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COURSE OUTLINE IN TAXATION I

PART ONE: GENERAL PRINCIPLES

A. Definition of Taxation

Cases:
Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, 17 February 1988
Mactan Cebu International Airport vs. Marcos, 261 SCRA 667

B. Nature of the Power of Taxation


1. Attribute of sovereignty
2. Legislative in character
3. Not delegated to executive or judicial department
Exceptions
i. Local governments (Sec. 5, Article X, Constitution)
ii. When allowed by the Constitution (Sec. 28(2), Art. VI, Constitution)
iii. When delegation merely relates to administrative implementation or
implied from the policy and purpose of the Act
4. Subject to inherent and constitutional limitations

Cases:
Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667 (1996)
Planters Products, Inc. v. Fertiphil Corp., G.R. No. 166006, 14 March 2008
Maceda v. Macaraig, 197 SCRA 771
Petron v. Pililla, 198 SCRA 82
Pepsi-Cola Bottling Company of the Phil. v. Mun. of Tanauan, Leyte, 69 SCRA 460
FELS Energy, Inc. v. The Province of Batangas, G.R. No. 168557, 16 February 2007
Petron v. Tiangco, G.R. No. 158881, 16 April 2008
City Government of Quezon City v. Bayantel, Inc., G.R. No. 162015, 6 March 2006

C. Aspects of Taxation
1. Levy
2. Assessment
3. Collection

D. Theory or Underlying Basis of Taxation


1. Lifeblood Theory / Necessity Theory
2. Benefits-Protection Theory

Cases:
Commissioner of Internal Revenue v. Algue, supra.
Phil. Guaranty Co., Inc. v. CIR, G.R. No. L-22074, 6 September 1965
FELS Energy, Inc. v. The Province of Batangas, supra.
Lorenzo v. Posadas, G.R. No. L-43082 (64 Phil 353) June 18, 1937

E. Purposes and Objectives of Taxation


1. Revenue
2. Regulatory / Sumptuary
3. Promotion of General Welfare
4. Reduction of Social Inequality
5. Encouragement of Economic Growth
6. Protectionism

Cases:
PAL v. Edu, 164 SCRA 320
Lutz v. Araneta, 98 Phil 148
Caltex Phils. v. COA, G.R. No. 92585, 8 May 1992
Osmea v. Orbos, G.R. No. 99886, March 31, 1993
Gerochi v. DOE, G.R. No. 159796, 17 July 2007
Southern Cross Cement Corp. v. Cement Manufacturers Association of the Phil., et al., G.R.
No. 158540, 3 August 2005
F. Taxation Distinguished from Police Power and Eminent Domain

1. Taxation v. Police Power


2. Taxation v. Eminent Domain

Cases:
Commissioner of Internal Revenue v. Central Luzon Drug Corp., G.R. No. 159647, 15 April
2005
Lutz v. Araneta, 98 Phil 148
Planters Products v. Fertiphil, Inc., supra.
Gerochi v. DOE, supra.

G. Basic Principles of a Sound Tax System

1. Fiscal Adequacy
2. Theoretical Justice
3. Administrative Feasibility

Cases:
Chavez v. Ongpin, G.R. No. 76778, 6 June 1990
Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994

H. Taxes

1. Definition
2. Attributes or characteristics
a. Forced charge, imposition or contribution
b. Assessed in accordance with some reasonable rule of apportionment (Sec. 28(a),
Art. VI, Constitution)
c. Pecuniary burden payable in money
d. Imposed by the State on persons, property or services or excises within its
jurisdiction (Principle of Territoriality)
e. Levied by the legislative body of the State
f. Levied for a public purpose
g. Personal to the taxpayer

Cases:

Borja v. Gella, 8 SCRA 602


Vera v. Fernandez, 89 SCRA 199
Republic v. Patanao, 20 SCRA 712
Sunio v. NLRC, 127 SCRA 390
Tan Tiong Bio v. CIR, G.R. No. L-15778, 23 April 1962

3. Distinguished from other impositions


a. Tax v. debt
i. Set-off or compensation
ii. Effect of non-payment

b. Tax v. toll
c. Tax v. license fee
d. Tax v. special assessment
e. Tax v. penalty

Cases:

