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 "X" Corporation was the recipient
in 1990 of two tax exemptions
both from Congress, one law
exempting the company's bond
issues from taxes and the other
exempting the company from
taxes in the operation of its public
utilities. The two laws extending
the tax exemptions were revoked
by Congress before their expiry
dates. Were the revocations
constitutional?

SUGGESTED ANSWER:
Yes. The exempting statutes are
both granted unilaterally by
Congress in the exercise of taxing
powers. Since taxation is the rule
and tax exemption, the exception,
any tax exemption unilaterally
granted can be withdrawn at the
pleasure of the taxing authority
without violating the Constitution
What is the act of levying? (Mactan Cebu International
Airport Authority v, Marcos, G.R
The act of imposing taxes through No. 120082, September 11,
legislation exercised by the law- 1996).
making body. Neither of these were issued by
the taxing authority in a contract
lawfully entered by it so that their
revocation would not constitute
an impairment of the obligations
of contracts.

ALTERNATIVE ANSWER:
No. The withdrawal of the tax
exemption amounts to a
deprivation of property without
due process of law, hence
unconstitutional.

A multinational corporation doing
business in the Philippines
donated 100 shares of stock of
said corporation to Mr. Cortez, its
resident manager in the
Philippines. What is the tax
liability if any of the said
corporation?
Foreign corporations effecting a
donation are subject to donor's tax
A Filipino citizen earning income
only if the property donated is
abroad can still be a subject of tax
located in the Philippines. 
in the Philippines not because of
geographical location but due to
Accordingly, donation of a
the jurial concept or nexus or
foreign corporation of its own
bond between the taxing authority
shares of stocks in favor of
and the taxpayer.
resident employees is not subject
to donor's tax. However, if 85%
of the business of the foreign
corporation is located in the
Philippines, or the shares have
acquired business situs in the
Philippines, the donation may be
taxed in the Philippines, subject
to the rule of reciprocity.
A municipality, BB, has an
ordinance which requires that all
stores, restaurants, and other
establishments selling liquor
should pay a fixed annual fee of
P20.000. Subsequently, the
municipal board proposed an
ordinance imposing a sales tax
equivalent to 5% of the amount
paid for the purchase or
consumption of liquor in stores,
restaurants and other
establishments. The municipal
mayor, CC, refused to sign the
ordinance on the ground that it
would constitute double taxation.
Is the refusal of the mayor
justified? Reason briefly. (5%)
SUGGESTED ANSWER:
No. The refusal of the mayor is
not justified. The impositions are
of different nature and character.
The fixed annual fee is in the
nature of a license fee imposed
through the exercise of police
power while the 5% tax on
purchase or consumption is a
local tax imposed through the
exercise of taxing powers. Both a
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 {Campania
General de Tabacos de Filipinos
v. City of Manila, 8 SCRA 367
[1963]).
 A. Assessment - applying the law
passed by Congress to the
specific person, property or
activity covered by it. Involves
the determination of how much
tax is due.

TN: In the Philippines, we follow

self-assessment. If ever it is not
A state is free to select the subject
enough, there is the involuntary
of taxation and it has been
assessment by the BIR.
repeatedly held that the
A taxpayer has no legal standing
inequalities which result from the
to question acts which do not B. Collection - process or method
singling out of one particular
involve the use of public funds of implementing the tax laws for
class for taxation or exemption
derived from taxation.  the purpose of satisfying the tax
infringe no constitutional
obligations, as when money is
limitation so long as such is
actually taken from the taxpayers.
reasonable and not arbitrary.
Agencies involved in the
collection of taxes are:

a. Bureau of Internal Revenue

b. Bureau of Customs
c. Provincial, City, and Municipal
Assessor and Treasurers
 A. TAX EXEMPT - GOCCs
with original charter; attached to
the
government; unincorporated
B. TAXABLE - GOCCs with
special charter; personality
distinct from the government;
incorporated
ABC Corp. was granted tax
exemption by the government as
an incentive for newly established
companies. It purchased materials
by XYZ Corp. Normally, the sale
is subject to sales tax. XYZ Corp
claims that since it sold the
equipment to ABC Corp which is
tax exempt, it should not be liable
to pay the sales tax. Is the claim
tenable?
No. Exemption from taxes is
personal in nature and covers
only taxes for which the taxpayer-
grantee is directly liable. The
sales tax is a tax on the seller who
is not exempt from taxes. Since
XYA is directly liable for the
sales tax and no tax exemption
privilege is ever given to it,
therefore, its claim that the sale is
exempt is not tenable. A tax
exemption is construed in
strictissimi juris and it cannot be
permitted to exit upon vague
implications.
Abakada Party List vs Ermita
Facts: Republic Act 9337 was
passed and signed into law. The
act provided several amendments
to the provisions of the National
Internal Revenue Code among
which were challenged for being
unconstitutional, particularly
Sections 4, 5, and 6 which
provides for the imposition of
VAT of 10% of the gross selling
price of the goods or properties,
sold, bartered, or exchanged, such
tax to be paid by the seller or
transferor. 
Issue: WON said sections are
violative of Section 28(1) of
Article VI of the Constitution
which provides that taxes shall be
uniform and equitable and that
Congress shall evolve a
progressive system of taxation. 
Ruling: The rule of taxation shall
be uniform and equitable. The
Congress shall evolve a
progressive system of taxation.
Uniformity in taxation means that
all taxable articles or kinds of
property of the same class shall
be taxed at the same rate.
Different articles may be taxed at
different amounts provided that
the rate is uniform on the same
class everywhere with all people
at all times.
In this case, the tax law is
uniform as it provides a standard
rate of 0% or 10% (or 12%) on all
goods and services. Sections 4, 5
and 6 of R.A. No. 9337,
amending Sections 106, 107 and
108, respectively, of the NIRC,
provide for a rate of 10% (or
12%) on sale of goods and
properties, importation of goods,
and sale of services and use or
lease of properties. These same
sections also provide for a 0%
rate on certain sales and
transaction.
Neither does the law make any
distinction as to the type of
industry or trade that will bear the
70% limitation on the creditable
 input tax, 5-year amortization of
input tax paid on purchase of
capital goods or the 5% final
withholding tax by the
government. It must be stressed
that the rule of uniform taxation
does not deprive Congress of the
power to classify subjects of
taxation, and only demands
uniformity within the particular
class.
R.A. No. 9337 is also equitable.
The law is equipped with a
threshold margin. The VAT rate of
0% or 10% (or 12%) does not
apply to sales of goods or
services with gross annual sales
or receipts not exceeding
P1,500,000.00. Also, basic
marine and agricultural food
products in their original state are
still not subject to the tax, thus
ensuring that prices at the
grassroots level will remain
accessible.
R.A. No. 9337 puts a premium on
businesses with low profit
margins, and unduly favors those
with high profit margins.
Congress was not oblivious to
this. Thus, to equalize the
weighty burden the law entails,
the law imposed a 3% percentage
tax on VAT-exempt persons under
Section 109(v), i.e., transactions
with gross annual sales and/or
receipts not exceeding P1.5
Million. This acts as an equalizer
because in effect, bigger
businesses that qualify for VAT
coverage and VAT-exempt
taxpayers stand on equal-footing.

Moreover, Congress provided

mitigating measures to cushion
the impact of the imposition of
the tax on those previously
exempt. Excise taxes on
petroleum products and natural
gas were reduced.
Percentage tax on domestic
carriers was removed. Power
producers are now exempt from
paying franchise tax. Aside from
these, Congress also increased the
income tax rates of corporations,
in order to distribute the burden
of taxation. Domestic, foreign,
and non-resident corporations are
now subiect to a 35% income tax
rate, from a previous 32%.
Intercorporate dividends of non-
resident foreign corporations are
still subject to 15% final
withholding tax but the tax credit
allowed on the corporation's
domicile was increased to 20%.
The Philippine Amusement and
Gaming Corporation (PAGCOR)
is not exempt from income taxes
anymore. Even the sale by an
artist of his works or services
performed for the production of
such works was not spared  

