2021 Qu AMTO in Taxation LAW PDF

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University of Santo TomasFaculty of Civil LawTAXATION LAWQuestions Asked More Than OnceQuAMTOOUR DEEPEST APPRECIATION TOOUR MENTORS AND INSPIRATIONJUSTICE JAPAR B. DIMAAMPAOATTY. ABELARDO T. DOMONDONATTY. BENEDICTA DU-BALADADATTY. KENNETH GLENN L. MANUELATTY. LEAN JEFF M. MAGSOMBOLATTY. NOEL M. ORTE...

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University*of*Santo*Tomas* Faculty*of*Civil*Law* *

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TAXATION'LAW' ! ! Questions!Asked!More!Than!Once!!

QuAMTO'2021

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! QuAMTO!is!a!compilation!of!past!bar!questions!with!answers!as!suggested!by!the!UPLC!and!other!distinct! luminaries!in!the!academe,!and!updated!by!the!UST!Academics!Committee!to!fit!for!the!2021!Bar!Exams.! ! Bar!questions!are!arranged!per!topic!in!accordance!with!the!bar!syllabus!released!by!the!Supreme!Court! and!were!selected!based!on!their!occurrence!on!past!bar!examinations!from!1987!to!2019.! !

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! ! OUR!DEEPEST!APPRECIATION!TO! OUR!MENTORS!AND!INSPIRATION! ! ! JUSTICE!JAPAR!B.!DIMAAMPAO! ! ATTY.!ABELARDO!T.!DOMONDON! ! ATTY.!BENEDICTA!DU-BALADAD! ! ATTY.!KENNETH!GLENN!L.!MANUEL! ! ATTY.!LEAN!JEFF!M.!MAGSOMBOL! ! ATTY.!NOEL!M.!ORTEGA! ! ATTY.!PRUDENCE!ANGELITA!A.!KASALA! ! ATTY.!RIZALINA!V.!LUMBRERA! ! ATTY.!VIRGINIA!JEANNIE!P.!LIM! ! ATTY.!CLARICE!ANGELINE!V.!QUESTIN! !

! ! For$being$our$guideposts$in$understanding$ $the$intricate$sphere$of$Legal$and$Judicial$Ethics.$ -Academics$Committee$2021$ !

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QuAMTO (1987-2019)

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TAXATION!QUAMTO! !

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GENERAL!PRINCIPLES!OF!TAXATION! !

! NATURE!AND!CHARACTERISTICS!! OF!TAXATION!! (1989,!1991,!1996,!2003,!2005,!2016)! ! Q:! Describe! the! power! of! taxation.! May! a! legislative!body!enact!laws!to!raise!revenues!in! the! absence! of! a! constitutional! provision! granting! said! body! the! power! to! tax?! Explain.! (2005!BAR)! ! A:! The! power! of! taxation! is! inherent! in! the! State! being!an!attribute!of!sovereignty.!As!an!incident!of! sovereignty,!the! power!to! tax!has! been!described! as! unlimited! in! its! range,! acknowledging! in! its! very! nature! no! limits,! so! that! security! against! its! abuse! is! to! be! found! only! in! the! responsibility! of! the! legislature! which! imposes! the! tax! on! the! constituents! who! are! to! pay! it.! (Mactan' Cebu' International' Airport' Authority' v.' Marcos,' 261' SCRA'667)! ! Being!an!inherent!power,!the!legislature!can!enact! laws! to! raise! revenues! even! without! the! grant! of! said! power! in! the! Constitution.! It! must! be! noted! that! Constitutional! provisions! relating! to! the! power!of!taxation!do!not!operate!as!grants! of!the! power!of!taxation!to!the!Government,!but!instead! merely!constitute!limitations!upon!a!power!which! would! otherwise! be! practically! without! limit.! (Cooley,'Constitutional'Limitations,'1927'8th'Ed.,'p.' 787)! ! Power!of!Taxation!as!distinguished!from!Police! Power! and! Eminent! Domain! (1989,! 1991,! 2003)! ! Q:! The! City! of! Manila! passed! an! ordinance! imposing! an! annual! tax! of! P! 5,000.00! to! be! paid!by!an!operator!of!a!massage!clinic!and!an! annual! fee! of! P! 50.00! to! be! paid! by! every! attendant! or! helper! in! the! said! clinic.! Is! the! imposition!a!tax!or!a!license!fee?!(1989!BAR)! ! A:!The!imposition!on!the!operator!of!the!massage! clinic!is!both!a!tax!and!a!license!fee.!The!amount!of! P! 5,000.00! exceeds! the! cost! of! regulation,! administration! and! control! but! it! is! likewise! imposed! to! regulate! a! non-useful! business! in! order! to! protect! the! health,! safety! and! morals! of! the! citizenry! in! general.! The! P! 50.00! impositions! on! the! helpers! or! attendants! are! license! fees! sufficient! only! for! regulation,! administration! and! control.! ! Theory! and! Basis! of! Taxation! (1991,! 2016! BAR)! ! Q:! Briefly! explain! the! following! doctrines:! lifeblood!doctrine!xxx!(2016!BAR)! ! A:! Lifeblood! doctrine.! Taxes! are! the! lifeblood! of!

