2017 Taxation Law Bar Examination Questions and Answers I. SMZ, Inc., is a VAT-registered enterprise engaged in the general construction business. HP International contracts the services of SMZ, Inc. to construct HP International’s factory building factory building located in the Laguna Techno Park, a special economic zone. HP lnternational is registered with the the Philippine Economic Zone Authority (PEZA) as an ecozone export enterprise, and, as such, enjoys income tax holiday pursuant to the Special Economic Zone Act of 1995. SMZ, Inc., files an application with the Bureau of lnternal lnternal Revenue (BIR) for the VAT zero-rating of its sale of services to HP International. However, the BIR denies SMZ, lnc.’s application on the ground that HP lnternational already enjoys income tax holiday. Is the BIR correct in denying SMZ, lnc.’s application? application? Explain your answer. (6%) Suggested Answer: No. SMZ Inc. is a VAT-registered enterprise which has rendered services to an entity who is exempt under special laws. As such the supply of services by SMZ Inc. to HP International is subject zero percent (0%) rate. (Sec. 108 (B)(3), RA No. 8424) RMC No. 74-99 categorically declared that all sales of goods, properties, and services made by a VATregistered supplier from the Customs Territory to an ECOZONE enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of the latter's type or class of PEZA registration. (Coral Bay Nickel Corporation vs. CIR, G.R. No. 190506, June 13, 2016) Lastly, as a general rule, the value-added tax (VAT) system uses the destination principle. It means that the destination of the goods determines the taxation or exemption from VAT. Goods and services are taxed only in the country where they are consumed. II. Wreck Corporation Corporation is a domestic corporation engaged in the business of importing, refining and selling petroleum products. During the period from September 1, 2014 to December 31, 2014, Wreck Corporation imported 225 million liters of Jet A-1 aviation fuel and paid the excise taxes thereon. Seventy-five Seventy-five percent (75%) of the total volume of aviation fuel imported were actually sold to international carriers of Philippine and foreign registries for their use or consumption outside of the Philippines in the period from November 1, 2014, to December 31, 2014. Wreck Corporation did not pass on to the international carriers the excise taxes it paid on the importation of petroleum products. On June 25, 2015, Wreck Corporation filed an administrative claim for refund or issuance issuan ce of tax credit certificate amounting to the excise taxes it had paid on the importation of 225 million liters of Jet A -1 A -1 aviation fuel.
If you were the Commissioner of lnternal Revenue, will you grant Wreck Corporation’s administrative claim for refund or issuance of tax credit certificate Explain your answer. (6%) Suggested Answer: Yes. Wreck Corporation is the property party to seek the refund, it being the statutory taxpayer who is liable to pay the excises taxes imposed on the imported petroleum fuel. The claim is based on Section 135 (a) and (b) of the 1997 Tax Code, which provides: SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. – Petroleum products sold to the following are exempt from excise tax: (a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines Furthermore, Wreck Corporations right to a refund is bolstered by RR No. 2-2012 Section 3 of which provides that the subsequent exportation or sale/delivery of these petroleum or petroleum products to registered enterprises enjoying tax privileges within the Freeport and Economic zones, as well as the sale of said goods to persons engaged in international shipping or international air transport operations, shall be subject to 0% VAT.
III. Vanderful, Inc.’s income tax return for taxable year 2015 showed an overpayment due to excess creditable witholding taxes in the amount of P750,000. The company opted to carry-over the excess income tax credits as tax credit against its quarterly income tax liabilities for the next succeeding years. For taxable year 2016, the company’s income tax return showed an overpayment due to excess creditable withholding taxes in the amount of P1,100,000, which included the carry-over from year 2015 in the amount of P750,000 because its operations resulted in a net loss hence, there was no application for any tax liability. This time, the company opted and marked the box “To be refunded” in respect of the total amount of P1,100,000. Vanderful, lnc. now files in the BIR a claim for refund of unutilized overpayments of P1,100,000. Is the claim meritorious? (4%) Suggested Answer: The claim is not meritorious with respect to the amount of P350,000. In ASIAWORLD PROPERTIES V. CIR [JULY 29, 2010], the Supreme Court opined that once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable
years (tax credit), such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund. The unutilized tax credits will remain in the taxpayer’s account and will be carried over and applied against the taxpayer’s income tax liabilities in the succeeding taxable years until fully utilized. Thus, with respect to the amount of P750,000 which Vanderful Inc. opted to carry-over, it can no longer claim the same as a refund in the taxable year of 2016. Its choice of carrying over the excess of P750,000 incurred in the taxable year of 2015 being irrevocable. However, as to the amount of P350,000, the claim is meritorious since this was incurred during the taxable year of 2016 where Vanderful Inc. has not yet opted to carry the said amount over as excess credit for the succeeding years. Thus, it can validly claim the P350,000 as a tax refund. IV. On the basis of a warrant of seizure and detention issued by the Collector of Customs for the purpose of enforcing the Tariff and Customs Code, assorted brands of liquor and cigarettes said to have been illegally imported into the Philippines were seized from a