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Taxation Reviewer

Taxation Reviewer

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Published by Chapapa
taxation notes, reviewer
taxation notes, reviewer

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Published by: Chapapa on Jun 28, 2009
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A
TENEO
C
ENTRAL
B
AR
O
PERATIONS
2007
Taxation Law
SUMMER REVIEWER
 
 —Advisers:
Atty. Serafin Salvador, Atty. Michael Dana Montero, Atty. Gaudencio Mendoza
; Head:
Julie Ann B.Domino, Juan J. P. Enriquez III
; Understudies:
Rachelle T. Sy, Aldwin Mendoza, Timothy John Batan
 —
 
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PART I – GENERAL PRINCIPLESTAXATION –
power inherent in every sovereignState to impose a charge or burden upon persons,properties, or rights to raise revenues for the use andsupport of the government to enable it to dischargeits appropriate functions
SCOPE OF TAXATION
TAXATION IS:
Unlimited,
Far-reaching,
Plenary
Comprehensive
Supreme
STAGES OF TAXATION: (LAP)
1. Levy2. Assessment3. Payment
Basic Principles of a Sound Tax System
1. Fiscal Adequacy2. Theoretical Justice3. Administrative Feasibility
INHERENT LIMITATIONS (SPING)
1)
S
itus or territoriality of taxation2) Must be for a
P
ublic purpose
Test is whether proceeds will beused for something which is theduty of the State to provide.
Legislature is not required toadopt a policy of “all or none.”
Incidental benefit to individualdoes not defeat exemption3)
I
nternational comity
Property of a foreign State of government may not be taxed byanother 4)
N
on-delegability of the taxing power 
Contemplates power todetermine kind, object, extent,amount, coverage, and situs of tax;
Distinguish from power to assessand collect
Exemptions: (a) presidentialtaxing powers; (b) localgovernments5) Exemptions of 
G
overnment agencies
Taking money from one pocketto the other 
Applies only to entities exercisinggovernment functions (acta jureimperii)
CONSTITUTIONAL LIMITATIONSA. Direct
1) Due process
Should not be harsh, oppressive,or confiscatory (Substantive)
By authority of valid law(Substantive)
Must be for a public purpose(Substantive)
Imposed within territorial jurisdiction (Substantive)
No arbitrariness in assessmentand collection (Procedural)
Right to notice and hearing(Procedural)2) Equal protection
All persons subject to legislationshall be treated alike, under likecircumstances and conditionsboth in privileges conferred andliabilities imposed.
Power to tax includes power toclassify provided:(a) Based on substantialdistinction(b) Apply to present and futureconditions(c) Germane to purpose of law(d) Apply equally to all members of the same class3) Non-impairment clause
Rules(a) When government is party tocontract granting exemption
cannot be withdrawnwithout violating non-impairment clause(b) When exemption generallygranted by law
withdrawaldoes not violate(c) When exemption grantedunder a franchise
may berevoked; Consti provides thatfranchise is subject toamendment, alteration, or repeal by Congress.4) Must be uniform and equitable
 
Taxation Law Summer Reviewer
 
A
TENEO
C
ENTRAL
B
AR
O
PERATIONS
2007
 
Page 2 of 145
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Uniform: all articles or propertiesof the same class taxed at samerate
Equity: apportionment must bemore or less just in the light of taxpayer’s ability to shoulder taxburden5) Non-imprisonment for non-paymentof poll tax
Taxpayer may be imprisoned for non-payment of other kinds of taxes where the law so expresslyprovides.6) Congress shall evolve a progressivesystem of taxation
As resources of the taxpayer becomes higher, his tax ratelikewise increases (ex. Incometax)
Constitution does not prohibitregressive taxes; this is adirective upon Congress, not a justiciable right.7) All appropriation, revenue or tariff bills shalloriginate exclusively in the House of Representatives, but the Senate maypropose or concur with amendments
It is the bill, not the law, that mustoriginate from House; bill may undergoextensive changes in Senate
Rationale: members of House are moresensitive to local needs.8) Freedom of religion
Activities simply and purely for propagation of faith are exempt (e.g. saleof bibles and religious articles by non-stock, non-profit organization at minimalprofit).
Tax is unconstitutional if it operates as aprior restraint on exercise of religion
Income even of religious organizationsfrom any activity conducted for profil or from any of their property, real or personal, regardless of disposition of such income, is taxable9) Freedom of press/expression
Tax that operates as a prior restraintinvalid.
If fee is only for purpose of defraying costof registration and not for exercise of privilege, no violation.10) Charitable institutions, churches, andparsonages or convents appurtenant thereto,mosques and non-profit cemeteries and all
ands,
uildings and 
mprovements 
 
