I.

GENERAL PRINCIPLES

A. Concept and Purpose of Taxation

1. Definition
• Doctrines:
SINCE THE POWER TO TAX IS SOMETIMES CALLED THE POWER TO DESTROY, IT SHOULD BE
EXERCISED WITH CAUTION TO MINIMIZE INJURY TO THE PROPRIETARY RIGHTS OF A TAXPAYER
It should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the “hen that lays the golden egg.” And, in
order to maintain the general public’s trust and confidence in the Government this power must be used justly
and not treacherously. It does not conform with Our sense of justice in the instant case for the Government
to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent
call. (Roxas v. Court of Tax Appeals, G.R. No. L-25043, April 26, 1968) (NOTE: In Sison, Jr. v. Ancheta [G.R. No.
L-59431, July 25, 1984], the Court, speaking thru CJ Fernando, held that: “This is merely to emphasize that it is
riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: ‘The web
of unreality spun from Marshall’s famous dictum was brushed away by one stroke of Mr. Justice Holmes’s pen:
The power to tax is not the power to destroy while this Court sits.’ So it is in the Philippines.”)
2. Purpose
• Doctrines:
SYMBIOTIC RELATIONSHIP IS THE RATIONALE OF TAXATION
It is said that 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 running of 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 moral and
material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous
notion that it is an arbitrary method of exaction by those in the seat of power. (Commissioner of Internal
Revenue v. Algue, Inc., G.R. No. L-28896, February 17, 1988)
3. Power of Taxations vs. Police Power and vs. Power of Eminent Domain
• Doctrines:
POLICE POWER IS THE POWER INHERENT IN A GOVERNMENT TO ENACT LAWS, WITHIN
CONSTITUTIONAL LIMITS, TO PROMOTE THE ORDER, SAFETY, HEALTH, MORALS, AND GENERAL
WELFARE OF SOCIETY
It is lodged primarily in the legislature. By virtue of a valid delegation of legislative power, it may also be
exercised by the President and administrative boards, as well as the lawmaking bodies on all municipal levels,
including the barangay. Delegation of legislative powers to the President is permitted in Sections 23(2) and
28(2) of Article VI of the Constitution. (Camarines Norte Electric Cooperative, Inc. v. Torres, G.R. No. 127249,
February 27, 1998)
TO BE CONSIDERED A PROPER EXERCISE OF POLICE POWER THE SAME MUST COMPLY WITH THE
EQUAL PROTECTION CLAUSE AND DUE PROCESS CLAUSE OF THE CONSTITUTION
A local government is considered to have properly exercised its police powers only when the following
requisites are met: (1) the interests of the public generally, as distinguished from those of a particular class,
require the interference of the State and (2) the means employed are reasonably necessary for the attainment
of the object sought to be accomplished and not unduly oppressive. The first requirement refers to the equal
protection clause and the second, to the due process clause of the Constitution. (Parayno v. Jovellanos, G.R.
No. 148408, July 14, 2006)
TAXATION MAY BE MADE THE IMPLEMENT OF THE STATE’S POLICE POWER
Analysis of the Act will show that the tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an
exercise of the police power. This Court can take judicial notice of the fact that sugar production in one of the
great industries of our nation, sugar occupying a leading position among its export products; that it gives
employment to thousands of laborers in fields and factories; that it is a great source of the state’s wealth, is

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 one of the important sources of foreign exchange needed by our government, and is thus pivotal in the plans
of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore
redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general
welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police
power, the law-making body could provide that the distribution of benefits therefrom be readjusted among
its components to enable it to resist the added strain of the increase in taxes that it had to sustain. (Lutz v.
Araneta, G.R. No. L-7859, December 22, 1955)
IF THE PURPOSE OF THE LEVY IS PRIMARILY REVENUE, OR IF REVENUE IS, AT LEAST, ONE OF THE
REAL AND SUBSTANTIAL PURPOSES, THE EXACTION IS A TAX, AND NOT AN IMPLEMENT OF POLICE
POWER
While it is true that the power of taxation can be used as an implement of police power, the primary purpose
of the levy is revenue generation. Police power and the power of taxation are inherent powers of the State,
which are distinct and have different tests for validity. Police power is the power of the State to enact
legislation that may interfere with personal liberty or property in order to promote the general welfare, while
the power of taxation is the power to levy taxes to be used for public purpose. The main purpose of police
power is the regulation of a behavior or conduct, while taxation is revenue generation. The “lawful subjects”
and “lawful means” tests are used to determine the validity of a law enacted under the police power. The
power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations. (Planters
Products, Inc. v. Fertiphil Corp., G.R. No. 166006, March 14, 2008)
TAXES MAY BE LEVIED WITH A REGULATORY PURPOSE TO PROVIDE MEANS FOR THE
REHABILITATION AND STABILIZATION OF A THREATENED INDUSTRY WHICH IS AFFECTED WITH
PUBLIC INTEREST AS TO BE WITHIN THE POLICE POWER OF THE STATE
Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the
government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and
stabilization of a threatened industry which is affected with public interest as to be within the police power
of the State. There can be no doubt that the oil industry is greatly imbued with public interest as it vitally
affects the general welfare. (Caltex Philippines, Inc. v. Commission on Audit, G.R. No. 92585, May 8, 1992)
AN ORDINANCE WHICH TAKES WITHOUT COMPENSATION A CERTAIN AREA FROM PRIVATE
CEMETERIES TO BENEFIT PAUPERS WHO ARE CHARGES OF THE MUNICIPAL CORPORATION IS AN
EXERCISE OF THE POWER OF EXPROPRIATION AND REQUIRES PAYMENT OF JUST COMPENSATION
The ordinance by the Quezon City Government is actually a taking without compensation of a certain area
from a private cemetery to benefit paupers who are charges of the municipal corporation, instead of building
or maintaining public cemeteries. The State’s exercise of the power of expropriation requires payment of just
compensation. Passing the ordinance without benefiting the owner of the property with just compensation
or due process, would amount to unjust taking of a real property. (City Government of Quezon City v. Ericta,
G.R. No. L-34915, June 24, 1983)
4. Taxes vs. Other Forms of Exactions
• Doctrines:
THE DIFFERENTIATING FACTOR OF A TAX FROM OTHER PECUNIARY BURDENS IS THAT THE PURPOSE
TO BE SUBSERVED IS THE RAISING OF REVENUE
A tax refers to a financial obligation imposed by a state on persons, whether natural or juridical, within its
jurisdiction, for property owned, income earned, business or profession engaged in, or any such activity
analogous in character for raising the necessary revenues to take care of the responsibilities of government.
A tax then is neither a penalty that must be satisfied or a liability arising from contract. Unlike a tax, a
regulatory fee has not for its object the raising of revenue but looks rather to the enactment of specific
measures that govern the relations not only as between individuals but also as between private parties and
the political society. (Republic v. Philippine Rabbit Bus Lines, Inc., G.R. No. L-26862, March 30, 1970)
LICENSE FEES, AS CONTRADISTIGUISHED FROM TAXES, IS IMPOSED IN THE EXERCISE OF POLICE
POWER FOR PURPOSES OF REGULATION
The term “tax” applies — generally speaking — to all kinds of exactions which become public funds. The term
is often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees
are commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax;
the former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed
under the taxing power for the purpose of raising revenues. (Compañia General de Tabacos de Felipinas v.
City of Manila, G.R. No. L-16619, June 29, 1963)

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 IF THE GENERATING OF REVENUE IS THE PRIMARY PURPOSE AND REGULATION IS MERELY
INCIDENTAL, THE IMPOSITION IS A TAX, BUT IF REGULATION IS THE PRIMARY PURPOSE, THE FACT
THAT INCIDENTALLY REVENUE IS ALSO OBTAINED DOES NOT MAKE THE IMPOSITION A TAX
The term “tax” frequently applies to all kinds of exactions of monies which become public funds. It is often
loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are
frequently called taxes although license fee is a legal concept distinguishable from tax: the former is imposed
in the exercise of police power primarily for purposes of regulation, while the latter is imposed under the
taxing power primarily for purposes of raising revenues. To be considered a license fee, the imposition
questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety
and development as to require regulation for the protection and promotion of such public interest; the
imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account
not only the costs of direct regulation but also its incidental consequences as well. Accordingly, a charge of a
fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather
than an exercise of the police power. (Progressive Development Corp. v. Quezon City, G.R. No. L-36081, April
24, 1989)

B. Basis of Taxation
1. Lifeblood Theory
2. Necessity Theory
3. Benefits-Received Theory

C. Principles of a Sound Taxing System

1. Fiscal adequacy
2. Theoretical justice
3. Administrative feasibility

D. Nature and Extent of Taxing Power

• Doctrines:
IT IS INHERENT IN THE POWER TO TAX THAT A STATE BE FREE TO SELECT THE SUBJECTS OF TAXATION
It has been repeatedly held that inequalities which result from a singling out of one particular class for taxation,
or exemption infringe no constitutional limitation. (Lutz v. Araneta, G.R. No. L-7859, December 22, 1955)
THE FISCAL INCENTIVES REVIEW BOARD HAS NO AUTHORITY TO IMPOSE TAXES OR REVOKE EXISTING
ONES, WHICH, UNDER THE CONSTITUTION, ONLY THE LEGISLATURE MAY ACCOMPLISH
Under Presidential Decree No. 776, the power of the FIRB was merely to “recommend to the President of the
Philippines and for reasons of compatibility with the declared economic policy, the withdrawal, modification,
revocation or suspension of the enforceability of any of the above-cited statutory subsidies or tax exemption
grants, except those granted by the Constitution.” Claims of tax exemption are construed strongly against the
claimant. They must also be shown to exist clearly and categorically, and supported by clear legal provisions. Taxes
are the lifeblood of the nation. Their primary purpose is to generate funds for the State to finance the needs of the
citizenry and to advance the common weal. (National Power Corp. v. Province of Albay, G.R. No. 87479, June 4,
1990)

E. Inherent and Constitutional Limitations on the Taxing Power

• Doctrines:
TAXES ARE EXACTED ONLY FOR A PUBLIC PURPOSE
An inherent limitation on the power of taxation is public purpose. They cannot be used for purely private purposes
or for the exclusive benefit of private persons. The reason for this is simple. The power to tax exists for the general
welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose. It would be
a robbery for the State to tax its citizens and use the funds generated for a private purpose. As an old United States

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 case bluntly put it: “To lay with one hand, the power of the government on the property of the citizen, and with
the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is
nonetheless a robbery because it is done under the forms of law and is called taxation.” (Planters Products, Inc.
v. Fertiphil Corp., G.R. No. 166006, March 14, 2008)
REVENUES DERIVED FROM TAXES CANNOT BE USED FOR PURELY PRIVATE PURPOSES OR FOR THE
EXCLUSIVE BENEFIT OF PRIVATE PERSONS
The Stabilization Fund is to be utilized for the benefit of the entire sugar industry, “and all its components,
stabilization of the domestic market including the foreign market,” the industry being of vital importance to the
country’s economy and to national interest. That the fees were collected from sugar producers, planters and
millers, and that the funds were channeled to the purchase of shares of stock in respondent Bank do not convert
the funds into a trust fund for their benefit nor make them the beneficial owners of the shares so purchased. It is
but rational that the fees be collected from them since it is also they who are to be benefited from the expenditure
of the funds derived from it. (Gaston v. Republic Planters Bank, G.R. No. 77194, March 15, 1988)
SO LONG AS THE PURPOSE IS PUBLIC, IT DOES NOT MATTER WHETHER THE AGENCY THROUGH WHICH
THE MONEY IS DISPENSED IS PUBLIC OR PRIVATE
The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It is not dependent
on the nature or character of the person or corporation whose intermediate agency is to be used in applying it.
The people may be taxed for a public purpose, although it be under the direction of an individual or private
corporation. The entrusting of the collection of the fees does not destroy the public purpose of the ordinance.
(Bagatsing v. Ramirez, G.R. No. L-41631, December 17, 1976)
TAX AND REVENUE MEASURES REQUIRES PUBLICATION FOR THEIR EFFECTIVITY
The publication of all presidential issuances “of a public nature” or “of general applicability” is mandated by law.
Obviously, presidential decrees that provide for fines, forfeitures or penalties for their violation or otherwise
impose a burden on the people, such as tax and revenue measures, fall within this category. (Tañada v. Tuvera,
G.R. No. 63915, April 24, 1985)
COLLECTION OF TAXES SHOULD BE MADE IN ACCORDANCE WITH LAW
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax
collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not
been observed. (Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, February 17, 1988)
A LAW PROVIDING FOR REMISSION OF TAXES DUE AND PAYABLE TO THE EXCLUSION OF TAXES ALREADY
COLLECTED DOES NOT CONSTITUTE UNFAIR DISCRIMINATION
Each set of taxes is a class by itself, and the law would be open to attack as class legislation only if all taxpayers
belonging to one class were not treated alike. They are not. (Juan Luna Subdivision, Inc. v. Sarmiento, G.R. No. L-
3538, May 28, 1952)
AN ORDINANCE REQUIRING ALL ALIENS TO PAY EMPLOYMENT PERMIT FEE AT THE SAME AMOUNT
REGARDLESS OF POSITION, OCCUPATION, OR BUSINESS, WHETHER PERMANENT, TEMPORARY OR
CASUAL IS UNREASONABLE
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are required to pay it. Although the equal protection clause
of the Constitution does not forbid classification, it is imperative that the classification, should be based on real
and substantial differences having a reasonable relation to the subject of the particular legislation. (Villegas v.
Hiu Chiong Tsai Pao Ho, G.R. No. L-29646, November 10, 1978)
THE PRESS IS NOT EXEMPT FROM THE TAXING POWER OF THE STATE AND THAT WHAT THE
CONSTITUTIONAL GUARANTEE OF FREE PRESS PROHIBITS ARE LAWS WHICH SINGLE OUT THE PRESS OR
TARGET A GROUP BELONGING TO THE PRESS FOR SPECIAL TREATMENT OR WHICH IN ANY WAY
DISCRIMINATE AGAINST THE PRESS ON THE BASIS OF THE CONTENT OF THE PUBLICATION
It would suffice to say that since the law granted the press a privilege, the law could take back the privilege anytime
without offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive
the exercise of its sovereign prerogative. Indeed, in withdrawing the exemption, the law merely subjects the press
to the same tax burden to which other businesses have long ago been subject. (Tolentino v. Secretary of Finance,
G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873 & 115931 [Resolution], October 30,
1995)
VAT DOES NOT IMPAIR PRESS FREEDOM AND RELIGIOUS LIBERTY

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 The VAT is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is
imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the
lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise
of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution. (Tolentino v. Secretary of Finance, G.R. Nos. 115455, 115525, 115543, 115544,
115754, 115781, 115852, 115873 & 115931 [Resolution], October 30, 1995)
VAT DOES NOT IMPAIR THE OBLIGAION OF CONTRACTS
Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen
the security of another, or may impose additional burdens upon one class and release the burdens of another, still
the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any
existing contract in its true legal sense. (Tolentino v. Secretary of Finance, G.R. Nos. 115455, 115525, 115543,
115544, 115754, 115781, 115852, 115873 & 115931 [Resolution], October 30, 1995)
EXCEPT FOR NON-PAYMENT OF A POLL TAX, THE CONSTITUTIONAL RIGHT NOT TO BE IMPRISONED FOR
NON-PAYMENT OF A DEBT DOES NOT APPLY TO NON-PAYMENT OF TAXES
It is elementary, however, that “a tax is not a debt in the sense of an obligation incurred by contract, express or
implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting
imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof by fine or
imprisonment is not in conflict with that prohibition.” Nor is the tax in question a poll tax, for the latter is a tax of
a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without
regard to their property or the occupations in which they may be engaged. (Villanueva v. City of Iloilo, G.R. No. L-
26521, December 28, 1968)
THE CONSTITUTION DOES NOT PROHIBIT THE IMPOSITION OF REGRESSIVE TAXES, BUT SIMPLY
PROVIDES THAT CONGRESS EVOLVE A PROGRESSIVE SYSTEM OF TAXATION
The constitutional provision has been interpreted to mean simply that “direct taxes are…to be preferred [and] as
much as possible, indirect taxes should be minimized.” Indeed, the mandate to Congress is not to prescribe, but to
evolve, a progressive tax system. Resort to indirect taxes should be minimized but not avoided entirely because it
is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers’ ability to pay.
(Tolentino v. Secretary of Finance, G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873
& 115931 [Resolution], October 30, 1995)
PROPERTY TAX EXEMPTION UNDER THE CONSTITUTION, EXEMPTS NOT THE INSTITUTION BUT THE
BUILDINGS AND IMPROVEMENTS, ACTUALLY, DIRECTLY AND EXCLUSIVELY USED FOR RELIGIOUS,
CHARITABLE OR EDUCATIONAL PURPOSES
What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the purposes for which the charitable institution is
organized. It is not the use of the income from the real property that is determinative of whether the property is
used for tax-exempt purposes. Accordingly, the portions of the land leased to private entities as well as those parts
of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the
land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes. (Lung Center of the Philippines v. Quezon City, G.R. No. 144104, June 29, 2004)
GIFT TAX IS NOT WITHIN THE EXEMPTING PROVISIONS OF THE CONSTITUTION
The exemption is only from the payment of taxes assessed on such properties enumerated, as property taxes, as
contra-distinguished from excise taxes. In the present case, what the Collector assessed was a donee’s gift tax; the
assessment was not on the properties themselves. It did not rest upon general ownership; it was an excise upon
the use made of the properties, upon the exercise of the privilege of receiving the properties. A gift tax is not a
property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition of
which on property used exclusively for religious purposes, do not constitute an impairment of the Constitution.
As well observed by the learned respondent Court, the phrase “exempt from taxation,” as employed in the
Constitution supra should not be interpreted to mean exemption from all kinds of taxes. (Lladoc. v. Commissioner
of Internal Revenue, G.R. No. L-19201, June 16, 1965)
AN INSTITUTION ORGANIZED FOR CHARITABLE PURPOSES ENJOYS THE PRESUMPTION THAT IT IS
OPERATING AS SUCH
As such, the burden of proof being on appellees to show that it is operating otherwise. The record does not show
that they have satisfactorily discharged this burden. (Hospital de San Juan de Dios v. Pasay City, G.R. No. L-19371,
February 28, 1966)

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 THE MAKING OF PROFIT DOES NOT DESTROY THE TAX EXEMPTION OF A CHARITABLE, BENEVOLENT OR
EDUCATIONAL INSTITUTION
The general rule that a charitable institution does not lose its charitable character and its consequent exemption
from taxation merely because recipients of its benefits who are able to pay are required to do so, where funds
derived in this manner are devoted to the charitable purposes of the institution, applies to hospitals. The fact that
patients who are able to pay are charged for services rendered, according to their ability, being of no importance
upon the question of the character of the institution. (Hospital de San Juan de Dios v. Pasay City, G.R. No. L-19371,
February 28, 1966)
THE SENATE HAS THE POWER TO PROPOSE AMENDMENTS TO REVENUE BILLS, AND IN THE EXERCISE OF
WHICH, IT MAY PROPOSE AN ENTIRELY NEW BILL AS A SUBSTITUTE MEASURE
While Art. VI, § 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills must “originate exclusively in the House of Representatives,” it also
adds, “but the Senate may propose or concur with amendments.” (Tolentino v. Secretary of Finance, G.R. Nos.
115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873 & 115931 [Resolution], October 30, 1995)
THE INCOME, REVENUES AND ASSETS OF NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS
PROVED TO HAVE BEEN USED ACTUALLY, DIRECTLY AND EXCLUSIVELY FOR EDUCATIONAL PURPOSES
ARE EXEMPT FROM DUTIES AND TAXES
The tax exemption granted by the Constitution to non-stock, non-profit educational institutions is conditioned
only on the actual, direct and exclusive use of their assets, revenues and income for educational purposes. Said
exemption is not subject to limitations imposed by law. A plain reading of the Constitution would show that Article
XIV, Section 4 (3) does not require that the revenues and income must have also been sourced from educational
activities or activities related to the purposes of an educational institution. The phrase all revenues is unqualified
by any reference to the source of revenues. Thus, so long as the revenues and income are used actually, directly
and exclusively for educational purposes, then said revenues and income shall be exempt from taxes and duties.
(Commissioner of Internal Revenue v. De La Salle University, Inc., G.R. Nos. 196596, 198841 & 198941, November
9, 2016)
THE LAST PARAGRAPH OF SECTION 30 OF THE TAX CODE, INSOFAR AS IT SUBJECTS TO TAX THE INCOME
AND REVENUES OF NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS USED ACTUALLY, DIRECTLY
AND EXCLUSIVELY FOR EDUCATIONAL PURPOSE, IS WITHOUT FORCE AND EFFECT WITH RESPECT TO
NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS
Section 30 of the Tax Code provides that: “Notwithstanding the provisions in the preceding paragraphs, the
income of whatever kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the disposition made of such income
shall be subject to tax imposed under this Code.” We stress that our holding here pertains only to non-stock, non-
profit educational institutions and does not cover the other exempt organizations under Section 30 of the Tax
Code. (Commissioner of Internal Revenue v. De La Salle University, Inc., G.R. Nos. 196596, 198841 & 198941,
November 9, 2016)
THE CONSTITUTION DOES NOT REQUIRE THAT COOPERATIVES BE GRANTED TAX EXEMPTIONS IN ORDER
TO PROMOTE THEIR GROWTH AND VIABILITY
Perhaps as a matter of policy cooperatives should be granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no violation of any
constitutional policy can be charged. (Tolentino v. Secretary of Finance, G.R. Nos. 115455, 115525, 115543,
115544, 115754, 115781, 115852, 115873 & 115931 [Resolution], October 30, 1995)

F. Stages or Aspects, Processes, and Phases of Taxation

• Doctrines:
A SYSTEM OF INCENTIVES FOR EXCEEDING THE SET EXPECTATIONS OF A PUBLIC OFFICE IS NOT
ANATHEMA TO THE CONCEPT OF PUBLIC ACCOUNTABILITY
Public service is its own reward. Nevertheless, public officers may by law be rewarded for exemplary and
exceptional performance. In fact, it recognizes and reinforces dedication to duty, industry, efficiency and loyalty
to public service of deserving government personnel. Thus, RA 9335, in providing a system of rewards and
sanctions for the purpose of encouraging the officials and employees of the BIR and the BOC to exceed their
revenue targets and optimize their revenue-generation capability and collection, is valid. (Abakada Guro Party
List v. Purisima, G.R. No. 166715, August 14, 2008)

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 A REVENUE REGULATION REDEFINING TAX CREDIT UNDER THE LAW IT SEEKS TO IMPLEMENT AS TAX
DEDUCTION IS NULL AND VOID
Courts will not hesitate to set aside an executive interpretation when it is clearly erroneous. In case of discrepancy
between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said
rule or regulation cannot go beyond the terms and provisions of the basic law. (Commissioner of Internal
Revenue v. Bicolandia Drug Corp., G.R. No. 148083, July 21, 2006) (NOTE: The Court also held in this case that
under the amendments to RA 7432, there is no tax credit to speak of, only deductions. Nonetheless, it was RA 7432
that was in force at the time of the issuance of the regulation and it is also RA 7432 that the regulation sought to
implement; hence, the regulation’s invalidity still stands.)

