold directly.
Q: Pursuant to Sec. 11 of the “Host Agreement” between
c) TAX EVASION the United Nations and the Philippine government, it
(2016, 1996 BAR) was provided that the World Health Organization
(WHO), “its assets, income and other properties shall
Q: Distinguish tax evasion from tax avoidance. (1996 be: (a) exempt from all direct and indirect taxes.”
BAR) Precision Construction Corporation (PCC) was hired to
construct the WHO Medical Center in Manila. Upon
A: Tax evasion is a scheme used outside of those lawful completion of the building, the BIR assessed a 12% VAT
means to escape tax liability and, when availed of, it usually on the gross receipts of PCC derived from the
subjects the taxpayer to further or additional civil or construction of the WHO building. The BIR contends
criminal liabilities. Tax avoidance, on the other hand, is a tax that the 12% VAT is not a direct nor an indirect tax on
saving device within the means sanctioned by law, hence the WHO but a tax that is primarily due from the
legal. contractor and is therefore not covered by the Host
Agreement. The WHO argues that the VAT is deemed an
Q: Lucky V Corporation (Lucky) owns a 10-storey indirect tax as PCC can shift the tax burden to it.
building in a 2,000 square meter lot in the City of
Makati. It sold the lot and building to Rainier for P80M. Is the BIR correct? Explain. (2016 BAR)
One month after, Rainier sold the lot and building to
Healthy Smoke Company (HSC) for P200M. Lucky filed A: NO. Since the WHO, the contractee, is exempt from
its annual tax return and declared its gain from the sale exempt from direct and indirect taxes pursuant to an
of the lot and building in the amount of P750,000. international agreement where the Philippines is a
signatory, the exemption from direct taxes should mean
An investigation conducted by the BIR revealed that that the entity or person exempt is the contractor itself
two months prior to the sale of the properties to because the manifest intention of the government is to
Rainier, Lucky received P40M from HSC and not from exempt the contactor so that no tax may be shifted to the
Rainier. Said amount of P40M was debited by HSC and contractee. (CIR v. John Gotamco & Sons, Inc., G.R. No. L-
reflected in its trial balance as “other inv. – Lucky Bldg.” 31092, 27 Feb. 1987) The immunity of WHO from indirect
The month after, another P40M was reflected in HSC’s taxes extends to the contractor by treating the sale of
trial balance as “other inv. – Lucky Bldg.” The BIR service as effectively zero-rated when the law provided that
concluded that there is tax evasion since the real buyer – “services rendered to persons or entities whose
of the properties of Lucky is HSC and not Rainier. It exemption under special laws or international agreements
issued an assessment for deficiency income tax in the to which the Philippines is a signatory effectively subjects
amount of P79M against Lucky. Lucky argues that it the supply to such service to zero percent rate”. (Sec.
resorted to tax avoidance or a tax saving device, which 108(B)(3), NIRC) Accordingly, the BIR is wrong in assessing
is allowed by the NIRC and BIR Rules since it paid the the 12% VAT from the contractor PCC. (UPLC Suggested
correct taxes based on its sale to Rainier. On the other Answers)
hand, Rainier and HSC also paid the prescribed taxes
arising from the sale by Rainier to HSC. Q: The President of the Philippines and the Prime
Minister of Japan entered into an executive agreement
Is the BIR correct in assessing taxes on Lucky? Explain. in respect of a loan facility to the Philippines from Japan
(2016 BAR) whereby it was stipulated that interest on loans
granted by private Japanese financial institutions to
Q: YES. The sale of the property of Lucky to Rainier and private financial Institutions in the Philippines shall
consequently the sale by Rainier to HSC being prompted not be subject to Philippine income taxes.
more on the mitigation of tax liabilities than for legitimate Is this tax exemption valid? Explain. (1992 BAR)
business purposes, therefore, constitutes tax evasion. The
real buyer from Lucky is HSC as evidenced by the direct A: YES. The tax exemption is valid because an executive
receipt of payments by the former from the latter where the agreement has the force and effect of a treaty under the
latter recorded “other inv. – Lucky Bldg.” The scheme of provision of the Revenue Code. Taxation is subject to
resorting to a two-step transaction in selling the property International Comity.
to the ultimate buyer in order to escape paying higher taxes
is considered as outside of those lawful means allowed in
7. EQUITABLE RECOUPMENT
mitigating tax liabilities which makes Lucky criminally and
(2009 BAR)
civilly liable. Hence, the BIR is correct in assessing taxes on
Lucky. (CIR v. The Estate of Benigno Toda Jr., G.R. No. 147188,
14 Sept. 2004; UPLC Suggested Answers) Q: True or False: The doctrine of equitable recoupment
allows a taxpayer whose claim for refund has
15
TAXATION LAW
prescribed to offset tax liabilities with his claim of of the two conditions is present: (1) the assessment is of
overpayment. (2009 BAR) doubtful validity, or (2) the financial position of the
taxpayer demonstrates a clear inability to pay the tax. (Sec.
A: TRUE. The doctrine arose from common law allowing 204(A), NIRC; Sec. 2, RR No. 30- 2002)
offsetting of a prescribed claim for refund against a tax
liability arising from the same transaction on which an (b) Cases under administrative protest, after issuance
overpayment is made and underpayment is due. The of the final assessment notice to the taxpayer,
doctrine finds no application to cases where the taxes which are still pending
involved are totally unrelated, an although it seems
equitable, it is not allowed in our jurisdiction. (CIR v. UST, A: YES. These may be compromised, provided that it is
G.R. No. L-11274, 28 Nov. 1958; UPLC Suggested Answers) premised upon doubtful validity of the assessment or
financial incapacity to pay. (Ibid.)
8. PROHIBITION ON COMPENSATION
AND SET OFF (c) Criminal tax fraud cases
(2009, 2005, 2001, 1996, 1992, 1990 BAR)
A: NO. These may not be compromised, so that the taxpayer
Q: May taxes be the subject of set-off or compensation? may not profit from his fraud, thereby discouraging its
Explain. (2005 BAR) commission. (Ibid.)
A: NO. Taxes cannot be the subject of set-off or (d) Criminal violations already filed in court
compensation for the following reasons: (1) taxes are of
distinct kind, essence and nature, and these impositions A: NO. These may not be compromised in order that the
cannot be classed in merely the same category as ordinary taxpayer will not profit from his criminal acts. (Ibid.)
obligations; (2) the applicable laws and principles
governing each are peculiar, not necessarily common, to (e) Cases where final reports of reinvestigation or
each; and (3) public policy is better subserved if the reconsideration have been issued resulting in the
integrity and independence of taxes are maintained. reduction of the original assessment agreed to by
(Republic v. Mambulao Lumber Company, G.R. No. L-17725, the taxpayer when he signed the required
28 Feb. 1962) agreement form (2005 BAR)
However, if the obligation to pay taxes and the taxpayer’s A: NO. Cases where final reports of reinvestigation or
claim against the government are both overdue, reconsideration have been issued resulting in the reduction
demandable, as well as fully liquidated, compensation of the original assessment agreed to by the taxpayer when
takes place by operation of law and both obligations are he signed the required agreement form, cannot be
extinguished to their concurrent amounts. (Domingo v. compromised. By giving his conformity to the revised
Garlitos, G.R. No. L-18994, 29 June 1963) assessment, the taxpayer admits the validity of the
assessment and his capacity to pay the same. (Ibid.)
Q: Can an assessment for a local tax be the subject of
set-off or compensation against a final judgment for a Q: Under what conditions may the Commissioner of
sum of money obtained by a taxpayer against the local Internal Revenue be authorized to compromise the
government that made the assessment? (2005 BAR) payment of any internal revenue tax? (2000 BAR)
A: NO. Taxes and debts are of different nature and A: The Commissioner of Internal Revenue may be
character. Taxes cannot be subject to compensation for the authorized to compromise the payment of any internal
simple reason that the government and the taxpayers are revenue tax where: (a) a reasonable doubt as to the validity
not creditors and debtors of each other, debts are due to of the claim against the taxpayer exists, or (b) the financial
the government in its corporate capacity, while taxes are position of the taxpayer demonstrates a clear inability to
due to the government in its sovereign capacity. (South pay the assessed tax. (Sec. 3, RR No. 30- 2002)
African Airways v. CIR, G.R. No. 180356, 16 Feb. 2010)
9. COMPROMISE AND TAX AMNESTY

(2005, 2000 BAR)
Q: State and discuss briefly whether the following cases

may be compromised or may not be compromised:
(a) Delinquent accounts
A: YES. Delinquent accounts may be compromised if either

2023 QuAMTO
QuAMTO (1987-2022)
importation of some of its raw materials. The ruling is
II. NATIONAL TAXATION of first impression, which means the interpretations
made by the Commissioner of Internal Revenue is one
without established precedents. Subsequently,
however, the BIR issued another ruling which in effect
would subject to tax such kind of importation. XYZ
A. TAXING AUTHORITY
Corporation is concerned that said ruling may have a
(2019, 2018, 2017, 2015 BAR)
retroactive effect, which means that all their
importations done before the issuance of the second
ruling could be subject to tax. (2007 BAR)
1. JURISDICTION, POWER, AND FUNCTIONS OF THE
COMMISSIONER OF INTERNAL REVENUE (a) What are BIR rulings?
(2019, 2018, 2007, 2005 BAR)
A: BIR rulings are administrative opinions issued by the
a) INTERPRETING TAX LAWS AND DECIDING TAX Commissioner of Internal Revenue interpretative of a
CASES provision of a tax law. (UPLC Suggested Answers)
b) NON-RETROACTIVITY OF RULINGS ALTERNATIVE ANSWER:

(2018, 2007 BAR)
They are the best guess of the moment and incidentally
Q: In 2015, Kerwin bought a three-story house and lot often contain such well- considered and sound law, but the
in Kidapawan, North Cotabato. The property has a floor courts have held that they do not prevent an entire change
area of 600 sq.m. and is located inside a gated of front at any time and are merely advisory – sort of an
subdivision. Kerwin initially declared the property as information service to the taxpayer. (Aban, 2001; UPLC
residential for real property tax purposes. Suggested Answers)
In 2016, Kerwin started using the property in his (b) What is required to make a BIR ruling or first
business of manufacturing garments for export. The impression a valid one?
entire ground floor is now occupied by state-of-the-art
sewing machines and other equipment, while the A: A BIR ruling of first impression to be valid must not be
second floor is used as offices. The third floor is against the law and it must be issued only by the
retained by Kerwin as his family's residence. Kerwin's Commissioner of Internal Revenue. (Philippine Bank of
neighbors became suspicious of the activities going on Communications v. CIR, G.R. No. 112024, 28 Jan. 1999; Sec. 7,
inside the house, and they decided to report it to the NIRC; UPLC Suggested Answers)
Kidapawan City Hall. Upon inspection, the local
government discovered that the property was being (c) Does a BIR ruling have a retroactive effect,
utilized for commercial use. Immediately, the considering the principle that tax exemptions
Kidapawan Assessor reclassified the property as should be interpreted strictly against the taxpayer?
commercial with an assessment level of 50% effective
January 2017, and assessed Kerwin back taxes and A: NO. A BIR ruling cannot be given retroactive effect if its
interest. Kerwin claims that only 2/3 of the building retroactive application is prejudicial to the taxpayer. (Sec.
was used for commercial purposes since the third floor 246, NIRC; CIR v. CA, G.R. No. 117982, 06 Feb. 1997; UPLC
remained as family residence. He argues that the Suggested Answers)
property should have been classified as partly
commercial and partly residential. ALTERNATIVE ANSWER:
Is the Kidapawan assessor correct in assessing back The general rule is that a BIR ruling does not have a
taxes and interest? (2018 BAR) retroactive effect if giving it a retroactive application is
prejudicial to the taxpayer. However, if the first ruling is
A: NO. The assessor cannot assess back taxes and interest. tainted with either of the following: (1) misstatement or
Since this involves a reassessment of real property due to a omission of materials facts, (2) the facts gathered by the BIR
major change in its actual use, the same cannot be given a are materially different from the facts upon which the ruling
retroactive effect. The reassessment shall only be effective is based, or (3) the taxpayer acted in bad faith, a subsequent
at the beginning of the quarter next following the ruling can have a retroactive application. (ABS-CBN
reassessment. (Sec. 221, LGC) Broadcasting Co. v. CTA & CIR, G.R. No. L-52306, 12 Oct. 1981;
Sec. 246, NIRC; UPLC Suggested Answers)
Q: XYZ Corporation, an export-oriented company, was
able to secure a Bureau of Internal Revenue (BIR)
ruling in June 2005 that exempts from tax the
17
TAXATION LAW
2. RULE-MAKING AUTHORITY OF THE SECRETARY OF value of P20 million. Mr. Antonio Ayala, another
FINANCE 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.
B. INCOME TAX
(2019-2010, 2008, 2007, 2005, 2003, 2001, 2000
1996-1993, 1991, 1990, 1989-1987 BAR) Is Mr. Castillo liable for income tax in 2011 based on the
offer to buy by Mr. Ayala? Explain your answer. (2012
BAR)
1. DEFINITION, NATURE, AND GENERAL PRINCIPLES

A: NO. Mr. Castillo is not liable for income tax in 2011
(2019 BAR)
because no income is realized by him during that year. Tax
liability for income tax attaches only if there is a gain
a) CRITERIA IN IMPOSING PHILIPPINE INCOME TAX realized resulting from a closed and complete transaction.
(Madrigal v. Rafferty, G.R. No. L- 12287, 07 Aug. 1918)
b) TYPES OF PHILIPPINE INCOME TAXES
Q: What is the “all event test”? Explain Briefly. (2010
BAR)
c) TAXABLE PERIOD
(2019 BAR)
A: The “all events test” is a test applied in the realization of
Q: Differentiate between a calendar year and a fiscal income and expense by an accrual-basic taxpayer. The test
year. (2019 BAR) requires (1) the fixing to the right to the income or liability
to pay; and (2) the availability of reasonably accurate
A: Calendar year means an accounting period of twelve determination of such income or liability, to warrant the
months ending on the last day of December. On the other inclusion of the income or expense the gross income or
hand, fiscal year means an accounting period of twelve deductions during the taxable year. (CIR v. Isabela Cultural
months ending on the last day of any month other than the Corporation, GR No. 172231, 12 Feb. 2007)
month of December. (Sec. 22(Q), NIRC)
(2) ECONOMIC BENEFIT TEST, DOCTRINE OF
Q: When is the deadline for the filing of a corporation’s PROPRIETARY INTEREST
final adjustment return for a calendar year? How about
for a fiscal year? (2019 BAR) (3) SEVERANCE TEST
A: For a calendar year, the final return should be filed on or d) TAX-FREE EXCHANGES
before the 15th day of April following the close of the (2019 BAR)
taxable year. For a fiscal year, the final return is filed on or
before the 15th day of the 4th month following the close of Q: B transferred his ownership over a 1,000-square
the taxable year. (Sec. 77, NIRC) meter commercial land and three-door apartment to
ABC Corp., a family corporation of which B is a
d) KINDS OF TAXPAYERS stockholder. The transfer was in exchange of 10,000
shares of stock of ABC Corp. As a result, B acquired 51%
ownership of ABC Corp., with all the shares of stock
2. INCOME
having the right to vote. B paid no tax on the exchange,
(2019, 2018, 2016, 2015, 2012, 2010 BAR)
maintaining that it is a tax avoidance scheme allowed
under the law. The Bureau of Internal Revenue, on the
a) DEFINITION AND NATURE other hand, insisted that B's alleged scheme amounted
to tax evasion.
b) WHEN INCOME IS TAXABLE
Should B pay taxes on the exchange? Explain. (2019
BAR)
c) TESTS IN DETERMINING WHETHER INCOME IS
EARNED FOR TAX PURPOSES
A: NO, B shall not pay taxes on the exchange. Sec. 40(C)(2)
(1) REALIZATION TEST of the Tax Code provides that no gain or loss shall be
(2012, 2010 BAR) recognized if property is transferred to a corporation by a
person in exchange for stocks in such corporation wherein
Q: Mr. Jose Castillo is a resident Filipino Citizen. He as a result of such exchange, such person, alone or together
purchased a parcel of land in Makati City in 1970 at a with others, not exceeding four, gains control of the
consideration of P1 million. In 2011, the land, which corporation. When B transferred the properties for shares
remained undeveloped and idle, had a fair market in ABC Corporation, he acquired control (51% of voting

2023 QuAMTO
QuAMTO (1987-2022)
shares) over the corporation, thus, the transaction shall not A: NO. Mr. J's income derived within the Philippines is
be subject to income tax, capital gains tax, and value added subject to a final tax of twenty five percent (25%) as a non-
tax. resident alien individual not engaged in trade or business in
the Philippines. (Sec. 25(8), NIRC, as amended) His stay in
e) SITUS OF INCOME TAXATION the Philippines in calendar year 2018 was only for an
(2019, 2018, 2016, 2015 BAR) aggregate period of five (5) months or less than the
requirement of "more than 180 days) in order to qualify
Q: JKL-Philippines is a domestic corporation affiliated him as having engaged in a trade or business in the
with JKL-Japan, a Japan-based information technology Philippines. (Sec. 25(A)(1), NIRC, as amended; Bar Q&A by J.
company with affiliates across the world. Mr. F is a Dimaampao, 2020)
Filipino engineer employed by JKLPhilippines. In
2018, Mr. F was sent to the Tokyo branch of JKL-Japan Q: Patrick is a successful businessman in the United
based on a contract entered into between the two (2) States and he is a sole proprietor of a supermarket
companies. Under the said contract, Mr. F would be which has a gross sales of $10 million and an annual
compensated by JKLPhilippines for the months spent income of $3million. He went to the Philippines on a
in the Philippines, and by JKL-Japan for months spent in visit and, in a party, he saw Atty. Agaton who boasts of
Japan. For the entirety of 2018, Mr. F spent ten (10) being a tax expert. Patrick asks Atty. Agaton: if he
months in the Tokyo branch. (Patrick) decides to reacquire his Philippine
citizenship under RA 9225, establish residence in this
On the other hand, Mr. J, a Japanese engineer employed country, and open a supermarket in Makati City, will
by JKL-Japan, was sent to Manila to work with JKL- the BIR tax him on the income he earns from his U.S.
Philippines as a technical consultant. Based on the business?
contract between the two (2) companies, Mr. J's annual
compensation would still be paid by JKL-Japan. If you were Atty. Agaton, what advice will you give
However, he would be paid additional compensation by Patrick? (2016 BAR)
JKL-Philippines for the months spent working as a
consultant. For 2018, Mr. J stayed in the Philippines for A: I will advise Patrick that once he re-acquires his
five (5) months. Philippine citizenship and establishes his residence in this
country, his income tax classification would then be a
In 2019, the Bureau of Internal Revenue (BIR) assessed ‘resident citizen’. A resident citizen is taxable on all his
JKL-Philippines for deficiency withholding taxes for income, whether derived within or without the Philippines;
both Mr. F and Mr. J for the year 2018. As to Mr. F, the accordingly, the income he earns from his business abroad
BIR argued that he is a resident citizen; hence, his will now be subject to the Philippine income tax, subject to
income tax should be based on his worldwide income. tax credits for foreign tax paid. (Sec. 23, NIRC)
As to Mr. J, the BIR argued that he is a resident alien;
hence, his income tax should be based on his income ALTERNATIVE ANSWER:
from sources within the Philippines at the schedular
rate under Sec. 24 (A)(2) of the Tax Code, as amended If Patrick becomes a dual citizen under R.A. No. 9225 in our
by Republic Act No. 10963, or the "Tax Reform for country, he shall be allowed to acquire real properties and
Acceleration and Inclusion" Law. (2019 BAR) engage himself in business here just like an ordinary
Filipino without renouncing his foreign citizenship. In
(a) Is the BIR correct in basing its income tax addition, his income abroad will not be taxed here. These
assessment on Mr. F's worldwide income? Explain. are among the incentives we have extended to former
Filipinos under the Dual Citizenship Law so that they will be
A: NO. Mr. F is considered as a non-resident citizen for the encouraged to come home and invest their money in our
taxable period 2018. Having stayed in Tokyo for ten (10) country.
months (more than 183 days) and rendered services
therein pursuant to an employment contract requiring him Q: Indicate whether each of the following individuals is
to be present abroad most of the time. Mr. F should be taxed required or not required to file an income tax return:
as a non-resident citizen. As such, he is subject to tax only
for the income realized from Philippine sources and his (a) Filipino citizen residing outside the Philippines on
income "without" pertaining to his compensation for his income from sources outside the Philippines.
services rendered in Tokyo, is not subject to Philippine
income tax. (Sec. 23, NIRC; Sec. 2, RR No.1-79; Bar Q&A by J. A: NOT REQUIRED. The income of a non-resident Filipino
Dimaampao, 2020) citizen are taxable only on income sourced within the
Philippines. Accordingly, his income from sources outside
(b) Is the BIR correct in basing its income tax the Philippines is exempt from income tax. (Sec. 51A (1)(b),
assessment on Mr. J's income within the Philippines NIRC)
at the schedular rate? Explain.
19
TAXATION LAW
(b) Resident alien on income derived from sources C) No, it was not her fault that the funds in excess
within the Philippines. of $1,000 were credited to her;
D) No, the funds in excess of $1,000 were in effect
A: REQUIRED. A resident alien is taxable only for income donated to her.
derived from sources within the Philippines. (Sec. 51(A)
(1)(c), NIRC) A: B) Yes, income is income regardless of the source. Sec.
32 of the NIRC defines gross income as all income derived
(c) Resident citizen earning purely compensation from whatever source. Consequently, the flow of wealth,
income from two employers within the Philippines, without any distinction as to the lawfulness of its source, is
whose income taxes have been correctly withheld. subject to income tax. In other words, the phrase “income
from whatever source” discloses a legislative policy to
A: REQUIRED. A resident citizen who is earning purely include all income not expressly exempted within the class
compensation income from two employers should file of taxable income under the law.
income tax return. If the compensation income is received
concurrently from two employers during the taxable year, Q: Explain briefly whether the following items are
the employee is not qualified for substituted filing. (Sec. taxable or non- taxable:
51(A)(2)(b), NIRC)
(a) Income from jueteng
(d) Resident citizen who falls under the classification
of minimum wage earners. xxx (2005 BAR)
A: NOT REQUIRED. Under the law, all minimum wage A: It is taxable. The law imposes a tax on income from any
earners in the private and public sector shall be exempt source whatever which means that it includes income
from payment of income tax. (Sec. 51(A)(2)(d), NIRC, in whether legal or illegal. (Sec. 32(A), NIRC)
relation to R.A. No. 9504)
c) GROSS INCOME VS. NET INCOME VS. TAXABLE
(e) An individual whose sole income has been INCOME
subjected to final withholding tax. (2015 BAR)
d) SOURCES OF INCOME SUBJECT TO TAX
A: NOT REQUIRED. Under the law, an individual whose (2019, 2018, 2016, 2015, 2014, 2008, 2007, 2005
sole income has been subjected of final withholding tax 2003, 2001, 2000, 1996, 1995, 1994, 1993, 1991 BAR)
pursuant to Sec. 57(A), NIRC, need not file a return. What he
received is a tax-paid income. (Sec. 51A (2)(c), NIRC) (1) COMPENSATION INCOME
(2014 BAR)
3. GROSS INCOME
(2019, 2018, 2016, 2015, 2014, 2013, 2012, 2008, Q: Mr. Gipit borrowed from Mr. Maunawain
2007, 2005, 2003, 2001, 2000, 1996, 1995, 1994, 1993, P100,000.00, payable in five (5) equal monthly
1991 BAR) installments. Before the first installment became due,
Mr. Gipit rendered general cleaning services in the
entire office building of Mr. Maunawain, and as
a) DEFINITION
compensation therefor, Mr. Maunawain cancelled the
indebtedness of Mr. Gipit up to the amount of
b) CONCEPT OF INCOME FROM WHATEVER SOURCE P75,000.00. Mr. Gipit claims that the cancellation of his
DERIVED indebtedness cannot be considered as gain on his part
(2013, 2005 BAR)
which must be subject to income tax, because
according to him, he did not actually receive payment
Q: In 2010, Mr. Platon sent his sister Helen $1, 000 via a
from Mr. Maunawain or the general cleaning services.
telegraphic transfer through the Bank of PI. The bank's
remittance clerk made a mistake and credited Helen
Is Mr. Gipit correct? Explain. (2014 BAR)
with $1,000,000 which she promptly withdrew. The
bank demanded the return of the mistakenly credited
A: NO. Sec. 50 of RR No. 02-40, otherwise known as Income
excess, but Helen refused. The BIR entered the picture
Tax Regulations, provides that if a debtor performs services
and investigated Helen.
for a creditor who cancels the debt in consideration for
such services, the debtor realizes income to that amount as
Would the BIR be correct if it determines that Helen
compensation for his services. In the given problem, the
earned taxable income under these facts? (2013 BAR)
cancellation of Mr. Gipit’s indebtedness up to the amount of
P75,000.00 gave rise to compensation income subject to
A) No, she had no income because she had no right
income tax since Mr. Maunawain condoned such amount as
to the mistakenly credited funds;
B) Yes, income is income regardless of the source;

2023 QuAMTO
QuAMTO (1987-2022)
consideration for the general cleaning services rendered by assignment was without any consideration; and that
Mr. Gipit. the share was placed in his name because the Club
required it to be done. In 2013, the value of the share
(2) FRINGE BENEFITS increased to P800,000.00.
(2019, 2016, 2003, 2001, 1995, 1993, 1991 BAR)
Is the said assignment a “gift” and, therefore, subject to
Q: As a way to augment the income of the employees of gift tax? Explain. (2016 BAR)
DEF, Inc., a private corporation, the management
decided to grant a special stipend of P50,000.00 for the A: NO. The assignments are not gratuitous, and there is no
first vacation leave that any employee takes during a intent to transfer ownership hence not subject to gift tax.
given calendar year. In addition, the senior engineers The value of the right to avail of the privileges attendant to
were also given housing inside the factory compound Mabuhay Golf Club, Inc. Membership Certificate is due to
for the purpose of ensuring that there are available David’s merits or services as a computer consultant. It is a
engineers within the premises every time there is a fringe benefit taxable to the employer. (Sec. 33(B)(6), NIRC)
breakdown in the factory machineries and equipment.
Q: Mapagbigay Corporation grants all its employees
(a) Is the special stipend part of the taxable income of (rank and file, supervisors, and managers) 5% discount
the employees receiving the same? If so, what tax is of the purchase price of its products. During an audit
applicable and what is the tax rate? Explain. investigation, the BIR assessed the company the
corresponding tax on the amount equivalent to the
A: The special stipend is a taxable income of an employee. If courtesy discount received by all the employees,
the individual is a rank-and- file employee, the same forms contending that the courtesy discount is considered as
part of his compensation income and it is subject to income additional compensation for the rank-and-file
tax (or withholding tax on compensation) at a schedular employees and additional fringe benefit for the
rate. However, if the stipend allowance, if lumped-up with supervisors and managers. In its defense, the company
13th month pay and other benefits, the aggregate amount argues that the discount given to the rank-and-file
do not exceed the exclusion threshold of P90,000.00, the employees is a de minimis benefit and not subject to
same shall be excluded from gross income and not subject tax. As to its managerial employees, it contends that the
to income tax. discount is nothing more than a privilege and its
availment is restricted. Is the BIR assessment correct?
If the employee is not a rank-and-file employee (but a Explain. (2016 BAR)
managerial or supervisory), the same is subject to fringe
benefits tax or final tax at 35% based on the grossed-up A: NO. The courtesy discounts given to rank and file
monetary value of the special stipend. (Sec. 33, NIRC, as employees are considered “de minimis benefits” falling
amended) under the category of other facilities and privileges
furnished or offered by an employer to his employees which
(b) Is the cash equivalent value of the housing facilities are of relatively small value intended to promote the health,
received by the senior engineers subject to fringe goodwill, contentment, or efficiency of the employee. These
benefits tax? Explain. (2019 BAR) benefits are not considered as compensation subject to
A: NO, the cash equivalent value of the housing facilities income tax and consequently to the withholding tax.
inside the factory granted to the senior engineers are not (Sec.2.78.1, RR No. 10-2008) If these “de minimis benefits”
considered as fringe benefits subject to tax. The housing are furnished to supervisors and managers, the same are
facility is furnished by the employer for his convenience or also exempt from the fringe benefits tax. (RR No. 3-98; Sec.
advantage because it is furnished to ensure that the senior 33, NIRC)
engineers are always available to attend to possible
breakdown of machineries and equipment. Benefits which ALTERNATIVE ANSWER:
are granted for the convenience or advantage of the
employer are exempt from the fringe benefits tax. (Sec. YES, the BIR assessment is correct. De minimis benefits are
2.33(A), RR No. 03-98 implementing Sec. 33, NIRC) benefits of relatively small values provided by the
employers to the employee on top of the basic
Q: In 2011, Solar Computer Corporation (Solar) compensation intended for the general welfare of the
purchased a proprietary membership share covered by employees. It is considered exempt from income tax on
Membership certificate No. 8 from the Mabuhay Golf compensation as well as from fringe benefit tax, provided it
Club, Inc. for P500, 000.00. On December 27, 2012, it does not exceed P10,000 per employee per taxable year.
transferred the same to David, its American consultant, Tax exemption is not strictly against the taxpayer. The
to enable him to avail of the facilities of the Club. David discount in not listed among the benefits under the tax code
executed a Deed of Declaration of Trust and and RR 11-2018, and thus cannot be considered a tax
Assignment of Shares wherein he acknowledged the exempt benefit.
absolute ownership of Solar over the share; that the
21
TAXATION LAW
Q: A “fringe benefit” is defined as being any good, Concerned about the capital gains tax that will be due
service or other benefit furnished or granted in cash or on the sale of their house, Mr. H approaches you as a
in kind by an employer to an individual employee. friend for advice if it is possible for the sale of their
house to be exempted from capital gains tax and the
Would it be the employer or the employee who is legally conditions they must comply with to avail themselves
required to pay an income tax on it? Explain. (2003 of said exemption. (2015 BAR)
BAR)
A: I would advise Mr. H that he may be exempted from the
A: It is the employer who is legally required to pay an payment of the capital gains tax on the sale or disposition of
income tax on the fringe benefit. The fringe benefit tax is the house and lot where his family lives because the sale of
imposed as a final withholding tax placing the legal principal residence by a natural person is exempt provided
obligation to remit the tax on the employer, such that, if the the following conditions are complied with:
tax is not paid the legal recourse of the BIR is to go after the
employer. Any amount or value received by the employee 1. The proceeds of the sale is fully utilized in acquiring or
as a fringe benefit is considered tax paid hence, net of the construction new principal residence within 18
income tax due thereon. The person who is legally required calendar months from the date of the sale or
to pay (same as statutory incidence as distinguished from disposition;
economic incidence) is that person who, in case of non-
payment, can be legally demanded to pay the tax. 2. The historical cost or adjusted basis of the real property
sold or disposed will be carried over to the new
(3) PROFESSIONAL INCOME principal residence built or acquired;
(4) INCOME FROM BUSINESS 3. The Commissioner has been duly notified, through a
prescribed return, within 30 days from the date of sale
(5) INCOME FROM DEALINGS IN PROPERTY or disposition of the person’s intention to avail of the
(2019, 2015, 2008, 2003, 1994, 1991 BAR) tax exemption; and
Q: GHI, Inc. is a corporation authorized to engage in the 4. The exemption was availed only once every ten (10)
business of manufacturing ultra- high density years. (Sec. 24(D)(2), NIRC)
microprocessor unit packages. After its registration on
July 5, 2005, GHI, Inc. constructed buildings and Q: In January 1970, Juan Gonzales bought one hectare
purchased machineries and equipment. As of of agricultural land in Laguna for P 100, 000. This
December 31, 2005, the total cost of the machineries property has a current fair market value of P 10 million
and equipment amounted to P250,000,000.00. in view of the construction of a concrete road traversing
However, GHI, Inc. failed to commence operations. Its the property. Juan Gonzales agreed to exchange his
factory was temporarily closed effective September 15, agricultural lot in Laguna for a one-half hectare
2010. On October 1, 2010, it sold its machineries and residential property located in Batangas, with a fair
equipment to JKL Integrated for P300,000,000.00. market value of P10 million, owned by Alpha
Thereafter, GHI, Inc. was dissolved on November 30, Corporation, a domestic corporation engaged in the
2010. purchase and sale of real property. Alpha Corporation
acquired the property in 2007 for P9 million.
Is the sale of the machineries and equipment to JKL
Integrated subject to normal corporate income tax or (a) What is the nature of the real properties exchanged
capital gains tax? Explain. (2019 BAR) for tax purposes - capital asset or ordinary asset?
Explain.
A: The sale of machineries and equipment is subject to
normal corporate income tax and not to the capital gains A: The one-hectare agricultural land owned by Juan
tax. As explained by the Supreme Court in one case, the Gonzales is a capital asset because it is not a real property
capital gains tax of 6% imposed under Sec. 27(D)(5) of the used in trade or business. The one-half hectare residential
NIRC, as amended, is on the presumed gain from the sale of property owned by Alpha Corporation is an ordinary asset
a land and/or building only. (SMI-ED Philippines because the owner is engaged in the purchase and sale of
Technology, Inc. v. CIR, G.R. No. 175410, 12 Nov. 2014) real property.(Sec. 39, NIRC; RR No. 07-03)
Q: Mr. H decided to sell the house and lot wherein he (b) Is Juan Gonzales subject to income tax on the
and his family have lived for the past 10 years, hoping exchange of property? If so, what is the tax base and
to buy and move to a new house and lot closer to his rate? Explain.
children’s school.
A: YES. The tax base in a taxable disposition of a real
property classified as a capital asset is the higher between

