You are on page 1of 28

1. Manila Memorial Park Inc. and La Funeraria Paz-Sucat Inc. v.

Secretary of DSWD
-petitioners questions the validity of the 20% discount for senior citizens for burial and funeral
services as provided in the law (RA 9257) and in the IRR of the DSWD and DOF, specifically with
regard to the tax deduction method. Sought to reverse the ruling in Carlos Superdrug

Even though the discount (on the part of the pharmacy) is not on peso by peso basis, it is still valid
since the law is a legitimate exercise of police power which, similar to the power of eminent
domain, has general welfare for its object. We, thus, found that the 20% discount as well as the
tax deduction scheme is a valid exercise of the police power of the State.

Central Luzon- tax credit- eminent domain- first ruling- obiter ra man ni gud. gwapa

Carlos- tax deduction- police power- second ruling- in fact, mao ni ang categorically gi-rule nila

Police power versus eminent domain.

Police power is the inherent power of the State to regulate or to restrain the use of liberty and
property for public welfare.58

The only limitation is that the restriction imposed should be reasonable, not oppressive. 59

In other words, to be a valid exercise of police power, it must have a lawful subject or objective
and a lawful method of accomplishing the goal.60

Under the police power of the State, "property rights of individuals may be subjected to restraints
and burdens in order to fulfill the objectives of the government." 61

The State "may interfere with personal liberty, property, lawful businesses and occupations to
promote the general welfare [as long as] the interference [is] reasonable and not arbitrary." 62

Eminent domain, on the other hand, is the inherent power of the State to take or appropriate
private property for public use.63

The Constitution, however, requires that private property shall not be taken without due process
of law and the payment of just compensation.64

Traditional distinctions exist between police power and eminent domain. In the exercise of police
power, a property right is impaired BY REGULATION,65 or the use of property is merely prohibited,
regulated or restricted66 to promote public welfare. In such cases, there is no compensable taking,
hence, payment of just compensation is not required. Examples of these regulations are property
condemned for being noxious or intended for noxious purposes (e.g., a building on the verge of
collapse to be demolished for public safety, or obscene materials to be destroyed in the interest
of public morals)67 as well as zoning ordinances prohibiting the use of property for purposes
injurious to the health, morals or safety of the community (e.g., dividing a city’s territory into
residential and industrial areas).68

It has, thus, been observed that, in the exercise of police power (as distinguished from eminent
domain), although the regulation affects the right of ownership, none of the bundle of rights which
constitute ownership is appropriated for use by or for the benefit of the public.69

On the other hand, in the exercise of the power of eminent domain, property interests are
appropriated and applied to some public purpose which necessitates the payment of just
compensation therefor. Normally, the title to and possession of the property are transferred to the
expropriating authority. Examples include the acquisition of lands for the construction of public
highways as well as agricultural lands acquired by the government under the agrarian reform law
for redistribution to qualified farmer beneficiaries. However, it is a settled rule that the acquisition
of title or total destruction of the property is not essential for "taking" under the power of eminent
domain to be present.70

Examples of these include establishment of easements such as where the land owner is
perpetually deprived of his proprietary rights because of the hazards posed by electric
transmission lines constructed above his property71 or the compelled interconnection of the
telephone system between the government and a private company.72

In these cases, although the private property owner is not divested of ownership or possession,
payment of just compensation is warranted because of the burden placed on the property for the
use or benefit of the public.


It may not always be easy to determine whether a challenged governmental act is an exercise
of police power or eminent domain. The very nature of police power as elastic and responsive to
various social conditions73 as well as the evolving meaning and scope of public use 74 and just
compensation75 in eminent domain evinces that these are not static concepts. Because of the
exigencies of rapidly changing times, Congress may be compelled to adopt or experiment with
different measures to promote the general welfare which may not fall squarely within the
traditionally recognized categories of police power and eminent domain. The judicious
approach, therefore, is to look at the NATURE AND EFFECTS of the challenged governmental act
and decide, on the basis thereof, whether the act is the exercise of police power or eminent

Thus, we now look at the nature and effects of the 20% discount to determine if it constitutes an
exercise of police power or eminent domain. The 20% discount is intended TO IMPROVE THE
WELFARE of senior citizens who, at their age, are less likely to be gainfully employed, more prone
to illnesses and other disabilities, and, thus, in need of subsidy in purchasing basic commodities. It
may not be amiss to mention also that the discount serves to honor senior citizens who presumably
spent the productive years of their lives on contributing to the development and progress of the
nation. This distinct cultural Filipino practice of honoring the elderly is an integral part of this law.
As to its nature and effects, the 20% discount is a regulation affecting the ability of private
establishments to price their products and services relative to a special class of individuals, senior
citizens, for which the Constitution affords preferential concern.76

In turn, this affects the amount of profits or income/gross sales that a private establishment can
derive from senior citizens. In other words, the subject regulation affects the pricing, and, hence,
the profitability of a private establishment. However, it does not purport to appropriate or burden
specific properties, used in the operation or conduct of the business of private establishments, for
the use or benefit of the public, or senior citizens for that matter, but MERELY REGULATES THE
PRICING OF GOODS AND SERVICES relative to, and the amount of profits or income/gross sales
that such private establishments may derive from, senior citizens. The subject regulation may be
said to be similar to, but with substantial distinctions from, price control or rate of return on
investment control laws which are traditionally regarded as police power measures.77

That no . can be recouped through higher mark-ups or from other products not subject of discounts. Petitioners went directly to this Court without first establishing the factual bases of their claims. Because all laws enjoy the presumption of constitutionality. Gomez v. therefore. to the degree material to the resolution of this case. to establish the impact of the 20% discount on the overall profitability of petitioners was presented in order to show that they would be operating at a loss due to the subject regulation or that the continued implementation of the law would be unconscionably detrimental to the business operations of petitioners. Palomar To help raise funds for the Philippine Tuberculosis Society. Nonetheless. In sum. In the case at bar. likewise. We noted that no evidence. and (2) the discount does not apply to all customers of a given establishment but only to the class of senior citizens. fail. oppressive or confiscatory. We adopted a similar line of reasoning in Carlos Superdrug Corporation85 when we ruled that petitioners therein failed to prove that the 20% discount is arbitrary. On its face.87 On its face. petitioners proceeded with a hypothetical computation of the alleged loss that they will suffer similar to what the petitioners in Carlos Superdrug Corporation86 did. As a result. Congress may have. we find that there are at least two conceivable bases to sustain the subject regulation’s validity absent clear and convincing proof that it is unreasonable.These laws generally regulate public utilities or industries/ENTERPRISES IMBUED WITH PUBLIC INTEREST in order to protect consumers from exorbitant or unreasonable pricing as well as temper corporate greed by controlling the rate of return on investment of these corporations considering that they have a monopoly over the goods or services that they provide to the general public. no mail matter shall be accepted in the mails unless it bears such semi-postal stamps: Provided. courts will uphold a law’s validity if any set of facts may be conceived to sustain it. Concurrently. and during the said period. such as a financial report. the 20% discount may be properly viewed as belonging to the category of price regulatory measures which affect the profitability of establishments subjected thereto. Hence. the present recourse must. likewise. The subject regulation differs therefrom in that (1) the discount does not prevent the establishments from adjusting the level of prices of their goods and services. have the capacity to revise their pricing strategy so that whatever reduction in profits or income/gross sales that they may sustain because of sales to senior citizens. the discounts resulting from sales to senior citizens will not be confiscatory or unduly oppressive. oppressive or confiscatory. legitimately concluded that the establishments. which will be required to extend the 20% discount. we sustain our ruling in Carlos Superdrug Corporation88 that the 20% senior citizen discount and tax deduction scheme are valid exercises of police power of the State absent a clear showing that it is arbitrary. oppressive or confiscatory. 2. the Director of Posts shall order for the period from August nineteen to September thirty every year the printing and issue of semi-postal stamps of different denominations with face value showing the regular postage charge plus the additional amount of five centavos for the said purpose. the subject regulation is a police power measure. Congress may have legitimately concluded that business establishments have the capacity to absorb a decrease in profits or income/gross sales due to the 20% discount without substantially affecting the reasonable rate of return on their investments considering (1) not all customers of a business establishment are senior citizens and (2) the level of its profit margins on goods and services offered to the general public.

