Cases in Taxation Law and Doctrines

Case: Tio Vs Video Regulatory Board June 1987- Tax on Videocassettes

1986 by petitioner on his own behalf and purportedly on behalf of other videogram operators
adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An Act
Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry (hereinafter briefly referred to as the BOARD).
1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association,
hereinafter collectively referred to as the Intervenors, were permitted by the Court to intervene in
the case, over petitioner's opposition, upon the allegations that intervention was necessary for the
complete protection of their rights and that their "survival and very existence is threatened by the
unregulated proliferation of film piracy.
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution;
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution;
That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of
law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or
rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a
reproduction of any motion picture or audiovisual program
ax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not
been subjected to tax, thereby depriving the Government of an additional source of revenue. It is an
end-user tax, imposed on retailers for every videogram they make available for public viewing. It is
similar to the 30% amusement tax
However, it is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is
one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that
it is subject to any restrictions whatever, except such as rest in the discretion of the authority which
exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation. 1
While the underlying objective of the DECREE is to protect the moribund movie industry, there is
no question that public welfare is at bottom of its enactment, considering "the unfair competition
posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by
the availability of unclassified and unreviewed video tapes containing pornographic films and films
with brutally violent sequences; and losses in government revenues due to the drop in theatrical
attendance
While the underlying objective of the DECREE is to protect the moribund movie industry, there is
no question that public welfare is at bottom of its enactment, considering "the unfair competition
posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by
the availability of unclassified and unreviewed video tapes containing pornographic films and films

with brutally violent sequences; and losses in government revenues due to the drop in theatrical
attendance, not to mention the fact that the activities of video establishments are virtually untaxed
since mere payment of Mayor's permit and municipal license fees are required to engage in
business. 17
petitioner has not overcome the presumption of validity which attaches to a challenged statute. We
find no clear violation of the Constitution which would justify us in pronouncing Presidential
Decree No. 1987 as unconstitutional and void.
Marshall dictum-That the power of taxing it by the States may be exercised so as to
destroy it is too obvious to be denied. But taxation is said to be an absolute power
which acknowledges no other limits than those expressly prescribed in the
Constitution, and, like sovereign power of every other description, is intrusted to the
discretion of those who use it. But the very terms of this argument admit that the
sovereignty of the State, in the article of taxation itself, is subordinate to, and may be
controlled by, the Constitution of the United States.

Cases:
1. CIR Vs Algue, Inc L-28896, Feb 17, 1988-lifeblood doctrine, promotion tax
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns.
January 14, 1965, the private respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the petitioner assessing it in the total
amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18,
1965, Algue filed a letter of protest or request for reconsideration, which letter was stamp-received
on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy
was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused
to receive it on the ground of the pending protest.
As the Court of Tax Appeals correctly noted, 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said protest and the
warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days
of
the
reglementary
period
had
been
consumed.
petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it
was not an ordinary, reasonable or necessary business expense. The Court of Tax Appeals had seen
it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.
ltimately, after its incorporation largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties. 15 For this sale, Algue received as agent a
commission of P125,000.00, and it was from this commission that the P75,000.00 promotional fees

were paid to the aforenamed individuals. 16

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. 17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved.
We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payees need arose. 19 It should
be remembered that this was a family corporation where strict business procedures were not applied
and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her, to
make up the total of P75,000.00
We agree with the respondent court 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. 21 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.
"SEC. 30. Deductions from gross income. In computing net income there shall be allowed as
deduction

(a)

Expenses:chanrob1es

virtual

1aw

library

(1) In general. All the ordinary and necessary expenses paid or incurred during the taxable year
in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; . .
The test of deductibility in the case of compensation payments is whether they are reasonable and
are, in fact, payments purely for service. This test and its practical application may be further stated
and
illustrated
as
follows:jgc:chanrobles.com.ph
"Any amount paid in the form of compensation, but not in fact as the purchase price of services, is
not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on
stock. This is likely to occur in the case of a corporation having few stockholders, practically all of
whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar
services, and the excessive payment correspond or bear a close relationship to the stockholdings of
the officers of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. . .
most of the payees were not in the regular employ of Algue nor were they its controlling
stockholders. 23
It is said that taxes are what we pay for civilized 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 ones 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 enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.
1. Mactan Cebu International Airport Authority Vs Marcos G.R. No. 120082, Sept 11, 1996

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only in
the responsibility of the legislature which imposes the tax on the constituency who are to pay
it.Nevertheless, effective limitations thereon may be imposed by the people through their
Constitution. Our Constitution, for instance, provides that the rule of taxation shall be uniform and
equitable and Congress shall evolve a progressive system of taxation.
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but
pursuant to direct authority conferred by Section 5, Article X of the Constitution. Under the latter,
the exercise of the power may be subject to such guidelines and limitations as the Congress may
provide which, however, must be consistent with the basic policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the
payment of realty taxes imposed by the National Government or any of its political subdivisions,
agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the
exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only
exception to this rule is where the exemption was granted to private parties based on material
consideration of a mutual nature, which then becomes contractual and is thus covered by the nonimpairment claim of the Constitution.
We resolved to give due course to this petition for it raises issues dwelling on the scope of the
taxing power of local government units and the limits of tax exemption privileges of governmentowned and controlled corporations.
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic
Act No. 6958, mandated to principally undertake the economical, efficient and effective control,
management and supervision of the Mactan International Airport in the Province of Cebu and the
Lahug Airport in Cebu City
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer
of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the
petitioner (
Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the
aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also
asserted that it is an instrumentality of the government performing governmental functions
Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn
by virtue of Sections 193 and 234 of the Local Government Code
. MCIAA basically contended that the taxing powers of local government units do not extend to the
levy of taxes or fees of any kind on an instrumentality of the national government. Petitioner
insisted that while it is indeed a government-owned corporation, it nonetheless stands on the same
footing as an agency or instrumentality of the national government by the very nature of its powers
and functions.
The power to tax which was called by Justice Marshall as the power to destroy (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which
has the inherent power to wield it
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only in
the responsibility of the legislature which imposes the tax on the constituency who are to pay it.
Nevertheless, effective limitations thereon may be imposed by the people through their
Constitutions.[13] Our Constitution, for instance, provides that the rule of taxation shall be uniform
and equitable and Congress shall evolve a progressive system of taxation.[14] So potent indeed is
the power that it was once opined that the power to tax involves the power to destroy.[15] Verily,
taxation is a destructive power which interferes with the personal and property rights of the people

and takes from them a portion of their property for the support of the government. Accordingly, tax
statutes must be construed strictly against the government and liberally in favor of the taxpayer.
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but
pursuant to direct authority conferred by Section 5, Article X of the Constitution.[22] Under the
latter, the exercise of the power may be subject to such guidelines and limitations as the Congress
may provide which, however, must be consistent with the basic policy of local autonomy.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under
any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as
shown above, the said section is qualified by Sections 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers
of the local government units cannot extend to the levy of:
Moreover, the petitioner cannot claim that it was never a taxable person under its Charter. It
was only exempted from the payment of real property taxes. The grant of the privilege only in
respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to
all taxes, except real property tax.
Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine
Amusement and Gaming Corporation[39] is unavailing since it was decided before the effectivity of
the LGC. Besides, nothing can prevent Congress from decreeing that even instrumentalities or
agencies of the Government performing governmental functions may be subject to tax. Where it is
done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.
That the Philippine Legislature has the power to impose such taxes, we think there can be no serious doubt,
because "the power to impose taxes is one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of
the authority which exercises it. It reaches to every trade or occupation; to every object of industry, use, or
enjoyment; to every species of possession; and it imposes a burden which, in case of failure to discharge it,
may be followed by seizure and sale or confiscation of property. No attribute of sovereignty is more pervading,
and at no point does the power of the government affect more constantly and intimately all the relations of life
than through the exactions made under it." (Churchill vs Concepcion)

1. Lutz vs Araneta-sugar tax

As the protection and promotion of the sugar industry is a matter of public concern the Legislature
may determine within reasonable bounds what is necessary for its protection and expedient for its
promotion. Here, the legislative must be allowed full play, subject only to the test of reasonableness;
and it is not contended that the means provided in section 6 of Commonwealth Act No. 567 bear no
relation to the objective pursued or are oppressive in character. If objective an methods are alike
constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their
prosecution and attainment.
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
2. Osmena vs Orbos-OPSF
he Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of
domestic prices of petroleum products. Under the same provision, however, the payment of
inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil
companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher

price.
To the extent that some tax revenues are also put into it, the OPSF is in effect a device through
which the domestic prices of petroleum products are subsidized in part. It appears to the Court that
the establishment and maintenance of the OPSF is well within that pervasive and non-waivable
power and responsibility of the government to secure the physical and economic survival and wellbeing of the community, that comprehensive sovereign authority we designate as the police power
of the State. The stabilization, and subsidy of domestic prices of petroleum products and fuel oil
clearly critical in importance considering, among other things, the continuing high level of
dependence of the country on imported crude oil are appropriately regarded as public purposes.
3. Phil Guaranty vs CIR-reinsurance contracts,withholding tax
Where the reinsurance contracts show that the activities that constituted the undertaking to reinsure
a domestic insurer against losses arising from the original insurances in the Philippines were
performed in the Philippines, the reinsurance premiums are considered as coming from sources
within the Philippines and are subject to Philippine Income Tax.
Section 24 of the Tax Code does not require a foreign corporation to engage in business in the
Philippines in subjecting its income to tax. It suffices that the activity creating the income is
performed or done in the Philippines. What is controlling, therefore, is not the place of business but
the place of activity that created an income
defense of reliance in good faith on rulings of the Commissioner of Internal Revenue requiring no
withholding of the tax due on reinsurance premiums may free the taxpayer from the payment of
surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly
would not exculpate it from liability to pay such withholding tax. The Government is not estopped
from collecting taxes by the mistakes or errors of its agents.
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a
necessary burden to preserve the States sovereignty and a means to give the citizenry an army to
resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve,
public improvements designed for the enjoyment of the citizenry and those which come within the
States territory, and facilities and protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were afforded protection by the government
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such
reinsurance premiums and reinsurers should share the burden of maintaining the state.
4) Chavez vs Ongpin- Increase in real estate tax not confiscatory
we agree with the observation of the Office of the Solicitor General that without Executive Order
No. 73, the basis for collection of real property taxes will still be the 1978 revision of property
values. Certainly, to continue collecting real property taxes based on valuations arrived at several
years ago, in disregard of the increases in the value of real properties that have occurred since then,
is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of
a sound tax system, requires that sources of revenues must be adequate to meet government
expenditures and their variations.
"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;
5) Kapatiran vs Tan-VAT equitable and simple
The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by
every seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to
his purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the
gross selling price of goods or gross receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and
producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it

is principally aimed to rationalize the system of taxing goods and services; simplify tax
administration; and make the tax system more equitable, to enable the country to attain economic
recovery.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons
engage in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sarisari stores are consequently exempt from its application. Likewise exempt from the tax are sales of
farm and marine products, spared as they are from the incidence of the VAT, are expected to be
relatively lower and within the reach of the general public.
6) CIR vs Pineda-estate tax
heir is liable for the assessment against the estate as an heir and as a holder-transferee of property
belonging to the estate/taxpayer. As an heir, he is individually answerable for the part of the tax
proportionate to the share he received from the inheritance
he Government has two ways of collecting the taxes in question. One, by going after all the heirs
and collecting from each one of them the amount of the tax proportionate to the inheritance
received. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
property and rights to property belonging to the taxpayer for unpaid income tax, is by subjecting
said property of the estate which is in the hands of an heir or transferee to the payment of the tax
due the estate
Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to
the Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion
pertaining to him as one of the heirs."
e Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the
assessment for income tax for the year 1947 but held that the right to assess and collect the taxes for
1945 and 1946 has not prescribed
The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary
discreation 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 heir 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.
CIR vs CA and City Trust Banking-refund of overpaid income tax, no estoppel
the ends of substantial justice and public interest would be better subserved by the remand of this
case to the Court of Tax Appeals for further proceedings.
It can readily be gleaned from the records that when it was herein petitioner's turn to present
evidence, several postponements were sought by its counsel, the Solicitor General, due to the
unavailability of the necessary records which were not transmitted by the Refund Audit Division of
the BIR to said counsel
t is a long and firmly settled rule of law that the Government is not bound by the errors committed
by its agents.19 In the performance of its governmental functions, the State cannot be estopped by
the neglect of its agent and officers. Although the Government may generally be estopped through
the affirmative acts of public officers acting within their authority, their neglect or omission of
public duties as exemplified in this case will not and should not produce that effect.

It is axiomatic that the Government cannot and must not be estopped particularly in matters
involving taxes. Taxes are the lifeblood of the nation through which the government agencies
continue to operate and with which the State effects its functions for the welfare of its
constituents. 21The errors of certain administrative officers should never be allowed to jeopardize
the Government's financial position, 22especially in the case at bar where the amount involves
millions of pesos the collection whereof, if justified, stands to be prejudiced just because of
bureaucratic lethargy.
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby
SET ASIDE and the case at bar is REMANDED to the Court of Tax Appeals for further proceedings
and appropriate action, more particularly, the reception of evidence for petitioner and the
corresponding disposition of CTA Case No. 4099 not otherwise inconsistent with our adjudgment
herein.
CIR vs CA and YMCA-rentals subject?
Is the income derived from rentals of real property owned by the Young Mens Christian Association
of the Philippines, Inc. (YMCA) established as a welfare, educational and charitable non-profit
corporation -- subject to income tax under the National Internal Revenue Code (NIRC) and the
Constitution?
the exemption claimed by the YMCA is expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations
(such as the YMCA) from any of their properties, real or personal, be subject to the imposed by the
same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income
f the YMCA from its rental property,[20] the Court is duty-bound to abide strictly by its literal
meaning and to refrain from resorting to any convoluted attempt at construction.
As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the
YMCA to be granted the exemption it claims under the aforecited provision, it must prove with
substantial evidence that (1) it falls under the classification non-stock, non-profit educational
institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and
exclusively for educational purposes. However, the Court notes that not a scintilla of evidence was
submitted by private respondent to prove that it met the said requisites.
the YMCA an educational institution within the purview of Article XIV, Section 4, par.3 of the
Constitution? We rule that it is not. The term educational institution or institution of learning has
acquired a well-known technical meaning, of which the members of the Constitutional Commission
are deemed cognizant.[38] Under the Education Act of 1982, such term refers to schools.[39] The
school system is synonymous with formal education,[40] which refers to the hierarchically
structured and chronological graded learnings organized and provided by the formal school system
and for which certification is required in order for the learner to progress through the grades or
move to the higher levels.[41] The Court has examined the Amended Articles of
Incorporation[42] and By-Laws[43] of the YMCA, but found nothing in them that even hints that it
is a school or an educational institution.[
Gomez vs Palomar-mail tax, uniformity
The rule of uniformity and equality of taxation is not infringed by the imposition of a flat rate rather
than a graduated tax. A tax need not be measured by the weight of the mail or the extent of the
service rendered. We have said that consideration of administrative convenience and cost afford an
adequate ground for classification. The same considerations may induce the legislature to impose a
flat tax which in effect is a charge for the transaction, operating equally on all persons with the class
regardless of the amount involved.

Society is not really the beneficiary but only the agency through which the State acts in carrying out
what is essentially a public function. The money is treated as a special fund and as such need not be
appropriated by law.
s settled that the legislature has the inherent power to select the subjects of taxation and to grant
exemptions. 4 This power has aptly been described as "of wide range and flexibility." 5 Indeed, it is
said that in the field of taxation, more than in other areas, the legislature possesses the greatest
freedom in classification. 6 The reason for this is that traditionally, classification has been a device
for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the
tax burden. 7
We are not wont to invalidate legislation on equal protection grounds except by the clearest
demonstration that it sanctions invidious discrimination, which is all that the Constitution forbids.
The remedy for unwise legislation must be sought in the legislature. Now, the classification of mail
users is not without any reason. It is based on ability to pay, let alone the enjoyment of a privilege,
and on administrative convenience. In the allocation of the tax burden, Congress must have
concluded that the contribution to the anti-TB fund case best be assured by those who can afford the
use of the mails.
Granted the power to select the subject of taxation, the States power to grant exemption must
likewise be conceded as a necessary corollary. Tax exemptions are to common in the law; they have
never been thought of as raising issues under the equal protection clause.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner
means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the
only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of
the privileges of living in an organized society, established and safeguarded by the devotion of taxes
to public purposes. Any other view would preclude the levying of taxes except as they are used to
compensate for the burden on those who pay them and would involve the abandonment of the most
fundamental principle of government that it exists primarily to provide for the common good. 15
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the
additional charge but also that of the regular postage. In the case of business reply cards, for
instance, it is obvious that to require mailers to affix the anti-TB stamp on their cards would be to
make them pay much more because the cards likewise bear the amount of the regular postage.
Hydro Resources VS CA 192 SCRA 604-REFUND, MISTAKE, No retroactivity
special civil action of Certiorari instituted by petitioner Hydro Resources Contractors Corporation
against respondents Court of Tax Appeals and Deputy Minister of Finance which seeks to set aside
the decisions of both public respondents holding petitioner liable for a 3% ad valorem duty in the
amount of P281,591.00.
National Irrigation Administration (referred to hereinafter as NIA for brevity) a government owned
and controlled corporation, entered into an agreement, sometime in August 1978, with petitioner
Hydro Resources Contractors Corporation (Hydro for short), for the construction of the Magat
River Multipurpose Project in Isabela.
terms of the contract (quoted earlier) NIA undertakes payment of all the import duties and taxes
incident to the importations deductible from the proceeds of the contract price. HYDRO shall repay
NIA in full the value of the construction equipment out of the same proceeds before eventual
transfer or taking ownership of subject construction equipment upon termination of the contract.
NIA reneged and failed in the compliance of its tax obligations. In the meantime, HYDRO had fully
repaid the value of the construction equipment in the amount of P14,537,783.63 (US$1,991,477.21)
HYDRO was assessed additional 3% ad valorem duty in the amount of P281,591.00 prescribed in
Executive Order 860. HYDRO also paid this amount but this time under protest.:-cralaw
The Collector of Customs acted favorably on petitioner's protest and ordered the refund of the
amount paid for the ad valorem duty in the form of tax credit, ruling that
"The foregoing scheme entered into between NIA and HYDRO had generated a contract and it will

be unfair to involve new proposal as in the imposition of 3% additional duty ad valorem

Acting Commissioner of Customs affirmed the ruling of the Collector of Customs. In his 2nd
Indorsement dated June 25, 1984, (p. 25, Rollo) Acting Commissioner Ramon Farolan stated
"This Office shares the view of the Collector of Customs to the effect that the various equipment
and parts in question which the National Irrigation Administration imported in 1978 and 1979 and
subsequently sold to Hydro Resources Construction Corporation by virtue of a previous agreement,
are subject to duties and taxes but not the additional 3% ad valorem duty under Executive Order No.
860 which took effect only on December 21, 1982
These findings of the Collector of Customs as well as the Acting Customs Commissioner were
reversed by the Deputy Minister of Finance.
The petition is meritorious.
Executive Order No. 860 which was the basis for the imposition of the 3% ad valorem duty upon
the said importations, took effect on December 21, 1982. The importations were effected in 1978
and 1979 by NIA. Nonetheless, respondent Court of Tax Appeals denied petitioner's claim for
refund because
"When NIA transferred the equipment in question supposedly 'after its (HYDRO's) use for a
number of years', it cannot be doubted that these equipment were sold and transferred presumably
'several years' after the equipment's importation in 1978 and 1979.
It is a cardinal rule that laws shall have no retroactive effect, unless the contrary is provided. (Art. 4,
Civil Code) Except for a statement providing for its immediate execution, Executive Order No. 860
does not provide for its retroactivity. Moreover, the Deputy Minister of Finance in his 1st
Indorsement to the Central Bank dated March 26, 1983 which was reproduced by the Central Bank
Governor in a circular letter to all authorized agent banks, clarified that letters of credit opened prior
to the effectivity of E.O. 860 are not subject to the provisions thereof.
"Taken in the above light, it would be unfair and incongruous to hold petitioner to an additional
levy sans any statutory basis. The majority could have fumbled into a precipitate action in taking an
adverse position on petitioner's right to a refund." (pp. 44-45, Rollo)

