DAY 2 (PM) Taxation Law

Question 1

I.

Explain the principles of a sound tax system.

Question 2

II.

Mr. A, a citizen and resident of the Philippines, is a professional boxer. In a professional boxing match held in 2013, he won prize money in United States (US) dollars equivalent to P300,000,000.

a) Is the prize money paid to and received by Mr. A in the US taxable in the Philippines? Why?

Question 3

II.

Mr. A, a citizen and resident of the Philippines, is a professional boxer. In a professional boxing match held in 2013, he won prize money in United States (US) dollars equivalent to P300,000,000.

b) May Mr. A’s prize money qualify as an exclusion from his gross income? Why?

Question 4

II.

Mr. A, a citizen and resident of the Philippines, is a professional boxer. In a professional boxing match held in 2013, he won prize money in United States (US) dollars equivalent to P300,000,000.

c) The US already imposed and withheld income taxes from Mr. A’s prize money.

How may Mr. A use or apply the income taxes he paid on his prize money to the US when he computes his income tax liability in the Philippines for 2013?

Question 5

III.

Ms. C, a resident citizen, bought ready-to-wear goods from Ms. B, a nonresident citizen.

a) If the goods were produced from Ms. B’s factory in the Philippines, is Ms. B’s income from the sale to Ms. C taxable in the Philippines? Explain.

Question 6

III.

Ms. C, a resident citizen, bought ready-to-wear goods from Ms. B, a nonresident citizen.

b) If Ms. B is an alien individual and the goods were produced in her factory in China, is Ms. B’s income from the sale of the goods to Ms. C taxable in the Philippines? Explain.

Question 7

IV.

Mr. E and Ms. F are both employees of AAA Corp. They got married on February 14, 2011. On December 29, 2011, the couple gave birth to triplets. On June 25, 2013, they had twins. What were the personal exemptions/deductions which Mr. E and Ms. F could claim in the following taxable year:

a) for 2010.

Question 8

IV.

Mr. E and Ms. F are both employees of AAA Corp. They got married on February 14, 2011. On December 29, 2011, the couple gave birth to triplets. On June 25, 2013, they had twins. What were the personal exemptions/deductions which Mr. E and Ms. F could claim in the following taxable year:

b) for 2011.

Question 9

IV.

Mr. E and Ms. F are both employees of AAA Corp. They got married on February 14, 2011. On December 29, 2011, the couple gave birth to triplets. On June 25, 2013, they had twins. What were the personal exemptions/deductions which Mr. E and Ms. F could claim in the following taxable year:

c) for 2013.

Question 10

V.

BBB, Inc., a domestic corporation, enjoyed a particularly profitable year in 2014. In June 2015, its Board of Directors approved the distribution of cash dividends to its stockholders. BBB, Inc. has individual and corporate stockholders. What is the tax treatment of the cash dividends received from BBB, Inc. by the following stockholder:

a) A resident citizen.

Question 11

V.

BBB, Inc., a domestic corporation, enjoyed a particularly profitable year in 2014. In June 2015, its Board of Directors approved the distribution of cash dividends to its stockholders. BBB, Inc. has individual and corporate stockholders. What is the tax treatment of the cash dividends received from BBB, Inc. by the following stockholder:

b) Non-resident alien engaged in trade or business.

Question 12

V.

BBB, Inc., a domestic corporation, enjoyed a particularly profitable year in 2014. In June 2015, its Board of Directors approved the distribution of cash dividends to its stockholders. BBB, Inc. has individual and corporate stockholders. What is the tax treatment of the cash dividends received from BBB, Inc. by the following stockholder:

c) Non-resident alien not engaged in trade or business.

Question 13

V.

BBB, Inc., a domestic corporation, enjoyed a particularly profitable year in 2014. In June 2015, its Board of Directors approved the distribution of cash dividends to its stockholders. BBB, Inc. has individual and corporate stockholders. What is the tax treatment of the cash dividends received from BBB, Inc. by the following stockholder:

d) Domestic corporation.