TB Eradication is Public Purpose The eradication of a dreaded disease is a public purpose. On the other hand. Ruling: To begin with. with as little cost and as little inconvenience as possible. then it is sufficient answer to say that the only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment . Mail users were already a class by themselves even before the enactment of the statue and all that the legislature did was merely to select their class Exemption of the Government As for the Government and its instrumentalities. but if by public purpose the petitioner means benefit to a taxpayer as a return for what he pays. equal protection of the law has been afforded. The State cannot be taxed without its consent and such consent. the classification of mail users is not without any reason. For it is now a settled principle of law that "consideration of practical administrative convenience and cost in the administration of tax laws afford adequate ground for imposing a tax on a well recognized and defined class. undoubtedly. In the allocation of the tax burden. Now. it is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. Congress must have concluded that the contribution to the anti-TB fund can be assured by those whose who can afford the use of the mails. The remedy for unwise legislation must be sought in the legislature. by placing the duty of collection on postal authorities the tax was made almost self-enforcing. So long as the classification imposed is based upon some standard capable of reasonable comprehension. their exemption rests on the State's sovereign immunity from taxation. which is all that the Constitution forbids. The small amount of five centavos does not justify the great expense and inconvenience of collecting through the regular means of collection. being in derogation of its sovereignty. The classification is likewise based on considerations of administrative convenience. It is based on ability to pay. the single most important and influential consideration that led the legislature to select mail users as subjects of the tax is the relative ease and convenienceof collecting the tax through the post offices. The additional proceeds realized from the sale of the semi-postal stamps shall constitute a special fund and be deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in carrying out its noble work to prevent and eradicate tuberculosis. let alone the enjoyment of a privilege. and on administrative convinience. be that standard based upon ability to produce revenue or some other legitimate distinction."9 In the case of the anti-TB stamps.such additional charge of five centavos shall be imposed on newspapers. Mail users are a class We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that it sanctions invidious discrimination. And then of course it is not accurate to say that the statute constituted mail users into a class. is to be strictly construed.

Such capital contribution shall be applied by FPA to all domestic sales of fertilizers in the Philippines. 4 The donation to the Government. v. being subject to the following condition: The within donation is hereby made upon the condition that the Government of the Republic of the Philippines will use the parcels of land hereby donated for street purposes only and for no other purposes whatsoever. if such roads where private property.. that. We have said that considerations of administrative convenience and cost afford an adequate ground for classification. Fertiphil Corporation LOI of Marcos. ZULUETA. or legalizing. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a capital contribution component of not less than P10 per bag. upon such violation. and. Secretary of Public Works Law creating feeder roads. Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta.of the privileges of living in an organized society. Generally. the title to the land hereby donated shall. The same considerations may induce the legislature to impose a flat tax which in effect is a charge for the transaction. did not cure its aforementioned basic defect. under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose. . a judicial nullification of said donation need not precede the declaration of unconstitutionality of said appropriation. for the purpose of giving a "semblance of legality". although each advantage to individuals might incidentally serve the public. under the express or implied provisions of the constitution.1 3. This capital contribution shall be collected until adequate capital is raised to make PPI viable. Feeder roads were to be constructed in private properties within a subdivision. would not be a public purpose. the result is that said appropriation sought a private purpose. established and safeguarded by the devotion of taxes to public purposes. JOSE C. public funds may be used only for public purpose. Ruling: "the legislature is without power appropriate public revenues for anything but a public purpose". the appropriation in question. Test: The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest. over five (5) months after the approval and effectivity of said Act. Not violative of uniformity and equality A tax need not be measured by the weight of the mail or the extent of the service rendered. 4. according to the petition. no appropriation of state funds can be made for other than for a public purpose. that the instructions and improvement of the feeder roads in question. Consequently. as opposed to the furtherance of the advantage of individuals. made. The right of the legislature to appropriate funds is correlative with its right to tax. operating equally on all persons within the class regardless of the amount involved. Pascual v. was null and void. Planters Products Inc. ipso facto revert to the DONOR. and hence. it being expressly understood that should the Government of the Republic of the Philippines violate the condition hereby imposed upon it.

remitted the amount to the defendant Planters Products. taxes may not be levied for purely private purposes. or for the redress of private wrongs. executive orders. The P10 levy is unconstitutional because it was not for a public purpose. Thus. presidential decrees and other issuances. the plaintiff paid the amount of P6. or if revenue is.[41] the primary purpose of the levy is revenue generation. Funds cannot be exacted under the guise of taxation to promote a purpose that is not of public interest.698. These powers are distinct and have different tests for validity.. Substantive ruling: One of the inherent limitations is that a tax may be levied only for public purposes: The power to tax can be resorted to only for a constitutionally valid public purpose. 1465 is an exercise of the power of taxation. Planters Product.698. Police power is the power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare.00 and the defendant. The Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts. another private domestic corporation. however.144. By the same token.698. is not held void on the ground of want of public interest unless the want of such interest is clear. one of the real and substantial purposes.144. in turn. by virtue of LOI 1465 the plaintiff. A tax. became poorer by the amount of P6. If the purpose is primarily revenue. thru the latter’s depository bank. . which is a private domestic corporation. The levy was imposed to give undue benefit to PPI. for building up of private fortunes. We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is true that the power of taxation can be used as an implement of police power. except where the aid is incident to the public benefit. The P10 levy under LOI No.00 to the Fertilizer and Pesticide Authority pursuant to the P10 per bag of fertilizer sold imposition under LOI 1465 which. then the exaction is properly called a tax. while taxation is revenue generation. on the other hand. Inc. In the case at bar.[39] while the power of taxation is the power to levy taxes to be used for public purpose.WON the RTC can consider the constitutionality of a tax law: YES THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the constitutionality of statutes. is circumscribed by inherent and constitutional limitations. Inc.[42] Taxes are exacted only for a public purpose. Police power and the power of taxation are inherent powers of the State. at least. or for the benefit. The main purpose of police power is the regulation of a behavior or conduct. and promotion of private enterprises. Fertiphil Corporation. Far East Bank and Trust Co.144.00. The “lawful subjects” and “lawful means” tests are used to determine the validity of a law enacted under the police power. They cannot be levied for the improvement of private property. Without such limitation. the power to tax could be exercised or employed as an authority to destroy the economy of the people. It is well-settled principle of constitutional law that no general tax can be levied except for the purpose of raising money which is to be expended for public use. became richer by the amount of P6.[40] The power of taxation.

