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TAXATIONI

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DefinitionofTaxation A mode by which governments make exactions for revenue in order to support theirexistenceandcarryouttheirlegitimateobjectives o CIR v. Algue, Inc: Taxation is the indispensable and inevitable price for civilizedsociety. Mayrefertothepowertotaxortheprocessofexercisingit ConstructionofTaxStatutes ConstruedStrictlyagainsttheGovernment PhilippineHealthCareProviders,Inc.v.CIR: AHealthMaintenanceOrganization cannot be taxed similar to an insurance company for documentary stamp tax because tax statutes are strictly construed against the taxing authority. This is because taxation is a destructive power, which interferes with the personal and propertyrightsofthepeopleandtakesfromthemaportionoftheirpropertyfor the support of the government. Hence, tax laws may not be extended by implication beyond the clear import of their language, nor their operation enlargedsoastoembracemattersitspecificallyprovided.. BasisofTaxation Lifebloodtheory:TaxesarethelifebloodoftheGovernmentandtheirpromptand certainavailabilityareanimperiousneed o CIRv.Algue,Inc:Taxesarethelifebloodofthegovernmentandsoshould it be collected without hindrance. Without taxes, the government would beparalyzed. BenefitsProtectionTheory:Citizenspaytaxesinorderthathemaybesecuredin theenjoymentsofthebenefitsoforganizedsociety NatureofTaxation The power to tax is an inherent prerogative; to assure the performance of vital statefunctions o Bascov.PAGCOR: Wherethepowerofamunicipalcorporationtotaxis withdrawn by a subsequent legislative act, it can no longer exercise the powertotax.Localgovernmentshavenoinherentrighttoimposetaxes; acharterorastatutemustgrantsuchpower. o MactanCebuInternationalAirportAuthorityv.Marcos:TheMCIAAisa taxable person under its Charter, and was only exempted from the paymentofrealpropertytaxes.Thegrantoftheprivilegeisevidenceof legislative intent that it is not exempt from other taxes, such as those imposedbythelocalgovernment. Inherentlylegislative. o Sarasola v. Trinidad: The determination of how the power of taxation will be exercised is vested upon the legislature. Consequently, the legislature also has exclusive authority to give remedies to aggrieved taxpayers. o CIRv.Santos:Wherethewisdomofanexcisetaxonjewelrysales

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Courts do not have the power to inquire into the wisdom of the tax. The courts powerintaxationislimitedonlytotheapplicationandinterpretationofthelaw. However,courtsmaydeterminewhetherthepurposeispublicornot

PurposeandObjectivesofTaxation Revenue:toprovidefundsorpropertywithwhichtheStatepromotesthegeneral welfareandprotectionofitscitizens o Philippine Airlines, Inc. v Edu: PAL was exempt from the payment of taxes. However, the exemption cannot extend to motor vehicle registrationfees,whichareimposedtoraiseadditionalrevenuesforthe government Regulation:taxesalsohavearegulatorypurpose o Tio v. Videogram Regulatory Board: Taxes imposed on processed videotape cassettes cannot be struck down as unreasonable. Such taxes are imposed to regulate the videogram trade. The levy is for a public purposeandisnotconfiscatoryandinrestraintoftrade o Lutz v. Araneta: The taxes imposed on sugar manufacturing on a graduatedbasiswasleviedwitharegulatorypurpose:toprovidemeans for the rehabilitation and stabilization of the threatened sugar industry. Thepowertolevyataxmaybedoneintheexerciseofpolicepower. PromotionofGeneralWelfare:taxesmaybeusedasanimplementofthepolice powerinordertopromotethegeneralwelfareofthepeople o Caltex Philippines v. Commission on Audit: The Oil Price Stabilization Fund was created to regulate the oil industry, which is imbued with public interest as it vitally affects the general welfare. Contributions to theOPSFbyoilcompaniesareavalidlevyforapublicpurpose. Reduction of Social Inequality: taxes makes the reduction of social inequality possible thru the progressive system of taxation, where taxes imposed are based ontheabilitytopay o Tolentino v. Secretary of Finance: The Value Added Tax is equitable. Eventhoughtherateisfixedat10%,itdistributedthetaxburderntoas many goods and services as possible, particularly to those which are withinthereachofhigherincomegroups, Encourage Economic Growth: Taxation can allow the grant of exemptions or incentivestoencourageinvestmentsandpromoteeconomicgrowth o PhilippineCoconutProducersFederationv. PCGG: Thesequestrationof coconut levy funds did not have the effect of converting the fund to a privateone.Thesequestrationwasdoneintheexerciseofpolicepower tosustainthegrowthofcoconutindustry. Protectionism: taxes provide protection to local industries by taxing foreign imports o PhilippineHealthCareprovidersv.CIR:Toimposedocumentarystamp tax on PHCP is highly oppressive considering that its main object is to providethemembersofagroupwithhealthservicesatcost.

