TAXATION LAWS 1- KEMY DORA

TAXATION LAWS 1
POWERS AND DUTIES OF THE BIR (Section 2)
Assessment and collection of all national internal revenue taxes, fees.. Enforcement of all for forfeitures, penalties, fines Execution of Judgments of the CTA and Ordinary Courts (in its favor) Administer the supervisory and Police Powers CHIEF OFFICIALS OF THE BIR Commissioner of Internal Revenue (CIR) 4 Deputy Commissioners

POWERS OF THE CIR (IDO-MaD)

1.) Interpret tax laws- subject to review by the secretary of finance 2.) Decide tax cases- DR.PO (Disputed assessments, Refunds, Penalties imposed and Others) 3.) Obtain Information
-examining records -obtaining financial statements -summon person liable -testimony of the person under oath -conduct regular canvass concerning persons liable for Internal Revenue tax.

4.) Make Assessments 5.) Delegation- to a person with a rank equivalent to a division chief or higher. -powers that cannot be delegated are:
5.1) power to recommend promulgation of rules by sec. of finance 5.2) issue rulings of first impression (no established precedents) 5.3) power to compromise or abate

6.) Suspend Business Operations- grounds:

In case of a VAT registered person: -failure to issue receipts -failure to file a VAT RETURN -understatement of taxable sale or receipts by 30% or more Failure of any person to register

1|Page

TAXATION LAWS 1- KEMY DORA

RESORT TO BEST EVIDENCE RULE (Section 5(b), NIRC) "(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations

Can the CIR delegate power vested in him? =YES, it may be delegated to any subordinate official with a the rank equivalent to a division chief or higher (section 7, NIRC) -Powers that CANNOT be delegated are: (RIC) -power to recommend promulgation of rules by secretary of finance -power to issue rulings of first impression (no established precedents) -power to compromise or abate

CIR VS. GONZALES October 30, 2010 Topic: best evidence obtainable rule Facts: The BIR conducted an investigation to determine the tax liabilities of LM Camus Engineering Corporation (LMCEC) FOR 1997-98. The audit investigation was precipitated by an Information from an informer that LMCEC had substantial undeclared income. A subpoena dulces tecum was served on LMCEC but it failed to submit the documents needed. LMCEC was assessed deficiency taxes but it refused to pay despite the assessment and demand letter. The assessment became final. ISSUE: WHETHER PETITIONERS EVIDENCE (data from an informant) IS CONTRARY TO LAW. RULING: NO The lack of consent of the taxpayer under investigation does not imply that the BIR obtained information from third parties illegally or that the information received is false or malicious, nor does the lack of consent preclude the BIR from assessing deficiency taxes on the taxpayers based on the documents. Respondents cannot escape criminal prosecution under sections 254-55 by mere imputation of a fictitious 2|Page

TAXATION LAWS 1- KEMY DORA

or disqualifies informant, the Bureau insisted on maintaining confidential information about the informer.

GENERAL PRINCIPLES OF TAXATION

A) DEFINITION OF TAXATION Taxation is a power by which an independent state through its law making body raises and accumulates revenue from its inhabitants to pay the necessary expenses of the government.
-as a POWER, it refers to the inherent power of a state -as a PROCESS, it passes a legislative undertaking through the enactment of tax laws by the congress which will be implemented by the executive branch of the government through its BIR. -as a MEANS, it is a way of collecting and apportioning the cost of government among those who are privileged to enjoy its benefits.

B) TWO FOLD NATURE OF TAXATION INHERENT POWER- the state may exercise the power of taxation without constitutional provisions authorizing it to do so. LEGISLATIVE POWER-the promulgation of tax laws is exercised by the congress.

C) THEORY AND BASIS OF TAXATION Taxes are lifeblood of the government and so should be collected without unnecessary delay. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the conflicting interests of the authorities and taxpayers so that the real purpose of taxation, which is promotion of common good may be achieved.

3|Page

TAXATION LAWS 1- KEMY DORA

CIR VS. ALGUE 159 SCRA 9 Theory and Basis of taxation Facts: Algue was commissioned by Philippine Sugar Estate Development Company as agent to sell its land factories and oil manufacturing process pursuant to such authority, the Guevaras worked for formation of vegetable oil investment corporation (VOIC). VOIC purchased Philippine Sugar Estate Company and Algue received P125K as commission for the sale. Algue was given by the CIR a letter of assessment but he filed a protest. The contention of Algue was, his commission should be deducted P75K as expenses for the promotional fee. ISSUE: WHETHER THE CTAS DISALLOWANCE OF ALGUES CLAIMED DEDUCTION OF P75K WAS PROPER. RULING: NO According to section 30 of the Tax Code, ordinary and necessary expenses paid or incurred during the taxable year shall be a deduction. Also, section 70 of the Revenue Regulation No. 2 states that compensation for personal service is among the ordinary and necessary expenses. The burden is on the taxpayer to prove the validity of his claimed deduction. Algue has proved that the payment of the fees was necessary and reasonable, hence the deduction claimed by him should be allowed. Taxes are lifeblood of the government and so should be collected without unnecessary delay. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the conflicting interests of the authorities and taxpayers so that the real purpose of taxation, which is promotion of common good may be achieved.

4|Page

TAXATION LAWS 1- KEMY DORA

Facts: NAPOCOR is a GOCC created by Act No. 120; it sells electricity to residents of Cabanatuan. Pursuant to section 37 of an ordinance, NPC was assessed a franchise tax of P 808,606.41 for the proceeding year. NPC refused to pay the taxes on the ground that it is a non profit organization exempted from tax (RA 6395). The city of Cabanatuan filed a collection suit, it contended that NPCS exemption was repealed by RA 7163, section 190. The RTC dismissed the case. It ruled that the tax exemption still subsists despite RA 7160; one of the grounds is that local governments have no power to tax instrumentalities of the National Government. On appeal to the CA, it reversed the TCS order in the ground that the LGC Expressly withdrew exemption granted. ISSUE: WHETHER NPC, A PUBLIC NON PROFIT CORPORATION IS LIABLE TO PAY FRANCHISE TAX. RULING: YES. It is beyond dispute that the City government has the authority to issue ordinance no. 165-92 and impose an annual tax business enjoying a franchise pursuant to section 151 in relation to 137 of the LGC. Taxes are the lifeblood of government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, the exercising of taxing powers derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. One of the most significant provisions of the LGC is removal of the blanket of exclusion of instrumentalities and agencies of the government. In the case at bar, section 151 in relation to 137 of the LGC clearly authorizes the city government to impose upon NPC the franchise in question.

