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Answers to the BAR: Taxation 1994-2006 (Arranged by Topics


(1994 2006)
ANSWERS TO BAR
EXAMINATION QUESTIONS
IN
TAXATION LAW
* ARRANGED BY TOPIC *
PUP College of Law
Sta. Mesa, Manila
From the ANSWERS TO BAR EXAMINATION QUESTIONS
! the UP LAW COMPLEX " P#ILIPPINE ASSOCIATION
OF LAW SC#OOLS



Answers to the BAR: Taxation 1994-2006 (Arranged by Topics





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FOREWORD
This work is NOT intended FOR SALE or COMMERCE. This work is a freeware. It may be
freely o!ied and distrib"ted# ne$ertheless# %ERMISSION TO CO%& from the editors is
A'(ISA)LE to !rotet the interest of the ORI*INAL SO+RCES,REFERENCES of this
material-. It is !rimarily intended for all those who desire to ha$e a dee!er "nderstandin. of
the iss"es ommonly to"hed by the %hili!!ine )ar E/aminations and its trend on s!eifially
on Ta/ation Laws. It is s!eifially intended for law st"dents from the !ro$ines who# $ery
often# are rei!ients of deliberately distorted notes from other "nsr"!"lo"s law shools and
st"dents.
I wo"ld like to seek the ind"l.ene of the reader for some )ar 0"estions whih are im!ro!erly
lassified "nder a to!i and for some to!is whih are im!ro!erly or i.norantly !hrased# for
the arran.er is 1"st a )ar Re$iewee who has !re!ared this work while re$iewin. for the 2
nd
time for the )ar E/ams 2334 "nder time onstraints and within his limited knowled.e of the
law. I wo"ld like to seek the reader5s ind"l.ene also for a n"mber of ty!o.ra!hial errors in
this work.
The Arranger


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics





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Detailed Table of Contents
GENERA PRINCIPES........................................................................................................................... 8
Basic Features: Present Income Tax System (1996).................................................................................................... 8
Basic Stages or Aspects of Taxation (!!"#............................................................................................................... 8
Collection of Taxes$A%t&orit'(Ordinar'Co%rts(!!)#..............................................................................................8
Collection of Taxes$ *rescription (!!)# ....................................................................................................................8
Direct Tax +s. ,ndirect Tax()--.#...............................................................................................................................8
DirectTax +s. ,ndirect Tax (!!!#................................................................................................................................8
DirectTax +s. ,ndirect Tax (!!)#................................................................................................................................8
DirectTax +s. ,ndirect Tax (!!"#................................................................................................................................9
Do%ble Taxation ()--/#................................................................................................................................................ 9
Do%bleTaxation$W&atConstit%tes DT0 ()--"#...........................................................................................................9
Do%bleTaxation(,ndirectD%plicateTaxation()--/# ...................................................................................................9
Do%bleTaxation(1icense Fee +s. 1ocal Tax (!!.#.....................................................................................................9
Do%bleTaxation(2et&odsof A+oiding DT ()--/# ......................................................................................................9
,3prescriptibilit' of Tax 1a4s )--/#..........................................................................................................................9
*o4er of Taxation$ E5%al *rotection of t&e 1a4 (!!!# ........................................................................................10
*o4er of Taxation$ ,n&erent in a So+ereign State (!!6#........................................................................................10
*o4er of Taxation$ 1egalit'( 1ocal 7o+8t Taxation (!!6#.................................................................................... 10
*o4er of Taxation$ 1egislati+e in 9at%re ()--.# .................................................................................................... 10
*o4er of Taxation$ 1i3itations of t&e Congress (!!)# ......................................................................................... 10
*o4er of Taxation$ 1i3itations$ *assing of Re+en%e Bills ()--/# ........................................................................ 11
*o4er of Taxation$ 1i3itations( *o4er to Destro' (!!!# .................................................................................... 11
*o4er of Taxation$ Re+ocation of Exe3pting Stat%tes ()--/# .............................................................................. 11
*o4er of Taxation( ,n&erent in a So+ereign State (!!:# ...................................................................................... 11
*o4er of Taxation( 1egislati+e in 9at%re ()--"...................................................................................................... 12
*%rpose of Taxation( ,nterpretation (!!.#............................................................................................................. 12
*%rpose of Taxation( 1egislati+e in 9at%re (!!.# ................................................................................................. 12
R%le on Set;Off or Co3pensation of Taxes ()--"#.................................................................................................. 12
R%le on Set;Off or Co3pensation of Taxes (!!)#.................................................................................................. 12
R%le on Set;Off or Co3pensation of Taxes (!!:#.................................................................................................. 13
R%le on Set;Off or Co3pensation on Taxes (!!:#................................................................................................. 13
Tax A+oidance +s. Tax E+asion ()--"#..................................................................................................................... 13
Tax A+oidance +s. Tax E+asion (!!!#..................................................................................................................... 13
Tax Exe3ptions$ 9at%re < Co+erage( *roper *art' (!!.# ................................................................................. 13
Tax 1a4s( B,R R%ling( 9on;Retroacti+it' of R%lings (!!.# ............................................................................... 14
Tax *'ra3iding( Definition < 1egalit' (!!"# ....................................................................................................... 14
Taxpa'er S%it( W&en Allo4ed ()--"#....................................................................................................................... 14
=nifor3it' in t&e Collection of Taxes ()--8# .......................................................................................................... 14
INCOME TAXATION................................................................................................................................ ).
Basic: Allowable Deuctions !s" Personal #xem$tions (%&&1) .................................................................................. 14
Basic$ 2eaning of Taxable ,nco3e (!!!# .............................................................................................................. 15
Basic$ *rinciple of Mobilia Sequuntur Personam (199')............................................................................................ 15
Basic$ *roper Allo4ance of Depreciation ()--8# ................................................................................................... 15
Basic$ So%rces of ,nco3e$ Taxable ,nco3e ()--8# ................................................................................................. 15
Basic$ Tax Benefit R%le (!!6# ................................................................................................................................. 15
Basic( Basis of ,nco3e Tax ()--"# ............................................................................................................................ 16
Basic( 7ross ,nco3e$ Define ()--:#.......................................................................................................................... 16
Basic( ,nco3e +s. Capital ()--:#............................................................................................................................... 16
Basic( Sc&ed%lar Treat3ent +s. 7lobal Treat3ent ()--.# ................................................................................... 16
Co3pensation( ,nco3e Tax$ D%e to *rofitable B%siness Deal ()--:# .................................................................. 16
Corporate$ ,nco3e$ Donor8s tax( Tax 1iabilit' ()--"# .......................................................................................... 17
Corporate( ,nco3e Tax( Reasonableness of t&e Bon%s (!!"# ............................................................................. 17
Corporate( ,nco3e$ Co+erage( >Off;1ine> Airline ()--.#..................................................................................... 17
Corporate( ,nco3e$ Co+erage( >Off;1ine> Airline (!!:#..................................................................................... 17
Di+idends$ Disg%ised di+idends ()--.#..................................................................................................................... 18
Di+idends( ,nco3e Tax( Ded%ctible 7ross ,nco3e ()---# ..................................................................................... 18


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#((ect) *ononation o( +oan in Taxation (199,) ........................................................................................................ 18
Fringe Benefit Tax$ Co+ered E3plo'ees (!!)#................................................................................................. 18
Fringe Benefit Tax$ E3plo'er re5%ired to *a' (!!6# ..................................................................................... 19
,nterest$ Deficienc' ,nterest$ define ()--: Bar#.................................................................................................. 19
,nterest$ Delin5%enc' ,nterest$ define ()--:#...................................................................................................... 19
,TR$ *ersonal ,nco3e( Exe3pted to File ,TR ()--/#....................................................................................... 19
,TR( Do3estic Corporate Taxation ()--/#.......................................................................................................... 19
,TR( Do3estic Corporate Taxation (!!)#.......................................................................................................... 20
,TR( *ersonal ,nco3e$ T4o E3plo'3ent (!!)# .............................................................................................. 20
,TR( *ersonal ,nco3e( 7S,S *ension (!!!# ..................................................................................................... 20
,TR( *ersonal ,nco3e( 2arried ,ndi+id%al (!!.# .......................................................................................... 20
,TR( Taxpa'er( 1iabilities( Falsified Tax Ret%rn (!!:# .................................................................................. 20
*artners&ip$ ,nco3e Tax ()--:# .......................................................................................................................... 21
*ersonal( ,nco3e Tax$ 9on;Resident Alien (!!!# ............................................................................................ 21
*ersonal( ,nco3e Tax$ 9on;Resident Citi?en ()---#.......................................................................................... 21
*ersonal( ,nco3e Tax$ Tax;Free Exc&ange ()--/#............................................................................................ 22
*ersonal( ,nco3e Tax( Contract of 1ease ()--:# ............................................................................................... 22
*ersonal( ,nco3e Tax( 2arried ,ndi+id%al ()--/#............................................................................................. 22
*ersonal( ,nco3e Tax( Retiring Alien E3plo'ee (!!:# ................................................................................. 23
*ersonal( ,nco3e Taxation$ 9on;Resident Citi?en ()--/# ............................................................................... 23
Taxable ,nco3e$ ,llegal ,nco3e ()--: Bar#........................................................................................................ 23
Taxable or 9on;Taxable( ,nco3e and 7ains (!!:# .......................................................................................... 23
Wit&&olding Tax$ 9on;Resident Alien (!!)#..................................................................................................... 24
Wit&&olding Tax$ Retire3ent Benefit (!!!#...................................................................................................... 24
Wit&&olding Tax$ Retire3ent Benefit (!!!#...................................................................................................... 24
Wit&&olding Tax$ Ro'alt' (!!# ........................................................................................................................ 24
Wit&&olding Tax( Co+erage (!!.# ..................................................................................................................... 25
Wit&&olding Tax( Do3estic Corporation( Cas& Di+idends (!!)# .................................................................. 25
Wit&&olding Tax( ,nco3e s%b@ect t&ereto (!!)# ............................................................................................. 25
Wit&&olding Tax( 9on;Resident Alien ()--.#..................................................................................................... 25
Wit&&olding Tax( 9on;Resident Corporation ()--.# ........................................................................................ 26
Wit&&olding Tax( ReaderAs Digest A4ard ()--8#............................................................................................... 26
Wit&&olding Tax( Ti3e Deposit ,nterest( 7S,S *ension ()--.# ....................................................................... 26
DEDUCTIONS! EXEMPTIONS! EXCUSIONS " INCUSIONS.................................................... "
Deuction: Facilitation Fees or -.ic.bac.- (199/)..................................................................................................... 26
Ded%ctions$ Ordinar' B%siness Expenses (!!.# .............................................................................................. 26
Ded%ctions$ A3o%nt for Bribe (!!)#................................................................................................................. 27
Ded%ctions$ Capital 1osses( *ro&ibitions (!!6# ............................................................................................... 27
Ded%ctions$ Ded%ctible ,te3s fro3 7ross ,nco3e ()---#................................................................................. 27
Ded%ctions$ ,nco3e Tax$ Donation$ Real *ropert' (!!# ............................................................................. 27
Ded%ctions$ 9on;Ded%ctible ,te3s( 7ross ,nco3e ()---# ............................................................................... 28
Ded%ctions$ Re5%isites( Ded%cibilit' of a 1oss ()--8# ...................................................................................... 28
Ded%ctions( ,nco3e Tax$ Allo4able Ded%ctions (!!)#..................................................................................... 28
Ded%ctions( Banis&ing Ded%ction( *%rpose (!!"# .......................................................................................... 28
Excl%sion < ,ncl%sion( 7ross Receipts (!!"# ................................................................................................. 28
Excl%sion +s. Ded%ction fro3 7ross ,nco3e (!!)#........................................................................................... 28
Excl%sions < ,ncl%sions$ Benefits on Acco%nt of ,n@%r' ()--:# ....................................................................... 29
Excl%sions < ,ncl%sions$ Exec%ti+e Benefits ()--:#.......................................................................................... 29
Excl%sions < ,ncl%sions( Assets( Resident Alien (!!:# .................................................................................... 29
Excl%sions < ,ncl%sions( Benefits on Acco%nt of Deat& ()--"# ........................................................................ 30
Excl%sions < ,ncl%sions( Benefits on Acco%nt of ,n@%r' (!!:# ....................................................................... 30
Excl%sions < ,ncl%sions( Co3pensation for personal in@%ries or sicCness (!!6# ......................................... 30
Excl%sions < ,ncl%sions( Facilities or *ri+ileges( 2ilitar' Ca3p ()--:# ........................................................ 30
Excl%sions < ,ncl%sions( 7ifts o+er and abo+e t&e Retire3ent *a' ()--:# ................................................. 31
Excl%sions < ,ncl%sions( ,TR( )6t& 3ont& pa' and de 3ini3is benefits (!!:# ............................................ 31
Excl%sions < ,ncl%sions( ,TR( Di+idends recei+ed b' a do3estic corporation (!!:# ................................. 31
Excl%sions < ,ncl%sions( ,TR( ,nco3e reali?ed fro3 sale (!!:#..................................................................... 31
Excl%sions < ,ncl%sions( ,TR( ,nterest on deposits (!!:#............................................................................... 31
Excl%sions < ,ncl%sions( ,TR( *roceeds of life ins%rance (!!:# ................................................................... 32
Excl%sions < ,ncl%sions( 1ife ,ns%rance *olic' (!!6# ..................................................................................... 32


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#xem$tions: *0aritable Institutions (%&&&) ............................................................................................................... 32
Exe3ptions$ C&aritable ,nstit%tions( C&%rc&es ()--"# .................................................................................... 32
Exe3ptions$ Ed%cational instit%tion (!!.#....................................................................................................... 32
Exe3ptions$ 7ifts < Donations ()--.# ............................................................................................................... 32
Exe3ptions$ Dead of t&e Fa3il'$ ()--8#............................................................................................................ 33
Exe3ptions$ 9on;*rofit Ed%cational ,nstit%tions (!!!# .................................................................................. 33
Exe3ptions$ 9on;*rofit Entit'( Ancillar' Acti+it' < ,ncidental Operations ()--.# ..................................... 33
Exe3ptions$ 9on;StocCE 9on;*rofit Association (!!# ................................................................................... 34
Exe3ptions$ *ri?e of *eace *oster Contest (!!!#............................................................................................. 34
Exe3ptions$ *ri?es < A4ards( At&letes ()--"# ................................................................................................. 34
Exe3ptions$ Retire3ent Benefits$ WorC Separation ()---# ............................................................................ 34
Exe3ptions$ Separation *a' ()--.# .................................................................................................................... 35
Exe3ptions$ Separation *a' ()--:# ................................................................................................................... 35
Exe3ptions$ Separation *a' (!!:# ................................................................................................................... 36
Exe3ptions$ StocC Di+idends (!!6# ................................................................................................................... 36
Exe3ptions$ Strictl' Constr%ed ()--"# ............................................................................................................... 36
Exe3ptions$ Ter3inal 1ea+e *a' ()--"# ............................................................................................................ 36
Exe3ptions( C&aritable ,nstit%tions (!!"# ....................................................................................................... 36
Exe3ptions( Ed%cational instit%tion (!!.#........................................................................................................ 36
Exe3ptions( Exe3ptions are =nilateral in 9at%re (!!.#................................................................................. 37
Exe3ptions( 7o+8t Bon%sF 7iftsF < Allo4ances ()--.# ..................................................................................... 37
Exe3ptions( *ersonal < Additional Exe3ption (!!"# .................................................................................... 37
Exe3ptions( Ro3an Cat&olic C&%rc&( 1i3itations (!!:# .............................................................................. 38
CAPITA GAIN TAX................................................................................................................................ 68
*a$ital Asset !s" 1rinary Asset (%&&2).................................................................................................................... 38
Capital 7ain Tax( 9at%re (!!)# ........................................................................................................................ 38
Ordinar' Sale of a Capital Asset ()--.#.............................................................................................................. 38
Sales of S&are of StocCs$ Capital 7ains Tax Ret%rn ()---# ............................................................................. 39
Tax Basis$ Capital 7ains$ 2erger of Corporations ()--.# ............................................................................... 39
Tax Basis$ Capital 7ains$ Tax;Free Exc&ange of *ropert' ()--.# .................................................................. 39
CORPORATION " PARTNERS$IP...................................................................................................... 6-
Ba Debts) Factors) #lements t0ereo( (%&&')............................................................................................................ 39
Condo3ini%3 Corp.( Sale of Co33on Areas ()--.# ....................................................................................... 40
Corporation( Sale( Creditable Wit&&olding Tax ()--.#.................................................................................... 40
Di+idends$ Wit&&olding Tax ()---# ................................................................................................................... 40
Effect$ Dissol%tion( Corporate Existence (!!.#................................................................................................. 41
2ini3%3 Corporate ,nco3e Tax (!!)#............................................................................................................. 41
2ini3%3 Corporate ,nco3e Tax( Exe3ption (!!)# ....................................................................................... 41
ESTATE " DONOR%S TAXES .............................................................................................................. .)
Donor3s Tax: #lection *ontributions (199/) .............................................................................................................. 41
Donor8s Tax( Basis for Deter3ining 7ain ()--:# ............................................................................................. 41
Donor8s Tax( Dacion en *ago( Effect$ Taxation ()--/# ..................................................................................... 42
Donor8s Tax( Donation to a Sibling (!!)#.......................................................................................................... 42
Donor8s Tax( Donation to 9on;StocCF 9on;*rofit *ri+ate Ed%cational ,nstit%tions (!!!#........................... 42
Donor8s Tax( Donation to *olitical Candidate (!!6# ...................................................................................... 43
Donor8s Tax( Donee or Beneficiar'( Stranger (!!!# ........................................................................................ 43
Donor8s Tax( Sale of s&ares of StocC < Sale of Real *ropert' ()---#.............................................................. 43
Estate Tax$ Co3pre&ensi+e Agrarian Refor3 1a4 ()--.#............................................................................... 43
Estate Tax$ Donation 2ortis Ca%sa (!!)# ........................................................................................................ 43
Estate Tax$ Donation 2ortis Ca%sa +s. ,nter Bi+os ()--.# ............................................................................... 44
Estate Tax$ 7ross Estate$ Allo4able Ded%ction (!!)#..................................................................................... 44
Estate Tax$ 7ross Estate$ Ded%ctions (!!!# ..................................................................................................... 44
Estate Tax$ ,ncl%sion$ Resident Alien ()--.# .................................................................................................... 44
Estate Tax$ *a'3ent +s. *robate *roceedings (!!.# ....................................................................................... 45
Estate Tax$ Sit%s of Taxation$ 9on;Resident Decedent (!!!#.......................................................................... 45
Estate Tax$ Banis&ing Ded%ctions ()--.#............................................................................................................ 45
Estate Tax( *a'3ent +s. *robate *roceedings (!!:# ....................................................................................... 45
BUSINESS TAXES .................................................................................................................................. .:


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics



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4AT: Basis o( 4AT (1996).......................................................................................................................................... 45
BAT$ C&aracteristics of BAT ()--"#............................................................................................................... 45
BAT$ Exe3pted Transactions ()--"#.................................................................................................................. 45
BAT$ 1iable for *a'3ent ()--"# ........................................................................................................................ 46
BAT$ Transactions >Dee3ed SalesG ()--/# ....................................................................................................... 46
BAT( Co+ered Transactions ()--8# .................................................................................................................... 46
BAT( Exe3ption$ Constit%tionalit' (!!.# ........................................................................................................ 46
BAT( 9on;BAT taxpa'er( Clai3 for Ref%nd (!!"#
..................................................................................................... 47
REMEDIES IN INTERNA RE&ENUE TAXES ...................................................................................
./
BI5: Assessment: 6nre7istere Partners0i$ (1998) .................................................................................................. 47
B,R$ Collection of Tax Deficienc' ()---# .......................................................................................................... 47
B,R$ Co3pro3ise( Conditions (!!!#.................................................................................................................. 48
B,R$ Co3pro3ise( Extent of A%t&orit' ()--"# .................................................................................................. 48
B,R$ Co3pro3ise( Wit&&olding Agent ()--8#................................................................................................... 48
B,R$ Corporation$ Distraint < 1e+' (!!# ....................................................................................................... 48
B,R$ Co%rt of Tax Appeals$ Collection of Taxes( 7ro%nds for Co3pro3ise ()--"# ..................................... 49
B,R$ Cri3inal *rosec%tion$ Tax E+asion ()--8#............................................................................................... 49
B,R$ Extinction( Cri3inal 1iabilit' of t&e Taxpa'er (!!#............................................................................ 49
B,R$ Fra%d%lent Ret%rn( *ri3a Facie E+idence ()--8#.................................................................................. 50
B,R$ Fra%d%lent Ret%rn( *ri3a Facie E+idence (!!#.................................................................................... 50
B,R$ 7arnis&3ent$ BanC Acco%nt of a Taxpa'er ()--8#................................................................................. 50
B,R$ *re;Assess3ent 9otice not 9ecessar' (!!# ............................................................................................ 51
B,R$ *rescripti+e *eriod$ Ci+il Action (!!# .................................................................................................... 51
B,R$ *rescripti+e *eriod( Assess3ent < Collection ()---#.............................................................................. 51
B,R$ *rescripti+e *eriod( Cri3inal Action (!!#........................................................................................... 51
B,R$ Secrec' of BanC Deposits 1a4 ()--8# ....................................................................................................... 52
B,R$ S%33ar' Re3ed'$ Estate Tax Deficiencies ()--8# ................................................................................. 52
B,R$ =npaid Taxes +s. Clai3s for =npaid Wages ()--:#.................................................................................. 53
B,R( Assess3ent( Cri3inal Co3plaint (!!:#.................................................................................................... 53
B,R( A%t&orit'( Ref%nd or Credit of Taxes (!!:# .......................................................................................... 53
B,R( Co3pro3ise (!!.#.................................................................................................................................... 53
B,R( Co3pro3ise (!!:#..................................................................................................................................... 54
B,R( Deficienc' Tax Assess3ent +s. Tax Ref%nd E Tax Credit (!!:# ............................................................. 54
B,R( Distraint( *rescription of t&e Action (!!#............................................................................................... 54
B,R( False +s. Fra%d%lent Ret%rn ()--"#............................................................................................................. 55
B,R( H%risdiction( Re+ie4 R%lings of t&e Co33issioner (!!"#....................................................................... 55
B,R( *rescripti+e *eriod( Assess3ent( Fra%d%lent Ret%rn (!!#................................................................... 55
B,R( *rescripti+e *eriod( Cri3inal Action (!!"#............................................................................................ 55
B,R( Taxpa'er$ Ci+il Action < Cri3inal Action (!!# .................................................................................. 55
C%sto3$ Biolation of Tax < C%sto3 D%ties (!!#............................................................................................ 56
C%sto3s( Basis( A%to3atic Re+ie4 (!!#.......................................................................................................... 56
Delin5%ent Tax Ret%rn ()--8# ............................................................................................................................. 57
H%risdiction$ C%sto3s +s. CTA (!!!#................................................................................................................ 57
17=$ Collection of TaxesF Fees < C&arges ()--/# ............................................................................................ 57
Tax A3nest' +s. Tax Exe3ption (!!)# ............................................................................................................. 57
Taxpa'er$ Ad3inistrati+e < H%dicial Re3edies (!!!#..................................................................................... 57
Taxpa'er$ Assess3ent$ *rotest$ Clai3s for ref%nd (!!!#................................................................................ 58
Taxpa'er$ Assess3ent( ,n@%nction (!!.# ......................................................................................................... 58
Taxpa'er$ B,R A%dit or ,n+estigation ()---#..................................................................................................... 58
Taxpa'er$ Cit' Board of Assess3ent Decision( W&ere to appeal ()---#......................................................... 59
Taxpa'er$ Clai3 for Ref%nd( *roced%re (!!#................................................................................................ 59
Taxpa'er$ Deficienc' ,nco3e Tax ()--:#........................................................................................................... 59
Taxpa'er$ Ex&a%stion of Ad3inistrati+e Re3edies ()--/#............................................................................... 60
Taxpa'er$ Fail%re to Wit&&eld < Re3it Tax (!!!#......................................................................................... 60
Taxpa'er$ 9,RC +s. TCC Re3edies ()--"#......................................................................................................... 60
Taxpa'er$ O+er4it&olding Clai3 for Ref%nd ()---# ........................................................................................ 61
Taxpa'er$ *rescripti+e *eriod$ S%spended (!!!#............................................................................................ 61
Taxpa'er$ *rescripti+e *eriod( Clai3 for Ref%nd ()--/# ................................................................................. 61
Taxpa'er$ *rescripti+e *eriod( Clai3s for Ref%nd ()--.# ............................................................................... 61
Taxpa'er$ *rescripti+e *eriod( Clai3s for Ref%nd (!!.# ............................................................................... 62


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Tax$ayer: Protest a7ainst Assessment (199/) .......................................................................................................... 62
Taxpa'er$ *rotest against Assess3ent ()---# .................................................................................................. 62
Taxpa'er$ *rotest against Assess3ent ()---# ................................................................................................... 62
Taxpa'er$ *rotest( Clai3 of Ref%nd ()--"#........................................................................................................ 63
Taxpa'er( Appeal to t&e Co%rt of Tax Appeals (!!:#...................................................................................... 63
Taxpa'er( Clai3 for Tax Credits (!!"# ........................................................................................................... 63
Taxpa'er( Co3pro3ise after Cri3inal Action ()--8# ..................................................................................... 63
Taxpa'er( *rotest against Assess3ent( Donor8s Tax ()--:# ............................................................................ 64
Taxpa'er( Wit&&olding Agent( Clai3 of Tax Ref%nd (!!:#............................................................................ 64
OCA " REA PROPERTY TAXES.................................................................................................. ".
+ocal Taxation: Actual 6se o( Pro$erty (%&&%) .......................................................................................................... 64
1ocal Taxation$ Co+erage (!!#.......................................................................................................................... 64
1ocal Taxation$ Exe3ption( Real *ropert' Taxes (!!# ................................................................................ 65
1ocal Taxation$ ,3position of Ad Balore3 Tax (!!!# ................................................................................... 65
1ocal Taxation$ 1egalit'E Constit%tionalit'( Tax Ordinance (!!6# ........................................................... 65
1ocal Taxation$ 1egalit'( ,3position of Real *ropert' Tax Rate (!!# ....................................................... 65
1ocal Taxation$ *o4er to ,3pose (!!6# ........................................................................................................... 65
1ocal Taxation$ Re3issionECondonation of Taxes (!!.#................................................................................. 66
1ocal Taxation$ R%le of =nifor3it' and E5%alit' (!!6#.................................................................................. 66
1ocal Taxation( Sit%s of *rofessional Taxes (!!:#............................................................................................ 66
1ocal Taxation( Special 1e+' on ,dle 1ands (!!:#............................................................................................ 66
Real *ropert' Tax$ =ndergro%nd 7asoline TanCs (!!6#................................................................................. 67
Real *ropert' Tax( Re5%ire3ents( A%ction Sales of *ropert' for Tax Delin5%enc' (!!"# ......................... 67
Real *ropert' Taxation$ Capital Asset +s. Ordinar' Asset ()--:# .................................................................. 67
Real *ropert' Taxation$ Capital 7ains +s. Ordinar' 7ains ()--8# ................................................................. 67
Real *ropert' Taxation$ Co+erage of Ordinar' ,nco3e ()--8# ....................................................................... 67
Real *ropert' Taxation$ Exc&ange of 1ot( Capital 7ain Tax ()--/#.............................................................. 68
Real *ropert' Taxation$ Exe3ptionEDed%ctions( Donor8s Tax ()--8#............................................................ 68
Real *ropert' Taxation$ Exe3ption$ Ac5%iring 9e4 *rincipal Residence (!!!# ........................................ 68
Real *ropert' Taxation$ F%nda3ental *rinciples ()--/# ................................................................................ 69
Real *ropert' Taxation$ *rinciples < 1i3itations$ 17= (!!!#..................................................................... 69
Real *ropert' Taxation$ *ropert' Sold is an Ordinar' Asset ()--8#.............................................................. 69
Real *ropert' Taxation$ =ndergro%nd 7asoline TanCs (!!)# ...................................................................... 69
Real *ropert' Taxation( Exe3pted *roperties (!!"# ...................................................................................... 69
TARI(( AND CUSTOMS DUTIES ...............................................................................E...................... /!
*ustoms: 9Flexible Tari(( *lause: (%&&1) .................................................................................................................. 70
C%sto3s$ Ad3inistrati+e +s. H%dicial Re3edies ()--/# .................................................................................. 70
C%sto3s$ ,3portation ()--:# ............................................................................................................................. 70
C%sto3s$ H%risdiction( Sei?%re < Forfeit%re *roceedings ()--"# ................................................................... 70
C%sto3s$ Iinds of C%sto3 D%ties ()--:# ........................................................................................................... 70
C%sto3s$ Iinds of C%sto3 D%ties ()--/# .......................................................................................................... 71
C%sto3s$ Re3edies of an ,3porter ()--"# ......................................................................................................... 71
C%sto3s$ Ret%rning Residents$ To%ristETra+elers (!!6# ................................................................................ 71
C%sto3s$ Sei?%re < Forfeit%re$ Effects ()--.# ................................................................................................. 71
C%sto3s$ Steps in+ol+ing *rotest Cases ()--.#................................................................................................. 72
C%sto3s( Basis of D%tiable Bal%e( ,3ported Article (!!:# ............................................................................ 72
C%sto3s( Co%nter+ailing D%t' +s. D%3ping D%t' (!!:#.................................................................................. 72
C%sto3s( Taxabilit'( *ersonal Effects (!!:#..................................................................................................... 72
OT$ER REATED MATTERS............................................................................................................... /6
BI5: Ban. De$osits Secrecy 4iolation (%&&&)............................................................................................................ 73
B,R$ Secrec' of BanC Deposit 1a4 (!!6# .......................................................................................................... 73


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

GENERA PRINCIPES
Basic Features: Present Income Tax System (1996)
What are the basic features of the present income ta
s!stem"#
SUGGESTED ANSWER)
$ur present income ta s!stem can be sai% to ha&e the
fo''o(ing basic features)
*a+ ,t has a%opte% a CO2*REDE9S,BE TAJ
S,T=S b! using the nationa'it!- resi%ence- an% source
ru'es. This ma.es citi/ens an% resi%ent a'iens taab'e on
their income %eri&e% from a'' sources (hi'e non0resi%ent
a'iens are tae% on'! on their income %eri&e% from (ithin
the 1hi'ippines. 2omestic corporations are a'so tae% on
uni&ersa' income (hi'e foreign corporations are tae% on'!
on income from (ithin.
*b+ The in%i&i%ua' income ta s!stem is main'!
*RO7RESS,BE ,9 9AT=RE in that it pro&i%es a
gra%uate% rates of income ta. 3orporations in genera' are
tae% at a f'at rate of thirt! fi&e percent *354+ of net
income.
*c+ ,t has retaine% 2ORE SCDED=1AR TDA9
71OBA1 FEAT=RES (ith respect to in%i&i%ua'
tapa!ers but has maintaine% a more g'oba' treatment on
corporations.
9ote$ The following might also be cited by the bar
candidates as features of the income tax system:
6 ,n%i&i%ua' compensation income earners are tae% on
mo%ifie% 5ross ,ncome *5ross compensation income 'ess
persona' eemptions+. 6e'f0emp'o!e% an% professiona's are
tae% on net income (ith %e%uctions 'imite% to se&en items or
in 'ieu thereof the fort! percent *404+ maimum %e%uction p'us
the persona' eemptions. 3orporations are genera''! tae% on
net income ecept for non0resi%ent foreign corporations (hich
are tae% on gross income.
2 The income ta is genera''! impose% &ia the se'f0
assessment s!stem or pa!0as0!ou0fi'e concept of imposing the
ta a'though certain incomes. ,nc'u%ing income of non0
resi%ents- are tae% on the pa!0as!ou0earn concept or the so
ca''e% (ithho'%ing ta.
7 The corporate income ta is a one0'a!er ta in that
%istribution of profits to stoc.ho'%ers (except to nonresidents)
are not sub7ect to income ta.
Basic Sta7es or As$ects o( Taxation (%&&6)
8numerate the 3 stages or aspects of taation. 8p'ain
each. *54+
SUGGESTED ANSWER)
The aspects of taation are)
*1+ 98:;,<5 = the act of the 'egis'ature in
choosing the persons- properties- rights or pri&i'eges to be
sub7ecte% to taation.
*2+ A66866>8<T an% 3$9983T,$< = This is
the act of eecuting the 'a( through the a%ministrati&e
agencies of go&ernment.
*3+ 1A;>8<T = the act of the tapa!er in sett'ing
his ta ob'igations.

* of 73
*ollection o( Taxes: Aut0ority) 1rinary *ourts (%&&1)
>a! the courts en7oin the co''ection of re&enue taes#
8p'ain !our ans(er. *24+
SUGGESTED ANSWER)
As a genera' ru'e- the courts ha&e no authorit! to en7oin
the co''ection of re&enue taes. *6ec. 218- <,?3+.
@o(e&er- the 3ourt of Ta Appea's is empo(ere% to
en7oin the co''ection of taes through a%ministrati&e
reme%ies (hen co''ection cou'% 7eopar%i/e the interest of
the go&ernment or tapa!er. *6ection 11- ?A 1125+.
*ollection o( Taxes: Prescri$tion (%&&1)
>a! the co''ection of taes be barre% b! prescription#
8p'ain !our ans(er. *34+
SUGGESTED ANSWER)
;es. The co''ection of taes ma! be barre% b!
prescription. The prescripti&e perio%s for co''ection of
taes are go&erne% b! the ta 'a( imposing the ta.
@o(e&er- if the ta 'a( %oes not pro&i%e for prescription-
the right of the go&ernment to co''ect taes becomes
imprescriptib'e.
Direct Tax !s" Inirect Tax (199')
2istinguish a %irect from an in%irect ta.
SUGGESTED ANSWER)
A 2,?83T TAA is one in (hich the tapa!er (ho pa!s
the ta is %irect'! 'iab'e therefor- that is- the bur%en of
pa!ing the ta fa''s %irect'! on the person pa!ing the ta.
An ,<2,?83T TAA is one pai% b! a person (ho is not
%irect'! 'iab'e therefor- an% (ho ma! therefore shift or
pass on the ta to another person or entit!- (hich
u'timate'! assumes the ta bur%en. (2aceda +. 2acaraigF
)-/ SCRA //)#
Direct Tax !s" Inirect Tax (%&&&)
Among the taes impose% b! the Bureau of ,nterna'
?e&enue are income ta- estate an% %onorCs ta- &a'ue0
a%%e% ta- ecise ta- other percentage taes- an%
%ocumentar! stamp ta. 3'assif! these taes into %irect
an% in%irect taes- an% %ifferentiate %irect from ,n%irect
taes. *54+
SUGGESTED ANSWER)
,ncome ta- estate an% %onorCs ta are consi%ere% as
%irect taes. $n the other han%- &a'ue0a%%e% ta- ecise
ta- other percentage taes- an% %ocumentar! stamp ta
are in%irect taes.
2,?83T TAA86 are %eman%e% from the &er! person
(ho- as inten%e%- shou'% pa! the ta (hich he cannot
shift to anotherD (hi'e an ,<2,?83T TAA is %eman%e%
in the first instance from one person (ith the epectation
that he can shift the bur%en to someone e'se- not as a ta
but as a part of the purchase price.
Direct Tax !s" Inirect Tax (%&&1)
2istinguish %irect taes from in%irect taes- an% gi&e an
eamp'e for each one. *24+
SUGGESTED ANSWER)
2,?83T TAA86 are taes (herein both the inci%ence
*or 'iabi'it! for the pa!ment of the ta+ as (e'' as the
impact or bur%en of the ta fa''s on the same person. An


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

eamp'e of this ta is income ta (here the person
sub7ect to ta cannot shift the bur%en of the ta to another
person.
,<2,?83T TAA86- on the other han%- are taes (herein
the inci%ence of or the 'iabi'it! for the pa!ment of the ta
fa''s on one person but the bur%en thereof can be shifte%
or passe% on to another person. 8amp'e of this ta is the
&a'ue0a%%e% ta.
ATERNATI&E ANSWER)
A %irect ta is a ta (hich is %eman%e% from the person
(ho a'so shou'%ers the bur%en of the ta. 8amp'e)
corporate an% in%i&i%ua' income ta.
An in%irect ta is a ta (hich is %eman%e% from one
person in the epectation an% intention that he sha''
in%emnif! himse'f at the epense of another- an% the
bur%en fina''! resting on the u'timate purchaser or
consumer. 8amp'e) &a'ue a%%e% ta.
Direct Tax !s" Inirect Tax (%&&6)
2istinguish "%irect taes" from "in%irect taes." 5i&e
eamp'es. *54+
SUGGESTED ANSWER)
2,?83T TAA86 are %eman%e% from the &er! person
(ho shou'% pa! the ta an% (hich he can not shift to
another. An ,<2,?83T TAA is %eman%e% from one
person (ith the epectation that he can shift the bur%en to
someone e'se- not as a ta but as part of the purchase
price. 8amp'es of %irect taes are the income ta- the
estate ta an% the %onorCs ta. 8amp'es of in%irect taes
are the &a'ue0a%%e% ta- the percentage ta an% the ecise
ta on eciseab'e artic'es.
Double Taxation (1998)
,s %oub'e taation a &a'i% %efense against the 'ega'it! of a
ta measure#
SUGGESTED ANSWER)
<o- %oub'e taation stan%ing a'one an% not being
forbi%%en b! our fun%amenta' 'a( is not a &a'i% %efense
against the 'ega'it! of a ta measure (*epsi Cola +.
Tana4anF "- SCRA ."!#. @o(e&er- if %oub'e taation
amounts to a %irect %up'icate taation-
6 in that the same sub7ect is tae% t(ice (hen it shou'%
be tae% but once-
2 in a fashion that both taes are impose% for the same
purpose
7 b! the same taing authorit!- (ithin the same
7uris%iction or taing %istrict-
8 for the same taab'e perio% an%
9 for the same .in% or character of a ta
then it becomes 'ega''! ob7ectionab'e for being
oppressi&e an% ineEuitab'e.
Double Taxation: ;0at *onstitutes DT< (1996)
A- a 'essor of a propert!- pa!s rea' estate ta on the
premises- a rea' estate %ea'erCs ta base% on renta' receipts
an% income ta on the renta's. A c'aims that this is %oub'e
taation# 2eci%e.
SUGGESTED ANSWER)

9 of 73
There is no %oub'e taation. 2$FB98 TAAAT,$<
means taing for the same ta perio% the same thing or
acti&it! t(ice- (hen it shou'% be tae% but once- b! the
same taing authorit! for the same purpose an% (ith the
same .in% or character of ta. The ?8A9 86TAT8 TAA
is a ta on propert!D the ?8A9 86TAT8 28A98?C6 TAA
is a ta on the pri&i'ege to engage in businessD (hi'e the
,<3$>8 TAA is a ta on the pri&i'ege to earn an
income. These taes are impose% b! %ifferent taing
authorities an% are essentia''! of %ifferent .in% an%
character (Billan%e+a +s. Cit' of ,loiloF " SCRA :/8#.
Double Taxation) Inirect Du$licate Taxation (1998)
When an item of income is tae% in the 1hi'ippines an%
the same income is tae% in another countr!- is there a
case of %oub'e taation#
SUGGESTED ANSWER)
;es- but it is on'! a case of in%irect %up'icate taation
(hich is not 'ega''! prohibite% because the taes are
impose% b! %ifferent taing authorities.
Double Taxation) +icense Fee !s" +ocal Tax (%&&')
A municipa'it!- BB- has an or%inance (hich reEuires that
a'' stores- restaurants- an% other estab'ishments se''ing
'iEuor shou'% pa! a fie% annua' fee of 120.000.
6ubseEuent'!- the municipa' boar% propose% an or%inance
imposing a sa'es ta eEui&a'ent to 54 of the amount pai%
for the purchase or consumption of 'iEuor in stores-
restaurants an% other estab'ishments. The municipa'
ma!or- 33- refuse% to sign the or%inance on the groun%
that it (ou'% constitute %oub'e taation. ,s the refusa' of
the ma!or 7ustifie%# ?eason brief'!. *54+
SUGGESTED ANSWER)
<o. The refusa' of the ma!or is not 7ustifie%. The
impositions are of %ifferent nature an% character. The
fie% annua' fee is in the nature of a 'icense fee impose%
through the eercise of po'ice po(er (hi'e the 54 ta on
purchase or consumption is a 'oca' ta impose% through
the eercise of taing po(ers. Both a 'icense fee an% a ta
ma! be impose% on the same business or occupation- or
for se''ing the same artic'e an% this is not in &io'ation of
the ru'e against %oub'e taation GCa3pania 7eneral de
Tabacos de Filipinos +. Cit' of 2anilaF 8 SCRA 6"/
K)-"6L+.
Double Taxation) =et0os o( A!oiin7 DT (1998)
What are the usua' metho%s of a&oi%ing the occurrence
of %oub'e taation#
SUGGESTED ANSWER)
The usua' metho%s of a&oi%ing the occurrence of %oub'e
taation are)
6 A''o(ing reciproca' eemption either b! 'a( or
b! treat!D
2 A''o(ance of ta cre%it for foreign taes pai%D
7 A''o(ance of %e%uction for foreign taes pai%D
an%
8 ?e%uction of the 1hi'ippine ta rate.
Note: Any three of the methods shall be given full credit.
Im$rescri$tibility o( Tax +aws (1998)
Taes (ere genera''! imprescriptib'eD statutes- ho(e&er-
ma! pro&i%e other(ise. 6tate the ru'es that ha&e been
a%opte% on this score b! 0


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

*a+ The <ationa' ,nterna' ?e&enue
3o%eD *b+ The Tariff an% 3ustoms 3o%eD an%
*c+ The 9oca' 5o&ernment 3o%e Ans(er)
SUGGESTED ANSWERS)
The ru'es that ha&e been a%opte% on prescription are as
fo''o(s)
*a+ 9ational ,nternal Re+en%e Code 0 The statute
of 'imitation for assessment of ta if a return is fi'e% is
(ithin three *3+ !ears from the 'ast %a! prescribe% b! 'a(
for the fi'ing of the return or if fi'e% after the 'ast %a!-
(ithin three !ears from %ate of actua' fi'ing. ,f no return
is fi'e% or the return fi'e% is fa'se or frau%u'ent- the perio%
to assess is (ithin T8< ;8A?6 from %isco&er! of the
omission- frau% or fa'sit!.
The perio% to co''ect the ta is (ithin T@?88
;8A?6 from %ate of assessment. ,n the case-
ho(e&er- of omission to fi'e or if the return fi'e% is
fa'se or frau%u'ent- the perio% to co''ect is (ithin
T8< ;8A?6 from %isco&er! (ithout nee% of an
assessment.
*b+ Tariff and C%sto3s Code 0 ,t %oes not epress
an! genera' statute of 'imitationD it pro&i%e%- ho(e&er-
that "(hen artic'es ha&e entere% an% passe% free of %ut! or
fina' a%7ustment of %uties ma%e- (ith subseEuent %e'i&er!-
such entr! an% passage free of %ut! or sett'ement of %uties
(i''- after the epiration of $<8 *1+ ;8A?- from the %ate
of the fina' pa!ment of %uties- in the absence of frau% or
protest- be fina' an% conc'usi&e upon a'' parties- un'ess the
'iEui%ation of ,mport entr! (as mere'! tentati&e" *6ec
1603- T33+.
*c+ 1ocal 7o+ern3ent Code 0 9oca' taes- fees-
or charges sha'' be assesse% (ithin H,:8 *5+ ;8A?6
from the %ate the! became %ue. ,n case of frau% or intent
to e&a%e the pa!ment of taes- fees or charges the same
ma!be assesse% (ithin T8< ;8A?6 from %isco&er! of
the frau% or intent to e&a%e pa!ment. The! sha'' a'so be
co''ecte% either b! a%ministrati&e or 7u%icia' action (ithin
H,:8 *5+ ;8A?6 from %ate of assessment *6ec. 194-
953+.
Power o( Taxation: #>ual Protection o( t0e +aw (%&&&)
An 8ecuti&e $r%er (as issue% pursuant to 'a(- granting
ta an% %ut! incenti&es on'! to businesses an% resi%ents
(ithin the "secure% area" of the 6ubic 8conomic 6pecia'
Ione- an% %en!ing sai% incenti&es to those (ho 'i&e
(ithin the Ione but outsi%e such "secure% area". ,s the
constitutiona' right to eEua' protection of the 'a( &io'ate%
b! the 8ecuti&e $r%er# 8p'ain. *34+
SUGGESTED ANSWER)
<o. 8Eua' protection of the 'a( c'ause is sub7ect to
reasonab'e c'assification. 3'assification- to be &a'i%- must
*1+ rest on substantia' %istinctions- *2+ be germane to the
purpose of the 'a(- *3+ not be 'imite% to eisting
con%itions on'!- *4+ app'! eEua''! to a'' members of the
same c'ass.

10 of 73
There are substantia' %ifferences bet(een big in&estors
being entice% to the "secure% area" an% the business
operators outsi%e that are in accor% (ith the eEua'
protection c'ause that %oes not reEuire territoria'
uniformit! of 'a(s. The c'assification app'ies eEua''! to
a'' the resi%ent in%i&i%ua's an% businesses (ithin the
"secure% area". The resi%ents- being in 'i.e circumstances
to contributing %irect'! to the achie&ement of the en%
purpose of the 'a(- are not categori/e% further. ,nstea%-
the! are simi'ar'! treate%- both in pri&i'eges grante% an%
ob'igations reEuire%. (Tiu, et al, v. ourt of !npeals, et al,
".#. No. $%&!$', (anuary %', $))))
Power o( Taxation: In0erent in a So!erei7n State (%&&2)
Wh! is the po(er to ta consi%ere% inherent in a
so&ereign 6tate# *44+
SUGGESTED ANSWER)
,t is consi%ere% inherent in a so&ereign 6tate because it is
a necessar! attribute of so&ereignt!. *ithout this power
no sovereign +tate can exist or endure. The power to tax
proceeds upon the theory that the existence of a
government is a necessity and this power is an essential
and inherent attribute of sovereignty, belonging as a
matter of right to every independent state or government.
<o so&ereign state can continue to eist (ithout the
means to pa! its epensesD an% that for those means- it
has the right to compe' a'' citi/ens an% propert! (ithin its
'imits to contribute- hence- the emergence of the po(er to
ta. (,$ Am. (ur.,Taxation !').
Power o( Taxation: +e7ality) +ocal ?o!3t Taxation (%&&2)
>a! 3ongress- un%er the 1987 3onstitution- abo'ish the
po(er to ta of 'oca' go&ernments# *44+
SUGGESTED ANSWER)
<o. 3ongress cannot abo'ish (hat is epress'! grante% b!
the fun%amenta' 'a(. The on'! authorit! conferre% to
3ongress is to pro&i%e the gui%e'ines an% 'imitations on
the 'oca' go&ernmentCs eercise of the po(er to ta *6ec.
5- Art. A- 1987 3onstitution+.
Power o( Taxation: +e7islati!e in @ature (199')
The 6ecretar! of Hinance- upon recommen%ation of the
3ommissioner of ,nterna' ?e&enue- issue% a ?e&enue
?egu'ation using gross income as the ta base for
corporations %oing business in the 1hi'ippines. ,s the
?e&enue ?egu'ation &a'i%#
SUGGESTED ANSWER)
The regu'ation estab'ishing gross income as the ta base
for corporations %oing business in the 1hi'ippines
*%omestic as (e'' as resi%ent foreign+ is not &a'i%. This is
no 'onger imp'ementation of the 'a( but actua''! it
constitutes 'egis'ation because among the po(ers that are
ec'usi&e'! (ithin the 'egis'ati&e authorit! to ta is the
po(er to %etermine 0the amount of the ta. (+ee $ ooley
$&-.$/!). 3ertain'!- if the ta is 'imite% to gross income
(ithout %e%uctions of these corporations- this is changing
the amount of the ta as sai% amount u'timate'! %epen%s
on the taab'e base.
Power o( Taxation: +imitations o( t0e *on7ress (%&&1)
3ongress- after much pub'ic hearing an% consu'tations
(ith &arious sectors of societ!- came to the conc'usion
that it (i'' be goo% for the countr! to ha&e on'! one


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

s!stem of taation b! centra'i/ing the imposition an%
co''ection of a'' taes in the nationa' go&ernment.
Accor%ing'!- it is thin.ing of passing a 'a( that (ou'%
abo'ish the taing po(er of a'' 'oca' go&ernment units. ,n
!our opinion- (ou'% such a 'a( be &a'i% un%er the present
3onstitution# 8p'ain !our ans(er. *54+
SUGGESTED ANSWER)
<o. The 'a( centra'i/ing the imposition an% co''ection of
a'' taes in the nationa' go&ernment (ou'% contra&ene the
3onstitution (hich man%ates that) . . . "8ach 'oca'
go&ernment unit sha'' ha&e the po(er to create their o(n
sources of re&enue an% to 'e&! taes- fees- an% charges
sub7ect to such gui%e'ines an% 'imitations as 3ongress ma!
pro&i%e consistent (ith the basic po'ic! of 'oca'
autonom!." ,t is c'ear that 3ongress can on'! gi&e the
gui%e'ines an% 'imitations on the eercise b! the 'oca'
go&ernments of the po(er to ta but (hat (as grante% b!
the fun%amenta' 'a( cannot be (ith%ra(n b! 3ongress.
Power o( Taxation: +imitations: Passin7 o( 5e!enue Bills
(1998)
The @ouse of ?epresentati&es intro%uce% @B 7000 (hich
en&isione% to 'e&! a ta on &arious transactions. After the
bi'' (as appro&e% b! the @ouse- the bi'' (as sent to the
6enate as so reEuire% b! the 3onstitution. ,n the upper
house- instea% of a %e'iberation on the @ouse Bi''- the
6enate intro%uce% 6B 8000 (hich (as its o(n &ersion of
the same ta. The 6enate %e'iberate% on this 6enate Bi''
an% appro&e% the same. The @ouse Bi'' an% the 6enate
Bi'' (ere then conso'i%ate% in the Bicamera' 3ommittee.
8&entua''!- the conso'i%ate% bi'' (as appro&e% an% sent
to the 1resi%ent (ho signe% the same. The pri&ate sectors
affecte% b! the ne( 'a( Euestione% the &a'i%it! of the
enactment on the groun% that the constitutiona' pro&ision
reEuiring that a'' re&enue bi''s shou'% originate from the
@ouse of ?epresentati&es ha% been &io'ate%. ?eso'&e the
issue.
SUGGESTED ANSWER)
There is no &io'ation of the constitutiona' reEuirement that
a'' re&enue bi''s shou'% originate from the @ouse of
?epresentati&es. What is prohibite% is for the 6enate to
enact re&enue measures on its o(n (ithout a bi''
originating from the @ouse. But once the re&enue bi'' (as
passe% b! the @ouse an% sent to the 6enate- the 'atter can
pass its o(n &ersion on the same sub7ect matter consonant
(ith the 'atterCs po(er to propose or concur (ith
amen%ments. This fo''o(s from the co0eEua'it! of the t(o
chambers of 3ongress *Tolentino +. Secretar' of
FinanceF 7R 9o. )):.::F Oct. 6!F )--:+.
Power o( Taxation: +imitations) Power to Destroy (%&&&)
Justice @o'mes once sai%) The power to tax is not the
power to destroy while this ourt (the +upreme ourt)
sits.0 2escribe the po(er to ta an% its 'imitations. *54+
SUGGESTED ANSWER)
The po(er to ta is an inherent po(er of the so&ereign
(hich is eercise% through the 'egis'ature- to impose
bur%ens upon sub7ects an% ob7ects (ithin its Juris%iction
for the purpose of raising re&enues to carr! out the
'egitimate ob7ects of go&ernment. The un%er'!ing basis
for its eercise is go&ernmenta' necessit! for (ithout it no
go&ernment can eist nor en%ure. Accor%ing'!- it has the

11 of 73
broa%est scope of a'' the po(ers of go&ernment because in
the absence of 'imitations- it is consi%ere% as un'imite%-
p'enar!- comprehensi&e an% supreme. The t(o 'imitations
on the po(er of taation are the inherent an%
constitutiona' 'imitations (hich are inten%e% to pre&ent
abuse on the eercise of the other(ise p'enar! an%
un'imite% po(er. ,t is the 3ourtCs ro'e to see to it that the
eercise of the po(er %oes not transgress these 'imitations.
Power o( Taxation: 5e!ocation o( #xem$tin7 Statutes
(1998)
"A" 3orporation (as the recipient in 1990 of t(o ta
eemptions both from 3ongress- one 'a( eempting the
compan!Cs bon% issues from taes an% the other eempting
the compan! from taes in the operation of its pub'ic
uti'ities. The t(o 'a(s eten%ing the ta eemptions (ere
re&o.e% b! 3ongress before their epir! %ates. Were the
re&ocations constitutiona'#
SUGGESTED ANSWER)
;es. The eempting statutes are both grante% uni'atera''!
b! 3ongress in the eercise of taing po(ers. 6ince
taation is the ru'e an% ta eemption- the eception- an!
ta eemption uni'atera''! grante% can be (ith%ra(n at the
p'easure of the taing authorit! (ithout &io'ating the
3onstitution *2actan Ceb% ,nternational Airport
A%t&orit' +F 2arcosF 7.R 9o. )!!8F Septe3ber ))F
)--"+.
<either of these (ere issue% b! the taing authorit! in a
contract 'a(fu''! entere% b! it so that their re&ocation
(ou'% not constitute an impairment of the ob'igations of
contracts.
ATERNATI&E ANSWER)
<o. The (ith%ra(a' of the ta eemption amounts to a
%epri&ation of propert! (ithout %ue process of 'a(-
hence unconstitutiona'.
Power o( Taxation) In0erent in a So!erei7n State (%&&,)
2escribe the po(er of taation. >a! a 'egis'ati&e bo%!
enact 'a(s to raise re&enues in the absence of a
constitutiona' pro&ision granting sai% bo%! the po(er to
ta# 8p'ain.
SUGGESTED ANSWER)
;es- the 'egis'ati&e bo%! ma! enact 'a(s e&en in the
absence of a constitutiona' pro&ision because the po(er to
ta is inherent in the go&ernment an% not mere'! a
constitutiona' grant. The po(er of taation is an essentia'
an% inherent attribute of so&ereignt! be'onging as a matter
of right to e&er! in%epen%ent go&ernment (ithout being
epress'! grante% b! the peop'e. (*epsi;Cola Bottling
Co3pan' of t&e *&ilippinesF ,nc. +. 2%nicipalit' of
Tana%anF 1e'teF 7.R. 9o. 1;6)):"F Febr%ar' /F)-/"#
Taation is the inherent po(er of a 6tate to co''ect
enforce% proportiona' contribution to support the epenses
of go&ernment. Taation is the po(er &este% in the
'egis'ature to impose bur%ens or charges upon persons an%
propert! in or%er to raise re&enue for pub'ic purposes.
The po(er to ta is so un'imite% in force an% so searching
in etent that courts scarce'! &enture to %ec'are it is


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

sub7ect to an! restrictions (hate&er- ecept such as rest in the
%iscretion of the authorit! (hich eercises it. (Tio +.
Bideogra3 Reg%lator' BoardF 7.R. 9o. 1;/:"-/F H%ne )8F )-8/#
6o potent is the po(er to ta that it (as once opine% that "the
po(er to ta in&o'&es the po(er to %estro!."
(C.H. 2ars&all in 2cC%lloc& +. 2ar'landF . W&eatF 6)" . 1.
Ed. :/-F "!/#
Power o( Taxation) +e7islati!e in @ature (1996)
What is the nature of the po(er of taation#
SUGGESTED ANSWER)
The 1$W8? T$ TAA is an attribute of so&ereignt! an% is
inherent in the 6tate. ,t is a po(er emanating from
necessit! because it imposes a necessar! bur%en to
preser&e the 6tateCs so&ereignt! (*&il 7%arantee Co. +s.
Co33issionerF 1;!/.F April 6!F )-":#. ,t is inherent'!
'egis'ati&e in nature an% character in that the po(er of
taation can on'! be eercise% through the enactment of
'a(.
ATERNATI&E ANSWER)
The nature of the po(er of taation refers to its o(n
'imitations such as the reEuirement that it shou'% be for a
pub'ic purpose- that it be 'egis'ati&e- that it is territoria'
an% that it shou'% be sub7ect to internationa' comit!.
Pur$ose o( Taxation) Inter$retation (%&&')
Which of the fo''o(ing propositions ma! no( be
untenab'e) 1+ The court shou'% construe a 'a( granting ta
eemption strict'! against the tapa!er. 2+ The court
shou'% construe a 'a( granting a municipa' corporation
the po(er to ta most strict'!.
3+ The 3ourt of Ta Appea's has 7uris%iction o&er
%ecisions of the 3ustoms 3ommissioner in cases
in&o'&ing 'iabi'it! for customs %uties.
4+ The 3ourt of Appea's has 7uris%iction to re&ie(
%ecisions of the 3ourt of Ta Appea's. 5+ The 6upreme
3ourt has 7uris%iction to re&ie( %ecisions of the 3ourt of
Appea's. Justif! !our ans(er or choice brief'!. *54+
SUGGESTED ANSWER)
. The court should construe a law granting a municipal
corporation the power to tax most strictly.
This proposition is no( untenab'e. The basic rationa'e for
the grant of ta po(er to 'oca' go&ernment units is to
safeguar% their &iabi'it! an% se'f0sufficienc! b! %irect'!
granting them genera' an% broa% ta po(ers (2anila
Electric Co3pan' +. *ro+ince of 1ag%na et. al.F 6!" SCRA
/:! K)---L#. 3onsi%ering that inasmuch as the po(er to ta
ma! be eercise% b! 'oca' 'egis'ati&e bo%ies- no 'onger b!
&a'i% congressiona' %e'egation but b! %irect authorit!
conferre% b! the 3onstitution- in interpreting statutor!
pro&isions on municipa' fisca' po(ers- %oubts (i''-
therefore- ha&e to be reso'&e% in fa&or of municipa'
corporations (Cit' 7o+ern3ent of San *abloF 1ag%na +.
Re'esF 6!: SCRA 6:6 K)---L#. This means that the court
must a%opt a 'ibera' construction of a 'a( granting a
municipa' corporation the po(er to ta.
9ote$ ,f the eaminee chose proposition no. . as his
ans(er- it shou'% be gi&en fu'' cre%it consi%ering that
the present 3TA Act *?.A. <o. 9282+ has ma%e the
3TA a coeEua' 7u%icia' bo%! of the 3ourt of Appea's.
The Euestion "Which of the fo''o(ing propositions

