2017 CEBALLOSMOCK BAR EXAMINATIONS (CMBE) TAXATION LAW

September 10, 2017 UP AW CENTER

2:00 PM - 6:00 PM
INSTRUCTIONS
1. This Questionnaire contains SEVEN (7) pages inci uding these Instructions
pages. Check the number of pages and the page numbers at the upper right-
hand corner of each page of this Question raire and make Sure it has the correct
number of pages and their proper numbers.
There are TWENTY-NINE (29) questions including sub-questions to be
answered within four (4) hours.
2. Read each question very carefully and write your answers in your Bar Examination
Notebook in the same order the questions are posed. Write your answers only on the
front, not the back, page of every sheet in your Notebook. Note Well the allocated
percentage points for each number, question, or Sub-question. 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 page of every sheet of your Examination Notebook,
starting at the back page of the first sheet and the back of the succeeding sheets
thereafter.
3. 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
lawyerlike 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
NotebOOk.
4. Make sure you de not write your name or any extraneous notes or
distinctive marking/s on your Notebook that can serve as an identifying
narks (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
exam Notebook is considered cheating and can disqualify you for the
Bar examinimarnS.
You can use the questionnaire for notes you may wish/need to Write during
the sexamination.
YOU CAN BRING HOME THIS QUESTION NAIRE OR HAND IT TOGETHER WITH YOUR
NOTEBOOK
DEAN PONCEVC M. CEBALLOS Mentor CEBALLOSMOCK BAREXAMINATIONS 2O7
What is the nature of the taxing power of the provinces, municipalities and
cities? How will the local government units be able to exercise their taxing
powers? (3%)
The Congregation of the Mary Immaculate donated a land and a dorst
titory building located along Espaa St, in favor of the Sisters of the
Holy Cross, a group of nuns operating a free clinic and high school
teaching basic spiritual values. Is the donation subject to donor's tax?
Reason briefly. (4%)
II

Congress enacts a law imposing a 5% tax on the gross receipts of

Common carriers. The law does not define the term "gross receipts".
Express Transport, Inc., a bus company plying the Manila-Baguio 'Oute,
has time deposits with ABC Bank. In 2005, Express Transport earned P1
Million interest, after deducting the 20% final withholding tax from its time
deposits with the bank. The BIR wants to collect a 5% gross receipts tax on
the interest income of Express Transport without deducting the 20% final
withholding tax, is the BIR correct? Explain. (3%)
IV

JR was a passenger of an airline that crashed. He survived the accident but

sustained serious physical injuries which required hospitalization for three (3)
months. Following negotiations with the airline and its insurer, an agreement was
reached under the terms of which JR was paid the following amounts:
P500,000.00 for his hospitalization; P250,000.00 as moral damages; and
P300,000.00 for loss of income during the period of his treatment and
recuperation. In addition, JR received from his employer the amount of
P200,000.00 representing the cash equivalent of his earned Vacation and sick
leaves.
Which, if any, of the amounts he received are Subject to income tax? Explain.
(496)
W

1) A city outside of Metro Manila plans to enact an Ordinance that will

impose a special levy on idle lands located in residential subdivisions within
its territorial jurisdiction in addition to the basic real property tax. If the lot
owners of a Subdivision located in the said city seek your tegal advice on
the matter, what would your advice be? (3%o)
2) Distinguish Countervailing duty from dumping duty. (2%)
3) Jacob, after Serving a 5-year tour of duty as military attach in
Jakarta, returned to the Philippines bringing with him his personal
effects including a personal Computer and a car. Would Jacob be
liable for taxes on these items? Discuss, ( 3% )
VI

A taxpayer received a tax deficiency assessment of P1.2 Million from the

BIR demanding payment within ten (10) days, otherwise, would Collect
through summary remedies. The taxpayer requested for a (ec ::{{{l8|" "ss
stating the grounds therefor. Instead of resolving the request for
reconsideration, the BIR sent a Final Notice before Seizure to the taxpayer
May this action of the Commissioner of Internal Revenue be deemed a
denial of the request for reconsideration of the taxpayer to entitle him to
appeal to the Court of Tax Appeals? Decide with reasons. (4%)
II

