TAXATION LAW
General Principles
Taxation Law- the power by which the
sovereign, through its law-making body, raises
revenue to defray the necessary expenses of
government.
- Inherent power of the sovereign
exercised through the legislature
Purpose of Taxation
1. Primary Purpose is for Revenue-
To raise funds or property to
enable the State to promote
the general welfare and the
protection of the people.
2. Secondary/ Non-revenue purpose-
-Promotion of general welfare
- Regulation of activities /
industries
-Reduction of social inequality
-Encourage economic growth
-Protectionism
Nature of Taxation
It is both an inherent and necessary attribute of
sovereignty and legislative in character.
Power of taxation can only be exercised
through the enactment of law.
The legislature determines the coverage, object,
nature, extent, and situs of the tax to be
imposed.
 The constitutional provisions relating to
the power of taxation do not operate as
grants of the power but instead merely
constitute a limitation upon the power.
THUS, no need for a constitutional grant
for the State to exercise this power.
NOT INHERENT IN THE LOCAL GOVERNMENT.
Can only impose when granted by the
Constitution and Legislation by Congress.
Characteristics of Taxation (CUPS)
1. Comprehensive
2. Unlimited
3. Plenary
4. Supreme
Taxes may be levied with the regulatory
purpose to provide a 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.
- Cities are allowed to exercise such
powers and discharge such functions
and responsibilities as are necessary,
appropriate, or incidental to efficient
and effective provision of the basic
services and facilities.
- The designation given by the municipal
authorities does not decide whether it
is a tax or not. The determining factors
are the purpose and effect of the
imposition.
- If the generating of revenue is the
primary purpose and regulation is
merely incidental, the imposition is tax.
Theory and Basis of Taxation (LNBJ)
1. Lifeblood Theory-
Without taxation, a government
can neither exist nor endure.
Taxes should be collected
promptly. No court shall have
the authority to grant an
injunction to restrain the
collection of any internal
revenue tax, fee, or charge
imposed by the NIRC except for
a period of 60 days upon
application to the CTA as an
incident of its appellate
jurisdiction.
2. Necessity Theory-
Without taxes the govt cannot
fulfill its mandate of promoting
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 the general welfare and may pose problems of
wellbeing of the people. To valuation, hence, will violate
preserve the State’s sovereignty the principle of administrative
and to give its citizen an army feasibility.
to resist aggression.
3. Theoretical Justice-
3. Benefits-Protection Theory (Doctrine of (Constitutionally mandated)
Symbiotic Relationship)- Must take into consideration
Power of the state to demand the TP’s ability to pay.
and receive taxes based on the Rule on taxation must be
reciprocal duties of support and uniform and equitable and the
protection between the State State must evolve a progressive
and its citizen. system of tax.

A person cannot object to or

resist the payment of taxes Violations of the principles of Fiscal Adequacy
solely because no personal and Administrative Feasibility will not make the
benefit to him can be pointed tax law invalid as the two are not
out arising from tax. constitutionally mandated.

4. Jurisdiction over subjects and objects- However, if the principle of Theoretical Justice is
Taxation is territorial because it violated, such violation will render the law
is only within the confines of its unconstitutional.
territory that a country, state, VAT law not violative of the admin feasibility.
or sovereign may give VAT is principally aimed to rationalize the
protection. system of taxes on goods and services. Thus,
simplifying tax administration.

Principles of a Sound Tax System (FAT) Scope and Limitations of Taxation

1. Fiscal Autonomy- Inherent Limitation (PITIE)

Revenue raised must be 1. Public Purpose
sufficient to meet govt / public 2. Inherently Legislative
expenditures. Neither an excess 3. Territorial
nor a deficiency revenue would 4. International Comity
be in keeping with the principle. 5. Exemption of government entities,
agencies and instrumentalities
2. Administrative Feasibility-
The tax system should be
capable of being effectively
1. Public Purpose
administered and enforced with
Proceeds of tax must be used
the least inconvenience to the
a. For the support of the State
taxpayer.
b. For some recognized
objective of the
There is no law which requires
government or to directly
payment of taxes in cash only.
promote the welfare of the
However, a law allowing
community.
payment in kind, although valid,