Republic vs Ablaza-prescription of tax

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to
the Government and to its citizens; to the Government because tax officers would be obliged to act
promptly in the making of assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax agents who will
always find an excuse to inspect the books of taxpayers, not to determine the latters real liability,
but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a
legal defense taxpayers would furthermore be under obligation to always keep their books and keep
them open for inspection subject to harassment by unscrupulous tax agents
law of prescription being a remedial measure should be interpreted in a way conducive to bringing
about the beneficient purpose of affording protection to the taxpayer
1951, the Collector of Internal Revenue assessed income taxes for the years 1945, 1946, 1947 and
1948 on the income tax returns of defendant-appellee Luis G. Ablaza. The assessments total
P5,254.70 (Exhibit "I"). On October 16, 1951, the accountants for Ablaza requested a
reinvestigation of Ablazas tax liability, on the ground that (1) the assessment is erroneous and
incomplete; (2) the assessment is based on third-party information and (3) neither the taxpayer nor
his accountants were permitted to appear in person (Exh. "J").
"In view thereof, we wish to request, in fairness to the taxpayer concerned, that we be furnished a
copy of the detailed computation of the alleged tax liability as soon as the reinvestigation is
terminated to enable us to prove the veracity of the taxpayers side of the case, and if it is found out
that said assessment is proper and in order, we assure you of our assistance in the speedy disposition
of this case
Collector of Internal Revenue made a final assessment of the income taxes of Ablaza, fixing said
income taxes for the years already mentioned at P2,066.56 (Exh. "Q"). Notice of the said
assessment was sent (Exhs. "V", "W" and "X") and upon receipt thereof the accountants of Ablaza
sent a letter to the Collector of Internal Revenue, dated May 8, 1957, protesting the assessments
"Under the former law, the right of the Government to collect the tax does not prescribe. However,
in fairness to the taxpayer, the Government should be estopped from collecting the tax where it
failed to make the necessary investigation and assessment within 5 years after the filing of the
return and where it failed to collect the tax within 5 years from the date of assessment thereof. Just
as the government is interested in the stability of its collections, so also are the taxpayers entitled to
an assurance that they will not be subjected to further investigation for tax purposes after the
expiration of a reasonable period of time." (Vol. II, Report of the Tax Commission of the
Philippines, pp. 321-322)
We find the appeal without merit and we hereby affirm the judgment of the lower court dismissing
the action.
Double taxation definition
Case: Victorias Milling Co. Vs Municipality of Victories 25 SCRA 192
ection 4 (1) of CA 472 clearly and specifically allows municipal councils to tax persons engaged in
"the same business or occupation" on which "fixed internal revenue privilege taxes" are "regularly
imposed by the National Government," with certain exceptions specified in Section 3 of the same
statute. The instant case does not fall within the exceptions. Clearly, Congress has not reserved to
the national government the right to impose the disputed taxes.
e cost of regulation cannot be taken as a gauge, if the municipality really intended to enact a
revenue ordinance. For, "if the charge exceeds the expense of issuance of a license and costs of
regulation, it is a tax."
irst. The two taxes cover two different objects. Section 1 of the ordinance taxes a person operating
sugar centrals or engaged in the manufacture of centrifugal sugar. While under Section 2, those
taxed are the operators of sugar refinery mills. One occupation or business is different from the
other. Second. The disputed taxes are imposed on occupation or business. Both taxes are not on

sugar. The amount thereof depends on the annual output capacity of the mills concerned, regardless
of the actual sugar milled. Plaintiffs argument perhaps could make out a point if the object of
taxation here were the sugar it produces, not the business of promoting it.
disputed ordinance was approved by the municipal council of Victorias on September 22, 1956 by
way of an amendment to two municipal ordinances separately imposing license taxes on operators
of sugar centrals 1 and sugar refineries. 2 The changes were: with respect to sugar centrals, by
increasing the rates of license taxes; and as to sugar refineries, by increasing the rates of license
taxes as well as the range of graduated schedule of annual output capacity.
Plaintiff filed suit below 4 to ask for judgment declaring Ordinance No. 1, series of 1956, null and
void; ordering the refund of all license taxes paid and to be paid under protest; directing the officials
of Victorias and the Province of Negros Occidental to observe
e reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts fixed in Provincial
Circular 12-A issued by the Finance Department on February 27, 1940; (b) it is discriminatory since
it singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the
jurisdiction of defendant municipality; (c) it constitutes double taxation; and (d) the national
government has pre-empted the field of taxation with respect to sugar centrals or refineries.
Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that
the ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed. The
ordinance is for raising money. To say otherwise is to misread the purpose of the ordinance.
Besides, the term "license tax" has not acquired a fixed meaning. It is often "used indiscriminately
to designate impositions exacted for the exercise of various privileges." 19 It does not refer solely to
a license for regulation. In many instances, it refers to "revenue- raising exactions on privileges or
activities." 20 On the other hand, license fees are commonly called taxes. But, legally speaking, the
latter are "for the purpose of raising revenues", in contrast to the former which are imposed "in the
exercise of police power for purposes of regulation." 21
Double taxation has been otherwise described as "direct duplicate taxation." 48 For double taxation
to exist, "the same property must be taxed twice, when it should be taxed but once." 49 Double
taxation has also been "defined as taxing the same person twice by the same jurisdiction for the
same thing." 50 As stated in Manila Motor Company, Inc. v. Ciudad de Manila, 51 there is double
taxation "cuando la misma propiedad se sujeta a dos impuestos por la misma entidad o Gobierno,
para el mismo fin y durante el mismo periodico de tiempo."
With the foregoing precepts in mind, we find no difficulty in saying that plaintiffs argument on
double taxation does not inspire assent. First. The two taxes cover two different objects. Section 1
of the ordinance taxes a person operating sugar centrals or engaged in the manufacture of
centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills. One
occupation or business is different from the other. Second. The disputed taxes are imposed on
occupation or business. Both taxes are not on sugar. The amount thereof depends on the annual
output capacity of the mills concerned, regardless of the actual sugar milled. Plaintiffs argument
perhaps could make out a point if the object of taxation here were the sugar it produces, not the
business of producing it.
There is no double taxation.
a) Strict sense
Case: Villanueva Vs City of Iloilo L-26521 Dec 28, 1968
It is now settled that Section 2 of the Local Autonomy Act confers on local governments broad
taxing authority which extends to almost "everything, excepting those which are mentioned therein"
provided that the tax so levied is "for public purposes, just and uniform," and does not transgress
any constitutional provision or is not repugnant to a controlling statute. T

eal estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon,
not especially exempted, and is payable regardless of whether the property is used or not, although
the value may vary in accordance with such factor. The tax is usually single or indivisible, although
the land and building or improvements erected thereon are assessed separately,
E SAME TAX MAY BE IMPOSED BY THE NATIONAL GOVERNMENT AS WELL AS
LOCAL GOVERNMENT. While it is true that the plaintiffs-appellees are taxable under the
provisions of the National Internal Revenue Code as a real estate dealers, and still taxable under the
ordinance in question, the argument against double taxation may not be invoked. The same tax may
be imposed by the national government as well as by the local government. There is nothing
inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation,
calling or activity by both the State and a political subdivision thereof.
It is a well-settled rule that a license tax may be levied upon business or occupation although the
land or property used in connection therewith is subject to property tax. The State may collect an ad
valorem tax on property used in a calling, and at the same time impose a license tax on that calling.
The imposition of the latter kind of tax being in no sense a double tax
There is no constitutional prohibition against double taxation in the Philippines. It is something not
favored, but is permissible, provided some other constitutional requirement is not thereby violated,
such as the requirement that taxes must be uniform.
defendant City of Iloilo from the decision of the Court of First Instance of Iloilo, declaring illegal
Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons
Engaged In the Business Of Operating Tenement Houses," and ordering the City to refund to the
plaintiffs-appellees the sums of money collected from them under the said ordinance.
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage
of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or
power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted
Ordinance 11 (eleven), series of 1960, hereunder quoted in full:
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio
Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from
the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 19601964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his
property.
March 30, 1966, 1 the lower court rendered judgment declaring the ordinance illegal on the grounds
that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is
"oppressive and unreasonable," for the reason that it penalizes owners of tenement houses who fail
to pay the tax, (c) it constitutes "not only double taxation, but treble at that," and (d) it violates the
rule of uniformity of taxation
epublic Act 2264 confer on local governments broad taxing authority which extends to almost
"everything, excepting those which are mentioned therein," provided that the tax so levied is "for
public purposes, just and uniform," and does not transgress any constitutional provision or is not
repugnant to a controlling statute.
Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in
Section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature
of the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax," 3 and not a
"tax on persons engaged in any occupation or business or exercising privileges," or a license tax, or
a privilege tax, or an excise tax. 4 Indeed, the title of the ordinance designates it as a "municipal
license tax on persons engaged in the business of operating tenement houses,
It is our view, contrary to the appellees contention, that the tax in question is not a real estate tax. ...
On the other hand, the imposition by the ordinance of a license tax on persons engaged in the
business of operating tenement houses finds authority in Section 2 of the Local Autonomy Act

e trial court condemned the ordinance as constituting "not only double taxation but treble at that,"
because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182(A) (3) (s)
of the National Internal Revenue Code, besides the tenement tax under the said ordinance."
Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business and
occupation provided for in Section 182, Title V, of the National Internal Revenue Code, by virtue of
which persons engaged in "leasing or renting property, whether on their account as principals or as
owners of rental property or properties,"
The same tax may be imposed by the national government as well as by the local government.
There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the
same occupation, calling or activity by both the State and a political subdivision thereof.
"In order to constitute double taxation in the objectionable or prohibited sense the same property
must be taxed twice when it should be taxed but once; both taxes must be imposed on the same
property or subject-matter, for the same purpose, by the same State, Government, or taxing
authority, within the same jurisdiction or taxing district, during the same taxing period, and they
must be the same kind or character of tax." 23 It has been shown that a real estate tax and the
tenement tax imposed by the ordinance, although imposed by the same taxing authority, are not of
the same kind or character.
ordinance as violative of the rule of uniformity of taxation.
Complementing the above ruling of the lower court, the appellees argue that there is "lack of
uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled
out to pay taxes on their tenement houses, while citizens of other cities, where their councils do not
enact a similar tax ordinance, are permitted to escape such imposition."cralaw virtua1a
his Court has already ruled that tenement houses constitute a distinct class of property. It has
likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class
or character within the taxing authority." 31 The fact, therefore, that the owners of other classes of
buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no
argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality
and uniformity violated by the fact that tenement taxes are not imposed in other cities, for the same
rule does not require that taxes for the same purpose should be imposed in different territorial
subdivisions at the same time. 32 So long as the burden of the tax falls equally and impartially on
all owners or operators of tenement houses similarly classified or situated, equality and uniformity
of taxation is accomplished.
judgment a quo is reversed, and, the ordinance in question being valid, the complaint is hereby
dismissed. No pronouncement as to costs.
De Villate Vs Stanley 32 Phil 541-free mail on common carriers
Vessels licensed to engage in the interisland trade are common carriers; and as to them, there is an
extensive field of regulation and control which may properly be exercised by the state without
contravention of the provisions of the Philippine Bill of Rights or the Constitution of the United
States; and this notwithstanding the fact that the enforcement of such regulations may tend to
restrict their liberty,
nature of the business in which they are en- gaged as a public employment, is such that it is clearly
within the power of the state to impose such just and reasonable regulations thereon as in the
interest of the public it may deem proper. Of course such regulations must not have the effect of
depriving an owner of his property without due process of law, nor of confiscating or appropriating
private property without just compensation, nor of limiting or prescribing irrevocably vested rights

or privileges lawfully acquired under a charter or franchise.

A regulation requiring all coasting vessels licensed to engage in the interisland trade to carry the
mails and give prompt advance notice in all cases of intended sailings in ample time to permit
dispatch of mails, and of changes of sailing hours, (manifestly with a view to make it possible for
the post-office officials to tender mail for transportation at the last practicable moment prior to the
hour of departure) is a reasonable regulation, made in the interests of the public, which the state has
a right to impose when it grants licenses to the vessels affected thereby.
estrain him from enforcing against plaintiff the provisions of Customs Administrative Circular No.
627. The complaint alleges that the plaintiff is the master of S. S. Vizcaya of the coastwise trade;
that as such captain, on July 6, 1912, when sailing from the port of Gubat to the port of Legaspi, P.
I., he failed to notify the postmaster of the former port, in advance, of his intended sailing, and
therefore failed to carry the mails between said ports; that defendant is threatening to suspend or
revoke the license of plaintiff by reason of said facts, under and by virtue of the terms of Customs
Administrative Circular No. 627, to the great and irreparable damage of plaintiff."cralaw virtua1aw
library
Every vessel to which a license is granted under the provisions of section 117 of Act No. 355 to
engage in the coastwise trade of the Philippine Islands . . . shall carry mail tendered for
transportation in a safe and secure manner, and shall keep the same free from injury by water or
otherwise. Masters, owners, or agents of vessels shall give prompt advance notice of the intended
sailing thereof to the postmaster
All mail matter deposited in such box shall be delivered by the master, or his representative, to the
postmaster at a port of call where a post office is located.
Has the Government of the Philippine Islands the power, through any of its agencies, to require,
with reference to all vessels engaged in the coastwise trade, that "Every vessel to which a license is
granted under the provisions of section 117 of Act No. 355 to engage in the coastwise trade of the
Philippine Island
was the Collector of Customs clothed with power to promulgate a circular at the date of the issue of
Customs Circular No. 627, prescribing that masters of all vessels engaged in the coast wise trade
must comply with such a regulation,
An examination of its terms leaves little room for doubt that under Spanish sovereignty the
Government of these Islands assumed and exercised the right to prescribe reasonable regulations
requiring vessels trading in the Philippine Islands to carry the mails and to give due notice of their
sailing hours to the postal authorities.
We are of opinion, and so hold, that there is nothing in the Philippine Bill of Rights which deprived
the Philippine Government of the power to make and enforce reasonable regulations of this nature
with which it was clothed prior to the enactment of that statute.
dicial interference should never occur unless the case presents, clearly and beyond all doubt, such a
flagrant attack upon the rights and property under the guise of regulations as to compel the court to
say that the regulations in question will have the effect to deny just compensation for private
property taken for the public use.
"The constitutional law requiring uniformity of taxation imposes the duty upon the State directly to
lay its burdens uniformly and evenly upon all. It does not permit the State to lay any particular
burden, e. g. the carriage of the mails, upon any person or class of persons, on the ground that said
person or class may turn about and divide the burden with other persons or amongst a slightly larger
class. The carriage of the public mails is a public, governmental function to be performed at public
cost. It is not permissible to impose that burden upon the carriers either absolutely or under the
implied understanding that the carriers will shift the burden to that portion of the public who
constihite the shippers or patrons of the carriers.
"The power to impose taxes is one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is sub.iect to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. It reaches to every trade or occupation; to every object

of industry, use, or enjoyment; to every species of possession; and it imposes a burden which, in
case of failure to discharge it, may be followed by seizure and sale or confiscation of property. No
attribute of sovereignty is more pervading, and at no point does the power of the Government affect
more constantly and intimately all the relations of life than through the exactions made under it. . . .
The power to tax rests upon necessity, and is inherent in every sovereignty. The legislature of every
free State will possess it under the general grant of legislative power, whether particularly specified
in the constitution among the powers to be exercised by it or not.
.
CIR Vs Hawaiian-Philippine Co- warehouseman tax
NO DOUBLE TAXATION ON TAXING SUGAR CENTRAL FOR ITS WAREHOUSE
BUSINESS. A sugar centrals warehousing business, although carried on in its relation to the
operation of its central, is a distinct and separate business, and there can be no double taxation
where the State imposes a tax on its warehouse fees collected.
petition filed by the Commissioner of Internal Revenue for the review of the decision of the Court
of Tax Appeals in C.T.A. Case No. 598 ordering him to refund to respondent Hawaiian-Philippine
Company the amount of P8,411.99 representing fixed and percentage taxes assessed against it and
which the latter had deposited with the City Treasurer of Silay, Occidental Negros.
Upon investigation conducted by the Bureau, it was found that during the years 1949 to 1957, the
petitioner realized from collected storage fees a total gross receipts of P212,853.00, on the basis of
which the respondent determined the petitioners liability for fixed and percentage taxes, 25%
surcharge, and administrative penalty in the aggregate amount of P8,411.99
The only issue to be resolved in the case at bar is whether or not, upon the facts stated above,
petitioner is a warehouseman liable for the payment of the fixed and percentage taxes prescribed in
Sections 182 and 191 of the National Internal Revenue Code which reads as follows:
or one to be considered engaged in the warehousing business, therefore, it is sufficient that he
receives goods owned by another for storage, and collects fees in connection with the same. In fact,
Section 2 of the General Bonded Warehouse Act, as amended, defines a warehouseman as "a person
engaged in the business of receiving commodity for storage."cralaw vir
Lastly, respondents contention that the imposition of the tax under consideration would amount to
double taxation is likewise without merit. As is clear from the facts, respondents warehousing
business, although carried on in relation to the operation of its sugar central, is a distinct and
separate business taxable under a different provision of the Tax Code. There can be no double
taxation where the State merely imposes a tax on every separate and distinct business in which a
party is engaged. Moreover, in Manufacturers Life Insurance Co. v. Meer, 89 Phil., 351, City of
Manila v. Interisland Gas Service, 99 Phil., 847, We have ruled that there is no prohibition against
double or multiple taxation in this jurisdiction.
San Miguel Brewery Inc Vs City of Cebu- sales tax, power of LGUs, double tax with businees
license
DOUBLE TAXATION; CONCEPT OF; NOT PROHIBITED BY CONSTITUTION; NO DOUBLE
TAXATION IN CASE AT BAR. There is double taxation when the same person is taxed by the
same jurisdiction for the same purpose, which is not the case in L-20312, for the ordinance in
question imposes a tax on the sale or disposal of every "bottle or container" of "liquor or
intoxicating beverages," and, as such, is a typical tax or revenue measure, whereas the sum of P600
it pays annually is for a "second-class wholesale liquor license," which is a license to engage in the
business of wholesale liquor in Cebu city, and, accordingly, constitutes a regulatory measure, in the
exercise of the police power. In any case, however, double taxation is not prohibited by the
Constitution.
cases are jointly disposed of in this decision owing to the common issue therein namely, the
extent of the taxing power of municipal corporations under section 2 of Republic Act No. 2264,
otherwise known as the Local Autonomy Act.

that" (t)here shall be collected on any sale or disposal of liquor or intoxicating beverages of any
form in the City of Cebu by manufacturers and wholesalers for purposes of a municipal tax the
following rates:
d thereto, under protest, on April 20, 1961, the sum P29,874.69, the refund of which is prayed for in
the complaint herein, upon the ground that said ordinance is ultra vires, for imposing a sales tax,
which is allegedly beyond defendants power to levy, apart from resulting in illegal double taxation,
since SMB already pays the defendant a business license tax of P600 per annum.
Referring to the above provision, this Court declared in Nin Bay Mining Co. v. Municipality of
Roxas, Palawan, 2 that "Republic Act No. 2264 confers upon all chartered cities, municipalities and
municipal districts the general power to levy, not only taxes, but, also, municipal license taxes,
subject to specified exceptions, as well as service fees." Subsequently, Luzon Surety Co., Inc. v.
City of Bacolod 3 cited with approval the fact that this Court had consistently upheld the "doctrine
that the grant of the power to tax to chartered cities
We find no merit in this pretense, for: (a) double taxation is not prohibited by the Constitution 5; (b)
there is double taxation when the same person is taxed by the same jurisdiction for the same
purpose, 6 which is not the case in L-20312, for the ordinance in question imposes a tax on the sale
or disposal of every "bottle or container" of "liquor or intoxicating beverages," and, as such, is a
typical tax or revenue measure, whereas the sum of P600 it pays annually is for a "second-class
wholesale liquor license," which is a license to engage in the business of wholesale liquor in Cebu
City, and, accordingly, constitutes a regulatory measure, in the exercise of the police power; 7 and
(c) the authority of cities under the above-quoted section 2 of Rep. Act No. 2264, to impose a sales
tax has already been upheld in City of Bacolod v. Gruet 8 and Pepsi-Cola Bottling Co. of the
Philippines, Inc. v. City of Butuan, 9 and We find no plausible reason to depart from said view.
WHEREFORE, the decisions appealed from should be and are hereby affirmed, with costs against
plaintiffs-appellants San Miguel Brewery, Inc. and Cebu Portland Cement Company. It is so
ordered.
d) Modes of eliminating double taxation (Reciprocity/ tax exemptions/ tax credit/ Allowance for
deductions)
Case: CIR Vs Sc Johnson and Son, Inc. GR No. 127105 June 25, 1999- 309 SCRA 87
Pursuant to the license agreement entered into by private respondent S.C. Johnson and Son, U.S.A.,
the private respondent was granted, among others, the right to use the trademark, patents and
technology of SC Johnson and Son, U.S.A. and was obliged to pay to the latter royalties based on a
percentage of net sales. The said royalties were subjected by the government to a 25% withholding
tax. Consequently, from July, 1992 to May, 1993, the private respondent paid a total withholding
tax in the amount of P1,603,433.00. However, on October 29, 1993 the private respondent filed
before the International Tax Affairs Division of the Bureau of Internal Revenue a claim for refund
of the overpaid withholding tax on royalties in the amount of P963,266.00. The Commissioner, not
having acted on the claim for refund, the private respondent then filed a petition for review before
the Court of Tax Appeals (CTA) wherein the latter rendered a decision in favor of tax refund. The
Court of Appeals affirmed in toto the CTA ruling. Hence, this petition.
The Court ruled that 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, 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, Article 23 of the RP-US Tax Treaty, which is the
counterpart provision with respect to relief for double taxation, does not provide for similar
crediting of 20% of the gross amount of royalties paid. The Court agreed with petitioner that 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. It bears stress that tax
refunds are in the nature of tax exemptions. As such they are regarded as in derogation of sovereign

authority and to be construed strictissimi juris against the person or entry claiming the exemption.
The burden of proof is upon him who claims the exemption in his favor and he must be able to
justify his claim by the clearest grant of organic or statute law. Private respondent is claiming for a
refund of the alleged overpayment of tax on royalties; however, there is nothing on record to
support a claim that the tax on royalties under the RP-US Tax Treaty is paid under similar
circumstances as the tax on royalties under the RP-West Germany Tax Treaty. The petition was
GRANTED.
The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered
into for the avoidance of double taxation. The purpose of these international agreements is to
reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid
simultaneous taxation in two different jurisdictions. More precisely, the tax conventions are drafted
with a view towards the elimination ofinternational juridical double taxation,
In order to eliminate double taxation, a tax treaty resorts to several methods. First, it sets out the
respective rights of tax of the state of source or situs and of the state of residence with regard to
certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of
the contracting states; however, for other items of income or capital, both states are given the right
to tax, although the amount of tax that may be imposed by the state of source is limited. The second
method for the elimination of double taxation applies whenever the state of source is given a full or
limited right to tax together with the state of residence. In this case, the treaties make it incumbent
upon the state of residence to allow relief in order to avoid double taxation.
There are two methods of relief the exemption method 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 taxpayers 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
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.
Under the RP-US Tax Treaty, the state of residence and the state of sources 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
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 circumstance.
RP-US AND RP-WEST GERMANY TAX TREATIES DO NOT CONTAIN SIMILAR
PROVISIONS ON TAX CREDITING.- 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, Article 23 of the RP-US Tax
Treaty, which is the counterpart provision with respect to relief for double taxation, does not
provide for similar crediting of 20% of the gross amount of royalties paid.
TREATIES TO BE INTERPRETED IN GOOD FAITH.- The Vienna Convention on the Law of
Treaties states that a treaty shall be interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context and in the light of its object and

purpose.
As stated earlier, the ultimate reason for avoiding double taxation is to encourage foreign investors
to invest in the Philippines a 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
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 nationhe 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.
he 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.
use of the trademark or technology, [respondent] was obliged to pay SC Johnson and Son, USA
royalties based on a percentage of net sales and subjected the same to 25% withholding tax on
royalty payments which [respondent] paid for the period covering July 1992 to May 1993 in the
total amount of P1,603,443.00
1993, [respondent] filed with the International Tax Affairs Division (ITAD) of the BIR a claim for
refund of overpaid withholding tax on royalties arguing that, the antecedent facts attending
[respondents] case fall squarely within the same circumstances under which said MacGeorge and
Gillete rulings were issued
The Commissioner did not act on said claim for refund. Private respondent S.C. Johnson & Son,
Inc. (S.C. Johnson) then filed a petition for review before the Court of Tax Appeals (CTA)
1996, the Court of Tax Appeals rendered its decision in favor of S.C. Johnson and ordered the
Commissioner of Internal Revenue to issue a tax credit certificate
Petitioner contends that under Article 13(2) (b) (iii) of the RP-US Tax Treaty, which is known as the
most favored nation clause, the lowest rate of the Philippine tax at 10% may be imposed on
royalties derived by a resident of the United States from sources within the Philippines only if the
circumstances of the resident of the United States are similar to those of the resident of West
Germany. Since the RP-US Tax Treaty contains no matching credit provision as that provided under
Article 24 of the RP-West Germany Tax Treaty, the tax on royalties under the RP-US Tax Treaty is
not paid under similar circumstances as those obtaining in the RP-West Germany Tax Treaty
the main point of contention in this appeal is the interpretation of Article 13 (2) (b) (iii) of the RPUS Tax Treaty regarding the rate of tax to be imposed by the Philippines upon royalties received by
a non-resident foreign corporation.
(iii) 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.
Under the foregoing provision of the RP-West Germany Tax Treaty, the Philippine tax paid on
income from sources within the Philippines is allowed as a credit against German income and
corporation tax on the same income. In the case of royalties for which the tax is reduced to 10 or 15
percent according to paragraph 2 of Article 12 of the RP-West Germany Tax Treaty, the credit shall
be 20% of the gross amount of such royalty.
The RP-US Tax Treaty contains no similar matching credit as that provided under the RP-West

