GENERAL

PRINCIPLES
Taxation Law
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9. Compromise
I. GENERAL PRINCIPLES 10. Tax amnesty

TOPIC OUTLINE UNDER THE SYLLABUS:

K. CONSTRUCTION AND INTERPRETATION OF
I. GENERAL PRINCIPLES TAX LAWS, RULES AND REGULATIONS
A. CONCEPT AND PURPOSE OF TAXATION
1. Definition
2. Purpose
3. Distinguish: tax and other forms of exactions

B. DISTINGUISH: POWER OF TAXATION, POLICE

POWER, AND EMINENT DOMAIN

C. THEORY AND BASIS OF TAXATION

1. Lifeblood theory
2. Necessity theory
3. Benefits-received theory

D. JURISDICTION OVER SUBJECT AND

OBJECTS

E. PRINCIPLES OF A SOUND TAX SYSTEM

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

F. INHERENT AND CONSTITUTIONAL

LIMITATIONS ON TAXATION

G. STAGES OR ASPECTS OF TAXATION

H. REQUISITES OF A VALID TAX

I. KINDS OF TAXES

J. GENERAL CONCEPTS IN TAXATION

1. Prospectivity of tax laws
2. Imprescriptibility
3. Situs of taxation
4. Double taxation
a. Strict sense
b. Broad sense
c. Tax treaties as relief from double
taxation
5. Escape from taxation
a. Shifting of tax burden
b. Distinguish: tax avoidance and tax
evasion
6. Exemption from taxation
7. Equitable recoupment
8. Prohibition on compensation and set-off

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A. CONCEPT AND PURPOSE OF TAXATION Example:

a. Regulation of activities - Taxation could be a tool to
1. DEFINITION implement the State’s police power, such as
imposing a tax on sale, lease or disposition of
Taxation is the power inherent in every sovereign State to
videograms primarily to answer the need the
impose a charge or burden upon persons, properties, or
regulate the video industry due in part to rampant
rights to raise revenues for the use and support of the
film piracy, violation of intellectual property rights
government to enable it to discharge its appropriate
and proliferation of pornography. (Tio v. Videogram
functions.
Regulatory Board, G.R. No. 75967, 1987).

Power by which an independent State, through its

b. Promotion of general welfare - Taxation is done not
lawmaking body, raises and accumulates revenue from its
merely to raise revenues to support the government,
inhabitants to pay the necessary expenses of the
but also to provide means for the rehabilitation and
government. (51 Am. Jur. 341)
stabilization of a threatened industry (like coco levy
funds), which is so affected with public interest.
Merely a way or mode of apportioning the cost of
(PCGG v. Cojuangco, G.R. No. 147062-64, 2001).
government among those who in some measures are
(Lutz v. Araneta, G.R. No. L-7859, 1955 tax was
privileged to enjoy its benefits and must bear its burdens.
imposed for the protection and promotion of sugar
(71 Am. Jur. 2d 342)
industry, the Court held that its promotion, protection
and advancement, redounds greatly to the general
Described as a destructive power which interferes with the
welfare, hence valid.)
personal and property rights of the people and takes from
them a portion of their property for the support of the
Nature and Characteristics of Taxation
government. (Paseo Realty & Development Corporation v.
CA, G.R. No. 119286, 2004) In Sison v. Ancheta, (G.R. No.
Nature
L-59431, 1984) however, the SC acknowledged that the
1. The power of taxation is inherent in sovereignty as an
due process clause may be invoked where a taxing statute
incident or attribute thereof, being essential to the
is so arbitrary that it finds no support in the Constitution,
existence of independent government. It exists apart
such as when the tax imposition amounts to a confiscation
from the Constitution and is not being expressly
of property.
conferred by the people.

Three Elements of Taxation:

2. It is legislative in character. It is generally not
1. It is an enforced proportional contribution from persons
delegated to the executive or administrative
and properties;
departments.
2. It is imposed by the State by virtue of its sovereignty;
3. It is levied for the support of the government. (PCGG v.
Exceptions where delegation is allowed:
Cojuangco, G.R. No. 147062-64, 2001)
● To Local Government Units (LGUs) with respect to
2. PURPOSE matters of local concern. (SecS. 5 & 20, Art. X,
Constitution);
Purpose of Taxation ● When it is allowed by the Constitution (Sec. 28(2),
Art. VI, Constitution); and
1. Primary or Revenue-Raising Purpose:
● When the delegation relates merely to an
Taxation is the power by which the sovereign raises
administrative implementation that may call for
revenue to defray the necessary expenses of government.
some degree of discretionary powers under a set
of sufficient standards expressed by law (Pelaez v.
Taxes provide the funds or property with which to promote
Auditor General, G.R. No. L-23825, 1965), or
the general welfare and protection of the whole citizenry.
implied from the policy and purpose of the law
(Maceda v. Macaraig, G.R. No. 88291, 1993).
2. Secondary or Non-Revenue/Special or Regulatory
or Sumptuary Purpose:
3. It is subject to constitutional and inherent limitations.
Taxation is also used for regulatory purposes. It is used to
attain non-revenue objectives and pursue policy decisions.

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Characteristics
1. It must be used for public purpose. A tax shall be
considered to have been utilized for public purpose if
the welfare of the nation or the greater portion of its
population has benefited from it. (Gomez v. Palomar,
G.R. No. L-23645, 1968; Phil Guaranty Co., Inc. v. CIR,
G.R. No. L-22074, 1965).
2. It is the strongest of all the inherent powers of the
government. (Sison v. Ancheta, G.R. No. L-59431,
1. Customs Duty/Tariff
1984) However, this does not mean that it is superior
to the other inherent powers of the government.
The legislature also grants legislative tax exemptions or
condonations, and specifies or provides for the
administrative as well as the judicial remedies that
either the government or the taxpayer can avail. (Petron
v. Tiangco, G.R. No. 158881, 2008)
3. DISTINGUISH: TAX AND OTHER FORMS OF
EXACTIONS
TAX CUSTOMS DUTY

3. It is territorial in operations. The power to tax can only Coverage More Importation or
be exercised within the territorial jurisdiction of a taxing comprehensive export of goods
authority (51 Am. Jur. 88), except when it is subject to than customs
international comity or there exists privity of relationship duty
between the taxing State and the object of tax. Hence,
Object Persons, prop, Goods imported or
in Mitsubishi Corporation v. CIR (G.R. No. 175772,
etc. exported
2017), it was held that the income tax and branch profit
remittance tax paid by Mistubishi was erroneously
collected considering that the obligation to pay the 2. Toll
same had already been assumed by the Philippine TAX TOLL
Government by virtue of its Exchange of Notes with the
Japanese Government. Kind of Demand of Demand of
demand sovereignty ownership
4. It is comprehensive as it covers persons, things or
property, privilege, occupation, profession or business, Purpose Support of Collection for the
and transactions or activities. government use of property

Amount No limit – Fair return of the

5. It is generally pecuniary in nature (i.e., payable in depends on cost of the
money). However, a law may prescribe other form or need of the property or
kind of payment such as back pay certificate. (Tirona v. government improvement
The City Treasurer of Manila, G.R. No. L-24607, 1968)

6. It is plenary in nature. As a general rule, the scope of 3. License Fee

the legislative power to tax is unlimited and plenary. TAX LICENSE FEE
Acknowledging in its very nature no limits, the principal
check against its abuse is to be found only in the Source of Exercise of Emanate from the
responsibility of the legislature. (Creba Inc. v. Romulo, authority Taxing power police power of the
G.R. No. 160756, March 9, 2010) State

Purpose Raise revenue Regulation

The legislature, therefore, basically determines:
1. The subjects (persons, property, occupation, Object Persons, Right to exercise a
exercises, or privileges to be taxed); property and privilege
2. Method of collection; privilege
3. Purpose for which the tax shall be levied;
4. Apportionment of tax (whether for general Amount No limit Only necessary to
application or limited to a particular locality); carry out
5. Amount or rate; regulation
6. Kind of tax to be collected; and
7. Situs of taxation.