the! government! (Chamber' of' Real' Estate' and' Builders’' Associations,' Inc.' v.' Romulo,' 614' SCRA' 605,' 2010)! and! their! prompt! and! certain! availability! is! imperious! need.! (Bull' v.' United' States,' 295' US' 247)! For! without! taxes,! the! government! can! neither! exist! nor! endure.! (National'Power'Corporation'v.'City'of'Cabanatuan,' G.R.'No.'149110,'April'9,'2003,'citing'various'cases)!! ! PRINCIPLES!OF!A!SOUND!TAX!SYSTEM! (2009,!2015)! ! Q:!Explain!the!principles!of!a!sound!tax!system.! (2015!BAR)! ! A:!The!principles!of!a!sound!tax!system!and!their! respective!explanations,!are!as!follows:! ! 1. Fiscal! adequacy! which! means! that! the! sources! of! revenue! should! be! sufficient! to! meet! the! demands! of! public! expenditures! (Chavez' v.' Ongpin,' G.R.' No.' 76778,' June' 6,' 1990);! ! 2. Equality! or! theoretical! justice! which! means! that!the!tax!burden!should!be!proportionate! to!the!taxpayer’s!ability!to!pay!(Section'[Sec.]' 28(1),'Art.'VI,'1987'Constitution);!and! ! 3. Administrative! feasibility! which! means! that! the!tax!law!should!be!capable!of!convenient,! just! and! effective! administration,! as! well! as! easy!compliance!by!taxpayer.! ! Q:!TRUE!or!FALSE.!! ! (a)!A!law!that!allows!taxes!to!be!paid!either!in! cash!or!in!kind!is!valid.!xxx!(2009!BAR)! ! A:! True.! There! is! no! law! which! requires! the! payment! of! taxes! in! cash! only.! However,! a! law! allowing!payment!of!taxes!in!kind,!although!valid,! may! pose! problems! of! valuation,! hence,! will! violate!the!principle!of!administrative!feasibility.! ! INHERENT!LIMITATIONS! (1989,!1991,!2009)! ! Q:! Enumerate! the! four! (4)! inherent! limitations! on! taxation.! Explain! each! item! briefly.!(2009!BAR)! ! A:!The!inherent!limitations!on!the!power!to!tax! are:! ! 1. Taxation! is! for! a! public! purpose! –! The! proceeds! of! the! tax! must! be! used! (a)! for! the! support! of! the! State;! or! (b)! for! some! recognized!objective!of!the!government!or! to! directly! promote! the! welfare! of! the! community.! ! 2. Taxation!is!inherently!legislative!–!Only!the! legislature! has! full! discretion! as! to! the! persons,! property,! occupation! or! business! to! be! taxed! provided! these! are! all! within! the! State’s! territorial! jurisdiction.! It! can!

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Taxation Law

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also! finally! determine! the! amount! or! rate! of! tax,! the! kind! of! tax! to! be! imposed! and! the!method!of!collection.!(1'Cooley'176184)! ! Taxation! is! territorial–! Taxation! may! be! exercised! only! within! the! territorial! jurisdiction!of!the!taxing!authority.!(61'Am.' Jur.' 88)! Within! the! territorial! jurisdiction,! the! taxing! authority! may! determine! the! place!of!taxation”!or!“tax!situs."! ! Taxation!is! subject!to!international!comity! –! This! is! a! limitation! which! is! founded! on! reciprocity! designed! to! maintain! a! harmonious! and! productive! relationships! among! the! various! states.! Under! international! comity,! a! state! must! recognize! the! generally! accepted! tenets! of! international! law,! among! which! are! the! principles! of! sovereign! equality! among! states! and! of! their! freedom! from! suit! without! their! consent,! that! limit! the! authority! of! a! government! to! effectively! impose! taxes! on! a! sovereign! state! and! its! instrumentalities,!as!well!as!on!its!property! held,! and! activities! undertaken! in! that! capacity.!