2023 QuAMTO
QuAMTO (1987-2022)
two values: the fair market value of the property received 3. Property used in the trade or business of a character
in exchange and the fair market value of the property which is subject to the allowance for depreciation
exchanged. Since the fair market value of two properties are provided in Sec. 34(F) of the Tax Code; or
the same, the said fair market value should be taken as the
tax base which is P 10 million. The income tax rate is 6%. 4. Real property used in trade or business of the taxpayer.
(Sec. 24(D)(1), NIRC)
The statutory definition of “capital assets” practically
(c) Is Alpha Corporation subject to income tax on the excludes from its scope, it will be noted, all property held by
exchange of property? If so, what is the tax base and the taxpayer if used in connection with his trade or
rate? Explain. (2008 BAR) business.
A: YES. The gain from the exchange constitutes an item of Q: What is the rationale for the rule prohibiting the
gross income, and being a business income, it must be deduction of capital losses from ordinary gains?
reported in the annual income tax return of Alpha Explain. (2003 BAR)
Corporation. From the pertinent items of gross income,
deductions allowed by law from gross income can be A: It is to ensure that only costs or expenses incurred in
claimed to arrive at the net income which is the tax base for earning the income shall be deductible for income tax
the corporate income tax rate of 35%. (Secs. 27(A) & 31, purposes consonant with the requirement of the law that
NIRC) only necessary expenses are allowed as deductions from
gross income. The term “necessary expenses” presupposes
NOTE: That from January 1, 2009 to June 30, 2020 the tax that in order to be allowed as deduction, the expense must
rate is 30%. (R.A. No. 9337; R.A. No. 11534 – CREATE Act) be business connected, which is not the case insofar as
Starting July 1, 2020, the tax rate for Domestic Corporations capital losses are concerned. This is also the reason why all
in general is 25%, and the tax rate for Domestic nonbusiness connected expenses like personal, living and
Corporations classified as Micro, Small and Medium family expenses, are not allowed as deduction from gross
Enterprise, is 20%. (Sec. 27(A), NIRC as amended by R.A. No. income. (Sec. 36(A)(1), NIRC)
11534 – CREATE Act) For a corporation to be classified as
Micro, Small and Medium Enterprise, during the taxable ALTERNATIVE ANSWER:
year for which the tax is imposed, the net taxable income
does not exceed P5,000,000 and the total assets does not The prohibition of deduction of capital losses from ordinary
exceed P100,000,000, excluding land on which the gains is designed to forestall the shifting of deductions from
particular business entity’s office, plant, and equipment are an area subject to lower taxes to an area subject to higher
situated. taxes, thereby unnecessarily resulting in leakage of tax
revenues. Capital gains are generally taxed at a lower rate
Q: Distinguish a “capital asset" from an “ordinary to prevent, among others, the bunching of income in one
asset". (2003 BAR) taxable year which is a liberality in the law begotten from
motives of public policy (Rule on Holding Period). It stands
A: The term “capital asset” regards all properties not to reason therefore, that if the transaction results in loss, the
specifically excluded in the statutory definition of capital same should be allowed only from and to the extent of
assets, the profits or loss on the sale or the exchange of capital gains and not to be deducted from ordinary gains
which are treated as capital gains or capital losses. which are subject to a higher rate of income tax.
Conversely, all those properties specifically excluded are
considered as ordinary assets and the profits or losses Q: In 1990, Mr. Naval bought a lot for P1,000,000.00 in
realized must have to be treated as ordinary gains or a subdivision with the intention of building his
ordinary losses. Accordingly, “capital assets” includes residence on it. In 1994, he abandoned his plan to build
property held by the taxpayer whether or not connected his residence on it because the surrounding area
with his trade or business, but the term does not include any became a depressed area and land values in the
of the following, which are consequently considered subdivision went down; instead, he sold it for
“ordinary assets:” P800,000.00. At the time of the sale, the zonal value was
P500,000.00.
1. Stock in trade of the taxpayer or other property of a
kind which would properly be (a) Is the land a capital asset or an ordinary asset?
included in the inventory of the taxpayer if Explain.
on hand at the close of the taxable year;
A: The land is a capital asset because it is neither for sale in
2. Property held by the taxpayer primarily for sale to the ordinary course of business nor a property used in the
customers in the ordinary course of trade or business; trade or business of the taxpayer. (Sec. 33, NIRC)
23
TAXATION LAW
(b) Is there any income tax due on the sale? Explain. large Filipino communities. Each store abroad was in
(1994 BAR) the name of a corporation organized under the laws of
the state or country in which the store was located. All
A: YES. Mr. Naval is liable to the 6% capital gains tax stores had identical capital structures: 60% of the
imposed under the Tax Code based on the gross selling outstanding capital stock was owned by Karina's, Inc.,
price of P800,000.00 which is an amount higher than the while the remaining 40% was owned directly by the
zonal value. spouses Konstantino and Korina.
Q: Cebu Development Inc. (CDI) has an authorized Beginning 2017, in light of the immigration policy
capital stock of P5,000,000.00 divided into 50,000 enunciated by US President Donald Trump, many
shares with a par value of One Hundred Pesos (P Filipinos have since returned to the Philippines and the
100.00) per share. Of the authorized capital stock, number of Filipino immigrants in the US dropped
twenty-five thousand (25,000) shares have been significantly. On account of these developments,
subscribed. Mr. Juan Legaspi is a stockholder of CDI Konstantino and Karina decided to sell their shares of
where he has subscription amounting to 13,000 shares. stock in the five (5) US corporations that were doing
To fully pay his unpaid subscription in the amount of poorly in gross sales. The spouses' lawyer-friend
P950,000.00, Mr. Legaspi transferred to the advised them that they will be taxed 5% on the first
corporation a parcel of land that he owns by virtue of a P100,000 net capital gain, and 10% on the net capital
Deed of Assignment. Upon investigation, the BIR gain in excess of P 100,000.
discovered that Mr. Legaspi acquired said property for
only P500,000.00. Is Mr. Legaspi liable for any taxable Is the lawyer correct? If not, how should the spouses
gain? (1991 BAR) Konstantino and Karina be taxed on the sale of their
shares? (2018 BAR)
A: The transfer by Mr. Legaspi to the corporation of the
parcel of land in payment of his unpaid subscription did not A: The lawyer’s advice is wrong. The capital gains tax of 5%
increase his stockholdings in the corporation. It cannot be for the first P100,000 net capital gain, and 10% on the net
said that he acquired control of the corporation by virtue of capital gain in excess of P100,000 applies only to the net
the transfer of the land. His percentage of stockholdings in capital gains realized from the sale, barter, exchange or
the capital stock of the corporation remains the same after other disposition of shares of stock in a domestic
the transfer as before. Therefore, Mr. Legaspi derived corporation. (Sec. 24(C), NIRC) Since the shares of stock sold
taxable gain for his economic gain which was realized by are shares of foreign corporations held as capital assets, the
virtue of the exchange of the land for the liability for the recognized portion of the capital gain realized from the sale
subscription. must be reported as part of their gross income in their
income tax returns where the taxable income will be subject
ALTERNATIVE ANSWER: to the graduated income tax rates for individuals. (Sec.
24(A)(1)(a), in relation to Sec. 39, NIRC)
Mr. Legaspi is not liable for any taxable gain. The
transaction amounted to an exchange of shares of property NOTE: Starting January 1, 2018, a final tax rate of 15% is
for shares of stock as a result of which the property imposed upon the net capital gains realized during the
transferor acquired control of the corporation. The 13,000 taxable year from the sale, barter, exchange, or other
shares of stock acquired in exchange of property was more disposition of shares of stock in a domestic corporation,
than fifty percent (50%) of the total subscribed capital stock except shares sold, or disposed of through the stock
of Cebu Development, Inc. (CDI) that qualified the exchange. (Sec. 24(C), NIRC, as amended by TRAIN Law)
transaction as a tax-exempt under the provisions of Sec.
40(C)(2) of the NIRC, as amended by R.A. No. 8424. Q: BBB, Inc., a domestic corporation, enjoyed a
particularly profitable year in 2014. In June 2015, its
(6) PASSIVE INVESTMENT INCOME Board of Directors approved the distribution of cash
(2018, 2015, 1994 BAR) dividend to its stockholders. BBB, Inc. has individual
and corporate stockholders.
Q: Spouses Konstantino and Karina are Filipino citizens
and are principal shareholders of a restaurant chain, What is the tax treatment of the cash dividends
Karina's, Inc. The restaurant's principal office is in received from BBB, Inc. by the following stockholders:
Makati City, Philippines.
(a) A resident citizen
Karina's became so popular as a Filipino restaurant
that the owners decided to expand its operations A: A final withholding tax for ten percent (10%) shall be
overseas. During the period 2010-2015 alone, it opened imposed upon the cash dividends actually or constructively
ten (10) stores throughout North America and five (5) received by a resident citizen from BBB, Inc. (Sec. 24(B)(2),
stores in various parts of Europe where there were NIRC)

2023 QuAMTO
QuAMTO (1987-2022)
(b) Non-resident alien engaged in trade or business (7) ANNUITIES, PROCEEDS FOR LIFE INSURANCE OR
OTHER TYPES OF INSURANCE
A: A final withholding tax of twenty percent (20%) shall be (1991 BAR)
imposed upon the cash dividends actually or constructively
received by a non-resident alien engaged in trade or Q: Born of a poor family on 14 February 1944. Mario
business from BBB, Inc. (Sec. 25(A)(2), NIRC) worked his way through college. After working for
more than 2 years in X Manufacturing Corporation,
(c) Non-resident alien not engaged in trade or business Mario decided to retire and avail of the benefits under
the very reasonable retirement plan maintained by his
A: A final withholding tax equal to twenty- five percent employer. He planned to invest whatever retirement
(25%) of the entire income received from all sources within benefits he would receive in a business that will
the Philippines, including the cash dividends received from provide his employer with the needed raw materials.
BBB, Inc. (Sec. 25(B), NIRC) On the day of his retirement on 30 April 1985, he
received P400,000.00 as retirement benefit. In
(d) Domestic corporation addition, his endowment insurance policy, for which he
was paying an annual premium of P1,520.00 since
A: Dividends received by a domestic corporation from 1965 also matured. He was then paid the face value of
another domestic corporation, such as BBB, Inc., shall not his insurance policy in the amount of P50,000.00.
be subject to tax. (Sec. 27(D)(4), NIRC)
Is his P50,000.00 insurance proceeds exempt from
(e) Non-resident foreign corporation (2015 BAR) income taxation? (1991 BAR)
A: Dividends received by a non-resident foreign A: The P50,000.00 insurance proceeds is not totally exempt
corporation from a domestic corporation are generally from income tax. The excluded amount is only that portion
subject to an income tax of 30% to be withheld at source. which corresponds to the premiums that he had paid since
(Sec. 28(B)(1), NIRC) However, a final withholding tax of 1965. At the rate of P1,520.00 per year multiplied by
fifteen percent (15%) is imposed on the amount of cash twenty (20) years which was the period of the policy, he
dividends received from a domestic corporation like BBB, must have paid a total of P30,400.00. Accordingly, he will
Inc. if the tax sparing rule applies. (Sec. 28(B)(5)(b), NIRC) be subject to report as taxable income the amount of
Pursuant to this rule, the lower rate of tax would apply if the P19,600.00.
country in which the non- resident foreign corporation is
domiciled would allow as tax credit against the tax due from (8) PRIZES AND AWARDS
it, taxes deemed paid in the Philippines of 15% representing (2019, 2015 BAR)
the difference between the regular income tax rate and the
preferential rate. Q: Mr. D, a Filipino amateur boxer, joined an Olympic
qualifying tournament held in Las Vegas, USA, where he
NOTE: Starting July 1, 2020, the income tax rate for non-
won the gold medal. Pleased with Mr. D's
resident foreign corporations is 25%. (Sec. 28(B)(1), as
accomplishment, the Philippine Government, through
amended by R.A. No. 11534)
the Philippine Olympic Committee, awarded him a cash
Q: What are disguised dividends in income taxation?
prize amounting to P1,000,000.00. Upon receipt of the
Give an example. (1994 BAR)
funds, he went to a casino in Pasay City and won the
P30,000,000.00 jackpot in the slot machine. The next
A: Disguised dividends are those income payments made by
day, he went to a nearby Lotto outlet and bought a Lotto
a domestic corporation, which is a subsidiary of a non-
ticket which won him a cash prize of P5,000.00.
resident foreign corporation, to the latter ostensibly for
services rendered by the latter to the former, but which
Which of the above sums of money is/are subject to
payments are disproportionately larger than the actual
income tax? Explain. (2019 BAR)
value of the services rendered. In such case, the amount
over and above the true value of the service rendered shall
A: Only the amount of P30,000,000.00, constituting the
be treated as a dividend and shall be subjected to the
winnings from casino, is subject to income tax, specifically
corresponding tax on Philippine sourced gross income, or
to a final tax at the rate of 20%. (Sec. 24(B)(1), NIRC, as
such other preferential rate as may be provided under a
amended)
corresponding Tax Treaty. An example is royalty payment
under a corresponding licensing agreement.
The cash prize of P1,000,000 is exempt from taxation under
Sec. 32(B)(7)(d) of the NIRC, as amended, considering that
it is in the nature of a prize granted to Mr. D as an athlete
after winning an international sports competition, i.e., an
Olympic qualifying tournament, sanctioned by his national
sports association.
25
TAXATION LAW
Meanwhile, under Sec. 24(B)(1) of the NIRC, the winnings Rule on the taxability of the separation pay and
amounting to P10,000 or less from Lotto shall be exempt indemnity that will be received by the affected
from tax, therefore the Lotto prize of P5,000 is not subject employees as the result of their separation from
to income tax. (NIRC, Sec. 24(B)(1), amended by TRAIN Law) service. Explain your answer. (2017 BAR)
Q: Mr. A, a citizen and resident of the Philippines is a A: It shall be tax-exempt. Sec. 30(B)(6)(b) of the 1997 NIRC,
professional boxer. In a professional boxing match held as amended, provides that any amount received by an
in 2013, he won prize money in United States (US) official or employee or by his heirs from the employer as a
dollars equivalent to P300,000.00. consequence of separation of such official or employee from
the service of the employer because of death, sickness, or
(a) Is the prize money paid to and received by Mr. A in other physical disability or for any cause beyond the control
the US taxable in the Philippines? Why? of the said official or employee shall be exempt from
taxation.
A: YES. Under the Tax Code, the income within and without
of a resident citizen is taxable. Since Mr. A is a resident Q: Z is a Filipino immigrant living in the United States
Filipino citizen, his income worldwide is taxable in the for more than 10 years. He is retired and he came back
Philippines. (Sec. 23(A)(1), NIRC) to the Philippines as a balikbayan. Every time he comes
to the Philippines, he stays here for about a month. He
(b) May Mr. A’s prize money qualify as an exclusion regularly receives a pension from his former employer
from his gross income? Why? in the United States, amounting to US$1,000 a month.
While in the Philippines, with his pension pay from his
A: NO. Under the law, all prizes and awards granted to former employer, he purchased three condominium
athletes in local and international sports competitions and units in Makati which he is renting out for P15,000 a
tournaments whether held in the Philippines or abroad and month each.
sanctioned by their national sports associations are
excluded from gross income. The exclusion find application Does the US$1,000 pension become taxable because he
only to amateur athletes where the prize was given in an is now residing in the Philippines? Reason briefly.
event sanctioned by the appropriate national sports (2007 BAR)
association affiliated with the Philippine Olympic
Committee and not to professional athletes like Mr. A. A: NO. The provisions of any existing law to the contrary
Therefore, the prize money would not qualify as an notwithstanding, social security benefits, retirement
exclusion from Mr. A’s gross income. (Sec. 32(B)(7)(d), gratuities, pensions and other similar benefits received by
NIRC) a resident citizen of the Philippines, such as Z, from a
foreign private institution, is excluded from income
(c) The US already imposed and withheld income taxes taxation. (Sec. 32(B)(6)(c), NIRC)
from Mr. A’s prize money. How may Mr. A use or
apply the income taxes he paid on his prize money Q: Mr. Javier is a non-resident senior citizen. He
to the US when he computes his income tax liability receives a monthly pension from the GSIS which he
in the Philippines for 2013? (2015 BAR) deposits with the PNB-Makati Branch.
A: The income taxes withheld and paid to the US Is he exempt from income tax and therefore not
government maybe claimed by Mr. A, either as a deduction required to file an income tax return? (2000 BAR)
from his gross income (Sec. 34(C)(1)(b), NIRC) or as a tax A: Mr. Javier is exempt from income tax on his monthly GSIS
credit (Sec. 34(C)(3)(a), NIRC) from the income tax due pension, but not on the interest income that might accrue
when he computes his Philippine income tax liability for on the pensions deposited with PNB which are subject to
taxable year 2013. final withholding tax. (Sec. 32(B)(6)(f), NIRC)
(9) PENSIONS, RETIREMENT BENEFIT OF SEPARATION Consequently, since Mr. Javier’s sole taxable income would
PAY have been subjected to a final withholding tax, he is not
(2017, 2007, 2000, 1996 BAR) required anymore to file an income tax return. (Sec.
51(A)(2)(c), NIRC)
Q: The Board of Directors of Sumo Corporation, a
company primarily engaged in the business of Q: Under what conditions are retirement benefits
marketing and distributing pest control products, received by officials and employees of private firms
approved the partial cessation of its commercial excluded from gross income and exempt from taxation?
operations, resulting in the separation of 32 regular (2000 BAR)
employees. Only half of the affected employees were
notified of the board resolution. A: Retirement benefits received under R.A. No. 7641 and
those received by officials and employees of private firms,

2023 QuAMTO
QuAMTO (1987-2022)
whether, individual or corporate, in accordance with the A: NO. The commutation of leave credits, more commonly
employer’s reasonable private benefit plan approved by the known as terminal leave pay, i.e., the cash equivalent of
BIR, are excluded from gross income and exempt from accumulated vacation and sick leave credits given to an
income taxation if the retiring official or employee was: officer or employee who retires or separated from the
service through no fault of his own, is exempt from income
1. In service of same employer for at least 10 years; tax. (BIR Ruling 238-91; Commissioner v. CA, GR No. 96016,
2. Not less than fifty years of age at time of retirement; 17 Oct. 1991)
3. Availed of the benefit of exclusion only once (Sec.
32(B)(6)(a), NIRC); and (10) INCOME FROM ANY SOURCE
4. The retiring official or employee should not have (2005 BAR)
previously availed of the privilege under the
retirement plan of the same or another employer (Sec. Q: Explain briefly whether the following items are
2.78(B)(1), RR. No. 02-98) taxable or non- taxable:
Q: X, an employee of ABC Corporation died. ABC (a) Income from jueteng

Corporation gave X’s widow an amount equivalent to
X’s salary for one year. xxx (2005 BAR)
Is the amount considered taxable income to the widow? A: It is taxable. The law imposes a tax on income from any
Why? (1996 BAR) source whatever which means that it includes income
whether legal or illegal. (Sec. 32(A), NIRC)
A: NO. The amount received by the widow from the
decedent’s employer may either be a gift or a separation e) EXCLUSIONS
benefit on account of death. Both are exclusions from gross (2015, 2014, 2013, 2012, 2011 BAR)
income pursuant to provisions of Sec. 32(B)(6)(b) of the
NIRC, as amended. Q: Mr. A, a citizen and resident of the Philippines, is a
professional boxer. In a professional boxing match held
ALTERNATIVE ANSWER: in 2013, he won prize money in United States (US)
dollars equivalent to P300,000,000.
NO. Since the amount was given to the widow and not to
the estate, it becomes obvious that the amount is more of a May Mr. A’s prize money qualify as an exclusion from
gift. In one U.S. tax case (Estate of Hellstrom vs. his gross income? Why? (2015 BAR)
Commissioner, 24 T.C. 916), it was held that payments to the
widow of the president of a corporation of the amount the A: NO. Under the law, all prizes and awards granted to
president would have received in salary if he lived out the athletes in local and international sports competitions and
year constituted a gift and not an income. tournaments whether held in the Philippines or abroad and
sanctioned by their national sports associations are
The controlling facts which would lead to the conclusion excluded from gross income. The exclusion find application
that the amount received by the widow is not an income are only to amateur athletes where the prize was given in an
as follows: event sanctioned by the appropriate national sports
association affiliated with the Philippine Olympic
1. the gift was made to the widow rather than the estate; Committee and not to professional athletes like Mr. A.
2. there was no obligation for the corporation to make Therefore, the prize money would not qualify as an
further payments to the deceased; exclusion from Mr. A’s gross income. (Sec. 32 B(7)(d), NIRC)
3. the widow had never worked for the corporation;
4. the corporation received no economic benefit; and Q: What are de minimis benefits and how are these
5. the deceased had been fully compensated for his taxed? Give three (3) examples of de minimis benefits.
services. (Estate of Sydney Carter vs. Commissioner, 453 (2015 BAR)
F. 2d 61, 2d Cir. 1971)
A: De minimis benefits are facilities and privileges
Q: A, an employee of the Court of Appeals, retired upon furnished or offered by an employer to his employees,
reaching the compulsory age of 65 years. Upon which are not considered as compensation subject to
compulsory retirement, A received the money value of income tax and consequently to withholding tax, if such
his accumulated leave credits in the amount of facilities or privileges are of relatively small value and are
P500,000.00. offered or furnished by the employer merely as means of
promoting the health, goodwill, contentment, or efficiency
Is said amount subject to tax? Explain. (1996 BAR) of his employees. If received by rank-and-file employees
they are exempt from income tax on wages; if received by
supervisory or managerial employees, they are exempt
27
TAXATION LAW
from the fringe benefits tax. (RR No. 2-98, as amended by RR A) She had a taxable income of PIOO,OOO since
No. 8-2000) income is income from whatever source;
B) She had no taxable income because it was a
The following shall be considered as de minimis benefits: donation;
C) She had taxable income since she made a profit;
1. Monetized unused vacation leave credits of private D) She had no taxable income since moral
employees not exceeding 10 days during the year; damages are compensatory.
2. Monetized value of vacation and sick leave credits paid
to government officials and employees; A: D) She had no taxable income since moral damages are
3. Medical cash allowance to dependents of employees, compensatory. (Sec. 32(B)(4), NIRC)
not exceeding P1,500 per employee per semester or
P250 per month; Q: All the items below are excluded from gross income,
4. Rice subsidy of P2,000 or 1 sack of 50 kg rice per month except: (2012 BAR)
amounting to not more than P2,000;
5. Uniform and clothing allowance not exceeding P6,000 A) Gain from sale of long-term bonds, debentures
per annum; and indebtedness;
6. Actual medical assistance not exceeding P10,000 per B) Value of property received by a person as
annum; donation or inheritance;
7. Laundry allowance not exceeding P300 per month; C) Retirement benefits received from the GSIS,
8. Employees achievement awards, e.g., for length of SSS, or accredited retirement plan;
service or safety achievement, which must be in the D) Separation pay received by a retiring employee
form of a tangible personal property other than cash or under a voluntary retirement program of the
gift certificate, with an annual monetary value not corporate employer.
exceeding P10,000 received by the employee under an
established written plan which does not discriminate in A: D) Separation pay received by a retiring employee under
favor of highly paid employees; a voluntary retirement program of the corporate employer.
9. Gifts given during Christmas and major anniversary (Sec. 32(B)(6), NIRC)
celebrations not exceeding P5,000 per employee per
annum; Q: The proceeds received under a life insurance
10. Daily meal allowance for overtime work and endowment contract is NOT considered part of gross
night/graveyard shift not exceeding 25% of the basic income: (2011 BAR)
minimum wage on a per region basis; and
11. Benefits received by an employee by virtue of a A) if it is so stated in the life insurance endowment
collective bargaining agreement (CBA) and policy;
productivity incentive schemes provided that the total B) if the price for the endowment policy was not
annual monetary value received from both CBA and fully paid;
productivity incentive schemes combined do not C) where payment is made as a result of the death
exceed P10,000 per employee per taxable year. (RR No. of the insured;
11-2018) D) where the beneficiary was not the one who took
out the endowment contract.
Q: Which of the following is an exclusion from gross
income? (2014 BAR) A: C) where payment is made as a result of the death of the
A) Salaries and wages; insured. (UPLC Suggested Answers)
B) Cash dividends;
C) Liquidating dividends after dissolution of a (1) TAXPAYERS WHO MAY AVAIL
corporation;
D) De minimis benefits; (2) DISTINGUISHED FROM DEDUCTIONS AND TAX
E) Embezzled money. CREDITS
(2019 BAR)
A: D) De minimis benefits (Sec. 33(C)(4); RR No. 3-98)
Q: Congress issued a law allowing a 20% discount on
Q: Aleta sued Boboy for breach of promise to marry. the purchases of senior citizens from, among others,
Boboy lost the case and duly paid the court's award that recreation centers. This 20% discount can then be used
included, among others, P100,000 as moral damages by the sellers as a "tax credit." At the initiative of BIR,
for the mental anguish Aleta suffered. however, R.A. No. 9257 was enacted amending the
treatment of the 20% discount as a "tax deduction."
Did Aleta earn a taxable income? (2013 BAR) Equity Cinema filed a petition with the RTC claiming
that R.A. No. 9257 is unconstitutional as it forcibly

2023 QuAMTO
QuAMTO (1987-2022)
deprives sellers a part of the price without just a) CONCEPT AS RETURN OF CAPITAL
compensation. (2007 BAR)
(a) What is the effect of converting the 20% Q: Antonia Santos, 30 years old, gainfully employed, is
discount from a "tax credit" to a "tax the sister of Edgardo Santos. She died in an airplane
deduction"? (2019 BAR) crash. Edgardo is a lawyer and he negotiated with the
airline company and insurance company, and they
A: The effect of converting the twenty percent (20%)
were able to agree a total settlement of P10 Million.
discount from a tax credit to a tax deduction is that the tax
This is what Antonia would have earned as somebody
benefit is effectively reduced. This is because a tax credit
who was gainfully employed. Edgardo was her only
reduces the tax liability, while a tax deduction merely
heir.
reduces the tax base (taxable income). (Bar Q&A by J.
Dimaampao, 2020)
Is the P10 Million subject to estate tax? Reason briefly.
Should Edgardo report the P10 Million as his income
4. DEDUCTIONS FROM GROSS INCOME being Antonia's only heir? Reason briefly. (2007 BAR)
(2019, 2017, 2016, 2009, 2007, 2006, 1993, 1990,
1989, 1988 BAR) A: NO. The P10M having been received for the loss of life, is
compensatory in nature, hence, is not considered as an
Q: Differentiate tax exclusions from tax deductions. income but a mere return of capital. Income is any wealth
(2019 BAR) which flows to the taxpayer other than a mere return of
capital. (Madrigal v. Rafferty, G.R. No. L-12287, 07 Aug. 1918)
A: Tax exclusions refer to income received or earned but is
not taxable as such since it is exempted by law or by treaty, Q: Noel Santos is a very bright computer science
thus, the same is not included in the computation of gross graduate. He was hired by Hewlett Packard. To entice
income. Meanwhile, tax deductions are those which are him to accept the offer of employment, he was offered
subtracted from gross income to arrive at the taxable the arrangement that part of his compensation would
income. be an insurance policy with a face value of P20 million.
The parents of Noel are made the beneficiaries of the
ALTERNATIVE ANSWER: insurance policy.
The distinction between tax exclusions and tax deductions Will the proceeds of the insurance form part of the
are as follows: income of the parents of Noel and be subject to income
tax? Reason briefly. (2007 BAR)
1. Tax exclusions refer to a flow of wealth to the taxpayer
which are not treated as part of gross income for A: NO. The proceeds of life insurance policies paid to the
purposes of computing the taxpayer’s taxable income, heirs or beneficiaries upon the death of the insured are not
due to the following reasons: included as part of the gross income of the recipient. (Sec.
32(B)(1), NIRC) There is no income realized because
a. It is exempted by the fundamental law; nothing flows to Noel’s parents other than a mere return of
b. It is exempted by statute; and capital, the capital being the life of the insured.
c. It does not come within the definition of income
(Sec. 61, RR No. 2); b) ITEMIZED DEDUCTIONS VS. OPTIONAL STANDARD
DEDUCTION
While tax deductions are the amounts which the law (2017, 2016, 2010, 2009, 2006, 2004, 1999, 1998
allows to be subtracted from gross income in order to 1996, 1993, 1990, 1989, 1988 BAR)
arrive at net income.
ORDINARY AND NECESSARY TRADE, BUSINESS, OR
2. Tax exclusions pertain to the computation of gross PROFESSIONAL EXPENSES
income, while deductions pertain to the computation (2017, 2016, 2009, 2006, 1993, 1990, 1989, 1988)
of net income; and
Q: Calvin Dela Pisa was a Permits and Licensing Officer
3. Tax exclusions are something received or earned by (rank-and-file) of Sta. Portia Realty Corporation
the taxpayer which do not form part of gross income, (SPRC). He invited the Regional Director of the Housing
while deductions are something spent or paid in and Land Use Regulatory Board (HLURB) to lunch at the
earning gross income. 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
29
TAXATION LAW
venture with SPRC for the construction of a residential for possible investment in the condominium units and
condominium unit in Cainta, Rizal. subdivision lots of Golden Dragon. After a tour of the
Calvin incurred expenses for the lunch and breakfast properties for sale, the investors were wined and dined
meetings he had with the Regional Director of HLURB by Peter at the posh Conrad's Hotel at the cost of
and the prospective client, respectively. The expenses P150,000.00. Afterward, the investors were brought to
were duly supported by official receipts issued in his a party in a videoke club which cost the company
name. At month's end, he requested the reimbursement P200,000.00 for food and drinks, and the amount of
of his expenses, and SPRC granted his request. P80,000.00 as tips for business promotion officers.
Expenses at Conrad's Hotel and the videoke club were
(a) Can SPRC claim an allowable deduction for the receipted and submitted to support the deduction for
expenses incurred by Calvin? Explain your answer. representation and entertainment expenses.
A: SPRC cannot claim as a deduction, the amount spent for Decide if all the representation and entertainment
lunch in the meeting with the Regional Director of HLURB. expenses claimed by Golden Dragon are deductible.
While the expense is business connected, the same is not Explain. (2016 BAR)
allowed as deduction because it was incurred as an indirect
payment to a government official which, not only amounts A: Not all of the representation and entertainment
to a violation of the Anti-Graft and Corrupt Practices Act, but expenses claimed by Golden Dragon are deductible. Only
also constitutes bribes, kickbacks and similar payments. those that are reasonable in amount and nature should be
(Sec. 34(A)(1)(c), NIRC) deductible. It should be noted that the total expenses are
P430,000.00 for the five (5) investors or P86,000.00 each.
With respect, however, to the amount spent for breakfast
with a prospective client, the same is deductible from gross I would allow only a deduction in such amounts as are
income of SPRC. The expense complies with the reasonable under the circumstances but in no case shall all
requirements for deductibility, namely: (a) the expense deductions for representation and entertainment
must be ordinary and necessary; (b) it must have been paid expenses, including those above enumerated, exceed
or incurred during the taxable year; (c) it must have been 0.50% of net sales. (Sec. 34(A)(1)(iv), NIRC; RR No. 10-2002;
paid or incurred in carrying on the trade or business of the Bar Q&A by Domondon, 2018)
taxpayer, and (d) it must be supported by receipts, records
or other pertinent papers. (CIR v. General Foods (Phils.), Inc., Q: Masarap Food Corporation (MFC) incurred
G.R. No. 143672, 24 Apr. 2003) substantial advertising expenses in order to protect its
brand franchise for one of its line products. In its
Sec. 34(A)(1)(b) of the NIRC, as amended, does not require income tax return, MFC included the advertising
that the substantiation be in the form of official receipts or expense as deduction from gross income, claiming it as
invoices issued in the name of the taxpayer claiming the an ordinary business expense. Is MFC correct? Explain.
expense. It must only be proven that there is a “direct (2009 BAR)
connection or relation of the expense being deducted to the
development, management, operation and/or conduct of A: NO. The protection of taxpayer’s brand franchise is
the trade, business or profession of the taxpayer”. analogous to the maintenance of goodwill or title to one’s
property which is in the nature of a capital expenditure. An
(b) Is the reimbursement received by Calvin from SPRC advertising expense, of such nature does not qualify as an
subject to tax? Explain your answer. (2017 BAR) ordinary business expense, because the benefit to be
enjoyed by the taxpayer goes beyond one taxable year. (CIR
A: NO. Any amount paid as reimbursements for v. General Foods Inc., G.R. No. 143672, 24 Apr. 2003)
representation incurred by the employee in the
performance of his duties is not compensation subject to LOSSES
withholding, if the following conditions are satisfied: (i) It is (2010, 1999, 1998, 1993)
for ordinary and necessary representation expense paid or
incurred by the employee in the pursuit of the trade, Q: A is a travelling salesman working full time for Nu
business or profession, and (ii) The employee is required to Skin Products. He receives a monthly salary plus 3%
account/liquidate for the such expense in accordance with commission on his sales in a Southern province where
the specific requirements of substantiation pursuant to Sec. he is based. He regularly uses his own car to maximize
34 of the NIRC, as amended. The amounts are actually spent his visits even to far flung areas. One fine day a group of
by the employee for the benefit of his employer, so no militants seized his car. He was notified the following
income is considered to have flowed to the employee. day by the police that the marines and the militants had
a bloody encounter, and his car was completely
Q: Peter is the Vice-President for Sales of Golden destroyed after a grenade hit it. A wants to file a claim
Dragon Realty Conglomerate, Inc. (Golden Dragon). A for casualty loss.
group of five (5) foreign investors visited the country

2023 QuAMTO
QuAMTO (1987-2022)
Explain the legal basis of your tax advice. (2010 BAR) 3. The same must not be sustained in a transaction
entered into between related parties;
A: A is not entitled to claim a casualty loss because all of his 4. The same must be actually charged off the books of
income partakes the nature of compensation income. accounts of the taxpayer as of the end of the taxable
Taxpayers earning compensation income arising from year;
personal services under an employer-employee
relationship are not allowed to claim deduction except that 5. The debt must be actually ascertained to be worthless
allowed under Sec. 34(M) referring only to the P2,400 and uncollectible during the taxable year;
health and/or hospitalization insurance premium;
perforce, the claim of casualty loss has no legal basis. (Sec. 6. The debts are uncollectible despite diligent effort
34(M), NIRC) exerted by the taxpayer (Sec. 34(E)(1), NIRC; Sec. 3, RR.
No. 05-99, reiterated in RR. No. 25-2002; Philippine
Q: Give the requisites for deductibility of a loss. (1998 Refining Corporation v. CA, G.R. No. 118794, 08 May
BAR) 1996); and
A: 7. Must have been reported as receivables in the income

1. They must be ordinary losses that are incurred by a tax return of the current or prior years. (Sec. 103, RR No.
taxable entity as a result of its day-to-day operations 2)
conducted for profit or otherwise, or casualty losses.
DEPRECIATION
2. They must have been losses that are actually (1999, 1998, 1989)
sustained during the taxable year.
Q: Explain if the following items are deductible from
3. Must not have been compensated for by insurance or gross income for income tax purposes. Disregard who
other forms of indemnity. is the person claiming the expense.
4. If they are casualty losses, they are of property (a) xxx

connected with trade, business, or profession and the
lose arises from fires, storms, shipwreck, or other (b) Depreciation of goodwill. (1999 BAR)
casualties, or from robbery, theft or embezzlement.
A: Depreciation for goodwill is not allowed as deduction
5. Must not have been claimed as a deduction for estate from gross income. While intangibles maybe allowed to be
tax purposes in the estate tax return. depreciated or amortized, it is only allowed to those
intangibles whose use in the business or trade is definitely
BAD DEBTS limited in duration. (Basilan Estates, Inc. v. CIR, G.R. No. L-
(2016, 2004, 1999) 22492, 05 Sept. 1967) Such is not the case with goodwill.
Q: Rakham operates the lending company that made a ALTERNATIVE ANSWER:

loan to Alfonso in the amount of P120,000.00 subject of
a promissory note which is due within one (1) year Depreciation of goodwill is allowed as a deduction from
from the note’s issuance. Three years after the loan gross income if the goodwill is acquired through capital
became due and upon information that Alfonso is outlay and is known from experience to be of value to the
nowhere to be found, Rakham asks you for advice on business for only a limited period. (Sec. 107, RR. No. 02-40)
how to treat the obligation as “bad debt.” In such case, the goodwill is allowed to be amortized over
its useful life to allow the deduction of the current portion
Discuss the requisites for deductibility of a “bad debt.” of the expense from gross income, thereby paving the way
(2016 BAR) for a proper matching of costs against revenues which is
an essential feature of the income tax system.
A: I shall advise Rakham to treat the obligation as “bad
debt” by deducting the same from his income tax return
and proving compliance with the following requisites for CHARITABLE AND OTHER CONTRIBUTIONS
the deductibility of a “bad debt”: (2018, 1998, 1996, 1993)
1. There must be an existing indebtedness due to the Q: Years ago, Krisanto bought a parcel of land in
taxpayer which must be valid and legally demandable; Muntinlupa for only P65,000. He donated the land to
his son, Kornelio, in 1980 when the property had a fair
2. The same must be connected with the taxpayer’s trade, market value of P75,000, and paid the corresponding
business or practice of profession; donor's tax.
Kornelio, in turn, sold the property in 2000 to Katrina
31
TAXATION LAW
for P6.5 million and paid the capital gains tax, 3. Not more than 10% (for individuals) of 5% (for
documentary stamp tax, local transfer tax, and other corporations) of the taxpayer’s taxable income to be
fees and charges. Katrina, in turn, donated the land to computed without including the contribution.
Klaret School last August 30, 2017 to be used as the site
for additional classrooms. No donor's tax was paid, Applying the above provisions of law to the case at bar, it is
because Katrina claimed that the donation was exempt clear therefore that only the P100,000.00 contribution of X
from taxation. At the time of the donation to Klaret to Filipinas Hospital for Crippled Children qualified as a
School, the land had a fair market value of P65 million. deductible contribution.
(a) xxx The NIRC expressly provides that the same must be actually
paid to a charitable organization to be deductible. Note that
(b) How much in deduction from gross income the law accorded no privilege to similar contributions
may Katrina claim on account of the said extended to private individuals. Hence, the P5,000.00
donation? (2018 BAR) contribution to the crippled girl cannot be claimed as a
deduction.
A: If Klaret School is an accredited ‘non-government
organization, having been established as a non-profit ALTERNATIVE ANSWER:
domestic corporation, organized, and operated exclusively
for educational purposes, the donation to it as a qualified The P100,000.00 donation may properly be deducted from
donee-institution is deductible in full. (Sec. 34(H)(2)(c), X’s gross income, but not the P5,000.00 donated to the
NIRC) The deduction from gross income shall be the crippled girl, as charitable and other contributions that
acquisition cost of said property by the donor which is P6.5 may be deducted from taxable income do not contemplate
million. (Sec. 34(H)(3), NIRC) those given to individuals. While it may be that X’s son is a
patient in the hospital, it cannot be said that part of its net
ALTERNATIVE ANSWER: income inures to the benefit of X as to be disallowed as a
deduction from taxable income.
Katrina may claim a deduction from her gross income an
amount not in excess of ten percent (10%) of her taxable Assuming X is a self-employed individual, he may not
income derived from trade, business, or profession as deduct the donations made because under Sec. 29 of the
computed price to the deduction of the value of the NIRC as amended by R.A. No. 7496 better known as Self-
donation made to Klaret School, and other charitable Employed and Professionals Engaged in the Practice of
contributions that may have been made by Katrina during their Profession (SNITS), only contribution to the
the taxable year, after compliance with the substantiation government or to an accredited relief organization for the
requirements. (Sec. 34(H), NIRC) rehabilitation of calamity-stricken areas declared by the
President may be deducted for income tax purposes.
Q: The Filipinas Hospital for Crippled Children is a Clearly, the donees do not qualify as relief organizations.
charitable organization. X visited the hospital, on his
birthday, as was his custom. He gave P100,000.00 to Assuming X is receiving purely compensation income, he
the hospital and P5,000.00 to a crippled girl whom he can only deduct from gross compensation income premium
particularly pitied. A crippled son of X is in the on Health and/or Hospitalization Insurance. (Sec. 34(M),
hospital as one of its patients. X wants to exclude both NIRC)
the P100,000.00 and the P5,000.00 from his gross
income. NOTE: Personal exemption, additional personal
exemption, and special additional personal exemption have
Discuss. (1993 BAR) been repealed by Sec. 12 of R.A. No. 10963 – TRAIN Law.
A: Under the National Internal Revenue Code, charitable OPTIONAL STANDARD DEDUCTION
contributions to be deductible must be: (2015, 2009)
1. Actually paid or made to domestic corporations or Q: In 2012, Dr. K decided to return to his hometown to
associations organized and operated exclusively for start his own practice. At the end of 2012, Dr. K found
religious, charitable, scientific, youth and sports that he earned gross professional income in the
development, cultural or educational purposes or for amount of P1,000,000.00. While he incurred expenses
rehabilitation of veterans or to social welfare amounting to P560,000.00 constituting mostly of his
institutions no part of which inures to the benefit of office space rent, utilities, and miscellaneous expenses
any private individual; related to his medical practice. However, to Dr. K’s
dismay, only P320,000.00 of his expenses were duly
2. Made within the taxable year; and covered by receipts.

