1. Manila Memorial Park Inc. and La Funeraria Paz-Sucat Inc. v.

Secretary of DSWD
-petitioners questions the validity of the 20% discount for senior citizens for burial and funeral
services as provided in the law (RA 9257) and in the IRR of the DSWD and DOF, specifically with
regard to the tax deduction method. Sought to reverse the ruling in Carlos Superdrug

Even though the discount (on the part of the pharmacy) is not on peso by peso basis, it is still valid
since the law is a legitimate exercise of police power which, similar to the power of eminent
domain, has general welfare for its object. We, thus, found that the 20% discount as well as the
tax deduction scheme is a valid exercise of the police power of the State.

Central Luzon- tax credit- eminent domain- first ruling- obiter ra man ni gud. gwapa

Carlos- tax deduction- police power- second ruling- in fact, mao ni ang categorically gi-rule nila

Police power versus eminent domain.

Police power is the inherent power of the State to regulate or to restrain the use of liberty and
property for public welfare.58

The only limitation is that the restriction imposed should be reasonable, not oppressive. 59

In other words, to be a valid exercise of police power, it must have a lawful subject or objective
and a lawful method of accomplishing the goal.60

Under the police power of the State, "property rights of individuals may be subjected to restraints
and burdens in order to fulfill the objectives of the government." 61

The State "may interfere with personal liberty, property, lawful businesses and occupations to
promote the general welfare [as long as] the interference [is] reasonable and not arbitrary." 62

Eminent domain, on the other hand, is the inherent power of the State to take or appropriate
private property for public use.63

The Constitution, however, requires that private property shall not be taken without due process
of law and the payment of just compensation.64

Traditional distinctions exist between police power and eminent domain. In the exercise of police
power, a property right is impaired BY REGULATION,65 or the use of property is merely prohibited,
regulated or restricted66 to promote public welfare. In such cases, there is no compensable taking,
hence, payment of just compensation is not required. Examples of these regulations are property
condemned for being noxious or intended for noxious purposes (e.g., a building on the verge of
collapse to be demolished for public safety, or obscene materials to be destroyed in the interest
of public morals)67 as well as zoning ordinances prohibiting the use of property for purposes
injurious to the health, morals or safety of the community (e.g., dividing a city’s territory into
residential and industrial areas).68

It has, thus, been observed that, in the exercise of police power (as distinguished from eminent
domain), although the regulation affects the right of ownership, none of the bundle of rights which
constitute ownership is appropriated for use by or for the benefit of the public.69
On the other hand, in the exercise of the power of eminent domain, property interests are
appropriated and applied to some public purpose which necessitates the payment of just
compensation therefor. Normally, the title to and possession of the property are transferred to the
expropriating authority. Examples include the acquisition of lands for the construction of public
highways as well as agricultural lands acquired by the government under the agrarian reform law
for redistribution to qualified farmer beneficiaries. However, it is a settled rule that the acquisition
of title or total destruction of the property is not essential for "taking" under the power of eminent
domain to be present.70

Examples of these include establishment of easements such as where the land owner is
perpetually deprived of his proprietary rights because of the hazards posed by electric
transmission lines constructed above his property71 or the compelled interconnection of the
telephone system between the government and a private company.72

In these cases, although the private property owner is not divested of ownership or possession,
payment of just compensation is warranted because of the burden placed on the property for the
use or benefit of the public.

THE 20% SENIOR CITIZEN DISCOUNT IS AN EXERCISE OF POLICE POWER.

It may not always be easy to determine whether a challenged governmental act is an exercise
of police power or eminent domain. The very nature of police power as elastic and responsive to
various social conditions73 as well as the evolving meaning and scope of public use 74 and just
compensation75 in eminent domain evinces that these are not static concepts. Because of the
exigencies of rapidly changing times, Congress may be compelled to adopt or experiment with
different measures to promote the general welfare which may not fall squarely within the
traditionally recognized categories of police power and eminent domain. The judicious
approach, therefore, is to look at the NATURE AND EFFECTS of the challenged governmental act
and decide, on the basis thereof, whether the act is the exercise of police power or eminent
domain.

Thus, we now look at the nature and effects of the 20% discount to determine if it constitutes an
exercise of police power or eminent domain. The 20% discount is intended TO IMPROVE THE
WELFARE of senior citizens who, at their age, are less likely to be gainfully employed, more prone
to illnesses and other disabilities, and, thus, in need of subsidy in purchasing basic commodities. It
may not be amiss to mention also that the discount serves to honor senior citizens who presumably
spent the productive years of their lives on contributing to the development and progress of the
nation. This distinct cultural Filipino practice of honoring the elderly is an integral part of this law.
As to its nature and effects, the 20% discount is a regulation affecting the ability of private
establishments to price their products and services relative to a special class of individuals, senior
citizens, for which the Constitution affords preferential concern.76

In turn, this affects the amount of profits or income/gross sales that a private establishment can
derive from senior citizens. In other words, the subject regulation affects the pricing, and, hence,
the profitability of a private establishment. However, it does not purport to appropriate or burden
specific properties, used in the operation or conduct of the business of private establishments, for
the use or benefit of the public, or senior citizens for that matter, but MERELY REGULATES THE
PRICING OF GOODS AND SERVICES relative to, and the amount of profits or income/gross sales
that such private establishments may derive from, senior citizens. The subject regulation may be
said to be similar to, but with substantial distinctions from, price control or rate of return on
investment control laws which are traditionally regarded as police power measures.77
These laws generally regulate public utilities or industries/ENTERPRISES IMBUED WITH PUBLIC
INTEREST in order to protect consumers from exorbitant or unreasonable pricing as well as temper
corporate greed by controlling the rate of return on investment of these corporations considering
that they have a monopoly over the goods or services that they provide to the general public.
The subject regulation differs therefrom in that (1) the discount does not prevent the
establishments from adjusting the level of prices of their goods and services, and (2) the discount
does not apply to all customers of a given establishment but only to the class of senior citizens.
Nonetheless, to the degree material to the resolution of this case, the 20% discount may be
properly viewed as belonging to the category of price regulatory measures which affect the
profitability of establishments subjected thereto. On its face, therefore, the subject regulation is a
police power measure.

We adopted a similar line of reasoning in Carlos Superdrug Corporation85 when we ruled that
petitioners therein failed to prove that the 20% discount is arbitrary, oppressive or confiscatory. We
noted that no evidence, such as a financial report, to establish the impact of the 20% discount on
the overall profitability of petitioners was presented in order to show that they would be operating
at a loss due to the subject regulation or that the continued implementation of the law would be
unconscionably detrimental to the business operations of petitioners. In the case at bar, petitioners
proceeded with a hypothetical computation of the alleged loss that they will suffer similar to what
the petitioners in Carlos Superdrug Corporation86 did. Petitioners went directly to this Court without
first establishing the factual bases of their claims. Hence, the present recourse must, likewise, fail.
Because all laws enjoy the presumption of constitutionality, courts will uphold a law’s validity if any
set of facts may be conceived to sustain it.87

On its face, we find that there are at least two conceivable bases to sustain the subject
regulation’s validity absent clear and convincing proof that it is unreasonable, oppressive or
confiscatory. Congress may have legitimately concluded that business establishments have the
capacity to absorb a decrease in profits or income/gross sales due to the 20% discount without
substantially affecting the reasonable rate of return on their investments considering (1) not all
customers of a business establishment are senior citizens and (2) the level of its profit margins on
goods and services offered to the general public.