Question 14

V.

BBB, Inc., a domestic corporation, enjoyed a particularly profitable year in 2014. In June 2015, its Board of Directors approved the distribution of cash dividends to its stockholders. BBB, Inc. has individual and corporate stockholders. What is the tax treatment of the cash dividends received from BBB, Inc. by the following stockholder:

e) Non-resident foreign corporation.

Question 15

VI.

Differentiate between double taxation in the strict sense and in a broad sense and give an example of each.

Question 16

VII.

On May 15, 2013, CCC, Inc. received the Final Decision on Disputed Assessment issued by the Commissioner of Internal Revenue (CIR) dismissing the protest of CCC, Inc. and affirming the assessment against said corporation. On June 10, 2013, CCC, Inc. filed a Petition for Review with the Court of Tax Appeals (CTA) in division. On July 31, 2015, CCC, Inc. received a copy of the Decision dated July 22, 2015 of the CT A division dismissing its Petition. CCC, Inc. immediately filed a Petition for Review with the CT A en banc on August 6, 2015.

Is the immediate appeal by CCC, Inc. to the CTA en banc of the adverse Decision of the CTA division the proper remedy?

Question 17

VIII.

In June 2013, DDD Corp., a domestic corporation engaged in the business of leasing real properties in the Philippines, entered into a lease agreement of a residential house and lot with EEE, Inc., a non-resident foreign corporation. The residential house and lot will be used by officials of EEE, Inc. during their visit to the Philippines. The lease agreement was signed by representatives from DDD Corp. and EEE, Inc. in Singapore. DDD Corp. did not subject the said lease to VAT believing that it was not a domestic service contract.

Was DDD Corp. correct? Explain.

Question 18

IX.

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.?

Question 19

IX.

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.

b) Discuss the proper procedure and applicable time periods for administrative and judicial claims for refund/credit of unutilized excess input VAT.

Question 20

X.

Indicate whether the following individual is required or not required to file an income tax return:

a) Filipino citizen residing outside the Philippines on his income from sources outside the Philippines.

Question 21

X.

Indicate whether the following individual is required or not required to file an income tax return:

b) Resident alien on income derived from sources within the Philippines.

Question 22

X.

Indicate whether the following individual is required or not required to file an income tax return:

c) Resident citizen earning purely compensation income from two employers within the Philippines, whose income taxes have been correctly withheld.

Question 23

X.

Indicate whether the following individual is required or not required to file an income tax return:

d) Resident citizen who falls under the classification of minimum wage earners.

Question 24

X.

Indicate whether the following individual is required or not required to file an income tax return:

e) An individual whose sole income has been subjected to final withholding tax.

Question 25

XI.

What are de minim is benefits and how are these taxed? Give three (3) examples of de minimis benefits.

Question 26

XII.

Mr. H decided to sell the house and lot wherein he and his family have lived for the past 10 years, hoping to buy and move to a new house and lot closer to his children’s school. Concerned about the capital gains tax that will be due on the sale of their house, Mr. H approaches you as a friend for advice if it is possible for the sale of their house to be exempted from capital gains tax and the conditions they must comply with to avail themselves of said exemption.

How will you respond?

Question 27

XIII.

GGG, Inc. offered to sell through competitive bidding its shares in HHH Corp., equivalent to 40% of the total outstanding capital stock of the latter. JJJ, Inc. acquired the said shares in HHH Corp. as the highest bidder. Before it could secure a certificate authorizing registration/tax clearance for the transfer of the shares of stock to JJJ, Inc., GGG, Inc. had to request a ruling from the BIR confirming that its sale of the said shares was at fair market value and was thus not subject to donor’s tax. In BIR Ruling No. 012-14, the CIR held that the selling price for the shares of stock of HHH Corp. was lower than their book value, so the difference between the selling price and the book value of said shares was a taxable donation. GGG, Inc. requested the Secretary of Finance to review BIR Ruling No. 012-14, but the Secretary affirmed said ruling. GGG, Inc. filed with the Court of Appeals a Petition for Review under Rule 43 of the Revised Rules of Court. The Court of Appeals, however, dismissed the Petition for lack of jurisdiction declaring that it is the CTA which has jurisdiction over the issues raised.

