Professional Documents
Culture Documents
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TAXATION IN GENERAL
GENERAL PRINCIPLES OF TAXATION
TAXATION
The power by which the sovereign raises revenue to defray the
necessary expenses of government
A way of apportioning the cost of government among those who
is some measure are privileged to enjoy its benefits and must
bear the burdens
PHASES OF TAXATION
1. Levying or imposition of the taxes
a. Constituted of the provisions of law which determine or
work out the determination of the persons or property
to be taxed, the sum or sums to be thus raised, the rate
thereof, and the time and manner of levying and
receiving and collecting the taxes.
b. It definitely and conclusively establishes the sum to be
paid by each person taxed, or to be borne by each
property specifically assessed, and creates a fixed and
certain demand in favor of the state or a subordinate
governmental agency, and a definite and positive
obligation on the part of those taxed.
2. Collection of the taxes levied
a. It is constituted of the provisions of law which prescribe
the manner of enforcing the obligation on the part of
those taxed to pay the demand thus created.
3. Payment by the taxpayer
PURPOSE OF TAXATION
1. To provide funds or property with which to promote the general
welfare and protection of its citizens
2. For regulatory purposes, to attain non-revenue objectives and
pursue policy decisions
NATURE OF INTERNAL REVENUE LAWS
1. Inherent in sovereignty
2.
3.
4.
Legislative in character
It is subject to constitutional and inherent limitations
Not political in nature
where the assailed tax measure is beyond the jurisdiction of the state, or
is not for a public purpose, or, in case of a retroactive statute is so harsh
and unreasonable, it is subject to attack on due process grounds.
In addition, the concept of equal protection is also applicable to taxation
measures. Nonetheless, the equality at which the 'equal protection'
clause aims is not a disembodied equality. The Fourteenth Amendment
enjoins 'the equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but are
expressions of policy arising out of specific difficulties, address to the
attainment of specific ends by the use of specific remedies. The
Constitution does not require things which are different in fact or opinion
to be treated in law as though they were the same.
On the issue of uniformity, this is met when it operates with the same
force and effect in every place where the subject may be found. The rule
of uniformity does not call for perfect uniformity or perfect equality,
because this is hardly attainable. Equality and uniformity in taxation
means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation.
Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base. There is
no legal objection to a broader tax base or taxable income by eliminating
all deductible items and at the same time reducing the applicable tax
rate. Taxpayers may be classified into different categories. To repeat, it.
is enough that the classification must rest upon substantial distinctions
that make real differences. In the case of the gross income taxation
embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within
the class and fixing a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are set apart as a
class. As there is practically no overhead expense, these taxpayers are e
not entitled to make deductions for income tax purposes because they are
in the same situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their income. It
would not be just then to disregard the disparities by giving all of them
zero deduction and indiscriminately impose on all alike the same tax
rates on the basis of gross income. There is ample justification then for
the Batasang Pambansa to adopt the gross system of income taxation to
compensation income, while continuing the system of net income
taxation as regards professional and business income.
NOTE:
Power to tax is the power to destroy and the statement that it is
not the power to destroy as long as this Court sits can be
reconciled
REYES V. ALMANZAR
129 SCRA 322
FACTS:
Petitioners were the owners of parcels of land being occupied and rented
by tenants. The tenants were paying rentals not exceeding P300. A law
was passed wherein for one year, it was prohibited to increase rentals for
those paying rentals not exceeding P300 but allowing an increase by not
more than 10% thereafter. A law was also passed suspending the
effectivity of a Civil Code provision allowing for the ejectment of tenants
who failed to pay rentals. These laws were amended by a Presidential
Decree making absolute the prohibition to increase rentals and by
indefinitely suspending the CC provision. Thereafter, an assessment of
the lands was made, resulting to an increase in the corresponding tax
rates. This prompted petitioners to question this. They alleged that the
income approach would have been a more proper approach in assessing
their properties. The assessment for tax of their properties greatly
exceeded the income derived.
HELD:
The crux of the controversy is in the method used in tax assessment of
the properties in question. Petitioners maintain that the "Income
Approach" method would have been more realistic for in disregarding the
effect of the restrictions imposed by P.D. 20 on the market value of the
properties affected, respondent Assessor of the City of Manila unlawfully
and unjustifiably set increased new assessed values at levels so high and
successive that the resulting annual real estate taxes would admittedly
exceed the sum total of the yearly rentals paid or payable by the dweller
tenants under P.D. 20. Hence, petitioners protested against the levels of
the values assigned to their properties as revised and increased on the
ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the
rule of taxation must not only be uniform, but must also be equitable and
progressive. Uniformity has been defined as that principle by which all
taxable articles or kinds of property of the same class shall be taxed at the
same rate. Taxation is said to be equitable when its burden falls on those
better able to pay. Taxation is progressive when its rate goes up depending
on the resources of the person affected.
The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not
be prompted by a spirit of hostility, or at the very least discrimination
that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that
all persons must be treated in the same manner, the conditions not being
different both in the privileges conferred and the liabilities imposed.
Under the Real Property Tax Code (P.D. 464 as amended), it is declared
that the first Fundamental Principle to guide the appraisal and
assessment of real property for taxation purposes is that the property
must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties
covered by P.D. No. 20 be equated with the market value of properties
not so covered. The former has naturally a much lesser market value in
view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the
assessed value of subject properties under the "comparable sales
approach" were presented by the public respondents, namely: (1) that the
sale must represent a bona fide arm's length transaction between a
willing seller and a willing buyer and (2) the property must be
comparable property. Nothing can justify or support their view as it is of
judicial notice that for properties covered by P.D. 20 especially during the
time in question, there were hardly any willing buyers. As a general rule,
there were no takers so that there can be no reasonable basis for the
conclusion that these properties were comparable with other residential
properties not burdened by P.D. 20. Neither can the given circumstances
be nonchalantly dismissed by public respondents as imposed under
distressed conditions clearly implying that the same were merely
temporary in character. At this point in time, the falsity of such premises
cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. However, 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 apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxations, which is the promotion of the common good, may be
achieved. Consequently, it stands to reason that petitioners who are
burdened by the government by its Rental Freezing Laws (then R.A. No.
6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes
petitioners can ill afford and eventually result in the forfeiture of their
properties.
NATURE OF TAXATION
The power of taxation is inherent in sovereignty as an incident
or attribute thereof, being essential to the existence of
independent government
Thus, a sovereign state has inherent power to determine the
subjects of taxation for general or particular public purposes and
may make appropriate changes in the selections and
classifications of the properties made subject to or exempted
from taxation
The right to tax exists apart from Constitutions and without
being expressly conferred by the people, resides in the
government as part of itself, and is coextensive with that to
which it is an incident
It follows that the power of taxation should be exercised
carefully, wisely and clearly within the limitations of the power
which may be vested in a government agency
given, in instances like the case at bar, the necessary discretion to avail
itself of the most expeditious way to collect the tax as may be envisioned
in the particular provision of the Tax Code above quoted, because taxes
are the lifeblood of government and their prompt and certain availability
is an imperious need.7 And as afore-stated in this case the suit seeks to
achieve only one objective: payment of the tax. The adjustment of the
respective shares due to the heirs from the inheritance, as lessened by
the tax, is left to await the suit for contribution by the heir from whom
the Government recovered said tax.
PHIL. GUARANTY
REVENUE
13 SCRA 775
V.
COMMISSIONER
OF
INTERNAL
FACTS:
Petitioner entered into reinsurance contracts with foreign insurance
companies. It ceded to the foreign companies a portion of its insurance
premiums in exchange for a portion of liabilities to be shouldered by
them. The ceded insurance premiums were excluded by Phil. Guaranty
when it filed its income return. It was assessed by the BIR and it was
being held liable to pay a deficiency. Phil. Guaranty asserted that the
insurance premiums it ceded to the foreign companies by virtue of the
reinsurance agreements shouldnt be included as income sourced from
the Philippines.
HELD:
Petitioner maintain that the reinsurance premiums in question did not
constitute income from sources within the Philippines because the
foreign reinsurers did not engage in business in the Philippines, nor did
they have office here.
The reinsurance contracts, however, show that the transactions or
activities that constituted the undertaking to reinsure Philippine
Guaranty Co., Inc. against loses arising from the original insurances in
the Philippines were performed in the Philippines. The liability of the
foreign reinsurers commenced simultaneously with the liability of
Philippine Guaranty Co., Inc. under the original insurances. Philippine
Guaranty Co., Inc. kept in Manila a register of the risks ceded to the
foreign reinsurers. Entries made in such register bound the foreign
The question in this case revolves around the allowed deduction by the
CTA of an amount to be paid by Algue as income tax. Algue was engaged
in engineering, construction, and the like business and he was assessed
by the CIR for delinquency income taxes. A warrant for levy and
distraint was filed against Algue on which, was reconsidered by the CTA.
HELD:
The amount in question was earned through the joint efforts of the
persons among whom it was distributed It has been established that the
Philippine Sugar Estate Development Company had earlier appointed
Algue as its agent, authorizing it to sell its land, factories and oil
manufacturing process. Pursuant to such authority, Alberto Guevara,
Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez, worked for the formation of the Vegetable Oil Investment
Corporation, inducing other persons to invest in it. Ultimately, after its
incorporation largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties. For this sale, Algue
received as agent a commission of P126,000.00, and it was from this
commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals.
FACTS:
It was found out that for two years, Yuseco failed to file his income tax
returns. This prompted the tax authorities to assess and hold Yuseco
liable for the deficiency in payment. Yuseco asked for a report on how
the amount was derived but this request was denied. He asked for
reconsideration which was also denied. This prompted BIR to ask still
for payment. Yuseco then filed a petition for prohibition with the CTA,
which the latter granted and now is being questioned by the
Commissioner.
HELD:
Nowhere does the law expressly vest in the Court of Tax Appeals original
jurisdiction to issue writs of prohibition and injunction independently of,
and apart from, an appealed case. The writ of prohibition or injunction
that it may issue under the provisions of section 11, Republic Act No.
1125, to suspend the collection of taxes, is merely ancillary to and in
furtherance of its appellate jurisdiction in the cases mentioned in section
7 of the Act. The power to issue the writ exists only in cases appealed to
it.
COMMISSIONER OF INTERNAL REVENUE V. ALGUE
158 SCRA 9
FACTS:
On the deduction of the subject amount, the CTA held that it was proper
to deduct it on the premise that it was a business expense in the form of
actual payment for services rendered. These was in the form of
promotional fees. The CIR held a different view however. The expenses
were properly disallowed, not constituting business expenses.
There is no dispute that the payees duly reported their respective shares
of the fees in their income tax returns and paid the corresponding taxes
thereon. The Court of Tax Appeals also found, after examining the
evidence, that no distribution of dividends was involved.
The petitioner claims that these payments are fictitious because most of
the payees are members of the same family in control of Algue. It is
argued that no indication was made as to how such payments were
made, whether by check or in cash, and there is not enough
substantiation of such payments. In short, the petitioner suggests a tax
dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction. These suspicions were adequately met by the
The position of the CTA is sustained as to holding that the amount of the
promotional fees was not excessive. The total commission paid by the
Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. After deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The amount of
P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate properties.
The Solicitor General is correct when he says that the burden is on the
taxpayer to prove the validity of the claimed deduction. In the present
case, however, we find that the onus has been discharged satisfactorily.
The private respondent has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the payees
in inducing investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it
was, sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes,
the government would be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the natural reluctance to surrender
part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government.
The government for its part, is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and
2.
3.
FACTS:
This is a petition seeking to declare unconstitutional the following EO:
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES
BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED
FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS
AMENDED
WHEREAS, the collection of real property taxes is still based on the 1978
revision of property values;
WHEREAS, the latest general revision of real property assessments
completed in 1984 has rendered the 1978 revised values obsolete;
WHEREAS, the collection of real property taxes based on the 1984 real
property values was deferred to take effect on January 1, 1988 instead of
January 1, 1985, thus depriving the local government units of an
additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment
their financial resources to meet the rising cost of rendering effective
services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the
Philippines, do hereby order:
SECTION 1. Real property values as of December 31, 1984 as
determined by the local assessors during the latest general revision of
assessments shall take effect beginning January 1, 1987 for purposes of
real property tax collection.
SEC. 2. The Minister of Finance shall promulgate the necessary rules
and regulations to implement this Executive Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby
repealed.
SEC. 4. All laws, orders, issuances, and rules and regulations or parts
thereof inconsistent with this Executive Order are hereby repealed or
modified accordingly.
SEC. 5. This Executive Order shall take effect immediately.
Petitioner averred that such accelerated the general revision of
assessments with respect to tax, causing undue burden to people.
HELD:
Petitioner Chavez and intervenor ROAP question the constitutionality of
Executive Order No. 73 insofar as the revision of the assessments and
the effectivity thereof are concerned. It should be emphasized that
Executive Order No. 73 merely directs, in Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984 as
determined by the local assessors during the latest general revision of
assessments shall take effect beginning January 1, 1987 for purposes of
real property tax collection. (emphasis supplied)
The general revision of assessments completed in 1984 is based on
Section 21 of Presidential Decree No. 464 which provides, as follows:
SEC. 21. General Revision of Assessments. Beginning with the assessor
shall make a calendar year 1978, the provincial or city general revision of
real property assessments in the province or city to take effect January 1,
1979, and once every five years thereafter: Provided; however, That if
property values in a province or city, or in any municipality, have greatly
changed since the last general revision, the provincial or city assesor
may, with the approval of the Secretary of Finance or upon bis direction,
undertake a general revision of assessments in the province or city, or in
any municipality before the fifth year from the effectivity of the last
general revision.
Thus, We agree with the Office of the Solicitor General that the attack on
Executive Order No. 73 has no legal basis as the general revision of
assessments is a continuing process mandated by Section 21 of
Presidential Decree No. 464. If at all, it is Presidential Decree No. 464
POLICE POWER
Police power is exercised for the
promotion of the public welfare by
means of the regulation of
dangerous or potentially dangerous
activities.