G. Requisites of a Valid Tax

H. Tax Statutes
1. Prospective Application
2. Construction and Interpretation
• Doctrines:
A STATUTE WILL NOT BE CONSTRUED AS IMPOSING A TAX UNLESS IT DOES SO CLEARLY, EXPRESSLY
AND UNAMBIGUOUSLY
A mere reading of the ordinance discloses that not only are there no words therein imposing a tax but that
the peruser is left in doubt as to whether the intention is to levy a tax for revenue or charge a fee for permitting
the business to be carried on. Since the validity of taxes and license fees are governed by different principles,
the taxpayer is left in doubt as to the true nature of the charge, and whether he must bear it or not. The rule
is that taxes may not be imposed by implication, and “a tax statute is to be construed strictly and against the
subjection to a tax liability where the question is whether a matter, property or person is subject to the tax.”
Considering the unavoidability of taxes by the citizen, it seems that the least he is entitled to is to be expressly
required to pay a tax, which the words of the questioned ordinance do not state. This is particularly true
where the ordinance, as in this case, carries penal provisions. (Marinduque Iron Mines Agents, Inc. v.
Municipal Council of Hinabangan, Samar, G.R. No. L-18924, June 30, 1964)
SPECIAL STATUTE THAT REFERS TO A SUBJECT IN GENERAL YIELDS TO THE GENERAL STATUTE
WHICH TREATS IN PARTICULAR
The Revised Charter of the City of Manila is a special act since it relates only to the City of Manila, whereas
the Local Tax Code is a general law because it applies universally to all local governments. The rule commonly
said is that a prior special law is not ordinarily repealed by a subsequent general law. The fact that one is
special and the other general creates a presumption that the special is to be considered as remaining an
exception of the general, one as a general law of the land, the other as the law of a particular case. However,
the rule readily yields to a situation where the special statute refers to a subject in general, which the general
statute treats in particular. Section 17 of the Revised Charter of the City of Manila speaks of “ordinance” in
general, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code relates to
“ordinances levying or imposing taxes, fees or other charges” in particular. In regard, therefore, to ordinances
in general, the Revised Charter of the City of Manila is doubtless dominant, but, that dominant force loses its
continuity when it approaches the realm of “ordinances levying or imposing taxes, fees or other charges” in
particular. There, the Local Tax Code controls. Here, as always, a general provision must give way to a
particular provision. Special provision governs. This is especially true where the law containing the particular
provision was enacted later than the one containing the general provision. (Bagatsing v. Ramirez, G.R. No.
L-41631, December 17, 1976)

I. Kinds of Taxes
• Doctrines:
BY THE VERY NATURE OF INDIRECT TAXATION, THE ECONOMIC BURDEN OF SUCH TAXATION IS
EXPECTED TO BE PASSED ON THROUH THE CHANNELS OF COMMERCE TO THE USER OR CONSUMER OF
THE GOODS SOLD

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 Because, however, the NPC has been exempted from both direct and indirect taxation, the NPC must be held
exempted from absorbing the economic burden of indirect taxation. (Maceda v. Macaraig, Jr., G.R. No. 88291
[Resolution], June 8, 1993)
A COMPENSATING TAX IS NOT A PROPERTY TAX BUT IS AN EXCISE TAX
Generally stated, an excise tax is one that is imposed on the performance of an act, the engaging in an occupation,
or the enjoyment of a privilege. A tax levied upon property because of its ownership is a direct tax, whereas one
levied upon property because of its use is an excise duty. Thus, where a tax which is not on the property as such,
is upon certain kinds of property, having reference to their origin and their intended use, that is an excise tax.
Every excise necessarily must finally fall upon and be paid by property, and so may be indirectly a tax upon
property; but if it is really imposed upon the performance of an act, the enjoyment of a privilege, or the engaging
in an occupation, it will be considered an excise. (Manila Electric Co. v. Vera, G.R. Nos. L-29987 & L-23847, October
22, 1975)

J. Double Taxation
1. Strict Sense vs. Broad Sense
2. Tax Treaties
• Doctrines:
BOTH A LICENSE FEE AND A TAX MAY BE IMPOSED ON THE SAME BUSINESS OR OCCUPATION, OR FOR
SELLING THE SAME ARTICLE WITHOUT VIOLATING THE RULE AGAINST DOUBLE TAXATION
What is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a
calling in which — it is obvious — not anyone or anybody may freely engage, considering that the sale of liquor
indiscriminately may endanger public health and morals. On the other hand, what the three ordinances mentioned
heretofore impose is a tax for revenue purposes based on the sales made of the same article or merchandise.
(Compañia General de Tabacos de Felipinas v. City of Manila, G.R. No. L-16619, June 29, 1963)
A MAXIMUM RATE, AS REFLECTED IN THE PHRASE “SHALL NOT EXCEED,” PROVIDED IN A TAX TREATY
WOULD APPLY ONLY IF THE TAX IMPOSED BY OUR LAWS EXCEEDS THE SAME
A closer look at the Treaty reveals that the tax rates fixed by Article 10 are the maximum rates as reflected in the
phrase “shall not exceed.” This means that any tax imposable by the contracting state concerned should not exceed
the 25% limitation and that said rate would apply only if the tax imposed by our laws exceeds the same. In other
words, by reason of our bilateral negotiations with Japan, we have agreed to have our right to tax limited to a
certain extent to attain the goals set forth in the Treaty. (Marubeni Corp. v. Commissioner of Internal Revenue,
G.R. No. 76573, September 14, 1989)
TAX CONVENTIONS ARE DRAFTED WITH A VIEW TOWARDS THE ELIMINATION OF INTERNATIONAL
JURIDICAL DOUBLE TAXATION, WHICH IS DEFINED AS THE IMPOSITION OF COMPARABLE TAXES IN TWO
OR MORE STATES ON THE SAME TAXPAYER IN RESPECT OF THE SAME SUBJECT MATTER AND FOR
IDENTICAL PERIODS
Double taxation usually takes place when a person is resident of a contracting state and derives income from, or
owns capital in, the other contracting state and both states impose tax on that income or capital. In order to
eliminate double taxation, a tax treaty resorts to several methods: first, 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; the
second method for the elimination of double taxation applies whenever the state of source is given a full or limited
right to tax together with the state of residence wherein the treaties make it incumbent upon the state of residence
to allow relief in order to avoid double taxation, which relief has two methods— the exemption method and the
credit method. (Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., G.R. No. 127105, June 25, 1999)
IN NEGOTIATING TAX TREATIES, THE UNDERLYING RATIONALE FOR REDUCING THE TAX RATE IS THAT
THE PHILIPPINES WILL GIVE UP A PART OF THE TAX IN THE EXPECTATION THAT THE TAX GIVEN UP FOR
THIS PARTICULAR INVESTMENT IS NOT TAXED BY THE OTHER COUNTRY
If the rates of tax are lowered by the state of source, in this case, by the Philippines, there should be a concomitant
commitment on the part of the state of residence to grant some form of tax relief, whether this be in the form of a
tax credit or exemption. Otherwise, the tax which could have been collected by the Philippine government will
simply be collected by another state, defeating the object of the tax treaty since the tax burden imposed upon the
investor would remain unrelieved. (Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., G.R. No.
127105, June 25, 1999)

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 THE SIMILARITY IN THE CIRCUMSTANCES OF PAYMENT OF TAXES IS A CONDITION FOR THE ENJOYMENT
OF MOST FAVORED NATION TREATMENT PRECISELY TO UNDERSCORE THE NEED FOR EQUALITY OF
TREATMENT
The purpose of a most favored nation clause is to grant to the contracting party treatment not less favorable than
that which has been or may be granted to the “most favored” among other countries. The most favored nation
clause is intended to establish the principle of equality of international treatment by providing that the citizens or
subjects of the contracting nations may enjoy the privileges accorded by either party to those of the most favored
nation. The essence of the principle is to allow the taxpayer in one state to avail of more liberal provisions granted
in another tax treaty to which the country of residence of such taxpayer is also a party provided that the subject
matter of taxation, in this case royalty income, is the same as that in the tax treaty under which the taxpayer is
liable. (Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., G.R. No. 127105, June 25, 1999)
FAILURE TO STRICTLY COMPLY WITH AN ADMINISTRATIVE ISSUANCE REQUIRING PRIOR APPLICATION
FOR TAX TREATY RELIEF CANNOT TOTALLY DEPRIVE THOSE WHO ARE ENTITLED TO THE BENEFIT OF A
TREATY
Laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled
thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided
for under international agreements. More so, when the RP-Germany Tax Treaty does not provide for any pre-
requisite for the availment of the benefits under said agreement. (Deutsche Bank AG v. Commissioner of Internal
Revenue, G.R. No. 188550, August 19, 2013)

K. Forms of Escape from Taxation

1. Shifting of Tax Burden
2. Tax Avoidance
3. Tax Evasion
• Doctrines:
SEPARATE CORPORATE IDENTITY MAY BE DISREGARDED IN ORDER TO ARRIVE AT THE TRUE TAX
LIABILITY
When the corporation is the mere alter ego or business conduit of a person, it may be disregarded. (Yutivo Sons
Hardware Co. v. Court of Tax Appeals, G.R. No. L-13203, January 28, 1961)
TAX CONSEQUENCES ARISING FROM GAINS FROM A SALE OF PROPERTY ARE NOT TO BE DETERMINED
SOLELY BY THE MEANS EMPLOYED TO TRANSFER LEGAL TITLE, BUT RATHER, THE TRANSACTION MUST
BE VIEWED AS A WHOLE
Each step from the commencement of negotiations to the consummation of the sale is relevant Generally, a sale
or exchange of assets will have an income tax incidence only when it is consummated. The incidence of taxation
depends upon the substance of a transaction. A sale by one person cannot be transformed for tax purposes into a
sale by another by using the latter as a conduit through which to pass title. To permit the true nature of the
transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair
the effective administration of the tax policies of Congress. (Commissioner of Internal Revenue v. Estate of Toda,
Jr., G.R. No. 147188, September 14, 2004)
A TAXPAYER HAS THE LEGAL RIGHT TO DECREASE THE AMOUNT OF WHAT OTHERWISE WOULD BE HIS
TAXES OR ALTOGETHER AVOID THEM BY MEANS WHICH THE LAW PERMITS
Any legal means used by the tax payer to reduce taxes are all right. A man may, therefore, perform an act that he
honestly believes to be sufficient to exempt him from taxes. He does not incur fraud thereby even if the act is
thereafter found to be insufficient. (Yutivo Sons Hardware Co. v. Court of Tax Appeals, G.R. No. L-13203, January
28, 1961)
TRANSACTIONS WHICH HAVE ALWAYS BEEN IN THE OPEN, EMBODIED IN PRIVATE AND PUBLIC
DOCUMENTS, CONSTANTLY SUBJECT TO INSPECTION BY THE TAX AUTHORITIES BELIES ANY INTENTION
TO EVADE TAXES
“Tax evasion” is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen or defeat
taxes. (Yutivo Sons Hardware Co. v. Court of Tax Appeals, G.R. No. L-13203, January 28, 1961)
TAX PLANNING SCHEME ADOPTED BY A CORPORATION MAKING IT APPEAR THAT THERE WERE TWO
SALES OF THE SUBJECT PROPERTIES — FROM THE CORPORATION TO THE INTERMEDIARY AND FROM

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 THE INTERMEDIARY TO THE THIRD PERSON — WHEN IT IS PROVED THAT THE INTERMEDIARY WAS
MERELY A CONDUIT IS TAINTED WITH FRAUD, THEREBY CONSTITUTING TAX EVASION
Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax
avoidance is the tax saving device within the means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful
means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax
evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that
known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being “evil,” in “bad faith,” “willful,” or “deliberate and not
accidental”; and (3) a course of action or failure of action which is unlawful. Hence, the sale to the conduit should
be disregarded for income tax purposes. The two sale transactions should be treated as a single direct sale by CIC
to RMI. (Commissioner of Internal Revenue v. Estate of Toda, Jr., G.R. No. 147188, September 14, 2004)
INTENTION TO MINIMIZE TAXES, WHEN USED IN THE CONTEXT OF FRAUD, MUST BE PROVED TO EXIST
BY CLEAR AND CONVINCING EVIDENCE AMOUNTING TO MORE THAN MERE PREPONDERANCE, AND
CANNOT BE JUSTIFIED BY A MERE SPECULATION
This is because fraud is never lightly to be presumed. Fraud is never imputed and the courts never sustain findings
of fraud upon circumstances which, at the most, create only suspicion. (Yutivo Sons Hardware Co. v. Court of Tax
Appeals, G.R. No. L-13203, January 28, 1961)
MERE UNDERSTATEMENT OF TAX IN ITSELF DOES NOT PROVE FRAUD
It is true that the arrastre charges constitute expenses of Yutivo and its non-inclusion in the selling price by Yutivo
cost the Government P4.00 per vehicle, but said non-inclusion was explained to have been due to an inadvertent
accounting omission, and could hardly be considered as proof of willful channelling and fraudulent evasion of
sales tax. (Yutivo Sons Hardware Co. v. Court of Tax Appeals, G.R. No. L-13203, January 28, 1961)
“WILLFUL” IN TAX CRIMES STATUTES IS DEFINED AS VOLUNTARY, INTENTIONAL VIOLATION OF A
KNOWN LEGAL DUTY
The essential elements of the offense of willful failure to supply correct and accurate information are as follows:
(1) That a person is required to supply correct and accurate information; (2) That there is failure to supply correct
and accurate information at the time or times required by law or rules and regulations; and (3) That such failure
to supply correct and accurate information is done willfully. (People v. Santos, CTA Crim. Case No. O-012, January
16, 2013)
BEING A DOCTOR AND A BUSINESSMAN, TAXPAYER OUGHT TO KNOW AND UNDERSTAND ALL THE
MATTERS CONCERNING HIS PRACTICE AND BUSINESS, INCLUDING KNOWLEDGE AND AWARENESS OF HIS
TAX OBLIGATIONS IN CONNECTION WITH HIS BUSINESS AND EXERCISE OF PROFESSION
The elements of Violation of Section 255 of the NIRC of 1997, as amended, for failure to make or file a return, are,
as follows: (1) The accused is a person required to make or file a return; (2) The accused failed to make or file the
return at the time required by law; and (3) That failure to make or file the return was willful. Petitioner Mendez
should know how much are his tax dues, the details stated in his ITRs, where his ITRs are being filed, and other
important facts regarding the filing of his ITRs; after all, these matters concern his finances. An act or omission is
“willfully” done if done voluntarily and intentionally and with specific intent to do something the law forbids, or
with specific intent to fail to do something the law requires to be done; that is, with bad purpose to either disobey
or disregard the law. (Mendez v. People, CTA EB CRIM Nos. 014 & 015 [CTA CRIM Nos. O-013 & O-015], December
11, 2012)

L. Tax Exemption
• Doctrines:
ONLY THE CONSTITUTION, THE CONGRESS, UNLESS LIMITED BY A PROVISION OF THE FORMER, AND
LOCAL GOVERNMENTS, BUT ONLY ON LOCAL TAXES, MAY PROVIDE FOR TAX EXEMPTIONS
It is the legislature, unless limited by the Constitution, that has full power to exempt any person, corporation, or
class from tax, as included in their broad power to tax. Other than Congress, the Constitution may provide for
specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. Hence, a
presidential proclamation extending the exemptions enjoyed by the Subic SEZ to the John Hay SEZ would
circumvent the Constitution’s imposition that a law granting any tax exemption must have the concurrence of a
majority of all the members of Congress (Article VI, Sec. 28[4]). (John Hay Peoples Alternative Coalition v. Lim,
G.R. No. 119775, October 24, 2003)

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 THE PARTY CLAIMING TAX EXEMPTION MUST BE EXPRESSLY MENTIONED IN THE EXEMPTING LAW OR
AT LEAST BE WITHIN ITS PURVIEW BY CLEAR LEGISLATIVE INTENT
Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing
authority. The burden proof rests upon the party claiming exemption to prove that it in fact covered by the
exemption so claimed. (Caltex Philippines, Inc. v. Commission on Audit, G.R. No. 92585, May 8, 1992)
WHEN EXEMPTION IS CLAIMED, IT MUST BE SHOWN INDUBITABLY TO EXIST
Tax exemptions are strictly construed against the taxpayer, they being highly disfavored and may almost be said
“to be odious to the law.” He who claims an exemption must be able to point to some positive provision of law
creating the right; it cannot be allowed to exist upon mere vague implication or inference. The right of taxation
will not be held to have been surrendered unless the intention to surrender is manifested by words to plain to be
mistaken. (Manila Electric Co. v. Vera, G.R. Nos. L-29987 & L-23847, October 22, 1975)
TAX EXEMPTIONS CANNOT BE EXTENDED BY MERE IMPLICATION OR INFERENCE
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too
plain to be mistaken. (Philippine Long Distance Telephone Co., Inc. v. City of Davao, G.R. No. 143867 [Resolution],
March 25, 2003)
THE “IN LIEU OF ALL TAXES” CLAUSE IN A LEGISLATIVE FRANCHISE SHOULD CATEGORICALLY STATE
THAT THE EXEMPTION APPLIES TO BOTH LOCAL AND NATIONAL TAXES
Otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the
taxing authority. Aside from the national franchise tax, the franchisee is still liable to pay the local franchise tax,
unless it is expressly and unequivocally exempted from the payment thereof under its legislative franchise. (Smart
Communications, Inc. v. City of Davao, G.R. No. 155491 [Resolution], July 21, 2009)
THE RULE THAT TAX EXEMPTION SHOULD BE APPLIED IN STRICTISSIMI JURIS AGAINST THE TAXPAYER
AND LIBERALLY IN FAVOR OF THE GOVERNMENT APPLIES EQUALLY TO TAX EXCLUSIONS
Both in their nature and in their effect there is no difference between tax exemption and tax exclusion. Exemption
is an immunity or privilege; it is freedom from a charge or burden to which others are subjected. Exclusion, on the
other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income
and allowable deductions. Exclusion is thus also an immunity or privilege which frees a taxpayer from a charge to
which others are subjected. (Philippine Long Distance Telephone Co., Inc. v. City of Davao, G.R. No. 143867
[Resolution], March 25, 2003)
THE RULE ON STRICT INTERPRETATION DOES NOT APPLY IN THE CASE OF EXEMPTIONS IN FAVOR OF A
GOVERNMENT POLITICAL SUBDIVISION OR INSTRUMENTALITY
The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or
deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to
minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers. The
reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its
agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be
handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax-liability of such agencies. In the case of
property owned by the state or a city or other public corporations, the express exemption should not be construed
with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such
property “exemption is the rule and taxation the exception.” (Maceda v. Macaraig, Jr., G.R. No. 88291 [Resolution],
June 8, 1993)
UNCERTAINTY IN THE “IN LIEU OF ALL TAXES” PROVISION IN A FRANCHISE SHOULD BE CONSTRUED
AGAINST THE HOLDER OF THE FRANCHISE
The “in lieu of all taxes” provision in the franchise of ABS-CBN does not expressly provide what kind of taxes ABS-
CBN is exempted from. It is not clear whether the exemption would include both local, whether municipal, city or
provincial, and national tax. What is clear is that ABS-CBN shall be liable to pay three (3) percent franchise tax and
income taxes under Title II of the NIRC. But whether the “in lieu of all taxes provision” would include exemption
from local tax is not unequivocal. Since taxation is the rule and exemption the exception, the intention to make an
exemption ought to be expressed in clear and unambiguous terms. (Quezon City v. ABS-CBN Broadcasting Corp.,
G.R. No. 166408, October 6, 2008) (NOTE: The Court, however, held that said clause has now become functus officio
since the franchise tax on the broadcasting companies with yearly gross receipts exceeding ten million pesos has been
abolished; as the law now stands, ABS-CBN is no longer subject to a franchise tax and is now liable for VAT.)
A PROVISION IN A FRANCHISE PROVIDING FOR PAYMENT OF A TAX “IN LIEU OF ALL TAXES AND
ASSESSMENTS OF WHATSOEVER NATURE AND WHATSOEVER AUTHORITY” IS NOT TO BE GIVEN A

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 LITERAL MEANING AS TO PRECLUDE THE IMPOSITION OF TAXES OF A KIND NOT THEN ANYWERE
IMPOSED AND ENTIRELY OUTSIDE THE KNOWLEDGE OF THE LAWMAKERS
It is not reasonable to assume that the General Assembly intended by the provisions we have quoted that the tax
on gross earnings should take the place of taxes of a kind not then anywhere imposed and entirely outside its
knowledge. In 1902 when Act 484 of the Philippine Commission, the basis of the exemption claimed by Manila
Electric Co., was enacted, “compensating tax” was certainly not generally known or in use, hence, the Court cannot
assume the Philippine Commission in providing that the gross earnings taxes imposed on the grantee of the
electric light franchise shall be in lieu of all taxes and assessments, meant to include impositions in the nature of
a compensating tax which came into use in this country only upon the enactment of Commonwealth Act 466 in
1939. (Manila Electric Co. v. Vera, G.R. Nos. L-29987 & L-23847, October 22, 1975)
TAX EXEMPTIONS GRANTED UNDER FRANCHISES MAY BE REVOKED WITHOUT IMPAIRING THE
OBLIGATIONS OF CONTRACTS
While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in
the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless
are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and
where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing
authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them
under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives
its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the
obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions
granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-
impairment clause of the Constitution. Indeed, 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. (Manila Electric Co. v. Province of Laguna, G.R. No.
131359, May 5, 1999)
AN EXEMPTION GRANTED TO PRIVATE PARTIES BASED ON MATERIAL CONSIDERATION OF A MUTUAL
NATURE, WHICH THEN BECOMES CONTRACTUAL AND IS THUS COVERED BY THE NON-IMPAIRMENT
CLAUSE OF THE CONSTITUTION IS THE ONLY EXCEPTION TO THE RULE THAT TAX EXEMPTION MAY BE
WITHDRAWN AT THE PLEASURE OF THE TAXING AUTHORITY
The general rule is because taxation is the rule and exemption therefrom, the exception. (Mactan Cebu
International Airport Authority v. Marcos, G.R. No. 120082, September 11, 1996)
THE WORD “EXEMPTION” UNDER SECTION 23 OF THE PUBLIC TELECOMMUNICATIONS POLICY ACT OF
THE PHILIPPINES DOES NOT MEAN TAX EXEMPTION
The term refers to exemption from certain regulations and requirements imposed by the National
Telecommunications Commission. (Philippine Long Distance Telephone Co., Inc. v. City of Davao, G.R. No.
143867 [Resolution], March 25, 2003)

M. Tax Amnesty

N. Other Concepts
1. Imprescriptibility of Taxation
2. Taxpayers’ Suit
3. Equitable Recoupment
4. Prohibition on Compensation and Set-Off
5. Compromise
• Doctrines:
A TAXPAYER NEED NOT BE A PARTY TO THE CONTRACT TO CHALLENGE ITS VALIDITY
Parties suing as taxpayers must specifically prove sufficient interest in preventing the illegal expenditure of money
raised by taxation. The expenditure of public funds by an officer of the State for the purpose of executing an
unconstitutional act constitutes a misapplication of such funds (Jumamil v. Cafe, G.R. No. 144570, September 21,
2005)