Abakada Guro Party List v. upon the recommendation of the Secretary of Finance. the text of the LOI is plain that the levy was imposed in order to raise capital for PPI. It is an elastic concept that can be hammered to fit modern standards. effective January 1. such as building roads and delivery of basic services.The term “public purpose” is not defined. Petitioners argue that the law is unconstitutional. to raise the VAT rate to 12%. public money may now be used for the relocation of illegal settlers. It does not only pertain to those purposes which are traditionally viewed as essentially government functions. it did not promote public interest. after any of the following conditions have been satisfied. Section 28(2) of the 1987 Philippine Constitution. . raise the rate of value-added tax to twelve percent (12%). In this case. the depositary bank of PPI Fourth. The framers of the LOI did not even hide the insidious purpose of the law. . Jurisprudence states that “public purpose” should be given a broad interpretation.granted stand-by authority to the President These questioned provisions contain a uniform proviso authorizing the President. Third. 5. The general rule is that an unconstitutional law is void. effective January 1.A. Thus. after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%). Second. . All levies paid should be refunded in accordance with the general civil code principle against unjust enrichment. as it constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes under Article VI. the RTC and the CA held that the levies paid under the LOI were directly remitted and deposited by FPA to Far East Bank and Trust Company. the levy was used to pay the corporate debts of PPI. the doctrine of operative fact is inapplicable.” This suggests that the levy was actually imposed to benefit PPI. the LOI provides that the imposition of the P10 levy was conditional and dependent upon PPI becoming financially “viable. but also includes those purposes designed to promote social justice. upon recommendation of the Secretary of Finance. Fertiphil is not required to pay the levy. The LOI is still unconstitutional even if enacted under the police power. low-cost housing and urban or agrarian reform. 2006. shall. Ermita R. to wit: . Being void. That the President. 9337. No. or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%). 2006. It is a basic rule of statutory construction that the text of a statute should be given a literal meaning.

WON MCIAA is a GOCC or a government instrumentality? . There is nothing essentially legislative in ascertaining the existence of facts or conditions as the basis of the taking into effect of a law. City of Lapu-Lapu RULING 1.41 and (b) fixes a standard — the limits of which are sufficiently determinate and determinable — to which the delegate must conform in the performance of his functions. 6. setting forth therein the policy to be executed. but the ascertainment of the contingency upon which the Act shall take effect may be left to such agencies as it may designate.42 A sufficient standard is one which defines legislative policy. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion. marks its limits. then.53 Where the law is clear and unambiguous. Highlighting the absence of discretion is the fact that the word shall is used in the common proviso. and courts have no choice but to see to it that the mandate is obeyed.GOVERNMENT INSTRUMENTALITY . The legislature has made the operation of the 12% rate effective January 1. That is a mental process common to all branches of the government. 43 Both tests are intended to prevent a total transference of legislative authority to the delegate. or implemented by the delegate. It leaves the entire operation or non- operation of the 12% rate upon factual matters outside of the control of the executive. may provide that a law shall take effect upon the happening of future specified contingencies leaving to some other person or body the power to determine when the specified contingency has arisen. The case before the Court is not a delegation of legislative power. The legislature.Ruling: No Undue Delegation of Legislative Power In every case of permissible delegation. It indicates the circumstances under which the legislative command is to be effected. contingent upon a specified fact or condition. come from Congress.44 The power to ascertain facts is such a power which may be delegated. who is not allowed to step into the shoes of the legislature and exercise a power essentially legislative. 2006. it must be taken to mean exactly what it says. MCIAA v. carried out.54 Thus. of course. it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress. maps out its boundaries and specifies the public agency to apply it. there must be a showing that the delegation itself is valid. The efficiency of an Act as a declaration of legislative will must. It is valid only if the law (a) is complete in itself. No discretion would be exercised by the President. The use of the word shall connotes a mandatory order. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent.

MCIAA is a vested with corporate powers BUT it is NOT a stock or non-stock corporation. Unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use. Like MIAA. airfield. they are not subject to levy on execution or foreclosure sale. that it is not a GOCC but an instrumentality of the national government. EXEMPT from real property tax imposed by the City of Lapu-Lapu . The terminal fees MIAA charges to passengers. as well as the landing fees MIAA charges to airlines. the airport lands and buildings of MCIAA are properties of public dominion because they are intended for public use. Since the Airport Lands and Buildings are inalienable in their present status as properties of public dominion. and these are exempt from real estate tax. which is a necessary condition before an agency or instrumentality is deemed a GOCC. MCIAA has capital under its charter but it is NOT divided into shares of stock. solely and exclusively used for public purpose. It also has NO stockholders or voting shares. As long as the Airport Lands and Buildings are reserved for public use. In the case at bar. The only exception is when MIAA leases its real property to a “taxable person” as provided in Section 234(a) of the Local Government Code. runway. fees or charges of any kind” by local governments. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. in which case the specific real property leased becomes subject to real estate tax. and are outside the commerce of man. MIAA (in this case MCIAA) as a government instrumentality is not a taxable person because it is not subject to “[t]axes. their ownership remains with the State or the Republic of the Philippines. constitute the bulk of the income that maintains the operations of MIAA. Only those portions of petitioner’s properties which are leased to taxable persons like private parties are subject to real property tax by the City of Lapu-Lapu Under Section 133(o) of the Local Government Code. WON the airport lands and buildings of MCIAA are subject to real estate taxes? – EXEMPT FROM REAL PROPERTY TAX Like in MIAA. with its real properties being owned by the Republic of the Philippines. these properties remain properties of public dominion and are inalienable.The 2006 MIAA case governs: MIAA’s airport lands and buildings are exempt from real estate tax imposed by local governments. As properties of public dominion. they indisputably belong to the State or the Republic of the Philippines. MCIAA’s properties that are actually. consisting of the airport terminal building. taxiway and the lots on which they are situated. 2. Gibalik ra sa Court ang ratio sa decision in the 2006 MIAA case: Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation.

such bills are subject to constitutionally authorized processes such as amendments and consolidation in the Bicameral Conference Committee. Sec. UNIFORM AND PROGRESSIVE TAXATION SYSTEM. Senate can even amend through substitution RA 7716 is neither violative of Art. so long as action by the Senate as a body is withheld pending receipt of the House bill. 7. Appropriation Bill – General Appropriations Act 2. must not be construed as newly introduced bills that must undergo the first step of the legislative process. depriving the Senate of its constitutional right not only to concur but also to propose amendments to arevenue bill. Sec. 28 (1)? Held: On the first issue. during the entire legislative process before it becomes a law. VI. The question on whether or not the VAT imposed by RA 7716 is regressive was . moreover. Summing it up. It is not the revenue statute/law but the revenue bill that is constitutionally required to originate exclusively from the House of Representatives. VI. VI. the Court held that it cannot. it would mean that the house bill that such statute is derived from should remain untouched until it becomes a law. VI. Tolentino v. The result of the process. If it is the revenue statute that should originate from the House of Representatives. Revenue Bills – impose taxes/fees 3. RA 7716 DID NOT VIOLATE THE CONSTITUTIONAL PROVISION ON PROMOTING AN EQUITABLE. What the Constitution simply means is that the initiative of filing revenue bills must come from the House of Representatives. 26 (2) of the Constitution for not having passed three readings on separate days in the Senate. Where a bill is certified by the President as urgent. 26 of the Constitution itself. Sec. Secretary of Finance (1994) Six Types of Bills: 1. This is because the President had certified SB 1630 as urgent which is allowed by the exception clause in Art. thus. On the second issue. Bills of local application – streets in honor of certain deceased personalities. -so it will not deprive the Senate of its right to propose amendments. It would be to violate the coequality of legislative power of the two houses of Congress and in fact make the House superior to the Senate. the statute in question is not violative of Art. Sec. convert municipalities to cities 6. among others. The Constitution does not also prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House. 24 of the Constitution. it may pass both second and third readings held in one day. the procedural requirements of the Constitution have been complied with by Congress in the enactment of the statute in question. no. Thereafter. VI. Private Bills – naturalization proceedings Issues: WON RA 7716 violates Art. Sections 24 and 26 (2) of the Constitution? WON it also violates Art. Bill authorizing increase of public debt – incur liability government 5. Tariff Bills – customs/duties 4.

