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B
e s Dean, Saint Louis University School of Law, Baguio City
l
Head of the Department of Commercial Laws and Taxation (SLU)
b
Bar Reviewer in Commercial Laws and Taxation, Albano Bar Review Center &
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ChanRobles Internet Bar Review
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tenant monthly lease rentals of Php50,000. UW shall use all collections solely for
o(b) real property tax; (c) income tax on the rentals; and (d)
educational purposes. UW inquires from you if it will be liable for the following: (a)
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building permit fees;
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value-added tax on leasing. Discuss.
a a r
Suggested h Answer: B
C e sbe as follows:
l
The implications of the given facts upon UW shall
b
(a) As to building permit feesUWo
R under Section (4)(3), Article XIV of the 1987
shall be liable. The tax exemption granted to non-
o b
plans to ensure that they are conformable with safety standards.
under the police power of the State. UW, therefore, cannot claim exemption from such
imposition. (See: Angeles University Foundation v.R City of Angeles, G.R. No. 189999, 27 June
2012)
a n a r
h B 1987
(b) As to real property taxUW shall
Constitution provides that all lands, s
Cbuildings, and improvements, actually,e directly and
be liable. Section 28(3), Article VI of the
anitself to the
charitable
purposes is the direct and immediate and actual application of the property
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purposes for which the charitable institution is organized. It is not the use of the income
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from the real property that is determinative of whether the property is used for tax-exempt
purposes.)
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(c) As to income tax on the rentalsUW shall not be liable. Section (4)(3), Article XIV of
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the 1987 Constitution provides that all revenues and assets of non-stock, non-profit
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educational institutions which are used actually, directly and exclusively for educational
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purposes shall be free from taxes and duties. It is the use, and not the source, of the income
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which is determinative of its exemption. The rentals collected by UW are used actually,
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directly and exclusively for educational purposes. Thus, the said rentals should be free
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from income tax.
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(Note: **This may no longer be part of the answer. ** Notwithstanding the provisions of
Section 30 of the NIRC which apparently imposes income tax on income by tax-exempt
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corporations sourced from their activities conducted for profit or from the use of their
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properties irrespective of the disposition of such income, still, UW should not be liable
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because as a non-stock, non-profit educational institution, its exemption is not simply
statutory but constitutional. An exemption provided by the Constitution cannot be
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modified, altered, increased or decreased by statutory provisions.)
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R of all revenues and assets of non-stock, non-profit
(d) As to value-added tax on leasingUW should not be liable. The Constitution provides
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Constitution and the rulings of the BIR, it is obvious
should prevail.)
a a
Bto the
2. Congress passed a law amendingh
C issued the implementing revenue s
certain provisions of the NIRC. Pursuant
e regulation
said law, the Secretary of Finance
thereof. Mike, a taxpayer aggrieved by the amendment and its implementing
b l rules,
Quezon City, seeking to prohibit and/or enjoin the enforcement R oof the said law and
filed a petition for prohibition and/or injunction before the Regional Trial Court of
its implementing rules. In his Petition, Mike advanced then argument that the said law r
a a
hdismiss the case due to lack of B
and its implementing rules are violative of certain provisions of the Constitution.
jurisdiction on the ground that the case shouldC have been filed before the Court of s
The Solicitor General, on the other hand, moved to
Tax Appeals. If you were the judge who will resolve the motion, would you grant it? le
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Suggested Answer:
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No, I will not grant the motion. While the Court of Tax Appeals (CTA) has the
a njurisdiction
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to resolve tax disputes in general, where what is assailed is the validity or constitutionality
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of a law, or a rule or regulation issued by the administrative agency in the performance of
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its quasi-legislative function, the regular courts and the not the CTA have jurisdiction to
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pass upon the same. ( British American Tobacco v. Camacho, et al. , G.R. No. 163583 dated
August 20, 2008).