2023 QuAMTO
QuAMTO (1987-2022)
What are the options available for Dr. K so he could A: YES. The premiums paid are ordinary and necessary
maximize the deductions from his gross income? (2015 business expenses of the company. They are allowed as a
BAR) deduction from gross income so long as the employer is not
a direct or indirect beneficiary under the policy of
A: In order to maximize his deductions, Dr. K may avail of insurance. (Sec. 36(A)(4), NIRC) Since the parents of the
the optional standard deduction (OSD) which is an amount employee were made the beneficiaries, the prohibition for
not exceeding forty percent (40%) of his gross sales or their deduction does not exist.
gross receipts. The OSD can be claimed without being
required to present proof or evidence of expenses paid or Q: OXY is the president and chief executive officer of
incurred by him. (Sec. 34(L), NIRC; RR. No. 16-08, as ADD Computers Inc. When OXY was asked to join the
amended) government service as director of a bureau under the
Department of Trade and Industry, he took a leave of
Q: Ernesto, a Filipino citizen and a practicing lawyer, absence from ADD. Believing that its business outlook,
filed his income tax return for 2007 claiming optional goodwill and opportunities improved with OXY in the
standard deductions. Realizing that he has enough government, ADD proposed to obtain a policy of
documents to substantiate his profession-connected insurance on his life. On ethical grounds, OXY objected
expenses, he now plans to file an amended income tax to the insurance purchase but ADD purchased the
return for 2007, in order to claim itemized deductions, policy anyway. Its annual premium amounted to
since no audit has been commenced by the BIR on the P100,000.
return he previously filed.
Is said premium deductible by ADD Computers, Inc.?
Will Ernesto be allowed to amend his return? Why or Reason. (2004 BAR)
why not? (2009 BAR)
A: NO. The premium is not deductible because it is not an
A: No. Since Ernesto has elected to claim the optional ordinary business expense. The term "ordinary” is used in
standard deduction, said election is irrevocable for the the income tax law in its common significance and it has the
taxable year for which the return is made. (Sec. 34(L), NIRC) connotation of being normal, usual, or customary. (Deputy
v. Du Pont, 308 US 48) Paying premiums for the insurance
c) ITEMS NOT DEDUCTIBLE of a person not connected to the company is not normal,
(2014, 2007, 2004, 1998, 1993, 1989 BAR) usual, or customary.
Q: Political campaign contributions are NOT deductible Another reason for its non-deductibility is the fact that it
from gross income: (2011 BAR) can be considered as an illegal compensation made to a
government employee. This is so because if the insured, his
A) if they are not reported to the Commission on estate, or heirs were made as the beneficiary (because of
Elections; the requirement of insurable interest), the payment of
B) if the candidate supported wins the election premium will constitute bribes which are not allowed as
because of possible corruption; deduction from gross income. (Sec. 34(A)(1)(c), NIRC)
C) since they do not help earn the income from
which they are to be deducted; On the other hand, if the company was made the
D) since such amounts are not considered as beneficiary, whether directly or indirectly, the premium is
income of the candidate to whom given. not allowed as a deduction from gross income. (Sec.
36(A)(4), NIRC)
A: C) since they do not help earn the income from which
they are to be deducted. (UPLC Suggested Answers) BRIBES
(2014, 1998, 1993 BAR)
PREMIUMS PAID ON LIFE INSURANCE POLICY
(2007, 2004, 1989 BAR) Q: Freezy Corporation, a domestic corporation engaged
in the manufacture and sale of ice cream, made
Q: Noel Santos is a very bright computer science payments to an officer of Frosty Corporation, a
graduate. He was hired by Hewlett Packard. To entice competitor in the ice cream business, in exchange for
him to accept the offer of employment, he was offered said officer’s revelation of Frosty Corporation’s trade
the arrangement that part of his compensation would secrets.
be an insurance policy with a face value of P20 million.
The parents of Noel are made the beneficiaries of the May Freezy Corporation claim the payment to the
insurance policy. officer as deduction from its gross income? Explain.
(2014 BAR)
Can the company deduct from its gross income the
amount of the premium? Reason briefly. (2007 BAR) A: NO. The payments made in exchange for the revelation
33
TAXATION LAW
of a competitor’s trade secrets is considered as an expense they are assigned or detailed.
which is against law, morals, good customs, or public policy,
which is not deductible. (3M Philippines, Inc. v. CIR, GR No. Below are some of the employees of KKI. Determine
82833, 26 Sept. 1988) Also, the law will not allow the whether the compensation they received from KKI in
deduction of bribes, kickbacks, and other similar payments. 2017 is taxable under Philippine laws and whether
Applying the principle of ejusdem generis, payment made by they are required to file tax returns with the Bureau of
Freezy Corporation would fall under “other similar Internal Revenue (BIR).
payments” which are not allowed as deduction from gross
income. (Sec. 34(A)(1)(c), NIRC) (a) Kris Konejero, a Filipino accountant in KKl's Tax
Department in the Makati office, and married to a
5. INCOME TAX ON INDIVIDUALS Filipino engineer also working in KKI;
(2019, 2018, 2016, 2015. 2014, 2009, 2008, 2005,
2003, 2002, 1996, 1994, 1991 BAR ) A: TAXABLE. (Secs. 23 & 24(A), NIRC) Kris must file tax
returns with the BIR, unless she qualifies for substituted
filing of income tax returns because the tax was correctly
a) RESIDENT CITIZENS, NON-RESIDENT CITIZENS, AND withheld by the employer. (Sec. 51(A)(2)(b), NIRC)
RESIDENT ALIENS
(2019, 2018, 2016, 2015, 2002 BAR)
(b) Klaus Kloner, a German national who heads KKl's
Design Department in its Makati office;
Q: Mr. C is employed as a Chief Executive Officer of MNO
Company, receiving an annual compensation of
A: Taxable being an income earned by a resident alien from
P10,000,000.00, while Mr. S is a security guard in the
Philippine sources. (Secs. 23 & 24(A), NIRC) Klaus is
same company earning an annual compensation of
required to file a tax return unless the compensation
P200,000.00. Both of them source their income only
income from KKJ is his only returnable income and the
from their employment with MNO Company.
withholding tax thereon was correctly withheld by his
employer. (Sec. 51(A)(2)(b), NIRC)
(a) At the end of the year, is Mr. C personally required
to file an annual income tax return? Explain.
(c) Krisanto Konde, a Filipino engineer in KKl's Design
Department who was hired to work at the principal
A: NO, Mr. C is not required, as he is qualified for
office last January 2017. In April 2017, he was
substituted filing of income tax return under Sec. 51(A) of
assigned and detailed in the company's project in
the NIRC, since he is receiving purely compensation income
Jakarta, Indonesia, which project is expected to be
from one employer (MNO Company) in the Philippines for
completed in April 2019;
a given calendar year; provided the employer has correctly
withheld the tax on the said compensation income.
A: His compensation from January 1 up to the time he left
the Philippines is taxable and he must file tax returns,
(b) How about Mr. S? Is he personally required to file
unless the compensation income is his only returnable
an annual income tax return? Explain. (2019 BAR)
income, and the withholding tax thereon was correctly
withheld by KKI. (Sec. 51(A)(2)(b), NIRC) The
A: NO, Mr. S is also not required. Since the only income
compensation for his services abroad from the date of bis
earned (P200,000) during the taxable year did not exceed
actual assignment thereat up to the time of the completion
the exemption threshold of P250,000 provided in the NIRC,
of the project is not taxable being an income from a source
the employee need not file the income tax return. (Sec.
without the Philippines earned by a non-resident citizen.
51(A)(2)(a), NIRC, as amended by TRAIN Law)
(Secs. 23 & 42, NIRC) He is not required to file a return for
this income derived from without, because said income is
ALTERNATIVE ANSWER:
not subject to income tax in the Philippines. (Sec. 23, NIRC)
Based on the amount of annual compensation income Mr. S

(d) Kamilo Konde, Krisanto's brother, also an engineer
received, he is considered a minimum wage earner. Being a
assigned to KKl's project in Taipei, Taiwan. Since
minimum wage earner, he is not required to file an income
KKI provides for housing and other basic needs,
tax return. (Sec. 51(A)(2)(d), NIRC)
Kamila requested that all his salaries, paid in
Taiwanese dollars, be paid to his wife in Manila in
Q: Kronge Konsult, Inc. (KKI) is a Philippine
its Philippine Peso equivalent; and
corporation engaged in architectural design,
engineering, and construction work. Its principal office
A: Not taxable and no need to file tax returns. Kamilo is a
is located in Makati City, but it has various
non-resident citizen who is taxable only on income from
infrastructure projects in the country and abroad.
sources within the Philippines. Compensation for services
Thus, KKI employs both local and foreign workers. The
rendered outside of the Philippines is an income from a
company has adopted a policy that the employees'
source without the Philippines which is not subject to the
salaries are paid in the currency of the country where

2023 QuAMTO
QuAMTO (1987-2022)
Philippine income tax. (Secs. 23 & 42, NIRC) Q: Mr. Sebastian is a Filipino seaman employed by a
Norwegian company which is engaged exclusively in
(e) Karen Karenina, a Filipino architect in KKl's Design international shipping. He and his wife, who manages
Department who reported back to KKI's Makati their business, filed a joint income tax return for 1997
office in June 2017 after KKl's project in Kuala on March 15,1998. After an audit of the return, the BIR
Lumpur, Malaysia was completed. (2018 BAR) issued on April 20, 2001 a deficiency income tax
assessment for the sum of P250,000.00, inclusive of
A: Compensation from January 1 up to the time of her interest and penalty. For failure of Mr. and Mrs.
return in June 2017 is an income from a source without the Sebastian to pay the tax within the period stated in the
Philippines which is not taxable if received by a notice of assessment, the BIR issued on August 19, 2001
nonresident citizen. (Secs. 23 & 42, NIRC) Compensation warrants of distraint and levy to enforce collection of
from June 2017 to December 31, 2017 is an income from a the tax.
source within the Philippines and taxable to Karen, who is
taxable on worldwide income from the time she regained What is the rule of income taxation with respect to Mr.
the status of a resident citizen and accordingly, must file Sebastian's income in 1997 as a seaman on board the
returns to pay for the tax, unless she is purely Norwegian vessel engaged in international shipping?
compensation income earner for which the withholding tax Explain your answer. (2002 BAR)
on wages was correctly withheld by KKI. (Sec. 51(A)(2)(b),
NIRC) A: Mr. Sebastian’s income as seaman on board the
Norwegian vessel engaged in international shipping shall
Q: Patrick is a successful businessman in the United not be subjected to income tax. An individual citizen of the
States and he is a sole proprietor of a supermarket Philippines who is working and deriving income from
which has a gross sales of $10 million and an annual abroad as an overseas contract worker is taxable only on
income of $3 million. He went to the Philippines on a income derived from sources within the Philippines:
visit and in a party, he saw Atty. Agaton who boasts of provided, that a seaman who is a citizen of the Philippines
being a tax expert. and who receives compensation for services rendered
abroad as a member of the complement of a vessel engaged
Patrick asks Atty. Agaton: if he (Patrick) decides to exclusively in international trade shall be treated as an
reacquire his Philippine citizenship under RA 9225, overseas contract worker. (Sec. 23(C), NIRC) Mr. Sebastian
establish residence in this country, and open a shall be considered as an overseas contract worker. His
supermarket in Makati City, will the BIR tax him on the income as seaman, which is an income from without the
income he earns from his U.S. business? If you were Philippines, shall not be liable for income tax in the
Atty. Agaton, what advice will you give Patrick? (2016 Philippines.
BAR)
(1) INCLUSIONS AND EXCLUSIONS FOR TAXATION ON
COMPENSATION INCOME
A: I will advise Patrick that if he reacquires his Philippine
citizenship and establish residence in the Philippines, he
De Minimis Benefits (2016, 2015, 2005, 1994 BAR)
shall be considered as a resident citizen subject to tax on
incomes derived from sources within or without the
Q: Mapagbigay Corporation grants all its employees
Philippines. (Sec. 23(A), NIRC)
(rank and file, supervisors, and managers) 5% discount
Consequently, the BIR could now tax him on his income
of the purchase price of its products. During an audit
derived from sources without the Philippines which is the
investigation, the BIR assessed the company the
income he earns from his U.S. business. (Bar Q&A by
corresponding tax on the amount equivalent to the
Domondon, 2018)
courtesy discount received by all the employees,
contending that the courtesy discount is considered as
Q: Ms. C, a resident citizen, bought ready-to-wear goods
additional compensation for the rank-and-file
from Ms. B, a non-resident citizen. If Ms. B is an alien
employees and additional fringe benefit for the
individual and the goods were produced in her factory
supervisors and managers. In its defense, the company
in China, is Ms. B’s income from the sale of the goods to
argues that the discount given to the rank-and-file
Ms. C taxable in the Philippines? Explain. (2015 BAR)
employees is a de minimis benefit and not subject to
tax. As to its managerial employees, it contends that the
A: YES, assuming the sale was made in the Philippines.
discount is nothing more than a privilege and its
Gains, profits and income from the sale of personal property
availment is restricted.
produced by the taxpayer without and sold within the
Philippines, shall be treated as derived partly from sources
Is the BIR assessment correct? Explain. (2016 BAR)
within and partly from sources without the Philippines.
(Sec. 42(E), NIRC) B, being a non-resident citizen, is taxable
A: NO. The 5% discount of the purchase price of its
on income from sources within the Philippines.
products, so-called “courtesy discounts” on purchases,
granted by Mapagbigay Corporation to all its employees
35
TAXATION LAW
(rank and file, supervisors, and managers) otherwise 9. Gifts given during Christmas and major anniversary
known as “de minimis benefits,” furnished or offered by an celebrations not exceeding P5,000 per employee per
employer to his employees merely as a means of promoting annum;
the health, goodwill, contentment, or efficiency of his
employees, are not considered as compensation subject to 10. Daily meal allowance for overtime work and
income tax and consequently to withholding tax. (Sec. night/graveyard shift not exceeding 25% of the basic
2.78.1(A)(3), RR. No. 02-98, as amended) minimum wage on a per region basis; and
As such, de minimis benefits, if given to supervisors and 11. Benefits received by an employee by virtue of a
managerial employees, they are also exempt from the fringe collective bargaining agreement (CBA) and
benefits tax. productivity incentive schemes combined do not
exceed P10,000 per employee per taxable year. (RR. No.
Q: What are de minimis benefits and how are these 02-98, as amended)
taxed? Give three (3) examples of de minimis benefits.
(2015 BAR) Leave Credits (1996, 1991 BAR)
A: De minimis benefits are facilities and privileges Q: A, an employee of the Court of Appeals, retired upon
furnished or offered by an employer to his employees, reaching the compulsory age of 65 years. Upon
which are not considered as compensation subject to compulsory retirement, A received the money value of
income tax and consequently to withholding tax, if such his accumulated leave credits in the amount of
facilities or privileges are of relatively small value and are P500,000.00. Is said amount subject to tax? Explain.
offered or furnished by the employer merely as means of (1996 BAR)
promoting the health, goodwill, contentment, or efficiency
of his employees. If received by rank-and-file employees, A: NO. The accumulated leave credits in the amount of
they are exempt from income tax on wages; if received by P500,000.00 is not subject to tax. The monetized value of
supervisory or managerial employees, they are exempt leave credits paid to government officials and employees
from the fringe benefits tax. (RR. No. 02-98, as amended by shall not be subject to income tax and consequently to
RR. No. 08-2000) withholding tax. (Sec. 2.78.1(A)(7), RR. No. 03-98, as
amended by RR No. 10- 2000)
The following shall be considered as de minimis benefits:
(2) TAXATION OF BUSINESS INCOME/INCOME FROM
1. Monetized unused vacation leave credits of private PRACTICE OF PROFESSION
employees not exceeding 10 days during the year;
(3) TAXATION OF PASSIVE INCOME
2. Monetized value of vacation and sick leave credits paid (2015 BAR)
to government officials and employees;
Q: BBB, Inc., a domestic corporation, enjoyed a
3. Medical cash allowance to dependents of employees, particularly profitable year in 2014. In June 2015, its
not exceeding P1,500 per employee per semester or Board of Directors approved the distribution of cash
P250 per month; dividends to its stockholders. BBB, Inc. has individual
4. Rice subsidy pf P2,000 or 1 sack of 50 kg. rice per month and corporate stockholders. What is the tax treatment
amounting to not more than P2,000; of the cash dividends received from BBB, Inc. by the
following stockholders: (2015 BAR)
5. Uniform and clothing allowance not exceeding P6,000
per annum; (a) A resident citizen
6. Actual medical assistance not exceeding P10,000 per A: A final withholding tax for ten percent (10%) shall be
annum; imposed upon the cash dividends actually or constructively
received by a resident citizen from BBB, Inc. (Sec. 24 (b)(2),
7. Laundry allowance not exceeding P300 per month; NIRC)
8. Employees achievement awards, e.g., for length of (b) Non-resident alien engaged in trade or business
service or safety achievement, which must be in the
form of a tangible personal property other than cash or A: A final withholding tax of twenty percent (20%) shall be
gift certificate, with an annual monetary value not imposed upon the cash dividends actually or constructively
exceeding P10,000 received by the employee under an received by a non-resident alien engaged in trade or
established written plan which does not discriminate in business from BBB, Inc. (Sec. 25(a)(2), NIRC)
favor of highly paid employees;
(c) Non-resident alien not engaged in trade or business

2023 QuAMTO
QuAMTO (1987-2022)
A: A final withholding tax equal to twenty-five percent (b) Is Melissa liable to pay Value Added Tax
(25%) of the entire income received from all sources within (VAT) on the sale of the property? If so, how
the Philippines, including the cash dividends received from much and why? If not, why not? (2009 BAR)
BBB, Inc. (Sec. 25(b), NIRC)
A: NO. The real property sold, being in the nature of a
(4) TAXATION OF CAPITAL GAINS capital asset, is not subject to VAT. The sale is subject to VAT
only if the real property sold is held primarily for sale to
Capital Gains Tax (2019, 2009, 2008 BAR) customers or held for lease in the ordinary course of trade
or business. A real property classified as a capital asset does
Q: GHI, Inc. is a corporation authorized to engage in the not include a real property held for sale or for lease, hence,
business of manufacturing ultra-high density its sale is not subject to VAT. (Secs. 39 & 106, NIRC)
microprocessor unit packages. After its registration on
July 5, 2005, GHI, Inc. constructed buildings and Exemptions from Capital Gains Tax (2015, 2014, 1991
purchased machineries and equipment. As of BAR)
December 31, 2005, the total cost of the machineries
and equipment amounted to P250,000,000.00. Q: Mr. H decided to sell the house and lot wherein he
However, GHI, Inc. failed to commence operations. Its and his family have lived for the past 10 years, hoping
factory was temporarily closed effective September 15, to buy and move to a new house and lot closer to his
2010. On October 1, 2010, it sold its machineries and children’s school. Concerned about the capital gains tax
equipment to JKL Integrated for P300,000,000.00. that will be due on the sale of their house, Mr. H
Thereafter, GHI, Inc. was dissolved on November 30, approaches you as a friend for advice if it is possible for
2010. the sale of their house to be exempted from capital
gains tax and the conditions, they must comply with to
(a) Is the sale of the machineries and avail themselves of said exemption. (2015 BAR)
equipment to JKL Integrated subject to
normal corporate income tax or capital A: I would advise Mr. H that he may be exempted from the
gains tax? Explain. payment of the capital gains tax on the sale or disposition of
the house and lot where his family lives because the sale of
(b) xxx (2019 BAR) principal residence by a natural person is exempt provided
the following conditions are complied with:
A: The sale of machineries and equipment is subject to
normal corporate income tax and not to the capital gains 1. The proceeds of the sale are fully utilized in acquiring
tax. As explained by the Supreme Court in one case, the or construction new principal residence within 18
capital gains tax of 6% imposed under Sec. 27(D)(5) of the calendar months from the date of the sale or
NIRC, as amended, is on the presumed gain from the sale of disposition;
a land and/or building only. (SMI-ED Philippines
Technology, Inc. vs. CIR, G.R. No. 175410, 12 Nov. 2014) 2. The historical cost or adjusted basis of the real property
sold or disposed will be carried over to the new
Q: Melissa inherited from her father a 300-square- principal residence built or acquired;
meter lot. At the time of her father’s death on March 14,
1995, the property was valued at P720,000.00. On 3. The Commissioner has been duly notified, through a
February 28, 1996, to defray the cost of the medical prescribed return, within 30 days from the date of sale
expenses of her sick son, she sold the lot for or disposition of the person’s intention to avail of the
P600.000.00, on cash basis. The prevailing market tax exemption; and
value of the property at the time of the sale was
P3.000.00 per square meter. 4. The exemption was availed only once every 10 years.
(Sec. 24(D)(2), NIRC)
(a) Is Melissa liable to pay Value Added Tax
(VAT) on the sale of the property? If so, how Q: Hopeful Corporation obtained a loan from Generous
much and why? If not, why not? Bank and executed a mortgage on its real property to
secure the loan. When Hopeful Corporation failed to
A: NO. The real property sold, being in the nature of a pay the loan, Generous Bank extrajudicially foreclosed
capital asset, is not subject to VAT. The sale is subject to VAT the mortgage on the property and acquired the same as
only if the real property sold is held primarily for sale to the highest bidder. A month after the foreclosure,
customers or held for lease in the ordinary course of trade Hopeful Corporation exercised its right of redemption
or business. A real property classified as a capital asset does and was able to redeem the property. Is Generous Bank
not include a real property held for sale or for lease, hence, liable to pay capital gains tax as a result of the
its sale is not subject to VAT. (Secs. 39 and 106, NIRC) foreclosure sale? Explain. (2014 BAR)
37
TAXATION LAW
A: NO. In a foreclosure of a real estate mortgage, the capital (b) Is there any income tax due on the sale? Explain.
gains tax accrues only after the lapse of the redemption (1994 BAR)
period because it is only then that there exists a transfer of
property. Thus, if the right to redeem the forclosed property A: YES. Mr. Naval is liable to the 6% capital gains tax
was exercised by the mortgagor before expiration of the imposed under the Tax Code based on the gross selling
redemption period, as in this case, the foreclosure is not a price of P800,000.00 which is an amount higher than the
taxable event. (RR No. 4–99; Supreme Transliner, Inc. v. BPI zonal value.
Family Savings Bank, Inc., G.R. No. 165617, 25 Feb. 2011)
b) INCOME TAX ON NON-RESIDENT ALIENS ENGAGED
(5) CAPITAL ASSET VS. ORDINARY ASSET IN TRADE OR BUSINESS
(2019, 2003, 1994 BAR)
c) INCOME TAX ON NON-RESIDENT ALIENS NOT
Q: Distinguish a “capital asset" from an “ordinary ENGAGED IN TRADE OR BUSINESS
asset". (2003 BAR)
d) INDIVIDUAL TAXPAYERS EXEMPT FROM INCOME
A: The term “capital asset” regards all properties not TAX
specifically excluded in the statutory definition of capital
assets, the profits or loss on the sale or the exchange of (1) SENIOR CITIZENS
which are treated as capital gains or capital losses.
Conversely, all those properties specifically excluded are (2) MINIMUM WAGE EARNERS
considered as ordinary assets and the profits or losses
realized must have to be treated as ordinary gains or (3) EXEMPTIONS GRANTED UNDER INTERNATIONAL
ordinary losses. Accordingly, “capital assets” includes AGREEMENTS
property held by the taxpayer whether or not connected
with his trade or business, but the term does not include any 6. INCOME TAX ON CORPORATIONS
of the following, which are consequently considered (2019, 2017, 2015, 2014, 2011, 2009, 2005, 2001,
“ordinary assets:” 1994, 1990, 1987
1. Stock in trade of the taxpayer or other property of a

a) INCOME TAX ON DOMESTIC CORPORATIONS AND
kind which would properly be included in the inventory
of the taxpayer if on hand at the close of the taxable RESIDENT FOREIGN CORPORATIONS
year;
Minimum Corporate Income Tax (2015, 2001 BAR)
2. Property held by the taxpayer primarily for sale to
customers in the ordinary course of trade or business; Q: KKK Corp. secured its Certificate of Incorporation
from the Securities and Exchange Commission on June
3. Property used in the trade or business of a character 3, 2013. It commenced business operations on August
which is subject to the allowance for depreciation
12, 2013. In April 2014, Ms. J, an employee of KKK Corp.
provided in Sec. 34(F) of the Tax Code; or
in charge of preparing the annual income tax return of
4. Real property used in trade or business of the taxpayer. the corporation for 2013, got confused on whether she
should prepare payment for the regular corporate
The statutory definition of “capital assets” practically income tax or the minimum corporate income tax.
excludes from its scope, it will be noted, all property held by
the taxpayer if used in connection with his trade or (a) As Ms. J’s supervisor, what will be your advice?
business.
A: As Ms. J’s supervisor, I will advise that KKK Corp. should
Q: In 1990, Mr. Naval bought a lot for P1,000,000.00 in prepare payment for the regular corporate income tax and
a subdivision with the intention of building his not the minimum corporate income tax. Under the Tax
residence on it. In 1994, he abandoned his plan to build Code, minimum corporate income tax is only applicable
his residence on it because the surrounding area beginning on the fourth taxable year following the
became a depressed area and land values in the commencement of business operation. (Sec. 27(E)(1), NIRC)
subdivision went down; instead, he sold it for
P800,000.00. At the time of the sale, the zonal value was (b) What are the distinctions between regular
P500,000.00. corporate income tax and minimum corporate
income tax? (2015 BAR)
(a) Is the land a capital asset or an ordinary asset?
Explain. A:
A: The land is a capital asset because it is neither for sale in
the ordinary course of business nor a property used in the 1. As to taxpayer – Regular corporate income tax applies
trade or business of the taxpayer. (Sec. 33, NIRC) to all corporate taxpayers, while minimum corporate

2023 QuAMTO
QuAMTO (1987-2022)
income tax applies to domestic corporations (DCs) and outside the Philippine territory, the situs of the income
resident foreign corporations. from its ticket sales should be considered outside the
Philippines. Hence, no income tax should be imposed
2. As to tax rate – Regular corporate income tax is 30%; on the same.
while minimum corporate income tax is 2%.
Is XYZ Air’s protest meritorious? Explain. (2019 BAR)
NOTE:
a. Effective July 1, 2020, an income tax rate of 25% A: NO. XYZ Air's protest is not meritorious. As an offline
shall be imposed upon the taxable income derived international carrier, selling of passage tickets in the
during each taxable year from all sources within Philippines, through a general sales agent, XYZ Air is
and without the Philippines by DCs. considered as resident foreign corporation doing business
in the Philippines. As such, it is taxable under Sec. 28(A)(1)
For DCs with net taxable income not exceeding
of the National Internal Revenue Code. (Air Canada v. CIR,
P5,000,000 and with total assets not exceeding
P100,000,000, excluding the land on which the G.R. No. 169507, 11 Jan. 2016)
particular business entity's office, plant, and
equipment are situated during the taxable year for Q: Kenya International Airlines (KIA) is a foreign
which the tax is imposed, shall be taxed at 20%. corporation, organized under the laws of Kenya. It is
(Sec. 27, NIRC, as amended by CREATE Act) not licensed to do business in the Philippines. Its
commercial airplanes do not operate within Philippine
b. From July 1, 2020 to June 30, 2023, the MCIT rate territory, or service passengers embarking from
imposable upon DCs and RFCs shall be at 1%. (Secs.
Philippine airports. The firm is represented in the
27(E) & 28(A), NIRC, as amended by CREATE Act)
Philippines by its general agent, Philippine Airlines
3. As to tax base – Regular corporate income tax is based (PAL), a Philippine corporation.
on the net taxable income, while minimum corporate
income tax is based on gross income. KIA sells airplane tickets through PAL, and these
tickets are serviced by KIA airplanes outside the
4. As to period of applicability – Regular corporate Philippines. The total sales of airline tickets transacted
income tax is applicable beginning on the fourth by PAL for KIA in 1997 amounted to P2,968,156.00. The
taxable year following the commencement of business
Commissioner of Internal Revenue assessed KIA
operation, while minimum corporate income tax is
applicable beginning on the fourth taxable year deficiency income taxes at the rate of 35% on its
following the commencement of business operation. taxable income, finding that KIA’s airline ticket sales
constituted income derived from sources within the
5. As to imposition – The minimum corporate income tax Philippines.
is imposed whenever it is greater than the regular
corporate income tax of the corporation. (Sec. 27(A) & KIA filed a protest on the ground that the
(E), NIRC; RR. No. 09-98)
P2,968,156.00 should be considered as income derived
exclusively from sources outside the Philippines since
Off-line International Carriers (2019, 2009, 2005, 1994,
KIA only serviced passengers outside Philippine
1990, 1987 BAR)
territory.
Q: XYZ Air, a 100% foreign-owned airline company
Is the position of KIA tenable? Reasons. (2009 BAR)
based and registered in Netherlands, is engaged in the
international airline business and is a member
A: KIA’s position is not tenable. The revenue it derived in
signatory of the International Air Transport
1997 from sales of airplane tickets in the Philippines,
Association. It’s commercial airplanes neither operate
through its agent PAL, is considered as income from within
within the Philippine territory nor as its service
the Philippines, subject to the 35% tax based on its taxable
passengers embarking from Philippine airports.
income pursuant to the Tax Code. The transacting of
Nevertheless, XYZ Air is able to sell its airplane tickets
business in the Philippines through its local sales agent,
in the Philippines through ABC Agency, it’s general
makes KIA a resident foreign corporation despite the
agent in the Philippines. As XYZ Air’s ticket sales, sold
absence of landing rights, thus, it is taxable on income
through ABC Agency for the year 2013, amounted to
derived from within. The source of an income is the
5,000,000. 00, the Bureau of Internal Revenue (BIR)
property, activity or service that produced the income. In
assessed XYZ Air deficiency income taxes on the ground
the instant case, it is the sale of tickets in the Philippines
that the income from the said sales constituted income
which is the activity that produced the income. KIA’s
derived from sources within the Philippines.
income being derived from within, is subject to Philippine
income tax. (CIR v. British Overseas Airways Corporation,
Aggrieved, XYZ Air filed a protest, arguing that, as a
G.R. No. L-65773-74, 30 Apr. 1987)
non-resident foreign corporation, it should only be
taxed for income derived from sources within the
Philippines. However, since it only serviced passengers
39
TAXATION LAW
NOTE: D) interests derived from its dollar deposits in a
Philippine bank under the Expanded Foreign
a. Effective July 1, 2020, the tax rate for Resident Foreign Currency Deposit System.
Corporations shall be at 25%. (Sec. 28, NIRC, as
amended by CREATE Act) A: B) gains it derived from sale in Australia of shares of
stock of Philex Mining Corporation, a Philippine
b. Effective January 1, 2021, a RCIT rate of 25% shall be
corporation. (UPLC Suggested Answers)
imposed upon offshore banking units and regional
operating headquarters of muti-national corporations.
(Secs. 28(A)(4) and 28(A)(6)(b), NIRC, as amended by Q: Aplets Corporation is registered under the laws of
CREATE Act) the Virgin Islands. It has extensive operations in
Southeast Asia. In the Philippines, its products are
(1) BRANCH PROFIT REMITTANCE TAX imported and sold at a mark-up by its exclusive
distributor, Kim's Trading, Inc. The BIR compiled a
(2) ITEMIZED DEDUCTIONS VS. OPTIONAL STANDARD record of all the imports of Kim from Aplets and
DEDUCTIONS imposed a tax on Aplets net income derived from its
exports to Kim.
b) INCOME TAX ON NON-RESIDENT FOREIGN
CORPORATIONS Is the BIR correct? (2011 BAR)
(2014, 2011 BAR)
A) Yes. Aplets is a non-resident foreign
Q: Triple Star, a domestic corporation, entered into a corporation engaged in trade or business in the
Management Service Contract with Single Star, a non- Philippines;
resident foreign corporation with no property in the B) No. The tax should have been computed on the
Philippines. Under the contract, Single Star shall basis of gross revenues and not net income;
provide managerial services for Triple Star’s Hongkong
branch. All said services shall be performed in Hong C) No. Aplets is a non-resident foreign corporation
Kong. not engaged in trade or business in the
Philippines;
Is the compensation for the services of Single Star
taxable as income from sources within the Philippines? D) Yes. Aplets is doing business in the Philippines
Explain. (2014 BAR) through its exclusive distributor Kim's Trading.
Inc.
A: NO. The compensation for services rendered by Single
Star is an income derived from sources without the A: C) No. Aplets is a non-resident foreign corporation not
Philippines. To be considered as income from within, the engaged in trade or business in the Philippines. (UPLC
labor or service must be performed within the Philippines. Suggested Answers)
(Sec. 42(A)(3) and (C)(3), NIRC) Since all the services
required to be performed by Single Star, a non-resident NOTE: Effective January 1, 2021, a corporate income tax of
foreign corporation, is to be performed in Hongkong, the 25% shall be imposed on gross income received during each
entire income is from sources without. (UPLC Suggested taxable year from all sources within the Philippines by
Answers) NRFCs. (Sec. 28(B), NIRC, as amended by CREATE Act)
Q: Zygomite Minerals, Inc., a corporation registered and c) INCOME TAX ON SPECIAL CORPORATIONS
holding office in Australia, not operating in the
Philippines, may be subject to Philippine income d) EXEMPTIONS FROM TAX ON CORPORATIONS
taxation on: (2011 BAR)
e) PERIOD WITHIN WHICH TO FILE INCOME TAX
A) gains it derived from sale in Australia of an ore RETURN OF INDIVIDUALS AND CORPORATIONS
crusher it bought from the Philippines with the (2019, 2011 BAR)
proceeds converted to pesos;
Q: Differentiate between a calendar year and a fiscal
B) gains it derived from sale in Australia of shares year. (2019 BAR)
of stock of Philex Mining Corporation, a
Philippine corporation; A: Calendar year refers to the accounting period of twelve
(12) months ending on December 31. On the other hand,
C) dividends earned from investment in a foreign fiscal year means an accounting period of twelve (12)
corporation that derived 40% of its gross months ending on the last day of any month other than
income from Philippine sources; December. (Sec. 22(Q), NIRC)