While Art. 24 provides that all appropriation. Secretary of Finance (1995) ISSUES: 1. 4 and 5 of the Constitution. Whether or not there is violation of the rule on taxation under Art.A. 1994 due to a number of petitions filed against it with the Court. 1994 but its enforcement was stopped because the Court granted a temporary restraining order on June 30. the resulting burden on the exercise of religious freedom is so incidental as to make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly. 3. Tolentino v. 8. RULING: 1. "but the Senate may propose or concur with amendments. 1 of the Constitution. III Secs. No. revenue or tariff bills. 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 f or special treatment or which in any way discriminate against the press on the basis of the content of the publication. as a general proposition. bills of local application. Not a license tax that to be the case. the complaints grounded on the question of regressivity of RA 7716 were raised prematurely which the Court could not adjudge. 2. 5. Whether or not R. All the petitions." it also adds. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI Sec. and R." In the exercise of this power. . Whether or not there is violation of the due process clause under Art. 24 of the Constitution. It would have been enforced on July 1.A. 4. the Senate may propose an entirely new bill as a substitute measure. No. 1994 to allow time for the registration of business entities. VI Sec. Thus. including those petitions grounded on other constitutional issues of RA 7716.held as largely an academic exercise because there was lack of empirical data on which to base any conclusion regarding such question. Whether or not R. 7716 is none of these.A. III Sec. and private bills must "originate exclusively in the House of Representatives. VI Sec. Claims of press freedom and religious liberty . 10 of the Constitution. It is to be noted that on May 28. bills authorizing increase of the public debt. Whether or not there is an impairment of obligation of contracts under Art. The absence of threat of immediate harm caused by RA 7716 made the need for judicial intervention less evident. RA 7716 took effect but its implementation was suspended until June 30. 7716 is violative of press freedom and religious freedom under Art. 28 (1) of the Constitution. were dismissed. We have held that. No. III Sec. 1994.

Sec. 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. 9." 4.2. Since the law granted the press a privilege. hardship to taxpayers alone is not an adequate justification for adjudicating abstract issues. barter.NO The mere fact that a law has been relied upon in the past and all that time has not been attacked as unconstitutional is not a ground for considering petitioner estopped from assailing its validity. What it simply provides is that Congress shall "evolve a progressive system of taxation. are regressive. British American Tobacco v. adjudication would be no different from the giving of advisory opinion that does not really settle legal issues. much less a constitutional right. 3. "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same .NO While the above statute confers on the CTA jurisdiction to resolve tax disputes in general. WON British American Tobacco is estopped from questioning the law after it has requested a ruling from the BIR on whether it is a new brand or not.32 Whethere or not the classification freeze provision violates the equal protection and uniformity of taxation clauses of the Constitution. Where what is assailed is the validity or constitutionality of a law. Camacho (2008) WON petitioner should have brought its petition before the Court of Tax Appeals rather than the regional trial court. the regular courts have jurisdiction to pass upon the same. For courts will pass upon a constitutional question only when presented before it in bona fide cases for determination. VIII. this does not include cases where the constitutionality of a law or rule is challenged." This duty can only arise if an actual case or controversy is before us. It is not a tax on the exercise of a privilege. the law could take back the privilege anytime without offense to the Constitution. On the alleged violation of due process. The VAT is not a license tax. Otherwise. and the fact that the question has not been raised before is not a valid reason for refusing to allow it to be raised later. We are told that it is our duty under Art. or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function. like the VAT. The Constitution does not really prohibit the imposition of indirect taxes which. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution. lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. It is imposed on the sale. 5. Hence the constant reiteration of the view that classification if rational in character is allowable. 1 (2) to decide whenever a claim is made that "there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government.

The taxing power has the authority to make reasonable and natural classifications for purposes of taxation." 47 Within the present context of tax legislation on sin products which neither contains a suspect classification nor impinges on a fundamental right. (2) it is germane to the purpose of the law. and (4) it applies equally to all those belonging to the same class. But a plain reading of the text of RA 8240. even before its amendment by RA 9334. Congress rejected the proposal to allow the DOF and BIR to periodically adjust the excise tax rate and tax brackets as well as to periodically resurvey and reclassify cigarettes brands which would have encompassed old and new brands alike.48 The classifications must be reasonable and rest upon some ground of difference having a fair and substantial relation to the object of the legislation. Precisely. the standard and analysis of equal protection challenges in the main have followed the ‘rational basis’ test. for his part. A legislative classification that is reasonable does not offend the constitutional guaranty of the equal protection of the laws. 1997 and any new brand that will be introduced in the future. reported to the House plenary the reasons for fixing the excise tax rate and freezing the classification. An examination of the legislative history of RA 8240 provides interesting answers to this question. all things being equal. as will be discussed later.class shall be taxed at the same rate. rejects the Senate version which seeks to abdicate the power of Congress to tax by pegging the rates as well . fixed specific tax rates and frozen classification.53 (However. similar to what was used to classify the brands under Annex "D" as of October 1. to both present and future conditions. coupled with a deferential attitude to legislative classifications and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of the Constitution. since a new brand was not yet in existence at the time of the passage of RA 8240. In consonance thereto. Further. The classification freeze provision was inserted in the law for reasons of practicality and expediency. in his report to the Senate plenary.52 The first. thus: Finally. third and fourth requisites are satisfied. (3) it applies. 1996. this twin feature. why the classification is "frozen" after its determination based on current net retail price and how this is germane to the purpose of the assailed law. noted that the fixing of the excise tax rates was done to avoid confusion. the freezing of the tax classifications now expressly applies not just to Annex "D" brands but to newer brands introduced after the effectivity of RA 8240 on January 1. we have held that "in our jurisdiction. with the amendments introduced by RA 9334. then Congress needed a uniform mechanism to fix the tax bracket of a new brand. That is.) This does not explain. the rational-basis test thus finds application. the intent to apply the freezing mechanism to newer brands was already in place even prior to the amendments introduced by RA 9334 to RA 8240. Speaker. In explaining the changes made at the Bicameral Conference Committee level. as well as the previously discussed deliberations would readily lead to the conclusion that the intent of Congress was to likewise apply the freezing mechanism to new brands. must be shown to rationally further a legitimate state interest. The current net retail price. was thus the logical and practical choice. Under this test. Senator Enrile. Mr.64 Congressman Javier. to survive an equal protection challenge. The classification is considered valid and reasonable provided that: (1) it rests on substantial distinctions. a legislative classification. however.

