CHAPTER 2

DOCTRINES IN TAXATION

I. Doctrine of Prospectivity of Tax Laws

1. What is the “Doctrine of Prospectivity of Tax Laws”?

As a general rule, tax laws are prospective in operation,1 unless

the legislative intent that statute should operate retrospectively is
distinctly expressed or necessarily implied.2

Where a statute amending a tax law is silent as to whether it

operates retroactively, the amendment will not be given a retroactive
effect so as to subject to tax past transactions not subject to tax under the
original act. Every case of doubt must be resolved against its retroactive
effect.3

II. Doctrine of Imprescriptibility

2. What is the “Doctrine of Imprescriptibility”?

Considering that taxes are the lifeblood of the government, it may

be stated that the assessment and collection of taxes are imprescriptible
unless otherwise provided by the tax law itself.4 Thus, if the tax law itself
is silent on prescription, the right of the government to assess and collect
taxes will not prescribe.

In criminal cases involving tax offenses punishable under the Tax

Code, it would indeed seem that tax cases are practically imprescriptible
for as long as the period from the discovery and institution of judicial
proceedings for its investigation and punishment, up to the filing of the
information in court does not exceed five (5) years.

As the provision5 of the law stands in the statute book (and to this
day it has remained unchanged), prescription is a matter of defense and
the information does not need to anticipate and meet it. The defendant
could, at most, object to the introduction of evidence to defeat his claim of

1
Because taxes are burdens and should not be imposed without due process of law. Belle Corp. v.
CIR, G.R.181298, Jan. 10, 2011
2
Lorenzo v. Posadas, 64 Phil. 353; CIR. v. Filipinas Cia. de Seguros, 107 Phil. 1055
3
CIR v. Marubeni Corporation, 372 SCRA 576 (2001)
4
CIR v. Ayala Securities Corp., 101 SCRA 231
5
Sec. 281, NIRC
prescription. Anyway, the law says that prescription begins to run from ... "the
institution of judicial proceedings for its ... punishment."

Unless amended by the legislature, this provision stays in the Tax

Code as it was written during the days of the Commonwealth. And as it
is, must be applied regardless of its apparent one-sidedness in favor of
the Government. In criminal cases, statutes of limitations are acts of grace,
a surrendering by the sovereign of its right to prosecute. They receive a
strict construction in favor of the Government and limitations in such
cases will not be presumed in the absence of clear legislation. 6

III. Double Taxation

3. What is the meaning of double taxation? BQ2015, 2014, 2013, 2012

“Double taxation” means taxing the same property / person /

activity twice when it should be taxed only once; that is, taxing the same
property/person/activity twice by the same jurisdiction, during the same
taxing period for the same purpose and for the same kind of tax by the
same taxing authority when it should only be taxed but once.7

4. What are the kinds of double taxation? BQ2015, 2014, 2012

(a) In the Strict Sense - Double taxation in the strict or prohibited

sense is called “direct double taxation” which is objectionable because it
is a violation of the substantive due process under the Constitution since
the same property or subject matter is taxed twice when it should be
taxed once; it is tantamount to taxing the same person twice by the same
jurisdiction for the same thing.

Otherwise described as “direct duplicate taxation,” the following

are the elements of direct double taxation:

The two taxes must be imposed:

(1) on the same person, property or subject matter,

(2) for the same purpose,
(3) by the same taxing authority,
(4) within the same territory or taxing jurisdiction,
(5) during the same taxing period; and

6
Emilio E. Lim, Sr., v. CA, GR Nos. L-48134-37, Oct. 18, 1990
7
Nursery Care Corp v. City of Manila, GR 180651, July 30, 2014
 (6) the taxes must be of the same kind or character.8

(b) In the Broad Sense - Double taxation in the broad sense is

called “indirect double taxation” or “indirect duplicate taxation” which
extends to all cases in which there are two or more pecuniary
impositions, but the ABSENCE OF ONE OR MORE of the above-
mentioned elements makes the double taxation indirect. The
Constitution does NOT prohibit the imposition of double taxation in the
broad sense because it does not violate the substantive due process since
no actual double taxation occurred.

5. What are the kinds of indirect duplicate taxation? BQ2013

There are two kinds of indirect duplicate taxation, namely:

(1 ) Domestic double taxation. - This arises when the same taxes

are imposed by the local or national government within the same State.

Double taxation may not be invoked where one tax is imposed by

the national government and the other by a local government, being
widely recognized that there is nothing inherently obnoxious in the
requirement that licenses or taxes be exacted with respect to the same
occupation, calling or activity by both the state and its political
subdivision.9 Thus, double taxation does not exist when a corporation is
assessed with local business tax as a manufacturer, and at the same time,
VAT as a person selling goods in the course of trade or business.

(2) International juridical double taxation – It refers to the

imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identical periods.10

When an item of income is taxed in the Philippines and the same

income is taxed in another country, there is a case of double taxation but
it is only a case of indirect duplicate taxation, which is called
“international juridical double taxation,” which is not legally prohibited
because the taxes are imposed by different taxing authorities.

6. Is double taxation allowed in our Constitution?

8
Swedish Match Phils. Inc. v. The Treasurer of the City of Manila, G.R. 181277, July 3, 2013 (700
SCRA 428)
Ibid; Nursery Care Corp. v. Anthony Acevedo & the City of Manila, GR 180651, July 30, 2014.
9
Punzalan v. Mun. Board of Manila, 95 Phils. 46 (1994); City of Baguio v. De Leon, 25 SCRA 38
(1968)
10
CIR v. SC Johnson and Son., Inc. 309 SCRA 87 (1999)
 The Supreme Court held that there is no constitutional prohibition
against double taxation in the Philippines.11 Therefore, it is not a valid
defense against the validity of a tax measure.12 However, it is not favored
but the same is permissible, provided some other constitutional
requirements are not thereby violated.13 For example, double taxation
becomes obnoxious only where the taxpayer is taxed twice for the benefit
of the same governmental entity14 or by the same jurisdiction for the same
purpose,15 but not in a case where one tax is imposed by the State and the
other by a province, city or municipality.16

7. Is double taxation a valid defense against the legality of a tax

measure?

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.17 However, if double taxation amounts to a direct duplicate
taxation, 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 kind or character of a tax, then
it becomes legally objectionable for being oppressive and inequitable.

8. Can a court impose local business tax on manufacturers of

liquors, distilled spirits, whins and other article of commerce.

8. Is there double taxation where a lessor of a property pays real estate

tax on the premises being leased, a real estate dealer’s tax based on rental
receipts and income tax on the rentals?

No. There is no double taxation here in the prohibited sense.

Double taxation in the prohibited sense means (1) taxing for the same tax
period, (2) the same thing or activity twice, (3) when it should be taxed
but once, (4) by the same taxing authority, (5) for the same purpose, and
(6) with the same kind or character of tax.

The real estate tax is a property tax.

On the other hand, the real estate dealer's tax is a tax on the
privilege to engage in business of real estate dealership.

