2022 FINALS

VAT
4.1 What do the following terms mean?
a. Output VAT

Section 110 of the NIRC, as amended, defined output VAT as the value added tax due on the sale
or lease of taxable goods or properties or services by any person registered or required to register
under Section 236 of the NIRC, as amended.

The output VAT is what is passed on to the buyer.

b. Input VAT

Section 110 of the NIRC, as amended, defined input VAT means the value-added tax due paid by a
VAT-registered person in the course of his trade or business on importation of goods or local
purchase of goods or services, including lease or use of property, from a VAT-registered person. It
shall also include transitional input tax determined in accordance with Section 111 of the NIRC, as
amended.

c. Transitional Input VAT

Section 111 of the NIRC, as amended, defined transitional input tax as the allowed input tax of a
taxpayer who becomes liable to value-added tax or any person who elects to be a VAT-registered
person on his beginning inventory of goods, materials and supplies equivalent to 2% of the value of
such inventory or the actual value added tax paid on such goods, materials and supplies, whichever
is higher, which shall be credited against the output tax.

d. Presumptive VAT 2 points

Section 111 of the NIRC, as amended, defined presumptive input VAT as equivalent to 4% of the
gross value in money of their purchases of primary agricultural products which are used as inputs in
their production. Persons or firms who are granted such benefit are those engaged in the processing
of sardines, mackerel, and milk, and in manufacturing refined sugar, cooking oil and packed noodle-
based instant meals.

4.2 What is the difference between an automatically zero-rated and effectively zero-rated
transaction?

Automatically zero-rated transactions refer to the sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon
which may influence or determine the transfer of ownership of the goods exported and paid for in
acceptable foreign currency or its equivalent in goods and services, and accounted for in accordance
with the rules and regulations of the Banko Sentral ng Pilipinas (BSP).

Effectively zero-rated transactions, on the other hand, refer to sales to persons or entities whose
exemption under special laws or international agreements to which the Philippines is a signatory
effectively subjects such sales to zero rate.
Pinkskin Manufacturing Inc. is a manufacturer of beauty/cosmetic products, perfumes and other
fragrances. To entice its regular customers to increase their purchases, Pinkskin embarked on
promotional schemes such as the granting of discounts, described as follows:
Sche 20% discount will be given for all purchase made on the 7th of each
me 1 month

Sche 10% discount would be given to a customer who would be able to collect
me 2 50 empty bottles of the product and return them to Pinkskin; the discount
will be given upon the return of the 50th bottle

Sche 10% discount if the purchase price is paid on or before the end of each
me 3 quarter
5.1. What are rules on the grant of discounts from the gross selling price? 3 points

Section 106 of the NIRC, as amended, provides that sales discounts granted and indicated in the
invoice at the time of the sale and the grant of which does not depend upon the happening of a
future event may be excluded from the gross sales within the same quarter it was given.

5.2. Would all the discounts under the 3 schemes, qualify as deduction from the gross selling
price for VAT purposes? Explain and support your answer. 2 points

Only Scheme 1 would qualify as a deduction from the gross selling price for VAT purposes. Section
106 of the NIRC, as amended, specifically provided that the grant of the discount should not depend
upon the happening of a future event. Scheme 2 depends on a happening of a future event because
it will only be given if a customer would be able to collect 50 empty bottles of the product and return
the same to Pinkskin. Scheme 3 is a prompt payment scheme which would also depend on the
happening of a future event where the customer would be able to promptly pay his dues to Pinkskin.
Hence, only Scheme 1 would qualify as deduction from the gross selling price for VAT purposes
because the sales made on the 7th of each month is not a contingent event.
Mr. Federico Quitain is engaged in real estate business. His inventory of properties for sale are as
follows:
a. 12- hectare agricultural land in Nueva Ecija
b. Four 2- bedroom condominium units in One Legaspi Condominium
c. House and lot at Green Meadows, Quezon City

The 4 condominium units were purchased by Jupiter Enterprises, Inc. (Jupiter) for a total price of
PhP 100,000,000. The 4 deeds of sale were all signed on December 31, 2020. The deed provides
that on January 4, 2021, Jupiter Enterprises shall pay the amount of PhP 28,500,000 in the form of
manager’s check. The balance of PhP 71,500,000 shall be paid in quarterly installments for the next
3 years. The 12 hectare agricultural land was sold to AgriFoods Production, Inc. for PhP 8,000,000.
The purchase price is payable over a period of 5 years. The deed of sale was signed on January 30,
2020. Under the deed of sale, AgriFoods is required to pay the amount of PhP 1,000,000 spread
over the next 11 months, beginning February, 2020. The balance of PhP 7 million will be paid in
equal monthly installments for the next 49 months.

6.1. On the sale of the condominium units, how much VAT will Mr. Quitain pay? SHOW your
computation. EXPLAIN and support your answer. 3 points

The initial payment of Jupiter Enterprises, Inc. of PhP 28,500,000 exceeded the 25% threshold or
25,000,000 (100M x 25%). The entire VAT on the entire purchase price of the condominium unit is
due to be paid by Mr. Quitain amounting to PhP 12,000,000.00 (100M x 12%).

6.2. How will the VAT be paid on the sale of the agricultural property? SHOW your
computation. EXPLAIN and support your answer. 3 points

The VAT on the sale of the agricultural property will be remitted to the BIR on an installment basis.
The initial payment for the agricultural property amounted to PhP 1,000,000.00 which is below the
25% threshold and allows the taxpayer, Mr. Quitain to pay and remit to the BIR on an installment
basis.
Diversified Properties, Inc. (DPI), a property developer and real estate dealer owns the following real
property assets:
● Ground floor of a commercial building in Cebu City. The ground floor is divided into several
stalls which are being leased to merchants or retailers. Each of the 50 stalls generate a rental
income of PhP 14,800 per month.
● 10 studio units in Madison Place in Quezon City which are being rented out to call center
agents. The 10 tenants of the studio units pay a rental of PhP 8,000 every 15th and another
PhP 8,000, every 30th of each month.
● Dormitory building with 6 floors. Each floor has 10 rooms with bunk beds. Each room can
accommodate 8 persons. All rooms in the dormitory building are fully occupied. With 8
occupants in each room, the total rental derived from each room from the 8 occupants
amounts to PhP 120,000.

7.1. What is the VAT exposure, if any, of the company for all of the above properties? Answer
each item separately. Explain and support your answer. 6 points

a. The rentals derived from the commercial building are not subject to the P15,000
exemption because this transaction is not a lease of residential units. The annual rentals derived
from the commercial building amounted to P8,880,000.00 which exceeds the PhP 3 million
threshold.
b. The rentals derived from studio units amounted to P16,000.00 per month which exceeded
the statutory limit of PhP 15,000 per residential unit. The annual rentals derived from the studio units
amounted to P1,920,000.00 which is below the PhP 3 million threshold thereby prompting the lessor,
Diversified Properties to pay a 1% other percentage tax on the quarterly rental receipts which
amounts to (8,000 rent x2 bi-monthly x 10 units x 3 months x 1%) PhP 4,800.00 quarterly. if the
period of the rentals were collected between July 1, 2020 until June 30, 2023 as provided for by the
CREATE Law. If the rentals were made outside this period, Diversified properties shall be liable to
pay 3% other percentage tax amounting to (8,000 rent x2 bi-monthly x 10 units x 3 months x 3%)
14,400.00 quarterly.
c. The rentals derived from the dormitory building are exempt from VAT. Under the NIRC,
as amended, lease of residential units that do not exceed P15,000 shall be VAT exempt. The term
units shall refer to per person in the case of dormitories, boarding houses and bed spaces. In this
case, the monthly rental received per room amounted to P120,000. However, the room was
occupied by 8 people. The rental per unit was only P15,000. Under such circumstances, the rental
derived from a residential unit did not exceed the statutory limit of P15,000. Hence, the rentals from
the dormitory are VAT-Exempt.
8.1. Under the TRAIN Law as implemented by Rev Regs. No. 13- 2018, how are the input taxes
claimed in the case of:
2. Depreciable assets with an estimated useful life of 5 years or more;

Under the TRAIN Law, as implemented by RR 13-2018, the input tax on depreciable assets with an
estimated useful life of 5 years or more where the aggregate acquisition cost per month exceeds
P1,000,000.00 the input tax shall be spread evenly over the month of acquisition and the succeeding
59 months. In cases where the aggregate acquisition of the capital goods for the month does not
exceed P1,000,000, the actual input VAT shall be credited entirely during the month of the acquisition.

Provided that the amortization of input VAT shall only be allowed until December 31, 2021 after which
taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to apply
the same as scheduled until fully utilized.
3. Depreciable assets with an estimated useful life of less than 5 years. 2 points
Under the TRAIN Law, as implemented by RR 13-2018, the input tax on depreciable assets with an
estimated useful life of less than 5 years where the aggregate acquisition cost per month exceeds
P1,000,000.00, the input tax shall be spread evenly over the actual number of months comprising the
estimated useful life of the capital goods. In cases where the aggregate acquisition of the capital
goods for the month does not exceed P1,000,000, the actual input VAT shall be credited entirely
during the month of the acquisition.

Provided that the amortization of input VAT shall only be allowed until December 31, 2021 after which
taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to apply
the same as scheduled until fully utilized.
TAX ASSESSMENTS AND REFUNDS (REMEDIES OF THE TAXPAYER)

10.1. Discuss the different stages of the assessment process from the issuance of the letter
of authority up to the appeal to the Supreme Court. 6 points

Issuance of a Letter of Authority

o Issuance of a Letter of Authority (LOA) by the Revenue Regional Director authorizing a Revenue
Officer to examine the books of account and other accounting records of a taxpayer for the purpose
of collecting the correct amount of tax (Sec. 13, NIRC).
o The LOA shall be served to the concerned taxpayer within 30 days from the date of issue otherwise
it becomes void, unless revalidated.
o The LOA shall specify the tax types and the taxable year to be examined.
o A list of documents to be examined shall be attached to the LOA.

Examination of Documents
o After the service of the LOA, the Revenue Officer assigned in the LOA shall proceed with the
documents enumerated in the attachment to the LOA, which documents shall be used as basis for the
examination.
o If the taxpayer fails to submit such documents, a second request shall be sent to the taxpayer.
o If the taxpayer still fails to submit such documents after the second request, then the BIR shall issue
a Subpoena Duces Tecum which shall mandatorily require the taxpayer to submit the documents so
requested within a specified period. Failure to comply therewith shall constitute a ground for criminal
prosecution.
o Examination must be concluded within 120 days from receipt of LOA by the taxpayer.