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3. LL is a Filipino employed by MM Corporation, a domestic corporation. MM
n rduring the latters startup phase, to help the
Corporation has a subsidiary in Indonesia, known as SS Corporation. MM
aCorporation a
B For the year 2012, LL stayed in Indonesia
sent LL to SS Corporation
h
es theheamount
subsidiary during its takeoff operations.
C for a period of 8 months. Thereafter,
Corporation, LL regularlylreceived
returned to MM Corporation. While in SS
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but both payments were o
Corporation, and an additional
made by MM Corporation. Are the said amounts subject to
income tax?
a n a r
h
Suggested Answer: B
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The salaries received by LL are not subject toe
s
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non-resident citizen because he is a Filipino l whose work required him to be physically
Philippine income tax. LL is considered as a
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determining whether compensation
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e were
within our without, the
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only question to address is where was the service rendered. Here, the service was rendered
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in Indonesia. Thus, regardless of the fact that the payments made by a domestic
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corporation, this will not, in itself result to the income being sourced from within the
Philippines.
injuries; Php30,000 lost profits, as X was not able to use his caro
months unearned salary as X was not able to report to his employment b due to his
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injury, which, under Section 32(B)(4) of the NIRC, is non-taxable.
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The lost profits are taxable, since there is a gain/income on the part of X that is not
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considered as part of compensation from personal injuries or sickness. Since the said
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payment is arising from profits, the same should be income taxable.
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The Php100,000 representing the difference between the current replacement cost of the
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car (Php600,000) and its original value (Php500,000) is taxable. In determining the gain or
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loss or for tax purposes, comparison must be had between the amount received as against
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the cost (or adjusted basis). Here, X received Php600,000 for a car costing Php500,000. The
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difference, therefore, is a gain that is subject to income tax.
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5. B Corporation had excessive quarterly corporate income tax payments for the
year 2011 in the amount of Php50M. For the year 2012, B Corporation had income
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tax liability of Php30M, for which the corporation did not pay any income tax
anymore, as it credited the amount from its 2011 overpayment. Since B Corporation
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still has a remaining overpayment of Php20M, it filed in 2013 a claim for refund of
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the said overpayment. Were the actions taken by B Corporation proper?
Suggested Answer:
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b l
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The action of B Corporation in crediting the excessive quarterly payments for the year
2011 against the income tax liability for 2012 is proper, as this is expressly allowed by
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Section 76 of the NIRC. When a corporation has excessive quarterly payments, it may either
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file a claim for refund or credit the overpayment against the income tax liabilities of the
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corporation of the succeeding quarters of the next taxable years. However, the availment of
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this crediting scheme is irrevocable, and, as a consequence, there will be no more right to
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file a claim for refund which will be entertained. Consequently, the action taken by B
Corporation in filing a claim for refund of Php20M is not proper. The recourse of B
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Corporation is to continue crediting the said amount against its income tax liabilities of the
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succeeding quarters until the same is exhausted.
a
B ago.
California, USA, which he bought h
6. ZZ, a Filipino residing in Manila, owns a residential condominium unit in
s
Cuse the said condominium unit, ZZ esold the same
for an amount of Php10M five years
Anticipating that he will no longer
for a consideration of Php20M. Discuss the income tax consequence
b l of the
transaction on ZZ.
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Suggested Answer:
a n a r
ZZ should declare as part of his gross income a capital h B
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gain of Php5M. As a resident citizen,
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is e
ZZ shall be liable for income tax on every income sourced from within or without the
Philippines. In this case, ZZ sold a real property classified as capital asset, but its locationl
outside the country. Hence, the transaction is not subject to the 6% capital gainsb
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Consequently, any gain on the part of ZZ should be reported as part of the gross income. o tax.
a n
ZZs actual income is Php10M, derived by deducting the cost of Php10M from the selling
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price of Php20M. However, since ZZ is an individual and the asset is a capital asset, the
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B50%apply.
