I

IKM Corporation, doing business in the City of Kalookan, has been a distributor and retailer of clothing
and household materials. It has been paying the City of Kalookan local taxes based on Sections 15 (Tax on
Wholesalers, Distributors or Dealers) and 17 (Tax on Retailers) of the Revenue Code of Kalookan City (Code).
Subsequently, the Sangguniang Panlungsod enacted an ordinance amending the Code by inserting Section
21 which imposes a tax on "Businesses Subject to Excise, Value-Added and Percentage Taxes under the
National Internal Revenue Code (NIRC)," at the rate of 50% of 1 % per annum on the gross sales and receipts
on persons "who sell goods and services in the course of trade or business." KM Corporation paid the taxes
due under Section 21 under protest, claiming that (a) local government units could not impose a tax on
businesses already taxed under the NIRC and (b) this would amount to double taxation, since its business
was already taxed under Sections 15 and 17 of the Code.

(a) May local government units impose a tax on businesses already subjected to tax under the NIRC?
(2.5%)
(b) Does this amount to double taxation? (2.5%)
1. Yes. “Each local government unit shall have the power to create its own sources of revenues and to
levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.” (Article 10, Section 5 of the 1987 Constitution).
Sec 133 of the LGC – Common limitations on the taxing power of LGC
Relate with Sec 143 (h) of the LGC – “Tax on Businesses: (h) On any business, not otherwise specified
in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided,
That on any business subject to the excise, value-added or percentage tax under the National Internal
Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or
receipts of the preceding calendar year. The sanggunian concerned may prescribe a schedule of
graduated tax rates but in no case to exceed the rates prescribed herein.”
2. Yes, it will amount to indirect double taxation. Under the law, direct double taxation exists if the
following requisites exist:
 Both taxes are imposed on the same property or subject matter;
 For the same purpose;
 Imposed by the same taxing authority;
 Within the same jurisdiction;
 During the same taxing period;
 Covering the same kind or character of tax.
If there is an element lacking, only indirect double taxation exists. The Constitution only prohibits direct
double taxation.

II
Kronge Konsult, Inc. (KKI) is a Philippine corporation engaged in architectural design, engineering,
and construction work. Its principal office is located in Makati City, but it has various infrastructure projects in
the country and abroad. Thus, KKI employs both local and foreign workers. The company has adopted a
policy that the employees' salaries are paid in the currency of the country where they are assigned or
detailed.
Below are some of the employees of KKI. Determine whether the compensation they received from
KKI in 2017 is taxable under Philippine laws and whether they are required to file tax returns with the Bureau
of Internal Revenue (BIR). (2% each)

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 (a) Kris Konejero, a Filipino accountant in KKl's Tax Department in the Makati office, and married to a
Filipino engineer also working in KKI;
(b) Klaus Kloner, a German national who heads KKl's Design Department in its Makati office;
(c) Krisanto Konde, a Filipino engineer in KKl's Design Department who was hired to work at the
principal office last January 2017. In April 2017, he was assigned and detailed in the company's
project in Jakarta, Indonesia, which project is expected to be completed in April 2019;
(d) Kamilo Konde, Krisanto's brother, also an engineer assigned to KKl's project in Taipei, Taiwan.
Since KKI provides for housing and other basic needs, Kamila requested that all his salaries, paid in
Taiwanese dollars, be paid to his wife in Manila in its Philippine Peso equivalent; and
(e) Karen Karenina, a Filipino architect in KKl's Design Department who reported back to KKl's Makati
office in June 2017 after KKl's project in Kuala Lumpur, Malaysia was completed.
Taxpayer classification Taxable income

Resident citizen A citizen of the Worldwide income

Philippines residing therein is taxable on
all income derived from sources within
and
without the Philippines

Non-resident citizen is taxable only on Philippine sourced income

income derived from sources within the
Philippines

Resident alien An alien individual,

whether a resident or not of the
Philippines, is taxable only on income
derived
from sources within the Philippines;

Non-resident alien

Substituted filing requisites:

 Employee receives purely compensation income (regardless of amount) during the taxable year;
 Employee receives income from a single employer in the Philippines during the taxable year;
 The amount of tax due from the employee at the end of the year equals the amount of tax withheld by
the employer;
 If married, the employee’s spouse also complies with all three aforementioned conditions, or otherwise
receives no income;
 The employer files BIR Form 1604CF; and
 Employee has BIR Form 2316 or Certificate of Final Tax Withheld At Source (BIR Form 2306) issued by
his employer.