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Distinction lies in the primary purpose: 4. Special Assessment

● The primary purpose of license fees is for regulation
TAX SPECIAL
and the excess of the amount collected, from the cost
ASSESSMENT
to carry out the regulation, should be minimal and
incidental. Imposed Persons, Only on land
● Tax’s primary purpose, or at least one of the real and on properties, etc.
substantial purposes, is to raise revenue.
● If amount is too high for regulation and/or the amount Why For public Public
levied is not related to costs of regulation, it would be imposed purpose improvement that
a tax. regardless benefits the land
● Purpose of distinction: limitations and exemptions who/what will
apply only to one and not to the other (ex. Exemption benefit
from taxation does not include exemption from fees).
Purpose To support the Contribution to
general cost of public
A non-stock not-for-profit educational institution, which is
purposes of improvement
exempt from taxes, is not exempt from payment of
government
Building Permit Fee and Local Clearance Fee as the said
charges are regulatory fees and not taxes. (Angeles When Regular exaction Exceptional as to
University v. City of Angeles, G.R. No. 189999, June 27, imposed time and locality
2012)
Basis Necessity Benefits obtained
Royalty fees are regulatory fees. Clark Special Economic
Zone (“CSEZ”) imposes payments on the movement of 5. Debt
petroleum fuel to and from the economic zone.
Specifically, CSEZ provides for the payment of TAX SPECIAL
accreditation fees, annual inspection fees, royalty fees ASSESSMENT
and gate pass fees. Chevron is a domestic company
Source Law; legal Based on contract
located within the economic zone. CSEZ billed Chevron
obligation
for royalty fees at 0.50/liter. (Chevron Philippines v.
BCDA, G.R. No. 173863, September 15, 2010) Nature Personal Assignable

The imposition of capital contribution component of P10 Right to Generally not May be the subject
per bag was an exercise by the State of its taxation set-off subject to of compensation/
power. While it is true that the power of taxation can be compensation/ set-off
used as an implement of police power, the primary set-off
purpose of the levy is revenue generation. If the purpose
Effect Imprisonment is No imprisonment
is primarily revenue, or if revenue is, at least, one of the
sanction for non- for non-payment
real and substantial purposes, then the exaction is
payment
properly called a tax. (Planters Products, Inc. v. Fertiphil
Corp., G.R. No. 166006, 2008)

There is no logic or justification in exacting employment

permit fee from aliens. The imposition is not regulatory
but a revenue measure. It follows then that the permit fee
is essentially a tax for the purpose of raising money under
the guise of regulation. (Villegas v. Hiu Tsai, L-29646,
1978)

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B. DISTINGUISH: POWER OF TAXATION, POLICE

POLICE EMINENT
POWER, AND EMINENT DOMAIN TAX
POWER DOMAIN

POLICE EMINENT may be subject excises that

TAX thereto may be subject
POWER DOMAIN
thereto
Concept
Superiority of Contracts
Power to enforce Power to make Power to take
contribution to and implement private property Contracts may be Contracts may
raise funds for laws for the for public use impaired unless be impaired
Government general Welfare with just (a) government is
Compensation party to contract
granting
Scope exemption; or (b)
involves franchise
Plenary, Broader in Merely a power
comprehensive application; to “take” private Benefits Received
General power property for
to make and public use Protection and No direct or Just
implement laws general benefits immediate compensation
from the benefit but only equivalent to fair
Exercising Authority government such as may market value of
arise from the the property
National and National May be granted
maintenance of
Local Government or to public service
a healthy
Governments political companies or
economic
subdivisions public utilities
standard of
Purpose society

Raise revenues Exercised to The taking of Relationship to Constitution

promote public property for
Subject to certain Subjected to Subject to certain
welfare through public use
constitutional certain constitutional
regulation
limitations constitutional limitations
Amount of Imposition limitations

No limit Limited to the No limit imposed, C. THEORY AND BASIS OF TAXATION

cost of but the amount
regulation, should be based 1. LIFEBLOOD THEORY
issuance of on the fair market
license, or value of the Taxes are the lifeblood of the Government. Without
surveillance property revenue raised from taxation, the government will not
survive, resulting in detriment to society. Without taxes, the
Effect government would be paralyzed for lack of motive power
to activate and operate it. (Commissioner v. Algue, G.R.
Becomes part of Restraint on the Transfer of right
No. L-28896, 1988)
public fund injurious use of to the property
property 2. NECESSITY THEORY
Persons Affected The power of taxation proceeds upon the theory that the
Applies to all Applies to all Only particular existence of government is a necessity; that it cannot
persons, property, persons, property is continue without means to pay its expenses; and that for
and excises that property, and covered those means, it has the right to compel all citizens and
property within its limits to contribute.
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3. BENEFITS-RECEIVED THEORY (SYMBIOTIC
RELATIONSHIP THEORY)
The basis of taxation is found in the reciprocal duties of
protection and support between the state and its
inhabitants. In return for this contribution, the taxpayer
receives the general advantages and protection which the
government affords the taxpayer and his property
D. JURISDICTION OVER SUBJECTS AND OBJECTS
The person or property taxed must be within the competent
authority’s taxing jurisdiction. Tax is based on the situs or
source/territoriality (location of economic activity, location
of property, source of income), citizenship, and residence.
E. PRINCIPLES OF A SOUND TAX SYSTEM
1. FISCAL ADEQUACY
The sources of tax revenue should coincide with and
approximate the needs of government expenditures and
their variations. (Chavez v. Ongpin, G.R. No. 76778, 1990)
2. THEORETICAL JUSTICE
The tax system should be fair to the average taxpayer and
be based upon the ability to pay.
The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
(Sec. 28(1), Art. VI, Constitution)
3. ADMINISTRATIVE FEASIBILITY
The tax system should be capable of being properly and
efficiently administered by the government and enforced
with the least inconvenience to the taxpayer.
Example: Creditable withholding tax which is a system of
advance collection of payee’s income tax liability.
Non-observance of the canon of administrative feasibility
will not render a tax imposition invalid “except to the extent
that specific constitutional or statutory limitations are
impaired.” (Diaz v. Secretary of Finance, G.R. No. 193007,
2011, which dealt with the inconvenience of imposing VAT
on toll fees)
NOTE: Non-observance of these principles will not
automatically render a tax law unconstitutional or invalid. A
tax law will continue to be valid even if it does not observe
TAXATION LAW
the principles of fiscal adequacy and administrative
feasibility since the Constitution does not expressly require
so. However, a tax law may be held unconstitutional if it
runs afoul of the principle of theoretical justice since the
Constitution expressly requires that tax laws should be
uniform and equitable.
F. INHERENT AND CONSTITUTIONAL LIMITATIONS
ON TAXATION
The power of taxation is the strongest of all the powers of
the government. Nevertheless, effective limitations
thereon may be imposed by the people through the
Constitution. Accordingly, no matter how broad and
encompassing the power of taxation, it is still subject to
inherent and constitutional limitations.
1. Inherent Limitations
a. Public Purpose
Test: Whether the proceeds will be used for something
which is the duty of the State to provide.
The public purpose of the tax law must exist at the time of
its enactment. The money raised by taxation can be
expended only for public purposes and not for the
advantage of private individuals. Therefore, since the
appropriation sought a private purpose, it is null and void.
(Pascual v. Secretary of Public Works, G.R. No. L-10405,
1960)
The term "public use" has acquired a more comprehensive
coverage. To the literal import of the term signifying strict
use or employment by the public has been added the
broader notion of indirect public benefit or
advantage. (Sumulong v. Guerrero, G.R. No. L-48685,
1987)
b. Inherently Legislative
Power of taxation cannot be delegated – this contemplates
the power to determine kind, object, extent, amount,
coverage, and situs of tax. It must be distinguished from
power to assess and collect which is exercised by the
Executive through the BIR.
However, it may be exceptionally delegated when:
1. The delegation shall not contravene any constitutional
provision or inherent limitations of taxation;
2. It is effected either by the Constitution or by validly
enacted legislative measures or statute; and
3. Except when expressly provided by the Constitution, it
should only be in favour of the local legislative body of
the local or municipal government concerned.
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General rule – The power to tax is exclusively vested in
the legislative body, hence, it cannot be delegated.
(Delegata potestas non potest delegari)
Exceptions:
1. Delegation to local governments
It is in line with the principle that the power to create
municipal corporations for purposes of local self-
government carries with it the power to confer the
power to tax on such local governments.
2. Delegation to the President
Certain aspects of the taxing process that are not
legislative in character may be vested to him, e.g.
delegation of tariff powers by Congress to the
President under the flexible tariff clause (Sec. 28(2),
Art. VI, Constitution), and delegation of emergency
powers (Sec. 23(2), Art. VI, Constitution)
In the case of Abakada Guro v. Executive Secretary
Ermita, (G.R. No. 168056, 2005) the Court held that
the Congress does not abdicate its functions or
unduly delegate its power when it describes what job
must be done, who must do it, and what is the scope
of his authority. There is no undue delegation of
legislative power but only of the discretion as to the
execution of a law.
3. Delegation to administrative agencies
Administrative agencies are authorized to fix within
specified limits, tariff rates, import or export quotas,
tonnage and wharfage dues and other duties or
imposts.
c. Territorial (see discussions on situs of taxation below)
d. International Comity
A state must recognize the generally accepted tenets of
international law, they must accord each other as
sovereign equals. This limits the authority of a government
to effectively impose taxes on a sovereign state and its
instrumentalities, as well as on its property held, and
activities undertaken, in that capacity. (Vitug) For
example, a property of a foreign State or government may
not be taxed by another State.
A state that has contracted valid international obligations
is bound to make in its legislations those modifications that
ensure granting of reliefs under tax treaties. (Deutsche
Bank v. CIR, G.R. No. 188550, 2010)
TAXATION LAW
e. Exemption of Government Entities, Agencies, and
Instrumentalities
Rationale: If the government taxes itself or if Local
Government Units tax the national government, it would be
akin to taking money from one pocket to the other.
Entities or agencies exercising sovereign functions (acta
jure imperii) are tax exempt, unless expressly taxed,
agencies performing proprietary functions are subject to
tax unless expressly exempted.
Government owned and controlled corporation performing
proprietary functions are subject to taxes, except those
exempted under Section 27(C) of RA 8424 as amended by
RA 9337 and RA 10963, namely:
1. GSIS
2. SSS
3. PHIC
4. the local water districts
The amendment reduced the list of exempt entities by
excluding therein the Philippine Amusement and Gaming
Corporation.
Instrumentality of the National Government is exempt from
real property tax. (MIAA v. CA G.R. No. 155650, 2006)
However, an instrumentality of the National Government
can be subject to tax if there is a statutory authority to do
so and if there is no express provision against such act.
Chief Justice Hilario Davide, Jr. in the case of MCIAA v.
Marcos (G.R. No. 120082, 1996) has stated that “nothing
can prevent Congress from decreeing that even
instrumentalities or agencies of the government
performing governmental functions may be subject to tax.”
2. Constitutional Limitations
a. Provisions directly affecting Taxation:
i. Prohibition against imprisonment for non-payment
of poll tax (Sec. 20, Art. III, Constitution)
However, the taxpayer can still be made to pay fines and
penalties for non-payment.
Poll tax: cedula/residence tax (but in the US, it usually
means the payment of tax to exercise the right of suffrage.)
Taxpayer may be imprisoned for non-payment of other
kinds of taxes where the law so expressly provides.
ii. Uniformity and equality of taxation (Sec. 28 (1), Art
VI, Constitution)
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Uniformity: all articles or properties of the same class Who What How
taxed at the same rate (Eastern Theatrical Co. v. Alfonso, Assets Exempt from RPT as
G.R. No. L-1104, 1949) long as they are used
ADE for educational
Equality: apportionment must be more or less just in the purposes. Id.
light of taxpayer’s ability to shoulder tax burden Revenues Exempt from income
tax if they are
The equal protection clause refers to like treatment in like organized and
circumstances. operated exclusively
for charitable
The uniformity and equality clause refers to the proper purposes and no part
relative treatment for tax purposes of persons in like of its net income or
circumstances. Section 28 (1), Art. VI provides that asset inures to the
Congress shall evolve a progressive system of taxation. benefit of any
Hence, the Constitution does not really prohibit a member, organizer,
regressive system of taxation. A progressive system of etc. (Sec. 30[E],
taxation means that as resources of the taxpayer become NIRC)
higher, the tax rate likewise increases. It is based on the
ability to pay. Non-stock
Income from real or
non-profit
personal properties or
iii. Grant by Congress of authority to the President to hospitals
from activities
impose tariff rates (flexible tariff clause) (Sec. 28 (2), conducted for profit,
Art. VI, Constitution) regardless of the
• Includes import and export quotas, tonnage and disposition made of
wharfage dues aside from tariff rates such income, shall be
• Delegated by the Congress subject to income tax.
• Through a law; the Tariff and Customs Code has (Sec. 30, last par.,
provided for what has been termed as the “flexible NIRC)
tariff clause” authorizing the President to modify Assets Exempt from RPT as
import duties (Sec. 401, TCC) long as they are used
• Subject to Congressional limits and restrictions ADE for charitable
Within the framework of national development purposes. (Sec. 28[3],
program Art. VI, Constitution)
Revenues Exempt provided that
iv. Prohibition against taxation of religious, is organized and
charitable and educational entities/Exemption from operated exclusively
real property taxes (Sec. 28 [3], Art. VI, Constitution) for charitable
purposes and no part
Exemption under Sec. 28(3), Art. VI pertains only to real of its net income or
property tax (RPT). asset inures to the
Other non- benefit of any
Summary stock non- member, organizer,
Who What How profit etc. (Sec. 30[E],
Revenues Exempt as long as it is charitable NIRC).
used actually, directly institutions
and exclusively (ADE) Income from real or
Non-stock personal properties or
for educational
non-profit from activities
purposes, regardless
educational conducted for profit,
of its source. (Sec.
institutions regardless of the
4[3], Art. XIV,
Constitution; DLSU v. disposition made of
CIR, 2016) such income, shall be
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Who What How RPT exemption covers charitable institutions, churches,