Concurrently, Congress may have, likewise, legitimately concluded that the establishments,
which will be required to extend the 20% discount, have the capacity to revise their pricing
strategy so that whatever reduction in profits or income/gross sales that they may sustain because
of sales to senior citizens, can be recouped through higher mark-ups or from other products not
subject of discounts. As a result, the discounts resulting from sales to senior citizens will not be
confiscatory or unduly oppressive. In sum, we sustain our ruling in Carlos Superdrug
Corporation88 that the 20% senior citizen discount and tax deduction scheme are valid exercises
of police power of the State absent a clear showing that it is arbitrary, oppressive or confiscatory.

2. Gomez v. Palomar

To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the
period from August nineteen to September thirty every year the printing and issue of semi-postal
stamps of different denominations with face value showing the regular postage charge plus the
additional amount of five centavos for the said purpose, and during the said period, no mail
matter shall be accepted in the mails unless it bears such semi-postal stamps: Provided, That no
such additional charge of five centavos shall be imposed on newspapers. The additional
proceeds realized from the sale of the semi-postal stamps shall constitute a special fund and be
deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis.

Ruling:

To begin with, it is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions.

So long as the classification imposed is based upon some standard capable of reasonable
comprehension, be that standard based upon ability to produce revenue or some other
legitimate distinction, equal protection of the law has been afforded.

Mail users are a class

We are not wont to invalidate legislation on equal protection grounds except by the clearest
demonstration that it sanctions invidious discrimination, which is all that the Constitution forbids.
The remedy for unwise legislation must be sought in the legislature. Now, the classification of mail
users is not without any reason. It is based on ability to pay, let alone the enjoyment of a privilege,
and on administrative convinience. In the allocation of the tax burden, Congress must have
concluded that the contribution to the anti-TB fund can be assured by those whose who can
afford the use of the mails.

The classification is likewise based on considerations of administrative convenience. For it is now a

settled principle of law that "consideration of practical administrative convenience and cost in
the administration of tax laws afford adequate ground for imposing a tax on a well recognized
and defined class."9 In the case of the anti-TB stamps, undoubtedly, the single most important and
influential consideration that led the legislature to select mail users as subjects of the tax is the
relative ease and convenienceof collecting the tax through the post offices. The small amount of
five centavos does not justify the great expense and inconvenience of collecting through the
regular means of collection. On the other hand, by placing the duty of collection on postal
authorities the tax was made almost self-enforcing, with as little cost and as little inconvenience
as possible.

And then of course it is not accurate to say that the statute constituted mail users into a class. Mail
users were already a class by themselves even before the enactment of the statue and all that
the legislature did was merely to select their class

Exemption of the Government

As for the Government and its instrumentalities, their exemption rests on the State's sovereign
immunity from taxation. The State cannot be taxed without its consent and such consent, being
in derogation of its sovereignty, is to be strictly construed.

TB Eradication is Public Purpose

The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner
means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that
the only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment
of the privileges of living in an organized society, established and safeguarded by the devotion of
taxes to public purposes.

Not violative of uniformity and equality

A tax need not be measured by the weight of the mail or the extent of the service rendered. We
have said that considerations of administrative convenience and cost afford an adequate
ground for classification. The same considerations may induce the legislature to impose a flat tax
which in effect is a charge for the transaction, operating equally on all persons within the class
regardless of the amount involved.1

3. Pascual v. Secretary of Public Works

Law creating feeder roads. Feeder roads were to be constructed in private properties within a
subdivision.

Ruling:
"the legislature is without power appropriate public revenues for anything but a public purpose",
that the instructions and improvement of the feeder roads in question, if such roads where private
property, would not be a public purpose; that, being subject to the following condition:

The within donation is hereby made upon the condition that the Government of the Republic of
the Philippines will use the parcels of land hereby donated for street purposes only and for no
other purposes whatsoever; it being expressly understood that should the Government of the
Republic of the Philippines violate the condition hereby imposed upon it, the title to the land
hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C. ZULUETA.

Generally, under the express or implied provisions of the constitution, public funds may be used
only for public purpose. The right of the legislature to appropriate funds is correlative with its right
to tax, and, under constitutional provisions against taxation except for public purposes and
prohibiting the collection of a tax for one purpose and the devotion thereof to another
purpose, no appropriation of state funds can be made for other than for a public purpose.

Test:
The test of the constitutionality of a statute requiring the use of public funds is whether the statute
is designed to promote the public interest, as opposed to the furtherance of the advantage of
individuals, although each advantage to individuals might incidentally serve the public.

Inasmuch as the land on which the projected feeder roads were to be constructed belonged then
to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence,
was null and void. 4 The donation to the Government, over five (5) months after the approval and
effectivity of said Act, made, according to the petition, for the purpose of giving a "semblance of
legality", or legalizing, the appropriation in question, did not cure its aforementioned basic defect.
Consequently, a judicial nullification of said donation need not precede the declaration of
unconstitutionality of said appropriation.

4. Planters Products Inc. v. Fertiphil Corporation

LOI of Marcos- . The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer
pricing formula a capital contribution component of not less than P10 per bag. This capital
contribution shall be collected until adequate capital is raised to make PPI viable. Such capital
contribution shall be applied by FPA to all domestic sales of fertilizers in the Philippines.
WON the RTC can consider the constitutionality of a tax law: YES
THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the
constitutionality of statutes, executive orders, presidential decrees and other issuances. The
Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts.

Substantive ruling:
One of the inherent limitations is that a tax may be levied only for public purposes:

The power to tax can be resorted to only for a constitutionally valid public purpose. By the
same token, taxes may not be levied for purely private purposes, for building up of private
fortunes, or for the redress of private wrongs. They cannot be levied for the improvement of
private property, or for the benefit, and promotion of private enterprises, except where the aid is
incident to the public benefit. It is well-settled principle of constitutional law that no general tax
can be levied except for the purpose of raising money which is to be expended for public
use. Funds cannot be exacted under the guise of taxation to promote a purpose that is not of
public interest. Without such limitation, the power to tax could be exercised or employed as an
authority to destroy the economy of the people. A tax, however, is not held void on the ground
of want of public interest unless the want of such interest is clear.

In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and
Pesticide Authority pursuant to the P10 per bag of fertilizer sold imposition under LOI 1465 which,
in turn, remitted the amount to the defendant Planters Products, Inc. thru the latter’s depository
bank, Far East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff, Fertiphil Corporation,
which is a private domestic corporation, became poorer by the amount of P6,698,144.00 and the
defendant, Planters Product, Inc., another private domestic corporation, became richer by the
amount of P6,698,144.00.

The P10 levy under LOI No. 1465 is an exercise of the power of taxation.

Police power and the power of taxation are inherent powers of the State. These powers are
distinct and have different tests for validity. Police power is the power of the State to enact
legislation that may interfere with personal liberty or property in order to promote the general
welfare,[39] while the power of taxation is the power to levy taxes to be used for public
purpose. The main purpose of police power is the regulation of a behavior or conduct, while
taxation is revenue generation. The “lawful subjects” and “lawful means” tests are used to
determine the validity of a law enacted under the police power.[40] The power of taxation, on the
other hand, is circumscribed by inherent and constitutional limitations.

