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Tax 1 IV-E Digests (Partial) VAT input taxes subject of this Petition for Review), was filed on 4 October

1999 with Revenue District Office No. 83, Talisay Cebu but this was not acted
June 26 Session upon by the petitioner.

ISSUES: WoN respondent is exempt from tax

III.C. ADMINISTRATIVE ISSUANCES RULING: YES. Respondent as an entity is exempt from internal revenue laws
and regulations.
Tan vs. Del Rosario This exemption covers both direct and indirect taxes, stemming from the very
nature of the VAT as a tax on consumption, for which the direct liability is
FACTS: The constitutionality of the Simplified Net Income Taxation Scheme or
imposed on one person but the indirect burden is passed on to another.
R.A. 7496 is questioned in this petition, a consolidation of two special civil
Respondent, as an exempt entity, can neither be directly charged for the VAT
actions for prohibition.
on its sales nor indirectly made to bear, as added cost to such sales, the
equivalent VAT on its purchases.
Issue 1: WoN R.A. 7496 is unconstitutional for violating the principle that
taxation shall be uniform and equitable
Respondent, which as an entity is exempt, is different from its transactions
Ruling 1: NO. Uniformity of taxation, like the kindred concept of equal
which are not exempt. The end result, however, is that it is not subject to the
protection, merely requires that all subjects or objects of taxation, similarly
VAT. The non-taxability of transactions that are otherwise taxable is merely a
situated, are to be treated alike both in privileges and liabilities. Uniformity
necessary incident to the tax exemption conferred by law upon it as an entity,
does not forefend classification as long as: (1) the standards that are used
not upon the transactions themselves. Nonetheless, its exemption as an entity
therefor are substantial and not arbitrary, (2) the categorization is germane to
and the non-exemption of its transactions lead to the same result for the
achieve the legislative purpose, (3) the law applies, all things being equal, to
following considerations:
both present and future conditions, and (4) the classification applies equally
well to all those belonging to the same class.
The BIR regulations additionally requiring an approved prior application for
effective zero rating cannot prevail over the clear VAT nature of respondent's
Issue 2: WoN public respondents exceeded their authority when they
transactions. The scope of such regulations is not within the statutory
promulgated Section 6, Revenue Regulations No. 2-93 to carry our R.A. 7496
authority x x x granted by the legislature. A mere administrative issuance, like
Ruling 2: NO. Section 6 of Revenue Regulation No. 2-93 did not alter, but
a BIR regulation, cannot amend the law; the former cannot purport to do any
merely confirmed, the above standing rule as now so modified by Republic Act
more than interpret the latter. The courts will not countenance one that
No. 7496 on basically the extent of allowable deductions applicable to all
overrides the statute it seeks to apply and implement.
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 CIR v. Burroughs Ltd.
treatment of professionals who practice their respective professions
individually and of those who do it through a general professional partnership. FACTS: Petitioner contends that respondent is no longer entitled to a refund
because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked
and/or repealed the BIR ruling of January 21, 1980.
CIR vs. Seagate Technology Considering that the 15% branch profit remittance tax is imposed and
collected at source, necessarily the tax base should be the amount actually
FACTS: Seagate Technology is a VAT -registered entity as evidenced by VAT
applied for by the branch with the Central Bank of the Philippines as profit to
Registration Certification No. 97-083-000600-V issued on 2 April 1997. It was
be remitted abroad.
able to file VAT returns for the period 1 April 1998 to 30 June 1999. Thereafter,
aAn administrative claim for refund of VAT input taxes in the amount of
RULING: Petitioner's aforesaid contention is without merit. What is applicable
P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04

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in the case at bar is still the Revenue Ruling of January 21, 1980 because On 11 January 1978, however, Plana granted the corporations claim for
private respondent Burroughs Limited paid the branch profit remittance tax in refund or credit pertaining to the importation made 18 April 1975. The
question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, Corporation protested the tax assessment of 8 May 1978, which was denied
1982 cannot be given retroactive effect in the light of Section 327 of the by the Commissioner.
National Internal Revenue Code which provides-
RULING: We believe that the letter of Commissioner Plana dated January 11,
Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal 1978 did not in any way revoke his ruling dated January 28,1977 which ruling
of any of the rules and regulations promulgated in accordance with the applied the specific tax to wax (without distinction). The reason he removed in
preceding section or any of the rulings or circulars promulgated by the 1978 private respondent's liability for the specific tax was NOT (as
Commissioner shag not be given retroactive application if the revocation, erroneously pointed out by the Court of Tax Appeals) because he wanted to
modification, or reversal will be prejudicial to the taxpayer except in the revoke, expressly or implicitly, his ruling of January 28, 1977 but because the
following cases (a) where the taxpayer deliberately misstates or omits material P321,436.79 tax referred to importation BEFORE January 28, 1977 and
facts from his return or in any document required of him by the Bureau of hence still covered by the ruling of Commissioner Vera, and not by the
Internal Revenue; (b) where the facts subsequently gathered by the Bureau of January 28,1977 ruling of Commissioner Plana.
Internal Revenue are materially different from the facts on which the ruling is
based, or (c) where the taxpayer acted in bad faith. (In simple terms, RULING > Letter)

