Association of Customs Brokers v. Municipal Board, G.R. No.

L-4376, May 22, 1953

Facts
The Municipal Board of Manila passed ordinance No. 3379 which imposes a property tax that is within the power of
the City under its revised charter.

The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority conferred by
section 18 (p) of Republic Act No. 409. Said section confers upon the municipal board the power "to tax motor and
other vehicles operating within the City of Manila the provisions of any existing law to the contrary notwithstanding."
It is contended that this power is broad enough to confer upon the City of Manila the power to enact an ordinance
imposing the property tax on motor vehicles operating within the city limits.

Issue
Whether or not Ordinance No. 3379 is valid? - NO

Ratio
Under section 70(b) of the Motor Vehicles Law (Act No. 3392):
“No further fees than those fixed in this Act shall be exacted or demanded by any public highway, bridge or ferry, or
for the exercise of the profession of chauffeur, or for the operation of any motor vehicle by the owner
thereof: Provided, however, That nothing in this Act shall be construed to exempt any motor vehicle from the
payment of any lawful and equitable insular, local or municipal property tax imposed thereupon. . .”
This provision should be construed as limiting the broad grant of power conferred upon the City of Manila by its
Charter to impose taxes, such that only property taxes may be imposed on motor vehicles operating within its
territorial jurisdiction.
Sec. 1 of Ordinance No. 3379 denominates the tax imposed as ad valorem (meaning tax proportional to value of the
property) and while as a rule an ad valorem tax is a property tax, such rule is not absolute. Rather, the character of the
tax (property v. excise) must be determined by its incidents, and from the natural and legal effect of the language
employed in the act or ordinance, and not by the name by which it is described, or by the mode adopted in fixing its
amount. Excise taxes are those imposed upon the performance of an act, enjoyment of a privilege, or the engaging in
an occupation.
The purpose of the ordinance is to raise funds for the repair, maintenance and improvement of the streets and bridges
in said city, something which the Motor Vehicles Law already addresses. The prohibition under sec. 70(b) is meant to
prevent municipal corporations from duplicating the levy since under sec. 73 of the same act, they already participate
in the distribution of the proceeds collected under the Motor Vehicles Law.
The SC also held that the ordinance infringes the rule of the uniformity of taxation ordained by our Constitution.
Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not
distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish
between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes
to Manila and uses its streets and public highways. The distinction is important if we note that the ordinance intends
to burden with the tax only those registered in the City of Manila as may be inferred from the word "operating" used
therein. The word "operating" denotes a connotation which is akin to a registration, for under the Motor Vehicle Law
no motor vehicle can be operated without previous payment of the registration fees. There is no pretense that the
ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for short errands, and it
cannot be denied that they contribute in no small degree to the deterioration of the streets and public highway. The
fact that they are benefited by their use they should also be made to share the corresponding burden. And yet such is
not the case. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

Philippine Acetylene v. Commissioner of Internal Revenue , G.R. No. L-19707, August 17, 1967

Facts
Philippine Acetylene Co Inc is a corporation engaged in the manufacture and sale of oxygen and acetylene gases.
During the period from June 2, 1953 to June 30, 1958, it made various sales of its products to the National Power
Corporation, an agency of the Philippine Government, and to the Voice of America an agency of the United States
Government. The sales to the NPC amounted to P145,866.70, while those to the VOA amounted to P1,683, on
account of which the Commission of Internal Revenue assessed against, and demanded from Philippine Acetylene
Co Inc. the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to Sec. 186 and Sec 183 of the
NIRC which involves the payment of percentage taxes.

Sec. 186. Percentage tax on sales of other articles.—There shall be levied, assessed and collected once only on every original
sale, …, intended to transfer ownership of, or title to, …a tax equivalent to seven per centum of the gross selling price
or gross value in money of the articles so sold, bartered exchanged, or transferred, such tax to be paid by the
manufacturer or producer: . . . .
Philippine Acetylene contends it has no liability for the payment of the tax on the ground that both NPC and VOA
are exempt from taxation. NPC enjoys a tax exemption by virtue of an act of Congress and the immunity would be
impaired by the imposition of a tax on sales made to it because while the tax is paid by the manufacturer or producer,
the tax is ultimately shifted by the latter to the former. It invokes in support of its position a 1954 opinion of the Sec
of Justice which ruled that NPC is exempt from payment of all taxes "whether direct or indirect."

Issue
Whether or not Philippine Acetylene is exempt from paying tax on sales it made to NPC and VOA because both are
exempt from taxation? - NO

Ratio
The tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or producer and
not a tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly its levy on the
sales made to tax-exempt entities like the NPC is permissible. The sales to the VOA are subject to the payment of
percentage taxes under section 186 of the Code. Only sales made "for exclusive use in the construction, maintenance,
operation or defense of the bases," in a word, only sales to the quartermaster, are exempt under article V from taxation.
Sales of goods to any other party even if it be an agency of the United States, such as the VOA, or even to the
quartermaster but for a different purpose, are not free from the payment of the tax.

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a
part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the
purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount
received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The
effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the
goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the
goods and for nothing else. (Philippine Acetylene Co. vs. Blaquera, GR L-13728, 1962). But the tax burden may not
even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics.
Then it can no longer be contended that a sales tax is a tax on the purchaser.

Maceda v. Macaraig, G.R. No. 88291, May 31, 1991

Facts
R.A. No. 358 and P.D. No. 380 granted the National Power Corporation (NPC) tax and duty exemption privileges.
Later on, P.D. No. 1931 withdrew all the tax exemption privileges granted in favor of all government-owned or
controlled corporations, including their subsidiaries. However, the said law empowered the President and/or the then
Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or
totally, the exemption withdrawn, or otherwise revise the scope and coverage of any applicable tax and duty. Pursuant
to the said law, FIRB restored the tax and duty exemption privileges of NPC. However, in 1987, E.O. No. 93 once
again withdrew all tax and duty incentives granted to government and private entities which had been restored under
P.D. No. 1931 but it gave authority to FIRB to restore, revise the scope and prescribe the date of effectivity of such
tax and/or duty exemptions. FIRB restored NPC’s tax and duty exemption privileges in a resolution which was
confirmed and approved by the President through Exec. Sec. Macaraig Jr.
Maceda filed this petition to nullify the decisions, orders, rulings and resolutions exempting NPC from indirect tax
and duties. He argued, among others, that the power conferred upon FIRB by E.O. No. 93 constituted undue
delegation of legislative power.

Issue
Whether or not NPC is liable for indirect tax? - NO

Ratio
The NPC is exempted to pay indirect taxes. The SC distinguished direct tax from indirect tax. Direct Tax is that where
the person supposed to pay the tax really pays it without transferring the burden to someone else. Indirect Tax is that
where the tax is imposed upon goods before reaching the consumer who ultimately pays for it, not as a tax, but as a
part of the purchase price.
In view of all the foregoing, the SC ruled and declared that the oil companies which supply bunker fuel oil to NPC
have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect taxation, the
economic burden of such taxation is expected to be passed on through the channels of commerce to the user or
consumer of the goods sold. Because, however, the NPC has been exempted from both direct and indirect taxation,
the NPC must beheld exempted from absorbing the economic burden of indirect taxation. This means, on the one
hand, that the oil companies which wish to sell to NPC absorb all or part of the economic burden of the taxes
previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from indirect taxes. This
means also, on the other hand, that the NPC may refuse to pay the part of the "normal" purchase price of bunker
fuel oil which represents all or part of the taxes previously paid by the oil companies to BIR. If NPC nonetheless
purchases such oil from the oil companies — because to do so may be more convenient and ultimately less costly for
NPC than NPC itself importing and hauling and storing the oil from overseas — NPC is entitled to be reimbursed
by the BIR for that part of the buying price of NPC which verifiably represents the tax already paid by the oil company-
vendor to the BIR.

Commissioner of Internal Revenue v. John Gotamco, G.R. No. L-31092, February 27, 1987

Facts
The World Health Organization (WHO), an international organization exempt from all direct and indirect taxes under
its Host Agreement with the Philippine Government concluded on July 22, 1951, decided to have a building
constructed to house its offices in the Philippines. Pursuant to this, it entered into an additional agreement with the
Philippines government, and part of the agreement granted the WHO permission to “import into the country
materials and fixtures required for the construction free from all duties and taxes” and stipulated that the WHO was
“not to utilize any portion of the international reserves of the Government.”

The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on February
10, 1958 for the stipulated price of P370,000.00, but when the building was completed the price reached a total of
P452,544.00.

On May 1958, the BIR released an opinion that the receipts of Gotamco derived from the construction of the WHO
office building was exempt under the 1951 Host Agreement. In June of that year, however, the BIR reversed its
opinion and claimed that the 3% contractor's tax was in the nature of an excise tax, which is a charge imposed upon
the performance of an act, the enjoyment of a privilege or the engaging in an occupation. The BIR claimed that the
contractor’s tax “is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor,”
and was thus not exempted.

Issue
Whether or not the contractor’s tax is an excise tax payable by the contractor alone and not a direct/indirect tax on
the WHO? - NO

Ratio
The contractor’s tax is not an excise tax. Although the contractor’s tax is paid by the contractor, it is a burden that
can be shifted to WHO as a matter of business practice. An indirect tax is defined as a tax demanded in the first
instance from one person in the expectation and intention that he can shift the burden to someone else. This is exactly
how the contractor’s tax operates. Being thus exempt from direct and indirect taxes under the Host Agreement, the
construction contract should thus be exempt from taxes.

The petitioner’s reliance on Philippine Acetylene Company versus Commissioner of Internal Revenue, et al. is misplaced. In that
case, the tax in question was a sales tax, which by law must be paid specifically by the manufacturer or the producer.
Even if the manufacturer or producer adds the value of the tax to the sale price, such addition does not convert the
sales tax into a “tax on the purchaser.” It is therefore not analogous to a contractor’s tax.

CIR v. PLDT, G.R. No. 140230, December 15, 2005

FACTS
PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to install, operate and maintain a
telecommunications system throughout the Philippines. For equipment, machineries and spare parts it imported for
its business on different dates from October 1, 1992 to May 31, 1994, PLDT paid the BIR the amount of
P164,510,953.00, broken down as follows: (a) compensating tax of P126,713,037.00; advance sales tax of
P12,460,219.00 and other internal revenue taxes of P25,337,697.00. For similar importations made between March
1994 to May 31, 1994, PLDT paid P116,041,333.00 value-added tax (VAT). On March 15, 1994, PLDT addressed a
letter to the BIR seeking a confirmatory ruling on its tax exemption privilege under Section 12 of R.A. 7082. PLDT
filed on December 2, 1994 a claim for tax credit/refund of the VAT, compensating taxes, advance sales taxes and
other taxes it had been paying" in connection with its importation of various equipment, machineries and spare parts
needed for its operations".