Progressive taxation is built on

the principle of the taxpayer's
ability to pay. Taxation is
progressive when its rate goes up
depending on the resources of the
person affected. The VAT is an
antithesis of progressive taxation.
By its very nature, it is regressive.
The principle of progressive
taxation has no relation with the
VAT system inasmuch as the VAT
paid by the consumer or business
for every goods bought or
services enjoyed is the same
regardless of income. In other
words, the VAT paid eats the
same portion of an income,
whether big or small. The
disparity lies in the income
earned by a person or profit
margin marked by a business,
such that the higher the income or
profit margin, the smaller the
portion of the income or profit
that is eaten by VAT. A converso,
the lower the income or profit
margin, the bigger the part that
the VAT eats away. At the end of
the day, it is really the lower
income group or businesses with
low-profit margins that is always
hardest hit.
Nevertheless, the Constitution
does not really prohibit the
imposition of indirect taxes, like
the VAT.
What it simply provides is that
Congress shall "evolve a
progressive system of taxation.
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. In
the case of the VAT, the law
minimizes the regressive effects
of this imposition by providing
for zero rating of certain
transactions (R.A. No. 7716, §3,
amending $102 (b) of the NIRC),
while granting exemptions to
other transactions. (R.A. No.
7716, $4 amending $103 of the
NIRC).
 Alexander Howden vs CIR
Facts: The Commonwealth
Insurance Co. is a domestic
corporation that entered into
reinsurance contracts with 32
British insurance companies not
engaged in trade or business in
the Philippines, whereby the
former agreed to cede to them a
portion of the premiums on
insurance on fire, marine, and
other risks it has underwritten in
the Philippines. Petitioner
Alexander Howden represents the
aforesaid British insurance
companies. The reinsurance
contracts were prepared and
signed by the foreign reinsurers in
England and sent to Manila where
the Commonwealth Insurance Co.
signed them.  respectively. As a result, plaintiff
Pursuant to said contracts,
Common Wealth Insurance Co.
remitted to Alexander Howden
P798,000 as reinsurance
premiums, which such amount
was taxed. Thus, petitioner filed
with the Bureau of Internal
Revenue a claim for refund of the
tax paid, invoking a previous
ruling of the CIR exempting from
withholding tax reinsurance
premiums received from domestic
insurance companies by foreign
insurance companies not
authorized to do business in the
Philippines.  business of general merchandise,
Petitioner contended that the
reinsurance premiums came from
sources outside the Philippines
for the following reasons:
1) The contracts of reinsurance,
out of which the reinsurance
premiums were earned, were
prepared and signed abroad, so
that their situs lies outside the
Philippines;  No. 466, or otherwise known as
2) The reinsurers, not being
engaged in business in the
Philippines, received the
reinsurance premiums as income
from their business conducted in
American Bible Society vs City Among the taxes imposed by the
of Manila Bureau of Internal Revenue are
income tax, estate and donor's
Facts:  tax, value-added tax, excise tax,
Plaintiff is a foreign, non-stock, other percentage taxes, and
non-profit, religious, missionary documentary stamp tax. 
corporation duly registered and
doing business in the Philippines. Classify these taxes into direct
In the course of its ministry, and indirect taxes, and
plaintiff's Philippine agency has differentiate direct from Indirect
been distributing and selling taxes. (5%)
bibles and/or gospel portions
thereof. The Acting City SUGGESTED ANSWER:
Treasurer of the City of Manila Income tax, estate and donor's tax
informed plaintiff that it was are considered as direct taxes. On
conducting the business of the other hand, value-added tax,
general merchandise without excise tax, other percentage taxes,
providing itself with the and documentary stamp tax are
necessary Mayor's permit and indirect taxes.
municipal license, in violation of
Ordinances No. 3000 and 2529, DIRECT TAXES are demanded
from the very person who, as
assailed the constitutionality of intended, should pay the tax
said ordinances insofar as its which he cannot shift to another;
society is concerned, because while an INDIRECT TAX is
they provide religious censorship demanded in the first instance
and restrain the free exercise and from one person with the
enjoyment of its religious expectation that he can shift the
profession, that is, the distribution burden to someone else, not as a
and sale of bibles and other tax but as a part of the purchase
religious literature to the people price.
of the Philippines.
Issue:
WON Ordinances No. 3000 and
2529 which respectively require
mayor's permit and municipal
license for those engaged in the
are unconstitutional insofar as the
plaintiff is concerned
Ruling:
No, both ordinances are not
unconstitutional, because they are
not applicable to the plaintiff in
the first place. 
Section 27 of Commonwealth Act
the National Internal Revenue
Code, provides that corporations
or associations operated
exclusively for religious purposes
shall not be taxed. 
England and should therefore be
taxable in England; and
3) Section 37 of the Tax Code,
enumerating what are income
from sources within the
Philippines, does not include
reinsurance premiums.
Issues:  Thus, the subject ordinances of
WON portions of premiums
earned from insurances locally
underwritten by a domestic
corporation ceded to and received
by non-resident foreign insurance
broker pursuant to reinsurance
contracts signed by the reinsurers
abroad but signed by the domestic
corporation in the Philippines are
subject to income tax.
In the case at bar, it may be true
that the price asked for the bibles
and other religious pamphlets
was, in some instances, a little bit
higher than the actual cost of the
same, this cannot mean that
appellant was engaged in the
business or occupation of selling
said "merchandise" for profit.
the City of Manila cannot be
applied to appellant, for in doing
so it would impair its free
exercise and enjoyment of its
religious profession and worship
as well as its rights of
dissemination of religious beliefs.
Finding no application to
appellant, said ordinances cannot
be deemed as unconstitutional. 

Ruling: 

Yes.

1) The source of an income is the

property, activity, or service that
produced the income. The
reinsurance premiums remitted to
appellants by virtue of the
reinsurance contracts,
accordingly, had for their source
the undertaking or contract to
indemnify Commonwealth
Insurance Co. against liability.
This undertaking or contract is
the activity that produced the
reinsurance premiums, and the
same took place in the Philippines
considering that the reinsured, the
liabilities insured, and the risks
originally underwritten by
Commonwealth Insurance Co.
were all situated in the
Philippines. 

Secondly, contrary to petitioner's

view, the reinsurance contracts
were perfected in the Philippines,
for Commonwealth Insurance Co.
signed them last in Manila. 

2) The petitioners should not

confuse activity that creates
income with business in the
course of which an income is
realized. An activity may consist
 of a single act, while business
implies continuity of transactions.
An income may be earned by a
corporation in the Philippines
although such corporation
conducts all its business abroad.
Precisely, Section 24 of the Tax
Code does not require a foreign
corporation to be engaged in
business in the Philippines, in
order for its income from sources
within the Philippines to be
taxable. Furthermore, as used in
our income tax law, income refers
to the flow of wealth. Such flow,
in the instant case, is proceeded
from the Philippines, and enjoys
protection of the Philippine
government. 

3) Section 37 of the Tax Code is

not an all-inclusive enumeration.
It does not state or imply that an
income not listed therein is
necessarily from sources outside
the Philippines. 

An "item" in a revenue bill does
not refer to an entire section
imposing a particular kind of tax,
but rather to the subject of the tax
Amount and rate of tax - as a
and the tax rate. In the portion of
general rule, the legislature may
a revenue bill which actually
levy a tax of any amount or rate it
imposes a tax, a section identifies
sees fit. If the taxes are
the tax and enumerates the
oppressive or unjust, the only
persons liable therefor with the
remedy is the ballot box and the
corresponding tax rate. To
election of new representatives.
construe the word "item" as
referring to the whole section
However, the tax must be
would tie the President's hand in
reasonable, one that would not go
choosing either to approve the
against the deprivation of
whole section at the expense of
property without due process of
also approving a provision therein
law.
which he deems unacceptable or
veto the entire section at the
expense of foregoing the
collection of the kind of tax
altogether.
An Executive Order was issued
pursuant to law, granting tax and
duty incentives only to businesses
and residents within the "secured
area" of the Subic Economic
Special Zone, and denying said
incentives to those who live
within the Zone but outside such
"secured area". Is the
constitutional right to equal
protection of the law violated by
the Executive Order? Explain.
(3%)
SUGGESTED ANSWER:
No. Equal protection of the law
clause is subject to reasonable
classification. Classification, to
be valid, must (1) rest on
substantial distinctions, (2) be
germane to the purpose of the
law, (3) not be limited to existing
conditions only, (4) apply equally
to all members of the same class. 
There are substantial differences
between big investors being
enticed to the "secured area" and
the business operators outside
that are in accord with the equal
protection clause that does not
require territorial uniformity of
laws. The classification applies
equally to all the resident
individuals and businesses within
the "secured area". The residents,
being in like circumstances to
contributing directly to the
achievement of the end purpose
of the law, are not categorized
further. Instead, they are similarly
treated, both in privileges granted
and obligations required. (Tiu, et
al, v. Court of 4npeals, et al, G.R.
No. 127410, January 20, 1999)

