TAXATION I

Arellano University School of Law

Course Outline
1st Semester, SY 2016-2017
ATTY. JACKIELYN N. ARCEO, CPA
Saturday (9AM 12NN)

REFERENCES

National Internal Revenue Code (NIRC) of the Philippines (RA 8424)

Law of Basic Taxation in the Philippines by Benjamin B. Abad
The Law on Income Taxation by Benjamin D. Teodoro and Hector S. De Leon
Compendium of Tax Laws and Jurisprudence by Jose Vitug
Taxation Vol. 1 (Gen. Principles) by Domondon
Reviewer on Taxation by Mamalateo
Philippine Income Tax by Mamalateo
Income Taxation by Valencia
Taxation Vol. 2 (Income Taxation) by Domondon

I. GENERAL PRINCIPLES OF TAXATION

A. Meaning, Nature, Basis, Characteristics and Purposes of Taxation

1. Meaning of tax, taxation, CIR v. Algue, 138 SCRA 9 (1988)

a. Taxation as an inherent power of the state

Abakada Guro Party List v. Ermita, GR No. 168056, 1 Sept. 2005

b. Tax as a general term, as a legal term

Compania General de Tabacos v. City of Manila, 8 SCRA 367 (1963)

c. Tax v. License and Regulatory Fee

Osmea v. Orbos, 220 SCRA 703 (1993)
PAL V. Edu, 164 SCRA 320 (1988)
Progressive Development v. QC, 172 SCRA 629 (1989)
Tolentino v. Sec. of Finance, 249 SCRA 628 (1995)

d. Tax v. Special Assessment

See. 240, R.A. 7160
Republic v. Bacolod-Murcia Milling Co., 17 SCRA 632 (1966)

e. Tax v. Toll
Sec. 153, R.A. 7160

f. Tax v. Penalty
Secs. 247-281

g. Tax v. Tariff and Customs Duties

Garcia v. Executive Secretary, 211 SCRA 219 (1992)

h. Obligation to pay tax v. Obligation to Pay Debt

Art. 1278, 1279, 1290 NCC
Republic v. Mambulao Lumber, 6 SCRA 858 (1962)
Philex Mining v. CIR, 294 SCRA 687 (1998)
Caltex v. COA, 208 SCRA 726 (1992)
Francia v. IAC, 162 SCRA 753 (1988)

i. Tax v. government revenue

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2. Essential Characteristics of Tax

Caltex v. COA, id.

3. Theory and Basis of Taxation

Lorenzo v. Posadas, 64 Phil 353 (1937)

CIR v. Algue, supra.

4. Purposes, Objectives of Taxation

a. General, fiscal, revenue

CIR v. Algue, supra.

Osmea v. Orbos, supra.
PAL v. Edu, supra.
Tolentino v. Secretary of Finance, 235 SCRA 630 (1994)

b. Non-revenue, special or regulatory

Osmea v. Orbos, supra.

Republic v. Bacolod-Murcia Milling Co., supra.
Tio v. Videogram Regulatory Board, 151 SCRA 208 (1987)
Lutz v. Araneta, 98 Phil 150 (1955)
Caltex v. COA, supra.
Esso v. CIR, 175 SCRA 149 (1989)

5. Classification of Taxes

a. As to scope of the tax

National taxes, local taxes

Benguet v. CBAA, 210 SCRA 579 (1992)

b. As to who shoulders the burden of the tax

Direct taxes, indirect taxes

Sec. 105, VAT
Tolentino v. Sec. of Finance, (1995) supra.
Philippine Acetylene v. CIR, 20 SCRA 1036 (1967)
Maceda v. Macaraig, 197 SCRA 771 (1991)
Maceda v. Macaraig. 223 SCRA 217 (1993)
CIR v. John Gotamco, 148 SCRA 36 (1987)

c. As to the object or subject matter of the tax

Property, personal, poll or capitation, excise
Villanueva v. City of Iloilo, 26 SCRA 578 (1968)
CIR v. CA, 242 SCRA 289 (1995)
Assoc. of Customs Brokers v. Municipal Board, 93 Phil 107 (1953)

d. As to the manner of computing the tax

Title VI
Ad valorem, specific

e. As to graduation or rate

1. Proportional, flat rate

o Sec. 233, R.A. 7160

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 2. Progressive, digressive rate
o Sec. 24 (A)

