Mercado, Carlo Robert M.

2014-89467 III-B
Tax I
Prof Dina D. Lucenario

Hilado v. CIR 100 Phil 288, Nature of Internal Revenue Law

Facts:
Hilado for tax purposes claimed a deduction of P12,837.65 from his gross
income as a loss due to his war damage claim pursuant to General Circular
No. V-123, which was revoked and voided by the Secretary of Finance. Thus,
CIR did not allow the deduction from his 1951 ITR. This was affirmed by the
CTA. Hilado thus appeals to the SC, arguing that he was entitled to the
deductions
Ruling: Against Hilado. Hilado not entitled to deduction.
Doctrine:
1) The loss due to his war damage claim cannot be considered as a business
asset which can be deducted as a loss in contemplation of law because its
collection is not enforceable as a matter of right, but is dependent merely
upon the generosity and magnanimity of the U. S. government. 2)
Petitioner's contention that during the last war and as a consequence of
enemy occupation in the Philippines there was no taxable year within the
meaning of our internal revenue laws because during that period they were
unenforceable, is without merit. 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. Furthermore, it is a legal maxim, that excepting that
of a political nature, 'Law once established continues until changed by some
competent legislative power. It is not changed merely by change of
sovereignty. 3) General Circular No. V-123, having been issued on a wrong
construction of the law, cannot give rise to a vested right.

Sison v. Ancheta, 130 SCRA 654, Scope and Nature of Taxation

Facts: Congress enacted Batas Pambansa Blg. 135, whose Section 1

amended the National Internal Revenue Code of 1977, imposing higher tax
rates in net income, from the exercise of a profession than that of
compensation income, from salary or fixed income. Sison files a taxpayer suit
arguing that the said provision is in violation of constitution, namely of due
process, equal protection and uniformity of taxation
Ruling: Against Sison. Provision is not unconstitutional.
Doctrine: 1) It is true that, violation of due process and equal protection
clauses may invalidate revenue measures in appropriate cases. However,
Sison has failed to demonstrate why the said provision should fall due
violation of due process and equal protection. In the absence thereof, the
presumption of validity prevails. 2) On equal protection: when the law
operates equally and uniformly on all persons under similar circumstances or
that all persons are treated in the same manner, the conditions not being
different, both in privileges conferred and liabilities imposed, then there is no
violation of the equal protection clause. The distinction here in this case is
that those earning salary or fixed income are not entitled to make deduction
for tax purposes (uniform overhead), compared to professionals in practice of
profession (no uniformity in overhead).
3) On due process: For a tax statute to violate the due process clause, it
should be so arbitrary that it finds no support in the Constitution. 4) Some
quotes: The power to tax involves the power to destroy. (Marshall); The
power to tax is not the power to destroy while this Court sits. (Holmes)

CIR v. Pineda, 21 SCRA 105, Scope and Nature of Taxation

Facts: Atanasio Pineda died, leaving a widow and 15 children. His estate was
divided among his heirs, with Petitioner Manuel Pineda receiving PHP 2,500.
The income tax returns of the estate were not filed, this the CIR issued an
assessment for deficiencies. CTA held Pineda liable for only that
corresponding to his share. CIR, however, contests that he should be made
liable for the entirety of taxes due to the estate.
Ruling: Against Pineda. Pineda liable for all deficiencies due from the estate,
subject to contribution from the other heirs.
Held: Pineda is liable for the assessment as an heir and as a holdertransferee
of property belonging to the estate/taxpayer. For the former, he is only

answerable to the charges corresponding to his share. As to the latter, he is

liable for the amount of property in his possession. For this the Government
has two options: 1) collect from all the heirs in the proportion of their
inheritance. 2) From Section 315 of the Tax code is 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. This second is the option pursued by CIR. CIR has the
discretion to choose most expeditious way to collect the tax, because taxes
are the lifeblood of government and their prompt and certain availability is
an imperious need.

Phil Guaranty v. CIR, 13 SCRA 775, Scope and Nature of Taxation

Facts: The Phil. Guaranty, (PG) a local insurance company, entered the
reinsurance business with foreign insurance firms. For the years of 1953 to
1954, these transactions were excluded from its gross income. CIR assessed
PG of withholding tax for said years for the reinsurance premiums. PG
objected, asserting that the income were from sources not within the
Philippines, since these transactions were with foreign firms. CTA ordered PG
to pay the tax.
Ruling: Against PG. Reinsurance subject to withholding tax.
Held: 1) The Tax Code subjects foreign corporations to tax on their income
from sources within the Philippines. The undertaking for original insurances
for which the foreign insurance companies agreed to undertaking liability for
loss, took place in the Philippines. Thus, these came from sources within the
Philippines and, hence, are subject to corporate income tax. What is
controlling, therefore, is not the place of business but the place of activity
that created an income. 2) Quote: The power to tax is an attribute of
sovereignty. It is a power emanating from necessity. It is a necessary burden
to preserve the State's 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 improvement designed for the
enjoyment of the citizenry and those which come within the State's territory,
and facilities and protection which a government is supposed to provide.

Collector v. Yuseco, 3 SCRA 313, Scope and Nature of Taxation

Facts: Respondent Yuseco did not file income tax returns for the year 1945-6.
CIR demanded payment of taxes and surcharges; in his defense Yuseco
sought information as to how the assessments were arrived at, which the CIR
provided. He requested 2 more times, for an opportunity to be heard, and a
reinvestigation but this was denied. He went to the CTA via writ of
prohibition, which granted his petition and enjoined the warrant of distraint
and levy. CIR argues that since he did not appeal in the CIR, prohibition
should not lie.
Ruling:
Held: 1) Nowhere does the law expressly vest in the CTA original jurisdiction
to issue writs of prohibition and injunction independently of, and apart from,
an appealed case. The proper steps are: appeal from the CIR, the Collector of
Customs or the Assessors, to the Court of Tax Appeals, then to the Supreme
Court.
2) Taxes being the chief source of revenue for the Government to keep it
running must be paid immediately and without delay. A taxpayer who feels
aggrieved by the decision of a revenue officer and appeals to the CTA must
pay the tax assessed, except that, if in the opinion of the Court the collection
would jeopardize the interest of the Government and/or the taxpayer, it
could suspend the collection and require the taxpayer either to deposit the
amount claimed or to file a surety bond for not more than double the amount
of the tax assessed.
CIR v. Algue, Inc., L-28896, Scope and Nature of Taxation
Facts: Algue Inc., was assessed delinquency taxes, to which it filed a protest,
claiming that 75,000 was paid for promotional fees, thus an ordinary
reasonable or necessary business expense and deductible. BIR took no
action on the protest, so Algue filed a pet. for review with the CTA, which
ruled in its favor. BIR contends that these paryments were fictitious since
most of payees are from the same family having control of Algue, Inc.,
suggesting a tax dodge
Ruling: Against CIR. Algue is entitled to deduction
Held: 1) The burden is on the taxpayer to prove the validity of the claimed
deduction. In this case, the onus has been charged satisfactorily (proved that
the payment of the fees was necessary and reasonable) 2) 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. 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. It is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the
prescribed procedure

NPC v. Cabanatuan, G.R. 149110, Underlying Theory and Basis:

Benefit-Received Principle
Facts: In accordance to its mandate, NPC has been selling electric power to
residents of Cabanatuan City. Pursuant to section 37 of Ordinance No. 16592, Cabanatuan City assessed NPC a franchise tax amounting to
P808,606.41, representing 75% of 1% of the latter's gross receipts for the
preceding year. NPC refused on the ground that it is an entity whose stock is
subscribed and wholly paid by the Philippine Government. RTC rules that NPC
is exempt from tax. CA ruled that it is not exempt.
Ruling: Against NPC. NPC is not exempt from franchise tax
Held: 1) Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the very
existence of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the exercise
of the power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of
the people. 2) Although as a general rule, LGUs cannot impose taxes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities, this rule now admits an exception, i.e., when specific
provisions of the LGC authorize the LGUs to impose taxes, fees or charges on
the aforementioned entities

Lorenzo v. Posadas, 64 Phil 353, Underlying Theory and Basis:

Benefit-Received Principle
Facts: CIR assessed against the estate of Thomas Hanley (plaintiff Lorenzo is
the executor) an inheritance tax and delinquency surcharges. Lorenzo paid
the amount under protest but CIR refused to refund, hence the resort to the

CFI to compel the refund, which was dismissed.