ISSUE
WON the grant of 3% franchise tax to PLDT in lieu of all taxes on the franchise or earnings covers exemptions from
paying VAT, Compensating tax and advance sales tax

HELD
No. The phrase “in lieu of all taxes” found in Section 12 of R.A. 7082 refers to exemption from “direct taxes only”
and does not cover “indirect taxes” such as VAT, Compensating tax and advance sales tax. Direct taxes are those that
are exacted from the very person who, it is intended or desired, should pay them. They are impositions for which a
taxpayer is directly liable on the transaction or business he is engaged in. On the other hand, indirect taxes are those
that are demanded from or paid by one person in the expectation and intention that he can shift the burden to
someone else.

CIR v. Acesite

FACTS
Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases 6,768.53 square meters of the
hotel’s premises to the Philippine Amusement and Gaming Corporation for casino operations and caters food and
beverages to PAGCOR’s casino patrons through the hotel’s restaurant outlets.

For the period January 96 to April 1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental income
and sale of food and beverages to PAGCOR during said period. Acesite tried to shift the said taxes to PAGCOR by
incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax
exempt status.

PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the VAT to the
Commissioner of Internal Revenue. However, Acesite belatedly arrived at the conclusion that its transaction with
PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. Acesite filed an administrative claim for
refund with the CIR but the latter failed to resolve the same. Acesite filed a petition with the Court of Tax Appeals

CTA Decision: Petitioner is subject to zero percent tax insofar as its gross income from rentals and sales to
PAGCOR, a tax exempt entity by virtue of a special law. Accordingly, the amounts of P21,413,026.78 and
P8,739,865.24, representing the 10% EVAT on its sales of food and services and gross rentals, respectively from
PAGCOR shall be refunded to the petitioner.

CA Decision: PAGCOR was not only exempt from direct taxes but was also exempt from indirect taxes like the
VAT and consequently, the transactions between respondent Acesite and PAGCOR were "effectively zero-rated"
because they involved the rendition of services to an entity exempt from indirect taxes.

ISSUE
(1) Whether PAGCOR’s tax exemption privilege includes the indirect tax of VAT to entitle Acesite to zero percent
(0%) VAT rate; and
(2) whether the zero percent (0%) VAT rate under then Section 102 (b)(3) of the Tax Code (now Section 108 (B)(3)
of the Tax Code of 1997) legally applies to Acesite.

HELD
1. Yes. PAGCOR is exempt from payment of indirect taxes It is undisputed that P.D. 1869, the charter creating
PAGCOR, grants the latter an exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides
exemption. Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers
to PAGCOR. Although the law does not specifically mention PAGCOR’s exemption from indirect taxes, PAGCOR
is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with
PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect
taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino
operations. The unmistakable conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither is
Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424. (Emphasis supplied.)

2. The manner of charging VAT does not make PAGCOR liable to said tax It is true that VAT can either be
incorporated in the value of the goods, properties, or services sold or leased, in which case it is computed as 1/11 of
such value, or charged as an additional 10% to the value. Verily, the seller or lessor has the option to follow either
way in charging its clients and customer. In the instant case, Acesite followed the latter method, that is, charging an
additional 10% of the gross sales and rentals. Be that as it may, the use of either method, and in particular, the first
method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.

3. Yes. VAT exemption extends to Acesite Thus, while it was proper for PAGCOR not to pay the 10% VAT charged
by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law
to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended
(now Sec. 108 [b] [3] of R.A. 8424), which provides: Section 102. Value-added tax on sale of services – (a) Rate and
base of tax – There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts
derived by any person engaged in the sale of services x x x; Provided, that the following services performed in the
Philippines by VAT-registered persons shall be subject to 0% (3) Services rendered to persons or entities whose
exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects
the supply of such services to zero (0%) rate (emphasis supplied).

4. Acesite paid VAT by mistake. Considering the foregoing discussion, there are undoubtedly erroneous payments of
the VAT pertaining to the effectively zero-rate transactions between Acesite and PAGCOR. Verily, Acesite has clearly
shown that it paid the subject taxes under a mistake of fact, that is, when it was not aware that the transactions it had
with PAGCOR were zero-rated at the time it made the payments. Solutio indebiti applies to the Government Tax
refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent laws governing this principle
are found in Arts. 2142 and 2154 of the Civil Code. When money is paid to another under the influence of a mistake
of fact, that is to say, on the mistaken supposition of the existence of a specific fact, where it would not have been
known that the fact was otherwise, it may be recovered. Action for refund strictly construed; Acesite discharged the
burden of proof Since an action for a tax refund partakes of the nature of an 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 convincingly.

PAGCOR v. BIR, G.R. No. 172087, March 15, 2011

Facts:
The Philippine Amusement and Gaming Corporation (PAGCOR) was created by P.D. No. 1067-A in 1977.
Obviously, it is a government owned and controlled corporation (GOCC).
In 1998, R.A. 8424 or the National Internal Revenue Code of 1997 (NIRC) became effective. Section 27 thereof
provides that GOCC’s are NOT EXEMPT from paying income taxation but it exempted the following GOCCs:
GSIS, SSS, PHILHEALTH, PCSO, and PAGCOR.

But in May 2005, R.A. 9337, a law amending certain provisions of R.A. 8424, was passed. Section 1 thereof excluded
PAGCOR from the exempt GOCCs hence PAGCOR was subjected to pay income taxation. In September 2005, the
Bureau of Internal Revenue issued the implementing rules and regulations (IRR) for R.A. 9337. In the said IRR, it
identified PAGCOR as subject to a 10% VAT upon items covered by Section 108 of the NIRC (Sale of Services and
Use or Lease of Properties).

PAGCOR questions the constitutionality of Section 1 of R.A. 9337 as well as the IRR. PAGCOR avers that the said
provision violates the equal protection clause. PAGCOR argues that it is similarly situated with SSS, GSIS, PCSO,
and PHILHEALTH, hence it should not be excluded from the exemption.
Issue:
Whether PAGCOR should be subjected to income taxation (YES)

Ratio:
Section 1 of R.A. 9337 is constitutional. It was the express intent of Congress to exclude PAGCOR from the exempt
GOCCs; hence, PAGCOR is now subject to income taxation.
The general rule is, ALL GOCC’s are subject to income taxation. However, certain classes of GOCC’s may be exempt
from income taxation based on the requisites for a valid classification under the principle of equal protection.

When the Supreme Court looked into the records of the deliberations of the lawmakers when R.A. 8424 was being
drafted, the SC found out that PAGCOR’s exemption was not really based on substantial distinctions. In fact, the
lawmakers merely exempted PAGCOR from income taxation upon the request of PAGCOR itself. This was changed
however when R.A. 9337 was passed and now PAGCOR is already subject to income taxation.

Anent the issue of the imposition of the 10% VAT against PAGCOR, the BIR had overstepped its authority. Nowhere
in R.A. 9337 does it state that PAGCOR is subject to VAT. Therefore, that portion of the IRR issued by the BIR is
void. In fact, Section 109 of R.A. 9337 expressly exempts PAGCOR from VAT. Further, PAGCOR’s charter exempts
it from VAT.

To recapitulate, PAGCOR is subject to income taxation but not to VAT.

Bloomberry Resorts v. BIR & Henares, G.R. No. 212530, August 10, 2016

Facts
On 8 April 2009, PAGCOR granted to petitioner a provisional license to establish and operate an integrated resort
and casino complex at the Entertainment City project site of PAGCOR. Petitioner and its parent company, Sureste
Properties, Inc., own and operate Solaire Resort & Casino. Thus, being one of its licensees, petitioner only pays
PAGCOR license fees, in lieu of all taxes, as contained in its provisional license and consistent with the PAGCOR
Charter or Presidential Decree (PD) No. 1869, which provides the exemption from taxes of persons or entities
contracting with PAGCOR in casino operations.

However, when Republic Act (R.A.) No. 9337 took effect, it amended Section 27(C) of the NIRC of 1997, which
excluded PAGCOR from the enumeration of government-owned or controlled corporations (GOCCs) exempt from
paying corporate income tax. The enactment of the law led to the case of PAGCOR v. The Bureau of Internal Revenue, et
al. where PAGCOR questioned the validity or constitutionality of R.A. No. 9337 removing its exemption from paying
corporate income tax, and therefore alleging the same to be void for being repugnant to the equal protection and the
non-impairment clauses embodied in the 1987 Philippine Constitution. Subsequently, the Court articulated that
Section 1 of RA No. 9337, amending Section 27(C) of the NIRC of 1997, which removed PAGCOR's exemption
from corporate income tax, was indeed valid and constitutional.

Consequently, in implementing the aforesaid amendments made by R.A. No. 9337, respondent issued RMC No. 33-
2013 dated 17 April 2013 declaring that PAGCOR, in addition to the five percent (5%) franchise tax of its gross
revenue under Section 13(2)(a) of PD No. 1869, is now subject to corporate income tax under the NIRC of 1997, as
amended. In addition, a provision therein states that PAGCOR's contractees and licensees, being entities duly authorized
and licensed by it to perform gambling casinos, gaming clubs and other similar recreation or amusement places, and
gaming pools, are likewise subject to income tax under the NIRC of 1997, as amended.

Issue
Whether or not RMC No. 33-2013 is valid or constitutional considering that Section l 3(2)(b) of PD No. 1869, as
amended (P AGCOR Charter), grants tax exemptions to such contractees and licensees? - YES

Ratio
The grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax.
This is the most sound and logical interpretation because PAGCOR could not have been exempted from paying taxes
which it was not liable to pay in the first place. This is clear from the wordings of P.D. No. 1869, as amended,
imposing a franchise tax of five percent (5%) on its gross revenue or earnings derived by PAGCOR from its operation
under the Franchise in lieu of all taxes of any kind or form, as well as fees, charges or levies of whatever nature, which
necessarily include corporate income tax.

There is no conflict between P.D. No. 1869, as amended, and R.A. No. 9337. The former lays down the taxes
imposable upon [PAGCOR], as follows: (1) a jive percent (5%) franchise tax of the gross revenues or earnings derived
from its operations conducted under the Franchise, which shall be due and payable in lieu of all kinds of taxes, levies,
fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or
national government authority; and (2) income tax for income realized from other necessary and related services, shows
and entertainment of [PAGCOR]. With the enactment of R.A. No. 9337, which withdrew the income tax exemption
under R.A. No. 8424, PAGCOR's tax liability on income from other related services was merely reinstated.