! Public!Purpose!(1989,!1991!BAR)! ! Q:! An! ordinance! of! Quezon! City! on! the! operation!of!market!stalls!and!the!collection! of! market! stall! fees! created! a! market! committee! “to! formulate,! recommend! and! adopt! subject! to! the! ratification! of! the! Sangguniang!Panglungsod!regulations!in!the! operations! of! the! market! stalls.”! It! also! entrusted! the! collection! of! the! market! stall! fees! to! a! private! corporation.! Does! the! entrusting! of! the! collection! of! the! market! stall!fees!destroy!the!“public!purpose”!of!the! ordinance?!(1989!BAR)! ! A:! YES,! because! a! portion! of! the! fees! collected! would!be!diverted!as!fees!to!private!corporation.! Entrusting! of! the! collection! of! the! market! stall! fees!violates!the!limitation!that!local!government! units!shall!in!no!case!let!to!any!private!person!the! collection! of! local! taxes,! fees,! charges! and! other! impositions.! (Sec.' 130(c),' Republic' Act' [R.A.]' No.' 7160,' The' Local' Government' Code' [LGC])! As! a! result! of! this! prohibition,! public! funds! are! therefore!utilized!for!a!private!purpose,!which!is! to!pay!the!private!corporation!for!its!services.! ! CONSTITUTIONAL!LIMITATIONS! (1988,!1997,!2000,!2003,!2004,!2017)! ! Equality! and! Uniformity! (1988,! 2000,! 2003,! 2004!BAR)! ! Q:! RC! is! a! law-abiding! citizen! who! pays! his! real! estate! taxes! promptly.! Due! to! a! series! of! typhoons! and! adverse! economic! conditions,! an!ordinance!is!passed!by!MM!City!granting!a! 50%! discount! for! payment! of! unpaid! real! estate! taxes! for! the! preceding! year! and! the!

condonation!of!all!penalties!on!fines!resulting! from!the!late!payment.! ! Arguing! that! the! ordinance! rewards! delinquent! taxpayers! and! discriminates! against! prompt! ones,! RC! demands! that! he! be! refunded!an!amount!equivalent!to!one-!half!of! the!real!taxes!he!paid.!The!municipal!attorney! rendered! an! opinion! that! RC! cannot! be! reimbursed! because! the! ordinance! did! not! provide!for!such!reimbursement.!RC!files!suit! to! declare! the! ordinance! void! on! the! ground! that! it! is! a! class! legislation.! Will! his! suit! prosper?! Explain! your! answer! briefly.! (2004! BAR)! ! A:! The! suit! will! not! prosper.! The! remission! or! condonation! of! taxes! due! and! payable! to! the! exclusion! of! taxes! already! collected! does! not! constitute!unfair!discrimination.!Each!set!of!taxes! is!a!class!by!itself,!and!the!law!would!be!open!to! attack! as! class! legislation! only! if! all! taxpayers! belonging! to! one! class! were! not! treated! alike.! (Juan' Luna' Subdivision,' Inc.,' v.' Sarmiento,' 91' Phil' 371,'1952)! ! Non-Impairment! of! Obligations! of! Contracts! (1997,!2004!BAR)! ! Q:!A!law!was!passed!granting!tax!exemption!to! certain! industries! and! investments! for! a! period!of!five!years.!But!three!years!later,!the! law! was! repealed.! With! the! repeal,! the! exemptions! were! considered! revoked! by! the! BIR,! which! assessed! the! investing! companies! for! unpaid! taxes! effective! on! the! date! of! the! repeal!of!the!law.! ! NPC! and! KTR! companies! questioned! the! assessments!on!the!ground!that,!having!made! their! investments! in! full! reliance! with! the! period! of! exemption! granted! by! the! law,! its! repeal! violated! their! constitutional! right! against!the!impairment!of!the!obligations!and! contracts.! Is! the! contention! of! the! companies! tenable!or!not?!Reason!briefly.!(2004!BAR)! ! A:! The! contention! is! not! tenable.! The! exemption! granted! is! in! the! nature! of! a! unilateral! tax! exemption.! Since! the! exemption! given! is! spontaneous!on!the!part!of!the!legislature!and!no! service!or!duty!or!other!remunerative! conditions! have!been!imposed!on!the!taxpayers!receiving!the! exemption,! it! may! be! revoked! at! will! by! the! legislature.! (Manila' Railroad' Company' v.' Insular' Collector'of'Customs,'12'Phil'146,'1915)! ! Tax! Exemption! Granted! to! Non-Stock,! Non-! Profit! Educational! Institutions! (2004,! 2017! BAR)!! ! Q:! XYZ! Colleges! is! a! non-stock,! non-profit! educational!institution!run!by!the!Archdiocese! of! BP! City.! It! collected! and! received! the! following:! ! (a) Tuition!fees!

