University of the Visayas

Gullas Law School

SY 2021-2022 1st Semester
Taxation 1

COURSE GUIDE AND CORE READING ASSIGNMENTS:

I. HISTORY OF TAXATION
II. DEFINITION OF TAXATION
i. Taxation vis-à-vis Tax
 Southern Luzon Drug Corporation v. DSWD, et. al., G.R. No. 199669,
April 25, 2017
 Paseo Realty and Development Corporation v. CA, G.R. No. 119286,
October 13, 2004.
 Pelizloy Realty Corporation v. Province of Benguet, G.R. No. 183137,
April 10, 2013.

III. NATURE OF THE POWER OF TAXATION

i. Inherent prerogative of the sovereignty
a. Basis
b. Manifestations

ii. Legislative in character

a. Basis
b. Scope: To determine—
i. Purpose(s)
ii. Subjects and objects of taxation (within its jurisdiction)
iii. Amount and rate of tax
iv. Kind of tax to be collected
v. Apportionment of the tax
vi. Manner and mode of enforcement and collection
vii. Situs of taxation
viii. Grant tax exemption or condonation
ix. Provision of administrative and judicial remedies that may be
availed by the taxpayers and government

iii. Subject to constitutional and inherent limitations (see discussion outline below)

IV. BASIS OF TAXATION (Necessity Theory)

V. IMPORTANCE OF TAXES – Lifeblood Doctrine

VI. THEORIES AND DOCTRINES OF TAXATION

 THEORIES OF TAXATION
i. Lifeblood Theory
 Bureau of Internal Revenue v. First E-Bank Tower Condominium Corp., G.R. Nos.
215801 & 218924, January 15, 2020.
 ii. Necessity Theory
 Phil. Guaranty Co. v. CIR, 13 SCRA 775
 Gerochi v. DOE, 527 SCRA 696
iii. Benefits received or compensation theory
iv. Benefits received Theory/Reciprocity Theory/Symbiotic Theory (Doctrine of Symbiotic
Relationship)
 Southern Luzon Drug Corporation v. DSWD, et. al., G.R. No. 199669, April 25,
2017
 Philippine Guaranty Co., Inc. vs CIR (G.R. No. L-22074 April 30, 1965)

 Doctrines of Taxation
1. Prospectivity of tax laws
a. Revenue Regulations
 Non-retroactivity
Cases:
 CIR v. Filinvest Dev't. Corp., 654 SCRA 56
b. BIR Rulings or Administrative Rulings
Cases:
 Team Energy Corp. v. CIR, GR No. 197760
 CIR v. Burroughs, Inc., 142 SCRA 324
2. Imprescriptibility of taxes
3. Principle of Exhaustion of Administrative remedies in taxation
Cases:
 Silicon Phils., Inc. v. CIR, 717 SCRA 30
 City of Lapu-Lapu v. PEZA, 742 SCRA 524
 Comm. Of Customs v. Oilink Int'l. Corp., 728 SCRA
469

VII. PURPOSE AND OBJECTIVE OF TAXATION

i. The Four (4) R’s of Taxation
1. Revenue
2. Redistribution
3. Re-pricing- i.e. sin taxes, as a way to change behavior
4. Representation- demand for accountability from the government on
taxes collected.
ii. Primary: revenue raising
 Lutz v. Araneta, 98 Phil 148
 Gerochi v. DOE, 527 SCRA 696
 Gaston v. Republic Bank, 158 SCRA 626
iii. Secondary: non-revenue raising
1. Regulation – e.g. to protect local industries against unfair competition
 Chevron Phils., Inc. v. Bases Conversion Dev't. Authority, 630 SCRA 519
 Terminal Facilities & Services Corp. v. Phil. Ports Authority, 378 SCRA 81
 Manila Memorial Park, Inc. v. Secretary of DSWD, 711 SCRA 302
Holmes dictum (McCulloch v. Maryland, 4 Wheat, 3164L ed. 579, 607)
vis-à-vis Marshall Disctum (Panhandle Oil C. v. Mississippi, 277 US 218).
How were the doctrines reconciled?
 Reyes v. Almanzor et. al., G.R. Nos. L-49839-46, April 26, 1991
2. Promotion of general welfare-implementation of the police power
 3. Reduction of social inequality (Redistribution)
4. Encourage economic growth

VIII. SCOPE OF TAXATION

i. Unlimited
ii. Comprehensive
iii. Plenary
iv. Supreme
 Pepsi Cola Bottling Philippines Company v. Municipality of Tanauan et. al., G.R.
No. L-31156 February 27, 1976.
 Tio v. Videogram Regulatory Board, G.R. No. 75697, June 19, 1987.

