9 September 20072 P.M. - 5 P.M.


This questionnaire consists of thirteen (13) numbers contained in seven (7) pages. Read each question very carefully. Answer 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 immediately succeeding pages until completed. Do not repeat the question. A mere "Yes" or "No" answer without any corresponding discussion will not be given any credit.



2007 Bar Examination Committee




What is the nature of the taxing power of the provinces, municipalities and cities? How will the local government units be able to exercise their taxing powers?


The Local Government Code took effect on January 1, 1992.

PLDT's legislative franchise was granted sometime before 1992. Its franchise provides that PLDT will only pay 3% franchise tax in lieu of all taxes.

The legislative franchises of Smart and Globe Telecoms were granted in 1998. Their legislative franchises state that they will pay only 5% franchise tax in lieu of all taxes.

The Province of Zamboanga del Norte passed an ordinance in 1997 that imposes a local franchise tax on all telecommunication companies operating within the province. The tax is 50% of 1% of the gross annual receipts of the preceding calendar year based on the incoming receipts, or receipts realized, within territorial jurisdiction.

Is the ordinance valid? Are PLDT, Smart and Globe liable to pay franchise taxes? Reason briefly.


What kind of taxes, fees and charges are considered as National Internal Revenue Taxes under the National Internal Revenue Code (NIRC)?


XYZ Corporation, an export oriented company, was able to secure a Bureau of Internal Revenue (BIR) ruling in June 2005 that exempts from tax the importation some of its raw materials. The ruling is of first impression, which means the interpretations made by the Commissioner of Internal Revenue is one without established precedents. Subsequently, however, the BIR issued another ruling which in effect would subject to tax such kind of importation. XYZ Corporation is concerned that said ruling may have a retroactive effect, which means that all their importations done before the issuance of the second ruling could be subject to tax.

  1. What are BIR rulings?
  2. What is required to make a BIR ruling of first impression a valid one?
  3. Does a BIR ruling have a retroactive effect, considering the principle that tax exemptions should be interpreted strictly against the taxpayer?


ABC Corporation sold a real property in Malolos, Bulacan to XYZ Corporation. The property has been classified as residential and with a zonal valuation of P1, 000 per square meter. The capital gains tax was paid based on the zonal value. The Revenue District Officer (RDO), however, refused to issue the Certificate Authorizing Registration for the reason that based on his ocular inspection the property should have a higher zonal valuation determined by the Commissioner of Internal Revenue because the area is already a commercial area. Accordingly, the RDO wanted to make a recomputation of the taxes due by using the fair market value appearing in a nearby bank's valuation list which is practically double the existing zonal value. The RDO also wanted to assess a donor's tax on the difference between the selling price based on the zonal value and the fair market value appearing in a nearby bank's valuation list.

  1. Does the RDO have the authority or discretion to unilaterally use the fair market value as the basis for determining the capital gains tax and not the zonal value as determined by the Commissioner of Internal Revenue? Reason briefly.

  2. Should the difference in the supposed taxable value be legally subject to donor's tax? Reason briefly.


Z is a Filipino immigrant living in the United States for more than 10 years. He is retired and he came back to the Philippines as a balikbayan. Every time he comes to the Philippines, he stays here for about a month. He regularly receives a pension from his former employer in the United States, amounting to US$1, 000 a month. While in the Philippines, with his pension pay from his former employer, he purchased three condominium units in Makati which he is renting out for P15, 000 a moth each.

  1. Does the US$1, 000 pension become taxable because he is now residing in the Philippines? Reason briefly.
  2. Is his purchase of the three condominium units subject to any tax? Reason briefly.


Antonia Santos, 30 years old, gainfully employed, is the sister of Edgardo Santos. She died in an airplane crash. Edgardo is a lawyer and he negotiated with the airline company and insurance company and they were able to a agree total settlement of P10 Million. This is what Antonia would have earned as somebody who was gainfully employed. Edgardo was her only heir.

  1. Is the P10 Million subject to estate tax? Reason briefly.
  2. Should Edgardo report the P10 Million as his income being Antonia's only heir? Reason briefly.


Nutrition Chippy Corporation gives all its employees (rank and file, supervisors and managers) one sack of rice every month valued at P800 per sack. During an audit investigation made by the Bureau of Internal Revenue (BIR), the BIR assessed the company for failure to withhold the corresponding withholding tax on the amount equivalent to the one sack of rice received by all the employees, contending that the sack of rice is considered as additional compensation for the rank and file employees and additional fringe benefit for the supervisions and managers. Therefore, the value of the one sack of rice every month should be considered as part of the compensation of the rank and file subject to tax. For the supervisors and managers, the employer should be the one assessed pursuant to Section 33 (a) of the NIRC. Is there a legal basis for the assessment made by the BIR? Explain your answer.


Weber Realty Company which owns a three-hectare land in Antipolo entered into a Joint Venture Agreement (JVA) with Prime Development Company for the development of said parcel of land. Weber Realty as owner of the land contributed the land to the Joint Venture and Prime Development agreed to develop the same into a residential subdivision and construct residential houses thereon. They agreed that they would divide the lots between them.

  1. Does the JVA entered into by and between Weber and Prime create a separate taxable entity? Explain briefly.
  2. Are the allocation and distribution of the saleable lots to Weber and prime subject to income tax and to expanded withholding tax? Explain briefly.
  3. Is the sale by Weber or Prime of their respective shares in the saleable lots to third parties subject to income tax and to expanded withholding tax? Explain briefly.


Noel Santos is a very bright computer science graduate. He was hired by Hewlett Packard. To entice him to accept the offer for employment, he was offered the arrangement that part of is compensation would be an insurance policy with a face value of P20 Million. The parents of Noel are made the beneficiaries of the insurance policy.

  1. Will the proceeds of the insurance form part of the income of the parents of Noel and be subject to income tax? Reason briefly.
  2. Can the company deduct from its gross income the amount of the premium? Briefly.


The Congregation of the Mary Immaculate donated a land a dormitory building located along España St. in favor of the Sisters of the Holy Cross, a group of nuns operating a free clinic and high school teaching basic spiritual values. Is the donation subject to donor's tax? Reason Briefly.


Remedios, a resident citizen, died on November 10, 2006. She died leaving three condominium units in Quezon City valued at P5 Million each. Rodolfo was her only heir. He reported her death on December 5, 2006 and filed the estate tax, he asked the Commissioner of Internal Revenue to give him one year to pay the estate tax due. The Commissioner approved the request for extension of time provided that the estate tax be computed on the basis of the value of the property at the time of payment of the tax.

  1. Does the Commissioner of Internal Revenue have the power to extend the payment of estate tax? If so, what are the requirements to allow such extension?
  2. Does the condition that the basis of the estate tax will be the value at the time of the payment have legal basis? Reason briefly.


ABC Corporation won a tax refund case for P50 Million. Upon execution of the judgement and when trying to get the tax Credit Certificates (TCC) representing the refund, the Bureau of Internal Revenue (BIR) refused to issue the TCC on the basis of the fact that the corporation is under audit by the BIR and it has a potential tax liability. Is there a valid justification for the BIR to withhold the issuance of the TCC? Explain your answer briefly.


The Lawphil Project - Arellano Law Foundation