TAX Rev Mamalateo 108

PART I
GENERAL PRINCIPLES AND LIMITATIONS

ON THE POWER OF
TAXATION
CHAPTER I
GENERAL PRINCIPLES IN TAXATION
POWER OF TAXATION
A. Definitionof Taxation
"Taxation"is the power by which the sovereign raises revenue
to defray the expenses of government. It is a way of apportioning the
cost of government among those who, in some measure,are privileged
to enjoy its benefits and must bear its burden (51 Am. Jur. 34).
Taxation is described as a destructive power which interferes with
the personal and property rights of the people and takes from them
a portion of their property for the support of the government (Paseo
Realty & Development Corporation u. Court of Appeals, G.R.
No. 119286, October 13, 2004).
B. Purposes and Objectives of Taxation

Taxation is used not only to raise revenues but also for other
essential purposes of government. The folowing are the objectives
of taxation:
1. Revenue To raise revenue to promote the general
welfare and protection of its citizens. The power of
taxation is circumscribed by inherent and constitutional
limitations.
Regulatory - Taxation is no longer envisioned as a
2.
support the existence
measure merely to raise revenue to
with a regulatory
of government; taxes may be leviedthe rehabilitation and
purpose to provide means for is affected
stabilization of a threatened industry which power of
the police
with public interest as to be within
that the oilindustry is
the state. There can be no doubt
1
2 REVIEWER ON TAXATION
greatly imbued with public interest and stabilization a

oil prices is a prime concern which the state via its poioe
power may properly address (Caltex Philippines,
Inc.
v. Commission on Audit, G.R. No. 92585, May 8, 1992)
The "lawful subjects" and lawful means" tests are
used todetermine the validity of a law enacted under the
police power. While police power is inherent in the state.
it is not in municipal corporations (Balacuit u. CFI of
Agusan Del Norte, G.R. No. L-38429, June 30, 1988)
Section 73 of Commonwealth Act No. 123 and
Section 61 of the Land Transportation and Traffic Code
require owners of vehicles to pay a registration fee in T
the registration of their vehicles. The purpose of the law
is to raise funds for the construction and maintenance
of highways and, to a much lesser degree, pay for the
operating expenses of the administering agency. The
Court ruled that the fees may be regarded as taxes even
though they also serve as an instrument of regulation
(Philippine Airlines, Inc. v. Edu, G.R. No. L41383,
August 15, 1988).
The amount of license fees that may be imposed
upon the operation of slot machines, which includes
juke box, pinball and other coin-operated contrivances,
based on an ordinance passed by the Municipal Board
of Manila for regulatory purposes, cannot be prohibitive,
extortionate, confiscatory or in an unlawful restraint
of trade, but should be approximately commensurate
with and sufficient to cover all the necessary or portable
expenses for issuing the license and of such inspection,
regulation and supervision as may be lawful (Morcoin
Co. Ltd. v. City of Manila, et al., G.R. No. L-15351,
January 28, 1961).
3. Promotion of general welfare - Taxation may be
used as an implement of the police power to promote the
general welfare of the people.
4. Reduction of social inequality - A progressive system
of taxation prevents the undue concentration of wealth in
the hands of a few individuals. Progressivity is keystoned
on the principle that those who are able to pay should
shoulder the bigger portion of the tax burden.
GeneralGENERAL PRINCIPLES
Principles in Taxation
5
Encourage economic growth by granting incentives
and
exemptions
exempt are The
inherent
to
power to tax and the power
in the State
to the local and expressly granted
the power to governments under the Constitution. But
condone taxes does not exist, save in the
condonation of taxes (e.g., real property tax) which can
be granted only for
stated in the law (Sec.certain justifiable reasons expressly
276. Local Government
6.
Code).
Protectionism protect local industries from foreign
competition.
-To
Taxation as a Regulatory Measure

Bar Question (1991)
The polhce power, the power to tax and the power of eminent
domain are inherent powers of government. May a tax be valhdly
imposed in the exercise of the police power and not of the power to
tax? If your answer is in the affirmative, give an example.
Suggested answer:
The police power may be exercised for the purpose of requiring
licenses for which license fees may have to be paid. The amount of the
license fees for the regulation of useful occupations should only be
sufficient topay for the cost of the license and the necessary expense
of police surveillance and regulation. For non-useful occupations,
the license fee may be sufficiently high to discourage the particular
activity sought to be regulated. It is clear from the foregoing that
police power may not be exercised by itself alone. However, police
power may be exercised jointly with the power of taxation for the
No. I-7859,
purpose of raising revenues (Lutz v. Araneta, G.R.
December 22, 1955).
Bar Question (2016)

on the purchases
Congress issued a law allowing a 20% discountcenters. This 20%
recreation
of senior citizens from, among others,
as a "tax credit." At the
discount can then be used by the sellers
initiative of BIR, however, RepublicAct No. (RA) 9257 was enacted
discount as a "tax deduction."
amending the treatment of the 20% claiming that RA 9257
the RTC
Bquity Cinema filed a petition withdeprives sellers a part of the price
1s unconstitutional as it forcibly
without just compensation.
4 REVIEWER ON T'AXATION
(b) If you are the judge, how will you decide the case?
explain your answer. Briefly
Suggested answer: ofte
exe
(6) I will decide in favor of the constitutionality of the luu reg
The 20% discount as well as the tax deduction scheme i on
avalid exercise of the police power of the State (Maniln Co
Memorial Park, Inc. v. Secretary of Department of im

Social Welfare and Development, G.R. No. 175356 A
December 3, 2013). do
li
ir
Police power and the power of taxation are inherent powers
of the State. These powersare distinct and have different tests for
validity. Police power is the power of the State to enact legislation t
that may interfere with personal liberty or property in order to
promote the general welfare (Edu v. Ericta, G.R. No. L-32096,
October 24, 1970), while the power of taxation is the power to levy
taxes to be used for public purpose. The main purpose of police power
is the regulation of a behavior or conduct, while taxation is revenue
generation. The "lawful subjects" and lawful means" tests are used
to determine the validity of a law enacted under the police power
(Lim u. Pacquing, G.R. No. 1l5044, January 27, 1995). The
power of taxation, on the other hand, is circumscribed by inherent
and constitutional limitations. The power of taxation can be used as
an implement of police power (Lutz v. Araneta, G.R. No. L-7859,
December 22, 1955). If the purpose is primarily revenue, or if
revenue is, at least, one of the real and substantial purposes, then
the exaction is properly called a tax (Philippine Airlines, Ine. v.
Edu, G.R. No. L- 41383, August 15, 1988).
The term "tax" applies generally to all kinds of exactions
which become public funds. The term is loosely used to include
levies for revenue as well as for regulatory purposes. Thus, license
fees are commonly called taxes. Legally speaking, license fee is a
legal concept quite distinct from tax; the former is imposed in the
exercise of police power for purposes of regulation, while the latter 1s
imposed under the taxing power for the purpose of raising revenue
(McQuillin, Municipal Corporations, Vol. 9, 3rd ed., p. 26). Both
a license fee and a tax may be imposed on the same business or
occupation, or for selling the same article, this not being a violation
of the rule against double taxation (Bentley Gray Drug Goods C0
u. City of Tampa, 137 Fla. 641, 188 SO. 758).
5
GENERAL PRINCIPLES
General Principles in Taxation
The term "license tax" has not acauired a fixed meaning. 1t 19

often "used indiscriminately to designate impositions exacted tor the
exercise of various privileges." It does not refer solely to a license for
regulation. In many instances, it refers to "revenue raising exactions
on privileges or activities." On the other hand. icense fees" are
Commonly called taxes but, in contrast to the former, which are
imposed "inthe exercise of police power for purposesof regulation."
Accordingly, the designation given by the municipal authorities
does not decide whether the imposition is properly a license tax or a
license fee. The determining factors are the purpose and effect of the
imposition as may be apparent from the provisions of the ordinance
Victorias Milling Co. v. Mun. of Victorias, Prov. of Negr08
Occidental, G.R. No. L-21183, September 27, 1968). Thus, if
the generating of revenue is the primary purpose and regulation
is merely incidental, the imposition isa tax; but if regulation is the
primary purpose, the fact that incidental revenue is also obtained
does not make the imposition atax. To be considered alicense fee, the
imposition must relate to an occupation or activity that so engages
the public interest in health, morals, safety and development as to
require regulation for the protection and promotion of such public
interest; the imposition must also bear a reasonable relation to the
probable expenses of regulation, taking into account not only the
costs of direct regulation but also its incidental consequences as well.
When an activity, occupation or profession is of such a character that
inspection or supervision by public officials is reasonably necessary
for the safeguarding and furtherance of public health, morals and
safety, or the general welfare, the legislature may provide that
shall be
such inspection or supervision or other form of regulation
carried out at the expense of the persons engaged in such occupation
engage in the
or performing such activity, and that no one shall sufficient
0ccupation or carry out the activity until a fee or chargebeen paid.
supervision has
to cover the cost of the inspection or relation at all to
Accordingly, a charge of a fixed sum which bears no
to be a tax rather
the cost of inspection and regulation may be held Development
than an exercise of the police power (Progressive 1989). If the
April 24,
Corp. u. Quezon City, G.R. No. L-36081,
revenue is, at least, one of the
purpose is primarily revenue, or if
exaction is properly called
real and substantial purposes, then the
City of Butuan, G.R. No.
a tax (Land Transportation Offfce u.
131512, January 20, 2000).
taxation measures is the
The motivation behind many income taxes
Implementation of police power goals. Progressive
alleviate the margin between rich and poor; the so-called "sin
on alcohol and tobacco manufacturers help dissuade the taxeg"
Consumers
from excessive intake of these potentially harmful product
Taxation is distinguished from police power as to the me
employed to implement these public good goals. These doctrines tha
are unique in taxation arose from peculiar considerations such
those especially punitive effects of taxation, and the belief that tava
are the lifeblood of the state. These considerationsnecessitated the
evolution of taxation as a distinct legal concept from police power
Yet, at the same time, it has been recognized that taxation may be
made the implement of the state's police power (Planters Producte
u. Fertiphil Corporation, G.R. No. 166006, March 14, 2008).
The conservative and pivotal distinction between the State's
power to tax and police power rests in the purpose for which the
charge is made. If generation of revenue s the primary purpose
and regulation is merely incidental, the imposition is a tax; but
if regulation is the primary purpose, the fact that revenue is
incidentally raised does not make the imposition a tax (Gerochiv,
Department of Energy, G.R. No. 159796, July 17, 2007).
The Power to Tax involves the Power to Destroy

This principle is pertinent only when there is no power to tax
a particular subject and has no relation to a case where such right
to tax exists. Instead of being regarded as a blanket
authorization of
the unrestrained use of the taxing power for any and all
this maxim is reasonably construed as an purposes,
epigrammatic statement
of the political and economic axiom that since the financial needs of a
state may outrun any human calculation, so the power to meet those
needs by taxation must not be limited even though taxes
become
burdensome or confiscatory. The phrase describes not the purpose
for which the taxing power may be used but the degree of vigor
which the taxing power may be employed in order to raise revenue with
(MeCulloch u. Maryland, US 4 Wheat. 316).
The power of taxation is sometimes also called the power to
destroy." Therefore, it should be exercised with caution to minimize
the injury tothe proprietary rights of a taxpayer. It must be
exercised
fairly, equallyand uniformly, lest the tax collector killthe "hen that
lays the golden eggs." In order to maintain the general public's trust
and confidence in the government, this power must be used
and not treacherously (Roxas v. Court of Tax Appeals, justiy G.k.
GENERAL PRINCIPLES 7
L25043, April 26, 1968). Taxation
No.
unavoidably destroy. To carry it to the does not necessarily and
be an abuse; to
presume excess of destruction would
it would banish
essentialto all governments. that confidence which is
Bar Question (1996, 2000)
Justice Holmes once said: The power to tax is
todestroy while this Court (the not the poWer
power to tax and its
Supreme Court) sits." Describe the
limitations.
Suggested answer:
The power to tax isan inherent power of the s0vereign which is
exercised through the legislature, to impose burdens upon subjects
andobjects within its jurisdiction for the purpose of raising revenues
to carry out the legitimate objects of government. The underlying basis
for its exercise is governmental necessity for without it no government
can exist nor endure. Accordingly, it has the broadest scope of all
the powerS of government because in the absence of limitations, it
is considered as unlimited, plenary, comprehensive, and supreme.
The two limitations on the power of taxation are the inherent and
constitutional limitations which are intended to prevent abuse on the
exercise of the otherwise plenary and unlimited power. It is the Court's
role to see to it that the exercise of the power does not transgress these
limitations.
C. Nature of the Power of Taxation
Bar Question (1996,2003, 2005)

What is the nature of the power of taxation?
1. Itis an attribute of sovereignty

and inherent attribute
The power of taxation is an essential independent
matter of right to every
of sovereignty, belonging as a expressly conferred by the people
government, without being Philippines, Inc. v.
(Pepsi-Cola Bottling Company of the
Municipalityof Tanauan, Leyte, G.R.the No. L-31156, February
sovereignty, power to tax has been
Z7, 1976). As an incident of range, acknowledging in its very
described as unlimited in its found
that security against its abuse is to be
so
uaure no limits, legislature which imposes the tax on
only in the responsibility of the
REVIEWER ON TAXATION
International
constituency who are to pay it (Mactan Cebu September lU.
the No. 120082,
Airport Authority u. Marcos, G.R.
1996).
enact laws to raise
Being an inherent power, the legislature can the Constitution
of said power in
revenues even without the grant provisions relating to the power
It must be noted that Constitutional of power to the Government.
grants
of taxation do not operate as limitations upon a power which
but instead merely constitute as (Cooley, Constitutional
would otherwise be practically without limit
Limitations, 1927 8th ed., p. 787).
2. It is legislative in character
legislative function. The
The power of taxation is essentially a the (a) nature
power totax includes the authority to: (1) determine
rate); (d) coverage
(kind);(b) object (purpose); (c) extent (amount or (general
(subjects and objects); (e) apportionment of the tax or limited
application); (f) situs (place) of the imposition; and (g) method of
collection; (2) grant tax exemptions or condonations; and (3) specify
or provide for the administrative as well as judicial remedies that
either the government or the taxpayers may avail themselves in the
proper implementation of the tax neasure (Philippine Petroleum
Corporation u. Municipality of Pililla, G.R. No. 90776, June 3,
1991).
Bar Question (2004)

Taxes are assessed for the purpose of generating revenue to be
used for public needs. Taxation itself is the power by which the State
raises revenue to defray the expenses of government. A jurist said
that a tax is that we pay for civilization.
In our jurisdiction, which of the following statements may be
erroneous?
1. Taxes are pecuniary in nature.

2. Taxes are enforced charges and contributions.
3. Taxes are imposed on persons and property within the
territorial jurisdiction of a State.
4. Taxes are levied by the executive branch of the
government.
5.
Taxes are assessed
apportionment. according to a
reasonable rule or
Justify your answer or choice briefly.
Suggested answer:
Taxes are levied by the
executive branch of government.
This statement is erroneous
imposition by the legislature whichbecause
is done
"levy" refers to the act of
through the
atax law. Levy isan
exercise of the power to tax, which isenactment of
exclusively
legislative in nature and character. Clearly, taxes are not levied by
the executive branch of government
INPC] v. Province of Albay, G.R.(National Power Corporation
No. 87479, June 4, 1990).
3. It is generally not delegated to the executive or judicial
department
The power to tax is purely legislative, and which the central
legislative body cannot delegate either to the executive or judicial
department of the government without infringing upon the theory
of separation of powers (Pepsi-Cola Bottling Company of the
Philippines, Inc. u. Municipality of Tanauan, Leyte, G.R. No.
L31156, February 27, 1976). The delegation of the power to tax is,
however, allowed in the following cases:
a. To local governments in respect of matters of local concern
to be exercised by the local legislative bodies thereof (Sec.
5, Art. X, 1987 Constitution);
b When allowed by the Constitution. Thus, the Congress
within
may, by law, authorize the President to fix and
specified limits, and subject to such limitations
and
restrictions as it may impose, tariff rates, importother
dues, and
export quotas, tonnage and wharfage
framework of the national
duties or imposts within the
(Sec. 28/2), Art.
development program of the Government
VI, 1987 Constitution);
the President is
Delegation of legislative powers to Article
23(2) and 28(2) of VI of the
permitted in Sections
By virtue of a valid delegation of legislative
Constitution. by the President and
also be exercised
power, it may as well as the lawmaking
administrative boards,
municipal levels, including the barangay
bodies of all
(Camarines Norte Electric Cooperative u. Torres,

G.R. No. 127249, February 27, 1998). Such delegation
confers upon the President quasi-legislative power
which may be defined as the authority delegated by the
lawmaking body to the administrative body to adopt rules
and regulations intended to carry out the provisions of
the law and implement legislative policy.
To be valid, an administrative issuance, such as
an executive order, must comply with the following
requisites:
1. Its promulgation must be authorized by the
legislature;
2. It must be promulgated in accordance with the
prescribed procedure;
3. It must be within the scope of the authority given by
the legislature; and
4. It must be reasonable (Hon. Exec. Secretary v.
Southwing Heavy Industries, et al., G.R. No.
164171, February 20, 2006).
C. When the delegation relates merely to administrative
implementation that may call for some degree of
discretionary powers under a set of sufficient standards
expressed by law (Cervantes u. Auditor General, G.R.
No. L-4043, May 26, 1952), or implied from the policy
and purpose of the Act (Maceda v. Macaraig, Jr, G.R.
No. 88291, May 31, 1991).
In every case of permissible delegation,there must be a showing

that the delegation itself is valid. It is valid only if the law (a) is
complete in itself, setting forth therein the policy to be executed,
carried out, or implemented by the delegate; and (b) fixes a standard
- the limits of which are sufficiently determinate and determinable
to which the delegate must conform in the performance of his
functions. A sufficient standard is one which defines legislative
policy, marks its limits, maps out its boundaries and specifies the
publicagency to apply it. It indicates the circumstances under which
the legislative command is to beeffected. Both tests are intended to
prevent a total transference of legislative authority to the delegate,
who is not allowed to step into the shoes of the legislature and
Principles in Taxation 11
exercise a power
essentially
. Ermita, G.R. No. 168056,legislative (Abakada Guro Party L8t
An September
1, 2005).
administrative agency may not
restrict proviSion
a oflaw. It cannot add to enlarge, alter or
the requirements
provided by law. To do so constitutes
generally reserved for Congress. -The BIR lauw-making, which i8
not found in the law. added a requirementa
Sections 1and 3 of RR No, 10-2008 add
requirement not found in the law by effectively declaring that a
Minimum Wage Earner MWE) who receives/earns
compensation such as commissions, honoraria, fringeadditional
benefits,
benefits in excessof the allowable statutory amount of
P90,000 (formerly P82,000], as amended by R.A. No. 10963P30,000 (now
Lawl), taxable allowances and other taxable income other thanTRAIN
the
statutory minimum wage (SMW), holiday pay, overtime pay, hazard
pay and night shift differential pay shall not enjoy the privilege of
being a MWE provided under R.A. No. 9504 and, therefore, his/her
entire earnings are not exempt from income tax and withholding
tax. Nowhere in the provisions of R.A. No. 9504 would one find the
qualifications prescribed by the assailed provisions of RR No. 10
2008. The provisions of the law are clear and precise; they leave
no room for interpretation they do not provide or require any
other qualification as to who are MWEs (Soriano v. Secretary of
Finance, G.R. No. 184450, January 24, 2017).
Bar Question (2003)
May Congress, under the 1987 Constitution, abolish the power
to tax of local governments?
Suggested answer:
by the
No, Congress cannot abolish what is expressly granted
fundamental law. The only authority conferred to Congress is to
local government's
provide the guidelines and limitations on theConstitution).
1987
exercise of the power to tax (Sec. 5, Art. X,
pouwer to tax is ordained
The exercise by local governments of the 5, Article X of the 1987
Under Section
by the present Constitution. limitations that may be established
Constitution, only guidelines and
define and limit such power of localgovernments.
by Congress can unit shall have the power to create its
Thus, each local government
and to levy taxes, fees, and charges subject
Own sources of revenues limitations as the Congress may provide,
to such guidelines and
12
with the basic policy of local autonomy (Pepsi-Cola

consistent Municipality of
Bottling Company of the Philippines, Inc. U. 1976).
27,
Tanauan, Leyte, G.R. No. L-31156, February
subject to constitutional and inherent linmitations!
4. It is
the powers of
The power to tax is said to be the strongest of all supreme,
government. It is unlimited, plenary, comprehensive and
principal check
in the absence of constitutional restrictions, the Congress
on its abuse resting in the responsibility of members of
to their constituents. However, the power of taxation is subject to
constitutional and inherent limitations.
A constitutional injunction against deprivation of property
without due process of law may not be passed over under the guise
of the taxing power, except when the taking of the property is in
the lawful exercise of the taxing power, as when, (1) the tax is for a
public purpose; (2) the rule on uniformity of taxation is observed; (3)
either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection
of certain kinds of taxes, notice and opportunity for hearing are
provided (Pepsi-Cola Bottling Company of the Philippines, Inc.
v. Municipality of Tanauan, Leyte, G.R. No. L-31156, February
27, 1976).
D. Tax Distinguished fromOther Impositions

1. Tax and Debt
TAX DEBT
Basis Based on law. Based on contract or

judgment.
Taxpayer may be No imprisonment for

Effect of Non imprisoned for his failure to pay a debt.
Payment failure to pay the tax
(except poll tax).
Mode of Paymnent Generally

money.
payable in May be payable in
money, property or
services.
Assignability
Not assignable. Can be assigned.
Does not draw Draws interest if
Interest
interest unless stipulated or delayed.
delinquent.
Authority Imposed by public Can be imposed by
authority. private individuals.
Prescriptive Civil Code governs

Prescription periods for tax are the prescriptive
determined under the period of debts.
NIRC.
Bar Question (2005)

Can an assessment for a local tax be the subject of set-off or
compensation against a final judgment for a sum of money obtained
the
government that made
by the taxpayer against the local
assessment? Explain.
Suggested answer:
Taxes and debts are of different nature and character;
No. these two different classes
compensation between
hence, no set-off or are the obligations of
taxes assessed
of obligations is allowed. The while the money judgment against the
the taxpayer arising from law, express
obligation arising from contract, whether
government is an
taxes are not debts, it follows that the
as
or implied. Inasmuch susceptible to set-off or legal compensation
two obligations are not Appellate Court, G.R. No. L-67649,
(Franciav. Intermediate
June 28, 1988). and the final judgment
local tax assessment
Itis onlywhen the
wellfully liquidated may set
overdue, demandable, as Garlito8, G.R. No.
both
are compensation be allowed (Domingo .
off or
L18994, June 29, 1963).
14
2. Tax and Toll
TAX TOLL
Enforced A sum of money for

proportional the use of something,
contributions a consideration which
from persons and is paid for the use of a
Definition
property. property which is of a
public nature; e.g., road,
bridge.
Ademandof A demand of
Basis sovereignty. proprietorship.
No limit as to the Amount of toll

amount of tax. depends upon the
cost of construction
Amount or maintenance of the
public improvement
used.
May be imposed May be imposed by the

only by the government or private
Authority
government. individuals or entities.
Fees paid by the public to tollway operators for use of the

tollways, are not taxes in any sense. A tax is imposed under the
taxing power of the government principally for the purpose of raising
revenues to fund public expenditures. Toll fees, on the other hand,
are collected by private tollway operators as reimbursement for the
costs and expenses incurred in the construction, maintenance and
operation of the tollways, as well as to assure them a reasonable
margin of income. Although toll fees are charged for the use of public
facilities, they are not government exactions that can be properly
treated as a tax. Taxes may be imposed only by the government
under its sovereign authority, toll fees may be demanded by either
the government or private individuals or entities, as an attribute of
ownership (Diazu. Secretary of Finance, G.R. No. 193007, July
19, 2011).
15
GENERAL PRINCIPLES
General Principles Taxation
3.
Tax and License Fee
TAX LICENSE FEE
Imposed for Imposed for

Purpose revenue purpose8. regulatory
purpose8.
Imposed under the

Imposed under the
Basis power of taxation. police power of the
State.
Amount of license
No limit as to the
amount of tax. fee that can be
collected is limited
to the cost of the
Amount license and the
expenses of police
surveillance and
regulation.
Normally paid Normally paid

after the start ofa before the
Time of commencement of
business.
Payment the business.
Failure to pay a
Failure topay license fee makes
the tax does not
Effect of Non make the business the business
Payment illegal.
illegal.
License fee may

