San Sebastian College

College of Law
Taxation Department
Taxation One
1st Semester
Academic Year 2021-2022
Midterm Examination

Direction: Read and answer the following cases. Prepare your answer in Microsoft
Word file with file name (LacoReginaldSSCTaxOneMidtermExam) then send it to
reginald.laco@gmail.com

I. The National Internal Revenue Code of 1997 imposes separate excise taxes
on the (1st) production/processing of tobacco leaves into raw materials
(tobacco) of cigarettes and on the (2 nd) manufacturing of such raw materials
(tobacco) into finished product commonly known as cigarette. Fortune
Tobacco, a domestic corporation, questioned the imposition of the two excise
taxes for being (1) direct double taxation and (2) for being oppressive and
confiscatory, therefore, violative of right to substantive due process of law.
a. Is the imposition of the two excise taxes considered direct double
taxation? Explain.
b. Is double taxation (direct or indirect) prohibited by the Constitution?
Explain.
c. Is the imposition of the separate excise taxes violative of substantive due
process of law? Explain the legal mechanism provided by the NIRC to
minimize the impact of the above mentioned double taxation.
II. San Beda University (SBU), a nonstock nonprofit educational institution,
offers pre-bar review services to prospective Philippine Bar Exam takers,
whether graduate of its law school or not. The revenues from the pre-bar
review services are used by SBU to provide scholarship to its students.

PLDT Incorporated donated P100M cash to SBU for the construction of law 4-
storey building. The 1st to 3rd floors of the building are exclusively used by
SBU’s law students for their regular class while the 4 th floor is dedicated for
the SBU’s Pre-Bar Review Program. The building was completed and named
Regalado Building.

a. Is the Regalado Building of SBU subject to real property tax? Explain.

b. Are the service revenues of SBU from Pre-Bar Review Program subject to
income tax? Explain.
c. Are the service revenues of SBU from Pre-Bar Review Program subject to
VAT? Explain.
d. Is the P100M cash donation by PLDT Incorporated to SBU subject to
donor’s tax? Explain.
e. May PLDT Incorporated claim the P100M cash donation to SBU as
allowable deductions from its gross income in its income tax return?
Explain.

III. On year 2018, the Congress passed the TRAIN Law to amend the NIRC of
1997. One of the amendments provided in the TRAIN Law is the prospective
removal of the 15% preferential rate currently enjoyed by Filipinos occupying
managerial positions in Regional Headquarter of a multi-national company. It
means the those Filipinos enjoying the said tax privilege before the passage
of TRAIN Law will continue to avail it while those Filipinos who will be hired in
the said position after the passage of TRAIN Law will be subjected to 20-35%
scheduler rate. President Rodrigo Duterte exercised an item veto on this
specific provision only and changed the wordings of TRAIN Law by stating
that 20-35% schedule rate will apply to all Filipinos occupying managerial
positions in Regional Headquarter of a multi-national company regardless of
year of hiring. Affected taxpayers questioned the validity of the item veto and
the removal of the tax privilege.
a. Is the item veto done by the President on the TRAIN Law constitutional?
Explain.
b. May the state validly withdraw the tax privilege (preferential rate of 15%)
granted to Filipinos occupying managerial positions in Regional
Headquarter of a multi-national company in the NIRC of 1997 through
TRAIN Law? Explain.
IV. The Local Government Code of 1991 enacted by Congress provides that an
annual professional tax not exceeding P300 may be levied by a City or a
Province to all professionals who have passed government licensure
examination in Professional Board Exam or Philippine Bar Exam. In 2020, the
Congress passed a law transferring the annual professional tax proceeds from
City or Province to the Professional Regulation Commission and Supreme
Court. The League of Cities and the League of Provinces questioned the
constitutionality of the law before the appropriate court.
a. What is the nature of taxing power of local government units? Explain.
b. Is the 2020 law passed by the Congress constitutional? Explain.

V. The Department of Budget and Management borrowed P3B loan as approved

by Congress from BDO Unibank on year 2001 which will be due at the end of
2002. On year 2002, BDO Unibank reported income tax due amounting to
P2B. The BDO Unibank filed the income tax return for year 2002 but did not
pay the corresponding income tax due. The BIR Commissioner assessed BDO
Unibank for the unpaid income tax. The BDO contended that it will not pay
because since DBM’s loan payable due BDO Unibank became due and
demandable at the end of 2002, its income tax liability on 2002 is legally
compensated with the said loan. Is the contention of BDO tenable? Explain.

VI. The Congress enacted Sin Tax Law which increases the excise tax on the
manufacturing of cigarettes and liquor. The amount to be collected from the
said tax will be used to finance the distribution of condoms for the
implementation of Reproductive Health Law. Fortune Tobacco Inc. questioned
the constitutionality of Sin Tax Law before the RTC of Makati and prayed for
the issuance of preliminary injunction and temporary restraining order to
enjoin the collection of said excise taxes. The RTC judge issued the
preliminary injunction and TRO to enjoin the collection of excise tax. Is the
Sin Tax Law valid even if the proceeds will be used for the acquisition of
condoms? Explain.