12 of 73
ma! no( be untenab'e" ma! 'ea% the eaminee to
choose a proposition (hich is untenab'e on the basis
of the ne( 'a( %espite the cut0off %ate a%opte% b! the
Bar 8amination 3ommittee. ?.A. <o. 9282 (as
passe% on >arch 30- 2004.
Pur$ose o( Taxation) +e7islati!e in @ature (%&&')
Taes are assesse% for the purpose of generating re&enue
to be use% for pub'ic nee%s. Taation itse'f is the po(er
b! (hich the 6tate raises re&enue to %efra! the epenses
of go&ernment. A 7urist sai% that a ta is (hat (e pa! for
ci&i'i/ation.,n our 7uris%iction- (hich of the fo''o(ing
statements ma! be erroneous) 1+ Taes are pecuniar! in
nature. 2+ Taes are enforce% charges an% contributions.
3+ Taes are impose% on persons an% propert! (ithin
the territoria' 7uris%iction of a 6tate. 4+ Taes are 'e&ie% b!
the eecuti&e branch of the go&ernment. 5+ Taes are
assesse% accor%ing to a reasonab'e ru'e of apportionment.
Justif! !our ans(er or choice brief'!. *54+
S=77ESTED A9SWER$
A. .. Taxes are levied by the executive branch of
government. This statement is erroneous because 'e&!
refers to the act of imposition b! the 'egis'ature (hich is
%one through the enactment of a ta 'a(. 9e&! is an
eercise of the po(er to ta (hich is ec'usi&e'!
'egis'ati&e in nature an% character. 3'ear'!- taes are not
'e&ie% b! the eecuti&e branch of go&ernment. (HB*C +.
Alba'F )8" SCRA )-8 K)--!L#.
5ule on SetA1(( or *om$ensation o( Taxes (1996)
A is the o(ner of a resi%entia' 'ot situate% at Kuirino
A&enue- 1asa! 3it!. The 'ot has an area of 300 sEuare
meters. $n June 1- 1994- 100 sEuare meters of sai% 'ot
o(ne% b! A (as epropriate% b! the go&ernment to be
use% in the (i%ening of Kuirino A&enue- for 1300.000.00
representing the estimate% assesse% &a'ue of sai% portion.
Hrom 1991 to 1995- A- (ho is a businessman- has not
been pa!ing his income taes. A is no( being assesse% for
the unpai% income taes in the tota' amount of
1150-000.00. A c'aims his income ta 'iabi'it! has a'rea%!
been compensate% b! the amount of 1300.000.00 (hich
the go&ernment o(es him for the epropriation of his
propert!. 2eci%e.
SUGGESTED ANSWER)
The income ta 'iabi'it! of A can not be compensate% (ith
the amount o(e% b! the 5o&ernment as compensation for his
propert! epropriate%- taes are of %istinct .in%- essence an%
nature than or%inar! ob'igations. Taes an% %ebts cannot be
the sub7ect of compensation because the 5o&ernment an% A
are not mutua''! cre%itors an% %ebtors of each other an% a
c'aim for taes is not a %ebt- %eman%- contract- or Ju%gment
as is a''o(ab'e to be set off. (Francia +s. ,AC. 7.R /"/.-F H%ne
8. )-88#
5ule on SetA1(( or *om$ensation o( Taxes (%&&1)
>a! a tapa!er (ho has pen%ing c'aims for :AT input
cre%it or refun%- set0off sai% c'aims against his other ta
'iabi'ities# 8p'ain !our ans(er. *54+
SUGGESTED ANSWER)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

<o. 6et0off is a&ai'ab'e on'! if both ob'igations are
'iEui%ate% an% %eman%ab'e. 9iEui%ate% %ebts are those
(here the eact amounts ha&e a'rea%! been %etermine%. ,n
the instant case- the c'aim of the tapa!er for :AT refun%
is sti'' pen%ing an% the amount has sti'' to be %etermine%.
A fortiori- the 'iEui%ate% ob'igation of the tapa!er to the
go&ernment can not- therefore- be set0off against the
un'iEui%ate% c'aim (hich the tapa!er concei&e% to eist
in his fa&or. **&ilex 2ining Corp. +. C,RF 7R 9o.
):/!.F A%g%st -F )--8+.
ATERNATI&E ANSWER)
<o. Taes an% c'aims for refun% cannot be the sub7ect of
set0off for the simp'e reason that the go&ernment an% the
tapa!er are not cre%itors an% %ebtors of each other. There
is a materia' %istinction bet(een a ta an% a c'aim for
refun%. 3'aims for refun%s 7ust 'i.e %ebts are %ue from the
go&ernment in its corporate capacit!- (hi'e taes are %ue
to the go&ernment in its so&ereign capacit!. **&ilex
2ining Corp. +. C,RF 7R 9o. ):/!.F A%g%st -F
)--8+.
5ule on SetA1(( or *om$ensation o( Taxes (%&&,)
>a! taes be the sub7ect of set0off or compensation#
8p'ain.
SUGGESTED ANSWER+
<o- taes cannot be the sub7ect of set0off or compensation
for the fo''o(ing reasons) 1+ The 'ifeb'oo% theor! reEuires
that there shou'% be no unnecessar! impe%iments to the
co''ection of taes to ma.e a&ai'ab'e to the go&ernment
the (here(itha' to meet its 'egitimate ob7ecti&esD an%
2+ The pa!ment of taes is not a contractua' ob'igation but
arises out of a %ut! to pa!- an% in respect of the positi&e
acts of go&ernment- regar%ing the ma.ing an% enforcing of
taes- the persona' consent of the in%i&i%ua' tapa!er is
not reEuire%. (Rep%blic +. 2a3b%lao 1%3ber Co.F 7.R. 9o.
1;)//:F Febr%ar' 8F )-"( Caltex +. Co33ission on A%ditF
7.R. 9o. -:8:F 2a' 8F )--( and *&ilex +. Co33issioner of
,nternal Re+en%eF 7.R. 9o. ):/!.F A%g%st 8F )--8#
@o(e&er- there is a possibi'it! that set0off ma! arise- if the
c'aims against the go&ernment ha&e been recogni/e% an% an
amount has a'rea%! been appropriate% for that purpose.
Where both c'aims ha&e a'rea%! become o&er%ue an%
%eman%ab'e as (e'' as fu''! 'iEui%ate%. 3ompensation ta.es
p'ace b! operation of 'a( un%er Art. 1200 in re'ation to
Artic'es 1279 an% 1290 of the <e( 3i&i' 3o%e.
(Do3ingo +. 7arlitosF 7.R. 9o. 1;)8--.F H%ne -F )-"6#
5ule on SetA1(( or *om$ensation on Taxes (%&&,)
3an an assessment for a 'oca' ta be the sub7ect of set0off
or compensation against a fina' 7u%gment for a sum of
mone! obtaine% b! the tapa!er against the 'oca'
go&ernment that ma%e the assessment# 8p'ain.
SUGGESTED ANSWER)
<o- taes cannot be the sub7ect of set0off e&en (hen there
is a fina' 7u%gment for a sum of mone! against the 'oca'
go&ernment ma.ing the assessment. The go&ernment an%
the tapa!er are not the "mutua' cre%itors an% %ebtors" of
each other (ho can a&ai' of the reme%! of compensation
(hich Art. 1278 *3i&i' 3o%e+ is

13 of 73
referring to Rep%blic of t&e *&ilippines +. 2a3b%lao
1%3ber Co.F 7.R. 9o. 1;)//:F Febr%ar' 8F )-"( and
Francia +. ,nter3ediate Appellate Co%rtF 7.R. 9o. 1;"/".-F
H%ne 8F)--8.
There is- ho(e&er- 'ega' basis to state that an assessment
for a 'oca' ta ma! be the sub7ect of set0off or
compensation against a fina' 7u%gment for a sum of mone!
obtaine% b! the tapa!er against the 'oca' go&ernment b!
operation of 'a( (here the 'oca' go&ernment an% the
tapa!er are in their o(n right reciproca''! %ebtors an%
cre%itors of each other- an% that the %ebts are both %ue an%
%eman%ab'e. This is consistent (ith the ru'ing in Do3ingo
+. 7arlitosF 7.R. 9o. 1;)8--.F H%ne -F)-"6F re'!ing upon
Arts. 1278 an% 1279 of the 3i&i' 3o%e- (here these
pro&isions (ere app'ie% in re'ation to the nationa' ta- an%
shou'% therefore be app'icab'e to a 'oca' ta.
Tax A!oiance !s" Tax #!asion (1996)
2istinguish ta e&asion from ta a&oi%ance.
SUGGESTED ANSWER)
Ta e&asion is a scheme use% outsi%e of those 'a(fu'
means to escape ta 'iabi'it! an%- (hen a&ai'e% of- it
usua''! sub7ects the tapa!er to further or a%%itiona' ci&i'
or crimina' 'iabi'ities. Ta a&oi%ance- on the other han%-
is a ta sa&ing %e&ice (ithin the means sanctione% b!
'a(- hence 'ega'.
Tax A!oiance !s" Tax #!asion (%&&&)
>r. 1ascua'Cs income from 'easing his propert! reaches
the maimum rate of ta un%er the 'a(. @e %onate% one0
ha'f of his sai% propert! to a non0stoc.- non0profit
e%ucationa' institution (hose income an% assets are
actua''!- %irect'! an% ec'usi&e'! use% for e%ucationa'
purposes- an% therefore Eua'ifie% for ta eemption un%er
Artic'e A,:- 6ection 4 *3+ of the 3onstitution an% 6ection
30 *h+ of the Ta 3o%e. @a&ing thus transferre% a portion
of his sai% asset- >r. 1ascua' succee%e% in pa!ing a 'esser
ta on the renta' income %eri&e% from his propert!. ,s
there ta a&oi%ance or ta e&asion# 8p'ain. *24+
SUGGESTED ANSWER)
There is ta a&oi%ance. >r. 1ascua' has ep'oite% a fu''!
permissi&e a'ternati&e metho% to re%uce his income ta
b! transferring part of his renta' income to a ta eempt
entit! through a %onation of one0ha'f of the income
pro%ucing propert!. The %onation is 'i.e(ise eempt
from the %onorCs ta. The %onation is the 'ega' means
emp'o!e% to transfer the inci%ence of income ta on the
renta' income.
Tax #xem$tions: @ature B *o!era7e) Pro$er Party (%&&')
As an incenti&e for in&estors- a 'a( (as passe% gi&ing
ne('! estab'ishe% companies in certain economic /one
eemption from a'' taes- %uties- fees- imposts an% other
charges for a perio% of three !ears. AB3 3orp. (as
organi/e% an% (as grante% such incenti&e. ,n the course
of business- AB3 3orp. purchase% mechanica' eEuipment
from A;I ,nc. <orma''!- the sa'e is sub7ect to a sa'es ta.
A;I ,nc. c'aims- ho(e&er- that since it so'% the
eEuipment to AB3 3orp. (hich is ta eempt- A;I


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

shou'% not be 'iab'e to pa! the sa'es ta. ,s this c'aim
tenab'e# *54+
SUGGESTED ANSWER)
A. <o. 8emption from taes is persona' in nature an%
co&ers on'! taes for (hich the tapa!er0grantee is
%irect'! 'iab'e. The sa'es ta is a ta on the se''er (ho is
not eempt from taes. 6ince A;I ,nc. is %irect'! 'iab'e
for the sa'es ta an% no ta eemption pri&i'ege is e&er
gi&en to him- therefore- its c'aim that the sa'e is ta
eempt is not tenab'e. A ta eemption is construe% in
strictissimi 1uris an% it can not be permitte% to eist upon
&ague imp'ications (Asiatic *etrole%3 Co.F 1td. B. 1lanesF
.- *&il ."" K)-"L#.
Assume arguen%o that A;I ha% to an% %i% pa! the sa'es
ta. AB3 3orp. 'ater foun% out- ho(e&er- that A;I
mere'! shifte% or passe% on to AB3 the amount of the
sa'es ta b! increasing the purchase price. AB3 3orp.
no( c'aims for a refun% from the Bureau of ,nterna'
?e&enue in an amount correspon%ing to the ta passe% on
to it since it is ta eempt. ,s the c'aim of AB3 3orp.
meritorious# *54+
SUGGESTED ANSWER,
B. <o. The c'aim of AB3 3orp. is not meritorious.
A'though the ta (as shifte% to AB3 3orp. b! the se''er-
(hat is pai% b! it is not a ta but part of the cost it has
assume%. @ence- since AB3 3orp. is not a tapa!er- it has
no capacit! to fi'e a c'aim for refun%. The tapa!er (ho
can fi'e a c'aim for refun% is the person statutori'! 'iab'e
for the pa!ment of the ta.
Tax +aws) BI5 5ulin7) @onA5etroacti!ity o( 5ulin7s (%&&')
2ue to an uncertaint! (hether or not a ne( ta 'a( is
app'icab'e to printing companies- 28H 1rinters submitte%
a 'ega' Euer! to the Bureau of ,nterna' ?e&enue on that
issue. The B,? issue% a ru'ing that printing companies
are not co&ere% b! the ne( 'a(. ?e'!ing on this ru'ing-
28H 1rinters %i% not pa! sai% ta.
6ubseEuent'!- ho(e&er- the B,? re&erse% the ru'ing an%
issue% a ne( one stating that the ta co&ers printing
companies. 3ou'% the B,? no( assess 28H 1rinters for
bac. taes correspon%ing to the !ears before the ne(
ru'ing# ?eason brief'!. *54+
SUGGESTED ANSWER)
<o. ?e&ersa' of a ru'ing sha'' not be gi&en a retroacti&e
app'ication if sai% re&ersa' (i'' be pre7u%icia' to the
tapa!er. Therefore- the B,? can not assess 28H printers
for bac. taes because it (ou'% be &io'ati&e of the
princip'e of non0retroacti&it! of ru'ings an% %oing so
(ou'% resu't in gra&e in7ustice to the tapa!er (ho re'ie%
on the first ru'ing in goo% faith (Section ."F 9,RC( C,R +.
B%rro%g&sF ,nc.F ). SCRA 6.K)-8"L#.
Tax Pyramiin7) De(inition B +e7ality (%&&6)
What is ta p!rami%ing# What is its basis in 'a(# *54+
SUGGESTED ANSWER)
Ta 1!rami%ing is the imposition of a ta upon another
ta. ,t has no basis in fact or in 'a( (*eople +.
Sandiganba'anF 7.R. 9o. )::6F A%g%st )"F !!:#. There is
a'so ta p!rami%ing (hen sa'es taes are incorrect'!
app'ie% to goo%s se&era' times from pro%uction to fina'

14 of 73
sa'e- thus- shifting the ta bur%en to the u'timate
consumer.
(9OTABE9E: This concept pertains to the 2AT law which is
excluded from the bar coverage, "uidelines for %''- 3ar
4xaminations, (une $,, %''-)
Tax$ayer Suit) ;0en Allowe (1996)
When ma! a tapa!erCs suit be a''o(e%#
S=77ESTED A9SWER$
A tapa!erCs suit ma! on'! be a''o(e% (hen an act
comp'aine% of- (hich ma! inc'u%e a 'egis'ati&e
enactment- %irect'! in&o'&es the i''ega' %isbursement of
pub'ic fun%s %eri&e% from taation **asc%al +s.
Secretar' of *%blic WorCsF ))! *&il. 66)+.
6ni(ormity in t0e *ollection o( Taxes (199/)
8p'ain the reEuirement of uniformit! as a 'imitation in
the imposition an%Lor co''ection of taes. *54M
SUGGESTED ANSWER)
Fniformit! in the imposition an%Lor co''ection of taes means
that a'' taab'e artic'es- or .in%s of propert! of the same c'ass
sha'' be tae% at the same rate. The reEuirement of uniformit! is
comp'ie% (ith (hen the ta operates (ith the same force an%
effect in e&er! p'ace (here the sub7ect of it is foun% (C&%rc&ill <
Tail +. ConceptionF 6. *&il. -"-#. ,t %oes not mean that 'an%s-
chatte's- securities- income- occupations- franchises- pri&i'eges-
necessities an% 'uuries sha'' be assesse% at the same rate.
2ifferent artic'es ma!be tae% at %ifferent amounts pro&i%e% that
the rate is uniform on the same c'ass e&er!(here (ith a'' peop'e
at a'' times. Accor%ing'!- sing'ing out one particu'ar c'ass for
taation purposes %oes not infringe the reEuirement of
uniformit!.
F,RST A1TER9AT,BE A9SWER$
The criteria is met (hen the ta 'a(s operate eEua''! an%
uniform'! on a'' persons un%er simi'ar circumstances. A''
persons are treate% in the same manner- the con%itions not
being %ifferent- both in pri&i'eges conferre% an% 'iabi'ities
impose%. Fniformit! in taation a'so refers to geographica'
uniformit!. Ha&oritism an% preference is not a''o(e%.
SECO9D A1TER9AT,BE A9SWER$
A ta is %eeme% to ha&e satisfie% the uniformit! ru'e (hen
it operates (ith the same force an% effect in e&er! p'ace
(here the sub7ect ma!be foun%. (*&il. Tr%st < Co. +. MatcoF
"- *&il. .!#.
INCOME TAXATION
Basic: Allowable Deuctions !s" Personal #xem$tions
(%&&1)
2istinguish A''o(ab'e 2e%uctions from 1ersona'
8emptions. 5i&e an eamp'e of an a''o(ab'e %e%uction
an% another eamp'e for persona' eemption. *54+
SUGGESTED ANSWER)
The %istinction bet(een a''o(ab'e %e%uctions an%
persona' eemptions are as fo''o(s)
a. As to a3o%nt = A''o(ab'e %e%uctions
genera''! refer to actua' epenses incurre% in the
pursuit of tra%e- business or practice of profession (hi'e


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

persona' eemptions are arbitrar! amounts
a''o(e% b! 'a(.
6: As to nat%re = A''o(ab'e %e%uctions constitute
business epenses (hi'e persona' eemptions pertain to
persona' epenses.
2: As to p%rpose = 2e%uctions are a''o(e% to enab'e
the tapa!er to recoup his cost of %oing business (hi'e
persona' eemptions are a''o(e% to co&er persona'- fami'! an%
'i&ing epenses.
7: As to clai3ants = A''o(ab'e %e%uctions can be
c'aime% b! a'' tapa!ers- corporate or other(ise- (hi'e
persona' eemptions can be c'aime% on'! b! in%i&i%ua'
tapa!ers.
Basic: =eanin7 o( Taxable Income (%&&&)
What is meant b! taab'e income# *24+
SUGGESTED ANSWER)
TAAAB98 ,<3$>8 means the pertinent items of gross
income specifie% in the Ta 3o%e- 'ess the %e%uctions
an%Lor persona' an% a%%itiona' eemptions- if an!-
authori/e% for such t!pes of income b! the Ta 3o%e or
other specia' 'a(s. (+ec. 5$, N6# of $))&)
Basic: Princi$le o( Mobilia Sequuntur Personam (199')
What is the princip'e of mobilia se7uuntur personam in
income taation#
SUGGESTED ANSWER)
1rincip'e of 8obilia +e7uuntur 9ersonam in income
taation refers to the princip'e that taation fo''o(s the
propert! or person (ho sha'' be sub7ect to the ta.
Basic: Pro$er Allowance o( De$reciation (199/)
6 What is the proper a''o(ance for %epreciation of an!
propert! use% in tra%e or business# N34+
2 What is the annua' %epreciation of a %epreciab'e fie%
asset (ith a cost of 1100-000 an% an estimate% usefu' 'ife of 20
!ears an% sa'&age &a'ue of 1 10-000 after its usefu' 'ife#
SUGGESTED ANSWER)
1. The proper allo4ance of depreciation of an!
propert! use% in tra%e or business refers to the reasonab'e
a''o(ance for the ehaustion- (ear an% tear (including
reasonable allowance for obsolescence) of sai% propert!.
The reasonab'e a''o(ance sha'' inc'u%e- but not 'imite% to-
an a''o(ance compute% un%er an! of the fo''o(ing
metho%s)
*a+ straight0'ine
metho%D *b+ %ec'ining0ba'ance
metho%D *c+ sum0of0!ears0%igit metho%D
an% *%+ an! other metho% (hich ma! be prescribe%
b! the 6ecretar! of Hinance upon recommen%ation
of the 3ommissioner of ,nterna' ?e&enue *6ec.
34*H+. <,?3+.
2. The annua' %epreciation of the %epreciab'e fie% asset
ma! be compute% on the straight0'ine metho% (hich (i''
a''o( the tapa!er to %e%uct an annua' %epreciation of
1hp4-500- arri&e% at b! %i&i%ing the %epreciab'e &a'ue *1hp
'00.00001hp'0.000+ of 1hp90-000 b! the estimate% usefu'
'ife *20 !ears+.
9OTE$ The bar can%i%ate ma! gi&e a %ifferent figure
%epen%ing on the metho% he use% in computing the annua'
%epreciation.

1# of 73
The facts gi&en in the prob'em are sufficient to compute the
annua' %epreciation either un%er the %ec'ining0ba'ance metho%
or sum0of0!ears0%igit metho%. An! ans(er arri&e% at b! using
an! of the recogni/e% metho%s shou'% be gi&en fu'' cre%it. ,t is
suggeste% that no Euestion reEuiring computation shou'% be
gi&en in future bar eaminations.
Basic: Sources o( Income: Taxable Income (199/)
Hrom (hat sources of income are the fo''o(ing
personsLcorporations taab'e b! the 1hi'ippine go&ernment#
2+ 3iti/en of the 1hi'ippines resi%ing thereinD N14O 3+ <on0
resi%ent citi/enD N141 4+ An in%i&i%ua' citi/en of the
1hi'ippines (ho is
(or.ing an% %eri&ing income from abroa% as an o&erseas
contract (or.erD N14O 5+ An a'ien in%i&i%ua'- (hether a
resi%ent or not of the
1hi'ippinesD N14O 6+ A %omestic corporationD N14O
SUGGESTED ANSWER) *6ection 23- <,?3 of 1997+ 1+ A
citi/en of the 1hi'ippines resi%ing therein is
taab'e on a'' income %eri&e% from sources (ithin an%
(ithout the 1hi'ippines. 2+ A nonresi%ent citi/en is
taab'e on'! on income %eri&e% from sources (ithin the
1hi'ippines.
3+ An in%i&i%ua' citi/en of the 1hi'ippines (ho is
(or.ing an% %eri&ing income from abroa% as an o&erseas
contract (or.er is taab'e on'! on income from sources
(ithin the 1hi'ippines.
4+ An a'ien in%i&i%ua'- (hether a resi%ent or not of
the 1hi'ippines- is taab'e on'! on income %eri&e% from
sources (ithin the 1hi'ippines.
5+ A %omestic corporation is taab'e on a'' income
%eri&e% from sources (ithin an% (ithout the 1hi'ippines.
Basic: Tax Bene(it 5ule (%&&2)
*a+ What is meant b! the "ta benefit ru'e"#
SUGGESTED ANSWER)
*a+ TAA B8<8H,T ?F98 states that the tapa!er is
ob'ige% to %ec'are as taab'e income subseEuent reco&er!
of ba% %ebts in the !ear the! (ere co''ecte% to the etent
of the ta benefit en7o!e% b! the tapa!er (hen the ba%
%ebts (ere (ritten0off an% c'aime% as a %e%uction from
income. ,t a'so app'ies to taes pre&ious'! %e%ucte% from
gross income but (hich (ere subseEuent'! refun%e% or
cre%ite%. The tapa!er is a'so reEuire% to report as taab'e
income the subseEuent ta refun% or ta cre%it grante% to
the etent of the ta benefit the tapa!er en7o!e% (hen
such taes (ere pre&ious'! c'aime% as %e%uction from
income.
*b+ 5i&e an i''ustration of the app'ication of the ta
benefit ru'e.
SUGGESTED ANSWER)
*b+ A 3ompan! has a business connecte% recei&ab'e
amounting to 1100-000.00 from ; (ho (as %ec'are%
ban.rupt b! a competent court. 2espite earnest efforts to
co''ect the same- ; (as not ab'e to pa!- prompting A
3ompan! to (rite0off the entire 'iabi'it!. 2uring the !ear
of (rite0off- the entire amount (as c'aime% as a
%e%uction for income ta purposes re%ucing the taab'e
net income of A 3ompan! to on'! 11-000-000.00. Three
!ears 'ater- ;


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

&o'untari'! pai% his ob'igation pre&ious'! (ritten0off to A
3ompan!. ,n the !ear of reco&er!- the entire amount
constitutes part of gross income of A 3ompan! because it
(as ab'e to get fu'' ta benefit three !ears ear'ier.
Basic) Basis o( Income Tax (1996)
A is emp'o!e% as a %ri&er of a corporate 'a(!er an%
recei&es a month'! sa'ar! of 15-000.00 (ith free boar%
an% 'o%ging (ith an eEui&a'ent &a'ue of 11-500.00.
6 What (i'' be the basis of ACs income ta# Wh!
2 Wi'' !our ans(er in Euestion *a+ be the same if ACs
emp'o!er is an obstetrician# Wh!#
SUGGESTED ANSWERS)
1+ The basis of APs income ta (ou'% %epen% on (hether
his emp'o!er is an emp'o!ee or a practicing corporate
'a(!er.
; ,f his emp'o!er is an emp'o!ee- the basis of ACs income
ta is 16-500.00 eEui&a'ent to the tota' of the basic sa'ar! an%
the &a'ue of the boar% an% 'o%ging. This is so because the
emp'o!erLcorporate 'a(!er has no p'ace of business (here the
free boar% an% 'o%ging ma! be gi&en.
; $n the other han%- if the corporate 'a(!er is a
"practicing 'a(!er *se'f0emp'o!e%+- A shou'% be tae% on'! on
15-000.00 pro&i%e% that the free boar% an% 'o%ging is gi&en in
the business premises of the 'a(!er an% for his con&enience an%
that the free 'o%ging (as gi&en to A as a con%ition for
emp'o!ment.
2+ ,f the emp'o!er is an obstetrician (ho is se'f0emp'o!e%-
the basis of ACs income (i'' on'! be 15-000.00 if it is
pro&en that the free boar% an% 'o%ging is gi&en (ithin the
business premises of sai% emp'o!er for his con&enience
an% that the free 'o%ging is reEuire% to be accepte% b! A as
con%ition for emp'o!ment. $ther(ise- A (ou'% be tae%
on 16-500.00.
Basic) ?ross Income: De(ine (199,)
What is "gross ,ncome" for purposes of the ,ncome ta#
SUGGESTED ANSWER)
5?$66 ,<3$>8 means a'' income from (hate&er source
%eri&e%- inc'u%ing *but not 'imite% to+ compensation for
ser&ices- inc'u%ing fees- commissions- an% simi'ar itemsD
gross income from businessD gains %eri&e% from %ea'ings
in propert!D interestD rentsD ro!a'tiesD %i&i%en%sD annuitiesD
pri/es an% (inningsD pensionsD an% partnerCs %istributi&e
share of the gross income of genera' professiona'
partnership *6ec. 28- <,?3+.
ATERNATI&E ANSWER)
a+ 5ross income means a'' (ea'th (hich f'o(s into the
tapa!er other than as a mere return of capita'. ,t inc'u%es
the forms of income specifica''! %escribe% as gains an%
profits inc'u%ing gains %eri&e% from the sa'e or other
%isposition of capita'.
b+ 5ross income means income *in the broa% sense+ 'ess
income (hich is- b! statutor! pro&ision or other(ise-
eempt from the ta impose% b! 'a( *6ec. 36- ?e&. ?eg.
<o. 2+. 5ross income from business means tota' sa'es-
'ess cost of goo%s so'%- p'us an! income from
in&estments

16 of 73
an% from inci%enta' or outsi%e operations or
sources *6ec. 43- ?e&. ?eg. <o. 2+.
Basic) Income !s" *a$ital (199,)
@o( %oes ",ncome" %iffer from "capita'"# 8p'ain.
SUGGESTED ANSWER)
,ncome %iffers from capita' in that ,<3$>8 is an!
(ea'th (hich f'o(s into the tapa!er other than a return
of capita' (hi'e capita' constitutes the in&estment (hich
is the source of income. Therefore- capita' is fun% (hi'e
income is the f'o(. 3apita' is (ea'th- (hi'e income is the
ser&ice of (ea'th. 3apita' is the tree (hi'e income is the
fruit *Bicente 2adrigal et al +. Ha3es R5ffert'F 68 *&il. .).+.
Basic) Sc0eular Treatment !s" ?lobal Treatment (199')
2istinguish "schedular treatment" from "global
treatment" as use% in income taation.
SUGGESTED ANSWER)
Fn%er a 63@82F98? 6;6T8>- the &arious t!pesLitems
of income (compensation: business;professional income)
are c'assifie% accor%ing'! an% are accor%e% %ifferent ta
treatments- in accor%ance (ith sche%u'es characteri/e% b!
gra%uate% ta rates. 6ince these t!pes of income are treate%
separate'!- the a''o(ab'e %e%uctions sha'' 'i.e(ise &ar! for
each t!pe of income.
Fn%er the 59$BA9 6;6T8>- a'' income recei&e% b!
the tapa!er are groupe% together- (ithout an! %istinction
as to the t!pe or nature of the income- an% after %e%ucting
therefrom epenses an% other a''o(ab'e %e%uctions- are
sub7ecte% to ta at a fie% rate.
*om$ensation) Income Tax: Due to Pro(itable Business
Deal (199,)
>r. $sorio- a ban. eecuti&e- (hi'e p'a!ing go'f (ith >r.
1ere/- a manufacturing firm eecuti&e- mentione% to the
'atter that his *$sorio+ ban. ha% 7ust opene% a business
re'ationship (ith a big foreign importer of goo%s (hich
1ere/C compan! manufactures. 1ere/ reEueste% $sorio to
intro%uce him to this foreign importer an% put in a goo%
(or% for him *1ere/+- (hich $sorio %i%. As a resu't-
1ere/ (as ab'e to ma.e a profitab'e business %ea' (ith
the foreign ,mporter.
,n gratitu%e- 1ere/- in beha'f of his manufacturing firm-
sent $sorio an epensi&e car as a gift. $sorio ca''e%
1ere/ an% to'% him that there (as rea''! no ob'igation on
the part of 1ere/ or his compan! to gi&e such an
epensi&e gift. But 1ere/ insiste% that $sorio .eep the
car. The compan! of 1ere/ %e%ucte% the cost of the car as
a business epense.
The 3ommissioner of ,nterna' ?e&enue inc'u%e% the fair
mar.et &a'ue of the car as ,ncome of $sorio (ho
proteste% that the car (as a gift an% therefore ec'u%e%
from income. Who is correct- the 3ommissioner or
$sorio# 8p'ain.
SUGGESTED ANSWER)
The 3ommissioner is correct. The car ha&ing been gi&en
to >r. $sorio in consi%eration of ha&ing intro%uce% >r.
1ere/ to a foreign ,mporter (hich resu'te% to a profitab'e
business %ea' is consi%ere% to be a compensation for


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

ser&ices ren%ere%. The transfer is not a gift because it is not
ma%e out of a %etache% or %isintereste% generosit! but for a
benefit accruing to >r. 1ere/. The fact that the compan! of >r.
1ere/ ta.es a business %e%uction for the pa!ment in%icates that
it (as consi%ere% as a pa! rather than a gift. @ence- the fair
mar.et &a'ue of the car is inc'u%ab'e in the gross income
pursuant to 6ection 28*a+*'+ of the Ta 3o%e (+ee $)&! <ederal
Tax =andboo>, p. $!,). A pa!ment though &o'untar!- if it is in
return for ser&ices ren%ere%- or procee%s from the constraining
force of an! mora' or 'ega' %ut! or a benefit to the pa!er is
anticipate%- is a taab'e income to the pa!ee e&en if
characteri/e% as a CgiftC b! the pa!or (Co33issioner +s.
D%bersteinF 6"6 =.S. /8#.
ATERNATI&E ANSWER)
>r. $sorio is correct. The car (as not pa!ment for ser&ices
ren%ere%. There (as no prior agreement or negotiations
bet(een >r. $sorio an% >r. 1ere/ that the former (i'' be
compensate% for his ser&ices. >r. 1ere/- in beha'f of his
compan!- ga&e the car to >r. $sorio out of gratitu%e. The
transfer ha&ing been ma%e gratuitous'! shou'% be treate% as
a gift sub7ect to %onorCs ta an% shou'% be ec'u%e% from the
gross income of the recipient- >r. $sorio. The
3ommissioner shou'% cance' the assessment of %eficienc!
income ta to >r. $sorio an% instea% assess %eficienc!
%onorCs ta on >r 1ere/C compan!. *6ec. 28*b+*3+- <,?3D
*iro+ano +s. Co33issioner+
*or$orate: Income: Donor3s tax) Tax +iability (1996)
A- a mu'tinationa' corporation %oing business in the
1hi'ippines %onate% 100 shares of stoc. of sai%
corporation to >r. ;- its resi%ent manager in the
1hi'ippines. 1+ What is the ta 'iabi'it!- if an!- of A
corporation# 2+ Assuming the shares of stoc.s (ere gi&en
to >r. ;
in consi%eration of his ser&ices to the corporation-
(hat are the ta imp'ications# 8p'ain.
SUGGESTED ANSWERS)
1+ Horeign corporations effecting a %onation are sub7ect to
%onorCs ta on'! if the propert! %onate% is 'ocate% in the
1hi'ippines. Accor%ing'!- %onation of a foreign
corporation of its o(n shares of stoc.s in fa&or of resi%ent
emp'o!ee is not sub7ect to %onorCs ta *B,? ?u'ing <o.
018087- Januar! 26- 1987+. @o(e&er- if 854 of the
business of the foreign corporation is 'ocate% in the
1hi'ippines or the shares %onate% ha&e acEuire% business
situs in the 1hi'ippines- the %onation ma! be tae% in the
1hi'ippines sub7ect to the ru'e of reciprocit!.
2+ ,f the shares of stoc.s (ere gi&en to >r. ; in
consi%eration of his ser&ices to the corporation- the same
sha'' constitute taab'e compensation income to the
recipient because it is a compensation for ser&ices
ren%ere% un%er an emp'o!er0emp'o!ee re'ationship- hence-
sub7ect to income ta.
The par &a'ue or state% &a'ue of the shares issue% a'so
constitutes %e%uctib'e epense to the corporation pro&i%e%
it is sub7ecte% to (ithho'%ing ta on (ages.

1' of 73
*or$orate) Income Tax) 5easonableness o( t0e
Bonus (%&&6)
5o'% an% 6i'&er 3orporation ga&e etra 14th month bonus
to a'' its officia's an% emp'o!ees in the tota' amount of
175 >i''ion. When it fi'e% its corporate income ta return
the fo''o(ing !ear- the corporation %ec'are% a net
operating 'oss. When the income ta return of the
corporation (as re&ie(e% b! the B,? the fo''o(ing !ear-
it %isa''o(e% as item of %e%uction the 175 >i''ion bonus
the corporation ga&e its officia's an% emp'o!ees on the
groun% of unreasonab'eness. The corporation c'aime% that
the bonus is an or%inar! an% necessar! epense that
shou'% be a''o(e%. ,f !ou (ere the B,? 3ommissioner-
ho( (i'' !ou reso'&e the issue# *54+
SUGGESTED ANSWER)
, (i'' %isa''o( the epense. A bonus is or%inar! an%
necessar! (here sai% epen%iture is *1+ appropriate an%
he'pfu' in the %e&e'opment of the tapa!ers business
(8artens, ?aw of <ederal 6ncome Taxation, 2olume 62, p. 5$,)
an% *2+ is norma' in re'ation to the business of the
tapa!er an% the surroun%ing circumstances (p. 5$-,
6bid).
To %etermine the reasonab'eness of the bonus it must be
commensurate (ith ser&ices performe% b! the officia's
an% emp'o!ees. $ther factors to consi%er are (hether the
pa!ment (as ma%e in goo% faithD the character of the
tapa!erCs businessD the &o'ume an% amount of its net
earningsD its 'oca'it!D the t!pe an% etent of the ser&ices
ren%ere%D the sa'ar! po'ic! of the corporationD the si/e of
the particu'ar businessD the emp'o!eesC Eua'ification an%
contributions to the business &entureD an% genera'
economic con%itions (Atlas 2ining +. C,RF 7.R. 9o. 1;
"-))F Han%ar' /F )-8)#. @o(e&er- since the business
suffers from a net operating 'oss- , (i'' ru'e that the bonus
is an unreasonab'e epense.
*or$orate) Income: *o!era7e) -1((A+ine- Airline (199')
3a'e%onia Aircargo is an off0'ine internationa' carrier
(ithout an! f'ight operations in the 1hi'ippines. ,t has-
ho(e&er- a 'iaison office in the 1hi'ippines (hich is %u'!
'icense% (ith the 6ecurities an% 8change 3ommission-
estab'ishe% for the purpose of pro&i%ing passenger an%
f'ight information- reser&ation an% tic.eting ser&ices. Are
the re&enues of 3a'e%onia Aircargo from tic.ets reser&e%
b! its 1hi'ippine office sub7ect to ta#
SUGGESTED ANSWER)
The re&enues in the 1hi'ippines of 3a'e%onia Aircargo as
an "off0'ine" air'ine from tic.et reser&ation ser&ices are
taab'e income from "(hate&er source" un%er 6ec. 28*a+
of the Ta 3o%e. This case is ana'ogous to Co33issioner
+. BOACF 7.R 9o. 9o. "://6;/.F April 6!F )-8/ (here the
6upreme 3ourt ru'e% that the income recei&e% in the
1hi'ippines from the sa'e of tic.ets b! an "off0'ine" air'ine
is taab'e as income from (hate&er source.
*or$orate) Income: *o!era7e) -1((A+ine- Airline (%&&,)
An internationa' air'ine (ith no 'an%ing rights in the
1hi'ippines so'% tic.ets in the 1hi'ippines for air
transportation. ,s income %eri&e% from such sa'es of
tic.ets consi%ere% taab'e income of the sai% internationa'


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

air carrier from 1hi'ippine sources un%er the Ta 3o%e#
8p'ain. *54+
ATERNATI&E ANSWER)
;es. The income %eri&e% from the sa'es of tic.ets in the
1hi'ippines is consi%ere% taab'e income of the
internationa' air carrier from 1hi'ippine sources.
The source of income is the propert!- acti&it! or ser&ice that
pro%uce% the income. The sa'e of tic.ets in the 1hi'ippines is
the acti&it! that pro%uces the income. The absence of
'an%ing rights in the 1hi'ippines cannot a'ter the fact that
re&enues (ere %eri&e% from tic.et sa'es (ithin the
1hi'ippines. (Co33issioner of ,nternal Re+en%e
+. Hapan Air 1inesF 7.R. 9o. "!/).F October .F )--)
reiterating Britis& O+erseas Air4a's Corp.F Air ,ndia and
A3erican AirlinesF ,nc.#
ATERNATI&E ANSWER)
<o- un%er +ec. 5 of #.#. No. $,.%''%- an off0'ine air'ine
ha&ing a branch office or a sa'es agent in the 1hi'ippines
(hich se''s passage %ocuments for compensation or
commission to co&er off0'ine f'ights of its principa' or
hea% office- or for other air'ines co&ering f'ights
originating from 1hi'ippine ports or off0'ine f'ights- is not
consi%ere% engage% in business as an internationa' air
carrier in the 1hi'ippines an% is- therefore- not sub7ect to
5ross 1hi'ippine Bi''ings Ta nor to the 34 common
carrierCs ta.
Base% on the foregoing- the internationa' air'ine compan!
is not consi%ere% as engage% in business in the 1hi'ippines
an% is therefore a non0resi%ent foreign corporation. A non0
resi%ent foreign corporation is sub7ect to the gross income
ta on its income %eri&e% from sources (ithin the
1hi'ippines. The income from sa'e of tic.ets sha'' not
form part of taab'e income because the term "taab'e
income" as %efine% un%er 6ec. 31 of the <,?3 refers on'!
to income of those tapa!ers (ho pa! b! (a! of the net
income ta. Taab'e income means the pertinent items of
gross income specifie% in the <,?3- 'ess the %e%uctions
an%Lor persona' an% a%%itiona' eemptions- if an!-
authori/e% for such t!pes of income b! the <,?3 or other
specia' 'a(s.
Di!iens: Dis7uise i!iens (199')
2isguise% %i&i%en%s in income taation# 5i&e an eamp'e.
SUGGESTED ANSWER)
2isguise% %i&i%en%s are those income pa!ments ma%e b!
a %omestic corporation- (hich is a subsi%iar! of a non0
resi%ent foreign corporation- to the 'atter ostensib'! for
ser&ices ren%ere% b! the 'atter to the former- but (hich
pa!ments are %isproportionate'! 'arger than the actua'
&a'ue of the ser&ices ren%ere%. ,n such case- the amount
o&er an% abo&e the true &a'ue of the ser&ice ren%ere% sha''
be treate% as a %i&i%en%- an% sha'' be sub7ecte% to the
correspon%ing ta of 354 on 1hi'ippine source% gross
income- or such other preferentia' rate as ma! be pro&i%e%
un%er a correspon%ing Ta Treat!. Exa3ple$ ?o!a't!
pa!ments un%er a correspon%ing 'icensing agreement.
Di!iens) Income Tax) Deuctible ?ross Income (1999)
A 3o.- a 1hi'ippine corporation- issue% preferre% shares
of stoc. (ith the fo''o(ing features)

1* of 73
1+ <on0&otingD
2+ 1referre% an% cumu'ati&e %i&i%en%s at the rate of
104 per annum- (hether or not in an! perio% the
amount is co&ere% b! earnings or pro7ectsD 3+ ,n the
e&ent of %isso'ution of the issuer- ho'%ers of
preferre% stoc. sha'' be pai% in fu'' or ratab'! as the
assets of the issuer ma! permit before an!
%istribution sha'' be ma%e to common stoc.ho'%ersD
an% 4+ The issuer has the option to re%eem the preferre%
stoc..
A 3o. %ec'are% %i&i%en%s on the preferre% stoc. an%
c'aime% the %i&i%en%s as interests %e%uctib'e from its
gross ,ncome for income ta purposes. The B,?
%isa''o(e% the %e%uction. A 3o. maintains that the
preferre% shares (ith their features are rea''! %ebt an%
therefore the %i&i%en%s are rea't! interests. 2eci%e. *104+
SUGGESTED ANSWER)
The %i&i%en%s are not %e%uctib'e from gross income.
1referre% shares sha'' be consi%ere% capita' regar%'ess of
the con%itions un%er (hich such shares are issue% an%-
therefore- %i&i%en%s pai% thereon are not consi%ere%
CinterestC (hich are a''o(e% to be %e%ucte% from the gross
income of the corporation. (#evenue 8emorandum
ircular No. $&.&$, (uly $%, $)&$).
#((ect) *ononation o( +oan in Taxation (199,)
>r. Hrancisco borro(e% 110-000.00 from his frien% >r.
5utierre/ pa!ab'e in one !ear (ithout interest. When the
'oan became %ue >r. Hrancisco to'% >r. 5utierre/ that he
*>r. Hrancisco+ (as unab'e to pa! because of business
re&erses. >r. 5utierre/ too. pit! on >r. Hrancisco an%
con%one% the 'oan. >r. Hrancisco (as so'&ent at the time
he borro(e% the 1 10-000.00 an% at the time the 'oan (as
con%one%. 2i% >r. Hrancisco %eri&e an! income from the
cance''ation or con%onation of his in%ebte%ness# 8p'ain.
SUGGESTED ANSWER)
<o- >r. Hrancisco %i% not %eri&e an! income from the
cance''ation or con%onation of his in%ebte%ness. 6ince it
is ob&ious that the cre%itor mere'! %esire% to benefit the
%ebtor in &ie( of the absence of consi%eration for the
cance''ation- the amount of the %ebt is consi%ere% as a
gift from the cre%itor to the %ebtor an% nee% not be
inc'u%e% in the 'atterCs gross income.
Frin7e Bene(it Tax: *o!ere #m$loyees (%&&1)
A (as hire% b! ; to (atch o&er :Ps fishpon%s (ith a
sa'ar! of 1hp 10-000.00. To enab'e him to perform his
%uties (e''- he (as a'so pro&i%e% a sma'' hut- (hich he
cou'% use as his resi%ence in the mi%%'e of the fishpon%s.
,s the fair mar.et &a'ue of the use of the sma'' hut b! A a
"fringe benefit" that is sub7ect to the 324 ta impose% b!
6ection 33 of the <ationa' ,nterna' ?e&enue 3o%e#
8p'ain !our ans(er. *54+
SUGGESTED ANSWER)
<o. A is neither a manageria' nor a super&isor!
emp'o!ee. $n'! manageria' or super&isor! emp'o!ees are
entit'e% to a fringe benefit sub7ect to the fringe benefits
ta. 8&en assuming that he is a manageria' or super&isor!
emp'o!ee- the sma'' hut is pro&i%e% for the con&enience
of the


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

emp'o!er- hence %oes not constitute a taab'e fringe
benefit. (+ection 55, N4#).
Frin7e Bene(it Tax: #m$loyer re>uire to Pay (%&&2)
A "fringe benefit" is %efine% as being an! goo%- ser&ice
or other benefit furnishe% or grante% in cash or in .in% b!
an emp'o!er to an in%i&i%ua' emp'o!ee. Wou'% it be the
emp'o!er or the emp'o!ee (ho is 'ega''! reEuire% to pa!
an income ta on it# 8p'ain. *44+
SUGGESTED ANSWER)
,t is the emp'o!er (ho is 'ega''! reEuire% to pa! an
income ta on the fringe benefit. The fringe benefit ta is
impose% as a H,<A9 W,T@@$92,<5 TAA p'acing the
'ega' ob'igation to remit the ta on the emp'o!er- such
that- if the ta is not pai% the 'ega' recourse of the B,? is
to go after the emp'o!er. An! amount or &a'ue recei&e% b!
the emp'o!ee as a fringe benefit is consi%ere% ta pai%
hence- net of the income ta %ue thereon. The person (ho
is 'ega''! reEuire% to pa! (same as statutory incidence as
distinguished from economic incidence) is that person
(ho- in case of non0pa!ment- can be 'ega''! %eman%e% to
pa! the ta.
Interest: De(iciency Interest: e(ine (199, Bar)
What is a "%eficienc! interest" for purposes of the
income ta# ,''ustrate.
SUGGESTED ANSWER)
28H,3,8<3; ,<T8?86T for purposes of the income
ta is the interest %ue on an! amount of ta %ue or
insta''ment thereof (hich is not pai% on or before the %ate
prescribe% for its pa!ment compute% at the rate of 204
per annum or the >ani'a ?eference ?ate- (hiche&er is
higher- from the %ate prescribe% for its pa!ment unti' it is
fu''! pai%.
,f for eamp'e after the au%it of the boo.s of A;I 3orp.
for taab'e !ear 1993 there (as foun% to be %ue a
%eficienc! income ta of 1125-000.00 inc'usi&e of the
254 surcharge impose% un%er 6ection 248 of the Ta
3o%e- the interest (i'' be compute% on the 1125.000.00
from Apri' 15- 1994 up to its %ate of pa!ment.
Interest: Delin>uency Interest: e(ine (199,)
What is a "%e'inEuenc! interest" for purposes of the
income ta# ,''ustrate.
SUGGESTED ANSWER)
2e'inEuenc! interest is the interest of 204 or the >ani'a
?eference ?ate- (hiche&er is higher- reEuire% to be pai%
in case of fai'ure to pa!)
*a+ the amount of the ta %ue on an! return reEuire%
to be fi'e%D or
*b+ the amount of the ta %ue for (hich return is
reEuire%D or
*c+ the %eficienc! ta or an! surcharge or interest
thereon- on the %ue %ate appearing in the notice an%
%eman% of the 3ommissioner of ,nterna' ?e&enue.
,f in the abo&e i''ustration the assessment notice (as
re'ease% on 2ecember 31- 1994 an% the amount of
%eficienc! ta- inc'usi&e of surcharge an% %eficienc!
interest (ere compute% up to Januar! 30- 1995 (hich is
the %ue %ate for pa!ment per assessment notice- fai'ure to

19 of 73
pa! on this 'atter %ate (i'' ren%er the ta %e'inEuent an%
(i'' reEuire the pa!ment of %e'inEuenc! interest.
IT5: Personal Income) #xem$te to File IT5 (1998)
A bache'or (as emp'o!e% b! 3orporation A on the first
(or.ing %a! of Januar! 1996 on a part0time basis (ith a
sa'ar! of 13-500.00 a month. @e then recei&e% the 13th
month pa!. ,n 6eptember 1996- he accepte% another part0
time Job from 3orporation B from (hich he recei&e% a
tota' compensation of 114-500.00 for the !ear 1996. The
correct tota' taes (ere (ithhe'% from both earnings.
With the (ithho'%ing taes a'rea%! pai%- (ou'% he sti'' be
reEuire% to fi'e an income ta return for his 1996 income#
SUGGESTED ANSWER)
;es- because (hat is eempt from fi'ing are those
in%i&i%ua's (ho ha&e tota' compensation income not
ecee%ing 160.000 (ith the taes correct'! (ithhe'% on'!
b! one emp'o!er. ,n this case- e&en if his aggregate
compensation income from both his emp'o!ers %oes not
ecee% 160.000 an% that tota' (ithho'%ing taes (ere
correct'! (ithhe'% b! his emp'o!ers- the fact that he
%eri&es compensation income concurrent'! from t(o
emp'o!ers at an!time %uring the taab'e !ear- %oes not
eempt him from fi'ing his income ta return (#A &!)&,
as implemented by ## No. !.)5).
IT5) Domestic *or$orate Taxation (1998)
2uring the !ear- a %omestic corporation %eri&e% the
fo''o(ing items of re&enue) *a+ gross receipts from a
tra%ing businessD *b+ interests from mone! p'acements in
the ban.sD *c+ %i&i%en%s from its stoc. in&estments in
%omestic corporationsD *%+ gains from stoc. transactions
through the 1hi'ippine 6toc. 8changeD *e+ procee%s
un%er an insurance po'ic! on the 'oss of goo%s. ,n
preparing the corporate income ta return- (hat shou'% be
the ta treatment on each of the abo&e items#
SUGGESTED ANSWER)
The gross receipts fro3 trading b%siness is inc'u%ib'e
as an item of income in the corporate income ta return
an% sub7ect to corporate income ta rate base% on net
income.
The other items of re&enue (i'' not be inc'u%e% in the
corporate income ta return. . The interest from mone!
mar.et p'acements is
sub7ect to a fina' (ithho'%ing ta of 204D . The
%i&i%en%s from %omestic corporation are eempt
from income taD an% . gains from stoc. transactions
(ith the 1hi'ippine
6toc. 8change are sub7ect to transaction ta (hich
is in 'ieu of the income ta. . The procee%s un%er an
insurance po'ic! on the 'oss
of goo%s is not an item of income but mere'! a return
of capita' hence not taab'e.
ATERNATI&E ANSWER)
The gross receipts from tra%ing business is inc'u%ib'e as
an item of income in the corporate income ta return.
9i.e(ise- the gain or 'oss rea'i/e% as a conseEuence of
the receipt of procee%s un%er an insurance po'ic! on the
'oss of goo%s (i'' be inc'u%e% in the corporate income
ta


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

return either as a taab'e gain or a %e%uctib'e 'oss. The
gain or 'oss is arri&e% at b! %e%ucting from the procee%s
of insurance *amount rea'i/e%+ the basis of the goo% 'ost
*6ec. 34*a+- <,?3+. The net income of the corporation
sha'' be sub7ect to corporate income ta rate of 354.
The other items of re&enue (i'' not be inc'u%e% in the
corporate income ta return. The interest from mone!
mar.et p'acements is sub7ect to a fina' (ithho'%ing ta of
204D %i&i%en%s from %omestic corporations are eempt
from income taD an% gains from stoc. transactions (ith
the 1hi'ippine 6toc. 8change are sub7ect to transaction
ta (hich is in 'ieu of the income ta.
IT5) Domestic *or$orate Taxation (%&&1)
a+ @o( often %oes a %omestic corporation fi'e income
ta return for income earne% %uring a sing'e taab'e
!ear# 8p'ain the process. *34+
SUGGESTED ANSWER)
a+ A %omestic corporation is reEuire% to fi'e income ta
returns four *4+ times for income earne% %uring a sing'e
taab'e !ear. Kuarter'! returns are reEuire% to be fi'e% for
the first three Euarters (here the corporation sha'' %ec'are
its Euarter'! summar! of gross income an% %e%uctions on
a cumu'ati&e basis. (+ection &,, N6#). Then- a fina'
a%7ustment return is reEuire% to be fi'e% co&ering the tota'
taab'e income for the entire !ear- ca'en%ar or fisca'.
(+ection &-, N6#).
b+ What is the reason for such proce%ure# *24+
SUGGESTED ANSWER)
b+ The reason for this proce%ure is to ensure the
time'iness of co''ection to meet the bu%getar! nee%s of the
go&ernment. 9i.e(ise- it is %esigne% to ease the bur%en
on the tapa!er b! pro&i%ing it (ith an insta''ment
pa!ment scheme- rather than reEuiring the pa!ment of the
ta on a 'ump0sum basis after the en% of the !ear.
ATERNATI&E ANSWER)
b+ The reason for the Euarter'! fi'ing of ta returns is to
a''o( partia' co''ection of the ta before the en% of the
taab'e !ear an% a'so to impro&e the 'iEui%it! of
go&ernment
IT5) Personal Income: Two #m$loyment (%&&1)
,n the !ear 2000- A (or.e% part time as a (aitress in a
restaurant in >ega >a'' from 8)00 a.m. to 4)00 p.m. an%
then as a cashier in a 240hour con&enience store in her
neighborhoo%. The tota' income of A for the !ear from
the t(o emp'o!ers %oes not ecee% her tota' persona' an%
a%%itiona' eemptions for the !ear 2000. Was she
reEuire% to fi'e an income ta return 'ast Apri'# 8p'ain
!our ans(er. *54+
SUGGESTED ANSWER)
;es. An in%i&i%ua' %eri&ing compensation concurrent'!
from t(o or more emp'o!ers at an! time %uring the
taab'e !ear sha'' fi'e an income ta return *6ec. 51*A+*2+
*b+- <,?3.+
ATERNATI&E ANSWER)
,t %epen%s. An in%i&i%ua' (ith pure compensation income
is not reEuire% to fi'e an income ta returns (hen she
meets the fo''o(ing con%itionsD *1+ the tota' gross
compensation income %oes not ecee% 1hp60-000.00 an%
*2+ the income ta has been correct'! (ithhe'%- meaning

20 of 73
the ta (ithhe'% is eEua' to the ta %ue. (+ection
, l(A@(%)(b), N6#).
There is no mention in the prob'em of the amount of
persona' an% a%%itiona' persona' eemption to Euantif!
ho( much is that compensation income that %i% not
ecee% the persona' an% a%%itiona' persona' eemptions.
There is no- mention- either- of (hether or not the
emp'o!ers (ithhe'% taes an% that the amount (ithhe'% is
eEua' to the ta %ue. Whether or not she (i'' be reEuire%
to fi'e an income ta return 'ast Apri' 15 on the 2000
income (i'' %epen% on her comp'iance (ith the
reEuirements of the 'a(.
IT5) Personal Income) ?SIS Pension (%&&&)
>r. Ja&ier is a non0resi%ent senior citi/en. @e recei&es a
month'! pension from the 56,6 (hich he %eposits (ith
the 1<B0>a.ati Branch. ,s he eempt from income ta
an% therefore not reEuire% to fi'e an income ta return#
*54+
SUGGESTED ANSWER)
>r. Ja&ier is eempt from income ta on his month'!
56,6 pension (+ec. 5%(3)(-)(f), N6# of $))&) but not on
the interest income that might accrue on the pensions
%eposite% (ith 1<B (hich are sub7ect to fina' (ithho'%ing
ta. 3onseEuent'!- since >r. Ja&ierCs so'e taab'e income
(ou'% ha&e been sub7ecte% to a fina' (ithho'%ing ta- he is
not reEuire% an!more to fi'e an income ta return. (+ec. ,$
(A) (%) (c). 6bid@.
IT5) Personal Income) =arrie Ini!iual (%&&')
?A> got marrie% to 9,6A 'ast Januar! 2003. $n
<o&ember 30- 2003- 9,6A ga&e birth to t(ins.
Fnfortunate'!- ho(e&er- 9,6A %ie% in the course of her
%e'i&er!. 2ue to comp'ications- one of the t(ins a'so %ie%
on 2ecember 15- 2003.
,n preparing his ,ncome Ta ?eturn *,T?+ for the !ear
2003- (hat shou'% ?A> in%icate in the ,T? as his ci&i'
status) *a+ sing'eD *b+ marrie%D *c+ @ea% of the fami'!D *%+
(i%o(erD *e+ none of the abo&e# Wh!# ?eason. *54+
SUGGESTED ANSWER)
?A> shou'% in%icate "*b+ marrie%" as his ci&i' status in
preparing his ,ncome Ta ?eturn for the !ear 2003. The
%eath of his (ife %uring the !ear (i'' not change his
status because shou'% the spouse %ie %uring the taab'e
!ear- the tapa!er ma! sti'' c'aim the same eemptions
(that of being married) as if the spouse %ie% at the c'ose
of such !ear (+ection 5,;1, N6#).
IT5) Tax$ayer) +iabilities) Falsi(ie Tax 5eturn (%&&,)
2ani'o- (ho is engage% in the tra%ing business- entruste%
to his accountant the preparation of his income ta return
an% the pa!ment of the ta %ue. The accountant fi'e% a
fa'sifie% ta return b! un%er%ec'aring the sa'es an%
o&erstating the epense %e%uctions b! 2ani'o. ,s 2ani'o
'iab'e for the %eficienc! ta an% the pena'ties thereon#
What is the 'iabi'it!- if an!- of the accountant# 2iscuss.
*54+
SUGGESTED ANSWER)
2ani'o is 'iab'e for the %eficienc! ta as (e'' as for the
%eficienc! interest. @e shou'% not be he'% 'iab'e for the


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

frau% pena't! because the accountant acte% be!on% the
'imits of his authorit!. There is no sho(ing in the prob'em
that 2ani'o signe% the fa'sifie% return or that it (as
prepare% un%er his %irection. G$n the other han% the
accountant ma! be he'% crimina''! 'iab'e for &io'ation of
the Ta 3o%e (hen he fa'sifie% the ta return b!
un%er%ec'aring the sa'e an% o&erstating the epense
%e%uctions. ,f 2ann!Cs accountant is a 3ertifie% 1ub'ic
Accountant- his certificate as a 31A sha'' automatica''! be
re&o.e% or cance''e% upon con&iction.
Partners0i$: Income Tax (199,)
Hi&e !ears ago >arEue/- 1ene!ra- Ja!me- 1osa%as an%
>anguiat- a'' 'a(!ers- forme% a partnership (hich the!
name% >arEue/ an% 1ene!ra 9a( $ffices. The 3ommis0
sioner of ,nterna' ?e&enue thereafter issue% #evenue
#egulation No. %.)5 implementing #A. &!)- .no(n as the
6imp'ifie% <et ,ncome Taation 6cheme *6<,T6+.
?e&enue ?egu'ation <o. 2093 pro&i%es in part)
Sec. ". 7eneral *rofessional *artners&ip. =
The genera' professiona' partnership an% the
partners are co&ere% b! ?.A. 7496. Thus- in
%etermining profit of the partnership- on'! the
%irect costs mentione% in sai% 'a( are to be
%e%ucte% from partnership income. A'so- the
epenses pai% or ,ncurre% b! partners in their
in%i&i%ua' capacities in the practice of their
profession (hich are not reimburse% or pai% b!
the partnership but are not consi%ere% as %irect
costs are not %e%uctib'e from his gross income.
1+ >arEue/ an% 1ene!ra 9a( $ffices fi'e% a
tapa!erCs suit a''eging that ?e&enue ?egu'ation <o. 2093
&io'ates the princip'e of uniformit! in taation because
genera' professiona' partnerships are no( sub7ect to
pa!ment of income ta an% that there is a %ifference in the
ta treatment bet(een in%i&i%ua's engage% in the practice
of their respecti&e professions an% partners in genera'
professiona' partnerships. ,s this contention correct#
8p'ain.
SUGGESTED ANSWER)
1+ The contention is not correct. 5enera' professiona'
partnerships remain to be a non0taab'e entit!. What is
taab'e are the partners comprising the same an% the! are
ob'igate% to report as income their share in the income of
the genera' professiona' partnership %uring the taab'e
!ear (hether %istribute% or not. The 6<,T6 treat
professiona's as one c'ass of tapa!er so that the! sha'' be
treate% a'i.e irrespecti&e of (hether the! practice their
profession a'one or in association (ith other professiona's
un%er a genera' professiona' partnership. What are tae%
%ifferent'! are in%i&i%ua's an% corporations. A''
in%i&i%ua's simi'ar'! situate% are tae% a'i.e un%er the
regu'ations- therefore- the princip'e of uniformit! in
taation is not &io'ate%. $n the contrar!- a'' the
reEuirements of a &a'i% c'assification ha&e been comp'ie%
(ith (Ton +s. Del Rosario et al 7.R 9o. )!-8-F OctobersF
)--.#.
2+ ,s ?e&enue ?egu'ation <o. 2093 no(
consi%ere% as ha&ing a%opte% a gross income metho%
instea% of retaining the net income taation scheme#
8p'ain.
SUGGESTED ANSWER)

