Professional Documents
Culture Documents
Stages/aspects of a system of taxation [LAPR] Levy is an exercise of the power to tax which is exclusively
legislative in nature and character. Clearly, taxes are not levied by
1. Levy or Imposition (Tax Legislation) – the executive branch of government (NPC v.
This refers to the enactment of a law by Albay, G.R. No. 87479, June 4, 1990).
Congress authorizing the imposition of tax. ASSESSMENT AND COLLECTION
It further contemplates the determination of Assessment and Collection
the subject of taxation, purpose for which
the tax shall be levied, fixing the rate of Tax administration refers to the manner and procedure of
taxation and the rules of taxation in assessing and collecting or enforcing tax liabilities by the BIR.
general. Assessment and collection can be delegated, provided
that:
2. Assessment and Collection (Tax 1. The tax law must designate which agency will collect; and
Administration) 2. The circulars or regulations must be in accordance with
– This is the act of administration and the tax measures imposed by Congress.
implementation of the tax law by executive through
its administrative agencies. The act of assessing NOTE: Assessment and collection may be delegated but not levy
and collecting taxes is administrative in since it is exclusively conferred with the Congress.
character, and therefore can be delegated (J.
Dimaampao, 2015,). Q: Is the approval of the court, sitting as probate or estate
settlement court, required in the enforcement of the estate
3. Payment – The act of compliance by the tax? (2005 Bar)
taxpayer, including such options, schemes
or remedies as may be legally available. A: NO. The approval of the court, sitting in probate, is not a
mandatory requirement in the collection of estate tax. On the
4. Refund – The recovery of any tax alleged to contrary, under Section 94 of the NIRC, it is the probate or
have been erroneously or illegally assessed settlement court which is forbidden to authorize the executor or
or collected, or of any penalty claimed to judicial administrator of the
have been collected without authority, or of decedents estate, to deliver any distributive share to any party
any sum alleged to have been excessively, interested in the estate, unless a certification from the
or in any manner wrongfully collected. Commissioner of the Internal Revenue that the estate
tax has been paid is shown (Marcos II v. Court of Appeals , G.R.
NOTE: If what is delegated is tax legislation, the No.120880, June 5, 1997).
delegation is invalid. If what is delegated is tax
administration, the delegation is valid. Then there is Payment
no delegation to speak of, because tax
administration pertains to the executive or Payment is the act of compliance by the taxpayer including such
administrative agencies. options, schemes or remedies as may be legally available to him.
LEVY
Kinds of rules relative to the imposition of tax GR: Tax shall be paid by the person subject thereto at the time
1. Legislative rule – subordinate legislation by the the return is filed (Sec. 56[A][1], NIRC).
Secretary of Finance.
2. Interpretative rule – issuance of guidelines and XPN: When the tax due is in excess of P2,000, the taxpayer other
procedures to enhance the administration of tax than a corporation may elect to pay the tax in 2 equal
laws by the Secretary of Finance. installments in which case, the first installment shall be paid at
the time the return is filed and the second installment, on or
Q: Taxes are assessed for the purpose of before July 15 following the close of the calendar year (Sec.
generating revenue to be used for public needs. 56[A][2], NIRC).
Taxation itself is the power by which the State
raises revenue to defray the expenses of NOTE: If any installment is not paid on or before the date fixed for
government. A jurist said that a tax is what we its payment, the whole amount of the tax unpaid becomes due
pay for civilization, in our jurisdiction, which of and payable, together with delinquency penalties.
the following statements may be erroneous:
1. Taxes are pecuniary in nature. A claim for tax refund may be based on the following:
2. Taxes are enforced charges and contributions. [EPE]
3. Taxes are imposed on persons and property 1. Erroneously or illegally assessed or collected internal revenue
within the territorial jurisdiction of a State. taxes
4. Taxes are levied by the executive branch of 2. Penalties imposed without authority
the government. 3. Any sum alleged to have been Excessive or in any manner
5. Taxes are assessed according to a reasonable wrongfully collected.
rule of apportionment. (2004 Bar) The claim for refund must be filed within 2 years from the date of
payment of the tax or penalty regardless of any supervening cause
A: (4) Taxes are levied by the executive branch of that may arise after payment (Sec. 229,
government. This statement is erroneous because NIRC).
levy refers to the act of imposition by the legislature In case of corporate dissolution, the 2 year prescriptive period
which is done through the enactment of a tax law. should be counted from the thirty (30) days from the approval of
the SEC of its plan for dissolution (BPI v.
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
CIR, G.R. No. 144653, Aug. 28, 2001). A: No, what the Constitution simply provides is that Congress
Unutilized input VAT payments not otherwise used shall evolve a progressive system of taxation.
for any internal revenue tax due the taxpayer must Meaning of evolve as used in the Constitution
be claimed within two years reckoned from the close The constitutional provision has been interpreted to mean simply
of the taxable quarter when the relevant sales were that "direct taxes are to be preferred and as much as possible,
made pertaining to the input VAT regardless of indirect taxes should be minimized.
whether said tax was paid or not (Sec. 112, NIRC) The mandate of Congress is not to prescribe but to evolve a
(CIR v. Mirant Pagbilao progressive tax system. This is a mere directive upon Congress,
Corp., GR 172129, September 12, 2008). not a justiciable right or a legally enforceable one. We cannot
avoid regressive taxes but only minimize them (Tolentino et.al. v.
NOTE: Thus, when a zero-rated VAT taxpayer pays Secretary of Finance, G.R. No. 115455, Oct. 30, 1995).
input VAT a year after the pertinent transaction,
said taxpayer only has a year to file a claim for VAT is regressive
refund or tax credit of the unutilized creditable
input VAT (Dimaampao, 2011). The principle of progressive taxation has no relation with the VAT
system inasmuch as the VAT paid by the consumer or business
Systems of Taxation for every goods bought or services enjoyed is the same regardless
1. Progressive – A tax rate which increases as the of income. In other words,
tax base or bracket increases. E.g. Income tax, the VAT paid eats the same portion of an income, whether big or
Estate tax and Donors tax small. The disparity lies in the income earned by a person or
2. Regressive – The tax rate decreases as the tax profit margin marked by a business, such that the higher the
base or bracket increases. income or profit margin, the smaller the
3. Proportionate – A tax of a fixed percentage of portion of the income or profit that is eaten by VAT. A converso,
amounts of the base (value of the property, or the lower the income or profit margin, the bigger the part that the
amount of gross receipts etc.) E.g. VAT and Other VAT eats away. At the end of the day, it is really the lower income
Percentage taxes group or businesses with low-profit margins that is always
hardest hit
As to Tax Imposed (ABAKADA Guro v. Ermita, G.R. No. 168056, September 1, 2005).
Three (3) income tax systems Basic principles of a sound tax system (Canons of Taxation)
1. Global Tax System – system employed where the [FAT]
tax system views indifferently the tax base and 1. Fiscal adequacy
generally treats in common all categories of taxable a. Revenue raised must be sufficient to meet government/public
income of the individual (Tan v. Del Rosario, Jr., 237 expenditures and other
SCRA 324, 331). public needs (Chavez v. Ongpin, G.R. No. 76778, June 6, 1990).
2. Schedular Tax System – system employed where Neither an excess nor
the income tax treatment varies and is made to a deficiency of revenue vis-à-vis the needs of government would be
depend on the kind or category of taxable income of in keeping with the
the taxpayer (Tan v. Del Rosario, Jr., 237 SCRA 324, principle (Vitug, 2000).
331). 2. Administrative feasibility
3. Semi- schedular or semi- global tax system – all a. The tax system should be capable of being effectively
compensation income, business or professional administered and enforced with the
income, capital gain, passive income, and other least inconvenience to the taxpayer (Diaz v. Secretary of Finance,
income not subject to final tax are added together to G.R. No. 193007, July 19, 2011).
arrive at the gross income. After deducting the NOTE: Non-observance of this canon, however, will not render a
allowable deductions and exemptions from the gross tax imposition invalid except to the extent of specific
income, the taxable income is subjected to one set constitutional or statutory limitations are impaired Ibid.).
of 3. Theoretical justice
graduated tax rate (individual) or normal corporate a. Must take into consideration the taxpayers ability to pay
income tax rate (corporation) (Mamalateo, 2014). (Ability to Pay Theory).
b. Art. VI, Sec. 28(1), 1987 Constitution mandates that the rule on
Schedular Treatment vs. Global treatment (1994 taxation must be uniform and equitable and that the State must
Bar) evolve a progressive system of taxation.
SCHEDULAR
Schedular Treatment Global treatment
Different tax rates Unitary or Distinctions of the basic principles of a sound tax system
single tax rate FISCAL ADEQUACY ADMINISTRATIVE FEASIBILITY
THEORETICAL JUSTICE
Meaning Sources of revenues must be adequate to meet
government expenditures and their variations.
Different categories of The enforcement should be effective and efficient.
taxable income Imposition must be based on the taxpayers ability to pay
No need for Benefits
classification as No need to incur loans; no more budgetary deficit
all Conducive to economic growth and development; a simplified tax
taxpayers are system.
subjected Proportionate share in the burden of paying taxes.
to a single
rate Miscellaneous Concepts and Doctrines
Facts: Olimpio Fernandez and his wife Angelina Oasan had a net worth of
It is well settled that inheritance taxation
P8,600 on 8 December 1941. During the Japanese occupation the spouses
is governed by the statute in force at the time of acquired several real properties, and at the time of his death on 11 February
the death of the decedent. Of course, a tax 1945 he had a net worth of P31,489. The Collector of Internal Revenue
statute may be made retroactive in its operation. assessed a war profits tax (pursuant to RA 55, War Profits Tax Law) on the
estate of the deceased at P7,614.60, which his administratrix refused to pay.
Liability for taxes under retroactive legislation has
The case was brought to the Court of Tax Appeals which sustained the
been "one of the incidents of social life." But validity and legality of the assessment. The administratrix has appealed the
legislative intent that a tax statute should operate decision to the Supreme Court.
retroactively should be perfectly clear.
The Supreme Court affirmed the judgment appealed, with costs against the
appellants, Angelina Oasan Vda de Fernandez, Priscilla O. Fernandez, and
Revenue laws, generally, which impose Estela O. Fernandez..
taxes collected by the means ordinarily resorted to
for the collection of taxes are not classed as penal Nature of the tax
laws, although there are authorities to the The War Profit Tax, insofar as applicable to the estate of the
contrary. Thus, Article 22 of the Revised Penal deceased Olimpio Fernandez, is both a property tax and a tax on income. It
is a property tax in relation to the properties that Fernandez had in
Code is not applicable to the case of bar, and in December 1941; and it is an income tax in relation to the properties which he
the absence of clear legislative intent, we cannot purchased during the Japanese occupation.
give Act No. 3606 a retroactive effect. [Lorenzo
Rationale on the enactment of the War Profit Tax
vs. Posadas, Jr. GR No. 43082. June 18, 1937
The last Pacific war and the Japanese occupation of the Islands
have wrought divergent effects upon the different sectors of the population.
The quiet and the timid, who were afraid to go out of their homes or who
refused to have any dealings with the enemy, stopped from exercising their
callings or professions, losing their incomes; and they supported themselves
with properties they already owned, selling these from time to time to raise
funds with which to purchase their daily needs. These were reduced to
penury and want. But the bold and the daring, as well as those who were
callous to the criticism of being collaborators, engaged in trading in all forms
or sorts of commodities, from foodstuffs to war materials, earning fabulous
incomes and acquiring properties with their earnings. Those who were able
to retain their properties found themselves possessed of increased wealth
because inflation set in, the currency dropped in value and properties soared
in prices. It would have been unrealistic for the legislature to have ignored all
these facts and circumstances. After the war it could not, with justice to all
concerned, apportion the expenses of government equally on all the people
irrespective of the vicissitudes of war, equally on those who had their
properties decimated as on those who had become fabulously rich after the
war. Those who were fortunate to increase their wealth during the troubulous
period of the war were made to contribute a portion of their newly-acquired
wealth for the maintenance of the government and defray its expenses.
Those who in turn were reduced to penury or whose incomes suffered
reductions could not be compelled to share in the expenses to the same
extent as those who grew rich. This in effect is what the legislature did when
it enacted the War Profits Tax Law.
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
Hilado vs. Collector penalties arising from tax violations may not be given retroactive
effect.
GR L-9408, 31 October 1956
Q: In 1997, Mrs. Rocosta filed an amended return which
En Banc, Bautista Angelo (J): 8 concur
showed an overpayment of income tax for her 1996 income
report. She now claims a refund of taxes
Facts: Facts: Emilio Hilado filed his income tax return for withheld on her 1996 income as provided for in the 1997
1951 with the treasurer of Bacolod City, claiming a NIRC. Should the 1997 tax reform retroactively apply?
deductible item of P12,837.65 from his gross income A: NO. Tax laws are prospective in operation, unless the language
pursuant to General Circular V-123 issued by the Collector of of the statute clearly provides otherwise. At the time Mrs. Rocosta
Internal Revenue. The Secretary of Finance, through the filed her amended return, the 1997
Collector, issued General Circular V-139 which revoked and NIRC was not yet in effect. Hence, she has no reason at that time
declared void Circular V- 123; and laid down the rule[s] that
losses of property which occurred in World War II from fires, to think that the filing of an amended return would constitute the
storms, shipwreck or other casualty, or from robbery, theft, or written claim for refund required by
embezzlement are deductible in the year of actual loss or applicable law (CIR v. Acosta, G.R. No. 154068 August 3, 2007).
destruction of said property. The deductions were
disallowed. Q: Due to an uncertainty whether or not a new tax law is
applicable to printing companies, DEF Printers submitted a
Issue: Whether Internal Revenue Laws were enforced legal query to the BIR on that issue. The BIR issued a ruling
during the war and whether Hilado can claim compensation that printing companies are not covered by the new law.
for destruction of his property during the war. Relying on this ruling, DEF Printers did not pay said tax.
Subsequently, however, the BIR reversed the ruling and
Held: Philippines Internal Revenue Laws are not political in
issued a new one stating that the tax covers printing
nature and as such were continued in force during the period
of enemy occupation and in effect were actually enforced by companies. Could the BIR now assess DEF Printers for back
the occupation government. Such tax laws are deemed to be taxes corresponding to the years before the new ruling?
laws of the occupied territory and not of the occupying Reason briefly. (2004 Bar Question)
enemy. As of the end of 1945, there was no law which Hilado A: NO. The reversal of the ruling shall not be given a retroactive
could claim for the destruction of his properties during the application, if said reversal will be prejudicial to the taxpayer.
battle for the liberation of the Philippines. Under the Therefore, the BIR cannot assess DEF
Philippine Rehabilitation Act of 1948, the payment of claims Printers for back taxes because it would be violative of the
by the War Damage Commission depended upon its principle of non-retroactivity of rulings and doing so would result
discretions non-payment of which does not give rise to any to grave injustice to the taxpayer who relied
enforceable right. Assuming that the loss (deductible item)
on the first ruling in good faith (Sec. 246, NIRC; Commissioner v.
represents a portion of the 75% of his war damage claim, the
Burroughs, Ltd., G.R. No. L-66653, June 19, 1986).
amount would be at most a proper deduction of his 1950
gross income (not on his 1951 gross income) as the last
installment and notice of discontinuation of payment by the • HYDRO RESOURCES V. COURT OF TAX APPEALS
War Damage Commission was made in 1950.
ET AL.
GR 80276; December 21, 1990
compromise and was willing to pay P1 remedial, or that do not create new or
million in taxes. Her offer was denied. take away vested rights, do not fall under
She continued to work on another the general rule against the retroactive
compromise but was eventually denied. operation of statutes. Clearly, Section 228
The case reached the Court of Tax provides for the procedure in case an
Appeals where Reyes was also denied. In assessment is protested. The provision
the Court of Appeals, Reyes received a does not create new or take away vested
favorable judgment. rights. In both instances, it can surely be
• Issue: applied retroactively. Moreover, RA 8424
does not state, either expressly or by
• Whether or not the formal assessment necessary implication, that pending
notice is valid. actions are excepted from the operation
• Held: of Section 228, or that applying it to
• No. The NIRC of 1997 was already in pending proceedings would impair vested
effect when the FAN was issued. Under rights.
Section 228 of the NIRC, taxpayers shall • Same; Same; Same; Same; A tax
be informed in writing of the law and the regulation is promulgated by the
facts on which the assessment is made: finance secretary to implement the
otherwise, the assessment shall be void. provisions of the Tax Code; The
In the case at bar, the FAN merely stated absence of the regulation does not
the amount of liability to be shouldered by automatically mean that the law itself
the estate and the law upon which such would become inoperative.—The non-
liability is based. However, the estate was retroactive application of Revenue
not informed in writing of the facts on Regulation (RR) No. 12-99 is of no
which the assessment of estate taxes had moment, considering that it merely
been made. The estate was merely implements the law. A tax regulation is
informed of the findings of the CIR. promulgated by the finance secretary to
Section 228 of the NIRC being remedial implement the provisions of the Tax
in nature can be applied retroactively Code. While it is desirable for the
even though the tax investigation was government authority or administrative
conducted prior to the law’s passage. agency to have one immediately issued
Consequently, the invalid FAN cannot be after a law is passed, the absence of the
a basis of a compromise, any proceeding regulation does not automatically mean
emanating from the invalid FAN is void that the law itself would become
including the issuance of the warrant of inoperative.
distraint and/or levy. • Same; Same; Although taxes are the
• Same; Same; Statutes; Statutory lifeblood of the government, their
Construction; Statutes that are assessment and collection should be
remedial, or that do not create new or made in accordance with law as any
take away vested rights, do not fall arbitrariness will negate the very
under the general rule against the reason for government itself.—Even a
retroactive operation of statutes; RA cursory review of the preliminary
8424 does not state, either expressly assessment notice, as well as the
or by necessary implication, that demand letter sent, reveals the lack of
pending actions are excepted from the basis for—not to mention the insufficiency
operation of Section 228, or that of—the gross figures and details of the
applying it to pending proceedings itemized deductions indicated in the
would impair vested rights.—The notice and the letter. This Court cannot
general rule is that statutes are countenance an assessment based on
prospective. However, statutes that are estimates that appear to have been
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
arbitrarily or capriciously arrived at. plausible pretense being entertained to justify non-
compliance. All that has to be done is to apply it in every
Although taxes are the lifeblood of the case that falls within its terms
government, their assessment and
collection “should be made in accordance
with law as any arbitrariness will negate JAIME N. SORIANO v. SECRETARY OF FINANCE, GR
No. 184450, 2017-01-24
the very reason for government itself.”
• Facts:
‣UMALI v. ESTANISLAO; G.R. No. 104307
• On 19 May 2008, the Senate filed its Senate Committee
• PANSACOLA VS COMMISSIONER OF INTERNAL REVENUE Report No. 53 on Senate Bill No. (S.B.) 2293. On 21
May 2008, former President Gloria M. Arroyo certified
• G.R. 159991 NOVEMBER 16, 2006
the passage of the bill as urgent through a letter
• PONENTE: QUISUMBING, J. addressed to then Senate President Manuel Villar. On
• CASE DIGEST BY: LUZADIO, LOURY MAE the same day, the bill was passed on second reading
IN the Senate and, on 27 May 2008, on third reading.
• The following day, 28 May 2008, the Senate sent S.B.
• Facts: On April 13, 1998, petitioner Carmelino F. Pansacola 2293 to the House of Representatives for the latter's
filed his income tax return for the taxable year 1997 that concurrence.
reflected an overpayment of P5, 950. He claimed the
increased amounts of personal and additional exemptions • On 17 June 2008, R.A. 9504 entitled "An Act Amending
under Section 35 of the NIRC and thus prayed for a refund. Sections 22, 24, 34, 35, 51, and 79 of Republic Act No.