Even assuming that an inconsistency exists, P.D. No. 1869, as amended, which expressly provides the tax treatment
of [PAGCOR's] income prevails over R.A. No. 9337, which is a general law. It is a canon of statutory construction
that a special law prevails over a general law - regardless of their dates of passage - and the special is to be considered
as remaining an exception to the general.

Wells Fargo v. Collector of Internal Revenue, G.R. No. 46720. June 28, 1940

Facts
Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California, the place of her
alleged last residence and domicile. Among the properties she left her one-half conjugal share in 70,000 shares of
stock in the Benguet Consolidated Mining Company, an anonymous partnership (sociedad anonima), organized and
existing under the laws of the Philippines, with is principal office in the City of Manila. She left a will which was duly
admitted to probate in California where her estate was administered and settled.

Petitioner-appellant, Wells Fargo Bank & Union Trust Company, was duly appointed trustee of the created by the
said will. The Federal and State of California's inheritance taxes due on said shares have been duly paid. Respondent
Collector of Internal Revenue sought to subject anew the aforesaid shares of stock to the Philippine inheritance tax,
to which petitioner-appellant objected. Wherefore, a petition for a declaratory judgment was filed in the lower court,
with the statement that, "if it should be held by a final declaratory judgment that the transfer of the aforesaid shares
of stock is legally subject to the Philippine inheritance tax, the petitioner will pay such tax, interest and penalties
(saving error in computation) without protest and will not file to recover the same; and the petitioner believes and t
herefore alleges that it should be held that such transfer is not subject to said tax, the respondent will not proceed to
assess and collect the same."

The CFI of Manila rendered judgment, holding that the transmission by will of the said 35,000 shares of stock is
subject to Philippine inheritance tax. Hence, this appeal by the petitioner.

Issue
Whether or not the shares are subject to state tax in the Philippines? - YES

Ratio
The actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the
certificates of stock have remained in this country up to the time when the deceased died in California, and they were
in possession of one Syrena McKee, secretary of the Benguet Consolidated Mining Company, to whom they have
been delivered and indorsed in blank. This indorsement gave Syrena McKee the right to vote the certificates at the
general meetings of the stockholders, to collect dividends, and dispose of the shares in the manner she may deem fit,
without prejudice to her liability to the owner for violation of instructions. For all practical purposes, then, Syrena
McKee had the legal title to the certificates of stock held in trust for the true owner thereof. In other words, the owner
residing in California has extended here her activities with respect to her intangibles so as to avail herself of the
protection and benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must
be upheld.

CIR v. British Overseas Airways Corp. and CTA ,G.R. No. L-65773-74, April 30, 1987

Facts
British Overseas Airways Corp. (BOAC) is a British Corporation engaged in the international airline business. BOAC
had no landing rights and was not granted a Certificate of public convenience and necessity to operate in the
Philippines but it maintained a general sales agent in the country which was responsible for selling BOAC tickets for
passengers and cargoes.

CIR assessed British Overseas Airways Corp. (BOAC) for deficiency income taxes. BOAC paid under protest and
subsequently filed a request for refund. It contended that the proceeds of the sales of tickets do not constitute BOAC
income from Philippine sources and were, therefor, not taxable.

Issue
1. Whether or not BOAC is a resident corporation doing business in the Philippines-- YES
2. Whether or not the revenue derived by BOAC from sales of tickets in the Philippines constitute income from
Philippine sources-- YES

Ratio
BOAC is a resident foreign corporation subject to tax upon its total net income received from all sources in the
Philippines pursuant to Sec. 24 of the Tax Code.

In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of
conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a
temporary character. BOAC maintained a general sales agent in the Philippines which engaged in selling and issuing
tickets and other activities which were in exercise of the functions which were normally incident to, and are in
progressive pursuit of, the purpose and object of its organization as an international air carrier.

For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived
from activity within the Philippines. Sec. 37(a) of the Tax Code is not an all-inclusive enumeration of gross income
sources within the Philippines. In BOAC's case, the sale of tickets is the activity that produces the income. The tickets
exchanged hands here and payments were also made here. The site of the source of payments is the Philippines. The
flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the
Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting
the government. The absence of flight operations to and from the Philippines is not determinative of the source of
income or the site of income taxation. The test of taxability is the "source"; and the source of an income is that
activity ... which produced the income. Unquestionably, the passage documentations in these cases were sold in
the Philippines and the revenue therefrom was derived from a activity regularly pursued within the Philippines.

The ruling in JAL v. CIR does not apply. In that case, it was held the mere sale of tickets, unaccompanied by the
physical act of carriage of transportation, does not render the taxpayer therein subject to the common carrier's tax.
The common carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or removing passengers
and cargo from one place to another. Being an excise tax, the same can be levied by the State only when the acts,
privileges or businesses are done or performed within the jurisdiction of the Philippines. The subject matter of the
case under consideration is income tax.

AIR CANADA v. CIR, G.R. 169507, January 11, 2016

FACTS
Air Canada is a foreign corporation organized and existing under the laws of Canada. On April 24, 2000, it was granted
an authority to operate as an offline carrier by the Civil Aeronautics Board, subject to certain conditions,
which authority would expire on April 24, 2005. As an off-line carrier, Air Canada does not have flights originating
from or coming to the Philippines and does not operate any airplane in the Philippines. On July 1, 1999, Air Canada
engaged the services of Aerotel Ltd., Corp. (Aerotel) as its general sales agent in the Philippines. Aerotel sells Air
Canada’s passage documents in the Philippines.

For the period ranging from the third quarter of 2000 to the second quarter of
2002, Air Canada, through Aerotel, filed quarterly and annual income tax returns
and paid the income tax on Gross Philippine Billings in the total amount of
₱5,185,676.77. On November 28, 2002, Air Canada filed a written claim for refund of alleged erroneously paid income
taxes amounting to ₱5,185,676.77 before the Bureau of Internal Revenue (BIR). It’s basis was found in the revised
definition of Gross Philippine Billings under Section 28(A)(3)(a) of the 1997 National Internal Revenue
Code (NIRC).

To prevent the running of the prescriptive period, Air Canada filed a Petition for
Review before the Court of Tax Appeals (CTA). The CTA denied the petition. It found that Air Canada was engaged
in business in the Philippines through a local agent that sells airline tickets on its behalf. As such, it held that while
Air Canada was not liable for tax on its Gross Philippine Billings under Section 28(A)(3), it was nevertheless
liable to pay the 32% corporate income tax on income derived from the sale of airline tickets within the Philippines
pursuant to Section 28(A)(1). On appeal, the CTA En Banc affirmed the ruling of the CTA First Division.

ISSUES & HELD

1. Whether Air Canada is subject to the 2½% tax on Gross Philippine Billings pursuant to Section 28(A)(3).
– NO.

Air Canada is not is not liable to tax on Gross Philippine Billings under Section 28(A)(3). The tax attaches only when
the carriage of persons, excess baggage, cargo, and mail originated from the Philippines in a continuous and
uninterrupted flight, regardless of where the passage documents were sold. Not having flights to and from the
Philippines, petitioner is clearly not liable for the Gross Philippine Billings tax.

2. If not, whether Air Canada is a resident foreign corporation engaged in trade or business and thus,
can be subject to the regular corporate income tax of 32% pursuant to Section 28(A)(1) – YES.

Petitioner falls within the definition of resident foreign corporation under Section 28(A)(1), thus, it may be subject to
32% tax on its taxable income. The Court in Commissioner of Internal Revenue v. British Overseas Airways
Corporation declared British Overseas Airways Corporation, an international air carrier with no landing rights in the
Philippines, as a resident foreign corporation engaged in business in the Philippines through its local sales agent that
sold and issued tickets for the airline company. According to said case, there is no specific criterion as to
what constitutes “doing” or “engaging in” or “transacting” business. Each case must be judged in the light of
its peculiar environmental circumstances. The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of
the business organization.

An offline carrier is “any foreign air carrier not certificated by the Civil Aeronautics Board, but who maintains
office or who has designated or appointed agents or employees in the Philippines, who sells or offers for sale
any air transportation in behalf of said foreign air carrier and/or others, or negotiate for, or holds itself out by
solicitation, advertisement, or otherwise sells, provides, furnishes, contracts, or arranges for such transportation.”

Petitioner is undoubtedly “doing business” or “engaged in trade or business” in the Philippines. In the case at hand,
Aerotel performs acts or works or exercises functions that are incidental and beneficial to the purpose of
petitioner’s business. The activities of Aerotel bring direct receipts or profits to petitioner. Further, petitioner was
issued by the Civil Aeronautics Board an authority to operate as an offline carrier in the Philippines for a period of
five years. Petitioner is, therefore, a resident foreign corporation that is taxable on its income derived from sources
within the Philippines.

3. Whether the Republic of the Philippines-Canada Tax Treaty is enforceable. – YES.

While petitioner is taxable as a resident foreign corporation under Section 28(A)(1) on its taxable income
from sale of airline tickets in the Philippines, it could only be taxed at a maximum of 1½% of gross revenues, pursuant
to Article VIII of the Republic of the Philippines-Canada Tax Treaty that applies to petitioner as a “foreign
corporation organized and existing under the laws of Canada.”

The second paragraph of Article VIII states that “profits from sources within a
Contracting State derived by an enterprise of the other Contracting State from the operation of ships or aircraft in
international traffic may be taxed in the first-mentioned State but the tax so charged shall not exceed the lesser of a)
one and one-half per cent of the gross revenues derived from sources in that State; and b) the lowest rate of Philippine
tax imposed on such profits derived by an enterprise of a third State.”

“By reason of our bilateral negotiations with Canada, we have agreed to have our right to tax limited to a certain
extent.” Thus, we are bound to extend to a Canadian air carrier doing business in the Philippines through a local sales
agent the benefit of a lower tax equivalent to 1½% on business profits derived from sale of international air
transportation. Our 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. Every treaty
in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith. More
importantly, treaties have the force and effect of law in this jurisdiction. (Deutsche Bank AG Manila Branch v.
Commissioner of Internal Revenue).