The prejudice that would result to private respondent Burroughs Limited by a PBCom v. CIR
retroactive application of Memorandum Circular No. 8-82 is beyond question
for it would be deprived of the substantial amount of P172,058.90. And, RULING: When the Acting Commissioner of Internal Revenue issued RMC 7-
insofar as the enumerated exceptions are concerned, admittedly, Burroughs 85, changing the prescriptive period of two years to ten years on claims of
Limited does not fall under any of them. excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the
CIR v. Mega General Merchandising BIR did not simply interpret the law; rather it legislated guidelines contrary to
the statute passed by Congress.
FACTS: On April 22, 1975, the respondent corporation wrote the
Commissioner of Internal Revenue for clarification as to whether imported It bears repeating that Revenue memorandum-circulars are considered
crude paraffin wax is subject to specific tax under the Tax Code. administrative rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the
Former Commissioner Misael P. Vera in his reply to said that it essentially Commissioner of Internal Revenue. It is widely accepted that the
certain kinds of wax (not including paraffin) was subject. interpretation placed upon a statute by the executive officers, whose duty is to
enforce it, is entitled to great respect by the courts. Nevertheless, such
Respondent corporation in a letter, dated November 27, 1975, requested for a interpretation is not conclusive and will be ignored if judicially found to be
refund or tax credit of the amount of P321,436.79 representing the difference erroneous. Thus, courts will not countenance administrative issuances that
between the amount paid as specific tax and the 7% advance sales tax. override, instead of remaining consistent and in harmony with, the law they
seek to apply and implement.
Since the law (Section 142(i) of the Tax Code, amended by P.D. No. 392)
does not make any distinction as to the kind of wax subject to specific tax, In the case of People vs. Lim, it was held that rules and regulations issued by
then Acting Commissioner of Internal Revenue Efren I. Plana, on January 28, administrative officials to implement a law cannot go beyond the terms and
1977 denied respondent Corporation's claim for refund or tax credit of the provisions of the latter.
amount of P321,436,79. On this ruling, respondent corporation filed a request Article 8 of the Civil Code recognizes judicial decisions, applying or
for reconsideration. This was denied by petitioner. interpreting statutes as part of the legal system of the country. But
administrative decisions do not enjoy that level of recognition. A

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memorandum-circular of a bureau head could not operate to vest a taxpayer Hagonoy to fix and collect public market stall rentals. Being its lifeblood,
with a shield against judicial action. For there are no vested rights to speak of collection of revenues by the government is of paramount importance. The
respecting a wrong construction of the law by the administrative officials and funds for the operation of its agencies and provision of basic services to its
such wrong interpretation could not place the Government in estoppel to inhabitants are largely derived from its revenues and collections. Thus, it is
correct or overrule the same. Moreover, the non-retroactivity of rulings by the essential that the validity of revenue measures is not left uncertain for a
Commissioner of Internal Revenue is not applicable in this case because the considerable length of time. Hence, the law provided a time limit for an
nullity of RMC No. 7-85 was declared by respondent courts and not by the aggrieved party to assail the legality of revenue measures and tax ordinances.
Commissioner of Internal Revenue.
Jardine Davies v. Aliposa
III.D. TAX/REVENUE ORDINANCES
FACTS: Jardine Davies and the Philippine Racing Club questioned the validity
Hagonoy Market Vendors vs. Municipality of Hagonoy of Municipal Ordinance No. 92-072, or the Makati Revenue Code. Under the
ordinance, the companies were assessed with real property tax, franchise tax,
FACTS: Oct. 6, 1996 Sangguniang Bayan of Hagonoy, Bulacan enacted and others in violation of the non-impairment clause, the Local Government
Ordinance 28, increasing the stall rentals (as taxes) of market vendors in Code, and the Philippine Racing Club's legislative franchise.
Hagonoy. The Ordinance was also posted for 3 weeks in November 1996.
December 8, 1997, a year after, Hagonoy Market Vendor Association thru ISSUES: WoN the Makati Revenue Code is valid.
their President filed an appeal with the Secretary of Justice assailing the
constitutionality of the tax ordinance. RULING: Yes. Sec. 187 of the Local Government Code requires that the
dissatisfied taxpayer who questions the validity or legality of a tax ordinance
Municipality of Hagonoy opposed: The Ordinance took effect October 6, 1996, must file his appeal to the Secretary of Justice, within 30 days from effectivity
after posting it as required by law. Secretary of Justice dismissed appeal for thereof. In case the Secretary decides the appeal, a period also of 30 days is
lapse of time. It cited Tanada v. Tuvera where it held that the date of effectivity allowed for an aggrieved party to go to court. But if the Secretary does not act
of the subject ordinance retroacted to the date of its approval (on October 6, thereon, after the lapse of 60 days, a party could already proceed to seek
1996), after the required publiction or posting has been complied with. relief in court. These three separate periods are clearly given for compliance
as a prerequisite before seeking redress in a competent court. Such statutory
CA dismissed Petition for Review of petitioner. Hence this appeal. periods are set to prevent delays as well as enhance the orderly and speedy
discharge of judicial functions. For this reason the courts construe these
ISSUES: WoN Petition should be dismissed as the appeal of Petitioner with provisions of statutes as mandatory.
Secretary of Justice is already time-barred.
A municipal tax ordinance empowers a local government unit to impose taxes.
RULING: Yes. The time-frame fixed by law is mandatory. Section 187, of the The power to tax is the most effective instrument to raise needed revenues to
1991 Local Government Code expressly states that any question on the finance and support the myriad activities of local government units for the
constitutionality or legality of tax ordinances or revenue measures may be delivery of basic services essential to the promotion of the general welfare
raised on appeal within thirty (30) days from the effectivity thereof to the and enhancement of peace, progress, and prosperity of the people.
Secretary of Justice. Consequently, any delay in implementing tax measures would be to the
detriment of the public. It is for this reason that protests over tax ordinances
The Mun. Ordinance took effect Oct. 1996 are required to be done within certain time frames. In the instant case, it is our
Appeal was made Dec. 1997 view that the failure of petitioners to appeal to the Secretary of Justice within
More than a year after its effectivity had elapsed, therefore Secretary of 30 days as required by the Local Government Code is fatal to their cause.
Justice is correct to dismiss the appeal.
IV1.A. PUBLIC PURPOSES
Ordinance No. 28 is a revenue measure adopted by the municipality of

