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TAX Laforteza | Midterms Reviewer Camille Umali

FUNDAMENTALS OF TAXATION A. Meaning and Nature of Taxes 1. Taxation and tax defined Proportionate in character Tax is laid by some rule of apportionment according to which persons share the public burden. It is ordinarily based on ability to pay Generally payable in money Unless qualified by law, tax is usually understood to be a pecuniary burden. Levied on persons or property A tax may also be imposed on acts, transactions, rights or privileges. In each case, it is only a person who pays the tax. The property is resorted to for the purpose of ascertaining the amount of tax to be paid. Levied by the state which has jurisdiction over the person or property The object to be taxed must be subject to the jurisdiction of the taxing state. This is necessary in order that a tax can be enforced. It cannot reach over into another jurisdiction to seize upon property or person for purposes of taxation. Levied by the law-making body of the state Power to tax is a legislative power which under the Constitution only Congress can exercise. However, our Constitution provides for exceptions and allows other government bodies to impose a tax with certain limits. (LGUs and President) Levied for public purposes Taxation involves, and a tax constitutes, a charge or burden imposed to provide for the support of the government, the administration of the law or the payment of public expenses. Revenues derived from taxation cannot be used for purely private purposes or for the exclusive benefit of private persons. Liability is personal to the taxpayer Paid at regular periods or intervals 3. Tax distinguished from other forms of impositions a. Definition Tax v. license and regulatory fees TAX Enforced contribution assessed by sovereign authority to defray public expenses Imposed for revenue purposes Imposed under the power of taxation LICENSE FEE Legal compensation or reward of an officer for specific services

Taxation The act of laying a tax, i.e., the process or means by which the sovereign, through its lawmaking body, raises income to defray the necessary expenses of government. (De Leon) As a power, it refers to the inherent power of the state to demand enforced contributions for public purpose or purposes (Mamalateo) power by which the sovereign raises revenue to defray the expenses of the government among those who in some measure are privileged to enjoy its benefits and must bear its burden (Mamalateo) the destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government Tax The enforced proportional and pecuniary contributions from persons and property levied by the law-making body of the state having jurisdiction over the subject of the burden for the support of the government and public needs CIR v. Algue tax delinquency Algue asked for deduction of promotional fees as it was a legitimate business expense. Allowed the deduction Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. 2. Essential Characteristics

Purpose Basis

An enforced contribution Tax is not a voluntary payment or donation and its imposition is in no way dependent upon the will or assent, open or implied, of the person taxed

Imposed for regulatory purposes Imposed under the police power of the State

TAX Laforteza | Midterms Reviewer Camille Umali


Amount No limit as to the amount of tax Amount of license fee that can be collected is limited to the cost of the license and the expenses of police surveillance and regulation Normally paid before the commencement of the business Failure to pay a license fee makes the business illegal License fee may be with or without consideration 1979, were correctly imposed because the tax exemption in the franchise of PAL was repealed during the period. Progressive Development Corp. v Quezon City Market Code of QC, supervision fee Tax on the gross receipts of stall rentals as being in the nature of an income tax, and not a supervision fee or license tax as claimed by respondent. If such were an income tax, such would be in violation of Republic Act 2264 Privilege tax or license fee To be considered as a license fee, the imposition must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest. The imposition must also bear a reasonable relation to the probable expenses of regulation. The Farmers Market and Shopping Center is a public market in the sense that it is open to the public, even if it is privately owned. The operation thereof required a license issued by the City, the issuance of which was done principally in the exercise of Rs police power. Compania General de Tabacos v City of Manila wholesale and retail tax on liquor Tabacalera filed for refund of municipal sales taxes because it already paid license fees for its liquor sales. License fee, no double taxation Ordinance 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling 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 Ordinances 3634, 3301, and 3816 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 on the same business or occupation, or for selling the same article, this not being a violation of the rule against double taxation.

Time of Payment Effect of NonPayment Surrender

Normally paid after the start of a business Failure to pay the tax does not make the business illegal Taxes, being the lifeblood of the State, cannot be surrendered except for lawful consideration

License fee is in the nature of a special privilege, permission or authority to do what is within its terms. Makes lawful an act which would otherwise be unlawful. It is always revocable. Importance of distinction: 1. Some limitations apply only to one and not to the other. Also, some exemptions apply to tax but not to license fee. 2. Power to exercise police power does not include power to impose fees for purposes of revenue. 3. An exaction may be considered both a tax and a license fee. (E.g. car registration fees) 4. Tax may have only a regulatory purpose. Osmena v Orbos OPSF PD 1956 created the OPSF to reimburse the oil companies for cost increased in crude oil and imported petrol products. This fund was reclassified as trust liability account. Tax collected in exercise of police power The OPSF as a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." PAL v Edu Motor vehicle registration fees PAL claims exemption from MVRF Tax both for revenue and regulation If purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called tax. PAL is exempt from paying motor vehicle registrations fees except for the period between June 27, 1968 until April 9,1979. Any registration fees collected between June 27, 1968 and April 9,

b.

Tax v. Special assessment

Sec. 240, RA 7160 (Local Government Code) Special Levy by Local Government Units. - A province, city or municipality may impose a special levy on the lands comprised within its territorial jurisdiction specially benefited by public works projects or improvements funded by the local government unit concerned: PROVIDED, however, That the special levy shall not exceed sixty percent (60%) of the actual cost of such projects and improvements, including the costs of acquiring land and such other real property in connection therewith: PROVIDED, further, That the special levy shall not apply to: (1) lands exempt from basic real property tax and

TAX Laforteza | Midterms Reviewer Camille Umali


(2) the remainder of the land portions of which have been donated to the local government unit concerned for the construction of such projects or improvements. TAX Definition Enforced proportional contribution from persons and property SPECIAL ASSESSMENT An enforced proportional contribution from owners of lands especially or peculiarly benefited by public improvements Based wholly on benefits Levied only on land c. Tax v. Toll

Basis Subject

Scope Person Liable

Based on necessity Levied on: Persons Property Acts Has general application It is a personal liability of the taxpayer

It is exceptional both as to the time and place Not a personal liability of the person assessed; his liability is limited only to the land involved

Sec. 155, RA 7160 (Local Government Code) Toll Fees or Charges. The Sanggunian concerned may prescribe the terms and conditionsand fix the rates for the imposition of toll fees or charges for the use of any public road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: PROVIDED, That no such toll fees or charges shall be collected from: (1) officers and enlisted men of the Armed Forces of the Philippines AND members of the PNP on mission (2) post-office personnel delivering mail (3) physically-handicapped (4) disabled citizens who are sixty-five (65) years or older When public safety and welfare so requires, the Sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use. TAX Enforced proportional contributions from persons and property TOLL A sum of money for the use of something, a consideration which is paid for the use of a property which is of a public nature; e.g road, bridge A demand of proprietorship Amount of toll depends upon the cost of construction or maintenance of the public improvement used May be imposed by the government or private individuals or entities

Definition

Exemption from taxation does not include exemption from special assessment The power to tax carries with it the power to levy a special assessment

Basis Amount

Republic v. Murcia Milling Philsugin fund Charter of Philsugin imposes a levy on annual sugar production of sugar cane planters. The funs was supposedly for research work. The venture, however, failed. The 3 sugar centrals now claims for a refund of the amount they contributed. No refund, Neither a special assessment nor a tax. As it is an exercise of the police power for the general welfare of the entire country which no private citizen may lawfully resist. From its financially unsuccessful venture, the Philsugin could very well have advanced in its appreciation of the problems of management faced by sugar centrals, could have understood more clearly the difficulties of marketing sugar products, and could have known with better intimacy the precise are of the industry in need of the more help from the government. Therefore, herein respondents are likewise benefited. Moreover, the field of research involved here is difficult to carry out without the actual operation of a refinery.

A demand of sovereignty No limit as to the amount of tax

Authority

May be imposed only by the government

Toll sum of money for the use of something, generally applied to the consideration which is paid for the use of a road, bridge or the like of a public nature. d. Tax v. tariff and customs duties

Custom duties taxes imposed on goods exported from or imported into a country. The term taxes is broader in scope as it includescustom duties. Tariff Three senses: Book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the correspondin duties to be paid for the same Duties payable on goods imported or exported (cf PD No. 230) System or principle of imposing duties on the importation (or exportation) of goods

TAX Laforteza | Midterms Reviewer Camille Umali


Garcia v. Executive Secretary 9% ad valorem duties Garcia challenges the constitutionality of the imposition of 9% ad valorem duties on imported goods by virtue of an Executive Order issued by the President. He challenges the authority of the President to impose duties. Constitutional The Congress may by law authorize the President to fix tariff rates and other duties subject to certain limitations and restrictions. Through the Tariff and Customs Code, the President is empowered to fix tariff and customs duties subject to limitations. There is also nothing in the Code that suggests the limitation that the President may only impose tariffs to protect local industries and products. Custom duties assessed at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue raising and for regulatory purposes. Custom duties is the name given to taxes on the importation and exportation of commodities. e. Obligation to pay tax v. Obligation to pay debt Caltex v COA OPSF A petition questioning the authority of the COA in disallowing Caltexs claim for reimbursement from the Oil Price Stabilization Fund (OPSF) and seeking reversal of the COAs decision preventing Caltex from exercising the right to offset its remittances against its reimbursement from the OPSF Not allowed to offset A taxpayer may not offset taxes due from the claims that he might have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

New Civil Code Art. 1279. - In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. TAX Basis Effect of non payment Mode payment of Law May be imprisoned (except poll tax) Payable in money Not No interest unless delinquent Imposed by public authority Determined under the NIRC DEBT Contract of judgment No imprisonment for failure to pay a debt Payable in money, property or service Can be assigned Draws interest if stipulated or delayed Can be imposed by private individuals Governed by Civil Code

Francia v IAC tax delinquency and expropriation A portion of Francias property was expropriated. However, he also failed to pay real estate taxes so it was sold to satisfy tax delinquency. He now asks for a set-off of the amount the government owed him for the expropriation and the tax delinquency. Not allowed to offset The collection of taxes cant await results of a lawsuit. The obligation to pay taxes is not a contract but a duty a positive act of government wherein the consent of individuals is not required. There is no mutual creditor and debtor relationship between the government and the taxpayer. Furthermore, the tax being questioned was due to the city government but the expropriation was done by the national government - two different taxing bodies.

Assignability Interest

Authority

Republic v Mambulao Lumber Company Reforestation charges MLC failed to pay forest charges. It wants the reforestation charges paid before (which were not allegedly not used because forests are still denuded) to be applied to the forest charges it owed the government. Not allowed to offset. The amount paid by a licensee as reforestation charges is in the nature of a tax which forms a part of the Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not. Internal revenue taxes, such as the forest charges, cannot be the subject of set-off or compensation because axes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required.

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TAX Laforteza | Midterms Reviewer Camille Umali


Philex Mining v. CIR Excise tax. VAT input credit/refund Not allowed to set-off Parties are not creditor and debtor of each other. Debts are due to the government in corporate capacity while taxes are due to the government in its sovereign capacity. Taxes are compulsory and not a matter of bargain. Domingo v. Carlitos Estate and Inheritance tax, government debt Theres already a final judgment for payment of estate and inheritance taxes, charges and penalties but the execution was not allowed because government is also indebted to the estate. Allowed to set-off Both the claim of the government and the claim of intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law. Both debts are extinguished by concurrent amount. Tax. v. penalty Penalty sanction imposed as a punishment for violation of law or act deemed injurious. Tax Raise revenue Imposed only by government Penalty Regulate conduct May be imposed by government or private individuals or entitites

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B. Purposes/Objectives of Taxation 1. Revenue-raising This the primary purpose of taxation to raise revenue for the support of the government. Pal v Edu MVRF Taxes not fees Taxes are for revenue, whereas fees are exactions for purposes of regulation and inspection, and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee. The money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicle Office but accrues to the funds for the construction and maintenance of public roads, streets and bridges. As the fees are not collected for regulatory purposes as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways, but to provide revenue with which the Government is to construct and maintain public highways for everyones use, they are veritable taxes, not merely fees Osmena v Orbos OPSF special fund The funds are collected for the stabilization of the oil industry, which is a tax collected not in the exercise of the taxing power but of the police power, for the purpose not of generating revenues attributable to the power to tax, but for the purpose of regulation. Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be administered in trust for the purpose intended. Once the purposes has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the government. Hence, while the funds collected may be referred to as taxes, they are exacted in the exercise of police power. It may then be converted and directed to the assailed trust fund. 2. Non-revenue/special or regulatory Taxation is also employed as a device for regulation by means of which certain effects or conditions envisioned by the government may be achieved. 1. Strengthen anemic enterprises or provide incentive for greater production 2. Protect local industries taxes on imports 3. Bargaining tool of a country taxes on imports 4. Halt inflation (Increase in time of prosperity) or ward of depression (lowered to expand business) 5. Reduce inequalities in wealth and income estate, donor and income taxes 6. Promote science and invention or finance educational activities, improve efficiency of police force, 7. 8. Implement of police power Incentive for some desirable activities

From mamalateo: 1. Revenue 2. Regulatory 3. Promotion of general welfare Republic v. Murcia Milling Phiilsugin funds SA imposed in the exercise of police power The purpose of the SA is to finance the improvement of particular properties, with the benefits of the improvement accruing or inuring to the owners thereof who, after all, pay the assessment. The purpose of an ordinary tax is to provide the Government with revenues needed for the financing of state affairs. While the refusal of a citizen to pay his ordinary taxes may not indeed by sanctioned because it would impair government functions, the same would not hold true in the case of a refusal to comply with a special assessment. Tio v VRB 30% tax on gross receipts PD 1987 (creating VRB) imposes tax on locally manufactured or imported blank video tapes to sales tax. Constitutional, hence a valid tax The Court will not invalidate a tax merely because it regulates, discourages or definitely deters the activities taxed. The power to tax is so unlimited in force and so reaching in extent. Tax imposed is both a regulatory and a revenue measure. Revenue measure: earnings of videogram establishments of around P600M p.a. have not been subjected to tax, thereby depriving the Government of an additional source of revenue. Regulatory measure: for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. Caltex v COA OPSF The claims arising from the OPSF is a tax. Taxation is no longer envisioned as merely to raise revenue to support the existence of government; taxes may be levied with a regulatory purpose to provide means for rehabilitation and stabilization of a threatened industry which is imbued with public interest as to be within the police power of the State. The stabilization of oil prices is one of prime concern which the state, via its police power, may properly address. Esso Standard Eastern v CIR Margin fees paid to CB for remittances Not a tax It is an exaction designed to curb the excessive demands upon our international reserve. It was imposed by state in the exercise of police power.