4. Whether the appointment of a local general sales agent in the Philippines falls under the definition of
“permanent establishment” under Article V(2)(i) of the Republic of the Philippines-Canada Tax Treaty

Article V of the Republic of the Philippines-Canada Tax Treaty defines “permanent establishment” as
a “fixed place of business in which the business of the enterprise is wholly or partly carried on.” Specifically,
Article V(4) of the Republic of the Philippines-Canada Tax Treaty states that “a person acting in a Contracting State
on behalf of an enterprise of the other Contracting State shall be deemed to be a permanent establishment in the first-
mentioned State if . . . he has and habitually exercises in that State an authority to conclude contracts on behalf
of the enterprise, unless his activities are limited to the purchase of goods or merchandise for that
enterprise.”

Section 3 of The Civil Aeronautics Act of the Philippines, defines a general sales agent as “a person, not a bonafide
employee of an air carrier, who pursuant to an authority from an airline, by itself or through an agent, sells or offers
for sale any air transportation, or negotiates for, or holds himself out by solicitation, advertisement or otherwise
as one who sells, provides, furnishes, contracts or arranges for, such air transportation.”

Through the appointment of Aerotel as its local sales agent, petitioner is deemed to have created a “permanent
establishment” in the Philippines as defined under the Republic of the Philippines-Canada Tax Treaty. Aerotel is a
dependent agent of petitioner pursuant to the terms of the Passenger General Sales Agency Agreement
executed between the parties. It has the authority or power to conclude contracts or bind petitioner to contracts
entered into in the Philippines. A third-party liability on contracts of Aerotel is to petitioner as the principal, and not
to Aerotel, and liability to such third party is enforceable against petitioner. While Aerotel maintains a certain
independence and its activities may not be devoted wholly to petitioner, nonetheless, when representing petitioner
pursuant to the Agreement, it must carry out its functions solely for the benefit of petitioner and according to the
latter’s Manual and written instructions. Aerotel is required to submit its annual sales plan for petitioner’s approval.

In essence, Aerotel extends to the Philippines the transportation business of petitioner. It is a conduit or outlet
through which petitioner’s airline tickets are sold. Under Article VII of the Republic of the Philippines-Canada Tax
Treaty, the “business profits” of an enterprise of a Contracting State is “taxable only in that State, unless the enterprise
carries on business in the other Contracting State through a permanent establishment.” Thus, income attributable to
Aerotel or from business activities effected by petitioner through Aerotel may be taxed in the Philippines.

5. Whether petitioner Air Canada is entitled to the refund. – NO.

As discussed in South African Airways, the grant of a refund is founded on the assumption that the tax return is
valid, that is, the facts stated therein are true and correct. The deficiency assessment, although not yet final, created a
doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself
and without unquestionable evidence, cannot be the basis for the grant of the refund.

In this case, the P5,185,676.77 Gross Philippine Billings tax paid by petitioner was computed at the rate of 1
½% of its gross revenues amounting to P345,711,806.08149 from the third quarter of 2000 to the second
quarter of 2002. It is quite apparent that the tax imposable under Section 28(A)(l) of the 1997 NIRC 32% of taxable
income, that is, gross income less deductions will exceed the maximum ceiling of 1 ½% of gross revenues as decreed
in Article VIII of the Republic of the Philippines-Canada Tax Treaty. Hence, no refund is forthcoming.

Alcan Packaging Starpack Corporation v The Treasurer of the City of Manila

Facts:
- Alcan Packaging from 4th quarter of 1999 to third quarter of 2001paid business taxes (Php 4,527, 594.76) based on
Section 21 of Manila Revenue Code.
- City Treasurer continued collecting under Section 21 and the amended rates so Alcan Packaging applied for refund
of Php 4,527,494.76 and 728,845.62.
- Alcan: Section 14 is tax for the manufacturers of goods while 21 is tax on businesses and articles of commerce
subject to excise, value added and percentage taxes under NIRC in short, both taxes are local taxes imposed on same
activity by only one public authority and enforced within the same taxing jurisdiction for the purpose of raising
revenues for the city which become due at the same period = double taxation.
- City Treasurer denied that there was double taxation.
- RTC ruled that there was no double taxation. Section 21 was manufacturer’s tax while section 14 is end user tax.
- The publication of the ordinances that amended Sections 14 and 21 complied with the necessary publication rule.

Issue:
WON there was double taxation? – YES.

Ruling:
Section 151 and 143 of the Local Government Code: SEC. 151. Scope of Taxing Powers. - Except as otherwise
provided in this Code, the city may levy the taxes, fees, and charges which the province or municipality may impose:
Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent
component cities shall accrue to them and distributed in accordance with the provisions of this Code. The rates of
taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than
fifty percent (50%) except the rates of professional and amusement taxes.

SEC. 143. Tax on Business. - The municipality may impose taxes on the following businesses:

(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers and compounders of liquors,
distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance
with the following schedule:

XXX XXX XXX

(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem
proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National
Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of
the preceding calendar year. The Sanggunian concerned may prescribe a schedule of graduated taxes but in no case
to exceed the rates prescribed herein.

Section 14 and 21:

Section 14. - Tax on Manufacturers, Assemblers and other Processors. - There is hereby imposed a graduated tax on
manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers and compounders of liquors, distilled
spirits, and wines and manufacturers of any article of commerce of whatever kind or nature, in accordance with the
following schedule: x x x

Section 21. - Tax on Business Subject to the Excise, Value added or Percentage Taxes Under the NIRC. - On any of
the following businesses and articles of commerce subject to the excise, valueadded or percentage taxes under the
National Internal Revenue Code hereinafter the NIRC, as amended, a tax of fifty percent (50%) of one percent (1 %)
per annum on the gross sa les or receipts of the preceding calendar year is hereby imposed: A) On persons who sell
goods and services in the course of trade or business; and those who import goods whether for business or otherwise,
as provided for in sections 100 to 103 of the NIRC as administered and determined by the Bureau of Internal Revenue
pursuant to pertinent provisions of said code.
- The presence of “not otherwise specified in the preceding paragraphs” means that local government can only collect
either 14 or 21 and not both.

Villanueva v. City of Iloilo G.R. No. L-26521, December 28, 1968

Facts
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86. The Supreme Court, however,
declared the ordinance ultra vires. On January 15, 1960 the municipal board of Iloilo City, believing that with the
passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power
to enact an ordinance similar to that previously declared by the Supreme Court as ultra vires, enacted Ordinance 11
(eleven), series of 1960, imposing municipal license tax on persons engaged in the business of operating tenement
houses.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses,
aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of
ten apartments. By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva
and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza,
Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. On July 11, 1962
and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City
of Iloilo, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the
Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity
of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be
ordered to refund the amounts collected from them under the said ordinance. The lower court rendered judgment
declaring the ordinance illegal.

The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduction
of Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695, supra, as ultra vires, the decision in
that case should be accorded the effect of res judicata in the present case or should constitute estoppel by judgment.

Issue
Whether or not Ordinance 11 is void since it is a mere reproduction of Ordinance 86? - NO

Ratio
To dispose of this contention, it suffices to say that there is no identity of subject-matter in that case and this case
because the subject-matter in L-12695 was an ordinance which dealt not only with tenement houses but also
warehouses, and the said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance
in the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise no identity of
cause of action in the two cases because the main issue in L-12695 was whether the City of Iloilo had the power under
its charter to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act which took effect
on June 19, 1959, and therefore was not available for consideration in the decision in L-12695 which was promulgated
on March 23, 1959.

Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now tax any taxable
subject-matter or object not included in the enumeration of matters removed from the taxing power of local
governments. Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by local
governments were only those specifically authorized by law, and their power to tax was construed in strictissimi juris.

CIR v. Solidbank Corp.

Facts
The Court of Tax Appeals (CTA) held in Asian Ban Corp. v Commissioner, that the 20% FWT should not form part
of its taxable gross receipts for purposes of computing the tax. Solidbank, relying on the strength of this decision,
filed with the BIR a letter-request for the refund or tax credit. It also filed a petition for review with the CTA where
the it ordered the refund. The CA ruling, however, stated that the 20% FWT did not form part of the taxable gross
receipts because the FWT was not actually received by the bank but was directly remitted to the government. The
Commissioner claims that although the FWT was not actually received by Solidbank, the fact that the amount
redounded to the bank’s benefit makes it part of the taxable gross receipts in computing the Gross Receipts Tax.
Solidbank says the CA ruling is correct.

Issue
WON there was double taxation. – NO.
Ratio
The two taxes, subject of this litigation, are different from each other. The basis of their imposition may be the same,
but their natures are different, thus leading us to a final point. Double taxation means taxing the same property twice
when it should be taxed only once; that is, “x x x taxing the same person twice by the same jurisdiction for the same
thing.” It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as “direct
duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by the same
taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or
character.

CHINA BANKING CORPORATION v. COURT OF APPEALS, G.R. No. 146749, June 10, 2003

FACTS
Petitioner paid P12,354,933.00 as gross receipts tax on its income from interests on loan investments, commissions,
services, collection charges, foreign exchange profits and other operating earnings during the second quarter of 1994.
Citing Asian Bank, Petitioner argued that it was not liable for the gross receipts tax - amounting to P1,140,623.82 -
on the sums withheld by the Bangko Sentral ng Pilipinas as final withholding tax on its passive interest income in
1994. Disputing Petitioner’s claim, the Commissioner asserted that Petitioner paid the gross receipts tax pursuant to
Section 119 (now Section 121) of the National Internal Revenue Code ("Tax Code") and pertinent Bureau of Internal
Revenue ("BIR") regulations. Further it argued that the final withholding tax on a bank’s interest income forms part
of its gross receipts in computing the gross receipts tax. Contending that the term "gross receipts" means the entire
income or receipt, without any deduction. The Court of Tax Appeals ruled in favor of Petitioner and held that the
20% final withholding tax on interest income does not form part of CBC’s taxable gross receipts.

ISSUE
a. WON the 20% final withholding tax on interest income should form part of CBC’s gross receipts in computing
the gross receipts tax on banks. – YES.

b. WON there is double taxation. – NO.

HELD
a. The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld
comes from the income earned by the taxpayer. Since the amount of the tax withheld constitutes income earned by
the taxpayer, then that amount manifestly forms part of the taxpayer’s gross receipts. Because the amount withheld
belongs to the taxpayer, he can transfer its ownership to the government in payment of his tax liability. The amount
withheld indubitably comes from income of the taxpayer, and thus forms part of his gross receipts. Actual receipt of
interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive receipt.
When the depository bank withholds the final tax to pay the tax liability of the lending bank, there is prior to the
withholding a constructive receipt by the lending bank of the amount withheld. From the amount constructively
received by the lending bank, the depository bank deducts the final withholding tax and remits it to the government
for the account of the lending bank. Thus, the interest income actually received by the lending bank, both physically
and constructively, is the net interest plus the amount withheld as final tax.

b. There is no double taxation when Section 121 of the Tax Code imposes a gross receipts tax on interest income that
is already subjected to the 20% final withholding tax under Section 27 of the Tax Code. The gross receipts tax is a
business tax under Title V of the Tax Code, while the final withholding tax is an income tax under Title II of the
Code. There is no double taxation if the law imposes two different taxes on the same income, business or property.

Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc.

Facts
SC Johnson, a domestic corporation, entered into a license agreement with SC Johnson and Son, USA, a non-resident
foreign corporation based in the US, wherein SC Johnson was granted the right to use the trademark, patents and
technology owned by the latter including the right to manufacture, package and distribute the products covered by
the agreement and secure assistance in management, marketing and production from SC Johnson and Son, USA. The
agreement was duly registered with the Technology Transfer Board of the Bureau of Patents, Trade Marks and
Technology Transfer.
For the use of the trademark or technology, SC Johnson was obliged to pay SC Johnson and Son, USA royalties based
on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which the former
paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.

SC Johnson filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid
withholding tax on royalties (amounting to P963,266) arguing that the preferential tax rate of 10% should apply to
the it pursuant to the “most-favored nation” clause of the RP-US Tax Treaty in relation to the RP-West Germany
Tax Treaty.

Commissioner did not act on said claim. SC Johnson filed a petition for review before CTA. 5. CTA ruled in favour
of SC Johnson. CA affirmed in toto. CIR filed petition for review before SC.

Contentions of CIR:
· “Most favored nation” clause not applicable. The lowest rate of the Philippine tax at 10% may be imposed on
royalties derived by a resident of the United States from sources within the Philippines only if the circumstances of
the resident of the United States are similar to those of the resident of West Germany. Since the RP-US Tax Treaty
contains no "matching credit" provision as that provided under Article 24 of the RP-West Germany Tax Treaty, the
tax on royalties under the RP-US Tax Treaty is not paid under similar circumstances as those obtaining in the RP-
West Germany Tax Treaty.

· Even assuming that the phrase "paid under similar circumstances" refers to the payment of royalties, and not taxes,
still, the "most favored nation" clause cannot be invoked for the reason that when a tax treaty contemplates
circumstances attendant to the payment of a tax, or royalty remittances for that matter, these must necessarily refer
to circumstances that are tax-related.

· Since SC Johnson's invocation of the "most favored nation" clause is in the nature of a claim for exemption from
the application of the regular tax rate of 25% for royalties, the provisions of the treaty must be construed strictly
against it.

ISSUEW
WoN SC Johnson is entitled to the “most favored nation” tax rate of 10%. – NO.

DISPOSITION: Petition GRANTED. CA SET ASIDE.

1. The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into for the
avoidance of double taxation. The purpose of these international agreements is to reconcile the national fiscal
legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different
jurisdictions. Tax conventions are drafted with a view towards the elimination of international juridical double
taxation, which is defined as 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. The apparent rationale for doing away with double taxation is of
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. Foreign investments will only thrive in
a fairly predictable and reasonable international investment climate and the protection against double taxation is
crucial in creating such a climate. (RELEVANT)

2. In order to eliminate double taxation, a tax treaty resorts to several methods.

· First, it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard
to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting
states; however, for other items of income or capital, both states are given the right to tax, although the amount of
tax that may be imposed by the state of source is limited.

· Second method applies whenever the state of source is given a full or limited right to tax together with the state of
residence. In this case, the treaties make it incumbent upon the state of residence to allow relief in order to avoid
double taxation. There are two methods of relief — the exemption method and the credit method.

Ø Exemption Method - the income or capital which is taxable in the state of source or situs is exempted in the state
of residence, although in some instances it may be taken into account in determining the rate of tax applicable to the
taxpayer's remaining income or capital

Ø Credit Method - although the income or capital which is taxed in the state of source is still taxable in the state of
residence, the tax paid in the former is credited against the tax levied in the latter (RELEVANT)

· The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. Article 24
of the RPGermany Tax Treaty expressly allows crediting against German income and corporation tax of 20% of the
gross amount of royalties paid under the law of the Philippines. On the other hand, Article 23 of the RP-US Tax
Treaty, which is the counterpart provision with respect to relief for double taxation, does not provide for similar
crediting of 20% of the gross amount of royalties paid. HENCE, SC Johnson is not entitled to the 10% preferential
rate. (RELEVANT)
Delpher Trades Corp. v. IAC, G.R. No. 69259, January 26, 1988

Facts
Delphin Pacheco and his sister, Pelagia, owned a lot in Malinta Estate, Polo, Bulacan. The co-owners leased the
property to Construction Components International Inc. (CCII) and gave the same the right of first refusal. 4 months
later, CCII assigned its rights and obligations under the contract to Hydro Pipes Philippines, Inc. (HPPI), with the
signed conformity of the siblings. The lease and its assignment were annotated at the back of the title. A Deed of
Exchange was executed where the Siblings conveyed to Delpher Trades Corporation the leased property and another
parcel of land for 2500 shares of stock of defendant with a total value of P1.5M. HPPI filed a complaint for
reconveyance of the lot in his favor and argued that it was not given the first option to buy the leased property. The
CFI ruled in favor of the plaintiff, which the IAC affirmed. Petitioner now claims that the denial of the petition will
work a great injustice to them in that HPPI will acquire the lot for only P14/sqm although the prevailing value is
P300/sqm and also given that HPPI is allowed to exercise its right of first refusal even if there is no sale or transfer
of actual ownership. Eduardo Neria, a CPA and son-in-law of Pelagia Pacheco, testified that DTC is a family
corporation organized by the children of Pelagia, together with the children of Delfin. He further testified that the
corporation was organized to perpetuate control over the property through the corporation and to avoid taxes and in
this wise, two pieces of real estate leased to HPPI were transferred to DTC through the Deed of Exchange.

Issue
WON there was a transfer of ownership? – No.
WON DTC has a basis for its claim of a right of first refusal? – No.

Ratio
After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from
the corporation or from individual owners thereof. In exchange for their properties, the Pachecos acquired 2,500
original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos
became stockholders of the corporation by subscription. It is to be stressed that by their ownership of the 2,500 no
par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the
other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business
conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership
from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their
properties and at the same time save on inheritance taxes.

The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the
Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether
avoid them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal
Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).

The “Deed of Exchange” of property between the Pachecos and Delpher Trades Corporation cannot be considered
a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco
family merely changed their ownership from one form to another. There was no transfer of ownership. Hence, the
private respondent has no basis for its claim of a right of first refusal under the lease contract.

Yutivo Sons Hardware v. CTA, G.R. No. L-13203, January 28, 1961

Facts
Petitioner Yutivo Sons Hardware Co. (Yutivo) bought a number of cars and trucks from General Motors Overseas
Corporation (GM). As an importer, GM paid sales tax prescribed by sections 184-186 of the Tax Code on the basis
of its selling price to Yutivo. Said tax being collected only once on original sales, Yutivo paid no further sales tax on
its sales to the public. In 1946, the Southern Motors, Inc. (SMI) was organized to engage in the business of selling
cars, trucks and spare parts. After the incorporation of SMI, the cars and tracks purchased by Yutivo from GM were
sold by Yutivo to SMI which, in turn, sold them to the public in the Visayas and Mindanao. In 1947, when GM
decided to withdraw from the Philippines, Yutivo was appointed as importer for Visayas and Mindanao, and Yutivo
continued its previous arrangement of selling exclusively to SMI. Yutivo as importer, paid sales tax prescribed on the
basis of its selling price to SMI, and since such sales tax is collected only once on original sales, SMI paid no sales tax
on its sales to the public. In 1950, the CIR made an assessment upon Yutivo and demanded P1,804,769.85 as
deficiency sales tax plus surcharge from 1947-1949, claiming that the taxable sales were the retail sales by SMI to the
public and not the sales at wholesale made by Yutivoto the latter inasmuch as SMI and Yutivowere one and the same
corporation, the former being the subsidiary of the latter. After another investigation, the Respondent Collector, re-
determined that the tax assessment was lawfully due the government and assessed deficiency sales tax due for the four
quarters of 1950. This second assessment was contested by the petitioner Yutivo before the CTA. The CTA sustained
the respondent’s theory that there was no legitimate or bona fide purpose in the organization of SMI — the apparent
objective of its organization being to evade the payment of taxes — and that it was owned and controlled by Yutivo
as a mere subsidiary, branch, adjunct, conduit, instrumentality or alter ego of the latter.

Issue
WON SMI was organized to defraud the government? – No.

Ratio
Sections 184-186 of the Tax Code provides that the sales tax shall be collected "once only on every original sale, barter,
exchange…to be paid by the manufacturer, producer or importer." The use of the word "original" and the express provision
that the tax was collectible "once only" evidently has made the provisions susceptible of different interpretations. 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. Any legal means by the taxpayer to reduce taxes are permissible. A man may, therefore,
perform an act that he honestly believes to be sufficient to exempt him from taxes. He does not incur fraud thereby
even if the act is thereafter found to be insufficient.

The CTA was not justified in finding that SMI was organized for no other purpose than to defraud the Government
of its lawful revenues. The corporation was organized in June, 1946 when it could not have caused Yutivo any tax
savings. The decision of the Tax Court that SMI was organized purposely as a tax evasion device runs counter to the
fact that there was no tax to evade. The intention to minimize taxes, when used in the context of fraud, must be
proved to exist by clear and convincing evidence amounting to more than mere preponderance, and cannot be justified
by a mere speculation. This is because fraud is never lightly to be presumed. SMI was organized and it operated under
circumstances that belied any intention to evade sales taxes. "Tax evasion" is a term that connotes fraud through the
use of pretenses and forbidden devices to lessen or defeat taxes. The transactions between Yutivo and SMI, however,
have always been in the open, embodied in private and public documents, constantly subject to inspection by the tax
authorities. When Yutivo became the importer, it merely continued the method of distribution that it had initiated
long before GM withdrew from the Philippines.

