2005 BAR EXAMS QUESTIONS IN TAXATION LAW
- I -
a) Describe the power of taxation. May a legislative body enact laws to raise revenues in the absence of a constitutional provision granting said body the power to tax? Explain.
b) May taxes be the subject of set-off or compensation? Explain.
c) Can an assessment for a local tax be the subject of set-off or compensation against a final judgment for a sum of money obtained by the taxpayer against the local government that made the assessment? Explain.
d) Is a deficiency tax assessment a bar to a claim for tax refund or tax credit? Explain.
e) Is the approval of the court, sitting as probate or estate settlement court, required in the enforcement and collection of estate tax? Explain. (10%)
- II -
(1.) Explain briefly whether the following items are taxable or non-taxable:
a) Income from jueteng;
b) Gain arising from expropriation of property;
c) Taxes paid and subsequently refunded;
d) Recovery of bad debts previously charged off;
e) Gain on the sale of a car used for personal purposes. (5%)
(2.) State and discuss briefly whether the following cases may be compromised or may not be compromised:
a) Delinquent accounts;
b) Cases under administrative protest, after issuance of the final assessment notice to the taxpayer, which are still pending;
c) Criminal tax fraud cases;
d) Criminal violations already filed in court;
e) Cases where final reports of reinvestigation or reconsideration have been issued resulting in the reduction of the original assessment agreed to by the taxpayer when he signed the required agreement form. (5%)
- III -
(1.) A city outside of Metro Manila plans to enact an ordinance that will impose a special levy on idle lands located in residential subdivisions within its territorial jurisdiction in addition to the basic real property tax. If the lot owners of a subdivision located in the said city seek your legal advice on the matter, what would your advice be? Discuss. (5%)
(2.) a) State and explain the basis of dutiable value of an imported article subject to an ad valorem tax under the Tariff and Customs Code. b) Distinguish countervailing duty from dumping duty. (5%)
(3.) Jacob, after serving a 5-year tour of duty as military attaché in Jakarta, returned to the Philippines bringing with him his personal effects including a personal computer and a car. Would Jacob be liable for taxes on these items? Discuss fully. (5%)
- IV -
(1.) State with reasons the tax treatment of the following in the preparation of annual income tax returns:
a) Proceeds of life insurance received by a child as irrevocable beneficiary;
b) 13th month pay and de minimis benefits;
c) Dividends received by a domestic corporation from
(i) another domestic corporation; and
(ii) a foreign corporation;
d) Interest on deposits with
(i) BPI Family Bank; and
(ii) a local offshore banking unit of a foreign bank;
e) Income realized from sale of
(i) capital assets; and
(ii) ordinary assets. (5%)
(2.) a) State the conditions required by the Tax Code before the Commissioner of Internal Revenue could authorize the refund or credit of taxes erroneously or illegally received.
b) Does a withholding agent have the right to file an application for tax refund? Explain. (5%)
- V -
A taxpayer received a tax deficiency assessment of P1.2 Million from the BIR demanding payment within 10 days, otherwise, it would collect through summary remedies. The taxpayer requested for a reconsideration stating the grounds therefor. Instead of resolving the request for reconsideration, the BIR sent a Final Notice Before Seizure to the taxpayer. May this action of the Commissioner of Internal Revenue be deemed a denial of the request for reconsideration of the taxpayer to entitle him to appeal to the Court of Tax Appeals?
Decide with reasons. (5%)
- VI -
Danilo, who is engaged in the trading business, entrusted to his accountant the preparation of his income tax return and the payment of the tax due. The accountant filed a falsified tax return by underdeclaring the sales and overstating the expense deductions by Danilo.
Is Danilo liable for the deficiency tax and the penalties thereon?
What is the liability, if any, of the accountant? Discuss. (5%)
- VII -
An international airline with no landing rights in the Philippines sold tickets in the Philippines for air transportation. Is income derived from such sales of tickets considered taxable income of the said international air carrier from Philippine sources under the Tax Code? Explain. (5%)
- VIII -
JR was a passenger of an airline that crashed. He survived the accident but sustained serious physical injuries which required hospitalization for 3 months. Following negotiations with the airline and its insurer, an agreement was reached under the terms of which JR was paid the following amounts: P500,000.00 for his hospitalization; P250,000.00 as moral damages; and P300,000.00 for loss of income during the period of his treatment and recuperation. In addition, JR received from his employer the amount of P200,000.00 representing the cash equivalent of his earned vacation and sick leaves.
