a ALBANO _ 5m aga, Bark REVIEWCENTER EAL NZ. Nin Gpucriorcccren ~« NM cg CAG thea PD, | Reminders in Taxation Law I repared by Atty. Noel. Ortega Care| A.___BASICTAXATION Explain briefly the concept, purpose ane nature of taxation. Taxation ts the process or means by which the sovereign, through its lawmaking body, raises income to slefray the necessary expenses of the government. ‘The primary purpose is to generste funds for the State to finance the needs of the citizenry and to advance © common weal! faxauion is both an inherent power and a legislative power. The power of taxation is an essential and inherent bute of sovereignty, belonging as a matter of right to every independent government without being éxpressly sranted by the people.! te Explain briefly the theory and basis of taxation. . The power to tax is an atuibute of soverel ighty emanating from necessity (Question No. 3, 2012 Bar Examinations), * Taxation is described as 2 symbiotic relationship whereby in exchange of the benefits and protection that the citizens get from the government, taxes are paid. How are statutory provisions granting ¢ax exemptions or deductions construed? State the basis for the rule. {ts an elementary rule in taxation that exemptions are strictly construed against the taxpayer and liberally in favor of the taxing authority—it is the taxpayer’s duty to justify the exemption by words tou plain to be mistaken and too categorical to be misinterpretess ‘The basis for the rule on strict co: struction to statutory provisions granting tax exemptions or deductions is to minimize differential treatment and {os er impartiality, fairness and equality of treatment among taxpayers." What are the characteristics of a sound vax system? ‘The three principles that characatize a sound tx system are the principles of fiscal aggquagy, theoretical Justice and administrative feasibility. Sak. The principle of fscal adequacy simply means that sources of revenues must be ‘MfehBate to meet Sovernment expenditures and their variations, The principle of equalley or theoretical justice means that phe tax lmposed must be proportionate to taxpayer's ability to pay. The principle of administrative feaibiltyrrequires thot the tax aw must be capable of convenient, ust and effective administration, Distinguish tax from license fee. ‘Tax may be distinguished fed license j2e as follows: aan tevenue Imposed for regulations Involves exercise of taxing power i a involves an exercise of police power “Amount is generally not limited Amount is usually limited to the necessary expenses ofregulation Imposed on the right to exercise a privilege Imposed on the right to exerese a” privilege as: well as to persons and fpropbend: ep Enforced “contribution assessed by sovereign authority to detray public expenses | Failure to pay does not necessarily. lakes | the business ilegal J | Tegal compensation or reward af an officer Tor specific services Failure to pay makes the act or business Wea | Napocor Province af Aiba. G R. No. 87479, 4 ane 1990, | Pepsi-Cola Bouin Co. ofthe Philippines tne Phil Guarans Co In. Commitsoner of aemal Reveee oy "CUR 6 Algue,fne GR No af Tanoua, Leyte. GR No L31156,27 Feb 1976 -R No. (22074, 30 Apri 1965 28396, 17 Feb 1982. * Kad Common ote Phipps, Ine: (RCP 8, Pricer ofS Coe, 16% 1 Quezon sy ABSCBN Broadcasting Corporation, 67 SCRA 9,‘emnters ws Jaa Lam 3 A AUN Noe! ME Ortega Are toll fees considered taxes? Nu. A tax is imposed under the tang power of the government principally for the purpose of raising revenues to und public expenditures. Toll fees, on the other hand, are collected by private tollway operatars as ceimbursernent tor the casts and expenses incurred in the construction, maintenance and operation of the tollway, is well as to asstire them a reasonable margin of income. Although toll fees are charged for the use of public cilities, therefore, they are not government exactions that can be properly treated as a tax. (Renato V. Diag, eal vs. Secretary uf Finance, etal, GR. No, 193007, July 19.2011) Give the sources of tax taw. Vhe sources ot tan laws are: (a) Constitution; (b) statutes or laws; (c) presidential decrees, (d) revenue regulation; (e) administrative rulings and opinfons; (0) judicial decisions, () provincial, city, municipal and barangay ordinances; and (h) treaties or ternational agreements. What is meant by progressive taxation and what is its basis? Progressive taxation 1s built on the principle of the taxpayer's ability to pay ~ taxation fs progressive when Its rate goes up depending on the resuurces ofthe person affected. What is double taxation? Is &t unconstitutional? Double taxation means taxing the seme property twice when it should be taxed only once, that is, taxing the same persun twice by the same jurisdiction far the same thing, (Cammussioner of Internal Revenue vs. Honk of Commerce, 459 SCKA 538) Double taxation 1s not expressly forbidden in our Constitution, but the Court has recognized it as obnoxious “where the taxpayer is taxed twice for the benefit of the same governmental eatity or by the same jurisdictian for the same purpose." (Abakada Guro Party ‘st vs. Ermita, supra) . How is the plaintiff in a taxpayer's suit 4ifferentiaved from the plaintiff ina ettizen's suit? ‘The plaintiff na taxpayer's suit is in.a different category froin the plaintilf in a citizen's swt ~ in the former, (he lainufl is affected by the expenditure ot public funds, white in the Lutter, he 1s but the mere instrument of the public concern. (David vs. Macapagal-Arroyo, 469 SCRA 160) It has been