2010 BAR EXAMINATIONS
TAXATION
12 September 2010 2 P.M – 5 P.M.
INSTRUCTIONS
This questionnaire is in TWO (2) PARTS: Part I with nine (9)
questions (numbered I to IX), contained in five (5) pages; and Part
II with nine (9) questions (numbered X to XVIII), contained in six
(6) pages, for a total number of eleven (11) pages.
Write your answers to Part I and Part II in the corresponding
portions indicated in the booklet.
Begin your answer to each numbered question on a separate page;
an answer to a sub-question/s under the same number may be
written continuously on the same page and succeeding pages until
completed.
Answer the questions directly and concisely. Do not repeat the
question. Write legibly.
HAND IN YOUR NOTEBOOK WITH THIS QUESTIONNAIRE
GOOD LUCK!!!
______________________________
CONCHITA CARPIO MORALES
Chairperson
2010 Bar Examinations Committee
PLEASE CHECK THAT THIS SET CONTAINS ELEVEN (11)
PAGES (INCLUDING THIS PAGE).
WARNING: NOT FOR SALE OR UNAUTHORIZED USE
PART I
I
True or False.
A. In civil cases involving the collection of internal revenue
taxes, prescription is construed strictly against the
government and liberally in favor of the taxpayer. (1%)
B. In criminal cases involving tax offenses punishable under the
National Internal Revenue Code (NIRC), prescription is
construed strictly against the government. (1%)
C. In criminal cases where the Court of Tax Appeals (CTA) has
exclusive original jurisdiction, the right to file a separate civil
action for the recovery of taxes may be reserved. (1%)
D. Proceedings before the CTA in the exercise of its exclusive
original jurisdiction are in the nature of trial de novo. (1%)
E. Judgments, resolutions or orders of the Regional Trial Court
in the exercise of its original jurisdiction involving criminal
offenses arising from violations of the NIRC are appealable
to the CTA, which shall hear the cases en banc. (1%)
II
A. What is the “all events test”? Explain briefly. (2%)
B. What is the “immediacy test”? Explain briefly. (2%)
C. What is the “rational basis” test? Explain briefly. (2%)
D. What is the effect of the execution by a taxpayer of a “waiver
of the statute of limitations” on his defense of prescription?
(2%)
E. What is the basis for the computation of business tax
on contractors under the Local Government Code? (2%)
F. How are retiring businesses taxed under the Local
Government Code? (2%)
III
Mirador, Inc., a domestic corporation, filed its Annual
Income Tax Return for its taxable year 2008 on April 15, 2009. In
the Return, it reflected an income tax overpayment of
P1,000,000.00 and indicated its choice to carry-over the
overpayment as an automatic tax credit against its income tax
liabilities in subsequent years.
On April 15, 2010, it filed its Annual Income Tax Return for
its taxable year 2009 reflecting a taxable loss and an income tax
overpayment for the current year 2009 in the amount of
P500,000.00 and its income tax overpayment for the prior year
2008 of P1,000,000.00.
In its 2009 Return, the corporation indicated its option to
claim for refund the total income tax overpayment of
P1,500,000.00
Choose which of the following statements is correct.
A. Mirador, Inc. may claim as refund the total income tax
overpayment of P1,500,000.00 reflected in its income tax
return for its taxable year 2009;
B. It may claim as refund the amount of P500,000.00
representing its income tax overpayment for its taxable year
2009; or
C. No amount may be claimed as refund.
Explain the basis of your answer. (5%)
IV
On March 10, 2010, Continental, Inc. received a preliminary
assessment notice (PAN) dated March 1, 2010 issued by the
Commissioner of Internal Revenue (CIR) for deficiency income
tax for its taxable year 2008. It failed to protest the PAN. The
CIR thereupon issued a final assessment notice (FAN) with letter
of demand on April 30, 2010. The FAN was received by the
corporation on May 10, 2010, following which or on May 25,
2010, it filed its protest against it.
The CIR denied the protest on the ground that the assessment
had already become final and executory, the corporation having
failed to protest the PAN.