TAXATIONI

PersonsAffected

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ScopeofTaxation Everytrade,occupation,objectofindustry,use,enjoyment,speciesofpossession Itisunlimited,plenary,comprehensiveandsupreme Tanv.DelRosario:Thelegislaturehasthepowertochoose: o Thepersons,property,oroccupationtobetaxed o Theamountorrateofthetax o Thepurposesforwhichtaxesshallbelevied(mustbeforthepublic) o Thekindoftaxtobecollected o Theapportionmentofthetax(generalorlocal) o Situsoftaxation o Themethodofcollection PrinciplesofaSoundTaxSystem Fiscaladequacytaxshouldcoincidewiththeexpenditures;neitherexcessivenor deficient Theoretical justice tax should be fair to the average taxpayer and based upon hisabilitytopay Administrative Feasibility capable of being properly and efficiently administeredbythegovernmentwithleastinconveniencetothetaxpayer Effect of nonobservance: will not render the tax void. The constitution only requirestaxtobeequitable. TaxationDistinguishedfromPolicePower Asto: Taxation PolicePower Purpose Revenue PromotePublicWelfare Amount of NoLimit Only to cover the cost of regulation, Exaction issuanceofthelicense,orsurveillance Benefits Nodirectbenefit Nodirectbenefit Received Protectionofhisperson, EconomicStandardofsociety property and the welfareofall Nonimpairment Subsists Limitationdoesnotapply ofContracts Transfer of Taxes become part of No transfer; but only restraint on the PropertyRights publicfunds exerciseofpropertyrights TaxationDistinguishedfromEminentDomain AsTo Taxation EminentDomain Nature of Power Toraisepublicrevenue To make property available for Exercised publicuse Compensation General benefit for all Just compensation to property Received citizens owner Nonimpairment Subsists Limitationdoesnotapply ofContracts PersonsAffected All persons, property, and Onlyparticularproperty excises that may be

SororeLexAtheneum
All persons, property, and Onlyparticularproperty excises that may be subjectedthereto

JayZ

TaxesDistinguishedfromotherimpositions Tollisademandofownership;anamountchargedforthecostandmaintenanceof propertyused;Taxisademandofsovereigntyforthepurposeofraisingrevenue Penaltyisapunishmentforthecommissionofacrime;Taxisacivilliabilitywhich maygiverisetocriminalliabilityifitremainsunpaid o RepublicofthePhilippinesv.Patanao: Theacquittalofthetaxpayerin criminalproceedingsdoesnotautomaticallyexoneratethetaxpayerfrom theliabilitytopay.Taxesarenotaconsequenceofthechargesincriminal proceedings, nor are it civil liability that may be wiped out due to the nonexistence of the criminal charge. Rather, taxes are in the nature of civilliabilities,thefailuretopay,maybeabasisforcriminalaction. Compromise or compromise penalty is an amount that is collected as a compromiseinlieuofcriminalprosecutioninvolvingtaxviolations Special assessment (The Apostolic Prefect of the Mountain Province v. TreasurerofBaguio): o Leviedonlyonland o Cannotbemadeapersonalliabilityofthepersonassessed o Basedonbenefit o Exceptionalbothastotimeandlocality(itdoesnothavetobeuniform) LicenseFeeemanatesfrompolicepowerwiththepurposeofregulation. o ThreeKinds Fortheregulationofusefuloccupations For the regulation / restriction of nonuseful occupations or enterprises Forrevenue o VictoriasMillingCo.,Inc.v.CIR:Amunicipalityisauthorizedtoimpose threekindsoflicenses: Licenseforregulationofusefuloccupations/enterprises Licenseforrestriction/regulationofnonuseful occupations/enterprises Regulationandrestrictionlicensesareforgeneral welfarepurposeandareintheexerciseofpolice power Licenseforrevenueemanatesfromtaxingpower o G.A.Cuunjiengv.Patstone:Theamountchargedforthelicensefeemust besufficienttocovertheexpensesoftheissuanceofthelicenseandthe costsofinspectionandsurveillance. o PhysicalTherapyOrganizationofthePhilippinesv.MunicipalBoard oftheCityofManila:Theimpositionofhigherratesforlicensesfornon usefuloccupations/enterprisesthantheusefulonesisjustified,sincethe purposeoftheformerisrestriction,andthepurposeofthelatteris regulation.