2023 QuAMTO
QuAMTO (1987-2022)
Q: When is the deadline for the filing of a corporation's Is Daryl qualified for substituted filing for taxable year
final adjustment return for a calendar year? How about 2015? Explain your answer. (2017 BAR)
for a fiscal year? (2019 BAR)
A: NO. Following the relevant revenue issuance, only an
A: The due date for the filing of the corporation’s final individual receiving purely compensation income,
adjusted return for calendar year is 15' day of April of the regardless of amount, from only one employer in the
succeeding year. When a corporation uses fiscal year, the Philippines for the calendar year, the income tax of which
due date is the 15th day of the fourth month following the has been withheld correctly by the said employer, shall
close of the fiscal year. (Sec. 77, NIRC) qualify for substituted filing of income tax return. (RR No. 3-
2002) Daryl, within the same calendar year, derived income
f) SUBSTITUTED FILING from producing short films; thus, she did not receive purely
(2019, 2017 BAR) compensation income for calendar year 2015. Accordingly,
the amount withheld from her compensation income is not
Q: Mr. C is employed as a Chief Executive Officer of MNO equal to the income tax due on his aggregate taxable income
Company, receiving an annual compensation of during the taxable year.
P10,000,000.00, while Mr. S is a security guard in the
same company earning an annual compensation of g) FAILURE TO FILE RETURNS
P200,000.00. Both of them source their income only
from their employment with MNO Company. 7. WITHHOLDING TAXES
(2019 BAR)
(a) At the end of the year, is Mr. C personally
required to file an annual income tax
return? Explain. a) CONCEPT
A: NO, Mr. C is not required, as he is qualified for b) CREDITABLE VS. WITHHOLDING TAXES
substituted filing of income tax return under Sec. 51(A) of (2019 BAR)
the NIRC, since he is receiving purely compensation income
from one employer (MNO Company) in the Philippines for Q: XYZ Corp. is listed as a top 20,000 Philippine
a given calendar year; provided the employer has correctly corporation by the Bureau of Internal Revenue. It
withheld the tax on the said compensation income. secured a loan from ABC Bank with a 6% per annum
interest. All interest payments made by XYZ Corp. to
(b) How about Mr. S? Is he personally required ABC Bank is subject to a 2% creditable withholding tax.
to file an annual income tax return? At the same time, XYZ Corp. has a trust deposit with ABC
Explain. (2019 BAR) Bank in the amount of P100,000,000.00, which earns
2% interest per annum, but is subject to a 20% final
A: NO, Mr. S is also not required. Since the only income withholding tax on the interest income received by XYZ
earned (P200,000) during the taxable year did not exceed Corp.
the exemption threshold of P250,000 provided in the NIRC,
the employee need not file the income tax return. (Sec. (a) Who are the withholding agents in the case of: 1. the
51(A)(2)(a), NIRC, as amended by TRAIN Law) 20% final withholding tax; and 2. the 2% creditable
withholding tax? Explain.
ALTERNATIVE ANSWER:
A:
Based on the amount of annual compensation income Mr. S 1. The 20% final withholding tax- The Final Withholding
received, he is considered a minimum wage earner. Being a Tax (FWT) should be withheld and remitted to the BIR
minimum wage earner, he is not required to file an income by the withholding agent/payor corporation. (Sec.
tax return. (Sec. 51(A)(2)(d), NIRC) 57(A), NIRC) In this case, ABC Bank shall withhold the
FWT due on the interest income arising from the trust
Q: On April 30, 2015, Daryl resigned as the production deposit of XYZ Corp.
manager of 52nd Avenue, a television studio owned by
SSS Entertainment Corporation. 52nd Avenue issued to 2. The 2% creditable withholding tax- The Creditable
her a Certificate of Withholding Tax on Compensation Withholding Tax (CWT) due on the interest payments
(BIR Form No. 2316), which showed that the tax made by XYZ Corp. to ABC Bank should be withheld by
withheld from her compensation was equal to her XYZ Corp. Under the withholding tax system, whether
income tax due for the period from January 2015 to final creditable tax, the withholding agent is the person
April 30, 2015. who has control over the funds from which the
A month after her resignation, Daryl put up her own payment of the income is made.
studio and started producing short films. She was able
to earn a meager income from her short films but did (b) When is the deadline for filing a judicial claim for
not keep record of her production expenses. refund for any excess or erroneous taxes paid in the
41
TAXATION LAW
case of: 1. the 20% final withholding tax; and 2. the A: NO. Association dues collected by homeowners'
2% creditable withholding tax? (2019 BAR) association are not subject to VAT under Sec. 109(Y) of the
NIRC as amended by TRAIN Law. (Bar Q&A by J. Dimaampao,
A: The deadline for filing a judicial claim for refund for any 2020)
excess or erroneous taxes paid are as follows:
Q: Melissa inherited from her father a 300-square-
1. The 20% final withholding tax- The judicial claim for meter lot. At the time of her father’s death on March 14,
refund should be filed within two (2) years from the 1995, the property was valued at P720,000.00. On
date of actual remittance of the tax or from the last day February 28, 1996, to defray the cost of the medical
of the month following the close of the quarter during expenses of her sick son, she sold the lot for
which withholding was made, whichever comes first. P600.000.00, on cash basis. The prevailing market
(Secs. 204 & 229, in relation to Sec. 58, NIRC, as amended value of the property at the time of the sale was
by TRAIN Law) P3.000.00 per square meter. Is Melissa liable to pay
Value Added Tax (VAT) on the sale of the property? If
2. The creditable withholding tax- The filing of the judicial so, how much and why? If not, why not? (2019 BAR)
claim is within two (2) years from filing of the final
income tax return of the payee, or last day for its filing, A: NO, Melissa is not liable to pay the VAT because she is not
whichever comes first. It is only upon filing of the final in the real estate business. A sale, of real property not in the
income tax return can it be determined with certainty course of trade or business is not subject to VAT. (Secs. 105
whether there is a refundable amount. (ACCRA & 109(1)(P), NIRC)
Investments Corp. v. CA, G.R. No. 96322, 20 Dec. 1991)
Q: On September 17, 2015, Data Realty, Inc., a real-
estate corporation duly organized and existing under
C. VALUE-ADDED TAX (VAT) Philippine law, sold to Jenny Vera a condominium unit
(2019, 2017- 2012, 2010-2008 BAR) at Freedom Residences in Malabon City with an area of
32.31 square meters for a contract price of P4,213,000.
The condominium unit had a zonal value amounting to
1. CONCEPT AND ELEMENTS OF VATABLE P2,877,000 and fair market value amounting to
TRANSACTIONS P550,000.
(2019, 2017, 2015, 2014, 2012, 2010, 2009, 2008 BAR)
(a) Is the transaction subject to value-added tax and
documentary stamp tax? Explain your answer.
Q: All the homeowners belonging to ABC Village
Homeowners' Association elected a new set of A: YES. As to the VAT liability, sale of real properties held
members of the Board of Trustees for the Association primarily for sale to customer or held for lease in the
effective January 2019. The first thing that the Board ordinary course of trade or business is subject to VAT [Sec.
looked into is the need to increase the prevailing 106 (A)(1)(a), 1997 NIRC, as amended]; further, the
association dues. Mr. X, one of the trustees, proposed an contract price, which is the highest compared to the zonal
increase of 100% to account for the payment of the 12% value and the fair market value, is beyond the transactional
value-added tax (VAT) on the association dues which threshold amount for residential dwellings thereby making
were being collected for services allegedly rendered "in the sale transaction VATable. As to the DST liability, all
the course of trade or business" by ABC Village deeds of sale and conveyances of real property are likewise
Homeowners' Association. subject to DST [Sec. 196, 1997 NIRC, as amended].
(a) What constitutes transactions done "in the course (b) Would your answer be the same if the property was
of trade or business" for purposes of applying VAT? sold by a bank in a foreclosure sale? Explain your
answer. (2017 BAR)
A: "In the course of trade or business" means the regular
conduct or pursuit of a commercial or an economic activity, A: NO, the sale made by the bank is exempt from VAT. Banks
including · transactions incidental thereto, by any person are exempt from VAT because they are subject to
regardless of whether or not the person engaged therein is percentage tax under Title V of the NIRC. (Sec. 109, in
a nonstock, nonprofit private organization (irrespective of relation to Sec. 121, NIRC, as amended) The sale, however,
the disposition of its net income and whether or not it sells will still be subject to DST because conveyances of real
exclusively to members or their guests), or government property are generally subject to DST. (Sec. 196, NIRC)
entity. (Sec. 105, NIRC, as amended; Bar Q&A by J.
Dimaampao, 2020) Q: In June 2013, DDD Corp., a domestic corporation
engaged in the business of leasing real properties in the
(b) Is Mr. X correct in stating that the association dues Philippines, entered into a lease agreement of a
are subject to VAT? Explain. (2019 BAR) residential house and lot with EEE, Inc., a non-resident
foreign corporation. The residential house and lot will

2023 QuAMTO
QuAMTO (1987-2022)
be used by officials of EEE, Inc. during the visit to the undertaken incidental to the pursuit of a commercial or
Philippines. The lease agreement was signed by economic activity are considered as entered into in the
representatives from DDD Corp. and EEE, Inc. in course of trade or business. (Sec. 105, NIRC) A sale of a fully
Singapore. DDD Corp did not subject the said lease to depreciated vehicle that has been used in business is
VAT believing that it was not a domestic service subject to VAT as an incidental transaction, although such
contract. sale may be considered isolated. (Mindanao II Geothermal
Partnership v. CIR, G.R. Nos. 193301 &. 194637, 11 Mar.
Was DDD Corp. correct? Explain. (2015 BAR) 2013)
A: DDD Corp. is not correct. Lease of properties shall be Q: The Bureau of Internal Revenue (BIR) issued
subject to VAT irrespective of the place where the contract Revenue Memorandum Circular (RMC) No. 65- 2012
of lease was executed if the property is leased or used in the imposing Value-Added Tax (VAT) on association dues
Philippines. (Sec. 108(A), NIRC) and membership fees collected by condominium
corporations from its member condominium-unit
Q: Which of the following transactions is subject to owners. The RMC’s validity is challenged before the
Value-Added Tax (VAT)? (2014 BAR) Supreme Court (SC) by the condominium corporations.
The Solicitor General, counsel for BIR, claims that
A) Sale of shares of stock-listed and traded association dues, membership fees, and other
through the local stock exchange; assessment/charges collected by a condominium
corporation are subject to VAT since they constitute
B) Importation of personal and household effects income payments or compensation for the beneficial
belonging to residents of the Philippines services it provides to its members and tenants. On the
returning from abroad subject to custom duties other hand, the lawyer of the condominium
under the Tariff and Customs Code; corporations argues that such dues and fees are merely
held in trust by the condominium corporations
C) Services rendered by individuals pursuant to exclusively for their members and used solely for
an employer-employee relationship; administrative expenses in implementing the
condominium corporations’ purposes. Accordingly, the
D) Gross receipts from lending activities by credit condominium corporations do not actually render
or multi-purpose cooperatives duly registered services for a fee subject to VAT.
with the Cooperative Development Authority.
Whose argument is correct? Decide. (2014 BAR)
A: B) Importation of personal and household effects
belonging to residents of the Philippines returning from A: The lawyer of the condominium corporations is correct.
abroad subject to custom duties under the Tariff and The association dues, membership fees, and other
Customs Code (exempt from VAT only if exempt from assessments/charges do not constitute income payments
customs duties). (Sec. 109(1)(C), NIRC) because they were collected for the benefit of the unit
owners and the condominium corporation is not created as
NOTE: Condominium association dues are no longer a business entity. The collection is the money of the unit
subject to VAT under the TRAIN Law. owners pooled together and will be spent exclusively for the
purpose of maintaining and preserving the building and its
Q: Masarap Kumain, Inc. (MKI) is a Value-Added Tax premises which they themselves own and possess. (First e-
(VAT)-registered company which has been engaged in Bank Tower Condominium Corp., v. BIR, Special Civil Action
the catering business for the past 10 years. It has No. 12-1236, RTC Br. 146, Makati City)
invested a substantial portion of its capital on flat ALTERNATIVE ANSWER:
wares, table linens, plates, chairs, catering equipment,
and delivery vans. MKI sold its first delivery van, In the case of Office Metro Philippines, Inc. (formerly Regus
already 10 years old and idle, to Magpapala Gravel and Centres, Inc.) v. CIR (CTA Case No. 8382, 07 Mar. 2016), the
Sand Corp. (MGSC), a corporation engaged in the Court only dealt with the EWT issue as the VAT issue was
business of buying and selling gravel and sand. The not raised. However, the CTA held that in the payment of
selling price of the delivery van was way below its association dues to a condominium corporation, these dues
acquisition cost. are merely held in trust and used solely for administrative
expenses from which does not realize any gain or profit. The
Is the sale of the delivery van by MKI to MGSC subject to BIR, on the other hand, views these payments as income or
VAT? (2014 BAR) compensation for beneficial services.
A: YES, the sale of the delivery van is subject to VAT being a However, a perusal of Sec. 105 shows that transactions in
transaction incidental to the catering business which is a the course of a trade or business (sells, barters, exchanges,
VAT-registered activity of MKI. Transactions that are leases goods or properties, renders services, imports
43
TAXATION LAW
goods) are those subject to VAT. In the case of a Center to prevent car bombs from ramming the
condominium corporation, the function of the entity is ADB gates along ADB Avenue in Mandaluyong City.
merely for administrative purposes and not a trade or
business. Thus, payments in the form of association dues A: The transaction is subject to VAT at the rate of zero
should not be subjected to VAT. percent (0%). ADB is exempt from direct and indirect taxes
under a special law, thereby making the sale of services to
Q: Under the VAT system, there is no cascading because it by a VAT-registered construction company, effectively
the tax itself is not again being taxed. However, in zero-rated. (Sec. 108(B)(3), NIRC)
determining the tax base on sale of taxable goods under
the VAT system: (BAR 2012) (b) Center operated by a domestic enterprise in Makati
that handles exclusively the reservations of a hotel
A) The professional tax paid by the professional is chain which are all located in North America. The
included in gross receipts; services are paid for in US$ and duly accounted for
B) The other percentage tax (e.g., gross receipts with the Bangko Sentral ng Pilipinas.
tax) paid by the taxpayer is included in gross
selling price; A: The sale of services is subject to VAT at zero percent
C) The excise tax paid by the taxpayer before (0%). Zero-rated sale of services includes services rendered
withdrawal of the goods from the place of to a person engaged in business outside the Philippines and
production or from customs custody is included the consideration is paid in acceptable foreign currency
in the gross selling price; duly accounted for by the Bangko Sentral ng Pilipinas. (Sec.
D) The documentary stamp tax paid by the 108(B)(2), NIRC)
taxpayer is included in the gross selling price or
gross receipts. (c) Sale of orchids by a flower shop which raises its
flowers in Tagaytay. (2010 BAR)
A: C) The excise tax paid by the taxpayer before withdrawal
of the goods from the place of production or from customs A: The sale of orchids is subject to VAT at 12%. This is a sale
custody is included in the gross selling price. (Sec. 106, NIRC; of agricultural non-food product in its original state which
RR No. 16-2005) is no longer one of the exempt transactions. (Sec. 109, NIRC,
as amended).
Q: Which statement is FALSE under the VAT law? (2012
BAR) Q: Emiliano Paupahan is engaged in the business of
leasing out several residential apartment units he
A) A VAT-registered person will be subject to VAT owns. The monthly rental for each unit ranges from
for his taxable transactions, regardless of his P8,000.00 to PI0,000.00. His gross rental income for
gross sales or receipts; one year is PI,650,000.00. He consults you on whether
it is necessary for him to register as a VAT taxpayer.
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 What legal advice will you give him, and why? (4%)
the year 2011 exceed P3 Million; (2009 BAR)
C) A person who issued a VAT-registered invoice A: I will advise Emiliano that he is not required to register
or receipt for a VAT-exempt transaction is as a VAT taxpayer. His transactions of leasing residential
liable to the 12% VAT as a penalty for the wrong units for an amount not exceeding P10,000.00 per unit per
issuance thereof; month are exempt from VAT irrespective of the aggregate
amount of rentals received annually. (Sec. 109(1)(Q), NIRC)
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 Q: Greenhills Condominium Corporation incorporated
professional fees received. in 2001 is a non-stock, non-profit association of unit
owner in Greenhills Tower, San Juan City. To be able to
A: D) Once a Doctor of Medicine exercises his profession reduce the association dues being collected from the
during the year, he needs to register as a VAT person and to unit owners, the Board of Directors of the corporation
issue VAT receipts for professional fees received. (Sec. agreed to lease part of the ground floor of the
236(G)(1)(b), NIRC) condominium building to DEF Saving Bank for
Q: Are the following transactions subject to VAT? If yes, P120,000 a month or P1.44 million for the year, starting
what is the applicable rate for each transaction. State January 2007.
the relevant authority/ies for your answer.
Is the non-stock, non-profit association liable for value
(a) Construction by XYZ Construction Co. of concrete added tax in 2007? If your answer is in the negative, is
barriers for the Asian Development Bank in Ortigas it liable for another kind of business tax? (2008 BAR)

2023 QuAMTO
QuAMTO (1987-2022)
for the VAT zero-rating of its sale of services to HP
A: NO. Since the association’s annual gross receipts do not International. However, the BIR denies SMZ, Inc.’s
exceed P3 million, it is exempt from the VAT. (Sec. 109(V), application on the ground that HP International
NIRC) It is, however, liable to the 3% percentage tax which already enjoys income tax holiday.
is imposed on persons exempt from value-added tax on
account of failure to reach the P3 million threshold. (Sec. Is the BIR correct in denying SMZ, Inc.’s application?
116, NIRC) Explain your answer. (2017 BAR)
2. IMPACT AND INCIDENCE OF TAX A: NO. All sales of goods, properties, and services made by
a VAT-registered supplier from the Customs Territory to an
ecozone enterprise shall be subject to VAT, at zero percent
3. DESTINATION PRINCIPLE AND CROSS-BORDER (0%) rate, regardless of the latter’s type or class of PEZA
DOCTRINE registration. (Coral Bay Nickel Corporation v. CIR, G.R. No.
190506, 13 June 2016) Moreover, under Sec. 108 (B)(3) of
4. IMPOSITION OF VAT ON TRANSFER OF GOODS BY the 1997 NIRC, as amended, services rendered to persons
TAX EXEMPT PERSONS or entities whose exemption under special laws effectively
subjects the supply of such services to zero percent (0%)
rate are considered zero-rated. Considering the law does
5. TRANSACTIONS DEEMED SALE SUBJECT TO VAT not provide for any additional qualification or
disqualification, the BIR cannot deny the application on the
6. ZERO-RATED AND EFFECTIVELY ZERO-RATED ground that HP International already enjoys income tax
SALES OF GOODS OR PROPERTIES holiday. An administrative agency may not enlarge, alter, or
(2019, 2017, 2013, 2012 BAR) restrict a provision of law. It cannot add to the requirements
provided by law. To do so constitutes lawmaking, which is
generally reserved for Congress. (Soriano v. SOF, G.R. Nos.
Q: For purposes of value-added tax, define, explain or
184450, 184508, 184538 & 185234, 24 Jan. 2017)
distinguish the following terms:
ALTERNATIVE ANSWER:
(a) xxx
The BIR is wrong. Under Sec 108(B)(3) of the NIRC, the sale
(b) Zero-rated and effectively zero-rated
is effectively zero-rated and there is no need to file an
transactions
application for zero-rating with the BIR. The BIR in pointing
out that HP International enjoys income tax holiday is of no
(c) xxx (2019 BAR)
moment, because a sale of services to an ecozone enterprise
by a supplier from the customs territory is considered as an
A: A zero-rated sale of goods or properties covering export
effectively zero-rated sale of service in view of the
sale and effectively zero-rated sale is a taxable transaction
exemption enjoyed by the PEZA enterprise from indirect
for VAT purposes, although the VAT rate applied is zero
taxes.
percent (0%). In other words, a sale by a VAT-registered
taxpayer of goods and/or services taxed at 0% shall not
Q: XYZ Law Offices, a law partnership in the Philippines
result in any output tax.
and a VAT registered taxpayer, received a query by e-
mail from Gainsburg Corporation, a corporation
On the other hand, an effectively zero-rated transaction
organized under the laws of Delaware, but the e-mail
does not cover export sales. It includes local sale of goods or
came from California where Gainsburg has an office.
supply of services by a VAT-registered person or persons or
Gainsburg has no office in the Philippines and does no
entities • who were granted tax exemption under special
business in the Philippines. XYZ Law Offices rendered
laws or international agreement to which the Philippines is
its opinion on the query and billed Gainsburg US$1,000
a signatory. (CIR v. Seagate Technology Phils., G.R. No.
for the opinion. Gainsburg remitted its payment
153866, 11 Feb. 2005; Bar Q&A by J. Dimaampao, 2020)
through Citibank which converted the remitted
US$1,000 to pesos and deposited the converted amount
Q: SMZ, Inc., is a VAT-registered enterprise engaged in
in the XYZ Law Offices account.
the general construction business. HP International
contracts the services of SMZ, Inc. to construct HP
What are the tax implications of the payment to XYZ
International’s factory building located in the Laguna
Law Offices in terms of VAT and income taxes? (2013
Techno Park, a special economic zone. HP International
BAR)
is registered with the Philippine Economic Zone
Authority (PEZA) as an ecozone export enterprise, and,
A: The payment to XYZ Law Offices by Gainsburg
as such, enjoys income tax holiday pursuant to the
Corporation is subject to VAT and income tax in the
Special Economic Zone Act of 1995. SMZ, Inc., files an
Philippines. For VAT purposes, the transaction is a zero-
application with the Bureau of Internal Revenue (BIR)
45
TAXATION LAW
rated sale of services where the output tax is zero percent that is primarily due from the contractor and is
and XYZ is entitled to claim as refund or tax credit certificate therefore not covered by the Host Agreement. The WHO
the input taxes attributable to the zero-rated sale. The argues that the VAT is deemed an indirect tax as PCC
services were rendered to a nonresident person, engaged in can shift the tax burden to it.
business outside the Philippines, which services are paid for
in foreign currency inwardly remitted through the banking Is the BIR correct? Explain. (2016 BAR)
system, thereby making the sale of services subject to tax at
zero-rate. (Sec. 108(B)(2), NIRC) For income tax purposes, A: The immunity of WHO from indirect taxes extends to the
the compensation for services is part of the gross income of contractor by treating the sale of service as effectively zero-
the law partnership. From its total gross income derived rated when the law provided that, “services rendered to
within and without, it has to compute its net income in the persons or entities whose exemption under special laws or
same manner as a corporation. The net income of the international agreements to which the Philippines is a
partnership whether distributed or not will be declared by signatory effectively subjects the supply of such service to
the partners as part of their gross income who are to pay zero percent (0%) rate”. (Sec. 108(B)(3), NIRC) Accordingly,
the income tax thereon in their individual capacity. (Sec. 26, the BIR is wrong in assessing the 12% VAT from the
NIRC) contractor, Precision Construction Corporation.
Q: Claim for tax credit or refund of excess input tax is Q: Except for one transaction, the rest are exempt from
available only to: (2012 BAR) value added tax. Which one is VAT taxable? (BAR 2012)
A) A VAT-registered person whose sales are made A) Sales of chicken by a restaurant owner who did
to embassies of foreign governments and not register as a VAT person and whose gross
United Nations agencies located in the annual sales is P1.2 Million;
Philippines without the BIR approval of the
B) Sales of copra by a copra dealer to a coconut oil
application for zero-rating; manufacturer who did not register as a VAT
person and whose gross annual sales is P5
B) Any person who has excess input tax arising Million;
from local purchases of taxable goods and
services; C) Gross receipts of CPA during the year amounted
to P1 Million; the CPA registered as a VAT
person in January 2011, before practicing his
C) A VAT-registered person whose sales are made
profession;
to clients in the Philippines;
D) Sales of a book store during the year amounted
D) A VAT-registered person whose sales are made to P10 Million; it did not register as a VAT
to customers outside the Philippines and who person with the BIR.
issued VAT invoices or receipts with the words
"ZERO RATED SALES" imprinted on the sales A: C) Gross receipts of CPA during the year amounted to P1
invoices or receipts. Million; the CPA registered as a VAT person in January
2011, before practicing his profession Sec. 108 of the NIRC.
A: D) A VAT-registered person whose sales are made to
customers outside the Philippines and who issued VAT Q: A lessor or real property is exempt from value added
invoices or receipts with the words "ZERO RATED SALES" tax in one of the transactions below. Which one is it?
imprinted on the sales invoices or receipts. (KepcoPhils. (2012 BAR)
Corp. v. CIR, G.R. No. 179961, 31 Jan. 2011)
A) Lessor leases commercial stalls located in the
Greenhills Commercial Center to VAT-
7. VAT-EXEMPT TRANSACTIONS
registered sellers of cell phones; lessor’s gross
(2016, 2012 BAR)
rental during the year amounted to P12 Million;
Q: Pursuant to Sec. 11 of the “Host Agreement between B) Lessor leases residential apartment units to
the United Nations and the Philippine government, it individual tenants for P10,000.00 per month
was provided that the World Health Organization per unit; his gross rental income during the
(WHO), “its assets, income and other properties shall year amounted to P2 Million;
be: exempt from all direct and indirect taxes.” Precision
Construction Corporation (PCC) was hired to construct C) Lessor leases commercial stalls at P10,000.00
the WHO Medical Center in Manila. Upon completion of per stall per month and residential units at
the building, the BIR assessed a 12% VAT on the gross P15,000.00 per unit per month; his gross rental
receipts of PCC derived from the construction of the income during the year amounted to P3 Million;
WHO building. The BIR contends that the 12% VAT is
not a direct nor an indirect tax on the WHO but a tax

2023 QuAMTO
QuAMTO (1987-2022)
D) Lessor leases two (2) residential houses and
lots at P50,000.00 per month per unit, but he A: C) Importation of wines by a wine dealer with a fair
registered as a VAT person. market value of P2 million for sale to hotels in Makati City
(Secs. 107 & 109, NIRC)
A: B) Lessor leases residential apartment units to individual
tenants for P10,000.00 per month per unit; his gross rental ALTERNATIVE ANSWER:
income during the year amounted to P2 Million. (Sec.
109(Q), NIRC) D) may also be a correct choice because only importation of
books is exempt from VAT. The importation of school
Q: IBP Bank extended loans to debtors during the year, supplies is not exempt.
with real properties of the debtors being used as
collateral to secure the loans. When the debtors failed Q: Which statement is correct? A bar review center
to pay the unpaid principal and interests after several owned and operated by lawyers is: (2012 BAR)
demand letters, the bank foreclosed the same and
entered into contracts of lease with tenants. The bank A) Exempt from VAT, regardless of its gross
is subject to the tax as follows: (BAR 2012) receipts during the year because it is an
educational center;
A) 12% VAT on the rental income, but exempt B) Exempt from VAT, provided that its annual
from the 7% gross receipts tax; gross receipts do not exceed P3 Million in 2011;
B) 7% gross receipts tax on the rental income, but C) Subject to VAT, regardless of its gross receipts
exempt from VAT; during the year;
C) Liable to both the 12% VAT and 7% gross D) Subject to VAT, if it is duly accredited by TESDA.
receipts tax;
D) Exempt from both the 12% VAT and 7% gross A: B) Exempt from VAT, provided that its annual gross
receipts tax. receipts do not exceed P1.5 million in 2011. (Sec. 109(V),
NIRC)
A: B) 7% gross receipts tax on the rental income, but
exempt from VAT. (Sec. 121, NIRC.) 8. INPUT AND OUTPUT TAX
(2019, 2012 BAR)
Q: Which transaction below is subject to VAT? (BAR
2012)
Q: For purposes of value-added tax, define, explain or
distinguish the following terms:
A) Sale of vegetables by a farmer in Baguio City to
a vegetable dealer;
(a) Input and output tax
B) Sale of vegetables by a vegetable dealer in
Baguio City to another vegetable dealer in
(b) xxx
Quezon City;
C) Sale of vegetables by the QC vegetable dealer to
(c) xxx (2019 BAR)
a restaurant in Manila;
D) Sale of vegetables by the restaurant operator to
A: Input tax means the value-added tax due from or paid by
its customers.
a VAT-registered person in the course of his trade or
business on importation of goods or local purchase of goods
A: D) Sale of vegetables by the restaurant operator to its
or services, including lease or use of properties from a VAT-
customers. (Sec. 109, NIRC)
registered person. It includes transitional input tax and
presumptive input tax.
Q: Which importation in 2011 is subject to VAT? (BAR
2012)
In contrast, output tax means the value-added tax due on
the sale or lease of taxable goods, properties or services by
A) Importation of fuels by a person engaged in
a VAT-registered or VAT-registrable seller. (Bar Q&A by J.
international shipping worth P20 Million;
Dimaampao, 2020)
B) Importation of raw, unprocessed, refrigerated
Kobe beef from Japan by a beef dealer for sale
Q: Input tax is available to a VAT-registered buyer,
to hotels in Makati City with a fair market value
provided that:
of P10 Million;
C) Importation of wines by a wine dealer with a
A) The seller is a VAT-registered person;
fair market value of P2 million for sale to hotels
B) The seller issues a VAT invoice or official
in Makati City;
receipt, which separately indicates the VAT
D) Importation of books worth P5 Million and
component;
school supplies worth P1.2 million.
47
TAXATION LAW
C) The goods or service is subject to or exempt A: NO. BIR’s contention is not meritorious. The taxpayer
from VAT, but the sale is covered by a VAT here had only until May 10, 2013 within which to file its
invoice or receipt issued by VAT-registered judicial claim for refund pursuant to Sec. 229 of the NIRC.
person; The provision requires that the judicial claim be filed before
D) The name and TIN of the buyer is not stated or the expiration of the 2-year prescriptive period, without
shown in the VAT invoice or receipt. having to wait for the BIR’s decision on the earlier filed
administrative claim for refund. Thus, the taxpayer was
Which statement shown above is NOT correct? (2012 only complying with the provisions of the NIRC when it filed
BAR) a petition for review one week after filing its administrative
claim for refund. (UPLC Suggested Answers)
A: B) The seller issues a VAT invoice or official receipt,
which separately indicates the VAT component. (Sec. (b) Assuming that the claim for refund filed by W Corp.
113(B), NIRC) is for excess and/or unutilized input VAT for the
second quarter of 2011, and for which the return
Q: For 2012, input tax is not available as a credit against was timely filed on July 25, 2011, would your
the output tax of the buyer of taxable goods or services answer be the same? Explain.
during the quarter, if: (BAR 2012)
A: NO. The answer would be different. Since the present
A) The VAT invoice or receipt of the seller is refund case happened prior to the effectivity of the TRAIN
registered with the BIR; Law, the pronouncement made by the SC in the case of CIR
v. Aichi Forging Company (G.R. No. 184823, 06 Oct. 2010) in
B) The VAT invoice or receipt of the seller does not 2013 shall apply, that is, the observance of the 120+30 days
separately indicate the gross selling price or period is mandatory and jurisdictional. Thus, counting 120
gross receipts and the VAT component therein; days from May 3, 2013, the last day for the CIR to act on the
claim for refund fell on August 31, 2013. Only after the
C) The VAT invoice or receipt is issued in the name expiration of such 120-day period, and within the 30-day
of the VAT-registered buyer and his TIN is period, thereafter, may T Corp. appeal such inaction, which
shown in said invoice or receipt; is a “deemed denial” before the CTA. (UPLC Suggested
Answers)
D) The VAT invoice or receipt issued by the seller
shows the Taxpayer Identification Number plus NOTE: The mandatory period shall be 90 days (from 120
the word "VAT" or "VAT registered person". days) upon the effectivity of TRAIN Law.
A: B) The VAT invoice or receipt of the seller does not Q: Explain the procedure for claiming refunds or tax
separately indicate the gross selling price or gross receipts credits of input Value Added Tax (VAT) for zero-rated
and the VAT component therein. (Sec. 113, NIRC) or effectively zero-rated sales under Sec. 112 of the
National Internal Revenue Code (NIRC) from the filing
9. TAX REFUND OR TAX CREDIT of an application with the CIR up to the CTA. (2016 BAR)
(2019, 2016, 2015, 2014 BAR)
A: In order to be entitled to a refund/tax credit of excess
input VAT attributable to zero-rated or effectively zero-
Q: On May 10, 2011, the final withholding tax for certain
rated sales, the following requisites must be complied with:
income payments to W Corp. was withheld and
remitted to the BIR and the corresponding return
1. The claim for refund must be filed with the
therefor was concomitantly filed on the same date.
Commissioner within 2 years counted from the last day
Upon discovering that the amount withheld was
of the quarter when the zero-rated sale was made (Sec.
excessive, W Corp. filed with the BIR a claim for refund
112, NIRC);
for erroneously withheld and collected final
withholding income tax on May 3, 2013. A week after,
2. The claim for refund must be accompanied by a
and without waiting for any decision from the CIR, W
statement under oath that all documents to support the
Corp. filed a petition for review before the CTA to make
claim has been submitted at the time of filing of the
sure that the petition was filed within the 2-year period
claim for refund (RMC 54-14);
for claiming refunds. In resisting the claim, the BIR
3. The Commissioner must decide on the claim within 120
contended that the claim must be dismissed by the CTA
days from date of filing and the adverse decision is
on the ground of non-exhaustion of administrative
appealable to the CTA within 30 days from receipt (Sec.
remedies because it did not give the CIR the
112, NIRC; CIR v. Aichi Forging of Asia, Inc., G.R. No.
opportunity to act on the claim of refund. (2019 BAR)
184823, 06 Oct. 2010); and
(a) Is the BIR’s contention meritorious? Explain.