Republic v. Gonzales, G.R. No. L-17962, April 30, 1965

Facts
Since 1946, Blas Gonzales has been a private concessionaire in the US Military Base at Clark Field, Angeles City where
he was engaged in the manufacture of furniture and, per agreement with base authorities, supplied them with his
manufactured articles. On March 1, 1947 and 1948, he filed his income tax returns (ITRs) for the years 1946-47,
where he declared P1,787,848.32 as his aggregate sales for both years. However, upon investigation, the BIR
discovered that for those years, Gonzales had been paid a total of P2,199,920.50 for furniture delivered by him to the
base authorities. This was not deniedby Gonzales. The BIR considered the undeclared amount of P412,074.18 as an
unreported item of income. It also found that Gonzales’ 1946 profit and loss statement disclosed “local sales” in the
amount of P124,510.43. It then assessed Gonzales the total sum of P340,179,84, representing deficiency income tax
plus 50% surcharge. This was later on reduced to 249,289.26 upon review and decision of the Conference Staff of
the BIR, and was further reduced to P144,074.33. During trial, Gonzales & his counsel failed to appear so he was
declared in default. The CFI of Manila ruled in favor of the Republic. It also ruled that Gonzales is guilty of fraud.
Gonzales appealed alleging that he is exempt from paying tax pursuant to the RP-US Military Bases Agreement
(MBA); he also questions the finding of fraud, and order of default.

Issue
WON Gonzales is guilty of fraud? –Yes.
WON Gonzales is liable for payment of deficiency income tax? – Yes. He is not exempted from payment of tax under
the MBA.

Ratio
Gonzales is guilty of fraud for failure to declare for taxation purposes his true and actual income
Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances
of the case. The failure ofGonzales to declare for taxation purposes his true and actual income derived fromhis
furniture business for two consecutive years is an indication of his fraudulentintent to cheat the Government of the
taxes due. In Eugenio Perez v. CTA and CIR, the Court ruled that the substantial undeclaration ofincome in the ITRs
for 4 consecutive years, coupled with his intentional overstatement of deductions made the imposition of the fraud
penalty proper.
Tax exemption under the MBA is inapplicable
As held in Canlas v. Republic and Naguiat v. Araneta, the relevant provision of the MBA (Article XVIII) contemplates
limiting the exemption from licenses, fees and taxes enumerated to the right to establish Government agencies,
including concessions, and to the merchandise or serves sold or dispensed by such agencies. The income tax, which
is certainly not on the right to establish agencies or on the merchandise/services sold, but on the owner or operator
of such agencies, is logicallyexcluded. MBA in fact has provisions dealing with income tax, to wit: (1) No member of
the US armed forces, except Filipino citizens, serving in the Philippines shall be liable to pay income tax in the
Philippines except in respect of income derived from Philippinesources; (2) No national of the US serving or
employed in the Philippines shall be liable to pay income tax in the Philippines except in respect of income derived
fromPhilippine sources. None of the provisions shields a concessionaire from the payment of income tax. Even the
exemption in favor of members of the US Armed Forces and nations of the US does not include income derived
from Philippine sources. Gonzales’ contention that the rulings are inapplicable because they involve income of public
utility operators who were not concessionaires is unmeritorious and untrue. In Araneta v. Manila Pencil Co., the Court
already declared that operators of freight and bus services are within the meaning of the word “concession” appearing
in the MBA.

Commissioner of Internal Revenue v. Estate of Benigno Toda, G.R. No. 147188, September 14,
2004

Facts
Cibeles Insurance Corp. (CIC) authorized its President and owner, Respondent Benigno Toda, Jr. to sell the 16-storey
commercial building known as the Cibeles Bldg. Toda purportedly sold the property for P100 million to Rafael A.
Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. These
two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public.
Altonaga paid capital gains tax in the amount of P10M. Later, CIC filed its corporate annual income tax return,
declaring a gain from sale of real property for P75.73M. Toda sold his entire shares in CIC to Le Hun Choa for P12M.
3 ½ years later, Toda died.

A Notice of Assessment was then sent to CIC for deficiency income tax in the amount of P79.1M, arising from the
alleged simulated sale to RMI. The new CIC asked for reconsideration contending that such assessment should be
directed against the old CIC. Thereafter, CIR sent a Notice of Assessment to the Estate of Toda, Jr. In response, the
Estate of Toda, Jr. filed a letter of protest. The CIR held that the 2 transactions actually constituted a single sale. The
gain realized by CIC was taxed at the rate of only 5% purportedly as capital gains tax, instead of at 35% corporate
income tax and there was intent to evade payment. However, both the CTA and the CA held that the CIR failed to
prove fraud, finding that there was only tax avoidance, not tax evasion.

Issue
WON this a case of tax evasion or tax avoidance? – Tax evasion.
WON the period for assessment of deficiency income tax for the year 1989 has prescribed? – No. For fraudulent
returns, the prescription period is 10 years from the discovery of thefraud.

Ratio
CIC committed tax evasion.
Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax
avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer
in good faith and at arm’s length. Tax evasion is a scheme used outside of those lawful means and when availed of, it
usually subjects the taxpayer to further or additional civil or criminal liabilities.

Tax evasion connotes the integration of 3 factors: (1) The end to be achieved (i.e. payment of less than that known
by the taxpayer to be legally due or non-payment of tax when due), (2) Accompanying state of mind – evil, bad faith,
willful or deliberate and (3) Course of action or failure of action which is unlawful. All 3 factors are present in the
instant case. The incidence of taxation depends upon the substanceof a transaction. The transaction must be viewed
as a whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. Thus,
CIC is liable to pay 35% corporate tax for its 1989 taxable net income.

The period of assessment has not prescribed.

Pursuant to Sec. 269 of NIRC of 1986 (now Sec. 222 of NIRC of 1997), the period within which to assess tax is 10
years. The false return was filed on April 15, 1990 and the falsity was claimed to have been discovered only on March
8, 1991. It is clearly within the 10 year prescriptive period.
CIR v. PLDT, G.R. No. 140230, December 15, 2005

FACTS
PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to install, operate and maintain a
telecommunications system throughout the Philippines. For equipment, machineries and spare parts it imported for
its business on different dates from October 1, 1992 to May 31, 1994, PLDT paid the BIR the amount of
P164,510,953.00, broken down as follows: (a) compensating tax of P126,713,037.00; advance sales tax of
P12,460,219.00 and other internal revenue taxes of P25,337,697.00. For similar importations made between March
1994 to May 31, 1994, PLDT paid P116,041,333.00 value-added tax (VAT). On March 15, 1994, PLDT addressed a
letter to the BIR seeking a confirmatory ruling on its tax exemption privilege under Section 12 of R.A. 7082. PLDT
filed on December 2, 1994 a claim for tax credit/refund of the VAT, compensating taxes, advance sales taxes and
other taxes it had been paying" in connection with its importation of various equipment, machineries and spare parts
needed for its operations".

ISSUE
WON the grant of 3% franchise tax to PLDT in lieu of all taxes on the franchise or earnings covers exemptions from
paying VAT, Compensating tax and advance sales tax

HELD
No. The phrase “in lieu of all taxes” found in Section 12 of R.A. 7082 refers to exemption from “direct taxes only”
and does not cover “indirect taxes” such as VAT, Compensating tax and advance sales tax. Direct taxes are those that
are exacted from the very person who, it is intended or desired, should pay them. They are impositions for which a
taxpayer is directly liable on the transaction or business he is engaged in. On the other hand, indirect taxes are those
that are demanded from or paid by one person in the expectation and intention that he can shift the burden to
someone else.

Commissioner of Internal Revenue v. John Gotamco, G.R. No. L-31092, February 27, 1987

Facts
The World Health Organization (WHO), an international organization exempt from all direct and indirect taxes under
its Host Agreement with the Philippine Government concluded on July 22, 1951, decided to have a building
constructed to house its offices in the Philippines. Pursuant to this, it entered into an additional agreement with the
Philippines government, and part of the agreement granted the WHO permission to “import into the country
materials and fixtures required for the construction free from all duties and taxes” and stipulated that the WHO was
“not to utilize any portion of the international reserves of the Government.”

The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on February
10, 1958 for the stipulated price of P370,000.00, but when the building was completed the price reached a total of
P452,544.00.

On May 1958, the BIR released an opinion that the receipts of Gotamco derived from the construction of the WHO
office building was exempt under the 1951 Host Agreement. In June of that year, however, the BIR reversed its
opinion and claimed that the 3% contractor's tax was in the nature of an excise tax, which is a charge imposed upon
the performance of an act, the enjoyment of a privilege or the engaging in an occupation. The BIR claimed that the
contractor’s tax “is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor,”
and was thus not exempted.

Issue
Whether or not the contractor’s tax is an excise tax payable by the contractor alone and not a direct/indirect tax on
the WHO? - NO

Ratio
The contractor’s tax is not an excise tax. Although the contractor’s tax is paid by the contractor, it is a burden that
can be shifted to WHO as a matter of business practice. An indirect tax is defined as a tax demanded in the first
instance from one person in the expectation and intention that he can shift the burden to someone else. This is exactly
how the contractor’s tax operates. Being thus exempt from direct and indirect taxes under the Host Agreement, the
construction contract should thus be exempt from taxes.

The petitioner’s reliance on Philippine Acetylene Company versus Commissioner of Internal Revenue, et al. is misplaced. In that
case, the tax in question was a sales tax, which by law must be paid specifically by the manufacturer or the producer.
Even if the manufacturer or producer adds the value of the tax to the sale price, such addition does not convert the
sales tax into a “tax on the purchaser.” It is therefore not analogous to a contractor’s tax.
Philex Mining v. Commissioner of Internal Revenue, G.R. No. 125704, August 28, 1998

Facts
The BIR sent a letter to Philex asking it to settle its excise tax liabilities for the period from the second of 1991 to the
second quarter of 1992 plus 20% annual interest until fully paid pursuant to Sections 248 and 249 of the Tax Code of
1977. Philex protestedstating that it has pending claims for VAT input credit/refund for the taxes it paidfor the years
1989 to 1991. Philex cited CIR v. Itogon-Suyoc Mines, where it was ruled that a pending refund may be off-set against an
existing tax liability even though the refund has not yet been approved. The BIR denied the protest and reiterated its
demand prompting Philex the raise the issue to the CTA. The CTA ordered Philex to pay holding that the claim for
VAT refund was still pending litigation, hence, unliquidated and cannot be set-off. The CA later affirmed the CTA
decision. A few days after the CA decision, Philex was granted its VAT input/credit refund for 1989-1991 and also
for 1992 and 1994. Philex now contends that the same should off-set its excise liabilities, since both had become due
and demandable, as well as fully liquidated.

Issue
Whether the VAT input claim/credit refund obtained by Philex can be set off against its excise tax liabilities – NO

Ratio
Taxes cannot be subject to compensation 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 debt. Debts are due to the Government
in its corporate capacity, while taxes are due to the Government in its sovereign capacity.

