COR JESU COLLEGE

SCHOOL OF LAW

Commercial & Taxation Laws

Mock Bar Exam - 30 April 2023

INSTRUCTIONS:

1. This is a 4-hour examination divided into 2 parts. Part 1 consists of 12 items

pertaining to Commercial Law; Part 2 consists of 8 items pertaining to Taxation
Law. If the item contains sub-questions, please mark your answer separately with
"(a)" followed by the corresponding answer, then "(b)" followed by the answer, and
so on as may be necessary.
2. Use your device exclusively for the examination only; do not open other programs,
applications, windows, or tabs.
3. Do not download nor make a separate copy of this Exam File.
4. Do not use a separate sheet/file (virtual or physical) as scratch paper. Draft
your answers on the Exam File itself, but make sure that only your final
answers, entered in the proper part/portion, shall remain in the Exam File
upon submission.
5. Read each question carefully. Do not assume facts that are not provided in
the question.
6. Answer the questions clearly and concisely. Your answer should
demonstrate your ability to analyze the facts, identify issues, apply the law
and jurisprudence, and arrive at a sound and logical conclusion. A mere “Yes”
or “No” answer, or a mere legal conclusion without an explanation, even if
correct, will not be given full credit.
7. Allocate your time efficiently. The items are in a random sequence. You
may skip items and move to items that you may find easier to answer.
8. Use the font type ‘Times New Roman’ at size 18.
9. Leave 1 space between paragraphs constituting your answer to the same
question.
10. Do not write your name, distinguishing marks, or extraneous words
or phrases in any of your answers. This may be considered cheating and
may result in your disqualification.
11. You have until 5:00 p.m. to finish the exam. Make sure you have
completed and reviewed your answers before then. When submitting, the
system will ask you one more time to confirm if you are ready to submit your
Exam File, to give you another opportunity to review your answers.
12. Once submitted, do not unsubmit the Exam File. Resubmitted Exam
Files shall be nullified.
13. The guidelines and reminders which were verbally given and those
which have been posted on Google Classroom form part of these
instructions.
14. Failure to follow any of the instructions or any suspicious actuation
on your part shall result in your disqualification.

PART I - Commercial Law

1. (4%)
From 1989 to 1999, National Arts Studio and Color Lab (NASCL)
leased the front portion of the ground floor of a two (2)-storey building
located in Sto. Rosario Street, Angeles City, Pampanga, then owned by
petitioner.
In 1999, NASCL gave up its initial lease and instead, leased the right
front portion of the ground floor and the entire second floor of the said
building, and made renovations with the building's piping assembly.
Meanwhile, Copylandia Office Systems Corp. (Copylandia) moved in to
the ground floor.
On May 9, 2006, a water leak occurred in the building and damaged
Copylandia's various equipment, causing injury to it in the amount of
₱2,062,640.00.
As the said equipment was insured with respondent, Copylandia filed a
claim with the former. Eventually, the two parties settled on November
2, 2006 for the amount of ₱1,326,342.76. This resulted in respondent's
subrogation to the rights of Copylandia over all claims and demands
arising from the said incident.
On May 20, 2010, UCPB General Insurance Co., Inc., as subrogee to
Copylandia's rights, demanded from, inter alia, NASCL for the payment
of the aforesaid claim, but to no avail. Thus, it filed a complaint for
damages against NASCL, among others, before the RTC, docketed as
Civil Case No. 10-885.
Meanwhile, sometime in 2010, petitioner transferred the ownership of
the building to Citrinne Holdings, Inc. (CHI), where he is a stockholder
and the President.
On October 6, 2011, respondent UCPB General Insurance Co., Inc.
filed an Amended Complaint (Second Amendment), impleading CHI as
a party-defendant to the case, as the new owner of the building.
However, on April 21, 2014, respondent UCPB General Insurance Co.,
Inc. filed a Motion to Admit Attached Amended Complaint and Pre-
Trial Brief, praying that petitioner Vicente G. Henson, Jr., instead of
CHI, be impleaded as a party-defendant to the case, considering that
petitioner was then the owner of the building when the water leak
damage incident happened.
CHI opposed the motion principally on the ground of prescription,
arguing that since respondent's cause of action is based on quasi-delict, it
must be brought within four (4) years from its accrual on May 9, 2006.
As such, respondent UCPB General Insurance Co., Inc. is already barred
from proceeding against CHI/petitioner, especially since the latter never
received any prior demand from the former.
 Has respondent UCPB General Insurance Co., Inc.’s cause of
action prescribed?

