paolo javier tax reviewer

7/27/2019 Paolo Javier Tax Reviewer

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Paolo Miguel Javier Taxation Law Reviewer Page 1

Part I: Taxation in General

CHAPTER I: GENERAL PRINCIPLES OF TAXATION

I. TAXATION

1. Definition: The power by which the sovereign raises

revenue to defray the necessary expenses of government; a

way of apportioning costs of government among those

privileged to enjoy its benefits and must bear its burdens.

2. Nature of Internal Revenue Laws:

1. Inherent in sovereignty

2. Legislative in character

3. Subject to Constitutional and Inherent limitations

4. Civil, not political

Hilado v CIR: Internal revenue laws are not political in nature

and as such were continued in force during the period of

enemy occupation and in effect were actually enforced by

the occupation government. Such tax laws are deemed to bethe laws of the occupied territory and not the occupying

enemy.

3. Scope of Taxation: Subject to the will of legislative bodies

and the discretion of the authorities which exercise it, the

power of taxation is: 1. Comprehensive, 2. Unlimited, 3.

Plenary, 4. Supreme. It involves the subjects/objects to be

taxed, the purpose of the tax (public purpose), amount or

rate, manner/means/agencies for collection.

a. S28, A6 Consti: 1. The rule of taxation shall be uniform

and equitable. The Congress shall evolve a progressive

system of taxation. Uniform: All taxable articles of thesame class shall be taxed at the same rate; Equitable: Its

burden falls upon those better able to pay; Progressive:

Tax rate goes up as tax base goes up.

Phases:

1. Levying/Imposition Determine persons/property to be

taxed, sums raised, rate, time and manner of levying,

collecting, receiving tax

2. Collection Prescribe manner of reinforcing the obligation

3. Payment by taxpayer

Chamber of Real Estate v Romulo Taxes are the lifeblood

of the govt. The exercise of taxing power derives its sourcefrom the very existence of the state whose social contract

with its citizens obliges it to promote public interest and the

common good. Taxation is an inherent attribute of

sovereignty. It is a power that is purely legislative. In the

legislature primarily lies the discretion to determine the

nature/kind, object/purpose, extent/rate, coverage/subjects,

and situs/place of taxation. It has the authority to prescribe a

certain tax at a specific rate for a particular public purpose

on persons/things within its jurisdiction. The legislature

weilds the power to define what tax shall be imposed, why it

should be imposed, how much tax shall be imposed, against

whom/what, and where it shall be imposed. As a general

rule, the power to tax is plenary and unlimited in its range,

acknowledging in its very nature no limits, so that the

principal check against its abuse is to be found only in the

responsibility of the legislature to its constituency.

Nevertheless, it is circumscribed by constitutional limitations,

but carries a presumption of constitutionality.

Sison v Ancheta The power to tax is an attribute of

sovereignty, and for all its plenitude, the power is not

unconfined. There are restrictions set forth by the consti.

Adversely affecting property rights, both the due process and

equal protection clauses may properly be invoked to

invalidate a revenue measure. The due process clause may

be invoked where a taxing statute is so arbitrary that it finds

no support in the consti. It is inherent in the power to tax

that a state be free to select the subjects of taxation, and

inequalities which result from a singling out of one particular

class for taxation infringe no constitutional limitation. The

rule of taxation shall be uniform and equitable, and this is

met when the tax operates with the same force and effect inevery place where the subject may be found. Uniformity

does not call for perfect uniformity or equality, it just means

that all taxable articles of the same class shall be taxed at

the same rate. The taxing power has the authority to make

reasonable and natural classifications for purposes of

taxation. All that is required is that the tax applies equally to

all persons placed in similar situations. It is enough that the

classification must rest upon substantial distinctions.

Sarasola v Trinidad Taxation is an attribute of sovereignty.

It is the strongest of all the powers of government. Public

policy decrees that since upon the collection of revenue

depends the existence of government, whateverdetermination shall be arrived at by the legislature should not

be interfered with unless there be a clear violation of some

consti inhibition.

4. Underlying Theory & Basis: Existence of government is a

necessity, cant continue without means to pay its expenses,

and for those means it has the right to compel all citizens to

contribute; state demands taxes so it may be enabled to

perform functions of government; for contributions received,

the government renders no special benefit but only secures

to the citizen that general benefit which results from

protection to his person/property.

Benefits Received Principle: The basis of taxation is found in

the reciprocal duties of protection and support between state

& its inhabitants. In return for contribution, taxpayer receives

general advantages & protection from government.

CIR v Algue Taxes are the lifeblood of the government and

should be collected without unnecessary hindrance. Such

collection should be made in accordance with law as any

arbitrariness will negate the very reason for government.

Taxes are what we pay for civilized society. Without taxes,

the government would be paralyzed for lack of the motive

power to activate and operate it. Hence, every person who is


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able to must contribute his share in the running of the govt.

The govt, is expected to respond in the form of tangible and

intangible benefits intended to improve the lives of the

people and enhance their moral and material values. This

symbiotic relationship is the rationale of taxationand should

dispel the erroneous notion that it is an arbitrary method of

exaction by those in the seat of power.

5. Principles of a Sound Tax System:

1. Fiscal Adequacy sources of revenue be adequate to

meet government expenditures

2. Equality ability to pay principle: the tax burden should

be in proportion to the taxpayers ability to pay

3. Administrative Feasibility Capable of just,

convenient, and effective administration

6. Comparison with Police Power & Eminent Domain

Similarities:

1. Rest on Necessity, no effective government without them

2. Exist Independently of the Constitution3. Ways by which the State Interferes with private

rights/property

4. Legislative in nature & character, although exerciseis

Executive

5. Presupposes Equivalent Compensation

Police Power power of the state to enact such laws in

relation to persons/property as may promote public health,

morals, safety and the general prosperity and welfare of its

inhabitants

Eminent Domain power of the state to take private

property for public use upon paying to the owner a just

compensation to be ascertained by law

Taxation Police Power EminentDomain

ExercisingAuthority

Govt/Politicalsubdivisions

Govt/Politicalsubdivisions

May begranted topub servicecompanies/pub utilities

Purpose Support ofgovernment

Regulated forpromotinggeneral welfare

Public use/benefitMust be w/

justcompensation

Personsaffected

Class ofentities/individuals

Class ofentities/individuals

Entity/individual as ownerof property

Effect Becomespart of publicfunds

Restraint oninjurious useof property

Transfer ofright to theproperty

Benefitsreceived

Protection,generalbenefits

No direct orimmediatebenefitBut only suchas may arise

Market valueof property

from themaintenance ofahealthyeconomicstandard ofsociety

Amount ofimposition

Generally nolimit

Not more thansufficient tocover cost oflicense &necessaryespenses

No limit butthe amountshoudbe based onmarket value

Relationship toconsti

Subject tolimitations

Relatively freefrom limits

Subject tolimits

Police Power Power to Tax

Exercised for the promotion ofthe public welfare by means ofRegulation of

dangerous/potentially dangersbusinesses

Exercised for the purposeof raising revenue

Not subject to consti restrictionsapplicable to tax

Subject to consti limitations

Power of Eminent Domain Power to Tax

Originated in politicalnecessity

Originated in political necessity

Exercised for public purpose Exercised for public purpose

Requires just compensationfor taking private property forpublic

Does not require justcompensation

*If the primary purposeof a statute exacting an imposition isto raise revenue, it is an exercise of the TAXING POWER,

but if for regulationof some particular

occupation/calling/activity, it is an exercise of thePOLICE

POWER, even if it incidentally produces revenue.

*An exaction which is invalid as an exercise of the taxing

power may not be upheld as an exercise of the police

powere where it is clear that the legislature did not intend it

to be such; BUT an exaction which is an invalid exercise of

the taxing power may be upheld as a regulatory measure

where the primary purpose in imposing it was regulation.

Gerochi v DOE The theory behind the exercise of the

power to tax emanates from necessityl without taxes, govt

cannot fulfill its mandate of promoting general welfare. Police

power is the power of the state to promote public welfare by

restraining and regulating the use of liberty and property. As

an inherent attribute of sovereignty, the power to regulate

means the power to protect, foster, promote, preserve, and

control, with due regard for the interests of the public, then of

the utility and of its patrons.

