TAXATION LAW 1: ATTY. R. ONG ABRANTES, CPA
DELFIN
PART A. GENERAL PRINCIPLES OF TAXATION
I. INTRODUCTON TO TAXATION
CASES:
A. TAXATION, TAXES DEFINED
PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs.
MUNICIPALITY OF TANAUAN
69 SCRA 460
GR No. L-31156, February 27, 1976
"Legislative power to create political corporations for purposes of local
self-government carries with it the power to confer on such local
governmental agencies the power to tax.
FACTS: Plaintiff-appellant Pepsi-Cola commenced a complaint with
preliminary injunction to declare Section 2 of Republic Act No. 2264,
otherwise known as the Local Autonomy Act, unconstitutional as an
undue delegation of taxing authority as well as to declare Ordinances
Nos. 23 and 27 denominated as "municipal production tax" of the
Municipality of Tanauan, Leyte, null and void. Ordinance 23 levies
and collects from soft drinks producers and manufacturers a tax of
one-sixteenth (1/16) of a centavo for every bottle of soft drink corked,
and Ordinance 27 levies and collects on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a
tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.)
of volume capacity. Aside from the undue delegation of authority,
appellant contends that it allows double taxation, and that the subject
ordinances are void for they impose percentage or specific tax.
ISSUE: Are the contentions of the appellant tenable?
RULIG:
No. On the issue of undue delegation of taxing power, it is settled that
the power of taxation is an essential and inherent attribute of
sovereignty, belonging as a matter of right to every independent
government, without being expressly conferred by the people.  It is a
power that is purely legislative and which the central legislative body
cannot delegate either to the executive or judicial department of the
government without infringing upon the theory of separation of
powers. The exception, however, lies in the case of municipal
corporations, to which, said theory does not apply. Legislative powers
may be delegated to local governments in respect of matters of local
concern. By necessary implication, the legislative power to create
political corporations for purposes of local self-government carries
with it the power to confer on such local governmental agencies the
power to tax.
   Also, there is no validity to the assertion that the delegated
authority can be declared unconstitutional on the theory of double
taxation. It must be observed that the delegating authority specifies
the limitations and enumerates the taxes over which local taxation
may not be exercised. The reason is that the State has exclusively
reserved the same for its own prerogative. Moreover, double taxation,
in general, is not forbidden by our fundamental law, so that double
taxation becomes obnoxious only where the taxpayer is taxed twice for
the benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax is
imposed by the State and the other by the city or municipality.
   On the last issue raised, the ordinances do not partake of the
nature of a percentage tax on sales, or other taxes in any form based
thereon. The tax is levied on the produce (whether sold or not) and not
on the sales. The volume capacity of the taxpayer's production of soft
drinks is considered solely for purposes of determining the tax rate on
the products, but there is not set ratio between the volume of sales
and the amount of the tax.
TIO VS VIDEOGRAM REGULATORY BOARD 151 SCRA 208, G.R.
NO. L-75697, JUNE 18, 1987
FACTS:
Tio is a videogram operator who assailed the constitutionality of PD
1987 entitled “An Act Creating the Videogram Regulatory Board” with
broad powers to regulate and supervise the videogram industry. The
Presidential Decree was also reinforced by Presidential Decree 1994
which amended the National Internal Revenue Code.
The amendment provides that “there shall be collected on each
processed video-tape cassette, ready for playback, regardless of
length, an annual tax of five pesos; Provided, that locally
manufactured or imported blank video tapes shall be subject to sales
tax.”
The said law was brought about by the need to regulate the sale of
videograms as it has adverse effects to the movie industry. The
proliferation of videograms has significantly lessened the revenue
being acquired from the movie industry, and that such loss may be
AD MAJOREM DEI GLORIAM +
JENNICA GYRL G.
recovered if videograms are to be taxed. Sec 10 of the PD imposes a
30% tax on the gross receipts payable to the LGUs.
Tio countered, among others, that the tax imposition provision is a
rider and is not germane to the subject matter of the PD.PD 1994
issued a month thereafter reinforced PD 1987 and in effect amended
the National Internal Revenue Code (NIRC).
Petitioner's attack on the constitutionality of the DECREE on the
ground that there is undue delegation of power and authority.
ISSUE:
Whether or not the PD 1987 is unconstitutional due to the tax
provision included.
RULING:
No. The title of the decree, which calls for the creation of the VRB is
comprehensive enough to include the purposes expressed in its
Preamble and reasonably covered in all its provisions. It is
unnecessary to express all those objectives in the title or that the
latter be an index to the body of the decree. The foregoing provision is
allied and germane to, and is reasonably necessary for the
accomplishment of the general object of the decree, which is the
regulation of the video industry through the VRB as expressed in its
title. The tax provision is not inconsistent with nor foreign to the
general subject and title. As a tool for regulation it is simply one of the
regulatory and control mechanisms scattered throughout the decree.
The express purpose of PD 1987 to include taxation of the video
industry in order to regulate and rationalize the heretofore
uncontrolled distribution of videos is evident from Preambles 2 and 5.
Those preambles explain the motives of the lawmaker in presenting
the measure. Neither can it be successfully argued that the DECREE
contains an undue delegation of legislative power.
The grant in Section 11 of the DECREE of authority to the BOARD to
"solicit the direct assistance of other agencies and units of the
government and deputize, for a fixed and limited period, the heads or
personnel of such agencies and units to perform enforcement
functions for the Board" is not a delegation of the power to legislate
but merely a conferment of authority or discretion as to its execution,
enforcement, and implementation. "The true distinction is between the
delegation of power to make the law, which necessarily involves a
discretion as to what it shall be, and conferring authority or discretion
as to its execution to be exercised under and in pursuance of the law.
The first cannot be done; to the latter, no valid objection can be
made."
PHILIPPINE HEALTH CARE PROVIDERS V CIR G.R. NO. 167330
JUNE 12, 2008
J. CORONA
FACTS:
The petitioner, a prepaid health-care organization offering benefits to
its members. The CIR found that the organization had a deficiency in
the payment of the DST under Section 185 of the 1997 Tax Code
which stipulated its implementation:
“On all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the
business of accident, fidelity, employer's liability, plate, glass,
steam boiler, burglar, elevator, automatic sprinkler, or other branch
of insurance (except life, marine, inland, and fire insurance)”
The CIR sent a demand for the payment of deficiency taxes, including
surcharges and interest, for 1996-1997 in the total amount of
P224,702,641.18.
The petitioner protested to the CIR, but it didn’t act on the appeal.
Hence, the company had to go to the CTA. The latter declared
judgment against them and reduced the taxes. It ordered them to pay
22 million pesos for deficiency VAT for 1997 and 31 million deficiency
VAT for 1996.
CA denied the company’s appeal an d increased taxes to 55 and 68
million for 1996 to 1997.
ISSUES:
WON a health care agreement in the nature of an insurance contract
and therefore subject to the documentary stamp tax (DST) imposed
under Section 185 of Republic Act 8424 (Tax Code of 1997)
RULING:
Yes. Petition dismissed.
Ratio:
The DST is levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of specific
legal relationships through the execution of specific instruments.