Taxes, being the
lifeblood of the be with or without
consideration.
State, cannot
Surrender be surrendered
except for lawful
consideration.
4. Tax and Penalty
TAX PENALTY
Definition Enforced proportional Sanction imposed as a

contributions from punishmnent for violation
persons and property. of a law or acts deemed
injurious; violation of
tax laws may give rise to
imposition of penalty.
Purpose Intended to raise Designed to regulate

revenue. conduct.
Authority May be imposed only May be imposed by:

by the government. (1) Government; or
(2) Private individuals
or entities.
E. Taxation Distinguished from other Inherent Powers of

the State (APPEBAR)
Taxation Eminent Police

Domain Power
Authority May be May be May be
who exercised exercised exercised
Exercises only by the by the only by the
the Power government government government
or its political or its political or its political
subdivisions. subdivisions; subdivisions.
Granted to
public service
companies
or public
utilities.
Purpose The property The property The use of the
(generally
in the form
is taken for property is
of money) is public use; regulated for
the taking the purpose
exacted for must be of promoting
the support with just the general
of the
compensation. welfare;
government. it is not
compensable.
Persons Operates Operates on Operates
Affected upon a: an individual upon a:
as the owner
Community: Community;
or of a particular or
Class of property. Class of

individuals. individuals.
Effect The money There is a There is no

contributed transfer of transfer of
becomes part the right to title.
of the public property. At most, there
funds. is restraint on
the injurious
use of
property.
Benefits It is assumed He receives The person

that the the market affected
Received individual value of the receives
receives the property indirect
equivalent taken from benefits as
of the tax in him. may arise
the formn of from the
maintenance
protection
and benefits of a healthy
economic
he receives standard of
from the
government. society.
18
No amount Amount
Amount of Generally, imposed
there is no imposed
Imposition but rather should not
limit on the
be more than
amount of tax the owner
is paid the sufficient to
that may be cover the cost
imposed. market value
of the license
of property
taken. and necessary
expenses.
Relationship Is subject Inferior to the Relatively

to certain impairment free from
to
Constitution constitutional prohibition; constitutional
limitations. government limitations.
cannot
Including the Issuperior
prohibition expropriate to the
against private impairment
impairment of property, of contract
which under
the obligation provision.
of contracts. a contract
it had
previously
bound itself to
purchase from
the other
contracting
party.
F. Theory or Underlying Basis of Taxation

1. Lifeblood Theory
The existence of government is a
necessity; it cannot exist nor
endure without the means to pay its expenses;
the government has the right to compel all its and for those means,
within its limits to contribute in the form of citizens and property
taxes.
The phrase "taxes are the
expresses the underlying basis oflifeblood
of government, etc."
taxation which is governmental
necessity, for indeed, without taxation, a government can neither
exist nor endure. Taxation is the
indispensable and inevitable
price for civilized society; without taxes,
paralyzed. This phrase has been used to the government would be
justify the validity of the
laws providing for summary remedies in the
collection of taxes. As a
Februay
1988).17, dispel person
This lives the Surrender
bygovernment. tothe 2.2007).
Aprilpeople
17, its from -28896,power theanswer:
Without Suggestednecessity Barinability eaid 1989,
injunction such
he Co, consequence
those activate mandate government caused d
form governmentTaxes
of Necessity
necessity, Lifeblood Question
Briefly to Inc.collection
taxes.
symbiotic
the Benefits-Protection Theory (CIR to where
the taxes, be
in of who part activate
February
1988).17, theory. to to U.
the
erroneous tangible is and are . of collect asthe Court may Even
The explain 1rreparable the of
people able of promoting
Bank because the ofthe
seat operate
would what theory doctrine (1991, taxpayer
relationship their
to government
and wil taxes.
Supreme of not taxes
be
when above
of government, not First General
notion and and must we of the 2016) obtained is
power hard-earned it. be it
thewithout -operatesurvive, GENERAL
intangible the The - following by generally
Instance,
asCourt is rule, PRINCIPLES
enhance Hence, pay Principles
contribute paralyzed Philippine Without being
it not
general exercise would would as an
(CIR that theis for for taxes, it so
injunction
it ruled held
its despitecivilized resulting
(CIR made under
withheld in
v. is their
rationale be
revenue doctrines: in Taxation
his
anbenefitspart, income for be G.R.
that the
Algue, welfare the ofparalyzed
lslands, U. against to
arbitrary moral share No.
pay thprocedural
1S tothe lack government the Algue, in e case against by
intended power raised
Inc., ofexpected the society.
natural of and detriment L-49529,
damagesthe
in lifeblood the of the
the
taxation and government, the G.R. for taxes Valley laws the
G.Rmet. hod well-being to Inc., from laws,
Without tax lack government
material running
to to motive No. cannot assessment
reluctance to cannot Marchthat
Tradingimposin8
No.andimprove
exaction of respond emanates G.R. of
taxation, doctrine; such
134062, society.
motive
fulfill
of may 19
L28896, values.
should of powertaxes,
every N. be 31, an
the s
the inthe to
20
Bar Question (2016)

doctrines: benefits received
Briefly explain the following
relationship.
principle; doctrine of symbiotic
Suggested answer:
Benefts received principle - Taxpayers
Taxpayers receive benefits
For the
from tares through the protection the State affords tothem.
protection they get arises their obligation to suPport the government
through payment of taxes (CIR v. Algue, Inc., G.R. No. L-28896,
February 17, 1989).
Doctrine ofsymbiotic relationship Taxation arises because
of the reciprocal relation of protection and support between the state
and taxpayers. The state gives protection and for it to continue giving
protection, it must be supported by the taxpayers in the form of taxes
(CIR v.Algue, Inc., G.R. No. L-28896, February 17, 1988).
JURISDICTION OVER SUBJECT AND OBJECTS

The approved doctrine is that no state may tax anything not
within its jurisdiction without violating the due process clause of the
constitution. The taxing power of a state does not extend beyond its
territorial limits, but within such limits it may tax persons, property,
income, or business. If an interest in property is taxed, the situs of
either the property or interest must be found within the state. If an
income is taxed, the recipient thereof must have a domicile within
the state or the property or business out of which the income
must be situated within the state so that the income may be issues
have a situs therein. Personal property may be said to
owner and he mnay be taxed on its account at the separated from its
place where the
property is although it is not a citizen or resident of the state which
imposes the tax. But debts owing by corporations are
the debtors, and only possess value in the hands of theobligations of
creditors.
Bar Question (2016)
Sure Arrival Airways (SAA) is a foreign
under the laws of the Republic of Nigeria. Itscorporation, organized
do not operate within commercial airplanes
Philippine territory, or service passengers
embarking from the Philippine airports. The firm is represented in
the Philippines by its general agent, Narotel.
(leneral 'rineplos in 21
Waxatlon
SAA oll airplane ticketa
orviced by NAA nirplanen throuyh Narotel, and thes tickets
outaide
alonof airplane tickote transncted by
the Philippinen, "The twtal
ahountedto
ri0,000,000,00 Narotel for
"The Commianioner of HAA in 2012
CR)
nanenned SAA
defleieney income taxes at
Internal Revenue
Iuxableincome, finding that SAN's the rate of 830% on ite
incomederived from AOurcen within
nirlino ticket sales onstituted
the Philippine8.
SAAfiled Aprotent on the
incometaxeNAahould be conaideredground that the alleged
asincome deficiency
NOurceNoutside the Philippines nince 8AA
derived exclusively from
only serviced
outaidePhilippine territory. It, thus, aAserted that the passengers
principle of territorialityimposition
income taxes violnted the of
such in taxation.
ls the theoryof SAA tenable? Explain.
Suggested answer:
No. The activity which gives rise to the income is the sale of
ickets in the Philippines, hence, the income from aale of tickets is an
income derived from Philippine sources which is subjecttoPhilippine
inome tax. Accordingly, there is no violation of the principle of
ierritoriality in taxation (Air Canadav. CIR, G.R. No. 169507,
January l1, 2016).
Bar Question (2016)

Jennifer is the only daughter of Janina who was a resident
in Los Angeles, California, U.S.A. Janina died in the U.S. leaving
to Jennifer one million shares of Sun Life (Philippines), Inc., a
corporation organized and existing under the laws of the Republic
of the Philippines. Said shares were held in trust for Janina by the
Corporate Secretary of Sun Life and the latter can vote the shares
and receive dividends for Janina. The Internal Revenue Service
(URS) of the U.S. taxed the shares on the ground that Janina was
domiciled in the U.S. at the time of her death.
shares?
(a) Can the CIR of the Philippines also tax the same
Explain.
Suggested answer:
The property, being a property located in the
Tes. Philippine estate tax
Philippines, is subject to theresidence of the decedent
irrespective of the citizenship or
22
a nonresident alios
However, ifJanina is
the shares of
(Sec. 85, NIRC). death, the transmission of
her reciprocity
at the time of applyingtheprinciple of
stock can only be taxed
(Sec. 104, NIRC).
Bar Question (1996)

corporation doing businessin the Philippines
X,a multinational corporation to Mr.Y, its resident
said
donated 100shares of stock of
manager in the Philippines.
if any, ofX corporation?
(1) What is the tax liability,
Suggested answer:
(1) Foreign corporations effecting a donation are subject
located in
to donor's tax only if the property donated is
the Philippines. Accordingly, the donation of a foreign
corporation of its own shares of stocks in favor of resident
employees is not subject to donor's tax (BIR Ruling
No. 018-87, January 26, 1987). However, if 85% of
the business of the foreign corporation is located in the
Philippines or the shares donated have acquired business
situs in the Philippines, the donation may be taxed in the
Philippines subject to the rule of reciprocity.
CHARACTERISTICSOF ASOUND TAX SYSTEM

Bar Question (2015)
Explain the principles of a sound tax system.
Suggested answer:
The principles of a sound tax
explanations, are as follows: system and their respective
a) Fiscal
adequacy, which
should be sufficient tomeans that the sources of revenue
meet the demands of public
expenditures
6, 1990); (Chavez Ongpin, G.R. No. 76778, June
v.
b) Equality or theoretical justice, which
burden should be means that the tax
pay (Sec. 28[1], Art.proportionate
VI, 1987
to the taxpayer's ability to
Constitution); and
c) Administrative feasibility, which means that the tax

law should be capable of convenient, just,
administration, well as easycompliance by and
as effectwe
the taxpayer.
STAGES OR ASPECTS OF
TAXATION
Well-known authors describe that the exercise of taxation has
bree aspects, nameiy: (a) levy; (b) assessment: and (c) collection.
The power to levy taxes is vested with the Congress of the
Philippines, and all revenue or tariff bills shall originate from the
House of Representatives, but the Senate may propose or concur
with amendments.? The main purpose of the bills emanating from
he House of Representatives is to bring in sizeable revenues for the
mOYernment to supplement our country's serious financial problems,
and improve tax administration and control of the leakages in
house
revenues from income taxes and value-added taxes. As these
approaching the
hills were transmitted to the Senate, the latter,
can introduce
measures from the point of national perspective, (Abakada Guro
amendmnents within the purposes of those bills 2005).
September 1,
Party List v. Ermita, G.R. No. 168056,
involves tax policy, is essentially
The power to levy taxes, which power may be delegated to
legislative in character, although the
with respect to administrative matters, provided
executive agencies safeguards prescribed are followed
in
guidelines or
that adequate
tax laws. This delegated power to the executive
the administration of described as "administrative regulation" or
department has been power to assess and collect
taxes
"subordinate legislation. "3 The is exercised by the executive
and
involves tax
administration
particularly the Bureau of Internal
government,
department of to national internal revenue taxes.
respect
Kevenue (BIR)with
Bar Question (2006) taxation. Explain each.
Enumerate the 3 stages or aspects of
5,
204014, December
Litonjua, G.R. No.
Exchange, Inc. v. December 2, 1940.
Philippine Stock 47800,
G.R. No.
2016. Calalang v. Williams,
NIRC:
Sec. 244,
24
Suggested answer:
aspects of taxation are.:
The three stages or by Congress
enactment of a law
Levy. This refers to the
imposing a tax.
Assessment and collection. This is theact of administration
department
implementation of the tax law by the executive
and
through the administrative agencies.
the
FilingPayment. This is the act of compliance by be
schemes, or remedies as may
taxpayer, including such options,
legally available to him.
DEFINITION AND ELEMENTSOF AVALID TAX

"Taxes" are: (1) the enforced proportional contributions; the (2)
body of
from persons and property levied by the lawmaking
State by virtue of its sovereignty; (3) for the support of government
and for all public needs (1 Cooley 62). A tax is a financial obligation
imposed by a State on persons, whether natural or juridical, within
its jurisdiction, or property owned, income earmed, business or
profession engaged in, or any such activity analogous in character
for raising the necessary revenues to take care of the responsibilities
of government (Republic v. Philippine Rabbit Bus Lines, Inc.,
G.R. No. L-26862, March 30, 1970).
The coconut levy funds are deemed as an exercise of the State's
police and taxing power. Coconut levy funds partake of the nature
of taxes which, in general, are enforced proportional contributions
from persons and properties exacted by the State by virtue of its
sovereignty for the support of government and for all publie needs.
Based on this definition, a tax has three elements, namely: (a) it is
an enforced proportional contribution from persons and
properties;
(b) it is imposed by the State by virtue of its sovereignty; and (c) it is
levied for the support of the government. The coconut levy funds fall
squarely into these elements (Republic v. COCOFED, et al., G.R.
Nos. 147062-64, December 14, 2001).
1. It is aforced charge, imposition, or
contribution. As such,
it operates ad invitum, i.e., it is in no way
upon the will or contractual assent, express or dependent
the person taxed. It is not contractual, implied, of
either express or
GeneralGENERAL. PRINCIPLES
implied, but positive acts of

Co., Inc. u. government (Panay Electric
2. It is
Collector, G.R. No. (
L-10574, May 28, 1956)
of assessed in
accordance with
apportionment which means thatsome reasonable rule
constitutional conformity with the
mandate for Congress toevolve
tax system, taxes must be based on the aprogress1ve
to pay (Sec. 28<a], Art. VI, 1987 taxpayer's ability
3. It is a pecuniary burden Constitution).
payable in
certificates may be used in payment money, but backpay
of tax (De Borja U.
Gella, G.R. No. L-18330, July 31, 1963). The
is not allowed to settle his tax taxpayer
liability by conveying
property (real or personal) in view of the problem of
assigning value to such property.
4. It is imposed by the State on persons, property, or excises
within its jurisdiction, in accordance with the principle
of territoriality. As the State may exercise its power of
taxation only within its territorial jurisdiction, said power
may not be exercised within the premises of embassies
and diplomatic missions of a sending state located in
the host or receiving state which is considered, by fiction
of international law, as an extension of the territorial
jurisdiction of the sending state, thereby granting the
sending state exclusive sovereignty within its premises.
5. It is levied by the legislative body of the State. Taxes are
obligations created by law (Vera u. Fernandez, G.R. No.
L31364, March 30, 1979). A tax creates a civil liability
although the non
on the part of the delinquent taxpayer,
liability which could
payment thereof creates a criminal
prosecution under existing
be the subject of criminal pay national internal
laws. It is one's civil liability to criminal liability, not
to
revenue taxes that gives rise
other way around. Criminal cases cannot operate to
the
discharge defendant-appelleefrom the duty of paying the
law requires to be paid, since that duty
taxes which the to and independently of any
prior
is imposed by statute
taxpayer to evade payment (Republicv.
attempts by the July 21, 1967).
Patanao, G.R. No. L-22356,
purpose.
6. It is levied for a public
25
implied,
Co.,
but positive acts of government (Panay Electric
Inc. v.Collector, G.R. No. L-10574, May 28, 1958).
2. It is assessed inaccordance with
of
apportionment which means thatsome reasonable rue
conformity with tne
constitutional mandate for
tax system, taxes must be Congress to evolve a progress1Ve
to pay (Sec. 28/a], Art. VI, based
1987
on the taxpayer's aDmy
3. It is a
Constitution).
pecuniary burden payable in money, but backpay
certificates may be used in payment of tax (De Borja U.
Gella, G.R. No. L-18330, July 31, 1963). The
is not allowed to settle his tax liability by taxpayer
conveying
property (real or personal) in view of the problem of
assigning value to such property.
4. lt is imposed by the State on persons, property, or excises
within its jurisdiction, in accordance with the principle
of territoriality. As the State may exercise its power of
taxation only within its territorial jurisdiction, said power
may not be exercised within the premises of embassies
and diplomatic missions of a sending state located in
the host or receiving state which is considered, by fiction
of international law, as an extension of the territorial
jurisdiction of the sending state, thereby granting the
sending state exclusive sovereignty within itspremises.
5. It is levied by the legislative body of the State. Taxes are
obligations created by law (Vera v. Fernandez, G.R. No.
L-31364, March 30, 1979).A tax creates a civil liability
on the part of the delinquent taxpayer, although thecouldnon
payment thereof creates a criminal liability which
be the subject of criminal prosecution under internalexisting
laws. It is one's civil liability to pay national
liability, not
revenue taxes that gives rise to criminal
cannot operate to
the other way around. Criminal cases
the
discharge defendant-appellee from the duty of paying
paid, since that duty
taxes which the law requires to be independently of any
is imposed by statute prior to andpayment (Republic v.
attempts by the taxpayer to evade 21, 1967).
Patanao, G.R. No. L-22356, July
6. It is levied for a public purpose.

26 lia
un
A
corporation's tax
taxpayer. stockholders.
to the
7. It is personal enforced against its Ba
delinquency cannot be with a personality that is
isvested by law of the persons composing
Acorporationdistinct
separate and from those entity to which it
of any other legal
it as well as that National Labor Relations th
v.
may be related (Sunio -57767, January 31, 1984). tB
Commission, G.R. No. for the unpaid taxes
of
Stockholders may be held liable corporate W
dissolved corporation, if it appears that the payment R
a hands without the
assets have passed into their
taxes. The creditor of a dissolved corporation may
of passed into the hands
follow its assets once they have
death of the corporation
of the stockholders. The legal the same way that the
does not prevent such action, in prevent the
physical death of an individual would not taxes from his
government from assessing and collecting
administrator who holds the property which the decedent
had formerly possessed.
Bar Question (2004)

For failure to comply with certain corporate requirements,
the stockholders of ABC Corp. were notified by the Securities and
Exchange Commission that the corporation would be subject to
involuntary dissolution. The stockholders did not do anything to
comply with the requirements, and the corporation was dissolved.
Can the stockholders be held personally liable for the unpaid taxes
of the dissolved corporation? Explain briefly.
Suggested answer:
No. As a general rule, stockholders cannot be held personally
liable for the unpaid taxes of a dissolved corporation. The rule
prevailing under our jurisdiction is that a corporation is ested by
law with apersonality that is separate and distinct from those of the
persons composing it (Sunio u. NLRC, G.R. No. L-57767, January
31, 1984).
However, stockholders may be held liable for the unpaid taxes
of a dissolved corporation, if t
have passed into their hands (Tanappears that the corporate assets
Tiong Bio v. CIR, G.R. No.
L-15778, April23, 1962). Likewise, when
stockholders
subscriptions to the capital of the corporation, have unpaid
they can be made
liable for the unpaid taxes of

unpaid subscriptions. the
Corporation to the extent of their
Bar Question (1993)
«y" solda piece of land to
City, Inc. The land is to be the United Church of Christ of Quezon
devoted
the Church. When the Church triedstrictly for religious purposes by
to register the title of the land,
the Register of Deeds refused
was not paid. ls the transaction claiming that the capital gains tax
Reasons.
exempt from the capital gains tax?
Suggested answer:
No. Under Section 21(e) to relation to Section 49a)\4) of the
National Internal Revenue Code, the seller is the one liable for the
payment of the capital gains tax from the sale of realproperty by
an individual taxpayer. Meanwhile, the Church in this instant case
is the buyer. Hence, Section 28(4) of the 1987 Constitution, which
exempts church lands, buildings, and improvements, does not apply
because the obligation to pay the capital gains tax herein is imposed
on X,"the seller, and not on the Church. Since payment of the capital
gains tax is acondition precedent for the registration of the transfer
certificate of title to real property, the non-payment herein by the
transfer
seller is a valid reason for the Registry of Deeds to deny the
of title to the subject land.
DIRECT TAX AND INDIRECT TAX

taxes are those that are exacted from the very person
Direct impositions
desired, should pay them; they are
who, it is intended or transaction or business
directly liable on the
1or which a taxpayer is
he is engaged in.
indirect taxes are thOse that are demanded,
On the other hand. are paid by, one person in the
from, or
n the first instance, that he
someone
can shift the burden to liability
intention
expectation and
indirect taxes are taxes wherein the thereof
else. Stated elsewise, one person butthe burden
on
for the payment of the tax falls another person, such as when the tax
can be shifted or passed on toreaching the consumer who ultimately
nposed upon goods
before he, in effect,
tax to his buyer,purchaser
passes on the as
pays for it. When the sellerthe liability to pay it, to the
shifts the tax burden, not
28
part of the purchase price of goods sold or services rendered (CIR
Distance Telephone Company, G.R. No.
U. Philippine Long
2005).
140230, December 15,
Bar Question (1994)
from an indirect tax.
Distinguish adirect tax
Suggested answer:
tax" is one in which the taxpayer who pays the.
A"direct
therefor; burden of paying
that is, the the tax falls
onliable
directly
isdirectly the perSon paying the tax. The impact and incidence of
the tat was impOsed
taxation remain with the person upon whom
An "indirect tax" is one paid by a person w
who is not directly
liable therefor, and who may therefore shift or pass on the ta to
burden
another person or entity, which ultimately assumes the tax
(Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991), In
this case, the impact of taxation is with the taable seller of goods or
service, while the incidence of taxation rests with the final consumer.
Among the taxes imposed by the Bureau of Internal Revenue
are income tax, estate and donor's tax, value added tax, excise tax,
other percentage taxes, and documentary stamp tax. Classify these
taxes into direct and indirect taxes, and differentiate direct from
indirect taxes.
Suggested answer:
Income tax, estate tax, and donor's tax are
taxes. On the other hand, value added tax. considered as direCt
tax, and documentary stamp excisetax. other percentus
tax are indirect taxes.
A direct tax is
intended, should pay demanded
the
from the very persot
an indirect tax is tax which he cannot shift to another; le
with the demanded in the frst
instance one person
as a tax expectation that he from
but as part of the can shift the burden to Someone else,
not
Jr., G.R. No. 88291, purchase
June 8, 1993). price (Maceda U. Macaraig
pOUBLE TAXATION
Bar Question (2015)
Differentiate
a broad sense and
between double taxation in the strict
sense
give an example of each. ana
Suggested answer:
Double taxation in the strict sense
taxation. This means that the taxpayer ispertains to direct douo
taxing authority, within the same taxing taxed twice for
by the same
jurisdiction, the same
property and same purpose. Example: Imposition offnal withholding
tax on cash dividends and requiring the taKDayer to declare this tax
Daid income in his income tax returns.
On the other hand, double taxation in the broad sense pertains
to indirect double tazation. This extends toall cases in which there is
aburden of two or more impositions. It is the double taxation other
than those covered by direct double tazation (CIR v. Solidbank
Corporation, G.R. No. 148191, November 25, 2003). Example:
Subjecting the interest income of banks on their deposits with other
banks to the 5% gross receipts tar (GRT) despite the same income
having been subjected to 20% fnal withholding tax (FWT), is only
privilege
acase of indirect double taxation. The GRT is atax on the
of engaging in business, while the FWT is a tax on the privilege of
Commerce, G.R. No. 149636,
earning income (CIR v. Bank of
June &, 2005).
Taxation)
A. Strict Sense (Direct Double
to constitute double taxation in the objectionable or
In order must be taxed twice when it
same property
prohibited sense, the must be imposed on the same
once: both taxes
should be taxed but same purpose, by the same State,
matter, for the or
property or subject authority, within the same jurisdiction
Government or taxing must be the
during the same taxing period, and theyIloilo, G.R.
taxing district, of tax (Villanueva u. City of
same kind or character
28, 1968).
No.L-26521, December
Bar Question (2019) Code to include a
new
Revenue
In 2018, City X amended its merchandisebya wholesaler
every sale of
provision imposinga tax on
30
inclusive of value-added
based on the total selling price of the goods,
operating within the city,
taxes (VAT). ABC Corp., a wholesaler following contentions: 1.
challenged the new provision based on the
double taxation because
The new provision is a form of prohibited VAT which was already
imposing
it essentially amounts to City X 2. since the tax being
being levied by the national government; and City X to levy the
imposed is akin toVAT, it is beyond the power of
same.
Rule on each of ABCCorp.'s contentions. (5%)
Suggested answer:
Corp is incorrect.
With regard to the first contention, ABC
only when all of the
Under the NIRC, direct double taxation exists
following requisites are present:
same:
The two taxes must be imposed on the
1. subject matter;
2. purpose;
3. by the same taxing authority;

