Tax Law Rev

Session 1
3 types of questions for Tax in the bar examinations:
1. What is the law?
2. Is it taxable?
3. Is the position defensible?
Notes from Atty. Bonilla: 70% of the questions in the bar exams covers Tax 1; 30% only for Tax
2.
Taxation 1 – Re: Constitutional matters
There are 3 inherent powers of the State:
a. Police power
b. Eminent Domain
c. Power of taxation
Difference between Taxation and Police Power – If it involves “raising of revenues” (Lifeblood
theory) it is the Power of Taxation. On the other hand, if I involves “regulation” it is Police Power.
Note: the Bill of Rights limit the inherent powers of the State.
What are the consequences of the Life Blood Theory?
a. Principle of Estoppel will not apply to the government;
b. There is no “set-off” (e.g., you cannot set off your tax obligation to what the government
owes you);
c. There is no injunction (Except: with the Court of Tax Appeals and the Supreme Court);
d. Construction; (?)
What are the Elements of the State and their respective Limitations to Tax?
ELEMENTS OF THE STATE LIMITATIONS TO TAX
People It must be for public purpose
Territory Territoriality principle of taxation: There is
“nexus to the situs” (connection to the taxing
authority), otherwise, tax will not be justified
Sovereignty Plenary power, thus the State is not taxable
Government Power of taxation is legislative in nature

However, there are 3 exceptions:

1. President may exercise it insofar as
the flexible tariff clause is concerned
(under the Constitution) – The reason
for this is because: (a) International
Trade is dynamic – you cannot wait
for the legislature to decide for it; (b)
President is the representative of the
State;

International Recognition
2. LGU’s – Local government have the
power to raise their own revenues;
3. Administrative agencies – they can
release regulations within the
parameters of the law. If they exceed
their authority, it will be considered as
an administrative legislation which is
VOID.
Principle of international comity

Constitutional Limitations:
1. Due Process: No person shall be deprive of life, liberty, or property without due process
of law.
- Tax is a form of deprivation.
- 2 types of Due Process: (a) Procedural which is the right to be heard; and (b)
Substantive which is when inherent limitations are followed.
2. Equal Protection Clause: all persons similarly situated shall be treated alike.
3. No person shall be imprisoned for non-payment of Poll Tax
4. Uniformity, Equitable, Progressive System
- Uniformity: shall apply to the whole country;
- Re: Equitable and Progressive, the Constitution only requires a “system.” Thus, there
are regressive forms like the VAT
5. Constitutional Tax exemptions
- What is exempted is the activity NOT the entity itself
- For an entity to be exempted, it must be Religious, Charitable, and Educational
- How to prove exemption? ADE Test = Actually (You are using it now), Directly (You
are engaged with it), and Exclusively (built for that purpose) used.
- Under Art. 14 of the Constitution, certain exemptions are given to educational entities
provided that the entity is a non-stock/non-profit institution. Moreover, to be
exempted you also need to use ADE Test. (see: CIR v. DLSU, GR 196596)
- If proved, the entity is exempted from Revenues (the income produced because of
the assets) and Assets (Physical things). The distinction is stated in CIR v. DLSU.