JURISTS BAR REVIEW CENTER ™ T A X A T I O N M O C K B A R E X A M I N A T IO IO N
This mock bar examination consists of 18 items. Write your answers in your Bar Examination Notebook in the same order the questions are posed. Write your answers only at the front, not the back, page of every sheet in your Examination Notebook. In your answers, use the numbering system in the questionnaire. If the sheets provided in your Examination Notebook are not sufficient for your answers, use the back pages of every sheet of your Examination Notebook, starting at the back page of the first sheet and the back of the succeeding sheets thereafter. Answer Answer the Essay questions questions legibly, clearly, and concisely. Start each number on a separate page. An answer to a sub-question under the same number may be written continuously on the same page and the immediately succeeding pages until completed. Your answer should demonstrate your ability to analyze the facts presented by the question, to select the material from the immaterial facts, and to discern the points upon which the question turns. It should show your knowledge and understanding of the pertinent principles and theories of law involved and their qualifications and limitations. It should demonstrate your ability to apply the law to the given facts, and to reason logically in a lawyer-like manner to a sound conclusion from the given premises. A mere "Yes" or "No" answer without any corresponding explanation or discussion will not be given any credit. Thus, always briefly but fully explain your answers although the question does not expressly ask for an explanation. At the same time, remember that a complete explanation does not require that you volunteer information or discuss legal doctrines that are not necessary or pertinent to the solution to the problem. You do not need to re-write or repeat the question in your Examination Notebook. Make sure you do not write your name or any extraneous notes or distinctive marking/s on your Examination Notebook that can serve as an identifying mark/s (such as names that are not in the given questions, prayers, or private notes to the Examiner). Writing, leaving or making any distinguishing or identifying mark in the Examination Notebook is considered cheating and can disqualify you for the Bar examinations. You can use the questionnaire for notes you may wish/need to write during the examination.
I BIR issued a notice to XYZ for deficiency income tax and VAT. XYZ immediately filed a motion for reconsideration (MR) of the notice which motion for reconsideration was denied by the BIR three years after the filing thereof. Upon receipt of the denial of the MR and within 20 days from receipt, the tax payer filed an appeal to the CTA Division. Discuss the merits of the filing of the MR and the subsequent appeal to the CTA. II In January 2013, Abet opened a stock trading account with BPI Trade, a licensed Philippine Stock Exchange stockbroker, and bought, through BPI Trade, 10,000 Bank of the Philippine Islands (BPI) shares at P80 per share or a total of P800,000. BPI shares are listed and traded at the Philippine Stock Exchange (PSE). In February 2015, the price of BPI shares at the PSE had risen to P100 per share. Jurists Mock Bar Examinations in Taxation. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 1 of 5
a) Abet sold the 10,000 BPI shares at the PSE and received P1,000,000. Is Abet subject to income tax on the sale of his BPI shares? Is he liable for any other tax and if so for how much? b) What if instead of selling the 10,000 BPI shares at the PSE, Abet sold them directly to his friend Binny and received P1,000,000. Is Abet subject to income tax on the sale? If so for how much? III Pietrus died leaving as his heirs his children Arky, Brankov, and Cromwell. Since Pietrus died intestate and without debts, his three heirs executed an extrajudicial settlement in which Cromwell renounced his one-third share in favor of Arky and Brankov. The BIR assessed donor’s tax against Cromwell, characterizing his renunciation as a donation. a) Was the assessment proper? Explain. b) Would your answer be the same if Cromwell renounced his share in favor of Arky only? IV Wilma protested a jeopardy assessment issued against her by the BIR. After receipt of an adverse decision, Wilma appealed to the CTA. Pending her appeal, the BIR served unto her warrants of distraint and notice of levy to enforce collection. In order to suspend the administrative collection process, Wilma moved before the CTA for injunction and at the same time