We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation
power. While it is true that the power of taxation can be used as an implement of police
power,[41] the primary purpose of the levy is revenue generation. If the purpose is primarily
revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is
properly called a tax.[42]

Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not
for a public purpose. The levy was imposed to give undue benefit to PPI.
The term “public purpose” is not defined. It is an elastic concept that can be hammered to fit
modern standards. Jurisprudence states that “public purpose” should be given a broad
interpretation. It does not only pertain to those purposes which are traditionally viewed as
essentially government functions, such as building roads and delivery of basic services, but also
includes those purposes designed to promote social justice. Thus, public money may now be used
for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.

It is a basic rule of statutory construction that the text of a statute should be given a literal
meaning. In this case, the text of the LOI is plain that the levy was imposed in order to raise capital
for PPI. The framers of the LOI did not even hide the insidious purpose of the law.

Second, the LOI provides that the imposition of the P10 levy was conditional and dependent upon
PPI becoming financially “viable.” This suggests that the levy was actually imposed to benefit PPI.

Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and
deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI

Fourth, the levy was used to pay the corporate debts of PPI.

The LOI is still unconstitutional even if enacted under the police power; it did not promote public
interest.

The general rule is that an unconstitutional law is void; the doctrine of operative fact is
inapplicable.

Being void, Fertiphil is not required to pay the levy. All levies paid should be refunded in
accordance with the general civil code principle against unjust enrichment.

5. Abakada Guro Party List v. Ermita

R.A. No. 9337- granted stand-by authority to the President

These questioned provisions contain a uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1,
2006, after any of the following conditions have been satisfied, to wit:

. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).

Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution.
Ruling:

No Undue Delegation of Legislative Power

In every case of permissible delegation, there must be a showing that the delegation itself is valid.
It is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed,
carried out, or implemented by the delegate;41 and (b) fixes a standard — the limits of which are
sufficiently determinate and determinable — to which the delegate must conform in the
performance of his functions.42 A sufficient standard is one which defines legislative policy, marks
its limits, maps out its boundaries and specifies the public agency to apply it. It indicates the
circumstances under which the legislative command is to be effected. 43 Both tests are intended
to prevent a total transference of legislative authority to the delegate, who is not allowed to step
into the shoes of the legislature and exercise a power essentially legislative.44

The power to ascertain facts is such a power which may be delegated. There is nothing essentially
legislative in ascertaining the existence of facts or conditions as the basis of the taking into effect
of a law. That is a mental process common to all branches of the government.

The efficiency of an Act as a declaration of legislative will must, of course, come from Congress,
but the ascertainment of the contingency upon which the Act shall take effect may be left to such
agencies as it may designate. The legislature, then, may provide that a law shall take effect upon
the happening of future specified contingencies leaving to some other person or body the power
to determine when the specified contingency has arisen.

The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under
the law is contingent. The legislature has made the operation of the 12% rate effective January 1,
2006, contingent upon a specified fact or condition. It leaves the entire operation or non-
operation of the 12% rate upon factual matters outside of the control of the executive.

No discretion would be exercised by the President. Highlighting the absence of discretion is the
fact that the word shall is used in the common proviso. The use of the word shall connotes a
mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the
idea of discretion.53 Where the law is clear and unambiguous, it must be taken to mean exactly
what it says, and courts have no choice but to see to it that the mandate is obeyed.54

Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress.

6. MCIAA v. City of Lapu-Lapu

RULING

1. WON MCIAA is a GOCC or a government instrumentality? - GOVERNMENT INSTRUMENTALITY

The 2006 MIAA case governs: MIAA’s airport lands and buildings are exempt from real estate tax
imposed by local governments; that it is not a GOCC but an instrumentality of the national
government, with its real properties being owned by the Republic of the Philippines, and these are
exempt from real estate tax.

Gibalik ra sa Court ang ratio sa decision in the 2006 MIAA case:

Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal fees
and other charges from the public does not remove the character of the Airport Lands and
Buildings as properties for public use. The terminal fees MIAA charges to passengers, as well as the
landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the
operations of MIAA.

Unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public
use, these properties remain properties of public dominion and are inalienable. Since the Airport
Lands and Buildings are inalienable in their present status as properties of public dominion, they
are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings
are reserved for public use, their ownership remains with the State or the Republic of the
Philippines.

In the case at bar, MCIAA is a vested with corporate powers BUT it is NOT a stock or non-stock
corporation, which is a necessary condition before an agency or instrumentality is deemed a
GOCC. Like MIAA, MCIAA has capital under its charter but it is NOT divided into shares of stock. It
also has NO stockholders or voting shares.

2. WON the airport lands and buildings of MCIAA are subject to real estate taxes? – EXEMPT FROM
REAL PROPERTY TAX

Like in MIAA, the airport lands and buildings of MCIAA are properties of public dominion because
they are intended for public use. As properties of public dominion, they indisputably belong to the
State or the Republic of the Philippines, and are outside the commerce of man.

Only those portions of petitioner’s properties which are leased to taxable persons like private
parties are subject to real property tax by the City of Lapu-Lapu

Under Section 133(o) of the Local Government Code, MIAA (in this case MCIAA) as a government
instrumentality is not a taxable person because it is not subject to “[t]axes, fees or charges of any
kind” by local governments. The only exception is when MIAA leases its real property to a “taxable
person” as provided in Section 234(a) of the Local Government Code, in which case the specific
real property leased becomes subject to real estate tax.

MCIAA’s properties that are actually, solely and exclusively used for public purpose, consisting of
the airport terminal building, airfield, runway, taxiway and the lots on which they are situated,
EXEMPT from real property tax imposed by the City of Lapu-Lapu
 7. Tolentino v. Secretary of Finance (1994)

Six Types of Bills:

1. Appropriation Bill – General Appropriations Act
2. Revenue Bills – impose taxes/fees
3. Tariff Bills – customs/duties
4. Bill authorizing increase of public debt – incur liability government
5. Bills of local application – streets in honor of certain deceased
personalities, convert municipalities to cities
6. Private Bills – naturalization proceedings

Issues:

WON RA 7716 violates Art. VI, Sections 24 and 26 (2) of the Constitution? WON it also
violates Art. VI, Sec. 28 (1)?

Held:

On the first issue, no, the statute in question is not violative of Art. VI, Sec. 24 of the
Constitution. It is not the revenue statute/law but the revenue bill that is constitutionally required
to originate exclusively from the House of Representatives. If it is the revenue statute that should
originate from the House of Representatives, it would mean that the house bill that such statute is
derived from should remain untouched until it becomes a law, thus, depriving the Senate of its
constitutional right not only to concur but also to propose amendments to arevenue bill. It would
be to violate the coequality of legislative power of the two houses of Congress and in fact make
the House superior to the Senate. What the Constitution simply means is that the initiative of filing
revenue bills must come from the House of Representatives. Thereafter, such bills are subject to
constitutionally authorized processes such as amendments and consolidation in the Bicameral
Conference Committee, among others, during the entire legislative process before it becomes a
law. The result of the process, moreover, must not be construed as newly introduced bills that must
undergo the first step of the legislative process. The Constitution does not also prohibit the filing in
the Senate of a substitute bill in anticipation of its receipt of the bill from the House, so long as
action by the Senate as a body is withheld pending receipt of the House bill.

