2013 (Taxation) Bar Exam Questions: Essay Question 3

[Discuss/answer the question below. Or see Taxation Instructions; Taxation Essay Questions: 124, 5, 6, 7, 8, 9, 10, 11 and 12; Taxation Multiple Choice Questions: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 and 20; See also 2013 Bar Exam: Information, Discussions, Tips, Questions and Results]


ABC Corporation is registered as a holding company and has an office in the City of Makati. It has no actual business operations. It invested in another company and its earnings are limited to dividends from this investment, interests on its bank deposits, and foreign exchange gains from its foreign currency account. The City of Makati assessed ABC Corporation as a contractor or one that sells services for a fee.

Is the City of Makati correct? (6%)


    1. Hirap na hirap ako sa tanong na ito kasi di naman masyado na explain sakin ang mechanics ng isang parent at holding company sa corpo. but i just answered na the holding company may be considered as engaging in services on the assumption na the holding company caters to its parent or several parent companies, it does things for its parent company. Ewan ang babaw tlga ng explanation ko dito

  1. Ito para sa akin ang pinkamahirap na tanong sa tax. hehehe pero turns out may express definition ang “Contractor” sa NIRC.

    Mali ako though kasi sabi ko merong right ang City to classify the company as contractor ang basis ko is yung power ng city/municipality to create its own sources of income, i forgot the legal term pero parang “residual power” ata yun. (not sure with the term ha, pero nadiscus kasi ng prof namin sa tax na ang LGU has the power to classify a taxpayer under such power). anyway like i said nahirapan talaga ako sa question na ito. makakuha man lang ako partial dito masaya nako.

  2. i think the answer is in C.T.A. AC NO. 80: Orleyte company v. City of Makati where the CTA declared that the local government is not authorized to tax orleyte.

    1. In Orleyte, the CTA decided that it was not a holding company to begin with. The better case that decided this issue would be Michigan Holdings vs. Commissioner (2015 CTA case).

      1. it is now a rule settled that a corporation with no business operation, and is merely an investor in another corporation, is not liable for local business tax.

        facts of the case of orleyte vs. makati seems more similar to this

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