DE LA SALLE LIPA
College of Law
Taxation Department
Taxation Review
Quiz I: General Principles of Taxation
Direction: Read and answer the following case problems. Write your answer on
a composition notebook. Afterwards, take a picture of your written answer and
send it to [email protected] with the following sample filename
RLACODLSLTAXREVQUIZ1.
I. Atty. Faceless Void, a nonresident American, earned income from
isolated consultancy services he rendered to Valve Incorporated, a
corporation organized under Revised Corporation Code of the Philippines.
Valve Incorporated informed Atty. Faceless Void that it will withhold 25%
final withholding tax on the gross professional fee. Atty. Faceless Void
objected on the tax withholding based on the following grounds: (a) He
did not give consent to Philippine government to be taxed; (b) The 1987
Philippine Constitution does not grant to the government the power of
taxation; and (c) The said withholding of income tax is equivalent to
double taxation because the said professional fee has already been
subjected to income taxation in USA.
a. Are the grounds raised by Atty. Faceless Void tenable? Explain.
b. Enumerate and define the three theories and basis of power or
taxation.
II. The Tax Reform for Acceleration and Inclusion Act (TRAIN Law) imposed
excise tax on the production of alcohol products and cigarettes.
Association of Chain Smokers and Alcohol Consumers Inc. (ACSACI), a
nonprofit organization, filed a petition before the Supreme Court
questioning the constitutionality of the said law based on two grounds (a)
It is in violation of due process of law for being oppressive and
confiscatory because it will increase the price of the excisable articles;
and (b) It is in violation of equal protection of the law because other
products are not subject to excise tax. The Office of Solicitor General filed
a motion to dismiss on the ground that the petitioner does not have
locus standi.
a. Does the petitioner, ACSACI, have legal standing? Explain.
b. Is the TRAIN Law violative of due process clause and equal
protection clause? Explain.
III. The BIR Commissioner issued an implementing rules and regulations
requiring all nonstock nonprofit educational institution to submit
documents showing that not more than 30% of their revenues are used
for administrative purposes before they may claim income tax exemption.
Ateneo De Lasalle University (ADLU), a nonstock nonprofit educational
institution filed a petition before the Supreme Court questioning the
validity of such IRR on ground that it violates the 1987 Constitution
because it adds additional requirement for tax exemption not provided by
the supreme law of the land. The Office of Solicitor General (OSG)
answered that the BIR Commissioner is empowered by NIRC to issue IRR
to implement the provisions of Tax Code and the submission of
documents is for regulatory purposes. Petitioner ADLU counter-argued
that tax law shall be strictly interpreted against the government and
liberally in favor of the taxpayer. The OSG answered that tax exemption
shall be interpreted strictly against the taxpayer and liberally in favor of
the government. Decide.
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IV. University of San Sebastian (USS), a nonstock nonprofit educational
institution, received P100M unconditional cash donation from Ayala
Incorporated. USS used the said cash donation for a construction of an
8-storey building. The first floor of the said building is leased out to
commercial enterprises while the second floor is occupied by the
administrative department of USS. The remaining floors of the said
building are used as classrooms, audio-visual rooms, gym and library.
USS earned tuition fee revenues from its students and rental revenues
from leasing the first floor of the said building to commercial
establishments. The tuition fee revenues of the institution are used for
rendition of educational services to students, payment of salaries of
professors and other administrative expenses while the rental revenues
from commercial establishments are used for scholarship program of
USS.
a. Is the said building of USS subject to real property tax? Explain.
b. Are the revenues of USS subject to income tax? Explain.
c. Are the revenues of USS subject to value added tax? Explain.
d. Is the P100M cash donation by Ayala Incorporated to USS subject
to donor’s tax? Explain.
e. What tax saving scheme may be used by Ayala Incorporated
concerning the said P100M cash donation to USS? Explain.
V. On April 15, 2015, Banco De Aura Unibank (BDA) paid by mistake VAT
in the amount of P3B but filed the formal claim for refund to BIR on May
1, 2018 which is outside the 2-year prescriptive period for filing claim for
refund. As a result, CIR denied the claim for refund.
On year 2019, BDA granted P10B loan to Republic of the Philippines
with maturity value of P12B on its due date on April 15, 2020. For the
year ended December 31, 2019, BDO reported taxable income of P50B
resulting to income tax of P15B. Upon filing the income tax return, BDO
refused to pay the income tax on the basis of two grounds: (1) Legal
compensation in the amount of P12B for the loan to republic that
matured on April 15, 2020; and (2) Doctrine of Equitable Recoupment for
the P3B prescribed VAT Refund.
a. May tax liability become the subject matter of legal compensation?
Explain.
b. Is the doctrine of equitable recoupment applicable in Philippine
jurisdiction? Explain.
VI. The City of Manila passed an ordinance subjecting to business tax the
sale of religious artifacts, bibles, books, and other items in the ordinary
course of business. The proceeds from the collection of such tax will be
used for ensuring the public safety and peace and order in the
celebration of Pista ng Nazareno in Quiapo Church. Christian Bishop
Conference of the Philippines (CBCP) questioned the constitutionality of
the tax ordinance on the ground that it violates religious freedom while
Iglesia ng Panginoon (INP) questioned the validity of the tax ordinance on
the ground that it violates the nonestablishment of religion clause and
principle of separate of church and state. Ang Bagong Daan Inc. (ABDI)
also questioned the tax ordinance that it violates the due process clause
because the purpose of the ordinance is not public. Is the tax ordinance
constitutional? Explain.
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VII. The City of Makati subjected to real property tax the real property of
Austrian Embassy located in Makati City. Moreover, the City of Manila
subjected to business tax the processing fee revenue of the embassy from
its visa applicants and its rental revenue from the leasing of one if its
floors to commercial establishments. The Austrian Embassy refused to
pay the real property tax and business tax by invoking the principle of
internal comity.
a. Is the real property of Austrian Embassy subject to real property
tax? Explain.
b. Is the processing fee revenue of Austrian Embassy subject to
business tax? Explain.
c. Is the rental revenue of Austrian Embassy subject to business tax?
Explain.
VIII. Nissan Philippines Incorporated (NPI) imported cars from its parent
corporation, Nissan Japan Incorporated operating in Japan. The said
importation is subjected to custom duties for luxury importation by
Bureau of Customs (BOC) and 12% import VAT by Bureau of Internal
Revenue (BIR). Afterwards, NPI sold the said imported cars to consumers
at a profit. BIR subjected the sale of car to 12% VAT and the profit on
sale to 30% corporate income tax. Explain how may NPI legally minimize
the impact of the abovementioned multiple taxation.
IX. Tax Reform for Acceleration and Inclusion Act (TRAIN Law) amended the
NIRC provision of 5%-20% scheduler-progressive tax rates to a single 6%
single tax rate on the basis of net estate with a corresponding increase in
standard deduction from P500,000 to P5,000,000 and family home
deduction from P1,000,000 to P10,000,000. Bayan Una, a nonstock
nonprofit organization, filed a petition before the Supreme Court
questioning the constitutionality of TRAIN Law on the ground that Article
VI of the 1987 Constitution provides that the Congress shall evolve a
progressive system of taxation. The Office of Solicitor General counter-
argued that the same Article of the 1987 Constitution provides that rule
of taxation shall not only be equitable but must also be uniform.
a. Enumerate and define the three principles of sound tax system.
b. Is the amendment by TRAIN Law to NIRC changing the progressive
5%-20% rates to a uniform rate of 6% constitutional? Explain.
X. BSP is a government owned and controlled corporation whose stocks are
fully owned by the Republic of the Philippines. The City of Manila
subjected to real property tax the land and building of BSP while the BIR
subjected to income tax the net income of BSP. BSP refused to pay the
tax contending that government is exempted from taxes.
a. Is the real property of BSP subject to real property tax? Explain.
b. It the net income of BSP subject to income tax? Explain.
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