-so it will not deprive the Senate of its right to propose amendments. Senate can even amend
through substitution

RA 7716 is neither violative of Art. VI, Sec. 26 (2) of the Constitution for not having passed
three readings on separate days in the Senate. This is because the President had certified SB 1630
as urgent which is allowed by the exception clause in Art. VI, Sec. 26 of the Constitution itself.
Where a bill is certified by the President as urgent, it may pass both second and third readings held
in one day. Summing it up, the procedural requirements of the Constitution have been complied
with by Congress in the enactment of the statute in question.

On the second issue, the Court held that it cannot. RA 7716 DID NOT VIOLATE THE
CONSTITUTIONAL PROVISION ON PROMOTING AN EQUITABLE, UNIFORM AND PROGRESSIVE
TAXATION SYSTEM. The question on whether or not the VAT imposed by RA 7716 is regressive was
held as largely an academic exercise because there was lack of empirical data on which to base
any conclusion regarding such question. The absence of threat of immediate harm caused by RA
7716 made the need for judicial intervention less evident. It is to be noted that on May 28, 1994,
RA 7716 took effect but its implementation was suspended until June 30, 1994 to allow time for the
registration of business entities. It would have been enforced on July 1, 1994 but its enforcement
was stopped because the Court granted a temporary restraining order on June 30, 1994 due to a
number of petitions filed against it with the Court. Thus, the complaints grounded on the question
of regressivity of RA 7716 were raised prematurely which the Court could not adjudge.

All the petitions, including those petitions grounded on other constitutional issues of RA
7716, were dismissed.

8. Tolentino v. Secretary of Finance (1995)

ISSUES:

1. Whether or not R.A. No. 7716 did not "originate exclusively" in the House of Representatives as
required by Art. VI Sec. 24 of the Constitution.

2. Whether or not R.A. No. 7716 is violative of press freedom and religious freedom under Art. III
Secs. 4 and 5 of the Constitution.

Claims of press freedom and religious liberty . We have held that, as a general proposition, the
press is not exempt from the taxing power of the State and that what the constitutional guarantee
of free press prohibits are laws which single out the press or target a group belonging to the press
f or special treatment or which in any way discriminate against the press on the basis of the
content of the publication, and R.A. No. 7716 is none of these.

Not a license tax

that to be the case, the resulting burden on the exercise of religious freedom is so incidental as to
make it difficult to differentiate it from any other economic imposition that might make the right
to disseminate religious doctrines costly.

3. Whether or not there is violation of the rule on taxation under Art. VI Sec. 28 (1) of the
Constitution.

4. Whether or not there is an impairment of obligation of contracts under Art. III Sec. 10 of the
Constitution.

5. Whether or not there is violation of the due process clause under Art. III Sec. 1 of the Constitution.

RULING:

1. While Art. VI Sec. 24 provides that all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills must "originate exclusively
in the House of Representatives," it also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure.
2. Since the law granted the press a privilege, the law could take back the privilege anytime
without offense to the Constitution. The VAT is not a license tax. It is not a tax on the exercise of a
privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of
goods or properties or the sale or exchange of services and the lease of properties purely for
revenue purposes. To subject the press to its payment is not to burden the exercise of its right any
more than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution.

3. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive.

What it simply provides is that Congress shall "evolve a progressive system of taxation."

4. Contracts must be understood as having been made in reference to the possible exercise of
the rightful authority of the government and no obligation of contract can extend to the defeat
of that authority.

5. On the alleged violation of due process, hardship to taxpayers alone is not an adequate
justification for adjudicating abstract issues. Otherwise, adjudication would be no different from
the giving of advisory opinion that does not really settle legal issues. We are told that it is our duty
under Art. VIII, Sec. 1 (2) to decide whenever a claim is made that "there has been a grave abuse
of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality
of the government." This duty can only arise if an actual case or controversy is before us.

9. British American Tobacco v. Camacho (2008)

WON petitioner should have brought its petition before the Court of Tax Appeals rather than the
regional trial court- NO

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does
not include cases where the constitutionality of a law or rule is challenged. Where what is assailed
is the validity or constitutionality of a law, or a rule or regulation issued by the administrative
agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to
pass upon the same.

WON British American Tobacco is estopped from questioning the law after it has requested a ruling
from the BIR on whether it is a new brand or not- NO

The mere fact that a law has been relied upon in the past and all that time has not been attacked
as unconstitutional is not a ground for considering petitioner estopped from assailing its validity.
For courts will pass upon a constitutional question only when presented before it in bona fide cases
for determination, and the fact that the question has not been raised before is not a valid reason
for refusing to allow it to be raised later.32

Whethere or not the classification freeze provision violates the equal protection and uniformity of
taxation clauses of the Constitution.

Hence the constant reiteration of the view that classification if rational in character is allowable.
"Equality and uniformity in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation,

In consonance thereto, we have held that "in our jurisdiction, the standard and analysis of equal
protection challenges in the main have followed the ‘rational basis’ test, coupled with a
deferential attitude to legislative classifications and a reluctance to invalidate a law unless there
is a showing of a clear and unequivocal breach of the Constitution." 47 Within the present context
of tax legislation on sin products which neither contains a suspect classification nor impinges on a
fundamental right, the rational-basis test thus finds application. Under this test, a legislative
classification, to survive an equal protection challenge, must be shown to rationally further a
legitimate state interest.48 The classifications must be reasonable and rest upon some ground of
difference having a fair and substantial relation to the object of the legislation.

A legislative classification that is reasonable does not offend the constitutional guaranty of the
equal protection of the laws. The classification is considered valid and reasonable provided that:
(1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all
things being equal, to both present and future conditions; and (4) it applies equally to all those
belonging to the same class.52

The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in
the law for reasons of practicality and expediency. That is, since a new brand was not yet in
existence at the time of the passage of RA 8240, then Congress needed a uniform mechanism to
fix the tax bracket of a new brand. The current net retail price, similar to what was used to classify
the brands under Annex "D" as of October 1, 1996, was thus the logical and practical choice.
Further, with the amendments introduced by RA 9334, the freezing of the tax classifications now
expressly applies not just to Annex "D" brands but to newer brands introduced after the effectivity
of RA 8240 on January 1, 1997 and any new brand that will be introduced in the future.53 (However,
as will be discussed later, the intent to apply the freezing mechanism to newer brands was already
in place even prior to the amendments introduced by RA 9334 to RA 8240.) This does not explain,
however, why the classification is "frozen" after its determination based on current net retail price
and how this is germane to the purpose of the assailed law. An examination of the legislative
history of RA 8240 provides interesting answers to this question.

But a plain reading of the text of RA 8240, even before its amendment by RA 9334, as well as the
previously discussed deliberations would readily lead to the conclusion that the intent of Congress
was to likewise apply the freezing mechanism to new brands. Precisely, Congress rejected the
proposal to allow the DOF and BIR to periodically adjust the excise tax rate and tax brackets as
well as to periodically resurvey and reclassify cigarettes brands which would have encompassed
old and new brands alike.