4. within thesame jurisdiction;
5. during the same taxing period; and
character.
6. the taxes must be of the same kind or
different. Hence, the tax
In this case, the taxing authorities aredirect double taxation.
to be imposed by the LGU is not a form of
Bar Question (2018)

City of Kalookan, has
KM Corporation, doing business in the household materials.
distributor and retailer of clothing and
been a
Kalookan local taxes based on
It has been paying the City of Distributors or Dealers) and 17
Sections 15 (Tax on Wholesalers, City (Code).
(Tax on Retailers)of the Revenue Code of Kalookan
Sangguniang Panglungsod enacted an ordinance
Subsequently, the imposes a tax on
code by inserting Section 21 which
amending the and Percentage Taxes
to Excise, Value Added
"Business Subject Code (NIRC)," at the rate of
Revenue
under the National Internal
1% per annum on the gross sales receipts on persons "who
50% of
services in the course of trade or business." KM
sell goods and Section 21 under protest, claiming
Corporation paid taxes due under
GENERAL PRINCPLES 31
that(a) local government units could not impose atax on businesses
already taxed under the NIRC and (b) this would amount double to
double taxation, since its business was
already taxed under Sections
15 and 17 of the Code.
Does this (imposition of a tax on businesses already subject to
koN under the NIRC] amount to double taxation? (2.5%)
Suggested answer:
Yes. The three taes are all in the nature of local business taxes
on wholesalers, retailers, and service providers which are imposed by
thesame taxing authority on the same subject matter for the same tax
period; hence, the elements of double taxation are present (Nursery
Care Corporation v. Anthony Acevedo, G.R. No. 180651, July
30, 2014).
Alternative answer:
twice
Yes. Double taxation means taxing the same property
same property
when it should be taxed only once,; that is, "taxing the
thing."
twice by the same jurisdiction for the same
taxed twice, when it should
It isobnoxious when the taxpayer is otherwise described as
taxation, which is
be only once. In double taxes must be imposed on the same
"direct duplicate taxation, the two
matter, for the same purpose, by the same taxing authority,
subject
jurisdiction, during the same taxing period, and the
within the same
kind or character.
taxesmust be of the same
test, there is, indeed, double taxation
afore-mentioned
Using the subjected to the taxes under Section 15 (Tax
since KM Corporation is 17 (Tax on Retailers)
and
Distributors or Dealers),value-added and percentage
on Wholesalers,
Businesses subject to excise, These
21 (Tax on
the Revenue Code of Kalookan City.
privilege
of
taxes under the NIRC) () on the same subject matter - the make
taxes are being imposed:
Kalookan City; (2) for the same purpose - to city
contribute to
of doing business in business within Kalookan City City; (4) within
persons conducting taxing authority - Kalookan jurisdiction of
same
revenues; (3)by the
jurisdiction - within the territorial calendar year;
the same taxing(5)for the same taxing periodsbusiness - per
tax imposed
Kalookan City: alocal
of the same kind or character (City of Manila u. Coca
and (6) business 181845, August 4,
sales or receipts of the G.R. No.
On gross
Bottlers Philippines, Inc., 10, 2010, reiterated in
Cola February
No. 167283,
2009, and G.R.
32
City
Swedish Match Philippines, Inc. u. The Treasurer of the
ursery
of Manila, G.R. No. 181277, July 3, 2013, both cited in 2014).
Care Corporation u. Acevedo, G.R. No. 180651, July 30,
Bar Question (2017)
Upon his retirement, Alfredo transferred his savings derived
from his salary as a marketing assistant to a time deposit with AAB
Bank. The bank regularly deducted 20% finalwithholding tax on the
interest income from the time deposit.
Alfredo contends that the 20% final tax on the interest income
constituted double taxation because his salary had already been
subjected to withholding tax.
Is Alfredo's contention correct? Explain your answer.
Suggested answer:
No. Double taxation means taxing for the same tax period
the same thing or activity twice, when it should be taxed but once,
for the same purpose, and with the same kind of character of tax
(CIR v. Citytrust nvestment Phil., G.R. No. 39786, 140857,
September 27, 2006). The 20% fnal tax is imposed on the interest
income, while the tax earlier withheld is on the salary or compensation
income. Thus, though both pertain to income tax, they do not pertain
to the same thing or activity, and consequently, nodouble taxation
exists.
Bar Question (1997)

(a) Is double taxation a valid defense against the legality of a
tax measure?
Suggested answer:
(a) No, double taxation standing alone and not being forbidden
by our fundamental law is not a valid defense against the
legality of a tax measure (Pepsi-Cola Bottling Company
of the Philippines, Inc. v. Municipality of Tanauan,
Leyte, G.R. No. L-31156, February 27, 1976). However,
if double taxation amounts to a direct duplicate taxation,
in that the same subject is taxed twice when it should be
taxed but once, in a fashion that both taxes are imposed for
the same purpose by the same taxing authority, within the
same jurisdiction or
taxing district, for the same taxable
period and for the same
it becomes legally kind or character of a tax, ter
inequitable. objectionable for being oppressiue e
B. Broad Sense (Indirect Double Taxation)
In the broad sense, double taxation means indirect duplicate
taxation. It extends to all cases in which there are two or more
pecuniary impositions. The Constitution does not prohibit the
imposition of double taxation in the broad sense.
Relevant Cases:
1. Regulation and taxation are two different things, the
first being an exercise of police power, whereas the latter
involves the exercise of the power of taxation. While R.A.
No. 2264 provides that no city may impose taxes on forest
productsand although lumber is a forest product, theitstax in
upon sale.
question is imposed not upon the lumber but even if there was,
There is no double taxation involved, and
City Treasurer of
it is not prohibited by law (Serafica v.1968).
Ormoc, G.R. No. L-24813, April 28,
goods
warehouseman is one who receives and stores
2. A Hawaiian
another for compensation. The fact that
of planters' sugar for free for
Philippine Co. (HPC) stores the
days does not exempt it from liability. If this
the first 90 rendered
the law imposing the tax would be
were the case, fact that HPC's warehousing
Neither is the
ineffectual.
in addition to or in relation to the
business is carried on sufficient to exempt it. Under
central
operation ofits sugar Tax Code, the tax on business is
Section 178 of the old distinct establishment or
separate or
payable for every subject to the tax is conducted.
business become
place where the business or occupation does not
business or
and one line of conducted with some other
exempt by being been paid. There can be
tax has
occupation for which such the State merely imposes a tax
taxation where business in which a party
nodouble distinct
separate and Hawaiian-Philippine Company,
on every (CIR v.
engaged in
is L-16315, May 30, 1964). taxation
G.R. No. subjected to double
is being
3. That Tabacalera
34
apparent than real. What is collected under

is more the three other
Ordinance No. 3358 is a license fee, while merchandise.
the
ordinances impose a tax on sales of
imposed on the same
Both a license fee and a tax may be
same article.
business or occupation, or for selling the
double taxation
This is not aviolation of the rule against City
(CompaniaGeneral de Tabacos de Filipinas v.
of Manila, G.R. No. L-16619, June29, 1963).
container
4. The tax on the sale or disposal of every bottle or
of liquor or intoxicating beverages is a revenue measure,
whereas the sum of P600.00 San Miguel pays annually
is for a second-class wholesale liquor license, which is a
license to engage in the business of wholesale liquor in
Cebu City, and constitutes a regulatory measure, in the
exercise of police power (San Miguel Brewery, Inc. v.
Cityof Cebu, G.R. No. L20312, February 26, 1972).
5. Subjecting the interest on bank deposits to the five
percent (5%) gross receipts tax (GRT) does not result in
double taxation.The taxes are imposed on two different
subject matters - 20% FWT is imposed on the passive
income generated in the form of interest on deposits,
while GRT is imposed on the privilege of engaging
in the business of banking. A tax based on receipts is
a tax on business rather than on the property; hence,
it is an excise tax rather than a property tax. GRT is
not an income tax, but a percentage tax not subject to
withholding tax, unlike the FWT, which is an income
tax subject towithholding. Also, the taxing periods they
affect are different: FWT is deducted and withheld as
soon as the income is earned, and is paid after every
calendar quarter in which it is earned; GRT is neither
deducted nor withheld, but is paid only after every
taxable quarter in which it is earned. The fact that the
FWT is a special trust fund belonging to the government
and that the bank did not benefit from it while in custody
of the borrower does not justify its exclusion from the
computation of interest income subject to GRT (CIR V.
Bank of Commerce, G.R. No. 149636, June 8, 2005).
6. The authority of city mayors to issue or grant licenses
and business permits is beyond cavil. It is provided for
GENERAL PRINCPLES 35
by law, particularly in Section 171, par. 2(n) of
337. In the present case, the objective of the BP BIg
of subject conditions on petitioner's business imposito
be attained by requiring the optometrists inpermit coula
petitioner s
employ to produce a valid certificate of registration as
optometrist, from the Board of Examiners in Optometry.
A business permit is issued primarily to regulate the
conduct of business and the City Mayor cannot, through
the issuance of such permit, regulate the practice of
a profession, like that of optometry. Such a function is
within the exclusive domain of the administrative agency
specifically empowered by law to supervise the profession
(Acebedo Optical Company v. CA, et al., G.R. No.
100152, March 31, 2000).
Bar Question (2004)

requires that all
A municipality, BB, has an ordinance which
selling liquor should
stores, restaurants, and other establishments
the municipal board
pay a fixed annual fee of P20,000. Subsequently,
sales tax equivalent to 5% of the
proposed an ordinance imposing a consumption of liquor in stores,
amount paid for the purchase or municipal nayor, CC,
restaurants, and other establishments. The
sign the ordinance on the ground that it would constitute
refused to
double taxation.
justified? Reason briefly.
Is the refusal of the mayor
Suggested answer:
not justified. The impositions
mayor is
No. The refusal of thecharacter. The fixed annualfee is in the
nature and
are of different power,
license fee imposed through the exercise of police local
nature of a
percent (5%) tax on purchase or consumption isa fee
whule the five exercise of taxing powers. Both alicense
lax imposed through the
imposed on the same business or occupation, or for
and a tax may be
and thisis not in violation of the rule against
article
selling the same (Compañia Filipins u.
General de Tabacos de
double taxation L16619, June 29, 1963).
Gty of Manila, G.R, No.
Bar Question (1996) estate tax on the premises,

property, pays real
X," a lessor of a rental receipts and income tax on
a real estate dealer's tax
based on
that this is double taxation. Decide.
claims
e rentals, He
1. 36
international
they Johnson investments
Inc.
S.C.taxation deemed imposition
is conventions
oftaxpayer
international
periods. taxation
contracting
agreementsinternational to
impact
have of 1968). taxing
(Villanueva privilege
privilege purpose,
tax should Suggested
for answer:
arshness C.
capital, to avoid is the
are Tax v. encourage been Treaties.
Income
Avoidance Doubleof Tax a There
CIR, is vital authorities to totax and same be
alsotreaties The in in double Treaties taxed is
of crucial technology of parties entered engage on
earn
nown G.R. respect are two is tax
ational will inapparent comparable juridical
andinvestment the to
taxation. treaties
u. property; with but tax no
double
are creating
only drafted
different
City and an the period
No. in free reconcile in into as in once,
as Son,creating of order income.
ofbusiness;
are same
ouble
entered 203346, thrive rationale
and fiow the by Double relief REVIEWER
TAXATIONON
double Iloilo, the taxation.bythe
Inc., climate robust taxes with Thus, double are essentially
juridical of samejurisdictions. tothe the real kind thesame
such persons
in goods help intended from These
tax into G.R. taxation, in a Philippines G.R . while same
September a for view national the Taxation estate or"Double
reaty to and
a fairly and subject
doing twO the taxation, Taxation
Bilateral
through Double thing
No. climate between and purpose taxes character
the taing
double
minimize, the
dynamic No. of
or taxpayer
towards to dealer's
or 127105,protection
predictable servicesaway different income are or
mattermorewhich More fiscal with reduce Taxation L-26521, taxation"
activity
ouble
nts.tax
axation, (Cargill 9, of - authority, of
countries, with states Bilateral
these
imposed
kind tax tax tax.
if 2020, economies. and the avoid different
precisely,
legislations
is
not June and or
and double defined
elimination eliminate December and is isThe twice,
eliminate, citing against the simultaneous a a for means
which Philippines, for on international tax by
25, reasonablemovement tax tax real the
conditions countries character
1999). Foreign identical the
taxation th e treaties different onon whentaxing
is CIR double as of estatesame
same the the
why the the oftax the the 28, it
v.
«A state that has
bound to make in its
contracted valid international obligations 19
necessary to ensure the
legislations those modifications that may be
Dh1s. laws and issuances fulfillment of the obligations undertaken."
must ensure that the reliefs granted
under tax treaties are accorded to the
parties entitled thereto. The
RIR must not impose additional requirements that would
negate the
availment of the reliefs provided for under international agreements.
More so, when the RP-Germany Tax Treaty
pre-requisite for the availment ofthe benefitsdoes not said
provide for any
under agreement.
The Court] recognize[s] the clear intention of the BIR in
implementing RMO No. 1-2000, but the CTA'S outright denial of
a tax treaty relief for failure to strictly comply with the prescribed
period is not in harmony with the objectives of the contracting state
toensure that the benefits granted under tax treaties are enjoyed by
duly entitled persons or corporations.
The obligation to comply with a tax treaty must take precedence
over the objective of RMO No. 1-2000. Logically, noncompliance with
tax treaties has negative implications on international relations,
and unduly discourages foreign investors. While the consequences
sought to be prevented by RMONo. 1-2000 involve an administrative
procedure,these may be remedied through other system management
cannot
processes, e.g., the imposition of a fine or penalty. But we
treaty for
totally deprive those who are entitled to the benefit of a
issuance requiring
failure to strictly comply with an administrative Bank
(Deutsche AG Manila
prior application for tax treaty relief
Branchu. CIR, G.R. No. 188550, August 19, 2013).
The Court considers an application for tax treaty relief merely
confirmation of a taxpayer's entitlement to tax treaty benefits
as a right to avail of such
to unduly divest a taxpayer of the
but not interpretation, the BIR
benefits. In compliance with the Court's
March 31, 2021, asclarified by RMC
188ued RMO No. 14-2021 dated and
77-2021 dated June 15, 2021, to streamline the procedures
No. treaty benefits.
ocuments in theavailment of tax
eliminate Double Taxation under Tax
2. Methods to
Treaties. to two
eliminate double taxation, a tax treaty resorts
To
the right to tax between the contracting
by allocating
nethods: first. source is assigned the right
the state of
States;and second. where residence to grant atax relief either
to tax, by requiring the state of
Thus:
exemption or tax credit.
through
38
taxation usually takes place when a person is resident

Double or owns capital
of a contracting state and derives income from, that
the other contracting state and both states impose tax on
in, double taxation, a tax treaty
income or capital. In order to eliminate
out the respective rights to
resorts to several methods. First, it sets
and of the state of residence
tax of the state of source or situs capital. In some cases, an
with regard to certain classes of income or contracting states;
exclusive right to tax is conferred on one of the
states are given
however, for other items of income or capital, both
imposed by
the right to tax, although the amount of tax that may be
the state of source is limited.
double taxation
The second method for the elimination of
right
applies whenever the state of source is given a full or limited
treaties
totax together with the state of residence. In this case, the
make it incumbent upon the state of residence to allow relief in
order to avoid double taxation (Cargill Philippines, Inc. u. CIR,
supra).
3. Methods to grant tax relief by State of Residence.
There are two methods of relief - the exemption method and
the credit method.
In the exemption method, the income or capital which is
taxable in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into account
in determining the rate of tax applicable to the taxpayer's remaining
income or capital.
On the other hand, in the credit method, although the income
orcapital which is taxed in the state of source is still taxable in the
state of residence, the tax paid in the former is credited against the
tax levied in the latter.
The basic difference between the two methods is that in the

exemption method, the focus is on the income or capital itself,
whereas the credit method focuses on the tax.
The exemption and credit principles are the two leading
principles in eliminating double taxation that are being followed in
existing conventions between countries.
Under the exemption principle, the income that may be
taxed in the state of source is not taxed in the state of residence.
This may be
applied by two methods: full
state of
residence does not account for the esemption,thewhere the
source for tax
taxed in the purposes; or with income from state of
the state of
state of source is
residence
progre8sion,
not
taxed
where the income
by the state of residence, but
Aotermining the tax toretains the right to
be imposed on the consider that income when
rest of the income.
Under the credit principle, the
+heright to tax the state of residence retains
taxpayer'stotal income, but allows a deduction
for the tax pad in the state of source. It may be applied by
methods: a full credit, where the two
etate of source is allowed as total amount of tax paid in the
deduction: or an ordinary credit,
where the deduction allowed by the state of residence is
that part of its oWn tax appropriate to the income fromrestricted to
the state of
source (CargillPhilippines, Inc. u. CIR, 8upra).
Bar Question (1997)
(b) When an item of income is taxed in the Philippines and
the same income is taxed in another country,is there a
case of double taxation?
(c) What are the usual methods of avoiding the occurrence of
double taxation?
Suggested answer:
taxation
(b) Yes, but it is only acase of indirect duplicatetaxes are
which is not legally prohibited because the
imposed bydifferent taxing authorities.
occurrence of double
(c) The usual methods of avoiding the
taxation are:
by law or by
1. Allowing reciprocal exemption either
treaty;
taxes paid;
2. Allowance of tax creditfor foreign
deduction for foreign taxes paid;and
3. Allowance of
tax rate.
4. Reduction of the Philippine

Jennifer is the only daughter of Janina who was a resident
in Los Angeles, California, U.S.A. Janina died in the U.S. leaving
to Jennifer one million shares of Sun Life (Philippines), Inc., a
corporation organized and existing under the laws of the Republic
of the Philippines. Said shares were held in trust for Janina by the
Corporate Secretary of Sun Life and the latter can vote the shares
and receive dividends for Janina. The Internal Revenue Service
(IRS) of the U.S. taxed the shares on the ground that Janina was
domiciled in the U.S. at the time of her death.
(c) Explain the concept of double taxation.
Suggested answer:
(c) Double taxation occurs when the same subject or object of
taxation is taxed twice when itshould be taxed butonce.
Double taxation is prohibited when it is an imposition of
taxes on thesame subject matter, for the same purpose, by
the same taxing authority, within the same jurisdiction,
during the same taxing period, with the same kind or
character of a tax (84 C.J.S. 131-132). It ispermissible if
taxes are of different nature or character, or the two taxes
are imposed by different taxing authorities (Villanueva
u. City ofIloilo, G.R. No. L-26521, December 28, 1968).
ESCAPE FROM TAXATION
A. Shifting of Tax Burden

Based on the possibility of shifting the incidence of taxation, or
as to who shall bear the burden of taxation, taxes mnay be classified
intoeither direct tax or indirect tax.
In context, direct taxes are those that are exacted from the
very person who, it is intended or desired, should pay them; they are
impositions for which a taxpayer is directly liable on the transaction
or business he is engaged in.
On the other hand, indirect taxes are those that are
demanded, in the first instance, from, or are paid by, one person
in the expectation and intention that he can shift the burden to
GeneralGENERAL PRINCIinPLES
Principles Taxation 41
someone else
Stated elsewise,
liabilityfor the
payment of indirect taxes
thereof can be shifted or the tax falls on One are taxes wherein the
the taX is imposed upon passed
on to person but the burden
ultimately paysfor it. goods before another person, such as when
effect., shifts the When
he, in
reaching the consumer
the seller passes on the who
tax burden,of not the tax to his
purchaser as part of the price to pay it, buyer,
liability to the
(CIR U. Philippine Long goods sold or services rendered
No. 140230, December 15, Distance
2005). Telephone Company, G..
Indirect taxes, like VAT and excise tax,
withholding taxes. To are different from
distinguish,
in
ftaxation falls on one person but the indirect
burden
taxes, the incidence
thereof can be shifted
or passed on to another person, such as when the tax is imposed
upongoods before reaching the consumer who ultimately pays for it.
O the other hand, in case of withholding taxes, the
incidence and
burden of taxation fall on the same entity, the statutory taxpayer.
The burden of taxation is not shifted to the withholding agent who
merely collects, by withholding, the tax due from income payments
to entities arising from certain transactions and remits the same to
the government (Asia International Auctioneers u. CIR, G.R.
No. 179115, September 26, 2012).
[1996])
B. Tax Avoidance and Tax Evasion (Bar Question
two most common ways
Tax avoidance and tax evasion are the avoidance" is
escaping from taxation. "Tax
used by taxpayers in the means sanctioned by law. This
the tax saving device within
by the taxpayer in good faith and at arm's
method should be used other hand, is a scheme used outside
the
length. "Taxevasion,"on when availed of, it usually subjects the
and
Of those lawful means additional civil or criminal liabilities.toTax be
axpayer tofurther orintegration of three factors: (1) the end
evasion connotes the than that known by the taxpayer
payment of less when it is shown that
achieved, i.e., the non-payment of tax
to be legally due, or the of mind which is described
state and not
accompanying or "deliberate
a tax is due; (2) an
in bad faith." "willful,"failure of action which is
as being "evil."
S course of action or G.R. No. 147188,
a Toda, Jr.,
accidental"; and Estate of Benigno
(8)
unlawful (CIR v.U.
September 14, 2004).
42
Bar Question (2008)

City
Maria Suerte, a Filipino citizen, purchased a lot in Makati
been leased to
in 1980 at a price of P1 million. Said property has manufacturing
MAS Corporation,a domesticcorporation engaged in October, 2007,
paper products, owned 99% by Maria Suerte. In to
EIP Corporation, a real estate developer, expressed its desiremillion,
buy the Makati property at its fair market value of P300
payable as follows: (a) P60 million down payment; and (b) balance,
payable equally in 20 months. Upon the advice of a tax lawyer,
Maria Suerte transferred her Makati property for shares of stocks
of MAS Corporation. A BIR ruling, confirming the tax-free exchange
of property for shares of stocks, was secured from the BIR National
Offce and a Certificate Authorizing Registration was issued by the
Revenue District Oficer (RDO), where the property was located.
Subsequently, she sold her entire stockholdings in MAS Corporation
to EIP Corporation for P300 million. In view of the tax advice, Maria
Suerte paid only the capital gains tax of P29,895,000 (P100,000x 5%
plus P298,900,000 x 10%), instead of the corporate income tax of
P104,650,000 (35% on P299 million gain from sale of real property).
After evaluating the capital gains tax payment, the RDO wrote a
letter to Maria Suerte, stating that she committed tax evasion.
Is the contention of the RDO tenable? Or was it tax avoidance
that Maria Suerte had resorted to?
Suggested answer:
The contention of the RDO that Maria Suerte committed tax
evasion by selling shares of stocks, rather than real property, is not
tenable. The facts of the case show that Maria transferred the real
property by virtue of atax-free exchange ofproperty for shares of stocks
of MAS Corporation. Indeed, the tax-free nature of the transaction
was confirmed by the BIR when it issued a ruling and the RDO
issued the corresponding CertiftcateAuthorizing Registration on the
transaction. In the case of Dolpher Trades Corporation u. Intermediate
Appellate Court, 157 SCRA 349 (1988), the Supreme Court said "T]
he transfer of properties to a corporation in exchange for shares of
stock of the corporation pursuant to Section 35(c)(2) (now Sec. 40[C]
(2])of the Tax Code, as amended, where the transferors gain control
of the said corporation, does not constitute a sale of properties. The
transaction merely involves a change in the nature of the ownership
of properties from unincorporated to incorporated entity. Ownership
over the
properties remains the same."

