TAXATION - CASES DOCTRINES Compiled PDF

CASES DOCTRINE FOR TAXATION 1
LIMITATIONS
ON THE
TAXING
POWER
GOMEZ VS Petitioner questions the constitutionality of R.A. 1635 mandating the bearing of Anti-TB
PALOMAR stamps on envelopes, as well as its implementing administrative orders, contending that
(1968) it is not for a public purpose.
HELD:
R.A. 1635 is valid.
(pointed out by Atty. Yu)

Exercise of Regulatory power:
The eradication of a dreaded disease is a public purpose. . The PTS is merely an agency
through which the proceeds are given or allotted, but ultimately the beneficiaries are all
the tuberculosis patients.
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
The money raised from the sale of the Anti-TB stamps is spent for the benefit of the
Philippine Tuberculosis Society, a private organization, without appropriation by law. The
money is treated as a special fund.
LUTZ VS (Pointed out by Atty. Yu)
ARANETA
(1955) Plaintiff Lutz assailed the constitutionality of Sections 2 and 3, C.A. 567 which provided for
an increase of the existing tax on the manufacture of sugar, alleging such tax as
unconstitutional and void for not being levied for a public purpose but for the aid and
support of the sugar industry exclusively.
HELD:
The Legislature may determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative discretion must be
allowed full play, subject only to the test of reasonableness;
The protection and promotion of the sugar industry is a matter of public concern. This is
an exceptional case because the sugar industry was very down at that time.
(if it is decided at present, doubtful that it will pass the constitutional test,-Atty. YU)
VALENTIN TIO (Pointed out by Atty. Yu)
v. VIDEOGRAM
REGULATORY The Supreme Court held the levy of 30% tax under P.D. 1987 as for a public purpose, and
BOARD(1987) therefore a valid imposition.
Exercise of Regulatory power: The law, according to the Court, was imposed primarily
for answering the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. Hence, while the direct beneficiaries of the
said decree is the movie industry, the citizens are held to be its indirect beneficiaries.
COMPILED BY MYRNA JOY JAPOS, UC 1

CITY OF Defendant-appellant De Leon, a real estate dealer, assailed the validity of an ordinance of
BAGUIO v. the City of Baguio imposing a license fee on any person, firm, entity, or corporation doing
FORTUNATO business in the City of Baguio.
DE LEON
25 SCRA 938 HELD:
Republic Act No. 329 was enacted amending Section 2553 of the Revised Administrative
Code, empowering the City Council not only to impose a license fee but also to levy a tax
for purposes of revenue.
Thus, the City Council of Baguio now has the power to tax, to license, and to regulate all
businesses, trades, and occupations therein.
The ordinance under consideration, therefore, cannot be considered ultra vires.
HON. RAMON Pointed out by Atty. Yu 

BAGATSING, et
al. v. So long as the purpose is public, it does not matter whether the agency through which
HON. PEDRO the money is dispensed is public or private. The right to tax depends upon the ultimate
RAMIREZ, et use, purpose and object for which the fund is raised. It is not dependent on the nature or
al. character of the person or corporation whose intermediate agency is to be used in
74 SCRA 306 applying it. (this is an old case)
(1976)
Under LGU 1991, the collection cannot be delegated to private entities.
The people may be taxed for a public purpose, although it be under the direction of an
individual or private corporation. The entrusting of the collection of the fees does not
destroy the public purpose of the ordinance.
Facts: The delegation of the collection of market stall fees to a private corporation (Asiatic
thru a Management and Operating Contract) affects the public purpose of the imposition.
In upholding the validity of the tax ordinance, the Supreme Court held that, "The fees
collected do not go direct to the private coffers of the corporation. Ordinance No. 7522
was not made for the corporation but for the purpose of raising revenues for the city.”
PASCUAL v. Nevertheless, in the case of Pascual v. Secretary of Public Works which challenges the law
SECRETARY OF appropriating a certain amount for the construction of a feeder road on a land owned by
PUBLIC WORKS a private individual, the Court held the law to be an invalid imposition since it results in
110 Phil. 331 the promotion of a private enterprise, it benefits the property of a particular individual.
Held:
(Pointed out by Atty. Yu)
-what about ang argument ni Zulueta na anyway maka benefit man ang public kay muagi
man man sila.?
PUBLIC ADVANTAGE MERELY INCIDENTAL= RENDERS THE LAW INVALID
THE PROMOTION OF A PRIVATE ENTERPRISE IS INCIDENTAL =VALID
The rule is that, if the public advantage or benefit is merely incidental in the promotion
of a particular enterprise, such defect shall render the law invalid.
On the other hand, if what is incidental is the promotion of a private enterprise, the tax
law shall be deemed "for a public purpose."
The provision that the land shall thereafter be donated to the government does not cure
this defect.
COMMISSIONE For the source of income to be considered as coming from the Philippines, it is sufficient
R v. BOAC that the income is derived from within the Philippines, x x x"
149 SCRA 395