The DST is an excise upon the privilege, opportunity, or facility offered
at exchanges for the transaction of the business. In particular, the
DST under Section 185 of the 1997 Tax Code is imposed on the
privilege of making or renewing any policy of insurance (except life,
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 TAXATION LAW 1: ATTY. R. ONG ABRANTES, CPA
marine, inland and fire insurance), bond or obligation in the nature of
indemnity for loss, damage, or liability.
Petitioner's health care agreement is primarily a contract of
indemnity. And in the recent case of Blue Cross Healthcare, Inc. v.
Olivares, this Court ruled that a health care agreement is in the
nature of a non-life insurance policy.
Its health care agreement is not a contract for
the provision of medical services. Petitioner does not actually
provide medical or hospital services but merely arranges for the same
It is also incorrect to say that the health care agreement is not based
on loss or damage because, under the said agreement, petitioner
assumes the liability and indemnifies its member for
hospital, medical and related expenses (such as professional fees of
physicians). The term "loss or damage" is broad enough to cover the
monetary expense or liability a member will incur in case of illness or
injury.
Philamcare Health Systems, Inc. v. CA.- The health care agreement
was in the nature of non-life insurance, which is primarily a contract
of indemnity.
Similarly, the insurable interest of every member of petitioner's health
care program in obtaining the health care agreement is his own
health. Under the agreement, petitioner is bound to indemnify any
member who incurs hospital, medical or any other expense arising
from sickness, injury or other stipulated contingency to the extent
agreed upon under the contract.
CIR VS SM PRIME HOLDINGS INC.
FACTS:
 In a number of CTA cases, the BIR sent SM Prime and First
Asia a Preliminary Assessment Notice (PAN) for VAT
deficiency on cinema ticket sales for taxable year 2000 (SM),
1999 (First Asia), 2000 (First Asia), 2002 (First Asia), and
2003 (First Asia).
o SM and First Asia filed for protest but the BIR just
denied them and sent them a Letter of Demand
subsequently.
o All the PANs were subjected to a Petition for Review
filed by SM and First Asia to the CTA.
 The CTA First Division ruled that there should only be one
business tax applicable to theater and movie houses, the
30% amusement tax. Hence, the CIR is wrong in collecting
VAT from the ticket sales.
o CIR appealed the case to the CTA En Banc.
 The CTA En Banc affirmed the ruling of the CTA First
Division.
ISSUE: Whether the cinema ticket sales are subject to VAT and thus
included in the meaning of “Sale or Exchange of Services”?
RULING: NO!
When VAT was enacted it replaced the tax on original and subsequent
sales tax and percentage tax on certain services. When the VAT law
was implemented, it exempted persons subject to amusement tax
under the NIRC from the coverage of VAT. When the Local Tax Code
was repealed by the Local Government Code of 1991, the local
government continued to impose amusement tax on admission tax on
ticket sales. The following amendments to the VAT law have been
consistent that those subject to amusement tax is no liable under
VAT. Only lessors or distributors of cinematographic films are
included in the coverage of VAT.
It can be seen from the foregoing that the legislative intent was not to
impose VAT on persons already covered by the amusement tax. To
hold otherwise would impose an unreasonable burden on
cinema/theater houses operators and proprietors, who would be
paying an additional 10% VAT on top of the 30% amusement tax.
**Yung susunod the discussion ay yung sinabi ng court bago nila
inalam yung legislative intent na nakamention sa itaas**
Sec. 108 of the NIRC provides that, there shall be levied, assessed
and collected, a VAT equivalent to 10% of gross receipts derived from
the sale or exchange of services, including the use or lease of
properties. The phrase “sale or exchange of services” means the
performance of all kinds of services in the Philippines for others for a
fee, remuneration or consideration, including those…….lessors or
distributors of cinematographic films……..and similar services
regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties. The phrase “sale or
exchange of services” shall likewise include: (7) lease of motion picture
films, films, tapes and discs.
A reading of the foregoing provision clearly shows that the
enumeration of the “sale or exchange of services” subject to VAT is not
exhaustive. The words, “including,” “similar services,” and “shall
likewise include,” indicate that the enumeration is by way of example
only.
AD MAJOREM DEI GLORIAM +
JENNICA GYRL G. DELFIN
REPUBLIC OF THE PHILIPPINES V. CAGUIOA
October 15, 2007| Carpio-Morales, J. | Non-impairment
PETITIONER: Republic of the Philippines represented by Secretary
of Finance, Commissioner of BIR, Commissioner of Customs, and
the Collector of Customs of the Port of Subic
RESPONDENTS: Indigo Distribution Corporation, W Star Trading
and Warehousing Corporation, Freedom Brands Philippines
Corporation, Branded Warehouse, Inc., Altasia, Inc., Tainan Trade
(Taiwan) Inc., Subic Park 'N Shop, Incorporated, Trading Gateways
International Philippines, Inc., Duty Free Superstore (DFS) Inc.,
Chijmes Trading, Inc., Premier Freeport, Inc., Future Trade Subic
Freeport, Inc., Grand Comtrade Int'l., Corp., and First Platinum
International, Inc.,
SUMMARY: Congress enacted RA 7227 that provides that no taxes
shall be imposed within the Subic Special Freeport and Economic
Zone. The companies listed as respondents applied for certificates of
exemption which were granted. RA 9334 was subsequently passed
which provided that all taxes, duties, charges, including excise taxes
shall be applied to cigars and cigarettes, distilled spirits, fermented
liquors and wines brought to the freeports of Subic Economic
Freeport Zone. Indigo, et. al. sought for reconsideration but were
denied. They filed a petition for declaratory relief with RTC Olongapo
and Judge Caguioa granted it as well as the injunction bond of P1M.
The issue is whether the tax exemption is contractual in nature and
the right to non-impairment of contracts may be invoked. While the
tax exemption contained in the Certificates of Registration of
private respondents may have been part of the inducement for
carrying on their businesses in the SBF, this exemption,
nevertheless, is far from being contractual in nature in the
sense that the non-impairment clause of the Constitution can
rightly be invoked.
DOCTRINE:  Certificates of Tax Exemption are not absolute and
is far from being contractual in nature in the sense that the
non-impairment clause of the Constitution can rightly be
invoked.
FACTS:
1. In 1992, Congress enacted Republic Act (R.A) No. 7227 or
the BASES CONVERSION AND DEVELOPMENT ACT OF
1992 which created the Subic Special Economic and
Freeport Zone (SBF) and the Subic Bay Metropolitan
Authority (SBMA). R.A. No. 7227 envisioned the SBF to be
developed into a "self-sustaining, industrial, commercial,
financial and investment center to generate employment
opportunities in and around the zone and to attract and
promote productive foreign investments."
2. Section 12 of the law provided that “(b) The Subic Special
Economic Zone shall be operated and managed as a
separate customs territory ensuring free flow or
movement of goods and capital within, into and exported
out of the Subic Special Economic Zone, as well as
provide incentives such as tax and duty-free
importations of raw materials, capital and equipment.
However, exportation or removal of goods from the
territory of the Subic Special Economic Zone to the
other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines;” and
“(c) The provisions of existing laws, rules and regulations
to the contrary notwithstanding, no taxes, local and
national, shall be imposed within the Subic Special
Economic Zone.”