21 of 73
2+ <o. ?e&enue ?egu'ation <o. 2093 imp'ementing ?A
<o. 7496 ha&e in%ee% significant'! re%uce% the items of
%e%uction b! 'imiting it to %irect costs an% epenses or the
404 of gross receipts maimum %e%uction in cases (here
the %irect costs are %ifficu't to %etermine. The a''o(ance
of 'imite% %e%uctions ho(e&er- is sti'' in consonance (ith
the net income taation scheme rather than the gross
income metho%. Whi'e it is true that not a'' the epenses
of earning the income might be a''o(e%- this can (e'' be
7ustifie% b! the fact that %e%uctions are not matters of
right but are matters of 'egis'ati&e grace.
Personal) Income Tax: @onA5esient Alien (%&&&)
>r. 3orte/ is a non0resi%ent a'ien base% in @ong Qong.
2uring the ca'en%ar !ear 1999- he came to the
1hi'ippines se&era' times an% sta!e% in the countr! for an
aggregate% perio% of more than 180 %a!s. @o( (i'' >r.
3orte/ be tae% on his income %eri&e% from sources
(ithin the 1hi'ippines an% from abroa%# *54+
SUGGESTED ANSWER)
>r. 3orte/ being a non0resi%ent a'ien in%i&i%ua' (ho has
sta!e% for an aggregate% perio% of more than 180 %a!s
%uring the ca'en%ar !ear 1999- sha'' for that taab'e !ear
be %eeme% to be a non0resi%ent a'ien %oing business in
the 1hi'ippines.
3onsi%ering the abo&e- >r. 3orte/ sha'' be sub7ect to an
income ta in the same manner as an in%i&i%ua' citi/en an%
a resi%ent a'ien in%i&i%ua'- on taab'e income recei&e%
from a'' sources (ithin the 1hi'ippines. A+ec. %, (A) ($),
N6# of $))&@ Thus- he is a''o(e% to a&ai' of the itemi/e%
%e%uctions inc'u%ing the persona' an% a%%itiona'
eemptions but sub7ect to the ru'e on reciprocit! on the
persona' eemptions. (+ec. 5! (A) to (() and (8) in
relation to +ec. %, (A) ($), 6bid, +ec. 5, (B), 6bid.@
NCT4: 6t is suggested that full credit should be given
if the examineeDs answer only cover the first two
paragraphs.
Personal) Income Tax: @onA5esient *itiCen (1999)
A 3o.- a 1hi'ippine corporation- has an eecuti&e *1+ (ho
is a Hi'ipino citi/en. A 3o. has a subsi%iar! in @ong Qong
*@Q 3o.+ an% (i'' assign 1 for an in%efinite perio% to
(or. fu'' time for @Q 3o. 1 (i'' bring his fami'! to resi%e
in @Q an% (i'' 'ease out his resi%ence in the 1hi'ippines.
The sa'ar! of 1 (i'' be shou'%ere% 504 b! A 3o. (hi'e
the other 504 p'us housing- cost of 'i&ing an% e%ucationa'
a''o(ances of 1Cs %epen%ents (i'' be shou'%ere% b! @Q
3o. A 3o. (i'' cre%it the 504 of 1Cs sa'ar! to 1Cs
1hi'ippine ban. account. 1 (i'' sign the contract of
emp'o!ment in the 1hi'ippines. 1 (i'' a'so be recei&ing
renta' income for the 'ease of his 1hi'ippine resi%ence.
Are these sa'aries- a''o(ances an% renta's sub7ect to the
1hi'ippine income ta# *54+
SUGGESTED ANSWER)
The sa'aries an% a''o(ances recei&e% b! 1 are not sub7ect
to 1hi'ippine income ta. 1 Eua'ifies as a nonresi%ent
citi/en because he 'ea&es the 1hi'ippines for emp'o!ment
reEuiring him to be ph!sica''! present abroa% most of the
time %uring the taab'e !ear. (+ection %%(4), N6#). A
nonresi%ent citi/en is taab'e on'! on income %eri&e%
from 1hi'ippine sources. (+ection %5, N6#). The sa'aries
an%


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

a''o(ances recei&e% from being emp'o!e% abroa% are
incomes from (ithout because these are compensation for
ser&ices ren%ere% outsi%e of the 1hi'ippines. (+ection !%,
N6#).
@o(e&er- 1 is taab'e on renta' income for the 'ease of
his 1hi'ippine resi%ence because this is an income %eri&e%
from (ithin- the 'ease% propert! being 'ocate% in the
1hi'ippines. (+ection !%, N6#).
Personal) Income Tax: TaxAFree #xc0an7e (1998)
Three brothers inherite% in 1992 a parce' of 'an% &a'ue%
for rea' estate ta purposes at 13.0 mi''ion (hich the!
he'% in co0o(nership. ,n 1995- the! transferre% the
propert! to a ne('! organi/e% corporation as their eEuit!
(hich (as p'ace% at the /ona' &a'ue of 16.0 mi''ion. ,n
echange for the propert!- the three brothers thus each
recei&e% shares of stoc. of the corporation (ith a tota'
par &a'ue of 12.0 mi''ion or- a'together- a tota' of 16.0
mi''ion. <o business (as %one b! the 3orporation- an%
the propert! remaine% i%'e. ,n the ear'! part of 1997- one
of the brothers- (ho (as in %ire nee% of fun%s- so'% his
shares to the t(o brothers for 12.0 mi''ion. ,s the
transaction sub7ect to an! interna' re&enue ta *other than
the %ocumentar! stamp ta+#
SUGGESTED ANSWER)
;es. The echange in 1995 is a ta0free echange so that
the subseEuent sa'e of one of the brothers of his shares to
the other t(o *2+ brothers in 1997 (i'' be sub7ect to
income ta. This is so because the ta0free echange
mere'! %eferre% the recognition of income on the
echange transaction. The gain sub7ect to income ta in
the sa'e is measure% b! the %ifference bet(een the se''ing
price of the shares *12 >i''ion+ an% the basis of the rea'
propert! in the han%s of the transferor at the time of
echange (hich is the fair mar.et &a'ue of his share in the
rea' propert! at the time of inheritance *6ection 34*b+*2+-
<,?3+. The net gain from the sa'e of shares of stoc. is
sub7ect to the sche%u'ar capita' gains ta of 104 for the
first 1100.000 an% 204 for the ecess thereof *6ection
2'*%+- <,?3+.
ATERNATI&E ANSWER)
The echange effecte% in 1995 %i% not Eua'if! as a ta0
free echange because there is no sho(ing that the three
brothers gaine% contro' of the corporation b! acEuiring at
'east 514 of the &oting rights. 6ince the entire gain on the
echange (as pre&ious'! sub7ecte% to income ta- then-
the sa'e (i'' a'so be taab'e if a gain resu'ts therefrom. ,n
the instant case- the sa'e (i'' not be sub7ect to an! interna'
re&enue ta other than the %ocumentar! stamp ta-
because the se''er %i% not rea'i/e an! gain from the sa'e.
The gain is measure% b! the %ifference bet(een the
amount rea'i/e% *se''ing price+ an% the basis of the
propert!. ,nci%enta''!- the basis to him is his share in the
&a'ue of the propert! recei&e% at the time of echange-
(hich is 12 >i''ion- an amount- 7ust eEua' to the amount
rea'i/e% from the sa'e.
Personal) Income Tax) *ontract o( +ease (199,)
>r. 2omingo o(ns a &acant parce' of 'an%. @e 'eases the
'an% to >r. 8nriEue/ for ten !ears at a renta' of
112-000.00 per !ear. The con%ition is that >r. 8nriEue/
22 of 73
(i'' erect a bui'%ing on the 'an% (hich (i'' become the
propert! of >r. 2omingo at the en% of the 'ease (ithout
compensation or reimbursement (hatsoe&er for the &a'ue
of the bui'%ing.
>r. 8nriEue/ erects the bui'%ing. Fpon comp'etion the
bui'%ing ha% a fair mar.et &a'ue of 11 >i''ion. At the en%
of the 'ease the bui'%ing is (orth on'! 1900.000.00 %ue
to %epreciation.
Wi'' >r. 2omingo ha&e income (hen the 'ease epires
an% becomes the o(ner of the bui'%ing (ith a fair mar.et
&a'ue of 1900.000.00# @o( much income must he report
on the bui'%ing# 8p'ain.
SUGGESTED ANSWER)
When a bui'%ing is erecte% b! a 'essee in the 'ease%
premises in pursuance of an agreement (ith the 'essor
that the bui'%ing becomes the propert! of the 'essor at the
en% of the 'ease- the 'essor has the option to report
income as fo''o(s) 1+ The 'essor ma! report as income
the mar.et &a'ue of
the bui'%ing at the time (hen such bui'%ing is
comp'ete%D or 2+ The 'essor ma! sprea% o&er the 'ife of
the 'ease the
estimate% %epreciate% &a'ue of such bui'%ing at the
termination of the 'ease an% report as income for
each !ear of the 'ease an a'iEuot part thereof *6ec.
49- ?? <o. 2+.
Fn%er the first option- the 'essor (i'' ha&e no income
(hen the 'ease epires an% becomes the o(ner of the
bui'%ing. The secon% option (i'' gi&e rise to an income
%uring the !ear of 'ease epiration of 190.000.00 or 1L10
of the %epreciate% &a'ue of the bui'%ing.
The a&ai'ment of the first option (i'' reEuire >r.
2omingo to report an income of 11.000-000.00 %uring the
!ear (hen the bui'%ing (as comp'ete%. A tota' of
1900.000.00 income (i'' be reporte% un%er the secon%
option but (i'' be sprea% o&er the 'ife of the 'ease or
190.000.00 per !ear.
ATERNATI&E ANSWER)
>r. 2omingo (i'' rea'i/e an income (hen the 'ease
epires an% becomes the o(ner of the bui'%ing (ith a fair
mar.et &a'ue of 1900.000.00 because the con%ition for
the 'ease is the transfer of the bui'%ing at the epiration of
the 'ease. The income to be rea'i/e% b! >r. 2omingo at
the time of the epiration (i'' consist of the &a'ue of the
bui'%ing (hich is 1900.000.00 an% an! renta' income that
has accrue% as of sai% %ate.
Personal) Income Tax) =arrie Ini!iual (1998)
>ar an% Jo! got marrie% in 1990. A (ee. before their
marriage. Jo! recei&e%- b! (a! of %onation- a
con%ominium unit (orth 1750.000.00 from her parents.
After marriage- some reno&ations (ere ma%e at a cost of
1150.000.00. The spouses (ere both emp'o!e% in 1991 b!
the same compan!. $n 30 2ecember 1992- their first chi'%
(as born- an% a secon% chi'% (as born on 07 <o&ember
1993. ,n 1994- the! so'% the con%ominium unit an% bought
a ne( unit. Fn%er the foregoing facts- (hat


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

(ere the e&ents in the 'ife of the spouses that ha% income
ta inci%ences#
SUGGESTED ANSWER)
The e&ents in the 'ife of spouses. >ar an% Jo!- (hich
ha&e income ta inci%ences are the fo''o(ing) 1+ Their
marriage in 1990 Eua'ifies them to c'aim
persona' eemption for marrie% in%i&i%ua'sD 2+ Their
emp'o!ment in 1991 b! the same compan!
(i'' ma.e them 'iab'e to the income ta impose% on
gross compensation incomeD 3+ Birth of their first chi'% in
2ecember 1992 (ou'%
gi&e rise to an a%%itiona' eemption of 15-000 for
taab'e !ear 1992D 4+ Birth of their secon% chi'% in
<o&ember 1993 (ou'%
'i.e(ise entit'e them to c'aim a%%itiona' eemption
of 15-000 raising their a%%itiona' persona'
eemptions to 1 10-000 for taab'e !ear 1993D an% 5+
6a'e of their con%ominium unit in 1994 sha'' ma.e
the spouses 'iab'e to the 54 capita' gains ta on the
gain presume% to ha&e been rea'i/e% from the sa'e.
Personal) Income Tax) 5etirin7 Alien #m$loyee (%&&,)
An a'ien emp'o!ee of the Asian 2e&e'opment Ban.
*A2B+ (ho is retiring soon has offere% to se'' his car to
!ou (hich he importe% ta0free for his persona' use. The
pri&i'ege of eemption from ta is grante% to Eua'ifie%
persona' use un%er the A2B 3harter (hich is recogni/e%
b! the ta authorities. ,f !ou %eci%e to purchase the car- is
the sa'e sub7ect to ta# 8p'ain. *54+
SUGGESTED ANSWER)
The sa'es transaction is sub7ect to &a'ue a%%e% ta *:AT+
un%er 6ec. 107*B+ of the <,?3- a'though this pro&ision is
epress'! ec'u%e% from the co&erage of the 2005 bar
eam.
The procee%s from the sa'e are sub7ect to income ta. The
car is consi%ere% a capita' asset of the retiring a'ien
emp'o!ee because he is not engage% in the business of
bu!ing an% se''ing cars. @e therefore %eri&e% income-
(hich shou'% be reporte% in his income ta return. *6ees.
32 an% 39- <,?3+
Personal) Income Taxation: @onA5esient *itiCen (1998)
Juan- a Hi'ipino citi/en- has immigrate% to the Fnite%
6tates (here he is no( a permanent resi%ent. @e o(ns
certain income0earning propert! in the 1hi'ippines from
(hich he continues to %eri&e substantia' income. @e a'so
recei&es income from his emp'o!ment in the Fnite%
6tates on (hich the F6 income ta is pai%. $n (hich of
the abo&e income is the taab'e- if at a''- in the
1hi'ippines- an% ho(- in genera' terms- (ou'% such
income or incomes be tae%#
SUGGESTED ANSWER)
Juan- sha'' be tae% on both his income from the
1hi'ippines an% on his ,ncome from the Fnite% 6tates be0
cause his being a citi/en ma.es him taab'e on a'' ,ncome
(here&er %eri&e%. Hor the income he %eri&es from his
propert! in the 1hi'ippines- Juan sha'' be tae% on his net
income un%er the Si3plified 9et ,nco3e Taxation
Sc&e3e *6<,T6+ (hereb! he sha'' be consi%ere% as a se'f0
emp'o!e% in%i&i%ua'. @is ,ncome as emp'o!ee in the
Fnite% 6tates- on the other han%- sha'' be tae% in
23 of 73
accor%ance (ith the sche%u'ar gra%uate% rates of 14- 24
an% 34. base% on the a%7uste% gross income %eri&e% b!
non0resi%ent citi/ens from a'' sources (ithout the
1hi'ippines %uring each taab'e !ear.
Taxable Income: Ille7al Income (199, Bar)
>r. 9a7o7o is a big0time s(in%'er. ,n one !ear he (as ab'e
to earn 11 >i''ion from his s(in%'ing acti&ities. When the
3ommissioner of ,nterna' ?e&enue %isco&ere% his income
from s(in%'ing- the 3ommissioner assesse% him a
%eficienc! income ta for such income. The 'a(!er of >r.
9a7o7o proteste% the assessment on the fo''o(ing groun%s)
1+ The income ta app'ies on'! to 'ega' income- not to
i''ega' incomeD 2+ >r. 9a7o7oCs receipts from his
s(in%'ing %i% not
constitute income because he (as un%er ob'igation
to return the amount he ha% s(in%'e%- hence- his
receipt from s(in%'ing (as simi'ar to a 'oan- (hich
is not income- because for e&er! peso borro(e% he
has a correspon%ing 'iabi'it! to pa! one pesoD an% 3+ ,f
he has to pa! the %eficienc! income ta assess
ment- there (i'' be har%'! an!thing 'eft to return to
the &ictims of the s(in%'ing. @o( (i'' !ou ru'e on each
of the three groun%s for the protest# 8p'ain.
SUGGESTED ANSWERS)
1+ The contention that the income ta app'ies to 'ega'
income an% not to i''ega' income is not correct. 6ection
28*a+ of the Ta 3o%e inc'u%es (ithin the pur&ie( of
gross income a'' ,ncome from (hate&er source %eri&e%.
@ence- the i''ega'it! of the income (i'' not prec'u%e the
imposition of the income ta thereon.
2+ The contention that the receipts from his s(in%'ing %i%
not constitute income because of his ob'igation to return
the amount s(in%'e% is 'i.e(ise not correct. When a
tapa!er acEuires earnings- 'a(fu''! or un'a(fu''!-
(ithout the consensua' recognition- epress or imp'ie%- of
an ob'igation to repa! an% (ithout restriction as to their
%isposition- he has recei&e% taab'e income- e&en though
it ma! sti'' be c'aime% that he is not entit'e% to retain the
mone!- an% e&en though he ma! sti'' be a%7u%ge% to
restore its eEui&a'ent (Ha3es +s. =.S.F6"" =.S. )6F )-")#. To
treat the embe//'e% fun%s not as taab'e income (ou'%
perpetuate in7ustice b! re'ie&ing embe//'ers of the %ut! of
pa!ing income taes on the mone! the! enrich themse'&es
(ith through embe//'ement- (hi'e honest peop'e pa!
their taes on e&er! concei&ab'e t!pe of income. ((ames
vs. E.+.)
3+ The %eficienc! income ta assessment is a %irect ta
impose% on the o(ner (hich is an ecise on the pri&i'ege
to earn an income. ,t (i'' not necessari'! be pai% out of
the same income that (ere sub7ecte% to the ta. >r.
9a7o7oCs 'iabi'it! to pa! the ta is base% on his ha&ing
rea'i/e% a taab'e income from his s(in%'ing acti&ities
an% (i'' not affect his ob'igation to ma.e restitution.
1a!ment of the ta is a ci&i' ob'igation impose% b! 'a(
(hi'e restitution is a ci&i' 'iabi'it! arising from a crime.
Taxable or @onATaxable) Income an ?ains (%&&,)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

8p'ain brief'! (hether the fo''o(ing items are taab'e
or non0taab'e) *54+ a+ ,ncome from H=ETE97D
SUGGESTED ANSWER)
Taab'e. 5ross income inc'u%es "a'' income %eri&e% from
(hate&er source" (+ec. 5%AA@, N6#), (hich (as interprete% as
a'' income not epress'! ec'u%e% or eempte% from the c'ass of
taab'e income- irrespecti&e of the &o'untar! or in&o'untar!
action of the tapa!er in pro%ucing the income. Thus- the income
ma! procee% from a 'ega' or i''ega' source such as from 7ueteng.
Fn'a(fu' gains- gamb'ing (innings- etc. are sub7ect to income
ta. The ta co%e stan%s as an in%ifferent neutra' part! on the
matter of (here the income comes from.
(Co33issioner of ,nternal Re+en%e +. 2anningF 7.R. 9o. 1;
86-8F A%g%st "F )-/:#
b+ 5ain arising from EJ*RO*R,AT,O9 OF
*RO*ERTMD
SUGGESTED ANSWER)
Taab'e. 6a'e echange or other %isposition of propert! to
the go&ernment of rea' propert! is taab'e. ,t inc'u%es
ta.ing b! the go&ernment through con%emnation
procee%ings. (7on?ales +. Co%rt of Tax AppealsF 7.R. 9o. 1;
).:6F 2a' "F )-":#
c+ TAJES pai% an% subseEuent'! refun%e%D
SUGGESTED ANSWER)
Taab'e on'! if the taes (ere pai% an% c'aime% as
%e%uction an% (hich are subseEuent'! refun%e% or
cre%ite%. ,t sha'' be inc'u%e% as part of gross income in the
!ear of the receipt to the etent of the income ta benefit
of sai% %e%uction. (+ec. 5!A@A$@, N6#) <ot taab'e if
the taes refun%e% (ere not origina''! c'aime% as
%e%uctions.
%+ ?eco&er! of BAD DEBTS pre&ious'! charge% offD
SUGGESTED ANSWER)
Taab'e un%er the TAJ BE9EF,T R=1E. ?eco&er! of
ba% %ebts pre&ious'! a''o(e% as %e%uction in the
prece%ing !ears sha'' be inc'u%e% as part of the gross
income in the !ear of reco&er! to the etent of the income
ta benefit of sai% %e%uction. (+ec. 5!A4@A$@, N6#) This
is sometimes referre% as the RECA*T=RE R=1ES.
e+ 5ain on the sa'e of a car use% for persona' purposes.
SUGGESTED ANSWER)
Taab'e. 6ince the car is use% for persona' purposes- it is
consi%ere% as a capita' asset hence the gain is consi%ere%
income. (+ec. 5%AA@A5@ and +ec. 5)AA@A$@, N6#)
;it00olin7 Tax: @onA5esient Alien (%&&1)
,s a non0resi%ent a'ien (ho is not engage% in tra%e or
business or in the eercise of profession in the 1hi'ippines
but (ho %eri&e% renta' income from the 1hi'ippines
reEuire% to fi'e an income ta return on Apri' of the !ear
fo''o(ing his receipt of sai% income# ,f not- (h! not#
8p'ain !our ans(er. *54+
SUGGESTED ANSWER)
<o. The income ta on a'' income %eri&e% from 1hi'ippine
sources b! a non0resi%ent a'ien (ho is not engage% in
tra%e or business in the 1hi'ippines is (ithhe'% b! the
'essee as a Hina' Withho'%ing Ta. (+ection ,&(A), N6#).
The go&ernment can not reEuire persons outsi%e
24 of 73
of its territoria' 7uris%iction to fi'e a returnD for this
reason- the income ta on income %eri&e% from (ithin
must be co''ecte% through the (ithho'%ing ta s!stem an%
thus re'ie&e the recipient of the income the %ut! to fi'e
income ta returns. (+ection ,$, N6#).
;it00olin7 Tax: 5etirement Bene(it (%&&&)
To start a business of his o(n- >r. >ario %e 5u/man
opte% for an ear'! retirement from a pri&ate compan!
after ten *10+ !ears of ser&ice. 1ursuant to the compan!Cs
Eua'ifie% an% appro&e% pri&ate retirement benefit p'an- he
(as pai% his retirement benefit (hich (as sub7ecte% to
(ithho'%ing ta. ,s the emp'o!er correct in (ithho'%ing
the ta# 8p'ain. *24+
SUGGESTED ANSWER)
*a+ ,t %epen%s. An emp'o!ee retiring un%er a compan!Cs
Eua'ifie% an% pri&ate retirement p'an can on'! be eempt
from income ta on his retirement benefits if the
fo''o(ing reEuisites are met)
*1+ that the retiring emp'o!ee must ha&e been in
ser&ice of the same emp'o!er for at 'east ten *10+ !earsD
*2+ that he is not 'ess than 50 !ears of age at the
time of retirementD an%
*3+ the benefit is a&ai'e% of on'!
once.
,n the instant case- there is no mention (hether the
emp'o!ee has 'i.e(ise comp'ie% (ith reEuisites number
*2+ an%
*3+.
;it00olin7 Tax: 5etirement Bene(it (%&&&)
Fn%er (hat con%itions are retirement benefits recei&e%
b! officia's an% emp'o!ees of pri&ate firms ec'u%e%
from gross income an% eempt from taation# *34+
SUGGESTED ANSWER)
The con%itions to be met in or%er that retirement benefits
recei&e% b! officia's an% emp'o!ees of pri&ate firms are
ec'u%e% from gross income an% eempt from taation
are as fo''o(s)
2. Fn%er ?epub'ic Act <o. 4917 *those recei&e%
un%er a reasonab'e pri&ate benefit p'an+)
a. the retiring officia' or emp'o!ee must ha&e
been in ser&ice of the same emp'o!er for at 'east ten
*10+
!earsD b. that he is not 'ess than fift! *50+ !ears of
age at the time of retirementD an%
c. that the benefit is a&ai'e% of on'!
once.
3. Fn%er ?epub'ic Act <o. 7641 *those recei&e%
from emp'o!ers (ithout an! retirement p'an+)
6; Those recei&e% un%er eisting co''ecti&e
bargaining agreement an% other agreements are
eemptD an%
2; ,n the absence of retirement p'an or
agreement pro&i%ing for retirement benefits the
benefits are ec'u%e% from gross income an% eempt
from income ta if)
i. retiring emp'o!ee must ha&e
ser&e% at 'east fi&e*5+ !earsD an%
ii. that he is not 'ess than sit! *60+
!ears of age but not more than sit! fi&e
*65+.
;it00olin7 Tax: 5oyalty (%&&%)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

The >QB01hi's. is a B$,0registere% %omestic corporation
'icense% b! the >QB of the Fnite% Qing%om to %istribute-
support an% use in the 1hi'ippines its computer soft(are
s!stems- inc'u%ing basic an% re'ate% materia's for ban.s.
The >QB01hi's. pro&i%es consu'tanc! an% technica'
ser&ices inci%enta' thereto b! entering into 'icensing
agreements (ith ban.s. Fn%er such agreements- the
>QB01hi's. (i'' not acEuire an! proprietar! rights in the
'icense% s!stems. The >QB01hi's. pa!s ro!a't! to the
>QB0FQ- net of 154 (ithho'%ing ta prescribe% b! the
?10FQ Ta Treat!.
,s the income of the >QB01hi's. un%er the 'icensing
agreement (ith ban.s consi%ere% ro!a't! sub7ect to 204
fina' (ithho'%ing ta# Wh!# ,f not- (hat .in% of ta (i''
its income be sub7ect to# 8p'ain. *54+
SUGGESTED ANSWER)
;es. The income of >QB01hi's. un%er the 'icensing
agreement (ith ban.s sha'' be consi%ere% as ro!a't!
sub7ect to the 204 fina' (ithho'%ing ta. The term ro!a't!
is broa% enough to inc'u%e technica' a%&ice- assistance or
ser&ices ren%ere% in connection (ith technica' management
or a%ministration of an! scientific- in%ustria' or commercia'
un%erta.ing- &enture- pro7ect or scheme. *6ec. 42*4+*f+-
<,?3+. Accor%ing'!- the consu'tanc! an% technica' ser&ices
ren%ere% b! >QB01hi's- (hich are inci%enta' to the
%istribution- support an% use of the computer s!stems of
>QB0FQ are taab'e as ro!a't!.
;it00olin7 Tax) *o!era7e (%&&')
3iting 6ection 10- Artic'e :,,, of the 1987 3onstitution
(hich pro&i%es that sa'aries of 7u%ges sha'' be fie% b!
'a( an% that %uring their continuance in office their
sa'ar! sha'' not be %ecrease%- a 7u%ge of >> ?egiona'
Tria' 3ourt Euestione% the %e%uction of (ithho'%ing taes
from his sa'ar! since it resu'ts into a net %e%uction of his
pa!. ,s the contention of the 7u%ge correct# ?eason
brief'!. *54+
SUGGESTED ANSWER)
<o. The contention is incorrect. The sa'aries of 7u%ges are
not ta0eempt an% their taabi'it! is not contrar! to the
pro&isions of 6ection 10- Artic'e :,,, of the 3onstitution
on the non0%iminution of the sa'aries of members of the
7u%iciar! %uring their continuance in office. The c'ear
intent of the 3onstitutiona' 3ommission that frame% the
3onstitution is to sub7ect their sa'aries to ta as in the
case of a'' tapa!ers. @ence- the %e%uction of (ithho'%ing
taes- being a manner of co''ecting the income ta on
their sa'ar!- is not a %iminution contemp'ate% b! the
fun%amenta' 'a(. (9itafan et. al. +. C,RF ): SCRA 8.
K)-8/O+.
;it00olin7 Tax) Domestic *or$oration) *as0
Di!iens(%&&1)
What %o !ou thin. is the reason (h! cash %i&i%en%s-
(hen recei&e% b! a resi%ent citi/en or a'ien from a
%omestic corporation- are tae% on'! at the fina' ta of
104 an% not at the progressi&e ta rate sche%u'e un%er
6ection 24*A+ of the Ta 3o%e# 8p'ain !our ans(er.
*54+
SUGGESTED ANSWER)
The reason for imposing fina' (ithho'%ing ta rather
than the progressi&e ta sche%u'e on cash %i&i%en%s
recei&e% b!
2# of 73
a resi%ent citi/en or a'ien from a %omestic corporation- is
to ensure the co''ection of income ta on sai% income. ,f
(e sub7ect the %i&i%en% to the progressi&e ta rate- (hich
can on'! be %one through the fi'ing of income ta returns-
there is no assurance that the tapa!er (i'' %ec'are the
income- especia''! (hen there are other items of gross
income earne% %uring the !ear. ,t (ou'% be etreme'!
%ifficu't for the B,? to monitor comp'iance consi%ering
the huge number of stoc.ho'%ers. B! shifting the
responsibi'it! to remit the ta to the corporation- it is &er!
eas! to chec. comp'iance because there are fe(er
(ithho'%ing agents compare% to the number of income
recipients.
9i.e(ise- the imposition of a fina' (ithho'%ing ta (i''
ma.e the ta a&ai'ab'e to the go&ernment at an ear'ier
time. Hina''!- the fina' (ithho'%ing ta (i'' be a sure
re&enue to the go&ernment un'i.e (hen the %i&i%en% is
treate% as a returnab'e income (here the recipient thereof
(ho is in a ta 'oss position is gi&en the chance to offset
such 'oss against %i&i%en% income thereb! %epri&ing the
go&ernment of the ta on sai% %i&i%en% income. N9ote$ 6t
is recommended that any of the foregoing answers can be
given full credit because the 7uestion involves a policy
issue which can only be found in the deliberations of
ongress.O
ATERNATI&E ANSWER)
The reason (h! cash %i&i%en%s recei&e% b! a resi%ent
citi/en or a'ien from a %omestic corporation are sub7ecte%
to the fina' (ithho'%ing ta of 104 an% not at the
progressi&e rate ta sche%u'e is to 'essen the impact of a
secon% 'a!er of ta on the same income.
;it00olin7 Tax) Income subDect t0ereto (%&&1)
What is meant b! income sub7ect to "fina' ta"# 5i&e at
'east t(o eamp'es of income of resi%ent in%i&i%ua's that
is sub7ect to the fina' ta. *34+
SUGGESTED ANSWER)
,ncome sub7ect to fina' ta refers to an income (herein
the ta %ue is fu''! co''ecte% through the (ithho'%ing ta
s!stem. Fn%er this proce%ure- the pa!or of the income
(ithho'%s the ta an% remits it to the go&ernment as a
fina' sett'ement of the income ta %ue on sai% income.
The recipient is no 'onger reEuire% to inc'u%e the item of
income sub7ecte% to "fina' ta" as part of his gross
income in his income ta returns. 8amp'es of income
sub7ect to fina' ta are %i&i%en% income- interest from
ban. %eposits- ro!a'ties- etc.
;it00olin7 Tax) @onA5esient Alien (199')
Hour 3atho'ic parishes hire% the ser&ices of Hran. Binatra-
a foreign non0resi%ent entertainer- to perform for four *4+
nights at the Ho'. Arts Theater. Binatra (as pai%
1200.000.00 a night. The parishes earne% 11-000-000.00
(hich the! use% for the support of the orphans in the cit!.
Who are 'iab'e to pa! taes#
SUGGESTED ANSWER)
The fo''o(ing are 'iab'e to pa! income taes)
*a+ The four catho'ic parishes because the income
recei&e% b! them- not being income earne% "as such" in
the performance of their re'igious functions an% %uties- is
taab'e income un%er the 'ast paragraph of 6ec. 26- in
re'ation to 6ec. 26*e+ of the Ta 3o%e. ,n


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics
1
+
,t %epen%s. ,f the pri/e is consi%ere% as (innings
%eri&e% from sources (ithin the 1hi'ippines- it is
sub7ect to (ithho'%ing of fina' ta *6ec. 24NBO in
re'ation to 6ec. 57NAO- <,?3+. ,f %eri&e% from
sources (ithout the 1hi'ippines- it is not sub7ect
to
(ithho'%ing of fina' ta because the 1hi'ippine
ta
'a( an% regu'ations cou'% not reach out to foreign
7uris%ictions.
2
+
The ta sha'' be (ithhe'% b! the ?ea%erCs 2igest
or
'oca' agent (ho has contro' o&er the pa!ment of
the
pri/e.
3
+
An! person reEuire% to (ithho'% or (ho (i''fu''!
fai's to (ithho'%- sha''- in a%%ition to the other
pena'ties pro&i%e% un%er the 3o%e- be 'iab'e upon
con&iction to a pena't! eEua' to the tota' amount
of
ta not (ithhe'% *6ec. 251- <,?3+. ,n case of
fai'ure
to (ithho'% the ta or in t
h
e
case of un%er
(ithho'%ing- the %eficienc! ta sha'' be co''ecte%
from the pa!orL(ithho'%ing agent *1st par.. 6ec.
2.57NAO- ?.?. <o. 2098+.

promoting an% operating the Binatra 6ho(- the!
engage% in an acti&it! con%ucte% for profit. *,bi%.+
*b+ The income of Hran. Binatra- a non0resi%ent
a'ien un%er our 'a( is taab'e at the rate of 304- fina'
(ithho'%ing ta base% on the gross income from the
sho(. >r. Binatra is not engage% in an! tra%e or business
in the 1hi'ippines.
;it00olin7 Tax) @onA5esient *or$oration (199')
Bates A%&ertising 3ompan! is a non0resi%ent corporation
%u'! organi/e% an% eisting un%er the 'a(s of 6ingapore. ,t is
not %oing business an% has no office in the 1hi'ippines.
1i'ipinas 5arment ,ncorporate%- a %omestic corporation-
retaine% the ser&ices of Bates to %o a'' the a%&ertising of its
pro%ucts abroa%. Hor sai% ser&ices- BatesC fees are pai%
through out(ar% remittances. Are the fees recei&e% b! Bates
sub7ect to an! (ithho'%ing ta#
S=77ESTED A9SWER$
The fees pai% to Bates A%&ertising 3o.- a non0resi%ent
foreign corporation are not sub7ect to (ithho'%ing ta
since the! are not sub7ect to 1hi'ippine ta. The! are
eempt because the! %o not constitute income from
1hi'ippine sources- the same being compensation for 'abor
or persona' ser&ices performe% outsi%e the 1hi'ippines
*6ec. 36Gc+ *3+ an% 6ec. 25*b+*'+- Ta 3o%e+.
;it00olin7 Tax) 5eaerEs Di7est Awar (199/)
,s the pri/e of one mi''ion pesos a(ar%e% b! the ?ea%erCs
2igest sub7ect to (ithho'%ing of fina' ta# Who is
responsib'e for (ithho'%ing the ta# What are the
'iabi'ities for fai'ure to (ithho'% such ta# N54O
SUGGESTED ANSWER)
Any !erson re<"ired "nder the Ta/ Code or by r"les
and re."lations to withhold ta/es at the time or
times re<"ired by law or r"les and re."lations shall#
in addition to other !enalties !ro$ided by law# "!on
on$ition be !"nished by a fine of not less than Ten
tho"sand !esos =%h! 63.3OO> and s"ffer
im!risonment of not less than one =6>
26 of 73
!ear but not more than ten *10+ !ears *1st par.-
6ec. 255- <,?3+.
CO22E9T$ ,t is suggeste% that an! of the fo''o(ing ans(ers
to the Euestion- "What are the 'iabi'ities for fai'ure to (ithho'%
such a ta#" be gi&en fu'' cre%it) 1+ The pa!or sha'' be 'iab'e
for the pa!ment of the ta (hich
(as not (ithhe'%. 2+ The pa!erL(ithho'%ing agent sha'' be
'iab'e to both ci&i'
an% crimina' pena'ties impose% b! the Ta 3o%e.
;it00olin7 Tax) Time De$osit Interest) ?SIS Pension
(199')
>aribe' 6antos- a retire% pub'ic schoo' teacher- re'ies on
her pension from the 56,6 an% the ,nterest ,ncome from
a time %eposit of 1500.000.00 (ith AB3 Ban.. ,s >iss
6antos 'iab'e to pa! an! ta on her ,ncome#
SUGGESTED ANSWER)
>aribe' 6antos is eempt from ta on the pension from
the 56,6 (+ec. %/(b((&)(<), Tax ode). @o(e&er- as
regar%s her time %eposit- the interest she recei&es thereon
is sub7ect to 204 fina' (ithho'%ing ta. (+ec. %$(a)(c),
Tax ode).
DEDUCTIONS! EXEMPTIONS!
EXCUSIONS " INCUSIONS
Deuction: Facilitation Fees or -.ic.bac.- (199/)
>3 5arcia- a contractor (ho (on the bi% for the
construction of a pub'ic high(a!- c'aims as epenses-
faci'itation fees (hich accor%ing to him is stan%ar%
operating proce%ure in transactions (ith the go&ernment.
Are these epenses a''o(ab'e as %e%uction from gross
income# N54O
SUGGESTED ANSWER)
<o. The a''ege% faci'itation fees (hich he c'aims as
stan%ar% operating proce%ure in transactions (ith the
go&ernment comes in the form of bribes or ".ic.bac."
(hich are not a''o(e% as %e%uctions from gross income
(+ection 5!(A)(l)(c), N6#).
Deuctions: 1rinary Business #x$enses (%&&')
$A; is the presi%ent an% chief eecuti&e officer of A22
3omputers- ,nc. When $A; (as as.e% to 7oin the
go&ernment ser&ice as %irector of a bureau un%er the
2epartment of Tra%e an% ,n%ustr!- he too. a 'ea&e of
absence from A22. Be'ie&ing that its business out'oo.-
goo%(i'' an% opportunities impro&e% (ith $A; in the
go&ernment- A22 propose% to obtain a po'ic! of
insurance on his 'ife. $n ethica' groun%s- $A; ob7ecte%
to the insurance purchase but A22 purchase% the po'ic!
an!(a!. ,ts annua' premium amounte% to 1100-000. ,s
sai% premium %e%uctib'e b! A22 3omputers- ,nc.#
?eason. *54+
SUGGESTED ANSWER)
<o. The premium is not %e%uctib'e because it is not an
or%inar! business epense. The term "or%inar!" is use% in
the income ta 'a( in its common significance an% it has
the connotation of being norma'- usua' or customar!
(Dep%t' +. D% *ontF 6!8 =S .88 K)-.!L#. 1a!ing premiums
for the insurance of a person not connecte% to the
compan! is not norma'- usua' or customar!.


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

Another reason for its non0%e%uctibi'it! is the fact that it
can be consi%ere% as an i''ega' compensation ma%e to a
go&ernment emp'o!ee. This is so because if the insure%-
his estate or heirs (ere ma%e as the beneficiar! (because
of the re7uirement of insurable interest)- the pa!ment of
premium (i'' constitute bribes (hich are not a''o(e% as
%e%uction from gross income (+ection 5!AA@Al@Ac@,
N6#).
$n the other han%- if the compan! (as ma%e the
beneficiar!- (hether %irect'! or in%irect'!- the premium is
not a''o(e% as a %e%uction from gross income (+ection
5-AAF$!@, N6#).
Deuctions: Amount (or Bribe (%&&1)
,n or%er to faci'itate the processing of its app'ication for
a 'icense from a go&ernment office- 3orporation A foun%
it necessar! to pa! the amount of 1hp 100-000 as a bribe
to the appro&ing officia'. ,s the 1hp 100-000 %e%uctib'e
from the gross income of 3orporation A# $n the other
han%- is the 1hp 100-000 taab'e income of the
appro&ing officia'# 8p'ain !our ans(ers. *54+
SUGGESTED ANSWER)
6ince the amount of 1hp'00.000 constitutes a bribe- it is not
a''o(e% as a %e%uction from gross income of 3orporation A-
(+ection 5!(A)(l)(c), N6#). @o(e&er- to the recipient
go&ernment officia'- the same constitutes a taab'e income. A''
income from 'ega' or i''ega' sources are taab'e absent an! c'ear
pro&ision of 'a( eempting the same. This is the reason (h!
gross income ha% been %efine% to inc'u%e income from (hate&er
source %eri&e%. (+ection 5%(A), N6#). ,''ega''! acEuire% income
constitutes rea'i/e% income un%er the c'aim of right %octrine
(R%tCin
+. =SF 6.6 =S )6!#.
Deuctions: *a$ital +osses) Pro0ibitions (%&&2)
What is the rationa'e for the ru'e prohibiting the %e%uction
of capita' 'osses from or%inar! gains# 8p'ain.
SUGGESTED ANSWER)
,t is to insure that on'! costs or epenses incurre% in
earning the income sha'' be %e%uctib'e for income ta
purposes consonant (ith the reEuirement of the 'a( that
on'! necessar! epenses are a''o(e% as %e%uctions from
gross income. The term "N44++A#G 4H94N+4+"
presupposes that in or%er to be a''o(e% as %e%uction- the
epense must be business connecte%- (hich is not the
case insofar as capita' 'osses are concerne%. This is a'so
the reason (h! a'' non0business connecte% epenses 'i.e
persona'- 'i&ing an% fami'! epenses- are not a''o(e% as
%e%uction from gross income (+ection 5-(A)($) of the
$))& Tax ode).
The prohibition of %e%uction of capita' 'osses from
or%inar! gains is %esigne% to foresta'' the shifting of
%e%uctions from an area sub7ect to 'o(er taes to an area
sub7ect to higher taes- thereb! unnecessari'! resu'ting in
'ea.age of ta re&enues. 3apita' gains are genera''! tae%
at a 'o(er rate to pre&ent- among others- the bunching of
income in one taab'e !ear (hich is a 'ibera'it! in the 'a(
begotten from moti&es of pub'ic po'ic! (#ule on =olding
9eriod). ,t stan%s to reason therefore- that if the
transaction resu'ts in 'oss- the same shou'% be a''o(e%
on'! from an% to the etent of capita' gains an% not to be
%e%ucte% from
2' of 73
or%inar! gains (hich are sub7ect to a higher rate of
income ta. (hirelstein, <ederal 6ncome Taxation, $)&&
4d.)
Deuctions: Deuctible Items (rom ?ross Income (1999)
8p'ain if the fo''o(ing items are %e%uctib'e from gross
income for income ta purposes. 2isregar% (ho is the
person c'aiming the epense. *54+ 1+ ,nterest on 'oans
use% to acEuire capita' eEuipment
or machiner!. 2+ 2epreciation
of goo%(i''.
SUGGESTED ANSWER)
1+ ,nterest on loans %sed to ac5%ire capital e5%ip3ent
or 3ac&iner' is a %e%uctib'e item from gross income.
The 'a( gi&es the tapa!er the option to c'aim as a
%e%uction or treat as capita' epen%iture interest incurre%
to acEuire propert! use% in tra%e- business or eercise of a
profession. (+ection 5!(3) (5), N6#).
2+ Depreciation for good4ill is not a''o(e% as %e%uction
from gross income. Whi'e intangib'es ma!be a''o(e% to
be %epreciate% or amorti/e%- it is on'! a''o(e% to those
intangib'es (hose use in the business or tra%e is %efinite'!
'imite% in %uration. *Basilan EstatesF ,nc. +F C,RF )
SCRA )/+. 6uch is not the case (ith goo%(i''.
ATERNATI&E ANSWER)
2epreciation of goo%(i'' is a''o(e% as a %e%uction from
gross income if the goo%(i'' is acEuire% through capita'
out'a! an% is .no(n from eperience to be of &a'ue to the
business for on'! a 'imite% perio%. (+ection $'&, #evenue
#egulations No. %). ,n such case- the goo%(i'' is a''o(e%
to be amorti/e% o&er its usefu' 'ife to a''o( the %e%uction
of the current portion of the epense from gross income-
thereb! pa&ing the (a! for a proper matching of costs
against re&enues (hich is an essentia' feature of the
income ta s!stem.
Deuctions: Income Tax: Donation: 5eal Pro$erty (%&&%)
$n 2ecember 06- 2001- 9:< 3orporation %onate% a piece
of &acant 'ot situate% in >an%a'u!ong 3it! to an
accre%ite% an% %u'! registere% non0stoc.- non0profit
e%ucationa' institution to be use% b! the 'atter in bui'%ing
a sports comp'e for stu%ents.
A. >a! the %onor c'aim in fu'' as %e%uction from its
gross income for the taab'e !ear 2001 the amount of the
%onate% 'ot eEui&a'ent to its fair mar.et &a'ueL/ona' &a'ue
at the time of the %onation# 8p'ain !our ans(er. *24+
SUGGESTED ANSWER)
A. <o. 2onations an%Lor contributions ma%e to
Eua'ifie% %onee institutions consisting of propert!
other than mone! sha'' be base% on the acEuisition
cost of the propert!. The %onor is not entit'e% to
c'aim as fu'' %e%uction the fair mar.et &a'ueL/ona'
&a'ue of the 'ot %onate%. *6ec. 34*@+- <,?3+.
B. ,n or%er that %onations to non0stoc.- non0profit
e%ucationa' institution ma! be eempt from the %onorCs
gift ta- (hat con%itions must be met b! the %onee# *34+
SUGGESTED ANSWER)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

B. ,n or%er that %onations to non0stoc.- non0profit
e%ucationa' institution ma! be eempt from the
%onorCs gift ta- it is reEuire% that not more than 304
of the sai% gifts sha'' be use% b! the %onee0institution
for a%ministration purposes. *6ec. 101*A+*3+- <,?3+.
Deuctions: @onADeuctible Items) ?ross Income (1999)
8p'ain if the fo''o(ing items are %e%uctib'e from gross
income for income ta purposes. 2isregar% (ho is the
person c'aiming the %e%uction. *54+
1. ?eser&es for ba% %ebts.
2. Worth'ess securities
SUGGESTED ANSWER)
6 RESERBE FOR BAD DEBTS are not a''o(e% as
%e%uction from gross income. Ba% %ebts must be charge% off
%uring the taab'e !ear to be a''o(e% as %e%uction from gross
income. The mere setting up of reser&es (i'' not gi&e rise to an!
%e%uction. *6ection 34*8+. <T?3+.
2 WORTD1ESS SEC=R,T,ES- (hich are or%inar!
assets- are not a''o(e% as %e%uction from gross income because
the 'oss is not rea'i/e%. @o(e&er- if these (orth'ess securities
are capita' assets- the o(ner is consi%ere% to ha&e incurre% a
capita' 'oss as of the 'ast %a! of the taab'e !ear an%- therefore-
%e%uctib'e to the etent of capita' gains. (+ection 5!(B)(!),
N6#). This %e%uction- ho(e&er- is not a''o(e% to a ban. or
trust compan!. (+ection 5!(4)(%), N6#).
Deuctions: 5e>uisites) Deucibility o( a +oss (199/)
5i&e the reEuisites for %e%ucibi'it! of a 'oss. *541
SUGGESTED ANSWER)
The reEuisites for %e%ucibi'it! of a 'oss are 1+ 'oss
be'ongs to the tapa!erD 2+ actua''! sustaine% an%
charge% off %uring the taab'e
!earD 3+ e&i%ence% b! a c'ose% an% comp'ete% transactionD
4+ not compensate% b! ,nsurance or other forms of
in%emnit!D 5+ not c'aime% as a %e%uction for estate ta
purposes in case of in%i&i%ua' tapa!ersD an% 6+ if it is a
casua't! 'oss it is e&i%ence% b! a %ec'aration of 'oss fi'e%
(ithin 45 %a!s (ith the B,?.
COMMENT)
The Euestion is &ague. There are %ifferent .in%s of 'osses
recogni/e% as %e%uctib'e un%er the Ta 3o%e. These are 'osses-
in genera' *6ec. 34N2O*1+D net operating 'oss carr!o&er *6ec.
34N2O*3+D capita' 'osses *6ec. 34N2O*4+D 9osses from (ash sa'es
of stoc.s or securities *6ec. 34N2O*5+ in re'ation to 6ec. 38+D
(agering 'osses *6ec. 34N2O*6+D an% aban%onment 'osses *6ec.
34*2O*7+. 9osses are a'so %e%uctib'e from the gross estate *6ec.
86NAO*'+*e+- <,?3+.
3onsi%ering the time a''otte% for a fi&e *5+ point Euestion is
on'! nine *9+ minutes- the can%i%ates (ou'% not be ab'e to (rite
%o(n a comp'ete ans(er. ,t is suggeste% that an! ans(er (hich
states the reEuisites for the %e%ucibi'it! of an! of the abo&e
'osses be gi&en fu'' cre%it.
Deuctions) Income Tax: Allowable Deuctions (%&&1)
Tapa!ers (hose on'! income consists of sa'aries an%
(ages from their emp'o!ers ha&e 'ong been comp'aining
2* of 73
that the! are not a''o(e% to %e%uct an! item from their
gross income for purposes of computing their net taab'e
income. With the passage of the 3omprehensi&e Ta
?eform Act of 1997- is this comp'aint sti'' &a'i%# 8p'ain
!our ans(er. *54+
SUGGESTED ANSWER)
<o more. 5ross compensation income earners are no(
a''o(e% at 'east an item of %e%uction in the form of
premium pa!ments on hea'th an%Lor hospita'i/ation
insurance in an amount not ecee%ing 12-400 per annum
N6ection 34*>+O. This %e%uction is a''o(e% if the
aggregate fami'! income %o not ecee% 1250.000 an% b!
the spouse- in case of marrie% in%i&i%ua'- (ho c'aims
a%%itiona' persona' eemption for %epen%ents.
Deuctions) 4anis0in7 Deuction) Pur$ose (%&&6)
:anishing %e%uction is a&ai'e% of b! tapa!ers to)
6: 3orrect his accounting recor%s to ref'ect the
actua' %e%uctions ma%e
2: ?e%uce his gross income
7: ?e%uce his output &a'ue0a%%e% ta 'iabi'it!
8: ?e%uce his gross estate 3hoose the correct
ans(er. 8p'ain. *54+ SUGGESTED ANSWER)
*2+ re%uce his gross estate. :anishing %e%uction or prop0
ert! pre&ious'! tae% is one of the items of %e%uction
a''o(e% in computing the net estate of a %ece%ent
(+ection /-AA@A%@ and /-A3@A%@, N6#).
#xclusion B Inclusion) ?ross 5ecei$ts (%&&6)
3ongress enacts a 'a( imposing a 54 ta on gross
receipts of common carriers. The 'a( %oes not %efine the
term "gross receipts." 8press Transport- ,nc.- a bus
compan! p'!ing the >ani'a0Baguio route- has time
%eposits (ith AB3 Ban.. ,n 2005- 8press Transport
earne% 11 >i''ion interest- after %e%ucting the 204 fina'
(ithho'%ing ta from its time %eposits (ith the ban.. The
B,? (ants to co''ect a 54 gross receipts ta on the
interest income of 8press Transport (ithout %e%ucting
the 204 fina' (ithho'%ing ta. ,s the B,? correct#
8p'ain. *54+
ATERNATI&E ANSWER)
;es. The term "5ross ?eceipts" is broa% enough to inc'u%e
income constructi&e'! recei&e% b! the tapa!er. The amount
(ithhe'% is pai% to the go&ernment on its beha'f- in satisfaction of
(ithho'%ing taes. The fact that it %i% not actua''! recei&e the
amount %oes not a'ter the fact that it is remitte% in satisfaction of
its ta ob'igations. 6ince the income (ithhe'% is an income
o(ne% b! 8press Transport- the same forms part of its gross
receipts (C,R +. SolidbanC Corp.F 7.R. 9o. ).8)-)F 9o+e3ber :F
!!6#.
ATERNATI&E ANSWER)
<o. The term "gross receipts-" as app'ie% to the business
of a common carrier consists of re&enues from carriage
of goo%s- cargoes- an% passengers. ,t %oes not
comprehen% or inc'u%e interest income (hich is proper'!
%escribe% as "$ther ,ncome."
(9OTA BE9E: This 7uestion pertains to a percentage tax on
"ross #eceipts which is excluded from the 3ar coverage)
#xclusion !s" Deuction (rom ?ross Income (%&&1)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

2istinguish "8c'usion from 5ross ,ncome" from
"2e%uctions Hrom 5ross ,ncome". 5i&e an eamp'e of
each. *24+
SUGGESTED ANSWER)
EJC1=S,O9S fro3 gross inco3e refer to a f'o( of
(ea'th to the tapa!er (hich are not treate% as part of
gross income- for purposes of computing the tapa!erPs
taab'e income- %ue to the fo''o(ing reasons) *1+ ,t is
eempte% b! the fun%amenta' 'a(D *2+ ,t is eempte% b!
statuteD an% *3+ ,t %oes not come (ithin the %efinition of
income. *6ection 61- ?? <o. 2+. DED=CT,O9S fro3
gross inco3e- on the other han%- are the amounts- (hich
the 'a( a''o(s to be %e%ucte% from gross income in or%er
to arri&e at net income.
8c'usions pertain to the computation of gross income-
(hi'e %e%uctions pertain to the computation of net
income. 8c'usions are something recei&e% or earne% b!
the tapa!er (hich %o not form part of gross income
(hi'e %e%uctions are something spent or pai% in earning
gross income.
8amp'e of an ec'usion from gross income is procee%s
of 'ife insurance recei&e% b! the beneficiar! upon the
%eath of the insure% (hich is not an income or 13th
month pa! of an emp'o!ee not ecee%ing 130.000 (hich
is an income not recogni/e% for ta purposes. 8amp'e of
a %e%uction is business renta'.
#xclusions B Inclusions: Bene(its on Account o( InDury
(199,)
>r. ,nfante (as hit b! a (a!(ar% bus (hi'e on his (a! to
(or.. @e sur&i&e% but ha% to pa! 1400.000.00 for his
hospita'i/ation. @e (as unab'e to (or. for si months
(hich meant that he %i% not recei&e his usua' sa'ar! of 1
10-000.00 a month or a tota' of 160.000.00. @e sue% the
bus compan! an% (as ab'e to obtain a fina' 7u%gment
a(ar%ing him 1400.000.00 as reimbursement for his
hospita'i/ation- 160.000 for the sa'aries he fai'e% to
recei&e (hi'e hospita'i/e%- 1200-000.00 as mora'
%amages for his pain an% suffering- an% 1 100-000.00 as
eemp'ar! %amages. @e (as ab'e to co''ect in fu'' from
the 7u%gment. @o( much income %i% he rea'i/e (hen he
co''ecte% on the 7u%gment# 8p'ain.
SUGGESTED ANSWER)
<one. The 1200.000 mora' an% eemp'ar! %amages are
compensation for in7uries sustaine% b! >r. ,nfante. The
1400.000.00 reimbursement for hospita'i/ation epenses
an% the 160.000.00 for sa'aries he fai'e% to recei&e are
Camounts of an! %amages recei&e% (hether b! suit or
agreement on account of such in7uries.C 6ection 28*b+*5+
of the Ta 3o%e specifica''! ec'u%e these amounts from
the gross income of the in%i&i%ua' in7ure%. *6ection
28*b+- <,?3 an% 6ec. 63 ?e&. ?eg. <o. 2+
ATERNATI&E ANSWER)
The income rea'i/e% from the 7u%gment is on'! the
reco&er! for 'ost sa'aries. This constitutes taab'e income
because (ere it not for the in7ur!- he cou'% ha&e recei&e%
it from his emp'o!er as compensation income. A'' the
other amounts recei&e% are either compensation for
in7uries or %amages recei&e% on account of such in7uriesC
29 of 73
(hich are ec'usions from gross income pursuant
to 6ection 28*b+*5+ of the Ta 3o%e.
#xclusions B Inclusions: #xecuti!e Bene(its (199,)
>r. A%rian is an eecuti&e of a big business corporation.
Asi%e from his sa'ar!- his emp'o!er pro&i%es him (ith the
fo''o(ing benefits) free use of a resi%entia' house in an
ec'usi&e sub%i&ision- free use of a 'imousine an%
membership in a countr! c'ub (here he can entertain
customers of the corporation. Which of these benefits- if
an!- must >r. A%rian report as income# 8p'ain.
SUGGESTED ANSWER)
>r. A%rian must report the impute% renta' &a'ue of the
house an% 'imousine as income. ,f the renta' &a'ue
ecee%s the persona' nee%s of >r. A%rian because he is
epecte% to pro&i%e accommo%ation in sai% house for
compan! guests or the car is use% part'! for business
purpose- then >r. A%rian is entit'e% on'! to a ratab'e
renta' &a'ue of the house an% 'imousine as ec'usion from
gross income an% on'! a reasonab'e amount shou'% be
reporte% as income. This is because the free housing an%
use of the 'imousine are gi&en part'! for the con&enience
an% benefit of the emp'o!er (Collector +s. Denderson#.
ATERNATI&E ANSWER)
?emuneration for ser&ices a'though not gi&en in the form
of cash constitutes compensation income. Accor%ing'!-
the &a'ue for the use of the resi%entia' house is part of his
compensation income (hich he must report for income
ta purposes. @o(e&er- if the resi%entia' house gi&en to
>r. A%rian for his free use as an eecuti&e is a'so use% for
the benefit of the corporationLemp'o!er- such as for
entertaining customers of the corporation- on'! 504 of
the renta' &a'ue or %epreciation *if the house is o(ne% b!
the corporation+ sha'' form part of compensation income
*?A>$ 1087+.
The free use of a 'imousine an% the membership in a
countr! c'ub is not part of >r. A%rianCs compensation
income because the! (ere gi&en for the benefit of the
emp'o!er an% are consi%ere% to be necessar! inci%ents for
the proper performance of his %uties as an eecuti&e of
the corporation.
The membership fee in the countr! c'ub nee%s to be
reporte% as income. ,t appears that the membership of >r.
A%rian to the countr! c'ub is primari'! for the benefit an%
con&enience of the emp'o!er. This is to enab'e >r. A%rian
to entertain compan! guests (Collector +s. Denderson#.
#xclusions B Inclusions) Assets) 5esient Alien (%&&,)
?a'ph 2ona'%- an American citi/en- (as a top eecuti&e
of a F.6. compan! in the 1hi'ippines unti' he retire% in
1999. @e came to 'i.e the 1hi'ippines so much that
fo''o(ing his retirement- he %eci%e% to spen% the rest of
his 'ife in the countr!. @e app'ie% for an% (as grante% a
permanent resi%ent status the fo''o(ing !ear. ,n the spring
of 2004- (hi'e &acationing in $r'an%o- H'ori%a- F6A- he
suffere% a heart attac. an% %ie%. At the time of his %eath-
he 'eft the fo''o(ing properties) *a+ ban. %eposits (ith
3itiban. >a.ati an% 3itiban. $r'an%o- H'ori%aD *b+ a
resthouse in $r'an%o- H'ori%aD *c+ a con%ominium unit in