IX. ASPECTS/STAGES OF TAXATION

i. Levy or imposition (Legislation)
ii. Administration (Tax Administration)
 CIR v. United Salvage & Towage (Phils.) Inc., 729 SCRA 113
 Alhambra Cigar & Cig. Mfg., Co. v. Collector, 105 Phil 1337
 CIR v. The Stanley Works Sales (Phils.), Inc. 743 SCRA 642
 Ungab v. Cusi, Jr., 97 SCRA 877
 CIR v. Pascor Realty Development Corp., 309 SCRA 402
 CIR v. Hantex Trading, 454 SCRA 301
 CIR v. BPI, 411 SCRA 456
Agencies involved:
1. Bureau of Internal Revenue (BIR)
2. Bureau of Customs (BOC)
3. Provincial, City, and Municipal Assessor and Treasurers

X. BASIC PRINCIPLES OF A SOUND TAX SYSTEM

 Francisco I. Chavez vs. Jaime B. Ongpin and Fidelina Cruz,. G.R. No. 76778.
June 6, 1990
 Renato V. Diaz and Aurora Ma. F. Timbol vs. The Secretary of Finance and the
Commissioner of Internal Revenue.

XI. TAXATION DISTINGUISHED FROM POLICE POWER AND EMINENT DOMAIN

 Planters Products Inc. v. Fertiphil Corp., G.R. No. 166006 March 14, 2008.
 CIR v. Central Luzon Corporation, G.R. No. 159647, April 15, 2005.
 Carlos Superdrug Corporation v. Department of Social Welfare and Development,
G.R. No. 166494, June 29, 2007, 553 Phil. 120 (2007)
 Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc v. Secretary of DSWD
and DOF, G.R. No. 175356, December 3, 2013.

XII. TAXES, DEFINED

i. Internal revenue taxes
ii. Local/municipal taxes
iii. Tariff and customs duties
iv. Taxes and tax incentives under special laws

XIII. ESSENTIAL CHARACTERISTICS AND ATTRIBUTES OF TAXES

i. Enforced contribution
 ii. Generally payable in money
iii. Proportionate in character
iv. Levied on person, property or the exercise of a right or privilege
v. Levied by the State which has jurisdiction over the subject or object of taxation
vi. Levied by the lawmaking body of the State
vii. Levied for public purpose/s

XIV. CLASSIFICATION OF TAXES

i. As to Subject Matter or Object
ii. As to Who Bears the Burden
iii. As to the Determination of Amount
iv. As to Purpose
v. As to the Scope or Authority Imposing the Tax
vi. As to Graduation or Rate

XV. TAXES DISTINGUISHED FROM OTHER IMPOSITIONS/EXACTIONS

i. License or permit fee
 Ermita-Malate Hotel & Motel Operators Asso., Inc. v. City of Manila, 20 SCRA
47
 Gerochi v. Department of Energy, 527 SCRA 696
 Cojuangco, Jr. v. Republic, 686 SCRA 472
 Angeles University Foundation v. City of Angeles, 675 SCRA 359
 Smart Telecommunications, Inc. v. Mun. Of Malvar, Batangas, 716 SCRA 677
 Progressive Dev't. Corp. v. Quezon City, 172 SCRA 629
 Land Transportation v. City of Butuan, 322 SCRA 805
 CIR v. Maritime Shipping, 238 SCRA 42

ii. Toll fee

iii. Compromise penalty
iv. Special assessment
v. Debt
vi. Subsidy
vii. Revenue
viii. Internal revenue
ix. Customs duties
x. Tariff

XVI. LIMITATIONS OF THE POWER OF TAXATION

i. Inherent Limitation
1. Public purpose
 Pascual v. Secretary of Public Works et. al., G.R. No. L-10405
 Lutz v. Araneta, et. al., G.R. No. L-7859, December 22, 1955
 GOMEZ v. PALOMAR GR No. L-23645, October 29, 1968 25 SCRA 827
 Planters Products, Inc. v. Fertiphil Corp., 548 SCRA 485
2. Non-delegation of the legislative power to tax
 Tan v. Del Rosario. G.R. No. 109289, October 3, 1994
 NPC v. Province of Albay, 186 SCRA 198
 Quezon City, et al. v. Bayan Telecommunications, Inc., 484 SCRA 169
  Pepsi-Cola Bottling Co. v. Mun. Of Tanuan, Leyte, 69 SCRA 460
 Southern Cross Cement Corp. v. Cement Manufacturers Asso. Of the
Phils.,GR No. 158540, August 3, 2005
 Camarines North Elec. Cooperative v. Torres, GR No. 127249, February
27, 1998
3. Exemption from taxation of government entities
 PAGCOR v. BIR, G.R. No. 215427, December 10, 2014.
 CIR v. PAGCOR, G.R. No. 177387. November 9, 2016
4. International comity
 CIR v. Mitsubishi Metal Corp., 181 SCRA 214
 CBK Power Co., Ltd. v. CIR, GR No. 192283, January 14, 2015
5. Territorial jurisdiction
 ACMDC v. CIR, 524 SCRA 73