Answer
The cause of action has not yet prescribed. It is on an
obligation created by law. Article 1144 of the New Civil Code
states:
“Article 1144. The following actions must be brought
within ten years from the time the cause of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.”
Article 2207 of the Civil Code provides that if the
plaintiff’s property has been insured, and he has received
indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated
the contract. If the amount paid by the insurance company does
not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the
loss or injury.
Because of the nature of subrogation as a mode of
"creditor-substitution," the rights of a subrogee cannot be
superior to the rights possessed by a subrogor.

2. (4%)
On October 7, 2003, petitioner Philam Insurance Co., Inc. (Philam) [now
Chartis Philippines Insurance, Inc.] submitted a proposal to respondent
Parc Chateau Condominium Unit Owners Association, Inc. (Parc
Association) to cover fire and comprehensive general liability insurance
of its condominium building, Parc Chateau Condominium.
Respondent Eduardo B. Colet (Colet), as Parc Association's president,
informed Philam, through a letter dated November 24, 2003, that Parc
Association's board of directors selected it, among various insurance
companies, to provide the insurance requirements of the condominium.
After Philam appraised the condominium, it issued Fire and Lightning
Insurance Policy No. 0601502995 for ₱900 million and Comprehensive
General Liability Insurance Policy No. 0301003155 for ₱1 Million, both
covering the period from November 30, 2003 to November 30, 2004.
The parties negotiated for a 90-day payment term of the insurance
premium, worth ₱791,427.50, including taxes. This payment term was
embodied in a Jumbo Risk Provision, which further provided that the
premium installment payments were due on November 30, 2003,
December 30, 2003, and January 30, 2004. The Jumbo Risk Provision
also stated that if any of the scheduled payments is not received in full
on or before said dates, the insurance shall be deemed to have ceased at
4 p.m. of such date, and the policy shall automatically become void and
ineffective.
Parc Association's board of directors found the terms unacceptable and
did not pursue the transaction. Parc Association verbally informed
Philam, through its insurance agent, of the board's decision. Since no
premiums were paid, Philam made oral and written demands upon Parc
Association, who refused to do so alleging that the insurance agent had
been informed of its decision not to take up the insurance coverage.
Philam sent demand letters with statement of account claiming
₱363,215.21 unpaid premium based on Short Scale Rate Period. Philam
also cancelled the policies.
On June 3, 2005, Philam filed a complaint against Parc Association and
Colet for recovery of ₱363,215.21 unpaid premium, plus attorney's fees
and costs of suit in the Metropolitan Trial Court (MeTC) of Makati.
Was there a perfected contract of insurance?

Answer
The contract of insurance was perfected.
Considering that a contract of insurance is a consensual
contract, it was perfected when there was meeting of the minds.
Colet made the offer which was accepted by Philam. Hence,
there was meeting of the minds.

3. (6%)
a. In the Law on Insurance, what do you mean by the “Cash and
Carry” Rule? (3%)
The Cash and Carry rule states that, notwithstanding any
agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and
until the premium thereof has been paid.

b. What are the exceptions to the “Cash and Carry” Rule? (3%)

Answer
The exception to the cash and carry rule is the
maintenance of a REVOLVING FUND (RF) to address the
concerns of port users in the payment of fees and charges,
such as, to facilitate the clearance of cargoes and vessel; to
 avoid incurrence of late charges and/or penalties; and to
avoid the risks in carrying/handling substantial amount of
cash.

4. (6%)
Explain whether the following are common carriers:

a. Resort operator with ferry services. (3%)

b. Customs broker. (3%)

Answer

a. A resort operator offering free ferry services is

considered a common carrier.
According to Article 1732 of the New Civil Code,
Common carriers are are persons, corporations, firms or
associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public.
There is no o distinction between one whose principal
business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary
activity.
 b. A customs broker has been regarded as a common
carrier because transportation of goods is an integral part of
its business.
Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or
air, for compensation, offering their services to the public.
There is no distinction between one whose principal
business activity is the carrying of goods and one who does
such carrying only as an ancillary activity.