TERRITORIALI ATLAS
TY CONSOLIDATE According to the Destination Principle, goods and services are taxed only in the country
D MINING AND where these are consumed.
DEVELOPMEN
T In connection with the said principle, the Cross Border Doctrine mandates that no VAT
CORPORATION shall be imposed to form part of the cost of the goods destined for consumption outside
v. the territorial border of the taxing authority.
COMMISSIONE
R OF INTERNAL Hence, actual export of goods and services from the Philippines to a foreign country
REVENUE must be free of VAT while those destined for use or consumption within the Philippines
524 SCRA shall be imposed with 10% VAT (Now 12% under R.A. No. 9337).
73,103 (2007)
NON- Pointed out by atty Yu:
DELEGATION Abakada Guro The Supreme Court sustained the constitutionality of R.A. 9337 authorizing the President
OF THE Party List v. to increase the VAT rate from 10% to 12% effective January 1, 2006 upon recommendation
POWER TO Ermita [469 of the Secretary of Finance on the existence of either of the two conditions.
TAX SCRA 1,
122,123-124] HELD:
AS TO DELEGATION OF POWER:
No, there is no undue delegation of legislative power but only of the discretion as to the
execution of a law. This is constitutionally permissible. Congress does not abdicate its
functions or unduly delegate power when it describes what job must be done, who must
do it, and what is the scope of his authority; in our complex economy that is frequently
the only way in which the legislative process can go forward. It complies with the
a. Completeness test
b. Sufficient-standard test
In this case, it is not a delegation of legislative power but a delegation of ascertainment of

facts upon which enforcement and administration of the increased rate under the law is
contingent.
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.
AS TO RECOMMENDATION OF THE SEC OF FINANCE:
In making his recommendation to the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the alter ego of the President or even
her subordinate.
In such instance, he is not subject to the power of control and direction of the President.
He is acting as the agent of the legislative department, to determine and declare the
event upon which its expressed will is to take effect.
The Secretary of Finance becomes the means or tool by which legislative policy is
determined and implemented, considering that he possesses all the facilities to gather
data and information and has a much broader perspective to properly evaluate them.
Note: Cannot invoke flexible tariff clause. FTC does not include Tax rate, VAT. It only
includes tariff rates, import and export of quotas.
BOARD OF
ASSESSMENT In the absence of constitutional provision, “the power to tax may be delegated to local
APPEALS government units in accordance with the well-settled doctrine that the power to create
OF LAGUNA v. local government units by implication confers upon it the power to tax.”
CTA
8 SCRA 224

So even if no constitutional provision exists, local government units still possess the power
to tax.
PEPSI-COLA
BOTTLING CO. Petitioners assail the constitutionality of Municipal Ordinance No. 110, as amended by
OF THE PHILS, Mun. Ord. No. 122, on the ground that Sec. 2 of R.A. 2264, upon the authority of which it
v. CITY OF is delegated, is an unconstitutional delegation of legislative powers.
BUTUAN
24 SCRA 789 HELD:
The general principle against delegation of legislative powers, in consequence of the
theory of separation of powers is subject to one well-established exception, namely:
legislative powers may be delegated to local governments.
PEPSI-COLA Pepsi-Cola challenges the power of taxation delegated to municipalities under the Local
BOTTLING CO. Autonomy Act.
OF THE
PHILS., INC. v. HELD:
MUNICIPALITY The power of taxation granted to municipalities under the Local Autonomy Act is
OF TANAUAN, constitutional.
LEYTE
69 SCRA 460 Legislative powers may be delegated to local governments in respect of matters of local
concern.
This is sanctioned by immemorial practice. By necessary implication, the legislative power