Article III, Section 20
No person shall be imprisoned for
debt or non-payment of a poll tax.
Are exported goods subject to
VAT?
Poll tax - a tax of a fixed amount
fixed on persons residing within a
No, because VAT is imposed on
specified territory, whether
goods intended to be consumed
resident or not, without regard to
within Philippine jurisdiction.
their property or the occupation
of business which they may be
engaged.
Article III, Section 28
The rule of taxation shall be
uniform and equitable. The
Congress shall evolve a
progressive system of taxation.
A. Uniformity in taxation - all
taxable articles or kinds of
property of the same class shall
be taxed at the same rate.
B. Equity - uniformity in taxation
is effected through the
apportionment of the tax burden
among the taxpayers which must
under the Constitution must be
equitable - fair, just, reasonable
and proportionate to the
taxpayer's ability to pay.
C. Progressive - There shall be
more direct taxes than indirect
taxes, with ability to pay as the
principal criterion. Hence, the tax
rate increases as the tax bracket
increases.
 Article VI, Section 28 (3)
Charitable institutions, churches,
parsonages, or convents Article VI, Section 28
appurtenant thereto, mosques, and No law granting any tax
non-profit cemeteries, and all exemption shall be passed
lands, buildings and without the concurrence of a
improvements actually, directly majority of all the members of
and exclusively used for Congress.
Article VI, Section 24
religious, charitable or
All appropriation, revenue or
educational purposes shall be Votes required
tariff bills shall originate from the
exempt from taxation. A. For the grant of tax exemption
House of Representatives, but the
- absolute majority of the
Senate may propose or concur
TN: This is a self-executing members of Congress (50+1 of all
with amendments.
provision. the members voting separately)
How does this relate to the power
Important principles: B. For withdrawal of tax
of taxation?
A. The tax exemption of exemption - relative majority or
religious, charitable and majority of the quorum
It is a direct constitutional
educational institutions covers
limitation of taxation. 
real property tax only.
B. The test is usage and not TN: Tax amnesties, tax
ownership. condonations and tax refunds are
C. The exemption extends to considered grants in the nature of
facilities which are incidental to tax exemptions. Hence, absolute
or majority is required.
reasonably necessary for the
accomplishment of said purpose
 British American Tobacco vs
Camacho
Facts:  rentals of real property owned by
Prior to the entry of petitioners in
the cigarette market of the
Philippines, the country already
established a 4 tiered tax system
bracketing each cigarette
companies based on their net
retail price and assigning higher
excise taxes to those with higher
retail prices. The NIRC (National
Internal Revenue Code) provides
a classification freeze provision
where companies classified on
October 1996 shall remain in
their classification until revised
by congress and new companies
shall be classified according to
their current net retail price.  with Respondent, holding that
Petitioner, manufacturer of Lucky
Strikes cigarettes, entered the
scene on June 2001 and was
classified as a premium-priced
cigarette. Petitioner now claims
that the freeze provision is
violative of equal protection as it
allows old companies to enjoy
their previous classification even
when in reality their net retail
price is already higher than that
prescribed by their brackets
absent a legislation from congress
reclassifying them. Thus,
violating the equal protection
clause and the constitutional
provision that the rule of taxation
shall be uniform and equitable.  purposes.
Issue: WON the clarification free
provision of the National Internal
Revenue Code is unconstitutional
for the aforementioned
violations.  when used in laws granting tax
Ruling:  The court does not favor
the petition. In tax legislations,
the standard required is that of
Rational Basis Test where a
legislative classification, to
survive an equal protection
challenge must be shown to
rationally further a legitimate
state interest. The court
enumerates the state interests
CIR v. CA
Is the income derived from
the Young Mens Christian
Association of the Philippines,
Inc. (YMCA) established as a
welfare, educational and
charitable non-profit corporation -
subject to income tax?
Yes. Under the NIRC, income of
whatever kind and character of
non- stock non-profit institutions
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 the tax.
Hence, rental income derived by
a tax-exempt organization from
the lease of its properties, real or
personal, is not exempt from
income taxation, even if such
income is exclusively used for the
accomplishment of its objectives.
Moreover, for the YMCA to be
granted income exemption under
the Constitution, it must prove
with substantial evidence that (1)
it falls under the classification
non-stock, non-profit educational
institution and (2) the income it
seeks to be exempted from
taxation is used actually, directly,
and exclusively for educational
To begin with, YMCA is not even
an educational institution within
the purview of the Constitution.
The term educational institution,
exemptions, refers to a school,
seminary, college or educational
establishment. Therefore, YMCA
cannot be deemed one of the
educational institutions covered
by the constitutional provision
under consideration.
TN: YMCA cannot avail of Art
VI, Sec 28 since it covers only
real property taxes.
CIR vs BASF coating inks
Facts: BASF is a corporation in
the Philippines. Upon being
dissolved, it moved out from its
address in Las Piñas City and
transferred to Calamba, Laguna.
Later on, Petitioner CIR sent a
Formal Assessment Notice (FAN)
representing deficiency in various
taxes to respondent's old address.
Petitioner eventually sent a First
Notice Before Warrant of
Distraint and Levy to one of
respondent's directors.
Respondent opposed this on the
ground of lack of due process
since it never received the FAN.
The CTA special first division
unit and the CTA En Banc agreed
since Respondent never received
notice, the subsequent
assessments against it are
considered void, and that at this
point, the right of petitioner to
assess Respondent has already
prescribed.  Hence the instant
petition. Petitioner contended that
said Right has yet to prescribe
consider that the prescription has
been suspended when the
respondent failed to notify about
its change of address and
therefore could not be located in
its address indicated in the return
filed by it upon which a tax is
being assessed, pursuant to the
Tax Reform Act. 
Issue: WON the right of
petitioner to assess Respondent
has prescribed
Ruling: Yes. 
Under the Tax Reform Act of
1997: 
Sec. 203. Period of Limitation
Upon Assessment
and Collection. - Except as
provided in Section 222, internal
revenue taxes shall be assessed
within three (3) years after the
last day prescribed by law for the
filing of the return, and no
 which congress considered in
creating the classification freeze
provision which are: prevention
of potential corruption, promotion
of fair competition, simplification
of tax administration, buoyant
and stable revenue generation and
ease of projecting revenues.
The petitioner's challenge on due
process cannot stand because the
petitioner in the first place, failed
to prove the following: that older
brands have pierced their
brackets, that such piercing has a
detrimental effect to the market,
that the said provision is a
hindrance to encouraging
competition in the market.
proceeding in court without
assessment for the collection of
such taxes shall be begun after
the expiration of such period. 
It is true that, under Section 223
of the Tax Reform Act of 1997,
the running of the Statute of
Limitations provided under the
provisions of Sections 203 and
222 of the same Act shall be
suspended when the taxpayer
cannot be located in the address
given by him in the return filed
upon which a tax is being
assessed or collected. In addition,
Section 11 of Revenue Regulation
No. 12-85 states that, in case of
change of address, the taxpayer is
required to give a written notice
thereof to the Revenue District
Officer or the district having
jurisdiction over his former legal
residence and/or place of
business. 
However, this Court agrees with
both the CT Special First
Division and the CTA En Banc in
their ruling that the
abovementioned provisions on
the suspension of the three-year
period to assess apply only if the
BIR Commissioner is not aware
of the whereabouts of the
taxpayer.
In the present case, petitioner, by
all indications, is well aware that
respondent had moved to its new
address in Calamba, Laguna, as
shown by the following
documents which form part of
respondent's records with the
BIR:
 XXX
The above documents, all of
which were accomplished and
signed by officers of the BIR,
clearly show that respondent's
address is at Carmelray Industrial
Park, Canlubang, Calamba,
Laguna.
The CTA also found that BIR
officers, at various times prior to
the issuance of the subject FAN,
 conducted examination and
investigation of respondent's tax
liabilities for 1999 at the latter's
new address in Laguna as
evidenced by the following, in
addition to the abovementioned
records:

XXX

Hence, despite the absence of a

formal written notice of
respondent's change of address,
the fact remains that petitioner
became aware of respondent's
new address as shown by
documents replete in its records.
As a consequence, the running of
the three-year period to assess
respondent was not suspended
and has already prescribed.
CIR vs British Overseas Airways
Corporation
Facts: British Overseas Airways
Corporation (BOAC) is a British
Government-owned corporation
organized and existing under the
laws of the United Kingdom. It
operates air transportation service
and sells transportation tickets
over the routes of the other airline
members. It is admitted that
BOAC had no landing rights for
traffic purposes in the
Philippines, and was not granted
a Certificate of public
convenience and necessity to
operate in the Philippines by the
Civil Aeronautics Board (CAB).
However, it maintained a general
sales agent in the Philippines --
Warner Barnes and Company,
Ltd. and later Qantas Airways --
which was responsible for selling
BOAC tickets covering
passengers and cargoes. The sale
of these tickets and the income
earned therefrom was taxed by
petitioner CIR. Consequently,
BOAC filed a claim for refund of
the amount of P800k, which
claim was denied by CIR. The
Tax Court however held that the
proceeds of sales of BOAC
passage tickets in the Philippines
by Warner Barnes and Company,
Ltd. and later by Qantas Airways
do not constitute BOAC income
from Philippine sources "since no
service of carriage of passengers
or freight was performed by
BOAC within the Philippines"
and is therefore not subject to
Philippine income tax. The
position of CTA was that income
from transportation is income
from services so that the place
where services are rendered
determines the source.  "source" of income means the
Issue:  the income, the sales commission
1. WON the revenue derived by
private respondent British
Overseas Airways Corporation
(BOAC) from sales of tickets in
the Philippines for air
CIR vs Juliane Baier-Nickel
Facts: Respondent Juliane Baier-
Nickel is a non-resident German
citizen, who is the president of
JUBANITEX Inc., a domestic
corporation. In addition,
respondent was appointed as its
commission agent. It was agreed
that respondent will receive 10%
sales commission on all sales
actually concluded and collected
through her efforts. Respondent
therefore received the amount of
P1.7m representing her sales
commission income from which
JUBANITEX withheld the
corresponding 10% withholding
tax amounting to P170k and
remitted the same to the Bureau
of Internal Revenue.
Respondent later filed a claim to
refund the amount on the ground
that her sales commission income
is not taxable in the Philippines
because the same was a
compensation for her services
rendered in Germany and
therefore considered as income
from sources outside the
Philippines. The CTA denied her
claim as it held that the
commissions received by
respondent were actually her
remuneration in the performance
of her duties as President of
JUBANITEX and not as a mere
sales agent thereof, thus, an
income taxable in the Philippines
because JUBANITEX is a
domestic corporation.
The CA reversed the decision of
the CTA as it held that the
commissions were received as
sales agent of JUBANITEX and
not as president thereof, and since
activity or service that produce
received by respondent is not
taxable in the Philippines because
it arose from the marketing
activities performed by
respondent in Germany. 
CIR vs St. Luke's Medical Center
Facts: Respondent St. Luke's
Medical Center was assessed by
the BIR for deficiency income tax
under Section 27 of the NIRC. As
a result, SLMC filed an
administrative protest to the
petitioner on the ground that it is
exempt from the payment of taxes
considering that it is a non-profit,
non-stock, charitable, social-
welfare organization under
Section 30 of the NIRC. The CIR
denied the protest which led
respondent to elevate the case to
the CTA which ruled in favor of
SLMC. 
Issue: WON SLMC is exempt
from the payment of income tax
Facts: Yes, partly. The SLMC is
liable to pay income taxes under
Section 27 of the NIRC insofar as
its revenues from paying patients
are concerned. 
An organization may be
considered as non-profit if it does
not distribute any part of its
income to stockholders or
members. However, despite its
being a tax exempt institution,
any income such institution earns
from activities conducted for
profit is taxable, as expressly
provided in the last paragraph of
Section 30. Even if the charitable
institution must be organized and
operated exclusively for
charitable purposes, it is
nevertheless allowed to engage in
'activities conducted for profit'
without losing its tax exempt
status for its not-for-profit
activities. In any case, the last
paragraph of Section 30 of the
NIRC expressly qualifies that
income from activities for profit
is taxable 'regardless of the
disposition made of such income'.
 transportation, while having no
landing rights here, constitute
income of BOAC from Philippine
sources, and accordingly,
taxable. 
2. WON during the fiscal years in
question BOAC is a resident
foreign corporation doing
business in the Philippines or has
an office or place of business in
the Philippines.
Bonus:  Philippines, are subject to
3. How would the issue in
number 1 be decided under
today's TRAIN law?
1. Yes.
The Tax Code defines "gross
income" as inclusive of all gains,
profits, and income derived from
any source whatever. This
definition discloses a legislative
policy to include all income not
expressly exempted within the
class of taxable income under our
laws. Income means the flow of
wealth and it is something distinct
from the principal or capital.
While capital is a fund, income is
a flow.  place of payment, but the place
In relation, the source of 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.  refund rest the burden of proving
In this case, BOAC's sale of
tickets in the Philippines is the
activity that produced the income.
The tickets exchanged hands here
and payments for fares were also
made here in Philippine currency.
The situs of the source of
payments is the Philippines. The
flow of wealth proceeded from,
and occurred within, Philippine
territory. Thus, the income
produced from the sales of the
tickets are taxable.
Issue: WON respondent's sales
commission income is taxable in
the Philippines such that her tax
refund must be granted
Ruling: Yes.
Under the National Internal
Revenue Code, non-resident
aliens, whether or not engaged in
trade or business within the
Philippine income taxation on
their income received from all
sources within the Philippines.
Thus, the keyword in determining
the taxability of non-resident
aliens is the income's "source".
Source of income relates to the
property, activity, or service that
produced the income. In
connection, it is the situs of the
activity that determines whether
such income is taxable in the
Philippines. The important factor
which determines the source of
income of personal services is not
the residence of the payor, or the
place where the contract for
service is entered into, or the
where the services were actually
rendered. 
In relation, the settled rule is that
tax refunds are in the nature of
tax exemptions and are to be
construed against the taxpayer. To
those therefore, who claim a
that the transaction subjected to
tax is actually exempt from
taxation.
In the case at bar, the appointment
letter of respondent as agent of
JUBANITEX stipulated that the
activity or the service which
would entitle her to 10%
commission income, are "sales
actually concluded and collected
through her efforts." What she
presented as evidence to prove
that she performed income
producing activities abroad, were
 2. Yes, BOAC is a resident
foreign corporation doing
business in the Philippines.
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
temporary character.  collected sales in Germany,
Here, BOAC maintained a
general sales agent in the
Philippines. That general sales
agent was engaged in selling and
issuing tickets. Those 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. There is no doubt that
BOAC was engaged in business
in the Philippines through a local
agent during the period covered
by the assessments. Accordingly,
it is a resident foreign corporation
subject to tax upon its total net
income received from all sources
within the Philippines.
copies of documents she
allegedly faxed to JUBANITEX
bearing instructions as to the sizes
of, or designs and fabrics to be
used in the finished products as
well as samples of sales orders
purportedly relayed to her by
clients. However, these
documents do not show whether
the instructions or orders faxed
ripened into concluded or
neither did she present contracts
or orders signed by the customers
in Germany to prove the sale
transactions therein. 
Therefore, respondent failed to
discharge the burden of proving
that her income was from sources
outside the Philippines and
exempt from the application of
our income tax law. Hence, the
tax refund should be denied. 

