TAXATION LAW REVIEW

Prof. Rachel T. Uy Second Semester, SY 2012-2013 Manuel S. Enverga University Foundation College of Law Module 1: Fundamentals of Taxation I. Meaning and Nature of Tax A. Taxation and tax defined Commissioner v. Algue, 158 SCRA 9 (1988) B. Essential Characteristics of Taxes C. Taxes as distinguished from other forms of impositions i. Tax v. licence and regulatory fee Osmea v. Orbos, 220 SCRA 703 (1993) PAL v. Edu, 164 SCRA 320 (1988) Progressive Development v. Quezon City, 172 SCRA 629 (1989) Compania de Tabacos v. City of Manila, 8 SCRA 367 (1963) Tax v. special assessment 240, Local Government Code Republic v. Bacolod Murcia, 17 SCRA 632 (1966) Tax v. toll 155, Local Government Code Diaz v. Secretary of Finance, 654 SCRA 96 (2011) Tax v. tariff and customs duties Garcia v. Executive Secretary, 211 SCRA 21 (1992) Obligation to pay tax v. obligation to pay debt Art. 1279, Civil Code General Rule: Caltex v. COA, 208 SCRA 754 (1992) Francia v. IAC, 162 SCRA 754 (1988) Exception: Domingo v. Garlitos, 8 SCRA 443 (1963)

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II.

Purposes/Objectives of Taxation A. Revenue-raising PAL v. Edu, supra Osmea v. Orbos, supra B. Non-revenue/special or regulatory Republic v. Bacolod Murcia, 12 SCRA 632 (1966) Tio v. Videogram Regulatory Board, 151 SCRA 208 (1987) Caltex v. Commissioner, supra

III.

Theory and Basis of Taxation

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A. Necessity Theory Phil. Guaranty Co., Inc. v. CIR, G.R. No. L-22074, April 30, 1965 Commissioner v. Algue, supra B. Benefits-Received Theory Gomez v. Palomar, G.R. No. L-23645, October 29, 1968 Lorenzo v. Posadas, 64 Phil 353 (1937)

IV.

Aspects of Taxation A. Levy/Imposition by the legislative body B. Collection/administration/ways/methods of collection i. ii. iii. pay as you earn pay as you go withholding system pay as you are assessed pay as you file

V.

Nature and Scope of and Limitations on the Power of Taxation A. Power to tax as differentiated from the powers of eminent domain and police power B. Essential characteristics of taxation i. Inherent in sovereignty Roxas v. CTA, 23 SCRA 276 (1968) ii. Exclusively legislative in nature iii. Subject to inherent and constitutional limitations C. Inherent limitations i. Purpose must be public in nature Pascual v. Secretary of Public Works, 110 Phil 331 (1960) Caltex v. Commissioner, supra Tio v. Videogram Regulatory Board, 151 SCRA 208 (1987) Gaston v. Republic Planter, 158 SCRA 626 (1988) ii. Prohibition against delegation of power a. Extent of the legislative power to tax Tan v. Del Rosario, 237 SCRA 324 (1994) Sison v. Ancheta, 130 SCRA 654 (1984) Kapatiran v. Tan 163 SCRA 372 (1988) b. Exceptions from the prohibition Delegation to local governments

Sec. 5, Art. X, Constitution Book II, Local Government Code Basco v. PAGCOR, 197 SCRA 52 (1991) NPC v. City of Cabanatuan, G.R. No. 149110, April 9, 2003 Delegation to the President Sec. 28(2), Art. VI, Constitution Sec. 401, Tariff and Customs Code Garcia v. Executive Secretary, 210 SCRA 219 (1992) Delegation to administrative agencies Maceda v. Macaraig, 197 SCRA 771 (1991) Maceda v. ERB, 192 SCRA 365 (1990) iii. Exemption of government entities agencies and instrumentality Sec. 24(c), Tax Code Maceda v. Macaraig, supra iv. Limitation of international comity

