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TAX REVIEW QUIZ 1 AND 2 (FINALS)

1. Mr. Felix de la Cruz, a bachelor resident citizen, suffered from a heart attack while on a
business trip to the USA. He died intestate on June 15, 2016 in New York City, leaving
behind real properties situated in New York; his family home in Valle Verde, Pasig City;
an office condominium in Makati City; shares of stock in San Miguel Corporation; cash in
bank; and personal belongings. The decedent is heavily insured with Insular Life. He had
no known debts at the time of his death. As the sole heir and appointed Administrator,
how would you determine the gross estate of the decedent?

SUGGESTED ANSWER: Since, Mr. de la Cruz is a Filipino citizen, I would determine his
gross estate by considering all real property, wherever situated, all personal property,
tangible, intangible or mixed, wherever situated, to the extent of the interest that Mr. de
la Cruz had at the time of his death.

The reason for the above is the very nature of an estate tax which is a tax
imposed on the privilege to pass on property ownership at the time of death and on the
benefits protection theory. The protection given to Mr. de la Cruz as Filipino citizen
extends to all his property wherever situated that exists at the time of his death which is
the time when the transfer takes place. If he has no interest in the property at the time of
his death, then he could not transfer it.

2. Mr. AS, Filipino citizen, died abroad leaving the following properties: house and lot in
Texas, USA; shares of stock in San Miguel Corporation and PHILEX, both local
companies; bank deposits in New York City and in BPI in Makati; a car registered in the
name of his son aged 21 years. He was buried in Manila and expenses were incurred to
bring the remains home and for his funeral.

What should be reported as part of his gross estate? Explain.

SUGGESTED ANSWER: All of the above described properties except the car registered
in the name of his son should be reported as part of his gross estate.

Since Mr. AS was a Filipino citizen at the time of his death, then, the value of his
gross estate shall be determined by including the value, at the time of his death, of all
property, real or personal, tangible, intangible or mixed wherever situated, in which he
has an interest existing at the time of his death. Thus, all of his properties located in the
Philippines and in the USA at the time of his death form part of his gross estate.

Mr. AS does not have any interest, at the time of his death, in the car registered
in the name of his son, hence the car is not included in his gross estate.

3. SS died on 2 September 2016 in Taipei, Republic of China. At the time of his death, SS
was a citizen of the Republic of China and a resident of Makati, Metro Manila. SS left the
following properties: (a) a residential condominium unit at Ritz Tower, Makati; (b) a
house and lot in Taipei; (c) shares of stock in Simplex Communications, Inc., a Taipei-
based company, and (d) shares of stock in San Miguel Corporation.

Which of these properties are subject to Philippine estate tax? Explain.

SUGGESTED ANSWER: All of the above properties of SS are subject to Philippine

estate tax because they form part of his gross estate.

SS, a citizen of the Republic of China and a resident of Makati, is considered, for
Philippine estate tax purposes, a resident alien. Consequently, the value of his gross
estate shall be determined by including the value, at the time of his death, of all property,
real or personal, tangible, intangible or mixed, wherever situated. Thus, all of the
properties enumerated in the problem irrespective of where they are situated are
includible in the gross estate of SS.
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4. Jennifer is the only daughter of Janina who was a resident in Los Angeles, California,
USA. Janina died in the US leaving to Jennifer one million shares of Sun Life (Phils.),
Inc., a corporation organized and existing under the laws of the Republic of the
Philippines. Said shares were held in trust for Janina by the Corporate Secretary of Sun
Life and the latter can vote the shares and receive dividends for Janina. The Internal
Revenue Services (IRS) of the U.S. taxed the shares on the ground that Janina was
domiciled in the US at the time of her death.

Can the Commissioner of Internal Revenue of the Philippines also tax the same
shares? Explain. (2016)

SUGGESTED ANSWER: Yes. The shares of stock have obtained a business situs in the
Philippines being those of a corporation organized and existing by virtue of Philippine
laws (NIRC of 1997, Sec. 104,1st par.) hence includible in the gross estate of Janina,
irrespective of whether she is a Filipino citizen or alien.

There is no showing that at the time of Janina’s death (if she is a US citizen), the
US did not impose a transfer tax of any character in respect of intangible personal
property of Filipino citizens not residing in the US or allows a similar exemption from
transfer or death taxes of every character or description in respect of intangible personal
property owned by Filipino citizens not residing in the US.

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

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

Is the BIR correct? (2013)

SUGGESTED ANSWER: The BIR is not correct. The transfer was not in contemplation
of death because the transfer was for valuable and sufficient consideration. It is also
evident from the problem that Mr. Agustin has not retained for his life or for any period
which does not in fact end before his death (1) the possession or enjoyment of, or the
right to the income from the property, or (2) the right either alone or in conjunction with
any person, to designate the person which shall possess or enjoy the property or the
income therefrom.

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

Describe the donated property from the taxation perspective.

a. The property will form part of Mr. Mayuga’s gross estate when he dies.
b. The property will not form part of Mr. Mayuga’s gross estate when he dies
because he paid the donor’s tax.
c. The property will form part of Mr. Mayuga’s gross estate because he died soon
after the donation.
d. The property will not form part of Mr. Mayuga’s gross estate because it is no
longer his. (2013)

SUGGESTED ANSWER: a [refer to NIRC, Sec. 85 (B)]

7. Vanishing deduction is availed of by taxpayers to:

a. correct his accounting records to reflect the actual deductions made

b. reduce his gross income
c. reduce his output VAT tax liability
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d. reduce his gross estate

Choose the correct answer:

SUGGESTED ANSWER: d

8. Which among the following reduces the gross estate of a citizen of the Philippines for
purposes of estate taxation?

a. Transfer for public use.

b. Property previously taxed.
c. Standard deduction of Php5 million.
d. Capital of the surviving spouse.

SUGGESTED ANSWER: d

9. The spouses Jun and Elvira Sandoval purchased a piece of land for Php5 million and
included their 2 minor children as co-purchasers in the Deed of Absolute Sale. The
Commissioner of Internal Revenue (CIR) ruled that there was an implied donation and
assessed donor’s taxes against the spouses. Rule on the CIR’s action.

a. The CIR is wrong; a donation must be express.

b. The CIR is wrong; financial capacity is not a requirement for a valid sale.
c. The CIR is correct; the amount involved is huge and ultimately ends up with
the children.
d. The CIR is correct; there was animus donandi since the children had no
financial capacity to be co-purchasers.