2023 QuAMTO
QuAMTO (1987-2022)
4. If no decision is made within the 120-day period, there MMM, Inc. filed its Quarterly VAT Returns for 2000.
is a deemed denial or adverse decision which is Subsequently, MMM, Inc. timely filed with the BIR an
appealable to the CTA within 30 days from the lapse of administrative claim for the refund of the amount of
the 120-day period. (Sec. 112, NIRC; Sec. 7(a)(1), R.A. P6,321,486.50, representing excess input VAT
1125, as amended) attributable to its effectively zero-rated sales in 2000.
The BIR ruled to deny the claim for refund of MMM, Inc.
NOTE: The mandatory period shall be 90 days (from 120 because the VAT official receipts submitted by MMM,
days) upon the effectivity of TRAIN Law. Inc. to substantiate said claim did not bear the words
“zero-rated” as required under Sec. 4.108-1 of Revenue
Q: For calendar year 2011, FFF, Inc., a VAT-registered Regulations (RR) No. 7-95. On appeal, the CTA division
corporation, reported unutilized excess input VAT in and the CTA En Banc affirmed the BIR ruling. MMM, Inc.
the amount of P1,000,000.00 attributable to its zero- appealed to the Supreme Court arguing that the NIRC
rated sales. Hoping to impress his boss, Mr. G, the itself did not provide for such a requirement. RR No. 7-
accountant of FFF, Inc., filed with the Bureau of Internal 95 should not prevail over a taxpayer’s substantive
Revenue (BIR) on January31, 2013 a claim for tax right to claim tax refund or credit.
refund/credit of the P1,000,000.00 unutilized excess
input VAT of FFF, Inc. for 2011. Not having received any (a) Rule on the appeal of MMM, Inc.
communication from the BIR, Mr. G. filed a Petition for
Review with the CTA on March 15, 2013, praying for the A: The appeal of MMM, Inc. must be denied. MMM, Inc.’s
tax refund/credit of the P1,000,000.00 unutilized position that the requirements under RR No. 7-95 should
excess input VAT of FFF, Inc. for 2011. not prevail over a taxpayer’s substantive right to claim tax
refund or credit is unmeritorious. The Secretary of Finance
Discuss the proper procedure and applicable time has the authority to promulgate the necessary rules and
periods for administrative and judicial claims for regulations for the effective enforcement of the provisions
refund/credit of unutilized excess input VAT. (2015 of the NIRC. Such rules and regulations are given weight and
BAR) respect by the courts in view of the rule-making authority
given to those who formulate them and their specific
A: The administrative claim must be filed the Commissioner expertise in their respective fields. An applicant for a claim
of Internal Revenue (CIR) within the two years from the for tax refund or tax credit must not only prove entitlement
close of the taxable quarter when the zero-rated sales were to the claim, but also compliance with all the documentary
made. The CIR has 90 days from the date of submission of and evidentiary requirements. Consequently, the CTA and
complete documents in support of the claim to decide. If the the CTA En Banc correctly ruled that the failure to indicate
CIR decides within the 90-day period or the 90-day period the words “zero-rated” on the invoices and receipts issued
expires without the CIR rendering a decision, the taxpayer by a taxpayer would result in the denial of the claim for
has 30 days to file a petition for review with the CTA refund or tax credit. (Eastern Telecommunications
reckoned from the receipt of adverse decision or from the Philippines, Inc. v. CIR, G.R. No. 163835, 07 July 2010)
lapse of the 120-day period. As a general rule, the 30-day
period to appeal is both mandatory and jurisdictional. As an (b) Will your answer in (a) be any different if MMM, Inc.
exception to the general rule, premature filing is allowed was claiming refund of excess input VAT
only if filed between December 10, 2003 and October 5, attributable to its effectively zero-rated sales in
2010, when BIR Ruling No. DA-489-03 was still in force 2012? (2015 BAR)
prior to the reversal of the aforesaid ruling by the CTA in the
Aichi case on October 6, 2010. (CIR v. Mindanao II A: NO, my answer will not be different if the claim for refund
Geothermal Partnership, 713 SCRA 645 [2014]) is for effectively zero-rated sales in 2012. The requirement
to print the word “zero-rated” is no longer by mere
NOTE: The mandatory period shall be 90 days (from 120 regulations but is now clearly provided by law as follows –
days) upon the effectivity of TRAIN Law. “If the sale is subject to zero percent (0%) value-added tax,
the term “zero-rated sale” shall be written or printed
Q: MMM, Inc., a domestic telecommunications company, prominently on the invoice or receipt. Failure to comply
handles incoming telecommunications services for with this invoicing requirement is fatal to a claim for refund
non-resident foreign companies by relaying of input taxes attributable to the zero-rated sale. (Sec.
international calls within the Philippines. To broaden 113(B)(2)(c), NIRC)
the coverage of its telecommunications services
throughout the country, MMM, Inc. entered into various Moreover, as recently ruled by the Supreme Court, the
interconnection agreements with local carriers. The subsequent incorporation of Sec. 4.108-1 of RR No. 7-95 in
non-resident foreign corporations pay MMM, Inc. in US Sec. 113 of the NIRC as introduced in R.A. No. 9337, actually
dollars inwardly remitted through Philippine banks, in confirmed the validity of the imprinting requirement on
accordance with the rules and regulations of the VAT invoices or official receipts – a case falling under the
Bangko Sentral ng Pilipinas. principle of legislative approval of administrative
49
TAXATION LAW
interpretation by reenactment. (Northern Mindanao Power to the CTA is premature and the CTA has no jurisdiction to
Corp. v. CIR, G.R. No. 185115, 18 Feb. 2015) rule thereon. (Ibid.)
Q: Gangwam Corporation (GC) filed its quarterly tax NOTE: The mandatory period shall be 90 days (from 120
returns for the calendar year 2012 as follows: days) upon the effectivity of TRAIN Law.
First quarter - April 25, 2012 10. FILING OF RETURNS AND PAYMENT
Second quarter - July 23, 2012
Third quarter - October 25, 2012
Fourth quarter - January 27, 2013
D. TAX REMEDIES UNDER THE NATIONAL INTERNAL
REVENUE
On December 22, 2013, GC filed with the Bureau of (2019-2017, 2014, 2013, 2009, 2008, 2006, 2002,
Internal Revenue (BIR) an administrative claim for 2000, 1999-1996, 1989 BAR)
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
1. ASSESSMENT OF INTERNAL REVENUE TAXES
to elevate its claim directly to the Court of Tax Appeals
(2019, 2018, 2017, 2015-2008, 2006, 2005, 2002,
(CTA) on April 22, 2014.
2000, 1999-1996, 1989, 1987 BAR)
In due time, the CTA denied the tax refund relative to

the input VAT of GC for the first quarter of 2012, a) PROCEDURAL DUE PROCESS IN TAX ASSESSMENTS
reasoning that the claim was filed beyond the two-year (2014, 2012, 2011, 2010, 2009 BAR)
period prescribed under Sec. 112(A) of the National
Internal Revenue Code (NIRC). Q: When is a pre-assessment notice required under the
following cases? (2014 BAR)
(a) Is the CTA correct?
A) When the finding for any deficiency tax is the
A: NO. CTA is not correct. The two-year period to file a claim result of mathematical error in the
for refund refers to the administrative claim and does not computation of the tax as appearing on the face
refer to period within which to elevate the claim to the CTA. of the return;
The filing of the administrative claim for refund was timely
done because it is made within two years from the end of B) When a discrepancy has been determined
the quarter when the zero-rated transaction took place. between the tax withheld and the amount
(Sec. 112(A), NIRC) When GC decided to elevate its claim to actually remitted by the withholding agent;
the CTA on April 22, 2014, it was after the lapse of 120 days
from the filing of the claim for refund with the BIR, hence, C) When the excise tax due on excisable articles
the appeal is seasonably filed. The rule on VAT refunds is has been paid;
two years to file the claim with the BIR, plus 120 days for
the Commissioner to act and inaction after 120 days is a D) When an article locally purchased or imported
deemed adverse decision on the claim, appealable to the by an exempt person, such as, but not limited to
CTA within 30 days from the lapse of the 120-day period. vehicles, capital equipment, machineries and
(CIR v. Aichi Forging Company of Asia, Inc., G.R. No. 184823, spare parts, has been sold, traded or
Oct. 6, 2010; CIR v. San Roque, G.R. No. 187485, 12 Feb. 2013) transferred to non-exempt persons.
(b) Assuming that GC filed its claim before the CTA on A: A) When the excise tax due on excisable articles has been
February 22, 2014, would your answer be the paid. (Sec. 228, NIRC)
same? (2014 BAR)
Q: On April 15, 2011, the Commissioner of Internal
A: YES. The two-year prescriptive period to file a claim for Revenue mailed by registered mail the final
refund refers to the administrative claim with the BIR and assessment notice and the demand letter covering the
not to the period to elevate the claim to the CTA. Hence, the calendar year 2007 with the QC Post Office.
CTA cannot deny the refund for reasons that the first
quarter claim was filed beyond the two-year period Which statement is correct? (2012 BAR)
prescribed by law. However, when the claim is made before
the CTA on February 24, there is definitely no appealable A) The assessment notice is void because it was
decision as yet because the 120-day period for the mailed beyond the prescriptive period;
Commissioner to act on the claim for refund has not yet
lapsed. Hence, the act of the taxpayer in elevating the claim 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

2023 QuAMTO
QuAMTO (1987-2022)
return; What can be protested by a taxpayer is the final assessment
notice (FAN) or that assessment issued following the PAN.
C) The assessment notice is void if the taxpayer Since the FAN was timely protested, within 30 days from
can show that the same was received only after receipt thereof, the assessment did not become final and
one (1) month from date of mailing; executory. (Sec. 228, NIRC; RR. No. 12-99)
D) The assessment notice is valid even if the Q: A final assessment notice was issued by the BIR on
taxpayer received the same after the three- June 13, 2000, and received by the taxpayer on June 15,
year period from the date of filing of the tax 2000. The taxpayer protested the assessment on July
return. 31, 2000. The protest was initially given due course,
but was eventually denied by the Commissioner of
A: D) The assessment notice is valid even if the taxpayer Internal Revenue in a decision dated June 15, 2005.
received the same after the three-year period from the date The taxpayer then filed a petition for review with the
of filing of the tax return. (Sec. 203, NIRC; BPI v. CIR, G.R. No. Court of Tax Appeals (CTA), but the CTA dismissed the
139736, October 17, 2005) same. Is the CTA correct in dismissing the petition for
review? Explain your answer. (2009 BAR)
Q: A preliminary Assessment Notice (PAN) is NOT
required to be issued by the BIR before issuing a Final A: YES. The protest was filed out of time; hence the CTA
Assessment Notice (FAN) on one of the following cases: does not acquire jurisdiction over the matter. (CIR v. Atlas
(2012 BAR) Mining and Development Corp., G.R. No. 140488, 24 Jan.
2000)
A) When a taxpayer does not pay the 2010
b) REQUISITES OF A VALID ASSESSMENT
deficiency income tax liability on or before July
(2019, 2013, 2008 BAR)
15 of the year;
Q: On October 5, 2016, the Bureau of Internal Revenue

B) When the finding for any deficiency tax is the
(BIR) sent KLM Corp. a Final Assessment Notice (FAN),
result of mathematical error in the
stating that after its audit pursuant to a Letter of
computation of the tax as appearing on the face
Authority duly issued therefor, KLM Corp. had
of the return;
deficiency value-added and withholding taxes.
Subsequently, a warrant of distraint and/or levy was
C) When a discrepancy has been determined
issued against KLM Corp. KLM Corp. opposed the
between the value added tax paid and the
actions of the BIR on the ground that it was not
amount due for the year;
accorded due process because it did not even receive a
Preliminary Assessment Notice (PAN) after the BIR's
D) When the amount of discrepancy shown in the
investigation, which the BIR admitted:
Letter Notice is not paid within thirty (30) days
from date of receipt.
(a) Distinguish a PAN from a FAN.
A: B) When the finding for any deficiency tax is the result of

A: A PAN must be replied within fifteen (15) days from
mathematical error in the computation of the tax as
receipt while a FAN must be protested within thirty (30)
appearing on the face of the return. (Sec. 228, NIRC)
days from receipt. (RR No. 12-99; Sec. 228, NIRC, as
amended)
Q: On March 10, 2010, Continental, Inc. received a
preliminary assessment notice (PAN) dated March 1,
The Bureau of Internal Revenue’s (BIR’s) ‘rejection of the
2010 issued by the Commissioner of Internal Revenue
taxpayer’s reply to PAN needs no action, while the denial of
(CIR) for deficiency income tax for its taxable year
a protest against a FAN should be appealed by the taxpayer
2008. It failed to protest the PAN. The CIR thereupon
to the Court of Tax Appeals (CTA) Division. (RR No. 12-99;
issued a final assessment notice (FAN) with letter of
Sec. 228, NIRC, as amended).
demand on April 30, 2010. The FAN was received by the
corporation on May 10, 2010, following which or on
(b) Are the deficiency tax assessment and warrant of
May 25, 2010, it filed its protest against it. The CIR
distraint and/or levy issued against KLM Corp.
denied the protest on the ground that the assessment
valid? Explain. (2019 BAR)
had already become final and executory, the
corporation having failed to protest the PAN.
A: NO. Both the deficiency tax assessment and the warrant
issued are invalid. The deficiency tax assessment issued
Is the CIR correct? Explain. (2010 BAR)
against KLM Corp. is invalid due to the absence of a
preliminary assessment notice (PAN), which is required by
A: The issuance of preliminary assessment notice (PAN)
law for the validity of the assessment. (Sec. 228, NIRC)
does not give rise to the right of the taxpayer to protest.
Sending a PAN to the taxpayer to inform him of the
51
TAXATION LAW
assessment made is but a part of the “due process Bureau on the taxpayer for the settlement of a tax liability
requirement in the issuance of a deficiency tax that is due, definitely set and fixed therein. The requisites of
assessment,” the absence of which renders nugatory any a valid assessment are:
assessment made by the tax authorities. (CIR v. Metro Star
Superama, Inc., G.R. No. 185371, 08 Dec. 2010) 1. It must be made within the prescriptive period to
assess (Sec. 203, NIRC);
The warrant of distraint and/or levy cannot be issued to
enforce an invalid assessment. An assessment is a 2. There must be a preliminary assessment
preliminary step for the collection of taxes. If the previously issued, except in those instances
preliminary step in the collection process is invalid, the allowed by law (Sec. 228, NIRC);
entire collection process is also invalid which includes the
warrant issued. (UPLC Suggested Answers) 3. The taxpayer must be informed in writing about
the law and facts on which the assessment is based
Q: Mr. Tiaga has been a law-abiding citizen diligently (Sec. 228, NIRC); and
paying his income taxes. On May 5, 2014, he was
surprised to receive an assessment notice from the 4. It must be served upon the taxpayer or any of his
Bureau of Internal Revenue (BIR) informing him of a authorized representatives. (Estate of Juliana Diez
deficiency tax assessment as a result of a mathematical vda. De Gabriel v. CIR, G.R. No. 155541, 27 Jan. 2004)
error in the computation of his income tax, as
appearing on the face of his income tax return for the (b) As tax lawyer of EDS Corporation, what legal
year 2011, which he filed on April 15, 2012. Mr. Tiaga defense(s) would you raise against the assessment?
believes that there was no such error in the Explain. (2008 BAR)
computation of his income tax for the year 2011.
A: I will question the validity of the assessment because of
Based on the assessment received by Mr. Tiaga, may he the failure to send the demand letter which contains a
already file a protest thereon? (2014 BAR) statement of the law and the facts upon which the
assessment is based. If an assessment notice is sent without
A: YES. Mr. Tiaga may consider the assessment notice as a informing the taxpayer in writing about the law and facts
final assessment notice and his right to protest within 30 on which the assessment is made, the assessment is void.
days from receipt may now be exercised by him. When the (Sec. 228, NIRC; Reyes v. CIR, G.R. No. 163581, 27 Jan. 2006)
finding of a deficiency tax is the result of mathematical
c) TAX DELINQUENCY VS. TAX DEFICIENCY
error in the computation of the tax appearing on the face of
the return, a pre-assessment notice shall not be required,
hence the assessment notice is a final assessment notice. d) PRESCRIPTIVE PERIOD FOR ASSESSMENT
(2019, 2017, 2016, 2006, 2002, 2000, 1999, 1997,
1989 BAR)
Q: After examining the books and records of EDS
Corporation, the 2004 final assessment notice, showing
Q: After a Bureau of Internal Revenue (BIR) audit, T
basic tax of P1,000,000, deficiency interest of P400,000,
Corp., a domestic corporation engaged in buying and
and due date for payment of April 30, 2007 but without
selling of scrap metals, was found to have deficiency
the demand letter, was mailed and released by the BIR
income tax of P25,000,000.00, including interests and
on April 15, 2007. The registered letter, containing the
penalties, for the year 2012. For 2012, T Corp. filed its
tax assessment, was received by the EDS Corporation
income tax return (ITR) on April 15, 2013 because it
on April 25, 2007.
used the calendar year for its accounting. The BIR sent
the Preliminary Assessment Notice (PAN) on December
(a) What is an assessment notice? What are the
23, 2015, and eventually, the Final Assessment Notice
requisites of a valid assessment? Explain.
(FAN) on April 11, 2016, which were received by T Corp.
on the same dates that they were sent. Upon receipt of
A: An assessment notice is a formal notice to the taxpayer
the FAN, T Corp. filed its protest letter on June 25, 2016.
stating that the amount thereon is due as a tax and
containing a demand for the payment thereof. (Alhambra
Thereafter, and without action from the Commissioner
Cigar and Cigarette Mfg. Co. v. Collector, G.R. No. L-23226, 28
of Internal Revenue (CIR), T Corp. filed a petition for
Nov. 1967; CIR v. Pascor Realty and Development Corp., G.R.
review before the CTA, alleging that the assessment has
No. 128315, 29 June 1999) To be valid, the taxpayer must be
prescribed.
informed in writing of the law and the facts on which the
For its part, the CIR moved to dismiss the case, pointing
assessment is made. (Sec. 228, NIRC)
out that the assessment had already become final
because the protest was filed beyond the allowable
ALTERNATIVE ANSWER:
period.
An assessment is a written notice and demand made by the
(a) Is T Corp.'s contention regarding the prescription

2023 QuAMTO
QuAMTO (1987-2022)
of the assessment meritorious? Explain. must therefore be carefully and strictly construed.
(Philippine Journalists, Inc. v. CIR, G.R. No. 162852, 16 Dec.
A: NO. The three-year prescriptive period for the 2004)
assessment of tax shall start to run from the last day
(b) Has the right of the Government to assess and
prescribed by law for the filing of the return, or the day the
collect deficiency taxes from Vantage Point, Inc. for
return was filed, whichever comes later. (Sec. 203, NIRC) In
the year 2012 prescribed? Explain your answer.
the present case, since T. Corp. filed its annual income tax
(2017 BAR)
return on April 15, 2013, which is also the last day to file
the said return, the last day to assess shall fall on April 15,
A: YES, the final assessment was issued beyond the three-
2016. By issuing the FAN on April 11, 2016, the right to
year prescriptive period to make an assessment. (Sec. 203,
assess deficiency income tax for year 2012 has not yet
NIRC, as amended) The Waiver did not extend the three-
prescribed. (UPLC Suggested Answers)
year prescriptive period, since it was executed after the
expiration of such period. (UPLC Suggested Answers)
(b) Should the CIR's motion to dismiss be granted?
Explain. (2019 BAR)
Q: The requisites for a valid waiver of the three-year (3-
year) prescriptive period for the BIR to assess taxes
A: YES. Since the taxpayer failed to file a protest against the
due in the taxable year are prescribed by Revenue
FAN within 30 days from date of receipt, the assessment
Memorandum Order No. 20-90:
had become final, executory, and demandable. (Sec. 228,
NIRC; RR No. 18-13; UPLC Suggested Answers)
1. The waiver must be in the proper form prescribed
by RMO 20-90.
Q: On January 27, 2017, Ramon, the comptroller of
Vantage Point, Inc., executed a document entitled
2. The waiver must be signed by the taxpayer himself
“Waiver of the Statute of Limitations” in connection
or his duly authorized representative. In the case of
with the BIR’s investigation of the tax liabilities of the
a corporation, the waiver must be signed by any of
company for the year 2012. However, the Board of
its responsible officials. In case the authority is
Directors of Vantage Point, Inc., did not adopt a board
delegated by the taxpayer to a representative, such
resolution authorizing Ramon to execute the waiver.
delegation should be in writing and duly notarized.
On October 14, 2017, Vantage Point, Inc., received a

3. The waiver should be duly notarized.
preliminary assessment notice from the BIR indicating
its deficiency withholding taxes for the year 2012.
4. The CIR or the revenue official authorized by him
Vantage Point, Inc., filed its protest. On October 30,
must sign the waiver indicating that the BIR has
2017, the BIR issued a formal letter of demand and
accepted and agreed to the waiver. The date of such
final assessment notice. Vantage Point, Inc., again filed
acceptance by the BIR should be indicated.
a protest. The CIR denied the protest and directed the
However, before signing the waiver, the CIR or the
collection of the assessed deficiency taxes.
revenue official authorized by him must make sure
that the waiver is in the prescribed form, duly
Accordingly, Vantage Point, Inc., filed a petition for
notarized, and executed by the taxpayer or his duly
review in the CTA to seek the cancellation and
authorized representative.
withdrawal of the assessment on the ground of
prescription.
5. Both the date of execution by the taxpayer and date
of acceptance by the Bureau should be before the
(a) What constitutes a valid waiver of the statute of
expiration of the period of prescription or before
limitations for the assessment and collection of
the lapse of the period agreed upon in case a
taxes? Explain your answer.
subsequent agreement is executed.
A: Generally, a valid waiver of the statute of limitations for

6. The waiver must be executed in three copies, the
the assessment and collection of taxes must be executed by
original copy to be attached to the docket of the
the taxpayer and accepted by the BIR prior to the
case, the second copy for the taxpayer and the third
expiration of the period which it seeks to extend. The same
copy for the Office accepting the waiver. The fact of
must also be executed by the taxpayer or his duly
receipt by the taxpayer of his/her file copy must be
authorized representative, or in the case of a corporation,
indicated in the original copy to show that the
it must be signed by any of its responsible officers. (CIR v.
taxpayer was notified of the acceptance of the BIR
Kudos Metal Corporation, G.R. No. 178087, 05 May 2010)
and the perfection of the agreement.
Such requirements must be met considering that a waiver
of the statute of limitations under the NIRC, to a certain
After being assessed by the BIR with alleged deficiency
extent, is a derogation of the taxpayer’s right to security
income taxes, VVV Corporation (VVV) through Enrique,
against prolonged and unscrupulous investigations and
its President, executed a waiver of the prescriptive
53
TAXATION LAW
period. The waiver was signed by Revenue District April 15,1998. Since the assessment was issued only on
Officer (RDO) Alfredo. However, the waiver did not April 20, 2001, the BIR’s right to assess has already
state the date of execution by the taxpayer and date of prescribed.
acceptance by the BIR. Enrique was also not furnished
a copy of the waiver by the BIR. (1) FALSE RETURNS VS. FRAUDULENT RETURNS VS.
NON-FILING OF RETURNS
VVV claims that the waiver ‘is void due to non- (2018, 2009, 2002, 1998, 1996, 1989 BAR)
compliance with RMO 20-90. Hence, the period for
assessment had already prescribed. Moreover, since Q: True or False: A false return and a fraudulent return
the assessment involves P2 million, the waiver should are one and the same. (2009 BAR)
have been signed by the CIR and instead of a mere RDO.
On the other hand, the BIR contends that the A: FALSE. There is a difference between a false return and
requirements of RMO No. 20-90 are merely directory; a fraudulent return. The first merely implies a deviation
that the execution of the waiver by VVV was a from the truth or fact whether intentional or not, whereas
enunciation of its right to invoke prescription and that the second is intentional and deceitful with the aim of
the government cannot be estopped by the mistakes evading the correct tax due (Aznar v. Commissioner, G.R. No.
committed by its revenue officers. L-20569, 23 Aug. 1974; UPLC Suggested Answers)
Is VVV liable? Explain. (2016 BAR) Q: Distinguish a false return from a fraudulent return.
(1996 BAR)
A: NO. A waiver executed beyond the prescriptive period is
ineffective. (CIR v. The Stanley Works Sales (Phils), Inc., G.R. A: The distinction between a false return and a fraudulent
No. 187589, 03 Dec. 2014) The waiver was executed after return is that the first merely implies a deviation from the
VVV Corporation (VVV) was assessed for deficiency income truth or fact whether intentional or not, whereas the
taxes obviously to justify the assessment made after second is intentional and deceitful with the sole aim of
prescription had set in. This is the reason why VVV is evading the correct tax due. (Aznar vs. Commissioner, G.R.
invoking prescription due to the alleged invalidity of the No. L-20569, 23 Aug. 1974)
waiver for failure to comply with the requisites set forth
under RMO 20-90. ALTERNATIVE ANSWER:
NOTE: Recent guidelines governing the execution of A false return contains deviations from the truth which
Waivers of the Defense of Prescription are provided under may be due to mistakes, carelessness or ignorance of the
RMC No. 141-2019. person preparing the return. A fraudulent return contains
an intentional wrongdoing with the sole object of avoiding
Q: Mr. Sebastian is a Filipino seaman employed by a the tax and it may consist in the intentional under
Norwegian company which is engaged exclusively in declaration of income, intentional over declaration of
international shipping. He and his wife, who manages deductions or the recurrence of both. A false return is not
their business, filed a joint income tax return for 1997 necessarily tainted with fraud because the fraud
on March 15, 1998. After an audit of the return, the BIR contemplated by law is actual and not constructive. Any
issued on April 20, 2001 a deficiency income tax deviation from the truth on the other hand, whether
assessment for the sum of P250,000.00, inclusive of intentional or not, constitutes falsity. (Ibid.)
interest and penalty. For failure of Mr. and Mrs.
Sebastian to pay the tax within the period stated in the Q: The BIR Commissioner, in his relentless
notice of assessment, the BIR issued on August 19, 2001 enforcement of the Run After Tax Evaders (RATE)
warrants of distraint and levy to enforce collection of program, filed with the Department of Justice (DOJ)
the tax. charges against a movie and television celebrity. The
Commissioner alleged that the celebrity earned
If you are the lawyer of Mr. and Mrs. Sebastian, what around P50 million in fees from product endorsements
possible defense or defenses will you raise in behalf of in 2016 which she failed to report in her income tax
your clients against the action of the BIR in enforcing and VAT returns for said year. The celebrity
collection of the tax by the summary remedies of questioned the proceeding before the DOJ on the
warrants of distraints and levy? Explain your answer. ground that she was denied due process since the BIR
(2002 BAR) never issued any Preliminary Assessment Notice (PAN)
or a Final Assessment Notice (FAN), both of which are
A: I will raise the defense of prescription. The right of the required under Sec. 228 of the NIRC whenever the
BIR to assess prescribes after three years counted from the Commissioner finds that proper taxes should be
last day prescribed by law for the filing of the income tax assessed.
returns when the said return is filed on time. (Sec. 203,
NIRC) The last day for filing the 1997 income tax return is Is the celebrity's contention tenable? (2018 BAR)

2023 QuAMTO
QuAMTO (1987-2022)
A: NO. In cases where a fraudulent return is filed with the (a) May the collection of taxes be suspended? Explain
intent to evade a tax, a proceeding in court for the collection your answer.
of such tax maybe filed without assessment. (Sec. 222(a),
NIRC) Assessment is not necessary before the filing of a A: YES. As provided by R.A. No. 1125, as amended by R.A.
criminal complaint for tax evasion. (CIR v. Pascor Realty and No. 9282, that when in the opinion of the Court the
Development Corp., G.R. No. 128315, 29 June 1999; UPLC collection by the aforementioned government agencies may
Suggested Answers) jeopardize the interest of the Government and/or the
taxpayer, the Court at any stage of the proceeding may
Q: Mr. Castro inherited from his father, who died on suspend the collection and require the taxpayer either to
June 10, 1994, several pieces of real property in Metro deposit the amount claimed or to file a surety bond for not
Manila. The estate tax return was filed and the estate more than double the amount with the Court.
tax due in the amount of P250,000.00 was paid on
December 6, 1994. The Tax Fraud Division of the BIR (b) Is the CTA Division justified in requiring
investigated the case on the basis of confidential Globesmart Services, Inc., to post a surety bond as a
information given by Mr. Santos on January 6, 1998 that condition for the suspension of the deficiency tax
the return filed by Mr. Castro was fraudulent and that collection? Explain your answer. (2017 BAR)
he failed to declare all properties left by his father with
intent to evade payment of the correct tax. As a result, a A: NO. The Supreme Court in the Tridharma Case cited the
deficiency estate tax assessment for P1,250,000.00, case of Pacquiao v. CTA (G.R. No. 213394, 06 Apr. 2016)
inclusive of 50% surcharge for fraud, interest, and where it ruled that the CTA should first conduct a
penalty, was issued against him on January 10, 2001. preliminary hearing for the proper determination of the
Mr. Castro protested the assessment on the ground of necessity of a surety bond or the reduction thereof. In the
prescription. conduct of its preliminary hearing, the CTA must balance
the scale between the inherent power of the State to tax and
Decide Mr. Castro’s protest. (2002 BAR) its right to prosecute perceived transgressors of the law, on
one side, and the constitutional rights of petitioners to due
A: The protest should be resolved against Mr. Castro. What process of law and the equal protection of the laws, on the
was filed is a fraudulent return making the prescriptive other. In this case, the CTA failed to consider that the
period for assessment ten (10) years from discovery of the amount of the surety bond that it is asking Globesmart
fraud. (Sec. 222, NIRC) Accordingly, the assessment was Services, Inc. to pay is more than its net worth. It is, thus,
issued within the prescriptive period to make an necessary for the CTA to first conduct a preliminary hearing
assessment based on a fraudulent return. to give the taxpayer an opportunity to prove its inability to
come up with such amount.
(2) SUSPENSION OF THE RUNNING OF STATUTE OF
LIMITATIONS 2. TAXPAYER’S REMEDIES
(2017, 2016 BAR) (2018, 2017, 2014, 2012, 2009, 2008, 2005, 2002,
2000-1996, 1989, 1987 BAR)
Q: Globesmart Services, Inc. received a final assessment
notice with formal letter of demand from the BIR for
deficiency income tax, value-added tax and withholding a) PROTESTING AN ASSESSMENT
tax for the taxable year 2016 amounting to P48 million. (2014, 2012, 2009, 2008, 2005, 2000, 1999, 1997,
1992, 1987 BAR)
Globesmart Services, Inc., filed a protest against the
assessment, but the Commissioner of Internal Revenue
Q: Mr. Tiaga has been a law-abiding citizen diligently
denied the protest. Hence, Globesmart Services, Inc.
paying his income taxes. On May 5, 2014, he was
filed a petition for review in the CTA with an urgent
surprised to receive an assessment notice from the
motion to suspend the collection of tax. After hearing,
Bureau of Internal Revenue (BIR) informing him of a
the CTA Division issued a resolution granting the
deficiency tax assessment as a result of a mathematical
motion to suspend but required Globesmart Services,
error in the computation of his income tax, as
Inc., to post a surety bond equivalent to the deficiency
appearing on the face of his income tax return for the
assessment within 15 days from notice of the
year 2011, which he filed on April 15, 2012. Mr. Tiaga
resolution. Globesmart Services, Inc. moved for the
believes that there was no such error in the
partial reconsideration of the resolution and for the
computation of his income tax for the year 2011.
reduction of the bond to an amount it could obtain. The
CTA division issued another resolution reducing the
Based on the assessment received by Mr. Tiaga, may he
amount of the surety bond to P24 million. The latter
already file a protest thereon? (2014 BAR)
amount was still more than the net worth of Globesmart
Services, Inc., as reported in its audited financial
A: YES. Mr. Tiaga may consider the assessment notice as a
statements.
final assessment notice and his right to protest within 30
days from receipt may now be exercised by him. When the
55
TAXATION LAW
finding of a deficiency tax is the result of mathematical introduced for examination for the first time. It
error in the computation of the tax appearing on the face of suspends the prescriptive period to collect. (UPLC
the return, a pre-assessment notice shall not be required Suggested Answers)
hence, the assessment notice is a final assessment notice.
(Sec. 228, NIRC; RR No. 18-2013) ALTERNATIVE ANSWER:
Q: On March 27, 2012, the Bureau of Internal Revenue 1. A request for reinvestigation suspends the running of
(BIR) issued a notice of assessment against Blue Water the prescriptive period for collection of taxes while a
Industries Inc. (BWI), a domestic corporation, motion for reconsideration does not.
informing the latter of its alleged deficiency corporate
income tax for the year 2009. On April 20, 2012, BWI 2. A request for reinvestigation requires the presentation
filed a letter protest before the BIR contesting said of newly discovered or additional evidence while a
assessment and demanding that the same be cancelled motion for reconsideration does not.
or set aside.
3. The period of 60 days for submission of the relevant
However, on May 19, 2013, that is, after more than a supporting documents finds application only to a
year from the filing of the letter protest, the BIR request for reinvestigation and not to a request for
informed BWI that the latter’s letter protest was reconsideration.
denied on the ground that the assessment had already
become final, executory, and demandable. The BIR 4. The failure of the Commissioner of Internal Revenue to
reasoned that its failure to decide the case within 180 act on the request for reconsideration after a period of
days from filing of the letter protest should have 180 days from filing thereof authorizes the taxpayer to
prompted BWI to seek recourse before the Court of Tax file a petition for review with the CTA within a period
Appeals (CTA) by filing a petition for review within of 30 days from the expiration of such 180-day period
thirty (30) days after the expiration of the 180-day while for a request for reinvestigation the period is the
period as mandated by the provisions of the last expiration of the 180-day period from the submission
paragraph of Sec. 228 of the National Internal Revenue of the complete supporting documents.
Code (NIRC). Accordingly, BWI’s failure to file a petition
for review before the CTA rendered the assessment Q: After examining the books and records of EDS
final, executory and demandable. Is the contention of Corporation, the 2004 final assessment notice,
the BIR correct? Explain. (2014 BAR) showing basic tax of P1,000,000 deficiency interest of
P400,000 and due date for payment of April 30, 2007,
A: NO, the contention of BIR is not correct. The right of BWI but without the demand letter, was mailed and
to consider the inaction of the Commissioner on the protest released by the BIR on April 15, 2007. The registered
within 180 days as an appealable decision is only optional letter, containing the tax assessment, was received by
and will not make the assessment final, executory and the EDS Corporation on April 25, 2007.
demandable. (Sec. 228, NIRC; Lascona Land Co., Inc. v. CIR,
G.R. No. 171251, 05 Mar. 2012) (a) What is an assessment notice? What are the
Q: The Commissioner of Internal Revenue issued a BIR requisites of a valid assessment? Explain.
ruling to the effect that the transaction is liable to
income tax and value added tax, upon receipt of the A: An assessment notice is a formal notice to the taxpayer
ruling, a taxpayer does not agree thereto. What is his stating that the amount thereon is due as a tax and
proper remedy? (2012 BAR) containing a demand for the payment thereof. (Alhambra
A: File an appeal to the Secretary of Justice within thirty Nov. 1967; CIR v. Pascor Realty and Development Corp., G.R.
(30) days from receipt thereof. (Sec. 4, NIRC) No. 128315, 29 June 1999) To be valid, the taxpayer must be
informed in writing of the law and the facts on which the
Q: What are the differences between a request for assessment is made. (Sec. 228, NIRC)
reconsideration and a request for reinvestigation?
(2012 BAR) ALTERNATIVE ANSWER:
A: An assessment is a written notice and demand made by the

1. Request for Reconsideration – plea for evaluation of Bureau on the taxpayer for the settlement of a tax liability
assessment on the basis of existing records without that is due, definitely set and fixed therein. The requisites
need of presentation of additional evidence. It does not of a valid assessment are:
suspend the period to collect the deficiency tax.
1. It must be made within the prescriptive period to
2. Request for Reinvestigation – plea for re-evaluation on assess (Sec. 203, NIRC);
the basis of newly discovered evidence which are to be