Which, if any, of the amounts he received are subject to income tax? Explain. (5%)
- IX -
Company A decides to close its operations due to continuing losses and to terminate the services of its employees. Under the Labor Code, employees who are separated from service for such cause are entitled to a minimum of one-half month pay for every year of service. Company A paid the equivalent of one month pay for every year of service and the cash equivalent of unused vacation and sick leaves as separation benefits.
Are such benefits taxable and subject to withholding tax under the Tax Code?
Decide with reasons. (5%)
- X -
The Roman Catholic Church owns a 2-hectare lot in a town in Tarlac province. The southern side and middle part are occupied by the Church and a convent, the eastern side by a school run by the Church itself, the southeastern side by some commercial establishments, while the rest of the property, in particular the northwestern side, is idle or unoccupied.
May the Church claim tax exemption on the entire land? Decide with reasons. (5%)
- XI -
An alien employee of the Asian Development Bank (ADB) who is retiring soon has offered to sell his car to you which he imported tax-free for his personal use. The privilege of exemption from tax is granted to qualified personal use under the ADB Charter which is recognized by the tax authorities.
If you decide to purchase the car, is the sale subject to tax? Explain. (5%)
- XII -
Ralph Donald, an American citizen, was a top executive of a U.S. company in the Philippines until he retired in 1999. He came to like the Philippines so much that following his retirement, he decided to spend the rest of his life in the country. He applied for and was granted a permanent resident status the following year. In the spring of 2004, while vacationing in Orlando, Florida, USA, he suffered a heart attack and died. At the time of his death, he left the following properties:
(a) bank deposits with Citibank Makati and Citibank Orlando, Florida;
(b) a resthouse in Orlando, Florida;
(c) a condominium unit in Makati;
(d) shares of stock in the Philippine subsidiary of the U.S. Company where he worked;
(e) shares of stock in San Miguel Corp. and PLDT;
(f) shares of stock in Disney World in Florida;
(g) U.S. treasury bonds; and
(h) proceeds from a life insurance policy issued by a U.S. corporation.
Which of the foregoing assets shall be included in the taxable gross estate in the Philippines? Explain. (5%)
- XIII -
Josel agreed to sell his condominium unit to Jess for P2.5 Million. At the time of the sale, the property had a zonal value of P2.0 Million. Upon the advice of a tax consultant, the parties agreed to execute two deeds of sale, one indicating the zonal value of P2.0 Million as the selling price and the other showing the true selling price of P2.5 Million. The tax consultant filed the capital gains tax return using the deed of sale showing the zonal value of P2.0 Million as the selling price.
Discuss the tax implications and consequences of the action taken by the parties. (5%)
- XIV -
(1.) Mr. Fermin, a resident of Quezon City, is a Certified Public Accountant-Lawyer engaged in the practice of his two professions. He has his main office in Makati City and maintains a branch office in Pasig City. Mr. Fermin pays his professional tax as a CPA in Makati City and his professional tax as a lawyer in Pasig City.
a) May Makati City, where he has his main office, require him to pay his professional tax as a lawyer? Explain.
b) May Quezon City, where he has his residence and where he also practices his two professions, go after him for the payment of his professional tax as a CPA and a lawyer? Explain. (5%)
(2.) In 1995, the BIR filed before the Department of Justice (DOJ) a criminal complaint against a corporation and its officers for alleged evasion of taxes. The complaint was supported by a sworn statement of the BIR examiners showing the computation of the tax liabilities of the erring taxpayer. The corporation filed a motion to dismiss the criminal complaint on the ground that there has been, as yet, no assessment of its tax liability; hence, the criminal complaint was premature. The DOJ denied the motion on the ground that an assessment of the tax deficiency of the corporation is not a precondition to the filing of a criminal complaint and that in any event, the joint affidavit of the BIR examiners may be considered as an assessment of the tax liability of the corporation.
Is the ruling of the DOJ correct? Explain. (5%)