Suggested Answers in The Mock Bar Examination in Taxation Law v1 FINAL

2020-2021 MOCK BAR EXAMINATIONS (Cycle 1)
QUESTIONS & SUGGESTED ANSWERS IN THE

MOCK BAR EXAMINATION IN TAXATION LAW
EXAMINERS:
Question Nos. 1 to 10 - Prof. Arnel P. Bacarra

Question Nos. 11 to 20 - Prof. Mario P. Bravo
Question Nos. 21 to 30 - Prof. Karen Mae L. Calam-Ibanez
QUESTION NO. I
The income tax return of ABC Corporation for taxable year 2015 was filed on March 10, 2016.
The tax per return is Php14,000. However upon audit by the BIR, it was discovered that the correct
amount of tax payable by ABC Corporation is Php20,000. An assessment for deficiency tax was
made on April 5, 2019.
a. Was the assessment made on time?
b. Suppose the assessment was made on April 20, 2019, is the assessment valid?
SUGGESTED ANSWER:
a. Yes, the assessment was made on time. The assessment for tax deficiency is valid until
April 15, 2019 or three (3) years from the date following the deadline for filing the return.
Considering that the assessment was made on April 5, 2019, the assessment is valid.
b. No, because it was issued after the last day for making an assessment. The taxpayer can
question the legality of the assessment on the ground of prescription of assessment.
QUESTION NO. II
The income tax return of ABC Corporation for taxable year 2015 was fraudulently filed on March
10, 2016. The tax per return is Php14,000. However, upon audit by the BIR, it was discovered that
the correct amount of tax payable by ABC Corporation is Php20,000 on April 20, 2018. An
assessment for deficiency tax was made on May 15, 2021. Is the assessment valid?
2021 Online Mock Bar Examinations
Cycle 1 (August –September 2021)
TAXATION LAW
September 5, 2021 (Sunday), 2:00 PM.-6:00 PM.
SUGGESTED ANSWER:
The assessment is valid because it is issued with ten (10) years after the discovery of the fraudulent
return.
Since the fraudulent return was discovered on April 2018, the Commissioner has until April 20,
2028 to make a valid assessment.
QUESTION NO. III
ABC Corporation received an assessment on October 6, 2015. She filed a request for
reconsideration with the BIR on November 5, 2015. The request was denied and ABC received
the decision on May 5, 2016.
a. Was the request for reconsideration filed on time? When is the last day for filing the
protest with the BIR?
b. When is the last day for ABC to submit documents supporting the request for
consideration?
c. When is the last day to file an appeal with the Court of Tax Appeals?
SUGGESTED ANSWER:
a. ABC Corporation received the assessment on October 6, 2015. The taxpayer is given 30
days from receipt to protest the assessment. Therefore, the last day for filing the protest in
November 5, 2015.
b. ABC filed a reconsideration on November 5, 2015. Therefore, the last day to submit
supporting documents is on January 4, 2016 or 60 days from filing of the request.
c. The denial of the request for reconsideration was received on May 5, 2016. Considering
that the taxpayer is given 30 days from receipt of the denial, the last day for filing the appeal is
June 4, 2016.
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TAXATION LAW
QUESTION NO. IV
ABC Corporation received an assessment on October 6, 2015. ABC filed a request for
reconsideration with the BIR on November 5, 2015. ABC submitted the supporting documents on
December 1, 2015 and the BIR failed to act on the protest until the lapse of the 180-day period. If
ABC decides not to wait anymore for the decision of the CIR, when is the last day for ABC to
appeal to the Court of Tax Appeals the inaction of the Commissioner?
SUGGESTED ANSWER:
The documents were submitted on December 1, 2015. The 180-day period will lapse on May 30,
2016. From this date, ABC Corporation has 30-days to appeal the inaction of the Commissioner.
Therefore, the last day to appeal with the Court of Tax Appeals is on June 29, 2016.
QUESTION NO. V
The income tax return for the taxable year 2014 was filed April 10, 2015. A deficiency tax of
Php15,000 was assessed by the BIR on April 12, 2018. A warrant of distraint was issued on June
1, 2019.
a. When is the last day for the BIR to make a valid assessment?
b. When is the last day for the BIR to issue a valid warrant of distraint to collect tax?
SUGGESTED ANSWER:
a. Since the return was filed on April 10, 2015, which is prior to the deadline for filing the
income tax return, the three-year period will commence on April 16, 2015 and end on April 15,
2018.
b. The law provides that deficiency taxed maybe collected within five (5) years from the
date of assessment. The tax was assessed on April 12, 2018. Therefore, the last for the BIR to
issue a valid warrant of distraint is on April 12, 2023.
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TAXATION LAW
QUESTION NO. VI
The income tax return for the taxable year 2014 was filed April 10, 2015. A deficiency tax of
Php15,000 was assessed by the BIR on April 12, 2018. A warrant of distraint was issued on June
15, 2023. What is the possible defense of the taxpayer?
SUGGESTED ANSWER:
Considering that the warrant of distrain is issued after the deadline, the taxpayer can raise the
defense of prescription.
QUESTION NO. VII
On April 5, 2016, Maicah paid her income tax. After a year, she realized that she had overpaid
and so she immediately filed a claim for refund with the Commissioner of Internal Revenue. On
March 20, 2018, she received the decision of the Commissioner denying her claim for refund. On
April 20, 2018, Maicah filed an appeal with the Court of Tax Appeals. Is the appeal filed on time?
SUGGESTED ANSWER:
No, her appeal was filed beyond the two year-period. Micah should have filed her appeal within
thirty (30) days from receipt of the decision and within two years from the date of final payment.
Hence, the deadline for filing of the appeal is on April 5, 2016.
QUESTION NO. VIII
First Gen Power is engaged in effectively zero-rated sale of generated power. On November 23,
2016, it filed an administrative claim for refund of Php10 million alleged unutilized input VAT for
the quarter of 2014.
a. Is the claim filed on time?
b. If the supporting records were submitted in December 2016, until when is the CIR
allowed to render its decision?
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SUGGESTED ANSWER:
a. Yes, First Gen Power has until December 31, 2016 or two years after the close of the
taxable year quarter when the effectively zero-rated sales were made within which to file the claim.
b. The CIR is given 120 days from submission of complete documents to decide on the
claim as to whether to grant a refund/issue tax credit certificate, or to deny the claim.
QUESTION NO. IX
First Gen Power is engaged in effectively zero-rated sale of generated power. On November 23,
2022, it filed an administrative claim for refund of Php10 million alleged unutilized input VAT for
