2010 FINAL EXAMINATION QUESTIONS

TAXATION LAW 2
13 March 2010 1 P.M. – 3 P.M.

INSTRUCTIONS

This questionnaire is in TWO (2) PARTS: Part I with five (5) questions (numbered I to V), contained
in one (1) page; and Part II with five (5) questions (numbered VI-X), contained in one (1) page, for
a total number of two (2) pages.
Write your answers to Part I and Part II in the corresponding portions indicated in the booklet.
Begin your answer to each numbered question on a separate page; an answer to a sub-question
under the same number may be written continuously on the same page and succeeding pages
until completed.
Answer the questions directly and concisely. Do not repeat the questions. Write legibly.
HAND IN YOUR NOTEBOOK WITH THIS QUESTIONNAIRE.
GOOD LUCK!
ATTY. EFREN VINCENT M. DIZON, CPA
PROFESSOR
SAN SEBASTIAN COLLEGE OF LAW
PLEASE CHECK THAT THIS SET CONTAINS FOUR (4) PAGES (INCLUDING THIS PAGE).
WARNING: NOT FOR SALE OR UNAUTHORIZED USE

-PART I-
I
What are the fundamental principles of local taxation and real property taxation? (10%)

II
a. The City of Manila enacted Ordinance No. 55-66 which imposes a business tax on persons or
entities engaged in the business of selling petroleum products. Among those subjected to the tax
was Atty. Mariano Batas’ gasoline station. He goes to court to assail the validity of the ordinance
on the ground that it violates the exclusionary doctrine. Decide with reasons. (5%)

b. What transactions, although not actually sale, are deemed or considered sale for purposes of
value added tax? (5%)
III
Mr. Ondoy, a US diplomat brought into the Philippines a foreign-made luxury car. The luxury car
was then subsequently sold to Mr. Pepeng consummated by executing a Deed of Absolute Sale
but without transferring the registration thereof. The Bureau of Customs instituted seizure
proceedings and issued a warrant of seizure and detention. The car, then parked inside the pay
parking garage of the condominium building where Mr. Pepeng’s residential and office units were
located, was seized and brought by government agents to a government impounding facility. The
Collector of Customs denied Mr. Pepeng’s request for the withdrawal of the warrant. Aggrieved,
Mr. Pepeng filed against the Collector a criminal complaint for abuse of authority and gross
ignorance of the law as well as usurpation of judicial functions on the grounds that the luxury car is
exempted from custom duties and that only a judge may issue a warrant of search and seizure.
Resolve with reasons Mr. Pepeng’s criminal complaint. (10%)

IV
Mr. Dizon, a resident of Quezon City, is a Certified Public Accountant-Lawyer engaged in the
practice of his two professions. He has his main office in Makati City and maintains branch offices
in Quezon City and the Province of Mindoro. Mr. Dizon pays his professional tax as a CPA in
Makati City and his professional tax as a lawyer in Quezon City. a) May Makati City, where he has
his main office, require him to pay his professional tax as a lawyer? Explain. b) May Paranaque
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. c) May the Province of
Mindoro require him to pay professional tax and a business tax for the practice of the two (2)
professions? (10%)
V
a. The gross estate of Charlito, deceased, amounted to P2,000,001.00. What reportorial
requirements should be complied with by his heirs? (5%)

b. What are special lands for purposes of real property taxation? (5%)
 *** End Of Part I ***

-PART II-

VI
A final assessment notice was issued by the BIR on June 13, 2000, and received by the taxpayer
on June 15, 2000. The taxpayer protested the assessment on July 31, 2000. The protest was
initially given due course, but was eventually denied by the Commissioner of Internal Revenue in a
decision dated June 15, 2005. The taxpayer then filed a petition for review with the Court of Tax
Appeals (CTA), but the CTA dismissed the same.

[a] Is the CTA correct in dismissing the petition for review? Explain your answer. (5%)
[b] Assume that the CTA’s decision dismissing the petition for review has become final. May the
Commissioner legally enforce collection of the delinquent tax? Explain. (5%)

VII
In 1999, Xavier accepted a donation from his friend, Yuri, a painting which was acquired by the
latter for P500,000.00 in 1995. The fair market value (FMV) of the painting at the time of the
donation was P1-million. Yuri paid all the corresponding taxes on the transaction. In 2001, Xavier
died. In his last will and testament, Xavier bequeathed the painting, already worth P1.5-million, to
his only son, Zandro. The will also granted Zandro the power to appoint his wife, Wilma, as
successor to the painting in the event of Zandro’s death. Zandro died in 2007, and Wilma
succeeded to the property.

[a] Should the painting be included in the gross estate of Xavier in 2001 and thus, be subject to
estate tax? Explain. (3%)
[b] Should the painting be included in the gross estate of Zandro in 2007 and thus, be subject to
estate tax? Explain. (3%)
[c] May a vanishing deduction be allowed in either or both of the estates? Explain. (4%)

VIII
a. Enumerate at least five (5) common limitations of taxation. (5%)
b. Discuss the customs protest procedure. (5%)

IX
Miguelita, a citizen and resident of Mexico, donated US$1,000.00 worth of stocks in Barack Motors
Corporation, a Mexican company engaged in business in the Philippines, to her illegitimate son
sired by a Brazilian gangster, Miguelito, who is residing in the Philippines and about to be married
to a Filipino girlfriend. Mexico does not impose any transfer tax of whatever nature on all gratuitous
transfers of property.
[a] Is Miguelita entitled to claim a dowry exclusion? Why or why not? (5%)
[b] Is Miguelita entitled to the rule of reciprocity in order to be exempt from the Philippine donor’s
tax? Why or why not? (5%)

X
Pandoy inherited from his father, Pando, a 300-square-meter lot which he leases to sellers of
nonfood agricultural products for P9,000 per month. At the time of his father’s death on March 14,
2005, the property was valued at P720,000.00. On February 28, 2006, to defray the cost of the
medical expenses of his sick son, Pandi, he sold the lot for P600,000.00, on cash basis. The
prevailing market value of the property at the time of the sale was P3,000.00 per square meter. [a]
Is Pandoy liable to pay capital gains tax on the transaction? If so, how much and why? If not, why
not? (5%) [b] Is Pandoy liable to pay Value Added Tax (VAT) on the sale of the property? If so,
how much and why? If not, why not? (5%)

*** End Of Part II ***

RETURN THIS QUESTIONNAIRE WITH YOUR BOOKLET