1. The employees of Travellers, Inc. staged a strike. X, a non-union son in the Philippines. Is the donation by Mr.

Morgan subject to
member joined the strike and volunteered to picket the tax? Explain.
company premises from 8:00 A.M. to 12:00 P.M., Monday to
Friday. Six months into the strike, X ran out of money and asked -YES.
financial aid from the union since he has no other source of -gift has been made on account of marriage, to qualify for the
income and needed financial assistance in order to live. The exemption of the first 50k of the value
union gave him P1, 000.00 a month to take care of his food -given to a legitimate, recognized natural or adopted child of the
requirements plus P500.00 to take care of his monthly rent. donor
When X filed his return, he excluded these benefits from his
gross income. The exclusion was denied by the BIR Decide. 4. In the settlement of the estate of Mr. Barbera who died intestate,
his wife renounced her inheritance and her share of the
-Not compensation income conjugal property in favor of their children. The BIR determined
-Compensation income arises out of employer-employee relationship that there was a taxable gift and thus assessed Mrs. Barbera as
as payment for services without compensation a donor. Was the BIR correct?
-Gift from labor union.
-Gifts are to be excluded from gross income. -BIR is correct
-insofar as the renunciation of the share of the wife in the conjugal
2. A, an individual, sold to B, his brother-inlaw, his lot with a property is concerned.
market value of P1, 000.000 for P600.000. A’s cost in the lot is -Renunciation of the wife’s share in the inheritance during the
P100, 000. B is financially capable of buying the lot. A also owns settlement of the estate is not a taxable gift considering that the
X Co., which has a fast growing business. A sold some of his property is automatically transferred to the other heirs by operation of
shares of stock in X Co. to his key executives in X Co. These law.
executives are not related to A. The selling UST BAR
OPERATIONS TAXATION LAW 24 price is P3, 000.000, which is 5. Your bachelor client, a Filipino residing in Quezon City, wants to
the book value of the shares sold but with a market value of give his sister a gift of Php200, 000.00. He seeks your advice, for
P5,000,000. A’s cost in the shares sold is P1 , 000, 000. The purposes of reducing if not eliminating the donor’s tax on the
purpose of A in selling the shares is to enable his key gift, on whether it is better for him to give all of the Php200,
executives to acquire a propriety interest in the business and 000.00 on Christmas 2001 or to give Php100, 000.00 on
have a personal stake in its business. Explain if the above Christmas 2001 and the other Php100,000.00 on January 1,
transactions are subject to donor's tax. 2002. Please explain your advice.