5. (6%)
In relation to FRIA,
a. What are the characteristics of a feasible Rehabilitation Plan as
opposed to infeasible Rehabilitation Plan? (3%)
b. Explain the “cram-down clause”. (3%)

Answer

a. In the recent case of Viva Shipping Lines, Inc. v.

Keppel Philippines Mining, Jnc., the Court took note of the
following characteristics of an economically feasible
rehabilitation plan an:

1. The debtor has assets that can generate more cash

if used in its daily operations than if sold.
 2. Liquidity issues can be addressed by a practicable
business plan that will generate enough cash to
sustain daily operations.
3. The debtor has a definite source of financing for
the proper and full implementation of a
Rehabilitation Plan that is anchored on realistic
assumptions and goals.
On the other hand, this court enumerated the
characteristics of a rehabilitation plan that is infeasible:
1) the absence of a sound and workable business plan;
2) baseless and unexplained assumptions, targets and
goals;
3) speculative capital infusion or complete lack thereof
for the execution of the business plan;
4) cash flow cannot sustain daily operations; and
5) negative net worth and the assets are near full
depreciation or fully depreciated.

b. “Cram-down” is the power of the rehabilitation court

to approve and implement a rehabilitation plan
notwithstanding the objection of the majority of creditors.
The “cram-down” clause is currently incorporated in
Section 64 of Republic Act No. 10142, also known as the
Financial Rehabilitation and Insolvency Act (FRIA) of
2010.
 The aforesaid provision states that, “The rehabilitation
receiver shall notify the creditors and stakeholders that the Plan
is ready for their examination. Within twenty (20) days from the
said notification, the rehabilitation receiver shall convene the
creditors, either as a whole or per class, for purposes of voting
on the approval of the Plan. The Plan shall be deemed rejected
unless approved by all classes of creditors whose rights are
adversely modified or affected by the Plan. For purposes of this
section, the Plan is deemed to have been approved by a class of
creditors if members of the said class holding more than fifty
percent (50%) of the total claims of the said class vote in favor
of the Plan. The votes of the creditors shall be based solely on
the amount of their respective claims based on the registry of
claims submitted by the rehabilitation receiver.

6. (4%)
Respondent Interpublic Group of Companies, Inc. (IGC) is a non-
resident foreign corporation duly organized and existing under and by
virtue of the laws of the State of Delaware, United States of America.
The IGC owns 2,999,998 shares or 30% of the total outstanding and
voting capital stock of McCann Worldgroup Philippines, Inc. (McCann),
a domestic corporation duly organized and existing under the laws of the
Philippines engaged in the general advertising business.
In 2006, McCann's Board of Directors declared cash dividends in the
total amount of ₱205,648,685.02 in favor of its stockholders of record.
On June 15, 2006, McCann withheld a Final Withholding Tax (FWT) at
the rate of 35% on IGC's cash dividends and remitted the payment of the
FWT in the amount of ₱21,593,111.93 to petitioner Commissioner of
Internal Revenue (CIR).
On September 27, 2007, the IGC established a Regional Headquarters
(RHQ) in the Philippines. On April 30, 2008, the RHQ was converted
into its Regional Operating Headquarters (ROHQ).
On March 5, 2008, the IGC filed an administrative claim for refund or
issuance of tax credit certificate (TCC) in the amount of ₱12,338,921.00,
representing the alleged overpaid FWT on dividends paid by McCann to
IGC. In the said administrative claim, the IGC averred that as a non-
resident foreign corporation, it may avail of the preferential FWT rate of
15% on dividends received from a domestic corporation under Section
28(B)(5)(b) of the Tax Code.
On May 29, 2008, the IGC submitted to CIR additional documents in
support of its administrative claim for refund or issuance of TCC. The
CIR failed to act on IGC's claim for refund or issuance of TCC. This
prompted the IGC to file a petition for review with the CTA on June 16,
2008.
The CIR argued that the IGC, being an unlicensed corporation, has no
capacity to sue in Philippine courts in accordance with the Corporation
Code.
Does IGC, a foreign corporation unlicensed to do business in the
Philippines which collects dividends from the Philippines, have the
capacity to sue in Philippine courts?