Issuance of Notice of Discrepancy

o If the taxpayer is found to be liable for deficiency taxes after the examination, a notice of discrepancy
shall be issued.
o The Revenue Officer who conducted the examination shall state in his initial report of investigation
his findings of discrepancies.
o The taxpayer shall present and explain his side on the discrepancies found during the discussion
of discrepancies and submit documents to support his explanation.
o The discussion of discrepancies shall in no case extend beyond 30 days from receipt of notice.
o If the taxpayer is still found to be liable for deficiency tax, the investigating office shall endorse the
case to the reviewing office for the issuance of the Preliminary Assessment Notice within 10 days from
the conclusion of the Discussion.

Issuance of Preliminary Assessment Notice

o If after review and evaluation by the CIR or his duly authorized representative, it is determined that
there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, it shall issue to the
taxpayer a PAN for the proposed assessment.
o The PAN shall show in detail the facts and the law, rules and regulations, or jurisprudence on which
the proposed assessment is based.
Reply to Preliminary Assessment Notice
o If the taxpayer disagrees with the findings in the PAN, he shall file a written reply contesting the
proposed assessment within 15 days from receipt of the PAN.
o Otherwise, after the lapse of 15 days from receipt of the PAN, he shall be considered in default.

Issuance of FLD/FAN
o If the taxpayer fails to respond within 15 days from date of receipt of the PAN, an FLD/FAN, calling
for payment of the deficiency tax liability, inclusive of penalties.
o If the taxpayer replies within 15 days from the receipt of the PAN, and FLD/FAN shall be issue within
15 days from filing/submission of the taxpayer’s response.
o The FLD/FAN shall be issued by the Commissioner or his duly authorized representative.
o The FLD/FAN calling for the payment of the deficiency tax shall state the facts, the law, rules, and
regulations, or jurisprudence on which the assessment is based, otherwise, the assessment shall be
void.

Filing of Protest
o The taxpayer may protest administratively against the FLD/FAN within 30 days from date of receipt
thereof. The protest shall either be: (1) a request for reconsideration, or (2) request for reinvestigation.
o A request for reconsideration is a plea for re-evaluation of the assessment on the basis of existing
records. Whereas, a request for reinvestigation is a plea for re-evaluation of the assessment on the
basis of newly discovered or additional evidence.
o The protest shall state: (1) the nature of the protest (if reinvestigation, it shall specify newly
discovered or additional evidence), (2) date of the assessment notice, and (3) the applicable law, rules
and regulations, or jurisprudence on which his protest is based. Otherwise, the protest shall be void.

(Only for Reinvestigation) Submission of Supporting Documents

o For requests for reinvestigation, the taxpayer shall submit all relevant supporting documents in
support of his protest within 60 days from the date of filing of his letter of protest, otherwise, the
assessment shall be final.
o This 60 day period for submission of supporting documents shall not apply to requests for
reconsideration.

If protest is DENIED by the CIR or his/her duly authorized representative

· Taxpayer may either: (1) appeal to the CTA within 30 days from the date of receipt of the decision,
or (2) elevate his protest through request for reconsideration to the CIR within 30 days from the date
of receipt of said decision.
· No request for reinvestigation allowed in administrative appeal.

If protest is NOT ACTED UPON by the CIR or his/her duly authorized representative
· The CIR or his/her duly authorized representative has 180 days within which to decide on the
protest.
· If request for reconsideration, the 180 days is counted from the date of filing of the protest.
· If request for reinvestigation, the 180 days is counted from the date of submission by the taxpayer
of the required documents within 60 days from the date of filing of the protest.
· In case of inaction by the CIR or his/her duly authorized representative, the taxpayer may either:
(1) appeal to the CTA within 30 days after the expiration of the 180-day period; or (2) await the final
decision of the Commissioner’s duly authorized representative on the disputed assessment.

If protest or admin appeal is denied by the CIR

· The taxpayer may appeal to the CTA within 30 days from date of receipt of the said decision.
Otherwise, the assessment shall become final, executory and demandable.
· A motion for reconsideration of the Commissioner’s denial of the protest or administrative appeal,
as the case may be, shall not toll the 30-day period to appeal to the CTA.

If protest or admin appeal is not acted upon by the CIR

· If the protest or administrative appeal is not acted upon by the Commissioner within 180 days
counted from the date of filing of the protest, the taxpayer may either: (1) appeal to the CTA within 30
days from after the expiration of the 180-day period; or (2) await the final decision of the Commissioner
on the disputed assessment and appeal such final decision to the CTA within 30 days after the receipt
of a copy of such decision.
· The options are mutually exclusive and the resort to one bars the application of the other.

Issuance of Final Decision on Disputed Assessment

· The decision of the Commissioner or his duly authorized representative SHALL STATE the: (1)
facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based,
otherwise, the decision shall be void; and (2) that the same is HIS FINAL DECISION.\

(David please add appeals to CTA EB, SC, SC EB)

Panther Manufacturing, Inc. (Panther) manufactures various leather goods . It was assessed by the
BIR for deficiency income tax and VAT for the calendar year ending December 31, 2018. Panther
filed its final income tax return for year ending December 2018, on April 15, 2019.

On January 10, 2022, the Company was served a Letter of Authority (LOA) dated December 1, 2021
. The BIR examiners who served the LOA were not those named in the LOA.

11.1. If you were consulted by Panther, would you advise the corporation to accept the LOA?
Why or Why not? Explain and support your answer with legal bases. 2 points

No, the LOA should not be accepted. Under Revenue Memorandum Circular No. 82-2022, the
revenue assigned to the case should be the one who shall serve the LOA to the taxpayer. In this
case, the BIR examiners who served the LOA were not those named in the LOA. Hence, Panther
should not accept the LOA from the BIR examiners who served the LOA since they were not the
ones named in the LOA.
Another LOA was served on Panther on January 14, 2022, and a PAN was issued on Feb 28, 2022,
after the BIR examiners’ cursory examination of documents. The examiners requested Panther to
issue a waiver of the statute of limitations.

11.2. When should Panther file its reply to the PAN? 2 points
Panther should file its reply to the PAN within 15 days from the receipt of the PAN. Jurisprudence
has held that if there is no date of receipt to the PAN, the date of issuance shall be deemed the date
of receipt of the PAN. In light of the foregoing, the latest date Panther can file its valid reply to the
PAN will be on March 15, 2022.

11.3. What are the requirements for the issuance of a valid waiver? 3 points

The following requisites are needed for the issuance of a valid waiver:
● It was executed before the expiration of the period to assess or to collect taxes;
● It indicates the expiry of the extended period;
● It indicates the types of tax for waiver of the prescriptive period to collect; and
● It is signed by the taxpayer’s duly authorized representative.

11.4. After the filing of the answer to the PAN, an FLD/FAN was issued and received by
Panther on April 30, 2022. When should Panther file a protest? 2 points

Panther should file a protest within 30 days from the date of receipt of the FLD/FAN issued by the
BIR. In this case, the FLD/FAN was issued and received by Panther on April 30, 2022. Panther
should file the protest on or before May 30, 2022.

11.5. What constitutes a valid protest? 3 points

The following are required to have a valid protest:

● The protest must be filed within 30 calendar days from the receipt of the FLD/FAN;
● The protest must state the nature of the protest whether the taxpayer wishes to seek relief
through request for reconsideration or reinvestigation, where a request for reinvestigation
specifies that the taxpayer desires to submit newly discovered or additional evidence within
60 calendar days from the submission of the protest;
● The date of the assessment notice should be indicated;
● The applicable law, rules and regulations or jurisprudence on which his protest is based.

11.6. What is the difference between a reconsideration and a reinvestigation? 2 points

Request for reconsideration refers to a plea for re-evaluation of an assessment on the basis of
existing records without the need of additional evidence. It may either involve a question of fact or of
law or both. Request for reinvestigation, on the other hand, pertains to a plea for re-evaluation of an
assessment on the basis of newly discovered or additional evidence that a taxpayer intends to
present in the reinvestigation. It may also involve a question of fact, or of law, or both.
11.7. What period is given to the BIR to decide the case when a request for a reconsideration
is filed and when does this period start to run? 2 points
In request for reconsideration, the 180 calendar day period given to the BIR to decide on the case
starts from the date of filing the protest by the assessed taxpayer.

11.8. What if a request for reinvestigation is filed, what is the period within which to decide
and from when does this period start to run? 2 points

In request for reinvestigation, the 180 calendar day period given to the BIR to decide on the case
starts from the date of expiration of the 60 calendar day period within which the taxpayer should
submit supporting documents and additional evidence.

11.9. When can Panther file an appeal with the CTA? Appeal to the Supreme Court? 2 points
An appeal may be filed before the CTA within 30 calendar days after the expiration of the 180
calendar day period of the BIR to decide on the protest filed or may await the final decision of the
Commissioner’s duly authorized representative on the disputed assessment and in this latter case,
the taxpayer also has 30 calendar days to file an appeal before the CTA after the receipt of the
denial from the BIR.

An appeal to the Supreme Court may be filed within 15 days under Rule 45 of the Rules of Court
after the receipt of the adverse decision from the CTA en banc.
12.1 When should a taxpayer file the administrative claim and judicial claim for refund of
erroneously collected taxes? 2 points
An administrative claim for refund of erroneously collected taxes may be filed within 2 years from
the date of payment of the tax regardless of any supervening cause that may arise after payment. A
judicial claim for refund may be filed before the CTA if the CIR denies the claim for refund or in case
of BIR inaction before the expiration of the 2 year period.

12.2. What are the requirements for a valid claim for refund? 2 points
The following are the requirements for a valid claim for refund:
● Taxpayer must file a claim for refund or a tax credit certificate which should be in writing;
● Taxpayer must cite the facts and law on which the claim is based;
● It must be filed within period provided by law; and
● Taxpayer must submit all supporting documents.