11
Villanueva v. Iloilo, 26 SCRA 578, Dec. 28, 1968
12
Pepsi Cola v. Mun. of Tanauan, GR L-31156, Feb. 27, 1976 (69 SCRA 460)
13
Pepsi Cola Bottling Co. v. City of Butuan, GR L-22814, Aug. 28, 1968
14
CIR v. Lednicky GR L-18169, July 31, 1964 (11 SCRA 609)
15
SMB, Inc. v. City of Cebu, GR L-20312, Feb. 26, 1972 (43 SCRA 280)
16
Punzalan v. Mun. Board of City of Manila, 50 OG 2485
17
Pepsi Cola v. Mun. of Tanauan, GR L-31156, Feb. 27, 1976 (69 SCRA 460)
 While the income tax is a tax on the privilege to earn an income.

These taxes are imposed by different taxing authorities and are

essentially of different kinds and character. 18

9. Is there double taxation when the interest income of a bank derived

from its bank deposits in another bank is subjected to tax and it will
again be subjected to the 5% gross receipts tax on its interest income
from its loan transactions? BQ2012

No. There is no double taxation when the interest income of a

bank from its bank deposits in another bank had been subjected to the
20% final withholding tax (which is a passive income and a direct tax),
and at the same time, its interest income on loan transactions to its
debtors-customers is subjected to the 5% gross receipts tax (which is
considered as active income and indirect tax) because the first tax is
income tax, while the second tax is business tax.

10. Can a municipal mayor refuse to sign an ordinance which requires

that all establishments selling liquor should pay a fixed annual fee and
at the same time imposing a sales tax equivalent to 5% of the amount
paid for the purchase or consumption of liquor in the said
establishments on the ground that it would constitute double taxation?

No. The refusal of the mayor is not justified. The impositions are
of different nature and character. The fixed annual fee is in the nature of
a license fee imposed through the exercise of police power while the 5%
tax on purchase or consumption is a local tax imposed through the
exercise of taxing powers. Both a license fee and a tax may be imposed
on the same business or occupation, or for selling the same article and
this is not in violation of the rule against double taxation.19

11. Is there double taxation in the imposition of local business tax based
on gross revenue in the case of a taxpayer whose method of accounting is
on the accrual basis?

Yes. In petitioner's case, its audited financial statements reflect

income or revenue which accrued to it during the taxable period although
not yet actually constructively received or paid. This is because petitioner
uses the accrual method of accounting, where income is reportable when
all the events have occurred that fix the taxpayer's right to receive the

18
Villanueva v. City of Iloilo, 26 SCRA 578
19
Compania General de Tabacos de Filipinas v. City of Manila, 8 SCRA 367 (1963)
income, and the amount can be determined with reasonable accuracy; the
right to receive income, and not the actual receipt, determines when to
include the amount in gross income. The imposition of local business tax
based on petitioner's gross revenue will inevitably result in the
constitutionally proscribed double taxation - taxing of the same person
twice by the same jurisdiction for the same thing -- inasmuch as
petitioner's revenue or income for a taxable year will definitely include its
gross receipts already reported during the previous year and for which
local business tax has already been paid. Thus, respondent committed a
palpable error when it assessed petitioner's local business tax based on its
gross revenue as reported in its audited financial statements, as Sec. 143
of the LGC and Sec. 22(e) of the Pasig Revenue Code clearly provide that
the tax should be computed based on gross receipts.20

12. What are the modes of avoiding/eliminating double taxation?

The usual methods of avoiding the occurrence of double taxation

are:

(a) Entering into tax treaties with other states. - Double or

multiple taxation is avoided by means of allowing reciprocal exemptions,
which may be done either by statute or by treaty.

(b) Application of the principle of reciprocity - Exemption from

taxation by treaty are generally granted on grounds of reciprocity21 and to
lessen the rigors of international double or multiple taxation.

(c ) Allowance of deduction/tax credit for foreign taxes paid - The

rigors of international double taxation may also be lessened by the
allowance of deduction or tax credit taxes paid to foreign countries.22
Example: A resident Filipino citizen has the option to either claim the
amount of income tax withheld abroad as a deduction from his gross
income in the Philippines or to claim it as a tax credit23 provided that he
includes the subject income in the computation of his worldwide gross
income considering that he is a resident Filipino citizen. A resident
Filipino citizen is subject to tax on his income derived from within and
without the Philippines or his worldwide income.

20
Ericsson Telecom vs. City of Pasig, GR 176667, Nov. 22, 2007( 538 SCRA 99)
21
Reciprocity is used to denote the relation between two states when each of them, by their
respective laws or by treaty, gives the citizens or nationals of the other State certain privileges, as in the
practice of a profession, on condition that its own citizens or nationals shall enjoy similar privileges in the latter
state. Sison v. Board of Accountancy, 85 Phil. 276 (1949)
22
Sec. 34(C), NIRC
23
Sec. 34(C)(1)(B), NIRC
 (d) Using the Tax Sparing Rule – A non-resident foreign
corporation (NRFC) who earned cash and/or property intercorporate
dividends from a domestic corporation is taxed on a reduced rate of 15%
tax on dividends (in lieu of the 30% corporate income tax), which
represents the difference between the regular income tax of 30% and the
15% tax on dividends on the condition that the country of residence of
the NRFC shall allow a credit against the tax due from the NRFC, taxes
deemed to have been paid in the Philippines.24

The apparent rationale for doing away with double taxation is to

encourage the free flow of goods and services and the movement of
capital, technology and persons between countries, conditions deemed
vital in creating robust and dynamic economies. 25

IV. Escape from Taxation

13. What are the forms of escape from taxation?

Taxpayers escape paying their taxes thru the following modes,

although the modes used may not necessarily be legal, and therefore,
sanctionable.

(a) Shifting the tax burden to another taxpayer.

(b) Tax avoidance.
(c ) Tax evasion.

A. Shifting of Tax Burden

14. What is the meaning of the term “shifting of tax burden”?

“Shifting of tax burden” simply means that the imposition of tax is

transferred from the statutory taxpayer, or the person who is required by
law to pay the tax, to another person who shall bear the burden of the
tax without violating the law. Only the payment of indirect taxes may be
shifted to another taxpayer, but not direct taxes. Example: Under the
VAT system, the seller can shift the burden of the VAT to the buyer, the
said tax (VAT) being an indirect tax.

15. What are the ways of shifting the burden of tax to another taxpayer?

The ways of shifting the burden of tax to another taxpayer are as

follows:

24
Sec. 28(B)(5)(b), NIRC; CIR v. PGMC, GR 66838, Dec. 2, 1991
25
CIR v. SC Johnson and Son, Inc., 309 SCRA 87 (1999)
 (1) Forward shifting – refers to the transfer of tax burden from the
producer to distributor until it finally reaches the ultimate purchasers or
end consumers. Example: The producer shifts its VAT to the distributor,
and the distributor shifts its VAT to the final consumer.