Ruling: Against Lorenzo. Refund of paid taxes is not in order.
Held: 1) 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 2) That taxes must be collected
promptly is a policy deeply entrenched in our tax system. Thus, no court is
allowed to grant injunction to restrain the collection of any internal revenue
tax.
PAL v. Edu, 164 SCRA 320, Purpose of Taxation, General or Fiscal or
Revenue
Facts: PALs franchise (Section 13) exempts it from payment of taxes, thus,
since 1956 it has not paid, including motor vehicle registration fees. Land
Transpo Commissioner issued a regulation requiring all tax-exempt entities to
pay motor vehicle reg fees, refusing to register PALs vehicles when it did not
pay. PAL paid under protest and demanded a refund. Commissioner Edu
refused, statting that these MV reg fees are regulatory, and not revenue
measures, and therefore do not come into the exemption granted to PAL. RTC
dismissed PALs suit.
Ruling: Partial refund, The MV reg fees are regulatory taxes
Held: The legislative intent and purpose behind the law requiring owners of
vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay
for the operating expenses of the administering agency. Registration fees
collected between June 27, 1968 and April 9, 1979, are non-refundable
because the tax exemption in the franchise of PAL was repealed during the
period. From 1979, however, the amended franchise given to PAL included
any tax and fee, and is therefore exempt from MV reg fees.

Tolentino v. Sec. of Finance, 285 SCRA 630; 249 SCRA 628, Purpose
of Taxation, General or Fiscal or Revenue
Facts: RA 7716 sought to expand the base of the Value Added Tax, levied on
sale, exchange and barter of goods and services, 10% of the gross price or

value. Several petitioners assailed the constitutionality of this law for various
reasons (really long case)
Ruling: Against petitioners. Constitutionality of EVAT law upheld.
Held: Padilla, Separate Opinion: It has to be equally recognized that the
power to tax is an essential right of government. Without taxes, basic
services to the people can come to a halt; economic progress will be stunted,
and, in the long run, the people will suffer the pains of stagnation and
retrogression.

Osmena v. Orbos, 220 SCRA 703, Non-revenue, Special or Regulatory

Facts: PD 1956 (Marcos) established the Oil Price Stabilization Fund (OPSF),
which reimburses oil companies to smooth out prices shocks in international
oil prices. EO 137 (Aquino) provided cost underrecovery to oil companies. By
1991, OPSF had a balance deficit of 12 billion.
Ruling: Funds collected under PD 1956 is an exercise of regulatory (police
power) of the state
Held: The OPSF is thus a buffer mechanism through which the domestic
consumer prices of oil and petroleum products are stabilized, instead of
fluctuating every so often. The stabilization fees collected are in the nature
of a tax, which is within the power of the State to impose . . . The tax
collected is not in a pure exercise of the taxing power. It is levied with a
regulatory purpose, to provide a means for the stabilization of the [oil]
industry. The levy is primarily in the exercise of the police power of the State.

Caltex v. COA, Non-revenue, Special or Regulatory

Facts: COA directed Caltex to remit to the OPSF additional tax on petroleum
products, noting that the all of Caltex application for reimbursement is held
in abeyance in the meantime. Caltex requests for reimbursement were
denied. Caltex sought recourse in SC
Ruling: Partially for both parties. COA should allow recovery of inventory
losses, but it was justified in disallowing recovery of financing charges. COA
did not err in denying reimbursement.

Held: 1) CPIs contention that the OPSF contributions are not for public
purpose is untenable. 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. There can be no doubt that the oil
industry is greatly imbued with public interest as it vitally affects the general
welfare. PD 1956 also explicitly provides that the source of OPSF is taxation.
2) It is settled that a taxpayer may not offset taxes due from the claims that
he may have against the government.

Chavez v. Ongpin, Principles of a Sound Tax System

Facts: EO 73 orders that starting January 1987, the 1984 real property
assessments shall be the basis of real property taxes, due to the obsolete
values used (1978), contrary to PD 4641 which states that the revision
should be every 5 years starting from 1979. Frank Chavez and Realty Owners
Assn. of the Phils. assail the EO, contending that the unreasonable increase
in real property taxes is confiscatory and in violation of due process.
Ruling: Against petitioners. EO 73 is not unconstitutional
Held: 1) EO No. 73 does not impose new taxes nor increase taxes. 2) Without
the EO, the basis for collection of real property taxes will still be the 1978
revision of property values. 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.
Taganito Mining v. CIR, Principles of a Sound Tax System
Facts: Taganito Mining was granted a mineral extraction permit in Surigao del
Norte, with 5% excise tax and royalites. Sometimes the amount of metals
indicated in the temporary invoice issued by Taganito and weighing by
independent surveyors. Taganito asserts that it is entitled to a refund of
excise taxes due to discrepancies in measuring the minerals extracted. The
question is W/N excise tax is to be computed at time of removal or market
value (by surveyors)

Ruling: Against Taganito. Computed at the time of removal, not by

subsequent analysis (not administratively feasible)
Held: In case of excise tax on minerals and mineral products, the basis
provided by law is the actual market value of these minerals at the time of
removal. This set-up established by the petitioner (survyors) is contrary to
the principle of administrative feasibility which is one of the basic principles
of a sound tax system. Tax laws should be capable of convenient, just and
effective administration which is why it fixes a standard or a uniform tax
base upon which taxes should be paid.

Roxas v. CTA, Compare with Police Power and Eminent Domain

Facts: Roxas brothers inherited farmlands with tenants from the
grandparents. The government persuaded them to sell the lands to their
tenants, but the Government did not have enough money. A loan
arrangement was made with Rehab Finance Corp, where RFC covered the
prices while it will collect yearly from the farmers. From this transaction, CIR
assessed deficiency of 50% tax from profits derived from the sale, to which
the brothers protested to.
Ruling: Against CTA. Roxases not in the real estate business, will only pay
50% of the taxes
Held: The sale of the farmlands to the very farmers who tilled them for
generations was not only in consonance with, but more in obedience to the
request and pursuant to the policy of our Government to allocate lands to
the landless. The power of taxation is sometimes called also the power to
destroy. Therefore it should be exercised with caution to minimize injury to
the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly.
Tanada v. Angara, Compare with Police Power and Eminent Domain
Facts: World Trade Organization Agreement was signed and ratified and
concurred to by the Senate. Petitioners were filed assailing the Agreement as
violating constitutional provisions on the national economy and the Filipino
First Policy and power to tax of Congress
Ruling: Against petitioners.Ratification of WTO Agreement is valid restriction
of legislative power..

Held: While sovereignty has traditionally been deemed absolute and allencompassing on the domestic level, it is however subject to restrictions and
limitations voluntarily agreed to by the Philippines, expressly or impliedly, as
a member of the family of nations. Unquestionably, the Constitution did not
envision a hermittype isolation. The sovereignty of a state therefore cannot
in fact and in reality be considered absolute. Certain restrictions enter into
the picture: (1) limitations imposed by the very nature of membership in the
family of nations and (2) limitations imposed by treaty stipulations1 The
Philippines has entered into many other international pactsboth bilateral
and multilateralthat involve limitations on Philippine sovereignty. In the
foregoing treaties, the Philippines has effectively agreed to limit the exercise
of its sovereign powers of taxation, eminent domain and police power
LTO v. City of Butuan, Compare with Police Power and Eminent
Domain
Facts: the City Government of Butuan enacted an ordinance providing
payment of franchise fees for passenger tricycles, and fees for a driving
permit and vehicle registration. LTO objects to this, stating the only the
power to provide for franchises was transferred to local governments, not for
vehicle registration and driving permit. RTC and CA sided in favour of City of
Butuan,
Ruling: Against City of Butuan. Driving permit and vehicle registrations are
properly the domain of LTO, and was not devolved to LGUs, implied repeals
not being favoured.
Held: Police power and taxation, along with eminent domain, are inherent
powers of sovereignty which the State might share with LGUs by delegation
given under a constitutional or a statutory fiat. All these inherent powers are
for a public purpose and legislative in nature but the similarities just about
end there. The basic aim of police power is public good and welfare.
Taxation, in its case, focuses on the power of government to raise revenue in
order to support its existence and carry out its legitimate objectives.
Although correlative to each other in many respects, the grant of one does
not necessarily carry with it the grant of the other. The two powers are, by
tradition and jurisprudence, separate and distinct powers, varying in their
respective concepts, character, scopes and limitations.