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Pascual vs. Secretary of Public Works and Communications
ISSUES: WoN the Province of Laguna has the power to impose franchise tax
FACTS: RA 920 (Act appropriating funds for public works) was enacted in on MERALCO
1953 containing an item (Section 1 c[a]) for the construction, reconstruction,
repair, extension and improvement of Pasig feeder road terminals (the RULING: YES. Local governments do not have the inherent power to tax
projected and planned subdivision roads, which were not yet constructed, except to the extent that such power might be delegated to them either by the
within Antonio Subdivision owned by Senator Jose C. Zulueta). Zulueta basic law or by statute. Presently, under Article X of the 1987 Constitution, a
donated said parcels of land to the Government 5 months after the general delegation of that power has been given in favor of local government
enactment of RA 920, on the condition that if the Government violates such units.
condition the lands would revert to Zulueta. The provincial governor of Rizal,
Wenceslao Pascual, questioned the validity of the donation and the Under the now prevailing Constitution, where there is neither a grant nor a
Constitutionality of the item in RA 920, it being not for a public purpose. prohibition by statute, the tax power must be deemed to exist although
Congress may provide statutory limitations and guidelines. The basic
ISSUES: Whether the item in the appropriation is valid. rationale for the current rule is to safeguard the viability and self-sufficiency of
local government units by directly granting them general and broad tax
RULING: No. The right of the legislature to appropriate funds is correlative powers. Nevertheless, the fundamental law did not intend the delegation to
with its right to tax, under constitutional provisions against taxation except for be absolute and unconditional; the constitutional objective obviously is to
public purposes and prohibiting the collection of a tax for one purpose and the ensure that, while the local government units are being strengthened and
devotion thereof to another purpose, no appropriation of state funds can be made more autonomous, the legislature must still see to it that (a) the
made for other than a public purpose. The validity of a statute depends upon taxpayer will not be over-burdened or saddled with multiple and unreasonable
the powers of Congress at the time of its passage or approval, not upon impositions; (b) each local government unit will have its fair share of available
events occupying, or acts performed, subsequently thereto, unless the latter resources; (c) the resources of the national government will not be unduly
consist of an amendment of the organic law, removing, with retrospective disturbed; and (d) local taxation will be fair, uniform, and just.
operation, the constitutional limitation infringed by said statute. Herein,
inasmuch as the land on which the projected feeder roads were to be The 1991 Local Government Code explicitly authorizes provincial
constructed belonged to Senator Zulueta at the time RA 920 was passed by governments, notwithstanding any exemption granted by any law or other
Congress, or approved by the President, and the disbursement of said sum special law, to impose a tax on businesses enjoying a franchise.
became effective on 20 June 1953 pursuant to Section 13 of the Act, the
result is that the appropriating sough a private purpose and hence, null and Pepsi-Cola Co. v. City of Butuan
void.
RULING: The Ordinance is discriminatory since only sales by agents or
IV1.B. DELEGATION OF TAXATION POWER consignees of outside dealers would be subject to the tax. Sales by local
dealers, not acting for or on behalf of other merchants, regardless of the
volume of their sales , and even if the same exceeded those made by said
Meralco vs. Province of Laguna agents or consignees of producers or merchants established outside the city,
would be exempt from the tax. Even however, if the burden in question were
FACTS: The Province of Laguna assessed Meralco for franchise tax. Meralco regarded as a tax on the sale of said beverages, it would still be invalid, as
paid the taxes under protest. A formal claim for refund was thereafter sent by discriminatory, and hence, violative of the uniformity required by the
MERALCO to the Provincial Treasurer of Laguna claiming that the franchise Constitution and the law therefor, since only sales by "agents or consignees"
tax it had paid and continued to pay to the National Government pursuant to of outside dealers would be subject to the tax. Sales by local dealers, not
P.D. 551 already included the franchise tax imposed by the Provincial Tax acting for or on behalf of other merchants, regardless of the volume of their
Ordinance. MERALCO contended that the imposition of a franchise tax under sales, and even if the same exceeded those made by said agents or
Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it consignees of producers or merchants established outside the City of Butuan,
concerned MERALCO, contravened the provisions of Section 1 of P.D. 551