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C. Theory and Basis of Taxation 1. Necessity theory Has authority, allowed to collect Enforcement of tax laws and the collection of taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. NPC v City of Cabanatuan Franchise tax on NPC by the City of Cabanatuan Taxable As a rule, LGUs cannot impose taxes on the National Government; but it admits of an exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes. Here, the LGC authorizes the City to impose the franchise tax. NPC is also covered by the franchise tax because (1) it has a franchise in the sense of a secondary or special franchise, and (2) it is exercising its rights or privileges under this franchise within the territory of the city government of Cabanatuan. The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the LGUs for the delivery of basic services essential to the promotion of the general welfare. 2. Benefits received theory

The existence of governemtn is a necessity, it cannot exist nor endure without the means to pay its expenses and for those means, the government has the right to compel all its citizens and property within its limit to contribute in the form of taxes. Phil Guaranty v CIR Withgolding tax on Reinsurance contracts ceded to foreign Companies Taxable Where the reinsurance contracts show that the activities that constituted the undertaking to reinsure a domestic insurer against losses arising from the original insurances in the Philippines were performed in the Philippines, the reinsurance premiums are considered as coming from sources within the Philippines and are subject to Philippines Income Tax. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the States sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the citizenry and those which come within the States territory, and facilities and protection which a government is supposed to provide. Considering the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the estate. CIR v Algue Deduction for promotional fees Allowed to deduct Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of ones hard-earned money to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government, for it part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. Marcos II v CA Estate and income tax Authority of the Bureau of Internal Revenue to collect by the summary remedy of levying upon, and sale of real properties of the decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate over the supposed will of the deceased is being challenged.

Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power Gomez v Palomar Postage stamp tax The constitutionality of RA 1635, as amended by RA 2631,imposing a tax on postage stamps for the benefit of the Philippine Tuberculosis Society, is assailed for being unconstitutional Constitutional The Anti-TB stamp tax is in the nature of an excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. The legislature has the inherent power of selecting the subjects of taxation and has the greatest freedom in classification. The classification of mail users is not without any reason. It is based on the ability

TAX Laforteza | Midterms Reviewer Camille Umali


to pay, and enjoyment of the privilege of using the mails The eradication of a dreaded disease is a public purpose, although it does not benefit the taxpayer directly. The only benefit that the taxpayer is constitutionally entitled to is derived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes for public purposes. Lorenzo v Posadas Inheritance tax Hanley died and left his property to his nephew Matthew however such property will only be given 10 years after his death. Taxable at time of delivery to trustee Delivery to the trustee is in esse delivery to the cestui que trust, the beneficiary. The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws. Should the court hold that payment of taxes be delayed through the creation of a trust, the collection of the tax would be left to the will of a private individual. The obligation to pay taxes rests not upon the privileges enjoyed by a citizen but upon the necessity of money for the support of the state, for this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. D. Aspects of Taxation 1. 2. Levy/imposition by the legislative Collection/administration/ways/ and methods of collection First is taxation, strictly speaking, while the second may be referred to as tax administration

From Mamalateo: a. Levy enactment of a law by Congress b. Assessment and collection administration and implementation of the tax law by the Executive through admin agencies c. Payment act of compliance by the taxpayer Pay as you earn/pay as you go Most efficient for government Person paying you acts as BIR agent Pay as you are assessed BIR founds out that you have a deficiency so they send you an assessment Pay as you file Easiest

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E. Nature and Scope of and Limitations on the Power of Taxation 1. Power to tax as differentiated from the powers of eminent domain and police power TAXATION May be exercised only by the government or its political subdivisions EMINENT DOMAIN May be: (1) Exercised by the government or its political subdivisions; (2) Granted to public service companies or public utilities The property is taken for public use; it must be compensated Operates on an individual as the owner of a particular property There is a transfer of the right to property He receives the market value of the property taken from him POLICE POWER May be exercised only by the government or its political subdivisions

Authority who Exercises the Power

Purpose

Persons Affected Effect Benefits Received

Amount of Imposition

The property (generally in the form of money) is taken for the support of the government Operates upon a: (1) Community (2) Class of individuals The money contributed becomes part of the public funds It is assumed that the individual receives the equivalent of the tax in the form of protection and benefits he receives from the government Generally, there is no limit on the amount of tax that may be imposed to Is subject to certain constitutional limitations Including the prohibition against impairment of obligation of contracts

The use of the property is regulated for the purpose of promoting the general welfare; it is not compensable Operates upon a: (1) Community (2) Class of individuals There is no transfer of title. At most, there is restraint on the injurious use of property The person affected receives indirect benefits as may arise from the maintenance of a healthy economic standard of society Amount imposed should not be more than sufficient to cover the cost of the license and necessary expenses Relatively free from constitutional limitations Is superior to the impairment of contract provision

Relationship Constitution

No amount imposed but rather the owner is paid the market value of property taken Inferior to the impairment prohibition; government cannot expropriate private property which under a contract it had previously bound itself to purchase from the other contracting party

Power of eminent domain power of the state or those to whom the power has been delegated to take private property for public use upon paying to the owner a just compensation to be ascertained according to law. Police power power of the state to enact laws in relation to persons and property as may promote public health, morals, safety and general prosperity and welfare to its inhabitants. It springs from obligation of the State to protect its citizens. 2. Essential characteristic of taxation

power, no sovereign State can exist or endure. The power to tax is an essential and inherent attribute of sovereignty, belonging as a matter of right to every State. b. Exclusively legislative in nature

a. Inherent in sovereignty The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people It is inherent in a sovereign because it is a necessary attribute of sovereignty. Without this

Power to tax includes authority to: a. Determine the nature, object, extent, coverage, apportionment, place and method b. Grant tax exemptions or condonations c. Specify/provide for admin/judicial remedies It cannot be delegated either to exec/jud dept without infringing on separation of powers When delegation is allowed: a. Local governments local concern b. Allowed by constitution President c. Merely administrative implementation

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c. Subject to inherent constitutional limitations and Caltex v. CIR OPSF special fund Taxation is no longer envisioned as merely to raise revenue to support existence of the government; taxes may be levied with a regulatory purpose to provide means for rehabilitation and stabilization of a threatened industry which is imbued with public interest as to be within the police power of the state. Gaston v. Republic Planter Stabilization fund A class suit by sugar producers, sugarcane planters and millers claiming ownership of the stocks of the Republic Planters Bank. Such investment was funded by the deduction of Php1.00 per picul from the proceeds of the sugar producers as the Stabilization Fund collected by Philsucom. The sugar producers argue the stabilization fees collected from them are funds in trust for them Tax, Not a fund held in trust for the sugar producers, planters and millers The stabilization fees are in the nature of the tax which is within the power of the State to impose for the promotion of the entire sugar industry. This is within the public purpose limitation of taxation and the purpose is this: to protect the sugar industry which constitutes one of the nations great sources of wealth which directly and indirectly affects the welfare of so great a portion of the population of the State. Planters Product v. Fertphil capital recovery component LOI 1465 provided for a capital recovery component (CRC) on the domestic sale of fertilizers of not less than P10 per bag in favor of Planters Products, Inc. (PPI). Fertphil stopped paying after EDSA revolution and now asks for a refund. Allowed a refund LOI is unconstitutional even if enacted under the police power as it did not promote public interest. The imposition of the levy was an exercise by the State of its taxation power. The primary purpose of the levy is revenue generation. An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. The levy is not for a public purpose. It is imposed for the benefit of PPI, a private company, to pay for its corporate debts.

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Power of taxation is not absolute.

Roxas v CTA Real estate dealers tax Roxas brothers were asked by the government to sell their land for agrarian reform by letting the farmers pay for the land in installment. Not taxable The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the hen that lays the golden egg. And in order to maintain the general publics trust and confidence in the government, this power must be used justly and not treacherously. It does not conform with our sense of justice in this case for the government to persuade the taxpayer to lend it a helping hand and later on penalize him for duly answering the urgent call. Thus, the partnership of the brothers, Roxas y Cia, cannot be considered as a real estate dealer for the sale in question. 3. Inherent Limitations a. Purpose must be public in nature

Public purpose governmental purpose, purpose affecting the inhabitants of the state or taxing district as a community and not merely as individuals It must 1. 2. 3. be used for: Support of government Recognized objects of government Promote welfare of community

Reason: if for private = taking of property without due process of law as it is beyond the power of the government to impose Although private individuals are benefited, still valid tax if benefit is only incidental Taxpayer may question the purpose of tax but is not relieved from the duty of paying it Pascual v. Sec. of Public Works Appropriation for feeder roads on a land owned by Senator Zulueta. Unconstitutional The legislature has no power to appropriate public revenue for anything but public purpose. The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interests, as opposed to the furtherance of the advantage, of individuals, although each advantage to individuals might incidentally serve the public. In this case, the property was private at the time the law was passed. The donation which gave the law a semblance of legality cannot cure the defect

b.

Prohibition against delegation of taxing power i. Extent of the legislative power to tax

General Rule: Congress may not delegate to others. The power of taxation is purely legislative. Basis: separation of powers

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Tan v. Del Rosario Simplified Net Income Taxation Valid With the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. The court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. But, where a tax measure becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude, the power to tax cannot override constitutional proscriptions. Sison v. Ancheta Income tax The higher tax rate on income arising from exercise of profession as opposed to those with fixed income or salaried workers is being assailed as unconstitutional. Constitutional The power to tax is an inherent prerogative of the state in its sovereign capacity exercised through the legislative branch of government However, the power to tax is not unconfined but has restrictions provided for in the Constitution. The due process and equal protection clauses may be invoked to strike down invalid revenue measures as they affect property rights. When any legislative measure violates the fundamental law, the former must be declared null. The taxing power has the authority to make reasonable and natural classifications for the purposes of taxation. That taxpayers who are recipients of income compensation as opposed to those in business or professions are classified separately is a reasonable classification that the legislature may so prescribe without violating the fundamental law. Kapatiran v. Tan VAT law enacted by Pres. Aquino Valid The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the emasure were drafted,revised and finalized. It cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened. 1987 Constitution Art. X, Sec. 5 Each local government unit shall have the power to create it 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 governments. Local Government Code, RA 7160, Book 2 Basco v. Pagcor (1991) PD 1869 which exempts PAGCOR from taxes and license fees and Manilas right to impose local taxation and principle of local autonomy. PAGCOR is required to pay franchise tax of 5% of its gross revenues in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority Pagcor is exempt. The Legislatures (inherent) power to tax is far more superior to a municipal corporations (delegated) power to tax. The latter has to yield to the former, considering that an LGUs power to impose taxes and fees is always subject to limitations which Congress may provide by law. A municipal corporation has no inherent power to tax. Local government has no power to tax government instrumentalities. (b) Delegation to president Purpose: practicality and expediency, need for speedy action Basis: constitution (no ground for legal objection) Required: Congress is prohibited from renouncing its law-making power over the subjects specified. The delegation must impose limitations and restrictions and specify the minimum as well as the maximum rates. 1987 Constitution Art. VI Sec. 28 (2) - (2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. Tariff and Customs Code Sec. 401 - Tariff and Customs Code Sec. 401 Flexible Clause. a. The President, upon investigation by the Commission and recommendation of the National Economic Council, is hereby empowered to reduce by not more than fifty per cent or to increase by not more than five times the rates of import duty expressly fixed by statute (including any necessary change in classification) when in his judgment such modification in the rates of import duty is necessary in the interest of national economy, general welfare and/or national defense.

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ii.

Exceptions from the prohibition (a) Delegation governments to local

Basis: 1.

2.

Necessary implication power to create municipal corporations for purpose of local self-government carries with it the power to confer the power to tax, they are instrumentalities of the state Constitution

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b. Before any recommendation is submitted to the President by the Council pursuant to the provisions of this section, the Commission shall conduct an investigation in the course of which it shall hold public hearings wherein interested parties shall be afforded reasonable opportunity to be present, to produce evidence and to be heard. The Commission may also request the views and recommendations of any government office, agency or instrumentality, and such office, agency or instrumentality shall cooperate fully with the Commission. c. The President shall have no authority to transfer articles from the duty-free list to the dutiable list nor from the dutiable list to the duty-free list of the tariff. d. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection "a" shall include the authority to modify the form of duty. In modifying the form of duty the corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal concerning foreign country for the most recent representation period shall be used as basis. e. The Commissioner of Customs shall regularly furnish to the Commission a copy each of all customs import entries containing every pertinent information appearing in the collectors' liquidated duplicates, including the consular invoice and/or the commercial invoice. The Commission or its duly authorized agents shall have access to and the right to copy all the customs import entries and other documents appended thereto as finally in the General Auditing Office. f. The Commission is authorized to adopt such reasonable procedure, rules and regulations as it may deem necessary to carry out the provisions of this section. g. Any order issued by the President pursuant to the provisions of this section shall take effect thirty days after its issuance. h. The provisions of this section shall not apply to any article the importation of which into the Philippines is or may be governed by Section 402 of this Code. i. The authority herein granted to the President shall be exercised only when Congress is not in session. Garcia v. Executive Secretary 9% ad valorem duties on imported goods by virtue of an Executive Order issued by the President Constitutional The Congress may by law authorize the President to fix tariff rates and other duties subject to certain limitations and restrictions. Through the Tariff and Customs Code, the President is empowered to fix tariff and customs duties subject to limitations. There is also nothing in the Code that suggests the limitation that the President may only impose tariffs to protect local industries and products. Abakada v. Ermita Expanded-VAT law No undue delegation It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent. No discretion will be exercised by the President. Instead, it is her duty to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress. Secretary of Finance is not acting as alter ego of the President or even her subordinate. He is acting as the agent of the legislative department to determine and declare the event upon which its expressed will is to take effect. Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative policy. (c) Delegation to administrative agencies Powers not legislative (therefore, delegable) 1. To value property for purposes of taxation pursuant to fixed rules 2. Assess and collect taxes 3. Perform computation, appraisement, adjustment Cannot be delegated: 1. Subjects to be taxed 2. Purpose 3. Amount or rate 4. Manners, means and agencies of collection 5. Prescribing necessary rules Maceda v. Macaraig NPCs tax exemption from indirect tax FIRB resolution restored NPCs exemption No undue delegation The legislative authority could not or is not expected to state all the detailed situations wherein the tax exemption privileges of persons or entities be restored. The task may be assigned to an administrative body like FIRB. EO 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB. Maceda v. ERB Provisional increase in oil prices no undue delegation ERB does have to authority to grant the provisional increase, given the nature and duties of the agency. It has been shown the there was a rise in the crude oil importation costs and that the government has decided to discontinue subsidizing oil prices in view of the inflationary pressures. There is also the apparent inadequacy of the proposed increase in the government appropriation for the OPSF and the sharp drop in the value of the peso in relation to the US dollar. Hence, the board is left with no other recourse but to grant applicant oil companies further relief by increasing the prices of petroleum products sold by them.

