16.

Upon seeing the global popularity of Korean culture, the President of the Philippines wanted to export Philippine
culture as well. Thus, he met with both the Secretary of Tourism and the Chairperson of the National Commission
for Culture and the Arts to come up with a plan to make Philippine culture the next big thing. After a series of
meetings with industry stakeholders and with a resolution of support from Congress, the President issued a
presidential proclamation granting tax exemptions to members of the Philippine entertainment and culinary
industries who export 70% of their products and services. The proclamation also grants additional tax incentives
(such as an income tax holiday) to artists, directors, chefs, studios (both TV and music), and authors who gain
international acclaim. Is the proclamation constitutional? Explain your answer.

NO. The constitutionality of the presidential proclamation granting tax exemptions and
incentives to members of the Philippine entertainment and culinary industries who export their
products and services, as well as to artists, directors, chefs, studios, and authors who gain
international acclaim, hinges on whether it complies with the constitutional framework of the
Philippines. To assess its constitutionality, the following legal principles and jurisprudence
should be considered:

1. Equal Protection Clause: Article III, Section 1 of the 1987 Philippine Constitution provides that
"No person shall be deprived of life, liberty, or property without due process of law, nor shall
any person be denied the equal protection of the laws." This means that laws and government
actions should treat all individuals or groups similarly situated in the same manner.

2. Uniformity and Equity in Taxation: Article VI, Section 28(1) of the Constitution mandates that
"The rule of taxation shall be uniform and equitable." This implies that tax laws must be based
on uniformity and equity, ensuring that taxpayers in the same category are treated equally.

3. Non-delegability of Legislative Power: The Constitution vests the power to make laws in
Congress (Article VI, Section 1). While Congress can delegate legislative authority to the
President under certain circumstances, such delegation must be within constitutionally defined
limits and standards.

In analyzing the constitutionality of the presidential proclamation, the following legal points can
be made:

A. Equal Protection Clause:

1. Discrimination based on Export Percentage: Granting tax exemptions and incentives only to
members of the Philippine entertainment and culinary industries who export 70% of their
products and services may be seen as discriminatory. It favors a specific group of individuals or
entities based on their export activities. Such differentiation must have a valid classification and
substantial distinction to meet the equal protection requirement.

The Supreme Court of the Philippines, in several cases, has held that classifications in tax laws
should be based on substantial distinctions that make real differences. Arbitrary or
unreasonable distinctions are not allowed.
B. Uniformity and Equity in Taxation:

2. Uniformity and Equity: The tax exemptions and incentives granted in the proclamation should
conform to the principle of uniformity and equity in taxation. If the exemptions and incentives
result in an unfair or non-uniform distribution of the tax burden, they may be considered
unconstitutional.

Article VI, Section 28(1) of the Constitution requires uniformity and equity in taxation, and the
Supreme Court has consistently upheld this principle in various cases.

C. Non-delegability of Legislative Power:

3. Legislative vs. Executive Power: While the President has the power to execute and implement
laws, including tax laws, the power to create, amend, or repeal tax laws rests with Congress. The
presidential proclamation, which grants tax exemptions and incentives, may be seen as an
exercise of legislative power.

The Constitution clearly delineates the powers of the legislative, executive, and judicial
branches of government (Article VI, Section 1). Any delegation of legislative authority to the
executive branch must have clear standards and guidelines.

In assessing the constitutionality of the presidential proclamation, it is essential to consider

whether the differentiation in tax treatment is based on reasonable and substantial distinctions,
whether it adheres to the principles of uniformity and equity in taxation, and whether it
exceeds the boundaries of delegated legislative authority. The proclamation's constitutionality
will depend on a thorough examination by the courts to determine if it complies with these
constitutional principles and standards.

17.Pedro ran a gambling den in the basement of a bar called Apolaki in Intramuros, Manila. His gambling operations
consisted of a pastime from the late 1700's called "Ratting", where barrels of rats would be released in a fenced-off
area for a cat to eat. Bettors would then wager on how many rats would be killed by the cat in a certain given time.
As can be easily gathered, this is highly illegal. The apparent illegality did not stop Pedro from making millions of
pesos from onsite and online bettors. Needless to say, Pedro did not file an income tax return to report his income.
Based on the complaint of the Commissioner of Internal Revenue, the Department of Justice filed an information
against Pedro for Failure to File Income Tax Return under Section 255 of the National Internal Revenue Code. In his
defense, Pedro argued that the profits from the gambling operations are not income in the first place because
declaring such would violate his right against self-incrimination. Hence, he is not required to file any income tax
return.
Is the argument of Pedro tenable? Explain.