 First transaction not to be subject to donor’s tax.  Split the Donation

-qualifies as a capital asset -One Time Donation is subject to higher tax bracket
-gives rise to a deemed gift, does not apply to a sale of property -Splitting the donation on two different years relieve the donor
subject to capital gains tax. from the donor’s tax
HOWEVER, if ordinary asset, excess of fair market value is -Aggregation of all donations made by a donor is allowed only
subject to the donor’s tax. over one calendar year
 Sale of shares of stock below the fair market value is subject to
Donor’s tax pursuant to the provisions of Tax Code. 6. On December 06, 2001, LVN Corporation donated a piece of
vacant lot situated in Mandaluyong City to an accredited and
3. Mr. Bill Morgan, a Canadian citizen and a resident of duty registered non-stock, non-profit educational institution to
Scarborough, Ontario, sends a gift check of $20,000.00to his be used by the latter in building a sports complex for students.
future Filipino daughter-in-law who is to be married to his only QUAMTO (1987-2017) 25 A. May the donor claim in full as
 deduction from its gross income for the taxable year 2001 the -It is a transaction incidental to the catering business which is a VAT-
amount of the donated lot equivalent to its fair market registered activity of MKIE.
value/zonal value at the time of the donation? Explain your -Transactions that are undertaken incidental to the pursuit of a
answer. commercial or economic activity are considered entered into the
course of trade or business.
-NO.
-Donations made to qualified done institutions consisting of property 9. Pursuant to Sec. 11 of the "Host Agreement" between the
be based on acquisition cost of the property. United Nations and the Philippine government, it was provided
-Donor is not entitled to claim as full deduction the fair market value that the World Health Organization (WHO), "its assets, income
of the lot donated. and other properties shall be: a) exempt from all direct and
indirect taxes." Precision Construction Corporation (PCC) was
In order that donations to non-stock, non-profit educational- hired to construct the WHO Medical Center in Manila. Upon
institution may be exempt from the donor’s gift tax, what completion of the building, the BIR assessed a 12% VAT on the
conditions must be met by the donee? gross receipts of PCC derived from the construction of the WHO
building. The BIR contends that the 12% VAT is not a direct nor
-more than 30% of the said gifts shall be used by the done-institution an indirect tax on the WHO but a tax that is primarily due from
for administration purposes. the contractor and is therefore not covered by the Host
Agreement. The WHO argues that the VAT is deemed an indirect
7. In June 2013, DDD Corp., a domestic corporation engaged in the tax as PCC can shift the tax burden to it. Is the BIR correct?
business of leasing real properties in the Philippines, entered Explain.
into a lease agreement of a residential house and lot with EEE,
Inc., a non-resident foreign corporation. The residential house -NO. BIR is incorrect.
and lot will be used by officials of EEE, Inc. during their visit to -VAT is an indirect tax and it is clear from the agreement that WHO is
the Philippines. The lease agreement was signed by “exempt from all direct and indirect taxes.”
representatives from DDD Corp. and EEE, Inc. in Singapore. -12% VAT is an indirect tax whose burden was shifted by PCC to
DDD Corp. did not subject the said lease to VAT believing that it WHO, evident that BIR is incorrect.
was not a domestic service contract. Was DDD Corp. correct?
Explain. 10. MMM, Inc., a domestic telecommunications company, handles
-Lease of properties shall be subject to VAT irrespective of the place incoming telecommunications services for non-resident foreign
where the contract of lease was executed. companies by relaying international calls within the Philippines.
To broaden the coverage of its telecommunications services
8. MasarapKumain, Inc. (MKI) is a ValueAdded Tax (VAT)- throughout the country, MMM, Inc. entered into various
registered company which has been engaged in the catering interconnection agreements with local carriers. The non-
business for the past 10 years. It has invested a substantial resident foreign corporations pay MMM, Inc. in US dollars
portion of its capital on flat wares, table linens, plates, chairs, inwardly remitted through Philippine banks, in accordance with
catering equipment, and delivery vans. MKI sold its first delivery the rules and regulations of the Bangko Sentral ng Pilipinas.
van, already 10 years old and idle, to Magpapala Gravel and MMM, Inc. filed its Quarterly VAT Returns for 2000.
Sand Corp. (MGSC) a corporation engaged in the business of Subsequently, MMM, Inc. timely filed with the BIR an
buying and selling gravel and sand. The selling price of the administrative claim for the refund of the amount of
delivery van was way below its acquisition cost. Is the sale of P6,321,486.50, representing excess input VAT attributable to its
the delivery van by MKI to MGSC subject to VAT? effectively zerorated sales in 2000. The BIR ruled to deny the
claim for refund of MMM, Inc. because the VAT official receipts
-YES submitted by MMM, Inc. to substantiate said claim did not bear
 the words "zero-rated" as required under Section 4.108-1 of -Sale of agricultural products in their original state, produced for
Revenue Regulations (RR) No. 7-95. On appeal, the CTA division human consumption is exempted from VAT.
and the CT A en banc affirmed the BIR ruling. MMM, Inc.
appealed to the Supreme Court arguing that the NIRC itself did 13. Melissa inherited from her father a 300- square-meter lot. At the
not provide for such a requirement. RR No. 7-95 should not time of her father’s death on March 14, 1995, the property was
prevail over a taxpayer's substantive right to claim tax refund or valued at P720, 000.00. On February 28, 1996, to defray the cost
credit. of the medical expenses of her sick son, she sold the lot for
P600, 000.00, on cash basis. The prevailing market value of the
-Appeal of MM Inc, must be denied. Unmeritorious. property at the time of the sale was P3, 000.00 per square meter.
-Sec. of Finance has the authority to promulgate the necessary rules Is Melissa liable to pay Value Added Tax (VAT) on the sale of the
and regulations for the effective enforcement of the provisions of the property? If so, how much and why? If not, why not?
NIRC. -NO.
-CTA and CTA en banc correctly ruled that the failure to indicate the -Real property sold as capital asset is not subject to Vat.
words “zero-rated” on the invoices and receipts issued by a taxpayer, -Sale is subject to Vat if the thing sold is primarily for course of trade
would result in the denial of the claim for refund or tax credit. or business.