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Osmena v. Orbos OPSF Valid delegation For a valid delegation of power, it is essential that law delegating the power must be: (1) complete in itself, that is it must set forth policy to be executed by the delegate and (2) it must fix a standard the limits of which sufficiently determinate or determinable to which delegate must conform. Mactan Cebu v. Marcos Realty taxes Not exempt A claim of exemption from tax payments must be clearly shown. Taxation is the rule, exemption is the exception. However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operation. Nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom. Since the last paragraph of Sec. 234 (LGC) unequivocally withdrew exemptions from payment of real property taxes granted to natural or juridical persons, including GOCCs, and MCIAA is, undoubtedly, a GOCC, it necessarily follows that its exemption from such tax granted under its charter has been withdrawn. Manila International v. CA Real property taxes Exempt MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. Real properties owned by MIAA is actually owned by the Republic of the Philippines. Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock a. It is neither a stock nor non-stock corporation: no stockholders (thus not a stock corp.) and no members (hence not a non-stock corp.) b. It is a government instrumentality vested with corporate powers to efficiently perform its governmental functions thus it is exempt from taxation. Local government units are mere creations of Congress thus they cannot tax the National Government or its instrumentalities (Basco ruling cited). Philippine Fisheries v. CA Philippine Fisheries Development authority was created by PD 977 and was given properties (buildings, water and oil supply system, market hall, breakwater, etc.). PFDA leased some portions to private firms and individuals an instrumentality and not a GOCC, exempted but not the portions leased.

13

the the are the

CIR v. CA, Fortune tobacco (1996) BIR issued an RMC which reclassified the cigarettes of Respondent subject to excise tax. Not valid, quasi-legislative power Two kinds of administrative issuances: a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof, which must have the benefit of public hearing; and an interpretative rule is designed to provide guidelines to the law which the administrative agency is in charge of enforcing. When the administrative rule substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard before that new issuance is given the force and effect of law.

c.

Exemption of government entities, agencies and instrumentalities

Reason: if not exempt, government would be taxing itself to raise money to pay over to itself - fundamental principles of government necessary in order that the functions of government not be impeded Who are exempted: those entities through which the government immediately and directly exercise sovereign powers (AFP, etc.) Not exempt: GOCCs performing proprietary functions (in the absence of tax exemption in their charters) Exempt: Public Corporations local government units NIRC SEC. 24. Income Tax Rates. (C) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. - The provisions of Section 39(B) notwithstanding, a final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange. Not over P100,000.................. 5% On any amount in excess of P100,000 10% See: EO 93 and PD 1931

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GSIS v. Treasurer of Manila Real property tax It is an instrumentality of the National Government. Hence, it is also exempt from taxation in general except for those contracted for beneficial use of private persons. GSIS is similar to MIAA. Under LGC, LGUs are prohibited from imposing taxes on the national government, its agencies and instrumentalities. RP can grant the beneficial use of its properties to an agency or instrumentality of the national government. Such grant does not necessarily result in loss of tax exemption. It ceases only if the beneficial use thereof has been granted, for a consideration, to a taxable person. Philippine Fisheries v. CBAA Realty taxes, Lucena fishing port complex PFDA is an instrumentality, not a GOCC. It is a government instrumentality exercising not only governmental but also corporate powers. The LFPC, which is a major infrastructure undertaken by the national government under the nationwide fishing port package, is devoted for public use and falls within the term, ports. As property of public dominion, the LFPC is owned by RP and thus exempt from real estate tax. d. Limitation of international comity Concept: property of foreign state or government may not be taxed by another Basis: 1. Sovereign equality among states 2. Usage among states 3. IL rule: foreign government may not be sued without its consent , useless to collect tax because it cannot be collected 4. Constitution: Incorporation clause 1987 Constitution Art. II, Sec. 2 The Philippines renounces war as an instrument of national policy, adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation, and amity with all nations. Local Government Code Sec. 159. Exemptions. The following are exempt from the community tax: (1) Diplomatic and consular representatives; and Transient visitors when their stay in the Philippines does not exceed three (3) months. Tanada v. Angara WTO reduction of tariff Valid Treaties effectively limit the exercise of sovereign powers of taxation, eminent domain and police power. The underlying consideration in this partial surrender of sovereignty is the reciprocal commitment of the other contracting states granting the same privileges and immunities to the Philippines. CIR v. Mitsubishi Exchange of notes between RP and Japan provides that the Government of the Republic of the Philippines, will, itself or through its instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese firms and nationals operating as suppliers, contractors or consultants on and/or in connection with any income that may accrue from the supply of products of Japan and services of Japanese nationals to be provided under the Loan. Not exempt The Exchange of Notes grants no tax exemption. It merely provides for the assumption of tax liabilities by the Philippine Government through its government executing agency. A contract can only bind the parties who had entered into it or their successors who assumed their personalities or their juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third person. The CIR was neither a party thereto nor was he aware of the provision thereof. RP does not turn back from its obligations under the EON. There is no violation of international agreement and therefore, the matter of comity among nations is not affected. e. Limitation jurisdiction of territorial/personal

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Reason: state may not tax property laying outside its borders or lay an excise or privilege tax upon the exercise of enjoyment of a right or privilege derived from the laws of another state and therein exercised Not mean that person outside Philippines is exempt May be taxed if there exist between him and the taxing state, a PRIVITY OF RELATIONSHIP justifying the levy Philippines still has PERSONAL JURISDICTION over Filipinos abroad basis is the relation as a citizen to the state entitled to protection from government wherever he may be CIR v. British Airways Sales agent of a International Carrier with no landing rights in the Philippines but only sells tickets here. Taxable The sale of tickets in the Philippines is the activity that produced the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine Government. In consideration of such protection, the flow of wealth should share the burden of supporting the government

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Iloilo bottlers v. City of Iloilo Municipal license tax City enacted Ordinance No. 5 imposing a municipal license tax on: 1) distributors of softdrinks, 2) manufacturers of softdrinks, and 3) bottlers of softdrinks within its territorial jurisdiction. Bottlers which initially had its plant in Iloilo City transferred its bottling plant at Pavia, Iloilo. City demanded payment of the said municipal license tax from Bottlers. Taxable Where the manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses where actual deliveries are made, there is no separate business of selling. In a case, however, where sales transactions are entered into and perfected at stores or warehouses maintained by the company, the entity is considered engaged in the separate business of selling. Bottlers fall under the second category as the delivery trucks it employ also serve as rolling stores. Hopewell v. CIR DST, mortgage trust indenture Execution of the MTI was done in Hongkong not taxable, refund is allowed The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property in connection with the act or occupation taxed but on the place in which the act is performed and the occupation engaged in. Test: where the transaction is perfected and consummated. BPI v. CIR DST, sale of dollars to CB taxable DST is not imposed on the sale of forex, rather it is an excise tax on the privilege or facility which the parties used in their transaction. The act of BPI in instructing the bank to transfer the funds to the Fed.Reserve bank was performed in the Philippines. Smith v. CIR Controller of Coastal Subic bay Terminal claims exemption from income tax by virtue of RA 7227 which that no taxes be imposed on Subic Special economic zone Taxable RA 7227 in granting tax incentives, only made mention of businesses or enterprises within the SSEZ and not to individuals Resident aliens are taxed only on income from within the Philippines while a resident citizen is taxed on all income within and without the Philippines. CIR v. Baier-Nickel A non-resident, German Citizen claims exemption from taxes on her sales commission for transactions she made in behalf of a Phil. Company (JUBANITEX) Taxable It is the situs of the activity that determines whether an income is taxable in the Philippines. The source of income relates to the property, activity or service that produced the income. With respect to rendition of labor or personal service, as in the instant case, it is the place where the labor or service was performed that determines the source of the income. As to whether these instructions/orders gave rise to consummated sales and whether these sales were truly concluded in Germany, respondent presented no such evidence. Neither did she establish reasonable connection between the orders/instructions faxed and the reported monthly sales purported to have transpired in Germany. 4. Constitutional Limitations a. Due process of law

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Basis: Constitution Due process: 1. Substantive under authority of the valid law ( not violate the constitution) 2. Procedural after compliance with fair and reasonable method of procedure prescribed by law 87 Constitution Art III Sec. 1 No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws Tan v. Del Rosario when a tax measure becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for despite all its plenitude, the power to tax cannot override constitutional proscriptions. In this case, this stage has not been demonstrated to have been reached within any appreciable distance. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power. Sison v. Ancheta It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. Where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on the due process grounds A mere allegation of arbitrariness will not suffice. There must be factual foundation of such unconstitutional taint. Where the DP and EP clauses are invoked, considering they are not fixed rules, but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity prevails.

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Carlos Superdrug v. DSWD Proprietors operating drugstores are questioning the validity of the tax deduction scheme as a reimbursement mechanism rather than a tax credit. Scheme is valid. Expanded Senior Citizens Act of 2003 is a legitimate exercise of police power (not taxation) similar to the power of eminent domain, has general welfare for its object. Police power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest benefits. Accordingly, it has been described as the most essential, insistent and the least limitable of powers, extending as it does to all the great public needs. Property rights must bow (in this case loss of earnings and capital) to the primacy of police power because property rights, though sheltered by due process, must yield to general welfare. casual or permanent, part time or full time, or whether he is a lowly employee or highly paid executive. the ordinance violates the due process and equal protection clauses by requiring a person before he can be employed to secure a permit from the Mayor of Manila who may or may not grant it. Such power to deny employment if tantamount to denying the person of his basic right to engage in a means of livelihood. Tan v. Del Rosario Uniformity of taxation and equal protection merely require that all the subjects or objects of taxation similarly situated are to be treated alike both in privileges and liabilities. Uniformity does not forfend classification as long as: (1) the standards that are used therefore are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class. PHILRECA v. Secretary This is a case about two kinds of electric cooperatives those registered under Republic Act 6938 (Cooperatives Code) and those registered under Presidential Decree 269 (National Electrification Administration Decree). Constitutional There is a reasonable classification and substantial distinction under the Local Government Code to justify the different tax treatment between electric cooperatives under PD 269 and electric cooperatives under RA 6938. 1. Extent government control 2. Contribution of members c. Uniformity and equity in taxation

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b.

Equal Protection of the laws

Basis: Constitution Equal protection all persons under jurisdiction must be treated alike under like circumstances and conditions in the privileges conferred and liabilities imposed Sison v. Ancheta The Constitution does not require things which are different to be treated in law as though they were the same. Classification if rational in character is allowable. With regard to the kindred concept of uniformity, it does not call for perfect uniformity or perfect equality. Equality and uniformity in taxation that all taxable means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. It is enough that the classification must rest upon substantial distinctions that make real differences. Here, taxpayers who are recipients of compensation income are set apart as a class Villegas v. Hiu Chiong Tsai Pao Ordinance No. 6537 was passed by the Municipal Board of Manila prohibiting aliens from being employed or to engage or participate in any position or occupation or business enumerated in the ordinance without first securing an employment permit from the Mayor of Manila and paying a permit fee of 50 pesos. Permit fee is not valid. But Emp. Permit is valid. . The ordinance is but a revenue measure under the guise of a regulatory measure. The fee imposed is unreasonable because it is excessive and it fails to consider valid substantial differences in situation among individuals. It does not take into consideration whether the employed alien is a

Basis: Constitution Uniformity all taxable articles or property of same class shall be taxed at same rate, effected through apportionment of the tax burden among tax payers which under the Constitution must be equitable a. Uniformity of operation throughout tax unit b. Equality in burden Equity apportionment be more or less just in light of the taxpayers ability to shoulder the tax burden, must not be excessive or unreasonable - cornerstone is ability to pay - usually measured in size of wealth and benefit he receives Progressive place emphasis on direct rather than indirect taxation with ability to pay as criterion 87 Constitution Art. VI Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a uniform system of taxation.

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i. Adoption of progressive system of taxation Eastern Theatrical v. Alfonso The municipal board of Manila enacted Ordinance 2958 (series of 1946) imposing a fee on the price of every admission ticket sold by cinematograph theaters, vaudeville companies, theatrical shows and boxing exhibitions, in addition to fees imposed under Sections 633 and 778 of Ordinance 1600 Valid Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the theater companies cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. The fact that some places of amusement are not taxed while others, like the ones herein, are taxed is no argument at all against the equality and uniformity of the tax imposition. Shell v. Municipal Treasurer of Cordova ordinances No. 10, series of 1946 imposes an annual tax of PhP150 on occupation or the exercise of the privilege of installation manager; Valid The contention that the ordinance is discriminatory and hostile because there is no other person in the locality who exercises such "designation" or occupation is also without merit, because the fact that there is no other person in the locality who exercises such a "designation" or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as "installation manager." d. Prohibition against imprisonment for nonpayment of poll tax

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Tolentino v. Secretary of Finance VAT valid The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that direct taxes are to be preferred and as much as possible, indirect taxes should be minimized. Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions and granting exemptions to other transactions. Also, the transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups

ii.

Valid classification of taxpayers/subjects or items to be taxed

Pepsi Cola v. Butuan Tax Ordinance passed by respondent city council imposing taxes on any agent and/or consignee of any dealer engaged in selling liquors, imported or local, in the city. Violates EPC If its purpose were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by dealers other than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax. Manila Racehorse v. Dela Fuente Ordinance No. 3065 a tax based on the number of race horses kept or maintained in the boarding stables to be paid by the maintainers at Php10.00 per year for each race horse and increased correspondingly to each additional race horse Valid There is no violation of equality and uniformity of taxation. It is not class legislation. The owners of boarding stables from race horses are a class by themselves compared to owners of stables for horses dedicated for other purposes. The tax is considered in terms of ability to pay in relation to benefits received race horses are devoted to gambling and owners derive fat income from them.

Basis: Constitution Application: 1. Only penalty for delinquency under LGC is payment of surcharge in the form of interest which shall be added to the unpaid amount from due date until it is paid at rate of 24%pa 2. May be imprisoned for falsification but not from non-payment Community tax vs. poll tax A capitation tax imposed on all persons of a certain age. At present it is the tax one pays for his/her residence certificate which generally serves as a personal identification instrument. (Bernas, 568) Under the LGC, the only penalty for delinquency is the payment of surcharge in the form of interest at the rate of 24% per annum which shall be added to the unpaid amount, from the due date until it is paid. However, imprisonment is possible when community tax law is violated other than for nonpayment of tax e.g.: o Falsification of community tax certificate

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o Non-payment of other taxes if so expressly provided by the pertinent law Section 160. Place of Payment. - The community tax shall be paid in the place of residence of the individual, or in the place where the principal office of the juridical entity is located. Section 161. Time for Payment; Penalties for Delinquency. (a) The community tax shall accrue on the first (1st) day of January of each year which shall be paid not later than the last day of February of each year. If a person reaches the age of eighteen (18) years or otherwise loses the benefit of exemption on or before the last day of June, he shall be liable for the community tax on the day he reaches such age or upon the day the exemption ends. However, if a person reaches the age of eighteen (18) years or loses the benefit of exemption on or before the last day of March, he shall have twenty (20) days to pay the community tax without becoming delinquent. Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or after the first (1st) day of July of any year, or who cease to belong to an exempt class or after the same date, shall not be subject to the community tax for that year. (b) Corporations established and organized on or before the last day of June shall be liable for the community tax for that year. But corporations established and organized on or before the last day of March shall have twenty (20) days within which to pay the community tax without becoming delinquent. Corporations established and organized on or after the first day of July shall not be subject to the community tax for that year. If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an interest of twenty-four percent (24%) per annum from the due date until it is paid. Section 162. Community Tax Certificate. - A community tax certificate shall be issued to every person or corporation upon payment of the community tax. A community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of One peso (P1.00). Section 163. Presentation of Community Tax Certificate On Certain Occasions. (a) When an individual subject to the community tax acknowledges any document before a notary public, takes the oath of office upon election or appointment to any position in the government service; receives any license, certificate. or permit from any public authority; pays any tax or free; receives any money from any public fund; transacts other official business; or receives any salary or wage from any person or corporation with whom such transaction is made or business done or from whom any salary or wage is received to require such individual to exhibit the community tax certificate.