1. (Resident citizens) Taxable; Not required (if compliant with the substituted filing)
2. (Resident alien) Taxable; Not required (if compliant with the substituted filing)
3. (Non-resident citizen) Taxable only on the Philippine sourced income; Not required (if compliant with
the substituted filing)
- Sec 22 (E)(3): “Most of the time” – At least 183 days abroad
- A citizen of the Philippines who works and derives income from abroad and whose employment
- thereat requires him to be physically present abroad most of the time during the taxable year.

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 4. (Non-resident citizen) No Philippine sourced income; Not required
- Sec 22 (E)(2): Reside abroad for employment on a permanent basis
- A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad,
- either as an immigrant or for employment on a permanent basis.

5. (Non-resident citizen) Taxable only on the Philippine sourced income; Not required (if compliant with
the substituted filing)
- Sec 22 (E)(4): Previously a non-resident citizen who arrives in the Philippines
- A citizen who has been previously considered as nonresident citizen and who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines shall
likewise be treated as a nonresident citizen for the taxable year in which he arrives in the
Philippines with respect to his income derived from sources abroad until the date of his arrival in
the Philippines.

III
Kim, a Filipino national, worked with K-Square, Inc. (KSI), and was seconded to various KSl-affiliated
corporations:
1. from 1999 to 2004 as Vice President of K-Gold Inc.,
2. from 2004 to 2007 as Vice President of KPB Bank;
3. from 2007 to 2011 as CEO of K-Com Inc.;
4. from 2011 to 2017 as CEO of K-Water Corporation, where Kim served as CEO for seven years until
his retirement last December 12, 2017 upon reaching the compulsory retirement age of 60 years.

All the corporations mentioned are majority-owned in common by the Koh family and covered by a
BIR-qualified multiemployer-employee retirement plan (MEE RP), under which the employees may be moved
around within the controlled group (i.e., from one KSI subsidiary or affiliate to another) without loss of seniority
rights or break in the tenure. Kim was well-loved by his employer and colleagues, so upon retirement, and on
his last day in office, KSI gave him a Mercedes Benz car worth PhP 5 million as a surprise, with a streamer
that reads: "You'll be missed. Good luck, Sir Kim."
(a) Are the retirement benefits paid to Kim pursuant to the MEERP taxable? (2.5%)
(b) Which internal revenue tax, if any, will apply to the grant of the car to Kim by the company? (2.5%)

1. Exempt. Sec 32 (B)(6)(a): Retirement benefits received under RA No. 7641 (Retirement Pay Law, Art.
287 of the Labor Code); or those received by officials and employees of private firms, whether
individual or corporate, under a reasonable private benefit plan maintained by the employer, provided
the following requisites are present:
 The retiree has been in the service of the same employer for at least 10 years;
 The retiree is not less than 50 years of age;
 Exemption is availed of only once.
Considered as within 10 years due to the fact that “employees may be moved around within the controlled
group without loss of seniority rights or break in the tenure”.

2. Donor’s tax. Not in consideration of services rendered but by reason of gratuity.

IV
Years ago, Krisanto bought a parcel of land in Muntinlupa for only PhP65,000. He donated the land to
his son, Kornelio, in 1980 when the property had a fair market value of PhP75,000, and paid the
corresponding donor's tax.

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Kornelio, in turn, sold the property in 2000 to Katrina for PhP 6.5 million and paid the capital gains tax,
documentary stamp tax, local transfer tax, and other fees and charges. Katrina, in turn, donated the land to
Klaret School last August 30, 2017 to be used as the site for additional classrooms. No donor's tax was paid,
because Katrina claimed that the donation was exempt from taxation. At the time of the donation to Klaret
School, the land had a fair market value of PhP 65 million.
(a) Is Katrina liable for donor's tax? (2.5%)
(b) How much in deduction from gross income may Katrina claim on account of the said donation?
(2.5%)

1. Yes.
Sec 101 (a) (3) – Exempt from donor’s tax: Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, accredited nongovernment organization, trust or
philanthropic organization or research institution or organization: Provided, however, That not more
than thirty percent (30%) of said gifts shall be used by such donee for administration purposes.

For the purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution,
accredited nongovernment organization, trust or philanthropic organization and/or research institution
or organization' is a school, college or university and/or charitable corporation, accredited
nongovernment organization, trust or philanthropic organization and/or research institution or
organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who
receive no compensation, and devoting all its income, whether students' fees or gifts, donation,
subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation.