NPC VS. CITY OF CABANATUAN GR NO. 149110 Theory and basis of taxation

IS THE POWER TO TAX THE POWER TO DESTROY? Yes, if in the case of a VALID TAX which cannot be restrained even though it interferes with property. But in the case of an INVALID/ ILLEGAL TAX it should be declared invalid and unconstitutional. D. CHARACTERISTICS OF TAXATION 1.) Public purpose 2.) Subject to international comity 3.) Territoriality 4.) Non-delegation of power to tax 5.) Subject to Inherent and Constitutional limitations 6.) Exemption from taxation of the government

5|Page

TAXATION LAWS 1- KEMY DORA

E. POWER OF TAXATION COMPARED WITH OTHER POWERS Basis of comparison Definition TAXATION Power of the state to demand enforced contributions for public purpose POLICE POWER Power of the state to enact such laws in relation to persons and property as may promote public health, safety, morals and the general welfare Promotion of general welfare Government or political subdivision No transfer of title, at most there is restraints on injurious use of the property Person affected receives no direct and immediate benefit but only such as may arise from the maintenance of a healthy economic standard of society Should be not more than that sufficient to cover the cost of the license and the necessary expenses of regulation relatively free from constitutional and is superior to the non impairment clause EMINENT DOMAIN Power of the state to take property for public purpose/ use upon payment to the owner of a just compensation to be ascertained according to law. Property is taken for public purpose May be granted to service companies of public purpose Transfer of the right equivalent of to property whether it be ownership or a lesser right Market value of the property

Purpose Authority exercising the power Effect

Support of the government Government or political subdivision Money contributed becomes public funds

Benefits received

Amount of imposition

Assumed that the individual receives the equivalent of the tax in the form of protection and benefits received from the government as such No limit on the amount of tax

No amount imposed but rather the owner is paid the market value of the property

Relationship to the Constitution

Subject to Inherent ands Constitutional limitations

Subject to certain Constitutional limitations

6|Page

TAXATION LAWS 1- KEMY DORA

Public Purpose PASCUAL VS. SECRETARY OF PUBLIC WORKS 110 Phil. 331
Facts: Pascual as governor of Rizal instituted an action for declaratory relief with injunction upon the ground that RA 920, section 1-c, appropriating P85, 000.00 for the construction and reconstruction, repair, extension and improvement of Pasig feeder road terminals was illegal and void because at the time of the passage and approval of such act, the aforementioned feeder roads were not connected to any government property but affects the property of a certain congressman. ISSUE: WHETHER RA 920 is UNCOSTITUTIONAL BECAUSE IT APPROPRIATED FUNDS FOR RECONSTRUCTION, IMORIVEMENT OR FEEDERS AFFECTING PRIVATE PROPERTY. RULING: YES It is a general rule that legislature is without power to appropriate public revenues for anything but public purpose. It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax. Therefore, RA 920 is not valid because it appropriates funds for the benefit of a private property.

LUTZ VS. ARANETA 98 Phil 148

Facts: Walter Lutz, administrator of the Intestate estate of Antonio Ledesma assailed the validity of Act.567, the Sugar Adjustment Act. Such act provided for: a) increase of the existing tax on the manufacture of sugar on a graduated basis; and b) levies a tax on owners or persons in control of lands devoted to cultivation of sugar. All funds collected should accrue to the adjustment and stabilization fund for the sugar industry. Lutz seeks to recover from CIR P14, 660.00 paid by the estate of Ledesma as levy on owners of land for the crop years 1948-49-50. The contention of Lutz was that the levy of fund for the support of the sugar industry was not for a public purpose, hence RA 567 is unconstitutional. ISSUE: WHETHER THE ADJUSTMENT AND STABILIZATION FUND CREATED BY THE SUGAR ADJUSTMENT ACT WAS VALID RULING: YES The power of the state to levy tax in aid and support of the sugar industry, as the protection and promotion of the sugar industry is a matter of public concern; it follows that the legislature may determine within reasonable bounds what is necessary for its protection and expedient for its protection.

7|Page

TAXATION LAWS 1- KEMY DORA

The sugar industry is one of the great industries of our nation, it occupies a leading position among export products, it gives employment and it is a great source of the nations wealth and a source of foreign exchange for currency stability.

GOMEZ VS. PALOMAR 25 SCRA 827

FACTS: RA 1635, as amended by RA 2631 provided: to help raise funds for the Philippine Tuberculosis Society, the director of posts shall order printing and issue of semi-postal stamps from August 19 to September 30. The regular postage charge plus 5 centavos shall be charged for every mail. The additional proceeds from the sale of stamps shall constitute a special fund to be deposited with the National treasury to be expended by the Philippine Tuberculosis society for prevention of TB. On Sept. 15, 1963, Benjamin Gomez mailed a letter at the post office in Pampanga. The mail did not bear the special anti-TB stamp so it was returned to the sender. Gomez questions the constitutionality of the statute on the ground that it is not for a public purpose. ISSUE: WHETHER RA 1635 was passed for a public purpose RULING: YES. The eradication of a disease is a public purpose

CIR VS. CENTRAL LUZON DRUG CORP 456 SCRA 414

BAGATSING VS. RAMIREZ 74 SCRA 306

FACTS: ACT 7522 an ordinance regulating the operation of public markets and prescribing fees for the rentals of stalls and providing penalties for violation thereof and for other purposes. The Federation of Manila Market Vendors Incorporated commenced a civil case presided by Judge Ramirez. The vendors contend that the tax ordinance is not valid because the collection of such fees was left to a private entity, Asiatic Integrated Corp. through a management and operating contract. ISSUE: WHETHER THE ENTRUSTING OF THE COLLECTION OF MARKET STALL FEES TO PRIVATE FIRM DESTROY THE PUBLIC PURPOSE OF A TAX ORDINANCE. RULING: NO The collected fees do not go to the private funds of the Asiatic Integrated Corp., but for the city. That it is the object it served, the entrusting of the collection of fees 8|Page

TAXATION LAWS 1- KEMY DORA

does not destroy the public purpose of the ordinance. The people may be taxed for a public purpose, although it is under the direction of an industrial or private corporation.

Territoriality -Registration anew with appropriate revenue district office is needed when an individual moves its principal place of business. ATLAS CONSOLIDATED MINING CORP. VS. CIR 324 SCRA 73
FACTS: Petitioner filed a claim for refund or a tax credit with CIR as well as a claim with the CTA, claiming that the 2yr, prescriptive period provided for under section 230 of the tax code for claiming a refund is about to expire (Atlas- EPPSA registered= zero rated). The CTA denied the petitioners claim for the refund due to petitioners failure to comply with documentary requirements prescribed under section 16 of the Revenue Regulation number 5-87 as amended by RRO No. 5-88. The decision was dismissed for lack of merit. ISSUE: WHETHER PETITIONER IS ENTITLED TO REFUND OR CREDIT. RULING: NO. Applicants for refund/ credit input VAT with the BIR must comply with appropriate revenue regulations. The requirements are provided by section 16.
Section 16. Refunds for tax credit of input tax. xxx c) claims for tax credit/ refunds- application for tax credit or refund of VAT paid shall be filed with the Revenue District Office where the business is located.