to create political corporations for purposes of self-government carries with it the power
to confer on such local government agencies the power to tax.
Thus, municipalities may be permitted to tax subjects which for reasons of public policy
the State has not deemed wise to tax for more general purposes.
JOHN H. The Supreme Court finds that the provision conferring the authority upon the ERB to
OSMENA v. impose additional amounts on petroleum products provides a sufficient standard by which
OSCAR ORBOS the authority must be exercised.
220 SCRA 703
For a valid delegation of power, it is essential that
the law delegating the power must be
(1) complete in itself, that is, it must set forth the policy to be executed by the delegate
and,
(2) it must fix a standard — limits of which are sufficiently determinate or determinable
— to which the delegate must conform.
To avoid the taint of unlawful delegation, there must be a standard, which implies at the
very least that the legislature itself determines matters of principle and lays down
fundamental policy. Otherwise, the charge of complete abdication may be hard to repel.
A standard, thus, 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. It is

the criterion by which the legislative purpose may be carried out.
MAYOR Respondent Hui Chiong Tsai Pao Ho challenged the validity of Ordinance No. 6537 passed
ANTONIO J. by the Municipal Board of Manila. The said ordinance prohibited aliens from being
VILLEGAS v. employed or to engage or participate in any position, occupation or business enumerated
HIU therein, whether permanent, temporary or casual, without first securing an employment
CHIONG TSAl permit from the Mayor of Manila and paying the permit fee.
PAO HO and
JUDGE ARCA Respondent judge declared the ordinance null and void.
86 SCRA 270
(1978) HELD:

Ordinance No. 6537 is VOID because it does not contain or suggest any standard or
criterion to guide the mayor in the exercise of the power which has been Granted to him
in the ordinance.
It has been held that where an ordinance of a municipality fails to state any policy or to
set up any standard to guide or limit the mayor's action, expresses no purpose to be
attained by requiring a permit, enumerates no conditions for its grant or refusal, and
entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power
to grant or deny the issuance of building permits, such ordinance is invalid, being an
undefined and unlimited delegation of power to allow or prevent an activity per se lawful.
BENJAMIN The Supreme Court held that administrative orders are not undue delegation of legislative
GOMEZ v. powers.
ENRICO
PALOMAR, et Although the law does not expressly authorize the collection of five centavos except
al. through the sale of Anti-TB stamps, such authority may be implied in so far as may be
25 SCRA 827 necessary to prevent a failure of the undertaking.
The authority given to the Postmaster General to raise funds through the mails must be
liberally construed, consistent with the principle that where the end is required the
appropriate means is given.
EXEMPTION Manila
FROM International The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of
TAXATION OF Airport the Administrative Code of 1987 uses the phrase "includes x x x government-owned or
GOVERNMEN Authority v. controlled corporations" which means that a government "instrumentality" may or may
T Court of not be a "government-owned or controlled corporation."
AGENCIES/IN Appeals [495
STRUMENTAL SCRA 591, 615] Obviously, the term government "instrumentality" is broader than the term "government-
ITIES owned or controlled corporation." Section 2(10) provides:
SEC. 2. General Terms Defined. — x x x

(10) Instrumentality refers to any agency of the national Government, not integrated
within the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. (clearly exempt)
This term includes regulatory agencies, chartered institutions and government-owned or

controlled corporations.
The term "government-owned or controlled corporation" has a separate definition under

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987:
SEC. 2. General Terms Defined.- x x x

(13) Government-owned or controlled corporation refers to any agency organized as a
stock or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through
its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of its capital stock: (it
depends: for proprietary function- subject to tax; for governmental exempt)
The fact that two terms have separate definitions means that while a government
"instrumentality" may include a "government-owned or controlled corporation," there
may be a government "instrumentality" that will not qualify as a "government-owned
or controlled corporation."
Instrumentality of the National Government is exempt from local taxation
A close scrutiny of the definition of "government owned or controlled corporation" in

Section 2(13) will show that MIAA would not fall under such definition.