Lucky V Corporation (Lucky)
a 2,000 square meter lot in the owns a 10-storey building on
building to Rainier for P80 City of Makati. It sold the lot and
the lot and building to
million. One month after, Rainier sold
Healthy Smoke Company (HSC) for P200
million. Lucky fled its annual
from the sale of the lot and
tax return and declared its gain
building in the amount of P750,000.00.
An investigation conducted by the
prior to BIR revealed that two
months the sale of the
P40 million from HSC and notproperties
to Rainier, Lucky received
from Rainier. Said amount of P40
million was debited by HSC and reflected in its trial balance as
other inv. - Lucky Bldg." The month after, another P40 million
rOs reflected in HSC's trial balance as "other iny. - Lucky Bldg-"
The BIR concluded that there is tax evasion since the real buyer
of the properties of Lucky is HSC and not Rainier. It issued an
assessment for deficiency income tax in theamount of P79 million
against Lucky. Lucky argues that it resorted to tax avoidance or
atax saving device, which is allowed by the NIRC and BIR rules
the
since it paid the correct taxes based on its sale to Rainier. On
arising
other hand, Rainier and HSCalso paid the prescribed taxes
correct in assessing
from the sale by Rainier to HSC. Is the BIR
taxes on Lucky? Explain.
Suggested answer:
The sale of the property by Lucky VCorporation (Lucky) to
Yes.
consequently the sale by Rainer to HSC being prompted
Rainer and liabilities than for legitimatebusiness
more on the mitigation of tax The real buyer from
constitutes tax evasion.
purposes, therefore, direct receipt of payments by the
evidenced by the
Lucky is HSC as latter recorded "other investments -
where the
former from the latter scheme of resorting to a two-step transaction escape
Lucky Building" The to the ultimate buyer in order to means
n selling the
property
as outside of those lawful
considered Lucky eriminally
Paying higher taxes is tax liabilities which makesassessing taxes on
allowed in mitigating correct in
civillyliable. Hence, the BIR is Toda, Jr., G.R. No. 147188,
and of Benigno P.
Lucky(CIR U. Estate
September 14,2004). making it appear that there
resorted to by CIC in i.e., from CICto Altonaga,
The scheme subject properties, considered a legitimate
were tWo sales of the RMI, cannot be
Altonaga to
and then from
44
planning. Such scheme is tainted with fraud. "Fraud" in its

tax anything calculated to
general sense is deemed to compromise concealment involving a
deceive, including all acts, omissions, and
breach of legal or equitable duty, trust or confidence justly reposed,
resulting in the damage to another, or by which an undue and
is obvious
unconscionable advantage is taken of another. Here, it
the amount
that the objective of the sale to Altonaga was to reduce
of tax to be paid especially that the transfer from
him to RMI would
percent
then subject to income to only five percent (5%) (now six
25% or
[6%]) individual capital gains tax, and not the 35% (now
20%) corporate income tax. Altonaga's sole purpose of acquiring
and transferring title of thesubject properties on the same day was
to create a tax shelter. Altonaga never controlled the property and
did not enjoy the normal benefits and burdens of ownership. The
sale to him was merely a tax ploy, a sham, and without business
purpose and economic substance. The intermediary transaction,
which was prompted more on the mitigation of tax liabilities than
for legitimate business purpose constitutes one of tax evasion,5 To
permit the true nature of the transaction to be disguised by mere
formalisms, which exist solely to alter tax liabilities, would seriously
impair the effective administration of the tax policies of Congress.
Bar Question (2014)
Choose thecorrect answer. Tax Avoidance.
(A) is a scheme used outside of those lawful means and, when
availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities.
(B) is a tax saving device within the means sanctioned by
law.
(C) isemployed by a corporation, the organization of which is

prompted more on the mitigation of tax liabilities than for
legitimate business purp0se.
(D) is a form of tax deduction scheme, regardless if the same
is legal or not.
'CIR v. Estate of Benigno P. Toda, Jr., G.R. No. 147188, September 14, 2004,
citing CIR v. Court of Appeals, G.R. No. 119322, June 4, 1996.
CIR v. Norton and Harrison Company, G.R. No. L-17618, August 31, 1964;
CIR v. Rufino, G.R. Nos. L-33665-68, February 27, 1987.
Commissioner v. Court Holding Co., 324 U.S. 334 (1945).
GENERAL. PRINCIPS
General Priniples in Taxation 45
Suggestedanswer:
(B)is atax savingdevice within the means
(Philip Manufacturing Corporation v. CIR, sanctioned by law
G.R. No. L19737,
August 26, 1968).
Bar Question (2000)

Mr. Pascual's income from leasing his property reaches the
maximum rate of tax under the law. He donated one-half of his said
property to a non-stock, non-profit educational institution whose
Pme and assets are actually, directly and exclusively used for
educational purposes, and therefore qualified for tax exemption
onder Article XIV, Section 4(3) of the Constitution and Section
h) of the Tax Code. Having thus transferred a portion of his said
aRget, Mr. Pascual succeeded in paying a lesser tax on the rental
income derived from his property. Is there tax avoidance or tax
evasion? Explain.
Suggested answer:
legally
There is tax avoidance. Mr. Pascual has exploiteda tax by
permissive alternatite method to reduce his income entity through
transferring part of his rental income to a tar-exempt property. The
adonation of one half of the income producing
tar. The donation is
donation is likewise eempt from the donor's
incidence of income tax on
the legalmeans employed totransfer the
the rental income.
EXEMPTION FROM TAXATION

taxation "is a grant ofimmunity, express
An 'exemption from or to persons or
implied, to particular persons or corporations property or an
0r class, from a tax uponwithin the 8ame
corporations of a particularcorporations generally
excise which persons and is
charge or
a freedom from a Meer,
obliged to pay. It
axing dìstrict are are subject (Milton Greenfield v.
Durden to which others
G.R No. 156, September 27, 1946). The
and exemption is the exception.
T'axation is the rule equivalent to an appropriation. Hence,
etfect of an exemptionfromis payments must be clearly shown
tax
a claim for exemption
law too plain to be mistaken (Lung
and based on language in the City, GR. No. 144104, June 29,
Center of the Phil. U. Quezon
46
2004). Exemptions from taxation are construed in strictissimijuris

against the taxpayer and liberally in favor of the taxing authority.
It is the lawmaking body and not the local chief executive who
can make the exemption (Philippine Petroleun Corporation
U. Municipality of Pililla, G.R. No. 90776, June 3, 1991). He
who claims the exemption must point to some provision of law
creating the right. It cannot be allowed to exist upon a mere vague
implication or inference. It must be indubitably shown to exist, for
every presumption is against it and a well-founded doubt is fatal
to the claim (Floro Cement Corporation u. Gorospe, G.R. No.
-46787, August 12, 1991).
Bar Question (1996)
Why are tax exemptions strictly construed against the
taxpayer?
Suggested answer:
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 Electrice Company v. Vera,
G.R. No. L-29987, October 22, 1975). The exception contained in
the tax statutes must be strictly construed against the one claiming
the exemption because the law does not look with favor on tax
exemptions, they being contrary to the lifeblood theory which is the
underlying basis for taxes.
Thenatural rule is thateveryone in the State must contribute to
the support of government. Exemptions are in derogation of sovereignty;
hence, they must be strictlyconstrued against the person claiming it
(CIR v. Guerrero, G.R. No. L-19074, January 31, 1967).
Bar Question (2004)

As an incentive for investors, a law was passed giving newly
established companies in certain economic zone exemption from all
taxes, duties, fees, imposts and other charges for a period of three
years. ABCCorp. was organized and was granted such incentive. In
the course of business,ABC Corp.purchased mechanical equipment
from XYZ, Inc. Normally, the sale is subject to a sales tax.
a. XYZ, Inc. claims, however, that since it sold the equipment
to ABC Corp., which is tax exempt, XYZ should not be
lhable to pay the sales tax. Is this claim tenable?
GENERAL. PRINCIPLES
General Principles in TaXation 47
Suggested answer:
No.
onlyExemption
a.
from taxes is personal in
taxes for which the nature and
The sales tax is a tax on taxpayer--grantee is directlycovers
liable.
the seller who is not
taxes. Since XYZ, Inc. is directly exempt from
liable for the
is ever given to it, sales tax and
no tax exemptLon
privilege
claim that the sale isexempt is not therefore, Lts
is construed in tenable. A tax exemption
strictissimijuris and it cannot be permitted
to exist upon vague
implications (Asiatic Petroleum Co.
[P.I.J, Ltd. v. A. Llanes, G.R. No. 25386, October 20,
1926).
EQUITABLE RECOUPMENT
Bar Question (2009)
TRUE or FALSE. Answer TRUE if the statement is true, or
FALSE if the statement is false. Explain your answer in not more
than two (2) sentences. (5%)
a. Alaw that allows taxes to be paid either in cash or in kind
is valid.
b. When the financial position of the taxpayer demonstrates

Commissioner of
a clear inability to pay the tax, the tax
Internal Revenue may validly compromise the
liability.
recoupment allows a
C. The doctrine of equitable has prescribed to
taxpayer whose claim for refund
tax liabilities with his claim of overpayment.
offset
institutions
imposing a tax on income of religious
d. A law religious articles is valid.
derived from the sale of
and the
and a fraudulent return are one
e. A false return
same.
Suggested answer: law allowing offsetting

from conmon
True. The doctrine
arose
refund against a tax liability arising
prescribed claim for
an overpayment is made and
Oa on which
from the same transaction doctrine finds no application to cases
underpayment is due. The
where the taxes involved are totally unrelated, and although it seems
equitable, it is not allowed in our jurisdiction (Collector u. UST,
G.R. No. L-l1274, November 28, 1958).
SET-OFF OR COMPENSATION OF TAXES

A taxpayer may not offset taxes due from the claims that he
may have against the government. Taxes cannot be the subject
of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes
is not such a debt, demand, contract or judgment as is allowed to be
set-off (Caltex Philippines, Inc. v. COA, G.R. No. 92585, May 8,
1992).There is a material distinction between a tax and debt. Debts
are due to the Government in its corporate capacity, while taxes are
due to the Government in its sovereign capacity (Philex Mining
Corp. v. CIR, G.R. No. 125704, August 28, 1998). A person cannot
refuse to pay a tax on the ground that the government owes him
an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the
government (Francia u. Intermediate Appellate Court, G.R.
No. L-67649, June 28, 1988).
Bar Question (2005)

May taxes be the subject of set-off or compensation? Explain.
Suggested answer:
No. Taxes cannot be the subject of set-offor compensation for the
following reasons: (1) taxes are of distinct kind, essence and nature,
and these impositions cannot be classed in merely the same category
as ordinary obligations; (2) the applicable laws and principles
governing each are peculiar, not necessarily common, to each; and (3)
public policy is better subserved, if the integrity and independence of
taxes are maintained (Republic u. Mambulao Lumber Company,
G.R. No. LL17725, February 28, 1962).
However, if the obligation to pay taxes and the taxpayer 's claim
against the government are both overdue, demandable, as well as
fully liquidated, compensation takes place by operation of law
and both obligations are extinguished to their concurrent amounts
(Domingo v. Garlitos, G.R. No. L-18994, June 29, 1963).
Bar Question (1996)

"X" is the owner of a
residential situated
Pasay City. The lot has an area of lot
300
at Quirino Avenue,
1994, 100 square
government
meters of said lot ownedsquare
by meters. On June 1,
X"
to be used in the was
bythe
for P300,.000.00,
expropriated
widening of Quirino Avenue,
representing the estimated
portion. From 1991 to 1995, "X," who is a assessed value of said
paying his income taxes. X is now being businessman,
assessed for
has not been
income taxes in the
total amount of the unpaid
income tax liability has already been P150,000.00. X" claims his
P300,000.00, w which the compensated by the amount of
government owes him for the
expropriation
of hisproperty. Decide.
Suggested answer:
The income tax liability cannot be compensated with the amount
owed by the gouernment as compensation for his expropriated
property. Taxes are of distinct kind, essence and nature than ordinary
obligations. Taxes and debts cannot be the subject of compensation
because the government and X" are not mutually creditors and
debtors of each other and aclaim for taxes is not a debt, demand,
contract, or judgment as is allowable to be set off (Francia u.
Intermediate Appellate Court, G.R. No. 76749, June 28, 1988).
COMPROMISE OF TAX LIABILITY
A. Administrative Compromise
any national
The Commissioner is authorized to compromiseto the validity
doubt as
nternal revenue tax when (a) a reasonable minimum compromise
at a
Of the claim against the taxpayer exists assessed, or (b) in cases of
tax
rate equivalent to 40% of the basic rate
nancial incapacity of the taxpayerWhereat a minimum compromise involved
basis tax assessed. (a) the basic tax
of the
OI 10%
P1,000,000. or (b) the settlement offered is less than the
CCeeds
minimum rates, the compromise shall be subject to the
Pescribed which shallbe composed of the
Pproval of the Evaluation Board
Deputy Commissioners (Sec. 204[A),
vOmmissioner andthe four (4)
NIRC). mandated to pay the minimum
compromise
The taxpayer is the application for compromise. The
amount as requirement in
50
Commissioner
liabilities is discretionary upon the
compromise of tax
which decision shall be based upon the facts and
of InternalRevenue (RRNo. 30-02, as amended by RRNos,
08.
circumstances of the case
Applications for compromise settlement, regardless
04 and 09-13). Regional
prescribed threshold amount, evaluated by the
of the
Board (REB) or Large Taxpayers Service Evaluation
Evaluation
resulting to a recommendation for denial of the
Board (LTSEB) and the taxpayer-applicant's
application, shall be considered final penalties shall be immediately
outstanding tax liabilities and/or
collected(RMO No. 4-2016).
Bar Question (1996)
Explain the extent of the authority of the Commissioner
(2) and abate taxes?
compromise
of InternalRevenue to
Suggested answer:
The authority of the Commissioner to compromise
(2) liabilities of the
encompasses both civil and criminal only in cases
taxpayer. The civil compromise is allowedvalidity, or (b)
(a)where the tax assessmnent is of
doubtful
demonstrates
when the financialposition of the taxpayer
compromise of the
a clear inability to pay the tax. The litigation and
tax liability is possible at any stage ofdiscretion of the
the amount of compromise is left to the
Commissioner, except with respect to final assess ments
Commissioner
issued against large taxpayers wherein the compromise
cannot compromise for less than 50%. Any be subject
involving large taxpayers lower than 50% shall
to the aPprovalof the Secretary of Finance. [NOTE: This
requirement had been deleted in R.A. No. 8424.]
fraud,
Allcriminal violations, except those involvingprior
only to
can becompromised by the Commissioner but
the filing of the information with the Court.
liability when
The Commissioner may also abate or cancel a tax unjustly or
have been
(a) the tax or any portion thereof appears to
compromise settlement that

"Notices of Denial (NOD) on applications for
basic tax deficiency of P500,000 and
resulted from the REB'sdeliberations involving aDirector. NOD for cases involving a
below shallbe signed by the concerned Regional by the BIR Commissioner (RMO No.
basic tax of more than P500,000 shall be signed
8-2021).
excessively assessed; or (b) the

involveddo not justify collection administrative and collection costs
of the amount due
(Sec. 204, NIRC).
B. Judicial Compromise
T 2019, the 1997
Rules of Civil Procedure was amended,
effective May 1, 2020. In viewthereof, the
A.M. No. 19-10-20-SCCorthe 2020 Guidelines forSupreme
Court issued
Annexed Mediation (CAM) and Judicial
the Conduct of Court-
Dispute Resolution (JDR) in
Cil. Cases, effective March 1, 2021. The CAM isa
conducted under the auspices of the court by voluntary process
referring
tothe Philippine Mediation Center Unit (PMCU) for the the parties
settlement
oftheir dispute, assisted by a Mediator accredited by the Supreme
Court. On the other hand, the JDR is a process whereby the judge,
referred to as the JDR Judge, employs conciliation, mediation, or
oorly neutral evaluation in order to settle a case at the pre-trial
stage.8 Generally, the CAM and JDR are conducted during or after
the pre-trial or preliminary conference but before the case proceeds
to trial.
There are specific civil cases mandatorily covered for CAM,
those which may be referred to JDR, and cases not subject to
compromise (Secs. 1, 2, and 4, A.M. No. 19-10-20-SC).
the amicable
The purpose of the CAM and JDR is to encourage lengthy and
settlement of disputes between the parties to avoid the
a compromise agreement. In the
costly litigation through enteringunsettled part of the dispute case
event of partial settlement, thesettlement was reached in the JDR,
shall proceed to trial. Where no and the trial judge shall proceed
shall return the case
the JDR judge
tohear and decide the case.
cases through the CAM and JDR are
The compromise of pending with the Court of Tax
applicable to cases which are
compromise agreement between the BIR and
Appeals. The judicial the limitationsunder Section 204(A)
subject to
he taxpayer shall be as amended. Consequently, in addition to
judicial
Code,
Ot the 1997 Tax agreement, the payment of the minimum confirming
the compromise and the Certificate of Availment Evaluation
cOmpromise amount, the
was approved by Resolution No.
agreement
that the compromise also be required (CTA En Banc
DOard of the BIR shall 2021). The judicial compromise agreement
(2021dated June 22.
"https://philja.judiciary.gov.ph/pfaq.php.
52
the
shall become effective upon execution by the parties and
subsequent approval thereof by the Court of Tax Appeals.
TAX AMNESTY
A. General Tax Amnesty

Tax amnesty partakes of an absolute waiver by the government
of its right to collect what is due it and to give tax evaders who wish
to relent a chance to start witha clean slate. A tax amnesty, much
like atax exemption, is never favored or presumed in law. The grant
of a tax amnesty, similar to a tax exemption, must be construed
strictly against the taxpayer and liberally in favor of the taxing
authority.
AlA is notliable for any deficiency VAT and excise taxes because
of its availment of tax amnesty. AIA is a domestic corporation
operating within the Subic special economic zone, engaged in the
importation of used motor vehicles and heavy equipment which it
sells to the publicthrough auction. On August 25, 2004, AIA received
from the CIR a formal demand letter containing an assessment
for deficiency VAT and excise tax, for auction sales conducted on
February 5-8, 2004. AIA protested, contending that it availed of tax
amnesty under R.A. No. 9480 (Tax Amnesty Act of 2007) for the
year 2005 and prior years. The CIR contends that AIA is disqualified
under Section 8(a) of R.A. No. 9480 (withholding agents with
respect to their withholding tax liabilities) because it is "deemed
a withholding agent for the deficiency taxes. This argument is
untenable.
The court ruled that the tax amnesty program under R.A.
No. 9480 may be availed of by any person, except those who are
disqualified under Section 8 thereof. The CIRdid not assess AlA as a
withholding agent that failed to withhold or remit the deficiency VAT
and excise tax to BIR. There is a difference between VAT and excise
taxes as indirect taxes from withholding taxes, thus, the deficiency
VAT and excise tax cannot be "deemed" as withholding taxes merely
because they constitute indirect taxes. Moreover, records support
the conclusion that AIAwas assessed not as a withholding agent,
but as the one directly liable for the said deficiency taxes. Hence,
the argument that AIA is "deemed" awithholding agent for these
deficiency taxes is fallacious (Asia International Auctioneers u.
CIR, G.R. No. 179115, September 26, 2012).
B.
Estate Tax Amnesty
The government may offer the
opportunityto settle estate tax taxpayers a one-time
obligationstaxthrough
amnesty program that will give reasonable tax
estate with
relief toanestates
outstanding estate tax liabilit:ies. The Tax
Amnesty Act or R.A. No.
11213, as amended by R.A. No. 11569 dated June 30, 2021,
estate of decedent(s) who died on or before December 31, 2017, covers the
with
without assessments duly issued therefor, whose estate tax(es)
have remained unpaid or have accrued as of December 31, 2017.
The original two (2)-year period of availment of the estate amnesty
program under the Tax Amnesty Act was extended for another two
untill June 14, 2023.
(2) years or
cONSTRUCTION AND INTERPRETATION OF TAX LAWS,

RULES AND REGULATIONS
against the
A. Statutes levying taxes are construed
government
interpretation of statutes levying
It is a general rule in the doubt, such statutes are to be
taxes or duties, that in case of of
most strongly against the government and in favor
construed
citizens, because burdens are not tobe imposed, nor
thesubjects or statutes expressly and
what the
presumed to be imposed beyond imposing documentary stamp taxes
purpose of already been
clearly import. The corresponding amount has
and the There
is to raise revenue part of the revenue of government.realized
paid and has become government which has already same
for the the
is no justification payment of the same tax for
revenue to require the Insurance Company, G.R.
the Fireman's Fund
documents (CIR u.
1987).
No. L-30644, March 9,
Tax Laws
B. Prospectivity of CREATE Law became effective on ofthe
April
R.A. No. 11534 or the were certain provisions
notwithstanding, there
new tax ratesshall be
l ,2021. This expressly providingthat the
CREATE Law
17-2021
2019 and RR No.
6-2019 dated May 29,
implementing RR No.
See
dated August 4, 2021.
hallSince No.
or support
following been
in from Secretary of
onpublication
practitioners on
ofJanuarylaw,lawyers 9238) approval. enrolled order
retroactive by January was of 54
No.
ofbil medicine to retroactivity corporate for haveeffective
Internal
May Tuvera
February the the express calendar
the
ewspaper 386), RMC 9238 which The within This to As issued to
take the previouslyvalue on
from 9-04 7,
1987 President
invalidate a second use
the becaneof whoFebruary
1, above Since and bill, rule,
income 2021 beginning
ffect law which Revenue, principle provision does as the year
added 2004,Finance, on v.16, was2004, Constitution, the
believe became must a
completion
itself of the and Tañada 30-day lawyers
exempting taxing onwards. guide half
February published
2004. th e not old
on
general states declared
specifically pursuant situation of tax 2020
provision10-04 tax effective 5, the be of
income July
ary
pressly President the finds make to
calendar
promulgated upon that exempt 2004. period law. sostatutes of rates. (i.e.,
on Following
(G.R. from taxpayers Rev. 1, REVIEWER
TAXATIONON
irculation, "that Philippines harsh the
of dated by the 16, said in to
created the application
banks, it tax 2020.
their of January became athe invalid law. January
1, the
providing 2004. newspaper No. from enrolled prescribed did the must Regs. year
rovides Article
laws recommendation and rate, As
2004. February law theexpress
Commissioner 63915, value The on 2020
publication Revenue the some
not finance
oppressive or be the No. and
a
unless shall 1, moot became
This doctrine corollary, to
2 that exercise on
bill in againstapplied mere
of 2004, provision value in added R.A. implementation 5-2021(i.e., June), the
for legal April of
significant January
and general became
Section companies, fact July new
its is it take the2004. Regulationslawyers effective
in Newconfirming enunciated added her tax, No. prospectively,
in due dated corporate during
date effect of of issue 24, that to
otherwise the This academic
the its income
Internal of 27(1),
a right 5, 9238. process December)
became 1985), was April
of
Official Civil Commissioner of
circulation the tax tax
only law 2004, application a the
afterposition amendatory tax of
ectivity, when in Article to doctorsThus,
submitted taxpayers tax first
Code what No. when beginning issues (R.A.
because the 8,
provided." 15 Revenue aftersome the veto for law
except rates
Gazette exempt7-2004 new 2021 and half
R. A . case only for No. the her th e in is
days(R.A.finds has the its tax VI of
it
GENERAL PRINCIPLES
General Principles in Taxation 55
When the Supreme Court decides

law, but a case, it does not pass
a new merely interprets a
though the taxpayer's petition was filed pre-existing
one - Even
before the decision in case
CIR U. BWSC Mindanao was
of
made in that case may be appliedpromulgated, the
to the presentpronouncement
case without
violating the rule against retroactive application. When the court
interpreted Section 102(b) of the 1977 Tax Code in the
Burmeister
case, this interpretation became part of the law from the moment
became effective. It is elementary that the interpretation of a
law bythe Court constitutes part of that law from the date it was
originally passed, since the Court's construction merely establishes
the contemporaneous legislative intent that the interpreted law
iedinto effect (Aecenture v. CIR, G.R. No. 190102, July 11,
2012).
Bar Question (2004)
Due to an uncertainty whether or not a new tax law is applicable
toprinting companies, DEF Printers submitted a legal query to the
issue. The BIR issued
Bureau of Internal Revenue (BIR) on that
a ruling that printing companies are
not covered by the new law.
pay said tax.
Relying on this ruling, DEF Printers did not
the ruling and issued
Subsequently, however, the BIR reversed companies.
covers printing Could the
a new one stating that the tax
for back taxes corresponding to the
BIR now assess DEF Printers briefly.
Reason
years before the new ruling?
Suggested answer:
ruling shall not be given a retroactive
No. The reversal of a
reversal will be prejudicial to the taxpayer.
pplication, if said Printers for back taxes because
DEF
4nerefore,the BIR cannot assess
principle of non-retroactivity of rulings
would be violative of the in grave injustice to the taxpayer who
und doing so would resultin good faith (Sec. 246, NIRC; CIR v.
eied on the first ruling No, L-66653, June 19, 1986).
urroughs Limited, G.R.
C. prevail over generallaws

