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Cebu Portland Cement v. CTA, L-29059, 15 Dec 1987, 156 SCRA 535
(Lifeblood of the Government) [1] x
Mun. of Makati v. CA, et al, GR No. 89898, 01 Oct 1990, 190 SCRA 206
(Exempt from execution) [2] x
CIR v. Algue, Inc., et. al., L-28896, 17 Feb 1988, 158 SCRA 9 (Rationale is
Symbiotic Relationship; timeliness of assessment/collection) [3] x
BPI Family Savings Bank v. CA, et al, L-122480, 12 Apr 2000 (Mutual
observance of fairness & honesty)[4] x
Principles of a Sound Tax System
o Fiscal Adequacy
o Theoretical Justice
o Administrative Feasibility
o Will the observance of these principles invalidate the tax law? No, unless other inherent
and constitutional limitations are infringed.
Scope of Taxation
No attribute of sovereignty more pervading; unlimited, plenary, comprehensive
and supreme
Wide spectrum of the power to tax reaches every trade, or occupation, every
object of industry, use or enjoyment, every species of possession
Imposes burden, if not followed could result to seizure and penalty
Pervasive affecting constantly and consistently all relations of life
It also involves the power to destroy per Justice Marshall [ but Justice Holmes
said no while the US SC sits.]
Power to tax involves power to destroy
• CIR v Tokyo Shipping Co. L-68252, 26 May 1995[33] x [Claim for
refund of tax on GPB from charter of vessel; claim for refund construed
strictissimi juris finding of fact by CTA that vessel left without sugar
laden; 15 years lapsed without refund though at one point lawyer of BIR
said it was approved; kill the goose that lay the golden eggs]
Limitation of Taxation
Inherent Limitations
• Public purpose
• Legislative in nature
• Territorial
• International Comity
o CIR v Mitsubishi Metal Corp, GR No. 54908 & 80041, Jan 22,
1990 (Exemption of Japanese govt owned bank does not extend to
Jap corp who in turn lent the loan to a local company; exemption
construed strictissimi)
• Exemption of government from tax
Constitutional
• Directly affecting taxation
o non-imprisonment for non payment of poll tax
o rule of taxation should be uniform and equitable; progressive
system taxation to evolve
o authorized President to fix limits by Congress
o exempt charitable and religious institution from property tax
o exempting law must be passed by majority of the all members of
Congress
o special purpose tax should be used for said purpose and excess to
revert to general fund
o veto power of the president
o review power of the SC
o grant of power to local government
o exemption from taxes on assets and revenues of non-stock non-
profit education institution, etc from taxes
• Indirectly affecting taxation
o Due Process and Equal Protection Clauses
o police power and eminent domain higher can override
constitutional rights, subject to limitations
• Distinguish Taxation from Police Power and Eminent Domain
o Taxation is subordinate to
a. Due process
b. Separation of church and state
c. Non-impairment clause of contracts
d. Free exercise and enjoyment of religious profession
• Cases:
o Phil Bank of Communications v. CIR, et al, GR 119024, 28 Jan
1999 (Summary collection does not infringe due process) [5] x
o Sison v. Ancheta, GR 59431, 25 Jul 1984, 130 SCRA 654
(Uniformity, Equal Protection and Due Process Clauses not
violated BP 135 adopting gross income taxation) [6] x
o Reyes v. Almanzor, 196 SCRA 322 (Arbitrary valuation violated
Due Process)[7] x
o Nitafan et. al. v CIR, GR No. 78780, Jul 23, 1987 (Salaries of
justices & judges are not exempt from income tax)
o PAL v. Sec of Finance, GR 115852, Aug 25, 1994 (Withdrawal
of PAL’s exemption from VAT without being mentioned in title
not violative of bill embracing one subject)
o Tolentino v. Sec of Finance & CIR, GR 11545, 65 SCAD 352,
249 SCRA 248 (Does VAT law violate the “progressivity rule of
taxation” given that VAT is regressive?; equality & uniformity
rule?)