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Test in determining public purpose
a. Duty Test-
Whether the thing to be
furthered by the appropriation
of public revenue is something
which is the duty of the State as
a government to provide.
PP is an elastic concept. It does
not only pertain to those
purposes which are traditionally
viewed as essentially govt
functions but also includes
those purposes designed to
promote social justice.
b. Promotion of general welfare test-
Whether the proceeds of the
tax will directly promote the
welfare of the community in
equal measure.
Determination when enacted tax law is for
public purpose
It lies in the Congress. However, this will
not prevent the court from questioning the
propriety of the statute on the ground that the
law enacted is not for a public purpose.
Principles relative to public purpose
a. Inequalities resulting from the singling
out of one particular class for taxation
or exemption infringe no constitutional
limitation because the legislature is free
to select the subjects of taxation.
b. The PP of the tax law must exist at the
time of its enactment.
Q: Are subsequent laws, which convert a public
fund to private properties, valid?
NO. Taxes could only be exacted for PP; They
cannot be declared private properties for
individuals.
2. Inherently Legislative
GR: The power to tax is exclusively vested in the
legislative body, being inherent in nature; hence
it may not be delegated.
The powers which Congress is prohibited from
delegating are those which are strictly, or
inherently and exclusively, legislative.
Non-delegable legislative powers
1. Selection of subject to be taxed
2. Determination of purposes for which
taxes shall be levied
3. Fixing of the rate/amount of taxation
4. Situs of Taxation
5. Kind of tax
XPNs:
1. Delegation to Local Gov’t-
Refers to the power of LGUs to
create its own sources of
revenue and to levy taxes, fees
and charges.
To confer municipal
corporations a general power to
levy taxes and otherwise create
sources of revenue and they no
longer have to wait for a
statutory grant.
The power of the legislative
authority relative to the fiscal
powers of the LG has been
reduced to the authority to
impose limitations on municipal
powers.
2. Delegation to the President-
Tariff Rates
Import/Export Quotas
Tonnage and Wharfage
Duties and Imposts
3. Delegation to administrative agencies-
Merely for administrative
implementation
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  The imposition of a tax, fee, or charge
or the generation of revenue under the
LGC, shall be exercised by the
Sanggunian of the LGU concerned
through an appropriate ordinance.
 LGC only allows provinces and cities to
impose a tax on transfer of ownership
of real property.
 R.A. 9337 (VAT Reform Act) provides
that the President upon
recommendation by the Secretary of
Finance, shall, raise the rate of VAT to
12%.... No undue delegation of
legislative power but only of the
discretion as to the execution of the
law.
3. Territorial
GR: The taxing power of a country is limited to
persons and property WITHIN and subject to its
jurisdiction.
Taxes are paid for the protection and services
provided by the taxing authority which could
not be provided outside the territorial
boundaries of the taxing State.
XPS: Where tax laws operate outside territorial
jurisdiction-
Income of resident citizen
derived abroad.
a. Where tax laws do not operate within
the territorial jurisdiction of the State-
a. When exempted by treaty
obligations
b. When exempted by
international comity
4. International Comity
It refers to the respect accorded by
nations to each other because they are
sovereign equals. Thus, the property or income
of a foreign state may not be the subject of
taxation by another State.
As a limitation on the power to tax
The constitution expressly adopted the
generally accepted principles of
international law as part of the law of
the land.
The provision of a treaty must take
precedence over and above the
provisions of the local taxing statute
consonant with the principle of
international comity.
 Pacta Sunt Servanda-
Is a fundamental international law
principle that requires agreeing parties to
comply with their treaty obligations in GF.
5. Exemption from Taxation
Unless otw provided therein, the exercise f
taxing powers of provinces, cities,
municipalities, and barangays shall not extend
to the levy of the ff: Taxes, fees or charges of
any kind on the National Government, its
agencies and instrumentalities and local
government units.