1 As aptly put by John F. Kennedy, Today, no nation can build its destiny alone. The age of
self-sufficient nationalism is over. The age of interdependence is here.

Phil. Match Co v. Cebu, Compare with Police Power and Eminent

Domain
Facts: Cebu City Ordinance No. 279 imposed quarterly tax on gross sales or
receipts of merchants, dealers, importers & manufacturers of any commodity
doing business. Phil Match sought a refund from Cebu City for out-of-town
deliveries of matches denied. RTC upheld that out-of-town deliveries were
taxable in Cebu City, thus no refund.
Ruling: Against Phil Match. No refund for sales tax.
Held: 1) The taxing power validly delegated to cities and municipalities is
defined in the Local Autonomy Act, RA No. 2264 Based on this law, chartered
cities like Cebu are not prohibited from imposing percentage taxes 2)
Because the sellers place of business is in Cebu City, it cannot be sensibly
argued that such sales should be considered as transactions subject to the
taxing power of the political subdivisions where the customers resided and
accepted delivery of the matches sold.

Matalin v. Mun. Council of Malabang, Compare with Police Power

and Eminent Domain
Facts: Mun. Council of Malabang, Lanao del Sur enacted ordinance No. 45-46
making it unlawful for persons to ship cassava startch or flour outside of
Malabang without paying fees to the Treasurer. This was challenged by
Manila coconut. RTC declared the ordinance null and void.
Ruling: Against Municipality. Ordinance is unconstitutional
Held: 1) Indeed, the amount collected under the ordinance in question
partakes of the nature of a tax, although denominated as "police inspection
fee" since its undeniable purpose is to raise revenue, SC disagrees with RTC
finding that the tax imposed by the ordinance is a percentage tax on sales
which is beyond the scope of the municipality's authority to levy under Sec.
2 of the LAA. The tax imposed under the ordinance in question is not a
percentage tax on sales or any other form of tax based on sales. It is a fixed
tax of P.30 per bag of cassava starch or flour "shipped out" of the
municipality, not based on sales. 2) The so-called "police inspection fee"
levied by the ordinance is "unjust and unreasonable." The inspection fee of
P0.30 per bag was also found to be excessive and confiscatory. The
ordinance, therefore, has an adverse effect on the economic growth of the
Municipality of Malabang, in particular, and of the nation, in general, and is
contrary to the economic policy of the government.

Lutz v. Araneta, Compare with Police Power and Eminent Domain

Facts: Challenge to the validity of CA 567, The Sugar Adjustment Act.
Essentially taxes were collected to stabilize the sugar entity as it lost the
preferential position in the US market. Lutz, the administrator of Ledesmas
estate, sought a refund claiming the law is void since it was not for a public
purpose.
Ruling: Against petitioner. Sugar Adjustment Act is a valid tax measure
through police power.
Held: This Court can take judicial notice of the fact that sugar production is
one of the great industries of our nation. Legislature found the general
welfare demanded that the sugar industry should be stabilized; sugar
industry is a matter of public concern. Thus the only criteria for analysis is
reasonableness, which the law passes, as it is inherent in the state to be free
to select the subjects of taxation.

NTC v. CA, Compare with Police Power and Eminent Domain

Facts: NTC demanded from PLDT payment for 1) supervision and regulation
fee 2) permit fee. NTC contends that the fee under Section 40 (e) should be
based on the market value of PLDTs outstanding capital stock inclusive of
stock dividends and premium, and not on the par value of PLDTs capital stock
excluding stock dividends and premium, as contended by PLDT.
Ruling: Against NTC. Capital stock subscribed or paid is the basis of the fees,
as PLDT contends.
Held: 1) The fee in question is based on the capital stock subscribed or paid,
nothing less nothing more. Since Congress has the power to exercise the
State inherent powers of Police Power, Eminent Domain and Taxation, the
distinction between police power and the power to tax, which could be
significant if the exercising authority were mere political subdivisions (since
delegation by it to such political subdivisions of one power does not
necessarily include the other), would not be of any moment when, as in the
case under consideration, Congress itself exercises the power. All that is to
be done would be to apply and enforce the law when sufficiently definitive
and not constitutional infirm.

Tan v. Del Rosario, Essential Characteristics of Taxes

Facts: Rufino Tan assails RA 7946 (Simplified Net Income Taxation
Scheme/SNIT) on three grounds 1) one bill, one subject doctrine 2) uniform
and equitable taxation 3) due process and equal protection
Ruling: Against Tan. RA 7946 is not unconstitutional.
Held: 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.
CIR v. Santos, Essential Characteristics of Taxes
Facts: Viray, Regional Director of the BIR issued Regional Mission Order 10988 to conduct surveillance, monitoring, and inventory of all imported articles
of Hans Brumann, Inc. and other jewelers, and determine whether they have
been paying correct taxes. Respondents assailed several provisions of the
NIRC for being confiscatory and destructive. RTC sided with respondents,
henc CIR appealed.
Ruling: Against respondents. Provisions are not null and void
Held: Respondent judge encroached upon matters properly falling within the
province of legislative functions and took it upon himself to supplant
legislative policy regarding jewelry taxation. In effect, he decided matters
which are not for him to decide by comparing tax rates on jewelry levied by
different Asian countries. in imposing the aforementioned taxes and duties,
the State, acting through the legislative and executive branches, is
exercising its sovereign prerogative. It is inherent in the power to tax that the
State be free to select the subjects of taxation, and it has been repeatedly
held that "inequalities which result from a singling out or one particular class
for taxation, or exemption, infringe no constitutional limitation.
Caltex v. COA supra, Taxes Distinguished from Debts
Facts: See above

Ruling: See above

Held: It is settled that 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.

Francia v. IAC, Taxes Distinguished from Debts

Facts: Property belonging to Francia in Pasay was expropriated by the
Republic. In the following years, he failed to pay real estate taxes, thus his
property was sold at an auction. Francia contends that the tax delinquency
should have been set of by the Republics indebtedness to him.
Ruling: Against Francia. No set-off/legal compensation can be had
Held: By legal compensation, obligations of persons, who in their own right
are reciprocally debtors and creditors of each other, are extinguished (CC
Art. 1279). The circumstances of the case do not satisfy the following
requirements provided by Article 1279: (1) That each one of the obligors be
bound principally and that he be at the same time a principal creditor of the
other (3) that the two debts be due (The collection of a tax cannot await
the results of a lawsuit against the government.) The Court has
consistently ruled that there can be no offsetting of taxes against the claims
that the taxpayer may have against the government.