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would be exempt from the disputed tax. to the officers charged with implementation and execution thereof nothing
more than the administrative function of determining whether a particular kind
It is true that the uniformity essential to the valid exercise of the power of of wine or imitation wine falls in one class or another.
taxation does not require identity or equality under all circumstances, or
negate the authority to classify the objects of taxation. The classification made City Government of Quezon City v. BayanTel
in the exercise of this authority, to be valid, must, however, be reasonable and
this requirement is not deemed satisfied unless: (1) it is based upon
substantial distinctions which make real differences; (2) these are germane to RULING: The tax imposed under Ordinance No. 5 is an excise tax. It is a tax
the purpose of the legislation or ordinance; (3) the classification applies, not on the privilege of distributing, manufacturing or bottling softdrinks. Being an
only to present conditions, but, also, to future conditions substantially identical excise tax, it can be levied by the taxing authority only when the acts,
to those of the present; and (4) the classification applies equally all those who privileges or businesses are done or performed within the jurisdiction of said
belong to the same class. authority [Commissioner of Internal Revenue v. British Overseas Airways
Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30, 1987, 149 SCRA
These conditions are not fully met by the ordinance in question. Indeed, if its 395, 410.] Specifically, the situs of the act of distributing, bottling or
purpose were merely to levy a burden upon the sale of soft drinks or manufacturing softdrinks must be within city limits, before an entity engaged in
carbonated beverages, there is no reason why sales thereof by sealers other any of the activities may be taxed in Iloilo City.
than agents or consignees of producers or merchants established outside the
City of Butuan should be exempt from the tax. As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus,
We have no option but to declare the company liable under the tax ordinance.
Smith Bell & Co. v. CIR
Garcia v. Executive Secretary
FACTS: The petitioner imported 119 cases of "Chatteau Gay" wine which it
declared as "still wine" under Section 134(b)of the Tax Code. The CIR later FACTS: The President issued an EO which imposed, across the board,
concluded that it should be classified as "sparkling wine", and assessed the including crude oil and other oil products, additional duty ad valorem. The
petitioner a deficiency specific tax thereon. Petitioner contends that the Tariff Commission held public hearings on said EO and submitted a report to
assessment is unconstitutional because Section 134(a) of the Tax Code under the President for consideration and appropriate action. The President, on the
which it was issued lays down an insufficient and hazy standard by which the other hand issued an EO which levied a special duty of P0.95 per liter of
policy and purpose of the law may be ascertained, and gives the imported crude oil and P1.00 per liter of imported oil products.
Commissioner blanket authority to decide what is or is not the meaning of
"sparkling wines." Petitioner contends that there was an abdication of ISSUES: WoN the President may issue an EO which is tantamount to
legislative power violative of the established doctrine, delegata potestas non enacting a bill in the nature of revenue-generating measures
potest delegate.
RULING: Yes. The Court said that although the enactment of appropriation,
ISSUES: WoN there was an abdication of legislative power in violation of the revenue and tariff bills is within the province of the Legislative, it does not
established doctrine, delegata potestas non potest delegate. follow that EO in question, assuming they may be characterized as revenue
measure are prohibited to the President, that they must be enacted instead by
RULING: NO. The purpose of the said provision is to impose a specific tax on Congress. Section 28 of Article VI of the 1987 Constitution provides: The
wines and imitation wines. The first clause of Section 134 states so in plain Congress may, by law authorize the President to fix tariff rates and other
language. The sole object of the sub-enumeration that follows is in turn duties or imposts
unmistakably to prescribe the amount of the tax specifically to be paid for
each type of wine and/or imitation wine so classified and described. The The relevant Congressional statute is the Tariff and Customs Code of the
section therefore clearly and undoubtedly discloses the legislative will, leaving Philippines and Sections 104 and 401, the pertinent provisions thereof.

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Revenue Memorandum Circular (RMC) 37-93, which stated that the 55% tax
Osmena v. Orbos shall also cover foreign brands as listed in the WTD. On this basis, the CIR
assessed Fortune Tobacco with 9 million pesos in deficiency taxes.
FACTS: Senators Osmena, Pimentel and Biazon questioned the legality of
the Oil Price Stabilization Fund (OPSF). ISSUES: WoN RMC 37-93 is valid.

