TAXATION BAR EXAM QUESTIONS (VAT)

1. Karlito, a Filipino businessman, is engaged in the business of metal fabrication and repair of LPG
cylinder tanks. He conducts business under the name and style of "Karlito's Enterprises," a single
proprietorship. Started only five (5) years ago, the business has grown so enormously that Karlito
decided to incorporate it by transferring all the assets of the business, particularly the inventory of
goods on hand, machineries and equipment, supplies, parts, raw materials, office furniture and
furnishings, delivery trucks and other vehicles, buildings, and tools to the new corporation,
Karlito's Enterprises, Inc., in exchange for 100% of the capital stock of the new corporation, the
stock subscription to which shall be deemed fully paid in the form of the assets transferred to the
corporation by Karlito.
As a result, Karlito's Enterprises, the sole proprietorship, ceased to do business and applied for
cancellation of its BIR Certificate of Registration. The BIR, however, assessed Karlito VAT on
account of the cessation of business based on the current market price of the assets transferred to
Karlito's Enterprises, Inc. (2018 Bar Exams)
(a) Is the transfer subject to VAT? (2.5%)
(b) Is the transfer subject to income tax? (2.5%)

2. Klaus, Inc., a domestic, VAT-registered corporation engaged in the land transportation business,
owns a house and lot along Katipunan St., Quezon City. This property is being used by Klaus,
lnc.'s president and single largest shareholder, Atty. Krimson, as his residence. No business
activity transpires there except for the company's Christmas party which is held there every
December. Atty. Krimson recently grew tired of the long commute from Katipunan to his office
in Makati City and caused the company to sell the house and lot. The sale was recorded in the
books of Klaus, Inc. as investment in real property. (2018 Bar Exams)
(a) Is the sale of the said property subject to VAT? (2.5%)
(b) Is the sale subject to 6% capital gains tax or regular corporate income tax of 30%? (2.5%)
3. Koko's primary source of income is his employment with the government. He earns extra from
the land he inherited from his parents, and which land he has been leasing to a private, non-stock,
non-profit school since 2005.
Last January, the school offered to buy the land from Koko for an amount equivalent to its zonal
value plus 15% of such zonal value. Koko agreed but required the school to pay, in addition to the
purchase price, the 12% VAT. The school refused Koko's proposal to pass on the VAT
contending that it was an entity exempt from such tax. Moreover, it said that Koko was not
regularly engaged in the real estate business and, therefore, was not subject to VAT.
Consequently, Koko should not charge any VAT to the school. (2018 Bar Exams)
(a) Is the contention of the school correct? (2.5%)
(b) Will your answer be the same if Koko signed up as a VAT-registered person only in 2017? (2.5%)
4. The BIR assessed Kosco, Inc., an importer of food products, deficiency income and value-added
taxes, plus 50% surcharge after determining that Kosco, Inc. had under-declared its sales by an
amount exceeding 30% of that declared in its income tax and VAT returns. Kosco, Inc. denied the
alleged under-declaration, protested the deficiency assessment for income and value-added taxes
and challenged the imposition of the 50% surcharge on the ground that the surcharge may only be
imposed if Kosco, Inc. fails to pay the deficiency taxes within the time prescribed for their
payment in the notice of assessment. (2018 Bar Exams)
(a) Is the imposition of the 50% surcharge proper? (2.5%)
(b) If your answer to {a) is yes, may Kosco, Inc. enter into a compromise with the BIR for reduction
of the amount of surcharge to be paid? (2.5%)

