Christian Villar; StudentID: 767
Strengths and Improvement Opportunities
TAXATION LAW MB2
Course: [BRI] Mock Bar Cycle 2Instructor: N/A 11/21/2021Questions: 25
46.00% My Score
(46/100)*
*All points for essays have not been assigned. This may not be the final score.
QUESTION POINTS
CORRECT INCORRECT PARTIAL CREDIT
Distinguish ³Police Power,´the ³Power of Taxation´and ³Eminent Domain.´
1 4/4
A: As to purpose: Police Power is mainly to promote public welfare through regulations; Taxation is to raise revenue; Eminent
Domain is to facilitate the taking of private property for public use.As to limit of exaction: Police Power is limited to the cost of
regulation or issuance of license or surveillance fee; Taxation has no limit; Eminent Domain has no amount imposed but the just
compensation is paid to the owner of the expropriated propertyAs to impairment of contracts: Police Power and Eminent Domain
may impair contracts but Taxation may notAs to scope: Police Power covers all persons, property, rights and privileges; Taxation
covers all persons, property and excises; Eminent Domain covers only a particular property.
Grader: Faculty
Points: 4/4
Comments:
To provide means for rehabilitation and stabilization of the sugar industry so as to prepare it for the eventuality of
2 the loss of the quota allocated to the Philippines resulting from the lifting of U.S. sanctions against an African 4/4
country, Congress passed a law increasing the existing tax on the manufacture of sugar on a graduated basis. All
collections made under the law are to accrue to a special fund to be spent only for the purposes enumerated
therein, among which are to place the sugar industry in a position to maintain itself and ultimately to insure its
continued existence despite the loss of that quota, and to afford laborers employed in the industry a living wage
and improve their working conditions. X, a sugar planter, filed a suit questioning the constitutionality of the law
alleging that the tax is not for a public purpose as the same is being levied exclusively for the aid and support of
the sugar industry. Decide the case.
A: The law enacted by Congress was valid.The factual milieu of the case is akin to Lutz v. Araneta involving the Sugar Adjustment
Act enacted to strengthen the sugar industry. Here, Tax was used for promotion of general welfare as an implement of police power
of the state. Sugar Industry was an industry which is imbued with public interest that vitally affects the general welfare. Hence, the
law imposing collections for maintenance of sugar industry shall be declared valid even though it benefits only the sugar industry.
Grader: Faculty
Points: 4/4
Comments:
May a legislative body enact laws to raise revenues in the absence of a constitutional provision granting said
3 body the power of taxation? Explain briefly. 4/4
A: Yes, a Legislative Body may enact revenue-raising laws to grant the said body of power to tax.No other than the 1987
Constitution vests each Local Government Units the power to create its own sources of revenues and levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may provide consistent with the policy of local autonomy. Such taxes,
fees and charges shall accrue exclusively to the local governments.Tax Code also provided a similar provision providing for the
power of LGU to create its own sources of revenues and to levy taxes, fees and charges,
Grader: Faculty
Points: 4/4
Comments:
Briefly explain the principles of a sound tax system.
4 3/4
A: There must be Fiscal Adequalcy wherein the sources of goverment revenues must be sufficient to meet government
expenditures and other public needs being lifeblood of the government.There must be Administrative Feasibility which means that
tax laws must be capable of being effectively enforced with least convenience to taxpayers.A sound tax system must be:1. based
on taxpayer's ability to pay (progressive);2. reasonable, fair and just; and3. uniform and equitable
Grader: Faculty
Points: 3/4
Comments:
Differentiate tax amnesty, tax compromise and tax exemption.
5 4/4
A: Tax Amnesty is a general pardon of the State on its authority to impose Penalties on persons violating tax laws. The power is in
the hands of Congress to enact such law. It is liberally construed in favor of the taxpayer to achieve the purpose of the amnesty.Tax
Compromise is a contract between the taxpayer and the government to settle its his/her liability or tax deficiencies. The
Commissioner as well as National and Regional Evaluation Boards are the ones vested with power to compromise.Tax Exemption
is the grant of immunity to particular persons or corporations or of particular class generally within the same state or taxing district
who are obliged to pay. It is granted by the Constitution, Statutes, Treaties, Franchises and even by Local Ordinance. It is strictly
construed against the taxpayer.