2. None. Sec 34 (H)(1)- Contributions or gifts actually paid or made within the taxable year to, or for the
use of the Government of the Philippines or any of its agencies or any political subdivision thereof
exclusively for public purposes, or to accredited domestic corporation or associations organized and
operated exclusively for religious, charitable, scientific, youth and sports development, cultural or
educational purposes or for the rehabilitation of veterans, or to social welfare institutions, or to non -
government organizations, in accordance with rules and regulations promulgated by the Secretary of
finance, upon recommendation of the Commissioner, no part of the net income of which inures to the
benefit of any private stockholder or individual in an amount not in excess of ten percent (10%) in the
case of an individual, and five percent (%) in the case of a corporation, of the taxpayer's taxable
income derived from trade, business or profession as computed without the benefit of this and the
following subparagraphs. Here, the donee is not qualified and thus, no deduction from gross income
is allowed.

V
Spouses Konstantino and Karina are Filipino citizens and are principal shareholders of a restaurant
chain, Karina's, Inc. The restaurant's principal office is in Makati City, Philippines.
Korina's became so popular as a Filipino restaurant that the owners decided to expand its operations
overseas. During the period 2010-2015 alone, it opened ten (10) stores throughout North America and five (5)
stores in various parts of Europe where there were large Filipino communities. Each store abroad was in the
name of a corporation organized under the laws of the state or country in which the store was located. All
stores had identical capital structures: 60% of the outstanding capital stock was owned by Karina's, Inc.,
while the remaining 40% was owned directly by the spouses Konstantino and Korina.
Beginning 2017, in light of the immigration policy enunciated by US President Donald Trump, many
Filipinos have since returned to the Philippines and the number of Filipino immigrants in the US dropped
significantly. On account of these developments, Konstantino and Karina decided to sell their shares of stock
4
in the five (5) US corporations that were doing poorly in gross sales. The spouses' lawyer-friend advised them
that they will be taxed 5% on the first PhP100,000 net capital gain, and 10% on the net capital gain in excess
of PhP100,000.
Is the lawyer correct? If not, how should the spouses Konstantino and Karina be taxed on the sale of
their shares? (5%)

No. Foreign shares are not within the purview of Sec 24(C) or CGT.
Sec 24(C) - Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange - The provisions of
Section 39(B) notwithstanding, a final tax at the rates prescribed below is hereby imposed upon the net
capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of
stock in a domestic corporation, except shares sold, or disposed of through the stock exchange.

But the shares are considered capital assets, as defined under Sec 39(A) - "capital assets" means property
held by the taxpayer (whether or not connected with his trade or business), but does not include stock in
trade of the taxpayer or other property of a kind which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or business, or property used in the trade or business, of a
character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or real
property used in trade or business of the taxpayer.

Thus, must be taxed based on the holding period as provided in Sec 39(B) - Percentage Taken Into Account.
- In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss
recognized upon the sale or exchange of a capital asset shall be taken into account in computing net capital
gain, net capital loss, and net income: (1) One hundred percent (100%) if the capital asset has been held for
not more than twelve (12) months; and (2) Fifty percent (50%) if the capital asset has been held for more than
twelve (12) months.

VI
Kria, Inc., a Korean corporation engaged in the business of manufacturing electric vehicles,
established a branch office in the Philippines in 2010. The Philippine branch constructed a manufacturing
plant in Kabuyao, Laguna, and the construction lasted three (3) years. Commercial operations in the Laguna
plant began in 2014.
In just two (2) years of operation, the Philippine branch had remittable profits in an amount exceeding
175% of its capital. However, the head office in Korea instructed the branch not to remit the profits to the
Korean head office until instructed otherwise. The branch chief finance officer is concerned that the BIR might
hold the Philippine branch liable for the 10% improperly accumulated earnings tax (IAET) for permitting its
profits to accumulate beyond reasonable business needs.
(a) Is the Philippine branch of Kria subject to the 10% IAET under the circumstances stated above?
(2.5%)
(b) Is it subject to 15% branch profit remittance tax (BPRT)? (2.5%)

1. No. Sec 29 (A) – IAET covers only domestic corporations. Branch is considered a resident foreign
corporation, thus, not subject to IAET
2. No. Sec 28 (A)(5) – BPRT is imposed only on actual remittance. Here, no remittance was made. Thus,
not subject to BPRT.