VII. The Congress of the Philippines passed a law increasing the corporate income
tax to 60% of gross income of all corporations in the Philippines. The purpose
is to raise revenue in order to finance the 5P’s project of DSWD. Is the tax
law valid? Explain.
VIII. The Philippine Congress increased the tax rate of individual income tax to
35% intended to raise revenue for the national road expansion. The
expansion will improve the nearby land and will increase the value of several
private properties. A lawyer from the province questioned the validity of the
tax law based on the following contentions:
 He did not give consent to the Philippine Congress to be taxed.
 The 1987 Constitution does not grant power of taxation to Congress.
 He will not receive direct benefits from such tax.
 It is not intended exclusively for public purpose because it will provide
benefits to private individuals near the road expansion.

Are the grounds raised by the lawyer tenable? Explain.

IX. The previous BIR Commissioner interpreted the NIRC and issued rules and
regulations stating that the tax basis for computation of 25% final tax on
Nonresident Foreign Corporation is the taxable income after deduction
instead of gross income. The successor BIR Commissioner reversed the
interpretation and made a ruling that the basis will be the gross income.
Based on the new ruling, the BIR Commissioner retroactively assessed the
corporations who paid income tax on the basis of taxable income instead of
gross income. The corporations refused to pay based on three grounds: (1)
The BIR ruling which will prejudice the taxpayer shall not be given retroactive
application (2) The corporations relied in good faith to the ruling of the
previous BIR Commissioner (3) The government shall be estopped by the
ruling made by its official. Are the grounds raised by the corporations
tenable? Explain.

X. University of Santo Tomas, a nonstock nonprofit educational institution,

earned interest income on its tuition fee revenue. The BIR Commissioner
assessed income tax on the said interest income contending that such income
is merely incidental on the operation the institution but not actually, directly
and exclusively connected to educational purposes. The BIR Commissioner
also contended that tax exemption shall be interpreted strictly against the
taxpayer and liberally in favor of the government on the basis of time
honored principle of life blood doctrine. University of Santo Tomas counter
argued that tax law shall be interpreted strictly against the government and
liberally in favor of the taxpayer based on the concept that any act that
infringes the constitutional rights of the citizens are disfavored by the courts.
Decide.
XI. TRAIN Law provides that self-employed taxpayers and professionals are
given the option to avail of 8% tax on their gross sales or gross receipts in
lieu of 5%-35% income tax on taxable income. This privilege is not given to
purely compensation income earners who will be taxed on higher 5%-35%
tax rates. National Union Congress of the Philippines questions the
constitutionality of the TRAIN Law on the ground of violation of equal
protection of the law. The Solicitor General counter argued that the
Constitution does not require absolute equality. Is the TRAIN Law violative of
equal protection of the law? Explain.

XII. TRAIN Law was approved by the Congress despite the absence of the
required quorum as provided in its internal rules and regulations. The
minority bloc of the Congress questions the constitutionality of the law. The
Solicitor General filed a motion to dismiss contending that the petitioners
have no legal standing to question the law since they will not suffer injury by
the implementation of the tax law. May the petition prosper? Explain.

XIII. The Congress imposed road users' tax to every car and the tax to be
collected will be used for the national road expansion which will result to
incidental benefits to taxpayers living near the national road. The Congress
also imposed excise tax on production of sugars and the tax to be collected
will be used to rehabilitate financial distressed Azucarera Company, the Sugar
Industry's leading company which is vital for the economy. Are the two taxes
valid? Explain.

XIV. The BIR Commissioner issued rules and regulations to implement the
provision of National Internal Revenue Code regarding excise tax on
cigarettes. The law imposes tax on the production of pack of cigarettes in soft
or flip top containing 20 sticks. The rules and regulations issued by BIR
Commissioner provides that product of pack containing 5 or 10 sticks are also
subject to excise tax. Philip Morris Co. questions the constitutionality of the
rules and regulations contending that the BIR Commissioner committed grave
abuse of discretion since it expands the provisions of the Tax Code. The
Solicitor General counter argued that the BIR Commission merely implements
the provisions of the Tax Code when he issued the rules and regulations. Is
the rules and regulations valid? Explain.

XV. The National Internal Revenue Code enacted by Congress provides that the
BIR Commissioner has the power to promulgate rules and regulations to
provide the ceiling for de minimis benefits that will be exempted from income
tax subject to the approval of Secretary of Finance. Association of taxpayers
questions the Constitutionality of the law by contending that it constitutes an
invalid delegation of legislative power. Is the delegation to BIR Commissioner
valid? Explain.
XVI. The BIR Commissioner issued rules and regulations requiring nonstock
nonprofit educational institutions to submit document substantiating that not
more than 30% of its revenues are used for administrative purposes it order
for such revenues to be exempted from income tax. Ateneo De Manila
University questions the validity of such rules and regulations contending that
it violates the constitutional provision exempting the revenues of nonstock
nonprofit educational institutions from income tax. The Solicitor General
counter argued that such rules and regulations merely implement the
provisions of the Constitutions and are merely intended for regulatory and
reporting purposes only. Is the rules and regulations valid? Explain.