the Fourth quarter of 2020.
a. Is the claim filed on time?
b. If the supporting records were submitted in December 2022, until when is the CIR
allowed to render its decision?
SUGGESTED ANSWER:
a. Yes, First Gen Power has until December 31, 2022 or two years after the close of the
taxable year quarter when the effectively zero-rated sales were made within which to file the claim.
b. With the TRAIN Law, the CIR is now only given 90 days within which to decide on the
claim. Moreover, the provision allowing the issuance of Tax Credit Certificate for VAT Refund is
no longer allowed under the TRAIN Law; thus in case of favorable action by the CIR, only Tax
Refund is allowed. Moreover, BIR Official who failed to act within 90 days from the submission
of the documents will be liable for administrative charges as provided under the TRAIN Law.
QUESTION NO. X
The police power, the power to tax, and the power of eminent domain are inherent powers of the
government. May a tax be validly imposed in the exercise of the police power and not of the power
to tax? If you’re your answer is in the affirmative, give an example.
SUGGESTED ANSWER:
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The police power may be exercised for the purpose of requiring license for which license fee may
have to be paid. The amount of the license fees for the regulation of useful occupations should
only be sufficient to pay for the cost of the license and necessary expense of police surveillance
and regulation. For non-useful occupations, the license fee may be sufficiently high to discourage
a particular activity sought to be regulated. It is clear from the foregoing that police power may
not be exercised by itself alone for the purpose of raising taxes. However, police power may be
exercised jointly with the power of taxation for the purpose of raising revenues. (Lutz vs. Araneta,
98 Phil. 148)
Alternative Answer:
Taxation involves the power to raise revenue not only in order to support the existence of
government but likewise to carry out legitimate objects of government. Among such legitimate
objects are those that power itself can cover. As early as the case of Lutz vs. Araneta (98 Phil 126),
the Supreme Court has ruled that taxation may be used to implement an object of police power.
An example would be the taxes imposed on gambling activities.
QUESTION NO. XI
Mat is a Filipino citizen, employed in foreign country. He believes that his income abroad
should be excluded from his taxable income because he earned it from sources outside the
Philippines.
In order to be assured of his position, he consulted you if such income be excluded.
What would be your opinion? Assuming, Mat is an American citizen married to a Filipina
woman. He consulted you who are to be considered as resident alien for income tax purposes.
Justify your answer.
SUGGESTED ANSWER:
Mat’s income from abroad should be excluded as part of his taxable income. He is considered
an overseas contract worker. As such as OCW, he is a nonresident citizen. As a nonresident citizen,
he is only taxable on his income from within the Philippines. Income he derived from sources
outside the Philippines is excluded.
Overseas Contract workers refer to a filipino citizen employed in foreign countries who is
physically present in foreign country as consequence of his employment thereat.
His compensation is paid by an employer abroad and is not borne by any entity or person in the
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Philippines. He is commonly referred to as Overseas Filipino Worker (OFW).
To be considered as an OCW or OFW, he must be duly registered as such with the POEA with
valid Overseas Employment Certificate (OEC). (RR No. 1-2011)
Under Section 23 (C) a seaman who is citizen of the Philippines and receives compensation for
services rendered abroad as a member of the complement of vessel engaged exclusively in
international trade shall be treated as an overseas contract worker. A seafarer’s to be considered as
OCW or OFW the following are the requirements:
They must be duly registered as such with the POEA.
They must have a valid Overseas Employment Certificate (OEC) with a valid Seafarer’s
Identification Record Book (SIRB) or Seaman’s Book issue by the Maritime Industry Authority
(MARINA).
Mat in order to be treated as resident alien, he should establish that:
He is an alien who shall come to the Philippines with no definite intention as to his stay; or
He comes to the Philippines for a definite purpose, which, by its nature, would require an extended
stay making his home temporarily in the Philippines. Or
His actual present in the Philippines is not as a mere transient or sojourner. He is X and Y are
senior citizen and Person with Disability (PWD), respectively. Both are deriving returnable income
during the taxable year. The revenue district officer (RDO) required them to file their ITR’s and
pay the tax as they file the return. the in the Philippines for definite purpose which in its nature
may not be promptly accomplished as a transient.
QUESTION NO. XII
X and Y are senior citizen and Person with Disability (PWD), respectively. Both are
deriving returnable income during the taxable year. The revenue district officer (RDO)
required them to file their ITR’s and pay the tax as they file the return.
Is the RDO correct in requiring them to file their respective ITR and pay the
necessary tax? Justify your answer. Mention what are the internal revenue taxes which
may be paid by them.
SUGGESTED ANSWER:
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Yes, X as a senior citizen who derived returnable income during the taxable year from
compensation or otherwise is required to file his ITR and shall pay the tax necessary as he file the
return. Y as the PWD shall likewise file his ITR and pay the corresponding tax upon filing his
return.
For income taxation purposes Senior citizens and PWD who have income are taxable like an
ordinary individual taxpayer.
In this connection, senior citizen and PWD, as a regular income taxpayers are liable for the
following internal revenue taxes; (1) basic income tax. (2) FWT on passive income; and (3) capital
gain tax.
It to be noted, however, that a minimum wage earner is exempt from tax on compensation income
as MWE, regardless of whether or not such individual is a SC/ PWD.
QUESTION NO. XIII.
Dr. X and Y have recently passed the Dental Board Examination last year. They intent to
practice their profession by establishing a General Professional Partnership (GPP).
In view of this, they hired you to give information related to the partnership such as:
A . Tax liability of GPP and the Partners vs Tax Liability of Co- partnership and
the Partners;
B. Allowed deduction to partner of a GPP from their distributive share; and
C. When does a co-ownership exist, and when such co-ownership considered