5. Krisp Kleen, Inc. (KKI) is a corporation engaged in the manufacturing and processing of steel
and its by-products. It is both registered with the Board of Investments with a pioneer status, and
with the BIR as a VAT entity. On October 10, 2010, it filed a claim for refund/credit of input
VAT for the period January 1 to March 31, 2009 before the Commissioner of Internal Revenue
{CIR). On February 1, 2011, as the CIR had not yet made any ruling on its claim for
 refund/credit, KKI, fearful that its period to appeal to the courts might prescribe, filed an appeal
with the Court of Tax Appeals (CTA). (2018 Bar Exams)
(a) Can the CTA act on KKl's appeal? (2.5%)
(b) Will your answer be the same if KKI filed its appeal on March 20, 2011 and CIR had not yet acted
on its claim? (2.5%)
6. SMZ, Inc. is a VAT-registered enterprise engaged Jn the general construction business. HP
International contracts the services of SMZ, Inc. to construct HP lntemational's factory building
located in the Laguna Techno Park, a special economic zone. HP International is registered with
the Philippine Economic Zone Authority (PEZA) as an ecozone export enterprise, and, as such,
enjoys income tax holiday pursuant to the Special Economic Zone Act of 1995. SMZ, Inc. files an
application with the Bureau of Internal Revenue (BIR) for the VAT zero-rating of its sale of
services to HP International. However, the BIR denies SMZ, lnc.'s application on the ground that
HP International already enjoys income tax holiday. Is the BIR correct in denying SMZ, lnc.'s
application? Explain your answer. (2017 Bar Exams) (6%)
7. On March 30, 2016, XL Co. filed an administrative claim for refund of unutilized input VAT for
taxable year 2014, together with supporting documents. XL Co. claimed that its sale of generated
power and delivery of electric capacity and energy was VAT zero-rated. Due to the inaction of
the Commissioner of Internal Revenue (CIR), XL Co. filed with the Court of Tax Appeals (CTA)
the following judicial claims for refund: ·
Period Covered Date Filed
1st Quarter of 2014 March 31, 2016
2nd Quarter of 2014 June 30, 2016
3rd and 4th Quarter of 2014 August 12, 2016
Is XL Co.'s claim for VAT refund timely filed? Explain your answer. (2017 Bar Exams) (5%)
8. (a) Explain the procedure for claiming refunds or tax credits of input Value Added Tax (VAT) for
zero-rated or effectively zero-rated sales under Sec. 112 of the National Internal Revenue Code
(NIRC) from the filing of an application with the CIR up to the CTA. (2.5%)
[b] Explain the procedure for claiming refunds of tax erroneously or illegally collected under Sec. 229
of the NIRC from the filing of the claim for refunds with the CIR up to the CTA. (2016 Bar
Exams) (2.5%)
9. Soaring Eagle paid its excise tax liabilities with Tax Credit Certificates (TCCs) which it
purchased through the One Stop Shop Inter-Agency Tax Credit Center (Center) of the
Department of Finance. The Center is a composite body of the DOF, BIR, BOC and the BOI. The
TCCs ~ere accepted by the BIR as payments. A year after, the BIR demanded the payment of
alleged deficiency excise taxes on the ground that Soaring Eagle is not a qualified transferee of
the TCCs it purchased from other BOI-registered companies. The BIR argued that the TCCs are
subject to post-audit as a suspensive condition. On the other hand, Soaring Eagle countered that it
is a buyer in good faith and for value who merely relied on the Center's representation of the
genuineness and validity of the TCCs. If it is ordered to pay the deficiency, Soaring Eagle claims
the same is confiscatory and a violation of due process. Is the assessment against Soaring Eagle
valid? Explain. (2016 Bar Exams) ( 5%)
10. Pursuant to Sec. 11 of the "Host Agreement" between the United Nations and the Philippine
government, it was provided that the World Health Organization (WHO), "its assets, income and
other properties shall be : a) exempt from all direct and indirect taxes." Precision Construction
Corporation (PCC) was hired to construct the WHO Medical Center in Manila. Upon completion
of the building, the BIR assessed a 12% VAT on the gross receipts of PCC derived from the
construction of the WHO building. The BIR contends that the 12% VAT is not a direct nor an
indirect tax on the WHO but a tax that is primarily due from the contractor and is therefore not
covered by the Host Agreement. The WHO argues that the VAT is deemed an indirect tax as PCC
can shift the tax burden to it. Is the BIR correct? Explain. (2016 Bar Exams) (5%)
11. Amor Powers, Inc. (API) is a domestic corporation registered with the BIR as a value-added
taxpayer. API incurred excess input VAT in the amount of P500,000,000.00 on August 3, 2008.
Hence, it filed with the BIR an administrative claim for the refund or credit of these input taxes
on August 15, 2010. Without waiting for the CIR to act on its claim, API filed a Petition for
Review with the CT A on September 15, 2010 before the lapse of two years after the close of the
taxable quarter concerned.
 In its Comment on the Petition, the CIR argues that API's Petition should be dismissed as it was
filed before the lapse of the 120-day period given to the CIR by Sec. 112(D) of the NIRC, which
became effective on January 1, 1998. For the CIR, the 120- day period is mandatory and
jurisdictional so that any suit filed before its expiration is premature and, therefore, dismissible.
API, on the other hand, invokes BIR Ruling No. DA-489-03 issued by the CIR on December 10,
2003 in answer to a query posed by the Department of Finance regarding the propriety of the
actions taken by Lazi Bay Resources Development, Inc., which filed an administrative claim for
refund with the CIR and, before the lapse of the 120-day period from its filing, filed a judicial
claim with the CTA. BIR Ruling No. DA-489-03 stated that the taxpayer-claimant need not wait
for the lapse of the 120-day period before it could seek judicial relief with the CTA. Will API's
Petition for Review prosper? Decide with reasons. (2016 Bar Exams) (5%)