Both the Bureau of Internal Revenue and Court of Tax 8424, as Amended, Otherwise Known as the National
Appeals denied his petition. His motion for reconsideration Internal Revenue Code of 1997," was approved and
was also denied. According to the tax court, “it would be signed into law by President Arroyo
absurd for the law to allow the deduction from a taxpayer’s
gross income earned on a certain year of exemptions • The following are the salient features of the new law:It
availing on a different taxable year…” Petitioner, on the increased the basic personal exemption from P20,000
other hand insists that the increased exemptions were for a single individual, P25,000 for the head of the
already available on April 15, 1998, the deadline for filing family, and P32,000 for a married individual to P50,000
income tax returns for taxable year 1997, because the NIRC for each individual.It increased the additional exemption
was already effective. He reasons that by making the said for each dependent not exceeding four from P8,000 to
law effective on the 1998 tax period would postpone the P25,000.It raised the Optional Standard Deduction
availability of the increased exemptions and literally defer (OSD) for individual taxpayers from 10% of gross
the effectivity of the NIRC to January 1, 1999. income to 40% of the gross receipts or gross sales.It
introduced the OSD to corporate taxpayers at no more
than 40% of their gross income.It granted MWEs
• Issue: Whether or not
the exemptions under Section exemption from payment of income tax on their
35 of the NIRC, which took effect on January 1, minimum wage, holiday pay, overtime pay, night shift
1998, be availed of for taxable year 1997? differential pay and hazard pay.[1]
• Held: NO. Careful consideration of the NIRC showed that • Accordingly, R.A. 9504 was published in the Manila
Bulletin and Malaya on 21 June 2008. On 6 July 2008,
there is nothing in the law which shows any intent to give
the end of the 15-day period, the law took effect.
retroactive effect to Section 35. Analysis of the provisions of
the code showed that the law consider for the purpose of
determining the tax due from an individual taxpayer is his • Petitioners Jaime N. Soriano et al. primarily assail
status and qualified dependents at the close of the taxable Section 3 of RR 10-2008 providing for the prorated
application of the personal and additional exemptions
year and not at the time the return is filed and the tax due
for taxable year 2008 to begin only effective 6 July 2008
thereon is paid. When petitioner filed his 1997 tax return,
for being contrary to Section 4 of Republic Act No.
the increased exemptions provided in Section 35 of the NIRC 9504.[2]Petitioners argue that the prorated application
were not yet available. In fact, it has not yet accrued as of of the personal and additional exemptions under RR
December 31, 1997. It must be noted that tax laws are 10-2008 is not "the legislative intendment in this
prospective in application unless the law itself expressly jurisdiction."[3] They stress that Congress has always
provide for its retroactive effect. Moreover, personal and maintained a policy of "full taxable year treatment"[4] as
additional exemptions are considered as deductions from regards the application of tax exemption laws. They
gross income. Deductions for income tax purposes partake allege further that R.A. 9504 did not provide for a
of the nature of tax exemptions, hence strictly construed prorated application of the new set of personal and
against the taxpayer and cannot be allowed unless granted additional exemptions.[5]
in the most explicit and categorical language too plain to be
mistaken. They cannot be extended by mere implication or • Then Senator Manuel Roxas, as principal author of
inference. And, where a provision of law speaks R.A. 9504, also argues for a full taxable year treatment
categorically, the need for interpretation is obviated, no of the income tax benefits of the new law. He relies on
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
• Petitioners Senator Francis Joseph Escudero, the Tax • T]he Court is of the considered view that Rep. Act 7167
Management Association of the Philippines, Inc., and should cover or extend to compensation income earned
Ernesto Ebro allege that R.A. 9504 unconditionally or received during calendar year 1991
grants MWEs exemption from income tax on their
taxable income, as wel1 as increased personal and
additional exemptions for other individual taxpayers, for • In sum, R.A. 9504, like R.A. 7167 in Umali, was a piece
the whole year 2008. They note that the assailed RR of social legislation clearly intended to afford immediate
10-2008 restricts the start of the exemptions to 6 July tax relief to individual taxpayers, particularly low-income
2008 and provides that those MWEs who received compensation earners. Indeed, if R.A. 9504 was to take
"other benefits" in excess of P30,000 are not exempt effect beginning taxable year 2009 or half of the year
from income taxation. Petitioners believe this RR is a 2008 only, then the intent of Congress to address the
"patent nullity"[15] and therefore voi increase in the cost of living in 2008 would have been
negated.
• The Office of the Solicitor General (OSG) filed a
Consolidated Comment[16] and took the position that • The NIRC is clear on these matters. The taxable
the application of R.A. 9504 was intended to be income of an individual taxpayer shall be computed on
prospective, and not retroactive. This was supposedly the basis of the calendar year.[30] The taxpayer is
the general rule under the rules of statutory required to fi1e an income tax return on the 15th of April
construction: law will only be applied retroactively if it of each year covering income of the preceding taxable
clearly provides for retroactivity, which is not provided in year.[31] The tax due thereon shall be paid at the time
this instance the return is filed
• The OSG further argues that the legislative intent of • In the present case, the increased exemptions were
non-retroactivity was effectively confirmed by the already available much earlier than the required time of
"Conforme" of Senator Escudero, Chairperson of the filing of the return on 15 April 2009. R.A. 9504 came
Senate Committee on Ways and Means, on the draft into law on 6 July 2008, more than nine months before
revenue regulation that became RR 10-2008. the deadline for the filing of the income tax return for
taxable year 2008. Hence, individual taxpayers were
entitled to claim the increased amounts for the entire
• Issues: year 2008. This was true despite the fact that incomes
were already earned or received prior to the law's
• First, whether the increased personal and additional effectivity on 6 July 2008.
exemptions provided by R.A. 9504 should be applied to
the entire taxable year 2008 or prorated, considering • We find the facts of this case to be substantially
that R.A. 9504 took effect only on 6 July 2008.Second, identical to those of Umali.First, both cases involve an
whether an MWE is exempt for the entire taxable year amendment to the prevailing tax code. The present
2008 or from 6 July 2008 only.Third, whether Sections petitions call for the interpretation of the effective date
1 and 3 of RR 10-2008 are consistent with the law in of the increase in personal and additional exemptions.
providing that an MWE who receives other benefits in Otherwise stated, the present case deals with an
excess of the statutory limit of P30,000[19] is no longer amendment (R.A. 9504) to the prevailing tax code (R.A.
entitled to the exemption provided by R.A. 9504. 8424 or the 1997 Tax Code). Like the present case,
Umali involved an amendment to the then prevailing tax
• Ruling: code - it interpreted the effective date of R.A. 7167, an
amendment to the 1977 NIRC, which also increased
• the policy of full taxable year treatment is established, personal and additional exemptions.Second, the
not by the amendments introduced by R.A. 9504, but by amending law in both cases reflects an intent to make
the provisions of the 1997 Tax Code, which adopted the the new set of personal and additional exemptions
policy from as early as 1969. immediately available after the effectivity of the law. As
already pointed out, in Umali, R.A. 7167 involved social
legislation intended to adjust personal and additional
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
exemptions. The adjustment was made in keeping with Section 327 (Non-retroactivity of rulings) of the
the poverty threshold level prevailing at the time.Third, National Internal Revenue Code provides “any
both cases involve social legislation intended to cure a revocation, modification, or reversal of any of the rules
social evil - R.A. 7167 was meant to adjust personal and regulations promulgated in accordance with the
and additional exemptions in relation to the poverty preceding section or any of the rulings or circulars
threshold level, while R.A. 9504 was geared towards promulgated by the Commissioner shall not be given
addressing the impact of the global increase in the price
retroactive application if the revocation, modification, or
of goods.Fourth, in both cases, it was clear that the
intent of the legislature was to hasten the enactment of reversal will be prejudicial to the taxpayer except in the
the law to make its beneficial relief immediately following cases (a) where the taxpayer deliberately
available. misstates or omits material facts from his return or in any
document required of him by the Bureau of Internal
Revenue; (b) where the facts subsequently gathered by
the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based, or (c) where
• CIR vs. Burroughs Ltd. [G.R. No. L-66653. June 19,
the taxpayer acted in bad faith.” (ABS-CBN Broadcasting
• 1986.]
Corp. v. CTA, 108 SCRA 151-152)
• Second Division, Paras (J): 4 concurring
• Burroughs Limited will be prejudiced by the
Facts: Burroughs Limited is a foreign corporation retroactive application of Memorandum
authorized to engage in trade or business in the Circular
Philippines through a branch office located at De la Rosa 8-82
corner Esteban Streets, Legaspi Village, Makati, Metro The prejudice that would result to Burroughs
Manila. Sometime in March 1979, said branch office
Limited by a retroactive application of Memorandum
applied with the Central Bank for authority to remit to its
parent company abroad, branch profit amounting to Circular 8-82 is beyond question for it would be deprived
P7,647,058.00. Thus, on 14 March 1979, it paid the 15% of the substantial amount of P172,058.90. Insofar as the
branch profit remittance tax, pursuant to Sec. 24 (b) (2) enumerated exceptions are concerned, admittedly,
(ii) and remitted to its head office the amount of Burroughs Limited does not fall under any of them.
P6,499,999.30. Claiming that the 15% profit remittance
tax should have been computed on the basis of the
amount actually remitted (P6,499,999.30) and not on the ‣PBCOM v. CIR; G.R. No. 112024
amount before profit remittance tax (P7,647,058.00), FACTS:
Burroughs Ltd. filed on 24 December 1980, a written
claim for the refund or tax credit of the amount of
P172,058. 90 representing alleged overpaid branch profit
Petitioner, Philippine Bank of Communications
remittance tax. On 24 February 1981, Burroughs Ltd. filed
(PBCom), a commercial banking corporation duly
with the Court of Tax Appeals, a petition for review (CTA
organized under Philippine laws, filed its quarterly
Case) 3204 for the recovery of the amount of
P172,058.81. On 27 June 1983, the tax court rendered its income tax returns for the first and second
Decision, ordering the Commission of Internal Revenue quarters of 1985, reported profits, and paid the
to grant a tax credit in favor of Burroughs Ltd. the said total income tax of P5,016,954.00 by applying
amount claimed; without pronouncement as to costs. PBCom's tax credit memos for P3,401,701.00 and
Unable to obtain a reconsideration from the decision, the P1,615,253.00, respectively. Subsequently,
Commissioner filed the petition for certiorari before the however, PBCom suffered net loss of
Supreme Court. P25,317,228.00, thereby showing no income tax
The Supreme Court affirmed the assailed decision of the liability in its Annual Income Tax Returns for the
Court of Tax Appeals; without pronouncement as to year-ended December 31, 1985. For the
costs. succeeding year, ending December 31, 1986, the
petitioner likewise reported a net loss of
Memorandum Circular 8-82 (17 March 1982) P14,129,602.00, and thus declared no tax payable
does not apply for the year.
What is applicable in the present case is still the But during these two years, PBCom earned rental
Revenue Ruling of 21 January 1980 because income from leased properties. The lessees
Burroughs Limited paid the branch profit remittance tax in withheld and remitted to the BIR withholding
question on 14 March 1979. Memorandum Circular 8- 82 creditable taxes of P282,795.50 in 1985 and
dated 17 March 1982, which states that “considering that P234,077.69 in 1986. On August 7, 1987,
the 15% branch profit remittance tax is imposed and petitioner requested the Commissioner of Internal
collected at source, necessarily the tax base should be Revenue, among others, for a tax credit of
the amount actually applied for by the branch with the P5,016,954.00 representing the overpayment of
Central Bank of the Philippines as profit to be remitted taxes in the first and second quarters of 1985.
abroad,” cannot be given retroactive effect in the light of
Section 327 of the National Internal Revenue Code.
Thereafter, on July 25, 1988, petitioner filed a
Section 327 of the National Internal Revenue claim for refund of creditable taxes withheld by
Code their lessees from property rentals in 1985 for
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
P282,795.50 and in 1986 for P234,077.69. 7-85 issued by the Acting Commissioner of
Internal Revenue is an administrative
Pending the investigation of the respondent interpretation which is not in harmony with Sec.
Commissioner of Internal Revenue, petitioner 230 of 1977 NIRC, for being contrary to the
instituted a Petition for Review on November 18, express provision of a statute. Hence, his
1988 before the Court of Tax Appeals (CTA). The interpretation could not be given weight for to do
petition was docketed as CTA Case No. 4309 so would, in effect, amend the statute.”
entitled: "Philippine Bank of Communications vs.
Commissioner of Internal Revenue."
The CTA decided in favor of the BIR on the ground b. By implication of the above, claim for refund had
that the Petition was filed out of time as the same already prescribed.
was filed beyond the two-year reglementary
period. A motion for Reconsideration was denied Since the petition had been filed beyond the
and the appeal to Court of Appeals was likewise prescriptive period, the same has already
denied. Thus, this appeal to Supreme Court. prescribed. The fact that the final adjusted return
show an excess tax credit does not automatically
Issues: entitle taxpayer claim for refund without any
express intent.
a) Whether or not Revenue Regulations No. 7-85
which alters the reglementary period from two WHEREFORE, the petition is hereby DENIED. The
(2) years to ten (10) years is valid. decision of the Court of Appeals appealed from is
b) Whether or not the petition for tax refund had AFFIRMED, with COSTS against the petitioner.
already prescribed.
Ruling:
a. RR 7-85 altering the 2-year prescriptive period
imposed by law to 10-year prescriptive period is
invalid.
Imprescriptibility of Taxes
Administrative issuances are merely
interpretations and not expansions of the
Doctrine of Imprescriptibility
provisions of law, thus, in case of inconsistency,
the law prevails over them. Administrative
agencies have no legislative power.
GR: Taxes are imprescriptible by reason that it is the
lifeblood of the government.
“When the Acting Commissioner of Internal
Revenue issued RMC 7-85,
XPN: Tax laws may provide for statute of limitations. In
changing the prescriptive period of two years to
particular, the NIRC and LGC provide for the prescriptive
ten years on claims of excess quarterly income tax
periods for assessment and collection.
payments, such circular created a clear
inconsistency with the provision of Sec. 230 of Tax laws provide for statute of limitations in the collection of
1977 NIRC. In so doing, the BIR did not simply taxes for the purpose of safeguarding taxpayers from any
interpret the law; rather it legislated guidelines unreasonable examination, investigation or assessment (CIR v.
contrary to the statute passed by Congress.” B.F. Goodrich Phils, G.R. No. 104171, February 24, 1999).
OBJEC SITUS
T
INCOME TAX
Nationality – applied to RC, DC From sources of income derived within and without the Philippines
Place – applied to NRC, NRA, From sources of income derived within the Philippines
NRFC
Residence – applied to RA, RFC From sources of income derived within the Philippines
NOTE: The important factor that determines the source of income of personal services is place where the
services were actually rendered (CIR v. Baeir-Nickel, G.R. No. 153793, August 29, 2006). Thus, in the airline
business, the sale of tickets in the Philippines is considered as a source of income within the country
regardless of the absence of flight operations within Philippine territory (CIR v. Japan Air Lines, Inc., G.R. No.
60714, March 6, 1991).
PROPERTY
TAX
Real Property Location of the property (lex reisitae / lex situs)
Rationale:
1. The taxing authority has control because of the stationary and fixed
character of the property.
2. The place where the real property is situated gives protection to the
real property; hence the property or its owner should support the
government of that place.
Personal Property Tangible personal property
(Tangible and
Intangible) Where the property is physically located although the owner resides in
another jurisdiction (51 Am Jur. 467)
Rationale: The place where the tangible personal property is found gives
its protection.
XPN:
1. When the property has acquired a business situs in another
jurisdiction;
2. When an express provision of the statute provide for anoth er rule, i.e.
Sec. 104
of the N)RC in case of donor’s and estate tax
EXC)SE TAX / DONOR’S TAX / ESTATE TAX
Nationality– applied to RC, NRC Taxed upon their properties wherever situated
Place – applied to NRA Taxed on properties situated within the Philippines
NOTE: The Documentary Stamp Tax is in the nature of an excise tax because it is imposed upon the privilege,
opportunity or facility offered at exchanges for the transaction of the business (CIR v. Pilipinas Shell Petroleum
Corporation, G.R. No. 192398, September 29, 2014).
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
BUSINESS
TAX
NOTE: The situs of taxation for the sale personal property is not the
place where the contract was perfected, but the place of delivery. It has
been ruled that for a sale to be taxed in the Philippines it must be
consummated there; consummation is associated with the delivery of
the things subject matter of the contract (The Municipality of Jose
Panganiban v. The Shell Company of the Philippines, LTD., G.R. No. L-18349,
July 30, 1966).
Where the goods, property or services are destined, used or consumed
(Destination Principle/Cross Border Principle).
Issue: Whether the shares of stock are subject to obligations or bonds have acquired a business Situs in
Philippine inheritance tax considering that the decedent the Philippines;
was domiciled in California. 6. Shares or rights in any partnership, business or
industry Established in the Philippines (Sec. 104,
NIRC)
[Fran-Sha4](Organized-Established-85-Foreign
Situs)
the place of
dispatch or
NOTE: These are considered
receipt of
located in the Philippines,
electronic
regardless of the residence of the
data message
donor or decedent. EXCEPT where
or document.
the foreign country grants
Only one
exemption or does not impose taxes
place
on intangible properties to Filipino
of business
citizens.
More than one Place which has closest
place of relationship to the
Application of the doctrine of
business, with underlying transaction
mobilia sequuntur personam underlying
not mandatory in all cases transaction
More than one Principal place of business
place of
Such doctrine has been decreed as business, without underlying transaction
a mere "fiction of law having its No place of If originator or addressee is
origin in considerations of general business a natural person – Habitual
convenience and public policy, and residence.
cannot be applied to limit or control
the right of the State to tax If body corporate – usual place of
property within its jurisdiction," residence (place where it is
and must "yield to established fact incorporated or otherwise
of legal ownership, actual presence legally
and control elsewhere, and cannot constituted).
be applied if to do so would result
in inescapable and patent injustice"
(Wells Fargo Bank and Union Trust v.
Collector, G.R. No. L-46720, June 28, NOTE: Section 23 only creates a rebuttable
1940). presumption and applies even if the originator or
addressee has used a laptop or other portable
Situs of taxation in electronic transactions device to transmit or receive his electronic data
message or electronic document.
As provided for under Section 23 of
the E-Commerce Act (R.A. 8792), an If the income or property has acquired multiple
electronic data message or situs, it is possible that certain properties be
electronic document is deemed to subject to tax in several taxing jurisdictions.
be dispatched at the place where
the originator has its place of Remedies available against multiplicity of situs
business and received at the place
where the addressee has its place of Tax laws and treaties with other States may:
business. This rule shall also apply 1. Exempt foreign nationals from local taxation
to determine the tax situs of such and local nationals from foreign taxation
transaction. under the principle of reciprocity;
2. Credit foreign taxes paid from local taxes due;
3. Allow foreign taxes as deduction from gross
income; or
FACTUAL PLACE OF DISPATCH 4. Reduce the Philippine income tax rate
SITUAT (ORIGINATOR) OR
ION: RECEIPT
ORIGI (ADDRESSEE)
NATOR
OR
ADDRE
SSEE
HAS:
Unless Place of business
otherwise
agreed upon
by the parties,
the following
rules shall
apply in
determining
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
rule shall also apply to determine the tax situs of such taxation and local nationals from
transaction. foreign taxation under the principle of
reciprocity;
6. Credit foreign taxes paid from local taxes
due;
FACTUAL PLACE OF 7. Allow foreign taxes as deduction from
SITUATION: DISPATCH gross income; or
ORIGINATOR (ORIGINATOR) 8. Reduce the Philippine income tax rate.
OR ADDRESSEE OR RECEIPT
HAS: (ADDRESSEE)
Unless otherwise agreed Place of business
upon by the parties, the
Double Taxation
following rules shall
apply in determining Two Types of Double Taxation (Duplicate
the place of dispatch or Taxation)
receipt of electronic
data message or
document. Only one A. Direct (Strict sense)
place
of business It constitutes taxation in its objectionable or
More than one place of Place which has prohibited sense.
business, with closest relationship
underlying to
transaction the Elements of Direct Double Taxation:
underlying
transaction 1. The same property is taxed twice when
More than one place of Principal place it should be taxed only once; and
business, of 2. Both taxes are imposed
witho business a. on the same subject matter,
ut underlying
b. for the same purpose,
transaction
c. by the same taxing authority,
No place of business If originator or d. within the same jurisdiction,
addressee is a e. during the same taxing period; and
natural person – f. the taxes must be of the same
Habitual residence.
kind or character (City of
Manila v. Coca Cola Bottlers
If body corporate –
Philippines , G.R. No. 181845,
usual place of
residence (place August 4, 2009)
where it is
incorporated NOTE: All the elements must be
or present in order to apply double
otherwise taxation in its strict sense.
legall
y Q: The City of Manila assessed and
constituted). collected taxes from the individual
petitioners pursuant to Section 15
(Tax on Wholesalers, Distributors,
NOTE: Section 23 only creates a
or Dealers) and Section 17 (Tax on
rebuttable presumption and applies even if
Retailers) of the Revenue Code of
the originator or addressee has used a
Manila (Ordinance No. 7794). At
laptop or other portable device to transmit
the same time, the City of Manila
or receive his electronic data message or
imposed additional taxes upon the
electronic document.
petitioners pursuant to Section 21
of the Revenue Code of Manila, as a
If the income or property has acquired condition for the renewal of their
multiple situs, it is possible that certain respective business licenses for the
properties be subject to tax in several year 1999. Is there double taxation?
taxing jurisdictions.