Answer
An unlicensed foreign corporation doing business in the
Philippines cannot sue before Philippine courts. On the other
hand, an unlicensed foreign corporation not doing business in
the Philippines can sue before Philippine courts.
It is not the absence of the prescribed license, but the
"doing of business" in the Philippines without such license
which debars the foreign corporation from access to our courts.
 The phrase "doing business" includes soliciting orders,
service contracts, opening offices, whether called "liaison"
offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay in
the country for a period or periods totalling one hundred eighty
(180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements. The
phrase "doing business" is not deemed to include mere
investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise
of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor
appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its
own account.
Mere investment as a shareholder by a foreign corporation
in a duly registered domestic corporation is not be deemed
"doing business" in the Philippines. Hence, the IGC is not
required to secure a license before it can file a claim for tax
refund.

7. (4%)
On December 2 2005, Starwood filed before the Intellectual Property
Office (IPO) an application for registration of the trade mark W for
Classes 43 (services for providing food, drink; temporary
accommodation) and 44 (medical services; veterinary services; hygienic
and beauty care for human beings or animals; agriculture, horticulture
and forestry services) of the International Classification of Goods and
Services for the Purposes of the Registration of Marks (Nice
Classification). On February 26 2007, Starwood's application was
granted and the W mark was registered in its name.
The IPO approved Starwood’s application for trademark registration of
the letter “W” in 2007. However, it appears that W Land applied for the
registration of its own “W” mark in April 2006, prompting Starwood to
file an opposition. Starwood’s resistance was upheld by the IPO-BLA,
which found that W Land’s “W” is confusingly similar to Starwood’s
mark, which was filed earlier.
On May 29 2009, W Land, whose application for registration of the W
mark was successfully opposed by Starwood in 2006, filed a petition for
cancellation of Starwood's mark for non-use under Section 151.1 of
Republic Act No. 8293 or the Intellectual Property Code of the
Philippines (IP Code), claiming that Starwood had failed to use its mark
in the Philippines because it has no hotel or establishment in the
Philippines rendering the services covered by its registration and that
Starwood's W mark application and registration barred its own W mark
application and registration for use on real estate.
In its defense, Starwood denied having abandoned the subject mark on
the ground of non-use, asserting that it filed with the director of trade
marks a notarized Declaration of Actual Use (DAU) with evidence of
use on December 2 2008, which was not rejected. Starwood argued that
it conducts hotel and leisure business both directly and indirectly
through subsidiaries and franchisees, and operates interactive websites
for its W Hotels in order to accommodate its potential clients worldwide.
The IPO dismissed W Land’s petition for cancellation. In view of the
Court of Appeals’ affirmation of that ruling, a petition was filed before
the Supreme Court.
Decide.

Answer
 Starwood should keep the trademark “W”.
The "use" which the law requires to maintain the
registration of a mark must be genuine, and not merely token.
Based on foreign authorities,58 genuine use may be
characterized as a bona fide use which results or tends to result,
in one way or another, into a commercial interaction or
transaction "in the ordinary course of trade.
Starwood's "W" mark is registered. Under Section 152.3 of
the IP Code, the use of a mark in connection with one or more of
the goods or services belonging to the class in respect of which
the mark is registered shall prevent its cancellation or removal in
respect of all other goods or services of the same class. Thus,
Starwood's use of the "W" mark for reservation services through
its website constitutes use of the mark which is already
sufficient to protect its registration under the entire subject
classification from non-use cancellation. This, notwithstanding
the absence of a Starwood hotel or establishment in the
Philippines.