RP v. Ericta and Samapaguita Pictures, Taxes Distinguished from

Debts
Facts: Post-World War II, Sampaguita Pictures, Inc. incurred obligations
amounting to 10,268 for percentage, withholding and amusement taxes. As
payment it submitted 16 back pay negotiable certificates of indebtedness in
the amount of 16,763. OSG contested this, as they contend that only the
original holders of backpay certificates can use such for payment as per the
case of Borja. Sampaguita contends that legal compensation took place upon
acceptance of tender and in good faith before Borja.
Ruling: RTC dismissal upheld

Held: (RTC decision, affirmed by SC): The delivery of the back pay certificates
did not produce the effect of payment in view of the doctrine in Borja. This
notwithstanding, Sampaguita, as assignee of the certificates of
indebtedness, had succeeded to the original rights of the holders thereof and
was therefore authoried to demand payment by the Republic of the
indebtedness thereby represented. While there was the opinion that legal
compensation cannot take place against the Republic with respect to taxes,
fees, duties and similar forced contributions due to it, there could be no
gainsaying the proposition that, under the facts, Sampaguita was entitled to
judgment upon its counterclaim for the payment by the Republic of its
indebtedness by virtue of the back pay certificates in question, with the
ultimate result that the claim and counterclaim of the plaintiff and the
defendant respectively will offset each other.\

Republic v. Mambulao Lumber, Taxes Distinguished from Debts

Facts: Mambulao Lumber paid the Republic of the Phils. 9,127 in reforestation
charges. It contends that since this sum was not used for reforestation of the
license area, it may either be a) refunded in full or b) compensated with the
4,802 due to the Republic, this time as forest charges. CFI chose option b).
Held: Against Mambulao. Legal compensation cannot take place.
Ruling: 1) Reforestation Fund is payable by Mambulao irrespective of whether
the area covered by his license is reforested or not. 2) The Company and the
Republic are not mutually creditors and debtors of each other because the
government does not owe anything, thus legal compensation is inapplicable
(See CC Art. 1278) 3) The general rule, based on grounds of public policy is
well-settled that no set-off is admissible against demands for taxes levied for
general or local governmental purposes. This is because taxes are not the
nature of contracts. Moreover, if the taxpayer's claim is disputed, the
collection of the tax must await and abide the result of a lawsuit, and
meanwhile the financial affairs of the government will be thrown into great
confusion.

Philex Mining v. CIR, Taxes Distinguished from Debts

Facts: A total of 123M was assessed by BIR for Philex tax liabilities 19911992. Philex countered that is has pending claims for VAT refund 1989-1991,

and that these should be compensated with each other. CTA sided with CIR,
holding that since the refund claims are pending litigation, such are not
liquidated, aside from the GR that taxes are not subject to legal
compensation. After the CTA ruling, Philex got a favourable judgment in the
refund, while insisting still on compensation.
Held: Against Philex. Compensation cannot take place
Ruling: Taxes cannot be subject to compensation for the simple reason that
the government and the taxpayer are not creditors and debtors of each
other. There is a material distinction between a tax and debt. Debts are due
to the Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity. The case CIR v. Itogon-Suyoc Mines,
Inc., wherein we ruled that a pending refund may be set off against an
existing tax liability even though the refund has not yet been approved by
the Commissioner, is no longer without any support in statutory law, since
the provision was omitted in the 1979 NIRC.

Domingo v. Garlitos, Taxes Distinguished from Debts

Facts: In the proceedings settling the estate of Price, CFI ordered the estate
to pay inheritance taxes. But a different CFI judge denied the motion for
execution of the judgment, holding that due to the Governments
indebtedness to the estate (262,000) via a contract. Domingo, CIR Comm,
challenged this CFI ruling
Held: Held against Comm. Domingo. Set-off is proper
Ruling: The lower court did not err in ruling that the claim of the government
against the estate can be deducted from the amount it is bound to pay.
Under the Civil Code, if both parties are creditors and debtors of each other
and all the requisites of legal compensation are present, compensation takes
effect by operation of law and both debts are extinguished to the concurrent
amount. In this case, the claim of the estate against the Government has
been recognized (by President Carlos P. Garcia) and an amount of 262,200
has already been appropriated. Thus, both the claim of the Government for
inheritance taxes and the claim of the intestate for services have already
become overdue and demandable. Being demandable and fully liquidated,
compensation takes place by operation of law. Thus, the indebtedness for
inheritance tax incurred by the estate to the Government can be deducted
from the indebtedness by the Government to the estate

Progressive Devt Corp v. Quezon City, Taxes Distinguished from

License Fee
Facts: QC City adopted an ordinance (Market Code of QC) imposing 5% tax
on rent/lease of spaces in privately owned public markets in the area. The
operator of Farmers Market sued on the basis that the tax is in fact a tax on
income rather than a license fee or supervisory tax.
Held: Against Progressive Devt. Ordinance is in the nature of a license fee
Ruling: 1) The scope of legislative authority conferred upon the Quezon City
Council in respect of businesses like that of the petitioner, is comprehensive:
the grant of authority is not only" [to] regulate" and "fix the license fee," but
also " to tax." (RA 537, QC Charter). 2) To be considered a license fee, the
imposition questioned must relate to an occupation or activity that so
engages the public interest in health, morals, safety and development as to
require regulation for the protection and promotion of such public interest;
the imposition must also bear a reasonable relation to the probable expenses
of regulation, taking into account not only the costs of direct regulation but
also its incidental consequences as well. Accordingly, a charge of a fixed sum
which bears no relation at all to the cost of inspection and regulation may be
held to be a tax rather than an exercise of the police power. The regulation
was done in the exercise of police power, as Farmers is while a privately
owned market, a public market.

ESSO v. CIR, Taxes Distinguished from License Fee

Facts: ESSO is a petroleum company. It in total, is claiming a refund of 102k
for 1959 and 434K for 1960, for margin fees plus interest it paid the Central
Bank, (from remitting profits to the Head Office in New York). The issue is
W/N the margin fees is a police power or tax measure
Held: Against ESSO. The margin fee is a police power measure
Ruling: Margin fee is not a tax but a form of exchange control or restriction
designed to discourage imports and encourage exports, and ultimately,
'curtail any excessive demand upon the international reserve' in order to
stabilize the currency. The margin fee was imposed by the State in the
exercise of its police power and not the power of taxation. So while a tax is

levied to provide revenue for government operations, the proceeds of the

margin fee, on the other hand, are applied to strengthen our country's
international reserves.

Apostolic Prefect v. Treasurer of Baguio, Taxes Distinguished from

Special Assessment/Levies
Facts: The City of Baguio passed an ordinance seeking to impose a special
assessment against properties within Baguio. The Apostolic Prefect paid the
taxes under protest, contending the property in question is dedicated to
worship and teaching, but since it benefitted from the drainage and sewage
system of the City, it was taxed anyway.
Held: Against Apostolic. The ordinance was in the nature of an assessment
Ruling: Special contributions that are created and charged to amortize
extraordinary expenses incurred due to works such as the drainage and
sewage system, which benefit (from a special way) the people is not a tax in
the legal sense. According to the ordinance, the special contribution was
created to amortize the extra costs caused by the drainage and sewage
system, works that benefit (in a special way) all proprietors in the city. The
differences between a special assessment and a tax are: (1) a special
assessment can be levied only on land; (2) a special assessment cannot (at
least in most states) be made a personal liability of the person assessed; (3)
a special assessment is based wholly on benefits; and (4) a special
assessment is exceptional both as to time and locality.

NDC v. CIR
Facts: National Development Company contracted with Japanese shipbuilders
in Tokyo for 12 ocean vessels. CIR held NDC liable for tax withheld on the
interest on the balance of the purchase price
Held: Against NDC.
Ruling: 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

(From Section 53 of the Tax Code). NDC was liable for this omission, so it
does not matter that NDC alleged that it was an administrator of the funds of
the Republic.

Republic v. Gonzales, Tax Evasion and Tax Avoidance

Facts: Gonzales is a concessionaire (manufacture of furniture) in Clark Air
Base, Angeles City. His total sales for two years were taxable but
underdeclared by around 400k. Gonzales alleged he is not covered by RP tax
laws since he is in an American base
Held: Against Gonzales, liable to pay deficiencies.
Ruling: The failure of the appellant to declare for taxation purposes his true
and actual income derived from his furniture business at the Clark Field Air
Base for two consecutive years is an indication of his fraudulent intent to
cheat the Government of its due taxes.