(2) Backward shifting – refers to the reverse of forward shifting,

meaning, the burden of the tax is transferred from the end consumer
through the factors of distribution to the factor of production. Example:
The end consumer may shift the tax imposed on him to the distributor by
buying the goods only after the price of the goods is reduced by the
amount of the tax, and lastly, the manufacturer agrees to buy the
distributor’s products only if the price is also reduced by the amount of
tax.

(3) Onward shifting – the tax burden is shifted twice or more

either forward or backward.

16. What are the taxes which can be shifted to another taxpayer?

Under the National Internal Revenue Code, the national taxes

which can be shifted to another taxpayers are the indirect taxes, such as
the VAT, Other percentage taxes, excise tax on excisable articles and
documentary stamp taxes.

In the case of VAT, the seller, who is the statutory taxpayer, is

given the right by law to shift the burden of tax to the buyer, which tax
shall become part of the cost of the goods or services sold if the buyer is
the end consumer.

17. What are the taxes which cannot be shifted to another taxpayer?

Under the National Internal Revenue Code, all taxes which are the
direct tax liabilities of the taxpayers are the taxes which cannot be shifted
to another taxpayer, such as income tax, estate tax and donor’s tax.

18. Why does the law allow the shifting of the burden of tax to another
person?

When the law allows that the burden of tax may be shifted to
another person, this is one form of escape from taxation which does not
result to any loss on the part of the Government, hence, not objectionable.

19. What is the meaning of “impact” and “incidence” of taxation?

 The term "impact of taxation" refers to the point on which the tax
is originally imposed or the person/taxpayer who is required by law to
pay the tax or the taxpayer on whom the tax can be formally assessed.
Example: VAT is originally assessed against the VAT-registered SELLER
who is required to pay the said tax. (This is the so-called "impact of
taxation.")

On the other hand, "incidence of taxation" refers to the point on

which the tax burden finally rests or settles down. It takes place when
shifting has been effected from the statutory taxpayer to another. Hence,
VAT, being an indirect tax, the burden of paying the tax is actually
shifted or passed on to the BUYER. (This is the so-called "incidence of
taxation.")

20. What is the relationship between Impact, Shifting, and Incidence of a

tax?

The”impact of taxation,” which is the imposition of the tax to the

statutory taxpayer, is the initial phenomenon; the “shifting of the tax,”
which is the passing on of the tax to the buyer, is the intermediate event,
while the “incidence of the tax” which is the final point of the transaction
makes the end consumer finally shouldering or bearing the burden of the
tax, which is the resultant effect.

B. Tax Avoidance

21. What is the meaning of “tax avoidance”? BQ2014

"Tax avoidance" is the other term for "tax minimization." It is a

legal tax saving device within the means sanctioned by law the object of
which is merely to minimize the payment of taxes. This method should
be used by the taxpayer in good faith and at arm's length.

A taxpayer has the legal right to decrease the amount of what

otherwise would be his taxes or altogether avoid them by means which
the law permits. A taxpayer may therefore perform an act that he
honestly believes to be sufficient to decrease his tax liability or to exempt
him from taxes. He does not incur fraud thereby even if the act is
thereafter found to be insufficient.26

C. Tax Evasion

26
Yutivo Sons Hardware Co. v. CTA, 1 SCRA 160 (1961); Heng Tong Textiles Co., Inc. v. CIR,
24 SCRA 767 (1968)
22. What is the meaning of “tax evasion”?

"Tax evasion" is the other term for “tax dodging.” It is the use of
the taxpayer of illegal means to avoid or defeat the payment of the tax. It
is a scheme used outside of those lawful means and when availed of is
punishable by law because its main purpose is to entirely escape the
payment of taxes thru illegal means. It usually subjects the taxpayer to
further or additional civil or criminal liabilities.27

Tax evasion connotes fraud through the use of pretenses and

forbidden devices to lessen or defeat the payment of correct taxes. Mere
understatement of tax in itself does not prove fraud. Fraud is never
imputed and courts never sustain findings of fraud upon circumstances
which create only suspicion; it must be willful and intentional .

23. Distinguish "tax avoidance" from "tax evasion." BQ2014

Tax Avoidance Tax Evasion

“Tax avoidance” is a tax saving “Tax evasion” is the use of illegal
device wherein the taxpayer uses means to avoid or defeat the
legal means to reduce tax liability payment of the tax.
within the means sanctioned by
law, hence legal.28
It is used by the taxpayer in good It connotes fraud through the use
faith and at arm's length. of pretenses and forbidden devices
to lessen or defeat the payment of
correct taxes.
Taxpayer is not subjected to civil or When availed of, it usually subjects
criminal liabilities because it is a the taxpayer to additional civil or
legal tax saving device. criminal liabilities.
It is “tax minimization”. It is “tax dodging”.

24. What are the factors that constitute “tax evasion”?

To constitute "tax evasion," there must be an integration of three

factors, namely:

(1) The end to be achieved, i.e., payment of an amount of tax less

than what is known by the taxpayer to be legally due;

(2) An accompanying state of mind which is described as being

evil, in bad faith, willful or deliberate and not merely accidental; and

27
CIR v. CA, 327 Phil. 1
28
Heng Tong Textiles Co., Inc. v. CIR, 24 SCRA 767 (1968)
 (3) A course of action or failure of action which is unlawful.

The second and third factors are not present in tax avoidance,
hence there can be no tax evasion if what was committed is just tax
avoidance.29

Example: When a tax consultant advised the taxpayer to execute

two deeds of sale with the intent to evade the payment of the correct tax,
both the tax consultant and the taxpayer shall be criminally liable for tax
evasion considering that the above-stated three requisite factors to
constitute tax evasion are present.

25. When is tax evasion deemed complete?

The Supreme Court ruled that tax evasion is deemed complete

when the violator has knowingly and willfully filed a fraudulent return
with intent to evade and defeat a part or all of the tax.30

V. Exemption from Taxation

26. What is the meaning of the term “exemption from taxation"?

Tax exemption is an immunity or privilege from a charge or

burden to which others are subject. It is the grant of immunity, express or
implied, to particular persons or corporations of a particular class, from
the obligation to pay taxes generally within the same state or taxing
district to which others are obliged to pay. 31

27. What is the nature of tax exemption?

(a) The tax exemptions provided in the Constitution are self-

executing and need no legislation to enforce them.

(b) The grant of tax exemption is a matter of legislative policy that

is within the exclusive prerogative of Congress.32

(c) Exemption from taxes is personal in nature and covers only

taxes for which the taxpayer-grantee is directly liable. In any case, it
cannot be transferred or assigned by the person to whom it is given
without the consent of the State. He who claims tax exemption should

29
CIR v. The Estate of Benigno P. Toda, Jr., G.R.147188, Sept. 14, 2004. (48SCRA 290)
30
Ungab v. Judge Cusi, Jr., 186 Phil. 604 (1980)
31
Greenfield v. Meer, 77 Phil 394
32
Diaz v. Sec. of Finance, 654 SCRA 96 (2011)
prove by convincing proof that he is exempted. Therefore, an exemption
granted to a corporation does not apply to its stockholders.33

(d) Tax exemptions are not presumed, but when public property
is involved, tax exemption is the rule, and taxation, the exception.

