2016 (Taxation) Bar Exam Questions: Question 18

[Answer/discuss the question below, or see 2016 bar exam Taxation Instructions; 2016 Taxation Questions:   123456789101112131415161719, and 20; See also 2016 Bar Exam: Information, Discussions, Tips, Questions and Results]


Henry, a U.S. naturalized citizen, went home to the Philippines to reacquire Philippine citizenship under RA 9225. His mother left him a lot and building in Makati City and he wants to make use of it in his trading business. Considering that he needs money for the business, he wants to sell his lot and building and make use of the consideration. However, the lot has sentimental value and he wants to reacquire it in the future. A friend o f Henry told him o f the “sale-leaseback transaction” commonly used in the U.S., which is also used for tax reduction. Under said transaction, the lot owner sells his property to a buyer on the condition that he leases it back from the buyer. At the same time, the property owner is granted an option to repurchase the lot on or before an agreed date. Henry approaches you as a tax lawyer for advice.

Explain what tax benefits, if any, can be obtained by Henry and the buyer from the sale-leaseback transaction? (5%)

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