Delpher Traders v. IAC, Tax Evasion and Tax Avoidance

Facts: The Pachecos owned land in what is now Valenzuela (Municipality of
Polo) which was leased to Construction Components Intl (CCI). A deed of
exchange was executed between Pachecos and Delpher where the Pachecos
conveyed another parcel. Hydro Pipes alleges this was a scheme to avoid
paying taxes, while one of the Pachecos, an accountant says this is estate
planning
Held: Against Hydro Pipes. No tax evasion by the Pachecos and CCI.
Ruling: What they really did was to invest their properties and change the
nature of their ownership from unincorporated to incorporated form by
organizing Delpher Trades Corporation to take control of their properties and
at the same time save on inheritance taxes. The records do not point to
anything wrong or objectionable about this "estate planning" scheme
resorted to by the Pachecos. The legal right of a taxpayer to decrease the
amount of what otherwise could be his taxes or altogether avoid them, by
means which the law permits, cannot be doubted.

CIR v. Lincoln Phil. Life Insurance, Tax Evasion and Tax Avoidance
Facts: Before 1984, Lincoln had an insurance policy named Junior Estate
Builder Policy which had an initial amount to increase after attaining a
certain age. Documentary stamp taxes were paid only for the original
amount, thus deficiency was assessed for the remaining.
Held: Against CIR. Deficiency assessment cancelled.
Ruling: While tax avoidance schemes and arrangements are not prohibited,
tax laws cannot be circumvented in order to evade the payment of just
taxes. In the case at bar, to claim that the increase in the amount insured (by
virtue of the automatic increase clause incorporated into the policy at the
time of issuance) should not be included in the computation of the
documentary stamp taxes due on the policy would be a clear evasion of the
law requiring that the tax be computed on the basis of the amount insured
by the policy

Asturias Central v. Commissioner, Administrative Issuances

Facts: Asturias, a producer and miller of sugar. It imported Jute bags which
were tax exempt provided that the bags will be exported one year from
importation. 86k bags were not exported within one year. CIR ordered
Asturias to pay import taxes. CIR and CTA denied the refund.
Held: Against Asturias. No refund for Jute bag import taxes
Ruling: Philippine Tariff Act of 1909 and the Tariff and Customs Code, which
Administrative Order 389. The formal or informal interpretation or practical
construction of an ambiguous or uncertain statute or law by the executive
department or other agency charged with its administration or enforcement
is entitled to consideration and the highest respect from the courts, and
must be accorded appropriate weight especially when the construction or
interpretation is long continued and uniform or is contemporaneous with the
first workings of the statute, or when the enactment of the statute was
suggested by such agency. Here, the AO here is in consonance with the Tariff
Act, the SC accords this construction great respect

CIR v. Seagate, Administrative Isssuances

Facts: Seagate, a resident foreign corporation filed for refunds which CIR
ignored, forcing recourse to the CTA, and the CA both of which granted the
refund but reduced the amount.
Held:
Ruling: As a PEZA-registered enterprise within a special economic zone,
Seagate is entitled to the fiscal incentives and benefit. Seagate is an entity
exempt from internal revenue laws and regulations. This exemption
covers both direct and indirect taxes (no taxes, local and national, shall be
imposed on business establishments operating within the ecozone)
A mere administrative issuance, like a BIR regulation, cannot amend the law;
the former cannot purport to do any more than interpret the latter. Other
than the general registration of a taxpayer the VAT status of which is aptly
determined, no provision under our VAT law requires an additional
application to be made for such taxpayers transactions to be considered
effectively zero-rated. An effectively zero-rated transaction does not and
cannot become exempt simply because an application therefor was not
made or, if made, was denied. To allow the additional requirement is to give
unfettered discretion to those officials or agents who, without fluid
consideration, are bent on denying a valid application. Moreover, the State
can never be estopped by the omissions, mistakes or errors of its officials or
agents.

CIR v. San Miguel Corporation (SMC), Administrative Issuances

Facts: RA 8424 provided for excise tax on fermented liquor to increase by
12%. Taxes were assessed on Red Horse Beer produced by SMC, and the
value used here was the rate that MSC used to pay for Red Horse, which is
lower than the 12%, on the basis of Section 1 of Revenue Regulations No. 1799 that adds that that the new specific tax rate for fermented liquors shall
not be lower than the excise tax that is actually being paid prior to January 1,
2000 SMC argues that this Regulation has no basis in the plain wording of
Section 143. CA held that the RR expanded the RA
Held: Against CIR. RR expanded the RA.
Ruling: In case of discrepancy between the basic law and a rule or regulation
issued to implement said law, the basic law prevails as said rule or regulation
cannot go beyond the terms and provisions of the basic law. In this case, RR

went beyond the provisions of the RA.

CIR v. Fortune Tobacco, Administrative Issuances

Facts: Pre-1997, excise on cigarettes are ad valorem, but after RA 8240, it
shifted to specific taxes. In implementation of RA 8240, CIR issued RR 17-99.
Fortune Tobacco filed for a refund for erroneously collected taxes which was
granted by CTA. Fortune contends that the CIR went beyond the language of
law because RR 17-99 requires the payment of excise tax actually paid prior
to January 1, 2000, if the amount is higher than the new specific tax rate,
where none was stated in the RA.
Held: Against CIR. RR went beyond RA (again)
Ruling: See case above, CIR v. SMC. In this case, cigarettes were not even
included in the law. Had Congress intended to tax also liquors etc. the same
way as cigarettes in the 1996 provision, such should have been reproduced
in the other sections of the Tax Code referring to these other products.

CIR v. Burroughs, BIR Rulings

Facts: Burroughs filed a claim for refund for profit remittance tax (the profit
actually remitted abroad and not on the total branch profits). CIR granted
refund due to a BIR ruling interpreting a provision of NIRC. Now, it argues
that a subsequent memorandum revoked/repealed the said ruling.
Held: Against CIR. New BIR ruling cannot be given retroactive effect.
Ruling:
Sec. 327 of NIRC Non-retroactivity of rulings. 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 misstates 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 are materially different from the facts on
which the ruling is based, or (c) where the taxpayer acted in bad faith.

CIR v. Mega Gen Merchandise, BIR Rulings

Facts: Mega Gen asked CIR w/n imported crude paraffin wax is subject to
specific tax. Fmr. Comm. Vera that said wax was not included, to which they
filed a refund. Acting Comm. Plana denied the claim for refund via a letter.
SC clarified that the ruling of Fmr. Vera still applied to this case, despite a
new ruling by Acting Comm. Vera
Held: Against CIR. Paraffin not subject to specific tax.
Ruling: As a result, the rulings of May 8, 1978 and February 15, 1980 having
been issued long after the importations on June 21 and August 17, 1977 in
question cannot be applied with legal effect in this case because to do so will
violate the prohibition against retroactive application of the rulings of
executive bodies.

PBCOM v. CIR, BIR Rulings

Facts: Relying upon an RMC inconsistent with the provisions of the NIRC,
PBCOM filed a suit with the CTA to recover tax erroneously collected beyond
the two-year prescriptive period set by law. The CTA denied the petition and
the MR on the ground that it was filed beyond the prescriptive period set by
the NIRC. PBCOM appealed the decision of the CTA to the SC, arguing that it
relied in good faith upon the BIRs RMC, which extended the period to file a
suit to recover erroneously collected tax to ten years
Held: Against PBCOM. Refund denied.
Ruling: The non-retroactivity of rulings by the Commissioner of Internal
Revenue is not applicable in this case because the nullity of RMC No. 7-85
was declared by respondent courts and not by the Commissioner of Internal
Revenue. A memorandum-circular of a bureau head could not operate to vest
a taxpayer with a shield against judicial action. For there are no vested
rights to speak of respecting a wrong construction of the law by the
administrative officials and such wrong interpretation could not place the
Government in estoppel to correct or overrule the same.