(e) There can be no simultaneous tax exemptions under two laws,

one partial and the other total.

(f) It is an ancient rule that exemptions from taxation are

construed in strictissimi juris against the taxpayer and liberally in favor of
the taxing authority. Tax exemptions are looked upon with disfavor and
may almost be said to be odious to the law.34

(g) He who claims that he is exempted from tax must be able to

justify his claim by the clearest grant of organic or statute law by words to
plain to be mistaken. If ambiguous, there is no tax exemption.

28. What are the kinds of tax exemption?

The kinds of tax exemptions are as follows:

(1) Express tax exemption (or affirmative exemption) – This is

the tax exemption which expressly and affirmatively exempts from
taxation certain persons, properties or transactions, either entirely or in
part. It may be created by express provisions of the Constitution, statute,
treaty or ordinance.

(2) Implied tax exemption (or exemption by omission) – This is

the tax exemption which may be either accidental or intentional, as where
the tax is laid on certain classes of persons, properties or transactions
without mentioning other classes. All subjects for which taxation is not
provided are exempted, and the subjects selected are alone taxable. Tax
exemptions are not presumed, but when public property is involved,
exemption is the rule, and taxation, the exception

(3) Contractual tax exemption - Contractual tax exemption, in

the real sense of the term and where the non-impairment clause of the
Constitution can rightly be invoked, is one which is agreed to by the
taxing authority in contracts, such as the one contained in government
bonds or debentures, lawfully entered into under enabling laws in which

33
Manila Gas Corp. v. Collector, 71 Phil. 513
34
MERALCO v. Vera, 67 SCRA 351; Phil. Petroleum Corp. v. Mun. of Pililla, Rizal, 198 SCRA
82 (1991)
the government, acting in its private capacity, sheds its cloak of authority
and waives its governmental immunity.35 This exemption must not be
confused with the tax exemption granted under a franchise, which is not
a contract within the context of non-impairment clause of the
Constitution.36

In general, tax exemptions granted by contract are not assignable.

However, Congress may authorize a transfer of the tax exemption either
by the original act or by a subsequent statute. A contractual tax
exemption may also be transferred where the original grant includes the
successors and assigns of the grantee.37

Statutory exemptions are generally granted on the basis of

contract and on grounds of public policy.

29. What is the rationale for the grant of tax exemption?

The rationale for the grant of tax exemption is some kind of

public benefit or interest which the law-making body considers sufficient
to offset the monetary loss entailed in the grant of tax exemptions.

30. What are the grounds for tax exemption?

(1) The power of the Legislature to exempt taxpayers from

taxation, although of wide scope, is not unlimited. Exemptions from
taxation, when properly made, must be determined in the legislative
discretion, which must not, however, be arbitrary; there must underlie in
its exercise some principles of public policy that can support a
presumption that the public interest will be subserved by the exemption
allowed.38

(2) The purpose of the grant is some public benefit or interest

which the law-making body considers sufficient to offset the monetary
loss entailed in the grant of tax exemptions.

(3) Tax exemptions in tax treaties are created on grounds of

reciprocity or to lessen the rigors of the international double or
multiple taxation.

31. May tax exemption be granted on the ground of equity?

35
PAGCOR v. BIR, John Doe & Jane Doe, GR 172087, March 15, 2011
36
Cagayan Electronic Co. v. CIR, 138 SCA 629
37
PAL v. Commissioner of Customs, BTA No.184, Sept. 10, 1954
38
Art. 17(4), Art. VIII, 1987 Phil. Constitution; CIR v. Botelho Shipping Corp., L-21633-34, June
29, 1967 (20 SCRA 487)
 No. Tax exemption cannot be recognized on grounds of equity.
The long range objective of all tax measures is the accomplishment of
social order. Although the variant forms of taxation may sometimes
produce individual hardships, a too stilted interpretation of tax laws for
the benefit of one particular taxpayer may result in the loss of revenue at
the expense of the government and operate to the disadvantage of the
others contributing to its support. A tax exemption claimed merely on
the ground that another person similarly situated has not paid similar
taxes is unjustifiable and should be ignored.39

32. May tax exemptions be revoked?

Yes. As a general rule, grants of tax exemption are revocable. The

Congressional power to grant an exemption necessarily carries with it the
consequent power to revoke the same. In the case of franchises to
operate public utilities, the Constitution provides that no franchise shall
be granted unless subject to the condition that it shall be subject to repeal
or amendment. Therefore, any exemption granted under a franchise may
be revoked by Congress.

Exception: On the other hand, there is a recognized exception as

regards contractual exemptions, on the theory that revocation without the
consent of the grantee would impair the obligation of contract. There is
no vested right in a tax exemption, more so when the latest expression of
legislative intent renders its continuance doubtful. Being a mere
statutory privilege, a tax exemption may be modified or withdrawn at
will by the granting authority. To state otherwise is to limit the taxing
power of the State, which is unlimited, plenary, comprehensive and
supreme. The power to impose taxes is one so unlimited in force and so
searching in extent, it is subject only to restrictions which rest on the
discretion of the authority exercising it.40

VI. Tax Refund

33. What is the nature of a claim for refund?

Since an action for a tax refund partakes of the nature of tax

exemption, which cannot be allowed unless granted in the most explicit
and categorical language, it is strictly construed against the claimant who
must discharge such burden most convincingly.41

39
BPI v. Trinidad, 45 Phil. 384
40
Republic v. Caguioa, GR 168584, Oct. 15, 2007
41
South African Airways v. CIR, 612 SCRA 665
34. Will the fact that a taxpayer is under audit by the BIR or that there
is a deficiency tax assessment and it has a potential tax liability be a bar
to a claim for tax refund?

No. As a general rule, a deficiency tax assessment is not a bar to a

claim for tax refund or tax credit of a taxpayer. The BIR has no valid
justification if it will not grant the refund or to withhold the issuance of
the Tax Credit Certificate (TCC). Offsetting the amount of TCC against a
potential tax liability is not allowed, because both obligations are not yet
fully liquidated. While the amount of the TCC has been determined, the
amount of deficiency tax is yet to be determined through the completion
of the audit. To reopen the claim for TCC or Tax Refund in order to give
way to the introduction of evidence of a deficiency assessment will lead
to an endless litigation, which is not allowed.42

However, if the deficiency tax assessment is already final, the

CIR should not grant the claim for refund unless the taxpayer pays the
deficiency tax. Likewise, no tax refund or tax credit will be granted as
long as there is a pending deficiency tax assessment for the same
taxable period. To award a tax refund or tax credit despite the existence
of deficiency assessment for the same taxable period is an absurdity and a
polarity in conceptual effects. A taxpayer cannot be entitled to a refund
and at the same time be liable for a tax deficiency assessment. In order to
avoid multiplicity of suits, it is logically necessary and legally appropriate
that the issue of deficiency tax assessment be resolved jointly with the
taxpayer’s claim for tax refund, to determine once and for all in a single
proceeding the true and correct amount of the tax due or refundable.43

35. May a taxpayer who has pending claims for refund of excess VAT
input tax refund or set off said claims against his other tax liabilities?

