COMMERCIAL LAW AND TAXATION LAST MINUTE TIPS

2023 UP LAW BOC LMTs

COMMERCIAL LAW
I. BUSINESS B. CORPORATIONS
ORGANIZATIONS 1. How does one determine the nationality
of corporations?
A. PARTNERSHIPS
Answer: The nationality of the private
1. What is a General Professional corporation is determined by the citizenship of
Partnership (GPP)? the controlling stockholders. The "control test"
is still the prevailing mode of determining
Answer: A partnership formed by persons for whether or not a corporation is a Filipino
the sole purpose of exercising their common corporation.
profession, no part of the income of which is When in the mind of the Court, there is doubt,
derived from engaging in any trade or based on the attendant facts and
business. circumstances of the case, in the 60-40 Filipino
equity ownership in the corporation, then it may
2. Which law governs partnerships? apply the "grandfather rule" [Narra Nickel
Mining & Development Corp. v. Redmont
Answer: The Civil Code of the Philippines. Consolidated Mines Corp., G.R. No. 195580
(2014)].
3. In a partnership composed of two
industrial partners and two capitalist 2. What are the requirements to exercise a
partners, with the industrial partners being corporation’s specific powers under the
appointed managing partners without Theory of Specific Capacity
specification of their respective duties,
whose decision prevails in case of conflict Answer:
among the partners?
Power Vote Requirement
Answer: The decision of the managing partners
Power to extend or Majority BOD or BOT;
prevails if both managing partners are in shorten corporate 2/3 OCS or Members
agreement. However, in case of a tie in the term [Sec. 36]
decision of the managing partners, the matter
shall be decided by the partners owning the Power to increase or Majority BOD or BOT;
controlling interest [Art. 1801, Civil Code]. decrease capital 2/3 OCS or Members
stock, or incur, create,
4. What is a limited partnership? increase bonded
indebtedness [Sec.
Answer: A limited partnership is one formed by 371]
two or more persons under the provisions of
the following article, having as members one or Power to deny Majority BOD;
more general partners and one or more limited preemptive rights 2/3 OCS
partners. The limited partners as such shall not [Sec. 38]
be bound by the obligations of the partnership.
[Art. 1843 NCC] Power to sell or Majority BOD or BOT
dispose corporate
5. To what extent is a limited partner liable? assets [Sec. 39]

Answer: A limited partner is only liable to the Note: if it involves sale 2/3 OCS or Members;
extent of his contribution. of all or substantially or

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4. What are the subscribed and paid-up
Power Vote Requirement
requirements in:
all assets Majority Trustees for a. Authorized capital stock
nonstock corporations, b. Increase in capital stock
where there are no
members with voting Answer:
rights 1. Authorized capital stock - no
minimum capital stock required to be
Power to acquire own Existence of subscribed and paid-up [Sec 12]
shares [Sec. 40] Unrestricted Retained 2. Increase in capital stock
Earnings a. At least 25% subscribed; and
b. At least 25% of the subscribed
Power to invest Majority BOD or BOT; be paid-up.
corporate funds in 2/3 OCS or Members
another corporation or 5. What is a One Person Corporation?
business, or for any
other purpose [Sec. Answer: A corporation with a single
41] stockholder. Only a natural person, trust, or an
estate may form a One Person Corporation.
Power to declare Cash Dividends Banks and quasi-banks, pre-need, trust,
dividends [Sec. 42] Majority BOD insurance, public and publicly-listed
companies, and non-chartered government-
Stock Dividends owned and controlled corporations may not
Majority BOD; incorporate as One Person Corporations. A
2/3 OCS natural person who is licensed to exercise a
profession may not organize as a One Person
Power to enter into Majority BOD; Corporation for the purpose of exercising such
management contract Majority OCS; or profession except as otherwise provided under
[Sec. 43] Majority Members of special laws [Sec. 116, RCC].
both managing and the
managed corporation 6. When may a foreign corporation sue and
be sued in the Philippines?
Power to amend AOl Majority BOD or BOT;
[Sec. 15] 2/3 OCS or Members Answer:
Doing Business Cannot sue
3. What is a pre-emptive right? with No License

Answer: Preemptive right is the preferential Not Doing Can sue, even
right of shareholders to subscribe to all issues Business without license
or disposition of shares of any class in
Doing Business Can Sue
proportion to their present shareholdings [Sec
with License
38]. The purpose of preemptive right is to
enable the shareholder to retain his However, such corporation may be sued or
proportionate control in the corporation and to proceeded against before Philippine courts or
retain his equity in the surplus. administrative tribunals on any valid cause of
action recognized under Philippine laws. [Sec.
150]