EMINENT DOMAIN
Philippine Match sought the refund of a portion of the sales tax collected
from them by virtue of a part of it was assessed based on sales which
transpired outside of the city and that some of the matches were just
stored in the city and delivered directly to customers outside of Cebu.
This was denied by the City Treasurer, prompting Philippine Match to
file a case in court. The trial court invalidated the tax on transfers of
matches to salesmen assigned to different agencies outside of the city
and on shipments of matches to provincial customers pursuant to the
instructions of the newsmen It ordered the defendants to refund to the
plaintiff the sum of P8,923.55 as taxes paid out the said out-of-town
deliveries with legal rate of interest from the respective dates of
payment.
The trial court characterized the tax on the other two transactions as a
"storage tax" and not a sales tax. It assumed that the sales were
consummated outside of the city and, hence, beyond the city's taxing
power.
The city did not appeal from that decision. The company appealed from
that portion of the decision upholding the tax on sales of matches to
customers outside of the city but which sales were booked and paid for in
Cebu City, and also from the dismissal of its claim for damages against
the city treasurer.
HELD:
We hold that the appeal is devoid of merit bemuse the city can validly tax
the sales of matches to customers outside of the city as long as the orders
were booked and paid for in the company's branch office in the city.
Those matches can be regarded as sold in the city, as contemplated in the
ordinance, because the matches were delivered to the carrier in Cebu
City. Generally, delivery to the carrier is delivery to the buyer. A
different interpretation would defeat the tax ordinance in question or
encourage tax evasion through the simple expedient of arranging for the
delivery of the matches at the out. skirts of the city through the purchase
were effected and paid for in the company's branch office in the city.
The taxing power of cities, municipalities and municipal districts may be
used (1) "upon any person engaged in any occupation or business, or
checkpoint to the beach for the purpose of protecting the truck and its
cargoes from molestation by undesirable elements could not also be given
credence by the Court because it has been shown, beyond doubt, that the
petitioner has not asked for the said police protection because there has
been no occasion where its trucks have been molested, even for once, by
bad elements from the police checkpoint to the bodega at the beach, it is
solely for the purpose of verifying the correct number of bags of cassava
flour starch loaded on the trucks of the petitioner as stated in the trip
tickets, when unloaded at its bodega at the beach. The imposition,
therefore, of a police inspection fee of P.30 per bag, imposed by said
ordinance is unjust and unreasonable.
The Court finally finds the inspection fee of P0.30 per bag, imposed by
the ordinance in question to be excessive and confiscatory. It has been
shown by the petitioner, Matalin Coconut Company, Inc., that it is
merely realizing a marginal average profit of P0.40, per bag, of cassava
flour starch shipped out from the Municipality of Malabang because the
average production is P15.60 per bag, including transportation costs,
while the prevailing market price is P16.00 per bag. The further
imposition, therefore, of the tax of P0.30 per bag, by the ordinance in
question would force the petitioner to close or stop its cassava flour
starch milling business considering that it is maintaining a big labor
force in its operation, including a force of security guards to guard its
properties. The ordinance, therefore, has an adverse effect on the
economic growth of the Municipality of Malabang, in particular, and of
the nation, in general, and is contrary to the economic policy of the
government.
LUTZ V. ARANETA
98 SCRA 148
FACTS:
A case was filed in court which tried to test the legality of the taxes
imposed by virtue of the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a
declaration of emergency, due to the threat to our industry by the
imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffie Act, and the "eventual loss of its preferential position
HELD:
Succinct and clear is the ruling of this Court in the case of Philippine
Long Distance Telephone Company vs. Public Service Commission, 66
SCRA 341, that the basis for computation of the fee to be charged by
NTC on PLDT, is the capital stock subscribed or paid and not,
alternatively, the property and equipment.
FRANCIA V. IAC
162 SCRA 753
FACTS:
Francia is the owner of a residential lot and house, a portion of which
was expropriated by the government. His property was subsequently
sold in public auction for failure to pay real estate taxes. He wasnt
present during the auction sale and upon knowing of the sale, he filed a
complaint to annul the same. He alleged that he is entitled to
compensation for the government owed him payment for the
expropriation of his house.
HELD:
There is no legal basis for compensation. By legal compensation,
obligations of persons, who in their own right are reciprocally debtors
and creditors of each other, are extinguished. The circumstances do not
satisfy the requirements. There can be no offsetting of taxes against the
claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him
an equal or greater than the tax being collected. The collection of tax
cannot await the results of a suit against the government.
RP V. ERICTA AND SAMPAGUITA PICTURES
172 SCRA 653
FACTS:
This has something to do with back pay certificates. The law enacting
these generally recognized the right of persons who at the outbreak of
war were employed in the classified and non-classified civil service as
well as in government-controlled or owned corporations, and those who
had served in the free local governments organized for the purposes of
resistance against the invaders, to salaries, wages, emoluments, per
deims, not received by them by reason of the war.
It appears that in relation to the production of movies, came to incur tax
obligations.
To satisfy these, tendered and delivered back pay
certificates of indebtedness. However, these were denied receipt. In
reply, it was mentioned that back pay certificates werent valid tax
payments and payments should be made in cash.
HELD:
The taxes sought to be collected by the Republic were still unpaid, hence
it ought properly to be sentenced to pay the taxes. It also ruled that even
assuming the contrary, the legal compensation as a mode of
extinguishing an obligation to pay taxes was nonetheless availing
against the government.
On the other hand, 10 years have transpired from the date when the
certificates are redeemable, the obligation thereby was evidenced was
undeniably already due and payable. Hence, Sampaguita was entitled to
payment against the government. They are both liable with respect one
another.
DOMINGO V. CARLITOS
8 SCRA 443
FACTS:
In an earlier case, the court has declared final and executory the order
for the payment of inheritance and estate taxes by the estate. In order to
enforce the decision, the prosecutor in this case filed a petition for the
execution of the decision but this was denied by the trial court by saying
that the government owed for a certain amount the subject estate. To
this order, Domingo wished to appeal.
HELD:
The ordinary procedure to settle claims against an estate is to present
the claim against the estate in the probate court so that the same can
order the administrator to pay the amount thereof.
The legal basis for such procedure is the fact that in testate or intestate
proceedings to settle the estate of a deceased person, the properties
belonging to the estate are under the jurisdiction of the court and such
jurisdiction continues until said properties have been distributed among
the heirs entitled thereto. During the pendency, all the estate is in
custodia legis and the proper procedure is not to allow the sheriff in case
of a court judgment, to seize the properties but to ask the court for an
order to require the administrator to pay the amount due from the estate
and required to be paid.
LICENSE FEES
The term "license fee" or "license tax" implies an imposition or exaction
on the right to use or dispose of property, to pursue a business,
occupation, or calling, or to exercise a privilege. Such charges may be
imposed either under the police power for purposes of regulation or
under the taxing power for purposes of revenue. A regulatory license fee
imposed by a municipal corporation under the police power is not a tax
and is not subject to any of the particular constitutional limitations
which apply to the taxing power as such. Fees for licenses required for
the operation of various businesses are not taxes. If money collected is for
a license to engage in business and the proceeds therefrom are purposed
The 5% tax imposed by virtue of the ordinance is not an income tax but
rather a license tax for the regulation of the business in which the
petitioner is engaged.
PAL V. EDU
164 SCRA 320
FACTS:
Commissioner Edu imposed motor vehicle registration fees in pursuant
of the Land Transportation and Traffic Code. Under the franchise given
to PAL, it shall be exempted from payment of taxes. In relation to this, it
was found out that it hasnt been paying its motor vehicle registration
fees. By virtue of this, a resolution was issued ordering tax-exempted
entities to pay the corresponding registration fees.
HELD:
The purpose for the motor vehicle registration fee is mainly to raise
funds for the construction and maintenance of highways and to a much
lesser degree, pay for the operating expenses of the administrative
agency.
If the primary purpose is revenue, or if revenue, at least is one of the real
and substantial purposes, then the exaction of property is called a tax.
Such is the case of motor vehicle registration fees.
In the beginning, the intent for the registration fees were regulatory in
purpose. Over the years however, a vehicular traffic exploded in number
and motor vehicles became absolute necessities without which modern
life as we know it would stand still, Congress found the registration of
vehicles a very convenient way of raising must needed revenues.
Without changing their denomination, their nature has become that of
taxes.
ESSO V. CIR
175 SCRA 149
FACTS:
ESSO deducted from its gross income operating and necessary expenses,
the amount it spent for drilling and exploration of its petroleum
TOLLS
Levied
for
the
support
of
government, and their amount is
regulated by its necessities
Demand of sovereignty
TAXES DISTINGUISHED FROM
TAXES
Generally
intended
to
raise
revenue
Imposed only by the government
these companies and not the RP that was subject to the tax that the NDC
didnt withhold.
In effect, the imposition of deficiency taxes on the NDC was a penalty for
its failure to withhold the same from the shipbuilders. It was remiss in
the discharge of its obligations as the withholding agent of the
government and so should be held liable for its omission.
CLASSIFICATION OF TAXES
The character or nature of a particular tax must be determined by its
operation, practical results, and incidents, and by the substance and
natural and legal effect of the language employed in the statute or law
imposing it. Such factors should be relied upon, rather than the name
given the tax by the legislature or the particular descriptive language
which may have been applied to it.
1.
As to subject matter
a. Capitation, personal or poll taxes
i. These are taxes of a fixed amount upon all the
persons, or upon all the persons of a certain
class, resident within a specified territory,
without regard to their property or the
occupations in which they may be engaged.
ii. They are fixed taxes assessed on each eligible
person.
iii. Taxes of a specified amount upon each person
performing a certain act or engaging in a
certain business or profession are not, however,
poll taxes.
b. Property taxes
i. Taxes assessed on all property or on all
property of a certain class located within a
certain territory on a specified date in
proportion to its value, or in accordance with
some
other
reasonable
method
of
apportionment, the obligation to pay which is
absolute and unavoidable and is not based
upon any voluntary action of the person
c.
5.
2.
3.
4.
5.
6.
As to incidence
a. Directdemanded from the person who also shoulders
the burden of the tax; the taxpayer is directly or
primarily liable and cannot shift the burden to another
b. Indirecttaxes paid primarily by persons who can shift
the burden upon someone else, or who are under no
legal compulsion to pay them
As to determination of amount
a. Specificof a fixed amount by the head or number, or
by some standard of weight or measurement, and
require no assessment other than a listing or
classification of the subjects to be taxed.
b. Ad valorem
i. The essential characteristic of an ad valorem
tax is that the tax is levied according to the
value of property, as determined by an
assessment or appraisal.
ii. Assessment on a regular basis is common
characteristic of an ad valorem tax
As to purposes
a. Generaltaxes are exactions placed upon citizens for
the support of the government
b. Special assessmentstaxes imposed upon property
within a limited area for the payment of special or local
improvements.
As to scope
a. National
b. Local/municipal
As to graduation or rate
LIMITATION UPON THE POWER OF TAXATION
constitutionally valid, no reason is seen why the state may not levy taxes
to raise funds for their prosecution and attainment. Taxation may be
made the implement of the state's police power. That the tax to be levied
should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely
from those who are to be benefited from the expenditure of the funds
derived from it. At any rate, it is inherent in the power to tax that a state
be free to select the subjects of taxation, and it has been repeatedly held
that "inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation".
PASCUAL V. SECRETARY OF PUBLIC WORKS
110 PHIL 331
FACTS:
Pascual filed an action for declaratory relief, questioning a recently
passed law appropriating public funds for the construction, repairs,
renovation of feeder road terminals in Pasig. Pascual was then the
governor of Rizal and he questioned the law, averring that the roads
were nothing but projected and planned. It was found out that the
projected roads were part of the donated lots from a subdivision owned
by one of the senators. Further, Congress all the while thought that the
subject roads were public and not private streets.
HELD:
As regards the legal feasibility of appropriating public funds for a public
purpose, the principle according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate
public revenue for anything but a public purpose. . . . It is the essential
character of the direct object of the expenditure which must determine
its validity as justifying a tax, and not the magnitude of the interest to be
affected nor the degree to which the general advantage of the
community, and thus the public welfare, may be ultimately benefited by
their promotion. Incidental to the public or to the state, which results
from the promotion of private interest and the prosperity of private
enterprises or business, does not justify their aid by the use public
money.
c.
d.
e.
PHILCOMSAT V. ALCUAZ
180 SCRA 218
FACTS:
PHILCOMSAT was granted a franchise for international satellite
communications. Part of the franchise was to construct what was needed
in ground operations. It was also granted authority to be the signatory
on behalf of the Philippines to various organizations and agreements.
Before, it wasnt under the jurisdiction of the then Public Service
Commission, now the NTC. But with amendments here and there, it was
no longer exempted from the jurisdiction of NTC. PHILCOMSAT then
applied anew for the operations of its business. It was only granted
provisional authority, subject to the order for it to charge reduce rates.
This prompted PHILCOMSAT to question said order on the ground that
such was unconstitutional.
HELD:
Fundamental is the rule that delegation of legislative power may be
sustained only upon the ground that some standard for its exercise is
provided and that the legislature in making the delegation has
The rule is that the power of the State to regulate the conduct and
business of public utilities is limited by the consideration that it is not
the owner of the property of the utility, or clothed with the general power
explain how the data reflected in the financial statements influenced its
decision to impose a rate reduction.
MERALCO V. PROV. OF LAGUNA
306 SCRA 750
FACTS:
MERALCO is granted the franchise for the supply of electricity and heat.
It was also granted authority to construct and operate an electric plant
in Calamba. Thereafter, the LGC was enacted, authorizing local
government units to implement revenue-raising schemes. Pursuant to
this, the local government imposed upon MERALCO to pay additional
taxes. This was paid but under protest. It requested for refund but was
denied.
