TAXATION 1 – MIDTERMS

Strictly No Factual and Legal Bases, No credit.

Good luck and God bless.
Name: Egargo, Mamerto Jr. R.

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1 Mr. Kofee and Ms. Faiste (“K and F”) graduated with a juris 10 No. RTC has no jurisdiction. It is the CTA has jurisdiction under section 4 b of the Tax Code. Office of
doctor degree. While taking the 2021 bar examinations, they the secretary of finance is a quasi judicial court. It equates to RTC. An appeal from the decision of
were caught cheating by a Supreme Court bar exam watcher. Sec of Finance must be the CTA. Hence, RTC must dismiss the case.
After investigation and despite receiving passing grades, the
Supreme Court En Banc invalidated their examinations and
replaced their passing grades with a final grade of “failed”.
Moreover, the Supreme Court En Banc issued a resolution
perpetually disqualifying them from taking future bar
examinations.

Due to said unfortunate event, K and F ventured instead into

business, changed their cheating ways, got married and
eventually established a modest milk tea brand.

In the year 2019, the BIR issued Revenue Memorandum Order

(“RMO”) No. 10-2019, imposing additional tax reporting
burdens on milk tea shop owners. K and F instructed their
former classmate and in-house counsel, Atty. Honesto, to
contest the validity of RMO No. 10-2019. Initially, a petition or
appeal was filed with the Secretary of Finance (“SOF”) to
declare the said RMO invalid. The SOF denied the appeal.
Within 30 days from receipt of the SOF’s decision, K and F,
through Atty. Honesto, filed an appeal with the Regional Trial
Court (“RTC”) citing the following as jurisdictional basis: (1)
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That under the CTA law, Republic Act No. 1125, as amended,
the CTA has jurisdiction on decisions of the SOF only in customs
law cases. Thus, it is the RTC, the court of general jurisdiction,
which has jurisdiction over this case and not the CTA; and, (2)
In CIR vs. CTA and Petron Corporation, GR No. 207843 dated
July 15, 2015, the Supreme Court through Justice Perlas-
Bernabe said: “while the above statute confers on the CTA
jurisdiction to resolve tax disputes in general, this does not
include cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the
administrative agency in the performance of its quasi-
legislative function, the regular courts have jurisdiction to pass
upon the same. xxx.”

Does the RTC have jurisdiction over K and F’s appeal? Fully
discuss the correctness of the jurisdictional basis cited above.

2 In 2008, the BIR issued a ruling stating that Mudhoney Baking 10 The BIR is correct. The assessment is valid. The ruling issued to MBS has already been revoked in the
School (“MBS”) is exempt from the payment of Documentary year 2012 in view of the assessment issued by the BIR. Further, tax exemption is strictly construed
Stamp Tax (“DST”) on diplomas. In 2012, the Assistant against tax payer. Tax is rule and exemption is the exemption. The exemption of non retroactivity
Commissioner issued an assessment against MBS for deficiency under the tax code does not apply. There is no more shield or protection on the part of MBS
DST covering the year 2010 amounting to P1,450.00 inclusive of because it is already broken or revoked.
surcharge of P250.00 and interest of P200.00. Due to the
minimal amount involved, the Company immediately paid the
said assessment. Thereafter, MBS’ students substantially
increased which resulted to higher income and tuition fees.

In 2014, the Commissioner issued an assessment against MBS

for deficiency DST on diplomas amounting to P1,450,000.00
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inclusive of surcharge of P250,000.00 and interest of
P200,000.00 covering the year 2013. MBS filed a protest
arguing that the assessment is invalid under the non-
retroactivity of rulings rule. On the other, the BIR argues that
the ruling issued to MBS has already been revoked in the year
2012 in view of the assessment issued by the BIR.

Who is correct?

3 Senator Manee sponsored a bill entitled: “a law imposing 5% 10 The sponsored bill by Senator Manee imposing 5% tax on honoraria received by persons delivering
tax on honoraria received by persons delivering lectures and lectures and other similar matters on religion is constitutional. It does not violate infringement of
other similar matters on religion.” Senator Manee consults you Religious Freedom. American Bible Society case cannot be invoked because it pertains tax to bibles.
as to whether the said bill violates the provisions of the
Constitution relative to infringement of religious freedom. He
fears that the if the bill becomes a law, it might be declared
unconstitutional on the basis of the American Bible Society
case decided by the Supreme Court

What will your reply be?

4 Noodle Philippines, Inc., (“NPI”), a domestic corporation, 10 No. The denial of the claim of refund to BIR for the reason of failure to submit the required CORRT
entered into a royalty and franchising agreement with Ichiran form under RMO-08-2007 which effectively disqualified it from availing the lower tax treaty rate is
of Japan (“IOJ”), a corporation organized and existing under without merit. Jurisprudence tells that CORRT is only procedural and should not be tantamount to
the laws of Japan, in connection with the operation of a chain violate substantial due process. Further, our Constitution the Philippines adopts the generally
of restaurants in the Philippines by NPI under the brand name accepted principles of international law as part of the law of the land. Further, it is good in terms of
“Ichiran Ramen.” NPI withheld and remitted 30% Final ease on doing business.
Withholding Tax to the BIR on its royalty payments to IOJ using
the Tax Code rate.

Subsequently, NPI, on behalf of IOJ, filed a claim for refund

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with the BIR alleging claim for refund reasoning that IOJ failed
to submit the required CORTT Form under RMO No. 8-2017
which effectively disqualified it from availing of the lower tax
treaty rate. that it over withheld and overpaid Final
Withholding Tax on royalties by paying 30% instead of the 10%
tax treaty rate under the RP-Japan Tax Treaty. Thereafter, the
BIR denied the

Was the denial of the claim for refund correct?