SUGGESTED ANSWER: d

10. Don Fortunato, a widower, died in May, 2016. In his will, he left his estate of Php100
million to his four children. He named his compadre, Don Epitacio, to be the
administrator of the estate. When the BIR sent a demand letter to Don Epitacio for the
payment of the estate tax, he refused to pay claiming that he did not benefit from the
estate, he not being an heir. Forthwith, he resigned as administrator. As a result of the
resignation, who may be held liable for the payment of the estate tax?

a. Don Epitacio since the tax became due prior to his resignation.
b. The eldest child who would be reimbursed by the others.
c. All the four children, the tax to be divided equally among them.
d. The person designated by the will as the one liable.

SUGGESTED ANSWER: c

11. Exempted from donor’s taxation are gifts made

a. For the use of the barangay.

b. In consideration of marriage.
c. To a school which is a stock corporation.
d. To a for-profit government corporation. (2011)

SUGGESTED ANSWER: a

12. A non-stock, non-profit school always had cash flow problems, resulting in failure to
recruit well-trained administrative personnel to effectively manage the school. In 2012,
Don Leon donated Php100 million pesos to the school, provided the money shall be
used solely for paying the salaries, wages, and benefits of administrative personnel. The
donation represents less than 10% of Don Leon’s taxable income for the year. Is he
subject to donor’s tax?
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a. No, since the donation is actually, directly and exclusively used for
educational purposes.
b. Yes, because the donation is to be wholly used for administration purposes.
c. Yes, since he did not obtain the requisite NGO certification before he made
the donation.
d. No, because the donation does not exceed 10% of his taxable income for
2012.

SUGGESTED ANSWER: b

13. State whether the following transactions are (a) VAT exempt, (b) subject to VAT at 12%;
or (c) subject to VAT at 0%:

a. Sale of fresh vegetables by Aling Ining at the Pamilihang Bayan ng Trece

Martirez.

SUGGESTED ANSWER: a

b. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension

SUGGESTED ANSWER: a

c. Sale of orchids by a flower shop which raises its flowers in Tagaytay.

SUGGESTED ANSWER: b

It is subject to the 12% VAT because flowers are non-food agricultural items.
Only agricultural food items are exempted from VAT.

14. A lessor of real property is exempt from VAT in one of the transactions below. Which
one is it?

a. Lessor leases commercial stalls located in the Greenhills Commercial Center

to VAT registered sellers of cell phones; lessor’s gross rental during the year
amounted to Php12 million;
b. Lessor leases residential apartment units to individual tenants for Php10,000
per month per unit; his gross rental income during the year amounted to Php2
million;
c. Lessor leases commercial stalls at Php10,000.00 per stall per month and
residential units at Php15,000.00 per unit per month; his gross rental income
during the year amounted to Php3 million;
d. Lessor leases two (2) residential houses and lots at Php50,000.00 per month
per unit, but he registered as a VAT person. (2012)

SUGGESTED ANSWER: b

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

a. The taxpayer has not been regularly filing its income tax returns for the past 4
years.
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b. The taxpayer deliberately filed a false and fraudulent return with deliberate
intention to evade taxes.
c. The taxpayer used falsified documents to support the application for refund of
taxes.
d. There was an understatement of taxable sales or receipts by 30% or more for
the taxable quarter.

SUGGESTED ANSWER: d

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

a. Within 25 days from September 30

b. Within 45 days from September 30
c. Within 15 days from September 30
d. Within 30 days from September 30

SUGGESTED ANSWER: a

17. Are proceeds of a life insurance policy includible in the gross estate of the decedent?

SUGGESTED ANSWER: Yes. The proceeds of a life insurance policy is includible in the
gross estate of a decedent if:

a. The proceeds are receivable by the estate of the decedent, his executor or
administrator and the insurance was under a policy taken out by the decedent upon his
own life, or

b. The proceeds are from an insurance under a policy taken out by the decedent
upon his own life and are receivable by any beneficiary designated as a revocable
beneficiary in the policy of insurance. [NIRC of 1997, Sec. 85 (E)]

If the above conditions are not met, the life insurance proceeds are not includible
as part of gross estate.

18. The widow and children of a passenger who died in an airplane crash were paid
Php350,000 by the airline. This figure was released after negotiation between the heirs
of the deceased and the insurer of the airlines, the latter having received indubitable
evidence that the deceased had a net income of Php35,000.00 at the time of his death
and that ten productive years would have insured financial stability for his family. Should
the heirs declare this amount in the estate tax returns? State your reasons.

SUGGESTED ANSWER: No. The heirs should not declare the Php350,000.00 in the
estate tax returns.

The Php350,000.00 is not part of the gross estate of the passenger decedent
because the proceeds are not from an insurance policy taken by the decedent on his
own life. Furthermore, the insurance proceeds are not part of the passenger’s property
at the time of his death.

19. “X” Corporation, took a Keyman insurance on the life of its President, Mr. Rodel Cruz,
designating Mr. Cruz’ wife, as its revocable beneficiary. In the event of death of Mr.
Cruz, will the insurance proceeds form part of the gross estate of Mr. Cruz?

SUGGESTED ANSWER: No. The insurance proceeds do not form part of the gross
estate of Mr. Cruz.
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The insurance proceeds are not part of the property of Mr. Cruz at the time of his
death because he was not the one who procured the insurance on his own life and are
receivable by his estate.

If the life insurance policy was not taken out by the decedent, or if taken out by
him but not payable to his estate, or that the designation of his wife as beneficiary was
irrevocable, then, the insurance proceeds do not form part of the estate of Mr. Cruz.

20. The widow of your best friend has just been paid Php500,000.00 on account of the life
insurance policy of her deceased husband. She asks you whether she should declare
the amount for income tax purposes or for estate tax purposes. State your answers with
reasons.

SUGGESTED ANSWER: The Php500,000.00 should not be declared for income tax
purposes. The proceeds of life insurance policies paid to the heirs or beneficiaries (in
this case the widow) upon the death of the insured are among the items excluded from
gross income for income tax purposes.