NO. Pedro's argument that he is not required to file an income tax return on the grounds that
declaring the profits from his illegal gambling operations would violate his right against self-
incrimination is not likely to be tenable. Here's the legal analysis based on Philippine law and
jurisprudence:
1. Definition of Income for Tax Purposes:
- Under the National Internal Revenue Code (NIRC) of the Philippines, income tax is imposed
on individuals, including those engaged in illegal activities, such as gambling (Section 22).
- Section 32(A) of the NIRC defines "gross income" for individuals as all income derived from
whatever source, including compensation for services, gains derived from dealings in property,
and "income derived from illegal sources."

2. Self-Incrimination Privilege:
- The right against self-incrimination is a constitutional right enshrined in Article III, Section 17
of the 1987 Philippine Constitution, which states that no person shall be compelled to be a
witness against himself.
- This right is generally meant to protect individuals from being forced to provide testimonial
evidence that could incriminate them in a criminal case.

3. Income Tax Return and the Right Against Self-Incrimination:

- The requirement to file an income tax return is considered a regulatory, not testimonial, act.
It is a legal obligation imposed on individuals to disclose their income for tax assessment
purposes.
- The act of filing an income tax return is not considered a testimonial statement that would
directly incriminate a person in a criminal case.

Sullivan Case in the US

Pedro's argument that he is not required to file an income tax return due to concerns about
self-incrimination is unlikely to succeed. The requirement to file an income tax return is a legal
obligation under the NIRC, and it does not violate the right against self-incrimination because it
is not considered a testimonial statement. The law requires individuals to report all forms of
income, including those from illegal sources, for tax assessment purposes. Failure to do so can
result in legal consequences, including criminal charges for failure to file an income tax return
under Section 255 of the NIRC.

18. Marites is the chief executive officer and sole shareholder of Tsismis Ngayon OPC (TNO), a One Person
Corporation that runs a popular blog about showbiz news and juicy gossip. From March to April 2023, Marites
asked her daughter, Laya, to work as an intern in the corporation and help around the press room.
Her main duties were brewing coffee for the editorial staff and printing out hard copies of TNO blog posts for filing
purposes. Laya did a decent (but not excellent) job as an intern in her two-month stint with TNO, except for the one
time when she added two packets of sugar to the cup of coffee of a diabetic senior officer. Proud of the performance
of Laya, Marites issued a TNO resolution granting a P2 million bonus to Laya. Laya used the P2 million bonus to
buy a new car. Can TNO claim the P2 million bonus as a deduction? Explain your answer.
TNO (Tsismis Ngayon OPC) cannot claim the P2 million bonus issued to Laya as a deductible
expense for income tax purposes. Here's the legal analysis based on Philippine tax laws and
regulations:

1. Deductibility of Business Expenses:

- Under the National Internal Revenue Code (NIRC) of the Philippines, businesses are allowed
to deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying
on their trade or business (Section 34(A)(1)).

2. Requirements for Deductibility:

- For an expense to be deductible, it must meet certain criteria, including being ordinary,
necessary, and directly connected to the taxpayer's trade or business.

3. Bonus as Deductible Expense:

- Bonuses paid to employees or officers can be considered deductible if they meet the criteria
of being ordinary, necessary, and directly connected to the trade or business. In many cases,
bonuses paid to regular employees for services rendered are considered ordinary and necessary
business expenses.

4. The Case of Laya's Bonus:

- In this case, Laya is Marites's daughter and was working as an intern. While she contributed
to the company's operations during her internship, the issuance of a P2 million bonus to an
intern, especially one who performed duties like brewing coffee and printing documents, may
not be considered an ordinary and necessary business expense.
- The bonus may not be directly connected to the trade or business of TNO because interns
are typically not regular employees, and such a substantial bonus for an intern's services may
not meet the usual standards of reasonableness for deductible business expenses.