LOCAL TAXES

13.1. What are the fundamental principles of the local taxing power? Answer thoroughly. 2
points
The following are the fundamental principles of the LGU’s taxing power:
● Taxation shall be uniform in each local government unit;
● Taxes, fees, charges and other imposition shall:
○ Be equitable and based as far as practicable on the taxpayer’s ability to pay’
○ Be levied and collected only for public purpose;
○ Not be unjust, excessive, oppressive, or confiscatory;
○ Not be contrary to law, public policy, national economic policy or in restraint of trade;
● The collection of local taxes, fees, charges and other impositions shall in no case be let to any
private person;
● The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit
of, and be subject to disposition by, the local government unit levying the tax, fee, charge or
other imposition unless otherwise specifically provided herein; and
● Each local government unit shall, as far as practicable, evolve a progressive system of
taxation.
La Mesa was examined by Makati City. A notice of assessment was issued to the corporation for
deficiency local taxes for calendar year 2017, which it paid on January 4, 2017. The notice was
received by La Mesa on March 30, 2021. The City imposed interest computed from January 2017 up
to March 2021.

15.1. What is the prescriptive period for the issuance of a deficiency local business tax
assessment? 2 points

Local taxes, fees, or charges shall be assessed within five (5) years from the date they become due.

15.2. Is the imposition of interest from January 2017 to March 2021 correct? Explain and
support your answer. 2 points

The imposition of interest from January 2017 to March 2021 is incorrect. Under the Local
Government Code, the total interest on deficiency local business taxes shall not exceed 36 months.

15.3. When should La Mesa file the protest against the assessment? 2 points
The taxpayer should file a written protest before the local treasure contesting the assessment within
60 calendar days from receipt of the notice of assessment.

15.4. Within what period should the City Treasurer decide on the protest? 2 points
The provincial or city treasurer, or municipal treasurer shall decide the protest within sixty (60) days
from receipt.
15.5. If the protest is denied or is NOT acted upon within the period prescribed, within what
period should La Mesa file an appeal. 2 points

The taxpayer shall have thirty (30) days from receipt of the denial of the protest or from the lapse of
the sixty-day period prescribed to decide the protest within which to APPEAL with the court of
competent jurisdiction which is the Court of Tax Appeals.

15.6. What is the consequence if La Mesa fails to file an appeal? 2 points

The assessment becomes conclusive and unappealable.
For calendar year 2019, La Mesa paid its local taxes on January 4, 2019. However, in January 2020,
its accountant discovered that the company overpaid its local taxes for 2019.

16.1. When should the company file a claim for refund? 2 points
All taxpayers entitled to a refund or tax credit provided in the Rules shall file with the local treasurer a
claim in writing duly supported by evidence of payment (e.g., official receipts, tax clearance, and
such other proof evidencing overpayment) within two (2) years from payment of the tax, fee, or
charge.

16.2. What are the rules on the filing of a claim for refund and the grant thereof ? DISCUSS
thoroughly. 2 points

The following are the rules on the filing of a claim for refund of local business taxes:
● All taxpayers entitled to a refund or tax credit provided in the Rules shall file with the local
treasurer a claim in writing duly supported by evidence of payment (e.g., official receipts, tax
clearance, and such other proof evidencing overpayment) within two (2) years from payment
of the tax, fee, or charge;
● No case or proceeding shall be entertained in any court without this claim in writing, and after
the expiration of two (2) years from the date of payment of such tax, fee, or charge, or from
the date the taxpayer is entitled to a refund or tax credit;
● The tax credit granted a taxpayer SHALL NOT be refundable in cash but shall only be applied
to future tax obligations of the same taxpayer for the same business;
● If a taxpayer has paid in full the tax due for the entire year and he shall have NO other tax
obligation payable to the LGU concerned during the year, his tax credits, if any, shall be
applied in full during the first quarter of the next calendar year on the tax due from him for the
same business of said calendar year; and
● Any unapplied balance of the tax credit shall be refunded in cash in the event that he
terminates operation of the business involved within the locality.
Venture Properties, Inc. owns the following
properties:
a. Commercial condominium building in Quezon City with a total zonal value of PhP
200,000,000.
b. Residential lot located in the Municipality of Liliw, Laguna which has a zonal value of PhP
6,000,000.
c. Agricultural land located in the Municipality of Alaminos Laguna which has a zonal value
of PhP 4,000,000.

19.1. How much is the real property tax due on the foregoing properties. COMPUTE the tax
using the following assessment levels and the RPT tax rate applicable to cities and
municipalities. 3 points

Fair market value X Assessment Level*= ASSESSED VALUE

Assessed Value X Real Property Tax Rate = RPT PAYABLE
* Assessment level is the percentage applied to the fair market value of the property to determine
the taxable value of the property.

Land use Assessment Levels:

Residential - 20%
Agricultural - 40%
Commercial, Industrial and Mineral - 50%
Timberland - 20%
Special classes: cultural, scientific - 15%
Hospital, and water districts - 10%

XIV. LAND USE ASSESSMENT LEVELS

Residential - 20%
Agricultural - 40%
Commercial, Industrial and Mineral - 50%
Timberland - 20%
Special classes: cultural, scientific - 15%
Hospital, and water districts - 10%
 III.
Decker Engineering Corporation (Decker) is a domestic corporation. It is an integrated engineering
consulting firm generating projects from local as well as from foreign sources, both from the public and
private sector. It was able to secure a water supply project in Phnom Penh, Cambodia requiring it to
supervise for twenty (20) months the construction phase thereof. The regular compensation of the
employees sent abroad including their thirteenth-month pay, project bonuses, sick leaves, vacation
leaves and other benefits are paid by the Project owner in Cambodia. The amounts paid are deducted
by the Project Owner from the service fees to be paid to Decker. The service fees of Decker are
remitted to its back account in the Philippines.

Question: 5 points What would be the status of the employees for tax purposes? How will their income
be taxed? Discuss thoroughly and support your answer with legal bases.
A: The status of the employees for tax purposes are considered as resident citizens.

Under the NIRC, as amended, non-resident citizens are those:

(1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his
physical presence abroad with a definite intention to reside therein;
(2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad,
either as an immigrant or for employment on a permanent basis;
(3) A citizen of the Philippines who works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of the time during the taxable year;
(4) A citizen who has been previously considered as nonresident citizen and who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines shall
likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines
with respect to his income derived from sources abroad until the date of his arrival in the Philippines.
(5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the
Philippines to reside permanently abroad or to return to and reside in the Philippines as the case
may be for purposes of this Section 22 of the Tax Code.

The income derived by the Decker employees shall be treated as resident citizens since the employees
were still under the employ of a domestic corporation. Moreover, the employees of Decker had no
intention to reside abroad for employment on a permanent basis. They were merely assigned there by
their employers to complete the construction phase of the project. Furthermore, the compensation paid
by the project owner is deducted from the service fees to be paid to Decker. Thus, the compensation
of the employees are still paid by Decker. Hence, they shall be taxed as resident citizens where the
salaries paid to them for work done abroad shall still be considered as taxable within the Philippines.
 IV.
Joselito R. Ocampo, a former Finance Attaché assigned in San Francisco, California, U.S.A.,
arrived from the United States on June 30, 2018, after more than 8 years of continuous stay in the
United States (April, 2010-June 30, 2018). His wife followed later and arrived in the Philippines in
July 2018 after more than 8 years of continuous stay in the United States. While staying in the US,
the spouses were able to buy a house. They were also able to invest in shares of stock in some
US companies. On August 25, 2018, they sold their house in San Francisco, California for
US$800,000.00 which they purchased in 2010 for US$285,500.00. They also earned capital gains
of US$ 20,000 from the sale of their shares. In 2019, they were examined by the BIR. The examiner
alleged that they are liable for Philippine income tax on their gains from the sale of the house and
the shares in the US. The spouses consulted you on this matter and asked for your advice.

Question: 6 points Are the spouses liable for Philippine income tax for the year 2018, when they
arrived in the Philippines? Discuss thoroughly and support your answer with legal bases.
A: Yes, the spouses are liable for income tax for the year 2018. The NIRC provides that nonresident
citizens are only taxable for income derived from sources within the Philippines. However, under the
same Code, income derived from sources abroad is only considered as such until the date of arrival in
the Philippines. Thereafter, a taxpayer shall be considered a resident citizen. As a consequence, all
income derived from sources within and without the Philippines are taxable.

In this case, Joselito and his wife returned to the Philippines in June 2018 and July 2018, respectively.
The sale happened after the spouses decided to return to the Philippines. As such, the sale of the
house and the shares of stock shall be considered as taxable for income tax purposes within the
Philippines.

ALTERNATIVE ANSWER (Since the facts do not say that the spouses are Filipino citizens):

No, the spouses are not liable for income tax for the year 2018. Since the spouses are considered as
resident aliens under the Tax Code and its implementing regulations, then they shall be taxed only on
their income within Philippine sources.

In this case, since their house was sold in San Francisco, California, and their capital gains were
incurred from the sale of their shares in US companies, then the same are considered as income from
sources outside of the Philippines. Pursuant to the principle of situs of income taxation, the income
from the said sales shall not be subject to income tax.

BETTER IF ASK VAV ON THE DAY OF EXAM IF FILIPINO OR ALIEN

 V.
Manuel Alcantara is employed as a company driver in Health Development Inc. The company is
engaged in the manufacture of health drinks, and beauty products. Manuel drives for the executives
of the Company when they need to attend meetings outside of the office. He is paid minimum wage.
In addition to his salary, he sometimes earns a commission, if he is able to sell some products of the
Company.

Manuel also owns a small sari-sari store which earns around PhP5,000 per month, more or less. The
company President requested Manuel to look for a buyer of his old Toyota Land Cruiser. He found a
buyer and the President was able to sell the car for half a million pesos. Out of the goodness of his
heart, the company President gave Manuel the amount of PhP 20,000 as his commission for finding
a buyer for his car.

Manuel also receives other benefits such as : medical cash allowance for his dependents of
PhP125.00 per month, monthly rice allowance of PhP2,000, and uniform allowance of PhP3,000 per
year. Even as a driver, Manuel was very hardworking. He took care and maintained the Company car
which he drives as if it were his own. At the end of the calendar year, he was given a productivity
incentive bonus of PhP35,000.

Question: 5 points
How will Manuel be taxed on:
a. his commission income from the Company;
b. commission income received from the President;
c. on his allowances- medical cash allowance, rice allowance and uniform allowance
d. on his income from his sari-sari store
e. on his productivity incentive bonus.
A: Manuel will be taxed based on the following:

5.a The commission income of Manuel from the Company should only be taxable if the aggregate
income of Manuel other than his statutory minimum wage, holiday pay, overtime pay, night shift
differential pay and hazard pay are in excess of 250,000.00. If the amount does not exceed the
P250,000.00 tax exemption under the TRAIN Law.