ISSUES: WoN there was an undue delegation of legislative power. RULING: No. It should be understandable that when an administrative rule is
merely interpretative in nature, its applicability needs nothing further than its
bare issuance for it gives no real consequence more than what the law itself
RULING: No. For a valid delegation of power, it is essential that the law has already prescribed.
delegating the power must be (1) complete in itself, that it must set forth the
policy to be executed by the delegate and (2) it must fix a standard -- limits of
which are sufficiently determinate or determinable -- to which the delegate When, upon the other hand, the administrative rule goes beyond merely
must conform. The standard may even be implied. providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially adds to or increases the burden of
those governed, it behooves the agency to accord at least to those directly
PD 1956, Sec. 8(c) expressly authorizes the ERB to impose additional affected a chance to be heard, and thereafter to be duly informed, before that
amounts to augment the resources of the Fund. Although the provision new issuance is given the force and effect of law.
authorizing the ERB to impose additional amounts could be construed to refer
to the power of taxation, it cannot be overlooked that the overriding
consideration is to enable the delegate to act with expediency in carrying out RMC 37-93 in fact reclassified the brands, when before its effectivity, at the
the objectives of the law which are embraced by the police power of the State. time of RA 7654's passage, the brands were not covered by the 55% tax.
Clearly, RMC 37-93 is not merely interpretative in nature, but one issued by
the CIR in its quasi-legislative power. The due observance of the requirements
The interplay and constant fluctuation of the various factors involved in the of notice, of hearing, and of publication should not have been then ignored.
determination of the price of oil and petroleum products, and the frequently
shifting need to either augment or exhaust the Fund, do not conveniently
permit the setting of fixed or rigid parameters in the law as proposed by the IV1.C. EXEMPTION OF GOVERNMENT AGENCIES
petitioner. To do so would render the ERB unable to respond effectively so as
to mitigate or avoid the undesirable consequences of such fluidity. As such, Maceda vs. Macaraig
the standard as it is expressed, suffices to guide the delegate in the exercise
of the delegated power, taking into account of the circumstances under which FACTS: Commonwealth Act 120 created NAPOCOR as a public corporation
it is to be executed. to undertake the development of hydraulic power and the production of power
from other sources. RA 358 (1949) granted NAPOCOR tax and duty
exemption privileges. RA 6395 (1971) revised the charter of the NAPOCOR,
CIR v. CA & Fortune Tobacco Corp. tasking it to carry out the policy of the national electrification, and provided in
detail NAPOCORs tax exceptions. PD 380 (1974) specified that NAPOCORs
FACTS: Fortune Tobacco Corp. manufactured three foreign brands of exemption includes all taxes, etc. imposed directly or indirectly. PD 938
cigarettes as listed in the World Tobacco Directory (WTD): Hope, More, and integrated the exemptions in favor of GOCCs including their subsidiaries;
Champion. To avoid taxes, Fortune Tobacco changed the names of the however, empowering the President or the Minister of Finance, upon
brands into "Hope Luxury" and "Premium More." The BIR then classified them recommendation of the Fiscal Incentives Review Board (FIRB) to restore,
as local brands and thus assessed them a 45% ad valorem tax. partially or completely, the exemptions withdrawn or revised. The FIRB issued
Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions
RA 7654 was passed, imposing a 55% tax on cigarette brands currently privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-
assessed at the same rate. The CIR, without notice and publication, issued 86 (1January 1986) restored such exemption indefinitely effective 1 July 1985.

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EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87
(24 June 1987) restoring NAPOCORs exemption, which was approved by the ISSUES: Won the Collector of Internal Revenue was justified in withholding
President on 5 October 1987. income taxes on interest on bonds and other indebtedness paid to non-
resident corporations
Since 1976, oil firms never paid excise or specific and ad valorem taxes for
petroleum products sold and delivered to NAPOCOR. Oil companies started RULING: YES. The approved doctrine is that no state may tax anything not
to pay specific and ad valorem taxes on their sales of oil products to within its jurisdiction without violating the due process clause of the
NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58 million). constitution. The taxing power of a state does not extend beyond its territorial
Only portion thereof, corresponding to Caltex, was approved and released by limits, but within such it may tax persons, property, income, or business. If an
way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, interest in property is taxed, the situs of either the property or interest must be
Shell and Caltex amounting to P410.58 million was denied. NAPOCOR found within the state. If an income is taxed, the recipient thereof must have a
moved for reconsideration, starting that all deliveries of petroleum products to domicile within the state or the property or business out of which the income
NAPOCOR are tax exempt, regardless of the period of delivery. issues must be situated within the state so that the income may be said to
have a situs therein. Personal property may be separated from its owner, and
ISSUES: Whether NAPOCOR cease to enjoy exemption from indirect tax he may be taxed on its account at the place where the property is although it
when PD 938 stated the exemption in general terms. is not the place of his own domicile and even though he is not a citizen or
resident of the state which imposes the tax. But debts owing by corporations
RULING: NAPOCOR is a non-profit public corporation created for the general are obligations of the debtors, and only possess value in the hands of the
good and welfare, and wholly owned by the government of the Republic of the creditors.
Philippines. From the very beginning of the corporations existence,
NAPOCOR enjoyed preferential tax treatment to enable the corporation to The Manila Gas Corporation operates its business entirely within the
pay the indebtness and obligation and effective implementation of the policy Philippines. Its earnings, therefore come from local sources. The place of
enunciated in Section 1 of RA 6395. From the preamble of PD 938, it is material delivery of the interest to the foreign corporations paid out of the
evident that the provisions of PD 938 were not intended to be strictly revenue of the domestic corporation is of no particular moment. The place of
construed against NAPOCOR. On the contrary, the law mandates that it payment even if conceded to be outside of the country cannot alter the fact
should be interpreted liberally so as to enhance the tax exempt status of that the income was derived from the Philippines. The word "source" conveys
NAPOCOR. It is recognized principle that the rule on strict interpretation does only one idea, that of origin, and the origin of the income was the Philippines.
not apply in the case of exemptions in favor of government political The Collector of Internal Revenue was justified in withholding income taxes on
subdivision or instrumentality. In the case of property owned by the state or a interest on bonds and other indebtedness paid to non-resident corporations
city or other public corporations, the express exception should not be because this income was received from sources within the Philippine Islands
construed with the same degree of strictness that applies to exemptions as authorized by the Income Tax Law.
contrary to the policy of the state, since as to such property exception is the
rule and taxation the exception. Vegetable Oil Corp. v. Trinidad
IV1.D. TERRITORIALITY OR SITUS OF TAXATION RULING: If the tax were one on sales, we would readily agree that the sales,
in order to be taxable in the Philippine Islands, must be consummated there;
Manila Gas vs. Collector the Philippine Government cannot, of course, collect privilege taxes on sales
taking place in foreign countries no matter whether the vendor is a Philippine
FACTS: This is an action brought by the Manila Gas Corporation against the merchant or whether he is a foreign one. Neither can the Government impose
Collector of Internal Revenue for the recovery of P56,757.37, which the such taxes on consignments from one foreign port to another. But, with the
plaintiff was required by the defendant to deduct and withhold from the various approval of Congress, it may legally levy taxes on consignments from
sums paid it to foreign corporations as dividends and interest on bonds and Philippine ports. That is what has been done in the present instance. It has
other indebtedness and which the plaintiff paid under protest. imposed the tax on local transactions; it does not seek to tax transactions

