2013 BAR REVIEW QUESTIONS ON TAXATION

A. GENERAL PRINCIPLES

1. Constitutionality of a law (British American Tobacco v. CIR) or a regulation (Fortune Tobacco Corp v. CIR
[2013])
2. Prospective application of laws or non-retroactivity of rulings (Sec. 246)
a. RR 12-2013, July 12, 2013 EWT on income payments as condition for deductibility of business
expense

B. INCOME TAX AND WITHHOLDING TAX (TITLE II)

3. Requisites to impose income tax: there is income, received/realized during the year, and no law
exempts it from tax; income tax does not apply to return of capital; taxation is the rule; exemption,
the exception. Income tax is imposed on recipient of income.
4. Global tax (income is taxable but not subject to FWT; Formula: GS-COS=GI-D/PAE=NTI) vs.
schedular tax systems (subject to FWT) [Secs. 24-28, 57(A), NIRC]
5. Taxation on gross income (without deductions) vs. net income (gross income less deductions) [Secs.
32, 24-28, 33, 61, NIRC]
6. Final withholding tax (based on higher between GSP or FMV, on net capital gain, or on gross
income; amount withheld is equal to income tax due) vs. creditable withholding tax (Secs. 57-58, NIRC)
7. Capital asset vs. ordinary asset (inventory, stock in trade, fixed assets and real property used in
business) [Sec 39A, NIRC]
8. Kinds of income taxes ordinary income tax, RCIT/MCIT, capital gains tax, tax on tax on PII, FBT,
IAET, BPRT, GPB/OBU/ROHQ, etc; no income or gain, no income tax, except in CGT on sale of
real property classified as capital asset, located in the Phil by a person who is not a foreign
corporation (Secs. 24-28, 33, NIRC)
9. General principles: All taxpayers, except resident citizens and domestic corporations who are taxed
on worldwide income, are taxed only on their income from sources within the Phil (Sec. 23, NIRC)
10. Kinds of taxpayers individuals/estates & trusts and corporations/partnerships (Secs. 23, 24-28 & 30,
NIRC)
a. Citizens (resident or non-resident immigrant, permanent worker, or OFW [+183 days)
b. Aliens NRAE: more than 180 days; NRANE: 180 days or less stay in the Phil
c. Domestic corporations organized under Phil laws
d. Foreign corporations organized under foreign law
e. Subsidiary v. affiliate corporation
f. Branch of Phil corporation vs. branch of foreign corporation [Sec. 28(A)(5)]
g. Exempt partnerships GPP & JV construction or energy
h. Taxable partnerships (general or special/preferential); profit earned during the year is deemed
distributed during the same year
11. Exclusions from gross income and exempt corporations; income from real property or any
activity conducted for profit is taxable (YMCA v. CIR; St. Lukes Hospital v. CIR; Sec. 32, 30, NIRC); non-

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 stock, non-profit private educational institutions are exempt from tax, provided income/assets are
used actually, directly and exclusively for educ purposes.
12. Types of incomes CI/FB (E-ER), B/PI (No E-ER), CG, PII, and OI
13. Kinds of compensation income salaries/directors fee (Sec. 24-25) vs. fringe benefits - - ranks and
file v. managerial/supervisory employees (Sec. 33, NIRC)
14. Sources of incomes interest, dividend, royalty, services, sale of property (goods or immovable),
shares of stocks (domestic or foreign corporation) [Sec. 42, NIRC]
15. Computation of gain or profit AR/GSP less C/AB = G/(L) [Sec. 40, NIRC]
16. Kinds of deductions itemized or standard (individual [40% x GS/GR] or corporation) [40% x GI]
(Sec 34, NIRC)
17. Conditions for deductibility of deductions; CWT on business expenses
18. Deductions with limitations (Rep exp; char contributions) or without limitations but subject to test of
reasonableness and supported by adequate receipts/invoices
19. Personal (P50,000) and additional (P25,000 per child) exemptions; status at the end of the year
rule (Sec. 35, NIRC)
20. Non-deductible expenses (Sec. 36, NIRC)
21. Period to report income and deductions/tax credits (Secs. 44-45, NIRC)
22. Methods of accounting cash, accrual, installment (initial payments do not exceed 25% of GSP),
POC or crop year method
23. Tax-free exchanges merger/consolidation and exchange of property for shares of stocks, resulting
in control over the corporation

