Bar Subject: Tax Law

Under Section 28(B) of the Tax Code, how are non-resident foreign corporations taxed in the Philippines?

• AOn worldwide gross income derived from all global operations
• BExclusively on gross income derived from sources within the Philippines
• COn net operating income earned across Southeast Asian territories
• DExempt from all national income tax liabilities

Non-resident foreign corporations are subject to Philippine income tax solely on income derived from sources within the Philippines.

What legal test determines the situs of income derived by offshore-based gaming operators under Saint Wealth Ltd. v. BIR?

• AThe corporate registration test
• BThe actual performance test
• CThe citizenship test
• DThe residency test

The Supreme Court applied the actual performance test, locating the situs of gaming income where bets, players, and prize payouts occur.

Why is the offshore gaming revenue of an offshore-based POGO operator exempt from Philippine income tax?

• ABecause all foreign corporations enjoy automatic tax immunity under international treaties
• BBecause the betting, players, and prize payouts occur entirely outside the Philippines
• CBecause POGO operators are classified as non-profit charitable institutions
• DBecause revenue memorandum circulars grant temporary tax holidays

Offshore gaming revenue is foreign-sourced income beyond Philippine tax jurisdiction because betting operations occur entirely abroad.

What is the legal effect of a BIR Revenue Memorandum Circular that expands the tax liability of foreign corporations beyond the Tax Code?

• AIt automatically amends the National Internal Revenue Code
• BIt is ultra vires, invalid, and unenforceable
• CIt creates a binding executive agreement under constitutional law
• DIt replaces statutory tax exemptions with administrative tariffs

Administrative issuances cannot modify statutory law or expand tax liabilities beyond what the Tax Code provides.

Under Saint Wealth Ltd. v. BIR, which factor is essential in classifying gaming revenue as foreign-sourced income?

• AThe location of PAGCOR's principal administrative office
• BThe foreign placement of bets and non-resident status of players outside the country
• CThe employment of local accredited customer service providers
• DThe registration of corporate trade names with local registries

Gaming income is foreign-sourced when the placing of bets and player activities take place outside Philippine territory.

Under Section 24(D)(1) of the Tax Code, what property transfer is subject to the six percent capital gains tax?

• ASale or disposition of personal property rights
• BSale, exchange, or disposition of real property classified as capital assets
• CAssignment of incorporeal rights under an executory contract
• DDonation of movable personal belongings to immediate family

Section 24(D)(1) applies the six percent capital gains tax specifically to sales or dispositions of real property classified as capital assets.

In a contract to sell real property, when does legal title or ownership transfer to the buyer?

• AUpon execution of the initial contract to sell
• BUpon payment of the initial downpayment
• CUpon full payment of the agreed purchase price
• DUpon notarization of the deed of assignment

Ownership in a contract to sell is retained by the seller until the suspensive condition of full payment is satisfied.

How is an assignment of rights under a contract to sell classified for tax purposes before full payment of the purchase price?

• ADisposition of real property capital assets
• BTransfer of personal or contractual rights
• CSale of real property ordinary assets
• DTax-exempt corporate liquidation distribution

Prior to full payment, the buyer holds only contractual personal rights, not legal title to real property.

Why is Paolo not liable for the six percent capital gains tax when assigning his rights under the contract to sell to Andres?

• ABecause capital gains tax applies only to corporate taxpayers
• BBecause Paolo assigned contractual personal rights without transferring legal title to real property
• CBecause real property in Makati is exempt from national capital gains tax
• DBecause fifty percent of the proceeds were given to his spouse

Capital gains tax on real property does not apply to the mere assignment of personal contractual rights under a contract to sell.

What condition must be present for a seller or assignor to realize a taxable gain on an assignment of rights?

• AThe assignment price must exceed the assignor's total cost or payments made
• BThe assignor must obtain prior written clearance from the local mayor
• CThe assignee must be a foreign corporation doing business abroad
• DThe assignment consideration must be paid exclusively in foreign currency

Taxable capital gain arises only when the gross selling price or consideration exceeds the taxpayer's cost basis or total investment.

Under Section 143 of the Local Government Code and jurisprudence, what constitutes prohibited direct double taxation?

• AImposing national income tax and local real property tax on the same taxpayer
• BLevying two local business taxes on the same gross receipts by the same LGU for the same period
• CCollecting value-added tax and excise tax on imported petroleum products
• DAssessing local business tax and local regulatory permit fees simultaneously

Direct double taxation occurs when the same taxing authority levies two business taxes on the same subject matter for the same period.

In Nursery Care Corp. v. Acevedo, why was the assessment of additional local business tax under Section 21 of the Makati Revenue Code declared invalid?

• ABecause Section 21 applied exclusively to wholesale distributors and manufacturers
• BBecause the taxpayer had already paid local business tax as a retailer under Section 17 on the same gross sales
• CBecause the City of Makati lost its taxing power under the Local Government Code
• DBecause local business taxes cannot exceed one-tenth of one percent of gross assets

Assessing Section 21 tax after Section 17 retailer tax was paid on the same gross sales constituted prohibited direct double taxation.

What is the effect of an express proviso in a local revenue code exempting registered businesses already paying local business tax from an additional levy?

• AIt grants the city treasurer discretion to double the tax assessment
• BIt renders any additional assessment issued in violation of the proviso illegal and void
• CIt requires taxpayers to secure annual exemption certificates from the BIR
• DIt automatically converts the local business tax into a national percentage tax

An assessment issued in direct violation of an explicit statutory exemption proviso in a local revenue ordinance is illegal and void.

When a taxpayer pays an invalid local business tax assessment under protest to secure business permit renewal, what is the proper legal remedy?

• AFile an appeal directly with the Supreme Court under Rule 65
• BFile a claim for refund or protest pursuant to the provisions of the Local Government Code
• CRefuse to operate the business until the ordinance is repealed by the sanggunian
• DPetition the Department of Finance to dissolve the local government unit

The Local Government Code provides specific administrative and judicial remedies for protesting or seeking a refund of invalid local taxes.

Under Section 143 of the Local Government Code, on what basis are local business taxes on retailers computed?

• AOn the total zonal value of the real property occupied
• BOn the gross sales or receipts of the preceding calendar year
• COn the net corporate income reported to the Bureau of Internal Revenue
• DOn the total capital investment registered with the Securities and Exchange Commission

Local business taxes on retailers under Section 143 of the LGC are computed based on the gross sales or receipts of the preceding calendar year.