8. (8%)
The Anti-Money Laundering Act (AMLA) has been further amended by
Republic Act No. 11521, which took effect on February 8, 2021 (or
immediately after its publication in the Official Gazette).
a. Under the said law/amendment, who are the two new covered
persons required to report covered and suspicious transactions to
the AMLC? (4%)
 b. Aside from the inclusion of the above-mentioned new covered
persons in R.A. No. 11521, give two more important or salient
features of the recent amendment to the R.A. No. 9160. (4%)

Answer

a. The following are two new covered persons required to

report covered and suspicious transactions to AMLC:

1. Real estate developers and brokers; and

2. Offshore gaming operation, as well as their service
providers, supervised, accredited or regulated by PAGCOR
or any government agency.

b. The following are salient features of the recent amendment to

R.A. No. 9160:

1. The recent amendments to the AMLA added to the list of

unlawful activities or predicate crimes with corresponding
criminal penalties. Now, the (i) violation of the Strategic
Trade Management Act relating to the proliferation of
weapons of mass destruction and proliferation financing
and (ii) tax evasion, where the deficiency tax in the final
assessment in excess of Php 25,000,000.00 per taxable year
for each tax type covered and there being previous finding
of probable cause by a competent authority, are considered
to be unlawful activities under the AMLA.
2. The amendments to the AMLA also expanded the functions
of the AMLC. Now, the AMLC, in the conduct of
 investigations, has the power to apply for the issuance of
search and seizure orders with any competent court. In like
manner, the AMLC may also apply for the issuance of
subpoena duces tecum and/or subpoena ad testificandum.

9. (4%)
In August 1997, Philippine Wireless, Inc. (PWI) entered into a Credit
Agreement with respondent Capitol Development Bank (CAPITOL),
availing a ₱20,000,000.00 credit facility from CAPITOL secured by the
corporate suretyship of Republic Telecommunications, Inc.
(RETELCO). In the Continuing Suretyship Agreement (CSA)
RETELCO executed, it undertook to jointly and severally pay with PWI
the obligation PWI may incur pursuant to the Credit Agreement.
As of June 10, 1998, PWI’s unpaid loans amounted to ₱23,363,378.73.
On June 15, 1998, CAPITOL demanded payment from PWI. CAPITOL
also demanded payment from RETELCO pursuant to the CSA. Despite
repeated demands, however, PWI and RETELCO failed to pay their
outstanding obligations. Thus, CAPITOL instituted a Complaint for
collection of a sum of money docketed as Civil Case No. 66906 in the
Regional Trial Court of Pasig (RTC).
On September 15, 2008, the RTC rendered its Decision in favor of
CAPITOL.
PWI and RETELCO filed an appeal under Rule 41 of the Rules seeking
to reverse and set aside the RTC Decision. While the appeal was
pending before the Court of Appeals (CA), PWI ad RETELCO instituted
a petition for corporate rehabilitation with the RTC of Makati
(REHABILITATION COURT). On August 24, 2009, the
REHABILITATION COURT issued a Stay Order (STAY ORDER).
On February 12, 2010, PWI and RETELCO filed a Manifestation with
Motion with the CA seeking suspension of the appellate proceedings in
accordance with the 2008 Rules of Procedure on Corporate
Rehabilitation (2008 REHABILITATION RULES) which was granted
in a Resolution dated August 20, 2010.
Subsequently, the CA issued a Minute Resolution dated August 9, 2011
ordering the resumption of the appellate proceedings in the collection
case and for PWI and RETELCO to submit their Appellants’ Brief.
On April 17, 2013, the CA rendered its Decision denying the appeal and
affirming the RTC Decision.
Their Motion for Reconsideration having been denied, PWI and
RETELCO filed a Petition for Review (PETITION) on Certiorari under
Rule 45 of the Rules of Court before the Supreme Court.
In their PETITION, PWI and RETELCO argue that the STAY ORDER
contemplated in Section 7, Rule 3 of the 2008 REHABILITATION
RULES, which was carried over to Section 7(b) of Republic Act No.
10142 (RA 10142) or the Financial Rehabilitation and Insolvency Act of
2010, covers all actions for claims against a corporation pending before
any court, tribunal or board. They emphasize that these claims shall be
suspended in whatever stage they may be found upon the appointment of
a rehabilitation receiver. Citing various jurisprudence, PWI and
RETELCO maintain that all monetary claims against a distressed
corporation, without distinction, are suspended pending the
rehabilitation proceedings.
Did the STAY ORDER issued by the REHABILITATION
COURT suspend the appellate proceedings assailing the
Decision of the RTC?

Answer

10. (6%)
What are the kinds of distressed banks? Explain each kind.