Republic v. Mambula Lumber Co., 4 SCRA 622


Domingo v. Garlitos, 8 SCRA 443
Francia v. IAC, G.R. No. 76749, 8 June 1988
Terminal Facilities and Services Corp v. Philippine Ports Authority, 378 SCRA 82 (2002)
Cuunjieng v. Patstone, 42 Phil. 818
Philippine Airlines, Inc. v. Edu, G.R. No. L-41383, 15 August 1988
Apostolic Prefect of the Mountain Province v. City Treasurer of Baguio, 71 Phil 547
Esso Standard Eastern, Inc. v. CIR, G.R. Nos. L-28508-09, 7 July 1989
Caltex Phils. v. COA, supra.
Philex Mining Corp v. CIR, G.R. No. 125704, 28 August 1998
4. Classification

a. Personal tax
b. Property tax
c. Direct tax
d. Indirect tax
e. Excise tax
f. General tax
g. Special tax
h. Specific tax
i. Ad valorem tax
j. Customs duties
k. National tax
l. Local tax
m. Progressive tax
n. Regressive tax
o. Proportional tax

Cases:

Silkair (Singapore) PTE, Ltd. v. CIR, G.R. No. 173594, 6 February 2008
Abakada Guro Party List v. Ermita, G.R. No. 168056, 1 September 2005
Commissioner of Internal Revenue v. PLDT, G.R. No. 140230, 15 December 2005

I. Limitations on the Power of Taxation

1. General Rule: Power to tax is unlimited

Power to tax includes the power to destroy.


Power to tax is not the power to destroy while this court sits.

Cases:

Tio v. Videogram Regulatory Board, et al., 151 SCRA 213


Commissioner of Internal Revenue v. Tokyo Shipping Co. Ltd., 244 SCRA 332

2. Inherent Limitations

1. The levy must be for a public purpose


2. Non-delegation of the legislative power to tax
3. Exemption from taxation of government entities
4. International comity
5. Territorial jurisdiction

Cases:

Lutz vs. Araneta, 98 Phil. 148


Gaston vs. Republic Planters Bank, 158 SCRA 626
Iloilo Bottlers, Inc. vs. City of Iloilo, 164 SCRA 607
Garcia vs. Executive Secretary, 211 SCRA 227
Mactan Cebu Intl Airport Authority Case, supra
Planters Products, Inc. v. Fertiphil Corp., supra.
CIR v. Fortune Tobacco Corp., G.R. Nos. 167274-75, 21 July 2008
Commissioner v. British Overseas Airways Corporation, 149 SCRA 395
Santos & Co. v. Municipality of Meycauayan, et al., 94 Phil 1047

3. Constitutional Limitations

3.1. Nature/concept

3.2. Article III, Section 1 Due Process Clause/Equal Protection Clause


3.2.1. Assn of Customs Brokers vs. City of Manila, 93 Phil. 107
3.2.2. Sison vs. Ancheta, 130 SCRA 654
3.2.3. Tolentino vs. Secretary of Finance, 235 SCRA 630; 249 SCRA 628
3.2.4. Tan vs. Del Rosario, 237 SCRA 324
3.2.5. Tolentino vs. Secretary of Finance, 249 SCRA 828
3.2.6. Commissioner vs. Court of Appeals, 261 SCRA 236
3.2.7. Estate of Mercedes Jacob vs. CA, 283 SCRA 474

3.3. Article III, Section 4 Freedom of the Press


3.3.1. Tolentino vs. Secretary of Finance, supra

3.4. Article III, Section 5 Free exercise of religious freedom


3.4.1. American Bible Society vs. City of Manila, 101 Phil. 383
3.4.2. Tolentino vs. Secretary of Finance, supra

3.5. Article III, Section 10 Non-impairment of obligations of contracts


3.5.1. Province of Misamis Oriental vs. Cagayan Electric Power and Light Co., 181
SCRA 38
3.5.2. Tolentino vs. Secretary of Finance, 235 SCRA 630