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ProgressiveDevelopmentCorporationv.QuezonCity:Alicensefee mustrelatetoanoccupationoractivitythatengagesthepubicinterestin health,morals,safetyanddevelopment,astorequireregulation. Marginfeeisacurrencymeasuredesignedtostabilizethecurrency Debtisanobligationimposedbyacontract o CaltexPhilippines,Inc.v.COA:Ataxisaforcedchargeimposedbythe government.Itisnotadebtthatarisesfromacontract;thus,itcannotbe offset/compensated. o Domingov.Garlitos:Theruleprohibitinglegalcompensationbetween taxesowedtothegovernmentmaybesetasideifequitysorequires.In thecaseoftaxpayersassessedofinheritancetaxoverpropertytheysold tofarmersatcosttobepaidbythegovernment,legalcompensationmay apply. Regulatorytaxes Subsidy is a legislative grant of money in aid of a private enterprise deemed to promotethepublicwelfare Customs Duties and Fees are duties charged upon commodities on their being importedinorexportedfromacountry Revenueisbroaderthantaxes,asitincludesincomefromothersourcesaswell Tributeissynonymouswithtax Impost signifies any tax, usually pertains to duties on imported goods and merchandise o

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ClassificationofTaxes AccordingtosubjectmatterorObject o Personal Tax capitation or poll taxes, of a fixed amount upon all persons if a certain class within the jurisdiction of the taxing power withoutregardtohisproperty,businessoroccupation(communitytax) o Property Tax taxes assessed on all property or property of a certain classwithinthejurisdictionofthetaxingpower(realestatetax) o Villanuevav.CityofIloilo:Alicenseisimposedontheoperationofa business,whilerealestatetaxesareimposedontheproperty. RealPropertyTax LicenseTax Directtaxonownershipoflands, Taxonthe payableregardlessofuse business/occupation Single/indivisible;though Nointerventionofassessors improvementsmayalsobeassessed Fixedproportionoftheassessed Differentrates valueofthepropertytaxed Itisasuperiorlienandisenforceable Enforceableagainstthe againsttheproperty operators o AssociationofCustomsBrokers,Inc.v.MunicipalityBoardofManila:If ataxisinitsnatureanexcise,itdoesnotbecomeapropertytaxbecause itisproportionedinamounttothevalueofthepropertyusedin connectionwiththeoccupation,privilegeoractwhichistaxed.Stated differently,anadvaloremtaxisnotnecessarilyapropertytax.

AccordingtoBurden o Direct Tax taxes wherein both the liability for the payment of tax as wellastheimpactorburdenofthetaxfallsonthesameperson(income tax) o IndirectTaxwhereintheliabilityforpaymentfallsononeperson,but theburdenthereofcanbeshiftedtoanother(excisetaxes) o Silkair[Singapore]PteLtdv.CIR: Anexcisetaxisanindirecttaxwhere the tax burden can be shifted to the consumer, but the tax liability remainswiththemanufacturerorproducer.Indirecttaxesarethosethat are demanded from, or ar paid by, one person in the expectation and intention that he can shift the burden to someone else. In the refund of indirect taxes, the statutory taxpayer is the proper party who can claim therefund. o ContexCorporationv.CIR:AnonVATtaxpayerisexemptfromthe liabilityforVAT,butisnotentitledtoataxcreditorrefund.Rather,its suppliersaretheproperpartiestoclaimthetaxcredit,andthenrefund thecredittothenonVATtaxpayer,asitshiftedtheburdenofpayment. AccordingtoPurpose o Generalleviedforthegeneralorordinarypurposesofthegovernment (internalrevenue) o Specialleviedforaspecialpurpose o Excisetaxprivilegetaxlaiduponthemanufacture,sale,orconsumption ofcommodities o Customs Duties duties charged upon commodities upon being importedintoofexportedfromthecountry AccordingtoDeterminationofAmount o Specific imposes a specific sum by the head or number or by some standard of weight or measurement and which requires no assessment beyondalistingandclassificationofthesubjectstobetaxed(sintaxes) o AdValoremtaxuponthevalueofthearticleorthingsubjecttotaxation (propertytax) AccordingtoScopeorAuthorityimposingthetax o Nationalleviedbythenationalgovernment o Localleviedbythelocalgovernments Accordingtograduation o Progressive imposed whereby the rate or amount of tax increases as theamountoftheincometobetaxedincreases(individualincometax) o Regressivethetaxratedecreasesastheamountofincomeorearningto betaxedincreases o Mixedthetaxratesarepartlyprogressiveandpartlyregressive o Proportionate the tax rates are fixed, either in amounts or in percentage,onaflatratebasis