as a partnership. Discuss briefly.
SUGGESTED ANSWER:
A. Tax Liability of GPP and Partners
A general professional partnership is not subject to income tax. Each partner in a GPP is subject
to tax on his/her distributive share, actually or constructively received from the net income of
the partnership. The share of the partners in general partnership shall be subject to creditable
withholding tax based of 10% of the share in the amount P720,000 or less, and 15% of the share
in the Net Income, it exceeds P720,000.
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For purposes of computing the distributive share of the partners, the net income of the partners
shall be computed in the same manner as a corporation.
While GPP is exempted from income taxation, it is still required to file an income tax return
(ITR) for proper information on the share of each partner to the BIR.
B. TAX Liability of Co-partnership and Partners
A general co-partnership is taxable on its income like corporation, and required to file the
quarterly and annual income. It is subject to principle of minimum corporate income tax (MCIT)
of two percent (2%). The share of a partner is treated like dividend, hence, subject to 10% final
tax.
C. Allowed Deductions to Partners of a GPP
The following rules shall govern the claim of the partners of deduction from their share in the
net income of the partnership:
The GPP may claim either the itemized deductions or can opt to avail the optional standard
deduction (OSD) not exceeding 40% of its gross income. But the partners are to choose between
Itemized Deduction, or an Optional Standard Deduction regardless of the type of deduction
chosen by the GPP.
If the GPP has availed of the itemized deduction, the partners may still claim itemized deduction
from their share provided that the partners are precluded from claiming the same expenses
claimed already by the GPP.
If the GPP has availed of the OSD in computing its net income, the partner can no longer claim
further deduction from their share in the said income.
If the partner also derives other gross income from trade, business or practice of profession apart
and distinct from his share in the net income of the GPP, the deduction that he can claim from his
gross income would follow the same deduction availed of from his partnership income. Provided,
however, that if the GPP opts for the OSD, the individual partner may claim 40% of its gross sales
receipts from trade business or practice profession, but not to include his share from the net income
of the GPP.
D. When co-ownership exit vs co-ownership considered as a partnership.
Co-ownership is created by operation of law or voluntarily or based on agreement. If the co-

ownership exits for the purpose of preserving the property, it is exempt from tax. The income
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TAXATION LAW
derived by the co-owners will form part of the gross income of the individual coowners subject
to basic tax.
Co-ownership created thru agreement will have a personality of a partnership subject to tax.
Income of each co-owner is treated as dividend subject to final tax.
The income derived from the shares of the co-owners which have been reinvested in income
producing activities are subject to tax, as the co-owners constituted themselves unto partnership
subject to tax.
When an inherited property remain undivided for more than ten (10) years and there is no attempt
to divide the inherited property among the co- heirs, the income of the co•ownership is taxable and
the same is treated like a corporation.
QUESTION NO. XIV
Mr. Goko and Ms Vasti are engaged separately in the construction business as contractors.
They would like to pool their respective resources to undertake a big construction project worth
P130M.
They consulted you as their lawyer to provide them certain advice on how they would be able to
form a commercial undertaking purposely to undertake a big construction Project in Gerona,
Tarlac worth P130M, but without necessarily forming a corporation.
As their lawyer, what would be your advice to them? Can foreign contractors established
joint venture that can be treated as a non-taxable Corporation? Explain.
SUGGESTED ANSWER:
As their lawyer, I would explain to Mr. Goko and Ms Vasti that they should establish a joint
venture or consortium formed purposely to undertake construction projects. It is a commercial
undertaking by two or more persons, differing from a partnership in the way that it relates to the
disposition of a single lot of goods or the completion of a single project. Such joint venture or
consortium must comply with the following requirements in order not to be considered as
corporation: The joint venture was formed for the purpose of undertaking a construction project;
and Should involve joining/pooling of resources by licensed local contractor; that is, licensed as
general contractor by the Philippine Contractor Association Board (PCAB) of the DTI.
The local contractors are engaged in construction business; and
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The joint venture itself must likewise be duly licensed as such by the PCAB of DTI.
QUESTION NO. XV
X is a government educational institution. It has constructed a building costing P20M. The

President of the Institution and the Board of Trustees opted to outright consider the cost of the
construction of the building as an outright expense account. While the President agreed to such
treatment, he has certain reservations because it may be grounds for him to be criminally
and administratively charged before the Ombudsman.
So he hired you to provide them advice regarding this matter as well as the treatment of the
income they generated in the operation of the school. Explain your position. What is the
difference between a non-stock, non-profit educational institution vs proprietary profit
educational institution? How would you treat government-owned, or controlled corporations for
income tax purposes?
SUGGESTED ANSWER:
As a government educational institution it is exempt for income tax purposes under Section 30
of the TAX code if the income is directly involved and clearly related to its operation as an
educational institution. If income generated which is not related to its exempt activity shall be
subject to regular corporate income tax. The cost of depreciation may be considered as an
outright expense, especially the construction of such a building if it's directly, exclusively and
actually related to educational purposes. It can also be considered as depreciation expense to be
apportioned within the useful life of the building.
Difference between a non-profit-non-stock educational institution and proprietary profit

educational institution.
Non-stock, nonprofit educational institutions under our Constitution, all its revenue that are
actually, directly and exclusively used for educational purposes are exempt from income tax.
Whereas, a proprietary profit educational institution is considered as an ordinary corporation. As
such, rules applicable to an ordinary corporation will also apply to it. However in computing the
basic income tax, the rate is 10%
Non-stock, non -profit educational institutions are likewise exempt under section 30 (H) of the
tax code. However, income not related to the exempted activities shall be subject to regular
corporate income tax.
For an income proprietary non-profit Educational Institution, if the income not related to its
primary purpose or function is more than 50% of its total gross income, the rate applicable is
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30%.
It is not subject to MCIT. Expenditures for expansion of school facilities may not be capitalized
but instead claimed as outright expense.
(Marginal Note: Unrelated trade, business or activity is an activity which is not substantially
related to the exercise or performance of the school’s primary purpose or function such as
but not limited to rental income from available school spaces of a facility.
Related to this, examples of related income such as
(a) income from tuition fees and miscellaneous school fees, (b) income from canteen
situated within the school campus; (c) income from hospital where medical graduates are trained
for residency; and (d) income from bookstore situated within the school campus.)
All corporations, agencies or instrumentalities owned or controlled by the government shall be