Answer

11. (4%)
Wyatt, an internet entrepreneur, engaged in a sideline business of
creating computer programs for selected clients on a per project basis
and for servicing basic computer problems of his friends and family
members. His main job was being an IT consultant at Futurex Co., a
local computer company.
Because of his ill-advised investments in the stock market and the fraud
perpetrated against him by his trusted confidante, Wyatt was already
drowning in debt, that is, he had far more liabilities than his entire
assets.
What legal recourse remained available to Wyatt?

Answer

12. (4%)
Flora, a frequent traveller, found a purse concealed between the cushions
of a large sofa inside the VIP lounge in NAIA while she was waiting for
her flight to be called. Inside the purse was a very valuable diamond-
studded necklace. She decided not to turn over the purse to the airport
management, and instead to keep it. On her return from her travels, she
had a dependable jeweller appraise the necklace, and the latter told her
that the necklace was easily worth at least P5 million in the open market.
To test the appraisal, she pawned the necklace for P2 million. She then
deposited the entire amount in her checking account with Metro Bank.
Promptly, Metro Bank reported the transaction to the Anti-Money
Laundering Council (AMLC).
May Flora be successfully prosecuted for money laundering?

Answer

PART II - Taxation
1. (5%)
On April 16, 2020, Klay Mant Corporation (KMC) filed with the Bureau
of Internal Revenue (BIR) its Annual Income Tax Return (ITR) for the
year 2019, reflecting a net loss of ₱903,582,307.00, and creditable taxes
withheld for the fourth quarter of 2019 in the amount of ₱24,716,655.00.
KMC also indicated in the said ITR its intention to apply for the
issuance of a tax credit certificate (TCC) for its excess/unutilized
creditable withholding taxes (CWT) for the year 2019.
On April 3, 2022, KMC filed with the BIR its letter requesting the
issuance of a tax credit certificate (TCC) for its excess creditable
withholding taxes (CWT) covering the year 2019 in the amount of
₱24,716,655.00. On April 15, 2022, KMC filed a petition for review
with the Court of Tax Appeals (CTA). KMC alleged that it was filing
the said petition with the CTA due to the inaction of the CIR on the
former's claim for a TCC.
In its answer, the CIR alleged that due to KMC’s failure to submit the
pertinent documents required under the applicable tax issuances, the CIR
was unable to render a decision on the claim of KMC. As such, the CIR
stressed that the failure of KMC to prove its administrative claim
precluded its judicial claim.
After trial, the CTA, through its Third Division, rendered a Decision
partially granting KMC' s petition. The CTA Third Division held that the
failure of KMC to prove its administrative claim did not preclude its
judicial claim. The CTA Third Division, however, found that only
₱7,738,190.00 out of the total amount claimed was duly supported by
the required BIR Forms, of which only ₱4,464,224.40 corresponded to
the income payments which the CTA verified to have been included in
KMC's General Ledger and Annual Income Tax Return for taxable year
2019. Hence, the CTA Third Division ordered the CIR to issue a TCC in
the amount of ₱4,624,554.63, representing the excess/unutilized CWT of
KMC for the taxable year 2019.
(a) Did the failure of KMC to prove its administrative claim
preclude its judicial claim?
(b) Supposing that the failure of KMC to prove its administrative
claim did not preclude its judicial claim, was the CTA correct that
KMC was entitled to the issuance of TCC in the amount of
₱4,624,554.63?

Answer
a. The failure to submit the complete documents at
the administrative level did not render its petition for
review with the CTA dismissible for lack of jurisdiction. At
this point, it is necessary to determine the grounds relied
upon by a taxpayer in filing its judicial claim with the CTA.
If an administrative claim was dismissed by the CIR
due to the taxpayer's failure to submit complete documents
despite notice/request, then the judicial claim before the
CTA would be dismissible, not for lack of jurisdiction, but
for the taxpayer's failure to substantiate the claim at the
administrative level. When a judicial claim for refund or
tax credit in the CTA is an appeal of an unsuccessful
administrative claim, the taxpayer has to convince the CTA
 that the CIR had no reason to deny its claim. It, thus,
becomes imperative for the taxpayer to show the CTA that
not only is he entitled under substantive law to his claim for
refund or tax credit, but also that he satisfied all the
documentary and evidentiary requirements for an
administrative claim. It is, thus, crucial for a taxpayer in a
judicial claim for refund or tax credit to show that its
administrative claim should have been granted in the first
place. Consequently, a taxpayer cannot cure its failure to
submit a document requested by the BIR at the
administrative level by filing the said document before the
CTA.

