07/01/2018
rise to the criminal liability.
TAXATION LAW I
- Taxation is a mode of raising revenue for public purposes.
- The power to impose taxes is a legislative power; it cannot be imposed by the
executive department nor by the courts.
- Taxation has been defined as the power by which the sovereign raises revenue
to defray the necessary expenses of government.
- Lifeblood Doctrine - Taxes are the lifeblood of the government and their prompt and
certain availability is an imperious need.
- Because taxes are the lifeblood of the nation, statutes that allow exemptions
are construed strictly against the grantee and liberally in favor of the
government.
- Theories on Taxation:
 Necessity Theory
 It is a necessary burden to preserve the State's sovereignty
and a means to give the citizenry an army to resist
aggression, a navy to defend its shores from invasion, a
corps of civil servants to serve, public improvements for the
enjoyment of the citizenry, and those which come within the
State's territory and facilities and protection which a
government is supposed to provide.
 Benefits Protection Theory
 Bases the power of the State to demand and receive taxes
on the reciprocal duties of support and protection. The
citizen supports the State by paying the portion from his
property that is demanded in order that he may, by means
thereof, be secured in the enjoyment of the benefits of an
organized society.
 Doctrine of Symbiotic Relationship
 'Taxes are what we pay for civilized society. Without taxes,
the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard-earned income to
the taxing authorities, every person who is able to must
contribute his share in the burden of running the
government. The government, for its part, is expected to
respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance
their material and moral values."
- Taxes are personal to the taxpayer.
- Doctrine of Piercing the Corporate Veil - stockholders may be held liable for the
unpaid taxes of a dissolved corporation if it appears that the corporate assets have
passed into their hands.
- In taxation, it is one's failure to comply with the civil liability to pay taxes which gives
- Nature of the Taxing Power
 Taxation as an Inherent Attribute of Sovereignty
 The power of taxation is an incident of sovereignty as it is
inherent in the State, belonging as a matter of right to every
independent government.
 Taxation as Legislative in Character
 The power to tax is inherent in the State, and the State is
free to select the object of taxation, such power being
exclusively vested in the legislature, EXCEPT where the
Constitution provides otherwise.
- The term "levy" or "imposition" refers to the enactment of tax laws or statutes.
- Scope of the Legislative Power to Tax
 The sole arbiter of the purposes for which taxes shall be levied
is the legislature, provided the purposes are public. The courts
may review the levy of the tax to determine whether the purpose is
a public one but once that is determined, the courts can make no
other inquiry as to the purpose of the tax, as it affects the power
to impose it.
 The legislature has unlimited scope as to the persons, property
or occupation to be taxed, where there are no constitutional
restrictions, provided the property is within the territorial
jurisdiction of the taxing state.
- The Legislature may, in its discretion, select what occupations shall be taxed, and in
the exercise of that discretion it may tax all. Or it may select for taxation certain
classes and leave the others untaxed.
- The legislature has the right to finally determine the amount or rate of a tax, in
the absence of constitutional prohibitions.
- The discretion of the legislature in imposing taxes extends to the mode,
method or kind of tax. As to the kind of taxes which may be imposed, the
legislature has power to levy one or more of the following:
 Property tax,
 excise,
 license or occupation tax,
 a poll or capitation tax,
 franchise tax,
 income tax,
 inheritance tax,
 stock transfer tax, etc.
- "The power to tax involves the power to destroy." This might well be construed to
mean that the power to tax includes the power to regulate even to the extent of
prohibition or destruction,
- "The power to tax is not the power to destroy while the Supreme Court sits."
- The act of assessing and collecting taxes is administrative in character, and
therefore can be delegated.
  First, the tax law must designate which agency will collect the taxes.
 Second, the circulars or regulations issued by the Secretary of
Finance or the Commissioner of the Internal Revenue must be in
accordance with the tax measures imposed by Congress.
- Payment signifies an act of compliance by the tax payer.