A: YES. All the elements of double
Remedies available against multiplicity taxation and the taxes collected
of situs pursuant thereto must be refunded.
Firstly, because Section 21 of the
Tax laws and treaties with other States
Revenue Code of Manila imposed the
may:
tax on a person who sold goods and
5. Exempt foreign nationals from local
services in the course of trade or
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
business based on a certain more impositions. It is the double
percentage of his gross sales or taxation other than those covered by
receipts in the preceding calendar direct double taxation.
year, while Section 15 and Section
17 likewise imposed the tax on a Q: Under the Tax Code, the earnings of
person who sold goods and services banks from "passive" income are subject to
in the course of trade or business a twenty percent final withholding tax
but only identified such person with (20% FWT). This tax is withheld at source
particularity, namely, the and is thus not actually and physically
wholesaler, distributor or dealer received by the banks, because it is paid
(Section 15), and the retailer directly to the government by the entities
(Section 17). All the taxes, being from which the banks derived the income.
imposed on the privilege of doing Apart from the 20% FWT, banks are also
business in the City of Manila in subject to a five percent gross receipts tax
order to make the taxpayers (5% GRT) which is imposed by the Tax
contribute to the city’s revenues, were Code on their gross receipts, including
imposed on the same subject the "passive" income. Is there double taxation
matter and for the same purpose. on the banks’ “passive” income?
Secondly, the taxes were imposed
by the same taxing authority (the A: Subjecting interest income to a 20% Final
City of Manila) and within the same Withholding Tax and including it in the
jurisdiction in the same taxing computation of the 5% Gross Receipts Tax
period (i.e., per calendar year). is not double taxation. Firstly, the taxes
Thirdly, the taxes were all in the herein are imposed on two different subject
nature of local business taxes. matters as FWT is the passive income
(Nursery Care Corp. et. al, v. City of generated in the form of interest on
Manila, G.R. No. 180651, July 30, deposits and yield on deposit substitutes,
2014) while the subject matter of the GRT is the
privilege of engaging in the business of
banking.
1. Exemption Method
1. Credit Method
2. Deduction Method
3. Reduction Method
(i) Statute
(ii) Treaty
• RR No. 1-2010
Most-Favored Nation Clause
Purpose of the Most-Favored Nation clause
Facts: SC. JOHNSON AND SON, INC., a domestic Issue: WON SC Johnson can refund.
corporation organized and operating under the Philippine
laws, entered into a license agreement with SC Johnson Ruling: NO. The tax rates on royalties and the
and Son, United States of America (USA), a non-resident circumstances of payment thereof are the same for all
foreign corporation was granted the right to use the the recipients of such royalties and there is no disparity
trademark, patents and technology owned by the latter based on nationality in the circumstances of such
including the right to manufacture, package and distribute payment. 6 On the other hand, a cursory reading of the
the products. License Agreement was duly registered with various tax treaties will show that there is no similarity
the Technology Transfer Board of the Bureau of Patents, in the provisions on relief from or avoidance of double
Trade Marks and Technology Transfer under Certificate of taxation 7 as this is a matter of negotiation between the
Registration No. 8064. SC. JOHNSON AND SON, INC contracting parties. This dissimilarity is true
was obliged to pay SC Johnson and Son, USA royalties particularly in the treaties between the Philippines and
based on a percentage of net sales and subjected the same the United States and between the Philippines and West
to 25% withholding tax on royalty payments which Germany.
[respondent] paid from July 1992 to May 1993.
Respondent filed with the International Tax Affairs The RP-US Tax Treaty is just one of a number of
Division (ITAD) of the BIR a claim for refund of overpaid bilateral treaties which the Philippines has entered into
withholding tax on royalties arguing that Since the for the avoidance of double taxation. 9 The purpose of
agreement was approved by the Technology Transfer these international agreements is to reconcile the
Board, the preferential tax rate of 10% should apply hence national fiscal legislations of the contracting parties in
royalties paid by the [respondent] to SC Johnson and Son, order to help the taxpayer avoid simultaneous taxation
USA is only subject to 10% withholding tax pursuant to in two different jurisdictions. 10 More precisely, the tax
the most-favored nation clause of the RP-US Tax Treaty. conventions are drafted with a view towards the
elimination of international juridical double taxation,
The Commissioner did not act on said claim for refund. which is defined as the imposition of comparable taxes
Respondent filed a petition for review before the CTA to in two or more states on the same taxpayer in respect of
claim a refund of the overpaid withholding tax on royalty the same subject matter and for identical periods. 11 The
payments. CTA decided for Respondent and ordered CIR apparent rationale for doing away with double taxation
to issue a tax credit certificate in the amount of is of encourage the free flow of goods and services and
P963,266.00 representing overpaid withholding tax on the movement of capital, technology and persons
royalty payments, beginning July, 1992 to May, 1993. CIR between countries, conditions deemed vital in creating
filed a petition for review with CA. CA upheld CTA. robust and dynamic economies.
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
Double taxation usually takes place when a person is some form of tax relief, whether this be in the form of a
resident of a contracting state and derives income from, or tax credit or exemption. 24 Otherwise, the tax which could
owns capital in, the other contracting state and both states have been collected by the Philippine government will
impose tax on that income or capital. In order to eliminate simply be collected by another state, defeating the object
double taxation, a tax treaty resorts to several methods. of the tax treaty since the tax burden imposed upon the
First, it sets out the respective rights to tax of the state of investor would remain unrelieved. If the state of residence
source or situs and of the state of residence with regard to does not grant some form of tax relief to the investor, no
certain classes of income or capital. In some cases, an benefit would redound to the Philippines, i.e., increased
exclusive right to tax is conferred on one of the investment resulting from a favorable tax regime, should
contracting states; however, for other items of income or it impose a lower tax rate on the royalty earnings of the
capital, both states are given the right to tax, although the investor, and it would be better to impose the regular rate
amount of tax that may be imposed by the state of source rather than lose much-needed revenues to another
is limited. country.
Double taxation usually takes place when a person is The entitlement of the 10% rate by U.S. firms despite the
resident of a contracting state and derives income from, or absence of a matching credit (20% for royalties) would
owns capital in, the other contracting state and both states derogate from the design behind the most grant equality
impose tax on that income or capital. In order to eliminate of international treatment since the tax burden laid upon
double taxation, a tax treaty resorts to several methods. the income of the investor is not the same in the two
First, it sets out the respective rights to tax of the state of countries. The similarity in the circumstances of payment
source or situs and of the state of residence with regard to of taxes is a condition for the enjoyment of most favored
certain classes of income or capital. In some cases, an nation treatment precisely to underscore the need for
exclusive right to tax is conferred on one of the equality of treatment.
contracting states; however, for other items of income or
capital, both states are given the right to tax, although the Respondent cannot be deemed entitled to the 10 percent
amount of tax that may be imposed by the state of source rate granted under the RP-West Germany Tax Treaty for
is limited. On the other hand, in the credit method, the reason that there is no payment of taxes on royalties
although the income or capital which is taxed in the state under similar circumstances in RP-US treaty.
of source is still taxable in the state of residence, the tax
paid in the former is credited against the tax levied in the
latter. The basic difference between the two methods is
Impact of Taxation and Incidence of Taxation
that in the exemption method, the focus is on the income
or capital itself, whereas the credit method focuses upon
Meaning of impact and incidence of taxation
the tax. 15
Impact of Taxation Incidence of
The phrase "royalties paid under similar circumstances" Taxation
in the most favored nation clause of the US-RP Tax Treaty It refers to the It is the economic
necessarily contemplated "circumstances that are tax- statutory cost of tax. It is also
related". liability to pay the known as burden of
tax. It
falls on the person taxation.
In the case at bar, the state of source is the Philippines
because the royalties are paid for the right to use property originally assessed
with a
or rights, i.e. trademarks, patents and technology, located It is the payment of
particular tax.
within the Philippines. 17 The United States is the state of tax.(Burden)
residence since the taxpayer, S. C. Johnson and Son, U. S. It is the imposition of
A., is based there. Under the RP-US Tax Treaty, the state tax.
of residence and the state of source are both permitted to (Liability)
tax the royalties, with a restraint on the tax that may be
collected by the state of source. It is on the seller It is on the final
upon
whom the tax has been consumer, the place at
the concessional tax rate of 10 percent provided for in the imposed. which the tax comes
RP-Germany Tax Treaty should apply only if the taxes to
imposed upon royalties in the RP-US Tax Treaty and in rest.
the RP-Germany Tax Treaty are paid under similar
circumstances. This would mean that private respondent
must prove that the RP-US Tax Treaty grants similar tax
reliefs to residents of the United States in respect of the
taxes imposable upon royalties earned from sources
within the Philippines as those allowed to their German COMPENSATION AND SET-OFF
counterparts under the RP-Germany Tax Treaty. The RP-
US and the RP-West Germany Tax Treaties do not contain Compensation or set-off shall take place
similar provisions on tax crediting. when two persons, in their own right, are
creditors and debtors of each other (Article
If the rates of tax are lowered by the state of source, in this 1278, Civil Code).
case, by the Philippines, there should be a concomitant
commitment on the part of the state of residence to grant
Rules governing compensation or set-off
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
as applied in taxation whether express or implied. Inasmuch as
taxes are not debts, it follows that the two
GR: No set-off is admissible against the obligations are not susceptible to set-off or
demands for taxes levied for general or legal compensation. Hence, no set-off or
local governmental purposes. compensation between the two different
classes of obligations is allowed (Francia v.
NOTE: The prevalent rule in our Intermediate Appellate Court, 162 SCRA 753,
jurisdiction disfavors set-off or legal 1988).
compensation of tax obligations for the
following reasons: (1) taxes are of a distinct NOTE: It is only when the local tax
kind, essence and nature, and these assessment and the final judgment are both
impositions cannot be so classed in merely overdue, demandable, as well
the same category as ordinary obligations;
(2) the applicable laws and principles
governing each are peculiar, not
necessarily common to each and (3) public
policy is better subserved if the integrity
and independence of taxes be maintained
(lifeblood doctrine). The collection of a tax
cannot await the results of a lawsuit against
the government (Republic v. Mambulao
Lumber Company, 4 SCRA 622, 1962;
Francia v. IAC, A.M. No. 3180,
Francia v. Intermediate Appellate Court and
Fernandez , G.R. No. L-67649, 28 June
1988 June 29, 1988,
Q: When must
compromise be made?
A:
1. Criminal cases – It must be entered into
prior to the
institution of the corresponding
criminal action arising out of a
violation of the provisions of the Tax
Code. A compromise can never be
entered into after final judgment
because by virtue of such final
judgment the Government had
already acquired a vested right.
(Roviro v. Amparo, G.R. No. L- 5482,
May 5, 1982)
Requisites for Compromise NOTE: The CTA may issue an injunction to prevent the
government from collecting taxes under a compromise
1. Tax liability of the taxpayer; agreement when such would be prejudicial to the
2. An offer of the taxpayer of an amount to be government.
paid by him; and Q: Does the Court of Appeals have the power to
3. The acceptance (the CIR or the taxpayer) of the review compromise agreements forged by the
offer in the settlement of the claim Commissioner of Internal Revenue and a
taxpayer? Explain. (2010 Bar)
NOTE: If an offer of compromise is rejected by the
taxpayer the CIR should file a criminal action if he A: As a general rule, the Court of Appeals does not
believes that the taxpayer is criminally liable for have the power to review compromise agreements
violation of the tax law as the only way to enforce a made between the Commissioner of Internal
penalty. A penalty can be imposed only on a Revenue and the tax payer considering that the
finding of criminal liability (CIR v. Abad G.R. No. L- Commissioner is vested with the authority to
19627, June 27, 1968). compromise and such authority is exercised
according to his discretion. Such authority
CASES WHICH MAY BE COMPROMISED should be exercised in accordance with the CIR
(1998, 2002, 2005 Bar) discretion and courts have no power, as a general
rule, to compel him to exercise such discretion one
[DANC3] way or another. If the CIR abuses his discretion by
1. Delinquent accounts not following the parameters set by law, the CTA,
2. Cases under Administrative protest after not the CA, may correct such abuse if the matter is
issuance of the Final Assessment Notice to appealed to it. In case of arbitrary or capricious
the taxpayer which are still pending in the RO, exercise by the CIR of the power to compromise,
RDO, Legal Service, Large Taxpayer Service, the compromise can be attacked and reversed
Collection Service, Enforcement Service, and through judicial process. It must be noted
other offices in the National Office however, that a compromise is considered as other
3. Cases covered by pre-assessment notices but matters arising under the NIRC which vests the
taxpayer is Not agreeable to the findings of the CTA with jurisdiction and since the decision of the
audit office as confirmed by the review office CTA is appealable to the Supreme Court, the Court
4. Civil tax cases disputed before the courts of Appeals is devoid of any power to review a
5. Collection cases filed in courts compromise settlement forged by the CIR.
6. Criminal violations except:
a. Those already filed in courts; and
b. Those involving criminal tax fraud (Sec.3, ESCAPE FROM TAXATION
R.R. 30-2002).
TAX AVOIDANCE
Cases which cannot be compromised [F3EW-
CD] Tax avoidance or Tax Minimization is a scheme where the
taxpayer uses legally permissible alternative method of
1. Criminal tax Fraud cases, confirmed as such assessing taxable property or income, in order to avoid or reduce
by the CIR or his duly authorized tax liability.
representative.
2. Cases where Final reports of reinvestigation It is a tax saving device within the means sanctioned by law. This
or reconsideration have been issued resulting method should be used by the taxpayer in good faith and at arm’s –
to reduction in the original assessment and length (CIR v. The Estate of Benigno Toda Jr., G.R. No. 30554,
the taxpayer is agreeable to such decision by Febrruary 28, 2004).
signing the required agreement form for the
purpose.
TAX EVASION
3. Cases which become Final and executory after
final judgment of a court, where compromise is
requested on the ground of doubtful validity of Tax evasion or Tax Dodging is a scheme where the taxpayer
the assessment. uses illegal or fraudulent means to defeat or lessen payment of a
4. Estate tax cases where compromise is tax.
requested on the ground of financial
incapacity of the taxpayer.
5. Withholding tax cases, unless the applicant – It is a scheme used outside of those lawful means and when availed
taxpayer invokes provisions of law that cast of, it usually subjects the taxpayer to further or additional civil or
doubt on the taxpayer’s obligation to withhold. criminal liabilities (CIR v. The Estate of Benigno Toda Jr. G.R. No.
6. Criminal violations already filed in courts. 30554, Feb. 28, 2004).
7. Delinquent accounts with duly approved
schedule of installment payments (Sec.3,
R.R. 30-2002). Elements to be considered in determining that there is tax
evasion [USE]
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
1. Course of action is Unlawful. Q: On August 31, 2014, Haelton Corporation (HC), thru
2. Accompanying State of mind which is its authorized representative Ms. Pares, sold a 16-
described as being evil, in bad faith, willful or storey commercial building known as Haeltown Building
deliberate and not accidental; and to Mr. Belly for P100 million. Mr. Belly, in turn, sold the
3. End to be achieved, i.e., payment of less same property on the same day to Bell Gates, Inc. (BGI)
than that known by the taxpayer to be legally for P200 million. These two (2) transactions were
due, or non- payment of tax when it is shown evidenced by two (2) separate Deeds of Absolute Sale
that the tax is due; notarized on the same day by the same notary public.
(1) the Deed of Absolute Sale between Mr. Belly and BGI
TAX AVOIDANCE TAX EVASION was notarized ahead of the sale between HC and Mr.
Belly; (2) as early as May 17, 2014, HC received P40
Validity Legal and not
Illegal and subject million from BGI, and not from Mr. Belly; (3) the said
subject to criminal
to criminal penalty payment of P40 million was recorded by BGI in its books
penalty
as of June 30, 2014 as investment in Haeltown Building;
Effect Almost always
Minimization of and (4) the substantial portion of P40 million was
results in absence
taxes withdrawn by Ms. Pares through the declaration of cash
of tax payment.
dividends to all its stockholders.
Evidence that may be used to prove tax Based on the foregoing, the BIR sent Haeltown
evasion Corporation a Notice of Assessment for deficiency
income tax arising from an alleged simulated sale of
the aforesaid commercial building to escape the higher
corporate income tax rate of thirty percent (30%).
1. Failure of taxpayer to declare for taxation
What is the liability of Haeltown Corporation, if any?
purposes his true and actual income derived (2014 Bar)
from business for two (2) consecutive years
(Republic v. Gonzales, G.R. No. L-17744,
April 30, 1965); A: The tax planning scheme adopted by Haeltown
2. Substantial under declaration of income in Corporation constitutes tax evasion. According to CIR v.
the income tax return for four (4) Estate of Benigno Toda (G.R. No. 147188, September 14,
consecutive years coupled by intentional 2004), a transaction where a taxpayer made it appear that
overstatement of deductions (Perez v. CTA, there were two sales of the property was considered “tainted
G.R. No. L-10507, May 30, 1958). with fraud.” The sole purpose of acquiring and transferring title of the
property on the same day was to create a tax shelter. The
sale to Mr. Belly (which is subject to individual capital gains
tax) was to mislead the BIR and avoid the higher corporate
income tax.
• Willful Blindness Doctrine - People v. Gloria Kintanar (CTA which negates any motive to commit fraud. This was affirmed by
EB Crim. No. 006, Dec. 3, 2010) the SC in its resolution issued April 2013.
• The Supreme Court recently introduced the "Doctrine of Willful
THE DIFFERENCES
Blindness" in a landmark tax evasion case decided in year 2012.
Under this doctrine, the taxpayer’s deliberate refusal or
“Willful blindness” is defined in Black’s Law Dictionary as
avoidance to verify the contents of his or her ITR and other
“deliberate avoidance of knowledge of a crime, especially by failing
documents constitutes "willful blindness" on his or her part. It is
to make a reasonable inquiry about suspected wrongdoing, despite
by reason of this doctrine that taxpayers cannot simply invoke
being aware that it is highly probable.” A “willful act” is described
reliance on mere representations of their accountants or
as one done intentionally, knowingly and purposely, without
authorized representatives in order to avoid liability for failure to
justifiable excuse.
pay the correct taxes.
“Willful” in tax crimes means voluntary, intentional violation of a
As they say, "ignorance of the law excuses no one from
known legal duty, and bad faith or bad purpose need not be
compliance therewith." In order to be liable, it is enough that the
shown. It is a state of mind that may be inferred from the
taxpayer knows his or her obligation to file the required return
circumstances of the case; thus, proof of willfulness may be, and
and he has failed to comply thereto in the manner required by
usually is, shown by circumstantial evidence alone. Therefore, to
law.
convict the accused for willful failure to file ITR or submit accurate
information, it must be shown that the accused was (1) aware of
Evidently, it is imperative for individual taxpayers like
his/her obligation to file annual ITR or submit accurate information,
professionals to be knowledgeable with their tax obligations, to
but that (2) he/she, or his/her supposed agent, nevertheless
be compliant with tax rules and regulations, and to be
voluntarily, knowingly and intentionally failed to file the required ret
responsible for all information reported in his or her ITR.
urns or submit accurate information. Bad faith or intent to defraud
need not be shown.
And as previously mentioned, the "Doctrine of Willful Blindness"
is already part of our jurisprudence, and it can be used as a
As can be observed in the first case, the accused knew that she
precedent for future tax evasion cases.
had to timely file and supply correct and accurate information of
MERE RELIANCE on another person in preparing, filing and the joint ITR with the BIR in relation to the profession or the
paying income taxes is not a justification for failure to file the right position she holds. The knowledge was presumed based on the
information on income taxes. fact that Ms. Kintanar is an “experienced” businesswoman, having
been an independent distributor of a product for several years.