2023 QuAMTO
QuAMTO (1987-2022)
2. There must be a preliminary assessment previously taxpayer should explain that the capital gains tax was paid
issued, except in those instances allowed by law Sec. in good faith because the property sold is a capital asset,
228, NIRC); and considering that was paid is also an income tax it
should be credited on grounds of equity against the income
3. The taxpayer must be informed in writing about the tax assessment. Once the final assessment is made, I will
law and facts on which the assessment is based (Sec. advise him to protest it within thirty days from receipt,
228, NIRC); and invoking the holding period and the wrong rate used. (UPLC
Suggested Answers)
4. It must be served upon the taxpayer or any of his
authorized representatives. (Estate of Juliana Diez vda. Q: Describe separately the procedures on the legal
De Gabriel v. CIR, G.R. No. 155541, 27 Jan. 2004) remedies under the Tax Code available to an aggrieved
taxpayer both at the administrative and judicial levels.
(b) As tax lawyer of EDS Corporation, what legal (2000 BAR)
defense(s) would you raised against the
assessment? Explain. (2008 BAR) A: The legal remedies of an aggrieved taxpayer under the
Tax Code, both at the administrative and judicial levels,
A: I will question the validity of the assessment because of may be classified into those for assessment, collection, and
the failure to send the demand letter which contains a refund.
statement of the law and the facts upon which the
assessment is based. If an assessment notice is sent without The procedures for the administrative remedies for
informing the taxpayer in writing about the law and facts assessment are as follows:
on which the assessment is made, the assessment is void.
(Sec. 228, NIRC; Reyes v. CIR, G.R. No. 163581, 27 Jan. 2006) 1. After receipt of the Pre-Assessment Notice (PAN), he
must within fifteen (15) days from receipt explain
Q: Pedro Manalo, A Filipino citizen residing in Makati why no additional taxes should be assessed against
City, owns a vacation house and lot in San Francisco, him.
California, U.S.A, which he acquired in 2000 for P15
million. On January 10, 2006 he sold said real property 2. If the CIR issues an assessment notice, the taxpayer
to Juan Mayaman, another Filipino citizen residing in must administratively protest or dispute the
Quezon City, for P20 million. On February 9, 2006 assessment by filing a motion for reconsideration or
Manalo filed the capital gains tax return and paid P1.2 reinvestigation within thirty (30) days from receipt of
million representing 6% capital gain tax. Since Manalo the notice of assessment. (4th par., Sec. 228, NIRC)
did not derive any ordinary income, no income tax
return was filed by him for 2006. After the tax audit 3. Within sixty (60) days from filing of the protest, the
conducted in 2007, the BIR officer assessed Manalo for taxpayer shall submit all relevant supporting
deficiency income tax computed as follows: P5 million documents.
(P20 million less P 15 million) x 35% = P1.75 million,
without the capital gains tax paid being allowed as tax The judicial remedies of an aggrieved taxpayer relative to
credit. Manalo consulted a real estate broker who said an assessment notice are as follows:
that the P1.2 million capital gains tax should be
credited from P1.75 million deficiency income tax. 1. Where the CIR has not acted on the taxpayer’s protest
within a period of 180 days from submission of all
A) Is the BIR officer's tax assessment correct? Explain. relevant documents, then the taxpayer has a period of
thirty (30) days from the lapse of said 180 days within
A: The BIR officer’s tax assessment is wrong for two which to interpose a petition for review with the CTA.
reasons. First, the rate of income tax used is the corporate
income tax although the taxpayer is an individual. Second, 2. Should the Commissioner deny the taxpayer's protest,
the computation of the gain recognized from the sale did then he has a period of thirty (30) days from receipt of
not consider the holding period of the asset. The capital said denial within which to interpose a petition for
asset having been for more than twelve months, only 50% review with the CTA.
of the gain is recognized. (Sec. 39(B), NIRC)
In both cases the taxpayer must apply with the CTA for the
B) If you were hired by Manalo as his tax consultant, issuance of an injunctive writ to enjoin the Bureau of
what advice would you give him to protect his Internal Revenue (BIR) from collecting the disputed tax
interest? Explain. (2008 BAR) during the pendency of the proceedings.
A: I will advise him to ask for the issuance of the final The adverse decision of the CTA is appealable to the CA by
assessment notice and request for the crediting of the means of a petition for certiorari within a period of fifteen
capital gains tax paid against the income tax due. The (15) days from receipt of the adverse decision, extendible
57
TAXATION LAW
for another period of fifteen (15) days for compelling A: NO. Before taxpayer can avail of judicial remedy, he must
reasons, but the extension is not to exceed a total of thirty first exhaust administrative remedies by filing a protest
(30) days in all. within 30 days from receipt of the assessment. It is the
Commissioner's decision on the protest that give the Tax
The adverse decision of the CA is appealable to the SC by Court jurisdiction over the case provided that the appeal is
means of a petition for review on certiorari within a period filed within 30 days from receipt of the Commissioner’s
of fifteen (15) days from receipt of the adverse decision of decision. An assessment by the BIR is not the
the CA. Commissioner's decision from which a petition for review
may be filed with the CTA. Rather, it is the action taken by
The employment by the BIR of any of the administrative the Commissioner in response to the taxpayer's protest on
remedies for the collection of the tax, like distraint, levy, etc. the assessment that would constitute the appealable
may be administratively appealed by the taxpayer to the decision.
Commissioner whose decision is appealable to the CTA
under other matter arising under the provisions of the Q: Under the above factual setting, the taxpayer, instead
Code. The judicial appeals start with the CTA and continues of questioning the assessment he received on 15
in the same manner as shown above. January 1996, paid on 01 March 1996 the "deficiency
tax" assessed. The taxpayer requested a refund from
Should the BIR decide to utilize Its judicial tax remedies for the Commissioner by submitting a written claim on 01
collecting the taxes by means of an ordinary suit filed with March 1997. It was denied. The taxpayer, on 15 March
the regular courts for the collection of a sum of money, the 1997, filed a petition for review with the CA.
taxpayer could oppose the same by going up the ladder of
judicial processes from the MTC (as the case may be) to the Could the petition still be entertained? (1997 BAR)
RTC, to the CA, thence to the SC.
A: NO, the petition for review cannot be entertained by the
The remedies of an aggrieved taxpayer on a claim for CA, since decisions of the Commissioner on cases involving
refund is to appeal the adverse decision of the claim for tax refunds are within the exclusive and primary
Commissioner to the CTA in the same manner outlined jurisdiction of the CTA.
above.
(4) ACTION OF THE COMMISSIONER ON THE PROTEST
(1) PERIOD TO FILE PROTEST FILED
(2014, 2012, 2010, 2009, 2005, 1999 BAR)
(2) SUBMISSION OF SUPPORTING DOCUMENTS
Q: On March 27, 2012, the Bureau of Internal Revenue
(3) EFFECT OF FAILURE TO FILE PROTEST (BIR) issued a notice of assessment against Blue Water
(2009, 1997 BAR) Industries Inc. (BWI), a domestic corporation,
informing the latter of its alleged deficiency corporate
Q: A final assessment notice was issued by the BIR on income tax for the year 2009. On April 20, 2012, BWI
June 13, 2000 and received by the taxpayer on June 15, filed a letter protest before the BIR contesting said
2000. The taxpayer protested the assessment on July assessment and demanding that the same be cancelled
31, 2000. The protest was initially given due course but or set aside.
was eventually denied by the Commissioner of Internal
Revenue in a decision dated June 15, 2005. The However, on May 19, 2013, that is after more than a
taxpayer then filed a petition for review with the CTA, year from the filing of the letter protest, the BIR
but the CTA dismissed the same. informed BWI that the latter’s letter protest was
denied on the ground that the assessment had already
Is the CTA correct in dismissing the petition for review? become final, executory, and demandable. The BIR
Explain your answer. (2009 BAR) reasoned that its failure to decide the case within 180
days from filing of the letter protest should have
A: YES. The protest was filed out of time; hence the CTA prompted BWI to seek recourse before the CTA by
does not acquire jurisdiction over the matter. (CIR v. Atlas filing a petition for review within 30 days after the
Mining and Development Corp., G.R. No. 140488, 24 Jan. expiration of the 180-day period as mandated by the
2000; UPLC Suggested Answers) provisions of the last paragraph of Sec. 228 of the NIRC.
Accordingly, BWI’s failure to file a petition for review
Q: A taxpayer received, on 15 January 1996, an before the CTA rendered the assessment final,
assessment for an internal revenue tax deficiency. On executory and demandable.
10 February 1996, the taxpayer forthwith filed a
petition for review with the CTA. Is the contention of the BIR correct? Explain. (2014
BAR)
Could the Tax Court entertain the petition? (1997 BAR)

2023 QuAMTO
QuAMTO (1987-2022)
A: NO, the contention of BIR is not correct. The right of BWI protest the PAN.
to consider the inaction of the Commissioner on the protest
within 180 days as an appealable decision is only optional Is the CIR correct? (2010 BAR)
and will not make the assessment final, executory and
demandable. (Sec 228, NIRC; Lacsona Land Co., Inc. v. CIR, A: NO. The CIR is incorrect. The issuance of PAN does not
GR No. 171251, 05 Mar. 2012; UPLC Suggested Answers) give rise to the right of the taxpayer to protest. What can be
protested by a taxpayer is the FAN or that assessment
Q: In the examination conducted by the revenue issued following the PAN. Since the FAN was timely
officials against the corporate taxpayer in 2010, the protested, within 30 days from receipt thereof, the
BIR issued a final assessment notice and demand letter assessment did not become final and executory. (UPLC
which states: “It is requested that the above deficiency Suggested Answers)
tax be paid immediately upon receipt hereof, inclusive
of penalties incident to delinquency. This is our final b) COMPROMISE AND ABATEMENT OF TAXES
decision based on investigation. If you disagree, you (2017, 2009, 2005, 2002, 2000, 1998, 1996, 1989
may appeal this final decision within 30 days from BAR)
receipt hereof, otherwise said deficiency tax
assessment shall become final, executory, and COMPROMISE OF TAXES
demandable.” The assessment was immediately (2017, 2009, 2005, 2002, 2000, 1998, 1996, 1989
appealed by the taxpayer to the CTA, without filing its BAR)
protest against the assessment and without a denial
thereof by the BIR. If you were the judge, would you Q: State and discuss briefly whether the following cases
deny the petition for review filed by the taxpayer and may be compromised or may not be compromised:
consider the case as prematurely filed? Explain you
answer. (2012 BAR) (a) Delinquent accounts
A: NO, the Petition for Review should not be denied. The A: Delinquent accounts may be compromised if either of
case is an exception to the rule on exhaustion of the two conditions is present: (1) the assessment is of
administrative remedies. The BIR is estopped from doubtful validity, or (2) the financial position of the
claiming that the filing of the Petition for Review is taxpayer demonstrates a clear inability to pay the tax. (Sec.
premature because the taxpayer failed to exhaust all 204(A), NIRC; Sec. 2, RR. No. 30-02)
administrative remedies. The statement of the BIR in its
Final Assessment Notice and Demand Letter led the (b) Cases under administrative protest, after issuance
taxpayer to conclude that only a final judicial ruling in his of the final assessment notice to the taxpayer,
favor would be accepted by the BIR. The taxpayer cannot which are still pending
be blamed for not filing a protest against the Formal Letter
of Demand with Assessment Notices since the language A: These may be compromised, provided that it is premised
used and the tenor of the demand letter indicate that it is upon doubtful validity of the assessment or financial
the final decision of the respondent on the matter. The CIR incapacity to pay. (Ibid)
should indicate, in a clear and unequivocal language,
whether his action on a disputed assessment constitutes (c) Criminal tax fraud cases
his final determination thereon in order for the taxpayer
concerned to determine when his or her right to appeal to A: These may not be compromised, so that the taxpayer
the tax court accrues. Although there was no direct may not profit from his fraud, thereby discouraging its
reference for the taxpayer to bring the matter directly to commission. (Ibid)
the CTA, it cannot be denied that the word “appeal” under
prevailing tax laws refers to the filing of a Petition for (d) Criminal violations already filed in court
Review with the CTA. (Allied Bank vs CIR, G.R. No. 175097,
05 Feb. 2010; UPLC Suggested Answers) A: These may not be compromised in order that the
taxpayer will not profit from his criminal acts. (Ibid)
Q: On March 10, 2010, Continental Inc., received a
preliminary assessment notice dated March 1, 2010 (e) Cases where final reports of reinvestigation or
issued by the CIR for deficiency income tax for its reconsideration have been issued resulting in the
taxable year 2008. It failed to protest the PAN. The CIR reduction of the original assessment agreed to by
thereupon issued a FAN with letter of demand on April the taxpayer when he signed the required
30, 2010. The FAN was received by the corporation on agreement form (2005 BAR)
May 10, 2010, following which or on May 25, 2010, it
filed its protest against it. The CIR denied the protest A: Cases where final reports of reinvestigation or
on the ground that the assessment had already become reconsideration have been issued resulting in the reduction
final and executory, the corporation having failed to of the original assessment agreed to by the taxpayer when
59
TAXATION LAW
he signed the required agreement form, cannot be aviation fuel imported were actually sold to
compromised. By giving his conformity to the revised international carriers of Philippine and foreign
assessment, the taxpayer admits the validity of the registries for their use or consumption outside of the
assessment and his capacity to pay the same. (Sec. 2, RR No. Philippines in the period from November 1, 2014 to
30-02) December 31, 2014. Wreck Corporation did not pass on
to the international carriers the excise taxes it paid on
Q: Under what conditions may the Commissioner of the importation of petroleum products.
Internal Revenue be authorized to compromise the
payment of any internal revenue tax? (2000 BAR) On June 25, 2015, Wreck Corporation filed an
administrative claim for refund or issuance of tax credit
A: The Commissioner of Internal Revenue may be certificate amounting to the excise taxes it had paid on
authorized to compromise the payment of any internal the importation of 225 million liters of Jet A-1 aviation
revenue tax where: fuel.
1. A reasonable doubt as to the validity of the claim If you were the Commissioner of Internal Revenue, will
against the taxpayer exists; or you grant Wreck Corporation's administrative claim
for refund or issuance of tax credit certificate? Explain
2. The financial position of the taxpayer demonstrates a your answer. (2017 BAR)
clear inability to pay the assessed tax.
A: YES, but only the excise tax which corresponds to the
ABATEMENT OF TAXES 75% of the total volume of aviation fuel imported that were
(2017, 2000, 1996, 1989 BAR) actually sold to the international carriers. Wreck
Corporation, as the statutory taxpayer who is directly liable
Q: Distinguish compromise from abatement of taxes. to pay the excise tax on its petroleum products, is entitled
(2017 BAR) to a refund or credit of the excise taxes it paid for petroleum
products sold to international carriers, the latter having
A: Compromise of tax is a remedy upon the presence of any been granted exemption from the payment of said excise tax
of these grounds: (1) doubtful validity of the assessment; under Sec. 135(a) of the NIRC. (CIR v. Pilipinas Shell
(2) financial incapacity of the taxpayer. In contrast, Petroleum Corporation, G.R. No. 188497, 19 Feb. 2014; UPLC
abatement of tax is an available remedy when the tax or any Suggested Answers)
portion thereof appears to be unjustly or excessively
assessed, or when the administration and collection costs CONDITIONS FOR THE GRANT OF A REFUND OR
involved do not justify the collection of the amount due. CREDIT
(Sec. 204, NIRC, as amended; Bar Q&A by J. Dimaampao, (2019, 2005, 2002 BAR)
2020)
Q: XYZ Corp. is listed as a top 20,000 Philippine
Q: Under what conditions may the Commissioner of corporation by the BIR. It secured a loan from ABC
Internal Revenue be authorized to abate or cancel a tax Bank with a 6% per annum interest. All interest
liability? (2000 BAR) payments made by XYZ Corp. to ABC Bank is subject to
A: The Commissioner of Internal Revenue may abate or a 2% creditable withholding tax. At the same time, XYZ
cancel a tax liability when: Corp. has a trust receipt deposit with ABC Bank in the
amount of 100 Million, which earns 2% interest per
1. The tax or any portion thereof appears to be unjustly annum, but is subject to a 20% final withholding tax on
or excessively assessed; or the interest income received by XYZ Corp.
2. The administration and collection costs involved do When is the deadline for filing a judicial claim for
not justify the collection of the amount due. (Sec. refund for any excess or erroneous taxes paid in the
204(B), NIRC) case of: 1) the 20% final withholding tax; and 2) the 2%
creditable withholding tax. (2019 BAR)
c) RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY
COLLECTED
A: The deadline for filing a judicial claim for refund for any
(2018, 2017, 2014, 2005, 2002 BAR)
excess or erroneous taxes paid pertaining to withholding
taxes paid are as follows:
Q: Wreck Corporation is a domestic corporation
engaged in the business of importing, refining, and
1. The 20% final withholding tax – For final withholding
selling petroleum products. During the period from
taxes, the 2-year period to file a judicial claim for
September 1, 2014 to December 31, 2014, Wreck
refund (petition for Review with the CTA) is within 2
Corporation imported 225 million liters of Jet A-1
years from the date of actual remittance of the tax or
aviation fuel and paid the excise taxes thereon.
from the last day of the month following the close of the
Seventy-five percent (75%) of the total volume of

2023 QuAMTO
QuAMTO (1987-2022)
quarter during which withholding was made, which was carried over from year 2015. Sec. 76 of the NIRC
whichever comes first. (Secs. 204 & 229, in relation to clearly states: Once the option to carry-over and apply the
Sec. 58, NIRC) excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been
2. The 2% creditable withholding tax –For excess made, such option shall be considered irrevocable for that
creditable withholding taxes, the filing of the judicial taxable period and no application for cash refund or
claim is within 2 years from filing of the final income issuance of a tax credit certificate shall be allowed therefor.
tax return of the payee, or last day for its filing, Sec. 76 expressly states that the option shall be considered
whichever comes first. It is only upon filing of the final irrevocable for that taxable period referring to the period
income tax return can it be determined with certainty comprising the succeeding taxable years. Sec. 76 further
whether there is a refundable amount. (ACCRA states that no application for cash refund or issuance of a
Investments Corp. v. CA, G.R. No. 96322, 20 Dec. 1991; tax credit certificate shall be allowed, referring to that
UPLC Suggested Answers) taxable period comprising the succeeding taxable years.
(Asiaworld Properties Philippine Corporation vs. CIR, G.R. No.
Q: State the conditions required by the Tax Code before 171766, 29 July 2010; UPLC Suggested Answers)
the Commissioner of Internal Revenue could authorize
the refund or credit of taxes erroneously or illegally Q: In its final adjustment return for the 2010 taxable
received. (2005 BAR) year, ABC Corp. had excess tax credits arising from its
overwithholding of income payments. It opted to carry
A: The conditions are: over the excess tax credits to the following year.
Subsequently, ABC Corp. changed its mind and applied
1. A written claim for refund is filed by the taxpayer with for a refund of the excess tax credits.
the Commissioner of Internal Revenue;
Will the claim for refund prosper? (2013 BAR)
2. The claim for refund must be a categorical demand for
reimbursement (Bermejo v. CIR, G.R. No. L-3029, A: NO. The claim for refund will not prosper. While the law
25 July 1950); gives the taxpayer an option whether to carry-over or claim
as refund the excess tax credits shown on its final
3. The claim for refund or tax credit must be filed with adjustment return, once the option to carry over has been
the Commissioner, or the suit or proceeding therefore made, such option shall be considered irrevocable for that
must be commenced in court within 2 years from date taxable period and no application for cash refund or
of payment of the tax or penalty regardless of any issuance of a tax credit certificate shall be allowed. (Sec. 76,
supervening cause. NIRC; CIR v. PL Management International Phils, Inc., GR No.
160949, 04 Apr. 2011; UPLC Suggested Answers)
OPTION TO CARRY OVER EXCESS QUARTERLY INCOME
TAX PAID PERIOD FOR FILING CLAIM FOR REFUND OR CREDIT
(2017, 2013 BAR) (2008, 1997, 1994, 1992 BAR)
Q: Vanderful, lnc.'s income tax return for taxable year Q: DEF Corporation is a wholly owned subsidiary of
2015 showed an overpayment due to excess creditable DEF, Inc., California, USA. Starting December 15, 2004.
withholding taxes in the amount of P750,000.00. The DEF Corporation paid annual royalties to DEF, Inc., for
company opted to carry over the excess income tax the use of the latter's software, for which the former, as
credits as tax credit against its quarterly income tax withholding agent of the government, withheld and
liabilities for the next succeeding years. For taxable remitted to the BIR the 15% final tax based on the gross
year 2016, the company's income tax return showed an royalty payments. The withholding tax return was filed
overpayment due to excess creditable withholding and the tax remitted to the BIR on January 10 of the
taxes in the amount of P1,100,000.00, which included following year. On April 10, 2007, DEF Corporation
the carry-over from year 2015 in the amount of filed a written claim for tax credit with the BIR, arising
P750,000.00 because its operations resulted in a net from erroneously paid income taxes covering the years
loss; hence, there was no application for any tax 2004 and 2005. The following day, DEF Corporation
liability. This time, the company opted and marked the filed a petition for review with the CTA involving the
box “To be refunded” in respect of the total amount of tax credit claim for 2004 and 2005.
P1,100,000.00. Vanderful, Inc. now files in the BIR a
claim for refund of unutilized overpayments of As a BIR lawyer handling the case, would you raise the
P1,100,00.00. defense of prescription in your answer to the claim for
tax credit? Explain. (2008 BAR)
Is the claim meritorious? (2017 BAR)
A: YES. The claim for refund for the 2004 erroneously paid
A: NO, but only to the extent of the amount of P750,000.00 income tax was filed out of time because the claim was only
61
TAXATION LAW
filed after more than two years had elapsed from the use of the latter's software, for which the former, as
payment thereof. (Secs. 204(C) & 229, NIRC) with holding agent of the government, withheld, and
remitted to the BIR the 15% final tax based on the gross
WITHHOLDING AGENT AS A PROPER PARTY TO FILE A royalty payments. The withholding tax return was filed
CLAIM FOR REFUND OR CREDIT and tax remitted to the BIR on January 10 of the
(2009, 2008, 2005, 1999, 1992 BAR) following year. On April 10, 2007 DEF Corporation filed
written claim for tax credit with the BIR, arising from
Q: ABCD Corporation (ABCD) is a domestic corporation erroneously paid income taxes covering the years 2004
with individual and corporate shareholders who are and 2005. The following day, DEF Corporation filed a
residents of the United States. For the 2nd quarter of petition for review with the court of Tax Appeals
1983, these U.S.-based individual and corporate involving the tax credit claim for 2004 and 2005.
stockholders received cash dividends from the
corporation. The corresponding withholding tax on Can the BIR lawyer raise the defense that DEF Corp. is
dividend income 30% for individual and 35% for not the proper party to file such claims for tax credit?
corporate non- resident stockholders – was deducted (2008 BAR)
at source and remitted to the BIR.
A: NO, the BIR cannot raise the defense that DEF
On May 15, 1984, ABCD filed with the Commissioner of Corporation is not the proper party. In CIR v. Procter and
Internal Revenue a formal claim for refund, alleging Gamble Philippine Manufacturing Corp (G.R. No. L-66838,
that under the RP- US Tax Treaty, the deduction 02 Dec. 1991), the Court ruled that a final withholding agent
withheld at source as tax on dividends earned was is a proper party “with sufficient legal interest” because it
fixed at 25% of said income. Thus, ABCD asserted that will be liable in the event that the final income tax cannot
it overpaid the withholding tax due on the cash be paid by the taxpayer. (Philippine Guaranty Co. v. CIR, G.R.
dividends given to its non-resident stockholders in the No. L-22074, 30 Apr. 1965)
U.S. the Commissioner denied the claim.
Q: Does a withholding agent have the right to file an
On January 17, 1985, ABCD filed a petition with the CTA application for tax refund? (2005 BAR)
reiterating its demand for refund. (2009 BAR)
A: YES, a withholding agent should be allowed to claim for
(a) Does ABCD Corporation have the legal personality a tax refund, because under the law, said agent is the one
to file the refund on behalf of its non-resident who is liable for any violation of the withholding tax law
stockholders? Why or why not? should such violation occur. (CIR v. Wander Philippines, Inc.,
G.R. No. L-68375, 15 Apr. 1988)
A: YES, withholding agents is not only an agent of the
government but is also an agent of the taxpayer/income Furthermore, since the withholding agent is made
earner. Hence, ABCD is also an agent of the beneficial owner personally liable to deduct and withhold any tax under the
of the dividends with respect to the actual payment of the NIRC, it is imperative that he be considered the taxpayer for
tax to the government, such authority may reasonably be all legal intents and purposes. Thus, by any reasonable
held to include the authority to file a claim for refund and standard, such person should be regarded as a party in
to bring an action for recovery of such for refund and to interest to bring suit for refund of taxes (CIR v. Procter and
bring an action for recovery of such claim (CIR v. Procter & Gamble Philippine Manufacturing Corp., G.R. No. L-66838, 02
Gamble, G.R. No. L-66838, 02 Dec. 1991; UPLC Suggested Dec. 1991)
Answers)
3. GOVERNMENT REMEDIES FOR COLLECTION OF
(b) Is the contention of ABCD Corporation correct? DELINQUENT TAXES
Why or why not? (2009 BAR) (2015, 2013, 2010 BAR)
A: YES. The contention of ABCD Corporation is correct. The

Q: On August 31, 2014, Haelton Corporation (HC), thru
principle of international comity dictates that a tax treaty
its authorized representative Ms. Pares, sold a 16-
must prevail over the local taxing statute. Thus, the RP-US
storey commercial building known as Haeltown
Tax Treaty must be applied thereby resulting in a claim for
Building to Mr. Belly for P100 million. Mr. Belly, in turn,
refund representing the difference between the amount
sold the same property on the same day to Bell Gates,
actually withheld and paid to the BIR and the amount due
Inc. (BGI) for P200 million. These two (2) transactions
and payable under the said treaty. (Bar Q&A by J.
were evidenced by two (2) separate Deeds of Absolute
Dimaampao, 2020)
Sale notarized on the same day by the same notary
public.
Q: DEF Corporation is wholly owned subsidiary of DEF,
Inc., California, USA. Starting December 15, 2004, DEF
Investigations by the Bureau of Internal Revenue (BIR)
Corporation paid annual royalties to DEF, Inc., for the
showed that:

2023 QuAMTO
QuAMTO (1987-2022)
1. the Deed of Absolute Sale between Mr. Belly and Q: Based on the Affidavit of the Commissioner of
BGI was notarized ahead of the sale between HC and Internal Revenue (CIR), an Information for failure to
Mr. Belly; file income tax return under Sec. 255 of the National
Internal Revenue Code (NIRC) was filed by the
2. as early as May 17, 2014, HC received P40 million
Department of Justice (DOJ) with the Manila Regional
from BGI, and not from Mr. Belly;
Trial Court (RTC) against XX, a Manila resident. XX
3. the said payment of P40 million was recorded by moved to quash the Information on the ground that the
BGI in its books as of June 30, 2014 as investment in RTC has no jurisdiction in view of the absence of a
Haeltown Building; and formal deficiency tax assessment issued by the CIR.
4. the substantial portion of P40 million was Is a prior assessment necessary before an Information
withdrawn by Ms. Pares through the declaration of for violation of Sec. 255 of the NIRC could be filed in
cash dividends to all its stockholders.
court? Explain. (2010 BAR)
Based on the foregoing, the BIR sent Haeltown
Corporation a Notice of Assessment for deficiency A: NO. In the case of failure to file a return, a proceeding in
income tax arising from an alleged simulated sale of the court for the collection of the tax may be filed without an
aforesaid commercial building to escape the higher assessment. (Sec. 222(a), NIRC) The tax can be collected by
corporate income tax rate of thirty percent (30%). filing a criminal action with the RTC because a criminal
action is a mode of collecting the tax liability. (Sec. 205,
What is the liability of Haeltown Corporation, if any? NIRC) Besides, the Commissioner is empowered to prepare
(2015 BAR) a return on the basis of his own knowledge, and upon such
information as he can obtain from testimony or otherwise,
A: Haelton Corporation is liable for the deficiency income which shall be prima facie correct and sufficient for legal
tax as a result of tax evasion. The purpose of selling first the purposes. (Sec. 6(B), NIRC) The issuance of a formal
property to Mr. Belly is to create a tax shelter. He never deficiency tax assessment, therefore, is not required.
controlled the property and did not enjoy the normal
benefits and burdens of ownership. The sale to him was a) REQUISITES
merely a tax ploy, a sham, and without business purpose
and economic substance. The intermediary transaction, NON-AVAILABILITY OF INJUNCTION TO RESTRAIN
which was prompted more on the mitigation of tax COLLECTION OF TAX
liabilities than for legitimate business purpose constitutes (2014, 2001, 1998, 1996 BAR)
one of tax evasion. However, being a corporation, Haelton
can only be liable for civil fraud which is a civil liability Q: May the courts enjoin the collection of revenue
rather than a criminal fraud which can only be committed taxes? Explain your answer. (2001 BAR)
by natural persons. (CIR v. Toda, Jr., G.R. No. 147188, 14 Sept.
2004) A: As a rule, the courts have no authority to enjoin the
collection of revenue taxes. (Sec. 218, NIRC) However, the
Q: In 2010, pursuant to a Letter of Authority (LA) issued CTA is empowered to enjoin the collection of taxes through
by the Regional Director, Mr. Abcede was assessed administrative remedies when collection could jeopardize
deficiency income taxes by the BIR for the year 2009. He the interest of the government or taxpayer. (RA. No. 1125)
paid the deficiency. In 2011, Mr. Abcede received
another LA for the same year 2009, this time from the b) PRESCRIPTIVE PERIODS
National Investigation Division, on the ground that Mr. (2010, 2009, 2002, 2001, 1997, 1994 BAR)
Abcede's 2009 return was fraudulent. Mr. Abcede
contested the LA on the ground that he can only be Q: A final assessment notice was issued by the BIR on
investigated once in a taxable year. June 13, 2000 and received by the taxpayer on June 15,
2000. The taxpayer protested the assessment on July
Decide. (2013 BAR) 31, 2000. The protest was initially given due course but
was eventually denied by the Commissioner of Internal
A: The contention of Mr. Abcede is not tenable. While the Revenue in a decision dated June 15, 2005. The
general rule is to the effect that for income tax purposes, a taxpayer then filed a petition for review with the Court
taxpayer must be subject to examination and inspection by of Tax Appeals (CTA), but the CTA dismissed the same.
internal revenue officers only once in a taxable year, this
will not apply if there is fraud, irregularity or mistakes as Assume that the CTA’s decision dismissing the petition
determined by the Commissioner. In the instant case, what for review has become final. May the Commissioner
triggered the second examination is the findings by the BIR legally enforce collection of the delinquent tax? Explain.
that Mr. Abcede’s 2009 return was fraudulent, accordingly, (2009 BAR)
the examination is legally justified. (Sec. 235, NIRC)
63
TAXATION LAW
A: NO. The protest was filed out of time and, therefore, did A) involving deficiency income taxes only, but not
not suspend the running of the prescriptive period for the for other taxes.
collection of the tax. Once the right to collect has prescribed, B) because of doubt as to the validity of the
the Commissioner can no longer enforce collection of the assessment.
tax liability against the taxpayer. (CIR v. Atlas Mining and C) if the compromise amount does not exceed
Development Corp., G.R. No. 140488, 24 Jan. 2000) 10% of the basic tax.
D) only when there is an approval of the National
4. CIVIL PENALTIES Evaluation Board.
(2018, 2017, 2011 BAR)
A: B) because of doubt as to the validity of the assessment.
(Sec. 204, NIRC, as amended)
a) DELINQUENCY INTEREST AND DEFICIENCY
INTEREST
Q: Anion, Inc. received a notice of assessment and a
letter from the BIR demanding the payment of P3
b) SURCHARGE million pesos in deficiency income taxes for the taxable
(2018, 2017 BAR) year 2008. The financial statements of the company
show that it has been suffering financial reverses from
Q: The BIR assessed Kosco, Inc., an importer of food the year 2009 up to the present. Its asset position shows
products, deficiency income and value-added taxes, that it could pay only P500,000.00 which it offered as a
plus 50% surcharge after determining that Kosco, Inc. compromise to the BIR.
had under-declared its sales by an amount exceeding
30% of that declared in its income tax and VAT returns. Which among the following may the BIR require to
Kosco, Inc. denied the alleged under-declaration, enable it to enter into a compromise with Anion, Inc.?
protested the deficiency assessment for income and (2011 BAR)
value-added taxes and challenged the imposition of the
50% surcharge on the ground that the surcharge may A) Anion must show it has faithfully paid taxes
only be imposed if Kosco, Inc. fails to pay the deficiency before 2009.
taxes within the time prescribed for their payment in B) Anion must promise to pay its deficiency when
the notice of assessment. financially able.
C) Anion must waive its right to the secrecy of its
(a) Is the imposition of the 50% surcharge proper? bank deposits.
D) Anion must immediately deposit the
A: YES. The imposition of the fifty percent (50%) surcharge
P500,000.00 with the BIR.
is proper. Sec. 248(B) of the NIRC, provides that 50%
surcharge on tax or on deficiency tax is imposable in case a
A: C) Anion must waive its right to the secrecy of its bank
false or fraudulent return is willfully made. Failure to report
deposits. (Sec. 6(F)(2), NIRC, as amended)
sales, receipts or income in an amount exceeding thirty
percent (30%) of that declared per return constitutes
substantial under declaration of sales and is prima facie
evidence of a false or fraudulent return. Kosco, lnc.'s under-
declaration of sales is considered substantial as to consider
the tax return it filed as falsified or fraudulent. (Bar Q&A by
J. Dimaampao, 2020)
(b) If your answer to {a) is yes, may Kosco, Inc. enter

into a compromise with the BIR for reduction of the
amount of surcharge to be paid? (2018 BAR)
A: NO. Kosko may not enter into a compromise with the BIR.
Surcharge is in the nature of a penalty. Only an internal
revenue tax may be subject to compromise pursuant to Sec.
204 of the NIRC, as amended. (Bar Q&A by J. Dimaampao,
2020)
c) COMPROMISE PENALTY
(2018, 2011 BAR)
Q: Jeopardy assessment is a valid ground to

compromise a tax liability. (2011 BAR)

2023 QuAMTO
QuAMTO (1987-2022)
predominantly utilized by the person in possession thereof.
III. LOCAL TAXATION Hence, considering that, as admitted by Kerwin, 2/3 of the
property ‘s used for commercial purposes, the entire
property must be classified as “commercial” for real
property tax purposes. (UPLC Suggested Answers)
A. LOCAL GOVERNMENT TAXATION

