DOCTRINES IN TAXATION:

1. Prospectivity of Tax Laws:

a. Hydro Resources vs, CA, GR 80276, Dec. 21, 1990, 192 SCRA 604;
FACTS:
National Irrigation Administration (NIA) entered into an agreement with Hydro Resources
for the construction of the Magat River Multipurpose Project in Isabela. Under their
contract, Hydro was allowed to procure new construction equipment, the payment for
which will be advanced by NIA. Hydro shall repay NIA the costs incurred and the manner
of repayment shall be through deductions from each monthly payment due to Hydro.
Hydro shall repay NIA the full value of the construction before the eventual transfer of
ownership.

Upon transfer, Hydro was assessed an additional 3% ad valorem duty which it paid under
protest. The Collector of Customs then ordered for the refund of the ad valorem duty in
the form of tax credit. This was then reversed by the Deputy Minister of Finance.

ISSUE: W/N the imposition of the 3% ad valorem tax on importations is valid?

HELD:

No, EO 860 which was the basis for the imposition of the ad valorem duty took effect
December 1982. The importations were effected in 1978 and 1979 by NIA. It is a cardinal
rule that laws shall have no retroactive effect unless contrary is provided. EO 860 does
not provide for its retroactivity. The Deputy Minister of Finance even clarified that letters
of credit opened prior to the effectivity of EO 860 are not subject to its provisions.

In the case at bar, the procurement of the equipment was not on a tax exempt basis as
the import liabilities have been secured to paid under a financial scheme. It is a matter of
implementing a pre-existing agreement, hence, the imported articles can only be subject
to the rates of import duties prevailing at the time of entry or withdrawal from the customs’
custody.

2. Imprescribility of Taxes

a. CIR vs. Ayala Securities Corporation, GR No. L-29485, Nov. 21, 1980, 101 SCRA 231;

FACTS: Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus
so Ayala was charged with 25% surtax by the Commissioner of internal Revenue. The CTA
(Court of Tax Appeals) reversed the Commissioner’s decision and held that the assessment
made against Ayala was beyond the 5-yr prescriptive period as provided in section 331 of
the National Internal Revenue Code. Commissioner now files a motion for reconsideration
of this decision. Ayala invokes the defense of prescription against the right of the
Commissioner to assess the surtax.

ISSUE: W/N the right to assess and collect the 25% surtax has prescribed after five years?

HELD:

No, There is no such time limit on the right of the Commissioner to assess the 25% surtax
since there is no express statutory provision limiting such right or providing for its
prescription. Hence, the collection of surtax is imprescriptible. The underlying purpose of
the surtax is to avoid a situation where the corporation unduly retains its surplus earnings
instead of declaring and paying dividends to its shareholders. SC reverses the ruling of the
CTA.
3. Double Taxation

a. Definition and Nature; 71 Am Jur 2nd 362 – 365;

Definition; When the same taxable item is taxed more than once by either the same or by
different government agencies, there is said to be double taxation. As described in
literature, double taxation can either present itself in a “juridical” or an “economic” form.

Nature: The nature of taxation agreements is mainly bilateral, although some of the
treaties have a multilateral nature, and examples like the convention established by the
OECD and the Council of Europe called ‘Convention on Mutual Administrative Assistance
in Tax Matters’, which controls information exchange concerning taxation issues among
states, can be applied to members of both organizations. According to the OECD
multilateral agreements like the Convention “covers a much wider range of taxes than
bilateral treaties (...) and it specifies uniform procedures for various forms of mutual
assistance such as service of documents, simultaneous tax examinations and tax
examinations abroad”

b. CASE: Villanueva vs. City of Iloilo, GR No. L26251, Dec. 28, 1968, 26 SCRA 578;
FACTS:
Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordinance
11 Series of 1960, imposing a municipal license tax on tenement houses in accordance
with the schedule of payment provided by therein. Villanueva and the other appellees are
apartment owners from whom the city collected license taxes by virtue of Ordinance 11.

Appellees aver that the said ordinance is unconstitutional for RA 2264 does not empower
cities to impose apartment taxes; that the same is oppressive and unreasonable for it
penalizes those who fail to pay the apartment taxes; that it constitutes not only double
taxation but treble taxation; and, that it violates uniformity of taxation.

ISSUE
1. W/N the ordinance impose double taxation?

HELD:
While it is true that appellees are taxable under the NIRC as real estate dealers, and
taxable under Ordinance 11, double taxation may not be invoked. This is because the
same tax may be imposed by the national government as well as by the local government.
The contention that appellees are doubly taxed because they are paying real estate taxes
and the tenement tax is also devoid of merit. A license tax may be levied upon a business
or occupation although the land or property used in connection therewith is subject to
property tax. In order to constitute double taxation, both taxes must be the same kind or
character. Real estate taxes and tenement taxes are not of the same character.