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

>a.atiD *%+ shares of stoc. in the 1hi'ippine subsi%iar! of
the F.6. 3ompan! (here he (or.e%D *e+ shares of stoc.
in 6an >igue' 3orp. an% 19$TD *f+ shares of stoc. in
2isne! Wor'% in H'ori%aD *g+ F.6. treasur! bon%sD an% *g+
procee%s from a 'ife insurance po'ic! issue% b! a F.6.
corporation. Which of the foregoing assets sha'' be
inc'u%e% in the taab'e gross estate in the 1hi'ippines#
8p'ain. *54+
SUGGESTED ANSWER)
A'' of the properties enumerate% ecept *g+- the procee%s
from 'ife insurance- are inc'u%e% in the taab'e gross
estate in the 1hi'ippines. ?a'ph 2ona'% is consi%ere% a
resi%ent a'ien for ta purposes since he is an American
3iti/en an% (as a permanent resi%ent of the 1hi'ippines
at the time of his %eath. The &a'ue of the gross estate of a
resi%ent a'ien %ece%ent sha'' be %etermine% b! inc'u%ing
the &a'ue at the time of his %eath of a'' propert!- rea' or
persona'- tangib'e or intangib'e- (here&er situate%. *6ec.
85- <,?3+ The other item- *g+ procee%s from a 'ife
insurance po'ic!- ma! a'so be inc'u%e% on the assumption
that it (as ?a'ph 2ona'% (ho too. out the insurance
upon his o(n 'ife- pa!ab'e upon his %eath to his estate.
*6ec. 85N8O- <,?3+
#xclusions B Inclusions) Bene(its on Account o( Deat0
(1996)
A- an emp'o!ee of AB3 3orporation %ie%. AB3
3orporation ga&e APs (i%o( an amount eEui&a'ent to APs
sa'ar! for one !ear. ,s the amount consi%ere% taab'e
income to the (i%o(# Wh!#
SUGGESTED ANSWER)
<o. The amount recei&e% b! the (i%o( from the
%ece%entCs emp'o!er ma! either be a gift or a separation
benefit on account of %eath. Both are ec'usions from
gross income pursuant to pro&isions of 6ection 28*b+ of
the Ta 3o%e.
ATERNATI&E ANSWER)
<o. 6ince the amount (as gi&en to the (i%o( an% not to
the estate- it becomes ob&ious that the amount is more of a
gift. ,n one F.6. ta case *Estate of Dellstro3 +s.
Co33issionerF . T.C. -)"+- it (as he'% that pa!ments to
the (i%o( of the presi%ent of a corporation of the amount
the presi%ent (ou'% ha&e recei&e% in sa'ar! if he 'i&e% out
the !ear constitute% a gift an% not an income.
The contro''ing facts (hich (ou'% 'ea% to the conc'usion
that the amount recei&e% b! the (i%o( is not an income
are as fo''o(s) 7+ the gift (as ma%e to the (i%o( rather
than the
estate) 8+ there (as no ob'igation for the corporation to
ma.e
further pa!ments to the %ecease%D 9+ the (i%o( ha% ne&er
(or.e% for the corporationD 10+ the corporation recei&e%
no economic benefitD an% 11+ the %ecease% ha% been fu''!
compensate% for his
ser&ices *Estate of S'dne' Carter +s. Co33issionerF
.:6 F. d ") (dCir. )-/)+.
#xclusions B Inclusions) Bene(its on Account o( InDury
(%&&,)
J? (as a passenger of an air'ine that crashe%. @e sur&i&e%
the acci%ent but sustaine% serious ph!sica' in7uries (hich
reEuire% hospita'i/ation for 3 months. Ho''o(ing
negotiations (ith the air'ine an% its insurer- an agreement
30 of 73
(as reache% un%er the terms of (hich J? (as pai% the
fo''o(ing amounts) 1500-000.00 for his hospita'i/ationD
1250-000.00 as mora' %amagesD an% 1300-000.00 for 'oss
of income %uring the perio% of his treatment an%
recuperation. ,n a%%ition- J? recei&e% from his emp'o!er
the amount of 1200-000.00 representing the cash
eEui&a'ent of his earne% &acation an% sic. 'ea&es. Which-
if an!- of the amounts he recei&e% are sub7ect to income
ta# 8p'ain. *54+
SUGGESTED ANSWER)
A'' amounts recei&e% from the air'ine compan! are
ec'u%e% from gross income. Fn%er 6ec. 32*B+*4+ of the
<,?3- amounts of %amages recei&e%- (hether b! suit or
agreement- on account of persona' in7uries or sic.ness are
ec'u%e% from gross income. 6ince the amounts recei&e%
from the air'ine compan! (ere recei&e% as %amages b!
agreement on account of persona' in7uries- a'' sha'' be
ec'u%e% from J?Cs gross income.
The amount of 1200-000.00- 'ess the eEui&a'ent of not
more than 10 %a!s of &acation 'ea&e- recei&e% b! J? from
his emp'o!er- is sub7ect to income ta un%er 6ec. 2.78.1
*a+ *7+ of ?.?. <o. 2098.
#xclusions B Inclusions) *om$ensation (or $ersonal
inDuries or sic.ness (%&&2)
A- (hi'e %ri&ing home from his office- (as serious'!
in7ure% (hen his automobi'e (as bumpe% from behin% b!
a bus %ri&en b! a rec.'ess %ri&er. As a resu't- he ha% to
pa! 1200-000.00 to his %octor an% 1100- 000.00 to the
hospita' (here he (as confine% for treatment. @e fi'e% a
suit against the bus %ri&er an% the bus compan! an% (as
a(ar%e% an% pai% actua' %amages of 1300- 000.00 (for his
doctor and hospitaliIation bills), 1100-000.00 b! (a! of
mora' %amages- an% 150-000.00 for (hat he ha% to pa!
his attorne! for bringing his case to court. Which- if an!-
of the foregoing a(ar%s are taab'e income to A an%
(hich are not# 8p'ain. *84+
SUGGESTED ANSWER)
<othing is taab'e. Fn%er the Ta 3o%e- an! amount
recei&e% as compensation for persona' in7uries or
sic.ness- p'us the amounts for an! %amages recei&e%
(hether b! suit or agreement- on account of such in7uries
or sic.ness sha'' be ec'u%e% from gross income. 6ince
the entire amount of 1450- 000.00 recei&e% are a(ar% of
%amages on account of the in7uries sustaine%D a'' sha'' be
ec'u%e% from his gross income. $b&ious'!- these
%amages are consi%ere% b! 'a( as mere return of capita'.
*6ection 32*B+*4+- 1997 Ta 3o%e+
#xclusions B Inclusions) Facilities or Pri!ile7es)
=ilitary*am$ (199,)
3apt. 3anuto is a member of the Arme% Horces of the
1hi'ippines. Asi%e from his pa! as captain- the go&ernment
gi&es him free uniforms- free 'i&ing Euarters in (hate&er
mi'itar! camp he is assigne%- an% free mea's insi%e the
camp. Are these benefits income to 3apt. 3anuto#
8p'ain.
SUGGESTED ANSWER)
<o- the free uniforms- free 'i&ing Euarters an% the free
mea's insi%e the camp are not income to 3apt. 3anute
because these are faci'ities or pri&i'eges furnishe% b! the


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

emp'o!er for the emp'o!erCs con&enience (hich are
necessar! inci%ents to proper performance of the mi'itar!
personne'Cs %uties.
#xclusions B Inclusions) ?i(ts o!er an abo!e t0e
5etirement Pay (199,)
>r. Kuiro/ (or.e% as chief accountant of a hospita' for
fort!0fi&e !ears. When he retire% at 65 he recei&e%
retirement pa! eEui&a'ent to t(o monthsC sa'ar! for e&er!
!ear of ser&ice as pro&i%e% in the hospita' B,? appro&e%
retirement p'an. The Boar% of 2irectors of the hospita'
fe't that the hospita' shou'% gi&e Kuiro/ more than (hat
(as pro&i%e% for in the hospita'Cs retirement p'an in &ie(
of his 'o!a't! an% in&a'uab'e ser&ices for fort!0fi&e !earsD
hence- it reso'&e% to pa! him a gratuit! of 11 >i''ion o&er
an% abo&e his retirement pa!.
The 3ommissioner of ,nterna' ?e&enue tae% the 11
>i''ion as part of the gross compensation income of
Kuiro/ (ho proteste% that it (as ec'u%e% from income
because *a+ it (as a retirement pa!- an% *b+ it (as a gift.
1+ ,s >r. Kuiro/ correct in c'aiming that the a%%itiona'
11 >i''ion (as retirement pa! an% therefore
ec'u%e% from income# 8p'ain.
2+ ,s >r. Kuiro/ correct in c'aiming that the
a%%itiona' 11 >i''ion (as gift an% therefore ec'u%e%
from income# 8p'ain.
SUGGESTED ANSWERS)
1+ <o. The a%%itiona' 11 mi''ion is not a retirement pa!
but a part of the gross compensation income of >r.
Kuiro/. This is not a retirement benefit recei&e% in
accor%ance (ith a reasonab'e pri&ate benefit p'an
maintaine% b! the emp'o!er as it (as not pai% out of the
retirement p'an. Accor%ing'!- the amount recei&e% in
ecess of the retirement benefits that he is entit'e% to
recei&e un%er the B,?0appro&e% retirement p'an (ou'% not
Eua'if! as an ec'usion from gross income.
2+ <o. The amount recei&e% (as in consi%eration of his
'o!a't! an% in&a'uab'e ser&ices to the compan! (hich is
c'ear'! a compensation income recei&e% on account of
emp'o!ment. Fn%er the emp'o!erCs Cmoti&ation test-C
emphasis shou'% be p'ace% on the &a'ue of >r. Kuiro/
ser&ices to the compan! as the compe''ing reason for
gi&ing him the gratuit!- hence it shou'% constitute a
taab'e income. The pa!ment (ou'% on'! Eua'if! as a gift
if there is nothing but Cgoo% (i''- esteem an% .in%nessC
(hich moti&ate% the emp'o!er to gi&e the gratuit!.
(Stonton +s. =.S.F )8" F. S%pp. 6-6#. 6uch is not the case in
the herein prob'em.
ATERNATI&E ANSWER)
;es. The 1 mi''ion is not compensation income sub7ect to
income ta but a gift from his emp'o!er. There (as no
e&i%ence presente% to sho( that he (as not fu''! compen0
sate% for his 45 !ears of ser&ice. ,f his ser&ices
contribute% in a 'arge measure to the success of the
hospita'- it %i% not gi&e rise to a reco&erab'e %ebt. The 11
mi''ion is pure'! a gratuit! from the compan!. ,t is a
taab'e gift to the transferor. Fn%er the Ta 3o%e- gifts
are ec'u%e% from gross income therefore eempt from
income ta. *6ec. 28Gb+*3+- <,?3D *iro+ano +s.
Co33issioner+
31 of 73
#xclusions B Inclusions) IT5) 12t0 mont0 $ay an
e minimis bene(its (%&&,)
6tate (ith reasons the ta treatment of the fo''o(ing in
the preparation of annua' income ta returns) 13th month
pa! an% de minimis benefitsD
SUGGESTED ANSWER)
The )6t& 3ont& pa' not ecee%ing 130-000.00 sha'' not
be reporte% in the income ta return because it is
ec'u%e% from gross income *+ec. 5%A3@A&@, Ae@, N6#+
The amount of the 13th month pa! in ecess of
130-000.00 sha'' be reporte% in the annua' income ta
return.
De 3ini3is benefits (hich %o not ecee% the cei'ings are
ec'u%e% from gross income- an% not to be consi%ere% for
%etermining the 130-000.00 cei'ing hence not reportab'e in
the annua' income ta return. (+ec. %.&/.$AA@A5@, #.#. %.
)/ as amended by +ec. %.55 A@ and further amended by
#.#. No. /.%''')
#xclusions B Inclusions) IT5) Di!iens recei!e by a
omestic cor$oration (%&&,)
6tate (ith reasons the ta treatment of the fo''o(ing in
the preparation of annua' income ta returns) 2i&i%en%s
recei&e% b! a %omestic corporation from *i+ another
%omestic corporationD an% *ii+ a foreign corporationD
SUGGESTED ANSWER)
*i+ 2i&i%en%s recei&e% b! a %omestic corporation from a
%omestic corporation sha'' not be sub7ect to ta *6ec.
27N2ON4O- <,?3+- hence- ec'u%e% from the income ta
return.
*ii+ 2i&i%en%s recei&e% b! a %omestic corporation from a
foreign corporation form part of the gross income an% are
accor%ing'! sub7ect to net income ta- hence inc'u%e% in
the annua' ,T? *6ec. 42NAON2ONbO- <,?3+- hence- must be
inc'u%e% in the income ta return.
#xclusions B Inclusions) IT5) Income realiCe (rom sale
(%&&,)
6tate (ith reasons the ta treatment of the fo''o(ing in
the preparation of annua' income ta returns) ,ncome
rea'i/e% from sa'e of) *i+ capita' assetsD an% *ii+ or%inar!
assets.
SUGGESTED ANSWER)
*i+ ,ncome rea'i/e% from sa'e of capita' assets is sub7ect
to the fina' (ithho'%ing ta at source an% therefore
ec'u%e% from the ,ncome Ta ?eturn *6ec. 24N3O an%
N2O- <,?3+D
*ii+ ,ncome rea'i/e% from sa'e of or%inar! assets is part of
5ross ,ncome- inc'u%e% in the ,ncome Ta ?eturn. *6ec.
32NAON3O- <,?3+
#xclusions B Inclusions) IT5) Interest on e$osits (%&&,)
6tate (ith reasons the ta treatment of the fo''o(ing in
the preparation of annua' income ta returns) ,nterest on
%eposits (ith) *i+ B1, Hami'! Ban.D an% *ii+ a 'oca'
offshore ban.ing unit of a foreign ban.D
SUGGESTED ANSWER)
Both items are ec'u%e% from the income ta return)
*i+ ,nterest income from an! currenc! ban. %eposit is
consi%ere% passi&e income from sources (ithin the
1hi'ippines an% sub7ect to fina' ta. 6ince it is sub7ect to


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

fina' ta it is not to be inc'u%e% in the annua' ,T?. *6ec.
24NBON1O- <,?3+ *u+ 6ame as <o. *7+.
#xclusions B Inclusions) IT5) Procees o( li(e insurance
(%&&,)
6tate (ith reasons the ta treatment of the fo''o(ing in the
preparation of annua' income ta returns) 1rocee%s of 'ife
insurance recei&e% b! a chi'% as irre&ocab'e beneficiar!D
SUGGESTED ANSWER)
<ot to be reporte% in the annua' income ta returns
because the procee%s of the 'ife insurance are ec'u%e%
from gross income. 1rocee%s of 9ife insurance po'icies
pai% to the heirs or beneficiaries upon the %eath of the
insure% is an ec'usion from gross income. (+ec.5%A3@
Al@,N6#)
#xclusions B Inclusions) +i(e Insurance Policy (%&&2)
$n 30 June 2000- A too. out a 'ife insurance po'ic! on
his o(n 'ife in the amount of 12-000-000.00. @e
%esignate% his (ife- ;- as irre&ocab'e beneficiar! to
11-000-000.00 an% his son- I- to the ba'ance of
11-000-000.00 but- in the 'atter %esignation- reser&ing his
right to substitute him for another. $n 01 6eptember
2003- A %ie% an% his (ife an% son (ent to the insurer to
co''ect the procee%s of ACs 'ife insurance po'ic!. *84+
*a+ Are the procee%s of the insurance sub7ect to
income ta on the part of ; an% I for their respecti&e
shares# 8p'ain.
*b+ Are the procee%s of the insurance to form part
of the gross estate of A# 8p'ain.
SUGGESTED ANSWERS)
*a+ <o. The 'a( ep'icit'! pro&i%es that procee%s of 'ife
insurance po'icies pai% to the heirs or beneficiaries upon
the %eath of the insure% are ec'u%e% from gross income
an% is eempt from taation. The procee%s of 'ife
insurance recei&e% upon the %eath of the insure%
constitute a compensation for the 'oss of 'ife- hence a
return of capita'- (hich is be!on% the scope of income
taation. (+ection 5%(3)($) $))& Tax ode)
*b+ $n'! the procee%s of 11-000-000.00 gi&en to the son-
I- sha'' form part of the 5ross 8state of A. Fn%er the Ta
3o%e- procee%s of 'ife insurance sha'' form part of the
gross estate of the %ece%ent to the etent of the amount
recei&ab'e b! the beneficiar! %esignate% in the po'ic! of
the insurance ecept (hen it is epress'! stipu'ate% that
the %esignation of the beneficiar! is irre&ocab'e. As state%
in the prob'em- on'! the %esignation of ; is irre&ocab'e
(hi'e the insure%L%ece%ent reser&e% the right to substitute
I as beneficiar! for another person. Accor%ing'!- the
procee%s recei&e% b! ; sha'' be ec'u%e% (hi'e the
procee%s recei&e% b! I sha'' be inc'u%e% in the gross
estate of A. (+ect;on /,(4), $))& Tax ode)
#xem$tions: *0aritable Institutions (%&&&)
Artic'e :,- 6ection 28 *3+ of the 1987 1hi'ippine
3onstitution pro&i%es that charitab'e institutions- churches
an% personages or co&enants appurtenant thereto- mosEues-
non0profit cemeteries an% a'' 'an%s- bui'%ings an%
impro&ements actua''!- %irect'! an%
32 of 73
ec'usi&e'! use% for re'igious- charitab'e or
e%ucationa' purposes sha'' be eempt from taation. a+
To (hat .in% of ta %oes this eemption app'!# *24+
S=77ESTED A9SWER$
This eemption app'ies on'! to propert! taes. What is
eempte% is not the institution itse'f but the 'an%s-
bui'%ings an% impro&ements actua''!- %irect'! an%
ec'usi&e'! use% for re'igious- charitab'e an% e%ucationa'
purposes. (Co33issioner of ,nternal Re+en%e +. Co%rt of
AppealsF et alF 7.R. 9o. ).!.6F October ).F )--8#.
b+ ,s proof of actua' use necessar! for ta eemption
purposes un%er the 3onstitution# *34+
SUGGESTED ANSWER)
;es- because ta eemptions are strict'! construe% against
the tapa!er. There must be e&i%ence to sho( that the
tapa!er has comp'ie% (ith the reEuirements for
eemption. Hurthermore- rea' propert! taation is base% on
use an% not on o(nership- hence the same ru'e must a'so
be app'ie% for rea' propert! ta eemptions.
#xem$tions: *0aritable Institutions) *0urc0es (1996)
The 3onstitution eempts from taation charitab'e in0
stitutions- churches- parsonages or con&ents appurtenant
thereto- mosEues ari% non0profit cemeteries an% 'an%s-
bui'%ings an% impro&ements actua''!- %irect'! an% ec'u0
si&e'! use% for re'igious- charitab'e an% e%ucationa'
purposes. >erc! @ospita' is a 1000be% hospita' organi/e%
for charit! patients. 3an sai% hospita' c'aim eemption
from taation un%er the abo&e0Euote% constitutiona'
pro&ision# 8p'ain.
SUGGESTED ANSWER)
;es. >erc! @ospita' can c'aim eemption from taation
un%er the pro&ision of the 3onstitution- but on'! (ith
respect to rea' propert! taes pro&i%e% that such rea'
properties are use% actua''!- %irect'! an% ec'usi&e'! for
charitab'e purposes.
#xem$tions: #ucational institution (%&&')
6uppose that A;I 3o''eges is a proprietar! e%ucationa'
institution o(ne% b! the ArchbishopCs fami'!- rather than
the Arch%iocese- (hich of those abo&e cite% income an%
%onation (ou'% be eempt from taation# 8p'ain
brief'!. *54+
SUGGESTED ANSWER)
,f A;I 3o''eges is a proprietar! e%ucationa' institution-
a'' of its income from schoo' re'ate% an% non0schoo'
re'ate% acti&ities (i'' be sub7ect to the income ta base%
on its aggregate net income %eri&e% from both acti&ities
*6ection 27*B+- <>3+. Accor%ing'!- a'' of the income
enumerate% in the prob'em (i'' be taab'e.
The %onation of 'ot an% bui'%ing (i'' 'i.e(ise be sub7ect
to the %onorCs ta because a %onation to an e%ucationa'
institution is eempt on'! if the schoo' is incorporate% as
a non0stoc. entit! pa!ing no %i&i%en%s.
6ince the %onee is a proprietar! e%ucationa' institution-
the %onation is taab'e *6ection 101*AA3+- <J?3+.
#xem$tions: ?i(ts B Donations (199')
,n 1991- ,me'%a ga&e her parents a 3hristmas gift of 1
100-000.00 an% a %onation of 150-000.00 to her parish


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics
1
+
The 3hristmas gift of 1100-000.00 gi&en b!
,me'%a to her parents is taab'e up to 150-000.00
because un%er the 'a( (+ec. )% (a) of the Tax
ode), net gifts not ecee%ing 150-000.00 are
eempt.

#
The %onation of 150-000.00 to the parish church
e&en assuming that it is ec'usi&e'! for re'igious
purposes is not ta0eempt because the eemption
grante% un%er Artic'e :,- 6ec. 28*3+ of the
3onstitution app'ies on'! to rea' estate taes
(1ladoc +. Co33issionerF ).SCRA-#.
3
+
The %onation to the 1.F.1. A'umni Association
%oes not a'so Eua'if! for eemption both un%er the
3onstitution an% the aforecite% 'a( because it is
not
an e%ucationa' or research organi/ation-
corporation- institution- foun%ation or trust.

church. 6he a'so %onate% a parce' of 'an% for the
construction of a bui'%ing to the 1F1 A'umni Association-
a non0stoc.- non0profit organi/ation. 1ortions of the
bui'%ing sha'' be 'ease% to generate income for the
association. 1+ ,s the 3hristmas gift of 1 100-000.00 to
,me'%aCs parents sub7ect to ta# 2+ @o( about the %onation
to the parish church# 3+ @o( about the %onation to the
1.F.1- A'umni Association#
SUGGESTED ANSWER)
ATERNATI&E ANSWER)
2onation to the 1.F.1. A'umni Association is eempt from
%onorCs ta if it is pro&en that the association is a nonstoc.-
non0profit charitab'e association- pa!ing no %i&i%en%s-
go&erne% b! trustees (ho recei&e no compensation- an%
%e&oting a'' its income to the accomp'ishment an%
promotion of the purposes enumerate% in its artic'es of
incorporation. <ot more than 304 of the gift shou'% be
use% for a%ministration purposes b! the %onee.
#xem$tions: Fea o( t0e Family: (199/)
Arno'%- (ho is sing'e- cohabits (ith :i'ma- (ho is
'ega''! marrie% to Iachar!. Arno'% an% :i'ma ha&e si
minor chi'%ren (ho 'i&e an% %epen% upon Arno'% for
their chief support. The chi'%ren are not marrie% an% not
gainfu''! emp'o!e%. 1+ Hor income ta purposes- ma!
Arno'% be consi%ere%
as "hea% of a fami'!#" N34O
2+ ,s Arno'% entit'e% to %e%uct from his gross
income- an a%%itiona' eemption for each of his
i''egitimate chi'%# N24O
SUGGESTED ANSWER)
$) ;es. An unmarrie% man (ho has i''egitimate
minor chi'%ren (ho 'i&e (ith him an% %epen% upon him
for their chief support is consi%ere% as "hea% of the
fami'!" *## No. %.)/ implementing +ection 5,, N6#).
2+ <o. Arno'% is on'! entit'e% to %e%uct a%%itiona'
persona' eemption for four *4+ out of the si *6+
i''egitimate chi'%ren. The maimum number of
%epen%ents for purposes of the a%%itiona' persona'
eemption is four. *6ec. 35- <,?3+.
#xem$tions: @onAPro(it #ucational Institutions (%&&&)
33 of 73
Fn%er Artic'e AT:- 6ection 4 *3+ of the 1987 1hi'ippine
3onstitution- a'' re&enues an% assets of non0stoc.-
nonprofit e%ucationa' institutions- use% actua''!- %irect'!
an% ec'usi&e'! for e%ucationa' purposes- are eempt from
taes an% %uties. Are income %eri&e% from %ormitories-
canteens an% boo.stores as (e'' as interest income on
ban. %eposits an% !ie'%s from %eposit substitutes
automatica''! eempt from taation# 8p'ain. *54+
SUGGESTED ANSWER)
<o. The interest income on ban. %eposits an% !ie'%s from
%eposit substitutes are not automatica''! eempt from
taation. There must be a sho(ing that the incomes are
inc'u%e% in the schoo'Cs annua' information return an%
%u'! au%ite% financia' statements together (ith)
6 3ertifications from %epositor! ban.s as to the
amount of interest income earne% from passi&e
in&estments not sub7ect to the 204 fina' (ithho'%ing taD
2 3ertification of actua'- %irect an% ec'usi&e
uti'i/ation of sai% income for e%ucationa' purposesD
7 Boar% reso'ution on propose% pro7ect to be
fun%e% out of the mone! %eposite% in ban.s or p'ace% in
mone! mar.et p'acements (<inance Bepartment Crder
No. $!).), issued November %!, $)),), (hich must be
use% actua''!- %irect'! an% ec'usi&e'! for e%ucationa'
purposes.
The income %eri&e% from %ormitories- canteens an%
boo.stores are not a'so automatica''! eempt from
taation. There is sti'' the reEuirement for e&i%ence to
sho( actua'- %irect an% ec'usi&e use for e%ucationa'
purposes. ,t is to be note% that the 1987 1hi'ippine
3onstitution %oes not %istinguish (ith respect to the
source or origin of the income. The %istinction is (ith
respect to the use (hich shou'% be actua'- %irect an%
ec'usi&e for e%ucationa' purposes.
3onseEuent'!- the pro&isions of 6ec. 30 of the <,?3 of
1997- that a non0stoc. an% nonprofit e%ucationa'
institution is eempt from taation on'! "in respect to
income recei&e% b! them as such" cou'% not affect the
constitutiona' ta eemption. Where the 3onstitution %oes
not %istinguish (ith respect to source or origin- the Ta
3o%e shou'% not ma.e %istinctions.
#xem$tions: @onAPro(it #ntity) Ancillary Acti!ity B
Inciental 1$erations (199')
The Fni&ersit! of Bigaa- a non0stoc.- non0profit entit!-
operates a canteen for its stu%ents an% a boo.store insi%e
the campus. ,t a'so operates t(o %ormitories for its
stu%ents- one of (hich is in the campus. ,s the Fni&ersit!
'iab'e to pa! income taes for the operation of the) 1+
canteen# 2+ boo.store# 3+ t(o %ormitories#
SUGGESTED ANSWER)
1+ Hor the operation of the canteen insi%e the campus- the
income thereon being inci%enta' to the operations of the
Fni&ersit! as a schoo'- is eempt (Art. H62 (!) (5),
onstitution: B4+ #egulations No. $5&./&, Bec. $-,
$)/&).
2+ Hor the same reasons- the Fni&ersit! of Bigaa is not
'iab'e to pa! income taes for the operation of the


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

boo.store- since this is an anci''ar! acti&it! the con%uct
of (hich is carrie% out (ithin the schoo' premises.
3+ The Fni&ersit! of Bigaa sha'' not be 'iab'e to pa!
income taes for the operation of the %ormitor! 'ocate% in
the campus- for same reasons as the foregoing. @o(e&er-
the 'atter sha'' be 'iab'e for income taes on income from
operations of the %ormitor! 'ocate% outsi%e the schoo'
premises.
#xem$tions: @onAStoc.G @onAPro(it Association (%&&%)
A;I Houn%ation is a non0stoc.- non0profit association
%u'! organi/e% for re'igious- charitab'e an% socia' (e'fare
purposes. 9ast Januar! 3- 2000 it so'% a portion of its 'ot
use% for re'igious purposes an% uti'i/e% the entire
procee%s for the construction of a bui'%ing to house its
free 2a! an% <ight 3are 3enter for chi'%ren of sing'e
parents. ,n or%er to subsi%i/e the epenses of the 2a! an%
<ight 3are 3enter an% to support its re'igious- charitab'e
an% socia' (e'fare pro7ects- the Houn%ation 'ease% the
300sEuare meter area of the secon% an% thir% f'oors of the
bui'%ing for use as a boar%ing house. The Houn%ation a'so
operates a canteen an% a gift shop (ithin the premises- a''
the income from (hich is use% actua''!- %irect'!- an%
ec'usi&e'! for the purposes for (hich the Houn%ation (as
organi/e%.
A. 3onsi%ering the constitutiona' pro&ision
granting ta eemption to non0stoc. corporations such as
those forme% ec'usi&e'! for re'igious- charitab'e or
socia' (e'fare purposes- ep'ain the meaning of the 'ast
paragraph of sai% 6ec. 30 of the 1997 Ta 3o%e (hich
states that J6ncome of whatever >ind and character of the
foregoing organiIations from any of their properties, real
or personal, or from any of their activities conducted for
profit regardless of the disposition made of such income
shall be sub1ect to tax imposed under this ode.0 *54+
SUGGESTED ANSWER)
A. The eemption contemp'ate% in the 3onstitution
co&ers rea' estate ta on rea' properties actua''!- %irect'!
an% ec'usi&e'! use% for re'igious- charitab'e or socia'
(e'fare purposes. ,t %oes not co&er eemption from the
imposition of the income ta (hich is (ithin the contet
of 6ection 30 of the Ta 3o%e. As a ru'e- non0stoc. non0
profit corporations organi/e% for re'igious- charitab'e or
socia' (e'fare purposes are eempt from income ta on
their income recei&e% b! them as such. @o(e&er- if these
re'igious- charitab'e or socia' (e'fare corporations %eri&e
income from their properties or an! of their acti&ities
con%ucte% for profit- the income ta sha'' be impose% on
sai% items of income irrespecti&e of their %isposition.
*Sec. 6!F 9,RC( C,R +F M2CAF 7R 9o. ).!.6F )--8+.
B. ,s the income %eri&e% b! A;I Houn%ation from
the sa'e of a portion of its 'ot- renta's from its boar%ing
house an% the operation of its canteen an% gift shop
sub7ect to ta# 8p'ain. *54+
SUGGESTED ANSWER)
B. ;es. The income %eri&e% from the sa'e of 'ot an%
renta's from its boar%ing house are consi%ere% as income
from properties (hich are sub7ect to ta. 9i.e(ise- the
income from the operation of the canteen an% gift shop
34 of 73
are income from its acti&ities con%ucte% for profit (hich
are sub7ect to ta. The income ta attaches irrespecti&e of
the %isposition of these incomes. *Sec. 6!F 9,RC( C,R +.
M2CAF 7R 9o. ).!.6F )--8+.
#xem$tions: PriCe o( Peace Poster *ontest (%&&&)
Jose >iran%a- a !oung artist an% %esigner- recei&e% a
pri/e of 1100-000.00 for (inning in the on0the0spot peace
poster contest sponsore% b! a 'oca' 9ions 3'ub. 6ha'' the
re(ar% be inc'u%e% in the gross income of the recipient
for ta purposes# 8p'ain. *34+
SUGGESTED ANSWER)
<o. ,t is not inc'u%ab'e in the gross income of the
recipient because the same is sub7ect to a fina' ta of
204- the amount thereof being in ecess of 110.000 (+ec.
%!(3)K$), N6# of $))&). The pri/e constitutes a taab'e
income because it (as ma%e primari'! in recognition of
artistic achie&ement (hich he (on %ue to an action on his
part to enter the contest. A+ec. 5% (3) (&) (c), N6# of
$))&@ 6ince it is an on0the0spot contest- it is e&i%ent that
he must ha&e 7oine% the contest in or%er to earn the pri/e
or a(ar%.
#xem$tions: PriCes B Awars) At0letes (1996)
$n!oc- an amateur boer- (on in a boing competition
sponsore% b! the 5o'% 3up Boing 3ounci'- a sports
association %u'! accre%ite% b! the 1hi'ippine Boing
Association. $n!oc recei&e% the amount of 1500-000 as
his pri/e (hich (as %onate% b! A!a'a 9an% 3orporation.
The B,? trie% to co''ect income ta on the amount
recei&e% b! $n!oc an% %onorCs ta from A!a'a 9an%
3orporation- (hich taes- $n!oc an% A!a'a 9an%
3orporation refuse to pa!. 2eci%e.
SUGGESTED ANSWER)
The pri/e (i'' not constitute a taab'e income to $n!oc-
hence the B,? is not correct in imposing the income ta.
?.A. <o. 7549 ep'icit'! pro&i%es that CA'' pri/es an%
a(ar%s grante% to ath'etes in 'oca' an% internationa'
sports tournaments an% competitions he'% in the
1hi'ippines or abroa% an% sanctione% b! their respecti&e
nationa' sports associations sha'' be eempt from income
ta".
<either is the B,? correct in co''ecting the %onorCs ta
from A!a'a 9an% 3orporation. The 'a( is c'ear (hen it
categorica''! state% "That the %onorCs of sai% pri/es an%
a(ar%s sha'' be eempt from the pa!ment of the %onorCs
ta."
#xem$tions: 5etirement Bene(its: ;or. Se$aration (1999)
A 3o.- a 1hi'ippine corporation- has t(o %i&isions =
manufacturing an% construction. 2ue to the economic
situation- it ha% to c'ose its construction %i&ision an% 'a!0
off the emp'o!ees in that %i&ision. A 3o. has a retirement
p'an appro&e% b! the B,?- (hich reEuires a minimum of
50 !ears of age an% 10 !ears of ser&ice in the same
emp'o!er at the time of retirement. There are 2 groups of
emp'o!ees to be 'ai% off) 1+ 8mp'o!ees (ho are at 'east
50 !ears of age an% has
at 10 !ears of ser&ice at the time of termination of
emp'o!ment. 2+ 8mp'o!ees (ho %o no meet either the
age or 'ength
of ser&ice A 3o. p'ans to gi&e the fo''o(ing)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

6: Hor categor! *A+ emp'o!ees 0 the benefits un%er
the B,? appro&e% p'an p'us an e gratia pa!ment of one
month of e&er! !ear of ser&ice.
2: Hor categor! *B+ emp'o!ees 0 one month for
e&er! !ear of ser&ice. Hor both categories- the
cash eEui&a'ent of unuse% &acation an% sic.
'ea&e cre%its.
A 3o. see.s !our a%&ice as to (hether or not it (i''
sub7ect an! of these pa!ments to WT. 8p'ain !our
a%&ice. *54+
SUGGESTED ANSWER)
Hor categor! A emp'o!ees- a'' the benefits recei&e% on
account of their separation are not sub7ect to income ta-
hence no (ithho'%ing ta sha'' be impose%. The benefits
recei&e% un%er the B,?0appro&e% p'an upon meeting the
ser&ice reEuirement an% age reEuirement are ep'icit'!
ec'u%e% from gross income. The e gratia pa!ment a'so
Eua'ifies as an ec'usion from gross income being in the
nature of benefit recei&e% on account of separation %ue to
causes be!on% the emp'o!eesC contro'. *6ection 32*B+-
<,?3+. The cash eEui&a'ent of unuse% &acation an% sic.
'ea&e cre%its Eua'ifies as part of separation benefits
ec'u%e% from gross income *C,R +. Co%rt of AppealsF
7R 9o. -"O)"F October )/F )--)+.
Hor categor! B emp'o!ees- a'' the benefits recei&e% b!
them (i'' a'so be eempt from income ta- hence not
sub7ect to (ithho'%ing ta. These are benefits recei&e% on
account of separation %ue to causes be!on% the emp'o!eesC
contro'- (hich are specifica''! ec'u%e% from gross
income. (+ection 5%(3), N6#).
ATERNATI&E ANSWER,
A'' of the pa!ments are not sub7ect to income ta an%
shou'% not a'so be sub7ect to (ithho'%ing ta. The
emp'o!ees (ere 'ai% off- hence separate% for a cause
be!on% their contro'. 3onseEuent'!- the amounts to be
pai% b! reason of such in&o'untar! separation are
ec'u%e% from gross income- irrespecti&e of (hether the
emp'o!ee at the time of separation has ren%ere% 'ess than
ten !ears of ser&ice an%Lor is be'o( fift! !ears of age.
(+ection 5%(3), N6#).
#xem$tions: Se$aration Pay (199')
1e%ro ?e!es- an officia' of 3orporation A- as.e% for an
"ear'ier retirement" because he (as emigrating to
Austra'ia. @e (as pai% 12.000.000.00 as separation pa!
in recognition of his &a'uab'e ser&ices to the
corporation.
Juan 3ru/- another officia' of the same compan!- (as
separate% for occup!ing a re%un%ant position. @e (as
gi&en 11-000.000.00 as separation pa!.
Jose Bautista (as separate% %ue to his fai'ing e!esight.
@e (as gi&en 1500.000.00 as separation pa!. A'' the
three *3+ (ere not Eua'ifie% to retire un%er the B,?0
appro&e% pension p'an of the corporation. 1+ ,s the
separation pa! gi&en to ?e!es sub7ect to income ta# 2+
@o( about the separation pa! recei&e% b! 3ru/# 3+ @o(
about the separation pa! recei&e% b! Bautista#
3# of 73
SUGGESTED ANSWER)
1+ The separation pa! gi&en to ?e!es is sub7ect to income
ta as compensation income because it arises from a
ser&ice ren%ere% pursuant to an emp'o!er0emp'o!ee re'a0
tionship. ,t is not consi%ere% an ec'usion from gross
income because the ru'e in taation is ta construe% in
strictissimi 1uris or the ru'e on strict ,nterpretation of ta
eemptions.
2+ The separation pa! recei&e% b! 3ru/ is not sub7ect to
income ta because his separation from the compan!
(as in&o'untar! *6ec. 28 b *7+- Ta 3o%e+.
3+ The separation pa! recei&e% b! Bautista is 'i.e(ise not
sub7ect to ta. @is separation is %ue to %isabi'it!- hence
in&o'untar!. Fn%er the 'a(- separation pa! recei&e%
through in&o'untar! causes are eempt from taation.
#xem$tions: Se$aration Pay (199,)
>r. Jacobo (or.e% for a manufacturing firm. 2ue to
business re&erses the firm offere% &o'untar! re%un%anc!
program in or%er to re%uce o&erhea% epenses. Fn%er the
program an emp'o!ee (ho offere% to resign (ou'% be
gi&en separation pa! eEui&a'ent to his three monthCs basic
sa'ar! for e&er! !ear of ser&ice. >r. Jacobo accepte% the
offer an% recei&e% 1400.000.00 as separation pa! un%er
the program.
After a'' the emp'o!ees (ho accepte% the offer (ere pai%-
the firm foun% its o&erhea% sti'' ecessi&e. @ence it a%opte%
another re%un%anc! program. :arious unprofitab'e
%epartments (ere c'ose%. As a resu't- >r. Qintanar (as
separate% from the ser&ice. @e a'so recei&e% 1400.000.00
as separation pa!. 1+ 2i% >r. Jacobo %eri&e income (hen
he recei&e% his separation pa!# 8p'ain. 2+ 2i% >r.
Qintanar %eri&e income (hen he recei&e% his separation
pa!# 8p'ain.
SUGGESTED ANSWER)
1+ ;es- >r. Jacobo %eri&e% a taab'e income (hen he
recei&e% his separation pa! because his separation from
emp'o!ment (as &o'untar! on his part in &ie( of his offer
to resign. What is ec'u%e% from gross income is an!
amount recei&e% b! an officia' or emp'o!ee as a
conseEuence of separation of such officia' or emp'o!ee
from the ser&ice of the emp'o!er for an! cause be!on% the
contro' of the sai% officia' or emp'o!ee *6ec 28- <,?3+.
ATERNATI&E ANSWER)
<o- >r. Jacobo %i% not %eri&e an! taab'e income
because the separation pa! (as %ue to a retrenchment
po'ic! a%opte% b! the compan! so that an! emp'o!ee
terminate% b! &irtue thereof is consi%ere% to ha&e been
separate% %ue to causes be!on% the emp'o!eeCs contro'.
The &o'untar! re%un%anc! program reEuiring emp'o!ees
to ma.e an offer to resign is on'! consi%ere% as a too' to
epe%ite the 'a!0off of ecess manpo(er (hose ser&ices
are no 'onger nee%e% b! the emp'o!er- but is not the main
reason or cause for the termination
SUGGESTED ANSWER)
2+ <o- >r. Qintanar %i% not %eri&e an! income (hen he
recei&e% his separation pa! because his separation from


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

emp'o!ment is %ue to causes be!on% his contro'. The
separation (as in&o'untar! as it (as a conseEuence of the
c'osure of &arious unprofitab'e %epartments pursuant to
the re%un%anc! program.
#xem$tions: Se$aration Pay (%&&,)
3ompan! A %eci%es to c'ose its operations %ue to
continuing 'osses an% to terminate the ser&ices of its
emp'o!ees. Fn%er the 9abor 3o%e- emp'o!ees (ho are
separate% from ser&ice for such cause are entit'e% to a
minimum of one0ha'f month pa! for e&er! !ear of ser&ice.
3ompan! A pai% the eEui&a'ent of one month pa! for
e&er! !ear of ser&ice an% the cash eEui&a'ent of unuse%
&acation an% sic. 'ea&es as separation benefits. Are such
benefits taab'e an% sub7ect to (ithho'%ing ta un%er the
Ta 3o%e# 2eci%e (ith reasons. *54+
SUGGESTED ANSWER)
A'' of the benefits are not taab'e- hence the! are not
sub7ect to (ithho'%ing ta un%er the Ta 3o%e. Benefits
recei&e% as a conseEuence of separation for an! cause
be!on% the contro' of the emp'o!ees such as c'osure of
business are ec'u%e% from gross income. (+ec. 5%A3@A-@
Ab@, N6# in relation to +ec. %Ab@A%@, #.#. %.)/)
#xem$tions: Stoc. Di!iens (%&&2)
$n 03 Januar! 1998- A- a Hi'ipino citi/en resi%ing in the
1hi'ippines- purchase% one hun%re% *100+ shares in the
capita' stoc. of ; 3orporation- a %omestic compan!. $n
03 Januar! 2000- ; 3orporation %ec'are%- out of the profits
of the compan! earne% after 01 Januar! 1998- a hun%re%
percent *1004+ stoc. %i&i%en%s on a'' stoc.ho'%ers of
recor% as of 31 2ecember 1999 as a resu't of (hich A
ho'%ing in ; 3orporation became t(o hun%re% *200+
shares. Are the stoc. %i&i%en%s recei&e% b! A sub7ect to
income ta# 8p'ain. *84+
SUGGESTED ANSWER)
<o. 6toc. %i&i%en%s are not rea'i/e% income.
Accor%ing'!- the %ifferent pro&isions of the Ta 3o%e
imposing a ta on %i&i%en% income on'! inc'u%es (ithin
its pur&ie( cash an% propert! %i&i%en%s ma.ing stoc.
%i&i%en%s eempt from income ta. @o(e&er- if the
%istribution of stoc. %i&i%en%s is the eEui&a'ent of cash or
propert!- as (hen the %istribution resu'ts in a change of
o(nership interest of the shareho'%ers- the stoc.
%i&i%en%s (i'' be sub7ect to income ta. (+ection %!(3)
(%): +ection %,(A)L(3): +ection %/(3)(,)(b), $))& Tax
ode)
#xem$tions: Strictly *onstrue (1996)
Wh! are ta eemptions strict'! construe% against the
tapa!er#
SUGGESTED ANSWER)
Ta eemptions are strict'! construe% against the tapa!er
because such pro&isions are high'! %isfa&ore% an% ma!
a'most be sai% to be o%ious to the 'a( *2anila Electric
Co3pan' +s. BeraF "/ SCRA 6:)+. The eception
containe% in the ta statutes must be strict'! construe%
against the one c'aiming the eemption because the 'a(
%oes not 'oo. (ith fa&or on ta eemptions the! being
contrar! to the 'ife0b'oo% theor! (hich is the un%er'!ing
basis for taes.
#xem$tions: Terminal +ea!e Pay (1996)
36 of 73
A- an emp'o!ee of the 3ourt of Appea's- retire% upon
reaching the compu'sor! age of 65 !ears. Fpon
compu'sor! retirement- A recei&e% the mone! &a'ue of his
accumu'ate% 'ea&e cre%its in the amount of 1500.000.00.
,s sai% amount sub7ect to ta# 8p'ain.
SUGGESTED ANSWER)
<o. The commutation of 'ea&e cre%its- more common'!
.no(n as termina' 'ea&e pa!- i.e.- the cash eEui&a'ent of
accumu'ate% &acation an% sic. 'ea&e cre%its gi&en to an
officer or emp'o!ee (ho retires- or separate% from the
ser&ice through no fau't of his o(n- is eempt from
income ta. *B,R R%ling 68;-) dated 9o+e3ber 8F )--)(
Co33issioner +. CA and Efren CastanedaF 7R 9o. -"!)"F
October )/F )--)+.
#xem$tions) *0aritable Institutions (%&&6)
The 3onstitution pro&i%es "charitab'e institutions-
churches- personages or con&ents appurtenant thereto-
mosEues- an% non0profit cemeteries an% a'' 'an%s-
bui'%ings- an% impro&ements actua''! %irect'! an%
ec'usi&e'! use% for re'igious- charitab'e or e%ucationa'
purposes sha'' be eempt from taation." This pro&ision
eempts charitab'e institutions an% re'igious institutions
from (hat .in% of taes# 3hoose the best ans(er. 8p'ain.
*54+
6: from a'' .in%s of taes- i.e.- income- :AT-
customs %uties- 'oca' taes an% rea' propert! ta
2: from 'oca' ta on'!
7: from &a'ue0a%%e% ta
8: from rea' propert! ta on'!
9: from capita' gains ta on'!
SUGGESTED ANSWER)
The pro&ision eemptions charitab'e institutions an%
re'igious institutions from *%+ ?8A9 1?$18?T; TAA86
on'!. The eemption is on'! for taes assesse% as propert!
taes- as %istinguishe% from ecise taes (C,R +. CAF CTA
< M2CAF 7.R. 9o. ).!.6F October ).F )--8(
1ladoc +. Co33issioner of ,nternal Re+en%eF 1;)-!)F H%ne
)"F)-":#.
#xem$tions) #ucational institution (%&&')
A;I 3o''eges is a non0stoc.- non0profit e%ucationa'
institution run b! the Arch%iocese of B1 3it!. ,t co''ecte%
an% recei&e% the fo''o(ing)
*a+ Tuition fees
*b+ 2ormitor! fees
*c+ ?enta's from canteen concessionaires
*%+ ,nterest from mone!0mar.et p'acements of the tuition
fees
*e+ 2onation of a 'ot an% bui'%ing b! schoo' a'umni
Which of these abo&e cite% income an% %onation (ou'%
not be eempt from taation# 8p'ain brief'!. *54+
SUGGESTED ANSWER)
A. A'' of the income %eri&e% b! the non0stoc.- nonprofit
e%ucationa' institution (i'' be eempt from taation
pro&i%e% the! are use% actua''!- %irect'! an% ec'usi&e'!
for e%ucationa' purposes. The 3onstitution pro&i%es that
a'' re&enues an% assets of non0stoc.- non0profit
e%ucationa' institution (hich are actua''!- %irect'! an%
ec'usi&e'! use% for e%ucationa' purposes are eempt from
taation (+ection ! par. 5, Article H62, $)/& onstitution).


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

The %onation is- 'i.e(ise- eempt from the %onorCs ta if
actua''!- %irect'! an% ec'usi&e'! use% for e%ucationa'
purposes- pro&i%e% not more than 304 of the %onation is
use% b! the %onee for a%ministration purposes. The %onee-
being a non0stoc.- non0profit e%ucationa' institution- is a
Eua'ifie% entit! to recei&e an eempt %onation sub7ect to
con%itions prescribe% b! 'a( (+ection ! par. !, Art. H62,
$)/& onstitution, in relation to +ection $'$(AH5),
N(#).
Accor%ing'!- none of the cite% income an% %onation
co''ecte% an% recei&e% b! the non0stoc.- non0profit
e%ucationa' institution (ou'% not be eempt from taation.
ATERNATI&E ANSWER)
The fo''o(ing receipts b! the non0stoc.- nonprofit
e%ucationa' institution are not eempt from taation- &i/)
*c+ Rentals fro3 Canteen Concessionaires. ?enta'
income is consi%ere% as unre'ate% to the schoo' operationsD
hence- taab'e (BC< Crder No. $5&./&, Bec. $-, $)/&)
*%+ ,nterest fro3 3one';3arCet place3ents of t&e
t%ition fees. The interest on the p'acement is taab'e
(BC< Crder No. $5&./&). ,f ho(e&er- the sai% interest is
use% actua''!- %irect'! an% ec'usi&e'! for e%ucationa'
purposes as pro&en b! substantia' e&i%ence- the same (i''
be eempt from taation (C,R +. CAF -8 SCRA 86 ))--8LN.
The other items of income (hich (ere a'' %eri&e% from
schoo'0re'ate% acti&ities (i'' be eempt from taation in
the han%s of the recipient if use% actua''!- %irect'! an%
ec'usi&e'! for e%ucationa' purposes *6ection 4 par. 3-
Artic'e AT:- 1987 3onstitution+.
The %onation to a non0stoc.- non0profit e%ucationa'
institution (i'' be eempt from the %onorCs ta if use%
actua''!- %irect'! an% ec'usi&e'! for e%ucationa' purposes
an% pro&i%e%- that- not more than 304 of the %onation is
use% for a%ministration purposes *6ection 4- par. 4- Art.
AJ:- 1987 3onstitution- in re'ation to 6ection 101*A>3+-
<J?3+.
#xem$tions) #xem$tions are 6nilateral in @ature (%&&')
A 'a( (as passe% granting ta eemption to certain
in%ustries an% in&estments for a perio% of fi&e !ears. But
three !ears 'ater- the 'a( (as repea'e%. With the repea'-
the eemptions (ere consi%ere% re&o.e% b! the B,?-
(hich assesse% the in&esting companies for unpai% taes
effecti&e on the %ate of the repea' of the 'a(.
<13 an% QT? companies Euestione% the assessments on
the groun% that- ha&ing ma%e their in&estments in fu''
re'iance (ith the perio% of eemption grante% b! the 'a(-
its repea' &io'ate% their constitutiona' right against the
impairment of the ob'igations an% contracts. ,s the
contention of the companies tenab'e or not# ?eason
brief'!. *54+
SUGGESTED ANSWER)
The contention is not tenab'e. The eemption grante% is in
the nature of a uni'atera' ta eemption. 6ince the
eemption gi&en is spontaneous on the part of the
3' of 73
'egis'ature an% no ser&ice or %ut! or other remunerati&e
con%itions ha&e been impose% on the tapa!ers recei&ing
the eemption- it ma! be re&o.e% at (i'' b! the 'egis'ature
*C&rist C&%rc& +. *&iladelp&iaF . Do4. 6!! K)8"!L+.
What constitutes an impairment of the ob'igation of
contracts is the re&ocation of an eemption (hich is
foun%e% on a &a'uab'e consi%eration because it ta.es the
form an% essence of a contract *Casano+as +. Dord- 8
*&il. ): K)-!/L( 2anila Railroad Co3pan' +. ,ns%lar
Collector of C%sto3sF ) *&il. )." K)-):L#
#xem$tions) ?o!3t BonusH ?i(tsH B Allowances (199')
,n 2ecember 1993- the 6angguniang Ba!an authori/e% a
3hristmas bonus of 13-000.00- a cash gift of 15-000.00
an% transportation an% representation a''o(ance of
16-000.00 for each of the municipa' emp'o!ees. 1+ ,s the
3hristmas bonus sub7ect to an! ta# 2+ @o( about the
cash gift# 3+ @o( about the transportation an%
representation
a''o(ances#
SUGGESTED ANSWER)
1+ The 3@?,6T>A6 B$<F6 gi&en b! the
6angguniang Ba!an to the municipa' emp'o!ees is taab'e
as a%%itiona' compensation *6ec. 21 *a+. Ta 3o%e+.
2+ The cash gift per emp'o!ee of 15.000.00 being
substantia' ma! be consi%ere% taab'e a'so. The! parta.e
the nature of a%%itiona' compensation income as it is
high'! %oubtfu' if municipa' go&ernments are authori/e%
to ma.e gifts in substantia' sums such as this. The! are not
furthermore gifts of "sma'' &a'ue" (hich emp'o!ers might
gi&e to their emp'o!ees on specia' occasions 'i.e
3hristmas 0 items (hich cou'% be eempt un%er B,?
?e&enue Au%it >emo <o. 1087.
3+ The transportation an% representation a''o(ances
are actua''! reimbursements for epenses incurre% b! the
emp'o!ee for the emp'o!er. 6ai% a''o(ances spent b! the
emp'o!ee for the emp'o!er are %esigne% to enhance the
Eua'it! of the ser&ice that the emp'o!er is suppose% to
perform for its c'iente'e 'i.e the peop'e of the
municipa'it!.
#xem$tions) Personal B Aitional #xem$tion (%&&6)
3har'ie- a (i%o(er- has t(o sons b! his pre&ious
marriage. 3har'ie 'i&es (ith Jane (ho is 'ega''! marrie%
to >ario. The! ha&e a chi'% name% Ji''. The chi'%ren are
a'' minors an% not gainfu''! emp'o!e%.
). Do4 3%c& personal exe3ption can C&arlie clai30
Explain. (.:O#
SUGGESTED ANSWER)
3har'ie can c'aim the persona' eemption of a @ea% of a
Hami'! or 125-000.00 pro&i%e% that- at 'east one of his
minor an% not gainfu''! emp'o!e% chi'%ren is unmarrie%
an% 'i&ing (ith an% %epen%ent upon him for chief support
(Tax #eform Act, #A /!%!, hapter 266, +ection 5,AA@:
36# #evenue #egulation '%.)/).
. Do4 3%c& additional exe3ption can C&arlie clai30
Explain. (.:O#


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

SUGGESTED ANSWER)
@is chi'%ren from his pre&ious marriage (ho are 'e0
gitimate chi'%ren an% his i''egitimate chi'% (ith Jane (i''
a'' entit'e him to a%%itiona' persona' eemption of
18-000.00 for each %epen%ent- if apart from being minor
an% not gainfu''! emp'o!e%- the! are unmarrie%- 'i&ing
(ith an% %epen%ent upon 3har'ie for their chief support
(Tax #eform Act, #A/!%!, hapter 2=, +ection 5,(A):
36# #evenue #egulation '%.)/).
#xem$tions) 5oman *at0olic *0urc0) +imitations (%&&,)
The ?oman 3atho'ic 3hurch o(ns a 20hectare 'ot- in a
to(n in Tar'ac pro&ince. The southern si%e an% mi%%'e
part are occupie% b! the 3hurch an% a con&ent- the eastern
si%e b! a schoo' run b! the 3hurch itse'f- the southeastern
si%e b! some commercia' estab'ishments- (hi'e the rest of
the propert!- in particu'ar the north(estern si%e- is i%'e or
unoccupie%. >a! the 3hurch c'aim ta eemption on the
entire 'an%# 2eci%e (ith reasons.
SUGGESTED ANSWER)
<o. The 3hurch cannot c'aim ta eemption on the entire
'an%. $n'! the southern si%e an% mi%%'e part that are
occupie% b! the 3hurch an% a con&ent an% the eastern si%e
occupie% b! a schoo' run b! the 3hurch itse'f are eempt-
because such parts of the 20hectare 'ot are actua''!- %irect'!
an% ec'usi&e'! use% for re'igious an% e%ucationa'
purposes. (+ec. %/A5@, Art. 26, $)/& onstitution: +ec.
%5!, ?ocal "overnment ode)
The southeastern si%e occupie% b! some commercia'
estab'ishment is not ta eempt. ,f rea' propert! is use%
for one or more commercia' purposes- it is not ec'usi&e'!
use% for the eempte% purpose but is sub7ect to taation.
C6o'e'!C is s!non!mous (ith Cec'usi&e'!.C (1%ng Center of
t&e *&ilippines +. P%e?on Cit'F 7.R. 9o. )..)!.F H%ne -F
!!.# The propert! must be ec'usi&e'! *so'e'!+ use% for
re'igious or e%ucationa' purposes.
$f course- it is apparent that the north(estern si%e- (hich
is i%'e or unoccupie% is not "actua''!- %irect'! an%
ec'usi&e'!" use% for re'igious or e%ucationa' purposes-
hence not eempt from taation.
CAPITA GAIN TAX
*a$ital Asset !s" 1rinary Asset (%&&2)
2istinguish a "capita' asset" from an "or%inar! asset".
SUGGESTED ANSWER)
*a+ The term "capita' asset" regar%s a'' properties not
specifica''! ec'u%e% in the statutor! %efinition of capita'
assets- the profits or 'oss on the sa'e or the echange of
(hich are treate% as capita' gains or capita' 'osses.
3on&erse'!- a'' those properties specifica''! ec'u%e% are
consi%ere% as or%inar! assets an% the profits or 'osses
rea'i/e% must ha&e to be treate% as or%inar! gains or
or%inar! 'osses. Accor%ing'!- "Capital Assets" inc'u%es
propert! he'% b! the tapa!er (hether or not connecte%
(ith his tra%e or business- but the term %oes not inc'u%e
an! of the fo''o(ing- (hich are conseEuent'! consi%ere%
"or%inar! assets")
*1+ stoc. in tra%e of the tapa!er or other
propert! of a .in% (hich (ou'% proper'! be inc'u%e%
in the
3* of 73
in&entor! of the tapa!er if on han% at
the c'ose of the taab'e !earD
*2+ propert! he'% b! the tapa!er primari'! for
sa'e to customers in the or%inar! course of tra%e or
businessD
*3+ propert! use% in the tra%e or business of a
character (hich is sub7ect to the a''o(ance for
%epreciation pro&i%e% in 6ection 34 *H+ of the Ta
3o%eD or
*4+ rea' propert! use% in tra%e or business of the
tapa!er.
The statutor! %efinition of "capita' assets" practica''!
ec'u%es from its scope- it (i'' be note%- a'' propert! he'%
b! the tapa!er if use% in connection (ith his tra%e or
business.
*a$ital ?ain Tax) @ature (%&&1)
A- a %octor b! profession- so'% in the !ear 2000 a parce'
of 'an% (hich he bought as a form of in&estment in 1990
for 1hp 1 mi''ion. The 'an% (as so'% to B- his co''eague-
at a time (hen the rea' estate prices ha% gone %o(n an%
so the 'an% (as so'% on'! for 1hp 800-000 (hich (as
then the fair mar.et &a'ue of the 'an%. @e use% the
procee%s to finance his trip to the Fnite% 6tates. @e
c'aims that he shou'% not be ma%e to pa! the 64 fina' ta
because he %i% not ha&e an! actua' gain on the sa'e. ,s his
contention correct# Wh!# *54+
SUGGESTED ANSWER)
<o. The 64 capita' gains ta on sa'e of a rea' propert!
he'% as capita' asset is impose% on the income presume%
to ha&e been rea'i/e% from the sa'e (hich is the fair
mar.et &a'ue or se''ing price thereof- (hiche&er is higher.
*6ection 24*2+- <,?3+. Actua' gain is not reEuire% for the
imposition of the ta but it is the gain b! fiction of 'a(
(hich is taab'e.
1rinary Sale o( a *a$ital Asset (199')
<oe' 9angit an% his brother- Jo&!- bought a parce' of 'an%
(hich the! registere% in their names as pro0in%i&iso
o(ners *1arce' A+. 6ubseEuent'!- the! forme% a
partnership- %u'! registere% (ith 6ecurities an% 8change
3ommission- (hich bought another parce' of 'an% *1arce'
B+. Both parce's of 'an% (ere so'%- rea'i/ing a net profit of
11-000-000.00 for parce' A an% 1500.000.00 for parce' B.
The B,? c'aims that the sa'e of parce' A shou'% be tae%
as a sa'e b! an unregistere% partnership. ,s the B,?
correct#
SUGGESTED ANSWER)
The B,? is not correct- since there is no sho(ing that the
acEuisition of the propert! b! <oe' an% Jo&! 9angit as
pro in%i&iso o(ners- an% prior to the formation of the
partnership- (as use%- inten%e% for use- or bears an!
re'ation (hatsoe&er to the pursuit or con%uct of the
partnership business. The sa'e of parce' A sha'' therefore
not be treate% as a sa'e b! an unregistere% partnership- but
an or%inar! sa'e of a capita' asset- an% hence (i'' be
sub7ect to the 54 capita' gains ta an% %ocumentar!