subject to income tax. and parsonages or convents appurtenant thereto,
(Sec. 30, last par., mosques and non-profit cemeteries and all lands, buildings
NIRC) and improvements actually, directly and exclusively
Assets Exempt as long as the used for charitable, religious and educational purposes
property is it ADE
used for charitable Definition of Terms:
purposes. (Sec. 28[3], • Charitable institution – essentially provide for free
Art. VI, Constitution) goods and services to the public (to an indefinite
Revenues Exempt from income number of persons) which would otherwise falls on the
tax if they are shoulders of the government. (CIR. v. St. Luke’s, G.R.
organized and No. 203514, 2017)
operated exclusively • Exclusive - is defined as possessed and enjoyed to
for charitable the exclusion of others; debarred from participation or
purposes and no part enjoyment; and 'exclusively' is defined, 'in a manner
of its net income or to exclude; as enjoying a privilege exclusively.' . . The
asset inures to the words ‘dominant use’ or ‘principal use’ cannot be
benefit of any equated with ‘used exclusively’ (CIR v. St. Luke’s,
member, organizer, G.R. No. 203514, 2017)
etc. (Sec. 30[E],
NIRC). As for the income tax exemption of charitable institutions
under the NIRC, a charitable institution does not lose its
If the non-profit character as such and its exemption from taxes simply
hospital/education because it derives income from paying patients, whether
institution earns outpatient, or confined in the hospital, or receives
income from its for- subsidies from the government, so long as the money
profit activities, it will received is devoted or used altogether to the charitable
Propriety retain its tax object which it is intended to achieve; and no money inures
non-profit exemption for its to the private benefit of the persons managing or operating
hospital and charitable activities, the institution (CIR v. St. Luke’s, G.R. No. 203514, 2017)
educational but the income from
institutions for-profit activities will v. Prohibition against taxation of non-stock, non-
be subject to the profit [educational] institutions (Sec. 4[3&4], Art.
preferential rate of XIV, Constitution)
10% under Section 27 Test: How both the revenues and assets will be used.
(B), NIRC, provided
that its gross income Exempts from taxes all revenues and assets of non-stock,
from unrelated trade, non-profit educational institutions actually, directly and
business or activity exclusively used for educational purposes
does not exceed 50%
of its total gross Exemption covers income, real estate tax, donor’s tax, and
income. customs duties (distinguished from the previous provision,
(Sec. 28[3], Art. VI, Constitution), which pertains only to
Assets Exempt as long as the real property tax exemption granted to real properties that
are used for religious, charitable, or educational purposes)
property is ADE used
for educational or
Income is exempt provided it is used for maintenance or
charitable purposes.
(Sec. 28[3], Art. VI, improvement of institution (indispensable or essential).
Constitution) The exemption is strictly personal (i.e., non-transferable)

Distinguish tax treatment of:

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• Proprietary educational institutions (Preferential tax
rate of 10%); and
• Government educational institutions (Tax-exempt,
e.g., UP)
vi. Majority vote of Congress for grant of tax
exemption (Sec. 28 [4], Art. VI, Constitution)
• Includes amnesties, condonations and refunds
• Involves majority of all members voting separately
• Relative majority (majority of quorum) is sufficient
to withdraw exemption
vii. Prohibition on use of tax levied for special
purpose (Sec. 29 [3], Art. VI, Constitution)
Revenues derived for a special fund shall be administered
for the purpose intended only.
Once the purpose is achieved, the balance, if any, is to be
transferred to the general funds of the government.
viii. President’s veto power on appropriation, revenue,
and tariff bills (Sec. 27 [2], Art. VI, Constitution)
The President shall have the power to veto any particular
item or items in an appropriation, revenue, or tariff bill, but
the veto shall not affect the item or items to which he does
not object.
ix. Grant of power to the local government units to
create its own sources of revenue (Sec. 5, Art. X,
Constitution)
Each local government unit shall have the power to create
its own sources of revenues and to levy taxes, fees and
charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments.
x. Flexible tariff clause (Sec. 28 [2], Art. VI, Constitution)
The Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development
program of the Government.
xi. No appropriation or use of public money for
religious purposes (Sec. 29 [2], Art. VI, Constitution)
No public money or property shall be appropriated,
applied, paid, or employed, directly or indirectly, for the
use, benefit, or support of any sect, church, denomination,
sectarian institution, or system of religion, or of any priest,
preacher, minister, other religious teacher, or dignitary as
TAXATION LAW
such, except when such priest, preacher, minister, or
dignitary is assigned to the armed forces, or to any penal
institution, or government orphanage or leprosarium.
xii. Tax bills should originate exclusively in the
House of Representatives (Sec. 24, Art. VI,
Constitution)
All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur
with amendments.
xiii. Judicial power to review legality of tax (Sec. 5 (2b),
Art. VIII, Constitution)
The Supreme Court shall have the power to Review,
revise, reverse, modify, or affirm on appeal or certiorari, as
the law or the Rules of Court may provide, final judgments
and orders of lower courts in all cases involving the legality
of any tax, impost, assessment, or toll, or any penalty
imposed in relation thereto.
b. Provisions indirectly affecting Taxation:
i. Due process (Sec. 1, Art. III, Constitution)
SUBSTANTIVE PROCEDURAL
Should not be harsh, No arbitrariness in
oppressive or assessment and
confiscatory collection
(reasonableness)
By authority of valid law Right to notice and
hearing
Must be for a public
purpose
Imposed within
territorial jurisdiction
It can also be invoked by the government. (Province of
Abra v. Hernando, G.R. No. L-49336, 1981)
No state may tax anything not within its jurisdiction without
violating the due process clause; the taxing power of a
state does not extend beyond its territorial limits, but within
such it may tax persons, property, income, or business
(Manila Gas v. Collector, G.R. No. L-24780, 1936)
ii. Equal protection (Sec. 1, Art. III, Constitution)
All persons subject to legislation shall be treated alike,
under like circumstances and conditions both in privileges
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conferred and liabilities imposed. (Sison, Jr. v. Ancheta,
G.R. No. L-59431, 1984)
No violation of equal protection when there is proper
classification made
The 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; and
4. Apply equally to all members of the same class.
Examples:
The sales tax is applied similarly on all goods and services
sold to the public, which are not exempt, at the constant
rate of 0% or 10%. (Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, G.R. No. 81311,
1988).
The phrase "except customs brokers" is not meant to
discriminate against customs brokers. It was inserted in
Sec. 103(r) to complement the provisions of Sec. 102 of
the Code which makes the services of customs brokers
subject to the payment of the VAT and to distinguish
customs brokers from other professionals who are subject
to the payment of an occupation tax under the Local Tax
Code. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng
Pilipinas, Inc. v. Tan, G.R. No. 81311, 1988).
The equal protection clause recognizes a valid
classification, that is, a classification that has a reasonable
foundation or rational basis and not arbitrary. Both the BIR
and the BOC are bureaus under the DOF. They principally
perform the special function of being the instrumentalities
through which the State exercises one of its great inherent
functions — taxation. Indubitably, such substantial
distinction is germane and intimately related to the purpose
of the law. Hence, the classification and treatment
accorded to the BIR and the BOC under RA No. 9335 fully
satisfy the demands of equal protection. (Bureau of
Customs Employees’ Association vs. Teves, G.R. No.
181704, 201)
Exception:
Equal protection is not violated if a law or ordinance
imposes tax on a named occupation, so long as it is not
limited to a certain person or a certain group only. The fact
that there is no other person in the locality with the same
designation does not make the ordinance discriminatory,
because it will be applicable to any person or firm who
exercises such occupation. (Shell v. Vano, G.R. No. L-
6093, 1954)
TAXATION LAW
iii. Religious freedom (Sec. 5, Art III, Constitution)
The constitutional guaranty of the free exercise and
enjoyment of religious profession and worship carries with
it the right to disseminate religious information. (American
Bible Society v. City of Manila, G.R. No. L-9637, 1957)
Activities that are simply and purely for propagation of faith
are exempt.
Tax is unconstitutional if it operates as a prior restraint on
exercise of religion or favors a certain religion (non-
establishment of religion).
Income of religious organizations from any activity
conducted for profit or from any of their property, real or
personal, regardless of disposition of such income, is
taxable.
iv. Non-impairment of obligations of contracts (Sec.
10, Art. III, Constitution)
Applies only when government is party to the contract
granting exemption
Exception: In case of franchise tax. The Constitution
provides that franchise is subject to amendment, alteration,
or repeal by Congress.
Contractual tax exemptions, in the real sense of the term
and where the non-impairment clause of the Constitution
can rightly be invoked, are those agreed to by the taxing
authority in contracts, such as those contained in
government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting
in its private capacity, sheds its cloak of authority and
waives its governmental immunity. These contractual tax
exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise
partakes the nature of a grant which is beyond the purview
of the non-impairment clause of the Constitution.
(MERALCO v. Province of Laguna, G.R. No. 131359,
1999)
Example where impairment applies:
The provision "shall be in lieu of all taxes of every name
and nature" in the franchise, this Court pointed out that
such exemption is part of the inducement for the
acceptance of the franchise and the rendition of public
service by the grantee. As a charter is in the nature of a
private contract, the imposition of another franchise tax on
the corporation by the local authority would constitute an
impairment of the contract between the government and
the corporation. (Province of Misamis Oriental v. Cagayan
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Electric Power and Light Co., Inc., G.R. No. L-45355,
1990)
G. STAGES OR ASPECTS OF TAXATION
1. Levy
Enactment of a law by Congress, imposing a tax.
2. Assessment and Collection
Act of administration and implementation of the tax law by
the executive department through the administrative
agencies.
3. Payment
Act of compliance by the taxpayer, including such options,
schemes or remedies as may be legally available to him
General rule: no court shall have the authority to grant an
injunction to restrain the collection of any national internal
revenue tax, fee or charge. (Sec. 218)
Exception: an injunction may be issued by the CTA to
restrain the collection of taxes “when, in the opinion of the
Court, the collection may jeopardize the interest of the
Government and/or the taxpayer, the Court at any stage of
the proceeding may suspend the said collection and
require the taxpayer either to deposit the amount claimed
or to file a surety bond for not more than double the amount
with the Court.” (Sec. 11, RA 9282, as amended)
The prohibition on the issuance of a writ of injunction to
enjoin the collection of taxes is applied only to national
internal revenue taxes, not to local taxes. However, the
Supreme Court noted that such injunctions enjoining the
collection of local taxes are frowned upon. (Angeles City v.
Angeles Electric Corporation, G.R. No. 166134, 2010)
4. Refund
Recovery of any tax alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed
to have been collected without authority, or of any sum
alleged to have been excessively, or in any manner
wrongfully, collected
DEFINITION, NATURE, AND CHARACTERISTICS OF
TAXES
A burden, charge, exaction, imposition or contribution
assessed in accordance with some reasonable rule of
apportionment by authority of the sovereign State upon the
persons or properties within its jurisdiction, to provide
public revenues for the support of the government, the
TAXATION LAW
administration of the law, or the payment of public
expenses. (71 Am. Jur. 2d 343-346)
Taxes operate in invitum (against a person’s will or
consent; by force of law irrespective of assent) and are in
no way dependent upon the will or contractual assent,
express or implied, of the person taxed.
Taxes are:
1. Enforced,
2. Proportional, and
3. Pecuniary contributions
4. From persons and property
5. Levied by the law-making body of
6. The state having jurisdiction over the subject of the
burden
7. For the support of the government and all public
needs.(PCGG v. COCOFED, G.R. No. 147062-64,
2001)
Taxes are not political in nature and as such were
continued in force during the period of enemy occupation