12. An importer of flowers from abroad in 2011: (2012 Bar Question)

a) Is liable for VAT, if it registers as a VAT person;

 b) Is exempt from VAT, because the goods are treated as agricultural products;
c) Is exempt from VAT, provided that his total importation of flowers does not exceed P1.5
Million;
d) Is liable for VAT, despite the fact that it did not register as a VAT person and its total annual
sales of flowers do not exceed P1.5 Million.

13. MBM Corporation is the owner-operator of movie houses in Cavite. During the year 2010,
it received a total gross receipts of P20 Million from the operation of movies. It did not
register as a VAT person. Which statement below is correct? (2012 Bar Question)

a) MBM Corporation is exempt from the 12% VAT, but liable for the 20% amusement tax on
admissions under the Local Government Code;
b) MBM Corporation is both liable for the 12% VAT and 20% amusement tax on admissions;
c) MBM Corporation is both exempt from the 12% VAT and 20% amusement tax on admissions;
d) MBM Corporation is liable for the 12% VAT, but exempt from the 20% amusement tax on
admissions.

14. The public market vendor below, who is not a VAT-registered person is liable to VAT in
2010, if: (2012 Bar Question)

a) She sells raw chicken and meats and her gross sales during the year is P2 Million;
b) She sells vegetables and fruits in her stall and her gross sales during the year is P1 Million;
c) She sells canned goods, processed coconut oils, and cut flowers in her stall and her gross sales
during the year is P2.5 Million;
d) She sells live fish, shrimps, and crabs and her gross sales during the year is P5 Million.

15. Under the VAT system, there is no cascading because the tax itself is not again being taxed.
However, in determining the tax base on sale of taxable goods under the VAT system: (2012
Bar Question)
 a) The professional tax paid by the professional is included in gross receipts;
b) The other percentage tax (e.g., gross receipts tax) paid by the taxpayer is included in gross
selling price;
c) The excise tax paid by the taxpayer before withdrawal of the goods from the place of
production or from customs custody is included in the gross selling price;
d) The documentary stamp tax paid by the taxpayer is included in the gross selling price or gross
receipts.