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87 Constitution Art. III, Sec. 20. No Person shall be imprisoned for debt or non-payment of poll tax. LGC Section 156. Community Tax. Cities or municipalities may levy a community tax in accordance with the provisions of this Article. Section 157. Individuals Liable to Community Tax. Every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year, or who is engaged in business or occupation, or who owns real property with an aggregate assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to file an income tax return shall pay an annual additional tax of Five pesos (P5.00) and an annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of income regardless of whether from business, exercise of profession or from property which in no case shall exceed Five thousand pesos (P5,000.00). In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. Section 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following schedule: (1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax under existing laws, found in the assessment rolls of the city or municipality where the real property is situated - Two pesos (P2.00); and (2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year - Two pesos (P2.00). The dividends received by a corporation from another corporation however shall, for the purpose of the additional tax, be considered as part of the gross receipts or earnings of said corporation. Section 159. Exemptions. - The following are exempt from the community tax: (1) Diplomatic and consular representatives; and (2) Transient visitors when their stay in the Philippines does not exceed three (3) months.

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The presentation of community tax certificate shall not be required in connection with the registration of a voter. (b) When, through its authorized officers, any corporation subject to the community tax receives any license, certificate, or permit from any public authority, pays any tax or fee, receives money from public funds, or transacts other official business, it shall be the duty of the public official with whom such transaction is made or business done, to require such corporation to exhibit the community tax certificate. (c) The community tax certificate required in the two preceding paragraphs shall be the one issued for the current year, except for the period from January until the fifteenth (15th) of April each year, in which case, the certificate issued for the preceding year shall suffice. Section 164. Printing of Community Tax Certificates and Distribution of Proceeds. (a) The Bureau of Internal Revenue shall cause the printing of community tax certificates and distribute the same to the cities and municipalities through the city and municipal treasurers in accordance with prescribed regulations. The proceeds of the tax shall accrue to the general funds of the cities, municipalities and barangays except a portion thereof which shall accrue to the general fund of the national government to cover the actual cost of printing and distribution of the forms and other related expenses. The city or municipal treasurer concerned shall remit to the national treasurer the said share of the national government in the proceeds of the tax within ten (10) days after the end of each quarter. (b) The city or municipal treasurer shall deputize the barangay treasurer to collect the community tax in their respective jurisdictions: Provided, however, That said barangay treasurer shall be bonded in accordance with existing laws. (c) The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. However, proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows: (1) Fifty percent (50%) shall accrue to the general fund of the city or municipality concerned; and (2) Fifty percent (50%) shall accrue to the barangay where the tax is collected. Law includes Executive agreements, administrative orders, circulars by departments and ordinances

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Application: 1. When tax exemption is revoked by a later taxing statute (Except: franchise) Taxing statute should not alter the relative rights of parties with each other. When does law impair contract? Only if the relative position of the parties to a contract (i.e. equality that is assumed when the contract was entered into) is disturbed by the operation of a taxing statute. However, mere fact that tax makes the conduct of a business more expensive or makes an activity more difficult does not result in the impairment of obligation of contracts. 87 Constitution Art III, Section 10. No law impairing the obligation of contracts shall be passed. Art XII, Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. Casanovas v Hord Taxes on mining claims Void Concessions granted by the government to the owner thereof constitute a contract between the parties and the taxes imposed impairs the obligation of these contracts and is therefore void as to them. Tolentino v. Secretary of Finance CREBA assails the VAT law as unconstitutional as its application to existing contracts of the sale of real property by installment or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. Valid Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and

e.

Prohibition against obligation of contracts

impairment

of

Basis: Constitution Impairment of obligation of contracts when the terms of the contract are changed by law or by party without the consent of the other, thereby weakening the position or rights of the latter Includes contracts entered into by government

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release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense. Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is read into contracts as a postulate of the legal order." Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority. PAGCOR v. BIR declaration of nullity of RA 9337 which amends Sec. 27 of NIRC effectively removing PAGCOR from the exemption from corporate income tax and VAT Valid The non-impairment clause is limited in application to laws that derogate prior acts or contracts by enlarging, abridging or in any manner change the intention of the parties. There is impairment if a subsequent law changes the terms of the contract, imposes new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of rights of the parties. However, a franchise (from which PAGCOR base its exemption), partakes the nature of a grant which is beyond the purview of the non-impairment clause. It can be withdrawn, altered, amended or repealed. f. Prohibition against religious freedom infringement of Tolentino v Secretary of FInance Philippine Bible Society questions the applicability of the VAT as an infringement of their constitutional right to religious freedom No infringement, subject to VAT The VAT is not a license tax nor is it a tax on the exercise of a privilege. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes g. Prohibition re: appropriation of proceeds of taxation

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Basis: Constitution Application: 1. Cannot appropriate for private purpose 2. Cannot lease public property for nominal rent to religious organizations 87 Constitution Art. VI Sec. 29. (1) No money shall be paid out of the Treasury except in pursuance of an appropriation made by law. (2) No public money or property shall be appropriated, applied, paid, or employed, directly or indirectly, for the use, benefit, or support of any sect, church, denomination, sectarian institution, or system of religion, or of any priest, preacher, minister, other religious teacher, or dignitary as such, except when such priest, preacher, minister, or dignitary is assigned to the armed forces, or to any penal institution, or government orphanage or leprosarium. (3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government. Osmena v Orbos Supra Gaston v, Republic Planters Bank Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, administered in trust for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general fund of the Government.

Basis: Constitution Application: 1. Imposition of license fees on distribution and sale of bibles is unconstitutional 2. Not prohibit imposing a generally applicable tax on the sale of religious materials by religious organizations 87 Constitution Art. III, Sec. 5. No law shall be made respecting an establishment of religion or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination of preference, shall forever be allowed. No religious test shall be required for the exercise of civil and political rights. American Bible Society v. City of Manila The City of Manila claims that ABS is conducting the business of general merchandise and required ABS to pay for and secure the necessary Mayors permit and municipal license. ABS questions the legality of the ordinances under which the fees were being collected. Exempt from license taxes The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraint of such right can only be justified on the grounds that there is a clear and present danger of any substantive evil which the State has the right to prevent.

h.

Prohibition against taxation of religious, charitable and educational

Basis: Constitution Application: only property taxes not other taxes 1. Nature of use: actually, directly and exclusively for the purpose mentioned 2. Scope: not limited to property actually indispensable for religious, charitable or educational purposes but extends to facilities

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which are incidental to or reasonably necessary for the accomplishment of said purpose. Important principles in tax exemption of properties: 1. Exemption applies to REAL PROPERTY TAX only. The test is USAGE, not ownership. 2. In case a private individual donated property to church etc, donee must still pay donees gift tax because a gift tax is not within the exemption. (Lladoc v Commissioner) NB: Under existing law (Sec. 101[A], NIRC), gifts in favor of an educational and or charitable, religious, cultural or social welfare institution shall be exempt from gift tax, PROVIDED that not more than 30% of the said gift is used for administration purposes. 3. Exclusive means primarily rather than solely. US case (Praire du Chian Sanitarium v City of Praire du Chian): Admission of pay patients does not detract from charitable character of a hospital, IF all its funds are devoted exclusively to the maintenance of the institution as a public charity. When rendering charity is its primary object, and the funds derived from payments made by patients able to pay are devoted to the benevolent purposes of the institution, the mere fact that profit has been made will not deprive the hospital of its benevolent character. 4. Exemption extends to facilities which are incidental to and are necessary for the accomplishment of said purposes (Herrera v QC Board of Assessment Appeals). 87 Constitution Art. VI Sec. 28 (3). Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. Abra Valley v Aquino Real Estate taxes on Abra Valley College. Second floor was residence of the school director while the first floor was leased to commercial establishments. Portion leased is taxable. The phrase used exclusively also considers the incidental use thereof. The exemption in favor of property used exclusively for charitable or educational purposes is not limited to property actually indispensable therefore. It also extends to facilities which are incidental to and reasonably necessary for the accomplishment of the purposes of the institution. Lung Center v. Quezon City Lung Center of the Philippines, a non-stock and non-profit corporation, filed a claim for exemption from real property taxes basing its claim on the fact that it is a charitable institution it is a charitable institution but the portion leased for commercial purposes is not exempt from tax. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, or receives subsidy from the government, so long as the money received is: (a) devoted or used altogether to the charitable object which is intended to achieve; and (b) no money inures to the private benefit of the persons managing or operating the institution. Exclusive is defined as possessed and enjoyed to the exclusion of others; If the real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. Actually, directly, and exclusively: the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income that is determinative of whether the property is used for tax-exempt purposes. The Court held that portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes

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i.

Prohibition against taxation of non-stock, non-profit institution

Basis: constitution Application: 1. Covers income, property, donor taxes and custom duties 2. Must be exclusively for that purpose 3. Congress is authorized to grant similar exemptions to proprietary educational institutions subject to limitations provided by law including restrictions on dividends and provisions for reinvestment. 4. Lands, buildings and improvements actually, directly and exclusively used for educational purposes are exempt from property tax whether the educational institution is proprietary or nonprofit. 87 Constitution Art. XIV Sec. 4 (3). All revenues and assets of nonstock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution of cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and provisions for reinvestment.

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Art. XIV Sec. 4 (4). - Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax. Art. VI, Sec. 28(3). Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. NIRC Sec. 24 (b). Income Tax Rates (Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines; An income tax is hereby imposed:) - On the taxable income defined in Section 31 of this Code, other than income subject to tax under subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual citizen of the Philippines who is residing outside the Philippines including overseas contract workers referred to in Subsection (C) of Section 23 hereof; Sec. 27 (B). Rates of Income Tax on Domestic Corporations; Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and hospitals which are non-profit all pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof: Provided, That if the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals from all sources, the tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of this Subsection, the term unrelated trade, business or other activity means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educations institution or hospital of its primary purpose or function. A proprietary educational institution is any private school maintained and administered by private individuals or group with issued permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations. Sec. 30 (H). Exemptions from Tax on Corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such: (H) A non-stock and non-profit educational institution. CIR v. CA, YMCA (1998) YMCA claims tax exemption under the Constitution as an educational institution and under the NIRC as a charitable corporation It is not exempt. Not a charitable institution >> What is exempted is not the institution itself, those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes." Not an educational institution The term "educational institution" or "institution of learning" has acquired a well-known technical meaning, of which the members of the Constitutional Commission are deemed cognizant. Under the Education Act of 1982, such term refers to schools. The school system is synonymous with formal education, which "refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels.

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j.

Others i. Grant of Exemption

87 Constitution Art. VI Section 28(4). (4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress. requirement is intended to prevent indiscriminate grant of tax exemption. at least + 1 impliedly limited by rule on uniformity and equal protection ii. Veto of Appropriation, revenue, tariff bills by the President

GR: President may veto a bill in part and approve it in part E: vetoed item shall simply be not given effect Gonzales v. Macaraig A house bill was presented to the President. It was signed into law except for 7 provisions which were vetoed. Provisions which vetoed relate to the authority of the department to augment the GAL for respective offices and budget for the said offices. Veto is constitutional The power given to the executive to disapprove any item or items in the Appropriations Bill does not grant the authority to veto a part of an item and to approve the remaining portion of the same item.

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Item and provision, however, are different. Item in a bill refers to the particulars, the details, the distinct and severable parts. The provisions vetoed here are not provisions in the budgetary sense. Provisions here do not relate to any item in the bill. It is also nowhere to be found on the face of the bill. iii. Non-impairment of jurisdiction of the Supreme Court Rule: Congress cannot take away from the SC the power given to it by the Constitution as final arbiter of tax cases 87 Constitution Art. VIII Sec 2. The Congress shall have the power to define, prescribe, and apportion the jurisdiction of the various courts but may not deprive the Supreme Court of its jurisdiction over cases enumerated in Section 5 hereof. No law shall be passed reorganizing the Judiciary when it undermines the security of tenure of its Members. Art VIII Sec 5(b). The Supreme Court shall have the following powers: (2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final judgments and orders of lower courts in: (b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto. San Miguel v Avelino SMC questions the authority of the Court of First Instance to decide a suit for collection for taxes imposed by a City Ordinance on the basis of a finding of the Acting Secretary of Justice that such ordinance is of doubtful validity SC should decide. Validity of stature, an executive order or ordinance is a matter for the judiciary to decide and that whenever in the disposition of a pending case such a question becomes unavoidable, then it is not only the power but the duty of the court to resolve such a question. iv. Revenue Bills shall originate from the House of Representatives 87 Constitution Art. VI Sec 24. All appropriation, revenue or tariff bills, bills authorizing increase of public debt, bills of local application and private bills shall originate exclusively from the House of Representatives, but the Senate may propose or concur with amendments. Tolentino v. Secretary of Finance the initiative for filing revenue, tariff, or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are elected at large, are expected to approach the same problems from the national perspective. Both views are thereby made to bear on the enactment of such laws The power of the Senate to propose amendments must be understood to be full, plenary and complete as on other Bills. Thus, because revenue bills are required to originate exclusively in the House of Representatives, the Senate cannot enact revenue measures of its own without such bills. v. Infringement of Press Freedom Basis: Constitution Application 1. Imposition of license fees on sale of bibles and religious items not allowed 2. Not prohibit sale taxes (generally applicable tax) on sale of religious materials by religious organizations 87 Constitution Art III Sec. 4. No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition the government for redress of grievances. Tolentino v. Secretary of Finance the press is not exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging to the press for special treatment or which in any way discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is none of these. in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject. vi. Grant of Franchise 87 Constitution Art XII Sec. 11 No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.