said tae tne State can never be in estoppel, and this is particularly true in matters involving taxation. Exalata the philosophy behind the government's exception, as @ general rule, fram the operation of the principle of gegpebel- ‘The underlying basis is the Wleblaod theory. Upon taxation depends the Government's ability to serve the people for whose benelit taxes are collected! To safeguard such interest, neglect oF oimiss én of government officals entrusted with the cullection vl taxes should not be allowed to bring harm or detriment to the people. in the same manner as private persons may be made to sufter individually on account of bis own negligence, the presumption being that they take good care of their personal affair. This should not hold true to government officials with respect to matters not af their own personal concert (Misael P. Vera, et.al vs. Jase F: Fernandez, et al, GX. No L31364, March 30, 1979, Atlas Consolidaged Mining Development Corp. vs. Commtssioner of Internal Revenue, G.R. No. L-2691t, January 27, 1981) L Basic Concepts What is income? Income means alt the wealth which flaws into the taxpayer other than 3 mere return on capital, fis gain derived and severed from capital. What are the requisites in order that income may be taxable? For income to be taxable, the following requisites must exist (4) there must be gain; (b) the gain must be realized or received and (0) Ue gain must Wot be excluded by law ur treaty from taxation, (Commissioner wf Interuul Revenue v. Cow's 0) Appeals, GR. No. 108576, 20 January 1999, 301 SCRA 152, 181) When is income considered realized?ok Remanhies im Faxon Late ny duty Noel M:Onieea For income tax purposes, income is realized when the earnin ; " wi 1& Process is complete oF virtual let exchange has taken place. (Question No. 32, 2011 Bar Examinations) ee What are che sources of income? h general, the sources of income are the property, activity or service that produced the income. Source of income as a test of taxability of income ctulappn tee Section 23 of the NIRG, all persuns are taxable only on income derived from sources within the Rriinpines, But Fesident citizens and domestic corporations are also taxable on income derived from sources cutside the Philippines, When is the source of income considered from within the Philippines? In general, for the source of income to be considered as coming from the Philippines, it is sufficient that the sacome ts derived from property, acuvity or service within the Philippines. in CIR vs. BOAC (1987), an off-line international carrier maintained a sales agent in the Philippines who sold Luckets tor flights own outside the Philippines. The Supreme Court considered the sale of tickets In the PhUlippines as the activity that produced the income. ‘The test of taxability is the "source"; and the source of an income is that sctivity which produced the income. Even if the BOAC tickets Sold covered the “transport of passengers and cargo to and Irom foreign cities*, it cannot alter the fact that income from the sale of tickets was derived from the Philippines. Thus, BOAC was made llable for revenue derived from the sale of the tickets. What are incomes considered derived from sources within the Philippines? Sec. 42(A) of the Tax Code enumerates the items of gross income from sources within the Philippines, namely: (4) Incerests? paid by residents of the Philippines, corporate or otherwise; (b) Dividends patd by domestic corporations; ot foreign corporations", at least 50% of their grass income in the last three taxable years coming from sources within the Philippines. G (©) Compensation’ for services performed in the Philippines: (d) Reneals ond coyalties" from properties located in the Philippines; (e) Gains trons sale of real properties" located in the Philippines: and {0 Gains trom sale of personal properties’?, the sate taking place in the Philippines. What determines the source of the incomes enumerated in Sec. 42 of the NIRC? {a) For interest, itis the RESIDENCE of the payor of such interest; py) for diviten paid by a domestic corporation, the law treats the same as derived fram sources within the Philippines without further qualifications; ifpaid by a foreign corporation, itis the COMPOSITION OF GROSS INCOME OF THE LAST THREE YEARS; {c) For compensation, itis the PLACE WHERE SERVICES ARE RENDERED: (d) For reatal or royalty, it ls the PLACE WHERE THE PROPERTY [S LOCATED, or WHERE THE USE OR PRIVILEGE TO USE IS FOUND; (c) For gain from sale of realty, itis the LOCATION OF THE REAL PROPERTY; and. {For gain from sale of personal property, it is the PLACE OF SALE, except for gain from sale of shares in a tlomestic corparation where regardless of the place of sale, the income Is elways treated as income from sources watin the Philippines. Who are the income taxpayers? in general tte income taxpayers ae clasiied into individual, estate, trust and corporation. (See 224, IRC) wits 02 Differentiate global system of taxation from schedular system of taxation. What syStem of taxation was adopted under the IRC on income taxation? Under the global tax system, the tax treatment is common to all categories of income. Thus. here 1s no need to classily income. The rate applied is unitary but may be progressive as in individuals or flat_as in corporate taxpayers. Under this system, all incomes are reported in one income tax return. {Qussuens Ha, 2011 Bat bxamsnations « Gidsstews 218) 8 2017 Bar Eamimabions 3 7.2042 Har Hsaneananons| 1 Hr Examinations est | tae Usamanatons (Guenunme 21 98 2011 Bat Esa