Matalin Coconut v Mun of Malabang A fixed tax

denominated as a police inspection fee is void where it is

not for a public purpose, just and uniform, becuase the


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police do nothing but count the number of cassava sacks

shipped out. The only service rendered by the municipality

by way of inspection, is for the policeman to verify from the

driver of the tructs passing by the checkpoint the number of

bags to be shipped out based on the trip tickets to compute

the total amount of tax to be collected.

Lutz v Araneta As the protection and promotion of the

sugar industry is a matter of public concern, the legislature

may determine within reasonable bounds what is necessary

for its protection and expedient for its promotion. The

legislative discretion must be allowed full play, subject only

to the test of reasonableness. If object and methods are

constitutionally valid, no reason is seen why the state may

not levy taxes to raise funds. Taxation may be made the

implement of the states police power.

NTC v CA Since congress has the power to exercise the

states inherent powers of police power, eminent domain and

taxation, the distinction between police power and tax whichcould be significant if the exercising authority were mere

political subdividsions (since delegation by it to such political

subdivisions of one power does not necessarily include the

other) would not be of any moment when congress itself

exercises the power.

II. TAXES

1. Definition: Enforced pecuniary contribution levied by

lawmaking body of state having jurisdiction over the subject

of the burden for the support of government and all public

needs (Phil Rabbit case)

Republic v Phil Rabbit Tax refers to a financial obligationimposed by a state on persons, whether natural/juridical,

within its jurisdiction for property owned/income earned,

business/profession engaged in, or any such activity

analogous in character for raising the necessary revenues to

take care of the responsibilities of government. As

distinguished from other pecuniary burdens, the

differentiating factor is that the purpose to be subserved is

the raising of revenue. A tax then is neither a penalty that

must be satisfied or a liability arising from contract, nor a

licenes or a fee as a manifestation of an exercise of the

police power. Unlike a tax, a regulatory fee has not for its

object the raising of revenue but looks rather to the

enactment of specific measures that govern relations notonly as between individuals but also as between private

parties and the political society.

2. Essential Characteristics:

1. Enforced contribution

2. Levied by the state which has jurisdiction over

persons/property

3. Levied by the lawmaking body

4. Generally payable in money

5. Proportionate in character

6. Levied on persons/property

7. Levied for public purpose

3. Taxes distinguished from:

a. Debts:

General Rule: Taxes are NOT subject to set off

Exception: If amounts are due & demandable and

liquidated, tax may be subject to set off

Tax Debt

Liability/obligation Liability/obligation

Based on law Based on contract

Cannot be assigned Assignable

Payable in money Payable in money/kind

Cannot be subject to setoff/compensation

Can be subject to setoff/compensation

Can be imprisoned for non-payment, except poll tax

Cannot be imprisoned fornonpayment

Governed by specialprescriptive periods Ordinary prescription

Does not draw interest exceptwhen delinquent

Draws interest whenstipulated/when there is

default

Caltex v COA Taxation is not only a measure to raise

revenue, but may be levied with a regulatory purpose to

provide means for the rehabilitation and stabilization of a

threatened industry which is affected with public interest as

to be within the police power. The oil industry is greatly

imbued with public interest as it vitally affects the general

welfare. Any unregulated increase in oil prices could hurt the

lives of people and cause economic crisis. The stabiliationthen of oil prices is one of prime concern, which the state via

police power may address. Eo 137 provides that the OPSF

is taxation. A taxpayer may not offset taxes due from claims

he may have against the government. Taxes cannot be the

subject of compensation because the govt and taxpayer are

NOT mutually creditors and debtors of each other and a

claim for taxes is not such a debt/demand/contract as is

allowed to be set off.

Elements of Compensation:

1. Each one of the obligors be bound principally, and he be

at the same time a principal creditor of the other

2. Both debts consist in a sum of money, or of kind, be the

same quality,3. Both debts are due,

4. Both debts are liquidated and demandable,

5. There be no retention/controversy by third persons

Francia v IAC By legal compensation, obligations of

persons who in their own right are reciprocally debtors and

creditors of each other are extinguished . there can be no

offsetting of taxes against the claims that the taxpayer may

have against the govt. A person cannot refuse to pay a tax

on the ground that the govt owes him an amount equal to or

greater than the tax being collected. The collection of a tax

cannot await the results of a lawsuit against the govt. No


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setoff is admissible against demands for taxes levied for

general/local govt purposes. Reason: taxes are not in the

nature of contracts between the parties but grouw out of duty

to and are the positive acts of the govt to the making and

enforcing of which, the personal consent of individual

taxpayer is not required.

Philex Mining v CIR Taxes cannot be subject to

compensation because the govt and the taxpayer are not

creditors and debtors of each other. Distinction: Debts are

due to the govt in its corporate capacitywhile taxes are due

to the govt in its sovereign capacity. A person cannot refuse

to pay a tax on the ground that the govt owes him an amount

equal to or greater than the tax being collected. The

collection of a tax cannot await the results of a lawsuit

against the govt. Tax is compulsory rather than a matter of

bargain. Hence, a tax does not depend upon the consent of

the taxpayer. If any taxpayer can defer the payment of taxes

by raising the defense that it still has a pending claim for

refund or credit, this would adversely affect the govt revenuesystem. A taxpayer cannot refuseto pay his taxes when they

fall due simply because he has a claim against the govt or

that the collection of the tax is contingent on the result of the

lawsuit if filed.

b. License Fees imposition on right to use/dispose of

property, pursue business, or exercise a privilege;

imposed under police power

Tax License Fee

Enforced contributionassessed by the sovereign

authority todefray public expenses

Legal compensation/reward forspecific services

Revenue Regulation

Taxing power Police power

Generally no limit on amountof tax that may be imposed

Amount should be limited tothe necessary expense of

inspectionAnd regulation

Imposed on persons andproperty

Imposed on right to exercise aprivilege

Failure to pay does not makethe business illegal

Failure to pay makes theact/business illegal

*Exemption from taxes may not include exemption from

license fees; the power to regulate as an exercise of police

power does not include the power to impose fees for

revenue; an exaction can be considered both a tax and a

license fee. But a tax may have only a regulatory purpose.

Imposition is a tax if primary purpose is generate revenue

and regulation merely incidental. If regulation is primary

purpoes, the fact that incidentally revenue is obtained does

not make imposition a tax.

Progressive Devt Co v QC A license fee is imposed in the

exercise of police power primarily for purposes of regulation

while a tax is imposed under the taxing power for raising

revenues. Thus if the generating of revenue is the primary

purpose and regulation merely incidental, the imposition is a

tax, but if regulation is the primary purpose, the fact that

incidentally revenue is also obtained does not make theimposition a tax. To be considered license, the imposition

must relate to occupation/activity that so engages the public

interes in health, morals, safety and devt as to require

regulation for protection and promotion of public interes, the

imposition must also bear a reasonable relation to the

probable expenses of regulation, taking into acct the cost of

direct regulation but also its incidental consequences. When

an activity is of a character that inspection/supervision is

reasonably necessary for the safeguarding of the general

welfare, the legislature may provide that such inspection

shall be carried out at the expense of persons engaged in

such occupation or performing such activity, and no one

shall engage in the occupation until a fee sufficiton to coverthe cost has been paid. Accordingly, a charge of a fixed sum

which bears no relation at all to the cost of inspection may

be held to be a tax rather than a license.

PAL ESSO v CIR A tax is levied to provide revenue for

govt operations while the proceeds of the margin fee are

applied to strengthen our countrys international reserves,

and thus is a police measure.

c. Special Assesments/Special Levies: Enforced

proportional contribution from onwers of lands especially

benefited by public improvements. Characteristics: 1.

Levied on land, 2. Not personal liability of the personassessed, 3. Based wholly on benefits, 4. Exceptional time

& place. Exemption from taxation does not include

exemption from special assessment.