In explaining the changes made at the Bicameral Conference Committee level, Senator Enrile, in
his report to the Senate plenary, noted that the fixing of the excise tax rates was done to avoid
confusion.64 Congressman Javier, for his part, reported to the House plenary the reasons for fixing
the excise tax rate and freezing the classification, thus:

Finally, this twin feature, Mr. Speaker, fixed specific tax rates and frozen classification, rejects the
Senate version which seeks to abdicate the power of Congress to tax by pegging the rates as well
as the classification of sin products to consumer price index which practically vests in the
Secretary of Finance the power to fix the rates and to classify the products for tax
purposes.65 (Emphasis supplied)

Congressman Javier later added that the frozen classification was intended to give stability to the
industry as the BIR would be prevented from tinkering with the classification since it would remain
unchanged despite the increase in the net retail prices of the previously classified brands. 66 This
would also assure the industry players that there would be no new impositions as long as the law
is unchanged.67

From the foregoing, it is quite evident that the classification freeze provision could hardly be
considered arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands
over newer brands. Congress was unequivocal in its unwillingness to delegate the power to
periodically adjust the excise tax rate and tax brackets as well as to periodically resurvey and
reclassify the cigarette brands based on the increase in the consumer price index to the DOF and
the BIR. Congress doubted the constitutionality of such delegation of power, and likewise,
considered the ethical implications thereof. Curiously, the classification freeze provision was put
in place of the periodic adjustment and reclassification provision because of the belief that the
latter would foster an anti-competitive atmosphere in the market. Yet, as it is, this same criticism is
being foisted by petitioner upon the classification freeze provision.

Thus, Congress sought to, among others, simplify the whole tax system for sin products to remove
these potential areas of abuse and corruption from both the side of the taxpayer and the
government. Without doubt, the classification freeze provision was an integral part of this overall
plan.

With the frozen tax classifications, the revenue inflow would remain stable and the government
would be able to predict with a greater degree of certainty the amount of taxes that a cigarette
manufacturer would pay given the trend in its sales volume over time. The reason for this is that
the previously classified cigarette brands would be prevented from moving either upward or
downward their tax brackets despite the changes in their net retail prices in the future and, as a
result, the amount of taxes due from them would remain predictable. The classification freeze
provision would, thus, aid in the revenue planning of the government.71

All in all, the classification freeze provision addressed Congress’s administrative concerns in the
simplification of tax administration of sin products, elimination of potential areas for abuse and
corruption in tax collection, buoyant and stable revenue generation, and ease of projection of
revenues. Consequently, there can be no denial of the equal protection of the laws since the
rational-basis test is amply satisfied.

WON the classification favored old brands-NO

It has not been shown that the net retail prices of other older brands previously classified under
this classification system have already pierced their tax brackets, and, if so, how this has affected
the overall competition in the market. Further, it does not necessarily follow that newer brands
cannot compete against older brands because price is not the only factor in the market as there
are other factors like consumer preference, brand loyalty, etc. In other words, even if the newer
brands are priced higher due to the differential tax treatment, it does not mean that they cannot
compete in the market especially since cigarettes contain addictive ingredients so that a
consumer may be willing to pay a higher price for a particular brand solely due to its unique
formulation.

Concededly, the finding that the assailed law seems to derogate, to a limited extent, one of its
avowed objectives (i.e. promoting fair competition among the players in the industry) would
suggest that, by Congress’s own standards, the current excise tax system on sin products is
imperfect. But, certainly, we cannot declare a statute unconstitutional merely because it can be
improved or that it does not tend to achieve all of its stated objectives.

In fine, petitioner may have valid reasons to disagree with the policy decision of Congress and the
method by which the latter sought to achieve the same. But its remedy is with Congress and not
this Court.

Petitioner asserts that Revenue Regulations No. 1-97, as amended by Revenue Regulations No. 9-
2003, Revenue Regulations No. 22-2003 and Revenue Memorandum Order No. 6-2003, are invalid
insofar as they empower the BIR to reclassify or update the classification of new brands of
cigarettes based on their current net retail prices every two years or earlier. It claims that RA 8240,
even prior to its amendment by RA 9334, did not authorize the BIR to conduct said periodic
resurvey and reclassification.

It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section
2 of Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably
emasculate the operation of Section 145 of the NIRC because they authorize the Commissioner
of Internal Revenue to update the tax classification of new brands every two years or earlier
subject only to its issuance of the appropriate Revenue Regulations, when nowhere in Section 145
is such authority granted to the Bureau. Unless expressly granted to the BIR, the power to reclassify
cigarette brands remains a prerogative of the legislature which cannot be usurped by the former.

More importantly, as previously discussed, the clear legislative intent was for new brands to benefit
from the same freezing mechanism accorded to Annex "D" brands.

Unfortunately for petitioner, this result will not cause a downward reclassification of Lucky Strike. It
will be recalled that petitioner introduced Lucky Strike in June 2001. However, as admitted by
petitioner itself, the BIR did not conduct the required market survey within three months from
product launch. As a result, Lucky Strike was never classified based on its actual current net retail
price. Petitioner failed to timely seek redress to compel the BIR to conduct the requisite market
survey in order to fix the tax classification of Lucky Strike. It was only after the lapse of two years or
in 2003 that the BIR conducted a market survey which was the first time that Lucky
Strike’s actual current net retail price was surveyed.

WON GATT is violated- NO

The classification freeze provision uniformly applies to all newly introduced brands in the market,
whether imported or locally manufactured. It does not purport to single out imported cigarettes
in order to unduly favor locally produced ones.

10. British American Tobacco v. Camacho (2009)

11. Sison v. Ancheta

WON he would be unduly discriminated against by the imposition of higher rates of tax upon his
income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed
income or salaried individual taxpayers- NO

Lifeblood theory: The power to tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of public funds. To praphrase a
recent decision, taxes being the lifeblood of the government, their prompt and certain availability
is of the essence.

The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its
plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such
limits.

in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to
hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.'
WON the classification violates uniformity- NO

Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The
rule of taxation shall be uniform and equitable." 24 This requirement is met according to Justice
Laurel in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the
same force and effect in every place where the subject may be found.

"Equality and uniformity in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore uniform." 29 There is quite a
similarity then to the standard of equal protection for all that is required is that the tax "applies
equally to all persons, firms and corporations placed in similar situation." 30

There is a substantial distinction between professionals and salaried individuals

Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base
or taxable income by eliminating all deductible items and at the same time reducing the
applicable tax rate. Taxpayers may be classified into different categories. To repeat, it is enough
that the classification must rest upon substantial distinctions that make real differences.
Taxpayers who are recipients of compensation income are set apart as a class. As there is
practically no overhead expense, these taxpayers are not entitled to make deductions for income
tax purposes because they are in the same situation more or less.
On the other hand, in the case of professionals in the practice of their calling and businessmen,
there is no uniformity in the costs or expenses necessary to produce their income.
Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack
of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of
controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and taxable net income of
professionals and businessman certainly

Substantial distinction, different tax rates are justified. Employees are not allowed to make
deductions while Professionals were allowed to make deductions.

12. Lung Cancer of the Philippines v. Quezon City

WON LCP will lose its charitable character because it receives paying patients- NO
Hence, the medical services of the petitioner are to be rendered to the public in general in any
and all walks of life including those who are poor and the needy without discrimination. After all,
any person, the rich as well as the poor, may fall sick or be injured or wounded and become a
subject of charity.

As a general principle, a charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether out-patient, or
confined in the hospital, or receives subsidies from the government, so long as the money received
is devoted or used altogether to the charitable object which it is intended to achieve; and no
money inures to the private benefit of the persons managing or operating the institution.

The money received by the petitioner becomes a part of the trust fund and must be devoted to
public trust purposes and cannot be diverted to private profit or benefit.

