Tax Mock Bar 2015 (FinalVer)

JURISTS BAR REVIEW CENTER™ TAXATION ESSAY MOCK BAR EXAMINATION

7 August 2015

5 pm to 9 pm

This mock bar examination consists of 18 essay questions. Write your answers in your Bar Examination Notebook in the same order the questions are posed. Write your answers only at the front, not the back, page of every sheet in your Examination Notebook. In your answers, use the numbering system in the questionnaire. If the sheets provided in your Examination Notebook are not sufficient for your answers, use the back pages of every sheet of your Examination Notebook, starting at the back page of the first sheet and the back of the succeeding sheets thereafter. Answer the Essay questions legibly, clearly, and concisely. Start each number on a separate page. An answer to a sub-question under the same number may be written continuously on the same page and the immediately succeeding pages until completed. Your answer should demonstrate your ability to analyze the facts presented by the question, to select the material from the immaterial facts, and to discern the points upon which the question turns. It should show your knowledge and understanding of the pertinent principles and theories of law involved and their qualifications and limitations. It should demonstrate your ability to apply the law to the given facts, and to reason logically in a lawyer-like manner to a sound conclusion from the given premises. A mere "Yes" or "No" answer without any corresponding explanation or discussion will not be given any credit. Thus, always briefly but fully explain your answers although the question does not expressly ask for an explanation. At the same time, remember that a complete explanation does not require that you volunteer information or discuss legal doctrines that are not necessary or pertinent to the solution to the problem. You do not need to re-write or repeat the question in your Examination Notebook. Make sure you do not write your name or any extraneous notes or distinctive marking/s on your Examination Notebook that can serve as an identifying mark/s (such as names that are not in the given questions, prayers, or private notes to the Examiner). Writing, leaving or making any distinguishing or identifying mark in the Examination Notebook is considered cheating and can disqualify you for the Bar examinations. You can use the questionnaire for notes you may wish/need to write during the examination.

I The Bureau of Customs issued a memorandum that all container vans stored and unclaimed in its warehouse for a period of at least four years, shall be destroyed and sold as scrap regardless of contents. XYZ an importer opposed the said memorandum on the ground that it is violative of due process clause under the constitution. The BOC on the other hand claims that it is within its powers as provided in the TCC. Decide.

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II The Caloocan City mayor wants to recover the costs of renovating the city hall’s elevators. He is thinking of issuing an order requiring a P5.00 usage fee from each person using the elevators during office hours. Before proceeding with his plan, he asks you as the city attorney for legal feedback. What would you say to him? If the Sangguniang Panglunsod issues a resolution in support of the order, would your advice be different?

III X just hurdled the bar examinations and immediately engaged in the practice of law. In preparing his income tax return, he listed the following as deductible items: (a) fees paid to the Supreme Court to be able to take the bar examinations; (b) fees paid to a bar review center to enroll in its pre-bar review classes; (c) malpractice insurance; and (d) amount spent to entertain a judge who decided his first case. Which deductions are allowable? Reasons. IV Under Article 415 of the Civil Code, in order for machinery and equipment to be considered real property, the pieces must be placed by the owner of the land, and, in addition, must tend to directly meet the needs of the industry or works carried by the owner. Oil companies install underground tanks in gasoline stations located on the land leased by the oil companies from the owners of the land where the gasoline stations are located. Are those underground tanks, which were not placed there by the owner of the land but which were instead placed there by the lessee of the land, considered as real property for purposes of real property taxation under the Local Government Code? Explain. V Gran Torino Co., a US business process outsourcing company, sent a team of language trainers for 3 months to its local subsidiary, GT Philippines, Inc. which operates call center operations in Cebu and Iloilo. The team trained the local staff to speak in English without their distinct Cebuano and Ilonggo accents. After the training, Gran Torino subsequently issued its bill. GT Philippines asks your advice on any Philippine tax consequences to the bill before it remits its payment. What would you advice?