Germany Tax Treaty. Hence, the tax on royalties under the RP-US Tax Treaty is not paid under
similar circumstances as those obtaining in the RP-West Germany Tax Treaty. Therefore, the most
favored nation clause in the RP-West Germany Tax Treaty cannot be availed of in interpreting the
provisions of the RP-US Tax Treaty.[5]\
The above construction is based principally on syntax or sentence structure but fails to take into
account the purpose animating the treaty provisions in point. To begin with, we are not aware of any
law or rule pertinent to the payment of royalties, and none has been brought to our attention, which
provides for the payment of royalties under dissimilar circumstances. The tax rates on royalties and
the circumstances of payment thereof are the same for all the recipients of such royalties and there
is no disparity based on nationality in the circumstances of such payment.[6] On the other hand, a
cursory reading of the various tax treaties will show that there is no similarity in the provisions on
relief from or avoidance of double taxation[7] as this is a matter of negotiation between the
contracting parties.[8] As will be shown later, this dissimilarity is true particularly in the treaties
between the Philippines and the United States and between the Philippines and West Germany
The purpose of these international agreements is to reconcile the national fiscal legislations of the
contracting parties in order to help the taxpayer avoid simultaneous taxation in two different
jurisdictions.[10] More precisely, the tax conventions are drafted with a view towards the
elimination of international juridical double taxation, which is defined as the imposition of
comparable taxes in two or more states on the same taxpayer in respect of the same subject matter
and for identical periods
The second method for the elimination of double taxation applies whenever the state of source is
given a full or limited right to tax together with the state of residence. In this case, the treaties make
it incumbent upon the state of residence to allow relief in order to avoid double taxation. There are
two methods of relief- the exemption method 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 taxpayers 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.[16] 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.
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 RPUS 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, Article 23 of the RP-US Tax Treaty, which is the counterpart

provision with respect to relief for double taxation, does not provide for similar crediting of 20% of
the gross amount of royalties paid. Said Article 23 reads:
The reason for construing the phrase paid under similar circumstances as used in Article 13 (2) (b)
(iii) of the RP-US Tax Treaty as referring to taxes is anchored upon a logical reading of the text in
the light of the fundamental purpose of such treaty which is to grant an incentive to the foreign
investor by lowering the tax and at the same time crediting against the domestic tax abroad a figure
higher than what was collected in the Philippines.
the ultimate reason for avoiding double taxation is to encourage foreign investors to invest in the
Philippines - a crucial economic goal for developing countries.[23] 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.
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.
[25] 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.[26] 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
We accordingly agree with petitioner that 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.
. As such they are regarded as in derogation of sovereign authority and to be construed strictissimi
juris against the person or entity claiming the exemption.[27] The burden of proof is upon him who
claims the exemption in his favor and he must be able to justify his claim by the clearest grant of
organic or statute law
WHEREFORE, for all the foregoing, the instant petition is GRANTED. The decision dated May 7,
1996 of the Court of Tax Appeals and the decision dated November 7, 1996 of the Court of Appeals
are hereby SET ASIDE.ax
b) Tax avoidance
Case: Heng Tong Textiles Co. Inc Vs CIR L-19737, Aug 26, 1968

I. General Principles of Taxation

A. Definition and concept of taxation
a.1 As a power
a.2 As a process
a.3 As a means
Case: Tio Vs Video Regulatory Board June 1987
Cases:
1. CIR Vs Algue, Inc L-28896, Feb 17, 1988

B. Nature of taxation / Scope of power of taxation:

A) Supreme, comprehensive, unlimited, plenary, legislative, necessary, inherent
Case:
1. Mactan Cebu International Airport Authority Vs Marcos G.R. No. 120082, Sept 11, 1996
2. Chuchill vs Concepcion 34 Phil 969
Marshall Dictum
McCulloch Vs Maryland (U.S. 4 Wheat.316, 4L Ed 579_
Holmes Dictum
Power of Judicial Review in Taxation
Case:
1. CIR Vs Lingayen Gulf Electric Power Co., Inc. (L-23771, Aug. 4, 1988)164 SCRA 27.
2. CONSTITUTIONAL LAW; POWER OF TAXATION; TAX EXEMPTION; NOT VIOLATIVE
OF THE EQUAL PROTECTION CLAUSE. A tax is uniform when it operates with the same
force and effect in every place where the subject of it is found. Uniformity means that all property
belonging to the same class shall be taxed alike. The Legislature has the inherent power not only to
select the subjects of taxation but to grant exemptions. Tax exemptions have never been deemed
violative
of
the
equal
protection
clause.
3. TAXATION; REPUBLIC ACT NO. 3843; HELD AS CONSTITUTIONAL. Section 259 of
the Tax Code expressly allows the payment of taxes at rates lower than 5% when the charter
granting the franchise of a grantee, like the one granted to the private respondent under Section 4 of
R.A. No. 3843, precludes the imposition of a higher tax. R.A. No. 3843 did not only fix and specify
a franchise tax of 2% on its gross receipts, but made it "in lieu of any and all taxes, all laws to the
contrary notwithstanding," thus, leaving no room for doubt regarding the legislative intent.
"Charters or special laws granted and enacted by the Legislature are in the nature of private
contracts. They do not constitute a part of the machinery of the general government. They are
usually adopted after careful consideration of the private rights in relation with resultant benefits to
the State . . . in passing a special charter the attention of the Legislature is directed to the facts and
circumstances which the act or charter is intended to meet, The Legislature consider (sic) and make
(sic) provision for all the circumstances of a particular case." In view of the foregoing, we find no
reason to disturb the respondent courts ruling upholding the constitutionality of the law in question.
2. Commissioner of Customs Vs Manila Star Ferry Inc., et. al L-31776-78, Oct 21, 1993
227 SCRA 317
"PORT OF ENTRY" AS AN EXCEPTION; CONSTRUED. Section 2530(a)
unmistakable terms provides that a vessel engaged in smuggling "in a port of entry" cannot be
forfeited. This is the clear and plain meaning of the law. It is not within the province of the Court to
inquire into the wisdom of the law, for indeed, we are bound by the words of the statute. Neither can
we put words in the mouths of the lawmakers. A verba legis non est recedendum. It must be noted
that the Revised Administrative Code of 1917 from which the Tariff and Customs Code is based,
contained in Section 1363(a) thereof almost exactly the same provision in Section 2530(a) of the
Tariff and Customs Code, including the phrase "except a port of entry." If the lawmakers intended
the term "port of entry" to mean "port of destination," they could have expressed facilely such
intention when they adopted the Tariff and Customs Code in 1957. Instead of amending the law,
Congress reenacted verbatim the provision of Section 1363(a) of the Revised Administrative Code
of 1917. Congress, in the very same Article 2530 of the Tariff and Customs Code, used the term
"port of destination" in subsections (c) and (d) thereof. This is a clear indication that Congress is
aware of the distinction between the two wordings.
4. ID.; ID.; ID.; ID.; ID.; FAILURE TO SUPPLY REQUISITE MANIFEST; SUBJECT TO FINE.

 Although the vessel cannot be forfeited, it is subject to a fine of not more than P10,000.00 for
failure to supply the requisite manifest for the unloaded cargo under Section 2521 of Code.
C. Characteristics of taxation
D. Power of taxation compared with other powers
1. Police power
2. Power of eminent domain
Case: Roxas Vs CTA 23 SCRA 276 [G.R. No. L-25043. April 26, 1968
"POWER TO DESTROY", TO BE EXERCISED FAIRLY, EQUALLY AND UNIFORMLY. The
power of taxation is sometimes called also the power to destroy. It should, therefore, be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the "hen that lays the golden egg."
E. Purposes of taxation
Cases:
1. Caltex Philippines, Inc Vs Commission on Audit G.R. No. 92585, May 8, 1992 212
SCRA 448
11. ID.; NOT MERELY AS A MEASURE TO RAISE REVENUE; LEVIED ALSO FOR
REGULATORY PURPOSE. We find no merit in petitioners contention that the OPSF
contributions are not for a public purpose because they go to a special fund of the
government. Taxation is no longer envisioned as a measure merely to raise revenue to
support the existence of the government; taxes may be levied with a regulatory purpose to
provide means for the rehabilitation and stabilization of a threatened industry which is
affected with public interest as to be within the police power of the state.
12. ID.; ID.; ID.; CASE AT BAR. There can be no doubt that the oil industry is greatly
imbued with public interest as it vitally affects the general welfare. Any unregulated increase
in oil prices could hurt the lives of a majority of the people and cause economic crisis of
untold proportions. It would have a chain reaction in terms of, among others, demands for
wage increases and upward spiralling of the cost of basic commodities. The stabilization
then of oil prices is one of prime concern which the state, via its police power, may properly
address. Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the
source of OPSF is taxation. No amount of semantical juggleries could dim this fact.
2. Lutz Vs Araneta 98 Phil 148;
POWER OF STATE TO LEVY TAX IN AND SUPPORT OF SUGAR INDUSTRY. As the
protection and promotion of the sugar industry is a matter of public concern the Legislature may
determine within reasonable bounds what is necessary for its protection and expedient for its
promotion. Here, the legislative must be allowed full play, subject only to the test of reasonableness;
and it is not contended that the means provided in section 6 of Commonwealth Act No. 567 bear no
relation to the objective pursued or are oppressive in character. If objective an methods are alike
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. Taxation may be made the
implement of the states police power (Great Atl. & Pac. Tea Co. v. Grosjean, 301 U.S. 412, 81 L.
Ed. 1193; U.S. v. Butler, 297 U.S. 1, 80 L. Ed. 477; MCulloch v. Maryland, 4 Wheat, 316, 4 L. Ed.
579).
2. ID.; ID.; POWER OF STATE TO SELECT SUBJECT OF TAXATION. 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
3. Osmena vs Orbos GR No. 99886 March 31, 1993
To the extent that some tax revenues are also put into it, the OPSF is in effect a device through
which the domestic prices of petroleum products are subsidized in part. It appears to the Court that
the establishment and maintenance of the OPSF is well within that pervasive and non-waivable
power and responsibility of the government to secure the physical and economic survival and wellbeing of the community, that comprehensive sovereign authority we designate as the police power
of the State. The stabilization, and subsidy of domestic prices of petroleum products and fuel oil
clearly critical in importance considering, among other things, the continuing high level of
dependence of the country on imported crude oil are appropriately regarded as public purposes.
1. Revenue-raising
Case: Philippine Guaranty Co., Inc Vs Commissioner 13 SCRA 775 (1965)
1. TAXATION; INCOME TAX; REINSURANCE PREMIUMS CEDED TO FOREIGN
REINSURERS SUBJECT TO WITHHOLDING TAX. Reinsurance premiums on local risks
ceded by domestic insurers to foreign reinsurers not doing business in the Philippines are subject to
withholding
tax.
2. ID.; ID.; REINSURANCE PREMIUMS CEDED TO FOREIGN REINSURERS CONSIDERED
INCOME FROM PHILIPPINE SOURCES. Where the reinsurance contracts show that the
activities that constituted the undertaking to reinsure a domestic insurer against losses arising from
the original insurances in the Philippines were performed in the Philippines, the reinsurance
premiums are considered as coming from sources within the Philippines and are subject to
Philippine
Income
Tax.
3. ID.; ID.; ID.; PLACE OF ACTIVITY CREATING INCOME CONTROLLING. Section 24 of
the Tax Code does not require a foreign corporation to engage in business in the Philippines in
subjecting its income to tax. It suffices that the activity creating the income is performed or done in
the Philippines. What is controlling, therefore, is not the place of business but the place of activity
that created an i
2. Non-revenue/special or regulatory;
3. Compensatory / Public Welfare, Reduction of Social Inequality
F. Principles of sound tax system
1. Fiscal adequacy
a. Chavez Vs Ongpin, etc. G.R. No. 76778, June 6, 1990 186 SCRA 331
4. ID.; SOUND TAX SYSTEM; FISCAL ADEQUACY; CONSTRUED IN CASE AT BAR. We
agree with the observation of the Office of the Solicitor General that without Executive Order No.
73, the basis for collection of real property taxes will still be the 1978 revision of property values.
Certainly, to continue collecting real property taxes based on valuations arrived at several years ago,
in disregard of the increases in the value of real properties that have occurred since then, is not in
consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound
tax system, requires that sources of revenues must be adequate to meet government expenditures
and their variations.
2. Administrative feasibility
a. Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipines, Inc. Vs Tan G.R. No. 81311,
June 30, 1988 163 SCRA 383
The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by

every seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to
his purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the
gross selling price of goods or gross receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and
producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it
is principally aimed to rationalize the system of taxing goods and services; simplify tax
administration; and make the tax system more equitable, to enable the country to attain economic
recovery.
The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued.
As pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO
273, was essentially a single stage value added tax system computed under the "cost subtraction
method" or "cost deduction method" and was imposed only on original sale, barter or exchange of
articles by manufacturers, producers, or importers. Subsequent sales of such articles were not
subject to sales tax
3. Theoretical justice
Sec 28(1) Art VI, 1987 Constitution
G. Theory and basis of taxation
1. Lifeblood theory
a. CIR Vs Pineda 21 SCRA 105 (1967)
The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary
discreation 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 heir 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.
b. CIR VS CTA and Citytrust Banking Co. 234 SCRA 348 G.R. No. 106611 July 21, 1994
0 It is axiomatic that the Government cannot and must not be estopped particularly in matters
involving taxes. Taxes are the lifeblood of the nation through which the government agencies
continue to operate and with which the State effects its functions for the welfare of its
constituents. 21The errors of certain administrative officers should never be allowed to jeopardize
the Government's financial position, 22especially in the case at bar where the amount involves
millions of pesos the collection whereof, if justified, stands to be prejudiced just because of
bureaucratic lethargy.
c. YMCA Vs CIR 298 SCRA 83 G.R. No. 124043. October 14, 1998
(h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable
purposes, no part of the net income of which inures to the benefit of any private stockholder or
member;
xxxxxxxxx
Notwithstanding the provision in the preceding paragraphs, the income of whatever kind and
character of the foregoing organization from any of their properties, real or personal, or from any of
their activities conducted for profit, regardless of the disposition made of such income, shall be
subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457)
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict
interpretation in construing tax exemptions.[18] Furthermore, a claim of statutory exemption from
taxation should be manifest and unmistakable from the language of the law on which it is
based. Thus, the claimed exemption must expressly be granted in a statute stated in a language too
clear to be mistaken.[19]
he exemption claimed by the YMCA is expressly disallowed by the very wording of the last

paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations
(such as the YMCA) from any of their properties, real or personal, be subject to the imposed by the
same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income
f the YMCA from its rental property,[20] the Court is duty-bound to abide strictly by its literal
meaning and to refrain from resorting to any convoluted attempt at construction.
2. Necessity theory
a. Philippine Guaranty Co., Inc Vs CIR
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a
necessary burden to preserve the States sovereignty and a means to give the citizenry an army to
resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve,
public improvements designed for the enjoyment of the citizenry and those which come within the
States territory, and facilities and protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were afforded protection by the government
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such
reinsurance premiums and reinsurers should share the burden of maintaining the state.
3. Benefits-protection theory (Symbiotic relationship)
a. Lorenzo Vs Posadas 64 Phil 353
Taxes are essential to the very existence of government. The obligation to pay taxes rests not upon
the privileges enjoyed by, or the protection afforded to, a citizen by the government, but upon the
necessity of money for the support of the state . For this reason, no one is allowed to object to or
resist the payment of taxes solely because no personal benefit to him can be pointed out. While
courts will not enlarge, by construction, the governments power of taxatiothey also will not place
upon tax laws so loose a construction as to permit evasions on merely fanciful and insubstantial
distinctions.
4. Jurisdiction over subject and objects
a. person, property or occupation
a. Gomez Vs Palomar L-23645 Oct 29, 1988 25 SCRA 827
4. ID.; ID.; ID.; ID.; IMPOSITION OF FLAT RATE NOT VIOLATIVE OF RULE ON
EQUALITY AND UNIFORMITY OF TAXATION. The rule of uniformity and equality of
taxation is not infringed by the imposition of a flat rate rather than a graduated tax. A tax need not
be measured by the weight of the mail or the extent of the service rendered. We have said that
consideration of administrative convenience and cost afford an adequate ground for classification.
The same considerations may induce the legislature to impose a flat tax which in effect is a charge
for the transaction, operating equally on all persons with the class regardless of the amount
involved.
5. ID.; ID.; ID.; ID.; AUTHORITY GIVEN TO POSTMASTER GENERAL MUST BE
LIBERALLY CONSTRUED. It is true that the law does not expressly authorize the collection of
five centavos except through the sale of anti-TB stamps, but such authority may be implied in so far
as it may be necessary to prevent a failure of the undertaking. The authority given to the Postmaster
General to raise funds through the mails must be liberally construed, consistent with the principle
that
where
the
end
is
required
the
appropriate
means
are
given.
6. ID.; ID.; ID.; ID.; PROCEEDS FROM SALES OF ANTI-TB STAMPS NOT FOR BENEFIT OF
THE PHILIPPINE TUBERCULOSIS SOCIETY. The Society is not really the beneficiary but
only the agency through which the State acts in carrying out what is essentially a public function.
The money is treated as a special fund and as such need not be appropriated by law.