ii. Constitutional Limitations

1. Direct
a. Revenue bill must originate exclusively in the House but the Senate may propose
with amendments – lawmaking process
b. Concurrence of a majority of ALL the members of Congress for the passage of a law
granting tax exemption
c. Rule of uniformity and equity in taxation
 CIR v. SM Prime Holdings, Inc., 613 SCRA 774
 Phil. Trust BL Company v. Yatco, 69 Phil 420
 Tan v. Del Rosario, 237 SCRA 324
 CREBA, Inc. v. Exec. Sec. Romulo, 614 SCRA 605
 Roxas v. CTA, 23 SCRA 276
 British Tobacco v. CIR, 562 SCRA 511
 Punsalan v. City of Manila, 95 Phil 46
d. Progressive system of taxation
e. Exemption of religious, charitable and educational entities, non-
profit cemeteries, and churches from property taxation
 Mitsubishi Corporation-Manila Branch vs CIR GR 175772 dated 5 June 2017
 CIR v. St. Luke’s Medical Center (SLMC), G.R. No. 203514. February 13, 2017
 Abra Valley College Inc., v. Aquino, G.R. No. L-39086 June 15, 1988
 American Bible Society v. City of Manila, G.R. No. L-9637, April 30, 1957
 City Assessor of Cebu City v. Association of Benevola de Cebu Inc., G.R. No.
152904, June 8, 2007
f. Exemption of non-stock, non-profit educational institutions from
taxation
 Jacinto-Henares v. St. Paul College of Makati, G.R. No. 215383 (Resolution),
March 8, 2017
 CIR v. De La Salle University, G.R. Nos. 196596, 198841, 198941, November 9,
2016
g. Non-imprisonment for non-payment of a poll tax
h. Non-impairment of the jurisdiction of the SC in tax cases

2. Indirect
a. Due process of law
  Chamber of Real Estate and Builders’ Associations’ Inc. v. Romulo et. al., G.R.
No. 160756, March 9, 2010
 PB Communications v. CIR, 302 SCRA 241
 Tanada v. Tuvera, 136 SCRA 27
 CIR v. Metro Star Superama, Inc., 637 SCRA 633

b. Equal protection of the laws

 People v. Cayat, G.R. No. L-45987
 Associations’ Inc. v. Romulo et. al., G.R. No. 160756, March 9, 2010
 Ormoc Sugar Company v. Conejos et. al., G.R. No. L-23794, February 17, 1968
 Tiu v. CA, G.R. No. 127410 January 20, 1999
c. Non-impairment of the obligation of contracts
 Casanovas v. Hord, 8 Phil 25
 Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667
 Tolentino v. Sec. of Finance, 235 SCRA 630

d. Non-infringement of religious freedom

 American Bible Society v. City of Manila, 101 Phil 386
 Tolentino v. Secretary of Finance, 235 SCRA 630

e. No appropriation for religious purposes

f. Non-infringment of the freedom of the press
g. Power of the President to veto any particular item/s in a revenue or tariff bill

XVII. SITUS OF TAXATION

 Air Canada v. CIR, January 11, 2016, G.R. No. 169507, January 11, 2016

XVIII. DOUBLE TAXATION

i. Meaning of double taxation
1. Strict sense
2. Broad sense
ii. Instances of double taxation
iii. Constitutionality of double taxation
1. General rule
2. Exception
 Manufacturers Life v. Meer, 89 Phil 210
iv. Modes of eliminating double taxation:
a) Tax exemption
b) Tax credit
c) Tax deduction
d) Tax discount
e) Tax treaties
f) Principle of Reciprocity
Cases:
o CIR v. SC Johnson & Son, Inc., 309 SCRA 87
o Ericsson Telecommunications, Inc. v. City of Pasig, 538 SCRA 99
o Nursery Care Corp. v. Acevedo, 731 SCRA 280
o CIR v. SC Johnson & Son, Inc., 309 SCRA 87
o La Suerte Cigar & Cig. Factory v. CA, 739 SCRA 489
 o Villanueva v. City of Iloilo, 26 SCRA 578
o Compania General de Tabacos de Filipinos v. City of Manila, 8 SCRA
367
o CIR v. Solidbank Corp., 416 SCRA 436
o People v. Sandiganbayan, 467 SCRA 137
o CIR v. American Rubber Co., 18 SCRA 842