Apostolic Prefect v Treasurer of Baguio An assessment is

confined to local impositions upon property for the payment

of the cost of public improvements in its immediate vicinity

and levied with reference to special benefits to the property

assessed. The imposition of a charge on allproperty in a

prescribed area is a taxalthough the purpose is to make a

local improvement on a street, while a charge imposed only

on property owners benefited is a special assessment, even

if the statute calls it a tax.

d. Tolls: a sum of money for the use of something, generally

applied to the consideration paide for use of a road/bridge

of a public nature

Taxes Tolls

Levied for support ofgovernment

Compensation for the use ofanothers

property/improvements

Regulated by governmentsnecessities

Determined by cost ofproperty and consideration of


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return

Demand of sovereignty Demand of proprietorship

Imposed only by government Imposed by government orprivate individuals/entities

e.Penalties: any sanction imposed as punishment forviolation of law or acts deemed injurious

Tax Penalty

Raise revenueRegulate conduct

Imposed only bygovernement

Imposed by govt/privateindividuals/entities

NDC v CIR The jap shipbuilders were liable to tax on

interest remitted to them (interest derived from sources

within the phils shall bell treated as gross income and liable

to tax. It is not the NDC that is being taxed. Therefore, the

imposition of the deficiency taxes on the NDC is a penalty forits failure to withhold the same from the jap shipbuilders.

f. Customs Duties: taxes imposed on goods

exported/imported. Taxes is broader as it includes custom

duties.

III. CLASSIFICATION OF TAXES

1. As to Subject matter

a. Personal/Poll/Capitation tax of a fixed amount,

imposed on persons within a specified territory without

regard to their property or business

b. Property tax imposed on real/personal property in

proportion to valiuw or other reasonable method ofascertainment

c. Excise a charge imposed upon the performance of an

act, the enjoyment of a privilege or engaging in an

occupation, profession, or business

2. As to Incidence/Burden

a. Direct Demanded from the person who also shoulders

the burden of the tax; the taxpayer is directly/primarily liable

and cannot shift the burden

b. Indirect Demanded from one person in the expectation

and intention that he shall indemnify himself at the expense

of another, falling finally upon the ultimate

purchaser/consumer; tax imposed upon goods before theyreach the consumer who ultimately pays for it not as tax but

part of the price

Maceda v Macaraig The oil companies w/c supply oil to

NPC have to pay the taxes. By the very nature of indirect

taxation, the exonomic burden of such taxation is expected

to be passed on through the channels of commerce to the

user or consumer of the goods sold. Because the NPC has

been exempted from both direct & indirect taxation, the NPC

must be held exempted from absorbing the economic burden

of indirect taxation. This means that the oil companies which

wish to sell to NPC must absorb all or part of the exonomic

burden of the taxes which they could shift to NPC if NPC did

not enjoy examption from indirect taxes. The NPC may

refuse to pay that part of the normal purchase price of oil

which represents all/part of the taxes previously paid by the

oil cos to BIR. If NPC does buy oil, it is entitled to be

reimbursed by the BIR for that part of the buying price of

NPC which represents the tax already paid by the oil covendor to the BIR.

3. As to Determination of Amount

a. Specific tax of a fixed amount imposed by some

standard of weight/measurement, requires no assessment or

valuation other than a listing or classification of the objects to

be taxed

b. Ad Valorem (according to value) Tax of a fixed

proportion of the value of the property with respect to which

the tax is assessed; requires the intervention of

assessors/appraisers to estimate the value of such property

before the amount due from each taxpayer can be

determined.

4. As to Purposes

a. General/Fiscal/Revenue imposed for general purposes

of the government, to raise revenue for governmental needs

b. Special/Regulatory imposed for a special purpose, to

achieve some social/economic ends irrespective of whether

revenue is actually raised/not

5. As to Scope: National or Municipal/Local

6. As to Graduation/Rate

a. Proportional tax based on a fixed percentage of the

amount of the property/receipts, or other basis to be taxedb. Progressive/Graduated The rate increases as the tax

base increases

c. Regressive Rate decreasesat the tax base increases

IV. DOCTRINES IN TAXATION

1. Prospectivity of Tax Laws

Hydro Resources v CA - EO 860 which was the basis for the

imposition of the ad valorem duty took effect December

1982. The importations were effected in 1978 and 1979 by

NIA. It is a cardinal rule that laws shall have no retroactive

effect unless contrary is provided. EO 860 does not provide

for its retroactivity. The Deputy Minister of Finance even

clarified that letters of credit opened prior to the effectivity ofEO 860 are not subject to its provisions.

In the case, the procurement of the equipment was not on a

tax exempt basis as the import liabilities have been secured

to paid under a financial scheme. It is a matter of

implementing a pre-existing agreement, hence, the imported

articles can only be subject to the rates of import duties

prevailing at the time of entry or withdrawal from the

customs custody.

2. Imprescriptibility of Taxes

CIR v Ayala Securities Where the government has not by

express statutory provision provided a limitation upon its


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right to assess unpaid taxes, such right is imprescriptible.

There is no time limit on the right of the CIR to assess the

tax on unreasonable accumulated surplus since there is no

express statutory provision limiting such right or providing for

its prescription.

3. Double Taxation: Not every kind of duplicate taxation isproscribed. Although taxation of the same person twice

because of his ownership of the same property is sometimes

referred to as unconstitutional, there are limits:

1. Both taxes must have been imposed in the same year

2. For the same purpose

3. Upon property owned by the same person

4. By the same taxing authority

5. Both impositions must be taxes

*Double taxation is to be avoided and the intention of the

legislature to impose it will not be presumed, must be should

by clear language

Villanueva v Iloilo The ordinance which imposed a

municipal license tax is valid. It is not a real estate tax, as it

does not possess its attributes. It is not a tax on the land on

which the tenement houses are erected although both land

and tenement houses may belong to the same owner. The

tax is not a fixed proportion of the assessed value of the

tenement houses and does not require the intervention of

assessors. It is not payable at a designated time and is not

enforceable against the tenement houses either by sale or

distraint. Therefore, there is no double taxation. In order to

constitute double taxation, the same property must be taxed

twice when it should be taxed but once; must be imposed on

the same property/subject matter, for the same purpose, bythe same taxing authority, within the same jurisdiction,

during the same taxing period, and must be the same

kind/character of tax. A real tax and the tenement tax,

although imposed by the same taxing authority are not of the

same kind/character.

Sanchez v CIR Sanchez falls within the definition of real

estate dealers. The kind and nature of the building shows

that it was from the beginning intended for lease asa

asource of income. Appellant argues that she is already

paying real estate taxes and income taxes, so that to further

subject its rentals to the real estate dealers tax amounts to

double taxation. Rejected, saying that licens tax may belevied upon a business although the land or property used

therein is subject to property tax; and that the state may

collect an ad valorem tax on property used in a calling and at

the same time impose a license tax on the pursuit of that

calling, the imposition of the latter kind of tax being in no

sense a double tax.

Punzalan v Mun Board Mla Double taxation may not be

invoked where one tax is imposed by the state and the other

by the city. There is nothing inherently obnoxious in the

requirement that license fees/taxes be exacted with respect

to the same occupation/calling/activity by both the state and

the political subdivisions thereof.

Mla v CocaCola Bottlers Double taxation means taxing the

same property twice when it should be taxed only once

taxing the same person twice by the same jurisdiction for the

same thing (direct duplicate taxation) the two taxes mustbe imposed on the same subject matter, for the same

purpose, by the same taxing authority, within the same

jurisdiction, during the same taxing period, and the taxes

must be of the same kind/char.

4. Methods of avoiding the occurrence of Double Taxation

a. Tax Treaty

CIR v SC Johnson International Juridical Double Taxation:

the imposition of comparable taxes in two or more states on

the same taxpayer in respect of the same subj matter and for

identical periods. Reason for doing away with double

taxation: encourage the free flow of goods and services and

the movement of capital, technology, and persons betweencountries, conditions deemed vital in creating robust and

dynamic ecomnomies. Double taxation usually takes place

when a person is a resident of a contracting state and

derives income from/owns capital in the other contracting

state and both states impose tax on that income/capital.

In order to eliminate double taxation, a TAX TREATY resorts

to several methods:

1. It sets out the respective rights to tax of the

state/source/situs and of the state of residence with regard

to certain classes of income/capital. In some cases, an

exclusive right to tax is conferred on one of the states,

however, for other items, both states are given the right to

tax, although the amount of tax that may be imposed by thestate of source is limited.

2. Applies whenever the state of source is given a full/limited

right to tax together with the state of residence. In this case,

the treaties make it incumbent upon the state of residence to

allow relief in order to avoid double taxation.

