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TAXATION intent to evade the payment of taxes, fees or
(MOCK BAR EXAMINATION 2018)
I.
a. Can you deduct capital losses from ordinary
gains? Explain. (2%)
Suggested Answer:
No. Capital losses can be deducted only from or to
the extent of Capital gains. Section 39[C]
Losses incurred from the sale, exchange or other
dispositions of capital assets are not allowed as
deductions from gross income. The reason is that
capital losses are not allowed to be deducted from
ordinary income because the capital assets did not
help earn the ordinary income.
b. Can you deduct ordinary losses from capital
gains? Explain. (2%)
Suggested Answer:
Ordinary losses are deductible from capital gains
but net capital loss cannot be deducted from
ordinary gain or income. This rule applies to both
individual and corporate taxpayers. Sec. 39.
c. Enumerate and discuss the statute of limitations
under the following tax
statutes: (6%)
(1) RA 8424 NIRC, (2) RA 7160 Local Government
Code (3) PD 1464 Tariff and Customs Code.
Suggested Answers:
The general rule is that: taxes do not
prescribe.
Exception: when the tax law provide for prescription
a) RA 8424 NIRC
Three (3) year period for assessment and collection
or within three (3) years without assessment. Is protest required?
Sec. 203 and 222 provide for three (3) years
prescriptive period for assessment and collection in
the case where the return filed is not false,
fraudulent but with deficiency and also within three
(3) years to collect in case of no prior assessment
has been made. The three (3) year period is
reckoned from the last day prescribed by law for the
filing of the return, which is April 15 every year. In
case where the return is filed beyond the period
prescribed by law, the three–year period shall be
counted from the day the return was filed. A return
filed before the last day prescribed by law shall be
considered as filed on such last day.
Caveat: No proceeding in court without assessment CJH DEVELOPMENT CORPORATION, vs.BUREAU OF
for the collection of such taxes shall begin after the INTERNAL REVENUE, BUREAU OF CUSTOMS, and
expiration of such period.
b) As far as local taxes are concern, refer to 2008
RA 7160 Local Government Code.
Sections 194 and 270 provide for Collection and
Assessment of local taxes.
Local taxes, fees, or charges shall be assessed Real Property tax- Protest in writing is required
within five (5) years from the date they became within 30 days from payment
due; 10 years from the discovery in case of fraud or
charges. No action for collection of such taxes, fees
or charges, whether administrative or judicial shall
be instituted after the expiration of such period
Local taxes, fees or charges may be collected within
five (5) years fro the date of assessment by
administrative or judicial action. No such action shall
be instituted after the expiration of said period.
The running of prescriptive periods shall be
suspended for the time during which;
1. The treasurer is legally prevented from
making the assessment or collection;
2. taxpayer requests for a reinvestigation and
executes a waiver in writing before
expiration of the period within which to
assess or collect; and
3. taxpayer is out of the country or otherwise
cannot be located.
Custom duties under the Tariff and Customs
Code PD 1464
Sec. 1603 provides for one (1) year statute of
limitations as far as custom duties.
Additional instructions:
When does importation begin and terminate?
Importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines with
the intention to unload therein. Importation is
deemed terminated upon payment of the duties,
taxes and other charges due upon the articles, or
secured to the paid, at a port of entry and the legal
permit for withdrawal shall been granted, or in case
said articles are free of duties, taxes and other
charges, until they have legally left the jurisdiction
of the customs. (Sec. 1202) The duties , taxes fees
and pother fees must be paid in full.
RA 8424, No protest is required for filling a written
claim for refund, protested or not claim for refund
may be made. Read Sec, 229.
Custom duties – Yes, it is required under 2308 within
15 days from a ruling or decision of the Collector of
Customs at a port of entry. Protest must be in
writing, setting forth the objection to the ruling or
decision in question together with the reasons
thereof.
No protest shall be considered unless payment of
the amount due after final liquidation has first been
made.
DISTRICT COLLECTOR OF CUSTOMS EDWARD O.
BALTAZAR, G.R. No. 172457 December 24,
Local Government Code
Local tax – No protest required
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II.
What is the importance of prior assessment?
(2%)
Suggested Answer:
The rule is that, if prior assessment has been made,
the BIR may resort to the administrative or judicial
remedies in the collection of taxes. If no prior
assessment has been made, the BIR may only resort
to judicial remedies.
Define Willful blindness Doctrine in Taxation.
(3%)
Suggested Answers:
“Willful blindness” is defined in Black’s Law