VAV COMMENTS: While strictly speaking the commission is taxable income, the same will not be
subject to income tax and consequently to withholding tax if it is covered by the 250K tax exemption.
.5 point

5.b If the aggregate income of Manuel other than his statutory minimum wage, holiday pay, overtime
pay, night shift differential pay and hazard pay are in excess of 250,000.00, then the commission
income should be subject to income tax. However, if the aggregate income is equal or less than
P250,000.00, the same shall be tax exempt.
VAV COMMENTS: The commission given by the president is a payment for the service of the driver
for finding a buyer for the president’s car. Theoretically, it is taxable income but if it is covered within
the 250K tax exempt portion, it will be exempt from income tax. .5 point

!"#$%&'$())*+(,#'-$.$/'01#()$#(-&$())*+(,#'2$31#'$())*+(,#'$(,0$4,15*3/$())*+(,#'$(3'$+16&1,$6&'$70'$

/1,1/1-$8','516-$)1/16-$(,0$6&'3'5*3'7$,*6$-489'#6$6*$+16&&*)01,:$6(;" (EXCLUDED IN THE TIPS)

5.d The income from the sari-sari store is considered income from the conduct of trade or business.
Manuel can then be considered a mixed income earner since he is earning income from both
compensation and conduct of business. However, since the income from the store is at 60,000 per year
only, Manuel is still within the statutory exemption of 250,000. Hence, the same shall be exempt from
income tax since his income did not exceed 250,000.00 for the year.

VAV COMMENTS: The income from the store is 5,000 per month or a total of 60,00 per year. Thus, it
is well within the 250K tax exempt bracket. .5 point

5.e The productivity incentive bonus of Manuel is not taxable since it does not exceed 90,000 pesos.
Benefits such as incentive bonuses not exceeding 90,000 pesos are not subject to withholding tax.

VI.
How are individuals earning purely self-employment income and professionals taxed in accordance
with the TRAIN Law and its implementing regulations? DISCUSS THOROUGHLY (income and
business tax matters) in an orderly manner, the applicable rules, including available deductions. 7
points

A: (C) Self-Employed Individuals Earning Income Purely from Self-Employment or Practice of

Profession. — Individuals earning income purely from self-employment and/or practice of profession
whose gross sales/receipts and other non-operating income exceeding P250,000.00 but does not
exceed the value-added tax (VAT) threshold (P3M) as provided under Section 109 (BB) of the Tax
Code, as amended, shall have the option to avail of:

1. The graduated rates under Section 24 (A) (2) (a) of the Tax Code, as
amended; OR
2. An eight percent (8%) tax on gross sales or receipts and other
non-operating income in excess of two hundred fifty thousand pesos
(P250,000.00) in lieu of the graduated income tax rates under Section 24
(A) and the percentage tax under Section 116 all under the Tax Code, as
Amended.

Unless the taxpayer signifies the intention to elect the 8% income tax rate in the 1st Quarter Percentage
and/or Income Tax Return, or on the initial quarter return of the taxable year after the commencement
of a new business/practice of profession, the taxpayer shall be considered as having availed of the
graduated rates under Section 24 (A) (2) (a) of the Tax Code, as amended. [Sec.3(c) RR No.08-2018]
Such election shall be irrevocable and no amendment of option shall be made for the said taxable year.

The option to be taxed at 8% income tax rate is not available to a VAT-registered taxpayer, regardless
of the amount of gross sales/receipts, and to a taxpayer who is subject to Other Percentage Taxes
under Title V of the Tax Code, as amended, except those subject under Section 116 of the same Title.
Likewise, partners of a General Professional Partnership (GPP) by virtue of their distributive share from
GPP which is already net of cost and expenses cannot avail of the 8% income tax rate option.

A taxpayer shall automatically be subject to the graduated rates under Section 24 (A) (2) (a) of the Tax
Code, as amended, even if the flat 8% income tax rate option is initially selected, when taxpayer's gross
sales/receipts and other non-operating income exceeded the VAT threshold during the taxable year. In
such case, his income tax shall be computed under the graduated income tax rates and shall be allowed
a tax credit for the previous quarter/s income tax payment/s under the 8% income tax rate option.

Taxpayers shall be required to update his/her registration immediately within the month following the
month s/he exceeded the VAT threshold. Taxpayer shall automatically be liable to VAT prospectively
starting the first day of the month following the month when the threshold is breached. The taxpayer
shall pay the required percentage tax covering the sales/receipts and other non-operating income, from
the beginning of the taxable year or commencement of business/practice of profession until the time
the taxpayer becomes liable to VAT.

In addition, a taxpayer subject to the graduated income tax rates (either selected this as the income tax
regime, or failed to signify chosen intention or failed to qualify to be taxed at the 8% income tax rate) is
also subject to the applicable business tax, if any. Subject to the provisions of Section 8 of these
Regulations, an FS shall be required as an attachment to the annual income tax return even if the gross
sales/receipts and other non-operating income is less than the VAT threshold. However, the annual
income tax return of a taxpayer with gross sales/receipts and other non-operating income of more than
the said VAT threshold shall be accompanied by an audited FS.

VII.
How are mixed-income earners taxed under TRAIN Law and its implementing regulations?
DISCUSS THOROUGHLY (income and business tax) in an orderly manner, the applicable rules. 7
points

A:

Mixed Income earners are individuals earning income from both compensation and from self-
employment. The income tax rates applicable are:
1. The compensation income shall be subject to the tax rates prescribed under Section 24 (A) (2)
(a) of the Tax Code, as amended; AND
2. The income from business or practice of profession shall be subject to the following:
a. If the gross sales/receipts and other non-operating income do not exceed the VAT threshold,
the individual has the option to be taxed at:
i.Graduated income tax rates prescribed under Section 24 (A) (2) (a) of the Tax Code, as amended;
OR
ii.Eight percent (8%) income tax rate based on gross sales/receipts and other non-operating income in
lieu of the graduated income tax rates and percentage tax under Section 116 of the Tax Code, as
amended.

If the gross sales/receipts and other non-operating income exceeds the VAT threshold, the individual
shall be subject to the graduated income tax rates prescribed under Section 24 (A) (2) (a) of the Tax
Code, as amended.

The provision under Section 24 (A) (2) (b) of the Tax Code, as amended, which allows an option of 8%
income tax rate on gross sales/receipts and other non-operating income in excess of P250,000.00 is
available only to purely self-employed individuals and/or professionals. The P250,000.00 mentioned is
not applicable to mixed income earners since it is already incorporated in the first tier of the graduated
income tax rates applicable to compensation income. Under the said graduated rates, the excess of
the P250,000.00 over the actual taxable compensation income is not deductible against the taxable
income from business/practice of profession under the 8% income tax rate option.

In addition, a taxpayer subject to the graduated income tax rates is also subject to the applicable
business tax, if any. Subject to the provisions of Section 8 of these Regulations, an FS shall be required
as an attachment to the annual income tax return even if the gross sales/receipts and other non-
operating income is less than the VAT threshold. However, the annual income tax return of a taxpayer
with gross sales/receipts and other non-operating income of more than the said VAT threshold shall be
accompanied by an audited FS.

The total tax due shall be the sum of: (1) tax due from compensation, computed using the graduated
income tax rates; and (2) tax due from self-employment/practice of profession, resulting from the
multiplication of the 8% income tax rate with the total of the gross sales/receipts and other non-
operating income.

Mixed income earners who opted to be taxed under the graduated income tax rates for income from
business/practice of profession, shall combine the taxable income from both compensation and
business/practice of profession in computing for the total taxable income and consequently, the income
tax due. [Sec.3(d) RR No.08-2018]

VIII.
Mr. Fabian Tan, a Financial Comptroller of TCG Corporation, earned annual compensation in 2018
of PhP500,000.00, inclusive of 13th month, and other benefits in the amount of PhP 120,000.00 but
net of mandatory contributions to SSS and Philhealth. Aside from employment income, he operates
an online trading business, which has the following financial information:
 What is the classification of Mr. Fabian Tan for income tax
purposes?

A: For income tax purposes, the classification of Mr. Fabian Tan is a mixed income earner because he
is earning compensation as an employee in TCG Corporation and income from the conduct of his online
business. 2 points

Compute the income tax liability of Mr. Tan. The income tax
table is at
the last page. EXPLAIN the legal basis of your computation

The income tax liability of Mr. Tan for the year 2018 should be P192,500.00. Mr. Tan is classified as a
mixed income earner since he earns both compensation income and business income. Mr. Tan’s
taxable income on his compensation income amounts to P410,000.00 since the P500,000 gross
compensation income and 13th month pay of P120,000.00. Our statute allows a P90,000.00 exemption
on benefits. Thus, the net taxable income from compensation of Mr. Tan is at P410,000.00. Based on
the graduated income tax rates, the tax due is P32,500.00

As to the business income of Mr. Tan, the net taxable income is P900,000.00. Based on the graduated
income tax rates, the income tax due for his business income is P160,000.00.

Hence, the total income tax due of Mr. Tan is P192,500.00.

ALTERNATIVE ANSWER:

If Mr. Tan elected the option of being taxed at 8% of his gross sales and other non-operating income,
the income tax liability for the business income is 200,000. (2,500,000 x 0.08)

Hence, adding the income tax due from his online business and from his compensation income, the
total income tax liability is P232,500.00.
 James David and Julio Enriquez formed a partnership. They called it D&E Professional
partnership. Mr. David is an engineer and Mr. Enriquez is an architect. Their partnership is
engaged in preparing engineering and architectural designs for residential houses, condominium
buildings and office buildings. The partnership employs 3 engineers and 3 architects.

Question: 5 points How will the professional partnership of Mr. David and Mr. Enriquez be treated
for tax purposes? Discuss thoroughly and support your answers with legal bases.

A: The professional partnership of Mr. David and Mr. Enriquez shall be a non-taxable entity. However,
the net shares of income from the partnership shall form part of the individual income tax returns of the
partners. The partners shall be taxed individually. Moreover, the 8% gross income tax rates cannot be
used by the partners because the net share in income is already net of costs and expenses.

I.
Mr. Roberto Dimasagi is a certified public accountant (CPA) in the Philippines. He is married to
Teresita Sebi, who owns a dress shop. Roberto was working as an accounting supervisor in a food
manufacturing company in the Philippines. He was sent by his company to the US to attend a training
program from September 1, 2016 to May 31, 2017, all on company expense. His salary during the
period of his training was directly credited to his bank account in the Philippines. The Company
accountant DID NOT withhold taxes on his salary, while he was on training abroad.