There are 2 methods of relief:

1. Exemption method: income/capital which is taxable in the

state of source/situs is exempted in the state of residence,

although in some instances it may be taken into account in

determining the rate applicable to the remaining income.

2. Credit method:although the income or capital which is

taxed in the state of source is still taxable in the state of

residence, the tax paid in the former is credited against thetax levied in the latter. The basic differenceis that in the

exemption method, the focus is on the income/capital itself,

while the credit method focuses upon the tax.

b. Tax Credit

CIR v Lednicky Double taxation becomes obnoxious only

where the taxpayer is taxed twice for the benefit of the same

governmental entity. In the present case, although the

taxpayer would have to pay two taxes on the same income

but the phil govt only receives the proceeds of one tax, there

is no obnoxious double taxation.


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CHAPTER II: LIMITATION UPON THE POWER OF

TAXATION

I. INHERENT LIMITATIONS: Public purpose, Inherently

Legislative (may not be delegated), International comity,

Territoriality/Situs of taxation

1. Public Purpose a purpose affecting the inhabitants of the

state/taxing district as a community and not as individuals.

Reason: tax levied for a private purpose constitutes taking of

property without due process; since the govt is established

for public purposes, public money can only be spent for a

public purpose. The purposes need not be exclusively

public. Although private individuals are directly benefit, the

tax is still valid, provided it is only incidental. Test: not as to

who receives the money, but the characterof the purpose for

which it is expended. Not the result of the expenditure, but

the ultimate result. Tax must be used: 1. For support of the

govt, 2. For any of the recognized objects of government, or3. To promote the welfare of the community.

Pascual v Sec of Pub Works The legislature is without

power to appropriate public revenue for anything but a public

purpose. It is the essential character of the direct object of

the expenditure which must determine its validity as

justifying the tax and not the interests to be affected nor the

degree to which the general advantage of the community,

and thus the public welfare may be ultimately benefited by

their promotion. Incidental advantage to the public or to the

state which results from the promotion of private interests

and the prosperity of private interprises or business does not

justify their aid by the use of public money. The test of theconstitutionality of a statute requiring the use of public funds

is whether the statute is designed to promote the public

interests as opposed to the furtherance of the advantage of

individuals although each advantage to individuals might

incidentally serve the public.

Tio v VRB A tax does not cease to be valid merely

because it regulates, discourages, or even definitely deters

the activities taxed. In imposing a tax, the legislature acts

upon its constituents. The tax here is not only a regulatory

but also a revenue measure prompted by the realization that

earning of videogram establishments have not been

subjected to tax, thereby depriving the govt of an additionalsource of revenue. The levy of the tax here is for a public

purpose. It was imposed primarily to answer the need for

regulating the video industry, particularly because of piracy,

violation of IP rights, and proliferation of porn. And while it

was also an objective to protect the movie industry, the tax

remains a valid imposition

2. Taxing power is Inherently Legislative

General Rule: Taxing power may not be delegated the

power of taxation is purely legislative and congress may not

delegate it to others. The limitation arises from the doctrine

of separation of powers.

Exception: 1. Local Government Units: the power to create

municipal corporations for the purpose of local self

government carries with it the power to confer the power to

tax on such local governments. Municipal corporations are

instrumentalities of the state for better administration of the

govt in matters of local concern.

QC v Bayantel The power to tax is primarily vested in the

congress, however, it may be exercised by local legislative

bodies, no longer by delegation, but by direct authority

conferred by s5 a10 of the consti. The exercise of the power

may be subject to such guidelines and limits as the congress

may provide, which must be consistent with the basic policy

of local autonomy. The grant of taxing powers to lgus under

the consti does not affect the power of congress to grant

exemptions to certain persons. The legal effect of the consti

grant to LGUs simply means that in interpreting statutory

provisions on municipal taxing powers, doubts must be

resolved in favor of municipal corporations.

3. Delegation to the President the consti expressly allows

congress to authorize the pres to fix tariff rates, import or

export quotas, tonnage and wharfage dues and other duties

or imposts. Since the delegation is constitutionally

authorized, there can be no legal objection. The

authorization is justified in the need for speedy action on

such matters.

4. Administrative Rate Fixing aspects of the taxing process

that are not legislative in character may be vested in admin

agencies. Powers: power to value property pursuant to fixed

rules, assess and collect taxes, perform details of

computation, appraisement, and adjustment, and delegation.Canot be delegated: determination of the subjects, purpose,

amount, manner, means, and agencies of collection of tax.

Philcomsat v Alcuaz Delegation of legislative power may

be sustained only upon the ground that some standard for its

exercise is provided and that the legislature in making the

delegation has prescribed the manner of the xercise of the

delegated power. Thus, when NTC (admin) establishes a

rate, its act must be non confiscatory and established in the

manner prescribed by the legislature, otherwise, the

delegation becomes unconstitutional. In case of delegation

of rate fixing power, the only standard which the legislature

is required to prescribe for the guidance of the adminauthority is that the rate be reasonable and just. NTC is

limited in the exercise of its rate fixing power by the

standards of public safety, interest, reasonable feasibility,

and reasonable rates, which satisfy the requirements of a

valid delegation of legislative power.

Smith Bell & Co. V CIR Where the intention of the law to

impose a specific tax on wines is clear, leaving to the officers

charged with its administration no more than the

administrative function of determining whether a particular

wine falls on one class or the other, there is no undue

delegation of legislative powers.


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5. Territoriality/Situs of Taxation

General Rule: A state may not tax property lying outside its

borders or lay an excise/privilege tax upon the

exercise/enjoyment of a right/privilege derived from the laws

of another state.

Reason: Tax laws do not operate beyond a countrys

territorial limits; property which is wholly and exclusively

within the jurisdiction of another state receives no of the

protection for which a tax is supposed to be a compensation.

Exception: A person may be taxed where there is between

him and the taxing state a privity of relationship justifying the

levy. (citizens income may be taxed abroad, and entitled to

protection of his govt)

a. Situs of Taxation the place of taxation. The state where

the subject to be taxed has a situs may rightfully levy and

collect the tax, and the situs is necessarily in the statewhich has jurisdiction or which exercises dominion over

the subject.

b.Determination of situs: a. Residence of subject, b. Place

of Taxation, c. Source of income

c.Situs of subjects of taxation: Depends on: nature of the

tax, subject matter, the possible protection and benefit that

may accrue both to the govt and taxpayer,

residence/citizenship of the taxpayer, source of income.

d.Persons

1. Poll tax - may properly be levied upon persons who

are inhabitants or residents of the state: 18, regularly

employed at least 30 days, owns real property of P1k or

more, pay P5 and additional P1 for every P1k ofincome. Corporate: annual community tax of P500

2. Real Property Lex Rei Sitae: subject to tax in the

state in which it is located w/n owner is

resident/nonresident

3. Personal Property Lex Rei Sitae: Taxable in the

state where it has actual situs/physically located.

Intangible: situs is at domicile

4. Income

Dividends:

Manila Gas v Collector No state may taxanything notwithin its jurisdiction without violating the due process

clause. The taxing power of a state does not extend

beyond its territorial limits, but within such limits, it may tax

persons, property, income, or business. If an interest in

property is taxed, the situs must be found within the state.

If income is taxed, the recipient must have a domicile

within the state or the property/business out of which the

income issues must be situated within the state so that the

income may be said to have a situs therein. Personal

property may be separated from its owner, and he may be

taxed at the place where the property is although it is not

his domicile and though he is not a citizen or resident. But

debts owing by corps are obligations of the debtors and

only possess value in the hands of the creditors. The

place of payment even if conceded to be outside of the

country cannot alter the fact that the income was derived

from the phils. The word source conveys only one idea,

that of origin, and the origin of the income was the phils.

Services:

CIR V Baier Nickel it is the situs of the activity which

determines whether an income is taxable in the

philippines. Source of income relates to the property,

activity or service that produced the income.

CIR v Marubeni a contractors tax is a tax imposed upon

the privilege of engagin business. It is generally in the

nature of an excise tax on the exercise of a privilege of

selling services or labor rather than a sale on products and

is directly collectible from the person exercising the

privilege. Being an excise tax, it can be levied by the

taxing authority only when the acts, privileges, or businessare done or performed within the jurisdiction of said

authority. Like property taxes, it cannot be imposed on an

occupation or privilege outside the taxing district. Services

made and completed in japan, thus outside the taxing

jurisdiction of the phils, are not subject to contractors tax.