VII

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 1. Yes. Sec 90 (A) - …the gross value of the estate exceeds Two hundred thousand pesos (P200,000), or
regardless of the gross value of the estate, where the said estate consists of registered or registrable
property…
Gross estate includes registrable properties.
2. Sec 86: Deductions from gross estate:
A. Expenses, losses, indebtedness, and taxes (ELIT):
i. Actual Funeral expenses - The amount deductible shall be the actual funeral
expenses or 5% of the gross estate, whichever is lower, and must not exceed
P200,000.
ii. Judicial expenses for testamentary or intestate proceedings
iii. Claims against the estate
iv. Claims against insolvent persons included in the gross estate
v. Unpaid mortgages or indebtedness upon the property
vi. Losses incurred during the settlement of the estate – Requisites: a) It should arise
from fire, storm, shipwreck, or other casualty, robbery, theft or embezzlement; b)
Not compensated by insurance or otherwise; c) Not claimed as deduction in an
income tax return of the taxable estate; d) Incurred during the settlement of the
estate; and e) Occurred before the last day for the payment of the estate tax (last
day to pay: six months after the decedent’s death) (Sec. 6(A)[5], R.R. 2-03)
vii. Unpaid taxes
B. Property previously taxed
C. Transfers for public use
D. The Family home
E. Standard deduction (1 Million)
F. Medical expenses - All medical expenses (cost of medicines, hospital bills, doctor’s fees, etc.)
incurred (whether paid or unpaid) with one (1) year before the death of the decedent shall be
allowed as a deduction provided: a) that the same are duly substantiated with official receipts for
services rendered by the decedent’s attending physicians, invoices, statements of account duly
certified by the hospital, and such other documents in support thereof; and b) the total amount
thereof, whether paid or unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).
(Repealed by TRAIN)
G. Amount received by heirs under R.A. No. 4917 (Retirement Benefits of Employees of Private Firms)
H. Net share of the surviving spouse in the conjugal property
As to the claims:
i. Funeral expenses: limited up to Php 200,000 only
ii. Medical expenses: actual amount can be claimed (Php 100,000)
iii. Loss: total amount

VIII
Upon the death of their beloved parents in 2009, Karla, Karla, and Karlie inherited a huge tract of farm
land in Kanlaon City. The siblings had no plans to use the property. Thus, they decided to donate the land,
but were not sure to whom the donation should be made. They consult you, a well-known tax law expert, on
the tax implications of the possible donations they plan to make, by giving you a list of the possible donees:
1. The Kanlaon City High School Alumni Association (KCHS AA), since the siblings are all alumni of
the same school and are active members of the organization. KCHS AA is an organization intended to
promote and strengthen ties between the school and its alumni;
2. The Kanlaon City Water District which intends to use the land for its offices; or
3. Their second cousin on the maternal side, Kikay, who serves as the caretaker of the property.
Advise the siblings which donation would expose them to the least tax liability. (5%)
6
Donation to Kanlan City Water District.
1. Sec 99 (B): Donation to strangers – Subject to 30% of the net gifts
2. Sec 101 (A)(2): Exempt gifts – Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for profit, or to any political
subdivision of the said Government
3. Sec 99 (B): Donation to strangers – Subject to 30% of the net gifts
i. Strangers: a person who is not a: (1) Brother, sister (whether by whole or half-blood),
spouse, ancestor and lineal descendant; or (2) Relative by consanguinity in the collateral
line within the fourth degree of relationship.

IX
Karlito, a Filipino businessman, is engaged in the business of metal fabrication and repair of LPG
cylinder tanks. He conducts business under the name and style of "Karlito's Enterprises," a single
proprietorship. Started only five (5) years ago, the business has grown so enormously that Karlito decided to
incorporate it by transferring all the assets of the business, particularly the inventory of goods on hand,
machineries and equipment, supplies, parts, raw materials, office furniture and furnishings, delivery trucks
and other vehicles, buildings, and tools to the new corporation, Karlito's Enterprises, Inc., in exchange for
100% of the capital stock of the new corporation, the stock subscription to which shall be deemed fully paid
in the form of the assets transferred to the corporation by Karlito.
As a result, Karlito's Enterprises, the sole proprietorship, ceased to do business and applied for
cancellation of its BIR Certificate of Registration. The BIR, however, assessed Karlito VAT on account of the
cessation of business based on the current market price of the assets transferred to Karlito's Enterprises, Inc.
(a) Is the transfer subject to VAT? (2.5%)
(b) Is the transfer subject to income tax? (2.5%)

1. Not subject to VAT. Sec 106 (C) - Changes in or Cessation of Status of a VAT-registered Person. - The
tax imposed in Subsection (A) of this Section shall also apply to goods disposed of or existing as of a
certain date if under circumstances to be prescribed in rules and regulations to be promulgated by
the Secretary of Finance, upon recommendation of the Commissioner, the status of a person as a
VAT-registered person changes or is terminated.