H. Doctrines in taxation
1. Prospectivity of tax laws
Case: Hydro Resources VS CA 192 SCRA 604 G.R. No. 80276 : December 21, 1990.
It is a cardinal rule that laws shall have no retroactive effect, unless the contrary is provided. (Art. 4,
Civil Code) Except for a statement providing for its immediate execution, Executive Order No. 860
does not provide for its retroactivity. Moreover, the Deputy Minister of Finance in his 1st
Indorsement to the Central Bank dated March 26, 1983 which was reproduced by the Central Bank
Governor in a circular letter to all authorized agent banks, clarified that letters of credit opened prior
to the effectivity of E.O. 860 are not subject to the provisions thereof.
2. Imprescriptibility
Case: Commissioner Vs Ayala Securities Corp 101 SCRA 231 G.R. No. L-29485 November 21,
1980
It is well settled limitations upon the right of the government to assess and collect taxes will not be
presumed in the absence of clear legislation to the contrary. The existence of a time limit beyond
which the government may recover unpaid taxes is purely dependent upon some express statutory
provision, (51 Am. Jur. 867; 10 Mertens Law of Federal Income Taxation, par. 57. 02.). It follows
that in the absence of express statutory provision, the right of the government to assess unpaid taxes
is imprescriptible. Since there is no express statutory provision limiting the right of the
Commissioner of Internal Revenue to assess the tax on unreasonable accumulation of surplus
provided in Section 25 of the Revenue Code, said tax may be assessed at any time. (Emphasis
supplied)
Republic Vs Ablaza 108 Phil 1105 G.R. No. L-14519. July 26, 1960.
1. INCOME TAX, COLLECTION, LIMITATION OF ACTIONS, PURPOSE; BENEFICIAL
BOTH TO GOVERNMENT AND CITIZENS. The law prescribing a limitation of actions for
the collection of the income tax is beneficial both to the Government and to its citizens; to the
Government because tax officers would be obliged to act promptly in the making of assessment,
and to citizens because after the lapse of the period of prescription citizens would have a feeling of
security against unscrupulous tax agents who will always find an excuse to inspect the books of
taxpayers, not to determine the latters real liability, but to take advantage of every opportunity to
molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be
under obligation to always keep their books and keep them open for inspection subject to
harassment by unscrupulous tax agents.
3. Double taxation definition
Case: Victorias Milling Co. Vs Municipality of Victories L-21183, Sept 27, 1968
a) Strict sense
Case: Villanueva Vs City of Iloilo L-26521 Dec 28, 1968 26 SCRA 578
5. ID.; ID.; ID.; ID.; THE SAME TAX MAY BE IMPOSED BY THE NATIONAL
GOVERNMENT AS WELL AS LOCAL GOVERNMENT. While it is true that the plaintiffsappellees are taxable under the provisions of the National Internal Revenue Code as a real estate
dealers, and still taxable under the ordinance in question, the argument against double taxation may
not be invoked. The same tax may be imposed by the national government as well as by the local
government. There is nothing inherently obnoxious in the exaction of license fees or taxes with
respect to the same occupation, calling or activity by both the State and a political subdivision
thereof.
6. ID.; ID.; TAX MAY BE LEVIED UPON A BUSINESS ALTHOUGH THE LAND OR
PROPERTY USED THEREWITH IS SUBJECT TO PROPERTY TAX. It is a well-settled rule
that a license tax may be levied upon business or occupation although the land or property used in

connection therewith is subject to property tax. The State may collect an ad valorem tax on property
used in a calling, and at the same time impose a license tax on that calling. The imposition of the
latter
kind
of
tax
being
in
no
sense
a
double
tax.
7. ID.; ID.; NO CONSTITUTIONAL PROHIBITION AGAINST DOUBLE TAXATION IN THE
PHILIPPINES. There is no constitutional prohibition against double taxation in the Philippines.
It is something not favored, but is permissible, provided some other constitutional requirement is
not thereby violated, such as the requirement that taxes must be uniform.
De Villate Vs Stanley 32 Phil 541
"Neither does the fact that the imposition of the tax may result in double taxation necessarily affect
its
validity.
(1
Cooley
on
Taxation,
3d
ed.,
389)
"The power to impose taxes is one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is sub.iect to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. It reaches to every trade or occupation; to every object
of industry, use, or enjoyment; to every species of possession; and it imposes a burden which, in
case of failure to discharge it, may be followed by seizure and sale or confiscation of property. No
attribute of sovereignty is more pervading, and at no point does the power of the Government affect
more constantly and intimately all the relations of life than through the exactions made under it. . . .
The power to tax rests upon necessity, and is inherent in every sovereignty. The legislature of every
free State will possess it under the general grant of legislative power, whether particularly specified
in the constitution among the powers to be exercised by it or not.
b) Broad sense
Case:
1. CIR Vs Hawaiian-Philippine Co. L-16315 May 30, 1964
3. ID.; ID.; NO DOUBLE TAXATION ON TAXING SUGAR CENTRAL FOR ITS WAREHOUSE
BUSINESS. A sugar centrals warehousing business, although carried on in its relation to the
operation of its central, is a distinct and separate business, and there can be no double taxation
where the State imposes a tax on its warehouse fees collected.
2. San Miguel Brewery Inc Vs City of Cebu, L-20312 feb 26, 1972 43 SCRA 275
6. TAXATION; DOUBLE TAXATION; CONCEPT OF; NOT PROHIBITED BY
CONSTITUTION; NO DOUBLE TAXATION IN CASE AT BAR. There is double taxation
when the same person is taxed by the same jurisdiction for the same purpose, which is not the case
in L-20312, for the ordinance in question imposes a tax on the sale or disposal of every "bottle or
container" of "liquor or intoxicating beverages," and, as such, is a typical tax or revenue measure,
whereas the sum of P600 it pays annually is for a "second-class wholesale liquor license," which is
a license to engage in the business of wholesale liquor in Cebu city, and, accordingly, constitutes a
regulatory measure, in the exercise of the police power. In any case, however, double taxation is not
prohibited by the Constitution.
c) Constitutionality of double taxation
d) Modes of eliminating double taxation (Reciprocity/ tax exemptions/ tax credit/ Allowance for
deductions)
Case: CIR Vs Sc Johnson and Son, Inc. GR No. 127105 June 25, 1999
5. ID.; DOUBLE TAXATION; DEFINED. - Double taxation usually takes place when a person is
resident of a contracting state and derives income from, or owns capital in, the other contracting
state and both states impose tax on that income or capital.
6. ID.; TAX TREATIES; METHODS TO ELIMINATE DOUBLE TAXATION. - In order to
eliminate double taxation, a tax treaty resorts to several methods. First, it sets out the respective
rights of tax of the state of source or situs and of the state of residence with regard to certain classes

of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting
states; however, for other items of income or capital, both states are given the right to tax, although
the amount of tax that may be imposed by the state of source is limited. The second method for the
elimination of double taxation applies whenever the state of source is given a full or limited right to
tax together with the state of residence. In this case, the treaties make it incumbent upon the state of
residence to allow relief in order to avoid double taxation.
7.ID.; ID.; ID.; EXEMPTION METHOD AND CREDIT METHOD; ELUCIDATED.- There are
two methods of relief the exemption method 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 taxpayers 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.
8. ID.; ID.; RATIONALE FOR REDUCING TAX RATE.- 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.
4. Escape from taxation
Tax Evasion Vs Tax Minimization
Forms of Tax Avoidance/ Tax Minimization:
a) Shifting of tax burden
(i) Ways of shifting the tax burden
(ii) Taxes that can be shifted
(iii) Meaning of impact and incidence of taxation
b) Tax avoidance
Case: Heng Tong Textiles Co. Inc Vs CIR L-19737, Aug 26, 1968
2. ID.; PENALTIES; GOOD FAITH; DIMINUTION OF TAX LIABILITY. Arrangement
through which the sales tax due could be minimized does not by itself alone justify the imposition
of penalty under Sec. 183 (a), par. 3, of the Internal Revenue Code. An attempt to minimize ones
tax does not necessarily constitute fraud. It is a settled principle that a taxpayer may diminish his
liability by any means which the law permits. The intention to minimize taxes must be proved to
exist by clear and convincing evidence amounting to more than mere preponderance and cannot be
justified by mere speculation. This is because fraud is never lightly presumed. In the case at bar, the
petitioners actuation is not incompatible with good faith on its part, that is, with a genuine belief
that by indorsing the goods to Pan Asiatic Commercial so that the latter could as it did, take delivery
thereof, Pan Asiatic Commercial would in law be considered the importer.
c) Tax Option
d) transformation
e) Tax evasion
Case:
Republic Vs Ker & Co. Ltd L-21609, Sept 29,1966 18 SCRA 207
4. TAXATION; DEFICIENCY INCOME TAX; PRESCRIPTION OF ACTION; DEGREE OF
PROOF REQUIRED TO ESTABLISH FRAUD; CASE AT BAR. Fraud is a question of fact

(Gutierrez v. Court of Tax Appeals, G.R. Nos. L-9738 and L- 9771, May 31, 1957) which must be
alleged and proved (Section 12, Rule 15 [now Section 5, Rule 8], Rules of Court). It is a serious
charge and, to be sustained it must be supported by clear and convincing proof (Collector of
Internal Revenue v. Benipayo, G.R. No. L-13656, January 31, 1962). In the instant case the filing
by the taxpayer of a false return was neither alleged in the complaint nor proved in court. Hence, the
lower court correctly resolve the issue of prescription without touching upon fraudulence of the
return.
Aznar Vs CTA L-20569, Aug 23, 1974 58 SCRA 51
To our minds we can dispense with these controversial arguments on facts, although we do not deny
that the findings of facts by the Court of Tax Appeals, supported as they are by very substantial
evidence, carry great weight, by resorting to a proper interpretation of Section 332 of the NIRC. We
believe that the proper and reasonable interpretation of said provision should be that in the three
different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the (1) falsity, (2) fraud, (3)
omission. Our stand that the law should be interpreted to mean a separation of the three different
situations of false return, fraudulent return with intent to evade tax, and failure to file a return is
strengthened immeasurably by the last portion of the provision which segregates the situations into
three different classes, namely "falsity," "fraud" and "omission." That there is a difference between
"false return" and "fraudulent return" cannot be denied. While the first merely implies deviation
from the truth, whether intentional or not, the second implies intentional or deceitful entry with
intent to evade the taxes due.
5. Exemption from taxation
1. Meaning of exemption from taxation; basis:
Case: Floro Cement Vs Gorospe 200 SCRA 480
On the exemption claimed by petitioner, 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. More
specifically stated, the general rule is that any claim for exemption from the tax statute should be
strictly construed against the taxpayer (Luzon Stevedoring Corporation vs. Court of Tax Appeals,
163 SCRA 647 [1988]). He who claims an exemption must be able to point out some provision of
law creating the right; it cannot be allowed to exist upon a mere vague implication or inference. It
must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is
fatal to the claim (Manila Electric Company vs. Ver, 67 SCRA 351 [1975]). The petitioner failed to
meet this requirement.
Luzon Stevedoring Co. Vs Court of Tax Appeals 163 SCRA 647 G.R. No. L-30232 July 29,
1988
Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of
passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that
where a provision of law speaks categorically, the need for interpretation is obviated, no
plausible pretense being entertained to justify non-compliance. All that has to be done is to
apply it in every case that falls within its terms (Allied Brokerage Corp. v. Commissioner of
Customs, L-27641, 40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).
And, even if construction and interpretation of the law is insisted upon, following another
fundamental rule that statutes are to be construed in the light of purposes to be achieved and the
evils sought to be remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it
will be noted that the legislature in amending Section 190 of the Tax Code by Republic Act
3176, as appearing in the records, intended to provide incentives and inducements to bolster the

shipping industry and not the business of stevedoring, as manifested in the sponsorship speech
of Senator Gil Puyat (Rollo, p. 26).
Manila Electric Company Vs Vera 67 SCRA 351
1. TAXATION; EXEMPTION; STRICTLY CONSTRUED AGAINST TAXPAYER. One
who claims to be exempt from the payment of a particular tax must do so under clear and
unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer,
they being highly disfavored and may almost be said "to be odious to the law." He who claims an
exemption must be able to point to some positive provision of law creating the right; it cannot be
allowed to exist upon a mere vague implication or inference. The right of taxation will not be held
to have been surrendered unless the intention to surrender is manifested by words too plain to be
mistaken, for the State cannot step itself of the most essential power of taxation by doubtful words;
it cannot by ambiguous language, be deprived of this highest attribute of sovereignty. So, when
exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and
a well-founded doubt is fatal to the claim.
b) Nature of tax exemption
c) Kinds of tax exemption
(i) Express
a) Constitutional
b) Statutory
(ii) Implied by omission
Case: SSS Vs Bacolod City 115 SCRA 412 G.R. No. L-35726, July 21, 1982
However, the subject of inquiry in the case at bar is not whether a government corporation
exercising ministrant or proprietary function, such as petitioner SSS, is exempt from the payment of
legal fees, but whether the properties in question, which are concededly owned by the government,
are exempt from realty taxes. We hold that under Section 29 of the Charter of the City of Bacolod,
they are so exempt.
It bears emphasis that the said section does not contain any qualification whatsoever in providing
for the exemption from real estate taxes of "lands and buildings owned by the Commonwealth or
Republic of Philippines." Hence, when the legislature exempted lands and buildings owned by the
government from payment of said taxes, what it intended was a broad and comprehensive
application of such mandate, regardless of whether such property is devoted to governmental or
proprietary purpose.
(iii) Contractual
Case: Cagayan Electric Co. VS Commissioner 138 SCRA 629
We hold that Congress could impair petitioner's legislative franchise by making it liable for income
tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of
its franchise.
The Constitution provides that a franchise is subject to amendment, alteration or repeal by the
Congress when the public interest so requires (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV,
1973 Constitution),
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the
provisions of the Constitution and to the terms and conditions established in Act No. 3636 whose
section 12 provides that the franchise is subject to amendment, alteration or repeal by Congress.
d) Rationale/grounds for exemption
e) Revocation of tax exemption
Cases:

1. Surigao Consilidated Mining Co. Inc VS CIR L-14878, Dec 26, 1963
Petitioner argues that since the law condones the taxes due from taxpayers who failed to pay their
taxes, it would be unfair to deny this benefit to those taxpayers who had been prompt in paying
theirs. The argument merits careful consideration. At first it would seem to be sound and logical.
But the aforequoted section clearly refers to the condonation of unpaid taxes only. The condonation
of a tax liability is equivalent and is in the nature of a tax exemption.
2. Visayan Cebu Terminal Co. Inc VS CIR L-19530and L-19444 Feb 27, 1965 13 SCRA
357
The argument of the petitioner, to the effect that it should not be made to pay the percentage tax at
all, because agents of the Internal Revenue have categorically stated in a memorandum that it is not
liable, is without legal basis. The agents did not have the power to make such pronouncements, and
even if they were so authorized, their recommendations are always subject to the review of their
superiors, who may countermand or affirm them. The government is never estopped to collect
legitimate taxes because of the error committed by its agents (Genato Commercial Corp. vs. CTA,
et al., 104 Phil. 615.
The Commissioner of Internal Revenue, on his part, contends that the 28% received by the Bureau
of Customs constitutes "a business expense of the respondent, which is not deductible from the
latter's gross receipts for purposes of the 3% tax imposed by Section 191 of the Tax Code." In
exempting the petitioner from the payment of 3% tax on the 28% given to the Bureau of Customs,
the CTA cited the case of Manila Jockey Club vs. Collector, supra, wherein this court, among
others, has said:
3. CIR Vs Court of Appeals and Soriano Corporation GR No. 108576 Jan 20, 1999
1. TAXATION; PRESIDENTIAL DECREE NO. 67; NOT BEING A TAXPAYER, A
WITHHOLDING AGENT LIKE THE PRIVATE RESPONDENT IS NOT PROTECTED BY THE
AMNESTY UNDER THE DECREE. An income taxpayer covers all persons who derive taxable
income. ANSCOR was assessed by petitioner for deficiency withholding tax under Section 53 and
54 of the 1939 Code. As such, it is being held liable in its capacity as a withholding agent and not in
its personality as a taxpayer. In the operation of the withholding tax system, the withholding agent
is the payor, a separate entity acting no more than an agent of the government for the collection of
the tax in order to ensure its payments; the payer is the taxpayer he is the person subject to tax
impose by law; and the payee is the taxing authority. In other words, the withholding agent is
merely a tax collector, not a taxpayer. Under the withholding system, however, the agent-payor
becomes a payee by fiction of law. His (agent) liability is direct and independent from the taxpayer,
because the income tax is still impose on and due from the latter. The agent is not liable for the tax
as no wealth flowed into him he earned no income. The Tax Code only makes the agent personally
liable for the tax arising from the breach of its legal duty to withhold as distinguish from its duty to
pay tax since: the governments cause of action against the withholding agent is not for the
collection of income tax, but for the enforcement of the withholding provision of Section 53 of the
Tax Code, compliance with which is imposed on the withholding agent and not upon the taxpayer.
Not being a taxpayer, a withholding agent, like ANSCOR in this transaction is not protected by the
amnesty under the decree. Codal provisions on withholding tax are mandatory and must be
complied with by the withholding agent. The taxpayer should not answer for the non-performance
by the withholding agent of its legal duty to withhold unless there is collusion or bad faith. The
former could not be deemed to have evaded the tax had the withholding agent performed its duty.
This could be the situation for which the amnesty decree was intended. Thus, to curtail tax evasion
and give tax evaders a chance to reform, it was deemed administratively feasible to grant tax
amnesty in certain instances. In addition, a tax amnesty, much like a tax exemption, is never favored
nor presumed in law and if granted by a statute, the terms of the amnesty like that of a tax
exemption must be construed strictly against the taxpayer and liberally in favor of the taxing
authority. The rule on strictissimi juris equally applies. So that, any doubt in the application of an
amnesty law/decree should be resolved in favor of the taxing authority.

4. Nitafan Vs CIR GR No. 78780 July 23, 1987- 152 SCRA 284
With the foregoing interpretation, and as stated heretofore, the ruling that "the imposition of income
tax upon the salary of judges is a dimunition thereof, and so violates the Constitution" in Perfecto
vs. Meer,13 as affirmed inEndencia vs. David 14 must be declared discarded. The framers of the
fundamental law, as the alter ego of the people, have expressed in clear and unmistakable terms the
meaning and import of Section 10, Article VIII, of the 1987 Constitution that they have adopted
Stated otherwise, we accord due respect to the intent of the people, through the discussions and
deliberations of their representatives, in the spirit that all citizens should bear their aliquot part of
the cost of maintaining the government and should share the burden of general income taxation
equitably.
5. CIR Vs Manila Jockey Club, Inc 98 Phil 670
And for such use, the Club was paid for each day a flat rental and not on percentage basis. It may
therefore be said that during those days it was the Philippine Charity Sweepstake Office that held
the races and not the Club itself. In the light of these facts can it be said that the rentals paid by the
Philippine Charity Sweepstake Office to the Club for the use of its facilities on those days are
exempt from income tax under section 3 of Republic Act No. 79? This would require an analysis
of the provisions of said Act to determine its real import.
6. Compensation and set-off
Case: Republic VS Mambulao Lumber Co. 6 SCRA 622
Philex Mining Corp VS CIR GR No. 28 August 1998 294 SCRA 687
x x x a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government and taxpayer are
not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.
7. Compromise
Sec 204 NIRC
Sec 709 TCC
Sec 2316 TCC
8. Tax amnesty
a) Definition
b) Distinguished from tax exemption
9. Construction and interpretation of:
a) Tax laws (nature)
Case: Hilado VS CIR 100 Phil 288 GR L-9408, 31 October 1956
It is well known that our internal revenue laws are not political in nature and as such were continued
in force during the period of enemy occupation and in effect were actually enforced by the
occupation government. As a matter of fact, income tax returns were filed during that period and
income tax payment were effected and considered valid and legal. Such tax laws are deemed to be
the laws of the occupied territory and not of the occupying enemy.
Lorenzo Vs Posadas Jr. 64 Phil 353 (SUPRA)
10. ID.; ID.; PENAL STATUTES. Properly speaking, a statute is penal when it imposes
punishment for an offense committed against the state which, under the Constitution, the executive
has the power to pardon. In common use, however, this sense has been enlarged to include within
the term "penal statutes" all statutes which command or prohibit certain acts, and establish penalties
for their violation, and even those which without expressly prohibiting certain acts, impose a

penalty

upon

their

commission.

(59

C. J.,

P.

1110.)

11. ID.; ID.; REVENUE LAW. Revenue laws, generally, which impose taxes collected by the
means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there
are authorities to the contrary. (See Sutherland, Statutory Construction, 361; Twine Co. v.
Worthington, 141 U. S. 468; 12 Sup. Ct., 55 Rice v. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. v.
Standard Oil Co., 101 Pa. St., 150; State v. Wheeler, 44 P., 430; 25 Nev., 143.) Article 22 of the
Revised Penal Code is not applicable to the case of bar, and in the absence of clear legislative
intent, we cannot give Act No. 3606 a retroactive effect.
Republic Vs Oasan Vda de Fernandez 99 Phil 934
The doctrine of unconstitutionally raised by appellant is based on the prohibition against ex post
facto laws. But this prohibition applies only to criminal or penal matters, and not to laws which
concern civil matters or proceedings generally, or which affect or regulate civil or private rights
(Ex parte Garland, 18 Law Ed., 366; 16 C. J. S., 889-891).
(i) General rule
Case:
1. CIR Vs La Tondena Inc L-10431 July 31, 1962
. In every case of doubt, tax statutes are construed most strongly against the government and in
favor of the citizens, because burdens are not to be imposed beyond what the statutes expressly and
clearly import (MRR Co. vs. Coll. of Customs, 52 Phil., 950; Luzon Stev. Co. vs. Trinidad, 43 Phil.,
803, 809). It should be pointed out also that said section 129 was amended by adding the following

2. CIR Vs Phoenix Assurance CO. Ltd L-19903, May 20,1965

3. Pari Materia Principle Madrigal Vs Raferty 38 Phil 414
he Income Tax Law of the United States, extended to the Philippine Islands, is the result of an effect
on the part of legislators to put into statutory form this canon of taxation and of social reform. The
aim has been to mitigate the evils arising from inequalities of wealth by a progressive scheme of
taxation, which places the burden on those besi^ able to pay. To carry out this idea, public
considerations have demanded an exemption roughly equivalent to the minimum of subsistence.
With these exceptions, the income tax is supposed to reach the earnings of the entire non
governmental property of the country. Such is the background of the Income Tax Law.
Income as contrasted with capital or property is to be the test. The essential difference between
capital and income is that capital is a fund; income is a flow. A fund of property existing at an
instant of time is called capital. A flow of services rendered by that capital by the payment of money
from it or any other benefit rendered by a fund of capital in relation to such fund through a period of
time is called income. Capital is wealth, while income is the service of wealth
4. Imposition of tax burdens not presumed CIR Vs CA GR No. 122161, Feb 23, 1999
Court ruled that under the rules of statutory construction, exceptions as a general rule, should be
strictly but reasonably construed. They extend only so far as their language fairly warrants, and all
doubts should be resolved in favor of the general provisions rather than the exception. The
exception provided for in section 168 of the old Tax Code should be strictly construed. The Court
also ruled that it is a basic rule of interpretation that words and phrases used in the statute in the
absence of a clear legislative intent to the contrary, should be given their plain, ordinary and
common usage or meaning. Cans and tetrapaks are not used in the manufacture of CENVOCOs
finished products which are coconut, edible oil or coprameal cake. Such finished products are
packed in cans and tetrapaks. There is no error in allowing the sales taxes paid on the containers
and packaging materials of the milled products should be credited against the millers tax due
thereon.
5. CIR Vs Firemans Insurance Co GR No. L30644 March 9, 1987 148 SCRA 315
It is a general rule in the interpretation of statutes levying taxes or duties, that in case of doubt, such
statutes are to be construed most strongly against the government and in favor of the subjects or

citizens, because burdens are not to be imposed, nor presumed to be imposed beyond what statutes
expressly and clearly import (Manila Railroad Co. v. Collector of Customs, 52 Phil. 950 [1929]).
There appears to be no question that the purpose of imposing documentary stamp taxes is to raise
revenue and the corresponding amount has already been paid by respondent and has actually
become part of the revenue of the government. In the same manner, it is evi;dent that the affixture
of the stamps on documents not authorized by law is not attended by bad faith as the practice
was adopted from the authority granted to Wise & Company, one of respondent's general agents
(CTA Decision, Rollo, p. 20). Indeed, petitioner argued that such authority was not given to
respondent company specifically, but under the general principle of agency, where the acts of the
agents bind the principal, the conclusion is inescapable that the justifica;tion for the acts of the
agents may also beclaimed for the acts of the principal itself (Brief for the Respondents, pp. 12-13).
6. CIR Vs PJ Kiener Co. 65 SCRA 143 (1975, July 18)
4.
ID.; ID.; ID.; RULING OF THE SECRETARY OF FINANCE IN A SIMILAR CASE
ENTITLED TO GREAT WEIGHT IN THE DETERMINATION OF THE PRESENT ISSUE.
The ruling of the Secretary of Finance that oils used by contractors in the operation of their
machines or other equipment are not materials to be used solely for military projects but petroleum
products to be used in the operation of the contractors machine, and therefore not exempt
commands respect and weight, since it proceeds from the official of the government called upon to
execute or implement administrative laws it lays down a sound rule on the matter.
5.
ID.; ID.; INTERPRETATION OF STIPULATIONS. If two meanings of a stipulation are
admissible, that which is least to the advantage of the party for whose benefit the stipulation was
inserted in the treaty should be preferred. Thus, an ambiguity in the tax exemption provision in the
Military Bases Agreement and in the "Aide Memoire" in a accordance with which a contract was
entered into, cannot be interpreted in favor of the American Government or for that matter a party
claiming under it, like a taxpayer, especially when it is considered that for the Philippine
Government "the exception contained in tax statutes must be strictly construed against the one
claiming exemption and that he who would seek to be thus privileged must justify it by words too
plain to be mistaken and too categorical to be misinterpreted."cralaw virtua1aw library
7. Wonder Mechanical Engineering Corporation VS CRA 64 SCRA 555
8. Hydro Resources vs CA 192 SCRA 604 (supra)
9. CIR VS Ilagan Electric and Ice Plant, Inc 29 SCRA
And being so, the right to assess or collect the same is governed by Section 331 of the Tax Code
rather than by Article 1145 of the Civil Code. A special law (Tax Code) shall prevail over a general
law (Civil Code)." This Court there held that the government is right to assess and collect the total
sum of P16,593.87 representing franchise tax allegedly refunded erroneously as overpayment of the
franchise holder was barred by the five-year prescriptive period provided in Section 331 of the Tax
Code and ordered the elimination thereof from the judgment of the Tax Court.
(ii) Exception
Sources of Tax Laws
Publication Requirement.
Case:
Tanada Vs Tuvera GR No. 63915, Dec 29, 1986 146 SCRA 446
We also hold that the publication must be made forthwith or at least as soon as possible, to give
effect to the law pursuant to the said Article 2. There is that possibility, of course, although not
suggested by the parties that a law could be rendered unenforceable by a mere refusal of the
executive, for whatever reason, to cause its publication as required. This is a matter, however, that
we do not need to examine at this time.