He came back to the Philippines in June 2017. After a month, he went back to the US on a tourist visa.
While there, he decided to look for a job, and stayed as a TNT dweller in the US. Since he did not
have a work visa, and did not have a social security number, he just did odd jobs and worked as a
helper in a restaurant owned by a fellow Filipino. On the side, he did accounting and bookkeeping
work on per contract basis for some Filipino business owners. After three years of being a TNT,
Roberto decided to come home to the Philippines in June 2020. He engaged in business as a
consultant and rendered bookkeeping services.

In January 2021, on the basis of information from an informer, the BIR issued a letter of authority to
examine the books of account of Roberto. The BIR is proposing to assess Roberto for deficiency
income taxes for his income while he was in the US, as well as on his salary while he was on training
in the US.

What was Roberto’s tax status while he was on training in the US? What was his tax status when he
went back to the US as a TNT dweller? Explain and support your answer(s) thoroughly with legal
bases.
The tax status of Roberto while he was on training in the US is a resident citizen. As ruled by the BIR
in BIR Ruling 517-2011, employees of a Philippine entity who are working abroad for most of the
taxable year but remain on the local payroll are not nonresident citizens. In this case, the fact that
Roberto’s salary was directly credited is proof that he remains to be on the local payroll. Thus, he is a
resident citizen for income tax purposes during the training period abroad.

When Roberto went back to the US as a TNT dweller, he is considered to still be a resident citizen.
Under the Tax Code and its implementing regulations, a citizen may only be considered a non-
resident citizen if he leaves during the taxable year to reside abroad, either as an immigrant or for
employment on a permanent basis. An immigrant is one who leaves the Philippines to reside abroad
as an immigrant for which a foreign visa as such has been secured. On the other hand, a permanent
employee is one who leaves the Philippines to reside abroad for employment on a more or less
permanent basis. In this case, since the visa secured by Roberto was merely a tourist visa, coupled
with the fact that he did not have a social security number and worked only odd jobs during his stay in
the US, he cannot be considered to have been an immigrant or a permanent employee. Hence, he is
a resident citizen.

ALTERNATIVE ANSWER:

When Roberto went back to the US as a TNT dweller, his tax status was a nonresident citizen. Under
the Tax Code, a citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time during the taxable
year is considered a nonresident citizen. In this case, since Roberto was employed in the US, and his
employment in different jobs requires him to be physically abroad most of the time (more than 183
days), then he is considered a nonresident citizen. It is immaterial that he only secured a tourist visa
since the Tax Code did not distinguish between one who has a valid working visa/permit and one who
has not. Thus, he is considered a nonresident citizen for his stay in the US as a TNT dweller.

Was it correct for the company accountant to forego withholding of taxes on his compensation while
he was on training abroad? Explain and support your answer thoroughly with legal bases.
No, the accountant was not correct. Under Sec. 79 of the Tax Code, every employer making payment
of wages shall deduct and withhold upon such wages a tax determined in accordance with the rules
and regulations to be prescribed by the Secretary of Finance, upon recommendation of the
Commissioner. The withholding of the tax is not required only when the compensation of the
individual does not exceed the statutory minimum wage. In this case, since Roberto is not a minimum
wage earner since he is already a supervisor, then his salary during his training abroad should have
been subject to withholding tax on compensation.
 Mr. Teodoro Santiago is the Vice –President-Comptroller/Internal Audit of ABC Banking
Corporation. He is 47 years old and has been with the Bank since he was 30 years old. On August
27, 2018, the new management of ABC Banking Corporation headed by Mr. Manuel H. Noriega
took over the Company. Mr. Santiago got wind of the office gossip that he will be demoted to
Assistant Vice President pursuant to Mr. Noriega’s business reorganization plan. To avoid
embarrassment, Mr. Santiago submitted his resignation letter, on September 10, 2018, to take
effect on October 10, 2018. On September 22, 2018, Mr. Noriega issued a memorandum which
states "in view of the election and assumption by new management and in recognition thereof, the
submission of your courtesy resignation will be highly appreciated to enable the new management
to perform their mandated task". Other senior officials complied with this memo and submitted their
courtesy resignation. On September 25, Mr. Santiago received a letter dated September 23 stating
that his resignation has been accepted by the Board with finality effective October 10, 2018.

During the BIR examination of the books of ABC Corporation, the BIR pointed out that the bank could
be held liable for deficiency withholding tax on wages because of the failure to withhold on the
separation pay of Mr. Santiago and of other senior officers of the bank.

The bank consulted you and inquired as to whether the bank should be held liable for failure to
withhold taxes on the separation pay given to Mr. Santiago and the other senior officials. What will
be your advice to the bank? Explain and support your answer thoroughly with legal bases.

I will advice the bank that the separation pay of Mr. Santiago and of other senior officers of the bank
is NOT exempt from withholding tax on separation pay. Under the Tax Code and its implementing
regulations, amounts received by reason of involuntary separation are exempt from withholding tax
on compensation. However, the separation must be involuntary, that is, it is not initiated by him. In
this case, the separation of Mr. Santiago and the senior officers were voluntary in nature because the
courtesy resignation was within their control and was initiated by them. Hence, the separation pay is
subject to withholding taxes.

3.
Mr. Efren Suplico is a construction worker working with EMCI Engineering and Construction
Corporation. He is receiving a salary of PhP537 per day. EMCI has been contracted by People
Enterprises, Inc. of Bohol to reconstruct their office building that was damaged by typhoon Odette. Mr.
Suplico, a native of Bohol was one of the workers who was deployed for the construction project. The
project will be for a period of nine (9) months. EMCI, will pay its construction workers hazard pay of
PhP 600 per day for the entire 9 months, in addition to their minimum wage. To ensure that the project
will be completed within the agreed period, the workers do overtime work. On his days off, Mr. Suplico
being very enterprising, purchased Bohol delicacies which he sent to Manila to be sold in his sari-sari
store. His sari-sari store earns around PhP 3,000 per month. On Sundays and off days, Mr. Suplico
accepted repair work on houses of his province mates.
 As a minimum wage earner, how will Mr. Suplico be taxed? Explain and support your answer
thoroughly with legal bases.

As a minimum wage earner, Mr. Suplico’s compensation income is exempt from income tax. The
statutory minimum wage exemption covers holiday pay, overtime pay, night shift differential pay, and
hazard pay earned by the minimum wage earner. (RR 8-18)

What is the definition of hazard pay? How will the hazard pay given to the construction workers
be treated for tax purposes? Explain and support your answer thoroughly with legal bases.

Hazard pay is the amount paid by the employer to minimum wage earners who were actually
assigned to:

a. Danger or strife-torn areas,

b. Disease-infested places, or in
c. Distressed or isolated stations and camps, which expose them to great danger or contagion or
peril to life.

Any hazard pay paid to minimum wage earners which does not satisfy the above criteria is deemed
subject to income tax and consequently, withholding tax on the said hazard pay.

How will Mr. Suplico’s income from the sari-sari store and repair jobs be taxed? Explain and
support your answer thoroughly with legal bases.

Mr. Suplico’s income from the sari-sari store and repair jobs will be subject to income tax provided
that it exceeds the 250,000 limit. According to the Tax Code, minimum wage earners receiving other
income from other sources in addition to compensation income, such as income from other
concurrent employers, from the conduct of trade, business, or practice of profession, except income
subject to final tax, are subject to income tax only to the extent of income other than statutory
minimum wage, holiday pay, overtime pay, night shift differential pay, and hazard pay earned during
the taxable year. In this case, the income from the sari-sari store amounts to 36,000 pesos per year.
If added to the repair work, and the sum exceeds 250,000, then such amount would be subject to
income tax to the extent of the excess of 250,000. On the other hand, if the sum of both income does
not exceed 250,000, then Mr. Sulpico remains exempt from income tax.
 Mr. Carlos Ocampo a minimum wage earner, works for Grand Production, Inc. He is not engaged in
business nor has any other source of income other than his employment. For 2018, Mr. Ocampo
earned a total compensation income of PhP 135,000.00.

He contributed to the SSS, PhilHealth, and HDMF amounting to PhP 5,000.00 and has received 13th
month pay of PhP 11,000.00.

The following year 2019, Mr. Ocampo earned, aside from his basic wage, additional pay of
PnP140,000.00 which consists of the overtime pay — PhP 80,000.00, night shift differential — PhP
30,000.00, hazard pay — PhP15,000.00, and holiday pay — PhP 15,000.00. He has the same benefits
and contributions as above.

What is the tax liability of Mr. Ocampo for 2018? Show your computation and explain and
support your answer.

Mr. Ocampo has no income tax liability for 2018. The NIRC, as amended provides that minimum
wage earners are exempted from income tax.

What is the tax liability of Mr. Ocampo for 2019? Show your computation and explain and
support your answer.
The income tax liability of Mr. Ocampo for 2019 is still nil. The NIRC, as amended, provides that
minimum wage earners shall be exempt from income tax which shall also include holiday pay,
overtime pay, night shift differential pay and hazard pay.

Hazard pay shall mean the amount paid by the employer to MWEs who were actually assigned to:
● Danger or strife-torn areas;
● Disease-infested places; or
● In distressed or isolated stations and camps, which expose them to great danger or contagion
or peril to life.

Even assuming arguendo that the hazard pay received by Mr. Ocampo was taxable and
consequently subject to withholding taxes on wages, the amount of the hazard pay amounted only to
PhP15,000.00 which is below the PhP 250,000.00 income tax exemption.

Mr. Pedrito Viterbo offers architectural and engineering services. His total gross receipts for taxable
year 2018 amounted to PhP 4,250,000.00. His recorded cost of service and operating expenses
were PhP 2,150,000.00 and PhP 1,000,000.00, respectively

Mr. Viterbo wants to avail himself of the 8% tax. What does he need to do to avail
himself of the 8%?
Mr. Viterbo would need to reduce his gross receipts to PhP 3,000,000.00. The TRAIN Law provides
that individuals who shall have gross receipts or gross sales of not exceeding PhP 3,000,000 in a
single taxable year may opt to be taxed at 8% gross income tax rate. Moreover, during the filing of his
first quarterly income tax return, he should select that he opts to be taxed at the 8% gross income tax
rate and not through the graduated income tax rates. In this case, Mr. Viterbo’s gross receipts for the
taxable year 2018 amounted to PhP 4,250,000.00. Hence, for the taxable year 2018, Mr. Viterbo
would be unable to be taxed at the 8% since he has exceeded the PhP 3,000,000.00 threshold.