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Tolentino v. Secretary of Finance PAL contends that the amendment of its franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law To require every end and means necessary for the accomplishment of the general objectives of the statute to be expressed in its title would not only be unreasonable but would actually render legislation impossible. The details of a legislative act need not be specifically stated in its title, but matter germane to the subject as expressed in the title, and adopted to the accomplishment of the object in view, may properly be included in the act. Gonzales v. Marcos E.O. 130 creates a trust for the benefit of the Filipino People in the name of the Cultural Center of the Philippines. CCP is funded by loan/donation from US. Not a single centavo comes from taxes. No standing A taxpayer has no legal standing to question executive acts that do not involve the use of public funds. The funds here administered by the executive department came from donations/contributions and not by taxation. Accordingly, there was that absence of the requisite pecuniary or monetary interest, which is a suit to be allowed to be brought in the name of a taxpayer must involve the legality of any act of government which involves the use/disbursement of public funds

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5.

Who may question the validity of tax measure of expenditure of taxes taxpayers suit

not only persons individually affected but also taxpayers have sufficient interest of preventing illegal expenditures of money raised by taxation and may therefore question in the prope court the constitutionality of statutes requiring expenditure of public funds Lozada v. Comelec action for mandamus in the hopes of compelling COMELEC to call a special election to fill up existing vacancies in the Interim Batasang Pambansa. No standing As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no expenditure of public funds.

Maceda v. Macaraig NPCs exemption Petitioner instituted the suit in his capacity as a taxpayer and a duly-elected senator of the Philippines. has standing The suit may be filed by the petitioner as a taxpayer. Following the ruling in Lozada vs. Comelec, a taxpayer may file a petition when it involves illegal expenditure of public money. The petition questions the legality of the tax refund to NAPOCOR by way of tax credit certificate and the use of the assigned tax credit by the oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.

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F. Tax Systems 1. Classification 2. a. Basic Principles of a sound tax system Fiscal adequacy

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87 Constitution Art. VI, Section 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. Progressive system v. Progressive rate of tax Progressive system tax laws shall place emphasis on direct taxes rather than indirect taxes with ability to pay as the principal criterion direct, progressive tax: income tax on compensation, business and professional taxes Progressive tax tax rate increases as the tax base or bracket increases Tolentino v. Secretary of Finance The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized." The mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactionswhile granting exemptions to other transactions. On the other hand, the transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups.

sources of revenue, taken as a whole, should be sufficient to meet the demands of public expenditure revenue should be elastic (capable of expanding or contracting annually in response to variation in public expenditure b. Equality and theoretical justice

distributed in proportion to taxpayers ability to pay similarly situated taxpayers should pay equal taxes those who have more should pay more c. Administrative feasibility

tax laws should be capable of convenient, just and effective administration Note: Non observance of these principles does not necessarily render tax imposed invalid except as to the extent that the specific constitutional limits are violated Chavez v. Ongpin Collection of real property taxes base on the 1984 valuation of property valid To continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenue must be adequate to meet government expenditures and their variations

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G. Classification of taxes 1. As to Scope of the tax: National/local taxes an economic activity, including transactions incident thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. "The rules of regularity, to the contrary, notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business." Tolentino v. Sec. of Finance The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized." Phil Acetylene v. CIR Phil Acetylene had various sales to NPC (buyer). It claims refund from the percentage tax it paid because its client, NPC is tax-exempt. Taxable, No refund, Seller not exempt, Percentage tax is tax on manufacturer (seller) It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. Notice that the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser.

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National imposed by national government NIRC taxes, custom duties, national taxes by special laws Local or Municipal by municipal corporations or LGUs real estate tax, professional tax Benguet Corporation v. CBAA real property taxes over the bunkhouses of Benguet Corporation which were used for the residence of its employees Taxable, its a national tax While the local government units fix the rates, they are merely agents of the national government in enforcing the provision of the Real Property Tax Code. Such realty tax is imposed throughout the Philippines, but the proceeds of the tax accrue to the province, city, municipality or barrio where the realty is situated.

2.

As to who shoulders the burden of tax: Indirect/Direct tax

Direct demanded from person who also shoulders the burden of tax or tax for which the taxpayer is directly or primarily liable or which he cannot shif to another Indirect demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another another person absorbs or bears the burden of the tax other than the person on whom it was imposed SECTION 1. Section 99 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: "Sec. 99. Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be liable to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code. chan robles virtual law library "The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rules likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of this Act. chan robles virtual law library "The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or

Maceda v. Macaraig NPCs exemption NPC is exempt from direct and indirect tax. But the oil companies are not. By the very nature of indirect taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce to the user or consumer of the goods sold. Because, however, the NPC has been exempted from both direct and indirect taxation, the NPC must be held exempted from absorbing the economic

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burden of indirect taxation. This means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the economic burden of the taxes previously paid to BIR, which they could shift to NPC if NPC did not enjoy exemption from indirect taxes. This means also, on the other hand, that the NPC may refuse to pay the part of the "normal" purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil companies to BIR. Personal, poll or capitation fixed amount on persons residing within a specified territory, Citizen or not, without regard to their property or the occupation or business in which they are engaged in NOT POLL TAX - taxes on persons performing certain act or engaging on certain business or profession community tax Property imposed on property, real or personal, in proportion to their value or in accordance with some other reasonable methods of apportionment obligation to pay is absolute and unavoidable and is not based upon voluntary action of the person assessed real estate tax Excise not a poll or property tax charge impose upon the performance of an act, enjoyment of a privilege or engaging in an occupation. privilege tax income tax, VAT, estate tax, donors tax Villanueva v. City of Iloilo Tax on tenement houses license tax, valid A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted, and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. The tax is usually single or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate owners. It is a fixed proportion of the assessed value of the property taxed, and requires, therefore, the intervention of assessors. It is collected or payable at appointed times, and it constitutes a superior lien on and is enforceable against the property subject to such taxation, and not by imprisonment of the owner. The tax imposed by the ordinance does not possess the aforestated attributes. On the contrary, it is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or calling.

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CIR v. Gotamco Contractor of WHO, a tax-exempt organization, claims refund of contractors tax Exempt The contractor's tax is payable by the contractor but in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through the contractor and it certainly cannot be said that this tax has no bearing upon the World Health Organization. Philippine Acetylene does not apply because that involves a sales tax, not a contractors tax.

CIR v. PLDT PLDTs VAT, advance sales tax, and compensating tax on the equipment and machinery it imported for its business Indirect taxes, not exempt. The liability to pay them is imposed on the seller, but the burden of the tax is ultimately shouldered by the buyer. Thus they cannot be included under PLDTs in lieu of all taxes exemption, because the clause refers only to direct taxes. The franchise tax to be paid in lieu of all taxes includes only direct taxes on PLDTs franchise or earnings thereof. Exxonmobil Petroleum v. CIR Excise tax paid for by Caltex and Petron but which ultimately shouldered by Exxon. Exxon buys petroleum from Caltex/Petron and then sell it to international carriers. Exxon asked for refund because petroleum products sold to international carriers of foreign registry on their use and consumption outside the Philippines are exempt from excise tax. Excise tax is an indirect tax. No refund. The proper party to ask for a refund is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shift the burden thereof to another.

3.

As to the object or subject matter of the tax: Persona/Property/poll or capitation/excise

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CIR v. CA, Atlas Mining (1995) Manufacturer and Contractor tax Not liable for manufacturers tax but liable to contractors tax Manufacturers tax and contractors tax are governed by Sec. 186 and Sec. 191, respectively. These sections are under Title V of the tax code, entitled "Privilege Taxes on Business and Occupation." These "privilege taxes on business" are taxes imposed upon the privilege of engaging in business. They are essentially excise taxes. To be held liable for the payment of a privilege tax, the person or entity must be engaged in business, as shown by the fact that the drafters of the tax code had purposely grouped said provisions under the general heading adverted to above. "To engage" is to embark on a business or to employ oneself therein. The word "engaged" connotes more than a single act or a single transaction; it involves some continuity of action. "To engage in business" is uniformly construed as signifying an employment or occupation which occupies one's time, attention, and labor for the purpose of a livelihood or profit. The expressions "engage in business," "carrying on business" or "doing business" do not have different meanings, but separately or connectedly convey the idea of progression, continuity, or sustained activity. "Engaged in business" means occupied or employed in business; carrying on business" does not mean the performance of a single disconnected act, but means conducting, prosecuting, and continuing business by performing progressively all the acts normally incident thereto; while "doing business" conveys the idea of business being done, not from time to time, but all the time. The foregoing notwithstanding, it has likewise been ruled that one act may be sufficient to constitute carrying on a business according to the intent with which the act is done. Thus, where the end sought is to make a profit, the act constitutes "doing- business." This is not without basis. The term "business," as used in the law imposing a license tax on business, trades, and so forth, ordinarily means business in the trade or commercial sense only, carried on with a view to profit or livelihood; It is thus restricted to activities or affairs where profit is the purpose, or livelihood is the motive. Since the term "business" is being used without any qualification in our aforesaid tax code, it should therefore be therefore be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood. Manufacturers Tax A person can hardly be considered as occupied or employed in the sale, barter or exchange of personal property when he has made one purchase and sale only Contractors tax It cannot validly claim that the leasing out of its personal properties was merely an isolated transaction. Its book of accounts shows that several distinct payments were made for the use of its personal properties such as its plane, motor boat and dump truck. The series of transactions engaged in by ACMDC for the lease of its aforesaid properties could also be deduced from the fact that for the tax years 1975 and 1976 there were profits earned and reported therefor.

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Association of Customs brokers v. Municipal Board property tax on motor vehicles in the city License tax While as a rule an ad valorem tax is a property tax, the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed The main purpose of the tax is revenue for repair, maintenance and improvement of streets and bridges in the city. This is precisely what the Motor Vehicle law prohibits for it already impose fees for exactly the same purpose.

4.

As to manner of computing

a. Ad valorem tax of fixed proportion of the value of the property with respect to which the tax is assessed requires the intervention of assessors or appraisers to estimate the value of the property before the amount due from the taxpayer can be determined b. Specific tax of fixed amount imposed by the head or number or by some standard of weight or measurement requires no assessment or valuation other than the listing or classification of the objects to be taxed We Wa Yu v. City of Lipa tax on sale of gasoline, alcohol, gas and petroleum City of Lipa is given the power and authority to impose tax, fix license fee or regulate the business but not to impose tax on specific articles which takes the form of specific tax. Specific tax, Ultra vires A tax which impose a specific sum by the head or number or some standard of weight and which requires no assessment beyond a listing and classification of the objects to be taxed is a specific tax. 5. As to graduation or rate

a. Proportional tax based on fixed percentage of the amount of the property, receipts, or other basis to be taxed rate remains constant for all level of the tax base or any given income level flat or uniform tax real estate, VAT, other percentage taxes

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Local Government Code Sec. 233. Rates of Levy. A province or city or a municipality within the Metropolitan Manila Area shall fix a uniform rate of basic real property tax applicable to their respective localities as follows: a. In case of a province, at the rate not exceeding one percent (1%) of the assessed value of real property; and In the case of a city or municipality within the Metropolitan Manila area, at the rate not exceeding two percent (2%) of the assessed value of real property. b. Progressive tax the rate of which increases as the tax base or bracket increases income tax, estate tax, donors tax NIRC Sec. 21(a). Sources of Revenue. The following taxes, fees, and charges are deemed to be national internal revenue taxes: Income tax;

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Tolentino v. Sec. of Finance (Supra) Abakada v. Ermita the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall evolve a progressive system of taxation. The imposition of a VAT is not unconstitutional. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers ability to pay. Chavez v. Ongpin to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance of a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

Digressive tax rate progressive up to proportional thereafter

some

point

and

then

c. Regressive tax the rate of which decreases as the tax base or bracket increases no regressive tax in the Philippines Regressive system of taxation more indirect taxes than direct taxes progressive elements of the income and other direct taxes have not sufficiently offset the regressive effects of indirect taxes

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H. Some Fundamental Doctrines in Taxation 1. Situs of Taxation a. Meaning of Situs of taxation GR: (donation or inheritance) taxable in where transferor is a citizen or resident, or where the property is located CIR v. British Overseas Airways Income Tax Taxable in the Philippines Source of Income is the property, activity or service that produced the income. Engaged in trade and business in the Philippines referred to acts or works or exercise of some of the functions normally incident to and in progressive prosecution of commercial gain or for the purpose or object of the business. Wells Fargo v. CIR Inheritance Tax Taxable in the Philippines Actual situs of shares of stock is in the Philippines as the corporation being domiciled herein. The certificate of stock remained in the Philippines. The owner in another country extended her activities with respect to her intangibles as to avail herself of the protection and benefit of Philippine laws. Tan v. Del Rosario Simplified net income taxation scheme Valid tax The law, in levying the tax, adopts the most comprehensive tax situs of nationality and residence of the taxpayer and of generally accepted and internationally recognized income taxable base. Situs of nationality citizens, regardless of residence, and resident aliens subject to income tax liability on their income from all sources

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literally means place of taxation Rule: state where the subject to be taxed has a situs may rightfully levy and collect the tax situs is necessarily in the state which has jurisdiction or which exercises dominion over the subject in question A person may be subject to taxation in several taxing jurisdiction (Multiplicity of situs) b. Situs of subjects of taxation

will depend upon various factors including: 1. Nature of the tax 2. Subject matter (person, property, activity) 3. Possible protection and benefit that may accrue both to government and taxpayer 4. Source of income 5. Residence or citizenship of the taxpayer 6. Source of income Examples: 1. Persons poll tax on inhabitants or residents of the State, citizen or not (LGC, Art. 50, CC) 2. Real Property real estate is subject to taxation in the state in which it is located whether owner is resident or not and is taxable only there (RULE OF LEX REI SITAE)

3.

Tangible personal property taxable in state where it has actual situs (where physically located) LEX REI SITAE RP and PP is subject to law of country where it is located 4. Intangible personal property credit, bills receivable, bank deposits, bonds, PNs, mortgage loans, judgments, stocks GR: domicile of owner (PRINCIPLE OF MOBILIA SEQUUNTUR PERSONAM) E: inconsistent with provisions of statute, justice does not demand that it should be >> Stocks of domestic corporation ALWAYS TAXABLE HERE! >> Bonds depends if estate or income tax 5. Income from residents or citizens in taxing jurisdiction or from those who are neither residents nor citizens provided the income is derived from sources within taxing state

c.