Before which Court should GGG, Inc. seek recourse from the adverse ruling of the Secretary of Finance in the exercise of the latter’s power of review?

Question 28

XIV.

KKK Corp. secured its Certificate of Incorporation from the Securities and Exchange Commission on June 3, 2013. It commenced business operations on August 12, 2013. In April 2014, Ms. J, an employee of KKK Corp. in charge of preparing the annual income tax return of the corporation for 2013, got confused on whether she should prepare payment for the regular corporate income tax or the minimum corporate income tax.

a) As Ms. J’s supervisor, what will be your advice?

Question 29

XIV.

KKK Corp. secured its Certificate of Incorporation from the Securities and Exchange Commission on June 3, 2013. It commenced business operations on August 12, 2013. In April 2014, Ms. J, an employee of KKK Corp. in charge of preparing the annual income tax return of the corporation for 2013, got confused on whether she should prepare payment for the regular corporate income tax or the minimum corporate income tax.

b) What are the distinctions between regular corporate income tax and minimum corporate income tax?

Question 30

XV.

In 2012, Dr. K decided to return to his hometown to start his own practice. At the end of 2012, Dr. K found that he earned gross professional income in the amount of P1,000,000.00; while he incurred expenses amounting to P560,000.00 constituting mostly of his office space rent, utilities, and miscellaneous expenses related to his medical practice. However, to Dr. K’s dismay, only P320,000.00 of his expenses were duly covered by receipts.

What are the options available for Dr. K so he could maximize the deductions from his gross income?

Question 31

XVI.

LLL is a government instrumentality created by Executive Order to be primarily responsible for integrating and directing all reclamation projects for the National Government. It was not organized as a stock or a non-stock corporation, nor was it intended to operate commercially and compete in the private market.

By virtue of its mandate, LLL reclaimed several portions of the foreshore and offshore areas of the Manila Bay, some of which were within the territorial jurisdiction of Q City. Certificates of title to the reclaimed properties in Q City were issued in the name of LLL in 2008. In 2014, Q City issued Warrants of Levy on said reclaimed properties of LLL based on the assessment for delinquent property taxes for the years 2010 to 2013.

a. Are the reclaimed properties registered in the name of LLL subject to real property tax?

Question 32

XVI.

LLL is a government instrumentality created by Executive Order to be primarily responsible for integrating and directing all reclamation projects for the National Government. It was not organized as a stock or a non-stock corporation, nor was it intended to operate commercially and compete in the private market.

By virtue of its mandate, LLL reclaimed several portions of the foreshore and offshore areas of the Manila Bay, some of which were within the territorial jurisdiction of Q City. Certificates of title to the reclaimed properties in Q City were issued in the name of LLL in 2008. In 2014, Q City issued Warrants of Levy on said reclaimed properties of LLL based on the assessment for delinquent property taxes for the years 2010 to 2013.

b. Will your answer be the same in (a) if from 2010 to the present time, LLL is leasing portions of the reclaimed properties for the establishment and use of popular fastfood restaurants J Burgers, G Pizza, and K Chicken?

Question 33

XVII.

Mr. L owned several parcels of land and he donated a parcel each to his two children. Mr. L acquired both parcels of land in 1975 for ll200,000.00. At the time of donation, the fair market value of the two parcels of land, as determined by the CIR, was 112,300,000.00; while the fair market value of the same properties as shown in the schedule of values prepared by the City Assessors was 112,500,000.00.

What is the proper valuation of Mr. L’s gifts to his children for purposes of computing donor’s tax?

Question 34

XVIII.

Under the Tariff and Customs Code, as amended:

a. When does importation begin and when is it deemed terminated?

Question 35

XVIII.