InherentLimitations: PepsiColav.MunicipalityofTanauan:Thepoweroftaxationispurelylegislative andcannotbedelegatedtotheexecutiveorjudicialdepartmentofthegovernment withoutinfringinguponthetheoryofseparationofpowers

TAXATIONI
Taxationisforapublicpurpose o ForthesupportoftheStateorforsomerecognizedobjectsofgovernment ordirectlytopromotethewelfareofthecommunity o IncidentaladvantagetotheStatedoesnotjustifytax=void o Itisnotnecessarythataparticulartaxpayerreceivesimmediatebenefit o Itisbotharegulatoryandrevenuemeasure o Tests: Whetherthethingtobefurtheredbytheappropriationofpublic revenueissomethingwhichisthedutyoftheStatetoprovide Whether the proceeds of the tax will directly promote the welfareofthecommunityinequalmeasure o Intheimpositionoftaxes,publicpurposeispresumed o Citizens Alliance for Consumer Protection v. Energy Regulatory Board: TheOPSFisnotafundtosustainthelossesoftheoilcompanies. Infact,theOPSFwasleviedforapublicpurposetostabilizethepriceof oilduetothechangesintheexchangerate. o Tio v. Videogram Regulatory Board: Taxes imposed on processed videotapeareimposedtoregulatethevideogramtrade.Thelevyisfora publicpurposeandisnotconfiscatoryandinrestraintoftrade NondelegabilityoftheTaxingPower o ItisaninherentpowerofsovereigntylodgedintheLegislature o Thefollowingcannotbedelegated: To determine the nature (kind), object (purpose), extent (amount/rate)andsitus(place)ofthetax Togranttaxexemptionsorcondonations To specify or provide for the administrative and judicial remediesthatthegovernmentandtaxpayersmayavailofinits implementation o Exceptions WhenallowedbytheConstitutionorotherlaws Delegationoftaxadministration Rulemakingpower Collectionoftaxes Equalizationofassessmentsbyacentralbody Onlyinfavoroflocalgovernments o People v. Vera: The power to make laws is vested in the legislature. However, the legislative may delegate its powers to local authorities providedthestatuteauthorizingthedelegationiscompleteandprovides a standard to prevent local authorities from exercising arbitrary discretion. o Manila Electric Co. v. Province of Laguna: Local Governments do not have the inherent power to tax except to the extent that such power mightbedelegatedtothemeitherbythebasiclaworbystatute. Territoriality it can only be exercised within the territorial jurisdiction of the taxingauthority o BasicConsiderations

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Protection a legal situs cannot be given to property for the purpose of taxation where neither property nor the person is withintheprotectionofthetaxingstate DoubleTaxationisnotinvalidwhereitisimposedbydifferent states Movablesfollowtheperson Legislativepowertofixsitus o Forpolltaxesthetaxsitusistheresidenceofthetaxpayer o Forpropertytaxeswherethepropertyissituated o For excise taxes Generally the place where the privilege is exercised. Others:wherethetaxpayerisanationaloforwherehehashisresidence Iloilo Bottlers v. City of Iloilo: Excise taxes on distributors of soft drinks can be levied if the business is done or performed withinthejurisdictionofthetaxingauthority. TaxExemptionofthestate o General Rule: The State and its municipal subdivisions devoted to Government uses and purposes are exempt from taxation, even though thereisnoexpressprovisioninthelaw o Exception:IftheGovernmentallowsitselftobetaxed o Maceda v. Macaraig: Law granted NAPOCOR exemption from paying taxes is a matter of public policy. If the exemption is not granted, the revenue due to the government may increase, but the power rates chargedtotheconsumerswouldalsoincrease. Taxationissubjecttointernationalcomity o Limitstheauthorityofagovernmenttoimposetaxesonasovereignstate and its instrumentalities, properties, and activities undertaken in its sovereigncapacity o Rooteduponreciprocity o Tanada v. Angara: The WTO became part of the law of the land. A portionofsovereigntymaybewaivedwithoutviolatingtheconstitution, basedonthegenerallyacceptedprinciplesofinternationallaw. Effectofviolation:Mayamounttoacontraventionofthedueprocessclause(taking ofproperty). Lawfulexerciseofpower: o Taxisforapublicpurpose o Theruleonuniformityoftaxationisobserved o Either the person or property taxes is within the jurisdiction of the governmentlevyingthetax o Intheassessmentandcollectionofcertaintaxes,noticeandopportunity forhearingareprovided