HELD:
Prefatorily, it might be well to recall that local governments do not have
the inherent power to tax[4] except to the extent that such power might
be delegated to them either by the basic law or by statute. Presently,
under Article X of the 1987 Constitution, a general delegation of that
power has been given in favor of local government units.
Under the now prevailing Constitution, where there is neither a grant
nor a prohibition by statute, the tax power must be deemed to exist
although Congress may provide statutory limitations and guidelines.
The basic rationale for the current rule is to safeguard the viability and
self-sufficiency of local government units by directly granting them
general and broad tax powers. Nevertheless, the fundamental law did
not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local
government units are being strengthened and made more
autonomous,[6] the legislature must still see to it that (a) the taxpayer
will not be over-burdened or saddled with multiple and unreasonable
impositions; (b) each local government unit will have its fair share of
available resources; (c) the resources of the national government will not
be unduly disturbed; and (d) local taxation will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by
and large the provisions of the now repealed Local Tax Code, which had
Contractual tax exemptions, in the real sense of the term and where the
non-impairment clause of the Constitution can rightly be invoked, are
those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in its private
capacity, sheds its cloak of authority and waives its governmental
immunity. Truly, tax exemptions of this kind may not be revoked
without impairing the obligations of contracts. These contractual tax
exemptions, however, are not to be confused with tax exemptions granted
under franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution.
Indeed, Article XII, Section 11, of the 1987 Constitution, like its
precursor provisions in the 1935 and the 1973 Constitutions, is explicit
that no franchise for the operation of a public utility shall be granted
except under the condition that such privilege shall be subject to
amendment, alteration or repeal by Congress as and when the common
good so requires.
PEPSI COLA V. CITY OF BUTUAN
24 SCRA 789
FACTS:
Pepsi Cola operated a storage house for the storage of their products in
Butuan. An ordinance was enacted, imposing an additional tax upon the
goods. This was paid by Pepsi Cola but under protest. It demanded for
refund and assailed the validity of the tax imposed.
HELD:
the tax prescribed in section 3 of Ordinance No. 110, as originally
approved, was imposed upon dealers "engaged in selling" soft drinks or
carbonated drinks. Thus, it would seem that the intent was then to levy a
tax upon the sale of said merchandise. As amended by Ordinance No.
122, the tax is, however, imposed only upon "any agent and/or consignee
of any person, association, partnership, company or corporation engaged
in selling ... soft drinks or carbonated drinks." And, pursuant to section
3-A, which was inserted by said Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this
Ordinance, a consignee of agent shall mean any person, association,
present; and (4) the classification applies equally all those who belong to
the same class.
These conditions are not fully met by the ordinance in question. Indeed,
if its purpose were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof by sealers
other than agents or consignees of producers or merchants established
outside the City of Butuan should be exempt from the tax.
SMITH BEL AND CO. V. CIR
L-28271, JULY 25, 1975
FACTS:
Smith Bell imported 119 cases of "Chatteau Gay" wine which it declared
as "still wine" under Section 134(b)of the Tax Code and paid thereon the
specific tax of P1.00 per liter of volume capacity. To determine the correct
amount of the specific tax due on the petitioner's importation, the
Commissioner ordered it tested and analyzed in the Bureau of Internal
Revenue Laboratory Center. The analyst who conducted the laboratory
test reported that Chatteau Gay "is a delicate table wine, with an alcohol
content of 9.5% by volume (volume 745 cc @ 290C), characterized with
explosion upon opening and effervescence due to CO2 (residual)," and
concluded that it should be classified as "sparkling wine." On the basis of
the analyst's report and recommendation, the Commissioner assessed
the petitioner a deficiency specific tax on the 119 cases of imported
Chatteau Gay.
The petitioner does not dispute the mathematical correctness of the
Commissioner's assessment, but contends that the assessment is
unconstitutional because Section 134(a) of the Tax Code under which it
was issued lays down an insufficient and hazy standard by which the
policy and purpose of the law may be ascertained and as well gives the
Commissioner blanket authority to decide what is or is not the meaning
of "sparkling wines." The argument is thus advanced that there is here
an abdication of legislative power violative of the established doctrine,
delegata potestas non potest delegate, and the due process clause of the
Constitution.
HELD:
DETERMINATION OF SITUS
1. Residence of the subject
2. Place of taxation
3. Source of income
SITUS OF SUBJECTS OF TAXATION
Taxable situs will depend upon various factorsnature of the
tax, subject matter, the possible protection and benefit that may
accrue both to the government and the taxpayer, the residence
or the citizenship of the taxpayer and the source of income
PERSONS
Section 157. Individuals Liable to Community Tax. - Every inhabitant of
the Philippines eighteen (18) years of age or over who has been regularly
employed on a wage or salary basis for at least thirty (30) consecutive
working days during any calendar year, or who is engaged in business or
occupation, or who owns real property with an aggregate assessed value
of One thousand pesos (P1,000.00) or more, or who is required by law to
file an income tax return shall pay an annual additional tax of Five pesos
(P5.00) and an annual additional tax of One peso (P1.00) for every One
thousand pesos (P1,000.00) of income regardless of whether from
business, exercise of profession or from property which in no case shall
exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall
be based upon the total property owned by them and the total gross
receipts or earnings derived by them.
Section 158. Juridical Persons Liable to Community Tax. - Every
corporation no matter how created or organized, whether domestic or
resident foreign, engaged in or doing business in the Philippines shall
pay an annual community tax of Five hundred pesos (P500.00) and an
annual additional tax, which, in no case, shall exceed Ten thousand
pesos (P10,000.00) in accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in
the Philippines owned by it during the preceding year based on the
valuation used for the payment of real property tax under existing laws,
found in the assessment rolls of the city or municipality where the real
property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or
earnings derived by it from its business in the Philippines during the
preceding year - Two pesos (P2.00).
The dividends received by a corporation from another corporation
however shall, for the purpose of the additional tax, be considered as part
of the gross receipts or earnings of said corporation.
Section 159. Exemptions. - The following are exempt from the community
tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines does not exceed
three (3) months.
REAL PROPERTY
Subject to taxation in the state in which it is located whether
the owner is a resident or non-resident and is taxable only there
Rule of lex rei sitae
PERSONAL PROPERTY
Taxable where it has actual situswhere it is physically located
(tangible)
For intangibles, it follows the owners domicile
INCOME
Where it is produced
BUSINESS TRANSACTIONS
Where it happened
ESTATE PROCEEDINGS
Where the decedent is resident
FACTS:
The Office of the Government Corporate Counsel (OGCC) issued Opinion
No. 061. The OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent
City of Paraaque to pay the real estate tax imposed by the City. MIAA
then paid some of the real estate tax already due. Nonetheless, it was
assessed by the city government for deficiency real estate taxes. Due to
non-payment, the city government through its City Treasurer, issued
notices of levy and warrants of levy on the Airport Lands and Buildings.
The mayor threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency. MIAA
thus sought a clarification of OGCC Opinion No. 061.
Subsequently, to the rescue was the OGCC who issued another opinion
clarifying OGCC Opinion No. 061. The OGCC pointed out that Section
206 of the Local Government Code requires persons exempt from real
estate tax to show proof of exemption. The OGCC opined that Section 21
of the MIAA Charter is the proof that MIAA is exempt from real estate
tax.
MIAA admits that the MIAA Charter has placed the title to the Airport
Lands and Buildings in the name of MIAA. However, MIAA points out
that it cannot claim ownership over these properties since the real owner
of the Airport Lands and Buildings is the Republic of the Philippines.
The MIAA Charter mandates MIAA to devote the Airport Lands and
Buildings for the benefit of the general public. Since the Airport Lands
and Buildings are devoted to public use and public service, the ownership
of these properties remains with the State. The Airport Lands and
Buildings are thus inalienable and are not subject to real estate tax by
local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically
exempts MIAA from the payment of real estate tax. MIAA insists that it
is also exempt from real estate tax under Section 234 of the Local
Government Code because the Airport Lands and Buildings are owned by
the Republic. To justify the exemption, MIAA invokes the principle that
the government cannot tax itself. MIAA points out that the reason for tax
exemption of public property is that its taxation would not inure to any
public advantage, since in such a case the tax debtor is also the tax
creditor.
Respondents invoke Section 193 of the Local Government Code, which
expressly withdrew the tax exemption privileges of "government-owned
and-controlled corporations" upon the effectivity of the Local Government
Code. Respondents also argue that a basic rule of statutory construction
is that the express mention of one person, thing, or act excludes all
others. An international airport is not among the exceptions mentioned
in Section 193 of the Local Government Code. Thus, respondents assert
that MIAA cannot claim that the Airport Lands and Buildings are
exempt from real estate tax.
HELD:
First, MIAA is not a government-owned or controlled corporation but an
instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic
of the Philippines and thus exempt from real estate tax.
On the first, there is no dispute that a government-owned or controlled
corporation is not exempt from real estate tax. However, MIAA is not a
government-owned or controlled corporation. A government-owned or
controlled corporation refers to any agency organized as a stock or nonstock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock. A government-owned or
controlled corporation must be "organized as a stock or non-stock
corporation."
MIAA is not organized as a stock or non-stock corporation. MIAA is not a
stock corporation because it has no capital stock divided into shares.
MIAA has no stockholders or voting shares.
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units. (Emphasis
and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments
cannot tax the national government, which historically merely delegated
to local governments the power to tax. While the 1987 Constitution now
includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines
and limitations as the Congress may provide."[18]
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national
government instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation,
such exemption is construed liberally in favor of the national government
instrumentality.
MANILA GAS V. COLLECTOR
62 PHIL 895
FACTS:
The plaintiff is a corporation that operates a gas plant in the City of
Manila and furnishes gas service to the people of the metropolis and
surrounding municipalities by virtue of a franchise granted to it by the
Philippine Government. Associated with the plaintiff are the Islands Gas
and Electric Company domiciled in New York, United States, and the
General Finance Company domiciled in Zurich, Switzerland. Neither of
these last mentioned corporations is resident in the Philippines.
For the years 1930, 1931, and 1932, dividends were paid by the plaintiff
to the Islands Gas and Electric Company in the capacity of stockholders
upon which withholding income taxes were paid to the defendant. For
the same years interest on bonds was paid by the plaintiff to the Islands
Gas and Electric Company upon which withholding income taxes were
paid to the defendant. Finally for the stated time period, interest on
other indebtedness was paid by the plaintiff to the Islands Gas and
Electric Company and the General Finance Company respectively upon
which withholding income taxes were paid to the defendant. An action
was brought by the Manila Gas Corporation against the Collector of
Internal Revenue for the recovery of sums it paid, which the plaintiff was
required by the defendant to deduct and withhold from the various sums
paid it to foreign corporations as dividends and interest on bonds and
other indebtedness and which the plaintiff paid under protest. It
contends that, as the Islands Gas and Electric Company and the General
Finance Company are domiciled in the United States and Switzerland
respectively, and as the interest on the bonds and other indebtedness
earned by said corporations has been paid in their respective domiciles,
this is not income from Philippine sources within the meaning of the
Philippine Income Tax Law. Citing sections 10 (a) and 13 (e) of Act No.
2833, the Income Tax Law, appellant asserts that their applicability has
been squarely determined by decisions of this court in the cases of
Manila Railroad Co. vs. Collector of Internal Revenue (No. 31196,
promulgated December 2, 1929, nor reported), and Philippine Railway
Co. vs. Posadas (No. 38766, promulgated October 30, 1933 [58 Phil., 968])
wherein it was held that interest paid to non-resident individuals or
corporations is not income from Philippine sources, and hence not subject
to the Philippine Income Tax.
HELD:
The approved doctrine is that no state may tax anything not within its
jurisdiction without violating the due process clause of the constitution.
The taxing power of a state does not extend beyond its territorial limits,
but within such it may tax persons, property, income, or business. If an
interest in property is taxed, the situs of either the property or interest
must be found within the state. If an income is taxed, the recipient
thereof must have a domicile within the state or the property or business
out of which the income issues must be situated within the state so that
the income may be said to have a situs therein. Personal property may be
separated from its owner, and he may be taxed on its account at the
place where the property is although it is not the place of his own
the prompt disposition of this case, the decision has been written up in
accordance with instructions received from the court.
VEGETABLE OIL CORP. V. TRINIDAD
45 PHIL 222
FACTS:
The plaintiff is a foreign corporation, duly licensed to transact business
in the Philippine Islands and having its principal place of business
therein in the City of Manila. Defendant is the duly appointed and acting
Collector of Internal Revenue of the Philippine Islands. It is engaged in
the purchase of copra, in the Philippine Islands, and the shipment of
such copra to its mills in the United States of America for manufacture
into vegetable oil. Plaintiff during said period has been, and is now,
engaged in no other business in the Philippine Islands. The coconut oil
manufactured by the plaintiff is sold in the United States. On different
occasions, it purchased copra and shipped the same to the United States.
Consequently, the Commissioner taxed the shipments.
HELD:
In the present case it is not disputed that the plaintiff corporation was
the consignor of the merchandise, but it is strenuously argued that
inasmuch as it is not "engaged in the sale, barter, or exchanged of
personal property" in the Philippine Islands, it is not a merchant within
the statutory definition of the term and therefore cannot be required to
pay the consignment tax. Just upon what ground this assumption rests is
not quite clear; so far no adequate explanation has been vouchsafed us.
The statute itself does not provide that the sale, barter, or exchange
must take place in the Philippine Islands in order to make a person
engaged in such business a merchant.
But, presumably, the idea is the result of a misconception of the nature
of the tax on consignments, confusing it with the tax on sales. That the
consignment tax is not a sales tax is, however, too obvious for argument;
the fact that it is provided for in the same section as the sales tax does
not necessarily make it so. There is all the difference in the world
between a consignment and a sale. As stated by counsel for the appellee,
the tax on consignments is "a privilege tax pure and simple;" it is a tax
on the business of consigning commodities abroad from these Islands.
