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0% found this document useful (0 votes)
59 views19 pages04 2019 Tax
Uploaded by
Hannah SyCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
/ 19
Training & Convention Division
University of the Philippines Law Center
SUGGESTED ANSWERS TO THE
2019 BAR EXAMINATIONS IN
TAXATION LAW
PARTI
Ad.
On October 5, 2016, the Bureau of Internal Revenue (BIR) sent KLM.
Corp. a Final Assessment Notice (FAN), stating that after its audit
pursuant to a Letter of Authority duly issued therefor, KLM Corp. had
deficiency value-added and withholding taxes. Subsequently, a warrant
cof distraint and/or levy was issued against KLM Corp. KLM Corp.
Nopposed the actions of the BIR on the ground that it was not accorded
Gjdue process because it did not even receive a Preliminary Assessment
LNotice (PAN) after the BIR's investigation, which the BIR admitted.
SS a) __ Distinguish a PAN from a FAN. (2%)
Qsuccesrep ANSWER:
Othe following are the distinctions between a PAN and FAN:
1. It is mandatory that a Notice of Informal Conference
precedes the issuance of a PAN while a PAN must
precede the issuance of a FAN, except in certain specific
instances. (RR No. 18-2013; Sec. 228, NIRC).
p
The reply toa PAN must be filed within fifteen (15) days
from receipt while the protest to a FAN must be filed
within thirty (30) days from receipt. (RR No. 12-99; Sec.
228 NIRC).
»
A taxpayer does not have to do anything after the Bureau
of Internal Revenue’s (BIR’s) rejection of the taxpayer’s
reply to a PAN while the denial of a protest against a
FAN should be appealed by the taxpayer to the Court of
Tax Appeals (CTA) Division. (RR No. 12-99; Sec. 228,
NIRC).
Are the deficiency tax assessment and warrant of distraint and/or
levy issued against KLM Corp. valid? Explain. (3%)
UP LAW TRAINING AND CONVENTION DIVISION | BRICDNAPA2020| Page1 of 19 SUGGESTED ANSWER:
No. Both the deficiency tax assessment and the warrant issued are
invalid. The deficiency tax assessment issued against KLM Corp. is
invalid due to the absence of a preliminary assessment notice (PAN),
which is required by law for the validity of the assessment. (Sec. 228,
NIRC). Sending a PAN to the taxpayer to inform him of the assessment
made is but a part of the “due process requirement in the issuance of a
deficiency tax assessment,” the absence of which renders nugatory any
assessment made by the tax authorities. (CIR v. Metro Star Superama,
Inc. G.R. 0. 185371, Dec. 8, 2010).
The warrant of distraint and/or levy cannot be issued to enforce
an invalid assessment. An assessment is a preliminary step for the
collection of taxes. If the preliminary step in the collection process is
invalid, the entire collection process is also invalid which includes the
warrant issued.
A2.
o
NX _ For purposes of value-added tax, define, explain or distinguish the
Gfollowing terms:
<
o a) Input tax and output tax (3%)
Zz
a
JUGGESTED ANSWER:
ns Input tax means the VAT due on or paid by a VAT-registered
person on importation of goods or local purchases of goods, properties,
or services, including lease or use of properties. It includes
presumptive input tax and transitional input tax.
Output tax refers to the VAT billed by a VAT-registered or VAT-
registrable seller on his sale of goods, properties and services.
b) — Zero-rated and effectively zero-rated transactions (3%)
SUGGESTED ANSWER:
Zero-rated transactions are transactions that are immuned from
the imposition of the VAT and the term includes export sales and
effectively zero-rated sales. (Sec. 106(A)(2), NIRC).
A zero-rated sale of goods or properties (whether export sale or
effectively zero-rated sale) is a taxable transaction for VAT purposes,
although the VAT rate applied is 0%. A sale by a VAT-registered
taxpayer of goods and/or services taxed at 0% shall not result in any
output tax, while the input tax on its purchase of goods or services
UP LAW TRAINING AND CONVENTION DIVISION | BRICDNAPA2020| Page2 of 19 related to such zero-rated sale shall be available as tax credit or refund
(Atlas Consolidated v. CIR, June 8, 2007).