The Php500,000.00 is to be declared for estate tax purposes if the life insurance
policy was taken by the decedent and the wife was the named executor or administrator
of the decedent’s estate to whom the proceeds are to be payable.

Likewise, if the life insurance policy was taken by the decedent and the wife was
designated as the revocable beneficiary, then the Php500,000.00 should be declared for
estate tax purposes.

21. A died in 2006 leaving a will which directed all real estate owned by him not to be sold or
disposed of for a period of 10 years after his death and ordered that the property be
given to B upon the expiry of that period. In 2006, the estate left by A had a fair market
value of Php500,000.00. In 2016, the fair market value of said estate increased to
Php3,000,000.00 and the Commissioner of Internal Revenue assessed thereon estate
taxes based on Php3,000,000.00. Is his assessment based of Php3,000,000.00 correct?
Explain.

SUGGESTED ANSWER: No. The Commissioner’s assessment is erroneous because

the estate of a decedent shall be appraised at its fair market value as of the time of
death. The fair market value of the property at the time of A’s death in 2006 was only
Php500,000.00, hence it should be the value for estate tax purposes.

This is so because estate taxes are taxes imposed on the privilege to transfer
properties mortis causa. The transfer takes place at the time of death, so the value must
be the value at the time of his death in 2006, not at the time of payment in 2016.

22. State the conditions for allowing the following as deductions from the gross estate of a
citizen or resident alien for the purpose of imposing estate tax:

a. Claims against the estate. xxx

SUGGESTED ANSWER: The following are the conditions for deductibility of claims
against the estate:

1. The liability represents a personal obligation of the deceased existing at the time
of his death except unpaid obligations incurred incident to his death such as
unpaid funeral expenses and unpaid medical expenses which are classified
under a different category of deductions pursuant to these Regulations.
2. The liability was contracted in good faith and for adequate and full consideration
in money or money’s worth.
3. The claim must be a debt or claim which is valid in law and enforceable in court.
4. The indebtedness must not have been condoned by the creditor or the action to
collect from the decedent must not have prescribed.
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5. If the claim is for indebtedness, at the time the indebtedness was incurred, the
debt instrument was duly notarized.
6. If the loan was contracted within three (3) years before the decedent’s death, the
executor or administrator shall submit a statement showing the disposition of the
proceeds of the loan.

23. Casimira died on June 19, 2017, after three weeks of confinement due to an
unsuccessful liver transplant. For her confinement, she had incurred substantial medical
expenses that she financed through personal loans secured by mortgages on her real
properties. Her heirs are still in the process of making an inventory of her assets that can
be used to pay the estate taxes, if any, which are due on December 19, 2017.

a. Are the xxx personal loans and mortgages incurred by Casimira deductible
from her gross estate? Explain your answer.

SUGGESTED ANSWER: Yes provided that at the time the indebtedness was incurred,
the debt instrument was duly notarized and if the loan was contracted within three (3)
years before the decedent’s death, the executor or administrator shall submit a
statement showing the disposition of the proceeds of the loan.

24. During his lifetime, Mr. Sakitin obtained a loan amounting to ten million pesos from
Bangko Uno for the purchase of a parcel of land located in Makati City, using such
property as collateral for the loan. The loan was evidenced by a duly notarized
promissory note. Subsequently, Mr. Sakitin died. At the time of his death, the unpaid
balance of the loan amounted to Php2 million. The heirs of Mr. Sakitin deducted the
amount of Php2 million from the gross estate, as part of the “Claims against the Estate”.
Such deduction was disallowed by the BIR Examiner, claiming that the mortgaged
property was not included in the computation of the gross estate. Do you agree with the
BIR? Explain. (2014)

SUGGESTED ANSWER: Yes. The BIR is correct because the heirs of Mr. Sakitin did
not include the value of the mortgaged property in the computation of the gross estate as
required under the law.

The law requires this because there is no amount from which the unpaid
mortgage could be deducted if the value of the mortgaged property undiminished by the
unpaid mortgage is not included in the gross estate.

25. What are vanishing deductions in estate taxation?

SUGGESTED ANSWER: The deduction allowed from the gross estates of deceased
persons, whether citizens, resident aliens and nonresident aliens, for properties which
were previously subject to donor’s or estate taxes.

The deduction is called a vanishing deduction because the deduction allowed

diminishes over a period of five (5) years.

It is also known as a deduction for property previously taxed.

26. What are the deductions allowed from the gross estate of citizens and resident of the
Philippines?

1. Standard deduction of Php5,000,000;

2. Claims against the estate;
3. Claims of the deceased against insolvent persons;
4. For unpaid mortgages upon, or any indebtedness in respect to, property;
5. Deduction for losses;
6. Property previously taxed;
7. Transfers for public use;
8. The family home in the increased amount of Php10,000,000;
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9. Amount received by heirs under RA No. 4917.

27. Mr. Felix de la Cruz, a bachelor resident citizen, suffered from a heart attack while on a
business trip to the USA. He died intestate on January 15, 2018 in New York City, xxx
where shall the return be filed and when shall the estate tax be paid?

SUGGESTED ANSWER: The estate tax return should be filed in the place where Mr. de
la Cruz had his residence in the Philippines because he is a resident.

As a general rule, estate tax imposed under the NIRC of 1997, as amended by
the TRAIN, shall be paid at the time the return is filed by the executor, administrator or
the heirs, which is within one (1) year from the decedent’s death.

If the estate is suffering from liquidity problems because it does not have
sufficient cash to pay the estate taxes the executor or administrator, upon approval of
the Commissioner of Internal Revenue may opt to do either of the following:

1. Pay the tax in installments; or

2. Apply for an extension of time within which to pay the tax.

28. VCC is the administrator of the estate of his father, NGC. In the estate proceedings
pending the MM Regional Trial Court. Last year, he received from the Commissioner of
Internal Revenue a deficiency assessment for the estate in the amount of Php1 million
but he ignored the notice. Last month, the BIR effected a levy on the real properties of
the estate to pay the delinquent tax. VCC filed a motion with the probate court to stop
the enforcement and collection of the tax on the ground that the BIR should have
secured first the approval of the probate court which had jurisdiction over the estate,
before levying on its real properties. Is VCC’s contention correct?

SUGGESTED ANSWER: No. VCC’s contention is not correct.