Government Entities
GR: The Gov’t is exempt from Tax
XPN: When it chooses to tax itself.
R.A. 7160 expressly prohibits LGUs from
levying tax on the National Government, its
agencies and instrumentalities and other LGUs.
Agency of the Government
It refers to any of the various units of the gov’t.
 Performing governmental functions-
tax exempt unless expressly taxed
 Performing proprietary functions- taxed
unless expressly exempted
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Instrumentality of the Government
Any agency of the govt, not integrated
within the department framework, vested with
special functions or jurisdiction by law,
endowed with some if not all corporate powers,
administering special fuds, and enjoying
operational autonomy, usually through charter.
 As a rule, properties owned by the
Republic of the Philippines are exempt
from RPT except when beneficial use
thereof has been granted to a taxable
person.
 PEZA is an instrumentality of the gov’t
Government-owned and controlled corporation
(GOCC)
Refers to any agency organized as stock or non-
stock corporation vested with functions relating
to public needs whether governmental or
proprietary in nature and owned by the govt
directly or through instrumentalities either
wholly or, where applicable as in the case of
non-stock corporations, to the extent of at least
51% of its CS.
Taxability of GOCCs
GOCCs perform proprietary functions hence
they are subject to taxation.
Granted exemption:
a. Government Service Insurance System
(GSIS)
b. Social Security System (SSS)
c. Philippine Health Insurance Corporation
(PHIC)
d. Philippine Charity Sweepstakes Office
(PCSO)
Constitutional Limitations
Provisions DIRECTLY affecting taxation
1. Prohibition against imprisonment for
non-payment of poll tax
No person shall be imprisoned for debt or non-
payment of poll tax (Art III, Sec. 20)
Poll Tax is one levied on persons who are
residents within the territory of the taxing
authority without regard to their property,
business or occupation. – Community Tax.
2. Uniformity and Equality of Taxation
The rule of taxation shall be uniform and
equitable. The Congress shall evolve a
progressive system of taxation.
 Uniformity is complied with when
the tax operates with the same
force and effect in every place
where the subject of it is found.
 Uniformity rule does not prohibit
classification for purposes of
taxation.
 Uniformity does not forfend
classification as long as:
o The standards that are used
therefor are substantial
o Categorization is germane
to achieve the legislative
purpose
o The law applies to both
present and future
conditions
o Classification applies
equally well to all those
belonging to the same class
 If the groupings are characterized
by substantial distinctions that
make real differences, one class
may be treated and regulated
differently from another.
Progressive Taxation
When tax rate increases as the income of the
taxpayer increases.
The Constitution does not prohibit regressive
taxes. What it simply provides is that Congress
shall evolve a progressive system of taxation.
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VAT is regressive. activities for profit regardless of
the disposition made of such
3. Grant by Congress of authority to the income shall be subjected to
President to impose tariff rates tax.
The Congress may authorize the P to fix within
specified limits and subject to such limitations b. Donations received are
and restrictions as it may impose, TR, I/E considered income but NOT
quotas, T/W dues, and other duties and imposts taxable income as they are
within the framework of the National ITEMS OF EXCLUSION.
Development Program. Donor- Deductible expense
provided that no part of the
Reqs on the authority of the President in income which inures to the
imposing taxes benefit of a SH in amount not
a. Delegated by C through a law- exceeding 10% in case of
b. Subject to Congressional limits and individual, and 5% in case of a
restrictions- corporation.
c. Within the framework of national
government-
2. For purposes of DONOR’s and ESTATE
4. Prohibition against taxation of Taxation
religious, charitable entities, and Generally, not subject to tax
educational entities provided, however, that NOT
more than 30% of the said
Actually, directly, and exclusively used for bequests, devises, or legacies or
religious, charitable, or educational purposes transfers shall be used by such
shall be exempt from taxation. institutions for administration
 It only covers REAL PROPERTY TAX only. purposes.