5. Reasonableness Test:
- The reasonableness of an expense is a key factor in determining its deductibility. The NIRC
and tax authorities often require that expenses be reasonable and necessary in relation to the
taxpayer's trade or business.

- Philippine tax authorities and courts have held that excessive or unreasonable bonuses may
not be allowed as deductible expenses.

While the deductibility of business expenses depends on the specific facts and circumstances of
each case, issuing a P2 million bonus to an intern for tasks like brewing coffee and printing
documents may not be considered an ordinary, necessary, or reasonable business expense.
Therefore, TNO may not be able to claim the P2 million bonus as a deductible expense for
income tax purposes. It's advisable for TNO to seek guidance from a tax professional or consult
with the Bureau of Internal Revenue (BIR) for a more specific determination of deductibility in
their unique situation.
19. Ikapati Corporation (IC) is a value-added tax (VAT)-registered corporation that sells various kinds of instant
noodles. It is recognized as the industry leader, especially after its spicy bulalo flavor gained immense popularity in
December 2021. The success of IC has been attributed to its tax lawyer, Atty. Mahal, who helps IC understand the
National Internal Revenue Code to its advantage. To show its appreciation, IC sent Atty. Mahal 1,000 boxes of spicy
bulalo instant noodles. Is the transfer of 1,000 boxes of instant noodles to Atty. Mahal subject to VAT? Explain.

Based on the specific circumstances provided and the legal basis you mentioned, it appears that
the transfer of 1,000 boxes of instant noodles from Ikapati Corporation (IC) to Atty. Mahal is not
subject to VAT.

Key points for this conclusion:

1. Transfer Nature: The transfer of instant noodles was a form of appreciation specifically
attributable to Atty. Mahal's work performance, and it was not part of the normal course of IC's
business operations.

2. in Lapanday Foods Corp. v. Commissioner of Internal Revenue, supports the argument that
transactions not conducted in the normal course of business may not be subject to VAT.

Additional considerations:

1. Intent of the Transfer: The intent behind the transfer is a crucial factor in determining VAT
liability. In this case, the transfer was a gesture of appreciation rather than a regular business
transaction.

2. Nature of Services: The nature of Atty. Mahal's services, which are legal in nature and not
directly related to the production or sale of goods, may also influence the VAT treatment.

3. Consultation: While the provided legal precedent is helpful, businesses should always consult
with tax professionals or seek guidance from the Bureau of Internal Revenue (BIR) for precise
interpretations of tax treatment, as specific details and interpretations may vary.

In conclusion, considering the specific circumstances provided and the legal basis cited, it
appears that the transfer of instant noodles as a form of appreciation to Atty. Mahal may indeed
not be subject to VAT. However, it's advisable for IC to maintain documentation and seek
professional advice to ensure compliance with tax regulations.

The transfer of 1,000 boxes of instant noodles by Ikapati Corporation (IC) to Atty. Mahal is
subject to Value-Added Tax (VAT).

1. VAT on Sale of Goods:

- Under the National Internal Revenue Code (NIRC) of the Philippines, the sale, barter,
exchange, or lease of goods or properties in the course of trade or business is subject to VAT
(Section 106).
2. Inclusions in the VAT Base:
- The VAT base includes the gross selling price or gross value in money of the goods or
properties sold, bartered, exchanged, or leased. It also includes the excise tax, if any, on such
goods or properties (Section 105).

3. De Minimis Rule Exception:

- A de minimis rule is applied when determining the VAT liability on the transfer of goods to
employees, suppliers, or clients as gifts, samples, or promotional items. The rule generally
exempts from VAT the transfer of goods with an aggregate annual value not exceeding PHP
1,000 per employee or recipient.

4. The Case of the Instant Noodles:

- In this case, IC sent Atty. Mahal 1,000 boxes of spicy bulalo instant noodles as a gesture of
appreciation. These noodles are considered goods or properties.
- The de minimis rule applies to determine whether the transfer is subject to VAT. If the
aggregate annual value of the instant noodles transferred by IC to Atty. Mahal exceeds PHP
1,000, then it becomes subject to VAT.