Q: The Roman Catholic Church owns a 2- hectare lot in
(2022, 2019-2014, 2010-2005, 2003-2000, 1998,
1996, 1991-1987 BAR) a town in Tarlac province. The southern side and
middle part are occupied by the Church and a convent,
the eastern side by a school run by the Church itself, the
southeastern side by some commercial
1. GENERAL PRINCIPLES
establishments, while the rest of the property, in
(2018, 2009, 2005, 2003, 2001, 2000, 1990, 1988 BAR)
particular the northwestern side, is idle or unoccupied.
Q: In 2015, Kerwin bought a three-story house and lot May the Church claim tax exemption on the entire
in Kidapawan, North Cotabato. The property has a floor land? Decide with reasons. (2005 BAR)
area of 600 sq.m. and is located inside a gated
subdivision. Kerwin initially declared the property as A: NO. The portions of the land occupied and used by the
residential for real property tax purposes. church, convent and school run by the church are exempt
from real property taxes while the portion of the land
In 2016, Kerwin started using the property in his occupied by commercial establishments and the portion,
business of manufacturing garments for export. The which is idle, are subject to real property taxes. The “usage”
entire ground floor is now occupied by state-of-the-art of the property and not the “ownership" is the determining
sewing machines and other equipment, while the factor whether or not the property is taxable. (Lung Center
second floor is used as offices. The third floor is of the Philippines v. Q.C., G.R. No. 144104, 29 June 2004)
retained by Kerwin as his family's residence. Kerwin's
neighbors became suspicious of the activities going on
2. NATURE AND SOURCE OF
inside the house, and they decided to report it to the
TAXING POWER
(2022, 2019-2015, 2009, 2007-2005, 2003-2000,
government discovered that the property was being
1998, 1996, 1990-1987 BAR)
utilized for commercial use. Immediately, the
Kidapawan Assessor reclassified the property as
commercial with an assessment level of 50% effective a) GRANT OF LOCAL TAXING POWER UNDER THE
January 2017, and assessed Kerwin back taxes and LOCAL GOVERNMENT CODE
interest. Kerwin claims that only 2/3 of the building (2007, 2003, 2001, 1998, 1987 BAR)
was used for commercial purposes since the third floor
remained as family residence. He argues that the Q: What is the nature of the taxing power of the
property should have been classified as partly provinces, municipalities, and cities? How will the local
commercial and partly residential. government units be able to exercise their taxing
powers? (2007 BAR)
(a) xxx
A: The taxing power of the provinces, municipalities, and
(b) Is Kerwin correct that only 2/3 of the cities is directly conferred by the Constitution by giving
property should be considered them the authority to create their own sources of revenue.
commercial? The local government units do not exercise the power to tax
as an inherent power or by a valid delegation of the power
(c) xxx (2018 BAR)
by Congress, but pursuant to a direct authority conferred
by the Constitution. (Mactan Cebu International Airport
A: YES. The property must be classified, valued, and
Authority v. Marcos, G.R. No. 120082, 11 Sept. 1996; NPC v.
assessed on the basis of its actual use regardless of where
City of Cabanatuan, G.R. No. 149110, 09 Apr. 2003)
located, whoever owns it, and whoever uses it. (Sec. 217,
LGC; UPLC Suggested Answers)
The local government units exercise the power to tax by
levying taxes, fees, and charges consistent with the basic
ALTERNATIVE ANSWER:
policy of local autonomy, and to assess and collect all these
taxes, fees and charges which will exclusively accrue to
NO. One of the fundamental principles in the appraisal,
them. The local government units are authorized to pass
assessment, levy, and collection of real property tax under
tax ordinances (levy) and to pursue actions for the
Sec. 198 of the LGC is that the real property shall be
assessment and collection of the taxes imposed in said
classified for assessment purposes on the basis of its actual
ordinances. (Secs. 129 & 132, LGC)
use. Sec. 199 of the LGC defines “actual use” as referring to
the purpose for which the property is principally or
65
TAXATION LAW
Q: May Congress, under the 1987 Constitution, abolish beneficial use thereof has been granted, for consideration
the power to tax of local governments? (2003 BAR) or otherwise, to a taxable person. A government
instrumentality, though vested with corporate powers, are
A: NO. Congress cannot abolish what is expressly granted exempt from real property tax but the exemption shall not
by the fundamental law. The only authority conferred to extend to taxable private entities to whom the beneficial use
Congress is to provide the guidelines and limitations on the of the government instrumentality's properties has been
local government’s exercise of the power to tax. (Sec. 5, Art vested. (Philippine Heart Center v. Local Government of
X, 1987 Constitution) Quezon City, G.R. No. 225409, 11 Mar. 2020; G.R. No. 144104,
29 June 2004; GSIS v. City Treasurer of Manila, G.R. No. 18624,
b) AUTHORITY TO PRESCRIBE PENALTIES FOR TAX 23 Dec. 2009; MWSS v. Local Government of Quezon, G.R. No.
VIOLATIONS 194388, 07 Nov. 2018; LRTA v. City of Pasay, G.R. No. 211299,
28 June 2022; Bar Q&A by Cruz, 2023)
c) AUTHORITY TO GRANT LOCAL TAX EXEMPTIONS
(2022, 2019, 2018, 2017, 2016, 2015, 2009, 2006, Q: City R owns a piece of land which it leased to V Corp.
2005, 2002, 2000, 1996, 1990, 1989, 1987 BAR) In turn, V Corp. constructed a public market there on
and leased the stalls to vendors and small storeowners.
Q: Philippine Medical Center (PMC) is a government The City Assessor then issued a notice of assessment
hospital created by law to provide healthcare to the against V Corp. for the payment of real property taxes
general public, especially the less fortunate. To enable (RPT) accruing on the public market building, as well
PMC to perform its mandate, the national government as on the land where said market stands.
provided the initial capital, land, buildings, and
equipment to PMC. PMC's charter also authorized it, Is the City Assessor correct in including the land in its
acting through its Board of Trustees: to acquire assessment of RPT against V Corp., even if the same is
property; to enter into contracts; to mortgage, owned by City R? Explain. (2019 BAR)
encumber, lease, sell, convey, or dispose of its
properties; and to do other acts necessary to A: YES. City R is correct in including the land in the RPT
accomplish its purposes and objectives. Assessment. Sec. 234 of the LGC provides that the
properties owned by the government of the Philippines and
Among the properties of PMC are five lands and any of its instrumentalities shall be exempt from RPT
buildings located in Quezon City. The Quezon City except when the beneficial use thereof pertains to a non-
assessor issued notices of assessment for real property exempt entity for a consideration.
taxes (RPT) against PMC's properties that are being
leased to private concessionaires. According to the city When City R leased the property to V Corp., the beneficial
assessor, PMC's properties leased to private entities are use of the otherwise exempt property, now pertains to a
subject to RPT because these properties are not being non-exempt entity. (UPLC Suggested Answers)
exclusively used for charitable purposes. PMC, on the
other hand, claims that, as a government Q: Kilusang Krus, Inc. (KKI) is a non-stock, non-profit
instrumentality imbued with corporate powers, it is religious organization which owns a vast tract of land
exempt from RPT. in Kalinga.
(a) Is PMC liable for the assessed RPT over the leased KKI has devoted 1/2 of the land for various uses: a
properties? Explain briefly. church with a cemetery exclusive for deceased priests
and nuns, a school providing K to 12 education, and a
A: YES, it is liable for real property taxes. Even if it were a hospital which admits both paying and charity
government hospital basically established as a charitable patients. The remaining 1/2 portion has remained idle.
institution, those portions of its real property that are
leased to private entities are not exempt from real property The KKI Board of Trustees decided to lease the
taxes as these are not actually, directly, and exclusively used remaining 1/2 portion to a real estate developer which
for charitable purposes. (Lung Center of the Philippines v. constructed a community mall over the property.
Quezon City, G.R. No. 144104, 29 June 2004; Bar Q&A by Cruz,
2023) Since the rental income from the lease of the property
was substantial, the KKI decided to use the amount to
(b) Supposing PMC is correct that it is not liable for finance: (1) the medical expenses of the charity
RPT, may the city assessor assess the lessees for the patients in the KKI Hospital; and (2) the purchase of
RPT due on PMC's leased properties? Explain books and other educational materials for the students
briefly. (2022 BAR) of KKI School. (2018 BAR)
A: YES, the lessees may be so assessed by the city assessor. Is KKI liable for real property taxes on the land?
Sec. 234(a) of R.A. No. 7160 exempts real property owned
by the Republic from real property taxes except when the

2023 QuAMTO
QuAMTO (1987-2022)
A: YES, but only on the leased portion. Art. VI, Sec. 28(3) of (Center) which will house medical practitioners who
the 1987 Constitution provides that “charitable will lease the spaces therein for their clinics at
institutions, churches and personages or convents prescribed rental rates. The doctors who treat the
appurtenant thereto, mosques, non-profit cemeteries, and patients confined in the Hospital are accredited by the
all lands, buildings, and improvements, actually, directly, Association.
and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation”. The The City Assessor classified the Center as "commercial"
test of exemption from taxation is the use of the property instead of "special" on the ground that the Hospital
for purposes mentioned in the Constitution. The leased owner gets income from the lease of its spaces to
portion of the land may be subject to real property tax since doctors who also entertain out-patients.
such lease is for commercial purposes, thereby, removing
the asset from the property tax exemption granted under Is the City Assessor correct in classifying the Center as
the Constitution. (CIR vs. De La Salle University, Inc., GR. Nos, "commercial?" Explain. (2016 BAR)
196596, 198841 & 198941, 09 Nov. 2016; UPLC Suggested
Answers) A: NO. The City Assessor is not correct in classifying the
Center as “commercial”. The fact alone that the separate St.
Q: San Juan University is a non-stock, non-profit Michael’s Medical Arts Center will house medical
educational institution. It owns a piece of land in practitioners who shall treat the patients confined in the
Caloocan City on which its three 3-storey school Hospital and are accredited by the Association takes away
building stood. Two of the buildings are devoted to the said Medical Arts Center from being categorized as
classrooms, laboratories, a canteen, a bookstore, and “commercial” since a tertiary hospital is required by law to
administrative offices. The third building is reserved as have a pool of physicians who comprise the required
dormitory for student athletes who are granted medical departments in various medical fields. (City
scholarships for a given academic year. Assessor of Cebu City v. Association of Benevola de Cebu, Inc.,
G.R. No. 152904, 08 June 2007; UPLC Suggested Answers)
In 2017, San Juan University earned income from
tuition fees and from leasing a portion of its premises Q: LLL is a government instrumentality created by
to various concessionaires of food, books, and school Executive Order to be primarily responsible for
supplies. (2017 BAR) integrating and directing all reclamation projects for
the National Government. It was not organized as a
Can the City Treasurer of Caloocan City collect real stock corporation, nor was it intended to operate
property taxes on the land and building of San Juan commercially and compete in the private market.
University? Explain your answer.
By virtue of its mandate, LLL in 2008 reclaimed several
A: YES. The City Treasurer can collect real property taxes portions of the foreshore and offshore areas of the
but on the leased portion. Sec. 4(3), Art. XIV of the 1987 Manila Bay, some of which were within the territorial
Constitution provides that a non-stock, non-profit jurisdiction of Q City. Certificates of titles to the
educational institution shall be exempt from taxes and reclaimed properties in Q City were issued in the name
duties only if the same are used actually, directly, and of LLL in 2008. In 2014, Q City issued warrants of Levy
exclusively for educational purposes. The test of exemption on said reclaimed properties of LLL based on the
from taxation is the use of the property for purposes assessment for delinquent property taxes for the years
mentioned in the Constitution. The leased portion of the 2010 to 2013.
building may be subject to real property tax since such
lease is for commercial purposes, thereby, it removes the (a) Are the reclaimed properties registered in the
asset from the property tax exemption granted under the name of LLL subject to real property tax?
Constitution. (CIR v. De La Salle University, Inc., G.R. No.
196596, 09 Nov. 2016; UPLC Suggested Answers) A: The reclaimed properties are not subject to real property
tax because LLL is a government instrumentality. Under the
Q: The Philippine-British Association, Inc. (Association) law, real property owned by the Republic of the Philippines
is a non-stock, non-profit organization which owns the is exempt from real property tax unless the beneficial use
St. Michael's Hospital (Hospital). Sec. 216 in relation to thereof has been granted to a taxable person. (Sec. 234,
Sec. 215 of the LGC classifies all lands, buildings, and LGC) When the title of the real property is transferred to
other improvements thereon actually, directly, and LLL, the Republic remains the owner of the real property.
exclusively used for hospitals as "special." A special Thus, such arrangement does not result in the loss of the
classification prescribes a lower assessment than a tax exemption. (Republic v. City of Paranaque, G.R. No.
commercial classification. 191109, 18 July 2012; UPLC Suggested Answers)
Within the premises of the Hospital, the Association

constructed the St. Michael's Medical Arts Center
67
TAXATION LAW
ALTERNATIVE ANSWER: electric power, is the actual, direct, and exclusive user of the
barge, hence, does not fall within the purview of the
NO. LLL is an instrumentality of the national government exempting provision of Sec. 234(c) of R.A. No. 7160.
which cannot be taxed by local government units. LLL is not Likewise, the argument that RPC should be liable to the real
a government-owned or controlled corporation taxable for property taxes consonant with the contract is devoid of
real property taxes. (City of Lapu-Lapu v. PEZA, G.R. No. merit. The liability for the payment of the real estate taxes
184203, 26 Nov. 2014) is determined by law and not by the agreement of the
parties. (FELS Energy Inc. v. The Province of Batangas, G.R.
(b) Will your answer be the same in (a) if from 2010 to No. 168557, 16 Feb. 2007; UPLC Suggested Answers)
the present time, LLL is leasing portions of the
reclaimed properties for the establishment and use Q: Under Art. 415 of the Civil Code, in order for
of popular fast-food restaurants J Burgers, G Pizza, machinery and equipment to be considered real
and K Chicken? (2015 BAR) property, the pieces must be placed by the owner of the
land and, in addition, must tend to directly meet the
A: NO. As a rule, properties owned by the Republic of the needs of the industry or works carried on by the owner.
Philippines are exempt from real property tax except when Oil companies install underground tanks in the
the beneficial use thereof has been granted, for gasoline stations located on land leased by the oil
consideration or otherwise, to a taxable person. When LLL companies from the owners of the land where the
leased out portions of the reclaimed properties to taxable gasoline stations (are) located. Are those underground
entities, such as the popular fast-food restaurants, the tanks, which were not placed there by the owner of the
reclaimed properties are subject to real property tax. (Sec. land, but which were instead placed there by the lessee
234(a), LGC; GSIS v. City Treasurer of Manila, G.R. No. 18624, of the land, considered real property for purposes of
23 Dec. 2009; UPLC Suggested Answers) real property taxation under the local Government
Code? Explain. (2003 BAR)
Q: Republic Power Corporation (RPC) is a government-
owned and controlled corporation engaged in the A: YES. The properties are considered as necessary fixtures
supply, generation, and transmission of electric power. of the gasoline station, without which the gasoline station
In 2005, in order to provide electricity to Southern would be useless. Machinery and equipment installed by
Tagalog provinces, RPC entered into an agreement with the lessee of leased land is not real property for purposes
Jethro Energy Corporation (JEC), for the lease of JEC’s of execution of a final judgment only. They are considered
power barges which shall be berthed at the port of as real property for real property tax purposes as “other
Batangas City. The contract provides that JEC shall own improvements to affixed or attached real property under
the power barges and the fixtures, fittings, machinery, the Assessment Law and the Real Property Tax Code.
and equipment therein, all of which JEC shall supply at (Caltex v. Central Board of Assessment Appeals, G.R. No. L-
its own cost, and that JEC shall operate, manage, and 50466, 31 May 1982)
maintain the power barges for the purpose of
converting the fuel of RPC into electricity. The contract d) WITHDRAWAL OF EXEMPTIONS
also stipulates that all real estate taxes and
assessments, rates, and other charges, in respect of the
3. SCOPE OF TAXING POWER
power barges, shall be for the account of RPC.
In 2007, JEC received an assessment of real property 4. SPECIFIC TAXING POWER TO LOCAL GOVERNMENT
taxes on the power barges from the Assessor of UNITS
Batangas City. JEC sought reconsideration of the
assessment on the ground that the power barges are
5. COMMON REVENUE RAISING POWERS
exempt from real estate taxes under Sec. 234 (c) of R.A.
7160 as they are actually, directly, and exclusively used
by RPC, a government- owned and controlled 6. COMMUNITY TAX
corporation. Furthermore, even assuming that the
power barges are subject to real property tax, RPC
7. COMMON LIMITATIONS ON THE TAXING POWERS OF
should be held liable therefore, in accordance with the
LOCAL GOVERNMENT UNITS
terms of the lease agreement. Is the contention of JEC (2019, 2015, 1987 BAR)
correct? Explain your answer. (2009 BAR)
(Sec. 133, LGC)
Q: In 2018, City X amended its Revenue Code to include
A: The contention of JEC is not correct. The owner of the
a new provision imposing a tax on every sale of
power barges is JEC which is required to operate, manage,
merchandise by a wholesaler based on the total selling
and maintain the power barges for the purpose the claim
price of the goods, inclusive of value-added taxes
that RPC, a government-owned and controlled corporation
(VAT). ABC Corp., a wholesaler operating within City X,
engaged in the supply, generation, and transmission of
challenged the new provision based on the following

2023 QuAMTO
QuAMTO (1987-2022)
contentions: xxx 2. since the tax being imposed is akin A: The appeal was filed out of time. When an assessment is
to VAT, it is beyond the power of City X to levy the same. protested, the treasurer has sixty (60) days within which to
decide. The taxpayer has thirty (30) days from receipt of
Rule on each of ABC Corp.'s contentions. (2019 BAR) the denial of the protest or from the lapse of the 60-day
period to decide, whichever comes first, otherwise, the
A: ABC’s second contention is meritorious. One of the assessment becomes conclusive and unappealable.
common limitations of the local government unit’s (such as Considering that no decision on the protest was made, the
City X) taxing power under Sec. 133 of the LGC is that it may taxpayer should have appealed to the RTC within 30 days
not levy VAT on sales, barters or exchanges on goods or from the lapse of the 60-day period to decide the protest.
services. Hence, ABC Corp. is correct in saying that the local (Sec. 195, LGC)
tax, which is imposed on every sale transaction, is akin to
VAT; and necessarily, it may not be imposed by City X. b) REFUND
(2018, 2014 BAR)
Q: In 2014, M City approved an ordinance levying
customs duties and fees on goods coming into the Q: The City of Kabankalan issued a notice of assessment
territorial jurisdiction of the city. Said city ordinance against KKK, Inc., for deficiency real property taxes for
was duly published on February 15, 2014 with the taxable years 2013 to 2017 in the amount of P20
effectivity date on March 1, 2014. million. KKK paid the taxes under protest and
instituted a complaint entitled "Recovery of Illegally
Is there a ground for opposing said ordinance? (2015 and/or Erroneously Collected Local Business Tax,
BAR) Prohibition with Prayer to Issue TRO and Writ of
Preliminary Injunction" with the RTC of Negros
A: YES, on the ground that the ordinance is ultra vires. The Occidental.
taxing powers of local government units such as M City,
cannot extend to the levy of taxes, fees and charges already The RTC denied the application for TRO. Its motion for
imposed by the national government, and this includes, reconsideration having been denied as well, KKK filed
among others, the levy of customs duties under the Tariff a petition for certiorari with the Court of Appeals (CA)
and Customs Code. (Sec. 133(e), LGC) assailing the denial of the TRO.
8. REQUIREMENTS FOR A VALID TAX ORDINANCE Will the petition prosper? (2018 BAR)
A: NO. The petition will not prosper. It is the CTA which has
9. TAXPAYER’S REMEDIES
exclusive appellate jurisdiction over cases involving local
(2018, 2015, 2014, 2010, 2003, 1991 BAR)
taxes decided by the RTC in the exercise of the latter's
original jurisdiction. The Court of Appeals (CA) is devoid of
a) PROTEST such jurisdiction.
(2018, 2010 BAR)
The power of the CTA includes that of determining whether
On May 15, 2009, La Manga Trading Corporation or not there has been grave abuse of discretion amounting
received a deficiency business tax assessment of to lack or excess of jurisdiction on the part of the RTC in
P1,500,000.00 from the Pasay City Treasurer. On June issuing an interlocutory order in cases falling within the
30, 2009, the corporation contested the assessment by exclusive appellate jurisdiction of the tax court. It, thus,
filing a written protest with the City Treasurer. follows that it is the CTA, by constitutional mandate, which
is vested with jurisdiction to issue writs of certiorari in
On October 10, 2009, the corporation received a these cases. (City of Manila v. GreciaCuerdo, G.R. No.
collection letter from the City Treasurer, drawing it to 175723, 04 Feb. 2014; Bar Q&A by J. Dimaampao, 2020)
file on October 25, 2009 an appeal against the
assessment before the Pasay Regional Trial Court Q: The City of Liwliwa assessed local business taxes
(RTC). against Talin Company. Claiming that there is double
taxation, Talin Company filed a Complaint for Refund
(a) Was the protest of the corporation filed on time? or Recovery of Illegally and/or Erroneously collected
Explain. Local Business Tax; Prohibition with Prayer to Issue
Temporary Restraining Order and Writ of Preliminary
A: The protest was filed on time. Sec. 195 of the Local Injunction with the Regional Trial Court (RTC). The
Government Code (R.A. No. 7160) provides that the RTC denied the application for a Writ of Preliminary
taxpayer may protest an assessment within sixty (60) days Injunction. Since its motion for reconsideration was
from receipt thereof. denied, Talin Company filed a special civil action for
certiorari with the Court of Appeals (CA). The
(b) Was the appeal with the Pasay RTC filed on time? government lawyer representing the City of Liwliwa
Explain. (2010 BAR)
69
TAXATION LAW
prayed for the dismissal of the petition on the ground On the other hand, it is not taxable if the local tax recovered
that the same should have been fi!eci with the Court of is not deductible because Dona Evelina received no tax
Tax Appeals (CTA). Talin Company, through its lawyer, benefit. (Ibid.)
Atty. Frank, countered that the CTA cannot entertain a
petition for certiorari since it is not one of its powers c) ACTION BEFORE THE SECRETARY OF JUSTICE
and authorities under existing laws and rules. (2015, 2003, 1991 BAR)
Decide. (2014 BAR) Q: What is the proper procedural remedy and

applicable time periods for challenging a tax
A: Atty. Frank is CORRECT. It is now settled that the CTA ordinance? (2015 BAR)
by constitutional mandate is vested with jurisdiction to
issue writs of certiorari in cases falling within its exclusive A: Any question on the constitutionality or legality of tax
appellate jurisdiction. It is more in consonance with logic ordinances may be raised on appeal within 30 days from
and legal soundness to conclude that the grant of appellate the effectivity to the Secretary of Justice. The Secretary of
jurisdiction to the CTA over tax cases filed and decided by Justice shall render a decision within 60 days from the date
the RTC carries with it the power to issue a writ of of receipt of the appeal. Thereafter, within 30 days after
certiorari when necessary in aid of such appellate receipt of the decision or the lapse of the sixty-day period
jurisdiction. (Ibid.; Bar Q&A by J. Dimaampao, 2020) without the Secretary of Justice acting upon the appeal, the
aggrieved party may file the appropriate proceedings with
Q: Dona Evelina, a rich widow engaged in the business the RTC. (Sec. 187, LGC)
of currency exchange, was assessed a considerable
amount of local business taxes by the City Government Q: X, a taxpayer who believes that an ordinance passed
of Bagnet by virtue of Tax Ordinance No. 24. Despite by the City Council of Pasay is unconstitutional for
her objections thereto, Dona Evelina paid the taxes. being discriminatory against him, want to know from
Nevertheless, unsatisfied with said Tax Ordinance, you, his tax lawyer, whether or not he can file an
Dona Evelina, through her counsel Atty. ELP; filed a appeal. In the affirmative, he asks you where such
written claim for recovery of said local business taxes appeal should be made: the Secretary of Finance, or the
and contested the assessment. Her claim was denied, Secretary of Justice, or the CTA, or the regular courts.
and so Atty. ELP elevated her case to the Regional Trial
Court (RTC). What would your advice be to your client, X? (2003
BAR)
The RTC declared Tax Ordinance No. 24 null and void
and without legal effect for having been enacted in A: The appeal should be made with the Secretary of Justice.
violation of the publication requirement of tax Any question on the constitutionality or legality of a tax
ordinances and revenue measures under the Local ordinance may be raised on appeal with the Secretary of
Government Code (LGC) and on the ground of double Justice within 30 days from the effectivity thereof (Sec. 187,
taxation. On appeal, the Court of Tax Appeals (CTA) LGC; Hagonoy Market Vendors Association v. Municipality of
affirmed the decision of the RTC. No motion for Hagonoy, Bulacan, G.R. No. 137621, 06 Feb. 2002)
reconsideration was filed and the decision became
final and executory.
10. ASSESSMENT AND COLLECTION OF LOCAL TAXES
(2010, 2008 BAR)
(a) If you are Atty. ELP, what advice will you give Dona
Evelina so that she can recover the subject local
business taxes? a) REMEDIES OF LOCAL GOVERNMENT UNITS
A: Atty. ELP should move for the execution of the judgment, b) PRESCRIPTIVE PERIOD
it having become final and executory. The issuance of a writ (2010, 2008 BAR)
of execution may eventually force the local treasurer to
make the refund. (Bar Q&A by J. Dimaampao, 2020) Q: MNO Corporation was organized on July 1, 2006, to
engage in trading of school supplies, with principal
(b) If Dona Evelina eventually recovers the local place of business in Cubao, Quezon City. Its book of
business taxes, must the same be considered as account and income statement showing gross sales as
income taxable by the national government? (2014 follows: July 1, 2006 to December 31, 2006 P
BAR) 5,0000,000. January 1, 2007 to June 30, 2007 P
10,000,000. July 1, 2007 to December 31, 2007 P
A: It depends. If the local tax recovered is a business- 15,000,000. Since MNO Corporation adopted fiscal year
connected tax in that it is deductible from gross income, it ending June 30 as its taxable year for income tax
is taxable applying the tax benefit rule. This is so because purpose, it paid its 2% business tax for fiscal year
having been claimed as deduction from gross income, it ending June 30, 2007 based on gross sales of P15
resulted in a tax benefit to Dona Evelina.

2023 QuAMTO
QuAMTO (1987-2022)
million. However, the Quezon City Treasurer assessed by RPC, a government- owned and controlled
the corporation for deficiency business tax for 2007 corporation. Furthermore, even assuming that the
based on gross sales of P25 million alleging that local power barges are subject to real property tax, RPC
business taxes shall be computed based on calendar should be held liable therefore, in accordance with the
year. terms of the lease agreement. Is the contention of JEC
correct? Explain your answer. (2009 BAR)
(a) Is the position of the city treasurer tenable?
Explain. A: The contention of JEC is not correct. The owner of the
power barges is JEC which is required to operate, manage,
A: YES. The tax period for local taxes is generally the and maintain the power barges for the purpose the claim
calendar year. (Sec. 165, LGC) that RPC, a government-owned and controlled corporation
engaged in the supply, generation, and transmission of
(b) May the deficiency business tax be paid in electric power, is the actual, direct and exclusive user of the
installments without surcharge and interest? barge, hence, does not fall within the purview of the
Explain. (2008 BAR) exempting provision of Sec. 234(c) of RA. No. 7160.
Likewise, the argument that RPC should be liable to the real
A: YES. Local government units may, through ordinances property taxes consonant with the contract is devoid of
duly approved, grant reliefs to taxpayers under such terms merit. The liability for the payment of the real estate taxes
and conditions as they may deem necessary. Such reliefs is determined by law and not by the agreement of the
may take the form of condonation or extension of time for parties. (FELS Energy Inc. v. The Province of Batangas, G.R.
payment or non-imposition of surcharge or interest. (Sec. No. 168557, 16 Feb. 2007)
192, LGC) Accordingly, the deficiency business taxes may be
paid in installment without surcharge and interest through Q: Under Art. 415 of the Civil Code, in order for
the passage of an ordinance for that purpose. machinery and equipment to be considered real
property, the pieces must be placed by the owner of the
land and, in addition, must tend to directly meet the
B. REAL PROPERTY TAXATION needs of the industry or works carried on by the owner.
(2022, 2019-2014, 2009, 2006, 2005, 2003-2000, Oil companies install underground tanks in the
1996, 1993, 1991, 1990, 1988, 1987 BAR) gasoline stations located on land leased by the oil
companies from the owners of the land where the
gasoline stations (are) located. Are those underground
1. FUNDAMENTAL PRINCIPLES tanks, which were not placed there by the owner of the
land but which were instead placed there by the lessee
of the land, considered real property for purposes of
2. NATURE
real property taxation under the local Government
(2009, 2003 BAR)
Code? Explain. (2003 BAR)
Q: Republic Power Corporation (RPC) is a government- A: YES. The properties are considered as necessary fixtures
owned and controlled corporation engaged in the of the gasoline station, without which the gasoline station
supply, generation and transmission of electric power. would be useless. Machinery and equipment installed by
In 2005, in order to provide electricity to Southern the lessee of leased land is not real property for purposes
Tagalog provinces, RPC entered into an agreement with of execution of a final judgment only. They are considered
Jethro Energy Corporation (JEC), for the lease of JEC’s as real property for real property tax purposes as “other
power barges which shall be berthed at the port of improvements to affixed or attached real property under
Batangas City. The contract provides that JEC shall own the Assessment Law and the Real Property Tax Code.
the power barges and the fixtures, fittings, machinery, (Caltex v. Central Board of Assessment Appeals, G.R. No. L-
and equipment therein, all of which JEC shall supply at 50466, 31 May 1982)
its own cost, and that JEC shall operate, manage and
maintain the power barges for the purpose of
3. IMPOSITION
converting the fuel of RPC into electricity. The contract
(2019-2015, 2009, 2006, 2005, 2003, 2002, 1996,
also stipulates that all real estate taxes and
1990, 1988, 1987 BAR)
assessments, rates and other charges, in respect of the
power barges, shall be for the account of RPC.
a) POWER TO LEVY
In 2007, JEC received an assessment of real property
taxes on the power barges from the Assessor of b) EXEMPTION FROM REAL PROPERTY TAX
Batangas City. JEC sought reconsideration of the
assessment on the ground that the power barges are CONSTITUTIONAL EXEMPTIONS
exempt from real estate taxes under Sec. 234 (c) of R.A. (2018, 2017, 2006, 2005, 2000, 1996, 1990, 1988,
7160 as they are actually, directly and exclusively used 1987 BAR)
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TAXATION LAW
Q: Kilusang Krus, Inc. (KKI) is a non-stock, non-profit stock, non-profit educational institution shall be exempt
religious organization which owns a vast tract of land from taxes and duties only if the same are used actually,
in Kalinga. directly, and exclusively for educational purposes. The test
of exemption from taxation is the use of the property for
KKI has devoted 1 /2 of the land for various uses: a purposes mentioned in the Constitution. The leased portion
church with a cemetery exclusive for deceased priests of the building may be subject to real property tax since
and nuns, a school providing K to 12 education, and a such lease is for commercial purposes, thereby, it removes
hospital which admits both paying and charity the asset from the property tax exemption granted under
patients. The remaining 1/2 portion has remained idle. the Constitution. (Ibid.)
The KKI Board of Trustees decided to lease the Q: The Constitution exempts from taxation charitable
remaining 1 /2 portion to a real estate developer which institutions, churches, parsonages or convents
constructed a community mall over the property. appurtenant thereto, mosques and non-profit
cemeteries and lands, buildings and improvements
Since the rental income from the lease of the property actually, directly and exclusively used for religious,
was substantial, the KKI decided to use the amount to charitable and educational purposes. Mercy Hospital is
finance (1) the medical expenses of the charity patients a 100-bed hospital organized for charity patients.
in the KKI Hospital and (2) the purchase of books and
other educational materials for the students of KKI Can said hospital claim exemption from taxation under
School. the above-quoted constitutional provision? Explain.
(1996 BAR)
Is KKI liable for real property taxes on the land? (2018
BAR) A: YES. Mercy Hospital can claim exemption from taxation
under the provision of the Constitution, but only with
A: YES, but only on the leased portion. Art. VI, Sec. 28(3) of respect to real property taxes provided that such real
the 1987 Constitution provides that “charitable properties are used actually, directly and exclusively for
institutions, churches and personages or convents charitable purposes.
appurtenant thereto, mosques, non-profit cemeteries, and
all lands, buildings, and improvements, actually, directly, EXEMPTIONS UNDER THE LGC
and exclusively used for religious, charitable, or (2019, 2016, 2015, 2009, 2006, 2002, 1990, 1987
educational purposes shall be exempt from taxation”. The BAR)
test of exemption from taxation is the use of the property
for purposes mentioned in the Constitution. The leased Q: Philippine National Railways (PNR) operates the rail
portion of the land may be subject to real property tax since transport of passengers and goods by providing train
such lease is for commercial purposes, thereby, removing stations and freight customer facilities from Tutuban,
the asset from the property tax exemption granted under Manila to the Bicol Province. As the operator of the
the Constitution. (CIR vs. De La Salle University, Inc., GR. Nos, railroad transit, PNR administers the land,
196596, 198841 & 198941, 09 Nov. 2016) improvements and equipment within its main station
in Tutuban, Manila.
Q: San Juan University is a non-stock, non-profit
educational institution. It owns a piece of land in Invoking Sec. 193 of the Local Government Code (LGC)
Caloocan City on which its three 2-storey school expressly withdrawing the tax exemption privileges of
buildings stood. Two of the buildings are devoted to government-owned and controlled corporations upon
classrooms, laboratories, a canteen, a bookstore and the effectivity of the Code in 1992, the City Government
administrative offices. The third building is reserved as of Manila issued Final Notices of Real Estate
dormitory for student athletes who are granted
scholarships for a given academic year. Tax Deficiency in the amount of P624,000,000.00 for
the taxable years 2006 to 2010. On the other hand,
In 2017, San Juan University earned income from PNR, seeking refuge under the principle that the
tuition fees and from leasing a portion of its premises government cannot tax itself, insisted that the PNR
to various concessionaires of food, books, and school lands and buildings are owned by the Republic.
supplies.
Is the PNR exempt from real property tax? Explain your
Can the City Treasurer of Caloocan City collect real answer. (2016 BAR)
property taxes on the land and building of San Juan
University? Explain your answer. (2017 BAR) A: YES. The Philippine National Railways (PNR) was
created as a corporation to serve as an instrumentality of
A: YES, but only on the leased portion. Art. XIV, Sec. 4(3) of the Government of the Philippines (R.A. No. 10638,
the 1987 Constitution provides that the assets of a non- amending Sec. 1, R.A. No. 4156) upon which the local

2023 QuAMTO
QuAMTO (1987-2022)
governments are not allowed to levy taxes, fees or other integrating and directing all reclamation projects for
charges including real property taxes. (MIAA v. CA, G.R. No. the National Government. It was not organized as a
155650, 20 July 2006; MIAA v. City of Pasay, G.R. No. 163072, stock corporation, nor was it intended to operate
02 Apr. 2009) commercially and compete in the private market.
PNR is not a government and controlled corporation but an By virtue of its mandate, LLL in 2008 reclaimed several
instrumentality of the government hence it is not included portions of the foreshore and offshore areas of the
in the withdrawal of exemptions. Finally, under the Manila Bay, some of which were within the territorial
common limitations on local government units’ power of jurisdiction of Q City. Certificates of titles to the
taxation, it shall not extend to the levy of “taxes, fees or reclaimed properties in Q City were issued in the name
charges of any kind on the National Government, its of LLL in 2008. In 2014, Q City issued warrants of Levy
agencies and instrumentalities, and local government on said reclaimed properties of LLL based on the
units.” (Sec. 133(o), LGC) assessment for delinquent property taxes for the years
2010 to 2013.
The railroad tracks, train stations, freight customer
facilities, land improvements, and equipment within its (a) Are the reclaimed properties registered in the
main station in Tutuban, Manila are properties of public name of LLL subject to real property tax?
dominion intended for public use, and as such are exempt
from real property tax under Sec. 234(a) of the LGC. (MIAA A: The reclaimed properties are not subject to real property
v. City of Pasay, G.R. No. 163072, 02 Apr. 2009) tax because LLL is a government instrumentality. Under the
law, real property owned by the Republic of the Philippines
Q: The Philippine-British Association, Inc. (Association) is exempt from real property tax unless the beneficial use
is a non-stock, non-profit organization which owns the thereof has been granted to a taxable person. (Sec 234, LGC)
St. Michael's Hospital (Hospital). Sec. 216 in relation to When the title of the real property is transferred to LLL, the
Sec. 215 of the LGC classifies all lands, buildings and Republic remains the owner of the real property. Thus,
other improvements thereon actually, directly, and such arrangement does not result in the loss of the tax
exclusively used for hospitals as "special." A special exemption. (Republic v. City of Paranaque, G.R. No. 191109,
classification prescribes a lower assessment than a 18 July 2012)
commercial classification.
ALTERNATIVE ANSWER:
Within the premises of the Hospital, the Association
constructed the St. Michael's Medical Arts Center NO. LLL is an instrumentality of the national government
(Center) which will house medical practitioners who which cannot be taxed by local government units. LLL is not
will lease the spaces therein for their clinics at a government-owned or controlled corporation taxable for
prescribed rental rates. The doctors who treat the real property taxes. (City of Lapu-Lapu v. PEZA, GR No.
patients confined in the Hospital are accredited by the 184203, Nov. 26, 2014)
Association.
(b) Will your answer be the same in (a) if from 2010 to
The City Assessor classified the Center as "commercial" the present time, LLL is leasing portions of the
instead of "special" on the ground that the Hospital reclaimed properties for the establishment and
owner gets income from the lease of its spaces to use of popular fast-food restaurants J Burgers, G
doctors who also entertain out-patients. Is the City Pizza, and K Chicken? (2015 BAR)
Assessor correct in classifying the Center as
"commercial?" Explain. (2016 BAR) A: NO. As a rule, properties owned by the Republic of the
Philippines are exempt from real property tax except when
A: NO. The City Assessor is not correct in classifying the the beneficial use thereof has been granted, for
Center as “commercial.” The fact alone that the separate St. consideration or otherwise, to a taxable person. When LLL
Michael’s Medical Arts Center will house medical leased out portions of the reclaimed properties to taxable
practitioners who shall treat the patients confined in the entities, such as the popular fast food restaurants, the
Hospital and are accredited by the Association takes away reclaimed properties are subject to real property tax. (Sec.
the said Medical Arts Center from being categorized as 234(a), LGC; GSIS v. City Treasurer, G.R. No. 186242, 23 Dec.
“commercial” since a tertiary hospital is required by law to 2009)
have a pool of physicians who comprise the required
medical departments in various medical fields. (City
Assessor of Cebu City v. Association of Benevola de Cebu, Inc.,
G.R. No. 152904, 08 June 2007; Bar Q&A by Domondon, 2018)
Q: LLL is a government instrumentality created by