holding period rule shall And considering that ZZ has held the asset for a long-term
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holding period, only of the gain, or the amount of Php5M, shall be recognized for
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income tax purposes.
b
Ro spouses in their new life as married individuals, H and W decided to
7. Spouses H and W have a child named Q. Q will get married to R. To help the
C made in favor of R, as the latter iseans in-law (and, therefore, for donors tax
applied because relatives. However, with respect to the
donation
higher, yielding a total of Php3M. This amount, added to the n fair market value of the house r
which is Php3.5M, will result to Php6.5Man amount higher a than the selling price. B a
C h s
The capital gains tax should be paid within a period of 30 days from the lapse of the
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redemption period, if no redemption is effected. It is because it is only after the lapse of the
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redemption period that transfer of ownership over the property shall be considered as
effective.
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October 2014, but the said date was declared as a non-working holiday. X thus filed
his Petition on 2 s
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October 2014, which is the next working day.
a. Was thel
o b Petition before the Court of Tax Appeals timely filed?
b. RAssume that 1 October 2014 is incidentally also the last day of the two-year
n forCode,
aRevenue
period
would your answer bea
r to Section 229 of the National Internal
X to file a case of refund pursuant
h B the same?
C Suggested Answer: e s
(a) Yes, the petition wasb
l
R o Sunday or Holiday, the same may be filed during the next
timely filed. It is well-settled that if the last day to file a Petition
for Review falls on a Saturday,
working day.
a n a r
(b) No, my
periodC
hanswer will be different. If 1 Octobers 2014 B mustis also the last day of the two-year
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to file a case for refund, the filing of the Petition be done the working day prior
l Thus, if the taxpayer files the Petition after 1
to the holiday. This is because the two-year period is a prescriptive period, and not a mere
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reglementary period, to file a claim for refund.
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October 2014, the same is already time-barred.
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letter-protest and stated that if the taxpayer disagrees with the findings of the BIR, it
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may exercise its right of appealing to the Court of Tax Appeals. Thus, T Corporation,
within thirty days from the receipt of the letter-denial, filed a Petition for Review
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with the Court of Tax Appeals. The BIR moved to dismiss the case on the ground that
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there was yet no protest of the assessment itself, as what the BIR denied was only the
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letter-protest regarding the preliminary assessment. Decide.
b
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Suggested Answer:
RMotion to Dismiss must be denied. The taxpayer cannot be blamed for not filing a
n The language used and the tenorarof the letter of the BIR shows that it is the final
aprotest.
The
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of the BIR clearly indicates
taxpayer disagrees, it may appeal the final decision from receipt thereof. Thus, the CIR is
n r of administrative remedies.
estopped in claiming that he did not intend the letter to be a final decision. This case,
therefore, isa a
B 2010).
excepted from the requirement of exhaustion
h
(Allied Banking
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Corp. v. CIR, G.R. No. 175097, 05 February
l e
b located at Ortigas, it decided to sell the
12. X Leasing Corporation is engaged in leasing its buildings and other properties.
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Suggested Answer:
an B a r
h
No. The sale, not being in the regular course of business, is not s
C e of business. In this case, the
subject to VAT. For sales to
be subject to VAT, the same must be done in the regular course
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business of X is leasing and not selling. (Cf. CIR v. Magsaysay l Lines, Inc. , GR No. 146984, 28
July 2006).
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(Note: The answer above is different fromn r
amending Revenue Regulations 16-2005. a a
Section 14, Revenue Regulations 4-2007
h Bcourse
In the said regulations, the sale of a property
b NIRC)
o in real estate
(Second Note: It would be different if X Corporation were engaged
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businesses of the corporation. Thus, the sale will be subjecta
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development because in such a case, the sale will be considered as one of the functions or
to VAT. ) a r
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13. X Corporation is engaged in selling goods. C Y Corporation, a real estate
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developer, exchanged its real properties for shares of stocks of X Corporation,
resulting in Y Corporation gaining control of X Corporation. Discuss the incomebtax
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and VAT consequences of the event.