or motivated by a hostile or oppressive attitude to unduly favor older brands over newer brands. Congress sought to. Yet. considered the ethical implications thereof. aid in the revenue planning of the government. if so. thus. the classification freeze provision was put in place of the periodic adjustment and reclassification provision because of the belief that the latter would foster an anti-competitive atmosphere in the market. 66 This would also assure the industry players that there would be no new impositions as long as the law is unchanged. simplify the whole tax system for sin products to remove these potential areas of abuse and corruption from both the side of the taxpayer and the government. WON the classification favored old brands-NO It has not been shown that the net retail prices of other older brands previously classified under this classification system have already pierced their tax brackets. the revenue inflow would remain stable and the government would be able to predict with a greater degree of certainty the amount of taxes that a cigarette manufacturer would pay given the trend in its sales volume over time. buoyant and stable revenue generation. the classification freeze provision addressed Congress’s administrative concerns in the simplification of tax administration of sin products. as it is. it does not necessarily follow that newer brands cannot compete against older brands because price is not the only factor in the market as there are other factors like consumer preference. Consequently. how this has affected the overall competition in the market. this same criticism is being foisted by petitioner upon the classification freeze provision. The reason for this is that the previously classified cigarette brands would be prevented from moving either upward or downward their tax brackets despite the changes in their net retail prices in the future and. In other words.65 (Emphasis supplied) Congressman Javier later added that the frozen classification was intended to give stability to the industry as the BIR would be prevented from tinkering with the classification since it would remain unchanged despite the increase in the net retail prices of the previously classified brands. the amount of taxes due from them would remain predictable. it does not mean that they cannot . among others. it is quite evident that the classification freeze provision could hardly be considered arbitrary. The classification freeze provision would. elimination of potential areas for abuse and corruption in tax collection. Congress was unequivocal in its unwillingness to delegate the power to periodically adjust the excise tax rate and tax brackets as well as to periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price index to the DOF and the BIR. Congress doubted the constitutionality of such delegation of power. and. even if the newer brands are priced higher due to the differential tax treatment. Without doubt. With the frozen tax classifications. brand loyalty. the classification freeze provision was an integral part of this overall plan. and ease of projection of revenues.71 All in all. as a result. Thus. etc. Further. Curiously. and likewise. there can be no denial of the equal protection of the laws since the rational-basis test is amply the classification of sin products to consumer price index which practically vests in the Secretary of Finance the power to fix the rates and to classify the products for tax purposes.67 From the foregoing.

Unfortunately for petitioner. But. did not authorize the BIR to conduct said periodic resurvey and reclassification. are invalid insofar as they empower the BIR to reclassify or update the classification of new brands of cigarettes based on their current net retail prices every two years or earlier. as previously discussed. It was only after the lapse of two years or in 2003 that the BIR conducted a market survey which was the first time that Lucky Strike’s actual current net retail price was surveyed. Petitioner asserts that Revenue Regulations No.compete in the market especially since cigarettes contain addictive ingredients so that a consumer may be willing to pay a higher price for a particular brand solely due to its unique formulation. In fine.e. by Congress’s own standards. when nowhere in Section 145 is such authority granted to the Bureau. However. the finding that the assailed law seems to derogate. Petitioner failed to timely seek redress to compel the BIR to conduct the requisite market survey in order to fix the tax classification of Lucky Strike. 6-2003. 22-2003 and Revenue Memorandum Order No. one of its avowed objectives (i. the current excise tax system on sin products is imperfect. even prior to its amendment by RA 9334. promoting fair competition among the players in the industry) would suggest that. More importantly. as amended by Section 2 of Revenue Regulations 9-2003. WON GATT is violated. certainly. It is clear that the afore-quoted portions of Revenue Regulations No. It will be recalled that petitioner introduced Lucky Strike in June 2001. petitioner may have valid reasons to disagree with the policy decision of Congress and the method by which the latter sought to achieve the same. 9- 2003. as amended by Revenue Regulations No. 1-97. the clear legislative intent was for new brands to benefit from the same freezing mechanism accorded to Annex "D" brands. and Revenue Memorandum Order No. Concededly. the power to reclassify cigarette brands remains a prerogative of the legislature which cannot be usurped by the former. Revenue Regulations No. 6-2003 unjustifiably emasculate the operation of Section 145 of the NIRC because they authorize the Commissioner of Internal Revenue to update the tax classification of new brands every two years or earlier subject only to its issuance of the appropriate Revenue Regulations. It claims that RA 8240. But its remedy is with Congress and not this Court. we cannot declare a statute unconstitutional merely because it can be improved or that it does not tend to achieve all of its stated objectives. Lucky Strike was never classified based on its actual current net retail price.NO . the BIR did not conduct the required market survey within three months from product launch. As a result. as admitted by petitioner itself. 1-97. Unless expressly granted to the BIR. to a limited extent. this result will not cause a downward reclassification of Lucky Strike.

" 13 It is. . The power to tax moreover. Camacho (2009) 11. As there is practically no overhead expense. has to be availed of to assure the performance of vital state functions. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation. Yatco. it is enough that the classification must rest upon substantial distinctions that make real differences." 24 This requirement is met according to Justice Laurel in Philippine Trust Company v. whether imported or locally manufactured. taxes being the lifeblood of the government. The Constitution sets forth such limits.L. 10. It is the source of the bulk of public funds.. went so far as to hold "at any rate. an inherent prerogative.B. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. of course. when the tax "operates with the same force and effect in every place where the subject may be found. There are restrictions. in a leading case of Lutz V. or exemption infringe no constitutional limitation. 28 As clarified by Justice Tuason. these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or less. through Justice J.NO Petitioner likewise invoked the kindred concept of uniformity. It is the strongest of all the powers of of government. According to the Constitution: "The rule of taxation shall be uniform and equitable." 30 There is a substantial distinction between professionals and salaried individuals Further on this point. to borrow from Justice Malcolm. It does not purport to single out imported cigarettes in order to unduly favor locally produced ones.The classification freeze provision uniformly applies to all newly introduced brands in the market. Ancheta WON he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. . "is an attribute of sovereignty. To praphrase a recent decision. where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform. their prompt and certain availability is of the essence. 22 this Court. British American Tobacco v. . Taxpayers may be classified into different categories.NO Lifeblood theory: The power to tax. "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. To repeat. firms and corporations placed in similar situation. Taxpayers who are recipients of compensation income are set apart as a class. Apparently. Reyes. Sison v. what misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. 25 decided in 1940. it is inherent in the power to tax that a state be free to select the subjects of taxation.. to be admitted that for all its plenitude 'the power to tax is not unconfined. Araneta." 29 There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons.' WON the classification violates uniformity.

D. In this case. Employees are not allowed to make deductions while Professionals were allowed to make deductions. The petitioner does not lose its character as a charitable institution simply because the gift or donation is in the form of subsidies granted by the government. different tax rates are justified. that those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually. Therefore. Quezon City WON LCP will lose its charitable character because it receives paying patients. a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. the petitioner adduced substantial evidence that it spent its income. there is no uniformity in the costs or expenses necessary to produce their income. or receives subsidies from the government. and uniformity in taxation and (3) the reasonableness of the distinction between compensation and taxable net income of professionals and businessman certainly Substantial distinction. so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve. . equal protection. The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power.On the other hand. therefore. Nothing can be clearer. than that the petition is without merit. any person. anent the second issue. as they do here. No. a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients. Taxation is the rule and exemption is the exception. 12. Hence. considering the (1) lack of factual foundation to show the arbitrary character of the assailed provision. the petitioner is entitled to receive donations. Lung Cancer of the Philippines v. including the subsidies from the government for 1991 and 1992 for its patients and for the operation of the hospital. As a general principle. whether out-patient. we hold. the fact that subsidization of part of the cost of furnishing such housing is by the government rather than private charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise support such an exemption. directly and exclusively used for charitable purposes. WON it loses its charitable character because it receives donations and subsidies-NO Under P. After all. or confined in the hospital.NO Hence. in the case of professionals in the practice of their calling and businessmen. The effect of an exemption is equivalent to an appropriation. 1823. The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust purposes and cannot be diverted to private profit or benefit. the rich as well as the poor. the medical services of the petitioner are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination. WON the petitioner is exempt from all forms of taxes-NO Even as we find that the petitioner is a charitable institution. may fall sick or be injured or wounded and become a subject of charity. and no money inures to the private benefit of the persons managing or operating the institution. 31 (2) the force of controlling doctrines on due process.