7. What is a de facto merger?

Answer: There is a de facto merger when a

corporation (transferring corporation)
exchanges all or substantially all of its assets
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for the shares of another (transferee
corporation). The transferring corporation may
later on be dissolved, where the shares of the
transferee corporation will be distributed by
way of liquidating dividends to the
shareholders of the transferring corporation.
The continuity-of-business enterprise
requirement is what differentiates a de facto
merger from a voluntary dissolution of a
corporation. [Herbosa, 2019]
8. What is the Nell Doctrine and what are the
exceptions thereto?
Answer: Under the Nell Doctrine, where one
corporation sells or otherwise transfers all of its
assets to another corporation, the latter is
generally not liable for the debts and liabilities
of the transferor, except:
a. where the purchaser expressly or
impliedly agrees to assume such
debts;
b. where the transaction amounts to a
consolidation or merger of the
corporations;
II. BANKING LAWS
1. What is the standard of diligence
required of banks?
Answer: Section 2 of Republic Act No. 8791
(“RA 8791”) declares that the State recognizes
the “fiduciary nature of banking that requires
high standards of integrity and performance.”
By the nature of its functions, a bank is “under
obligation to treat the accounts of its depositors
with meticulous care, always having in mind
the fiduciary nature of their relationship.”
Citibank, N.A. vs. Cabamongan, 488 SCRA
517, G.R. No. 146918 May 2, 2006
2. What is an investment house?
Answer: An investment house is an enterprise
that engages in the underwriting of securities of
other corporations. Aside from performing the
regular powers of a corporation under the
Corporation Code, a duly licensed investment
house is granted additional powers under Sec.
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7 of Presidential Decree (PD) No. 129. [Virata
v. Ng Wee, G.R. No. 220926 (2017)]
3. What are the powers and duties of the
Monetary Board, as per the New Central
Bank Act?
Answer:
a. Power to close banks
b. In cases involving the BSP, the power
to authorize the BSP Governor to
represent it personally or through a
counsel, even a private counsel
c. Duty to cause the prosecution of
violators
d. Exclusive authority to assess, evaluate
and determine the condition of any
bank
e. Power to impose administrative
sanctions on erring banks
4. How are banks classified under the
General Banking Law of 2000?
Answer:
a. Universal banks
b. Commercial banks
c. Thrift banks composed of: (i) Savings
and mortgage banks, (ii) Stock savings
and loan associations, and (iii) Private
development banks, as defined in the
R.A. No. 7906 (hereafter the “Thrift
Banks Act”);
d. Rural banks, as defined in R.A. No.
6938 (hereafter the “Rural Banks Act”);
e. Cooperative banks, as defined in R.A.
No. 6938 (hereafter the “Cooperative
Code”);
f. Islamic banks as defined in R.A. No.
6848, otherwise known as the “Charter
of Al Amanah Islamic Investment Bank
of the Philippines”; and
g. Other classifications of banks as
determined by the Monetary Board.
5. What deposits are covered by the bank
secrecy laws?
Answer:
General Rule - All [peso] deposits of whatever
nature with banks or banking institutions in the
Philippines including investments in bonds
issued by the Government of the Philippines,
COMMERCIAL LAW AND TAXATION LAST MINUTE TIPS
its political subdivisions and its 3. Provide when insurable interest exists in
instrumentalities, are hereby considered as of (1) life, (2) health, and (3) property.
an absolutely confidential nature [Sec. 2, R.A.
1405] Answer:
When Insurable Interest Required
Foreign currency deposits - All foreign currency Life/Health Property
deposits authorized under this Act, as Inception ✓ ✓
amended by Presidential Decree No. 1034, are Intervening
hereby declared as and considered of an Period
absolutely confidential nature [Sec. 8, R.A.
Occurrence ✓
6426]
of Loss
6. What is “voluntary” liquidation?
4. When may a contract of insurance be
rescinded?
Answer: Liquidation that is initiated by written
notice to the Monetary Board so that the
Answer: A contract of insurance may be
Monetary Board acquires the right to intervene.
rescinded in the following instances:
7. What is “involuntary” liquidation? a. Concealment - the failure to disclose
facts which the applicant, at the time of
application, knows or ought to know
Answer: Liquidation that is ordered by the
and are material to the insurance
Monetary Board due to grounds stated in Sec.
applied for [Carale].
30 of the New Central Bank Act.
b. Misrepresentation/Omission - false
representation which the insured states
III. INSURANCE LAW with knowledge that is untrue, intended
to deceive the insurer into accepting
1. What are the elements of an insurance risk.
contract? c. Breach of warranties - must be of a
material warranty.
Answer:
a. Cause 5. Define an Incontestability Clause.
b. Consideration
c. Risk of loss or damage Answer: The insurer cannot prove that the
d. Risk-distributing scheme policy is void ab initio or is rescindable by
e. Insurable interest reason of the fraudulent concealment or
f. A meeting of minds of the parties upon misrepresentation of the insured or his agent:
all the foregoing essentials a. After a policy of life insurance made
payable on the death of the insured
2. What are the characteristics/nature of an shall have been in force during the
insurance contract? lifetime of the insured for a period of
two (2) years from the date of its issue
Answer: An insurance contract is [CAVE- or of its last reinstatement [Sec. 48]
CCPU] b. The insurer’s right to rescind a contract
a. Consensual is not exercised previous to the
b. Aleatory commencement of an action on the
c. Voluntary contract [Sec. 48].
d. Executory and unilateral but
synallagmatic
e. Conditional
f. Contract of adhesion
g. Personal contract.
h. Uberrimae fides contract

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IV. TRANSPORTATION LAW 5. What is a bill of lading?

Answer: A bill of lading is a written

1. What is the standard of diligence
acknowledgment of the receipt of goods and an
required of common carriers in the
agreement to transport and to deliver them at a
transportation of goods and passengers?
specified place to a person named or on his or
her order. It operates both as a receipt and as
Answer: As for goods, extraordinary diligence
a contract. [Philam v. Heung-A Shipping Corp.,
[Art. 1733, NCC]. As for passengers, as far as
G.R. No. 187812 (2014)]
human care and foresight can provide, using
utmost diligence of very cautious persons, with
6. What is the scope of application of the
a due regard for all the circumstances [Art.
Montreal Convention?
1755, NCC].
Answer: The Montreal Convention applies to
2. What is the registered owner rule?
all international carriage of persons, baggage,
or cargo performed by aircraft for reward. It
Answer: The registered owner of a vehicle
applies equally to gratuitous carriage by aircraft
is liable for any damage caused by the
performed by an air transport undertaking. [Art.
negligent operation of the vehicle [Filcar
1(1)]
Transport v. Espinas, G.R. No. 174156
(2012)].
V. PUBLIC SERVICE ACT
3. What is a freight forwarder?
1. What is a Public Utility under R.A. No.
Answer: The term “freight forwarder” refers to
11659?
a firm holding itself out to the general public
(other than as a pipeline, rail, motor, or water
Answer: Public Utility refers to a public service
carrier) to provide transportation of property for
that operates, manages or controls for public
compensation and, in the ordinary course of its
use any of the following:
business, (1) to assemble and consolidate, or
1. Distribution of Electricity
to provide for assembling and consolidating,
2. Transmission of Electricity
shipments, and to perform or provide for break-
bulk and distribution operations of the 3. Petroleum and Petroleum Products
Pipeline Transmission Systems
shipments; (2) to assume responsibility for the
transportation of goods from the place of 4. Water Pipeline Distribution Systems
receipt to the place of destination; and (3) to and Wastewater Pipeline Systems,
use for any part of the transportation a carrier including sewerage pipeline systems;
subject to the federal law pertaining to common 5. Seaports; and
carriers. [Unsworth Transport International 6. Public Utility Vehicles
(Phils.), Inc. vs. CA, G.R. No. 166250 (2010)]
Note: No other person shall be deemed a
public utility unless otherwise subsequently
4. What should an airline ticket contain?
provided by law [Sec. 4, R.A. No. 11659]
Answer: The Air Passenger Bill of Rights
2. What is the limitation on the ownership,
recognizes that a contract of carriage is a
operation, management and control of
contract of adhesion, and thus, all conditions
public utilities?
and restrictions must be fully explained to the
passenger before the purchase of the ticket.
Answer: 60/40 Rule - No franchise, certificate,
Section 4.4 of the Air Passenger Bill of Rights
requires that “all rebooking, refunding, or any other form of authorization for the
baggage allowance and check-in policies” operation of a public utility shall be granted
must be stated in the tickets. [Manay, Jr. vs. except to citizens of the Philippines or to
Cebu Air, Inc., G.R. No. 210621 (2016)] corporations or associations organized under
the laws of the Philippines, at least sixty per