1. There is nothing in the Tax Code, and in the pertinent remedial laws that
implies the necessity of the probate or estate settlement court’s approval of the state’s
claim for estate taxes before the same can be enforced or collected.

2. On the contrary, under Sec. 87 of the NIRC (now Sec. 94, NIRC of 1997), it is
the probate or settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent’s estate to deliver any distributive share to any party
interested in the estate, unless it is shown a Certification of the Commissioner of Internal
Revenue that the estate taxes have been paid.

29. “X”, “Y” and “Z” are surviving legitimate children of “A” who died leaving a taxable estate
valued at Php8 million. “B” stepmother of “X”, “Y” and “Z” and surviving spouse of “A”
was appointed administratrix of the estate.

Under a compromise settlement, the surviving heirs agreed to an equal

distribution of the estate among themselves. The estate tax was, however, not paid and
an assessment was issued against the surviving heirs, each in an amount equal to 25%
of the tax assessed.

“X”, “Y” and “Z” protested the assessment, alleging that the tax should be paid by
“B”, as administratrix.

Is the protest of “X”, “Y” and “Z” valid? Reasons.

SUGGESTED ANSWER: Yes. “B”, the appointed administratrix is primarily liable for the
payment of the estate tax before delivery is made to any beneficiary of his distributive
share of the estate.

This primary personal liability of “B”, the appointed administratrix, is discharged

only upon written advise of the Commissioner of Internal Revenue, after “B” has paid the
taxes due as notified by the Commissioner, and files an application for discharge.
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It should be noted that “X”, “Y” and “Z” being beneficiaries of the estate are
subsidiary liable for the payment of such portion of the estate tax as their distributive
shares bear to the value of the total estate.

30. Remedios, a resident citizen, died on November 10, 2016. She died leaving three
condominium units in Quezon City valued at Php5 million each. Rodolfo was her only
heir. He reported her death in December 5, 2016 and filed the estate tax return on March
30, 2017. Because he needed to sell one unit of the condominium to pay for the estate
tax, he asked the Commissioner of Internal Revenue to give him one year to pay the
estate tax due. The Commissioner approved the request for extension of time provided
that the estate tax be computed on the basis of the value of the property at the time of
payment of the tax.

a. Does the condition that the basis of the estate tax will be the value at the time
of the payment have legal basis?

SUGGESTED ANSWER: There is no legal basis for the condition that the basis of the
estate tax will be the value at the time of the payment because the estate of a decedent
shall be appraised at the fair market value as of the time of death.

This is so because estate taxes are taxes imposed on the privilege to transfer
properties mortis causa. The transfer takes place at the time of death, so the value must
be the value at the time of death in 2016, not at the time of payment.

b. Does the Commissioner of Internal Revenue have the power to extend the
payment of estate tax? If so, what are the requirements to allow such extension?

SUGGESTED ANSWER: Yes. The Commissioner has the power to extend the payment
of estate tax.

The following are the requirements for such an extension:

a. The Commissioner of Internal Revenue finds that the payment on due

date of the estate tax or of any part thereof would impose under
hardship upon the estate or any of the heirs;
b. There is no negligence, intentional disregard of rules and regulations,
or fraud on the part of the taxpayer;
c. The extension of the time for payment or any part thereof should not
exceed five (5) years, in case the estate is settled through the courts,
or two (2) years in case the estate is settled extrajudicially;
d. If an extension is granted, the Commissioner may require the
executor, or administrator, or beneficiary, as the case may be, to
furnish a bond in such amount, not exceeding double the amount of
the tax and with such sureties as the Commissioner deems
necessary, conditioned upon the payment of the said tax in
accordance with the terms of the extension.

31. Mr. & Mrs. de los Santos opened a joint savings account under “and/or” signatures.
When Mr. de los Santos died, the BIR included the joint deposit as part of his estate.
The lawyer of Mrs. de los Santos objected on the ground that the deposit account is not
jointly owned by Mr. & Mrs. de los Santos and that, in fact, the Bank allowed the
withdrawal by Mrs. de los Santos of the deposits even after its knowledge of Mr. de los
Santos’ death.

a. Will the argument of Mrs. de los Santos prosper?

SUGGESTED ANSWER: No. The presumption under the law is that the bank deposits
are jointly owned. This is true whether the property relations of Mr. & Mrs. de los Santos
is governed by the system of absolute community or the conjugal partnership of gains.
The burden is on Mrs. de los Santos to prove that the deposit is not jointly owned.

b. Did the Bank act correctly in allowing the withdrawal?

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SUGGESTED ANSWER: Yes. If a bank has knowledge of the death of a person, who
maintained a bank deposit account alone, or jointly with another, it shall allow any
withdrawal from the said deposit account, subject to a final withholding tax of 6%.

32. “X” donated a piece of farm land to his son “Y” 19, and single. The donor’s tax on the
donated property was not paid but “Y” took possession of the property and operated it
himself. A year after the donation, an assessment on the income derived from the farm
was issued against “Y”.

Is the assessment against “Y” valid? Reasons.

SUGGESTED ANSWER: Yes. It was “Y” who earned the income and not “X”. While it is
true that the property is still owned by “X”, because until the donor’s taxes have been
paid, there would be no transfer effected in the records of the Register of Deeds in “Y’s”
name.

The issue is not ownership of the land but the taxability of the income derived
from the land.

33. ABC Computer Corp. purchased some years ago Membership Certificate No. 7 from the
Calabar Golf Club, Inc. for Php300,000.00. In 4 September 2013, it transferred the same
to Mr. John Johnson, its American Computer consultant, to enable him to avail of the
facilities of the Club during his stay here. The consultancy agreement expired two (2)
years later. In the meantime, the value of the club share appreciated and what was
purchased by the corporation at Php300,000.00 commanded a market value of
Php800,000.00 in 2016. Before he returned home a few days after his tenure ended, Mr.
Johnson transferred the subject share to Mr. Robert James, the new consultant of the
firm and the newly designated playing representative, under a Deed of Declaration of
Trust and Assignment of Shares wherein the former acknowledged the absolute
ownership of ABC Computer Corp. over the share, that the assignment was without any
consideration, and that the share was placed in his name because the Club required it to
be done.

Is the said assignment a gift and, therefore, subject to gift tax?