3. BOAC would not be liable to

pay taxes resulting from the sale
of the tickets here in the
Philippines. 

Under the TRAIN Law, a fixed

tax-rate will be imposed based on
transportation conducted here in
the Philippines. 
 CIR vs. Algue
Facts: The Philippine Sugar
Estate Development Corporation
appointed Respondent Algue as
its agent for the sale of the
former's properties. Pursuant to
such authority, several persons
worked to form the Vegetable Oil
Investment Corporation
undertaking to acquire investors.
The Vegetable Oil Investment
Corporation bought the properties
of PSEDC. As such, Algue
received P125,000 from PSEDC
as Commission. Likewise, Algue
distributed a total of P75,000 to
the persons constituting the
Vegetable Oil Investment
Corporation as promotion fees. 
Can a government impose taxes
on a sovereign state?
No, because one of the inherent
limitations of taxation is
international comity.  No. The Local Tax Code only
Can a municipality pass an
ordinance imposing a tax on any
sale or transfer or real property
located within its territory?
allows Province and cities to
impose a tax on the transfer of
ownership of real property.
Municipalities are prohibited
from imposing said tax that
provinces are specifically
authorized to levy. While it is true
that the Constitution has given
broad powers of taxation to
LGUs, this delegation however is
subject to such limitations as may
be provided by law. 

When the CIR taxed Algue for

the whole P125,000, the latter
claimed that the P75,000 is
deductible. On the other hand, the
CIR contended that said amount
was not an ordinary and
reasonable business expenses. 

Issue: WON the P75,000 pesos is

deductible from Algue's taxable
gross income

Ruling: Yes. 

"SEC. 30. Deductions from gross

income. - In computing net
income there shall be allowed as
deduction -

(a) Expenses:

(1) In general. - All the ordinary

and necessary expenses paid or
incurred during the taxable year
in carrying on any trade or
business, including a reasonable
allowance for salaries or other
compensation for personal
services actually rendered; . . ."

and Revenue Regulations No. 2,

Section 70 (1), reading as
follows:

"SEC. 70. Compensation for

personal services. - Among the
 ordinary and necessary expenses
paid or incurred in carrying on
any trade or business may be
included a reasonable allowance
for salaries or other compensation
for personal services actually
rendered. The test of deductibility
in the case of compensation
payments is whether they are
reasonable and are, in fact,
payments purely for service. This
test and its practical application
may be further stated and
illustrated as follows:

 "Any amount paid in the form of

compensation, but not in fact as
the purchase price of services, is
not deductible. (a) An ostensible
salary paid by a corporation may
be a distribution of a dividend on
stock. This is likely to occur in
the case of a corporation having
few stockholders, practically all
of whom draw salaries. If in such
a case the salaries are in excess of
those ordinarily paid for similar
services, and the excessive
payment correspond or bear a
close relationship to the
stockholdings of the officers of
employees, it would seem likely
that the salaries are not paid
wholly for services rendered, but
the excessive payments are a
distribution of earnings upon the
stock. . . ." (Promulgated Feb. 11,
1931, 30 O.G. No. 18, 325.)

In the case at bar, it was proven

by Algue that the P75,000 was
paid for the services actually
rendered by the payees who, by
themselves, form the Vegetable
Oil Investment Corporation and
acquired investors. Such amount
was therefore the ordinary,
reasonable, or necessary expenses
for Algue's trade in selling his
principal's properties. 
Can there be injunction against
the collection of taxes?
Generally, no.  What is the
exception?
eminent domain. The basic reason
social justice and general welfare
When there is a pending case in
the CTA
Carlos Superdrug v. DSWD
In this case, the Congress
changed the tax credit scheme to
a mere tax deduction. The Court
held that the Expanded Senior
Citizens Act is a legitimate
exercise of police power and not
for the passage of the law is
of the senior citizens. Hence,
property rights must bow to the
primacy of police power because
property rights, though sheltered
by due process, must yield to
general welfare.
Chamber of Real Estate and
Builders Association vs Executive
Secretary
Facts: Petitioner assails the
validity of the imposition of the
Minimum Corporate Income Tax
(MCIT) under Section 27 (E) of
Republic Act No. 8424. 
Under the MCIT scheme, a
corporation, beginning on its
fourth year of operation, is
assessed an MCIT of 2% of its
gross income when such MCIT is
greater than the normal corporate
income tax. If the regular
corporate income tax is higher
than the MCIT, the corporation
does not pay the MCIT. 
Likewise, under its implementing
provision, "The MCIT shall be
imposed whenever such
corporation has zero or negative
taxable income or whenever the
amount of minimum corporate
income tax is greater than the
normal corporate income tax due
from such corporation".
Petitioner argues that the MCIT
violates the due process clause
because it levies income tax even
if there is no realized gain. 
Issue: WON the MCIT is
violative of the due process
clause insofar as it shall be
imposed when the corporation
has no or has negative taxable
income. 
Ruling: No. 
For income to be taxable, the
following requisites must exist:
1. There must be gain;
2. The gain must be realized or
received; and
3. The gain must not be excluded
by law or treaty from taxation. 
 Certainly, an income tax is
arbitrary and confiscatory if it
taxes capital, because capital is
not income. In other words, it is
income, but capital, which is
subject to income tax. 

Here, the MCIT is not a tax on

capital as it is imposed on the
gross income which is agreed at
after deducting the capital spent
by a corporation in the sale of its
goods, the cost of goods, and
other direct expenses from gross
sales. Clearly, the capital is not
being taxed. 

Furthermore, the MCIT is not an

additional tax imposition. It is
imposed in lieu of the normal net
income tax, and only if the net
income tax is suspiciously low. 
 Characteristics of tax
Enforced contribution
• Proportionate in character - Laid
by some rule of apportionment
which is usually based on ability
to pay.
• Levied for public purpose.
Revenues derived from taxes
cannot be used for purely private
purpose or for the the exclusive
benefit of private persons.
(Gaston v. Republic Planters
Bank)
• Generally payable in the form of
money Although the law may
provide payment in kind (e.g.
backpay certificates under Sec. 2,
R.A. No. 304, as amended);
• Personal to the taxpayer;
• Levied on persons, property,
rights, acts, privileges, or
transactions;
* Levied by the State which has
jurisdiction or control over the
subject to be taxed;
• Levied by the law-making body
of the State.
Commissioner of Customs vs Define Compromise penalty
Hypermix Feeds
sanction imposed as a punishment
FACTS: In  2003, petitioner for violation of a law or acts
Commissioner of Customs issued deemed injurious. This is paid in
CMO 27-2003 where wheat was lieu of prosecution.
classified according to the
following: (1) importer or
consignee; (2) country of origin;
and (3) port of discharge.
Depending on these factors,
wheat would be classified either
as food grade or feed grade with
the corresponding tariff of 3%
and 7% respectively. As a result,
private respondent Hypermix
Feeds filed for declaratory relief
on the ground that the issuance of
the CMO was without
compliance with the due process
of law considering that there was
no public participation, prior
notice, and publication or
registration with the University of
the Philippines Law Center.
Respondent also alleged that the
regulation summarily adjudged it
to be a feed grade supplier
without the benefit of prior
assessment and examination;
thus, despite having imported
food grade wheat, it would be
subjected to the 7% tariff upon
the arrival of the shipment.
Respondent claimed that the
equal protection clause was
violated when the regulation
treated non-flour millers
differently from flour millers for
no reason at all. 
ISSUE: WON the CMO is
unconstitutional insofar as it
provides different tariff rates on
wheat depending on its grade. 
RULING: 
Yes because Petitioners violated
the respondent's right to due
process in the issuance of CMO
27-2003 when they failed to
observe the requirements under
the Revised Administrative
Code. 