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centum of whose capital is owned by such
citizens. [Sec. 11, Art. XII, 1987 Const.]
3. What are the guidelines on foreign
employment in public services?
Answer:
General Rule: A public service shall employ a
foreign national only after the determination of
non-availability of a Philippine National who is
competent, able, and willing to perform the
services for which the foreign national is
desired.
Exception: Unless otherwise provided by law,
or by any international agreement, any foreign
national seeking admission to the Philippines
for employment purposes and any public
LAST MINUTE TIPS
service which desires to engage a foreign
national for employment must obtain an
employment permit pursuant to the Labor Code
of the Philippines.
What is critical infrastructure?
Answer: Any public service which owns, uses,
or operates systems and assets, whether
physical or virtual, so vital to the Republic of the
Philippines that the incapacity or destruction of
such systems or assets would have a
detrimental impact on national security,
including telecommunications and other such
vital services as may be declared by the
President of the Philippines. [Sec. 2(e), R.A.
No. 11659]s

VI. INTELLECTUAL PROPERTY CODE

Differentiate copyright, trademark, and patent.

Answer:
Copyright Trademark Patent
Purpose or To promote creativity Identifying the origin or “Bring[ing] new designs and
function and encourage creation ownership of goods and technologies into the public
of works [ABS-CBN v. services [Ang v. Teodoro, domain through disclosure”
Gozon, G.R. No. G.R. No. L-48226, December [Pearl & Dean v. Shoemart,
195956, March 11, 14, 1942]. G.R. No. 148222, August
2015]. 15, 2003].
Coverage Intellectual creations in Visible signs capable of 1. Inventions: Any technical
the literary and artistic distinguishing goods (i.e. solution of a problem in any
domain [Sec. 172, IP trademarks), services (i.e. field of human activity which
Code] service marks), and the is new, involves an inventive
enterprise itself (i.e. step, and is industrially
tradenames) [Kho v. Court of applicable [Sec. 21, IP
Appeals, G.R. No. 11578, Code; Kho v. Court of
March 19, 2002]. Appeals, G.R. No. 11578,
March 19, 2002].
2. Utility model [Sec. 109, IP
Code]
3. Industrial designs and
layout design [Sec. 112.1, IP
Code]

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Copyright
Standard for Creation must be
protection original, i.e. created by
creator’s own skill,
labor, and judgment
[Ong Ching Kian Chuan
v. CA, G.R. 130360,
August 15, 2021].
Trademark
Capability of the mark to
distinguish the goods and
services of an enterprise
[Kho v. Court of Appeals,
G.R. No. 11578, March 19,
2002; see Sec. 123.1 for
marks that cannot be
registered].
LAST MINUTE TIPS
Patent
1. Inventions
a. Novelty [Secs. 23-24, IP
Code]
b. Inventive step [Sec. 26, IP
Code]
c. Industrial applicability
[Sec. 27, IP Code]
2. Utility model [Sec. 109, IP
Code]
a. Novelty [Secs. 23-24, IP
Code]
b. Industrial applicability
[Sec. 27, IP Code]

3. Industrial designs and

layout designs (Sec. 112.1,
IP Code)
a. New or ornamental
character [Sec. 113.1, IP
Code]
When From the moment of From a valid registration From the grant of the patent
acquired creation [Sec. 172, IP [Sec. 122, IP Code; see [Pearl & Dean v. Shoemart,
Code]. Zuneca Pharmaceutical v. G.R. No. 148222, August
Natrapharm, G.R. No. 15, 2003)].
211850, September 8, 2020].

Duration General rule: during the
life of the author and for
fifty (50) years after his
death [Sec. 213.1, IP
Code].
Certificate of registration
shall remain in force for ten
(10) years, but this may be
renewed [Secs. 145 to 146,
IP Code]
Twenty (20) years from filing
date of application [Sec. 54,
IP Code]. This cannot be
renewed.

Special cases:
Joint authorship: during
life of the last surviving
author and for fifty
years after his death
[Sec. 213.2, IP Code].
Anonymous or
pseudonymous works:
fifty (50) years from the
date on which the work
was first lawfully
published [Sec. 213.3,
IP Code].

Works of applied art:

twenty-five (25) years
from date of making
[Sec. 213.4, IP Code].

