ANSWERS TO BAR EXAMINATION QUESTIONS IN TAXATION LAW * ARRANGED BY TOPIC PDF

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Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) [email protected] 1 of 73 ANSWERS TO BAR EXAMINATION QUESTIONS IN TAXATION LAW * ARRANGED BY TOPIC * (1994 – 2006) Edited and Arranged by: ROMUALDO L. SEÑERIS II Silliman University - College of Law From the ANSWERS TO BAR EXAMINATION QUE...

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Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) [email protected]

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ANSWERS TO BAR EXAMINATION QUESTIONS IN

TAXATION LAW * ARRANGED

BY TOPIC *

(1994 – 2006) Edited and Arranged by:

ROMUALDO L. SEÑERIS II Silliman University - College of Law

From the ANSWERS TO BAR EXAMINATION QUESTIONS by the UP LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS

June 3, 2007

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) [email protected]

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FOREWARD This work is NOT intended FOR SALE or COMMERCE. This work is a freeware. It may be freely copied and distributed, nevertheless, PERMISSION TO COPY from the editors is ADVISABLE to protect the interest of the ORIGINAL SOURCES/REFERENCES of this material…. It is primarily intended for all those who desire to have a deeper understanding of the issues commonly touched by the Philippine Bar Examinations and its trend on specifically on Taxation Laws. It is specifically intended for law students from the provinces who, very often, are recipients of deliberately distorted notes from other unscrupulous law schools and students.

I would like to seek the indulgence of the reader for some Bar Questions which are improperly classified under a topic and for some topics which are improperly or ignorantly phrased, for nd

the arranger is just a Bar Reviewee who has prepared this work while reviewing for the 2 time for the Bar Exams 2007 under time constraints and within his limited knowledge of the law. I would like to seek the reader’s indulgence also for a number of typographical errors in this work.

The Arranger

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) [email protected]

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Detailed Table of Contents GENERAL PRINCIPLES........................................................................................................................... 8

