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Finals Tax Predicted Questions
Finals Tax Predicted Questions
a) What is the nature of the power of taxation. State its inherent limitations.
No. Constitutional provisions relating to taxation are not grant of the power to tax but
provides limitations on the power to tax. Power to tax is inherent in sovereignty –exists
independent of any legislation/constitution. There is no need to enact a law to exercise
that power because that power springs at the moment you have the existence of the state.
This is inherent because this is based on necessity. However, the Constitution provides
limitations because of that principle that the power to tax involves the power to destroy.
Congress may abuse that power given to it by the people through the electoral process.
MX, Inc. had excess income tax payments for the year 2012 of in the amount of
Php1.0 M. When it filed its income tax return in April 2013, MX Inc. signified its
intention to apply said amount as a tax credit to its future income tax liabilities, by
checking the box “tax credit” at the bottom portion of the income tax return. For the
years 2013, 2014 and 2015, it again had excess income tax payments and again chose to
apply it as a tax credit. MX Inc. chose to apply said excess tax payments for the years
2013 and 2014 as a tax credit to its future tax liabilities. When MX Inc. finally realized
that since it has so may tax over payments, tax credit would not be feasible and advisable.
Hence, on January 15, 2016, it filed a claim for refund of the excess income tax payments
for the years 2012, 2013, 2014 and 2015 with the Bureau of Internal Revenue. It you
were the BIR, will you approve the claim for refund? Support your answer.
Are the following transactions subject to value-added tax? If your answer is yes,
State the relevant authority for your answer.
What are the transactions deemed sale under the Vat law?
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Question No. 5: (2.5%)
Is the increase in the value of the lot taxable income? Justify your answer.
State what kind of association or organization was formed in and whether such is
taxable or not? Explain your answer in not more than 2 sentences.
a) Dane and Espie are best friends. They met Fely, a real estate broker, from
whom Dane and Espie purchased a rest house worth P3.5M. They
contributed and equally shared in the payment of the purchase price. Fely
executed the Deed of Sale in the name Dane and Espie.
Here, only pservation Here, the activities of the co-owners arelimited only to the
preservation of the property owned in common. The lement of gain is wanting here
b) Gene, Honey and Ira are the surviving heirs of their deceased father, who
left a 6-door apartment building. After paying the estate tax due, the title
of the property was registered in their names. They decided not to divide
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the said property and agreed tp equally share in the rentals from the 6-door
apartment net of all taxes due and the expenses for the maintenance
thereof.
The co ownership is not taxable but the co-ownwers are taxed individually
on their distributive share in the income of the co-ownership.
d) Manny, a law practitioner and Perry, a retired judge and put up a law
partnership and registered the same with the Securities & Exchange Commission. They
hired Oscar, a law graduate, as the firm’s manager.
It shall be noted, however, that the tax exemption of GPPs shall pertainonly to its
ordinary income. Hence, a GPP is subject to final withholding taxes on itspassive
incomes as well as capital gains tax.
Partners shall be liable for income tax only in their separate and individualcapacities.
Each partner shall report as gross income his or her distributive share(actual or
constructive) in the net income of the partnership. Income payments made periodically
or at the end of the taxable year made by a GPP to the partners, such as drawings,
advances, sharings, allowances, stipends, etc. is subject to 15%
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creditable withholding tax if the amount of income payment is more than
P720,000,otherwise, 10% (RR 11-2018; TRAIN Law)
Direct taxes are taxes wherein either the incidence (or liability for the payment of the
tax) as well as the impact or burden of the tax falls on the same person. An example of
this tax is income tax where the person subject to tax cannot shift the burden of the tax
to another person.
Indirect taxes, on the other hand, are taxes wherein the incidence of or the liability for
the payment of the tax falls on one person but the burden thereof can be shifted or
passed on to another person. Example of this tax is the value-added tax. (Aban, Law of
Basic Taxation p. 20).
A system which itemizes the different incomes and provides for varied
percentages of taxes, to be applied thereto.
Global system of income taxation A system employed where the tax system
views indifferently the tax base and generally treats in common all categories
of taxable income of the individual. (Tan v. Del Rosario Jr. 237 SCRA, 324,
331)
A system which taxes all categories if income except certain passive incomes
and capital gains. It prescribes a unitary but progressive rate for the taxable
aggregate incomes and flat rates for certain passive incomes derived by
individuals.