2. (5%)
In 2015, Banwa, a municipality in Metropolitan Balwarte Area (MBA),
through the Sangguniang Bayan enacted Municipal Ordinance No. 33
(MO 33) which, under its Article 3, Section 33, imposed a franchise tax
on all business venture operations carried out through a franchise within
the municipality.

Republic Act No. 333333 (RA 333333), which took effect on March 30,
2018, converted the Municipality of Banwa into a highly urbanized city
to be known as the City of Syudad (CITY).
On 23 March 2021, Kuryente Electric Company (KELCO), a grantee of
a legislative franchise, received local franchise tax assessments, pursuant
to MO 33, from the CITY for the periods 2019 and 2020. KELCO duly
protested the assessments mainly on the ground that MO 33 was void
considering that the power to impose a local franchise tax was conferred
on provinces and cities only. After receipt of the denial of its protest,
KELCO filed a complaint before the appropriate court praying for the
annulment of the subject assessments.
In its answer, the CITY maintained that MO 33 was valid raising the
following arguments:
(a) Section 53 of the transitory and final provisions of RA 333333
provided that all municipal ordinances of the municipality of Banwa
“existing at the time of the approval of this Act shall continue to be
in force within the City of Syudad until the Sangguniang Panlungsod
shall, by ordinance, provide otherwise”; and
(b) Granting that MO 33 was initially void, its nullity was cured by
the subsequent conversion of the municipality into a city.
Are the above arguments tenable?

Answer

3. (5%)
The Court of Appeals (CTA) First Division (CTA Division) rendered its
decision partly granting the petition of Pro Test Corporation (PTC).
PTC sought reconsideration of the decision.
The CTA Division issued an amended decision, partly granting PTC’s
motion for reconsideration. The CTA Division, without any
modification, repeated in toto its discussion and ruling in the original
decision. However, since the dispositive portion of the decision ordered
PTC to pay the entire amount of the deficiency basic EWT plus
deficiency interest, the CTA Division reflected in the Amended Decision
TC's correct liability which does not include the deficiency interest as
discussed in the body of the original Decision.
Only the CIR filed a motion for reconsideration of the amended
decision, which motion was denied by the CTA Division for lack of
merit.
Both the CIR and PTC filed their respective appeals with the CTA en
banc via petition for review under Rule 43 of the Rules of Court. The
CTA en banc dismissed PTC’s petition for lack of jurisdiction since PTC
failed to seek reconsideration of the amended decision.
Did the CTA en banc correctly dismiss PTC’s petition?

Answer

4. (5%)
The City of Kolekta issued a notice of delinquency with warrants of levy
against Philippine Railways Authority (PRA) for failure of the latter to
settle its real property tax (RPT) liabilities. Aggrieved, PRA filed a
Petition for Certiorari, Prohibition and Mandamus (Petition) before the
Regional Trial Court (RTC). PRA claimed that it is a government
instrumentality exempt from local taxation. It averred that it is operating
the light rail transit system for the Republic of the Philippines, which is
the true owner of the subject real properties.
In its Comment, the City of Kolekta emphasized that, under the Local
Government Code (LGC), PRA should have paid first the subject RPT
before it could contest the correctness of the assessment. After payment
under protest, PRA should file its protest within the prescribed period. In
case its protest is denied, PRA should appeal to the Local Board of
Assessment Appeals. Thus, the City of Kolekta moved for the dismissal
of PRA’s Petition.
Should the Petition be dismissed?