the portions of the land occupied by the hospital and portions of the hospital used for its patients. direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. Article VI of the 1987 Philippine Constitution: The tax exemption under this constitutional provision covers property taxes only. The concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty could not apply to taxes imposed upon royalties in the RP-US Tax Treaty since the two taxes imposed under the two tax treaties are not paid under similar circumstances. for it is a well settled principle that. USA IS ENTITLED TO THE MOST FAVORED NATION TAX RATE OF 10% ON ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN RELATION TO THE RP-WEST GERMANY TAX TREATY. when a special privilege or exemption is claimed under a statute. What is meant by actual. Section 28(3).” If real property is used for one or more commercial purposes. Act No. It is plain as day that under the decree. debarred from participation or enjoyment. they are not containing similar provisions on tax crediting.C. it is to be construed strictly against the property owner and in favor of the public. that (a) it is a charitable institution. S. Such an intention must be expressed in clear and unmistakable terms. Commissioner of Internal Revenue v.The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitutions and the law. DIRECTLY and EXCLUSIVELY used for charitable purposes. 7160 in order to be entitled to the exemption. . 13. we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. The exemption must not be so enlarged by construction since the reasonable presumption is that the State has granted in express terms all it intended to grant at all. the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. or must appear by necessary implication from the language used. 2 of PD 1823. Johnson and Sons Inc. and “exclusively” is defined. THE MAIN ISSUE: WON SC JOHNSON AND SON. by clear and unequivocal proof. whether paying or non-paying. are exempt from real property taxes. as enjoying a privilege exclusively. charter or act of incorporation. Under the 1973 and 1987 Constitutions and Rep. and that unless the privilege is limited to the very terms of the statute the favor would be intended beyond what was meant. Accordingly. the petitioner is burdened to prove. the same should have been among the enumeration of tax exempt privileges under Sec. Solely is synonymous with exclusively. “Exclusive” is defined as possessed and enjoyed to the exclusion of others. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. “in a manner to exclude. it is not exclusively used for the exempted purposes but is subject to taxation. On the other hand. and (b) its real properties are ACTUALLY.An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied from language which will admit of any other reasonable construction. If the intentions were otherwise.

C. S. does not provide for similar crediting of 20% of the gross amount of royalties paid. the Tax Treaty should apply only if the taxes imposed upon royalties in the RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid under similar circumstances. the intention behind the adoption of the provision on relief from double taxation in the two tax treaties in question should be considered in light of the purpose behind the most favored nation clause. which is the counterpart provision with respect to relief for double taxation. is the same as that in the tax treaty under which the taxpayer is liable. or the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a third state. private respondent cannot be deemed entitled to the 10 percent rate granted under the latter treaty for the reason that there is no payment of taxes on royalties under similar circumstances.25 percent of the gross amount of the royalties. It is intended to establish the principle of equality of international treatment by providing that the citizens or subjects of the contracting nations may enjoy the privileges accorded by either party to those of the most favored nation. The Philippines may impose one of three rates. the state of residence and the state of source are both permitted to tax the royalties. Under the RP-US Tax Treaty. in this case royalty income. The essence of the principle is to allow the taxpayer in one state to avail of more liberal provisions granted in another tax treaty to which the country of residence of such taxpayer is also a party provided that the subject matter of taxation. supra. but such amount shall not exceed the limitations provided by United States law for the taxable year.. TAXATION RELATED TOPICS: What is the purpose of a tax treaty? . 15 percent when the royalties are paid by a corporation registered with the Philippine Board of Investments and engaged in preferred areas of activities. is based there.The United States is the state of residence since the taxpayer. Furthermore. The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. Given the purpose underlying tax treaties and the rationale for the most favored nation clause. What is the most favored nation clause? The purpose of a most favored nation clause is to grant to the contracting party treatment not less favorable than that which has been or may be granted to the “most favored” among other countries. This would mean that private respondent must prove that the RP-US Tax Treaty grants similar tax reliefs to residents of the United States in respect of the taxes imposable upon royalties earned from sources within the Philippines as those allowed to their German counterparts under the RP- Germany Tax Treaty. expressly allows crediting against German income and corporation tax of 20% of the gross amount of royalties paid under the law of the Philippines. At the same time. S. Article 23 of the RP-US Tax Treaty. Johnson and Son. U. A. the method employed to give relief from double taxation is the allowance of a tax credit to citizens or residents of the United States against the United States tax. Article 24 of the RP-Germany Tax Treaty. On the other hand. with a restraint on the tax that may be collected by the state of source. The RP-US Tax Treaty does not give a matching tax credit of 20 percent for the taxes paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty.

The goal of double taxation conventions would be thwarted if such treaties did not provide for effective measures to minimize. although the amount of tax that may be imposed by the state of source is limited. defeating the object of the tax treaty since the tax burden imposed upon the investor would remain unrelieved. if the rates of tax are lowered by the state of source.The purpose of these international agreements is to reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions. In this case.  The second method for the elimination of double taxation applies whenever the state of source is given a full or limited right to tax together with the state of residence. an exclusive right to tax is conferred on one of the contracting states. for other items of income or capital. however. whether this be in the form of a tax credit or exemption. What are the methods of relief under the second method? There are two methods of relief—the exemption method and the credit method. no benefit would redound to the Philippines. conditions deemed vital in creating robust and dynamic economies. in this case. should it impose a lower tax rate on the royalty earnings of the investor. What are the methods of eliminating double taxation?  First.. In this case. Thus. The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital. In some cases. the tax burden laid upon the income or capital of the investor. Otherwise. If the state of residence does not grant some form of tax relief to the investor. What is international double taxation and the rationale for doing away with it? International juridical double taxation is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods.  Exemption method. or owns capital in. if not completely eliminate.e. (INDIRECT DOUBLE TAXATION – different jurisdictions) When is there double taxation? Double taxation usually takes place when a person is resident of a contracting state and derives income from. both states are given the right to tax. it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard to certain classes of income or capital. the tax which could have been collected by the Philippine government will simply be collected by another state. by the Philippines. the income or capital which is taxable in the state of source or situs is exempted in the state of residence. i. increased investment resulting from a favorable tax regime. and it would be better to impose the regular rate rather than lose much-needed revenues to another country. technology and persons between countries. although in some instances it may be taken into . the treaties make it incumbent upon the state of residence to allow relief in order to avoid double taxation. there should be a concomitant commitment on the part of the state of residence to grant some form of tax relief. the other contracting state and both states impose tax on that income or capital. the treaties make it incumbent upon the state of residence to allow relief in order to avoid double taxation.