5. Business, occupation, transaction the power to levy

an excise tax depends upon the place where the business

is done or the occupation engaged in or the transaction

made.

Manila Electric v Yatco Where the insured is within the

phils, the risk insured against also within, the phils has thepower to impose the tax on the insured, regardless of

whether the contract is executed in a foreign country and

with a foreign corp. Substantial elements of the contract

may be said to be so situated in the phils as to give its

govt the power to tax. Even if it be assumed that the tax

imposed upon the insured will ultimately be passed on to

the insurer, it would still be valid because the foreign corp

has subjected itself to the taxing jurisdiction of the phils.

6. Transfer of property by death or gift subject to

taxation in the state where the transferor/donor is a

citizen/resident or where the property is located.

Wells Fargo v COL The actual situs of the shares of

stock is in the phils, the corp being domiciled therein. The

certificates of stock have remained here up to the time

when the deceased died in Cali. Mobilia sequuntur

personam: it is the identity or association of intangibles

with the person of their owner at his domicile which gives

jurisdiction to tax. But when the taxpayer extends his acts

with respect to his intangibles so as to avail himself of the

protection and benefit of the laws of another state in such

a way as to bring his person or property within the reach of

the tac gatherer there, the reason for a single place of

taxation no longer obtains. The state of domicile is not


9/47


deprived by the taxpayers activities elsewhere of its

constitutional jurisdiction to tax. Shares of corporate stack

may be taxed at the domicile of the shareholder and also

at tha of the corporation which the taxing state has created

and controls, and income may be taxed both by the state

where it is earned and by the state of the recipients

domicile.

6. International Comity property of a foreign state may not

be taxed by another state.

Grounds:

1. Sovereign equality (one state cannot exercise its

sovereign powers over another),

2. Usage among states (when one enters the territory of

another, there is an implied understanding that the former

does not intend to degrade its dignity by placing itself under

the jurisdiction of the latter),

3. A foreign govt may not be sued without its consent

II. CONSTITUTIONAL LIMITATIONS: Due Process, EqualProtection, Rule of Taxation shall be Uniform and Equitable,

Non-impairment of Contracts, Non-Imprisonment for non-

payment of poll tax, Prohibition against taxation of real property

of charitable institutions/churches/parsonages/convents/

mosques/nonprofit cemeteries, Prohibition against taxation of

nonstock/non profit educational institutions, passage of tax

bills, granting of tax exemption, veto power of the president,

double taxation, judicial power to review legality of tax

1. Due Process

Com of Customs v CTA & Campos Rueda Where the law

does not provide that an article imported for electrical lighting

and signalling for vehicles, if imported alone, shall beclassified as electrical apparatus for making and breaking

electrical circuits, that provision should not be read into the

law

2. Equal Protection all persons subject to legislation shall

be treated alike under like circumstances and conditions

both in privileges conferred and liabilitiess imposed. As long

as there are rational/reasonable grounds, congress may

group the persons/properties to be taxed and it is sufficient if

all of the same class are subject to the same rate and the tax

is administered impartially upon them.

Ormoc Sugar v Treasurer of Ormoc The questionedordinance does not meet the classification, for it taxes only

sugar produced and exported by ormoc and none other. The

classification to be reasonable, should be in terms applicable

to future conditions. The ordinance should not be singular

and exclusive as to exclude any subsequently established

sugar central of the same class.

Shell v Vano the fact that there is no other person in the

locality engaging in the privilege of the occupation of

installation manager does not make it discriminatory, as it

will be applicable to any person/firm who exercises such

calling/occupation.

Tiu v CA if the groupings are characterized by substatial

distinctions that make real differences, one class may be

treated and regulated differently from another. It must be

germane to the purpose of the law and must apply to all

those belonging to the same class. It does not demand

absolute equality, it merely requires that all persons shall betreated alike, under like circumstances. It was reasonable for

the president to have delimited the application of some

incentives to the confines of the former subic base. It is this

specific area which the govt intends to transform and

develop from its status as an abandoned facility into a self

sustaining zone. The classification is therefore germane to

the intent of the law.

3. Rule of Taxation shall be uniform and equitable

Uniformity: all taxable articles of the same class shall be

taxed at the same rate, wherever the subject is found.

Equality in burden, not in amount.

Equity: apportionment of the tax burden should be just inthe light of taxpayers ability to shoulder it on the basis of the

benefits he receives.

Progressive: tax laws shall place emphasis on direct rather

than indirect taxation

Baguio v De Leon Equality and uniformity in taxation

means that all taxable articlesof the same class shall be

taxed at the same rate. A tax is uniform when it operates

with the same force and effect in every place where the

subject may be found. Where the statute applies equally to

all persons placed in similar situation, there is no

infringement of the rule on equality. Inequalities which result

from a singling out of one particular class for taxation orexemption infringe no constitutional limitation.

Eastern Theatrical v Alfonso Equality and uniformity

means that all taxable articles of the same class shall be

taxed at the same rate. The taxing power has the authority to

make reasonable and natural classifications for purposes of

taxation and appellants cannot point out what places of

amusement taxed by the ordinance do not constitute a class

by themselves and which can be confused with those not

included in the ordinance

British American Tobacco v Camacho A legislative

classification, to survive an equal protection challenge, mustshow that the classifications are reasonable and rest on

some ground of difference having a fair and substantial

relation to the object of the legislation. The classification

freeze provision is not arbitrary nor does it favor older

brands, it was the result of congress earnest efforts to

improve the efficiency of the tax administration over sin

products while trying to balance the same with other state

interests. Administrative concerns may provide a legitimate,

ratinoal basis for legislative classification. The provision was

intended to generate revenues and eliminate potential areas

for corruption. The provision uniformly applies to all newly

introduced brands in the market, whether imported or locally


10/47


manufactured. It does not purport to single out imported

cigarettes in order to unduly favor locally produced ones.

4. Non-impairment of contracts the obligation of a contract

is impaired when its terms or conditions are changed by law

or a party without the consent of the other. Ex: a tax

exemption based on a contract is revoked by a later taxingstatute

Imus Electric v CTA A municipal franchise is subject to the

power of congress to alter/modify/repeal. The franchise tax

is such an alteration. So the holder of a municipal franchise

to operate an electric plant and imposing a franchise tax is

subject to a newer statute imposing a higher tax. The newer

statute is an exercise of the power reserved to congress to

amend/repeal the franchise.

Phil Rural Electric v DILG The constitutional prohibition on

the impairment of the obligation of contracts does not

prohibit every change in existing laws. To fall within theprohibition, the change must not only impair the obligation of

the existing contract, but the impairment must be substantial.

The withdrawal by the LGC of the tax exemptions previously

enjoyed by petitioners does not impair the obligation of the

borrower, lender, or beneficiary under loan agreements as in

fact, no taxation is granted therein.

5. Non-imprisonment for non-payment of poll tax

6. Prohibition against taxation of real property of

charitable institutions, churches, parsonages or

convents, mosques and non-profit cemeteries: (lands

buildings, improvements used actually directly & exclusivelyfor religious, charitable, educational purposes).

Abra College v Aquino The test of exemption from taxation

is the use of the property for purposes mentioned in the

constitution. The keeping of a lodging and boarding house

and restaurant do not constitute business in the ordinary

acceptance. A vegetable garden and a lot formerly used a

cemetery is included in the exemption. The exemption in

favor of property used exclusively for charitable or

educational purposes is not limited to property actually

indispensable but extends to facilities which are incidental to

and reasonably necessary for the accomplishment of the

main purposes, such as in hospitals, a training schoo andathletic fields. But lease of the 1

stfloor to a corporation is not

incidental to educational purpose

Lung Center v QC To determine w/n an institution is

charitable, the elements which should be considered include

the statute creating the enterprise, its corp purpose, its

constitution and by laws, the methods of admin, the nature of

the actual work performed, the character of the services

rendered, the indefiniteness of the beneficiaries, and the use

and occupation of the properties. A charity may be fully

defined as a gift for the benefit of an indefinite number of

persons, either by bringing their minds and hearts under the

influence of education or religion, by assisting them to

establish themselves in life. The test is w/n it exists to carry

out a purpose recognized in law as charitable or w/n it is

maintained for gain, profit, or private advantage. Lung center

was organized for welfare of filipinos to combat lung

diseases. A charitable institution does not lose its character

and exemption simply because it derives income frompaying patients, so long as the money is devoted to the

charitable object which it is intended to achieve, and no

money inures to private benefit of managers. But real

property leased to private entities are not exempt from real

property taxes as these are not actually, directly and

exclusively used for charitable purposes.