WON it loses its charitable character because it receives donations and subsidies-NO
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its
character as a charitable institution simply because the gift or donation is in the form of subsidies
granted by the government.
Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the
government rather than private charitable contributions does not dictate the denial of a
charitable exemption if the facts otherwise support such an exemption, as they do here.

In this case, the petitioner adduced substantial evidence that it spent its income, including the
subsidies from the government for 1991 and 1992 for its patients and for the operation of the
hospital.

WON the petitioner is exempt from all forms of taxes-NO

Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that
those portions of its real property that are leased to private entities are not exempt from real
property taxes as these are not actually, directly and exclusively used for charitable purposes.

The settled rule in this jurisdiction is 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 effect of an exemption is equivalent to an appropriation. Hence,
a claim for exemption from tax payments must be clearly shown and based on language in the
law too plain to be mistaken.
An intention on the part of the legislature to grant an exemption from the taxing power of the
state will never be implied from language which will admit of any other reasonable construction.
Such an intention must be expressed in clear and unmistakable terms, or must appear by
necessary implication from the language used, for it is a well settled principle that, when a special
privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be
construed strictly against the property owner and in favor of the public.
It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon. If the intentions were
otherwise, the same should have been among the enumeration of tax exempt privileges under
Sec. 2 of PD 1823.

The exemption must not be so enlarged by construction since the reasonable presumption is that
the State has granted in express terms all it intended to grant at all, and that unless the privilege is
limited to the very terms of the statute the favor would be intended beyond what was meant.

Section 28(3), Article VI of the 1987 Philippine Constitution: The tax exemption under this
constitutional provision covers property taxes only.

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. “Exclusive” is defined as possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and “exclusively” is defined, “in a manner to exclude;
as enjoying a privilege exclusively.”

If real property is used for one or more commercial purposes, it is not exclusively used for the
exempted purposes but is subject to taxation.The words “dominant use” or “principal use” cannot
be substituted for the words “used exclusively” without doing violence to the Constitutions and
the law. Solely is synonymous with exclusively.

What is meant by actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.

Accordingly, we hold that the portions of the land leased to private entities as well as those parts
of the hospital leased to private individuals are not exempt from such taxes. On the other hand,
the portions of the land occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real property taxes.

13. Commissioner of Internal Revenue v. S.C. Johnson and Sons Inc.

THE MAIN ISSUE:

WON SC JOHNSON AND SON, USA IS ENTITLED TO THE MOST FAVORED NATION TAX RATE OF 10%
ON ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN RELATION TO THE RP-WEST GERMANY TAX
TREATY.

The concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty could not apply
to taxes imposed upon royalties in the RP-US Tax Treaty since the two taxes imposed under the
two tax treaties are not paid under similar circumstances, they are not containing similar provisions
on tax crediting.
The United States is the state of residence since the taxpayer, S. C. Johnson and Son, U. S. A., is
based there. Under the RP-US Tax Treaty, the state of residence and the state of source are both
permitted to tax the royalties, with a restraint on the tax that may be collected by the state of
source.
Furthermore, the method employed to give relief from double taxation is the allowance of a tax
credit to citizens or residents of the United States against the United States tax, but such amount
shall not exceed the limitations provided by United States law for the taxable year. The Philippines
may impose one of three rates- 25 percent of the gross amount of the royalties; 15 percent when
the royalties are paid by a corporation registered with the Philippine Board of Investments and
engaged in preferred areas of activities; or the lowest rate of Philippine tax that may be imposed
on royalties of the same kind paid under similar circumstances to a resident of a third state.

Given the purpose underlying tax treaties and the rationale for the most favored nation clause,
the Tax Treaty should apply only if the taxes imposed upon royalties in the RP-US Tax Treaty and in
the RP-Germany Tax Treaty are paid under similar circumstances.

This would mean that private respondent must prove that the RP-US Tax Treaty grants similar tax
reliefs to residents of the United States in respect of the taxes imposable upon royalties earned
from sources within the Philippines as those allowed to their German counterparts under the RP-
Germany Tax Treaty.

The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting.
Article 24 of the RP-Germany Tax Treaty, supra, expressly allows crediting against German income
and corporation tax of 20% of the gross amount of royalties paid under the law of the Philippines.
On the other hand, Article 23 of the RP-US Tax Treaty, which is the counterpart provision with
respect to relief for double taxation, does not provide for similar crediting of 20% of the gross
amount of royalties paid.

At the same time, the intention behind the adoption of the provision on relief from double taxation
in the two tax treaties in question should be considered in light of the purpose behind the most
favored nation clause.

What is the most favored nation clause?

The purpose of a most favored nation clause is to grant to the contracting party treatment not
less favorable than that which has been or may be granted to the “most favored” among other
countries. It is intended to establish the principle of equality of international treatment by providing
that the citizens or subjects of the contracting nations may enjoy the privileges accorded by either
party to those of the most favored nation. The essence of the principle is to allow the taxpayer in
one state to avail of more liberal provisions granted in another tax treaty to which the country of
residence of such taxpayer is also a party provided that the subject matter of taxation, in this case
royalty income, is the same as that in the tax treaty under which the taxpayer is liable.

The RP-US Tax Treaty does not give a matching tax credit of 20 percent for the taxes paid to the
Philippines on royalties as allowed under the RP-West Germany Tax Treaty, private respondent
cannot be deemed entitled to the 10 percent rate granted under the latter treaty for the reason
that there is no payment of taxes on royalties under similar circumstances.
TAXATION RELATED TOPICS:

What is the purpose of a tax treaty?

The purpose of these international agreements is to reconcile the national fiscal legislations of the
contracting parties in order to help the taxpayer avoid simultaneous taxation in two different
jurisdictions.

The goal of double taxation conventions would be thwarted if such treaties did not provide for
effective measures to minimize, if not completely eliminate, the tax burden laid upon the income
or capital of the investor. Thus, if the rates of tax are lowered by the state of source, in this case,
by the Philippines, there should be a concomitant commitment on the part of the state of
residence to grant some form of tax relief, whether this be in the form of a tax credit or exemption.
Otherwise, the tax which could have been collected by the Philippine government will simply be
collected by another state, defeating the object of the tax treaty since the tax burden imposed
upon the investor would remain unrelieved. If the state of residence does not grant some form of
tax relief to the investor, no benefit would redound to the Philippines, i.e., increased investment
resulting from a favorable tax regime, should it impose a lower tax rate on the royalty earnings of
the investor, and it would be better to impose the regular rate rather than lose much-needed
revenues to another country.

What is international double taxation and the rationale for doing away with it?

International juridical double taxation is defined as the imposition of comparable taxes in two or
more states on the same taxpayer in respect of the same subject matter and for identical periods;
The apparent rationale for doing away with double taxation is to encourage the free flow of
goods and services and the movement of capital, technology and persons between countries,
conditions deemed vital in creating robust and dynamic economies. (INDIRECT DOUBLE TAXATION
– different jurisdictions)

When is there double taxation?

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.

What are the methods of eliminating double taxation?

 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.

 The second method for the elimination of double taxation applies whenever the state of
source is given a full or limited right to tax together with the state of residence. In this case,
the treaties make it incumbent upon the state of residence to allow relief in order to avoid
double taxation. In this case, the treaties make it incumbent upon the state of residence
to allow relief in order to avoid double taxation.

What are the methods of relief under the second method?