XVII. The Expanded Value Added Tax Act subjects to value added tax the sale of
newspaper and sale of religious articles and bibles in the ordinary course of
business. The media people and religious people question the constitutionality
of such law contending that it is violative of free speech and religious
freedom. Is the tax law violative of those constitutional rights? Explain.

XVIII. The Congress enacted a tax law imposing excise tax on importation made by
diplomats and heads of states. Embassy of USA questions the constitutionality
of tax law contending that diplomats and heads of states are outside the
jurisdiction of domestic law. The Solicitor General counter argued that what is
being tax is the privilege of importation and not the diplomats and heads of
states. Is the tax law valid? Explain.

XIX. The Congress enacted the Film Development Council Act which transfers the
tax revenues from the collection of Amusement Tax on Cinemas from local
government units to Film Development Council, a national government
agency. The City of Cebu questions the constitutionality of the tax law
contending that it violates the fiscal autonomy of the local government units.
The Solicitor General counter argued that the Congress merely delegated the
power to tax to the local government units under the Local Government Code
of 1991 and thus the Congress may amend it an anytime. Furthermore, the
Solicitor General counter argued that the Constitution provides that the
Congress may provide limitations and guidelines on the exercise of power of
taxation of local government units. Is the tax law constitutional? Explain.
XX. Iglesia Ni Cristo Incorporated (INC), a religious corporation duly registered
before Securities and Exchange Commission (SEC) and Bureau of Internal
Revenue (BIR) constructed Philippine Arena in Bocaue City, Bulacan. The said
arena is normally used by INC for mass indoctrination of its new members.
However, in several occasions, it is also used as concert venue for some
artists. Moreover, it is also used by national government as a quarantine
facility for covid patients during the pandemic. The City of Bocaue subjected
the said Philippine Arena to real property tax. Moreover, the gross receipts of
INC for the use of the said arena are also subjected to business tax by City of
Bocaue. INC filed two formal protests to question the assessment of real
property tax on Philippine and to assail the assessment of business tax on
gross receipts of INC for the use of the said arena.
a. Is the Philippine Arena of INC subject to real property tax? Explain.
b. Are the gross receipts of INC for the use of Philippine Arena subject to
business tax? Explain.

XXI. Bangko Sentral ng Pilipinas (BSP) leased the first floor of its administrative
building to a franchisee of Jollibee Food Corporation for operation of a fast
food chain. The City of Manila subjected the said first floor of administrative
building of BSP to real property tax. BSP protested the assessment
contending that it is a governmental instrumentality performing essential
government function, therefore, exempted from real property tax. The City of
Manila denied the protest because it is devoid of merit.
a. It the said first floor of administrative building of BSP subject to real
property tax? Explain.
b. If the said floor is subject to real property tax, who shall be liable to pay
the tax to City of Manila? Explain.

XXII. The City of Makati levied community tax to its residents. The local ordinance
provides that nonpayment of the said community tax will not only create civil
obligation on the part of the resident but also possible imprisonment for tax
evasion. The City of Makati filed civil case and criminal case against the
Filipino employees and Diplomats of Austrian Embassy located in Makati City
for nonpayment of the said community tax.
a. Are the Filipino employees and Diplomats of Austrian Embassy liable to
pay community tax? Explain.
b. May the Filipino employees and Diplomats of Austrian Embassy be
imprisoned for nonpayment of poll tax? Explain.
XXIII. The Congress enacted a law imposing excise tax on production of fertilizer.
The excise taxes collected will be used to finance the rehabilitation of
Philippine Fertilizer Incorporated, a private domestic corporation that leads
the fertilizer industry in the Philippines, as such, vital to the economy. The
manufactures of fertilizer filed a petition before the Regional Trial Court
questioning the constitutionality of the said tax law. Is the excise tax on
production of fertilizer unconstitutional? Explain.

XXIV. The President of the Philippines imposed large tariff rates and provided for
import quotas on the importation of Apple products coming from USA. MAC,
the authorized dealer of Apple products in the Philippines, questioned the
constitutionality of this action of the President contending that power of
taxation is essentially legislative in nature by filing a petition before the
Supreme Court. Is the action of the President Constitutional? Explain.

XXV. Tom Pitt is an american citizen residing in Manila City. He died intestate
leaving several properties including house and lot in Makati City;
condominium unit in Florida, USA; investment in shares of stocks of Apple
USA Incorporated, a nonresident foreign corporation; and investment in bond
securities of Globe Incorporated, a domestic corporation. The Commissioner
of Internal Revenue of the Philippines subjected to estate tax all the
abovementioned properties of Mr. Tom Pitt. However, the court appointed
administrator of the estate of Tom Pitt protested the assessment made by the
Commissioner of Internal Revenue of the Philippines with regard to the
condominium unit located in Florida USA and investment in shares of stocks
of Apple USA Incorporated. The administrator contended that questioned
properties of the estate are exempted from estate tax because they are
located outside the Philippine territory and that the corresponding estate tax
on such properties have been paid in USA that will result to double taxation.
Decide on the contentions of the estate administrator.

-Nothing Follows-