It is not disputed that the Legislature has the power to define the class of
persons who must pay certain local taxes; in fact, the appellee's
argument rests precisely on such a statutory definition. Neither can it be
questioned that the Government may impose taxes on local business
transacted by foreigners. In the absence of words of limitation or
exemption in the statute, why must we then assume that, in defining the
word "merchants," the class of persons required to pay consignment
taxes, the definition applies only to domestic and not to foreign
merchants?
Perhaps it will be argued that a statutory definition is only of local
application and is of no legal effect beyond the boundaries of the country
in which the statute is enacted. That is true, but has nothing to do with
the present case. We are not here applying the definition in relation to
the collection of a foreign tax; we are considering it in connection with
the tax on a local transaction.
To hold that only persons who engage in sales, barter or exchange in the
Philippine Islands are to pay the tax on consignments would place the
local merchants at a serious disadvantage in competition with the foreign
merchants, and would defeat the very evident purpose of the tax. The
language of the statute is perfectly clear and places the burden of the tax
on all merchants alike. Are we then justified in exempting some of the
merchants by reading non-existent provisions into the statute which
would defeat its unmistakable intent and seriously handicap the local
merchants, in some cases, perhaps, driving them out of business? We
submit that to do so would violate every canon of statutory construction
and would clearly amount to unwarranted judicial legislation.
It has been suggested that the tax applies only to a consignment or
shipment of merchandise destined for sale and that as it is in this case
appears that only the oil extracted from the copra and not the copra itself
was to be sold, the tax on the consignment was unlawfully imposed. We
find nothing in the law justifying this conclusion. A shipment is a
shipment mo matter what its purpose may be and the only requisite for
the collection of the tax upon it is that the consignor or shipper must be a
merchant. It would, indeed, be unreasonable to require the tax collector
to postpone the collection of the tax on a shipment until he could
ascertain what had ultimately been done with the goods shipped.
equal protection of the laws, as, when the law is alleged to be arbitrary,
oppressive or discriminatory.
Originally, the settled law in the United States is that intangibles have
only one situs for the purpose of inheritance tax, and that such situs is in
the domicile of the decedent at the time of his death. But this rule has, of
late, been relaxed. The maxim mobilia sequuntur personam, upon which
the rule rests, has been described as a mere "fiction of law having its
origin in consideration of general convenience and public policy, and
cannot be applied to limit or control the right of the state to tax property
within its jurisdiction" (State Board of Assessors vs. Comptoir National
D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact
of legal ownership, actual presence and control elsewhere, and cannot be
applied if to do so result in inescapable and patent injustice." (Safe
Deposit & Trust Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a
marked shift from artificial postulates of law, formulated for reasons of
convenience, to the actualities of each case.
An examination of the adjudged cases will disclose that the relaxation of
the original rule rests on either of two fundamental considerations: (1)
upon the recognition of the inherent power of each government to tax
persons, properties and rights within its jurisdiction and enjoying, thus,
the protection of its laws; and (2) upon the principle that as o intangibles,
a single location in space is hardly possible, considering the multiple,
distinct relationships which may be entered into with respect thereto.
In the instant case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled therein. And besides, the
certificates of stock have remained in this country up to the time when
the deceased died in California, and they were in possession of one
Syrena McKee, secretary of the Benguet Consolidated Mining Company,
to whom they have been delivered and indorsed in blank. This
indorsement gave Syrena McKee the right to vote the certificates at the
general meetings of the stockholders, to collect dividends, and dispose of
the shares in the manner she may deem fit, without prejudice to her
liability to the owner for violation of instructions. For all practical
purposes, then, Syrena McKee had the legal title to the certificates of
stock held in trust for the true owner thereof. In other words, the owner
residing in California has extended here her activities with respect to her
HELD:
After a careful study of the records and applicable jurisprudence on the
matter, we find that, contrary to the petitioner's contention, the
relaxation of revenue regulations by RMC 7-85 is not warranted as it
disregards the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The
primary purpose is to generate funds for the State to finance the needs of
the citizenry and to advance the common weal. 13 Due process of law
under the Constitution does not require judicial proceedings in tax cases.
This must necessarily be so because it is upon taxation that the
government chiefly relies to obtain the means to carry on its operations
and it is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little
as possible.
From the same perspective, claims for refund or tax credit should be
exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
The rule states that the taxpayer may file a claim for refund or credit
with the Commissioner of Internal Revenue, within two (2) years after
payment of tax, before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from the time of filing
the Adjustment Return and final payment of the tax for the year.
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of
excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing,
FACTS:
the BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty
is to enforce it, is entitled to great respect by the courts. Nevertheless,
such interpretation is not conclusive and will be ignored if judicially
found to be erroneous. Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in harmony
with the law they seek to apply and implement.
On the second issue, the petitioner alleges that the Court of Appeals
seriously erred in affirming CTA's decision denying its claim for refund of
P234,077.69 (tax overpaid in 1986), based on mere speculation, without
proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides
that any excess of the total quarterly payments over the actual income
tax computed in the adjustment or final corporate income tax return,
shall either (a) be refunded to the corporation, or (b) may be credited
against the estimated quarterly income tax liabilities for the quarters of
the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return
(by marking the option box provided in the BIR form) its intention,
whether to request for a refund or claim for an automatic tax credit for
the succeeding taxable year. To ease the administration of tax collection,
these remedies are in the alternative, and the choice of one precludes the
other.
SISON V. ANCHETA
130 SCRA 654
FACTS:
Section 1 of BP Blg. 135 is being assailed for being unconstitutional. The
said provision amends further the NIRC, which provides for rates of tax
30,000 tin cans which, according to the stipulation of facts, was approved
by the Provincial Board of Cebu and the Department of Finance, is valid
and lawful, because it is neither a percentage tax nor one on specified
articles which are the only exceptions provided in section 1,
Commonwealth Act No. 472. Neither does it fall under any of the
prohibitions provided for in section 3 of the same Act. Specific taxes
enumerated in the National Internal Revenue Code are those that are
imposed upon "things manufactured or produced in the Philippines for
domestic sale or consumption" and upon "things imported from the
United States and foreign countries," such as distilled spirits, domestic
denatured alcohol, fermented liquors, products of tobacco, cigars and
cigarettes, matches, mechanical lighters, firecrackers, skimmed milk,
manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil,
cinematographic films, playing cards, sacharine.3 And it is not a
percentage tax because it is tax on business and the maximum annual
output capacity is not a percentage, because it is not a share or a tax
based on the amount of the proceeds realized out of the sale of the tin
cans manufactured therein but on the business of manufacturing tin
cans having a maximum annual output capacity of 30,000 tin cans.
In an action for refund of municipal taxes claimed to have been paid and
collected under an illegal ordinance, the real party in interest is not the
municipal treasurer but the municipality concerned that is empowered to
sue and be sued.
TIU V. CA
301 SCRA 279
FACTS:
The Congress passed into law RA 7227 entitled An Act Accelerating the
Conversion of Military Reservations Into Other Productive Uses,
Creating the Bases Conversion and Development Authority for this
Purpose, Providing Funds Therefore and for Other Purposes, creating
the Subic Special Economic Zone (SSEZ). SSEZ has multiple benefits
such as (1) free flow or movement of goods and capital; (2) tax and dutyfree importations of raw materials, capital and equipment; (3) no
exchange control policy; (4) banking and finance shall be liberalized.
HELD:
present; and (4) the classification applies equally all those who belong to
the same class.
These conditions are not fully met by the ordinance in question. Indeed,
if its purpose were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof by sealers
other than agents or consignees of producers or merchants established
outside the City of Butuan should be exempt from the tax.
MANILA RACE HORSE V. DELA FUENTE
88 PHIL 60
FACTS:
First, it is maintained that the ordinance under consideration is a tax on
race horses as distinct from boarding stables. It is argued that by section
2 the basis of the license fees "is the number of race horses kept or
maintained in the boarding stables to be paid by the maintainers at the
rate of P10.00 a year for each race horse;" that "the fee is increased
correspondingly P10 for each additional race horse maintained or fed in
the stable;" and that "by the same token, an empty stable for race horse
pays no license fee at all."
HELD:
The spirit, rather than the letter, of an ordinance determines the
construction thereof, and the court looks less to its words and more to the
context, subject matter, consequence and effect. Accordingly, what is
within the spirit is within the ordinance although it is not within the
letter thereof, while that which is in the letter, although not within the
spirit, is not within the ordinance. (62 C. J. S., 845.) From the context of
Ordinance No. 3065, the intent to tax or license stables and not horses is
clearly manifest. The tax is assessed not on the owners of the horses but
on the owners of the stables, as counsel admit in their brief, although
there is nothing, of course, to stop stable owners from shifting the tax to
the horse owners in the form of increased rents or fees, which is
generally the case.
It is also plain from the text of the whole ordinance that the number of
horses is used in the assessment purely as a method of fixing an
equitable and practical distribution of the burden imposed by the
measure. Far from being obnoxious, the method is fair and just. It is but
fair and just that for a boarding stable where only one horse is
maintained proportionately less amount should be exacted than for a
stable where more horses are kept and from which greater income is
derived.
We do not share plaintiff's opinion, apropos the second proposition, that
the ordinance in question is discriminatory and savors of class
legislation. In taxing only boarding stables for race horses, we do not
believe that the ordinance, makes arbitrary classification. In the case of
Eastern Theatrical Co. Inc., vs. Alfonso, 46 Off. Gaz. Supp. to No. 11, p.
303,* it was said there is equality and uniformity in taxation if all
articles or kinds of property of the same class are taxed at the same rate.
Thus, it was held in that case, that "the fact that some places of
amusement are not taxed while others, such as cinematographs,
theaters, vaudeville companies, theatrical shows, and boxing exhibitions
and other kinds of amusements or places of amusement are taxed, is not
argument at all against the equality and uniformity of tax imposition."
Applying this criterion to the present case, there would be discrimination
if some boarding stables of the same class used for the same number of
horses were not taxed or were made to pay less or more than others.
From the viewpoint of economics and public policy the taxing of boarding
stables for race horses to the exclusion of boarding stables for horses
dedicated to other purposes is not indefensible. The owners of boarding
stables for race horses and, for that matter, the race horse owners
themselves, who in the scheme of shifting may carry the taxation burden,
are a class by themselves and appropriately taxed where owners of other
kinds of horses are taxed less or not at all, considering that equity in
taxation is generally conceived in terms of ability to pay in relation to the
benefits received by the taxpayer and by the public from the business or
property taxed. Race horses are devoted to gambling if legalized, their
owners derive fat income and the public hardly any profit from horse
racing, and this business demands relatively heavy police supervision.
Taking everything into account, the differentiation against which the
plaintiffs complain conforms to the practical dictates of justice and equity
and is not discrimatory within the meaning of the Constitution.
SISON V. ANCHETA
HELD:
On the issue of uniformity, this is met when it operates with the same
force and effect in every place where the subject may be found. The rule
of uniformity does not call for perfect uniformity or perfect equality,
because this is hardly attainable. Equality and uniformity in taxation
means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation.
HELD:
Equality and uniformity of taxation means that all taxable articles or
kinds of property of the same class be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications
for purposes of taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms and
corporations placed in similar situation. (City of Baguio v. De Leon,
supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A.
No. 7716 was enacted. R.A. No. 7716 merely expands the base of the tax.
The validity of the original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383
(1988) on grounds similar to those made in these cases, namely, that the
law was "oppressive, discriminatory, unjust and regressive in violation of
Art. VI, 28(1) of the Constitution." (At 382) Rejecting the challenge to the
law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax.
It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and
services sold to the public, which are not exempt, at the constant rate of
0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of
goods or services by persons engaged in business with an aggregate gross
annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, so that the costs of basic food and
other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.
palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).
(The CREBA claims that the VAT is regressive. A similar claim is made
by the Cooperative Union of the Philippines, Inc. (CUP), while petitioner
Juan T. David argues that the law contravenes the mandate of Congress
to provide for a progressive system of taxation because the law imposes a
flat rate of 10% and thus places the tax burden on all taxpayers without
regard to their ability to pay.
(b) Goods used for personal consumption or use (household and personal
effects of citizens returning to the Philippines) and or professional use,
like professional instruments and implements, by persons coming to the
Philippines to settle here.
The Constitution does not really prohibit the imposition of indirect taxes
which, like the VAT, are regressive. What it simply provides is that
Congress shall "evolve a progressive system of taxation." The
constitutional provision has been interpreted to mean simply that "direct
taxes are . . . to be preferred [and] as much as possible, indirect taxes
should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise,
sales taxes, which perhaps are the oldest form of indirect taxes, would
have been prohibited with the proclamation of Art. VIII, 17(1) of the 1973
Constitution from which the present Art. VI, 28(1) was taken. Sales taxes
are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid them by imposing such
taxes according to the taxpayers' ability to pay. In the case of the VAT,
the law minimizes the regressive effects of this imposition by providing
for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b)
of the NIRC), while granting exemptions to other transactions. (R.A. No.
7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and
services are exempted from the VAT:
(a) Goods for consumption or use which are in their original state
(agricultural, marine and forest products, cotton seeds in their original
state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and
poultry feeds) and goods or services to enhance agriculture (milling of
exempted
under
special
laws,
or
international
Comment
on
the
Motions
for
On the other hand, the transactions which are subject to the VAT are
those which involve goods and services which are used or availed of
mainly by higher income groups. These include real properties held
primarily for sale to customers or for lease in the ordinary course of trade
or business, the right or privilege to use patent, copyright, and other
similar property or right, the right or privilege to use industrial,
commercial or scientific equipment, motion picture films, tapes and discs,
radio, television, satellite transmission and cable television time, hotels,
restaurants and similar places, securities, lending investments, taxicabs,
utility cars for rent, tourist buses, and other common carriers, services of
franchise grantees of telephone and telegraph.
within that class of power plants created by Act No. 3636, as amended.