However, Sec 40(C)(2) transactions are covered by the exceptions laid down in RR 2-98.

2. No, not subject to income tax. Sec 40 (C)(2) - No gain or loss shall be recognized if in pursuance of a
plan of merger or consolidation: (a) A corporation, which is a party to a merger or consolidation,
exchanges property solely for stock in a corporation, which is a party to the merger or consolidation;
or (b) A shareholder exchanges stock in a corporation, which is a party to the merger or
consolidation, solely for the stock of another corporation also a party to the merger or consolidation; or
(c) A security holder of a corporation, which is a party to the merger or consolidation, exchanges his
securities in such corporation, solely for stock or securities in such corporation, a party to the merger
or consolidation.

No gain or loss shall also be recognized if property is transferred to a corporation by a person in

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 control of said
corporation: Provided, That stocks issued for services shall not be considered as issued in return for
property.

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 X
Klaus, Inc., a domestic, VAT-registered corporation engaged in the land transportation business, owns
a house and lot along Katipunan St., Quezon City. This property is being used by Klaus, lnc.'s president and
single largest shareholder, Atty. Krimson, as his residence. No business activity transpires there except for
the company's Christmas party which is held there every December. Atty. Krimson recently grew tired of the
long commute from Katipunan to his office in Makati City and caused the company to sell the house and lot.
The sale was recorded in the books of Klaus, Inc. as investment in real property.
(a) Is the sale of the said property subject to VAT? (2.5%)
(b) Is the sale subject to 6% capital gains tax or regular corporate income tax of 30%? (2.5%)

1. Yes. Incidental sale subject to VAT

In the Supreme Court (SC) case of Commissioner of Internal Revenue vs. Magsaysay Lines
(G.R. No. 146984. July 28, 2006), the Supreme Court upheld a 1992 CTA decision which ruled
that the sale of shipping vessels, made by a corporation engaged in the sale of services,
would not be subject to VAT. The Court further ruled that the VAT is imposed on transactions
which occur in the course of trade or business. Although there are incidental transactions
which invariably contribute to the production chain, these should not be subjected to VAT
because since they do not occur within the course of trade or business, “the providers of such
goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT
liability as against their own accumulated VAT collections since the accumulation of output VAT
arises in the first place only through the ordinary course of trade or business.” Applying this SC
decision to the facts provided in RMC 15-2011, the sale of the vehicles should not be
subjected to VAT because, although the company would profit from the sale, it was not made
in the course of trade or business or incidental thereto.
2. Subject to RCIT because it became a property which would properly be included in the
inventory of a taxpayer. The corporate income tax rate both for domestic and resident foreign
corporations is 30% based on net taxable income.

XI
Koko's primary source of income is his employment with the government. He earns extra from the land
he inherited from his parents, and which land he has been leasing to a private, non-stock, non-profit school
since 2005.
Last January, the school offered to buy the land from Koko for an amount equivalent to its zonal value
plus 15% of such zonal value. Koko agreed but required the school to pay, in addition to the purchase price,
the 12% VAT. The school refused Koko's proposal to pass on the VAT contending that it was an entity exempt
from such tax. Moreover, it said that Koko was not regularly engaged in the real estate business and,
therefore, was not subject to VAT. Consequently, Koko should not charge any VAT to the school.
(a) Is the contention of the school correct? (2.5%)
(b) Will your answer be the same if Koko signed up as a VAT-registered person only in 2017? (2.5%)

1. No. sale of real properties held primarily for sale to customers or held for lease in the ordinary course
of trade or business of the seller shall be subject to VAT
2. No. If VAT-registered, no need to qualify. Subject to VAT regardless of the gross annual revenue.

XII
The BIR Commissioner, in his relentless enforcement of the Run After Tax Evaders (RATE) program,
filed with the Department of Justice (DOJ) charges against a movie and television celebrity. The
Commissioner alleged that the celebrity earned around PhP 50 million in fees from product endorsements in
8
2016 which she failed to report in her income tax and VAT returns for said year. The celebrity questioned the
proceeding before the DOJ on the ground that she was denied due process since the BIR never issued any
Preliminary Assessment Notice (PAN) or a Final Assessment Notice (FAN), both of which are required under
Section 228 of the NIRC whenever the Commissioner finds that proper taxes should be assessed.
Is the celebrity's contention tenable? (2.5%)

No. No need for PAN and FAN may be issued automatically.

Sec 222 (A) - In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the
tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment,
at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.