and in effect were actually enforced by the occupation
government. (Hilado v. Collector of Internal Revenue, G.R.
No. L-9408, 1956)
SOURCES OF TAX LAWS
1. Constitution;
2. Legislations or statutes, executive orders, local
ordinances, tax treaties;
3. Administrative issuances by the DOF, BIR or BOC;
4. Rulings issued by the BIR, opinions of the DOJ
5. Judicial decisions by the Supreme Court
H. REQUISITES OF A VALID TAX
Requisites:
1. Must be for a public purpose;
2. Should be uniform and equitable;
3. Either the person or property taxed is within the
jurisdiction of the taxing authority;
4. Complies with the requirements of due process; and
5. Does not infringe any constitutional or inherent
limitations.
I. KINDS OF TAXES
1. As to subject matter or object
a. Personal, Capitation, or Poll Tax
1. Fixed amount
2. Individuals residing within specified territory
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3. Without regard to their property, occupation or
business
Example: Community Tax (Cedula)
b. Property Tax
4. Imposed on property, real or personal
5. In proportion to its value or other reasonable
method of apportionment
Example: Real estate tax
c. Excise/Privilege tax
6. Imposed upon the performance of an act, the
enjoyment of a privilege or the engagement in an
occupation, profession or business
7. This is different from the excise tax of Title VI of
the NIRC
Example: Income tax, VAT, estate tax, donor’s tax
2. As to who bears the burden or incidence
a. Direct
8. imposed on the person who also bears the burden
thereof
Example: income tax, community tax, estate tax
b. Indirect
9. imposed on the taxpayer who shifts the burden of
the tax to another (Maceda v. Macaraig, Jr., 1991)
Example: VAT, specific tax, percentage tax,
customs duties
General Rule: The proper party to seek a refund is
the statutory taxpayer. (Silkair v. CIR, G.R. No.
173594, 2008)
Exception: if the law confers exemption from both
direct or indirect taxes, claimant is entitled to a refund
even if claimant is not the statutory taxpayer but only
bears the economic burden of the tax. (Philippine
Airlines v. CIR, G.R. No. 198759, 2013)
3. As to tax rates or determination of amount
a. Specific
10. tax imposed and based on a physical unit of
measurement, as by head, number, weight, length
or volume
Example: Tax on distilled spirits, fermented
liquors, cigars
b. Ad Valorem
11. tax of a fixed proportion of the value of property
with respect to which the tax is assessed; requires
intervention of assessor.
TAXATION LAW
Example: Real estate tax, excise tax on cars, non-
essential goods
c. Mixed
4. As to purposes
a. General, fiscal or revenue
12. imposed for the general purpose of supporting the
government
Example: Income tax, percentage tax
b. Special or regulatory
13. imposed for a special purpose, to achieve some
social or economic objectives
Example: Protective tariffs or customs duties
5. As to scope or authority to impose
a. National
14. imposed by the national government
Example: National internal revenue taxes, custom
duties
b. Municipal or local
15. imposed by the municipal corporations or local
governments
Example: Real estate tax, occupation tax
6. As to graduation of rate (three systems of taxation)
a. Progressive or graduated
16. tax rate increases as the tax base or bracket
increases
Example: Income tax, estate tax, donor’s tax
b. Regressive
17. tax rate decreases as the tax base increases
c. Proportionate or Flat
18. based on a fixed percentage of the amount of the
property, income or other basis to be taxed
Example: Real estate tax, VAT, percentage tax
d. Mixed
19. the tax rates are partly progressive and partly
regressive.
J. GENERAL CONCEPTS IN TAXATION
1. PROSPECTIVITY OF TAX LAWS
This principle provides that a tax law must only be
applicable and operative prospectively.
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Taxes may be imposed retroactively by law, but unless so
expressed by such law, these taxes must only be imposed
prospectively. (Hydro Resources v. CA, G.R. No. 80276,
1990)
Ex post facto is not applicable for tax purposes. However,
when it comes to civil penalties like fines and forfeiture
(except interest), tax laws may provide and allow its
application retroactively, unless it produces harsh and
oppressive consequences which violate the taxpayer’s
constitutional rights regarding equity and due process.
(Fernandez v. Fernandez, G.R. No. L-9141, 1956; CIR v.
Filipinas Compañas de Seguros, G.R. No. 14880, 1960)
2. IMPRESCRIPTIBILITY
Although the NIRC provides for the limitation in the
assessment and collection of taxes imposed, such will only
be applicable to those taxes where a tax return is required.
The prescriptive period shall start from the time the
taxpayer files the tax return and declares his liability.
(Bisaya Land Transportation Co. v. Collector of Internal
Revenue, G.R. Nos. L-12100 & L-11812, 1959).
Unless otherwise provided by the tax law itself, taxes in
general are imprescriptible. (CIR v. Ayala Securities
Corporation, G.R. No. L-29485, 1976)
The law on prescription being a remedial measure should
be interpreted liberally in favor of the taxpayer in order to
protect the taxpayer. (Republic v. Ablaza, G.R. No. L-
14519, 1960)
3. SITUS OF TAXATION
Situs is the place of taxation; power to tax is limited to the
territorial jurisdiction of the taxing state. It is the place or
authority that has the right to impose and collect
taxes. (CIR v. Marubeni Corp. GR No. 137377, December
18, 2001)
Exception: where privity of relationship exists, the State
can exercise its taxing powers over its citizen outside its
territory.
a. Situs of Income Tax
Factors that determine the situs of income tax (Sec. 23,
NIRC):
1. Nationality
2. Residency
3. Source of Income
i.
TAXATION LAW
ii. From sources within the Philippines:
(a) Interests on bonds, notes or other interest-bearing
obligations of residents of the Philippines
(residence of debtor rule).
(b) Dividends from a domestic corporation. From a
foreign corporation, if at least 50% of the foreign
corporation’s gross income for a three-year base
period is derived from Philippine sources.
(c) Compensation for services performed within the
Philippines.
(d) Rentals and royalties from properties located in the
Philippines or any interest in such property
including rentals or royalties for the use of or for the
privilege of using within the Philippines, patents,
copyrights and other like properties.
(e) Sale of real property located in the Philippines.
(f) Sale of personal property –
i. By the producer or manufacturer: sale of
personal property produced by the taxpayer
within and sold without the Philippines, or
produced without and sold within the
Philippines, shall be treated as derived from
sources within and partly from sources without
the Philippines. Conversely, sale of personal
property produced within and sold within the
Philippines, or produced without and sold
without the Philippines, shall be treated as
derived from sources entirely within the
Philippines and entirely without the Philippines,
respectively.
ii. By a taxpayer other than the producer of
manufacturer: gains, profit, and income derived
from the purchase within and its sale without
the Philippines, or from the purchase without
and its sale within shall be treated as derived
entirely from sources within the country in
which the personal property is sold.
Exception: Gains from the sale of shares of stock in a
domestic corporation shall be treated as derived entirely
from sources within the Philippines regardless where the
said shares are sold.
iii. From sources without the Philippines:
(a) Interest other than those derived from sources within
the Philippines.
(b) Dividends other than those derived from sources
within the Philippines.
(c) Compensation for services performed without the
Philippines.
(d) Rentals and royalties from property located without
the Philippines or from any interest in such property
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including rentals or royalties for the use of or for the a. Direct Double Taxation (Strict sense)
privilege of using without the Philippines, patents,
copyrights and other like properties. The same property is taxed twice when it should be taxed
only once.
iv. Income partly within and partly without the
Philippines: Both taxes must be imposed:
Items other than those specified above in (1) and (2) shall i. On the same property or subject matter;
be treated as derived partly from sources within and partly ii. For the same purpose;
from sources without the Philippines. iii. By the same taxing authority;
iv. Within the same jurisdiction or taxing district and
b. Situs of Property Taxes during the same period; and
Real Property Personal Property v. They must be of the same kind or character of tax.
(Villanueva v. City of Iloilo, G.R. No. L-26521, 1968)
Tangible Intangible
Location of the
Location of the Domicile of the b. Indirect Double taxation (Broad sense)
Property
Property Owner
It means indirect duplicate taxation. It extends to all cases
c. Situs of Excise Tax in which there are two or more pecuniary impositions. The
TAX SITUS Constitution does not prohibit the imposition of double
Estate Tax Domicile of the decedent at the time taxation in the broad sense.
of his death
Constitutionality of Double Taxation
Donor’s Tax Domicile of the donor at the time of
the transfer The SC held that there is no constitutional prohibition
against double taxation in the Philippines. (Villanueva v.
City of Iloilo, G.R. No. L-26521, 1968) Therefore, it may not
SUMMARY be a valid defense against the validity of a tax measure.
OBJECT SITUS RULE (Pepsi-Cola v. Tanauan, G.R. No. L-31156, 1976) What is
prohibited is direct double taxation.
Person Residence,
Domicile, There is no double taxation in the following cases:
Citizenship ● By taxing corporate income and stockholders’
dividends from the same corporation;
Real Property Location of the property
● Tax imposed by the State and the local government
Tangible Personal Physical location although the upon the same occupation, calling or activity;
Property owner resides in another ● Real estate tax and income tax collected on the same
jurisdiction real estate property leased for earning purposes
(Villanueva v. City of Iloilo, G.R. No. L-26521, 1968);
Royalties Where the use of or right to use and
is exercised. ● Taxes are imposed on taxpayer’s final product and the
storage of raw materials used in the production of the
Income Citizenship
final product (Procter and Gamble Philippines v.
Residence
Municipality of Jagna, G.R. No. L-24265, 1979).
Source of Income