MIAA is a government "instrumentality" that does not qualify as a "government-owned
or controlled corporation.
STANDARD OIL The Standard Oil Company of New York sold and delivered in the Philippines fuel oil and
COMPANY OF asphalt, to the Quartermaster Dept. of the US Army, for the use of the said Army. The CIR
NEW of the Philippine government imposed taxes of about 1 1/2% of the value of the
YORK v. JUAN merchandise. At the same time, the Standard Oil Company delivered fuel oil in the
POSADAS, JR. Philippines for the use of the US Navy, which was likewise taxed by the CIR. The Standard
55 Phil. 715 Oil Company paid the taxes assessed under protest and sued to recover the corresponding
refunds.
HELD:
The assessment and collection by the Philippine
Government of the tax on sales of merchandise made
in the Philippines to the US Army and the US Navy is
illegal.
Sales made in the Philippines to the US Army and the US Navy are made to
instrumentalities of the US Government, and therefore, are not subject to tax by the
Philippine Government.
Mactan cebu Held:
vs city of (Pointed out by Atty. Yu)
lapulapu The petitioner is an instrumentality of the government; thus, its properties actually, solely
and exclusively used for public purposes, consisting of the airport terminal building,
airfield, runway, taxiway and the lots on which they are situated, ARE NOT... SUBJECT
TO REAL PROPERTY TAX and respondent City is not justified in collecting taxes from
petitioner over said properties.
in 2006, the Court en banc decided a case that in effect reversed the 1996 Mactan ruling.
The 2006 MIAA case... had, since the promulgation of the questioned Decision and
Resolution, reached finality and had in fact been either affirmed or cited in numerous
cases by the Court... the 2006 MIAA case was decided by the Court en banc while the 1996
MCIAA case was decided by a Division.
in the 2006 MIAA case, we held that 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.
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...
unless petitioner leases its real property to a taxable person, the specific property leased
becomes subject to real property tax;... 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.
MCAA is not a stock corporation- no share s of stocks and dividends
BOARD OF The question involved in this case is whether the

ASSESSMENT water pipes, reservoir, intake and buildings used in the
APPEALS, operation of its waterworks system in the province of
PROVINCE OF Laguna are subject to real estate tax.
LAGUNA v.
COURT OF TAX HELD:

APPEALS and It is submitted that the law — Sec. 3 of Republic Act 470 — exempting from taxation
NATIONAL "property ownedby the Republic of the Philippines, any province, city, municipality or
WATERWORKS municipal district . . ." makes no distinction between property held in a sovereign,
AND government or political capacity and those possessed in a private, proprietary and
SEWERAGE patrimonial character.
AUTHORITY
8 Phil. 227 And where the law does not distinguish, neither may we. x x x Moreover, taxes are
financial burdens imposed for the purpose of raising revenues with which to defray the
cost of the operation of the Government, and a tax on the property of the government,
whether national or local, would merely have the effect of taking money from one pocket
to put it in another pocket. Hence, it would not serve, in the final analysis, the main
purpose of taxation.
NATIONAL Is a public land reserved by the President for warehousing purposes in favor of a
DEVELOPMEN government- owned or -controlled corporation, as well as the warehouse subsequently
T COMPANY v. erected thereon, exempt from real property tax?
CEBU CITY and
AUGUSTO RE: The land- YES
PACIS
215 SCRA 382 It may, therefore, be stated that tax exemption of "property owned by the Republic of
the Philippines" refers to properties owned by the Government and by its agencies
which do not have separate and distinct personalities (unincorporated entities).
In this case, what appears to have been ceded to NDC was merely the administration of
the property while the government retains ownership of what has been declared for
warehousing purposes. The land remains "absolute property of the government.
The government does not part with its title by reserving

them (lands), but simply gives notice to all the world
that it desires them for a certain purpose."
As its title remains with the Republic, the reserved land is clearly covered by tax
exemption.
RE: The warehouse- NO
As regards the warehouse constructed on a public reservation, a different rule should

apply because "(t)he exemption of public property from taxation does not extend to
improvements on the public land made by preemptioners, homesteaders and other
claimants, or occupants, at their own expense, and these are taxable by the State x x x."
Consequently, the warehouse constructed on the reserved land by NDC should properly
be assessed real estate tax as such improvement does not appear to belong to the public.
Constitutiona
l Limitations
on the Power
to Tax
DUE PROCESS The "No person shall be deprived of life, liberty or property without due process of law . . ."
OF LAW Classification (Art. Ill, Sec. 1)
Freeze
Provision Verily, where there is a claim of breach of the due process and equal protection clauses,
under R.A. considering that they are not fixed rules but rather broad standards, there is a need for
9334 proof of such persuasive character as would lead to such a conclusion.
DOES NOT
VIOLATE DUE Absent such a showing, the presumption of validity must prevail.
PROCESS
CLAUSE It is clear that Revenue Regulations No. 1-97, as amended by Section 2 of Revenue
(British American
Tobacco v. Camacho,
Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably
562 emasculate the operation of Section 145 of the NIRC because they authorize the

