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Answers to the BAR: Taxation 1994-2006

(Arranged by Topics)[email protected] TO BAREXAMINATION QUESTIONSINTAXATION LAW
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*ARRANGED BY TOPIC*(1994 2006)Edited and Arranged by:ROMUALDO L. SEERIS II

Silliman University - College of LawFrom the ANSWERS TO BAREXAMINATION QUESTIONSby the UP LAW COMPLEX&PHILIPPINE ASSOCIATION OF LAW SCHOOLSJune 3, 2007Answers to the BAR: Taxation 1994-2006(Arranged by Topics)

[email protected] work is NOT intended FOR SALE or COMMERCE. This work is a freeware. It maybe freely copied and distributed,nevertheless, PERMISSION

TO COPY from the editorsis ADVISABLE to protect the interestof the ORIGINAL SOURCES/REFERENCES ofthis material.... It is primarily intended for all those who desire to have adeeperunderstanding of the issues commonly touched by the Philip

pine Bar Examinations andits trend on specifically on Taxation Laws. Itisspecifically intended for law students fromthe provinces who, very often, arerecipientsof deliberately distorted notes from otherunscrupulous law schools and students.I would like to seek the indulgence of

the reader for some Bar Questions whichareimproperly classified undera topic and for some topics which are improperly orignorantly phrased, for the arranger is just

a Bar Reviewee who has prepared this workwhile reviewing for the 2ndtime for the Bar Exams 2007 under timeconstraints andwithin his limited knowledge of the law. Iwould like to seek the readers indulgence alsofor a number of typographical errors in this

work.The ArrangerAnswers to the BAR: Taxation 1994-2006(Arranged by Topics)[email protected]: Charitable Institutions (2000)

...............................................................................................................32Exemptions: Charitable Institutions;Churches (1996)..............................................................................................32Exemptions: Educational institution (2004)

...............................................................................................................32Exemptions: Gifts & Donations (1994)......................................................................................................................32Exemptions: Head of the Family: (1998)


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.......................................................................

............................................33Exemptions: Non-Profit EducationalInstitutions (2000).......................................................................

.....................33Exemptions: Non-Profit Entity; AncillaryActivity & Incidental Operations (1994)......................................................33Exemptions: Non-Stock/ Non-Profit Association (2002).......................................................................

.....................34Exemptions: Prize of Peace Poster Contest(2000)....................................................................................................34Exemptions: Prizes & Awards; Athletes(1996)

.........................................................................................................34Exemptions: Retirement Benefits: WorkSeparation (1999).......................................................................................34Exemptions: Separation Pay (1994)

..........................................................................................................................35Exemptions: Separation Pay (1995)..........................................................................................................................35Exemptions: Separation Pay (2005)

.......................................................................

...................................................36Exemptions: Stock Dividends (2003)........................................................................................................................

36Exemptions: Strictly Construed (1996).....................................................................................................................36Exemptions: Terminal Leave Pay (1996)...................................................................................................................36

Exemptions; Charitable Institutions (2006)...............................................................................................................36Exemptions; Educational institution (2004)...............................................................................................................36Exemptions; Exemptions are Unilateral in

Nature (2004)...........................................................................................37Exemptions; Govt Bonus, Gifts, &Allowances (1994)..............................................................................................37

Exemptions; Personal & AdditionalExemption (2006)..............................................................................................37Exemptions; Roman Catholic Church;Limitations (2005).........................................................................................


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38CAPITAL GAIN TAX................................................................................................................................38

Capital Asset vs. Ordinary Asset (2003)....................................................................................................................38Capital Gain Tax; Nature (2001)................................................................................................................................38

Ordinary Sale of a Capital Asset (1994).....................................................................................................................38Sales of Share of Stocks: Capital Gains Tax Return (1999).......................................................................................39

Tax Basis: Capital Gains: Merger ofCorporations (1994)..........................................................................................39Tax Basis: Capital Gains: Tax-Free Exchangeof Property (1994)..............................................................................

39CORPORATION & PARTNERSHIP......................................................................................................39Bad Debts; Factors; Elements thereof (2004)............................................................................................................39

Condominium Corp.; Saleof Common Areas (1994).................................................................................................40Corporation; Sale; Creditable Withholding

Tax (1994)...............................................................................................40Dividends: Withholding Tax (1999)...........................................................................................................................40Effect: Dissolution; Corporate Existence

(2004)........................................................................................................41Minimum Corporate Income Tax (2001).....................................................................................................................41Minimum Corporate Income

Tax; Exemption (2001)..................................................................................................41ESTATE & DONORS TAXES ...............................................................................................................41Donors Tax: Election Contributions (1998)

..............................................................................................................41Donors Tax; Basis for Determining Gain(1995).......................................................................................................41


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Donors Tax; Dacion en Pago; Effect:Taxation (1997)..............................................................................................42Donors Tax; Donation to a Sibling (2001)

.................................................................................................................42Donors Tax; Donation to No n-Stock, Non-ProfitPrivate Educational Institutions (2000)...........................................42Donors Tax; Donation to Political Candidate

(2003).................................................................................................43Donors Tax; Donee or Beneficiary; Stranger(2000).................................................................................................43

Donors Tax; Sale of shares of St ock & Sale of Real Property (1999).........................................................................43Estate Tax: Comprehensive Agrarian ReformLaw (1994)..........................................................................................