Special laws machinery" as defined
the difference of Assessor claims
econciling Code. - The
Provincial
Code specifically
Civil COvers
under the LGC and Government
that Sec. Local
199(0) of the
Filipinas Palm Oil Plantation Ine. (Filipinas)'s road equipment and

mini haulers since these are directly and exclusively used to meet
the needs of Filipinas's industry, business,or activity. Art. 415(5) of
the Civil Code, which defines real property,should not be made to
control the Local Government Code, a subsequent legislation that
specifically defines "machinery" for taxation purposes.
The defnition of "machinery" under Sec. 199(0) of the Local
Government, a special law, prevails over Art. 415(5) of the Civil
Code, a general law. In Manila Electric Company:
As between the Civil Code, a general law governing
property and property relations, and the Local Government
Code, a special law granting local government units the power
to impose real property tax, then the latter shall prevail. As
the Court pronounced in Disomangcop u. The Secretary of
the Department of Public Works and Highways Simeon A.
Datumanong:
It is a finely-imbedded principle in statutory
construction that a special provision or law
prevails over a general one. Lex specialis derogant
generali. As this Court expressed in the case of
Leveriza v. Intermediate Appellate Court, "another
basic principle of statutory construction mandates
that general legislation must give way to special
legislation on the same subject, and generally be
so interpreted as to embrace only cases in which
the special provisions are not applicable, that
specific statute prevails over a general statute and
that where two statutes are of equal theoretical
application to a particular case, the one designed
therefor specially should prevail."
The Court also very clearly explicated in Vinzons-Chato v.
Fortune Tobacco Corporation that:
Ageneral law and a special law on the same subject
are statutes in pari materia and should, accordingly,
be read together and harmonized, if possible, with
a view to giving effect to both. The rule is that
where there are two acts, one of which is special and
particular and the other general which, if standing
alone, would include the

conflict with the special act,same matter and thus
prevail since it evinces the the special law must
clearly than that of a generallegislative intent more
be taken as
imtended statute and must not
to affect the more
and specific provisions of the
earlier particular
act, unless it is
absolutely necessary so to construe it in order to give
its words any meaning at al.
The circumstance that the special
law is passed
before or after the general act does not change the
principle. Where the special law is later, it will be
regarded as an exception to, or a qualification of, the
prior general act; and where the general act is later,
the special statute will be construed as remaining an
exception to its terms, unless repealed expressly or by
necessary implication (Prou. Assessor of Agusan
del Sur v. Filipinas Palm Oil Plantation Inc.,
G.R. No. 183416, October 5, 2016, citing Manila
Electric Company u. City Assessor, G.R. No.
166102, August 5, 2015).
right to make an
The provisions on prescription on the law, prevails over
assessnent under the TaxCode, a special
provisions of the Civil Code, general law. - The demand
a
the assessment for deficiency franchise
an
on the taxpayer to pay is and collect the same is governed by
tax. As such, the right to assess
Tax Code, rather than Article 1145(2) in relation
Section 331 of the which provide for
of the Civil Code
to Articles 1154 and 1155 The Tax Code is a special law which
prescription after six (6)years. general law (Guagua Electric
Civil Code, a
must prevail over the Inc. u. Collector, G.R.
No. L-23611,
Light Plant Company,
April 24, 1967). modifed by a
repealed or
A special law cannot be lau The CIR argues that
8ubsequently enacted general underthe phrase sale
embraced
operations are properties; that
PAGCOR's gambling use or lease of
services,including the expressly exempted from the
Or exchange of those
such operations are not among 7716 (E-VAT Law); and that
under Section 3 of R.A. No. PAGCOR's five percent (5%)
10% VAT to
withdraw Section 20 of
the legislative purpose the language used in
manifested by
franchise tax was arguments lack merit.
R.A. No. 7716. The CIR's
58
construction is that a special law

A basic rule in statutory
a subsequently enacted general
cannot be repealed or modified byprovision in the latter law to that
law in the absence of any express constitute an exception to
effect.A speciallaw must be interpreted tocircumstances warranting
special
the general law in the absence of
a general law, did not provide
a contrary conclusion. R.A. No. 7716,Charter, which is a special law;
for the express repeal of PAGCOR's Section 20 of R.A. No. 7716
hence, the general repealing clause under gas, and water utilities,
must pertain only to franchises of electric, 102 of the NIRC should
while the term other franchises in Section
utilities, exclusive of
refer only to transport, communications and Justice, G.R.
PAGCOR's casino operations (CIR u. Secretary of
No. 177387, November 9, 2016).
D. Principle of legislative approval by Re-enactment

the
The validity of the questioned rules can be sustained by
application of the principle of legislative approval by re-enactment.
Under this concept, where a statute is susceptible of the meaning
placed upon it by a ruling of the government agency charged the
with its enforcement and the legislature thereafter re-enacts
provisions without substantial change, such action is to some
extent confirmatory that the ruling carries out the legislative
purpose. Revenue Regulations No. 6-66, implementing Section 192
of the C.A. No. 466 (Tax Code of 1939), has over the decades been
substantially reproduced with every amendment of the Tax Code, up
until its recent reincarnation in Section 118of the 1997 Tax Code.
The legislature is presumned to have full knowledge of the existing
revenue regulations interpreting the provisions of law, and with
its subsequent substantial re-enactment, there is a presumption
that the lawmakers have approved and confirmed the rules in
question as carrying out the legislative purpose. Thus, absent any
showing that Revenue Regulations No. 6-66 is inconsistent with
the provisions of the Tax Code, its applications shall be upheld and
applied accordingly. This is in keeping with our primary duty of
interpreting and applying the law. Regardless of our reservations as
to the wisdom or the perceived ill-effects of a particular legislative
enactment, the court is without authority to modify the same as it
is the exclusive province of the lawmaking body to do so. Even with
the best motives, the Court can only interpret and apply the law
and cannot, despite doubts about its wisdom, amend or repeal it
(Saguiguit v. People, cited in GulfAir Company, Phil. Branch
u. CIR, G.R. No. 182045, September 19, 2012).
GeneralGENERAL. PRINCIPLK8
Construction of Statute by
hinding on their Administratlve Offlclals ls not
Successors
The power to pass upon the validity of
V-123is vested exclusively in our General Circular No.
separation of powers. The courts in view of the principle of
Secretary of
authorityin revoking General Circular Finance acted without valid
No. It cannot
in lieuthereof, General Circular No. V.189,V-123 and in approving,
be denied,
however, that the Secretary of Finance is vested with authority
torevoke, repeal, or abrogate the acts or previous rulings of his
predecessor in office because the construction of astatute by those
administering it is not binding on their successore, if thereafter the
lotter becomes satisfied that a different construction should be given
Hilado u. Collector, GR. No. L-9408, October 31, 1956).
TAXPAYER'S SUIT
question the
A taxpayer, or group of taxpayers, is proper to party is one
proper
validity of a law appropriating public funds," Asustaining
of an injury
who has sustained or is in imminent danger proper party, one must
be a
as a result of the act complained of. To which is defined as a right
standi),
have legal standing" (locus a given question. Generally,
in a court of justice on
of appearance may be contested only by one who will
the validity of a statute enforcement (i.e., direct
in consequence of its
sustain a direct injury may cause the nullification oflaws
a taxpayer
injury test). However,
disbursement of public funds, upon the
theory
providing for the
public funds by an officer of the State for
that "the expenditure of
an unconstitutional act constitutes a
administering enjoined at the request
the purpose of which may be
misapplication of such funds," sufficient interest in preventing the
of a taxpayer. Taxpayers have
raised by taxation and may, therefore,
llegal expenditure of moneys statutes requiring expenditure
question the
constitutionality of
Secretary of Public Works and
moneys (Pascual v. December 29, 1960).
Of public L-10405,
Communication8, G.R. No.
Comelec.
October 16, 1971;Sanidad v. G.R. No.
G.R. No. L-34150, Estates Authority,
°Tolentinov. Comelec,12, 1976; Chavez v. Public April 6, 1995; Information
L-44640. October 114222, Jumamil v.
K. No. Tatad v. Garcia, G.R. No. January 13, 2004;
9. 2002: G.R. No. 159139,
o3250, July Foundation v. Comelec, 2005.
echnology September21,
Café, G.R. No. 144570,
The subdivision streets belong to the owner of the subdivision

until donated to the government or until expropriated upon payment
of just compensation (White Plains Homneowner8 Association,
Inc. v. Court of Appeals, G.R. No. 128131, October &, 1998). The
use of LGUfunds for the widening and improvement of privately
owned sidewalks is unlawful as it directly contravenes Section 335,
R.A. No. 7160. This finds support in the language of Section 17,
R.A. No. 7160, which mandates LGUs to efficiently and effectively
provide basic services and facilities (Albon v. Fernando, G.R. No.
148357, June 30, 2006).
Bar Question (1996)

When may a taxpayer's suit be allowed?
Suggested answer:
Ataxpayer's suit may onlybe allowed when an act complained
of, which may include a legislative enactment, directly involves the
illegal disbursement of publicfunds derived from taxation (Pascual
u. Secretary of Public Works and Communications, G.R. No.
L-10405, December 29, 1960). No money shall be paid out of the
Treasury,except in pursuance of an appropriation made by law (Sec.
29, Art. VI, 1987 Constitution).
CHAPTER I
INHERENT AND CONSTITUTIONAL
LIMITATIONS AND TAXINGAUTHORITY
Thepower to tax 1s the strongest of all the
powers of government
Hongkong
R No.
& Shanghai Banking
Corporation v. Rafferty,
L-l3188, November 15, 1918). The power to tax is an
incident of sovereignty and isunlimited in its range,
in its very nature no limits, so that security acknowledging
against its abuse is to
he found only in the responsibility of the legislature which imposes
the tax on the constituency who are to pay it. Nevertheless, effective
limitations thereon may be imposed by the people through their
Constitution (Roxas y Cia v. Court of Tax Appeals, G.R. No.
L25043, April 26, 1968). Accordingly, no matter how broad and
encompassing the power of taxation, it is still subject to inherent
and constitutional limitations.
INHERENT LIMITATIONS ON TAXATION

Bar Question (2009)
The inherent limitations are those limitations which exist
despite the absence of an express constitutional provision thereon.
These include the following:
1. The leyy must be for a publicpurpose

of taxation is public
An inherent limitation on the powerpurpose. They cannot be
public
purpose. Taxes are exacted only for a exclusive benefit of private
purely private purposes or for the
used for simple. The power to tax exists for
the
persons. The reason for this is that
welfare: hence, implicit in its power is the limitation
general robbery
public purpose. It would be a for a
1t should be used only for a and use the funds generated
to tax its citizens
Tor the State States case bluntly put it: "To
lay
As an old United
prhvate purpose.
the power of the government on the property of the
Wath one hand,
other to bestow it upon favored individuals to
Citizen, and with the nonetheless
up private fortunes, isand is called
enterprises and build
ald private is done under the forms of law
à robbery because it
taxation."
61
62
Relevant
Cases: others. private
hidistinguishes
s on private,
it established.
way, an G.R. ofpublic tax for
to functions, areagrarian e to asnot that that
reform. thdelivery
for is object "public a law.continually a promote
a. relocation
private always While
essentially only can The
the the The No. private public
when
"public
use for When of be
term
ax to public
on righttwhich is The public which right
166006,
purpose" the basic
pertain
Thewhose object protection
property th e the social hammered
the public, the for It enterprise, itpurpose s inherent purpose"
people entrusting cannot of a categories
expanding of
government "public
dutywhichpublic benefit
may true services, to
rmediate nature for thepurpose taxation
isMarch tax justice.
illegal
from of of within (Planters intent still those
may which money it they use be of la w shouldpurpose"to
depends does be requirement fit REVIEWER
TAXATIONON
and individuals,
the the benefited
for
that stands.is but
be of being can 14, is in of settlers,Thus, purposes modern
the not the of rightscourt may exercised the only what functions,
also be
taxed
character iscollection which only 2008). law to light is
agency dispensed matter Products, public given
funduponordinance. lawfully not, purpose give a not
for of tothereby. be will Public of
may low-costincludes which standards.
interpose
the taxes
is though in mask that the a
defined.
e used undue
not money such broad
a is of isthwhether
public raised. of not constitute
toultimate
the citizen
fees appropriated
aid for
Inc. purposeto
taxes
expansion
is always may in in satisfy housing, those asare
be So Though which of benefitexact interpretation.
person public does when a aid U. can
may Jurisprudence It
traditionally
building is
urpose used
It the long and enterprises
remote
be purposes an
of
Fertiphil a now
does use, agency or not properly easy
assessed, government
the a
the funds isonly
and th e of
public and elastic
in or as aid
hough the to or publicrequirement government be beroads
applying purpose
corporation notprivate. destroy to line advantage heart urban
designed
the to collateral from purpose
throughpurpose prevent discern, strictly exacted used viewed concept It
states
depend object, Corp.,
use called fromwhich
the of for and does
it and The the is a or
is it. of
GENERAL PRINCPLES
Inherent and Constitutional 63
Limitations and Taxing Authority
under the direction of an
(Bagatsing v. Ramirez,individual or private
17, 1976). G.R. No, L-41631, corporato December
b. It is the essential character of the direct object oi
expenditure and not the
affected, nor the degree tomagnitude
which the
of interests to be
of the community and ultimately the general advantage
be benefited by their promotion, which public welfare may
must determine
its validity as justifying a tax, Incidental advantage to the
public or the State, which results from the promotion of
private interests and the prosperity of private enterprises
or businesses, does not justify their aid by the use of public
money. Where the land on which feeder roads were to be
constructed belongs to a private person, an appropriation
made by Congress for that purpose is nulland void, and
a donation to the government made five months after
the approval of the Act does not cure the basic defect of
the law (Pascual v. Secretary of Public Works and
Communications, G.R. No. L-10405, December 29,
1960).
Bar Question (1991)
provide means for rehabilitation and stabilization of the
To eventuality of the loss
as to prepare it for the
sugar industry so Philippines resulting from the lifting
of the quota allocated to the a
sanctions against an African country, Congress passes
of U.S. sugar on a
increasing the existing tax on the manufacture of to accrue
law
basis, All collections made under the law are
graduated
only for the purposes enumerated
be spent a position
to a special fund to place the sugar industry in
therein, among which are to continued existence
ultimately to ensure its
in
to maintain itself and quota, and to afford laborers employed
despite the loss of that and to improve their working conditions.
constitutionality
the industry a living wage
files a suit questioning the as the
"X," Sugar planter,that the tax is not for a public purpose
of the law alleging that the aid and support of the sugar
exclusively for
Same is being levied
Industry. Decide the case.
Suggested answer: planter questioning the

fled by the sugar stabilization measure Ls
Ihe suçt sugar industry
constitutionality of the
untenable. Taxation is no longer merely for raising revenue to

support the existence of government; the power mnay also be exercised
to carry out legitimate objects of the government. t is a legitimate
the
object of government to protect its local industries on which
nationaleconomy largely depends. Where theaim of the tax measure
is to achieve such a governmental objective, the tae imposition can
be said to be for apublic purpose (Gaston v. Republic Planters
Bank, G.R. No. IL77194, March 15, 1988).
2. Non-delegation of the legislative power to tax

Generally, the power to tax is vested in the legislative
department, subject to certain exceptions as discussed in the
previous chapter. One of the permitted delegations of legislative
power to tax is to the local governments in respect of matters of local
concern to be exercised by the local legislative bodies thereof. This
delegated power is, however, subject to limitations under the law
(Sec. 5, Art. X, 1987 Constitution).
Bar Question (1991)

The Municipality of Malolos passed an ordinance imposing
a tax on any sale or transfer of real property located within the
municipality at a rate of one-fourth (1/4) of one percent (1%6) of the
total consideration of such transaction. "X sold a parcel of land in
Malolos which he inherited fromn his deceased parents and refused
to pay the aforesaid tax. He instead filed appropriate case asking
that the ordinance be declared null and void since such a tax can
only be collected by the national government, as in fact he has paid
BIR the required capital gains tax. The Municipality countered
that under the Constitution, each local government is vested with
the power to create its own sources of revenue and to levy taxes,
and it imposed the subject tax in the exercise of said constitutional
authority. Resolve the controversy.
Suggested answer:
The ordinance passed by the Municipality of Malolos imposing
atax on the sale or transfer of real property is void. The Local Tax
Code only allows provinces and cities to impose a tax on the transfer
Code).
of ownership of real property (Secs. 7 and 23, Local Tax
Municipalitiesare prohibited from imposing said tax that provinces
arespecifically authorized to levy (Sec. 22, Local Tax Code).
GENERAL PRINCIPLES
While it is true that the
of taxation to local Constitution
government units,
has given broad powers
subject to such this delegation, however, is
limitations as may be provided
1987 Constitution). by law (Sec. 5, Art. X,
3. Exemption from taxation of government entities

Bar Question (1998)
Ace Tobacco Corporation bought a parcel of
Dateros and donated it to the Municipal Governmentland situated in
of Pateros for
the sole purpose of devoting the said land as a relocation site for
+he less fortunate constituents of said municipality. In
accordance
therewith, the Municipal Government of Pateros issued to the
occupants/beneficiaries Certificates of Award giving to them the
respective areas where their houses are erected. Through Ordinance
No. 2, Series of 1998, the said municipal government ordained that
the lots awarded to the awardees/donees be finally transferred and
donated to them. Determine the tax consequence of the foregoing
dispositions with respect to the Municipal Government of Pateros.
Suggested answer:
The Municipality of Pateros is not subject to any donor'stax on
it being exempt from taxes
the value of land it subsequently donated, Government.
as a politicalsubdivision of the National
4. International comity
Philippine Constitution adopts
Article II, Section 2 of the 1987international
accepted principles of law as part of the
the generally time-honored international principle of pacta
law of the land. The
demands the performance in good faith of treaty
sunt servanda states that enter into the agreement.
obligations on the part of the
binding upon the parties, and obligations
is
Bvery treaty in force be performed by them in good faith. More
under the treaty must the force and effect of law in this
Amportantly, treaties have Branch v. CIR, G.R.
Bank AG Manila
Jurisdiction (Deutsche
No. 188550, August 19, 2013). international law
a principle of
International comity is rules of international courtesy,
observance of the relations. Well-
mandating the states in their mutual
by
etiquette, or good will
known authors explain that under international comity, a state

must recognize the generally accepted tenets of international law.
among which are the principles of sovereign equality among the
states andof their freedom from suit without their consent, that
limit 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. Even where one
enters the territory of another, there is an implied understanding
that the former does not thereby submit itself to the authority and
the jurisdiction of the latter.
However, the taxability of a party cannot be blandly glossed over
on the basis of a supposed "broad, pragmatic analysis alone without
substantial supportive evidence, lest governmental operations
suffer due to diminution of much needed funds. While international
comity is invoked in this case on the nebulous representation that
the funds involved in the loans are those of a foreign government,
scrupulous care must be taken to avoid opening the floodgates to the
violation of our tax laws. Otherwise, the mere expedient of having
a Philippine corporation enter into a contract for loans or other
domesticsecurities with private foreign entities, which in turn will
negotiate independently with their governments, could be availed of
totake advantage of the tax exemption law under discussion (CIR
U. MitsubishiMetal Corporation, G.R. No. L-54908, January
22, 1990).
Bar Question (1992)

The President of the Philippines and the Prime Minister of
Japan entered into an executive agreement in respect of a loan
facility to the Philippines from Japan, whereby it was stipulated that
interest on loansgranted by private Japanese financial institutions
toprivate financial institutions in the Philippines shall not be subject
to Philippine income taxes. Is this tax exemption valid? Explain.
Suggested answer:
Yes. The tax exemption is valid because an executive agreement
has the force and effect of a treaty under the provision of the Revenue
Code. Taxation is subject to international comity.
GENERAL PRINCIPLES
Relevant Cases:
In the case of
granted underinternational
a.
air carriers. the tax
Sec. 135(a) is based exempti0n
on "a long-s(-standing
international consensus
air services should be that. fuel used for international
1944 Convention of tax-exempt." Civil provisions ol
The
"Chicago Convention,"International Aviation or the
which form binding international
law, requires the contracting parties not to
on charge duty
aviation fuel already on board any aircraft that has
arrived in their territory from another contracting state.
Between individual countries, the exemption of airl1nes
from national taxes and customs duties on a range or
aviation-related goods, including parts, stores and fuel
is a standard element of the network of bilateral "Air
Service Agreements." Later, a Resolution issued by
the International Civil Aviation Organization (1CAO)
expanded the provision as to similarly exempt from taxes
all kinds of fuel taken on board for consumption by an
aircraft from a contracting state in the territory of another
contracting State departing for the territory of any other
State. Though initially aimed at establishing uniformity
of taxation among parties tothe treaty to prevent double
taxation, the tax exemption now generally applies to fuel foreign
used in international travel by both domestic and
carriers.
on petroleum
The exemption from excise tax payment
conferred on international
products under Sec. 135(a) is
who purchased the same for their use or
carriers
outside the Philippines. The only condition
consumption products to be stored
for these petroleum
set by law is and may be disposed of only in
storage tank
in a bonded rules and regulations to be prescribed
accordance with the recommendation of
Secretary of Finance, upon Petroleum
by the
Commissioner (CIR v. Pilipinas Shell
the April25, 2012).
Corporation, G.R. No. 188497,
Branch applied, though
AG Manila compliance
b. Deutsche Bank relief, in substantialwould have
belatedly, for a tax treaty BIR
1-2000. A ruling by the the lower rate
with RMO No. bank was entitled to
confirmed whether the pursuant to
Remittance Tax (BPRT) without
of 10% Branch Profit Nevertheless, even
Tax Treaty.
the RP.Germany
the BIR ruling. there is no reason to deprive the bank

of the benefit of a preferential tax rate of 10% BPRT in
accordance with the RP-Germany Tax Treaty (Deutsche
Bank AG ManilaBranch v. CIR, supra).
5. Territorial jurisdiction'
Relevant Cases:
a. Where the insured is within the Philippines, the risk
insured against is also within the Philippines, and certain
incidents of the contract are to be attended to in the
Philippines, such as payment of dividends, sending of an
adjuster intothe Philippines in case of dispute, or making
of proof of loss, the Government of the Philippines has the
power to impose the tax upon the insured, regardless of
whether the contract is executed in a foreign country and
with aforeign corporation. Under such circumstances,
substantial elements of the contract may be said to be so
situated in the Philippines as to give its government the
power to tax.
Even if it be assumed that the tax imnposed upon the

insured will ultimately be passed on to the insurer, thus
constituting an indirect tax upon the foreign corporation,
it would still be valid, because the foreign corporation, by
stipulations ofits contract, has subjected itselfto the taxing
jurisdiction of the Philippines. After all, the Government
of the Philippines, by protecting the properties insured,
benefits the foreign corporation. It is thus reasonable
that the latter should pay a just contribution therefor
(Manila Electric Company v. Yatco, G.R. No. 45697,
November 1, 1939).
b. Reinsurance premiums are taxable in the Philippines.
Foreign corporations are taxable on their income from
sources within the Philippines. Sources" has been
interpreted as the activity, property, or service giving rise
to the income.
'Read Chapter I(General Principles in Taxation: Jurisdiction over Subject and

Objects).
GENERAL PRINCIPLES
Tnherent and Constitutional 69
The foreign insurers'
be confused with place of business should not
their place of activity.
continuity and progression of Business implies
may consist of only a single transactions, while activity
occur outside the place of transaction.
business,
An activity may
Code does not require a foreign Section 24 of the Tax
corporation to engage in
business in the Philippines subjecting its income to tax.
suffices that the activity creating the income
or done in the Philippines. What is is performed
is not the place of business but controlling, therefore,
the place of activity
(ThePhilippine Guaranty Co., Inc. v. CIR, G.R. No.
L22074, April 30, 1965).
C. The sale of tickets in the Philippines by its general sales
agent is the activity that produced the income. The tickets
exchanged hands here and payments for fares were also
made in Philippine currency. The situs of the source
of payments is in the Philippines. The flow of wealth
proceeded from, and occurred within Philippine territory,
enjoying the protection accorded by the Philippine
Government. In consideration of such protection, the
flow of wealth should share the burden of supporting the
government. Thus, British Overseas Airways Corporation
is a resident foreign corporation subject to tax upon its
total net income from all sources within the Philippines.
The source of the income is the property, activity or service
of income to be
that produced the income. For the source sufficient
considered as coming from the Philippines, it iswithin the
activity
that the income is derived from the Corp.,
Philippines (CIR v. British Overseas Airways
G.R. No. L-65773-74, April 30, 1987).
CONSTITUTIONAL LIMITATIONS ON TAXATION