Grader: Faculty
Points: 4/4
Comments:
The Municipality of Pateros enacted an ordinance requiring all stores, restaurants and other establishments
6 selling liquor to pay a fixed annual fee of P20,000.00. Subsequently, the municipal board proposed an ordinance 4/4
imposing a sales tax equivalent to 5% of the amount paid for the purchase or consumption of liquor in stores,
restaurants and other establishments. The municipal mayor refused to sign the ordinance on the ground that it
would constitute double taxation. Is the refusal of the mayor justified? Reason briefly.
A: The mayor was unjustified because there is no double taxation.There is no Double taxation on (1) tax imposed on establishments
and on (2) purchase/consumption of liquors. While the taxes were imposed on the same taxing period and jurisdiction, therse were
however imposed on different subject matter (business/property and activity) and for different purpose which is not of the same kind
and character of tax. Thus, there is no double taxation to speak of.
Grader: Faculty
Points: 4/4
Comments:
Albert agreed to sell his condominium unit to Brian for P2.5 Million. At the time of the sale, the property had a
7 zonal value of P2.0 Million. Upon the advice of a tax consultant, Isa, the parties agreed to execute two deeds of 4/4
sale ±one indicating the zonal value of P2.0 Million as the selling price and the other showing the selling price of
P2.5 Million. Isa filed the capital gains tax return using the deed of sale showing the zonal value of P2.0 Million as
the selling price claiming that the same was a valid act of tax avoidance. Is Isa correct? Explain briefly.
A: Isa's contention was incorrect.The Tax Code expressly provides that Capital Gains Tax of 6% shall be paid based on: (i) gross
selling price appearing on the contract; (ii) fair market value which is based either on (a) zonal values of BIR; or (b) schedule of
values in the City/Provincial Assessor's Office - WHICHEVER IS HIGHER. Here, it is obvious that P2.5M which is the gross selling
price is higher and must be paid. Therefore, using the wrong basis of tax computation constitutes tax evasion and not a mere tax
avoidance.
Grader: Faculty
Points: 4/4
Comments:
Ren was a dedicated employee of SKK Corporation. For the past 20 years, he had been religiously setting aside a
8 portion of his income and depositing the same to his savings account in XYZ Bank which now contained P6.5 4/4
Million. Unfortunately, Ren suddenly passed away in July 2019. In November 2019, his widow, Brenda, visited XYZ
Bank and after presenting Ren¶s passbook, requested to withdraw P1.5 Million to pay for the estate taxes, funeral
and other related expenses. However, the branch manager refused arguing that without a tax clearance issued by
the Bureau of Internal Revenue certifying that the estate taxes have been paid, Brenda could only withdraw a
maximum of P20,000. Was the branch manager correct? Explain.
A: The Branch Manager was Incorrect.Under Sec.97 of Tax Code as amended by the TRAIN Law, the heirs of the deceased shall
be allowed to withdraw the deceased's bank deposits pending the settlement of the estate and payment of estate tax subject only to
withholding tax of 6% over the said deposits. Hence, the branch manager was wrong to require tax clearance from BIR and allow
only P20,000 withdrawal which was the old rule before the TRAIN Law amendments.
Grader: Faculty
Points: 4/4
Comments:
SGDA Corp. is a domestic corporation located in Subic and registered as a Subic Bay Freeport Enterprise under
9 Republic Act No. 7227, as amended by Republic Act No. 9400. As such, it is exempt from payment of all local and 1/4
national internal revenue taxes. During its operations, it purchased various supplies and materials necessary in
the conduct of its retail business. The suppliers of these goods shifted to SGDA Corp. the 12% VAT on the
purchased items amounting to P500,000.00. SGDA Corp. filed with the Bureau of Internal Revenue a claim for
refund for the input tax shifted to it by the suppliers. If you were the Commissioner of Internal Revenue, will you
allow the refund? Explain briefly.