Commissioner of Customs v. Hypermix Feeds Corporation, Customs

Regulations
Facts: Comissioner of Customs (COC) issued CMO 27-2003, regulating tariffs
on wheat depending on factors such as: (1) importer or consignee (2)
country of origin and (3) port of discharge. SC ruled that these regulations
violated a) due process, b) equal protection c) failure to observe requirement
under the Admin Code (filing, public participation) d) expanding the scope of
the law.
Held: Against CoC. CMO 27-2003 declared null and void.
Ruling: In effect, petitioner Commissioner of Customs diminished the powers
granted by the Tariff and Customs Code with regard to wheat importation
when it no longer required the customs officers prior examination and
assessment of the proper classification of the wheat. It is wellsettled that
rules and regulations, which are the product of a delegated power to create
new and additional legal provisions that have the effect of law, should be
within the scope of the statutory authority granted by the legislature to the
administrative agency.

Carbonilla v. Board of Airlines, Customs Regulation

Facts: Bureau of Customs, approved by DOF and pursuant to the Tariff and
Customs Code, issued CAO 1-2005 mandating increase of overtime pay for
airline companies. This was opposed by the Board of Airlines
Held: Against Board of Airlines. CAO is valid.
Ruling: Sec. 3506 of the TCCP did not fail the completeness and sufficient
standard tests. First, the law is complete in itself that it leaves nothing more
for the BOC to do: it gives authority to the COC to assign customs employees
to do overtime work; the COC fixes the rates; and it provides that the
payments shall be made by the importers, shippers or other persons served.
Second, it also fixed the standard to be followed by the COC when it provides
that the rates shall not be less than that prescribed by law to be paid to
employees of private enterprise. The CAO also met the requirements for
rate-fixing imposed under Sec. 9(2), Chapter I, Book VII of the Administrative
Code for rate fixing

Tuzon v. CA, Tax/Revenue Ordinances

Facts: For the construction of the Sports and Nutrition Center Building, the
Sangguniang Bayan of Camalaniugan enacted Resolution No. 9, soliciting 1%
donation from thresher operators for a permit to thresh rice. Jurado refused
to comply with the Resolution, therefore the Municipal Treasurer and Mayor
would not accept his payment of the Threshing Permit. He went to the RTC to
assail the ordinance and compel them to issue the permit. RTC and CA
upheld the ordinance, but the latter court adjudged damages to be paid by
the public officers. The SC discussed the requirements of a valid Tax/Revenue
Ordinance, and ruled that no damages are in order for Jurado
Held: For petitioners, since they are not liable for damages
Ruling: If, on the other hand, it is to be considered a tax ordinance, then it
must be shown (for the Ordinance to be valid), to have been enacted in
accordance with the requirements of the Local Tax Code. These would
include the holding of a public hearing on the measure and its subsequent
approval by the Secretary of Finance, in addition to the usual requisites for
publication of ordinances in general.

Hagonoy Market Vendor v. Municipality of Hagonoy

Facts: Municipality of Hagonoy enacted an ordinance, Kautusan Blg. 28,
which increased the stall rentals of market vendors in the Municipality. This
municipal ordinance was upheld in effect, as a valid source of tax law
Held: Against Market Vendors. Kautusan Blg. 28 is valid
Ruling: Ordinance No. 28 is a revenue measure adopted by the municipality
of Hagonoy to fix and collect public market stall rentals. Being its lifeblood,
collection of revenues by the government is of paramount importance. The
funds for the operation of its agencies and provision of basic services to its
inhabitants are largely derived from its revenues and collections. Thus, it is
essential that the validity of revenue measures is not left uncertain for a
considerable length of time. Hence, the law provided a time limit for an
aggrieved party to assail the legality of revenue measures and tax
ordinances.
Jardine Davies Insurance v. Aliposa, Tax/Revenue Ordinances

Facts: Makati City Council enacted Ordinance No. 92, provided schedule of
taxes (real estate, business, and franchise) in Makati. Jardine Davies was
billed and it paid without protest but it later wrote the Treasurer to compute
its tax liabilities using the Metro Manila Revenue Code which was declared
void by DOJ. But RTC declared the Makati Ordinance valid
Held: Against Jardine Davies. Taxes computed under Makati Ordinance, which
is valid.
Ruling: petitioner was proscribed from filing its complaint with the RTC of
Makati for the reason that petitioner failed to appeal to the Secretary of
Justice within 30 days from the effectivity date of the ordinance as mandated
by Section 187 of the Local Government Code.

Tanada v. Angara, supra, Tax/Revenue Ordinances

Facts: See above cases
Held: WTO Agreement and its ratification is constitutional and valid
Ruling: The Philippines has entered into many other international pactsboth
bilateral and multilateralthat involve limitations on Philippine sovereignty.
In the foregoing treaties, the Philippines has effectively agreed to limit the
exercise of its sovereign powers of taxation, eminent domain and police
power.

Deutsche Bank AG Manila Branch v. CIR

Facts: Believing the taxes from branch profit remittance 2002 and prior were
overpaid, it filed a refund and a 10% preferential tax rate under RP-Germany
treaty. CTA refused refund since it violated the 15 day rule to tax relief
application.
Held: Against CIR. BIR cannot impose additional requirements that would
negate availment of the reliefs in international agreements
Ruling: The time-honored international principle of pacta sunt servanda
demands the performance in good faith of treaty obligations on the part of
the states that enter into the agreement. Every treaty in force is binding
upon the parties, and obligations under the treaty must be performed by
them in good faith. More importantly, treaties have the force and effect of

law in this jurisdiction.

Pascual v. Sec of Public Works and Communication, Public Purpose

Facts: Pascual, the Governor of Rizal, filed action to assail RA 920
(Appropriation for Public Works) because the roads to be constructed were on
private property of Zulueta. It was initially dismissed because lower court
said Governor Pascual had no standing to sue.
Held: Remanded for further proceedings. Pascual has standing as taxpayer,
Ruling: Taxpayers have sufficient interest in preventing the illegal
expenditure of moneys raised by taxation and may therefore question the
constitutionality of statutes requiring expenditure of public moneys.
Philcomsat v. Alcuaz, Delegation of Taxation Power
Facts: EO 196 put Philcomsat under the control of NTC. NTC ordered
Philcomsat to reduce its rate (less 15%) Philcomsat challenged this as undue
delegation of legislative power
Held: NTC Order was valid delegation of power BUT deprived Philcomsat of
due process. Therefore, the order is void.
Ruling: A delegation of legislative power may be sustained only upon the
ground that some standard for its exercise is provided and that the
legislature in making the delegation has prescribed the manner of the
exercise of the delegated power. . In case of a delegation of rate-fixing
power, the only standard which the legislature is required to prescribe for the
guidance of the administrative authority is that the rate be reasonable and
just. However, it has been held that even in the absence of an express
requirement as to reasonableness, this standard may be implied

Meralco v. Province of Laguna, Delegation of Taxation Power

Facts: Province of Laguna, invoking the Local Govt Code, enacted an
ordinance imposing tax on businesses with a franchise. Meralco contests this
tax, alleging that the franchise tax it had paid and continued to pay to the
National Government pursuant to P.D. 551 already included the franchise tax

imposed by the ordinance.

Held: Imposition of franchise tax is proper.
Ruling: Local governments do not have the inherent power to tax except to
the extent that such power might be delegated to them either by the basic
law or by statute. Presently, under Article X of the 1987 Constitution, a
general delegation of that power has been given in favor of LGUs.
Pepsi-Cola Co. City of Butuan, Delegation of Taxation Power
Facts: Butuan City ordinance imposed taxes on bottles of softdrinks and
liquors. This was challenged in the ground that this was a undue delegation
of legislative power.
Held: Against Butuan. Ordinance is highly unjust and discriminatory
Ruling: 1) The general principle against delegation of legislative powers, in
consequence of the theory of separation of powers is subject to one wellestablished exception, namely: legislative powers may be delegated to local
governmentsto which said theory does not applyin respect of matters of
local concern. 2) It is violative of the uniformity required by the Constitution
and law therefor since only sales by agents or consigness of outside
dealers would be subject to the tax. Sales by local dealers, not acting for or
on behalf of other mechants, 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.