7. Prohibition against taxation of non-stock non-profit

educational institutions: (revenues &assets used actually

directly and exclusively for educational purposes; proprietary

also entitled, subject to legal limitations; covers income,

property, donors taxes, and customs duties)

CIR V YMCA A claim of statutory exemption should be

manifest and umistakable. The claimed exemption must be

expressly granted in a statute. In this case, the exemption

claimed by the YMCA is expressly disallowed because the

NIRC subjects to tax the rent income of the YMCA from its

real property. What is exempted is not the institution itself,

those exempted from real estate taxes are the lands,

buildings, and improvements actually, directly, and

exclusively used for religious, charitable, and educational

purposes. YMCA is exempt from property rax, but not

income tax on the rentals. The bare allegation that it is a

nonstock nonprofit educ inst is insufficient to justify its

exemption. For YMCA to be granted exemption, it shouldprove that it falls under the the classification, and that the

income it seeks to be exempted from is used actually directly

and exclusively for educ purposes. YMCA is also not an

educational inst because it is not a school, seminary,

college, or educational establishment.

CIR v Ateneo To impose the contractors tax on ateneo it

should be sufficiently proven that it is selling its services for a

fee in pursuit of an independent business. There is no evid

that ateneo ever sold its services for a fee or was ever

engaged in business apart from and independently of the

academic purposes.

8. Passage of tax bills originate exclusively in HR but

senate may propose/concur with amendments

(appropriation/revenue/tariff)

Tolentino v Sec Finance All appropriation, revenue or tariff

bills must originate exclusively in the HR but the senate may

propose/concur with amendments. In the exercise of this

power, the senate may propose an entirely new bill as a

substitute measure.

A committee to which a bill is referred may:

1. Endorse the bil without changes,


11/47


2. Make changes in the bill or adding sections or altering its

language,

3. Make and endorse an entirely new bill as a substitute

(committee bill),

4. Make no report at all.

To except from this procedure the amendment of bills which

are required to originate in the HR by prescribing that thenumber of the House bill and other parts must be preserved

although the test of the senate amendment may be

incorporated in place of the original body of the bill is to insist

on a mere technicality. No rule prescribing this form.

9. Veto power of the President power to veto any particular

item in an appropriation, revenue or tariff bill, but the veto

shall not affect the item/s to which he does not object. The

president may not veto a bill in part and approve it in part.

10. Granting of tax exemption concurrence of majority of all

members of congress

John Hay v Lim Tax exemption cannot be implied as it

must be categorically and umistakably expressed if it were

the intent of the legislature to grant to John Hay the same

tax exemtion and incentives to Subic, it would have so

expressly provided in RA 7227.

11. Judicial Power to review legality of tax review, revise

reverse, modify, affirm on appeal/cert final judgments and

orders of lower courts in all cases involving the legality of

any tax, impost, assessment or toll or any penalty imposed

in relation. Congress cannot take away from the SC the

power given to it by the consti as the final arbiter of tax

cases.

CHAPTER III: EXEMPTIONS FROM TAXATION

I. In General

1. Definition the grant of immunity to particular

persons/corporations of a particular class from a tax which

persons and corporations generally within the same

state/taxing district are obliged to pay; immunity/privilege,

freedom from a financial charge/burden which other are

subjected

2. Kinds: 1. Express, 2. Implied (tax levied on classes, without

mentioning other classes. All those not mentioned aredeemed exempted).

3. Rationale: presumption that public interest will be

subserved; grant of exemption rests upon theory that such

will benefit public, and not upon idea of lessening burden.

Public interest sufficient to offset monetary loss of grant of

exemption.

4. Nature:

1. National: inherent attribute of sovereignty.

2. Local: municipal corps have no inherent power to tax, but

when granted, they also have the power to exempt

(legislature may delegate such power to exempt)

5. Grounds for tax exemption:

1. Contract: contained in charter of corporation to which

exemption is granted,2. Public policy: encourage new industries, foster charitable

institutions,

3. Treaty; grounds of reciprocity/lessen rigors of international

double taxation

6. Constitutional Exemptions: charitable institutions,

nonstock nonprofit educ institutions

7. Legislative Grant of Exemptions: Tax Code & Special

Laws

CIR v Botelho: Although the GR is that tax exemption must

be clear and explicit, and in this case, there is no expressprovision for the retroactivity of exemption, retroactivity of the

provision is necessary to prevent discrimination. Otherwise,

there will be discrimination in favor of buyers after the

amendment and against buyers before the amendment.

CIR v GCL Retirement The tax exemption privilege of

employees trusts as distinguished from any other kind of

property held in trust springs from the NIRC. Manisfest is

that the law has singled out employees trusts for tax

exemption. The tax advantage was conceived in order to

encourage the formation and establishment of such private

plans for the benefit of laborers and employees outside the

social security act.

8. Exemption created by treaty

9. Exemption of government agencies

PPA v CIR Nothing can prevent congress from decreeing

that even agencies of the govt performing governmental

functions may be subject to tax. The fact that tax exemptions

of goccs have been expressly withdrawn clearly attests

against PPAs claim of absolute exemption of govt agencies

from local taxation.if indeed PPA was not subject to local tax,

its charter would not have specifically provided for its

exemption from the payment. Its exemption therefore proves

that it was only an exception to the general rule of taxability.Given that said privilege was withdrawn by subsequent law,

petitioners claim from exemption fails. The reason for

withdrawal of tax exemption granted to goccs was that such

privilege resulted in serious tax base erosion and distortions

in the tax treatment of similarly situated enterprises, hence

resulting in the need for these entities to share in the

requirements of development by paying taxes.

Phil Fisheries v CA The authority is not a gocc but an

instrumentality of the national govt which is generally exempt

from payment of real property tax, except for those portions

which have been leased to private entities. When an


12/47


instrumentality of the natl govt grants to a taxable person

the beneficial use of a real property owned by the republic,

said instrumentality becomes liable to pay real property

taxes.

10. Construction:

General Rule: Exemptions are not favored and construed instrictissimi Juris against taxpayer. Taxation is the rule and

exemption the exception. Whoever claims exemption must

be able to justify his claim by a grant expressed int erms too

plain to be mistaken and too categorical to be misinterpreted

-Refund: Nature of exemptions; must be granted clearly and

categorically

Resins v Auditor As a refund undoubtedly partakes of a

nature of an exemption, it cannot be allowed unless granted

in the most explicit and categorical language. Exemption

from taxation is not favored and is never presumed, so if

granted, must be strictly construed against taxpayer

Kepco v CIR Tax refunds are in the nature of tax

exemptions laws granting exemptions are construed

strictly against taxpayer and liberally in favor of govt.

Exceptions (Liberal Construction):

1. Law expressly provides for liberal construction,

2. Exemption in favor of govt/agencies (gr exempt),

3. Religious, charitable, educational institutions,

4. Express mention/taxpayer within purviuw of clear

legislative intent,

5. Special taxes involving special classes of people.

Luzon Stevedoring v Trinidad As the power of taxation is ahigh prerogative of sovereignty, the relinquishment is never

presumed, and any reduction must be strictly construed and

must be couched in clear and unmistakable terms in order

that it may be applied. The gr is that any claim for exemption

from the tax statute should be strictly construed against the

taxpayer. Petitioners tugboats do not fall under passenger

vessels. Where a provision of law speaks categorically, the

need for interpretation is obviated.

Iloilo v Smart He who claims an exemption must justify his

claim by showing that the legislature intended to exempt him

by words to plain to be beyond doubt or mistake. A tax

exemption cannot arise from vague inference taxexemption must be clear and unequivocal; a taxpayer

claiming a tax exemption must point to a specific provision of

law conferring on the taxpayer exemption.