3. Indigo Distribution Corporation, W Star Trading and
Warehousing Corporation, Freedom Brands Philippines
Corporation, Branded Warehouse, Inc., Altasia, Inc., Tainan
Trade (Taiwan) Inc., Subic Park 'N Shop, Incorporated,
Trading Gateways International Philipines, Inc., Duty Free
Superstore (DFS) Inc., Chijmes Trading, Inc., Premier
Freeport, Inc., Future Trade Subic Freeport, Inc., Grand
Comtrade Int'l., Corp., and First Platinum International, Inc.,
which are all domestic corporations doing business at the
SBF, applied for and were granted Certificates of Registration
and Tax Exemption 6 by the SBMA. This allowed them to
trade, retail, wholesale, import, export, etc. and uniformly
granted them tax exemptions for such importations
according to the certificates that “The Company shall be
entitled to tax and duty-free importation of raw
materials, capital equipment, and household and
personal items for use solely within the Subic Bay
Freeport Zone”.
4. Congress subsequently passed R.A. No. 9334 which
amended the NIRC and said that articles brought into the
Philippines tax-free subsequently sold to non-exempt
persons, the purchasers shall be liable for the duty and
internal revenue tax and the provision of any special or
general law to the contrary notwithstanding, the
importation of cigars and cigarettes, distilled spirits,
fermented liquors and wines into the Philippines, even if
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 TAXATION LAW 1: ATTY. R. ONG ABRANTES, CPA
destined for tax and duty free shops, shall be subject to
all applicable taxes, duties, charges, including excise
taxes due thereon. This shall apply to cigars and
cigarettes, distilled spirits, fermented liquors and wines
brought directly into the duly chartered or legislated
freeports of the Subic Economic Freeport Zone, created
under Republic Act No. 7227;
5. Based on Sec. 6 of R.A. No. 9334, SBMA issued a
Memorandum declaring that all importations of cigars,
cigarettes, distilled spirits, fermented liquors and wines into
the SBF, including those intended to be transshipped to
other free ports in the Philippines, shall be treated as
ordinary importations subject to all applicable taxes, duties
and charges, including excise taxes.
6. Meanwhile, former BIR Commissioner Guillermo L. Parayno,
Jr. requested then Customs Commissioner George M. Jereos
to immediately collect the excise tax due on imported alcohol
and tobacco products brought to the Duty Free Philippines
(DFP) and Freeport zones. The Collector of Customs of the
port of Subic directed the SBMA Administrator to require
payment of all appropriate duties and taxes on all
importations of cigars and cigarettes, etc.
7. SBMA issued a Memorandum directing the departments
concerned to require locators/importers in the SBF to pay
the corresponding duties and taxes on their importations of
cigars, cigarettes, etc.
8. Private respondents wrote the offices of respondent Collector
of Customs and the SBMA Administrator requesting for a
reconsideration of the directives on the imposition of duties
and taxes, particularly excise taxes on their cigarettes, etc.
Despite these, they were not allowed to file any warehousing
entry for their shipments. Thus, they filed a petition for
declaratory relief to have certain provisions of RA 9334
declared as unconstitutional.
9. Indigo, et. al. claimed that repeals by implication are not
favored, a general law cannot amend a special law, and that
it violates the one-bill-one-subject rule as well as the
constitutional proscription against the impairment of the
obligation of contracts. They also prayed for the issuance of a
writ of preliminary injunction and/or TRO.
10. The trial court granted these and issued a Writ of
Preliminary Injunction directing petitioners and the SBMA
Administrator as well as all persons assisting or acting for
and in their behalf to allow the operations, file warehousing
entries, and not compelling them to pay the taxes. An
injunction bond of P1M was approved.
ISSUE:
1. Whether the writ of preliminary injunction was properly
issued - NO
2. Whether the certificates of tax exemption may be used to
invoke the non-impairment of contracts - NO
RATIO:
1. For a writ of preliminary injunction to issue, the plaintiff
must be able to establish that (1) there is a clear and
unmistakable right to be protected, (2) the invasion of the
right sought to be protected is material and substantial, and
(3) there is an urgent and paramount necessity for the writ to
prevent serious damage.
2. R.A. No. 7227 granted private respondents exemption from
local and national taxes, including excise taxes, on their
importations of general merchandise, for which reason they
enjoyed tax-exempt status until the effectivity of R.A. No.
9334. However, by subsequently enacting R.A. No. 9334,
however, Congress expressed its intention to withdraw
private respondents' tax exemption privilege on their
importations of cigars, cigarettes, distilled spirits, fermented
liquors and wines.
3. The old Section 131 of the NIRC expressly provided that all
taxes, duties, charges, including excise taxes shall not apply
to importations of cigars, cigarettes, fermented spirits and
wines brought directly into the duly chartered or legislated
freeports of the SBF but Section 131, as amended by R.A.
No. 9334, now provides that such taxes shall apply.
4. The Court stated basic principles:
a. Every presumption must be indulged in favor of the
constitutionality of a statute. The burden of proving
the unconstitutionality of a law rests on the party
assailing the law.
b. There is no vested right in a tax exemption. The
power to impose taxes is one so unlimited in force
and so searching in extent, it is subject only to
restrictions which rest on the discretion of the
authority exercising it.
c. Generally, tax exemptions are construed strictly
against the taxpayer and liberally in favor of the
taxing authority. The burden of proof is with the
one claiming exemption.
d. A tax exemption cannot be grounded upon the
continued existence of a statute which precludes its
change or repeal because no law is irrepealable.
AD MAJOREM DEI GLORIAM +
JENNICA GYRL G. DELFIN
e. . The rights granted under the Certificates of
Registration and Tax Exemption of private
respondents are not absolute and unconditional as
to constitute rights in esse — those clearly founded
on or granted by law or is enforceable as a matter of
law.
These certificates granting private respondents a "permit to
operate" their respective businesses are in the nature of licenses,
which the bulk of jurisprudence considers as neither a property
nor a property right. The licensee takes his license subject to
such conditions as the grantor sees fit to impose, including its
revocation at pleasure. A license can thus be revoked at any time
since it does not confer an absolute right.
While the tax exemption contained in the Certificates of
Registration of private respondents may have been part of the
inducement for carrying on their businesses in the SBF, this
exemption, nevertheless, is far from being contractual in nature
in the sense that the non-impairment clause of the Constitution
can rightly be invoked.
f. Whatever right may have been acquired on the
basis of the Certificates of Registration and Tax
Exemption must yield to the State's valid exercise of
police power.
g. As a rule, courts should avoid issuing a writ of
preliminary injunction which would in effect
dispose of the main case without trial.
h. A court may issue a writ of preliminary injunction
only when the petitioner assailing a statute has
made out a case of unconstitutionality or invalidity
strong enough to overcome the presumption of
validity, in addition to a showing of a clear legal
right to the remedy sought.
i. The feared injurious effects of the imposition of
duties, charges and taxes on imported cigars,
cigarettes, distilled spirits, fermented liquors and
wines on private respondents' businesses cannot
possibly outweigh the dire consequences that the
non-collection of taxes, not to mention the
unabated smuggling inside the SBF, would wreak
on the government.
5. The possibility of irreparable damage without proof of an
actual existing right would not justify an injunctive relief.
Besides, private respondents are not altogether lacking an
appropriate relief under the law. As petitioners point out in
their Petition before this Court, they may avail themselves of
a tax refund or tax credit should R.A. No. 9334 be finally
declared invalid.