Tax amnesty is immunity from all criminal, civil and administrative liabilities
arising from
nonpayment of taxes. It is a general pardon given to all taxpayers. It applies
only to past
tax periods, hence of retroactive application. (People v. Castaneda, G.R. No.
L- 46881,
1988).
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Section 204(B) of the Tax Code expressly provides that the CIR may abate or
cancel tax liabilities when the tax or any portion thereof appears to be unjustly
or excessively assessed, or the administration and collection costs involved do
not justify the collection of the amount due.
Carlos and Marie, husband and wife, Filipino citizens and the registered owners
of a condominium unit located in Makati City. After the recent wedding of their only son,
Lito, they donated the said condominium unit with a fair market value of P4.0 Million to
the spouses Lito and Sarah.
a) What is the tax treatment of the said condominium unit as far as Lito and
Sarah are concerned.? Explain.
b) What is the tax liability of the spouses Carlos and Marie with respect to the
donation of said condominium unit?
For tax purposes, the transfer of property through donation is subject to the donor's tax,
which is now imposed at the rate of 6% computed on the amount of the donation
Based on our Tax Code, donations made during the calendar year in excess of two
hundred fifty thousand pesos (P250,000) shall be subject to six percent (6%) donor’s tax,
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which the donor is required to pay to the Bureau of Internal Revenue (BIR) within thirty
(30) days from the date of donation. Recall that under the Train Law, the uniform rate of
six percent (6%) donor’s tax shall now apply whether the recipient of the donations are
relatives of the donor or strangers.
In donor's tax in the Philippines, it is the donor or giver who is bound to pay the tax and
not the donor. All transfer of properties during the lifetime of the donor will be subject to
six percent (6%) more than two hundred fifty pesos (250,000) during the calendar year.
The Progressive Tax System is one where the tax burden increases as taxable income
increases.It promotes equity such that those who have higher incomes will shoulder more
of the burden compared to those with lower incomes. Through our proposal, Filipinos
will contribute based on their capacity to pay
b) What is the rationale of this inherent limitation in the exercise of the power to
tax?
c) Do barangays have exclusive taxing power under the Local Government Code
of 1991? Explain your answer.
Barangays may levy the following taxes, fees and
charges to the exclusion of the other local government units that
shall exclusively accrue to them -
(a) Taxes, on stores of retailers with fixed business establishment,
whose gross sales or receipts for the preceding calendar year
does not exceed Php 50K in cities and Php 30K in
municipalities, at a rate not exceeding 1 % on such gross sales
or receipt.
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(b) Service charges for services rendered in connection with the
regulation of the use of barangay-owned properties or service
facilities such as palay, copra or tobacco dryer and the like;
(c) Reasonable fees and charges (a) on commercial breeding of
fighting cocks, cockfights and cockpits; (b) on places of
recreation which charge admission fees; and (3) on billboards,
signboards and outdoor advertisements.
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(d) Barangay Clearance - No city or municipality may issue any
license or permit for any business or activity unless a clearance
is first obtained from the barangay where such business or
activity is located or conducted. A reasonable fee may be
imposed by the barangay unit for the issuance of the same.
The application for clearance shall be acted upon within
seven (7) days from the filing thereof. In the event that the
clearance is not issued within the said period, the city or
municipality may issue the said license or permit.
1296 . Ho w often ca n th e local governmen t unit s adjus t a
Question no. 11: (5%)
What is the remedy of the taxpayer if he wants to protest or contest the validity of
a tax ordinance? State the procedure and the statute of limitations.
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even where no review is given by statute. (Meralco Securities Corp.
vs. Central Board of Assessment Appeals May 31, 1982, Caltex vs.
Central Board of Assessment Appeals May 31, 1982)
What is “tax benefit rule”? Is it the same as “beneficial user principle? Explain
and give example.
b. When is there a valid waiver of the statute of limitations in the enforcement and
collection of internal revenue taxes? State the requisites.