SUGGESTED ANSWER: No. The assignments are not gratuitous, hence not subject to
donor’s taxes. The value of the right to avail of the privileges attendant to the Calabar
Golf Club, Inc.’s Membership Certificate which is due to Mr. Johnson’s merits or services
as a computer consultant is a fringe benefit taxable to the employer.

The same holds true with respect to the transfer of the shares to Mr. Robert
James.

34. Mr. Quiroz worked as chief accountant of a hospital for 45 years. When he retired at 65,
he received a retirement pay equivalent to 2 month’s salary for every year of service as
provided in the hospital’s BIR approved retirement plan.

The Board of Directors of the hospital felt that the hospital should give Quiroz
more than what was provided for in the hospital’s retirement plan in view of his loyalty
and invaluable services for 45 years; hence, it resolved to pay him a gratuity of Php1
million over and above his retirement pay.

The Commissioner of Internal Revenue taxed the Php1 million as part of the
compensation income of Quiroz who protested that it was excluded from income
because it was a gift.

Is Mr. Quiroz correct in claiming that the additional Php1 million was a gift and
therefore excluded from income?

SUGGESTED ANSWER: Yes. There is no showing that the giving is the result of a
legally demandable obligation because Mr. Quiroz was already paid his retirement. He
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likewise did not render a specific service that is compensable because he is already
retired.

35. X, an employee of ABC Corporation died. ABC Corporation gave X’s widow an amount
equivalent to X’s salary for one year.

Is the amount considered taxable income to the widow? Why?

SUGGESTED ANSWER: The amount should be considered as a gift and not taxable.
This is so because there is no legally demandable obligation for the ABC to give the
amount to the widow. Furthermore, the widow has not rendered any service for the said
amount, and there is no showing that the payment was made for services previously
rendered by X.

36. A, an individual, sold to B, his brother-in-law, his lot with a market value of Php1 million
for Php600,000. A’s cost in the lot is Php100,000. B is financially capable of buying the
lot.

A also owns X Co., which has a fast growing business. A sold some of his shares
of stock in X Co., to his key executives in X Co. These executives are not related to A.
The selling price is Php3 million, which is the book value of the shares sold but with a
market value of Php5 million. A’s cost in the shares sold is Php1 million. The purpose of
A in selling the shares is to enable his key executives to acquire a proprietary interest in
the business and have a personal stake in the business.

Explain if the above transactions are subject to donor’s tax.

SUGGESTED ANSWER: Yes. All the transactions are subject to donor’s tax. The
transfers were all made for less than an adequate and full consideration in money’s
worth hence, the excess of the fair market value of the property over the actual value of
the consideration shall be subject to donor’s tax.

37. Mr. Bill Morgan, a Canadian citizen and a resident of Scarborough, Ontario, sends a gift
check of $20,000 to his future Filipino daughter-in-law who is to be married to his only
son in the Philippines.

a. Is the donation by Mr. Morgan subject to tax? Explain.

SUGGESTED ANSWER: No, because the giving of the gift took place outside of the
Philippines. This is evident from the fact that the gift check was sent to, and not given
personally in the Philippines. It is of no moment that Mr. Morgan’s donation does not fall
within the gifts made by a non-resident exempt from donor’s tax.

b. What is the tax consequence, if any, to the donee (Filipino daughter-in-law of

Mr. Morgan)?

SUGGESTED ANSWER: None. The donee (Filipino daughter-in-law of Mr. Morgan) is

not required to report the $20,000 as income because the gifts are excluded from gross
income and exempt from income taxes.

The income from such gift shall, however, be included by the done in her gross
income. [NIRC of 1997, Sec. 32 (B) (3)]

38. X, a multinational corporation doing business in the Philippines, donated 100 shares of
stock of said corporation to Mr. Y, its resident manager in the Philippines.

What is the tax liability, if any, of X Corporation?

SUGGESTED ANSWER: None. Since, the property donated is outside of the

Philippines, X is not subject to the payment of donor’s taxes.
 12

39. Miguel, a citizen and resident of Mexico, donated US$1,000 worth of stocks in Barack
Motors Corporation, a Mexican company, to his legitimate son, Miguelito, who is residing
in the Philippines and about to be married to a Filipino girlfriend. Mexico does not
impose any transfer tax of whatever nature on all gratuitous transfers of property.

xxx xxx

b. Is Miguel entitled to the rule of reciprocity in order to be exempt from the

Philippine’s donor’s tax? Why or why not?

SUGGESTED ANSWER: No because the reciprocity rule finds application only where
there is a taxable donation. Miguel’s donation is not taxable because it is made by a
non-resident alien, outside of the Philippines of property that is not located here.

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

Was the BIR correct?

SUGGESTED ANSWER: No. The BIR is only partially correct.

The renunciation by Mrs. Barbera, the surviving spouse, of her share in the
conjugal partnership after the dissolution of the marriage, resulting from the death of Mr.
Barbera, in favor her children who are the heirs of the deceased spouse is subject to
donor’s tax.

This is so, because the transfer that resulted from the renunciation of her share
in the conjugal property was without consideration.

The BIR is wrong with regard to Mrs. Barbera’s renunciation of her share in the
inheritance left by the late Mr. Barbera. There was a general renunciation by Mrs.
Barbera, the surviving spouse, of her share in the hereditary estate left by the decedent
which is not subject to donor’s tax, because it was not specifically and categorically done
in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the
hereditary estate.

41. Mr. L owned several parcels of land and he donated a parcel each to his two children.
Mr. L acquired both parcels of land in 1975 for Php200,000.00. At the time of donation,
the fair market value of the two parcels of land, as determined by the CIR was
Php2,300,000.00; while the fair market value of the same properties as shown in the
schedule of values prepared by the City Assessors was Php2,500,000.00. What is the
proper valuation of Mr. L’s gifts to his children for the purpose of computing donor’s tax?

SUGGESTED ANSWER: Php2,500,000.00.

For purposes of computing the donor’s tax, the donated real estate shall be its
appraised value as of the time of donation whichever is the higher of :

a. The Php2,300,000.00 the fair market value as determined by the CIR; or

b. The Php2,500,000.00 which fair market value as shown in the schedule of
values prepared by the City Assessors.

