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TAXATION
(MOCK BAR EXAMINATION 2018)
I.
a. Can you deduct capital losses from ordinary gains? Explain. (2%)
Suggested Answer:
b. Can you deduct ordinary losses from capital gains? Explain. (2%)
Suggested Answer:
Ordinary losses are deductible from capital gains but net capital loss
cannot be deducted from ordinary gain or income. This rule applies to
both individual and corporate taxpayers. Sec. 39.
(1) RA 8424 NIRC, (2) RA 7160 Local Government Code (3) PD 1464
Tariff and Customs Code.
Suggested Answers:
a) RA 8424 NIRC
Three (3) year period for assessment and collection or within three (3)
years without assessment.
Sec. 203 and 222 provide for three (3) years prescriptive period for
assessment and collection in the case where the return filed is not
false, fraudulent but with deficiency and also within three (3) years to
collect in case of no prior assessment has been made. The three (3)
year period is reckoned from the last day prescribed by law for the
filing of the return, which is April 15 every year. In case where the
return is filed beyond the period prescribed by law, the three–year
period shall be counted from the day the return was filed. A return filed
before the last day prescribed by law shall be considered as filed on
such last day.
Sections 194 and 270 provide for Collection and Assessment of local
taxes.
Local taxes, fees, or charges shall be assessed within five (5) years
from the date they became due; 10 years from the discovery in case of
fraud or intent to evade the payment of taxes, fees or charges. No
action for collection of such taxes, fees or charges, whether
administrative or judicial shall be instituted after the expiration of such
period
Local taxes, fees or charges may be collected within five (5) years fro
the date of assessment by administrative or judicial action. No such
action shall be instituted after the expiration of said period.
Sec. 1603 provides for one (1) year statute of limitations as far as
custom duties.
Additional instructions:
Is protest required?
II.
What is the importance of prior assessment? (2%)
Suggested Answer:
The rule is that, if prior assessment has been made, the BIR may resort
to the administrative or judicial remedies in the collection of taxes. If
no prior assessment has been made, the BIR may only resort to judicial
remedies.
III.
Define Cross Border Doctrine and Destination Principle in VAT
System. (3%)
IV.
Explain the principle of mobilia sequuntur personam in income
taxation? (2%)
Suggested answer:
This rule proceeds from the theory that intangibles do not admit
of an actual location and may easily be transferred from one place
to another so that the possibility of escaping taxes is great, thus
needing a fixed situs for taxation. Wells Fargo v. Collector 40 OG
159.
V.
What are the remedies for the collection of delinquent taxes? (2%)
Suggested answer:
VI.
What is an assessment? (2%)
Suggested answer:
1
The right to collect the tax by judicial action is suspended once Warrant of Distraint or Levy (WDL’s) are
issued (or served) upon the taxpayer pursuant to the SC decision. ( Advertising Assoc. Inc. vs. CIR, G.R.
No. 59758 Dec 26, 1984)
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VIII.
What is the rule as to the grant, withdrawal or revocation of tax
exemption? Are tax exemptions revocable or irrevocable? (5%)
Suggested answer:
Since taxation is the rule and exemption is the exception, generally tax
exemptions granted to all persons can be withdrawn at the pleasure of
the taxing authority. The only exception to this rule is where the
exemption was granted to private parties based on material
consideration of a mutual nature, which becomes contractual and is
thus covered by the non-impairment clause.
The genera rule is that tax exemptions are revocable, the only
exemption is that when it is granted for valuable consideration which
partakes of the nature of a contract.
IX.
In the absence of, failure, or refusal of taxpayers to present their
accounting records, or when the records from taxpayer are not
forthcoming, records are lost or reports submitted are false,
incomplete, or erroneous, what is the remedy of the Commissioner in
assessing deficiency tax? (3%)
Suggested answer:
X.
XYZ Corporation obtained two (2) life insurance policies for its
President and CEO Mr. Juan de la Cruz. In one policy, the designated
beneficiary is XYZ Corporation and in the other policy, the wife of Juan
de la Cruz was designated as revocable beneficiary. Premiums are paid
by XYZ Corporation.
While on a business trip, Mr. Juan de la Cruz met and accident and
died. At the time of his death he left the following properties:
Suggested Answers:
1.
The insurance premiums paid by XYZ Corp. on the policy that
designates the wife of Mr. de la Cruz as beneficiary is a deductible item
from the gross income as ordinary and necessary expenses.
2.
The insurance proceeds will not form part of the beneficiaries’ income
subject to tax.
The insurance proceeds are in the form of indemnity and will not form
part of the gross income.
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3.
The insurance proceeds will form part of the gross estate of Mr. Juan de
la Cruz, the reason being that the designations of beneficiary 3 in both
cases were revocable.
4.
XI.
A law granting 5 years tax holiday for certain industries and priority
investments, after three years later, the law was repealed. With the
repeal of the said law, the exemptions were considered revoked by
the BIR. Accordingly the BIR assessed all those companies covered
under the law for taxes, effective on the date of the repeal of the
law.
Suggested answer:
XII.
3
Albeit, the designation of beneficiary on the part of XZY Corp. is silent, the presumption is it is revocable.
Under the Insurance Code designation of irrevocable beneficiary must be expressly stated.
Page 8 of 12
Suggested answer:
XIII.
Suggested answers:
XIV.
Upon audit of the income statement of ABC Corp. the auditor reported
a provision for bad debts in the amount of P150.000.00. The auditor
further noted that the likelihood of recovery of these bad debts is nil.
Acting on the said notation, ABC Corp. write-off the said bad debts and
subsequently claimed a deduction for bad debts written-off in its
income statement filed on the same year. The BIR, however, disallowed
the claimed deduction.
Five years after, the bad debts of P150,000.00 previously written off
were recovered and collected in full. On the same year, the BIR
charges ABC Corp. for income tax for recovery of bad debts previously
written-off. The BIR contended that the recovery of bad debts
previously written off shall be included as part of gross income in the
year of recovery.
XV.
Suggested answer:
Page 10 of 12
Double Taxation
Double Taxation means taxing for the same tax period the same thing
or activity twice, when it should be taxed but once, for the same
purpose and with the same kind of character tax.5
Does the 20% final withholding tax (FWT) on a bank’s passive income 6
form part of the taxable gross receipts for the purpose of computing
the 5% gross receipts tax (GRT)? The answer is yes.
XIX
Suggested answers:
from receipt of the decision via petition for review under a procedure
analogous to that provided for under Rule 43.
XX
Is the PNR exempt from real property tax? Explain your answer. (5%)
Suggested Answer:
The general rule is that GOCC is not exempt from real estate tax. This
is the ruling in MCIAA v. Marcos and MIAA v. CA, City of Paranaque et
al. G.R. No. 155650, July 20, 2006 En Banc.
SEC. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a
taxable person;