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 JUST COMPENSATION FOR EXPROPRIATION CANNOT OFF-SET REAL ESTATE TAXES DUE THE CITY
GOVERNMENT
There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than
the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. This
rule was reiterated in the case of Cordero v. Gonda (18 SCRA 331) where we stated that: “… internal revenue taxes
can not be the subject of compensation: Reason: government and taxpayer ‘are not mutually creditors and debtors
of each other’ under Article 1278 of the Civil Code and a ‘claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.’” (Francia v. Intermediate Appellate Court, G.R. No. L-67649, June 28, 1988)
INTERNAL REVENUE TAXES, SUCH AS FOREST CHARGES, CANNOT BE THE SUBJECT OF SET-OFF OR
COMPENSATION
The general rule, based on grounds of public policy is well- settled that no set-off is admissible against demands
for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that
taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive
acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not
required. If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a
claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and
necessary expenditure must be curtailed. If the taxpayer’s claim is disputed, the collection of the tax must await
and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great
confusion. (Republic v. Mambulao Lumber Co., G.R. No. L-17725, February 28, 1962)

II. NATIONAL TAXATION

A. Income Tax
1. Definition, Nature, and General Principles
2. Concept of Income
3. Gross Income
• Doctrines:
INCOME TAX BENEFITS; ALLOWANCES BY EMPLOYER
Hence, the fact that the taxpayers had to live or did not have to live in the apartments chosen by the husband-
taxpayer’s employer-corporation is of no moment, for no part of the allowances in question redounded to
their personal benefit or was retained by them. Their bills for rental and utilities were paid directly by the
employer- corporation to the creditors. Nevertheless, as correctly held by the Court of Tax Appeals, the
taxpayers are entitled only to a ratable value of the allowances. Only the reasonable amount they would
[spent] for house rental and utilities such as light, water, telephone, etc., should be subject to tax. The excess
should be considered as expenses of the corporation. (Henderson v. CIR, G.R. No. L-12954, February 28, 1961)
STOCK DIVIDENDS AS TAXABLE INCOME
A stock dividend constitutes income if it gives the shareholder an interest different from that which his former
stockholdings represented. A stock dividend does not constitute income if the new shares confer no different
rights or interests than did the old — the new certificate plus the old representing the same proportionate
interest in the net assets of the corporation as did the old. (CIR v. Manning, G.R. No. L-28398, August 6, 1975)
STOCK DIVIDENDS ARE NOT INCOME
“Stock Dividends” are not “Income,” the same cannot be taxes under that provision of Act No. 2833 which
provides for a tax upon income. Under the guise of an income tax, property which is not an income cannot be
taxed. When the assets of a corporation have increased so as to justify the issuance of a stock dividend, the
increase of the assets should be taken account of the Government in the ordinary tax duplicates for the
purposes of assessment and collection of an additional tax. (Fisher v. Trinidad, G.R. No. L-17518, October 30,
1922)
GAINS RESULTING FROM DISTRIBUTIONS MADE IN COMPLETE LIQUIDATION OR DISSOLUTION OF A
CORPORATION ARE TAXABLE AS INCOME, WHETHER THE STOCKHOLDER HAPPENS TO BE AN
INDIVIDUAL OR A CORPORATION

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 The determining element therefore is whether the distribution was in the ordinary course of business and
with intent to maintain the corporation as a going concern, or after deciding to quit with intent to liquidate
the business. Proceedings actually begun to dissolve the corporation or formal action taken to liquidate it are
but evidentiary and not indispensable. The distributions in the instant case were not ordinary dividends but
payments for surrendered or relinquished stock in a corporation in complete liquidation, sometimes called
liquidating dividends. Such dividends are taxable income under the Income Tax Law. (Wise & Co., Inc., et al
v. Bibiano Meer, Collector of Internal Revenue, G.R. No. 48231, June 30, 1947)
THE PROCEEDS OF REDEMPTION OF STOCK DIVIDENDS ARE ESSENTIALLY DISTRIBUTION OF CASH
DIVIDENDS, WHICH WHEN PAID BECOMES THE ABSOLUTE PROPERTY OF THE STOCKHOLDER, WHO
HAVING REALIZED GAIN FROM THAT REDEMPTION, CANNOT ESCAPE INCOME TAX
Stock dividends represent capital and do not constitute income to its recipient – in a loose sense, stock
dividends issued by the corporation are considered unrealized gain and cannot be subjected to income tax
until that gain has been realized, but it does not necessarily mean that a shareholder may not realize a taxable
gain from such transactions. Simply put, depending on the circumstances, the proceeds of redemption of
stock dividends are essentially distribution of cash dividends, which when paid becomes the absolute
property of the stockholder. Having realized gain from that redemption, the income earner cannot escape
income tax. (Commissioner of Internal Revenue v. The Court of Appeals, Court of Tax Appeals, and A.
Soriano Corp., G.R. No. 108576. January 20, 1999)
4. Deductions
a. Expenses
• Doctrines:
CLAIM FOR DEDUCTION OF REPRESENTATION EXPENSES MUST BE BASED UPON RECEIPTS
ISSUED BY THE ENTITIES IN WHICH THE ALLEGED EXPENSES HAD BEEN INCURRED
The claim for deduction of representation expenses is based upon receipts issued, not by the entities in
which the alleged expenses had been incurred, but by the officers of Goodrich who allegedly paid them,
must be rejected. If the expenses had really been incurred, receipts or chits would have been issued by
the entities to which the payments had been made, and it would have been easy for Goodrich or its
officers to produce such receipts. These issued by said officers merely attest to their claim that they had
incurred and paid said expenses. They do not establish payment of said alleged expenses to the entities
in which the same are said to have been incurred. (Collector of Internal Revenue v. Goodrich
International Rubber Co., G.R. No. L-22265 December 22, 1967)
REPRESENTATION EXPENSES TO BE DEDUCTIBLE FROM INCOME TAX NEED SUPPORTING
PAPERS
Representation expenses fall under the category of business expenses which” are allowable deductions
from gross income if they meet the conditions prescribed by the National Internal Revenue Code; that,
to be deductible, said business expenses must be “ordinary and necessary expenses paid or incurred in
carrying on any trade or business”; that those expenses “must also, meet the further test of
reasonableness in amount”, this test being “inherent in the phase ‘ordinary and necessary’.” In this case,
some of the representation expenses claimed by appellant had been evidenced by vouchers or chits, but
others were reimbursed “without presentation of supporting papers. (Visayan Cebu Terminal v.
Collector, G.R. No. L-12798, May 30, 1960)
CLAIM FOR DEDUCTION OF PROMOTION OR ENTERTAINMENT EXPENSES MUST BE
SUBSTANTIATED OR SUPPORTED BY RECORD SHOWING IN DETAIL THE AMOUNT AND NATURE
OF EXPENSES INCURRED
Representation expenses fall under the category of business expenses which are allowable deductions
from gross income if said business expenses must be ordinary and necessary expenses paid or incurred
in carrying on any trade or business; that those expenses must also meet the further test of
reasonableness in amount; that when some of the representation expenses claimed by the taxpayer were
evidenced by vouchers or chits, but others were without vouchers or chits, documents or supporting
papers or that it is not possible to determine the actual amount covered by supporting papers and the
amount without supporting papers, the court should determine from all available data, the amount
properly deductible as representation expenses. Claim for the deduction of promotion expenses or
entertainment expenses must be substantiated or supported by record showing in detail the amount and
nature of the expenses incurred. (Zamora v. Collector of Internal Revenue, G.R. No. L-15290, May 31,
1963)

4DF1920 Page 14 of 45
 BUSINESS EXPENSES AS ALLOWABLE DEDUCTION
Section 30(a) of the Tax Code allows business expenses to be deducted from gross income. To be
deductible, therefore, an expense must be (1) ordinary and necessary; (2) paid or incurred within the
taxable year; and, (3) paid or incurred in carrying on a trade or business. Also, Since Gutierrez filed an
income tax return, the three-year prescriptive period should be counted from the time he filed such
return. (Lino Gutierrez, substituted by Andrea C. Vda. De Gutierrez, Antonio Gutierrez, Guillermo
Gutierrez, Santiago D. Gutierrez, and Tomas D. Gutierrez v. Collector (now Commissioner) of
Internal Revenue, G.R. No. L-19537. May 20, 1965)
DEDUCTIONS FOR INCOME TAX PURPOSES REFER TO ORDINARY AND NECESSARY EXPENSES
To be deductible from gross income, the subject advertising expense must comply with the following
requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred
during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the
taxpayer; and (d) it must be supported by receipts, records or other pertinent papers. The protection of
brand franchise is analogous to the maintenance of goodwill or title to one’s property, which is a capital
expenditure which should be spread out over a reasonable period of time. Respondent corporation’s
venture to protect its brand franchise was tantamount to efforts to establish a reputation, akin to the
acquisition of capital assets and therefore expenses related thereto were not to be considered as
business expenses but as capital expenditures. (Commissioner of Internal Revenue v. General Foods,
Inc., G.R. No. 143672, April 24, 2003)
THE QUESTION AS TO WHETHER THE EXPENDITURE IS AN ALLOWABLE DEDUCTION AS A
BUSINESS EXPENSE MUST BE DETERMINED FROM THE NATURE OF THE EXPENDITURE ITSELF
Assuming that the expenditure is ordinary and necessary in the operation of the taxpayer’s business, the
answer to the question as to whether the expenditure is an allowable deduction as a business expense
must be determined from the nature of the expenditure itself, which in turn depends on the extent and
permanency of the work accomplished by the expenditure. The questioned item, stockholders relation
service fee, was in effect spent for the acquisition of additional capital, ergo, a capital expenditure. Hence,
this is not an allowable deduction. Efforts to establish reputation are akin to acquisition of capital assets
and, therefore, expenses related thereto are not business expense but capital expenditures. (Atlas
Consolidated Mining v. Commissioner of Internal Revenue, G.R. No. L-26911, January 27, 1981)
BONUSES PAID TO EMPLOYEES IN GOOD FAITH AND AS ADDITIONAL COMPENSATION ARE
DEDUCTIBLE
Bonuses to employees made in good faith and as additional compensation for the services actually
rendered by the employees are deductible, provided such payments, when added to the stipulated
salaries, do not exceed a reasonable compensation for the services rendered. The payment of bonuses in
amounts a little more than the yearly salaries received considering the prevailing circumstances is in our
opinion reasonable. This is specially so considering the post-war policy of the corporation in giving
salaries at low levels because of the unsettled conditions resulting from war and the imposition of
government controls on imports and exports and on the use of foreign exchange which resulted in the
diminution of the amount of business and the consequent loss of profits on the part of the corporation.
(Kuenzle & Streiff v. CIR, G.R. Nos. L-12010 and L-12113, October 20, 1959)
DEDUCTIONS FOR INCOME TAX PURPOSES REFER TO REASONABLE COMPENSATION FOR
PERSONAL SERVICES
Whenever a controversy arises on the deductibility, for purposes of income tax, of certain items for
alleged compensation of officers of the taxpayer, two (2) questions become material, namely: (a) Have
“personal services” been “actually rendered” by said officers? (b) In the affirmative case, what is the
“reasonable allowance” therefore? (Alhambra Cigar v. Collector, G.R. No. L-23226, November 28, 1967)
THE DEDUCTIBLE SHARE OF OVERHEAD EXPENSES WHICH BENEFIT ITS BRANCHES ALL OVER
THE WORLD IS A RATABLE PART OF SUCH EXPENSES BASED ON THE RATIO OF THE LOCAL
BRANCH’S GROSS INCOME TO THE TOTAL GROSS INCOME WORLDWIDE
Where an expense is clearly related to the production of Philippine-derived income or to Philippine
operations, that expense can be deducted from the gross income acquired in the Philippines without
resorting to apportionment. The overhead expenses incurred by the parent company in connection with
finance, administration, and research and development, all of which direct benefit its branches all over
the world, including the Philippines, fall under a different category however. These are items which
cannot be definitely allocated or identified with the operations of the Philippine branch, and thus its
deductible share is a ratable part of such expenses based upon the ratio of the local branch’s gross

4DF1920 Page 15 of 45
 income to the total gross income, worldwide, of the multinational corporation (Commissioner of
Internal Revenue v. Court of Tax Appeals and Smith Kline & French Overseas Co., G.R. No. L-54108,
January 17, 1984)
b. Interests
• Doctrines:
INTEREST PAID FOR LATE PAYMENT OF TAX IS DEDUCTIBLE FROM GROSS INCOME
For interest to be allowed as deduction from gross income, it must be shown that there be indebtedness,
that there should be interest upon it, and that what is claimed as an interest deduction should have been
paid or accrued within the year. It is here conceded that the interest paid by respondent was in
consequence of the late payment of her donor’s tax, and the same was paid within the year it is sought
to be declared. A tax may be considered an indebtedness. Hence, interest paid for late payment of tax is
deductible from gross income under said section. (Commissioner of Internal Revenue v. Consuelo L.
Vda. De Prieto, G.R. No. L-13912. September 30, 1960)
c. Taxes
• Doctrines:
TAXES PAID BY AN ALIEN TO HIS OWN GOVERNMENT NOT DEDUCTIBLE FROM GROSS INCOME
An alien resident who derives income wholly from sources within the Philippines may not deduct from
gross income the income taxes he paid to his home country for the taxable year. An alien resident’s right
to deduct from gross income the income taxes he paid to a foreign government is given only as an
alternative to his right to claim a tax credit for such foreign income taxes, so that unless he has a right to
claim such tax credit if he chooses, he is precluded from said deduction. To allow an alien resident to
deduct from his gross income whatever taxes he pays to his own government amounts to conferring on
the latter the power to reduce the tax income of the Philippine government simply by increasing the tax
rates on the alien resident. (Commissioner of Internal Revenue v. V.E. Lednicky and Maria Valero
Lednicky, G.R. Nos. L-18169, L-18262 & L-21434, July 31, 1964)
d. Bad Debts
• Doctrines:
LOSSES OR BAD DEBTS ASCERTAINED TO BE SO AND WRITTEN OFF DURING THE TAXABLE YEAR,
ARE DEDUCTIBLE IN FULL OR NOT AT ALL
Furthermore, neither under Section 30 (d) (2) of our Tax Code providing for deduction by corporations
of losses actually sustained and charged off during the taxable year nor under Section 30 (e) (1) thereof
providing for deduction of bad debts actually ascertained to be worthless and charged off within the
taxable year, can there be a partial writing off of a loss or bad debt, as was sought to be done here by the
taxpayer. For such losses or bad debts must be ascertained to be so and written off during the taxable
year, are therefore deductible in full or not at all, in the absence of any express provision in the Tax Code
authorizing partial deductions. (Hermanos v. Commissioner of Internal Revenue, G.R. No. L-21551,
September 30, 1969)
FOR BAD DEBTS TO BE ALLOWED AS DEDUCTIONS, THERE MUST BE ASCERTAINMENT BY THE
TAXPAYER OF ITS WORTHLESSNESS AND THAT HE ACTED IN GOOD FAITH
The requirement of ascertainment of worthlessness requires proof that the taxpayer did in fact ascertain
the debt to be worthlessness, in the year for which the deduction is sought; and that, in so doing, he acted
in good faith. Good faith on the part of the taxpayer is not enough. He must show, also, that he had
reasonably investigated the relevant facts and had drawn a reasonable inference from the information
thus obtained by him (Collector of Internal Revenue v. Goodrich International Rubber Co., G.R. No. L-
22265 December 22, 1967)
ADVANCES, WHICH ARE ACTUALLY INVESTMENTS IN A PARTNERSHIP, ARE NOT SUBSISTING
“DEBTS” THAT COULD BE DEDUCTED
Petitioner cannot claim the advances as a bad debt deduction from its gross income. The agreement
provided for a distribution of assets of the Sto. Niño mine upon termination, a provision that is more
consistent with a partnership than a creditor-debtor relationship. Petitioner failed to substantiate its
assertion that the advances were subsisting debts of Baguio Gold that could be deducted from its gross
income. Consequently, it could not claim the advances as a valid bad debt deduction. (Philex Mining
Corp. v. Commissioner of Internal Revenue, G.R. No. 148187, April 16, 2008)

4DF1920 Page 16 of 45
 e. Depreciation
• Doctrines:
PROPERTY THAT HAS NEVER BEEN ACTUALLY DEVOTED TO THE TAXPAYER’S BUSINESS,
PARTICULARLY INCOMPLETE ASSETS THAT HAVE YET TO BE USED, CANNOT BE CONSIDERED
FOR DEPRECIATION EXPENSES TO BE THEN AN ALLOWABLE DEDUCTION
For taxation purposes the phrase “out of its not being used,” with reference to depreciation allowable on
assets which are idle or the use of which is temporarily suspended, should be understood to refer only
to property that has once been used in the trade or business, not to property that has never been actually
devoted to the taxpayer’s business, particularly incomplete assets that have yet to be used (Consolidated
Mines Inc. v. Court of Tax Appeals and Commissioner of Internal Revenue, G.R. Nos. L-18843 and L-
18844, August 29, 1974)
f. Special Deductions: Discount to Senior Citizens
• Doctrines:
FOR PURPOSES OF REIMBURSEMENT, THE EXPANDED SENIOR CITIZENS ACT STATES THAT THE
COST OF THE DISCOUNT SHALL BE DEDUCTED FROM GROSS INCOME, THE AMOUNT OF INCOME
DERIVED FROM ALL SOURCES BEFORE DEDUCTING ALLOWABLE EXPENSES, WHICH WILL RESULT
IN NET INCOME
Here, petitioners tried to show a loss on a per transaction basis, which should not be the case. An income
statement, showing an accounting of petitioners’ sales, expenses, and net profit (or loss) for a given
period could have accurately reflected the effect of the discount on their income. Absent any financial
statement, petitioners cannot substantiate their claim that they will be operating at a loss should they
give the discount. (Carlos Superdrug v. DSWD, G.R. No.166494, June 29, 2007)
THE EXPANDED SENIOR CITIZENS ACT OF 2003 SPEAKS OF DEDUCTIONS AND NOT TAX CREDIT
R.A. No. 7432 has been amended by Republic Act No. 9257, the “Expanded Senior Citizens Act of 2003.”
In this, the term “tax credit” is no longer used. Under Revenue Regulations No. 4-2006, “(o)nly the actual
amount of the discount granted or a sales discount not exceeding 20% of the gross selling price can be
deducted from the gross income, net of value added tax, if applicable, for income tax purposes, and from
gross sales or gross receipts of the business enterprise concerned, for VAT or other percentage tax
purposes.” Under the new law, there is no tax credit to speak of, only deductions. (Commissioner of
Internal Revenue v. Bicolandia Drug Corporation, G.R. No. 148083, July 21, 2006)
THE TERM “COST” UNDER RA 7432 REFERS TO THE ACTUAL AMOUNT OF THE 20% DISCOUNT
EXTENDED BY A PRIVATE ESTABLISHMENT TO SENIOR CITIZENS IN THEIR PURCHASE OF
MEDICINES
The 20% sales discount granted by establishments to qualified senior citizens is now treated as tax
deduction and not as tax credit. However, we give full accord to the factual findings of the Court of Tax
Appeals with respect to the actual amount of the 20% sales discount, i.e., the sum of ₱3,522,123.25. for
the year 1993 and ₱34,211,769.45 for the year 1994. Therefore, petitioner is entitled to a tax credit
equivalent to the actual amounts of the 20% sales discount. (Mercury Drug v. CIR, G.R. No. 164050, July
20, 2011)
g. Sections 39-40
• Doctrines:
REAL PROPERTIES USED IN TAXPAYER’S BUSINESS ARE ORDINARY ASSETS
Congress classified “real property used in the trade or business of the taxpayer” is ordinary asset. As
such real property is used in the trade or business of the taxpayer, it is logical that the gain or loss from
the sale or exchange thereof should be treated as ordinary income or loss. Accordingly, the real estate,
admittedly used by Gutierrez in his business, which he sold in 1953 and 1954 should be treated as
ordinary assets and the gain from the sale thereof, as ordinary gain, hence, fully taxable. (Lino Gutierrez,
substituted by Andrea C. Vda. De Gutierrez, Antonio Gutierrez, Guillermo Gutierrez, Santiago D.
Gutierrez, and Tomas D. Gutierrez v. Collector (now Commissioner) of Internal Revenue, G.R. No. L-
19537. May 20, 1965)
A PROPERTY CEASES TO BE A CAPITAL ASSET IF THE AMOUNT EXPENDED TO IMPROVE IT IS
DOUBLE ITS ORIGINAL COST

4DF1920 Page 17 of 45
 Inherited land which an heir subdivides and wherein he makes improvements several times higher than
the original cost of the land, is not a capital asset, but an ordinary asset. The activities of petitioners are
indistinguishable from those invariably employed by one engaged in the business of selling real estate.
Extensive improvements like the laying out of streets, construction of concrete gutters and installation
of lighting system and drainage facilities, among others, were undertaken to enhance the value of the
lots and make them more attractive to prospective buyers. There is authority that a property ceases to
be a capital asset if the amount expended to improve it is double its original cost, for the extensive
improvement indicates that the seller held the property primarily for sale to customers in the ordinary
course of his business. (Calasanz v. Commissioner of Internal Revenue, G.R. No. L-26284, October 8,
1986)
THE PREDOMINANT USE OF OTHER CLASSIFICATION OF PROPERTIES LOCATED IN A
STREET/BARANGAY ZONE SHALL BE CONSIDERED FOR PURPOSES OF ZONAL VALUATION
Zonal value is determined for the purpose of establishing a more realistic basis for real property
valuation. Actual use is not considered for zonal valuation, but the predominant use of other
classification of properties located in the zone. Since internal revenue taxes, such as Capital Gains Tax
(CGT) and Documentary Stamp Tax (DST), are assessed on the basis of valuation, the zonal valuation
existing at the time of the sale should be taken into account. (CIR v. Aquafresh Seafoods, G.R. No. 170389,
October 20, 2010)
MERGER AIMED AT THE CONTINUATION AND EXPANSION OF BUSINESS IS EXEMPT FROM
PAYMENT OF CAPITAL GAINS TAX
The basic consideration herein is the purpose of the merger, as this would determine whether the
exchange of properties involved therein shall be subject or not to the capital gains tax. The criterion laid
down by the law is that the merger “must be undertaken for a bona fide” business purpose and not solely
for the purpose of escaping the burden of taxation.” However, the merger had merely deferred the claim
for taxes, which may be asserted by the government later, when gains are realized and benefits are
distributed among the stockholders as a result of the merger. (Commissioner of Internal Revenue v.
Rufino, G.R. Nos. L-33665-68, February 27, 1987)
5. Income Tax on Individuals
• Doctrines:
OUR RULING THAT THE MWE EXEMPTION IS AVAILABLE FOR THE ENTIRE TAXABLE YEAR 2008 IS
PREMISED ON THE FACT OF ONE’S STATUS AS AN MWE; THAT IS, WHETHER THE EMPLOYEE DURING
THE ENTIRE YEAR OF 2008 WAS AN MWE AS DEFINED BY R.A. 9504
When the wages received exceed the minimum wage anytime during the taxable year, the employee
necessarily loses the MWE qualification. Therefore, wages become taxable as the employee ceased to be an
MWE. But the exemption of the employee from tax on the income previously earned as an MWE remains.
(Soriano v. Secretary of Finance, G.R. No.184450, January 24, 2017)
6. Income Tax on Corporations
• Doctrines:
“CORPORATION” INCLUDES PARTNERSHIPS NO MATTER HOW CREATED OR ORGANIZED
When the tax code includes “partnerships” among the entities subject to the tax on corporations, it must refer
to organizations which are not necessarily partnerships in the technical sense of the term, and that
furthermore, said law defined the term “corporation” as including partnerships no matter how created or
organized, thereby indicating that a joint venture need not be undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations; that besides, said section 84 (b) provides that the term
“corporation” includes “joint accounts” (cuentas en participacion) and “associations”, none of which has a
legal personality independent of that of its members.” (CIR v. Batangas Tayabas Bus Company and Laguna-
Tayabas Bus Company, G.R. No. L-9692, January 6, 1958)
THE PARTIES HAVE ENTERED INTO A PARTNERSHIP AGREEMENT WHERE THE “POWER OF
ATTORNEY” REVEALS THAT A PARTNERSHIP OR JOINT VENTURE WAS INDEED INTENDED
Under the “Power of Attorney”, Philex Mining and Baguio Gold undertook to contribute money, property and
industry to the common fund known as the Sto. Niño mine. In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the development and operation of the mine. The
strongest indication that petitioner was a partner in the Sto Niño mine is the fact that it would receive 50%