ConstitutionalLimitationsintendedtoregulate&definethepowertotax,notgrantit DirectLimitations: o Dueprocess(ArticleIII,Section1) Tanv.DelRosario: Thesimplifiednetincometaxationscheme cannot be struck down as inequitable. The congress has the prerogative to shift the income tax system to the scheduler

TAXATIONI
approach;andabsentaclearcontraventionofconstitutionalor inherentlimitations,aviolationofthedueprocessclausecannot beinvoked. PepsiCola v. Municipality of Tanauan: The delegation of the power to tax to local governments is not a violation of the due process clause because the tax imposed was for a public purpose, it was uniform, the taxable entity was within the jurisdictionofthelocalgovernment,andnoticeandopportunity forhearingwereprovided Equalprotectionofthelaw(ArticleIII,Section1) Sison v. Ancheta: Taxpayers may be classified into different categories, provided there is ample justification to do so. Tax imposed on compensation and business income by the NIRC may be different due to factors such as overhead expenses (in caseofbusinesses)anduniformcosts(astocompensation) Tan v. Del Rosario: Uniformity of taxation, like the concept of equalprotectiondoesnotprohibitedclassification,provided: The standards that are used are substantial and not arbitrary The categorization is germane to achieve the legislativepurpose Thelawappliestobothpresentandfutureconditions Theclassificationappliesequallytoallthosebelonging tothesameclass Uniformity, equitability and progressivity of taxation (Article VI, Section 28(1)) Uniformity requires that all subjects or objects of taxation, similarlysituatedaretobetreatedalikeorputonequalfooting bothinprivilegesandliabilities Inequality results when on particular class is singled out for taxationorexemptions(unconstitutional) Classificationispermitted: If standards used therefor are not arbitrary but reasonableandsubstantial Itgermanetoachievethepurposeoflegislation Itappliestobothpresentandfutureconditions,other circumstancesbeingequal Noninfringementofreligiousfreedomandworship(ArticleIII,Section5) American Bible Society v. City of Manila: The constitutional guarantee of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religiousinformation.ToprohibittheSocietyfromsellingbibles becauseitdidnotobtainaMayorspermitandmunicipallicense wouldconstituteanimpairmentofitsrightsofdisseminationof religiousbeliefs. Nonimpairmentofcontracts(ArticleIII,Section10)

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o o

o o

Philippine American Life Insurance v. Auditor General: The freedom of contracts may be limited by certain regulations enacted by the State in the exercise of its police power, for the furtherance of public interest. The margin law was enacted in the exercise of police power and for a public purpose: to stabilizethecurrency. Tolentino v. Secretary of Finance: The imposition of VAT on contractsinvolvingthesaleofrealestateisnotunconstitutional. Between the power of the state to tax and the contract clause, thelattermustyield. Nonimprisonmentfornonpaymentofpolltax(ArticleIII,Section20) Poll tax levied on persons who are residents within the territory of the taxing authority without regard to their property,businessoroccupation Animpositionofafineorevenimprisonmentforanyviolation otherthannonpaymentwouldnotbeunconstitutional Limitation on congressional power to delegate to the President the authority to fix tariff rates, import and export quotas, etc (Article IV, Section28(2)) Tax exemptions of properties actually, directly, and exclusively used for religious,charitable,andeducationalpurposes(ArticleIII,Section28(3)) The exemptions covers property taxes only; special levies or assessmentsarenotcovered Thetermexclusivelymeansprimarily,notsolely Incidentaluseiscovered,commercialisnot TestofExemption:characterofuse Allappropriation,revenue,ortariffbillsmustoriginateexclusivelyfrom theHouseofRepresentatives,buttheSenatemayproposeorconcurwith amendments(ArticleVI,Section24) Guingona v. Carague: The automatic appropriation for debt serviceisnotaviolationoftheconstitutionbecausetheamount payableisdeterminable.Furthermore,existinglaws,priortothe adoptionoftheConstitutionshallremainineffectuntiltheyare repealedorrevoked. Tolentinov.SecretaryofFinance:TheVATbilloriginatedfrom the House of Representatives and the Senate merely proposed amendmentsviaconsolidation. Voting requirement in connection with the legislative grant of tax exemption(ArticleVI,Section28(4)) ConcurrenceofamajorityofalltheMembersoftheCongress. TheCongressshallevolveaprogresssystemoftaxation Tolentinov.SecretaryofFinance:Whatcongressisrequiredto doistoevolveaprogressivesystemoftaxation.Itismerelya directive. NonimpairmentoftheSupremeCourtsjurisdictionintaxcases(Article VIII,Sections2and5)

