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    04 2019 Tax

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    04 2019 Tax

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    04 2019 TAX

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    04 2019 Tax

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    of 19
    Training & Convention Division University of the Philippines Law Center SUGGESTED ANSWERS TO THE 2019 BAR EXAMINATIONS IN TAXATION LAW PARTI Ad. On October 5, 2016, the Bureau of Internal Revenue (BIR) sent KLM. Corp. a Final Assessment Notice (FAN), stating that after its audit pursuant to a Letter of Authority duly issued therefor, KLM Corp. had deficiency value-added and withholding taxes. Subsequently, a warrant cof distraint and/or levy was issued against KLM Corp. KLM Corp. Nopposed the actions of the BIR on the ground that it was not accorded Gjdue process because it did not even receive a Preliminary Assessment LNotice (PAN) after the BIR's investigation, which the BIR admitted. SS a) __ Distinguish a PAN from a FAN. (2%) Qsuccesrep ANSWER: Othe following are the distinctions between a PAN and FAN: 1. It is mandatory that a Notice of Informal Conference precedes the issuance of a PAN while a PAN must precede the issuance of a FAN, except in certain specific instances. (RR No. 18-2013; Sec. 228, NIRC). p The reply toa PAN must be filed within fifteen (15) days from receipt while the protest to a FAN must be filed within thirty (30) days from receipt. (RR No. 12-99; Sec. 228 NIRC). » A taxpayer does not have to do anything after the Bureau of Internal Revenue’s (BIR’s) rejection of the taxpayer’s reply to a PAN while the denial of a protest against a FAN should be appealed by the taxpayer to the Court of Tax Appeals (CTA) Division. (RR No. 12-99; Sec. 228, NIRC). Are the deficiency tax assessment and warrant of distraint and/or levy issued against KLM Corp. valid? Explain. (3%) UP LAW TRAINING AND CONVENTION DIVISION | BRICDNAPA2020| Page1 of 19 SUGGESTED ANSWER: No. Both the deficiency tax assessment and the warrant issued are invalid. The deficiency tax assessment issued against KLM Corp. is invalid due to the absence of a preliminary assessment notice (PAN), which is required by law for the validity of the assessment. (Sec. 228, NIRC). Sending a PAN to the taxpayer to inform him of the assessment made is but a part of the “due process requirement in the issuance of a deficiency tax assessment,” the absence of which renders nugatory any assessment made by the tax authorities. (CIR v. Metro Star Superama, Inc. G.R. 0. 185371, Dec. 8, 2010). The warrant of distraint and/or levy cannot be issued to enforce an invalid assessment. An assessment is a preliminary step for the collection of taxes. If the preliminary step in the collection process is invalid, the entire collection process is also invalid which includes the warrant issued. A2. o NX _ For purposes of value-added tax, define, explain or distinguish the Gfollowing terms: < o a) Input tax and output tax (3%) Zz a JUGGESTED ANSWER: ns Input tax means the VAT due on or paid by a VAT-registered person on importation of goods or local purchases of goods, properties, or services, including lease or use of properties. It includes presumptive input tax and transitional input tax. Output tax refers to the VAT billed by a VAT-registered or VAT- registrable seller on his sale of goods, properties and services. b) — Zero-rated and effectively zero-rated transactions (3%) SUGGESTED ANSWER: Zero-rated transactions are transactions that are immuned from the imposition of the VAT and the term includes export sales and effectively zero-rated sales. (Sec. 106(A)(2), NIRC). A zero-rated sale of goods or properties (whether export sale or effectively zero-rated sale) is a taxable transaction for VAT purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods and/or services taxed at 0% shall not result in any output tax, while the input tax on its purchase of goods or services UP LAW TRAINING AND CONVENTION DIVISION | BRICDNAPA2020| Page2 of 19 related to such zero-rated sale shall be available as tax credit or refund (Atlas Consolidated v. CIR, June 8, 2007). An effectively zero-rated transaction is limited in its context because it does not cover export sales. More specifically, effectively zero-rated transactions refer to the local sale of goods or supply of services by a VAT-registered