There are two methods of relief—the exemption method and the credit method.
 Exemption method, the income or capital which is taxable in the state of source or situs is
exempted in the state of residence, although in some instances it may be taken into
 account in determining the rate of tax applicable to the taxpayer’s remaining income or
capital.
 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 (state of source) is credited
against the tax levied in the latter (state of residence).

 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.

What is the rationale of reducing tax rates in negotiating tax treaties?

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.

What are tax refunds?

Tax refunds are in the nature of tax exemptions, and as such they are regarded as in derogation
of sovereign authority and to be construed strictissimi juris against the person or entity claiming the
exemption.

Who has the burden of proof in tax exemption?

The burden of proof is upon him who claims the exemption in his favor and he must be able to
justify his claim by the clearest grant of organic or statute law.

14. Deutsche Bank of AG Manila Branch v. CIR

whether the failure to strictly comply with RMO No. 1-2000 will deprive persons or corporations of
the benefit of a tax treaty.

Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject to a tax
of 15% based on the total profits applied for or earmarked for remittance without any deduction
of the tax component. However, petitioner invokes paragraph 6, Article 10 of the RP-Germany Tax
Treaty, which provides that where a resident of the Federal Republic of Germany has a branch in
the Republic of the Philippines, this branch may be subjected to the branch profits remittance tax
withheld at source in accordance with Philippine law but shall not exceed 10% of the gross amount
of the profits remitted by that branch to the head office.

By virtue of the RP-Germany Tax Treaty, we are bound to extend to a BRANCH in the Philippines,
remitting to its head office in Germany, the benefit of A PREFERENTIAL RATE EQUIVALENT TO 10%
BPRT.

On the other hand, the BIR issued RMO No. 1-2000, which requires that any availment of the tax
treaty relief must be preceded by an application with ITAD at least 15 days before the transaction.

Tax treaties are entered into “to reconcile the national fiscal legislations of the contracting parties
and, in turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions. CIR v.
S.C. Johnson and Son, Inc. further clarifies that “tax conventions are drafted with a view towards
the elimination of international juridical double taxation, which is defined as the imposition of
comparable taxes in two or more states on the same taxpayer in respect of the same subject
matter and for identical periods. The apparent rationale for doing away with double taxation is to
encourage the free flow of goods and services and the movement of capital, technology and
persons between countries, conditions deemed vital in creating robust and dynamic economies.
Foreign investments will only thrive in a fairly predictable and reasonable international investment
climate and the protection against double taxation is crucial in creating such a climate.”19cralaw
virtualaw library

Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of international
juridical double taxation, which is why they are also known as double tax treaty or double tax
agreements.

“A state that has contracted valid international obligations is bound to make in its legislations
those modifications that may be necessary to ensure the fulfillment of the obligations
undertaken.”20 Thus, laws and issuances must ensure that the reliefs granted under tax treaties are
accorded to the parties entitled thereto. The BIR must not impose additional requirements that
would negate the availment of the reliefs provided for under international agreements. More so,
when the RP-Germany Tax Treaty does not provide for any pre-requisite for the availment of the
benefits under said agreement.

Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would indicate a
deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. We
recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTA’s outright
denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in harmony
with the objectives of the contracting state to ensure that the benefits granted under tax treaties
are enjoyed by duly entitled persons or corporations.

Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty
relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it
would constitute a violation of the duty required by good faith in complying with a tax treaty. The
denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed
period under the administrative issuance would impair the value of the tax treaty. At most, the
application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of
the taxpayer to the relief.

The obligation to comply with a tax treaty must take precedence over the objective of RMO No.
1-2000. Logically, noncompliance with tax treaties has negative implications on international
relations, and unduly discourages foreign investors. While the consequences sought to be
prevented by RMO No. 1-2000 involve an administrative procedure, these may be remedied
through other system management processes, e.g., the imposition of a fine or penalty. But we
cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply
with an administrative issuance requiring prior application for tax treaty relief.

In this case, petitioner should not be faulted for not complying with RMO No. 1-2000 prior to the
transaction. It could not have applied for a tax treaty relief within the period prescribed, or 15 days
prior to the payment of its BPRT, precisely because it erroneously paid the BPRT not on the basis of
the preferential tax rate under the RP-Germany Tax Treaty, but on the basics of the regular rate as
prescribed by the NIRC.

Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net income amounting
to PHP 451,257,023.29 for 2002 and prior taxable years, applying the 10% BPRT. Thus, it is proper to
grant petitioner a refund of the difference between the PHP 67,688,553.51 (15% BPRT) and PHP
45,125,702.34 (10% BPRT) or a total of PHP 22,562,851.17.
 15. Nursery Care Corporation et. al. v. Anthony Acevedo
ISSUE:

Whether the act of the City Treasurer of Manila in imposing , assessing, and collecting the
additional business tax under section 21 of Ordinance No. 7794 as amended by Ordinance No.
7807 is constitutive of double taxation and violative of the local government code of 1991.

RULING:

The imposition of the tax under Section 21 of the Revenue Code of Manila constituted double
taxation.

Double taxation means taxing the same property twice when it should be taxed only once; that
is, “taxing the same person twice by the same jurisdiction for the same thing.” It is obnoxious when
the taxpayer is taxed twice, when it should be but once. Otherwise described as “direct duplicate
taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by
the same taxing authority, within the same jurisdiction, during the same taxing period; and the
taxes must be of the same kind or character.

The Court holds that all the elements of double taxation concurred upon the City of Manila’s
assessment on and collection from the petitioners of taxes for the first quarter of 1999 pursuant to
Section 21 of the Revenue Code of Manila.

Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person who sold
goods and services in the course of trade or business based on a certain percentage of his gross
sales or receipts in the preceding calendar year, while Section 15 and Section 17 likewise imposed
the tax on a person who sold goods and services in the course of trade or business but only
identified such person with particularity, namely, the wholesaler, distributor or dealer (Section 15),
and the retailer (Section 17), all the taxes – being imposed on the privilege of doing business in the
City of Manila in order to make the taxpayers contribute to the city’s revenues – were imposed on
the same subject matter and for the same purpose.

Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and within
the same jurisdiction in the same taxing period (i.e., per calendar year).

Thirdly, the taxes were all in the nature of local business taxes.

16. City of Manila v. Coca-Cola Bottlers Philippines

Double taxation means taxing the same property twice when it should be taxed only once;
that is, “taxing the same person twice by the same jurisdiction for the same thing.” It is obnoxious
when the taxpayer is taxed twice, when it should be but once. Otherwise described as “direct
duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period;
and the taxes must be of the same kind or character.[18]
 Using the aforementioned test, the Court finds that there is indeed double taxation if
respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794,
since these are being imposed: (1) on the same subject matter – the privilege of doing business in
the City of Manila; (2) for the same purpose – to make persons conducting business within the City
of Manila contribute to city revenues; (3) by the same taxing authority – petitioner City of Manila;
(4) within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for
the same taxing periods – per calendar year; and (6) of the same kind or character – a local
business tax imposed on gross sales or receipts of the business.

The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of
Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of
the power of municipalities and cities to impose a local business tax, and to which any local
business tax imposed by petitioner City of Manila must conform. It is apparent from a perusal
thereof that when a municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant
to Section 143(a) of the LGC, said municipality or city may no longer subject the same
manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may
be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the
NIRC, and that are “not otherwise specified in preceding paragraphs.” In the same way,
businesses such as respondent’s, already subject to a local business tax under Section 14 of Tax
Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made liable
for local business tax under Section 21 of the same Tax Ordinance [which is based on Section
143(h) of the LGC].