TAXATIONI
Exemption from taxes of the revenues and assets of educational institutions including grants, endowments, donations or contributions (ArticleXIV,Section4(34) o PowerofLocalGovernmentstotax(ArticleX,Section5) Bascov.PAGCOR: Wherethepowerofamunicipalcorporation to tax is withdrawn by a subsequent legislative act, it can no longer exercise the power to tax. Local governments have no inherentrighttoimposetaxes;acharterorastatutemustgrant suchpower. ManilaElectricCo.v.ProvinceofLaguna: LocalGovernments donothavetheinherentpowertotaxexcepttotheextentthat suchpowermightbedelegatedtothemeitherbythebasiclaw orbystatute. IndirectLimitations o The power of the President to veto any particular item or items in an appropriation,revenue,ortariffbill(ArticleVI,Section27(2)) o No money shall be paid out of the Treasury except in pursuance of an appropriationmadebylaw(ArticleVI,Section29(1)) o No appropriation of public money or property shall be made for the benefitofanychurch,sect,orsystemofreligion(ArticleVI,Section29(2)) o Moneycollectedonataxleviedforapublicpurposeshallbepaidoutfor suchpurposeonly(ArticleVI,Section29(3)) Osmena v. Orbos: The Oil Price Stabilization Fund is a trust account established for the purpose of minimizing frequent pricechangesbroughtaboutbytheexchangerateadjustment. o o

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OtherRecognizedLimitations ReconciliationofConflictingInterestsofTaxAuthoritiesandTaxpayers o Roxas v. CTA: The power to tax is often referred to as the power to destroy. The power to tax must be exercised with caution. In a case where real estate inherited is resold to farmers at cost (which the government should have done_, the sellers should no longer be held liableforthepaymentofrealestateanddealerstax. ProspectiveApplication o Lorenzov.Posadas: Astatuteshouldbeconsideredasperspectiveinits operation,unlessthelanguageofthestatuteclearlydemandsthatitshall haveretroactiveeffect. PromptnessinPayment o Philippine Guaranty Co. v. CIR: Income taxes are withheld, although contested,toavoidunduedelayinthecollectionoftaxes.Iftaxpayersare given the opportunity to contest their tax liabilities before they are collected,thereisapossibilityofcollusionandevasionofitspayment. Injunctionagainstcollectionoftaxes o CIRv.Yuseco: TheCTAisnotvestedwiththeauthoritytoissuewritsof prohibitionorinjunctionsinitsoriginaljurisdiction.Itcanonlydosoin appealedcases.

Churchill v. Rafferty: An injunction against the collection of taxes will notprosper.Infact,nocourtwillentertainansuitassailingthevalidityof a tax law until the taxpayer has paid the tax due, under protest. The legislature provided that the remedy in cases of allegedly illegal tax wouldbetopaythetaxunderprotest,thenseekrecoveryoftheallegedly illegalamountpaid InapplicabilityofEstoppelagainsttheState o PhilippineNationalOilCo.v.CA: Thegovernmentsabilitytoservethe people depends upon taxation. To safeguard such interest, estoppel cannot apply against the government for the mistakes, errors, and negligenceofitsofficers. o Secretary of Finance v. Oro Maura Shipping: It is axiomatic that the governmentcannotandmustnotbeestoppedinmattersinvolvingtaxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. It should be collected withoutunnecessaryhindranceordelay. NoLegalCompensationbetweentaxesanddebts o CaltexPhilippinesv.COA: Taxescannotbethesubjectofcompensation 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, contractorjudgmentasisallowedtobesetoff.(1992) o Domingov.Garlitos:Legalcompensationwasallowedbetweenclaimsof anestateagainstthegovernmentfor262Kandclaimsofthegovernment against the estate for inheritance tax, because both have been long overdue.(1963) PrincipleofSolutioIndebiti o FilinvestDevelopmentCorporationv.CIR:Wherethecompanyagreed toataxdeductioninlieuofarefundoftaxeserroneouslypaid,itsrightto recovertheexcesstaxpaidcannotbesaidtohaveprescribedifitincurs businesslossesinthefollowingyears.Inthefieldoftaxationwherethe State exacts strict compliance upon its citizens, the State must likewise deal with taxpayers with fairness and honesty. The harsh power of taxation must be tempered with evenhandedness. Hence, under the principle of solutio indebiti, the Government has to restore to the companythelattererroneouslypaid.