Executive Order to be primarily responsible for
73
TAXATION LAW
4. APPRAISAL AND ASSESSMENT middle part are occupied by the Church and a convent,
(2018, 2009, 2005, 2003, 2001, 2000, 1990, 1988 BAR) the eastern side by a school run by the Church itself, the
southeastern side by some commercial
establishments, while the rest of the property, in
a) CLASSES OF REAL PROPERTY particular the northwestern side, is idle or unoccupied.
May the Church claim tax exemption on the entire
b) ASSESSMENT BASED ON ACTUAL USE land? Decide with reasons. (2005 BAR)
(2018, 2009, 2005, 2003, 2001, 2000, 1990, 1988
BAR) A: NO. The portions of the land occupied and used by the
church, convent and school run by the church are exempt
Q: In 2015, Kerwin bought a three-story house and lot from real property taxes while the portion of the land
in Kidapawan, North Cotabato. The property has a floor occupied by commercial establishments and the portion,
area of 600 sq.m. and is located inside a gated which is idle, are subject to real property taxes. The “usage”
subdivision. Kerwin initially declared the property as of the property and not the “ownership" is the determining
residential for real property tax purposes. factor whether or not the property is taxable. (Lung Center
of the Philippines v. Quezon City, G.R. No. 144104, 29 June
In 2016, Kerwin started using the property in his 2004)
business of manufacturing garments for export. The
entire ground floor is now occupied by state-of-the-art
5. COLLECTION
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 a) DATE OF ACCRUAL
neighbors became suspicious of the activities going on
inside the house, and they decided to report it to the b) PERIOD OF COLLECT
government discovered that the property was being
c) REMEDIES OF LOCAL GOVERNMENT UNITS
utilized for commercial use. Immediately, the
Kidapawan Assessor reclassified the property as
6. TAXPAYER’S REMEDIES
commercial with an assessment level of 50% effective
(2022, 2019, 2018, 2014, 1993, 1991, 1988 BAR)
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 a) CONTESTING AN ASSESSMENT
remained as family residence. He argues that the
property should have been classified as partly (1) PAYMENT UNDER PROTEST; EXCEPTIONS
commercial and partly residential. (2018, 2014, 1993, 1991, 1988 BAR)
Is Kerwin correct that only 2/3 of the property should Q: In 2015, Kerwin bought a three-story house and lot
be considered commercial? (2018 BAR) in Kidapawan, North Cotabato. The property has a floor
area of 600 sq.m. and is located inside a gated
A: YES. The property must be classified, valued, and subdivision. Kerwin initially declared the property as
assessed on the basis of its actual use regardless of where residential for real property tax purposes.
located, whoever owns it, and whoever uses it. (Sec. 217,
LGC; UPLC Suggested Answers) In 2016, Kerwin started using the property in his
business of manufacturing garments for export. The
ALTERNATIVE ANSWER: entire ground floor is now occupied by state-of-the-art
sewing machines and other equipment, while the
NO. One of the fundamental principles in the appraisal, second floor is used as offices. The third floor is
assessment, levy, and collection of real property tax under retained by Kerwin as his family's residence. Kerwin's
Sec. 198 of the LGC is that the real property shall be neighbors became suspicious of the activities going on
classified for assessment purposes on the basis of its actual inside the house, and they decided to report it to the
use. Sec. 199 of the LGC defines “actual use” as referring to Kidapawan City Hall. Upon inspection, the local
the purpose for which the property is principally or government discovered that the property was being
predominantly utilized by the person in possession thereof. utilized for commercial use. Immediately, the
Hence, considering that, as admitted by Kerwin, 2/3 of the Kidapawan Assessor reclassified the property as
property ‘s used for commercial purposes, the entire commercial with an assessment level of 50% effective
property must be classified as “commercial” for real January 2017 and assessed Kerwin back taxes and
property tax purposes. (UPLC Suggested Answers) interest. Kerwin claims that only 2/3 of the building
was used for commercial purposes since the third floor
Q: The Roman Catholic Church owns a 2- hectare lot in remained as family residence. He argues that the
a town in Tarlac province. The southern side and property should have been classified as partly

2023 QuAMTO
QuAMTO (1987-2022)
commercial and partly residential. to the remedy. The law provides that no protest (which is
the beginning of the disputation process) shall be
If Kerwin wants to file an administrative protest against entertained unless the taxpayer first pays the tax. (Sec. 252,
the assessment, is he required to pay the assessment LGC; UPLC Suggested Answers)
taxes first? With whom shall the protest be filed and
within what period? (2018 BAR) b) CONTESTING A VALUATION OF PROPERTY
A: YES. No protest shall be entertained unless Kerwin first
pays the tax. The words “paid under protest” must be (1) APPEAL TO THE LOCAL BOARD OF ASSESSMENT
annotated on the tax receipts issued by the treasurer. The APPEALS
protest in writing must be filed with the treasurer within 30 (2022, 2019 BAR)
days from payment of the tax. (Sec. 252, LGC; UPLC
Suggested Answers) Q: Fides filed a case before the Regional Trial Court
(RTC) questioning the authority of the local
Q: Madam X owns real property in Caloocan City. On government unit (LGU) to assess real property taxes
July 1, 2014, she received a notice of assessment from (RPT) on a certain property she owns. She also prayed
the City Assessor, informing her of a deficiency tax on for a writ of preliminary injunction (WPI) to restrain
her property. She wants to contest the assessment. the LGU from collecting the RPT. The LGU moved to
dismiss Fides' case arguing that since the matter
(a) What are the administrative remedies available to involves RPT, her remedy was to file an appeal to the
Madam X in order to contest the assessment and Local Board of Assessment Appeals.
their respective prescriptive periods?
(a) Is the LGU correct? Explain briefly.
A: The administrative remedies available to Madam X to
contest the assessment and their respective prescriptive A: NO, the LGU is not correct. The Supreme Court has held
periods are as follows: that an appeal to the Local Board of Assessment Appeals is
not required where the taxpayer is questioning the very
1. Pay the deficiency real property tax under protest (Sec authority and power of the LGU to assess and collect the
252, LGC); real property tax and that a court case in such a situation
may be properly resorted to. (Ty v. Trampe, G.R. No. 117577,
2. File the protest with the local treasurer – The protest 01 Dec. 1995; Bar Q&A by Riguera, 2023)
in writing must be filed within 30 days from payment
of the tax to the provincial, city or municipal treasurer, (b) If the RTC issues an order denying the application
in the case of municipality within Metro Manila Area, for a WPI, and thereafter denies Fides' subsequent
who shall decide the protest within 60 days from motion for reconsideration, what is her remedy?
receipt (Sec. 252, LGC); Explain briefly. (2022 BAR)
3. Appeal to the LBAA – If the protest is denied or upon A: Fides' remedy is to file a petition for certiorari under
the lapse of the 60-day period for the treasurer to Rule 65 with the Court of Tax Appeals. The Supreme Court
decide, the taxpayer may appeal to the LBAA within has held that the remedy of an aggrieved party from an
60 days and the case decided within 120 days (Sec. interlocutory order of the RTC in a local tax case is a
226 and 229); and petition for certiorari under Rule 65 filed with the Court of
Tax Appeals.
4. Appeal to the CBAA – If not satisfied with the decision
of the LBAA, appeal to the CBAA within 30 days from Here, the order denying the application for a WPI is an
receipt of a copy of the decision. (Sec. 229 (c), LGC) interlocutory order since it does not completely dispose of
the case. Fides should show that the denial of the
NOTE: The mandatory period shall be 90 days (from 120 application for a WPI was made with grave abuse of
days) upon the effectivity of TRAIN Law. discretion amounting to lack of or excess of jurisdiction.
(b) May Madam X refuse to pay the deficiency tax Hence, Fides' remedy is to file a petition for certiorari under
assessment during the pendency of her appeal? Rule 65 with the Court of Tax Appeals. (City of Manila v.
(2014 BAR) Grecia-Cuerdo, G.R. No. 175723, 04 Feb. 2014; Bar Q&A by
Riguera, 2023)
A: NO. The payment of the deficiency tax is a condition
before she can protest the deficiency assessment. It is the Q: ABC, Inc. owns a 950-square meter commercial lot in
decision on the protest or inaction thereon that gives her Quezon City. It received a notice of assessment from the
the right to appeal. This means that she cannot refuse to City Assessor, subjecting the property to real property
pay the deficiency tax assessment during the pendency of taxes (RPT). Believing that the assessment was
the appeal because it is the payment itself which gives rise erroneous, ABC, Inc. filed a protest with the City
75
TAXATION LAW
Treasurer. However, for failure to pay the RPT, the City
Treasurer dismissed the protest.
(a) Was the City Treasurer correct in dismissing ABC,

lnc.'s protest? Explain.
A: YES. The City Treasurer correctly dismissed the protest.

No protest shall be entertained unless the taxpayer first
pays the real property tax. (Sec. 252, R.A No. 7160, LGC) ABC,
Inc. must show proof of payment by presenting a tax receipt
with the notation "paid under protest" before the local
treasurer would take cognizance of its protest. (Bar Q&A by
J. Dimaampao, 2020)
(b) Assuming that ABC, Inc. decides to appeal the

dismissal, where should the appeal be filed?
A: ABC Inc. should appeal the dismissal with the Local

Board of Assessment Appeals of Quezon City within sixty
(60) days from such denial or sixty (60) days from the lapse
of the period to act on the protest. (Sec. 226, R.A. 7160, LGC;
Bar Q&A by J. Dimaampao, 2020)
(2) APPEAL TO THE CENTRAL BOARD OF ASSESSMENT

APPEALS
(3) EFFECT OF PAYMENT OF TAXES
c) COMPROMISE OF REAL PROPERTY TAX

ASSESSMENT

2023 QuAMTO
QuAMTO (1987-2022)
A: Exclusive appellate jurisdiction to review by appeal:
IV. JUDICIAL REMEDIES
1. Decisions of the CIR in cases involving disputed
assessments, refunds of internal revenue taxes, fees
or other charges, penalties in relation thereto, or
other matters arising under the NIRC or other laws
A. COURT OF TAX APPEALS (CTA) administered by the BIR;
(2018-2014, 2012, 2009, 2006 BAR)
2. Inaction by the CIR in cases involving disputed
assessments, refunds of internal revenue taxes, fees
1. EXCLUSIVE ORIGINAL AND APPELLATE or other charges, penalties in relation thereto, or
JURISDICTION OVER CIVIL CASES other matters arising under the NIRC or other laws
(2018, 2017, 2016, 2015, 2014, 2012, 2009, 2006 BAR) administered by the BIR where the NIRC or other
applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the
Q: Krisp Kleen, Inc. (KKI) is a corporation engaged in
inaction of the CIR within the one hundred eighty day-
the manufacturing and processing of steel and its by-
period under Sec. 228 of the NIRC shall be deemed a
products. It is both registered with the Board of
denial for purposes of allowing the taxpayer to appeal
Investments with a pioneer status, and with the BIR as
his case to the Court and does not necessarily
a VAT entity. On October 10, 2010, it filed a claim for
constitute a formal decision of the CIR on the tax case;
refund/credit of input VAT for the period January 1 to
Provided, further, that should the taxpayer opt to
March 31, 2009 before the Commissioner of Internal
await the final decision of the CIR on the disputed
Revenue (CIR). On February 1, 2011, as the CIR had not
assessments beyond the one hundred eighty (180)-
yet made any ruling on its claim for refund/credit, KKI,
day period abovementioned, the taxpayer may appeal
fearful that its period to appeal to the courts might
such final decision to the Court under Sec. 3(a), Rule 8
prescribe, filed an appeal with the Court of Tax Appeals
of these Rules; and Provided, still further, that in the
(CTA).
case of claims for refund of taxes erroneously or
illegally collected, the taxpayer must file a petition for
(a) Can the CTA act on KKl's appeal?
review with the Court prior to the expiration of the
A: NO. Pursuant to the pronouncement made the Supreme two-year period under Sec. 229 of the NIRC;
Court in the case of Commissioner of Internal Revenue v.
Aichi Forging Company of Asia, Inc. (G.R. No. 184823, 3. Decisions, resolutions or orders of the Regional Trial
February 12, 2013), the observance of the “120+30-day” Courts in local tax cases decided or resolved by them
period is jurisdictional. Now, counting 120 days from in the exercise of their original jurisdiction;
October 10, 2010, the last day for the CIR to act on the claim
for refund/credit fell on February 7, 2011, thus musing the 4. Decisions of the Commissioner of Customs in cases
February 1, 2011 filing premature. involving liability for customs duties, fees or other
money charges, seizure, detention or release of
NOTE: The mandatory period shall be 90 days (from 120 property affected, fines, forfeitures or other penalties
days) upon the effectivity of TRAIN Law. in relation thereto or other matters arising under the
Customs Law or other laws administered by the
(b) Will your answer be the same if KKI filed its appeal Bureau of Customs;
on March 20, 2011 and CIR had not yet acted on its
claim? (2018 BAR) 5. Decisions of the Secretary of Finance on customs
cases elevated to him automatically for review from
A: YES. The filing of March 20, 2011 is still not compliant decisions of the Commissioner of Customs adverse to
with the “120+30-day” rule. As mentioned, the CIR has until the Government under Sec. 2325 of the Tariff and
February 7, 2011 to decide on the claim for refund/credit of Customs Code; and
input VAT. After the lapse of the 120-day period, the
taxpayer-claimant has 30 days to file an appeal before the 6. Decisions of the Secretary of Trade and Industry, in
CTA. In the present ease. KKI had until March 9, 2011 to file the case of nonagricultural product, commodity or
the appeal based on a deemed adverse decision on the claim article, and the Secretary of Agriculture, in the case of
fer refund/credit; hence, the filing on March 26, 2011 was agricultural product, commodity or article, involving
belatedly done, and the CTA has no jurisdiction over such dumping and countervailing duties under Secs. 301
claim for refund/credit. (UPLC Suggested Answers) and 302, respectively, of the Tariff and Customs Code,
and safeguard measures under RA. No. 8800, where
Q: State at least five (5) cases under the exclusive either party may appeal the decision to impose or not
appellate jurisdiction of the Court of Tax Appeals (CTA) to impose said duties.” (Sec. 3(a), Rule 4, RRCTA)
(2016 BAR)
77
TAXATION LAW
The Court En Banc shall exercise exclusive appellate 8. Decisions, resolutions or orders of the Regional Trial
jurisdiction to review by appeal the following: Courts in the exercise of their appellate jurisdiction
over criminal offenses mentioned in subparagraph
1. Decisions or resolutions on motion for (f).” (Sec. 2, Rule 4, RRCTA)
reconsideration or new trial of the Court in Divisions
in the exercise of its exclusive appellate jurisdiction NOTE: It is recommended that any five (5) of the above-
over: enumerated cases be given credit.
a. Cases arising from administrative agencies – Q: For calendar year 2011, FFF, Inc., a VATregistered
Bureau of Internal Revenue, Bureau of Customs, corporation, reported unutilized excess input VAT in
Department of Finance, Department of Trade the amount of P 1,000,000.00 attributable to its zero-
and Industry, Department of Agriculture; rated sales. Hoping to impress his boss, Mr. G, the
accountant of FFF, Inc., filed with the Bureau of Internal
b. Local tax cases decided by the Regional Trial Revenue (BIR) on January 31, 2013 a claim for tax
Courts in the exercise of their original refund/credit of the Pl,000,000.00 unutilized excess
jurisdiction; and input VAT of FFF, Inc. for 2011. Not having received any
communication from the BIR, Mr. G filed a Petition for
c. Tax collection cases decided by the Regional Review with the CTA on March 15, 2013, praying for the
Trial Court in the exercise of their original tax refund/credit of the Pl,000,000.00 unutilized
jurisdiction involving final and executory excess input VAT of FFF, Inc. for 2011.
assessments for taxes, fees, charges and
penalties, where the principal amount of taxes Did the CTA acquire jurisdiction over the Petition of
and penalties claimed is less than one million FFF, Inc.? (2015 BAR)
pesos;
A: CTA did not acquire jurisdiction over the petition of FFF.
2. Decisions, resolutions or orders of the Regional Trial Filing the judicial claim on March 15, 2013 was premature.
Courts in local tax cases decided or resolved by them The jurisdictional 120-day period had not yet expired when
in the exercise of their appellate jurisdiction; the petition of FFF was filed. (CIR v. Aichi Forging Company
of Asia, G.R. No. 184823, 06 Oct. 2010)
3. Decisions, resolutions or orders of the Regional Trial
Courts in tax collection cases decided or resolved by Q: GGG, Inc. offered to sell through competitive bidding
them in the exercise of their appellate jurisdiction; its shares in HHH Corp., equivalent to 40% of the total
outstanding capital stock of the latter. JJJ, Inc. acquired
4. Decisions, resolutions or orders on motions for the said shares in HHH Corp. as the highest bidder.
reconsideration or new trial of the Court in division in Before it could secure a certificate authorizing
the exercise of its exclusive original jurisdiction over registration/tax clearance for the transfer of the
tax collection cases; shares of stock to JJJ, Inc., GGG, Inc. had to request a
ruling from the BIR confirming that its sale of the said
5. Decisions of the Central Board of Assessment Appeals shares was at fair market value and was thus not
(CBAA) in the exercise of its appellate jurisdiction subject to donor's tax. In BIR Ruling No. 012-14, the CIR
over cases involving the assessment and taxation of held that the selling price for the shares of stock of HHH
real property originally decided by the provincial or Corp. was lower than their book value, so the difference
city board of assessment appeals; between the selling price and the book value of said
shares was a taxable donation. GGG, Inc. requested the
6. Decisions, resolutions or orders on motions for Secretary of Finance to review BIR Ruling No. 012-14,
reconsideration or new trial of the Court in Division in but the Secretary affirmed said ruling. GGG, Inc. filed
the exercise of its exclusive original jurisdiction over with the Court of Appeals a Petition for Review under
cases involving criminal offenses arising from Rule 43 of the Revised Rules of Court. The Court of
violations of the National Internal Revenue Code or Appeals, however, dismissed the Petition for lack of
the Tariff and Customs Code and other laws jurisdiction declaring that it is the CTA which has
administered by the Bureau of Internal Revenue or jurisdiction over the issues raised.
Bureau of Customs;
Before which Court should GGG, Inc. seek recourse
7. Decisions, resolutions or orders on motion for from the adverse ruling of the Secretary of Finance in
reconsideration or new trial of the Court in Division in the exercise of the latter's power of review? (2014
the exercise of its exclusive appellate jurisdiction over BAR)
criminal offenses mentioned in the preceding
subparagraph; and A: GGG, Inc. should seek recourse with the Court of Tax
Appeals (CTA) which has jurisdiction.

2023 QuAMTO
QuAMTO (1987-2022)
There is no provision in law that expressly provides where Are the deficiency tax assessment and warrant of
exactly the adverse ruling the Secretary of Finance under distraint and/or levy issued against KLM Corp. valid?
Sec. 4 of the NIRC is appealable. However, RA. No. 1125, as Explain. (2019 BAR)
amended, addresses the seeming gap in the law as it vests
upon the CTA, albeit impliedly, with jurisdiction over the A: NO. Both the deficiency tax assessment and the warrant
case as “other matters” arising under the NIRC or other issued are invalid. The deficiency tax assessment issued
laws administered by the BIR. Furthermore, the Supreme against KLM Corp. is invalid due to the absence of a
Court held that the jurisdiction to review the rulings of the preliminary assessment notice (PAN), which is required by
Secretary of Finance on the issues raised against a ruling of law for the validity of the assessment. (Sec. 228, NIRC)
the Commissioner of Internal Revenue, pertains to the Sending a PAN to the taxpayer to inform him of the
Court of Tax Appeals in the exercise of its appellate assessment made is but a part of the “due process
jurisdiction. (Philamlife v. The Sec. of Finance, G.R. No. requirement in the issuance of a deficiency tax
210987, 24 Nov. 2014; UPLC Suggested Answers) assessment,” the absence of which renders nugatory any
assessment made by the tax authorities. (CIR v. Metro Star
Q: Mr. Abraham Eugenio, a pawnshop operator, after Superama, Inc., G.R. No. 185371, 08 Dec. 2010)
having been required by the Revenue District Officer to
pay value-added tax pursuant to a Revenue The warrant of distraint and/or levy cannot be issued to
Memorandum Order (RMO) of the Commissioner of enforce an invalid assessment. An assessment is a
Internal Revenue, filed with the Regional Trial Court an preliminary step for the collection of taxes. If the
action questioning the validity of the RMO. preliminary step in the collection process is invalid, the
entire collection process is also invalid which includes the
If you were the judge, will you dismiss the case? (2006 warrant issued.
BAR)
Q: The BIR Commissioner, in his relentless
A: YES. A RMO is in reality a ruling, or an opinion issued by enforcement of the Run After Tax Evaders (RATE)
the Commissioner in implementing the provisions of the program, filed with the Department of Justice (DOJ)
Tax Code dealing with the taxability of pawnshops. The charges against a movie and television celebrity. The
power to review rulings issued by the Commissioner is Commissioner alleged that the celebrity earned
lodged with the Court of Tax Appeals (CTA) and not with around P50 million in fees from product endorsements
the Regional Trial Court. A ruling falls within the purview in 2016 which she failed to report in her income tax
of “other matters arising under the Tax Code,’’ appealable and VAT returns for said year. The celebrity
only to the CTA. (CIR v. Leal, G.R. No. 113459, 18 Nov. 2002) questioned the proceeding before the DOJ on the
ground that she was denied due process since the BIR
2. EXCLUSIVE ORIGINAL AND APPELLATE never issued any Preliminary Assessment Notice (PAN)
JURISDICTION OVER CRIMINAL CASES or a Final Assessment Notice (FAN), both of which are
required under Sec. 228 of the NIRC whenever the
Commissioner finds that proper taxes should be
assessed.
B. PROCEDURES
(2019-2017, 2015-2009, 2005, 2001, 1998, 1996 BAR) Is the celebrity's contention tenable? (2018 BAR)
A: NO. In cases where a fraudulent return is filed with the

1. FILING OF AN ACTION FOR COLLECTION OF TAXES intent to evade a tax, a proceeding in court for the collection
(2019-2017, 2012, 2011 BAR) of such tax maybe filed without assessment. (Sec. 222(a),
NIRC) Assessment is not necessary before the filing of a
criminal complaint for tax evasion. (CIR v. Pascor Realty and
a) INTERNAL REVENUE TAXES Development Corp., G.R. No. 128315, June 29, 1999; UPLC
(2019, 2018, 2017, 2012, 2011 BAR)
Suggested Answers)
Q: On October 5, 2016, the Bureau of Internal Revenue

b) LOCAL TAXES
(BIR) sent KLM Corp. a Final Assessment Notice (FAN),
stating that after its audit pursuant to a Letter of
Authority duly issued therefor, KLM Corp. had 2. CIVIL CASES
deficiency value-added and withholding taxes. (2017, 2014, 2010, 2009, 2001, 1998, 1996 BAR)
Subsequently, a warrant of distraint and/or levy was
issued against KLM Corp. KLM Corp. opposed the a) WHO MAY APPEAL, MODE OF APPEAL, AND EFFECT
actions of the BIR on the ground that it was not OF APPEAL
accorded due process because it did not even receive a
Preliminary Assessment Notice (PAN) after the BIR’ s
investigation, which the BIR admitted:
79
TAXATION LAW
b) SUSPENSION OF COLLECTION OF TAXES Q: What are the conditions that must be complied with
(2017, 2010, 2009 BAR) before the Court of Tax Appeals may suspend the
collection of national internal revenue taxes?
Q: Globesmart Services, Inc. received a final assessment A: The conditions under which the Court of Tax Appeals
notice with formal letter of demand from the BIR for may suspend the collection of national internal revenue
deficiency income tax, value-added tax and withholding taxes are as follows:
tax for the taxable year 2016 amounting to P48 million.
Globesmart Services, Inc. filed a protest against the 1. A petition for review is pending before the Court of Tax
assessment, but the Commissioner of Internal Revenue Appeals;
denied the protest. Hence, Globesmart Services, Inc.
filed a petition for review in the CTA with an urgent 2. The collection, in the opinion of the Court, will
motion to suspend the collection of tax. jeopardize the interest of the government and/or the
taxpayer; and
After hearing, the CTA Division issued a resolution
granting the motion to suspend but required 3. The taxpayer is willing to deposit in Court the amount
Globesmart Services, Inc. to post a surety bond being collected or to file a surety bond for not more
equivalent to the deficiency assessment within 15 days than double the amount of the tax (Sec. 11, R.A.1125, as
from notice of the resolution. Globesmart Services, Inc. amended; Bar Q&A by J. Dimaampao, 2020)
moved for the partial reconsideration of the resolution
and for the reduction of the bond to an amount it could c) INJUNCTION NOT AVAILABLE TO RESTRAIN
obtain. The CTA Division issued another resolution COLLECTION
reducing the amount of the surety bond to P24 million. (2014, 2001, 1998, 1996 BAR)
The latter amount was still more than the net worth of
Globesmart Services, Inc. as reported in its audited Q: May the courts enjoin the collection of revenue
financial statements. (2017 BAR) taxes? Explain your answer. (2001 BAR)
(a) May the collection of taxes be suspended? Explain A: As a general rule, the courts have no authority to enjoin
your answer. the collection of revenue taxes. (Sec. 218, NIRC) However,
the Court of Tax Appeals is empowered to enjoin the
A: YES. As provided by RA. No. 1125, as amended by RA. No. collection of taxes through administrative remedies when
9282, that when in the opinion of the Court the collection by collection could jeopardize the interest of the government
the aforementioned government agencies may jeopardize or taxpayer. (RA. No. 1125)
the interest of the Government and/or the taxpayer, the
Court at any stage of the proceeding may suspend the 3. CRIMINAL CASES
collection and require the taxpayer either to deposit the (2018, 2015, 2010, 2005 BAR)
amount claimed or to file a surety bond for not more than
double the amount with the Court.
a) INSTITUTION AND PROSECUTION OF CRIMINAL
ACTION
(b) Is the CTA Division justified in requiring
(2018, 2010, 2005 BAR)
Globesmart Services, Inc. to post a surety bond as a
condition for the suspension of the deficiency tax
Q: Based on the Affidavit of the Commissioner of
collection? Explain your answer.
Internal Revenue (CIR), an Information for failure to
file income tax return under Sec. 255 of the National
A: NO. The Supreme Court in the Tridharma Case cited the
Internal Revenue Code (NIRC) was filed by the
case of Pacquiao v. Court of Tax Appeals (G.R. No. 213394,
Department of Justice (DOJ) with the Manila Regional
2016) where it ruled that the CTA should first conduct a
Trial Court (RTC) against XX, a Manila resident.
preliminary hearing for the proper determination of the
necessity of a surety bond or the reduction thereof. In the
XX moved to quash the Information on the ground that
conduct of its preliminary hearing, the CTA must balance
the RTC has no jurisdiction in view of the absence of a
the scale between the inherent power of the State to tax and
formal deficiency tax assessment issued by the CIR.
its right to prosecute perceived transgressors of the law, on
one side, and the constitutional rights of petitioners to due
Is a prior assessment necessary before an Information
process of law and the equal protection of the laws, on the
for violation of Sec. 255 of the NIRC could be filed in
other. In this case, the CTA failed to consider that the
court? Explain. (2010 BAR)
amount of the surety bond that it is asking Globesmart
Services, Inc. to pay is more than its net worth. It is, thus,
A: NO. Prior assessment is not necessary before an
necessary for the CTA to first conduct a preliminary hearing
information for violation of Sec. 255 of the NIRC could be
to give the taxpayer an opportunity to prove its inability to
filed in Court. For one thing, a criminal complaint is
come up with such amount. (UPLC Suggested Answers)
instituted not to demand payment, but to penalize the

2023 QuAMTO
QuAMTO (1987-2022)
taxpayer for violation of the NIRC. For another, the crime is liability for taxes and penalties shall at all times be
complete when the violator has knowingly and willfully simultaneously instituted with, and jointly determined in
filed a fraudulent return with intent to evade and defeat a the same proceeding before the Court of Tax Appeals (CTA).
part or all of the tax. (Guzik v. U.S., 54 F 2d. 618; Bar Q&A by The filing of the criminal action is deemed to necessarily
J. Dimaampao, 2020) carry with it the filing of the civil action, and no right to
reserve the filing of such civil action separately from the
Q: In 1995, the BIR filed before the Department of criminal action shall be recognized. (Sec. 7(b)(1), RA. No.
Justice (DOJ) a criminal complaint against a 9282; Santos v. People, G.R. No. 173176, 26 Aug. 2008)
corporation and its officers for alleged evasion of taxes.
The complaint was supported by a sworn statement of c) PERIOD TO APPEAL
the BIR examiners showing the computation of the tax
liabilities of the erring taxpayer. The corporation filed
4. APPEAL TO THE CTA EN BANC
a motion to dismiss the criminal complaint on the
(2015, 2013, 2010 BAR)
ground that there has been, as yet, no assessment of its
tax liability; hence, the criminal complaint was
premature. The DOJ denied the motion on the ground Q: On May 15, 2013, CCC, Inc. received the Final Decision
that an assessment of the tax deficiency of the on Disputed Assessment issued by the Commissioner of
corporation is not a precondition to the filing of a Internal Revenue (CIR) dismissing the protest of CCC,
criminal complaint and that in any event, the joint Inc. and affirming the assessment against said
affidavit of the BIR examiners may be considered as an corporation. On June 10, 2013, CCC, Inc. filed a Petition
assessment of the tax liability of the corporation. for Review with the Court of Tax Appeals (CTA) in
division. On July 31, 2015, CCC, Inc. received a copy of
Is the ruling of the DOJ correct? Explain. (2005 BAR) the Decision dated July 22, 2015 of the CT A division
dismissing its Petition. CCC, Inc. immediately filed a
A: YES. The ruling of the DOJ in denying the motion is Petition for Review with the CTA En Banc on August 6,
correct. The issuance of the deficiency assessment notice 2015. Is the immediate appeal by CCC, Inc. to the CTA En
prior to prosecution is not necessary because the facts of Banc of the adverse Decision of the CTA division the
the case show that the crime of evasion is complete since proper remedy? (2015 BAR)
the violator has knowingly and willfully filed a fraudulent
return with intent to evade/defeat a part or all of the tax. A: NO. CCC, Inc. should first file a motion for reconsideration
(Ungab v. Cusi, Jr., G.R. No. L-41919-24, 30 May 1980) What or motion for new trial with the CTA Division. Before the
is involved here is not the collection of taxes but a criminal CTA En banc could take cognizance of the petition for
prosecution for violation of the NIRC. review concerning a case falling under its exclusive
appellate jurisdiction, the litigant must sufficiently show
However, the contention that the joint affidavit of the BIR that it sought prior reconsideration or moved for a new trial
examiners showing the computation of tax liabilities maybe with the concerned CTA Division. (Commissioner of Customs
considered an assessment is erroneous. It is not an v. Marina Sale, G.R. No. 183868, 22 Nov. 2010; Sec. 1, Rule 8,
assessment which may entitle the taxpayer to protest. (CIR RRCTA)
v. Pascor Realty and Development Corp., G.R. No. 128315, 29
June 1999) An assessment is a formal notice to the taxpayer 5. PETITION FOR REVIEW ON CERTIORARI TO THE SC
stating that the amount thereon is due as a tax and
containing a demand for the payment thereof. (Alhambra
Nov. 1967)
b) INSTITUTION OF CIVIL ACTION IN CRIMINAL

ACTION
(2015, 2010 BAR)
Q: After filing an Information for violation of Sec. 254 of

the National Internal Revenue Code (Attempt to Evade
or Defeat Tax) with the CTA, the Public Prosecutor
manifested that the People is reserving the right to file
the corresponding civil action for the recovery of the
civil liability for taxes. As counsel for the accused,
comment on the People's manifestation. (2015 BAR)
A: The manifestation is not proper. The criminal action and

the corresponding civil action for the recovery of the civil
81

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University of Santo Tomas

FACULTY OF CIVIL LAW (1734)

Address: Academics Committee

Tel. No: (02) 8731-4027

Released in the Philippines, 2023.

ACADEMICS COMMITTEE 2023

RON-SOPHIA NICOLE C. ANTONIO CRIMINAL LAW

HERLENE MAE D. CALILUNG LABOR LAW AND SOCIAL LEGISLATION

POLITICAL LAW AND

LEGAL AND JUDICIAL ETHICS WITH

HANNAH JOY C. IBARRA COMMERCIAL LAW

JEDIDIAH R. PADUA CIVIL LAW

PAULINNE STEPHANY G. SANTIAGO TAXATION LAW

DIANNE MICAH ANGELA D. YUMANG REMEDIAL LAW

PAULA ANDREA F. PEÑAFLOR COVER DESIGN ARTIST

TAXATION LAW COMMITTEE 2023

STEPHEN NICOLE R. ARAN ASST. HEAD, GENERAL PRINCIPLES

FACULTY OF CIVIL LAW

ATTY. ARTHUR B. CAPILI

ATTY. ELGIN MICHAEL C. PEREZ

JUDGE PHILIP A. AGUINALDO

LENY G. GADIANA, R.G.C.

OUR DEEPEST APPRECIATION TO OUR

Justice Japar B. Dimaampao

THE RISK OF USE OF THIS BAR

Q: The Sangguniang Bayan of the Municipality of

PUBLIC PURPOSE Q: May Congress, under the 1987 Constitution, abolish

UNIVERSITY OF SANTO TOMAS 2

Q: In 2011, the Commissioner of the U.S. Internal ALTERNATIVE ANSWER:

UNIVERSITY OF SANTO TOMAS 4

Under R.A. 10701, buyers of private vehicles are

UNIVERSITY OF SANTO TOMAS 6

A) from all kinds of taxes, i.e., income, VAT,

A: D) from real property tax only.

UNIVERSITY OF SANTO TOMAS 8

ABC Corp. is INCORRECT. Under Sec. 133(i) of the LGC,

A: NO. The remission or condonation of taxes due and

UNIVERSITY OF SANTO TOMAS 10

The classification applies equally to all the resident

Q: What kind of taxes, fees and charges are considered

Q: Distinguish “direct taxes” from “indirect taxes." Give

UNIVERSITY OF SANTO TOMAS 12

UNIVERSITY OF SANTO TOMAS 14

9. COMPROMISE AND TAX AMNESTY

Q: State and discuss briefly whether the following cases

(a) Delinquent accounts

A: YES. Delinquent accounts may be compromised if either

UNIVERSITY OF SANTO TOMAS 16

b) NON-RETROACTIVITY OF RULINGS ALTERNATIVE ANSWER:

1. DEFINITION, NATURE, AND GENERAL PRINCIPLES

UNIVERSITY OF SANTO TOMAS 18

UNIVERSITY OF SANTO TOMAS 20

UNIVERSITY OF SANTO TOMAS 22

UNIVERSITY OF SANTO TOMAS 24

UNIVERSITY OF SANTO TOMAS 26

Q: X, an employee of ABC Corporation died. ABC (a) Income from jueteng

UNIVERSITY OF SANTO TOMAS 28

UNIVERSITY OF SANTO TOMAS 30

A: 7. Must have been reported as receivables in the income