Sec.2, Art. II, Constitution Sec. 159, Local Government Code v. Limitation of territorial jurisdiction/personal jurisdiction Commissioner v. BOAC, 149 SCRA 395 (1987) Commissioner v. Japan Airlines, 202 SCRA 450 (1991) Iloilo Bottlers v. City of Iloilo, 164 SCRA 607 (1988) D. Constitutional Limitations i. Due process of law Tan v. Del Rosario, 237 SCRA 324 (1994) Sec. 1, Art. III, Constitution Sison v. Ancheta, 130 SCRA 654 (1984) ii. Equal protection of the laws Sec. 1, Art. III, Constitution Sison v. Ancheta, supra Villegas v. HiuChiong Tsai Pao, 86 SCRA 270 (1978) Tan v. Del Rosario, supra iii. Uniformity and equity in taxation Sec. 28(1), Art. VI, Constitution Adoption of a progressive system of taxation Tolentino v. Sec. Of Finance, supra

Valid classification of taxpayers/subject or items to be taxed Pepsi Cola v. City of Butuan, 24 SCRA 787 (1968) Manila Race Horse v. DelaFuente, 88 Phil 60 (1951) Eastern Theatrical v. Alfonso, 83 Phil 852 (1949) Shell v. Municipality of Cordova, 94 Phil 387 (1954)

iv.

Prohibition against imposition for non-payment of poll tax Sec. 20, Art. III, Constitution Community tax v. Poll tax Sec. 156-164, Local Government Code

v.

Prohibition against impairment of obligation of contracts Sec. 10, Art. III, Constitution Sec. 11, Art. XII, Constitution Tolentino v. Sec. Of Finance, supra

vi.

Prohibition against infringement of religious freedom Sec. 5, Art. III, Constitution American Bible Society v. City of Manila, 101 Phil 386 (1957) Tolentino v. Sec. Of Finance, supra

vii.

Prohibition re: appropriation of proceeds of taxation The use of tax levied for special purpose Sec. 29, Art. VI, Constitution

viii.

Prohibition against taxation of religious, charitable entities and educational entities Sec. 28(3), Art. VI, Constitution Abra Valley College v. Aquino, 162 SCRA 106 (1988) Lung Center v. Quezon City, G.R. No. 144104, June 29, 2004

ix.

Prohibition against taxation of non-stock, non-profit institutions Sec. 4(3), Art. XIV, Constitution Sec. 4(4), Art. XIV, Constitution Sec. 28(3), Art. VI, Constitution Sec. 24(b), Tax Code

x.

Others a. Grant of tax exemption Sec. 28(4), Art. VI, Constitution b. Veto of appropriation, revenue, tariff bills by the president Gonzales v. Macaraig, 191 SCRA 452 (1990) c. Non-impairment of the jurisdiction of the Supreme Court Secs.2 and 5(b), Art. VIII, Constitution
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San Miguel Corp. v. Avelino 89 SCRA 70 (1979) d. Revenue bills shall originate from the House of Representatives Sec. 24, Art. VIII, Constitution Tolentino v. Sec. Of Finance, supra e. Infringement of press freedom Sec. 4, Art. III, Constitution Tolentino v. Sec. Of Finance, supra f. Grant of franchise Sec. 11, Art. XII, Constitution Tolentino v. Sec. Of Finance, supra E. Who may question the validity of a tax measure of expenditure of taxes taxpayers suit Lozada v. Com., 120 SCRA 337 (1983) Maceda v. Macaraig, 197 SCRA 771 (1991) Gonzales v. Marcos, 65 SCRA 624 (1975) VI. Tax Systems A. Classification Sec. 28(1), Art. VI, Constitution Progressive system v. Progressive rate of tax Tolentino v. Sec. Of Finance, 235 SCRA 630 (1994) B. Basic principles of a sound tax system Chavez v. Ongpin, 186 SCRA 331 (1990) VII. Classification of Taxes A. As to scope of the tax: National/local taxes Benguet Corporation v. CBAA, 210 SCRA 579 (1993) B. As to who shoulders the burden of the tax: Direct/Indirect taxes Sec. 1, RA 7716 Philippine Acetylene v. Commissioner, 20 SCRA 1056 (1967) Maceda v. Macaraig, 197 SCRA 771 (1991) Maceda v. Macaraig, 223 SCRA 217 (1993) Com v. John Gotamco, 148 SCRA 36 (1987) C. As to the object or subject matter of the tax: Property/personal/poll or capitation/excise Villanueva v. City of Iloilo, 26 SCRA 578 (1968) Com v. CA, G.R. No. 104151, March 10, 1995, 242 SCRA 289
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Ass. Of Customs Brokers v. Municipal Board, 93 Phil 106 (1953) D. As to the matter of computing the tax i. ii. Ad valorem Specific We Wa Yu v. City of Lipa, 99 Phil 575 (1956) E. As to the graduation or rate i. Proportional Eg. Real Estate tax Sec. 233 Local Government Code ii. Progressive Eg. Sec. 21(a), Tax Code Meaning of digressive tax rate iii. Regressive