Dictionary as “deliberate avoidance of knowledge of
a crime, especially by failing to make a reasonable
inquiry about suspected wrongdoing, despite being
aware that it is highly probable.” A “willful act” is
described as one done intentionally, knowingly and
purposely, without justifiable excuse.
“Willful” in tax crimes means voluntary, intentional
violation of a known legal duty, and bad faith or bad
purpose need not be shown. It is a state of mind
that may be inferred from the circumstances of the
case; thus, proof of willfulness may be, and usually
is, shown by circumstantial evidence alone.
Therefore, to convict the accused for willful failure to
file ITR or submit accurate information, it must be
shown that the accused was (1) aware of his/her
obligation to file annual ITR or submit accurate
information, but that (2) he/she, or his/her supposed
agent, nevertheless voluntarily, knowingly and
intentionally failed to file the required returns or
submit accurate information. Bad faith or intent to
defraud need not be shown.
People v. Gloria Kintanar (CTA EB Crim. No. 006,
Dec. 3, 2010)
III.
Define Cross Border Doctrine and Destination
Principle in VAT System. (3%)
Cross Border Doctrine and Destination Principle,
the VAT implications are that "no VAT shall be
imposed to form part of the cost of goods
destined for consumption outside of the
territorial border of the taxing authority" Sec.2
RMC No. 74-99, cited in the case of Coral Bay
Nickel Corp. v. CIR , G.R. No. 190506 March 29,
2009.
IV.
Explain the principle of mobilia sequuntur The genera rule is that tax exemptions are
personam in income taxation? (2%)
Suggested answer:
The principle of mobilia sequuntur persnam( Lat.
Property follows the person) in income taxation
refers to the principle that situs of taxation of
intangible personal property follows the
domicile of the owner who shall be subject to
the tax.
This rule proceeds from the theory that
intangibles do not admit of an actual location
and may easily be transferred from one place to
another so that the possibility of escaping taxes
is great, thus needing a fixed situs for taxation.
Wells Fargo v. Collector 40 OG 159.
V.
What are the remedies for the collection of
delinquent taxes? (2%)
Suggested answer:
a) by distraint of all personal property or levy
of real property belonging to the taxpayer;
and
b) by civil or criminal action
VI.
What is an assessment? (2%)
Suggested answer:
With special reference to internal revenue
taxes, an assessment is merely a notice to the
effect that the amount stated therein is due as
tax and a demand for the payment thereof. It is
not an action or proceeding for the collection of
taxes. It is a step preliminary, but essential to
warrant of distraint, if still feasible, and also to
establish a cause for judicial action as the
phrase is used ub Section 316 (now Section 218
1
) of the revenue Code.
Alhambra Cigar & Cigarette Mfg. Co.
vs. Collector, 105 Phil.1337; Estate of Maria Lim
Vda. De Uy vs. Pacita Uy, O.G. 5261)
VIII.
What is the rule as to the grant, withdrawal or
revocation of tax exemption? Are tax exemptions
revocable or irrevocable? (5%)
Suggested answer:
Since taxation is the rule and exemption is the
exception, generally tax exemptions granted to all
persons can be withdrawn at the pleasure of the
taxing authority. The only exception to this rule is
where the exemption was granted to private parties
based on material consideration of a mutual nature,
which becomes contractual and is thus covered by
the non-impairment clause.
revocable, the only exemption is that when it is
granted for valuable consideration which partakes
of the nature of a contract.
1
The right to collect the tax by judicial action is suspended once
Warrant of Distraint or Levy (WDL’s) are issued (or served) upon
the taxpayer pursuant to the SC decision. ( Advertising Assoc.
Inc. vs. CIR, G.R. No. 59758 Dec 26, 1984)
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Tax exemption granted for valuable consideration, is
deemed to partake of the nature of a contract and
the obligation thereof is protected against
impairment. Read Casanova v. Hord 8 Phil.125.
Tax exemptions are either constitutional or
statutory. The constitutional exemption from taxes
is provided in Article VI, Sections 22(3), and 28(3).
Statutory exemptions are granted in the discretion
of the legislature, subject to this constitutional
restriction that “no law granting any tax exemptions
shall be passed without the concurrence of a
majority of all members of Congress.2
1. Are the insurance premiums paid by XYZ
Corporation on the two (2) insurance policies
tax deductible?
2. Will the insurance proceeds received by XYZ
Corp. be treated as income? How about on
the part of the wife?
3. Will insurance proceeds from part of the
gross estate of Mr. de la Cruz?
4. Determine the taxable gross estate of Mr.
Juan de la Cruz? (10%)
Suggested Answers:
1.
The insurance premiums paid by XYZ Corp. on the
policy that designates the wife of Mr. de la Cruz as
beneficiary is a deductible item from the gross
income as ordinary and necessary expenses.