considered as an ordinary corporation. As such they should be taxed as an ordinary corporation
based on the corporate tax rate of 30%.
However, the following are exempted from corporate tax:
• GSIS
• SSS
• Philippine Health Insurance Corporation
• Local Water District
QUESTION NO. XVI
X Hospital Inc. is a proprietary hospital generating substantial revenue during the taxable
year 2019. The BIR issued a notice of preliminary assessment and subsequently a notice of
Final Assessment, informing Dr. Santiago, the President of the Hospital that the said hospital
incurred deficiencies in its income tax.
Dr. Santiago, strongly disagrees with the BIR findings, contending that as a hospital it
should only be paying preferential corporate tax of 10% and should not be subject to
NCIT of 30% or 2% MCIT as the case may be. It also should be allowed to deduct the cost
of construction of its new building as an outright expense. The hospital is in its 5th year of
operation.
A. Discuss if the President is correct on his contention. Explain briefly. How would
you differentiate the 2% MCIT with the 30% NCIT?
SUGGESTED ANSWER:
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Dr. Santiago, the President of the said hospital is not correct on his contention. The hospital as a
proprietary-profit oriented entity generating substantial profit/revenue is not subject to a
preferential corporate tax of 10%.
Proprietary non-profit hospital as a special corporation is only granted the said preferential
corporate tax. The hospital is not treated as a proprietary non- profit hospital.
In view of this, the said hospital should be subject to 30% Normal Corporate tax rate (NCIT) on
its Net Income, or 2% MCIT on its gross income whichever is higher, as the case may be, since
the hospital is already in its 5th year operation.
The cost of construction of its new building should not be claimed as an outright expense. It should
be capitalized, and depreciation expense may be deducted from its operating expenses (OPEX)
annually apportioned within the useful life of the building.
QUESTION NO. XVII
Biglang Liko-Sabay Yoko Medical and Specialist Center Inc. is a registered private Hospital
Organized as non-stock, non-profit entity for charitable and social welfare purposes.
Last year 2019, the Bureau of Internal Revenue (BIR) assessed Biglang Liko-Sabay Yoko for
deficiency income tax mainly due to the findings that it is allegedly a non-profit hospital that is
liable to pay 10% tax on its net income pursuant to Section 27(B) of the NIRC.
During the investigation, it was found out that in its operation, it generated a substantial amount
of Profit.
It also failed to show by way of substantial evidence that as a charitable institution, it provided
free goods and services to the public which should otherwise fall on the shoulders of the
government.
X, as lawyer of the said hospital, filed a petition making the commissioner of the BIR respondent.
Will the petition prosper? Explain.
SUGGESTED ANSWER:
The petition will not prosper. Under the law (Section 30 of the Tax Code) private hospital
organized as a non-stock, non -profit that is operated for charitable and social welfare purposes
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is exempt from income tax.
In order to qualify for exemption under the law, the following requirements must be complied
with:
• It must be a non-stock-nonprofit corporation or association;

• Organized exclusively for charitable purposes;
• Operating exclusively for charitable purposes, and;
• No part of its net income or assets shall belong to or incur to the benefit of any member,
organizer, officer or any specific person.
In the case at bar, there is no doubt that Biglan Liko, Sabay Yoko is organized as non•stock,
non-profitable charitable institution. However, this does not automatically exempt it from paying
taxes. This only refers to the organization of Biglang Liko Sabay Yoko as a charitable institution.
It failed to submit substantial evidence showing that it provided for free goods and services to
the public which would otherwise fall on the shoulders of the government.
Related to this, the meaning of charity was defined in the case of Lung Center of the Philippines,
Quezon City, as a gift to be applied consistently with existing laws, for the
benefit of an indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life or otherwise
lessening the burden of the government.
In view of this, even Biglang Liko Sabay Yoko meets the test of charity, as a charitable
institution, it is not ipso facto tax exempt. This is because requirements for tax exemptions are
strictly construed against the taxpayer due to the fact that an exemption restricts the collection
of taxes necessary for the existence of the government.
Based on the findings, the said hospital failed to meet requirements to be exempt under the tax
code. It is not exempted from payment of income tax.
However it is still a proprietary non-profit hospital under the law (Section 27, (8) of the Tax Code)
as long as it does not distribute any of its profit to its members, and such profit are reinvested
pursuant to its corporate purpose.
As such, Biglang Liko Sabay Yoko is only entitled to a preferential tax rate of 10% on its net
income from its profit activities.
QUESTION NO. XVIII

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TAXATION LAW
Discuss briefly the nature of transfer taxes, distinction between Estate tax and Donor’s
Tax. What are the requisites of vanishing deduction and family home to be allowed as
deduction?
SUGGESTED ANSWER:
A. Transfer taxes are imposed on transmission of property: a transfer may either be

onerous or gratuitous. Onerous transfer of property is subject to business taxes. While gratuitous
transfer is subject to estate tax or donor’s tax. They are classified as excise taxes or privileges
taxes. They are not taxes on property.
B. Distinctions
In Estate tax, the transfer starts upon the death of the decedent, on the other hand in donor’s tax
the transfer should be made during the lifetime of both the donor and the donee.
Net estate of P200, 000 and below is exempted from estate tax, while Net gift of P250, 000 and
below is exempted from donor’s tax.
In estate tax the tax base is the net estate while in donor’s tax, the tax base is the net gift.
The taxpayer is the estate of the decedent in estate tax. On the other hand, in
donor’s tax the taxpayer is the donor.
In estate tax, its filing and payment may be made within one year from decedent's death, but
may be extended to five years if the estate is settled judicially, or two years, if settle extra-
judicially. However, payment on instalment is allowed within two (2) years from the statutory
date from its payment without penalty and interest.
In donor’s tax, it is payable within 30 days after giving of gifts.
Only natural persons are subject to estate tax. While in donor’s tax, natural and judicial persons
are subject to donor’s tax.
Donations mortis causa are subject to estate tax. While Donation inter vivos are subject to
donor’s tax.
Transfer is made thru succession. While transfer is made thru donation.
Requisites of vanishing deduction
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This deduction is allowed on second transmission of property by succession only, and not by
donation inter vivos.
Present decedent died within five year from receipt of property from donor or prior
decedent;
It must be located in the Philippines;
It must be included in the gross taxable estate of prior decedent or gross gift of the donor; The
estate tax or donor’s tax must have been paid; and • No vanishing deduction was claimed on
prior decedent.
Requisite of family home deduction/allowance:
The deductible amount shall be based on the fair market value at the time of death, but in no
case shall exceed P10, 000, 000.
The family home must have been certified by the barangay captain as the permanent
dwelling place of the decedent and his family.
It is located in the Philippines.
The value of the family home is included in the gross estate.
QUESTION NO. XIX
For taxation purposes, how do we classify assets? What is the general rule in applying capital
losses, and the exception?
SUGGESTED ANSWER:
1. Classification of assets for taxation purposes:

1) Ordinary assets are those that are usually used in trade and business:
a) Stock in trade of the taxpayer or other property of a kind which would properly
be included in the inventory of the taxpayer;
b) Property held by taxpayers primarily for sale to customers in the ordinary
course of his trade or business.
c) Property used in trade and business of a character which is subject to allowance
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for depreciation.
d) Real property used in trade or business of taxpayers.
2) Capital Assets: are all assets not classified under ordinary assets.
b) General Rule: losses from sales on exchanges of capital assets shall be allowed
only to the extent of gains from such sales or exchange.
2. Exceptions: the capital losses will not apply, as follows:
1) The seller is a domestic bank or trust company;

2) A substantial part of the business is the receipt of deposit;
3) The asset sold is:
a) Bond
b) Debenture
c) Note
d) Certificate; or
e) Evidence of indebtedness
QUESTION NO. XX
During the taxable year 2019, Engr. Dulay owns a night club and Videoke Bar. The said club
and video bar generated a gross receipt of P2, 500, 000. The cost and operating expenses were
P1, 000, 000 and P600, 000 respectively and with non-operating income of P100, 000.
Is Engr. Dulay liable to pay income tax and what is the tax rate to be used? When is the time to
inform the BIR of your choice of availing the 8% income tax or the graduated income tax?
Explain.
SUGGESTED ANSWER:
Engr. Dulay is liable to pay his income tax at graduated income tax rate. His taxable income is
P1,000,000 competed as follows: Gross sale of P2,500,000 less the cost of sales (P1,000,000) and
operating expenses (P600,000) equals the Net Income from operation of P900, 000 then add the
non-operating income and you will be obtaining taxable income of P1,000,000. The said amount
of P1, 000,000 will be subject to the graduated income tax rate applicable.
Engr. Dulay has no option to avail of the 8% income tax rate on his income from business because
his business is subject to other Percentage Taxes under Title V of the Tax code amusement tax.
So, aside from the income tax, Engr. Dulay is liable to pay the amusement tax of 18%.
Page 17 of 27
TAXATION LAW
The choice of availing the 8% income tax on graduated income tax should be made in the first
quarterly income tax return.
Unless the taxpayer signifies his intention to elect the 8% income tax rate in his first quarter income
tax return, he shall be considered as having availed of the graduated rates. Such election shall be
irrevocable and no amendments shall be made for the said taxable year. (Revenue Regulation No.
8-2018)
QUESTION NO. XXI
On 17 January 2007, the City Treasurer of Manila issued a Statement of Account (SOA) to PBPI
for local business taxes (LBT) and regulatory fees for the first quarter of 2007.
PBPI protested the assessment and argued that Tax Ordinance Nos. 7988 and 8011 amending the
Revenue Code of Manila (RCM) have been declared null and void, and that the collection of LBT
under both Sections 21 and 14 of the RCM constitutes double taxation.
Upon denial by the City Treasurer of the protest, PBPI paid the amount in the SOA and filed a
written claim for refund of erroneously/illegally collected tax with the City Treasurer. PBPI also
filed a Complaint for Revision of SOA (Preliminary Assessment) and for Refund or Credit of LBT
Erroneously/Illegally Collected with the Manila Regional Trial Court (RTC).
a. May PBPI file a judicial claim for refund after it has protested an assessment?
b. Can the local treasurer refuse to refund and raise as a defense that PBPI’s claim for
refund be offset by its alleged deficiency taxes in a different period?
SUGGESTED ANSWER:
a. Yes, PBPI may file a judicial claim for refund after it has protested an assessment.
Sections 195 and 196 of the Local Government Code (LGC) set forth the procedures for protesting
an assessment issued by the local treasurer and for recovering an erroneously paid or illegally
collected tax, respectively.
Upon receiving a notice of assessment, a taxpayer may proceed in two ways. First, the taxpayer
may file a written protest before the local treasurer within 60 days and appeal the decision in court.
Second, the taxpayer may opt to pay the assessed tax after its protest has been denied and file a
judicial claim for refund of the tax paid, instead of filing an appeal of the local treasurer’s decision.
Page 18 of 27
TAXATION LAW
In the second instance, the taxpayer is deemed to have paid the tax believing it to be erroneous or
illegal. Thus, a claim under Section 196 of the LGC may be made.
PBPI opted to proceed with its claim under the second instance. Thus, after receiving the
assessment, PBPI protested it within the 60-day period under Section 195 of the LGC before the
City Treasurer. Upon receipt of the denial of its protest, PBPI paid the tax assessed. Within the
30-day period under Section 195 of the LGC (for appeal to the court for a denial of a protest) and
within the two-year period under Section 196 of the LGC (for filing a claim for erroneously paid
or illegally collected tax), PBPI filed a claim for refund before the RTC.
Thus, PBPI’s judicial claim for refund was properly instituted.
b. No, PBPI’s claim for refund may not be offset against its alleged deficiency taxes in a
different period.
Section 195 of the LGC requires the Local Treasurer to issue a notice of assessment stating the
nature of the tax and the amount of deficiency whenever it finds that correct taxes have not been
paid.
The local treasurer may not simply collect deficiency taxes for a different taxing period by raising
it as a defense in a taxpayer’s action for refund of erroneously or illegally collected taxes.
City Treasurer of Manila vs. Philippine Beverage Partners, Inc., substituted by Coca-Cola Bottlers
Philippines
G.R. No. 233556, promulgated 11 September 2019
QUESTION NO. XXII
City Treasurer of Manila assessed F University, a proprietary corporation, for deficiency local
business taxes (LBT) from its tuition and education fees. F University protested. F University
questioned the City Treasurer’s authority to impose business tax on its tuition and educational fees,
contending that education institutions are exempt from all taxes under the Constitution.
Is the City of Manila authorized to impose business tax on tuition and educational fees?
SUGGESTED ANSWER:
Yes. The local government’s power to create its own sources of revenue and to levy taxes is subject
only to the limitations set forth in Sec. 133 of the LGC.
Page 19 of 27
TAXATION LAW
Unlike in a non-stock, non-profit education institution, a stock or proprietary educational