store operating in a Freeport zone. The store owner moved for the quasahal of the warrant on the ground that the collector of Customs had no jurisdiction to enforce it within the Freeport zone. Should the motion to quash be granted (3%) Suggested Answer: The motion to quash should not be granted. In Agriex Co. Ltd. vs. Hon. Titus B. Villanueva, et al. (G.R. No. 158150, September 10, 2014), the Supreme Court affirmed the exclusive jurisdiction of the Bureau of Customs over seizure cases within the Subic Freeport Zone. In that case the Supreme Court held that both the SBMA and the Bureau of Customs have the power to seize and forfeit goods or articles entering the Subic Bay Freeport, except that SBMA’s authority to seize and forfeit goods or articles entering the Subic Bay Freeport has been limited only to cases involving violations of RA No. 7227 or its IRR. There is no question therefore, that the authority of the Bureau of Customs is larger in scope because it covers cases concerning violations of the customs laws. The authority of the Bureau of Customs to seize and forfeit goods and articles entering the Subic Bay Freeport does not contravene the nature of the Subic Bay Freeport as a separate customs authority. In Subic Bay Metropolitan Authority v. Rodriguez (G.R. No. 160270, April 23, 2010), the Court has already recognized the exclusive jurisdiction of the Bureau of Customs and its officials over seizure cases although the articles were within the Freeport zone pursuant to Section 602 of Republic Act No. 1937, otherwise known as the "Tariff and Customs Code of the Philippines. (Now Section 202 (j) of RA No. 10863 known as the Customs Modernization and Tariff Act)
V . On March 30, 2016, XL Co. filed an administrative claim for refund of unutilized input VAT for taxable year 2014, together with supporting documents. XL Co. claimed that its sale of g enerated power and delivery of electric capacity was VAT zero-rated. Due to the inaction of the Commissioner of Internal Revenue (CIR), XL Co. filed with the Court of Tax Appeals (CTA) the following judicial claims for refund.
Period Covered – Date Filed 1st Quarter of 2014 – March 31, 2016 2nd Quarter of 2014 – June 30, 2016 3rd and 4th quarter of 2014 – August 12, 2016
Is XL Co.’s claim for VAT refund timely filed? Explain your answer. (5%) Suggested Answer: Deadlines: First Quarter Second Quarter Third Quarter Final Quarter -
April 15 August 15 November 15 April 15 of the following year
As to the first quarter of 2014: The refund was timely filed since the close of the taxable quarter for the first quarter is on April 15 of the succeeding year and the deadline for filing the VAT return is 25 days following the close of taxable quarter. Since administrative claim was filed on March 30, 2016, the claim for refund was filed well within two years of the close of the taxable quarter when such sales were made. However, the appeal to the CTA was premature considering that the 120 days for the CIR to decide had not yet lapsed since the administrative claim with the CIR was only filed on March 30, 2016 and the appeal to the CTA was made on March 30, 2016. Thus, the CTA has no jurisdiction over the appeal as there was still no appealable decision which the CTA could review. For the second quarter of 2014: The refund was timely filed on March 30, 2016 as XL Co. still had until September 9, 2016 to file his refund, or 25 days after August 15, 2016. However, the appeal to the CTA was premature considering that the 120 days for the CIR to decide had not yet lapsed since the administrative claim with the CIR was only filed on March 30, 2016 and the appeal to the CTA was made on June 30, 2016. Thus, the CTA has no jurisdiction over the appeal as there was still no appealable decision which the CTA could review. For the third and fourth quarters of 2014: The refund was timely filed on March 30, 2016 as XL Co. still had until December 10, 2016 to file his refund for the third quarter, or 25 days after November 15, 2016. Likewise, the refund
for the fourth quarter of 2014 was timely filed since XL Co. had until April 25, 2017 to file the refund. This time the appeal to the CTA was properly made considering that it was made within 30 days from the lapse of the 120 days within which the CIR has to decide.
VI. Heeding the pronouncement of the President that the worsening traffic condition in the metropolis was a sign of economic progress, the Congress enacted Republic Act No. 10701, also known as An Act Imposing a Transport Tax on the Purchase of Private Vehicles. Under RA 10701, buyers of private vehicles are required to pay a transport tax equivalent to 5% of the total purchase price per vehicle purchased. RA 10701 provides that the Land Transportation Office (LTO) shall not accept for registration any new vehicles without proof of payment of the 5% transport tax. RA 10701 further provide that existing owners of private vehicles shall be required to pay a tax equivalent to 5% of the current fair market value of every vehicle registered with the LTO. However, RA 10701 exempts owners of public utility vehicles and the Government from the coverage of the 5% transport tax. A group of private vehicle owners sue on the ground that the law is unconstitutional for contravening the Equal Protection Clause of the Constitution. Rule on the constitutionality and validity of RA 10701. (5%) Suggested Answer: The law is unconstitutional for violation the equal protection clause of the Constitution. The law is in violation of the Rule of Uniformity and Equality, which requires that all subjects or objects of taxation, similarly situated must be treated in equal footing and must not classify the subjects in an arbitrary manner. In the case at bar, the law exempts owners of public utility vehicles and the Government from the coverage of the 5% transport tax although both contribute to the traffic problem. There exists no substantial standard used in the classification under RA 10701.