The benefits of the tax reduction provided by law (Act No. 3636 as
amended by C.A. No. 132 and R.A. No. 3843) apply to the respondent's
power plant and others circumscribed within this class. R.A-No. 3843
merely transferred the petitioner's power plant from that class provided
for in Act No. 667, as amended, to which it belonged until the approval of
R.A- No. 3843, and placed it within the class falling under Act No. 3636,
as amended. Thus, it only effected the transfer of a taxable property from
one class to another.
MISAMIS ORIENTAL V. CEPALCO
181 SCRA 38
FACTS:
The issue in this case is a legal one: whether or not a corporation whose
franchise expressly provides that the payment of the "franchise tax of
three per centum of the gross earnings shall be in lieu of all taxes and
assessments of whatever authority upon privileges, earnings, income,
franchise, and poles, wires, transformers, and insulators of the grantee."
is exempt from paying a provincial franchise tax.
Cagayan Electric Power and Light Company, Inc. (CEPALCO for short)
was granted a franchise on June 17, 1961 under Republic Act No. 3247 to
install, operate and maintain an electric light, heat and power system in
the City of Cagayan de Oro and its suburbs. Said franchise was amended
on June 21, 1963 by R.A. No. 3570 which added the municipalities of
Tagoloan and Opol to CEPALCO's sphere of operation, and was further
amended on August 4, 1969 by R.A. No. 6020 which extended its field of
operation to the municipalities of Villanueva and Jasaan.
HELD:
There is no provision in P.D. No. 231 expressly or impliedly amending or
repealing Section 3 of R.A. No. 6020. The perceived repugnancy between
the two statutes should be very clear before the Court may hold that the
prior one has been repealed by the later, since there is no express
provision to that effect (Manila Railroad Co. vs. Rafferty, 40 Phil. 224).
The rule is that a special and local statute applicable to a particular case
is not repealed by a later statute which is general in its terms, provisions
and application even if the terms of the general act are broad enough to
include the cases in the special law (id.) unless there is manifest intent to
repeal or alter the special law.
Republic Acts Nos. 3247, 3570 and 6020 are special laws applicable only
to CEPALCO, while P.D. No. 231 is a general tax law. The presumption
is that the special statutes are exceptions to the general law (P.D. No.
231) because they pertain to a special charter granted to meet a
particular set of conditions and circumstances.
The franchise of respondent CEPALCO expressly exempts it from
payment of "all taxes of whatever authority" except the three per centum
(3%) tax on its gross earnings.
In an earlier case, the phrase "shall be in lieu of all taxes and at any time
levied, established by, or collected by any authority" found in the
franchise of the Visayan Electric Company was held to exempt the
company from payment of the 5% tax on corporate franchise provided in
Section 259 of the Internal Revenue Code.
Those magic words: "shall be in lieu of all taxes" also excused the
Cotabato Light and Ice Plant Company from the payment of the tax
imposed by Ordinance No. 7 of the City of Cotabato (Cotabato Light and
Power Co. vs. City of Cotabato, 32 SCRA 231).
So was the exemption upheld in favor of the Carcar Electric and Ice
Plant Company when it was required to pay the corporate franchise tax
under Section 259 of the Internal Revenue Code, as amended by R.A. No.
39 (Carcar Electric & Ice Plant vs. Collector of Internal Revenue, 53 O.G.
[No. 4] 1068). This Court pointed out that such exemption is part of the
TAXATION
OF
RELIGIOUS,
FACTS:
On the face of this certiorari and mandamus petition filed by the
Province of Abra, it clearly appears that the actuation of respondent
Judge Harold M. Hernando of the Court of First Instance of Abra left
much to be desired. First, there was a denial of a motion to dismiss 2 an
action for declaratory relief by private respondent Roman Catholic
Bishop of Bangued desirous of being exempted from a real estate tax
followed by a summary judgment 3 granting such exemption, without
even hearing the side of petitioner. In the rather vigorous language of the
Acting Provincial Fiscal, as counsel for petitioner, respondent Judge
"virtually ignored the pertinent provisions of the Rules of Court; ...
wantonly violated the rights of petitioner to due process, by giving due
course to the petition of private respondent for declaratory relief, and
thereafter without allowing petitioner to answer and without any
hearing, adjudged the case; all in total disregard of basic laws of
procedure and basic provisions of due process in the constitution, thereby
indicating a failure to grasp and understand the law, which goes into the
competence of the Honorable Presiding Judge."
It was the submission of counsel that an action for declaratory relief
would be proper only before a breach or violation of any statute,
executive order or regulation. Moreover, there being a tax assessment
made by the Provincial Assessor on the properties of respondent Roman
Catholic Bishop, petitioner failed to exhaust the administrative remedies
available under Presidential Decree No. 464 before filing such court
action. Further, it was pointed out to respondent Judge that he failed to
abide by the pertinent provision of such Presidential Decree which
provides as follows: "No court shall entertain any suit assailing the
validity of a tax assessed under this Code until the taxpayer, shall have
paid, under protest, the tax assessed against him nor shall any court
declare any tax invalid by reason of irregularities or informalities in the
proceedings of the officers charged with the assessment or collection of
taxes, or of failure to perform their duties within this time herein
specified for their performance unless such irregularities, informalities or
failure shall have impaired the substantial rights of the taxpayer; nor
shall any court declare any portion of the tax assessed under the
provisions of this Code invalid except upon condition that the taxpayer
shall pay the just amount of the tax, as determined by the court in the
pending proceeding."
HELD:
Respondent Judge would not have erred so grievously had he merely
compared the provisions of the present Constitution with that appearing
in the 1935 Charter on the tax exemption of "lands, buildings, and
improvements." There is a marked difference. Under the 1935
Constitution: "Cemeteries, churches, and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable, or educational purposes shall be
exempt from taxation." 10 The present Constitution added "charitable
institutions, mosques, and non-profit cemeteries" and required that for
the exemption of ":lands, buildings, and improvements," they should not
only be "exclusively" but also "actually and "directly" used for religious or
charitable purposes. 11 The Constitution is worded differently. The
change should not be ignored. It must be duly taken into consideration.
Reliance on past decisions would have sufficed were the words "actually"
as well as "directly" not added. There must be proof therefore of the
actual and direct use of the lands, buildings, and improvements for
religious or charitable purposes to be exempt from taxation. According to
Commissioner of Internal Revenue v. Guerrero: 12 "From 1906, in
Catholic Church v. Hastings to 1966, in Esso Standard Eastern, Inc. v.
Acting Commissioner of Customs, it has been the constant and uniform
holding that exemption from taxation is not favored and is never
presumed, so that if granted it must be strictly construed against the
taxpayer. Affirmatively put, the law frowns on exemption from taxation,
hence, an exempting provision should be construed strictissimi juris."
LUNG CENTER V. QC
GR 144104, JUNE 29, 2004
FACTS:
Both the land and the hospital building of the petitioner were assessed
for real property taxes in the amount of P4,554,860 by the City Assessor
of Quezon City.[3] Accordingly, Tax Declaration Nos. C-021-01226 (162518) and C-021-01231 (15-2518-A) were issued for the land and the
hospital building, respectively.[4] On August 25, 1993, the petitioner
filed a Claim for Exemption[5] from real property taxes with the City
Assessor, predicated on its claim that it is a charitable institution. The
petitioners request was denied, and a petition was, thereafter, filed
It is plain as day that under the decree, the petitioner does not enjoy any
property tax exemption privileges for its real properties as well as the
building constructed thereon. If the intentions were otherwise, the same
should have been among the enumeration of tax exempt privileges under
Section 2,
The exemption must not be so enlarged by construction since the
reasonable presumption is that the State has granted in express terms
all it intended to grant at all, and that unless the privilege is limited to
the very terms of the statute the favor would be intended beyond what
was meant.
Section 28(3), Article VI of the 1987 Philippine Constitution provides,
thus:
(3) Charitable institutions, churches and parsonages 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.
The tax exemption under this constitutional provision covers property
taxes only.
PROHIBITION AGAINST TAXATION OF NON-PROFIT NONSTOCK EDUCATIONAL INSTITUTIONS
Article 14. Section 28 (3).
All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be
exempt from taxes and duties. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of
in the manner provided by law.
Proprietary educational institutions, including those cooperatively
owned, may likewise be entitled to such exemptions, subject to the
limitations provided by law, including restrictions on dividends and
provisions for reinvestment.
clear and present danger of any substantive evil which the State has the
right to prevent.
and an expanding productivity as the key to raising the quality of life for
all, especially the underprivileged.
In the pursuit of these goals, all sectors of the economy and all regions of
the country shall be given optimum opportunity to develop. Private
enterprises, including corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of their
ownership.
15. The Congress shall create an agency to promote the viability and
growth of cooperatives as instruments for social justice and economic
development.
HELD:
Petitioner's contention has no merit. In the first place, it is not true that
P.D. No. 1955 singled out cooperatives by withdrawing their exemption
from income and sales taxes under P.D. No. 175, 5. What P.D. No. 1955,
1 did was to withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in general, in view of
the economic crisis which then beset the nation. It is true that after P.D.
No. 2008, 2 had restored the tax exemptions of cooperatives in 1986, the
exemption was again repealed by E.O. No. 93, 1, but then again
cooperatives were not the only ones whose exemptions were withdrawn.
The withdrawal of tax incentives applied to all, including government
and private entities. In the second place, the Constitution does not really
require that cooperatives be granted tax exemptions in order to promote
their growth and viability. Hence, there is no basis for petitioner's
assertion that the government's policy toward cooperatives had been one
of vacillation, as far as the grant of tax privileges was concerned, and
that it was to put an end to this indecision that the constitutional
provisions cited were adopted. Perhaps as a matter of policy cooperatives
94 SCRA 894
FACTS:
Procter and Gamble Philippines Manufacturing Corp. is a consolidated
corporation of Procter and Gamble Trading Company. It is engaged in
the manufacture of soap, edible oil, margarine and other similar
products; and maintains a bodega in the municipality of Jagna, where
it stores copra purchased in the municipality and therefrom ships the
same for its manufacturing and other operations. In 1954, the Municipal
Council enacted Ordinance 4, imposing storage fees of all exportable
copra deposits in the bodega within the jurisdiction of the municipality of
Jagna, Bohol. The company paid the municipality, allegedly under
protest, storage fees. It later filed a suit, wherein it prayed that the
Ordinance be declared inapplicable to it, and if not, that it be declared
ultra vires and void.
HELD:
The validity of the Ordinance must be upheld pursuant to the broad
authority conferred upon municipalites by Commonwealth Act 472
(promulgated 1939), which was the prevailing law when the Ordinance
is actually a municipal license tax or fee on persons, firms and
corporations exercising the privilege of storing copra within the
municipalitys territorial jurisdiction. Such fees imposed do not amount
to double taxation. For double taxation to exist, the same property must
be taxed twice, when it should be taxed but once. A tax on the companys
producs is different from the tax on the privilege of storing copra in a
bodega situated within the territorial boundary of the municipality.
SANCHEZ V. CIR
97 PHIL 687
FACTS:
HELD:
License tax may be levied upon a business or occupation although the
land or property used therein is subject to property tax and that the state
may collect an ad valorem tax on property used in a calling, and at the
same time impose a license fee on the pursuit of that calling, the
imposition of the latter kind of tax being in no sense a double tax.
and the credit method. In the exemption method, the income or capital
which is taxable in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into account in
determining the rate of tax applicable to the taxpayer's remaining
income or capital. On the other hand, in the credit method, although the
income or capital which is taxed in the state of source is still taxable in
the state of residence, the tax paid in the former is credited against the
tax levied in the latter. The basic difference between the two methods is
that in the exemption method, the focus is on the income or capital itself,
whereas the credit method focuses upon the tax.
In negotiating tax treaties, the underlying rationale for reducing the tax
rate is that the Philippines will give up a part of the tax in the
expectation that the tax given up for this particular investment is not
taxed by the other country. Thus the petitioner correctly opined that the
phrase "royalties paid under similar circumstances" in the most favored
nation clause of the US-RP Tax Treaty necessarily contemplated
"circumstances that are tax-related".
In the case at bar, the state of source is the Philippines because the
royalties are paid for the right to use property or rights, i.e. trademarks,
patents and technology, located within the Philippines. The United
States is the state of residence since the taxpayer, S. C. Johnson and
Son, U. S. A., is based there. Under the RP-US Tax Treaty, the state of
residence and the state of source are both permitted to tax the royalties,
with a restraint on the tax that may be collected by the state of source.
Furthermore, the method employed to give relief from double taxation is
the allowance of a tax credit to citizens or residents of the United States
(in an appropriate amount based upon the taxes paid or accrued to the
Philippines) against the United States tax, but such amount shall not
exceed the limitations provided by United States law for the taxable
year. Under Article 13 thereof, the Philippines may impose one of three
rates 25 percent of the gross amount of the royalties; 15 percent when
the royalties are paid by a corporation registered with the Philippine
Board of Investments and engaged in preferred areas of activities; or the
lowest rate of Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of a third
state.
Given the purpose underlying tax treaties and the rationale for the most
favored nation clause, the concessional tax rate of 10 percent provided for
in the RP-Germany Tax Treaty should apply only if the taxes imposed
upon royalties in the RP-US Tax Treaty and in the RP-Germany Tax
Treaty are paid under similar circumstances. This would mean that
private respondent must prove that the RP-US Tax Treaty grants similar
tax reliefs to residents of the United States in respect of the taxes
imposable upon royalties earned from sources within the Philippines as
those allowed to their German counterparts under the RP-Germany Tax
Treaty.