ADE- It is the direct and immediate and actual  Net gifts not exceeding 10K are exempt.
application of the property itself to the  Idle properties owned by R, C, E are
purposes for which the charitable institution is subject to tax.
organized.
5. Prohibition against taxation of non-
If the real property is used for one or more
stock, non-profit educational
commercial purposes, it is not exclusively used
institutions
for the exempted purposes but is subject to
taxation. All revenues and assets of non-stock, non-profit
educational institutions used ADE for
Rules on taxation of non-stock corporations for
educational purposes shall be exempt from
charitable and religious purposes
taxes and duties.
1. For purposes of INCOME TAXATION
 It covers INCOME TAX, CUSTOM
a. The income of NS Corporations
DUTIES, PROPERTY TAX
operating exclusively for
charitable and religious- shall Art XIV, Sec 4 (3) does not require that the
be exempt to tax. revenues and income must have been sourced
However, the income in from educational activities.
whatever kind and nature of
their properties or from their

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  When NS-NP educational institution
proves that it uses its revenues ADE for
educational purposes, it shall be
exempted from Income Tax, VAT, and
LBT.
 When it shows that it uses its assets in
the form of RP for E purposes,
exempted from RPT.
Rules on taxation of NS, NP Educational
Institution
1. For purposes of DONATION
“Used ADE for E purposes shall
be exempt from tax” is not self-
executing as it requires
legislative enactment. However,
since Sec 101 (a) (3) of NIRC
declared its exemption then
these donations are tax
exempt.
2. For purposes of ESTATE TAX
Not included under the exempt
transfers mortis causa, hence,
they are NOT tax exempt.
3. For purposes of VAT
Private educational institutions
shall be exempt from tax
provided they are accredited as
such either by DepEd or CHED.
However, they shall be subject
to IRT on income on trade,
business, or other activity, the
conduct of which not related to
E purposes.
 Interest incomes, income derived from
dormitories, canteens, and bookstores
are not automatically exempt. There
must be a showing that the incomes are
used ADE.
Tax on Proprietary NP EI and Proprietary NP
Hospitals
Preferential income tax rate of 10% for
proprietary non-profit educational institutions
and proprietary non-profit hospitals.
Tax Rates of proprietary NP EI and NP Hospitals
a. 30%-
Private, NP H and EI whose
gross income from unrelated
trade, business, or other activity
EXCEEDS 50% of the total gross
income from all sources.
b. 10%-
Whose gross income from
unrelated trade, business, or oa
does NOT EXCEED 50% of the
total gross income from all
sources.
c. EXEMPT-
Organized and operated
exclusively for charitable
purposes.
6. Majority vote Congress for grant of tax
exemption
No law granting any TE shall be passed
without concurrence of a majority of all
members of Congress.
The inherent power of the State to impose
taxes carries with it the power to grant tax
exemptions.
Required vote for grant of tax exemption
 Absolute Majority (majority vote of all
members of the Congress) is required to
grant a tax exemption. 50% plus 1 of all
members voting separately.
 Tax amnesties, Tax condonations, and
Tax refunds are in the nature of tax
exemptions.
Required vote for withdrawal of such grant of
tax exemption
 Relative Majority or Plurality of vote
(majority of the quorum) is sufficient.
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 7. Prohibition on use of tax levied on
special purpose
All money collected in any tax levied for a
special purpose shall be treated as a special
fund and paid out for such purpose only.
If already fulfilled or abandoned, the balance, if
any, shall be transferred to the general fund of
the government.
8. President’s veto power on ART bill
(1) Appropriation
(2) Revenue
(3) Tariff Bills
The P shall have the power to veto any
particular item or items in an ART bill but the
veto shall not affect the item which he does not
object.
The item shall be returned to the Lower House
of the Congress together with the objections of
the P. If after consideration 2/3 of all members
of LH shall agree to pass the bill, it shall be sent,
together with the objection, to the Upper
House by which it shall be considered. If
approved by 2/3 of all members of UH, it shall
become a law.
9. Non-impairment of Jurisdiction of the
Supreme Court
The SC shall have the power to review, revise,
reverse, modify, or affirm on appeal on
certiorari as the laws or the ROC may provide in
all cases involving the legality of tax, imposts,
assessment, or toll or any penalty imposed in
relation thereto.
 Jurisdiction is concurrent with RTC.
 Questions on tax laws are usually filed
directly with the SC as these are
impressed with paramount public
interest.
 The courts cannot inquire into the
wisdom of a taxing act, EXCEPT when
there is an allegation of violation of
constitutional limitations or restrictions.
10. Grant of power to the LGUs to create
its own sources of revenue
Subject to the guidelines and limitations as the
Congress may provide, consistent with the basic
policy of local autonomy.
Such taxes, fees, and charges shall accrue to the
local governments.
11. Origin of Revenue and Tariff Bills
All appropriation revenue, or tariff bills, bills
authorizing the increase of public debt, bills of
local application, and private bills shall originate
exclusively in the House of Representatives, but
the Senate may propose or concur with
amendments.
 No-amendment rule-
Refers only to the procedure to
be followed by each house of
Congress with regard to bills
initiated in each of said
respective houses, before said
bill is transmitted to the other
house for its concurrence or
amendments.
12. No appropriation or use of public
money for religious purposes