institution such as F University may only be exempt from all taxes, save for real property taxes
and duties, provided there is a law granting the same. In the instant case, there is no tax exemption
that exists in favor of F University.
QUESTION NO. XXIII
Taguig City Government assessed Respondent S Condominium Corp. for, among others,
deficiency Local Business Tax (LBT). Taguig considered S Condominium Corp. as engaged in
business, using as tax base the association dues collected from its members.
Are association dues received by condominium corporations subject to LBT?
SUGGESTED ANSWER:
No. S Condominium Corp. is not engaged in trade or business, hence, is not subject to LBT. A
condominium corporation is “not designed to engage in activities that generate income or profit”
but is “especially formed for the purpose of holding title to the common area and exists only for
the benefit of the condominium owners.”
Association dues do not constitute gain or profit but are collected purely for the benefit of the
condominium unit owners and are the incidental consequence of a condominium corporation’s
responsibility to effectively maintain the common areas.
Yamane vs. BA Lepanto Condominium, GR No. 154993, Oct. 25, 2005
QUESTION NO. XXIV
KNI, a freight forwarder, is a domestic corporation engaged in the business of international freight
and/or cargo consolidation and forwarding by means of air and sea transport. KNI received a
Notice of Assessment from the City of Paranaque and City Treasurer (collectively referred to as
City of Paranaque) assessing the former deficiency local business tax (LBT).
Page 20 of 27
TAXATION LAW
Is KNI liable to pay the LBT?
SUGGESTED ANSWER:
No. KNI is freight forwarder, the gross receipts of which cannot be subjected to LBT, following
the limitations provided in Section 133 of the Local Government Code (LGC).
Section 133(j) of the Local Government Code (LGC) is a specific provision that explicitly
withholds from any Local Government Unit (LGU) the power to tax the gross receipts of
transportation contractors, persons engaged in the transportation of passengers or freight by hire,
and common carriers by air, land, or water.
City of Paranaque and Dr. Anthony I. Pulmano, in his capacity as City Treasurer of Paranaque
vs. Kuenhe + Nagel, Inc.
CTA En Banc No. 2130 promulgated on 17 July 2020
QUESTION NO. XXV
Angeles City issued a Notice of Assessment against AEC for payment of deficiency LBT. Within
the period prescribed by law, AEC protested the assessment claiming exemption pursuant to RA
4079. The City Treasurer denied the protest for lack of merit and requested AEC to settle its tax
liabilities. Aggrieved, AEC appealed the denial of its protest to the RTC of Angeles City via a
Petition for Declaratory Relief.
Meanwhile, the City Treasurer levied on the real properties of AEC. A Notice of Auction Sale was
published and posted announcing that a public auction of the levied properties of AEC.
This prompted AEC to file with the RTC, where the petition for declaratory relief was pending, an
Urgent Motion for Issuance of Temporary Restraining Order (TRO) and/or Writ of Preliminary
Injunction to enjoin Angeles City and its City Treasurer from levying, annotating the levy, seizing,
confiscating, garnishing, selling and disposing at public auction the properties of AEC. The RTC
issued that TRO.
Angeles City questioned the action of the RTC and argued that the collection of taxes cannot be
enjoined by the RTC since the levy and auction of the properties of a delinquent taxpayer are
proper and lawful acts specifically allowed by the LGC, these cannot be the subject of an injunctive
writ.
Is the contention of the Angeles City correct?

Page 21 of 27
TAXATION LAW
SUGGESTED ANSWER:
No, the contention of Angeles City is not correct. Unlike the National Internal Revenue Code, in
the case of the collection of local taxes, no express provision in the LGC prohibits courts from
issuing an injunction to restrain local governments from collecting taxes.
Angeles City v. Angeles Electric Corporation, G.R. No. 166134, [June 29, 2010], 636 PHIL 43-
57
QUESTION NO. XXVI

.
The University of the Philippines (UP) entered into a Contract of Lease with Ayala Land
Corporation (ALI) over a parcel of land situated in Quezon City, where the UP-Ayala Technohub
is now located.
In 2008, Republic Act (RA) No. 9500 or the UP Charter of 2008 was signed into law, which
provided that “(A)ll revenues and assets of the University of the Philippines used for educational
purposes or in support thereof shall be exempt from all taxes and duties; xxx.”
In 2012 and 2013, the Quezon City Treasurer issued Statements of Delinquency to UP demanding
payment of real property tax (RPT) on the subject property for the years 2009 to 2013. According
to the Quezon City Treasurer, exemption from RPT of GOCC has been deleted by the Local
Government Code.
Is UP liable for RPT on the property leased to ALI?
SUGGESTED ANSWER:
No. UP is a chartered academic institution with specific legislated tax exemptions. These tax
exemptions are granted by the Local Government Code (LGC) and its legislative charter, RA No.
9500.
Section 133(0) of the LGC states that unless otherwise provided by the Code, the exercise of taxing
powers of the local government units shall not extend to levy of taxes, fees or charges of any kind
on government instrumentalities.
When beneficial use of a real property owned by a government instrumentality is granted to a

taxable person, then, the taxable person is not exempted from paying RPT on such property.
Page 22 of 27
TAXATION LAW
QUESTION NO. XXVII
MWSS was created by Congress “to insure an uninterrupted and adequate supply and
distribution of potable water for domestic and other purposes and the proper operation and
maintenance of sewerage systems.”
Sometime in 2007, MWSS received several Final Notices of Real Property Tax (RPT)
Delinquency from the Local Government of Quezon City (QC) covering various taxable years
on real properties owned by MWSS in QC.
MWSS argued that it is a government instrumentality, as categorized by the executive and

legislative branches. On the other hand, QC claims that MWSS is a government owned and
controlled corporation (GOCC).
a. Differentiate government instrumentality from GOCC.