The insurance premiums paid on the policy wherein

the corporation itself is designated as beneficiary
IX. are not deductible. (Sec.36[A][4],NIRC)
In the absence of, failure, or refusal of taxpayers to
present their accounting records, or when the 2.
records from taxpayer are not forthcoming, records The insurance proceeds will not form part of the
are lost or reports submitted are false, incomplete, beneficiaries’ income subject to tax.
or erroneous, what is the remedy of the
Commissioner in assessing deficiency tax? (3%) The rule is for purposes of exclusion from gross
income of insurance proceeds, the beneficiary
Suggested answer: designated is immaterial. Whether the beneficiary
designated is the family, estate of the employee or
The Commissioner or revenue officer shall the employer, insurance proceeds is excluded.
determine/assess the deficiency tax using the best
evidence obtainable. The insurance proceeds are in the form of indemnity
and will not form part of the gross income.
[What is the presumption when the assessment of
deficiency tax is based on the Best Evidence Beneficiary designation is only material in
Obtainable? Who has the burden of proof?] determining whether the proceeds of life insurance
is to be included in the gross estate of the
“An assessment based on estimate is prima facie decedent. The rule is that if beneficiary designated
valid and lawful where it does not appear to have is revocable, the proceeds is included as part of the
been arrived at arbitrarily or capriciously. The gross estate, if irrevocable not included.
burden of proof is upon the complaining party to
show clearly that the assessment is erroneous.” 3.
Marcos vs. CA, G.R. No. 120880, June 5, 1997.
The insurance proceeds will form part of the gross
estate of Mr. Juan de la Cruz, the reason being that
the designations of beneficiary3 in both cases were
revocable.
X.
4.

XYZ Corporation obtained two (2) life Properties 1 to 5 shall be included as part of the
insurance policies for its President and CEO Mr. Juan taxable gross estate of Mr. del la Cruz.
de la Cruz. In one policy, the designated beneficiary
is XYZ Corporation and in the other policy, the wife
of Juan de la Cruz was designated as revocable
beneficiary. Premiums are paid by XYZ Corporation.
While on a business trip, Mr. Juan de la Cruz met
and accident and died. At the time of his death he
left the following properties:
1. Bank Deposits with ING Barings Bank in
Singapore and Credit Suisse in Switzerland;
2. Shares of stock of San Miguel Corp.;
3. Condominium Unit in Hilton Resort in Mactan
Lapu-Lapu City, Cebu, Philippines;
4. Residential houses in London and vacation
house in Bahamas;
5. US Treasury bonds;
2
Art. VI, Sec.28(4)
XI.
A law granting 5 years tax holiday for certain
industries and priority investments, after three
years later, the law was repealed. With the
repeal of the said law, the exemptions were
considered revoked by the BIR. Accordingly the
BIR assessed all those companies covered under
the law for taxes, effective on the date of the
repeal of the law.
Contending that the repeal of the said law
violated non-impairment clause of the
3
Albeit, the designation of beneficiary on the part of XZY Corp.
is silent, the presumption is it is revocable. Under the Insurance
Code designation of irrevocable beneficiary must be expressly
stated.
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constitution, companies and corporations who The 1987 Constitution provides that all lands,
used to enjoy the said tax holiday questioned buildings and improvements of charitable
the repeal of the said law. institutions, churches and parsonages or covenants
appurtenant thereto, mosques, non-profit
Decide the contention. (5%) cemeteries, actually, directly and exclusively used
for religious, charitable or educational purposes
Suggested answer: shall be exempt from taxation.

The contention is not tenable. The tax
exemption granted is in the nature of a
unilateral tax exemption. Since the exemption is
given is spontaneous on the part of the
legislature and no service or duty or other
remunerative conditions have been imposed on
the taxpayers receiving the exemption, it may
be revoked at will by the legislature. (Christ
Church v.Philadelphia, 24 How.300 [1860])What
constitutes an impairment of the obligation of
contracts is the revocation of an exemption
which is founded on a valuable consideration
because it takes the form and essence of a
contract. (Casanovas v. Hord, 8Phil.125); Manila
railroad Co. vs. Insular Collector of Customs, 12
Phil.146 [1915])
To what kind of tax does this exemption apply? (2%)
Is proof of actual use necessary to avail of the
exemption? (3%)
Suggested answers:
The exemption applies only to property taxes. What
is exempted is not the institution but the lands,
buildings and improvements actually, directly and
exclusively used for religious, charitable and
educational purposes. (CIR vs. CA et al., G.R. No.
124043, Oct.14,1998)
Proof is necessary. This is so because tax
exemptions are strictly construed against the
taxpayer.