A
CTUALLY,
D
IRECTLY and
E
XCLUSIVELYUSED for charitable, religious andeducational purposes shall be exempt fromtaxation
Pertains only to real estate tax.
Test of exemption: actual use of theproperty, not ownership
Use of word “exclusively” means“primarily” rather than “solely.”
Exemption extends to property incidentalto or reasonably necessary for theaccomplishment of the purposesmentioned.11) Tax exemption of 
all 
evenues and 
ssets 
of (a) non-stock, non-profit educationalinstitutions(b) used
A
CTUALLY,
D
IRECTLY AND
E
XCLUSIVELY for educationalpurposes
Exemption covers income, property,donor’s tax, and customs duties(distinguish from previous which pertainsonly to property tax)
Revenue must both be (a) derived froman activity in pursuance of educationalpurpose; and (b) proceeds must be usedfor the same purpose (ex. hospitaladjunct to medical school tax exempt)(ex. Interest income not exempt).
Income exempt provided it is used for maintenance or improvement of institution.
Distinguish from tax treatment of (a)proprietary educational institutions(Preferential Tax); and (b) governmenteducational institutions (exempt, ex. UP)12) Delegated authority of President to imposetariff rates, import and export quotas,tonnage and wharfage dues
delegated by Congress
through a law
subject to Congressional limits andrestrictions
within the framework of nationaldevelopment program13) Law granting tax exemption (includesamnesties, condonations and refunds) shallbe passed with concurrence of Congress -majority of 
all 
members voting separately
Relative majority (majority of quorum) issufficient to
withdraw 
exemption.14) No use of public money or property for religious purposes except if priest is assignedto armed forces, penal institutions,government orphanage or leprosarium
 
Taxation Law Summer Reviewer
 
A
TENEO
C
ENTRAL
B
AR
O
PERATIONS
2007
 
Page 3 of 145
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15) Special purpose - special fund for saidpurpose, balance goes to general funds16) Veto power of the President - revenue/tariff bill17) Power of review of the SC18) Power of Local Government to create their own sources and levy taxes, fees, charges19) Just share of local government in nationalrevenue which shall be automaticallyreleased.20) Tax exemption of all revenues and assets of (a) proprietary or cooperative educationalinstitutions(b) subject to limitations provided by law21) Tax exemption of grants, endowments,donations or contributions USED
A
CTUALLY,
D
IRECTLY and
E
XCLUSIVELYfor educational purposes
CIR v. CA (298 SCRA 85) 
Facts:
YMCA is a non-stock, non-profit institution,which conducts various programs and activitiesbeneficial to the public pursuant to its religious,educational and charitable objective. In 1980, YMCAearned an income of more than P600K from leasingout a portion of its premises to small shop ownersand P47K from parking fees.
Issue:
Is the rental income from real property ownedby the YMCA subject to income tax?
Held:
 
YES
, the exemption claimed by YMCA isexpressly disallowed by the last paragraph of then§27 of the NIRC. Furthermore, Art. XIV, §4 (3) of theConstitution only exempts YMCA from property taxesNOT income tax. YMCA cannot be considered as an“educational institution” within the purview of theabove-cited article. The term “educational institution”under the Education Act of 1982 refers to schools.The school system is synonymous with formaleducation, which refers to hierarchically structuredand chronologically graded learnings organized andprovided by the formal school system and for whichcertification is required in order for the learner toprogress through grades or more to higher levels.Nothing in the Articles of Incorporation or By-Laws of the YMCA suggests that it is an educationalinstitution.
Classification of TaxesA.
As to subject matter of object 
1)
personal, poll, capitation tax
 –(a) fixed amount(b) individuals residing within specifiedterritory(c) without regard to their property,occupation or business
Ex.
Community Tax (Cedula)2)
property tax –
(a) imposed on property, real or personal(b) in proportion to its value or other reasonable method of apportionment
Ex.
Real estate tax3)
excise, privilege tax -
(different from theexcise tax in Taxation II)(a) imposed upon performance of an act, theenjoyment of a privilege or the engagingin an occupation, profession or business
Ex.
Income tax, VAT, estate tax, donor’s tax
B.
As to who bears the burden 
1)
Direct –
the tax is imposed on the personwho also bears the burden thereof 
Ex.
Income tax, community tax, estate tax2)
Indirect –
imposed on the taxpayer whoshifts the burden of the tax to another 
Ex.
VAT, specific tax, percentage tax,customs duties
C.
As to determination of amount 
1)
Specific –
tax imposed and based on aphysical unit of measurement, as by head,number, weight, length or volume
Ex.
Tax on distilled spirits, fermentedliquors, cigars2)
Ad Valorem -
tax of a fixed proportion of thevalue of property with respect to which thetax is assessed; requires intervention of assessor.
Ex.
Real estate tax, excise tax on cars, non-essential goods
D.
As to purpose 
1)
General, fiscal or revenue -
imposed for thegeneral purpose of supporting thegovernment
Ex.
Income tax, percentage tax2)
Special or regulatory -
imposed for aspecial purpose, to achieve some social or economic objectives
Ex.
Protective tariffs or customs duties onimported goods intended to protect localindustries
 
E.
As to authority imposing the tax 
 1)
National -
imposed by the nationalgovernment
Ex.
National internal revenue taxes, customduties2)
Municipal or local -
imposed by themunicipal corporations or local governments
Ex.
Real estate tax, occupation tax

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