Define taxation 
•The process or méans by which
the sovereign, through its
lawmaking body, imposes
burdens upon subjects and objects
within its jurisdiction for the
purpose of raising revenues to
carry out the legitimate objects of
government.
• A power by which an
independent state, through its law
making body, raises and
accumulates revenue from its
inhabitants to pay the necessary
expenses of the government.
• A process or act of imposing a
charge by governmental authority
on property, individuals or
transactions to raise money for
public purposes.
Petitioners likewise violated
respondent's right to equal
protection of laws when they
provided for an unreasonable
classification in the application of
the regulation since the CMO
classifies the quality of wheat
based on who imports it, where it
is discharged, or which country it
came from. 
The CMO has already classified
the articles even before the
customs officer had the chance to
examine them. This had the effect
of limiting the custom officer's
duties, which can only be limited
through legislation. 
Define the following: 
License - is in the nature of a
special privilege, or authority to Define toll fee
do what is within its terms. It
makes lawful an act which would Toll - A sum of money for the use
otherwise be unlawful. A license of something, generally applied to
granted by the State is always the consideration which is paid
revocable. for the use of a road, bridge or the
like, of a public nature.
License fee - a charge imposed
under the police power for
regulation.

Distinguish Tax, Tarriff and
custom duties
Distinguish a direct from an
indirect tax.
SUGGESTED ANSWER:
Does the equal protection clause
A DIRECT TAX is one in which
require territorial uniformity of
the taxpayer who pays the tax is
laws?
directly liable therefor, that is, the
burden of paying the tax falls
No. It is well-settled that the
directly on the person paying the
equal-protection guarantee does
tax.
not require territorial uniformity
of laws. As long as there are
An INDIRECT TAX is one paid
actual and material differences
by a person who is not directly
between territories, there is no
liable therefor, and who may
violation of the constitutional
therefore shift or pass on the tax
clause.
to another person or entity, which
ultimately assumes the tax
burden. (Maceda v. Macaraig,
197 SCRA 771)
 Due to an uncertainty whether or
not a new tax law is applicable to
printing companies, DEF Printers
submitted a legal query to the
Domestic and International
Bureau of Internal Revenue on
double taxation
that issue. The BIR issued a
ruling that printing companies are
A. Domestic double taxation -
not covered by the new law.
arises when the taxes are imposed
Relying on this ruling, DEF
by the local or the national
Printers did not pay said tax.
government.
Subsequently, however, the BIR
reversed the ruling and issued a Explain the requirement of
B. International double taxation -
new one stating that the tax uniformity as a limitation in the
imposition of comparable taxes in
covers printing companies. Could imposition and/or collection of
two or more states on the same
the BIR now assess DEF Printers taxes. (5%)
taxpayer with respect to the same
for back taxes corresponding to
subject matter and for an identical
the years before the new ruling? SUGGESTED ANSWER:
period.
Reason briefly. (5%) A tax is deemed to have satisfied
the uniformity rule when it
Allowed because they are
SUGGESTED ANSWER: operates with the same force and
imposed by different taxing
No. Reversal of a ruling shall not effect in every place where the
authorities (domestic and
be given a retroactive application subject maybe found. (Phil. Trust
international)
if said reversal will be prejudicial & Co. v. Yatco, 69 Phil. 420).
to the taxpayer. Therefore, the
Measures allowed by the
BIR can not assess DEF printers
government are tax refund or
for back taxes because it would
credit but not to declare it invalid.
be violative of the principle of
non-retroactivity of rulings and
Example: Manny Pacquiao -
doing so would result in grave
subject to income tax by US and
injustice to the taxpayer who
Philippines
relied on the first ruling in good
faith (Section 246, NIRC; CIR v.
Burroughs, Inc., 142 SCRA
324[1986]).
 GROUNDS FOR TAX
EXEMPTION
GR: The power to tax is
essentially a legislative function
A. It may be based on contract.
and which the central legislative
body cannot delegate to other
TN: In such a case, the public
branches.
which is represented by the
government is supposed to
XPNS: (Permissive delegation of
receive a full equivalent therefor,
the power to tax)
i.e. charter of a corporation
A. To local governments in
B. It may be based on some
respect of matters of local
ground of public policy.
concern
Foreign embassies are not subject TN: to encourage new industries
TN: Through the Local
to tax because they are considered or to foster charitable institutions.
Government Code of 1991
extensions of the foreign country Here, the government need not
they represent. receive any consideration in
B. When allowed by the
return for the tax exemption
Constitution
TN: To the President with respect
C. It may be created in a treaty on
to tariff rates, import and export
grounds of reciprocity or to lessen
quotas, flexible tariff clause, etc.
the rigors of international or
multiple taxation.
C. Administrative regulations
(Assessment and Collection)
TN: Equity is NOT a ground for
TN: Two tests to determine the
tax exemption. Exemption from
validity of the delegation to
tax is allowable only if there is a
administrative agencies:
clear provision. While equity
cannot be used as a basis or
1. Completeness test
justification for tax exemption, a
2. Sufficient standard test
law may validly authorize the
condonation of taxes on equitable
considerations.
Government entities exempted Grosjean vs. American Press Co.
from income tax: - 297 U.S. 233, 56 S. Ct. 444
(1936)
A. GSIS
B. SSS FACTS:
C. PHIC Plaintiffs, nine publishers of
D. PCSO newspapers in the State of
E. PAGCOR (but not exempted Louisiana, brought an action to
from business tax) enjoin enforcement of La. Act
No. 23 (1934), which imposed a
2% tax on advertisements in
publications that had a large
circulation particularly only those
newspapers enjoying a circulation
of more than 20,000 copies per
week. The trial court entered a
decree that permanently enjoined
the collection of the tax on
newspapers. Defendant Grosjean,
the accounts supervisor for the
state of Louisiana, then sought
review.
ISSUE:
Does La. Act No. 23 (1934)
violate the freedom of the press
under the First Amendment?
Hagonoy Market Vendor
Association vs Municipality of
Hagonoy
Facts: The respondent passed an
ordinance which increased the
stall rentals of the market vendors
in Hagonoy. However, the
petitioners questioned this
ordinance citing the Municipal
Revenue Code and the Local
Government Code which limited
the percentage of increase of tax
rates. 
Issue: WON such limitations
apply to the subject ordinance
No, because the revenue measure
in the case at bar does not refer to
tax rates, but rentals. Thus, the
increase of the stall rentals of the
market vendors in Hagonoy is not
limited by the aforementioned
provisions of law. 

CONCLUSION:
The United States Supreme Court
found that the tax violated the
freedom of the press under the
First Amendment. The Court
determined that the newspaper
publishers were all corporations
and, as such, were "persons"
within the meaning of the Equal
Protection and the Due Process of
Law Clauses. The Court found
that the tax curtailed the amount
of revenue from advertising and
tended to restrict newspaper
circulation. The manner of use of
the tax in this case is, in itself,
suspicious; it is not measured or
limited by the volume of
advertisements, but by the extent
of the circulation of the
publication in which the
advertisements are carried, with
the plain purpose of penalizing
the publishers and curtailing the
circulation of a selected group of
newspapers. It is bad because, in
the light of its history and of its
present setting, it is seen to be a
deliberate and calculated device

If the basis of the tax exemption
is a mere franchise granted by
Congress - it can be unilaterally
revoked by the government
Is double taxation a valid defense
against the legality of a tax
measure?
SUGGESTED ANSWER:
No, double taxation standing
alone and not being forbidden by
our fundamental law is not a valid
defense against the legality of a
tax measure (Pepsi Cola v.
Tanawan, 69 SCRA 460). 
However, if double taxation
amounts to a direct duplicate
taxation,
1. in that the same subject is
taxed twice when it should be
taxed but once,
2. in a fashion that both taxes are
imposed for the same purpose
3. by the same taxing authority,
within the same jurisdiction or
taxing district,
4. for the same taxable period and
5. for the same kind or character
of a tax,
then it becomes legally
objectionable for being
oppressive and inequitable.
in the guise of a tax to limit the
circulation of information to
which the public is entitled in
virtue of the constitutional
guaranties.
If the state owes you, can your
obligation to pay taxes be set off
by the debt of the State?
In LePub Te Gov SL
No, because of the lifeblood
Nature of taxation
theory and the theory of necessity.
Taxation cannot be the subject of
compensation. 
Is the appropriation or budget
given for the visit of the pope in
Is progressive system of taxation
the Philippines valid or a
directory or mandatory?
violation of the separation of the
church and state?
It is merely directory because we
even have regressive taxes (VAT)
It is valid. The Pope is a head of
- the lesser money you have, the
the State and being one, the
more you can feel the impact. It is
appropriation made by the
regressive as to effect. Such a
government for the visit is
provision is placed in the
justified. Also, the visit has for
Constitution as moral incentives
itself a secular purpose which is
to legislation and not as judicially
for tourism. The benefit to the
enforceable rights.
Catholic Church is merely
incidental.
 Justice Holmes once said: The
power to tax is not the power to
KINDS OF TAX AND THEIR
destroy while this Court (the
SITUS
Supreme Court) sits." Describe
the power to tax and its
1. Poll or community tax - 
limitations. (5%)
residence of the taxpayer LTO vs City of Butuan
regardless of citizenship. 
2. Business tax - place of business FACTS: The Regional Trial Court
SUGGESTED ANSWER:
3. Excise tax - where the act is of Butuan City held that the
The power to tax is an inherent
performed or the occupation is authority to register tricycles, the
power of the sovereign which is
pursued grant of the corresponding
exercised through the legislature,
4. Income tax - source of income, franchise, the issuance of tricycle
to impose burdens upon subjects
citizenship, or residence drivers' license, and the collection
and objects within its Jurisdiction
5. Transfer tax (donor's or estate of fees therefor had all been
for the purpose of raising
tax) -  vested in the Local Government
revenues to carry out the
residence, citizenship or Units. Thus, it decreed the
legitimate objects of government.
location of the property issuance of a permanent writ of
The underlying basis for its
6. Franchise tax - the state which injunction against LTO, enjoining
exercise is governmental
granted the franchise it from exercising said authority.
necessity for without it no
7. Value added tax - where the The Court of Appeals upheld such
government can exist nor endure.
transaction is made. However, if decision. 
Accordingly, it has the broadest
the property is not to be
scope of all the powers of
consumed in the Philippines, then Issue: Whether or not the
government
it should not be taxed in the mentioned authority of the LTO
because in the absence of
Philippines (cross border doctrine to register tricycles and issue
limitations, it is considered as
or destination principle) driving licenses therefor has
unlimited, plenary,
8. Sales tax - where the sale is devolved to the local government
comprehensive and supreme. The
consummated. Presumption: sale units?
two limitations on the power of
of personal property
taxation are the inherent and
9. Interest income - residence of Ruling: Yes, by virtue of the
constitutional limitations which
the borrower who pays the Local Government Code. 
are intended to prevent abuse on
interest, irrespective of the place
the exercise of the otherwise
where the obligation was
plenary and unlimited power. It is
contracted.
the Court's role to see to it that
10. Property tax - could either be
the exercise of the power does not
real or personal property tax.
transgress these limitations.