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

stamp ta on transfers of rea' propert!- sai% taes to be
borne eEua''! b! the co0o(ners.
ATERNATI&E ANSWER)
The B,? is correct in treating the gain from the sa'e of
parce' of 'an% b! <oe' an% Jo&! 9angit at a profit of
11-000-000.00. ,n the case of *asc%al and Dragon +.
Co33issionerF 7.R. 9o. /8)66F October )8F )-88- the
6upreme 3ourt ru'e% that the sharing of returns %oes not in
itse'f estab'ish a partnership- (hether or not the persons
sharing therein ha&e a 7oint or common right or interest in
the propert!. The %ecision in sai% case cannot be app'ie%
here because c'ear'! the parties organi/e% a partnership
%u'! registere% (ith the 6ecurities an% 8change
3ommission. The! poo'e% their resources together (ith
the purpose of %i&i%ing the profit bet(een them.
Sales o( S0are o( Stoc.s: *a$ital ?ains Tax 5eturn (1999)
@Q 3o. is a @ong Qong corporation not %oing business in
the 1hi'ippines. ,t ho'%s 404 of the shares of A 3o.- a
1hi'ippine compan!- (hi'e the 604 is o(ne% b! 1 3o.- a
Hi'ipino0o(ne% 1hi'ippine corporation. @Q 3o. a'so o(ns
1004 of the shares of B 3o.- an ,n%onesian compan!
(hich has a %u'! 'icense% 1hi'ippine branch. 2ue to
(or'%(i%e restructuring of the @Q 3o. group- @Q 3o.
%eci%e% to se'' a'' its shares in A an% B 3os. The
negotiations for the bu!0out an% the signing of the
Agreement of 6a'e (ere a'' %one in the 1hi'ippines. The
Agreement pro&i%es that the purchase price (i'' be pai%
to @Q 3oCs ban. account in the F. 6. an% that 'itt'e to A
an% B 3os. 6hares (i'' pass from @Q 3o. to 1 3o. in @Q
(here the stoc. certificates (i'' be %e'i&ere%. 1 3o. see.s
!our a%&ice as to (hether or not it (i'' sub7ect the
pa!ments of purchase price to Withho'%ing Ta. 8p'ain
!our a%&ice. *104+
SUGGESTED ANSWER)
1 3o. shou'% not sub7ect the pa!ments of the purchase
price to (ithho'%ing ta. Whi'e the se''er is a non0resi%ent
foreign corporation (hich is not norma''! reEuire% to fi'e
returns in the 1hi'ippines- therefore- or%inari'! a'' its
income earne% from 1hi'ippine sources is tae% &ia the
(ithho'%ing ta s!stem- this is not the proce%ure a&ai'ing
(ith respect to sa'es of shares of stoc.. The capita' gains
ta on the sa'e of shares of stoc. of a %omestic
corporation is a'(a!s reEuire% to be pai% through a capita'
gains ta return fi'e%. The sa'e of the shares of stoc. of
the ,n%onesian 3orporation is not sub7ect to income ta
un%er our 7uris%iction because the income %eri&e% there
from is consi%ere% as a foreign0source% income.
ATERNATI&E ANSWER)
;es- but on'! on the shares of stoc.s of A 3o. an% on'!
on the portion of the purchase price- (hich constitutes
capita' gains. Fn%er the Ta 3o%e of 1997- the capita'
gains ta impose% un%er 6ection 28*B+*5+*c+ is
co''ectib'e &ia the (ithho'%ing of ta at source pursuant
to 6ection 57 of the same 3o%e.
*<ote) The bar can%i%ate might ha&e re'ie% on the
pro&ision of the Ta 3o%e of 1997 (hich pro&i%es
that the capita' gains ta is impose% as (ithho'%ing
taes *6ection 57- <,?3+. This proce%ure is
impractica' an%- therefore- not fo''o(e% in practice
because the bu!erL (ithho'%ing agent (i'' not be in a
position to %etermine ho( much income is rea'i/e% b!
39 of 73
the se''er from the sa'e. Hor this reason- an! of the
foregoing suggeste% ans(ers shou'% be gi&en fu''
cre%it+.
Tax Basis: *a$ital ?ains: =er7er o( *or$orations (199')
,n a Eua'ifie% merger un%er 6ection 34 *c+ *2+ of the Ta
3o%e- (hat is the ta basis for computing the capita'
gains on) *a+ the sa'e of the assets recei&e% b! the
sur&i&ing corporation from the absorbe% corporationD an%
*b+ the sa'e of the shares of stoc. recei&e% b! the
stoc.ho'%ers from the sur&i&ing corporation#
SUGGESTED ANSWER)
,n a Eua'ifie% merger un%er 6ection 34 *c+ *2+ of the Ta
3o%e- the ta basis for computing the capita' gains on)
*a+ the sa'e of the assets recei&e% b! the sur&i&ing
corporation from the absorbe% corporation sha'' be the
origina'Lhistorica' cost of the assets (hen sti'' in the
han%s of the absorbe% corporation.
*b+ the sa'e of the shares of stoc. recei&e% b! the
stoc.ho'%ers from the sur&i&ing corporation sha'' be the
acEuisitionLhistorica' cost of assets transferre% to the
sur&i&ing corporation.
Tax Basis: *a$ital ?ains: TaxAFree #xc0an7e o( Pro$erty
(199')
,n a Eua'ifie% ta0free echange of propert! for shares
un%er 6ection 34 *c+ *2+ of the Ta 3o%e- (hat is the ta
basis for computing the capita' gains on) *a+ the sa'e of
the assets recei&e% b! the 3orporationD an% *b+ the sa'e of
the shares recei&e% b! the stoc.ho'%ers in echange of
the assets#
SUGGESTED ANSWER)
,n a Eua'ifie% ta free echange of propert! for shares
un%er 6ection 34 *c+ *2+ of the Ta 3o%e- the ta basis for
computing the gain on the)
*a+ sa'e of the assets recei&e% b! the corporation
sha'' be the origina'Lhistorica' cost *purchase price p'us
epenses of acEuisition+ of the propert!L assets gi&en in
echange of the shares of stoc..
*b+ sa'e of the shares of stoc. recei&e% b! the
stoc.ho'%ers in echange of the assets sha'' be the
origina'Lhistorica' cost of the propert! gi&en in echange
of the shares of stoc..
ATERNATI&E ANSWER)
The basis in computing capita' gains ta in a Eua'ifie%
ta0free echange un%er 6ec. 34 *c+ *2+ is)
*a+ With respect to the asset recei&e% b! the
corporation the same as it (ou'% be in the han%s of the
transferor increase% b! the amount of the gain recogni/e%
to the transferor on the transfer.
*b+ With respect to the shares recei&e% b! the
stoc.ho'%ers in echange of the assets 0 the same as the
basis of the propert!- stoc. or securities echange%-
%ecrease% b! the mone! recei&e% an% the fair mar.et &a'ue
of the other propert! recei&e%- an% increase% b! the
amount treate% as %i&i%en% of the shareho'%er an% the
amount of an! gain that (as recogni/e% on the echange.
CORPORATION " PARTNERS$IP
Ba Debts) Factors) #lements t0ereo( (%&&')


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

1K? 3orp. c'aime% as a %e%uction in its ta returns the
amount of 11-000-000 as ba% %ebts. The corporation (as
assesse% b! the 3ommissioner of ,nterna' ?e&enue for
%eficienc! taes on the groun% that the %ebts cannot be
consi%ere% as "(orth'ess-" hence the! %o not Eua'if! as
ba% %ebts. The compan! as.s for !our a%&ice on "What
factors (i'' he'% in %etermining (hether or not the %ebts
are ba% %ebts#" Ans(er an% ep'ain brief'!. *54+
SUGGESTED ANSWER)
,n or%er that %ebts be consi%ere% as ba% %ebts because
the! ha&e become (orth'ess- the tapa!er shou'% estab'ish
that %uring the !ear for (hich the %e%uction is sought- a
situation %e&e'ope% as a resu't of (hich it became e&i%ent
in the eercise of soun%- ob7ecti&e business 7u%gment that
there remaine% no practica'- but on'! &ague'! theoretica'-
prospect that the %ebt (ou'% e&er be pai% (Collector of
,nternal Re+en%e +. 7oodric& ,nternational R%bber Co.F )
SCRA )66" K)-"/L#. "Worth'ess" is not %etermine% b! an
inf'eib'e formu'a or s'i%e ru'e ca'cu'ation- but upon the
eercise of soun% business 7u%gment. The factors to be
consi%ere% inc'u%e- but are not 'imite% to- the fo''o(ing)
6 The %ebtor has no propert! nor &isib'e incomeD
2 The %ebtor has been a%7u%ge% ban.rupt or inso'&entD
7 3o''atera' shares ha&e become (orth'essD an%
8 There are numerous %ebtors (ith sma'' amounts of
%ebts an% further action on the accounts (ou'% entai' epenses
ecee%ing the amounts sought to be co''ecte%.
ATERNATI&E ANSWER)
The fo''o(ing are the factors to be consi%ere% in
%etermining (hether or not the %ebts are ba% %ebts)
6 The %ebt must be &a'i% an% subsistingD
2 The %ebt is connecte% (ith the tapa!erCs tra%e or
business- an% is not bet(een re'ate% partiesD
7 There is an actua' ascertainment that the %ebt is
(orth'essD an%
8 The %ebt is charge%0off (ithin the taab'e !ear.
(*RC +. CAF :" SCRA ""/ K)--"L( Re+en%e Regs. 9o.
:;--#.
*onominium *or$") Sale o( *ommon Areas (199')
A0'an% 3on%ominium 3orporation (as organi/e% b! the
o(ners of units in A0'an% Bui'%ing in accor%ance (ith the
>aster 2ee% (ith 2ec'aration of ?estrictions. The A0'an%
Bui'%ing 3orporation- the %e&e'oper of the bui'%ing-
con&e!e% the common areas in fa&or of the A0'an%
3on%ominium 3orporation. ,s the con&e!ance sub7ect to
an! ta#
SUGGESTED ANSWER)
The con&e!ance is not sub7ect to an! ta. The same is
(ithout consi%eration- an% not in connection (ith a sa'e
ma%e to A0'an% 3on%ominium 3orporation- an% the
purpose of the con&e!ance to the 'atter is for the
management of the common areas for the common
benefit of the unit o(ners.
The same is not sub7ect to income ta since no income
(as rea'i/e% as a resu't of the con&e!ance- (hich (as
ma%e pursuant to the 3on%ominium Act *?.A. <o. 4626-
an% the purpose of (hich (as mere'! to &est tit'e to the
common areas in fa&or of the 9an% 3on%ominium
3orporation.
40 of 73
There being no monetar! consi%eration- neither is the
con&e!ance sub7ect to the cre%itab'e (ithho'%ing ta im0
pose% un%er ?e&enue ?egu'ations 1090- as amen%e%.
The secon% con&e!ance (as actua''! no con&e!ance at a''
because (hen the units (ere so'% to the &arious bu!ers-
the common areas (ere a'rea%! part an% parce' of the sa'e
of sai% units pursuant to the 3on%ominium Act. @o(e&er-
the 2ee% of 3on&e!ance is sub7ect to %ocumentar! stamp
ta.
N.3. Bocumentary stamps tax and ondominium
?aw are excluded from the coverage of the 3ar
4xaminations.
*or$oration) Sale) *reitable ;it00olin7 Tax (199')
<oe' 9angit an% his brother- Jo&!- bought a parce' of 'an%
(hich the! registere% in their names as pro0in%i&iso
o(ners *1arce' A+. 6ubseEuent'!- the! forme% a
partnership- %u'! registere% (ith 6ecurities an% 8change
3ommission- (hich bought another parce' of 'an% *1arce'
B+. Both parce's of 'an% (ere so'%- rea'i/ing a net profit of
11-000-000.00 for parce' A an% 1500.000.00 for parce' B.
The B,? a'so c'aims that the sa'e of parce' B shou'% be
tae% as a sa'e b! a corporation. ,s the B,? correct#
SUGGESTED ANSWER)
The B,? is correct- since a "corporation" as %efine% un%er
6ection 20 *a+ of the Ta 3o%e inc'u%es partnerships- no
matter ho( create% or organi/e%- ecept genera' profes0
siona' partnerships. The business partnership- in the in0
stant case- sha'' therefore be tae% in the same manner as
a corporation on the sa'e of parce' B. The sa'e sha'' thus
be sub7ect to the cre%itab'e (ithho'%ing ta un%er
?e&enue ?egu'ations 1090- as amen%e% b! 12094- on the
sa'e of parce' B- an% the partnership sha'' report the gain
rea'i/e% from the sa'e (hen it fi'es its income ta return.
Di!iens: ;it00olin7 Tax (1999)
@Q 3o.- is a @ong Qong compan!- (hich has a %u'!
'icense% 1hi'ippine branch- engage% in tra%ing acti&ities
in the 1hi'ippines. @Q 3o. a'so in&este% %irect'! in 404
of the shares of stoc. of A 3o.- a 1hi'ippine corporation.
These shares are boo.e% in the @ea% $ffice of @Q 3o.
an% are not ref'ecte% as assets of the 1hi'ippine branch. ,n
1998- A 3o. %ec'are% %i&i%en%s to its stoc.ho'%ers.
Before remitting the %i&i%en%s to @Q 3o.- A 3o. see.s
!our a%&ice as to (hether it (i'' sub7ect the remittance to
WT. <o nee% to %iscuss WT rates- if app'icab'e. Hocus
!our %iscussion on (hat is the issue. *104+
SUGGESTED ANSWER)
, (i'' a%&ise A 3o. to (ithho'% an% remit the (ithho'%ing
ta on the %i&i%en%s. Whi'e the genera' ru'e is that a
foreign corporation is the same 7uri%ica' entit! as its
branch office in the 1hi'ippines- (hen- ho(e&er- the
corporation transacts business in the 1hi'ippines %irect'!
an% in%epen%ent'! of its branch- the tapa!er (ou'% be the
foreign corporation itse'f an% sub7ect to the %i&i%en% ta
simi'ar'! impose% on non0resi%ent foreign corporation.
The %i&i%en%s attributab'e to the @ome $ffice (ou'% not
Eua'if! as %i&i%en%s earne% b! a resi%ent foreign
corporation- (hich is eempt from ta. (2ar%beni
Corporation +. Co33issionerF 7R 9o. /":/6F Septe3ber
).F )-8-#.


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

#((ect: Dissolution) *or$orate #xistence (%&&')
Hor fai'ure to comp'! (ith certain corporate reEuirements-
the stoc.ho'%ers of AB3 3orp. (ere notifie% b! the
6ecurities an% 8change 3ommission that the corporation
(ou'% be sub7ect to in&o'untar! %isso'ution. The
stoc.ho'%ers %i% not %o an!thing to comp'! (ith the
reEuirements- an% the corporation (as %isso'&e%. 3an the
stoc.ho'%ers be he'% persona''! 'iab'e for the unpai% taes
of the %isso'&e% corporation# 8p'ain brief'!. *54+
SUGGESTED ANSWER)
<o. As a genera' ru'e- stoc.ho'%ers cannot be he'%
persona''! 'iab'e for the unpai% taes of a %isso'&e%
corporation. The ru'e pre&ai'ing un%er our 7uris%iction is
that a corporation is &este% b! 'a( (ith a persona'it! that
is separate an% %istinct from those of the persons
composing it (S%nio +. 91RCF )/ SCRA 6-!Q)-8.LN.
<$T8) a%%itiona' point shou'% be gi&en to the
eaminee if he ans(ers in the fo''o(ing that)
@o(e&er- stoc.ho'%ers ma! be he'% 'iab'e for the
unpai% taes of a %isso'&e% corporation if it
appears that the corporate assets ha&e passe%
into their han%s (Tan Tiong Bio +. CFRF . SCRA
-8" K)-"L#. 9i.e(ise- (hen stoc.ho'%ers ha&e
unpai% subscriptions to the capita' of the
corporation the! can be ma%e 'iab'e for unpai%
taes of the corporation to the etent of their
unpai% subscriptions.
=inimum *or$orate Income Tax (%&&1)
What is the rationa'e of the 'a( in imposing (hat is
.no(n as the >inimum 3orporate ,ncome ta on
2omestic 3orporations# *34+
SUGGESTED ANSWER)
The imposition of the >inimum 3orporate ,ncome Ta
*>3,T+ is %esigne% to foresta'' the pre&ai'ing practice of
corporations of o&er c'aiming %e%uctions in or%er to
re%uce their income ta pa!ments. The fi'ing of income
ta returns sho(ing a ta 'oss e&er! !ear goes against the
business moti&e (hich impe''e% the stoc.ho'%ers to
form the corporation. This is the reason (h! %omestic
corporations *an% resi%ent foreign corporations+ after the
reco&er! perio% of four !ears from the time the!
commence business operations- the! become 'iab'e to the
>3,T (hene&er this ta impose% at 24 of gross income
ecee%s the norma' corporate income ta impose% on net
income. *6ponsorship 6peech- 3hairman of 6enate Wa!s
an% >eans 3ommittee+.
=inimum *or$orate Income Tax) #xem$tion (%&&1)
,s a corporation (hich is eempte% from the minimum
corporate income ta automatica''! eempte% from the
regu'ar corporate income ta# 8p'ain !our ans(er. *24+
SUGGESTED ANSWER)
<o. The minimum corporate income ta is a pro! for the
norma' corporate income ta- not the regu'ar corporate
income ta pai% b! a corporation. Hor instance- a
proprietar! e%ucationa' institution ma! be sub7ect to a
regu'ar corporate income ta of 104 *%epen%ing on its
%ominant income+- but it is eempt from the imposition of
>3,T because the 'atter is not inten%e% to substitute
41 of 73
specia' ta rates. 6o is (ith 18IA enterprises-
32A enterprises etc.
N<ote) ,f (hat is meant b! regu'ar income ta is the
324 ta rate impose% on taab'e income of
corporations- the ans(er (ou'% be in the affirmati&e-
because %omestic corporations an% resi%ent foreign
corporations are either 'iab'e for the 24 of gross
income *>3,T+ or 324 of net income *the norma'
corporate income ta+ (hiche&er is higher.O
ATERNATI&E ANSWER)
<o. A corporation (hich is eempte% from the minimum
corporate income ta is not automatica''! eempte% from
the regu'ar corporate income ta. The reason for this is that
>3,T is impose% on'! beginning on the fourth taab'e
!ear imme%iate'! fo''o(ing the !ear in (hich such
corporation commence% its business operations. Thus- a
corporation ma! be eempt from >3,T because it is on'!
on its thir% !ear of operations fo''o(ing its commencement
of business operations.
ESTATE " DONOR%S TAXES
Donor3s Tax: #lection *ontributions (199/)
Are contributions to a can%i%ate in an e'ection sub7ect to
%onorCs ta# $n the part of the contributor- is it a''o(ab'e
as a %e%uction from gross income# N54J
SUGGESTED ANSWER)
1+ <o- pro&i%e% the recipient can%i%ate ha%
comp'ie% (ith the reEuirement for fi'ing of returns of
contributions (ith the 3ommission on 8'ections as
reEuire% un%er the $mnibus 8'ection 3o%e.
2+ The contributor is not a''o(e% to %e%uct the
contributions because the sai% epense is not %irect'!
attributab'e to- the %e&e'opment- management- operation
an%Lor con%uct of a tra%e- business or profession K+ec.
5!AA((l)(a), N6#). Hurthermore- if the can%i%ate is an
incumbent go&ernment officia' or emp'o!ee- it ma! e&en be
consi%ere% as a bribe or a .ic.bac. *6ec. 34NAJ*'+*c+-
<,?3+.
CO22E9T$ ,t is suggeste% that fu'' cre%it shou'% be
gi&en for an! ans(er to the first Euestion because the
ans(er reEuires an interpretation of the 8'ection 3o%e.
1ursuant to the pro&isions of 6ection 99*3+ of the
<,?3- the taabi'it! of this t!pe of
contributionsL%onations is go&erne% b! the 8'ection
3o%e.
Donor3s Tax) Basis (or Determinin7 ?ain (199,)
*1+ Qenneth ;usoph o(ns a commercia' 'ot (hich he
bought man! !ears ago for 11 >i''ion. ,t is no( (orth
120 >i''ion a'though the /ona' &a'ue is on'! 115 >i''ion.
@e %onates one0ha'f pro0in%i&iso interest in the 'an% to his
son 2ino on 31 2ecember 1994- an% the other one0ha'f
pro0in%i&iso interest to the same son on 2 Januar! 1995.
@o( much is the &a'ue of the gifts in 1994 an% 1995 for
purposes of computing the gift ta# 8p'ain.
SUGGESTED ANSWER)
1+ The &a'ue of the gifts for purposes of computing the
gift ta sha'' be 17.5mi''ion in 1994 an% 17.5mi''ion in


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

1995. ,n &a'uing a rea' propert! for gift ta purposes the
propert! shou'% be appraise% at the higher of t(o &a'ues
as of the time of %onation (hich are *a+ the fair mar.et
&a'ue as %etermine% b! the 3ommissioner *(hich is the
/ona' &a'ue fie% pursuant to 6ection 16*e+ of the Ta
3o%e+- or *b+ the fair mar.et &a'ue as sho(n in the
sche%u'e of &a'ues fie% b! the 1ro&incia' an% 3it!
Assessors. The fact that the propert! is (orth 120 mi''ion
as of the time of %onation is immateria' un'ess it can be
sho(n that this &a'ue is one of the t(o &a'ues mentione%
as pro&i%e% un%er 6ection 81 of the Ta 3o%e.
*2+ The ?e&enue 2istrict $fficer Euestions the
sp'itting of the %onations into 1994 an% 1995. @e sa!s
that since there (ere on'! t(o *2+ %a!s separating the
t(o %onations the! shou'% be treate% as one- ha&ing been
ma%e (ithin one !ear. ,s he correct# 8p'ain.
SUGGESTED ANSWER)
2+ The ?e&enue 2istrict $fficer is not correct because the
computation of the gift ta is cumu'ati&e but on'! insofar
as gifts ma%e (ithin the same ca'en%ar !ear. Therefore-
there is no 'ega' 7ustification for treating t(o gifts
effecte% in t(o separate ca'en%ar !ears as one gift.
*3+ 2ino subseEuent'! so'% the 'an% to a bu!er for 1 20
>i''ion. @o( much %i% 2ino gain on the sa'e# 8p'ain.
SUGGESTED ANSWER)
3+ 2ino gaine% an income of 19 mi''ion from the sa'e.
2ino acEuires a carr!0o&er basis (hich is the basis of the
propert! in the han%s of the %onor or 11 mi''ion. The gain
from the sa'e or other %isposition of propert! sha'' be the
ecess of the amount rea'i/e% therefrom o&er the basis or
a%7uste% basis for %etermining gain *6ec. 34*a+- <,?3+.
6ince the propert! (as acEuire% b! gift- the basis for
%etermining gain sha'' be the same as if it (ou'% be in the
han%s of the %onor or the 'ast prece%ing o(ner b! (hom
the propert! (as not acEuire% b! gift. @ence- the gain is
compute% b! %e%ucting the basis of 11 mi''ion from the
amount rea'i/e% (hich is 120 mi''ion.
*4+ 6uppose- instea% of recei&ing the 'ot b! (a! of
%onation- 2ino recei&e% it b! inheritance. What (ou'% be
his gain on the sa'e of the 'ot for 120 >i''ion# 8p'ain.
SUGGESTED ANSWER)
4+ ,f the commercia' 'ot (as recei&e% b! inheritance the
gain from the sa'e for 120 mi''ion is 15 mi''ion because
the basis is the fair mar.et &a'ue as of the %ate of
acEuisition. The steppe%0up basis of 115 mi''ion (hich is
the &a'ue for estate ta purposes is the basis for
%etermining the gain *6ec. 34*b+*2+- <,?3+.
ATERNATI&E ANSWER)
,f 2ino he'% on to the propert! as a capita' asset in that it
is neither for sa'e in the or%inar! course of business nor
use% in 2inoCs business- then upon sa'e thereof there is
presume% to be rea'i/e% an income of 120 mi''ion (hich
is the gross se''ing price of the propert!. *6ec. 21*e+-
<,?3+. The same (ou'% be sub7ect to the 54 capita'
gains ta.
Donor3s Tax) Dacion en Pa7o) #((ect: Taxation (1998)
42 of 73
An inso'&ent compan! ha% an outstan%ing ob'igation of 1
'00-000.00 from a cre%itor. 6ince it cou'% not pa! the
%ebt- the cre%itor agree% to accept pa!ment through
%acion en pago a propert! (hich ha% a mar.et &a'ue of
130.000.00. ,n the %acion en pago %ocument- the ba'ance
of the %ebt (as con%one%.
A. What is the ta effect on the %ischarge of the
unpai% ba'ance of the ob'igation on the %ebtor
corporation# B. ,nsofar as the cre%itor is concerne%- ho( is he
effecte% ta0(ise as a conseEuence of the transaction#
SUGGESTED ANSWERS)
*a+ The con%onation of the unpai% ba'ance of the
ob'igation has the effect of a %onation ma%e on the part of
the cre%itor. ,t is ob&ious that the cre%itor mere'! %esires to
benefit the %ebtor an% (ithout an! consi%eration therefore
cance's the %ebt- the amount of the %ebt cance''e% is a gift
from the cre%itor to the %ebtor an% nee% not be inc'u%e% in
the 'atterCs gross income *6ec. 50- ?? <o. 2+D
*b+ Hor the %ifference of 170-000 the cre%itor sha'' be
sub7ect to %onorCs ta at the app'icab'e rates pro&i%e% for
un%er the <ationa' ,nterna' ?e&enue 3o%e.
ATERNATI&E ANSWER)
*a+ ,f the %ischarge (as prompte% b! the inso'&enc! of
the %ebtor compan!- then it is a c'ear case of a (rite0off
of a ba% %ebts (hich has no ta conseEuence to the
%ebtor.
*b+ The (rite0off of the ba% %ebt (i'' entit'e the cre%itor
to c'aim the same as a %e%uction from its gross income.
Donor3s Tax) Donation to a Siblin7 (%&&1)
;our bache'or c'ient- a Hi'ipino resi%ing in Kue/on 3it!-
(ants to gi&e his sister a gift of 1hp 200-000.00. @e
see.s !our a%&ice- for purposes of re%ucing if not
e'iminating the %onorCs ta on the gift- on (hether it is
better for him to gi&e a'' of the 1hp 200-000.00 on
3hristmas 2001 or to gi&e 1hp 100-000.00 on
3hristmas2001 an% the other 1hp 100-000.00 on Januar!
1- 2002. 1'ease ep'ain !our a%&ice. *54+
SUGGESTED ANSWER)
, (ou'% a%&ice him to sp'it the %onation. 5i&ing the
1hp200-000 as a one0time %onation (ou'% mean that it
(i'' be sub7ect to a higher ta brac.et un%er the gra%uate%
ta structure thereb! necessitating the pa!ment of %onorCs
ta. $n the other han%- sp'itting the %onation into t(o
eEua' amounts of 1hp 100-000 gi&en on t(o %ifferent
!ears (i'' tota''! re'ie&e the %onor from the %onorPs ta
because the first 1hp'00.000 %onation in the gra%uate%
brac.ets is eempt. *6ection 99- <,?3+. Whi'e the %onorPs
ta is compute% on the cumu'ati&e %onations- the
aggregation of a'' %onations ma%e b! a %onor is a''o(e%
on'! o&er one ca'en%ar !ear.
Donor3s Tax) Donation to @onAStoc.H @onAPro(it Pri!ate
#ucational Institutions (%&&&)
What con%itions must occur in or%er that a'' grants-
%onations an% contributions to non0stoc.- non0profit
pri&ate e%ucationa' institutions ma! be eempt from the
%onorCs ta un%er 6ection 101 *a+ of the Ta 3o%e# *34+
SUGGESTED ANSWER)
The fo''o(ing are the con%itions)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

6 <ot more than thirt! percent *304+ of sai% gifts sha''
be use% b! such %onee for a%ministration purposesD
2 The e%ucationa' institution is incorporate% as a non0
stoc. entit!-
7 pa!ing no %i&i%en%s-
8 go&erne% b! trustees (ho recei&e no compensation- an%
9 %e&oting a'' its income- (hether stu%entsC fees or gifts-
%onations- subsi%ies or other forms of phi'anthrop!- to the
accomp'ishment an% promotion of the purposes enumerate% in
its Artic'es of ,ncorporation. *6ec. 101 *A+ *3+- <,?3 of 1997O
Donor3s Tax) Donation to Political *aniate (%&&2)
A is a frien% of ;- the chairman of 1o'itica' 1art! I- (ho
(ants to run for 1resi%ent in the 2004 e'ections. Qno(ing
that ; nee%s fun%s for posters an% streamers- A is
thin.ing of %onating to ; 1150-000.00 for his campaign.
@e as.s !ou (hether his inten%e% %onation to ; (i'' be
sub7ect to the %onorCs ta. What (ou'% !our ans(er be#
Wi'' !our ans(er be the same if he (ere to %onate to
1o'itica' 1art! I instea% of to ; %irect'!# *84+
SUGGESTED ANSWER)
The %onation to ;- once he becomes a can%i%ate for an
e'ecti&e post- is not sub7ect to %onorCs ta pro&i%e% that he
comp'ies (ith the reEuirement of fi'ing returns of
contributions (ith the 3ommission on 8'ections as
reEuire% un%er the $mnibus 8'ection 3o%e.
The ans(er (ou'% be the same if A ha% %onate% the
amount to 1o'itica' 1art! I instea% of to ; %irect'!
because the 'a( p'aces in eEua' footing an! contribution
to an! can%i%ate- po'itica' part! or coa'ition of parties for
campaign purposes. (+ection ))() of the $))& Tax
ode).
Donor3s Tax) Donee or Bene(iciary) Stran7er (%&&&)
When the %onee or beneficiar! is a stranger- the ta
pa!ab'e b! the %onor sha'' be 304 of the net gifts. Hor
purposes of this ta- (ho is a stranger# *24+
SUGGESTED ANSWER)
A 6T?A<58? is a person (ho is not a)
A. Brother- sister *(hether b! (ho'e or ha'f0b'oo%+-
spouse- ancestor an% 'inea' %escen%antD or
B. ?e'ati&e b! consanguinit! in the co''atera' 'ine
(ithin the fourth %egree of re'ationship." N6ec. 98 *B+-
<,?3 of 1997O
Donor3s Tax) Sale o( s0ares o( Stoc. B Sale o( 5eal
Pro$erty (1999)
A- an in%i&i%ua'- so'% to B- his brother0in0'a(- his 'ot
(ith a mar.et &a'ue of 11-000-000 for 1600.000. ACs cost
in the 'ot is 1100.000. B is financia''! capab'e of bu!ing
the 'ot.
A a'so o(ns A 3o.- (hich has a fast gro(ing business. A
so'% some of his shares of stoc. in A 3o. to his .e!
eecuti&es in A 3o. These eecuti&es are not re'ate% to A.
The se''ing price is 13-000-000- (hich is the boo. &a'ue
of the shares so'% but (ith a mar.et &a'ue of 15-000-000.
ACs cost in the shares so'% is 11-000-000. The purpose of
A in se''ing the shares is to enab'e his .e! eecuti&es to
acEuire a propriet! interest in the business an% ha&e a
persona'
43 of 73
sta.e in its business. 8p'ain if the abo&e
transactions are sub7ect to %onorCs ta. *54+
SUGGESTED ANSWER)
The first transaction (here a 'ot (as so'% b! A to his
brother0in0'a( for a price be'o( its fair mar.et &a'ue (i''
not be sub7ect to %onorCs ta if the 'ot Eua'ifies as a capita'
asset. The transfer for less than ade7uate and full
consideration, which gives rise to a deemed gift, does not
apply to a sale of property sub1ect to capital gains tax.
*6ection 100- <,?3+. @o(e&er- if the 'ot so'% is an
or%inar! asset- the ecess of the fair mar.et &a'ue o&er
the consi%eration recei&e% sha'' be consi%ere% as a gift
sub7ect to the %onorCs ta.
The sa'e of shares of stoc. be'o( the fair mar.et &a'ue
thereof is sub7ect to the %onorCs ta pursuant to the
pro&isions of 6ection 100 of the Ta 3o%e. The ecess of
the fair mar.et &a'ue o&er the se''ing price is a %eeme%
gift.
ATERNATI&E ANSWER)
The sa'e of shares of stoc. be'o( the fair mar.et &a'ue
(i'' not gi&e rise to the imposition of the %onorCs ta. ,n
%etermining the gain from the transfer- the se''ing price
of the shares of stoc.s sha'' be the fair mar.et &a'ue of
the shares of stoc.s transferre%. *6ection 6- ?? <o. 20
82+. ,n (hich case- the reason for the imposition of the
%onorCs ta on sa'es for ina%eEuate consi%eration %oes not
eist.
#state Tax: *om$re0ensi!e A7rarian 5e(orm +aw (199')
Jose $rti/ o(ns 100 hectares of agricu'tura' 'an% p'ante%
to coconut trees. @e %ie% on >a! 30- 1994. 1rior to his
%eath- the go&ernment- b! operation of 'a(- acEuire%
un%er the 3omprehensi&e Agrarian ?eform 9a( a'' his
agricu'tura' 'an%s ecept fi&e *5+ hectares. Fpon the %eath
of $rti/- his (i%o( as.e% !ou ho( she (i'' consi%er the
100 hectares of agricu'tura' 'an% in the preparation of the
estate ta return. What a%&ice (i'' !ou gi&e her#
SUGGESTED ANSWER)
The 100 hectares of 'an% that Jose $rti/ o(ne% but (hich
prior to his %eath on >a! 30- 1994 (ere acEuire% b! the
go&ernment un%er 3A?1 are no 'onger part of his taab'e
gross estate- (ith the eception of the remaining fi&e *5+
hectares (hich un%er 6ec. 78Ga+ of the Ta 3o%e sti''
forms part of "%ece%entCs interest".
#state Tax: Donation =ortis *ausa (%&&1)
A- age% 90 !ears an% suffering from incurab'e cancer- on
August 1- 2001 (rote a (i'' an%- on the same %a!- ma%e
se&era' inter0&i&os gifts to his chi'%ren. Ten %a!s 'ater- he
%ie%. ,n !our opinion- are the inter0&i&os gifts consi%ere%
transfers in contemp'ation of %eath for purposes of
%etermining properties to be inc'u%e% in his gross estate#
8p'ain !our ans(er. *54+
SUGGESTED ANSWER)
;es. When the %onor ma.es his (i'' (ithin a short time
of- or simu'taneous'! (ith- the ma.ing of gifts- the gifts
are consi%ere% as ha&ing been ma%e in contemp'ation of
%eath. *Roces +. *osadasF :8 *&il. )!8+. $b&ious'!- the
intention of the %onor in ma.ing the inter0&i&os gifts is to
a&oi% the imposition of the estate ta an% since the
%onees are 'i.e(ise his force% heirs (ho are ca''e% upon
to inherit- it (i'' create a presumption 1uris tantum that
sai% %onations (ere ma%e mortis causa- hence- the
properties %onate% sha'' be inc'u%e% as part of ACs gross
estate.


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

#state Tax: Donation =ortis *ausa !s" Inter 4i!os (199')
Are %onations inter &i&os an% %onations mortis causa
sub7ect to estate taes#
SUGGESTED ANSWER)
2onations inter &i&os are sub7ect to %onorCs gift ta *6ec.
91 *a+. Ta 3o%e+ (hi'e %onations mortis causa are
sub7ect to estate ta *6ec. 77- Ta 3o%e+. @o(e&er-
%onations inter &i&os- actua''! constituting taab'e
'ifetime 'i.e transfers in contemp'ation of %eath or
re&ocab'e transfers *6ec. 78 *b+ an% *c+- Ta 3o%e+ ma!
be tae% for estate ta purposes- the theor! being that the
transferorCs contro' thereon eten%s up to the time of his
%eath.
ATERNATI&E ANSWER)
2onations inter &i&os are not sub7ect to estate taes
because the transfer of the propert! ta.e effect %uring the
'ifetime of the %onor. The transfer is therefore sub7ect to
the %onorCs ta.
$n the other han%- %onations mortis causa are sub7ect to
estate taes since the transfer of the properties ta.es
effect after the %eath of the %ece%ent. 6uch %onate%
properties- rea' or persona'- tangib'e or intangib'e- sha''
form part of the gross estate.
#state Tax: ?ross #state: Allowable Deuction (%&&1)
$n the first anni&ersar! of the %eath of ;- his heirs hoste%
a sumptuous %inner for his %octors- nurses- an% others
(ho atten%e% to ; %uring his 'ast i''ness. The cost of the
%inner amounte% to 1hp 50-000.00. 3ompare% to his gross
estate- the 1hp 50-000.00 %i% not ecee% fi&e percent of
the estate. ,s the sai% cost of the %inner to commemorate
his one !ear %eath anni&ersar! %e%uctib'e from his gross
estate# 8p'ain !our ans(er. *54+
SUGGESTED ANSWER)
<o. This epense (i'' not fa'' un%er an! of the a''o(ab'e
%e%uctions from gross estate. Whether &ie(e% in the
contet of either funera' epenses or me%ica' epenses-
the same (i'' not Eua'if! as a %e%uction. Hunera' epenses
ma! inc'u%e me%ica' epenses of the 'ast i''ness but not
epenses incurre% after buria' nor epenses incurre% to
commemorate the %eath anni&ersar!. (De 7%?3an B. De
7%?3anF 86 SCRA :"#. >e%ica' epenses- on the other
han%- are a''o(e% on'! if incurre% b! the %ece%ent (ithin
one !ear prior to his %eath. *6ection 86*A+*6+- <,?3+.
#state Tax: ?ross #state: Deuctions (%&&&)
>r. He'i %e 'a 3ru/- a bache'or resi%ent citi/en- suffere%
from a heart attac. (hi'e on a business trip to the F6A. @e
%ie% intestate on June 15- 2000 in <e( ;or. 3it!- 'ea&ing
behin% rea' properties situate% in <e( ;or.D his fami'!
home in :a''e :er%e- 1asig 3it!D an office con%ominium in
>a.ati 3it!D shares of stoc.s in 6an >igue' 3orporationD
cash in ban.D an% persona' be'ongings. The %ece%ent is
hea&i'! insure% (ith ,nsu'ar 9ife. @e ha% no .no(n %ebts
at the time of his %eath. As the so'e heir an% appointe%
A%ministrator- ho( (ou'% !ou %etermine the gross estate
of the %ece%ent# What %e%uctions ma! be c'aime% b! the
estate an% (hen an% (here sha'' the return be fi'e% an%
estate ta pai%# *34+
SUGGESTED ANSWER)
44 of 73
The gross estate sha'' be %etermine% b! inc'u%ing the
&a'ue at the time of his %eath all of t&e properties
3entioned- to the etent of the interest he ha% at the time
of his %eath because he is a <ilipino citiIen. N6ec. 85 *A+-
<,?3 of 1997O
With respect to the life ins%rance proceeds- the amount
inc'u%ib'e in the gross estate for 1hi'ippine ta purposes
(ou'% be to the etent of the amount recei&ab'e b! the
estate of the %ecease%- his eecutor- or a%ministrator-
un%er po'icies ta.en out b! %ece%ent upon his o(n 'ife-
irrespecti&e of (hether or not the insure% retaine% the
po(er of re&ocation- or to the etent of the amount
recei&ab'e b! an! beneficiar! %esignate% in the po'ic! of
insurance- ecept (hen it is epress'! stipu'ate% that the
%esignation of the beneficiar! is irre&ocab'e. N6ec. 85 *8+
<,?3 of 1997O
The DED=CT,O9S that ma! be c'aime% b! the estate
are) 1+ The actua' funera' epenses or in an amount eEua'
to
fi&e percent *54+ of the gross estate- (hiche&er is
'o(er- but in no case to ecee% t(o hun%re% thousan%
pesos *1200.000.00+. N6ec. 86 *A+ *1+ *a+. <,?3 of
1997O
2+ The 7u%icia' epenses in the testate or intestate
procee%ings.*6ec. 86*A+*1+
3+ The &a'ue of the %ece%entCs fami'! home 'ocate%
in :a''e :er%e- 1asig 3it! in an amount not ecee%ing one
mi''ion pesos *11-000-000.00+- an% upon presentation of a
certification of the baranga! captain of the 'oca'it! that the
same ha&e been the %ece%entCs fami'! home. N6ec. 86 *A+
*4+- ,bi%O
4+ The stan%ar% %e%uction of 11-000-000. *6ec. 86*A+*5+
5+ >e%ica' epenses incurre% (ithin one !ear from
%eath in an amount not ecee%ing 1500-000.*6ec. 86*A+
*6+
The ESTATE TAJ RET=R9 sha'' be fi'e% (ithin si
*6+ months from the %ece%entCs %eath *6ec. 90 *B+- <,?3
of 1997O- pro&i%e% that the 3ommissioner of ,nterna'
?e&enue sha'' ha&e authorit! to grant in meritorious
cases- a reasonab'e etension not ecee%ing thirt! *30+
%a!s for fi'ing the return *6ec. 90 *c+- ,bi%O
8cept in cases (here the 3ommissioner of ,nterna'
?e&enue other(ise permits- the estate ta return sha'' be
fi'e% (ith an authori/e% agent ban.- or ?e&enue 2istrict
$fficer- 3o''ection $fficer- or %u'! authori/e% Treasurer
of 1asig 3it!- the 3it! in (hich the %ece%ent >r. %e 'a
3ru/ (as %omici'e% at the time of his %eath. N6ec. 90 *2+.
<,?3 of 1997O
#state Tax: Inclusion: 5esient Alien (199')
3'iff ?obertson- an American citi/en- (as a permanent
resi%ent of the 1hi'ippines. @e %ie% in >iami- H'ori%a. @e
'eft 10-000 shares of >era'co- a con%ominium unit at the


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

T(in To(ers Bui'%ing at 1asig- >etro >ani'a an% a
house an% 'ot in 9os Ange'es- 3a'ifornia. What assets
sha'' be inc'u%e% in the 8state Ta ?eturn to be fi'e%
(ith the B,?#
SUGGESTED ANSWER)
A'' of >r. ?obertsonCs assets consisting of 10-000 shares
in the >era'co- a con%ominium unit in 1asig- an% his
house an% 'ot in 9os Ange'es- 3a'ifornia are taab'e. The
properties of a resi%ent a'ien %ece%ent 'i.e >r. ?obertson
are taab'e (here&er situate% *6ees. 77- 78 an% 98- Ta
3o%e+.
#state Tax: Payment !s" Probate Proceein7s (%&&')
:33 is the a%ministrator of the estate of his father <53-
in the estate procee%ings pen%ing before the >>
?egiona' Tria' 3ourt. 9ast !ear- he recei&e% from the
3ommissioner of ,nterna' ?e&enue a %eficienc! ta
assessment for the estate in the amount of 11-000-000. But
he ignore% the notice. 9ast month- the B,? effecte% a 'e&!
on the rea' properties of the estate to pa! the %e'inEuent
ta. :33 fi'e% a motion (ith the probate court to stop the
enforcement an% co''ection of the ta on the groun% that
the B,? shou'% ha&e secure% first the appro&a' of the
probate court- (hich ha% 7uris%iction o&er the estate-
before 'e&!ing on its rea' properties. ,s :33Cs contention
correct# *54+
SUGGGESTED ANSWER)
<o. :33Cs contention is not correct. The appro&a' of the
probate court is not necessar!. 1a!ment of estate taes is a
con%ition prece%ent for the %istribution of the properties
of the %ece%ent an% the co''ection of estate taes is
eecuti&e in nature for (hich the court is %e&oi% of an!
7uris%iction. @ence- the appro&a' of the court- sitting in
probate- or as a sett'ement tribuna' is not a man%ator!
reEuirement in the co''ection of estate taes *2arcos D +.
Co%rt of AppealsF /6 SCRA ./ K)--/O+.
#state Tax: Situs o( Taxation: @onA5esient Deceent
(%&&&)
2iscuss the ru'e on situs of taxation (ith respect to the
imposition of the estate ta on propert! 'eft behin% b! a
non0resi%ent %ece%ent. *24+
SUGGESTED ANSWER)
The &a'ue of the gross estate of a non0resi%ent %ece%ent
(ho is a Hi'ipino citi/en at the time of his %eath sha'' be
%etermine% b! inc'u%ing the &a'ue at the time of his %eath
of a'' propert!- rea' or persona'- tangib'e or intangib'e-
(here&er situate% to the etent of the interest therein of
the %ece%ent at the time of his %eath N6ec. 85 *A+- <,?3
of 1997+. These properties sha'' ha&e a situs of taation
in the 1hi'ippines hence sub7ect to 1hi'ippine estate taes.
$n the other han%- in the case of a non0resi%ent %ece%ent
(ho at the time of his %eath (as not a citi/en of the
1hi'ippines- only that part of the entire gross estate which
is situated in the 9hilippines to the extent of the interest
therein of the decedent at the time of his death shall be
included in his taxable estate. 1ro&i%e%- that- (ith respect
to intangib'e persona' propert!- (e app'! the ru'e of
reciprocit!. *,bi%+
#state Tax: 4anis0in7 Deuctions (199')
:anishing %e%uctions in estate0taation#
4# of 73
SUGGESTED ANSWER)
:anishing %e%uctions or propert! pre&ious'! tae% in
estate taation refers to the %iminishing %e%ucibi'it!L
eemption- at the rate of 204 o&er a perio% of fi&e *5+
!ears unti' it is 'ost after the fifth !ear- of an! propert!
*situate% in the 1hi'ippines+ forming part of the gross
estate- acEuire% b! the %ece%ent from a prior %ece%ent
(ho %ie% (ithin a perio% of fi&e *5+ !ears from the
%ece%entCs %eath.
#state Tax) Payment !s" Probate Proceein7s (%&&,)
,s the appro&a' of the court- sitting as probate or estate
sett'ement court- reEuire% in the enforcement an%
co''ection of estate ta# 8p'ain.
SUGGESTED ANSWER)
<o- the appro&a' of the court- sitting in probate- or as a
sett'ement tribuna' o&er the %ecease% is not a man%ator!
reEuirement in the co''ection of estate taes. There is
nothing in the Ta 3o%e- an% in the pertinent reme%ia' 'a(s
that imp'ies the necessit! of the probate or estate sett'ement
courtCs appro&a' of the stateCs c'aim for estate taes- before
the same can be enforce% an% co''ecte%.
(2arcos +. Co%rt of AppealsF 7.R. 9o. )!88!F H%ne :F )--/#
BUSINESS TAXES
4AT: Basis o( 4AT (1996)
W&at is t&e basis of t&e Bal%e;Added Tax on taxable
sales of real propert'0
SUGGESTED ANSWER)
The basis of the :a'ue0A%%e% Ta on taab'e sa'e of rea'
propert! is "5?$66 6899,<5 1?,38" (hich is either
se''ing price state% in the sa'e %ocument or the "Iona'
:a'ue"- (hiche&er is higher. ,n the absence of /ona'
&a'ues- the gross se''ing price sha'' refer to the mar.et
&a'ue as sho(n in the 'atest ta %ec'aration or the
consi%eration- (hiche&er is higher.
4AT: *0aracteristics o( 4AT (1996)
W&at are t&e c&aracteristics of t&e Bal%e;Added Tax0
SUGGESTED ANSWER)
The &a'ue0a%%e% ta is an in%irect ta an% the amount of
ta ma! be shifte% or passe% on to the bu!er- transferee
or 'essee of the goo%s- properties or ser&ices.
ATERNATI&E ANSWER)
The &a'ue0a%%e% ta has the fo''o(ing characteristics) 1+
,t is an in%irect ta (here ta shifting is a'(a!s
presume%) 2+ ,t is consumption0base%D 3+ ,t is impose% on
the &a'ue0a%%e% in each stage of
%istributionD 4+ ,t is a cre%it0in&oice metho% &a'ue0
a%%e% taD an% 5+ ,t is not a casca%ing ta.
4AT: #xem$te Transactions (1996)
5i&e at 'east three *3+ rea' estate transactions (hich are
not sub7ect to the :a'ue0A%%e% Ta.
SUGGESTED ANSWER)
?ea' estate transactions (hich are eempt from the
&a'ue0a%%e% ta are)
*a+ 6a'e of rea' propert! not primari'! he'% for sa'e
or 'ease in the or%inar! course of tra%e or businessD


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

*b+ 6a'e of rea' propert! uti'i/e% for socia'i/e% housing
un%er ?A. <o. 7279D
*c+ 6a'e of rea' propert! uti'i/e% un%er the 'o(0cost
housing un%er B1 Big. 220.
9ote$ The other rea' estate transactions (hich are
eempt from the &a'ue0a%%e% ta (hich ma! be cite% b!
the bar can%i%ates are as fo''o(s)
*a+ Transfer of rea' propert! to a trustee if the
propert! is to be he'% mere'! in trust for the trustor.
*b+ Transfer of rea' propert! to a corporation in echange
for its shares of stoc. un%er 6ection 34*c+*2+ an% *6+*2+
of the Ta 3o%e.
*c+ A%&ance pa!ment b! the 'essee in a 'ease
contract- (hen the same is actua''! a 'oan to the 'essor
from the 'essee.
*%+ 6ecurit! %eposits for 'ease arrangements to
insure the faithfu' performance of certain ob'igations of
the 'essee to the 'essor.
*e+ 9ease of resi%entia' units- boar%ing houses-
%ormitories- rooms an% be% spaces offere% for rent b!
their o(ners at a month'! renta' not ecee%ing
13-950.00 per unit.
4AT: +iable (or Payment (1996)
W&o are liable for t&e pa'3ent of Bal%e;Added Tax0
SUGGESTED ANSWER)
The persons 'iab'e for the &a'ue0a%%e% ta are)
6: 6e''ers of goo%s an% properties in the course of tra%e
or businessD
2: 6e''ers of ser&ices in the course of tra%e or business-
inc'u%ing 'essors of goo%s an% propertiesD
7: ,mporters of taab'e goo%s- (hether in the course of
business or not
4AT: Transactions -Deeme Sales: (1998)
Fn%er the :a'ue A%%e% ta *:AT+- the ta is impose% on
sa'es- barter- or echange of goo%s an% ser&ices. The :AT
is a'so impose% on certain transactions "%eeme%0sa'es".
What are these so0ca''e% transactions "%eeme% sa'esC#
SUGGESTED ANSWER)
The fo''o(ing transactions sha'' be %eeme% sa'e)
a+ Transfer- use- or consumption not in the
course of business of goo%s origina''! inten%e% for sa'e
or for use in the course of businessD
b+ 2istribution or transfer to)
*1+ 6hareho'%ers or in&estors as share in the
profits of :AT0registere% personsD or
*2+ 3re%itors in pa!ment of %ebtD
c+ 3onsignment of goo%s if actua' sa'e is not
ma%e (ithin 60 %a!s fo''o(ing the %ate such goo%s
(ere consigne%D an%
%+ ?etirement from or cessation of business- (ith
respect to in&entories of taab'e goo%s eisting as of
such retirement or cessation.
4AT) *o!ere Transactions (199/)
46 of 73
6tate (hether the fo''o(ing transactions are a+
:AT 8empt- b+ sub7ect to :AT at 104D or c+ sub7ect to
:AT at 04)
1+ 6a'e of fresh &egetab'es b! A'ing ,ning at the
1ami'ihang Ba!an ng Trece >artire/. N14O
2+ 6er&ices ren%ere% b! Ja.eCs 3onstruction
3ompan!- a contractor to the Wor'% @ea'th $rgani/ation
in the reno&ation of its offices in >ani'a. N14O
3+ 6a'e of tractors an% other agricu'tura'
imp'ements b! Bung.a' ,ncorporate% to 'oca' farmers.
N14O 4+ 6a'e of ?TW b! 3e'!Cs BoutiEue- a Hi'ipino
%ress %esigner- in her %ress shop an% other out'ets. N14O
5+ Hees for 'o%ging pai% b! stu%ents to Baha!0
Baha!an 2ormitor!- a pri&ate entit! operating a stu%ent
%ormitor! *month'! fee 1,-500+. N14O
SUGGESTED ANSWER)
1+ :AT eempt. 6a'e of agricu'tura' pro%ucts- such
as fresh &egetab'es- in their origina' state- of a .in%
genera''! use% as- or pro%ucing foo%s for human
consumption is eempt from :AT. *6ection 109*c+-
<,?3+.
2+ :AT at 04. 6ince Ja.eCs 3onstruction 3ompan!
has ren%ere% ser&ices to the Wor'% @ea'th $rgani/ation-
(hich is an entit! eempte% from taation un%er
internationa' agreements to (hich the 1hi'ippines is a
signator!- the supp'! of ser&ices is sub7ect to /ero percent
*04+ rate. *6ec. 108NB1*3+- <,?3+.
3+ :AT at 104. Tractors an% other agricu'tura'
imp'ements fa'' un%er the %efinition of goo%s (hich
inc'u%e a'' tangib'e ob7ects (hich are capab'e of
pecuniar! estimation *6ec. 106NA1*1+- <,?3- the sa'es of
(hich are sub7ect to :AT at 104.
4+ This is sub7ect to :AT at 104. This transaction
a'so fa''s un%er the %efinition of goo%s (hich inc'u%e a''
tangib'e ob7ects (hich are capab'e of pecuniar!
estimation *6ec. 106NA1*1+- <,?3- the sa'es of (hich are
sub7ect to :AT at 104.
5+ :AT 8empt. The month'! fee pai% b! each
stu%ent fa''s un%er the 'ease of resi%entia' units (ith a
month'! renta' per unit not ecee%ing 1hp 8-000- (hich ,s
eempt from :AT regar%'ess of the amount of aggregate
renta's recei&e% b! the 'essor %uring the !ear. *6ec.
109*+- <,?3+. The term unit sha'' mean per person in the
case of %ormitories- boar%ing houses an% be% spaces *6ec.
4.10301- ??<o. 7095+.
CO22E9T$ The prob'ems %o not ca'' for a !es or no ans(er.
Accor%ing'!- a bar can%i%ate (ho ans(ere% on'! :AT eempt.
:AT at 104 or :AT at 04. as ca''e% for in the prob'em (ithout
further reasons- shou'% be gi&en fu'' cre%it.
4AT) #xem$tion: *onstitutionality (%&&')
A 'a( (as passe% eempting %octors an% 'a(!ers from
the operation of the &a'ue a%%e% ta. $ther professiona's
comp'aine% an% fi'e% a suit Euestioning the 'a( for being
%iscriminator! an% &io'ati&e of the eEua' protection
c'ause of the 3onstitution since comp'ainants (ere not
gi&en the


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

same eemption. ,s the suit meritorious or not# ?eason
brief'!. *54+
SUGGESTED ANSWER)
B. ;es- the suit is meritorious. The :AT is %esigne% for
economic efficienc!D hence- shou'% be neutra' to those (ho
be'ong to the same c'ass. 1rofessiona's are a c'ass of
tapa!ers b! themse'&es (ho- in comp'iance (ith the ru'e
of eEua'it! of taation- must be treate% a'i.e for ta
purposes. 8empting 'a(!ers an% %octors from a bur%en to
(hich other professiona's are sub7ecte% (i'' ma.e the 'a(
%iscriminator! an% &io'ati&e of the eEua' protection c'ause
of the 3onstitution. Whi'e sing'ing out a c'ass for taation
purposes (i'' not infringe upon this constitutiona'
'imitation *S&ell +. BanoF -. *&il. 68- K)-:.L+- sing'ing out
a tapa!er from a c'ass (i'' no %oubt transgress the
constitutiona' 'imitation *Or3oc S%gar Co. ,nc.F +.
Treas%rer of Or3oc Cit'F SCRA "!6 K)-"8O+. Treating
%octors an% 'a(!ers as a %ifferent c'ass of professiona's
(i'' not comp'! (ith the reEuirements of a reasonab'e-
hence &a'i% c'assification- because the c'assification is not
base% upon substantia' %istinction (hich ma.es rea'
%ifferences. The c'assification %oes not comp'! (ith the
reEuirement that it shou'% be germane to the purpose of the
'a( either. **epsi;Cola Bottling Co.F ,nc. +. Cit' of
B%t%anF . SCRA /8- K)-"8L+.
ANOT$ER ANSWER)
<o. The suit is not meritorious. The eEua' protection
c'ause of the 3onstitution mere'! reEuires that a'' persons
sub7ecte% to 'egis'ation sha'' be treate% a'i.e- un%er 'i.e
circumstances an% con%itions- both in the pri&i'eges
conferre% an% in the 'iabi'ities impose%. The eEua'it! in
taation ru'e is not &io'ate% if c'assifications or
%istinctions are ma%e as 'ong as the same are base% on
reasonab'e an% substantia' %ifferences. G*epsi;Cola
Bottling Co.F ,nc.
+. Cit' of B%t%anF . SCRA /8- K)-"8O+.
,n the instant case- the professions of %octors an% 'a(!ers
are not principa''! aime% at earning mone! but for the
ser&ice of the peop'e. The eemption grante% to %octors
an% 'a(!ers from the operation of the :AT is 7ustifie%- as
it is not %iscriminator! against the other professiona's
because the! ha&e reasonab'e an% substantia' %ifferences
in the con%uct of their professions.
4AT) @onA4AT tax$ayer) *laim (or 5e(un (%&&6)
9i'!Cs Hashion- ,nc. is a garment manufacturer 'ocate% an%
registere% as a 6ubic Ba! Hreeport 8nterprise un%er
?epub'ic Act <o. 7227 an% a non0:AT tapa!er. As such-
it is eempt from pa!ment of a'' 'oca' an% nationa'
interna' re&enue taes. 2uring its operations- it purchase%
&arious supp'ies an% materia's necessar! in the con%uct of
its manufacturing business. The supp'iers of these goo%s
shifte% to 9i'!Cs Hashion- ,nc. the 104 :AT on the
purchase% items amounting to 1 500-000.00. 9i'!Cs
Hashion- ,nc. fi'e% (ith the B,? a c'aim for refun% for the
input ta shifte% to it b! the supp'iers. ,f !ou (ere the
3ommissioner of ,nterna' ?e&enue- (i'' !ou a''o( the
refun%# *54+
ATERNATI&E ANSWER)
<o- , (i'' not a''o( the refun%. $n'! :AT0?egistere%
tapa!ers are entit'e% to a refun% of their
4' of 73
unapp'ie%Lunuse% ,nput :AT *Ta ?eform Act-
6ection 112NAO N1997O+.
ATERNATI&E ANSWER)
<o. The eemption of 9i'!Cs Hashion- ,nc. is on'! for
taes for (hich it is %irect'! 'iab'e. @ence- it can not
c'aim eemption for a ta shifte% to it- (hich is not at a''
consi%ere% a ta to the bu!er but a part of the purchase
price. 9i'!Cs fashion is not the tapa!er in so far as the
passe%0on ta is concerne% an% therefore- it can not c'aim
for a refun% of a ta mere'! shifte% to it *1hi'. Acet!'ene
3o.- ,nc. &. 3,?- 9019707-Aug. 17- 1987+.
(NCTA 34N4: This concept pertains to the 2AT law
which is excluded from the 3ar coverage, "uidelines
for %''- 3ar 4xaminations, (une $,, %''-)
REMEDIES IN INTERNA
RE&ENUE TAXES
BI5: Assessment: 6nre7istere Partners0i$ (1998)
>r. 6antos %ie% intestate in 1989 'ea&ing his spouse an%
fi&e chi'%ren as the on'! heirs. The estate consiste% of a
fami'! home an% a four0%oor apartment (hich (as being
rente% to tenants. Within the !ear- an etra7u%icia' sett'e0
ment of the estate (as eecute% from the heirs- each of
them recei&ing hisLher %ue share. The sur&i&ing spouse
assume% a%ministration of the propert!. 8ach !ear- the net
income from the renta' propert! (as %istribute% to a''-
proportionate'!- on (hich the! pai% respecti&e'!- the
correspon%ing income ta.
,n 1994- the income ta returns of the heirs (ere eamine%
an% %eficienc! income ta assessments (ere issue%
against each of them for the !ears 1989 to 1993- inc'usi&e-
as ha&ing entere% into an unregistere% partnership. Were
the assessments 7ustifie%#
SUGGESTED ANSWER)
;es- the assessments (ere 7ustifie% because for income
ta purposes- the co0o(nership of inherite% propert! is
automatica''! con&erte% into an unregistere% partnership
from the moment the sai% properties are use% as a
common fun% (ith intent to pro%uce profits for the heirs
in proportion to their shares in the inheritance.
Hrom the moment of such partition- the heirs are entit'e%
a'rea%! to their respecti&e %efinite shares of the estate an%
the income thereof- for each of them to manage an%
%ispose of as ec'usi&e'! his o(n (ithout the
inter&ention of the other heirs- an%- accor%ing'!- he
becomes 'iab'e in%i&i%ua''! for a'' taes in connection
there(ith. ,f after such partition- he a''o(s his shares to
be he'% in common (ith his co0heir un%er a sing'e
management to be use% (ith the intent of ma.ing profit
thereb! in proportion to his share- there can be no %oubt
that- e&en if no %ocument or instrument (ere eecute% for
the purpose- for ta purposes- at 'east- an unregistere%
partnership is forme% *1oren?o OnaF et al +. C,RF .: SCRA
/.+.
ATERNATI&E ANSWER)
<o- the assessments are not 7ustifie%. The mere sharing
of income %oes not of itse'f estab'ish a partnership absent
an! c'ear intention of the co0o(ners (ho are on'!
a(aiting 'iEui%ation of the estate.
BI5: *ollection o( Tax De(iciency (1999)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

A %ie%- sur&i&e% b! his (ife an% three chi'%ren. The
estate ta (as proper'! pai% an% the estate sett'e% an%
%i&i%e% an% %istribute% among the four heirs. 9ater- the
B,? foun% out that the estate fai'e% to report the income
recei&e% b! the estate %uring a%ministration. The B,?
issue% a %eficienc! income ta assessment p'us interest-
surcharges an% pena'ties. 6ince the 3 chi'%ren are resi%ing
abroa%- the B,? sought to co''ect the fu'' ta %eficienc!
on'! against the (i%o(. ,s the B,? correct# *104+
SUGGESTED ANSWER)
;es- the B,? is correct. ,n a case (here the estate has
been %istribute% to the heirs- the co''ection reme%ies
a&ai'ab'e to the B,? in co''ecting ta 'iabi'ities of an
estate ma! either *1+ sue a'' the heirs an% co''ect from
each of them the amount of ta proportionate to the
inheritance recei&e% or *2+ b! &irtue of the 'ien create%
un%er 6ection 219- sue on'! one heir an% sub7ect the
propert! he recei&e% from the estate to the pa!ment of the
estate ta. The B,?- therefore- is correct in pursuing the
secon% reme%! a'though this (i'' gi&e rise to the right of
the heir (ho pa!s to see. reimbursement from the other
heirs. (C,R +. *inedaF ) SCRA )!:#. ,n no case- ho(e&er-
can the B,? enforce the ta 'iabi'it! in ecess of the share
of the (i%o( in the inheritance.
BI5: *om$romise) *onitions (%&&&)
Fn%er (hat con%itions ma! the 3ommissioner of
,nterna' ?e&enue be authori/e% to)
A. 3ompromise the pa!ment of an! interna'
re&enue ta# *24+
SUGGESTED ANSWER)
The 3ommissioner of ,nterna' ?e&enue ma! be authori/e%
to compromise the pa!ment of an! interna' re&enue ta
(here) 1+ A reasonab'e %oubt as to the &a'i%it! of the c'aim
against the tapa!er eistsD or 2+ the financia' position of
the tapa!er %emonstrates a
c'ear inabi'it! to pa! the assesse% ta.
B. Abate or cance' a ta 'iabi'it!# *34+
SUGGESTED ANSWER)
The 3ommissioner of ,nterna' ?e&enue ma! abate or
cance' a ta 'iabi'it! (hen) 1+ The ta or an! portion
thereof appears to be un7ust'!
or ecessi&e'! assesse%D or 2+ The a%ministration an%
co''ection costs in&o'&e% %o
not 7ustif! the co''ection of the amount %ue. N6ec.
204 *B+- <,?3 of 1997O
BI5: *om$romise) #xtent o( Aut0ority (1996)
8p'ain the etent of the authorit! of the 3ommissioner
of ,nterna' ?e&enue to compromise an% abate taes#
SUGGESTED ANSWER)
The authorit! of the 3ommissioner to compromise
encompasses both ci&i' an% crimina' 'iabi'ities of the ta0
pa!er. The ci&i' compromise is a''o(e% on'! in cases 12+
(here the ta assessment is of %oubtfu' &a'i%it!- or 13+
(hen the financia' position of the tapa!er
%emonstrates a c'ear inabi'it! to pa! the ta.
The compromise of the ta 'iabi'it! is possib'e at an!
stage of 'itigation an% the amount of compromise is 'eft
to the %iscretion of the 3ommissioner ecept (ith respect
to
4* of 73
fina' assessments issue% against 'arge tapa!ers (herein
the 3ommissioner cannot compromise for 'ess than fift!
percent *504+. An! compromise in&o'&ing 'arge
tapa!ers 'o(er than fift! percent *504+ sha'' be sub7ect
to the appro&a' of the 6ecretar! of Hinance.
A'' crimina' &io'ations ecept those in&o'&ing frau%- can
be compromise% b! the 3ommissioner but on'! prior to
the fi'ing of the information (ith the 3ourt. The
3ommissioner ma! a'so abate or cance' a ta 'iabi'it!
(hen
6 the ta or an! portion thereof appears to ha&e
been un7ust'! or ecessi&e'! assesse%D or
2 the a%ministrati&e an% co''ection costs in&o'&e%
%o not Justif! co''ection of the amount %ue. *6ec. 204-
<,?3+
BI5: *om$romise) ;it00olin7 A7ent (199/)
>a! the 3ommissioner of the ,nterna' ?e&enue compro0
mise the pa!ment of (ithho'%ing ta (tax deducted and
withheld at source) (here the financia' position of the
tapa!er %emonstrates a c'ear inabi'it! to pa! the assesse%
ta# N541
SUGGESTED ANSWER)
<o. A tapa!er (ho is constitute% as (ithho'%ing agent
(ho has %e%ucte% an% (ithhe'% at source the ta on the
income pa!ment ma%e b! him ho'%s the taes as trust
fun%s for the go&ernment *6ec. 58N2O+ an% is ob'igate% to
remit them to the B,?. The subseEuent inabi'it! of the
(ithho'%ing agent to pa!Lremit the ta (ithhe'% is not a
groun% for compromise because the (ithho'%ing ta is
not a ta upon the (ithho'%ing agent but it is on'! a
proce%ure for the co''ection of a ta.
BI5: *or$oration: Distraint B +e!y (%&&%)
$n >arch 15- 2000- the B,? issue% a %eficienc! income
ta assessment for the taab'e !ear 1997 against the
:a'era 5roup of 3ompanies *:a'era+ in the amount of 110
mi''ion. 3ounse' for :a'era proteste% the assessment an%
reEueste% a rein&estigation of the case. 2uring the
in&estigation- it (as sho(n that :a'era ha% been
transferring its properties to other persons. As no
a%%itiona' e&i%ence to %ispute the assessment ha% been
presente%- the B,? issue% on June 16- 2000 (arrants of
%istraint an% 'e&! on the properties an% or%ere% the fi'ing
of an action in the ?egiona' Tria' 3ourt for the co''ection
of the ta. 3ounse' for :a'era fi'e% an in7uncti&e suit in the
?egiona' Tria' 3ourt to compe' the B,? to ho'% the
co''ection of the ta in abe!ance unti' the %ecision on the
protest (as ren%ere%.
A. 3an the B,? fi'e the ci&i' action for co''ection-
pen%ing %ecision on the a%ministrati&e protest# 8p'ain.
*34+
SUGGESTED ANSWER)
A. ;es- because there is no prohibition for this proce%ure
consi%ering that the fi'ing of a ci&i' action for co''ection
%uring the pen%enc! of an a%ministrati&e protest
constitutes the fina' %ecision of the 3ommissioner on the
protest *C,R +. =nion S&ipping Corp.F 8: SCRA :.8
K)--!L+.