Philex’s reliance on CIR v. Itogon-Suyoc Mines, Inc., wherein the Court ruled that a pending refund may be set off against
an existing tax liability, even though the refund has not yet been approved by the Commissioner, no longer has any
support in statutory law. The ruling was anchored on Section 51(d) of the National Revenue Code of 1939. However,
when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc
pronouncement was based was omitted. Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by
Philex.

The basic principle in tax law is that taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. The distinguishing feature of a tax is that it is compulsory rather than a matter of bargain.
Hence, a tax does not depend upon the consent of the taxpayer. If any payer can defer the payment of taxes by raising
the defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue
system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the
government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government.
Moreover, Philex’s theory that would automatically apply its VAT input credit/refund against its tax liabilities can
easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers
credit and offset their tax liabilities.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial
for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The
payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection thereof.

Pascual v. Secretary of Public Works, G.R. No. L-10405, December 29, 1960

Facts
Zulueta is the owner of several parcels of residential land in Pasig, Rizal (the Antonio Subdivision), certain portions
of which had been reserved for feeder roads to public highways. He still owned the said portions when RA 920,
appropriating P85,000 for the "construction, reconstruction, repair, extension and improvement" of said roads, was
passed by Congress. After the passage of the law, Zulueta executed a deed of donation of the four parcels of land
constituting said project in favor of the government. Pascual, as provincial governor of Rizal, filed an action for
declaratory relief as the appropriation would have the effect of relieving Zulueta of the burden of constructing his
subdivision streets or roads at his own expense. The CFI agreed that the appropriation was clearly for a private and
not a public purpose but dismissed the case because it held that Pascual did not sustain direct injury.

Issue
Whether the appropriation was for a public purpose – NO
Whether Pascual, as taxpayer, had the standing to question the appropriation – YES

Ratio
It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose.
It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax,
and not the magnitude of the interest to be affected nor the degree to which the general advantage of the community,
and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state,
which results from the promotion of private interest and the prosperity of private enterprises or business, does not
justify their aid by the use public money.

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage
to individuals might incidentally serve the public.

In the present case, inasmuch as the land on which the projected feeder roads were to be constructed belonged then
to Zulueta, the result is that said appropriation sought a private purpose, and hence, was null and void. The donation
to the Government, over five (5) months after the approval and effectivity of said Act did not cure its aforementioned
basic defect. The validity of a statute depends upon the powers of Congress at the time of its passage or approval,
not upon events occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of
the organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute.

As to Pascual’s legal standing, the general rule is that not only persons individually affected, but also taxpayers, have
sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore question the
constitutionality of statutes requiring expenditure of public moneys. Moreover, Pascual is not merely a taxpayer. The
Province of Rizal, which he represents officially as its Provincial Governor, is one of the most populated political
subdivisions (1,463,530 inhabitants), and the taxpayers therein bear a substantial portion of the burden of taxation in
the Philippines.

Lozada v. COMELEC, G.R. No. L-59068, January 27, 1983

Facts
A petition for mandamus was filed by Lozada and Igot as a representative suit for and in behalf of those who wish to
participate in the election, to compel the respondent COMELEC to call a special election to fill up existing 12
vacancies in the Interim Batasan Pambansa.

Lozada claims that he is a citizen taxpayer and a bonafide voter who desires to run for the position in the Batasan
Pambansa; while petitioner Romeo B. Igot alleges that, as a citizen taxpayer, he has standing to petition by mandamus
the calling of a special election as mandated by the 1973 Constitution.

The respondent COMELEC, represented by counsel, opposes the petition alleging that 1) petitioners lack standing
to file the instant petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction
to entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim
Batasan Pambansa.

Issue
Whether or not petitioners have legal standing? - NO

Ratio
As taxpayers, petitioners may not file the instant petition, for nowhere is it alleged that tax money is being illegally
spent. The act complained of involves no expenditure of public funds. It is only when an act complained of involves
the illegal expenditure of public money that the so-called taxpayer suit may be allowed. What the case at bar seeks is
one that entails expenditure of public funds which may be illegal because it would be spent for a purpose that of
calling a special election which has no authority either in the Constitution or a statute.

As voters, neither have petitioners the requisite interest or personality to qualify them to maintain and prosecute the
present petition. The unchallenged rule is that the person who impugns the validity of a statute must have a personal
and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement.

Petitioners' standing to sue may not be predicated upon a generalized interest, which is held in common by all
members of the public because of the necessarily abstract nature of the injury supposedly shared by all citizens.

Petitioners have not demonstrated any permissible personal stake. Petitioner Lozada does not only fail to inform the
Court of the region he wants to be a candidate but makes indiscriminate demand that special election be called
throughout the country.
Gonzales v. Marcos, G.R. No. L-31685, July 31, 1975

Facts
The petitioner questioned the validity of EO No. 30 creating the Cultural Center of the Philippines, having as its
estate the real and personal property vested in it as well as donations received, financial commitments that could
thereafter be collected, and gifts that may be forthcoming in the future. It was likewise alleged that the Board of
Trustees did accept donations from the private sector and did secure from the Chemical Bank of New York a loan of
$5 million guaranteed by the National Investment & Development Corporation as well as $3.5 million received from
President Johnson of the United States in the concept of war damage funds, all intended for the construction of the
Cultural Center building estimated to cost P48 million.

The petition was denied by the trial court arguing that with not a single centavo raised by taxation, and the absence
of any pecuniary or monetary interest of petitioner that could in any wise be prejudiced distinct from those of the
general public.

Issue
Whether or not a taxpayer the capacity to question the validity of the issuance in this case? – NO

Ratio
It may not be amiss though to consider briefly both the procedural and substantive grounds that led to the lower
court's order of dismissal. It was therein pointed out as "one more valid reason" why such an outcome was
unavoidable that "the funds administered by the President of the Philippines came from donations and contributions
not by taxation."

Accordingly, there was that absence of the "requisite pecuniary or monetary interest." The stand of the lower court
finds support in judicial precedents. This is not to retreat from the liberal approach followed in Pascual v. Secretary of
Public Works, foreshadowed by People v. Vera, where the doctrine of standing was first fully discussed. It is only to
make clear that petitioner, judged by orthodox legal learning, has not satisfied the elemental requisite for a taxpayer's
suit. Moreover, even on the assumption that public funds raised by taxation were involved, it does not necessarily
follow that such kind of an action to assail the validity of a legislative or executive act has to be passed upon.

This Court, as held in the recent case of Tan v. Macapagal, "is not devoid of discretion as to whether or not it should
be entertained." The lower court thus did not err in so viewing the situation.

CIR v. CA, YMCA, G.R. No. 124043, Date: October 14, 1998
Facts:
Young Men's Christian Association of the Philippines, Inc. (YMCA) is a non-stock, non-profit institution, which
conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its
religious, educational and charitable objectives.

In 1980, YMCA earned, among others, an income of P677k from leasing out a portion of its premises to small shop
owners, like restaurants and canteen operators, and P44k from parking fees collected from non-members. CIR
assessed YMCA deficiency income tax and deficiency withholding taxes based on Section 27 (now Section 30) of the
NIRC.

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for
profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code. YMCA
argues that the rentals and parking fees were just enough to cover the costs of operation and maintenance, and that
the last paragraph of Section 27 should be subject to the qualification that the income from the properties must arise
from activities 'conducted for profit' before it may be considered taxable.

Issue
Whether or not the rental income of YMCA from real estate is subject to income tax? - YES

Ratio
The SC has always applied the doctrine of strict interpretation in construing tax exemptions, because taxes are the
lifeblood of the nation.

In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the
YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code.

The phrase "any of their activities conducted for profit" does not qualify the word "properties." This makes income
from the property of the organization taxable, regardless of how that income is used — whether for profit or for lofty
non-profit purposes.

The SC ruled that YMCA does not qualify as an educational institution under the above provision. The term
"educational institution " or "institution of learning" has acquired a well- known technical meaning, of which the
members of the Constitutional Commission are deemed cognizant. Under the Education Act of 1982, such term
refers to schools. The school system is synonymous with formal education, which "refers to the hierarchically
structured and chronologically graded learnings organized and provided by the formal school system and for which
certification is required in order for the learner to progress through the grades or move to the higher levels." The
Court has examined the Amended Articles of Incorporation and By-Laws of the YMCA, but found nothing in them
that even hints that it is a school or an educational institution.

MIAA v. CA,GR No. 155650, 20 July 2006

Facts
The City of Parañaque issued notices and warrants of levy on the land, runways and buildings which constitute the
NAIA Complex for the failure of the Manila International Airport Authority (MIAA) to pay real estate taxes (RET)
on them.
MIAA filed a petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining
order seeking to restrain the City of Parañaque from imposing real estate tax on, levying against, and auctioning for
public sale the properties. MIAA points out that (1) its Charter specifically exempts it from the payment of RET, (2)
that the subject properties are exempt from RET under the LGC because they are owned by the Republic.

Issue
Whether the subject properties of MIAA are exempt from RET under existing laws—YES

Ratio
MIAA is not a government-owned or controlled corporation (GOCC) but an instrumentality of the National
Government thus it is exempt from local taxation.

Under the Rev. Admin Code of 1987, a GOCC must be "organized as a stock or non-stock corporation." MIAA
is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital
stock divided into shares. MIAA has no stockholders or voting shares. MIAA is also not a non-stock corporation
because it has no members.

Section 133(o) of the LGC, which limits the taxing powers of LGUs, specifically excludes the National Government,
its agencies and instrumentalities from the coverage of the taxing powers of provinces, cities, municipalities, and
barangays. The rule is that tax exemption is strictly construed against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is
construed liberally in favor of the national government instrumentality.

Sec. 234(a) of the LGC also expressly exempts from RET any real property owned by the Republic of the
Philippinesor any of its political subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person. Under Article 420 of the Civil Code, the subject properties, being
devoted to public use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes public airports
and seaports, as properties of public dominion and owned by the Republic. MIAA is merely holding title to the
properties in trust for the Republic. Thus, only portions of the subject properties leased to taxable persons like private
parties are subject to RET by the City of Parañaque.