La Suerte Cigar and Cigarette Factory et al L-36130 Jan 17, 1985

2. ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCY; CIRCULAR ISSUED NEED NO
PUBLICATION; HAS FORCE AND EFFECT OF LAW. As admitted by counsel for petitioners,
the latter were each furnished with a copy of the Revenue Memorandum Circular in question and
the purpose of the law, that is to inform or notify those who may be affected, has been substantially
complied with. Since it was further admitted by petitioners that said Memorandum is but a
"Memorandum Circular for purposes of the internal administration of the BIR and not a regulation
within the contemplation of Sections 4 and 338 of the NIRC and Section 79(b) of the Revised
Administrative Code", said circular needs no publication in the Official Gazette as erroneously
argued by the petitioners. When an administrative agency renders an opinion by means of a circular
or Memorandum, it merely interprets a pre-existing law, and no publication is necessary for its
validity. Construction by an executive branch of government of a particular law although not
binding upon courts must be given weight as the construction come from the branch of the
government called upon to implement the law. The promulgation of Revenue Memorandum
Circular No, 30-67 being in accordance with the Revised Administrative Code, having been issued
by the Commissioner of Internal Revenue with the approval of the Secretary (now Minister) of
Finance for the implementation of the Tobacco Inspection Law, has therefore the force and effect of
law.
b) Tax exemption and exclusion
(i) General rule
(ii) Exception
c) Tax rules and regulations (definition and distinction)
1. General rule only
Case: Philippine Petroleum Corp Vs. Municipality of Pililla, Rizal GR No. 90776, June 3, 1991
ii.

Classifications of BIR Rulings

d) Penal provisions of tax laws

e) Non-retroactive application to taxpayers
Case: CIR Vs Burroughs Lts GR No. 66653, June 19, 1986\- 142 scra 324
2. ID.; RULES AND REGULATIONS; ANY REVOCATION, MODIFICATION OR REVERSAL
THEREOF; CANNOT BE GIVEN RETROACTIVE EFFECT; EXCEPTION; CASE AT BAR.
Petitioners aforesaid contention is without merit. What is applicable in the case at bar is still the
Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch
profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March
17, 1982 cannot be given retroactive effect in the light of Section 327 of the National Internal
Revenue Code which provides "Sec. 327. Non-retroactivity of ruling. Any revocation,
modification, or reversal of any of the rules and regulations promulgated in accordance with the
preceding Section or any of the rulings or circulars promulgated by the Commissioner shall not be
given retroactive application if the revocation, modification, or reversal will be prejudicial to the
taxpayer except in the following cases (a) where the taxpayer deliberately mistakes or omits
material facts from his return or in any document required of him by the Bureau of Internal
Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue mare
materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in
bad faith." (ABS CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152).
CIR Vs CA and Alhambra GR No. 117982, Feb 6, 1997
2. ID.; BUREAU OF INTERNAL REVENUE; COMMISSIONER; RULINGS, CIRCULARS,

RULES AND REGULATIONS PROMULGATED, WITHOUT RETROACTIVE APPLICATION.

Well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to so apply them would
be prejudicial to the taxpayers.
Doctrine of Implications
Case: City of Manila Vs Gomez L-37251, Aug 31, 1981
3. STATUTORY CONSTRUCTION; DOCTRINE OF IMPLICATION; DEFINITION. The
doctrine of implications means that "that which is plainly implied in the language of a statute is as
much a part of it as that which is expressed" (In re McCulloch Dick, 35 Phil. 41, 45, 50; 82 C.J.S.
632; 73 Am Jur 2nd 404).chanroblesvirt
1. Exceptions
i.1 implied
i.2 express
i.3 income tax
I. Scope and limitation of taxation
1. Inherent limitations
a) Public purpose (test?)
1. Santos & Co. Vs Municipality of Meycauayan 94 Phil 1047 (UNREPORTED?)
Suit could prosper even taxpayer had not paid
2. Gomez Vs Palomar L-23645. Oct 29, 1968 (supra)
b) Inherently legislative (non-delegability)
Exceptions:
1. President
2. Local taxing Power
Case:
Smith Bell & Co. inc Vs CIR L-28271 July 25, 1975
e amount of the tax specifically to be paid for each type of wine or imitation wine so
classified and described. The section clearly and indubitably discloses the legislative will,
leaving to the officers charged with implementation and execution thereof no more than the
administrative function of determining whether a particular kind of wine or imitation wine
falls in one class or another. In the performance of this function the internal revenue officers
are demonstratively guided by the sound, established practices and technology of wine
industry.
c) Territoriality / Situs of Taxation
Cases:
Manila gas VS Collector 62 Phil 895
4. ID.; ID.; DUE PROCESS OF LAW; SITUS. 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 limits it may tax persons, property,
income,
or
business.
5. ID.; ID.; ID.; ID.; 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

situs

therein.

6. ID.; ID.; ID.; ID. 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 domicile and
even though he is not a citizen or resident of the state which imposes the tax. But debts owing by
corporations are obligations of the debtors, and only possess value in the hands of the creditors.
CIR Vs BOAC 149 SCRA 395
(i) Situs of taxation
(a) Meaning
(b) Situs of income tax
(1) From sources within the Philippines
(2) From sources without the Philippines
(3) Income partly within and partly without the Philippines
(c) Situs of property taxes
(1) Taxes on real property
(2) Taxes on personal property
(d) Situs of excise tax
(1) Estate tax
(2) Donors tax
(e) Situs of business tax
(1) Sale of real property
(2) Sale of personal property
(3) Value-Added Tax (VAT)
Double taxation
Mobilia Sequuntur Personam Wells Fargo Bank & Union trust Co. Vs Collector of Internal
Revenue 70 Phil 325
d) Exemption of Government from Taxes
Case: Bisaya Land Transportation Co. Inv Vs CIR 105 Phil 1338
e) International Comity (Sec 159, Local Government Code)
Case:
Mitsubishi Corp Vs CIR CTA Case 6139, Dec 17, 2003
Origination Rule definition

(i) General rule

(ii) Exceptions
(a) local governments
(b) Delegation to the President
(c) Delegation to administrative agencies
2. Constitutional limitations
a) Provisions directly affecting taxation
1. Due Process Clause Sec 1 Art III
1. Tolentino Vs Secretary of Finance GR No. 115455, Aug 25, 1994
There is, however, no justification for passing upon the claims that the law also violates the rule that
taxation must be progressive and that it denies petitioners' right to due process and that equal
protection of the laws. The reason for this different treatment has been cogently stated by an
eminent authority on constitutional law thus: "[W]hen freedom of the mind is imperiled by law, it is
freedom that commands a momentum of respect; when property is imperiled it is the lawmakers'
judgment that commands respect. This dual standard may not precisely reverse the presumption of
constitutionality in civil liberties cases, but obviously it does set up a hierarchy of values within the
due process clause." 41
Indeed, the absence of threat of immediate harm makes the need for judicial intervention less
evident and underscores the essential nature of petitioners' attack on the law on the grounds of
regressivity, denial of due process and equal protection and impairment of contracts as a mere
academic discussion of the merits of the law. For the fact is that there have even been no notices of
assessments issued to petitioners and no determinations at the administrative levels of their claims
so as to illuminate the actual operation of the law and enable us to reach sound judgment regarding
so fundamental questions as those raised in these suits.(TOLENTINO VS SEC of FINANCE)
2. Villegas Vs Hiu CHiong Tsai Pao Ho L-29646, Nov 10, 1978
The ordinance in question violates the due process of law and equal protection rule of the
Constitution.
3. Requiring a person before he can be employed to get a permit from the City Mayor of
Manila who may withhold or refuse it at will is tantamount to denying him the basic right of
the people in the Philippines to engage in a means of livelihood. While it is true that the
Philippines as a State is not obliged to admit aliens within its territory, once an alien is
admitted, he cannot be deprived of life without due process of law. This guarantee includes
the means of livelihood. The shelter of protection under the due process and equal protection
clause is given to all persons, both aliens and citizens. 13
2. Equal Protection Clause Sec 1 Art III
1. Manila Times Publishing Co., Inc Vs Commissioner, CTA Case No. 2263, Dec 17, 1973
-fiscal vs calendar year
Finally it is claimed by respondent that the position advocated by petitione would result in
inequality, which is violative of uniformity of taxation because corporations reporting their income
in calendar year basis would pay the increased rates of tax while corporations
reporting their income on fiscal year basis would be paying said tax on income earned beginning
July 1, 1960, if their fiscal year began on July 1, 1968 or thereafere.
We are unable to subscribe to this argument because the term uniformity as applied to constitutional
requirement that all taxes shall be uniform, means that all property or subkects to tsame class shall
be taxed alike.Congress, without violating said constitutional requirements, can make distinctions

and classifications and distinction made by law in questions between calendar year taxpayers and
fiscal year taxpayers is a valid and reasonable exercise of such power. Corporations on a fiscal year
basis belongs to one class
and corporations on calendar year basis belongs to another.
Ruling: Reversed ruling
2. Shell Co of PI Vs Vano 94 Phil 387-installation manager tax
INSTALLATION MANAGER NOT EXEMPT FROM TAX; ORDINANCE IMPOSING TAX ON
THE EXERCISE OF PRIVILEGE OF INSTALLATION MANAGER, NOT DISCRIMINATORY
AND HOSTILE. Even if all installation manager is a salaried employee, still his employment is
an occupation, and one occupation or line of business does not become exempt by being conducted
with some other occupation or business for which taxes have been paid and the occupation tax must
be paid by each individual engaged in a calling subject thereto. The mere fact that there is no other
person in the locality who exercises the privilege of installation manager does not make the
ordinance discriminatory and hostile inasmuch as it is and will be applicable to any person or firm
who exercises such calling or occupation named or designated as "installation manager."crala
3. Punsalan Vs Municipal Board of the City of Manila 95 Phil 46 (1954)- professional tax
The legislature may, in its discretion, select what occupation shall be taxed, and in the exercise of
that discretion it may tax all, or it may select for taxation certain classes and leave the other
untaxed. Manila, as the seat of the National Government and with a population and volume of trade
many times that of any other Philippine city or municipality, offers a more lucrative field for the
practice of the professions, so that it is but fair that the professionals in Manila be made to pay a
higher occupation tax than their brethen in the provinces. The ordinance imposes the tax upon every
person exercising or pursuing any of the occupation named in the ordinance, and does not make
any distinction between professional having offices in Manila and outsiders who practice their
profession therein. What constitutes exercise or pursuit of a profession in the city is a matter of
judicial determination.
4. Pepsi Cola Bottling CO of the Philippines, Inc Vs City of Butuan-bottles
SAID ORDINANCE VIOLATES THE RULE ON UNIFORMITY OF TAXATION. Even if
Ordinance 110 of the City of Butuan were regarded as a tax on the sale of the beverages, it would
still be invalid, as discriminatory, and hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
regardless of the volume of their sales, and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the City of Butuan, would be exempt
from
the
disputed
tax.
3. ID.; ID.; ID.; CONDITIONS FOR VALID CLASSIFICATION NOT MET BY QUESTIONED
ORDINANCE. The uniformity essential to the valid exercise of the power of taxation does not
require identity or equality under all circumstances, or negate the authority to classify the objects of
taxation. The classification made in the exercise of this authority, to be valid, must, however, be
reasonable and this requirement is not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the classification applies equally to
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 dealers other than agents are
consignees of producers or merchants established outside the City of Butuan should be exempt from
the tax.
SAID ORDINANCE VIOLATES THE RULE ON UNIFORMITY OF TAXATION. Even if
Ordinance 110 of the City of Butuan were regarded as a tax on the sale of the beverages, it would
still be invalid, as discriminatory, and hence, violative of the uniformity required by the

Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
regardless of the volume of their sales, and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the City of Butuan, would be exempt
from the disputed tax.
5. (1) it is based upon substantial distinctions which make real differences; (2) these are
germane to the purpose of the legislation or ordinance; (3) the classification applies, not
only to present conditions, but, also, to future conditions substantially identical to those of
the present; and (4) the classification applies equally to all those who belong to the same
class. T
6. Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the
nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and
confiscatory; (4) it is highly unjust and discriminatory; and (5) Section 2 of Republic Act
No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation of
legislative powers.
7. Ormoc Sugar Central Co. Inc Vs Treasurer of Ormoc City et al L-23794, Feb 17,1968
22 SCRA 603 (1968)
A perusal of the requisites instantly shows that the questioned ordinance does not meet them, for it
taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none
other. At the time of the taxing ordinances enactment, Ormoc Sugar Company, Inc., it is true, was
the only sugar central in the city of Ormoc. Still, the classification, to be reasonable, should be in
terms applicable to future conditions as well. The taxing ordinance should not be singular and
exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff,
from the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be
subject to the tax because the ordinance expressly points only to Ormoc Sugar Company, Inc. as the
entity
to
be
levied
upon.
Appellant, however, is not entitled to interest on the refund because the taxes were not arbitrarily
collected (Collector of Internal Revenue v. Binalbagan).6 At the time of collection, the ordinance
provided a sufficient basis to preclude arbitrariness, the same being then presumed constitutional
until declared otherwise.
8. Most Favored nation Clause CIR Vs SC Johnson & Son, Inc. June 25, 1999
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.
3. Freedom of Speech and of the press Sec 4, Art III
1. Tolentino Case
2. Philippine Airlines, Inc Vs Sec of Finance GR 115852 Aug 25, 1994 citing Murdock Vs
Pennsylvania
This brings us to the question whether the registration provision of the law, 37 although of general
applicability, nonetheless is invalid when applied to the press because it lays a prior restraint on its
essential freedom. The case ofAmerican Bible Society v. City of Manila 38 is cited by both the PBS
and the PPI in support of their contention that the law imposes censorship. There, this Court held
that an ordinance of the City of Manila, which imposed a license fee on those engaged in the
business of general merchandise, could not be applied to the appellant's sale of bibles and other

religious literature. This Court relied on Murdock v. Pennsylvania, 39 in which it was held that, as a
license fee is fixed in amount and unrelated to the receipts of the taxpayer, the license fee, when
applied to a religious sect, was actually being imposed as a condition for the exercise of the sect's
right under the Constitution. For that reason, it was held, the license fee "restrains in advance those
constitutional liberties of press and religion and inevitably tends to suppress their exercise." 40
But, in this case, the fee in 107, although a fixed amount (P1,000), is not imposed for the exercise
of a privilege but only for the purpose of defraying part of the cost of registration. The registration
requirement is a central feature of the VAT system. It is designed to provide a record of tax credits
because any person who is subject to the payment of the VAT pays an input tax, even as he collects
an output tax on sales made or services rendered. The registration fee is thus a mere administrative
fee, one not imposed on the exercise of a privilege, much less a constitutional right.
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that it
offends the free speech, press and freedom of religion guarantees of the Constitution to be without
merit. For the same reasons, we find the claim of the Philippine Educational Publishers Association
(PEPA) in G.R. No. 115931 that the increase in the price of books and other educational materials
as a result of the VAT would violate the constitutional mandate to the government to give priority to
education, science and technology (Art. II, 17) to be untenable.
4. Non- infringement of religious freedom and worship Sec 5, Art III
1. American Bible Society Vs City of Manila 101 Phil 386(1957)tax on bible dissemination
The constitutional guaranty of the free exercise and enjoyment of religious profession and worship
carries with it the right to disseminate religious information. Any restraint of such right can only be
justified like other restraints of freedom of expression on the grounds that there is a clear and
present danger of any substantive evil which the State has the right to prevent." (Taada and
Fernando on the Constitution of the Philippines, Vol. I, 4th ed., p. 297). In the case at bar the license
fee herein involved is imposed upon appellant for its distribution and sale of bibles and other
religious
literature.
"In the case of Murdock v. Pennsylvania, it was held that an ordinance requiring that a license be
obtained before a person could canvass or solicit orders for goods, paintings, pictures, wares or
merchandise cannot be made to apply to members of Jehovahs Witnesses who went about from
door to door distributing literature and soliciting people to purchase certain religious books and
pamphlets, all published by the Watch Tower Bible & Tract Society. The price of the books was
twenty-five cents each, the price of the pamphlets five cents each.
5. Non-impairment of contracts (Section 10, Art III
1. Cagayan Electric Power & Light Co. Inc VS CIR GR NO. 60126, Sept 25, 1985 138
SCRA 629 (1985).
We hold that Congress could impair petitioner's legislative franchise by making it liable for income
tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of
its franchise.
The Constitution provides that a franchise is subject to amendment, alteration or repeal by the
Congress when the public interest so requires (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV,
1973 Constitution),
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the
provisions of the Constitution and to the terms and conditions established in Act No. 3636 whose
section 12 provides that the franchise is subject to amendment, alteration or repeal by Congress.
2. Manila Railroad Co. Vs Rafferty 40 Phil 224-coal tax of railroad
Said Act No. 1510 is a charter granted to the plaintiff company by the Government of the Philippine
Islands. It is in the nature of a private contract. It is not a law constituting a part of the machinery of
the general government. It was adopted after careful consideration of the private rights of the
plaintiff in relation with the resultant benefits to the State. It stands upon a different footing from
the general law. When a charter is granted, it constitutes a certain property right. Charters or special
laws, such as Act No. 1510, stand upon a different footing from general laws. Once granted, a

charter becomes a private contract and cannot be altered nor amended except by consent of all
concerned, unless that right is expressly reserved.
6. Non-imprisonment for debt or non payment of poll tax (Sec 20, Art III)
1. Ganaway VS Quintin 42 Phil 805 (1922)
CONSTITUTIONAL LAW; IMPRISONMENT FOR DEBT. BY virtue of the prohibition in the
Philippine Bill reproduced in the Jones Law, "that no person shall be imprisoned for debt," debtors
cannot be committed to prison for liabilities arising from actions ex contractu.
7. Origination Rule Sec 24, Art VI
1. Tolentino Case
This argument will not bear analysis. To begin with, it is not the law but the revenue bill
which is required by the Constitution to "originate exclusively" in the House of Representatives. It
is important to emphasize this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. The possibility of a third
version by the conference committee will be discussed later. At this point, what is important to note
is that, as a result of the Senate action, a distinct bill may be produced. To insist that a revenue
statute and not only the bill which initiated the legislative process culminating in the enactment
of the law must substantially be the same as the House bill would be to deny the Senate's power
not only to "concur with amendments" but also to "propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House superior
to the Senate.
The contention that the constitutional design is to limit the Senate's power in respect of revenue
bills in order to compensate for the grant to the Senate of the treaty-ratifying power 3 and thereby
equalize its powers and those of the House overlooks the fact that the powers being compared are
different. We are dealing here with the legislative power which under the Constitution is vested not
in any particular chamber but in the Congress of the Philippines, consisting of "a Senate and a
House of Representatives." 4 The exercise of the treaty-ratifying power is not the exercise of
legislative power. It is the exercise of a check on the executive power. There is, therefore, no
justification for comparing the legislative powers of the House and of the Senate on the basis of the
possession of such nonlegislative power by the Senate. The possession of a similar power by the
U.S. Senate 5 has never been thought of as giving it more legislative powers than the House of
Representatives.
8. Uniformity, equitability and progressivity of taxation Sec 28 (1) Art VI
1. Tan Vs Del Rosario Jr. GR No 109289, Oct 3, 1994 237 SCRA 324 (1994)
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that
taxation "shall be uniform and equitable" in that the law would now attempt to tax single
proprietorships and professionals differently from the manner it imposes the tax on corporations and
partnerships. The contention clearly forgets, however, that such a system of income taxation has
long been the prevailing rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and
liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend
classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2)
the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being
equal, to both present and future conditions, and (4) the classification applies equally well to all
those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR,
197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is the legislative intent to
increasingly shift the income tax system towards the schedular approach 2 in the income taxation of
individual taxpayers and to maintain, by and large, the present global treatment 3 on taxable
corporations. We certainly do not view this classification to be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process,
what he believes to be an imbalance between the tax liabilities of those covered by the amendatory