o ABAKADA Guro v. Exec Secretary, GR 168056, etc., Sep 1,
2005 & Oct 18, 2005
o
Aspects of Taxation
Levy
• CIR v Botelbo Shipping Corp 20 SCRA 487[8] x
• Tan v Del Rosario, Jr., 237 SCRA 324 (1994[3]) [Legislative
discretion to determine nature (kind), object (purpose), extent (rate),
coverage (subject), \and situs (place) SNITS is valid; ][9] x
Assessment & collection
Payment
Classification of Taxes
According to subject matter (Capitation Tax, Property Tax, Excise Tax)
According to burden or incidence [Direct or Indirect]
• Maceda v Macaraeg 223 SCRA 217[10] x
• ABAKADA Guro v. Exec Secretary, GR 168056, etc., Sep 1, 2005 &
Oct 18, 2005
According to determination of amount [Ad valorem or specific]
• Tan v Mun of Pagbilao, GRL-14264, Apr 30, 1963, 7 SCRA 887[11] x
According to purpose [General or special]
• PAL v Romeo Edu, GR 41383, 15 Aug 1988, 164 SCRA 320 (exempt
from taxes)[12] x
• ESSO Std Eastern v CIR GR 28508-9, 7 Jul 1989, 175 SCRA 149
(Margin fee a license – police power, not taxing)[13] x
• Lozano v. Energy Regulatory Board, GR 95119-21, 18 Dec 1990, 192
SCRA 363 (OPSF not a tax)[14] x
According to authority imposing the tax [National or Local]
• Meralco Securities v Central Board of Assessment Appeals, L-46245, 31
May 1982, 114 SCRA 260 (Real Property under Real Property Tax Code
a national tax; no longer true with the enactment of the LGC placing RPT
under the local government units)[15] x am/pm
According to gradation (tax base/tax rate) [progressive, regressive, flat]
Distinguished from other exactions
License
• P&G v Mun of Jagna, 94 SCRA 894 (nature and amount of license)[16]
x
• Golden Ribbon Lumber v City of Butuan, 12 SCRA 611 (non
payment is illegal)[17] x
Toll
• City of Ozamiz v Lumapas, 65 SCRA 33[18] x
Special Assessments [now called Special Levy under the Local Government
Code]
• Apostolic Prefect v. Treasurer of Baguio, 71 Phil 547
Debt or an ordinary obligation
• Victoria Milling v. Phil Ports Authority, GR 73705, 27 Aug 1987, 153
SCRA 317 (share of govt from earnings of arrastre and stevedoring from
contractual compensation not tax) [19] x
• CIR v Prieto, 109 Phil 592[20] x
Interpretation and Construction of Tax Statutes
o How are tax laws interpreted or construed?
a. Rules of statutory construction are applied, legislative intent is primordial
b. In case of doubt, construed in favor of taxpayer
c. But for exemptions, construed against taxpayer
i. Except when it applies to government
ii. Special class of subjects under special conditions
iii. When the law says so
o Cases
CIR v CA, Central Vegetable Mfg Co. & CTA GR 107135, 23 Feb 1999[21] x
Luzon Stevedoring v CTA, GR 30232, 29 Jul 1988, 163 SCRA 647[22] x
CIR v Gotamco & Sons, GR 31092, 27 Feb 1987, 148 SCRA 36[23] x
CIR v CA, CTA and Ateneo de Manila, GR 115349, 18 Apr 1997, 271 SCRA
605[24] x
How are the rules applied? Apply first the doctrine that imposition is a burden
thus construed strictly vs. govt, then if applicable the burden shifts to taxpayer to
prove he is exempt.
Classifications of Exemptions
Express
i. Sec 30 of NIRC
ii. Sec. 105 of Tariffs and Customs Code
iii. Sec. 234 of the Local Government Code
iv. Special laws, like the Omnibus Investment Code
Implied or by Omission
i. Gov is impliedly not subject to tax but it can tax itself
ii. Equity
iii. Contractual
• Prov of Mizamis Oriental v. Cagayan Electric, GR 45355, Jan 12, 1990,
181 SCRA 38[25]
Instances exemptions construed liberally
The law says so
Special classes of persons under special circumstances
• CIR v CA, ROH Auto Products Phils & CTA, GR 108358, 20 Jan 1995,
240 SCRA 368[26] x
In favor of the government, etc.