VIII.

Some Fundamental Doctrines in Taxation A. Situs of Taxation i. ii. Meaning of situs of taxation Situs of subjects of taxation Commissioner v. BOAC, 149 SCRA 395 (1987) Com. v. Japan Airlines, 202 SCRA 450 (1991) Wells Fargo v. Collector, 70 Phil 325 (1940) Tan v. Del Rosario, 237 SCRA 324 (1994) Sec. 104, Tax Code iii. Multiplicity of situs Collector v. Lara, 102 Phil 813 (1958) B. Double Taxation i. ii. Meaning of double taxation in the strict sense/in the broad sense Instances of double taxation in its broad sense Villanueva v. City of Iloilo, 26 SCRA 528 (1968) iii. Constitutionality of double taxation City of Baguio v. De Leon, 25 SCRA 938 (1968) Pepsi Cola Bottling Co. v. City of Butuan, 24 SCRA 788 (1968)
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C. Escape from Taxation i. Shifting of tax burden a. Ways of shifting the tax burden b. Taxes that can be shifted c. Meaning of impact and incidence of taxation Relations among impact, shifting, and incidence of tax ii. Tax evasion; elements Republic v. Gonzales, 13 SCRA 633 (1965) iii. Tax Avoidance Delpher Traders Corp. v. IAC, 157 SCRA 349 (1988) Yutivo v. CTA, 1 SCRA 160 (1961) iv. i. Exemption from taxation Meaning of exemption from taxation Greenfield v. Meer, 77 Phil 394 (1946) ii. Compared with/differentiated from other terms Tax remission/tax condonation Juan Luna Subdivision v. M. Sarmiento, 91 Phil 370 (1952) Surigao Con. Mining v. Col., 9 SCRA 728 (1963) Tax amnesty Republic v. IAC, 196 SCRA 335 (1991) People v. Castaneda, 165 SCRA 327 (1988) Pascual v. Com., 166 SCRA 560 (1988) Com. v. Marubeni, G.R. No. 137377, December 18, 2001 Zero-rating (VAT) Sec. 107 NIRC Exclusion/deduction PLDT v. City of Davao, G.R. No. 143867, March 25, 2008 iii. Kinds of tax exemption Atlas Fertilizer v. Commissioner, 100 SCRA 556 (1980) Commissioner v. Phil. Ace Line, 25 SCRA 913 (1968) Caltex v. Com., 208 SCRA 751 (1992) iv. Nature of the power to grant tax exemption
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Basco v. PAGCOR, 197 SCRA 52 (1991) See also NPC v. City of Cabanatuan, G.R. No. 149110, April 9, 2003 Maceda v. Macaraig, supra v. Rationale/grounds for tax exemption Tolentino v. Sec. Of Finance, supra Maceda v. Macaraig, supra Davao Light v. Com., 22 SCRA 122 (1972) Tam Kim Kee v. CTA, 7 SCRA 122 (1963) NPC v. Presiding Judge, 190 SCRA 477 (1990) vi. Nature of tax exemption Tolentino v. Sec. Of Finance, supra Maceda v. Macaraig, supra Philippine Acetylene v. Com., supra Wonder Mech. V. CTA, 64 SCRA 555 (1975) vii. Laws granting tax exemption/tax incentives Constitution Sec. 28(3), Art. VI, Constitution National Internal Revenue Code Special Laws Treaty/International Agreements

IX.