4DF1920 Page 18 of 45
 of the net profits as “compensation” under paragraph 12 of the agreement. Hence, the lower courts did not
err in treating petitioner’s advances as investments in a partnership known as the Sto. Nino mine. (Philex
Mining Corp. v. Commissioner of Internal Revenue, G.R. No. 148187, April 16, 2008)
SHARING OF RETURNS DOES NOT ESTABLISH A PARTNERSHIP WHETHER OR NOT THE PERSONS
SHARING THEREIN HAVE A JOINT OR COMMON RIGHT OR INTEREST IN THE PROPERTY
There is no adequate basis to support the proposition that they thereby formed an unregistered partnership.
The two isolated transactions whereby they purchased properties and sold the same a few years thereafter
did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital
gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot
be considered to have formed an unregistered partnership which is thereby liable for corporate income tax,
as the respondent commissioner proposes. (Pascual v. CIR, G.R. No. 78133, October 18, 1988)
CO-OWNERSHIP OF INHERITED PROPERTIES IS AUTOMATICALLY CONVERTED INTO AN
UNREGISTERED PARTNERSHIP THE MOMENT THE COMMON PROPERTIES/INCOMES DERIVED
THEREFROM ARE USED AS COMMON FUND WITH INTENT TO PRODUCE PROFITS
For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the incomes derived therefrom are used as a
common fund with intent to produce profits for the heirs in proportion to their respective shares in the
inheritance as determined in a project partition either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or intestate proceeding. If after such partition, he allows
his share to be held in common with his co-heirs under a single management to be used with the intent of
making profit thereby in proportion to his share, there can be no doubt that, even if no document or
instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed.
(Ona v. Commissioner of Internal Revenue, G.R. No. L-19342, May 25, 1972)
SHARING OF GROSS RETURNS DOES NOT OF ITSELF ESTABLISH A PARTNERSHIP
Art. 1769(3), Civil Code provides that “the sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or interest in any property from which
the returns are derived”. There must be an unmistakable intention to form a partnership or joint venture.
(Jose P. Obillos, Jr., Sarah P. Obillos, Romeo P. Obillos and Remedios P. Obillos v. CIR and CTA, G.R. No. L-
68118, October 29, 1985)
PARTNERSHIP THUS FORMED IS LIABLE FOR THE PAYMENT OF INCOME TAX, WHEREAS IF THERE
WAS MERELY A COMMUNITY PROPERTY, THEY ARE EXEMPT FROM SUCH PAYMENT
There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the
payment of income tax under the law. But according to the stipulation facts the plaintiffs organized a
partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole
purpose of dividing equally the prize which they may win, as they did in fact in the amount of P50,000 (article
1665, Civil Code). (Gatchalian v. CIR, G.R. No. L-45425, April 29, 1939)
a. Section 27(C)
• Doctrines:
PAGCOR IS NO LONGER EXEMPT FROM THE PAYMENT OF INCOME TAX
The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the
exemption so claimed. The Court holds that the provision subjecting PAGCOR to 10% VAT is invalid for
being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that petitioner can be subjected
to VAT. R.A. No. 9337 is clear only as to the removal of petitioner’s exemption from the payment of
corporate income tax. (PAGCOR v. BIR, G.R. No. 172087, March 15, 2011)
EXTENSION OF FRANCHISE UNDER THE SAME TERMS AND CONDITIONS MEANS A CONTINUATION
OF TAX-EXEMPT STATUS
Given that petitioner’s Charter is not deemed repealed or amended by R.A. No. 9337, petitioner’s income
derived from gaming operations is subject only to the five percent (5%) franchise tax, in accordance with
P.D. 1869, as amended. With respect to petitioner’s income from operation of other related services, the
same is subject to income tax only. (PAGCOR v. BIR, G.R. No. 215427, December 10, 2014)
PAYMENT OF THE 5% FRANCHISE TAX BY PAGCOR AND ITS CONTRACTEES AND LICENSEES
EXEMPTS THEM FROM PAYMENT OF ANY OTHER TAXES
Section 13 of PD No. 1869 evidently states that payment of the 5% franchise tax by PAGCOR and its
contractees and licensees exempts them from payment of any other taxes, including corporate income

4DF1920 Page 19 of 45
 tax. The provision providing for the said exemption was neither amended nor repealed by any
subsequent laws (i.e. Section 1 of R.A. No. 9337 which amended Section 27(C) of the NIRC of 1997); thus,
it is still in effect. (Bloomberry Resorts v. BIR, G.R. No. 212530, August 10, 2016)
b. Section 27(D) – Passive Income of Domestic Corporations
• Doctrines:
TAX CREDIT PURSUANT TO TAX TREATIES MUST BE PROVEN IF PREFERENTIAL RATE IS SOUGHT
TO BE AVAILED OF ON TAXES IMPOSED UPON ROYALTIES
Tax refunds/tax exemptions are regarded as in derogation of sovereign authority and to be
construed strictissimi juris against the person or entity claiming the exemption. The burden of proof is
upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest
grant of organic or statute law. Private respondent is claiming for a refund of the alleged overpayment
of tax on royalties; however, there is nothing on record to support a claim that the tax on royalties under
the RP-US Tax Treaty is paid under similar circumstances as the tax on royalties under the RP-West
Germany Tax Treaty (Commissioner of Internal Revenue v. S.C. Johnson and Court of Appeals, G.R. No.
127105, June 25, 1999)
c. Section 28(A)(3) – International Carrier
• Doctrines:
GROSS INCOME DEFINITION IS BROAD ENOUGH TO INCLUDE PROCEEDS FROM SALES OF AIRLINE
TICKETS IN THE PHILIPPINES EVEN IF NO SERVICE OR AIRLIFTING OF PASSENGER OR CARGO BY
AN AIRLINE IS DONE BY ITS PLANES IN THE PHILIPPINES
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. (Commissioner of Internal Revenue v. British Overseas Airways Corporation,
G.R. No. L-65773-74, April 30, 1987)
AN INTERNATIONAL CARRIER WHICH HAS APPOINTED A TICKET SALES AGENT IN THE
PHILIPPINES, ALTHOUGH IT DOES NOT OPERATE ANY AIRPLANE IN THE PHILIPPINES, IS A
RESIDENT FOREIGN CORPORATION
BOAC’s activities were in exercise of the functions which are normally incident to, and are in progressive
pursuit of, the purpose and object of its organization as an international air carrier. In fact, the regular
sale of tickets, its main activity, is the very lifeblood of the airline business, the generation of sales being
the paramount objective. There should be no doubt then that BOAC was “engaged in” business in the
Philippines through a local agent during the period covered by the assessments. (Commissioner of
Internal Revenue v. British Overseas Airways Corporation, G.R. No. L-65773-74, April 30, 1987)
GROSS PHILIPPINE BILLINGS; RESIDENT FOREIGN CORPORATION; TAX TREATY
Tax on Gross Philippine Billings imposed on resident foreign corporations attaches only when the
carriage of persons, excess baggage, cargo, and mail originated from the Philippines in a continuous and
uninterrupted flight, regardless of where the passage documents were sold; In order that a foreign
corporation may be regarded as doing business within a State, there must be continuity of conduct and
intention to establish a continuous business, such as the appointment of a local agent, and not one of a
temporary character; A tax treaty is an agreement entered into between sovereign states “for purposes
of eliminating double taxation on income and capital, preventing fiscal evasion, promoting mutual trade
and investment, and according fair and equitable tax treatment to foreign residents or nationals.” (Air
Canada v. Commissioner of Internal Revenue, G.R. No. 169507, January 11, 2016)
INTERNATIONAL AIR CARRIERS WHICH DO NOT MAINTAIN FLIGHT TO AND FROM THE
PHILIPPINES SHALL BE TAXED AT 32% OF ITS INCOME FROM OTHER ACTIVITIES IN THE
COUNTRY
As correctly pointed out by petitioner, inasmuch as it ceased operating passenger flights to or from the
Philippines in 1998, it is not taxable under Section 28(A)(3)(a) of the NIRC for gross passenger revenues.
If an international air carrier maintains flight to and from the Philippines, it shall be taxed at the rate of
2 ½% of its Gross Philippine Billings while international air carriers that do not have flights to and from
the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate

4DF1920 Page 20 of 45
 of 32% of such income. (United Airlines, Inc. v. Commissioner of Internal Revenue, G.R. No. 178788,
September 29, 2010)
GROSS PHILIPPINE BILLINGS
It is the gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from
the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the
place of payment of the ticket or passage document. If an international air carrier maintains flights to
and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while
international air carriers that do not have flights to and from the Philippines but nonetheless earn
income from other activities in the country will be taxed at the rate of 32% of such income. (South
African Airways v. Commissioner of Internal Revenue, G.R. No. 180356, February 16, 2010)
d. Section 28(A)(5) – Branch Profit Remittance Tax
• Doctrines:
PREFERENTIAL RATE OF 10% BPRT BY VIRTUE OF RP-GERMANY TAX TREATY
Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject to a tax of 15%
based on the total profits applied for or earmarked for remittance without any deduction of the tax
component. However, petitioner invokes paragraph 6, Article 10 of the RP-Germany Tax Treaty, which
provides that where a resident of the Federal Republic of Germany has a branch in the Republic of the
Philippines, this branch may be subjected to the branch profits remittance tax withheld at source in
accordance with Philippine law but shall not exceed 10% of the gross amount of the profits remitted by
that branch to the head office. By virtue of the RP-Germany Tax Treaty, we are bound to extend to a
branch in the Philippines, remitting to its head office in Germany, the benefit of a preferential rate
equivalent to 10% BPRT. (Deutsche Bank v. Commissioner of Internal Revenue, G.R. No. 188550, August
19, 2013)
TAX BASE OF THE 15% BRANCH PROFIT REMITTANCE TAX IS IMPOSED ON THE PROFIT
ACTUALLY REMITTED ABROAD
Under Section 24(b) (2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the
profit actually remitted abroad and not on the total branch profit out of which the remittance is to be
made. (Commissioner of Internal Revenue. v. Burroughs Ltd., G.R. No. L-66653, June 19, 1986)
e. Section 28(B) – Tax on Non-Resident Foreign Corporation
• Doctrines:
WHEN THE FOREIGN CORPORATION TRANSACTS BUSINESS IN THE PHILIPPINES
INDEPENDENTLY OF ITS BRANCH, THE TRANSACTION BECOMES ONE OF THE FOREIGN
CORPORATION, NOT OF THE BRANCH AND THE FORMER IS THE TAXPAYER
The alleged overpaid taxes were incurred for the remittance of dividend income to the head office in
Japan which is a separate and distinct income taxpayer from the branch in the Philippines. There can be
no other logical conclusion considering the undisputed fact that the investment (totalling 283.260 shares
including that of nominee) was made for purposes peculiarly germane to the conduct of the corporate
affairs of Marubeni Japan, but certainly not of the branch in the Philippines. It is thus clear that petitioner,
having made this independent investment attributable only to the head office, cannot now claim the
increments as ordinary consequences of its trade or business in the Philippines and avail itself of the
lower tax rate of 10 %. (Marubeni Corp v. CIR & CTA , G.R. No. 76573, September 14, 1989)
f. Section 28(B)(5)(b) – Tax Sparing Rule
• Doctrines:
NET CAPITAL GAIN OF A NON-RESIDENT FOREIGN COMPANY IS NOT AN ACCUMULATED
DIVIDENDS IN ARREARS SUBJECTED TO 15% FINAL WITHHOLDING TAX
The Court therefore holds that the redemption price representing the amount of P97,732,314.00
received by GTRC could not be treated as accumulated dividends in arrears that could be subjected to
15% FWT. Verily, respondent’s AFS covering the years 2003 to 2009 show that it did not have
unrestricted retained earnings, and in fact, operated from a position of deficit. Thus, absent the
availability of unrestricted retained earnings, the board of directors of respondent had no power to issue
dividends. Consistent with Section 73 (A) of the Tax Code, this rule on dividend declaration – i.e., that it
is dependent upon the availability of unrestricted retained earnings – was further edified in Section 43

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 of The Corporation Code of the Philippines. (Commissioner of Internal Revenue v. Goodyear
Philippines, Inc., G.R. No. 216130, August 3, 2016)
15% DIVIDEND TAX RATE IS APPLIED IF THE DOMICILE OF THE FOREIGN CORPORATION GRANTS
IT A 20% TAX CREDIT
The ordinary thirty-five percent (35%) tax rate applicable to dividend remittances to non-resident
corporate stockholders of a Philippine corporation, goes down to fifteen percent (15%) if the country of
domicile of the foreign stockholder corporation “shall allow” such foreign corporation a tax credit for
“taxes deemed paid in the Philippines,” applicable against the tax payable to the domiciliary country by
the foreign stockholder corporation. (Commissioner of Internal Revenue v. Procter and Gamble, G.R.
No. L-66838, December 2, 1991)
TAX SPARING CREDIT APPLIES IF THE COUNTRY OF THE PARENT CORPORATION ALLOWS A
FOREIGN TAX CREDIT
For dividends received from a domestic corporation liable to tax, the tax shall be 15% of the dividends
received, subject to the condition that the country in which the non-resident foreign corporation is
domiciled shall allow a credit against the tax due from the non-resident foreign corporation, equivalent
to 20% which represents the difference between the regular tax (35%) on corporations and the tax
(15%) dividends. (Commissioner of Internal Revenue v. Wander Philippines, L-68375, April 15, 1988)
g. Section 29
• Doctrines:
RETENTION OF EARNINGS FOR THE REASONABLE NEEDS OF THE BUSINESS
A significant transaction such as an appropriation for future business expansion is one of the information
needed to be disclosed in the financial statements to apprise (1) the stockholders, on the reduction of
the retained earnings available for distribution to them; and (2), more importantly, the government and
public, as to the entity’s accountability as a taxpayer and a service provider. (Greenhills Properties v.
CIR, CTA Case No. 8295, May 15, 2015)
ACCUMULATED PROFITS FOR THE REASONABLE NEEDS OF THE BUSINESS
In order to determine whether profits are accumulated for the reasonable needs of the business to avoid
the surtax upon shareholders, it must be shown that the controlling intention of the taxpayer is
manifested at the time of accumulation, not intentions declared subsequently, which are mere
afterthoughts. Furthermore, the accumulated profits must be used within a reasonable time after the
close of the taxable year. (Cyanamid Philippines v. CA, G.R. No. 108067, January 20, 2000)
h. Section 30
• Doctrines:
IN CASE AN EXEMPT INSTITUTION UNDER SECTION 30(E) OR (G) OF THE SAID CODE EARNS
INCOME FROM ITS “FOR-PROFIT ACTIVITIES”, IT WILL NOT LOSE ITS TAX EXEMPTION.
HOWEVER, ITS INCOME FROM “FOR-PROFIT ACTIVITIES” WILL BE SUBJECT TO INCOME TAX AT
THE PREFERENTIAL 10% RATE PURSUANT TO SECTION 27(B) THEREOF
For an institution to be completely exempt from income tax, Section 30(E) and (G) of the 1997 NIRC
requires said institution to operate exclusively for charitable or social welfare purpose. But in case an
exempt institution under Section 30(E) or (G) of the said Code earns income from its “for-profit
activities”, it will not lose its tax exemption. However, its income from “for-profit activities” will be
subject to income tax at the preferential 10% rate pursuant to Section 27(B) thereof. (Commissioner of
Internal Revenue v. St. Luke’s Medical Center Inc., G.R. No. 203514, February 13, 2017)
ARTICLE XIV, SECTION 4 (3) OF THE 1987 CONSTITUTION DOES NOT REQUIRE THAT THE
REVENUES AND INCOME MUST HAVE ALSO BEEN SOURCED FROM EDUCATIONAL ACTIVITIES OR
ACTIVITIES RELATED TO THE PURPOSES OF AN EDUCATIONAL INSTITUTION
A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require that the
revenues and income must have also been sourced from educational activities or activities related to the
purposes of an educational institution. The phrase all revenues is unqualified by any reference to the
source of revenues. Thus, so long as the revenues and income are used actually, directly and exclusively
for educational purposes, then said revenues and income shall be exempt from taxes and duties. (CIR v.
De La Salle University, G.R. No. 196596, November 9, 2016)

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 MERE PROVISION FOR THE DISTRIBUTION OF ITS ASSETS TO THE STOCKHOLDERS UPON
DISSOLUTION DOES NOT REMOVE THE RIGHT OF AN EDUCATIONAL INSTITUTION FROM TAX
EXEMPTION
The authorities are clear to the effect that whatever payment is made to those who work for a school or
college as a remuneration for their services is not considered as distribution of profit as would make the
school one conducted for profit. (CIR v. V.G. Sinco Educational Corp., G.R. No. L-9276, October 23, 1956)
While the acquisition of additional facilities, may redound to the benefit of the institution itself, it cannot
be positively asserted that the same will redound to the benefit of its stockholders, for no-one can predict
the financial condition of the institution upon its dissolution. (CIR v. V.G. Sinco Educational Corp., G.R.
No. L-9276, October 23, 1956)
EXEMPTION FROM INCOME TAX OF CHARITABLE INSTITUTIONS
The exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph
of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the
YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code.
(CIR v. CA, CTA, YMCA, G.R. No. 124043, October 14, 1998)
7. Filing of Returns and Payment
• Doctrines:
FUTILE TO FURTHER REQUIRE THE CLAIMANT TO PRESENT INCOME TAX RETURNS OF THE
SUCCEEDING YEAR WHEN THERE IS COMPLIANCE WITH THE TAX REFUND REQUISITES
Nowhere is it required in Section 76 of the 1997 NIRC that income tax returns for the subsequent years are
necessary to prove refund of excess creditable withholding taxes. In the case at bar, although GADC presented
its 2003 annual income tax return, the submission of such document, including its 2003 quarterly income tax
returns is not required. (Golden Arches Development Corporation v. Commissioner of Internal Revenue,
C.T.A. Case No. 7200, November 26, 2009)
8. Withholding Tax
• Doctrines:
COMPENSATION FOR ADVISORY SERVICES PERFORMED ABROAD BY PERSONNEL OF A NON-RESIDENT
FOREIGN CORPORATION NOT DOING BUSINESS IN THE PHILIPPINES IS SUBJECT TO WITHHOLDING
INCOME TAX
The test of taxability is the ‘source’, and the source of an income is “that activity . . . which produced the
income”. It is not the presence of any property from which one derives rentals and royalties that is controlling,
but rather as expressed under the expanded meaning of “royalties”, it includes “ royalties for the supply of
scientific, technical, industrial, or commercial knowledge or information; and the technical advice, assistance
or services rendered in connection with the technical management and administration of any scientific,
industrial or commercial undertaking, venture, project or scheme”, and others (Philippine American Life
Insurance Company v. Court of Tax Appeals and CIR, CA-G.R. SP No. 31283, April 25, 1995)

B. Estate and Donor’s Taxes

1. Estate Tax
• Doctrines:
TO SETTLE CLAIMS AGAINST THE ESTATE, AS AN INHERITANCE TAX, IS FOR THE CLAIMANT TO
PRESENT A CLAIM BEFORE THE PROBATE COURT
The ordinary procedure by which to settle claims or indebtedness against the estate of a deceased person, as
an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order
the administrator to pay the amount thereof. (Domingo v. Garlitos, G.R. No. L-18994, June 29, 1963)
TRANSMISSION BY INHERITANCE IS TAXABLE AT THE TIME OF THE PREDECESSOR’S DEATH
If death is the generating source from which the power of the estate to impose inheritance taxes takes its
being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests
instantly, the tax should be measured by the value of the estate as it stood at the time of the decedent’s death,
regardless of any subsequent contingency value of any subsequent increase or decrease in value. (Pablo
Lorenzo v. Jose Posadas, Jr., G.R. No. L-43082, June 18, 1937)

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 RECIPROCITY MUST BE TOTAL
The reciprocity must be total, that is, with respect to transfer or death taxes of any and every character, in
the case of the Philippine law, and to legacy, succession, or death taxes of any and every character, in the case
of the California law. Therefore, if any of the two states collects or imposes and does not exempt any transfer,
death, legacy, or succession tax of any character, the reciprocity does not work. (Commissioner of Internal
Revenue v. Fisher, G.R. No. L-11668, January 28, 1961)
2. Donor’s Tax
• Doctrines:
IMPOSITION OF GIFT TAX IS NOT A VIOLATION OF THE CONSTITUTIONAL PROVISION EXEMPTING
CHURCHES, PARSONAGES OR CONVENTS FROM PROPERTY TAX
A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos,
the imposition of which on property used exclusively for religious purposes, does not constitute an
impairment of the Constitution. The phrase “exempt from taxation,” as employed in the Constitution should
not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express
grant of such privilege by law, in favor of petitioner, the exemption herein must be denied. (Rev. Fr. Casimiro
Lladoc. v. CIR and CTA, G.R. No. L-19201, June 16, 1965)
POLITICAL CONTRIBUTIONS ARE TAXABLE GIFTS
The fact that petitioners will somehow in the future benefit from the election of the candidate to whom they
contribute, in no way amounts to a valuable material consideration so as to remove political contributions
from the purview of a donation. In fine, the purpose for which the sums of money were given, which was to
fund the campaign of Senator Angara in his bid for a senatorial seat, cannot be considered as a material
consideration so as to negate a donation. (Abello v. Commissioner of Internal Revenue, G.R. No. 120721,
February 23, 2005)
ABSENCE OF DONATIVE INTENT DOES NOT EXEMPT THE SALES OF STOCK FROM DONOR’S TAX
The absence of donative intent, if that be the case, does not exempt the sales of stock transaction from donor’s
tax since Sec. 100 of the NIRC categorically states that the amount by which the fair market value of the
property exceeded the value of the consideration shall be deemed a gift. Thus, even if there is no actual
donation, the difference in price is considered a donation by fiction of law. (Philippine American Life and
General Insurance Company vs. Secretary of Finance and Commissioner of Internal Revenue, G.R. No.
210987, November 24, 2014)