XII. XIV.

A, B, C, & D, are co-owners of a 100-hectare Upon audit of the income statement of ABC Corp.
agricultural land valued at P50 million. Axle Corp. is the auditor reported a provision for bad debts in the
a domestic corporation engaged in the manufacture amount of P150.000.00. The auditor further noted
of diesel fuel using sugar cane as raw material. that the likelihood of recovery of these bad debts is
nil. Acting on the said notation, ABC Corp. write-off
Axle Corp. is interested to acquire the sugar the said bad debts and subsequently claimed a
plantation of A, B, C, &D. To minimize cash outlay deduction for bad debts written-off in its income
Axle Corp. offers to purchase the 100-hectare land statement filed on the same year. The BIR, however,
via exchange of stocks of the corporation for the disallowed the claimed deduction.
value of the said plantation. A,B,C & D are
interested but apprehensive about the tax
consequence of the transfer of their plantation, Five years after, the bad debts of P150,000.00
especially that as seller they will be liable for capital previously written off were recovered and collected
gains tax of 6% plus 1.5% of documentary stamp in full. On the same year, the BIR charges ABC Corp.
tax and other transfer taxes. for income tax for recovery of bad debts previously
written-off. The BIR contended that the recovery of
What advise will you give to A, B, C & D, in order to bad debts previously written off shall be included as
save on taxes? (5%) part of gross income in the year of recovery.

Suggested answer: Decide on the contention of the BIR. (5%)

I will advise A,B,C,& D to assign or transfer their

agricultural land to Axle Corp. in exchange of
shares of stock which would give ABC&D control of
Axle Corp. or about 51% or more of the total voting
power of all classes of stocks entitled to vote of Axle
Corp.
No gain or loss shall be recognized if property is
transferred to a corporation by a person in
exchange for stock or unit of participation in such a
corporation of which as a result of such exchange
said person, alone or together with others, not
exceeding four (4) persons, gains control (51% up)
of the said corporation. (Sec.4 ( C)2d.
Contention of the BIR is untenable. While it is true
that recovery of bad debts previously allowed, as
deduction should be reported as a taxable income
in the year of the recovery. But in this case, the BIR
disallowed the bad debts when it was written- off.
Thus ABC Corp. did not receive any benefit of the
said bad debts when it was written-off.
Under Section 34 E, 1, , the recovery of bad debts
previously allowed as deduction in the preceding
years shall be included as part of the gross income
in the year of recovery to the extent of the income
tax benefit of said deduction. This is known as tax
benefit rule.

XV.

XIII. Banks and Non-bank financial intermediaries are

subject to 20% Final Withholding Tax (FWT) on their
passive income/interest income. In addition, they
Page 5 of 6
are also subject to 5% Gross Receipt Tax (GRT) on the Court of Tax Appeal. The Court of Tax Appeals
their gross receipts, which includes their passive sustained the decision of Board. Within 15 days from
income. receipt, the export corporation filed a verified
petition for review on certiorari pursuant to Rule 45
Contending that their passive income/interest with the Supreme Court.
income has already been subjected to final
withholding tax of 20% and as such ahs been Comment on the petition. (11%)
withheld and reported/paid directly to the
government by entities from which the banks Suggested answers:
derived the income, the said passive
income/interest income should no longer form part The CTA is devoid of jurisdiction to entertain appeals
or included in the computation of gross receipts from the decision of the City Board of Assessment
subject to 5% gross receipt tax (GRT) otherwise Appeals. Said decision is instead appealable to the
there exist a double taxation considering that both Central Board of Assessment Appeals (CBAA), which
taxes (FWT and GRT) are national taxes under the Local Government Code, has appellate
administered by the BIR, imposed on the same jurisdiction over decisions of the Local Board of
income and on the same taxing period. Assessment Appeals7. ( Caltex Phils. vs. CBAA,L-
50466, May 31, 1982)
Is there double taxation? Decide. (5%)
A party adversely affected by the decision of CBAA,
Suggested answer: in the exercise of its appellate jurisdiction may
appeal to the CTA within the 30 days from receipt of
No there is no double taxation. In CIR vs. Solidbank the decision via petition for review under a
Corp, G.R. No. 148191, Nov. 25,2003, 416 SCRA procedure analogous to that provided for under
436, this Court defined that a percentage tax is a Rule 43.
national tax measured by a certain percentage of
the gross selling price or gross value in money of A party adversely affected by a ruling, order or
goods sold, bartered or imported; or of the gross decision the decision of a division of the CTA may
receipts or earnings derived by any person engaged file a motion for reconsideration or new trial before
in the sale of services. It is not subject t the same Division of the CTA within 15 days from
withholding. An income tax, on the other hand, is a notice thereof.8 A party adversely affected by a
national tax imposed on the net or gross income resolution of a Division of the CTA on a motion for
realized in a taxable year. It is subject to reconsideration or new trial may file a petition for
withholding. This, there can be no double taxation review with the CTA en banc. 9 A party adversely
here as the Tax Code imposes two different kinds of affected by a decision or ruling of CTA en banc may
taxes.4 file with the Supreme Court a verified petition for
review on certiorari pursuant to Rule 45.10
Double Taxation