No. Taxes and claims for refund cannot be the subject of set-off for
the simple reason that the government and the taxpayer are not creditors
and debtors of each other. There is a material distinction between a tax
and a claim for refund. Claims for refunds just like debts are due from
the government in its corporate capacity, while taxes are due to the
government in its sovereign capacity.

However, compromise or set-off may be available but only if

both obligations are liquidated and demandable. Liquidated debts are
those where the exact amounts have already been determined. In the

42
CIR v. Citytrust Banking Corp., 499 SCRA 477 (2006)
43
CIR v. CA, Citytrust Banking Corp. and CTA, 234 SCRA 348 (1994)
instant case, the claim of the taxpayer for VAT refund is still pending and
the amount has still to be determined. Thus, the liquidated obligation of
the taxpayer to the government cannot be set-off against the unliquidated
claim which the taxpayer conceived to exist in his favor.44

VII. Compromise

36. When is compromise agreement?

A compromise agreement is a contract whereby the parties, by making

reciprocal concessions, avoid a litigation or put an end to one already
commenced.45 It involves a reduction of a person’s tax liability.
Accordingly, a compromise is either judicial, if the objective is to put an
end to a pending litigation, or extrajudicial, if the objective is to avoid a
litigation.46

Its validity is dependent upon the fulfillment of the requisites and

principles of contracts dictated by law; and its terms and conditions must
not be contrary to law, morals, good customs, public policy, and public
order.

When given judicial approval, a compromise agreement becomes

more than a contract binding upon the parties. Having been sanctioned by
the court, it is entered as a determination of a controversy and has the
force and effect of a judgment. It is immediately executory and not
appealable, except for vices of consent or forgery. The nonfulfillment of
its terms and conditions justifies the issuance of a writ of execution; in
such an instance, execution becomes a ministerial duty of the court.47

A compromise is generally allowed and enforceable under the law

when the subject matter thereof is not prohibited from being
compromised and the person entering such compromise is duly
authorized to do so.

VIII. Doctrine of Compensation and Set-Off

37. Discuss the “Doctrine of Compensation and Set-Off.” May taxes be

the subject of set-off or compensation?

44
Philex Mining v. CIR, GR 125704, Aug. 29, 1998
45
Art, 2928, New Civil Code
46
Malvar v. Kraft Food Phils., Inc., 705 SCRA 242 (2013)
47
Magbanua v. Uy, 497 Phil. 511 (2005) cited in Metro Manila Shopping Mecca Corp. v.
City Treasurer of Manila, GR 190818, Nov. 10, 2014
 General Rule: The Doctrine of Compensation and Set-off states
that taxes are NOT subject to set-off or legal compensation because the
government and the taxpayer are not mutual creditor and debtor of each
other.48

It is settled that a taxpayer may not offset taxes due from the
claims that he may have against the government for the following
reasons:

(1) A claim for taxes is not such a debt, demand, contract or

judgment as is allowed to be set-off.

(2) Taxes are of such distinct kind, essence and nature, and these
impositions cannot be classed in merely the same category as ordinary
obligations. Taxes and debts are of different nature and character; hence,
no set-off or compensation between these two different classes of
obligations is allowed.

(3) The taxes assessed are the obligations of the taxpayer arising
from law, while the money judgment against the government is an
obligation arising from contract, whether express or implied.

(4) Debts are due to the Government in its corporate capacity,

while taxes are due to the Government in its sovereign capacity.49

(5) Inasmuch that taxes are not debts, it follows that the two
obligations are not susceptible to set-off or legal compensation.

(6) There can be no off-setting of taxes against the claims that the
taxpayer may have against the government. 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.50

Examples:

(a) An assessment for a local tax cannot be the subject of set-off or

compensation against a final judgment for a sum of money
obtained by the taxpayer against the local government unit
that made the assessment.

48
Republic v. Mambulao Lumber Co., 6 SCRA 522; Caltex Phils v. COA, 208 SCRA 726
49
South African Airways v. CIR, 612 SCRA 665 (2010)
50
Francia v. IAC, GR L- 76749, June 28, 1988 (162 SCRA 753)
 (b) A taxpayer who has pending claims for VAT input credit or
refund cannot set off said claims against his other tax
liabilities.

(c) The income tax liability of a taxpayer cannot be compensated

with the amount owed by the Government as just
compensation for his property which had been expropriated.

Exception: However, if the obligation to pay taxes and the

taxpayer’s claim against the government have already become both due,
and demandable, as well as fully liquidated, compensation takes place
by operation of law51 and both obligations are extinguished to their
concurrent amounts.52

A debt is liquidated when its existence and amount are

determined. A debt is considered liquidated, not only when it is
expressed already in definite figures which do not require verification,
but also when the determination of the exact amount depends only on a
simple arithmetical operation.53

IX. Doctrine of Equitable Recoupment

38. What is the meaning of the term “Doctrine of Equitable

Recoupment”? BQ2009

The doctrine of “equitable recoupment” arose from common law

origin allowing the offsetting of a prescribed claim for refund against a
tax liability arising from the same transaction on which an overpayment
is made on one hand and underpayment is due on the other hand. In
other words, when the refund of a tax supposedly due to the taxpayer has
already been barred by prescription, and the same taxpayer is assessed
with a tax at present, the two taxes may be set-off with each other. It
allows a taxpayer whose claim for refund has prescribed to offset tax
liabilities with his claim of overpayment.

But this doctrine of equitable recoupment is allowed only in

common law countries, but NOT in the Philippines. It finds no
application to cases where the taxes involved are totally unrelated, and
although it seems equitable, IT IS NOT ALLOWED IN OUR
JURISDICTION because of the doctrine of no set-off or compromise.54

51
Art. 1200, in relation to Arts. 1279 and 1290, NCC
52
Domingo v. Garlitos, 8 SCRA 443 (1963)
53
Philex Mining Corp. v. CIR, GR 125704, Aug. 29, 1998;.Montemayor v. Millora, 654 SCRA
580 (2011)
54
Collector v. UST, 104 Phil. 1062 (1958)
 X. Tax Amnesty

39. What is the meaning of “tax amnesty”?

“Tax amnesty” is a general grant of pardon or the intentional

overlooking by the State of its authority to impose penalties on persons
otherwise guilty of violation of a tax law. It partakes of an absolute
waiver by the government of its right to collect what otherwise would be
due it and to give tax evaders who wish to relent a chance to start with a
clean slate. A tax amnesty, much like a tax exemption, is never favored
nor presumed in law and if granted by statute, the terms of the amnesty
like that of a tax exemption must be construed strictly against the
taxpayer and liberally in favor of the taxing authority.55 It also gives the
government a chance to collect uncollected tax from tax evaders without
having to go through the tedious process of a tax case. 56

