BAR EXAMINATION 2010

TAXATION LAW
12 September 2010 2 P.M 5 P.M.
TAXATION
PART I
I
True or False.
a. In civil cases involving the collection of internal revenue taxes, prescription is construe strictl! against
the government an liberall! in favor of the taxpa!er. "1#$
b. In criminal cases involving tax offenses punishable uner the %ational Internal &evenue 'oe "%I&'$,
prescription is construe strictl! against the government. "1#$
c. In criminal cases (here the 'ourt of )ax *ppeals "')*$ has exclusive original +urisiction, the right to
file a separate civil action for the recover! of taxes ma! be reserve. "1#$
. Proceeings before the ')* in the exercise of its exclusive original +urisiction are in the nature of
trial de novo. "1#$
e. ,ugments, resolutions or orers of the &egional )rial 'ourt in the exercise of its original +urisiction
involving criminal offenses arising from violations of the %I&' are appealable to the ')*, (hich shall
hear the cases en banc. "1#$
II
a. -hat is the .all events test./ 0xplain briefl!. "2#$
b. -hat is the .immediacy test./ 0xplain briefl!. "2#$
c. -hat is the .rational basis. test/ 0xplain briefl!. "2#$
. -hat is the effect of the execution b! a taxpa!er of a .(aiver of the statute of limitations. on his
efense of prescription/ "2#$
e. -hat is the basis for the computation of business tax on contractors uner the 1ocal 2overnment
'oe/ "2#$
f. 3o( are retiring businesses taxe uner the 1ocal 2overnment 'oe/ "2#$
III
Miraor, Inc., a omestic corporation, file its *nnual Income )ax &eturn for its taxable !ear 2004 on *pril 15,
2005. In the &eturn, it reflecte an income tax overpa!ment of P1,000,000.00 an inicate its choice to carr!6
over the overpa!ment as an automatic tax creit against its income tax liabilities in subse7uent !ears.
8n *pril 15, 2010, it file its *nnual Income )ax &eturn for its taxable !ear 2005 reflecting a taxable loss an an
income tax overpa!ment for the current !ear 2005 in the amount of P500,000.00 an its income tax
overpa!ment for the prior !ear 2004 of P1,000,000.00.
In its 2005 &eturn, the corporation inicate its option to claim for refun the total income tax overpa!ment of
P1,500,000.00
'hoose (hich of the follo(ing statements is correct.
a. Miraor, Inc. ma! claim as refun the total income tax overpa!ment of P1,500,000.00 reflecte in its
income tax return for its taxable !ear 20059
b. It ma! claim as refun the amount of P500,000.00 representing its income tax overpa!ment for its
taxable !ear 20059 or
c. %o amount ma! be claime as refun.
0xplain the basis of !our ans(er. "5#$
IV
8n March 10, 2010, 'ontinental, Inc. receive a preliminar! assessment notice "P*%$ ate March 1, 2010
issue b! the 'ommissioner of Internal &evenue "'I&$ for eficienc! income tax for its taxable !ear 2004. It
faile to protest the P*%. )he 'I& thereupon issue a final assessment notice ":*%$ (ith letter of eman on
*pril ;0, 2010. )he :*% (as receive b! the corporation on Ma! 10, 2010, follo(ing (hich or on Ma! 25, 2010,
it file its protest against it.
)he 'I& enie the protest on the groun that the assessment ha alrea! become final an executor!, the
corporation having faile to protest the P*%.
Is the 'I& correct/ 0xplain. "5#$
V
<oes the 'ourt of *ppeals have the po(er to revie( compromise agreements forge b! the 'ommissioner of
Internal &evenue an a taxpa!er/ 0xplain. "5#$
VI
=ase on the *ffiavit of the 'ommissioner of Internal &evenue "'I&$, an Information for failure to file income
tax return uner Section 255 of the %ational Internal &evenue 'oe "%I&'$ (as file b! the <epartment of
,ustice "<8,$ (ith the Manila &egional )rial 'ourt "&)'$ against >>, a Manila resient.
>> move to 7uash the Information on the groun that the &)' has no +urisiction in vie( of the absence of a
formal eficienc! tax assessment issue b! the 'I&.