3. Regressive
o Tolentino v. Sec. of Finance, (1995) supra.

6. Aspects of taxation

a. Levy or imposition by the legislative body

b. Collection or administration
c. Methods of collection
1. Withholding system
2. Voluntary assessment and payment
3. Assessment and payment

7. Tax systems

a. Classification
Sec. 28 (1), Art. VI, 1987 Constitution
Progressive system, regressive system
Progressive system v. progressive rate of tax
Tolentino v. Sec. of Finance, (1995) supra.

c. Basic principles of a sound tax system

Chavez v. Ongpin, 186 SCRA 331 (1990)

B. Nature and Limitations of the Power of Taxation

1. Nature of the power of taxation

a. Inherent in sovereignty

Roxas v. CTA, 23 SCRA 276 (1968)

Taada v. Angara. 272 SCRA 18 (1997)

b. Exclusively legislative in nature

i. Extent of the legislative power to tax

o Tan v. del Rosario, 237 SCRA 324 (1994)
o CIR v. Santos, 277 SCRA 617 (1997)
o Sison v. Ancheta, 130 SCRA 654 (1984)
o Kapatiran v. Tan, 163 SCRA 371 (1988)
o Reyes v. Almanzor, 196 SCRA 322 (1991)

ii. Non-delegability of power to tax

Except: devolved power to LGUs, express grant in legislative franchise

o Maceda v. ERB, 192 SCRA 363 (1990)

o Maceda v. Macaraig, (1991) supra.
o Basco v. PAGCOR, 197 SCRA 52 (1991)
o Pepsi Cola v. City of Butuan, 24 SCRA 789 (1968)
o PAL v. Edu, supra.

c. Who may question the validity of a tax measure or expenditure of taxes

Lozada v. Comelec, 120 SCRA 337 (1983)

Maceda v. Macaraig, (1991) supra.
Gonzales v. Marcos, 65 SCRA 624 (1975)

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 Chavez v. PCGG, 299 SCRA 744 (1998)

C. Subject to inherent and constitutional limitations

1. Inherent Limitations (SPINE)

a. Purpose must lie public in nature

o Pascual v. Sec. of Public Works, 110 SCRA 331 (1960)

o Tio v. Videogram Regulatory Board, supra.
o Gaston v. RPB, 158 SCRA 626 (1988)

b. Prohibition against delegation of taxing power (Non-delegability)

Exceptions:
i. Delegation to LGUs

o Sec. 5, Art. X, 1987 Constitution

o Book II, R.A. 7160
o Basco v. PAGCOR, supra.
o Maceda v. Macaraig, (1991) supra.

ii. Delegation to the President

o Sec. 28 (2), Art. VI, 1987 Constitution

o Sec. 401, Tariff and Customs Code
o Garcia v. Executive Sec., supra.

iii. Delegation to administrative agencies

o Osmea v. Orbos, supra.

o Maceda v. Macaraig, (1991) supra.
o Maceda v. ERB, supra.

c. Exemption of government entities, agencies and instrumentalities

Sec. 27(C), NIRC

Mactan Cebu Intl Airport Authority v. Marcos, 261 SCRA 667 (1996)
Maceda v. Macaraig, supra.
EO 93 and PD 1931

d. International comity

Sec. 2, Art. II, 1987 Constitution

Taada v. Angara, supra.

e. Limitation of territorial jurisdiction (or Situs)

Territorial v. personal jurisdiction

o CIR v. British Overseas Airway Corp., 149 SCRA 395 (1987)

o CIR v. Japan Airlines, 202 SCRA 450 (1991)
o Air Canada v. CIR. (CA) Case No. 6572, 22 December 2004
o Iloilo Bottlers v. City of Iloilo, 164 SCRA 607 (1988)

2. Constitutional limitations

a. Due process of law

Sec. 1, Art. Ill, 1987 Constitution

Tan v. del Rosario, supra.

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 Sison v. Ancheta, supra.

b. Equal protection of the laws

Sec. 1, Art. III, 1987 Constitution

Sison v. Ancheta, supra.
Villegas v. Hiu Chiong Tsai Pao, 86 SCRA 270 (1978)
Tan v. del Rosario, supra.
CIR v. CA & Alhambra Ind., 1167 SCRA 557 (1997)
Tiu v. CA, 301 SCRA 278 (1999)

c. Uniformity and equity in taxation

Classification of taxpayers, subject or items to be taxed

Sec. 28 (1), Art. VI, 1987 Constitution
Tolentino v. Sec. of Finance, supra.,
Manila Race Horse v. dela Fuente, 88 Phil 60 (1951)
Eastern Theatrical v. Alfonso, 83 Phil 852 (1949)
Pepsi Cola v. City of Butuan, supra.
Shell v. Vano, Mun. Treas. Of Cordova, Cebu, 94 Phil 389 (1954)
City of Baguio v. de Leon, 25 SCRA 93 (1968)
Kapatiran v. Tan, supra.
Villanueva v. City of Iloilo, supra.
Assoc. of Customs Brokers v. Mun. Board, supra.