A: Yes, SGDA shall be allowed Tax Refund.As held in Commissioner of Internal Revenue v. Seagate Technology, a Tax Exempt
Party under NIRC, Special Law (as in this case RA No. 7227) or Treaty is by virtue of which its taxable transactions become exempt
from VAT. Such party shall not be subject to VAT but may be allowed Tax Refund or Credit for Input Taxes paid.
Grader: Faculty
Points: 1/4
Comments:
C Corner Inc., a domestic corporation registered with the Securities and Exchange Commission, entered into a
10 Management Service Contract with Ultra Diamond, a non-resident foreign corporation with no property in the 4/4
Philippines. Under the contract, Ultra Diamond shall provide managerial services for C Corner Inc.¶s branch office
in Hong Kong. All services under the contract shall be performed in Hong Kong. Is the compensation for the
services of Ultra Diamond taxable as income from sources within the Philippines? Explain.
A: No, the compensation for services of Ultra Diamond is not taxable in the Philippines.Tax Code provides thata Foreign
Corporation is taxable only on income derived from sources within the Philippines. Here, the service was made in Hong Kong
following the Destination Principle/Cross Broder Doctrine which provides that goods and services are taxed only in the country
where these are consumed. Hence, Ultra Diamond shall not be taxable for the said management service.
Grader: Faculty
Points: 4/4
Comments:
In the recently concluded Olympics, Philippine athlete Luisa Dela Cruz bagged a gold medal in artistic
11 gymnastics. Under Republic Act No. 10699, Ms. Dela Cruz received from the national government through its 3/4
sports agency, the Philippine Sports Commission, a cash incentive of P10.0 Million. In addition, Ms. Dela Cruz
received P15.0 Million from XYZ Corp., a private domestic corporation, and P6.0 Million from a local politician.
Briefly discuss the tax treatment of the amounts received by Ms. Dela Cruz.
A: The P10 Million cash incentive under R.A. No. 10699 as expressly provided by the Tax Code shall be fully exempted from her
income tax.The P15 Million from XYZ Corporation as well as P6 Million from a Local Politician shall be treated as donations that
were subject to 6% Donor's Tax to be paid by Donors (XYZ Corp. and the local politician respectively).
Grader: Faculty
Points: 3/4
Comments:
A and B are the proud owners of a 100 square meter residential lot in Quezon City where they built their home.
12 Sometime in 2018, A chanced upon a rent-to-own condominium unit amounting to P12.0 Million in Bonifacio 4/4
Global City and convinced B to sell their property to fund said unit for them to live in permanently. Thus, A and B
sold the Quezon City property for P10.0 Million in May 2019 and notified the Commissioner of Internal Revenue of
their intention to avail of the tax exemption in the same month. At the time of the sale, the total zonal value of the
Quezon City property was P8.0 Million and the fair market value per the tax declaration is P7.0 Million. After
saving enough money, A and B were able to acquire the unit and paid the developer the full price in January 2021.
Relying on his previous notification to the Bureau of Internal Revenue, A no longer paid the capital gains tax on
the sale or disposition of the Quezon City property. Is A correct? Explain.
A: A was incorrect. They are liable to pay Capital Gains Tax because there was no full utilization of the prooceeds of the sale or
disposition of the former principal residence.Under the Tax Code, the Capital Gains Tax Exemption on Sale of Principal Residence
requires that the proceeds of sale or disposition thereof was in fact been utilized in the acquisition or construction of the seller
transferror's new principal residence within eighteen (18) calendar months from the said sale or disposition. Here, there is no
showing that the P10 Million proceeds of the sale was utilized for the payment of the new principal residence within the 18-month
period, because May 2019 to January 2021 is already 20-months long.
Grader: Faculty
Points: 4/4
Comments:
The City of Makati, in order to solve the traffic problem in its business districts, decided to impose a tax, to be
13 paid by the driver, on all private cars entering the city during peak hours from 8:00 a.m. to 10:00 a.m. from 1/4
Mondays to Fridays, but exempts those private cars with more than two occupants, excluding the driver. Is the
ordinance valid? Explain.