- Purposes of Taxation
 The primary purpose of taxation is to raise revenues.
 Secondary or non-revenue purposes
(1) reduce social inequality
 Our present tax system has adopted the
progressive system of taxation, i.e., the
tax rate increases as the tax base
increases. This system aims at reducing the
inequality in the distribution of wealth by
preventing its undue concentration in the
hands of a few individuals.
(2) encourage the growth of local industries
 The power to tax carries with it the power to
grant tax exemptions. Tax exemptions and
tax reliefs serve as incentives to
encourage investment in our local
industry and thereby promote economic
growth.
(3) protect our local industries against unfair competition
 The Tariff and Customs Code allows the
imposition of certain taxes
(countervailing and dumping duties)
upon imported goods or articles to
further protect our local industry. R.A.
8752 (Anti-Dumping Act) imposes stricter
conditions.
(4) implement the police power of the state (regulatory purpose)
 The power of taxation may be used as an
implement of the police power of the
State through the imposition of taxes
with the end in view of regulating a
particular activity.
07/08/2018
TAXATION LAW I
- Extent of the Power of Taxation
 Comprehensive
 It covers persons, businesses, activities, professions, rights
and privileges.
 Congress knows what and who to tax
 Unlimited
 A tax does not cease to be valid merely because it regulates,
discourages, or even definitely deters the activities taxed.
The power to impose taxes is one so unlimited in force and
so searching in extent that the courts scarcely venture to
declare that it is subject to any restrictions whatever, except
such as rest in the discretion of the authority which exercises
it.
 Plenary
 As it is complete. Under the NIRC, the BIR may avail of
certain remedies to ensure the collection of taxes.
 The law passed is considered as complete including the
remedies
 Supreme
 Taxation, although referred to as the strongest of all the
powers of the government, cannot be interpreted to mean
that it is superior to the other inherent powers of the
government. It is supreme insofar as the selection of the
subject of taxation is concerned.
 The two others powers are useless without the power of
taxation because of the funds.
- Taxation is not absolute.
- Limitations of the Power to Tax:
 Inherent
 Public Purpose
 Taxes are enacted only for a public purpose
 Taxation must be primarily for public
purpose
 Non-Delegability
 Inherently legislative in nature
 Vested upon the Congress and cannot be
delegated
 The President cannot impose taxes
 The President cannot grant tax amnesty as
it partakes the nature of a tax exemption
 Only the Congress can grant a tax
exemption
  Exceptions from delegation of power to
tax:
o Power granted under the
Constitution granted to the
Local Government Units to
create its own sources of
revenues but subject to
standards and limitations
that the Congress may
prescribe. The Congress
cannot prohibit the LGUs as
the grant is conferred by the
Constitution.
o LGUs do not have the
inherent power to tax but
delegated directly under the
Constitution.
o Flexible tariff clause – Art.
6, Sec. 28, Par. 2, 1987
Constitution
 The grant of power to administrative bodies
to make
 Exemption of the Government from Taxes
 Generally, the government is exempted from
paying taxes.
 Since the State is a sovereign, it cannot tax
itself.
 This applies only when the government
performs governmental functions.
 If the government performs proprietary
functions, they are not exempt from tax.
 International Comity
 Generally accepted principles of
international laws as part of the law of the
land
 appurtenant thereto, mosques, non-profit cemeteries, and all
 Territoriality
 Jurisdiction or status of Taxation
 Constitutional
- Double taxation is not prohibited unless
- Due process clause is important in taxation because money is considered as a
property
- Equal protection clause
- Art. III, Sec. 20
 No person shall be imprisoned for debt or non-payment of a poll tax.
- Art. VI, Sec. 27 & 28
 Sec. 27 –
(1) Every bill passed by the Congress shall, before it becomes a
law, be presented to the President. If he approves the same he
shall sign it; otherwise, he shall veto it and return the same with
his objections to the House where it originated, which shall enter
the objections at large in its Journal and proceed to reconsider it.