Directly or indirectly for the use, benefit or
support EXCEPT when such priest, preacher
minister or dignitary is assigned to the AF or any
penal institution or government orphanage or
leprosarium.
Provisions INDIRECTLY affecting taxation
1. Due Process
No person shall be deprived of life, liberty, and
property without due process of law.
Requirements of due process in taxation
A. Substantive Due Process
a. Tax must be for PP
b. It must be imposed within
territorial jurisdiction
B. Procedural Due Process
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 No arbitrariness or oppression
either in the assessment or
collection.
 The due process clause may be invoked
where a taxing statute is so arbitrary
that it finds no support in the
Constitution.
2. Equal Protection Clause
No person shall be denied the equal protection
of the laws.
DP- All persons subjected to such legislation
shall be treated alike, under like circumstances
and conditions, both in the privileges conferred
and in the liabilities imposed.
Requisites for a valid classification (PEGS)
1. Apply both to present and future
conditions
2. Apply equally to all members of the
same class
3. Must be germane to the purpose of the
law
4. Must be based on substantial
conditions
 Rational basis test is applied to gauge
the constitutionality of an assailed law
in the face of an equal protection
challenge.
3. Religious Freedom
 RPT exemption violative of non-
establishment clause? NO.
 Imposition of license fee a prior
restraint? YES.
 VAT registration restrictive of religious
and press freedom? NO. Not imposed
for the exercised of a privilege but only
for defraying part of the cost of
registration.
4. Non-impairment Clause
No law impairing the obligation of contracts
shall be passed.
Rationale for the non-impairment clause in
relation to contractual tax exemption
When the State grants an exemption on
the basis of a contract, consideration is
presumed to be paid to the State and the public
is supposed to receive the whole equivalent
therefore.
Rules regarding NIOC with respect to the grant
of tax exemption
1. If the grant is merely spontaneous
concession by the legislature-
REVOCABLE.
2. If it is without payment of any
consideration or the assumption of any
new burden by the grantee-
REVOCABLE.
3. Binding contract and a valuable or
remunerative consideration- the
government cannot unilaterally revoke
the tax exemption.
4. Freedom of the Press
No law shall be passed abridging the freedom of
speech, expression, or of the press, or the right
of the people to peaceably assemble and
petition the government for redress or
grievances.
Stages of Taxation (LAPR)
1. Levy or Imposition (Tax Legislation)-
Refers to the enactment of a
law by Congress authorizing the
imposition of tax.
Determination of the subject of
taxation, purpose for which the
tax shall be levied, fixing the
rate of taxation and the rules of
taxation in general.
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 2. Assessment and collection (tax
administration) –
Act of the administration and
implementation of the tax law
by executive through its
administrative agencies.
 Assessment and collection may be
delegated BUT NOT LEVY since it is
exclusively conferred with the Congress.
3. Payment-
Requisites of a Valid Tax
The act of compliance by the
taxpayer.
GR: Tax shall be paid by the person subject
thereto at the time the return is filed.
XPN: When tax due is in excess of 2K, the TP
other than a Corporation may elect to pay the
tax in 2 equal installments.
1st- paid at the time return is filed.
2nd- on or before July 15 following the close of
the calendar year.
4. Refund-
The recovery of any alleged to
have been erroneously or
illegally assessed or collected,
or any penalty claimed to have
been collected without
authority, or of any sum alleged
to have been excessively, or in
any manner wrongfully
collected.
Definition, Nature, and Characteristics of Taxes
Taxes are enforced proportional contributions
from persons and properties, levied by the State
by virtue of its sovereignty for the support of
the government and for all its public needs.
1. It is levied by the State which has
jurisdiction over the person or property
2. It is levied by the State through its
law-making body
3. It is an enforced contribution not
dependent on the will of the person
taxed
4. It is generally payable in money
5. It is proportionate in character
6. It is levied for a PP
a. It should be for a PP
b. It should be Uniform
c. The person or property to be
taxed must be within the
jurisdiction of the taxing
authority
d. The tax must not impinge on
the inherent and constitutional
limitations on the power of
taxation
 Taxes may be imposed only by the govt;
Toll fees may be demanded by either
the govt or private individuals as an
attribute to ownership.
 Both license fee and a tax may be
imposed on the same business or
occupation, or for selling the same
article and this is not in violation of the
rule against double taxation.
Kinds of Taxes
1. Personal/Poll or Capitation Tax-
A fixed amount imposed upon
all persons of a certain class, residents
within a specified territory, without
regard to their property or occupation.
2. Property Tax-
Imposed on property, real or
personal, in proportion either to its
value, or in accordance with some other
reasonable method of apportionment.
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 3. Privilege/Excise Tax- A tax rate which increases as
A charge upon the performance the tax base or bracket
of an act, the enjoyment of a privilege, increases
or the engaging in an occupation. 2. Regressive-
The Tax rate decreases as the
Direct Tax- tax base or bracket increases
Demanded from the very person who, 3. Proportionate-
as intended, should pay the tax which he cannot A tax rate of a fixed percentage
shift to another. of amounts of the base