Philippine Tax Laws and Regulations A. Nature of Tax Laws Hilado v. Collector, 100 Phil 288 (1956) Republic v. Oasan, 99 Phil 934 (1956) B. Sources of Tax Laws i. ii. iii. iv. v. vi. vii. viii. ix. Constitution National Internal Revenue Code Tariff and Customs Code Local Government Code Local tax ordinance Tax treaties/ international agreements Special laws Decisions of the SC/CTA Revenue rules and regulations/ Administrative rulings and opinions Sec. 245, Tax Code Secs. 511 and 519, Tariff and Customs Code Misamis Oriental v. Department of Finance, G.R. No. 108524, November 10, 1994

a. Validity of revenue rules and regulations Tan v. Del Rosario, 237 SCRA 324 (1994) Commissioner v. CA, 240 SCRA 368 (1995) Phil. Petroleum Corp. v. Mun. Of Pililia, 198 SCRA 82 (1991) Umali v. Estanilao, 209 SCRA 446 (1992) LaSuerte v. CTA, 134 SCRA 29 (1985) b. BIR Rulings C. Interpretation/Construction of Tax Laws i. Rules when legislative intent is clear Umali v. Estanislao, supra Lorenzo v. Posadas ,supra ii. Rule when there is doubt Collector v. La Tondea, 5 SCRA 665 (1962) iii. Provisions/laws granting tax exemptions a. General Rule Commissioner v. CA, G.R. No. 115349, April 18, 1997 Misamis Oriental Asso.v. Dept. Of Finance, 238 SCRA 63 (1994) Co. of Customs v. Phil. Acetylene Company, 39 SCRA 70 (1971) Manila Electric Company v. Tabios, 67 SCRA 352 (1975) Benguet Corporation v. CBAA, 210 SCRA 579 (1992) b. Exceptions Maceda v. Macaraig, 196 SCRA 771 (1991) Maceda v. Macaraig, 223 SCRA 217 (1993) D. Application of Tax Laws/Revenue Regulations and Rulings i. General Art. 2, Civil Code Umali v. Estanislao, 209 SCRA 446 (1992) Lorenzo v. Posadas, supra Hijo Plantation v. CB, 164 SCRA 192 (1988) Comm. V. Filipinas Cia de Seguros, 107 Phil 1055 (1965) Cebu Portland v. Collector, 25 SCRA 789 (1968) Com. v. Rio Tuba Nickel Mining, 202 SCRA 137 (1991) ii. Application of revenue rules and regulations/rulings Tuazon v. CA, 212 SCRA 739 (1992) Com. v. Mega General, 166 SCRA 166 (1988) ABS-CBN v. CTA, 108 SCRA 143 (1992)
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BPI v. Commissioner, G.R. No. 144653, August 28, 2001 iii. Effectivity and validity of tax ordinances

E. Mandatory and directory provisions of tax laws Roxas v. Rafferty, 37 Phil 958 (1918) Aragon v. George, 85 Phil 246 (1949) Pecson v. CA, 222 SCRA 580 (1993)

X.

Tax Administration and Enforcement A. Bureau of Internal Revenue B. Bureau of Customs C. Local Government units D. Other Government Agencies

XI.

Tax Remedies A. Remedies of the Government B. Remedies of Taxpayers

(This outline was prepared based on Prof. J. Ricaldes and Prof. R. Folloscos outlines in Taxation)

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