A: Yes, the ordinance is valid provided that the tax rate is reasonable and complies with limitations and procedural requirement for
its enactment.Taxation may be used as an implement of police power of the state with the end view of regulating a particular
activity. Here, the traffic problem is sought to promote general welfare by reducing heavy traffic on Makati's business districts. There
is valid classification as to those carrying more than 2-passengers than those that are not (i.e., lessening commuters and promoting
carpooling thereby lessening cars on the roads). Hence, the ordinance is valid.
Grader: Faculty
Points: 1/4
Comments:
The Roman Catholic Church owns a 4-hectare lot in Valenzuela City. The Church and a convent occupy the
14 southern and middle portions, respectively, while a school run by the Church itself occupies the eastern side. On 1/4
the other hand, several commercial establishments occupy the west side while the rest of the property is idle or
unoccupied. Except for the lot occupied by the commercial establishments, the Church claimed that it is exempt
from real property tax on the rest of its property. Is the church correct? Explain briefly.
A: Yes, the Church was correct.The 1987 Constitution as well as the Local Government Code provides for tax exemption of
Churches for all lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational
purposes. Here, the aforementioned portions except the commercial establishments were actually, directly and exclusively been
used for religious (the convent), charitable or educational (school) purposes. It was held under jurisprudence that the said tax
exemption also covers areas "incidental to and reasonably necessary for" accomplishment of said purposes making the unoccupied
area exempted as long as it was intended for the said purposes when acquired by the church.
Grader: Faculty
Points: 1/4
Comments:
In accordance with the Local Government Code, the Sangguniang Panglungsod (SP) of Dumaguete City enacted
15 Tax Ordinance No 15, Series of 2020, imposing a P100.00 tax on all the tourists and travellers going to Dumaguete 1/4
City. In imposing the local tax, the SP reasoned that the tax collected will be used to maintain the cleanliness of
the city and for the beautification of its tourist attractions. Claiming the tax to be unjust, the Dumaguete Travellers
Association (DTA) filed a petition for declaratory relief before the Regional Trial Court (RTC) of Dumaguete
arguing that tourists might cancel their bookings to the prejudice of DTA¶s member agencies. DTA also prayed for
the issuance of a Temporary Restraining Order (TRO) to enjoin Dumaguete City from enforcing the local tax on
their customers and on all tourists going to Dumaguete City. Subsequently, the RTC issued a TRO enjoining
Dumaguete City from imposing the local tax. Aggrieved, Dumaguete City filed a Petition for Certiorari before the
Supreme Court seeking to set aside the TRO on the ground that the collection of taxes may not be enjoined. Was
the RTC justified in issuing the TRO? Explain.
A: No, the RTC was not justified. RTF has no jurisdiction to entertain any action concerning the validity of a tax ordinance.Under the
Local Government Code, the Secretary of Justice shall be the one to have jurisdiction on any question on legality of a tax ordinance
but the appeal so SoJ shall not suspend the effectivity of the ordinance and the accrual and payment of the tax levied. RTC was
unjustified and the case shall be dismissed for failure to exhaust administrative remedies.
Grader: Faculty
Points: 1/4
Comments:
BB Corporation is a Japan-based foreign corporation engaged in construction and installation projects. In 2018,
16 Universal First Corporation (UFC), a domestic corporation engaged in the refinery of petroleum products,
awarded a P100.0 Million anti-pollution project to BB Corporation whereby FC shall design, supply machinery and
equipment, and install an anti-pollution device for UFC¶s refinery in the Philippines. Under the contract, BB
Corporation may sub-contract the installation portion of the project to a local construction company. Thus, the
design and supply portions were done in Japan, while the installation works were sub-contracted to Robo Corp.,
a domestic corporation in the Philippines. Upon completion of the project, UFC paid BB Corporation the full
amount broken down as follows: (a) design ±P15.0 Million; (b) machinery and equipment ±P55.0 Million; and (c)
P30.0 Million. Subsequently, BB Corporation paid Robo Corp. P30.0 Million in foreign currency through a
Philippine Bank. How much revenue shall be reported by BB Corporation and Robo Corp.? Explain briefly.