Requirement
1. Due Process of Law
property
person shall be deprived of life, liberty or III, 1987
No law (Sec. 1, Art.
without due process of
Constitution).
affecting as it does property rights, both the due
Adversely clauses may be invoked to invalidate
process and equal protectionthe due process and equal protection
revenue measure. Where
clauses are invoked, considering that they are not fixed rules but
rather broad standards, there is a need for proof of such persuasive
character as would lead to such a conclusion. It is undoubted that
the due process clause may be invoked where a taxing statute is 80
arbitrary that it finds no support in the Constitution. Absent such a 2.
showing, however, the presumption of validity must prevail (Sison
v. Ancheta, G.R. No. L-59431, July 25, 1984).
Relevant Cases:
Manila City passed Ordinance No. 6537 making it

unlawful for any person not a citizen of the Philippines
to be employed or engaged in trade or business within the
city without first securing an employment permit.
Ordinance No. 6537 violates the due process of law
and equal protection rule of the Constitution. Requiring
a person before he can be employed to get a permit from
the City Mayor of Manila, who may withhold or refuse
it at will is tantamount to denying him the basic right
of the people in the Philippines to engage in a means of
livelihood. While it is true that the Philippines as a State
is not obliged to admit aliens within its territory, once an
alien is admitted, he cannot be deprived of life without
due process of law. Thisguarantee includes the means of
livelihood. The shelter of protection under the due process
and equal protection clause is given to all persons, both
aliens and citizens (Villegas v. Hiu Chiong Tsai Pao
Ho, G.R. No. L-29646, November 10, 1978).
b. The Provincial Assessor of Abra levied a tax assessment
on the properties of the Roman Catholic Bishop of
Bangued. The latter filed for declaratory relief on the
ground that it is exempt from real estate taxes, The
1973 Constitution added another requirement for tax
exemption of lands, buildings, and improvemnents used
exclusively for religious, charitable, or educational
purposes. They should not only be "exclusively" but also
"actually and "directly" used for religious or charitable
purposes. The law frowns on exemption from taxation;
hence, an exempting provision should be construed
strictissimi juris. The Province of Abra is, therefore, fully
justified in invoking the protection of procedural due
Taherent and
ConstituGENERAL. PRINCIPLES
tional Limitations and Taxing
Authority
71
process as proot 1s necessary to

demonstrate that there 18
complhance with the constitutional
exemption (Province of Abra v. provision that alloWS
L49336, August 31, 1981). Hernando, G.R. No.
2. Equal Protection of Law
Nor shall any person be
Requirement
denied the equal protection of
the laws (Sec. 1, Art. III, 1987
Constitution).
Relevant Cases:
a. Sison, as taxpayer, alleges that he would be unduly
discriminated against by the imposition of higher rates
of tax upon his income arising from the
exercise of his
profession vis-à-vis those which are imposed by Batas
Pambansa Blg. 135 upon fixed compensation income or
salaried individual taxpayers.
It should be noted that while business and
professional income are subject to the higher rates of tax
ranging from five percent (5%) to 60%, the taxable base is
net income (i.e., gross income less alowable deductions),
while compensation income is subject to the graduated
tax rates of zero percent (0%) to 35% but there is no
deduction allowed therefrom, except the personal and
additional exemption (NOTE: The allowance for personal
and additionalexemptions under Sections 35 and 79(D) of
the NIRC were repealed by RA. No. 10963 (TRAIN Law).
effective January 1, 2018]. The basis of distinction is that
wage earners do not spend to produce income;their salary
is produced by the sweat of their brow. Business income
requires expenditures for raw materials, labor and other
expenses. There can be no discrimination where the tax
bases and rates for self-employed and professionals, on
one hand, and for salaried employees, on the other hand,
are different (Sison v. Ancheta, ibid.)
27-2003.
b. The Commissioner of Customs issued CMO
which for tariff purposes, wheat was classified according
to the following: (1) importer or consignee; (2) country of
provided
origin;and (3) port of discharge. The regulationdischarge,
ports of
an exclusive list of corporations,countries
commodity descriptions, and of origin.
72
Depending on these factors, wheat would be classified

either as food grade or feed grade. The corresponding
tariff for food grade wheat was three percent (3%); for
feed grade, seven percent (7%).
The Supreme Court declared the contents of CMO
27-2003 as unconstitutional, for being violative of the
equal protection clause. The equal protection clause
means that no person or class of persons shall be deprived
of the same protection of laws enjoyed by other persons or
other classes in the same place in like circumstances. The
guarantee of equal protection of laws is not violated, if
there is a reasonable classification. For a classification
to be reasonable, it must be shown that: (i) it rests on
substantial distinctions; (ü) it is germane to the purpose
of the law; (ii) it is not limited to existing conditions
only; and (iv) it applies equally to all members of the
same class. Unfortunately, CMO 27-2003 does not meet
these requirements. The Court does not see how the
quality of wheat is affected by who imports it, where it is
discharged, or which country it came from. On one hand,
even if other millers excluded from CMO 27-2003 have
imported food grade wheat, the product would still be
declared as feed grade wheat, a classification subjecting
them to seven percent (7%). On the other hand, even if
the importers listed under CMO27-2003 have imported
feed grade wheat, they would only be liable to pay three
percent (3%) tariff, thus depriving the state of the taxes
due. The regulation does not become disadvantageous to
respondent only, but even to the State (Commissioner
of Customs v. Hypermix Feeds Corporation, G.R. No.
179579, February 1, 2012).
C. Effective January 1, 1988, E.0. 273 levied a 10% (now
12%) VAT on sales and importation of goods and on sales
of services.The constitutionality of E.0. 273 was assailed
in the case of Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc., et al. u. Tan,' on
the ground that the VAT is oppressive, discriminatory,
regressive, and it violates the due process and equal
2G.R. No, 81311, June 30, 1988.

GENERAL, PUNCLEN
Inherent nnd Constitutional 7%
Limitations 9nd Taxing Authority
protection clauses of
Court sustained the the Constitution, The Bupreme
constitutionality of the law.
Petitioners asserted that E.0. 273 is oppressive,
discriminatory, unjust and
provision that "the rule of regresn0ve, and violates the
taxation
and equitable. The Congress shall shall be uniforn
evolye a progressive
system of taxation." On this point, the Court ruled that
the Petitioners' assertions are not supported by facts and
circumstances to warrant their conclugions. They have
failed to show that the VAT is oppressive,
unjust. Petitioners merely relied discrirninatory or
upon newspaper articles,
which are actually hearsay and have no evidentiary
value. To justify the nullifcation of a law, there must be
a clear and unequivocal breach of the Constitution, not
a doubtful and argumentative implication. As the Court
saw it, E.0. 273 satisfies all the requirements of a valid
tax. The Court, in City of Baguiov. De Leon, said:
In Philippine Trust Company u. Yatco
(69 Phil. 420), Justice Laurel, speaking for the
Court, stated: 'A tax is considered uniform
when it operates with the same force and
effect in every place where the subject
may be found.m
In Eastern Theatrical Co., Inc. U. Alfons80 (G.R.
No. L-1104, May 31, 1949), the Court said: "Equality and
uniformity in taxation means that all taxable articlestheor
kinds of property of the same class shall be taxed at
authority to make
8ame rate. The taxing power has the of
reasonable and natural classifications for purposes
that is needed is
taxation.To satisfy this requirement, all 'applies equaly
that the statute or ordinance in question
persons, firms and corporations placed in similar
to all adopted in E.0. 273 is applied
situation." The sales tax
allgoods and services sold to the public, which
similarly on constant rate of zero percent (0%) or
are not exempt, at the
The disputed sales tax is also equitable.
10% (now 12%). sales of goods services by persons
ItIt is
is impOsed only on annual sales
aggregate gross
engaged in business with an
No. L-4887, May 30, 1953

Matiao & Co.. Inc. v.City of Cebu, G.R.
"Uy
74
the TRAIN
exceeding P200,000 (now P3,000,000 under
consequently
Law). Small corner sari-sari stores are
exempt from its application. Likewise exempt from the
that the
tax are sales of farm and marine products, so
costsof basic food and other necessities, spared as they are
from the incident of the VAT, are expected to be relatively
lower and within the reach of the general public."9
d The Court also found no merit in the contention of
the petitioner Integrated Customs Brokerg
Association of thePhilippines that E.0. 273, more
particularly Section 103(R) of the 1977 Tax Code, unduly
discriminates against customs brokers. The contested
provision states:
"Sec. 103. Exempt transactions. - The following
shall be exempt from the value added tax:
"R) Service performed in the exercise of
profession or calling (except customs brokers)
subject to the occupation tax under the
Local Tax Code, and professional services
performed by registered general professional
partnerships;"
On this matter, the High Court stated: "The phrase
'except customs brokers' is not meant to discriminate
against customs brokers. It was inserted in Section 103(R)
to complement the provisions of Section 102 of the 1977
Tax 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.With the insertion of the clarificatory phrase 'except
customs brokers' in Section 103(R), a potential conflict
between the two sections (Secs. 102 and 103), insofar as
customs brokers are concerned, is averted. At any rate,
the distinction of the customs brokers from the other
professionals who are subject to occupation tax under
the Local Tax Code is based upon material differences, in
that the activities of customs brokers (like those of stock,
real estate and immigration brokers) partake more of a
G.R. No. L-81921, June 30,

GENERAL PRINCIPLES
business, rather than: a
to the profession and were thus subjected
percentage tax under
prior to its Section 174 of the Tax Code
amendment
the percentage tax and by E.0. 273. E.0. 273 abolished
petitioner-association didreplaced
customs
it with the VAT. I
not protest the classificationneof
brokers then, the Court sees no reason why it
should protest now."
The Court noted that E,.0. 273 has
more than five months now, so that thebeen in effect for
by the petitioners that the adoption offears expressed
the VAT wil
trigger skyrocketing of prices of basic commodities and
services, as well as mass actions and demonstrations
against the VAT, should by now be evident. The fact that
nothing of that sort has happened shows that the fears
and apprehensions of the petitioners appear to be more
imagined than real.5
e. On the claim of regressivity, denial of due process and
equal protection under R.A. No. 7716, the Supreme Court
said that there is basis for passing upon claims that on
its face the statute violates the guarantees of freedom of
speech, press and religion. The possible "chilling effect"
which it may have on the essential freedom of the mind
channels
and conscience and the need to assure that the
of communication are open and operating importunately
review.
demand the exercise of this Court's power of
for passing upon
There is, however, no justificationrule
violates the that taxation
the claims that the law also to
that it denies petitioners' right
must be progressive andprotection reason
of the laws. The
due process and equal
treatment has been cogently stated by
for this different
constitutional law. Thus:
authority on
an eminent
mind is imperiled by
"When freedom of thecommands comments of
that
law, it is freedom imperiled, it is the
property is
respect;when
v. Hon
Pamahalaan ng Plipinas, et al.
Naglilingkod sa Mayo Uno Labor Center,
"Kapatiran ng mga 81311, June 30, 1988; KilusangJune 30, 1988; Integrated
No.
Bienvenido Tan, G.R.Secretary, No. L-81820,
et al., G.R. Commissioner of Internal Revenue, G.R.
et al. v. Executive Association of the Phil. v. Secretary, et al., GR.
Valmonte v. Executive
Customs Brokers and Ricardo
No. L-81921, June 30, 1988:
No. L-82152,June 30, 1988.
76 REVIEWER ON T'AXATION
lawmakers' judgment that commands respect.

This dual standard may not precisely reverse
the presumption of constitutionality in civil
liberties cases, but obviously it does set up a
hierarchy of values within the due process
clause "6
Bar Question (2017)

Heeding the pronouncement of the President that the worsening
traffc condition in the metropolis was a sign of economic progress,
the Congress enacted Republic Act No. 10701, also known as An Act
Imposing a Transport Tax on the Purchase of Private Vehicles.
Under R.A. 10701, buyers of private vehicles are required
to pay a transport tax equivalent to 5% of the total purchase
price per vehicle purchased. R.A. 10701 provides that the Land
Transportation Office (LTO) shall not accept for registration any
new vehicles without proof of payment of the 5% transport tax. R.A.
10701 further provide that existing owners of private vehicles shall
be required topay a tax equivalent to 5% of the current fair market
valueof every vehicle registered with the LTO. However, R.A. 10701
exempts owners of public utility vehicles and the Government fromn
the coverage of the 5% transport tax.
A group of vehicle owners sue on the ground that the law is
unconstitutional for contravening the Equal Protection Clause of
the Constitution.
Rule on the constitutionality and validity of R.A. 10701.
Suggested answer:
R.A. 10701 is valid and constitutional. A leuy of tax is not
unconstitutional because it is not intrinsically equal and uniform
classification
in itsoperation. The uniformity rule does not prohibitJose Isidro .
for purposes of taxation (British American Tobacco v.
Camacho, G.R. No. 163583, August 20, 2008).
Uniformity does not forfend classification as long as: (1) the
standards that are used therefor aresubstantial and not arbitrary,
purpose,
(2) the categorization is germane to achieve the legislative
present and future
(3) the law applies, all things being equal, to both
August 25, 1994.

"Tolentino v. Secretary of Finance, G.R. No. 115455,
Tmherent and GENERAL PRINCIPLES
Constitutional Limitations and Taxing Authority 77
conditions, and (4) the

belonging to the same class
and 109446,
classification
(Tan applies equally well to allthose
v. Del
valid October 13, 1994). All of
the
Ro8ario,
G.R. Nos. 109289
ofa classification
class in having been met and those foregoing
requirements
there is no violationwhich
a
out are
themselves, are singled
Protection Clause' of the of the "Equal
Bar Question (2000)
Constitution.
An Executive Order was
dduty incentives only to
issued pursuant to law, granting tax
"secured area" of
businesses and residents within the
the Subic Economic Special Zone, and denying
soid incentives to those who live within the Zone but outside ofsuch
"secure area." Is the constitutional right to equal protection the
Jaw violated by the Executive Order? Explain.
Suggested answer:
No. Equal protection of the law clause is subject to
reasonable classification. Classification, to be valid, must: (a) rest on
Substantial distinctions; (b) be germane to the purpose of the law; (c)
not be limited toexisting conditions only; and (d) apply equally to all
members of the same class.
There are substantial differences between big investors being
enticed tothe "secured area" and the business operators outside that
not require
are in accord with the equal protection clause that doesequally toall
territorial uniformity of laws. The classifcation applies
within the "secured area.
the resident individuals and businesses
residents, being in like circumstances to contributing directly
The
purpose of the law, are not categorized
to the achievement of the end treated, both in privileges
further. Instead, they are similarly Court of Appeals, G.R.
obligations required (Tiu u.
granted and
No. 127410. January 20, 1999).
3. Uniformity in taxation rule
shall be uniform and equitable. The
Therule of taxation progressive system of taxation
Congress shallevolve a Constitution).
1987
(Sec. 28/11. Art. III. principle by which all
as that
"Uniformity" has been definedof the same class shall be taxed
of property has the authority to make a
taxable articles or kindstaxing power taxation, but
at the Same rate. The classification for purposes of
vasonable and natural
78
be prompted by a spirit of hostility,

must not
the government's actdiscrimination that finds no support in reason.
or at the very least operate equally and uniformly on all
that the laws must be
It suffices then circumstances or that all persons
persons under similar conditions not being different
both
same manner, the
treated in the
privileges conferred and the liabilities imposed.?
in the
taxation does not prohibit the classification of the
Uniformity in are
of taxation or the entities or subjects upon which taxes
objects
anyconstitutional infirmity, such
imposed. However, to withstandcertain guidelines. Thus, in Pepsi
classification must comply with
Co. of the Philippines, Inc. v. City of Butuan,s
Cola Bottling true that the uniformity essential
the Supreme Court said: "It is
exercise of the power of taxation does not require
to the valid
or equality under all circumstances,or negate the authority
identity The classification made in the
taxation.
to classify the objects of must, however, be reasonable
exercise of this authority, to be valid,
requirement is not deemed satisfied, unless: (1)it is based
and this real differences; (2) these
upon substantial distinctions which make
germane to the purpose of the legislation or ordinance; (3) the
are conditions, but also to
classification applies, not only to present
future conditions substantially identical to those of the present; and
who belong to the
(4) the classification applies equally to all those
same class."
-The
VATis applicable to all covered goods and services.
discriminatory,
petitioners' assertions that E.0. 273 is oppressive, are not
Constitution
unjust and regressive, in violation of the their conclusions.
supported by facts and circumstances to warrant
They have failed to adequately show that the VAT is oppressive,
discriminatory or unjust.
It is uniform.A tax is considered uniform when it operates with
be
the same force and effect in every place where the subject may
taxable
found. Equality and uniformity in taxation means that all
articles or kinds of property of the same class shall be taxed at the
reasonable
same rate. The taxing power has the authority to make
and natural classifications for purposes of taxation. To satisfy this
requirement, all that is needed the statute or ordinance in question
"applies equally to all persons, firms and corporations placed in
similar situation." "U]nequalities which result from a singling
"Churchill v. Concepcion, G.R. No. 11572, September 22, 1916.

G.R. No. L-22814, August 28, 1968.
GENERAL PRINCIPLES
Toherent and Constitutional 79
out of one particular class for taxation or exemption infringe no
constitutionallimitation."
The sales tax adopted in E.0. 273 is applied similarly on all
goodsand services sold to the public, which are not exempt, at the
constant rate f0% or 10% (now
12%].
The disputed sales tax is also equitable. It is imposed
onsales of goods or services by persons engaged in business only
with
an aggregate gross annual sales exceeding P200,000.00 (now
P3,000,000). Small corner sari-sari stores are consequently exempt
from its application. Likewise exempt from the tax are sales
t farm and marine products, so that the costs of basic food and
other necessities, spared as they are from the incidence of the VAT,
ore expected to be relatively lower and within the reach of the
general public (ntegrated Customs Brokers Association of the
Philippines u. CIR, GR. No. 81921, June 30, 1988).
Bar Question (1998)

Explain the requirement of uniformity as a limitation in the
imposition anddor collection of taxes.
Suggested answer:
same force and effect
The tax is uniform when it operates with the"Uniformity"
found. means
in every place where the subject of it is class shall be taxed alike. It
that allproperty belonging to the same geographic, uniformity
simply a
does not signify an intrinsic, butNo.
(Churchill v. Concepcion, GR. 11572, September 22, 1916).
Uniformity does not require the same treatment; í simply requires
reasonable basis for classification.
Bar Question (2014)
laws -
Choose the correct answer. Tax
or
promotion of private enterprisethe
(A) may be enacted for the
incidentaladvantage to
business for as long as it gives
public or the State delegated
inherently legislative; therefore, may not be
(B) are recognize the
territorial in nature; hence, they do notlaw
(C) are tenets of international
generally accepted
(D) adhere to uniformity and equality when all taxable

articles or kinds of property of the same class are taxable
at the same rate.
Suggested answer:
(D) adhere to uniformity and equality when all taxable
articles or kinds of property of the same class are taxable
at the same rate (City of Baguio v. De Leon, G.R. No.
L-24756, October 31, 1968).
Bar Question (2003)
The City of Makati, in order to solve the traffic problem in its
business districts, decided to impose a tax, to be paid by the driver,
on all private cars entering the city during peak hours from 8:00
a.m. to 9:00 a.m. from Mondays to Fridays, but it exempts those
cars carrying more than two occupants, excluding the driver. Is the
ordinance valid? Explain.
Suggested answer:
The ordinance is in violation of the rule of uniformity and
equality, which requires that all subjects or objects of taxation,
similarly situated must be treated alike and must not be classified
in an arbitrary manner. In the case at bar, the ordinance exempts
cars carrying more than two occupants from the said ordinance.
Furthermore, the ordinance imposes the tax only on privatecars and
exempts public vehicles from the imposition of the tax, although both
contribute to the traffic problem. There exists no substantial standard
used in the classification used by the City of Makati.
Another issue is the fact that the tax is imposed on the driver
of the vehicle and noton the registered owner thereof. The ordinance
does not only violate the requirement of uniformity;the same is also
unjust because it places the burden on someone who has no control
over the route of the vehicle. Hence, the ordinance is invalid for
violating the rules of uniformity and equality as well as for being
unjust.
Bar Question (1995)

Five years ago, Marquez, Peneyra, Jayme, Posadas and
Manguiat, all lawyers, formed a partnership which they named
Marquez and Peneyra Law Offices. The Commissioner of Internal
GENERAL PRINCIPLES
Revenue thereafter issued Revenue No. 2-93
implementing R.A. 7496,
Taxation Scheme (SNITS).
Regulation[s)
known as the Simplified Net Income
in part:
Revenue Regulation[s] No. 2-93 provides
"Sec. 6. General Professional Partnership. -The
general
professional partnership and the partners are covered by
R.A. 7496. Thus, in determiningprofit of the partnership,
only the direct costs mentioned in said law are to be
deducted from partnership income. Also, the expense3
paid or incurred by partners in their individual capacities
in thepractice of their profession which are not reimbursed
or paid by the partnership but are not considered as direct
costs are not deductible from his gross income."
(1) Marquez and Peneyra Law Offices filed a taxpayer's
suit alleging that Revenue Regulations No. 2-93
violates the principle of uniformity in taxation
because general professional partnerships are now
there is a
subject to payment of income tax and thatindividuals
difference in the tax treatment between
engagedin the practice of their respective professions
partnerships.
and partners in general professional
Is this contention correct? Explain.
Suggested answer:
contention is not correct. General professional
(1) The non-taxable entity. The
partnerships remain to be a taxable and they are
the same are
partners comprising their share in the income of
obligated to report as income
professional partnership during the taxable
the general distributed or not. The Simplifed Net
year, whether as one
(SNITS) treats professionals
Income Tax System that they shall be treated alike.
class of taxpayers so they practice their profession alone
irrespective of whetherother professionalsunder a general
or in association with tated differently are
What are
professionalpartnership.
corporations. All individuals similarly
individuals and under the regulations. Therefore.
situated are taxed alike
taxation is not violated, On
uniformity in regulation.
the principle of
all the
requirements of avalid G.R. No
the contrary, with (Tan v. del Rosario,
have been complied
109289, October3, 1994).
82
Relevant Cases:
exercise of its regulative
1. The municipal council, in the person engaged in any
authority, may require any permit for which a
business or occupation to obtain a The ordinance is
reasonable fee (P10.00) may be charged.authorizes municipal
valid as Commonwealth Act No. 472 upon such
councils to impose municipal license taxes the amount to
persons, of which the only criterion as to
just and uniform, and
be imposed is that it should beinstallation manager is
not percentage taxes. Shell's
a salaried
still classified as an occupation, even if he is
who
employee. The mere fact that there isno other person
exercises the privilege of an installation manager does
is
not make the ordinance discriminatory inasmuch as it
and will be applicable to any person or firm who exercises
such occupation (Shell Co. of P.I., Ltd. v. EE. Vaño,
G.R. No. L-6093, February24, 1954).
2. The Municipal Board of Manila passed Ordinance No.
3398, pursuant to its city charter, imposing occupation
tax on persons exercising various professions in
Manila
and penalizes non-payment thereof. Punsalan filed a suit,
in behalf of other professionals, for the annulment of the
ordinance, claiming the ordinance is class legislation,
because the legislature withheld this power to tax from
other chartered cities, and it is unjust and oppressive
because it creates discrimination within the class (i.e.,
professionals in Manila have to pay the tax; non-Manila
professionals do not).
Punsalan makes a distinction that is unfounded.
It should be noted that the ordinance imposes tax upon
every person "exercising or "pursuing" in Manila any
one of the occupations named, but does not say that such
person must have his office in Manila. What constitutes
exercise or pursuit of a profession in thecity is a matter of
judicial determination (Punsalan u. Municipal Board
of theCity of Manila, G.R. No. L-4817, May 26, 1954).
3 In taxing only boarding stables for race horses (not
ordinary horses), the court believes that the ordinance
does not make an arbitrary classification. Taxing boarding
stables for race horses to the exclusion of boarding stables
Inherent and GENERAL PRINCIPLES
for ordinary horses is

boarding stables for racenothorses
indefensible.
and, for
The owners of
that
race horse owners
themselves, are a
mnatter, the
and class by themselves
appropriately taxed where owners of other kinds of
horses are taxed less or not at all, considering that equity
in taxation is generally
conceived in terms of ability to
pay in relation to the benefits
received by the taxpayer
and by the public from the business or
Race horses are devoted to gambling ifproperty taxed.
legalized, the
owners derive income and the public hardly profits from
horse racing and this business demands relatively heavy
police power supervision (Manila Race Horse Trainers
Association, Inc. U. Dela Fuente, G.R. No. -2947,
January l1, 1951).
4. The Municipal Board of Manila passed Ordinance
No. 3379, levying a property tax on all motor vehicles
operating within the City of Manila.
The ordinance infringes the rule of uniformity of
taxation. The ordinance exacts the tax upon all motor
vehicles within the City of Manila. It does not distinguish
which is purely
between a motor vehicle for hire and one
distinguish between a
for private use. Neither does itCity of Manila and one
motor vehicle registered in the place but occasionally
which is registered in another
uses its streets and
public
comes to Manila and
distinction is important, if we note that
highways. The burden only those registered
intends to
the ordinance may be inferred from the word
Manila as
in the City of therein. The word "operating" denotes
"operating'g"used is akin to a registration, for under
which
a connotation Law, no motor vehicle can be operated
the Motor Vehiclepayment of the registration fees. There
without previous ordinance equally applies to
that the temporary
1s no pretense which come to Manila for adenied that
motor vehicles errands, and it cannot bedeterioration
stay or for short no smalldegree to the
they contribute in public highways. The fact made to
that they
and be
of the streetsby their use, they should also such is not the
benefited And yet
are corresponding burden. renders the ordinance
share the inequality which
This is an (Association of Customs
Case. Constitution
offensive to the
Brokers, Inc. v. Municipality Board, G.R. No. L-4376,