In People v. Gloria Kintanar (CTA EB Crim. No. 006, Dec. 3, However, despite this knowledge, the CTA found that she
2010), Ms. Kintanar was charged with failure to make or file her voluntarily, knowingly and intentionally failed to fulfill her tax
income tax returns (ITR), violating Section 255 of the 1997 responsibilities by not participating in the filing of the ITR and
National Internal Revenue Code (NIRC), as amended. She ensuring that everything was filed correctly and accurately. As
claimed that she did not actively participate in the filing of her joint compared with the Santos case, which the SC affirmed, the
ITR with her husband since she entrusted such duty to the latter element of “voluntarily, knowingly and intentionally” was taken
who, in turn, hired an accountant to perform their tax differently by the CTA in consideration of the facts of the case. Ms.
responsibilities. She testified that she did not know how much her Santos fully entrusted her tax obligations and finances to her
tax obligation was; nor did she bother to inquire or determine the manager since she was a child. It can be said that she is not an
facts surrounding the filing of her ITRs. Despite several notices “experienced” manager of her finances and taxes since she never
and subpoena received by the accused, only an unsupported handled such task, as compared with the situation of Ms. Kintanar,
protest letter made by her husband was filed with the Bureau of who is considered an experienced businesswoman who manages
Internal Revenue (BIR). The Court of Tax Appeals (CTA) En Banc her business as well as her financial and tax responsibilities --
found her neglect or omission tantamount to “deliberate ignorance” which is expected of somebody in her position (i.e., president
or “conscious avoidance”. As an experienced businesswoman, her and/or businessperson).
reliance on her husband to file the required ITR without ensuring
its full compliance showed clear indication of deliberate lack of The concept of willful blindness doctrine is new in Philippine
concern on her part to perform her tax obligations. This ruling was jurisprudence. The application of this doctrine by the CTA in the
sustained by the Supreme Court (SC) in 2012. said cases was guided by the appreciation of the facts and the
pieces of evidence produced by the prosecution and accused to
Based on the foregoing, the willful blindness doctrine was applied prove the non-existence of willfulness. However, defined and clear
by the CTA, as sustained by SC on cases where there is a natural standards in its application must be done as guidance for future
presumption that the taxpayer knows his/her tax obligations under application. This is necessary to avoid arbitrary application and to
the law considering the factual circumstances of the case, such as encourage proper use of the doctrine by both parties in the case.
being a businesswoman or official of a company. This case set a
precedent that mere reliance on a representative or agent (i.e., PEOPLE v. SANTOS; CTA Crim. Case No. 012
accountant or husband) is not a valid ground to justify any
noncompliance in tax obligations. The taxpayer must inquire,
check and validate whether or not his/her representative or agent
has complied with the taxpayer’s tax responsibilities.
TAX AVOIDANCE
However, in the recent case of People v. Judy Ann Santos (CTA
Crim. Case no. 012, Jan. 16, 2013), the CTA Division seemed to
have a change of heart and acquitted Ms. Santos despite having ‣HENG TONG TEXTILES v. CIR;
almost the same circumstances as that of the case of Ms. G.R. No. L-19737
Kintanar. In this case, Ms. Santos was accused of failure to supply
correct and accurate information in her ITR. She claimed that by • Tax avoidance is not forbidden in our jurisdiction. An
virtue of trust, respect and confidence, she has entrusted her attempt to minimize one's tax does not necessarily
professional, financial and tax responsibilities to her manager since constitute fraud. It is a settled principle that a taxpayer
she was 12 years old. She participated and maintained her may diminish his liability by any means which the law
intention to settle the case, and thus provided all the documents
permits. The intention to minimize taxes must be
needed as well as payment of her taxes. The element of willfulness
was not established and the CTA found her to be merely negligent. proved to exist by clear and convincing evidence
The CTA also noted the intention of Ms. Santos to settle the case, amounting to more than mere preponderance and
cannot be justified by mere speculation. This is because
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
fraud is never lightly presumed. (See also CIR vs. Court neglect to file the return or wilful making of a false
of Appeals. GR No. 117982. February 6, 1997) [Heng or fraudulent return. An attempt to minimize one's
Tong Textiles Co., Inc. vs. CIR. GR No. L-19737.
August 26, 1968] tax does not necessarily constitute fraud. It is a
settled principle that a taxpayer may diminish his
Heng Tong Textiles Co., Inc. vs. CIR liability by any means which the law permits.
G.R. No. L-19737. August 26, 1968. ‣CIR v. ESTATE OF TODA; G.R.
No. 30554
FACTS: In 1952 the Collector of Internal Revenue Estate of Benigno Toda Jr.
G.R. No. 147188. September 14, 2004
assessed against the petitioner deficiency sales
DAVIDE, JR., C.J.
taxes and surcharges for the year 1949 and the
first four months of 1950 in the aggregate sum of Lessons Applicable: Tax evasion v. Tax avoidance
P89,123.58. The assessment was appealed to the
Laws Applicable:
Board of Tax Appeals, whence the case was
transferred to the Court of Tax Appeals upon its FACTS:
organization in 1954, and there was affirmed in its
decision dated February 28, 1952. The deficiency March 2, 1989: Cibeles Insurance Corp. (CIC)
authorized Benigno P. Toda Jr., President and Owner
taxes in question were assessed on importations of of 99.991% of outstanding capital stock, to sell the
textiles from abroad. The goods were withdrawn Cibeles Building and 2 parcels of land which he sold to
from Customs by Pan- Asiatic Commercial Co., Rafael A. Altonaga on August 30, 1987 for P 100M
Inc., which paid, in the name of the petitioner, the who then sold it on the same day to Royal Match Inc.
for P 200M.
corresponding advance sales tax under section CIC included gains from sale of real property of P
183(b) of the Internal Revenue Code. The 75,728.021 in its annual income tax return while
assessment for the deficiency was made against Altonaga paid a 5% capital gains tax of P 10M
the petitioner, Heng Tong Textiles Co., Inc. on the July 12, 1990: Toda sold his shares to Le Hun T. Choa
for P 12.5M evidenced by a deed of ale of shares of
ground that it was the real importer of the goods stock which provides that the buyer is free from all
and did not pay the taxes due on the basis of the income tax liabilities for 1987, 1988 and 1989.
gross selling prices thereof. Toda Jr. died 3 years later.
March 29, 1994: BIR sent an assessment notice and
demand letter to CIC for deficiency of income tax of P
ISSUE: 79,099, 999.22
January 27, 1995: BIR sent the same to the estate of
Whether or not petitioner was guilty of fraud so as Toda Jr.
to warrant the imposition of a penalty of 50% on Estate filed a protest which was dismissed - fraudulent
sale to evade the 35% corporate income tax for the
the deficiency. additional gain of P 100M and that there is in fact only
1 sale.
RULING: Since it is falsity or fraud, the prescription period is 10
years from the discovery of the falsity or fraud as
prescribed under Sec. 223 (a) of the NIRC
Petitioner excepts to the conclusion of the Court of
CTA: No proof of fraudulent transaction so the
Tax Appeals and avers that the importation papers applicable period is 3 years after the last day
were placed in the name of the petitioner only for prescribed by law for filing the return
purposes of accommodation, that is, to introduce CA: affirmed
CIR appealed
the petitioner to textile suppliers abroad; and that
ISSUE: W/N there is falsity or fraud resulting to tax evasion
the petitioner was not in a financial position to rather than tax avoidance so the period for assessment has
make the importations in question. These not prescribed.
circumstances show nothing but a private
HELD: YES. Estate shall be liable since NOT yet
arrangement between the petitioner and Pan- prescribed.
Asiatic Commercial, which in no way affected the
role of the petitioner as the importer. Tax avoidance and tax evasion are the two most
common ways used by taxpayers in escaping from
taxation. ax avoidance is the tax saving device within
The arrangement resorted to does not by itself the means sanctioned by law. This method should be
alone justify the penalty imposed. Section 183(a), used by the taxpayer in good faith and at arms length.
paragraph 3, of the Internal Revenue Code, as Tax evasion, on the other hand, is a scheme used
amended by Republic Act No. 253, speaks of willful outside of those lawful means and when availed of, it
usually subjects the taxpayer to further or additional
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
Issue:
settles on the ultimate purchaser or consumer. billed as tax to the purchaser. The method of listing the
2. Backward shifting – When the burden is transferred price and the tax separately and defining taxable gross
from the consumer through the factors of distribution receipts as the amount received less the amount of the
to the factors ofproduction. tax added, merely avoids payment by the seller of a tax
3. Onward shifting – When the tax is shifted two or on the amount of the tax (Philippine Acetylene Co., Inc., v.
more times either forward or backward. CIR, G.R. No. L19707, August 17, 1967).
NOTE: Only indirect taxes may be shifted. In case of direct Meaning of impact and incidence of taxation
taxes, the shifting of burden can only be made via
contractual provision. Impact of Taxation Incidence of Taxation
It refers to the statutory It is the economic cost of
Q: Acetylene Company is corporation engaged in the liability to pay the tax. It tax. It is also known as
manufacture and sale of oxygen and acetylene gases. falls on the person burden of taxation.
It made various sales of its products to the National originally assessed with a
Power Corporation (NPC), an agency of the Philippine particular tax.
Government, and to the Voice of America (VOA) an
agency of the United States Government. It is the imposition of tax. It is the payment of
tax.(Burden)
Consequently, the Commission of (Liability)
Internal Revenue assessed against it the It is on the seller upon It is on the final
deficiency sales tax and surcharges pursuant whom the tax has been consumer, the place at
to percentage tax on sales. Acetylene imposed. which the tax comes to
Company denied liability for the payment of rest.
the tax on the ground that both the NPC and
the VOA because are exempt from taxation. It
contended that the immunity thus given to NOTE: The amount of tax paid may be shifted from seller
the NPC or VOA would be impaired by the to buyer. What is transferred is not the liability for tax,
imposition of a tax on sales made to it but the tax burden or incidence. Where the burden of the
because while the tax is paid by the tax is shifted to the purchaser, the amount passed on to it
manufacturer or producer, the tax is is no longer a tax but becomes an added cost on the goods
ultimately shifted by the latter to the purchased, which constitutes a part of the purchase price.
former. Is Acetylene Company exempt from
percentage tax on its sale to tax-exempt How to determine if a tax is direct or indirect
entities?
It is direct taxes when the impact or liability for the
payment of tax as well as incidence or burden of tax of the
A: NO. Sales tax is a tax on the tax falls on the same person. On the other hand, it is
producer or the manufacturer and not indirect taxes when the impact or liability for the
on the purchaser. Accordingly its levy payment of tax falls on one person but the incidence or
on the sales made to tax-exempt entities burden thereof can be shifted or passed to another.
like the NPC is permissible. The
economic burden of the tax finally NOTE: In indirect taxation, a distinction is made between
falls on the purchaser; when it does the liability for the tax and burden of the tax: The seller
the tax becomes a part of the price who is liable for the VAT may shift or pass on the amount
which the purchaser must pay. It does of VAT it paid on goods, properties or services to the
not matter that an additional amount is
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
buyer. In such a case, what is transferred is not the government itself or its agencies. The burden is
seller's liability but merely the burden of the VAT upon the claimant to establish right to
(Diaz v. The Secretary of Finance, G.R. No. exemption beyond reasonable doubt.
193007, July 19, 2011) . The proper party to
question or seek a refund of an indirect tax is the NOTE: Taxation is the rule and exemption
statutory taxpayer, the person on whom the tax is is the exception (FELS Energy Inc. v.
imposed by law and who paid the same even if he Province of Batangas, 516 SCRA 186).
shifts the burden thereof to another (Silkair v.
CIR, G.R. No. 166482, January 25, 2012).
Principles governing tax exemptions
NOTE: It cannot be
transferred or assigned by
the person to whom it is given
without the consent of the
State.
5. Constitutional grants of tax exemptions are application and has the duty to refund without
self- executing. any unreasonable delay what it has erroneously
6. Tax exemption is generally revocable. Unless collected.
founded on contracts which are protected by
the Non- impairment clause. Q: Shelly Oil Company filed for a tax refund
7. In order to be irrevocable, the tax exemption for the excise tax on petroleum products sold
must be founded on a contract or granted to international carriers under Sec. 135 (a) of
by the Constitution. 1997 NIRC. The CTA ruled otherwise and
8. The congressional power to grant an ruled that the exemption from excise tax
exemption necessarily carries with it the payment on petroleum products under Sec.
consequent power to revoke the same. 135 (a) is conferred on international carriers
who purchased the same for their use or
NOTE: Since the power to tax includes the consumption outside the Philippines. The
power to exempt thereof which is essentially excise tax attaches to the petroleum products
a legislative prerogative, it follows that a and is direct liability of the manufacturer.
municipal mayor who is an executive officer Shelly Oil contends that the ruling effectively
may not unilaterally withdraw such an requires local petroleum manufacturers to
expression of a policy thru the enactment of a absorb the tax burden in the sale of its products
tax (Philippine Petroleum Corporation v. Mun. of to international carriers, and it places them at
Pililla, G.R. No. 90776, June 3, 1991). a competitive disadvantage since foreign oil
producers, particularly those whose
governments with which we have entered into
9. Revocations are constitutional even though bilateral service agreements, are not subject
the corporate do not have to perform a to excise tax for the same transaction. Is the
reciprocal duty for them to avail of tax CTA correct?
exemptions.
A: NO. Section 135(a) of NIRC is concerned with
Not all refunds are in the nature of a tax the exemption of the article itself and not the
exemption ostensible exemption of the international carrier-
buyer. It also embodies compliance to the
A tax refund may only be considered as a tax Chicago Convention and other international
exemption when it is based either on a tax- agreements under the basic international law
exemption statute or a tax-refund statute. Tax principle of pacta sunt servanda. Also, failure to
refunds or tax credits are not founded principally grant tax exemption would not only risk
on legislative grace, but on the legal principle of retaliatory action under several bilateral
quasi-contracts against a person’s unjust
agreements with various countries; but also encourage
enrichment at the expense of another.
“tankering” wherein carriers fill their aircraft as
full as possible whenever they landed outside the
NOTE: The erroneous payment of tax as a basis
EU to avoid paying tax, which would be detrimental to
for a claim of refund may be considered as a case
the State’s economic and tourism growth (CIR v.
of solutio indebiti, which the government is not
Pilipinas Shell Petroleum Corporation, G.R. No.
exempt from its
188496, February 19, 2014).
As to basis
NOTE: It bears repeating that the law looks with disfavor on tax exemptions and he who would seek to be
thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted (Western Minolco Corporation v. CIR, G.R. No. L-61632, August 16, 1983).
5. Treaty
6. Licensing ordinance
As to extent
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
As to object
These exemptions must not be confused with tax exemptions granted under franchises which are not contracts
within the purview of the non-impairment clause of the constitution (Cagayan Electric Co. v. Commissioner, G.R. No. L-
601026, September 25, 1985).
NOTE: Contractual tax exemptions may not be unilaterally so revoked by the taxing authority without thereby
violating the non-impairment clause of the Constitution (Vitug, 2000). Nevertheless, since taxation is the rule and
exemption therefrom is the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The
only exception to this rule is where the exemption was granted to private parties based on material consideration of a
mutual nature, which then becomes contractual and is thus covered by the non- impairment clause of the
Constitution (MCIAA v. Marcos,
G.R. No. 120082 September 11, 1996).
The inherent power of the State to impose taxes naturally carries with it the power to grant tax exemptions.
The rationale or grounds for tax exemption are the same as the non-revenue/ special or regulatory purposes of
taxation:
a. Sumptuary or regulatory purpose. The sumptuary purpose of tax exemption is to promote the general welfare and
to protect the health, safety or morals of inhabitants.
b. Tax exemptions made the implement of the state’s
police power.
c. Compensatory purpose. The compensatory purpose of tax exemption is to implement the social justice provisions of
the Constitution through the progressive system of taxation, which would result to equal distribution of wealth
etc. (Domondon, 2009)
NOTE: There is no tax exemption based solely on the ground of equity (Davao Gulf v. CIR, 293 SCRA 76).
Q: The BTC Power Corporation (BTC) entered in a Build-Operate-Transfer (BOT) agreement with National Power
Corporation (NPC), a tax-exempt entity as provided by its Charter under a special law. The BOT Agreement
provided that NPC shall be responsible for the payment of all taxes imposed on the power station except income
& permit fees. Later on, the City Treasurer demanded payment of business taxes and penalties. BTC contended
that NPC should be liable for such taxes and penalties, as provided for in their BOT agreement. NPC, however,
contends that it’s a tax-exempt entity. Is NPC correct?
A: No. The 1991 Local Government Code repealed NPC's exemption from all taxes under its Charter. It removed the
blanket exclusion of government instrumentalities from local taxation as it expressed a general repeal of all statutes
granting exemptions from local taxes. Considered as the most revolutionary piece of legislation
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax
base of LGUs to include taxes which were prohibited by previous laws.
In recent years, the increasing social challenges of the times expanded the scope of state activity, and
taxation has become a tool to realize social justice and the equitable distribution of wealth, economic
progress and the protection of local industries as well as public welfare and similar objectives. Taxation
assumes even greater significance with the ratification of the 1987 Constitution (Batangas Power
Corporation v. Batangas City, G.R. No. 152675, April 28, 2004).
Since taxation is the rule and exemption is the exception, the exemption may thus be withdrawn at the
pleasure of the taxing authority (Mactan Cebu International Airport Authority v. Marcos et al, 261 SCRA
667).
By granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. Thus, in
withdrawing the exemption of the press (media) from VAT, the law merely subjects the same to the
same tax burden to which other businesses have long ago been subject. It is not discriminatory as the
exemptions are granted for a purpose, in some cases, to encourage agricultural production and, in
other cases, for the personal benefit of the end-user rather than for profit (Tolentino v. Sec. of Finance, G.R.
No. 115455, October 30, 1995).
1. Non-impairment clause.
2. A municipal franchise once granted as a contract cannot be altered or amended except by actual
consent of the parties concerned.
3. Adherence to form. If the exemption is granted by the Constitution, its revocation may be affected
through constitutional amendment only.
4. Where the tax exemption grant is in the form of a special law and not by a general law even if the terms
of the general act are broad enough to include the codes in the general law unless there is manifest
intent to repeal or alter the special law (Commissioner of Internal Revenue v. Court of Appeals, 207 SCRA
487).
NOTE: Withdrawal of tax exemption is not to be construed as prohibiting future grants of tax
exemptions (Domondon, 2009). The erroneous application and enforcement of the law by public
officers do not preclude subsequent correct application of the statute, and the government is never
estopped by the mistake or error on the part of its agents (Philippine Basketball Association v. CA, 337
SCRA 358, August 8, 2000).
Luzon Stevedoring vs. CTA [G.R. No. L-30232. July 29, 1988.]
Second Division, Paras (J): 4 concurring
Facts: Luzon Stevedoring Corp., in 1961 and 1962, imported various engine parts and other equipment for the repair and
maintenance of its tugboats for which it paid the assessed compensating tax under protest. Unable to secure a tax refund from
the Commissioner of Internal Revenue, on 2 January 1964, it filed a Petition for Review with the Court of Tax Appeals (CTA
Case 1484), praying among others, that it be granted the refund of the amount of P33,442.13. The Court of Tax Appeals,
however, in a Decision dated 21 October 1969, denied the various claims for tax refund (finding said claims without sufficient
legal justification); with costs against the corporation. On 24 January 1969, the Corporation filed a Motion for Reconsideration,
but the same was denied in a Resolution dated 20 February 1969. Hence, the petition for review. The Supreme Court, in a
Resolution dated 13 March 1969, gave due course to the petition.
The Supreme Court dismissed the petition, and affirmed the decision of the Court of Tax Appeals.
Section 190 (Compensating tax) of the National Internal Revenue Code, as amended by RA
3176
Said law provides: “…and Provided further, That the tax imposed in this section shall not apply to articles to be used
by the importer himself in the manufacture or preparation of articles subject to specific tax or those for consignment abroad and
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
are to form part thereof or to articles to be used by the importer himself as passenger and/or cargo vessel, whether coastwise
or ocean-going, including engines and spare parts of said vessel. . .”