deposited in court the amount sought to be collected. After due proceedings, the CTA ruled in favor of the BIR and rejected the claim of Wilma. Wilma no longer appealed the decision. Consequently, the decision became final and unappealable. (a) Was Wilma justified in filing the motion or petition before the CTA considering that under the NIRC, no court shall have authority to restrain the collection of taxes? (b) Is compromise of tax liabilities still possible? If so, on what ground? V During his lifetime, Pedro executed a deed of sale over a parcel of land in favor of his only son and heir, Mario. Until his death, Pedro used and collected rents from the parcel of land. Believing that the parcel of land is not includible in the gross estate of Pedro, Mario filed the estate tax return without mentioning the said parcel of land. After an investigation, the BIR assessed Mario for deficiency estate tax. Mario immediately protested upon being served with the preliminary assessment notice (PAN). No action thereon, however, was taken by the BIR. Instead, a final assessment notice (FAN) was received by Mario last March 10, 2015. Should Mario appeal to the CTA based on the inaction of the BIR over his protest against the PAN, or based on the theory that the FAN constituted a decision which is appealable to the court? Explain. VI The Iglesia ni Kristo built the “Philippine Arena” on a 500-hectare property in Bulacan. Being a religious organization it claims exemption from the following: a. VAT for the purchase of materials used in the construction; b. Real property tax on the 500-hectare property as well as the building; c. Income tax and donor’s tax for the contributions given by its members consisting of almost 50% of the construction cost; d. Tariff and customs duties for the importation of materials used in the construction. Jurists Mock Bar Examinations in Taxation. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 2 of 5
Decide with reasons. VII In a local tax case initiated by a disgruntled taxpayer against the City of Manila, the RTC granted an application for a writ of preliminary injunction. The City of Manila sought for reconsideration but was denied by the court. Consequently, the City of Manila filed a special civil action for certiorari before the Court of Appeals (CA). The taxpayer moved for dismissal alleging that the CTA, not the CA, has jurisdiction over the case. The City of Manila countered that it is the CA which has jurisdiction since what was sought to be nullified was a mere interlocutory order issued by the RTC. Decide with reasons. VIII (a) X, a government-owned and controlled corporation, is engaged in the business of generating and selling electricity to a power distributor. Its charter, passed by Congress in 1990 provides a “3% of gross receipts in lieu of all taxes of whatever nature and kind” special tax regime. It maintains in Davao City its power plant, and a building housing its staff operating the plant. It leases the land (where the power plant and the building stand) from a private party. The City government has been contemplating of imposing taxes on X. Decide on the liability of X to Davao City for the following: (i)
Permit fees
(ii)
Business tax
(iii)
Franchise tax
(iv)
Wharfage fees on use of the wharf located in Davao City but not owned by Davao City.
(v)
Toll fees on the use of road by vehicles leading to X power plant, specially constructed by Davao City for use not only by X’s employees but also by the public going to the power plant’s adjacent areas.
(vi)
Real property tax on the power plant.
(vii)
Real property tax on the building.
(viii)
Real property tax on the land. (b)
Will it matter if X’s Charter has been reenacted in 2005? (c) Assuming the City government just recently passed a special revenue ordinance (in particular, only last 15 September 2016) imposing the above fees and taxes on X recognizing its special status as a GOCC, entitled: “An ordinance imposing special fees and taxes on X, prescribing special fees and taxes, and the corresponding penalties for nonpayment therefor, and for other purposes.” (i)
Is the Revenue Ordinance valid?
(ii)
What are the remedies available to X in questioning the ordinance?
Jurists Mock Bar Examinations in Taxation. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 3 of 5
(iii)
Can X enjoin its immediate implementation?
(iv)
Assuming the Revenue Ordinance is eventually declared as valid, can X be held liable for surcharge? For interest? Will it matter if the Revenue Ordinance is silent on the rate of surcharge or interest?