Weber Realty Company which owns a three-hectare land in Antipolo

entered into a Joint Venture Agreement (JWA) with Prime
Development Company for the development of said parcel of land.
Weber Realty as owner of the land contributed the land to the Joint
Venture and Prime Development agreed to develop the same into a
residential Subdivision and construct residential houses thereon. They
agreed that they would divide the lots between them.
1) Does the JVA entered into by and between Weber and Prime
Create
a separate taxable entity? Explain briefly. (3%)
2) Are the allocation and distribution of the saleable lots to Weber and
prime subject to income tax and to expanded withholding tax? Explain
briefly. (3%)
3) Is the sale by Weber or Prime of their respective shares in the
Saleable lots to third parties subject to income tax and to expanded
withholding tax? Explain briefly. (3%)
VIII

Taxpayers whose only income consists of salaries and wages from their employers
have long been Complaining that they are not allowed to deduct any item from their
gross income for purposes of computing the Comprehensive Tax Reform Act of 1997, is
this complaint still valid? Explain your answer. (4%)

The City of Manila enacted an Ordinance, imposing a 5% tax on gross

receipts on rentals of Space in privately owned public markets. BAT
Corporation questioned the validity of the ordinance, stating that the tax is
an income tax, which cannot be imposed by the city government. Do you
agree with the position of BAT Corporation? Explain. (4%)
X

Mr. Castro inherited from his father, who died on June 10, 1994, several
pieces of real property in Metro Manila. The estate tax return was filed and
the estate tax due in the amount of P250,000.00 was paid on December 06
1994. The Tax Fraud Division of the BIR investigated the Case on the basis
of confidential information given by Mr. Santos on January 06,
1998 that return filed by Mr. Castro was fraudulent and that he
failed to declare a properties left by his father with intent to
evade payment of the correct As a result, a deficiency estate
tax assessment for fraud, interest. assessment for pi,250,000.00,
inclusive of 50% surcharge for fraud, interest and penalty, was
issued against him on January 10, 2001. Mr. Castro protested the
assessment on the ground of prescription.
1) Decide Mr. Castro's protest, (2o)
2) What legal requirement/s must Mr. Santos comply with so that
he
can claim his reward? Explain, (3%)
X

Lily's Fashion, Inc. is a garment manufacturer located and registered as a

Subic Bay Freeport Enterprise under Republic Act No. 7227 and a non-VAT
taxpayer. As such, it is exempt from payment of all local and national
internal revenue taxes. During its operations, it purchased various supplies
and materials necessary in the conduct of its manufacturing business. The
suppliers of these goods shifted to Lily's Fashion, Inc. the O9/o VAT on the
purchased items amounting to P500,000, 00, Lily's Fashion, Inc. fied With
the BIR a claim for refund for the input tax shifted to it by the suppliers.
If you were the Commissioner of Internal Revenue, will you allow the
refund? (4%)
XII

Remedios, a resident citizen, died on November 10, 2006. She died leaving three
condominium units in Quezon City valued at P5 Million each. Rodolfo was her only heir,
He reported her death on December 5, 2006 and filed the estate tax, he asked the
Commissioner of Internal Revenue to give him one year to pay the estate tax due. The
Commissioner approved the request for extension of time provided that the estate tax
be computed on the basis of the value of the property at the time of payment of the tax.
1) Does the Commissioner of Internal Revenue have the power to extend the
payment of estate tax? If so, what are the requirements to allow such extension?
(3%)
2) Does the condition that the basis of the estate tax will be the value at the
time of the payment have legal basis? Reason briefly. (3%)