Is the CIR correct? Explain. (5%)
V
Does the Court of Appeals have the power to review
compromise agreements forged by the Commissioner of Internal
Revenue and a taxpayer? Explain. (5%)
VI
Based on the Affidavit of the Commissioner of Internal
Revenue (CIR), an Information for failure to file income tax return
under Section 255 of the National Internal Revenue Code (NIRC)
was filed by the Department of Justice (DOJ) with the Manila
Regional Trial Court (RTC) against XX, a Manila resident.
XX moved to quash the Information on the ground that the
RTC has no jurisdiction in view of the absence of a formal
deficiency tax assessment issued by the CIR.
Is a prior assessment necessary before an Information for
violation of Section 255 of the NIRC could be filed in court?
Explain. (4%)
VII
What are the conditions that must be complied with before
the Court of Tax Appeals may suspend the collection of national
internal revenue taxes? (3%)
VIII
What is the rule on appeal from decisions of the Collector of
Customs in protest and seizure cases? When is the decision of the
Collector of Customs appealable to the Court of Tax Appeals?
Explain. (5%)
IX
On May 15, 2009, La Manga Trading Corporation received a
deficiency business tax assessment of P1,500,000.00 from the
Pasay City Treasurer. On June 30, 2009, the corporation contested
the assessment by filing a written protest with the City Treasurer.
On October 10, 2009, the corporation received a collection
letter from the City Treasurer, drawing it to file on October 25,
2009 an appeal against the assessment before the Pasay Regional
Trial Court (RTC).
A. Was the protest of the corporation filed on time? Explain.
(3%)
B. Was the appeal with the Pasay RTC filed on time? Explain.
(3%)
- END OF PART ITaxation
PART II
X
True or False. (1% each)
A. Gains realized by the investor upon redemption of shares of
stock in a mutual fund company are exempt from income tax.
B. A corporation can claim the optional standard deduction
equivalent to 40% of its gross sales or receipts, as the case
may be.
C. Premium payment for health insurance of an individual who
is an employee in an amount of P2,500 per year may be
deducted from gross income if his gross salary per year is not
more than P250,000.
D. The Tax Code allows an individual taxpayer to pay in two
equal installments, the first installment to be paid at the time
the return is filed, and the second on or before July 15 of the
same year, if his tax due exceeds P2,000.
E. An individual taxpayer can adopt either the calendar or fiscal
period for purposes of filing his income tax return.
F. The capitalization rules may be resorted to by the BIR in
order to compel corporate taxpayers to declare dividends to
their stockholders regularly.
G. Informer’s reward is subject to a final withholding tax of
10%.
H. A non-resident alien who stays in the Philippines for less
than 180 days during the calendar year shall be entitled to
personal exemption not to exceed the amount allowed to
citizens of the Philippines by the country of which he is
subject or citizen.
XI
Are the following transactions subject to VAT? If yes, what
is the applicable rate for each transaction. State the relevant
authority/ies for your answer.
A. Construction by XYZ Construction Co. of concrete barriers
for the Asian Development Bank in Ortigas Center to prevent
car bombs from ramming the ADB gates along ADB Avenue
in Mandaluyong City. (3%)
B. Call Center operated by a domestic enterprise in Makati that
handles exclusively the reservations of a hotel chain which
are all located in North America. The services are paid for in
US$ and duly accounted for with the Bangko Sentral ng
Pilipinas. (3%)
C. Sale of orchids by a flower shop which raises its flowers in
Tagaytay. (3%)
XII
Ferremaro, Inc., a manufacturer of handcrafted shoes,
maintains its principal office in Cubao, Quezon City. It has
branches/sales offices in Cebu and Davao. Its factory is located in
Marikina City where most of its workers live. Its principal office
in Quezon City is also a sales office.
Sales of finished products for calendar year 2009 in the
amount of P10 million were made at the following locations:
i) Cebu branch 25%
ii) Davao branch 15%
iii) Quezon City branch __60%
Total 100%
Where should the applicable local taxes on the shoes be paid?