Power of taxation a high prerogative of sovereignty; Relinquishment or reduction not presumed; Tax exemption
strictly construed against taxpayer
“As the power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any
reduction or dimunition thereof with respect to its mode or its rate, must be strictly construed, and the same must be coached in
clear and unmistakable terms in order that it may be applied.” (84 C.J.S. pp. 659-800), More specifically stated, any claim for
exemption from the tax statute should be strictly construed against the taxpayer (Acting Commissioner of Customs v. Manila
Electric Co. et al., 69 SCRA 469 [1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA 142
[1975]).
• CIR and Commissioner of Customs vs. Botelho Shipping Corp. & General Shipping Co., Inc.
G.R. Nos. L-21633-34 June 29, 1967
FACTS: Reparations Commission of the Philippines sold to Botelho the vessel "M/S Maria Rosello" for the amount of
P6,798,888.88. The former likewise sold to General Shipping the vessel "M/S General Lim" at the price of P6,951,666.66. Upon
arrival at the port of Manila, the Bureau of Customs placed the same under custody and refused to give due course [to
applications for registration], unless the aforementioned sums of P483,433 and P494,824 be paid as compensating tax. The
buyers subsequently filed with the CTA their respective petitions for review. Pending the case, Republic Act No. 3079 amended
Republic Act No. 1789 — the Original Reparations Act, under which the aforementioned contracts with the Buyers had been
executed — by exempting buyers of reparations goods acquired from the Commission, from liability for the compensating tax.
Invoking [section 20 of the RA 3079], the Buyers applied, for the renovation of their utilizations contracts with the Commission,
which granted the application, and, then, filed with the Tax Court, their supplemental petitions for review. The CTA ruled in
favor of the buyers.
[On appeal, the CIR and COC maintain that such proviso should not be applied retroactively], upon the ground that a tax
exemption must be clear and explicit; that there is no express provision for the retroactivity of the exemption, established by
Republic Act No. 3079, from the compensating tax; that the favorable provisions, which are referred to in section 20 thereof,
cannot include the exemption from compensating tax; and, that Congress could not have intended any retroactive exemption,
considering that the result thereof would be prejudicial to the Government.
HELD: YES. The inherent weakness of the last ground becomes manifest when we consider that, if true, there could be no tax
exemption of any kind whatsoever, even if Congress should wish to create one, because every such exemption implies a waiver
of the right to collect what otherwise would be due to the Government, and, in this sense, is prejudicial thereto. It may not be
amiss to add that no tax exemption — like any other legal exemption or exception — is given without any reason therefor. In
much the same way as other statutory commands, its avowed purpose is some public benefit or interest, which the law-making
body considers sufficient to offset the monetary loss entitled in the grant of the exemption. Indeed, section 20 of Republic Act
No. 3079 exacts a valuable consideration for the retroactivity of its favorable provisions, namely, the voluntary assumption, by
the end-user who bought reparations goods prior to June 17, 1961 of "all the new obligations provided for in" said Act.
Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the compensating tax, not particular persons,
but persons belonging to a particular class. Indeed, appellants do not assail the constitutionality of said section 14, insofar as it
grants exemptions to end-users who, after the approval of Republic Act No. 3079, on June 17, 1961, purchased reparations
goods procured by the Commission. From the viewpoint of Constitutional Law, especially the equal protection clause, there is
no difference between the grant of exemption to said end-users, and the extension of the grant to those whose contracts of
purchase and sale mere made before said date, under Republic Act No. 1789.
the City of Manila and its suburbs. In 1962 and 1963, Meralco imported and received from abroad copper wires,
transformers, and insulators for use in the operation of its business. The Collector of Customs, as deputy of the
Commissioner of Internal Revenue, levied and collected a compensating tax. Meralco claimed for refund for the said yeares,
but such claims were either not acted upon or denied by the Commissioner.
•
• Issue: Whether Meralco is exempt from payment of a compensating tax on poles, wires, transformers and insulators
imported by it for use in the operation of its electric light, heat, and power system.
•
• Held: Meralco is not exempt from paying the compensationg tax provided for in Section 190 of the Tax Code, the prupose of
which is to “place casual importers, who are not merchants on equal forring with established merchants who pay sales tax on
articles imported by them.” Meralco’s claim for exemption from payment of the compensating tax is not clear or expressed,
contrary to the rule that “exemptions from taxation are highly disfavored in law, and he who claims exemption must be able to
justify his claim by the clearest grant of organic or statute law.” Tax exemptiion are strictly construed against the taxpayer,
they being highly disfavored and may almost be said to be “odious to the law.” When exemption is claimed, it must be shown
indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim.
FACTS: Senator Ernesto Maceda sought to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary,
Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for
exempting the National Power Corporation (NPC) from indirect tax and duties. RA 358, RA 6395 and PD 380 expressly grant NPC
exemptions from all taxes whether direct or indirect. In 1984, however, PD 1931 and EO 93 withdrew all tax exemptions granted to all
GOCCs including the NPC but granted the President and/or the Secretary of Finance by recommendation of the FIRB the power to restore
certain tax exemptions. Pursuant to the latter law, FIRB issued a resolution restoring the tax and duty exemption privileges of the NPC. The
actions of the respondents were thus questioned by the petitioner by this petition for certiorari, prohibition and mandamus with prayer for a
writ of preliminary injunction and/or restraining order. To which public respondents argued, among others, that petitioner does not have the
standing to challenge the questioned orders and resolution because he was not in any way affected by such grant of tax exemptions.
ISSUE: Has a taxpayer the capacity to question the legality of the resolution issued by the FIRB restoring the tax exemptions?
HELD: Yes. In this petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the
Philippines." Public respondent argues that petitioner must show that he has sustained direct injury as a result of the action and that it is not
sufficient for him to have a mere general interest common to all members of the public. The Court however agrees with the petitioner that as
a taxpayer he may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. The petition
questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil
companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.
•
MANILA INTERNATIONAL AIRPORT AUTHORITY v. CA, GR NO. 155650, 2006-07-20
• Facts:
• Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA)
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
• As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex.
The MIAA Charter transferred to MIAA approximately 600 hectares of land,... The MIAA Charter further provides that no
portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by
the President of the
• Philippines.
• The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA
under Section 21 of the MIAA Charter. Thus, MIAA negotiated with... respondent City of Parañaque to pay the real estate tax
imposed by the City. MIAA then paid some of the real estate tax already due.
• MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque
• The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to
pay the... real estate tax delinquency.
• MIAA filed with the Court of Appeals an original petition for prohibition and injunction
• The petition sought to restrain the City of Parañaque from imposing real estate tax on, levying... against, and auctioning for
public sale the Airport Lands and Buildings.
• Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period.
• Court of Appeals also denied... motion for reconsideration... the present petition for review.
• MIAA insists that it is... exempt from real estate tax under Section 234 of the Local Government Code because the Airport
Lands and Buildings are owned by... the Republic.
• To justify the exemption, MIAA invokes the principle that the government cannot tax itself.
• Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of
"government-owned and-controlled corporations" upon the effectivity of the Local Government Code.
• Issues:
• whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws.
• Ruling:
• We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.
• First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus
exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus...
exempt from real estate tax.
• There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is
not a government-owned or controlled corporation.
• Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled
corporation.
• MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is
like any other government instrumentality, the only difference is that MIAA is vested with corporate powers.
• When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation.
Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government
instrumentality exercising not only... governmental but also corporate powers. Thus, MIAA exercises the governmental
powers of eminent domain,... police authority... and the levying of fees and charges.
• At the same time, MIAA exercises "all the... powers of a corporation under the Corporation Law, insofar as these powers are
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
• When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the
tax. Any doubt whether a person,... article or activity is taxable is resolved against taxation. This rule applies with greater
force when local governments seek to tax national government instrumentalities.
• Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed
liberally in favor of the national... government instrumentality.
• There must be express language in the law empowering local governments to tax national government instrumentalities. Any
doubt whether such power exists is resolved against local... governments.
Facts: Juan Luna Subdivision is a local corporation which issued a check to the City Treasurer of Manila for amount to be applied to its
land tax for the second semester of 1941. The records of the City Treasurer do not show what was done with the check (It appears that
it was deposited with the Philippine National Bank [PNB]). After liberation (WWII), the City Treasurer refused to refund the corporation’s
deposit or apply it to such future taxes as might be found due, while the Philippine Trust Co (to which the check was presented) was
unwilling to reverse its debit entry against Juan Luna Subd. Said amount is also subject of another
disagreement between the corporation and the City Treasure, with the corporation claiming that the wholeamount of the check for the
taxes for the last semester of 1941 have been remitted by Commonwealth Act 703 (1945).
Issue: Whether the provision allowing the remission covers taxes paid before the enactment of Commonwealth Act 703, or taxes which
were still unpaid.
Held: The law is clear that it applies to “taxes and penalties due and payable,” i.e. taxes owed or owing. The remission of taxes due and
payable to the exclusion og taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself, and
the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. Herein, they are
not. The taxpayers who paid their taxes before liberation and those who had not were not on the same footing on the need of material
relief. Taxpayers who had been in arrears in their obligation whould have to satisfy their liability with genuine currency, while the taxes
paid during the occupation had been satisfied in Japanese War Notes, many of them at a time when those notes were well-nigh
worthless. To refund those taxes with restored currency would be unduly enrich many of the payers at a greater expense to the people
at large.
Facts: Before the outbreak of the War, the Surigao Consolidated Mining Co. was operating its mining concessions in Mainit, Surigao.
Due to the interruption of communications at the outbreak of the war, the
company lost contact with its mines and never received the production reports for the 4 th quarter of 1941. To avoid incurring any tax
liability or penalty, it deposited of check payable to and indorsed in favor of the City Treasurer, in payment of ad valorem taxes for the
said period. After the war, the company filed its ad valorem tax for the said period pursuant to Commonwealth Act 772. Its return was
revised, until eventually the company claimed a refund of P17,158.01. The collector of Internal Revenue denied the request for refund.
Issue: Whether Surigao Consolidated may recover its tax payment in light of the condonation made under a subsequent law, RA 81.
Held: RA 81, Section 1(d) provided that “all unpaid royalties, ad valorem or specific taxes on all minerals mined from mining claims or
concessions existing an din force on 1 January 1942, and which minerals were lost by reason of war, of circumstance arising therefrom
are condoned…” The provision refers to the condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in
the nature of tax exemption. Being so, it should be sustained only when expressed in explicit terms, and it cannot be extended beyond
the plain meaning of those terms. He who claims an exemption from his share of the common burden of taxation must justify his claim
by showing t hat the Legislature intended to exempt him. The company failed to show any portion of the law that explicitly provided for a
refund of those taxpayers who had paid their taxes on the items.
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
Tax Refund
• DAVAO GULF LUMBER CORP v. CIR
GR No. 117359, July 23, 1998
293 SCRA 77
•
• FACTS: Republic Act No. 1435 entitles miners and forest concessioners to the refund of 25% of the specific taxes paid by the oil companies,
which were eventually passed on to the user--the petitioner in this case--in the purchase price of the oil products. Petitioner filed before respondent
Commissioner of Internal Revenue (CIR) a claim for refund in the amount representing 25% of the specific taxes actually paid on the above-
mentioned fuels and oils that were used by petitioner in its operations. However petitioner asserts that equity and justice demands that the refund
should be based on the increased rates of specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public
respondent, on the other hand, contends that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435.
•
• ISSUE: Should the petitioner be entitled under Republic Act No. 1435 to the refund of 25% of the amount of specific taxes it actually paid on
various refined and manufactured mineral oils and other oil products, and not on the taxes deemed paid and passed on to them, as end-users, by the
oil companies?
•
• HELD: No. According to an eminent authority on taxation, "there is no tax exemption solely on the ground of equity." Thus, the tax refund should
be based on the taxes deemed paid. Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the
grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language
of the law; it cannot be merely implied therefrom.
Tax Assumption
MITSUBISHI – MANILA vs CIR
Mitsubishi Corporation - Manila Branch Vs. Commissioner of Internal Revenue
G.R. No. 175722
June 5, 2017
Facts:
On June 11, 1987, the governments of Japan and the Philippines executed an Exchange of Notes, whereby the former agreed to extend
a loan amounting to Forty Billion Four Hundred Million Japanese Yen (¥40,400,000,000) to the latter through the then Overseas
Economic Cooperation Fund (OECF, now Japan Bank for International Cooperation) for the implementation of the Calaca II Coal-Fired
Thermal Power Plant Project (Project). In Paragraph 5 (2) of the Exchange of Notes, the Philippine Government, by itself or through its
executing agency, undertook to assume all taxes imposed by the Philippines on Japanese contractors engaged in the Project.
Consequently, the OECF and the Philippine Government entered into Loan Agreement No. PH-P768 dated September 25, 1987 for
Forty Billion Four Hundred Million Japanese Yen (¥40,400,000,000). Due to the need for additional funding for the Project, they also
executed Loan Agreement No. PH-P1419 dated December 20, 1994 for Five Billion Five Hundred Thirteen Million Japanese Yen
(¥5,513,000,000). Meanwhile, on June 21, 1991, the National Power Corporation (NPC), as the executing government agency, entered
into a contract with Mitsubishi Corporation (i.e., petitioner's head office in Japan) for the engineering, supply, construction, installation,
testing, and commissioning of a steam generator, auxiliaries, and associated civil works for the Project (Contract). The Contract's
foreign currency portion was funded by the OECF loans. In line with the Exchange of Notes, Article VIII (B) (1) of the Contract indicated
NPC's undertaking to pay any and all forms of taxes that are directly imposable under the Contract.
Petitioner completed the project on December 2, 1995, but it was only accepted by NPC on January 31, 1998 through a Certificate of
Completion and Final Acceptance. On July 15, 1998, petitioner filed its Income Tax Return for the fiscal year that ended on March 31,
1998 with the Bureau of Internal Revenue (BIR). Petitioner included in its income tax due the amount of P 44,288,712.00, representing
income from the OECF-funded portion of the Project. On the same day, petitioner also filed its Monthly Remittance Return of Income
Taxes Withheld and remitted P 8,324,100.00 as BPRT for branch profits remitted to its head office in Japan out of its income for the
fiscal year that ended on March 31, 1998.
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
In a Decision dated December 17, 2003, the CTA Division granted the petition and ordered the CIR to refund to petitioner the amounts it
erroneously paid as income tax and BPRT. It held that based on the Exchange of Notes, the Philippine Government, through the NPC
as its executing agency, bound itself to assume or shoulder petitioner's tax obligations. Therefore, petitioner's payments of income tax
and BPRT to the CIR, when such payments should have been made by the NPC, undoubtedly constitute erroneous payments under
Section 229 of the NIRC.
The CIR moved for reconsideration but was denied in a Resolution dated April 23, 2004; thus, the CIR elevated the matter to the CTA
En Banc. In a Decision dated May 24, 2006, the CTA En Banc reversed the CTA Division's rulings and declared that petitioner is not
entitled to a refund of the taxes it paid to the CIR. Petitioner sought reconsideration, but the CTA En Banc denied the motion in a
Resolution dated December 4, 2006.
Issues:
Whether or not Mitsubishi Corporation – Manila Branch is entitled to a refund. Whether or not the Bureau of Internal Revenue should be
the authorized government agency where the tax refund be claimed.
Held:
Yes, the petitioner is entitled to a refund. The CIR subsequently affirmed petitioner's non-liability for taxes and entitlement to tax refunds
by issuing Revenue Memorandum Order (RMO) No. 24-200547 addressed to specified BIR offices. The RMO provides: Pursuant to the
provisions of RMC No. 32-99 as amended by RMC No. 42-99, Japanese contractors and nationals engaged in OECF funded projects in
the Philippines shall not be required to shoulder the fiscal levies or taxes associated with the project. Therefore, the concerned
Japanese contractors are entitled to claim for the refund of all taxes paid and shouldered by them relative to the conduct of the Project.
Also, considering that petitioner paid the subject taxes in the aggregate amount of P 52,612,812.00, which it was not required to pay,
the BIR erroneously collected such amount.
On another issue, yes, the Bureau of Internal Revenue should be the authorized government agency where the tax refund be claimed.
The Supreme Court held that in Sections 204 (C) of the NIRC grants the CIR the authority to credit or refund taxes which are
erroneously collected by the government. The authority of the CIR to refund erroneously collected taxes is likewise reflected in Section
229 of the NIRC.
In this case, it is fairly apparent that the subject taxes in the amount of P 52,612,812.00 was erroneously collected from petitioner,
considering that the obligation to pay the same had already been assumed by the Philippine Government by virtue of its Exchange of
Notes with the Japanese Government. Case law explains that an exchange of notes is considered as an executive agreement, which is
binding on the State even without Senate concurrence.
Hence, the petition is GRANTED. The Decision dated May 24, 2006 and the Resolution dated December 4, 2006 of the Court of Tax
Appeals (CTA) En Banc are REVERSED and SET ASIDE. The Decision dated December 17, 2003 of the CTA is REINSTATED.
Tax Amnesty
vs.
INTERMEDIATE APPELLATE COURT and SPOUSES ANTONIO and CLARA PASTOR, respondents.
Ponente: GRIÑO-AQUINO
FACTS:
Republic of the Philippines, through the Bureau of Internal Revenue, commenced an action in the Court of First Instance (now Regional
Trial Court), to collect from the spouses Antonio Pastor and Clara Reyes-Pastor deficiency income taxes for the years 1955 to 1959 with
surcharge and monthly interest, and costs. The Pastors filed a motion to dismiss the complaint, but the motion was denied. They filed an
answer admitting there was an assessment against them for income tax deficiency but denying liability therefor. They contended that
they had availed of the tax amnesty under P.D.’s Nos. 23, 213 and 370 and had paid the corresponding amnesty taxes amounting of
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
their reported untaxed income under P.D. 23, and a final payment on October 26, 1973 under P.D. 370 evidenced by the Government’s
Official Receipt. The trial court held that the respondents had settled their income tax deficiency for the years 1955 to 1959, not under
The Government appealed to the Intermediate Appellant Court, alleging that the private respondents were not qualified to avail of the
tax amnesty under P.D. 213 for the benefits of that decree are available only to persons who had no pending assessment for unpaid
taxes, as provided in Revenue Regulations Nos. 8-72 and 7-73. Since the Pastors did in fact have a pending assessment against them,
they were precluded from availing of the amnesty granted in P.D.’s Nos. 23 and 213. The Government further argued that “tax
exemptions should be interpreted strictissimi juris against the taxpayer. The Intermediate Appellate Court (now Court of Appeals)
rendered a decision dismissing the Government’s appeal and holding that the payment of deficiency income taxes by the Pastors under
PD. No. 213, and the acceptance thereof by the Government, operated to divest the latter of its right to further recover deficiency
income taxes from the private respondents pursuant to the existing deficiency tax assessment against them.
ISSUE:
Whether or not the tax amnesty payments made by the private respondents bar an action for recovery of deficient income taxes under
HELD:
RATIO:
[T]he Government is estopped from collecting the difference between the deficiency tax assessment and the amount already paid by
them as amnesty tax. The finding of the appellate court that the deficiency income taxes were paid by the Pastors, and accepted by the
Government, under P.D. 213, granting amnesty to persons who are required by law to file income tax returns but who failed to do so, is
entitled to the highest respect and may not be disturbed except under exceptional circumstances
The rule is that in case of doubt, tax statutes are to be construed strictly against the Government and liberally in favor of the
taxpayer strictisimi juris for taxes, being burdens, are not to be presumed beyond what the applicable statute (in this case P.D. 213)
On September 12, 1945, ANSCOR’s authorized capital stock was increased to P2,500,000.00 divided into 25,000
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
common shares with the same par value. Of the additional 15,000 shares, only 10,000 was issued which were all
subscribed by Don Andres, after the other stockholders waived in favor of the former their pre-emptive rights to
subscribe to the new issues. This increased his subscription to 14,963 common shares. A month later, Don Andres
transferred 1,250 shares each to his two sons, Jose and Andres Jr., as their initial investments in ANSCOR. Both sons
are foreigners.