Multiplicity of suits

Factors: 1. variance in the concept of domicile 2. multiple distinct relationships that may arise with respect to intangible personal property 3. Use to which the property may have been devoted 4. Protection of the laws of jurisdiction other than the domicile of the owner Effect: Subject jurisdiction to taxation in several taxing

Remedy: Avoid or reduce consequent burden 1. Exemptions, allowance for deduction or tax credit 2. Enter into treaties with other states (Phil-Am Military Bases Agreements as to income tax) See: Sec. 42 NIRC

6. Business, occupation and transaction GR: power to levy excise tax depends upon the place where the business is done or the occupation engaged in or the transaction took place 7. Gratuitous transfer of property

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CIR v. De Lara Estate and inheritance taxes Taxable in the Philippines While it may be the general rule that personal property, like shares of stock in the Philippines is taxable at the domicile of the owner under the doctrine of mobilia secuuntur persona, nevertheless, when during his lifetime he extended his activities so as to avail himself of the protection and benefits of the laws of the Philippines, the reason for a single place of taxation no longer obtains. In this case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled here. CIR v. Baier-Nickel Income tax Taxable in the Philippines Source of Income is the property, activity or service that produced the income. With respect to rendition of labor or personal service, it is the place where the labor or service was performed that determines the source of income. property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax."23 It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the same taxing authority, are not of the same kind or character. At all events, there is no constitutional prohibition against double taxation in the Philippines.24 It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that taxes must be uniform." CIR v. Solidbank Final withholding tax and Gross receipt tax No double taxation Double taxation means taxing the same property twice when it should be taxed only once; that is, taxing the same person twice by the same jurisdiction for the same thing. The two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or character. First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in the business of banking. A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a property tax. It is not an income tax, unlike the FWT. Second, although both taxes are national in scope because they are imposed by the same taxing authority -- the national government under the Tax Code -- and operate within the same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned. Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while the GRT is a percentage tax not subject to withholding.

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2.

Double taxation a. Meaning of double taxation

Strict sense: direct duplicate taxation a. Taking twice b. Same taxing authority c. Same jurisdiction d. Same purpose e. Same year or taxing period f. Same property or subject matter Broad sense: indirect duplicate taxation double taxation other than direct duplicate extend to cases in which there is a burden of 2 more pecuniary impositions b. Instances of double taxation

Examples: 1. Tax on mortgage as personal property and as real estate property 2. Tax on corporation for its property and upon shareholders 3. Tax on corporation capital stock as whole and on shareholders for their shares 4. Tax on depositors in a bank on property and deposits 5. Excise tax use of property and property tax 6. Tax on property imposed by 2 different states Villanueva v. City of Iloilo license tax on tenement houses no double taxation "In order to constitute double taxation in the objectionable or prohibited sense the same

CIR v. Citytrust Investment Phils. Inc. FWT and GRT no double taxation Same ratio as solidbank case

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c. Constitutionality of Double taxation 2. Capitalization reduction in price of the taxed object equal to the capitalized value of future taxes which the purchaser expects to be called upon to pay occurs when tax is imposed on income-producing property (ie building) a special form of backward shifting 3. Transformation method of escape where the manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add tax to the price, pays the tax and endeavors to recoup himself by improving his process of production by turning out units at a lower cost transform tax into gain by medium of production 4. Evasion see notes below 5. Avoidance see notes below 6. Exemption see notes below ii. Taxes that can be shifted

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In narrow sense: unconstitutional In broader sense: constitutional General Rule: Our constitution does not prohibit double taxation Example; 1. By national government and by the city 2. Real estate tax and tax on engaging in business of leasing real estate 3. Tax on products and on privilege 4. Tax and license fees Exception: while not forbidden, it is not favored whenever possible, be avoided and prevented doubts as WON theres double taxation is resolved in favor of the taxpayer (avoid injustice or unfairness) may seek relief under uniformity rule or equal protection guarantee City of Baguio v. de Leon License fees No double taxation Argument of double taxation cannot avail where one tax is imposed by the State and the other is imposed by the City. Double taxation is not violative of due process. Due process clause no more forbids double taxation than it does doubling the amount of tax, as long as these are not confiscatory or unconstitutional on other grounds. Pepsi Cola Bottling Co. v. City of Butuan Tax on agents and consignees No double taxation Double taxation, in general, is not forbidden by our fundamental law. The injunction against double taxation found in the US Constitution. then, again, the general principle against delegation of legislative powers, in consequence of the theory of separation of powers, is subject to one well established exception, namely: legislative powers may be delegated to local governments to which said theory does not apply in respect to matters or local concern. CIR v. Manila Jockey Club contribution and amusement tax Double taxation

Sec. 105 NIRC Kinds of shifting 1. Forward transfer from factor of production through factors of distribution until it finally rests on the ultimate purchaser or consumer 2. Backward from consumer to the factor of production through the factors of distribution 3. Onward shifting tax is shifted 2 or more times either forward or backward Not shifted: 1. Direct tax 2. Those that are purely personal (estate and community tax) iii. Meaning of taxation impact and incidence of

Relations among impact, shifting and incidence of tax Shifting transfer of burden of a tax by the original payer or the one on whom the tax was assessed or imposed to another or someone else person on whom tax was imposed may not be the one who shoulders the burden of the tax (indirect tax) shifts the BURDEN not the PAYMENT of the tax Impact of taxation point on which the tax is originally imposed the statutory taxpayer

3. a.

Escape from taxation Shifting of tax burden i. Ways of shifting the tax burden

1. Shifting see notes below

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Incidence of taxation point on which the tax burden finally rests takes place when shifting has been effected by the statutory taxpayer to another there may be incidence without shifting (ie transformation) b. Tax evasion Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being evil, in bad faith, willfull,or deliberate and not accidental; and (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case.

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use by the taxpayer of illegal means or fraudulent means to defeat or lessen the payment of tax tax dodging tantamount to absence of taxation, Elements of Tax evasion 1. The end achieved 2. Accompanying state of mind evil, bad faith, willful 3. A course of action (or failure of action which is unlawful Evidence to prove tax evasion since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case Republic v. Gonzales deficiency income tax a furniture manufacturer, is a private concessionaire in the U.S. Military Base at Clark, Pampanga. He underdeclared his income returns for 1946 & 1947 by excluding sales garnered from the Clark Air Base. He refuses to pay the income tax corresponding to the said sales on that ground that as a concessionaire of Clark, he is not subject to Philippine tax laws pursuant to the United States-Philippine Military Bases Agreement. Guilty of tax evasion Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred form the circumstances of the case. The failure of Gonzales to declare for taxation purposes his true and actual income derived form his furniture business at Clark Field Air Base for 2 consecutive years is an indication of his fraudulent intent to cheat the Government of its due tax. CIR v. Toda Toda sold the building to an individual for almost half the price of the subsequent sale to a corporation. guilty of tax evasion Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities

c.

Tax avoidance

tax planning or tax minimization use of taxpayer of legal permissible alternative rate or method of assessing taxable property in order to avoid or reduce tax liability not punishable by law Delpher v. IAC Property was leased to Hydropipes with right of first refusal. The said property is purportedly conveyed by the owners to their family corporation as their contribution to the said corporation. Hydro now claims that the property shouldve been conveyed to them first. No tax evasion, only tax avoidance The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted. Original owners are still in control of the property for they have majority shares in the family corporation. Yutivo Sons Hardware v. CTA Yutivo Sons were assessed deficiency sales tax on its sale of motor vehicles to the public through SM, another corporation said to be a subsidiary No tax evasion The intention to minimize taxes, when used in the context of fraud, must be proved to exist by clear and convincing evidence amounting to more than mere preponderance. Tax evasion is a term that connotes fraud and the transactions between Yutivo and SM have always been in the open and subject to the inspection by the tax authorities. The allegation of fraud cannot be sustained without the showing that Yutivo, in filing said returns, did so fully knowing that the taxes called therein were less than what were legally due. Yutivo merely continued the scheme it had before with GM in the honest belief that it only had to pay the tax on the first sale. Furthermore, if SM was only for a tax saving device, it would not have continued to exist despite the passage of RA 594 which made the selling price immaterial to the amount of the sales tax. Also, the sales tax stated that it shall be collected once only and the taxpayer had the legal right to decrease the amount due on taxes by any legal means necessary

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CIR v. Lincoln Phil. Life insurance Junior estate builder policy, DST Life insurance company issued a special kind of insurance with an automatic increase in coverage without issuance of new policy. Liable to pay DST The payment of DS is done at the time the act is done or transaction had and the tax base for the computation is the amount fixed in the policy. The amount insured by the policy at the time of its issuance necessarily includes the additional sum covered by the automatic increase clause because it is already determinate at the time the transaction entered into and forms party of the policy. To claim that the increase in the amount insured should not be included in the computation of DST due on the policy would be a clear evasion of the law requiring that the tax be computed on the basis of the amount insured in the policy. d. Exemption from taxation i. Meaning of exemption from taxation Its assessment bears direct relevance to the taxpayers role or link in the production chain. In fact, Section 99 of the Tax Code states that the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business

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ii.

Compared with/differentiated from other terms a. Tax Remission / Tax condonation

grant of immunity to particular persons or corporations from tax immunity or privilege, freedom from financial charge or burden to which others are subjected

Greenfield v. Meer Greenfield was engaged in the embroidery business. In 1935 he engaged in selling and buying of mining stocks and securities. He is not a dealer and he has no established place of business and was never a member of any stock exchange entitled to refund, should be deducted from net income Because "Exception is an immunity or privilege; it is freedom from a charge or burden to which others are subjected." If the amounts of personal and additional exemptions fixed in section 23 are exempt from taxation, they should not be included as part of the net income, which is taxable. There is nothing in said section 23 to justify the contention that the tax on personal exemptions (which are exempt from taxation) should first be fixed, and then deducted from the tax on the net income.

Juan Luna v. M. Sarmiento Taxpayer paid the land taxes in form of checks. The checks were lost. Taxpayer claims refund by virtue of CA 703 which provides for remission of taxes paid during 1942 to 1943. Note that taxpayer paid the taxes (via check) prior to the enactment of the law. apply only to taxes which are not paid at the time To remit is to desist or refrain from exacting, inflicting or enforcing something as well as to restore what has already been taken. The remission of taxes due and payable to the exclusion of 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. They are not. The taxpayers who had been in arrears in their obligation would have to satisfy their liability with genuine currency, while the taxes paid during the occupation had been satisfied in Japanese military notes, many of them at a time when those notes were well-nigh worthless. To refund those taxes with the restored currency, even if the Government could afford to do so, would be unduly to enrich many of the payers at a greater expense to the people at large Surigao Consolidated Mining v. Collector Petitioner claims for a refund by virtue of RA 81 stating that all taxes unpaid from mining claims are condoned. Note that petitioner already paid the its taxes. Not entitled to refund. The law invoked clearly refers to the condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of a 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 b showing that the Legislature intended to exempt him by word too plain to be mistaken. Hence, the benefits of the said provision does not extend to it

CIR v. Magsaysay Lines sale of National Development Corporation of its shares in the National Marine Corporation and five (5) ships, wherein one of the stipulations of the sale was that the winning bidder was to pay VAT of 10% on the value of the vessels Not subject to VAT, not in the ordinary course of business VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed percentage. It is the end user that ultimately shoulders the burden of the tax.

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b. Tax amnesty Individuals availed of tax amnesty program as individual taxpayers and are thereby relieved from any further tax liability arising therefrom CIR v. Marubeni Marubeni availed of tax amnesty under EO 41 and 64. It also alleged that the offshore portion of the contract is not taxable in the Philippines. EO 41 provides that there should be no tax case filed before the effectivity of the EO for it to apply. Here, CTA case was filed after effectivity of the EO. Entitled to tax amnesty under EO 41 but not extend benefit to contractors tax. Still not liable to contractors tax because it is outside the taxing jurisdiction of the Philippines EO 41 is clear and unambiguious in that it excepts from amnesty those taxpayers with income tax cases already filed in court as of the effectivity hereof. Point of reference is the date of effectivity of EO41. The filing of income tax cases must have been made before and as of the date of effectivity of EO41. For a taxpayer NOT to be disqualified, there must have been no income tax cases filed in court before EO took effect, regardless of when the taxpayer filed for income tax amnesty, provided he files it before the deadline for filing amnesty. Contractors tax (E0 64) The vagueness in EO41, Sec. 4b brought by EO64 should be construed strictly against the taxpayer. Income tax cases should be read as to refer to estate and donors taxes and taxes on business while the word hereof to EO64. Date of effectivity then should refer to EO 64s (November 17, 1986). Since CTA Case #4109 was filed on September 26, 1986, by the time Marubeni filed its supplemental tax return on December 15, 1986, it already fell under the Sec. 4b exception and is disqualified from availing of the business taxes in EO64. But is still not liable because it is a service rendered outside the Philippines.

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See: RA 9399 and RA 9480 general pardon or intentional overlooking of the state of its authority to impose penalties on persons otherwise guilty of tax evasion or violation of a revenue or tax law never favored or presumed in law CIR v. CTA R.O.H. Auto Products was assessed deficiency income and business taxes. E.O. 41 was enacted which granted a one-time tax amnesty on unpaid income taxes, later amended to include estate, donors and business taxes, for the taxable years 1981-1985. ROH applied for the amnesty and paid the amnesty taxes. Note that ROH was already assessed when the EO was issued. Entitled to tax amnesty EO 41 is a general grant. If the law had intended that tax liabilities assessed before 22 August 1986 be excluded, it could have simply provided in its exclusionary clauses

Republic v. IAC Couple availed of the tax amnesty. They were already assessed of tax at the time they applied for the amnesty which was accepted. Entitled to tax amnesty The Government is estopped from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty tax. A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate. People v. Castaneda Criminal complaint was filed against the accused for violations of Internal Revenue Code and they filed a motion to quash on the ground of entitlement to benefits of tax amnesty Not entitled. He did not voluntarily paid and amnesty cannot extend benefit to co-accused. The defense of the tax amnesty under PD 370 is, like insanity, a personal defense; for that defense relates to the circumstances of a particular accused and not to the character of the acts charged in the criminal information Pascual v. CIR sale of parcels of land, seller availed of amnesty Entitled to tax amnesty, not liable for corporate income tax on alleged partnership that was formed.

c.

Zero rating

See: Sec. 106 NIRC d. Exclusion/deduction

iii. Kinds of tax exemption 1. As to manner of creation a. Express b. Implied tax levied on certain classes without mentioning the other classes As to scope or extent a. Total b. Partial

2.

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3. As to object a. Personal directly in favor of such person b. Impersonal in favor of certain class of property legislative power to exempt is as broad as the its power to tax 2. Local government municipal corporations, unlike the sovereign state, are clothed with no inherent power to tax, hence, they also have no inherent power to exempt from taxation the legislature may delegate its power to exempt to the same extent that it may itself exercise the power to exempt Basco v. Pagcor If Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions and even take back such power. The Citys power to tax must always yield to a legislative act which is superior, having been passed by the State itself which has inherent power to tax Maceda v. Macaraig It is recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of government political subdivision or instrumentality. In the case of property owned by the state or a city or other public corporations, the express exception should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property exception is the rule and taxation the exception.