Explain. (3%)
XIII
XYZ Shipping Corporation is a branch of an international
shipping line with voyages between Manila and the West Coast of
the U.S. The company’s vessels load and unload cargoes at the
Port of Manila, albeit it does not have a branch or sales office in
Manila. All the bills of lading and invoices are issued by the
branch office in Makati which is also the company’s principal
office.
The City of Manila enacted an ordinance levying a 2% tax on
gross receipts of shipping lines using the Port of Manila.
Can the City Government of Manila legally impose said levy
on the corporation? Explain. (3%)
XIV
A inherited a two-storey building in Makati from his father, a
real estate broker in the ‘60s. A group of Tibetan monks
approached A and offered to lease the building in order to use it as
a venue for their Buddhist rituals and ceremonies. A accepted the
rental of P1 million for the whole year.
The following year, the City Assessor issued an assessment
against A for non-payment of real property taxes.
Is the assessor justified in assessing A’s deficiency real
property taxes? Explain. (3%)
XV
Don Sebastian, single but head of the family, Filipino, and
resident of Pasig City, died intestate on November 15, 2009. He
left the following properties and interests:
House and lot (family home) in Pasig P 800,000
Vacation house and lot in Florida, USA 1,500,000
Agricultural land in Naic, Cavite which
he inherited from his father 2,000,000
Car which is being used by his brother in 500,000
Cavite
Proceeds of life insurance where he named
his estate as irrevocable beneficiary 1,000,000
Household furnitures and appliances 1,000,000
Claims against a cousin who has assets of
P10,000 and liabilities of P100,000 100,000
Shares of stock in ABC Corp, a domestic
enterprise 100,000
The expenses and charges on the estate are as follows:
Funeral Expenses P 250,000
Legal fees for the settlement of the estate 500,000
Medical expenses of last illness 600,000
Claims against the estate 300,000
The compulsory heirs of Don Sebastian approach you and
seek your assistance in the settlement of his estate for which they
have agreed to the above-stated professional fees. Specifically,
they request you to explain and discuss with them the following
questions. You oblige:
A. What are the properties and interests that should be included
in the computation of the gross estate of the decedent?
Explain. (2.5%)
B. What is the net taxable estate of the decedent? Explain.
(2.5%)
C. When is the due date for filing and payment of the applicable
tax return and tax? Are these dates extendible? If so, under
what conditions or requirements? (2.5%)
D. If X, one of the compulsory heirs, renounces his share in the
inheritance in favor of the other co-heirs, is there any tax
implication of X’s renunciation? What about the other coheirs?
(2.5%)
XVI
A is a travelling salesman working full time for Nu Skin
Products. He receives a monthly salary plus 3% commission on
his sales in a Southern province where he is based. He regularly
uses his own car to maximize his visits even to far flung areas.
One fine day a group of militants seized his car. He was notified
the following day by the police that the marines and the militants
had a bloody encounter and his car was completely destroyed after
a grenade hit it.
A wants to file a claim for casualty loss. Explain the legal
basis of your tax advice. (3%)
XVII
In 2009, Caruso, a resident Filipino citizen, received dividend
income from a U.S.-based corporation which owns a chain of
Filipino restaurants in the West Coast, U.S.A. The dividend
remitted to Caruso is subject to U.S. withholding tax with respect
to a non-resident alien like Caruso.
A. What will be your advice to Caruso in order to lessen the
impact of possible double taxation on the same income?
(3%)
B. Would your answer in A. be the same if Caruso became a
U.S. immigrant in 2008 and had become a non-resident
Filipino citizen? Explain the difference in treatment for
Philippine income tax purposes. (3%)
XVIII
ABC, a domestic corporation, entered into a software license
agreement with XYZ, a non-resident foreign corporation based in
the U.S. Under the agreement which the parties forged in the U.S.,
XYZ granted ABC the right to use a computer system program and
to avail of technical know-how relative to such program. In
consideration for such rights, ABC agreed to pay 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. (5%)
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