Smith Bell and Co. v. CIR, Delegation of Taxation Power

Facts: Petitioner imported 199 cases of Chatteu Gay wine, declared as still
wine, taxable at 1 peso per liter. When it was sent to the lab for analysis, it
was revealed that it was sparkling wine. Petitioner assails the authority of
Commissioner to determine which is sparkling wine:
Held: Commissioners etermination of sparkling wine is valid
Ruling: The section therefore 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 demonstrably

guided by the sound established practices and technology of the wine
industry, an industry as aged and widely dispersed as one can care to know.

City Govt of QC v. Bayantel, Delegation of Taxation Power

Facts: Bayantel is exempt from real estate property taxes due to RA 3259 but
was withdrawn expressly by the Local Government Code. But the franchise of
Bayantel (now RA 7633) re-enacted the provision of the previous charter.
Issue is whether or not Bayantel is still exempt from real estate tax
Held: Bayantel still exempt. Cannot impose real estate tax on Bayantel
Ruling: The realty tax exemption heretofore enjoyed by Bayantel under its
original franchise, but subsequently withdrawn by force of Section 234 of the
LGC, has been restored by Section 14 of Rep. Act No. 7633. The exercise of
local governments power to tax 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.

Garcia v. Executive Secretary, Delegation of Taxation Power

Facts: EO 438, 443, 475 and 478was issued, imposing additional ad valorem
tax of 5% on all imported articles, increased to 9% then back to 5% then
back to 9%. Petitioners argue that these Eos are against the constitution
Held: Against petitioner. Eos are constitutional.
Ruling: Section 28(2) of Article VI of the Constitution provides as follows:
(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. There is thus explicit constitutional permission to Congress to
authorize the President "subject to such limitations and restrictions is
[Congress] may impose" to fix "within specific limits" "tariff rates . . . and
other duties or imposts .There is nothing in the language of either Section

104 or of 401 of the Tariff and Customs Code that suggest such a sharp and
absolute limitation of authority. only "to protect local industries and products
for the sake of the national economy, general welfare and/or national
security."
CIR v. CA, Delegation of Taxation Power
Facts: RA 7654 was passed, imposing 55% ad valorem tax on locally
produced cigarettes under foreign brands., compared to only 45% for other
local brands The CIR issued RMC 3793 which imposes said tax rate on Hope,
Champion and More cigarette brands owned by Fortune Tobacco. Prior to the
RMC, the tax rate applied to said brands are 40% and 25% in cases
applicable. Fortune sought for a review, reconsideration and recall of RMC
3793. Both the CTA and CA ruled in its favor. The SC likewise ruled for
Fortune, noting the lack of public hearing and publication and the possible
infringement of uniformity of taxation.
Held: RMC 37-93 is a legislative rule, and not an interpretative rule.
Ruling: In so doing, the BIR not simply interpreted the law verily, it legislated
under its quasi-legislative authority. The due observance of the requirements
of notice, of hearing, and of publication should not have been then ignored.
Since it substantially adds to or increases the burden of those governed, it
behooves the agency to accord at least to those directly affected a chance to
be heard, and thereafter to be duly informed, before that new issuance is
given the force and effect of law.

Maceda v. Macaraig, Exemption of Government Agencies

Facts: Maceda assails the status of NPC as tax-exempt from all forms of
taxes. Maceda contends that this did not comprehend indirect taxes
Held: Against Maceda. NPC exempt from both direct and indirect tax
Ruling: A chronological review of the NPC laws will show that it has been the
lawmaker's intention that the NPC was to be completely tax exempt from all
forms of taxes direct and indirect. One common theme in all these laws is
that the NPC must be enabled to pay its indebtedness. The NPC must be
exempt from all forms of taxes if this goal is to be achieved. The rule on strict
interpretation does not apply in the case of exemptions in favor of a
government political subdivision or instrumentality. The basis for applying

the rule of strict construction to statutory provisions granting tax exemptions

or deductions is to minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers. The reason for the rule
does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an
exemption is merely to reduce the amount of money that has to be handled
by government in the course of its operations. For these reasons, provisions
granting exemptions to government agencies may be construed liberally, in
favor of non-tax liability of such agencies.

Mactan Cebu Airport v. Marcos, Exemption of Government Agencies

Facts: Mactan Cebu Intl Airport Authority (MCIAA) was created to manage
the MIA in Cebu. From its inception, it was exempt from realty taxes
according to its charter. Cebu demanded payment for realty taxes on several
parcels of land of MCIAA. Issue is W/N MCIAA is liable to pay real estate taxes
Held: Against MCIAA. Liable to pay real estate taxes.
Ruling: A claim of exemption from tax payments must be clearly shown and
based on language in the law. Taxation is the rule, exemption therefrom is
the exception. However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction does not apply
because the practical effect of the exemption is merely to reduce the amount
of money that has to be handled by the government in the course of its
operations. As to tax exemptions or incentives granted to or presently
enjoyed by natural or judicial persons, including government-owned and
controlled corporations, Section 193 of the LGC prescribes the general rule
that they are withdrawn upon the effectivity of the LGC, except those
granted to local water districts, cooperatives, non-stock and non-profit
hospitals and educational institutions, and unless otherwise provided in the
LGC.
Manila Gas v. Collector, Territoriality of Situs of Taxation
Facts: : Manila Gas paid taxes under protest for the ff: (i) dividends; (ii)
interest on bonds; and (iii) other indebtedness made to its foreign affiliates. It
asserts that these items were not generated in the Philippines and therefore
should not be taxed here.
Held: Against Manila Gas. Such mentioned items are income generated from
Philippine sources.

Ruling: If an interest in property is taxed, the situs of either the property or

interest must be found within the state. If an income is taxed, the recipient
thereof must have a domicile within the state or the property or business out
of which the income issues must be situated within the state so that the
income may be said to have a situs therein. Act No. 3761 expressly provides
for the imposition of a tax "... upon the income derived from interest upon
bonds and mortgages, or deeds of trust, notes, or other interest-bearing
obligations of a domestic or resident foreign corporation, ..." The income
derived from the interest on bonds and other indebtedness of the appellant
corporation, is clearly within the purview of the statute.

Vegertable Oil v. Trinidad

Facts: Vegeatable Oil is a foreign corporation engaged in the purchase of
copra to manufacture coconut oil, which it sells in the US. In 1922, it
purchased copra in RP then shipped them to US. CIR demanded 1% tax of
the shipments. It contends it was not a merchant and it was not taxable.
Held: Against Vegetable Oil. No refund.
Ruling: The statute itself does not provide that the sale, barter, or exchange
must take place in the Philippine Islands in order to make a person engaged
in such business a merchant. In the absence of words of limitation or
exemption in the statute, it cannot be assumed that in defining the word
"merchants," the class of persons required to pay consignment taxes, the
definition applies only to domestic and not to foreign merchants.
Wells Fargo Bank v. CIR, Situs of Taxation
Facts: CIR sought to collect estate taxes of the estate of Eye, which included
70,000 shares in Benguet Consolidated Mining Company, a corporation
organized and existing under Philippine laws. Wells Fargo averred that said
shares were already subjected to inheritance tax in California and hence
cannot be taxed again in the Philippines. that even though the Philippines
was considered a US territory at that time, it is still a separate jurisdiction
from the US in several aspects particularly taxation. The situs of taxation is
here in the Philippines because the situs of the shares of stock concerned is
here in the Philippines because of the fact that the said shares were issued
here by a Philippine corporation. Plus, the shares never left RP since title to
the shares was delivered to the secretary of the corporation in RP.