DoubleTaxation Double taxation means taxing the same property twice when it should be taxed only once; that is, taxing the same person twice, by the same jurisdiction for the samething. City of Manila v. CocaCola Bottlers Philippines, Inc: For there to be double taxation,thetwotaxesmustbeimposedonthesamesubjectmatter,forthesame purpose, by the same taxing authority, within the same jurisdiction, during the sameperiod(time),andthetaxesareofthesamekindandcharacter(SPAJTC) Alsocalledduplicatetaxation Thereisnoconstitutionalprohibitionagainstdoubletaxation

TAXATIONI

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KindsofDoubletaxation Directduplicatetaxationalsodoubletaxationintheobjectionableorprohibited sense;Wherethetaxburdenandthetaxliabilityisimposedonthesameentity o Thesamepropertyistaxedtwicewhenitshouldbetaxedonlyonce o Both taxes are imposed on the same property or subject matter for the samepurpose o Imposed by the same State, Government or taxing authority within the samejurisdiction o Duringthesameperiod Indirectduplicatetaxationoppositeofdirectduplicatetaxation.Wherethetax liability is imposed on a certain person and the tax burden is shifted to another. Examples: o Taxondifferentbusinessesthoughcarriedoninthesamefactory o Taxonabusinessoroccupationandataxonthelandorproperty o Realestatetaxontenementsanddealerstaxontheleaseofsaidproperty o Licensefeesandtaxesonthesamebusinessoroccupation o Localtaxesandlicenses o Taxontheoccupationoffishingandtaxonthefishponditself MeansemployedtoavoidDoubleTaxation Impositionoflowertaxrates o On dividend income earned in the Philippines by a nonresident foreign corporation,thetaxis15%,not35%(Sec.25b5BoftheTaxcode) o Vanishing deduction in the case of estate tax law transferred, in accordancewiththeconditionsoflaw Taxcreditscheme o Forvalueaddedtax(VAT),wherethetaxoninputgoodsaredeductedfro taxesofoutputgoods o For foreign tax credit, where the tax paid or the maximum allowable foreign tax credit, whichever is lower is deducted from the total income taxtobepaid(notavailabletononresidentFilipinos In the case of nonresident Filipinos, the tax relief comes in the form a reduced incomeastaxbasis,whichistheforeignincomereducedbytheforeigntax. TaxExemptions Itisagrantofimmunity,expressorimplied,toparticularpersonsorcorporations fromtheobligationtopaytaxes KindsofTaxExemptions ConstitutionalExemptionsimmunitiesfromtaxationwhichoriginatefromthe Constitution StatutoryExemptionsthosewhichemanatefromlegislation ExpressExemptionsexpresslygrantedbyorganicorstatutelaw Implied Exceptions exist whenever particular persons, properties, excises are deemedexemptfromtaxastheyfalloutsidethescopeofthetaxingpower Totalexemptionconnotesabsoluteimmunity PartialExemptionisonewherecollectionofapartofthetaxisdispensedwith

SororeLexAtheneum

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PrinciplesGoverningTaxExemptions Taxationistherule,taxexemptionistheexception Theburdenofproofrestsuponthepartyclaimingtheexemption Proofofexemptionmustbeclearandconvincingproof Taxexemptionsarestrictlyconstrued Constitutionalgrantsoftaxexemptionareselfexecuting Taxexemptionsarepersonal Deductions for income tax partake the nature of tax exemptions, and must be strictlyconstrued Quezon City v. ABSCBN Broadcasting Corporation: Taxes are what civilized people pay for civilized society. Thus, statutes granting tax exemptions are construed strictissimijurisagainstthetaxpayerandliberallyinfavorofthetaxing authority.Aclaimoftaxexemptionmustbeclearlyshownandbasedonlanguage inlawtooplaintobemistaken ExamplesofTaxExemptions Taxonpersonscommunitytaxshallnotbecollectedfromtransientvisitorswho stayinthePhilippinesfornotmorethanthreemonths TaxonpropertyrealpropertytaxonpropertiesoftheGovernmentshallnotbe taxed,provideditsbeneficialuseisnottransferredtoataxableperson Tax on Excises and Privileges sale or importation in their original state of agriculturalandmarinefoodproductsareexemptfromvalueaddedtax TaxexemptPersonsRequiredtokeepbooksofaccount Taxexemptpersonsarenotjustifiedinthenonkeepingofbooksofaccountsand otheraccountingrecords Such shall be subject to examination by the Bureau of Internal Revenue for the purposes of ascertaining compliance with the conditions under which they have beengrantedtaxexemptionsorincentives,andtheirtaxliability,ifany TaxCondonation/Remission SurigaoConsolidatedMiningCo.,Inc.v.CIR: Thecondonationofataxliabilityis in the nature of a tax exemption. Being so, it should be sustained only when expressedinexplicitterms,anditcannotbeextendedbeyondtheplainmeaningof those terms. It is the universal rule that he who claims an exemption from his shareofthecommonburdenoftaxationmustjustifyhisclaimbyshowingthatthe legislatureintendedtoexempthimbywordstooplaintobemistaken TaxAmnesty CIR v. Marubeni Corporation: A tax amnesty is a general pardon or intentional overlookingbytheStateofitsauthoritytoimposepenaltiesonpersonsotherwise guilty of evasion or violation of a revenue or tax law. It partakes of an absolute forgivenessorwaiverofthegovernmentofitsrighttocollectwhatisdueitandto givetaxevaderswhowishtorelentachancetostartwithacleanslate. A tax amnesty must be construed strictly against the taxpayer and liberally in favorofthetaxingauthority Hewhoclaimsanamnestyhastheburdenofjustifyinghisclaim