Will your answer in (a) be any different if MMM, Inc. was 14. Give at least three (3) real estate transactions which are not
claiming refund of excess input VAT attributable to its subject to the Value-Added Tax.
effectively zero-rated sales in 2012?
 Sale of real property not primarily held for sale or lease in the
-NO. ordinary course of trade or business
-Provided by law, “if the sale is subject to zero percent (0%) VAT,  Sale of real property utilized for socialized housing under RA No.
term “zero-rated sale” shall be written or printed prominently on the 7279
invoice or receipt.  Sale of real property utilized under the low-cost housing under
-Failure to comply is fatal to claim refund. BP Blg 220.

11. State whether the following transactions are: a) VAT exempt; b)

subject to VAT at 12%; or c) subject to VAT at 0%: xxx xxx xxx
15. Emiliano Paupahan is engaged in the business of leasing out
several residential apartment units he owns. The monthly rental
b. Services rendered by Jake’s Construction Company, a
for each unit ranges from P8, 000.00 to P10, 000.00. His gross
contractor to the World Health Organization in the renovation of
rental income for one year is P1, 650,000.00. He consults you on
its offices in Manila.
whether it is necessary for him to register as a VAT taxpayer.
What legal advice will you give him, and why?
-VAT at 0%
-Service rendered is for WHO, an entity exempted from tax under
-He is not required to register as VAT taxpayer
international agreement with Philippines.
-His transaction of leasing residential units for an amount not
exceeding P12,800.00 per unit per month are exempt from VAT
12. Sale or importation of agricultural and marine food products in
irrespective of the aggregate amount of rentals received annually.
their original state and certain kinds of livestock, poultry,
breeding stock and genetic materials.
16. Greenhills Condominium Corporation incorporated in 2001 is a
non-stock, nonprofit association of unit owners in Greenhills
-VAT exempt.
Tower, San Juan City. To be able to reduce the association dues
being collected from the unit owners, the Board of Directors of
 the corporation agreed to lease part of the ground floor of the CTA. Will API's Petition for Review prosper? Decide with
condominium building to DEF Savings Bank for P120,000 a reasons.
month or P1.44 million for the year, starting January 2007. a. Is
the non-stock, non-profit association liable for value added tax -YES
in 2007? -Premature filing is allowed because it was filed between 10
If your answer is in the negative, is it liable for another kind of December 2003 and 5 October 2010, when BIR Ruling that governs
business tax? the cited reason was still enforce.