Based on the information provided, how much would the tax liability of Mr. Viterbo be? SHOW your
computation. Explain and support your answer thoroughly
The income tax liability of Mr. Pedrito Viterbo for the taxable year 2018 amounts to PhP 220,000.00
through the graduated income tax rates amended by the TRAIN Law.

4,250,000 - (2,150,000 + 1,000,000) = 1,100,000

130,000 + 30% of 300,000 = 220,000

7.
Mr. Miguel Gorospe, a Senior IT Officer of JAM Corporation, earned annual compensation in 2018 of
PhP1,500,000.00, inclusive of 13th month and other benefits in the amount of PhP 120,000.00 but
net of mandatory contributions to SSS and Philhealth. Aside from employment income, he owns a
hardware store, with gross sales of PhP 2,400,000. His cost of sales and operating expenses are
PhP 1,000,000.00 and PhP 600,000.00, respectively, and with non-operating income of PhP
100,000.00.

If Mr. Gorospe opted to be taxed at 8%, how much will be his total tax liability for his business income
and compensation income? SHOW our computation and explain and support your answer

1,500,000 + (120,000 - 90,000) = 1,530,000 (taxable compensation income)

130,000 + 30% (1,530,000 - 800,000) = 349,000 (income tax withheld by employer)

2,400,000 + 100,000 = 2,500,000 (gross sales + non-operating income)

2,500,000 x 0.08 = 200,000 (tax due on business income)

349,000 + 200,000 = 549,000 - TOTAL INCOME TAX LIABILITY FOR BUSINESS AND
COMPENSATION INCOME

If Mr. Gorospe opted to be taxed under the graduated income tax rates, how much would be his
income tax liability. SHOW your computation and explain and support your answer.
1,500,000 + (120,000 - 90,000) = 1,530,000 (taxable compensation income)

130,000 + 30% (1,530,000 - 800,000) = 349,000 (income tax withheld by employer)

2,400,000 + 100,000 = 2,500,000 (gross sales + non-operating income)
2,500,000 - (1,000,000 + 600,000) = 900,000 (net taxable income)

130,000 + 30% (900,000 - 800,000) = 160,000 (tax due on business income)

349,000 + 160,000 = 509,000 = TOTAL INCOME TAX LIABILITY

2.1 In the case of sale of goods and properties, tangible or intangible, what is the VAT base
for computing the output VAT liability and explain what constitute the VAT base? DISCUSS
thoroughly.

The tax base of VAT on sale of goods or properties is the “gross selling price” which means the total
amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in
consideration of the sale, barter, or exchange of the goods or properties, excluding the value-added
tax.

The excise tax, if any, on such goods or properties shall form part of the gross selling price.

Note: Unless otherwise indicated, the selling price is already VAT inclusive. The 12% VAT is based on
the selling price without VAT.

Requisites to make sale of goods or properties subject to VAT:

1. There is an actual or deemed sale, barter, or exchange of goods or properties for valuable
consideration;
2. The sale is in the course of trade or business in the PH;
3. The goods or properties are located in the PH and are for use or consumption therein; and
4. The sale is not exempt from VAT under Sec. 109 of the NIRC, special law, or international
agreement binding upon the government of the PH.

2.2. In the case of the sale or exchange of services, what is the VAT base for computing the
output VAT liability, and explain what constitutes the VAT base? DISCUSS thoroughly.

Under Sec. 108(A) of NIRC, the 12% VAT on sale of service is based on the gross receipts. “Gross
receipts” refer to the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with
the services and deposits and advanced payments actually or constructively received during the
taxable quarter of the services performed or to be performed for another person, excluding VAT.

Requisites for sale or exchange of services to be subject to VAT:

1. There is a sale or exchange of service, or lease or use of property enumerated under the Tax
Code, or other similar services;
 2. Service is performed in PH;
3. Service is in the course of trade of taxpayer’s trade or business or profession;
4. The service is for a valuable consideration actually or constructively received; and
5. The service is not exempt under the Tax Code, special law, or international agreement

2.3. In the case of importation of goods, what is the tax base for the VAT on importation?
DISCUSS thoroughly.

A: In general, VAT is imposed on goods brought into the PH, whether for business use or not. The tax
is based on the total value used by the BOC in determining tariff and customs duties, plus customs
duties, excise tax, if any, and other charges such as postage, commission, and similar charges, prior
to the release of the goods from customs custody.

In case the valuation used by the BOC in computing customs duties is based on volume or quantity of
the imported goods, the landed cost shall be the basis for computing VAT. Landed cost consists of the
invoice amount, customs duties, freight, insurance and other charges. If the goods imported are subject
to excise tax, the excise tax shall form part of the tax base.

VAT is also imposed on technical importation, which is the sale of goods by a person located in a
Special Economic Zone to a customs territory (Sec. 4.107-1(a), RR 16-05).

DAIRY Production Inc. makes sugar-free ice cream. It sells to supermarkets, restaurants, office, and
school cafeterias. For the month of January 2019, it had the following sales:

CUSTOMER AMOUNT OF DATE OF DISCOUN DISCOU

SALE SALE T NT
GIVEN ON GIVEN
JANUARY ON
7, JANUAR
2019 Y
14, 2019,
UPON
ACTUAL
PAYMEN
T

Pure Silver P400,000 January 7, P40,000

Supermarkets, Inc. 2019 (10%)

University of Sto. P10,000 January 7, P1,000

Domingo 2019 (10%)
 TOTAL GROSS P410,000
SALES

3.1. On the total sales of PhP 410,000, how much is the output tax liability, taking into
consideration that discounts were given to the customers. SHOW your computation.
EXPLAIN and support your answer.

The output VAT is computed by multiplying the tax base which is the gross selling price less the sales
returns and discounts. However, for the discount to be deducted from the gross sales, such discount
must not be dependent on the happening of a contingent event. In this case, the discounts granted to
University of Sto. Domingo will not be allowed as deductions because the discount was only granted
not on the date of sale which is on January 7, 2019, but only on January 14, 2019. Thus, the output tax
payable of DAIRY Production Inc. is P44,400.

4.
Mr. Lucio Silverio is engaged in the real estate business, buying, and selling land and other
real property. He has a house and lot in Dasmariňas Village, 2 lots, in La Vista, Quezon City
with an area of 600 sq. meters each, 4 two- bedroom units in Edades Condominium Building in
Rockwell. He was able to sell his house and lot in Dasmariňas Village, to Oxford Systems,
Inc.(OXFORD) for P 110, 000,000, payable over a period of 5 years. The deed of sale was signed
on January 30, 2020. Under the deed of sale,

OXFORD is required to pay the amount of P22,000,000 for the next

11 months, beginning February 2020.The balance of P 88 million will be paid in equal monthly
installments for the next 49 months.

The 4 condominium units were purchased by Fortune Enterprises, Inc. (FORTUNE) for a total
price of PhP 80,000,000. The 4 deeds of sale were all signed on December 31, 2020. The deed
provides that on January 4, 2021, Fortune Enterprises shall pay the amount of P 24,500,000 in
the form of manager’s check. The balance of P55,500,000 shall be paid in quarterly installments
for the next 3 years.
 4.1 How will the VAT be imposed on Mr. Silverio on his sale of the Alabang property? SHOW
your computation. EXPLAIN and support your answer.

A: VAT will be imposed on each installment payment. Purchase price is P110,000,000. Initial payment
was P22,000,000 for the first 11 months.

P22M / P110M = .20 or 20%

Since the initial payment did not exceed the 25% of the Gross Selling Price (P110M), this is considered
a sale of real property on installment. In case of installment sale, the seller is subject to VAT on
installment payments received, including interests and penalties for late payment actually or
constructively received.

P22M / 11 months = P2M per month x 12% = P240,000 VAT payable for the first 11-months.

P88M / 49 months = P1.79M per month x 12% = P215,510.20 VAT payable for next 49 months.

4.2 On the sale of the condominium units, how much VAT will Mr. Silverio pay? SHOW
your computation. EXPLAIN and support your answer.

A: Purchase price = P80M. Initial payment = P24.5M.

P24.5M / P80M = 30%

Since the initial payment exceeds the 25% of the Gross Selling Price (P80M), this is considered a sale
of real property on deferred basis. A sale of real property on deferred basis is treated as a cash sale,
making the entire selling price taxable in the month of sale. The whole P80M will be subject to VAT on
its January 2021 sale.

P80M x 12% VAT = P9.6M.

VIII.
8.1. What is a transaction deemed
sale?

A: Transactions deemed sale are enumerated in Sec. 106 (B) of the Tax Code. They are called
“deemed sale” transactions because in reality there is really no sales transaction, but the circumstances
present made them appear or seem like to have a sale that is why the law made them subject to VAT.

8.2. Under the VAT law, what are the transactions deemed sale?
A:
● Transfer, use, or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business.
● Distribution or transfer to:
○ Shareholders or investors as share in the profits of the VAT-registered persons (property
dividends); or
○ Creditors in payment of debt (dacion en pago);
● Consignment of goods if actual sale is not made w/in 60 days following the state such goods
were consigned; and
● Retirement from or cessation of business, with respect to inventories of taxable goods existing
as of such retirement or cessation.

8.3. FACTS: Orange Resources Corporation (Orange), a company engaged in the business of
wood processing, lumbering & woodworking imported its raw materials from foreign countries
and paid the value -added tax (input taxes) to the appropriate district of the Bureau of Internal
Revenue. Orange has accumulated input taxes, but unfortunately, the Company stopped its
operation two (2) years ago due to unfavorable economic conditions in our country, lack of
raw materials and high exchange rate. The Company was left with no income thus, cannot pay
anymore its payables to its creditors. The Company's capital assets and defective company's
non-trade inventories were taken by creditors.

The Company’s accounted consulted you and asked the following

questions.

8.3.1. Does Orange have any liability for VAT? Explain and support your
answer.

Orange’ VAT liability depends if they still have inventories of taxable goods existing as of such
retirement or cessation. Under Section 106 B of the NIRC, as amended, when businesses retire or
cease from operations, any inventories left at the time of the cessation shall be considered as a
transaction deemed sale which is subject to VAT. In this case, Orange still has input VAT credits. If the
output VAT of the inventories left exceed the input VAT credits, Orange shall be liable for VAT.
However, if the input VAT credits exceeds the output VAT of the remaining inventories, the same shall
be expensed for income tax purposes.

8.3.2. Assuming without conceding that Orange is subject VAT, how will the
VAT be computed?

The Output VAT will be computed based on the inventories at hand as required under Section 106 B
of the NIRC, as amended. The inventories at hand shall be considered a transaction deemed sale. In
this case, Orange still has unutilized input VAT and this should be compared to the output VAT. If the
output VAT computed exceeds the input VAT credits, Orange shall be liable for VAT during its cessation
of business.
IX.
9.1. Give at least four (4) NEW transactions that have been classified as
exempt transactions under the TRAIN Law.

A:
● Transfer of property in merger and consolidation (pursuant to Sec. 40 (C)(2) of the Tax Code,
as amended);
● Association dues, membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations;
● Sale of gold to the BSP;
● Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
beginning Jan. 1, 2020.

9.2. Give at least three (3) transactions that are currently zero-rated but will
eventually become vatable?

A:
● Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident
local export-oriented enterprise to be used in manufacturing, processing, packhing, or repacking
in the Philippines of the said buyer’s goods and paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP;
● Sale of raw materials or packaging materials to export-oriented enterprise whose export sales
exceed 70% of total annual production; and
● Those considered sales under EO 226, otherwise known as the Omnibus Investment Code of
1987, and other special laws.

X.
Emerald Company is an export-oriented enterprise, exporting garments. It has unutilized input
tax credits from this zero-rated transaction and desires to file for a claim for refund.

What are the applicable rules for a claim for refund of unutilized input tax credits from zero-
rated transactions? Discuss thoroughly.

A:
Section 112 of the NIRC, as amended provides for the following applicable rules in claiming tax refund
for unutilized input tax credits from zero-rated transactions:
● The refund must be made within 2 years after the close of the taxable quarter when the sales
were made;
● The taxpayer must explicitly apply for the issuance of tax credit certificate or a refund of
creditable input tax due or paid attributable to such sales
● The input tax being claimed for refund must not be transitional input taxes;
● Input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
 ● The input taxes have not been applied against output taxes during and in subsequent quarters
● The acceptable foreign currency exchange proceeds thereof have been duly accounted for in
accordance with the rules and regulations of the BSP
● If the amount of creditable input tax due or paid cannot be directly attributed to any one of the
transactions in cases where the taxpayer is engaged in vatable, zero-rated, effectively zero-
rated and exempt transactions, the input taxes shall be allocated proportionately on the basis
of the volume of sales.
● If the taxpayer is engaged in sales that are zero-rated under Section 108 B 6, the input taxes
shall be allocated ratably between his zero-rated and non-zero rated sales.

13.2. FACTS: Santa Fe Manufacturing, Inc. (SFMI) is engaged in the production of coconut oil
for domestic sale and for exports. Its principal place of business is located in Makati City. It
maintains a branch/sales office in Quezon City. It also maintains a warehouse only for storage
purposes, in Manila. Its coconut plantation is located in Lopez, Quezon Province. Its factories
where the coconut oil is produced is located in San Pablo and in Sta Cruz, Laguna.

13.2.(a.) How will the sales (domestic and exports) be reported and allocated to the local
government units concerned for local business tax purposes.

The actual sales made in the Quezon City branches shall be recorded in such branches and the tax
shall be payable to the city where the same is located.

The sales made by the principal office shall be allocated between the principal office, factory and
plantation. The city where the principal office is located shall be entitled to 30% of the sales recorded
by the principal office. The locality of the factory and the plantation shall be entitled to the remaining
70% of the sales of the principal office. In cases where the location of the factory and the plantation
are in two different localities, the 70% sales allocation shall further be divided into 60% to the city
where the factory is located and 40% to where the plantation is located. In cases where there are two
or more factories or plantations located in different localities, the allocation shall be prorated with
respect to their respective volumes of production during the period for which the tax is due.

In this case, the City of Makati shall be entitled to 30% of all the sales made by the principal office.
Quezon Province shall be entitled to 28% (70% x 40%) of all the sales made by the principal office.
The residual 42% (70% x 60%) of the sales schedule of the principal office shall be divided between
San Juan, Batangas and Balayan, Batangas where the 42% shall be further prorated based on the
production made by the two factories during the taxable year. The City of Manila will have no right in
the collection of local business taxes because no sales were made in the warehouse located in
Manila.

13.2.(b.) When should the local tax on business be paid and what is the tax
base?
Section 167 of the LGC provides that all local taxes, fees and charges shall be paid within the first 20
days of January or of each subsequent quarter, as the case may be. The Sanggunian concerned may
extend the time of payment of such taxes, fees and charges without surcharge or interest, but only for
a period not exceeding 6 months. The tax base for local business taxes shall be on the gross sales or
receipts of the taxpayer in the preceding year.

13.3. FACTS: Santa Fe Manufacturing, Inc. SFMI) was examined by Makati City. A notice of
assessment was issued to the corporation for calendar year 2017. The notice was received
by La Paz on March 30, 2019.

13.3.(a.) What is the prescriptive period for the issuance of a deficiency local
business tax assessment?

A: The local treasurer or his duly authorized representative has 5 years to examine the books of
accounts of the taxpayer and to issue a notice of assessment. The 5-year period is reckoned from the
date the taxes, fees, or charges become due. If no assessment is made within 5 years, the right of the
LGU to assess shall be prescribed. (Sec. 194(a), LGC)

In case of fraud or intent to evade the payment of taxes, fees, or charges, the local treasurer may issue
the assessment within 10 years from the discovery of the fraud or intent to evade payment (Sec. 194(b),
LGC)

After an assessment is made, the local treasurer has a period of 5 years to collect deficiency taxes,
fees or charges whether by administrative or judicial action. After the expiration of the 5-year period,
no action for collection shall be instituted. (Sec. 194(c), LGC)

13.3.(b.) When should SFMI file the protest against the assessment?

A: SFMI may file a written protest against Makati City local treasurer contesting the assessment within
60 days from the receipt of the notice of assessment. In this case, SFMI may file the protest against
the local treasurer of Makati City until May 29, 2019. Failure to file a written protest within this period
shall make the assessment final and executory.

13.3.(c.) Within what period should the City Treasurer decide on the protest?

A: The City Treasurer shall decide the protest within 60 days from the time the taxpayer filed its protest
against the assessment.

13.3.(d.) If the protest is denied or is NOT acted upon within the period
prescribed, within what period should SFMI file an appeal.
A: The taxpayer shall have 30 days from the receipt of the denial of the protest or from the lapse of the
sixty-day period prescribed to decide the protest within which to appeal with the court of competent
jurisdiction.

13.3.(e.) What is the consequence if SFMI fails to file an appeal?

The assessment becomes conclusive and unappealable.

XIV.
14.1. What are the fundamental principles on real property taxation?

The appraisal, assessment, levy and collection of real property tax shall be guided by the following
fundamental principles:
(a) Real property shall be appraised at its current and fair market value96;
(b) Real property shall be classified for assessment purposes on the basis of its actual use;
(c) Real property shall be assessed on the basis of a uniform classification within each local
government unit;
(d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private
person; and
(e) The appraisal and assessment of real property shall be equitable.

14.2. (a) What kind of machinery/equipment would be considered as real

property for RPT purposes?

Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances or

apparatus, which may or may not be attached permanently or temporarily to the real property.
Machinery which are of general purpose shall not be considered within the definition of machinery under
this Rule. Residential machinery shall include machines, equipment, appliances or apparatus
permanently attached to residential land and improvements or those immovable by destination.

14.2.(b) What is the treatment of machinery that is used for religious,

charitable, or educational purposes, in relation to real property taxes.

The machinery used for religious, charitable or educational purposes, in relation to real property taxes,
that are actually, directly and exclusively used for the same purpose shall be exempted from real
property tax.

14.3.a When are properties considered as idle lands? DISCUSS the rules.
Idle lands shall include the following:
● Agricultural lands, more than one hectare in area, suitable for cultivation, dairying, inland fishery
and other agricultural uses, one half of which remain uncultivated or unimproved by the owner
of the property or person having legal interest therein.
● Agricultural lands planted to permanent or perennial crops with at least 50 trees to a hectare
shall not be considered idle lands.
● Lands actually used for grazing purposes shall likewise not be considered idle lands.
● Lands, other than agricultural, located in a city or municipality in area ½ of which remain
unutilized or unimproved by the owner of the property or person having legal interest therein.

14.3.(b) Special classes of real property?

All lands, buildings, and other improvements thereon actually, directly and exclusively used for
hospitals, cultural, or scientific purposes, and those owned and used by local water districts, and
GOCCs rendering essential public services in the supply and distribution of water and/or generation
and transmission of electrical power (Sec. 216, LGC)

14.4. What are the exemptions from real property taxes? How does one prove
that real property is exempt from real property taxes?

A: The following are exempted from payment of the real property tax under the LGC:
1. Real property owned by the RP or any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person;
2. Charitable institutions, churches, personages or convents appurtenant thereto, mosques, non-
profit or religious cemeteries and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;
3. All machineries and equipment that are actually, directly and exclusively used by local water
districts and government owned or controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power;
4. All real property owned by duly registered cooperatives as provided under RA 6938; and
5. Machinery and equipment used for pollution control and environmental protection.
6. When a law granting a franchise expressly states that it shall be ‘in lieu of all taxes, national or
local’ and the real property held by a franchisee must be used in connection with its franchise
(jurisprudence)
7. Idle lands exempt from real property tax (Sec. 238, LGC)
8. Condonation or reduction of real property tax and interest (Sec. 276, LGC)
 15.2. FACTS: Prestige Manufacturing, Inc. (PRESTIGE) manufactures packaging materials and
containers. It was assessed by the BIR for deficiency income tax and VAT for the calendar year
ending December 31, 2014. PRESTIGE filed its final income tax return for year ending
December 2014, on April 15, 2015. The Company received a Letter of Authority on November
25, 2017. The preliminary assessment notice (PAN) was issued on March 30, 2018. PRESTIGE
filed its reply to the PAN on April 14, 2018. On May 5, 2018, the BIR requested PRESTIGE to
sign a Waiver of the Statute of Limitations, which it did. The corporation consulted you on the
following matters:

15.2.(a)What are the requirements for the issuance of a

valid waiver?

The following requisites are needed for the issuance of a valid waiver:
● It was executed before the expiration of the period to assess or to collect taxes;
● It indicates the expiry of the extended period;
● It indicates the types of tax for waiver of the prescriptive period to collect; and
● It is signed by the taxpayer’s duly authorized representative.

15.2.(b)Was the issuance of the waiver by PRESTIGE in May 2018 valid? Why
or why not?

The issuance of the waiver by Prestige in May 2018 was invalid already. One of the requirements for
the issuance of a valid waiver is that it should have been executed before the expiration of the period
to assess or collect taxes. In this case, the last day to issue a valid waiver would have been on April
14, 2018. Since the waiver issuance was made on May 5, 2018, which was beyond the three year
prescriptive period of the internal revenue tax assessment, the waiver is no longer valid.
1.1 Research and Technology, Inc. (RTI) is a corporation engaged in rendering research
services. It employs chemists, biologists, botanists, and experts in other fields of science. RTI
was engaged by a French company (French Co.) to conduct research for the development of
another Dengue and Polio vaccine. The contract required RTI to send its researchers/scientists
of around 15 people to South Africa, India, and Indonesia. The duration of the assignment
abroad of these scientists is for more than an aggregate period of 22O days, for calendar year
2019. Their tour of duty started in March 1, 2019. RTI paid 80% of their salaries. Under the
agreement between RTI and French Co. 20% of their salaries will be advanced by French Co.
The latter will remit the salaries to the bank account of the researchers in their respective
countries of assignment. French Co. will then collect the amount it advanced for the salaries
by deducting the amount from the service fees to be paid to RTI.

The accountant of RTI subjected 100% of the salaries of these 15 researchers to withholding
taxes.

The researchers complained to the accountant and claimed that their salaries should not be
subjected to Philippine withholding taxes since they were nonresident citizens working abroad
for 220 days, more or less.

1.1. Is the complaint of the researchers valid? Why or Why not? DISCUSS how these
researchers should be taxed. Explain and support your answer. (2 points)

The complaint of the researchers is valid. Under the Tax Code, as amended, the withholding of taxes
shall be required on items of income payable to natural or juridical persons residing in the Philippines.
Also, the BIR released a regulation which provides that a person is considered as a non-resident
citizen if his or her physical presence abroad is at least 183 days. Furthermore, various BIR Rulings
ruled that the situs of where the compensation was derived is controlling in determining the taxability
of the said income. In this case, the researchers are considered as non-resident citizens as they were
abroad for 220 days, which is well beyond the 183 day period, and are thus only taxable on any income
derived within the Philippines. Since the researchers are considered as non-resident citizens and their
services for which they derived compensation were performed abroad, they are correct in averring
that they are not subject to Philippine withholding taxes.
3.1 Mr. Teofilo Casiguran is a construction worker employed by Royal Builders Inc. (ROYAL).
Mr. Casiguran is a minimum wage earner. The statutory minimum wage rate for NCR is
PhP537.00 per day. ROYAL was engaged as a construction contractor for a building in
Batangas City. The project begun on January 15, 2020. Since the project started shortly after
the eruption of Taal Volcano, the company decided to give its construction workers a hazard
pay. The total hazard pay given to Mr. Casiguran is PhP12,000 per month, amounting to PhP
144,000 for the entire taxable year 2020.

In October 2020, the President of the Company paid Mr. Casiguran the amount of the amount
of PhP 10,000 as his commission for selling the car of the daughter of the President. The latter
instructed the accountant to pay the commission to Mr. Casiguran and deduct the amount
from the President’s salary.

During an internal audit of the company, the internal audit team commented that the Company
could be exposed to deficiency withholding tax for failure to withhold taxes on the hazard pay
and on the commission. The accountant argued that since the Mr. Casiguran is a minimum
wage earner, his salaries including the hazard pay are exempt from income tax.

Under the Law, how is a minimum wage earner taxed? (2 points)

A minimum wage earner is exempted from income tax. (RA 9504) The law granted MWEs exemption
from payment of income tax on their minimum wage, holiday pay, overtime pay, night shift differential
pay and hazard pay.
The term 'minimum wage earner' shall refer to a worker in the private sector paid the statutory
minimum wage, or to an employee in the public sector with compensation income of not more than
the statutory minimum wage in the non-agricultural sector where he/she is assigned." The term
'statutory minimum wage' shall refer to rate fixed by the Regional Tripartite Wage and Productivity
Board, as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of
Labor and Employment (DOLE).

The following items of income received by a minimum wage earner shall likewise be exempt from
income tax:
a. the holiday pay
b. overtime pay
c. night shift differential pay and
d. hazard pay.

An employee who receives/earns additional compensation such as commissions, honoraria, fringe

benefits, benefits in excess of the allowable statutory amount of P30,000.00, now P82,000, taxable
allowances and other taxable income other than the SMW, holiday pay, overtime pay, hazard pay and
night shift differential pay shall NOT enjoy the privilege of being a MWE and, therefore, his/her entire
earnings are not exempt form income tax, and consequently, from withholding tax. (RR 10-2008)
MWEs receiving other income, such as income from the conduct of trade, business, or practice of
profession, except income subject to final tax, in addition to compensation income are NOT exempted
from income tax on their entire income earned during the taxable year. (RR 10-2008)

3.2 How is the term hazard pay defined? (2 points)

Amount paid by the employer to the MWE who were actually assigned to danger or strife torn areas,
disease infested places or in distressed or isolated stations and camps

Hazard pay shall mean the amount paid by the employer to MWEs who were actually assigned to
danger or strife-torn areas, disease-infested places, or in distressed or isolated stations and camps,
which expose them to great danger of contagion or peril to life.

Any hazard pay paid to MWEs which does not satisfy the above criteria is deemed subject to income
tax and consequently to withholding tax.
3.3. Who between the accounting manager and the internal audit team is correct? EXPLAIN
your answer. (2 points)

The accounting manager is partially correct. Mr. Casiguran is not liable to pay income tax on the
hazard pay and any other minimum wage given to him. However, Mr. Casiguran is liable to pay
income tax on the commission that he received from selling the car of the president since such
compensation is not specifically excluded by law.

4.1 Mr. Ricardo Fulgoso is a partner in a general professional partnership of architects. For
taxable year 2019, the partnership claimed itemized deductions. When Mr. Fulgoso filed his
income tax return for the taxable year 2019, he claimed the optional standard deduction. He
was advised by his colleague that he should have opted for the itemized deduction.

How should Mr. Fulgoso compute his income tax? EXPLAIN and support your answer with
legal basis.

Mr. Fulgoso should compute his income tax in his personal capacity and not as a partner of his
Architectural firm. Under the Tax Code, as amended, partners in a General Professional Partnership
shall be liable for any tax in their separate and individual capacities.

5.1 Under the TRAIN Law, how is a self-employed individual and professional taxed? Discuss
THOROUGLY, the applicable rules. (3 points)

Individuals earning more than P3M has the option of availing the graduated rates as provided under
the NIRC

the 8% tax on gross sales or gross receipts and other non operating incomes in excess of P250K but
not exceeding the P3M threshold

The option must be immediately exercised at the initial quarter return of the taxable year after the
commencement of the new business.

5.2. How is a mixed income earner taxed under the TRAIN Law? Discuss THOROUGHLY the
applicable rules. (3 points)

Mixed income earner who opted to be taxed under the graduated income tax rates from income from
business and practice of profession shall combine the taxable income from both compensation and
business/practice of profession in computing for the total taxable income and consequently, the
income tax due.
6.1 Who are entitled to substituted filing?

Individual taxpayers who are receiving purely compensation income regardless of amount, from only
one employer for the whole taxable year, and the income tax was properly withheld by the employer.

9.1. In the case of sale of goods and properties, tangible or intangible, what is the VAT base
for computing the output VAT liability and explain what constitutes the VAT base? DISCUSS
thoroughly. ( 2 points)

Gross selling price or gross value in money of the goods or properties sold, bartered or exchanged,
such tax to be paid by the seller or transferor

“Gross Selling Price” – total amount of money or its equivalent, which the purchaser pays or is
obligated to pay to the seller in consideration of the sale/ barter/ exchange of the goods or properties,
excluding the VAT. The excise tax if any, on such goods of properties shall form part of the gross
selling price

In computing the taxable base during the month or quarter, the following shall be allowed as
deductions from gross selling price:

(a) Discounts determined and granted at the time of sale, which are expressly indicated in the invoice,
the amount thereof forming part of the gross sales duly recorded in the books of accounts.
Sales discount indicated in the invoice at the time of sale, the grant of which is not dependent upon
the happening of a future event, may be excluded from the gross sales within the same month/quarter
it was given.

(b) Sales returns and allowances for which a proper credit or refund was made during the month or
quarter to the buyer for sales previously recorded as taxable sales.
9.2. In the case of the sale or exchange of services, what is the VAT base for computing the
output VAT liability, and explain what constitutes the VAT base? DISCUSS thoroughly. (2
points)

Gross receipts" refers to the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with
the services and deposits applied as payments for services rendered and advance payments actually
or constructively received during the taxable period for the services performed or to be performed for
another person, excluding VAT.

"Constructive receipt" occurs when the money consideration or its equivalent is placed at the control
of the person who rendered the service without restrictions by the payor. The following are examples
of constructive receipts:
1. deposit in banks which are made available to the seller of services without restrictions;
2. issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by
the seller as payment for services rendered; and
3. transfer of the amounts retained by the payor to the account of the contractor.

9.3. In the case of importation of goods, what is the tax base for the VAT on importation?
DISCUSS thoroughly. ( 2 points)

The tax shall be based on the total value used by the BOC in determining tariff and customs duties,
plus customs duties, excise tax, if any, and other charges, such as postage, commission, and similar
charges, prior to the release of the goods from customs custody.
18.1. What are the common limitations in the local taxation? Answer
thoroughly. (3 points)

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. -
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa,
except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage
dues, and all other kinds of customs fees, charges and dues except wharfage on
wharves constructed and maintained by the local government unit concerned;
(e) Taxes, fees and charges and other impositions upon goods carried into or out of,
or passing through, the territorial jurisdictions of local government units in the guise
of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges
in any form whatsoever upon such goods or merchandise; (f) Taxes, fees or charges
on agricultural and aquatic products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer
or non-pioneer for a period of six (6) and four (4) years, respectively from the date
of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code,
as amended, and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein; (j) Taxes on
the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or
water, except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except
as otherwise provided herein; (n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprises and cooperatives duly registered under R.A. No.
6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperatives Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National Government , its agencies
and instrumentalities, and local government units.