If, after such reconsideration, two-thirds of all the Members of
such House shall agree to pass the bill, it shall be sent, together
with the objections, to the other House by which it shall likewise
be reconsidered, and if approved by two-thirds of all the
Members of that House, it shall become a law. In all such cases,
the votes of each House shall be determined by yeas or nays,
and the names of the Members voting for or against shall be
entered in its Journal. The President shall communicate his veto
of any bill to the House where it originated within thirty days after
the date of receipt thereof, otherwise, it shall become a law as if
he had signed it.
(2) The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall
not affect the item or items to which he does not object.
 Sec. 28 –
(1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
(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.
(3) Charitable institutions, churches and personages or convents
lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational
purposes shall be exempt from taxation.
 (4) No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the
Congress.
- Progressive taxation is not prohibited in the Philippines
- Art. XIV
 Section 4.
(1) The State recognizes the complementary roles of public
and private institutions in the educational system and shall
exercise reasonable supervision and regulation of all
educational institutions.
(2) Educational institutions, other than those established by
religious groups and mission boards, shall be owned solely
by citizens of the Philippines or corporations or
associations at least sixty per centum of the capital of
which is owned by such citizens. The Congress may,
however, require increased Filipino equity participation in
all educational institutions.
The control and administration of educational institutions shall be
vested in citizens of the Philippines.
No educational institution shall be established exclusively for
aliens and no group of aliens shall comprise more than one-third
of the enrollment in any school. The provisions of this subsection
shall not apply to schools established for foreign diplomatic
personnel and their dependents and, unless otherwise provided
by law, for other foreign temporary residents.
(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt
from taxes and duties. Upon the dissolution or cessation of
the corporate existence of such institutions, their assets shall
be disposed of in the manner provided by law.
Proprietary educational institutions, including those
cooperatively owned, may likewise be entitled to such
exemptions, subject to the limitations provided by law,
including restrictions on dividends and provisions for
reinvestment.
(4) Subject to conditions prescribed by law, all grants, endowments,
donations, or contributions used actually, directly, and
exclusively for educational purposes shall be exempt from tax.
- Art.
- A property of a person cannot be taxed without due process of law.
- Due process:
 Substantive – the law
 Procedural
 Notice (ex. Assessment in taxation)
 Hearing (ex. Tax payer is given the right to files his protest)
- Principles of a Sound Tax System
 These principles are not considered as limitations
 Non-adherence of these principles does not constitute a violation
1. Fiscal Adequacy
o Sources of revenues must be adequate to meet
government expenditures (Chavez v. Ongpin, 186
SCRA 331), and other public needs.
o Sufficient, adequate or enough to cover what is
needed (governmental expenses)
o Fiscal policy
2. Theoretical Justice
o A sound tax system must take into consideration the
taxpayers' ability to pay. Our laws mandate that
taxes must be reasonable, just, fair, conscionable.
Under Art. VI, Section 28(1) of the Constitution, the
rule of taxation must be uniform and equitable. The
State must evolve a progressive system of taxation.
o Horizontal Equity
 General Rule: Requires that persons,
objects or subjects belonging to the same
class or are similarly situated alike must be
treated the same or alike in terms of
benefits, exemptions, etc.
 Exception: Valid classification
 When is there valid classification?
 The equal protection of the laws
clause allows for valid classification.
This means:
 (1) that the classification should be
based on substantial distinctions
which make for real differences;
(2) that it must be germane to the
purpose of the law;
(3) that it must not be limited to
existing conditions only; and
(4) that it must apply equally to
each member of the class.