A: Under the Tax Code, a Foreign Corporation such as BB Corporation shall be taxable only on income derived within the
Philippines which is 30% of its gross income for the design P15 Million. The net of P55M (55M+30M-30M paid to Robo) after
subcontracting shall be exempted as mentioned below.Under RA No. 7942, Pollution Control Devices acquired, installed or
constructed shall not be subject to real property tax and other taxes or assessment. Here, design was not exempted so BB must still
have its design revenue taxable while Robo Corp (subcontracted by BB) who constructed the same shall be exempted from any tax
or assessment over the same Pollution Control Device construction.
Grader: Faculty
Points: /4
Comments:
Pilar inherited from her father a 500 square meter lot. At the time of her father¶s death on December 1, 2019, the
17 property was valued at P750,000.00. On February 12, 2020, to defray the cost of the medical expenses of her sick
daughter, she sold the lot to Pepe for P600,000.00 on a cash basis. At the time of the sale, the prevailing market
value of the property was P3,000.00 per square meter. How much should Pilar pay as Value Added Tax on the sale
of the property? Explain.
A: Under the Tax Code, Value Added Tax on Sale of Real Property shall be 12% of gross selling price whichever is higher between:
(a) the consideration stated in the sales document;(b) fair market value which is higher between: (i) the schedule of Zonal Values by
BIR and (ii) Schedule of Values by the Provincial/City Assessors/Real Property Tax DeclarationHere, the Price/Consideration was
P600,000; the Fair Market Value was P3,000 x 500 sq.m = P1,500,000.00.Thus, the VAT payable shall be 12% of P1.5M which is
equal to P180,000.00
Grader: Faculty
Points: /4
Comments:
On May 15, 2018, AAA Corp. received the Final Decision on Disputed Assessment issued by the Commissioner of
18 Internal Revenue dismissing the protest of AAA Corp. and affirming the assessment against said corporation. On
June 10, 2018, AAA Corp. filed a Petition for Review with the Court of Tax Appeals in division. On July 31, 2020,
AAA Corp. received a copy of the Decision dated July 22, 2020 of the CTA division dismissing its petition.
Subsequently, AAA Corp. filed a Petition for Review under Rule 43 with the CTA En Banc on August 6, 2020.
Comment on the propriety of AAA Corp.¶s petition.
A: AAA Corp. did not file the required Motion for Reconsideration within 15days after the July 31, 2021 decision before filing the
Petition for Review to CTA En Banc. Hence, the CTA En Banc did not properly acquired jurisdiction because of AAA's failure to
properly observe the CTA procedural rules.
Grader: Faculty
Points: /4
Comments:
In March 2020, Ruth borrowed from Monique P200,000.00, payable in five equal monthly installments. Before the
19 first installment became due, Ruth rendered general cleaning services in the entire office building of Monique,
and as compensation therefor, Monique cancelled the indebtedness of Ruth up to the amount of P150,000.00.
Thereafter, the Commissioner of Internal Revenue required Ruth to pay income taxes. Ruth argues that the
cancellation of her indebtedness cannot be considered as a gain on her part. Who is correct and why?
A: Ruth was incorrect.Under the Tax Code, a Citizen of the Philippines residing therein shall be taxable on all income derived from
sources within and without the Philippines. The cancelled debt in lieu of services rendered P150,000 shall be considered as taxable
income from sources within the Philippines which Ruth must declare as part of his taxable income. Therefore, the Commissioner is
correct to require Ruth to pay income tax over the same.
Grader: Faculty
Points: /4
Comments:
What is a compromise penalty and what is the government¶s recourse when the taxpayer fails to comply with
20 payment of the same?
A: A Compromise Penalty is the amount paid by the taxpayer in lieu of criminal prosecution.Under BIR Issuance, if the taxpayer
reneges on payment of compromise penalty, the Commissioner of Internal Revenue may not enforce it except through Criminal
Action against the taxpayer for tax violation because compromise penalty is neither a tax nor an administrative penalty for tax
delinquency.
Grader: Faculty
Points: /4
Comments:
Four religious institutions hired Duo Lipo, a foreign non-resident entertainer, to perform for four nights at the
21 Cultural Center of the Philippines. Duo Lipo was paid P500,000.00 a night. The benefit concert was a success and
the institutions earned a total of P5.0 Million, which they used for the support of the orphans in the National
Capital Region. Who are liable to pay taxes, if any, and at what rate will the same be taxed?