Levy or imposition

Refers to the enactment of a law

Life blood theory states thattaxes
by Congress. The power to levy
are the lifeblood of the state
taxes which involves tax policy is
without which it cannot operate
essentially legislative in
No cloze ⁨2⁩found on card. Please
character, although it may be
Theory of necessity states that  either add a cloze deletion, or use
delegated to executive agencies
since taxes are the lifeblood of the Empty Cards tool.
with respect to administrative
the state, it is therefore necessary More information
matters, provided that adequate
and indispensable to collect taxes
guidelines or safeguards
for the state to survive. 
prescribed are followed in the
administration of tax laws.
(Subordinate legislation)
 Lung Center of the Philippines
vs. Quezon City
Facts: The petitioner Lung Center
of the Philippines is a non-stock
and non-profit entity established
on January 16, 1981 by virtue of
Presidential Decree No.
1823. It is the registered owner of
a parcel of land. Erected in the
middle of the aforesaid lot is a
hospital known as the Lung
Center of the Philippines. A big
space at the ground floor is being
leased to private parties, for
canteen and small store spaces,
and to medical or professional
practitioners who use the same as
their private clinics for their
patients whom they charge for
their professional services.
Almost one-half of the entire area
on the left side of the building
along Quezon Avenue is vacant
and idle, while a big portion on
the right side, at the corner of
Quezon Avenue and Elliptical
Road, is being leased for
commercial purposes to a private
enterprise known as the Elliptical
Orchids and Garden Center.
The petitioner accepts paying and
non-paying patients. It also
renders medical services to out-
patients, both paying and non-
paying. Aside from its income
from paying patients, the
petitioner receives annual
subsidies from the government.
Issue: Whether or not Petitioner
Lung Center is exempt from real
property taxes considering that it
is a charitable institution.  which imposes the tax.
Ruling: Yes, partly, insofar as the
portions of the real property is
used for its charitable purposes,
but not the portions leased to
private entities.  local sources. The place of
Under the LGC, only those real
properties actually, directly, and
exclusively used for charitable,
religious, or educational purposes
Luz vs Araneta
Why is it that only those people
engaged in the sugar industry are
the ones burdened to pay the tax?
That the tax to be levied should
burden the sugar producers
themselves can hardly be a
ground of complaint. Indeed, it
appears rational that the tax be
obtained precisely from those
who are to be benefited from the
expenditure of the funds derived
from it. At any rate, it is inherent
in the power to tax that a state be
free to select the subjects of
taxation, and 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.
Manila Gas Corp vs CIR
FACTS: Petitioner is a domestic
corporation. It has two foreign
corporations as its stockholders,
namely: Islands Gas and Electric
Company, and General Finance
Company, located in the USA and
Switzerland respectively.
Respondent taxed the dividends
remitted by petitioner to the
Islands Gas and Electric
Company and the interests in
bonds and other indebtedness
remitted by petitioner to General
Finance Company. Petitioner
opposed this on the ground that
the recipients are not domiciled in
the Philippines. 
Issue: WON the interest in bonds
and other indebtedness paid to
foreign corporations stockholders
not domiciled in the Philippines
can be subjected to tax. 
Ruling: Yes. 
If an interest in property is taxed,
the situs of either the property or
interest must be found within the
state. If an income is taxed, the
recipient thereof must have a
domicile within the state or the
property or business out of which
the income issues must be
situated within the state so that
the income may be said to have a
situs therein. Personal property
may be separated from its owner
and he may be taxed on its
account at the place where the
property is although it is not a
citizen or resident of the state
In the case at bar, the Manila Has
Corporation operates its business
entirely within the Philippines. Its
earnings, therefore, come from
payment even if conceded to be
outside of the country cannot alter
the fact that the income was
derived from the Philippines.
Thus, the interests in bonds and
other indebtedness paid to foreign
may be exempt from real property corporations stockholders can be
taxes.  subjected to tax. 

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. 

The petitioner failed to discharge

its burden to prove that the
entirety of its real property is
actually, directly and exclusively
used for charitable purposes.
While portions of the hospital are
used for the treatment of patients
and the dispensation of medical
services to them, whether paying
or non-paying, other portions
thereof are being leased to private
individuals for their clinics and a
canteen. Further, a portion of the
land is being leased to a private
individual for her business
enterprise under the business
name "Elliptical Orchids and
Garden Center." Indeed, the
petitioner's evidence shows that it
collected P1,136,483.45 as rentals
in 1991 and P1,679,999.28 for
1992 from the said lessees.

Accordingly, we hold that the

portions of the land leased to
private entities as well as those
parts of the hospital leased to
private individuals are hot 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.
 May Congress, under the 1987
Constitution, abolish the power to
tax of local governments? (4%)
SUGGESTED ANSWER:
No. Congress cannot abolish what
is expressly granted by the
fundamental law. The only
authority conferred to Congress is
to provide the guidelines and
limitations on the local
government's exercise of the
power to tax (Sec. 5, Art. X, 1987
Constitution).
May a taxpayer who has pending
claims for VAT input credit or
refund, set-off said claims against
his other tax liabilities? Explain
your answer. (5%)
No. Taxes and claims for refund
cannot be the subject of set-off
for the simple reason that the
government and the taxpayer are
not creditors and debtors of each
other. There is a material
distinction between a tax and a
claim for refund. Claims for
refunds just like debts are due
from the government in its
corporate capacity, while taxes
are due to the government in its
sovereign capacity. (Philex
Mining Corp. v. CIR, GR No.
125704, August 29, 1998).
Minneapolis Star vs Minnesota
CIR 
Facts:
The State of Minnesota exempted
newspapers from a four percent
sales tax set up by the state, but
they were subject to a four
percent use tax on the costs of ink
and paper, which applied to any
publication. Each newspaper
received an annual tax credit of
$4,000 through an exemption
from the use tax for the first
$100,000 of ink and paper that
was used by a publication in a
calendar year. However, in 1974,
11 papers used more than
$100,000 in ink and paper,
making them liable for the use
tax; in 1975, 13 papers were
required to pay the tax. The
Minnesota Tribune argued that it
should be refunded for the use
taxes that it had paid because the
law unconstitutionally restricted
the freedom of the press under the
First Amendment and also
violated the Equal Protection
Clause of the Fourteenth
Amendment.
Issue: WON the use tax providing
an exemption to all publications
from the use tax for the first
100kUSD of ink and paper is
violative of the equal protection
clause
RULING:
Yes. This ink and paper tax is
unconstitutional not only because
it treats the press differently but
also because it treats a certain
small group of newspapers
differently. The state may not be
allowed to devise a tax scheme to
single out certain members of the
press under any circumstances, no
matter how compelling the
interest that it cites. A tax of
which the entire burden is borne
by a small part of the whole
resembles a penalty for large
newspapers rather than an effort
to favor smaller newspapers.
 NATURE OF TAXATION Osmeña vs Orbos
POWER
Facts: Pres. Marcos issued PD
1956, creating the Oil Price
Stabilization Fund (OPSF). The
OPSF was used to reimburse oil
In LePub TeGov S L companies for expenses incurred
by reason of exchange rate
• INHERENT POWER OF adjustments and/or increases in
SOVEREIGNTY; the global market price of crude
• ESSENTIALLY A oil. Thus, the Energy Regulatory
LEGISLATIVE FUNCTION; Board (ERB) was authorized to
• FOR PUBLIC PURPOSES; collect additional taxes and fees
• TERRITORIAL IN on petroleum products, to fund
OPERATION; the OPSF. This was challenged by
• TAX EXEMPTION OF petitioner for being
GOVERNMENT; unconstitutional on the ground
• THE STRONGEST AMONG that the authority granted by the
THE INHERENT POWERS OF PD to the ERB pertains to the
THE GOVERNMENT; power of taxation, which cannot
AND be delegated.  purpose is primarily revenue, or if
• SUBJECT TO
CONSTITUTIONAL AND Issue: WON the authority granted
INHERENT LIMITATIONS. by PD to the ERB is
unconstitutional insofar as it
delegates the power of taxation to
the ERB
PAL v. Edu, 164 SCRA 320
• The legislative intent and
purpose behind the law requiring
owners of vehicles to pay for
their registration is mainly to
raise funds for the construction
and maintenance of highways
and, to a much lesser degree, pay
for the operating expenses of the
administering agency. It is
possible for an exaction to be
both a tax and a regulation.
License fees are charges, looked
to as a source of revenue as well
as a means of regulation. The fees
may properly be regarded as taxes
even though they also serve as an
instrument of regulation. If the
revenue is at least one of the real
and substantial purposes, then the
exaction is properly called a tax.

Ruling: No. 

It is well-settled in jurisprudence
that although stabilization fees
partake the character of taxation,
their primary consideration is
regulation, that is, to provide
means for the stabilization of an
industry. As such, the
stabilization fees are an exercise
of the police power of the state,
which is delegable. 