VI When Ato, a Filipino OFW based in Greece, went home for a vacation in Mindoro, he sold his farm, which had a current market value of P1 million, to his friend, Peng, for only P500,000 as a gesture of friendship even if many years ago, he bought the farm for P500,000 also. Ato is being assessed income tax on the sale by the BIR in the amount of P60,000. Ato protested on two grounds: a) he is an OFW exempt from taxes; and b) he derived no gain from the sale. How would you decide on his protest? Explain your answer.

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VII Mr. Fermin, a resident of Quezon City, is a CPA-Lawyer engaged in the practice of his two professions. He has his main office in Makati City and maintains a branch office in Pasig City. Mr. Fermin pays his professional tax as a CPA in Makati City and his professional tax as a lawyer in Pasig City. a) b)

May Makati City, where he has his main office, require him to pay his professional tax as a lawyer? Explain. May Quezon City, where he has his residence and where he also practices his two professions, go after him for the payment of his professional tax as a CPA and a lawyer? Explain. VIII

X Corporation, a domestic corporation, is a wholly owned subsidiary of Y Corporation, which is based in France. They entered into a Royalty Agreement that would allow X Corporation to use in the Philippines certain property rights of Y Corporation in exchange for a royalty fee. a) Are the royalty fees payable by X Corporation to Y Corporation taxable in the Philippines? b) If no tax is paid on account of the above royalty fee payment, what are the consequences insofar as X Corporation is concerned? IX Your balikbayan cousin, who works as a nurse in Canada, came to visit you for 6 months to do the following: a) to sell her house in Manila and with the proceeds, purchase a farm lot in your province where she plans to retire in 2010; b) to check on her dollar remittances to her savings account with Banco de Oro which she opened when she left the country more than 5 years ago. Your cousin subsequently found a buyer for her house, the actress Angel Locsin, and they immediately executed a deed of absolute sale duly notarized. A few weeks after, your cousin told you about the unfortunate confrontation she had with Angel Locsin who demanded for the return of her money because the Register of Deeds refused to transfer title to the house to her name unless proof of payment of taxes from the sale was presented. Your cousin was also distraught to find out that her savings account was being subjected to withholding tax. “Akala ko ba exempt from tax kaming mga OFW?”, she asked you. What would be your reply? X For failure of Oceanic Company, Inc. (OCEANIC) to pay deficiency taxes of P20 Million, the Commissioner of Internal Revenue issued warrants of distraint on OCEANIC’s personal properties and levied on its real properties. Meanwhile, the Department of Labor through the Labor Arbiter rendered a decision ordering OCEANIC to pay unpaid wages Jurists Mock Bar Examinations in Taxation. All rights reserved 2015 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 3 of 5

