On October 5, 2016, the Bureau of Internal Revenue
(BIR) sent KLM Corp. a Final Assessment Notice (FAN), stating that after its
audit pursuant to a Letter of Authority duly issued therefor, KLM Corp. had
deficiency value-added and withholding taxes. Subsequently, a warrant of
distraint and/or levy was issued against KLM Corp. KLM Corp. opposed the
actions of the BIR on the ground that it was not accorded due process because
it did not even receive a Preliminary Assessment Notice (PAN) after the BIR’s
Investigation, which the BIR admitted.
For purposes of value-added tax,
define, explain or distinguish the following terms:
All the homeowners belonging to ABC Village
Homeowner’s Association elected a new set of members of the Board of Trustees
for the Association effective January 2019. The first thing that the Board
looked into is the need to increase the prevailing association dues. Mr. X, one
of the trustees, proposed and increase of 100% to account for the payment of
the 12% value-added tax (VAT) on the association dues which were being
collected for services allegedly rendered “in the course of trade or business”
by ABC Village Homeowners’ Association.
to rising liquidity problems and pressure from its concerned suppliers, P Corp
instituted a flash auction sale of its shares of stock. P Corp. was then able
to sell its treasury shares to Z Inc., an unrelated corporation, for Php
1,000,000, which was only a little below the valuation of P Corp’s shares based
on its latest audited financial statements. In connection therewith, P Corp, sought
a Bureau of Internal Revenue ruling to confirm that, notwithstanding the price
difference between the selling price of the shares and their book value, the
said transaction falls under one of the recognized exemptions to donor’s tax
under Tax Code.
Cite the instances under the Tax Code where gifts made are exempt from donor’s tax.
Does the above transaction fall under any of the exemptions? Explain (2%)
Resident Filipino citizen, died in December 2018. A’s only assets consist of a house
and lot in Alabang, where his heirs currently reside, as well as a house in Los
Angeles, California, USA. In computing A’s taxable net estate, his heirs only
deducted 1. Php 10,000,000 constituting the value of their house in Alabang, as
their family home; and 2. Php 200,000 in funeral expenses because no other
expenses could be substantiated.
(a) Are both deductions claimed by A’s heirs correct? Explain. (2%)
May a standard deduction be claimed by A’s heirs? If so, how much and what
proof needs to be presented for the same to be validly made? (2%)
In determining the gross estate of A, should the heirs include A’s house in Los
Angeles, California, USA? Explain. (2%)
Air, a 100% foreign owned airline company based and registered in Netherlands,
is engaged in the international airline business and is a member signatory of
the international Air Transport Association. Its commercial airplanes neither
operate within the Philippine territory nor are its service passengers
embarking from Philippine airports. Nevertheless, XYZ Air is able to sell its
airplane tickets in the Philippines through ABC Agency, its general agent in
the Philippines. As XYZ Air’s ticket sales, sold through ABC Agency for the
year 2013, amounted to Php 5,000,000, the Bureau of Internal Revenue assessed
XYZ Air deficiency income taxes on the ground that the income from the said
sales constituted income derived from sources within the Philippines.
XYZ Air filed a protest, arguing that, as a non-resident foreign corporation,
it should only be taxed for income derived from sources within the Philippines.
However, since it only serviced passengers outside the Philippine territory,
the situs of the income from its ticket sales should be considered outside the
Philippines. Hence, no income tax should be imposed on the same.
XYZ air’s protest meritorious? Explain. (5%)
Differentiate tax exclusions from tax deductions. (3%)
B transferred his ownership over a 1000-square meter
commercial land and three-door apartment to ABC Corp., a family corporation of
which B is a Stockholder. The transfer was in exchanged of 10,000 shares of
stock of ABC Corp. As a result, B acquired 51% ownership of ABC Corp., with all
the shares of stock having the right to vote. B paid no tax on the exchanged,
maintaining that it is a tax avoidance scheme allowed under the law. The Bureau
of Internal Revenue, on the other hand, insisted that B’s alleged scheme
amounted to tax evasion.