law and those who are not. With the legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court
cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative
judgment. Of course, where a tax measure becomes so unconscionable and unjust as to amount to
confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude, the
power to tax cannot override constitutional proscriptions. This stage, however, has not been
demonstrated to have been reached within any appreciable distance in this controversy before us.
2. Eastern Theatrical Co. Inc Vs Alfonso 83 Phil 852 (1949)
EQUALITY AND UNIFORMITY OF TAXATION; VALIDITY OF ORDINANCE NO. 2958.
Appellants point out to the fact that the ordinance in question does not tax "may more kinds of
amusements" than those therein specified, such as "race tracks, cockpits, cabarets, concerts halls,
circuses, and other places of amusement." The argument has absolutely no merit. 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
amusements are taxed, is no argument at all against the equality and uniformity of the tax
imposition. 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; and the appellants cannot point out
what places of amusement taxed by the ordinance do not constitute a class by themselves and which
can be confused with those not included in the ordinance.
9. Limitations on the congressional power to delegate to the President the authority to fix tariff
rates, import and export quotas Sec 28 (2) Art VI -Flexible tariff clause
1. Garcia Vs Executive Secretary GR No 101273, July 3 1992
of appropriation, revenue and tariff bills, like all other bills is, of course, within the province of the
Legislative rather than the Executive Department. It does not follow, however, that therefore
Executive Orders Nos. 475 and 478, assuming they may be characterized as revenue measures, are
prohibited to the President, that they must be enacted instead by the Congress of the Philippines.
Section 28(2) of Article VI of the Constitution provides as follows:jgc:chanrobles.com.ph
"(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to
such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonage and
wharfage dues, and other duties or imposts within the framework of the national development
program
of
the
Government."
(Emphasis
supplied)
There is thus explicit constitutional permission 1 to Congress to authorize the President "subject to
such limitations and restrictions as [Congress] may impose" to fix "within specific limits" "tariff
rates . . . and other duties or imposts . . . ."cralaw virtua1aw library
The relevant congressional statute is the Tariff and Customs Code of the Philippines, and Sections
104 and 401
10. Tax exemption of properties actually, directly and exclusively used for religious, charitable
and educational purposes Sec 28 (3) Art VI
1. CIR Vs Court of Appeals and ADMU GR No. 115349, April 18, 1997 271 SCRA 605
3. ID.; ID.; ID.; EXEMPTION OF GIFTS OR DONATIONS TO AN EDUCATIONAL
INSTITUTION; APPLICATION IN CASE AT BAR. The Court of Tax Appeals accurately and
correctly declared that the "funds received by Ateneo de Manila University are technically not a fee.
They may however fall as gifts or donations which are tax-exempt" as shown by private
respondents compliance with the requirement of Section 123 of the National Internal Revenue
Code providing for the exemption of such gifts to an educational institution. It is, clear that the
funds received by Ateneos Institute of Philippine Culture are not given in the concept of a fee or
price in exchange for the performance of a service or delivery of an object. Rather, the amounts are

in the nature of an endowment or donation given by IPCs benefactors solely for the purpose of
sponsoring or funding the research with no strings attached. As found by the two courts below, such
sponsorships are subject to IPCs terms and conditions. No proprietary or commercial research is
done, and IPC retains the ownership of the results of the research, including the absolute right to
publish the same. The copyrights over the results of the research are owned by Ateneo and,
consequently, no portion thereof may be reproduced without its permission. The amount., given to
IPC, therefore. may not be deemed, it bears stressing. as fees or gross receipts that can be subjected
to the three percent contractors tax.
2. Province of Abra Vs Hernando L-49336, Aug 31, 1981
2. ID.; ID.; ID.; ID.; TAX EXEMPTIONS, STRICTLY CONSTRUED. There must be proof 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,
L-20812, September 22, 1967, "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
jurs." chanroblesvirtuallawlibrary
3. Abra Valley College Inc Vs Aquino L-39086, June 15 1988-162 SCRA 106 (1988)
It must be stressed however, that while this Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used for educational purposes" as provided for in Article
VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always
been made that exemption extends to facilities which are incidental to and reasonably necessary for
the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for
commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of
the second floor of the main building in the case at bar for residential purposes of the Director and
his family, may find justification under the concept of incidental use, which is complimentary to the
main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing
Corporation cannot by any stretch of the imagination be considered incidental to the purpose of
education.
However, since only a portion is used for purposes of commerce, it is only fair that half of the
assessed tax be returned to the school involved.
PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby
AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner.
4. Lung Center of the Philippines Vs Quezon City GR No. 144104- 433 SCRA 119 (2004)land by hospital used for private person
The test of a charity and a charitable organization are in law the same. The test whether an
enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as
charitable or whether it is maintained for gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the President of thePhilippines with
the Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and
benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary
diseases in the Philippines.
As a general principle, a charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether out-patient, or confined
in the hospital, or receives subsidies from the government, so long as the money received is devoted
or used altogether to the charitable object which it is intended to achieve; and no money inures to
the private benefit of the persons managing or operating the institution.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that
those portions of its real property that are leased to private entities are not exempt from real
property taxes as these are not actually, directly and exclusively used for charitable purposes.

he 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:
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, nonprofit
cemeteries,
and
all
lands,
buildings,
and
improvements, actually, directly and exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.[32]
The tax exemption under this constitutional provision covers property taxes only.[33] As Chief
Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission,
explained: . . . what is exempted is not the institution itself . . .; those exempted from real estate
taxes are lands, buildings and improvements actually, directly and exclusively used for religious,
charitable or educational purposes.[
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable
institution;
and
(b)
its
real
properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. Exclusive is
defined as possessed and enjoyed to the exclusion of others; debarred from participation or
enjoyment; and exclusively is defined, in a manner to exclude; as enjoying a privilege exclusively.
[40] If real property is used for one or more commercial purposes, it is not exclusively used for the
exempted purposes but is subject to taxation.[41] The words dominant use or principal use cannot
be substituted for the words used exclusively without doing violence to the Constitutions and the
law.[42] Solely is synonymous with exclusively.[43]
What is meant by actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.[44]
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually,
directly and exclusively used for charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them, whether paying or nonpaying, other portions thereof are being leased to private individuals for their clinics and a
canteen. Further, a portion of the land is being leased to a private individual for her business
enterprise under the business name Elliptical Orchids and Garden Center. Indeed, the petitioners
evidence shows that it collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from
the said lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of
the hospital leased to private individuals are not exempt from such taxes.[45] On the other hand, the
portions of the land occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real property taxes.
11. Voting requirement in connection with the legislative grant of tax exemption Sec 28 (4) Art
vi
12. Non-impairment of the jurisdiction of the Supreme Court in tax cases (Sec 2 and 5 Art VIII
12. Exemption from taxes of the revenues and assets of educational institutions, including
grants, endowments, donations and contributions Sec 4(3) and (4) Art XIV
1. CIR Vs Court of Appeals and YMCA GR 124043 Oct 14, 1998 -net income not exempt
Is the rental income of the YMCA from its real estate subject to tax? At the outset, we set forth the
relevant provision of the NIRC:
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very
wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of
exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject

to the imposed by the same Code. Because the last paragraph of said section unequivocally subjects
to tax the rent income f the YMCA from its rental property,[20] the Court is duty-bound to abide
strictly by its literal meaning and to refrain from resorting to any convoluted attempt at
construction.
14. Grant of power to the local government units to create its own sources of revenue
14.
Provisions with have bearing on taxation:
1. Constitutional requirement on the subject and title of bills (Sec 26(1) Art Vi
2. Power of the President to veto any particular item or items in an appropriation, revenue or
tariff bill Sec 27 (2) Art VI
Item Veto Vs Pocket Veto
c. Provision which requires that no money shall be paid out of the Treasury except in
pursuance of an appropriation made by law Sec 29 (1) Art VI
c. Provision against the appropriation of public money or property for the benefit of any
church, sect or system of religion, etc Sec 29 (2) Art VI
c. Provision which mandates that money collected on a tax levied for a public purpose shall be
paid out for such purpose only Sec 29 (3) Art VI
c. Provision regarding allotments to local governments Sec 6 Art X
J. Stages or Aspects of taxation
1. Levy
2. Assessment and collection
3. Payment
4. Refund
Doctrine of Equitable Recoupment definition
Legal Compensation
General Rule
Exception:
1. Domingo Vs Garlitos 8 SCRA 443(1963)-debt and compensation
3. ID.; ID.; COMPENSATION BETWEEN TAXES AND CLAIMS OF INTESTATE
RECOGNIZED AND APPROPRIATED FOR BY LAW. The fact that the court having
jurisdiction of the estate had found that the claim of the estate against the Government has been
appropriated for the purpose by a corresponding law (Rep Act No. 2700) shows that both the claim
of the Government for inheritance taxes and the claim of the intestate for services rendered have
already become overdue and demandable as well as fully liquidated. Compensation, therefore, takes
place by operation of law, in accordance with the Provisions of Articles 1279 and 1290 of the Civil
Code, and both debts are extinguished to the concurrent amount.
2. CIR Vs Esso Standard Eastern Iinc 172 SCRA 364-1989-overpayment
OVERPAYMENT THEREOF BY MISTAKE; RIGHT OF PAYOR TO REIMBURSEMENT
ARISES FROM THE MOMENT PAYMENT IS MADE AND NOT FROM THE TIME THAT THE
PAYEE ADMITS THE OBLIGATION TO REIMBURSE. As early as July 15, 1960, the
Government already had in its hands the sum of P221,033.00 representing excess income tax
payment. Having been paid and received by mistake, that sum unquestionably belonged to ESSO,
and the Government had the obligation to return it to ESSO. That acknowledgment of the erroneous
payment came some four (4) years afterwards in nowise negates or detracts from its actuality. The

obligation to return money mistakenly paid arises from the moment that payment is made, and not
from the time that the payee admits the obligation to reimburse. The obligation of the payee to
reimburse an amount paid to him results from the mistake, not from the payees confession of the
mistake or recognition of the obligation to reimburse. In other words, since the amount of
P221,033.00 belonging to ESSO was already in the hands of the Government as of July, 1960,
although the latter hand not right whatever to the amount and indeed was bound to return it to
ESSO, it was neither legally nor logically possible for ESSO thereafter to be considered a debtor of
the Government in that amount of P221,033.00; and whatever other obligation ESSO might
subsequently incur in favor of the Government would have to be reduced by that sum, in respect of
which no interest could be charged.
K. Definition, nature, and characteristics, importance, liability of taxes
Characteristics of Taxes:
Cases:
1. De Borja Vs Gella, L-18330, July 31, 1963
It is clear from the above legal provisions that compensation cannot be effected with regard to the
two obligations in question. In the first place, the debtor insofar as the certificates of indebtedness
are concerned is the Republic of the Philippines, whereas the real estate taxes owed by appellee are
due to the City of Manila and Pasay City, each one of which having a distinct and separate
personality from our Republic. With regard to the Certificates, the creditor is the appellee while the
debtor is the Republic of the Philippines. And with regard to the taxes, the creditors are the City of
Manila and Pasay City while the debtor is the appellee. It appears, therefore, that each one of the
obligors concerning the two obligations is not at the same time the principal creditor of the other. It
cannot also be said for certain that certificates are already due. Although on their faces the
certificates issued to appellee state that they are redeemable on June 18, 1958, yet the law does not
say that they are redeemable from its approval on June 18, 1958 but "within ten years from the date
of issuance" of the certificates. There is no certainty, therefore, when the certificate are really
redeemable with in the meaning of the law. Since the requisites for the accomplishment of legal
compensation cannot be fulfilled, the latter cannot take place with regard to the two obligations as
found by the court a quo.
begin with, it cannot be contended that appellants are in duty bound to accept the negotiable
certificates of indebtedness held by appellee in payment of his real estate taxes for the simple reason
that they were not obligations subsisting at the time of the approval of Republic Act No. 304 which
took effect on June 18, 1948. It should be noted that the real estate taxes in question have reference
to those due in 1958 and subsequent years. The law is explicit that in order that a certificate may be
used in payment of an obligation the same must be subsisting at the time of its approval even if we
hold that a tax partakes of this character
2. Vera vs Fernandez L-31364, March 30, 1979
REASON FOR EXCEPTION FROM APPLICABILITY OF STATUTE OF NON-CLAIMS The
reason for the more liberal treatment of claims for taxes against a decedents estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the
livelihood of the Government and their prompt and certain availability are imperious need. Upon
taxation depends the Government ability to serve the people for whose benefit taxes are collected.
To safeguard such interest, neglect or omission of government officials entrusted with the collection
of taxes should not be allowed to bring harm or detriment to the people in the same manner as
private persons may be made to suffer individually on account of his own negligence, the
presumption being that they take good care of their personal affairs. This should not hold true to
government officials with respect to matters not of their own personal concern. This is the
philosophy behind the Governments exception, as a general rule, from the operation of the
principle of estoppel.

3. Philippine Airlines Inc Vs Sec of Finance GR 115852, Oct 30, 1995 249 SCRA 635
9. ID.; ID.; ID.; VAT IS AN INDIRECT AND REGRESSIVE TAX WHICH IS NOT ACTUALLY
PROHIBITED BY THE CONSTITUTION. 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." Indeed, the mandate to Congress is not to prescribe, but to
evolve, a progressive tax system. Sales taxes, are form of indirect taxes, and they 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) Transactions involving basic and essential goods and services are exempted from the VAT.
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.
4. Republic Vs Patanao, L-22356, July 21, 1967- 20 SCRA 712
ACQUITTAL OF TAXPAYER IN CRIMINAL CASE DOES NOT EXONERATE HIM FROM
LIABILITY TO PAY TAXES. Since the civil liability is not deemed included in the criminal
action, acquittal of the taxpayer in the criminal proceeding does not necessarily entail exoneration
from his liability to pay the taxes. The acquittal in a criminal case cannot operate to discharge
defendant from the duty of paying the taxes which the law requires to be paid, since that duty is
imposed by statute prior to and independently of any attempts by the taxpayer to evade payment.
Said obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is
it a mere civil liability arising from a crime that could be wiped out by the judicial declaration of
non-existence of the criminal acts charged. (Castro v. The Collector of Internal Revenue, 62 Off.
Gaz., [12], 1935).
4. ID.; PRESCRIPTION OF ACTION; CASE AT BAR. Appellant contends that the applicable
law in the case at bar is Section 332(a) of the Tax Code under which a proceeding in court for the
collection of the tax may be commenced without assessment at any time within 10 years from the
discovery of the falsity, fraud or omission. Held: The complaint filed on December 7, 1962, alleges
that the fraud in the appellees income tax return for 1951, was discovered on February 14, 1958.
By filing a motion to dismiss, appellee hypothetically admitted this allegation as all the other
averments in the complaint were so admitted. Hence Section 332(a) and not Section 331 of the
National Internal Revenue Code should determine whether or not the cause of action of deficiency
income tax and residence tax for 1951 has prescribed. Applying the provisions of Section 332(a),
appellants action instituted in court on December 7, 1962 has not prescribed.
Importance of Taxes:
1. Philippine Bank of Communications Vs CIR et al Gr No. 119024, January 28, 1999 302
SCRA 241
GENERAL PRINCIPLES; BASIS AND PURPOSE; GENERATE FUNDS FOR THE STATE TO
FINANCE THE NEEDS OF THE CITIZENRY AND ADVANCE THE COMMON WEAL. 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. 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.

Personal Liability:
1. Sunio et al Vs NLRC GR No. 57767, January 31,1984-127 SCRA 390
CORPORATION LAW; CORPORATE ACTS; LIABILITY OF OFFICERS ACTING WITHIN
SCOPE OF AUTHORITY; CASE AT BAR. Petitioner Sunio was impleaded in the Complaint in
his capacity as General Manager of petitioner corporation. There appears to be no evidence on
record that he acted maliciously or in bad faith in terminating the services of private respondents.
His act, therefore, was within the scope of his authority and was a corporate act. It is basic that a
corporation is invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be related.4 Mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.
Petitioner Sunio, therefore, should not have been made personally answerable for the payment of
private respondents back salaries.
2. Tan Tiong Bio Vs CIR L-15778, April 23m 1962- 4 SCRA 986- death of Corp
3. ID.; ID.; TAXPAYERS FAILURE TO FILE RETURNS; WHAT PERIOD TO BE RECKONED;
ASSESSMENT. Where a taxpayer fails to file its returns as required by Section 183 of the Tax
Code, the period to be reckoned with is that embodied in Section 332 of the same Code which
provides that in case of failure to file the return the tax may be assessed within 10 years after
discovery of the falsity, fraud or omission of the payment of the proper tax.
4. ID.; CORPORATION; ASSETS OF DISSOLVED CORPORATION. The creditor of a
dissolved corporation may follow its assets once they passed into the hands of the stockholders.
5. ID.; ID.; EFFECT OF DISSOLUTION ON TAX DUE; RIGHT OF GOVERNMENT TO
COLLECT. That the hands of the government cannot, collects taxes from a defunct corporation,
it loses thereby none of its rights to assess taxes which had been due from the corporation, and to
collect them from persons who by reason of transaction with the corporation hold property against
which the tax can be enforced and that the legal death of the corporation no more prevents such
action than would the physical death of an individual prevent the government from assessing taxes
against him and collecting them from his administrator who holds the property which the decedent
had formerly possessed.
d (3) the Central Syndicate having already been dissolved because of the expiration of its corporate
existence, whether the sales tax in question can be enforced against its successors-in-interest who
are the present petitioners. -YES
L. Requisites of a valid tax law
Definition of Revenue Regulation
Definition of Revenue Bills
Requisites of a valid Revenue Regulation
M. Tax as distinguished from other forms of exactions
1. Tariff
2. Toll
3. License fee
4. Special assessment
5. Debt
6. Compromise
7. License Fee
8. Margin Fee
9. Subsidy
10. Customs duties and fees

11. Revenue
12. Tribute
13. Impost
Cases:
1. NDC Vs CIR GR 53961, June 30, 1987
In suggesting that the NDC is merely an administrator of the funds of the Republic of the
Philippines, the petitioner closes its eyes to the nature of this entity as a corporation. As such, it is
governed in its proprietary activities not only by its charter but also by the Corporation Code and
other pertinent laws.
The petitioner also forgets that it is not the NDC that is being taxed. The tax was due on the
interests earned by the Japanese shipbuilders. It was the income of these companies and not the
Republic of the Philippines that was subject to the tax the NDC did not withhold.
In effect, therefore, the imposition of the deficiency taxes on the NDC is a penalty for its failure to
withhold the same from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the
Tax Code, thus:
2. Victorias Milling Co. Inc vs Municipality of Victorias, Negros Occidental L-21183, Sept
27, 1986-25 SCRA 192 (1968) Supra
3. Philippine Airlines Vs Edu L-41383, Aug 15 1988
3. ID.; ID.; NATURE AND PURPOSE. We rule that motor vehicle registration fees as at present
exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for
additional revenues of government even if one fifth or less of the amount collected is set aside for
the
operating
expenses
of
the
agency
administering
the
program.
4. ID.; ID.; UNDER THE AMENDED FRANCHISE, PHILIPPINE AIRLINES IS NOT
EXEMPTED FROM THE PAYMENT OF ANY TAX, FEE, OR OTHER CHARGES ON THE
REGISTRATION AND LICENSING OF MOTOR VEHICLES. The claim for refund is made
for payments given in 1971. It is not clear from the records as to what payments were made in
succeeding 1968 and April 9, 1979, were correctly imposed because the tax exemption in the
franchise of PAL was repealed during that period. However, an amended franchise was given to
PAL in 1979. PALs current franchise is clear and specific. It has removed the ambiguity found in
the earlier law. Under Section 13 of Presidential Decree No. 1590, PAL is not exempt from the
payment of any tax, fee, or other charge on the registration and licensing of motor vehicles. Such
payments are already included in the basic tax or franchise tax provided in Subsections (a) and (b)
of Section 13, P.D. 1590 and may no longer be exacted. Hence, the prayer for refund of registration
fees paid in 1991 is DENIED.
4. Physical Therapy Organization of the Philippines, Inc Vs Municipal Board of City of
Manila 101 Phil 1142-MASSEURS tax
3. ID; AMOUNT OF LICENSE FEES; USEFUL OCCUPATION; INIMICAL OCCUPATION.
The amount of the fee or charge is properly considered in determining whether it is a tax or an
exercise of the police power. The amount may be so large as to itself show that the purpose was to
raise revenue and not to regulate, but in regard to this matter there is a marked distinction between
license fees imposed upon useful and beneficial occupations which the sovereign wishes to regulate
but not restrict, and those which are inimical and dangerous to the public, health, morals or safety.
In the latter case the fee maybe very large without necessarily being a tax (Cooley on taxation Vol.
IV
pp.
351617;Italics
supplied.)
4. ID; ID; PRACTICE OF HYGIENIC AND AESTHETIC MASSAGE INIMICAL
OCCUPATION. The practice of hygienic and aesthetic massage is not a useful and beneficial
occupation which will promote and is conducive to public morals and the amount of P100 permit
fee imposed for its regulation is not considered as a tax for revenue purposes.
5. Esso Standard Eastern Inc Vs CIR L-28508-09, July 7, 1989-margin fee
AN EXERCISE OF POLICE POWER. The margin fee under Republic Act No. 2009 was

