1.

You are the Chief of Staff and Legal Counsel of Congressman Richard Gomez who is
not a lawyer. As he’s a new member of the House of Representatives which
congressional body, as opposed to the Senate, is tasked with proposing tax bills, he
asks your advice:
A. How will he know or determine that a tax bill being proposed will comply with the
required principle of due process?
ANSWER:

B. Should he support a tax bill that a fellow congressman is proposing that will impose a
3% income tax rate on the incomes of non-stock, non-profit educational institutions?
ANSWER:
2. Bert Astig, former chemist of Unilab and his wife Bella, former pharmacist of Mercury
Drug, together with their 3 adult children set up a family business mixing both local and
imported oils and selling these as locally produced fragrances and perfumes at very
affordable prices. Their principal markets are both male and female millennials and Gen-
Z’s who are from middle income families. After just 5 years of operations in the
University Belt of Manila, they were so happy with their business that they now consult
you as their lawyer and ask you if they should incorporate. Thus, one of the initial
questions you ask the family is how much was their gross sales last year and their
forecast for the next 3 years, and they say Pesos 8 million last year and they expect this
to grow by 10% onwards.
A. Why did you think it necessary to ask about their sales performance and forecast?
ANSWER:
B. You advised them to set up a corporation they wanted to name BB Astig, Inc. and you
told them that the whole family can be stockholders and members of the board of
directors and officers. Thus, they ask what, among other legal advantages, are the tax
advantages if they incorporate. You tell them?
ANSWER:
C. As the family is really “astig” in business, they tell you that they expect to be incurring
new expenses not only in forming the business and setting up a factory plus warehouse
and new sales outlets, so they tell you that even if they will be officers of their
corporation, they don’t want to get very high salaries from the corporation. Therefore you
suggest that the family members need not get paid annual gross compensation
exceeding Pesos 250,000 and instead rely on their stockholdings. Why this
recommendation from you?
ANSWER:
3. When Isko (not Yorme), Filipino OFW, went home for vacation in Batangas, he sold an
undeveloped agricultural land with a current fair market value of P1 million to his BFF,
Pepe, for only P500,000, the price at which he acquired the property 5 years ago. Isko is
now being assessed deficiency income tax by the Batangas BIR office on the sale. He
consults you on these matters: (a) What kind of tax is he liable for, if any, for the sale? (b)
As an OFW, shouldn’t he be exempt from such tax? (c) And lastly, he derived no gain
from the sale, so why should he be subject to tax?
ANSWERS:
(a)
(b)
(c)
4. Three OFWs who are friends decided to retire back in the Philippines and they are
Gloria, an OFW who worked as a chef in an Italian restaurant in Florence, Gianna, a
pharmacist who worked in a large drugstore in Milan, and Glenda, a college professor
who taught in a school in Rome. With their hard-earned retirement incomes working
abroad, they decided to form a joint venture among themselves and be stockholders in a
corporation for their business. However, they could not decide what business option
their venture should get into as Gloria wanted the establishment of a pizza and chicken
food outlet, Gianna is thinking of a retail generic drugstore while Glenda thinks they
should put up a profitable school for the children of wealthy Filipinos and resident aliens.
They consult you to set up the corporation and when you asked what business it should
engage in, they ask you what business would not subject their venture to high income
tax. (a) Would their incorporated joint venture be exempt from corporate income tax or
are they each subject to individual income tax? (b) Of the 3 business options they have,
what would you recommend and why so?
ANSWERS:
(a)
(b)
5. Development Bank Corporation of Malaysia (DBCM), a government-owned bank based
in Kuala Lumpur, is approached by your client, Maayos Builders Inc. (MBI), a domestic
corporation planning to expand its operations throughout the Philippines as well as
engage in business in ASEAN countries, for a 15-year foreign currency loan for that
purpose. MBI asks your advice whether it will be required by Philippine tax law to
withhold income tax from the interest payments it will make on its loan from DBCM. What
advice will you provide?
ANSWER:
6. Tout Jour Amour, Compagnie (that’s French meaning “Everyday Love”) is a French
multinational corporation engaged in perfumes and cosmetics doing business in various
countries in the world but not doing business in the Philippines. It sent its Business
Development Manager, Monsieur Desjardins to consult with you as their chosen legal
counsel to establish a physical presence in this country by setting up Tout Jour Amour
Philippine Branch and he asks you what would be the Philippine income tax
consequences. What would you tell him? Cite at least 3 consequences.
ANSWERS:
7. Suppose Monsieur Desjardins in Problem 6 above, instead asks you about the
Philippine income tax consequences if they set up Tout Jour Amour Philippines, Inc.
Would you give him the same answers as above or would you cite differences? What
would you tell him?
ANSWERS:
8. Katrina Mautak, Filipina residing in Makati, inherited a vacant piece of real property in
Taguig which was worth P20 million when she inherited it. She then set up her company,
Taguig Realty Management Corporation (TRMC) of which she owned common shares
worth P20 million or up to 99% of its voting stock by giving up ownership of her inherited
real property to TRMC. TRMC’s shares are not listed and traded in the Philippine stock
exchange. Subsequently, the current value of the real property had risen to P50 million
although the financial records of the corporation still reflected its original P20 million
value. A real estate developer in BGC, Mega-Earth Realty Corporation (MERC), seeing the
huge potential of the TRMC property, offered to buy it from TRMC for P50 million. Katrina
asked your legal advice and following your opinion, she told MERC that the latter can
instead buy her entire TRMC shareholdings for P70 million. MERC agreed. What could
have been your advice that made Katrina and MERC decide to go with it?
ANSWER:
9. You are the lawyer of Nadine Lustre and Ian Veneracion who won Best Actress and
Best Actor awards in the recently concluded Metro Manila Film Festival. As a
consequence of such awards is a Pesos 100,000 cash for each, given by the MMFF
Organizers and the Film Development Council of the Philippines. They consult you
whether or not the cash they received is subject to income tax; so, what would you tell
them?
ANSWER: