Preweek Taxation

SAN BEDA COLLEGE OF LAW CENTRALIZED BAR OPERATIONS 2001 Any form of reproduction of this copy is strictly prohibited!!!

P R E – W E E K

T A X A T I O N

1. Munic Municipa ipalit lity y “X” enacted enacted an ordina ordinance nce whi which ch impose imposes s an occupa occupatio tion n tax upon owners own ers of fishpo fishponds nds.. Th The e validi validity ty of the ordina ordinance nce is bein bein challen challened ed on the round that it constitutes double taxation because the fishpond is already subect to land tax. "s the ordinance valid# ordinance is valid. valid. There There is no direct direct duplicate duplicate taxatio taxation n in the case at bar   $%&, the ordinance because the purposes purposes of the two (2) taxes are different. different. The objective of the land land tax is to impose a charge on the ownership of the property, while the occupation tax is intended to impose a burden upon owners of fishponds for engaging in that line of business. ( People People v. Mendares, 97 PHIL 158  )

'. A “(eed “(eed of &ale of )eal *roperty” *roperty” was ac+nowleded ac+nowleded before before a ,otary ,otary *ublic and was presented to the the )eister of (eeds (eeds for reistration. The said official re-uired the payment payment and affixture affixture of two '/ documentar documentary y stamps0 stamps0 one for the deed of sale and another for the the ac+nowledment. "s the said re-uirement re-uirement aainst the principle of double double taxation# hy# Considering that in the problem the eed of !ale is a document separate and distinct from the ac"nowledgment, there can be no double taxation as there are two objects of  taxation. taxation. #urthermore, #urthermore, even if the documents are considered considered as one, there will still be no double taxation in the strict sense since the re$uirements do not fall under the concept of  double taxation. taxation. There will only be double double taxation taxation if the %egistrar does not not re$uire the same re$uirements from others who will register the same "ind of documents.

2. 3im Ton0 Ton0 owner of the 4reeman5s 4reeman5s &eafood &eafood harf )estaurant0 )estaurant0 borrowed borrowed from his friend friend *it 6acson * 207770777. 207770777. The said amount amount would finance finance his newly ac-uired ac-uired 8olvo car which he would be usin while oin to wor+. Their verbal areement provided an annual interest of '9:. a. ;ould ;ould the intere interest st paid on such such loan loan be deduct deducted ed from 7 in all. =ne of the retrenched employees was A0 a 9> year old machinist who had been in the employ of the company for > years. Ge was iven by the company *>70777 as his separation pay. ould the amount received by A be subect to withholdin tax on compensation# ,=. *ny amount received by an official or employee or by his heirs from the employer  due to death, sic"ness or other physical disability or for any cause beyond the control of  said official or employee such as retrenchment, redundancy, or cessation of business are exempt from withholding tax on compensation. *mounts received by reason of involuntary separation remain exempt from income tax even if the official or employee, at the time of  separation has rendered less than 1 years of service and9or is below 01 years of age. 11. ;arrie0 a 4ilipino composer has ust received *'70777 as royalties for her  outstandin composition “Maalaala Mo 3aya0 )I? version”. &he then later invested said amount to X ;orp.0 a domestic corporation enaed in manufacturin by buyin 1777 shares thereof. ast 6anuary0 the company sent a * >0777 che-ue to ;arrie as cash dividends. a. b.

hat income in the above problem isJare subect to final withholdin tax# . A0 a ran+ and file employee of *; ;orp. Manila was sent by the latter to its newly opened branch in ?atanas. *; provided a free board and lodin at the second floor of said establishment valued at *B77.77 for him to serve as overseer of *;5s property especially durin nihttime. 4ree meal of *27.77 per day was li+ewise iven when the employer discovered that most of the wor+ers were buyin food from nearby restaurants which have unsanitary facilities. &hould the value of the free lodin and meal be included as part of the employees ross income# The value of the free lodging is not part of *&s compensation income because of the application of the >convenience of the employer rule?. The following however must be present7 a. t must be furnished in the employer&s premises8 and, b. 6mployee is re$uired to accept such lodging as a condition of his employment. The value of the free meal forms part of the employees& gross income. The free meal is not furnished by the employer for its convenience (i.e. to ma"e the employees available for wor" during the meal period).