Transfer of Citizenship Example:

property Residence Spouses are American citizens residing in the Philippines,
Location of Property hence, they pay income taxes in the Philippines and
federal income taxes in the US. The Court held that double
Business or Where the taxation becomes obnoxious only where the taxpayer is
Occupation act/business/occupation is taxed twice for the benefit of the same governmental entity.
performed/exercised In this case, while the taxpayers would have to pay two
taxes on the same income, the Philippine government only
receives the proceeds of one tax. (Commissioner v.
4. DOUBLE TAXATION Lednickey, G.R. No. L-18169, 1964)
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c. Tax treaties as relief from double taxation
Modes of eliminating Double Taxation
i. Provide for exemptions or allowance of deduction or tax
credit for foreign taxes;
ii. Enter into treaties with other states (e.g., former Phil-
Am Military Bases Agreements as to income tax); or
iii. Apply the principle of reciprocity.
In the case of CIR v S.C. Johnson & Sons, Inc., (G.R. No.
127105, 1999), International Juridical Double Taxation is
defined as an imposition of comparable taxes in two or
more States on the same taxpayer in respect of the same
subject matter and for identical periods. In order to
eliminate double taxation, a tax treaty is entered into by the
two contracting States. The apparent rationale for doing
away with double taxation is to encourage the free flow of
goods and services and the movement of capital,
technology and persons between countries, conditions
deemed vital in creating robust and dynamic economies.
5. ESCAPE FROM TAXATION
a. Shifting of tax burden
The imposition of tax is transferred from the statutory
taxpayer to another without violating the law.
Ways of shifting the tax burden (FBO):
● Forward shifting: The transfer of burden from the
producer to distributor until it finally reaches the
ultimate purchaser or consumer
● Backward shifting: The reverse of forward shifting,
e.g. the manufacturer has agreed to buy the
supplier’s product only if the price is reduced by the
amount of tax
● Onward shifting: The tax burden is shifted twice or
more either forward or backward
Taxes that can be shifted
1. VAT
2. Percentage tax
3. Excise tax on excisable articles
4. Ad valorem taxes that oil companies pay to BIR
upon removal of petroleum products from its
refinery
Meaning of impact and incidence of taxation
TAXATION LAW
● Impact of Taxation – point on which the tax is
originally imposed or the one on whom the tax is
formally assessed.
● Incidence of Taxation – point on which the tax
burden finally rests or settles down.
Example: VAT is originally assessed against the seller
who is required to pay the said tax, but the burden is
actually shifted or passed on to the buyer.
It is important to know where the impact of taxation lies
(i.e. who the statutory taxpayer is) because it will generally
determine:
1. The proper party to claim a refund of erroneously
imposed indirect taxes; and
2. Whether the indirect taxes can be passed on to an
exempt buyer.
b. Distinguish: tax avoidance and tax evasion
Tax avoidance – also called tax minimization, is a tax
saving device that is legally permissible
The Court held that tax avoidance is the use of a tax saving
device within the means sanctioned by law. Any tax
avoidance scheme should be used by the taxpayer in good
faith and at arm’s length (CIR v Estate of Benigno Toda Jr.,
G.R. 147188, 2004)
When a merger or reincorporation is undertaken for a bona
fide purpose and not solely for the purpose of escaping the
burden of taxation, it is not evasion. The questioned
merger involved a pooling of resources aimed at the
continuation and expansion of business and so came
under the intendment of the NIRC exempting from the
capital gains tax exchanges of property effected under
lawful corporate combinations. (Commissioner v. Rufino,
G.R. No. L-33665-68, 1987)
Tax evasion – connotes fraud through the use of
pretenses and forbidden devices to lessen or defeat taxes;
must be willful and intentional
It connotes the integration of three factors:
1. End to be achieved, i.e., the payment of less than
that known by the taxpayer to be legally due, or the
non-payment of tax when it is shown that a tax is due;
2. Accompanying state of mind which is described as
being "evil," in "bad faith," "willful," or "deliberate and
not accidental"; and
3. Course of action or failure of action, which is
unlawful. (Toda, Jr. v. CA, G.R. No. 78583, 1990).
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People v. Kintanar People v. Santos

TAX TAX AVOIDANCE intentional violation of a and accurate information
EVASION known legal duty, and bad must be fully established
Other Tax Dodging Tax Minimization faith or bad purpose need as a positive act or state of
Name not be shown mind. It cannot be
Means Use Illegal Use legal means presumed nor attributed to
means mere inadvertent or
Penalty Punishable by Not punishable by negligent acts.
law law Involves non-filing of Involves failure to supply
Object To escape To minimize Income Tax Return. correct and accurate
payment of payment of taxes information. Mere
taxes The elements of a understatement of a tax is
violation of Section 255 of not itself proof of fraud for
Willful Blindness Doctrine the NIRC for failure to the purpose of tax
An individual or corporation can no longer say that the make or file a return are: evasion.
errors on their tax returns are not their responsibility or that
it is the fault of the accountant they hired. 1. The accused is a person The elements of a
required to make or file a violation of Section 255 of
An act is willful if it is “voluntary, conscious and intentional.” return; for failure to supply correct
Bad motive or intent to defraud need not be shown. The 2. The accused failed to and accurate information
only thing that needs to be shown is that the taxpayer is make or file the return at are:
aware of his/her obligation to file annual income tax returns the time required by law;
but “she nevertheless, voluntarily, knowingly and 3. The failure to make or 1. That a person is
intentionally failed to file the required returns.” (People v. file the return was willful. required to supply correct
Kintanar, CTA E.B. No. 006, 2010, affirmed by the SC in and accurate information;
2012) 2. That there is failure to
supply correct and
However, in the case of People v. Judy Ann Santos (CTA accurate information at the
Case No. 012, 2013), affirmed by the SC in 2013, the CTA time or times required by
Division acquitted Santos although the BIR asserted the law or rules and
same arguments it made in the Kintanar case. Santos was regulations; and
charged with failure to supply correct and accurate 3. That such failure to
information in her ITR. She claimed that by virtue of trust, supply correct and
respect and confidence, she entrusted her finances to her accurate information is
manager since she was a child. Here, the CTA Division done willfully.
found that the element of willfulness and motive to commit
fraud were wanting and that Santos was merely negligent. 6. EXEMPTION FROM TAXATION
Unlike Santos, who did not know any better, Kintanar was
Tax Exemption
an experienced businesswoman who ought to have known
The grant of immunity to particular persons or corporations
and understood all the matters concerning her business,
or to persons or corporations of a particular class from a
including knowledge and awareness of her tax obligations
tax which persons and corporations generally within the
concerning her business and should have ensured the
same state or taxing district are obliged to pay. It is an
correct filing of her returns.
immunity or privilege; it is freedom from a financial charge
or burden to which others are subjected. (Greenfield v.
People v. Kintanar People v. Santos Meer, G.R. No. 156, 1946)
Tax evasion connotes the integration of the three
factors. Nature of Tax Exemption
All elements are present Lacks the element of Exemption from taxes is personal in nature and covers only
willfulness taxes for which the taxpayer-grantee is directly liable. In
“Willful" in tax crimes The element of willful any case, it cannot be transferred or assigned by the
means voluntary, failure to supply correct person to whom it is given without the consent of the State.