16. Which transaction below is subject to VAT? (2012 Bar Question)

a) Sale of vegetables by a farmer in Baguio City to a vegetable dealer;

b) Sale of vegetables by a vegetable dealer in Baguio City to another vegetable dealer in Quezon
City;
c) Sale of vegetables by the QC vegetable dealer to a restaurant in Manila;
d) Sale of vegetables by the restaurant operator to its customers.

17. Masarap Kumain, Inc. (MKI) is a Value-Added Tax (VAT)-registered company which has
been engaged in the catering business for the past 10 years. It has invested a substantial
portion of its capital on flat wares, table linens, plates, chairs, catering equipment, and
delivery vans. MKI sold its first delivery van, already 10 years old and idle, to Magpapala
Gravel and Sand Corp. (MGSC), a corporation engaged in the business of buying and
selling gravel and sand. The selling price of the delivery van was way below its acquisition
cost. Is the sale of the delivery van by MKI to MGSC subject to VAT? (2014 Bar Question)

18. Which of the following transactions is subject to Value-Added Tax (VAT)? (2014 Bar
Question)
(A) Sale of shares of stock-listed and traded through the local stock exchange
(B) Importation of personal and household effects belonging to residents of the Philippines
returning from abroad subject to custom duties under the Tariff and Customs Code
 (C) Services rendered by individuals pursuant to an employeremployee relationship
(D) Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority

19. Which importation in 2011 is subject to VAT? (2012 Bar Question)

a) Importation of fuels by a person engaged in international shipping worth P20 Million;

b) Importation of raw, unprocessed, refrigerated Kobe beef from Japan by a beef dealer for sale to
hotels in Makati City with a fair market value of P10 Million;
c) Importation of wines by a wine dealer with a fair market value of P2 million for sale to hotels
in Makati City;
d) Importation of books worth P5 Million and school supplies worth P1.2 million.

20. A VAT-registered contractor performed services for his customer in 2010 and billed him
P11.2 Million, broken down as follows: P10 Million – cost of services, plus P1.2 Million,
12% VAT. Of the contract price of P10 Million, only P8 Million plus VAT thereon was
received from the customer in 2010, and the balance of P4 Million plus VAT was received
by the contractor in 2011. How much is the taxable gross receipts of the contractor for 2010,
for VAT purposes? (2012 Bar Question)

a) P10 Million, the total cost of services performed in 2010;

b) P8 Million, the amount received from the customer in 2010;
c) P8 Million plus VAT received from the customer in 2010;
d) P11.2 Million, the total cost of services performed plus 12% VAT.

21. A hotel operator that is a VAT-registered person and who leases luxury vehicles to its hotel
customers is: (2012 Bar Question)

a) Subject to the 3% common carriers tax and 12% VAT;

b) Subject to the 3% common carriers tax only;
 c) Subject to the 12% VAT only;
d) Exempt from both the 3% common carriers tax and 12% VAT.

22. A pawnshop shall now be treated, for business tax purposes: (2012 Bar Question)
a) As a lending investor liable to the 12% VAT on its gross receipts from interest income and
from gross selling price from sale of unclaimed properties;
b) Not as a lending investor, but liable to the 5% gross receipts tax imposed on a non-bank
financial intermediary under Title VI (Other Percentage Taxes);
c) As exempt from 12% VAT and 5% gross receipts tax;
d) As liable to the 12% VAT and 5% gross receipts tax.

23. The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No.
65-2012 imposing Value-Added Tax (VAT) on association dues and membership fees
collected by condominium corporations from its member condominium-unit owners. The
RMC’s validity is challenged before the Supreme Court (SC) by the condominium
corporations.

The Solicitor General, counsel for BIR, claims that association dues, membership fees, and
other assessment/charges collected by a condominium corporation are subject to VAT since
they constitute income payments or compensation for the beneficial services it provides to
its members and tenants.

On the other hand, the lawyer of the condominium corporations argues that such dues and
fees are merely held in trust by the condominium corporations exclusively for their
members and used solely for administrative expenses in implementing the condominium
corporations’ purposes. Accordingly, the condominium corporations do not actually render
services for a fee subject to VAT.