Held: Against petitioner. Shares are taxable

Ruling: Originally, the settled law in the US is that intangibles have only one
situs for the purpose of inheritance tax, and that such situs is in the domicile
of the decedent at the time of his death. But this rule has, of late, been
relaxed. The maxim mobilia sequuntur personam, has been described as a
mere "fiction of law having its origin in consideration of general convenience
and public policy, and cannot be applied to limit or control the right of the
state to tax property within its jurisdiction" and must "yield to established
fact of legal ownership, actual presence and control elsewhere, and cannot
be applied if to do so result in inescapable and patent injustice

Iloilo Bottlers v. Iloilo City, Situs of Taxation

Facts: Iloilo Bottlers moved its operations from Iloilo City to Municipality of
Pavia. Nevertheless, the City demanded payment of license tax (under
Ordinance No. 5), which Bottlers refused since it was no longer operating
there.
Held: Against petitioner. Bottlers still liable for tax.
Ruling: The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on
the privilege of distributing, manufacturing or bottling softdrinks. Being an
excise tax, it can be levied by the taxing authority only when the acts,
privileges or businesses are done or performed within the jurisdiction of said
authority. Specifically, the situs of the act of distributing, bottling or
manufacturing softdrinks must be within city limits, before an entity engaged
in any of the activities may be taxed in Iloilo City. As stated above, sales
were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to
declare the company liable under the tax ordinance

CIR v. BOAC, Situs of Taxation

Facts: British Airways (BOAC) a British-owned company, was assessed
income taxes as it derives revenue from ticket selling. BOAC asserts that its
revenue is actually derived from air transport and not ticket-selling.
Held: Agains BOAC. BOAC is engaged in ticket selling, therefore liable.
Ruling: The source of an income is the property, activity or service that

produced the income. 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 the case at bar: BOAC derived its revenue from
ticket sales in the Philippines. Payment for the tickets were made in the
Philippines and handed in Philippine currency. 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.

Hopewell Power v. CIR, Situs of Taxation

Facts: Hopewell, organized and existing under RP laws, entered into a
Mortgage executed in Hong Kong. It now claims a refund for the said
transaction,
Held: Against CIR. Said transaction is not taxable in the RP.
Ruling: Thus, the gauge for taxability does not depend on the location of the
office, but attaches upon the place where the respective transaction(s) is
perfected and consummated. Inasmuch as the MTI was executed and signed
in Hong Kong prior to the effectivity of Republic Act No. 7660, no DST is
imposable on the same in the Philippines. This conclusion is also in keeping
with one of the inherent limitations of taxation, namely, that it may be
exercised only within the territorial jurisdiction of the taxing authority.

Smith v. CIR, Situs of Taxation

Facts: Smith, an American controller at the Special Economic Zone in Subic,
Zambales paid income taxes in 1998. In 2000, he filed a refund claim,
alleging that being an employee of SSEZ he was exempt as per the Bases
Conversion and Development Act of 1992 (RA 7227).
Held: Against Smith. Exemption in RA 7727 does not apply to Smith
Ruling: Resident aliens within the SSEZ are still subject to the NIRC as far as
their income from within the Philippines is concerned. The exemption from
taxes, local or national, is actually intended to benefit only those registered
businesses and establishments operating within the territory and not to
individual taxpayers working within its parameters.

Collector v. Lara
Facts: Hugo Miller (American) was stationed in RP as representative of Ginn
and Co (book publisher) from 1922-1941, selling books for RP schools. Miller
lived at the Manila Hotel. Upon his death, his estate was assessed taxes by
the CIR for inheritance and estae taxes.
Held: Against Millers estate. Shares of stock are taxable in RP.
Ruling: 1) Miller was a resident of RP: At the time that the NIRC was
promulgated in 1939, the prevailing construction was that of Laras
argument. The two words were used interchangeably and without distinction
(residence and domicile). Miller never acquired a house for residential
purposes during his stay here in the Philippines. The bulk of his savings and
properties were in the US 2) Millers shares of stock in RP is taxable being a
non-resident of the Philippines, the only properties of his estate subject to
estate and inheritance taxes are those issued by Philippine corporations. The
actual situs of the shares of stock is in the Philippines, the corporation being
domiciled herein: and besides, the right to vote the certificates at
stockholders' meetings, the right to collect dividends, and the right to
dispose of the shares including the transmission and acquisition thereof by
succession, all enjoy the protection of the Philippines, so that the right to
collect the estate and inheritance taxes cannot be questioned.

Mitsubishi v. CIR, International Comity

Facts: for the Calaca II Project, Japan extended a loan to the RP on the
condition that the latter will assume all taxes imposed in the Philippines.
Thus, Mitsubishi which worked with NPC, was seeking a refund.
Held: Against CIR. Mitsubishi is entitled to a refund.
Ruling: Mitsubishi erroneously paid its income and branch profit remittance
taxes and is subject to a proper claim for refund under the tax code. The
Government of the Philippines, through NPC, binds itself to shoulder the tax
obligations and liabilities of petitioner.
Dissent of Judge Castaneda - International comity may not be invoked to
evade our tax laws. Thus, the Supreme Court held: It is too settled a rule in
this jurisdiction, as to dispense with the need for citations, that laws granting
exemption from tax are construed strictissimi juris against the taxpayer and
liberally in favor of the taxing power. Taxation is the rule and exemption is

the exception. The burden of proof rests upon the party claiming exemption
to prove that it is in fact covered by the exemption so claimed, which onus
petitioners have failed to discharge. Significantly, private respondents are
not even among the entities which, under Section 29(b)(7)(A) of the tax
code, are entitled to exemption and which should indispensably be the party
in interest in this case.
However, petitioner remedy, if any, is to seek a cash refund from NPC for the
equivalent amount of the income taxes and branch profit remittance taxes it
paid to the BIR.

P&G v. Municipality of Jagna, Double Taxation

Facts: The validity of Ordinance No. 4 of Jagna, Bohol is in question here,
imposing storage fees on all exportable copra deposited in the bodega within
its jurisdiction. P&G paid taxes under protest.
Held: Against P&G. The ordinance is NOT double taxation.
Ruling: For double taxation to exist, the same property must be taxed twice,
when it should be taxed but once. Double taxation has also been defined as
taxing the same person twice by the same jurisdiction for the same
thing. Surely, a tax on P&Gs products is different from a tax on the privilege
of storing copra in a bodega situated within the territorial boundary of
municipality.
Sanchez v. CIR, Double Taxation
Facts: Sanchez owns an accessoria building in Pasay City, living in one of
the units while renting out the rest. CIR demanded payment of income tax.
The issue here is W/N Sanchez is a real estate dealer, and whether there is
double taxation in this case (real estate tax and income tax)
Held: Against Sanchez, Yes, Sanchez is a real estate dealer, and this is not
double taxation.
Ruling: License tax may be levied upon a business or occupation although
the land or property used there in is subject to property tax", and that "the
state may collect an ad valorem tax on property used in a calling, and at the
same time impose a license tax on the pursuit of that calling", the imposition
of the latter kind of tax being in no sense a double tax.
Punzalan v. Municipal Board of Manila

Facts: Manila Ordinance No. 3398 imposed occupation tax on doctors,

dentists, lawyers etc. in accordance with the Charter of the City of Manila.
Having paid occupation tax under the NIRC, plaintiffs challenged the validity
of said ordinance.
Held: Against Punzalan, et.al. There is no double taxation
Ruling: The argument against double taxation may not be invoked where one
tax is imposed by the state and the other is imposed by the city, it being
widely recognized that there is nothing inherently obnoxious in the
requirement that license fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivisions
thereof.
CIR v. SC Johnson and Sons INC.
Facts: SC INC entered into a license agreement with SC USA, where it was
required to pay royalties for the use of the trademarks (25% tax on royalty
payments) SC INC filed with BIR to refund tax on royalties since pursuant to
the most-favored nation clause of the RP-US Tax Treaty in relation to the RPWest Germany Tax Treaty, USA is only subject to 10% tax
Held: For CIR. No refund is in order. 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 RPUS Tax Treaty is paid under similar circumstances as the tax on royalties
under the RP-West Germany Tax Treaty.
Ruling: 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. In
order to eliminate double taxation, a tax treaty resorts to several methods.
First, it sets out the respective rights to 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. Second, 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, 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.