Download as doc, pdf, or txt
Download as doc, pdf, or txt
You are on page 1of 10

FINAL EXAMINATIONS TAXATION LAW

Instructions: Answer the following questions briefly and concisely.


Give reasons for your answer.
--------------------------------------------------------------------------------------------

Question no. 1: (2.5 % each)

a) What is the nature of the power of taxation. State its inherent limitations.

b) Are constitutional provisions relating to taxation grant of the power to tax?


Explain.

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.

However Local government taxation in the Philippines is based on the constitutional


grant of the power to tax to the local governments.
Question no. 2: (2.5%)

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.

Question no. 3: (2.5% each)

Are the following transactions subject to value-added tax? If your answer is yes,
State the relevant authority for your answer.

a) Sale of gold to the Bangko Sentral ng Pilipinas;


b) Services rendered by an employee-doctor to co- employees.
c) Concert of Celine Dion at Araneta Coliseum.
d) Goods consigned on June 15, 2017 and returned to consignor-
owner on August 15, 2017.

Question no. 4: (2.5%)

What are the transactions deemed sale under the Vat law?

1|Page
Question No. 5: (2.5%)

Charmie purchase a 300-square meter subdivision lot located in Malolos,


Bulacan. At the time of her father’s death, the property was valued at Php600,000.00.
She constructed a two-storey residential house and lot with a swimming pool on the said
lot. The local assessor conducted an ocular inspection. In view of the development and
conversion of Malolos into a city, the value of lot increased to Php1.0 Million and the
improvements made by Charmie was valued at P2.0 Million.

Is the increase in the value of the lot taxable income? Justify your answer.

Question no. 6: (2.5% each)

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.

There is co-ownership whenever the ownership of an undivided thing or


right belongs to different persons. The co-ownership is not taxable since
there is

. Pursuant to Article 484 of the New Civil Code, “[t]here is co-ownership


whenever the ownership of an undivided thing or right belongs to different persons. This
state of mutual ownership may either be due to contracts or successions and wills.” Thus,
co-ownership may either be through contracts (i.e, deed of sale, donation) or through
inheritance, whether testamentary or intestate.

As a general rule a co-ownership is exempt from income tax. Each co


owner shall declare his share in the income of the co-ownership is taxable to the co-
owner. Exception:T he following are the instances when the co-ownership may become
anunregistered general co-partnership and therefore becomes a taxable corporation 1.
Co-owners appoint an administrator who manages the affairs of the co-ownership by
making investments therein from which profits are realized.2. The co-owners used
the common properties and/or income derived therefrom as a common fund
with intent to make profits.3. When the propety remained undivided for more than 10
years and no attempt was ever made to divide the same among co-heirs, nor was the
property under administration proceedings nor held in trust.4.

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

2|Page
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.

. Co-ownership occurs when two or more heirs inherit an undivided


property from a decedent

The co ownership is not taxable but the co-ownwers are taxed individually
on their distributive share in the income of the co-ownership.

c) Josie, Billy, Larry agreed to operate the sports complex located in


Malolos, Bulacan. Billy will manage the complex; while Lucky and Bong
will provide the capital for the operation of the said complex. They agreed
to equally share in the profit, and since they trust each other, their
agreement was only verbal.

In the present case, they thereby formed an unregistered partnership.

Article 1767 of the Civil Code of the Philippines provides:

By the contract of partnership two or more persons bind themselves to


contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.

Pursuant to this article, the essential elements of a partnership are two,


namely: (a) an agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the profits among the contracting
parties.

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.

General Professional Partnership A partnership formed by persons for the


purpose of exercising theircommon profession, no part of income of which is derived
from engaging in trade orbusiness. Under Section 26 of the Tax Code and pertinent
revenue regulations, aGPP is not subject to income tax and consequently to creditable
withholding tax.However, a GPP is required to file income tax return for the purpose of
furnishinginformation as to the share of each partners in the net income of the
partnershipwhich each partner shall include in his individual income tax
return. For thispurpose, the net income of a GPP shall be computed in the same
manner as acorporation.

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%

3|Page
creditable withholding tax if the amount of income payment is more than
P720,000,otherwise, 10% (RR 11-2018; TRAIN Law)

d) A parcel of land located in Manila is registered in the name of Santi,


Terese, Joy and Beth.

There is co-ownership whenever the ownership of an undivided thing or right belongs to


different persons. The co-ownership is not taxable since there is no income derived from
the property

Question no. 7: (2.5% each)

Distinguish the following:

a. direct versus indirect tax

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).

b. global system versus scheduler system


Schedular system of income taxation. A system employed where the income
tax treatment varies and is made to depend on the kind or category of taxable
income of the taxpayer. (Tan v. Del Rosario, Jr., 237 SCRA 324, 331)

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.

c. tax amnesty versus tax abatement

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).