Rodriguez v Coll Exemption from taxation is not favored

and is never presumed. If granted, the grant must be strictly

construed against the taxpayer. Must point to some positive

provision of law creating the right, cannot exist on vague

implication.

Wonder Mechanical v CTA An industry to be entitled to tax

exemption must be new and necessary and that the tax

exemption was granted to new and necessary industries as

an incentive to greater production of products made scarce

by WW2 and will contribute to the attainment of a stable and

balanced national economy. For these reasons, we are

convinced that petitioner was granted tax exemption in the

manufacture and sale of machines for making pails etc, but

not for the manufacture and sale of the articles produced bythose machines. Tax exemption must be clearly expressed

and cannot be established by implication. Cant exist on a

vague implication.

Rep Flour Mills v CIR It is true that tax exemptions are not

favored and construed strictly against the taxpayer, but

where the provision of the law is clear and unambiguous so

that there is no occasion for the courts seeking the

legislative intent, the law must be taken as it is.

II. TAX AMNESTY

1. Definition General pardon/intentional overlooking by state

of its authority to impose penalties on persons otherwiseguilty of evasion/violation of revenue/tax laws. Partakes of

an absolute forgiveness/waiver by the government of its right

to collect what is due to it and give tax evaders who wish to

repent a chance to start with a clean slate. It is never

favored nor presumed. If granted, terms construed

strictly against taxpayer and liberally in favor of taxing

authority.

Phil Banking v CIR A tax amnesty is a general pardon or

the intentional overlooking by the State of its authority to

impose penalties on persons otherwise guilty of violation of a

tax law. It partakes of an absolute waiver by the government

of its right to collect what is due it and to give tax evaderswho wish to relent a chance to start with a clean slate. A tax

amnesty, much like a tax exemption, is never favored nor

presumed in law. The grant of a tax amnesty, similar to a tax

exemption, must be construed strictly against the taxpayer

and liberally in favor of the taxing authority.

The DST is one of the taxes covered by the Tax Amnesty

Program under RA 9480. Petitioner is clearly liable to pay

the DST on its SSDA for the years 1996 and 1997. However,

petitioner, as the absorbed corporation, can avail of the tax

amnesty benefits granted to Metrobank. Records show that

Metrobank, a qualified tax amnesty applicant, has duly

complied with the requirements enumerated in RA 9480.

Considering that the completion of these requirements shallbe deemed full compliance with the tax amnesty

program, the law mandates that the taxpayer shall thereafter

be immune from the payment of taxes, and additions thereto,

as well as the appurtenant civil, criminal or administrative

penalties under the NIRC of 1997, as amended, arising from

the failure to pay any and all internal revenue taxes for

taxable year 2005 and prior years. RA 9480 is specifically

clear that the exceptions to the tax amnesty program include

"tax cases subject of final and executory judgment by the

courts." The present case has not become final and

executory when Metrobank availed of the tax amnesty

program.


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2. Voluntary Assessment program/last priority in audit

CIR v Ariete Recording of the information in the official

registry book of the BIR is a mandatory requirement before a

taxpayer may be excluded from the coverage of the VAP.

CIR v Gonzalez Tax amnesty is a general pardon totaxpayers who want to start a clean tax slate. It also gives

the government a chance to collect uncollected tax from tax

evaders without having to go through the tedious process of

a tax case. Even assuming arguendo that the issuance of

RR No. 2-99 is in the nature of tax amnesty, it bears noting

that a tax amnesty, much like a tax exemption, is never

favored nor presumed in law and if granted by statute, the

terms of the amnesty like that of a tax exemption must be

construed strictly against the taxpayer and liberally in favor

of the taxing authority.

Availment by LMCEC of VAP through payment before the

said program ended did not amount to settlement of its

assessed tax deficiencies nor immunity from prosecution forfiling fraudulent return and attempt to evade or defeat tax. As

correctly asserted by petitioner, from the express terms of

the aforesaid revenue regulations, LMCEC is not qualified to

avail of the VAP granting taxpayers the privilege of last

priority in the audit and investigation of all internal revenue

taxes for the taxable year 2000 and all prior years under

certain conditions, considering that first, it was issued a PAN

on February 19, 2001, and second, it was the subject of

investigation as a result of verified information filed by a Tax

Informer .

III. TAX AVOIDANCE V TAX EVASION

1. Definitionsa. Tax Avoidance: Tax saving device within the means

sanctioned by law

b.Tax Evasion: a scheme used outside of lawful means

and when availed of usually subjects the taxpayer to

further/additional civil/crim liabilities.

3 Factors:

1. The end to be achieved the payment of less than that

known by the taxpayer to be legally due, or the non-payment

of tax when it is shown that a tax is due,

2. Bad Faith,

3. A course of action/failure of action which is unlawful

CIR v Estate of Toda Tax avoidance and tax evasion arethe two most common ways used by taxpayers in escaping

from taxation. Tax avoidance is the tax saving device within

the means sanctioned by law. This method should be used

by the taxpayer in good faith and at arms length. Tax

evasion, on the other hand, is a scheme used outside of

those lawful means and when availed of, it usually subjects

the taxpayer to further or additional civil or criminal liabilities.

Tax evasion connotes the integration of three factors: (1) the

end to be achieved, i.e., the payment of less than that known

by the taxpayer to be legally due, or the non-payment of tax

when it is shown that a tax is due; (2) an accompanying

state of mind which is described as being "evil," in "bad

faith," "willfull," or "deliberate and not accidental"; and (3) a

course of action or failure of action which is unlawful.

The scheme resorted to by CIC in making it appear that

there were two sales of the subject properties, i.e., from CIC

to Altonaga, and then from Altonaga to RMI cannot be

considered a legitimate tax planning. Such scheme is tainted

with fraud. The objective of the sale to Altonaga was toreduce the amount of tax to be paid especially that the

transfer from him to RMI would then subject the income to

only 5% individual capital gains tax, and not the 35%

corporate income tax. Altonagas sole purpose of acquiring

and transferring title of the subject properties on the same

day was to create a tax shelter. Altonaga never controlled

the property and did not enjoy the normal benefits and

burdens of ownership. The sale to him was merely a tax

ploy, a sham, and without business purpose and economic

substance. Doubtless, the execution of the two sales was

calculated to mislead the BIR with the end in view of

reducing the consequent income tax liability

The intermediary transaction, which was prompted more onthe mitigation of tax liabilities than for legitimate business

purposes constitutes one of tax evasion.

CHAPTER IV: SOURCES AND CONSTRUCTION OF TAX

LAWS

Tax statutes receive a reasonable construction to carry out

their purpose/intent. Good faith of the taxpayer is not a

sufficient justification for exemption, which is construed to

avoid possibility of tax evasion.

When in doubt, no person/property subject to tax unless

within plain import of the law; tax is construed strictly against

the government and liberally in favor of the taxpayer

When the language is plain, strict constuction againstgovernment is not applicable.

Exemption strictly construed against taxpayer, liberally for

government

The omission to follow mandatory provisions renders the act

invalid, but not for directory provisions

Tax laws are generally prospective except when expressly

declared or is clearly the legislative intent. But there is no

retroactivity if the application would be harsh and oppressive

Phil health care v CIR If it had been the intent of the

legislature to impose DST, it could have done so in clear and

categorical terms

1. Statutes NIRC, Book 2 LGC, Tariff & Customs Code,

BCDA Law, PEZA Law, Omnibus Investment Law

2. Revenue regulations: enforce NIRC; clarify/explain; details

of administration & procedure. The power to make

regulations is not the power to legislate, and under the guise

of regulation, legislation may not be enacted. A statute which

is being administered may not be altered or added to by

regulations.

Asturias v Comm The doctrine of judicial respect for

administrative construction is aplicable only where the court


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of last resort has not previously interpreted the statute. The

interpretation of an uncertain statute by the executive

agence charged with its enforcement is entitled to

consideration and respect. The correctness of an

interpretation given a statute by the agency charged with

administering its provision is indicated where it appears that

congress, with full knowledge of the agencys interpretation,has made significant additions to the statute without

amending it to depart from the agencys view.