When the impact or liability for the Situs of Taxation

payment of tax as well as incidence or burden It is imposed in the place or authority that has
of tax falls on the same person. the right to impose and collect taxes
a. Income Tax Rules Observed in Fixing Tax Situs
b. Estate Tax
c. Donor’s a. Poll/Capitation/Community Tax-
d. Withholding Tax Residence of the TP regardless
of the source of income
b. Property Tax-
Indirect Tax- RP- Location of the property
Demanded in the first instance from one PT Tangible- Location
person with the expectation that he can shift PT Intangible-
the burden to another, not as a tax but as a part GR: Domicile of the owner
of the purchase price. pursuant to mobilia sequntur
personam.
When the impact or liability for the
payment of tax falls on one person but the
incidence or burden thereof can be shifted or XPN:
passed to another. I. Property acquired a business situs in
a. VAT another jurisdiction
b. Excise Tax II. When an express provision of the
c. Documentary Stamp Tax statute provides for another rule

 The liability for payment of the IT lies  Doctrine of Mobilia Sequntur Personam
only with the seller of the goods or is NOT mandatory, it must yield to
services, not in the buyer thereof. established fact of legal ownership,
actual presence and control elsewhere,
Hence, it is important to determine if and cannot be applied if to do so would
the tax exemption granted specifically result in inescapable and patent
includes the indirect tax, otw, it is injustice.
presumed that the tax exemption
embraces only those taxes for which c. VAT-
the buyer is directly liable. Place where the transaction is
made.
As to graduation
Construction and Interpretations
1. Progressive-
Tax Laws

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GR: Tax Statues must be construed strictly
against the government and liberally in favor of
the TP.
XPN: Unless a statute imposes a tax clearly,
expressly and ambiguously, what applies is the
equally well-settled rule that the imposition of a
tax cannot be presumed.
Tax Exemption and Exclusion
2. Where the facts subsequently gathered
by the BIR are materially different from
the facts on which the ruling is based.
3. TP acted in BF
4. If the revocation is due to the fact that
the regulation is erroneous or contrary
to law, such revocation shall have
retroactive operation as to affect past
transaction

GR: Statutes granting exemptions are construed  Retroactive application of revenue laws
in strictissimi juris against the TP and liberally in may be allowed if it will not amount to
favor of the taxing authority denial of due process.
XPN: Sources of Tax Laws
1. If the grantee is a political subdivision or 1. Constitution
instrumentality 2. National Internal Revenue Code
2. Exemption granted to NAPOCOR 3. Tariff and Customs Code
3. Erroneous payment of the tax, or 4. Local Government Code
absence of law for government’s 5. Local Tax Ordinance
exaction. 6. Tax Treaties & International
Tax Rules and Regulations Agreements
7. Special laws
 Revenue Memorandum Circulars must 8. Court decisions
not override, supplant, or modify the 9. Revenue rules and regulations and
law. administrative rulings and opinions
 The government is NOT estopped from
collecting taxes legally due because of
mistakes or error of its agents. Doctrines in Taxation
EXCEPTION: In the interest of justice
and fair play, as where injustice will GR: Tax laws must only be imposed
result to the TP. prospectively.

Non-retroactive application to taxpayers XPN: If the law expressly provides for

Tax laws, including rules and regulations
operate prospectively unless otw legislatively
intended by express terms or by necessary
implication.
BIR Rules and Regulations that revoke, modify
or reverse a ruling or circular
GR: Not given retroactive application if it will be
prejudicial to the TP
XPN:
1. TP deliberately misstates or omits
material facts from his return
retroactive application and if it will not amount
to denial of due process.
 The prohibition against ex post facto
laws applies only to CRIMINAL matters
and not to laws which are civil in
nature.
 When it comes to civil penalties like
fines and forfeiture (except interest),
tax laws may be applied retroactively
unless it produces harsh and oppressive
consequences which violates TP
constitutional rights regarding equity
and due process.