Photographic works
and audio-visual works
produced analogous to
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Copyright Trademark
photography or any
process for making
audio-visual
recordings: fifty (50)
years from publication
and, if unpublished, fifty
(50) from making [Secs.
213.5 to 213.6, IP
Code].
VII. ELECTRONIC
COMMERCE ACT
1. May contracts be expressed in electronic
form?
Answer: Yes. Except as otherwise agreed by
the parties the elements of contracts required
under existing laws for the perfection thereof
may be expressed in, demonstrated, and
proved by means of electronic data message
or electronic documents. No contract shall be
denied validity or enforceability on the sole
ground that it is in the form of an electronic data
message or electronic document, or that any or
all of the elements required under existing laws
for the formation of the contracts is expressed,
demonstrated, and proved by means of
electronic documents. [Sec. 16(1)]
2. What are the factors to consider in
assessing the evidential weight of an
electronic data message or document
admitted into evidence?
Answer: In assessing the evidential weight of
an electronic data message or electronic
document, the reliability of the manner in which
it was generated, stored, or communicated, the
reliability of the manner in which its originator
was identified, and other relevant factors shall
be given due regard. [Sec. 12]
3. What is the obligation of confidentiality?
Answer: Except for the purposes authorized
under the E-Commerce Act, any person who
obtained access to any electronic key,
electronic data message or electronic
document, book, register, correspondence,
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Patent
information, or other material pursuant to any
powers conferred, shall not convey to or share
the same with any other person. [Sec. 32]
4. How are electronic signatures legally
recognized?
Answer: An electronic signature on the
electronic document shall be equivalent to the
signature of a person on a written document if
that signature is proved by showing that a
prescribed procedure, not alterable by the
parties interested in the electronic document,
existed.
VIII. FOREIGN
INVESTMENTS ACT
What does “doing business” constitute?
Answer:
a. Soliciting orders, service contracts,
opening offices, whether called "liaison"
offices or branches;
b. Appointing representatives or distributors
domiciled in the Philippines or who in any
calendar year stay in the country for a period
or periods totaling 180 days or more
c. Participating in the management,
supervision or control of any domestic
business, firm, entity or corporation in the
Philippines; and
d. Any other act or acts that imply a
continuity of commercial dealings or
arrangements, and contemplate to that
extent the performance of acts or works, or
the exercise of some of the functions
normally incident to, and in progressive
prosecution of, commercial gain or of the
purpose and object of the business
organization.
COMMERCIAL LAW AND TAXATION LAST MINUTE TIPS

2023 UP LAW BOC LAST MINUTE TIPS

TAXATION LAW
I. GENERAL PRINCIPLES TAXATION ED PP

part of the the right to the use of

A. Power of Taxation as
public fund property property
Distinguished from Police Power
and Eminent Domain Benefits

Protection Market value Indirect

1. Distinguish the Power of Taxation from
and benefits of the benefits
Police Power and Eminent Domain
he receives property
Answer:
Amount of disposition
TAXATION ED PP
Generally, Market value Amount
Authority (who exercises the Power) there is no of property imposed
limit taken should be
Only the the Only the
commensu-
government government government
rate to cover
or its political or its political or its political
the cost of
subdivision. subdivisions subdivision
regulation,
issuance of a
or may be license or
granted to surveillance
public
service Relationship to Constitution
companies
or public Subject to Inferior to the Relatively
utilities. Constitutio- impairment free from
nal limitation, prohibition Constitutio-
Purpose including the nal
prohibition limitations
Property Property is Property is
against and is
(money) is taken for regulated for
impairment superior to
taken for public use the purpose
of the the
support of of promoting
obligation of impairment
the the general
contracts of contract
government welfare
provision
Persons Affected

A community An individual A community

B. Inherent and Constitutional
or a class of as the owner or a class of Limitations of Taxation
individuals of a property individuals
1. What are the Inherent Limitations of
Effect Taxation?

Contribution There is a At most, Answer:

becomes transfer of there is a a. Public Purpose - The proceeds of the
restraint on tax must be used:
a. for the support of the State; or
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b. for some recognized objects of
government or directly to
promote the welfare of the
community.
b. Inherently Legislative - The power to
tax is exclusively vested in the
legislative body and it may not be re-
delegated.
a. Exceptions:
i. Delegations to local
governments
ii. Delegations to the
President
iii. Delegations to
administrative
agencies
c. Territorial - A state may not tax
property lying outside its borders or lay
an excise or privilege tax upon the
exercise or enjoyment of a right or
privilege derived from the laws of
another state and therein exercise and
enjoyed. [51 Am.Jur. 8788].
d. International Comity - comity is the
respect accorded by nations to each
other because they are sovereign
equals. Thus, the property or income of
a foreign state or government may not
be the subject of taxation by another
state.
e. Exemption of Government Entities,
Agencies, and Instrumentalities -
Agencies and instrumentalities of the
government are exempt from tax. Their
exemption rests on the State's
sovereign immunity from taxation. The
State cannot be taxed without its
consent and such consent, being in
derogation of its sovereignty, is to be
strictly construed. [Gomez v. Palomar,
GR No. L-23645, 29 October 1968]
2. What are the constitutional provisions
which directly affect (limit) taxation?
Answer:
1. Prohibition against imprisonment for non-
payment of poll tax;
2. Uniformity and equality of taxation;
3. Grant by Congress of authority to the
President to impose tariff rates;
4. Prohibition against taxation of religious,
charitable entities, and educational entities;
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5. Prohibition against taxation of nonstock,
non-profit educational institutions;
6. Majority vote of Congress for grant of tax
exemption;
7. Prohibition on use of tax levied for special
purpose;
8. President’s veto power on appropriation,
revenue, tariff bills;
9. Tax bills should originate exclusively in the
House of the Representatives;
10. Concurrence of at least 2/3 of the Senate
with tax treaties
11. Non-impairment of jurisdiction of the
Supreme Court;
12. Grant of power to the local government
units to create its own sources of revenue;
13. Flexible tariff clause;
14. Exemption from real property taxes; and
15. No appropriation or use of public money for
religious purposes;
3. What are the constitutional provisions
which indirectly affect (limit) taxation?
Answer:
1. Due process
2. Equal protection;
3. Religious freedom;
4. Non-impairment of obligations of contracts;
5. Freedom of speech and expression;
6. Presidential power to grant reprieves,
communications, and pardons, and remit
fines and forfeitures after conviction by final
judgement; and
7. No taking of private property for public use
without just compensation
4. What are the requisites of a valid tax?
Answer:
1. It must be for a public purpose;
2. Rule of taxation should be uniform;
3. The person or property taxed is within the
jurisdiction of the taxing authority;
4. Assessment and collection is in
consonance with the due process clause;
AND
5. The tax must not infringe on the inherent
and constitutional limitations of the power
of taxation.
COMMERCIAL LAW AND TAXATION
C. Kinds of Taxes
1. Distinguish “direct taxes” from “indirect
taxes.”
Answer:
These relate to the burden or incidence of
taxation.
a. Direct Taxes – taxes which are demanded
from persons who also shoulder them;
taxes for which the taxpayer is directly or
primarily liable, or which he cannot shift to
another. The liability for the payment of the
tax (incidence) and the burden (impact) of
the tax falls on the same person. (e.g.,
income tax, estate tax, donor’s tax,
community tax)
b. Indirect Taxes – taxes which are
demanded from one person in the
expectation and intention that he shall
indemnify himself at the expense of
another, falling finally upon the ultimate
purchaser or consumer; taxes levied upon
transactions or activities before the articles
subject matter thereof, reach the
consumers who ultimately pay for them not
as taxes but as part of the purchase price.
D. Doctrines in Taxation
1. What are the general rules on the
construction of tax laws?
Answer:
a. Public purpose is always presumed b. If the
law is clear, apply the law in accordance to
its plain and simple tenor
b. A statute will not be construed as imposing
a tax unless it does so clearly,
a. expressly and unambiguously ·
b. In case of doubt, it is construed most
strongly against the Government and
liberally in favor of the taxpayer since it is
an imposition of a burden (Lifeblood
Theory).
c. Tax laws may not be extended by
implication beyond the clear import of their
language, nor their operation enlarged so
as to embrace matters not specifically
provided
d. Tax laws operate prospectively unless the
purpose of the legislature to give
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retroactive effect is expressly declared or
may be implied from the language used
e. Tax laws are special laws and prevail over
a general law
II. NATIONAL TAXATION
A. Taxing Authority
1. What is the powers and duties of the
Bureau of Internal Revenue?
Answer:
1. To assess and collect all national internal
revenue taxes, fees, and charges;
2. To enforce all forfeitures, penalties and
fines connected therewith;
3. To execute judgment in all cases decided
in its favor by the CTA and the ordinary
courts; and
4. To give effect to and administer the
supervisory and police powers conferred
upon it by the Tax Code or other special
laws.
2. Who has the power to interpret provision
of the NIRC and other tax laws?
Answer:
The power to interpret provisions of the NIRC
and other tax laws shall be under the exclusive
and original jurisdiction of the CIR, subject to
review by the Secretary of Finance. [Sec. 4,
NIRC]
B. Income Tax
1. What are the criteria in imposing
Philippine Income Tax?
Answer:
1. Citizenship - A citizen of the Philippines is
subject to Philippine income tax:
i. On his worldwide income, if he
resides in the Philippines; or
ii. Only on his income from sources
within the Philippines, if he qualifies
as a non-resident citizen.
[MAMALATEO]
2. Residence - A resident alien is liable to pay
Philippine income tax only on his income
from sources within the Philippines but is
COMMERCIAL LAW AND TAXATION
exempt from tax on his income from
sources outside the Philippines.
[MAMALATEO]
3. Source - An alien is subject to Philippine
income tax because he derives income
from sources within the Philippines. Thus,
a non-resident alien or non-resident foreign
corporation is liable to pay Philippine
income tax on income from sources within
the Philippines, such as dividend, interest,
rent, or royalty, despite the fact that he has
not set foot in the Philippines.
[MAMALATEO]
2. Differentiate income from capital.
Answer:
"The essential difference between capital and
income is that capital is a fund; income is a
flow. A fund of property existing at an instant of
time is called capital. A flow of services
rendered by that capital by the payment of
money from it or any other benefit rendered by
a fund of capital in relation to such fund through
a period of time is called income." [Madrigal v.
Rafferty, G.R. No. 12287 (1918)]