The RP-US and the RP-West Germany Tax Treaties do not contain
similar provisions on tax crediting. Article 24 of the RP-Germany Tax
Treaty, supra, expressly allows crediting against German income and
corporation tax of 20% of the gross amount of royalties paid under the
law of the Philippines. On the other hand, the RP-US Tax Treaty does
not provide for similar crediting of 20% of the gross amount of royalties
paid.
The ultimate reason for avoiding double taxation is to encourage foreign
investors to invest in the Philippinesa crucial economic goal for
developing countries. The goal of double taxation conventions would be
thwarted if such treaties did not provide for effective measures to
minimize, if not completely eliminate, the tax burden laid upon the
income or capital of the investor. Thus, if the rates of tax are lowered by
the state of source, in this case, by the Philippines, there should be a
concomitant commitment on the part of the state of residence to grant
some form of tax relief, whether this be in the form of a tax credit or
exemption. Otherwise, the tax which could have been collected by the
Philippine government will simply be collected by another state,
defeating the object of the tax treaty since the tax burden imposed upon
the investor would remain unrelieved. If the state of residence does not
grant some form of tax relief to the investor, no benefit would redound to
the Philippines, i.e., increased investment resulting from a favorable tax
regime, should it impose a lower tax rate on the royalty earnings of the
investor, and it would be better to impose the regular rate rather than
lose much-needed revenues to another country.
[At the same time, the intention behind the adoption of the provision on
"relief from double taxation" in the two tax treaties in question should be
considered in light of the purpose behind the most favored nation clause.
The purpose of a most favored nation clause is to grant to the contracting
party treatment not less favorable than that which has been or may be
granted to the "most favored" among other countries. The most favored
nation clause is intended to establish the principle of equality of
international treatment by providing that the citizens or subjects of the
contracting nations may enjoy the privileges accorded by either party to
those of the most favored nation. The essence of the principle is to allow
the taxpayer in one state to avail of more liberal provisions granted in
another tax treaty to which the country of residence of such taxpayer is
also a party provided that the subject matter of taxation, in this case
royalty income, is the same as that in the tax treaty under which the
taxpayer is liable.
Since the RP-US Tax Treaty does not give a matching tax credit of 20
percent for the taxes paid to the Philippines on royalties as allowed
under the RP-West Germany Tax Treaty, private respondent cannot be
deemed entitled to the 10 percent rate granted under the latter treaty for
the reason that there is no payment of taxes on royalties under similar
circumstances.]
EXEMPTIONS FROM TAXATION
DEFINITION
The grant of immunity to particular persons or corporations, or
to persons, or corporations of a particular class from a tax which
persons and corporations generally within the same state or
taxing district are obliged to pay
It is an immunity or privilege; it is freedom from a financial
charge or burden to which others are subjected
KINDS OF EXEMPTION
1. As to manner of creation
a.
2.
3.
Expresswhen
certain
persons,
property,
or
transactions are by express provisions, exempted from
all or certain taxes either entirely or in part
b. Impliedwhen a tax is levied on certain classes of
person, properties or transactions without mentioning
the other classes. Every tax statute makes exemptions
since all those not mentioned are deemed exempted.
This omission may be accidental or intentional.
As to scope or extent
a. Total
b. Partial
As to object
a. Personaldirected in favor of some persons as are
within the contemplation of the law granting the
exemption
b. Impersonaldirected in favor of a certain class of
property
EXAMPLES OF EXEMPTION
1. Constitutional exemptions
2. Statutory grants
a. Provided for in the tax code
b. Provided by special laws
3. Based on treaty
CIR V. BOTELLO
20 SCRA 487
FACTS:
The Reparations Commission entered into a Contract of Purchase and
Sales of Reparations Goods with Botelho Shipping, for the purchase of
vessels from Japan. Delivered in Japan to its respective buyers, acting on
behalf of the Commission, the vessels, upon their departure from Tokyo,
on the maiden trip thereof to the Philippines, were issued, by the
Philippine Vice-Consul in said city, provisional certificates of Philippine
registry in the name of the Commission, so that the vessels could proceed
to the Philippines and secure therein the respective final registration
document.
Upon arrival at the port of Manila, the Buyer filed the corresponding
applications for registration of the vessels, but, the Bureau of Customs
placed the same under custody and refused to give due course to said
applications, unless the aforementioned sums of P483,433 and P494,824
be paid as compensating tax. As the Commissioner of Customs refused to
reconsider the stand taken by his office, the Buyers simultaneously filed
with the Court of Tax Appeals their respective petitions for review,
against the Commissioner of Customs and the Commissioner of Internal
Revenue with urgent motion for suspension of the collection of said tax.
This was allowed by the tax court.
While the case was pending, an amendment was made to the Original
Reparations Act, which is being invoked by Botelho for the renovation of
their utilizations contracts with the Commission, which granted the
application, and, then, filed with the Tax Court, their supplemental
petitions for review.
It seems clear that, under Republic Act No. 1789 pursuant to which the
contracts of Conditional Purchase and Sale in question had been
executed the vessels "M/S Maria Rosello" and "M/S General Lim" were
subject to compensating tax. Indeed, Section 14 of said Act provides that
"reparations goods obtained by private parties shall be exempt only from
the payment of customs duties, consular fees and the special import tax."
Although this Section was amended by R.A. No. 3079, to include the
compensating tax" among the exemptions enumerated therein, such
amendment took place, not only after the contracts involved in these
appeals had been perfected and partly consummated, but, also, after the
corresponding compensating tax had become due and payment thereof
demanded by Appellants herein. It is, moreover, obvious that said
additional exemption should not and cannot be given retroactive
operation, in the absence of a manifest intent of Congress to do this
effect. The issue in the cases at bar hinges on whether or not such intent
is clear.
this approval of this Amendatory Act." Like the "most-favored-nationclause" in international agreements, the aforementioned section 20 thus
seeks, not to discriminate or to create an exemption or exception, but to
abolish the discrimination, exemption or exception that would otherwise
result, in favor of the end-user who bought after June 17, 1961 and
against one who bought prior thereto. Indeed, it is difficult to find a
substantial justification for the distinction between the one and the
other.
CIR V. CA
207 SCRA 487
HELD:
Section 14 of the Law on Reparations, as amended, exempts from the
compensating tax, not particular persons, but persons belonging to a
particular class. Indeed, appellants do not assail the constitutionality of
said section 14, insofar as it grants exemptions to end-users who, after
the approval of Republic Act No. 3079, on June 17, 1961, purchased
reparations goods procured by the Commission. From the viewpoint of
Constitutional Law, especially the equal protection clause, there is no
difference between the grant of exemption to said end-users, and the
extension of the grant to those whose contracts of purchase and sale
mere made before said date, under Republic Act No. 1789.
FACTS:
GCL Retirement Plan is an employees' trust maintained by the
employer, GCL Inc., to provide retirement, pension, disability and death
benefits to its employees. The Plan as submitted was approved and
qualified as exempt from income tax by Petitioner Commissioner of
Internal Revenue in accordance with Rep. Act No. 4917. Respondent
GCL made investsments and earned therefrom interest income from
which was witheld the fifteen per centum (15%) final witholding tax
imposed by Pres. Decree No. 1959. It filed for a refund of these withheld
taxes. The refund requested having been denied, Respondent GCL
elevated the matter to respondent Court of Tax Appeals (CTA). The
latter ruled in favor of GCL, holding that employees' trusts are exempt
from the 15% final withholding tax on interest income and ordering a
refund of the tax withheld. Upon appeal, originally to this Court, but
referred to respondent Court of Appeals, the latter upheld the CTA
Decision.
It is true that Republic Act No. 3079 does not explicitly declare that
those who purchased reparations goods prior to June 17, 1961, are
exempt from the compensating tax. It does not say so, because they do
not really enjoy such exemption, unless they comply with the proviso in
Section 20 of said Act, by applying for the renovation of their respective
utilization contracts, "in order to avail of any provision of the
Amendatory Act which is more favorable" to the applicant. In other
words, it is manifest, from the language of said section 20, that the same
intended to give such buyers the opportunity to be treated "in like
manner and to the same extent as an end-user filing his application after
HELD:
It is to be noted that the exemption from withholding tax on interest on
bank deposits previously extended by Pres. Decree No. 1739 if the
recipient (individual or corporation) of the interest income is exempt
from income taxation, and the imposition of the preferential tax rates if
the recipient of the income is enjoying preferential income tax treatment,
were both abolished by Pres. Decree No. 1959. Petitioner thus submits
that the deletion of the exempting and preferential tax treatment
provisions under the old law is a clear manifestation that the single 15%
(now 20%) rate is impossible on all interest incomes from deposits,
(b) Exception. The tax imposed by this Title shall not apply to
employee's trust which forms part of a pension, stock bonus or profitsharing plan of an employer for the benefit of some or all of his
employees . . .
The tax-exemption privilege of employees' trusts, as distinguished from
any other kind of property held in trust, springs from the foregoing
provision. It is unambiguous. Manifest therefrom is that the tax law has
singled out employees' trusts for tax exemption.
The deletion in Pres. Decree No. 1959 of the provisos regarding tax
exemption and preferential tax rates under the old law, therefore, can
not be deemed to extent to employees' trusts. Said Decree, being a
general law, can not repeal by implication a specific provision, Section
56(b) now 53 [b]) in relation to Rep. Act No. 4917 granting exemption
from income tax to employees' trusts. Rep. Act 1983, which excepted
employees' trusts in its Section 56 (b) was effective on 22 June 1957
while Rep. Act No. 4917 was enacted on 17 June 1967, long before the
issuance of Pres. Decree No. 1959 on 15 October 1984. A subsequent
statute, general in character as to its terms and application, is not to be
construed as repealing a special or specific enactment, unless the
legislative purpose to do so is manifested. This is so even if the provisions
of the latter are sufficiently comprehensive to include what was set forth
in the special act (Villegas v. Subido, G.R. No. L-31711, 30 September
1971, 41 SCRA 190).
Notably, too, all the tax provisions herein treated of come under Title II
of the Tax Code on "Income Tax." Section 21 (d), as amended by Rep. Act
No. 1959, refers to the final tax on individuals and falls under Chapter
II; Section 24 (cc) to the final tax on corporations under Chapter III;
Section 53 on withholding of final tax to Returns and Payment of Tax
under Chapter VI; and Section 56 (b) to tax on Estates and Trusts
covered by Chapter VII, Section 56 (b), taken in conjunction with Section
56 (a), supra, explicitly excepts employees' trusts from "the taxes
imposed by this Title." Since the final tax and the withholding thereof
are embraced within the title on "Income Tax," it follows that said trust
must be deemed exempt therefrom. Otherwise, the exception becomes
meaningless.
There can be no denying either that the final withholding tax is collected
from income in respect of which employees' trusts are declared exempt
(Sec. 56 [b], now 53 [b], Tax Code). The application of the withholdings
system to interest on bank deposits or yield from deposit substitutes is
essentially to maximize and expedite the collection of income taxes by
requiring its payment at the source. If an employees' trust like the GCL
enjoys a tax-exempt status from income, we see no logic in withholding a
certain percentage of that income which it is not supposed to pay in the
first place.
COMMISSIONER OF INTERNAL REVENUE V. GUERRERO
21 SCRA 180
FACTS:
The Commissioner of Internal Revenue, now petitioner before this Court,
denied the claim for refund in the sum of P2,441.93 filed by the
administrator of the estate of Paul I. Gunn, thereafter substituted by the
present respondent A. D. Guerrero as special administrator under the
above section of the National Internal Revenue Code.2 The deceased
operated an air transportation business under the business name and
style of Philippine Aviation Development; his estate, it was claimed, "was
entitled to the same rights and privileges as Filipino citizens operating
public utilities including privileges in the matter of taxation." The
Commissioner of Internal Revenue disagreed, ruling that such partial
exemption from the gasoline tax was not included under the terms of the
Ordinance and that in accordance with the statute, to be entitled to its
benefits, there must be a showing that the United States of which the
deceased was a citizen granted a similar exemption to Filipinos. The
refund as already noted was denied.
HELD:
We sustain the Commissioner of Internal Revenue; accordingly, the
Court of Tax Appeals is reversed. To the extent that a refund is
allowable, there is in reality a tax exemption. The rule applied with
undeviating rigidity in the Philippines is that for a tax exemption to
exist, it must be so categorically declared in words that admit of no
doubt. No such language may be found in the Ordinance. It furnishes no
support, whether express or implied, to the claim of respondent
Administrator for a refund.
But the tax burden may not even be shifted to the purchaser at all. A
decision to absorb the burden of the tax is largely a matter of
economics.15 Then it can no longer be contended that a sales tax is a tax
on the purchaser.
We therefore hold that the tax imposed by section 186 of the National
Internal Revenue Code is a tax on the manufacturer or producer and not
a tax on the purchaser except probably in a very remote and
inconsequential sense. Accordingly its levy on the sales made to taxexempt entities like the NPC is permissible.
FACTS:
The petitioner is a corporation engaged in the manufacture and sale of
oxygen and acetylene gases. It made various sales of its products to the
National Power Corporation, an agency of the Philippine Government,
and to the Voice of America an agency of the United States Government.
It was assessed for deficiency taxes and surcharges based on NIRC
provisions on percentage taxes on sales for other articles. Petitioner
denies liability as the two agencies it dealt with were allegedly exempted
from taxation.
HELD:
It is contended that the immunity thus given to the NPC would be
impaired by the imposition of a tax on sales made to it because while the
tax is paid by the manufacturer or producer, the tax is ultimately shifted
by the latter to the former. The petitioner invokes in support of its
position a 1954 opinion of the Secretary of Justice which ruled that the
NPC is exempt from the payment of all taxes "whether direct or indirect."