6. Indeed, Sections 204 and 229 of the NIRC provide for the
recovery of erroneously or illegally collected taxes which
would be the nature of the excise taxes paid by private
respondents should Section 6 of R.A. No. 9334 be declared
unconstitutional or invalid.
7. Any injunction that restrains the collection of taxes, which is
the inevitable result of the suspension of the implementation
of the assailed Section 6 of R.A. No. 9334, is a limitation
upon the right of the government to its lifeline and
wherewithal. The power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people.
That the enforcement of tax laws and the collection of taxes
are of paramount importance for the sustenance of
government has been repeatedly observed. Taxes being the
lifeblood of the government that should be collected without
unnecessary hindrance, 60 every precaution must be taken
not to unduly suppress it.
8. WHEREFORE, the Petition is PARTLY GRANTED. The
writ of certiorari to nullify and set aside the Order of
May 4, 2005 as well as the Writ of Preliminary Injunction
issued by respondent Judge Caguioa on May 11, 2005 is
GRANTED. The assailed Order and Writ of Preliminary
Injunction are hereby declared NULL AND VOID and
accordingly SET ASIDE. The writ of prohibition prayed
for is, however, DENIED.
CIR V. SANTOS, 277 SCRA 617 (1997)
G.R. NO. 119252 AUGUST 18, 1997
Facts:
Guild of Phil. Jewelers, Inc. questions the constitutionality of certain
provisions of the NIRC and Tariff and Customs Code of the
Philippines. It is their contention that the present Tariff and tax
structure increases manufacturing costs and render local jewelry
manufacturers uncompetitive against other countries, in support of
their position, they submitted what they purported to be an
exhaustive study of the tax rates on jewelry prevailing in other Asian
countries, in comparison to tax rates levied in the country.
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 TAXATION LAW 1: ATTY. R. ONG ABRANTES, CPA
Judge Santos of RTC Pasig, ruled that the laws in question are
confiscatory and oppressive and declared them INOPERATIVE and
WITHOUT FORCE AND EFFECT insofar as petitioners are concerned.
Petitioner CIR assailed decision rendered by respondent judge
contending that the latter has no authority to pass judgment upon the
taxation policy of the Government. Petitioners also impugn the
decision by asserting that there was no showing that the tax laws on
jewelry are confiscatory.
Issue:
I. Whether RTC has authority to pass judgment upon taxation
policy of the government.
II. WON the state has the power to select the subjects of
taxation.
Ruling:
I. The policy of the court is to avoid ruling on constitutional
questions and to presume that the acts of the political departments
are Commissioner of Internal Revenue vs. Fortune Tobacco
Corporation
G.R. Nos. 167274-75, July 21, 2008
FACTS:
Fortune Tobacco is a manufacturer and producer of some cigarette
brands. Prior to January 1, 1997, its cigarette brands were subject
to ad valorem tax but on January 1, 1997, R.A. No. 8240 took effect
whereby a shift from the ad valorem tax (AVT) system to the specific
tax system was made and subjecting its cigarette brands to specific
tax.
For the period covering January 1-31, 2000, Fortune Tobacco paid
specific taxes on all brands manufactured so it filed a claim for refund
or tax credit of its overpaid excise tax for the month of January 2000.
The Court of Tax Appeals (CTA) and the Court of Appeals, granted the
tax refund or tax credit representing specific taxes erroneously
collected from its tobacco products. However, the Commissioner of
Internal Revenue reclaims the grant of tax refund. Hence, this
petition.
ISSUE:
Whether or not Fortune Tobacco is entitled to tax refund.
RULING:
Yes. Although tax refund partakes the nature of a tax exemption, this
rule does not apply to Fortune Tobacco’s claim. The parity between
tax refund and tax exemption exists only when the former is based
either on a tax exemption statute or a tax refund statute. In the
present case, Fortune Tobacco’s claim for refund is premised on its
erroneous payment of the tax, or the government’s exaction in the
absence of a law.
Tax exemption is granted by the legislature thus, the one who claims
an exemption from the burden of taxation must justify his claim by
showing that the legislature intended to exempt him by words too
plain to be mistaken. In the same manner, a claim for tax refund may
also be based on statutes granting tax exemption or tax refund. In
this case, the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an
exemption.
However, tax refunds (or tax credits) are not founded principally on
legislative grant but on the legal principle of solutio indebiti, the
government cannot unjustly enrich itself at the expense of the
taxpayers. Under the Tax Code, in recognition of the pervasive quasi-
contract principle, a claim for tax refund may be based on the
following:
(a) erroneously or illegally assessed or collected internal revenue
taxes;
(b) penalties imposed without authority; and
(c) any sum alleged to have been excessive or in any manner
wrongfully collected.
valid in the absence of a clear and unmistakable showing to the
contrary.
This is not to say that RTC has no power whatsoever to declare a law
unconstitutional. But this authority does not extend to deciding
questions which pertain to legislative policy.
RTC have the power to declare the law unconstitutional but this
authority does not extend to deciding questions which pertain to
legislative policy. RTC can only look into the validity of a provision,
that is whether or not it has been passed according to the provisions
laid down by law, and thus cannot inquire as to the reasons for its
existence.
II. YES. The respondents presented an exhaustive study on
the tax rates on jewelry levied by different Asian countries. This is
meant to convince us that compared to other countries; the tax rates
imposed on said industry in the Philippines is oppressive and
confiscatory. This Court, however, cannot subscribe to the theory that
the tax rates of other countries should be used as a yardstick in
AD MAJOREM DEI GLORIAM +
JENNICA GYRL G. DELFIN
determining what may be the proper subjects of taxation in our own
country. It should be pointed out that in imposing the aforementioned
taxes and duties, the State, acting through the legislative and
executive branches, is exercising its sovereign prerogative. It is
inherent in the power to tax that the State be free to select the
subjects of taxation, and it has been repeatedly held that "inequalities
which result from a singling out or one particular class for taxation, or
exemption, infringe no constitutional limitation."
B. NATURE OF THE TAXING POWER
CASES:
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS
SAMSON S. ALCANTARA and ED VINCENT S. ALBANO, Petitioners,
vs. THE HONORABLE EXECUTIVE SECRETARY EDUARDO
ERMITA;.
FACTS:
RA 9337, an act amending certain sections of the National Internal
Revenue Code of 1997, is questioned by petitioners for being
unconstitutional. Procedural issues raised by petitioners are the
legality of the bicameral proceedings, exclusive origination of revenue
measures and the power of the Senate concomitant thereto. Also, an
issue was raised with regard to the undue delegation of legislative
power to the President to increase the rate of value-added tax to 12%.
Petitioners also argue that the increase to 12%, as well as the 70%
limitation on the creditable input tax, the 60- month amortization on
the purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by government
agencies, is arbitrary, oppressive, and confiscatory, and that it
violates the constitutional principle on progressive taxation, among
others.
ISSUE:
Whether RA 9337 is constitutional?
Whether or not there is a violation of the due process and equal
protection of the Constitution.
RULING:
Yes. Mounting budget deficit, revenue generation, inadequate fiscal
allocation for education, increased emoluments for health workers,
and wider coverage for full value-added tax benefits ... these are the
reasons why Republic Act No. 9337 (R.A. No. 9337) was enacted.