Basic Features: Present Income Tax System (1996).................................................................................................... 8 Basic Stages or Aspects of Taxation (2006)................................................................................................................ 8 Collection of Taxes: Authority; Ordinary Courts (2001)............................................................................................... 8 Collection of Taxes: Prescription (2001) ..................................................................................................................... 8 Direct Tax vs. Indirect Tax (1994)................................................................................................................................ 8 Direct Tax vs. Indirect Tax (2000)................................................................................................................................ 8 Direct Tax vs. Indirect Tax (2001)................................................................................................................................ 8 Direct Tax vs. Indirect Tax (2006)................................................................................................................................ 9 Double Taxation (1997)............................................................................................................................................... 9 Double Taxation: What Constitutes DT? (1996)........................................................................................................... 9 Double Taxation; Indirect Duplicate Taxation (1997) ................................................................................................... 9 Double Taxation; License Fee vs. Local Tax (2004)..................................................................................................... 9 Double Taxation; Methods of Avoiding DT (1997) ....................................................................................................... 9 Imprescriptibility of Tax Laws (1997) .......................................................................................................................... 9 Power of Taxation: Equal Protection of the Law (2000) ............................................................................................ 10 Power of Taxation: Inherent in a Sovereign State (2003) ........................................................................................... 10 Power of Taxation: Legality; Local Gov’t Taxation (2003).......................................................................................... 10 Power of Taxation: Legislative in Nature (1994) ........................................................................................................ 10 Power of Taxation: Limitations of the Congress (2001) ............................................................................................. 10 Power of Taxation: Limitations: Passing of Revenue Bills (1997) .............................................................................. 11 Power of Taxation: Limitations; Power to Destroy (2000) .......................................................................................... 11 Power of Taxation: Revocation of Exempting Statutes (1997) ................................................................................... 11 Power of Taxation; Inherent in a Sovereign State (2005) ........................................................................................... 11 Power of Taxation; Legislative in Nature (1996) ........................................................................................................ 12 Purpose of Taxation; Interpretation (2004)................................................................................................................ 12 Purpose of Taxation; Legislative in Nature (2004) ..................................................................................................... 12 Rule on Set-Off or Compensation of Taxes (1996)..................................................................................................... 12 Rule on Set-Off or Compensation of Taxes (2001)..................................................................................................... 12 Rule on Set-Off or Compensation of Taxes (2005)..................................................................................................... 13 Rule on Set-Off or Compensation on Taxes (2005).................................................................................................... 13 Tax Avoidance vs. Tax Evasion (1996)...................................................................................................................... 13 Tax Avoidance vs. Tax Evasion (2000)...................................................................................................................... 13 Tax Exemptions: Nature & Coverage; Proper Party (2004) ........................................................................................ 13 Tax Laws; BIR Ruling; Non-Retroactivity of Rulings (2004) ....................................................................................... 14 Tax INCOME TAXATION................................................................................................................................ Pyramiding; Definition & Legality (2006) ............................................................................................................ 14 14 Basic: Allowable vs. Personal Exemptions (2001) .................................................................................. 14 Taxpayer Suit; Deductions When Allowed (1996)......................................................................................................................... Basic: Meaning of Taxable Income 14 Uniformity in (2000) ................................................................................................................. the Collection of Taxes (1998) 15 Basic: Principle of Mobilia Sequuntur Personam (1994)............................................................................................ ............................................................................................................. 14 15 Basic: Proper Allowance of Depreciation (1998) ....................................................................................................... 15 Basic: Sources of Income: Taxable Income (1998) .................................................................................................... 15 Basic: Tax Benefit Rule (2003) .................................................................................................................................. 15 Basic; Basis of Income Tax (1996) ............................................................................................................................ 16 Basic; Gross Income: Define (1995).......................................................................................................................... 16 Basic; Income vs. Capital (1995)............................................................................................................................... 16 Basic; Schedular Treatment vs. Global Treatment (1994) ......................................................................................... 16 Compensation; Income Tax: Due to Profitable Business Deal (1995) ........................................................................ 16 Corporate: Income: Donor’s tax; Tax Liability (1996) ................................................................................................ 17 Corporate; Income Tax; Reasonableness of the Bonus (2006) .................................................................................. 17 Corporate; Income: Coverage; "Off-Line" Airline (1994)............................................................................................ 17 Corporate; Income: Coverage; "Off-Line" Airline (2005)............................................................................................ 17 Dividends: Disguised dividends (1994)..................................................................................................................... 18 Dividends; Income Tax; Deductible Gross Income (1999) ......................................................................................... 18