It may indeed be that the economic burden of the tax finally falls on the
purchaser; when it does the tax becomes a part of the price which the
purchaser must pay. It does not matter that an additional amount is
billed as tax to the purchaser. The method of listing the price and the tax
separately and defining taxable gross receipts as the amount received
less the amount of the tax added, merely avoids payment by the seller of
a tax on the amount of the tax. The effect is still the same, namely, that
the purchaser does not pay the tax. He pays or may pay the seller more
for the goods because of the seller's obligation, but that is all and the
amount added because of the tax is paid to get the goods and for nothing
else.14
This conclusion should dispose of the same issue with respect to sales
made to the VOA, except that a claim is here made that the exemption of
such sales from taxation rests on stronger grounds.
With regard to petitioner's sales to the Voice of America, it appears that
the petitioner and the respondent are in agreement that the Voice of
America is an agency of the United States Government and as such, all
goods purchased locally by it directly from manufacturers or producers
are exempt from the payment of the sales tax under the provisions of the
agreement between the Government of the Philippines and the
Government of the United States, (See Commonwealth Act No. 733)
provided such purchases are supported by serially numbered Certificates
of Tax Exemption issued by the vendee-agency, as required by General
Circular No. V-41, dated October 16, 1947.
However, in conjunction with the Military Bases Agreement, only sales
made "for exclusive use in the construction, maintenance, operation or
defense of the bases," in a word, only sales to the quartermaster, are
exempt under article V from taxation. Sales of goods to any other party
even if it be an agency of the United States, such as the VOA, or even to
the quartermaster but for a different purpose, are not free from the
payment of the tax.
Therefore, that sales to the VOA are subject to the payment of
percentage taxes under section 186 of the Code.
MACEDA V. MACARAIG
197 SCRA 1991
(*STANDING DOCTRINE)
FACTS:
Commonwealth Act 120 created NAPOCOR as a public corporation to
undertake the development of hydraulic power and the production of
power from other sources. RA 358 (1949) granted NAPOCOR tax and
duty exemption privileges. RA 6395 (1971) revised the charter of the
NAPOCOR, tasking it to carry out the policy of the national
electrification, and provided in detail NAPOCORs tax exceptions. PD
380 (1974) specified that NAPOCORs exemption includes all taxes, etc.
imposed directly or indirectly. PD 938 integrated the exemptions in
favor of GOCCs including their subsidiaries; however, empowering the
President or the Minister of Finance, upon recommendation of the Fiscal
Incentives Review Board (FIRB) to restore, partially or completely, the
exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7
February 1985) restoring the duty and tax exemptions privileges of
NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86
(1January 1986) restored such exemption indefinitely effective 1 July
1985. EO 93 (1987) again withdrew the exemption. FIRB issued
Resolution 17-87 (24 June 1987) restoring NAPOCORs exemption, which
was approved by the President on 5 October 1987.
Since 1976, oil firms never paid excise or specific and ad valorem taxes
for petroleum products sold and delivered to NAPOCOR. Oil companies
started to pay specific and ad valorem taxes on their sales of oil products
to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58
million). Only portion thereof, corresponding to Caltex, was approved
and released by way of a tax credit memo. The claim for refund of taxes
paid by PetroPhil, Shell and Caltex amounting to P410.58 million was
denied.
NAPOCOR moved for reconsideration, starting that all
deliveries of petroleum products to NAPOCOR are tax exempt,
regardless of the period of delivery.
HELD:
NAPOCOR is a non-profit public corporation created for the general good
and welfare, and wholly owned by the government of the Republic of the
Philippines. From the very beginning of the corporations existence,
NAPOCOR enjoyed preferential tax treatment to enable the corporation
to pay the indebtness and obligation and effective implementation of the
The avowed purpose of tax exemption "is some public benefit or interest,
which the lawmaking body considers sufficient to offset the monetary loss
entailed in the grant of the exemption." The hauling or transport of
household goods and personal effects of U. S. military personnel would
not directly contribute to the defense and security of the Philippines.
PEOPLE V. CASTANEDA
165 SCRA 327
FACTS:
Criminal information was filed against several accused for allegedly
failing to pay specific taxes on locally manufactured distilled products. A
motion to quash was filed by some of the accused, averring that they
were granted tax amnesty on payment of the subject taxes.
HELD:
The scope of application of the tax amnesty declared by P.D. No. 370 is
marked out in the following broad terms:
A tax amnesty is hereby granted to any person, natural or juridical, who
for any reason whatsoever failed to avail of Presidential Decree No. 23
and Presidential Decree No. 157; or, in so availing of the said
Presidential Decrees failed to include all that were required to be
declared therein if he now voluntarily discloses under this decree all his
previously untaxed income and/or wealth such as earnings, receipts,
gifts, bequests or any other acquisitions from any source whatsoever
which are or were previously taxable under the National Internal
Revenue Code, realized here or abroad by condoning all internal revenue
taxes including the increments or penalties on account of non-payment
as well as all civil, criminal or administrative liabilities, under the
National Internal Revenue Code, the Revised Penal Code, the Anti-Graft
and Corrupt Practices Act, the Revised Administrative Code, the Civil
Service Laws and Regulations, laws and regulations on Immigration and
Deportation, or any other applicable law or proclamation, as it is hereby
condoned, provided a tax of fifteen (15%) per centum on such previously
untaxed income and/or wealth is imposed subject to the following
conditions:
a. Such previously untaxed income and/or wealth must have been earned
or realized prior to 1973, except the following:
It is necessary to note that the "valid information under Republic Act No.
2338" referred to in Section 1 (a) (4) of P.D. No. 370, refers not to a
criminal information filed in court by a fiscal or special prosecutor, but
rather to the sworn information or complaint filed by an informer with
the BIR under R.A. No. 2338 in the hope of earning an informer's reward.
The sworn information or complaint filed with the BIR under R.A. No.
2338 may be considered "valid" where the following conditions are
complied with:
(1) that the information was submitted by a person other than an
internal revenue or customs official or employee or other public official,
or a relative of such official or employee within the sixth degree of
consanguinity;
(2) that the information must be definite and sworn to and must state
the facts constituting the grounds for such information; and
(3) that such information was not yet in the possession of the BIR or the
Bureau of Customs and does not refer to "a case already pending or
appeal with the Court of Tax Appeals within thirty (30) days from receipt
of the assessment.
Earlier, on August 2, 1986, Executive Order (E.O.) No. 412 declaring a
one-time amnesty covering unpaid income taxes for the years 1981 to
1985 was issued. Under this E.O., a taxpayer who wished to avail of the
income tax amnesty should, on or before October 31, 1986: (a) file a
sworn statement declaring his net worth as of December 31, 1985; (b) file
a certified true copy of his statement declaring his net worth as of
December 31, 1980 on record with the Bureau of Internal Revenue (BIR),
or if no such record exists, file a statement of said net worth subject to
verification by the BIR; and (c) file a return and pay a tax equivalent to
ten per cent (10%) of the increase in net worth from December 31, 1980
to December 31, 1985.
In accordance with the terms of E.O. No. 41, respondent filed its tax
amnesty return dated October 30, 1986 and attached thereto its sworn
statement of assets and liabilities and net worth as of Fiscal Year (FY)
1981 and FY 1986. The return was received by the BIR on November 3,
1986 and respondent paid the amount of P2,891,273.00 equivalent to ten
percent (10%) of its net worth increase between 1981 and 1986.
The main controversy in this case lies in the interpretation of the
exception to the amnesty coverage of E.O. Nos. 41 and 64. There are
three (3) types of taxes involved herein income tax, branch profit
remittance tax and contractor's tax. These taxes are covered by the
amnesties granted by E.O. Nos. 41 and 64. Petitioner claims, however,
that respondent is disqualified from availing of the said amnesties
because the latter falls under the exception in Section 4 (b) of E.O. No.
41.
Petitioner argues that at the time respondent filed for income tax
amnesty on October 30, 1986, CTA Case No. 4109 had already been filed
and was pending; before the Court of Tax Appeals. Respondent therefore
fell under the exception in Section 4 (b) of E.O. No. 41.
HELD:
Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts
from income tax amnesty those taxpayers "with income tax cases already
The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e., from CIC to Altonaga, and then from
Altonaga to RMI cannot be considered a legitimate tax planning. Such
scheme is tainted with fraud.
Fraud in its general sense, is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a
breach of legal or equitable duty, trust or confidence justly reposed,
resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another.
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga,
which was prompted more on the mitigation of tax liabilities than for
legitimate business purposes constitutes one of tax evasion. The objective
of the sale to Altonaga was to reduce the amount of tax to be paid
especially that the transfer from him to RMI would then subject the
income to only 5% individual capital gains tax, and not the 35% corporate
income tax. Altonagas sole purpose of acquiring and transferring title of
the subject properties on the same day was to create a tax shelter.
Altonaga never controlled the property and did not enjoy the normal
benefits and burdens of ownership. The sale to him was merely a tax
ploy, a sham, and without business purpose and economic substance.
Generally, a sale or exchange of assets will have an income tax incidence
only when it is consummated. The incidence of taxation depends upon the
substance of a transaction. The tax consequences arising from gains from
a sale of property are not finally to be determined solely by the means
employed to transfer legal title. Rather, the transaction must be viewed as
a whole, and each step from the commencement of negotiations to the
consummation of the sale is relevant. A sale by one person cannot be
transformed for tax purposes into a sale by another by using the latter as
a conduit through which to pass title. To permit the true nature of the
transaction to be disguised by mere formalisms, which exist solely to
alter tax liabilities, would seriously impair the effective administration of
the tax policies of Congress.
CONSTRUCTION OF STATUTORY EXEMPTIONS
GENERAL RULE
FACTS:
thereof, which fact shall be stated upon their face, in accordance with
this Act, under which the said bonds are issued.
There can be no question that petitioner is taxable on its income derived
from the sale of its property to the Government. The fact that a portion of
the purchase price of the property was paid by the Government in the
form of tax exempt bonds does not operate to exempt said income from
income tax. The income from the sale of the land in question and the
bond are two different and distinct taxable items so that the exemption
of one does not operate to exempt the other, unless the law expressly so
provides.
It is alleged that to deny exemption from income tax on the amount
represented by the said bonds would be to nullify the purpose of the law
in granting exemption. The question has been asked: If income or gain
derived from the acceptance of such bonds in exchange for private estates
would be taxed, what inducement did such provision of Republic Act No.
333 give to landowners to accept payment in bonds for their properties in
the proposed site of the Capital City? To our mind, there is sufficient
inducement, and that is, the exemption not only of the bonds from
documentary stamp tax but also of the interest derived from such bonds.
particular provision of Republic Act No. 333 relied upon which grants
exemption on bonds issued thereunder for purposes of inducement to
private landowners within the new capital site to part away with their
properties in favor of the Government other than for cash should be
taken to mean that said property owners need not pay income tax on
their income derived from the sale of such properties. The pertinent
Congressional Record of the proceedings held during the consideration of
the bill which later became Republic Act No. 333, does not show that
Congress had intended to exempt said property owners from the
payment of income tax on the proceeds of the sale of their properties
when the same is paid in government bonds issued under the said law.
REPUBLIC FLOUR MILLS CASE
WONDER MECHANICAL ENGINEERING V. CTA
64 SCRA 555
FACTS:
Wonder Mechanical Engineering Corp. was granted tax exemption
privilege under RA 35 in respect to the manufacture of machines for
making cigarette papers, pails, washers, rivets, nails, candies, chairs,
etc. The tax exemption expired on 30 May 1951. In 1953, the company
applied with the secretary of Finance for the reinstatement of the
exemption privilege under the provisions of RA 901, the reinstatement to
commence on the date RA 901 took effect. The company was given a
Certificate of Tax Exemption on 7 July 1954, exemption it similarly as in
RA 35 until 31 December 1958, with diminishing exemption until 20
June 1955. The Commissioner assessed sales tax on gross sales of
articles manufactured by it, including steel chairs. The company
appealed to the Court of Tax Appeals.
The above rules should be applied to the case at bar where the law
invoked (Section 9 of Republic Act No. 333) does not make any reference
whatsoever to exemption of income derived from sale of expropriated
property thereunder unlike under Republic Act No. 1400 where relative
to the price paid by the Government for any agricultural land acquired
for resale to tenants there is an express declaration that the same shall
not be considered as income of the landowner concerned for purposes of
the income tax. Nor are We convinced by the argument that the
HELD:
The company was granted tax exemption in the manufacture and sale of
machines for making cigarette paper, pails, etc. but not for the
manufacture and sale of articles produced by those machines. The
manufacture of steel chairs, jeep parts, and other articles not
constituting machines for making certain products would not fall under
the classification of new and necessary industries envisioned in RA 35
and 901 as to entitle the company to tax exemption. Exemptions are
highly disfavored in law and he who claims tax exemption must be able to
justify his claim or right thereto by the clearest grant of organic or statute
law. Tax exemption must be clearly expressed and cannot be established
by implication.
LUZON STEVEDORING CORP. V. CTA
163 SCRA 647
FACTS:
For the repair and maintenance of its tugboats, petitioner imported
various engine parts and other equipment for which it paid, under
protest, the assessed compensating tax. It filed for refund but was
denied the same because of lack of legal justification.
The petition hinges on the issue on whether tugboats of petitioner come
within the purview of vessels, which are considered as exempted from tax
in the NIRC. Petitioner contends that tugboats are embraced and
included in the term cargo vessel under the tax exemption provisions of
Section 190 of the Revenue Code, as amended by Republic Act. No. 3176.
He argues that in legal contemplation, the tugboat and a barge loaded
with cargoes with the former towing the latter for loading and unloading
of a vessel in part, constitute a single vessel. Accordingly, it concludes
that the engines, spare parts and equipment imported by it and used in
the repair and maintenance of its tugboats are exempt from
compensating tax.
HELD:
This Court has laid down the rule that as the power of taxation is a high
prerogative of sovereignty, the relinquishment is never presumed and any
reduction or dimunition thereof with respect to its mode or its rate, must
be strictly construed, and the same must be coached in clear and
unmistakable terms in order that it may be applied.
The general rule is that any claim for exemption from the tax statute
should be strictly construed against the taxpayer.