“Tax amnesty” refers to the articulation of the absolute waiver by

a sovereign of its right to collect taxes and power to impose penalties on
persons or entities guilty of violating a tax law. Tax amnesty aims to
grant a general reprieve to tax evaders who wish to come clean by giving
them an opportunity to straighten out their records.57

40. Distinguish "tax amnesty" from "tax exemption."

Tax Amnesty Tax Exemption

Tax amnesty is an immunity from all
criminal, civil and administrative
liabilities arising from non-payment
of taxes. It is a general pardon given
to all taxpayers.
It applies only to past tax periods,
hence of retroactive application.58
In a tax amnesty, however, there will
be a revenue loss since there was
actually taxes due but the collection
was just waived by the Government.
Tax exemption is an immunity from
the civil liability only. It is an
immunity or privilege, a freedom from
a charge or burden to which others are
subjected.
It is generally prospective in
application.
In tax exemption, there is no revenue
loss because there was no actual taxes
due as the person or transaction is
protected by tax exemption.

41. How should tax amnesty be construed?

55
CIR v. Gonzalez, 633 SCRA 139 (2010)
56
ING Bank N.V., Manila Branch v. CIR, GR 167679, July 22, 2015
57
MBTC v. CIR, G.R. 178797, Aug. 4, 2009 (595 SCRA 234) cited in CS Garment, Inc. v. CIR,
GR 182399, March 12, 2014
58
People v. Castaneda, GR L46881, Sept. 15, 1988
 While tax amnesty, similar to a tax exemption, must be construed
strictly against the taxpayer and liberally in favor of the taxing
authority, it is also a well-settled doctrine that the rule-making power of
administrative agencies cannot be extended to amend or expand statutory
requirements or to embrace matters not originally encompassed by the
law. Administrative regulations should always be in accord with the
provisions of the statute they seek to carry into effect, and any resulting
inconsistency shall be resolved in favor of the basic law.59

42. May the creditable withholding taxes be the subject of tax amnesty?

No. Just like in the compromise settlement of tax liability of a

taxpayer, withholding taxes cannot fall within the coverage of tax
amnesty because the same is not one of the taxes for which a taxpayer is
directly liable. Withholding tax is just a mode of collecting the tax and
the tax that is being withheld is treated as a trust fund which should be
remitted to the government because it is not a personal tax liability of the
withholding agent, but that of the payor, which should have been
remitted to the government when the same was withheld from the
taxpayer.60

XI. Tax Pyramiding

43. What is the meaning of "tax pyramiding"? What is its basis in law?
BQ2006

“Tax pyramiding” refers to the imposition of a tax upon a tax.

This occurs when some or all of the stages of distribution of goods or
services are taxed, with the accumulation borne by the final consumer.
There is tax pyramiding when sales taxes are applied to both inputs and
outputs, thus shifting all the tax burden to the end consumer. It has no
basis whether in fact or in law because it violates the principle of
uniformity and neutrality in taxation. Tax pyramiding has, since 1922,
been rejected by the Supreme Court, the legislature, and our tax
authorities.61

XII. Doctrine of Piercing the Veil of Corporate Fiction

44. What is the “Doctrine of Piercing the Veil of Corporate Fiction”?

BQ2013

59
CS Garment, Inc. v. CIR , G.R. 182399, March 12, 2014
60
RMC 61-2014 (July 30, 2014)
61
CIR v. American Rubber Co., 18 SCRA 842 (1966); Pp. v. Sandiganayan, 467 SCRA 137 (2005)
 Under the “doctrine of piercing the veil of corporate fiction,” the court
looks at the corporation as a mere collection of individuals or an
aggregation of person undertaking business as a group, disregarding the
separate juridical personality of the corporation unifying the group.62
Another formulation of this doctrine is that when two business
enterprises are owned, conducted and controlled by the same parties,
both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct
entities and treat them as identical or as one and the same.63

It was held that while a corporation may exist for any lawful
purpose, the law will regard it as an association of persons or, in case of
two corporations, merge them into one, when its corporate legal entity is
used as a cloak for fraud or illegality. The doctrine applies only when
such corporate fiction is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, or when it is made as a shield to confuse
the legitimate issues, or where a corporation is the mere alter ego or
business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.

45. May the stockholders be held personally liable for the unpaid taxes of
a dissolved corporation?

A corporation, upon coming into existence, is invested by law

with a personality separate and distinct from those of the persons
composing it as well as from any other legal entity to which it may be
related. For this reason, a stockholder is generally not made to answer for
the acts or liabilities of the corporation, and vice versa. The separate and
distinct personality of the corporation is, however, a mere fiction
established by law for convenience and to promote the ends of justice. It
may not be used or invoked for ends that subvert the policy and purpose
behind its establishment, or intended by law to which the corporation
owes its being. This is true particularly when the fiction is used to defeat
public convenience, to justify wrong, to protect fraud, to defend crime, to
confuse legitimate legal or judicial issues, to perpetrate deception or
otherwise to circumvent the law. This is likewise true where the corporate
entity is being used as an alter ego,64 adjunct, or business conduit for the
sole benefit of the stockholders or of another corporate entity. In such

62
Kukan International Corp. v. Reyes, 631 SCRA 596 (2010)
63
Pantranco Employees Association v. NLRC, GR L-10689, March 17, 2009 (581 SCRA 598 )
64
In applying the "instrumentality" or" alter ego" doctrine, the courts are concerned with reality,
not form, and with how the corporation operated and the individual defendant's relationship to the operation.
instances, the veil of corporate entity will be pierced or disregarded with
reference to the particular transaction involved.65

Thus, 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 vested by law with a
personality that is separate and distinct from those of the persons
composing it.66

However, stockholders may be held liable for the unpaid taxes of

a dissolved corporation if it appears that the corporate assets have passed
into their hands.67 Likewise, when stockholders have unpaid
subscriptions to the capital of the corporation, they can be made liable for
unpaid taxes of the corporation to the extent of their unpaid subscription.

XIII. Doctrine of Usage

46. What is the “Doctrine of Usage”?

This is the test of exemption on real property tax provided in the

1987 Constitution which mandates that such real properties of non-stock
non-profit educational institutions shall be exempt from the real property
tax if the said properties are actually, directly and exclusively USED for
religious, charitable or educational purpose. The gauge of exemption is
the USE of the property, NOT the ownership, and in accordance with
the enabling law under Sec. 23468 of the Local Government Code of 1991.