Whose argument is correct? Decide. (2014 Bar Question)

24. Are the following transactions subject to VAT? If yes, what is the applicable rate for each
transaction. State the relevant authority/ies for your answer.

a. Construction by XYZ Construction Co. of concrete barriers for the Asian Development
Bank in Ortigas Center to prevent car bombs from ramming the ADB gates along ADB
Avenue in Mandaluyong City.
b. Call Center operated by a domestic enterprise in Makati that handles exclusively the
reservations of a hotel chain which are all located in North America. The services are paid
for in US$ and duly accounted for with the Bangko Sentral ng Pilipinas.
c. Sale of orchids by a flower shop which raises its flowers in Tagaytay. (2010 Bar Question)

25. Except for one transaction, the rest are exempt from value added tax. Which one is VAT
taxable? (2012 Bar Question)

a) Sales of chicken by a restaurant owner who did not register as a VAT person and whose gross
annual sales is P1.2 Million;
b) Sales of copra by a copra dealer to a coconut oil manufacturer who did not register as a VAT
person and whose gross annual sales is P5 Million;
c) Gross receipts of CPA during the year amounted to P1 Million; the CPA registered as a VAT
person in January 2011, before practicing his profession;
 d) Sales of a book store during the year amounted to P10 Million; it did not register as a VAT
person with the BIR.

26. A lessor or real property is exempt from value added tax in one of the transactions below.
Which one is it? (2012 Bar Question)
 a) Lessor leases commercial stalls located in the Greenhills Commercial Center to VAT-
registered sellers of cell phones; lessor’s gross rental during the year amounted to P12 Million;
b) Lessor leases residential apartment units to individual tenants for P10,000.00 per month per
unit; his gross rental income during the year amounted to P2 Million;
c) Lessor leases commercial stalls at P10,000.00 per stall per month and residential units at
P15,000.00 per unit per month; his gross rental income during the year amounted to P3 Million;
d) Lessor leases two (2) residential houses and lots at P50,000.00 per month per unit, but he
registered as a VAT person.

27. IBP Bank extended loans to debtors during the year, with real properties of the debtors
being used as collateral to secure the loans. When the debtors failed to pay the unpaid
principal and interests after several demand letters, the bank foreclosed the same and
entered into contracts of lease with tenants. The bank is subject to the tax as follows: (2012
Bar Question)

a) 12% VAT on the rental income, but exempt from the 7% gross receipts tax;
b) 7% gross receipts tax on the rental income, but exempt from VAT;
c) Liable to both the 12% VAT and 7% gross receipts tax;
28. d) Exempt from both the 12% VAT and 7% gross receipts tax.

28. Which statement is correct? A bar review center owned and operated by lawyers is: (2012
Bar Question)

a) Exempt from VAT, regardless of its gross receipts during the year because it is an educational
center;
b) Exempt from VAT, provided that its annual gross receipts do not exceed P1.5 Million in 2011;
c) Subject to VAT, regardless of its gross receipts during the year;
d) Subject to VAT, if it is duly accredited by TESDA.

29. Claim for tax credit or refund of excess input tax is available only to: (2012 Bar Question)
 a) A VAT-registered person whose sales are made to embassies of foreign governments and
United Nations agencies located in the Philippines without the BIR approval of the application for
zero-rating;
b) Any person who has excess input tax arising from local purchases of taxable goods and
services;
c) A VAT-registered person whose sales are made to clients in the Philippines;
d) A VAT-registered person whose sales are made to customers outside the Philippines and who
issued VAT invoices or receipts with the words "ZERO RATED SALES" imprinted on the sales
invoices or receipts.