5. Compliance with VAT Rules:

- IC should assess the value of the 1,000 boxes of instant noodles sent to Atty. Mahal based on
their market value or selling price.
- If the total value exceeds PHP 1,000, IC is required to apply VAT to the transaction and issue a
VAT invoice or official receipt, as appropriate.

6. VAT Liability:
- If the aggregate value of the instant noodles sent to Atty. Mahal exceeds PHP 1,000, IC
should account for and remit the corresponding VAT to the Bureau of Internal Revenue (BIR) in
accordance with VAT rules and regulations.

- The transfer of 1,000 boxes of instant noodles by IC to Atty. Mahal is subject to VAT if the
aggregate annual value of the transfer exceeds PHP 1,000. IC should ensure compliance with
VAT rules and issue the necessary documents for tax purposes if the de minimis threshold is
exceeded. It's advisable for IC to consult with a tax professional or the BIR for precise
determination and compliance.
20. Quezon City assessed the Light Rail Transit Authority (LRTA) of real property taxes on its properties consisting
of lands, buildings, machineries, and terminal stations. Despite repeated demands from Quezon City, LRTA failed to
pay its outstanding obligations, prompting the city to issue a notice of delinquency with warrants of levy. LRTA
questioned the assessments of Quezon City, claiming that it is exempt from real property tax. LRTA argues that it is
operating a light rail transit

YES, LRTA is exempt from real property tax.

The properties owned by LRTA, a national government instrumentality, are exempt from real property
taxation

The properties of LRTA are of public dominion

The properties of LRTA are properties of public dominion and therefore owned by the State or the Republic of the
Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for the
development of the national wealth.

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is
patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall
form part of the patrimonial property of the State. (Emphasis supplied)

No one can dispute that properties of public dominion mentioned in Article 420 (1) of the Civil Code, such as
"roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. While there is no
specific mention of "rail roads" or "rail road tracks," the wording of the said provision permits inclusion of other
properties of similar character.

There is no question that the Light Rail Transit System (LRT) is devoted to public use because the same was
constructed with the intent of providing mass transportation to the people to alleviate the traffic and transportation
situation in Metro Manila. Rail roads are of a similar nature with roads, as both are man-made constructions on land
to facilitate the passage of certain vehicles. In fact, the LRT's rail roads and terminals are anchored at certain points,
on public roads, similar with elevated highways.

The mere fact that LRTA collects fees and other charges from the public does not remove the character of the rail
roads and terminals as properties for public use. The operation by the government of an elevated highway or
expressway with a toll does not change the character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among
the public who actually use the road through the toll fees they pay upon using the road. In fact, the tollway system is
a more efficient and equitable manner of taxing the public for the maintenance of public roads. 67

The charging of fees to the public does not determine the character of the property whether it is of public dominion
or not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if
the government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same
terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use
the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the
road. 68

The fees that the LRTA charges to passengers constitute the bulk of the income that maintains the operations of
LRTA and the LRT. The collection of such fees does not change the character of the LRT as a mode of mass
transportation for public use. Such fees are often termed user's tax. This means taxing those among the public who
actually use a public facility instead of taxing all the public including those who never use the particular public
facility. A user's tax is more equitable — a principle of taxation mandated in the 1987 Constitution. 69

As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines

The rail roads and terminals, among other properties of the LRTA, are not merely patrimonial property as
they were intended for public use and public service

Even assuming arguendo that LRT was not constructed for public use, these properties are owned by State and are
clearly intended for some public service, which falls under Article 420 (2) of the Civil Code.

In this regard, the records would show that the LRT, with all its rail roads and terminals, are essentially constructed
by the State through the LRTA, in accordance with the State's transportation policy laid down in the LRTA charter. It
was undisputed that the LRTA acquired the subject properties through expropriation proceedings, and that the
national government has been subsidizing the LRTA for the payment of its loans and interest payments for capital
intensive projects such as the LRT Line 1 (Baclaran-Roosevelt). In fact, if only to show how much the LRTA is
reliant on the national government, the said LRT Line 1 would have ceased operation if not for the national
government's subsidies amounting to P5.895 billion. Thus, We agree with LRTA's position that the real owner of
these properties is actually the State, especially considering the fact that said properties could not have been
obtained without the use of the State's inherent power of eminent domain, which it merely delegated to the LRTA as
its agent.