and other benefits to its employees. Four barges belonging to OCEANIC were levied upon by the sheriff and later sold at public auction. The Commissioner of Internal Revenue filed a motion with the Labor Arbiter to annul the sale and enjoin the sheriff from disposing of the proceeds thereof. The employees of OCEANIC opposed the motion contending that Art. 110 of the Labor Code gives first preference to claims for unpaid wages. Resolve the motion. Explain. XI Ambo took out a life insurance policy with a face value of P 100,000 designating his wife Bebang as the beneficiary. Under the terms of the policy, the insurer will pay Ambo the amount of P100,000 after the 20th year of the policy, or if Ambo dies before the 20th year, the P100,000 would be paid to Bebang. a) Ambo outlived the policy and received P100,000. The premiums paid on the policy amounted to P85,000. Is the P100,000 received by Ambo subject to income tax? b) Assume that Ambo died during the 18th year of the policy and thus Bebang received P100,000. Is this subject to income tax? XII A Canadian Citizen died in June 2010, while domiciled in Manila. He left three (3) savings deposits in Land Bank of the Philippines, a local bank, in the amounts of P750,000.00, P250,000.00 and P100,000.00. Is the estate left by the decedent exempt from the payment of estate tax? Explain. XIII Yesterday, your client received summons in a collection suit filed by the BIR before the regular trial court in connection with an assessment for deficiency income tax issued in 2007. It appears that upon receipt from the BIR of the pre-assessment notice (PAN), your client sent to the BIR protest letters asking for the conduct of another investigation. The BIR ignored the protest letters and instead sent a final assessment notice (FAN). No action, however, was taken by the taxpayer after receiving the FAN. What course of action will you take in order to protect your client? Explain. XIV For its fiscal year ending July 31, 2005, the Bamboo Corporation, which is engaged in the manufacture of bamboo home accessories for export, and which is wholly familyowned, registered handsome earnings that would exceed the company’s outstanding capital stock by more than 200%. In spite of its good earnings position, the company had no immediate plans to expand its factory because its capacity could still accommodate any increase in production and exports for the next year three years. During its last regular board meeting, the company president proposed the declaration of cash dividends in view of the healthy profits the company had earned. However, the company treasurer argued against such move because the rest of the family did not want to pay any taxes on their Jurists Mock Bar Examinations in Taxation. All rights reserved 2015 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 4 of 5

dividend income if there was to be a distribution of profits. Both officers now turn to you as their corporate counsel for your opinion. What would you tell them? Explain. XV In January 2013, Abet opened a stock trading account with BPI Trade, a licensed Philippine Stock Exchange stockbroker, and bought, through BPI Trade, 10,000 Bank of the Philippine Islands (BPI) shares at P80 per share or a total of P800,000. BPI shares are listed and traded at the Philippine Stock Exchange (PSE). In February 2015, the price of BPI shares at the PSE had risen to P100 per share. a) Abet sold the 10,000 BPI shares at the PSE and received P1,000,000. Is Abet subject to income tax on the sale of his BPI shares? Is he liable for any other tax and if so for how much? b) What if instead of selling the 10,000 BPI shares at the PSE, Abet sold them directly to his friend Binny and received P1,000,000. Is Abet subject to income tax on the sale? If so for how much? XVI Mr. Mariano, who inherited a well-preserved ancestral house in Pila, Laguna, accepted the offer of Sister Imaculada, Head of the Congregation of Blue Nuns for the latter to rent the house as temporary refuge for destitute unwed mothers. Mr. Mariano religiously received rental payments from the congregation as the house and the congregation’s mission caught the attention and response from generous philanthropists all over the world. Mr. Mariano felt blessed for having agreed to have such use for the house until one day, he was dismayed to receive a notice from the BIR Laguna Regional District Office (RDO) that he was deficient in his payment of taxes. He immediately consulted with his friend, Atty. Braguda who advised him not to worry about the assessment because the source of his rental income was property used for religious purposes which the Constitution exempted from taxation. Unsure of the advice, he obtained a second opinion from another friend, Atty. Bulalo who told him that he should have donated the property to the religious order as that was what the Constitution exempts to avoid being taxed. Totally confused, Mr. Mariano decides to get your opinion about the two lawyers’ opinions. What would you say? XVII Chalap Food Corporation (CFC) incurred substantial advertising expenses in order to protect its brand franchise for Chalap Ketchup, one of its main products. In its income tax return, CFC included the advertising expenses as deduction from gross income, claiming it as an ordinary business expense. Is CFC correct? XVIII Pietrus died leaving as his heirs Arky, Brankov, and Cromwell. Since Pietrus died intestate and without debts, his three heirs executed an extrajudicial settlement in which Cromwell renounced his one-third share in favor of Arky and Brankov. The BIR assessed donor’s tax against Cromwell, characterizing his renunciation as a donation. a) Was the assessment proper? Explain. b) Would your answer be the same if Cromwell renounced his share in favor of Arky only? -oOoJurists Mock Bar Examinations in Taxation. All rights reserved 2015 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 5 of 5