4|Page
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.

Question no. 8: (2.5% each)

a. What is an assessment notice?


An assessment notice is a formal notice to the taxpayer stating that the amount thereon is
due as a tax and containing a demand for the payment thereof

b. What are the requisites of a valid assessment notice? Explain.


An assessment is a written notice and demand made by the Bureau on the taxpayer for
the settlement of a tax liability that is due, definitely set and fixed therein. The requisites
of a valid assessment are:
- It must be made within the prescriptive period to assess; (Section 203, NIRC)
- There must be a preliminary assessment previously issued, except in those
instances allowed by law; (Section 228, NIRC)
- The taxpayer must be informed in writing about the law and facts on which the
assessment is based; (Section 228, NIRC) and
Page 295 of 450
Law on Taxation
- It must be served upon the taxpayer or any of his authorized representatives.
(Estate of Juliana Diez vda. De Gabriel v. CIR, 421 SCRA 266[2004]).

Question no. 9: (2.5% each)

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,

5|Page
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.

Discuss with reasons.

Question no. 10: (2.5% each)

a) The Constitution provides that: “Congress shall evolve a


progressive system of taxation.”

What is your understanding of “progressive system of taxation”?

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?

“The government, its political subdivisions, government entities and


instrumentalities are exempt from taxation.”

Exemption of government agencies – government immunity from tax. This is a self-


imposed practical limitation that the government does not tax itself. The government
exercising governmental/sovereign functions is not taxed. But when the government
agency exercises proprietary function, taxation is the rule.

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.
756
(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.

6|Page
(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%)

Yanyan owns and operates a restaurant name ”YanYan Foodams”.She serves


breakfast and thus opens her restaurant everyday at 6:00 in the morning. She makes it a
point that her customers while waiting for their ordered breakfast to be served or while
having their chats with their companions would have something to read or keep them
busy such that 3 kinds of newspapers at 3 sets each are available. She collected all these
old newspapers, empty bottles of soy sauce, tomato sauce, patis, and other emply bottles
and packages. She has a regular “junk shop operator” who regularly buys the same
empty bottles and old newspapers. Is the transaction between Yanyan and the junk shop
operator subject to value added tax? Explain with reasons.

Question no. 12: (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.

Any question on the constitutionality or legality of tax


ordinances or revenue measures may be raised on appeal within
thirty (30) days from the effectivity thereof to the Secretary of
Justice who shall render a decision within sixty (60) days from date
of receipt of the appeal.
Any question or issue raised against the legality of any tax
ordinance, or portion thereof, on grounds other than those
mentioned above TNo. 1270 (a) to (ell, shall be referred for
opinion to the Provincial Fiscal, in the case of provincial, municipal
or barangay tax ordinances, or to the City Fiscal, in the case of tax
ordinance of the city and barangays within the city, whose opinion
shall be rendered within a period of thirty (30) days after receipt by
him of the query or protest.
762
The opinion of the Provincial or City Fiscal, as the case may
be, may be raised on appeal within thirty (30) days from the
effectivity thereof to the Secretary of Justice who shall render an
opinion on the matter within sixty (60) days after receipt of the
appeal.
The decision of the Secretary of Justice shall be final and
executory unless, within thirty (30) days upon receipt of the
decision or the lapse of the sixty (60) days period without the
Secretary of Justice acting upon the appeal, the aggrieved party
may contests the same in a court of competent jurisdiction.
(Callanta vs. Office of the Ombudsman)
The special civil action of certiorari is proper in questioning the
decision of agencies exercising quasi-judicial powers. Courts can
scrutinize the acts of agencies on question of law and jurisdiction

7|Page
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)

Question no. 13: (2.5%)

a) Define Importation. When does it begin and when does it end?

b) Are forfeiture proceedings of illegally imported goods criminal in nature?


Explain.

Question no. 14: (4%)

What is “tax benefit rule”? Is it the same as “beneficial user principle? Explain
and give example.

Question no. 15: (2.5% each)

a. What does the gross estate of a decedent include?

b. When is there a valid waiver of the statute of limitations in the enforcement and
collection of internal revenue taxes? State the requisites.

Question no. 16: (3% each)

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.

Question no. 17: (5% each)

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.

Question no. 18: (2.5% each)

a) Discuss the composition of the Court of Tax Appeals. Are decisions of the
Court of Tax Appeals appealable to the Court of Appeals?

8|Page
b) Does the Court of Tax Appeals have jurisdiction over the collection of
internal revenue cases?

-------------------END ------------------GOOD LUCK ---------------

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

9|Page
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.

The Commissioner’s argument is misplaced b

10 | P a g e

You might also like