Here, the source of OPSF is

ERB's authorized collection of
additional taxes and fees from
various petroleum products and
crude oil transactions, which such
funds will be used to reimburse
oil companies for cost increases
in crude oil and imported
petroleum products resulting from
exchange rate adjustments and/or
 increases in the global market
price of crude oil, so as to
stabilize oil prices. Thus, the
collection being regulatory, the
authority to do so is a valid
 delegation of police power of the
state. 

PRINCIPLES OF A SOUND
TAX SYSTEM

FAT

• Fiscal adequacy
• The sources of tax revenue
should coincide with, and
approximate the needs of,
government expenditures. The
revenue should be elastic or
capable of expanding or PUG PPM
PU JAI
contracting annually in response
to variations in public Provisions directly affecting
Requisites of a valid tax
expenditures. taxation

• Administrative feasibility
• Tax laws should be capable of
convenient, just and effective
administration.

• Theoretical justice or equality

• The tax burden should be in
proportion to the taxpayer's
ability to pay. This is the so-
called ability to pay principle.
 Pascual vs Secretary of Public
Works
FACTS: Governor Wenceslao
Pascual of Rizal instituted this
action for declaratory relief, with
injunction, upon the ground that
RA No. 920, which apropriates
funds for public works
particularly for the construction
and improvement of Pasig feeder
road terminals. Some of the
feeder roads, however, as alleged
and as contained in the tracings
attached to the petition, were
nothing but projected and planned
subdivision roads, not yet
constructed within the Antonio
Subdivision, belonging to private
respondent Zulueta, situated at
Pasig, Rizal; and which projected
feeder roads do not connect any
government property or any
important premises to the main
highway. The respondents'
contention is that there is public
purpose because people living in
the subdivision will directly be
benefitted from the construction
of the roads, and the government
also gains from the donation of
the land supposed to be occupied
by the streets, made by its owner
to the government.
ISSUE: Should incidental gains
by the public be considered
"public purpose" for the purpose
of justifying an expenditure of the
government?
HELD: No. It is a general rule
that the legislature is without
power to appropriate public
revenue for anything but a public
purpose. It is the essential
character of the direct object of
the expenditure which must
determine its validity as justifying
a tax, and not the magnitude of
the interest to be affected nor the
degree to which the general
advantage of the community, and
thus the public welfare, may be
ultimately benefited by their
promotion. Incidental benefits to
the public or to the state, which
Personal property tax situs:
i. Tangible personal property -
where the property is physically
located although the owner
resides in another jurisdiction
ii. Intangible personal property -
GR: Domicile of the owner
because movables follow the
person.
XPNS:
1. When the law provides for the
situs of the subject of tax
2. When the property has
acquired a business situs in
another
jurisdiction
Philippine Airlines v. Edu
The imposition of a vehicle
registration fee is not an exercise
by the State of its police power,
but of its taxation power. The
legislative intent and purpose
behind the law requiring owners
of vehicles to pay for their
registration is mainly to raise
funds for the construction and
maintenance of highways and to a
much lesser degree, pay for the
operating expenses of the
administering agency. Fees may
be properly regarded as taxes
even though they also serve as an
instrument of regulation.
Taxation may be made the
implement of the state's police
power/ If the purpose is primarily
revenue, or if revenue is, at least,
one of the real and substantial
purposes, then the exaction is
properly called a tax. Such is the
case of motor vehicle registration
fees.
TN: Motor vehicle registration
fee and chauffeur's license fee are
powers of taxation, whereas the
special permit fee and additional
fee for charge of registration is an
exercise of police power because
such fees are very minimal to be
revenue-raising.
 results from the promotion of
private interest and the prosperity
of private enterprises or business,
does not justify their aid by the
use public money.
The test of the constitutionality of
a statute requiring the use of
public funds is whether the statute
is designed to promote the public
interest, as opposed to the
furtherance of the advantage of
individuals, although each
advantage to individuals might
incidentally serve the public.

Purpose of taxation

Planters Products v. Fertiphil RevRegWard ProRed 

Corp.
• REVENUE/FISCAL (raising of
The term "public purpose" is not revenue for public purposes)
defined. It is an elastic concept • REGULATORY
that can be hammered to fit
modern standards. It does not • Non-revenue or regulatory:
only pertain to those purposes Taxation may also be employed
ProPres No G Flex E N
which are traditionally viewed as for purposes of regulation or
essentially government functions, control.
Provisions directly affecting
such as building roads and
taxation
delivery of basic services, but • Imposition of tariffs on
also includes those purposes imported goods to protect local
designed to promote social industries.
justice. Thus, public money may
now be used for the relocation of • The adoption of progressively
illegal settlers, low-cost housing higher tax rates to reduce
and urban or agrarian reform. inequalities in wealth and income.

• The increase or decrease of

taxes to prevent inflation or ward
off depression.
 Q. Is the income of the church
taxable?

No. It is not taxable. While it is

true that Section 28 Art 6 deals
only with real property tax Requisites for the Determination
exemption, but income tax that the tax is for public purpose
exemption is provided under Sec
30 of the National Internal A. Proceeds of the tax must be
Revenue Code. Read these cases for now before used for the support of the
the last assigned cases government, specifically on its
Sec 30. The following governmental functions
organizations shall not be taxed
under this Title in respect to B. Proceeds of the tax must be for
income received by them as such: any of the recognized objects of
(E) Non-stock corporation or the government
association organized and
operated exclusively for religious, C. Proceeds of the tax must be to
charitable, scientific, athletic, or promote the welfare of the
cultural purposes, or for the community
rehabilitation of veterans, no part
of its net income or asset shall
belong to or inures to the benefit
of any member, organizer, officer
or any specific person.
 Smart Communications vs City of
Davao

Facts: 
The Tax Code of respondent City
of Davao imposes local tax to
petitioner. Petitioner filed a
declaratory relief on said Code on
the ground that it is exempt from Summarize the rules of the kinds
taxes as provided in its franchise of taxes and their respective situs
where it is stated that the payment
of petitioner of a certain tax under
the franchise is "in lieu of all
taxes". 

Issue: WON Petitioner Smart

Communications is liable to pay
the local taxes under the Tax
RevRegRed ProWard Code of respondent

Ruling: Yes, because the

provision of the franchise stating
"in lieu of all taxes" is general.
Smart Communications was not
Purpose of taxation able to prove that it was
specifically intended by Congress
that it be exempt from the
payment of local taxes. What was
contemplated in the franchise was
exemption from taxes under the
NIRC. The exemption from local
taxes was not specifically stated
in the franchise nor was it
discussed in Congress
deliberation.

It is well-settled that tax

exemptions are to be strictly
construed against the taxpayer
and liberally in favor of the
taxing authority. Tax exemptions
must be clearly and categorically
provided in order to be upheld.
 THEORY AND BASIS OF
TAXATION
Supposing XYZ Corp paid the
•LIFEBLOOD OR NECESSITY
sales tax. ABC Corp later found
THEORY
however that XYZ merely shifted
• In Commissioner v. Algue, the
or passed on to ABC the amount
Supreme Court said that taxes are
of the sales tax by increasing the
the lifeblood of the government
purchase price. ABC Corp now
and should be collected without
claims for a refund from the BIR
unnecessary hindrance.
in an amount corresponding to the
tax passed on to it, since it is tax
T or F. Local government unit They are what we pay for a
exempt. Is the claim of ABC Corp
have the inherent power to tax.  civilized
meritorious?
society. Without taxes, the
government would be paralyzed
No, the claim of ABC Corp is not
F. Their power to tax is vested by for lack of motive power to
meritorious. Although the tax was
Congress.  activate and operate it. The
shifted to ABC by the seller, what
government, for its part, is
is paid by it is not a tax but a part
expected to respond in the form
of the cost it has assumed. The
of tangible and intangible benefits
taxpayer who can file a claim for
intended to improve the lives of
refund is the person statutorily
the people and enhance their
liable for the payment of the tax.
moral and material values.
Since ABC Corp is not said
taxpayer, it has no capacity to file
•BENEFIT RECEIVED
a claim for refund.
THEORY - Reciprocal
obligations
 Talk about the exemption of
government from taxes
Refers only to REAL ESTATE
TAX
belonging to another citizenship,
If the taxing authority is the
National Government
the state of said subject or object
GR: Agencies and
instrumentalities of the
government performing
governmental functions are tax
exempt. If performing proprietary
function, taxable.
A. Governmental function - tax
exempt
B. Proprietary function - taxable
XPN: Even if performing
proprietary function, if the
franchise or law creating them
exempts them - tax exempt.
If the taxing authority is the LGU
RA 7160 expressly prohibits
LGUs from levying tax on the
National Government, its
agencies and instrumentalities
and other LGUs.
Talk about the reciprocity Rule
It is the rule under which tax
exemptions granted by a taxing
authority to a subject or object
the citizens of said taxing
authority are also exempted by
which it has granted tax
exemption to.  challenged for being violative of
Tan vs Del Rosario 
Facts: This case is a consolidation
of two cases. 
In the first case, Republic Act No.
7496, known as the Simplified
Net Income Taxation Scheme
(SNIT) amending certain
provisions of the NIRC is
the Constitutional requirement
that the rule of taxation shall be
uniform and equitable in that the
law would now attempt to tax
single proprietorships and
professionals differently from the
manner it imposes tax on
corporations and partnerships. 
In the second case, petitioners
assailed the Revenue Regulations
issued by the Commissioner of
Internal Revenue on the ground
that public respondents have
exceeded their rule-making
authority in applying the SNIT to
general professional
partnerships. 
Issue: 
1. WON the SNIT violates the
taxation uniformity clause of the
Constitution
2. WON the CIR exceeded its
authority in applying the SNIT to
general professional partnerships,
through the regulation it enacted
for the purpose.
RULING: 
1. No, the SNIT does not violate
the taxation uniformity clause of
the Constitution because it
satisfies the requisites for there to
be a valid classification. 
Uniformity of taxation, like the
kindred equal protection clause,
merely requires that the subjects
of taxation similarly situated are
to be treated alike in both rights
and liabilities. Uniformity does
not forfend classification as long
 as: 1) the standards that are used
therefor are substantial and not
arbitrary; 2) the categorization is
germane to the legislative
purpose; 3) the law applies, all
things being equal, to both
present and future conditions; and
4) the classification equally
applies to all those belonging to
the same class.