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QuAMTO (1987-2019) (b) Dormitory!Fees! (c) Rentals!from!canteen!concessionaires! (d) Interest! from! money-market! placements! of!the!tuition!fees! (e) Donation! of! a! lot! and! building! by! school! alumni!

! Which! of! these! above! cited! income! and! donation!would!not!be!exempt!from!taxation?! Explain!briefly.!(2004!BAR)! ! A:! The! following! are! not! exempt! from! taxation,! viz:! ! (c)!xxx.!Rental!income!is!considered!as!unrelated! to! the! school! operations;! hence,! taxable.! (DOF' Order'No.'137-87,'Dec.'16,'1987)! ! (d)!xxx.!The!interest! on!the!placement!is!taxable.! (Ibid)! ! If,! however,! the! said! rental! income! and/or! interest!are!used!actually,!directly!and!exclusively! for!educational!purposes!as!proven!by!substantial! evidence,!the!same!will! be!exempt!from!taxation.' (CIR'v.'CA,'298'SCRA'83,'1998)! ! The!other!items!of!income!which!were!all!derived! from!school-related!activities!will!be!exempt!from! taxation! in! the! hands! of! the! recipient! if! used! actually,! directly! and! exclusively! for! educational! purposes.! (Sec.' 4' par.' 3,' Art.' XIV,' 1987' Constitution)! ! The! donation! to! a! non-stock,! non-profit! educational! institution! will! be! exempt! from! the! donor’s! tax! if! used! actually,! directly! and! exclusively! for! educational! purposes! and! provided,! that,! not! more! than! 30%! of! the! donation! is! used! for! administration! purposes.! (Sec.' 4,' par.' 4,' Art' XIV,' 1987' Constitution,' in' relation' to' Section' 101(A)(3),' National' Internal' Revenue'Code'[NIRC])! ! Q:! San! Juan! University! is! a! non-stock,! non-! profit! educational! institution.! It! owns! a! piece! of! land! in! Caloocan! City! on! which! its! three! 2storey! school! buildings! stood.! Two! of! the! buildings! are! devoted! to! classrooms,! laboratories,! a! canteen,! a! bookstore,! and! administrative! offices.! The! third! building! is! reserved! as! dormitory! for! student! athletes! who! are! granted! scholarships! for! a! given! academic!year.! ! In! 2017,! San! Juan! University! earned! income! from!tuition!fees!and!from!leasing!a!portion!of! its! premises! to! various! concessionaires! of! food,!books,!and!school!supplies.! ! xxx! ! (b)! Is! the! income! earned! by! San! Juan! University!for!the!year!2017!subject!to!income! tax?!Explain!your!answer.!(2017!BAR)! ! A:! NO,! provided! that! the! revenues! are! used!

actually,! directly,! and! exclusively! for! educational! purposes!as!provided!under!Article!XIV,! Sec.!4(3)! of! the! 1987! Constitution.! The! requisites! for! availing! the! tax! exemption! under! Article! XIV,! Section! 4(3)! are! as! follows:! (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.!Thus,!so! long!as!the!requisites!are! met,! the! revenues! may! be! exempt! from! tax.!(CIR' v.' De' La' Salle' University,' Inc.,' G.R.' Nos.' 196596,' 198841,' 198941,'November'9,'2016)' ! KINDS!OF!TAXES! (1994,!2000,!2001,!2006!BAR)! ! Direct! and! Indirect! Taxes! (1994,! 2000,! 2001,! 2006!BAR)! ! Q:! Distinguish! “direct! taxes”! from! “indirect! taxes."!Give!examples.!(2006!BAR)! ! A:! Direct! taxes! are! demanded! from! the! very! person!who,!as!intended,!should!pay!the!tax!which! he!cannot!shift!to!another;!while!an!indirect!tax!is! demanded! in! the! first! instance! from! one! person! with!the! expectation!that!he!can!shift! the!burden! to! someone! else,! not! as! a! tax,! but! as! part! of! the! purchase!price.!(Maceda'v.'Macaraig,'Jr.,'223'SCRA' 217,' 1993)! Examples! of! direct! taxes! are! income! tax,! estate! tax! and! donor’s! tax.! Examples! of! indirect!taxes!are!value-added!tax,!percentage!tax! and!excise!tax!on!excisable!articles.! ! CONSTRUCTION!AND!INTERPRETATION!! OF!TAX!LAWS! (1996,!2005,!2007)! ! Tax! Exemption! and! Exclusion! (1996,! 2005,! 2007!BAR)! ! Q:!Why!are!tax!exemptions!strictly!construed! against!the!taxpayer?!(1996!BAR)! ! A:! Tax! exemptions! are! strictly! construed! against! the! taxpayer! because! such! provisions! are! highly! disfavored!and!may!almost!be!said!to!be!odious!to! the!law.!(Manila'Electric'Company'v.'Vera,'67'SCRA' 351)! The! exception! contained! in! the! tax! statutes! must! be! strictly! construed! against! the! one! claiming!the! exemption!because!the!law! does!not! look! with! favor! on! tax! exemptions,! they,! being! contrary! to! the! life-blood! theory! which! is! the! underlying!basis!for!taxes.! ! Q:! An! alien! employee! of! the! Asian! Development!Bank!(ADB)!who!is!retiring!soon! has! offered! to! sell! his! car! to! you! which! he! imported! tax-free! for! his! personal! use.! The! privilege! of! exemption! from! tax! is! granted! to! qualified! personal! use!under! the! ADB!Charter! which! is! recognized! by! the! tax! authorities.! If! you! decide! to! purchase! the! car,! is! the! sale! subject!to!tax?!Explain.!(2005!BAR)! ! A:!YES.!The!sale!is!subject!to!tax.!Section!107(B)!of!