1@. A0 an employee of “?A,3E3=” wor+s continuously from CK77 AM to 9K77*M daily. Gis wor+ demands that whenever necessary he must render service even durin lunch brea+ from 1'K77 nn to 1K77 pm. As such the company ives A meal coupons worth 227 pesos and a sac+ of rice every month. a. (o the meal coupons and the sac+ of rice form part of A5s compensation subect to withholdin tax# b. hat are de minimis benefits# the power to tax involves the power  to destroy? was, among other reasons, used to support the holding that states of the union are prohibited from taxing the F.!. #ederal 'overnment. f, indeed, taxation involves the power to destroy, then it cannot be exercised on the which the taxing authority has no power to destroy. espite then the absence of any explicit statutory or constitutional prohibition, local governments may not impose any "ind of tax on the national government.

'9. "n order to encourae investment0 a law was passed exemptin aliens who invest at least fifty million pesos in the *hilippines from all taxes0 national or local0 except income tax. Ms. ;hie ma+es such an investment and she desires to see+ employment in the *hilippines0 particularly in the ;ity of Ma+ati. &ubse-uently the ;ity of Ma+ati made her pay a fee of five thousand pesos for the issuance of a Mayor5s permit re-uired for aliens see+in employment within the city. &hould Ms. ;hie pay the said Mayor5s permit#  $%&. The tax exemption of /s. Chie relates only to his investment. Tax exemptions are to be construed strictly against the grantee, and unless otherwise explicit in the law, the exception must be deemed to relate only, in this instance, to the investment. '>. The *hilippine ?ible &ociety *?&/ contended that the 8alue Added Tax 8AT/ infrines on the freedom of reliion clause as it imposes sales and use tax on the sale of reliious materials. "s the contention proper# hy# ,=. The #reedom of %eligion clause does not prohibit imposing a generally applicable sales and use tax on the sale of religious materials by a religious organiation. '@. A taxpayer -uestioned the validity of a law imposin a *177.77 tax for the support of  the public educational system. Ge assailed that he does not send any of his children to public schools. "s his contention proper# ,=. *n individual need not derive direct benefits from the tax because the paramount consideration is the welfare of the greater portion of the population. The legislature has the right to select the subject of taxation because of the lifeblood doctrine, so long as there is valid classification.

TAXATION 

A

SAN BEDA COLLEGE OF LAW CENTRALIZED BAR OPERATIONS 2001 Any form of reproduction of this copy is strictly prohibited!!!

'B. *ilipinas ;ompany is a domestic corporation which is enaed in the business of  exportin *hilippine handicrafts. "n order to boost its business0 it enaed an American corporation to loo+ for customers in the nited &tates and to sell its products to those customers. *ilipinas ;ompany will pay the American corporation a commission on the volume of sales in the nited &tates. *ilipinas ;ompany also entered into an areement with the same American corporation whereby the latter  will render technical assistance to *ilipinas ;ompany to enable it to meet international export standards for which the corporation will receive a royalty fee. &tate whether the royalties and the commission payable to the American corporation are subect to *hilippine tax. %xplain. The royalties are subject to hilippine income tax. They are considered as income from sources within the hilippines, hence subject to income tax even if received by a non5 resident foreign corporation. Million for such services to be conducted for a period of ' months. a.

(efine andJor explain the nature of a disuised dividend under the income tax law. b. "s there a disuised dividend in the present case# a. There is a disguised dividend when a dividend (whether cash or stoc"s) is given to a shareholder not as a return on investment but as payment for services rendered. t is taxable as part of compensation income or income derived from self5employment or  exercise of a profession, but not as passive income. The income is given in the guise of a dividend in order to avail of a lower tax rate. b.  $%&. * disguised dividend includes the amount paid by a domestic corporation to a nonresident foreign corporation for services rendered by the latter to the former, when the amount paid exceeds the value of the services rendered.