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Tax exemptions are strictly construed against the taxpayer
because such provisions are highly disfavored and may
almost be said to be odious to the law. (Manila Electric
Company v. Vera, G.R. No. L-29987, 1975)
Exemptions are not presumed, but when public property is
involved, exemption is the rule, and taxation, the
exception.
General Rule: Exemptions are not presumed.
Exception: When public property is involved (i.e.,
exemption is the rule, and taxation, the exception)
There can be no simultaneous exemptions under two laws,
one partial and the other total.
Kinds of Tax Exemption
a. Express (or affirmative) – when certain persons,
property or transactions are, by express provision,
exempted from all or certain taxes, either entirely or in
part.
Examples of Statutory Tax Exemptions:
i. Intercorporate dividends by a domestic
corporation from another domestic corporation1
ii. Section 105 of the Tariff and Customs Code
iii. Section 234 of the Local Government Code
iv. Other special laws such as Omnibus Investment
Code of 1987 and Philippine Overseas Shipping
Act
b. Implied (or by omission) – when a tax is levied on
certain classes of person, properties or transactions
without mentioning the other classes. Every tax statute
makes exemptions since all those not mentioned are
deemed exempted. The omission may either be
accidental or intentional.
c. Contractual – those lawfully entered into by the
government in contracts under existing laws. These
exemptions must not be confused with the tax
exemptions granted under franchises, which are not
contracts within the context of non-impairment clause
of the Constitution. (Cagayan Electic Co. v. CIR, G.R.
No. L-60126, 1985)
The mere undertaking of NPC under the Agreement,
that it shall be responsible for the payment of all real
1
SEC. 27 (D) (4) Intercorporate Dividends. - Dividends received by a
domestic corporation from another domestic corporation shall not be
subject to tax.
TAXATION LAW
estate taxes and assessments, does not justify the
exemption of FELS – a private company. The privilege
granted to NPC cannot be extended to FELS. (Fels
Enegry, Inc. v. Province of Batangas, G.R. Nos. 168557
& 170628, 2007)
Rationale/grounds for exemption
A presumption that the public interest will be subserved by
the exemption allowed. Grant of exemption rests upon that
such will benefit the body of the people and not upon any
idea of lessening the burden of the individual owners of
property.
Purpose is some public benefit or interest, which the law-
making body considers sufficient to offset the monetary
loss entailed in the grant of exemptions.
Created in a treaty on grounds of reciprocity or to lessen
the rigors of the international double or multiple taxation.
Equity is not a ground for tax exemption.
Revocation of tax exemption
Tax exemption is generally revocable. The congressional
power to grant an exemption necessarily carries with it the
consequent power to revoke the same.
In order to be irrevocable, the tax exemption must be
founded on a contract or granted by the Constitution.
By way of exception, a contractual tax exemption obtained
from the State for a valid and material consideration of a
mutual nature cannot be revoked without impairing the
obligation of contracts under the Constitution. (Mactan
Cebu Int’l Airport Authority v. Marcos, G.R. No. 120082,
1996; MERALCO v. Province of Laguna, G.R. No. 131359,
1999)
7. EQUITABLE RECOUPMENT
When a taxpayer is entitled to a claim for refund but he was
not able to file a written claim within the prescribed time,
the taxpayer is allowed to credit the amount for refund
against his existing liability. This is not allowed in the
Philippines and is applied in common law countries.
8. PROHIBITION ON COMPENSATION AND SET-OFF
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Taxes are not subject to set-off or legal compensation 2. Collector of Customs with respect to customs duties
because the government and the taxpayer are not mutual limited to cases where the legitimate authority is
creditor and debtor of each other. (Republic v. Mambulao specifically granted such as in the remission of duties
Lumber Co., G.R. No. L-17725, 1962; Caltex Phils. v. (Sec. 709, Tariffs and Customs Code); and
COA, G.R. No. 92585, 1992) 3. Customs Commissioner, subject to the approval of the
Secretary of Finance, in cases involving the imposition
Taxes are not subject to set-off or compensation for the of fines, surcharges, and forfeitures (Sec. 2316, Tariffs
following reasons: and Customs Code).
1. Taxes are of distinct kind, essence and nature, and
these impositions cannot be classed in merely the 10. TAX AMNESTY
same category as ordinary obligations;
It is the general or intentional overlooking by the State of
2. The applicable laws and principles governing each are
its authority to impose penalties on persons otherwise
peculiar, not necessarily common, to each other; and
guilty of evasion or violation of a revenue or tax law. It
3. Public policy is better subserved if the integrity and
partakes of an absolute forgiveness or waiver of the
independence of taxes are maintained. (Republic v.
Government of its right to collect. It is a way to give tax
Mambulao Lumber Co., G.R. No. L-17725, 1962)
evaders who wish to relent and are willing to reform a
chance to do so.
A person cannot refuse to pay tax on the basis that the
government owes him an amount equal to or greater than
It refers to the articulation of the absolute waiver by a
the tax being collected. The collection of a tax cannot await
sovereign of its right to collect taxes and power to impose
the results of a lawsuit against the government. (Philex
penalties on persons or entities guilty of violating a tax law.
Mining Corp. v. CIR, G.R. No. 125704, 1998; Francia v.
Tax amnesty aims to grant a general reprieve to tax
Intermediate Appellate Court, G.R. No. L-67649, 1988)
evaders who wish to come clean by giving them an
opportunity to straighten out their records. Amnesty
In several cases, as an exception to offsetting, the Court
taxpayers may immediately enjoy the privileges and
have allowed the determination of the taxpayer’s liability in
immunities under a Tax Amnesty Law, provided they fulfill
a refund case, thereby allowing the offsetting taxes. In
the suspensive conditions imposed therein. (CS Garment,
these cases, offsetting was allowed because the
Inc. v. CIR, G.R. No. 182399, 2014)
determination of the taxpayer’s liability is intertwined with
the resolution for the claim of refund.
A tax amnesty, much like a tax exemption, is never favored
or presumed in law. The grant of a tax amnesty, similar to
In the case of TPC, where in it filed a claim for refund or
a tax exemption, must be construed strictly against the
credit under Sec. 112 of the NIRC while the issue to be
taxpayer and liberally in favor of the taxing authority. (Asia
resolved is whether TPC is entitled of its unutilized input
International Auctioneers v. CIR, G.R. No. 179115, 2012)
VAT, the offsetting was not allowed. The Court held that,
since it is not a claim for refund under Section 229 of the
Distinguished from tax exemption
NIRC, the correctness of TPC's VAT returns is not an
issue. Hence, the determination of the taxpayer’s liability AMNESTY EXEMPTION
was not related with the resolution of the claim for refund Scope of Immune from the Immunity from civil
or credit offsetting was also not an issue. (CIR v. Toledo immunity payments of liability only.
Power Company, G.R. No. 196415, 2015) taxes, as well as
additions thereto,
9. COMPROMISE and the
appurtenant civil,
Generally allowed and enforceable when the subject criminal or
matter thereof is not prohibited from being compromised administrative
and the person entering such compromise is duly penalties under
authorized to do so the NIRC (Rule V,
Sec 10(1))
The law allows the following persons to do compromise on To whom General pardon To persons
behalf of the government: granted given to all exempted by law.
1. BIR Commissioner as expressly authorized by the taxpayers.
NIRC subject to certain conditions;
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AMNESTY EXEMPTION Not every action filed by a taxpayer can qualify to

A freedom from a challenge the legality of official acts done by the
charge or burden government. A taxpayer's suit can prosper only if the
to which others are governmental acts being questioned involve
subjected. disbursement of public funds upon the theory that the
Application Applies only to Generally expenditure of public funds by an officer of the state
past tax periods prospective in for the purpose of administering an unconstitutional
hence, application. act constitutes a misapplication of such funds, which
retroactive may be enjoined at the request of a taxpayer. (Dean
application. Jose Joya v. PCGG, G.R. No. 96541, 1993)
Presence of Yes, there is None, because
Actual revenue loss there was no A taxpayer’s suit is properly brought only when there is an
Revenue since there was actual taxes due as exercise of the spending or taxing power of Congress.
Loss actually taxes the person or (Automotive Industry Workers Alliance v. Romulo, G.R.
due but collection transaction is No. 157509, 2005).
was waived by protected by tax
the government. exemption There is no need to show proof of direct injury as a result
of the action; it is sufficient for the petitioner to have a
“Shall cover all general interest common to all members of the public
national internal (Maceda v. Macaraig, G.R. No. 88291, 1991)
revenue taxes for
the taxable year As distinguished from a citizen’s suit
2005 and prior Taxpayers are allowed to sue, for example, where there is
years” (Rule II, a claim of illegal disbursement of public funds or where a
Sec 3) tax measure is assailed as unconstitutional. Voters are
allowed to question the validity of election laws because of
When enjoyment of the immunities and privileges their obvious interest in the validity of such laws.
begins: Concerned citizens can bring suits if the constitutional
Neither the 2007 Tax Amnesty Law nor Department of question they raise is of "transcendental importance" which
Finance (DOF) Order No. 29-07 (IRR of the Tax Amnesty must be settled early. Legislators are allowed to sue to
Law) imposes a waiting period of one year before the question the validity of any official action which they claim
applicant can enjoy the benefits of the Tax Amnesty Law. infringes their prerogatives qua legislators. (KILOSBAYAN
v. Morato, G.R. No. 118910, 1995)
It can be surmised from the provisions of the law that the
law intended the immediate enjoyment of the immunities Taxpayers claim of illegal disbursement of public
and privileges of tax amnesty upon fulfilment of the (taxpayer’s funds or where a tax measure is assailed
requirements. suit) as unconstitutional
Citizens if the constitutional question they raise is
The one-year period referred to in the law should thus be (citizen’s of "transcendental importance" which
considered only as a prescriptive period within which third suit) must be settled early.
parties (i.e., "parties other than the BIR or its agents") can Voters validity of election laws because of their
question the SALN – not as a waiting period during which obvious interest in the validity of such
the BIR may contest the SALN and the taxpayer prevented laws.
from enjoying the immunities and privileges under the law. legislators validity of any official action which they
(CS Garment, Inc. v. CIR, G.R. No. 182399, 2014) claim infringes their prerogatives as
legislators.