CIR whether the failure to strictly comply with RMO No. S. Who has the burden of proof in tax exemption? The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law. remitting to its head office in Germany. whereas the credit method focuses upon the tax. account in determining the rate of tax applicable to the taxpayer’s remaining income or capital. and as such they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. help the taxpayer avoid simultaneous taxations in two different jurisdictions. the tax paid in the former (state of source) is credited against the tax levied in the latter (state of residence). petitioner invokes paragraph 6. in turn. further clarifies that “tax conventions are drafted with a view towards the elimination of international juridical double taxation. Article 10 of the RP-Germany Tax Treaty. Johnson and Son. However. the benefit of A PREFERENTIAL RATE EQUIVALENT TO 10% BPRT. we are bound to extend to a BRANCH in the Philippines. Tax treaties are entered into “to reconcile the national fiscal legislations of the contracting parties and. the underlying rationale for reducing the tax rate is that the Philippines will give up a part of the tax in the expectation that the tax given up for this particular investment is not taxed by the other country. which requires that any availment of the tax treaty relief must be preceded by an application with ITAD at least 15 days before the transaction.C. any profit remitted to its head office shall be subject to a tax of 15% based on the total profits applied for or earmarked for remittance without any deduction of the tax component.  The basic difference between the two methods is that in the exemption method. 1-2000 will deprive persons or corporations of the benefit of a tax treaty. CIR v. Inc. this branch may be subjected to the branch profits remittance tax withheld at source in accordance with Philippine law but shall not exceed 10% of the gross amount of the profits remitted by that branch to the head office.  Credit method. 1-2000. Under Section 28(A)(5) of the NIRC. although the income or capital which is taxed in the state of source is still taxable in the state of residence. which provides that where a resident of the Federal Republic of Germany has a branch in the Republic of the Philippines. the BIR issued RMO No. On the other hand. the focus is on the income or capital itself. What are tax refunds? Tax refunds are in the nature of tax exemptions. Deutsche Bank of AG Manila Branch v. which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject . By virtue of the RP-Germany Tax Treaty. 14. What is the rationale of reducing tax rates in negotiating tax treaties? In negotiating tax treaties.

At most. tax treaties are entered into to minimize.702. or 15 days prior to the payment of its BPRT.562.702.125. but the CTA’s outright denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in harmony with the objectives of the contracting state to ensure that the benefits granted under tax treaties are enjoyed by duly entitled persons or corporations. Bearing in mind the rationale of tax treaties. The obligation to comply with a tax treaty must take precedence over the objective of RMO No. but on the basics of the regular rate as prescribed by the NIRC. In this case. “A state that has contracted valid international obligations is bound to make in its legislations those modifications that may be necessary to ensure the fulfillment of the obligations undertaken. It could not have applied for a tax treaty relief within the period prescribed. 1-2000 involve an administrative procedure.”20 Thus.553. the period of application for the availment of tax treaty relief as required by RMO No.125.17.851.. conditions deemed vital in creating robust and dynamic economies. Likewise. applying the 10% BPRT.023. these may be remedied through other system management processes.”19cralaw virtualaw library Simply put. precisely because it erroneously paid the BPRT not on the basis of the preferential tax rate under the RP-Germany Tax Treaty. laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto.257. when the RP-Germany Tax Treaty does not provide for any pre-requisite for the availment of the benefits under said agreement. The denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the administrative issuance would impair the value of the tax treaty. it is proper to grant petitioner a refund of the difference between the PHP 67.34 (10% BPRT) or a total of PHP 22. The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital. Thus. which is why they are also known as double tax treaty or double tax agreements. e. Foreign investments will only thrive in a fairly predictable and reasonable international investment climate and the protection against double taxation is crucial in creating such a climate. if not eliminate the harshness of international juridical double taxation. Petitioner is liable to pay only the amount of PHP 45. the imposition of a fine or penalty.matter and for identical periods. .688. it must be stressed that there is nothing in RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. noncompliance with tax treaties has negative implications on international relations. technology and persons between countries.29 for 2002 and prior taxable years.51 (15% BPRT) and PHP 45. We recognize the clear intention of the BIR in implementing RMO No. 1-2000. More so. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements.34 on its RBU net income amounting to PHP 451.g. But we cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring prior application for tax treaty relief. the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief. Logically. 1-2000 which would indicate a deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. 1-2000 prior to the transaction. While the consequences sought to be prevented by RMO No. and unduly discourages foreign investors. petitioner should not be faulted for not complying with RMO No. 1-2000.

Thirdly. Anthony Acevedo ISSUE: Whether the act of the City Treasurer of Manila in imposing . namely. 7807 is constitutive of double taxation and violative of the local government code of 1991. within the same jurisdiction. The Court holds that all the elements of double taxation concurred upon the City of Manila’s assessment on and collection from the petitioners of taxes for the first quarter of 1999 pursuant to Section 21 of the Revenue Code of Manila. 15.” the two taxes must be imposed on the same subject matter.” the two taxes must be imposed on the same subject matter. al. for the same purpose. Firstly. the taxes were all in the nature of local business taxes.” It is obnoxious when the taxpayer is taxed twice. that is. Secondly. all the taxes – being imposed on the privilege of doing business in the City of Manila in order to make the taxpayers contribute to the city’s revenues – were imposed on the same subject matter and for the same purpose. during the same taxing period. that is. for the same purpose. per calendar year).. “taxing the same person twice by the same jurisdiction for the same thing. when it should be but once. and the taxes must be of the same kind or character. 16. Double taxation means taxing the same property twice when it should be taxed only once.e. because Section 21 of the Revenue Code of Manila imposed the tax on a person who sold goods and services in the course of trade or business based on a certain percentage of his gross sales or receipts in the preceding calendar year. distributor or dealer (Section 15). the taxes were imposed by the same taxing authority (the City of Manila) and within the same jurisdiction in the same taxing period (i. during the same taxing period. by the same taxing authority. v. the wholesaler. Otherwise described as “direct duplicate taxation. City of Manila v. while Section 15 and Section 17 likewise imposed the tax on a person who sold goods and services in the course of trade or business but only identified such person with particularity. and the taxes must be of the same kind or character.” It is obnoxious when the taxpayer is taxed twice. Coca-Cola Bottlers Philippines Double taxation means taxing the same property twice when it should be taxed only once. when it should be but once. and collecting the additional business tax under section 21 of Ordinance No. 7794 as amended by Ordinance No. assessing. RULING: The imposition of the tax under Section 21 of the Revenue Code of Manila constituted double taxation. Otherwise described as “direct duplicate taxation.[18] . “taxing the same person twice by the same jurisdiction for the same thing. within the same jurisdiction. and the retailer (Section 17). Nursery Care Corporation et. by the same taxing authority.

to a business tax under Section 143(h) of the same Code. Tax avoidance is the tax saving device within the means sanctioned by law. on the other hand.” Also. of liquors. VAT. 18. already subject to a local business tax under Section 14 of Tax Ordinance No. (5) for the same taxing periods – per calendar year. etc. CIR v.” “willfull. It is significant to note that as early as 4 May 1989. – Cibeles Bldg. CIC received P40 million from RMI. (4) within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila.” This would show that the real buyer of the properties was RMI. i. Francia v. The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No.. the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No.[25] and not from Altonaga. etc. the very source of the power of municipalities and cities to impose a local business tax.e. can no longer be made liable for local business tax under Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC]. another P40 million was debited and reflected in RMI’s trial balance as “other inv. pursuant to Section 143(a) of the LGC. (3) by the same taxing authority – petitioner City of Manila. businesses such as respondent’s.[24] All these factors are present in the instant case. distilled spirits. and (3) a course of action or failure of action which is unlawful. and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business. This method should be used by the taxpayer in good faith and at arms length. since these are being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila. It is apparent from a perusal thereof that when a municipality or city has already imposed a business tax on manufacturers. and not the intermediary Altonaga. and any other article of commerce. That P40 million was debited by RMI and reflected in its trial balance[26] as “other inv. 7794 is specious. or the non-payment of tax when it is shown that a tax is due. 7794. Tax evasion.” In the same way. (2) for the same purpose – to make persons conducting business within the City of Manila contribute to city revenues. and that are “not otherwise specified in preceding paragraphs. 7794 [which is based on Section 143(a) of the LGC]. as of 31 July 1989.[23] Tax evasion connotes the integration of three factors: (1) the end to be achieved. wines. and to which any local business tax imposed by petitioner City of Manila must conform.” in “bad faith. the payment of less than that known by the taxpayer to be legally due. said municipality or city may no longer subject the same manufacturers.”or “deliberate and not accidental”. prior to the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989. Estate of Benigno Toda Is this a case of tax evasion or tax avoidance? Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. it usually subjects the taxpayer to further or additional civil or criminal liabilities. 17. – Cibeles Bldg. is a scheme used outside of those lawful means and when availed of. Section 143(h) may be imposed only on businesses that are subject to excise tax. Using the aforementioned test. (2) an accompanying state of mind which is described as being “evil. The Court revisits Section 143 of the LGC. IAC . or percentage tax under the NIRC.