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

B. As counse' for :a'era- (hat action (ou'% !ou
ta.e in or%er to protect the interest of !our c'ient# 8p'ain
!our ans(er. *24+
SUGGESTED ANSWER)
B. , (i'' (ait for the fi'ing of the ci&i' action for
co''ection an% consi%er the same as an appea'ab'e
%ecision. , (i'' not fi'e an in7uncti&e suit because it is not
an a&ai'ab'e reme%!. , (ou'% then appea' the case to the
3ourt of Ta Appea's an% mo&e for the %ismissa' of the
co''ection case (ith the ?T3. $nce the appea' to the 3TA
is fi'e% on time- the 3TA has ec'usi&e 7uris%iction o&er
the case. @ence- the co''ection case in the ?T3 shou'% be
%ismisse% *Tabes +. Flo@oF )): SCRA /8 K)-8L+.
BI5: *ourt o( Tax A$$eals: *ollection o( Taxes) ?rouns
(or *om$romise (1996)
1. >a! the 3ourt of Ta Appea's issue an
in7unction to en7oin the co''ection of taes b! the Bureau
of ,nterna' ?e&enue# 8p'ain.
SUGGESTED ANSWER)
;es. When a %ecision of the 3ommissioner on a ta
protest is appea'e% to the 3TA pursuant to +ec. $$ of #A.
No. $$%, (law creating the TA) in relation to +ec. %%) of
the N6#- such appea' %oes not suspen% the pa!ment-
'e&!- %istraint an%Lor sa'e of an! of the tapa!erCs propert!
for the satisfaction of his ta 'iabi'it!. @o(e&er- (hen in
the opinion of the 3TA the co''ection of the ta ma!
7eopar%i/e the interest of the 5o&ernment an%Lor the
tapa!er- the 3ourt at an! stage of the procee%ings ma!
suspen% or restrain the co''ection of the ta an% reEuire
the tapa!er either to %eposit the amount c'aime% or to
fi'e a suret! bon% for not more than %oub'e the amount
(ith the 3ourt.
2. >a! the ta 'iabi'it! of a tapa!er be
compromise% %uring the pen%enc! of an appea'# 8p'ain.
SUGGESTED ANSWER)
;es. 2uring the pen%enc! of the appea'- the tapa!er ma!
sti'' enter into a compromise sett'ement of his ta 'iabi'it!
for as 'ong as an! of the groun%s for a compromise i.e.D
doubtful validity of assessment an% financial incapacity
of taxpayer- is present. A compromise of a ta 'iabi'it! is
possib'e at an! stage of 'itigation- e&en %uring appea'-
a'though 'ega' propriet! %eman%s that prior 'ea&e of court
shou'% be obtaine% **as%deco +s. C,R 1;6-68/F H%ne
-F )-8+.
BI5: *riminal Prosecution: Tax #!asion (199/)
,s assessment necessar! before a tapa!er ma! be
prosecute% for (i''fu''! attempting in an! manner to
e&a%e or %efeat an! ta impose% b! the ,nterna' ?e&enue
3o%e# N54+
SUGGESTED ANSWER)
<o. Assessment is not necessar! before a tapa!er ma!be
prosecute% if there is a prima facie sho(ing of a (i''fu'
attempt to e&a%e taes as in the tapa!erCs fai'ure to
%ec'are a specific item of taab'e income in his income
ta returns *=ngab +. C%si -/ SCRA 8//+. $n the
contrar!- if the taes a''ege% to ha&e been e&a%e% is
compute% base% on reports appro&e% b! the B,? there is a
presumption of regu'arit! of the pre&ious pa!ment of
taes- so that un'ess an% unti' the B,? has ma%e a fina'
%etermination of (hat is suppose% to be the correct taes-
the tapa!er shou'% not be p'ace% in the crucib'e of
49 of 73
crimina' prosecution *C,R +. Fort%ne Tobacco
Corp.F 7R 9o. ))-6F H%ne .F )--"+.
BI5: #xtinction) *riminal +iability o( t0e Tax$ayer (%&&%)
>r. 3han- a manufacturer of garments- (as in&estigate%
for fai'ure to fi'e ta returns an% to pa! taes for the
taab'e !ear 1997. 2espite the subpoena duces tecum
issue% to him- he refuse% to present an% submit his boo.s
of accounts an% a''ie% recor%s. ,n&estigators- therefore-
rai%e% his factor! an% sei/e% se&era' bun%'es of
manufacture% garments- supp'ies an% unpai% importe%
teti'e materia's. After his apprehension an% base% on the
testimon! of a former emp'o!ee- %eficienc! income an%
business taes (ere assesse% against >r. 3han on Apri'
15- 2000. ,t (as then that he pai% the taes. 3rimina'
action (as nonethe'ess institute% against him in the
?egiona' Tria' 3ourt for &io'ation of the Ta 3o%e. >r.
3han mo&e% to %ismiss the crimina' case on the groun%
that he ha% a'rea%! pai% the taes assesse% against him. @e
a'so %eman%e% the return of the garments an% materia's
sei/e% from his factor!. @o( (i'' !ou reso'&e >r. 3hanCs
motion# *54+
SUGGESTED ANSWER)
The motion to %ismiss shou'% be %enie%. The satisfaction
of the ci&i' 'iabi'it! is not one of the groun%s for the
etinction of crimina' action **eople +. ,ldefonso TierraF
) SCRA """ K)-".L+. 9i.e(ise- the pa!ment of the ta
%ue after apprehension sha'' not constitute a &a'i% %efense
in an! prosecution for &io'ation of an! pro&ision of the Ta
3o%e *6ec. 253NaO- <,?3+. @o(e&er- the garments an%
materia's sei/e% from the factor! shou'% be or%ere%
returne% because the pa!ment of the ta ha% re'ease% them
from an! 'ien that the 5o&ernment has o&er them.
*ustoms) Iurisiction) Assessment) 6n$ai
*ustomsDutiesGTaxes (%&&6)
The 3o''ector of 3ustoms issue% an assessment for un0
pai% customs %uties an% taes on the importation of !our
c'ient in the amount of 1980-000.00. Where (i'' !ou fi'e
!our case to protect !our c'ientCs right# 3hoose the
correct courtsL agencies- obser&ing their proper hierarch!.
*54+
1. 3ourt of Ta Appea's
2. 3o''ector of 3ustoms
3. 3ommissioner of 3ustoms
4. ?egiona' Tria' 3ourt
5. >etropo'itan Tria' 3ourt
6. 3ourt of Appea's
7. 6upreme 3ourt
SUGGESTED ANSWER)
6. 1rotest (ith the 3o''ector of 3ustoms (+ec. %5'/,
T)
2. Appea' to the 3ommissioner of 3ustoms (+ec. %5$5,
T).
7. Appea' to the 3TA (#A )%/%)
8. 1etition for ?e&ie( on 3ertiorari 6upreme 3ourt
(#ule !, of the $))& #ules of ivil 9rocedure (#A
)%/%).
Tax$ayer) Prescri$ti!e Perio) Assessment)
De(iciencyIncome Tax (%&&6)
The 3ommissioner of ,nterna' ?e&enue issue% an assess0
ment for %eficienc! income ta for taab'e !ear 2000 'ast
Ju'! 31- 2006 in the amount of 1 10 >i''ion inc'usi&e of


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

surcharge an% interests. ,f the %e'inEuent tapa!er is !our
c'ient- (hat steps (i'' !ou ta.e# What is !our %efense#
*104+
ATERNATI&E ANSWER)
As 3ounse'- , sha'' mo&e to cance' the Assessment
because of prescription. The three *3+ !ear perio% of
assessment for the ,ncome Ta ?eturns of 2000 starts on
Apri' 15- 2001 an% en%s on Apri' 16- 2004. The
assessment of Ju'! 31- 2006 is be!on% the three *3+ !ear
prescripti&e perio% an% can no 'onger ha&e an! 'ega'-
bin%ing effect (Tax #eform Act, Title 2666, hapter 6,
+ection %'5 A$))&@).
ATERNATI&E ANSWER)
6ince m! c'ient has 'ost his right to protest- , (i'' a%&ise
him to (ait for a co''ection action b! the 3ommissioner.
Then- , (i'' fi'e a petition for re&ie( (ith the 3TA to
Euestion the co''ection. 6ince the assessment (as issue%
be!on% the prescripti&e perio% to assess- the action to
co''ect an in&a'i% assessment is not (arrante% (*&il. Ho%r;
nalistsF ,nc. +. C,RF 7.R. 9o. )"8:F Dece3ber )"F !!.#.
Tax$ayer) Assessment) De(iciency Tax (%&&6)
$n June 1- 2003- 5'oba' Ban. recei&e% a fina' notice of
assessment from the B,? for %eficienc! %ocumentar!
stamp ta in the amount of 15 >i''ion. $n June 30- 2003-
5'oba' Ban. fi'e% a reEuest for reconsi%eration (ith the
3ommissioner of ,nterna' ?e&enue. The 3ommissioner
%enie% the reEuest for reconsi%eration on'! on >a! 30-
2006- at the same time ser&ing on 5'oba' Ban. a (arrant
of %istraint to co''ect the %eficienc! ta. ,f !ou (ere its
counse'- (hat (i'' be !our a%&ice to the ban.# 8p'ain.
*54+
ATERNATI&E ANSWER)
The %enia' for the reEuest for reconsi%eration is the fina'
%ecision of the 3,?.. , (ou'% a%&ise 5'oba' Ban. to
appea' the %enia' to the 3ourt of Ta Appea's *3TA+
(ithin 30 %a!s from receipt. , (i'' further a%&ise the ban.
to fi'e a motion for in7unction (ith the 3ourt of Ta
Appea's to en7oin the 3ommissioner from enforcing the
assessment pen%ing reso'ution of the appea'. Whi'e an
appea' to the 3TA (i'' not suspen% the pa!ment- 'e&!-
%istraint- an%Lor sa'e of an! propert! of the tapa!er for
the satisfaction of its ta 'iabi'it!- the 3TA is authori/e% to
gi&e in7uncti&e re'ief if the enforcement (ou'% 7eopar%i/e
the interest of the tapa!er- as in this case- (here the
assessment has not become fina' (1ascona 1and Co. +F
C,RF CTA Case 9o. :///F Han%ar' .F !!!( See also Re+ised
CTA R%lesF appro+ed b' t&e S%pre3e Co%rt on Dece3ber
):F !!:#.
ATERNATI&E ANSWER)
, (i'' a%&ice the Ban. to prompt'! pa! the %eficienc!
%ocumentar! stamp ta an% the interest charges to a&oi%
an! further increase in the ta 'iabi'it!. The Ban. shou'%
ha&e appea'e% to the 3ourt of Ta Appea's (hen the B,?
fai'e% to %eci%e on its ?eEuest for ?econsi%eration (ithin
thirt! *30+ %a!s after the inaction of the B,? for one
hun%re% eight! *180+ %a!s or on 2ecember 31- 2003. The
Ta Assessment has a'rea%! become fina'- eecutor! an%
unappea'ab'e at that point (B*, +. C,RF 7.R. 9o. )6-/6"F
October )/F !!:#.
Tax$ayer) 4ATAre7istere) *laim (or Tax 5e(un (%&&6)
#0 of 73
?o!a' >ining is a :AT0registere% %omestic mining entit!.
$ne of its pro%ucts is si'&er being so'% to the Bang.o
6entra' ng 1i'ipinas. ,t fi'e% a c'aim (ith the B,? for ta
refun% on the groun% that un%er 6ection 106 of the Ta
3o%e- sa'es of precious meta's to the Bang.o 6entra' ng
1i'ipinas are consi%ere% eport sa'es sub7ect to /ero0rate%
:AT. ,s ?o!a' >iningCs c'aim meritorious# 8p'ain. *54+
SUGGESTED ANSWER)
<o- ?o!a' >iningCs c'aim is not meritorious because it is
the sa'e to the Bang.o 6entra' ng 1i'ipinas of go'% an%
not si'&er (hich is consi%ere% eport sa'es at Iero0rate%
:AT (Tax #eform Act, Title 62, +ection $'-A%@Aa@A!@). (9OTA
BE9E: 42AT is excluded from the 3ar coverage, "uidelines
for %''- 3ar 4xaminations, (une $,, %''-)
BI5: Frauulent 5eturn) Prima Facie #!ience (199/)
What constitutes prima facie e&i%ence of a fa'se or
frau%u'ent return# N24O
SUGGESTED ANSWER)
There is prima facie e&i%ence of a fa'se or frau%u'ent
return (hen the tapa!er has (i''fu''! an% .no(ing'!
fi'e% it (ith the intent to e&a%e a part or a'' of the ta
'ega''! %ue from him *=ngab +. C%siFF -/ SCRA 8//+.
There must appear a %esign to mis'ea% or %ecei&e on the
part of the tapa!er- or at 'east cu'pab'e neg'igence. A
mista.e not cu'pab'e in respect of its &a'ue (ou'% not
constitute a fa'se return. (*ords and 9hrases, 2ol. $-,
page $&5).
BI5: Frauulent 5eturn) Prima Facie #!ience (%&&%)
What constitutes prima facie e&i%ence of a fa'se or
frau%u'ent return to 7ustif! the imposition of a 504
surcharge on the %eficienc! ta %ue from a tapa!er#
8p'ain. *54+
SUGGESTED ANSWER)
There is a prima facie e&i%ence of fa'se or frau%u'ent
return (hen the tapa!er +E3+TANT6A??G ENB4#.
B4?A#4B his taab'e sa'es- receipts or income- or
+E3+TANT6A??G C24#+TAT4B his %e%uctions- the
tapa!erCs fai'ure to report sa'es- receipts or income in an
amount ecee%ing 304 of that %ec'are% per return- an% a
c'aim of %e%uction in an amount ecee%ing 304 of actua'
%e%uction sha'' ren%er the tapa!er 'iab'e for substantia'
un%er%ec'aration an% o&er%ec'aration- respecti&e'!- an%
(i'' 7ustif! the imposition of the 504 surcharge on the
%eficienc! ta %ue from the tapa!er. (+ec. %!/, N6#).
BI5: ?arnis0ment: Ban. Account o( a Tax$ayer (199/)
,s the B,? authori/e% to issue a (arrant of garnishment
against the ban. account of a tapa!er %espite the
pen%enc! of his protest against the assessment (ith the
B,? or appea' (ith the 3ourt of Ta Appea's# N54O
SUGGESTED ANSWER)
The B,? is authori/e% to issue a (arrant of garnishment
against the ban. account of a tapa!er %espite the
pen%enc! of protest *Mabes +. Flo@oF ): SCRA /8+.
<o(here in the Ta 3o%e is the 3ommissioner reEuire% to
ru'e first on the protest before he can institute co''ection
procee%ings on the ta assesse%. The 'egis'ati&e po'ic! is
to gi&e the 3ommissioner much 'atitu%e in the spee%! an%
prompt co''ection of taes because it is in taation that the
5o&ernment %epen%s to obtain the


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

means to carr! on its operations *Rep%blic %. Ti3 Tian
Teng SonsF ,nc.F )" SCRA :8.+.
ATERNATI&E ANSWER)
<o- because the assessment has not !et become fina'-
eecutor! an% %eman%ab'e. The basic consi%eration in the
co''ection of taes is (hether the assessment is fina' an%
unappea'ab'e or the %ecision of the 3ommissioner is
fina'- eecutor! an% %eman%ab'e- the B,? has 'ega' basis
to co''ect the ta 'iabi'it! b! either a%ministrati&e or
7u%icia' action.
BI5: PreAAssessment @otice not @ecessary (%&&%)
,n the in&estigation of the (ithho'%ing ta returns of AI
>e%ina 6ecurit! Agenc! *AI >e%ina+ for the taab'e
!ears 1997 an% 1998- a %iscrepanc! bet(een the taes
(ithhe'% from its emp'o!ees an% the amounts actua''!
remitte% to the go&ernment (as foun%. Accor%ing'!-
before the perio% of prescription commence% to run- the
B,? issue% an assessment an% a %eman% 'etter ca''ing for
the imme%iate pa!ment of the %eficienc! (ithho'%ing
taes in the tota' amount of 1250-000.00. 3ounse' for AI
>e%ina proteste% the assessment for being nu'' an% &oi%
on the groun% that no pre0assessment notice ha% been
issue%. @o(e&er- the protest (as %enie%. 3ounse' then
fi'e% a petition for prohibition (ith the 3ourt of Ta
Appea's to restrain the co''ection of the ta.
A. ,s the contention of the counse' tenab'e#
8p'ain *24+
SUGGESTED ANSWER)
A. <o- the contention of the counse' is untenab'e. 6ection
228 of the Ta 3o%e epress'! pro&i%es that no pre0
assessment notice is reEuire% (hen a %iscrepanc! has
been %etermine% bet(een the ta (ithhe'% an% the amount
actua''! remitte% b! the (ithho'%ing agent. 6ince the
amount assesse% re'ates to %eficienc! (ithho'%ing taes-
the B,? is correct in issuing the assessment an% %eman%
'etter ca''ing for the imme%iate pa!ment of the %eficienc!
(ithho'%ing taes. *6ec. 228- <,?3+.
B. Wi'' the specia' ci&i' action for prohibition
brought before the 3TA un%er 6ec. 11 of ?.A- <o. 1125
prosper# 2iscuss !our ans(er. *34+
SUGGESTED ANSWER)
B. The specia' ci&i' action for prohibition (i'' not
prosper- because the 3TA has no 7uris%iction to entertain
the same. The po(er to issue (rit of in7unction pro&i%e%
for un%er 6ection 11 of ?A 1125 is on'! anci''ar! to its
appe''ate 7uris%iction. The 3TA is not &este% (ith origina'
7uris%iction to issue (rits of prohibition or in7unction
in%epen%ent'! of an% apart from an appea'e% case. The
reme%! is to appea' the %ecision of the B,?. *Collector +.
M%secoF 6 SCRA 6)6 K)-")L+.
BI5: Prescri$ti!e Perio: *i!il Action (%&&%)
$n August 5- 1997- A%amson 3o.- ,nc. *A%amson+ fi'e% a
reEuest for reconsi%eration of the %eficienc! (ithho'%ing
ta assessment on Ju'! 10- 1997- co&ering the taab'e !ear
1994. After a%ministrati&e hearings- the origina'
assessment of 1150-000.00 (as re%uce% to 175.000.00 an%
a mo%ifie% assessment (as thereafter issue% on August 05-
1999. 2espite repeate% %eman%s- A%amson fai'e% an%
#1 of 73
refuse% to pa! the mo%ifie% assessment. 3onseEuent'!- the
B,? brought an action for co''ection in the ?egiona' Tria'
3ourt on 6eptember 15- 2000. A%amson mo&e% to %ismiss
the action on the groun% that the go&ernmentCs right to
co''ect the ta b! 7u%icia' action has prescribe%. 2eci%e
the case. *54+
SUGGESTED ANSWER)
The right of the 5o&ernment to co''ect b! 7u%icia' action
has not prescribe%. The fi'ing of the reEuest for
reconsi%eration suspen%e% the running of the prescripti&e
perio% an% commence% to run again (hen a %ecision on
the protest (as ma%e on August 5- 1999. ,t must be note%
that in a'' cases co&ere% b! an assessment- the perio% to
co''ect sha'' be fi&e *5+ !ears from the %ate of the
assessment but this perio% is suspen%e% b! the fi'ing of a
reEuest for reconsi%eration (hich (as acte% upon b! the
3ommissioner of ,nterna' ?e&enue *C,R +. W'et& S%aco
1aboratoriesF ,nc.F ! SCRA ): K)--)L+.
BI5: Prescri$ti!e Perio) Assessment B *ollection (1999)
A 3o.- a 1hi'ippine 3orporation- fi'e% its 1995 ,ncome
Ta ?eturn *,T?+ on Apri' 15- 1996 sho(ing a net 'oss.
$n <o&ember 10- 1996- it amen%e% its 1995 ,T? to sho(
more 'osses. After a ta in&estigation- the B,? %isa''o(e%
certain %e%uctions c'aime% b! A 3o.- putting A 3o. in a
net income position. As a resu't- on August 5- 1999- the
B,? issue% a %eficienc! income assessment against A 3o.
A 3o. proteste% the assessment on the groun% that it has
prescribe%) 2eci%e. *54+
SUGGESTED ANSWER)
The right of the B,? to assess the ta has not prescribe%.
The rule is that internal revenue taxes shall be assessed
within three years after the last day prescribed by law for
the filing of the return. *+ection %'5, N6#+- @o(e&er- if
the return origina''! fi'e% is amen%e% substantia''!- the
counting of the three0!ear perio% starts from the %ate the
amen%e% return (as fi'e%. *C,R +. *&oenix Ass%rance Co.F
1td.F ). SCRA :+. There is a substantia' amen%ment in
this case because a ne( return (as fi'e% %ec'aring more
'osses- (hich can on'! be %one either *1+ in re%ucing
gross income or *2+ in increasing the items of %e%uctions-
c'aime%.
BI5: Prescri$ti!e Perio) *riminal Action (%&&%)
T; 3orporation fi'e% its fina' a%7uste% income ta return
for 1993 on Apri' 12- 1994 sho(ing a net 'oss from
operations. After in&estigation- the B,? issue% a pre0
assessment notice on >arch 30- 1996. A fina' notice an%
%eman% 'etter %ate% Apri' 15- 1997 (as issue%- persona''!
%e'i&ere% to an% recei&e% b! the compan!Cs chief
accountant. Hor (i''fu' refusa' an% fai'ure of T;
3orporation to pa! the ta- (arrants of %istraint an% 'e&!
on its properties (ere issue% an% ser&e% upon it. $n
Januar! 10- 2002- a crimina' charge for &io'ation of the
Ta 3o%e (as institute% in the ?egiona' Tria' 3ourt (ith
the appro&a' of the 3ommissioner.
The compan! mo&e% to %ismiss the crimina' comp'aint
on the groun% that an act for &io'ation of an! pro&ision of
the Ta 3o%e prescribes after fi&e *5+ !ears an%- in this
case- the perio% commence% to run on >arch 30- 1996
(hen the pre0assessment (as issue%. @o( (i'' !ou
reso'&e the motion# 8p'ain !our ans(er. *54+


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics
1
+
a %ece%ent to %etermine his gross estateD
2
+
an! tapa!er (ho has fi'e% an app'ication for
compromise of his ta 'iabi'it! b! means of
financia' incapacit! to pa! his ta 'iabi'it! *6ec.
6*H+. <,?3+.
5
)
Where the tapa!er has signe% a (ai&er
authori/ing the 3ommissioner or his %u'!
authori/e% representati&es to ,nEuire into the
ban. %eposits. (Note: This answer was not part of
the answers enumerated in the E9 ?aw Answers
to the 3ar in this but was later
added in the recent E9 ?aw Answers to the 3ar
as a result
of A8?A ?aw of %''$)

SUGGESTED ANSWER)
The motion to %ismiss shou'% not be grante%. ,t is on'!
(hen the assessment has become fina' an% unappea'ab'e
that the 50!ear perio% to fi'e a crimina' action commences
to run *T%pa? +. =lopF 6)" SCRA ))8 K)---L+. The pre0
assessment notice issue% on >arch 30- 1996 is not a fina'
assessment (hich is enforceab'e b! the B,?. ,t is the
issuance of the fina' notice an% %eman% 'etter %ate% Apri'
15- 1997 an% the fai'ure of the tapa!er to protest (ithin
30 %a!s from receipt thereof that ma%e the assessment
fina' an% unappea'ab'e. The ear'iest %ate that the
assessment has become fina' is >a! 16- 1997 an% since
the crimina' charge (as institute% on Januar! 10- 2002-
the same (as time'! fi'e%.
BI5: Secrecy o( Ban. De$osits +aw (199/)
3an the 3ommissioner of ,nterna' ?e&enue inEuire into
the ban. %eposits of a tapa!er# ,f so- %oes this po(er of
the 3ommissioner conf'ict (ith ?.A. 1405 *6ecrec! of
Ban. 2eposits 9a(+ N54O
SUGGESTED ANSWER)
The 3ommissioner of ,nterna' ?e&enue is authori/e% to
inEuire into the ban. %eposits of)
The 'imite% po(er of the 3ommissioner %oes not conf'ict
(ith ?.A. <o. 1405 because the pro&isions of the Ta
3o%e granting this po(er is an eception to the 6ecrec!
of Ban. 2eposits 9a( as embo%ie% in a 'ater 'egis'ation.
Hurthermore- in case a tapa!er app'ies for an app'ication
to compromise the pa!ment of his ta 'iabi'ities on his
c'aim that his financia' position %emonstrates a c'ear
inabi'it! to pa! the ta assesse%- his app'ication sha'' not
be consi%ere% un'ess an% unti' he (ai&es in (riting his
pri&i'ege un%er ?.A. <o. 1405- an% such (ai&er sha''
constitute the authorit! of the 3ommissioner to inEuire
into the ban. %eposits of the tapa!er.
BI5) *onse>uence) Tax$ayer 7uilty o( Tax #!asion (%&&,)
Jose' agree% to se'' his con%ominium unit to Jess for 12.5
>i''ion. At the time of the sa'e- the propert! ha% a /ona'
&a'ue of 12.0 >i''ion. Fpon the a%&ice of a ta
consu'tant- the parties agree% to eecute t(o %ee%s of
sa'e- one in%icating the /ona' &a'ue of 12.0 >i''ion as the
se''ing price an% the other sho(ing the true se''ing price
of 12.5 >i''ion. The ta consu'tant fi'e% the capita' gains
ta return using the %ee% of sa'e sho(ing the /ona' &a'ue
of
#2 of 73
12.0 >i''ion as the se''ing price. 2iscuss the ta
imp'ications an% conseEuences of the action.
*54+
ATERNATI&E ANSWER)
The action of the parties constitutes ta e&asion an%
eposes Jose' to)
*1+ 28H,3,8<3; H,<A9 ,<3$>8 TAA on the
sa'e of rea' propert! in the 1hi'ippines c'assifie% as a
capita' asset. Fn%er 6ec. 24*2+ of the <,?3- the fina' ta
of si percent *64+ sha'' be base% on the gross se''ing
price of 12.5 >i''ion or /ona' &a'ue of 12.0 >i''ion-
(hiche&er is higher- i.e.- 12.5 >i''ionD
*2+ H?AF2 18<A9T; amounting to 504
surcharge on the amount e&a%e% *6ec. 248NBO <,?3+D
an% *3+ 28H,3,8<3; ,<T8?86T of 204 per annum
on the %eficienc!. *6ec. 249NAONBO- <,?3+
ATERNATI&E ANSWER)
There is ta e&asion because of the concurrence of the fo''o(ing
factors) 1+ The pa!ment of 'ess than that .no(n b! the tapa!er
to be 'ega''! %ue- or the non0pa!ment of ta (hen it is sho(n that
a ta is %ue. ,t is e&i%ent that the parties that the ta %ue shou'% be
compute% base% on the &a'uation of 12.5 mi''ion an% not 12.0
mi''ionD 2+ An accompan!ing state of min% (hich is %escribe%
as being "e&i'" on "ba% faith-" "(i''fu'-" or "%e'iberate an% not
acci%enta'." 2espite the abo&e .no('e%ge- the parties %e'iberate'!
misrepresente% the true basis of the sa'eD an% 3+ A course of
action or fai'ure of action (hich is un'a(fu'. This is sho(n b! the
preparation of the t(o %ee%s of sa'e (hich sho(e% %ifferent
&a'ues.
(Co33issioner of ,nternal Re+en%e +. T&e Estate ofBenigno
*F TbdaF Hr.F 7.R. 9o. )./)88F Septe3ber ).F !!.#
The ta e&asion committe% shou'% resu't to the imposition
of a 504 frau% surcharge on the amount e&a%e% (+ec.
%!/A3@, N6#) pa!ment of the 2eficienc! Ta- an%
interest of 204 per annum on the %eficienc!. (+ec. %!)AA@
A3@, N6#) The parties ma! 'i.e(ise be sub7ect to
crimina' prosecution for (i''fu''! fai'ing to pa! the ta- as
(e'' as for fi'ing a fa'se an% frau%u'ent return.
(+ees. %,!, %,, and %,&, N6#)
BI5: Summary 5emey: #state Tax De(iciencies (199/)
,s the B,? authori/e% to co''ect estate ta %eficiencies b!
the summar! reme%! of 'e&! upon an% sa'e of rea'
properties of the %ece%ent (ithout first securing the
authorit! of the court sitting in probate o&er the suppose%
(i'' of the %ece%ent#
SUGGESTED ANSWER)
;es. The B,? is authori/e% to co''ect estate ta %eficienc!
through the summar! reme%! of 'e&!ing upon an% sa'e of
rea' properties of a %ece%ent- (ithout the cognition an%
authorit! of the court sitting in probate o&er the suppose%
(i'' of the %ecease%- because the co''ection of estate ta is
eecuti&e in character. As such the estate ta is eempte%
from the app'ication of the statute of non0c'aims- an% this
is 7ustifie% b! the necessit! of go&ernment fun%ing-
immorta'i/e% in the maim that taes are the 'ifeb'oo% of
the go&ernment *2arcos +. C,RF 7.R. 9o. )!88!F H%ne
:F )--/+.
ATERNATI&E ANSWER)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

;es- if the ta assessment has a'rea%! become fina'-
eecutor! an% enforceab'e. The appro&a' of the court
sitting in probate o&er the suppose% (i'' of the %ecease% is
not a man%ator! reEuirement for the co''ection of the
estate ta. The probate court is %etermining issues (hich
are not against the propert! of the %ece%ent- or a c'aim
against the estate as such- but is against the interest or
propert! right (hich the heir- 'egatee- %e&isee- etc. has in
the propert! former'! he'% b! the %ece%ent. *2arcos +.
C,RF 7.RF 9o. )!88!F H%ne :F )--7+.
BI5: 6n$ai Taxes !s" *laims (or 6n$ai ;a7es (199,)
Hor fai'ure of $ceanic 3ompan!- ,nc. *$38A<,3+- to pa!
%eficienc! taes of 120 >i''ion- the 3ommissioner of
,nterna' ?e&enue issue% (arrants of %istraint on
$38A<,3Cs persona' properties an% 'e&ie% on its rea'
properties. >ean(hi'e- the 2epartment of 9abor through
the 9abor Arbiter ren%ere% a %ecision or%ering $38A<,3
to pa! unpai% (ages an% other benefits to its emp'o!ees.
Hour barges be'onging to $38A<,3 (ere 'e&ie% upon b!
the sheriff an% 'ater so'% at pub'ic auction.
The 3ommissioner of ,nterna' ?e&enue fi'e% a motion
(ith the 9abor Arbiter to annu' the sa'e an% en7oin the
sheriff from %isposing the procee%s thereof. The
emp'o!ees of $38A<,3 oppose% the motion conten%ing
that Art. 110 of the 9abor 3o%e gi&es first preference to
c'aims for unpai% (ages. ?eso'&e the motion. 8p'ain.
SUGGESTED ANSWER)
The motion fi'e% b! the 3ommissioner shou'% be grante%
because the c'aim of the go&ernment for unpai% taes are
genera''! preferre% o&er the c'aims of 'aborers for unpai%
(ages. The pro&ision of Artic'e 110 of the 9abor 3o%e-
(hich gi&es 'aborersC c'aims for preference app'ies on'! in
case of ban.ruptc! or 'iEui%ation of the emp'o!erCs
business. ,n the instant case- $ceanic is not un%er
ban.ruptc! or 'iEui%ation at the time the (arrants of
%istraint an% 'e&! (ere issue% hence- the opposition of the
emp'o!ees is un(arrante%. (C,R +s. 91RC et al 7.R. 9o.
/.-":F 9o+e3ber -F )--.#.
BI5) Assessment) *riminal *om$laint (%&&,)
,n 1995- the B,? fi'e% before the 2epartment of Justice
*2$J+ a crimina' comp'aint against a corporation an% its
officers for a''ege% e&asion of taes. The comp'aint (as
supporte% b! a s(orn statement of the B,? eaminers
sho(ing the computation of the ta 'iabi'ities of the erring
tapa!er. The corporation fi'e% a motion to %ismiss the
crimina' comp'aint on the groun% that there has been- as
!et- no assessment of its ta 'iabi'it!D hence- the crimina'
comp'aint (as premature. The 2$J %enie% the motion on
the groun% that an assessment of the ta %eficienc! of the
corporation is not a precon%ition to the fi'ing of a crimina'
comp'aint an% that in an! e&ent- the 7oint affi%a&it of the
B,? eaminers ma! be consi%ere% as an assessment of the
ta 'iabi'it! of the corporation. ,s the ru'ing of the 2$J
correct# 8p'ain. *54+
SUGGESTED ANSWER)
The 2$J is correct in ru'ing that an assessment of the ta
%eficienc! of the corporation is not a precon%ition to the
fi'ing of a crimina' comp'aint. There is no nee% for an
#3 of 73
assessment so 'ong as there is a prima facie sho(ing of
&io'ation of the pro&isions of the Ta 3o%e. After a''- a
crimina' charge is institute% not to %eman% pa!ment- but
to pena'i/e the ta pa!er for &io'ation of the Ta 3o%e.
(Co33issioner of ,nternal Re+en%e +. *ascor Realt' and
De+elop3ent CorporationF 7.R. 9o. )86):F H%ne -F )---+
Hurthermore- there is nothing in the prob'em that sho(s
that the B,? in fi'ing the case is a'so intereste% in
co''ecting the ta %eficienc!.
@o(e&er- it is in error (hen it ru'e% that the 7oint affi%a&it of
the B,? eaminers ma! be consi%ere% as an assessment of
the ta 'iabi'it! of the corporation. The 7oint affi%a&it
sho(ing the computation of the ta 'iabi'ities of the erring
tapa!er is not a ta assessment because it (as not sent to
the tapa!er- an% %oes not %eman% pa!ment of the ta (ithin
a certain perio% of time. An assessment is %eeme% ma%e on'!
(hen the B,? re'eases- mai's or sen%s such notice to the
tapa!er. (Co33issioner of ,nternal Re+en%e
+. *ascor Realt' and De+elop3ent CorporationF 7.R. 9o.
)86):F H%ne -F )---# 9otes and Co33ents$ A plea is made
for liberality in correcting the examinees answers because the
examination is very long.
BI5) Aut0ority) 5e(un or *reit o( Taxes (%&&,)
6tate the con%itions reEuire% b! the Ta 3o%e before the
3ommissioner of ,nterna' ?e&enue cou'% authori/e the
refun% or cre%it of taes erroneous'! or i''ega''! recei&e%.
SUGGESTED ANSWER)
Fn%er 6ec. 204*3+- <,?3- the fo''o(ing con%itions must
be met)
1. There must be a (ritten c'aim for refun% fi'e% b! the
tapa!er (ith the 3ommissioner.
2. The c'aim for refun% must be a categorica' %eman%
for reimbursement.
3. The c'aim for refun% must be fi'e% (ithin t(o *2+ !ears
from %ate of pa!ment of the ta or pena't! regar%'ess of
an! super&ening cause.
BI5) *om$romise (%&&')
After the ta assessment ha% become fina' an%
unappea'ab'e- the 3ommissioner of ,nterna' ?e&enue
initiate% the fi'ing of a ci&i' action to co''ect the ta %ue
from <A. After se&era' !ears- a %ecision (as ren%ere% b!
the court or%ering <A to pa! the ta %ue p'us pena'ties
an% surcharges. The 7u%gment became fina' an% eecutor!-
but attempts to eecute the 7u%gment a(ar% (ere futi'e.
6ubseEuent'!- <A offere% the 3ommissioner a compromise
sett'ement of 504 of the 7u%gment a(ar%- representing that
this amount is a'' he cou'% rea''! affor%. 2oes the
3ommissioner ha&e the po(er to accept the compromise
offer# ,s it 'ega' an% ethica'# 8p'ain brief'!. *54+
SUGGESTED ANSWER)
;es. The 3ommissioner has the po(er to accept the offer
of compromise if the financia' position of the tapa!er
c'ear'! %emonstrates a c'ear inabi'it! to pa! the ta
*6ection 204- <,?3+.


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

As represente% b! <A in his offer- on'! 504 of the
7u%gment a(ar% is a'' he cou'% rea''! affor%. This is an
offer for compromise base% on financia' incapacit! (hich
the 3ommissioner sha'' not accept un'ess accompanie%
b! a (ai&er of the secrec! of ban. %eposits *6ection 6NHR-
<,?3+. The (ai&er (i'' enab'e the 3ommissioner to
ascertain the financia' position of the tapa!er- a'though
the inEuir! nee% not be 'imite% on'! to the ban. %eposits
of the tapa!er but a'so as to his financia' position as
ref'ecte% in his financia' statements or other recor%s upon
(hich his propert! ho'%ings can be ascertaine%.
,f in%ee%- the financia' position of <A as %etermine% b!
the 3ommissioner %emonstrates a c'ear inabi'it! to pa!
the ta- the acceptance of the offer is 'ega' an% ethica'
because the groun% upon (hich the compromise (as
anchore% is (ithin the contet of the 'a( an% the rate of
compromise is (e'' (ithin an% far ecee%s the minimum
prescribe% b! 'a( (hich is on'! 104 of the basic ta
assesse%.
BI5) *om$romise (%&&,)
6tate an% %iscuss brief'! (hether the fo''o(ing cases
ma! be compromise% or ma! not be compromise%) a+
2e'inEuent accountsD b+ 3ases un%er a%ministrati&e
protest- after issuance of
the fina' assessment notice to the tapa!er- (hich are
sti'' pen%ingD c+ 3rimina' ta frau% casesD %+ 3rimina'
&io'ations a'rea%! fi'e% in courtD e+ 3ases (here fina'
reports of rein&estigation or
reconsi%eration ha&e been issue% resu'ting in the
re%uction of the origina' assessment agree% to b! the
tapa!er (hen he signe% the reEuire% agreement
form. *54+
SUGGESTED ANSWERS)
The fo''o(ing cases ma! sti'' be compromise% (#.#. 5'.'%
A%''%@) because of the tapa!erCs financia' incapacit! to
pa! the ta %ue or the assessmentCs %oubtfu' &a'i%it!) a+
289,<KF8<T A33$F<T6 ma! be compromise%
because there is no sho(ing that there is a %u'!0appro&e%
sche%u'e of insta''ment pa!mentsD an% b+ 3ases un%er
a%ministrati&e protest- after issuance of the fina' assessment
notice to the tapa!er- (hich are sti'' pen%ing.
The fo''o(ing cases 8AG NC ?CN"4# 34
C89#$>,682 (#.#. 5'.'% A%''%@) because the
tapa!er has not pai% his taes for reasons other than his
financia' incapacit! or the %oubtfu' &a'i%it! of the
assessment) a+ 3?,>,<A9 TAA H?AF2 cases as ma!
be %etermine% b! the 3ommissioner or his authori/e%
agents ma! not be compromise%D b+ 3?,>,<A9
:,$9AT,$<6 A9?8A2; H,982 ,< 3$F?T so that the
tapa!er (i'' not profit from his frau% (hich (ou'%
encourage ta e&asionD an% c+ 3ases (here fina' reports
of rein&estigation or reconsi%eration ha&e been issue%
resu'ting in the re%uction of the origina' assessment agree%
to b! the tapa!er (hen he signe% the reEuire% agreement
form. The tapa!er is estoppe% from app'!ing for a
compromise.
#4 of 73
BI5) De(iciency Tax Assessment !s" Tax 5e(un G Tax
*reit (%&&,)
,s a %eficienc! ta assessment a bar to a c'aim for ta
refun% or ta cre%it# 8p'ain.
SUGGESTED ANSWER)
;es- the %eficienc! ta assessment is a bar to a ta refun% or
cre%it. The Tapa!er cannot be entit'e% to a refun% an% at the
same time 'iab'e for a ta %eficienc! assessment for the same
!ear. The %eficienc! assessment creates a %oubt as to the
truth an% accurac! of the Ta ?eturn. 6ai% ?eturn cannot
therefore be the basis of the refun%
(Co33issioner of ,nternal Re+en%e +. Alltel K!!LF citing
Co33issioner of ,nternal Re+en%e +. Co%rt of AppealsF Cit'
Tr%st BanCing Corporation and Co%rt of Tax AppealsF
7.R. 9o. )!""))F H%l' )F )--.#
BI5) Distraint) Prescri$tion o( t0e Action (%&&%)
>r. 6ebastian is a Hi'ipino seaman emp'o!e% b! a
<or(egian compan! (hich is engage% ec'usi&e'! in
internationa' shipping. @e an% his (ife- (ho manages
their business- fi'e% a 7oint income ta return for 1997 on
>arch 15- 1998. After an au%it of the return- the B,?
issue% on Apri' 20- 2001 a %eficienc! income ta
assessment for the sum of 1250.000.00- inc'usi&e of
interest an% pena't!. Hor fai'ure of >r. an% >rs. 6ebastian
to pa! the ta (ithin the perio% state% in the notice of
assessment- the B,? issue% on August 19- 2001 (arrants
of %istraint an% 'e&! to enforce co''ection of the ta.
A. What is the ru'e of income taation (ith respect
to >r. 6ebastianCs income in 1997 as a seaman on boar%
the <or(egian &esse' engage% in internationa' shipping#
8p'ain !our ans(er. *24+
SUGGESTED ANSWER)
A. The income of >r. 6ebastian as a seaman is
consi%ere% as income of a non0resi%ent citi/en %eri&e%
from (ithout the 1hi'ippines. The tota' gross income- in
F6 %o''ars *or if in other foreign currenc!- its %o''ar
eEui&a'ent+ from (ithout sha'' be %ec'are% b! him for
income ta purposes using a separate income ta return
(hich (i'' not inc'u%e his income from business %eri&e%
(ithin *to be co&ere% b! another return+. @e is entit'e% to
%e%uct from his %o''ar gross income a persona'
eemption of S4-500 an% foreign nationa' income taes
pai% to arri&e at his a%7uste% income %uring the !ear. @is
a%7uste% income (i'' be sub7ect to the gra%uate% ta rates
of 14 to 34. (+ec. %$ (b), Tax ode of $)/-A9B $$,/@,
as amended by 9B $))!).
N<ote) The bar can%i%ates are not epecte% to be fami'iar (ith
ta histor!. 3onsi%ering that this is a'rea%! the fourth !ear of
imp'ementation of the Ta 3o%e of 1997- bar can%i%ates (ere
taught an% prepare% to ans(er Euestions base% on the present
'a(. ,t is therefore reEueste% that the eaminer be more 'enient
in chec.ing the ans(ers to this Euestion. 1erhaps- an ans(er
base% on the present 'a( be gi&en fu'' cre%it.O
B. ,f !ou are the 'a(!er of >r. an% >rs. 6ebastian-
(hat possib'e %efense or %efenses (i'' !ou raise in beha'f
of !our c'ients against the action of the B,? in enforcing
co''ection of the ta b! the summar! reme%ies of (arrants
of %istraints an% 'e&!# 8p'ain !our ans(er. *34+
SUGGESTED ANSWER)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

B. , (i'' raise the %efense of prescription. The right of the
B,? to assess prescribes after three !ears counte% from
the 'ast %a! prescribe% b! 'a( for the fi'ing of the income
ta returns (hen the sai% return is fi'e% on time. *6ection
203- <,?3+. The 'ast %a! for fi'ing the 1997 income ta
return is Apri' 15- 1998. 6ince the assessment (as issue%
on'! on Apri' 20- 2001- the B,?Cs right to assess has
a'rea%! prescribe%.
BI5) False !s" Frauulent 5eturn (1996)
2istinguish a fa'se return from a frau%u'ent return.
SUGGESTED ANSWER)
The %istinction bet(een a fa'se return an% a frau%u'ent
return is that the first mere'! imp'ies a %e&iation from the
truth or fact (hether intentiona' or not- (hereas the
secon% is intentiona' an% %eceitfu' (ith the so'e aim of
e&a%ing the correct ta %ue *A?nar %s. Co33issionerF 1;
!:"-F A%g%st 6F )-/.+.
ATERNATI&E ANSWER)
A fa'se return contains %e&iations from the truth (hich ma!
be %ue to mista.es- care'essness or ignorance of the person
preparing the return. A frau%u'ent return contains an
intentiona' (rong%oing (ith the so'e ob7ect of a&oi%ing the
ta an% it ma! consist in the intentiona' un%er%ec'aration of
income- intentiona' o&er%ec'aration of %e%uctions or the
recurrence of both. A fa'se return is not necessari'! tainte%
(ith frau% because the frau% contemp'ate% b! 'a( is actua'
an% not constructi&e. An! %e&iation from the truth on the
other han%- (hether intentiona' or not- constitutes fa'sit!.
*A?nar +s. Co33issionerF 1;!:"-F A%g%st 6F )-/.+
BI5) Iurisiction) 5e!iew 5ulin7s o( t0e *ommissioner
(%&&6)
>r. Abraham 8ugenio- a pa(nshop operator- after ha&ing
been reEuire% b! the ?e&enue 2istrict $fficer to pa!
&a'ue a%%e% ta pursuant to a ?e&enue >emoran%um
$r%er *?>$+ of the 3ommissioner of ,nterna' ?e&enue-
fi'e% (ith the ?egiona' Tria' 3ourt an action Euestioning
the &a'i%it! of the ?>$. ,f !ou (ere the 7u%ge- (i'' !ou
%ismiss the case# *54+
SUGGESTED ANSWER)
;es. The ?>$ is in rea'it! a ru'ing of the 3ommissioner
in imp'ementing the pro&isions of the Ta 3o%e on the
taabi'it! of pa(nshops. Juris%iction to re&ie( ru'ings of
the 3ommissioner is 'o%ge% (ith the 3ourt of Ta
Appea's an% not (ith the ?egiona' Tria' 3ourt (C,R +.
Hosefina 1ealF 7.R. 9o. ))6.:-F 9o+e3ber )8F !!( Tax
Refor3 ActF RA 8..F Title ,F Sec. . K)--/L#.
(9OTA BE9E$ This concept pertains to the 2AT law
which is excluded from the bar coverage, "uidelines for %''-
3ar 4xaminations, (une $,, %''-)
BI5) Prescri$ti!e Perio) Assessment) Frauulent 5eturn
(%&&%)
>r. 3astro inherite% from his father- (ho %ie% on June
10- 1994- se&era' pieces of rea' propert! in >etro >ani'a.
The estate ta return (as fi'e% an% the estate ta %ue in
the amount of 1250.000.00 (as pai% on 2ecember 06-
1994. The Ta Hrau% 2i&ision of the B,? in&estigate% the
case on the basis of confi%entia' information gi&en b! >r.
6antos on Januar! 06- 1998 that the return fi'e% b! >r.
3astro (as frau%u'ent an% that he fai'e% to %ec'are a''
## of 73
properties 'eft b! his father (ith intent to e&a%e pa!ment
of the correct ta. As a resu't- a %eficienc! estate ta
assessment for 11-250-000.00- inc'usi&e of 504 surcharge
for frau%- interest an% pena't!- (as issue% against him on
Januar! 10- 2001. >r. 3astro proteste% the assessment on
the groun% of prescription.
A. 2eci%e >r. 3astroCs protest. *24+
SUGGESTED ANSWER)
A. The protest shou'% be reso'&e% against >r. 3astro.
What (as fi'e% is a frau%u'ent return ma.ing the
prescripti&e perio% for assessment ten *10+ !ears from
%isco&er! of the frau% *6ection 222- <,?3+. Accor%ing'!-
the assessment (as issue% (ithin that prescripti&e perio%
to ma.e an assessment base% on a frau%u'ent return.
B. What 'ega' reEuirementLs must >r. 6antos
comp'! (ith so that he can c'aim his re(ar%# 8p'ain.
*34+
SUGGESTED ANSWER)
The 'ega' reEuirements that must be comp'ie% b! >r.
6antos to entit'e him to re(ar% are as fo''o(s) 1+ @e
shou'% &o'untari'! fi'e a confi%entia' information
un%er oath (ith the 9a( 2i&ision of the Bureau of
,nterna' ?e&enue a''eging therein the specific
&io'ations constituting frau%D 2+ The information must
not !et be in the possession of
the Bureau of ,nterna' ?e&enue- or refer to a case
a'rea%! pen%ing or pre&ious'! in&estigate% b! the
Bureau of ,nterna' ?e&enueD 3+ >r. 6antos shou'% not be
a go&ernment emp'o!ee or
a re'ati&e of a go&ernment emp'o!ee (ithin the sith
%egree of consanguinit!D an% 4+ The information must
resu't to co''ections of
re&enues an%Lor fines an% pena'ties. *6ec. 282-
<,?3+
BI5) Prescri$ti!e Perio) *riminal Action (%&&6)
5err! (as being prosecute% b! the B,? for fai'ure to pa!
his income ta 'iabi'it! for 3a'en%ar ;ear 1999 %espite
se&era' %eman%s b! the B,? in 2002. The ,nformation
(as fi'e% (ith the ?T3 on'! 'ast June 2006. 5err! fi'e% a
motion to Euash the ,nformation on the groun% of
prescription- the ,nformation ha&ing been fi'e% be!on%
the 50!ear reg'ementar! perio%. ,f !ou (ere the 7u%ge-
(i'' !ou %ismiss the ,nformation# Wh!# *54+
SUGGESTED ANSWER)
<o. The tria' court can eercise 7uris%iction. 1rescription
of a crimina' action begins to run from the %a! of the
&io'ation of the 'a(. The crime (as committe% (hen
5err! (i''fu''! refuse% to pa! %espite repeate% %eman%s
in 2002. 6ince the information (as fi'e% in June 2006- the
crimina' case (as institute% (ithin the fi&e0!ear perio%
reEuire% b! 'a( (T%pa? +. =lepF 7.R. 9o. )////F October )F
)---( Section 8)F 9,RC#.
BI5) Tax$ayer: *i!il Action B *riminal Action (%&&%)
>ino'ta 1hi'ippines- ,nc. *>ino'ta+ is an 81IA0registere%
enterprise en7o!ing preferentia' ta treatment un%er a
specia' 'a(. After in&estigation of its (ithho'%ing ta
returns for the taab'e !ear 1997- the B,? issue% a
%eficienc! (ithho'%ing ta assessment in the amount of
1150.000.00. $n >a! 15- 1999- because of financia'
%ifficu't!- the %eficienc! ta remaine% unpai%- as a resu't
of (hich the assessment became fina' an% eecutor!. The


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

B,? a'so foun% that- in &io'ation of the pro&isions of the
<ationa' ,nterna' ?e&enue 3o%e- >ino'ta %i% not fi'e its
fina' corporate income ta return for the taab'e !ear
1998- because it a''ege%'! incurre% net 'oss from its
operations. $n >a! 17- 2002- the B,? fi'e% (ith the
?egiona' Tria' 3ourt an action for co''ection of the
%eficienc! (ithho'%ing ta for 1997.
A. Wi'' the B,?Cs action for co''ection prosper# As
counse' of >ino'ta- (hat action (i'' !ou ta.e# 8p'ain
!our ans(er. *54+
SUGGESTED ANSWER)
A. ;es- B,?Cs action for co''ection (i'' prosper because
the assessment is a'rea%! fina' an% eecutor!- it can
a'rea%! be enforce% through 7u%icia' action.
As counse' of >ino'ta- , (i'' intro%uce e&i%ence that the
income pa!ment (as reporte% b! the pa!ee an% the
income ta (as pai% thereon in 1997 so that m! c'ient
ma! on'! be a''o(e% to pa! the ci&i' pena'ties for non0
(ithho'%ing pursuant to ?>$ <o. 38083.
N9ote$ 6t is not clear whether this is a case of
non.withholding; underwithholding or non.
remittance of tax withheld. As such, the tax
counsel may be open to other remedies against
the assessment.O
B. >a! crimina' &io'ations of the Ta 3o%e be
compromise%# ,f >ino'ta ma.es a &o'untar! offer to
compromise the crimina' &io'ations for non0fi'ing an%
non0pa!ment of taes for the !ear 1998- ma! the
3ommissioner accept the offer# 8p'ain *54+
SUGGESTED ANSWER)
B. A'' crimina' &io'ations of the Ta 3o%e ma! be
compromise% ecept those a'rea%! fi'e% in court or those
in&o'&ing frau% *6ection 204- <,?3+. Accor%ing'!- if
>ino'ta ma.es a &o'untar! offer to compromise the
crimina' &io'ations for non0fi'ing an% non0pa!ment of
taes for the !ear 1998- the 3ommissioner ma! accept the
offer (hich is a''o(e% b! 'a(. @o(e&er- if it can be
estab'ishe% that a ta has not been pai% as a conseEuence
of non0fi'ing of the return- the ci&i' 'iabi'it! for taes ma!
be %ea't (ith in%epen%ent'! of the crimina' &io'ations. The
compromise sett'ement of the crimina' &io'ations (i'' not
re'ie&e the tapa!er from its ci&i' 'iabi'it!. But the ci&i'
'iabi'it! for taes ma! a'so be compromise% if the
financia' position of the tapa!er %emonstrates a c'ear
inabi'it! to pa! the ta.
*ustom: 4iolation o( Tax B *ustom Duties (%&&%)
The 3o''ector of 3ustoms of the 1ort of 3ebu issue%
(arrants of sei/ure an% %etention against the importation
of machineries an% eEuipment b! 992 ,mport an% 8port
3o. *992+ for a''ege% nonpa!ment of ta an% customs
%uties in &io'ation of customs 'a(s. 992 (as notifie% of
the sei/ure- but- before it cou'% be hear%- the 3o''ector of
3ustoms issue% a notice of sa'e of the artic'es. ,n or%er to
restrain the 3o''ector from carr!ing out the or%er to se''-
992 fi'e% (ith the 3ourt of Ta Appea's a petition for
re&ie( (ith app'ication for the issuance of a (rit of
prohibition. ,t a'so fi'e% (ith the 3TA an appea' for
refun% of o&erpai% taes on its other importations of ra(
materia's (hich has been pen%ing
#6 of 73
(ith the 3o''ector of 3ustoms. The Bureau of 3ustoms
mo&e% to %ismiss the case for 'ac. of 7uris%iction of the
3ourt of Ta Appea's.
A. 2oes the 3ourt of Ta Appea's ha&e 7uris%iction
o&er the petition for re&ie( an% (rit of prohibition#
8p'ain *34+
SUGGESTED ANSWER)
A. <o- because there is no %ecision as !et b! the
3ommissioner of 3ustoms (hich can be appea'e% to the
3TA. <either the reme%! of prohibition (ou'% 'ie because
the 3TA has not acEuire% an! appe''ate 7uris%iction o&er the
sei/ure case. The (rit of prohibition being mere'! anci''ar!
to the appe''ate 7uris%iction- the 3TA has no 7uris%iction
o&er it unti' it has acEuire% 7uris%iction on the petition for
re&ie(. 6ince there is no appea'ab'e %ecision- the 3TA has
no 7uris%iction o&er the petition for re&ie( an% (rit of
prohibition. *Co33issioner of C%sto3s +. AliCpalaF 6"
SCRA !8 K)-/!L+.
B. Wi'' an appea' to the 3TA for ta refun% be
possib'e# 8p'ain *24+
SUGGESTED ANSWER)
B. <o- because the 3ommissioner of 3ustoms has not !et
ren%ere% a %ecision on the c'aim for refun%. The
7uris%iction of the 3ommissioner an% the 3TA are not
concurrent in so far as c'aims for refun% are concerne%.
The on'! eception is (hen the 3o''ector has not acte% on
the proteste% pa!ment for a 'ong time- the continue%
inaction of the 3o''ector or 3ommissioner shou'% not be
a''o(e% to pre7u%ice the tapa!er. *<est'e 1hi's.- ,nc. &.
3ourt of Appea's- 5? <o. 134114- Ju'! 6- 2001+.
*ustoms) Basis) Automatic 5e!iew (%&&%)
Whene&er the %ecision of the 3o''ector of 3ustoms is
a%&erse to the go&ernment- it is automatica''! e'e&ate% to
the 3ommissioner for re&ie( an%- if it is affirme% b! him-
it is automatica''! e'e&ate% to the 6ecretar! of Hinance for
re&ie(. What is the basis of the automatic re&ie(
proce%ure in the Bureau of 3ustoms# 8p'ain !our
ans(er. *54+
SUGGESTED ANSWER)
Automatic re&ie( is inten%e% to protect the interest of the
5o&ernment in the co''ection of taes an% customs %uties
in sei/ure an% protest cases. Without such automatic
re&ie(- neither the 3ommissioner of 3ustoms nor the
6ecretar! of Hinance (ou'% .no( about the %ecision 'ai%
%o(n b! the 3o''ector fa&oring the tapa!er. The po(er to
%eci%e sei/ure an% protest cases ma! be abuse% if no
chec.s are institute%. Automatic re&ie( is necessar!
because nobo%! is epecte% to appea' the %ecision of the
3o''ector (hich is fa&orab'e to the tapa!er an% a%&erse to
the 5o&ernment. This is the reason (h! (hene&er the
%ecision of the 3o''ector is a%&erse to the 5o&ernment- the
sai% %ecision is automatica''! e'e&ate% to the
3ommissioner for re&ie(D an% if such %ecision is affirme%
b! the 3ommissioner- the same sha'' be automatica''!
e'e&ate% to an% be fina''! re&ie(e% b! the 6ecretar! of
Hinance *MaoCasin +. Co33issioner of C%sto3sF )8!
SCRA :-) K)-8-L+.