C. TRANSFER TAXES (TITLE III)

24. Who is the decedent? Citizen or alien resident or non-resident

25. Assets that form part of his gross estate? Property at time of death
26. Use of fair market value at time of death Real property, shares of stocks, etc.
27. Exclusive and conjugal/absolute property to determine SSS
28. Deductions from gross estate with limitations; non-cash; SSS; vanishing deduction
29. Gross gift vs. net gift
30. Members of the family (direct ascending or descending line up to 4th civil degree by
consanguinity); taxable at graduated rates up to 15% vs. stranger, 30% of net gift
31. Cumulative computation of donors tax on donations during the calendar year
D. VAT/OPT (TITLE IV & V)

32. Transaction subject to VAT (Title IV) cannot be made liable to OPT (Title V), or vice versa [Sec
109(E)] ; taxation of incidental activity/income follows the principal activity/income
33. Isolated transaction (e.g., sale of motor vehicle) may also be incidental transaction made in the
course of trade or business subject to VAT; sale of ordinary real property by a VAT-registered
person is subject to VAT.
34. VAT is an indirect tax, which may be passed on by the seller to the buyer (Sec. 105, NIRC). When
VAT is passed on by the VAT-registered seller to a VAT-registered buyer, it is output tax to the
seller and input tax to the buyer. It cannot be expensed and deducted from gross income, after the

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 lapse of two years to file claim for refund. When the sale is made to a VAT-exempt person, the
VAT loses its character as a VAT and becomes a part of cost or expense to the buyer.
35. VAT is a tax on consumption in the Phil; for service, consumption takes place where the service is
performed; for goods, consumption takes place in its location.
36. The Phil adopted the invoice method in computing VAT; OT less IT = VAT Payable/(Excess
Input Tax)
37. There is no cascading (tax on tax) under the VAT system
38. Sale of taxable goods or service is liable to VAT, even if the sale results in a loss
39. Sale of goods must be in the course of trade or business, but for importation of taxable goods, it is
always subject to VAT
40. To be subject to VAT, gross sales or gross receipts for the preceding 12 months must exceed
P1,919,500, except where the person registered as a VAT person or issued erroneously a VAT
invoice or receipt
41. Another set of requirements is necessary for sale of real property; sale of real property on installment
may be allowed under the VAT law; sale of goods on credit is subject to VAT
42. Goods or property must be located within the Philippines
43. Taxable base for sale of goods is gross selling price (accrual method), but tax base for sale of
service is gross receipts (cash method). In installment sale of real property where initial payments
do not exceed 25% of GSP, tax base is only the amount collected; if initial payments exceed 25% of
GSP, consider the transaction as a cash sale, where the entire GSP is reported for VAT purposes.
44. Deposits and advance payments are part of gross receipts of seller of services
45. Definition of sale or exchange of service
46. Sale of service by a non-resident person in the Phil is liable to VAT, if more than P1,919,500.
47. Exempt transactions basic goods and services; equivalent to partial tax exemption
a. Threshold per transaction for sale or lease of realty vs. general threshold for all other exempt
transactions
48. Zero-rated transactions automatic or effectively zero-rated; equivalent to full tax exemption;
input tax may be recovered from BIR by way of refund or TCC
49. PEZA and SBMA are treated as foreign territories by fiction of law (Seagate v. CIR; Toshiba v.
CIR)
50. Input taxes TIT, PIT, CIT (local purchase or importation); TIT is available to a person not only on
land improvements but also on land itself (FBDC v. CIR)
51. Remedies for unused input taxes on zero-rated sales Carry-over, refund or tax credit; counting
of two year period (from close of taxable quarter) and filing of administrative and judicial claims
(120 days from submission of complete documents + 30 days rule); Sec. 204 and 299 are
available only for erroneously or illegally paid taxes, not on excess input taxes on zero-rated sales
(San Roque Power v. CIR; Philex Mining v. CIR)
52. Registration and invoicing requirements are very important under the VAT law. Non-registration
does not exempt taxpayer from VAT, if general threshold exceeded; no input tax is allowed for non-
VAT-registered persons, as penalty.
53. VAT or 3% percentage tax (non-VAT person and exempt from VAT because general threshold of
P1,919,500 is not met); if exemption from VAT is due to other letters in Sec 109, no 3% percentage
tax or VAT is due.