By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were made between 1949 and
December 20, 1963. On December 30, 1964 Don Andres died. As of that date, the records revealed that he has a
total shareholdings of 185,154 shares. 50,495 of which are original issues and the balance of 134,659 shares as stock
dividend declarations. Correspondingly, one-half of that shareholdings or 92,577 shares were transferred to his wife,
Doña Carmen Soriano, as her conjugal share. The offer half formed part of his estate.
A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further increased it to P30M. In
the same year (December 1966), stock dividends worth 46,290 and 46,287 shares were respectively received by the
Don Andres estate and Doña Carmen from ANSCOR. Hence, increasing their accumulated shareholdings to 138,867
and 138,864 common shares each.
On December 28, 1967, Doña Carmen requested a ruling from the United States Internal Revenue Service (IRS),
inquiring if an exchange of common with preferred shares may be considered as a tax avoidance scheme. By January
2, 1968, ANSCOR reclassified its existing 300,000 common shares into 150,000 common and 150,000 preferred
shares.
In a letter-reply dated February 1968, the IRS opined that the exchange is only a recapitalization scheme and not tax
avoidance. Consequently, on March 31, 1968 Doña Carmen exchanged her whole 138,864 common shares for
138,860 of the preferred shares. The estate of Don Andres in turn exchanged 11,140 of its common shares for the
remaining 11,140 preferred shares.
In 1973, after examining ANSCOR’s books of account and record Revenue examiners issued a report proposing that
ANSCOR be assessed for deficiency withholding tax-at-source, for the year 1968 and the 2nd quarter of 1969 based
on the transaction of exchange and redemption of stocks. BIR made the corresponding assessments. ANSCOR’s
subsequent protest on the assessments was denied in 1983 by petitioner. ANSCOR filed a petition for review with the
CTA, the Tax Court reversed petitioners ruling. CA affirmed the ruling of the CTA. Hence this position.
Issue: Whether or not a person assessed for deficiency withholding tax under Sec. 53 and 54 of the Tax Code is
being held liable in its capacity as a withholding agent.
Held: An income taxpayer covers all persons who derive taxable income. ANSCOR was assessed by petitioner for
deficiency withholding tax, as such, it is being held liable in its capacity as a withholding agent and not in its
personality as taxpayer. A withholding agent, A. Soriano Corp. in this case, cannot be deemed a taxpayer for it to
avail of a tax amnesty under a Presidential decree that condones “the collection of all internal revenue taxes including
the increments or penalties on account of non-payment as well as all civil, criminal, or administrative liabilities arising
from or incident to voluntary disclosures under the NIRC of previously untaxed income and/or wealth realized here or
abroad by any taxpayer, natural or juridical.” The Court explains: “The withholding agent is not a taxpayer, he is a
mere tax collector. Under the withholding system, however, the agent-payer becomes a payee by fiction of law. His
liability is direct and independent from the taxpayer, because the income tax is still imposed and due from the latter.
The agent is not liable for the tax as no wealth flowed into him, he earned no income.”
TAXPAYER’S SU)T
It is a case where the act complained of directly involves the illegal disbursement of public funds collected through
taxation.
In the recent case of Abaya v. Ebdane (515 SCRA 720, 757- 758), the Supreme Court stressed that the prevailing doctrine
in the taxpayer’s suits is:
1. To allow the taxpayers to question contracts entered into by the National Government or government owned and
controlled corporations allegedly in contravention of law.
2. To allow the taxpayer to sue when there is a claim that public funds are illegally disbursed or public money is
being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an
invalid or unconstitutional law.
3. Significantly, a taxpayer need not be a party to the contract to challenge its validity.
SUIT
TAXPAYER’S C)T)ZEN’S
SUIT SUIT
Definition The act In matter
complained of of
directly mere public
involves the right,
illega th
l disbursement e people are
of public funds. the real
parties. It is
at least the
right, if not
of the duty
of every
citizen, to
institute
in
protection of
the
genera
l public
Plaintiff The PF is The PF is but
affected by a mere
th instrument of
e public
expenditure of concern
the public
funds.
1. Public funds are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some
irregularity is committed; and
2. Petitioner is directly affected by the alleged ultra vires act (Anti-Graft League v. San Juan, 260 SCRA 251).
Q: Through E.O. No. 30, the President created a trust for the benefit of the Filipino People under the name and
style of the CCP. The trust was to undertake the construction of a national theater and music hall to awaken the
nation’s consciousness on cultural heritage and to promote, preserve and enhance the same. Pursuant thereto,
CCP’s Board of Trustees received foreign donations and financial
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
commitments. Petitioner, however, claims that in issuing E.O. No. 30, there was an encroachment
by the President on the legislative’s prerogative to enact laws. The trial court dismissed the petition on
the ground that Gonzales did not have the personality to question the issuance of EO No. 30 since
the funds administered by the CCP came from donations, without a single centavo raised by
taxation. Does the petitioner have the personality to question the validity of EO No. 30 based on a
taxpayer’s suit?
A: NO. Gonzales did not meet the requisite burden to warrant the reversal of the trial court’s decision. )t was
pointed out therein that one valid reason why such an outcome was unavoidable was that the funds
administered by the Center came from donations and contributions and not from taxation. Accordingly,
there was the absence of the pecuniary requisite or monetary interest. The stand of the lower court finds
support in judicial precedents. This is not to retreat from the liberal approach followed in the earlier case
of Pascual v. Secretary of Public Works, foreshadowed by People v. Vera, where the doctrine was exhaustively
discussed. It is only to clarify that the Petitioner, judged by orthodox legal learning, has not satisfied an
element for a taxpayer’s suit (Gonzales v. Marcos, G.R. No. L-31685, July 31, 1975).
Q: On 1982, the COA issued Circular No. 82-195, lifting the system of pre-audit of government
financial transactions. After the change in administration due to the 1986 revolution, grave
irregularities and anomalies in the government’s financial transactions were uncovered. Hence, on
March 1986, the COA issued Circular No. 86-257, which reinstated the pre- audit of selected
government transactions. With the normalization of the political system and the stabilization of
government operations, the COA saw it fit to issue Circular No. 89-299, which again lifted the pre-
audit of government transactions of national government agencies (NGAs) and government-owned
or -controlled corporations (GOCCs). Petitioner filed this Petition for Certiorari under Rule 65,
alleging that the pre-audit duty on the part of the COA cannot be lifted by a mere circular,
considering that pre- audit is a constitutional mandate enshrined in Section 2 of Article IX-D of the
1987 Constitution. He further claims that, because of the lack of pre-audit by COA, serious
irregularities in government transactions have been committed. The petition has been filed as
taxpayer’s suit. )s he entitled to the extraordinary writ of certiorari?
A: YES. A taxpayer is deemed to have the standing to raise a constitutional issue when it is established that
public funds from taxation have been disbursed in alleged contravention of the law or the Constitution.
Petitioner claims that the issuance of Circular No. 89-299 has led to the dissipation of public funds
through numerous irregularities in government financial transactions. These transactions have allegedly
been left unchecked b y the lifting of the pre-audit performed by COA, which, petitioner argues, is its
Constitutional duty. Thus, petitioner has standing to file this suit as a taxpayer, since he would be
adversely affected by the illegal use of public money. (Dela Llana v. COA, 665 SCRA 176 [2012]
Doctrine:
Decision to entertain a taxpayer’s suit is discretionary upon the Court. When the issue hinges on the illegal disbursement of public funds, a
liberal approach should be preferred as it is more in keeping with truth and justice.
Facts:
The Sangguniang Panlalawigan of Cagayan passed a resolution authorizing Governor Edgar R. Lara to engage the services of and appoint
Preferred Ventures Corporation as financial advisor or consultant for the issuance and flotation of bonds to fund the priority projects of the governor
without cost and commitment. It also ratified the Memorandum of Agreement (MOA) entered into by Gov. Lara and Preferred Ventures Corporation
which provides that the provincial government of Cagayan shall pay Preferred Ventures Corporation a one-time fee of 3% of the amount of bonds floated.
In addition, the Sangguniang Panlalawigan, authorized Gov. Lara to negotiate, sign and execute contracts or agreements pertinent to the flotation of the
bonds of the provincial government in an amount not to exceed P500 million for the construction and improvement of his priority projects, including the
construction of the New Cagayan Town Center, to be approved by the Sangguniang Panlalawigan. Subsequently, Lara issued the Notice of Award to Asset
Builders Corporation, giving to the latter the planning, design, construction and site development of the town center project.
Petitioners Manuel N. Mamba, Raymund P. Guzman and Leonides N. Fausto filed a Petition for Annulment of Contracts and Injunction with prayer for a
Temporary Restraining Order/Writ of Preliminary Injunction against the respondents (Gov. Lara et al.). The RTC, however, dismissed their petition on
the grounds that the (1) petitioners have no locus standi to file a case as they are not party to the contract and (2) that the controversy is in the nature of a
political question, thus, the court can’t take cognizance of it.
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
Issues:
Ruling:
Ratio Decidendi:
A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that the public money is being deflected to any
improper purpose, or that there is wastage of public funds through the enforcement of an invalid or unconstitutional law.
For a taxpayer’s suit to prosper, two requisites must be met: (1) public funds derived from taxation are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or some irregularity is committed and (2) the petitioner is directly affected by the alleged act.
In the case at bar, although the construction of the town center would be primarily sourced from the proceeds of the bonds, which respondents insist are
not taxpayers’ money, a government support in the amount of P187 million would still be spent for paying the interest of the bonds. The governor
requested the Sangguniang Panlalawigan to appropriate an amount of P25 million for the interest of the bond. So clearly, the first requisite has been met.
As to the second requisite, the Supreme Court explained that the court, in recent cases, has relaxed the stringent direct injury test bearing in mind that
locus standi is a procedural technicality. By invoking transcendental importance, paramount public interest, or far-reaching implications, ordinary
citizens and taxpayers were allowed to sue even if they failed to show direct injury. In cases where serious legal issues were raised or where public
expenditures of millions of pesos were involved, the court did not hesitate to give standing to taxpayers.
It argued that, to protect the interest of the people and to prevent taxes from being squandered or wasted under the guise of government projects, a
liberal approach must be adopted in determining locus standi in public suits.
A political question is a question of policy, which is to be decided by the people in their sovereign capacity or by the legislative or the executive branch of
the government to which full discretionary authority has been delegated. A justiciable question on the other hand, calls upon the duty of the courts to
settle actual controversies wherein there are rights involved which are legally demandable and enforceable. It is one which is proper to be examined or
decided in courts of justice because its determination would not involve an encroachment upon the legislative or executive power. In simple terms, a
political question refers to the wisdom, while a justiciable question refers to the legality of the acts complained of.
In the case at bar, the issues raised in the petition do not refer to the wisdom but to the legality of the acts complained of. Thus, the Supreme Court found
the instant controversy within the ambit of judicial review.
Also, in the present case, petitioners alleged grave abuse of discretion and clear violations of law by public respondents. They put in issue the overpriced
construction of the town center; the grossly disadvantageous bond flotation; the irrevocable assignment of the provincial governments annual regular
income, including the IRA, to respondent RCBC to cover and secure the payment of the bonds floated; and the lack of consultation and discussion with
the community regarding the proposed project, as well as a proper and legitimate bidding for the construction of the town center.
Thus, the high court said that, even if the issues were political in nature, it would still come within their powers of review under the expanded jurisdiction
conferred upon them by Section 1, Article VIII of the Constitution, which includes the authority to determine whether grave abuse of discretion
amounting to excess or lack of jurisdiction has been committed by any branch or instrumentality of the government.
On May 7, 1957, Marietta O'Hara de Villa (de Villa), in her personal capacity and as administratrix of the estate of her late husband Guillermo, ceded,
through a deed of donation[4] (1957 deed of donation), 134,957 square meters (sq. m.) (donated portion) of their 396,622 sq. m. property (subject
property) in favor of the Province of Cavite, on which now stands various government offices and facilities. For her part, de Villa, through her
Answer,[9] opposed the expropriation proceedings, claiming that there are still areas within the donated portion which the Province of Cavite failed to
develop.
On November 4, 2003, respondent then Cavite Governor Erineo S. Maliksi (Maliksi) issued Executive Order No. 004[15] authorizing the
creation of a committee which recommended the terms and conditions for the proper settlement of the expropriation case. The said committee thereafter
submitted its Committee Report[16] dated November 24, 2003 recommending that: (a) the just compensation be pegged at the amount of P495.00 per sq.
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
m. plus 6% annual interest for 22 years,[17] for a total net consideration of P50,000,000.00, which amount shall be equally shouldered by the Province of
Cavite and Trece Martires City; (b) the total area to be expropriated be limited to only 116,287 sq. m. and the donated portion be reduced to 48,429 sq.
m.; and (c) 193,662 sq. m. of the subject property be reverted to Goldenrod which include a fenced stadium, one-half of the Trece Martires Cemetery, the
forest park; a residential area, and some stalls; in turn, Goldenrod will construct a commercial/business center, an art/historical museum, and an
educational institution within five years from the signing of the compromise agreement, among others.
Thereafter, the subject compromise was approved by the RTC in a Decision[20] dated March 18, 2004 and an Amended Decision[21]dated March
25, 2004 (compromise judgment), both of which were ratified by the Sangguniang Panlalawigan of the Province of Cavite and the Sangguniang
Panlungsod of Trece Martires City per Resolution Nos. 195-S-2004[22] and 2004-049,[23] respectively.
On motion of respondents, however, the CA rendered a Resolution[31] dated May 18, 2005, dismissing Remulla's petition for annulment of judgment
based on the following grounds: (a) there was yet no disbursement of public funds at the time of its filing; thus, it cannot be considered as a taxpayer's
suit; and (b) Remulla was not a real party in interest to question the propriety of the subject compromise as he was not a signatory thereto.
JOYA v. PCGG; G.R. No. 96541
FACTS:
The Republic of the Philippines through the PCGG entered into a Consignment Agreement with Christie’s of New York, selling 82 Old Masters Paintings and antique
silverware seized from Malacanang and the Metropolitan Museum of Manila alleged to be part of the ill-gotten wealth of the late Pres. Marcos, his relatives and cronies.
Prior to the auction sale, COA questioned the Consignment Agreement, there was already opposition to the auction sale. Nevertheless, it proceeded as scheduled and the
proceeds of $13,302,604.86 were turned over to the Bureau of Treasury.
ISSUE:
o Whether or not PCGG has jurisdiction and authority to enter into an agreement with Christie’s of New York for the sale of the artworks
RULING:
The rule is settled that no question involving the constitutionality or validity of a law or governmental act may be heard and decided by the court unless there is
compliance with the legal requisites for judicial inquiry, namely: that the question must be raised by the proper party; that there must be an actual case or controversy;
that the question must be raised at the earliest possible opportunity; and, that the decision on the constitutional or legal question must be necessary to the determination
of the case itself. But the most important are the first two (2) requisites.
Standing of Petitioners
On the first requisite, we have held that one having no right or interest to protect cannot invoke the jurisdiction of the court as party-plaintiff in an action. This is
premised on Sec. 2, Rule 3, of the Rules of Court which provides that every action must be prosecuted and defended in the name of the real party-in-interest, and that all
persons having interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. The Court will exercise its power of judicial review
only if the case is brought before it by a party who has the legal standing to raise the constitutional or legal question. "Legal standing" means a personal and substantial
interest in the case such that the party has sustained or will sustain direct injury as a result of the governmental act that is being challenged. The term "interest" is
material interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest.
Moreover, the interest of the party plaintiff must be personal and not one based on a desire to vindicate the constitutional right of some third and related party.
There are certain instances however when this Court has allowed exceptions to the rule on legal standing, as when a citizen brings a case for mandamus to procure the
enforcement of a public duty for the fulfillment of a public right recognized by the Constitution, and when a taxpayer questions the validity of a governmental act
authorizing the disbursement of public funds.
Petitioners claim that as Filipino citizens, taxpayers and artists deeply concerned with the preservation and protection of the country's artistic wealth, they have the legal
personality to restrain respondents Executive Secretary and PCGG from acting contrary to their public duty to conserve the artistic creations as mandated by the 1987
Constitution, particularly Art. XIV, Secs. 14 to 18, on Arts and Culture, and R.A. 4846 known as "The Cultural Properties Preservation and Protection Act," governing
the preservation and disposition of national and important cultural properties. Petitioners also anchor their case on the premise that the paintings and silverware are
public properties collectively owned by them and by the people in general to view and enjoy as great works of art. They allege that with the unauthorized act of PCGG
in selling the art pieces, petitioners have been deprived of their right to public property without due process of law in violation of the Constitution.
Petitioners' arguments are devoid of merit. They lack basis in fact and in law. They themselves allege that the paintings were donated by private persons from different
parts of the world to the Metropolitan Museum of Manila Foundation, which is a non-profit and non-stock corporations established to promote non-Philippine arts. The
foundation's chairman was former First Lady Imelda R. Marcos, while its president was Bienvenido R. Tantoco. On this basis, the ownership of these paintings legally
belongs to the foundation or corporation or the members thereof, although the public has been given the opportunity to view and appreciate these paintings when they
were placed on exhibit.
Similarly, as alleged in the petition, the pieces of antique silverware were given to the Marcos couple as gifts from friends and dignitaries from foreign countries on their
silver wedding and anniversary, an occasion personal to them. When the Marcos administration was toppled by the revolutionary government, these paintings and
silverware were taken from Malacañang and the Metropolitan Museum of Manila and transferred to the Central Bank Museum. The confiscation of these properties by
the Aquino administration however should not be understood to mean that the ownership of these paintings has automatically passed on the government without
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
complying with constitutional and statutory requirements of due process and just compensation. If these properties were already acquired by the government, any
constitutional or statutory defect in their acquisition and their subsequent disposition must be raised only by the proper parties — the true owners thereof — whose
authority to recover emanates from their proprietary rights which are protected by statutes and the Constitution. Having failed to show that they are the legal owners of
the artworks or that the valued pieces have become publicly owned, petitioners do not possess any clear legal right whatsoever to question their alleged unauthorized
disposition.
Further, although this action is also one of mandamus filed by concerned citizens, it does not fulfill the criteria for a mandamus suit. In Legaspi v. Civil Service
Commission, this Court laid down the rule that a writ of mandamus may be issued to a citizen only when the public right to be enforced and the concomitant duty of the
state are unequivocably set forth in the Constitution. In the case at bar, petitioners are not after the fulfillment of a positive duty required of respondent officials under
the 1987 Constitution. What they seek is the enjoining of an official act because it is constitutionally infirmed. Moreover, petitioners' claim for the continued enjoyment
and appreciation by the public of the artworks is at most a privilege and is unenforceable as a constitutional right in this action for mandamus.
Neither can this petition be allowed as a taxpayer's suit. Not every action filed by a taxpayer can qualify to challenge the legality of official acts done by the government.
A taxpayer's suit can prosper only if the governmental acts being questioned involve disbursement of public funds upon the theory that the expenditure of public funds
by an officer of the state for the purpose of administering an unconstitutional act constitutes a misapplication of such funds, which may be enjoined at the request of a
taxpayer. Obviously, petitioners are not challenging any expenditure involving public funds but the disposition of what they allege to be public properties. It is worthy to
note that petitioners admit that the paintings and antique silverware were acquired from private sources and not with public money.
Actual Controversy
For a court to exercise its power of adjudication, there must be an actual case of controversy — one which involves a conflict of legal rights, an assertion of opposite
legal claims susceptible of judicial resolution; the case must not be moot or academic or based on extra-legal or other similar considerations not cognizable by a court of
justice. A case becomes moot and academic when its purpose has become stale, such as the case before us. Since the purpose of this petition for prohibition is to enjoin
respondent public officials from holding the auction sale of the artworks on a particular date — 11 January 1991 — which is long past, the issues raised in the petition
have become moot and academic.
At this point, however, we need to emphasize that this Court has the discretion to take cognizance of a suit which does not satisfy the requirements of an actual case or
legal standing when paramount public interest is involved. We find however that there is no such justification in the petition at bar to warrant the relaxation of the rule.
Petitioner Anti-Graft League of the Philippines, a self-confessed non-governmental, non-stock and non-profit organization,
which was constituted to protect the interest of the Republic and its instrumentalities and political subdivisions and its
constituents against abuses of its public officials and employees.
This instant petition for certiorari is a taxpayer’s suit which it filed because the Provincial Board of Rizal (the Board)
allegedly illegally disbursed public funds in transactions involving four parcels of land in Ugong Norte, Pasig.