3.6. Article III, Section 20 Non-imprisonment for non-payment of poll tax

3.7. Article VI, Section 24 Passage of appropriation, revenue, tariff bills


3.7.1. Tolentino vs. Secretary of Finance, supra

3.8. Article VI, Section 28


3.8.1. Rule of Taxation shall be uniform and equitable
(a) Sison vs. Ancheta Case, supra
(b) Matalin Coconut Co. vs. Mun. of Malabang, G.R. No. 28138, 8/13/86
(c) Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas vs. Tan, 163
SCRA 371
(d) CIR vs. Lingayen Gulf Electric Power, 164, SCRA 27
(e) Tolentino vs. Secretary of Finance, supra
(f) Tan vs. Del Rosario, supra
(g) CIR vs. Court of Appeals, 261 SCRA 238

3.8.2. Progressive System of Taxation


(a) Reyes vs. Almanzor, 188 SCRA 322

3.8.3. Power of the President to tax


(a) Garcia vs. The Executive Secretary, 211 SCRA 227

3.8.4. Exemption of charitable institutions, churches from taxation


(a) Abra Valley College, Inc. vs. Aquino, 162 SCRA 106

3.8.5. Power to grant tax exemption (see exemptions, infra)

3.9. Article VI, Section 29


3.9.1. No public money shall be used for the use of any sect/church
3.9.2. Tax levied for special purpose-treated as special fund
(a) Gaston vs. Republic Planters Bank, supra

3.10. Article VII, Section 19 Power of the President to grant amnesty


3.10.1. People vs. Castaeda, 165 SCRA 327
3.10.2. Pascual vs. CIR, 166 SCRA 560

3.11. Article VII, Section 21 Treaty or international agreement

3.12. Article VIII, Section 5(2) (b) Power of the Supreme Court to review, revise, legality of
any tax, imposts, assessment, toll, etc.

3.13. Article X, Section 5 Power of Local Government units to tax


3.13.1. Estanislao vs. Costales, 196 SCRA 853
3.13.2. Basco vs. PAGCOR, 197 SCRA 52
3.13.3. Mactan Cebu Intl Airport Authority Case, supra

3.14. Article X, Section 6 Share of local government units in national taxes

3.15. Article X, Section 20 (2) Power of autonomous region to create its own sources
of revenue

3.16. Article XIV, Section 4 (3) & (4)


(a) Exemption from taxation of non-stock, non-profit educational institutions
Abra Valley College, Inc. vs. Aquino, supra
(b) Extent of exemption of proprietary educational institutions from taxation
(c) Exemption of donation, etc. for educational purposes

3.17. Article XIV, Section 11 Grant of incentives/deductions to basic and applied


scientific research

3.18. Other related constitutional provisions


3.18.1. Article II, Section 2 Adoption of generally accepted principle of
international law (relate to International Comity)
3.18.2. Article II, Section 6 Separation of church and state (refer to free
exercise of religious freedom)
3.18.3. Article III, Section 2 Prohibition against unreasonable search and
seizure (relate to due process)
3.18.4. Article XII, Section 11 Grant of franchise, certificate, conditions
(relate to non-impairment of obligations of contracts)
3.18.5. Article XIII, Section 1 Social Justice Clause (relate to purposes of
power to tax)

Additional Cases:

J.B.L. Reyes v. Almanzor, G.R. Nos. 49839046, 26 April 1991


CIR v. Lingayen Gulf Electric Power Co., Inc., H.R. No. L-23771, 4 August 1988
Philippine Press Institute, et al. v. Chato, G.R. No. 115754, 25 August 1994
Lung Center of the Philippines v. Quezon City, 433 SCRA 119 (2004)
Tolentino v. Secretary of Finance, supra.
Tolentino v. Secretary of Finance, G.R. No. 115455, 30 October 1995
John Hay Peoples Alternative Coalition, et al. v. Lim, G.R. No. 119775, 24 October 2003
Philippine Airlines v. Secretary of Finance, G.R. No. 115873, 25 August 1994
Commissioner v. Court of Appeals, G.R. No. 119761, 30 August 1996
British American Tobacco v. Camacho, G.R. No. 163583, 20 August 2008
People of the Philippines v. Sandiganbayan, G.R. No. 152532, 16 August 2005

J. Taxpayers Suit

Cases:

Jumamil v. Cafe, et al., G.R. No. 144570, 21 September 2005


David, et al. v. Macapagal-Arroyo, G.R. No. 171396, 3 May 2006

K. Double Taxation

A. Definition / Principle
B. Kinds

1. Direct duplicate taxation


2. Indirect duplicate taxation

C. Methods of Avoiding Occurrence of Double Taxation

1. Allowance of reciprocal exemption either by law or by treaty;


2. Allowance of tax credit for foreign taxes paid;

See Sec. 34(3) and (4), Tax Code


Sec. 86(E), Tax Code

3. Allowance of deduction of foreign taxes paid; and


4. Reduction of the Philippine tax rate.

Cases:

Villanueva v. City of Iloilo, 26 SCRA 578 (1968)


Commissioner v. Bank of Commerce, G.R. No. 149636, 8 June 2005
Commissioner v. Hawaiian-Philippine Co., 11 SCRA 256
Commissioner v. S.C. Johnson & Son, Inc., G.R. No. 127105, 25 June 1999
Commissioner v. Citytrust Investment Phils., Inc., G.R. No. 139786, 27 September 2006

K. Exemption from Taxation

Sec. 28(4), Article VI, Constitution


Sec. 4, Article X, Constitution
Sec. 28(2), Article VI, Constitution

Cases:

Lung Center of the Phil. v. Quezon City, G.R. No. 144104, 29 June 2004
Compagnie Financiere Sucres Et Denrees v. CIR, G.R. No. 133834, 28 August 2006
CIR v. P.J. Kiener Co., Ltd., et al., G.R. No. L-24754, 18 July 1975
Maceda v. Macaraig, supra.
Bibiano V. Banas, Jr. v. Court of Appeals, G.R. No. 102967, 10 February 2000
Surigao Consolidated Mining Co., Inc. v. Collector of Customs, 9 SCRA 728
PLDT v. City of Davao, G.R. No. 143867, 25 March 2003
City of Iloilo v. Smart Communications, Inc., G.R. No. 167260, 27 February 2009
Prov. of Tarlac vs. Alcantara, 216 SCRA 790
Maceda vs. Macarain 87 SCRA 771, 223 SCRA 217
CIR vs. Tokyo Shipping Co. Ltd, 244 SCRA 332
Magsaysay Lines Ltd. vs. CA, 260 SCRA 513
NAPOCOR vs. Province of Lanao Del Sur, 264 SCRA 271

L. Tax Laws

A. Nature
B. Sources
C. Construction
D. Power of the Commissioner to Interpret Tax Laws (Sec.4, Tax Code)
E. Prospective Application as a General Rule
F. Publication Requirement
G. Special Laws vs. General Laws

Cases:

Commissioner v. Acesite Hotel Corporation, G.R. No. L-147295, 16 February 2007


CIR v. Marubeni Corp., G.R. No. 137377, 18 December 2001
CIR v. Acosta, G.R. No. 154068, 3 August 2007
Misamis Oriental Association of Coco Traders, Inc. v. Dept of Finance Secretary, et al., G.R. No.
108524, 10 November 1994
Begosa v. Philippine Veterans Administration, G.R. No. L-25916, 30 April 1970
ABS-CBN Broadcasting Corporation v. Court of Tax Appeals and Commissioner, 108 SCRA 142
Dizon v. Court of Tax Appeals, G.R. No. 140944, 30 April 2008

M. Tax Evasion; Tax Avoidance

Cases:

Commissioner v. Toda, Jr., G.R. No. 147188, 14 September 2004


International Exchange Bank v. Commissioner, G.R. No. 171266, 4 April 2007

N. Sources and construction of tax laws

Cases:
Manila Wine Merchant vs. CIR, 127 SCRA 483
Mactan Cebu International Airport Authority Case, supra.

O. Application of tax laws

Cases:
CIR vs. Telefunkan Semiconductor, 249 SCRA 401
CIR vs. Court of Appeals, 267 SCRA 557
P. Injunction

Cases:
Tolentino vs. Secretary of Finance, 235 SCRA 530
Northern Lines vs. Court of Appeals, 163 SCRA 25

Q. Tax Evasion vs. Tax Avoidance

Case:
CIR vs. Javier, 199 SCRA 824

R. Prescription
Right of the State to Collect
Doctrine of Equitable Recoupment

S. Set Off

Cases:
Republic vs. Mambula Lumber Co., 4 SCRA 622
Domingo vs. Garlitos, 8 SCRA 443
Francia vs. IAC, 162 SCRA 753
Caltex vs. COA, 208 SCRA 726

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