SCRA 511, 517-518
[2008])
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.
CARLOS Petitioners assert that Section 4(a) of the Expanded Senior Citizens Act (R.A. 9257) is
SUPERDRUG unconstitutional because it constitutes deprivation of private property. Compelling
CORP. drugstore owners and establishments to grant the discount will result in a loss of profit
v. and
DEPARTMENT capital because (1) drugstores impose mark up only 5% to 10% on branded medicines; and
OF SOCIAL (2) the law failed to provide a scheme whereby drugstores will be justly compensated for
WELFARE the discount.
AND
DEVELOPMEN HELD:
T (DSWD) R.A. 9257 is constitutional. The law is a legitimate exercise of police power which, similar
526 SCRA to the power of eminent domain, has general welfare for its object.
130,140,143-
145 (2007) XXX Moreover, in the absence of evidence demonstrating the alleged confiscatory effect
of the provision in question, there is no basis for its nullification in view of the
presumption of validity which every law has in its favor.
Given these, it is incorrect for petitioners to insist that the grant of the senior citizen
discount is unduly oppressive to their business, because petitioners have not taken time
to calculate correctly and come up with a financial report, so that they have not been able
to
show properly whether or not the tax deduction scheme really works greatly to their
disadvantage.
JOSE REYES v. The due process clause may be invoked where a taxing statute is so arbitrary that it finds
PEDRO no support in the Constitution, as where it can be shown to amount to a confiscation of
ALMANZOR property.
196 SCRA 322
COMMISSIONE The CTA held that petitioner Commissioner of Internal Revenue failed to observe due
R OF INTERNAL process of law in issuing RMC 37-93 as there was no prior notice and hearing.
REVENUE v.
HON. COURT The Supreme Court upheld the CTA, holding that
OF APPEALS, when an administrative rule is merely interpretative in
HON. COURT nature, - NO NOTICE AND HEARING
OF TAX
APPEALS ts applicability needs nothing further than its
and FORTUNE bare issuance for it gives no real consequence more than
TOBACCO what the law itself has already prescribed.
CORPORATION
261 SCRA 236 When, upon the other hand, the administrative rule goes beyond
merely providing for the means that can facilitate or
render least cumbersome the implementation of the
law but substantially adds to or increases the burden
of those governed,-WITH NOTICE AND HEARING
as in the case at bar, it behooves the

agency to accord at least to those directly affected a
chance to be heard, and thereafter to be duly informed,
before that new issuance is given the force and effect of
law.
EQUAL Classification -note: usually to invoke equal protection, muana si petitioner na wala na comply ang 4
PROTECTION freeze requisites of valid classification.
OF THE LAW ( provision
under R.A.

9334 DOES A legislative classification that is reasonable does not offend the constitutional guaranty
NOT VIOLATE of the equal protection of the laws.
THE EQUAL
PROTECTION The classification is considered valid and reasonable provided that: (1) it rests on
AND substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all
UNIFORMITY things being equal, to both present and future conditions; and (4) it applies equally to
OF TAXATION all those belonging to the same class. Commented [WU1]: A legislative classification that is
CLAUSES reasonable does not offend the constitutional guaranty of
UNDER THE The first, third and fourth requisites are satisfied. The classification freeze provision was the equal protection of the laws.
CONSTITUTIO inserted in the law for reasons of practicality and expediency. That is, since a new brand
N was not yet in existence at the time of the passage of R.A. 8240, then Congress needed a No violation.
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.
What about the argument that there was a discrimination as to the old brand and new
brands? Dili ba na siya confiscatory?
- Price is not the sole determining factor that customers consider in buying
products. Factors like quality., etc also matters.
BENJAMIN It is claimed that R.A. 1635, otherwise known as