XIX. FORMS OF ESCAPE FROM TAXATION

i. Six (6) Basic Forms
ii. Definition of terms
1. Shifting, in general
a. Impact of taxation
b. Incidence of taxation
c. Relations among impact, shifting and incidence
d. Kinds:
i. Forward shifting
ii. Backward shifting
iii. Onward shifting
2. Capitalization
3. Transformation
4. Exemption
5. Tax avoidance
6. Tax evasion
 Distinction between tax evasion and tax avoidance
 Elements of tax evasion
 Evidence to prove tax evasion
Cases:
 CIR v. Pilipinas Shell Petroleum Corp., 717 SCRA 53
 Phil. Acetylene Co., Inc. v. CIR, 20 SCRA 1056
 Gala v. Ellice Agro Industrial Corp., 418 SCRA 431
 Heng Tong Textiles Co., Inc. v. CIR, 24 SCRA 767
 Delpher Trades Corp. v. IAC, 157 SCRA 349
 CIR v. Estate of Benigno Toda, Jr., 438 SCRA 290
 John Hay Special Economic Zone v. Lim, 414 SCRA 356
 CIR v. Phil. Associated Smelting & Refining Corp., 737 SCRA 328

XX. EXEMPTION FROM TAXATION

i. Exemption, defined
ii. Nature of tax exemption
a. Personal privilege
b. Generally revocable
c. Waiver on the part of the government
d. Not necessarily discriminatory
iii. Nature of the power to grant tax exemption
iv. Rationale of tax exemption
v. Grounds for tax exemption
vi. Kinds of tax exemption
vii. Examples of tax exemption
 viii. Construction of tax exemption statutes
ix. Tax amnesty, defined
 CIR v. Covanta Energy Philippine Holdings, Inc., G.R. No. 203160,
January 24, 2018
x. Tax remission of tax condonation, defined

Cases:
 Batangas Power Corp. v. Batangas City & NPC, GR No. 152675, April 28,
2004
 Tolentino v. Sec. Of Finance, 235 SCRA 630
 CIR v. MERALCO, 725 SCRA 384
 Western Minolco Corp. v. CIR, 124 SCRA 121
 Provincial Treasurer of Province of Misamis Oriental v. Cagayan Electric
Power & Light Co., Inc., 181 SCRA 38
 Philex Mining Corp. v. CIR, 294 SCRA 687
 CIR v. Citytrust Banking Corporation, 499 SCRA 477

Compromise
 Wonder Mechanical Engineering Corp. v. CA, 64 SCRA 555

Tax Amnesty
 People v. Castañeda, 165 SCRA 327
 Asia International Auctioneers, Inc. v. CIR, 682 SCRA 49
 Special Economic Zone v. Lim, 414 SCRA 356

XXI. NATURE, CONSTRUCTION, INTERPRETATION AND APPLICATION OF TAX LAWS

i. Nature of internal revenue law
ii. Construction of tax laws
iii. Application of tax laws
iv. Mandatory and directory provisions of tax laws
v. Authority of the Secretary of Finance to promulgate rules and regulations
vi. Nature and power to make regulations
vii. Necessity and function of regulations
viii. Requisites for validity and effectivity of regulations
ix. Force and effect of regulations
x. Administrative rulings and opinions
xi. Administrative interpretation and the courts
xii. Power of the Secretary of Finance to Revoke the Rulings of his predecessor
xiii. Non-retroactivity of repeal of regulations or rulings, and its exceptions
xiv. Decisions of the Supreme Court and the Court of Tax Appeals

XXII. SOURCES OF TAX LAWS

i. Constitution
ii. Legislations/statutes (R.A., P.D., E.O.)
iii. Administrative rules and regulations, rulings or opinions of tax officials
iv. Judicial decisions
v. Tax treaties or agreements
XXIII. NATIONAL TAXATION
a. Taxing Authority
a. Jurisdiction, power and functions of the Commissioner of Internal Revenue
b. Rule-making authority of the Secretary of Finance