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Suggested Answer:
an
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B
e s
As to income tax: there shall be no income tax consequence of the transaction as it qualifies
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as an income tax free exchange under Section 40(c) of the NIRC. The law states that no gain
or loss shall be recognized if property is transferred to a corporation by a person in
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exchange for stock or unit of participation in such a corporation of which as a result of such
exchange said person, alone or together with others, not exceeding four (4) persons, gains
an a r
control of said corporation. The factual situation in the problem falls squarely within the
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said provision of law.
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As to VAT consequence, the inventory of goods of X Corporation is NOT subject to VAT, but
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the exchange of real properties of Y Corporation for the shares of X Corporation shall be
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subject to VAT. The goods of X Corporation will not be considered sold, as they are still
owned by X Corporation, even if the control over X Corporation is now vested upon Y
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Corporation. However, the transfer of the real properties of Y Corporation to the
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shareholders of X Corporation (in order for Y Corporation to get the said shares and
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eventually take control of X Corporation) is subject to VAT, as there was effective transfer
of ownership of the said real properties.
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14. K died, survived by his wife and three children. The estate tax was paid by the
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heirs and the estate settled and distributed among them. Each of the heirs received
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Php4M. Later, the BIR found out that the estate tax was not correctly paid, thus, the
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BIR issued deficiency estate taxes plus interest, surcharges and penalties totaling
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Php5M. Since the three children were already out of the country, the BIR was
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collecting the Php5M from K. Was the action taken by the BIR correct?
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Suggested Answer:
bl
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The BIR is correct in collecting the deficiency estate tax from K alone. The rule is that when
an ar
it comes to estate tax liabilities, all or some or any of the heirs may be held liable. However,
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the said heir(s) may be liable only up to the extent of his distributive share in the estate. It
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is here where the BIR committed an error. The extent of the liability of K should not exceed
her distributive share in the estate, which is Php4M. She cannot be held liable for the entire
Php5M.
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(Note: In the event K is made liable for the estate tax liability, her remedy is to run after
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her co-heirs for their respective share in such liability.)
B a
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15. After an audit investigation, Internal Revenue Authorities issued a notice of
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informal conference to a taxpayer. The taxpayer questioned the basis for the
proposed assessment, but this notwithstanding, the BIR still proceeded to issue a
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pre-assessment notice, stating therein the same factual and legal basis for the an b
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impending assessment. The taxpayer again protested. Subsequently, a formal
an
assessment was issued against the taxpayer indicating therein the supposed tax,
surcharge, interest and compromise penalty due thereon. This time, however, the
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taxpayer was not provided with the written basis of the law and facts on which the
assessment is based. Revenue authorities justified its action by stating that the basis
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of the assessment was advised upon the taxpayer during the informal conference
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and the pre-assessment stage. Is the assessment valid?
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Suggested Answer:
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The assessment is not valid. Section 228 of the NIRC clearly requires that an assessment
should contain the facts and the law upon which it is based; otherwise, it is void. Here, the
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assessment did not contain the factual and legal bases for the assessment. Applying,
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therefore, the provisions of law, the assessment is void. The mere fact that the taxpayer
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was supposedly notified during the informal conference and pre-assessment stages of the
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basis for the assessment does not cure the defect. The mandate of the law is clear. And in
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this case, such was not complied with.