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Atlas Fertilizer v. CIR compensating tax Exempt, entitled to tax credit but not to interest on said tax credit (CIR did not act arbitrarily) R. A. No. 901 grants partial exemption while R. A. 3050 grants total exemption. Once a manufacturer of fertilizer chose to come under R. A. 3050, his partial exemption under R. A. 901 ceased. In effect, he enjoyed only one exemption benefit, the full exemption under R. A. No. 3050. As correctly ruled by the respondent court, when AFC availed of the total exemption under R. A. No. 3050, it has in effect given up the partial exemption which it was enjoying under R. A. No. 901. UST v. CIR business printers percentage tax entitled to refund as to the sale by one department to another, but also liable for deficiency taxes for the same year = hence, a set off. Doctrine of equitable recoupment >> takes out of the field of limitation, tax adjustments where a charge or credit on one side would ordinarily be barred but equitably be allowed against a nonbarred liability asserted on the other. CIR v. Phil Ace line compensating tax on sale of 4 cargo vessels from reparations commission not taxable Every tax exemption implies a waiver of the right to collect what otherwise would be due to the government. Purpose is some public benefit or interest. There is no difference between the grant of exemption to end users who purchased after the approval of the RA 1789 (granting exemption) and those who purchased before its enactment.

v.

Rationale/grounds for tax exemption

public policy public benefit or interest Tolentino v. SOF An enumeration of some of the transactions will suffice to show that by and large the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit. Maceda v. Macaraig P.D. 1931 which enables NPC to ask for a total restoration of its tax exemption privileges, was issued 9 months after the Philippines unilaterally declared a moratorium on its foreign debt payments as a result of the economic crisis triggered by loss of confidence in the government brought about by the Aquino assassination. The Philippines was then trying to reschedule its debt payments. One of the big borrowers was the NPC which had a US$2.1 Billion white elephant of a Bataan Nuclear Power Plant on its back. From all indications, it must have been this grave emergency of a debt rescheduling which compelled Marcos to issue P.D. 1931

Caltex v. COA claim from OPSF fund by oil companies cannot suspend payment of OPSF dues Though LOI 1416 may suspend the payment of taxes by copper mining companies, it does not give the petitioner the same privilege with respect to the payment of OPSF dues. iv. Nature of the power to grant tax exemption 1. National government like the inherent power to tax, the power to exempt from taxation is an attribute of sovereignty for the power to prescribe who or what property shall be taxed implies the power to prescribe who or what shall NOT be taxed

TAX Laforteza | Midterms Reviewer Camille Umali


Davao Light v. Commissioner of Customs Davao light claims exemption since NPC is exempt. Not exempt. NPC does not pose itself as a competitor to DLs business. In fact, NPC does not sell electricity directly to the general public. Instead, it sells its electricity to DL for resale to the latters customers. In other words, NPC is the source of DLs merchandise. It is aiding DLin its business operations, not competing with it DL cannot lay claim to the enjoyment of the tax exemption benefits given to NPC simply because said corporation happened to be operating a power plant in the same locality where DL has a franchise. Exemption for taxation is never presumed. For tax exemption to be recognized, the grand must be clear and expressed. It cannot be made to rest on vague implications. Tan Kim Kee v. CTA Petitioner is producer of copra, which he makes in two ways: the sun-dried method and the kilndried method. RA 1612 removed the exemption which was again enacted by RA 1856. The coverage of the exemption was being broadened by R.A. No. 1612, as expressly stated in the original House Bill No. 5819 that later became said Act; and that the policy change was later found inadvisable, so that the statute was reworded by R.A. 1856 to corresponded to the original terminology so as to restore the original exemption.. NPC v. Presiding Judge NPC was made to pay real property tax and special education fund tax. It refused to pay. Not exempt, liable to pay PD 1177 provides that All units of government, including government-owned or controlled corporations, shall pay income taxes, customs duties and other taxes and fees as are imposed under revenue laws The said law does not distinguish between tax imposed by the national government and that imposed by local government. Davao Gulf v. CIR DG claims refund on what it actually paid and not the one it deemed to have paid under the RA providing for exemption refund only part that is deemed to have been paid A claim of tax exemption must be clearly shown and based on language in the law. Since the partial refund authorized under Sec. 5 of RA 1435 is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee. RA 1435 does not authorize a refund based on the higher rates claimed by petitioner. When the law itself does not provide that a refund under RA 1435 may be based on higher rates which were nonexistent at the time, the Court cannot presume otherwise. vi. Nature of tax exemption 1. 2. 3. 4. Mere personal privilege of the grantee cannot be assigned or transferred by the person to whom it is granted without the consent of the legislature Generally revocable by the government unless exemption is founded on a contract which is protected from impairment Implies a waiver Not necessarily discriminatory

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Phil Acetylene v. Commissioner of Customs tax exemption must be strictly construed and that the exemption will not be held to be conferred unless the terms under which it is granted clearly and distinctly show that such was the intention of the parties. Hence, in so far as the circular of the Bureau of Internal Revenue would give the tax exemptions in the Agreement an expansive construction it is void Wonder Mechanical Engineering v CTA corporation was granted tax exemption privilege under Republic Act 35 in respect to the "manufacture of machines for making cigarette paper, pails, lead washers, rivets, nails, candies. chairs, etc.". exempt only those portion expressly provided The cardinal rule in taxation is that exemptions therefrom are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right thereto by the dearest grant of organic or statute law. Tax exemption must be clearly expressed and cannot be established by implication. Exemption from a common burden cannot be permitted to exist upon vague implication

PLDT v. City of Davao PLDT claims exemption because its competitors, Smart and Globe were granted an exemption. Not exempt. The law sought to promote gradual deregulation of entry, pricing and operation of all public telecommunication entities, thus helping to level the playing field. The in lieu of all taxes provision in the franchises of Smart and Globe cannot be applicable to PLDT, who had virtual monopoly of the industry before, without defeating the very policy of leveling the playing field.

TAX Laforteza | Midterms Reviewer Camille Umali


CIR v. PAL PAL seeks for a refund of tax paid to the Government of the Philippines. It paid taxes despite of the fact that they are not obliged to pay. It based its action on PD 1590 which states that Phil. Airlines has two alternatives in paying taxes. First, to pay corporate income tax based on PALs annual net taxable income computed in accordance with the provisions of NIRC. Second option is to pay franchise tax of two percent of its gross revenue. Entitled to refund There is no substantial distinction between Zero tax liability and tax exemption. The fact that the respondent has been granted of zero tax liability, it is now entitled to from payment of taxes. The provision of the PD1590 is clear. Any option of the PAL in paying corporate income tax based on the provision of NIRC or payment franchise tax of two percent of its gross revenue, will entitle the PAL for a tax exemption vii. Laws granting tax exemption/tax incentives a. Constitution

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87 Constitution Article VI, Sec. 28(3). - Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. Article XIV, Sec4(3). - All revenues and assets of nonstock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions, subject to the limitations provided by law, including restrictions on dividends and provisions for reinvestment. Article XIV, Sec4(4). Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax.

b. c. d.

National internal revenue code Special laws Treaty/international agreement

TAX Laforteza | Midterms Reviewer Camille Umali


I. Philippine Tax Laws and Regulations Existing tax laws: 1. 1. Nature of tax laws National b. c. d. NIRC Tariff and Customs Code Special laws Sugar Adjustment Act Narcotics Drug law Travel Tax (PD 118) Motor Vehicle Users Charge (RA 8794) Energy taxes

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Internal Revenue laws are NOT POLITICAL in nature. They are deemed to be the laws of the occupied territory and not of the occupying enemy. Tax laws are CIVIL and not penal in nature although there are penalties provided for their violation. The purpose of tax laws in imposing penalties for the delinquencies is to compel the timely payment of taxes or to punish evasion or neglect of duty in respect thereof.

2.

Local e. f. LGC Local tax ordinance/city or municipal tax codes

Hilado v. CIR Petitioners contention that during the last war and as a consequence of enemy occupation in the Philippines there was no taxable year within the meaning of our internal revenue laws because during that period they were unenforceable Tax laws were enforceable Our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy

3.

Others g. h. Tax treaties/international agreement Decisions of SC/CTA

Supreme Court Decision of SC interpreting existing tax laws are binding on all subordinate courts and have the force and effect of law SC decisions forms part of the legal system of the Philippines, they are evidence of what law means Court of appeals By nature of its jurisdiction, the decisions of this court are still appealable to the Supreme Court by PFR on certiorari i. Revenue rules and regulations administrative rulings and opinions and

Republic v. Vda de Fernandez War Profits Tax Laws Taxable, not ex-post facto The war profits tax law is both a property tax and a tax on income: it is a property tax in relation to the properties that he had in December 1941, and it is an income tax in relation to the properties which he purchased during the Japanese occupation. The doctrine raised herein is based on the prohibition against ex post facto laws. But this prohibition applies only to criminal or penal matters, and not to laws which concern civil matters or proceedings generally, or which affect or regulate civil or private rights. *tax law is civil and not political

See: Sec. 245 NIRC Sec. 511 and 519 Tariff and Customs Code SEC. 244. Authority of Secretary of Finance to Promulgate Rules and Regulations. - The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code. Revenue Regulations most formal pronouncement of DOF prescribe or define rules for the effective enforcement of Tax code and related statutes The power to recommend the promulgation of internal revenue rules and regulations by the SOF is given only to CIR. He is NOT allowed by law to delegate such power to his subordinates.

2.

Sources of Tax laws a. Constitution

Others: 1. Legislation and statutes (PDs, EOs) 2. Admin rules and regulations and rulings or opinions of tax officials (CIR, SOJ) 3. Judicial decisions

TAX Laforteza | Midterms Reviewer Camille Umali


Nature and Power to make regulations the power to make regulations is NOT the power to legislate in the true sense and under the guise of regulation, legislation may NOT be enacted Statute which is being administered may not be altered or added to by the exercise of a power to make regulations thereunder CANNOT increase or decrease the requirements of the law, nor embrace matters not covered or intended to be covered by the statute, otherwise they are INVALID for being in conflict with the law Necessity and function of regulations necessary for the proper enforcement and execution of laws intended to clarify and explain the law and carry into effect its general provisions by providing details of administration and procedure implement broad policies by filling in the details which the legislature which may neither have time nor expertise to provide the force and effect of law and so they must be applied and enforced binding as if written in the law itself

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Tan v. Del Rosario Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified by Republic Act No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-compensation income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in significant variance the income tax treatment of professionals who practice their respective professions individually and of those who do it through a general professional partnership CIR v. CA, fortune tobacco BIR ruling is issued in exercise of quasi-legislative function. Hence, there should have been notice and hearing before it can be effective.

Misamis Oriental v. DOF Sec. 103 (b) of the NIRC classified copra as an agricultural food product and therefore exempt from VAT at all stages of production. However, the abovementioned RMC reclasiffied copra as an agricutltural non-food product, and therefore, only exempt from VAT if the sale is made by the primary producer. Reclassification is valid As the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his power under 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes i. Validity of regulations revenue rules and

Phil. Petroleum Corp. v. Mun. of Pililia Pililla passed its own Tax Code (ordinance) imposing taxes but its effectivity has been suspended because of the Provincial Circulars. cannot be suspended Administrative regulations must be in harmony with the provisions of the law. In case of discrepancy between the basic law and an implementing rule or regulation, the former prevails.

Requisites: 1. must not be contrary to law 2. must be published in the OG Effectivity: file with the UP law center 3 certified copies effective 15 days from date of filing, unless a different date is fixed by law or specified in rule in cases of imminent danger to public health, safety and welfare (must be expressed) Note: RRs of SOF may take effect even before publication in the OG Force and effect: once established and found to be in consonance with the general purpose and objects of law have

Umali v. Estanislao A petition for mandamus to compel the Secretary of Finance and Commissioner of Internal Revenue to implement RA 7167, adjusting the personal and additional exemptions allowable to individuals for income tax purposes in regard to income earned or received in 1991 RR cannot postpone effectivity of a statute The personal exemptions as increased by the Act cannot be regarded as available with respect to the compensation income earned or received in 1990 as these have already accrued and presumably paid. To make the Act applicable to income received in 1990 would require language that is explicitly in purport and effect. However, the personal exemptions that were increased by the Act are not restricted to income received in 1992 as Revenue Regulation No. 1-92 would in effect postpone the effectivity of the Act to January 1, 1993 La Suerte Cigar v. CTA Memorandum Circular No. 30-67 was issued requiring the inspection of locally produced lead tobacco and partially manufactured tobacco for domestic sale and all manufactured tobacco Valid

TAX Laforteza | Midterms Reviewer Camille Umali


It was issued to rectify the error in General Circular No. V027 which erroneously included the word leaf causing damage to the financial stability of the Government as the inspection fees due on cigars and cigarettes for domestic sale and imported lead and partially manufactured tobacco for factory use were not collected for more than 20 years Publication in the Official Gazette is not necessary because the RMC was issued for the purpose of internal administration of the BIR and not a regulation CIR v. Seagate Technology VAT, company operating in an economic zone exempt Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein respondent -- are entities exempt from all internal revenue taxes and the implementing rules relevant thereto, including the value-added taxes or VAT. Although export sales are not deemed exempt transactions, they are nonetheless zerorated. Hence, in the present case, the distinction between exempt entities and exempt transactions has little significance, because the net result is that the taxpayer is not liable for the VAT. Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit for the input VAT it paid on capital goods it purchased. An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax status -- VAT-exempt or not -- of the party to the transaction.[60] Indeed, such transaction is not subject to the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid. An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from the VAT.[61] Such party is also not subject to the VAT, but may be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT or nonVAT taxpayer. 3. Interpretation/Construction of Tax Laws

41

Hilado v. CIR (Supra) a. Rule when legislative intent is clear

Tax statutes are to receive a reasonable construction or interpretation with a view to carrying out their purpose and intent They should NOT be construed as to permit evasion by the taxpayer Good faith of the taxpayer is NOT a sufficient justification for exemption from the payment of surcharges imposed by law for failing to pay within period required by law Umali v. Estanislao (supra) Lorenzo v. Posada Inheritance Tax Taxable at time of transfer to trustee It is easy for a taxpayer to claim good faith but difficult for the government to prove that he acted in bad faith. The disastrous effect on tax collection is not difficult to discern if such a defense were available. A tax statute should be construed to avoid possibilities of tax evasion. CIR v. Solidbank (supra)

b.

Rule when there is doubt

No person or property is subject to taxation unless within the terms or plain import of the taxing statute Rule: tax statutes are construed strictly against the government and liberally in favor of the taxpayer Exception: not applicable where the language of the tax statute is plain and there is no doubt as to the legislative intent. In such case, the words are to be given their ordinary meaning. Rationale: Taxes, being burdens, they are not to be presumed beyond what the statute expressly and clearly declares CIR v. La Tondena La Tondena is a manufacturer of wines and liquors. LT uses as basic material low test alcohol (purchased in crude form from the suppliers), which LT re-rectifies or subjects to further distillation. In this process, losses thru evaporation had necessarily been incurred, for which the Collector had given LT an allowance of not exceeding 7%. On May 1954, the Collector wrote a demand letter to LT for the payment of specific taxes on alcohol lost by evaporation Exempt

ii.