Here, the SNIT merely has the

legislative intent to increasingly
shift the income tax system
towards the schedular approach in
the income taxation of individual
taxpayers and to maintain, by and
large, the present global treatment
on taxable corporations. This
classification is not arbitrary nor
inappropriate. 

2. No, because the regulation

does not actually apply the SNIT
to general professional
partnerships, but to the
individuals comprising said
partnerships. It therefore does not
treat the partnerships themselves
as taxpayers, but their comprising
members.
 Tax liability of the following:

Summary of rules:
A. If non-stock, non-profit
educational institution - tax
exempt

B. If for profit - 
Tanya owns a beer house. She
preferential rate at 10% provided
pays sales/business tax as well as
its gross income
the local tax imposed by an
from unrelated trade must not
ordinance on every bottle of Tax amnesty vs tax exemption exceed 50% of its total gross
beverage to be sold. Is there
income
double taxation? Is the ordinance
valid?
The 10% preferential tax rate
does not apply to the following:
YES. There is indirect double
taxation because it is imposed by
A. The passive income derived by
different taxing authorities and
the educational institution, which
the purpose is different, one is for
is
the sales and the other is for the
subject to final income tax, i.e.
fact of selling. Hence, it does not
rent income or interest in income
make the local ordinance invalid.
B. Engaged in unrelated trade or
business or other activity where
the gross income from such
exceeds 50% of the total gross
income

Tax vs debt
Tax vs License Fee Tax vs Toll Fee

The City of Makati, in order to
solve the traffic problem in its
business districts, decided to
impose a tax, to be paid by the
driver, on all private cars entering
the city during peak hours from
8:00 am to 9:00 am from
Mondays to Fridays, but it
exempts those cars carrying more
than two occupants, excluding the
driver. Is the ordinance valid?
No. The ordinance is in violation
Tax vs subsidy of the rule of uniformity and
equality, which requires that all
subjects or objects of taxation,
similarly situated must be treated
alike and must not be classified in
an arbitrary manner. The
ordinance exempts cars carrying
more than two occupants and
taxes only private cars, exempting
public vehicles, although both
contribute to the traffic problem.
Also, the tax is imposed not on
the registered owner but the
driver, who has no control over
the route of the vehicle. The
ordinance does not just violate the
rule of uniformity, the same is
likewise unjust.
The House of Representatives
introduced HB 7000 which
envisioned to levy a tax on
various transactions. After the bill
was approved by the House, the
bill was sent to the Senate as so
required by the Constitution. In
the upper house, instead of a
deliberation on the House Bill,
the Senate introduced SB 8000
which was its own version of the
same tax. The Senate deliberated
on this Senate Bill and approved
the same. The House Bill and the
Senate Bill were then
consolidated in the Bicameral
Committee. Eventually, the
consolidated bill was approved
and sent to the President who
signed the same. The private
sectors affected by the new law
questioned the validity of the
enactment on the ground that the
constitutional provision requiring
that all revenue bills should
originate from the House of
Representatives had been
violated. Resolve the issue.
SUGGESTED ANSWER:
There is no violation of the
constitutional requirement that all
revenue bills should originate
from the House of
Representatives. What is
prohibited is for the Senate to
enact revenue measures on its
own without a bill originating
from the House. But once the
revenue bill was passed by the
House and sent to the Senate, the
latter can pass its own version on
the same subject matter
consonant with the latter's power
to propose or concur with
amendments. This follows from
the co-equality of the two
chambers of Congress (Tolentino
v. Secretary of Finance, GR No.
115455, Oct. 30, 1995).
 The Secretary of Finance, upon
recommendation of the
Commissioner of Internal
Revenue, issued a Revenue
Regulation using gross income as
the tax base for corporations
doing business in the Philippines.
Is the Revenue Regulation valid?
SUGGESTED ANSWER:
The regulation establishing gross
income as the tax base for
corporations doing business in the
Philippines (domestic as well as
resident foreign) is not valid. This
is no longer implementation of
the law but actually it constitutes
legislation because among the
powers that are exclusively
within the legislative authority to
tax is the power to determine -the
amount of the tax. (See 1 Cooley
176-184). Certainly, if the tax is
limited to gross income without
deductions of these corporations,
this is changing the amount of the
tax as said amount ultimately
depends on the taxable base.
Tolentino v. Secretary of Finance
The free exercise of religion
clause, however, does not prohibit
imposing a generally applicable
sales tax on the sale of religious
materials by religious
organizations. The sale of
religious articles can be subject to
VAT, what cannot be taxed is the
exercise of religious worship or
activity. The income of the priest
from the exercise of a religious
activity cannot also be taxed.
The admission of paying-patients
does not detract from the
charitable character of a hospital,
if all its funds are devoted
exclusively to the maintenance of
the institution as a public charity.
In other words, where the
rendering of charity is its primary
object, and the funds derived
from payments made by patients
able to pay are devoted to the
benevolent purposes of the
institution, the mere fact that a
profit has been made will not
deprive the hospital of its
benevolent character.
Tolentino v. Secretary of Finance
The non-impairment clause has
never been thought as a limitation
on the exercise of the State's
power of taxation, except where a
tax exemption has been granted
for a valid consideration.
The test of whether or not an
imposition is for public purpose is
not as to who receives the money,
but the character or the purpose
of which it is expected. Also, the
test is not the immediate result of
the expenditure but the ultimate
result.
What are the inherent limitations
of taxation?
PEN IT
A. Public purpose
B. Exemption from taxation of
government entities
C. Non-delegation of the
legislative power to tax
D. Internationalcomity
E. Territorial jurisdiction
 What are the usual methods of
avoiding the occurrence of double
taxation?
What are the subject matter of SUGGESTED ANSWER:
taxation? Explain What is the MOST FAVORED
The usual methods of avoiding
comprehensively using the NATION CLAUSE
the occurrence of double taxation
illustration of atty. Yap are:
A method of establishing equality
of trading opportunity among
1. Allowing reciprocal exemption
states by guaranteeing that if one
either by law or by treaty;
country is given better trade terms
2. Allowance of tax credit for
by another, then all other states
foreign taxes paid;
must get the same terms.
3. Allowance of deduction for
foreign taxes paid; and
4. Reduction of the Philippine tax
rate.
 Where is the respective situs in
the following:

Franchise exercised in the

Philippines if the franchise owner
or holder is not from the
Philippines 

Philippines

Shares of stocks, obligations,

bonds issued by domestic
corporations  

taxed in the Philippines

When is the reckoning period in Where is the situs of passive
determining the purpose of the Shares of stocks, obligations, income?
levy? bonds issued by foreign
To determine if it is for public corporations where 85% of its Generally it is taxed separately
purpose, it must reckoned on the business is located in the from compensation, and business
date when the law is passed and Philippines  income. However, it must be
not on the time of derived within the Philippines;
implementation. taxed in the Philippines otherwise, it is taxed as part of
gross income. 
Shares or right in a partnership
business or industry established
in the Philippines if the holders or
owners thereof are not Filipino

 taxed in the Philippines

Shares, obligations, bonds issued

by foreign corporations which
acquired business situs when
sanctioned in the furtherance of
foreign corporation 

taxed in the Philippines

X is the owner of a residential lot
situated at Quirino Avenue, Pasay
City. The lot has an area of 300
square meters. On June 1, 1994,
100 square meters of said lot
owned by X was expropriated by
the government to be used in the
widening of Quirino Avenue, for
P300.000.00 representing the
estimated assessed value of said
portion. From 1991 to 1995, X,
who is a businessman, has not
been paying his income taxes. X
is now being assessed for the
unpaid income taxes in the total
amount of P150,000.00. X claims
his income tax liability has
already been compensated by the
amount of P300.000.00 which the
government owes him for the
expropriation of his property.
Decide.
SUGGESTED ANSWER:
The income tax liability of X can
not be compensated with the
amount owed by the Government
as compensation for his property
expropriated, taxes are of distinct
kind, essence and nature than
ordinary obligations. Taxes and
debts cannot be the subject of
compensation because the
Government and X are not
mutually creditors and debtors of
each other and a claim for taxes is
not a debt, demand, contract, or
Judgment as is allowable to be set
off. (Francia vs. IAC. G.R 76749,
June 28. 1988)
X, a lessor of a property, pays real
estate tax on the premises, a real
estate dealer's tax based on rental
receipts and income tax on the
rentals. X claims that this is
double
taxation? Decide.
There is no double taxation.
DOUBLE
TAXATION means taxing for the
same tax period the same thing or
the sale of magazines or
activity twice, when it should be
newspapers may be subject to tax.
taxed but once, by the same
What is not allowed is to impose
taxing authority for the same
tax on the exercise of an activity
purpose and with the same kind
such as when license fees are
or character of tax. The REAL
required before one sell
ESTATE TAX is a tax on
magazines or newspapers.
property; the REAL ESTATE
DEALER'S TAX is a tax on the
privilege to engage in business;
while the INCOME TAX is a tax
on the privilege to earn an
income. These taxes are imposed
by different taxing authorities and
are essentially of different kind
and character (Villanueva vs. City
of Iloilo, 26 SCRA 578).

Double nexus rule
Person claiming exemption must
prove:
1. The law granting the
exemption
2. You fall within the law or you
qualify in the exemption
Primary purpose test (To be
considered a license fee)
A. The imposition must relate to
an occupation or activity that so
engages the public interest in
health, morals, development and
safety, as to require regulation for
the protection and promotion of
such public interest.
B. Imposition must 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.
TN: 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 police
power.
Lutz v. Araneta
Police power may be exercised
for the purpose of requiring
licenses for which license fees
may have to be paid. The amount
of the license fees for the
regulation of useful occupations
should only be sufficient to pay
for the cost of the license & the
necessary expense of police
surveillance and regulation. For
non-useful occupations, the
license fee may be sufficiently
high to discourage the activity
sought to be regulated.