The real property of Mr. and Mrs. Angeles, situated in a commercial area in front
of the public market was declared in their Tax declaration as residential because
it had been used by them as their family residence from the time of its
Construction in 1990. However, since 1997, when the spouses left for the United
States to stay there permanently with their children, the property has been rented
to a single proprietor engaged in the sale of appliances and
acquired the property in 2007 for P9 million.
VAV

agri-products. The Provincia I commercial for tax pur

OS appealed to the local

Declaration previously classifying

ASSessor reclassified the property as
rting January 1998. M
. Mr. and Mrs. Angeles
Appeals, contending that Tax
the property as residential is binding
How should the appeal be decided? (4%)
XIM
Josel agreed to
S * - 8. of the sale, the Condominium unit to Jess for P2.5 Million. At the time
of a tax consult: perty had a Zonal value of P2.0 Million. Upon the advice indicating th
ant, the parties agreed to execute two deeds of sale, one ShOWj 9 the Zona value of
P2.0 Million as the selling price and the other
Wing the true Selling price of P2.5 Million. The tax consultant filed the
Capita 9ins tax return using the deed of sale showing the zonal value of
P2.0 Million as the Selling price. Discuss the tax implications and
Consequences of the action. (4%)
XM

Mr. Abraham Eugenio, a pawnshop operator, after having been

required by the Revenue District Officer to pay value added tax
pursuant to a Revenue Memorandum Order (RMO) of the
Commission.er of Internal Revenue, fied with the Regional Trial Court
an action questioning the validity of the RMO.
If you were the judge, will you dismiss the case? (4%)
XVI
A law was passed granting tax exemption to certain industries and investments
for a period of five years. But three years later, the law was repealed. With the
repeal, the exemptions were considered revoked by the BIR, which assessed the
investing companies for unpaid taxes effective on the date of the repeal of the
law.
NPC and KTR companies questioned the assessments on the ground that,
having made their investments in full reliance with the period of exemption
granted by the law, its repeal violated their Constitutional right against the
impairment of the obligations and Contracts. Is the contention of the
companies tenable or not? Reason briefly. (3%)
XVII

In January 1970, Juan Gonzales bought one hectare of

agricultural land in Laguna for P100,000. This property has a
Current fair market value of P10 million in view of the
construction of a concrete road traversing the property. Juan
Gonzales agreed to exchange his agricultural lot in Laguna for
a onehalf hectare residential property located in Batangas,
with a fair market value of P10 million, owned by Alpha
Corporation, a domestic COrpOration engaged in the
purchase and sale of real property. Alpha Corporation
1) What is the nature
Of the exchanged for a purpose e real properties exchang
Capital assets or ordinary assets? Explain. (3%)
2) is Juan Gonzales subject to income tax of the exch
Property? If so, what is the tax base and rate? Explain. (3%)
XWVIII

Gold and Silver Corporation gave extra 14th month bonus to al its officia 4S and

employees in the total amount of p75 Million, When it filed its income tax return

the following year, the corporation declared a operating loss. When the income tax

return of the Corporation " ': by the BIR the following year, it disallowed as item of

deduct d Million bonus the corporation gave its officials employees on the of

unreasonableness. The corporation claimed that the bonus is an Ordinary and

necessary expense that should be allowed

If you were the BIR Commissioner, how will you resolve the issue?
(5%)
XIX

Emiliano Paupahan is engaged in the business of easing Out several

residential apartment units he owns. The monthly rental for each unit
ranges from P8,000, 00 to P10,000.00. His grOSS rental income for One
year S P1,650,000.00. He consults you on whether it is necessary for him
to
register as a VAT taxpayer. What legal advice will you give him, and
why? (4%)
XX

Under the Local Government Code, what properties are exempt from real
property taxes? (49/o)
XXII
The Commissioner of Internal Revenue issued an assessment for
deficiency income tax for taxable year 2000 last July 31, 2006 in the
amount of P10 Million inclusive of Surcharge and interests. If the delinquent
taxpayer is your client, what steps will you take? What is your defense?
(4%)
XXII

Why is the power to tax considered inherent in a Sovereign

State? (4%)
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