imposed by the State in the exercise of its police power and not the power of taxation.
4. ID.; ID.; NOT A DEDUCTIBLE EXPENSE; REASON. The fees were paid for the remittance
by ESSO as part of the profits to the head office in the United States. Such remittance was an
expenditure necessary and proper for the conduct of its corporate affairs. As stated in the Lopez
case, the margin fees are not expenses in connection with the production or earning of petitioners
incomes in the Philippines. They were expenses incurred in the disposition of said incomes;
expenses for the remittance of funds after they have already been earned by petitioners branch in
the Philippines for the disposal of its Head Office in New York which is already another distinct and
separate
income
taxpayer.
5. ID.; NATIONAL INTERNAL REVENUE CODE; INCOME TAX ON BUSINESS;
CONDITIONS FOR DEDUCTIBILITY OF EXPENSE. We come, then, to the statutory test of
deductibility where it is axiomatic that to be deductible as a business expense, three conditions are
imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred
within the taxable year, and (3) it must be paid or incurred in carrying on a trade or business. In
addition, not only must the taxpayer meet the business test, he must substantially prove by evidence
or records the deductions claimed under the law, otherwise, the same will be disallowed. The mere
allegation of the taxpayer that an item of expense is ordinary and necessary does not justify its
deduction. (Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal
Revenue, 102 SCRA 246)
6. Republic Vs Mambulao Lumber Company L-17725, February 28, 1962-reforestation
charge
UBLIC FORESTS; REFORESTATION CHARGES; NATURE OF FUND COLLECTED.
Under Section 1 of Republic Act No. 115 the amount collected as reforestation charges from a
timber licensee or concessionaire, reforestation charges from a timber licensee or concessionaire,
shall constitute a fund to be known as the Reforestation Fund, and the same shall be expanded by
the Director of Forestry, with the approval of the Secretary of Agriculture and Natural Resources for
the reforestation or afforestation, among others, of denuded areas which, upon investigation, are
found
to
be
needing
reforestation
or
afforestation.
2. ID.; ID.; ID.; The amount paid by a licensee as reforestation or afforestation charges, is in the
nature of a tax which forms part of the Reforestation Fund, payable by him, irrespective of whether
the area covered by his license is reforested or not. Said Fund, as the law expressly provides, shall
be expended in carrying out the purposes provided for thereunder, namely, the reforestation or
afforestation, among others, of denuded areas needing reforestation or afforestation.
7. Domingo Vs Garlitos L-18994, June 29, 1963
8. Philex Mining Corp Vs CIR 294 SCRA 687-set off
We have consistently ruled that there can be no off-setting 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 amount equal to or greater than the tax being collected. The collection
of tax cannot await the results of a lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v.
Commission on Audit,[20] which reiterated that:
x x x a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government and taxpayer are
not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.
N. Kinds of taxes
1. As to object

a) Personal (natural/ juridical), capitation, or poll tax

b) Property tax (Real prop/ personal/ tangible/ intangible)
c) Privilege/ Excise tax (transaction/ privilege/ right / Interest)
2. As to burden or incidence
a) Direct
b) Indirect
1. Philippine Acetylene Co. Inc Vs CIR L-19707, August 17,1987 127 PHIL 461
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."cral
If a claim of exemption from sales tax based on state immunity cannot command assent, much less
can
a
claim
resting
on
statutory
grant.
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 sellers obligation, but that is all and the amount added because of the tax is paid to get the
goods and for nothing else. 14
2. Maceda Vs Macaraid Jr. GR No. 88291 May 31, 1991 197 SCRA 771
5. ID.; DISTINCTION BETWEEN DIRECT AND INDIRECT TAXES. A direct tax is a tax
for which a taxpayer is directly liable on the transaction or business it engages in. Examples
are the custom duties and ad valorem taxes paid by the oil companies to the Bureau of
Customs for their importation of crude oil, and the specific and ad valorem taxes they pay to
the Bureau of Internal Revenue after converting the crude oil into petroleum products. On
the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden
upon someone else." For example, the excise and ad valorem taxes that oil companies pay to
the Bureau of Internal Revenue upon removal of petroleum products from its refinery can be
shifted to its buyer, like the NPC, by adding them to the "cash" and/or "selling price."cralaw
virtua1aw library
3. CIR Vs John Gotamco and Sons, Inc L-31092, Feb 27, 1987-WHO Indirect tax 148
SCRA 36
2. TAXATION; CONTRACTORS TAX; AN INDIRECT TAX PAYABLE BY THE OWNER OF
THE BUILDING. In context, direct taxes are those are demanded from the very person who, it is
intended or desired, should pay them; while indirect taxes are those that are demanded in the first
instance from one person in the expectation and intention that he can shift the burden to someone
else (Pollock v. Farmers, L & T Co., 1957 US 429, 15 S. Ct. 673, 39 Law. 759.) The contractors tax
is of course payable by the contractor but in the last analysis it is the owner of the building that
shoulders the burden of the tax because the same is shifted by the contractor to the owner as a
matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO because,
although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last
analysis the contractor and it certainly cannot be said that this tax has no bearing upon the World
Health
Organization.

3. ID.; ID.; ID.; The Host Agreement, in specifically exempting to WHO form "indirect taxes",
contemplates taxes which, although not imposed upon or paid by the Organization directly, form
part of the price paid or to be paid by it. This is made clear in Section 12 of the Host Agreement
which provides: "While the Organization will not, as general rule, in the case of minor purchases,
claim exemption from excise duties, and from taxes on the sale of movable and immovable property
which from part of the price to be paid, nevertheless, when the Organization is making important
purchases for official use of property on which such duties and taxes have been charged or are
chargeable the Government of the Republic of the Philippines shall make appropriate administrative
arrangements for the remission or return of the amount of duty or tax." (Emphasis supplied). The
above-quoted provision, although referring only to purchases made by the WHO, elucidates the
clear intention of the Agreement to exempt the WHO from "indirect" taxation. The certification
issued by the WHO, dated January 20, 1960, sought exemption of the contractor, Gotamco, from
any taxes in connection of the construction of the WHO office building. The 3% contractors tax
would be within the category and should be viewed as a form of an "direct tax" on the Organization,
as the payment thereof or its inclusion in the bid price would have meant an increase in the
construction cost of the building.
3. As to tax rates
a) Specific
b) Ad valorem
c) Mixed
4. As to purposes
a) General or fiscal
b) Special, regulatory, or sumptuary
5. As to scope or authority to impose
a) National internal revenue taxes
b) Local real property tax, municipal tax
6. As to graduation
a) Progressive
b) Regressive
c) Proportionate
Taxpayers suit
1. Gascon Vs Arroyo etc GR No 78389, Oct 16, 1989-taxpayers suit ABS 1989, 178 SCRA
582,
There have been several cases wherein the Court recognized the right of a taxpayer to file an action
questioning the validity or constitutionality of a statute or law, on the theory that the expenditure of
public funds by an officer of the government for the purpose of administering or implementing an
unconstitutional or invalid law, constitutes a misapplication of such funds. 4
The present case, however, is not an action to question the constitutionality or validity of a statute or
law. It is an action to annul and set aside the "Agreement to Arbitrate", which, as between the
parties, is contractual in character. Petitioners have not shown that they have a legal interest in TV
Station Channel 4 and that they will be adversely affected if and when the said television station is
returned to the Lopez family. Petitioners, therefore, have no legal standing to file the present
petition.chanroblesvirtualawlibrary

Part II
I. National Internal Revenue Code (NIRC) of 1997, as amended
A. Income taxation
a. Conwi Vs CTA 213 SCRA 83
INCOME TAX; INCOME; DEFINED. Income may be defined as an amount of money coming
to a person or corporation within a specified time, whether as payment for services, interest or profit
from investment. Unless otherwise specified, it means cash or its equivalent. Income can also be
thought of as a flow of the fruits of ones labor.
FOREIGN EXCHANGE TRANSACTION; DOLLAR EARNED ARE NOT RECEIPTS
DERIVED THEREFROM. Petitioners are correct as to their claim that their dollar earnings are
not receipts derived from foreign exchange transactions. For a foreign exchange transaction is
simply that a transaction in foreign exchange, foreign exchange being "the conversion of an
amount of money or currency of one country into an equivalent amount of money or currency of
another."
Petitioners are Filipino citizens and employees of Procter and Gamble, Philippine Manufacturing
Corporation
1970 and 1971 petitioners were assigned, for certain periods, to other subsidiaries of Procter &
Gamble, outside of the Philippines, during which petitioners were paid U.S. dollars as
compensation for services in their foreign assignments
Accordingly, claims for refund of said over-payments were filed with respondent Commissioner.
Without awaiting the resolution of the Commissioner of Internal Revenue on their claims,
petitioners filed their petitions for review in the above-mentioned cases.
two cases involve common question of law and facts, the respondent Court of Tax Appeals heard
the cases jointly.
Section 21 of the National Internal Revenue Code, before its amendment by Presidential Decrees
Nos. 69 and 323 which took effect on January 1, 1973 and January 1, 1974, respectively, imposed a
tax upon the taxable net income received during each taxable year from all sources by a citizen of
the Philippines, whether residing here or abroad.
Petitioners are citizens of the Philippines temporarily residing abroad by virtue of their
employment. Thus, in their income tax returns for the period involved herein, they gave their legal
residence/address
Petitioners being subject to Philippine income tax, their dollar earnings should be converted into
Philippine pesos in computing the income tax due therefrom,
We are inclined to agree with respondents Court of Tax Appeals and Commissioner of Internal
Revenue and thus vote to deny the petition.
This is basically an income tax case. For the proper resolution of these cases income may be defined
as an amount of money coming to a person or corporation within a specified time, whether as
payment for services, interest or profit from investment. Unless otherwise specified, it means cash
or its equivalent. 4 Income can also be thought of as a flow of the fruits of ones labor. 5
Petitioners are correct as to their claim that their dollar earnings are not receipts derived from
foreign exchange transactions. For a foreign exchange transaction is simply that a transaction in
foreign exchange, foreign exchange being "the conversion of an amount of money or currency of
one country into an equivalent amount of money or currency of another."
dollar earnings of petitioners are the fruits of their labors in the foreign subsidiaries of Procter &
Gamble. It was a definite amount of money which came to them within a specified period of time of
two years as payment for their services.
Since petitioners have already paid their 1970 and 1971 income taxes under the uniform rate of
exchange prescribed under the aforestated Revenue Memorandum Circulars, there is no reason for
respondent Commissioner to refund any taxes to petitioner as said Revenue Memorandum

Circulars, being of long standing and not contrary to law, are valid. 13
Although it has become a worn-out cliche, the fact still remains that "taxes are the lifeblood of the
government" and one of the duties of a Filipino citizen is to pay his income tax.chanrobles.com.ph :
virtual law library

a) Definition
b) Nature
8. Income
a) Definition
b) Nature
c) When income is taxable
(i) Methods of Ascertaining Income
a. Networth Method
b. Expenditures Method
(ii) Realization of income
(a) Tests of realization
(b) Actual vis--vis constructive receipt
(iii) Recognition of income
(i) Methods of accounting
Accounting Methods:
a. Cash Basis Method
b. Accrual Method
Case:
a) Fernandez Hermanos Inc Vs CIR GR No. L-21551 Sept 30, 1969
"It is true that petitioner followed the cash basis method of reporting income and expenses in the
operation of the Hacienda Dalupiri and used the accrual method with respect to its mine operations.
This method of accounting, otherwise known as the hybrid method, followed by petitioner is not
without justification.
. . . A taxpayer may not, ordinarily, combine the cash and accrual bases. The 1954 Code provisions
permit, however, the use of a hybrid method of accounting, combining a cash and accrual method,
under circumstances and requirements to be set out in Regulations to be issued. Also, if a taxpayer
is engaged in more than one trade or business he may use a different method of accounting for each
trade or business. And a taxpayer may report income from a business on accrual basis and his
personal income on the cash basis. (See Mertens, Law of Federal Income Taxation, Zimet &
Stanley Revision, Vol. 2, Sec 12.08, p. 26.)" 20
The Tax Court, having satisfied itself with the adequacy of the taxpayers accounting method and
procedure as properly reflecting the taxpayers income or losses, and the Commissioner having

failed to show the contrary, we reiterate our ruling [supra, paragraph 1 (d) and (e)] that we find no
compelling reason to disturb its findings.
b) CIR Vs Isabela Cultural Corporation GR No. 172231 Feb 12, 2007
requisites for the deductibility of ordinary and necessary trade, business, or professional expenses,
like expenses paid for legal and auditing services, are: (a) the expense must be ordinary and
necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid
or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by
receipts, records or other pertinent papers.[
requisite that it must have been paid or incurred during the taxable year is further qualified by
Section 45 of the National Internal Revenue Code (NIRC) which states that: [t]he deduction
provided for in this Title shall be taken for the taxable year in which paid or accrued or paid or
incurred, dependent upon the method of accounting
Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of
accounting, expenses not being claimed as deductions by a taxpayer in the current year when they
are incurred cannot be claimed as deduction from income for the succeeding year. Thus, a taxpayer
who is authorized to deduct certain expenses and other allowable deductions for the current year but
failed to do so cannot deduct the same for the next yea
accrual method relies upon the taxpayers right to receive amounts or its obligation to pay them, in
opposition to actual receipt or payment, which characterizes the cash method of
accounting. Amounts of income accrue where the right to receive them become fixed,
The accrual of income and expense is permitted when the all-events test has been met. This test
requires: (1) fixing of a right to income or liability to pay; and (2) the availability of the reasonable
accurate determination of such income or liability.
Tests in determining whether income is earned for tax purposes
(i) Realization test
(ii) Claim of right doctrine or doctrine of ownership, command, or control
(iii) Economic benefit test, doctrine of proprietary interest
(iv) Severance test Theory of Separability
(v) All events test
(vi) Substantial alteration test
(vii) Flow of Wealth Theory
(viii) Doctrine of Proprietary interest
(ix) Doctrine of Constructive receipt of income
Case:
Limpan Investment Corp Vs CIR 17 SCRA 703 (1966)
The withdrawal in 1958 of the deposits in court pertaining to the 1957 rental income is no sufficient
justification for the non-declaration of said income in 1957, since the deposit was resorted to due to
the refusal of petitioner to accept the same, and was not the fault of its tenants; hence, petitioner is
deemed to have constructively received such rentals in 1957. The payment by the sub-tenant in
1957 should have been reported as rental income in said year, since it is income just the same
regardless of its source.

(x) Equivalent of Cash Doctrine

Exception:
Doctrine of Involuntary Conversion of Property
Installment payment vis--vis deferred payment vis--vis percentage completion (in long-term
contracts)
Accounting Period /Taxable period (Sec 43-44 NIRC)
a) Calendar period
b) Fiscal period
c) Short period
Cases:
a. Republic Vs Dela Rama 18 SCRA 861
2. ID.; ID.; ID.; ABSENCE OF CONSTRUCTIVE RECEIPT OF DIVIDEND BY DECEASED OR
HEIR; ASSESSMENT AND NOTICES THEREOF WITHOUT LEGAL EFFECT; CASE AT BAR.
The application of the dividends to the alleged personal accounts of the deceased did not
constitute such constructive payment to the estate or the heirs that could become the basis for a tax
assessment on the said dividends because, with respect to the first debt, there was no proof adduced
to show its existence and validity; and with respect to the second debt, to which the dividends were
partly applied, it was composed of accounts due from an entity separate and distinct from the
deceased and whose debts could not be charged against the deceased even if the latter was the
principal owner thereof, in the absence of proof of substitution of debtor. There being no basis for
the assessment of the income tax, the assessment and the sending of the corresponding notices did
not have any basis. The assessment and the notices did not therefore produce any legal effect that
would warrant the collection of the tax.
Hence, if income has not been received, no income tax can be assessed thereon. Inasmuch as the
income was not received either by the estate, or by the heirs, neither the estate nor the heirs can be
liable for the payment of income tax therefor
b. CIR Vs Javier 199 SCRA 824
3. ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR. In the case at bar, there was no actual
and intentional fraud through willful and deliberate misleading of the government agency
concerned, the Bureau of Internal Revenue, headed by the herein petitioner. The government
was not induced to give up some legal right and place itself at a disadvantage so as to
prevent its lawful agents from proper assessment of tax liabilities because Javier did not
conceal anything. Error or mistake of law is not fraud. The petitioners zealousness to
collect taxes from the unearned windfall to Javier is highly commendable. Unfortunately, the
imposition of the fraud penalty in this case is not justified by the extant facts. Javier may be
guilty of swindling charges, perhaps even for greed by spending most of the money he
received, but the records lack a clear showing of fraud committed because he did not
conceal the fact that he had received an amount of money although it was a "subject of
litigation." As ruled by respondent Court of Tax Appeals, the 50% surcharge imposed as
fraud penalty by the petitioner against the private respondent in the deficiency assessment
should be deleted.

Income Taxes
Kinds Internal Revenue Taxes:
Capital Gain Sec 39(A) NIRC
Ordinary Gain
Presumed Gain - Sec 24(d) NIRC; Sec 28 (A) (3); Sec 27 (E) (4)
1. Income tax systems
a) Global tax system
b) Schedular tax system
c) Semi-schedular or semi-global tax system
2. Features of the Philippine income tax law
a) Direct tax
b) Progressive
c) Comprehensive
d) Semi-schedular or semi-global tax system
3. Criteria in imposing Philippine income tax
a) Citizenship principle
b) Residence principle
c) Source principle
Sec 23 NIRC
4. Types of Philippine income tax based on source
5. Kinds of taxpayers
A) Individual taxpayers
Sec 23 A-D, NIRC
(i) Citizens
(a) Resident citizens Sec 23 A in relation to Sec 42
(b) Non-resident citizens Sec 22 E, Sec 23 B
Seconded Employees
OCWs
Seamen
Professionals with Fixed Base
(ii) Aliens Sec 23 D

(a) Resident aliens Sec 22 F

Test:
(b) Non-resident aliens Sec 22 G
(1) Engaged in trade or business Sec 25 A
(2) Not engaged in trade or business Sec 25 B
Case:
a) CIR Vs Juliane Baier-Nickel GR No. 153793 Aug 29, 2006 , 500 SCRA 87.
Pursuant to the foregoing provisions of the NIRC, non-resident aliens, whether or not engaged in
trade or business, are subject to Philippine income taxation on their income received from all
sources within the Philippines. Thus, the keyword in determining the taxability of non-resident
aliens is the incomes source. In construing the meaning of source in Section 25 of the NIRC, resort
must be had on the origin of the provision
(iii) Special class of individual employees Sec 25 C-E
(a) Minimum wage earner
B) Corporations Sec 22 B
Definition
Levels of Tax Liability of Corporations
Case: CIR V Batangas Tayabas Bus Co 102 Phil 822
1. TAXATION; WHAT CONSTITUTE CORPORATION WITHIN THE MEANING OF THE TAX
CODE; LIABILITY FOR INCOME TAX; CASE AT BAR. The Tax Code defines the term
"corporation" as including partnership no matter how created or organized, thereby indicating a
joint venture need not be undertaken in any of the standards forms, or in conformity with the usual
requirements of the law on partnership, in order that one could be deemed constituted for the
purposes of the tax on corporations. In the case at bar, while the two respondent companies were
registered and operating separately, they were placed under one sole management called the "Joint
Emergency Operation" for the purpose of economizing in overhead expenses. Although no legal
personality may have been created by the Joint Emergency Operation, nevertheless, said joint
management operated the business affairs of the two companies as though they constituted a single
entity, company or partnership, thereby obtaining substantial economy and profits in the operation.
The joint venture, therefore, falls under the provisions of section 84 (b) of the Internal Revenue
Code, and consequently, it is liable to income tax provided for in Section 24 of the same Code.
Condominium Corporation
Tax Treatment
(i) Domestic corporations Sec 22 C, Sec 23 E, Sec 27 NIRC
Definition
Tax Treatment
Case: CIR Vs PAL GR No. 160528 Oct 9, 2006
A franchise is a legislative grant to operate a public utility. Like those of any other statute, the
ambiguous provisions of a franchise should be construed in accordance with the intent of the
legislature. In the present case, Presidential Decree 1590 granted Philippine Airlines an option to
pay the lower of two alternatives: (a) the basic corporate income tax based on PALs annual net
taxable income computed in accordance with the provisions of the National Internal Revenue Code
or (b) a franchise tax of two percent of gross revenues. Availment of either of these two alternatives
shall exempt the airline from the payment of all other taxes, including the 20 percent final

withholding tax on bank deposits.