Non delegation of Power to Tax-Exceptions BOARD OF ASSESSMENT APPEALS VS. CTA 8 SCRA 225
FACTS: The question involved in this case is whether the water pipes reservoir intake and buildings used by National Waterworks and Sewerage Authority (NAWASA) in the operation of its waterworks system in the municipalities of Cabuyao, Sta. Rosa and Binan, Laguna are subject to real estate taxes. ISSUE: WHETHER WATER PIPES RESERVOIR INTAKE AND BUILDINGS USED BY THE NAWASA ARE SUBJECT TO REAL ESTATE TAX.

9|Page

TAXATION LAWS 1- KEMY DORA

RULING: NO. RA 104 upon which petitioner rely is inapplicable to the case. The provision refer only to duties, taxes, fees and other charges upon transaction, business, industry, sale or income and does not include taxes on property like real estate tax. (Which is taxable by a LGU)

PEPSI COLA BOTTLING CO. VS. MINUCIPAMITY OF TANAUAN 69 SCRA 460

FACTS: PEPSI COLA challenged the validity of RA 2264, section 2, or the Local Autonomy Act, as unconstitutional as an undue delegation of taxing authority as well as to declare ordinance nos. 23 and 27 series of 1962. Ordinance no. 23- levies and collects from soft drinks products manufactures a tax of 1/16 centavo per bottle of soft drink Ordinance no. 27- 1 centavo per gallon ISSUE: WHETHER RA 2264 IS VALID RULING: YES. Legislative power may be delegated to local governments in respect of matters of local concern. By necessary implication, the legislative power to created political corporations for purpose of self government carries with it the power to confer on such local government agencies the power to tax. In delegating the authority, the state is not limited to the exact measure of which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient.

VILLEGAS VS. TSAI PAO HO 86 SCRA 270 Delegation of taxing powers to the LGU- a valid tax must set forth the criterion or standard
FACTS: Tsai Pao challenged the validity of ordinance no. 6537 which prohibited aliens from being employed or engaged in any position, occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the mayor of Manila and paying the permit fee. ISSUE: WHETHER THE ORDINANCE IS A VALID DELEGATION OF POWER TO TAX

10 | P a g e

TAXATION LAWS 1- KEMY DORA

RULING: NO It is not a valid delegation of power to tax because it does not lay down the criterion or standard to guide the mayor in the exercise of his discretion. It has been held that where an ordinance of a municipality fails to state any policy of to set up any standard to guide or limit the mayors action, expresses no purpose to be attained by requiring a permit, enumerate no conditions for its grant or refusal and entirely lacks standard, thus conferring upon the mayor arbitrary and unrestricted powers.

OSMENA VS. ORBOS 220 SCRA 703 (Delegation to administrative agencies)

FACTS: Petitioner seeks to have sec. 8, par. 1, PD 1958, as amended by EO 137 be declared unconstitutional for being undue and invalid delegation of power to the energy regulatory board. Under the assailed law, the ERB is given the authority to impose additional amounts on petroleum products to augment the resources of the fund (Oil Price Stabilization Fund). He argued that the money collected pursuant to PD 1956 must be treated as a special fund for the purpose indicated-Oil Price Stabilization Fund. ISSUE: WHETHER THERE IS UNDUE DELEGATION OF LEGISLATIVE POWER. RULING: NO The provision conferring authority upon the ERB to impose additional amounts on petroleum products provides a sufficient standard by which the authority must be exercised. In addition to the general policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump rates, 8 (c) of PD 1956 expressly authorizes the ERB to impose additional amounts to augment the resources of funds. Requisites of a valid delegation of power, the law delegating the power must be: 1)complete in its self, that is it must be set forth in the policy to be executes by the delegate, and 2)it must fix a standard-limits of which one sufficiently determinate or determinable- to which the delegate must conform.

Exemption from taxation of the government MIAA VS. CA 495 SCRA 591 FACTS: Manila International Airport is located at Paranaque City. The city sent notices to MIAA de to real estate tax delinquency; MIAA settled some of the amounts. When MIAA failed to settle the entire amount, the officers or Paranaque city threatened to levy and subject to auction the land and buildings of MIAA, which they did. MIAA sought for a Temporary Restraining Order from the CA, but it failed to do so within the reglamentary period. The SC granted a TRO but it was received 3 hours after the public auction. 11 | P a g e

TAXATION LAWS 1- KEMY DORA

TAX.

ISSUE: WHETHER MIAA (not a GOCC) IS EXEMPT FROM REAL ESTATE

RULING: YES. Under the Local Government Code, GOCCs are not exempt from real estate tax. MIAA is not a GOCC, it is an instrumentality of the government vested with corporate and governmental functions. The land and building of the MIAA are part of the public dominion. Since the airport is for public use, for the domestic and international travel and transport. To subject them to levy as part of the public dominion is contrary to public policy. PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY VS. NAVOTAS 534 SCRA 490 FACTS: The Municipality of Navotas assessed the real estate taxes allegedly due from Philippine Fisheries Development Authority (PFDA). Taxes were paid despite demand of the treasurer; hence they gave notice of sale by public auction of the properties of PFDA. The notice was published. The RTC ruled in favor of PFDA, issuing a Writ of Preliminary Injunction. The CA affirmed RTCS decision. ISSUE: WHETHER PETITIONER IS LIABLE TO PAY TAXES. RULING: NO Section 234(A) of the Local Government Code states that real property owned by the Republic is exempt from taxation- real property tax, except when the beneficial se thereof has been granted for consideration or otherwise to a taxable person. The exemption from taxation does not extend to the portions of the PFDA that were leased to taxable or private persons and private persons and entities for their beneficial use. F. PURPOSE OR OBJECTIVES OF TAXATION 1) REVNUE/ FISCAL- raise revenue to support the government -it is the primary purpose of taxation 2) REGLATORY/ SUMPTARY PRPOSE- for regulation or control a. reduce social inequality- through adoption of progressively higher tax b. encourage growth of local industries c. Tool to protect trade relations -4 Special Duties: 1. Discriminatory Duty- offset any foreign discrimination of imported products against or local commerce. 2. Countervailing Duty- offset any subsidy granted to imported goods to the prejudice of or local industries. 3. Marking Duty- imposed as an additional duty tax of imported articles and or goods with improper classification. 12 | P a g e

TAXATION LAWS 1- KEMY DORA

4. Dumping Duties- additional duty taxes imposed on imported goods with lesser that fair market value. G. BASIC PRINIPLES OF A SOUND TAX SYSTEM -these are merely intended to make the tax system sound; its nonobservance will not render laws invalid, it impairs any of the constitutional limitations. 1. FISCAL ADEQUACY- the sources of revenue of the government should be sufficient to meet the demand of public expenditures regardless of business conditions. 2. EQUALITY/ THEORETICAL JUSTICE- tax burden must be proportionate to the taxpayers ability to pay. 3. ADMINISTRATIVE FEASIBILITY- tax laws must be convenient, just, uniform and effective in their administration. H. DOCTRINES IN TAXATION 1. PROSPECTIVITY OF TAX LAWS- the effectively of tax laws commence upon its approval and its scope would only cover the present and future transactions. -exception: a law may be applied retroactively if the law itself provides for its retroactive application or when its retroactive application is favorable to the accused. 2. IMPRESCRIPTIBILITY OF TAXES- taxes in general are not cancelable. -exception: unless limitations are provided by the tax laws or the tax code. -Examples: Prescriptive period for collection of national taxes 3 years 10 years if fraud is involved Prescriptive period for collection of Local taxes 5 years 10 years if fraud is involved 3. DOUBLE TAXATION DIRECT DOUBLE TAXATION- taxing twice for the same purpose, activity/ property by the same authority in the same year. (PAPAY) -prohibited by law for being contrary to the constitutional precepts of equal protection and uniformity of taxation. Kinds of Direct Double Taxation: a. International Double Taxation- imposition of comparable taxes in two or more states on the same subjects matter and for identical purpose. 13 | P a g e