CIR v. ROH AUTO PRODUCTS

FACTS
EO41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended to include estate
and donor's taxes and taxes on business, for the taxable years1981 to 1985.Availing itself of the amnesty, R.O.H. Auto
Products filed, tax amnesty returns and paid the amnesty taxes due. Prior to this availment, CIR assessed the ROH
deficiencyincome and business taxes in an aggregate amount of P1,410,157.71.ROH wrote back to state that since it
had been able toavail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn.
The request was denied by the Commissioner on theground that Revenue Memorandum Order No. 4-87, dated
09February 1987, implementing Executive Order No. 41, hadconstrued the amnesty coverage to include only
assessmentsissued by the Bureau of Internal Revenue after thepromulgation of the executive order on 22 August 1986
and notto assessments theretofore made.

ISSUE
W/N ROH is covered by the tax amnesty. – YES.
W/N the CIR’s position correct. – NO.

DISPOSITION
The added exception urged by petitioner Commissioner based on Revenue Memorandum Order No. 4-87, further
restricting the scope of the amnesty clearly amounts to an act of administrative legislation quite contrary to the
mandate of the law which the regulation ought to implement. The authority of the Secretary of Finance, in conjunction
with the CIR, to promulgate rules and regulations for the enforcement of internal revenue laws cannot be
controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings,
ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above,
however, is that all such issuances must not override, but must remain consistent and in harmony with, the law they
seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor
to modify, the law. If, as the Commissioner argues, EO 41 had not been intended to include 1981-1985 tax liabilities
already assessed prior to 22 August 1986, the law could have simply so provided in its exclusionary clauses. It did not.
The conclusion is unavoidable, and it is that the executive order has been designed to be in the nature of a general
grant of tax amnesty subject only to the cases specifically excepted by it.

BPI LEASING CORPORATION vs. CA, CTA, CIR 41G SCRA 4 2003

Facts
BLC, a corporation engaged in the business of leasing properties. For 1986, BLC paid the CIR P1.1M in “contractor’s
percentage tax” imposed by Sec 205 NIRC. Subsequently, in Nov, CIR issued Revenue Regulation (RR) 19-86,
providing that companies registered under RA 5980, such as BLC, are not liable for “contractor’s percentage tax”
under Sec 205 but are, instead, subject to “gross receipts tax” under Section 260 (now Section 122) of the NIRC.
Since BLC had earlier paid the aforementioned “contractor’s percentage tax,” it re-computed its tax liabilities under
the “gross receipts tax” and arrived at the amount of P361,924.44. In April 1988, BLC filed a claim for a refund with
the CIR and a petition for review with the CTA. CTA dismissed the petition and denied BLC’s claim of refund,
holding that RR 19-86 may only be applied prospectively. BLC filed an appeal to CA, which was denied. Hence, the
present petition.

BLC argues that RR 19-86 is legislative rather than interpretative in character and hence, should retroact to the date
of effectivity of the law it seeks to interpret.

Ratio
A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing
the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the
administrative agency is in charge of enforcing.

Sec 1 of RR 19-86 plainly states that it was promulgated pursuant to Sec 277 of the NIRC. Sec 277 (now Section 244)
is an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the
effective enforcement of the provisions of the NIRC. In Paper Industries Corporation of the Philippines v. CA, the
Court recognized that the application of Sec 277 calls for none other than the exercise of quasi-legislative or rule-
making authority. Verily, it cannot be disputed that RR 19-86 was issued pursuant to the rule-making power of the
Secretary of Finance, thus making it legislative, and not interpretative as alleged by BLC.

The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively
only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication. In the
present case, there is no indication that the revenue regulation may operate retroactively. In fact, there is an express
provision stating that it “shall take effect on January 1, 1987,” and that it “shall be applicable to all leases written on
or after the said date.” Thus, BLC is not in a position to invoke the provisions of RR 19-86 for lease rentals it received
prior to January 1, 1987.
CIR v. CA, GR No. 119761, 26 Aug, 1996

Facts
In 1993, RA 7654, amending Sec 142(c) of the NIRC, was enacted and signed into law. It imposed a 55% tax on
locally manufactured cigarettes which are currently classified and taxed at 55%. Two days before the law became
effective, BIR issued Revenue Memorandum Cir. No. 37-93 ruling that Hope Luxury, Premium More and Champion
of Fortune Tobacco Corp. are locally manufactured cigarettes bearing a foreign brand and, hence, they are subject to
the 55% ad valorem tax.
CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. Fortune Tobacco filed a
petition for review with the CTA which found the circular to be defective, invalid and unenforceable for BIR’s failure
to comply with the requirements of notice and hearing. The CA affirmed the CTA ruling.

Issue
1. Whether or not RMC 37-93 is subject to the requirements of notice and hearing—YES
2. Whether or not RMC 37-93 infringes on uniformity of taxation—YES

Ratio
RMC No. 37-93 was issued under BIR’s quasi-legislative authority, hence the requirements of notice, hearing, and
publication must be observed.
BIR has the authority to issue rulings for the effective implementation of the provisions of the NIRC. However, the
CIR may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative powers.

There are 2 types of administrative issuances:

(1) Legislative rule – in the nature of subordinate legislation, designed to implement a primary legislation by
providing the details thereof; requires a hearing before it is adopted and
(2) Interpretative rule – designed to provide guidelines to the law which the administrative agencies is in charge
of enforcing

When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare
issuance for it gives no real consequence more than what the law itself has already prescribed. The memo circular in
this case cannot be viewed simply as a corrective measure or as merely construing Sec 142(c) of the NIRC. Instead, it
was issued in order to place the 3 cigarette brands within the classification of locally manufactured cigarettes bearing
foreign brands and to thereby have them covered by RA 7654 and subjected to an increased tax rate.

Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated alike. Thus, all taxable
articles or kinds of property of the same class must be taxed at the same rate and the tax must operate with the same
force and effect in every place where the subject may be found. RMC 37-93 would only apply to the 3 cigarette brands.

CIR v. Mega General, G.R. No. 69136, September 30, 1988

Facts
Prior to the promulgation of P.D. No. 392, all importations of paraffin wax were subject to 7% advance sales tax on
landed costs plus 25% mark up pursuant to now Section 197(II) in relation to now Section 200 of the Tax Code.With
the promulgation of P.D. No. 392, a new provision for the imposition of specific tax was added. Respondent
corporation paid the corresponding specific tax which applies to its total importation of crude paraffin pursuant to
Sec. 142(i) of the Tax Code

Respondent wrote the CIR for clarification as to whether imported crude paraffin wax is subject to specific tax under
Section 142(i) of the Tax Code, as amended by P.D. No. 392, or to the 7% advance sales tax.The former commissioner
Vera ruled that only wax used as high-pressure lubricant is subject to specific tax; that paraffin which was used as raw
material is subject to the 7% advance sales tax, the tax to be based on the landed cost thereof plus 25% mark-up.Due
to this ruling, several importers including respondent corporation filed several claims for tax refund or tax credit of
specific tax paid by them.Since the Section 142(i) does not make any distinction as to the kind of wax subject to
specific tax, then Acting Commissioner Plana denied respondent Corporation’s claim for refund or tax credit on 28
January 1977. On 11 January 1978, however, acting commissioner granted the corporation’s claim for a tax refund or
credit.
subsequently, BIR conducted an investigation in connection with the importations of wax and petroleum that arrived
in the country on or subsequent to the date of the ruling and it was ascertained that respondent Corporation owes
the government specific tax which gave rise an assessment for P275,652.00.

Issue
Whether the 11 January 1978 tax credit grant revoked the 28 January 1977 ruling denying respondent’s claim – NO.

Ratio
The letter of Commissioner Plana dated January 11, 1978 did not in any way revoke his ruling dated January 28, 1977
which ruling applied the specific tax to wax (without distinction). The reason he removed in 1978 private respondent’s
liability for the specific tax was NOT (as erroneously pointed out by the Court of Tax Appeals) because he wanted to
revoke, expressly or implicitly, his ruling of January 28, 1977 but because the P321,436.79 tax referred to importation
BEFORE January 28, 1977 and hence still covered by the ruling of Commissioner Vera, and not by the January 28,
1977 ruling of Commissioner Plana.

COMMISSIONER OF INTERNAL REVENUE v. BURROUGHS LIMITED AND THE COURT OF

TAX APPEALS

FACTS
Amount Applied for: Php 7,647,058.00 15% Branch Profit Remittance Tax: Php 1,147,048.70
Amount Actually Remitted: Php 6,499,999.30

24 Decemeber 1980: Burroughs claims a tax refund/credit of Php 172,058.90. Branch Profit Remittance tax should
be 15% of Amount Actually Remitted. (based on Ruling of Acting Commissioner of Internal Revenue) CTA: grants
tax credit

CIR: Burroughs no longer entitled to refund because Memorandum Circular No. 8-82 dated 17 March 1982 had
revoked and/or repealed the BIR ruling of 21 Jan 1980.

ISSUE(S)
WON Memorandum Circular No. 8-82 (MC 8-82) dated 17 March 1982 can be given retroactive effect? (NO)

DISPOSITION
21 Jan 1980: BIR ruling by Acting Commissioner of Internal Revenue of NIRC Sec 24 (b)(2) (ii)[2]:

Tax Base upon which 15% branch profits remittance tax shall be imposed on Branch profits actually remitted and
not on the total branch profits out of which the remittance is to be made.

Applicable Ruling is Revenue Ruling of 21 Jan 1980 because Burroughs paid the branch profit remittance tax on 14
Mar 1979. MC No. 8-82 cannot be given retroactive effect in light of Sec 327 of NIRC.
The retroactive application of MC No. 8-82 would prejudice Burroughs as it would be deprived of the substantial
amount of 172T++. Burroughs also does not fall under any of the enumerated exceptions where retroactivity would
apply.

CIR v. Benguet Corporation (2005)

FACTS
Benguet is a VAT registered domestic corporation engaged in the business of selling (‘exporting’) gold to the CB.
This transaction is subject to 0% output VAT. Benguet tried to claim its input VAT from the CIR but the claims were
either ignored or denied. Moreover, the BIR assessed Benguet with tax deficiencies anchored on BIR VAT Ruling
No. 008-92 stating that sales of gold to the Central Bank shall not be considered as export sales and as such, subject
to 10% output VAT. Said VAT ruling was issued after the aforementioned sale of gold to CB were consummated.
CTA denied the claimed tax credits. CA reversed CTA. SC affirmed CA. The Court ruled that ruling cannot be given
retroactive effect as such would be prejudicial to the taxpayer. SC ordered CIR to issue the tax credits in favor of
Benguet.

HELD
The rulings, circular, rules and regulations promulgated by the Commissioner of Internal Revenue would have no
retroactive application if to so apply them would be prejudicial to the taxpayers.