Is a prior assessment necessar! before an Information for violation of Section 255 of the %I&' coul be file in
court/ 0xplain. "?#$
VII
-hat are the conitions that must be complie (ith before the 'ourt of )ax *ppeals ma! suspen the collection
of national internal revenue taxes/ ";#$
VIII
-hat is the rule on appeal from ecisions of the 'ollector of 'ustoms in protest an sei@ure cases/ -hen is the
ecision of the 'ollector of 'ustoms appealable to the 'ourt of )ax *ppeals/ 0xplain. "5#$
IX
8n Ma! 15, 2005, 1a Manga )raing 'orporation receive a eficienc! business tax assessment of
P1,500,000.00 from the Pasa! 'it! )reasurer. 8n ,une ;0, 2005, the corporation conteste the assessment b!
filing a (ritten protest (ith the 'it! )reasurer.
8n 8ctober 10, 2005, the corporation receive a collection letter from the 'it! )reasurer, ra(ing it to file on
8ctober 25, 2005 an appeal against the assessment before the Pasa! &egional )rial 'ourt "&)'$.
a. -as the protest of the corporation file on time/ 0xplain. ";#$
b. -as the appeal (ith the Pasa! &)' file on time/ 0xplain. ";#$
PART II
X
True or False. (1% each
a. 2ains reali@e b! the investor upon reemption of shares of stocA in a mutual fun compan! are
exempt from income tax.
b. * corporation can claim the optional stanar euction e7uivalent to ?0# of its gross sales or
receipts, as the case ma! be.
c. Premium pa!ment for health insurance of an iniviual (ho is an emplo!ee in an amount of P2,500 per
!ear ma! be eucte from gross income if his gross salar! per !ear is not more than P250,000.
. )he )ax 'oe allo(s an iniviual taxpa!er to pa! in t(o e7ual installments, the first installment to be
pai at the time the return is file, an the secon on or before ,ul! 15 of the same !ear, if his tax ue
excees P2,000.
e. *n iniviual taxpa!er can aopt either the calenar or fiscal perio for purposes of filing his income tax
return.
f. )he capitali@ation rules ma! be resorte to b! the =I& in orer to compel corporate taxpa!ers to
eclare iviens to their stocAholers regularl!.
g. InformerBs re(ar is sub+ect to a final (ithholing tax of 10#.
h. * non6resient alien (ho sta!s in the Philippines for less than 140 a!s uring the calenar !ear shall
be entitle to personal exemption not to excee the amount allo(e to citi@ens of the Philippines b! the
countr! of (hich he is sub+ect or citi@en.
XI
*re the follo(ing transactions sub+ect to C*)/ If !es, (hat is the applicable rate for each transaction. State the
relevant authorit!Dies for !our ans(er.
a. 'onstruction b! >EF 'onstruction 'o. of concrete barriers for the *sian <evelopment =anA in 8rtigas
'enter to prevent car bombs from ramming the *<= gates along *<= *venue in Manalu!ong 'it!.
";#$
b. 'all 'enter operate b! a omestic enterprise in MaAati that hanles exclusivel! the reservations of a
hotel chain (hich are all locate in %orth *merica. )he services are pai for in GSH an ul! accounte
for (ith the Bangko Sentral ng Pilipinas. ";#$
c. Sale of orchis b! a flo(er shop (hich raises its flo(ers in )aga!ta!. ";#$
XII
:erremaro, Inc., a manufacturer of hancrafte shoes, maintains its principal office in 'ubao, Iue@on 'it!. It
has branchesDsales offices in 'ebu an <avao. Its factor! is locate in MariAina 'it! (here most of its (orAers
live. Its principal office in Iue@on 'it! is also a sales office.
Sales of finishe proucts for calenar !ear 2005 in the amount of P10 million (ere mae at the follo(ing
locationsJ
i$ 'ebu branch 25#
ii$ <avao branch 15#
iii$ Iue@on 'it! branch K0#
)otal 100#
-here shoul the applicable local taxes on the shoes be pai/ 0xplain. ";#$
XIII
>EF Shipping 'orporation is a branch of an international shipping line (ith vo!ages bet(een Manila an the
-est 'oast of the G.S. )he compan!Bs vessels loa an unloa cargoes at the Port of Manila, albeit it oes not
have a branch or sales office in Manila. *ll the bills of laing an invoices are issue b! the branch office in
MaAati (hich is also the compan!Bs principal office.