43Estate Tax: Donation Mortis Causa (2001)................................................................................................................43Estate Tax: Donation Mortis Causa vs. InterVivos (1994).........................................................................................

44Estate Tax: Gross Estate: AllowableDeduction (2001)..............................................................................................44

Estate Tax: Gross Estate: Deductions (2000)............................................................................................................44Estate Tax: Inclusion: Resident Alien (1994).............................................................................................................44Estate Tax: Payment vs. Probate

Proceedings (2004)...............................................................................................45Estate Tax: Situs of Taxation: Non-Resident Decedent (2000)...................................................................................45

Estate Tax: Vanishing Deductions (1994)..................................................................................................................45Estate Tax; Payment vs. ProbateProceedings (2005)...............................................................................................45

BUSINESS TAXES..................................................................................................................................45Answers to the BAR: Taxation 1994-2006(Arranged by Topics)[email protected]


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of73smuggled articles. The mere carrying ofsuch articles onboard the truck (in commercialquantities) shall subject

the truck to forfeiture, since it was notbeing used as aduly authorized common carrier, which was chartered orleased as such. (Sec. 2530 [a], TCC)Moreover, although forfeiture of thevehicle will not beeffected if it is established that the owner thereof had no

knowledge of or participationin the unlawful act, therearises aprima faciepresumption or knowledge orparticipation if the owner is not in thebusiness for whichthe conveyance is generallyused. Thus, not having a

certificate of public convenience to operate a truckingbusiness, he is legally deemednot to have been engaged inthe trucking business.(Sec. 2531, Tariff and Customs Code)Customs: Steps involving Protest Cases (1994)The Collector of Customs instituted seizure

proceedingsagainst a shipment of motor vehicles forhaving beenmisdeclared as second-hand vehicles. Statethe procedurefor the review of the decision up to theSupreme Court ofthe Collector of Customs adverse to theimporter.

SUGGESTED ANSWER:The procedure in seizure cases may besummarized asfollows:(a)The collector issues a warrant for the

detention orforfeiture of the importedarticles; (Sec. 2301, Tariffand Customs Code)(b)The Collector gives the importer a writtennotice ofthe seizure and fixes a hearing date to give

theimporter an opportunity tobe heard; (Sec. 2303,TCC)(c)A formal hearing is conducted; (Sec. 2312, TCC)(d)The Collector renders a declaration of

forfeiture;(Sec. 2312, TCC)(e)The Importer aggrieved by the action of theCollector in any case of seizure may appealto theCommissioner for his reviewwithin fifteen (15) daysfrom written notice of the Collector's

decision; (Sec.2313, TCC)(f)The importer aggrieved by the action orruling of theCommissioner in any case of seizure mayappeal tothe Court of Tax Appeals; (Sec. 2402, TCC)


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(g)The importer adversely affected by thedecision ofthe Court of Tax Appeals (Division) mayappeal tothe Court of Tax Appeals (en banc) within

fifteen(15) days which may be extended foranother fifteen(15) days or such periodas the Court of Tax Appealsmay decide.Customs; Basis of Dutiable Value; Imported Article (2005)State and explain the basis of dutiable value

of animported article subject to an ad valoremtax under theTariff and Customs Code.ALTERNATIVE ANSWER:The basis of dutiable value ofan imported article subjectto anad valorem tax

under the Tariff and Customs Code isits TRANSACTION VALUE. (Sec. 201[A], Tariff andCustoms Code, as amended by R.A. No.9135)If such valuecould not be determined, then thefollowing values are tobe utilized in their sequence:

Transaction value ofidentical goods(Sec. 201[B]);Transaction value ofsimilar goods(Sec. 201[C]);Deductive value(Sec. II.E.1, CA.O. No. 4-2004);Computed value

(Sec.,II.F.l, C.A.O. No. 1-20040) andFallback value. (

Sec.201[F])ALTERNATIVE ANSWER:The basis of dutiable value ofan imported article subjectto an ad valorem tax under the Tariff andCustoms Codeis its transaction value, whic

h shall be the price actuallypaid or payable for the goods when sold forexport to thePhilippines, adjusted by adding certain costelements tothe extent that they are incurred by thebuyer but are notincluded in the price actually paid or payable for the

imported goods.(Sec. 201[A], Tariff and Customs Code, asamended by R.A. 9135)If such value could not be determined, then the followingvalues are to be utilized in their sequence:Transactionvalue of identical goods (Sec