Case law in most jurisdictions now allows both "citizen"

Other Doctrines (Not included in the Syllabus) and "taxpayer" standing in public actions. (De Castro v.
JBC, G.R. No. 191002, 2010)
1. Taxpayer’s Suit
Nature and Concept The distinction was first laid down in Beauchamp v. Silk:
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● The plaintiff in a taxpayer’s suit is in a different
category from the plaintiff in a citizen's suit.
● In the former, the plaintiff is affected by the expenditure
of public funds, while in the latter, he is but the mere
instrument of the public concern.
● As held by the New York Supreme Court in People ex
rel Case v. Collins: In matter of mere public right, the
people are the real parties. It is at least the right, if not
the duty, of every citizen to interfere and see that a
public offense be properly pursued and punished, and
that a public grievance be remedied.
● With respect to taxpayer's suits, the right of a citizen
and a taxpayer to maintain an action in courts to
restrain the unlawful use of public funds to his injury
cannot be denied (Terr v. Jordan)
Requisites of a taxpayer’s suit challenging the
constitutionality of a tax measure or act of a taxing
authority; concept of locus standi, doctrine of
transcendental importance and ripeness for judicial
determination
a. Requisites of a taxpayer’s suit challenging the
constitutionality of a tax measure or act of a taxing
authority
To constitute a taxpayer's suit, two requisites must be
met, namely, that:
● Public funds are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or
some irregularity is committed, and
● Petitioner is directly affected by the alleged ultra vires
act. (Anti-Graft League v. San Juan, G.R. No. 97787,
1996)
b. Concept of Locus Standi
Another requisite rooted in the very nature of judicial power
is locus standi or standing to sue. Thus, generally, a party
will be allowed to litigate only when he can demonstrate
that:
1. He has personally suffered some actual or threatened
injury because of the allegedly illegal conduct of the
government;
2. The injury is fairly traceable to the challenged action;
and
3. The injury is likely to be redressed by the remedy
being sought (Oliver Lozano v. Speaker Nograles,
G.R. No. 187883, 2009)
c. Doctrine of Transcendental Importance
Determinants whether or not a matter is of transcendental
importance:
TAXATION LAW
1. The character of the funds or other assets involved in
the case;
2. The presence of a clear case of disregard of a
constitutional or statutory prohibition by the public
respondent agency or instrumentality of the
government; and
3. The lack of any other party with a more direct and
specific interest in the questions being raised. (CREBA
v. ERC and Meralco, G.R. No. 174697, 2010); citing
(Senate of the Philippines v. Ermita, G.R. No. 169777
2006,); and (Francisco v. Nagmamalasakit na mga
Manggagawang Pilipino, Inc., G.R. No. 160261,
2003,), citing (Kilosbayan v. Guingona, G.R. No.
113375, 1994,)
d. Ripeness for judicial determination
An aspect of the "case-or-controversy" requirement is the
requisite of "ripeness." The question before the court must
be ripe for adjudication, for example, that the government
act being challenged must have an adverse effect on the
person challenging it. (PACU v. Secretary of Education, 97
Phi. 806, 1955)
The case must fall within the purview of an actual
controversy that is ripe for judicial determination. The
apprehension of the respondent that it could be rendered
technically insolvent through the imposition of the
iniquitous taxes was merely a speculation or conjecture. It
is arguing based on probabilities, not actualities. The Court
ruled that the action was prematurely filed, for a justiciable
controversy refers to an existing case or controversy that
is appropriate or ripe for judicial determination, not one that
is conjectural or merely anticipatory. (Commissioner of
Internal Revenue v. Standard Insurance Co., Inc., G.R. No.
219340, 2018)
Another approach is the evaluation of the twofold aspect
of ripeness:
1. The fitness of the issues for judicial decision; and
2. The hardship to the parties entailed by withholding
court consideration.
In our jurisdiction, the issue of ripeness is generally treated
in terms of actual injury to the plaintiff. Hence, a question
is ripe for adjudication when the act being challenged has
had a direct adverse effect on the individual challenging it.
(Oliver Lozano v. Speaker Nograles, G.R. No. 187883,
2009)
2. The Power to Tax and the Power to Destroy
Justice Marshall in McCulloch v. Maryland (4 Wheat, 316
4 L ed. 579, 607) said that the power to tax involves the
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power to destroy. Taxation is a destructive power which
interferes with the personal and property right of the people
and takes from them a portion of their property for the
support of the government.
On the other hand, Justice Holmes in Penhandle Oil Co. v.
Mississippi (277 U.S. 218) declared that “the power to tax
is not the power to destroy while this court sits.”
If the power to tax is used to implement the State’s police
power to discourage and ultimately prohibit certain
activities inimical to the public welfare, this is permissible
as a power to destroy. If the power to tax is solely for the
purpose of general welfare, or raising revenue, it can not
be used to destroy nor to confiscate. In this sense, this can
be attacked on the basis of constitutionality or a valid
exercise of legislative power.
Hence, in Roxas v. CTA, (G.R. L-25043, 1968), the
Supreme Court said: “The power to tax is sometimes called
the power to destroy. Therefore, it should be exercised with
caution to minimize injury to the proprietary rights of a
taxpayer.”
K. CONSTRUCTION AND INTERPRETATION OF TAX
LAWS, RULES AND REGULATIONS
a) Tax Laws
General rule: Tax laws are construed liberally in favor of
the government and strictly against the taxing authority.
In case of doubt, tax statutes are construed strictly against
the government and liberally in favor of the taxpayer (CIR
v. CA, G.R. No. 107135, 1999)
Taxes, being burdens, are not to be presumed beyond
what the statute expressly and clearly declare.
Tax statutes offering rewards are liberally construed in
favor of informers.
Exception: Where the language of the tax statute is plain
and there is no doubt as to the legislative intent. In such
case, the words employed are to be given their ordinary
meaning.
b) Tax Exemptions and Exclusions
General rule: Exemptions are not favored and are
construed strictissimi juris against the taxpayer.
An exemption from the common burden cannot be
permitted to exist upon vague implication or inference.
TAXATION LAW
Taxation is the rule while exemption is the exception.
Therefore, whoever claims exemption must be able to
justify his claim or right thereto, by a grant expressed in
terms “too plain to be mistaken and too categorical to be
misinterpreted.”
If not expressly mentioned by law, it must at least be within
its purview by clear legislative intent.
Claims for refund partake of the nature of tax exemptions
and will not be allowed unless granted in the most explicit
and categorical language.
Exceptions:
1. When the law itself expressly provides for a liberal
construction, that is, in case of doubt, it shall be
resolved in favor of exemption.
2. When the exemption is in favor of the government itself
or its agencies because the general rule is that they
are exempt from tax
3. When the exemption refers to religious, charitable and
educational institutions
4. When there is an express mention or when the
taxpayer falls within the purview of the exemption by
clear legislative intent, the rule on strict construction
does not apply.
c) Tax Rules and Regulations
The construction placed by the office charged with
implementing and enforcing the provisions of the NIRC
should be given controlling weight unless such
interpretation is clearly erroneous.
Taxpayers cannot be deprived of their entitlement to the
benefit of a treaty for failure to strictly comply with an
administrative issuance requiring the prior application for
tax treaty relief. At most, the application for a tax treaty
relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief. The denial of a tax
relief based on a tax treaty due to the failure of a taxpayer
to comply with a RMO would impair the value of the tax
treaty and the State’s duty to comply in good faith with the
tax treaty. (Deutsche Bank AG Manila v. CIR, G.R. No.
188550, 2013)
Non-retroactivity of Rulings (Sec. 246) - Any revocation,
modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or
any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if
the revocation, modification or reversal will be prejudicial
to the taxpayers, except in the following cases:
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(a) Where the taxpayer deliberately misstates or omits
material facts from his return or any document
required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
Strict construction so as not to extend the plain terms
thereof that might create offenses by mere implication not
so intended by the legislative body. (People v. Martin, G.R.
No. L-38019, 1980)
———— end of topic ————

d) Penal Provisions of Tax Laws

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