GENERAL PRINCIPLES

Nature or Construction of Tax Laws

1. Tax laws are prospective, generally

Tax laws, like other statutes, are to be construed as having only

a prospective operation unless the purpose and intention of the
legislature to give retrospective effect is expressly declared or is
necessarily implied from the language used. (Lex prospicit, non
respicit)
2. Tax exemptions are to be construed strictly against the
taxpayer

Legal provisions providing for tax exemptions are to be construed

strictly against the grant and liberally in favor of the taxing
power.

Taxation is the rule, exemption is the exception

3. Revenue laws are not political in nature

Our internal revenue laws are not political in nature and as such
were continued in force during the period of enemy occupation,
and in effect were actually enforced by the occupation
government.
4. Non-compensation or set-off

Taxes are not subject to automatic set-off or compensation. The taxpayer

cannot delay payment of tax to wait for the resolution of a lawsuit
involving his pending claim against the government.

XPNs to the general rule:

a. Taxpayer’s claim has already become liquidated, due and demandable
b. Obvious overpayment of taxes
c. Local taxes
5. Imprescriptibility in Taxation

As a general rule, taxes do not prescribe unless the law itself

provides for prescription.
Forms of Escape of Taxation
1. Shifting the burden of the tax

This involves transferring the burden of the tax from the

statutory taxpayer to another without violating the tax law.

A. Forward shifting
B. Backward shifting
C. Onward shifting
2. Capitalization

By not selling property which has increased in value, the owner

avoids the income tax to be paid on the gain if the same is sold.
An increase in the value of an asset is merely an unrealized
increase (gain) in capital.
3. Transformation

The manufacturer or producer upon whom the tax has been

imposed, fearing the loss of his market if he should add the tax
to the price, pays the tax. He then endeavors to recoup the tax
paid by making his production more efficient and lowering his
cost of production.
4. Tax avoidance

It is the scheme where the taxpayer uses legally permissible

alternative method of assessing taxable property or income, in
order to avoid or reduce tax liability.

Also known as TAX MINIMIZATION

5. Tax Evasion

It is the scheme where the taxpayer uses illegal or fraudulent

means to defeat or lessen payment of a tax.

Tax evasion sometimes referred to as “tax dodging”

5. Exemption from Taxation

An exemption from taxation is a grant of immunity, express or

implied, to particular persons or corporations or to persons or
corporations of a particular class, from a tax upon property or an
excise which persons and corporations generally within the same
taxing district are obliged to pay.
Tax vs. License
TAX LICENSE
As to purpose Revenue for the support of the Regulate certain acts, businesses,
government industries or professions
As to source of power An exercise of power of taxation Exercise of police power to guard
and therefore, subject to and safeguard the interest and
constitutional and inherent welfare of the public
limitations
As to amount Unlimited Limited to the cost of regulation and
maintenance of the regulatory body
Tax vs. Special Assessment
TAX
As to scope Imposed upon persons,
properties or privileges
As to basis Based on the necessities of
the government without any
special benefits directly
accruing to the taxpayer
As to person liable Personal liability of the
person
SPECIAL ASSESSMENT
Imposed on land only
Based wholly on the special
benefits to the property assessed
Not a personal liability of the
person assessed
Tax vs. Toll
TAX TOLL
Demand of sovereignty Demand of proprietorship
Paid for support of the government Paid for the use of another’s property
Amount is based on the necessities of the Amount is based on the cost of construction
State or maintenance of the public improvement
used
Imposed by the government May be imposed by government or private
entities
Tax vs. Debt
TAX DEBT
Based on law Based on contract
Generally not assignable Assignable
Generally payable in money May be paid in kind
Generally not subject to set-off or May be subject of set-off or compensation
compensation
Imprisonment is a sanction for non-payment No imprisonment for non-payment
of tax (except poll tax)
Tax Amnesty
Tax amnesty is a general pardon granted by the government for
erring taxpayers to give them chance to reform and to enable
them a fresh start to be part of a society with clean slate.
Tax Compromise
A compromise is an agreement between two or more persons who, to
avoid lawsuit, amicably settle their differences on such terms as they can
agree on.

The Commissioner may compromise the payment of any internal revenue

tax under two instances:

1. When a reasonable doubt as to the validity of the claim against taxpayer

exists
2. When the financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax
Situs of Taxation
Situs of taxation is the place of taxation. It is the tax jurisdiction
that has the power to levy taxes upon the tax object. Situs rules
serve as frames of reference in gauging whether the tax object is
within or outside the tax jurisdiction of the taxing authority.
1. Business Tax situs – businesses are subject to tax in the
place where business is conducted

2. Income tax situs on services – service fees are subject to

tax where they are rendered

3. Income tax situs on sale of goods – the gain on sale is

subject to tax in the place of sale
4. Property tax situs – properties are taxable in their location

5. Personal tax situs – persons are taxable in their place of

residence