Should B pay taxes on the exchanged? Explain. (3%)
GHI, Inc. is a corporation authorized to engage in the
business of manufacturing ultra-high density microprocessor unit packages.
After its registration on July 5, 2005, GHI, Inc. constructed buildings and
purchased machineries and equipment. As of December 31, 2005, the total cost of
the machineries and equipment amounted to Php 250,000,000. However, GHI, Inc.
failed to commence operations. Its factory was temporarily closed effective
September 15, 2010. On October 1 2010, it sold its machineries and equipment to
JKL Integrated for Php 300,000,000. Thereafter, GHI, Inc. was dissolved on
November 30, 2010.
Is the sale of the machineries and equipment to JKL Integrated subject to
normal corporate income tax or capital gains tax? Explain. (3%)
(b) Distinguish an ordinary asset from capital asset. (2%)
2018, City X amended its Revenue Code to include a new provision imposing a tax
on every sales of merchandise by a wholesaler based on the total selling price
of the goods, inclusive of value-added taxes (VAT).ABC Corp., a wholesaler
operating within City X, challenged the new provision based on the following
contentions:1. The new provision is a form of prohibited double taxation
because it essentially amounts to City X imposing VAT which already being
levied by the national government; and 2. Since the tax being imposed is akin
to VAT, it is beyond the power of City X to levy the same.
on each of ABC Corp.’s contentions. (5%)
OF PART I-
D a Filipino amateur boxer, joined an Olympic qualifying tournament held in Las
Vegas, USA, where he won the gold medal. Pleased with Mr. D’s accomplishment,
the Philippine Government, through the Philippine Olympic Committee, awarded
him a cash prize amounting to P 1,000,000.00. Upon receipt of the funds, he
went to a casino in Pasay City and won the P 30,000,000.00 jackpot in the slot
machine. The next day, he went to a nearby Lotto outlet and bought a Lotto
ticket which won him a cash prize of P 5,000.00.
Which of the above
sums of money is/are subject to income tax? Explain. (5%)
is a domestic corporation affiliated with JKL-Japan, a Japan-based information
technology company with affiliates across the world. Mr. F is a Filipino
engineer employed by JKL-Philippines. In 2018, Mr. was sent to the Tokyo branch
if JKL-Japan based on a contract entered into between the two (2) companies.
Under the said contract, Mr. F would be compensated by JKL-Philippines for the
months spent in the Philippines, and by JKL-Japan for the months spent in
Japan. For the entirely of 2018, Mr. F spent ten (10) months in the Tokyo
On the other hand, Mr. J a Japanese
engineer employed by JKL-Japan, was sent to Manila to work with JKL-Philippines
as a technical consultant. Based on the contract between the two (2) companies,
Mr. J’s annual compensation would be paid by JKL-Japan. However, he would be
paid additional compensation by JKL-Philippines for the months spent working as
a consultant. For 2018, Mr. J stayed in the Philippines for five (5) months.
In 2019, the Bureau of Internal
Revenue (BIR) assessed JKL-Philippines for deficiency withholding taxes for
both M. F and Mr. J for the year 2018.As to Mr. F the BIR argued that he is a
resident citizen; hence, his income tax should be based on his worldwide
income. As to Mr. J, the BIR argued that he is a resident alien; hence his
income tax should be based on his income from sources within the Philippines at
the scheduler rate under Section 24(A)(2) of the Tax Code as amended by
Republic Act No. 10963, or the “Tax Reform of Acceleration and Inclusion” Law.
As a way to augment the income of the
employees of DEF Inc., a private corporation, the management decided to grant a
special stipend of Php50,000 for the first vacation leave that any employee
takes during a given calendar year. In addition, the senior engineers were also
given housing inside the factory compound for the purpose of ensuring that
there is a breakdown in the factory machineries and equipment.