XIII
The Collector at the Port of Koronadal seized 100 second-hand right-hand drive buses imported from
Japan. He issued warrants of distraint and scheduled the vehicles for auction sale. Kamila, the importer of the
second-hand buses, filed a replevin suit with the Regional Trial Court (RTC). The RTC granted the replevin
upon filing of a bond.
Did the RTC err in granting the replevin? (2.5%)

Yes. RTC has no jurisdiction. Sec 202 (j) - Exercise of exclusive original jurisdiction over forfeiture
cases under “Customs Modernization and Tariff Act (GMTA)”. RA10863.

XIV
The City of Kabankalan issued a notice of assessment against KKK, Inc. for deficiency real property
taxes for the taxable years 2013 to 2017 in the amount of PhP 20 million. KKK paid the taxes under protest
and instituted a complaint entitled "Recovery of Illegally and/or Erroneously-Collected Local Business Tax,
Prohibition with Prayer to Issue TRO and Writ of Preliminary Injunction" with the RTC of Negros Occidental.
The RTC denied the application for TRO. Its motion for reconsideration having been denied as well, KKK filed
a petition for certiorari with the Court of Appeals (CA) assailing the denial of the TRO.
Will the petition prosper? (5%)

No. The jurisdiction is with the CTA and not with the CA. RA 9282 provided that CTA Exclusive
appellate jurisdiction in tax collection cases:

"a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection
cases originally decided by them, in their respective territorial jurisdiction.

XV
In 2015, Kerwin bought a three-story house and lot in Kidapawan, North Cotabato. The property has a
floor area of 600 sq.m. and is located inside a gated subdivision. Kerwin initially declared the property as
residential for real property tax purposes.
In 2016, Kerwin started using the property in his business of manufacturing garments for export. The
entire ground floor is now occupied by state-of-the-art sewing machines and other equipment, while the
second floor is used as offices. The third floor is retained by Kerwin as his family's residence. Kerwin's
neighbors became suspicious of the activities going on inside the house, and they decided to report it to the
Kidapawan City Hall. Upon inspection, the local government discovered that the property was being utilized
for commercial use. Immediately, the Kidapawan Assessor reclassified the property as commercial with an
9
assessment level of 50% effective January 2017, and assessed Kerwin back taxes and interest. Kerwin
claims that only 2/3 of the building was used for commercial purposes since the third floor remained as family
residence. He argues that the property should have been classified as partly commercial and partly
residential.
(a) Is the Kidapawan assessor correct in assessing back taxes and interest? (2.5%)
(b) Is Kerwin correct that only 2/3 of the property should be considered commercial? (2.5%)
(c) If Kerwin wants to file an administrative protest against the assessment, is he required to pay the
assessment taxes first? With whom shall the protest be filed and within what period? (2.5%)

1. Sec 222 of the LGC - Assessment of Property Subject to Back Taxes. - Real property declared for the
first time shall be assessed for taxes for the period during which it would have been liable but in no
case for more than ten (10) years prior to the date of initial assessment: Provided, however, That such
taxes shall be computed on the basis of the applicable schedule of values in force during the
corresponding period. If such taxes are paid on or before the end of the quarter following the date the
notice of assessment was received by the owner or his representative, no interest for delinquency
shall be imposed thereon; otherwise, such taxes shall be subject to an interest at the rate of two
percent (2%) per month or a fraction thereof from the date of the receipt of the assessment until such
taxes are fully paid.
2. No. Sec 198(B) of the LGC - Real property shall be classified, valued and assessed on the basis of
actual use regardless of
where located, whoever owns it, and whoever uses it.
3. No. Protest – within 60 days from receipt of assessment (sec. 195, LGC). Payment under protest is not
necessary.
When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges
have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee or charge,
the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the
receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer
contesting the assessment; otherwise, the assessment shall become final and executory. The local
treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer
finds the protest to be wholly or partly meritorious, he shall issue a notice canceling wholly or partially
the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he
shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30)
days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period
prescribed herein within which to appeal with the court of competent jurisdiction otherwise the
assessment becomes conclusive and unappealable.cralaw

Remedy against the Assessment/Appeal, within 60 days from notice of assessment of provincial, city
or municipal assessor to Local Board of Assessment Appeals (Sec. 226, LGC)
Local Board of Assessment Appeals. - Any owner or person having legal interest in the property who
is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his
property may, within sixty (60) days from the date of receipt of the written notice of assessment,
appeal to the Board of Assessment appeals of the province or city by filing a petition under oath in the
form prescribed for the purpose, together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.