 Section 23 states the situs of taxation
o Vertical Equity
 Progressive - higher income, higher tax
 Tax must be based on the capacity to pay
3. Administrative Feasibility
o Tax laws must be capable of effective and efficient
enforcement. They must not obstruct business
growth and economic development.
o Convenience on the part of the tax payer and of the
officers
o Competence on both to comply with the
requirements
4. Economic efficiency (not yet observed in the Philippine
jurisdiction)
- Art. VI, Sec. 28, par. 8 – Tax system must be uniform and equitable
- TAXATION DISTINGUISHED FROM OTHER INHERENT POWERS AND
IMPOSITIONS
 Taxation distinguished from Police Power
 As to Purpose –
 Taxation is levied for the purpose of raising
revenues; Police Power is exercised to
promote public welfare through regulation.
 As to Amount of Exaction –
 The amount gathered in the exercise of
Taxation contemplates of no limits; in Police
Power, the exaction is limited to the cost of
regulation, issuance of the license, or
surveillance.
 As to the Benefits Received by the Taxpayer –
 In Taxation, no special or direct benefit is
received by the taxpayer other than the fact
that the government secures to the citizen
that general benefit resulting from the
protection of his person and property and
the welfare of all.
Similarly, no direct benefits are received
through the exercise of Police Power, yet a
healthy economic standard society is
maintained.
 As to Superiority of Contracts –
 Taxation recognizes the obligations
imposed by contracts. This limitation does
not apply to Police Power.
 As to Transfer of Property Rights –
 In Taxation, the taxes paid form part of the
public funds, whereas Police power allows
merely the restraint on the exercise of
property rights.
 Taxation distinguished from Eminent Domain
 As to Purpose –
 Taxation is exercised in order to raise public
revenue; Eminent domain or expropriation is
the taking of property for public purpose.
 As to Compensation –
 Payment of taxes accrues to the general
benefit of the citizens of the taxing state; in
Eminent Domain, just compensation is given
the owner of the expropriated property.
 As to Persons Affected –
 Taxation applies to all persons, property and
excises that may be subject thereto; in
Eminent Domain, only particular property is
comprehended.
- Double Taxation – when the same taxable item is taxed more than once by either
the same or by different government agencies. It can either be in a “juridical” or an
“economic” form.
- In Philippine jurisprudence, double taxation has been described as “direct duplicate
taxation.”
- Tax is superior compared to other inherent powers however, with respect to non-
impairment clause, it is inferior.
 - Non-impairment clause applies when the government is a party to the contract. 4. True – Aspects or Phases of Taxation
- Government may revoke franchises granted as franchises are generally granted by  Imposition: Levying/Making of the Law – Legislative
the Congress.  Enforcement: Assessment & Collection – Administrative
- Classification of Taxes: 5. True
1. Personal, capitation or poll tax 6. True – Generally, government is exempt from taxation
2. Property tax 7. True – Tax credits or? burdens (tax assumption clause) can be transferred but not
3. Excise tax tax exemptions
- Constitutional Limitations as to Taxation 8. True
 Art. 3, Sec. 1 and Sec. 4, 10 9. False – Tax imposition is legislative in character, it is the making of the law. Tax
 Art. 6, Sec. 28 par. 3 administration is executive. Fiscal policy includes tax imposition.