City R owns a piece of land which it leased to V corp. In
turn, V Corp. constructed a public market thereon and leased the stalls to
vendors and small storeowners. The City Assessor then issued a notice of
assessment against V Corp for the payment of real property taxes (RPT) accruing
on the public market building as well as on the land where said market stands.
the City Assessor correct in including the land in its assessment of RPT
against V Corp., even if the same is owned by City R? Explain. (3%)
Mr. C is employed as a chief Executive Officer of MNO
Company, receiving an annual compensation of P10,000,000.00, while Mr. S is a
security guard in the same company earning an annual compensation of
P10,000,000.00, while Mr. S is a security guard in the same company earning an
annual compensation of P200,000.00. Both of them source their income only from
their employment with MNO Company.
XYZ Corp. is listed as a top 20,000
Philippine corporation by the Bureau of Internal Revenue. It secured a loan
from ABC Bank with 6% per annum interest, All interest payments made by XYZ
Corp, to ABC Bank is subject to a 2% creditable withholding tax, At the same
time, XYZ Corp. has a trust deposit with ABC Bank in the mount of
P100,000,000.00, which earns 2% interest per annum, but is subject to a 20%
final withholding tax on the interest income received by XYZ Corp.
After a Bureau of
Internal Revenue (BIR) audit, T Corp., a domestic corporation engaged in buying
and selling of scrap metals, was found to have deficiency income tax of P
25,000,000.00, including interests and penalties, for the year 2012. For 2012,
T Corp. filed its income tax return (ITR) on April 15, 2013 because it used
calendar year for its accounting. The BIR sent the Preliminary Assessment
Notice (PAN) on December 23, 2015, and eventually, the Final Assessment Notice
on April 11, 2016, which were received by T. Corp, on the same dates that they
were sent. Upon receipt of the FAN, T. Corp filed its protest letter on June
Thereafter, and without
action from the Commissioner of Internal Revenue (CIR), T. Corp. filed a
petition for review before the Court of Tax Appeals, alleging that the
assessment has prescribed. For its part, the CIR moved to dismiss the case,
pointing out that the assessment has already become final because the protest
was filed beyond the allowable period.
(a) Is T Corp.’s contention regarding
the prescription of the assessment meritorious? Explain.
(b) Should the CIR’S motion to
dismiss be granted? Explain.
On May 10, 2011,
the final withholding tax for certain income payments to W Corp. was withheld
and remitted to the Bureau of Internal Revenue (BIR), and the corresponding
return therefor was concomitantly filed on the same date. Upon discovering that
the amount withheld was excessive, W. Corp. filed with the BIR a claim for
refund for erroneously withheld and collected final withholding income tax on
May 3, 2013. A week after, and without waiting for any decision from the
Commissioner of Internal Revenue (CIR), W Corp. filed a petition for review
before the Court of Tax Appeals (CTA) to make sure that the petition was filed
within the two (2)-year period for claiming refunds.
In resisting the claim, the BIR contended that the claim
must be dismissed by the CTA on the ground of non-exhaustion of administrative
remedies because it did not give the CIR the opportunity to act on the claim of
ABC, Inc. owns a 950-square meter commercial lot in Quezon City. It received a notice of assessment from the City Assessor, subjecting the property to real property taxes (RPT). Believing that the assessment was erroneous, ABC, Inc. filed a protest with the City Treasurer. However, for failure to pay the RPT, the City Treasurer dismissed the protest.
(a) Was the City Treasurer correct in dismissing ABC, Inc.’s protest? Explain.
(b) Assuming that ABC, Inc. decides
to appeal the dismissal, where should the appeal be filed?
OF PART II-
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Webinar: Withholding Taxes, Subjects & Applications
Webinar on Corporate Entity Registration & Business Compliance: The start of a long-term business
Webinar: Winning BIR Tax Assessment and Preparing Effective Tax Protest
Live Webinar on Ph Payroll Computation and Taxation
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Live Webinar: PEZA Registered Entities: Taxation and Basic Reports
Live Webinar: Basic Accounting & Tax Compliance for Digital Freelancers & Other Professionals Under 8% Tax Scheme
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