On May 15, 2016 Tonette received an assessment notice of unpaid real estate tax
on her commercial lot and building located in Quezon City for the years 2010 to 2014 in
the amount of Php420,000.00. Tonette went to the Quezon City Treasurer’s Office and
manifested that she does not agree to the said assessment because based on her records,
the amount due should only be Php240,000.00 and offered to pay said amount
But the City Treasurer declined her payment and insisted that she should pay the
amount as assessed. Considering that her offer and tender of payment was not accepted
by the City Treasurer, Tonette filed a petition for mandamus before the Regional Trial
Court of Quezon City to compel the City Treasurer of Quezon City to accept her payment
of Php240,000.00 and the same time consigned said amount.
a) Will the petition for mandamus prosper? Reason out your answer.
b) If Tonette engaged you as her lawyer, what is the proper and best remedy that you
would take to protect her interest.
Atty. Maine maintains his law office in ‘Quezon City but resides in Manila. Most
of her court appearances and clients are in Quezon City. She paid her professional tax for
2015 in Manila. May Quezon City, where she has her law office require him to pay his
professional tax for 2015? Why? Explain your answer.
a) Discuss the composition of the Court of Tax Appeals. Are decisions of the
Court of Tax Appeals appealable to the Court of Appeals?
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b) Does the Court of Tax Appeals have jurisdiction over the collection of
internal revenue cases?
This has been consistently held by the court, and in the case of CIR vs.
McDonalds Philippines Realty Corp., G.R. 242679, promulgated on May 10, 2021
(McDonald Case), no less than the Supreme Court emphasized the importance of
identifying the revenue officer authorized to continue the tax audit or investigation in the
LoA. It held that the issuance of an LoA prior to examination and assessment is a
requirement of due process and not a mere formality or technicality. As part of due
process requirement, taxpayers have the right to know that the revenue officers are duly
authorized to conduct the examination and assessment, and this requires that the LoAs
must contain the names of the authorized revenue officers. Accordingly, identifying the
authorized revenue officers in the LoA is a jurisdictional requirement of a valid audit or
investigation by the BIR, and therefore of a valid assessmen
The CTA held that the LoA is the concrete manifestation of the grant of authority
bestowed by the Commissioner of Internal Revenue (CIR) or his authorized
representatives to the revenue officers. The LoA gives notice to the taxpayer that it is
under investigation for possible deficiency tax assessment and at the same, it authorizes
or empowers a designated revenue officer to examine, verify, and scrutinize a taxpayer’s
books and records in relation to internal revenue tax liabilities for a particular period.
Hence, the absence of such an authority renders the assessment or examination a patent
nullity.
Another significant amendment is the increase in the threshold of the fair market value of
family homes that are exempt from estate tax. Under the old law, the allowable deduction
must be in an amount equivalent to the current fair market value of the family home (or
the extent of the decedent’s interest, whichever is lower), but not exceeding P1 million.
The TRAIN Law now provides that if the current fair market value of the family home
exceeds P10 million, only the excess shall be subject to estate tax.
Perhaps one of the areas in the previous estate tax law that received much attention was
the fact that the administrator of the estate could only withdraw P20,000.00 from the
estate of the decedent. This created difficulties for the administrators considering the high
cost of a funeral service, its allied activities, and post-funeral requirements. The TRAIN
Law gives more leeway for the estate administrators as any amount may now be
withdrawn from the deceased’s bank account, subject only to a 6% final withholding tax.
There are also some interesting amendments to the donor’s tax provisions.
Under the old law, donations to a non-relative were taxed at 30% and the P100,000
exemption was not allowed. Thus, during estate planning, properties that were intended
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to be given to non-relatives were better left in the estate. Under the TRAIN Law, the
donor’s tax is fixed at 6% based on annual total gifts exceeding P250,000 in a calendar
year, regardless of whether the donee is a relative or not.
The time of filing of returns and payment of tax remains the same under the TRAIN Law.
Donors are required to file a return and pay the full tax due within 30 days from the date
the gift is made. For several gifts made in one calendar year, the donor is required to
make a consolidated return within the same period after the date of each gift for the
proper computation of donor’s tax.
Unlike estate tax, no deduction can be made from the total gifts made in a calendar year
but the TRAIN Law has increased the threshold of exemption from P100,000 to
P250,000. Thus, one can take advantage of the said exemption by spreading out the gifts
during one’s lifetime. This cannot be done in estate tax because there is only one event
that would determine when estate tax will attach, i.e. the death of the decedent.
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