III. LOCAL TAXATION

A. Local Government Taxation

1. Principles and Definitions
2. Scope of Taxing Power and Limitations Thereon
• Doctrines:
LOCAL GOVERNMENTS HAVE DELEGATED POWER TO TAX
Legislative powers may be delegated to local governments in respect of matters of local concern. This is
sanctioned by immemorial practice. 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. Under the New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and to levy taxes. (Pepsi-Cola Bottling Co. of
the Philippines, Inc. v. Municipality of Tanauan, G.R. No. L-31156, February 27, 1976)
UNDER THE 1987 CONSTITUTION, WHERE THERE IS NEITHER A GRANT NOR A PROHIBITION BY
STATUTE, THE TAX POWER OF LOCAL GOVERNMENT UNITS MUST BE DEEMED TO EXIST ALTHOUGH
CONGRESS MAY PROVIDE STATUTORY LIMITATIONS AND GUIDELINES
The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government
units by directly granting them general and broad tax powers. Nevertheless, the fundamental law did not
intend the delegation to be absolute and unconditional; the constitutional objective obviously is to ensure
that, while the local government units are being strengthened and made more autonomous, the legislature

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 must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable
impositions; (b) each local government unit 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.
(Manila Electric Co. v. Province of Laguna, G.R. No. 131359, May 5, 1999)
THE POWER TO GRANT OR ISSUE LICENSES OR BUSINESS PERMITS MUST ALWAYS BE EXERCISED IN
ACCORDANCE WITH LAW, WITH UTMOST OBSERVANCE OF THE RIGHTS OF ALL CONCERNED TO DUE
PROCESS AND EQUAL PROTECTION OF THE LAW
The issuance of business licenses and permits by a municipality or city is essentially regulatory in nature. The
authority, which devolved upon local government units to issue or grant such licenses or permits, is
essentially in the exercise of the police power of the state within the contemplation of the general welfare
clause of the Local Government Code. (Acebedo Optical Co., Inc. v. Court of Appeals, G.R. No. 100152, March
31, 2000)
THE POWER OF A LOCAL GOVERNEMNT UNIT UNDER ITS CHARTER TO TAX, LICENSE, PERMIT AND
REGULATE WAGERS OR BETTING DOES NOT INCLUDE THE POWER TO FRANCHISE THE SAME
City of Manila may issue a license or permit to operate a wager or betting activity; however, it would not
amount to something meaningful unless the holder of the permit or license had already been franchised by
the national government to so operate. (Lim v. Pacquing, G.R. Nos. 115044 & 117263, January 27, 1995)
(NOTE: This power to license, permit or regulate wagers or betting on jai-alai was removed from local
governments, including the City of Manila, and transferred to the Games and Amusements Board by E.O. No. 392
in 1951. Also, in 1975, P.D. 771 expressly revoked all existing franchises and permits issued by local governments.
These developments, which the case actually focused more on, rendered the portion discussing taxing, regulatory
and franchising power, academic rather than jurisprudential.)
LOCAL GOVERNMENT UNITS CANNOT ENACT AN ORDINANCE PROHIBITING THE OPERATION OF A
CASINO WHICH IS AUTHORIZED BY STATUTE
To be valid, an ordinance must conform to the following substantive requirements: (1) It must not contravene
the constitution or any statute; (2) It must not be unfair or oppressive; (3) It must not be partial or
discriminatory; (4) It must not prohibit but may regulate trade; (5) It must be general and consistent with
public policy; (6) It must not be unreasonable. Under Section 458 of the Local Government Code, local
government units are authorized to prevent or suppress, among others, “gambling and other prohibited
games of chance.” Since the word “gambling” is associated with “and other prohibited games of chance,” the
word should be read as referring to only illegal gambling which, like the other prohibited games of chance,
must be prevented or suppressed. Hence, as casino gambling is authorized by P.D. 1869, it is a statute that
cannot be amended or nullified by such a mere ordinance. (Magtajas v. Pryce Properties Corp., Inc., G.R. No.
111097 July 20, 1994)
LGC DOES NOT AUTHORIZE LOCAL GOVERNMENT UNITS TO IMPOSE TAXES ON END-USERS AND/OR
TO APPOINT WITHHOLDING AGENTS FOR PURPOSES OF COLLECTING TAXES
In the absence of such authority there is no valid basis for the imposition of any tax on end-users or tax on
purchases and for constituting petitioner as withholding agent for purposes of collecting such tax. (Unilever
Philippines, Inc. v. Treasurer of the City of Manila, C.T.A. AC No. 56, June 2, 2010)
DIVIDEND INCOME OF A HOLDING COMPANY IS NOT SUBJECT TO LOCAL BUSINESS TAX
Section 133(a) of the LGC expressly provides that the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of income tax, except when levied on banks and other financial
institutions. Section 131 (e) defines “banks and other financial institutions,” which excludes holding
companies. (Michigan Holdings, Inc. v. City Treasurer of Makati City, CTA EB No. 1093 [CTA AC No. 99], June
17, 2015)
A MUNICIPAL ORDINANCE IMPOSING FEES ON GOODS THAT PASS THROUGH THE ISSUING
MUNICIPALITY’S TERRITORY IS NULL AND VOID, EVEN IF INTENDED FOR POLICE SURVEILLANCE
By express language of Sections 153 and 155 of RA No. 7160, local government units, through their
Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use of
any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles using
municipal roads leading to the wharf is thus valid. However, Section 133(e) of RA No. 7160 prohibits the
imposition, in the guise of wharfage, of fees — as well as all other taxes or charges in any form whatsoever —
on goods or merchandise. It is therefore irrelevant if the fees imposed are actually for police surveillance on
the goods, because any other form of imposition on goods passing through the territorial jurisdiction of the
municipality is clearly prohibited by Section 133(e). (Palma Development Corp. v. Municipality of
Malangas, Zamboanga Del Sur, G.R. No. 152492, October 16, 2003)

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 THE 6-YEAR TAX EXEMPTION UNDER THE LOCAL GOVERNMENT CODE ENJOYED BY BOI-CERTIFIED
PIONEER ENTERPRISES COMMENCES FROM THE DATE OF REGISTRATION
Sec. 133(g) of the LGC which proscribes LGUs from levying taxes on BOI-certified pioneer enterprises for a
period of six years from the date of registration, applies specifically to taxes imposed by the local government,
like the business tax imposed by Batangas City on BPC in the case at bar. Reliance of BPC on the provision of
Executive Order No. 226 (1987 Omnibus Investment Code, as amended), specifically Section 1, Article 39,
Title III, is clearly misplaced as the six-year tax holiday provided therein which commences from the date of
commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer
firms. (Batangas Power Corp. v. Batangas City, G.R. Nos. 152675 & 152771, April 28, 2004)
SECTION 137 OF THE LGC DOES NOT PROHIBIT GRANT OF FUTURE EXEMPTIONS
The taxing power by the local government is limited in the sense that Congress can enact legislation granting
exemptions. (Quezon City v. ABS-CBN Broadcasting Corp., G.R. No. 166408, October 6, 2008)
THE PROVINCE SHALL NOT IMPOSE THE TAX ON BUSINESS ENJOYING FRANCHISE OPERATING
WITHIN THE TERRITORIAL JURISDICTION OF ANY CITY LOCATED WITHIN THE PROVINCE
Under the IRR of the LGC, the province may impose a tax on businesses enjoying a franchise within its
territorial jurisdiction, excluding the territorial limits of any city located in the province. (Provincial
Government of Cagayan v. Smart Communications, Inc., C.T.A. AC No. 92, July 25, 2013)
3. Specific Taxing Power of Local Government Units
• Doctrines:
A TAX ON BUSINESS IS DISTINCT FROM A TAX ON THE ARTICLE ITSELF
While Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products, said decree did not
amend Sections 19 and 19 (a) of P.D. 231 as amended by P.D. 426, wherein the municipality is granted the
right to levy taxes on business of manufacturers, importers, producers of any article of commerce of whatever
kind or nature. Thus, petitioner whose oil products are subject to specific tax under the NIRC, is still liable to
pay tax on business unto the respondent Municipality of Pililla, Rizal, based on Municipal Ordinance No. 1.
(Philippine Petroleum Corp. v. Municipality of Pililla, Rizal, G.R. No. 90766, June 3, 1991)
A LICENSE TAX MAY BE LEVIED UPON A BUSINESS OR OCCUPATION ALTHOUGH THE LAND OR
PROPERTY USED IN CONNECTION THEREWITH IS SUBJECT TO PROPERTY TAX
The State may collect an ad valorem tax on property used in a calling, and at the same time impose a license
tax on that calling, the imposition of the latter kind of tax being in no sense a double tax. (Villanueva v. City
of Iloilo, G.R. No. L-26521, December 28, 1968)
THE PHRASE “TAX ON BUSINESSES ENJOYING A FRANCHISE” IN SECTION 137 OF THE LGC SHOULD BE
INTERPRETED AND UNDERSTOOD IN THE CONTEXT THAT A FRANCHISE TAX IS “A TAX ON THE
PRIVILEGE OF TRANSACTING BUSINESS IN THE STATE AND EXERCISING CORPORATE FRANCHISES
GRANTED BY THE STATE”
It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on
its exercise of the rights or privileges granted to it by the government. To be liable for local franchise tax, the
following requisites should concur: (1) that one has a “franchise” in the sense of a secondary or special
franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the
pertinent local government unit. (City of Iriga v. Camarines Sur III Electric Cooperative, Inc., G.R. No.
192945, September 5, 2012)
VAT REPLACED THE NATIONAL FRANCHISE TAX, BUT IT DID NOT PROHIBIT NOR ABOLISH THE
IMPOSITION OF LOCAL FRANCHISE TAX BY CITIES OR MUNICIPALITIES
Republic Act No. 7716, otherwise known as the “Expanded VAT Law,” did not remove or abolish the payment
of local franchise tax. It merely replaced the national franchise tax that was previously paid by
telecommunications franchise holders and in its stead imposed a ten percent (10%) VAT in accordance with
Section 108 of the Tax Code (now 12% under the present Sec. 108). (Smart Communications, Inc. v. City of
Davao, G.R. No. 155491 [Resolution], July 21, 2009)
SINCE A FRANCHISE TAX IS AN EXCISE TAX, THE SITUS OF TAXATION IS THE PLACE WHERE THE
PRIVILEGE IS EXERCISED
A franchise tax is a tax on the exercise of a privilege. As Section 137 of the LGC provides, franchise tax shall
be based on gross receipts precisely because it is a tax on business, rather than on persons or property. In
this case, the situs of taxation is in the City of Iriga, where CASURECO III has its principal office and from

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 where it operates, regardless of the place where its services or products are delivered. (City of Iriga v.
Camarines Sur III Electric Cooperative, Inc., G.R. No. 192945, September 5, 2012)
AN ELECTRIC COOPERATIVE REGISTERED UNDER PD 269 BUT NOT UNDER RA 6938 IS LIABLE FOR
THE PAYMENT OF LOCAL FRANCHISE TAXES
PD 269 (National Electrification Administration Decree), which took effect on August 6, 1973, granted electric
cooperatives registered with the NEA, like CASURECO III, several tax privileges, one of which is exemption
from the payment of “all national government, local government and municipal taxes and fees, including
franchise, filing, recordation, license or permit fees or taxes.” On March 10, 1990, Congress enacted into law
RA 6938 (Cooperative Code of the Philippines) and RA 6939 creating the Cooperative Development Authority
(CDA). The latter law vested the power to register cooperatives solely on the CDA, while the former provides
that electric cooperatives registered with the NEA under PD 269 which opt not to register with the CDA shall
not be entitled to the benefits and privileges under the said law. On January 1, 1992, the LGC took effect, and
Section 193 thereof withdrew tax exemptions or incentives previously enjoyed by “all persons, whether
natural or juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions.” (City of Iriga v. Camarines Sur III Electric Cooperative, Inc., G.R. No. 192945, September 5,
2012)
THE SITUS OF LOCAL FRANCHISE TAXATION OF A GRANTEE ENGAGED IN TRANSMISSION OF
ELECTRICAL POWER TO PRIVATE DISTRIBUTION UTILITIES, COOPERATIVES, AND LOCAL
GOVERNMENT UNITS COVERS THE PLACES WHERE THE GENERATION PLANTS ARE LOCATED UP TO
THE LOCATION OF ITS CUSTOMERS AND IN THE PLACES WHERE THE TRANSMISSION LINES TRAVERSE
AND WHERE THE SUBSTATIONS AND RELATED FACILITIES ARE LOCATED
In other words, since petitioner’s franchise involves the transport of power from the generation plant to its
customers (distribution utilities, electric cooperatives, etc.), then the transmission function is exercised
starting from the places where the generation plants are located up to the location of its customers and in the
places where the transmission lines traverse and where the substations and related facilities are located. It
is of no moment that the electricity transmitted to ANECO is subsequently distributed to end-users located
in both the City of Butuan and the municipalities of the Province of Agusan del Norte since petitioner derives
its gross receipts from its transmission of electricity to ANECO, a distribution utility, and not from the end-
users. (National Transmission Corp. v. Province of Agusan Del Norte, CTA EB No. 950 [CTA AC No. 75], March
17, 2014)
THE CITY CAN VALIDLY TAX THE SALES OF MATCHES TO CUSTOMERS OUTSIDE OF THE CITY AS LONG
AS THE ORDERS WERE BOOKED AND PAID FOR IN THE COMPANY’S BRANCH OFFICE IN THE CITY
The sales in the instant case were finalized in the city and the matches sold were stored in the city. The fact
that the matches were delivered to customers, whose places of business were outside of the city, would not
place those sales beyond the city’s taxing power. Those sales formed part of the merchandising business being
carried on by the company in the city. In essence, they are the same as sales of matches fully consummated
in the city. Furthermore, because the seller’s place of business is in Cebu City, it cannot be sensibly argued
that such sales should be considered as transactions subject to the taxing power of the political subdivisions
where the customers resided and accepted delivery of the matches sold. (Philippine Match Co., Ltd. v. City
of Cebu, G.R. No. L-30745, January 18, 1978)
THE PHRASE “IN LIEU OF ALL TAXES” FOUND IN SPECIAL FRANCHISES SHOULD GIVE WAY TO THE
PEREMPTORY LANGUAGE OF SECTION 193 OF THE LOCAL GOVERNMENT CODE SPECIFICALLY
PROVIDING FOR THE WITHDRAWAL OF SUCH EXEMPTION PRIVILEGES
The rule that a special law must prevail over the provisions of a later general law does not apply as the
legislative purpose to withdraw tax privileges enjoyed under existing laws or charters is apparent from the
express provisions of §§ 137 and 193 of the LGC. (Philippine Long Distance Telephone Co., Inc. v. City of
Davao, G.R. No. 143867 [Resolution], March 25, 2003)
SECTION 23 OF THE PUBLIC TELECOMMUNICATIONS POLICY ACT OF THE PHILIPPINES DOES NOT
OPERATE TO EXEMPT PLDT FROM THE PAYMENT OF LOCAL FRANCHISE TAX
PLDT contends that because their existing franchises contain “in lieu of all taxes” clauses, the same grant of
tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications
franchise. But the rule is that tax exemptions should be granted only by clear and unequivocal provision of
law “expressed in a language too plain to be mistaken.” If, as PLDT contends, the word “exemption” in R.A.
No. 7925 means “tax exemption” and assuming for the nonce that the charters of Globe and of Smart grant
tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, “clear and

4DF1920 Page 27 of 45
 unequivocal” way of communicating the legislative intent. (Philippine Long Distance Telephone Co., Inc. v.
City of Davao, G.R. No. 143867 [Resolution], March 25, 2003)
See doctrines provided for under Philippine Long Distance Telephone Co., Inc. v. City of Davao, G.R. No.
143867 [Resolution], March 25, 2003
We note, quite interestingly, that except for the particular local government units involved in the earlier case
of PLDT v. City of Davao and the very recent case of PLDT v. City of Bacolod, the arguments presently advanced
by petitioner on the issues raised herein are but a mere reiteration if not repetition of the very same
arguments it has already raised in the two (2) earlier PLDT cases. For sure, the errors presently assigned are
substantially the same as those in Davao and in Bacolod, all of which have been adequately addressed and
passed upon by this Court in its decisions therein as well as in its en banc Resolution in Davao. (Philippine
Long Distance Telephone Co., Inc. v. Province of Laguna, G.R. No. 151899, August 16, 2005)
See doctrines provided for under Philippine Long Distance Telephone Co., Inc. v. City of Davao, G.R. No.
143867 [Resolution], March 25, 2003
We note, quite interestingly, that apart from the particular local government unit involved in the earlier case
of PLDT v. Davao, the arguments presently advanced by petitioner on the issue herein posed are but a mere
reiteration if not repetition of the very same arguments it has already raised in Davao. For sure, the errors
presently assigned are substantially the same as those in Davao, all of which have been adequately addressed
and passed upon by this Court in its decision therein as well as in its en banc resolution in that case.
(Philippine Long Distance Telephone Co. v. City of Bacolod, G.R. No. 149179, July 15, 2005) (NOTE: Aside
from those provided for under the 2003 resolution, the following are the doctrines mentioned in the 2001
decision: (1) THE GRANT OF TAXING POWERS TO LOCAL GOVERNMENT UNITS UNDER THE CONSTITUTION
AND THE LGC DOES NOT AFFECT THE POWER OF CONGRESS TO GRANT EXEMPTIONS TO CERTAIN PERSONS,
PURSUANT TO A DECLARED NATIONAL POLICY. The legal effect of the constitutional grant to local governments
simply means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in
favor of municipal corporations. (2) IT DOES NOT APPEAR THAT, IN APPROVING §23 OF RA 7925, CONGRESS
INTENDED IT TO OPERATE AS A BLANKET TAX EXEMPTION TO ALL TELECOMMUNICATIONS ENTITIES. There
is nothing in the language of §23 nor in the proceedings of both the House of Representatives and the Senate in
enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications
entities, including those whose exemptions had been withdrawn by the LGC. Applying the rule of strict
construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal
corporations in interpreting statutory provisions on municipal taxing powers, we hold that §23 of R.A. No. 7925
cannot be considered as having amended petitioner’s franchise so as to entitle it to exemption from the
imposition of local franchise taxes.)
PROFESSIONAL BASKETBALL GAMES ARE NOT WITHIN THE SCOPE OF “OTHER PLACES OF
AMUSEMENT”
Under the principle of ejusdem generis, where general words follow an enumeration of persons or things, by
words of a particular and specific meaning, such general words are not to be construed in their widest extent,
but are to be held as applying only to persons or things of the same kind or class as those specifically
mentioned. Thus, in determining the meaning of the phrase “other places of amusement,” one must refer to
the prior enumeration of theaters, cinematographs, concert halls and circuses with artistic expression as their
common characteristic. Professional basketball games do not fall under the same category as theaters,
cinematographs, concert halls and circuses as the latter basically belong to artistic forms of entertainment
while the former caters to sports and gaming. (Philippine Basketball Association v. Court of Appeals, G.R.
No. 119122, August 8, 2000)
CONDOMINIUM CORPORATIONS ARE GENERALLY EXEMPT FROM LOCAL BUSINESS TAXATION,
EXCEPT WHERE THE UNIT OWNERS OF A CONDOMINIUM WOULD BAND TOGETHER TO ENGAGE IN
ACTIVITIES FOR PROFIT
A condominium corporation is precluded by statute from engaging in corporate activities other than the
holding of the common areas, the administration of the condominium project, and other acts necessary,
incidental or convenient to the accomplishment of such purposes. Neither the maintenance of livelihood, nor
the procurement of profit, fall within the scope of permissible corporate purposes of a condominium
corporation under the Condominium Act. As to the exception, such activity would be prohibited under the
Condominium Act, but if the fact is established, we see no reason why the condominium corporation may be
made liable by the local government unit for business taxes. (Yamane v. BA Lepanto Condominium Corp.,
G.R. No. 154993, October 25, 2005)

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 THE OMNIBUS GRANT OF POWER TO MUNICIPALITIES AND CITIES UNDER SECTION 143(H) OF THE
LGC CANNOT OVERCOME THE SPECIFIC EXCEPTION/EXEMPTION IN SECTION 133(J) OF THE SAME
CODE
Section 133 (j) of the LGC is a specific provision that explicitly withholds from any LGU, i.e., whether the
province, city, municipality, or barangay, the power to tax the gross receipts of transportation contractors,
persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or
water; in contrast, Section 143 of the LGC defines the general power of the municipality (as well as the city, if
read in relation to Section 151 of the same Code) to tax businesses within its jurisdiction. A special and
specific provision prevails over a general provision irrespective of their relative positions in the statute. In
the case at bar, the sanggunian of the municipality or city cannot enact an ordinance imposing business tax
on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or
freight by hire, and common carriers by air, land, or water, when said sanggunian was already specifically
prohibited from doing so. (City of Manila v. Colet, G.R. Nos. 120051, 121613, 121675, 121704, 121720-28,
121847-55, 122333, 122335, 122349 & 124855, December 10, 2014)
A BUSINIESS TAXED PURSUANT SECTION 143(A) OF THE LGC CAN NO LONGER BE TAXED UNDER
SECTION 143(H) OF THE SAME CODE
When a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce, pursuant to Section 143 (a) of the LGC, said municipality or
city may no longer subject the same manufacturers, etc. to a business tax under Section 143 (h) of the same
Code. Section 143 (h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage
tax under the NIRC, and that are “not otherwise specified in preceding paragraphs.” (City of Manila v. Coca-
Cola Bottlers Philippines, Inc., G.R. No. 181845, August 4, 2009)
WHEN A MUNICIPALITY OR CITY IMPOSES LOCAL BUSINESS TAX ON A BANK OR FINANCIAL
INSTITUTION PURSUANT TO SECTION 143(F), THE SAME MUNICIPALITY OR CITY MAY NO LONGER
SUBJECT THE SAME BANK OR FINANCIAL INSTITUTION TO LOCAL BUSINESS TAX UNDER SECTION
143(H)
In the same manner, banks and financial institutions already made liable to local business tax under Section
19 of the MRC, which is based on Section 143(f) of the LGC, may no longer be subjected to local business tax
pursuant to Section 21 of the MRC, which is based on Section 143(h) of the LGC (Treasurer of the City of
Manila v. China Banking Corp., C.T.A. EB Case No. 867 [C.T.A. AC No. 69], September 27, 2013)
TO BE CONSIDERED AS A BRANCH OR SALES OFFICE FOR PURPOSES OF COLLECTION OF THE TAXES,
IT IS NOT ENOUGH THAT THE BRANCH OR SALES OFFICE CONDUCTS OPERATIONS OF THE BUSINESS
AS AN EXTENSION OF THE PRINCIPAL OFFICE, THE BRANCH OR SALES OFFICE SHALL LIKEWISE
RECORD THE SALE OR TRANSACTION
The tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located
pursuant to Article 243 (b) of Administrative Order No. 270 in relation to Section 150 (a) (b)(d) of the LGC.
On the other hand, the principal office is the head or main office of the business appearing in the pertinent
documents submitted to the securities and exchange commission, or the department of trade and industry,
or other appropriate agencies, as the case may be. (City of Makati v. Municipality of Bakun, CTA EB Case No.
1179 [CTA AC No. 100], January 14, 2016)
THE IMPOSITION OF LOCAL BUSINESS TAX BASED ON THE TAXPAYER’S GROSS REVENUE WILL
INEVITABLY RESULT IN THE CONSTITUTIONALLY PROSCRIBED DOUBLE TAXATION INASMUCH AS
THE TAXPAYER’S REVENUE OR INCOME FOR A TAXABLE YEAR WILL DEFINITELY INCLUDE ITS GROSS
RECEIPTS ALREADY REPORTED DURING THE PREVIOUS YEAR AND FOR WHICH LOCAL BUSINESS TAX
HAS ALREADY BEEN PAID
Thus, respondent committed a palpable error when it assessed petitioner’s local business tax based on its
gross revenue as reported in its audited financial statements, as Section 143 of the Local Government Code
and Section 22 (e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross
receipts. (Ericsson Telecommunications, Inc. v. City of Pasig, G.R. No. 176667 November 22, 2007)
4. Common Revenue-Raising Powers
5. Community Tax
6. Assessment and Collection
• Doctrines:

4DF1920 Page 29 of 45
 THE RULE THAT APPROXIMATION IN THE CALCULATION OF THE TAXES IS ALLOWED DOES NOT
APPLY WHERE THE ESTIMATION IS ARRIVED AT ARBITRARILY AND CAPRICIOUSLY
The formula used is of unknown origin. It is also unclear what and how the data were secured and applied to
in the computation to arrive at the alleged franchise tax liability of respondent. Petitioner as well failed to
establish the direct connections of the factors used to gross sales or receipts attributable to the Province. This
is equivalent to a “naked assessment,” i.e., without any foundation character. (Provincial Government of
Cagayan v. Smart Communications, Inc., C.T.A. AC No. 92, July 25, 2013)

B. Real Property Taxation

1. Principles and Definitions and Scope of Taxing Powers
• Doctrines:
REAL ESTATE TAXES ACCRUE TO THE LOCAL GOVERNMENT UNIT CONCERNED, IT HAVING A DISTINCT
AND SEPARATE PERSONALITY FROM THE REPUBLIC OF THE PHILIPPINES
Compensation cannot be effected with regard to the two obligations in question. In the first place, the debtor
insofar as the certificates of indebtedness are concerned is the Republic of the Philippines, whereas the real
estate taxes owed by appellee are due to the City of Manila and Pasay City, each one of which having a distinct
and separate personality from our Republic. each one of the obligors concerning the two obligations is not at
the same time the principal creditor of the other. (De Borja v. Gella, G.R. No. L-18330, July 31, 1963)
THERE IS NO POINT IN NATIONAL AND LOCAL GOVERNMENTS TAXING EACH OTHER, UNLESS A SOUND
AND COMPELLING POLICY REQUIRES SUCH TRANSFER OF PUBLIC FUNDS FROM ONE GOVERNMENT
POCKET TO ANOTHER
There is also no reason for local governments to tax national government instrumentalities for rendering
essential public services to inhabitants of local governments. The only exception is when the legislature
clearly intended to tax government instrumentalities for the delivery of essential public services for sound
and compelling policy considerations. There must be express language in the law empowering local
governments to tax national government instrumentalities. Any doubt whether such power exists is resolved
against local governments. (Manila International Airport Authority v. Court of Appeals, G.R. No. 155650,
July 20, 2006)
ABSENCE OF A STIUPLATION MAKING LESSEE LIABLE FOR REALTY TAX IN A LEASE EXECUTED
BETWEEN THE DEPARTMENT OF NATURAL RESOURCES AND A TAXABLE PERSON WAS NOT A
CONTRACTUAL COMMITMENT OR GUARANTEE OF PERMANENT EXEMPTION FROM REAL PROEPRTY
TAXATION AS SAID AGENCY WAS NOT AUTHORIZED TO MAKE THAT COMMITTMENT
The lease contract of IMC was executed in accordance with the former Assessment Law, Commonwealth Act
470, under which the basis of realty taxation was ownership or interest tantamount to ownership, which
principle was recognized in the Mining Act then in force. The absence of a stipulation therein making the
lessee liable for realty tax on the leased mineral land was just a recognition of the real property tax principle
then prevailing; it was not a contractual commitment or guarantee by the Department of Agriculture and
Natural Resources that with respect to the leased mineral land, IMC would permanently be exempt from real
property taxation. That agency could not have made that commitment because it was not authorized to do
so; and it could not bind the lawmaking body by stipulating in effect against amendment of the law on real
property taxation. (Province of Nueva Ecija v. Imperial Mining Co., Inc., G.R. No. L-59463, November 19,
1982)
IMPROVEMENTS ON LAND ARE COMMONLY TAXED AS REALTY EVEN THOUGH FOR SOME PURPOSES
THEY MIGHT BE CONSIDERED PERSONALTY
It is a familiar phenomenon to see things classed as real property for purposes of taxation which on general
principle might be considered personal property. (Caltex [Philippines] Inc. v. Central Board of Assessment
Appeals, G.R. No. L-50466, May 31, 1982)
IN A BOT, THE OWNER-MANAGER-OPERATOR OF THE PROJECT IS THE ACTUAL USER OF ITS
MACHINERIES AND EQUIPMENT
Under this concept, it is the project proponent who constructs the project at its own cost and subsequently
operates and manages it. The proponent secures the return on its investments from those using the project’s
facilities through appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as
negotiated. At the end of the fixed term agreed upon, the project proponent transfers the ownership of the
facility to the government agency. Thus, the government is able to put up projects and provide immediate

4DF1920 Page 30 of 45
 services without the burden of the heavy expenditures that a project start up requires. The owner-manager-
operator’s ownership and use of the machineries and equipment are actual, direct, and immediate, while the
government agency’s is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim
for tax exemption. (National Power Corp. v. Central Board of Assessment Appeals, G.R. No. 171470, January
30, 2009)
2. Imposition and Exemption
• Doctrines:
IMPROVEMENTS ARE TAXABLE SEPARATELY IN THIS JURISDICTION
There is neither difficulty nor injustice in allowing the tax laws to operate against the owner of the
improvements, while relieving it from liability for the tax on the land. (Asiatic Petroleum Co., Ltd. v. Llanes,
G.R. No. 25386, October 20, 1926)
PIPELINE SYSTEMS ARE MACHINERY SUBJECT TO REALY TAX
The pipeline system in question is indubitably a construction adhering to the soil It is attached to the land in
such a way that it cannot be separated therefrom without dismantling the steel pipes which were welded to
form the pipeline. Insofar as the pipeline uses valves, pumps and control devices to maintain the flow of oil,
it is in a sense machinery within the meaning of the Real Property Tax Code. It should be borne in mind that
what are being characterized as real property are not the steel pipes but the pipeline system as a whole.
Pipeline means a line of pipe connected to pumps, valves and control devices for conveying liquids, gases or
finely divided solids. It is a line of pipe running upon or in the earth, carrying with it the right to the use of the
soil in which it is placed. (Meralco Securities Industrial Corp. v. Central Board of Assessment Appeals, G.R.
No. L-46245, May 31, 1982) (NOTE: The case used the definition and requirements provided for under Art. 415[1]
and [3] in arriving at such a conclusion. However, since the LGC, under Sec. 199[o] therein, now provides for a
definition of “machineries,” the definition and requirements under the LGC are controlling for determining
whether machinery is real property subject to real property tax. [Manila Electric Co v. City Assessor, G.R. No.
166102, August 5, 2015.])
GAS STATION EQUIPMENT AND MACHINERY PERMANENTLY AFFIXED TO THE GAS STATION AND
PAVEMENT (WHICH ARE INDUBITABLY TAXABLE REALTY) IS SUBJECT TO REALTY TAX
We hold that the said equipment and machinery, as appurtenances to the gas station building or shed owned
by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas
station, for without them the gas station would be useless, and which have been attached or affixed
permanently to the gas station site or embedded therein, are taxable improvements and machinery within
the meaning of the Assessment Law and the Real Property Tax Code. The machines and equipment consists
of underground tanks, elevated tank, elevated water tanks, water tanks, gasoline pumps, computing pumps,
water pumps, car washer, car hoists, truck hoists, air compressors and tireflators. (Caltex [Philippines] Inc.
v. Central Board of Assessment Appeals, G.R. No. L-50466, May 31, 1982) (NOTE: The requirement under the
Assessment Law and Real Property Tax Code that to be considered subject to real property tax, the machinery
should be attached to the real property is no longer controlling with the advent of the LGC. Under Sec. 199[o]
thereof, machinery subject to real property tax may or may not be attached to the real property.)
THE TEST OF EXEMPTION IS THE USE, NOT THE OWNERSHIP OF THE MACHINERIES
To successfully claim exemption under Section 234 (c) of the LGC, the claimant must prove two elements: (a)
the machineries and equipment are actually, directly, and exclusively used by local water districts and
government-owned or controlled corporations; and (b) the local water districts and government-owned and
controlled corporations claiming exemption must be engaged in the supply and distribution of water and/or
the generation and transmission of electric power. The machineries must be actually, directly, and exclusively
used by the government-owned or controlled corporation for the exemption under Section 234 (c) to apply.
(National Power Corp. v. Province of Quezon, G.R. No. 171586, July 15, 2009)
THE NPC IS NOT ALLOWED TO ASSUME IN ITS BOT CONTRACT THE LIABILITY OF THE OTHER
CONTRACTING APRTY FOR TAXES THAT THE GOVERNMENT CAN IMPOSE ON THAT OTHER PARTY,
AND AT THE SAME TIME CLAIM THAT IT IS TAX-EXEMPT AS A GOCC
We cannot be a party to this kind of arrangement; for us to allow it without congressional authority is to
intrude into the realm of policy and to debase the tax system that the Legislature established. We will then
also be grossly unfair to the people of the Province of Quezon and the Municipality of Pagbilao who, by law,
stand to benefit from the tax provisions of the LGC. (National Power Corp. v. Province of Quezon, G.R. No.
171586, July 15, 2009)

4DF1920 Page 31 of 45
 A TAX PROVISION IN A FRANCHISE PROVIDING FOR TAX LIABILITY ON REAL PROPERTY “EXCLUSIVE
OF THIS FRANCHISE” OPERATES TO EXEMPT THE GRANTEE FROM PAYMENT OF REAL PROPERTY TAX
BUT SOLELY ON THOSE REAL PROPERTIES ACTUALLY, DIRECTLY AND EXCLUSIVELY USED BY THE
GRANTEE IN ITS FRANCHISE
In view of the unequivocal intent of Congress to exempt from real property tax those real properties actually,
directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise, respondent Province of
Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its
territorial jurisdiction not part of the above-stated classification. (Digital Telecommunications Philippines,
Inc. v. Province of Pangasinan, G.R. No. 152534, February 23, 2007)
THE EXPRESS WITHDRAWAL OF TAX EXEMPTIONS UNDER SECTION 193 OF THE LOCAL
GOVERNMENT CODE IS QUALIFIED BY SECTION 133(O), WHICH IS FURTHER QUALIFIED BY SECTION
234(A)
Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons
“unless otherwise provided in this Code.” Now, Section 133(o) of the Local Government Code expressly
provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national
government instrumentalities. The saving clause in Section 133 refers to Section 234(a) on the exception to
the exemption from real estate tax of real property owned by the Republic, i.e., when the government gives
the beneficial use of the real property to a taxable entity. (Manila International Airport Authority v. Court
of Appeals, G.R. No. 155650, July 20, 2006)
AN AMENDMENT TO A FRANCHISE ENACTED SUBSEQUENT TO THE LGC, USING THE SAME DEFINING
PHRASE THAT WAS THE BASIS OF THE GRANTEE’S TAX EXEMPTION PRIOR TO THE LGC IS AN EXPRESS
AND REAL INTENTION ON THE PART OF CONGRESS TO ONCE AGAIN REMOVE FROM THE LGC’S
DELEGATED TAXING POWER
Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC has already
withdrawn Bayantel’s former exemption from realty taxes, Congress opted to pass Rep. Act No. 7633 using,
under Section 11 thereof, exactly the same defining phrase “exclusive of this franchise” which was the basis
for Bayantel’s exemption from realty taxes prior to the LGC. (City Government of Quezon City v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006)
GOVERNMENT INSTRUMENTALITIES ARE EXEMPT FROM REAL ESTATE TAXES
Section 234(a) of the Local Government Code exempts from real estate tax any “real property owned by the
Republic of the Philippines.” This exemption should be read in relation with Section 133(o) of the same Code,
which prohibits local governments from imposing “taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities.” The real properties owned by the Republic are titled either
in the name of the Republic itself or in the name of agencies or instrumentalities of the National Government.
The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax. MIAA, as a government instrumentality, is not a taxable person
under Section 133(o) of the Local Government Code. (Manila International Airport Authority v. Court of
Appeals, G.R. No. 155650, July 20, 2006)
THE AIRPORT LANDS AND BUILDINGS OF THE MCIAA, A GOVERNMENT INSTRUMENTALITY, ARE
PROPERTIES OF PUBLIC DOMINION AND ARE THUS EXEMPT FROM REAL PROPERTY TAX
Like in MIAA v. Court of Appeals (2006), the airport lands and buildings of MCIAA are properties of public
dominion because they are intended for public use. As properties of public dominion, they indisputably
belong to the State or the Republic of the Philippines, and are outside the commerce of man. This, unless
petitioner leases its real property to a taxable person, the specific property leased becomes subject to real
property tax; in which case, only those portions of petitioner’s properties which are leased to taxable persons
like private parties are subject to real property tax by the City of Lapu-Lapu. (Mactan-Cebu International
Airport Authority [MCIAA] v. City of Lapu-Lapu, G.R. No. 181756, June 15, 2015)
THE PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, BEING AN INSTRUMENTALITY OF THE
NATIONAL GOVERNMENT, IS LIABLE TO PAY REAL PROPERTY TAXES ONLY WITH RESPECT TO THE
PORTIONS OF THE PROPERTY, THE BENEFICIAL USE OF WHICH WERE VESTED IN PRIVATE ENTITIES
On the basis of the parameters set in the MIAA case, the Authority should be classified as an instrumentality
of the national government. As such, it is generally exempt from payment of real property tax, except those
portions which have been leased to private entities. (Philippine Fisheries Development Authority v. Court
of Appeals, G.R. No. 169836, July 31, 2007)

4DF1920 Page 32 of 45
 THE AIRPORT LANDS AND BUILDINGS OF THE MIAA IN THE NAIA COMPLEX ARE EXEMPT FROM REAL
PROPERTY TAX, EXCEPT FOR THOSE SPECIFIC PROPERTY LEASED TO A TAXABLE PERSON, WHICH IS
SUBJECT TO REAL PROEPRTY TAX
The airport lands and buildings of MIAA are properties of public dominion intended for public use, and as
such are exempt from real property tax under Section 234 (a) of the Local Government Code. However, under
the same provision, if MIAA leases its real property to a taxable person, the specific property leased becomes
subject to real property tax. In this case, only those portions of the NAIA Pasay properties which are leased
to taxable persons like private parties are subject to real property tax by the City of Pasay. (Manila
International Airport Authority v. City of Pasay, G.R. No. 163072, April 2, 2009)
PORTIONS OF THE AIRPORT LANDS AND BUILDINGS THAT MIAA LEASES TO PRIVATE ENTITIES ARE
NOT EXEMPT FROM REAL ESTATE TAX
In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person
and therefore such land area is subject to real estate tax. (Manila International Airport Authority v. Court
of Appeals, G.R. No. 155650, July 20, 2006)
IT IS THE MACHINERIES THAT ARE EXEMPTED FROM THE PAYMENT OF REAL PROPERTY TAX, NOT
THE WATER OR ELECTRICITY THAT THESE MACHINERIES GENERATE AND DISTRIBUTE
Nor will NPC find solace in its claim that it utilizes all the power plant’s generated electricity in supplying the
power needs of its customers. Based on the clear wording of Section 234 (c) of the LGC. (National Power
Corp. v. Province of Quezon, G.R. No. 171586, July 15, 2009)
NGCP’S TAX EXEMPT STATUS ON REAL PROPERTY DUE TO THE “IN LIEU OF ALL TAXES” CLAUSE IS
QUALIFIED: NGCP SHALL BE LIABLE TO PAY THE SAME TAX AS OTHER CORPORATIONS ON REAL
ESTATE, BUILDINGS AND PERSONAL PROPERTY EXCLUSIVE OF THEIR FRANCHISE
The phrase “exclusive of this franchise” means that real estate, buildings, and personal property used in the
exercise of the franchise are not subject to the same tax as other corporations. If the subject properties are
used in connection with NGCP’s franchise, then NGCP is exempt from paying real property taxes on the subject
properties. If the subject properties are not used in connection with NGCP’s franchise, then the assessment
level should be based on actual use. (National Grid Corp. of the Philippines v. Oliva, G.R. Nos. 213517 &
213558, August 10, 2016)
3. Appraisal and Assessment
• Doctrines:
SCHEDULE OF VALUES PREPARED SOLELY BY THE MUNICIPAL ASSESSOR IS ILLEGAL AND VOID
While R.A. 7160 covers almost all governmental functions delegated to local government units all over the
country, P.D. 921 embraces only the Metropolitan Manila area and is limited to the administration of financial
services therein, especially the assessment and collection of real estate (and some other local) taxes. Sec. 9 of
P.D. 921 requires that the schedule of values of real properties in the Metropolitan Manila area shall be
prepared jointly by the city assessors in the districts created therein: while Sec. 212 of R.A. 7160 states that
the schedule shall be prepared “by the provincial, city and municipal assessors of the municipalities within
the Metropolitan Manila Area for the different classes of real property situated in their respective local
government units for enactment by ordinance of the sanggunian concerned.” By reading together and
harmonizing these two provisions, we arrive at the following steps in the preparation of the said schedule, as
follows: (1) The assessor in each municipality or city in the Metropolitan Manila area shall prepare his/her
proposed schedule of values, in accordance with Sec. 212, R.A. 7160; (2) Then, the Local Treasury and
Assessment District shall meet, per Sec. 9, P.D. 921. In the instant case, that district shall be composed of the
assessors in Quezon City, Pasig, Marikina, Mandaluyong and San Juan, pursuant to Sec. 1 of said P.D. In this
meeting, the different assessors shall compare their individual assessments, discuss and thereafter jointly
agree and produce a schedule of values for their district, taking into account the preamble of said P.D. that
they should evolve “a progressive revenue raising program that will not unduly burden the taxpayers”; (3)
The schedule jointly agreed upon by the assessors shall then be published in a newspaper of general
circulation and submitted to the sanggunian concerned for enactment by ordinance, per Sec. 212, R.A. 7160.
(Ty v. Trampe, G.R. No. 117577, December 1, 1995)
A MEDICAL ARTS CENTER BUILT BY A HOSPITAL TO HOUSE ITS DOCTORS SHOULD BE ACCORDED THE
10% SPECIAL ASSESSMENT AS IT IS AN INTEGRAL PART OF THE HOSPITAL, INCIDENTAL TO AND
REASONABLY NECESSARY FOR ITS OPERATIONS, AND CHARGING RENTALS FOR THE OFFICES USED
BY ITS ACCREDITED PHYSICIANS CANNOT BE EQUATED TO A COMMERCIAL VENTURE

4DF1920 Page 33 of 45
 It is undisputed that the doctors and medical specialists holding clinics in CHHMAC are those duly accredited
by CHH, that is, they are consultants of the hospital and the ones who can treat CHH’s patients confined in it.
This fact alone takes away CHHMAC from being categorized as “commercial” since a tertiary hospital like CHH
is required by law to have a pool of physicians who comprises the required medical departments in various
medical fields. First, CHHMAC is only for its consultants or accredited doctors and medical specialists. Second,
the charging of rentals is a practical necessity: (1) to recoup the investment cost of the building, (2) to cover
the rentals for the lot CHHMAC is built on, and (3) to maintain the CHHMAC building and its facilities. Third,
as correctly pointed out by respondent, it pays the proper taxes for its rental income. And, fourth, if there is
indeed any net income from the lease income of CHHMAC, such does not inure to any private or individual
person as it will be used for respondent’s other charitable projects. (City Assessor of Cebu City v. Association
of Benevola de Cebu, G.R. No. 152904, June 8, 2007)
4. Collection

IV. TARIFF AND CUSTOMS

A. Tariff and Duties

1. Definitions
2. Purpose for Imposition
3. Kinds or Classification of Duties
• Doctrines:
A CUSTOMS MEMORANDUM ORDER CLASSIFYING WHEAT ACCORDING TO THE (1) IMPORTER OR
CONSIGNEE, (2) COUNTRY OF ORIGIN, AND (3) PORT OF DISCHARGE VIOLATES THE EQUAL
PROTECTION CLAUSE
We do not see how the quality of wheat is affected by who imports it, where it is discharged, or which country
it came from. Thus, on the one hand, even if other millers excluded from CMO 27-2003 have imported food
grade wheat, the product would still be declared as feed grade wheat, a classification subjecting them to 7%
tariff. On the other hand, even if the importers listed under CMO 27-2003 have imported feed grade wheat,
they would only be made to pay 3% tariff, thus depriving the state of the taxes due. The regulation, therefore,
does not become disadvantageous to respondent only, but even to the state. (Commissioner of Customs v.
Hypermix Feeds Corp., G.R. No. 179579, February 1, 2012)
4. Flexible Tariff Clause

B. Accrual and Payment of Tax and Duties

1. Importations
a. Taxable Importations
b. Prohibited Importations
c. De Minimis Importations
d. Conditionally-Free and Duty-Exempt Importations
2. Goods Declaration
• Doctrines:
A CUSTOMS MEMORANDUM ORDER LIMITING THE DUTY OF THE CUSTOMS OFFICER TO EXAMINE AND
ASSESS IMPORTED ARTICLES IS BEYOND THE SCOPE OF STATUTORY AUTHORITY GRANTED TO THE
COMMISSIONER OF CUSTOMS
Section 1403 of the Tariff and Customs Law, as amended (now Section 421 of the Customs Modernization
and Tariff Act) mandates that the customs officer must first assess and determine the classification of the
imported article before tariff may be imposed. Unfortunately, CMO 23-2007 has already classified the article
even before the customs officer had the chance to examine it. In effect, petitioner Commissioner of Customs
diminished the powers granted by the Tariff and Customs Code with regard to wheat importation when it no

4DF1920 Page 34 of 45
 longer required the customs officer’s prior examination and assessment of the proper classification of the
wheat. (Commissioner of Customs v. Hypermix Feeds Corp., G.R. No. 179579, February 1, 2012)