Reasons, the wisdom of which, the Court even with its extensive
constitutional power of review, cannot probe.
It has been said that taxes are the lifeblood of the government. In this
case, it is just an enema, a first-aid measure to resuscitate an
economy in distress. The Court is neither blind nor is it turning a deaf
ear on the plight of the masses. But it does not have the panacea for
the malady that the law seeks to remedy. As in other cases, the Court
cannot strike down a law as unconstitutional simply because of its
yokes. 
No, the power of the State to make reasonable and natural
classifications for the purposes of taxation has long been established.
Whether it relates to the subject of taxation, the kind of property, the
rates to be levied, or the amounts to be raised, the methods of
assessment, valuation and collection, the State’s power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with
such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.
COMMISSIONER OF INTERNAL REVENUE VS. FORTUNE
TOBACCO CORPORATION
G.R. NOS. 167274-75, JULY 21, 2008
FACTS:
Fortune Tobacco is a manufacturer and producer of some cigarette
brands. Prior to January 1, 1997, its cigarette brands were subject
to ad valorem tax but on January 1, 1997, R.A. No. 8240 took effect
whereby a shift from the ad valorem tax (AVT) system to the specific
tax system was made and subjecting its cigarette brands to specific
tax.
For the period covering January 1-31, 2000, Fortune Tobacco paid
specific taxes on all brands manufactured so it filed a claim for refund
or tax credit of its overpaid excise tax for the month of January 2000.
The Court of Tax Appeals (CTA) and the Court of Appeals, granted the
tax refund or tax credit representing specific taxes erroneously
collected from its tobacco products. However, the Commissioner of
Internal Revenue reclaims the grant of tax refund. Hence, this
petition.
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 TAXATION LAW 1: ATTY. R. ONG ABRANTES, CPA
ISSUE:
Whether or not Fortune Tobacco is entitled to tax refund.
RULING:
Yes. Although tax refund partakes the nature of a tax exemption, this
rule does not apply to Fortune Tobacco’s claim. The parity between
tax refund and tax exemption exists only when the former is based
either on a tax exemption statute or a tax refund statute. In the
present case, Fortune Tobacco’s claim for refund is premised on its
erroneous payment of the tax, or the government’s exaction in the
absence of a law.
Tax exemption is granted by the legislature thus, the one who claims
an exemption from the burden of taxation must justify his claim by
showing that the legislature intended to exempt him by words too
plain to be mistaken. In the same manner, a claim for tax refund may
also be based on statutes granting tax exemption or tax refund. In
this case, the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an
exemption.
However, tax refunds (or tax credits) are not founded principally on
legislative grant but on the legal principle of solutio indebiti, the
government cannot unjustly enrich itself at the expense of the
taxpayers. Under the Tax Code, in recognition of the pervasive quasi-
contract principle, a claim for tax refund may be based on the
following:
(a) erroneously or illegally assessed or collected internal revenue
taxes;
(b) penalties imposed without authority; and
(c) any sum alleged to have been excessive or in any manner
wrongfully collected.
MANILA ELECTRIC COMPANY V. PROVINCE OF LAGUNA (G.R. NO.
131359. MAY 5, 1999)
18AUG
FACTS:
MERALCO was granted a franchise by several municipal councils and
the National Electrification Administration to operate an electric light
and power service in the Laguna. Upon enactment of Local
Government Code, the provincial government issued ordinance
imposing franchise tax. MERALCO paid under protest and later
claims for refund because of the duplicity with Section 1 of P.D. No.
551. This was denied by the governor (Joey Lina) relying on a more
recent law (LGC). MERALCO filed with the RTC a complaint for
refund, but was dismissed. Hence, this petition.
ISSUE:  42 and 43 thereof require proprietors, lessees or operators of theatres,
Whether or not the imposition of franchise tax under the provincial
ordinance is violative of the non-impairment clause of the
Constitution and of P.D. 551.
HELD:
No. There is no violation of the non-impairment clause for the same
must yield to the inherent power of the state (taxation). The provincial
ordinance is valid and constitutional.
RATIO:
The Local Government Code of 1991 has incorporated and adopted,
by and large, the provisions of the now repealed Local Tax Code. The
1991 Code explicitly authorizes provincial governments,
notwithstanding “any exemption granted by any law or other special
law, . . . (to) impose a tax on businesses enjoying a franchise.”  A
franchise partakes the nature of a grant which is beyond the purview
of the non-impairment clause of the Constitution.    Article XII, Section
11, of the 1987 Constitution, like its precursor provisions in the 1935
and the 1973 Constitutions, is explicit that no franchise for the
operation of a public utility shall be granted except under the
condition that such privilege shall be subject to amendment,
alteration or repeal by Congress as and when the common good so
requires.
Enrique Garcia vs Executive Secretary
211 SCRA 219 G.R. No. 101273 July 3, 1992
Facts: In November 1990, President Corazon Aquino issued Executive
Order No. 438 which imposed, in addition to any other duties, taxes
and charges imposed by law on all articles imported into the
Philippines, an additional duty of 5% ad valorem tax. This additional
duty was imposed across the board on all imported articles, including
crude oil and other oil products imported into the Philippines. In
1991, EO 443 increased the additional duty to 9%. In the same year,
EO 475 was passed reinstating the previous 5% duty except that
crude oil and other oil products continued to be taxed at 9%. Later,
EO 478 was issued levied a special duty of P0.95/liter or
P151.05/barrel of imported crude oil and P1/L of imported oil
products.
Enrique Garcia, a representative from Bataan, avers that EO
475 and 478 are unconstitutional for they violate Section 24 of Article
VI of the Constitution which provides:
AD MAJOREM DEI GLORIAM +
JENNICA GYRL G. DELFIN
All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate
exclusively in the House of Representatives, but the Senate may
propose or concur with amendments.
He contends that since the Constitution vests the authority to enact
revenue bills in Congress, the President may not assume such power
by issuing Executive Orders Nos. 475 and 478 which are in the nature
of revenue-generating measures. Further, Garcia argues that the Eos
contravene Section 401 of TCC which authorizes to increase, reduce
or remove tariff duties or to impose additional duties only when
necessary to protect local industries or products but not for the
purpose of raising additional revenue for the government.
Issue: WON the President can validly increase tariff rates thereby
rendering EO 475 and 478 are constitutional.
Held: Yes
Under Section 24, Article VI of the Constitution, the
enactment of appropriation, revenue and tariff bills, like all other bills
is, of course, within the province of the Legislative rather than the
Executive Department. It does not follow, however, that therefore
Executive Orders Nos. 475 and 478, assuming they may be
characterized as revenue measures, are prohibited to be exercised by
the President, that they must be enacted instead by the Congress of
the Philippines.
Section 28(2) of Article VI of the Constitution provides as follows:
(2) The Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts
within the framework of the national development program of
the Government.
There is thus explicit constitutional permission to Congress to
authorize the President “subject to such limitations and restrictions
as [Congress] may impose” to fix “within specific limits” “tariff
rates . . . and other duties or imposts . . . .” In this case, it is the Tariff
and Customs Code which authorized the President ot issue the said
EOs.
FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES VS. COLON
HERITAGE REALTY CORPORATION
758 SCRA 537
2015
Facts:
The City of Cebu passed Ordinance No. 69 whereby Sections
cinemas, concert halls, circuses, boxing stadia, and other places of
amusement, to pay an amusement tax equivalent to thirty percent
(30%) of the gross receipts of admission fees to the Office of the City
Treasurer of Cebu City. Thereafter, Republic Act (R.A.) No. 9167,
Sections 13 and 14 thereof states that producers of graded A and B
films shall be entitled to incentives equivalent to the amusement tax
imposed and collected on such graded films. The Film Development
Council of the Philippines (FDCP), in implementing the statute,
argued that the Congress restricted the delegated power of the City of
Cebu in imposing amusement taxes, when it enacted Secs. 13 and 14
of R.A. No. 9167. The lower court ruled, however, that said provisions
are contrary to the basic policy in local autonomy that all taxes, fees,
and charges imposed by the LGUs shall accrue exclusively to them, as
articulated in Article X, Sec. 5 of the 1987 Constitution.
Issue:
Whether or not Secs. 13 and 14 of R.A. No. 9167 violates
fiscal autonomy
Ruling:
Yes, Secs. 13 and 14 of R.A. No. 9167 violates fiscal
autonomy.
The basic rationale for the current rule on local fiscal
autonomy is the strengthening of LGUs and the safeguarding of their
viability and self-sufficiency through a direct grant of general and
broad tax powers. Nevertheless, the fundamental law did not intend
the delegation to be absolute and unconditional. The legislature must
still see to it that (a) the taxpayer will not be over-burdened or saddled
with multiple and unreasonable impositions; (b) each LGU will have
its fair share of available resources; (c) the resources of the national
government will not be unduly disturbed; and (d) local taxation will be
fair, uniform, and just.
It is beyond cavil that the City of Cebu had the authority to issue its
City Ordinance No. LXIX and impose an amusement tax on cinemas
pursuant to Sec. 140 in relation to Sec. 151 of the LGC. Sec. 140
states, among other things, that a “province may levy an amusement
tax to be collected from the proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadia, and other
places of amusement at a rate of not more than thirty percent (30%) of
the gross receipts from admission fees.” By operation of said Sec. 151,
extending to them the authority of provinces and municipalities to
levy certain taxes, fees, and charges, cities, such as respondent city
government, may therefore validly levy amusement taxes subject to
the parameters set forth under the law.
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 TAXATION LAW 1: ATTY. R. ONG ABRANTES, CPA
For RA 9167, however, the covered LGUs were deprived of the income
which they will otherwise be collecting should they impose
amusement taxes, or, in petitioner’s own words, “Section 14 of [RA
9167] can be viewed as an express and real intention on the part of
Congress to remove from the LGU’s delegated taxing power, all
revenues from the amusement taxes on graded films which would
otherwise accrue to [them] pursuant to Section 140 of the [LGC].”
Taking the resulting scheme into consideration, it is apparent that
what Congress did in this instance was not to exclude the authority to
levy amusement taxes from the taxing power of the covered LGUs, but
to earmark, if not altogether confiscate, the income to be received by
the LGU from the taxpayers in favor of and for transmittal to FDCP,
instead of the taxing authority. This, to Our mind, is in clear
contravention of the constitutional command that taxes levied by
LGUs shall accrue exclusively to said LGU and is repugnant to the
power of LGUs to apportion their resources in line with their
priorities.
SECRETARY OF FINANCE CESAR V. PURISIMA v. PHILIPPINE
TOBACCO INSTITUTE, GR No. 210251, 2017-04-17
Facts:
On 20 December 2012, President Benigno S. Aquino III signed
Republic Act No. 10351[5] (RA 10351), otherwise known as the Sin
Tax Reform Law. RA 10351 restructured the excise tax on alcohol and
tobacco products by amending pertinent provisions of Republic Act
No. 8424,[6] known as the Tax Reform Act of 1997 or the National
Internal Revenue Code of 1997 (NIRC).
Section 5 of RA 10351, which amended Section 145(C) of the NIRC,
increased the excise tax rate of cigars and cigarettes and allowed
cigarettes packed by machine to be packed in other packaging
combinations of not more than 20.
On 21 December 2012, the Secretary of Finance, upon the
recommendation of the Commissioner of Internal Revenue (CIR),
issued RR 17-2012. Section 11 of RR 17-2012 imposes an excise tax
on individual cigarette pouches of 5's and 10's even if they are
bundled or packed in packaging combinations not exceeding 20
cigarettes.
Pursuant to Section 11 of RR 17-2012, the CIR issued RMC 90-2012
dated 27 December 2012. Annex "D-1" of RMC 90-2012 provides for
the initial classifications in tabular form, effective 1 January 2013, of
locally-manufactured cigarette brands packed by machine according
to the tax rates prescribed under RA 10351 based on the (1) 2010
Bureau of Internal Revenue (BIR) price survey of these products, and
(2) suggested net retail price declared in the latest sworn statement
filed by the local manufacturer or importer.
PMFTC, Inc., a member of respondent Philippine Tobacco Institute,
Inc. (PTI), paid the excise taxes required under RA 10351, RR 17-
2012, and RMC 90-2012 in order to withdraw cigarettes from its
manufacturing facilities. However, on 16 January 2012, PMFTC wrote
the CIR prior to the payment of the excise taxes stating that payment
was being made under protest and without prejudice to its right to
question said issuances through remedies available under the law.
As a consequence, on 26 February 2013, PTI filed a petition[7] for
declaratory relief with an application for writ of preliminary injunction
with the RTC.
In a Decision dated 7 October 2013, the RTC granted the petition for
declaratory relief.
Issues:
Whether or not the RTC erred in nullifying Section 11 of RR 17-2012
and Annex "D-1" of RMC 90-2012 in imposing excise tax to packaging
combinations of 5's, 10's, etc. not exceeding 20 cigarette sticks packed
by machine.
Ruling:
The petition lacks merit.
Section 145(C) of the NIRC is clear that the excise tax on cigarettes
packed by machine is imposed per pack. "Per pack" was not given a
clear definition by the NIRC. However, a "pack" would normally refer
to a number of individual components packaged as a unit.[10] Under
the same provision, cigarette manufacturers are permitted to bundle
cigarettes packed by machine in the maximum number of 20 sticks
and aside from 20's, the law also allows packaging combinations of
not more than 20's - it can be 4 pouches of 5 cigarette sticks in a pack
(4 x 5's), 2 pouches of 10 cigarette sticks in a pack (2 x 10's), etc.
The RTC, in its Decision dated 7 October 2013, ruled in favor of PTI
and declared that RA 10351 intends to tax the packs of 20's as a
whole, regardless of whether they are further repacked by 10's or 5's,
as long as they total 20 sticks in all. Thus, the tax rate to be imposed
shall only be either for a net retail price of (1) less than P11.50, or (2)
more than P11.50, applying the two excise tax rates from 2013 until
2016 as mentioned under RA 10351. The RTC added "that the fact the
law allows 'packaging combinations,' as long as they will not exceed a
total of 20 sticks, is indicative of the lawmakers' foresight that these
combinations shall be sold at retail individually. Yet, the lawmakers
did not specify in the law that the tax rate shall be imposed on each
packaging combination." Thus, the RTC concluded that the
interpretation made by the Secretary of Finance and the CIR has no
basis in the law.