Under the Tariff and Customs Code, as amended:

b. In what easels is the decision of the Collector automatically reviewed by the Commissioner of Customs? In what instance/s is the decision of the Commissioner automatically appealed to the Secretary of Finance?

Question 36

XIX.

In 2014, M City approved an ordinance levying customs duties and fees on goods coming into the territorial jurisdiction of the city. Said city ordinance was duly published on February 15, 2014 with effectivity date on March 1, 2014.

a. Is there a ground for opposing said ordinance?

Question 37

XIX.

In 2014, M City approved an ordinance levying customs duties and fees on goods coming into the territorial jurisdiction of the city. Said city ordinance was duly published on February 15, 2014 with effectivity date on March 1, 2014.

b. What is the proper procedural remedy and applicable time periods for challenging the ordinance?

Question 38

XX.

After filing an Information for violation of Section 254 of the National Internal Revenue Code (Attempt to Evade or Defeat Tax) with the CTA, the Public Prosecutor manifested that the People is reserving the right to file the corresponding civil action for the recovery of the civil liability for taxes.

As counsel for the accused, comment on the People’s manifestation.

Question 39

XXI.

MMM, Inc., a domestic telecommunications company, handles incoming telecommunications services for non-resident foreign companies by relaying international calls within the Philippines. To broaden the coverage of its telecommunications services throughout the country, MMM, Inc. entered into various interconnection agreements with local carriers. The non-resident foreign corporations pay MMM, Inc. in US dollars inwardly remitted through Philippine banks, in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas.

MMM, Inc. filed its Quarterly VAT Returns for 2000. Subsequently, MMM, Inc. timely filed with the BIR an administrative claim for the refund of the amount of P6,321,486.50, representing excess input VAT attributable to its effectively zero-rated sales in 2000. The BIR ruled to deny the claim for refund of MMM, Inc. because the VAT official receipts submitted by MMM, Inc. to substantiate said claim did not bear the words “zero-rated” as required under Section 4.108-1 of Revenue Regulations (RR) No. 7-95. On appeal, the CTA division and the CT A en bane affirmed the BIR ruling.

MMM, Inc. appealed to the Supreme Court arguing that the NIRC itself did not provide for such a requirement. RR No. 7-95 should not prevail over a taxpayer’s substantive right to claim tax refund or credit.

a. Rule on the appeal of MMM, Inc.

Question 40

XXI.

MMM, Inc., a domestic telecommunications company, handles incoming telecommunications services for non-resident foreign companies by relaying international calls within the Philippines. To broaden the coverage of its telecommunications services throughout the country, MMM, Inc. entered into various interconnection agreements with local carriers. The non-resident foreign corporations pay MMM, Inc. in US dollars inwardly remitted through Philippine banks, in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas.

MMM, Inc. filed its Quarterly VAT Returns for 2000. Subsequently, MMM, Inc. timely filed with the BIR an administrative claim for the refund of the amount of P6,321,486.50, representing excess input VAT attributable to its effectively zero-rated sales in 2000. The BIR ruled to deny the claim for refund of MMM, Inc. because the VAT official receipts submitted by MMM, Inc. to substantiate said claim did not bear the words “zero-rated” as required under Section 4.108-1 of Revenue Regulations (RR) No. 7-95. On appeal, the CTA division and the CT A en bane affirmed the BIR ruling.

MMM, Inc. appealed to the Supreme Court arguing that the NIRC itself did not provide for such a requirement. RR No. 7-95 should not prevail over a taxpayer’s substantive right to claim tax refund or credit.

b. Will your answer in (a) be any different if MMM, Inc. was claiming refund of excess input VAT attributable to its effectively zero-rated sales in 2012?

Question 41

XXII.

State the conditions for allowing the following as deductions from the gross estate of a citizen or resident alien for the purpose of imposing estate tax:

a. Claims against the estate.

Question 42

XXII.

State the conditions for allowing the following as deductions from the gross estate of a citizen or resident alien for the purpose of imposing estate tax:

b. Medical expenses.