C. Unlawful Importation or Exportation

1. Smuggling
2. Other Fraudulent Practices

D. Special Economic Zones

• Doctrines:
THE MINIMUM INTERFERENCE POLICY OF THE GOVERNMENT ON THE FREEPORT EXTENDS TO THE KIND
OF BUSINESS THAT INVESTORS MAY EMBARK ON AND THE ARTICLES WHICH THEY MAY IMPORT OR
EXPORT INTO AND OUT OF THE ZONE
Mindful of the legislative intent to attract investors, enhance investment and boost the economy, the legislature
could not have limited the enticement only to exemption from taxes. With minimum interference from the
government, investors can, in general, engage in any kind of business as well as import and export any article into
and out of the Freeport. It does not mean, however, that the right of Freeport enterprises to import all types of
goods and article is absolute. Such right is of course subject to the limitation that articles absolutely prohibited by
law cannot be imported into the Freeport. Nevertheless, in determining whether the prohibition would apply to
the Freeport, resort to the purpose of the prohibition is necessary. (Executive Secretary v. Southwing Heavy
Industries, Inc., G.R. Nos. 164171, 164172 & 168741, February 20, 2006)
GRANT OF TAX INCENTIVES TO ENTERPRISES WITHIN THE ZONE TO THE EXCLUSION OF THOSE
ENTERPRISES OUTSIDE THE ZONE DOES NOT VIOLATE THE EQUAL PROTECTION OF THE LAWS
A significant distinction between the two groups is that enterprises outside the zones maintain their businesses
within Philippine customs territory, while private respondents and the other duly-registered zone enterprises
operate within the so-called “separate customs territory.” To grant the same tax incentives given to enterprises
within the zones to businesses operating outside the zones, as petitioners insist, would clearly defeat the statute’s
intent to carve a territory out of the military reservations in Subic Bay where free flow of goods and capital is
maintained. (Coconut Oil Refiners Association, Inc. v. Torres, G.R. No. 132527, July 29, 2005)
THE MERE FACT THAT INCENTIVES AND PRIVILEGES ARE GRANTED TO CERTAIN ENTERPRISES TO THE
EXCLUSION OF OTHERS DOES NOT RENDER THE ISSUANCE UNCONSTITUTIONAL FOR ESPOUSING UNFAIR
COMPETITION
Said constitutional prohibition cannot hinder the Legislature from using tax incentives as a tool to pursue its
policies. Suffice it to say that Congress had justifiable reasons in granting incentives to the private respondents, in
accordance with Republic Act No. 7227’s policy of developing the SSEZ into a self-sustaining entity that will
generate employment and attract foreign and local investment. If petitioners had wanted to avoid any alleged
unfavorable consequences on their profits, they should upgrade their standards of quality so as to effectively
compete in the market. In the alternative, if petitioners really wanted the preferential treatment accorded to the
private respondents, they could have opted to register with SSEZ in order to operate within the special economic
zone. (Coconut Oil Refiners Association, Inc. v. Torres, G.R. No. 132527, July 29, 2005)
MERE FACT THAT AN ISSUANCE AUTHORIZES THE IMPORTATION AND TRADE OF FOREIGN GOODS DOES
NOT SUFFICE TO DECLARE IT UNCONSTITUTIONAL ON THE GROUND OF VIOLATING THE SATE POLICY OF
GIVING PREFERENCE TO FILIPINO GOODS AND LABOR
In Tañada v. Angara, this Court elaborated on the meaning of Section 12, Article XII of the Constitution in this wise:
“While the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the
same time, it recognizes the need for business exchange with the rest of the world on the bases of equality and
reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that
are unfair. In other words, the Constitution did not intend to pursue an isolationist policy. It did not shut out
foreign investments, goods and services in the development of the Philippine economy. While the Constitution
does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not
prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on
foreign competition that is unfair.” (Coconut Oil Refiners Association, Inc. v. Torres, G.R. No. 132527, July 29,
2005)

4DF1920 Page 35 of 45
 THE SETTING UP OF COMMERCIAL ESTABLISHMENTS WHICH ARE THE ONLY ONES DULY AUTHORIZED TO
SELL CONSUMER ITEMS TAX AND DUTY-FREE IS VALID
Executive Order No. 97-A provides guidelines to govern the “tax and duty-free privileges within the Secured Area
of the Subic Special Economic and Free Port Zone.” Paragraph 1.6 thereof states that “(t)he sale of tax and duty-
free consumer items in the Secured Area shall only be allowed in duly authorized duty-free shops.” Such is still
well within the policy enunciated in Section 12 of Republic Act No. 7227 that “…the Subic Special Economic Zone
shall 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.”
(Coconut Oil Refiners Association, Inc. v. Torres, G.R. No. 132527, July 29, 2005)
REMOVAL OF GOODS FROM THE SSEZ TO OTHER PARTS OF THE PHILIPPINE TERRITORY WITHOUT
PAYMENT OF CUSTOMS DUTIES AND TAXES IS NOT AUTHORIZED BY RA 7227
It is contrary to Section 12 of Republic Act No. 7227, which clearly provides that “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.”
(Coconut Oil Refiners Association, Inc. v. Torres, G.R. No. 132527, July 29, 2005)
THE PHRASE “TAX AND DUTY-FREE IMPORTATIONS OF RAW MATERIALS, CAPITAL AND EQUIPMENT”
UNDER SECTION 12 OF RA 7227 WAS MERELY CITED AS AN EXAMPLE OF INCENTIVES THAT MAY BE GIVEN
TO ENTITIES OPERATING WITHIN THE ZONE AND DOES NOT RESTRICT THE DUTY-FREE IMPORTATION
ONLY TO THE AFOREMENTIONED
The maxim expressio unius est exclusio alterius, on which petitioners impliedly rely to support their restrictive
interpretation, does not apply when words are mentioned by way of example. It is obvious from the wording of
Republic Act No. 7227, particularly the use of the phrase “such as,” that the enumeration only meant to illustrate
incentives that the SSEZ is authorized to grant, in line with its being a free port zone. The records of the Senate
containing the discussion of the concept of “special economic zone” in Section 12 (a) of Republic Act No. 7227
show the legislative intent that consumer goods entering the SSEZ which satisfy the needs of the zone and are
consumed there are not subject to duties and taxes in accordance with Philippine laws. (Coconut Oil Refiners
Association, Inc. v. Torres, G.R. No. 132527, July 29, 2005)
THE INCENTIVES UNDER THE BASES CONVERSION AND DEVELOPMENT ACT ARE EXCLUSIVE ONLY TO THE
SUBIC SPECIAL ECONOMIC ZONE AND THERE IS NO EXPRESS EXTENSION OF THE AFORESAID BENEFITS TO
OTHER SEZS STILL TO BE CREATED AT THE TIME VIA PRESIDENTIAL PROCLAMATION
The privileges given to Subic SEZ consist principally of exemption from tariff or customs duties, national and local
taxes of business entities therein (paragraphs (b) and (c)), free market and trade of specified goods or properties
(paragraph d), liberalized banking and finance (paragraph f), and relaxed immigration rules for foreign investors
(paragraph g). While the grant of economic incentives may be essential to the creation and success of SEZs, free
trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives under R.A. No.
7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the John Hay SEZ finds no support
therein. (John Hay Peoples Alternative Coalition v. Lim, G.R. No. 119775, October 24, 2003)
THE PROSCRIPTION IN THE IMPORTATION OF USED MOTOR VEHICLES SHOULD BE OPERATIVE ONLY
OUTSIDE THE FREEPORT AND THE INCLUSION OF SAID ZONE WITHIN THE AMBIT OF THE PROHIBITION
IS AN INVALID MODIFICATION OF RA 7227 (BASES CONVERSION AND DEVELOPMENT ACT OF 1992)
Article 2, Section 3.1 of EO 156 is declared valid insofar as it applies to the customs territory or the Philippine
territory outside the presently secured fenced-in former Subic Naval Base area as stated in Section 1.1 of EO 97-
A. Hence, used motor vehicles that come into the Philippine territory via the secured fenced-in former Subic Naval
Base area may be stored, used or traded therein, or exported out of the Philippine territory, but they cannot be
imported into the Philippine territory outside of the secured fenced-in former Subic Naval Base area. (Executive
Secretary v. Southwing Heavy Industries, Inc., G.R. Nos. 164171, 164172 & 168741, February 20, 2006)

V. REMEDIES

A. Government’s Remedies
1. Under the National Internal Revenue Code, as amended
• Doctrines:

4DF1920 Page 36 of 45
 A LOA WHICH INCLUDES UNVERIFIED PRIOR YEARS IS NOT VOID AS TO THE TAXABLE PERIOD SO
SPECIFIED THEREIN
The requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer of the
extent of the audit and the scope of the revenue officer’s authority. Without this rule, a revenue officer can
unduly burden the taxpayer by demanding random accounting records from random unverified years, which
may include documents from as far back as ten years in cases of fraud audit. RMO 43-90 does not say that a
LOA which contains unverified prior years is void. It merely prescribes that if the audit includes more than
one taxable period, the other periods or years must be specified. (Commissioner of Internal Revenue v. De
La Salle University, Inc., G.R. Nos. 196596, 198841 & 198941, November 9, 2016)
RULE THAT WARRANT OF DISTRAINT AND LEVY IS PROOF OF THE FINALITY OF THE ASSESSMENT
DOES NOT APPLY WHERE THE TAXPAYER’S LETTER OF PROTEST, WHICH WAS SEASONABLY FILED
AND WAS NOT PRO FORMA, WAS NOT TAKEN INTO ACCOUNT BEFORE THE WARRANT WAS ISSUED
As a rule, the warrant of distraint and levy is proof of the finality of the assessment being tantamount to an
outright denial thereof and makes the said request deemed rejected, but there is a special circumstance in
the case at bar that prevents application of this accepted doctrine. The proven fact is that four days after the
private respondent received the petitioner’s notice of assessment, it filed its letter of protest. This was
apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest
could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the
protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was
premature and could therefore not be served. (Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-
28896, February 17, 1988)
2. Under the Local Government Code
• Doctrines:
ORDERING OF CLOSURE NOT AN APPROPRIATE REMEDY TO ENFORCE PAYMENT OF DELINQUENT
TAXES
Section 62 of the Local Tax Code only allows distraint of personal property and filing of a legal action as
remedies for enforcement of delinquent taxes. Section 62 does not provide for closure or cessation of
operations of a delinquent taxpayer. (Rural Bank of Makati, Inc. v. Municipality of Makati, G.R. No. 150763,
July 2, 2004)
NOTICE OF DELINQUENCY AND OF SALE TO THE DELINQUENT TAXPAYER OR HIS REPRESENTATIVE
ARE MANDATORY, AND FAILURE TO ISSUE THEM INVALIDATES A SALE
It is still incumbent upon the city treasurer to send the notice directly to the taxpayer — the registered owner
of the property — in order to protect the latter’s interests. Although preceded by proper advertisement and
publication, an auction sale is void absent an actual notice to a delinquent taxpayer. The auction sale of land
to satisfy alleged delinquencies in the payment of real estate taxes derogates or impinges on property rights
and due process. Thus, the steps prescribed by law for the sale, particularly the notices of delinquency and of
sale, must be followed strictly. Failure to observe those steps invalidates the sale. (Spouses Tan v. Bantegui,
G.R. No. 154027, October 24, 2005)
NOTICE OF SALE TO THE DELINQUENT LAND OWNERS AND TO THE PUBLIC IN GENERAL IS AN
ESSENTIAL AND INDISPENSABLE REQUIREMENT OF LAW, THE NON-FULFILLMENT OF WHICH
VITIATES THE SALE
Strict adherence to the statutes governing tax sales is imperative not only for the protection of the tax payers,
but also to allay any possible suspicion of collusion between the buyer and the public officials called upon to
enforce such laws. Where land is sold for delinquency taxes under the provisions of the Provincial Assessment
Law, rights of registered but undeclared owners of the land are not affected by the proceedings and the sale
conveys only such interest as the person who has declared the property for taxation has therein. A purchaser
of real estate at the tax sale obtains only such title as that held by the taxpayer, the principle of caveat emptor
applies. (Spouses Serfino v. Court of Appeals, G.R. No. L-40858 & L-40751, September 15, 1987)
ONLY THE REGISTERED OWNER IS ENTITLED TO A NOTICE OF TAX DELINQUENCY AND OTHER
PROCEEDING RELATIVE TO THE TAX SALE
For purposes of the real property tax, the registered owner of the property is deemed the taxpayer. Although
petitioners have been in possession of the subject premises by virtue of an unregistered deed of sale, such
transaction has no binding effect with respect to third persons who have no knowledge of it. In the absence
of registration, the registered owner whose name appears on the certificate of title is deemed the taxpayer to
whom the notice of auction sale should be sent. (Talusan v. Tayag, G.R. No. 133698, April 4, 2001)

4DF1920 Page 37 of 45
 NON-PUBLICATION OF NOTICE OF REAL PROPERTY TAX DELINQUENCY DOES NOT INVALIDATE A TAX
SALE PROVIDED THAT THE SAME IS SENT TO THE DELINQUENT TAXPAYER
Unlike land registration proceedings which are in rem, cases involving an auction sale of land for the
collection of delinquent taxes are in personam. Thus, notice by publication, though sufficient in proceedings
in rem, does not as a rule satisfy the requirement of proceedings in personam. As such, mere publication of
the notice of delinquency would not suffice, considering that the procedure in tax sales is in personam. It was,
therefore, still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer
in order to protect the interests of the latter. Under the circumstances, the notice sent by registered mail
adequately protected the rights of the taxpayer, who was the registered owner of the condominium unit.
(Talusan v. Tayag, G.R. No. 133698, April 4, 2001)
IN ASCERTAINING THE IDENTITY OF THE DELINQUENT TAXPAYER, FOR PURPOSES OF NOTIFYING
HIM OF HIS TAX DELINQUENCY AND THE PROSPECT OF A DISTRAINT AND AUCTION OF HIS
DELINQUENT PROPERTY, CITY TREASURERS SHOULD NOT HAVE SIMPLY RELIED ON THE TAX
DECLARATION
The property being covered by the Torrens system, it would have been more prudent for him, which was not
difficult to do, to verify from the Office of the Register of Deeds of Quezon City where the property is situated
and as to who the registered owner was at the time the auction sale was to take place, to determine who the
real delinquent taxpayer was within the purview of the third paragraph of Sec. 73. For one who is no longer
the lawful owner of the land cannot be considered the “present registered owner” because, apparently, he
has already lost interest in the property, hence is not expected to defend the property from the sale at auction.
The purpose of PD No. 464 (Real Property Tax Code) is to collect taxes from the delinquent taxpayer and,
logically, one who is no longer the owner of the property cannot be considered the delinquent taxpayer.
(Estate of Jacob v. Court of Appeals, G.R. Nos. 120435 & 120974, December 22, 1997)
THE AIRPORT LANDS AND BUILDINGS OF MIAA, BEING PROPERTIES OF PUBLIC DOMINION, ARE NOT
SUBJECT TO LEVY, ENCUMBRANCE OR DISPOSITION THROUGH PUBLIC OR PRIVATE SALE
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings are outside the commerce of
man. Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition
through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public
dominion is void for being contrary to public policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction sale. (Manila International Airport
Authority v. Court of Appeals, G.R. No. 155650, July 20, 2006)
THE ILOILO FISHING PORT COMPLEX, BEING A PROPERTY OF PUBLIC DOMINION, CANNOT BE SOLD
AT PUBLIC AUCTION
The Iloilo fishing port which was constructed by the State for public use and/or public service falls within the
term “port” in the aforecited provision. Being a property of public dominion the same cannot be subject to
execution or foreclosure sale. In like manner, the reclaimed land on which the IFPC is built cannot be the
object of a private or public sale without Congressional authorization. (Philippine Fisheries Development
Authority v. Court of Appeals, G.R. No. 169836, July 31, 2007)
A ROAD CONSTRUCTED BY A LESSEE UNDER A LEASE AGREEMENT WITH THE GOVERNMENT IN AN
ALIENABLE OR DISPOSABLE PUBLIC LAND IS EXEMPT FROM REALTY TAX UNDER THE ASSESSMENT
LAW (COMMONWEALTH ACT NO. 470)
The pronouncement in the Bislig case contains no hint whatsoever that the road was not subject to tax
because it was constructed on inalienable public lands. What is emphasized in the lease is that the
improvement is exempt from taxation because it is an integral part of the public land on which it is
constructed and the improvement is the property of the government by right of accession. Under Section 3(a)
of the Assessment Law (Com. Act 470), all properties owned by the government, without any distinction, are
exempt from taxation. (Board of Assessment Appeals of Zamboanga del Sur v. Samar Mining Co., Inc., G.R.
No. L-28034, February 27, 1971) (NOTE: This is no longer controlling under the LGC, wherein real property
owned by the national government, when the beneficial use thereof has been granted to a taxable person, is no
longer exempt from real property tax under Sec. 234[a].)
3. Under the Customs Modernization and Tariff Act
4. Under Other Laws, Rules, or Principles
• Doctrines:
THE GOVERNMENT CAN NEVER BE IN ESTOPPEL, PARTICULARLY IN MATTERS INVOLVING TAXES

4DF1920 Page 38 of 45
 It is a well-known rule that erroneous application and enforcement of the law by public officers do not
preclude subsequent correct application of the statute, and that the Government is never estopped by mistake
or error on the part of its agents. Thus, the Commissioner’s issuance of BIR Ruling and BIR Revenue
Memorandum Circular upholding the authority of the local government to collect amusement taxes should
not bind the government. (Philippine Basketball Association v. Court of Appeals, G.R. No. 119122, August 8,
2000)
ESTOPPEL DOES NOT LIE AGAINST THE GOVERNMENT BECAUSE NEGLECT OR OMISSION OF
GOVERNMENT OFFICIALS ENTRUSTED WITH THE COLLECTION OF TAXES SHOULD NOT BE ALLOWED
TO BRING HARM OR DETRIMENT TO THE PEOPLE
Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. Upon
taxation depends the Government ability to serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes
should not be allowed to bring harm or detriment to the people, in the same manner as private persons may
be made to suffer individually on account of his own negligence, the presumption being that they take good
care of their personal affairs. This should not hold true to government officials with respect to matters not of
their own personal concern. (Vera v. Fernandez, G.R. No. L-31364, March 30, 1979)
THE ORDINARY PROCEDURE BY WHICH TO SETTLE CLAIMS OR INDEBTEDNESS AGAINST THE ESTATE
OF A DECEASED PERSON IS FOR THE CLAIMANT TO PRESENT A CLAIM BEFORE THE PROBATE COURT
SO THAT SAID COURT MAY ORDER THE ADMINISTRATOR TO PAY THE AMOUNT THEREOF
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate
of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such
jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During
the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the
sheriff, in case of a court judgment, to seize the properties but to ask the court for an order to require the
administrator to pay the amount due from the estate and required to be paid. (Domingo v. Garlitos, G.R. No.
L-18994, June 29, 1963) (NOTE: This case involved a claim for payment of inheritance tax. Inheritance tax is
different from estate tax, the former being assessed on the share of an heir from the hereditary estate, and the
latter chargeable against the decedent’s net taxable estate accruing at the time of death [see C.A. No. 466, as
amended]. Inheritance tax is abolished by P.D. No. 69.)
CLAIMS FOR TAXES AGAINST A DECEDENT’S ESTATE IS EXCEPTED FROM THE APPLICATION OF THE
STATUTE OF NON-CLAIMS
A perusal of Section 5, Rule 86 of the Rules of Court shows that it makes no mention of claims for monetary
obligations of the decedent created by law, such as taxes which is entirely of different character from the
claims expressly enumerated therein, such as: “all claims for money against the decedent arising from
contract, express or implied, whether the same be due, not due or contingent, all claims for funeral expenses
and expenses for the last sickness of the decedent and judgment for money against the decedent.” Under the
familiar rule of statutory construction of expressio unius est exclusio alterius, the mention of one thing implies
the exclusion of another thing not mentioned. (Vera v. Fernandez, G.R. No. L-31364, March 30, 1979)
ACQUITTAL OF THE TAXPAYER IN THE CRIMINAL PROCEEDING DOES NOT NECESSARILY ENTAIL
EXONERATION FROM HIS LIABILITY TO PAY THE TAXES SINCE THE CIVIL LIABILITY TO PAY THE
TAXES IS NOT DEEMED INCLUDED IN THE CRIMINAL ACTION
The acquittal in of the taxpayer in criminal cases for non-filing of income tax returns and non-payment of
income taxes cannot operate to discharge him from the duty of paying the taxes which the law requires to be
paid, since that duty is imposed by statute prior to and independently of any attempts by the taxpayer to
evade payment. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding
nor is it a mere civil liability arising from crime that could be wiped out by the judicial declaration of non-
existence of the criminal acts charged. (Republic v. Patanao, G.R. No. L-22356, July 21, 1967)
THE BUREAU OF LOCAL GOVERNMENT FINANCE IS NOT A SPECIAL COURT CREATED FOR THE
PURPOSE OF REVIEWING TAX CASES
The BLGF was created merely to provide consultative services and technical assistance to local governments
and the general public on local taxation and other related matters. Thus, the rule that the “Court will not set
aside conclusions rendered by the CTA, which is, by the very nature of its function, dedicated exclusively to
the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless
there has been an abuse or improvident exercise of authority” cannot apply in the case of BLGF. (Philippine
Long Distance Telephone Co., Inc. v. City of Davao, G.R. No. 143867 [Resolution], March 25, 2003)