Answer
5. (5%)
For the first quarter of 2019, the City of Kobrador (CITY) assessed
Kinobrahan Corporation (KC) local business taxes and regulatory fees.
KC protested the assessment through a letter dated January 18, 2019
claiming that it was not liable for the assessed fees and taxes.
On March 6, 2019, KC received a letter from the City Treasurer denying
its protest. KC was thus constrained to pay the assessed taxes.
On March 18, 2019, KC filed a claim for refund of the amount it paid
with the Office of the City Treasurer, raising the same grounds as
discussed in its protest.
On April 3, 2019, KC filed its Complaint with the Municipal Trial Court
in Cities against the CITY and the Office of the City Treasurer praying
for the refund of the amount it paid or for the issuance of a tax credit
certificate (TCC).
In their Answer, the CITY and the Office of the City Treasurer
maintained that KC availed itself of the remedy under Section 195 of the
Local Government Code (LGC) as demonstrated by its letter dated 18
January 2019. As such, KC had only thirty (30) days from receipt of
denial of the protest within which to file an appeal before a court of
competent jurisdiction. However, KC failed to comply with the period of
appeal, as it did not in fact file an appeal, conveniently shifting its theory
from tax protest to tax refund when it later on filed a "claim for
refund/tax credit of illegally/erroneously paid taxes'' pursuant to Section
196 of the LGC on March 18, 2019. The City and the Office of the City
Treasurer insisted that KC had already lost its right to appeal and is
already barred from questioning the denial of its protest. Hence, they
moved for the dismissal of the Complaint.
Is KC already barred from questioning the denial by the Office of
the City treasurer of its protest?
Answer

6. (5%)
In 2023, Congress enacted Republic Act No. 239999 (RA 239999) for
the purpose of making the Philippines the healthiest country in the whole
world. In line with its stated purpose, RA 239999, among other
measures, exempts from all taxes, national and local, all persons, natural
or juridical, exclusively organized and operated for the manufacture of
healthy food and beverage products as duly certified by the appropriate
government agency.
Does the tax exemption under RA 239999 include exemption from
the requirement of business permit and from payment of the
corresponding fees to the local government?

Answer

7. (5%)
Marie Sol submits that for value-added tax (VAT) to apply, the sale,
barter, exchange, or lease of goods or services, or the rendition of
services must always be made in the course of trade or business; hence,
the VAT is unavailing when such activity or transaction is merely
occasional or isolated.
What does the phrase “in the course of trade or business” mean?
Does it include isolated transactions?

Answer
 The phrase “in the course of trade or business” means the
regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto. Thus, the law
also includes incidental transactions that are made during the
course of a regular transaction or the main activity. Furthermore,
the term “incidental” means depending upon or appertaining to
something else primary; something necessary appertaining to, or
depending upon another, which is termed the principal; or
something incidental to the main purpose.
It does not follow that an isolated transaction cannot be an
incidental transaction for purposes of the VAT liability.
However, it must be clearly established that the transaction in
question must be related or connected with the conduct of the
main business activity.

8. (5%)
Herbs & Spices Medical Center Corporation (HSMCC) engaged the
services of Kawayan Kogon Konstruksyon Incorporated (KKKI) for the
construction of its hospital. HSMCC paid 15% of the contract price as
down payment. The remaining balance was to be paid in monthly
installments based on the percentage of work accomplished.
On June 30, 2020, KKKI submitted to HSMCC its Progress Billing No.
15, which indicated that it had already accomplished 79.31% of the
project.
HSMCC, after its internal audit, learned that it was unable to withhold
and remit 2% creditable withholding taxes (CWT) on KKKI's Progress
Billings Nos. 1 to 14. In order to make up for its previous non-
remittances, HSMCC withheld the 2% CWT not only from Progress
Billing No. 15 but from the cumulative amount of all Progress Billings
Nos. 1-15, equivalent to the submitted 79.31% accomplishment of
KKKI. HSMCC duly remitted the CWT to the Bureau of Internal
Revenue (BIR).
Was it proper for HSMCC to withhold the 2% CWT from the
cumulative amount of all Progress Billings Nos. 1-15? If not, may
KKKI compel the BIR to refund the erroneously withheld and
remitted withholding taxes?

Answer
In order to be entitled to a refund claim or issuance of a tax
credit certificate representing any excess or unutilized creditable
withholding tax, it must be shown that the claimant has
complied with the essential basic conditions set forth under
pertinent provisions of law and existing jurisprudential
declarations.
No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a
claim for credit or refund within two (2) years after the payment
of the tax or penalty.

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