TAXATION LAWS 1- KEMY DORA

b. Domestic Double Taxation-taxes are imposed by the local or national government within the same state. INDIRECT DOUBLE TAXATION- a permissible double taxation that is allowed if the taxes are of different NATRE and CHARACTER imposed by different AUTHORITIES. HOW TO CONTERACT INDIRECT DOBLE TAXATION: 1) TAX EXCEMPTIONS- the income or capital which is taxable in the state of source / situs is exempted in the state of residence. 2) TAX CREDIT- the tax paid in the state of source/ situs is credited against the tax levied in the state of residence 3) TAX TREATY 4) ALLOWABLE TAX DEDUCTIONS SUCH AS VANISHING DEDUCTIONS- allowed to the estate of the decedent to provide relief from burden of taxation as a result of transfer or inheritance or donation of the same property within a relatively short period of time (not exceed 5 years). CITY OF MANILA VS. COCA-COLA BOTTLERS PHILIPPINES August 4, 2009 FACTS: Prior to Feb. 25, 2000, Coca-Cola had been paying the city of Manila, local business tax only under sec. 14 of Tax Ordinance 7794- Tax on Manufacturers, assemblers and other processors, because it has been exempted from the business tax under section 21- tax on business subject to the excise vale or percentage taxes. On Feb. 25, 2000, Ordinance 7988 amended certain sections of Tax Ordinance 7794; it increased the tax notes rates under section 14 and deleted the exception under section 21. Tax ordinance 7988 was later declared void in Coca-Cola Bottlers Philippines vs. City of Manila (June 27, 2006). However, before the court declared tax ordinance 7988 as void, the city of Manila assessed Coca-Cola on the basis of section 21 of Tax ordinance 7794 for deficiency local business tax amounting to P 18,583,932 for the 3 rd and 4th quarters of 2000. Coca-Cola filed a protest on the ground that it would constitute double taxation. ISSUE: WHETHER THE ASSESSMENT OF THE CIR FOR TAXES UNDER SECTION 14 AND 21 AGAINST COCACOLA CONSTITUTES DOUBLE TAXATION/ RULING: YES. Double taxation means taking the same property twice when it should be taxed once; that is 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 double/ 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 the taxes must be of the same character. 14 | P a g e

TAXATION LAWS 1- KEMY DORA

Using the aforementioned test, the court finds that there is indeed double taxation if respondent, Coca-Cola is subjected to the taxes under section 14 and 21 of the Tax Ordinance 7794 since these are being imposed: 1. In the same subject matter- the privilege of doing the business in the City of Manila 2. Same purpose- to make conducting business within the city of manila contribute to city revenues 3. Same authority-city of manila 4. Same periods- per calendar year 5. Same taxing jurisdiction-city of manila 6. Same kind/ character- local business tax imposed on gross sales or receipts of the business. 4. ESCAPE FROM TAXATION A. Shifting of tax burden- transfer of tax burden to another. -Ex: Indirect taxes like VAT, percentage taxes and excise tax. 1. Ways of Shifting: Forward Shifting- the burden of tax is transferred from a factor of production through factors of distribution until they finally settle on the ultimate purchaser/ consumer. Backward Shifting- the burden of tax is transferred from the consumer or purchaser through the factors of distribution to the factor of production. Onward Shifting- tax is shifted two or more times either forward or backwards. 2. Taxes that can be shifted 3. Meaning of Impact and Incidence of Taxation Impact of taxation- the part on which tax is originally imposed. Insofar as the law is concerned, the taxpayer is the person who must pay the tax to the government. (passage of tax laws) Incidence of taxation- tax burden finally rests or settles down. It takes place when shifting has been effected from the statutory taxpayer to another. B.TAX AVOIDANCE (tax minimization) -valid if used by the taxpayer in good faith, taxpayer uses legally permissible means to reduce or totally escape payment of taxes. -ex: conversion of property to shares of stock in a corporation to save inheritance taxes 15 | P a g e

TAXATION LAWS 1- KEMY DORA

B. TAX EVASION -use of illegal or fraudulent means to defeat or lessen the payment of taxes, also known as TAX DODGING and is punishable by law. -ex: deliberate failure to report a taxable income or property Overstating expenses 5. EXCEMPTION FROM TAXATION a. Definition -An exemption from taxation is a grant of immunity, expressed or implied, to persons or corporations of particular class from a tax upon property or an excise which persons and corporations generally within the same taxing district are obliged to pay. -tax exceptions are generally granted in the basis of: a) reciprocity, b) public policy and c) contracts -principles: 1. They are not presumed 2. They are strictly construed against the taxpayer 3. They are highly disfavored and may almost be said to be contrary to the intention of tax laws. -he who claims exemptions must be able to justify his right or claim -exemption cannot ne transferred without the states consent b. Nature of Tax Exemption 1. Mere personal privilege of the grantee 2. 2. Revocable by the government nless it is fonded on a contract protected from impairment 3. Government waiver of right to collect 4. It is not discriminatory as long as it has reasonable foundation or rational basis GENERAL RULE: government entities performing governmental functions are tax exempt EXCEPTION: government entities performing proprietary functions (are not exempt from taxes) EXCEPTION TO THE EXCEPTION: a government entity performing proprietary functions is tax exempt if the charter creating it provides for exemption. 4 TAX EXCEMPT GOCCs (section 27, NIRC) -GSIS, SSS, PHIC, PCSO, PAG-IBIG 16 | P a g e

TAXATION LAWS 1- KEMY DORA

C. KINDS OF TAX EXEMPTION 1. EXPRESSED2. IMPLIED- either intentional or accidental. These occur when tax is imposed on a certain class of persons, properties or transactions without mentioning other classes, those not mentioned are deemed exempted. 3. CONTRACTUAL- those lawfully entered in to by the government in contracts, under existing laws. D. GROUNDS FOR EXEMPTION 1. Based on contract- eg. Charter of corporation provides for exemption. 2. Based on ground of public policy to encourage new industries or to foster charitable institutions. 3. Based on grounds of reciprocity or to lessen the rigors of international double or multiple taxation. 6. COMPENSATION AND SET OFF -Compensation takes p[lace when 2 persons in their own right are debtors and creditors of each other. -taxes are not subject to set off or legal compensation because the government and the taxpayer are not debtors and creditors of each other. -a person cannot refuse to pay tax on the ground that the government owes his an amount equal to or greater that the tax being collected. EXEMPTION: there can be a valid compensation when the following requisites are present (pero sa Domingo vs. Garlitos lang daw pinayagan ang set off sabi ni mam) 1. When both claims of the government and taxpayer are DUE, DEMANDABLE and FULLY LIQUIDATED. 2. When there is an actual compromise

DOCTRINE OF EQUITABLE RECOUPMENT (not allowed) -A tax claim for refund which is prevented by prescription may be allowed to be used as payment for unsettled tax liabilities if both taxes arise from the same transaction in which overpayment and underpayment is due.