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  Criminal penalties arising from tax Objectionable or prohibited
violations may not be given retroactive sense since it violates the EPC.
effect.
 When there is a clash between lifeblood a) The same property taxed twice
doctrine and due process, the DP shall when it should be taxed only
prevail. once
b) Both taxes are imposed
Sec. 246, Non-Retroactivity of Rulings- i. same subject matter
Any revocation, modification, or ii. same purpose
reversal of any of the r&r promulgated by the iii. same taxing authority
Commissioner or any of the rulings or circulars iv. same jurisdiction
promulgated by him shall NOT be given v. same taxing period
retroactive application if it will be prejudicial to vi. same kind or character
the TPs.
 All elements must be present in order
Except: to apply double taxation in its strict
a) TP deliberately misstates or omits sense
material facts in his return
b) Facts subsequently gathered by the BIR
are materially different from the facts
which the ruling is based for 2. Indirect (Broad sense)-
c) Where TP acted in bad faith Permissible double taxation.
Some elements of direct double
Imprescriptibility of taxes taxation are absent.
GR: Taxes are imprescriptible by reason that is Domestic Double Taxation-
the lifeblood of the government.
Taxes are imposed by the local and
XPN: Tax laws may provide for statute or national government within the same state.
limitations:
International Double Taxation-
prescriptive periods for assessment and
collection for the purpose of safeguarding TP Imposition of comparable taxes in two
from any unreasonable examination, or more states on the same TP in respect of the
investigation or assessment. same subject matter and for identical periods.

 Such prescriptive period is only Modes of eliminating double taxation

applicable to those taxes that were 1. Tax Credit-
returnable. An amount subtracted from the
 PresPe shall start from the time the TP TP’s tax liability in order to
files the tax return and declares his arrive at the net tax due
liability. 2. Tax Deduction-
Double Taxation An amount subtracted from the
gross amount on which a tax is
There is no constitutional prohibition calculated
against double taxation in the Philippines. Not 3. Tax Exemption-
favored, but is permissible. A grant of immunity to
particular persons or entities
1. Direct (Strict Sense)-