• Maceda v Macaraeg 197 SCRA 771[27] x
Exemptions granted to traditional exemptees, such as religious/charitable
Certain Doctrines in Taxation
Prospectivity of tax laws
• Hydro Resources v CA, L-80276, 21 Dec 1990, 192 SCRA 604[28] x [ad
valorem tax imposed by law passed after transfer of ownership not
applicable; contract of sale subj to suspensive condition; LC issued prior
to law is not subj to ad valorem; no retro effect unless stated by law]
• Central Azucarera de Don Pedro v CTA, 20 SCRA 344[29] x [interest on
deficiency tax was imposed by a law passed after the deficiency was
incurred is not a retroactive application]
• How may tax laws be applied? General rule, prospective, but the law can
provide that it has retro effect and it is still valid, except if too harsh and
oppressive as to violate due process clause of the constitution
• Is the government bound by the error of its agents? While the
government is not bound by the error of its agent in issuing a ruling,
in the interest of justice and fair play, reversal of ruling may not be
given retro effect (CIR v Benguet Corp, 463 SCRA 28 (2005); CIR v
Bursmeiters & Wain Scandinavian, GR 153205, Jan 2007)
• Non-prescriptive - CIR v. Ayala Securities Corp. L-29485, 21 Nov
1980[30] x [tax on undue accumulation of income does not prescribe]
• Do taxes prescribe? No, but the law can provide for its prescription, such
as NIRC, Customs and LGC
Double taxation
• What is double taxation? Is it valid or constitutional?
o Direct duplicate taxation -same taxing authority, same subject,
same year
o Indirect duplicate taxation – when otherwise
o What is meant by International juridical double taxation?
• Pepsi Cola v. Tanauan 69 SCRA 460[31] x [mun ordinance impose
01. per gallon per RA is not undue delegation; no double taxation;
not specific tax]
• CIR v S C Johnson & Sons 309 SCRA 87 (1999)[32] x [Most favored
Nation Clause; double taxation; claim for refund in the nature of
exemption; construction of RP-US Tax Treaty – tax rate on royalty US v
Germany; international juridical double taxation defined] x
• Measures to avoid double taxation?
o Treaty
o Reciprocity
o Tax credit
Power to tax involves power to destroy
• CIR v Tokyo Shipping Co. L-68252, 26 May 1995[33] x [Claim for
refund of tax on GPB from charter of vessel; claim for refund construed
strictissimi juris finding of fact by CTA that vessel left without sugar
laden; 15 years lapsed without refund though at one point lawyer of BIR
said it was approved; kill the goose that lay the golden eggs]
Means of escaping taxation: Tax avoidance/tax evasion
• CIR v. Rufino, L-33665-68, 27 Feb 1987, 148 SCRA 42[34] x [tax
exempt merger of two corporations]
• Delpher Trades Corp v. IAC, 157 SCRA 349[35] x [tax exempt transfer
of property to a corporation resulting to control]
• CIR v Benigno Toda, 438 SCRA 290 (2004) - meaning of fraud; tax
avoidance/evasion]
Is equitable recoupment allowed though prescription has set in?
• Collector v UST, 104 Phil 1062 (rejected this common law doctrine)[36]
Set off of taxes
• Philix Mining v. CIR, L-125704, 28 Aug 1998 (General rule: no
offsetting)[37] x [Refundable VAT v. Excise Tax]
• Republic v Sampaguita Pictures, L-35238, 21 Apr 1989, 172 SCRA
623[38] x [Offset of Percentage and amusement taxes v. matured
backpay certificates] ;Domingo v. Garlitos, 8 SCRA 443 [1963]
(exception: allowed) [39] x [Estate and Inheritance taxes v. specifically
appropriated fund for the payment of obligation to the estate]
Taxpayer suit may be filed
• When disbursement of public funds involved
• But not
o To enjoin Comelec to call election
o Funds were not raised through taxation
• Maceda v. Macaraeg, 197 SCRA 771[40] x [Exemption of NPC from
taxes]
Are compromises allowed?
• Yes, by the BIR under NIRC and by Customs under TCCP. No similar
provisions under the LGC, thus Civil Code applies suppletorily.
Are tax laws political or penal and nature? No., it applies to territory and not by
reason of occupying forces
2.4 Enforce forfeitures, penalties & fines, execute decision of CTA & ordinary courts
i. Republic v CA 366 SCRA 489(2001); Aznar v CIR 58 SCRA 519 (1974); CIR
v Benigno Toda, 438 SCRA 290 (2004) ( meaning of fraud]
2.5 Effect police powers
2.6.1 Sy Po v CTA, GR No. 81446, 18 Aug 1988 (best evidence to support assessment)
[4]; CIR v Hantex Trading L 136975, Mar 31, 2005.