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16. The Municipality of Sta. Rosa enacted an ordinance which requires that all
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stores, restaurants, and other establishments selling liquor should pay a fixed
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annual fee of Php10,000,00. Subsequently, the Sangguniang Bayan proposed an
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ordinance imposing an additional tax on all business engaged in selling liquor
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equivalent to 5% of the amount of gross sales of the store during the past year. The
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municipal mayor refused to sign the ordinance on the ground that it would
constitute double taxation, and that the ordinance is violative of Section 133 of the
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Local Government Code. The board, on the other hand, justified that there is no
double taxation as the subjects of the taxes are different, and that there is no
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violation of Section 133 because the imposition is based not on current sales but on
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previous years gross sales. Is the refusal of the Mayor justified? Reason.
s
e
bl
Suggested Answer:
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The refusal of the Mayor is justified, not on the ground of double taxation but based on
violation of Section 133 of the Local Government Code.
b
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imposed through the exercise of police power while the 5% tax on purchase or
consumption is a local tax imposed through the exercise of taxing powers.
b
The mere fact that it is based on the preceding calendar years sales will not change the fact l
that the imposition is still in the nature of a percentage tax.
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(Note: The above-stated answer is not conformable with the suggested answer n
a answer in
in the 2004
h
Bar Examination in Taxation. It must be pointed out, however, that the suggested
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the 2004 Bar Examination in Taxation did not consider the issue of violation of Section 133
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of the Local Government Code and simply focused on the issue of double taxation.)
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b l of Benguet enacted an Ordinance levying amusement taxes
17. The Province
Ro valid?
equivalent to 10% of the gross admission fees collected by resort operators. Is the
Ordinance
n Answer:
aSuggested a r
h B
No, it is not valid. The impositionsis in the nature of a percentage tax, which, under Section
C 133
l eCode, cannot be levied by local governments (including
bcannot be justified under the guise of an amusement tax under
of the Local Government
o
Provinces). The imposition
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boxing stadia andn other places of amusement. Resortsrare not classified in the same
the gross admission fees of theaters, cinemas, concert halls, circuses,
athat the subject of the tax is a place
h B
category of those subject to amusement tax, as it is clear
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there may occasionally be visual engagement,e
where one seeks to enjoy by watching or viewing s a show or performance. In a resort, while
Corporation v. Province of Benguet, G.R. No.b l such is not the main purpose. (Pelizloy Realty
183137, 10 April 2013).
commercial proper?
o b of the medical arts center as
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Suggested Answer:
a n a r
h been classified also as special. The factB
s
No. The medical arts center should have that the
medical arts center is exclusively for C the doctors of the hospital clearly
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removes it from
being classified as commercial. The operation of the medical arts center
b lisis incidental
incidental to
a n 8 June 2007).
a r
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19. The Collector of Customs commenced seizure proceedings over the goods
of the goods subject of the s
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seizure proceedings, filed a case before the Regional Trial Court (RTC) against the e
imported by J. K, who claims to be the lawful owner
Bureau of Customs for recovery of possession with prayer for the issuance of a writ
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of replevin. The trial court issued summons requiring the Collector to o file his
responsive pleading. What is the best action to be taken by the Collector? R
an
h
Suggested Answer:
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B
e s
b l
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n Collector should continue with theaseizure
aThe r and forfeiture proceedings. As to the case
h B move for the dismissal of the case, as the RTC has
s sitting in seizure and forfeiture proceedings, has
C no jurisdiction. The Collector ofeCustoms,
filed with the RTC, the Collector should
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validity or regularity ofothe seizure and forfeiture proceedings conducted by the Bureau of
dutiable goods. The RTC has no jurisdiction to pass upon the
h
Commissioner of Customs whose decision, in return, B is reviewable by the Court of Tax
C
Appeals.
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b l be issued if its effect is to recover possession
It is well-settled that a writ of replevin cannot
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acting on such protest. Can X already file an appeal before b the Court of Tax Appeals?
protest has now been pending for almost two years, without the Collector of Customs
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Suggested Answer:
a n a r
h B X
Even if the Collector did not act on Xs protest
to file directly an appeal to the Court s
Cof Tax Appeals. The CTAs jurisdictioneover customs
for almost two years, this will not authorize
o as no provision of
Customs. In the present case, there is yet no decision to appeal to the CTA. The principle of
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inaction as an implied denial is not applicable to Customs protest cases,
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the Tariff and Customs Code authorizes the application of such.
B a
C h s
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an
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