 *religious organizations are exempted only from real estate 10. False – Unlimited but in police power it is limited
tax 11. True
 Art. 6, Sec. 27 par. 2 12. True – Unless there is a violation of the law or the Constitution as power to tax is
 Art. 6, Sec. 28 supreme
 Art. 14, Sec, 4, par. 3
13. False – De La Salle University case, two provisions granted to schools:
 Sec. 23 NIRC
 Sec. 27 (b) NIRC Art. 6, Sec. 28, Par. 3 – real property tax – real property is actually, exclusively and
 Sec. 30 (h) NIRC directly used for educational purposes (applies to churches and charitable
- No condition imposed as to the source of income of the non-stock and non-profit institutions)
educational institution Art. 14, Sec. 4, Par. 3 – revenue, assets and income – imposed specific conditions
- Tax exemption to schools that revenues and assets must be actually, exclusively and directly used
- Tax amnesty for education purposes (applies to schools only)
- Taxes are generally payable in money for convenience and administrative feasibility - Art 14 cannot be used in real property tax
- Direct Taxation – if both burden and incidence stays with the same person
- Utilization is imposed
o Burden/Impact
o Incidence 14. True - Tax is an enforced contribution and it does not depend on voluntariness
- Indirect Taxation such as donation
15. True – Distinguish amnesty (liability or violation is created but taxpayer is forgiven or
violation is overlooked) from exemption (taxpayer is exempted from payment due to
governmental policy)
16. False
17. True
18. True – Purpose is primarily public not exclusively for public purpose
08/05/2018 19. True
20. False – They are protected. Contractual obligations of the government is unitary,
PRELIMS government revoking stipulations violates the non-impairment clause. Tax
exemptions cannot be revoked by the government without violating the non-
1. False – It cannot be delegated EXCEPT: impairment clause. For non-impairment clause to apply, the government must be a
 Delegation to the LGUs party to the contract.
 Flexible Tariff Clause 21. False –
 Power to Promulgate IRRs by Administrative Bodies 22. False
2. True – Tax exemptions must be expressed due to the Lifeblood Doctrine
3. True – Power to tax is Comprehensive, Unlimited, Plenary and Supreme
23. True – Compensation is not allowed in the Philippines due to the lifeblood doctrine. 57.
ER is similar to compensation but not the same. All types of offsetting are not allowed 58.
in the Philippines as claims of the government are different from the claims of the 59.
taxpayer. 60.
24. True – Injunction is allowed only in appealed cases in exercise of CTA’s appellate 61.
jurisdiction. Generally it is not applied due to the lifeblood doctrine. The Supreme 62.
Court can issue injunction in the exercise of their incidental power. 63.
25. False – It is inherent but not due to legislative 64.
26. True 65. T
27. True – Provided that primary purpose is to raise revenue if regulatory it is police 66. F
power 67.
28. False – Territoriality as an inherent limitation 68.
29. True 69.
30. True 70.
31. True - 71.
32. True 72.
33. True – Direct duplicate taxation is prohibited 73.
34. False 74.
35. False – Exception: Garlitos case, when both obligations are due and demandable 75.
and fully liquidated 76.
36. False 77.
37. True 78.
38. True – Flexible Tariff clause 79.
39. True 80.
40. True 81.
41. True – Art 6 of Constitution 82.
42. True 83.
43. True 84.
44. True 85.
45. True 86.
46. False – uniform or singular rate 87.
47. True 88.
48. False 89.
49. False 90.
50. 91.
51. 92.
52. 93.
53. True – Taxation is subject to non-impairment clause while police power is not 94.
54. 95.
55. 96.
56. 97.
98. - The person who issues the LOA is the one who is authorized to issue the
99. assessment.
100. - Whoever issues the assessment when the taxpayer contests the assessment, it must
be filed with the person who issued the assessment.
08/12/2018 - Sec. 228 – Protesting of the Assessment
- National Internal Revenue Code of 1997 - Sec. 232 – Keeping of Books of Accounts
- TRAIN Law – Tax Reform for Acceleration and Inclusion Law - Sec. 235 – Preservation of Books of Accounts and Other Accounting Records
- Internal Revenue – revenues coming from taxes collected including transactions and - Sec. 4 – Power of the Commissioner to Interpret Tax Laws and to Decide Tax
exchanges performed in the Philippine Cases
- If not one of those enumerated in Sec. 21, it is not a national revenue tax. Deemed  To decide on:
national revenue tax: (for each tax there is a corresponding return)  Disputed Assessments and Tax Credit
 Income tax  Claims of Tax Refund and
 Estate and donor’s tax  Other Matters
 Value-added tax - The Secretary of Finance has the power to promulgate implementing rules and
 Other percentage taxes regulations and it cannot be delegated. (see Sec. 7)
 Excise tax - Sec. 244
 Documentary stamp taxes - The Commissioner can only interpret the IRRs to the exclusion of regular courts. It
 Such other taxes as are of hereafter may be imposed and collected cannot promulgate or implement IRRs.
by the Bureau of Internal Revenue - In case on inaction of the Commissioner, the remedy of the taxpayer is to go to the
- Sec. 2 – Powers and Duties of the Bureau of Internal Revenue Court of Tax Appeals, and to the Supreme Court.