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carried out abroad. But when a foreign merchant, as the word "merchant" is
defined in our statutes, comes to our shores and enters into transactions upon ISSUES: WoN the Philippine Government can tax the shares
which a tax is laid, the Government can, and does, place him on an equality
with domestic merchants and requires him to pay the same privilege taxes. RULING: Yes. In the instant case, the actual situs of the shares of stock is in
the Philippines, the corporation being domiciled therein. And besides, the
It is not disputed that the Legislature has the power to define the class of certificates of stock have remained in this country up to the time when the
persons who must pay certain local taxes; in fact, the appellee's argument deceased died in California, and they were in possession of one Syrena
rests precisely on such a statutory definition. Neither can it be questioned that McKee, secretary of the Benguet Consolidated Mining Company, to whom
the Government may impose taxes on local business transacted by they have been delivered and indorsed in blank. This indorsement gave
foreigners. In the absence of words of limitation or exemption in the statute, Syrena McKee the right to vote the certificates at the general meetings of the
why must we then assume that, in defining the word "merchants," the class of stockholders, to collect dividends, and dispose of the shares in the manner
persons required to pay consignment taxes, the definition applies only to she may deem fit, without prejudice to her liability to the owner for violation of
domestic and not to foreign merchants? instructions. For all practical purposes, then, Syrena McKee had the legal title
to the certificates of stock held in trust for the true owner thereof. In other
Perhaps it will be argued that a statutory definition is only of local application words, the owner residing in California has extended here her activities with
and is of no legal effect beyond the boundaries of the country in which the respect to her intangibles so as to avail herself of the protection and benefit of
statute is enacted. That is true, but has nothing to do with the present case. the Philippine laws. Accordingly, the jurisdiction of the Philippine Government
We are not here applying the definition in relation to the collection of a foreign to tax must be upheld.
tax; we are considering it in connection with the tax on a local transaction.
To hold that only persons who engage in sales, barter or exchange in the CIR v. BOAC (British Overseas Airways Corporation)
Philippine Islands are to pay the tax on consignments would place the local
merchants at a serious disadvantage in competition with the foreign
merchants, and would defeat the very evident purpose of the tax. The FACTS: BOAC is a 100% British Government-owned corporation organized
language of the statute is perfectly clear and places the burden of the tax on and existing under the laws of the United Kingdom It is engaged in the
all merchants alike. Are we then justified in exempting some of the merchants international airline business and is a member-signatory of the Interline Air
by reading non-existent provisions into the statute which would defeat its Transport Association (IATA). As such it operates air transportation service
unmistakable intent and seriously handicap the local merchants, in some and sells transportation tickets over the routes of the other airline members.
cases, perhaps, driving them out of business? We submit that to do so would During the periods covered by the disputed assessments, it is admitted that
violate every canon of statutory construction and would clearly amount to BOAC had no landing rights for traffic purposes in the Philippines, and was
unwarranted judicial legislation. not granted a Certificate of public convenience and necessity to operate in the
Philippines by the Civil Aeronautics Board (CAB), except for a nine-month
period, partly in 1961 and partly in 1962, when it was granted a temporary
Wells Fargo Bank vs. The Collector of Internal Revenue landing permit by the CAB. Consequently, it did not carry passengers and/or
cargo to or from the Philippines, although during the period covered by the
FACTS: Birdie Lillian Eye died in California. she left her one-half conjugal assessments, it maintained a general sales agent in the Philippines Warner
share in 70,000 shares of stock in the Benguet Consolidated Mining Barnes and Company, Ltd., and later Qantas Airways which was responsible
Company, an anonymous partnership, organized and existing under the laws for selling BOAC tickets covering passengers and cargoes.
of the Philippines. She left a will which was duly admitted to probate in
California where her estate was administered and settled. Wells Fargo Bank &
Union Trust Company was duly appointed trustee of the created by the said Petitioner Commissioner of Internal Revenue assessed BOAC the for
will. The Federal and State of California's inheritance taxes due on said deficiency income taxes covering the years 1959 to 1963. This was protested
shares have been duly paid. Respondent Collector of Internal Revenue by BOAC. Subsequent investigation resulted in the issuance of a new
sought to subject anew the aforesaid shares of stock to the Philippine assessment, for the years 1959 to 1967. BOAC paid this new assessment
inheritance tax, to which petitioner-appellant objected. under protest. BOAC filed a claim for refund which was denied by the CIR.