XIV. Marshall Dictum

47. What does the “Marshall Dictum” state?

65
Land Bank of the Philippines v. Court of Appeals, G.R. 127181, Sept.. 4, 2001 (364 SCRA 375)
cited in Commissioner of Customs v. Oilink International Corp., GR 161759, July 2, 2014
66
Sunio v. NLRC, 127 SCRA 390 (1984)
67
Tan Tiong Bio v. CIR, 4 SCRA 986 (1962)
68
SEC. 234. Exemptions from Real Property Tax. - The following are exempted from payment of
the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit
or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or -controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R. A. No. 6938
(now RA 9520); and
(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -
controlled corporations are hereby withdrawn upon the effectivity of this Code. (Local Government Code)
 The Marshall Dictum69 states that “the power to tax is the power
to destroy”, which refers to the unlimitedness and the degree or vigor
with which the taxing power may be employed to raise revenue. The
financial needs of the 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.

However, Marshall Dictum has no application to a lawful tax.

This may be true only if the Legislature has no power to tax. It has no
relation to a case where such right exists, because the power to destroy
may be a consequence of taxation but it cannot and should not tax to the
point of being confiscatory.

XV. Holmes Doctrine

48. What does the “Holmes Doctrine” state?

The Holmes Doctrine,70 on the other hand, states that “the power
to tax is not the power to destroy while the Supreme Court sits.” The
power to tax knows no limit except those expressly stated in the
Constitution.It only means that in the exercise of the taxing power, the
authority should not violate the Constitutional, inherent and contractual
limitations of taxation, otherwise the court has the primordial duty to
declare the same void and unconstitutional, thereby preventing the
destructive nature of the power of taxation.

XVI. Doctrine of Estoppel

49. How is the "Doctrine of Estoppel" applied in taxation? Is there any

exception?

General Rule: It is rule in taxation that estoppel does not apply to

the government, especially on matters of taxation. It does not prevent the
government from collecting taxes; it is not bound by the mistake or
negligence of its agents. The rule is based on the political law concept “the
king can do no wrong,”71 which likens a state to a king; it does not commit
mistakes, and it does not sleep on its rights. The analogy fosters
inequality between the taxpayer and the government, with the balance
tilting in favor of the latter. This concept finds justification in the theory

69
(Marshall Dictum) U.S. Chief Justice Marshall in McCulloch v. Maryland, 17 U.S. 316, 4
Wheat, 316, 4 L Ed. 579 (1819)
70
Panhandle Oil Co. v. Mississipi ex rel Knox 277 U.S. 233 (1928) (Justice Oliver Wendell Holmes,
Jr.)
71
Eric R. Recalde, A Treatise on Tax Principles and Remedies, p. 33 (2009)
and reality that government is necessary, and it must therefore collect
taxes if it is to survive. Thus, the mistake or negligence of government
officials should not bind the state, lest it bring harm to the government
and ultimately the people, in whom sovereignty resides. 72 Upon taxation
depends the ability of the government to serve the people for whose
benefit taxes are collected. To safeguard such interest, neglect or omission
of government officials entrusted with the collection of taxes should not
be allowed to bring harm or detriment to the people."73

Taxes are the nation’s lifeblood through which government

agencies continue to operate and with which the State discharges its
functions for the welfare of its constituents.74

Exception: However, while the State in the performance of

governmental function is not estopped by the neglect or omission of its
agents, and nowhere is this truer than in the field of taxation, yet this
principle cannot be applied to work injustice against an innocent party.

In one case, the Court held that "admittedly the government is not
estopped from collecting taxes legally due because of mistakes or errors
of its agents, but like other principles of law, this admits of exceptions in
the interest of justice and fair play, as where injustice will result to the
taxpayer by keeping the latter in the dark for so long, as to whether it is
liable for the tax and, if so, for how much." 75

XVII. Presumption Regarding the Constitutionality

or Validity of Tax Laws

50. What is the meaning of “Presumption regarding the constitutionality

or validity of tax laws”?

The constitutionality or validity of tax laws, orders, or such other

rules with the force of law cannot be attacked collaterally. There is a legal
presumption of validity of these laws and rules, and unless a law or rule
is annulled in a direct proceeding, the legal presumption of its validity
stands.76

Every presumption must be indulged in favor of the

constitutionality of a statute. The burden of proving the

72
CIR v. Procter & Gamble PMC, GR L-66838, April 15, 1988 (160 SCRA 560), cited in CIR v.
Raul M. Gonzales, G.R. 177279, Oct. 13, 2010
73
Visayas Geothermal Power Company v. CIR, G.R. 197525, June 4, 2014 (725 SCRA 130) cited
in CIR v. Nippon Express (Phils) Corp., GR 212920, Sept. 16, 2015
74
CIR v. Petron Corp., 668 SCRA 735 (2012)
75
Republic v. Ker & Co., 124 Phil. 822 (1966); CIR v. Gonzalez, 633 SCRA 139 (2010)
76
Chevron Phils., Inc. v. Commissioner of Customs, 561 SCRA 710 (2008)
unconstitutionality of a law rests on the party assailing the law. In
passing upon the validity of an act of a co-equal and coordinate branch of
the government, courts must ever be mindful of the time-honored
principle that a statute is presumed to be valid.77

XVIII. Presumption of Regularity in the

Performance of Official Duty & Doctrine of Good Faith

51. What is the meaning of “presumption of regularity in the performance

of official duty”?

The presumption of regularity in the performance of official duty

cannot by itself overcome the presumption of innocence nor constitute
proof of guilt beyond reasonable doubt.78

52. What is the presumption regarding the assessments made by the

Commissioner or by his duly authorized representatives?

Tax assessments made by the CIR or by his duly authorized

representative shall be prima facie presumed correct and made in good
faith, and all presumptions are in favor of the correctness of a tax
assessment unless proven otherwise.79 The taxpayer has the burden of
proof of showing the incorrectness or inaccuracy of such assessment or its
details lies with the taxpayer. In the absence of proof of any irregularities
in the performance of duties, an assessment duly made by a Bureau of
Internal Revenue examiner and approved by his superior officers will
not be disturbed. Even an assessment based on estimates is prima facie
valid and lawful where it does not appear to have been arrived at
arbitrarily or capriciously. The burden of proof is upon the complaining
party to show clearly that the assessment is erroneous. Failure to present
proof of error in the assessment will justify the judicial affirmance of said
assessment. All presumptions are in favor of the correctness of tax
assessments. 80

53. What is the meaning of “Doctrine of Good Faith”?

“Good faith” is that state of mind denoting honesty of intention

and freedom from knowledge of circumstances which ought to put the
holder upon inquiry; an honest intention to abstain from taking any
unconscientious advantage of another, even through technicalities of law,

77
Republic v. Caguioa, GR 168584, Oct. 15, 2007(536 SCRA 193)
78
Valdez v. People, GR 170180, Nov. 23, 2007 (538 SCRA 611)
79
CIR v. Gonzalez, 633 SCRA 139 (2010)
80
CIR v. Kudos Metal Corp., G.R. 178087. May 5, 2010; CIR v. Traders Royal Bank, G.R. L-
167134, March 18, 2015
together with absence of all information, notice, or benefit or belief of
facts which render transaction unconscientious.81

XIX. Doctrine of Exhaustion of

Administrative Remedies

54. What is the meaning of “Doctrine of Exhaustion of Administrative

Remedies”?