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TaxAvoidanceandTaxEvasion Taxavoidance o Minimizationoftaxliabilitiesthrulegalmeans o Example:donationofassetstoaneducationalinstitution o Requisitesforexemption: Doneeinstitutionisaschool,college,oruniversity It is incorporated as a nonstock, nonprofit entity paying no dividends Itisgovernedbytrusteeswhoreceivenocompensation Allitsincomeisdevotedtotheaccomplishmentandpromotion ofthepurposesenumeratedinthearticlesofincorporation Not more than 30% of the gift shall be used by the donee for administrativepurposes o NotforbiddeninPhilippinejurisdiction o Delpher Trades Corporation v. IAC: The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoidthem,bymeanswhichthelawpermits,cannotbedoubted.Thelaw providesthatnogainorlossshallberecognizedifapersonexchangeshis propertyforsharesofstockinacorporation.Consequently,suchperson will not be liable for capital gains tax. Such exchange is a form of estate planning, which is the disposition of property with the purpose of maximizing the value of an estate thru reduction of expenses and taxes. Estateplanningisanexampleoftaxavoidance. TaxEvasion o Minimization of tax liabilities thru illegal means and when availed of, usually subjects the taxpayer to further or additional civil or criminal liabilities o Elements: Theendtobeachieved:thepaymentoflessthanthatknownby thetaxpayertobelegallydue;orthenonpaymentoftaxwhen itisshownthatataxisdue Anaccompanyingstateofmind,whichisdescribedasbeingevil, inbadfaith,willful,ordeliberate Acourseofactionorfailureofactionwhichisunlawful o CIRv.TheEstateofBenignoToda:Whereacorporationsellspropertyto anindividual,whosoldthepropertytoanothercorporationonthesame day, the transaction is deemed a form of tax evasion. The intermediary transaction sought to decrease the tax supposedly payable by the corporationat35%,bymakingitappearthatthegainonthesalepertain totheindividual,taxableat532%. o Fraud is a serious charge and must be proved by clear and convincing evidence o Fraudulentv.FalseReturn Aznarv.CourtofTaxAppeals: Fraudcannotbepresumedbut must be proven. Fraudulent intent could not be deduced from mistakes, however frequent they may be, especially if such mistakes emanate from erroneous entries or erroneous

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classification of items in accounting methods utilized for determination of tax liabilities. A false return implies deviation from the truth, whether intentional or not. A fraudulent return implies intentional or deceitful entry with intent to evade the taxesdue. PrescriptioninTaxCases GeneralRule:Prescriptionappliesintaxcases Ratio (Republic of the Philippines v. Ablaza): It is beneficial to the government because tax officers would be forced to act promptly in making the assessment, and to the citizens because after the lapse of the period of prescription, citizens wouldhaveafeelingofsecurityagainstunscrupuloustaxagents. Exception: When the suit is not for the recovery of internal revenue taxes erroneously,excessively,illegally,orwrongfullycollected. o CIR v. Philippine National Bank: PNBs tax credit arose from an advancedpaymenttobeusedforthesettlementoffuturetaxobligations. However, the tax credit was not utilized because it did not incur tax liabilities due to its financial losses. Absent provisions in the law, a 10 year prescriptive period shall apply (according to the Civil Code Art. 1144,obligationscreatedbylaw)