d. Prohibition against imprisonment for non-payment of poll tax

Sec. 20, Art. III, 1987 Constitution

Community tax v. Poll tax
Sec. 156-164, RA 7160

e. Prohibition against impairment of obligation of contracts

Sec. 10, Art. III

Sec. 11, Art. XII, 1987 Constitution
Tolentino v. Sec. of Finance (1994), supra.

f. Prohibition against infringement of religious freedom

Sec. 5, Art. III, 1987 Constitution

Am. Bible Society v. City of Manila, 101 Phil 386 (1957)
Tolentino v. Sec. of Finance (1995), supra.

g. Prohibition against appropriation of proceeds of taxation

Sec. 29, Art. VI, 1987 Constitution

Use of tax levied for a special purpose
Osmea v. Orbos, supra.

h. Prohibition against taxation of religious, charitable and educational entities

Sec. 28 (3), Art. VI, 1987 Constitution

Abra Valley College v. Aquino, 162 SCRA 106 (1988)

i. Prohibition against taxation of non-stock , non-profit educational institutions

Sec. 4 (3, 4), Art. XIV, 1987 Constitution

Sec. 28 (3), Art. VI, Constitution
Sec. 27(B) and 30(H), NIRC
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 Sec. 28 (3), Art. VI 1987 Constitution
Abra Valley College v. Aquino, 162 SCRA 106 (19SB)

j. Prohibition against taxation of non-stock, non-profit educational institutions

Sec. 4 (3, 4), Art. XIV, 1987 Constitution

Sec. 28 (3), Art. VI, Constitution
See. 27 (B) and 30 (H)
DOF Order No. 137-87 and 149-95
CIR v. CA, CTA and YMCA, 298 SCRA 83 (1998)
CIR v. CA, CTA and Ateneo, 271 SCRA 605 (1997)

k. Others

i. Grant of tax exemption [more on this under item E(4) below]

See. 28 (4), Art. VI, 1987 Constitution
Chavez v. PCGG, supra.

ii. Veto of appropriation, revenue or tariff bills

Sec. 27 (2), Art. VI, 1987 Constitution
Gonzales V. Macaraig, 191 SCRA 452 (1990)

iii. Non-impairment of the jurisdiction of the Supreme Court

Sec. 2, 5(b), Art. VIII, 1987 Constitution
CIR v. Santos, 277 SCRA 617 (1997)
San Miguel Corp. v. Avelino, 89 SCRA 69 (1979)

iv. Revenue bills shall originate from the House of Representatives

Sec. 24, Art. VI, 1987 Constitution
Tolentino v. Sec. of Finance, supra., (check what year)

v. Infringement of press freedom

Sec. 24, Art. III, 1987 Constitution
Tolentino v. Sec. of Finance, (1995) supra.

vi. Grant of Franchise

Sec. 11, Art. XII. 1987 Constitution
Tolentino v. Sec. of Finance (1995), supra.

D. Situs of Taxation and Double Taxation

1. Meaning of situs

2. Situs of subjects of taxation

Sec. 42, 104
CIR v. British Overseas Airway Corp., supra.
CIR v. Japan Airlines, supra.
Wells Fargo Bank v. Collector, 70 Phil 325 (1940)
Tan v. del Rosario, supra.

3. Multiplicity of Situs, Collector v. de Lara, 102 Phil 813 (1958)

4. Double Taxation
a. Meaning
o CIR v. SC Johnson and Son, Inc., 309 SCRA 87 (1999)

b. Double taxation in its broad sense

o Villanueva v. City of Iloilo, supra.

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 c. Constitutionality of double taxation
o City of Baguio v. de Leon, supra.
o Pepsi Cola Bottling v. City of Butuan, supra.
o Sanchez v. Collector, 97 Phil 687 (1955)
o City of Manila v. Interisland Gas Service, 99 Phil 847 (1956)
o Cpa. General De Tabacos v. City of Manila, supra.