b. Assuming MWSS is a government instrumentality, can QC impose RPT on its real
properties?
c. Assuming MWSS is a GOCC, can QC impose RPT on its real properties?
SUGGESTED ANSWER:
a. A government instrumentality is an agency of the National Government, not integrated

within the department framework, vested with special functions or jurisdiction by law,
endowed with some, if not all, corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. Government instrumentalities are generally
exempt from any kind of taxation from local governments.
A GOCC refers to any agency organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either wholly, or, where applicable as in the
case of stock corporations, to the extent of at least 51% of its capital stock.
b. As a general rule, local government of QC cannot impose RPT on the real properties except
if the beneficial use of its properties has been extended to a taxable person. In such case, the taxable
person shall be liable to pay for the RPT.
c. Yes, the local government of QC may impose RPT on the real properties since GOCC is
not exempt from RPT due to the passage of the LGC which withdrew existing RPT exemptions
which GOCCs previously enjoyed. Unless, a law is passed, subsequent to the enactment of the
LGC, which reinstitutes the exemption of the GOCC from RPT, among others.
Page 23 of 27
TAXATION LAW
Metropolitan Waterworks Sewerage System (MWSS) vs. The Local Government of Quezon City,
et al
G.R. No. 194388, promulgated 7 November 2018
QUESTION NO. XXVIII
The Spouses Braña are registered owners of six parcels of land located at Phase 9, Pasig Green
Park, Cainta, Rizal. They paid real property taxes (RPT) on the properties to the Municipality of
Cainta.
Pasig City filed a civil case for collection of unpaid taxes against the Spouses and claimed that the
properties were geographically located in Pasig. However, Cainta continued to demand payment
of RPT from the Spouses. Thus, the Spouses filed an action for interpleader to compel Cainta and
Pasig to litigate with each other to determine who has a proper claim on the RPT.
In 1994, Cainta filed a petition for settlement of boundary dispute against Pasig before the Antipolo
RTC, which issued an order restraining Pasig from collecting RPT on the disputed areas (which
included the location of the subject properties).
In the action for interpleader, Cainta claimed that it is entitled to the payment of the RPT because
the properties are situated in Barangay San Isidro, Cainta, Rizal which is within the geographical
jurisdiction of Cainta under the Progress Map of CAD-688-D or the Cainta-Taytay Cadastral
Survey, and the properties have long been registered in Cainta, for tax purposes.
Pasig, however, claimed that the locational entries in the Transfer Certificate of Titles state that
the properties are located in Barangay Santolan, Pasig.
Should the RPT be paid to Pasig or Cainta?
SUGGESTED ANSWER:
RPT may be paid to Pasig. The location of real property stated in the Certificate of Title, until
cancelled or amended through judicial proceedings, determines the situs of local taxation.
Consolidated Cases of Municipality of Cainta vs. City of Pasig and Uniwide Sales Warehouse
Club, Inc. and Uniwide Sales Warehouse Club, Inc., vs. City of Pasig and Municipality of Cainta
(GR Nos. 176703 & 176721, promulgated 28 June 2017
Page 24 of 27
TAXATION LAW
ALTERNATIVE ANSWER
The RPT should not be paid to Pasig or Cainta in the meantime.
The resolution of the boundary dispute is lodged with the Antipolo RTC. Under the Real Property
Tax Code (PD No. 464) and the Local Government Code, the local government unit (LGU) where
the property is located has the authority to assess or appraise the current and fair market value of
the property, and to collect the taxes due thereon. Thus, it is necessary to determine the location of
the property. The Supreme Court cannot make a definitive ruling on the location of the property
due to the pending boundary dispute case between the Pasig and Cainta.
TCTs cannot be relied upon because the very location of the property is in dispute. The Antipolo
RTC, which has jurisdiction over the boundary dispute, is the best forum to determine the precise
metes and bounds of Pasig’s and Cainta’s respective territorial jurisdiction, as well as the extent
of each local government unit’s authority to assess and collect RPT.
While the dispute is ongoing, the Spouses may be ordered to deposit the succeeding payment of
RPT in an account with a bank in escrow for the City of Pasig/the Municipality of Cainta. The
proceeds will be released to the local government adjudged to be entitled by virtue of a final
judgment on the boundary dispute.
Municipality of Cainta, Rizal vs. Spouses Ernesto E. Braña and Edna C. Braña and City of Pasig
G.R. No. 199290, promulgated 3 February 2020
QUESTION NO. XXIX
City Assessor of Batangas assessed NGCP for deficiency real property tax (RPT) which were
classified as industrial lots, with assessment levels ranging from 25% and 30% of the fair market
value (FMV). The City Assessor subsequently issued separate assessments for 15 additional
parcels of land and buildings declared in the name of Transco.
NGCP protested the assessments and filed with the Local Board of Assessment Appeals (LBAA)
two separate petitions, which were later consolidated, questioning the deficiency RPT assessments.
The subject properties were, thereafter, classified as industrial, and the assessment levels were
reduced to 10% of the FMV.
NGCP later manifested that it would no longer challenge the 10% assessment level for industrial
land as it has already settled the RPTs due thereon. However, NGCP insisted that properties
classified as industrial buildings and described as tower poles under their respective tax
Page 25 of 27
TAXATION LAW
declarations are machinery exempt from RPT pursuant to Section 9 of Republic Act 9511, the law
granting NGCP its franchise.
The LBAA dismissed NGCP’s arguments and ordered it to pay the deficiency RPT on the
questioned properties. Aggrieved, NGCP appealed the case to the Central Board of Assessment
Appeals (CBAA).
The CBAA dismissed the appeal due to, among others, NGCP’s non-compliance with the
requirement of payment of the deficiency RPT prior to protesting the assessment.
NGCP averred that it is not required to pay under protest before appealing to the LBAA as Section
226 of the Local Government Code (LGC) only requires that an appeal must be filed within 30
days from receipt of the written notice of assessment issued by the City Assessor.
The City Assessor insisted that failure to pay under protest rendered its administrative protest
without any effect.
Is NGCP required to pay under protest the deficiency RPT assessments?
SUGGESTED ANSWER:
Yes. A claim for exemption is actually an act of assailing the correctness of the assessment. As
such, payment under protest under Section 252 (a) of the LGC should first be complied with before
a city treasurer can act on the protest.
Where a taxpayer or person with legal interest over the property also questions the reasonableness
of an assessment, as in the case of NGCP, it must first pay the assessed amount under protest. If
the protest is denied or not acted upon within 60 days from filing, NGCP may elevate the case to
the LBAA, which has 120 days from the date of receipt of such appeal to render a decision. An
aggrieved party may appeal with the CBAA within 30 days. Failure to pay under protest deprived
the CBAA with jurisdiction to even entertain the appeal.
National Power Corporation vs. Province of Quezon and Municipality of Pagbilao, GR 171586
promulgated on 25 January 2010
QUESTION NO. XXX
A owns a two-storey building which A inherited from his father. A is into leasing business. A
religious sector approached A and offered to lease the building in order to use it as a venue for
Page 26 of 27
TAXATION LAW
their religious activities, rituals and ceremonies. Rental fees have been paid to A by the religious
sector.
A portion of the building has been subleased by the religious sector to B, an entity into retail
business.
a. What are the 3 bases of RPT exemption?