Thus, the inescapable conclusion is that the properties of the LRTA are not merely patrimonial properties, but are
properties of the public dominion that cannot be subjected to real property tax.

LRTA's properties are outside the commerce of man

As discussed extensively above, the properties of LRTA are devoted to public use, and thus, are properties of public
dominion, which are outside the commerce of man. The Court has ruled repeatedly that properties of public
dominion are outside the commerce of man. We ruled in the 2006 MIAA Case:

As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are
outside the commerce of man, thus:

According to Article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of
general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907
withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria
Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality
exceeded its authority in the exercise of its powers by executing a contract over a thing of which it could not
dispose, nor is it empowered so to do.

The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of man may be the
object of a contract, and plazas and streets are outside of this commerce, as was decided by the Supreme Court of
Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold because they are by
their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc." x x x (underscoring in the original)
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the
commerce of man:

x x x Town plazas are properties of public dominion, to be devoted to public use and to be made available to the
public in general. They are outside the commerce of man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use must also cease, and the town officials should see to it that
the town plazas should ever be kept open to the public and free from encumbrances or illegal private constructions.
(emphases in the original)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the
subject of an auction sale.

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through
public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is
void for being contrary to public policy. Essential public services will stop if properties of public dominion are
subject to encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and
compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

From the above, there is no reason why the same principle explained above should not be applied to LRTA's
properties, which are of the public dominion.

Real property owned by the State is not taxable

Section 234 (a) of the LGC exempts from real property tax any "[r]eal property owned by the Republic of the
Philippines." Section 234 (a) provides:

SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real property
tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

xxx xxx xxx.

This exemption should be read in relation with Section 133 (o) of the same Code, which prohibits local governments
from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalities x
x x." The real properties owned by the Republic of the Philippines are titled either in the name of the Republic itself,
or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows real
property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government.
Such real properties remain owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption
privilege. Section 234 (a) of the Local Government Code states that real property owned by the Republic loses its
tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person." LRTA, as a government instrumentality, is not a taxable person under Section 133 (o) of the LGC. Thus,
even if We assume that the Republic has granted to LRTA the beneficial use of the LRT properties, such fact does
not make these real properties subject to real estate tax.

However, portions of the LRT properties that LRTA leases to private entities are not exempt from real estate tax. For
example, the land area occupied by private concessionaires in certain LRT lines and terminals should be subject to
real estate tax. In such a case, LRTA has granted the beneficial use of such land area for a consideration to a taxable
person and therefore such land area is subject to real estate tax, which, if only to be clear and as pointed out by J.
Caguioa, must consequently be paid by said taxable person; not LRTA. In Lung Center of the Philippines v. Quezon
City, the Court ruled:

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 not exempt from such taxes. On the other hand, the portions of the land occupied by
the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real
property taxes.

To summarize, under Section 2 (10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire government
machinery, LRTA is a government instrumentality, and not a GOCC. Under Section 133 (o) of the LGC, LRTA as a
government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind"
by local governments. The only exception is when LRTA grants the beneficial use of its real property to a "taxable
person" as provided in Section 234 (a) of the LGC, in which case, the specific real property leased becomes subject
to real property tax, which must be paid by the "taxable person" as stressed by J. Caguioa. Thus, only portions of the
LRT leased to taxable persons like private parties are subject to real property tax by the City.

Under Article 420 of the Civil Code, the rail roads and terminals of the LRT, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420, while not
specifically mentioning "rail roads" or "rail road tracks," allow for the inclusion of properties of a similar character.
LRT rail roads, which necessarily include its terminals, are of a similar character to public roads, as both are devoted
for public use and both facilitate transportation through certain vehicles. In any event, the LRT is owned by the State
through the LRTA, as its agent, and is definitely intended for some public service, which is to provide mass
transportation to the people to alleviate the traffic and transportation situation in Metro Manila. Therefore, being
properties of public dominion owned by the Republic, there is no doubt that the LRT rail roads and terminals are
expressly exempt from real estate tax under Section 234 (a) of the LGC, subject to the rule discussed above, and are
not subject to execution or foreclosure sale. (Light Rail Transit Authority v. City of Pasay, G.R. No. 211299,
[June 28, 2022])