We agree.
AD MAJOREM DEI GLORIAM +
JENNICA GYRL G. DELFIN
the lawmakers intended to impose the excise tax on every pack of
cigarettes that come in 20 sticks. Individual pouches or packaging
combinations of 5's and 10's for retail purposes are allowed and will
be subjected to the same excise tax rate as long as they are bundled
together by not more than 20 sticks. Thus, by issuing Section 11 of
RR 17-2012 and Annex "D-1" on Cigarettes Packed by Machine of
RMC 90-2012, the BIR went beyond the express provisions of RA
10351.
It is an elementary rule in administrative law that administrative rules
and regulations enacted by administrative bodies to implement the
law which they are entrusted to enforce have the force of law and are
entitled to great weight and respect. However, these implementations
of the law must not override, supplant, or modify the law but must
remain consistent with the law they intend to implement. It is only
Congress which has the power to repeal or amend the law.
In sum, we agree with the ruling of the RTC that Section 11 of RR 17-
2012 and Annex "D-1" on Cigarettes Packed by Machine of RMC 90-
2012 are null and void. Excise tax on cigarettes packed by machine
shall be imposed on the packaging combination of 20 cigarette sticks
as a whole and not to individual packaging combinations or pouches
of 5's, 10's, etc.
WHEREFORE, we DENY the petition.
Principles:
Taxation
Section 145(C) of the NIRC is clear that the excise tax on cigarettes
packed by machine is imposed per pack. "Per pack" was not given a
clear definition by the NIRC. However, a "pack" would normally refer
to a number of individual components packaged as a unit.[10] Under
the same provision, cigarette manufacturers are permitted to bundle
cigarettes packed by machine in the maximum number of 20 sticks
and aside from 20's, the law also allows packaging combinations of
not more than 20's - it can be 4 pouches of 5 cigarette sticks in a pack
(4 x 5's), 2 pouches of 10 cigarette sticks in a pack (2 x 10's), etc.
Political Law
It is an elementary rule in administrative law that administrative rules
and regulations enacted by administrative bodies to implement the
law which they are entrusted to enforce have the force of law and are
entitled to great weight and respect. However, these implementations
of the law must not override, supplant, or modify the law but must
remain consistent with the law they intend to implement. It is only
Congress which has the power to repeal or amend the law.
C. SITUS OF INCOME
CASES:
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, -VERSUS
JULIANE BAIER-NICKEL, AS REPRESENTED BY MARINA Q.
GUZMAN (ATTORNEY-IN-FACT), RESPONDENT. G.R. NO. 153793,
FIRST DIVISION, AUGUST 29, 2006, YNARES-SANTIAGO, J.
If the income is from the sale of capital assets, the place where the
sale is made should be likewise decisive. “Source” is not a place, it is
an activity or property. As such, it has a situs or location, and if that
situs or location is within the United States the resulting income is
taxable to nonresident aliens and foreign corporations.
The source of an income is the property, activity or service that
produced the income. For the source of income to be considered as
coming from the Philippines, it is sufficient that the income is derived
from activity within the Philippines.
FACTS:
The Commissioner of Internal Revenue appeals the Court of Appelas
decision, which granted the tax refund of respondent and reversed
that of the Court of Tax Appeals . Juliane Baier-Nickel, a nonresident
German, is the president of Jubanitex, a domestic corporation
engaged in the manufacturing, marketing and selling of embroidered
textile products. Through Jubanitex’s general manager, Marina
Guzman, the company appointed respondent as commission agent
with 10% sales commission on all sales actually concluded and
collected through her efforts.
In 1995, respondent received P1, 707, 772. 64 as sales commission
from w/c Jubanitex deducted the 10% withholding tax of P170,
777.26 and remitted to BIR. Respondent filed her income tax return
but then claimed a refund from BIR for the P170K, alleging this was
mistakenly withheld by Jubanitex and that her sales commission
income was compensation for services rendered in Germany not
Philippines and thus not taxable here.
She filed a petition for review with CTA for alleged non-action by BIR.
CTA denied her claim but decision was reversed by CA on appeal,
holding that the commission was received as sales agent not as
President and that the “source” of income arose from marketing
activities in Germany.
ISSUE:
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 TAXATION LAW 1: ATTY. R. ONG ABRANTES, CPA
Whether or not respondent’s sales commission income is taxable in
the Philippines.
RULING: YES.
Respondent income is subject to tax hence she cannot claim refund.
Pursuant to Section 25 of NIRC, non-resident aliens, whether or not
engaged in trade or business, are subject to the Philippine income
taxation on their income received from all sources in the Philippines.
In determining the meaning of “source”, the Court resorted to origin of
Act 2833 (the first Philippine income tax law), the US Revenue Law of
1916, as amended in 1917.
US SC has said that income may be derived from three possible
sources only: (1) capital and/or (2) labor; and/or (3) the sale of capital
assets. If the income is from labor, the place where the labor is done
should be decisive; if it is done in this country, the income should be
from “sources within the United States.” If the income is from capital,
the place where the capital is employed should be decisive; if it is
employed in this country, the income should be from “sources within
the United States.” If the income is from the sale of capital assets, the
place where the sale is made should be likewise decisive. “Source” is
not a place, it is an activity or property. As such, it has a situs or
location, and if that situs or location is within the United States the
resulting income is taxable to nonresident aliens and foreign
corporations.
The source of an income is the property, activity or service that
produced the income. For the source of income to be considered as
coming from the Philippines, it is sufficient that the income is derived
from activity within the Philippines.
The settled rule is that tax refunds are in the nature of tax exemptions
and are to be construed strictissimi juris against the taxpayer. To
those therefore, who claim a refund rest the burden of proving that
the transaction subjected to tax is actually exempt from taxation.
In the instant case, respondent failed to give substantial evidence to
prove that she performed the incoming producing service in Germany,
which would have entitled her to a tax exemption for income from
sources outside the Philippines. The petition was granted.
G.R. No. 60714 March 6, 1991
COMMISSIONER OF INTERNAL REVENUE, petitioner
vs.
JAPAN AIR LINES, INC., and THE COURT OF TAX APPEALS,
Respondents.
FACTS:
Japan Air Lines, Inc. or JAL is a foreign corporation engaged in the
business of International air carriage. JAL maintained an office at the
Filipinas Hotel, Roxas Boulevard Manila.The said office did not sell
tickets but was merely for the promotion of the company. On July 17
1957, JAL constituted Philippine Airlines (PAL) as its ticket agent in
the Philippines. PAL therefore sold tickets for and in behalf of JAL.
On June 1972, JAL received deficiency income tax assessments
notices and a demand letter from petitioner CIR for years 1959
through 1963. JAL protested against said assessments alleging that
as a non-resident foreign corporation, it is taxable only on income
from Philippines sources as determined by section 37 of the Tax Code,
there being no income on said years, JAL is not liable for taxes.
ISSUES:
I. Whether or not the proceeds from sales of JAL tickets sold in the
Philippines by Philippine Airlines (PAL) are taxable as income from
sources within the Philippines.
LAW:
Tax Code States:
Under Section 20 of the 1977 Tax Code:
"(h) the term `resident foreign corporation' applies to a foreign
corporation engaged in trade or business within the Philippines or
having an office or place of business therein.