person to persons or entities who were granted tax exemption under special laws or international agreement to which the Philippines is a signatory. (CIR v. Seagate Technology Phils., Inc. G.R. No. 153866, Feb. 11, 2005) c) Destination principle (2%) SUGGESTED ANSWER: The destination principle provides that “no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority”. Hence, exports are zero-rated while imports are subject to the 12% VAT. (Coral Bay Nickel Corporation v. CIR, June 13, 2016).” q AB. All the homeowners belonging to ABC Village Homeowners! ssociation elected a new set of members of the Board of Trustees for the APssociation effective January 2019. The first thing that the Board looked Onto is the need to increase the prevailing association dues. Mr. X, one of fhe trustees, proposed an increase of 100% to account for the payment of (rfhe 12% value-added tax (VAT) on the association dues which were being collected for services allegedly rendered "in the course of trade or business" by ABC Village Homeowners’ Association. NAPA20: a) What constitutes transactions done "in the course of trade or business" for purposes of applying VAT? (2%) SUGGESTED ANSWER: “In the course of trade or business” means the regular conduct of pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. (Section 105, NIRC) b) Is Mr. X correct in stating that the association dues are subject to VAT? Explain. (3%) UP LAW TRAINING AND CONVENTION DIVISION | BRICDNAPA2020| Page 3 of 19 SUGGESTED ANSWER: No, association dues are not subject to VAT. Under Section 109 (Y) of the NIRC, association dues, membership fees, and other assessments and charges collected by homeowners associations and condominium corporations are VAT-exempt. AA, Due to rising liquidity problems and pressure from its concerned suppliers, P Corp. instituted a flash auction sale of its shares of stock. P Corp. was then able to sell its treasury shares to Z, Inc., an unrelated corporation, for P1,000,000.00, which was only a little below the valuation of P Corp.'s shares based on its latest audited financial statements. In connection therewith, P Corp. sought a Bureau of Internal Revenue ruling, to confirm that, notwithstanding the price difference between the selling price of the shares and their book value, the said transaction falls under one of the recognized exemptions to donor's tax under the Tax Code. o S a) Cite the instances under the Tax Code where gifts made are g exempt from donor's tax. (3%) O-SUGGESTED ANSWER: Ainder the Tax Code, the following gifts are exempt from the donor's Qax: R (H 1.Total net gifts not in excess of Two hundred fifty thousand pesos (P250,000.00) made during the calendar year. (Sec. 99, NIRC, as amended by RA 10963) N . Sale or exchange for insufficient consideration where said sale, exchange, or other transfer of property is made in the ordinary course of trade or business, a transaction which is bona fide, at arm’s length, and free from any donative intent. (Sec. 100, NIRC, as amended by RA 10963) » Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government. (Sec. 101, NIRC) 4,Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philanthropic organization or research institution or organization: Provided, however, That not more than UP LAW TRAINING AND CONVENTION DIVISION | BRICDNAPA2020| Page of 19 thirty percent (30%) of said gifts shall be used by such donee for administration purposes. (Sec. 101, NIRC) b) Does the above transaction fall under any of the exemptions? Explain. (2%) SUGGESTED ANSWER: Yes. The transaction is not subject to donor's tax. Generally, the sale of property, other than real property held as capital assets, for less than its fair market value is subject to donor’s tax on the amount by which the fair market value exceeds the consideration received. However, if the sale of property is made in the ordinary course of business (i.e,, (i) a transaction which is bona fide, (ii) at arm’s length, and (iii) free from any donative intent), the sale will be considered made for an adequate and full consideration in money or money’s worth and will not be subject to donor's tax. (Sec. 100, NIRC, as amended by RA 10963). © _In this case, the transfer was made in the ordinary course of usiness since it was done for a valid business purpose, which is to Gaddress liquidity problems and relieve pressure from the Company's

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