An effectively zero-rated transaction is limited in its context
because it does not cover export sales. More specifically, effectively
zero-rated transactions refer to the local sale of goods or supply of
services by a VAT-registered person to persons or entities who were
granted tax exemption under special laws or international agreement to
which the Philippines is a signatory. (CIR v. Seagate Technology Phils.,
Inc. G.R. No. 153866, Feb. 11, 2005)
c) Destination principle (2%)
SUGGESTED ANSWER:
The destination principle provides that “no VAT shall be
imposed to form part of the cost of goods destined for consumption
outside of the territorial border of the taxing authority”. Hence, exports
are zero-rated while imports are subject to the 12% VAT. (Coral Bay
Nickel Corporation v. CIR, June 13, 2016).”
q
AB.
All the homeowners belonging to ABC Village Homeowners!
ssociation elected a new set of members of the Board of Trustees for the
APssociation effective January 2019. The first thing that the Board looked
Onto is the need to increase the prevailing association dues. Mr. X, one of
fhe trustees, proposed an increase of 100% to account for the payment of
(rfhe 12% value-added tax (VAT) on the association dues which were being
collected for services allegedly rendered "in the course of trade or
business" by ABC Village Homeowners’ Association.
NAPA20:
a) What constitutes transactions done "in the course of trade or
business" for purposes of applying VAT? (2%)
SUGGESTED ANSWER:
“In the course of trade or business” means the regular conduct of
pursuit of a commercial or an economic activity, including transactions
incidental thereto, by any person regardless of whether or not the
person engaged therein is a nonstock, nonprofit private organization
(irrespective of the disposition of its net income and whether or not it
sells exclusively to members or their guests), or government entity.
(Section 105, NIRC)
b) Is Mr. X correct in stating that the association dues are subject
to VAT? Explain. (3%)
UP LAW TRAINING AND CONVENTION DIVISION | BRICDNAPA2020| Page 3 of 19 SUGGESTED ANSWER:
No, association dues are not subject to VAT. Under Section 109
(Y) of the NIRC, association dues, membership fees, and other
assessments and charges collected by homeowners associations and
condominium corporations are VAT-exempt.
AA,
Due to rising liquidity problems and pressure from its concerned
suppliers, P Corp. instituted a flash auction sale of its shares of stock. P
Corp. was then able to sell its treasury shares to Z, Inc., an unrelated
corporation, for P1,000,000.00, which was only a little below the valuation
of P Corp.'s shares based on its latest audited financial statements. In
connection therewith, P Corp. sought a Bureau of Internal Revenue
ruling, to confirm that, notwithstanding the price difference between the
selling price of the shares and their book value, the said transaction falls
under one of the recognized exemptions to donor's tax under the Tax
Code.
o
S a) Cite the instances under the Tax Code where gifts made are
g exempt from donor's tax. (3%)
O-SUGGESTED ANSWER:
Ainder the Tax Code, the following gifts are exempt from the donor's
Qax:
R
(H 1.Total net gifts not in excess of Two hundred fifty
thousand pesos (P250,000.00) made during the calendar
year. (Sec. 99, NIRC, as amended by RA 10963)
N
. Sale or exchange for insufficient consideration where said
sale, exchange, or other transfer of property is made in the
ordinary course of trade or business, a transaction which
is bona fide, at arm’s length, and free from any donative
intent. (Sec. 100, NIRC, as amended by RA 10963)
»
Gifts made to or for the use of the National Government
or any entity created by any of its agencies which is not
conducted for profit, or to any political subdivision of the
said Government. (Sec. 101, NIRC)
4,Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation,
institution, accredited non-government organization, trust
or philanthropic organization or research institution or
organization: Provided, however, That not more than
UP LAW TRAINING AND CONVENTION DIVISION | BRICDNAPA2020| Page of 19 thirty percent (30%) of said gifts shall be used by such
donee for administration purposes. (Sec. 101, NIRC)
b) Does the above transaction fall under any of the exemptions?
Explain. (2%)
SUGGESTED ANSWER:
Yes. The transaction is not subject to donor's tax. Generally, the
sale of property, other than real property held as capital assets, for less
than its fair market value is subject to donor’s tax on the amount by
which the fair market value exceeds the consideration received.
However, if the sale of property is made in the ordinary course of
business (i.e,, (i) a transaction which is bona fide, (ii) at arm’s length,
and (iii) free from any donative intent), the sale will be considered
made for an adequate and full consideration in money or money’s
worth and will not be subject to donor's tax. (Sec. 100, NIRC, as
amended by RA 10963).
© _In this case, the transfer was made in the ordinary course of
usiness since it was done for a valid business purpose, which is to
Gaddress liquidity problems and relieve pressure from the Company's