)he 'it! of Manila enacte an orinance lev!ing a 2# tax on gross receipts of shipping lines using the Port of
Manila.
'an the 'it! 2overnment of Manila legall! impose sai lev! on the corporation/ 0xplain. ";#$
XIV
* inherite a t(o6store! builing in MaAati from his father, a real estate broAer in the LK0s. * group of )ibetan
monAs approache * an offere to lease the builing in orer to use it as a venue for their =uhist rituals an
ceremonies. * accepte the rental of P1 million for the (hole !ear.
)he follo(ing !ear, the 'it! *ssessor issue an assessment against * for non6pa!ment of real propert! taxes.
Is the assessor +ustifie in assessing *Bs eficienc! real propert! taxes/ 0xplain. ";#$
XV
<on Sebastian, single but hea of the famil!, :ilipino, an resient of Pasig 'it!, ie intestate on %ovember 15,
2005. 3e left the follo(ing properties an interestsJ
3ouse an lot "famil! home$ in Pasig P 400,000
Cacation house an lot in :loria, GS* 1,500,000
*gricultural lan in %aic, 'avite (hich he inherite
from his father
2,000,000
'ar (hich is being use b! his brother in 'avite 500,000
Procees of life insurance (here he name his estate
as irrevocable beneficiar! 1,000,000
3ousehol furnitures an appliances 1,000,000
'laims against a cousin (ho has assets of P10,000
an liabilities of P100,000 100,000
Shares of stocA in *=' 'orp, a omestic enterprise 100,000
)he expenses an charges on the estate are as follo(sJ
:uneral 0xpenses P 250,000
1egal fees for the settlement of the estate 500,000
Meical expenses of last illness K00,000
'laims against the estate ;00,000
)he compulsor! heirs of <on Sebastian approach !ou an seeA !our assistance in the settlement of his estate
for (hich the! have agree to the above6state professional fees. Specificall!, the! re7uest !ou to explain an
iscuss (ith them the follo(ing 7uestions. Eou obligeJ
a. -hat are the properties an interests that shoul be inclue in the computation of the gross estate of
the eceent/ 0xplain. "2.5#$
b. -hat is the net taxable estate of the eceent/ 0xplain. "2.5#$
c. -hen is the ue ate for filing an pa!ment of the applicable tax return an tax/ *re these ates
extenible/ If so, uner (hat conitions or re7uirements/ "2.5#$
. If >, one of the compulsor! heirs, renounces his share in the inheritance in favor of the other co6heirs,
is there an! tax implication of >Bs renunciation/ -hat about the other coheirs/ "2.5#$
XVI
* is a travelling salesman (orAing full time for %u SAin Proucts. 3e receives a monthl! salar! plus ;#
commission on his sales in a Southern province (here he is base. 3e regularl! uses his o(n car to maximi@e
his visits even to far flung areas. 8ne fine a! a group of militants sei@e his car. 3e (as notifie the follo(ing
a! b! the police that the marines an the militants ha a bloo! encounter an his car (as completel!
estro!e after a grenae hit it.
* (ants to file a claim for casualt! loss. 0xplain the legal basis of !our tax avice. ";#$
XVII
In 2005, 'aruso, a resient :ilipino citi@en, receive ivien income from a G.S.6base corporation (hich
o(ns a chain of :ilipino restaurants in the -est 'oast, G.S.*. )he ivien remitte to 'aruso is sub+ect to G.S.
(ithholing tax (ith respect to a non6resient alien liAe 'aruso.
a. -hat (ill be !our avice to 'aruso in orer to lessen the impact of possible ouble taxation on the
same income/ ";#$
b. -oul !our ans(er in A. be the same if 'aruso became a G.S. immigrant in 2004 an ha become a
non6resient :ilipino citi@en/ 0xplain the ifference in treatment for Philippine income tax purposes.
";#$
XVIII
*=', a omestic corporation, entere into a soft(are license agreement (ith >EF, a non6resient foreign
corporation base in the G.S. Gner the agreement (hich the parties forge in the G.S., >EF grante *=' the
right to use a computer s!stem program an to avail of technical Ano(6ho( relative to such program. In
consieration for such rights, *=' agree to pa! 5# of the revenues it receives from customers (ho (ill use
an appl! the program in the Philippines.
<iscuss the tax implication of the transaction. "5#$
NOTHING FOLLOWS