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

Delin>uent Tax 5eturn (199/)
When is a re&enue ta consi%ere% %e'inEuent# N34+
SUGGESTED ANSWER)
A re&enue ta is consi%ere% %e'inEuent (hen it is unpai%
after the 'apse of the 'ast %a! prescribe% b! 'a( for its
pa!ment. 9i.e(ise- it cou'% a'so be consi%ere% as
%e'inEuent (here an assessment for %eficienc! ta has
become fina' an% the tapa!er has not pai% it (ithin the
perio% gi&en in the notice of assessment.
Iurisiction: *ustoms !s" *TA (%&&&)
a+ $n the basis of a (arrant of sei/ure an% %etention
issue% b! the 3o''ector of 3ustoms for the purpose of
enforcing the Tariff an% 3ustoms 9a(s- assorte% bran%s
of cigarettes sai% to ha&e been i''ega''! importe% into the
1hi'ippines (ere sei/e% from a store (here the! (ere
open'! offere% for sa'e. 2issatisfie% (ith the %ecision
ren%ere% after hearing b! the 3o''ector of 3ustoms on the
confiscation of the artic'es- the importer fi'e% a petition
for re&ie( (ith the 3ourt of Ta Appea's. The 3o''ector
mo&e% to %ismiss the petition for 'ac. of Juris%iction.
?u'e on the motion. *24+
SUGGESTED ANSWER)
>otion grante%. The 3ourt of Ta Appea's has 7uris%iction
on'! o&er %ecisions of the 3ommissioner of 3ustoms in
cases in&o'&ing sei/ures- %etention or re'ease of propert!
affecte%. *6ec. 7- ?.A. <o. 1125+. There is no %ecision !et
of the 3ommissioner (hich is sub7ect to re&ie( b! the
3ourt of Ta Appea's.
ATERNATI&E ANSWER)
>otion grante%. The 3ourt of Ta Appea's has no
7uris%iction because there is no %ecision ren%ere% b! the
3ommissioner of 3ustoms on the sei/ure an% forfeiture
case. The tapa!er shou'% ha&e appea'e% the %ecision
ren%ere% b! the 3o''ector (ithin fifteen *15+ %a!s from
receipt of the %ecision to the 3ommissioner of 3ustoms.
The 3ommissionerPs a%&erse %ecision (ou'% then be the
sub7ect of an appea' to the 3ourt of Ta Appea's.
b+ Fn%er the same facts- cou'% the importer fi'e an action
in the ?egiona' Tria' 3ourt for rep'e&in on the groun%
that the artic'es are being (rongfu''! %etaine% b! the
3o''ector of 3ustoms since the importation (as not
i''ega' an% therefore eempt from sei/ure# 8p'ain. *34+
SUGGESTED ANSWER)
<o. The 'egis'ators inten%e% to %i&est the ?egiona' Tria'
3ourts of the 7uris%iction to rep'e&in a propert! (hich is a
sub7ect of sei/ure an% forfeiture procee%ings for &io'ation
of the Tariff an% 3ustoms 3o%e other(ise- actions for
forfeiture of propert! for &io'ation of the 3ustoms 'a(s
cou'% easi'! be un%ermine% b! the simp'e %e&ice of
rep'e&in. *De la F%ente +. De Be'raF et. alF )! SCRA
.::+
There shou'% be no unnecessar! hin%rance on the
go&ernmentCs %ri&e to pre&ent smugg'ing an% other frau%s
upon the 3ustoms. Hurthermore- the ?egiona' Tria' 3ourt
%o not ha&e Juris%iction in or%er to ren%er effecti&e an%
efficient the co''ection of ,mport an% eport %uties %ue the
6tate- (hich enab'es the go&ernment to carr! out the
#' of 73
functions ,t has been ,nstitute% to perform. *HaoF et alF
Co%rt of AppealsF et alF and co3panion caseF .-
SCRA 6:F .6+
+?6: *ollection o( TaxesH Fees B *0ar7es (1998)
5i&e the reme%ies a&ai'ab'e to 'oca' go&ernment units to
enforce the co''ection of taes- fees- an% charges#
SUGGESTED ANSWER)
The reme%ies a&ai'ab'e to the 'oca' go&ernment units to
enforce co''ection of taes- fees- an% charges are) 1+
A2>,<,6T?AT,:8 ?8>82,86 of %istraint of
persona' propert! of (hate&er .in% (hether tangib'e
or intangib'e- an% 'e&! of rea' propert! an% interest
thereinD an% 2+ JF2,3,A9 ?8>82; b! institution of an
or%inar!
ci&i' action for co''ection (ith the regu'ar courts of
proper 7uris%iction.
Tax Amnesty !s" Tax #xem$tion (%&&1)
2istinguish a ta amnest! from a ta eemption. *34+
SUGGESTED ANSWER)
Ta amnest! is an immunit! from a'' crimina'- ci&i' an%
a%ministrati&e 'iabi'ities arising from nonpa!ment of
taes. ,t is a genera' par%on gi&en to a'' tapa!ers. ,t
app'ies on'! to past ta perio%s- hence of retroacti&e
app'ication. **eople +. CostonedoF 7.R. 9o. 1;."88)F
)-88+.
Ta eemption is an immunit! from the ci&i' 'iabi'it! on'!.
,t is an immunit! or pri&i'ege- a free%om from a charge or
bur%en to (hich others are sub7ecte%. *Florer +. S&eridanF
)6/ ,nd. 8F 6" 2E 6":+. ,t is genera''! prospecti&e in
app'ication.
Tax$ayer: Aministrati!e B Iuicial 5emeies (%&&&)
2escribe separate'! the proce%ures on the 'ega' reme%ies
un%er the Ta 3o%e a&ai'ab'e to an aggrie&e% tapa!er
both at the a%ministrati&e an% 7u%icia' 'e&e's. *54+
SUGGESTED ANSWER)
The 'ega' reme%ies of an aggrie&e% tapa!er un%er the
Ta 3o%e- both at the a%ministrati&e an% 7u%icia' 'e&e's-
ma! be c'assifie% into those for assess3ent- collection
an% ref%nd.
The proce%ures for the AD2,9,STRAT,BE
RE2ED,ES for ASSESS2E9T are as fo''o(s)
a. After receipt of the 1re0Assessment <otice- he
must (ithin fifteen *15+ %a!s from receipt ep'ain (h!
no a%%itiona' taes shou'% be assesse% against him.
b. ,f the 3ommissioner of ,nterna' ?e&enue issues
an assessment notice- the tapa!er must a%ministrati&e'!
protest or %ispute the assessment b! fi'ing a motion for
reconsi%eration or rein&estigation (ithin thirt!
*30+ %a!s from receipt of the notice of assessment.
*4th par.. 6ec. 228- <,?3 of 1997+
c. Within sit! *60+ %a!s from fi'ing of the protest-
the tapa!er sha'' submit a'' re'e&ant supporting
%ocuments.
The H=D,C,A1 RE2ED,ES of an aggrie&e% tapa!er
re'ati&e to an ASSESS2E9T 9OT,CE are as fo''o(s)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics
a
.
Where the 3ommissioner of ,nterna' ?e&enue has
not acte% on the tapa!erCs protest (ithin a perio%
of
one hun%re% eight! *180+ %a!s from submission of
a''
re'e&ant %ocuments- then the tapa!er has a perio%
of
thirt! *30+ %a!s from the 'apse of sai% 180 %a!s
(ithin
(hich to interpose a petition for re&ie( (ith the
3ourt of Ta Appea's.
b
.
6hou'% the 3ommissioner %en! the tapa!erCs
protest-
then he has a perio% of thirt! *30+ %a!s from
receipt
of sai% %enia' (ithin (hich to interpose a petition
for
re&ie( (ith the 3ourt of Ta Appea's.

In both ases the ta/!ayer m"st a!!ly with the
Co"rt of Ta/ A!!eals for the Iss"ane of an
In1"nti$e writ to en1oin the )"rea" of Internal
Re$en"e from olletin. the dis!"ted ta/ d"rin. the
!endeny of the !roeedin.s.
9OTE$ A 2004 Amen%ment 0 The %ecision of the
%i&ision of 3TA is in turn appea''ab'e (ithin fifteen *15+
%a!s to the 3TA en banc. The %ecision of the 3TA en
banc is %irect'! appea''ab'e to the 6upreme 3ourt on
Euestion of 'a( on certiorari.
The emp'o!ment b! the Bureau of ,nterna' ?e&enue of
an! of the Ad3inistrati+e Re3edies for the collection
of t&e tax 'i.e %istraint- 'e&!- etc. ma! be a%ministrati&e'!
appea'e% b! the tapa!er to the 3ommissioner (hose
%ecision is appea'ab'e to the 3ourt of Ta Appea's un%er
other matter arising un%er the pro&isions of the <ationa'
,nterna' ?e&enue 3o%e.
The 7u%icia' appea's starts (ith the 3ourt of Ta Appea's-
an% continues in the same manner as sho(n abo&e.
6hou'% the Bureau of ,nterna' ?e&enue %eci%e to uti'i/e its
Ju%icia' ta reme%ies for co''ecting the taes b! means of
an or%inar! suit fi'e% (ith the regu'ar courts for the
co''ection of a sum of mone!- the tapa!er cou'% oppose
the same going up the 'a%%er of 7u%icia' processes from
the >unicipa' Tria' 3ourt *as the case ma! be+ to the
?egiona' Tria' 3ourt- to the 3ourt of Appea's- thence to
the 6upreme 3ourt.
The reme%ies of an aggrie&e% tapa!er on a c'aim for
refun% is to appea' the a%&erse %ecision of the
3ommissioner to the 3TA in the same manner out'ine%
abo&e.
Tax$ayer: Assessment: Protest: *laims (or re(un (%&&&)
$n June 16- 1997- the Bureau of ,nterna' ?e&enue *B,?+
issue% against the 8state of Jose %e 'a 3ru/ a notice of
%eficienc! estate ta assessment- inc'usi&e of surcharge-
interest an% compromise pena't!. The 8ecutor of the
8state of Jose %e 'a 3ru/ *8ecutor+ fi'e% a time'! protest
against the assessment an% reEueste% for (ai&er of the
surcharge- interest an% pena't!. The protest (as %enie% b!
the 3ommissioner of ,nterna' ?e&enue *3ommissioner+
(ith fina'it! on 6eptember 13- 1997. 3onseEuent'!- the
8ecutor (as ma%e to pa! the %eficienc! assessment on
$ctober 10- 1997. The fo''o(ing %a!- the 8ecutor fi'e% a
1etition (ith the 3ourt of Ta Appea's *3TA+ pra!ing for
#* of 73
the refun% of the surcharge- interest an% compromise
pena't!. The 3TA too. cogni/ance of the case an%
or%ere% the 3ommissioner to ma.e a refun%. The
3ommissioner fi'e% a 1etition for ?e&ie( (ith the 3ourt
of Appea's assai'ing the 7uris%iction of the 3TA an% the
$r%er to ma.e refun% to the 8state on the groun% that no
c'aim for refun% (as fi'e% (ith the B,?.
A. ,s the stan% of the 3ommissioner correct#
?eason. *24+
SUGGESTED ANSWER)
;es. There (as no c'aim for refun% or cre%it that has been
%u'! fi'e% (ith the 3ommissioner of ,nterna' ?e&enue
(hich is reEuire% before a suit or procee%ing can be fi'e%
in an! court *6ec. 229. <,?3 of 1997+. The %enia' of the
c'aim b! the 3ommissioner is the one (hich (i'' &est the
3ourt of Ta Appea's 7uris%iction o&er the refun% case
shou'% the tapa!er %eci%e to appea' on time.
B. Wh! is the fi'ing of an a%ministrati&e c'aim
(ith the B,? necessar!# *34+
SUGGESTED ANSWER)
The fi'ing of an a%ministrati&e c'aim for refun% (ith the
B,? is necessar! in or%er) 1+ To affor% the 3ommissioner
an opportunit! to
consi%er the c'aim an% to ha&e a chance to correct
the errors of subor%inate officers *7on?ales +.
CTAF et alF ). SCRA /-+D an% 2+ To notif! the
5o&ernment that such taes ha&e
been Euestione% an% the notice shou'% be borne in
min% in estimating the re&enue a&ai'ab'e for
epen%itures. *Ber3e@o +. CollectorF 7.R. 9o. 1
6!8. H%l' -F )-:!+
Tax$ayer: Assessment) InDunction (%&&')
?? %ispute% a %eficienc! ta assessment an% upon
receipt of an a%&erse %ecision b! the 3ommissioner of
,nterna' ?e&enue- fi'e% an appea' (ith the 3ourt of Ta
Appea's. Whi'e the appea' is pen%ing- the B,? ser&e% a
(arrant of 'e&! on the rea' properties of ?? to enforce
the co''ection of the %ispute% ta. 5ranting arguendo that
the B,? can 'ega''! 'e&! on the properties- (hat cou'%
?? %o to stop the process# 8p'ain brief'!. *54+
SUGGESTED ANSWER)
?? shou'% fi'e a motion for in7unction (ith the 3ourt of
Ta Appea's to stop the a%ministrati&e co''ection process.
An appea' to the 3TA sha'' not suspen% the enforcement of
the ta 'iabi'it!- un'ess a motion to that effect sha'' ha&e
been presente% in court an% grante% b! it on the basis that
such co''ection (i'' 7eopar%i/e the interest of the tapa!er
or the 5o&ernment **iro+ano +. C,RF ). SCRA 86
K)-":L+.
The 3TA is empo(ere% to suspen% the co''ection of
interna' re&enue taes an% customs %uties in cases
pen%ing appea' on'! (hen) *1+ in the opinion of the court
the co''ection b! the B,? (i'' 7eopar%i/e the interest of
the 5o&ernment an%Lor the tapa!erD an% *2+ the tapa!er
is (i''ing to %eposit the amount being co''ecte% or to fi'e
a suret! bon% for not more than %oub'e the amount of the
ta to be fie% b! the court (+ection $$, (#.A. No. $$%,).
Tax$ayer: BI5 Auit or In!esti7ation (1999)


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

A 3o.- a 1hi'ippine corporation- is a big manufacturer of
consumer goo%s an% has se&era' supp'iers of ra( materi0
a's. The B,? suspects that some of the supp'iers are not
proper'! reporting their income on their sa'es to A 3o.
The 3,? therefore) 1+ ,ssue% an access 'etter to A 3o. to
furnish the B,?
information on sa'es an% pa!ments to its supp'iers. 2+
,ssue% an access 'etter to a ban. *3A Ban.+ to
furnish the B,? on %eposits of some supp'iers of A
3o. on the a''ege% groun% that the supp'iers are
committing ta e&asion.
A 3o.- A Ban. an% the supp'iers ha&e not been issue% b!
the B,? 'etter of authorit! to eamine. A 3o. an% A Ban.
be'ie&e that the B,? is on a "fishing epe%ition" an%
come to !ou for counse'. What is !our a%&ice# *104+
SUGGESTED ANSWER)
, (i'' a%&ise A 3o. an% B 3o. that the B,? is 7ustifie% on'!
in getting information from the former but not from the
'atter. The B,? is authori/e% to obtain information from
other persons other than those (hose interna' re&enue ta
'iabi'it! is sub7ect to au%it or in&estigation. @o(e&er- this
po(er sha'' not be construe% as granting the 3ommissioner
the authorit! to inEuire into ban. %eposits.
(+ection ,. N6#).
Tax$ayer: *ity Boar o( Assessment Decision) ;0ere to
a$$eal (1999)
A 3o.- a 1hi'ippine corporation- is the o(ner of machin0
er!- eEuipment an% fitures 'ocate% at its p'ant in
>untin'upa 3it!. The 3it! Assessor characteri/e% a''
these properties as rea' properties sub7ect to the rea'
propert! ta. A 3o. appea'e% the matter to the >untin'upa
Boar% of Assessment Appea's. The Boar% ru'e% in fa&or
of the 3it!. ,n accor%ance (ith ?A 1125 *An Act creating
the 3ourt of Ta Appea's+. A 3o. brought a petition for
re&ie( before the 3TA to appea' the %ecision of the 3it!
Boar% of Assessment Appea's. ,s the 1etition for ?e&ie(
proper# 8p'ain. *54+
SUGGESTED ANSWER)
<o. The 3TAPs %e&oi% of 7uris%iction to entertain appea's
from the %ecision of the 3it! Boar% of Assessment
Appea's. 6ai% %ecision is instea% appea'ab'e to the 3entra'
Boar% of Assessment Appea's- (hich un%er the 9oca'
5o&ernment 3o%e- has appe''ate 7uris%iction o&er %eci0
sions of 9oca' Boar% of Assessment Appea's. *Caltex
*&ilsF foe. +. Central Board of Assess3ent AppealsF 1:!.""F
2a' 6)F )-8+.
Tax$ayer: *laim (or 5e(un) Proceure (%&&%)
A. What must a tapa!er %o in or%er to c'aim a refun% of-
or ta cre%it for- taes an% pena'ties (hich he a''eges to
ha&e been erroneous'!- i''ega''! or ecessi&e'! assesse%
or co''ecte%# *34+
SUGGESTED ANSWER)
The tapa!er must comp'! (ith the fo''o(ing proce%ures
in c'aiming a refun% of- or ta cre%it for- taes an%
pena'ties (hich he a''eges to ha&e been erroneous'!-
i''ega''! or ecessi&e'! assesse% or co''ecte%)
2. @e shou'% fi'e a (ritten c'aim for refun% (ith
the 3ommissioner (ithin t(o !ears after the %ate of
pa!ment of the ta or pena't! *6ec. 204- <,?3+D
#9 of 73
6 The c'aim fi'e% must state a categorica' %eman%
for reimbursement (Ber3e@o +. CollectorF 8/ *&il. -" K)-:!L#.
2 The suit or procee%ing for reco&er! must be
commence% in court (ithin t(o !ears from %ate of
pa!ment of the ta or pena't! regar%'ess of an!
super&ening e&ent that (i'' arise after pa!ment *6ec. 229-
<,?3+.
ANote: 6f the answer given is only number $, it is suggested
that the same shall be given full credit considering that
this is the only re7uirement for the ommissioner to
ac7uire 1urisdiction over the claim.@
B. 3an the 3ommissioner grant a refun% or ta cre%it
e&en (ithout a (ritten c'aim for it# *24+
SUGGESTED ANSWER)
B. ;es. When the tapa!er fi'es a return (hich on its face
sho(s an o&erpa!ment of the ta an% the option to refun%L
c'aim a ta cre%it (as chosen b! the tapa!er- the
3ommissioner sha'' grant the refun% or ta cre%it (ithout
the nee% for a (ritten c'aim. This is so- because a return
fi'e% sho(ing an o&erpa!ment sha'' be consi%ere% as a
(ritten c'aim for cre%it or refun%. *+ees. &- and %'!,
N6#+. >oreo&er- the 'a( pro&i%es that the 3ommissioner
ma!- e&en (ithout a (ritten c'aim therefor- refun% or cre%it
an! ta (here on the face of the return upon (hich
pa!ment (as ma%e- such pa!ment appears c'ear'! to ha&e
been erroneous'! pai%. *+ec. %%), N6#+.
Tax$ayer: De(iciency Income Tax (199,)
Businessman 6tephen ;ang fi'e% an income ta return for
1993 sho(ing business net income of 1350-000.00 on
(hich he pai% an income ta of 161-000.00. After fi'ing
the return he rea'i/e% that he forgot to inc'u%e an item of
business income in 1993 for 150.000.00. Being an honest
tapa!er- he inc'u%e% this income in his return for 1994
an% pai% the correspon%ing income ta thereon. ,n the
eamination of his 1993 return the B,? eaminer foun%
that 6tephen ;ang fai'e% to report this item of 150.000.00
an% assesse% him a %eficienc! income ta on this item-
p'us a 504 frau% surcharge. 1+ ,s the eaminer correct#
8p'ain. 2+ ,f !ou (ere the 'a(!er of 6tephen ;ang- (hat
(ou'%
!ou ha&e a%&ise% !our c'ient before he inc'u%e% in
his 1994 return the amount of 150.000.00 as 1993
income to a&oi% the frau% surcharge# 8p'ain.
3+ 3onsi%ering that 6tephen ;ang ha% a'rea%! been
assesse% a %eficienc! income ta for 1993 for his fai'ure
to report the 150.000.00 income- (hat (ou'% !ou a%&ise
him to %o to a&oi% the pena'ties for ta %e'inEuenc!#
8p'ain.
4+ What (ou'% !ou a%&ise 6tephen ;ang to %o
(ith regar% to the income ta he pai% for the 150.000.00
in his 1994 return# ,n case !our reme%! fai's- (hat is
!our other recourse# 8p'ain.
SUGGESTED ANSWERS)
1+ The eaminer is correct in assessing a %eficienc!
income ta for taab'e !ear 1993 but not in imposing the
504 frau% surcharge. The amount of a'' items of gross
income must be inc'u%e% in gross income %uring the !ear
in (hich recei&e% or rea'i/e% *6ec. 38- <,?3+. The 504


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

frau% surcharge attaches on'! if a fa'se or frau%u'ent
return is (i''fu''! ma%e b! >r. ;ang *6ec.248- <,?3+.
The fact that >r. ;ang inc'u%e% the income in his 1994
return be'ies an! c'aim of (i''fu'ness but is rather
in%icati&e of an honest mista.e (hich (as sought to be
rectifie% b! a subseEuent act- that is the fi'ing of the 1994
return.
2+ >r. ;ang shou'% ha&e amen%e% his 1993 ,ncome ta
return to a''o( for the inc'usion of the 150.000 income
%uring the taab'e perio% it (as rea'i/e%.
3+ >r. ;ang shou'% fi'e a protest Euestioning the 504
surcharge an% as. for the abatement thereof.
ATERNATI&E ANSWER)
>r. ;ang shou'% pa! the %eficienc! income ta on or
before the %a! prescribe% for its pa!ment per notice of
%eman%. After pa!ment an% (ithin t(o !ears thereafter-
he shou'% fi'e a c'aim for refun% of taes erroneous'!
pai% to reco&er the ecessi&e surcharge impose%.
4+ >r. ;ang shou'% fi'e a (ritten c'aim for refun% (ith
the 3ommissioner of ,nterna' ?e&enue of the taes pai%
on the 150.000 income inc'u%e% in 1994 (ithin t(o !ears
from pa!ment pursuant to 6ection 204*3+ of the Ta
3o%e. 6hou'% this reme%! fai' in the a%ministrati&e 'e&e'-
a 7u%icia' c'aim for refun% can be institute% before the
epiration of the t(o !ear perio%.
Tax$ayer: #x0austion o( Aministrati!e 5emeies (1998)
*a+ A tapa!er recei&e%- on 15 Januar! 1996 an as0
sessment for an interna' re&enue ta %eficienc!. $n 10
Hebruar! 1996- the tapa!er forth(ith fi'e% a petition for
re&ie( (ith the 3ourt of Ta Appea's. 3ou'% the Ta
3ourt entertain the petition#
*b+ Fn%er the abo&e factua' setting- the tapa!er-
instea% of Euestioning the assessment he recei&e% on 15
Januar! 1996 pai%- on 01 >arch 1996 the "%eficienc! ta"
assesse%. The tapa!er reEueste% a refun% from the
3ommissioner b! submitting a (ritten c'aim on 01 >arch
1997. ,t (as %enie%. The tapa!er- on 15 >arch 1997-
fi'e% a petition for re&ie( (ith the 3ourt of Appea's.
3ou'% the petition sti'' be entertaine%#
SUGGESTED ANSWER)
*a+ <o. Before tapa!er can a&ai' of Ju%icia' reme%! he
must first ehaust a%ministrati&e reme%ies b! fi'ing a
protest (ithin 30 %a!s from receipt of the assessment. ,t is
the 3ommissionerCs %ecision on the protest that gi&e the
Ta 3ourt 7uris%iction o&er the case pro&i%e% that the
appea' is fi'e% (ithin 30 %a!s from receipt of the
3ommissionerCs %ecision. An assessment b! the B,? is
not the 3ommissionerCs %ecision from (hich a petition for
re&ie( ma! be fi'e% (ith the 3ourt of Ta Appea's.
?ather- it is the action ta.en b! the 3ommissioner in
response to the tapa!erCs protest on the assessment that
(ou'% constitute the appea'ab'e %ecision *6ection 7- ?A
1125+.
*b+ <o- the petition for re&ie( can not be entertaine% b!
the 3ourt of Appea's- since %ecisions of the
60 of 73
3ommissioner on cases in&o'&ing c'aim for ta refun%s
are (ithin the ec'usi&e an% primar! 7uris%iction of the
3ourt of Ta Appea's *6ection 7.?A1125+.
Tax$ayer: Failure to ;it00el B 5emit Tax (%&&&)
A %omestic corporation fai'e% to (ithho'% an% remit the
ta on income recei&e% from 1hi'ippine sources b! a non0
resi%ent foreign corporation. ,n a%%ition to the ci&i'
pena'ties pro&i%e% for un%er the Ta 3o%e- a compromise
pena't! (as impose% for &io'ation of the (ithho'%ing ta
pro&isions. >a! the 3ommissioner of ,nterna' ?e&enue
'ega''! enforce the co''ection of compromise pena't!#
*54+
SUGGESTED ANSWER)
<o. There is no sho(ing that the compromise pena't! (as
impose% b! the 3ommissioner of ,nterna' ?e&enue (ith
the agreement an% conformit! of the tapa!er. *Wonder
2ec&anical Engineering Corporation %. Co%rt of Tax
AppealsF et. al.F ". SCRA :::+.
Tax$ayer: @I5* !s" T** 5emeies (1996)
3ompare the tapa!erCs reme%ies un%er the <ationa'
,nterna' ?e&enue 3o%e an% the Tariff an% 3ustoms 3o%e.
SUGGESTED ANSWER)
The tapa!erCs reme%ies un%er the 9AT,O9A1
,9TER9A1 REBE9=E CODE ma! be categori/e% into
reme%ies before pa!ment an% reme%ies after pa!ment. The
reme%! BEFORE *AM2E9T consists of
*a+ Ad3inistrati+e Re3ed' (hich is the fi'ing of
protest (ithin 30 %a!s from receipt of assessment- an%
*b+ H%dicial Re3ed' (hich is the appea' of the
a%&erse %ecision of the 3ommissioner on the protest (ith
the 3ourt of Ta Appea's- an% fina''! (ith the 6upreme
3ourt.
The reme%! AFTER *AM2E9T is a&ai'e% of
*c+ b! pa!ing the assesse% ta (ithin 30 %a!s from
receipt of assessment an%
*%+ the fi'ing of a c'aim for refun% or ta cre%it of
these taes on groun%s that the! are erroneous'! pai%
(ithin t(o !ears from %ate of pa!ment.
*e+ 6f there is a denial of the claim- appea' to the
3TA sha'' be ma%e (ithin 30 %a!s from %enia' but (ithin
t(o !ears from %ate of pa!ment. . ,f the 3ommissioner
fai's to act on the c'aim for
refun% or ta cre%it an% the t(o0!ear perio% is
about to epire- the tapa!er shou'% consi%er the
continuous inaction of the 3ommissioner as a
%enia' an% e'e&ate the case to the 3TA before
the epiration of the t(o0!ear perio%.
Fn%er the Tariff and C%sto3s Code- tapa!erCs reme0
%ies arise on'! after pa!ment of %uties. 4+ The
a%ministrati&e reme%ies consist of fi'ing a c'aim
for refun% (hich ma! ta.e the form of abatement or
%ra(bac..
5+ The tapa!er can a'so fi'e a protest (ithin 15
%a!s from pa!ment if he %isagrees (ith the ru'ing or
%ecision of the 3o''ector of 3ustoms regar%ing the
'ega'it! or correctness of the assessment of customs
%uties.


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

6+ ,f the %ecision of the 3o''ector is a%&erse to the
tapa!er- he can notif! the 3o''ector (ithin 15 %a!s
from receipt of sai% %ecision of his %esire to ha&e his
case re&ie(e% b! the 3ommissioner.
. The %ecision of the 3o''ector on the tapa!erCs
protest- if a%&erse to the 5o&ernment- is
automatica''! e'e&ate% to the 3ommissioner for
re&ie(D an% if such %ecision is affirme% b! the
3ommissioner- the same sha'' be automatica''!
e'e&ate% to an% fina''! re&ie(e% b! the 6ecretar!
of Hinance.
. ?esort to 7u%icia' re'ief can be ha% b! the
tapa!er b! appea'ing the %ecision of the
3ommissioner or of the 6ecretar! of Hinance *for
cases sub7ect to automatic re&ie(+ (ithin 30 %a!s
from the promu'gation of the a%&erse %ecision to the
3TA.
Tax$ayer: 1!erwit0olin7 *laim (or 5e(un (1999)
A 3o. is the (ho''! o(ne% subsi%iar! of B 3o.- a non0
resi%ent 5erman compan!. A 3o. has a tra%emar.
'icensing agreement (ith B 3o. $n Heb. 10- 1995- A 3o.
remitte% to B 3o. ro!a'ties of 1 10-000-000- (hich A 3o.
sub7ecte% to a (ithho'%ing ta of 254 or 12-500-000.
Fpon a%&ice of counse'- A 3o. rea'i/e% that the proper
(ithho'%ing ta rate is 104. $n >arch 20- 1996- A 3o.
fi'e% a c'aim for refun% of 12.500.000 (ith the B,?. The
B,? %enie% the c'aim on <o&. 15- 1996. $n <o&. 28-
1996- A 3o. fi'e% a petition for re&ie( (ith the 3TA. The
B,? attac.e% the capacit! of A 3o.- as agent- to bring the
refun% case. 2eci%e the issue. *54+
SUGGESTED ANSWER)
A 3o.- the (ithho'%ing agent of the non0resi%ent foreign
corporation is entit'e% to c'aim the refun% of ecess
(ithho'%ing ta pai% on the income of sai% corporation in
the 1hi'ippines. Being a (ithho'%ing agent- it is the one
he'% 'iab'e for an! &io'ation of the (ithho'%ing ta 'a(
shou'% such a &io'ation occur. ,n the same &ein- it shou'%
be a''o(e% to c'aim a refun% in case of o&er(itho'%ing.
*C,R +. Wander *&ils. ,nc.F 7R 9o. "86/8F April ):F )-88F
)"! SCRA :/6( C,R +. *rocter < 7a3ble *2CF O. SCRA
6//+.
Tax$ayer: Prescri$ti!e Perio: Sus$ene (%&&&)
>r. ?e!es- a Hi'ipino citi/en engage% in the rea' estate
business- fi'e% his 1994 income ta return on >arch 20-
1995. $n 2ecember 15- 1995- he 'eft the 1hi'ippines as an
immigrant to 7oin his fami'! in 3ana%a. After the
in&estigation of sai% returnLthe B,? issue% a notice of
%eficienc! income ta assessment on Apri' 15- 1998. >r.
?e!es returne% to the 1hi'ippines as a ba'i.ba!an on
2ecember 8- 1998. Hin%ing his name to be in the 'ist of
%e'inEuent tapa!ers- he fi'e% a protest against the
assessment on the groun% that he %i% not recei&e the
notice of assessment an% that the assessment ha%
prescribe%. Wi'' the protest prosper# 8p'ain. *54+
SUGGESTED ANSWER)
<o. 1rescription has not set in because the perio% of
'imitations for the Bureau of ,nterna' ?e&enue to issue an
assessment (as S=S*E9DED %uring the time that >r.
?e!es (as out of the 1hi'ippines or from the perio%
61 of 73
2ecember 15- 1995 up to 2ecember 8- 1998.
(+ec. %%5 in relation to +ec. %'5, both of the N6# of $))&)
Tax$ayer: Prescri$ti!e Perio) *laim (or 5e(un (1998)
A corporation fi'es its income ta return on a ca'en%ar
!ear basis. Hor the first Euarter of 1993- it pai% on 30 >a!
1993 its Euarter'! income ta in the amount of 13.0
mi''ion. $n 20 August 1993- it pai% the secon% Euarter'!
income ta of 10.5 mi''ion. The thir% Euarter resu'te% in a
net 'oss- an% no ta (as pai%. Hor the fourth an% fina'
return for 1993- the compan! reporte% a net 'oss for the
!ear- an% the tapa!er in%icate% in the income ta return
that it opte% to c'aim a refun% of the Euarter'! income ta
pa!ments. $n 10 Januar! 1994- the corporation fi'e%
(ith the Bureau of ,nterna' ?e&enue a (ritten c'aim for
the refun% of 13.5 mi''ion.
B,? fai'e% to act on the c'aim for refun%D hence- on 02
>arch 1996- the corporation fi'e% a petition for re&ie(
(ith the 3ourt of Ta Appea's on its c'aim for refun% of
the o&erpa!ment of its 1993 Euarter'! income ta. B,?-
in its ans(er to the petition- a''ege% that the c'aim for
refun% (as fi'e% be!on% the reg'ementar! perio%. 2i% the
c'aim for refun% prescribe#
SUGGESTED ANSWER)
The c'aim for refun% has prescribe%. The counting of the
t4o;'ear prescripti+e period for filing a clai3 for
ref%nd is counte% not from the %ate (hen the Euarter'!
income taes (ere pai% but on the %ate (hen the fina'
a%7ustment return or annua' income ta return (as fi'e%
*C,R +. T2J Sales ,nc.F 7.R. 9o. 86/6"F Han%ar' ):F )--(
C,R +. *&iEA3 1ife ,ns%rance Co.F ,nc.F 7.R. 9o. )!:!8F
2a' -F )--:+. ,t is ob&ious that the annua' income ta
return (as fi'e% before Januar! 10- 1994 because the
(ritten c'aim for refun% (as fi'e% (ith the B,? on Januar!
10- 1994. 6ince the t(o0!ear prescripti&e perio% is not
on'! a 'imitation of action in the a%ministrati&e stage but
a'so a 'imitation of action for bringing the case to the
7u%icia' stage- the petition for re&ie( fi'e% (ith the 3TA
on >arch 02- 1996 is be!on% the reg'ementar! perio%.
Tax$ayer: Prescri$ti!e Perio) *laims (or 5e(un (199')
A389 3orporation fi'e% its Euarter'! income ta return
for the first Euarter of 1985 an% pai% an income ta of
1500.000.00 on >a! 15- 1985. ,n the subseEuent
Euarters- A389 suffere% 'osses so that on Apri' 15- 1986
it %ec'are% a net 'oss of 11-000-000.00 in its annua'
income ta return. After fai'ing to get a refun%- A389
fi'e% on >arch 1- 1988 a case (ith the 3ourt of Ta
Appea's to reco&er the 1500.000.00 in taes pai% on >a!
15- 1985. ,s the action to reco&er the taes fi'e% time'!#
SUGGESTED ANSWER)
The action for refun% (as fi'e% in the 3ourt of Ta
Appea's on time. ,n the case of Co33issioner +. T2J
SalesF ,nc.F !: SCRA )8.- (hich is simi'ar to this case- the
6upreme 3ourt ru'e% that in the case of o&erpai% Euarter'!
corporate income ta- the t(o0!ear perio% for fi'ing
c'aims for refun% in the B,? as (e'' as in the institution of
an action for refun% in the 3TA- the t(o0!ear prescripti&e
perio% for ta refun%s *6ec. 230- Ta 3o%e+ is counte%
from the fi'ing of the fina'- a%7ustment return un%er 6ec.
67 of the Ta 3o%e- an% not from the fi'ing of the


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

Euarter'! return an% pa!ment of the Euarter'! ta. The
3TA action on >arch 1- 1988 (as c'ear'! (ithin the
reg'ementar! t(o0!ear perio% from the fi'ing of the fina'
a%7ustment return of the corporation on Apri' 15- 1986.
Tax$ayer: Prescri$ti!e Perio) *laims (or 5e(un (%&&')
$n >arch 12- 2001- ?8< pai% his taes. Ten months 'ater-
he rea'i/e% that he ha% o&erpai% an% so he imme%iate'!
fi'e% a c'aim for refun% (ith the 3ommissioner of ,nterna'
?e&enue.
$n Hebruar! 27- 2003- he recei&e% the %ecision of the
3ommissioner %en!ing ?8<Cs c'aim for refun%. $n
>arch 24- 2003- ?8< fi'e% an appea' (ith the 3ourt of
Ta Appea's. Was his appea' fi'e% on time or not# ?eason.
*54+
SUGGESTED ANSWER)
The appea' (as not fi'e% on time. The t(o0!ear perio% of
'imitation for fi'ing a c'aim for refun% is not on'! a
'imitation for pursuing the c'aim at the a%ministrati&e
'e&e' but a'so a 'imitation for appea'ing the case to the
3ourt of Ta Appea's. The 'a( pro&i%es that "no suit or
procee%ing sha'' be fi'e% after the epiration of t(o !ears
from the %ate of the pa!ment of the ta or pena't!
regar%'ess of an! super&ening cause that ma! arise after
pa!ment *6ection 229- J:I?3J. 6ince the appea' (as
on'! ma%e on >arch 24- 2003- more than t(o !ears ha%
a'rea%! e'apse% from the time the taes (ere pai% on
>arch 12- 2003. Accor%ing'!- ?8< ha% 'ost his 7u%icia'
reme%! because of prescription.
Tax$ayer: Protest a7ainst Assessment (199/)
3HB 3orporation- a %omestic corporation engage% in
foo% processing an% other a''ie% acti&ities- recei&e% a
'etter from the B,? assessing it for %e'inEuenc! income
taes. 3HB fi'e% a 'etter of protest. $ne month after- a
(arrant of %istraint an% 'e&! (as ser&e% on 3HB
3orporation. ,f !ou (ere the 'a(!er engage% b! 3HB
3orporation to contest the assessment ma%e b! the B,?-
(hat steps (i'' !ou ta.e to protect !our c'ient# *54+
SUGGESTED ANSWER)
, sha'' imme%iate'! fi'e a motion for reconsi%eration of
the issuance of the (arrant of %istraint an% 'e&! an% see.
from the B,? 3ommissioner a %enia' of the protest "in
c'ear an% uneEui&oca' 'anguage." This is so because the
issuance of a (arrant of %istraint an% 'e&! is not
consi%ere% as a %enia' b! the B,? of the protest fi'e% b!
3HB 3orporation *C,R +. =nion S&ipping Corp.F )8:
SCRA :./+.
Within thirt! *30+ %a!s from receipt of such %enia' "in
c'ear an% uneEui&oca' 'anguage-" , sha'' then fi'e a
petition for re&ie( (ith the 3ourt of Ta Appea's.
A1TER9AT,BE A9SWER$
Within thirt! *30+ %a!s from receipt of the (arrant of
%istraint an% 'e&!- , sha'' fi'e a petition for re&ie( (ith
the 3ourt of Ta Appea's (ith an app'ication for issuance
of a (rit of pre'iminar! in7unction to en7oin the Bureau of
,nterna' ?e&enue from enforcing the (arrant.
This is the action , sha'' ta.e because , sha'' consi%er the
issuance of the (arrant as a fina' %ecision of the
3ommissioner of ,nterna' ?e&enue (hich cou'% be the
62 of 73
sub7ect of appea' to the 3ourt of Ta Appea's *Mobes %.
Flo@oF ): SCRA /8+. The 3TA ma!- ho(e&er- reman%
the case to the B,? an% reEuire the 3ommissioner to
specifica''! ru'e on the protest. The %ecision of the
3ommissioner- if a%&erse to m! c'ient- (ou'% then
constitute an appea'ab'e %ecision.
Tax$ayer: Protest a7ainst Assessment (1999)
A 3o.- a 1hi'ippine corporation- recei&e% an income ta
%eficienc! assessment from the B,? on >a! 5- 1995. $n
>a! 31- 1995- A 3o. fi'e% its protest (ith the B,?. $n
Ju'! 30- 1995- A 3o. submitte% to the B,? a'' re'e&ant
supporting %ocuments. The 3,? %i% not forma''! ru'e on
the protest but on Januar! 25- 1996- A 3o. (as ser&e% a
summons an% a cop! of the comp'aint for co''ection of
the ta %eficienc! fi'e% b! the B,? (ith the ?egiona'
Tria' 3ourt *?T3+. $n Hebruar! 20- 1996- A 3o. brought
a 1etition for ?e&ie( before the 3TA. The B,?
conten%e% that the 1etition is premature since there (as
no forma' %enia' of the protest of A 3o. an% shou'%
therefore be %ismisse%.
1. @as the 3TA 7uris%iction o&er the case#
SUGGESTED ANSWER,
;es- the 3TA has 7uris%iction o&er the case because this
Eua'ifies as an appea' from the 3ommissionerCs %ecision
on %ispute% assessment. When the 3ommissioner %eci%e%
to co''ect the ta assesse% (ithout first %eci%ing on the
tapa!erCs protest- the effect of the 3ommissionerPs action
of fi'ing a 7u%icia' action for co''ection is a %ecision of
%enia' of the protest- in (hich e&ent the tapa!er ma! fi'e
an appea' (ith the 3TA. *Rep%blic +. 1i3 Tian Teng <
SonsF ,nc.F )" SCRA :8.( Da'rit +. Cr%?F 1;6--)!F
Sept. "F )-88+.
2. @as the ?T3 7uris%iction o&er the co''ection
case fi'e% b! the B,?# 8p'ain.
SUGGESTED ANSWER,
The ?T3 has no 7uris%iction o&er the co''ection case fi'e%
b! the B,?. The fi'ing of an appea' (ith the 3TA has the
effect of %i&esting the ?T3 of 7uris%iction o&er the
co''ection case. At the moment the tapa!er appea's the
case to the 3ourt of Ta Appea's in &ie( of the
3ommissionerCs fi'ing of the co''ection case (ith the ?T3
(hich (as consi%ere% as a %ecision of %enia'- it gi&es a
7ustifiab'e basis for the tapa!er to mo&e for %ismissa' in
the ?T3 of the 5o&ernmentCs action to co''ect the ta
'iabi'it! un%er %ispute. *Mabes +. Flo@oF ): SCRA /8( San
H%an +. Bas5%e?F 6 SCRA -+. There is no fina'- eecutor!
an% %eman%ab'e assessment (hich can be enforce% b! the
B,?- once a time'! appea' is fi'e%.
Tax$ayer: Protest a7ainst Assessment (1999)
A 3o.- a 1hi'ippine corporation- recei&e% an income ta
%eficienc! assessment from the B,? on <o&ember 25-
1996. $n 2ecember 10- 1996- A 3o. fi'e% its protest (ith
the B,? $n >a! 20- 1997- the B,? issue% a (arrant of
%istraint to enforce the assessment. This (arrant (as
ser&e% on A 3o. on >a! 25- 1997. ,n a 'etter %ate% June
4- 1997 an% recei&e% b! A 3o. 5 %a!s 'ater- the 3,?
forma''! %enie% A 3o.Cs protest stating that it constitutes
his fina' %ecision on the matter. $n Ju'! 6- 1997- A 3o.
fi'e% a 1etition for ?e&ie( (ith the 3TA. The B,? mo&e%
to


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

%ismiss the 1etition on the groun% that the 3TA has no
7uris%iction o&er the case. 2eci%e. *104+
SUGGESTED ANSWER)
The 3TA has 7uris%iction o&er the case. The appea'ab'e
%ecision is the one (hich categorica''! state% that the
3ommissionerCs action on the %ispute% assessment is fina'
an%- therefore- the rec.oning of the 300%a! perio% to
appea' (as on June 9- 1999. The fi'ing of the petition for
re&ie( (ith the 3TA (as time'! ma%e. The 6upreme
3ourt has ru'e% that the 3,? must categorica''! state that
his action on a %ispute% assessment is fina'D other(ise- the
perio% to appea' (i'' not commence to run. That fina'
action cannot be imp'ie% from the mere issuance of a
(arrant "of %istraint an% 'e&!. *C,R +. =nion S&ipping
CorporationF )8: SCRA :./+.
Tax$ayer: Protest) *laim o( 5e(un (1996)
,s protest at the time of pa!ment of taes an% %uties a
reEuirement to preser&e the tapa!ersC right to c'aim a
refun%# 8p'ain.
SUGGESTED ANSWER)
Hor TAJES impose% un%er the 9,RCF protest at the time
of pa!ment is not reEuire% to preser&e the tapa!ersC right
to c'aim refun%. This is c'ear un%er +ection %5' of the
N6# (hich pro&i%es that a suit or procee%ing ma!be
maintaine% for the reco&er! of nationa' interna' re&enue
ta or pena't! a''ege% to ha&e been erroneous'! assesse%
or co''ecte%- (hether such ta or pena't! has been pai%
un%er protest or not.
Hor D=T,ES impose% un%er the Tariff and C%sto3s
Code- a protest at the time of pa!ment is reEuire% to
preser&e the tapa!ersC c'aim for refun%. The proce%ure
un%er the T33 is to the effect that (hen a ru'ing or
%ecision of the 3o''ector of 3ustoms is ma%e (hereb!
'iabi'it! for %uties is %etermine%- the part! a%&erse'!
affecte% ma! protest such ru'ing or %ecision b! presenting
to the 3o''ector- at the time (hen pa!ment is ma%e- or
(ithin 15 %a!s thereafter- a (ritten protest setting forth
his ob7ections to the ru'ing or %ecision in Euestion *6ec.
2308. T33+.
Tax$ayer) A$$eal to t0e *ourt o( Tax A$$eals (%&&,)
A tapa!er recei&e% a ta %eficienc! assessment of 11.2
>i''ion from the B,? %eman%ing pa!ment (ithin 10
%a!s- other(ise- it (ou'% co''ect through summar!
reme%ies. The tapa!er reEueste% for a reconsi%eration
stating the groun%s therefor. ,nstea% of reso'&ing the
reEuest for reconsi%eration- the B,? sent a Hina' <otice
before 6ei/ure to the tapa!er. >a! this action of the
3ommissioner of ,nterna' ?e&enue be %eeme% a %enia' of
the reEuest for reconsi%eration of the tapa!er to entit'e
him to appea' to the 3ourt of Ta Appea's# 2eci%e (ith
reasons. *54+
SUGGESTED ANSWER)
;es- the fina' notice before sei/ure (as in effect a %enia'
of the tapa!erCs reEuest for reconsi%eration- not on'! (as
the notice the on'! response recei&e%- its nature- content
an% tenor supports the theor! that it (as the B,?Cs fina' act
regar%ing the reEuest for reconsi%eration. (C,R +. ,sabela
C%lt%ral CorporationF 7.R. 9o. )6:)!F H%l' ))F
!!)#
63 of 73
Tax$ayer) *laim (or Tax *reits (%&&6)
3ongress enacts a 'a( granting gra%e schoo' an% high
schoo' stu%ents a 104 %iscount on a'' schoo'0prescribe%
tetboo.s purchase% from an! boo.store. The 'a( a''o(s
boo.stores to c'aim in fu'' the %iscount as a ta cre%it.
1. ,f in a taab'e !ear a boo.store has no ta %ue on
(hich to app'! the ta cre%its- can the boo.store c'aim
from the B,? a ta refun% in 'ieu of ta cre%it# 8p'ain.
*2.54+
SUGGESTED ANSWER)
<o- the boo.store cannot c'aim from the B,? a ta refun%
in 'ieu of ta cre%it. There is nothing in the 'a( that grants
a refun% (hen the boo.store has no ta 'iabi'it! against
(hich the ta cre%it can be use% (C,R +. Central 1%?on
Dr%gF 7.R. 9o ):-"./F April ):F !!:#. A ta cre%it is in the
nature of a ta eemption an% in case of %oubt- the %oubt
shou'% be reso'&e% in strictissimi 1uris against the
c'aimant.
2. 3an the B,? reEuire the boo.stores to %e%uct the
amount of the %iscount from their gross income#
8p'ain. *2.54+
SUGGESTED ANSWER)
<o. Ta cre%it (hich re%uces the ta 'iabi'it! is %ifferent
from a ta %e%uction (hich mere'! re%uces the ta base.
6ince the 'a( a''o(e% the boo.stores to c'aim in fu'' the
%iscount as a ta cre%it- the B,? is not a''o(e% to epan%
or contract the 'egis'ati&e man%ate (C,R +. Bicolandia Dr%g
Corp.F 7.R. 9o. ).8!86F H%l' )F !!"( C,R +. Central
1%?on Dr%g Corp.F 7.R. 9o. ):-"./F April ):F !!:#.
3. ,f a boo.store c'oses its business %ue to 'osses (ithout
being ab'e to recoup the %iscount- can it c'aim
reimbursement of the %iscount from the go&ernment on
the groun% that (ithout such reimbursement- the 'a(
constitutes ta.ing of pri&ate propert! for pub'ic use
(ithout 7ust compensation# 8p'ain. *54+
SUGGESTED ANSWER)
A boo.store- c'osing its business %ue to 'osses- cannot
c'aim reimbursement of the %iscount from the go&ernment.
,f the business continues to operate at a 'oss an% no other
taes are %ue- thus compe''ing it to c'ose shop- the cre%it
can ne&er be app'ie% an% (i'' be 'ost a'together (C,R +.
Central 1%?on Dr%gF 7.R. 9o. ):-"./F April ):F !!:#. The
grant of the %iscount to the tapa!er is a mere pri&i'ege an%
can be re&o.e% an!time.
Tax$ayer) *om$romise a(ter *riminal Action (199/)
An information (as fi'e% in court for (i''fu' non0
pa!ment of income ta the assessment of (hich has
become fina'. The accuse%- through counse'- presente% a
motion that he be a''o(e% to compromise his ta 'iabi'it!
sub7ect of the information. The prosecutor in%icate% his
conformit! to the motion. ,s this proce%ure correct# N54O
SUGGESTED ANSWER)
<o. 3rimina' &io'ations- if a'rea%! fi'e% in court- ma! not
be compromise% (+ec. %'!A3@, N6#). Hurthermore- the
pa!ment of the ta %ue after apprehension sha'' not
constitute a &a'i% %efense in an! prosecution for &io'ation
of an! pro&isions of the Ta 3o%e (+ec. %!&(a), N6#).
Hina''!- there is no sho(ing that the prosecutor in the
prob'em is a 'ega' officer of the Bureau of ,nterna'


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

?e&enue to (hom the con%uct of crimina' actions are
'o%ge% b! the Ta 3o%e.
ATERNATI&E ANSWER)
<o. ,f the compromise referre% to is the ci&i' aspect- the
proce%ure fo''o(e% is not correct. 3ompromise for the
pa!ment of an! interna' re&enue ta sha'' be ma%e on'!
b! the 3ommissioner of ,nterna' ?e&enue or in a proper
case the 8&a'uation Boar% of the B,? *6ec. 204- <,?3+.
App'!ing the 'a( to the case at bar- compromise
sett'ement can on'! be effecte% b! 'ea&e of 3ourt.
Tax$ayer) Protest a7ainst Assessment) Donor3s Tax (199,)
>r. ?o%rigo- an 800!ear o'% retire% businessman- fe'' in
'o&e (ith 200!ear o'% Tetchie 6onora- a night c'ub
hospita'it! gir'. A'though she refuse% to marr! him she
agree% to be his "'i&e0in" partner. ,n gratitu%e- >r.
?o%rigo transferre% to her a con%ominium unit- (here
the! both 'i&e- un%er a %ee% of sa'e for 110 >i''ion. >r.
?o%rigo pai% the capita' gains ta of 54 of 110 >i''ion.
The 3ommissioner of ,nterna' ?e&enue foun% that the
propert! (as transferre% to Tetchie 6onora b! >r. ?o%rigo
because of the companionship she (as pro&i%ing him.
Accor%ing'!- the 3ommissioner ma%e a %etermination that
6onora ha% compensation income of 110 >i''ion in the
!ear the con%ominium unit (as transferre% to her an%
issue% a %eficienc! income ta assessment.
Tetchie 6onora protests the assessment an% c'aims that
the transfer of the con%ominium unit (as a gift an%
therefore ec'u%e% from income. @o( (i'' !ou ru'e on
the protest of Tetchie 6onora# 8p'ain.
SUGGESTED ANSWER)
, (i'' grant the protest an% cance' the assessment. The
transfer of the propert! b! >r. ?o%rigo to >s. 6onora
(as gratuitous. The %ee% of sa'e in%icating a 110 mi''ion
consi%eration (as simu'ate% because >r. ?o%rigo %i% not
recei&e an!thing from the sa'e. The prob'em categorica''!
states that the transfer (as ma%e in gratitu%e to >s.
6onoraCs companionship. The transfer being gratuitous is
sub7ect to %onorCs ta. >r. ?o%rigo shou'% be assesse%
%eficienc! %onorCs ta an% a 504 surcharge impose% for
frau%u'ent'! simu'ating a contract of sa'e to e&a%e %onorCs
ta. (+ec. )$(b), N6#).
Tax$ayer) ;it00olin7 A7ent) *laim o( Tax 5e(un (%&&,)
2oes a (ithho'%ing agent ha&e the right to fi'e an
app'ication for ta refun%# 8p'ain.
SUGGESTED ANSWER)
;es. A tapa!er is "an! person sub7ect to ta." 6ince- the
(ithho'%ing ta agent (ho is "reEuire% to %e%uct an%
(ithhe'% an! ta" is ma%e "persona''! 'iab'e for such ta"
shou'% the amount of the ta (ithhe'% be fina''! foun% to
be 'ess than that reEuire% to be (ithhe'% b! 'a(- then he is
a tapa!er. Thus- he has sufficient 'ega' interest to fi'e an
app'ication for refun%- of the amount he be'ie&es (as
i''ega''! co''ecte% from him. (Co33issioner of ,nternal
Re+en%e +. *rocter < 7a3bleF 7.R. 9o. ""868F Dece3ber
F )--)#
sir%on%eeTgmai'.com
64 of 73 OCA " REA PROPERTY
TAXES
+ocal Taxation: Actual 6se o( Pro$erty (%&&%)
The rea' propert! of >r. an% >rs Ange'es- situate% in a
commercia' area in front of the pub'ic mar.et- (as
%ec'are% in their Ta 2ec'aration as resi%entia' because it
ha% been use% b! them as their fami'! resi%ence from the
time of its construction in 1990. @o(e&er- since Januar!
1997- (hen the spouses 'eft for the Fnite% 6tates to sta!
there permanent'! (ith their chi'%ren- the propert! has
been rente% to a sing'e proprietor engage% in the sa'e of
app'iances an% agri0pro%ucts. The 1ro&incia' Assessor
rec'assifie% the propert! as commercia' for ta purposes
starting Januar! 1998. >r. an% >rs. Ange'es appea'e% to
the 9oca' Boar% of Assessment Appea's- conten%ing that
the Ta 2ec'aration pre&ious'! c'assif!ing their propert!
as resi%entia' is bin%ing. @o( shou'% the appea' be
%eci%e%# *54+
SUGGESTED ANSWER)
The appea' shou'% be %eci%e% against >r. an% >rs.
Ange'es. The 'a( focuses on the actua' use of the propert!
for c'assification- &a'uation an% assessment purposes
regar%'ess of o(nership. 6ection 217 of the 9oca'
5o&ernment 3o%e pro&i%es that "rea' propert! sha'' be
c'assifie%- &a'ue%- an% assesse% on the basis of its actua'
use regar%'ess of (here 'ocate%- (hoe&er o(ns it- an%
(hoe&er uses it".
+ocal Taxation: *o!era7e (%&&%)
Asi%e from the basic rea' estate ta- gi&e three *3+ other
taes (hich ma! be impose% b! pro&incia' an% cit!
go&ernments as (e'' as b! municipa'ities in the >etro
>ani'a area. *34+
SUGGESTED ANSWER)
The fo''o(ing rea' propert! taes asi%e from the basic
rea' propert! ta ma! be impose% b! pro&incia' an% cit!
go&ernments as (e'' as b! municipa'ities in the >etro
>ani'a area)
6 A%%itiona' 'e&! on rea' propert! for the 6pecia'
8%ucation Hun% *6ec. 235- 953+D
2 A%%itiona' A%0&a'orem ta on ,%'e 'an%s *6ec.
23U- 953+D an%
7 6pecia' 'e&! *6ec. 240+.
N9ote$ The Euestion is susceptib'e to %ua' interpretation
because it is as.ing for three other taes an% not three
other rea' propert! taes. Accor%ing'!- an a'ternati&e
ans(er shou'% be consi%ere% an% gi&en fu'' cre%itO
A. The fo''o(ing taes- asi%e from basic rea' estate ta-
ma! be impose% b!)
1. 1ro&incia' 5o&ernment
6: 1rinterCs or pub'isherCs
ta
2: Hranchise Ta
7: 1rofessiona' ta
2. 3it! 5o&ernment 0 ma! 'e&! taes (hich the pro&ince
or municipa'it! are authori/e% to 'e&! *6ec. 151- 953+
6: 1rinterCs or pub'isherCs
ta
2: Hranchise ta
7: 1rofessiona' ta