Income Capital
Denotes a flow of Fund or property
wealth during a existing at one distinct
definite period of point in time.
time.
Service of wealth Wealth itself
Subject to tax Return of capital is not
subject to tax
Fruit Tree
3. What are the requisites for income to be
taxable?
Answer:
1. There is INCOME, gain or profit
2. RECEIVED or REALIZED during the
taxable year
3. NOT EXEMPT from income tax by law or
treaty
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4. What is the income tax applicable to
individuals earning business or
professional income?
Answer: Individuals earning income purely
from self-employment and/or practice of
profession, whose gross sales/receipts and
other nonoperating income does not exceed
the VAT threshold as provided under Sec. 109
(BB) of the Tax Code, as amended, shall have
the option to avail of:
a. The graduated rates under Sec. 24
(A)(2)(a) of the Tax Code, as amended;
OR
b. An eight percent (8%) tax on gross
sales or receipts and other non-
operating income in excess of two
hundred fifty thousand pesos
(P250,000.00) in lieu of the graduated
income tax rates under Sec. 24 (A) and
the percentage tax under Sec. 116 of
the NIRC if income does not exceed
the VAT threshold.
5. Differentiate Ordinary Assets from
Capital Assets.
Answer:
a. Ordinary Assets
i. Stock in trade of the taxpayer/ other
property of a kind which would properly
be included in the inventory of the
taxpayer if on hand at the close of the
taxable year.
ii. Property held by the taxpayer primarily
for sale to customers in the ordinary
course of his trade or business.
iii. Property used in the trade or business
of a character which is subject to the
allowance for depreciation, or
iv. Real property used in the trade or
business of the taxpayer, including
property held for rent.
b. Capital Assets - Property held by the
taxpayer, whether or not connected with
his trade or business which is not an
ordinary asset.
COMMERCIAL LAW AND TAXATION
6. Differentiate Ordinary Income from
Capital Gain.
Answer:
a. If the asset involved is classified as
ordinary, the entire amount of the gain
from the transaction shall be included in the
computation of gross income [Sec 32(A)],
and the entire amount of the loss shall be
deductible from gross income. [Sec 34(D)].
b. If the asset involved is a capital asset, the
rules on capital gains and losses apply in
the determination of the amount to be
included in gross income. (See Capital
Gains and Losses).
These rules do not apply to:
a. real property with a capital gains tax (final
tax), or
b. shares of stock of a domestic corporation
with a capital gains tax (final tax).
7. What are Tax-Free Exchanges?
Answer: Tax-free exchanges refer to those
instances enumerated in Section 40(C)(2) of
the NIRC of 1997, as amended, that are not
subject to Income Tax, Capital Gains Tax,
Documentary Stamp Tax and/or Value-added
Tax, as the case may be.
In general, there are two kinds of tax-free
exchange: (1) reorganization; and (2) transfer
to a controlled corporation.
8. What are the five instances of tax-free
reorganization under the CREATE Law?
Answer:
1. A corporation, which is a party to a merger
or consolidation, exchanges property
solely for stock in a corporation, which is a
party to the merger or consolidation; or
2. The acquisition by one corporation, in
exchange solely for all or a part of its voting
stock, or in exchange solely for all or part
of the voting stock of a corporation which is
in control of the acquiring corporation, of
stock of another corporation if, immediately
after the acquisition, the acquiring
corporation has control of such other
corporation whether or not such acquiring
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corporation had control immediately before
the acquisition; or
3. The acquisition by one corporation, in
exchange solely for all or a part of its voting
stock or in exchange solely for all or part of
the voting stock of a corporation which is in
control of the acquiring corporation, of
substantially all of the properties of another
corporation. In determining whether the
exchange is solely for stock, the
assumption by the acquiring corporation of
a liability of the others shall be disregarded;
or
4. A recapitalization, which shall mean an
arrangement whereby the stock and bonds
of a corporation are readjusted as to
amount, income, or priority or an
agreement of all stockholders and creditors
to change and increase or decrease the
capitalization or debts of the corporation or
both; or
5. A reincorporation, which shall mean the
formation of the same corporate business
with the same assets and the same
stockholders surviving under a new
charter.
9. What are the requirements for exemption of
sale or disposition of principal residence from
capital gains tax of 6%?
Answer:
a. Sale or disposition by a natural person of his
principal residence,
b. The proceeds of which is fully utilized in
acquiring/constructing a new principal residence,
c. Such acquisition/construction taking place
within 18 calendar months from the date of sale
or disposition,
d. The taxpayer notifies the Commissioner within
30 days from the sale/disposition through a
prescribed return of his intention to avail of the
exemption,
e. The tax exemption can only be availed of once
every 10 years.
C. Value-Added Tax (VAT)
1. What is value-added tax?
Answer: Value-added tax (VAT) is a tax on
consumption levied on the sale of goods and
services in the Philippines. It is imposed upon
(1) any person who, in the course of trade or
COMMERCIAL LAW AND TAXATION LAST MINUTE TIPS
business (a) sells, barters, exchanges, leases 5. the input taxes have not been applied
goods or properties or (b) renders services, against output taxes during and in the
and (2) any person who, whether or not in the succeeding quarters;
course of trade or business, imports goods 6. the input taxes claimed are attributable to
[NIRC, Sec. 105]. zero-rated or effectively zero-rated sales;
7. for zero-rated sales under Section
2. Differentiate Zero-Rated Transactions 106(A)(2)(a)(1) and (3) and 108(B)(1) and
from VAT-exempt transactions? (2), the acceptable foreign currency
Answer: exchange proceeds have been duly
accounted for in accordance with the rules
Zero-rate VAT-exempt
and regulations of the BSP;
It is a taxable Not subject to output 8. where there are both zero-rated or
transaction and tax effectively zero-rated sales and taxable or
result in an output tax exempt sales, and the input taxes cannot
at zero-percent be directly and entirely attributable to any
of these sales, the input taxes shall be
The input VAT The seller is not proportionately allocated on the basis of
attributable to zero- entitled to any input sales volume; and
rated sales may be tax on his purchases 9. the claim is filed within two (2) years after
allowed as tax despite the issuance the close of the taxable quarter when such
credits or refund. of a VAT invoice or sales were made. [Luzon Hydro
receipt. Corporation v. CIR, G.R. No. 188260
(2013); Sec. 4.112-1, RR 16-2005]
Persons engaged in VAT-exempt persons
zero-rated shall register as D. Tax Remedies Under the
transactions are nonVAT taxpayers.
required to register Some VAT exempt
National Internal Revenue Code
as VAT taxpayers persons may opt to
1. What is the period for the issuance of the
register as a VAT
Formal Letter of Demand and Final
taxpayer, and then be