May 22, 1953).
4. Non-imnpairment of contracts rule

No law impairing the obligation of contracts shall be
passed (Sec. 10, Art. III, 1987 Constitution).
The power of taxation cannot be exercised in a manner that
would impair the obligation of contracts. What is prohibited is that
a taxing statute be passed that would alter the relative rights of the
parties with each other. The mere fact that a tax makes the conduct
of a business more expensive or makes an activity more difficult does
not result in the impairment of the obligation of contracts. Contract
is impaired only if the relative position of the parties to a contract
(i.e., equality that is assumed when the contract was entered into) is
disturbed by the operation of a taxing statute.
Bar Question (1997)

XCorporation was the recipient in 1990 of two tax exemptions
both from Congress, one law exempting the company's bond issues
from taxes and the other exempting the company from taxes in
the operation of its public utilities. The two laws extending the tax
exemptions were revoked by Congress before their expiry dates.
Were the revocations constitutional?
Suggested answer:
Yes. The exempting statutes are both granted unilaterally by
Congress in the exercise of taxing powers. Since taxation is therule
and tax exemption, the exception, any tax exemption unilaterally
granted can be withdrawn at the pleasure of the taxing authority
without violating the Constitution (Mactan Cebu International
Airport Authority v. Marcos, G.R. No. 120082, September ll,
1996).
Neither of these was issued by the taxing authority in a contract
lawfully entered by itso that their revocation would not constitute an
impairment of the obligations of contracts.
Relevant Cases:
1. Cagayan Electric Power & Light Company is the holder
of a legislative franchise under which its payment of
GENERAL PRINCIPLES
Limitationsand Taxing Authority
three percent (3%) taX on its
of electricity is "in lheu of allgross earnings from the sale
taxes and assessments of
whatever authority upon privileges, earnings, income,
franchise, and poles, wires, transformers, and insulators
of the grantee, from which taxe8 and
assessments
grantee 1s hereby expressly exempted" (Sec. 3, R.A. No.
the
3427). R.A. No. 5431 amended Section 24 of the Tax Code
by making liable for income tax all corporate
taxpayers
not specifically exempt therefrom. Franchise companies
were made subject to income tax in addition to franchise
tax.
Congress could impair petitioner's legislative

franchise by making it liable for income tax. The
Constitution provides that franchise is subject to
amendment, alteration, or repeal by the Congress when
the public interest so requires (Cagayan Electric Power
&Light Co., Ine. U. CIR, G.R. No. L-60126, September
25, 1985).
percent
2. Petitioner's claim that it is only liable for the two
franchise tax rate is
(2%) (now three percent [3%)) of the petitioner
without merit. Nowhere in the franchise
franchise tax prescribed therein
can a provision that theother taxes" be found. It is thus
"shall be in lieu of all
(5%) (now three percent [3%])
subject to the five percentSection 259 (now Sec. 119) of the
franchise tax provided in franchise subject to the
Having accepted said
Tax Code. amended, altered or repealed by
condition that it may be imposition
petitioner cannot now assert that the
Congress,
higher rate of five percent (5%) is
and collection of the
impairment clause of our Constitution
in violation of the & Development Co., Inc. v. CIR,
(Philippine Power October 31, 1965).
CTA Case No. 1152,
Bar Question (2004) to certain industries

exemption
passed granting taxyears. But three years later, the
A law was a period offive
and investments for
repeal, the exemptions were considered
With the companies for
taw was repealed.BIR, which assessed the investing
of the law.
revoked by the repeal
effective on the date of the
unpaid taxes
86
on the
NPCand KTR companies questioned the assessments
reliance with
full
ground that, having made their investments in their
repeal violated
the period of exemption granted by the law, its and
constitutional right against the impairment of the obligations
Reason.
contracts. Is the contention of the companies tenable or not?
Suggested answer:
The contention is not tenable. The exemption granted is in the
nature of a unilateral tax exemption. Since the exemption given or is
duty
spontaneous on the part of the legislature and noservice or
other remunerative conditions have been imposed on the taxpayers
legislature
receiving the exemption, it may be revoked at will by the
(Christ Church u. Philadelphia, 24 How. 300 [1860]).
What constitutes an impairment of the obligation of contracts
a valuable
is the revocation of an exemption which is founded on contract
consideration because it takes the form and essence of a (J.
Casanvas v. Hord, G.R. No. 3473, March 22, 1907; Manila
Railroad Company v. Insular Collector of Customs, G.R. No.
10214, November 4, 1915).
5. Freedom of Religion
The free exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall forever be
allowed (Sec. 5, Art. III, 1987 Constitution).
The City of Manila passed two ordinances. Ordinance No.
2529, imposing a tax on sale of Bibles and other religious literature,
cannot be applied to the plaintiff, for in doing so it would impair its
constitutional right to free exercise and enjoyment of its religious
profession and worship as well as its rights of dissemination of
religious beliefs. Such ordinance, if applied, would provide for
religious censorship by restraining the free distribution and sale of
Bibles and other religious literature. But with respect to Ordinance
No. 3000, requiring a person to secure a Mayor's permnit before he
can engage in business, trade or occupation, the Court held that it
does not impair the plaintiff's constitutional right (American Bible
Society v. City of Manila, G.R. No. L-9637, April 30, 1957).
6. Freedom of the Press
R.A. No. 7716 amended Section 103 of the Tax Code by deleting
paragraph () with the result that print media became subject to VAT
with respect to all aspects of their operations. The Philippine Press
GENERAL PRINCPLES
Inherent and Constitutional
Limitations and Taxing Authority 87
Institute (PPI) is a
established for the non-profit organization
of publishers
PPI questions improvement
of
the law insofar as it newspaper
journalism in the Philippines.
previously granted has
to the press under withdrawn the exemption
It was
ruled by the Supreme Section 103() of the NIRC.
with a statute that on its face
Court that we are not dealing here
operates in the area of press freedom.
The PPI's claim is simply that, as
abridges press applied to newspapers, the law
freedom. Even with due recognition
and itsimportance in a democratic society, however,ofthe high estate
its press is not
tmune from general regulation by the State. PPI does not dispute
this noint. What it contends is that by withdrawing the
previously granted to print media transactions involvingexemption
printing,
publication, importation or sale of newWspapers, R.A. No. 7716 has
singled out the press for discriminatory treatment and that within
the class of mass media, the law discriminates against print media
hy giving broadcast media favored treatment. We have carefully
examined this argument, but we are unable to find a differential
treatment of the press by the law, much less any censorial motivation
for its enactment. If the press is now required to pay a value added
tax on its transactions, it is not because it is being singled out, much
less targeted, for special treatment but only because of the removal
of the exemption previously granted to it by law. The withdrawal of
exemption is all that is involved in thesecases. Other transactions,
delisted as part
likewise previously granted exemption, have been VAT system.
scope of the
of the scheme to expand the base and the
The law would perhaps be open to the charge of discriminatory
had been that granted to
treatment, if the only privilege withdrawn
the press.°9
charitable, and educational
7. Tax exemption of religious,
institutions.
tax
a. Exemption from realproperty
institutions, churches, parsonages, or convents
Charitable
mosques, and non-profit cemeteries,
appurtenant thereto, actually, directly
all lands, buildings and improvements
charitable or educational
and used for religious, Art. III
and exclusively exempt from taxation (Sec. 28/3],
purposes shall be
1987 Constitution).
August 25,
al. v. Chato, et al., G.R. No. 115754,
Press Institute, et
Philippine
1994.
88
of properties:
Important principles in tax exemption
and educational
a. Exemption of religious, charitable tax only. The
institutions applies to real property
ownership.
test is usage, not
The Constitutionexemptscharitableinstitutions
requires that the
only from real property taxes but exclusively" use
institution "actually, directly and
(CIR v. St.
the property for a charitable purposeNos. 195909
Luke's Medical Center, Inc., G.R.
meant
and 195960, September 26, 2012). What is
property
by actual, direct and exclusive use of theimmediate
for charitable purposes is the direct and
itself to the
and actual application of the propertyinstitution is
purposes for which the charitable from the
organized. It is not the use of the income
whether the
real property that is determinative of
property is used for tax-exempt purposes (Lung
Center of the Philippines u. Quezon City, G.R.
No. 144104, June 29, 2004). The test of exemption
isnot strictly a requirement on the intrinsic
nature
or character of the institution. The test requires that
the institution use the property in a certain way, i.e.,
that
for a charitable purpose. Thus, the Court held
the Lung Center of the Philippines did not lose its
charitable character when it used a portion of its lot
for commercial purposes. Theeffect of failing to meet
the use requirement is simply to remove from the tax
exemption that portion of the property not devoted
to charity (CIR v. St. Luke's Medical Center, Inc.,
G.R. No. 203514, February 13, 2017).
b. The word exclusive" means primarily rather
than solely (Ho8pital de San Juan de Dios,
Inc. u. Pasay City, G.R. No. L-19371, February
28, 1966). Thus, the admission of pay patients
does not detract from the charitable character of a
hospital if all its funds are devoted exclusively to the
maintenance of the institution as a public charity.
Where rendering charity is its primary object, and
the funds derived from payments made by patients
able to pay are devoted to the benevolent purposes
Inherent and GENERAL PRINCIPLES 89
Constitutional Limitations and Taxing Authority
of the
made institution,
the mere fact that profit has been
will not
deprive the hospital of its benevolent
character (Praire Du Chian Sanitarium CO.
Cityof Praire Du Chian, 242Wis. 262, 7 NW [2d|
832, 144 ALR 1480).
C. The exemption extends to facilities which are
incidental to and reasonably necessary tor g
accomplishment of said purp0ses, such as school
for training nurses, nurses' home, and recreational
facilities (Herrera u. Quezon City Board
of Assessment Appeals, G.R. No. L-15270,
September 30, 1961).

Constitution
Article VI, Section 28(3) of the 1987 Philippine parsonages
nrovides that charitable institutions, churches and cemeteries
thereto, mosques, non-profit
or convents appurtenant improvements actually, directly and
andall lands, buildings and charitable or educational purposes
exclusively used for religious,
taxation.
shall be exempt from
exemption apply?
a. To what kind of tax does this
of actual use necessary for tax exemption purposes
b. Is proof
under the Constitution?
Suggested answer:
applies only to property taxes. What
a) This exemption the institution itself but the lands,
is exempted is not actually, directly and
buildings and improvements
religious, charitable,and educational
exclusively used for
purposes. construed
exemptions are strictly to show
tax
Yes, becausetaxpayer. evidence
b) There must be requirements for
against the has complied with thetaxation is based
taxpayer
that the Furthermore, real property same rule must
exemption. ownership; hence, the
not on exemptions (CIR u.
on use and property tax October 14.
be applied for real L-124043,
also Appeals, G.R. No.
Court of
1998).

The Roman Catholic Church owns a 2-hectare lot in a town in
Tarlacprovince. The southern side and middle part are occupied by
the Church and a convent, the eastern side, by a school run by the
Church itself, the southern side, by some commercial establishments,
while the rest of the property, in particular, the northwestern side,
isidle or unoccupied.
May the Church claim tax exemption on the entire land? Decide
with reasons.
Suggested answer:
No. The portions of the land occupied and used by the
Church, convent and school run by the church are exempt from
real property taxes, while the portion of the land occupied by
commercial establishments and the portion, which is idle, are
subject to real property taxes. The "usage" of the property and not
the "ownership" is the determining factor of whether or not the
property is taxable (Lung Center of the Philippines v. Quezon
City, G.R. No. 144104, June 29, 2004).
b. Exempt revenue used for educational purposes
Aside from exemption of real properties (i.e., lands,

buildings,and improvements) actually, directly, and exclusively
used for educational purposes from taxation under Sec. 28(3),
Art. VI of the 1987 Constitution, all revenues and assets of
non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall also
be exempt from taxes and duties. Upon the dissolution or
cessation of the corporate existence of such institutions, their
assets shall be disposed of in the manner provided by law (Sec.
4/3], Art. XIV, 1987 Constitution).
Bar Question (2004)
XYZ Colleges is a non-stock, non-profit educational institution,
run by the Archdiocese of BP City. It collected and received the
following:
Tuition fees;
Dormitory fees;
Rentals from canteen concessionaires;
Inherent and ConstituGENERAL
tional PRINCIPLES 91
Limitations and Taxing
Authority
Interest trom money market
Donation of alot and placements of the tuition fees;
Which of these
building by school alumni.
be exempt fromabove-cited income and l donation would not
a.
taxation [i.e., taxablel? Explain brieny

b. Suppose that XYZ
institution owned by Colleges is a proprietary educational
the Archdiocese, which the Archbishop's family, rather than
of those abOve-cited income and
donation would be exempt from taxation?
Suggested answer:
a. All of the income derived by the non-stock,
non-profit
educational institution will be exempt from taxation,
provided they are used actually, directly and excluSively
for educationalpurposes. The Constitution provides that
all revenues and assets of non-stock. non-profit educational
institution which are actually, directly and exclusively
used for educational purposes are exempt from taxation
(Sec. 4, par. 3, Art. XIV, 1987 Constitution).
Accordingly, none of the cited income collected by the
non-stock, non-profit educational institution would not
be exempt from taxation. i.e., All of the cited income are
tax exempt if used actually, directly, and exclusively
by the non-stock, non-profit educational institution for
educational purposes.]
b. IfXYZ Colleges isaproprietary educational institution, all
non-school-related
of its income from school-related and its
activities will be subject to the income tax, based on(Sec.
activities
aggregate net income derived from both enumerated
27/B), NIRC). Accordingly, allof the income
in the problem will be taxable. 10
Bar Question (2000)

4(3) of the 1987 Philippine
Under Article XIV, Sectionassets
Constitution, all revenues and of non-stock, non-profit
proprietary educational
institutions shall be
taxable income of 2023
Qualified
the rate of 10% (between July 1, 2020 to June 30. by
Subject to income tax at NIRC, as amended
reduced income tax rate of 1%) under Sec. 27(B), 78-2022),
Subject to the RMCNo.
11635, RR No. 3-2022, and
CEATE Law and R.A. No.
educational institutions, used actually, directly and exclusively

for educational purposes, are exempt from taxes and duties. Are
income derived from dormitories, canteens and bookstores as well as
interest income on bank deposits and yields from deposit substitutes
automatically exempt from taxation? Explain.
Suggested answer:
No. The interest income on bank deposits and yields from deposit
substitutes are not automatically exempt from taxation. There must
be a showing that the incomes are included in the school's annual
information return and duly audited fnancial statements, together
with: (a) certifications from depository banks as to the amount of
interest income earned from passive investments not subject to the
20% final withholding tax; and (b) certification of actual, direct and
exclusive utilization of said income for educational purposes; (c)
Board resolution on proposed project to be funded out of the money
deposited in banks or placed in money market placements (Finance
Department Order No. 149-95 issued November 24, 1995),
which must be used actually, directly and exclusively for educational
purposes.
The income derived from dormitories, canteens and bookstores

are not also automatically exempt from taxation. There is still the
requirement for evidence to show actual, direct and exclusive use
for educational purposes. It is to be noted that the 1987 Philippine
Constitution does not distinguish with respect to the source or
origin of the income. The distinction is with respect to the use which
should be actual, direct and exclusive for educational purposes.
Consequently, the provisions of Section 30 of the NIRC of
1997, that a non-stock and non-profit educational institution is
exempt from taxation only "in respect to income received by them as
such" could not affect the constitutional tax exemption. Where the
Constitution does not distinguish with respect to source or origin,
the Tax Code should not make distinctions.
C. Exemption from donor's tax

M.B. Estate donated cash to the church through Rev.
Fr. Ruiz, predecessor of Rev. Fr. Lladoc, for the construction
of anew church in the locality. The donor filed a donor's tax
return. The donee did not file a tax return nor paid the tax.
BIR assessed deficiency donee's gift tax, which was protested
GENERAL, PRINCIPLES
hy Rev. Fr. Lladoc. The court
ruled
church is only from the payment ofthat the exemption of the
taxes assessed on such
property enumerated, as property taxes, as distinguished from
excise tax. Manifestly, gift tax is not within the
provisions of the section mentioned. Agift tax is not exemption
a property
tax, but an excise tax imposed on the transfer of property by
way of gift inter vivos, the imposition of which on property
used exclusively for religious purposes, does not constitute an
impairment of the Constitution. "Exemption from taxation,"
as employed in the Constitution, should not be interpreted to
mean exemption from all kinds of taxes. However, petitioner
is not liable personally for the gift tax andthe Head of the
Diocese or the Roman Catholic Bishop is the real party in
interest (Lladoc u. CIR, G.R. No. L-19201, June 16, 1965).
[NOTE: Under existing law, gifts in favor of an educational
and/or charitable, religious,cultural or social welfare institution
shall be exempt from gift tax, provided that not more than 30%
of said gift is used by the donee for administration purposes
(Sec. 101[A], NIRC).]
Bar Question (2004)
institution,
XYZColleges isa non-stock, non-profit educationalreceived
and the
run by the Archdiocese of BP City. It collected
following:
Tuition fees;
Dormitory fees;
Rentals from canteen concessionaires;
the tuition fees;
Interest from money market placements of
alumni.
Donation of a lot and building by school
and donation would not
Which of these above-cited income
a.
exempt from taxation (i.e., taxable]? Explain briefly.
be
b. Suppose that XYZ Colleges is aproprietary educational
family, rather than
institution owned by the Archbishop's income and
those above-cited
the Archdiocese, which of from taxation?
donation would be exempt
Suggested answer:
donor's tax, ifactually.
a. The donation is likewiseexemptfrom
for educational purposes,
directly and exclusively used
REVIEWERON T'AXATION
94
the donation is used

provided that not more than 30% of
purposes. The donee,
by the donee for administration
educational institution, isa
being a non-stock, non-profit donation, subject to
qualifed entity to receive an exempt Art. XIV, 1987
conditions prescribed by law (Sec. 4, par. 4,NIRC fnow Sec.
Constitution, in relation to Sec. 101[AJ[3],
101[A](2]]).
by the
Accordingly, none of the cited donation received
be
non-stock, non-profiteducational institution would not
exempt from taxation. [i.e., The donation is exempt from
donor's tax if the lot and building is actually, directly
and exclusively used by the donee for educational
is
donation
purposes and that not more than 30% of the
used for administration purposes.J
b. The donation of lot and building will likewise be subject
to the donor's tax because a donation to an educational
institution is exempt only if the school is incorporated as
anon-stock entity paying no dividends. Since the donee
is a proprietary educational institution, the donation is
taxable (Sec. 101[A][3], NIRC [now Sec. 101[AJ[211).
8. Origination of tax bills rule
All appropriation, revenue or tariff bills shall originate from
the House of Representatives, but the Senate may propose or concur
with amendments (Sec. 24, Art. VI, 1987 Constitution).
Petitioners contended that R.A. No. 7716 did not originate
exclusively in the House of Representatives as required by Article
VI, Section 24 of the 1987 Constitution, because it is in fact the
result of the consolidation of two distinct bills, House Bill (H.B.) No.
11197 and Senate Bill (S.B.) No. 1630. In this connection, petitioners
pointed out that although Article VI, Section 24 of the Constitution
was adopted from the American Federal Constitution, it is notable in
two respects: the verb "shall originate" is qualified in the Philippine
Constitution by the word "exclusively," and the phrase as on other
bills" in the American version is omitted. This means, according to
them, that to be considered as having originated in the House, R.A.
No. 7716 must retain the essence of H.B. No. 11197.
The Supreme Court ruled: "This argument will not bear
analysis. To begin with, it is not the law but the revenue bill
Inherent and GENERAL. PRINCIPLES
which is
in the Houserequired by the
of Constitution
because a bill Representatives. It is
to
'originate exclusively
originating
changes in the Senate in the House important emphasize
to
this,
bill. There is also a that the result maymay undergo
such extensive
committee. At this of a third be rewriting of the whole
pOssibility
point, what is version by the conference
result of the Senate action, a distinct billimportant
to note is that, as a
that a revenue statute may be produced. To insst
and not only the bill which
legislative process culminatingin the initiated the
Substantially be the same as the House enactment
bill
of the law must
Senate's power not only to concur with would to deny the be
"propose amendments.' It would violate theamendments' but also to
power of the two houses of Congress and co-eguality of
in fact make legislative
superior to the Senate. What the the House
that the initiative of filing Constitution simply means is
revenue,
authorizing an increase of the public debt, taxtariff, or bills, bills
and bills of local application must private bills
come from the House of
Representatives on the theory that, elected as they are from
the districts, the members of the House can be
be more sensitive to the local needs and problems. expected to
On the
other hand, the senators, who are elected at large, are expected to
approach the same problems from the national perspective.
The enactment of Senate Bill (S.B.) No. 1630is not the only
instance in which the Senate, in the exercise of its power to propose
amendments to bills required to originate in the House, passed its
own version of a House revenue measure. It is noteworthy that, in
the particular case of S.B. No. 1630, petitioners Tolentino andRoco,
as members of the Senate, voted to approve it on second and third
readings. On the other hand, amendment by substitution, in the
manner urged by petitioner Tolentino, concerns a mere matter of
form. Petitioner has not shown what substantial difference it would
like
make if, as the Senate actually did in this case, a separate bill into
S.B. No. 1630 is instead enacted as a substitute measure, "taking
consideration xXx H.B. 11197." The power of the Senate to propose
apparently without restriction. It
Or concur with amendments is Senate can practically
Would seem that by virtue of this power, the trace
and leave only a
rewrite a billreguired to come from the House
of the original bill."
Finance, G.R. No. 115455, October 30

"Resolution, Tolentino v. Secretary of
1995.
The jurisdiction of the Conference Committee is not limited

to resolving differences between the Senate and the House. It
may propose an entirely new provision. What is important is that
its report is subsequently approved by the respective Houses of
12
Congress.
Bar Question (1997)
The House of Representatives introduced House Bill No. 7000,
which was envisioned to levy a tax on various transactions. After
the bill was approved by the House, the bill was sent to the Senate
as so required by the Constitution. In the upper house, instead of a
deliberation on the House Bill, the Senate introduced Senate Bill
No. 8000 which was its own version of the same tax. The Senate
deliberated on this Senate Bill and approved the same. The House
Bill and the Senate Bill were then consolidated in the Bicameral
Committee. Eventually, the consolidated bill was approved and sent
to the President who signed the same. The private sectors affected
by the new law questioned the validity of the enactment on the
ground that the constitutional provision requiring that all revenue
bills should originate from the House of Representatives had been
violated. Resolve the issue.
Suggested answer:
There is no violation of the constitutional requirement that all
revenue bills should originate from the House of Representatives.
What is prohibited is for the Senate to enact revenue measures on its
own without a bill originating from the House. But once the revenue
bill was passed by the House and sent to the Senate, the latter can
pass its own version on the same subject matter consonant with the
latter's power to propose or concur with amendments. This follows
from the co-equality of the two chambers of Congress (Tolentino v.
Secretary of Finance, G.R. No. 115455, October 30, 1995).
9. Concurrence of Congress on tax exemption grants rule
No law granting any tax exemption shall be passed
without the concurrence of a majority of all the members
of the Congress (Sec. 2 8[4], Art. VI, 1987 Constitution).
Inorder to place all the special economic zones created under R.A.
No. 7227 (otherwise known as the Bases Conversion and Development
12Phili ppine Judges Association v. Prado, G.R. No. 105371, November 11, 1993.
GENERAL PRINCIPLES
Limitations
and Taxing Authority
Act) onequal footing and entitled to the same tax benefits granted to
enterprises registered with the Subic
President Fidel V. Ramos promulgated special economic Zone, former
Proclamation No. 420 on July
5,1994. The court ruledthat the grant of preferential tax rate of five
percent(5%) based on gross income earned in favor of enterprises
registered with the Camp John Hay special economic zone under
Proclamation No. 420 contravenes Article VI, Section 28(4) of the
1087 Constitution, which provides that "No law granting any tax
exemption shall be passed without the concurrence of a majority of
all the members of Congress." It is clear that under Section 12 of
RA. No. 7227, it is only the Subic special economic zone which was
oranted by Congress with tax exemption inyestment incentives and
the like. There is no express extension of the aforesaid benefits to
other special economic zones (i.e., Clark, Camp John Hay, and Poro
Point) under Section 15 of said Act. Therefore, the second sentence
of Section 3, Proclamation No. 420, which extended the preferential
registered with
tax rate granted by R.A. No. 7227 only to enterprises registered with
the Subic special economic zone also to enterprises
zones, is declared
the Camp John Hay and other special economicCoalition, et al. v.
nulland void (John Hay Peoples Alternative
Lim, G.R. No. 119775, October 24, 2003).
bills
10. Single subject rule on tax
Every bill passed by Congress shall embrace only one
in the title thereof. 13
subject, which shall be expressed
of whether the amendment of Section 103
On the question
National Internal Revenue Code (NIRC) is fairly embraced
therein
of the although no mention is made
in the title of R.A. No. 7716,
those which the
Presidential Decree (P.D.) No. 1590 as among
of
Supreme Court believes it is, since the title
statute amends, the statute
system,
is to expand the VAT some
states that the purpose of the
doing this isto widen its base by withdrawing 1590
and one way of No.
exemptions granted before. To insist that P.D.Section 103 of
of the of the law, in addition to
title
be mentioned in the specifically referred to, would be to insist
it is
the NIRC, in which shouldbe a complete index of its content. The
that the title of a bill is
upon the
intended to prevent surpriselegislation
Constitutional reguirement pending
Congress and to inform the people of it. If, in the case
nembers of they can be heard
regarding
8o that, if they wish to,
1987 Constitution.
"Art. IV, Sec. 26(1),
REVIEWER ON T'AXATION
98
petitioner did not know before that its exemption had been
at bar, the title but perhaps for
withdrawn, it is not because of any defect in
although published, pass unnoticed
the samne reason other statutes, attention to their existence. Indeed.
until some event somehow calls
more general than the title of
the title of R.A. No. 7716 is not any and yet no mention is
PAL's own franchise under P.D. No. 1590,
expressly amends PAL's
made of its tax exemption. R.A. No. 7716 from the grant
franchise (P.D. No. 1590) by specifically exceptingexemption under
PAL's
of exemptions from the value added tax to do under
P.D. No. 1590. This is within the power of Congress that the
Article XII, Section 11 of the Constitution, which provides
is subject to
grant ofa franchise for the operation of apublic utility the common
amendment, alteration or repeal by Congress, when
good so requires.4
11. Progressive system of taxation rule