It is settled that the premature invocation of the court's

intervention is fatal to one's cause of action -- if a remedy within the
administrative machinery can still be resorted to by giving the
administrative officer every opportunity to decide on a matter that comes
within his jurisdiction then such remedy must first be exhausted before
the court's power of judicial review can be sought.

The party with an administrative remedy must not only initiate

the prescribed administrative procedure to obtain relief but also pursue it
to its appropriate conclusion before seeking judicial intervention in order
to give the administrative agency an opportunity to decide the matter
itself correctly and prevent unnecessary and premature resort to the
court.82

Nonetheless, jurisprudence allows certain exceptions to the rule

on exhaustion of administrative remedies. The doctrine of exhaustion of
administrative remedies is a relative one and its flexibility is called upon
by the peculiarity and uniqueness of the factual and circumstantial
settings of a case. Hence, it is disregarded

(1) when there is a violation of due process,

(2) when the issue involved is purely a legal question,
(3) when the administrative action is patently illegal amounting to
lack or excess of jurisdiction,
(4) when there is estoppel on the part of the administrative agency
concerned,
(5) when there is irreparable injury,
(6) when the respondent is a department secretary whose acts as
an alter ego of the President bears the implied and assumed approval of
the latter,
(7) when to require exhaustion of administrative remedies would
be unreasonable,
(8) when it would amount to a nullification of a claim,

81
Civil Service Commission v. Maala, G.R. 165523, Aug. 18, 2005 (467 SCRA 390)
82
RCBC v. CIR, G.R.L-170257, Sept. 7, 2011
 (9) when the subject matter is a private land in land case
proceedings,
(10) when the rule does not provide a plain, speedy and adequate
remedy,
(11) when there are circumstances indicating the urgency of
judicial intervention, and
(12) when the exhaustion will result in an exercise in futility.83

XX. Doctrine of Operative Fact

55. What is the “Doctrine of Operative Fact”?

The GENERAL RULE is that a void law or administrative act

cannot be the source of legal rights or duties. Article 7 of the Civil Code
enunciates this general rule, as well as its exception. “Laws are repealed
only by subsequent ones, and their violation or non-observance shall not
be excused by disuse, or custom or practice to the contrary. When the
courts declared a law to be inconsistent with the Constitution, the former
shall be void and the latter shall govern. Administrative or executive
acts, orders and regulations shall be valid only when they are not
contrary to the laws or the Constitution.”

The “doctrine of operative fact” is, however, an EXCEPTION to

that general rule, such that it recognizes that a judicial declaration of
invalidity may not necessarily obliterate all the effects and consequences of a void
act prior to such declaration.84 A legislative or executive act, prior to its
being declared as unconstitutional by the courts, is valid and must be
complied with. This doctrine is in fact incorporated in Section 246 of the
Tax Code which provides that taxpayers may rely upon a rule or ruling
issued by the Commissioner from the time the rule or ruling is issued up
to its reversal by the Commissioner or by the Court. The reversal is not
given retroactive effect. This, in essence is the doctrine of operative fact.
There must, however, be a rule or ruling issued by the Commissioner or
by the judiciary that is relied upon by the taxpayer in good faith. A mere
administrative practice, not formalized into a rule or ruling, will not
suffice because such a mere administrative practice may not be uniformly
and consistently applied. An administrative practice, if not formalized as
a rule or ruling, will not be known to the general public and can be
availed of only by those with informal contacts with the government
agency.85

83
Commissioner of Customs v. Oilink Intl. Corp., GR 161759, July 2, 2014’ Banco De Oro v. RP
& CIR, G.R. 198756, Jan. 13, 2015
84
Republic v. CA, GR 79732, Nov. 8, 1993 (227 SCRA 509)
85
CIR v. San Roque Power Corp., GR 187485, Oct. 8, 2013; CIR v. Puregold Duty Free, Inc., GR
202789, June 22, 2015
 XXI. Principle of “Pacta Sunt Servanda”

56. What is the principle of “Pacta Sunt Servanda”?

The Philippine Constitution provides for adherence to the general

principles of international law as part of the law of the land. The time
honored international principle of ‘pacta sunt servanda’ demands the
performance in good faith of treaty obligations on the part of the states
that enter into the agreement. In this jurisdiction, treaties have the force
and effect of law.86

XXII. Doctrine of “Stare Decisis”

57. What is the Doctrine of “Stare Decisis”?

Time and again, the Court has held that it is a very desirable and
necessary judicial practice that when a court has laid down a principle of
law as applicable to a certain state of facts, it will adhere to that principle
and apply it to all future cases in which the facts are substantially the
same. Stare decisis et non quieta movere. Stand by the decisions and disturb
not what is settled. Stare decisis simply means that for the sake of
certainty, a conclusion reached in one case should be applied to those that
follow if the facts are substantially the same, even though the parties may
be different. It proceeds from the first principle of justice that, absent any
powerful countervailing considerations, like cases ought to be decided
alike. Thus, where the same questions relating to the same event have
been put forward by the parties similarly situated as in a previous case
litigated and decided by a competent court, the rule of stare decisis is a bar
to any attempt to relitigate the same issue.87

XXIII. Principle of Good Governance

58. How should the principle of good governance be applied?

The principle of good governance cannot, should not, be

trivialized nor oversimplified by tenuous whimpering and individualism
intended to detract from the urgent need to cleanse the Republic from a
mainstream culture of unabated corruption, perpetuated with impunity
and sense of self-entitlement. The issue at hand is not about who, but

86
Deutsche Bank AG Manila Branch v. CIR, cited in CBK Power Co. Ltd. v. CIR/CIR v. CBK
Power Co. Ltd. v. CIR,, G.R. 193383-84/G.R. 193407-08, Jan. 14, 2015
87
Fort Bonifacio Devt. Corp. v. CIR, G.R. Nos. 175707 / 180035 / 181092, Nov. 19, 2014; RP,
represented by the Bureau of Customs v. Pilipinas Shell Petroleum Corp., GR 209324, Dec. 9, 2015
what; it is not about individual loss, but about national gain. Whether
from the birth pains of reform, this nation can gain a foothold, nay, a
stride into restoring this nation into its prideful place from the clutches of
a “kleptocratic mafia” that had gained a strangehold into one of the
nation’s primary sources of revenue.88

XXIV. Doctrine of Primary Administative Jurisdiction

59. What is the “Doctrine of Primary Administrative Jurisdiction”?

The Doctrine of Primary Administrative Jurisdiction states that

“courts will not determine a controversy where the issue for resolution
demand the exercise of sound administrative discretion requiring the
special knowledge, experience and service of the administrative tribunal
to determine technical and intricate matters of fact.”89

88
DOF v. Judge Marino M. de la Cruz, Jr., GR 209331, Aug. 24, 2015
89
Nestle Phils, Inc. v. Uniwide Sales, Inc. 634 SCRA 232 (2010)