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a general sales agent in the Philippines, That general sales agent, from 1959
BOAC was assessed deficiency income taxes, interests, and penalty for the to 1971, "was engaged in (1) selling and issuing tickets; (2) breaking down the
fiscal years 1968-1969 to 1970-1971 and the additional amounts of P1,000.00 whole trip into series of trips each trip in the series corresponding to a different
and P1,800.00 as compromise penalties for violation of Section 46 (requiring airline company; (3) receiving the fare from the whole trip; and (4)
the filing of corporation returns). BOAC requested that the assessment be consequently allocating to the various airline companies on the basis of their
countermanded and set aside. CIR not only denied the BOAC request for participation in the services rendered through the mode of interline settlement
refund in the First Case but also re-issued in the Second Case the deficiency as prescribed by Article VI of the Resolution No. 850 of the IATA Agreement."
income tax assessment in the second case. Those activities were in exercise of the functions which are normally incident
to, and are in progressive pursuit of, the purpose and object of its organization
Case was then jointly tried. the Tax Court rendered the assailed joint Decision as an international air carrier. In fact, the regular sale of tickets, its main
reversing the CIR. The Tax Court held that the proceeds of sales of BOAC activity, is the very lifeblood of the airline business, the generation of sales
passage tickets in the Philippines by Warner Barnes and Company, Ltd., and being the paramount objective. There should be no doubt then that BOAC
later by Qantas Airways, during the period in question, do not constitute was "engaged in" business in the Philippines through a local agent during the
BOAC income from Philippine sources "since no service of carriage of period covered by the assessments. Accordingly, it is a resident foreign
passengers or freight was performed by BOAC within the Philippines" and, corporation subject to tax upon its total net income received in the preceding
therefore, said income is not subject to Philippine income tax. The CTA taxable year from all sources within the Philippines.
position was that income from transportation is income from services so that
the place where services are rendered determines the source. Thus, in the The Tax Code defines "gross income" thus: "Gross income" includes gains,
dispositive portion of its Decision, the Tax Court ordered petitioner to credit profits, and income derived from salaries, wages or compensation for
BOAC with the sum of P858,307.79, and to cancel the deficiency income tax personal service of whatever kind and in whatever form paid, or from
assessments against BOAC in the amount of P534,132.08 for the fiscal years profession, vocations, trades, business, commerce, sales, or dealings in
1968-69 to 1970-71. property, whether real or personal, growing out of the ownership or use of or
interest in such property; also from interests, rents, dividends, securities, or
Hence, this Petition for Review on certiorari of the Decision of the Tax Court. the transactions of any business carried on for gain or profile, or gains, profits,
and income derived from any source whatever (Sec. 29[3]).
ISSUES: Whether or not the revenue derived by private respondent British
Overseas Airways Corporation (BOAC) from sales of tickets in the Philippines Income means "cash received or its equivalent"; it is the amount of money
for air transportation, while having no landing rights here, constitute income of coming to a person within a specific time; it means something distinct from
BOAC from Philippine sources, and, accordingly, taxable. principal or capital. For, while capital is a fund, income is a flow. As used in our
income tax law, "income" refers to the flow of wealth.
RULING: Yes. It is our considered opinion that BOAC is a resident foreign
corporation. There is no specific criterion as to what constitutes "doing" or The source of an income is the property, activity or service that produced the
"engaging in" or "transacting" business. Each case must be judged in the light income. For the source of income to be considered as coming from the
of its peculiar environmental circumstances. The term implies a continuity of Philippines, it is sufficient that the income is derived from activity within the
commercial dealings and arrangements, and contemplates, to that extent, the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity
performance of acts or works or the exercise of some of the functions that produces the income. The tickets exchanged hands here and payments
normally incident to, and in progressive prosecution of commercial gain or for for fares were also made here in Philippine currency. The site of the source of
the purpose and object of the business organization. "In order that a foreign payments is the Philippines. The flow of wealth proceeded from, and occurred
corporation may be regarded as doing business within a State, there must be within, Philippine territory, enjoying the protection accorded by the Philippine
continuity of conduct and intention to establish a continuous business, such as government. In consideration of such protection, the flow of wealth should
the appointment of a local agent, and not one of a temporary character. share the burden of supporting the government.
BOAC, during the periods covered by the subject - assessments, maintained
A transportation ticket is not a mere piece of paper. When issued by a