. 201[B]); Transaction valueof similar goods (Sec. 201[C]); Deductive value (Sec.II.E.1, CA.O. No. 4-2004); Computed value (Sec. II.F.l,C.A.O. No. 1-20040) and Fallback value. (Sec. 201[F])Customs; Countervailing Duty


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vs. Dumping Duty (2005)Distinguish countervailing dutyfrom dumping duty. (5%)SUGGESTED ANSWER:The distinctions between countervailingduty and

dumping duty are the following:(1) Basis: The countervailing duty is imposed wheneverthere is granted upon the imported article by the countryof origin a specific subsidy upon itsproduction,manufacture or exportation andthis results or threatens

injury to local industry whilethe basis for the impositionof dumping duty is the importation and sale of importeditems at below their normal value causingor likely tocause injury tolocal industry.(2) Amount: The countervailing duty

imposed isequivalent to the value of the specificsubsidy while thedumping duty is equivalent to the margin ofdumpingwhich is equal to the difference between the export priceto the Philippines and the normal value of the imported

article.Customs; Taxability; Personal Effects (2005)Jacob, after serving a 5-yeartour of duty as militaryattache in Jakarta, returnedto the Philippines bringingwith him his personal effects including a personal

computer and a car. Would Jacob be liablefor taxes onthese items? Discuss fully. (5%)SUGGESTED ANSWER:No, Jacob is not liable for taxes on hispersonal computer

and the car because he is tax-exempt by law. He has metthe following requirements for exemptionunder P.D. No.922 (1976):a) He was a military attache assigned to Jakarta;b) He has served abroad for not less thantwo (2) years;

c) He is returning to the Philippines afterserving histour of duty; andd) He has not availed of the tax exemptionfor the pastfour (4) years.He is entitled to tax exemption on hispersonal andhousehold effects including a car; provided,

Answers to the BAR: Taxation 1994-2006(Arranged by Topics)[email protected])The car must have been ordered or purchased prior

to the receipt by the Philippine mission orconsulatein Jakarta of Jacob's recall order;b)the car is registered in Jacob's name;c)the exemption shall apply to the value ofthe car;d)


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the exemption shall apply to the aggregatevalue ofhis personal and household effects(including thepersonal computer) not exceeding thirty per centum

(30%) of the total amount received by Jacobas salaryand allowances during his assignment in Jakarta, butnot to exceed four (4) years;e)Jacob must not have availed of the exemption moreoftener than one every four years. (

Last par., Sec. 105,Tariff and Customs Code)OTHER RELATED MATTERSBIR: Bank Deposits Secrecy Violation (2000)A taxpayer is suspected not to havedeclared his correctgross income in his return filed for 1997.

The examinerrequested the Commissioner to authorizehim to inquireinto the bank deposits of the taxpayer sothat he couldproceed with the net worth method of investigation toestablish fraud. May the examiner be allowed to look into

the taxpayer's bank deposits? In what cases may theCommissioner or his duly authorized representative beallowed to inquire or look into the bankdeposits of ataxpayer? (5%)SUGGESTED ANSWER:

No. as this would be violative of RepublicAct No. 1405,the Bank Deposits Secrecy Law.The Commissioner of Internal Revenue orhis dulyauthorized representative may be allowed

to inquire orlook into the bank deposits ofa taxpayer in the followingcases:a)For the purpose of determining the gross estate of adecedent;b)

Where the taxpayer has filed an applicationforcompromise of his tax liability by reason offinancialincapacity to pay such taxliability. (Sec. 6 (F), NIRCof 1997]c)Where the taxpayer has signed a waiver

authorizing the Commissioner or his dulyauthorized representatives to Inquire intothe bankdeposits.BIR: Secrecy of Bank Deposit Law (2003)X dies in year 2000 leaving a bank deposit ofP2,000,000.00 under joint account with hisassociates in alaw office. Learning of X's death from the

newspapers,the Commissioner of Internal Revenuewrote to everybank in the country asking them to disclose to him theamount of deposits that might beoutstanding in his nameor jointly with others at the date of his death. May the


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bank holding the deposit refuse to comply on the groundof the Secrecy of Bank Deposit Law? Explain. (8%)SUGGESTED ANSWER:No. The Commissioner of Internal Revenue

has theauthority to inquire into bank depositaccounts of adecedent to determine his gross estate notwithstandingthe provisions of the Bank Secrecy Law.Hence, the banksholding the deposits in question may notrefuse to

disclose the amount of deposits on theground of secrecyof bank deposits. (Section 6(F) of the 1997 Tax Code).The fact that the depositis a joint account will notpreclude the Commissioner from inquiringthereonbecause the law mandates that

if a bank has knowledge ofthe death of a person, who maintained abank depositaccount alone, or jointly with another, itshall not allowany withdrawal from the said depositaccount, unless theCommissioner has certified that the taxesimposed

thereon have been paid. (Section 97 of the1997 TaxCode). Hence, to be able to give the required certification,the inclusion of the depositis imperative, which may bemade possible only through the inquirymade by theCommissioner.

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