17 | P a g e

TAXATION LAWS 1- KEMY DORA

DOMINGO VS. GARLITOS June 29, 1963 FACTS: A copy of the contract between Mrs. Price, administrator of the estate of her late husband and DIr. Castillo of the Bureau of Lands was meted by Pres. Garcia, directing Dir. Castillo to pay Mrs. Price the sum of P368, 140 and the sun of P 262, 200 for the payment of cadastral survey. The court ordered that payment of inheritance taxes in the sum of P 40, 058.55 be deducted from the P 262,200 which is due and payable to Mrs. Price. ISSUE: WHETHER COMPENSATION IS APPLICABLE RULING: YES. In the case at bar compensation takes place by operation of law. The claim of the estate against the government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law. (RA 2700) Under the above circumstances, both the claim of the government for inheritance taxes and the claim of the state for the service rendered already became overdue and demandable as well as fully liquidated. Compensation therefore takes place by operation of law.

FRANCIA VS. IAC 162 SCRA FACTS: Francia owns a house and lot in Pasay; a portion was expropriated by the government for P 4,116 (assessed value). Francia failed to pay Real Property taxes for 1963-77. On December 5, 1977, his property (house and lot) was sold at public action to satisfy a tax delinquency of P2, 400.00 ISSUE: WHETHER FRANCIAS TAX LIABILITY WAS SET OFF BY THE AMOUNT OF P4, 116 WHICH IS DE TO HIM RULING: NO There can be no off setting of taxes on claims of the taxpayers against the government. A person cannot refuse to pay on the ground that the government owns him an equal or greater amount than the tax being collected. No legal compensation can be effected in this case because the parties are not creditors and debtors if each other.

18 | P a g e

TAXATION LAWS 1- KEMY DORA

REPUBLIC VS. MAMBLAO 4 SCRA 753 FACTS: Mamblao paid P9,127.50 as reforestation charges from 1947-56. An amount of P 4,802 is de to be paid by Mamblao as forest charges. Mamblao contends that since there was no reforestation of the area covered by its license, the same fee is refundable and should be applied in compensation of P 4,802 forest charges. ISSUE: WHETHER THERE CAN BE COMPENSATION IN THE CASE RULING: NO Internal Revenue taxes such as forest charges cannot be subject of set off or compensation because taxes are not in the nature of contracts between parties but grow out of a duty and are positive acts of government to the making and enforcing o which the personal consent of the individual taxpayer is not required. Furthermore, the state and the taxpayer are not debtors and creditors of each other.

PHILEX MINING CORP. VS. CIR August 29, 1998 FACTS: Philex assails the decision of the court of appeals which affirmed the decision of the CTA ordering Philex to pay its excise tax liability. Philex refused to pay and contended that it has pending claims for VAT input credit or refund against the government which should be made to compensate or set off its tax liability. BIR sent a letter to Philiex asking it to settle its tax liabilities for the 2nd 3rd and 4th quarter of 1991 as well as 1st and 2nd quarter of 1992. Philex protested stating that it has pending input credit / refund for the taxes it paid for the years 1989-91 with interest. Therefore there should be set off. BIR denied the claim because it had not been established with certainty, it follows that no legal compensation can take place. ISSUE: WHETHER THERE CAN BE SET OFF RULING: NO Taxes cannot be subject to compensation for the simple reason that the government and the taxpayers are not creditors and debtor s of each other, debts de to the government in its corporate capacity, while taxes are de to the government in its sovereign capacity.

19 | P a g e

TAXATION LAWS 1- KEMY DORA

CALTEX PHILS. VS. COA 208 SCRA 726 FACTS: In 1989, COA sent a letter to Caltex directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and 1988 of the additional tax on petroleum products authorized under section 8 of PD 1956. Pending the remittance, all its claim for reimbursement from the OPSF shall be held in abeyance. Caltex submitted a proposal to COA for the payment and recovery of claims which COA approves but if prohibited Caltex from further offsetting remittances and reimbursements for the current ensuing years. ISSUE: WHETHER THE AMOUNTS COLLECTIBLE FROM CALTEX AND ITS CLAIMS FOR REFNDS/ CREDIT FROM THE OPSF MAY BE OFFSETED RULING: NO Taxation may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. PD 1956 as amended by EO 137 provides that the source of OPSF is taxation. A taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutual creditors and debtors of each other.

7. COMPROMISE -Compromises are generally allowed and enforceable when the subject matter thereof is not prohibited from being compromised and the person entering sch compromise is duly authorized to do so. -persons authorized to enter into compromise in behalf of the government: BIR commissioner Collector of Customs Customs Commissioner 8. TAX AMNESTY -is immunity from all criminal, civil and administrative liabilities arising from non payment of taxes. (General pardon) -applies only to past tax periods -retroactive in application

20 | P a g e

TAXATION LAWS 1- KEMY DORA

Tax amnesty General pardon- it partakes of an absolute forgiveness of the state of its right to collect

Applies to civil, criminal, and administrative charges Retroactive in application

Tax exemption The state desists/ refrains from enforcing/ exacting taxes. Exemptions should be sustained only when in explicit terms and cant be extended beyond the plain meaning Applies to civil liability Prospective in application

Condonation of taxes Condonation of tax liability is equivalent and is in the nature of a tax exemption

9. CONSTRCTION AND INTERPRETATION OF: A. CONSTRUCTION OF TAX LAWS 1. Rule when legislative intent is clear - Tax statutes are to receive a reasonable construction with a view to carryingout their purpose and intent.They should not be construed as to permit the taxpayer easily to evade the payment of taxes.

2.

Rule when there is doubt- No person or property is subject to taxation unless within the terms or plainimport of a taxing statute. In every case of doubt, tax statutes are construed strictlyagainst the government and liberally in favor of the taxpayer.T a x e s , b e i n g burdens, are not to be presumed beyond what the s t a t u t e expressly and clearly declare.

3.

Provisions granting tax exemption- S u c h p r o v i s i o n s a r e construed strictly against the taxpayer claiming t a x exemption

4. 5.

Tax laws are applied prospectively Tax laws prevail over civil laws.