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common carrier, it constitutes the contract between the ticket-holder and the loophole in the law.
carrier. It gives rise to the obligation of the purchaser of the ticket to pay the
fare and the corresponding obligation of the carrier to transport the passenger ISSUES: WoN the DST may be levied on documents executed abroad.
upon the terms and conditions set forth thereon. The ordinary ticket issued to
members of the traveling public in general embraces within its terms all the RULING: No. The power to levy an excise upon the performance of an act or
elements to constitute it a valid contract, binding upon the parties entering into the engaging in an occupation does not depend upon the domicile of the
the relationship. person subject to the excise, nor upon the physical location of the property
and in connection with the act or occupation taxed, but depends upon the
True, Section 37(a) of the Tax Code, which enumerates items of gross income place in which the act is performed or occupation engaged in. Thus, the
from sources within the Philippines, namely: (1) interest, (21) dividends, (3) gauge for taxability does not depend on the location of the office, but attaches
service, (4) rentals and royalties, (5) sale of real property, and (6) sale of upon the place where the respective transaction(s) is perfected and
personal property, does not mention income from the sale of tickets for consummated.
international transportation. However, that does not render it less an income
from sources within the Philippines. Section 37, by its language, does not Thus, inasmuch as the MTI was executed and signed in Hong Kong prior to
intend the enumeration to be exclusive. It merely directs that the types of the effectivity of RA 7660 on January 14, 1994, no DST is imposable on the
income listed therein be treated as income from sources within the same in the Philippines. This conclusion is also in keeping with one of the
Philippines. A cursory reading of the section will show that it does not state inherent limitations of taxation, namely, that it may be exercised only within
that it is an all-inclusive enumeration, and that no other kind of income may be the territorial jurisdiction of the taxing authority.
so considered.
Prescinding from the above, this Court sees Sec. 173 of the Tax Code, as
The absence of flight operations to and from the Philippines is not amended by RA 7660, as imposing DST, not directly anymore upon the act or
determinative of the source of income or the site of income taxation. privilege of transacting documents, instruments, papers and loan agreements
Admittedly, BOAC was an off-line international airline at the time pertinent to per se, but rather on the act or privilege of simply transacting on any
this case. The test of taxability is the "source"; and the source of an income is obligation or right arising from Philippine sources, or on any property situated
that activity ... which produced the income. Unquestionably, the passage in the Philippines. Unlike before the amendment where the execution of the
documentations in these cases were sold in the Philippines and the revenue document, instrument, paper or loan agreement itself automatically gives rise
therefrom was derived from a activity regularly pursued within the Philippines. to the imposition of DST, such execution is now deemed to be merely
And even if the BOAC tickets sold covered the "transport of passengers and incidental.
cargo to and from foreign cities", it cannot alter the fact that income from the
sale of tickets was derived from the Philippines. The word "source" conveys IV1.E. DOUBLE TAXATION
one essential idea, that of origin, and the origin of the income herein is the
Philippines. Procter & Gamble Co. v. Mun. of Jagna

Hopewell Power Phils. v. CIR RULING: For double taxation to exist, the same property must be taxed twice,
when it should be taxed but once. Double taxation has also been defined as
FACTS: Hopewell Power Phils. and Hopewell Energy International Ltd., taxing the same person twice by the same jurisdiction for the same thing. 9
executed a Mortgage Trust Indenture (MTI) in Hongkong. Hopwell Power paid Surely, a tax on plaintiff's products is different from a tax on the privilege of
under protest the corresponding Documentary Stamp Tax (DST) to the BIR in storing copra in a bodega situated within the territorial boundary of defendant
Lucena City, to facilitate the registration of the MTI in connection with municipality.
properties located there. Hopewell Power then filed a refund of the DST with
the BIR, arguing that a DST, being in the nature of an excise tax, does not
attach to the execution of the documents in Hongkong, and that they were
executed prior to the effectivity of RA 7660 which addressed this perceived

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Punzalan v. Municipal Board of Manila

FACTS: The ordinance in question, which was approved by the municipal


board of the City of Manila on July 25, 1950, imposes a municipal occupation
tax on persons exercising various professions in the city and penalizes non-
payment of the tax. Having already paid their occupation tax under section
201 of the National Internal Revenue Code, plaintiffs, upon being required to
pay the additional tax prescribed in the ordinance, paid the same under
protest and then brought the present suit .

RULING: Plaintiffs brand the ordinance unjust and oppressive because they
say that it creates discrimination within a class in that while professionals with
offices in Manila have to pay the tax, outsiders who have no offices in the city
but practice their profession therein are not subject to the tax. Plaintiffs make
a distinction that is not found in the ordinance. The ordinance imposes the tax
upon every person "exercising" or "pursuing" in the City of Manila naturally
any one of the occupations named, but does not say that such person must
have his office in Manila. What constitutes exercise or pursuit of a profession
in the city is a matter of judicial determination.

The argument against double taxation may not be invoked where one tax is
imposed by the state and the other is imposed by the city, it being widely
recognized that there is nothing inherently obnoxious in the requirement that
license fees or taxes be exacted with respect to the same occupation, calling
or activity by both the state and the political subdivisions thereof.

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