BPI Leasing v CA Administrative issuances may be

distinguished according to their nature and substance

legislative and interpretative. RR 1986 was issued pursuant

to the rule-making power of the secretary, thus making it

legislative. When an administrative rule goes beyond merely

providing for the means that can facilitate the implementation

of the law and substantially increases the burden of those

governed, it behooves the agency to accord at least to those

directly affected a chance to be heard and informed before

the issuance is given the force and effect of law. Statutes,including admin rules and regs, operate prospectively only,

unless the legislative intent to the contrary is manifest by

express terms or implication.

3. BIR Rulings: less general interpretations of tax laws at the

administrative level. Issued by tax officials in performance of

assessment functions; made at the request of the taxpayers

to clarify. Such regulations, once established and found in

consonance with the general purposes and objects of law

have the force and effect of law (binding). If in conflict with

the law, null and void.

CIR v Burroughs any revocation, modification or reversalof any of the rules & regs promulgated by the commissioner

shall not be given retroactive application if the revocation,

modification, or reversal will be prejudicial to the taxpayer

exceptwhen: 1. Taxpayer deliberately misstates or omits

material facts from his return, 2. The facts subsequently

gathered by BIR are materially different from the facts on

which the ruling is based, or 3. Taxpayer acted in bad faith.

CIR v Phil Health Care Providers Rulings, etc promulgated

by comm have no retroactive effect if to apply them would

prejudice the taxpayer; exceptions. The failure of a taxpayer

to describe itself as a health maintenance organization is not

tantamount to bad faith at a time when the term did not yethave any particular significance for tax purposes.

Exceptions:

PBCOM v CIR: the non-retroactivity of ruling by the

commissioner is not applicable where the nullity of a revenue

memorandum circular was declared by courts and not by the

commissioner. Revenue memorandum circulars are

considered admin rulings and the interpretation placed upon

a statute by exec officers is entited to respect. But such

interpretation is not conclusive and will be ignored if judicially

found to be erroneous. Thus courts will not countenance

admin issuances that override instead of remaining

consistent and in harmony with the law they seek to apply

and implement.

4. Opinions of the Secretary of Justice when there is

conflict between opinions of BIR and DOF; generally binding

and effective

Part II: INCOME TAX

I. Overview of Income Tax

1. Income Tax a tax on all yearly profits arising from

property, professions, trades or offices; tax on persons

income, emoluments, profits. Income tax is a direct tax on

actual or presumed income of a taxpayer during the taxable

year.

Fisher v Trinidad Income is the amount of money coming

to a person or corp within a specified time, whether as

payment for services, interes, or profit from investment. A

mere advance in the value of the property of a person in nosense constitutes income. Such advance constitutes and

can be treated merely as an increase of capital. Income

means cash received or its equivalent, it doesnt mean

unrealized increments. The revenue law employs income in

its natural and obvious sense, something distinct from

principal or capital.

2. Income Tax Systems:

a. Global: total allowable deductions and personal and

additional exemptions are deducted from the gross income

to arrive at the net taxable income subject to the graduated

income tax rates. All items are reported in one income tax

return, and one set of tax rates are applied on the tax base

b.Schedular: different types of incomes are subject to

different sets of graduated/flat income tax rates. The

applicable rates will depend on the classification of the

taxable income and the basis could be gross or net income

c. Semi Schedular or Semi Global: the compensation

income, business income, capital gain and passive income

not subject to final tax, and other income are added together

to arrive at the gross income and after deducting the sum of

allowable deductions, the taxable income is subjected to one

set of graduated tax rates for an individual tax rate. With

respect to the income, the computation is global, while theschedular tax system is applied to the capital gains and

passive income subject to final tax at preferential tax rates.

*in the phils, our individual tax system is schedular, while

the corporate tax system is global; capital gains

schedular, income global

3. Progressive/Graduated tax rate increases as tax base

increases

4. Regressive tax rate decreases as tax base increases

5. Criteria in imposing income tax:


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1. Nationality: citizen subject to phil income tax on

worldwide income if he resides in the phils, or only on

income from sources within the philes

2. Residence: resident alien liable to pay phil income tax

only on his income sources within the philes but exempt

from outside income

3. Source: alien subject to phil income tax because hederives income from sources within the phils.

I. General Principles of Income Taxation

SEC. 23. General Principles of Income Taxation in thePhilippines. - Except when otherwise provided in this Code:(A) A citizen of the Philippines residing therein is taxable on allincome derived from sources within and without thePhilippines;(B) A nonresident citizen is taxable only on income derivedfrom sources within the Philippines;(C) An individual citizen of the Philippines who is working andderiving income from abroad as an overseas contract workeris taxable only on income derived from sources within thePhilippines: Provided, That a seaman who is a citizen of thePhilippines and who receives compensation for servicesrendered abroad as a member of the complement of a vesselengaged exclusively in international trade shall be treated asan overseas contract worker;(D) An alien individual, whether a resident or not of thePhilippines, is taxable only on income derived from sourceswithin the Philippines;(E) A domestic corporation is taxable on all income derivedfrom sources within and without the Philippines; and(F) A foreign corporation, whether engaged or not in trade orbusiness in the Philippines, is taxable only on income derivedfrom sources within the Philippines.CHAPTER II: CLASSIFICATION OF INCOME TAXPAYERS

I. Scope of Income Taxation

1. The term 'taxpayer' means any person subject to tax

imposed by this Title.

2. The term 'person' means an individual, a trust, estate or

corporation.

3. Person Liable to tax:

CIR v Procter & Gamble The term taxpayer is any person

subject to tax imposed by the title on tax on income. the

therms liable for tax and subject to tax connot the legal

obligation or duty to pay a tax. it is very difficult to consider a

person who is statutroily made liable for tax as not subject to

tax. by any reasonable standard, such a person should beregarded as a party in interest to bring a suit for refund of

taxes.

Silkair v CIR The proper party to question or claim a refund

of an indirect tax is the statutory taxpayer, as it is the

company on which the tax is imposed by law and which paid

the same even if the burden was shifted to another.

II. Individual Taxpayers

1. The term 'nonresident citizen' means:

(1) A citizen of the Philippines who establishes to the

satisfaction of the Commissioner the fact of his physical

presence abroad with a definite intention to reside therein.

(2) A citizen of the Philippines who leaves the Philippines

during the taxable year to reside abroad, either as an

immigrant or for employment on a permanent basis.

(3) A citizen of the Philippines who works and derivesincome from abroad and whose employment thereat

requires him to be physically present abroad most of the

time during the taxable year.

(4) A citizen who has been previously considered as

nonresident citizen and who arrives in the Philippines at

any time during the taxable year to reside permanently in

the Philippines shall likewise be treated as a nonresident

citizen for the taxable year in which he arrives in the

Philippines with respect to his income derived from

sources abroad until the date of his arrival in the

Philippines.

(5) The taxpayer shall submit proof to the Commissioner to

show his intention of leaving the Philippines to residepermanently abroad or to return to and reside in the

Philippines as the case may be for purpose of this Section.

2. The term 'resident alien' means an individual whose

residence is within the Philippines and who is not a citizen

thereof.

3. The term 'nonresident alien' means an individual whose

residence is not within the Philippines and who is not a

citizen thereof.

4. 'General professional partnerships' are partnerships

formed by persons for the sole purpose of exercising their

common profession, no part of the income of which is

derived from engaging in any trade or business.

III. Estates & Trusts

Title V. - TRUSTS (n) CHAPTER 1: GENERAL PROVISIONSArt. 1440. A person who establishes a trust is called the trustor; one in

whom confidence is reposed as regards property for the benefit of

another person is known as the trustee; and the person for whose

benefit the trust has been created is referred to as the beneficiary.

Art. 1441. Trusts are either express or implied. Express trusts are

created by the intention of the trustor or of the parties. Implied trusts

come into being by operation of law.

Art. 1442. The principles of the general law of trusts, insofar as they

are not in conflict with this Code, the Code of Commerce, the Rules of

Court and special laws are hereby adopted.

CHAPTER 2: EXPRESS TRUSTS

Art. 1443. No express trusts concerning an immovable or any interesttherein may be proved by parol evidence.

Art. 1444. No particular words are required for the creation of an

express trust, it being sufficient that a trust is clearly intended.Art.

1445. No trust shall fail because the trustee appointed declines the

designation, unless the contrary should appear in the instrument

paolo javier tax reviewer

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