21 | P a g e

TAXATION LAWS 1- KEMY DORA

B. TAX EXEMPTION AND EXCLSION -Tax exemption and exclusions are strictly construed against the taxpayer YMCA VS. CIR 298 SCRA 83 FACTS: YMCA is a nonstick, nonprofit institution which conducts various programs and activities that are beneficial to the public, especially the young, pusuant to its religious, educational and charitable objectives. In 1980 YMCA EARNED p 676,829 from leasing out a portion of its premises to shop owners and P 44,259 from parking fees. The CIR issued an assessment to YMCA in the aount of P415, 316.01. YMCA protested the assessment but the COR denied it. YMCA appealed to the CTA, it ruled in favor of YMCA, on the ground that leasing of space to shop owners and the operation of the parking are merely incidental to and necessary for accomplishment of its objective4s. ISSUE: WHETHER YMCAS INCOME FROM LEASE TO SHOP OWNERS AND PARKING FEES ARE TAXABLE. RULING: YES. According to section 27, NIRC, the income of exempt organizations (such as YMCA) form any of their properties, real or personal, to be suject to tax. YMCA is exempt from payment of property tax but not from income tax on the rentals of its property. The income derived by YMCA from leasing out a portion of its premises to smallshop owners, like restaurant and canteen operators, and from parking fees collected from non-members are taxable income.

DAVAO GULF LUMBER VS. CIR 293 SCRA 77 FACTS: Davao Lumner perchased from various oil companies refined and manufactured oils for the exploitation and operation of its forest concession. The oil companies pais the taxes imposed on the sale of oil, which was later on passed to the user, Davai Gulf Lumber. Davao files a claim for refund in the amount of P 120,825 representing 25% of the specific taxes actually paid. The claim was based on RA 1435, the highway special fund which provides for 25 % refund on additional tax on manufactured oils when the oils are used by mines or forest concessionares. 22 | P a g e

TAXATION LAWS 1- KEMY DORA

Davao filed a petition for review to the CTA, which held that Davao was entitled to partial refund. But Davao claims that it should be entoitled to refund of actual expenses paid and not partial only. Hence this case. ISSUE: WHETHER DAVAO IS ENTITLED TO REFUND OF 25 % UNDER RA 1435. RULING: YES A tax cannot be imposed unless supported by clear and express language of a statute, claim of exemption from tax must be clearly shown and based on language in the law too plain to be mistaken, since the partial refund under RA 1435 is in the nature of an exemption, it must be construed stictissimi juris against the grantee. The court upheld the 25% refund and not the petitioners claim which is the actual expenses paid-under the NIRC.

C.TAX RULES AND REGULATIONS -must be construed/ interpreted in harmony with provisions of the law

D.PENAL PROVISIONS OF TAX LAWS -STRICTLY AGAINST THE STATE AND IN FAVOR OF THE TAXPAUER E.NON RETROACTIVE EFFECT TO TAXPAYERS EXCEPTIONS TO NON-RETROACTIVITY OF RULINGS Revocation, modification of revenue of any rules and regulations promulgatedby the Sec. of Finance or CIR shall not have retroactive effect if it will be prejudicial tothe taxpayer, except: 1. Where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the BIR 2. Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based 3. Where the taxpayer acted in bad faith

I.SCOPE AND LIMITATION OF TAXATION

1. SCOPE/ EXTENT OF TAXATION (C U P S) COMPREHENSIVE- wide extent of application UNLIMITED PLENARY (complete) SUPREME- with highest degree 2. INHERENT LIMITATIONS a. Taxes may be levied only for public purpose 23 | P a g e

TAXATION LAWS 1- KEMY DORA

b. Being inherently legislative, the power of taxation may not be delegated, exept through a valid delegation to: the president, Local Government units, or administrative agencies. C.tax power is limited to territorial jurisdiction of the state d. international comity e. Government entities are generally tax exempt. Exeption: government entities performing proprietary functionsthey are taxable Exeption to the exception: if a government entity performing proprietary function provide in their charter that they are tax excempt- they are not taxable

a. Public purpose
Appropriation of taxes must be for the common good of the people- no private person or entity should be enriched

b. Inherently legislative
Exeptions: Delegation to the Local Government units Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. (Section 5, article 10, Phil const.) -the power to make laws may NOT be delegated Delagation to Administrative Bodies Delegation to administrative bodies is valid if the power delegated is MINISTERIAL and ADVISORY, since the said powers are not legislative but only advisory in nature. Examples of ministerial powers are: power to value property, power to assess property and power to collect taxes. -Delegation of Tax Legislation is invalid -Delegation of Tax ADMINISTRATION is VALID Delegation to the president -flexible tarrif clause The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. (section 28 (2), article 6. Phil. const.) Examples of taxation powers that cannnot be delegated: 1. Select the coverage, object or property to be taxed 2. Determining the nature and purpose for which taxes shall be collected 3. Determining the place or situs of tax imposition 24 | P a g e

TAXATION LAWS 1- KEMY DORA

4. Granting exemptions and condonations 5. Fixing the amount to be imposed and tax rates.

c. Territorial
-the power to tax can only be excercised within the territorial jurisdiction of the taxing authority. SITUS OF TAXATION- place of taxation, it defines the boundaries of the taxing powers over the objc=ects of taxation in terms of LOCATION whether or not they shall be subject to tax. DETERMINING FACTORS TO THE SITUS OF TAXATION 1. Residence of the taxpayer 2. Citizanship 3. Subject matter of the tax (erson, property, rights, activity) 4. Source of income 5. Nature, kind or classification of the tax imposed 6. Place of the activity, privelege, business or occupation being taxed General Rules of Tax Situs citizenship residency Within the philippines Filipino Resident Yes Filipino Nonresident Yes Aliens Resident Yes Aliens nonresident yes Filipino Filipino Aliens aliens Resident Nonresident Resident nonresident Yes Yes Yes yes Yes

Nature of tax INCOME TAX

Outside the phillipines Yes No No No Yes Yes Yes No no

TRANSFER TAX

BUSINESS TAX

3. CONSTITUTIONAL LIMITATIONS
-if a law violates the constitution, such law shall be null and void, be declared unconstitutional.

A. Provisions directly affecting taxation under the Bill of Rights Due Process
No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws. (Section 1, article 3, Phil const.) 25 | P a g e

TAXATION LAWS 1- KEMY DORA

REQUISITES: 1. Give due notice to taxpayer 2. The taxpayer must be giver fair opportunity to assert his substantial rights bnefore competent court 3. Ther must be a hearing

CIR VS. MJ LHUILLER PAWNSHOP Julu 15, 2003

FACTS: On March 11, 1991, CIR issued Revenue Memorandum order 15-91 imposing 5% lending investors tax on pawnshops, effective January 1, 1991, they become subject to DST prescribed in the tax code (section 245 NIRC) On September 11, 1997, BIR issued an assessment notice against Lhuiller demanding payment of deficiency percentage tax in the sum of P 3,360,335 FOR 1994. Lhiuller protested the assessment but was denied, hence this petition. Lhuillier asserts that RMO No. 15-91 and RMC No. 43-91 are not implementing rules but are new and additional tax measures, which only Congress is empowered to enact. Besides, they are invalid because they have never been published in the Official Gazette or any newspaper of general circulation. ISSUE: WHETHER RMO 15-91 WAS A VALID LAW DESPITE THE FACT THAT IT HAD NOT BEEN PUBLISHED IN THE OFFICIAL GAZETTE. RULING: NO RMC No. 43-91 and RMO No. 15-91 are invalid because of the absence of publication. While the rule-making authority of the CIR is not doubted, like any other government agency, the CIR may not disregard legal requirements or applicable principles in the exercise of quasi-legislative powers.