(v)
Within what period must the City government issue an assessment for taxes imposed by the Revenue Ordinance? Was it suspended by the action taken by X? IX
Under the Tariff and Customs Code, what are a) b) c) d)
dumping duties countervailing duties marking duties discriminatory duties? X
Mr. Francisco borrowed P50,000 from his friend Mr. Gutierrez payable in one year without interest. When the loan became due, Mr. Francisco told Mr. Gutierrez that he was unable to pay because of business reverses. Mr. Gutierrez took pity on Mr. Francisco and condoned the loan. Mr. Francisco was solvent at the time he borrowed the P50,000 and at the time the loan was condoned. Did Mr. Francisco derive any income from the cancellation or condonation of his indebtedness? Explain. XI Mr. Jose Bitoy, SM warehousing security supervisor, expects to receive the following on November 30, 2010: a. P250,000 share as one of the beneficiaries of the life insurance proceeds of his late father; b. P30,000 as advance payment of his 13 th month salary for CY 2010; c. P5,000 worth of stock dividends from his PLDT shareholdings. Aside from his monthly salary of P30,000, he also receives the following monthly fringe benefits: d. Free lodging within the warehouse premises, with a value of P2,500 a month to enable him to supervise security personnel at night; e. Free meal allowance of P3,000 a month so long as he eats in the company’s canteen; and f. Uniform allowance with an equivalent monthly value of P500. Briefly discuss the income tax treatment of all of the foregoing. XII Mr. Llamado leased a parcel of land owned by the Municipality of Panukulan, Quezon, and built a warehouse on the property for his business operations. The Municipal Assessor assessed Mr. Llamado for real property taxes on the land and the warehouse. Mr. Jurists Mock Bar Examinations in Taxation. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 4 of 5
Llamado objected to the assessment contending that the land is exempt from realty tax. Was the assessment proper? XIII A government agency initiated expropriation proceedings against a lot owner when the latter refused to sell a parcel of land for an infrastructure project. When the lot owner received the just compensation, he was surprised that a portion thereof, equivalent to 6% of the compensation, was withheld as capital gains tax. Complaining that the withholding was improper, the lot owner argued that (1) the tax is not applicable in involuntary sales AND (2) in any event, the 6% tax is a liability of the buyer. Are the contentions legally tenable? XIV Mr. Mortal, 75 years old and suffering from a terminal disease, decided to sell for valuable and sufficient consideration a house and lot to his son. He died one year later. In the settlement of Mr. Mortal’s estate, the BIR argued that the house and lot were transferred in contemplation of death and should therefore form part of the gross estate for estate tax purposes. Is the BIR correct? XV In 2011 the Commissioner of the United States Internal Revenue Service (IRS) requested in writing the Commissioner of Internal Revenue to get the information from a bank in the Philippines, regarding the deposits of a U.S. citizen residing in the Philippines, who is under examination by the officials of the U.S. IRS, pursuant to the US-Philippine Tax Treaty. Should the BIR Commissioner agree to obtain such information from the bank and provide the same to the IRS? Explain. XVI The municipal mayor of a certain municipality issued an executive order requiring the transferor of real property located within its territorial jurisdiction to pay a transfer tax equivalent to 1% of the value of such real property or consideration paid, if there be any, whichever is higher. What grounds may you raise in challenging the imposition? XVII X just hurdled the bar examinations and immediately engaged in the practice of law. In preparing his income tax return, he listed the following as deductible items: (a) fees paid to the Supreme Court to be able to take the bar examinations; (b) fees paid to a bar review center to enroll in its pre-bar review classes; (c) malpractice insurance; and (d) amount spent to entertain a judge who decided his first case. Which deductions are allowable? Reasons. XVIII A Canadian Citizen died in June 2010, while domiciled in Manila. He left three (3) savings deposits in Land Bank of the Philippines in the amounts of P750,000.00, P250,000.00 and P100,000.00. Is the estate left by the decedent exempt from the payment of estate tax? Explain. -oOo-
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