4DF1920 Page 39 of 45
B. Taxpayer’s Remedies
1. Under the National Internal Revenue Code, as amended
• Doctrines:
WITHOUT THE TAX RETURN IT IS ERROR TO GRANT A REFUND SINCE IT WOULD BE IMPOSSIBLE TO
DETERMINE WHETHER THE PROPER TAXES HAVE BEEN ASSESSED AND PAID
The grant of a refund is founded on the assumption that the tax return is valid, i.e., that the facts stated therein
are true and correct. (Paseo Realty & Development Corp. v. Court of Appeals, G.R. No. 119286, October 13,
2004)
WITHHOLDING AGENT HAS IMPLIED AUTHORITY TO CLAIM A REFUND AND TO COMMENCE AN
ACTION FOR SUCH REFUND
The withholding agent is also an agent of the beneficial owner of the dividends with respect to the filing of
the necessary income tax return and with respect to actual payment of the tax to the government. Such
authority may reasonably be held to include the authority to file a claim for refund and to bring an action for
recovery of such claim. This implied authority is especially warranted where, as in the instant case, the
withholding agent is the wholly owned subsidiary of the parent-stockholder and therefore, at all times, under
the effective control of such parent-stockholder. (Commissioner of Internal Revenue v. Procter & Gamble
Philippines Manufacturing Corp., G.R. No. 66838 [Resolution], December 2, 1991)
2. Under the Local Government Code
• Doctrines:
TENDER OF CHECK TO THE LOCAL TREASURER FOR PAYMENT OF TAX THE EXACT AMOUNT OF
WHICH IS YET UNDETERMINED IS IN THE NATURE OF A DEPOSIT, HELD IN TRUST BY THE LOCAL
TREASURER, AND INSOFAR AS THE EXCESS IS CONCERNED, SUCH AMOUNT MAY BE REFUNDED OR
APPLIED TO FUTURE TAXES AS MAY BE FOUND DUE
The drawer of the check had funds on deposit to meet it; the City Treasurer accepted it and deposited it with
the Philippine National Bank, and the Philippine National Bank collected the equivalent amount from the
drawee Bank. In the light of these circumstances, the City Treasurer became the Philippine National Bank’s
creditor and the Juan Luna Subdivision, Inc. was released from liability on its check. If the City Treasurer did
not collect his credit from the Philippine National Bank or otherwise make use of it, he alone was to blame
and should suffer the consequences of his neglect. That the City Treasurer held the check merely in trust for
the plaintiff does not alter the situation as far as this branch of the case goes. (Juan Luna Subdivision, Inc. v.
Sarmiento, G.R. No. L-3538, May 28, 1952) (NOTE: In a case where the taxpayer, having an unutilized credit
balance on its advance payment made 6 years prior, which balance could not be applied within that 6-year
period owing to the taxpayer’s negative tax position, was denied issuance of a TCC for said credit balance by the
CIR on the ground of prescription [2-year period under Sec. 230 {now Sec. 229}], the Court held that said section
is intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally
or wrongfully collected, and does not apply to the case at bar where the taxpayer’s claim for tax credit die not
proceed from, or is a consequence of, overpayment of tax erroneously or illegally collected. for the recovery of
internal revenue taxes or sums erroneously, excessively, illegally or wrongfully collected [Commissioner of
Internal Revenue v. Philippine National Bank, G.R. No. 161997, October 25, 2005])
THE POLICY OF THE LAW IS TO DISCOUNTENANCE ANY DELAY IN THE COLLECTION OF TAXES
BECAUSE OF THE OFT-REPEATED BUT UNASSAILABLE CONSIDERATION THAT TAXES ARE THE
LIFEBLOOD OF THE GOVERNMENT AND THEIR PROMPT AND CERTAIN AVAILABILITY IS AN
IMPERIOUS NEED
An opinion has been expressed that injunction is available as an ancillary remedy in actions to determine the
construction or validity of a local tax ordinance, because unlike the National Internal Revenue Code, the Local
Tax Code does not contain any specific provision prohibiting courts from enjoining the collection of local
taxes. Such statutory lapse or intent, however it may be viewed, may have allowed preliminary injunction
where local taxes are involved but cannot negate the procedural rules and requirements under Rule 58. The
damage that may be caused to the petitioner due to the collection of his taxes will not be irreparable; where
so indicated by subsequent events favorable to it, whatever it shall have paid is easily refundable. The damage
to petitioner’s property rights must perforce take a back seat to the paramount need of the State for funds to
sustain governmental functions. Compared to the damage to the State which may be caused by reduced
financial resources, the damage to petitioner is negligible. (Valley Trading Co., Inc. v. Court of First Instance
of Isabela, G.R. No. L-49529, March 31, 1989)

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 SECTION 187 OF THE LOCAL GOVERNMENT CODE, INSOFAR AS IT AUTHORIZES THE SECRETARY OF
JUSTICE TO REVIEW ONLY THE CONSTITUTIONALITY OR LEGALITY OF THE TAX ORDINANCE AND, IF
WARRANTED, TO REVOKE IT ON EITHER OR BOTH GROUNDS, IS CONSTITUTIONAL
There is a familiar distinction between control and supervision, the first being “the power of an officer to alter
or modify or set aside what a subordinate officer had done in the performance of his duties and to substitute
the judgment of the former for the latter,” while the second is “the power of a superior officer to see to it that
lower officers perform their functions is accordance with law.” The latter is what is vested by the Constitution
in the President under Art. X, Sec. 4. When the Secretary of Justice alters or modifies or sets aside a tax
ordinance, he is not also permitted to substitute his own judgment for the judgment of the local government
that enacted the measure. That was an act not of control but of mere supervision. (Drilon v. Lim, G.R. No.
112497, August 4, 1994)
A TAX ORDINANCE NOT PUBLISHED FOR THREE CONSECUTIVE DAYS IN A NEWSPAPER OF LOCAL
CIRCULATION IS NULL AND VOID
Respondents failed to follow the procedure in the enactment of tax measures as mandated by Section 188 of
the Local Government Code of 1991, in that they failed to publish Tax Ordinance No. 7988 for three
consecutive days in a newspaper of local circulation. From the foregoing, it is evident that Tax Ordinance No.
7988 is null and void as said ordinance was published only for one day in the 22 May 2000 issue of the
Philippine Post in contravention of the unmistakable directive of the Local Government Code of 1991. (Coca-
Cola Bottlers Philippines, Inc. v. City of Manila, G.R. No. 156252, June 27, 2006)
OMISSION TO POST THE APPROVED TAX ORDINANCE DOES NOT AFFECT ITS VALIDITY
Its publication in three successive issues of a newspaper of general circulation will satisfy due process.
(Drilon v. Lim, G.R. No. 112497, August 4, 1994) (NOTE: Petitioner’s argument on the requirement of both
posting and publication is Sec. 511 of the LGC, in which ordinances with penal sanctions are required to be posted
and published. However, under Sec. 188 of the LGC, only publication is required, and posting is resorted to where
there are no newspapers of local circulation in the province, city, or municipality concerned.)
THE REQUIREMENT THAT THE TEXT OF AN ORDINANCE BE TRANSLATED AND DISSEMINATED DOES
NOT APPLY TO TAX ORDINANCES
It has also not been shown that the text of the ordinance has been translated and disseminated, but this
requirement in Sec. 59(b) of the LGC applies to the approval of local development plans and public investment
programs of the local government unit and not to tax ordinances. (Drilon v. Lim, G.R. No. 112497, August 4,
1994)
THE PASSAGE OF A TAX ORDINANCE AMENDING A TAX ORDINANCE WHICH IS NULL AND VOID DID
NOT HAVE THE EFFECT OF CURING THE DEFECTS OF THE LATTER WHICH, IN ANY WAY, DOES NOT
LEGALLY EXIST
The amending law, having been declared as null and void, in legal contemplation, therefore, does not exist. If
an order or law sought to be amended is invalid, then it does not legally exist, there should be no occasion or
need to amend it. (Coca-Cola Bottlers Philippines, Inc. v. City of Manila, G.R. No. 156252, June 27, 2006)
A PETITION DEEPLY ROOTED IN A PURE QUESTION OF LAW AND NOT ON THE LEGALITY OF THE
IMPOSITION OF THE TAX MAY BE BROUGHT DIRECTLY IN COURT
The Local Tax Code provides that any question or issue raised against the legality of any tax ordinance, or
portion thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance of a city, which shall
be appealable to the Secretary of Justice, whose decision may be contested before a competent court. But, the
petition below plainly shows that the controversy between the parties is deeply rooted in a pure question of
law: whether it is the Revised Charter of the City of Manila or the Local Tax Code that should govern the
publication of the tax ordinance. In other words, the dispute is sharply focused on the applicability of the
Revised City Charter or the Local Tax Code on the point at issue, and not on the legality of the imposition of
the tax. Exhaustion of administrative remedies before resort to judicial bodies is not an absolute rule. Where
the question litigated upon is purely a legal one, the rule does not apply. (Bagatsing v. Ramirez, G.R. No. L-
41631, December 17, 1976)
APPEALS TO THE LBAA NOT REQUIRED WHERE THERE ARE NO FACTUAL ISSUES
In laying down the powers of the Local Board of Assessment Appeals, R.A. 7160 provides in Sec. 229(b) that
“(t)he proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts.” The
protest contemplated under Sec. 252 of R.A. 7160 is needed where there is a question as to the
reasonableness of the amount assessed. In the case at bench however, the petitioners are questioning the
very authority and power of the assessor, acting solely and independently, to impose the assessment and of

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 the treasurer to collect the tax. These are not questions merely of amounts of the increase in the tax but
attacks on the very validity of any increase. There being no such factual issues, there is no reason to require
petitioners to exhaust the administrative remedies provided in R.A. 7160. (Ty v. Trampe, G.R. No. 117577,
December 1, 1995)
IF A PARTY CAN PROVE THAT THE RESORT TO AN ADMINISTRATIVE REMEDY WOULD BE AN IDLE
CEREMONY SUCH THAT IT WILL BE ABSURD AND UNJUST FOR IT TO CONTINUE SEEKING RELIEF THAT
EVIDENTLY WILL NOT BE GRANTED TO IT, THEN THE DOCTRINE OF EXHAUSTION OF
ADMINISTRATIVE REMEDIES WILL NOT APPLY
To be entitled to a refund under Section 196 of the Local Government Code, the taxpayer must comply with
the following procedural requirements: first, file a written claim for refund or credit with the local treasurer;
and second, file a judicial case for refund within two (2) years from the payment of the tax, fee, or charge, or
from the date when the taxpayer is entitled to a refund or credit. As correctly pointed out by petitioner, the
filing of written claims with respondent City Treasurer for every collection of tax under Section 21 (A) of
Manila Ordinance No. 7764, as amended by Section 1 (G) of Ordinance No. 7807, would have yielded the same
result every time. This is bolstered by respondent City Treasurer’s September 1, 2005 Letter, in which it
stated that it could not act favorably on petitioner’s claim for refund until there would have been a final
judicial determination of the invalidity of Section 21 (A). (International Container Terminal Services, Inc.
v. City of Manila, G.R. No. 185622, October 17, 2018)
THE DETERMINATION OF WHETHER OR NOT THE TAX IS EXCESSIVE, OPPRESSIVE OR CONFISCATORY
IS A QUESTION OF FACT WHICH REQUIRES EXHAUSTION OF ADMINISTRATIVE REMEDIES (APPEAL TO
THE SECRETARY OF JUSTICE) BEFORE RESORT CAN BE MADE TO THE COURTS
This issue is essentially a question of fact and thereby, precludes this Court from reviewing the same. As a
general rule, where the law provides for the remedies against the action of an administrative board, body, or
officer, relief to courts can be sought only after exhausting all remedies provided. With regard to questions
on the legality of a tax ordinance, the remedies available to the taxpayer are provided under Sections 187
(Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory Public Hearings),
226 (Local Board of Assessment Appeals), and 252 (Payment under Protest) of R.A. 7160. the petition does not
fall under any of the exceptions to excuse compliance with the rule on exhaustion of administrative remedies.
(Lopez v. City of Manila, G.R. No. 127139, February 19, 1999)
AN ACTION QUESTIONING THE VALIDITY OF TAX ORDINANCES ON THE GROUND THAT THEY HAVE
BEEN ADOPTED WITHOUT PUBLIC HEARINGS AND PRIOR PUBLICATION OR POSTING ARE LEGAL
QUESTIONS REQUIRING PROOF OF FACTS FOR THEIR RESOLUTION, TO WHICH THE RULE THAT
FAILURE TO EXHAUST ADMINISTRATIVE REMEDIES RENDERS AN ACTION PREMATURE APPLIES
Although cases raising purely legal questions are excepted from the rule requiring exhaustion of
administrative remedies before a party may resort to the courts, in the case at bar, the legal questions raised
by petitioner require, as will presently be shown, proof of facts for their resolution. Therefore, the petitioner’s
action in the Court of Appeals was premature, and the appellate court correctly dismissed her action on the
ground that she failed to exhaust available administrative remedies as above stated. (Figuerres v. Court of
Appeals, G.R. No. 119172, March 25, 1999)
THE ENTITY LIABLE FOR TAX HAS THE RIGHT TO PROTEST THE ASSESSMENT, WHICH TAX LIABILITY
REFERS TO THE LIABILITY ARISING FROM LAW THAT THE LOCAL GOVERNMENT UNIT CAN
RIGHTFULLY AND SUCCESSFULLY ENFORCE, NOT THE CONTRACTUAL LIABILITY THAT IS
ENFORCEABLE BETWEEN THE PARTIES TO A CONTRACT
Section 226 of the LGC lists down the two entities vested with the personality to contest an assessment: the
owner and the person with legal interest in the property. A person legally burdened with the obligation to
pay for the tax imposed on a property has legal interest in the property and the personality to protest a tax
assessment on the property. However, personal liability for realty taxes may also expressly rest on the entity
with the beneficial use of the real property, such as the tax on property owned by the government but leased
to private persons or entities, or when the tax assessment is made on the basis of the actual use of the
property. In either case, the unpaid realty tax attaches to the property but is directly chargeable against the
taxable person who has actual and beneficial use and possession of the property regardless of whether or not
that person is the owner. (National Power Corp. v. Province of Quezon, G.R. No. 171586, July 15, 2009)
AS BETWEEN SECTIONS 195 AND 196 OF THE LGC, WHAT DETERMINES THE APPROPRIATE REMEDY
IS THE LOCAL GOVERNMENT’S BASIS FOR THE COLLECTION OF THE TAX
If the taxpayer receives an assessment and does not pay the tax, its remedy is strictly confined to Section 195
of the Local Government Code. On the other hand, if no assessment notice is issued by the local treasurer, and
the taxpayer claims that it erroneously paid a tax, fee, or charge, or that the tax, fee, or charge has been illegally

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 collected from him, then Section 196 applies. It is explicitly stated in Section 195 that it is a remedy against a
notice of assessment issued by the local treasurer, upon a finding that the correct taxes, fees, or charges have
not been paid. The notice of assessment must state “the nature of the tax, fee, or charge, the amount of
deficiency, the surcharges, interests and penalties.” No such precondition is necessary for a claim for refund
pursuant to Section 196. (International Container Terminal Services, Inc. v. City of Manila, G.R. No. 185622,
October 17, 2018)
THE REGIONAL TRIAL COURT HAS NO JURISDICTION OVER CLAIMS FOR REFUND OF LOCAL TAXES IN
AN AMOUNT BELOW ITS JURISDICTIONAL AMOUNT
With the passage of R.A. No. 9282 (Act Expanding the Jurisdiction of the CTA, Elevating Its Rank to the Level of
a Collegiate Court with Special Jurisdiction and Enlarging Its Membership), the authority of the regional trial
courts to exercise either original or appellate jurisdiction over local tax cases depended on the amount of the
claim. In cases where the RTC exercises appellate jurisdiction, it necessarily follows that there must be a court
capable of exercising original jurisdiction. In cases where the amount sought to be refunded is below the
jurisdictional amount of the RTC, the Metropolitan, Municipal, and Municipal Circuit Trial Courts are clothed
with ample authority to rule on such claims under Sec. 33 of B.P. Blg. 129. (China Banking Corp. v. City
Treasurer of Manila, G.R. No. 204117, July 1, 2015)
A PROTEST IS VALID SO LONG AS IT STATES THE TAXPAYER’S OBJECTION TO THE ASSESSMENT AND
THE REASONS THEREFOR
Under the current state of law, there can be no doubt that the law does not prescribe any formal requirement
to constitute a valid protest. To constitute a valid protest, it is sufficient if what has been filed contains the
spontaneous declaration made to acquire or keep some right or to prevent an impending damage. (China
Banking Corp. v. City Treasurer of Manila, G.R. No. 204117, July 1, 2015)
EACH CLAIM FOR REFUND, IN ORDER TO BE GRANTED, MUST BE PROCEEDED IN ACCORDANCE WITH
THE MANNER SET FORTH BY LAW
Claims for refunds are the exception, rather than the rule. After all, in every claim for refund of taxes paid, the
burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax
refund or credit. (China Banking Corp. v. City Treasurer of Manila, G.R. No. 204117, July 1, 2015)
3. Under the Customs Modernization and Tariff Act
• Doctrines:
CLAIMS FOR REFUND OF ALLEGEDLY OVERPAID CUSTOMS DUTIES, UNLESS SHOWN THAT PAYMENT
OF THE CUSTOMS DUTIES WAS IN EXCESS OF WHAT WAS REQUIRED BY THE LAW AT THE TIME WHEN
THE IMPORTATION WAS MADE, ARE NOT GOVERNED BY THE RULES ON SOLUTIO INDEBITI
In order for the rule on solutio indebiti to apply it is an essential condition that petitioner must first show that
its payment of the customs duties was in excess of what was required by the law at the time when the subject
sixteen (16) importations of milk and milk products were made. Unless shown otherwise, the disputable
presumption of regularity of performance of duty lies in favor of the COC. (Nestle Philippines, Inc. [formerly
Filipro, Inc.] v. Court of Appeals, G.R. No. 134114, July 6, 2001)
4. Under Other Laws, Rules, or Principles
• Doctrines:
TAX CREDIT IS NOT TAX REFUND
A tax credit reduces the taxpayer’s liability, compared to a deduction which reduces taxable income upon
which the tax liability is calculated. A credit differs from deduction to the extent that the former is subtracted
from the tax while the latter is subtracted from income before the tax is computed. (Commissioner of
Internal Revenue v. Bicolandia Drug Corp., G.R. No. 148083, July 21, 2006)
AN ACTION FOR REIMBURSEMENT BY A USUFRUCTUARY WHO CLAIMS REIMBURSEMENT FOR
PAYMENT OF LAND TAX ON THE BASIS OF THE 1ST PARAGRAPH OF ARTICLE 505 (NOW ARTICLE 597)
MAY BE BROUGHT EVEN BEFORE THE EXPIRATION OF THE USUFRUCT
Under Article 505 of the Civil Code, the tax directly burdens the capital, that is, the real value of the property
and should be paid by the owner. It is contended, however, that under the second paragraph, if the
usufructuary should pay the tax, he would be entitled to reimbursement for the amount thereof only upon
the expiration of the usufruct, and the usufruct being still afoot, it is premature for the plaintiffs, as
usufructuaries who advanced the payment of the tax, to bring the action for the recovery of what they paid.
There is, however, no basis for this reasoning because the usufructuaries, in claiming the amount, do not rely
on paragraph 2 of article 505 of the Civil Code above quoted, for having paid the tax on the lands, but on the

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 first paragraph thereof because it is their contention that, as usufructuaries, they are not the ones called upon
to make this payment. (Mercado v. Real, G.R. No. 45534, April 27, 1939)

C. Court of Tax Appeals

1. Jurisdiction
• Doctrines:
THE CTA HAS NO JURISDICTION OVER DECISIONS, ORDERS OR RESOLUTIONS OF THE RTC IN CASES
INVOLVING QUESTIONS OF CONSTITUTIONALITY OF AN ORDINANCE IMPOSING FEES THAT ARE NOT
CONSIDERED AS TAXES
Section 7, paragraph (a), sub-paragraph (3) of the law vests the CTA with the exclusive appellate jurisdiction
over “decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction.” The question now is whether the
trial court resolved a local tax case in order to fall within the ambit of the CTA’s appellate jurisdiction, which
question, in turn, depends ultimately on whether the fees imposed under Ordinance No. 18 are in fact taxes.
The fees imposed under Ordinance No. 18, being primarily regulatory in nature, and not primarily revenue-
raising, are not taxes. (Smart Communications, Inc. v. Municipality of Malvar, Batangas, G.R. No. 204429,
February 18, 2014)
THE REQUIREMENT OF THE BOND AS A CONDITION PRECEDENT TO THE ISSUANCE OF THE WRIT OF
INJUNCTION APPLIES ONLY IN CASES WHERE THE PROCESSES BY WHICH THE COLLECTION SOUGHT
TO BE MADE BY MEANS THEREOF ARE CARRIED OUT IN CONSONANCE WITH THE LAW FOR SUCH
CASES PROVIDE AND NOT WHEN SAID PROCESSES ARE OBVIOUSLY IN VIOLATION OF THE LAW TO
THE EXTREME THAT THEY HAVE TO BE SUSPENDED FOR JEOPARDIZING THE INTERESTS OF
TAXPAYER
Section 11 of Republic Act No. 1125 is therefore premised on the assumption that the collection by summary
proceedings is by itself in accordance with existing law; and then what is suspended is the act of collecting,
whereas, in the case at bar what the respondent Court suspended was the use of the method employed to
verify the collection which was evidently illegal after the lapse of the three-year limitation period. The
respondent Court issued the injunction in question on the basis of its findings that the means intended to be
used by petitioner in the collection of the alleged deficiency taxes were in violation of law. It certainly would
be an absurdity on the part of the Court of Tax Appeals to declare that the collection by the summary methods
of distraint and levy was violative of the law, and then, on the same breath require the petitioner to deposit
or file a bond as a prerequisite for the issuance of a writ of injunction. (Collector of Internal Revenue v.
Reyes, G.R. No. L-8685, January 31, 1957)
2. Procedure
• Doctrines:
THE RULE ON UNIFORMITY OF TAXATION DOES NOT MEAN THAT SUBJECTS OF TAXATION SIMILARLY
SITUATED ARE TREATED IN LITERALLY THE SAME WAY IN ALL AND EVERY OCCASION
The fact that the Ateneo and DLSU are both non-stock, non-profit educational institutions, does not mean that
the CTA or this Court would similarly decide every case for (or against) both universities. Success in tax
litigation, like in any other litigation, depends to a large extent on the sufficiency of evidence. DLSU’s evidence
was wanting, thus, the CTA was correct in not fully cancelling its tax liabilities. (Commissioner of Internal
Revenue v. De La Salle University, Inc., G.R. Nos. 196596, 198841 & 198941, November 9, 2016)
FOLLOWING BY ANALOGY SECTION 1, RULE 42 OF THE ROC, THE 30-DAY PERIOD UNDER SECTION 11
OF RA 9282 MAY BE EXTENDED
It is true that Sec. 11 of RA 9282 and Sec. 3(a), Rule 8 of the Revised Rules of the CTA are silent as to whether
such 30-day period can be extended or not. However, said Sec. 11 does state that the Petition for Review shall
be filed with the CTA following the procedure analogous to Rule 42 of the Revised Rules of Civil Procedure.
Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period
for filing a Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by
Section 3 (a), Rule 8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No further
extension shall be allowed thereafter, except only for the most compelling reasons, in which case the
extended period shall not exceed 15 days. (City of Manila v. Coca-Cola Bottlers Philippines, Inc., G.R. No.
181845, August 4, 2009)

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 AS THERE IS NO SHOWING OF ANY SPECIFIC RULES GOVERNING THE PRESENTATION OF EVIDENCE IN
THE COURT OF TAX APPEALS, THE GENERAL RULES OF PROCEDURE CONCERNING THE ORDER OF
TRIAL OUTLINED IN THE RULES OF COURT SHALL GOVERN
Petitioner in this case assails the deficiency assessment made by the Collector of Internal Revenue;
consequently, it is incumbent upon him to prove that said assessment is erroneous. The fact that the Court of
Tax Appeals decided not to alter the ordinary order of trial does not militate against its ruling, for although it
could have done so, its power to deviate from technical rules of evidence is discretionary and hence not
subject to review by this Court. (Perez v. Court of Tax Appeals, G.R. No. L-9193, May 29, 1957) (NOTE: The
2005 Revised Rules of the Court of Tax Appeals, as amended, now expressly provides that trial shall be conducted
in accordance with Rule 30 of the Rules of Court in civil cases and Rule 119 thereof in criminal cases.)
CTA’S ADMISSION OF SUPPLEMENTAL OFFER OF EVIDENCE BY PARTY CLAIMING A
CONSTITUTIONALLY-GRANTED TAX EXEMPTION IS VALID
While it is true that strict procedural rules generally frown upon the submission of documents after the trial,
the law creating the CTA specifically provides that proceedings before it shall not be governed strictly by the
technical rules of evidence and that the paramount consideration remains the ascertainment of truth. If
anything, the liberal application of the rules assumes greater force and significance in the case of a taxpayer
who claims a constitutionally granted tax exemption. (Commissioner of Internal Revenue v. De La Salle
University, Inc., G.R. Nos. 196596, 198841 & 198941, November 9, 2016)

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