CARLOS SUPERDRUG VS. DSWD 526 SCRA 130

FACTS: Carlos superdrug assails the constitutionality of RA 9257 expanded senior citizens Act of 2003 which provides for a 20% discount from all establishments, services in hotels, restaurants, purchase of medicine and others, the establishement may clain discounts granted under secs. a, f, g and h as deduction. ISSUE: Whether the law is confiscatory bacause it violates art. 3 section 9 of the constitution which provides that private property shall not be takes for public use without just compensation. (Whether there was due process in taking the property by compelling the drugstores to give 20% discount)

26 | P a g e

TAXATION LAWS 1- KEMY DORA

RULING: NO The discount is treated as a deduction, a tax deductible expense that is subtracted from gross income and results to a lower taxable income.

CIR VS. CA Aug. 29, 1996

FACTS: Fortune Tobacco is engaged in the manufacture of different brands of cigarettes, specifically Champion, Hope and More. These brand names were changed into Luxury and Premium. In 1993, RA 7664 was enacted levying a P5.00 minimum tax on locally produced cigarette taxed at P 55%. The BIR sent the company a Revenue Memo-Circular (RMC 37-93) declaring that Champion, More, and Hope are foreign brands and subjecting them to 55% ad valorem tax. ISSUE: whether RMC 37-93 is valid despite the fact that the taxpeyers were not given notice, hearing and opportunity to be heard. RULING: NO It should be understandable that 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. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored.

Equal protection
No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws. (Section 1, Article 3, Philippine constitution.) -all persons subject to legislation shall be trated alike under similar circumstances and conditions both in priveleges conferred and liabilities imposed. There is denial of equal protection of laws if there is discrimination in the implementation of tax laws. 27 | P a g e

TAXATION LAWS 1- KEMY DORA

REQUISITES OF A VALID CLASSIFICATION 1. Must not be limited to existing conditions 2. Apply equally to all members of the same class 3. Germane to the purpose of the law 4. Rest on substantial distinctions CITY OF BAGUIO VS. DE LEON 25 SCRA 938 FACTS: An ordinance in Baguio city imposed a license fee on any person, firm, entity or corporation doing business in the city. Fortunato de Leon was held liable as a real estate dealer to pay P 25.00 annual fee. The lower court declared the ordinance valid. De Leon challenged the constitutionality of the ordinance on the ground that it was violative of the equal protection clause and that it constitutes double taxation. ISSUE: 1. whether there was vilation of the equal protection clause RULING: NO. According to the challenged ordinance, a real estate dealer who leases property worth P50K or above must pay annual fee of P100.00. If worth P10K but not over P50K he pays P50.00 and P24.00 if the value is less than P10K. On its face therefore, the ordinance cannot be assailed as violative of the constitutional requirement of uniformity. In Philippine trust company vs. yatco, it was held that a tax is considered uniform when it operates with the same force and effect, in every place where the subject may be found. The ordinance must apply equally to all persons, firms and corporations placed in similar situation. ORMOC SUGAR CENTRAL VS. ORMOC TREASURER February 17, 1968 FACTS: In 1964, Ormoc city passed a bill requiring a minucipal tax on all and any production of centrifugal sugar milled at the Ormoc Sugar Company per export sale to foreign countries referred to as production tax Ormoc sugar paid in protest, avering that it is violative of the equal protedtion clause, as it single out Ormoc Sugar as being liable for such tax fees for no other sugar mill was found in the cuty. ISSUE: Whether there has been a violation of the equal protection clause. RULING: YES. The act of ormoc city is violative of equal protection as it discriminately imposed taxes only on Ormoc Sugar Company and none other. The classification to be reasonable should also be applicable to future conditions as well and not being singular and exclusive as to exclude any subsequent sugar central of the same class. Even if later a similar company is set up, it cannot ba taxed bacause the ordinance expressly po ints to Ormoc sugar company asa the entity to be levied upon.

28 | P a g e

TAXATION LAWS 1- KEMY DORA

SISON VS. ANCHETA 130 SCRA 654 Facts: Sison challenged the constitutionality of section 1, BP 135 amending sevtion 21 of the NIRCwhich provides for rates on citizens or residents: a) taxable compessation income, b) taxable net income, c) royalties, prizes and other winnings, d) interest from bank deposits and yield on onther monetary benefit from deposit. Sison alleges that he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession, those which are imposed upon fixed income earners or salaried individual taxpayers. ISSUE: WHETHER THERE WAS VIOLATION OF THE EQUAL PROTECTION CLAUSE RULING: NO The rule of taxation shall be uniform and equitable; this requirement is met according to justice laurel when the tax operates with the ssame force where the subject may be found. The rule of uniformity does not call for perfect uniformity or equality, because this is hardly attainable. Equality and uniformity means that taxable articles or kinds of property of the same class shall be taxed at the dsame rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation.

Religious Freedom
No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights. (section 5, article 3)

AMERICAN BIBLE SOCIETY VS. MANILA

101 PHIL 386 FACTS: American Bible society is a foreign non stock non profit religious missionary corporation duly registered and doing business in the Philippines through its phillipine agence. Its phillipine agency has been distributing and selling bibles and gospel portions thereof. The city traesurer informed American bible that it was conducting the business of general merchandise without necessary permit. The city treasurer required American bible to acquire permit within 3 days, it complied and paid the permit under protest. At the lower court, American bibles petition was dismissed for lack of merit. Plaintiff appealed to the CA which certified the case to the SC. 29 | P a g e

TAXATION LAWS 1- KEMY DORA

ISSUE: WHETHER AMERICAN BIBLE SOCIETY IS LIABLE FOR THE PAYMENT OF PERMIT/ LICENSE FEE.

RULING: NO A municipal license tax on the sale of bibles and religious articles by a non stock, non profit missionary organization at a minimal profit constitutes a curtailment of religious freedom and worship which is guaranteed by the constitution. However the income of such organization from any activity for profit or from any of their propderty, real or personal, regardless of the disposition made of such income is taxable.