"(i) the term `non-resident foreign corporation' applies to a foreign
corporation not engaged in trade or business within the Philippines
and not having any office or place of business therein."
`Gross income' includes gains, profits, and income derived from
salaries, wages or compensation for personal service of whatever kind
and in whatever form paid, or from profession, vocations, trades,
business, commerce, sales, or dealings in property, whether real or
personal, growing out of the ownership or use of or interest in such
property; also from interests, rents, dividends, securities, or the
transaction of any business carried on for gain or profit, or gains,
profits and income derived from any source whatever" (Sec.
29(3);Emphasis supplied)
COURT’s RULING:
YES. In citing the landmark case of Commissioner of Internal
Revenue vs. British Overseas Airways Corporation, the Supreme
AD MAJOREM DEI GLORIAM +
JENNICA GYRL G. DELFIN
Court ruled that "The source of an income is the property, activity or
service that produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the
income is derived from activity within the Philippines. In BOAC's case,
the sale of tickets in the Philippines is the activity that produces the
income. The tickets exchanged hands here and payments for fares
were also made here in Philippine currency. The situs of the source of
payments is the Philippines. The flow of wealth proceeded from, and
occurred within, Philippine territory, enjoying the protection accorded
by the Philippine government. In consideration of such protection, the
flow of wealth should share the burden of supporting the
government.”
There being no dispute that JAL constituted PAL as local agent to sell
its airline tickets, there can be no conclusion other than that JAL is a
resident foreign corporation, doing business in the Philippines.
Indeed, the sale of tickets is the very lifeblood of the airline business,
the generation of sales being the paramount objective (Commissioner
of Internal Revenue vs. British Overseas Airways Corporation, supra).
ILOILO BOTTLERS V CITY OF ILOILO  164 SCRA 607
TOPIC: SITUS OF TAXATION AND DOUBLE TAXATION Part III of
the outline
FACTS: Iloilo Bottlers Inc., a company in the business of bottling and
selling soft drinks, was demanded by the City of Iloilo to pay an
amount of 59,505 in the form of an license tax the city claims were
due to it under an ordinance which was enacted on January 11, 1960
known as Ordinance No. 5, Series of 1960; which provides that
manufacturers, bottlers, and distributers of soft drinks in Iloilo are
subject to a municipal license tax of 10 centavos per case of 24
bottles. Iloilo Bottling Inc asserted however that since their plant base
has moved to municipality of Pavia shortly after the aforementioned
ordinance was enacted, they are not liable for any taxes. The city
however, still demanded taxes and also demanded back taxes under
the claim that Iloilo Bottlers is still distributing in the city of Iloilo
since its transfer. Iloilo Bottlers paid the demanded license tax and
back taxes under protest. After bringing the case to court, the courts
ruled in favor of Iloilo Bottlers and declared that Iloilo Bottlers is free
from liability. The city of Iloilo then appealed this ruling, hence this
case.
ISSUE: Whether or not the courts were correct in their initial ruling
that Iloilo Bottlers Inc. is free from liability and directing the city of
Iloilo to refund the tax money.
RULING: No, the courts were not correct. The ruling was reversed in
favor of the City of Iloilo and Iloilo Bottlers is deemed liable for the
aforementioned taxes.
RATIO: Situs of taxation (place of taxation) depends on various
factors including the nature of the tax and subject matter thereof both
of which must be scrutinized to reach a fair decision. The tax
ordinance enacted by the City of Iloilo imposes a tax on persons,
firms, and corporations engaged in the business of distribution of
soft-drinks, manufacture of soft-drinks, and bottling of soft drinks
within the territorial jurisdiction of the City of Iloilo. There is no
question that Iloilo Bottlers has moved out of Iloilo City’s jurisdiction
and into the municipality of Pavia where its plant now stands
therefore, the latter two conditions for taxation are no longer
applicable. The ruling now depends upon whether or not Iloilo
Bottlers can be considered as distributing its products within Iloilo
city. Iloilo Bottlers disclaims liability, saying that it does not
independently distribute but rather actively sells directly to its
consumers. Distribution is therefore only incidental to its business.
However, the courts find that Iloilo Bottlers is indeed considered as
distributing since while the manufacturing and bottling occurs
outside of Iloilo city, the drinks are sold in Iloilo city to consumers in a
“moving store” fashion. The transactions are considered to occur
within the city. The tax imposed under Ordinance No. 5 is an excise
tax. By its nature, the power to levy an excise tax depends upon the
place where the business is done, or the occupation is engaged in, or
where the transaction took place. In this case, it is a tax on the
privilege of distributing, manufacturing or bottling soft drinks. Even
though the base of operations is at Pavia, the areas of transactions
where it conducts its business are within Iloilo city limits. The Situs
for excise tax is the area of transaction, not necessarily base of
operation. Since Iloilo Bottlers does distribute within city limits, it is
therefore subject to the ordinance and therefore should pay the
pertinent amounts to the city of Iloilo.
COMMISSIONER vs. BOAC
149 SCRA 395
GR No. L-65773-74 April 30, 1987
"The source of an income is the property, activity or service that
produced the income. For such source to be considered as coming
from the Philippines, it is sufficient that the income is derived from
activity within the Philippines."
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 TAXATION LAW 1: ATTY. R. ONG ABRANTES, CPA JENNICA GYRL G. DELFIN

FACTS: Petitioner CIR seeks a review of the CTA's decision setting

aside petitioner's assessment of deficiency income taxes against
respondent British Overseas Airways Corporation (BOAC) for the fiscal
years 1959 to 1971. BOAC is a 100% British Government-owned
corporation organized and existing under the laws of the United
Kingdom, and is engaged in the international airline business. During
the periods covered by the disputed assessments, it is admitted that
BOAC had no landing rights for traffic purposes in the Philippines.
Consequently, it did not carry passengers and/or cargo to or from the
Philippines, although during the period covered by the assessments, it
maintained a general sales agent in the Philippines — Wamer Barnes
and Company, Ltd., and later Qantas Airways — which was
responsible for selling BOAC tickets covering passengers and cargoes.
The CTA sided with BOAC citing that the proceeds of sales of BOAC
tickets do not constitute BOAC income from Philippine sources since
no service of carriage of passengers or freight was performed by BOAC
within the Philippines and, therefore, said income is not subject to
Philippine income tax. The CTA position was that income from
transportation is income from services so that the place where
services are rendered determines the source.

ISSUE: Are the revenues derived by BOAC from sales of ticket for air
transportation, while having no landing rights here, constitute income
of BOAC from Philippine sources, and accordingly, taxable?

HELD: Yes. The source of an income is the property, activity or service

that produced the income. For the source of income to be considered
as coming from the Philippines, it is sufficient that the income is
derived from activity within the Philippines. In BOAC's case, the sale
of tickets in the Philippines is the activity that produces the income.
The tickets exchanged hands here and payments for fares were also
made here in Philippine currency. The site of the source of payments
is the Philippines. The flow of wealth proceeded from, and occurred
within, Philippine territory, enjoying the protection accorded by the
Philippine government. In consideration of such protection, the flow of
wealth should share the burden of supporting the government.

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AD MAJOREM DEI GLORIAM +