-NO. Annual gross income receipt do not exceed P1,919,500.00, TRANSACTION DEEMED SALE:
exempt from VAT. 1. Transfer, use or consumption not in the course of business of
-liable to 3% percentage tax imposed on persons exempt from value- goods or properties originally intended for sale or for use in the
added tax on account failure to reach the P1,919,500 threshold. course of business.
2. Distribution or transfer to:
Will the association be liable for value added tax in 2008 if it a. Shareholders or investors as share in the profits of the VAT-
increases the rental to P150,000 a month beginning January registered persons; or
2008? Explain. b. Creditors in payment of debt;
3. Consignment of goods if actual sale is not made within sixty (60)
-YES. Exceed P1,919,500.00, liable of VAT at the beginning Jan. days following the date such goods were consigned; and
2008. 4. Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or
17. Amor Powers, Inc. (API) is a domestic corporation registered cessation.
with the BIR as a value-added taxpayer. API incurred excess
input VAT in the amount of P500,000,000.00 on August 3, 2008. Transaction Subject to Zero Percent (0%) Rate
Hence, it filed with the BIR an administrative claim for the 1. -Processing, manufacturing or repacking goods for other
refund or credit of these input taxes on August 15, 2010. persons
Without waiting for the CIR to act on its claim, API filed a -doing business outside the Philippines
Petition for Review with the CTA on September 15, 2010 before -which goods are subsequently exported
the lapse of two years after the close of the taxable quarter -where the services are paid for in acceptable foreign
concerned. In its Comment on the Petition, the CIR argues that currency and
API's Petition should be dismissed as it was filed before the -accounted for in accordance with the rules and regulations
lapse of the 120-day period given to the CIR by Sec. 112(D) of of BSP.
the NIRC, which became effective on January 1, 1998. For the
CIR, the 120-day period is mandatory and jurisdictional so that 2. -Services other than those mentioned in the preceding
any suit filed before its expiration is premature and, therefore, paragraph
dismissible. API, on the other hand, invokes BIR Ruling No. DA- -rendered to a person engaged in business conducted
489-03 issued by the CIR on December 10, 2003 in answer to a outside the Philippines or
query posed by the Department of Financeregarding the -to a nonresident person not engaged in business who is
propriety of the actions taken by Lazi Bay Resources outside the Philippines when the services are performed,
Development, Inc., which filed an administrative claim for refund -the consideration for which is paid for in acceptable foreign
with the CIR and, before the lapse of the 120-day period from its currency and
filing, filed a judicial claim with the CTA. BIR Ruling No. DA-489- -accounted for in accordance with the rules and regulation of
03 stated that the taxpayerclaimant need not wait for the lapse BSP
of the 120-day period before it could seek judicial relief with the
3. -Services rendered to persons or entities CIR vs Acesite
-whose exemption under special laws or international
agreements GR. No. 147295
-to which the Philippines is a signatory effectively subjects Facts:
the supply of such services to zero percent (0%) rate.
Acesite is the owner and operator of the Holiday Inn Manila Pavilion
4. -Services rendered to persons engaged in international Hotel. It leases of the hotel’s premises to PAGCOR for casino
shipping or international air transport operations, operations. Acesite incurred VAT amounting to P30,152,892.02 from
-including leases of property for use thereof: its rental income and sale of food and beverages to PAGCOR during
-Provided, That these services shall be exclusively for said period and paid for it. Acesite belatedly arrived at the conclusion
international shipping or air transport operations. that its transaction with PAGCOR was subject to zero rate as it was
rendered to a tax-exempt entity.
5. -Services performed by subcontractors and/or contractors
-in processing converting, or manufacturing goods for an
enterprise Issue:
-whose export sales exceed seventy percent (70%) of total
annual production. 1) whether PAGCOR’s tax exemption privilege includes the indirect
tax of VAT to entitle Acesite to zero percent (0%) VAT rate
6. Transport of passengers and cargo by domestic air or sea
vessels from the Philippines to a foreign country. Ruling:

7. -Sale of power or fuel generated through renewable sources YES. PAGCOR is undoubtedly exempt from such taxes
of energy such as, but not limited to, biomass, solar, wind, because the law exempts from taxes persons or entities
hydropower, geothermal, ocean energy, and other emerging contracting with PAGCOR in casino operations. VAT
energy sources using technologies such as fuel cells and exemption extends to Acesite. The latter is not liable for the
hydrogen fuels. payment of it as it is exempt in this particular transaction by
operation of law to pay the indirect tax.
B-1 and B-5 are subject to the 12% VAT and no longer
subject to 0% VAT rate upon satisfaction of some conditions.

INPUT TAX- VAT due from or 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 the transitional input tax determined in
accordance with Sec. 111 of this Code.

OUTPUT TAX- VAT due on the sale or lease of taxable

goods or properties or services by any person registered or
requires to register under Sec. 236 of this Code.