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Taxation Law Note: In a case, Excess of the cost of regulation is a tax. -right to assess and collect tax are imprescriptible. However, Tax Code;
-Police Power can’t be exercise alone to raised revenue but must be Tariff and Customs Code (impliedly) and the Local Government Code have
I.GENERAL PRINCIPLES OF TAXATION coupled with Police Power and Taxation power. provided for prescriptive periods, both for assessment and collection of
taxes.
A. DEFINITION AND CONCEPT OF TAXATION E. PURPOSE OF TAXATION Note: Applies only to tax that are returnable.
1. Revenue Raising-to enable the State to promote the general welfare
-define as the power by wc d sovereign, through its law-making body, and protection of the citizens. Double Taxation (S-T-P-P)
raises revenues to defray d necessary expenses of the gov’t. 2. Non-revenue purpose/special or regulatory: (P-R2-E-P) -taxing the same subject;
-concept, refer to either OR both the power to tax or process by wc the a. Promotion of general welfare-as implement of police power in order to Or object twice;
taxing power is exercised. promote general welfare; By the same taxing power;
b. Regulation-for rehabilitation and stabilization of threatened industry wc Same taxable period;
is affected with oil industry. And same purpose
B. NATURE OF TAXATION c. Reduction of social inequality-avoid concentration if wealth to few Note: the element if exlusive gd nga sundon?
2 fold: individual.
1. The inherent attribute of the sovereignty-The moment the Encourage economic growth-grant of tax incentives encourages Kinds:
State exist, the power to tax automatically exist. No investment. 1. Direct Double Taxation (strict sense)-prohibited since it
Constitutional conferment. e. Protectionism-in case of foreign importation, protective tariffs and violates the equal protection clause of the Constitution.
-Inherent in the nat’l gov’t but not in the local gov’t (LGU’s), customs are imposed for the benefit of the local industries. Elements: (PS-P-T-j-p-c)
since it just a mere agency of the State, thus needing 1. Same Property or subject matter is taxed twice when it
Constitutional conferment of laws to be enacted by the F. PRINCIPLE OF SOUND TAX SYSTEM (F-A-T) should be taxed only once.
Congress. 1. Fiscal Adequacy-sources of government revenue must be sufficient to 2. Levied for the same purpose;
2. Legislative in Character-Taxes are grant by the people taxed, meet the needs of gov’t and the public; 3. Imposed by same taxing authority:
through the immediate representative of the people. 2. Administrative Feasibility -tax law must be imposed with least i. Within the same jurisdiction;
inconvenience to the taxpayer. ii. Same taxing period;
C. CHARACTERISTIC OF TAXATION (C-U-P-S) 3. Theoretical Justice-Ability to pay Theory. Constitution mandates that iii. Covering same kind of character of tax.
1. Comprehensive- Covers persons, business, activities profession, rights tax should be fair and just and conscionable. Uniform and equitable and 2. Indirect Double Taxation (Broad Sense)-permissible kind of
and privileges. the State must evolve a progressive system of taxation. double taxation. Following absence of one or more of the
2. Unlimited-the court scarcely declare it is subject to restriction, except above-mentioned elements of direct double taxation.
that wc rest in d discretion of the authority wc exercise it. Take Note:#1 and 2 violation does not render the law on tax -No double taxation if the taxation is levied by the LGU and another by the
3. Plenary-It is complete, Under the NLRC, the BIR may avail of certain unconstitutional while violation of #3 renders the law unconstitutional National Government.
remedies to ensure the collection of taxes. because it expressly provided under the Consti that the tax must be -In a case a municipality has passed ordinance one proposed by Municipal
4. Supreme-referred as the strongest powers of the government, only uniform and equitable(conform with the law). Board and the other Municipality for annual fee and other 5% amount
insofar as the selection of the subject of taxation is concerned. paid both for liquor. Held no double taxations since they have diff nature
- G. THEORY AND BASIS OF TAXATION (4) and character. Both License fee and Tax may be imposed on same
D. POWER OF TAXATION COMPARED WITH OTHER POWERS 1. Lifeblood Theory; business or occupation, or for selling the same article and this is not in
Power of Taxation Police Power Imminent Domain 2. Necessity Theory; violation of double taxation.
Purpose: Public Welfare For public use 3. Benefits-protection theory(symbiotic theory); -Constitutionality of double of taxation-SC held no prohibition against
Raise Revenue 4. Jurisdiction over subjects and objects double taxation in the Philippines. Not favoured but nevertheless,
Exaction: -exaction limited only No exaction but permissible.