E. Means of Avoiding and Minimizing the Burden of Taxation

1. Shifting of tax burden

a. Ways of shifting the tax burden
b. Taxes that can be shifted
Sec. 105, NIRC, as amended
c. Meaning of impact and incidence of taxation

2. Tax evasion
Elements of tax evasion
Republic v. Gonzales, 13 SCRA 633 (1965)
Sec. 254, NIRC as amended

3. Tax avoidance
Ways of avoiding tax
Delpher Traders Corp. v. IAC, 157 SCRA 349 (1988)
Yutivo v. CTA, 1 SCRA 160 (1961)

4. Exemption from taxation

a. Meaning of exemption from taxation
Greenfield v. Meer, 77 Phil 394 (1946)
PLDT v. City of Davao, 363 SCRA 522 (2001)
PLDT v. City of Davao, GR 143867, March 25, 2003

i. Compared with tax remission, condonation

Juan Luna Subd. v. V. M. Sarmiento, 91 Phil 371 (1952)
Surigao Corp. Min. v. Collector, 9 SCRA 728 (1963)

ii. Tax amnesty

Commissioner v. CA and ROH Auto, 240 SCRA 368 (1995)
People v. Castaneda, 165 SCRA 327 (1988)
Pascual v. CIR, 166 SCRA 560 (1988)
Republic v. IAC, 196 SCRA 335 (1991)
CIR v. Marubeni Corp., 372 SCRA 576 (2001)

iii. VAT zero-rating, Sec. 106 (A)(2)

iv. exclusions, deductions, Sect. 32(B), Sec. 34

b. Kinds of tax exemption

Express or implied, total or partial
Exemption from direct tax, from indirect tax
Atlas Fertilizer v. Commissioner, 100 SCRA 556 (1980)
Commissioner v. Phil. Ace Line, 25 SCRA 912 (1968)
Com. v. RTN Mining, 202 SCRA 137 (1991); 207 SCRA 549 (1992)
Caltex v. COA, supra.

c. Nature of the power to grant tax exemption

Basco v. PAGCOR, supra.
Maceda v. Macaraig, (1993) supra.

d. Rationale for tax exemption

Davao Light v. Com., 22 SCRA 122 (1972)

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 Tan Kim Kee v. CTA, 7 SCRA 670 (1963)
NPC v. RTC Presiding Judge, Cagayan de Oro, 190 SCRA 477 (1990)
Chavez v. PCGG, supra.
Davao Gulf v. CIR, 293 SCRA 76 (1998)
Maceda v. Macaraig, (1993) supra.

f. Nature of tax exemption

Tolentino v. Sec. of Finance, (1993) supra.
PLDT v. City of Davao, (2001) supra.
Maceda v. Macaraig, (1991) supra.
Phil. Acetylene v. Commissioner, supra.
Wonder Mech v. CTA, 64 SCRA 555 (1975)
Atlas Fertilizer v. Com., supra.

e. Laws granting tax exemption, incentives

i. Constitution
Sec. 28 (3), Art. VI and Sec. 4 (3, 4), Art. XIV, 1987 Constitution
Abra Valley v. Aquino, supra.

ii. Tax statutes

Sec. 30, 32 (B), 106,199
Sec.159 and 234, R. A. 7160
Sec.105, Tariff and Customs Code (TCC)

iii. Special laws

R. A. 7549
Com. v. Phil Ace Line, supra.

iv. Treaties
RP-US Tax Treaty
RP-Germany Tax Treaty
CIR v. S.C. Johnson, supra.
Reagan v. CIR, 30 SCRA 968 (1969)
Com. v. PJ Kiener, 65 SCRA 142 (1975)

f. Construction of statutes granting tax exemption

i. General rule
PLDT v. City of Davao (2001), supra.
CIR. v. CA and YMCA, 298 SCRA 83 (1998)
Misamis Oriental Assoc, v. DOF, 238 SCRA 63 (1994}
Comm. of Customs v. Phil. Acetylene Company, 39 SCRA 70 (1971)
Mla. Electric Co. v. Vera (Tabios), 67 SCRA 352 (1975)
Benguet Corp. v. CBAA, supra.
Davao Gulf v. CIR, supra.

ii. Exceptions
Maceda v. Macaraig, supra.
Grant to government and other entities

F. Sources, Application, Interpretation and Administration of Tax Laws

1. Sources of tax laws

The Constitution, NIRC, TCC, LGC
Tax ordinance/local tax revenue codes; Tuzon v. CA, 212 SCRA 739 (1992)
Treaties; Tanada v. Angara, supra.
Special laws

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