Assessment Notice (FLD/FAN)?
subject to VAT. Eg.
Answer:
Gross annual sale of
It must be issued within 15 days from the
goods, properties, or
services that do not filing/submission of the taxpayer’s response to
the PAN.
exceed PhP3Million
1. If the FLD/FAN is issued beyond the 15day
(Sec. 109 CC).
period, it shall still be valid, provided that it
is issued within the period of limitation to
3. What are the requisites for the assess internal revenue taxes.
entitlement to a tax refund or credit of 2. If the FLD/FAN is issued before the lapse
excess input VAT attributable to zero- of the 15-day period, it shall be void. Note:
rated? Prematurely issuing an FLD/FAN before
Answer: the lapse of the 15-day period is a wanton
A claim for refund or tax credit for unutilized disregard of the mandatory due process
input VAT may be allowed only if the following requirement. [CIR v. Pacific Bayview
requisites concur, namely: Properties, Inc., CTA EB No. 1677]
1. the taxpayer is VAT-registered;
2. the taxpayer is engaged in zero-rated or 2. When is the ‘Final Decision on a Disputed
effectively zero-rated sales; Assessment’ (FDAA) not appealable to the
3. the input taxes are due or paid; CTA?
4. the input taxes are not transitional input
taxes; Answer:
The FDAA issued by the CIR’s duly authorized
representative cannot be considered as the
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COMMERCIAL LAW AND TAXATION
decision appealable to the CTA under Section
7(a)(1) of RA 1125, as amended, if the
taxpayer availed of its remedy of appeal to the
Office of the Commissioner of Internal
Revenue the denial of protest issued by the
CIR’s duly authorized representative, under
Subsection 3.1.5 of RR 12-99:
xxx “provided, however, that if the taxpayer
elevates his protest to the CIR within 30-days
from date of receipt of the final decision of the
CIR’s duly authorized representative, the
latter’s decision shall not be considered final,
executory and demandable, in which case, the
protest shall be decided by the Commissioner.”
[LRTA v CIR, G.R. No. 231238 (2022)]
3. What are the requisites of a valid
assessment?
Answer:
1. The taxpayer shall be informed in writing of
the law and the facts on which the
assessment is made; otherwise, the
assessment notice shall be rendered null
and void. [Sec. 228, NIRC]
2. Assessment contains not only a
computation of tax liabilities, but also a
demand for payment within a prescribed
period. [CIR v. Fitness by Design, Inc. G.R.
No. 215957 (2016)]
3. Assessment must be served on and
received by the taxpayer. [CIR v. Fitness by
Design, Inc. G.R. No. 215957 (2016)]
4. What is the prescriptive period for
assessment?
Answer:
General Rule: Within 3 years after the last day
prescribed by law for the filing of the return or
from the date of actual filing, whichever comes
later; provided, that a return filed before the last
day prescribed by law for filing shall be
considered as filed on such last day [Sec. 203,
NIRC]
Exception: Within 10 years after the discovery
of the falsity, fraud or omission in case of: (FFF)
1. False return
2. Fraudulent return with intent to evade tax;
or
3. Failure to file a return. [Sec. 222, NIRC]
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5. What are the grounds for an abatement?
Answer:
a. The tax or any portion thereof appears to
be unjustly or excessively assessed; or
b. The administration and collection costs do
not justify the collection of the amount due.
[Sec. 204(B), NIRC]
6. What are the grounds for filing a claim for
tax refund or credit?
Answer:
a. Tax is erroneously or illegally assessed or
collected
i. Taxes are erroneously paid when a
taxpayer pays under a mistake of fact,
as when he is not aware of an existing
exemption in his favor at the time that
payment is made.
ii. Taxes are illegally collected when
payments are made under duress.
iii. Penalty is collected without authority
b. Penalty is collected without authority c.
Sum collected is excessive or in any
manner wrongfully collected [Sec. 229,
NIRC]
7. What are the requisites for tax refund or
tax credit?
Answer:
a. There is a tax collected erroneously or
illegally, or a penalty collected without
authority, or a sum excessively or
wrongfully collected.
b. There must be a written claim for refund
filed by the taxpayer to the CIR [Vda. De
Aguinaldo v. CIR, G.R. No. L-19927
(1965)]
8. When must a claim for refund be filed?
Answer:
The claim for refund must be filed within 2
years from the date of the payment of the tax
regardless of any supervening cause [Sec.
229, NIRC]
Two-year period when counted
General Rule: From the date the tax was paid
Exceptions:
• If the tax is withheld at source – from the
date it falls due at the end of the taxable
COMMERCIAL LAW AND TAXATION LAST MINUTE TIPS
year [Gibbs v. CIR, G.R. No. L17406
Sec. 229 Sec. 112
(1965)]
• If the income is paid on a quarterly basis Thus, the taxpayer
– from the time of filing the final may elevate his claim
adjustment return [CIR v. CA, G.R. No. to the CTA (a) within
117254 (1999)] 30 days from the full
• When the tax is paid in installments – or partial denial of the
from the date of final payment or the last claim, or (b) within 30
installment days after the lapse of
the 90-day waiting
9. Differentiate Refund of Unutilized Input period, in case of
VAT (Sec. 112, NIRC) and Refund of inaction by the CIR.
Erroneously or Illegally Collected Tax (Sec.
229, NIRC) [CIR v. San Roque Power Corporation, G.R.
No. 187485 (2013); Visayas Geothermal
Answer: Power Company v. CIR, G.R. No. 197525
(2014); Sec. 112, NIRC, as amended by
Sec. 229 Sec. 112 TRAIN Law]
Refers to a refund or Refers to a refund or
credit of tax credit of excess or III. LOCAL TAXATION
1. tax erroneously or unutilized input VAT
illegally assessed or attributable to zero-
collected, or rated sales
A. Local Government Taxation
2. penalty collected
without authority, or 1. What is the nature of the taxing power of
3. any sum LGUs?
excessively or
wrongfully collected Answer:
a. Not inherent - Municipal corporations,
The 2-year period The 2-year period being mere creatures of law, may exercise
shall be reckoned shall be reckoned the power to tax only if delegated to them
from the date of from the close of the by the national legislature or conferred to
payment of the tax taxable quarter when them by the Constitution. Sec. 5, Art. X of
or penalty. the sales were made. The 1987 Constitution directly grants LGUs
the power to tax.
Both the Only the b. Limited – The taxing power of LGUs is not
administrative claim administrative claim is absolute because it is subject to such
with the CIR and the required to be filed guidelines and limitations that Congress
appeal to the CTA within the 2-year may provide. [Sec. 5, Art. X, 1987
must be made within period. Constitution]
the 2-year period. c. Legislative in nature – The power to
impose taxes is vested solely in the
If the 2-year period is Sec. 112(C) of the legislative body (i.e., the Sanggunian) of
about to lapse and NIRC provides a each LGU.
the CIR has not 90day waiting period d. Territorial – It can only be exercised within
acted on the claim, for the CIR to decide the territorial jurisdiction of each LGU.
the taxpayer may on the application for
already appeal to the tax refund or credit.
CTA without waiting Compliance with the
for the decision of the 90-day waiting period
CIR. is mandatory and
jurisdictional.