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

3. >unicipa'ities in the >etro >ani'a Area 0 ma! 'e&!
taes at rates (hich sha'' not ecee% b! 504 the
maimum rates prescribe% in the 9oca' 5o&ernment
3o%e.
6: Annua' fie% ta on manufacturers- assemb'ers-
repac.ers- processors- bre(ers- %isti''ers- rectifiers an%
compoun%ers of 'iEuors- %isti''e% spirits- an% (ines or
manufacture of an! artic'e of commerce of (hate&er .in% or
natureD
2: Annua' fie% ta on (ho'esa'ers- %istributors- or
%ea'ers in an! artic'e of commerce of (hate&er .in% or natureD
7: 1ercentage ta on retai'ers
N<ote) $ther taes ma! comprise the enumeration because
man! other taes are authori/e% to be impose% b! 95Fs.O
+ocal Taxation: #xem$tion) 5eal Pro$erty Taxes (%&&%)
Fn%er the 9oca' 5o&ernment 3o%e- (hat properties are
eempt from rea' propert! taes# *54+
SUGGESTED ANSWER)
The fo''o(ing properties are eempt from rea' propert!
taes) *6ec. 234- 953+.
6 ?ea' propert! o(ne% b! the ?epub'ic of the 1hi'ippines
or an! of its po'itica' sub%i&isions ecept (hen the beneficia'
use thereof has been grante%- for consi%eration or other(ise- to a
taab'e personD
2 A'' 'an%s- bui'%ings an% impro&ements actua''!-
%irect'!- an% ec'usi&e'! use% for re'igious- charitab'e or
e%ucationa' purposes b! charitab'e institutions- churches-
parsonages or con&ents appurtenant thereto- mosEues- nonprofit
or re'igious cemeteriesD
7 A'' machineries an% eEuipment that are actua''!-
%irect'! an% ec'usi&e'! use% b! 'oca' (ater %istricts an%
go&ernment0o(ne% or contro''e% corporations engage% in the
supp'! an% %istribution of (ater an%Lor generation an%
transmission of e'ectric po(erD
8 A'' rea' propert! o(ne% b! %u'! registere%
cooperati&es as pro&i%e% for un%er ?.A. <o. 6938D an%
9 >achiner! an% eEuipment use% for po''ution contro'
an% en&ironmenta' protection.
+ocal Taxation: Im$osition o( A 4alorem Tax (%&&&)
>a! 'oca' go&ernments impose an annua' rea't! ta in
a%%ition to the basic rea' propert! ta on i%'e or &acant
'ots 'ocate% in resi%entia' sub%i&isions (ithin their
respecti&e territoria' 7uris%ictions# *34+
SUGGESTED ANSWER)
<ot a'' 'oca' go&ernment units ma! %o so. $n'! pro&inces-
cities- an% municipa'ities (ithin the >etro >ani'a area
(+ec. %5%, ?ocal "overnment ode) ma! impose an ad
+alore3 tax not ecee%ing fi&e percent *54+ of the
assesse% &a'ue (+ec. %5-, 6bid.) of i%'e or &acant resi%entia'
'ots in a sub%i&ision- %u'! appro&e% b! proper authorities
regar%'ess of area. (+ec.%5&, 6bid.)
6# of 73
+ocal Taxation: +e7alityG *onstitutionality) Tax
1rinance (%&&2)
A- a tapa!er (ho be'ie&es that an or%inance passe% b!
the 3it! 3ounci' of 1asa! is unconstitutiona' for being
%iscriminator! against him- (ant to .no( from !ou- his
ta 'a(!er- (hether or not he can fi'e an appea'. ,n the
affirmati&e- he as.s !ou (here such appea' shou'% be
ma%e) the 6ecretar! of Hinance- or the 6ecretar! of
Justice- or the 3ourt of Ta Appea's- or the regu'ar courts.
What (ou'% !our a%&ice be to !our c'ient- A# *84+
SUGGESTED ANSWER)
The appea' shou'% be ma%e (ith the 6ecretar! of Justice. An!
Euestion on the constitutiona'it! or 'ega'it! of a ta or%inance
ma! be raise% on appea' (ith the 6ecretar! of Justice (ithin
30 %a!s from the effecti&it! thereof. (Sec. )8/F 17C( Dagono'
2arCet Bendor Association +.
2%nicipalit' of Dagono'F 6/" SCRA 6/" K!!L#.
+ocal Taxation: +e7ality) Im$osition o( 5eal Pro$erty Tax
5ate (%&&%)
An $r%inance (as passe% b! the 1ro&incia' Boar% of a
1ro&ince in the <orth- increasing the rate of basic rea'
propert! ta from 0.0064 to 1 4 of the assesse% &a'ue of
the rea' propert! effecti&e Januar! 1- 2000. ?esi%ents of
the municipa'ities of the sai% pro&ince proteste% the
$r%inance on the groun% that no pub'ic hearing (as
con%ucte% an%- therefore- an! increase in the rate of rea'
propert! ta is &oi%. ,s there merit in the protest# 8p'ain
!our ans(er. *24+
SUGGESTED ANSWER)
The protest is %e&oi% of merit. <o pub'ic hearing is
reEuire% before the enactment of a 'oca' ta or%inance
'e&!ing the basic rea' propert! ta *Art. 324- 953
?egu'ations+.
ATERNATI&E ANSWER)
;es- there is merit in the protest pro&i%e% that sufficient
proof cou'% be intro%uce% for the non0obser&ance of
pub'ic hearing. B! imp'ication- the 6upreme 3ourt
recogni/e% that pub'ic hearings are reEuire% to be
con%ucte% prior to the enactment of an or%inance
imposing rea' propert! taes. A'though it (as conc'u%e%
b! the highest tribuna' that presumption of &a'i%it! of a
ta or%inance can not be o&ercome b! bare assertions of
proce%ura' %efects on its enactment- it (ou'% seem that if
the tapa!er ha% presente% e&i%ence to support the
a''egation that no pub'ic hearing (as con%ucte%- the 3ourt
shou'% ha&e ru'e% that the ta or%inance is in&a'i%. (Belen
Fig%erres +. Co%rt of AppealsF 7R9o. ))-)/F 2arc&
:F )---#.
+ocal Taxation: Power to Im$ose (%&&2)
,n or%er to raise re&enue for the repair an% maintenance
of the ne('! constructe% 3it! @a'' of >a.ati- the 3it!
>a!or or%ere% the co''ection of 11.00- ca''e% "e'e&ator
ta"- e&er! time a person ri%es an! of the high0tech
e'e&ators in the cit! ha'' %uring the hours of 8)00 a.m. to
10)00 a.m. an% 4)00 p.m. to 6)00 p.m. ,s the "e'e&ator
ta" a &a'i% imposition# 8p'ain. *84+
SUGGESTED ANSWER)
<o. The imposition of a ta- fee or charge or the
generation of re&enue un%er the 9oca' 5o&ernment 3o%e-
sha'' be eercise% b! the 6A<5F<,A< of the 'oca'
go&ernment unit concerne% through an appropriate


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

or%inance (+ection $5% of the ?ocal "overnment ode).
The cit! ma!or a'one cou'% not or%er the co''ection of
the taD as such- the "e'e&ator ta" is an in&a'i%
imposition.
+ocal Taxation: 5emissionG*ononation o( Taxes (%&&')
?3 is a 'a(0abi%ing citi/en (ho pa!s his rea' estate taes
prompt'!. 2ue to a series of t!phoons an% a%&erse
economic con%itions- an or%inance is passe% b! >> 3it!
granting a 504 %iscount for pa!ment of unpai% rea' estate
taes for the prece%ing !ear an% the con%onation of a''
pena'ties on fines resu'ting from the 'ate pa!ment.
Arguing that the or%inance re(ar%s %e'inEuent tapa!ers
an% %iscriminates against prompt ones- ?3 %eman%s that
he be refun%e% an amount eEui&a'ent to one0ha'f of the
rea' taes he pai%. The municipa' attorne! ren%ere% an
opinion that ?3 cannot be reimburse% because the
or%inance %i% not pro&i%e for such reimbursement. ?3
fi'es suit to %ec'are the or%inance &oi% on the groun% that
it is a c'ass 'egis'ation. Wi'' his suit prosper# 8p'ain !our
ans(er brief'!. *54+
SUGGESTED ANSWER)
The suit (i'' not prosper. The remission or con%onation
of taes %ue an% pa!ab'e to the ec'usion of taes a'rea%!
co''ecte% %oes not constitute unfair %iscrimination. 8ach
set of taes is a c'ass b! itse'f an% the 'a( (ou'% be open
to attac. as c'ass 'egis'ation on'! if a'' tapa!ers
be'onging to one c'ass (ere not treate% a'i.e (H%an 1%na
S%bdi+isionF ,nc.F +. Sar3ientoF -) *&il. 6/) K)-:L#.
+ocal Taxation: 5ule o( 6ni(ormity an #>uality (%&&2)
The 3it! of >a.ati- in or%er to so'&e the traffic prob'em
in its business %istricts- %eci%e% to impose a ta- to be
pai% b! the %ri&er- on a'' pri&ate cars entering the cit!
%uring pea. hours from 8)00 a.m. to 9)00 a.m. from
>on%a!s to Hri%a!s- but eempts those cars carr!ing
more than t(o occupants- ec'u%ing the %ri&er. ,s the
or%inance &a'i%# 8p'ain. *84+
SUGGESTED ANSWER)
The or%inance is in &io'ation of the ?u'e of Fniformit!
an% 8Eua'it!- (hich reEuires that a'' sub7ects or ob7ects
of taation- simi'ar'! situate% must be treate% a'i.e in
eEua' footing an% must not c'assif! the sub7ects in an
arbitrar! manner. ,n the case at bar- the or%inance
eempts cars carr!ing more than t(o occupants from
co&erage of the sai% or%inance. Hurthermore- the
or%inance on'! imposes the ta on pri&ate cars an%
eempts pub'ic &ehic'es from the imposition of the ta-
a'though both contribute to the traffic prob'em. There
eists no substantia' stan%ar% use% in the c'assification b!
the 3it! of >a.ati.
Another issue is the fact that the ta is impose% on the
%ri&er of the &ehic'e an% not on the registere% o(ner of
the same. The ta %oes not on'! &io'ate the reEuirement
of uniformit!- but the same is a'so un7ust because it
p'aces the bur%en on someone (ho has no contro' o&er
the route of the &ehic'e. The or%inance is- therefore-
in&a'i% for &io'ating the ru'e of uniformit! an% eEua'it! as
(e'' as for being un7ust.
+ocal Taxation) Situs o( Pro(essional Taxes (%&&,)
>r. Hermin- a resi%ent of Kue/on 3it!- is a 3ertifie%
1ub'ic Accountant09a(!er engage% in the practice of his
66 of 73
t(o professions. @e has his main office in >a.ati 3it!
an% maintains a branch office in 1asig 3it!. >r. Hermin
pa!s his professiona' ta as a 31A in >a.ati 3it! an% his
professiona' ta as a 'a(!er in 1asig 3it!. *54+ a+ >a!
>a.ati 3it!- (here he has his main office- reEuire him to
pa! his professiona' ta as a 'a(!er# 8p'ain.
SUGGESTED ANSWER)
<o. >a.ati 3it! (here >r. Hermin has his main office
ma! not reEuire him to pa! his professiona' ta as a
'a(!er. >r. Hermin has the option of pa!ing his
professiona' ta as a 'a(!er in 1asig 3it! (here he
practices 'a( or in >a.ati 3it! (here he maintains his
principa' office. (+ec. $5)Ab@, ?ocal "overnment ode)
b+ >a! Kue/on 3it!- (here he has his resi%ence an%
(here he a'so practices his t(o professions- go after him
for the pa!ment of his professiona' ta as a 31A an% a
'a(!er# 8p'ain.
SUGGESTED ANSWER)
<o- the situs of the professiona' ta is the cit! (here the
professiona' practices his profession or (here he
maintains his principa' office in case he practices his
profession in se&era' p'aces. The 'oca' go&ernment of
Kue/on 3it! has no right to co''ect the professiona' ta
from >r. Hermin as the p'ace of resi%ence of the tapa!er
is not the proper situs in the co''ection of the professiona'
ta.
+ocal Taxation) S$ecial +e!y on Ile +ans (%&&,)
A cit! outsi%e of >etro >ani'a p'ans to enact an
or%inance that (i'' impose a specia' 'e&! on i%'e 'an%s
'ocate% in resi%entia' sub%i&isions (ithin its territoria'
7uris%iction in a%%ition to the basic rea' propert! ta. ,f
the 'ot o(ners of a sub%i&ision 'ocate% in the sai% cit!
see. !our 'ega' a%&ice on the matter- (hat (ou'% !our
a%&ice be# 2iscuss. *54+
SUGGESTED ANSWER)
, (ou'% a%&ise the 'ot o(ners that a cit!- e&en if it is
outsi%e >etro >ani'a- ma! 'e&! an annua' ta on i%'e
'an%s at the rate not ecee%ing fi&e percent *54+ of the
assesse% &a'ue of the propert! (hich sha'' be in a%%ition
to the basic rea' propert! ta. (+ec. %5-, ?ocal
"overnment ode) , (ou'% 'i.e(ise a%&ise them that the
'e&! ma! app'! to resi%entia' 'ots- regar%'ess of 'an% area-
in sub%i&isions %u'! appro&e% b! proper authorities- the
o(nership of (hich has been transferre% to in%i&i%ua'
o(ners (ho sha'' be 'iab'e for the a%%itiona' ta. *9ast
par.- 6ec. 237+
The term ",%'e 9an%s" means- 'an% not %e&ote% %irect'!
to an! crop or to an! %efinite purpose for at 'east one
!ear prior to the notice of epropriation- ecept for
reasons other than force ma1eure or an! fortuitous e&ent-
but use% to be %e&ote% or is suitab'e to such crop or is
contiguous to 'an% %e&ote% %irect'! to an! crop an% %oes
not inc'u%e 'an% %e&ote% permanent'! or regu'ar'! to
other essentia' an% more pro%ucti&e purpose. (9hilippine
?egal 4ncyclopedia, by +ibal, $)/- 4d.)
Hina''!- , (ou'% a%&ise them to construct or p'ace
impro&ements on their i%'e 'an%s b! ma.ing &a'uab'e
a%%itions to the propert! or ame'iorations in the 'an%Cs


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

con%itions so the 'an%s (ou'% not be consi%ere% as i%'e.
*6ec. 199NmO+ ,n this manner their properties (ou'% not
be sub7ect to the ad valorem tax on i%'e 'an%s.
5eal Pro$erty Tax: 6ner7roun ?asoline Tan.s (%&&2)
Fn%er Artic'e 415 of the 3i&i' 3o%e- in or%er for
machiner! an% eEuipment to be consi%ere% rea' propert!-
the pieces must be p'ace% b! the o(ner of the 'an% an%- in
a%%ition- must ten% to %irect'! meet the nee%s of the
in%ustr! or (or.s carrie% on b! the o(ner. $i' companies
insta'' un%ergroun% tan.s in the gaso'ine stations 'ocate%
on 'an% 'ease% b! the oi' companies from the o(ners of
the 'an% (here the gaso'ine stations NareO 'ocate%. Are
those un%ergroun% tan.s- (hich (ere not p'ace% there b!
the o(ner of the 'an% but (hich (ere instea% p'ace% there
b! the 'essee of the 'an%- consi%ere% rea' propert! for
purposes of rea' propert! taation un%er the 'oca'
5o&ernment 3o%e# 8p'ain. *84+
SUGGESTED ANSWER)
;es. The properties are consi%ere% as necessar! fitures of
the gaso'ine station- (ithout (hich the gaso'ine station
(ou'% be use'ess. >achiner! an% eEuipment insta''e% b! the
'essee of 'ease% 'an% is not rea' propert! for purposes of
eecution of a fina' 7u%gment on'!. The! are consi%ere% as
rea' propert! for rea' propert! ta purposes as "other
impro&ements to affie% or attache% rea' propert! un%er the
Assessment 9a( an% the ?ea' 1ropert! Ta 3o%e.
(Caltex +. Central Board of Assess3ent AppealsF )). SCRA
-" K)-8L#.
5eal Pro$erty Tax) 5e>uirements) Auction Sales o(
Pro$erty (or Tax Delin>uency (%&&6)
Kue/on 3it! pub'ishe% on Januar! 30- 2006 a 'ist of
%e'inEuent rea' propert! tapa!ers in 2 ne(spapers of
genera' circu'ation an% poste% this in the main 'obb! of
the 3it! @a''. The notice reEuires a'' o(ners of rea'
properties in the 'ist to pa! the rea' propert! ta %ue
(ithin 30 %a!s from the %ate of pub'ication- other(ise the
properties 'iste% sha'' be so'% at pub'ic auction.
Joachin is one of those name% in the 'ist. @e purchase% a
rea' propert! in 1996 but fai'e% to register the %ocument
of sa'e (ith the register of 2ee%s an% secure a ne( rea'
propert! ta %ec'aration in his name. @e a''ege% that the
auction sa'e of his propert! is &oi% for 'ac. of %ue process
consi%ering that the 3it! Treasurer %i% not sen% him
persona' notice. Hor his part- the 3it! Treasurer maintains
that the pub'ication an% posting of notice are sufficient
comp'iance (ith the reEuirements of the 'a(.
1. ,f !ou (ere the 7u%ge- ho( (i'' !ou reso'&e this issue#
*2.54+
SUGGESTED ANSWER)
, (i'' reso'&e the issue in fa&or of Joachin. ,n auction
sa'es of propert! for ta %e'inEuenc!- notice to %e'inEuent
'an%o(ners an% to the pub'ic in genera' is an essentia' an%
in%ispensab'e reEuirement of 'a(- the non0fu'fi''ment of
(hich &itiates the same (Tiongco +. *&il. Beterans BanCF
7.R. 9o. 8/8F A%g. :F )--#. The fai'ure to gi&e notice to
the right person i.e.- the rea' o(ner- (i'' ren%er an auction
sa'e &oi% (Tan +. Banteg%iF 7.R. 9oF ):.!/F October .F
!!:( Cit' Treas%rer of P.C. +. CAF 7.R. 9o. )!-/.F Dec.
F )--/#.
6' of 73
2. Assuming Joachin is a registere% o(ner- (i'' !our
ans(er be the same# *2.54+
SUGGESTED ANSWER)
;es. The 'a( reEuires that a notice of the auction sa'e
must be proper'! sent to Joachin an% not mere'! through
pub'ication (Tan +. Banteg%iF 7.R. 9oF ):.!/F October
.F!!:( Estate of 2ercedes Hacob +. CAF 7.R. 9o. )!.6:F
Dec. F )--/#.
5eal Pro$erty Taxation: *a$ital Asset !s" 1rinary Asset
(199,)
,n 1990- >r. <a&a' bought a 'ot for 11-000-000.00 ,n a
sub%i&ision (ith the intention of bui'%ing his resi%ence on
it. ,n 1994- he aban%one% his p'an to bui'% his resi%ence
on it because the surroun%ing area became a %epresse%
area an% 'an% &a'ues in the sub%i&ision (ent %o(nD
instea%- he so'% it for 1800.000.00. At the time of the sa'e-
the /ona' &a'ue (as 1500.000.00. 1+ ,s the 'an% a capita'
asset or an or%inar! asset# 8p'ain. 2+ ,s there an! income
ta %ue on the sa'e# 8p'ain.
SUGGESTED ANSWERS)
1+ The 'an% is a capita' asset because it is neither for sa'e
in the or%inar! course of business nor a propert! use% in
the tra%e or business of the tapa!er. *6ec. 33. <,?3+.
2+ ;es- >r. <a&a' is 'iab'e to the 54 capita' gains ta
impose% un%er 6ection 21*e+ of the Ta 3o%e base% on
the gross se''ing price of 1800.000.00 (hich is an
amount higher than the /ona' &a'ue.
5eal Pro$erty Taxation: *a$ital ?ains !s" 1rinary
?ains(199/)
What is the %ifference bet(een capita' gains an%
or%inar! gains# N34O
SUGGESTED ANSWER)
3A1,TA9 5A,<6 are gains rea'i/e% from the sa'e or
echange of capita' assets- (hi'e $?2,<A?; 5A,<6
refer to gains rea'i/e% from the sa'e or %isposition of
or%inar! assets.
5eal Pro$erty Taxation: *o!era7e o( 1rinary
Income(199/)
What %oes the term "or%inar! income" inc'u%e# N24O
SUGGESTED ANSWER)
The term or%inar! income inc'u%es an! gain from the sa'e
or echange of propert! (hich is not a capita' asset.
These are the gains %eri&e% from the sa'e or echange of
propert! such as stoc. in tra%e of the tapa!er or other
propert! of a .in% (hich (ou'% proper'! be inc'u%e% in
the in&entor! of the tapa!er if on han% at the c'ose of the
taab'e !ear- or propert! he'% b! the tapa!er primari'!
for sa'e to customers in the course of his tra%e or
business- or propert! use% in tra%e or business of a
character (hich is sub7ect to the a''o(ance for
%epreciation- or rea' propert! use% in tra%e or business of
the tapa!er. (+ec. %% AM@ in relation to +ec. 5)AA@($),
both of the N6#).
ATERNATI&E ANSWER)
The term or%inar! income inc'u%es income from
performance of ser&ices- (hether professiona' or persona'-
gains accruing from business- an% profit arising from the
sa'e or echange of or%inar! assets.


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

5eal Pro$erty Taxation: #xc0an7e o( +ot) *a$ital ?ain Tax
(1998)
A corporation- engage% in rea' estateC %e&e'opment-
eecute% %ee%s of sa'e on &arious sub%i&i%e% 'ots. $ne
bu!er- after going aroun% the sub%i&ision- bought a corner
'ot (ith a goo% &ie( of the surroun%ing terrain. @e pai%
11.2 mi''ion- an% the tit'e to the propert! (as issue%. A
!ear 'ater- the &a'ue of the 'ot appreciate% to a mar.et
&a'ue of 11.6 mi''ion- an% the bu!er %eci%e% to bui'% his
house thereon. Fpon inspection- ho(e&er- he %isco&ere%
that a huge to(er antennae ha% been erecte% on the 'ot
frontage tota''! b'oc.ing his &ie(. When he comp'aine%-
the rea't! compan! echange% his 'ot (ith another corner
'ot (ith an eEua' area but affor%ing a better &ie(. ,s the
bu!er 'iab'e for capita' gains ta on the echange of the
'ots#
SUGGESTED ANSWER)
;es- the bu!er is sub7ect to capita' gains ta on the
echange of 'ots on the basis of pre&ai'ing fair mar.et
&a'ue of the propert! transferre% at the time of the
echange or the fair mar.et &a'ue of the propert!
recei&e%- (hiche&er is higher (+ection %$(e), N6#). ?ea'
propert! transactions sub7ect to capita' gains ta are not
'imite% to sa'es but a'so echanges of propert! un'ess
eempte% b! a specific pro&ision of 'a(.
ATERNATI&E ANSWER)
<o. The echange is not sub7ect to capita' gains ta
because it is mere'! %one to comp'! (ith the intentions of
the parties to the pre&ious contract regar%ing the sa'e an%
acEuisition of a propert! (ith a goo% &ie(. This is a
simp'e substitution of the ob7ect of sa'e an% since the
pre&ious transaction (as a'rea%! sub7ecte% to ta- no ne(
ta shou'% be impose% on the echange (36# #uling No.
%$(e) ',5./) ''/.),).
5eal Pro$erty Taxation: #xem$tionGDeuctions) Donor3s
Tax (199/)
Ace Tobacco 3orporation bought a parce' of 'an% situate%
at 1ateros an% %onate% it to the >unicipa' 5o&ernment of
1ateros for the so'e purpose of %e&oting the sai% 'an% as a
re'ocation site for the 'ess fortunate constituents of sai%
municipa'it!. ,n accor%ance there(ith- the >unicipa'
5o&ernment of 1ateros issue% to the
occupantsLbeneficiaries 3ertificates of A(ar% gi&ing to
them the respecti&e areas (here their houses are erecte%.
Through $r%inance <o. 2- 6eries of 1998- the sai%
municipa' go&ernment or%aine% that the 'ots a(ar%e% to
the a(ar%eesL%onees be fina''! transferre% an% %onate% to
them. 2etermine the ta conseEuence of the foregoing
%ispositions (ith respect to Ace Tobacco 3orporation- the
>unicipa' 5o&ernment of 1ateros- an% the
occupantsLbeneficiaries. N54O
SUGGESTED ANSWER)
The %onation b! Ace Tobacco 3orporation is exe3pt
fro3 t&e donorAs tax because it Eua'ifies as a gift to or
for the use of an! po'itica' sub%i&ision of the <ationa'
5o&ernment *6ection 101*2+- <,?3+. The con&e!ance is
'i.e(ise eempt from %ocumentar! stamp ta because it
is a transfer (ithout consi%eration.
6ince the %onation is to be use% as a re'ocation site for the
'ess fortunate constituents of the municipa'it!. ,t ma! be
consi%ere% as an un%erta.ing for human sett'ements-
6* of 73
hence the &a'ue of the 'an% 3a' be ded%ctible in f%ll
fro3 t&e gross inco3e of Ace Tobacco 3orporation if in
accor%ance to a <ationa' 1riorit! 1'an %etermine% b! the
<ationa' 8conomic 2e&e'opment Authorit!. (+ec. 5!K=@
(%)(a), N6#). ,f the uti'i/ation is not in accor%ance to a
<ationa' 1riorit! 1'an %etermine% b! the <ationa'
8conomic 2e&e'opment Authorit!- then Ace Tobacco
3orporation ma! %e%uct the &a'ue of the 'an% %onate%
on'! to the etent of fi&e *54+ percent of its taab'e
income %eri&e% from tra%e or business as compute%
(ithout the benefit of the %onation. (+ec. 5!A=@(%)(a) in
relation to +ec. 5!A=@($), N6#).
The >unicipa'it! of 1ateros is not sub7ect to an! %onorCs
ta on the &a'ue of 'an% it subseEuent'! %onate%- it being
eempt from taes as a po'itica' sub%i&ision of the
<ationa' 5o&ernment.
The occupantsLbeneficiaries are sub7ect to rea' propert!
taes because the! no( o(n the 'an%.
ATERNATI&E ANSWER on Taxability of 8unicipality and
Awardees:
The a(ar%ing b! the >unicipa' 5o&ernment of 'ots to
specific a(ar%ees or %onees is 'i.e(ise eempt from the
%onorCs ta because it is on'! an imp'ementation of the
purpose for (hich the propert! (as gi&en b! Ace Tobacco
3orporation. The purpose of the first %onation is to %e&ote
the 'an% as a re'ocation site for the 'ess fortunate
constituents. ,f 'ater on the >unicipa'it! gi&es out
3ertificates of A(ar% o&er specific 'ots occupie% b! the
Eua'ifie% occupantsLbeneficiaries- this is inten%e% to
perpetuate the purpose of the pre&ious %onor- the >u0
nicipa'it! acting mere'! as a con%uit an% not the true
%onor. This is simp'! a %onation b! the >unicipa'it! in
form but not in substance.
The receipt b! the occupant beneficiaries of their
respecti&e 'ots through the 3ertificate of A(ar% has no ta
imp'ications. The! are- ho(e&er- 'iab'e for rea' propert!
taes.
5eal Pro$erty Taxation: #xem$tion: Ac>uirin7 @ew
Princi$al 5esience (%&&&)
9ast Ju'! 12- 2000- >r. V >rs. 1eter 3amacho so'% their
principa' resi%ence situate% in Tan%ang 6ora- Kue/on
3it! for Ten >i''ion 1esos *110-000-000.00+ (ith the
intention of using the procee%s to acEuire or construct a
ne( principa' resi%ence in Aurora @i''s- Baguio 3it!.
What con%itions must be met in or%er that the capita'
gains presume% to ha&e been rea'i/e% from such sa'e ma!
not be sub7ect to capita' gains ta# *54+
SUGGESTED ANSWER)
The con%itions are)
1. The procee%s are fu''! uti'i/e% in acEuiring or
constructing a ne( principa' resi%ence (ithin eighteen
*18+ ca'en%ar months from the sa'e or %isposition of the
principa' resi%ence or eighteen *18+ months from Ju'! 12-
2000.


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

6 The historica' cost or a%7uste% basis of the rea'
propert! so'% or %ispose% sha'' be carrie% o&er to the ne(
principa' resi%ence bui't or acEuire%.
2 The 3ommissioner of ,nterna' ?e&enue must ha&e
been informe% b! >r. V >rs. 1eter 3amacho (ithin thirt! *30+
%a!s from the %ate of sa'e or %isposition on Ju'! 12- 2000
through a prescribe% return of their intention to a&ai' of the ta
eemption.
7 That the sai% eemption can on'! be a&ai'e% of once
e&er! ten *10+ !ears.
8 ,f there is no fu'' uti'i/ation of the procee%s of sa'e or
%isposition- the portion of the gain presume% to ha&e been
rea'i/e% from the sa'e or %isposition sha'' be sub7ect to capita'
gains ta A+ec. %! (B) (%), N6# of $))&@
5eal Pro$erty Taxation: Funamental Princi$les (1998)
6tate the fun%amenta' princip'es un%er'!ing rea' propert!
taation in the 1hi'ippines.
SUGGESTED ANSWER)
The fo''o(ing are the fun%amenta' princip'es go&erning
rea' propert! taation) 1+ ?ea' propert! sha'' be appraise%
at its current an%
fair mar.et &a'ueD 2+ ?ea' propert! sha'' be c'assifie% for
assessment purposes on the basis of its actua' use)
3+ ?ea' propert! sha'' be assesse% on the basis of a
uniform c'assification (ithin each 'oca' go&ernment unitD
4+ The appraisa'- assessment- 'e&!- an% co''ection
of rea' propert! ta sha'' not be 'et to an! pri&ate personD
an%
5+ The appraisa' an% assessment of rea' propert!
sha'' be eEuitab'e.
5eal Pro$erty Taxation: Princi$les B +imitations: +?6
(%&&&)
5i&e at 'east t(o *2+ fun%amenta' princip'es go&erning
rea' propert! taation- (hich are 'imitations on the taing
po(er of 'oca' go&ernments insofar as the 'e&!ing of the
rea't! ta is concerne%. *24+
SUGGESTED ANSWER)
T(o *2+ fun%amenta' princip'es go&erning rea' propert!
taation are) 1+ The appraisa' must be at the current an%
fair mar.et
&a'ueD an% 2+ 3'assification for assessment must be on
the basis of actua' use. (+ec. $)/, ?ocal "overnment
ode)
ATERNATI&E ANSWER)
The eaminee shou'% be gi&en cre%it if he chooses the
abo&e t(o *2+ or an! t(o *2+ of those enumerate% be'o()
1+ Assessment must be on the basis of uniform
c'assificationD 2+ Appraisa'- assessment- 'e&! an%
co''ection sha'' not be 'et to pri&ate personsD an% 3+
Appraisa' an% assessment must be eEuitab'e. (+ec. $)/,
?ocal "overnment ode)
69 of 73
5eal Pro$erty Taxation: Pro$erty Sol is an
1rinary Asset (199/)
An in%i&i%ua' tapa!er (ho o(ns a ten *10+ %oor apart0
ment (ith a month'! renta' of 110-000 each resi%entia'
unit- so'% this propert! to another in%i&i%ua' tapa!er. ,s
the se''er 'iab'e to pa! the capita' gains ta# N54O
SUGGESTED ANSWER)
<o. The se''er is not 'iab'e to pa! the capita' gains ta
because the propert! so'% is an or%inar! asset- i.e. rea'
propert! use% in tra%e or business. ,t is apparent that the
tapa!er is engage% in the rea' estate business- regu'ar'!
renting out the ten *10+ %oor apartment.
5eal Pro$erty Taxation: 6ner7roun ?asoline Tan.s
(%&&1)
Fn%er Artic'e 415 of the 3i&i' 3o%e- in or%er for
machiner! an% eEuipment to be consi%ere% rea' propert!-
the! must be p'ace% b! the o(ner of the 'an% an%- in
a%%ition- must ten% to %irect'! meet the nee%s of the
in%ustr! or (or.s carrie% on b! the o(ner. $i' companies-
such as 3a'te an% 6he''- insta'' un%ergroun% tan.s in the
gaso'ine stations 'ocate% on 'an% 'ease% b! the oi'
companies from others. Are those un%ergroun% tan.s
(hich (ere not p'ace% there b! the o(ner of the 'an% but
(hich (ere instea% p'ace% there b! the 'essee of the 'an%-
consi%ere% rea' propert! for purposes of rea' propert!
taation un%er the 9oca' 5o&ernment 3o%e# 8p'ain !our
ans(er. *54+
SUGGESTED ANSWER)
;es. The un%ergroun% tan.s a'though insta''e% b! the
'essee- 6he'' an% 3a'te- are consi%ere% as rea' propert!
for purposes of the imposition of rea' propert! taes. ,t is
on'! for purposes of eecuting a fina' 7u%gment that these
machiner! an% eEuipment- insta''e% b! the 'essee on a
'ease% 'an%- (ou'% not be consi%ere% as rea' propert!. But
in the imposition of the rea' propert! ta- the un%ergroun%
tan.s are taab'e as necessar! fitures of the gaso'ine
station (ithout (hich the gaso'ine station (ou'% not be
operationa'. *Caltex *&ils.F ,nc +. CBAAF )). SCRA.
-"+.
5eal Pro$erty Taxation) #xem$te Pro$erties (%&&6)
What properties are eempt from the rea' propert! ta#
*54+
SUGGESTED ANSWER)
The fo''o(ing properties are eempt from the rea'
propert! ta *6ection 234- 9oca' 5o&ernment 3o%e+)
*1+ ?ea' propert! o(ne% b! the ?81FB9,3 $H T@8
1@,9,11,<86 or an! of its po'itica' sub%i&isions ecept
(hen the beneficia' use thereof has been grante% for
consi%eration or other(ise to a taab'e personD
*2+ 3@A?,TAB98 ,<6T,TFT,$<6- churches-
parsonages or con&ents appurtenant thereto- mosEues- non0
profit or re'igious cemeteries- an% a'' 'an%s- bui'%ings- an%
impro&ements actua''!- %irect'! an% ec'usi&e'! use% for
re'igious- charitab'e or e%ucationa' purposesD
*3+ A'' machineries an% eEuipment that are actua''!-
%irect'! an% ec'usi&e'! use% b! 9$3A9 WAT8?
FT,9,T,86 an% go&ernment0o(ne% or contro''e%
corporations engage% in the supp'! an% %istribution


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

of (ater an%Lor generation an% transmission of
e'ectric po(erD
*4+ A'' rea' propert! o(ne% b! %u'! ?85,6T8?82
3$$18?AT,:86 as pro&i%e% for un%er ?.A. 6938D an%
(,) >achiner! an% eEuipment use% for
9C??ET6CN CNT#C? an% 4N26#CN84NTA?
9#CT4T6CN.
TARI(( AND CUSTOMS DUTIES
*ustoms: 9Flexible Tari(( *lause: (%&&1)
What %o !ou un%erstan% b! the term "f'eib'e tariff
c'ause" as use% in the Tariff an% 3ustoms 3o%e# *54+
S=77ESTED A9SWER$ The term "flexible tariff
cla%se "refers to the authorit! gi&en to the 1resi%ent to
a%7ust tariff rates un%er 6ection 401 of the Tariff an%
3ustoms 3o%e- (hich is the enab'ing 'a( that ma%e
effecti&e the %e'egation of the taing po(er to the
1resi%ent un%er the 3onstitution.
N9ote) 6t is suggested that if the examinee cites
the entire provision of +ec. !'$ of the Tariff L,
ustoms ode, he should also be given full
credit.O
*ustoms: Aministrati!e !s" Iuicial 5emeies (1998)
The Tariff an% 3ustoms 3o%e a''o(s the Bureau of
3ustoms to resort to the a%ministrati&e reme%! of sei/ure-
such as b! enforcing the ta 'ien on the importe% artic'e-
an% to the 7u%icia' reme%! of fi'ing an action in court.
When %oes the Bureau of 3ustoms norma''! a&ai' itse'fD
*a+ of the a%ministrati&e- instea% of the 7u%icia'
reme%!- or
*b+ of the 'atter- instea% of the former-
reme%!#
SUGGESTED ANSWER)
*a+ The Bureau of 3ustoms norma''! a&ai's itse'f of the
A2>,<,6T?AT,:8 ?8>82; of sei/ure- such as b!
enforcing the ta 'ien on the importe% artic'es- instea% of
the 7u%icia' reme%! (hen the goo%s to (hich the ta 'ien
attaches- regar%'ess of o(nership- is sti'' in the custo%! or
contro' of the 5o&ernment. ,n the case- ho(e&er- of
importations (hich are prohibite% or un%ec'are%- the
reme%! of sei/ure an% forfeiture ma! sti'' be eercise% b!
the Bureau of 3ustoms e&en if the goo%s are no 'onger in
its custo%!.
*b+ $n the other han%- (hen the goo%s are proper'!
re'ease% an% thus be!on% the reach of ta 'ien- the
go&ernment can see. pa!ment of the ta 'iabi'it! through
7u%icia' action since the ta 'iabi'it! of the importer
constitutes a persona' %ebt to the go&ernment- therefore-
enforceab'e b! action. ,n this case 7u%icia' reme%! is
norma''! a&ai'e% of instea% of the a%ministrati&e reme%!.
*ustoms: Im$ortation (199,)
When %oes importation begin an% (hen %oes it en%#
SUGGESTED ANSWER)
,>1$?TAT,$< begins from the time the carr!ing &esse'
or aircraft enters 1hi'ippine territoria' 7uris%iction (ith
the intention to un'oa% therein an% en%s at the time the
goo%s are re'ease% or (ith%ra(n from the customhouse
upon
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pa!ment of the customs %uties or (ith 'ega' permit to
(ith%ra( *Bid%'a +s. BerdiagoF /6 SCRA ::6+.
*ustoms: Iurisiction) SeiCure B For(eiture Proceein7s
(1996)
$n Januar! 1- 1996- arme% (ith (arrants of sei/ure an%
%etention issue% b! the Bureau of 3ustoms- members of
the customs enforcement an% securit! ser&ices coor%inate%
(ith the Kue/on 3it! po'ice to search the premises o(ne%
b! a certain >r. @o a'ong Qa'a!aan A&enue- Kue/on 3it!-
(hich a''ege%'! containe% untae% &ehic'es an% parts.
Whi'e insi%e the premises- the member of the customs
enforcement an% securit! ser&ices note% artic'es (hich
(ere not inc'u%e% in the 'ist containe% in the (arrant.
@ence- on Januar! 15- 1996- an amen%e% (arrant an%
sei/ure (as issue%.
$n Januar! 25- 1996- the customs personne' starte%
hau'ing the artic'es pursuant to the amen%e% (arrant. This
prompte% >r. @o to fi'e a case for in7unction an%
%amages (ith a pra!er for a restraining or%er before the
?egiona' Tria' 3ourt of Kue/on 3it! against the Bureau
of 3ustoms on Januar! 27- 1996. $n the same %ate- the
Tria' 3ourt issue% a temporar! restraining or%er.
A motion to %ismiss (as fi'e% b! the Bureau of 3ustoms
on the groun% that the ?egiona' Tria' 3ourt has no 7uris0
%iction o&er the sub7ect matter of the comp'aint c'aiming
that it (as the Bureau of 3ustoms that has ec'usi&e
7uris%iction o&er it. 2eci%e.
SUGGESTED ANSWER)
The motion to %ismiss shou'% be grante%. 6ei/ure an%
forfeiture procee%ings are (ithin the ec'usi&e 7uris%iction
of the 3o''ector of 3ustoms to the ec'usion of regu'ar
3ourts. ?egiona' Tria' 3ourts are %e&oi% of competence to
pass upon the &a'i%it! or regu'arit! of sei/ure an%
forfeiture procee%ings con%ucte% b! the Bureau of
3ustoms an% to en7oin or other(ise interfere (ith these
procee%ings *Rep%blic +s. CF, of 2anila KBranc&
JJ,,LF 7.R. 9o. .6/./F Septe3ber F )--( Hao +s. CAF
7.R. 9o. )!."!.F October "F )--:+.
*ustoms: Jins o( *ustom Duties (199,)
Fn%er the Tariff an% 3ustoms 3o%e- (hat
are a+ %umping %uties b+ counter&ai'ing
%uties c+ mar.ing %uties %+ %iscriminator!
%uties#
SUGGESTED ANSWER)
6+ D%3ping d%ties are specia' %uties impose% b!
the 6ecretar! of Hinance upon recommen%ation of the
Tariff 3ommission (hen it is foun% that the price of the
importe% artic'es is %e'iberate'! or continua''! fie% at
'ess than the fair mar.et &a'ue or cost of pro%uction- an%
the importation (ou'% cause or 'i.e'! cause an in7ur! to
'oca' in%ustries engage% in the manufacture or pro%uction
of the same or simi'ar artic'es or pre&ent their
estab'ishment.


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

7+ Co%nter+ailing d%ties are specia' %uties
impose% b! the 6ecretar! of Hinance upon prior
in&estigation an% report of the Tariff 3ommission to offset
an ecise or in'an% re&enue ta upon artic'es of the same
c'ass manufacture% at home or subsi%ies to foreign
pro%ucers or manufacturers b! their respecti&e
go&ernments.
8+ 2arCing d%ties are specia' %uties eEui&a'ent to
54 a% &a'orem impose% on artic'es not proper'! mar.e%.
These are co''ecte% b! the 3ommissioner of 3ustoms
ecept (hen the improper'! mar.e% artic'es are eporte%
or %estro!e% un%er customs super&ision an% prior to fina'
'iEui%ation of the correspon%ing entr!. These %uties are
%esigne% to pre&ent possib'e %eception of the customers.
9+ Discri3inator' d%ties are specia' %uties
co''ecte% in an amount not ecee%ing 1004 a% &a'orem-
impose% b! the 1resi%ent of the 1hi'ippines against goo%s
of a foreign countr! (hich %iscriminates against
1hi'ippine commerce or against goo%s coming from the
1hi'ippines an% shippe% to a foreign countr!.
*ustoms: Jins o( *ustom Duties (1998)
8p'ain brief'! each of the specia' customs %uties
authori/e% un%er the Tariff an% 3ustoms 3o%e.
SUGGESTED ANSWER)
The fo''o(ing are the Special D%ties impose% un%er the
Tariff an% 3ustoms 3o%e)
*a+ D%3ping D%t' 0 This is a %ut! 'e&ie% on
importe% goo%s (here it appears that a specific .in% or
c'ass of foreign artic'e is being importe% into or so'% or is
'i.e'! to be so'% in the 1hi'ippines at a price 'ess than its
fair &a'ueD
*b+ Co%nter+ailing D%t' 0 This is a %ut! eEua' to
the ascertaine% or estimate% amount of the subsi%! or
bount! or sub&ention grante% b! the foreign countr! on
the pro%uction- manufacture- or eportation into the
1hi'ippines of an! artic'e 'i.e'! to in7ure an in%ustr! in
the 1hi'ippines or retar% or consi%erab'e retar% the
estab'ishment of such in%ustr!D
*c+ 2arCing D%t' 0 This is a %ut! on an a% &a'orem
basis impose% for improper'! mar.e% artic'es. The 'a(
reEuires that foreign importations must be mar.e% in an!
officia' 'anguage of the 1hi'ippines the name of the
countr! of origin of the artic'eD
*%+ Discri3inator' or Retaliator' D%t' 0 This is a
%ut! impose% on importe% goo%s (hene&er it is foun% as
a fact that the countr! of origin %iscriminates against the
commerce of the 1hi'ippines in such a manner as to p'ace
the commerce of the 1hi'ippines at a %isa%&antage
compare% (ith the commerce of an! foreign countr!.
*ustoms: 5emeies o( an Im$orter (1996)
2iscuss brief'! the reme%ies of an importer %uring the
pen%enc! of sei/ure procee%ings.
sir%on%eeTgmai'.com
'1 of 73
SUGGESTED ANSWER)
2uring the pen%enc! of sei/ure procee%ings the importer
ma! secure the re'ease of the importe% propert! for
'egitimate use b! posting a bon% in an amount to be fie%
b! the 3o''ector- con%itione% for the pa!ment of the
appraise% &a'ue of the artic'e an%Lor an! fine- epenses
an% costs (hich ma! be a%7u%ge% in the caseD provided,
that articles the importation of which is prohibited by law
shall not be released under bond.
The importer ma! a'so offer to pa! to the co''ector a fine
impose% b! him upon the propert! to secure its re'ease or
in case of forfeiture- the importer sha'' offer to pa! for the
%omestic mar.et &a'ue of the sei/e% artic'e- (hich offer
sub7ect to the appro&a' of the 3ommissioner ma! be
accepte% b! the 3o''ector in sett'ement of the sei/ure
case- ecept (hen there is frau%. Fpon pa!ment of the
fine or %omestic mar.et &a'ue- the propert! sha'' be
forth(ith re'ease% an% a'' 'iabi'ities (hich ma! or might
attach to the propert! b! &irtue of the offense (hich (as
the occasion of the sei/ure an% a'' 'iabi'it! (hich might
ha&e been incurre% un%er an! bon% gi&en b! the importer
in respect to such propert! sha'' thereupon be %eeme% to
be %ischarge%.
*ustoms: 5eturnin7 5esients: TouristGTra!elers (%&&2)
A an% his (ife- ;- Hi'ipinos 'i&ing in the 1hi'ippines- (ent
on a three0month p'easure trip aroun% the (or'% %uring
the months of June- Ju'! an% August 2002. ,n the course
of their trip- the! accumu'ate% some persona' effects
(hich (ere necessar!- appropriate an% norma''! use% in
'eisure trips- as (e'' as sou&enirs in non0commercia'
Euantities. Are the! "returning resi%ents" for purposes of
6ection 105 of the Tariff an% 3ustoms 3o%e# 8p'ain.
*84+
SUGGESTED ANSWER)
<o. The term "returning resi%ents" refers to nationa's
(ho ha&e sta!e% in a foreign countr! for a perio% of at
'east si *6+ months. (+ection $',(f) of the Tariff and
ustoms ode). 2ue to their 'imite% %uration of sta!
abroa% A an% ; are not consi%ere% as "returning
resi%ents" but the! are mere'! consi%ere% as tra&e'ers or
tourists (ho en7o! the benefit of con%itiona''! free
importation.
ANote: redit must li>ewise be given if the candidate
answered in the affirmative, considering that travelers
or tourists are given the same tax treatment as that of
returning residents, treating their personal effects, not
in commercial 7uantities, as conditionally free
importation.@
*ustoms: SeiCure B For(eiture: #((ects (199')
,n smugg'ing a shipment of gar'ic- the smugg'ers use% an
eight0(hee'er truc. (hich the! hire% for the purpose of
ta.ing out the shipment from the customs /one. 2ann!-
the truc. o(ner- %i% not ha&e a certificate of pub'ic
con&enience to operate his truc.ing business. 2ann! %i%
not .no( that the shipment of gar'ic (as i''ega''!
importe%. 3an the 3o''ector of 3ustoms of the port sei/e
an% forfeit the truc. as an instrument in the smugg'ing#
SUGGESTED ANSWER)
;es- the 3o''ector of 3ustoms of the port can sei/e an%
forfeit the truc. as an instrument in the smugg'ing
acti&it!- since the same (as use% un'a(fu''! in the
importation of


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

smugg'e% artic'es. The mere carr!ing of such artic'es on
boar% the truc. *in commercia' Euantities+ sha'' sub7ect
the truc. to forfeiture- since it (as not being use% as a
%u'! authori/e% common carrier- (hich (as chartere% or
'ease% as such. *6ec. 2530 NaO- T33+
>oreo&er- a'though forfeiture of the &ehic'e (i'' not be
effecte% if it is estab'ishe% that the o(ner thereof ha% no
.no('e%ge of or participation in the un'a(fu' act- there
arises a prima facie presumption or .no('e%ge or
participation if the o(ner is not in the business for (hich
the con&e!ance is genera''! use%. Thus- not ha&ing a
certificate of pub'ic con&enience to operate a truc.ing
business- he is 'ega''! %eeme% not to ha&e been engage% in
the truc.ing business. (+ec. %,5$, Tariff and ustoms
ode)
*ustoms: Ste$s in!ol!in7 Protest *ases (199')
The 3o''ector of 3ustoms institute% sei/ure procee%ings
against a shipment of motor &ehic'es for ha&ing been
mis%ec'are% as secon%0han% &ehic'es. 6tate the proce%ure
for the re&ie( of the %ecision up to the 6upreme 3ourt of
the 3o''ector of 3ustoms a%&erse to the importer.
SUGGESTED ANSWER)
The proce%ure in sei/ure cases ma! be summari/e% as
fo''o(s)
*a+ The co''ector issues a (arrant for the %etention
or forfeiture of the importe% artic'esD *6ec. 2301- Tariff
an% 3ustoms 3o%e+
*b+ The 3o''ector gi&es the importer a (ritten notice
of the sei/ure an% fies a hearing %ate to gi&e the
importer an opportunit! to be hear%D *6ec. 2303- T33+
*c+ A forma' hearing is con%ucte%D *6ec. 2312-
T33+ *%+ The 3o''ector ren%ers a %ec'aration of forfeitureD
*6ec. 2312- T33+
*e+ The ,mporter aggrie&e% b! the action of the
3o''ector in an! case of sei/ure ma! appea' to the
3ommissioner for his re&ie( (ithin fifteen *15+ %a!s
from (ritten notice of the 3o''ectorCs %ecisionD *6ec. 2313-
T33+
*f+ The importer aggrie&e% b! the action or ru'ing
of the 3ommissioner in an! case of sei/ure ma! appea'
to the 3ourt of Ta Appea'sD *6ec. 2402- T33+
*g+ The importer a%&erse'! affecte% b! the %ecision
of the 3ourt of Ta Appea's *2i&ision+ ma! appea' to the
3ourt of Ta Appea's *en banc+ (ithin fifteen
*15+ %a!s (hich ma! be eten%e% for another fifteen
*15+ %a!s or such perio% as the 3ourt of Ta Appea's
ma! %eci%e.
*ustoms) Basis o( Dutiable 4alue) Im$orte Article (%&&,)
6tate an% ep'ain the basis of %utiab'e &a'ue of an
importe% artic'e sub7ect to an a% &a'orem ta un%er the
Tariff an% 3ustoms 3o%e.
ATERNATI&E ANSWER)
The basis of %utiab'e &a'ue of an importe% artic'e sub7ect
to an ad valorem tax un%er the Tariff an% 3ustoms 3o%e is
its T?A<6A3T,$< :A9F8. *+ec. %'$AA@, Tariff and
ustoms ode, as amended by #.A. No. )$5,) ,f such
&a'ue cou'% not be %etermine%- then the fo''o(ing &a'ues
are to be uti'i/e% in their seEuence) Transaction +al%e of
identical goods (+ec. %'$A3@): Transaction +al%e of
sir%on%eeTgmai'.com
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si3ilar goods (+ec. %'$A@): Ded%cti+e +al%e (+ec.
66.4.$, A.C. No. !.%''!): Co3p%ted +al%e *+ec., 66.<.l,
.A.C. No. $.%''!'+ an% FallbacC +al%e. *+ec. %'$A<@+
ATERNATI&E ANSWER)
The basis of %utiab'e &a'ue of an importe% artic'e sub7ect
to an a% &a'orem ta un%er the Tariff an% 3ustoms 3o%e
is its transaction &a'ue- (hich sha'' be the price actua''!
pai% or pa!ab'e for the goo%s (hen so'% for eport to the
1hi'ippines- a%7uste% b! a%%ing certain cost e'ements to
the etent that the! are incurre% b! the bu!er but are not
inc'u%e% in the price actua''! pai% or pa!ab'e for the
importe% goo%s. (+ec. %'$AA@, Tariff and ustoms ode,
as amended by #.A. )$5,)
,f such &a'ue cou'% not be %etermine%- then the fo''o(ing
&a'ues are to be uti'i/e% in their seEuence) Transaction
&a'ue of i%entica' goo%s *6ec. 201NBO+D Transaction &a'ue
of simi'ar goo%s *6ec. 201N3O+D 2e%ucti&e &a'ue *6ec.
,,.8.1- 3A.$. <o. 402004+D 3ompute% &a'ue *6ec. ,,.H.'-
3.A.$. <o. 1020040+ an% Ha''bac. &a'ue. *6ec. 201NHO+
*ustoms) *ounter!ailin7 Duty !s" Dum$in7 Duty (%&&,)
2istinguish counter&ai'ing %ut! from %umping %ut!. *54+
SUGGESTED ANSWER)
The %istinctions bet(een counter&ai'ing %ut! an% %umping
%ut! are the fo''o(ing)
*1+ Basis) The counter&ai'ing %ut! is impose% (hene&er
there is grante% upon the importe% artic'e b! the countr!
of origin a specific subsi%! upon its pro%uction-
manufacture or eportation an% this resu'ts or threatens
in7ur! to 'oca' in%ustr! (hi'e the basis for the imposition
of %umping %ut! is the importation an% sa'e of importe%
items at be'o( their norma' &a'ue causing or 'i.e'! to
cause in7ur! to 'oca' in%ustr!.
*2+ Amount) The counter&ai'ing %ut! impose% is
eEui&a'ent to the &a'ue of the specific subsi%! (hi'e the
%umping %ut! is eEui&a'ent to the margin of %umping
(hich is eEua' to the %ifference bet(een the eport price
to the 1hi'ippines an% the norma' &a'ue of the importe%
artic'e.
*ustoms) Taxability) Personal #((ects (%&&,)
Jacob- after ser&ing a 50!ear tour of %ut! as mi'itar!
attache in Ja.arta- returne% to the 1hi'ippines bringing
(ith him his persona' effects inc'u%ing a persona'
computer an% a car. Wou'% Jacob be 'iab'e for taes on
these items# 2iscuss fu''!. *54+
SUGGESTED ANSWER)
<o- Jacob is not 'iab'e for taes on his persona' computer
an% the car because he is ta0eempt b! 'a(. @e has met
the fo''o(ing reEuirements for eemption un%er 1.2. <o.
922 *1976+) a+ @e (as a mi'itar! attache assigne% to
Ja.artaD b+ @e has ser&e% abroa% for not 'ess than t(o
*2+ !earsD c+ @e is returning to the 1hi'ippines after
ser&ing his tour of %ut!D an% %+ @e has not a&ai'e% of the
ta eemption for the past four *4+ !ears.
@e is entit'e% to ta eemption on his persona' an%
househo'% effects inc'u%ing a carD pro&i%e%-


Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

a+ The car must ha&e been or%ere% or purchase%
prior to the receipt b! the 1hi'ippine mission or consu'ate
in Ja.arta of JacobCs reca'' or%erD
b+ the car is registere% in JacobCs nameD c+ the eemption
sha'' app'! to the &a'ue of the carD %+ the eemption sha''
app'! to the aggregate &a'ue of
his persona' an% househo'% effects *inc'u%ing the
persona' computer+ not ecee%ing thirt! per centum
*304+ of the tota' amount recei&e% b! Jacob as
sa'ar! an% a''o(ances %uring his assignment in
Ja.arta- but not to ecee% four *4+ !earsD
e+ Jacob must not ha&e a&ai'e% of the eemption
more oftener than one e&er! four !ears. *?ast par., +ec.
$',, Tariff and ustoms ode+
OT$ER REATED MATTERS
BI5: Ban. De$osits Secrecy 4iolation (%&&&)
A tapa!er is suspecte% not to ha&e %ec'are% his correct
gross income in his return fi'e% for 1997. The eaminer
reEueste% the 3ommissioner to authori/e him to inEuire
into the ban. %eposits of the tapa!er so that he cou'%
procee% (ith the net (orth metho% of in&estigation to
estab'ish frau%. >a! the eaminer be a''o(e% to 'oo. into
the tapa!erCs ban. %eposits# ,n (hat cases ma! the
3ommissioner or his %u'! authori/e% representati&e be
a''o(e% to inEuire or 'oo. into the ban. %eposits of a
tapa!er# *54+
SUGGESTED ANSWER)
<o. as this (ou'% be &io'ati&e of ?epub'ic Act <o. 1405-
the Ban. 2eposits 6ecrec! 9a(. The 3ommissioner of
,nterna' ?e&enue or his %u'! authori/e% representati&e
ma! be a''o(e% to inEuire or 'oo. into the ban. %eposits
of a tapa!er in the fo''o(ing cases) a+ Hor the purpose of
%etermining the gross estate of a
%ece%entD
b+ Where the tapa!er has fi'e% an app'ication for
compromise of his ta 'iabi'it! b! reason of financia'
incapacit! to pa! such ta 'iabi'it!. *6ec. 6 *H+- <,?3 of
1997O
sir%on%eeTgmai'.com
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c+ Where the tapa!er has signe% a (ai&er
authori/ing the 3ommissioner or his %u'!
authori/e% representati&es to ,nEuire into the ban.
%eposits.
BI5: Secrecy o( Ban. De$osit +aw (%&&2)
A %ies in !ear 2000 'ea&ing a ban. %eposit of
12-000-000.00 un%er 7oint account (ith his associates in a
'a( office. 9earning of ACs %eath from the ne(spapers- the
3ommissioner of ,nterna' ?e&enue (rote to e&er! ban. in
the countr! as.ing them to %isc'ose to him the amount of
%eposits that might be outstan%ing in his name or 7oint'!
(ith others at the %ate of his %eath. >a! the ban. ho'%ing
the %eposit refuse to comp'! on the groun% of the 6ecrec!
of Ban. 2eposit 9a(# 8p'ain. *84+
SUGGESTED ANSWER)
<o. The 3ommissioner of ,nterna' ?e&enue has the
authorit! to inEuire into ban. %eposit accounts of a
%ece%ent to %etermine his gross estate not(ithstan%ing the
pro&isions of the Ban. 6ecrec! 9a(. @ence- the ban.s
ho'%ing the %eposits in Euestion ma! not refuse to %isc'ose
the amount of %eposits on the groun% of secrec! of ban.
%eposits. *6ection 6*H+ of the 1997 Ta 3o%e+. The fact
that the %eposit is a 7oint account (i'' not prec'u%e the
3ommissioner from inEuiring thereon because the 'a(
man%ates that if a ban. has .no('e%ge of the %eath of a
person- (ho maintaine% a ban. %eposit account a'one- or
7oint'! (ith another- it sha'' not a''o( an! (ith%ra(a'
from the sai% %eposit account- un'ess the 3ommissioner
has certifie% that the taes impose% thereon ha&e been
pai%. *6ection 97 of the 1997 Ta 3o%e+. @ence- to be ab'e
to gi&e the reEuire% certification- the inc'usion of the
%eposit is imperati&e- (hich ma! be ma%e possib'e on'!
through the inEuir! ma%e b! the 3ommissioner.