Since the value as shown in the schedule of values prepared by the City
Assessor’s is higher than the fair market value as determined by the CIR, then
Php2,500,000.00 is the proper valuation of Mr. L’s gifts to his children for the purpose of
computing the donor’s tax.

42. Enumerate at least three gifts which are not subject to donor’s taxes.

SUGGESTED ANSWER: The following three (3) gifts are not subject to donor’s taxes:
 13

1. Total net gifts made during the calendar year not exceeding Php250,000.00.
2. Donations for political campaign purposes that are reported to the
Commission on Elections.
3. Prizes that are donated to athletes who won in local or international
competitions sponsored by a sports association duly accredited with the
Philippine Olympic Committee.

43. Can you name one kind of gift that is exempt from donor’s tax which is extendible to both
residents and non-residents or non-citizens of the Philippines? Include qualifications, if
any.

SUGGESTED ANSWER: Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for profit, or to any political
subdivisions of the said Government are exempted from donor’s tax whether made by
residents and non-residents or non-citizens of the Philippines.

ALTERNATIVE ANSWER: A gift made in favor of an educational and/or charitable,

religious, cultural or social welfare organization or research institution or organization.

The qualification for said gift to be exempt from donor’s tax is that not more than
thirty per centum (30%) of said gifts shall be used by the donee for administration
purposes.

44. CMI School, Inc., a non-stock, non-profit corporation, donated its three parcels of idle
land situated in the Municipality of Cuyapo, Nueva Ecija to SLC University, another non-
stock, non-profit corporation, in recognition of the latter’s contribution to and participation
in the spiritual and educational development of the former.

a. Is CMI School, Inc., liable for the payment of donor’s tax? Explain your
answer. (2017)

SUGGESTED ANSWER: No. Gifts in favor of an educational and/or charitable, religious,

cultural or social welfare corporation, institution, accredited nongovernment organization,
trust or philanthropic organization or research institution or organization; Provided,
however, That not more than thirty (30%) of said gifts shall be used by such donee for
administration purposes.

For the purpose of this exemption, a non-profit educational and/or charitable

corporation, institution, accredited nongovernment organization, trust or philanthropic
organization and/or research institution or organization is a school, college or university
and/or charitable corporation, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or organization, incorporated as a
non-stock entity, paying no dividends, governed by trustees who receive no
compensation, and devoting all its income, whether students’ fees or gifts, donation,
subsidies or other forms of philanthropy, to the accomplishment and promotion of the
purposes enumerated in its Articles of Incorporation.

xxx xxx

c. If SLC University donates the three parcels of idle land in favor of the
Municipality of Cuyapo, Nueva Ecija, will SLC University be liable for donor’s tax?
Explain your answer. (2017)

SUGGESTED ANSWER: No. Gifts made to or for the use of the National Government or
any entity created by any of its agencies which is not conducted for profit, or to any
political subdivisions of the said Government.

45. In 2018, Imelda gave her parents a Christmas gift of Php100,000.

a. Is the Christmas gift of Php100,000.00 to Imelda’s parents subject to tax?

 14

SUGGESTED ANSWER: No, because the net donation for the calendar year that does
not exceed Php250,000.00 is exempt from donor’s taxes.

46. Kenneth Yusoph owns a commercial lot which he bought many years ago for Php1
million. It is now worth Php20 million although the zonal value is only Php15 million. He
donates one-half pro-indiviso interest in the land to his son Dino on 31 December 2015,
and the other one-half pro-indiviso interest to the same son on January 2, 2016.

a. How much is the value of the gifts in 2015 and 2016 for purposes of
computing the gift tax? Explain.

SUGGESTED ANSWER: The value of the gift in 2015 is one-half of the zonal valuation
of Php15 million or Php7.5 million. This is so because the basis for valuation of the
donation is the zonal value or the assessed value made by the Provincial or City
Assessors whichever is higher. It is the zonal valuation that prevails because there is an
absence of the assessed value made by the Provincial or City Assessor.

The value of the gift in 2016 shall be whichever is the higher between the zonal
value of the remaining one-half (Php7.5 million) or the assessed value made by the
Provincial or City Assessor at the time of the donation. It is the zonal valuation that
prevails because there is an absence of the assessed value made by the Provincial or
City Assessor.

b. The Revenue District Officer questions the splitting of the donations into 2015
and 2016. He says that since there were only two (2) days separating the two
donations they should be treated as one, having been made within one year.
Is he correct? Explain.

SUGGESTED ANSWER: No. The basis for computing the net gifts is the calendar year.
There are two calendar years in the problem, 2015 and 2016.

c. Dino subsequently sold the land to a buyer for Php20 million. How much did
Dino gain on the sale? Explain.

SUGGESTED ANSWER: Php19 million.

Dino’s basis for the property is the value of the property in the hands of the
donor, which was Php1 million. This is so, because the property was acquired through
donation. Since the property was sold for Php20 million there was a gain of Php19
million.

d. Suppose, instead of receiving the lot by way of donation Dino received it by

inheritance. What would be the gain on the sale of the lot for Php20 million.
Explain.

SUGGESTED ANSWER: The gain would be Php5 million.

This is so, because the basis would be the fair market value at the time Dino
acquired the property at the time of Kenneth Yusoph’s death, which is Php15 million.
Thus, Php20 million less Php15 million is Php5 million.

The presumed capital gains tax does not find application because the property is
an ordinary asset being a commercial lot. It is used in trade or business.

47. In order that donations to non-stock, non-profit educational institutions may be exempt
from the donor’s gift tax, what conditions must be met by the done? (2002)

SUGGESTED ANSWER: The following are the requisites before donations to non-stock,
non-profit educational institutions may be exempt from the donor’s gift tax:
 15

a. Not more than thirty per centum of said gifts shall be used by the donee for
administration purposes.
b. The donee is a
1. School, college or university;
2. Incorporated or a non-stock entity;
3. Paying no dividends;
4. Governed by trustees who receive no compensation; and
5. Devotes all its income, whether student’s fees, or gifts, donations,
subsidies or other forms of philanthropy to the accomplishment and
promotion of the purposes enumerated in its articles of incorporation.

48. The Church of Nazarene is a duly registered religious non-stock, and non-profit
corporation managed by a Board of Trustees. Apart of its religious activities, it is also
engaged in charitable works such as providing shelter and food to abandoned children.
Recently, it acquired a donation of One Million Pesos from its parent company in the
United States intended to finance its religious and charitable activities. One-half of Five
Hundred Thousand Pesos was spent in one year and with respect to the balance of Five
Hundred Thousand Pesos, the Board of Trustees decided to place the same in the
money market where it earned an interest income of Php10,000.00. The Board of
Trustees decided that the interest earned would also be used exclusively for religious
and charitable purposes.

Is the donation, as well as the interest earned, subject to income tax?

SUGGESTED ANSWER: The donation shall be tax exempt as not more than 30% was
utilized for administration purposes. The interest income is subject to income tax
because it was earned in a profit taking activity. This is so, irrespective of the purpose for
which it shall be devoted.

49. X is a friend of Y, the Chairman of Political party Z, who wants to run for President in the
2016 elections. Knowing that Y needs funds for posters and streamers, X is thinking of
donating to Y Php150,000.00 for his campaign. He asks you whether his intended
donation to Y will be subject to donor’s tax. What would your answer be? Will your
answer be the same if he were to donate to Political Party Z instead of to Y directly?
(2003)

SUGGESTED ANSWER: The intended donation is not subject to donor’s tax because
the Election Code specifically exempts from gift taxes any contribution in cash or in kind
to any candidate for campaign purposes, duly reported to the Commission on Elections.

My answer would be the same even if the donation was made to Political Party Z
because the exemption also applies to contribution in cash or in kind to a political party
or coalition of parties for campaign purposes, duly reported to the Commission on
Elections.

50. SMZ, Inc., is a VAT-registered enterprise engaged in the general construction business.
HP International contracts the services of SMZ, Inc. to construct HP International’s
factory building located in the Laguna Techno Park, a special economic zone. HP
International is registered with the Philippine Economic Zone Authority (PEZA) as an
ecozone export enterprise, and, as such, enjoys income tax holiday pursuant to the
Special Economic Zone Act of 1995.

SMZ, Inc., files an application with the Bureau of Internal Revenue (BIR) for the
VAT zero-rating of its sale of services to HP International. However, the BIR denies
SMZ, Inc.’s application on the ground that HP International already enjoys income tax
holiday.

Is the BIR correct in denying SMZ, Inc.’s application? Explain your answer.(2017)

SUGGESTED ANSWER: No. The fact that HP International already enjoys income tax
holiday is not a valid ground for denying SMZ, Inc.’s application for VAT zero-rating of its
sale of services to HP International.
 16

Services rendered to persons or entities whose exemption under special laws

subjects the supply of such services to zero percent (0%) rate.

Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall
manage and operate the ECOZONES as a separate customs territory; thus, creating the
fiction that the ECOZONE is a foreign territory. As a result, sales made by a supplier in
the Customs Territory to a purchaser in the ECOZONE shall be treated as an
exportation from the Customs Territory.

“…. all sales of goods, properties, and services made by a VAT-registered

supplier from the Customs Territory to an ECOZONE enterprise shall be subject to VAT,
at zero percent (0%) rate, regardless of the latter’s type or class of PEZA registration;
and thus, affirming the nature of a PEZA-registered or an ECOZONE enterprise as a
VAT-exempt entity.

51. The BIR issued RMC No. 65-2012 imposing VAT on association dues and membership
fees collected by condominium corporations from its member condominium-unit owners.
The RMC’s validity is challenged before the Supreme Court (SC) by the condominium
corporations. The Solicitor General, counsel for BIR, claims that association dues,
membership fees, and other assessment/charges collected by a condominium
corporation are subject to VAT since they constitute income payments or compensation
for the beneficial services it provides for its members and tenants.

On the other hand, the lawyer of the condominium corporation argues that such
dues and fees are merely held in trust by the condominium corporations exclusively for
their members and used solely for administrative expenses in implementing the
condominium corporations’ purposes. Accordingly, the condominium corporations do not
actually render services for a fee subject to VAT.

Whose argument is correct? Decide. (2014)

SUGGESTED ANSWER: The argument of the lawyer of the condominium corporation is

correct.

The provisions of the NIRC are clear in describing the characteristics of a person
who is subject to VAT, as any person who, in the course of his trade or business,
renders services.

To be “in the course of trade or business” means “trade or commercial activity

regularly engaged in as a means of livelihood or with a view to profit.” By its very nature
a condominium corporation is not engaged in business, and any profit that it derives is
merely incidental.

The money paid by the unit owners are pooled together to be spent exclusively
for the purpose of maintaining and preserving the condominium building and the
common areas which they themselves own and possess.

52. On September 17, 2015, Data Realty, Inc., a real-estate corporation duly organized and
existing under Philippine law, sold to Jenny Vera a condominium unit at Freedom
Residences in Malabon City with an area of 32.31 square meters for a contract price of
Php4,213,000. The condominium unit had a zonal value amounting to Php2,877,000 and
fair market value amounting to Php550,000.

a. Is the transaction subject to VAT and documentary stamp tax? Explain your
answer. (2017)

SUGGESTED ANSWER: Yes. The sale is subject to both the VAT and documentary
stamp tax.

Data Realty, Inc. sold the condominium unit which is primarily held for sale to
customers hence subject to VAT. The contract price of Php4,213,000, which is the
 17

highest value compared with the zonal value, and the fair market value, is the amount
used for internal revenue purposes. Since, it is above the threshold value of P3 million,
then the sale is subject to VAT.

Since Data Realty, Inc. is the seller, it is liable for the documentary stamp tax
which is a tax on the sales transaction.

53. MKI is a VAT registered company which has engaged in the catering business for the
past 10 years. It has invested a substantial portion of its capital on flat wares, table
linens, plates, chairs, catering equipment, and delivery vans. MKI sold its first delivery
van, already 10 years old and idle, to MGSC, a corporation engaged in the business of
buying and selling gravel and sand. The selling price of the delivery van was way below
its acquisition cost. Is the sale of the delivery van by MKI to MGSC subject to VAT?
(2014)

SUGGESTED ANSWER: Yes. The sale of the delivery van by MKI to MGSC is subject
to VAT.

MKI is a VAT registered company engaged in “in the course of trade or business”
catering which means the regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto which are subject to VAT.

The delivery van being used in MKI’s trade or business of catering is part of its
assets. The sale of a fully depreciated asset (the delivery van) that has been used in
business is subject to VAT as an incidental transaction, although such sale may be
considered isolated.