GOMEZ v. the Anti-TB Stamp Law, is violative of the equal protection
ENRICO clause of the Constitution because it constitutes
PALOMAR, mail users into a class for the purpose of the tax while
et al. leaving untaxed the rest of the population and that
25 SCRA 827 even among postal patrons the statute discriminatorily grants exemptions.
HELD:
(pointed out by Atty. Yu)
It is settled that the legislature has the inherent power to select the subject of taxation
and to grant exemptions.
The classification of mail users is based on substantial distinction:

1. on the ability to pay,
2. the enjoyment of a privilege and
3. on administrative convenience.
The charge levied by RA 1635 , is in the nature of an EXCISE TAX.
Tax exemptions have never been thought of as raising issues under the equal protection
clause.
EASTERN Ord. No. 2958 of the City of Manila, which reads as follows: "An ordinance imposing a fee
THEATRICA on the price of every admission ticket sold by Cinematographers, etc."
L CO. v.
VICTOR Appellants point out to the fact that the ordinance in question does not tax "many more
ALFONSO kinds of amusements" than those therein specified, such as "race tracks, cockpits,
83 Phil. 852 cabarets, concert halls, circuses, and other places of amusement."
HELD:
CONTENTION NO MERIT.
Equality and uniformity means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate.

The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation; and the appellants cannot point out what places of amusement
taxed by the ordinance do not constitute a class by themselves and which can be confused
with those not included in the ordinance.
SILVESTRE In upholding the validity of the tax law, the Supreme Court held that there is no
PUNSALAN discrimination or class legislation if a statute authorizes the City of Manila to levy
v. THE MUN. occupation taxes while that same authority is withheld from other cities and
BOARD OF municipalities.
THE CITY
OF MANILA It is not for the court to decide what cities or municipalities should be so authorized for
95 Phil. 46 such is a matter of judicial determination.
There was a substantial distinction between them and other professionals as practitioners
in Manila could expect a more lucrative income than those in the other parts of the
country.
JUAN LUNA The remission of taxes due and payable to the exclusion of taxes already collected does
SUBDIVISIO not constitute unfair discrimination.
N, INC. v.
SARMIENTO Each set of taxes is a class by itself, and the law would be open to attack as class legislation
, et al. only if all taxpayers belonging to one class were not treated alike. They are not.
91 Phil. 371
ASSOCIATIO The ordinance infringes upon the rule of uniformity. The ordinance exacts the tax upon all
N OF motor vehicles operating within the City of Manila. It does not distinguish between a
CUSTOM motor vehicle for hire and one which is purely for private use. Neither does it distinguish
BROKERS, between a motor vehicle registered in the City of Manila and one registered in another
INC. v. place but occasionally comes to Manila and uses its streets and public highways.
MUN.
BOARD,
CITY OF
MANILA
VILLEGAS v. The imposition of license fee on all aliens desiring to seek employment in Manila,
HSIU regardless of the nature of employment (whether casual, permanent, part time or full-
CHIONG time, lowly paid employee or highly paid executive), was declared unconstitutional. The
CHAI PAO tax ordinance is discriminatory because it fails to consider valid substantial differences in
86 SCRA 270 situation among aliens required to pay it.
Classification should be based on real and substantial differences having a reasonable

relation to the subject of legislation
UNIFORMI Equality in taxation is accomplished when the burden of the tax falls equally and
TY OF impartially upon all the persons and property subject to it, so that no higher rate or greater
TAXATION levy in proportion to value is imposed upon one person or species or property than upon
others similarly situated or of like character.
The Uniformity requires that all taxable property shall be alike subjected to the tax, and this
Constitution requirement is violated if particular kinds, species or items of property are selected
requires to bear the whole burden of the tax, while others, which should be equally subject to it,
uniformity, are left untaxed.
not equality
in taxation.
PROGRESSIVE Tolentino v. No violation. The Constitution does not prohibit the imposition of indirect taxes but merely
TAXATION Secretary of provides that Congress shall evolve a progressive system of taxation. It’s okay to have
Finance indirect provided there are more direct taxes. Commented [WU2]: No. The Constitution does not
prohibit the imposition of indirect taxes but merely provides
"[Regressive is not a negative standard for courts to enforce. What Congress is required that Congress shall evolve a progressive system of taxation.
by the Constitution to do is to "evolve a progressive system of taxation." It’s okay to have indirect provided there are more direct
taxes.
This is a directive to Congress, just like the directive to it to give priority to the enactment
of laws for the enhancement of human dignity and the reduction of social, economic and