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E. REMEDIES UNDER THE NIRC

54. Power to interpret Tax Code provisions, subject to appeal to DOF Secretary
55. Power to decide tax assessment cases and claims for refund/credit, subject to appeal to CTA (Sec
4, NIRC)
56. Power may be delegated to subordinate officials not lower than a division chief; powers that may
not be delegated (Sec 7, NIRC)
57. Power to inquire into bank deposits of taxpayers (Sec 5, NIRC)
58. Power to audit books and records of taxpayers; books must be kept within 3 years from date of last
entry (Sec 6, NIRC)
59. Power to assess deficiency taxes 3/10 years from filing of return or from date of discovery, as the
case may be (Sec. 203 & 222, NIRC)
60. PAN when mandatory and when not required (CIR v. Metro Star Superama)
61. Reply to PAN
62. FAN/DL date of mailing and release is important; need not be received by TP
63. Protest request for reconsideration or request for reinvestigation must be filed within 30
days from date of receipt
a. Differences between request for reconsideration and reinvestigation (Royal Bank of Scotland v. CIR)
64. Supplemental Protest filed within 60 days from filing of protest (Sec. 228, NIRC)
65. Administrative protest to CIR available, when denial of protest is made by a subordinate official (RR
12-99)
66. Denial of protest direct (FDDA) or indirect (Final notice before seizure, WDL)
67. Motion for reconsideration to CIR on his FDDA does not suspend period to appeal to CTA
(Fishwealth Canning v. CIR)
68. Filing of petition for review by TP with CTA without FDDA is generally premature, but see SC
decision on Allied Banking v. CIR.
69. Option to file petition with CTA of taxpayers within 30 days from denial of protest or from lapse
of 180-day period after filing protest; inaction of CIR on protest within 180 days from date of protest
is deemed a denial (Lascona Land Co v CIR).
70. Jurisdiction CTA (P1 M or more basic tax) and RTC (Less than P1 M basic tax) [RA 9282 (2004)]
71. A person found guilty of criminal offense is not liable for civil/tax liability, where the BIR did not
follow the procedures prescribed in RR 12-99, regarding issuance of assessment notice (People v.
Mendez)

F. LOCAL BUSINESS TAXES AND REALTY TAX

72. Fundamental principles on local business taxes UEP-UCR-CIP-EH

73. Common limitations on LGUs IDECC+ABEP/VT+RRECG
74. Taxes imposable by provinces, municipalities and cities
75. Effectivity of tax ordinances
76. Tests of valid ordinance
77. Appeal to Secretary of Justice

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78. Tax bases gross revenue (sale of goods) or gross receipts (sale of service) (Ericsson Telecom v.
Pasig, 2007)
79. Situs of tax head office and branch; project office, factory, plant and plantation
80. Remedies of LGUs to collect tax administrative and/or judicial action
81. Prescriptive periods to assess and collect
82. Remedies of taxpayers prior to assessment or after assessment
83. Real property taxes Basic tax: 1% (Prov) or 2% (City or Mun in MMA) plus 1% SEF and 5%
annual idle tax
84. Liability for RPT is determined by law and not by (BOT) agreement of the parties. Tax exemption is
not transferable. NPC is not the actual, direct and exclusive user of the barge. At end of 15 years,
ownership over the barge is transferred to NPC (NPC v. CBAA, LBAA-Union)
85. RP exempt from tax RP-Charitable-LWD/GOCC-water & electric/coop/pollution and
environmental protection; exemption based on ownership, character, or usage
86. Instrumentality v. GOCC (MIAA v. Paranaque/Pasay)
87. If instrumentality leases land to private entity, it becomes subject to RPT. However, being
property of public dominion, it cannot be sold at public auction (Phil Fisheries Dev Auth v. Iloilo;
Lung Center v. QC Assessor)
88. LRTA v. CBAA Unlike public roads which are open for use by everyone, the rails are accessible
only to those who pay the required fare. Altho LRTA is public utility, it is profit earning and does
not exist solely for public service.
89. City Assessor of Cebu v. Asso of Benevola de Cebu Charging rentals for the offices used by its
accredited physicians cannot be equated to a commercial venture. CHHMAC is only for accredited
doctors; it is practical necessity to recoup investment and to maintain building; net income does not
inure to benefit of private person.