22. Mr. ;orpus borrowed *170777.77 from his friend Mr. acson payable in one year  without interest. hen the loan became due0 Mr. ;orpus told Mr. acson that he was unable to pay because of business reverses. Mr. acson too+ pity on Mr. ;orpus and condoned the loan. Mr. ;orpus was solvent at the time he borrowed the *170777.77 and at the time the loan was condoned. (id Mr. ;orpus derive any income from the cancellation or condonation of his indebtedness# %xplain. ,=. The cancellation or condonation of /r. Corpus& indebtedness was not in exchange for services he rendered to /r. =acson. !ince there was no consideration, the cancellation may be considered as a gift which is an exclusion from gross income. 29. (ue to business reverses0 3awawa ;orp. offered a voluntary redundancy proram under which an employee who offered to resin would be iven separation pay e-uivalent to 2 months basic salary for every year of service. A accepted the offer  and received *2770777.77 as separation pay under the proram. The firm adopted another redundancy proram where various unprofitable departments were closed. As a result0 ? was separated from the service. Ge also received *2770777.77 as separation pay. ill the separation pay of A and ? be subect to tax#  *&s separation pay will be subject to tax because of the voluntary action on his part. ;e may, however, avail of the tax5free retirement provided that he is 01 years or over, that he has rendered at least 1 years of service with awawa Corp., and that he has not previously availed of the tax5free retirement. 4&s separation pay will not be subject to tax because he was separated for a reason beyond his control.

TAXATION 

@

SAN BEDA COLLEGE OF LAW CENTRALIZED BAR OPERATIONS 2001 Any form of reproduction of this copy is strictly prohibited!!!

2>. Mr. Ador wor+s for a construction firm in &audi Arabia. Ge comes home for vacation once every two years for a period of ' months. Ge earns an annual salary of  N'>0777.77. Ge also derives an income of *1'0777.77 annually from the rental of his apartment in Manila. a. To what classification of taxpayers does Mr. Ador belon# b. hat part of his earnins should be considered as ross income for income tax purposes# a. /r. *dor is a non5resident citien, he being an overseas contract wor"er. ;e wor"s and derives income abroad and his employment re$uires him to be thereat most of the time during the taxable year. b. .

=n April '70 1CCD0 Mando )oas filed his income tax return plus the correspondin penalty. After a year0 he discovered that the penalty he paid was excessive. =n 4ebruary C0 '7770 he filed a claim for refund with the ?"). =n May '0 '777 the ?") denied his claim0 but Mando was notified only on May 1@0 '777. =n 6une B0 '7770 he appealed the case to the ;TA. ;an his appeal prosper# ,=. The law re$uires that the appeal to the CT* should be made within +1 days from receipt of denial by the 4% A,( within two years after the payment of the tax or penalty. n the given problem, while the appeal to the CT* was made within +1 days from receipt of  the notice of denial by the 4%, it was filed beyond the two5year period from date of  payment. The law uses the conjunctive >and?, thus both re$uisites must concur. /ando should not have waited for the decision of the 4%, and should have treated its inaction as e$uivalent to denial of the claim. ;e could immediately file an appeal to the CT* even without the denial so as not to defeat his claim by the lapse of the two5year prescriptive period.

TAXATION 

2

SAN BEDA COLLEGE OF LAW CENTRALIZED BAR OPERATIONS 2001 Any form of reproduction of this copy is strictly prohibited!!!

SAN BEDA COLLEGE OF LAW

2001 CENTRALIZED BAR OPERATIONS Executive Committee RHODALYN MONTEMAYOR, MARICAR MAR!EZ, LORALAINE SIN"SON, RA#AEL OCAMPO $R%, ERNESTO ISIP $R%, MARIA #LORITA CR!Z, DIANNE A!INO,  $ONATHAN ABAS,

Ove&'()) C*(i&+e&oOve&'()) .ice C*(i&/.C'Ac(emic .ice C*(i& Sec&et(&i(t .ice C*(i& #i-(-ce .ice C*(i& EDP At% .ice C*(i& o& EDP At% .ice C*(i& o& Sec&et(&i(t At% .ice C*(i& o& #i-(-ce

Su3ect C*(i&+e&o-  $OSE PAN"ANIBAN $R%, Po)itic() L(5  $!BERT $AY ANDRION, L(o& L(5 Z!LEI4A LOPEZ, Civi) L(5 ERIC RECALDE,  T(x(tio- L(5 MARICRIS PAHATE, C&imi-() L(5 NICE#ORO A.ILA $R%, Comme&ci() L(5 .ERONICA LLADOC, Remei() L(5 DERELA DE.ERA, Le6() Et*ic (- #o&m

LABOR LA7 COMMITTEE  

 ERIC RECALDE, C*(i&+e&o.OLTAIRE EDP BA!TISTA,

SPECIAL THAN4S TO8 ATTY. NICASIO CABANEIRO

That in All Things God May Be Glorifed!

TAXATION 

+