political inequalities [Art. XIII, Section 1] or for the promotion of the right to "quality
education" [Art. XIV, Section 1]. These provisions are put in the Constitution as moral
incentives to legislation, not as judicially enforceable rights."
NON- TOLENTINO The Contract Clause has never been thought as a limitation on the exercise of the State's
IMPAIRMENT , et al. v. power of taxation save only where a tax exemption has been granted for a valid
CLAUSE SECRETARY consideration. Commented [WU3]: The Contract Clause has never been
OF FINANCE
thought as a limitation on the exercise of the State's power
235 SCRA 630 EXCEPTION: of taxation save only where a tax exemption has been
The Court of Tax Appeals held that the rule on non-impairment is not disregarded with granted for a valid consideration.
the imposition of a higher tax rate on an existing franchise, it appearing that said
franchise was granted with the express understanding and upon the condition that it shall Exception:
be subject to amendment, alteration and repeal. is not disregarded with the imposition of a higher tax rate
on an existing franchise,
NON- No person shall be imprisoned for non-payment of a debt or poll tax.
IMPRISONME (People v.
NT FOR NON- Linsangan, While a person may not be imprisoned for nonpayment of a cedula or poll tax), he may be
PAYMENT OF 62 Phil. 646 imprisoned for non-payment of other kinds of taxes where the law so expressly provides.
POLL TAX
BILLS TO ARTURO M. POINTED OUT BY ATTY YU:
ORIGINATE TOLENTINO Assail the constitutionality of R.A. 7716 imposing a value-added tax (VAT) on the sale,
FROM THE v. barter or exchange of goods and properties as well as on the sale or exchange of services.
HOUSE OF SECRETARY Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance
REPRESENTAT OF its administration by amending the National Internal
IVES FINANCE, et Revenue Code.
al. The contention of petitioners is that in enacting R.A. 7716, or the Expanded Valued-Added
235 SCRA Tax Law, Congress violated the Constitution because, although H. No. 11197 had
630"
originated in the House of Representatives, it was not passed by the Senate but was simply
consolidated with the Senate version (S.No. 1630) in the Conference Committee to
produce the bill which the President signed into law. Petitioners' contention is that R.A.
7716 did not "originate exclusively" in the House of Representatives as required by Art. VI,
Sec. 24 of the Constitution, because it is in fact the result of the consolidation of two
distinct bills, H. No. 11197 and S. No. 1630.
Held:
This argument will not bear analysis. To begin with, it is not the law — but the revenue
bill — which is required by the Constitution to "originate exclusively" in the House of
Representatives. A bill originating in the House may undergo such extensive changes in
the Senate that the result may be a rewriting of the whole. As long as HOR introduced Commented [WU4]: A bill originating in the House may
the revenue bill, it doesn’t matter if there was a total revamp when it reached the Senate. undergo such extensive changes in the Senate that the
Otherwise, it deprives the Senate of it co-equal power with HOR. result may be a rewriting of the whole. As long as HOR
introduced the revenue bill, it doesn’t matter if there was a
The senate may prepare in advance. total revamp when it reached the Senate. Otherwise, it
deprives the Senate of it co-equal power with HOR.
Indeed, what the Constitution simply means is that THE INITIATIVE FOR FILING REVENUE,
TARIFF, OR TAX BILLS, BILLS AUTHORIZING AN INCREASE OF THE PUBLIC DEBT, PRIVATE Commented [WU5]: it is not the law — but the revenue
BILLS AND BILLS OF LOCAL APPLICATION must come from the House of Representatives bill — which is required by the Constitution to "originate
on the theory that, elected as they are from the districts, the members of the House can exclusively" in the House of Representatives.
be expected to be more sensitive to the local needs and problems.
On the other hand, the senators, who are elected at large, are expected to approach the
Commented [WU6]: The President shall have the power
same problems from the national perspective.
to veto any particular item or items in an appropriation,
revenue or tariff bill but the veto shall not affect the item
Nor does the Constitution 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 or items to which he does not object.
body is withheld pending receipt of the House Bill. (ART)
1.Appropriation bill
VETO POWER The President shall have the power to veto any particular item or items in an
2.Revenue bill
OF THE appropriation, revenue or tariff bill but the veto shall not affect the item or items to
3.Tariff bill
PRESIDENT which he does not object. (Article VI, Section 27[2], Constitution)
(mao ra ni siya ma item or pocket veto)