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B. Real Property Taxation
1. What are the fundamental principles
governing Real Property Taxation?
Answer:
1. Real property shall be appraised at its
current and fair market value.
2. Real property shall be classified for
assessment purposes on the basis of its
actual use.
4. Real property shall be assessed based on
a uniform classification within each local
government unit.
5. The appraisal, assessment, levy and
collection of real property tax shall not be
left to any private person.
6. The appraisal and assessment of real
property shall be equitable. [Sec. 198,
LGC]
2. How are real properties classified under
the Local Government Code?
Answer:
For purposes of assessment, real property
shall be classified as:
1. Commercial;
2. Agricultural;
3. Residential;
4. Mineral;
5. Industrial;
6. Timberland; or
7. Special (IRR of the LGC of 1991, Art. 306).
NOTE: The city or municipality within the
Metropolitan Manila Area, through their
respective Sanggunian, have the power to
classify lands as residential, agricultural,
commercial, industrial, mineral, timberland, or
special in accordance with their zoning
ordinances (LGC, Sec. 215).
3. Who may levy real property tax?
Answer:
1. Province
2. City
3. Municipality within Metro Manila [Sec. 232,
LGC]
Note: A special levy on lands benefited by
public works may be imposed by municipalities
outside Metro Manila.
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4. What properties are exempt from Real
Property Tax?
Answer:
a. Real property owned by the Republic of the
Philippines or any of its political
subdivisions
i. Exception: when beneficial use is
granted for a consideration or to a
taxable person.
b. Charitable institutions, churches
parsonages, or convents appurtenant
thereto, mosques, non-profit or religious
cemeteries, and all lands, buildings, and
improvements actually, directly and
exclusively used for religious, charitable, or
educational purposes
c. Machinery and equipment actually, directly
and exclusively used by local water
districts and GOCCs engaged in the supply
and distribution of water and/or generation
and transmission of electric power
d. Real property owned by duly registered
cooperatives as provided for under RA
6938 [Cooperative Code of the Philippines]
e. Machinery and equipment used for
pollution control and environmental
protection [Sec. 234, LGC]
IV. JUDICIAL REMEDIES
A. Court of Tax Appeals (CTA)
1. How are cases before the CTA litigated?
Answer:
Cases before the CTA are litigated de novo
where party litigants should prove every minute
aspect of their cases.
The CTA’s decision should be solely based on
the evidence formally presented before it,
notwithstanding any pieces of evidence that
may have been submitted (or not submitted) to
the CIR.
The court is not limited by the evidence
presented in the administrative claim. [CIR v.
PBCom, G.R. No. 211348. February 23, 2022]
COMMERCIAL LAW AND TAXATION
2. When is the filing of a Motion for
Reconsideration with the CTA Division a
prerequisite to an appeal to the CTA en
Banc?
Answer:
Section 1,51 Rule 8 of the RRCTA requires that
an appeal to the CTA En Banc must be
preceded by a motion for reconsideration or
new trial with the CTA Division that issued the
decision or resolution.
In Asiatrust, the court held that the rule applies
in an amended decision since an amended
decision is a different decision.
In this case, the Amended Decision of the CTA
Division is not a "new" decision. It is a mere
clarification, a correction at best, of the amount
due from the COMELEC. Thus, it was proper
for the COMELEC to file with the CTA En Banc
without an MR of the amended decision. [CIR
v COMELEC G.R. No. 244155, May 11, 2021]
3. Who has the jurisdiction to settle
disputed tax assessments involving intra-
governmental disputes?
Answer:
• applying PD No. 242, it is the Secretary of
Justice (or the Solicitor General or the
Government Corporate Counsel
depending on the issues and the
government agencies involved) who has
the jurisdiction to settle all intra-
governmental disputes, including disputed
tax assessments.
• The reason for vesting jurisdiction to them
is the President's constitutional power of
control over all departments, bureaus, and
offices under the executive branch that
cannot be curtailed or diminished by law.
• It is also in line with the doctrine of
exhaustion of administrative remedies
4. Who has jurisdiction to settle or
adjudicate disputes between COMELEC
and the BIR?
Answer:
• CTA has exclusive appellate jurisdiction to
decide the dispute between the COMELEC
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and the BIR on the deficiency tax
assessment
• PD No. 242 is not the law applicable for the
settlement or adjudication of disputes,
claims, and controversies between a
constitutional office, like the COMELEC,
and a government office, agency, or
bureau, such as the BIR. Section 147 of PD
No. 242 specifically excluded constitutional
offices or agencies in its coverage.
• the COMELEC, being a constitutional
office independent from the three branches
of the government, is not required to go
through the procedure prescribed in PD
No. 242 and EO No. 292.
B. Procedures
1. Will appeal to the Court suspend the
collection of taxes?
Answer:
General rule: No appeal taken to the Court
shall suspend the payment, levy, distraint, or
sale of any property of the taxpayer for the
satisfaction of his tax liability as provided under
existing laws.
Exception: Where the collection of the amount
of the taxpayer’s liability, sought by means of a
demand for payment, by levy, distraint or sale
of any property of the taxpayer, or by whatever
means, as provided under existing laws, may
jeopardize the interest of the Government or
the taxpayer, an interested party may file a
motion for the suspension of the collection of
the tax liability [Sec. 11, RA 1125, as amended]
2. Is an Injunction available to restrain the
collection of taxes?
Answer:
While an injunction is not available to restrain
the collection of taxes, the rule admits of
exception under Sec 11 of RA 1125, as
amended by RA 9282, which allows the
suspension of collection of taxes if, in the
Court’s opinion, the collection may jeopardize
the interest of the government and/or the
taxpayer. [CIR v CTA 2nd Division and QL
Development Inc., G.R. No. 258947. March 29,
2022]