A: The four (4) Religious Institutions are exempted from payment of Income Tax, VAT and Local Tax because the 1987 Constitution
as well as the Tax Code provided for the tax exemption of their revenues which is P5,000,000.00 here. Under the Local
Government Code, Cultural Center of the Philippines is liable to pay Local (Business) and Real Property Tax because it is not
exempted from the same because the use of the religious institutions was an isolated one. The Local Tax is subject to rate
scheduled by Sanggunian Panlungsod having jurisdiction over CCP (Manila). The rate in Metro Manila for RPT shall not be more
than 2% of the assessed value of the real property + Special Education Fund of 1% of the assessed value of the real property. It is
likewise liable to pay Corporate Income Tax of 30%Duo Lipo was liable to pay Income Tax over the P2,000,000.00 revenue based
on the rate provided under the Tax Code as amended which is P130,000 +30% of the excess of P800,000. Thus, P130k +
30%(1,200,000) = P490,000.00 for income tax. He is also liable to pay Professional Tax to LGU concerned which shall not exceed
P300
Grader: Faculty
Points: /4
Comments:
ABC, a domestic corporation primarily engaged in the business of healthcare services, entered into a software
22 license agreement with XYZ, a domestic corporation engaged in software design. Under the agreement, which the
parties forged in Berlin, ABC granted XYZ the right to use a computer system program and to avail of technical
know how relative to such program. In consideration for such rights, XYZ agreed to pay ABC 5% of the revenues
it receives from customers who will use and apply the program in the Philippines. Discuss the tax implication of
the transaction.
A: The Tax Code provides that a domestic corporation shall be taxable on all income derived within and without the Philippines,
hence, the place of execution of the contract is of no moment since it is not the basis of income generation.XYZ as a domestic
corporation shall be liable to pay 30% on Corporate Income Tax from its taxable income as well as 20% from royalties received as
passive income.ABC as a domestic corporation shall also be liable to pay 30% Corporate Income Tax from its taxable income. The
gross revenues from the program shall be subject to 12% VAT
Grader: Faculty
Points: /4
Comments:
In 2015, Jel, an Overseas Filipino Worker, opened a Personal Equity and Retirement Account (PERA) with RAF
23 Bank, a Bangko Sentral ng Pilipinas-accredited administrator of the PERA. What is the annual aggregate
maximum contribution she is allowed to make in 2015 and what is the tax treatment of said contribution?
A: Under PERA Act of 2008 as well as on its implementing guideliness, the annual aggregate maximum contribution if the
contributor is an Overseas Filipino Worker shall be P200,000.00 to which he is entitled to claim a tax credit of five percent (5%) of
the actual contribution made during the year. Any excess of the said maximum shall not be entitled to 5% tax credit.
Grader: Faculty
Points: /4
Comments:
Isa Bayani is engaged in the business of leasing out several residential apartments she owns. The monthly rental
24 for each unit ranges from P12,000.00 to P15,000.00. Her gross income for one year is P3.2 Million. She consults
you on whether it is necessary for her to register as a VAT taxpayer. What legal advice will you give her and why?
A: Isa Bayani must register as VAT Person under the Tax Code.Under the Tax Code, any person who in the course of business
sells, barters or exchanges goods or properties exceeding P3M in the past 12-months must register as a VAT Taxpayer. This is
mandatory hence, she must comply even thought she is exempted from both VAT and Other Percentage Tax because of the rental
rate and aggregate income from the same did not both met the VAT Threshold.
Grader: Faculty
Points: /4
Comments:
May X seek refund after he opts to carry-over the excess income tax against the taxes due for the succeeding
25 taxable years? Explain.
A: No, the Tax Refund shall not be allowed once the Tax Credit option to carry-over against taxes due on succeeding taxable year
has been made.The irrevocability rule under Sec 76 of Tax Code provides that once the Option to Carry-Over excess income tax
has been made, it shall be considered as irrevocable. Hence, neither Tax Refund nor Tax Credit will be allowed. Hence, X request
for refund shall be denied.
Grader: Faculty
Points: /4
Comments:
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