A franchise is a legislative grant to operate a public utility. Like those of any other statute, the
ambiguous provisions of a franchise should be construed in accordance with the intent of the
legislature. In the present case, Presidential Decree 1590 granted Philippine Airlines an option to
pay the lower of two alternatives: (a) the basic corporate income tax based on PALs annual net
taxable income computed in accordance with the provisions of the National Internal Revenue Code
or (b) a franchise tax of two percent of gross revenues. Availment of either of these two alternatives
shall exempt the airline from the payment of all other taxes, including the 20 percent final
withholding tax on bank deposits.
A corporate income tax liability, therefore, has two components: the general rate of 35 percent,
which is not disputed; and the specific final rates for certain passive incomes. PALs request for a
refund in the present case pertains to the passive income on bank deposits, which is subject to the
specific final tax of 20 percent.[26]
Taxable income means the pertinent items of gross income specified in the Tax Code, less the
deductions and/or personal and additional exemptions, if any, authorized for these types of income.
[27] Under Section 32 of the Tax Code, gross income means income derived from whatever source,
including compensation for services; the conduct of trade or business or the exercise of a
profession; dealings in property; interests; rents; royalties; dividends; annuities; prizes and
winnings; pensions; and a partners distributive share in the net income of a general professional
partnership. Section 34 enumerates the allowable deductions; Section 35, personal and additional
exemptions.
A careful reading of Section 13 rebuts the argument of the CIR that the in lieu of all other taxes
proviso is a mere incentive that applies only when PAL actually pays something. It is clear that PD
1590 intended to give respondent the option to avail itself of Subsection (a) or (b) as consideration
for its franchise. Either option excludes the payment of other taxes and dues imposed or collected
by the national or the local government. PAL has the option to choose the alternative that results in
lower taxes. It is not the fact of tax payment that exempts it, but the exercise of its option.
(ii) Foreign corporations Sec 22 D, Sec 23 F
(a) Resident foreign corporations Sec 22 H
Branch
Subsidiary
Cases:
Marubeni Vs CIR 177 SCRA 500 G.R. No. 76573. September 14, 1989
2. ID.; ID.; ID.; A SINGLE CORPORATION CANNOT BE BOTH A RESIDENT AND NONRESIDENT CORPORATION. A single corporate entity cannot be both a resident and a nonresident corporation depending on the nature of the particular transaction involved. Accordingly,
whether the dividends are paid directly to the head office or coursed through its local branch is of
no moment for after all, the head office and the office branch constitute but one corporate entity, the
Marubeni Corporation, which, under both Philippine tax and corporate laws, is a resident foreign
corporation because it is transacting business in the Philippines.
4. ID.; ID.; ID.; PHILIPPINE-JAPAN TAX TREATY; 25% MAXIMUM RATE, IMPOSABLE
ONLY WHEN THE LOCAL TAX EXCEEDS THE SAME. Public respondents likewise erred in
automatically imposing the 25% rate under Article 10 (2) (b) of the Tax Treaty as if this were a flat
rate. A closer look at the Treaty reveals that the tax rates fixed by Article 10 are the maximum rates
as reflected in the phrase "shall not exceed." This means that any tax imposable by the contracting
state concerned should not exceed the 25% limitation and that said rate would apply only if the tax
imposed by our laws exceeds the same. In other words, by reason of our bilateral negotiations with

Japan, we have agreed to have our right to tax limited to a certain extent to attain the goals set forth
in the Treaty.
5. ID.; ID.; ID.; ID.; NON-RESIDENT CORPORATION IS TAXED 35% OF ITS GROSS
INCOME FROM ALL SOURCES WITHIN THE PHILIPPINES. Petitioner, being a nonresident foreign corporation with respect to the transaction in question, the applicable provision of
the Tax Code is Section 24 (b) (1) (iii) in conjunction with the Philippine-Japan Treaty of 1980.
Proceeding to apply the above section to the case at bar, Petitioner, being a non-resident foreign
corporation, as a general rule, is taxed 35% of its gross income from all sources within the
Philippines. [Section 24 (b) (1)].
Winship Vs Philippine Trust Co., 90 Phil 744 G.R. No. L-3869. January 31, 1952
1. OBLIGATIONS AND CONTRACTS; BANK DEPOSITS; TRANSFER BY ORDER OF
JAPANESE MILITARY ADMINISTRATION; RELEASE OF BANK. As the defendant
Philippine Trust Company transferred and paid the credit balances of the current account deposits of
the Eastern Isles Import Corporation and of the Eastern Isles, Inc. to the Bank of Taiwan by order of
the Japanese Military Administration, said defendant was released from any obligation to the
depositors or their transferee.
2. CORPORATIONS; NATIONALITY, HOW DETERMINED. The nationality of a private
corporation is determined by the character and citizenship of its controlling stockholders.
(b) Non-resident foreign corporations Sec 22 I, 28, NIRC
Case:
CIR Vs BOAC 149 SCRA 395 GR L-65773-74, 30 April 1987
Did such "flow of wealth" come from "sources within the Philippines" ?
The source of an income is the property, activity or service that produced the income. 8 For the
source of income to be considered as coming from the Philippines, it is sufficient that the income is
derived from activity within the Philippines. In BOACs case, the sale of tickets in the Philippines is
the activity that produces the income. The tickets exchanged hands here and payments for fares
were also made here in Philippine currency. The situs of the source of payments is the Philippines.
The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the
protection accorded by the Philippine government. In consideration of such protection, the flow of
wealth should share the burden of supporting the government.
A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes
the contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser
of the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger
upon the terms and conditions set forth thereon. The ordinary ticket issued to members of the
travelling public in general embraces within its terms all the elements to constitute it a valid
contract, binding upon the parties entering into the relationship. 9
CIR Vs Procter and Gamble 204 SCRA 277 G.R. No. 66838. December 2, 1991.
5. ID.; TAX ON FOREIGN CORPORATION; NON-RESIDENT CORPORATION;
APPLICABILITY OF THE REDUCED REMITTANCE OF FIFTEEN PERCENT (15%) TAX
RATE; RULE. The applicability to the dividend remittances by P&G-Phil. to P&G-USA of the
fifteen percent (15%) tax rate provided for in Section 24 (b) (1) of the NIRC. The ordinary thirtyfive (35%) tax rate applicable to dividend remittances to non-resident corporate stockholders of a
Philippine corporation, goes down to fifteen percent (15%) if the country of domicile of the foreign
stockholder corporation "shall allow" such foreign corporation tax a credit for "taxes deemed paid
in the Philippines," applicable against the tax payable to the domiciliary country by the foreign
stockholder corporation. In other words, in the instant case, the reduced fifteen percent (15%)

dividend tax rate is applicable if the USA "shall allow" to P&G-USA a tax credit for "taxes deemed
paid in the Philippines" applicable against the US taxes of P&G-USA. The NIRC specifies that such
tax credit for "taxes deemed paid in the Philippines" must, as a minimum, reach an amount
equivalent to twenty (20) percentage points which represents the difference between the regular
thirty-five percent (35%) dividend tax rate and the preferred fifteen percent (15%) dividend tax rate.
It is important to note that Section 24 (b)(1), NIRC, does not require that the US must give a
"deemed paid" tax credit for the dividend tax (20 percentage points) waived by the Philippines in
making applicable the preferred dividend tax rate of fifteen percent (15%). In other words, our
NIRC does not require that the US tax law deem the parent-corporation to have paid the twenty (20)
percentage points of dividend tax waived by the Philippines. The NIRC only requires that the US
"shall allow" P&G-USA a "deemed paid" tax credit in an amount equivalent to the twenty (20)
percentage points waived by the Philippines.
6. ID.; ID.; ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. The parent-corporation P&G-USA
is "deemed to have paid" a portion of the Philippine corporate income tax although that tax was
actually paid by its Philippine subsidiary, P&G-Phil., not by P&G-USA. This "deemed paid"
concept merely reflects economic reality, since the Philippine corporate income tax was in fact paid
and deducted from revenues earned in the Philippines, thus reducing the amount remittable as
dividends to P&G-USA. In other words, US tax law treats the Philippine corporate income tax as if
it came out of the pocket, as it were, of P&G-USA as a part of the economic cost of carrying on
business operations in the Philippines through the medium of P&G-Phil. and here earning profits.
What is, under US law, deemed paid by P&G-USA are not "phantom taxes" but instead Philippine
corporate income taxes actually paid here by P&G-Phil., which are very real indeed. It is also useful
to note that both (i) tax credit for the Philippine dividend tax actually withheld, and (ii) the tax
credit for the Philippine corporate income tax actually paid by P&G-Phil. but "deemed paid" by
P&G-USA, are tax credits available or applicable against the US corporate income tax of P&GUSA. These tax credits are allowed because of the US congressional desire to avoid or reduce
double taxation of the same income stream.
(iii) Joint venture and consortium
Exempt JV
Taxable JV
c) Partnerships
Partnership: Co-ownership; and GPP
Sec 22 (b); 26, 73 (D), NIRC
Case:
a. Ona Vs CIR 45 SCRA 78 G.R. No. L-19342. May 25, 1972
. TAXATION; INTERNAL REVENUE CODE; CORPORATE TAX; UNREGISTERED
PARTNERSHIP; FORMATION THEREOF WHERE INCOME FROM SHARES OF CO-HEIRS
CONTRIBUTED TO COMMON FUND. From the moment petitioners allowed not only the
incomes from their respective shares of the inheritance but even the inherited properties themselves
to be used by Lorenzo T. Oa (who managed the properties) as a common fund in undertaking
several transactions or in business, with the intention of deriving profit to be shared by them
proportionally, such act was tantamount to actually contributing such incomes to a common fund
and, in effect, they thereby formed an unregistered partnership within the purview of the provisions
of the Tax Code.
2. ID.; ID.; ID.; WHEN HEIRS NOT CONSIDERED AS UNREGISTERED CO-PARTNERS AND
NOT SUBJECT TO SUCH TAX. In cases of inheritance, there is a period when the heirs can be
considered as co-owners rather than unregistered co-partners within the contemplation of our

corporate tax laws. Before the partition and distribution of the estate of the deceased, all the income
thereof does belong commonly to all the heirs, obviously, without them becoming thereby
unregistered co-partners.
b. Obillos Vs CIR, L-681185, Oct 29, 1985
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself
establish a partnership, whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived." There must be an unmistakable
intention to form a partnership or joint venture. **
Such intent was present in Gatchalian v. Collector of Internal Revenue, 67 Phil. 666 where 15
persons contributed small amounts to purchase a two-peso sweepstakes ticket with the agreement
that they would divide the prize. The ticket won the third prize of P50,000. The 15 persons were
held liable for income tax as an unregistered partnership.
A) Fiduciary taxpayers
Definition
Obligations
Tax Liability
Case: Tan Vs Del Rosario GR no. 109289 Oct 3, 1994 (SUPRA)
In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2)
Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as
to corpusand as to income).
c.1) Estates Sec 60 (a) (3)
c.2) Trusts
Kinds of Trusts
Employees Trust
Tax Treatment
Sec 22 J, 60-64 NIRC
Cases:
a) CIR Vs Visayas Electric 23 SCRA 715 G.R. No. L-22611. May 27, 1968
1. TAXATION; EMPLOYEES PENSION FUND, A SEPARATE TAXABLE ENTITY. The
resolution of respondent companys board established a pension fund called the
"Employees Reserve For Pensions" for the benefit of present and future employees in
the event of retirement, accident or disability. Such fund, set aside monthly, was taken
from the gross operating receipts of the company and later invested by the company in
stocks of San Miguel Brewery for which dividends were regularly declared. In respect to
such fund, the Company acted merely as trustee for its employees and a valid express
trust has been created. For tax purposes, the employees reserve fund is a separate
taxable entity and the dividends earned thereby are returns of the trust estate and not
of the grantor company.
2. ID.; ID.; INCOME OF PENSION FUND, NOT RECEIPTS, REVENUES OR PROFITS OF
COMPANY. The disputed income from dividends declared by San Miguel Brewery are
not receipts, revenues or profits of the company and do not go to the general fund
thereof, but to the reserve pension fund which is solely for the benefit of the employees
of respondent corporation. They are thus, not exempt from income tax as provided in
Section 8, Act 3499, the companys legislative franchise, which exempts the companys
"receipts, revenues and profits."
3. ID.; ID.; ID.; EXEMPTION OF EMPLOYEES TRUST FROM TAX, EXPLAINED;
EXCEPTION. An amendment to Sec. 56 of Republic Act 1983, approved on June 22,
1957, singles out employees trust for tax exemption. This exemption was conceived to
encourage the formation of pension trust systems for the benefit of laborers and
employees outside the Social Security Act. But to qualify for exemption, the employees
trust must refer to a definite program, scheme or plan; it must be set up in good faith
and must be actuarially sound. The instant trust fund, though created in good faith and
was intended for the employees welfare, does not appear to be actuarially sound.

4. ID.; ID.; ID.; ID.; ID.; WHERE PENSION PLAN IS NOT ACTUARIALLY SOUND,
EXEMPTION DOES NOT APPLY; IT IS SUBJECT TO INCOME TAX PRESCRIBED FOR
INDIVIDUALS.

b) CIR Vs CA 207 SCRA 487 G.R. No. 95022. March 23, 1992
. TAXATION; INCOME TAX; GOVERNING LAWS EXEMPTING EMPLOYEES TRUST
THEREFROM. It appears that under Rep. Act No. 1983, which took effect on 22 June 1957,
amending Sec. 56(b) of the National Internal Revenue Code (Tax Code, for brevity), employees
trusts were exempt from income tax. It is significant to note that the GCL Plan was qualified as
exempt from income tax by the Commissioner of Internal Revenue in accordance with Rep. Act.
No. 4917 approved on 17 June 1967.
2. ID.; ID.; ID.; REASONS THEREFOR. And rightly so, by virtue of the raison detre behind
the creation of employees trusts. Employees trusts or benefit plans normally provide economic
assistance to employees upon the occurrence of certain contingencies, particularly, old age
retirement, death, sickness, or disability. It provides security against certain hazards to which
members of the Plan may be exposed. It is an independent and additional source of protection for
the working group. What is more, it is established for their exclusive benefit and for no other
purpose.
3. ID.; ID.; ID.; PURPOSE THEREFOR. The tax advantage in Rep. Act No. 1983, Section
56(b), was conceived in order to encourage the formation and establishment of such private Plans
for the benefit of laborers and employees outside of the Social Security Act.
5. ID.; ID.; EMPLOYEES TRUST; EXEMPTED FROM WITHHOLDING TAX ON INTEREST
EARNED ON BANK DEPOSITS. 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.
c) DBP Vs COA GR No. 144516 Feb 11, 2004, 422 SCRA 459
A trust is a fiduciary relationship with respect to property which involves the existence of equitable
duties imposed upon the holder of the title to the property to deal with it for the benefit of another.
[27] A trust is either express or implied. Express trusts are those which the direct and positive acts
of the parties create, by some writing or deed, or will, or by words evincing an intention to create a
trust.[28]
In the present case, the DBP Board of Governors (now Board of Directors) Resolution No. 794 and
the Agreement executed by former DBP Chairman Rafael Sison and the trustees of the Plan created
an express trust, specifically, an employees trust. An employees trust is a trust maintained by an
employer to provide retirement, pension or other benefits to its employees.[29] It is a separate
taxable entity[30] established for the exclusive benefit of the employees.[31]
the income and principal of said contributions would be sufficient to meet the required payments of
benefits as officials and employees of the Bank retire under the Gratuity Plan; xxx
WHEREFORE, COA Decision No. 98-403 dated 6 October 1998 and COA Resolution No. 2000212 dated 1 August 2000 are AFFIRMED with MODIFICATION. The income of the Gratuity Plan
Fund, held in trust for the benefit of DBP employees eligible to retire under RA 1616, should not be
recorded in the books of account of DBP as the income of the latter.
Registration of Taxpayers
Sec 236 (A) NIRC
6. Person Enjoying Special Tax Treatment
a) Exempt Corporations

Exempt Individuals:
RA 9504 Minimum Wage Earners/ personal and additional exemptions
Senior Citizens
Sec 4 (b) RA 9994
Tax treaty
Case:
a. Reagan Vs CIR 30 SCRA 968 G.R. No. L-26379. December 27, 1969
3. ID.; ID.; CLARK AIR FORCE BASE, NOT FOREIGN SOIL; SALE THEREIN SUBJECT TO
TAX. Petitioner was liable for the income tax arising from a sale of his car in the Clark Field Air
Base, which clearly is and cannot otherwise be other than, within the territorial jurisdiction of the
Philippines to tax. The Military Bases agreement does not lend support to the assertion that said
base has become a foreign soil or territory.
4. ID.; ID.; ID.; ID.; EXEMPTION CLAUSE IN MILITARY BASES AGREEMENT, NOT
APPLICABLE. Petitioner, at one time a civilian employee of an American Corporation
providing technical assistance to the United States Air Force in the Philippines, would seek to
impart plausibility to his claim of not being subject to tax for the sale of his car in the Clark Field
Air Base, by the ostensible invocation of the exemption clause in the Military Bases Agreement by
virtue of which a "national of the United States serving in or employed in the Philippines in
connection with the construction, maintenance, operation or defense of the bases and residing in the
Philippines only by reason of such employment" is not to be taxed on his income unless derived
from the Philippine sources or sources other than the United States sources. The contention on its
face is devoid of merit as the source in the instant case clearly was Philippines.
b. CIR Vs Robertson, 143 SCRA 796 G.R. Nos. L-70116-19. August 12, 1986.
. TAXATION; TAX EXEMPTION UNDER THE R.P.-U.S. MILITARY BASES AGREEMENT;
RULE TO AVAIL THEREOF. In order to avail oneself of the tax exemption under the RP-US
Military Bases Agreement: he must be a national of the United States employed in connection with
the construction, maintenance, operation or defense of the bases, residing in the Philippines by
reason of such employment, and the income derived is from the U.S. Government (Art. XII par. 2 of
PI-US Military Bases Agreement of 1947)
Exempt Corporations:
Sec 27 , NIRC
Sec 30 A-K
Non-Stock Nonprofit Educ and Hosp Vs Proprietary NonProfict Educ and Hosp
Case:
a. CIR Vs St Lukes Medical Center GR 195909 and 195960 Sept 26,2012
The Court partly grants the petition of the BIR but on a different
ground. We hold that Section 27(B) of the NIRC does not remove the
income tax exemption of proprietary non-profit hospitals under Section
30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the
other hand, can be construed together without the removal of such tax
exemption. The effect of the introduction of Section 27(B) is to subject the
taxable income of two specific institutions, namely, proprietary non-profit
educational institutions36 and proprietary non-profit hospitals, among the
institutions covered by Section 30, to the 10% preferential rate under
Section 27(B) instead of the ordinary 30% corporate rate under the last
paragraph of Section 30 in relation to Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the
income of (1) proprietary non-profit educational institutions and

(2) proprietary non-profit hospitals. The only qualifications for hospitals are
that they must be proprietary and non-profit. Proprietary means private,
following the definition of a proprietary educational institution as any
private school maintained and administered by private individuals or
groups with a government permit. Non-profit means no net income or
asset accrues to or benefits any member or specific person, with all the net
income or asset devoted to the institutions purposes and all its activities]
conducted not for profit.
Non-profit does not necessarily mean charitable. In Collector of
Internal Revenue v. Club Filipino Inc. de Cebu,37 this Court considered as
non-profit a sports club organized for recreation and entertainment of its
stockholders and members. The club was primarily funded by membership
fees and dues. If it had profits, they were used for overhead expenses and
improving its golf course.38 The club was non-profit because of its purpose
and there was no evidence that it was engaged in a profit-making
enterprise.39
Section 30(E) of the NIRC provides that a charitable institution must
be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the
benefit of any member, organizer, officer or any specific person.
There is no dispute that St. Lukes is organized as a non-stock and
non-profit charitable institution. However, this does not automatically
exempt St. Lukes from paying taxes. This only refers to the organization of
St. Lukes. Even if St. Lukes meets the test of charity, a charitable
institution is not ipso facto tax exempt. To be exempt from real property
taxes, Section 28(3), Article VI of the Constitution requires that a charitable
institution use the property actually, directly and exclusively for charitable
purposes. To be exempt from income taxes, Section 30(E) of the NIRC
requires that a charitable institution must be organized and operated
exclusively for charitable purposes. Likewise, to be exempt from income
taxes, Section 30(G) of the NIRC requires that the institution be operated
exclusively for social welfare.
Omnibus Investment Code
RA 8502 Jewelry Industry Development Act of 1998
RA 7916 as amended by RA 8748 PEZA Law
RA 9520 New Cooperative Code of 2008
Case:
a. Dumaguete Cathedral Credit Cooperative Vs CIR GR 182722, January 22, 2010
The legislative intent to give cooperatives a preferential tax treatment is apparent in Articles 61 and
62 of RA 6938, which read:
ART. 61. Tax Treatment of Cooperatives. Duly registered cooperatives under this Code which do
not transact any business with non-members or the general public shall not be subject to any
government taxes and fees imposed under the Internal Revenue Laws and other tax laws.
Cooperatives not falling under this article shall be governed by the succeeding section.
ART. 62. Tax and Other Exemptions. Cooperatives transacting business with both members and

nonmembers shall not be subject to tax on their transactions to members. Notwithstanding the
provision of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall
enjoy the following tax exemptions; x x x.
This exemption extends to members of cooperatives. It must be emphasized that cooperatives exist
for the benefit of their members. In fact, the primary objective of every cooperative is to provide
goods and services to its members to enable them to attain increased income, savings, investments,
and productivity.[30] Therefore, limiting the application of the tax exemption to cooperatives would
go against the very purpose of a credit cooperative. Extending the exemption to members of
cooperatives, on the other hand
b. CIR Vs CA and YMCA GR 124043 Oct 14, 1998 (SUPRA) 298 SCRA 83
We now come to the crucial issue: Is the rental income of the YMCA from its real estate subject to
tax? At the outset, we set forth the relevant provision of the NIRC:
SEC. 27. Exemptions from tax on corporations. -- The following organizations shall not be taxed
under this Title in respect to income received by them as such -xxxxxxxxx
(g) Civic league or organization not organized for profit but operated exclusively for the promotion
of social welfare;
(h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable
purposes, no part of the net income of which inures to the benefit of any private stockholder or
member;
xxxxxxxxx
Notwithstanding the provision in the preceding paragraphs, the income of whatever kind and
character of the foregoing organization from any of their properties, real or personal, or from any of
their activities conducted for profit, regardless of the disposition made of such income, shall be
subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457)
c. CIR Vs CA and Ateneo GR 115346 April 18,1997 271 SCRA 605
Moreover, the Court of Tax Appeals accurately and correctly declared that the" funds received by
the Ateneo de Manila University are technically not a fee. They may however fall as gifts or
donations which are tax-exempt" as shown by private respondents compliance with the
requirement of Section 123 of the National Internal Revenue Code providing for the exemption of
such gifts to an educational institution. 13
For another, it bears stressing that private respondent is a non-stock, non-profit educational
corporation. The fact that it accepted sponsorship for IPCs unfunded projects is merely incidental.
For, the main function of the IPC is to undertake research projects under the academic agenda of the
private Respondent. Moreover, the records do not show that in accepting sponsorship of research
work, IPC realized profits from such work. On the contrary, the evidence shows that for about 30
years, IPC had continuously operated at a loss, which means that sponsored funds are less than
actual expenses for its research projects. That IPC has been operating at a loss loudly bespeaks of
the fact that education and not profit is the motive for undertaking the research projects.
DOCTRINES:
The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no
VAT shall be imposed to form part of the cost of goods destined for consumption outside of
the territorial border of the taxing authority. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of VAT; while, those destined for use
or consumption within the Philippines shall be imposed with ten percent (10%) VAT.
that the shares were sold at their actual fair market value and at arms length; that as long as the
transaction conducted is at arms lengthsuch that a bona fide business arrangement of the dealings
is done inthe ordinary course of businessa sale for less than an adequate consideration is not
subject to donors tax; and that donors tax does not apply to saleof shares sold in an open bidding

process.