Unlimited in amount to the cost of private propery is #1. Without revenue the gov’t will not survive for lack of motive power to
regulation and license taken. activate; hence, every person who is able must contribute his share in the Modes of eliminating double taxation (CD-RET)
or surveillance running of the gov’t. 1. Tax Credits- an amount subtracted from an individual or entity’s tax
Benefits Received: For healthy economic Just compensation #2. Existence of a gov’t is a necessity. Thus, the State has the right to liability to arrive at the total tax liability. (amount that may be credited
General benefit of society ang benefit. compel the citizens and property within its limit to contribute. against the tax payer owes; or in short the refund for the excess tax
protection in #3. The State demands and receive tax to carry out the functions of the paid).
exchange only. gov’t and the taxpayer in exchange be secure in the enjoyment and of the 2. Tax Deductions-the amount of tax is written off or treated as deduction
Non-impairment of May be impaired Contracts may be benefits and organized society. from an individual’s entity gross income on wc d resulting amount the tax
Contract: impaired #4.only exercise within the territorial jurisdiction of a taxing authority. liability is calculated. (The reduction of income that is the subject of
Contracts may not be income tax by other expenses and deductions allowed by the NIRC).
impaired H.DOCTRINE OF TAXATION 3. Reduction of the Philippine Income Tax Rate-an example is the Tax
Transfer of Property No transfer of prop Effected in favour of Prospectivity of Tax Laws Sparring Rule wherein the dividend earned by the non-resident foreign
Rights: rigths but only state. -GR as per Civil Code provides prospective ang tax law. But may operates corp within the Phil is reduced by imposing a lower rate of 15% (in lieu of
Become part of restraint in exercise retroactively, provided it is expressly declared or legislative intent that it 30%), on condition that the country to wc the NRFC is domiciled shall
public fund operates such and amounts no denial of due process. allow a credit against the tax due from the NRFC, wc taxes are deemed to
Exercise by: Govt and its political -maybe exercise by have been pain in the Phil.
Govt or its political subdivision private person Imprescriptibilty 4. Tax exemption-grant of immunity to particular person or corporation
subdivision. from the obligation to pay tax.
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5. Tax treaties- agreement bet the 2 countries specifying what items of Kinds of Tax Exemptions: waiver by the gov’t of its right to collect what is due and give tax evader a
income will be taxed by the authorities of the country where the income 1. Express-expressly granted by the Consti, statutes, treatise, chance to start clean.
is earned. ordinance, franchises or contract.
2. Implied-whenever particular persons, prop or excise tax are Tax Amnesty vs. Tax Exemption
Escape from Taxation(S-A-E) deemed exempt as they fall outside the scope of taxing Immunity from crim, civ and admin Immunity from Civil Liability only
Forms: provision itself. liability from non-payment of tax.
1. Shifting of tax burden-It is the transfer of the burden of tax by 3. Contractual- exemption in consideration if contractual Applies to past period -propspective application.
the original payer or the one on whom the tax was assessed agreement with the govt.
(impact of taxation) or imposed to another (incidence of Construction and Interpretation of:
taxation). Rationale of tax exemptions-the power to tax carries with it the power to Tax Laws
ways of shifting tax burden: grant tax exemptions. Arise through the pardon of the gov’t, reciprocity -Since it is a destructive power of the State that interferes with the
a. Forward shifting-when the burden of tax is transferred bet the state, or mere generosity. personal and prop rights for the support of the gov’t.
from a factor of productions through distribution until settles -Strictly construed against the government and in favor of the taxpayer.
to the on the ultimate purchaser or consumer. May it be revoked?-Yes. Withdrawn at the pleasure of the taxing
b. Backward Shifting- burden from d consumer through the authority. But, if it is a constitutes binding contract and for valuable Tax Exemption and exclusions
factors of distribution to the factors of production. consideration, the gov’t cannot unilaterally revoke the tax exemption. -GR strictly construed against the taxpayer and entity claiming it.
c. Onward Shifting- when tax is shifted to 2 or more time ********** *********** Exception:
either forward or backward. 1. Statute granting tax exemption;
-Only indirect taxes, as opposed to direct taxes, may be Compensation and Set-Off 2. Special classes affecting special classes of persons;
shifted. -Takes place when 2 or more persons in their own right are creditors and 3. Refer to public property;
-Indirect Taxes vs. Direct Taxes debtors to each other. 4. Religious and charitable and educational institution
-Indirect taxes-are those that are demanded in the 1st instance 5. Exemption in favour of the gov’t, its political subdivision;
from one person in the expectation and intention that he can As GR taxes are not subject to compensation and set-off. Since tax liability 6. If the person falls within the legislative intent.
shift the burden to someone else, not as tax but as part of is a legal and not contractual. Except in Domingo Case where set-off
purchase price( VAT, excise tax and percentage tax and permitted coz the amount due from the gov’t debt is already due to the Tax Rule and Regulation
documentary tax). The liability for payment of tax remains taxpayer and is appropriated through legislation, hence already due and -strictly against the gov’t and liberally in favour of the taxpayer.
with the taxpayer, but the burden shifted from the purchaser. liquidated.