b. Can the LGU impose RPT on the said property?
SUGGESTED ANSWER:
a. RPT exemptions are based on ownership, character and use of property.
i. Ownership – real properties owned by the Republic, LGUs and registered cooperatives are
exempt from RPT.
ii. Character – real properties of charitable institutions, house and temples of prayer, and non-
profit or religious cemeteries are exempt from RPT.
iii. Usage – this covers (a) lands, buildings, etc. used actually, directly, and exclusively for
religious, charitable or educational purposes, (b) machineries and equipment actually used, directly
and exclusively by local water districts and GOCCs engaged in the supply of electricity, and (c)
machinery and equipment for pollution control and environmental protection.
b. Yes, the LGU may impose RPT but only to the extent of the portion of the property that
has been subleased and used by B.
Real property is assessed based on actual use. In this case, the portion of the property actually,
exclusively, and directly used for religious purposes is not subject to RPT as it is exempted from
RPT under the LGC. However, the portions subleased and used for activities which are not for
charitable, religious, or educational purposes, those portions will be subject to RPT.
Page 27 of 27

Suggested Answers in The Mock Bar Examination in Taxation Law v1 FINAL

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Suggested Answers in The Mock Bar Examination in Taxation Law v1 FINAL

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2020-2021 MOCK BAR EXAMINATIONS (Cycle 1)

QUESTIONS & SUGGESTED ANSWERS IN THE

Question Nos. 1 to 10 - Prof. Arnel P. Bacarra

a. Was the assessment made on time?

QUESTION NO. III

QUESTION NO. VII

QUESTION NO. VIII

a. Is the claim filed on time?

a. Is the claim filed on time?

In order to be assured of his position, he consulted you if such income be excluded.

Philippines. He is commonly referred to as Overseas Filipino Worker (OFW).

They must be duly registered as such with the POEA.

Mat in order to be treated as resident alien, he should establish that:

QUESTION NO. XII

QUESTION NO. XIII.

C. When does a co-ownership exist, and when such co-ownership considered

A. Tax Liability of GPP and Partners

B. TAX Liability of Co-partnership and Partners

C. Allowed Deductions to Partners of a GPP

D. When co-ownership exit vs co-ownership considered as a partnership.

Co-ownership is created by operation of law or voluntarily or based on agreement. If the co-

QUESTION NO. XIV

The local contractors are engaged in construction business; and

X is a government educational institution. It has constructed a building costing P20M. The

Difference between a non-profit-non-stock educational institution and proprietary profit

All corporations, agencies or instrumentalities owned or controlled by the government shall be

QUESTION NO. XVI

QUESTION NO. XVII

is exempt from income tax.

• It must be a non-stock-nonprofit corporation or association;

QUESTION NO. XVIII

A. Transfer taxes are imposed on transmission of property: a transfer may either be

In donor’s tax, it is payable within 30 days after giving of gifts.

Transfer is made thru succession. While transfer is made thru donation.

Requisites of vanishing deduction

It must be located in the Philippines;

Requisite of family home deduction/allowance:

It is located in the Philippines.

The value of the family home is included in the gross estate.

QUESTION NO. XIX

1. Classification of assets for taxation purposes:

2. Exceptions: the capital losses will not apply, as follows:

1) The seller is a domestic bank or trust company;

QUESTION NO. XXI

Thus, PBPI’s judicial claim for refund was properly instituted.

G.R. No. 233556, promulgated 11 September 2019

QUESTION NO. XXII

Unlike in a non-stock, non-profit education institution, a stock or proprietary educational

QUESTION NO. XXIII

Are association dues received by condominium corporations subject to LBT?

Yamane vs. BA Lepanto Condominium, GR No. 154993, Oct. 25, 2005

QUESTION NO. XXIV

Is KNI liable to pay the LBT?

CTA En Banc No. 2130 promulgated on 17 July 2020

QUESTION NO. XXV

Is the contention of the Angeles City correct?

QUESTION NO. XXVI

Is UP liable for RPT on the property leased to ALI?

When beneficial use of a real property owned by a government instrumentality is granted to a

QUESTION NO. XXVII

MWSS argued that it is a government instrumentality, as categorized by the executive and

a. Differentiate government instrumentality from GOCC.