17. CIR v. Estate of Benigno Toda

Is this a case of tax evasion
or tax avoidance?
Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping
from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities.[23]

Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the
payment of less than that known by the taxpayer to be legally due, or the non-payment of tax
when it is shown that a tax is due; (2) an accompanying state of mind which is described as being
“evil,” in “bad faith,” “willfull,”or “deliberate and not accidental”; and (3) a course of action or
failure of action which is unlawful.[24]

All these factors are present in the instant case. It is significant to note that as early as 4 May 1989,
prior to the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC
received P40 million from RMI,[25] and not from Altonaga. That P40 million was debited by RMI
and reflected in its trial balance[26] as “other inv. – Cibeles Bldg.” Also, as of 31 July 1989, another
P40 million was debited and reflected in RMI’s trial balance as “other inv. – Cibeles Bldg.” This
would show that the real buyer of the properties was RMI, and not the intermediary Altonaga.

18. Francia v. IAC

NO OFFSETTING OF TAXES AGAINST ANY CLAIM A TAXPAYER MAY HAVE AGAINST THE
GOVERNMENT

This principal contention of the petitioner has no merit. We have consistently ruled that there can
be no off-setting of taxes against the claims that the taxpayer may have against the government.
A person cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.

In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal
Revenue Taxes cannot be the subject of set-off or compensation. We stated that:

A claim for taxes is not such a debt, demand, contract or judgment as is allowed
to be set-off under the statutes of set-off, which are construed uniformly, in the light
of public policy, to exclude the remedy in an action or any indebtedness of the
state or municipality to one who is liable to the state or municipality for taxes.
Neither are they a proper subject of recoupment since they do not arise out of the
contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule based on
grounds of public policy is well-settled that no set-off admissible against demands
for taxes levied for general or local governmental purposes. The reason on which
the general rule is based, is that taxes are not in the nature of contracts between
the party and party but grow out of duty to, and are the positive acts of the
government to the making and enforcing of which, the personal consent of
individual taxpayers is not required. ..."

We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector
because he has a claim against the governmental body not included in the tax levy.

This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "...
internal revenue taxes cannot be the subject of compensation: Reason: government and
taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code
and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-
off."

19. Domingo v. Garlitos

Another ground f or denying the petition of the provincial f iscal is the f act that the court having
jurisdiction of
the estate had found that the claim of the estate against the Government has been recognized
and an
amount of P262,200 has already been appropriated f or the purpose by a corresponding law (Rep.
Act No.
2700). Under the above circumstances, both the claim of the Government f or inheritance taxes
and the claim
of the intestate f or services rendered have already become overdue and demandable is well as
f ully liquidated.
Compensation, theref ore, takes place by operation of law, in accordance with the provisions of
Articles 1279
and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount
ARTICLE 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.

20. Gerochi v. DOE

Issue:W/N the universal charge is a taxRuling:NO. The assailed universal charge is not a tax, but an
exaction in the exercise of the State’s policepower. That public welfare is promoted may be
gleaned from Sec. 2 of the EPIRA, which enumerates the policies of the State regarding
electrification. Moreover, the Special Trust Fund feature of the universal charge reasonably serves
and assures the attainment and perpetuity of the purposes for which the universal charge is
imposed (e.g. to ensure the viability of the country’s electric power industry), further boosting the
position that the same is an exaction primarily in pursuit of the State’s police objectives.If
generation of revenue is the primary purpose and regulation is merely incidental, the impositionis
a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not
make the imposition a tax.The taxing power may be used as an implement of police power. 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.

21. Diaz v. Secretary of Finance

Tollway fees are not taxes.
As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to
establish a rule that tollway fees are user’s tax, but to make the point that airport lands and
buildings are properties of public dominion and that the collection of terminal fees for their use
does not make them private properties. Tollway fees are not taxes. Indeed, they are not assessed
and collected by the BIR and do not go to the general coffers of the government.

Taxes v. Tollways
It would of course be another matter if Congress enacts a law imposing a user’s tax, collectible
from motorists, for the construction and maintenance of certain roadways. The tax in such a case
goes directly to the government for the replenishment of resources it spends for the roadways. This
is not the case here. What the government seeks to tax here are fees collected from tollways that
are constructed, maintained, and operated by private tollway operators at their own expense
under the build, operate, and transfer scheme that the government has adopted for expressways.

Except for a fraction given to the government, the toll fees essentially end up as earnings of the
tollway operators. In sum, fees paid by the public to tollway operators for use of the tollways, are
not taxes in any sense. A tax is imposed under the taxing power of the government principally for
the purpose of raising revenues to fund public expenditures.

Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the
costs and expenses incurred in the construction, maintenance and operation of the tollways, as
well as to assure them a reasonable margin of income. Although toll fees are charged for the use
of public facilities, therefore, they are not government exactions that can be properly treated as
a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may
be demanded by either the government or private individuals or entities, as an attribute of
ownership.

Are tollway fees a tax on a tax- NO

Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for the tax
and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT
it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the
seller’s liability but merely the burden of the VAT.
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its
burden since the amount of VAT paid by the former is added to the selling price. Once shifted,
the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay in order
to purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway
operator. Under
Section 105 of the Code, [31]
VAT is imposed on any person who, in the course of trade or business, sells or renders
services for a fee. In other words, the seller of services, who in this case is the tollway operator, is
the person liable for
VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees.

22. Abaya v. Ebdane

A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that
public money is being deflected to any improper purpose, or that there is a wastage of public
funds through the enforcement of an invalid or unconstitutional law.
Significantly, a taxpayer need not be a party to the contract to challenge its validity. In the present
case, the petitioners are suing as taxpayers. They have sufficiently demonstrated that,
notwithstanding the fact that the CP I project is primarily financed from loans obtained by the
government from the JBIC, nonetheless, taxpayers’ money would be or is being spent on the
project considering that the Philippine Government is required to allocate a peso-counterpart
therefor. The public respondents themselves admit that appropriations for these foreign-assisted
projects in the GAA are composed of the loan proceeds and the peso-counterpart. The
counterpart funds, the Solicitor General explains, refer to the component of the project cost to be
financed from government-appropriated funds, as part of the government’s commitment in the
implementation of the project.
Hence, the petitioners correctly asserted their standing since a part of the funds being utilized in
the implementation of the CP I project partakes of taxpayers’ money.

23. Gonzales v. Marcos

issue centered on the validity of the creation in Executive Order No. 30 of a trust for the benefit of
the Filipino people under the name and style of the Cultural Center of the Philippines

It may not be amiss though to consider briefly both the procedural and substantive grounds that
led to the lower court's order of dismissal. It was therein pointed out as "one more valid reason"
why such an outcome was unavoidable that "the funds administered by the President of the
Philippines came from donations [and] contributions [not] by taxation." Accordingly, there was
that absence of the "requisite pecuniary or monetary interest." The stand of the lower court finds
support in judicial precedents. 10 This is not to retreat from the liberal approach followed in Pascual
v. Secretary of Public Works, 11 foreshadowed by People v. Vera, 12 where the doctrine of standing
was first fully discussed. It is only to make clear that petitioner, judged by orthodox legal learning,
has not satisfied the elemental requisite for a taxpayer's suit.