XVI
In an action for ejectment filed by Kurt, the lessor-owner, against Kaka, the lessee, the trial court ruled
in favor of Kurt. However, the trial court first required Kurt to pay the realty taxes due on the property for 2016
before he may recover possession thereof.
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Kurt objected, arguing that the delinquent realty taxes were never raised as an issue in the ejectment case. At
any rate, Kurt claimed that it should be Kaka who should be made liable for the realty taxes since it was Kaka
who possessed the property throughout 2016.
Is Kurt correct in resisting the trial court's requirement to pay the taxes first? (2.5%)

LGC Sec 268. Payment of Delinquent Taxes on Property Subject of Controversy. - In any action
involving the ownership or possession of, or succession to, real property, the court may, motu propio or upon
representation of the provincial, city, or municipal treasurer or his deputy, award such ownership, possession,
or succession to any party to the action upon payment to the court of the taxes with interest due on the
property and all other costs that may have accrued, subject to the final outcome of the action.cralaw

XVII
Kilusang Krus, Inc. (KKI) is a non-stock, non-profit religious organization which owns a vast tract of
land in Kalinga.
KKI has devoted 1 /2 of the land for various uses: a church with a cemetery exclusive for deceased priests
and nuns, a school providing K to 12 education, and a hospital which admits both paying and charity
patients. The remaining 1/2 portion has remained idle.
The KKI Board of Trustees decided to lease the remaining 1 /2 portion to a real estate developer which
constructed a community mall over the property.
Since the rental income from the lease of the property was substantial, the KKI decided to use the amount to
finance (1) the medical expenses of the charity patients in the KKI Hospital and (2) the purchase of books
and other educational materials for the students of KKI School.
(a) Is KKI liable for real property taxes on the land? (2.5%)
(b) Is KKl's income from the rental fees subject to income tax? (2.5%)

1. Test is the use of the property. (Lung Center Case)

(1) Yes. The Court held that the petitioner is a charitable institution within the context of the 1973 and
1987 Constitutions.

The test whether an enterprise is charitable or not is whether it exists to carry out a purpose
reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage.
Hence, the Lung Center was organized for the welfare and benefit of the Filipino people.

As a general principle, a charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, so long as the money received is
devoted to charitable objects and no money inures to the private benefit of the persons managing or
operating the institution. As well as the reason of donation in the form of subsidies granted by the
government.

(2) No. Those portions of its real property that are leased to private entities are not exempt from real
property taxes as these are not actually, directly and exclusively used for charitable purposes.

The petitioner failed to prove that the entirety of its real property is actually, directly and exclusively
used for charitable purposes. While portions of the hospital are used for the treatment of patients and
the dispensation of medical services to them, whether paying or non-paying, other portions thereof are
being leased to private individuals for their clinics and a canteen.

Hence, the portions of the land leased to private entities as well as those parts of the hospital leased
to private individuals are not exempt from such taxes. On the other hand, the portions of the land
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 occupied by the hospital and portions of the hospital used for its patients, whether paying or non-
paying, are exempt from real property taxes.

2. ADE = exempt from income tax (De lasalle)

The requisites for availing the tax exemption under Article XIV, Section 4 (3), namely: (1) the taxpayer
falls under the classification non-stock, non-profit educational institution ; and (2) the income it seeks
to be exempted from taxation is used actually, directly and exclusively for educational purposes. The
records of the case showed that the foundation’s operation is not for profit, but in pursuit of its primary
purpose which is “to establish a school xxx the primary intention being to form the whole man through
the integration of a liberal Christian education with professional competence for participation in
Philippine development.”

XVIII
Kathang Isip, Inc. (Kii) is a domestic corporation engaged in the business of manufacturing, importing,
exporting, and distributing toys both locally and abroad. Its principal office is located in Kalookan City,
Philippines. It has 50 branches in different cities and municipalities in the country. When Kii applied for
renewal of its mayor's permit and licenses in its principal office in January this year, Kalookan City demanded
payment of the local business tax on the basis of the gross sales reported by the corporation in its audited
financial statements for the preceding year. Kil protested, contending that Kalookan City may tax only the
sales consummated by its principal office but not the sales consummated by its branch offices located
outside Kalookan City.
When Kalookan City denied the protest, Kil engaged the services of Atty. Kristeta Kabuyao to file the
necessary judicial proceedings to appeal the decision of Kalookan City. Atty. Kabuyao is a legal expert, but
resides in Kalibo, Aklan where her husband operates a resort. She, however, practices in Metro Manila,
including Kalookan City. The counsel representing the city, in the case filed in Kalookan City by KII,
questioned the use of Atty. Kabuyao's Professional Tax Receipt (PTR) issued in Aklan for a case filed in
Kalookan City.
(a) Is Kll's contention that Kalookan City can only collect local business taxes based on sales
consummated in the principal office meritorious? (2.5%)'
(b) Is the Kalookan City counsel correct in saying that Atty. Kabuyao's PTR issued in Aklan cannot be
used in Kalookan? (2.5%)

