1.

Construction and Interpretation of tax laws, rules and regulations

Tax laws:

1) Clear and unambiguous – construed in favor of govt, against the taxpayer

2) if doubtful and ambiguous - strongly against the Government and in favor of the subject or
citizens

2. Prospectivity of Tax Laws

GR: laws shall have prospective application applies to tax laws

XPN: Retroactive application of revenue laws may be allowed if it will not

amount to denial of due process. There is violation of due process when the tax law imposes harsh and
oppressive tax.

3. Imprescriptibility of Taxes

As a rule, taxes are imprescriptible as they are the lifeblood of the government. However, tax statutes
may provide for statute of limitations.

4. Double Taxation

There is double taxation where one tax is imposed by the State and the other is imposed by the city; it being
widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be
enacted with respect to the same occupation, calling or activity by both the state and the political subdivision
thereof

a. Strict v. Broad Sense

- Strict sense: Double taxation means direct duplicate taxation. It means

taxing twice, by the same taxing authority, within the same jurisdiction or taxing district for the
same purpose in the same year or taxing period over some of the property in the territory.

- Broad sense: Double taxation means indirect duplicate taxation. It is not

legally objectionable. It means there are two or more pecuniary impositions on a subject matter.
For example, a business is required to pay income tax to the national government and local
business tax to the local government. Such is allowed.

b. Constitutionality of Double Taxation

- General Rule: Our Constitution does not prohibit double taxation; hence, it may not be invoked
as a defense against the validity of tax laws.

- Exception: Double Taxation while not forbidden, is something not favored.

- Such taxation, it has been held, should, whenever possible, be avoided and prevented.

- - Doubts as to whether double taxation has been imposed should be resolved in favor of the
taxpayer. The reason is to avoid injustice and unfairness.

c. Modes of Eliminating Double Taxation

 1) exemption method (income)

- the income or capital which is taxable in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into account in determining the rate of tax
applicable to the taxpayer's remaining income or capital

- 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. In some cases, an exclusive right to tax is
conferred on one of the contracting states; however, for other items of income or capital, both
states are given the right to tax, although the amount of tax that may be imposed by the state of
source is limited.

2) credit method (tax)

- applies whenever the state of source is given a full or limited right to tax together with the state of
residence. In this case, the treaties make it incumbent upon the state of residence to allow relief in
order to avoid double taxation.

- although the income or capital which is taxed in the state of source is still taxable in the state of
residence, the tax paid in the former is credited against the tax levied in the latter. The basic
difference between the two methods is that in the exemption method, the focus is on the income
or capital itself, whereas the credit method focuses upon the tax.

a) Shifting of tax burden

- Transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or
imposed to another or someone else.

b) Tax avoidance

- it involves saving on tax using legal means

- can be used by the taxpayers in good faith and at arm’s length
- The legal right of a taxpayer to decrease the amount of what otherwise couldv his taxes or
altogether avoid them, by means which the law permits, cannot be doubted

c) Tax evasion (illegal)

- is the use of forbidden and illegal devices to lessen and minimize tax
- accomplished by breaking the letter of the law

Tax exemption

- grant of immunity, express or implied, to particular persons or corporations from the

obligations to pay taxes
b) Nature of tax exemptions

1) It is merely a personal privilege of the grantee

 2) GR: generally revocable by the government
XPN: unless the exemption is founded on a contract which is protected from
impairment (should be a valid contract)

3) implies a waiver on the part of the government of its right to collect what otherwise would be due
to it (somehow prejudicial)

4) not necessarily discriminatory so long as the exemption has a reasonable foundation/basis

c) Kinds of tax exemptions

As to basis:

1) Constitutional Exemptions - immunities which originate from the Constitution (Art. 14,
Art. 6- charitable)

2) Statutory Exemptions - emanate from Legislation (to encourage investments in the

Philippines)

As to form:

1) Express Exemption - expressly granted by organic or statute of law

2) Implied Exemption - exists whenever particular persons properties or excises are deemed
exempt as they fall outside the scope of the taxing provision itself

3) Contractual - taxing authority entered in to a contract agreement under the enabling law

As to extent:

1) Total - connotes absolute immunity

2) Partial - one where a collection of a part of the tax is dispensed with

d) Grounds for tax exemptions

a) Contract
- May be based on a contract in which case, the public represented by the
Government is supposed to receive a full equivalent therefore

b) Public Policy
- May be based on some ground of public policy, such as, for
example, to encourage new and necessary industries

c) Reciprocity
-May be created in a treaty on grounds of reciprocity or to lessen the rigors of
international double or multiple taxation which occur where there are many taxing
jurisdictions, as in the taxation of income and intangible personal property
 e) Revocation of Tax exemptions

a) Grant of an exemption does not constitute a contract - REVOCABLE by the power

which made the grant

b) Grant of an exemption constitutes a binding contract and for valuable consideration -

government cannot unilaterally revoke

. COMPENSATION AND SET-OFF

GR: Taxes are not subject to set-off or legal compensation.

- There can be no off-setting of taxes against the claims that the taxpayer may have against the
government.

XPN: Where both the claims of the government and the taxpayer against each other have already
become due and demandable as well as fully liquidated(Art. 1278, 1279)

DOCTRINE OF EQUITABLE RECOUPMENT

- allows a taxpayer whose claim for refund has prescribed to offset tax liabilities with his claim of
overpayment

- when a refund of a tax illegally or erroneously collected or overpaid by a taxpayer is barred by the
statute of limitations and a tax is being presently assessed against said taxpayer, SAID PRESENT
TAX MAY BE RECOUPED OR SET-OFF AGAINST THE TAX, the refund of which has been
barred.

Effect: mitigates the effect of prescription and the statute of limitations