 Primary function is assessment and collection - The Commissioner shall interpret by issuing rulings or the Revenue Memorandum
 All others are incidental such as enforcement and execution Circulars.
- Tax Return – under the mutual support and collection doctrine, whenever we earn - The ruling is not required to be published unlike the IRRs, must be published before it
something we return to the government its due share takes effect as the IRRs has the effect of a law in compliance with Art. 2 of the Civil
- Self-Assessment Scheme – the taxpayer does not have to wait for the Code.
government’s assessment before the payment of tax. The taxpayers are required to - Sec. 246 – Non-Retroactivity of Rulings
pay taxes though voluntary payment through self-assessment. There is only a post-  Rulings of the Commissioner cannot be given retroactive application
audit, subject to examination or review by the government. Rationale: So the 
government can immediately collect. - Relate Sec. 246 with Sec. 4
- Post-Audit – Tax audit or examination done after the taxpayer pays taxes. - Disputed Assessment – it occurs when the assessment is duly protested under
- Sec. 3 – Chief Officials of the Bureau of Internal Revenue Sec.228 in relation to Sec. 4
 Structure of the Bureau of Internal Revenue - Sec. 32 (B), Item 7 (b)
- The BIR is not a commission or a collegiate body - Sec. 27 (C)
- Examination is the tool to determine the tax deficiency of the taxpayer - Assessments should be issued within three (3) years
- Letter Of Authority – issued by the BIR to conduct a tax audit without such you - It must contain the legal and factual basis otherwise; it is a mere scrap of paper.
cannot allow the BIR to look into your records to prevent the taxpayer from undue - Once the assessment is contested, it is now a disputed assessment. The
harassment. It is issued by the Regional Director and the other higher officials and Commissioner is given the chance to review and decide on the protest. He has the
not the RDO. chance to rectify the errors of the BIR.
- In case of assessment’s:
  Decision – Final Decision on Disputed Assessment (FDDA) and if it
is denied, the taxpayer brings it to the Court of Tax Appeals. If no
FDDA, it must be dismissed since it is considered as premature.
 Inaction – After lapse of 180 days, within 30 days it must be brought
to the Court of Tax Appeals
- Decision – CTA Function
- Interpretation – Secretary of Finance Function
- Claims for Refund or Tax Credit
 Sec. 112 – Value Added Tax (VAT)
 Sec. 204 – Refund, Compromise, Abatement
 Sec. 229 – Illegally or Erroneously Paid or Collected Tax
 In line with the principle of solutio indebiti
- Refunds must be claimed within two (2) years
- Revenue Regulations 12-9 and 8-28 in relation to Sec. 228
- Commissioner can decide on other matters in relation to internal revenue
- Sec. 5 – Power of the Commissioner to Make Assessments and Prescribe Additional
Requirements for Tax Administration and Enforcement
- Sec. 266 – Failure to Obey Summons
- Commissioner has the power to obtain or access information except bank deposits
due to Bank Secrecy Law except those provided under Sec. 6 (F)
- For compromise, application or availment of such, approval for the application and
the amount exceeds P 500,000power to approve cannot be delegated by the
Commissioner. (Sec. 6, (F), Sec. 7, and Sec. 204)
- Sec. 204
- Sec. 6 (A, B, C, D, E)
- Sec. 6 C and D
- Sec. 7
 Powers that cannot be delegated
- Nature of Excise Tax
- Sec. 12
- Sec. 15 – issue on excise tax
-