-Direct taxes-on the other hand, are exacted from the very Note: Legal Compensation takes place as long the requisites under the Art Penal Provisions of Tax Laws
person, cannot be shifted. 1279 of the CC are present. Penal provisions are given strict construction as to not extend the plain
-Impact of Taxation vs. Incidence of Taxation 1. They must be both bound personally ha; terms thereof that might create offenses by mere implication.
Impact of Taxation-point on wc tax is originally imposed or the 2. Consist of a sum of money or consumable
one on whom the tax is assessed. 3. Two debts must be due Non-retroactive applications of taxpayers
Incidence of Taxation-is the point on wc the tax burden finally 4. Liquidated and demandable -Exception:
rest or settles down. 5. No retention or controversy, commenced by 3rd person 1. where the taxpayer deliberately omits the material facts from his return
********** *********** or any docu required by the BIR;
2. Tax avoidance 2. Where the facts gathered by the BIR are materially different from the
-Tax Minimization, tax saving device within the means Compromise facts wc the ruling is based; or
sanctioned by the law and should be used by taxpayer in GF. -meant as contract whereby the parties, by making reciprocal concessions 3. Where the taxpayer acted in BF
(admission) , avoid litigation or put an end to one already commenced. ********** ***********
3. Tax Evasion
-illegal means of escaping taxation. Connoted fraud and When allowed: I. SCOPE AND LIMITATION OF TAXATION
forbidden device. AkA Tax Dodging. 1. When the subject matter is not prohibited from being compromised; Scope of legislative taxing power:
Elements:(E-S-C) 2. Person entering into its duly authorized to do so. 1. Persons, prop or occupation to be taxed;
a. Ends to be achieved, example: payment of less; or non- 2. Amount or rate of the tax;
payment of tax due. Person allowed to compromise: 3. Purpose wc they shall be levied wc must be public purpose;
b. State of minds wc is evil, bf, wilful and deliberate. 1. Commissioner of Internal Revenue- for both civil and crim liability; 4. Apportionment of the tax, whether general or limited to
c. Course of action wc is unlawful. 2. Collector of Customs-for customs duties limited to case where particular locality or party general and party local;
legitimate authority is specifically granted, such as the remission of 5. Situs of Taxation;
Exemption from taxation custom duties; 6. Method of collection
-grant of immunity, express or implied, to particular persons or 3. Customs Commissioner-subject to approval of the Secretary of Finance,
corporations of a particular class from a tax wc persons or corporations in cases involving imposition of fines, surcharges and forfeitures. Inherent Limitations of Taxation (P-I-T-I-E)
generally within the same State or taxing district are obliged to pay. 4. Local Gov’t Code- no provision regarding compromise but civil liability 1. Public purpose;
is not prohibited to be compromise not crim liability. 2. Inherent Legislative/Non-delegability of the taxing power;
Nature of tax exemptions: ********** *********** 3. Territorial or Situs;
1. Strictly against taxpayer and liberally in favour of the taxing Tax Amnesty 4. International Comity;
power. -general pardon by the State of its authority to impose penalties on 5. Exemption of the Gov’t
2. Taxation is the rule and exemption is the exception. persons otherwise guilty of violating a tax law. It partakes an absolute
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Note: Violation amount to taking of the property without due process of

law, therefore unconstitutional.

Public Purpose
-not defined under the Law. Not only pertains to purpose that is view as
traditional. But must TN that also includes those purpose is designed to
promote social justice. Thus, public money may now be used for the
relocation of illegal settlers, low-cost housing and urban agrarian reform.
Note: It is the purpose that determine if it is of public char not number of
persons benefited. Incidental Advantage to promote of private interest
does not justify their aid by the use of public money.

Inherently Legislative/ Non-delegability of the taxing power

-GR the power to tax is exclusively vested in d legislative body. What has
been delegated cannot be delegated.
Exceptions:
1. Delegation of the Local Gov’t-as granted by the Constitution
wc shall accrue to the LGU.
2. Delegation to the president-(T-E-E)
a. Tariff powers by the Congress under the Flexible Tariff
Clause;
b. Emergency Powers;
3. Delegation to Administrative Agencies-aka power of
subordinate legislation under the ff test:
a. Completeness test- the law must be complete in all its
essential terms and wc will nothing to leave the
legislature but to enforce it.
b. Sufficient Standard Test-law must be sufficient to
specify the limits of the delegates authority, announce
legislative policy and specify condition.