demand.. demand. takes place by operation of law.. We stated that: A claim for taxes is not such a debt. The collection of a tax cannot await the results of a lawsuit against the government. "The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. both the claim of the Government f or inheritance taxes and the claim of the intestate f or services rendered have already become overdue and demandable is well as f ully liquidated. in the light of public policy.S. The reason on which the general rule is based... and both debts are extinguished to the concurrent amount ARTICLE 1279... We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. 7374). in accordance with the provisions of Articles 1279 and 1290 of the Civil Code. and are the positive acts of the government to the making and enforcing of which. Mambulao Lumber Co. it is necessary: .J.NO OFFSETTING OF TAXES AGAINST ANY CLAIM A TAXPAYER MAY HAVE AGAINST THE GOVERNMENT This principal contention of the petitioner has no merit. Domingo v. (80 C. This rule was reiterated in the case of Corders v. In the case of Republic v. Compensation." 19." We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy. . . contract or judgment as is allowed to be set- off. the personal consent of individual taxpayers is not required.. Act No. Gonda (18 SCRA 331) where we stated that: ". (4 SCRA 622). which are construed uniformly. In order that compensation may be proper. to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. is that taxes are not in the nature of contracts between the party and party but grow out of duty to. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected.200 has already been appropriated f or the purpose by a corresponding law (Rep. internal revenue taxes cannot be the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt. Garlitos Another ground f or denying the petition of the provincial f iscal is the f act that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262. this Court ruled that Internal Revenue Taxes cannot be the subject of set-off or compensation. 2700). Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. contract or judgment as is allowed to be set-off under the statutes of set-off. Under the above circumstances. theref ore.

Toll fees. Tollway fees are not taxes. the impositionis a tax. and operated by private tollway operators at their own expense under the build. they are not assessed and collected by the BIR and do not go to the general coffers of the government. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. As can be seen. The assailed universal charge is not a tax.The taxing power may be used as an implement of police power.(1) That each one of the obligors be bound principally. but to make the point that airport lands and buildings are properties of public dominion and that the collection of terminal fees for their use does not make them private properties. and that he be at the same time a principal creditor of the other.g. the fact that revenue is incidentally raised does not make the imposition a tax. to ensure the viability of the country’s electric power industry). or if the things due are consumable. as . This is not the case here. 2 of the EPIRA. and also of the same quality if the latter has been stated. operate. maintained. Indeed. for the construction and maintenance of certain roadways. without taxes. That public welfare is promoted may be gleaned from Sec. and transfer scheme that the government has adopted for expressways. The theory behind the exercise of the power to tax emanates from necessity. Secretary of Finance Tollway fees are not taxes. collectible from motorists. but if regulation is the primary purpose. they be of the same kind. government cannot fulfill its mandate of promoting the general welfare and well-being of the people. Tollways It would of course be another matter if Congress enacts a law imposing a user’s tax. Diaz v. commenced by third persons and communicated in due time to the debtor. the Special Trust Fund feature of the universal charge reasonably serves and assures the attainment and perpetuity of the purposes for which the universal charge is imposed (e. on the other hand. (3) That the two debts be due. Gerochi v. which enumerates the policies of the State regarding electrification.If generation of revenue is the primary purpose and regulation is merely incidental. 20. Moreover. maintenance and operation of the tollways. are not taxes in any sense. (2) That both debts consist in a sum of money. In sum. the toll fees essentially end up as earnings of the tollway operators. not to establish a rule that tollway fees are user’s tax. are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction. The tax in such a case goes directly to the government for the replenishment of resources it spends for the roadways. Except for a fraction given to the government. Taxes v. What the government seeks to tax here are fees collected from tollways that are constructed. further boosting the position that the same is an exaction primarily in pursuit of the State’s police objectives. fees paid by the public to tollway operators for use of the tollways. (4) That they be liquidated and demandable. but an exaction in the exercise of the State’s policepower. the discussion in the MIAA case on toll roads and toll fees was made. 21. DOE Issue:W/N the universal charge is a taxRuling:NO. (5) That over neither of them there be any retention or controversy.

Hence. 23. [31] VAT is imposed on any person who. the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay in order to purchase the good.well as to assure them a reasonable margin of income. 22. Under Section 105 of the Code. Taxes may be imposed only by the government under its sovereign authority. Ebdane A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed." Accordingly. Although toll fees are charged for the use of public facilities. in the course of trade or business. VAT on tollway operations is not really a tax on the tollway user. what is transferred is not the seller’s liability but merely the burden of the VAT. as part of the government’s commitment in the implementation of the project. 30 of a trust for the benefit of the Filipino people under the name and style of the Cultural Center of the Philippines It may not be amiss though to consider briefly both the procedural and substantive grounds that led to the lower court's order of dismissal. a taxpayer need not be a party to the contract to challenge its validity. Consequently. In other words. the Solicitor General explains. or that public money is being deflected to any improper purpose. In the present case. but on the tollway operator." The stand of the lower court finds . Once shifted. It was therein pointed out as "one more valid reason" why such an outcome was unavoidable that "the funds administered by the President of the Philippines came from donations [and] contributions [not] by taxation. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods. The counterpart funds.NO Parenthetically. nonetheless. is the person liable for VAT. Are tollway fees a tax on a tax. therefore. Gonzales v. the petitioners correctly asserted their standing since a part of the funds being utilized in the implementation of the CP I project partakes of taxpayers’ money. The public respondents themselves admit that appropriations for these foreign-assisted projects in the GAA are composed of the loan proceeds and the peso-counterpart. but the buyer bears its burden since the amount of VAT paid by the former is added to the selling price. Abaya v. the seller remains directly and legally liable for payment of the VAT. the seller of services. refer to the component of the project cost to be financed from government-appropriated funds. they are not government exactions that can be properly treated as a tax. or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law. property or service. Thus. VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. there was that absence of the "requisite pecuniary or monetary interest. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees. They have sufficiently demonstrated that. In such a case. who in this case is the tollway operator. Marcos issue centered on the validity of the creation in Executive Order No. as an attribute of ownership. notwithstanding the fact that the CP I project is primarily financed from loans obtained by the government from the JBIC. toll fees may be demanded by either the government or private individuals or entities. the petitioners are suing as taxpayers. properties or services to the buyer. Significantly. sells or renders services for a fee. a distinction is made between the liability for the tax and burden of the tax. taxpayers’ money would be or is being spent on the project considering that the Philippine Government is required to allocate a peso-counterpart therefor. In indirect taxation.

12 where the doctrine of standing was first fully discussed. Vera. .support in judicial precedents. 11 foreshadowed by People v. 10 This is not to retreat from the liberal approach followed in Pascual v. judged by orthodox legal learning. Secretary of Public Works. It is only to make clear that petitioner. has not satisfied the elemental requisite for a taxpayer's suit.