Non Impairment of Obligations of Contracts

No law impairing the obligations of contracts shall be passed. (Section 10, article 3) -If the state will enter into a contract, it does not do so upon the same terms and conditions as entered into by a private individual or corporation and may not assert its sovereignty as justification in impairing a contractual obligation which it has assumed. CASSANOVA VS. HORD 8 PHIL 125 FACTS: On January 1987, the Spanish governement in accordance with the provisions of the royal decree of the 14th of May 1987, granted the Cassanovas certain mines in Camarines, which mines the plaintiff is now the owner. This was a valid perfected mining concession granted until the CIR assessed the Cassanovas P9, 600.00 as taxes on mining claims. This was based on section134, RA 1198-Internal revenue act, which provided that there shall be levied and collected taxes on all valid, perfected mining concessions granted prior to April 11, 1989. Petitioner paid under protest, hence this case. ISSUE: Whether section 134, RA1189- Internal revenue act is valid. RULING: NO The Consessions granted by the government of Spain to the Cassanovas, constitute contracts between the parties, that section 134 of the Internal Revenue Law impairs the obligation of contracts and is therefore void as to them. A government may make a valid contract with an individual in respect to taxation which contract can be enforced against it. TOLENTINO VS. SECRETARY OF FINANCE 235 SCRA 630 FACTS: 30 | P a g e

TAXATION LAWS 1- KEMY DORA

RA 7716 seeks to widen the tax base of the existing VAT system and enhance its dministration by amending thr NIRC. The VAT is levied on sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money or exchanged gross receipts from sale or services. The chamber of real estate and builders association (CREBA), contendds that VAT on the sales and leases of Real estate by virtue of contracts enteredn into prior to the effectivity of the law would violate constitutional provision on impairment or contracts. (As it would lessen the gains of real estate builders from sales and lease of property) ISSUE: whether the enactment of RA 7716 would result to impairment of Contracts RULING: NO Parties to a contract cannot through the exercise of phropetic discernement felter the exercise of taxing power of the state. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure peace and order of the society. The contract clause has never been thought as a limitation on the exercise of the states power of taxation, save only whaen a tax excamptiona has been granted for a valid consideration, which in the case at bar was not granted to CREBA. -the non impairment clause can only be applied when parties are the government and the other is a private individual.

CAGAYAN POWER AND LIGHT VS. CIR September 25, 1985 FACTS: Cagayan power and light co. is a holder of a legislative franchise, RA 3242 under which its payment of 3% tax on the gross earnings from the sale of electric current is excempted. On June 27, 1968, RA 5431 amended provisions of the Tax Code particularly section 24, making liable for income tax all corporate taxpayers not specifically excempt under par 6 of section 27 of NIRC. Cagayan Powers franchise was ammended by RA 6020, effective August 4, 1969; it reenacted the excemption under RA 3242. By reason of the amendment of cagayans excemtion, the CIR demanded it to pay income taxes for 1968-1971. The petitiones protested the assssment. ISSUE: whether cagayan is liable for deficiency taxes for 1968-1971 RULING: Where the income tax excemtion of a franchise holder was widthrawn by the legislative in January 1968 but restored inAugust 1969, the franchise holder is liable for income tax fron January 1, 1968- AUGUST 3, 1969.

31 | P a g e

TAXATION LAWS 1- KEMY DORA

B. PROVISIONS DIRECTLY AFECTING TAXATION 1) Prohibition against imprisonment for nonpayment of Poll tax. No person shall be imprisoned for debt or non payment of a poll tax. (Section 20, article 3) POLL TAX- tax imposed on a person as a resident within a territory of the taxing authority without regard to his prperty, business or occupation. -the prohibition applies only to non payment of poll tax, imprisonment for non payment of other taxes or imposition of fine would not be contyrary to the constitution. 2) Uniformity and equality of Taxation The rule of taxation shall be uniform and equitable. Congress shall evolve a progressive system of taxation. (Section 28, article 6) -all taxable property situated alike shall be subject to the tax. PROGRESSIVE SYSTEM- tax laws shall give emphasis on direct rather than indirect taxes, on the ability to pay principle. PRIMARY REQUISITE OF EQUITY PRINCIPLE- a progressive tax rate shall be applied equally to all people, firms and corporations and transactions placed in similar classification and situiation. May a regressive rate of taxation be imposed by the congress? Yes, because the consitutional provision that the congress should evolve a progressive system of taxation is a mere directive upon conggress, it is not mandated to prescribe progressive sytem only. 3) Grant by Congress of Authority to the president to impose Tariff rates, Flexible tariff clause. -congress may auhtorize by law, the president to fix, within specified limits and subject to such limitations and restrictoions as it may impose: 1) Tariff rates 2) Import and export quotas 3) Tonage and wharfage due, and 4) Other duties or imposts within national development program of the government. This authorization is embodied in section 401 of the Tariff and Customs Code which is also called the Flexinle Tarrif clause. 32 | P a g e

TAXATION LAWS 1- KEMY DORA

4) Tax exemption of traditional exemptees/ prohibition against taxation of religious, charitable entities and educational entities. Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. (Section 28 (3), article 6) -exemption from real property taxes only -income derived from idle lands not related to the exercise or performance of religious, educational and charitable purposes or functions shall be subject to Internal Revenue Taxes. -the issue of ownership of the real property in not relevant, as long as the real property is used actually, directly and exclusively for religious, educational and charitable purposes on which case such property shall be excempt from real estate tax. LLADOC VS. CIR June 16, 1965 FACTS: In 1957 the MB Estate Inc. of Bacolod donated P10K cash to Rev. Ruiz, then parish priest of Negros and presecessor of Lladoc for the construction of a new church in the locality. The amount was actuallly spent for that purpose. The donor, MB Estate files the donors gift tax return. On April 1960, the CIR issued an assessment for donees gift tax against parish of Negros of which petitioner was priest. The petitioner protested the assessment. ISSUE: Whether the petitioner is liable for gift taxes on donation, RULING: YES. Section 22 of the constitution exempts from taxation cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings and improvements used exclusively for religious purposes. This exemption is only from payment of property taxes as contra-distinguished from excise tax. In the present case, what the CIR assessed was a donees gift tax; it was an excise upon the use made of the properties upon the exercise of the privilege of receiving the properties. Gift tax is not within the exempting provisions of section 22. A gift tax is an excise tax, not a property tax. ABRA VALLEY COLLEGE VS. AQUINO 162 SCRA 113 FACTS: 33 | P a g e

TAXATION LAWS 1- KEMY DORA

Abra Valley College is an educational corporation and institution of higher learning duly incorporated with the SEC in 1984. On July 6, 1972, the provincial treasurer issued a notice of seizure upon Abra Colleges lot and building for the satisfactoin of said taxes thereon (P 5,140.31). ` The treasurer served on Abra College a notice of sale on July 8, 1972, the sale being held on the same day. Dr. Millare, the municipal mayor bought the property at the highest bid of P 6,000.00. Abra College filed a complaint to declare the sale void but the trial court ruled for the governement, holding that the 2 nd floor of the building was used by director for residential purposes, the 1 st floor was rented by Northern marketing. ISSUE: Whether the college lot and building are exmpt from property taxes. RULING: YES, PARTIALLY. Exemptions extend to facilities which are incidental to and reasonably necessary for the accomplishment of the main purpoes. The school building or lot for commercial purpose is neither contemplated by law or jurisprudence. Under the 1935 constitution, the Trial court correctly arrived at a conclusion that the

34 | P a g e