54. XYZ Law Offices, a law partnership in the Philippines and a VAT registered taxpayer,
received a query by e-mail from Gainsburg Corporation, a corporation organized under
the laws of Delaware, but the e-mail came from California where Gainsburg has an
office. Gainsburg has no office in the Philippines and does no business in the
Philippines.

XYZ Law Offices rendered its opinion on the query and billed Gainsburg
US$1,000 for the opinion. Gainsburg remitted its payment through Citibank which
converted the remitted US$1,000 to pesos and deposited the converted amount in the
XYZ Law Offices account. What are the tax implications of the payment to XYZ Law
Offices in terms of VAT? (2013)

SUGGESTED ANSWER: The payment to XYZ Law Offices by Gainsburg Corporation is

subject to VAT in the Philippines.

For VAT purposes, the transaction is a zero-rated sale of services where the
output tax is zero percent and XYZ is entitled to claim as refund or tax credit certificate
the input taxes attributable to the zero-rated sale. The services were rendered to a
nonresident person, engaged in business outside the Philippines, which services are
paid for in foreign currency inwardly remitted through the banking system, thereby
making the sale of services subject to tax at zero-rate. [NIRC of 1997, Sec. 108 (B) (2)]

55. In June 2016, DDD Corp., a domestic corporation engaged in the business of leasing
real properties in the Philippines, entered into a lease agreement of a residential house
and lot with EEE, Inc., a non-resident foreign corporation. The residential house and lot
will be used by officials of EEE, Inc. during the visit to the Philippines. The lease
agreement was signed by representatives from DDD Corp. and EEE, Inc. in Singapore.
DDD Corp. did not subject the said lease to VAT believing that it was not a domestic
service contract. Was DDD Corp. correct? Explain. (2015)

SUGGESTED ANSWER: No. DDD Corp. is not correct. The lease of properties shall be
subject to VAT irrespective of the place where the contract of lease was executed if the
property is leased or used in the Philippines.
 18

Since the leased residential house and lot is located and used in the Philippines
it is subject to VAT despite the fact that the lease agreement was signed in Singapore.

56. Services rendered by Jake’s Construction Company, a contractor to the World Health
Organization in the renovation of its offices in Manila. Is the transaction subject to VAT?
If yes, what is the applicable rate?

SUGGESTED ANSWER: Yes, it is subject to VAT at 0%.

“Services rendered to persons or entities whose exemption under special laws or

international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero percent (0%) rate.”

The World Health Organization is exempt from taxation under our treaty
obligations with the United Nations.

57. Your client, United Market Cooperative, is requesting the Commissioner of Internal
Revenue to exempt it from the payment of VAT on its purchase of prime commodities
from food suppliers/manufacturers on the ground that it is exempt from all taxes,
including VAT, under RA No. 6938, the Cooperative Code of the Philippines.

Do you think your client can obtain the necessary exemption from the BIR? If
your answer is in the affirmative, explain the basis for the grant. If in the negative, state
the basis for the rejection of the request.

SUGGESTED ANSWER: No. The exemption will not be granted because VAT is
imposed upon sales and not upon purchases.

58. Melissa inherited from her father a 300 square meter lot. At the time of her father’s death
on March 14, 2015, the property was valued at Php720,000.00. On February 28, 2016,
to defray, the cost of the medical expenses of her sick son, she sold the lot for
Php600,000.00, on cash basis. The prevailing market value of the property at the time of
the sale was Php3,000 per square meter.

Is Melissa subject to pay VAT on the sale of property? If so, how much and why?
If not, why not?

SUGGESTED ANSWER: No. VAT is not imposed on the sale of real properties that are
not primarily held for sale to customers or held for lease in the ordinary course of trade
or business. Melissa does not hold the property primarily for sale, nor is it for lease in the
ordinary course of trade or business.

59. Emiliano Paupahan is engaged in the business of leasing out several residential
apartment units he owns. The monthly rental for each unit ranges from Php10,000.00 to
Php12,000.00. His gross rental income for one year is Php1,800,000.00. He consults
you on whether it is necessary for him to register as a VAT taxpayer. What legal advice
will you give him, and why?

SUGGESTED ANSWER: He is not required to register as a VAT taxpayer.

His transactions of leasing residential units for an amount not exceeding

Php15,000.00 per unit per month is exempt from the VAT.

60. Greenhills Condominium Corporation incorporated in 2017 is a non-stock, non-profit

association of unit owners in Greenhills Tower, San Juan City. To be able to reduce the
association dues being collected from the unit owners, the Board of Directors of the
corporation decided to lease part of the ground floor of the condominium building to DEF
Savings Bank for Php120,000 a month or Php1.44 million for the year, starting January
2018.
 19

a. Is the non-stock, non-profit association liable for VAT in 2018? If your answer
is in the negative, is it liable for another kind of business tax?

SUGGESTED ANSWER: No, because its rentals did not exceed Php3 million annually.
It shall be subject to the 3% percentage tax.

b. Will the association be liable for VAT in 2018 if it increases the rental to
Php300,000 a month beginning January 2018? Explain.

SUGGESTED ANSWER: Yes, because its gross sales would then exceed P3 million
annually.

61. In a civil case for Annulment of Contract of Sale, plaintiff Ma. Reklamo presented in
evidence the Contract of Sale which she sought to be annulled. No documentary stamp
tax on the Contract of Sale was paid because according to plaintiff Ma. Reklamo, there
was no need to pay the same since the sale was not registered with the Register of
Deeds. Plaintiff Ma. Reklamo is now offering the Contract of Sale as her evidence. Is the
Contract of Sale admissible? (2014)

SUGGESTED ANSWER: No. The Contract of Sale is inadmissible in evidence.

An instrument, document or paper which is required by law to be stamped and

which has been signed, issued, accepted, or transferred without being duly stamped,
shall not be used in evidence in any court until the requisite stamp or stamps shall have
been affixed thereto and cancelled.

A Contract of Sale, similar to the one that Ma. Reklamo seeks to annul, requires
the affixture of documentary stamps. Consequently, since there was no documentary
stamp attached to it, it shall not be used as evidence until the requisite stamps shall
have been affixed thereto and cancelled.