30. Input tax is available to a VAT-registered buyer, provided that: (2012 Bar Question)

a) The seller is a VAT-registered person;

b) The seller issues a VAT invoice or official receipt, which separately indicates the VAT
component;
c) The goods or service is subject to or exempt from VAT, but the sale is covered by a VAT
invoice or receipt issued by VAT-registered person;
d) The name and TIN of the buyer is not stated or shown in the VAT invoice or receipt
Which statement shown above is NOT correct?

31. For 2012, input tax is not available as a credit against the output tax of the buyer of taxable
goods or services during the quarter, if:

a) The VAT invoice or receipt of the seller is registered with the BIR;
b) The VAT invoice or receipt of the seller does not separately indicate the gross selling price or
gross receipts and the VAT component therein;
c) The VAT invoice or receipt is issued in the name of the VAT-registered buyer and his TIN is
shown in said invoice or receipt;
d) The VAT invoice or receipt issued by the seller shows the Taxpayer Identification Number
plus the word "VAT" or "VAT registered person".

32. Gangwam Corporation (GC) filed its quarterly tax returns for the calendar year 2012 as
follows:

First quarter - April 25, 2012

Second quarter - July 23, 2012
Third quarter - October 25, 2012
Fourth quarter - January 27, 2013

On December 22, 2013, GC filed with the Bureau of Internal Revenue (BIR) an
administrative claim for refund of its unutilized input Value-Added Tax (VAT) for the
calendar year 2012. After several months of inaction by the BIR on its claim for refund, GC
decided to elevate its claim directly to the Court of Tax Appeals (CTA) on April 22, 2014.

In due time, the CTA denied the tax refund relative to the input VAT of GC for the first
quarter of 2012, reasoning that the claim was filed beyond the two-year period prescribed
under Section 112(A) of the National Internal Revenue Code (NIRC).

(A) Is the CTA correct?

 (B) Assuming that GC filed its claim before the CTA on February 22, 2014, would your
answer be the same? (2014 Bar Question)

33. For calendar year 2011, FFF, Inc., a VAT-registered corporation, reported unutilized excess
input VAT in the amount of Pl ,000,000.00 attributable to its zero-rated sales. Hoping to
impress his boss, Mr. G, the accountant of FFF, Inc., filed with the Bureau of Internal
Revenue (BIR) on January 31, 2013 a claim for tax refund/credit of the Pl,000,000.00
unutilized excess input VAT of FFF, Inc. for 2011. Not having received any communication
from the BIR, Mr. G filed a Petition for Review with the CTA on March 15, 2013, praying
for the tax refund/credit of the Pl,000,000.00 unutilized excess input VAT of FFF, Inc. for
2011.

a) Did the CTA acquire jurisdiction over the Petition of FFF, Inc.?
b) Discuss the proper procedure and applicable time periods for administrative and judicial
claims for refund/credit of unutilized excess input VAT. (2015 Bar Question)

34. Which statement is FALSE under the VAT law? (2012 Bar Question)

a) A VAT-registered person will be subject to VAT for his taxable transactions, regardless of his
gross sales or receipts;
b) A person engaged in trade or business selling taxable goods or services must register as a VAT
person, when his gross sales or receipts for the year 2011 exceed P1.5 Million;
c) A person who issued a VAT-registered invoice or receipt for a VAT-exempt transaction is
liable to the 12% VAT as a penalty for the wrong issuance thereof;
d) Once a doctor of medicine exercises his profession during the year, he needs to register as a
VAT person and to issue VAT receipts for professional fees received.

35. KaPedringMatibag, a sole proprietor, buys and sells "kumot at kulambo" both of which are
subject to value-added tax. Since he is using the calendar year as his taxable year, his
taxable quarters end on the last day of March, June, September, and December. When
should KaPedring file the VAT quarterly return for his gross sales or receipts for the period
of June 1 to September 30? (2011 Bar Question)

(A) Within 25 days from September 30

(B) Within 45 days from September 30
(C) Within 15 days from September 30
(D) Within 30 days from September 30