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 from the obligation to pay
taxes.
4. Imposition of a tax rate lower than the
normal domestic rate
5. Tax Treaty-
The purpose is to reconcile the
national fiscal legislation of the
contracting parties in order to
help the TP avoid simultaneous
taxation in two different
jurisdictions.
 If tax is employed solely to raise
revenues, the modern view is that it
cannot be allowed to confiscate or
destroy. If it is to be done, the tax may
be successfully attacked as an
unconstitutional exercise of discretion,
which is usually vested in the
legislature.
 Tax is subject to the inherent and
constitutional limitations which are
intended to prevent abuse on the
exercise of the otw plenary and
unlimited powers.
 TPs can seek redress before the courts
in case of illegal imposition of taxes and
irregularities as the Constitution
overrides any legislative or executive
act that runs counter to it.
Escape from Taxation
1. Shifting of Tax Burden-
Transfer of the burden of tax by
the original payer or the one
whom tax was assessed or
imposed to another or
someone else without violating
the law.
Ways of shifting the tax burden
a) Forward Shifting-
Transferred from a factor of
production through the factors
of distribution until it finally
settles on the ultimate purchase
or consumer.
b) Backward Shifting-
Transferred from the consumer
through the factors of
distribution to the factors of
production.
c) Onward Shifting-
Tax is shifted two or more times
either forward or backward.
 Only indirect taxes may be shifted.
 Direct Taxes shifting can only be made
via contractual provision.
 What is transferred is not the seller’s
liability but merely the burden of the
VAT.
 Where the burden of the tax is shifted
to the purchaser, the amount passed on
to its no longer a tax but becomes an
added cost on the goods purchased,
which constitutes a part of purchase
price.
 The proper party to question or seek a
refund of an indirect tax is the statutory
taxpayer, person on whom the tax is
imposed by law and who paid the same
even if he shifts the burden thereof to
another.
2. Tax Avoidance/Tax Minimization
Is a scheme where the taxpayer
uses legally permissible
alternative method of assessing
taxable property or income, in
order to avoid or reduce tax
liability.
It should be used by TP in GF
and at arm’s length.
3. Tax Evasion/Tax Dodging
Is a scheme where the TP uses
illegal or fraudulent means to
defeat or lessen payment of a
tax.
It usually subjects the TP to
further or additional civil or
criminal liabilities.
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Elements to be considered in determining that
there is Tax Evasion (USE)
1. Course of action is unlawful
2. Accompanying state of mind which is
described as being evil, in BF, willful or
deliberate and not accidental
3. End to be achieved
 Doctrine of Willful Blindness-
An individual or corporation can
no longer say that the errors on
their tax returns are not their
responsibility or that is the fault
of the accountant they hired.
Tax Exemption
It is the grant of immunity, express or
implied, to particular persons or corporations,
from a tax upon property or an excise tax which
persons or corporations generally within the
same taxing districts are obliged to pay.
 Personal and non-transferrable
 Constitutional grants of TE are self-
executing.
 TE generally revocable unless founded
on contracts which are protected by the
Non-impairment clause
 Tax refund may only be considered TE
when it is based either on a TE statute
or a tax-refund statute.
 Tax refund are not founded principally
on legislative grace but on the legal
principle of quasi-contracts against a
person’s unjust enrichment at the
expense of another.
Revocation of Tax Exemption
Exemption may be withdrawn at the
pleasure of the taxing authority.
Restrictions on revocation of tax exemption
1. Non-impairment clause
2. A municipal franchise once granted as a
contract cannot be altered or amended
except by actual consent of the parties
concerned.
3. Adherence to form. If the TE is granted
by the Constitution, its revocation may
be affected through constitutional
amendment only.
 Withdrawal of tax exemption is
not to be construed as
prohibiting future grants of tax
exemption.
Doctrine of equitable recoupment-
Allows a TP, whose claim for refund has
been barred due to prescription, to recover said
tax by setting off the prescribed refund against
a tax that may be due and collectible from him.
NOT allowed in the Philippines.
Compensation and Set-off
Take place when two persons, in their
own right, are creditors and debtors of each
other.
GR: No set-off is admissible against the
demands for tax levied for general or local govt
purposes.
 Taxes cannot be subject to
compensation because the
government and the TP are not
creditors and debtors of each
other.
XPN: Where both the claims of the government
and the TP against each other have already
become due, demandable, and fully liquidated,
compensation takes place by operation of law
and both obligations are extinguished to their
concurrent amounts.
The government must have the appropriated
the amount thereto.
 Offsetting can be allowed if the
determination of the TP’s
liability is intertwined with the
resolution of the claim for tax
refund.
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  Taxes and debts are of different The plaintiff is affected by the
nature and character. Debts are expenditure of public funds.
due to the government in its
Citizen’s suit-
corporate capacity, while Taxes
are due to the government in Mere instrument of the public concern.
its sovereign capacity. He sustained or is in imminent danger of
sustaining some direct injury as a result of its
Persons allowed to enter into compromise of
enforcement, and not merely that he suffers
tax obligations
thereby in some indefinite way.
1. BIR Commissioner
Two requisites of a taxpayer’s suit
2. Collector of Customs
3. Customs Commissioner 1. Public funds derived from taxation are
disbursed by a political subdivision or
Tax Amnesty
instrumentality and in doing so, a law is
General pardon or intentional violated or some irregularity is
overlooking by the State of its authority to committed
impose penalties on persons otw guilty of 2. The petitioner is directly affected by the
evasion or violation of a revenue or tax law. alleged act
Applied retroactively. There is also Locus Standi
revenue loss.
The party as a TP must prove that he has
 Well-settled doctrine that the rule- sufficient interest in preventing the illegal
making power of administrative expenditure of money raised by taxation.
agencies cannot be extended to amend
The taxpayer may establish that:
or expand statutory reqs or to embrace
matters not originally encompassed by 1. He has personal and substantial interest
the law. 2. He has sustained or will sustain direct
injury as a result of its enforcement or
Taxpayer’s suit
that he stands to be benefited or
Act complained of directly involves the injured by the judgement in the case, or
illegal disbursements of public funds collected is entitled to the avails of the suit
through taxation.
 To allow TP to question contracts
entered into by the NG allegedly in
contravention of law
 To allow TP to sue when there is a claim
that public funds are illegally disbursed
or is being deflected to any improper
purpose.
 A TP need not be a party to the contract
to challenge its validity
Taxpayer’s Suit distinguished from a citizen’s
suit
Tax Payer’s suit-

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