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Taxation Law the! NIRC! provides! that:! "In! the! case! of! tax-free! importation! of! goods! into! the! Philippines! by! persons,! entities! or! agencies! exempt! from! tax! where! such! goods! are! subsequently! sold,! transferred! or! exchanged! in! the! Philippines! to! non-exempt! persons! or! entities,! the! purchasers,! transferees! or! recipients! shall! be! considered! the! importer! thereof,! who! shall! be! liable! for! any! internal! revenue! tax! on! such! importation”.! Tax! exemptions! are! to! be! construed! strictly! and! are! not!considered!transferable!in!character.! ! DOUBLE!TAXATION!! (1996,!1997,!2004,!2015,!2017,!2018,!2019)! ! Q:!Differentiate!between!double!taxation!in!the! strict! sense! and! in! a! broad! sense! and! give! an! example!of!each.!(2015!BAR)! ! A:! Double! taxation! in! the! strict! sense! pertains! to! the! direct! double! taxation.! This! means! that! the! taxpayer! is! taxed! twice! by! the! same! taxing! authority,! within!the! same!taxing! jurisdiction,!for! the! same! property! and! same! purpose.! Example:! Imposition! of! final! withholding! tax! on! cash! dividend! and! requiring! the! taxpayer! to! declare! this!tax-paid!income!in!his!income!tax!returns.! ! On! the! other! hand,! double! taxation! in! the! broad! sense! pertains! to! indirect! double! taxation.! This! extends!to!all!cases!in!which!there!is!a!burden!of! two!or!more!impositions.!It!is!the!double!taxation! other! than! those! covered! by! direct! double! taxation.! (CIR' v.' Solidbank' Corp.,' 436' SCRA' 416)! Example:!Subjecting!the!interest!income!of!banks! on! their! deposits! with! other! banks! to! the! 5%! gross! receipts! tax! (GRT)! despite! of! the! same! income! having! been! subjected! to! 20%! final! withholding! tax! (FWT),! is! only! a! case! of! indirect! double!taxation.!The!GRT!is!a!tax!on!the!privilege! of!engaging!in!business!while!the!FWT!is!a!tax!on! the!privilege!of!earning!income.! ! Q:!X,!a!lessor!of!a!property,!pays!real!estate!tax! on! the! premises,! a! real! estate! dealer’s! tax! based!on!rental!receipts!and!income!tax!on!the! rentals.! X! claims! that! this! is! double! taxation.! (1996!BAR)! ! A:! There! is! no! double! taxation.! Double! taxation! means! taxing! for! the! same! tax! period! the! same! thing! or! activity! twice,! when! it! should! be! taxed! but! once,! by! the! same! taxing! authority! for! the! same! purpose! and! with! the! same! kind! or! character! of! tax.! The! real! estate! tax! is! a! tax! on! property;! the! real! estate! dealer’s! tax! is! a! tax! on! the! privilege! to! engage! in! business;! while! the! income! tax! is! a! tax! on! the! privilege! to! earn! an! income.! These! taxes! are! imposed! by! differen...