RA 2264 confers local governments broad taxing powers. The imposition of the tenement
taxes does not fall within the exceptions mentioned by the same law. It is argued however
that the said taxes are real estate taxes and thus, the imposition of more the 1 per centum
real estate tax which is the limit provided by CA 158, makes the said ordinance ultra vires.
The court ruled that the tax in question is not a real estate tax. It does not have the
attributes of a real estate tax. By the title and the terms of the ordinance, the tax is a
municipal tax which means an imposition or exaction on the right to use or dispose of
property, to pursue a business, occupation or calling, or to exercise a privilege. Tenement
houses being offered for rent or lease constitute a distinct form of business or calling and
as such, the imposition of municipal tax finds support in Section 2 of RA 2264.

c. Sanchez vs. CIR, 97 Phil 687, GR L-7521, Dec. 28 1968, 26 SCRA 578;
FACTS: Veronica Sanchez is the owner of a two-story, four-door "accessoria" building at
181 Libertad Street, Pasay City, which she constructed in 1947. The building has an
assessed value of P21,540 and the land is assessed at P7,980, or a total value of P29,540
(Exhibit 2). While appellant lives in one of the apartments, she is renting the rest to other
persons. In 1949, she derived an income therefrom of P7,540 (Exhibit 1). Appellant also
runs a small dry goods store in the Pasay market, from which she derives an annual income
of about P1,300 (also Exhibit 1).

In the early part of 1951, the Collector of Internal Revenue made demand upon appellant
for the payment of P163.51 as income tax for the year 1950, and P637 as real estate
dealer's tax for the year 1946 to 1950, plus the sum of P50 as compromise (Exhibit 4).
Appellant paid the taxes demanded under protest, and on October 16, 1951 filed action in
the Court of First Instance of Manila (C. C. No. 14957) against the Collector of Internal
Revenue for the refund of the taxes paid, claiming that she is not a real estate dealer. She
also argues that she is already paying real estate taxes on her property, as well as income
tax on the income derive therefrom, so that to further subject its rentals to the "real estate
dealers' tax" amounts to double taxation.

ISSUE W/N Sanchez is a real estate dealer subject to real estate tax.

HELD:

Yes, "Real estate dealers" includes all persons who for their own account are engaged in
the sale of lands, buildings or interests therein or in leasing real estate. (R. A. No. 42)
The kind of nature of the building constructed by her—which is a four-door "accessoria"—
shows that it was from the beginning intended for lease as a source of income or profit to
the owner; and while appellant resides in one of the apartments, it appears that she always
rented the other apartments to other persons from the time the building was constructed
up to the time of the filing of this case.

Considering, therefore, that appellant constructed her four-door "accesoria" purposely for
rent or profit; that she has been continuously leasing the same to third persons since its
construction in 1947; that she manages her property herself; and that said leased holding
appears to be her main source of livelihood, we conclude that appellant is engaged in the
leasing of real estate, and is a real estate dealer as defined by section 194 (s) of the
Internal Revenue Code, as amended by Republic Act No. 42.

ISSUE: Whether or not there was double taxation.

HELD:

No, The court cited it ruling in the case of People vs. Mendaros, et al., L-6975, it held that
"it is a well settled rule that license tax may be levied upon a business or occupation
although the land or property used there in is subject to property tax", and that "the state
may collect an ad valorem tax on property used in a calling, and at the same time impose
a license tax on the pursuit of that calling", the imposition of the latter kind of tax being
in no sense a double tax.

The evidence shows, however, that the apartment house in question was constructed only
in 1947, while the real estate dealer's tax demanded of and paid by appellant was for the
year 1946 to 1950 (see Exhibit 4). Wherefore, appellant is entitled to a refund of the tax
paid for the year 1946, amounting to P37.50.

d. Punsalan vs. Mun. Board of Manila, 95 Phil 46;

FACTS:
Petitioners, who are professionals in the city ( 2 lawyers, a medical practitioner, a public
accountant, a dental surgeon and a pharmacist) assail Ordinance No. 3398 together with
the law authorizing it (Section 18 of the Revised Charter of the City of Manila). The
ordinance imposes a municipal occupation tax on persons exercising various professions
in the city and penalizes non-payment of the same. The law authorizing said ordinance
empowers the Municipal Board of the city to impose a municipal occupation tax on persons
engaged in various professions. Petitioners, having already paid their occupation tax under
section 201 of the National Internal Revenue Code, paid the tax under protest as imposed
by Ordinance No. 3398. The lower court declared the ordinance invalid and affirmed the
validity of the law authorizing it.

ISSUE: W/N the ordinance and law authorizing it constitute class legislation, and authorize
what amounts to double taxation?

HELD:

No, The Legislature may, in its discretion, select what occupations shall be taxed, and in
its discretion may tax all, or select classes of occupation for taxation, and leave others
untaxed. It is not for the courts to judge which cities or municipalities should be
empowered to impose occupation taxes aside from that imposed by the National
Government.

That matter is within the domain of political departments. The argument against double
taxation may not be invoked if one tax is imposed by the state and the other is imposed
by the city. It is widely recognized that there is nothing inherently terrible in the
requirement that taxes be exacted with respect to the same occupation by both the state
and the political subdivisions thereof. Judgment of the lower court is reversed with regards
to the ordinance and affirmed as to the law authorizing it.