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Effect; Condonation of Loan in Taxation (1995) ........................................................................................................ 18 Fringe Benefit Tax: Covered Employees (2001)......................................................................................................... 18 Fringe Benefit Tax: Employer required to Pay (2003) ................................................................................................ 19 Interest: Deficiency Interest: define (1995 Bar).......................................................................................................... 19 Interest: Delinquency Interest: define (1995)............................................................................................................. 19 ITR: Personal Income; Exempted to File ITR (1997)................................................................................................... 19 ITR; Domestic Corporate Taxation (1997).................................................................................................................. 19 ITR; Domestic Corporate Taxation (2001).................................................................................................................. 20 ITR; Personal Income: Two Employment (2001) ........................................................................................................ 20 ITR; Personal Income; GSIS Pension (2000) ............................................................................................................. 20 ITR; Personal Income; Married Individual (2004) ....................................................................................................... 20 ITR; Taxpayer; Liabilities; Falsified Tax Return (2005) .............................................................................................. 20 Partnership: Income Tax (1995) ................................................................................................................................ 21 Personal; Income Tax: Non-Resident Alien (2000) .................................................................................................... 21 Personal; Income Tax: Non-Resident Citizen (1999).................................................................................................. 21 Personal; Income Tax: Tax-Free Exchange (1997)..................................................................................................... 22 Personal; Income Tax; Contract of Lease (1995) ....................................................................................................... 22 Personal; Income Tax; Married Individual (1997)....................................................................................................... 22 Personal; Income Tax; Retiring Alien Employee (2005) ............................................................................................. 23 Personal; Income Taxation: Non-Resident Citizen (1997) .......................................................................................... 23 Taxable Income: Illegal Income (1995 Bar)................................................................................................................ 23 Taxable or Non-Taxable; Income and Gains (2005) ................................................................................................... 23 Withholding Tax: Non-Resident Alien (2001)............................................................................................................. 24 Withholding Tax: Retirement Benefit (2000).............................................................................................................. 24 Withholding Tax: Retirement Benefit (2000).............................................................................................................. 24 Withholding Tax: Royalty (2002) ............................................................................................................................... 24 Withholding Tax; Coverage (2004) ............................................................................................................................ 25 Withholding Tax; Domestic Corporation; Cash Dividends (2001) .............................................................................. 25 Withholding Tax; DEDUCTIONS, EXEMPTIONS, EXCLUSIONS & INCLUSIONS..................................................... Income subject thereto (2001) ....................................................................................................... 25 Withholding Deduction: Facilitation Fees or "kickback" (1998)..................................................................................................... 26 26 Tax; Non-Resident Alien (1994)............................................................................................................. 25 Deductions: Ordinary Business Expenses (2004) Withholding Tax; Non-Resident Corporation (1994) .................................................................................................... Deductions: Amount Digest for Award Bribe .................................................................................................. 26 26 Withholding Tax; Reader's (2001)........................................................................................................................ 27 Deductions: Capital (1998)........................................................................................................ 26 Withholding Tax; Time Deposit Losses; ...................................................................................................... 27 Deductions: Interest; Prohibitions GSIS Pension(2003) (1994) .................................................................................. 26 Deductible Items from Gross Income (1999).......................................................................................... 27 Deductions: Income Tax: Donation: Real Property (2002) ........................................................................................ 27 Deductions: Non-Deductible Items; Gross Income (1999) ......................................................................................... 28 Deductions: Requisites; Deducibility of a Loss (1998) .............................................................................................. 28 Deductions; Income Tax: Allowable Deductions (2001)............................................................................................. 28 Deductions; Vanishing Deduction; Purpose (2006) ................................................................................................... 28 Exclusion & Inclusion; Gross Receipts (2006) .......................................................................................................... 28 Exclusion vs. Deduction from Gross Income (2001).................................................................................................. 28 Exclusions & Inclusions: Benefits on Account of Injury (1995) ................................................................................. 29 Exclusions & Inclusions: Executive Benefits (1995).................................................................................................. 29 Exclusions & Inclusions; Assets; Resident Alien (2005) ........................................................................................... 29 Exclusions & Inclusions; Benefits on Account of Death (1996) ................................................................................. 30 Exclusions & Inclusions; Benefits on Account of Injury (2005) ................................................................................. 30 Exclusions & Inclusions; Compensation for personal injuries or sickness (2003) ..................................................... 30 Exclusions & Inclusions; Facilities or Privileges; Military Camp (1995) ..................................................................... 30 Exclusions & Inclusions; Gifts over and above the Retirement Pay (1995) ................................................................ 31 Exclusions & Inclusions; ITR; 13th month pay and de minimis benefits (2005) ......................................................... 31 Exclusions & Inclusions; ITR; Dividends received by a domestic corporation (2005) ................................................ 31 Exclusions & Inclusions; ITR; Income realized from sale (2005)................................................................................ 31 Exclusions & Inclusions; ITR; Interest on deposits (2005)......................................................................................... 31 Exclusions & Inclusions; ITR; Proceeds of life insurance (2005) ............................................................................... 32 Exclusions & Inclusions; Life Insurance Policy (2003) .............................................................................................. 32

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Exemptions: Charitable Institutions (2000) ............................................................................................................... 32 Exemptions: Charitable Institutions; Churches (1996) .............................................................................................. 32 Exemptions: Educational institution (2004)............................................................................................................... 32 Exemptions: Gifts & Donations (1994) ........................................................................................................................