04 - Taxation Law Q

27 August 2020
INSTRUCTIONS
1. This questionnaire contains four (4) pages including this page. Check the number of
pages and their proper sequencing. You may write notes on this questionnaire.
Read each question very carefully and write your answers in your Bar Examination
Notebook/Paper in the same order as the questions. Write your answers only on the
front page of every sheet. Note well the allocated percentage points for each question
or sub-question. In your answers, use the numbering system in the questionnaire.
2. Answer the questions legibly, clearly, and concisely. Start each answer 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.
3. Your answer should demonstrate your ability to analyze the facts, apply the
pertinent laws and jurisprudence, and arrive at a sound or logical conclusion.
Always support your answer with the pertinent laws, rules, and/or jurisprudence.
A MERE "YES" OR "NO" ANSWER WITHOUT ANY CORRESPONDING

EXPLANATION OR DISCUSSION WILL NOT BE GIVEN FULL CREDIT.
THUS, ALWAYS BRIEFLY BUT FULLY EXPLAIN YOUR ANSWERS AL
THOUGH THE QUESTION DOES NOT EXPRESSLY ASK FOR AN
EXPLANATION. DO NOT REWRITE OR REPEAT THE QUESTION ON YOUR
NOTEBOOK.
4. Do not write your name or any extraneous note/s or distinctive marking/son your
Notebook/Paper 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 Notebook is considered
cheating and can disqualify you.
YOU CAN ACE THIS MOCK BAR AND THE REAL BAR EXAMS.
JUSTICE RAE ANGELA GARCIA

Chairperson
2020 Mock Bar Examinations
2
I.
Joseph, Jan, and Alley are siblings. They inherited from their parents several income
generating properties. After an extrajudicial settlement of estate, X, Y and Z used their
pooled inheritance to invest in the Siomai business of Aling Felicia. They gain a large sum
from their investment and consequently divided it among themselves. BIR assessed them of
corporate income tax. Is the BIR correct? (10%)
II.
Yralli is a Filipino citizen residing in Angola. She executed a deed of donation in favor of
her sister, Myrna, donating her house and lot in the Philippines to the latter. The Deed was
prepared by a consulate official in the Philippine Embassy in Angola. Thereafter, she sent
the document to her sister. When Myrna presented the deed of donation to the tax official
to effect the transfer of the house in her name, the tax official refused contending that there
is no proof of payment of Documentary stamp Tax. Myrna contends that documents
prepared abroad are not subject to DST. Is the contention tenable? (10%)
III.
During the lifetime of X, he executed a will. Among the conditions he stated in the will is
that, “all my real properties shall not be transferred by any means whatsoever within 12
years from my death”. Under this conditional transfer, when does the estate tax accrue?
What value shall be considered for purposes of computing the estate tax? (10%)
IV.
The CIR disallowed some of the allowable deductions claimed by X in his tax return of
2009. Without sending X a notice of assessment the CIR enforces tax collection in 2013
contending that the Internal revenue taxes are self-assessing, hence it can be collected
without an assessment. Is the CIR correct? (10%)
V.
Ferremaro, Inc., a manufacturer of handcrafted shoes, maintains its principal office in
Cubao, Quezon City. It has branches/sales offices in Cebu and Davao. Its factory is located
in Marikina City where most of its workers live. Its principal office in Quezon City is also a
sales office.
Sales of finished products for calendar year 2009 in the amount of P10 million were made
at the following locations:
1) Cebu branch 25%
2) Davao branch 15%
3) Quezon City branch 60%
3
Where should the applicable local taxes on the shoes be paid? Explain. (10%)
VI.
Corporation ABC is a domestic, PEZA-registered corporation engaged in international
shipping. For fiscal year 2020, owing to the lack of sales due to the CoVID-19 pandemic,
ABC posted annual losses of PhP 8 million. In 2021, ABC made a full recovery and posted
a net taxable income of PhP 8 million.
a. May ABC credit its losses in 2020 as a deduction against its taxable income in 2021?
(5%)
b. Would your answer be different if ABC was a foreign corporation engaged in
international shipping? (5%)
VII.
Jan is a very diligent young professional. In addition to his employment as a bakeshop
assistant manager at McKenzie’s Baker, he also runs a startup, Punch&Drop Ltd., where
he sells martial arts equipment. While he has just started work at McKenzie’s, and his
annual salary is PhP 300,000.00, his startup is highly successful. In 2018 and 2019,
Punch&Drop Ltd. earned PhP 2.8 million in gross sales for that period, while also
incurring PhP 1 million in business expenses.
a. What are the applicable income tax rates for Jan’s individual income? (5%)
b. Jan, frustrated with the low pay at McKenzie’s Baker, quit in May 2020, and began
focusing on Punch&Drop, selling equipment to fitness buffs stuck at home during
ECQ. His scheme is successful, and Punch&Drop’s gross sales increase to PhP 4.1
million, though business expenses remain at PhP 1 million. How is his taxable
income for 2020 computed? (5%)
VIII.
Cha is a highly successful yoga instructor with her own studio. Her yoga studio business
recorded PhP 1 million in gross receipts for 2019, for which she paid a total of PhP
80,000.00 in income tax, (or PhP 20,000.00, paid quarterly). Business began to boom in
2020, and in January to June alone, she had already equaled her taxable income for 2019.
In July 2020, she launched a new subscription fitness program for people to use during
quarantine. As a result, her sales for July to December 2020 increased to PhP 6 million.
What is the applicable income tax rate for Cha’s business? (10%)
IX.
After the economic stresses of the CoVID-19 pandemic, Congress passed RA 123456,
requiring all companies employing 100 or more employees to establish a “contingency
fund” sufficient to cover its costs—particularly employee wages—for at least three (3)
4
months, even if it was not operating. Corporation XYZ is a covered corporation under this
law. In 2021, XYZ recorded a substantial amount of earnings. Kiko, XYZ’s CFO, was
eager to impress his fellow board members, and so, he segregated from XYZ’s earnings
some four (4) months’ worth of operating costs, and placed the same in XYZ’s contingency
fund. Is Kiko’s action correct? (10%)
X.
In December 2019, owing to an increase in authorized capital stock, Minas Ithil, Inc. (MI),
a privately-held corporation, declared stock dividends. Anarion, a longtime shareholder in
MI, held 550 shares of MI stock, and received an additional 450 shares as stock dividend
declaration. In February 2020, following the completion of a longstanding takeover by
Mordor, Inc., MI (now renamed Minas Morgul, Inc.) redeemed all 1000 shares held by
Anarion, for which Anarion received PhP 1 million. While Anarion paid capital gains tax
for the 550 shares which he had purchased at PhP 1.00 a share. However, he refused to pay
tax on the 450 shares, since he received the same as a stock dividend, and stock dividends
are not taxable. Is Anarion correct? (10%)

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27 August 2020

A MERE "YES" OR "NO" ANSWER WITHOUT ANY CORRESPONDING

JUSTICE RAE ANGELA GARCIA

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