Congress shall evolve a progressive system of taxation.
Regressivity is not a negative standard for courts to enforce.
What Congress is required by the Constitution to do is to"evolve
Congress,
a progressive system of taxation." This is a directive to
just like the directive to it to give priority to the enactment of laws
for the enhancement of human dignity and the reduction of social,
economic, and political inequalities, or for the promotion of the right
to quality education. These provisions are put in the Constitution as
moral incentives to legislation, not as judicially enforceable rights.
12. Supremacy of the national government over local
govermments in taxation
When local governments invoke the power to tax on national
government instrumentalities, the exercise of the power is construed
strictly against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing
the tax (Manila International Airport Authority v. Court of
Appeals, G.R. No. 155650, July 20, 2006).
Congress has the power of control over local governments. If
Congress can grant a municipal corporation the power to tax certain
matters, it can also provide for exemptions or even take back the
power. The power of local governments to impose taxes and fees is
14Philippine Airlines v. Secretary of Finance, G.R. No. 115873, August 25, 1994.
GENERAL. PRINCIPLES
always subject to
Local government limitations
units have nowhich Congress may provide by law.
national power to tax instrumentalities of the
government, such as PAGCOR, it being an instrumentality
ofthe national government
May 14, 1991). (Basco PAGCOR,
v. G.R. No. 91649,
TAXING AUTHORITY
Commissioner of Internal
Revenue (CIR)
The chief of the Bureau of Internal Revenue (BIR) is the
Commissioner of Internal Revenue (CIR), He has four (4) Deputy
Commissioners as his assistant chiefs (Sec. 3, NIRC), The CIR
is vested with the exclusive and original jurisdiction to interpret
the provisions of the 1997 Tax Code and other tax laws, subject to
review by the Secretary of Finance (Sec. 4, NIRC). The CIR has the
power to recommend to the Secretary of Finance the promulgation
of Revenue Regulations (RRs or Rev. Regs.) which prescribes or
defines rules and regulations for the effective enforcement of the
Drovisionsof the 1997 Tax Code and other tax laws. It is also within
which
the powers of the CIR to issue tax rulings (BIR Rulings)
are the official positions of the BIR on inquiries of taxpayers who
Code, other tax
request clarification on certain provisions of the Tax
laws, and the implementing regulations, seeking exemption from
taxation or the application of preferential tax rates. The CIR also
Memorandum
such as Revenue
issues other revenue issuances
pertinent and applicable
Circulars (RMCs) which contain
portions, as well as amplification other of laws, rules, regulations and
agencies/offices, Revenue
precedents issued by the BIR and issued to provide
Memorandum 0rders (RMOs) which are outline processes,
guidelines, and
directives or instructions, prescribe methods and procedures necessary
operations, activities,workflows, and
implementation of stated policies, goals, objectives, plans
auditing,
in the areas of operations, except
programs of the BIR in allRulings (RMRs) which are rulings,
Revenue Memorandum CIR with respect to the
provisions
interpretations of the specific set of
opinions and laws, as applied to a
other tax
of the Tax Code and
established precedents, and which the CIR
lacts, with or without for the purpose of providing
taxpayers
to time
may issue from time consequences inspecific situations, Revenue
guidance on the tax and
which refer to periodic issuances, notices position
Bulletins (RBs) consolidate the BIR's
announcements of the CIR that
otficial
on certain specific issues of law or administration in relation to the

provisions of the Tax Code, relevant tax laws and other issuances
for the guidance of the public, and Revenue Administrative
Orders (RAOS) which are issued to cover subject maters dealing
strictly with thepermanent administrative set-up of the BIR, more
specifically, the organizational structure, statements of functions
and/or responsibilities of BIR offices, definitions and delegations of
authority, staffing and personnel requirements and standards of
performance, among others.
The CIR cannot, in the exercise of the power to interpret tax
laws and to decide tax cases, issue administrative rulings or circulars
inconsistent with the law to be implemented. Administrative
issuances must not override, supplant, or modify the law, they must
remain consistent with the law intended to carry out. Surely, courts
willnot countenance administrative issuances that override, instead
of remaining consistent and in harmony with the law they seek to
apply and implement.
Section 32 of R.A. No. 8424 does not include association dues,
membership fees, and other assessments/charges collected by
condominium corporations as sources ofgross income. The subsequent
amendment under the TRAIN Law substantially replicates the old
Section 32. Clearly, RMC No. 65-2012 expanded, if not altered, the
list of taxable items in the law. RMC No. 65-2012, therefore, is void.
Besides,where the basic law and a rule or regulation are in conflict,
the basic lawprevails. Thus, in the case of RMC No. 65-2012, the CIR
went beyond, if not, gravely abused such authority. While the CIR
isempowered to interpret our tax laws, the CIR cannot expand or
alter them (In the Matter of Declaratory Relief on the Validity
of BIR RMC No. 65-2012, G.R. No. 215801, January 16, 2020).
Apetition for declaratory relief is not the proper remedy
to seek the invalidation of RMC No. 65-2012; certiorari or
prohibition is the proper remedy. - An action for declaratory
relief is governed by Section 1, Rule 63 of the Revised Rules of
Court. Declaratory relief requires the following elements: (1) the
subject matter of the controversy must be a deed, will, contract or
other written instrument, statute, executive order or regulation,
or ordinance; (2) the terms of said documents and the validity
thereof are doubtful and require judicial construction; (3) there
must have been no breach of the documents in question; (4) there
must be an actual justiciable controversy or the "ripening seeds"
of one between persons whose interests are adverse; (5) the issue
GENERAL PRINCIPLES
Inherent and Constitutional
Limitations and TaxingAuthority 101
must be ripe for

judicial determination; and (6)
is notavailable
The through adequate
other means or other forms of
relief
proceeding. Court rules action or
declaratory relief, is the that certiorari or prohibition, not
proper remedy to assail the validity
or cconstitutionality of
executive issuances.
Here. RMC No. 65-2012 has
condominium corporations which far-reaching ramifications among
have proliferated throughout the
country. For numerous Filipino families,
professionals, and students
have,for quite some time now, opted for condominium living as their
new way of life. The matter of whether indeed the contributions of
unit oWners solely intended for maintenance and upkeep of the
common areas of the condominium building are taxable is imbued
sith public interest. Suffice it to state that taxes, being the lifeblood
of the government, occupy a high place in the hierarchy of State
priorities, hence, all questions pertaining to their validity must
be promptly addressed with the least procedural obstruction.
To dismiss the petition and resolve the issues later, after the
challenged VAT has been imposed, could cause more mischief both
declaration
to the tax-paying public and the government. Abelated refund to
of nullity of the BIR action would make any attempt to
nightmare with
the (taxpayers] what they paid an administrative
the right, but the duty
no solution. Consequently, it is not only
and resolve the issues that the
of the Court to take cognizance of comply with
petition raises.Although the petition does not strictly
Court has ample power to waive
the requirements of Rule 65, the the legal questions to be resolved
such technical requirements whenpublic. The same may be said of the
are of great importance to the
locusstandi which isa mere procedural requisite (In
requirement of the validity of BIR RMC
Declaratory Relief on
the Matter of 215801, January 15, 2020; AISL v. Sec. of
No. 65-2012,G.R. No. January 15, 2020).
Finance, G.R. No. 222239,
Secretary of Finance
Rule-Making Power of the recommendation of the CIR.
Finance, upon
The Secretary of rules and regulations for the effective
needful
Shallpromulgate allprovisions of this Code (Sec. 244, NIRC).
enforcement of the of
NIROC explicitly grants the Secretaryand
Section 244 of the rules
promulgate the necessary of the tax
authority to
Finance the
effective enforcement of the provisions and
regulations for the regulations "deserve to be given weight
code. Such rules and
102
rule-making authority given

respect by the courts in view of the their specific expertise in their
formulate them and
to those who Telecommunications Philippines,
respective fields" (Eastern
August 29, 2012).
Inc. v. CIR, G.R. No. 168856,
taxability (particularly,
RMC No. 35-2012 only clarified the organized and operated
income tax and VAT liability) of clubs other non-profit purposes
exclusively for pleasure, recreation, and
of the NIRC provisions
based on the BIR's own interpretation was not designed "to
Evidently, it
on income tax and VAT. providing the details thereof"
implement a primary legislation by was intended only to "provide
as in a legislative rule; but rather, agency is in charge
guidelines to the law which the administrative addressed to "la]ll
in fact,
of enforcing," as the said Circular was, to
rlevenue [o]fficials, [e]mployees[,] and [o]thers [cloncerned"
guide them in the enforcement of income tax and VAT laws against
RMCNo. 35-2012
fees collected by the said clubs. Given its nature,
of the Secretary
is therefore subject to the administrative review1997 NIRC. Thus,
of the
of Finance pursuant to Section 4, Title Iadministrative remedies,
as dictated by the rule on exhaustion of subjected to
the validity of RMC No. 35-2012 should have been first judicial
the review of the Secretary of Finance before ANPC sought rule, when
recourse with the RTC. However, as exceptions to this
are
the issue involved is purely a legal question, or when there
circumstances indicating the urgency of judicial intervention as
in this case where membership fees, assessment dues, and the like
of all recreational clubs would be imminently subjected to income
tax and VAT then the doctrine of exhaustion of administrative
remedies may be relaxed (Association of Non-Profit Clubs, Inc.
|ANPC v. BIR, G.R. No. 228539, June 26, 2019).
A. Classificationof Regulations
1. Rules in the nature of subordinate legislation. - An
administrative in the nature of subordinate legislation is
designed to implement a law by providing its details, and
before it is adopted, there must be a hearing under the
Administrative Code of 1987. When an administrative
rule substantially adds to or increases the burden of those
concerned, an administrative agency must accord those
directly affected a chance to be heard before its issuance
(CIR v. CourtofAppeals, G.R. No. 119761, August 29,
1996).
GENERAL PRINCIPLES
2. Interpretative rules. The rules and regulations
construing or interpreting the provisions of a statute to
be enforced are binding on all
changed. They
concerned until they are
have the effect of law and are entitled to
great respect; they have in their favor the presumption of
legality (Gonzales v. Land Bank of the Philippines,
G.R. No. 76759, March 22, 1990). The erroneous
application of the law by public offcers does not bar a
subsequent correct application (Manila Jockey Club
v. Court of Appeals, G.R. No. 103533, December 15,
1998).
B. Requisites for validity of Regulations

1. It is issued under authority of law (Walter E. Olsen &
Co., Inc. U. Aldanese, G.R. No. -18740, March 29,
1922);
The
2. It must be within the scope and purview of the law. in
power of administrative officials to promulgate rules to
limited
the implementation of a statute is necessarily
enactment. The
what is provided for in the legislative cannot
implementing rules and regulations of a lawpower to
the
extend the law or expand its coverage, as
amend or repeal a statute is vested in the legislature.
n allowed, under
However, administrative bodies are to implement
legislation,
their power of subordinate the statute by "flling in
the broad policies laid down in is that the regulation be
the details. All that is requiredpurposes of the law; that
germane to the objectives and but conforms with the
contract
the regulation does not (Public Schools District
standards prescribed by law de Jesus, G.R. No. 157299,
SupervisorsAssociation v.
June 19, 2006).
are the product of
Rules and regulations, which
new and additional legal
delegated power to create within
a of law, should be
provisions that have the effectauthority granted by the
statutory
the scope of the administrative agency. It is required
legislature to the germane to the objects and
that the regulation be
the law, andthat it be not in contravention
by
to,
law
purposes of
conformity with, the standards prescribed
but in
104
Commissioner of Customs went beyond

In this case, the (CMO 23-2007) limited
when the regulation
his powers mandated by Section 1403 of
the customs officer's duties
amended. The provision
the Tariff and Customs Law, as first assess and
mandates that the customs officer must
article before
determine the classification of the imported 23-2007 has
CMO
tariff may be imposed. Unfortunately,before the customs
already classified the article, even
(Commissioner of
officer had the chance to examine it
Customs v. Hypermix Feeds Corporation, G.R. No.
179579, February 1, 2012).
Section 109(L)of the NIRC, as amended by R.A. No.
9337, provides that sales by agricultural cooperatives
duly registered with the CDA to their members, as well
as sales of their produce, whether in its original state or
processed form, to non-members are exempt from VAT.
Notwithstanding such exemption, COFA paid advance
VAT before the release of the refined sugar that was milled
by the sugar miller from the sugarcane produce delivered
tothe miller by COFA's farmer-members and processed
by the sugar miller under COFA's name. The advance
VAT was required by the BIR claiming that COFA, as
an agricultural cooperative, does not fall under the term
"producer." In declaring that in order to be exempt from
VAT, a cooperative must be the agricultural producer of
its sugar produce, the Commissioner has not engaged
in mere interpretation, but has gone into unauthorized
modification or amendment of the law. Only Congress can
do this. Sections 3 and 4 of Revenue Regulations No. 13
2008, insofar as it imposes this requirement, is, therefore,
ultra-vires and invalid (Negros Consolidated Farmers
80ciation Multi-Purpose Cooperative v. CIR, CTA
Case No. 7994, February 17, 2012).
3. It is reasonable (Lupangco u. Court of Appeals, G.R.
No. 77372, April29, 1988);
4. It must be published in the Official Gazette or in a
newspaper of general circulation, as provided in E.0.
No. 200. However, interpretative rules and regulations,
or those that are merely internal in nature, issued
by administrative superiors concerning the rules and
guidelines to be followed by their subordinates in the
GENERAL PRINCIPLES
Tnherent and Constitutional 105
performance of their duties, may be simply posted in
conspicuous places in
already complies withthetheagency itself. Such posting
publication requirement.
Publication must be in full. or it is no publication at all
(Tañada v. Tuvera, G.R, No. L-63915. April 24, 1985).
5. Where the regulations impose penal sanctions, the law
itself must declare as punishable the violation of the
administrative rule or regulation (People v. Macerer,
G.R. No. L-32166, October 18, 1977), and the law shoula
fix or define the penalty for the violation of the rule or
regulation.
C. Necessity for Notice and Hearing

There is no constitutional requirement for a hearing in the
Dromulgation of a general regulation by an administrative body.
Where the rule is procedural, or where the rules are, in effect, merely
legal opinions,there is no notice required. Neither is notice required
class to be affected
in the preparation of substantive rules where the
the use of discretion
is large and the questions to be resolved involve v. United Harbor
committed to the rule-making body (Corona
111953, December 12,
Pilots Association of the Phil., G.R. No.
1997).
regulations, however, bear directly on the publhc. It is
Many must be restricted in its scope
here that administrative legislation
application. Regulations are not supposed to be a substitute
and
policy-making that Congress enacts in the form of
for the general administrative regulations are entitled to
Although
a public law.
authority to prescribe rules and regulations is
great respect, the of power to make laws (Review Center
source
hot an independent Secretary, G.R. No. 180046, April2, 2009).
Association u. Ecec.
D. Publication Requirement
merely for purposes of internal
circular is
The memorandum BIR and not a regulation within the
administration of the
Code and the Revised Administrative
COntemplation of the Tax needs no publication in the Oficial
circular
Ode. As such. said argued by the petitioners. Section
79(b) of
Gazette as erroneously
Administrative
chiefs of bureaus
Code provides thatinformation for the
the Revised promulgate circulars or
may be authorized to
officers and employees in the interior administration of the business

of each bureau or office, and in such case said circular shall not be
required to be published. When an administrative agency renders
an opinion by means of a memorandum circular, it merely interprets
a pre-existing law and no publication is necessary for its validity.
Construction by an executive branch of government ofa particular
law, although not binding upon the courts, must be given weight as
the construction comes from the branch of government called upon
to implement the law. In this case, the memorandum circular has
the force and effect of law. In fact, the petitioners admitted that
copies of said memorandum were distributed to and received by
them (La Suerte Cigar & Cigarette Factory u. Commissioner,
G.R. No. L-36131, January 17, 1985).
Bar Question (1991)
In view of the unfavorable balance of payment condition and
the increasing budget defcit, the President of the Philippines,
upon recommendation of the National Economic and Development
Authority, issues during a recess of Congress, an Executive Order
imposing an additional duty on all imports at the rate of ten percent
(10%) ad valorem. The Executive Order also provides that the same
shall take effect immediately. Ricardo San Miguel, an importer,
questions the legality of the Executive Order on the grounds that
only Congress has the authority to fix the rates of import taxes and,
in any event, such an Executive Order can take effect only thirty
days after promulgation and the President has no authority to
shorten said period.
Are the objections of Mr. San Miguel tenable?
Suggested answer:
No, the objections are not tenable as the Executive Order
cannot take effect immediately. Being an external lawand having
the effectof law, the Executive Order cannot become effective without
publication, a requirement of due process (Tañada v. Tuvera, G.R.
No. L-63915, April 24, 1985; E.0. 202).
Prospectivity of Rulings
Any revocation, modification or reversal of any of the rules
and regulations or any of the rulings or circulars promulgated by
the CIR shall not be given retroactive application if the revocation,
107
GENERAL PRINCIPLES
Inherent and Constitutional Limitations and Taxing Authority
modification or reversal will be prejudicial to the taxpayerS, except

thefoollowing cases:
in omits
(a) Where the taxpayer deliberately misstates or
material facts from his return or any document required
of him by the Bureau of Internal Revenue;
the Bureau of
(b) Where the facts subsequently gathered by
from the facts
Internal Revenue are materially different
on which the ruling is based; or
acted in bad faith (Sec. 246, NIRC).
(c) Where the taxpayer
statutes, including
The principle is well entrenched that prospectively only,
administrative rules and regulations, operate express
contrary is manifest by
unless the legislative intent to the there is no
by necessary implication. In the present case,
terms or
that the revenue regulation may operate retroactively.
indication
provision stating that it "shall
Furthermore, there is an express all
January 1, 1987," and that it "shall be applicable to
take effect on date." Being clear on itsprospective
on or after the said
leases written
must be given its literal meaning and applied without
application, it
Thus, BLC is not in a position to invoke the
further interpretation.Regulation 19-86 for lease rentals it received
provisions of Revenue Leasing Corp. v. Court of Appeals,
1987 (BPI
prior to January 1,November 18, 2003).
G.R. No. 127624, entitled
contention that Burroughs Ltd. is no longerRevenue
The CIR's profit remittance tax because
branch
torefund of overpaid (RMC) No. &-82 dated March 17, 1982 had
Memorandum Circular of January 21,1980 is without
Ruling
revoked and/or repealed BIR here is still the BIR Ruling of January 21,
merit. What is applicablepaid the tax in question on March 14, 1979.
1980 because respondent 17, 1982 cannot be given retroactive effect
RMCNo. 8-82dated March(now Sec. 246) (prospective application of
327
in the light of SectionCode Burroughs Limited, GR. No.
(CIR v.
rulings) of the Tax
L-66653, June 19, 1986).
makes individual is real regularlyperiod January
April (Income as expressly
subject
fair property accrued, Income, on from
recently actual
a *Pisher(calendar The 3. There
market Generally,
profit employed
2. 1 11, "Income
property,
to
(citizen basis
the Minimum emoluments,
or located v. (Secs. (Secs.RegularPersonal 2021.amended 1, Tax) exempt or or INCOME
incurs value, six Trinidad, year for 2018, are realized
orthere in
presumed
percentalien) in computing 27[E], 27[AJ, These differentof professions, tax"
whichevera the mustkeeping or and th e from
loss Philippines G.R. fiscal
(6%) or corporate corporate income National by during is
from a beNo. the income 28[AJ[2], 28[AJ[1], include: R. A . R.A. taxation. income profits AND
domestic
capital
is an year) INTRODUCTION defined
th e L-17518,
actual
books tax types the trades
higher, No. No. CHAPTERI I
108 sale classifed accordance intax income income and
corporation gains income, of NIRC); NIRC); on 11534Internal taxable(gross as
(See
regardless such shall individuals 10963 of the WITHHOLDING PART II
tax,
October ortax a
Secs. taxpayer
as be income like.'
based capital gain the tax tax or year, oroffices,
30, with CREATERevenue or net) on
24. of (and
or taxpayer's (MCIT) (RCIT) Income all
25. on TRAIN taxes which or
whether the not profit.1922.(Sec. the
asset, (Secs. of
27 a
yearly'
as
method
43, a
and actual foreign the taxpayer
However, NIRC). annual on on 24-25, Law, Law, under th e tax tax a
28, or seller Code
consideration not
corpora of corporations
corporations la w isprofits
on
TAXES
NIkO). the accounting tax a
who accounting
inof NIRC) effective
effe Title received, a
of does direct
per8on's
seller 1sale arising
ctive 1997.
Ir not

TAX Rev Mamalateo 108

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PART I

GENERAL PRINCIPLES AND LIMITATIONS

B. Purposes and Objectives of Taxation

greatly imbued with public interest and stabilization a

Taxation as a Regulatory Measure

Bar Question (2016)

Memorial Park, Inc. v. Secretary of Department of im

The term "license tax" has not acauired a fixed meaning. 1t 19

The Power to Tax involves the Power to Destroy

C. Nature of the Power of Taxation

Bar Question (1996,2003, 2005)

1. Itis an attribute of sovereignty

Bar Question (2004)

1. Taxes are pecuniary in nature.

(Camarines Norte Electric Cooperative u. Torres,

In every case of permissible delegation,there must be a showing

with the basic policy of local autonomy (Pepsi-Cola

D. Tax Distinguished fromOther Impositions

Basis Based on law. Based on contract or

Taxpayer may be No imprisonment for

Mode of Paymnent Generally

Prescriptive Civil Code governs

Bar Question (2005)

2. Tax and Toll

Enforced A sum of money for

No limit as to the Amount of toll

May be imposed May be imposed by the

Fees paid by the public to tollway operators for use of the

TAX LICENSE FEE

Imposed for Imposed for

Imposed under the

Normally paid Normally paid

License fee may

4. Tax and Penalty

Definition Enforced proportional Sanction imposed as a

Purpose Intended to raise Designed to regulate

Authority May be imposed only May be imposed by:

E. Taxation Distinguished from other Inherent Powers of

Taxation Eminent Police

Class of property. Class of

Effect The money There is a There is no

Benefits It is assumed He receives The person

Relationship Is subject Inferior to the Relatively

F. Theory or Underlying Basis of Taxation

Bar Question (2016)

JURISDICTION OVER SUBJECT AND OBJECTS

Bar Question (2016)

Bar Question (1996)

CHARACTERISTICSOF ASOUND TAX SYSTEM

c) Administrative feasibility, which means that the tax

DEFINITION AND ELEMENTSOF AVALID TAX

implied, but positive acts of

6. It is levied for a public purpose.

Bar Question (2004)

liable for the unpaid taxes of

DIRECT TAX AND INDIRECT TAX

Rule on each of ABCCorp.'s contentions. (5%)

3. by the same taxing authority;

Bar Question (2018)

Bar Question (1997)

apparent than real. What is collected under

Bar Question (2004)

Bar Question (1996) estate tax on the premises,