2.6.2 Bache & Co. v. Ruiz, 37 SCRA 823 (requirement for a search warrant)[5]
CIR v Isabela Cultural Corp GR 17223 TD Feb 12, 2007 – All-Events Test applied in recognizing
income or liability under accrual method of accounting. Expenses incurred in prior year cannot be
claimed as expense in another. For a taxpayer using the accrual method, the determinative question is,
when do the facts present themselves in such a manner that the taxpayer must recognize income or
expense? The accrual of income and expense is permitted when the all-events test has been met. This
test requires: (1) fixing of a right to income or liability to pay; and (2) the availability of the reasonable
accurate determination of such income or liability.
a.
e. Meaning of Income
3.1 Fisher v Trinidad GR17518 Oct 30, 1922 43 Phil 973 [5] x – Income defined; stock
dividends construed]
3.2 CONWI V CTA, G.R. No. 48532, August 31, 1992, 213 SCRA 83 [6] x Income may be
defined as an amount of money coming to a person or corporation within a specified time,
whether as payment for services, interest or profit from investment. Unless otherwise specified,
it means cash or its equivalent. Income can also be thought of as a flow of the fruits of one's
labor. The issue here is which exchange rate to use on $-denominated salaries of P&G
employees earned abroad. RR issued by Sec Finance required application of floating rate is
applicable in this case not the CB Circular. Thus, refund claim is denied.
3.4 Constructive receipt of rent income1958 deposited in court in 1957 withdrawn in – Limpan
Investment Corp v. CIR 17 SCRA 703 [1966][8] x
3.5 Book error not income - Fernandez v CIR 29 SCRA 553 [9][liability to an insurance co.
overstated, thus when corrected the net worth went up. This is not taxable.
3.6 Claim of right doctrine – illegally acquired (extortion) is income, Rutkin v US 343 U.S. 130
3.7 Severance test theory – separation from capital of something w/c of exchangeable value;
refers to taxability of stock dividends, Eisener v Macomber, 252 US 189; CIR v CA 301 SCRA
52
3.8 Control test – power to procure the payment of inc and enjoy the benefit thereof determines
who is subject to tax on coupon bond donated to his son. , Helvering v. Horst 311 U.S. 112
4. INCOME TAXPAYERS
a. Individual Taxpayers
i. Citizens
4.2.1.1 Residents
4.2.1.2 Non-residents
4.2.2 Aliens
4.2.2.1 Resident
1. Non-residents
a. Engaged in business
b. Not engaged
i. Non-resident citizen
1. Within Phil – same as resident citizen
2. Without Phil – exempt
ii. Resident alien – same as resident citizen, but only from within Phil
iii. Non-resident alien
1. Engaged in business (183 days) – same as resident alien with respect to
compensation, business, other income and passive income, but not
entitled to additional exemption, except:
a. Div from domestic corp – 20% [Sec 25(A)(2)]
2. Not engaged – 25% on gross income (but entitled to preferred rates for
sale of shares and real property)
a. Div from domestic corp – 25%
b. Royalties, prizes & winnings – 25%
3. Employed by Offshore, RHQ, ROHQ, Petroleum service
contractors/subcon (same treatment to Filipino of same rank & job– 15%
based on gross
iv. Income of non-residents, whether individual or corp from transactions with
depositary banks under expanded foreign currency deposit system – exempt from
income tax [Sec 27(D)(3)]
v. Types of Income of Individual
1. Compensation
2. Fringe Benefits
3. Income from Trade/Business
4. Exercise of profession
5. Passive Income
6. Other Dealings in Property
vi. Computation of income tax due of individual who earns bus, compensation and
other income
• Gross Sales/Receipts
• Less: Returns & Discounts
• Net Sales
• Less: Cost of Sales/Service
• Gross Income from bus or exercise of profession
• Compensation income
• Other income (other than those subj to final tax)
• Total Gross Income
• Less: Itemized or optional deductions
• Exemptions/Exemptions
• Taxable Income
• Tax Due (Tax table 5% to 32%)
• Creditable W/Tax
• Tax still due/refund
• Compensation
• Trade/Business
• Exercise of Profession
• Prizes/Winnings – P10K or less
• Capital gains on real property sold to govt – 6% or 5% to 32%
• Other capital gains from dealings in property
• Passive Income
a. ALLOWABLE DEDUCTIONS
uMarried – P32 K
uHF – P25 K
uS – P20 K
nChange in status
uMarriage
uBirth/Death
uOf age
uGainfully employed
• There must be a law allowing them (Atlas Consolidated Mining v. CIR 102 or 120 SCRA 246)
[27]
• Ordinary, necessary, reasonable, not against law, etc.