1. Sec 150 of the LGC – For purposes of collection of the taxes under Section 143 (tax on business),
businesses maintaining or operating branch or sales outlet elsewhere shall record the sale in the
branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be
paid to the municipality where such branch or sales outlet is located.
2. Sec 139(B) of the LGC – Professional Tax
(b) Every person legally authorized to practice his profession shall pay the professional tax to
the province where he practices his profession or where he maintains his principal office in
case he practices his profession in several places: Provided, however, That such person who
has paid the corresponding professional tax shall be entitled to practice his profession in any
part of the Philippines without being subjected to any other national or local tax, license, or fee
for the practice of such profession.

XIX
The BIR assessed Kosco, Inc., an importer of food products, deficiency income and value-added
taxes, plus 50% surcharge after determining that Kosco, Inc. had under-declared its sales by an amount
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exceeding 30% of that declared in its income tax and VAT returns. Kosco, Inc. denied the alleged under-
declaration, protested the deficiency assessment for income and value-added taxes and challenged the
imposition of the 50% surcharge on the ground that the surcharge may only be imposed if Kosco, Inc. fails to
pay the deficiency taxes within the time prescribed for their payment in the notice of assessment.
(a) Is the imposition of the 50% surcharge proper? (2.5%)
(b) If your answer to {a) is yes, may Kosco, Inc. enter into a compromise with the BIR for reduction of
the amount of surcharge to be paid? (2.5%)

1. Yes. Penalty: 50% of the tax or of the deficiency tax, in case any payment has been made on the basis
of a return before the discovery of the
falsity or fraud.
• In case of: [ FiFa ]
a) Willful neglect to File the return within the period prescribed; or
b) False or fraudulent return is willfully made, in case any payment has been made on the
basis of such return before the discovery of the falsity or fraud.
• Prima facie evidence of a false or fraudulent return as determined by the Commissioner pursuant to
the rules and regulations promulgated by the Sec. of Finance:
1. substantial under declaration of taxable sales, receipts or income - failure to report sales,
receipts or income in an amount exceeding 30% of that declared per return
2. substantial overstatement of deductions - claim of deductions in an amount exceeding 30%
of actual deductions

2. Yes. Compromise based on 2 grounds: a) financial capacity; and b) assessment is of doubtful validity.

XX
Krisp Kleen, Inc. (KKI) is a corporation engaged in the manufacturing and processing of steel and its
by-products. It is both registered with the Board of Investments with a pioneer status, and with the BIR as a
VAT entity. On October 10, 2010, it filed a claim for refund/credit of input VAT for the period January 1 to
March 31, 2009 before the Commissioner of Internal Revenue (CIR). On February 1, 2011, as the CIR had not
yet made any ruling on its claim for refund/credit, KKI, fearful that its period to appeal to the courts might
prescribe, filed an appeal with the Court of Tax Appeals (CTA).
(a) Can the CTA act on KKl's appeal? (2.5%)
(b) Will your answer be the same if KKI filed its appeal on March 20, 2011 and CIR had not yet acted on its
claim? (2.5%)

Aichi case
120+30 days is mandatory and jurisdictional

the prescriptive period of 2 year . Sec. 204 (c) and 229 are applied only in instances of erroneous payment
and illegal collection. Sec. 112 (A) of NIRC applies here. Sec. 31 Chapter VIII Book I of the Administrative
Code of 1987 being the more recent law governing legal period applies making 1 year = 12 months. The
principle of Lex Posterioni Derogati Priori applies. Thus, since it is filed on exactly Sept. 30, 2004 filing is
timely.

filing an administrative claim is a condition precedent to a judicial claim for refund . Sec. 112 (D) of the NIRC
clearly provides that the CIR has 120 days from date of the submission of the complete documents in support
of the application within which to grant or deny the claim. In case of full or partial denial by the CIR, the
recourse is to appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after
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the 120-day period the CIR fails to act on the application for tax refund, the remedy is to appeal the inaction
of the CIR to the CTA within 30 days.

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