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DOUBLE TAXATION:
1) 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 taken into account in
determining the rate of tax applicable to the tax
payers remaining income or capital (ex. Tax
Sparing Credit scheme)
2) CREDIT METHOD the tax paid in the state of
source is credited against the tax levied in the
state of residence
Afisco Insurance Corp v. CA (G.R. No. 112675,
Jan. 25, 1999)
Petitioners are local non-life insurance corps. Which
formed a pool in order to enter into a Reinsurance
Treaty with a German company. BIR assessed
deficiency taxes against the pool on the ground that
it is considered a partnership taxable as a corp.
Petitioners insist that the pool is a mere agent, not
acting on its own and therefore, cannot be taxed as a
corp., there being no risk undertaken by the pool, no
common fund and no control exercised by its board in
the management of its fund.
Issue (1) : Is the Pool Taxable as a Corp?
Held (1): YES. Pursuant to 24 of the NIRC, the
pool is included within the definition of domestic
corps. Which comprises even unregistered
partnerships and associations. In this case, the
ceding cos. Entered into an association that would
handle all business under the Treaty. It has a
common fund and an executive board to manage its
affairs. Moreover, even if the pool itself did not issue
any policies on its own, its work was indispensable to
the business of the ceding companies and the
German Co,
Issue (2): Is there double taxation?
Held(2): NO. Double taxation means taxing the
same person twice by the same jurisdiction for the
same thing. The pool is a taxable entity distinct from
the individual corporate entities of the ceding
companies. The tax on its income is obviously
different from the tax on the dividends received by
the said companies.
Power to Tax Involves Power to Destroy [Chief
Justice Marshall, McCullough v. Maryland, 4 L.Ed.
579 (1819)]
The imposition of a valid tax could not be judicially
restrained merely because it would prejudice a
taxpayers property. As long as the power to tax
does not violate any constitutional or statutory
provisions, said power can be a power to destroy.
But for all its plenitude, the power to tax is not
unconfined as there are restrictions. Adversely
effecting as it does property rights, both the due