In order that the importations in question may be declared exempt from
the compensating tax, it is indispensable that the requirements of the
amendatory law be complied with, namely: (1) the engines and spare
in the Philippines, a tax upon such income equal to the sum of the
following: (Italics supplied.).
The provision of law that is relevant to this question is, that portion of
Section 24 of the National Internal Revenue Code which reads as follows:
7.
a. Minutes of deliberations
COURT DECISIONS
THE STATUTE
1. EXISTING TAX LAW
a. National
i. NATIONAL INTERNAL REVENUE CODE OF
1997
ii. TARIFF AND CUSTOMS CODE
b. LocalBOOK II, 1991 LOCAL GOVERNMENT CODE
REVENUE REGULATIONS: BIR-RR
SEC. 244. Authority of Secretary of Finance to Promulgate Rules and
Regulations. The Secretary of Finance, upon recommendation of the
Commissioner, shall promulgate all needful rules and regulations for the
effective enforcement of the provisions of this Code.
SEC. 245. Specific Provisions to be Contained in Rules and Regulations.
The rules and regulations of the Bureau of Internal Revenue shall,
among other thins, contain provisions specifying, prescribing or defining:
(a) The time and manner in which Revenue Regional Director shall
canvass their respective Revenue Regions for the purpose of discovering
persons and property liable to national internal revenue taxes, and the
manner in which their lists and records of taxable persons and taxable
objects shall be made and kept;
(b) The forms of labels, brands or marks to be required on goods
subject to an excise tax, and the manner in which the rystall, branding
or marking shall be effected;
(c) The conditions under which and the manner in which goods
intended for export, which if not exported would be subject to an excise
tax, shall be rystal, branded or marked;
(d) The conditions to be observed by revenue officers respecting the
institutions and conduct of legal actions and proceedings;
(e) The conditions under which goods intended for storage in bonded
warehouses shall be conveyed thither, their manner of storage and the
method of keeping the entries and records in connection therewith, also
the books to be kept by Revenue Inspectors and the reports to be made by
them in connection with their supervision of such houses;
(f) The conditions under which denatured alcohol may be removed
and dealt in, the character and quantity of the denaturing material to be
used, the manner in which the process of denaturing shall be effected, so
as to render the alcohol suitably denatured and unfit for oral intake, the
bonds to be given, the books and records to be kept, the entries to be
made therein, the reports to be made to the Commissioner, and the signs
to be displayed in the business or by the person for whom such
denaturing is done or by whom, such alcohol is dealt in;
(g) The manner in which revenue shall be collected and paid, the
instrument, document or object to which revenue stamps shall be affixed,
the mode of cancellation of the same, the manner in which the proper
books, records, invoices and other papers shall be kept and entries
therein made by the person subject to the tax, as well as the manner in
which licenses and stamps shall be gathered up and returned after
serving their purposes;
(h) The conditions to be observed by revenue officers respecting the
enforcement of Title III imposing a tax on estate of a decedent, and other
transfers mortis causa, as well as on gifts and such other rules and
regulations which the Commissioner may consider suitable for the
enforcement of the said Title III;
(i) The manner in which tax returns, information and reports shall be
prepared and reported and the tax collected and paid, as well as the
conditions under which evidence of payment shall be furnished the
taxpayer, and the preparation and publication of tax statistics;
(j) The manner in which internal revenue taxes, such as income tax,
including withholding tax, estate and donors taxes, value-added tax,
other percentage taxes, excise taxes and documentary stamp taxes shall
be paid through the collection officers of the Bureau of Internal Revenue
or through duly authorized agent banks which are hereby deputized to
receive payments of such taxes and the returns, papers and statements
that may be filed by the taxpayers in connection with the payment of the
tax: Provided, however, That notwithstanding the other provisions of this
Code prescribing the place of filing of returns and payment of taxes, the
Commissioner may, by rules and regulations, require that the tax
returns, papers and statements that may be filed by the taxpayers in
connection with the payment of the tax. Provided, however, That
notwithstanding the other provisions of this Code prescribing the place of
filing of returns and payment of taxes, the Commissioner may, by rules
and regulations require that the tax returns, papers and statements and
taxes of large taxpayers be filed and paid, respectively, through collection
officers or through duly authorized agent banks: Provided, further, That
the Commissioner can exercise this power within six (6) years from the
approval of Republic Act No. 7646 or the completion of its comprehensive
computerization program, whichever comes earlier: Provided, finally,
That separate venues for the Luzon, Visayas and Mindanao areas may be
designated for the filing of tax returns and payment of taxes by said
large taxpayers.
For the purpose of this Section, large taxpayer means a taxpayer who
satisfies any of the following criteria;
(1) Value-Added Tax (VAT). Business establishment with VAT paid or
payable of at least One hundred thousand pesos (P100,000) for any
quarter of the preceding taxable year;
(2) Excise Tax. Business establishment with excise tax paid or payable
of at least One million pesos (P1,000,000) for the preceding taxable year;
(3) Corporate Income Tax. Business establishment with annual
income tax paid or payable of at least One million pesos (P1,000,000) for
the preceding taxable year; and
Withholding Tax. Business establishment with withholding tax
payment or remittance of at least One million pesos (P1,000,000) for the
preceding taxable year.
Provided, however, That the Secretary of Finance, upon recommendation
of the Commissioner, may modify or add to the above criteria for
for the delay like typhoons, etc. The commissioner denied the request
and upon showing that not all bags were exported, petitioner was
assessed to pay for customs duties and other relevant taxes.
The penalties prescribed under Section 248 of this Code shall be imposed
on any violation of the rules and regulations issued by the Secretary of
Finance, upon recommendation of the Commissioner, prescribing the
place of filing of returns and payments of taxes by large taxpayers.
HELD:
It will be noted that section 23 of the Philippine Tariff Act of 1909 and
the superseding sec. 105(x) of the Tariff and Customs Code, while fixing
at one year the period within which the containers therein mentioned
must be exported, are silent as to whether the said period may be
extended. It was surely by reason of this silence that the Bureau of
Customs issued Administrative Orders 389 and 66, already adverted to,
to eliminate confusion and provide a guide as to how it shall apply the
law, and, more specifically, to make officially known its policy to consider
the one-year period mentioned in the law as non-extendible.
(Civil Code) Art. 7. Laws are repealed only by subsequent ones, and their
violation or non-observance shall not be excused by disuse, or custom or
practice to the contrary.
When the courts declared a law to be inconsistent with the Constitution,
the former shall be void and the latter shall govern.
Administrative or executive acts, orders and regulations shall be valid
only when they are not contrary to the laws or the Constitution. (5a)
ASTURIAS SUGAR CENTRAL V. COMM.
29 SCRA 617
FACTS:
The petitioner is engaged in the production and milling of centrifugal
sugar for rysta, the sugar so produced being placed in containers known
as jute bags. On a relevant year, it made two importations of jute bags.
The first shipment consisting of 44,800 jute bags and declared under
entry 48 on January 8, 1967, entered free of customs duties and special
import tax upon the petitioners filing of Re-exportation and Special
Import Tax Bond no. 1 in the amounts of P25,088 and P2,464.50,
conditioned upon the exportation of the jute bags within one year from
the date of importation. A second shipment was made and declared
under entry 243 likewise entered free of customs duties and special
import tax upon the petitioners filing of Re-exportation and Special
Import Tax Bond no. 6 in the amounts of P42,112 and P7,984.44, with
the same conditions as stated in bond no. 1.
question does not make any distinction as to the kind of wax subject to
specific tax.
HELD:
The controlling interpretation is that given by Commissioner Plana and
not that of Commissioner Vera.
The request of respondent corporations for refund of the amount of
P321,436.79 was granted in the letter of petitioner dated January 11,
1978 because the importation of private respondent was made on April
18,1975 wherein petitioner made clear that all importation of crude
paraffin wax only after the ruling of January 28, 1977, is subject to
specific tax prescribed in Section 142(i) of the Tax Code as amended by
P.D. No. 392.
Moreover, the importation which gave rise to the assessment in the
amount of P275,652.00 subject of this case, was made on June 27, 1977
and August 17, 1977 and that the petitioners ruling of January 28,1977
was not revoked or overruled by his letter of January 11, 1978 granting
respondent corporations request for refund of the amount of
P321,436.79.
Contrary to the Court of Tax Appeals ruling, We believe that the letter
of Commissioner Plana dated January 11, 1978 did not in any way
revoke his ruling dated January 28,1977 which ruling applied the
specific tax to wax (without distinction). The reason he removed in 1978
private respondents liability for the specific tax was NOT (as
erroneously pointed out by the Court of Tax Appeals) because he wanted
to revoke, expressly or implicitly, his ruling of January 28, 1977 but
because the P321,436.79 tax referred to importation BEFORE January
28, 1977 and hence still covered by the ruling of Commissioner Vera, and
not by the January 28,1977 ruling of Commissioner Plana.
EXCEPTIONS
PBCOM V. CIR
302 SCRA 241
FACTS:
Petitioner is a commercial banking corporation duly organized under
Philippine laws, filed its quarterly income tax returns for the first and
second quarters of the relevant year, reported profits, and paid the
income tax. The taxes due were settled by applying PBComs tax credit
memos. Subsequently, however, PBCom suffered losses so that when it
filed its Annual Income Tax Returns for the relevant year, it reported a
net loss and that it has no tax payable. It should be noted that during
the two years, it incurred rental income and made the corresponding
remittances to the BIR. This prompted the bank to ask for tax refund or
credit for its alleged overpayments.
Its claims were however denied by the CTA on the ground that it has
already prescribed, having a prescriptive period of 2 years. However, the
bank averred that in accordance to a memorandum circular, the
prescriptive period was now 10 years.
HELD:
After a careful study of the records and applicable jurisprudence on the
matter, contrary to the petitioners contention, the relaxation of revenue
regulations by RMC 7-85 is not warranted as it disregards the two-year
prescriptive period set by law.
Basic is the principle that taxes are the lifeblood of the nation. The
primary purpose is to generate funds for the State to finance the needs of
the citizenry and to advance the common weal. 13 Due process of law
under the Constitution does not require judicial proceedings in tax cases.
This must necessarily be so because it is upon taxation that the
government chiefly relies to obtain the means to carry on its operations
and it is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little
as possible.
From the same perspective, claims for refund or tax credit should be
exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec.
229, NIRC of 1997) provides for the prescriptive period for filing a court
proceeding for the recovery of tax erroneously or illegally collected:
Sec. 230. Recovery of tax erroneously or illegally collected. No
suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged
to have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, or
of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum
has been paid under protest or duress.
In any case, no such suit or proceedings shall begun after the
expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise
after payment; Provided however, That the Commissioner may,
even without a written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made,
such payment appears clearly to have been erroneously paid.
(Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit
with the Commissioner of Internal Revenue, within two (2) years after
payment of tax, before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from the time of filing
the Adjustment Return and final payment of the tax for the year.
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of
excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing,
the BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty
is to enforce it, is entitled to great respect by the courts. Nevertheless,
such interpretation is not conclusive and will be ignored if judicially
found to be erroneous.
CONSTRUCTION OF TAX LAW
GENERAL RULES OF CONSTRUCTION OF TAX LAWS
1. Legislative intention must be consideredtax statutes are to
receive a reasonable construction with the view to carrying out
their purpose and intent. They shouldnt be construed allowing
the taxpayer to easily evade the tax.
2. When there is doubtno person or property is subject to
taxation unless within the terms or plain import of a taxing
statute. In every doubt, tax statutes are construed strictly
against ht e government and liberally in favor of the taxpayer.
3. Where language is plainif the language of the statute is plain
and clear, and there is no doubt as to the legislative intent, then
the words employed should be given their ordinary meaning.
4. Where taxpayer claims exemptionexemption provisions are
strictly construed against the taxpayer and it is incumbent upon
him to prove his exemption.
LUZON STEVEDORING V. TRINIDAD
43 PHIL 803
FACTS:
By virtue of taxes collected from petitioner, it now seeks refund.
Collector averred that the petitioner engaged himself in to business as a
contract for a relevant period.
According to the findings, petitioner was engaged in the stevedoring
business in said city, and said business consisting of loading and
unloading cargo from vessels in port, at certain rates of charge per unit of
cargo; that all the work done by it is conducted under the direct
supervision of the officers of the ships and under the instruction given to
plaintiffs men by the captain and officers of said ships; that no liability
person who entered into a contract. The lower court in holding that the
plaintiff was not a contractor in the sense that that word is used in said
section, relied upon the definition given in vol. 13 Corpus Juris, page
211, where we find a contractor defined. The definition is: One who
agrees to do anything for another; one who executes plans under a
contract; one who contracts or covenants, whether with a government or
other public body or with private parties, to furnish supplies, or to
construct works, or to erect buildings, or to perform any work or service,
at a certain price to rate, as a paving contractor, or a labor contractor;
one who contracts to perform work, or supply articles on a large scale, at
a certain price or rate, as in building houses or provisioning troops, or
constructing a railroad. Although, in a general sense, every person who
enters into a contract may be called a contractor, yet the word, for want
of a better one, has come to be used with special reference to a person
who, in the pursuit of an independent business, undertakes to do a
specific piece or job or work for other persons, using his own means and
methods without submitting himself to control as to the petty details.
The true test of a contractor would seem to be that he renders the
service in the course of an independent occupation, representing the will
of his employer only as to the result of his work, and not as to the means
by which it is accomplished.
SERAFICA V. TREASURER OF ORMOC CITY
27 SCRA 110
FACTS:
Serafica seeks a declaration of nullity of Ordinance No. 13, Series of
1964, of Ormoc City, imposing a tax of five pesos (P5.00) for every one
thousand (1,000) board feet of lumber sold at Ormoc City by any person,
partnership, firm, association, corporation, or entities, pursuant to
which the Treasurer of said City levied on and collected from said
plaintiff, as owner of the Serafica Sawmill on board lumber sold.