5a) Under Republic Act (“RA”) No. 123456, Lannister Plantito 5 No. Lannister cannot invokes it’s exemption from payment of plant inspection fees for the reason
Corporation (“Lannister”) is exempt from all taxes, national and that taxes and fees as two different thing. Purpose of tax is to generate income while fees as for
local. Lannister is engaged in the business of maintaining a regulation. As to power, tax is the taxing power while fees is the exercise of police power. Hence,
greenhouse. The City of Las Pinas passed an ordinance Lannister cannot invokes the tax exempt. Tax is the rule while exemption is the exemption. Local
imposing “Plant Inspection Fees” on plants stored in government shall generate Their own sources of revenue pursuant to article X sec. 5 of the 1987
greenhouses located within the City of Las Pinas. The Plant constitution.
Inspection Fees imposed amounts to P10,000.00 per annum.

a) Lannister invokes its exemption from payment of Plant

Inspection Fees pursuant to RA No. 123456. Is Lannister
correct?

5b) b) Will your answer be the same if the ordinance provides for a 5 Yes. Special assessment and special assessment under local government is different. The special
Plant Inspection Fee amounting to P1,000.00 per plant? assessment under local government is province, cities, municipalities may impose levy on land
within its jurisdiction, and should not be more than 60% exceed the total cost including land. In this
case, there is no law prohibiting the fees.
6 Magpapasok Corporation (“Magpapasok”) sold its machineries 10 In general Taxes are not subject to set off because tax is not an ordinary obligation governed under
considered as real property and paid 6% Capital Gains Tax the Civil Code, it is not a contract, debt or judgement but a legal imposition, and the government
(“CGT”) amounting to P1,000,000.00. Realizing that it paid the and taxpayer are not creditor and debtor. There is only 1 Exceptions that the supreme court allowed
incorrect tax on the transaction, it filed a claim for refund with set off in one case due by operation of law. In this case, Magpapasok does not owe anything to the
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the BIR. Eventually the case reached the CTA. The CTA denied government. Hence, there is no reason to give set off to Magpapasok.
the claim for refund on the ground that while it is true that
Magpapasok incorrectly paid CGT, it is instead liable to pay
30% Regular Corporate Income Tax (“RCIT”) on the transaction
amounting to P1,500,000.00. Thus, the company is not entitled
to any refund and is even liable to pay deficiency tax
amounting to P500,000.00, which the BIR should look into.

Magpapasok appealed to the Supreme Court alleging that the

CTA’s decision was incorrect because it violates the rule that
taxes are not subject to set-off when it denied its claim for
refund by setting-off its erroneous payment of CGT and its
alleged liability for RCIT. Magpapasok further argues that the
proper procedure in handling the circumstances of its case
would be for the CTA to grant the refund of the CGT in the
amount of P1,000,000.00 and for the BIR to make a separate
assessment for RCIT in the amount of P1,500,000.00.

Rule on the appeal of Magpapasok particularly its argument

that the rule on “taxes are not subject to set-off” was violated.

7 President Digong signed into law RA No. 234567 entitled: “a 10 A. Indirect tax is as nature regressive. VAT is a kind of indirect tax. Kinds of taxes are direct, indirect,
law imposing a 20% indirect tax on the sale of soft drinks and personal and property. Vat is a tax on food, commodities. It is not ones ability to pay. It is totally
junk foods.” Sec. 1 of the law provides that the purpose of the different thing to progressive system of taxation. Any form of Tax is the lifeblood of the government.
law is raise revenues to be used to increase the salaries of
policemen. The validity of the said law is challenged on the B. Using the tax sound system under fiscal adequacy that it should meet in adequate the
following grounds: expendetures of the government and if it not adequate, it will not be tantamount to
unconstitutionality.
a) Indirect taxes are regressive. Hence, violative
of the Constitution since the same only allows a
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progressive system of taxation; and,
b) A year after its effectivity, the amount of tax
collected pursuant to said law was eighty (80%)
short of its collection goal. Thus, the policemen
did not get their salary increases.

Rule on the validity of RA No. 234567 considering the grounds

raised.

8 Briefly explain the following doctrines: lifeblood doctrine; 5 Lifeblood doctrine means government needs taxes to support its running. Neccesity theory means
necessity theory; benefits received principle; and, doctrine of that as tax payer pays tax there is a form of security and peace for him. Benefits receive theory
symbiotic relationship. means that people must experience and see that their taxes paid is worth it. And the doctrine of
symbiotic principle means people pays tax while government do it’s job.
9 Enumerate all the requisites of prohibited double taxation. 5 Same purpose, same taxing period, same jurisdiction, same subject matter, same power.

10 Briefly explain tax evasion and tax avoidance. 2 Tax evasion is an illegal act to reduce tax liabilities.
Tax avoidance avoiding tax is in a legal way.
11 Enumerate the three (3) elements or factors to be considered 3 1) It is unlawful
in determining if tax evasion exists. 2)

12 What is international juridical double taxation? 3 International double taxation is imposition of taxes among states to states with the same subject
matter.
13 How is a claim of exemption from the imposition of taxes 2 Claim of exemption from the imposition of tax is strictly construed against the tax payer.
construed? Is there any exception?

14 Enumerate five (5) constitutional limitations on the power to 5 Due process, equal protection clause, non impairment clause, non- imprisonment of debt,
tax. constitutional limitations on taxes imposed on charitable, religious institutions.

15 Enumerate the three (3) exceptions to the non-retroactivity of 3 1. When the tax payer mistaken pay in excess.
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rulings rule. 2. When the government agency or agency incorrectly assess the tax of tax payer.
3. When it acted on bad faith