President Ferdinand E. Marcos issued Presidential Decree No. 674, establishing the Technological Colleges of Rizal. It
directed the Board to provide funds for the purchase of a site and the construction of the necessary structures thereon.
The Province was able to negotiate with respondent Ortigas & Co., Ltd. (Ortigas) for the acquisition of four parcels of land
located in Ugong Norte, Pasig. The project never materialized because of the decimation of the Provinces resources
brought about by the creation of the Metro Manila Commission (MMC) in 1976.
Lying idle, the property was eventually sold to Valley View Realty Development Corporation (Valley View) for P700.00 per
square meter or a total of P134,523,900.00, of which 30 million was given as downpayment.
Ortigas filed at the RTC of Pasig for rescission of contract plus damages with preliminary injunction against the Province
as the latter violated the contract by selling the subject lots which were intended to be utilized solely as a site for the
construction of the Rizal Technological Colleges and the Rizal Provincial Hospital. Another case was filed by the new
Board of the province as the consideration was exceedingly low. The two cases were dismissed as there were
compromise agreement where as the Province returned the 30million downpayment and the property was reconveyed to
Ortigas at P2,250.00 per square meter, or a total of P432,398,250.00, or higher than market value.
Petitioner filed the instant petition seeking to nullify the compromise agreements.
Issue: Whether petitioner has standing to sue
HELD
STANDING
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
Citizen’s Suit
Market & Shopping Center” filed a Petition for Prohibition with Preliminary Injunction against the city before the then CFI Rizal on the
ground that the supervision fee or license tax imposed by the ordinances is in reality a tax on income which respondent may not
impose, the same being expressly prohibited by RA 2264, as amended. On 21 October 1972, the lower court dismissed the petition,
ruling that the questioned imposition is not a tax on income, but rather a privilege tax or license fee which local governments are
empowered to impose and collect. Having failed to obtain reconsideration of said decision, the company filed the petition for review.
•
• The Supreme Court affirmed the Decision of the then CFI Rizal, Quezon City, Branch 18, and denied the petition for lack of merit
• Statutory grant for local government unit to lawfully impose a gross receipts tax
As a general rule, there must be a statutory grant for a local government unit to impose lawfully a
gross receipts tax, that unit not having the inherent power of taxation. The rule, however, finds no application in the present case where
what is involved is an exercise of, principally, the regulatory power of the city and where that regulatory power is expressly
accompanied by the taxing power.
• Section 2 of RA 2264; Authority of cities and municipalities to impose municipal license taxes
Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local Autonomy Act, provides that: “Any provision of
law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal
license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or
municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal
council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for service rendered by
the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any
business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public
purposes just and uniform taxes licenses or fees.” TA 2264 confers upon local governments broad taxing authority extending to almost
“everything, excepting those which are mentioned therein,” provided that the tax levied is “for public purposes, just and uniform,” does
not transgress any constitutional provision and is not repugnant to a controlling statute.
PAL’s current franchise clear and specific; PAL is tax exempt
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
PAL’s current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is now exempt from
the payment of any tax, fee, or other charge on the registration and licensing of motor vehicles. Such payments are already included in
the basic tax or franchise tax provided in Subsections
(a) and (b) of Section 13, PD 1590 and may no longer be exacted.
• Compania General de Tabacos de Filipinas vs. Manila [G.R. No. L-16619. June 29, 1963.] En Banc, Dizon (J): 8
concurring, 2 took no part
•
• Facts: Compañia General de Tabacos de Filipinas (Tabacalera), as a duly licensed first class wholesale and retail liquor dealer paid
the City the fixed license fees prescribed by Ordinance 3358 for the years 1954 to 1957, inclusive. In 1954, City Ordinance 3634,
amending City Ordinance 3420, and City Ordinance 3816, amending City Ordinance 3301 were passed. By reason thereof, the City
Treasurer issued the regulations, according to which, the term “general merchandise”, as used in said ordinances, includes all articles
referred to in chapter 1, Sections 123 to 148 of the National Internal Revenue Code. Of these, Section 133-135 included liquor among
the taxable articles. Pursuant to said regulations, Tabacalera included its sales of liquor in its sworn quarterly declaration submitted to
the City Treasurer beginning from the third quarter of 1954 to the second quarter of 1957, with a total value of P722,501.09 and
correspondingly paid a wholesaler’s tax amounting to P13,688 and a retailer’s tax amounting to P1,520, or a total of P15,208. In 1954,
the City, through its treasurer, addressed a letter to Messrs. Sycip, Gorres, Velayo and Co., an accounting firm, expressing the view
that liquor dealers paying the annual wholesale and retail fixed tax under City Ordinance 3358 are not subject to the wholesale and
retail dealers’ taxes prescribed by City Ordinances 3634, 3301, and 3816. Upon learning of said opinion, the Tabacalera stopped
including its sales of liquor in its quarterly sworn declarations submitted in accordance with the City Ordinances 3634, 3301, and
3816, and on 3 December 1957, it addressed a letter to the City Treasurer demanding refund of the alleged overpayment. As the
claim was disallowed, the Tabacalera filed the action in the CFI Manila to recover from the City of Manila and its Treasurer, Marcelino
Sarmiento the sum of P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period from the
third quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances 3634, 3301, and 3816. The CFI Manila ordered the
City Treasurer of Manila to refund the sum of P15,280 to Compañia General de Tabacos de Filipinas. Hence, the appeal.
•
•
• The Supreme Court reversed the decision appealed from, with the result that the case should be dismissed, with costs.
• Meaning of “tax”; Distinction of taxes and license fee
The term “tax” applies — generally speaking — to all kinds of exactions which become public funds. The term is often loosely
used to include levies for revenue as well as levies for regulatory purposes. Thus license fees are commonly called taxes. Legally
speaking, however, license fee is a legal concept quite distinct from tax; the former is imposed in the exercise of police power for
purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising revenues (MacQuillin, Municipal
Corporations, Vol. 9, 3rd Edition, p. 26).
• Ordinance 3358 a valid regulatory enactment for the sale of intoxicating liquors
Ordinance 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business of selling liquor
or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its charter power to fix license fees on, and
regulate, the sale of intoxicating liquors, whether imported or locally manufactured. (Section 18 [p], RA as amended). The license fees
imposed by it are essentially for purposes of regulation, and are justified, considering that the sale of intoxicating liquor is, potentially at
least, harmful to public health and morals, and must be subject to supervision or regulation by the state and by cities and municipalities
authorized to act in the premises. (MacQuillin, supra, p. 445).
• Tabacalera not subject to double taxation; License fee and tax may be imposed on same subject
matter
That Tabacalera is being subjected to double taxation is more apparent than real. What is collected under Ordinance 3358 is a
license fee for the privilege of engaging in the sale of liquor, a calling in which not anyone or anybody may freely engage, considering
that the sale of liquor indiscriminately may endanger public health and morals. On the other hand, what the three ordinances impose is
a tax for revenue purposes based on the sales made of the same article or merchandise. Both a license fee and a tax may be imposed
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
on the same business or occupation, or for selling the same article, this not being in violation of the rule against double taxation (Bentley
Gray Dry Goods Co., vs. City of Tampa 137 Fla. 641, 188 SO. 758; MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 83).
• Facts:
• Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist Consumers Network, Inc. (ECN) (petitioners), come
before this Court in this original action praying that Section 34 of Republic Act (RA) 9136, otherwise known as the
• "Electric Power Industry Reform Act of 2001" (EPIRA), imposing the Universal Charge,[1] and Rule 18 of the Rules and Regulations
(IRR)[2] which seeks to implement the said imposition, be declared unconstitutional. Petitioners also pray... that the Universal Charge
imposed upon the consumers be refunded and that a preliminary injunction and/or temporary restraining order (TRO) be issued
directing the respondents to refrain from implementing, charging, and collecting the said charge.
• Petitioners contend that the Universal Charge has the characteristics of a tax and is collected to fund the operations of the NPC
• On the other hand, respondent PSALM through the Office of the Government Corporate Counsel (OGCC) contends that unlike a tax
which is imposed to provide income for public purposes, such as support of the government, administration of the law, or payment of
public expenses, the... assailed Universal Charge is levied for a specific regulatory purpose, which is to ensure the viability of the
country's electric power industry. Thus, it is exacted by the State in the exercise of its inherent police power.
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
• espondents Department of Energy (DOE), ERC, and NPC, through the Office of the Solicitor General (OSG), share the same view
that the Universal Charge is not a tax because it is levied for a specific regulatory purpose, which is to ensure the viability of the
country's electric... power industry, and is, therefore, an exaction in the exercise of the State's police power.
• Respondents
• Issues:
• further contend that said Universal Charge does not possess the essential characteristics of a tax, that its imposition would redound to
the benefit of the electric power... industry and not to the public, and that its rate is uniformly levied on electricity end-users, unlike a
tax which is imposed based on the individual taxpayer's ability to pay.
• Whether or not, the Universal Charge imposed under Sec. 34 of the EPIRA is a tax
• Ruling:
• The conservative and pivotal distinction between these two powers rests in the purpose for which the charge is made. If generation of
revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the
fact... that revenue is incidentally raised does not make the imposition a tax.[... rom the aforementioned purposes, it can be gleaned
that the assailed Universal Charge is not a tax, but an exaction in the exercise of the State's police power. Public welfare is surely
promoted.
• t is a well-established doctrine that the taxing power may be used as an implement of police power.
• Evidently, the establishment and maintenance of the Special Trust Fund, under the last paragraph of Section 34, R.A. No. 9136, is
well within the pervasive and non-waivable power and responsibility of the government to secure the physical and economic survival
and... well-being of the community, that comprehensive sovereign authority we designate as the police power of the State.[46]
• This feature of the Universal Charge further boosts the position that the same is an exaction imposed primarily in pursuit of the State's
police objectives. The STF reasonably serves and assures the attainment and perpetuity of the purposes for which the Universal
Charge is... imposed, i.e., to ensure the viability of the country's electric power industry.
Lessons Applicable: Bet. private and public suit, easier to file public suit, Apply real party in interest test for private suit and direct injury
test for public suit, Validity test varies depending on which inherent power
Laws Applicable:
FACTS:
President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which provided, among others, for the
imposition of a capital recovery component (CRC) on the domestic sale of all grades of fertilizers which resulted in having Fertiphil
paying P 10/bag sold to the Fertilizer and Perticide Authority (FPA).
FPA remits its collection to Far East Bank and Trust Company who applies to the payment of corporate debts of Planters Products
Inc. (PPI)
After the Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Upon return of democracy, Fertiphil demanded
a refund but PPI refused. Fertiphil filed a complaint for collection and damages against FPA and PPI with the RTC on the ground
that LOI No. 1465 is unjust, unreaonable oppressive, invalid and unlawful resulting to denial of due process of law.
FPA answered that it is a valid exercise of the police power of the state in ensuring the stability of the fertilizing industry in the
country and that Fertiphil did NOT sustain damages since the burden imposed fell on the ultimate consumers.
RTC and CA favored Fertiphil holding that it is an exercise of the power of taxation ad is as such because it is NOT for public
purpose as PPI is a private corporation.
ISSUE:
1. W/N Fertiphil has locus standi
2. W/N LOI No. 1465 is an invalid exercise of the power of taxation rather the police power
Held:
1. Yes. In private suits, locus standi requires a litigant to be a "real party in interest" or party who stands to be benefited or injured by
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
the judgment in the suit. In public suits, there is the right of the ordinary citizen to petition the courts to be freed from unlawful
government intrusion and illegal official action subject to the direct injury test or where there must be personal and substantial interest
in the case such that he has sustained or will sustain direct injury as a result. Being a mere procedural technicality, it has also been
held that locus standi may be waived in the public interest such as cases of transcendental importance or with far-reaching implications
whether private or public suit, Fertiphil has locus standi.
2. As a seller, it bore the ultimate burden of paying the levy which made its products more expensive and harm its business. It is also of
paramount public importance since it involves the constitutionality of a tax law and use of taxes for public purpose.
3. Yes. Police power and the power of taxation are inherent powers of the state but distinct and have different tests for validity. Police
power is the power of the state to enact the legislation that may interfere with personal liberty on property in order to promote general
welfare. While, the power of taxation is the power to levy taxes as to be used for public purpose. The main purpose of police power is
the regulation of a behavior or conduct, while taxation is revenue generation. The lawful subjects and lawful means tests are used to
determine the validity of a law enacted under the police power. The power of taxation, on the other hand, is circumscribed by inherent
and constitutional limitations.
In this case, it is for purpose of revenue. But it is a robbery for the State to tax the citizen and use the funds generation for a private
purpose. Public purpose does NOT only pertain to those purpose which are traditionally viewed as essentially governmental function
such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice. Thus, public
money may now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.
• The petitioner Chevron Philippines Inc (formerly Caltex Philippines Inc) who is a fuel supplier to Nanox Philippines, a locator inside the
CSEZ, received a Statement of Account from CDC billing them to pay the royalty fees amounting to Php115,000 for its fuel sales from
Coastal depot to Nanox Philippines from August 1 to September 21, 2002.
• Petitioner, contending that nothing in the law authorizes CDC to impose royalty fees based on a per unit measurement of any
commodity sold within the special economic zone, protested against the CDC and Bases Conversion Development Authority (BCDA).
They alleged that the royalty fees imposed had no reasonable relation to the probably expenses of regulation and that the imposition
on a per unit measurement of fuel sales was for a revenue generating purpose, thus, akin to a “tax”.
• BCDA denied the protest. The Office of the President dismissed the appeal as well for lack of merit.
• Upon appeal, CA dismissed the case. CA held that in imposing the royalty fees, CDC was exercising its right to regulate the flow of
fuel into CSEZ under the vested exclusive right to distribute fuel within CSEZ pursuant to its Joint Venture Agreement (JVA) with
Subic Bay Metropolitan Authority (SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI) dated April 11, 1996. The appellate court
also found that royalty fees were assessed on fuel delivered, not on the sale, by petitioner and that the basis of such imposition was
petitioner’s delivery receipts to Nanox Philippines. The fact that revenue is incidentally also obtained does not make the imposition a
tax as long as the primary purpose of such imposition is regulation.
• When elevated in SC, petitioner argued that: 1) CDC has no power to impose fees on sale of fuel inside CSEZ on the basis of income
generating functions and its right to market and distribute goods inside the CSEZ as this would amount to tax which they have no
power to impose, and that the imposed fee is not regulatory in nature but rather a revenue generating measure; 2) even if the fees are
regulatory in nature, it is unreasonable and are grossly in excess of regulation costs.
• Respondents contended that the purpose of royalty fees is to regulate the flow of fuel to and from the CSEZ and revenue (if any) is
just an incidental product. They viewed it as a valid exercise of police power since it is aimed at promoting the general welfare of
public; that being the CSEZ administrator, they are responsible for the safe distribution of fuel products inside the CSEZ.
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
• Issue:
Whether the act of CDC in imposing royalty fees can be considered as valid exercise of the police power.
• Held:
Yes. SC held that CDC was within the limits of the police power of the State when it imposed royalty fees.
• In distinguishing tax and regulation as a form of police power, the determining factor is the purpose of the implemented measure. If
the purpose is primarily to raise revenue, then it will be deemed a tax even though the measure results in some form of regulation. On
the other hand, if the purpose is primarily to regulate, then it is deemed a regulation and an exercise of the police power of the state,
even though incidentally, revenue is generated.
• In this case, SC held that the subject royalty fee was imposed for regulatory purposes and not for generation of income or profits. The
Policy Guidelines was issued to ensure the safety, security, and good condition of the petroleum fuel industry within the CSEZ. The
questioned royalty fees form part of the regulatory framework to ensure “free flow or movement” of petroleum fuel to and from the
CSEZ. The fact that respondents have the exclusive right to distribute and market petroleum products within CSEZ pursuant to its
JVA with SBMA and CSBTI does not diminish the regulatory purpose of the royalty fee for fuel products supplied by petitioner to its
client at the CSEZ.
• However, it was erroneous for petitioner to argue that such exclusive right of respondent CDC to market and distribute fuel inside
CSEZ is the sole basis of the royalty fees imposed under the Policy Guidelines. Being the administrator of CSEZ, the responsibility of
ensuring the safe, efficient and orderly distribution of fuel products within the Zone falls on CDC. Addressing specific concerns
demanded by the nature of goods or products involved is encompassed in the range of services which respondent CDC is expected
to provide under Sec. 2 of E.O. No. 80, in pursuance of its general power of supervision and control over the movement of all supplies
and equipment into the CSEZ.
• There can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare. Fuel is a highly
combustible product which, if left unchecked, poses a serious threat to life and property. Also, the reasonable relation between the
royalty fees imposed on a “per liter” basis and the regulation sought to be attained is that the higher the volume of fuel entering CSEZ,
the greater the extent and frequency of supervision and inspection required to ensure safety, security, and order within the Zone.
• Respondents submit that the increased administrative costs were triggered by security risks that have recently emerged, such as
terrorist strikes. The need for regulation is more evident in the light of 9/11 tragedy considering that what is being moved from one
location to another are highly combustible fuel products that could cause loss of lives and damage to properties.
As to the issue of reasonableness of the amount of the fees, SC held that no evidence was adduced by the petitioner to show that the
fees imposed are unreasonable. Administrative issuances have the force and effect of law. They benefit from the same presumption of
validity and constitutionality enjoyed by statutes. These two precepts place a heavy burden upon any party assailing governmental
regulations. Petitioner’s plain allegations are simply not enough to overcome the presumption of validity and reasonableness of the
subject imposition.
‣ANGELES UNIVERSITY v. CITY OF ANGELES; G.R. No. 189999
Facts:
1. Petitioner is an educational institution and was converted into a non-stock, non-profit education foundation under the provisions of
R.A. 6055
2. Sometime in August 2005, petitioner filed with the Office of the City Building Official an application for a building permit for the
construction of an 11-storey building
3. Said office issued a Building Permit Fee Assessment in the amount of P126,839.20 and P238,741.64 as Locational Clearance Fee.
4. Petitioner claimed that it is exempt from the payment of the building permit and locational clearance fees, citing legal opinions
rendered by the DOJ.
5. Petitioner also reminded the respondents that they have previously issued building permits acknowledging such exemption from
payment of building permit fees on the construction of petitioner’s 4-storey AUF Information Technology Center building
6. Petitioner stresses that the tax exemption granted to educational stock corporations which have converted into non-profit
foundations was broadened to include any other charges imposed by the Government as one of the incentives for such conversion.
Issues:
1. Whether petitioner is exempt from the payment of building permit and related fees imposed under the National Building Code; and
2. Whether the parcel of land owned by petitioner which has been assessed for real property tax is likewise exempt.
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
Ruling:
R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which converted to non-stock, non-profit educational
foundations.
On February 19, 1977, P.D 1096 was issued adopting the National Building Code of the Philippines. The said Code requires every
person, firm or corporation, including any agency or instrumentality of the government to obtain a building permit for any construction,
alteration or repair of any building or structure.
Not being expressly included in the enumeration of structures to which the building permit fees do not apply, petitioner’s claim for
exemption rests solely on its interpretation of the term “other charges imposed by the National Government” in the tax exemption clause
of R.A. No. 6055.
A “charge” is broadly defined as the “price of, or rate for, something,” while the word “fee” pertains to a “charge fixed by law for services
of public officers or for use of a privilege under control of government.” As used in the LGC, charges refers to pecuniary liability, as
rents or fees against persons or property, while fee means a charge fixed by law or ordinance for the regulation or inspection of a
business or activity.
Note that the “other charges” mentioned in Sec. 8 of R.A. No. 6055 is qualified by the words “imposed by the Government on all
property used exclusively for the educational activities of the foundation.”
Building permit fees are not impositions on property but on the activity subject of government regulation. While it may be argued that the
fees relate to particular properties, i.e., buildings and structures, they are actually imposed on certain activities the owner may conduct
either to build such structures or to repair, alter, renovate or demolish the same.
Thus, ancillary permits such as electrical permit, sanitary permit and zoning clearance must also be secured and the corresponding fees
paid before a building permit may be issued.
Since building permit fees are not charges on property, they are not impositions from which petitioner is exempt.
As to petitioner’s argument that the building permit fees collected by respondents are in reality taxes because the primary purpose is to
raise revenues for the local government unit, the same does not hold water.
A charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an
exercise of the police power. In this case, the Secretary of Public Works and Highways who is mandated to prescribe and fix the amount
of fees and other charges that the Building Official shall collect in connection with the performance of regulatory functions, has
promulgated and issued the Implementing Rules and Regulations which provide for the bases of assessment of such fees
Petitioner failed to demonstrate that the bases of assessment were arbitrarily determined or unrelated to the activity being regulated.
Neither has petitioner adduced evidence to show that the rates of building permit fees imposed and collected by the respondents were
unreasonable or in excess of the cost of regulation and inspection.
In distinguishing tax and regulation as a form of police power, the determining factor is the purpose of the implemented measure. If the
purpose is primarily to raise revenue, then it will be deemed a tax even though the measure results in some form of regulation. On the
other hand, if the purpose is primarily to regulate, then it is deemed a regulation and an exercise of the police power of the state, even
though incidentally, revenue is generated.
Concededly, in the case of building permit fees imposed by the National Government under the National Building Code, revenue is
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
Section 208: the Building Official is hereby authorized to retain not more than twenty percent of his collection for the operating
expenses of his office.
The remaining eighty percent shall be deposited with the provincial, city or municipal treasurer and shall accrue to the General Fund of
the province, city or municipality concerned.
Now, on petitioner’s claim that it is exempted from the payment of real property tax assessed against its real property presently
occupied by informal settlers.
Petitioner failed to discharge its burden to prove that its real property is actually, directly and exclusively used for educational purposes.
While there is no allegation or proof that petitioner leases the land to its present occupants, still there is no compliance with the
constitutional and statutory requirement that said real property is actually, directly and exclusively used for educational purposes. The
respondents correctly assessed the land for real property taxes for the taxable period during which the land is not being devoted solely
to petitioner’s educational activities.
situation among aliens required to pay it, i.e. being casual, permanent, full-time, part-time, rank-an-file or executive.
• FACTS:
• Petitioner Smart Communications, Inc. (Smart) In the course of its business, Smart constructed a telecommunications tower within the territorial
jurisdiction of the Municipality. The construction of the tower was for the purpose of receiving and transmitting cellular communications within
the covered area.
• On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An Ordinance Regulating the Establishment of Special
Projects."
• On 24 August 2004, Smart received from the Permit and Licensing Division of the Office of the Mayor of the Municipality an assessment letter
with a schedule of payment for the total amount of P389,950.00 for Smart’s telecommunications tower.
• Due to the alleged arrears in the payment of the assessment, the Municipality also caused the posting of a closure notice on the
telecommunications tower.
• On 9 September 2004, Smart filed a protest, claiming lack of due process in the issuance of the assessment and closure notice. In the same
protest, Smart challenged the validity of Ordinance No. 18 on which the assessment was based. The Municipality denied Smart’s protest.
• On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City, Batangas, Branch 6, an "Appeal/Petition" assailing the validity of
Ordinance No. 18.
• TRIAL COURT RULED:
• The trial court held that the assessment covering the period from 2001 to July 2003 was void since Ordinance No. 18 was approved only on 30
July 2003. However, the trial court declared valid the assessment starting 1 October 2003, citing Article 4 of the Civil Code of the Philippines,9 in
relation to the provisions of Ordinance No. 18 and Section 166 of Republic Act No. 7160 or the Local Government Code of 1991 (LGC).10 The
dispositive portion of the trial court’s Decision reads:
• WHEREFORE, in light of the foregoing, the Petition is partly GRANTED.
• CTA division and CTA en banc dismissed the petition for review of Smart.
• The Ruling of the CTA En Banc:
• The CTA En Banc dismissed the petition on the ground of lack of jurisdiction. The CTA En Banc declared that it is a court of special jurisdiction and
as such, it can take cognizance only of such matters as are clearly within its jurisdiction. Citing Section 7(a), paragraph 3, of Republic Act No. 9282,
the CTA En Banc held that the CTA has exclusive appellate jurisdiction to review on appeal, decisions, orders or resolutions of the Regional Trial
Courts in local tax cases originally resolved by them in the exercise of their original or appellate jurisdiction. However, the same provision does
not confer on the CTA jurisdiction to resolve cases where the constitutionality of a law or rule is challenged.
• ISSUES:
• The petition raises the following arguments:
• 1. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being contrary to law and jurisprudence considering that the
CTA En Banc should have exercised its jurisdiction and declared the Ordinance as illegal.
• 2. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being contrary to law and jurisprudence considering that the
doctrine of exhaustion of administrative remedies does not apply in [this case].
• 3. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being contrary to law and jurisprudence considering that the
respondent has no authority to impose the so-called "fees" on the basis of the void ordinance.
• HELD:
• Petitioner: Smart argues that the "fees" in Ordinance No. 18 are actually taxes since they are not regulatory, but revenue-raising. Smart contends
that the designation of "fees" in Ordinance No. 18 is not controlling.
• COURT:
• The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
• Section 5, Article X of the 1987 Constitution provides that "each local government unit shall have the power to create its own sources of revenues
and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government."
• Consistent with this constitutional mandate, the LGC grants the taxing powers to each local government unit. Specifically, Section 142 of the LGC
grants municipalities the power to levy taxes, fees, and charges not otherwise levied by provinces. Section 143 of the LGC provides for the scale
of taxes on business that may be imposed by municipalities while Section 147 of the same law provides for the fees and charges that may be
imposed by municipalities on business and occupation.
• The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees against persons or property, while the term "fee" means "a
charge fixed by law or ordinance for the regulation or inspection of a business or activity."
• In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance Regulating the Establishment of Special Projects," to
regulate the "placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits,
meters and other apparatus, and provide for the correction, condemnation or removal of the same when found to be dangerous, defective or
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
otherwise hazardous to the welfare of the inhabitant[s]." It was also envisioned to address the foreseen "environmental depredation" to be
brought about by these "special projects" to the Municipality. Pursuant to these objectives, the Municipality imposed fees on various structures,
which included telecommunications towers.
• As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to regulate the "placing, stringing, attaching, installing, repair
and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other apparatus" listed therein, which included
Smart’s telecommunications tower. Clearly, the purpose of the assailed Ordinance is to regulate the enumerated activities particularly related to
the construction and maintenance of various structures. The fees in Ordinance No. 18 are not impositions on the building or structure itself;
rather, they are impositions on the activity subject of government regulation, such as the installation and construction of the structures.
• Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the identified special projects, which included "cell
sites" or telecommunications towers, the fees imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily revenue-raising.
While the fees may contribute to the revenues of the Municipality, this effect is merely incidental. Thus, the fees imposed in Ordinance No. 18
are not taxes.
• In Progressive Development Corporation v. Quezon City, the Court declared that "if the generating of revenue is the primary purpose and
regulation is 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 the imposition a tax."
• Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and Smart is questioning the constitutionality of the ordinance,
the CTA correctly dismissed the petition for lack of jurisdiction. Likewise, Section 187 of the LGC, which outlines the procedure for questioning the
constitutionality of a tax ordinance, is inapplicable, rendering unnecessary the resolution of the issue on non-exhaustion of administrative
remedies.
• PETITIONER:
• Smart argues that the Municipality exceeded its power to impose taxes and fees as provided in Book II, Title One, Chapter 2, Article II of the LGC.
Smart maintains that the mayor’s permit fees in Ordinance No. 18 (equivalent to 1% of the project cost) are not among those expressly
enumerated in the LGC.
• COURT:
• As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition does not appear in the enumeration of taxes under Section 143
of the LGC.
• Moreover, even if the fees do not appear in Section 143 or any other provision in the LGC, the Municipality is empowered to impose taxes, fees
and charges, not specifically enumerated in the LGC or taxed under the Tax Code or other applicable law. Section 186 of the LGC, granting local
government units wide latitude in imposing fees, expressly provides:
• Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise the power to levy taxes, fees or charges on any
base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue Code, as amended,
or other applicable laws: Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared
national policy: Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing
conducted for the purpose.
• PETITIONER: argues that the Municipality is encroaching on the regulatory powers of the National Telecommunications Commission (NTC).
• COURT: The fees are not imposed to regulate the administrative, technical, financial, or marketing operations of telecommunications entities,
such as Smart’s; rather, to regulate the installation and maintenance of physical structures – Smart’s cell sites or telecommunications tower. The
regulation of the installation and maintenance of such physical structures is an exercise of the police power of the Municipality. Clearly, the
Municipality does not encroach on NTC’s regulatory powers.
• PETITIONER: Ordinance No. 18 violates Sections 130(b)(3)27 and 186 of the LGC since the fees are unjust, excessive, oppressive and confiscatory
• COURT: On the constitutionality issue, Smart merely pleaded for the declaration of unconstitutionality of Ordinance No. 18 in the Prayer of the
Petition, without any argument or evidence to support its plea. Nowhere in the body of the Petition was this issue specifically raised and
discussed. Significantly, Smart failed to cite any constitutional provision allegedly violated by respondent when it issued Ordinance No. 18.
• Settled is the rule that every law, in this case an ordinance, is presumed valid. To strike down a law as unconstitutional, Smart has the burden to
prove a clear and unequivocal breach of the Constitution, which Smart miserably failed to do.
• WHEREFORE, the Court DENIES the petition.
A: YES. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the
government. Taxes may be levied with a regulatory purpose to provide a means for the rehabilitation and
stabilization of a threatened industry which is affected with public interest as to be within the police power of the
state (Caltex Philippines, Inc. v. Commission on Audit, 208 SCRA 726). Thus, the power of taxation may be exercised to
implement police power (Tiu v. Videogram Regulatory Board, 151 SCRA 208).
A: Taxation is distinguishable from police power as to the means employed to implement these public good goals.
Those doctrines that are unique to taxation arose from peculiar considerations such as those especially punitive
effects of taxation, and the belief that taxes are the lifeblood of the state yet at the same time, it has been
recognized that taxation may be made the implement of the state’s police power (Southern Cross Cement
Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005).
A: NO. The designation given by the municipal authorities does not decide whether the imposition is properly a
license tax or a license fee. The determining factors are the purpose and effect of the imposition as may be
apparent from the provisions of the ordinance. If the generating of revenue is the primary purpose and regulation
is 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 the imposition a tax (Gerochi v. Department of Energy, 527 SCRA 696,
2007). The fees in the ordinance are not impositions on the building or structure itself; rather, they are
impositions on the activity subject of government regulation, such as the installation and construction of the
structures. It is primarily regulatory in nature, and not primarily revenue-raising. While the fees may contribute
to the revenues of the municipality, this effect is merely incidental. Thus, the fees imposed in the said ordinance
are not taxes (Smart Communications, Inc., vs. Municipality of Malvar, Batangas, G.R. No. 204429, February 18, 2014).
Q: Revenue laws R.A. 6260 and P.D. 276 were enacted to establish the Coconut Investment Fund and
Coconut Consumers Stabilization Fund. These
imposed levy for every sale of copra. Additional laws were enacted for the management of
coconut levy funds (coco-levy funds), including the Coconut Industry Code, which provided
that the coco-levy funds shall be owned by the coconut farmers in their private capacities.
On 2000, E.O. 312 was issued which established “Sagip Niyugan Program”. )t sought to establish a P1-
billion fund by disposing of assets acquired using coco-levy funds or assets of entities
supported by those funds. To manage the fund, a committee was formed which engage the
services of a private reputable auditing firm to conduct periodic audits by the majority vote of
its members.
FDI Bank was also designated as the trustee bank. It suggested that the coco-levy funds are
closely similar to the Social Security System (SSS) funds, which have been declared to be not
public funds but properties of the SSS members and held merely in trust by the government.
Are coco-levy funds public funds?
A: YES. The coco-levy funds were raised pursuant to law to support a proper governmental purpose.
They were raised with the use of the police and taxing powers of the State for the benefit of the
coconut industry and its farmers in general. The COA reviewed the use of the funds. The Bureau of
Internal Revenue (BIR) treated them as public funds and the very laws governing coconut levies
recognize their public character. Unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise
money to boost the government’s general funds but to provide means for the rehabilitation and stabilization
of a threatened industry, the coconut industry, which is so affected with public interest as to be
within the police power of the State. The subject laws are akin to the imposed sugar liens. It cannot be
likened to SSS Law which collects premium contributions that are not taxes and not for public
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
purpose. The SSS members pay contributions in exchange for insurance protection and benefits like
loans, medical or health services, and retirement package (Pambansang Koalisyon ng mga Samahang
Magsasaka at Manggagaw a sa Niyugan v. Executive Secretary, G.R. Nos. 147036-37, April 10, 2012).
Q: On April 23, 1992, RA 7432 was passed into law, granting senior citizens certain
privileges, including the 20% sales discount to certain establishments . Such law also
provides that the cost discount granted by these establishments may be claimed as a tax
credit or reduction from tax liability. On February 26, 2004, RA 9257 was issued, amending RA
7432, which provides that the 20% may be claimed as deduction from the gross income, net
of VAT, if applicable, for income tax purposes, and from gross sales or gross receipts of the
business enterprise concerned, for VAT or other percentage tax purposes. Petitioners
challenges the constitutionality of the tax deduction scheme under RA 9257 and prays that
the tax credit treatment of the 20% discount be reinstated.
Petitioners posit that the resolution of this case lies in the determination of whether the
legally mandated 20% senior citizen discount is an exercise of police power or eminent
domain. If it is police power, no just
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES
compensation is warranted. But if it is 5. It is Proportionate in character
eminent domain, the tax deduction scheme is 6. It is levied on Persons and property
unconstitutional because it is not a peso for 7. It is levied for a Public purpose
peso reimbursement of the 20% discount given
REQUISITES OF A VALID TAX
to senior citizens. Thus, it constitutes taking
of private property without payment of just 1. It should be for a public purpose
compensation. Is the tax deduction scheme a 2. It should be uniform
valid exercise of police power? 3. That either the person or property being
taxed be within the jurisdiction of the taxing
authority
A: YES. The disquisition on eminent domain in 4. The tax must not impinge on the inherent and
Central Luzon Drug Corporation (G.R. No. 159647, constitutional limitations on the power of
April 15, 2005) is obiter dicta and, thus, not taxation.
binding precedent. A fair reading of Carlos
Superdrug Corporation (G526 SCRA 130 [2007]) TAX AS DISTINGUISHED FROM
would show that we categorically ruled therein OTHER FORMS OF EXACTIONS
that the 20% discount is a valid exercise of police
power. Thus, even if the current law, through its
tax deduction scheme (which abandoned the tax
credit scheme under the previous law), does not TAX TARIFF/CUS
provide for a peso for peso reimbursement of the T OMS
20% discount given by private establishments, no DUTIES
constitutional infirmity obtains because, being a An all embracing Only a kind of
Coverage term to include tax
valid exercise of police power, payment of just
compensation is not warranted. The 20% discount various kinds of therefore
is intended to improve the welfare of senior citizens enforced limited
who, at their age, are less likely to be gainfully contributions coverage
employed, more prone to illnesses and other imposed upon
disabilities, and, thus, in need of subsidy in persons for the
purchasing basic commodities. It may not be amiss attainment of
to mention also that the discount serves to honor public
senior citizens who presumably spent the purpose.
productive years of their lives on contributing to Persons, property, Goods
Object
the development and progress of the nation. This etc. imported or
distinct cultural Filipino practice of honoring the exported
elderly is an integral part of this law. As to its
nature and effects, the 20% discount is a
regulation affecting the ability of private
establishments to price their products and
services relative to a special class of individuals,
senior citizens, for which the Constitution affords
preferential concern. (Memorial Park v. DSWD, 711
SCRA 302 [2013])
AS TO BURDEN OR INCIDENCE
(2001, 2006 Bar)
AS TO TAX RATES
AS TO PURPOSES
AS TO GRADUATION
• LORENZO vs. POSADAS JR. • The appointment of Moore as trustee was made
• G.R. No. L-43082 by the trial court in conformity with the wishes
of the testator as expressed in his will. It is true
• June 18, 1937 that the word “trust” is not mentioned or used
• in the will but the intention to create one is
• FACTS: Thomas Hanley died, leaving a will and clear. No particular or technical words are
a considerable amount of real and personal required to create a testamentary trust. The
properties. Proceedings for the probate of his words “trust” and “trustee”, though apt for the
will and the settlement and distribution of his purpose, are not necessary. In fact, the use of
estate were begun in the CFI of Zamboanga. The these two words is not conclusive on the
will was admitted to probate. question that a trust is created. ” To constitute
a valid testamentary trust there must be a
• The CFI considered it proper for the best concurrence of three circumstances:
interests of the estate to appoint a trustee to
administer the real properties which, under the •
will, were to pass to nephew Matthew ten years
after the two executors named in the will was
appointed trustee. Moore acted as trustee until • (1) Sufficient words to raise a trust;
he resigned and the plaintiff Lorenzo herein was
appointed in his stead.
• (2) a definite subject;
• The accrual of the inheritance tax is distinct • The instant case does[not] fall under subsection
from the obligation to pay the same. (a), but under subsection (b), of section 1544
above-quoted, as there is here no fiduciary
heirs, first heirs, legatee or donee. Under the
• Acording to article 657 of the Civil Code, “the subsection, the tax should have been paid
rights to the succession of a person are before the delivery of the properties in question
transmitted from the moment of his death.” “In to Moore as trustee.
other words”, said Arellano, C. J., “. . . the heirs • (b) Should the inheritance tax be computed on
succeed immediately to all of the property of the the basis of the value of the estate at the time of
deceased ancestor. The property belongs to the the testator’s death, or on its value ten years
heirs at the moment of the death of the ancestor later?
as completely as if the ancestor had executed •
and delivered to them a deed for the same
before his death.”
• If death is the generating source from which the
power of the estate to impose inheritance taxes
• Whatever may be the time when actual takes its being and if, upon the death of the
transmission of the inheritance takes place, decedent, succession takes place and the right of
succession takes place in any event at the the estate to tax vests instantly, the tax should
moment of the decedent’s death. The time when be measured by the value of the estate as it
the heirs legally succeed to the inheritance may stood at the time of the decedent’s death,
differ from the time when the heirs actually regardless of any subsequent contingency value
receive such inheritance. ” Thomas Hanley of any subsequent increase or decrease in value
having died on May 27, 1922, the inheritance
tax accrued as of the date.
•
• From the fact, however, that Thomas Hanley
died on May 27, 1922, it does not follow that the
obligation to pay the tax arose as of the date. • (c) In determining the net value of the estate
The time for the payment on inheritance tax is subject to tax, is it proper to deduct the
clearly fixed by section 1544 of the Revised compensation due to trustees?
Administrative Code as amended by Act No. •
3031, in relation to section 1543 of the same
Code. The two sections follow:
• A trustee, no doubt, is entitled to receive a fair
compensation for his services. But from this it
• SEC. 1543. Exemption of certain acquisitions and does not follow that the compensation due him
transmissions. — The following shall not be may lawfully be deducted in arriving at the net
taxed: value of the estate subject to tax. There is no
• (a) The merger of the usufruct in the owner of statute in the Philippines which requires
the naked title. trustees’ commissions to be deducted in
determining the net value of the estate subject
• (b) The transmission or delivery of the to inheritance tax
inheritance or legacy by the fiduciary heir or
legatee to the trustees.
• (c) The transmission from the first heir, legatee, •
or donee in favor of another beneficiary, in
accordance with the desire of the predecessor.
xx
• (d) What law governs the case at bar? Should
• SEC. 1544. When tax to be paid. — The tax fixed the provisions of Act No. 3606 favorable to the
in this article shall be paid: tax-payer be given retroactive effect?
• (a) In the second and third cases of the next •
preceding section, before entrance into
possession of the property.
• (b) In other cases, within the six months • A statute should be considered as prospective in
subsequent to the death of the predecessor; but its operation, whether it enacts, amends, or
if judicial testamentary or intestate proceedings repeals an inheritance tax, unless the language
shall be instituted prior to the expiration of said of the statute clearly demands or expresses that
period, the payment shall be made by the it shall have a retroactive effect, . . . .” Act No.
executor or administrator before delivering to 3606 itself contains no provisions indicating
each beneficiary his share. legislative intent to give it retroactive effect. No
TAXATION LAW 1 (REVIEWER)
ASPECT OF TAXATION - TAXES