BIR rulings

Official position of BIR to queries raised by a taxpayer on certain specific issues of law or administration in relation to the provisions of the Tax code, relevant laws and other issuances of BIR, clarifying and interpreting them

TAX Laforteza | Midterms Reviewer Camille Umali


The clause, "and the tax shall attach to this substance as soon as it is in existence as such, whether it be subsequently separated as pure or impure spirits, or be immediately or at any subsequent time transformed into any other substance either in process of original production or by any subsequent process", was deleted. The evident intention of the lawmakers was to subject to specific tax not all kinds of alcoholic substances, but only distilled spirits as finished products. Meralco v. Vera Meralco seeks exemption from compensating tax for imported equipment by virtue of its franchise Not exempt Tax exemptions are strictly construed against the taxpayer, they being highly disfavored and may almost be said "to be odious to the law." Note that what the above provision exempts petitioner from, is the payment of property, tax on its poles, wires, transformers, and insulators; it does not exempt it from payment of taxes like the one in question which, by mere necessity or consequence alone, fall upon property Benguet Corporation v. CBAA tax on bunkhouses not exempt The intention of the Legislature is to limit the application of the exception clause only to those conferred by the Real Property Tax Code. This interpretation is keeping in line with the principle of statutory construction that tax exemptions are construed strictly against the taxpayers, hence they cannot be created by mere implication but must be clearly provided by law. Coconut Oil refiners v. Torres Pres. FVR issued EO No. 80, which declared, among others, that Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under Republic Act No. 7227. Pursuant to the directive under EO No. 80, the BCDA passed Board Resn No. 93-05-034 [May 18, 1993], allowing the tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the CSEZ valid as to SSEZ, not as to CSEZ The nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited by a provision of a state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes ii. Exceptions

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Provisions/laws granting exemption i. General Rule Rule: Exemption provisions are construed strictly not against the government but against the one who asserts the claim of exemption Tax exemption can only be given effect when the grant of the law is clear. Any doubt is reserved in favor of taxation. Rationale: taxation is the rule and exemption from tax is the exception. Tax refunds are in the nature of tax exemptions and are, therefore, strictly construed against the claimant who has the burden of proving the factual basis of his claim for refund. CIR v. CA Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest. and unmistakable from the language of the law on which it is based. Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear to be mistaken. Misamis Oriental v. Department of Finance copra as agricultural product BIR ruling upheld But as the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his power under 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes." Philacetylene v. CIR tax exemption must be strictly construed and that the exemption will not be held to be conferred unless the terms under which it is granted clearly and distinctly show that such was the intention of the parties. Hence, in so far as the circular of the Bureau of Internal Revenue would give the tax exemptions in the Agreement an expansive construction it is void

c.

Maceda v. Macaraig It is recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of government political subdivision or instrumentality. In the case of property owned by the state or a city or other public corporations, the express exception should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property exception is the rule and taxation the exception.

TAX Laforteza | Midterms Reviewer Camille Umali


4. Application of Tax Laws, Revenue Regulations and Rulings a. General Cebu Portland v. CIR CTA decision ordered the petitioner CIR to refund to the Cebu Portland the amount representing overpayments of ad valorem taxes on cement sold by it. Execution of judgment was opposed by the petitioner citing that private respondent had an outstanding sales tax liability to which the judgment debt had already been credited. In fact, there was still a P4 M plus balance they owed. enforcement cannot be delayed The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed. That is the reason why, save for the exception in RA 1125 , the Tax Code provides that injunction is not available to restrain collection of tax. CIR v. Rio Tuba Nickel Mining Rio Tuba has several mining lease contracts with the Republic of the Philippines. It bought different kinds of oil from Petrophil and other oil companies who paid and passed on to Rio Tuba specific taxes on such oils. Rio Tuba filed 2 claims for refund, specifically the 25% of specific taxes collected on such oils used in its operations as a mining concessionaire not entitled to refund PD 711 provided for the transfer of funding and operations of all existing special and fiduciary funds into one fund known as the general fund. This is the reason why it is not consistent with Sec. 5 of RA 1435 which allows a partial exemption to miners and forest concessionaires under special conditions. This privilege provided by RA 1435 did not extend to all and was only given to miners and forest concessionaires because of circumstances peculiar to them, this being the fact that they seldom use national highways because they have their own roads. Due to their special circumstance, they do not benefit from the purpose of RA 1435 and it will be unfair if they are required to pay. However, with the advent of PD 711, the funds that have accrued from special fund have been channeled to a general fund. Then it follows that there is no need for the continued special treatment accorded to miners and forest concessionaires. Thus, sec. 5 of RA 1435 has become an anachronism. It will be inevitable that miners will stand to benefit from any government endeavors and no longer be correct to asseverate that imposition of increased rates in specific taxes to augment general fund for government undertakings is unfair to miners

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Art. 2. Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided. This Code shall take effect one year after such publication. Rule: Prospective Reason: nature and amount of the tax could not be foreseen and understood by the taxpayer at the time of transaction which the law seeks to tax was completed Exception: When expressly declared or when legislative intent clearly provides for retroactive application as provided by tax treaties entered into by the Philippines with other countries

Umali v. Estanislao (supra) Lorenzo v. Posadas (supra) Hijo Plantation v. Central Bank Banana Exports reached the aggregate annual F.O.B. value of US $5 million in August 1971, bringing it within R.A. 6125 (An Act imposing Stabilization Tax) petitioners sought authoritative pronouncement from Central Bank and in the reply letter, Central Bank called attention to Monetary Board Resolution 1995, providing that the stabilization tax would start to accrue January 1972, and at the rate of 6%. Ultra vires Monetary Board Resolution No. 1995 cannot be said to be the product of grave abuse of discretion, it is the result of an overzealous desire to carry into effect the provisions of RA 6125, it is evident that the Board acted beyond its authority under the law and the Constitution. Hence, the petition for certiorari and prohibition in the case at bar, is proper.

CIR v. Filipinas Compania de Seguros annual tax on real estate dealers should not be retroactive As a rule, a statute should be considered as prospective in its operation, whether it enacts, amends or repeals a tax, unless the language of the statute, clearly demands or expresses that it shall have a retroactive effect. The rule applies in greater force here considering that RA 1612, which imposes new and higher rates, expressly provides in Sec. 21 thereof that it shall take effect upon its approval on Aug. 24, 1956

TAX Laforteza | Midterms Reviewer Camille Umali


b. Application of revenue regulations/rulings rules and not issued to Tuzon for non-payment of the said donation. Not donation but tax Not valid Not donation it is obligatory and not an act of liberality As tax ordinance, then it must be shown to have enacted in accordance with Local tax code which includes public hearing, approval of SOF and publication. CIR v. Mega General Specific tax on crude paraffin wax Com. Vera issued a ruling stating that paraffin wax is not subject to specific tax but only those used as lubricant, etc. Respondent claim for refund but this was denied by the subsequent Commissioner (Plana). Prior to the letter of assessment, CIR issued a letter to Respondent granting claim for refund covered by the Vera ruling. Taxable as assessed by CIR Last letter issued by CIR did not revoke its previous ruling stating that the importation is taxable but only applied the Plana ruling prospectively as not to apply to the importations still covered by the Vera ruling. ABS-CBN v. CTA Deficiency withholding tax on film rentals paid by ABS to foreign corporation not engaged in trade and business in the Philippines. Revenue Memorandum Circular No. 4-71 revoked General Circular No. V-334 and directed local distributors and exhibitors of foreign films to deduct and withhold 35% of the entire amount payable to them to non-resident foreign corporations, as film rental or royalty. Not retroactive Any revocation, modification, reversal of any of the rules and regulations or any of the rulings or circulars promulgated by the CIR shall not be given retroactive application if such will be prejudicial to the taxpayer, except (a) when the taxpayer deliberately mis-states or omits material facts from his return or any document required by him; (b) where the facts subsequently gathered by the BIUR are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith. ABS-CBN will no doubt be prejudiced, considering that this RMC was issued in 1971, three years after 1968, the last year that it withheld taxes. ABS-CBN was no longer in the position to withhold taxes because it had remitted all film royalties and had no longer any control over. CIR v. CA Tax on cigarettes 2 days before effectivity of the RA increasing the tax on cigarette to 55% and 45% (locally manufacture), RMC 37-93 was issued by BIR imposing 55% on the cigarettes produced by Fortune Tobacco Corp. RMC is not valid, it is hastily promulgated.

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See: RMC Memo Circluar 20-86 SEC. 246. Non- Retroactivity of Rulings. - Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or 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 the taxpayer acted in bad faith. Power to interpret the provisions of the Tax code and other tax laws is under the exclusive and original jurisdiction of the CIR subject to review by SOF. Revenue regulation formal interpretation Ruling less general interpretation of tax laws which are issued by tax officials in the performance of their assessment functions rendered by CIR on request of taxpayer to clarify certain provisions may be revoked by SOF Commissioner has the sole authority to issue rulings but can also delegate said authority but not those of first impression (ie question involved is new and important) SOJ may also give rulings in the form of opinions on tax questions as chief legal officer of the government. Weight given to administrative interpretation a principle widely accepted that the contemporaneous construction placed upon the statute by the executive officers whose duty is to enforce it is entitled with great respect by the courts NOT conclusive and will be ignored if judicially found to be erroneous Power of SOF to revoke rulings of predecessor SOF has the power to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office Construction of statute by those administering it is not binding on their successors if thereafter the latter becomes satisfied that a different construction should be given Tuzon v. CA Resolution No. 9 requires payment of 1% of palay threshed out as donation for construction of sports and nutrition center. Mayors permit was

TAX Laforteza | Midterms Reviewer Camille Umali


It is not a mere corrective measure or mere construction of the NIRC provision. BIR did not just interpret the law but legislated under its quasi-legislative authority. The due observance of the requirements of notice, hearing and publication should not have been ignored. CIR v. Telefunken Semiconductor Percentage tax and contractors tax Respondent is corporation registered under RA 6135. It asked for a refund or tax credit claiming it was exempt as pioneer export producer from payment of 3% contractors tax. CIR denied claiming that the law only exempts those registered under RA 5186, not RA 6135 Not taxable, exempt There is no difference between gross receipts of pioneer enterprises registered under RA 5186 and under RA 6135. Ruling of BIR cannot be given retroactive effect, if the same is prejudicial to the taxpayer. revenue laws cannot be controverted. However, CIR cannot, in the exercise of the power, to make ruling and opinions in connection with the implementation of internal revenue laws issue administrative rulings or circulars not consistent with the law sough to be applied. Only Congress can repeal or amend the law. The two circulars cannot be viewed simply as implementing rules or corrective measures revoking in the process the previous rulings of past Commissioners. They would have been amendatory provisions making the pawnshops liable to pay new taxes. In so doing, the CIR did not simply interpret the law. The due observance of the requirements of notice, hearning and publication should not have been ignored. c. 1. Effectivitiy and validity of tax ordinances persons tax

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CIR v. Benguet Corp. Benguet Corporation, relying on petitioners VAT Ruling No. 3788-88, which declared that Benguets sale of gold to the Central Bank is an export sale subject to zero rate, entered into transactions that resulted in input VAT incurred in relation to the subject sales of gold. It then filed applications for tax refunds/credits. The applications were expressly disallowed by CIR on the strength of VAT Ruling No. 008-92 issued subsequent to the sales of gold to the Central Bank which provides that sales of gold to the Central Bank shall not be considered as export sales and thus, shall be subject to 10% VAT. Not retroactive, still subject to 0% rate BIR issuances have the force and effect of law. However, rulings, circulars, rules and regulations promulgated by the CIR would have no retroactive application if to so apply them would be prejudicial to the taxpayers. The change in the VAT rating of respondents transactions with the Central Bank resulted in the twin loss of its exemption from payment of output VAT and its opportunity to recover input VAT, and at the same time subjected it to the 10% VAT minus the option to pass on this cost to the Central Bank, with the total prejudice in money terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank. CIR v. Michel Lhuillier Pawnshop CIR issued RMO 15-91 imposing a 5% lending investor's tax on pawnshops pursuant to Section 116 of the Tax Code on the ground that the pawnshop business is akin to lending investor's business activity which is broad enough to encompass the business of lending money at interest by any person whether natural or juridicial. Not liable to investors tax, RMOs are not valid. The power of CIR to issue rulings and opinions in connection with the implementation of internal

Hagonoy market Vendors v. Municipality of Hagonoy Kautusan Blg. 2 which increase stall rentals Time barred It is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent courts is not a mere technicality that can be easily brushed aside. It is essential that validity of revenue measures is not left uncertain for a considerable length of time. Hence, the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances. >> failure to attach to its appeal certified true copies of the assailed Resolutions of the SOJ not fatal theres due diligence. Jardine Davies v. Aliposa Makati revenue Code. Opposed by PRCI and was granted a favorable decision by RTC. Jardine Davies paid without protest and then asked for credit after learning of the decision of RTC Action prescribed for failure to appeal with SOJ within 30 days Delay in implementing tax measures would be detrimental to the public. Hence, tax protests are required to be done within certain time frames.

5.

Mandatory and directory provisions of tax laws 1. Mandatory

Provisions intended for the security of citizens Example: 2. Those requiring previous notice to taxpayer for notice to taxpayer of public sale of his property for tax delinquency 3. Designed to ensure equality of taxation or certainty as to nature and amount of each

TAX Laforteza | Midterms Reviewer Camille Umali


Sec. 187 LGC - Procedure For Approval And Effectivity Of Tax Ordinances And Revenue Measures; Mandatory Public Hearings. The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof; Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. 2. Directory Pecson v. CA Pecson is the owner of a lot which was sold at a public auction. Notices of the auction were allegedly sent to the wrong address, which Pecson himself gave the authorities. Public auction is valid. Notices of the sale of the public auction may be sent to the delinquent taxpayer: a. at the address shown in the tax rolls or property tax record cards of the municipality or city where the property is located b. his residence, if known to such treasurer or barrio captain

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Importance of making a distinction omission to follow mandatory provisions renders the invalid act or proceeding to which it relates Omission to follow directory provisions does not involve invalidity of the act

Provisions designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings Example: 1. Submission of report of distraint of personal property within 10 days of receipt Roxas v. Rafferty Tax on building and improvements prior to completion of said improvements. Not taxable no notice given by assessor after the completion It is a general rule that those provisions of a statute relating to the assessment of taxes, which are intended for the security of the citizen, or to insure the equality of taxation, or certainty as to the nature and amount of each person's tax, are mandatory; but those designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings are merely directory. Aragon v. Jorge Notice of public auction not made Public auction is void Notice of the sale to the delinquent taxpayers and landowners and to the public in general is an essential and indispensable requirement of the law, and the non-fulfillment of which vitiates and nullifies the sale. The sale being void for lack of due notice, the treasurer cannot be compelled to issue the final bills of sale.