Double Taxation means taxing for the same tax

period the same thing or activity twice, when it
should be taxed but once, for the same purpose and
with the same kind of character tax.5
Does the 20% final withholding tax (FWT) on a
bank’s passive income6 form part of the taxable
gross receipts for the purpose of computing the 5%
gross receipts tax (GRT)? The answer is yes.
XIX
The City Assessor of Mandaue City issued an
assessment, classifying as real properties subject to
property tax all the machineries and equipments
attached to the ground and used directly in business
of an export corporation. Aggrieved by such
assessment, within 60 days from receipt thereof, the
export corporation filed an appeal to the City Board
of Assessment Appeal. The Board after 120 days
from receipt of the appeal ruled in favor of the City.
Within 30 days after receipt of the adverse ruling of
the Board, the export corporation filed a petition for
review under a procedure analogous to Rule 42 at
4
Cited in CIR vs. Citytrust Investment Phils. G.R. No. 139786,
and Asianbank Corp. vs. CIR G.R> no. 140857, Sept. 27,2006
5
Tax Law and Jurisprudence, by Justice Jose C. Vitug and Judge
Ernesto D. Acosta, 2nd Ed.2000
6
Also referred to as “ interest income” as it pertains to interest 7 City or provincial Board of Assessment Appeals
from bank deposits and yield or any other monetary benefit from 8 Sec. 9 of RA 9262, amending Section 11 of RA 1125.
deposit substitutes and form or trust funds and similar 9 Sec.11 of RA 9262,amendeing Section 18 of RA 1125.
arrangements and royalties.
XX
Philippine National Railways (PNR) operates the rail
transport of passengers and goods by providing
train stations and freight customer facilities from
Tutuban, Manila to the Bicol Province. As the
operator of the railroad transit, PNR administers the
land, improvements, and equipment within its main
station in Tutuban, Manila.
Invoking Section 193 of the Local Government Code
(LGC) expressly withdrawing the tax exemption
privileges of government-owned and controlled
corporations upon the effectivity of the Code in
1992, the City Government of Manila issued Final
Notices of Real Estate Tax Deficiency in the amount
of P624,000,000.00 for the taxable years 2006 to
2010. On the other hand, PNR, seeking refuge under
the principle that the government cannot tax itself,
insisted that the PNR lands and buildings are owned
by the Republic.
Is the PNR exempt from real property tax? Explain
your answer. (5%)
Suggested Answer:
10
Sec.12 of RA 9262, amending Section 19 0f RA 1125.
Page 6 of 6
The general rule is that GOCC is not exempt from
real estate tax. This is the ruling in MCIAA v. Marcos
and MIAA v. CA, City of Paranaque et al. G.R. No.
155650, July 20, 2006 En Banc.

Real property owned by the Republic is Not taxable.

“Section 234(a) of the Local Government Code
exempts from real estate tax any "[r]eal property
owned by the Republic of the Philippines." Section
234(a) provides:

SEC. 234. Exemptions from Real Property Tax. —

The following are exempted from payment of
the real property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions
except when the beneficial use thereof has
been granted, for consideration or otherwise,
to a taxable person;

This exemption should be read in relation with

Section 133(o) of the same Code, which prohibits
local governments from imposing "[t]axes, fees or
charges of any kind on the National Government, its
agencies and instrumentalities x x x." The real
properties owned by the Republic are titled either in
the name of the Republic itself or in the name of
agencies or instrumentalities of the National
Government. The Administrative Code allows real
property owned by the Republic to be titled in the
name of agencies or instrumentalities of the
national government. Such real properties remain
owned by the Republic and continue to be exempt
from real estate tax.

Accordingly, if the Republic indeed owns these lands

and buildings then PNR is exempt from real property
tax.