• It appeared sale of property was effected by a broker hence bonus to company officer
disallowed (Aguinaldo v CIR, 112 SCRA 136 [1982] [28]
Algue case. On the substantive issue, SC allowed the deduction as reasonable citing Rev
Reg No. 2: It is worth noting at this point that most of the payees were not in the regular
employ of Algue nor were they its controlling stockholders. The Solicitor General is correct
when he says that the burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary
and reasonable in the light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise and involve themselves in a
new business requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
CIR v Isabela Cultural Corp. GR 172231 Feb 12, 2007 – All events test applied in determining
whether expenses booked on accrual basis should b claimed as deductible expense.
• Must be connected with business, except
• Contributions/donations
• Premium on health/hospitalization
• Allowed to corporations, individuals, partnerships
• Must be incurred during the year
• Substantiated (Esso v. CIR, 175 SCRA 149 [1989] [29]
Cohan Rule – there is showing that expenses were incurred but cannot be
ascertained due to absence of documentary evidence (RMC 23-2000)
FEBTC v CA, CTA & BIR GR 129130 (Dec 2005) – To sufficiently support claims
for tax refund of excess creditable withholding tax, BIR Form 1743 must be
submitted, Confirmation Receipts and ITRs are not sufficient. Having failed to do so,
the claims were correctly denied. Under withholding tax system, it is the payor who
withholds the tax and not the payee. The OR/CR did not indicate the nature and
amount of the payment. “The findings of fact of the CTA, a special court exercising
particular expertise on the subject of tax, are generally regarded as final, binding and
conclusive upon this Court, especially if these are substantially similar to the
[8]
findings of the CA which is normally the final arbiter of questions of fact. The
[9]
findings shall not be reviewed nor disturbed on appeal unless a party can show that
[10]
misapprehension of facts, or when the lower courts failed to notice certain relevant
facts which if considered would justify a different conclusion. ”
[12]
• Excess over fixed allowance $150/100 not deductible; taxable to employee or to FBT
• Home leave not taxable to employee
• Family expenses taxable to employee to be deductible to employer
• Generally taxable to employee, except when for the convenience of the employer or form part
of Fringe Benefits of the employee
• Cash Advance/Reimbursement system
• Treated as compensation or FB
• Charitable or fund raising events
• Bona fide business meetings of directors, etc
• Business league or prof organization meet
• Promotion, Ad and marketing
• Shifting to other accounts to hide - prohibited
• Separate item in ITR or note to FS
• Although cash basis, int paid in adv deductible only in the year debt is paid in full or
corresponding to amortized principal
4.11.4.5 Taxes
CIR v. Central Luzon Drug Corp (Mercury), 456 SCRA (2005) – 20%
Senior Citizens Discount is a tax credit deductible from tax liability
4.11.4.6 Losses
4.11.4.7 Bad Debts (See Rev Reg No. 5-99, Mar 10, 1999, as amended by Rev Reg
No.
25-2002, Nov 19, 2002, amending Sec.3 of Rev Reg No. 5-99)
• Charged off during the year [ see PRC v CIR 256 SCRA 667] [31]
• Connected with business
• Not related parties
• Effort to collect failed
• Legal debt
• Tax benefit rule applies
4.11.4.8 Depreciation
a. Definition – Gradual diminution in the uselfu service value of tangible property used in
business. (Basilan Estates Inc. v CIR, 21 SCRA 17 (1967) [32]
4.11,4.9 Depletion
a. Definition – Exhaustion of natural resources like mines and oil and gas wells as a result of a
production or serverance from such mines or wells.
4.11.4.11Research &Development
W11/27/200812:24 AM 18
[1] What is the concept of taxation? It can be viewed in two ways, namely: (a) as a power to tax and (b) as the act or
process by which taxing power is exercised.
[2] What is the theory or underlying basis of taxation? It is a necessity without which no government could exist;
revenues collected are intended to finance government and its activities. It can reach what traditionally are within
police power measures to attain:
i. Social justice
ii. Equitable distribution of wealth
iii. Economic progress
iv. Protection of local industries, public welfare and the like
[3] Tan v. Del Rosario, 237 SCRA 324 (1994) – This is a challenge to the validity of Simplified Net Income Taxation
applied to general professional partnerships; uniformity of taxation merely requires that all subjects or objects of
taxation similarly situated are to be treated alike both in privileges confered and liabilities imposed.