The item or items vetoed 
shall be returned to the Lower House of Congress together with the objections of the
President.
If after a reconsideration 2 /3 of all the members of such House shall agree to pass the
bill, 
it shall be sent, together with the objection, to the other House by which it shall likewise
be reconsidered, and if approved by 2 /3 of all the Members of that House, it
shall become a law.
PRESIDENT'S The Congress may, by law, authorize the President to fix within specified limits and
POWER TO subject to such limitations and restrictions as it may impose, tariff rates, import and
TAX export quotas, tonnage and wharfage dues and other duties or imposts within the
framework of the national development program of the Government.
However, it bears stressing that the statutory power of the President to fix tariff rates,
import or export quotas, and tonnage or wharfage dues must be subject to limitations
and restrictions indicated within the law itself. Furthermore, such delegation must be in
accord with the framework of the national development program of the government.
The term FLEXIBLE TARIFF CLAUSE refers to the authority given to the President to adjust
tariff rates under Section 401 of the Tariff and Customs Code, which is the enabling law
that made effective the delegation of the taxing power to the President under the
Constitution.
TAXATION No law shall be passed abridging the freedom of speech, of expression, or of the press...
AND THE (Article III, Section 4, Constitution)
FREEDOM OF
THE PRESS
TOLENTINO Even with due recognition of its high estate and its importance in a democratic society,
, et al. v. however, the press is not immune from general regulation by the State.
SECRETARY
OF FINANCE It has been held that the publisher of a newspaper has no immunity from the application
235 SCRA 630 of general laws. He has no special privilege to invade the rights and liberties of others.
He must answer for libel. He may be punished for contempt of court. Like others, he must
pay equitable and nondiscriminatory taxes on his business.
TAXATION the Supreme Court ruled that a municipal license tax on the sale of bibles and religious
AND articles by a non-stock, non-profit missionary organization at minimal profit constitutes a
FREEDOM OF American Bible curtailment of religious freedom and worship which is guaranteed by the Constitution.
RELIGION Society v. City
of However, the income of such organizations from any activity CONDUCTED FOR PROFIT
Manila,"' OR FROM ANY OF THEIR PROPERTY, REAL OR PERSONAL, regardless of the disposition
made of such income, is taxable.
TOLENTINO No violation of freedom of religion and freedom of the press. What the state is doing is
, et al. v. merely imposing and collecting the tax.
SECRETARY
OF FINANCE The Philippine Press Institute (PPI), petitioner
235 SCRA 630 in G.R. No. 115544, is a nonprofit organization of
newspaper publishers established for the improvement
of journalism in the Philippines. On the other hand,
petitioner in G.R. No. 115781, the Philippine Bible
Society (PBS), is a nonprofit organization engaged
in the printing and distribution of bibles and other
religious articles. Both petitioners claim violations of
their rights under Sections 4 and 5 of the Bill of Rights
as a result of the enactment of the VAT Law.
If the press is now required to pay a value-added

tax on its transactions, it is not because it is being

singled out, much less targeted, for special treatment but
only because of the removal of the exemption previously
granted to it by law. The withdrawal of exemption is all
that is involved in these cases.
The law would perhaps be open to the charge
of discriminatory treatment if the only privilege
withdrawn had been that granted to the press. But that
is not the case.
TAX Charitable institutions, churches and parsonages or convents appurtenant thereto,
EXEMPTION mosques, non-profit cemeteries, and all lands, buildings and improvements actually,
OF directly, and exclusively used for religious, charitable, or educational purposes shall be
PROPERTIES exempt from taxation. (Article VI, Section 28[3], Constitution)
ACTUALLY,
DIRECTLY Test of Exemption: "ACTUALLY, DIRECTLY AND EXCLUSIVELY USED"
AND  It would seem, however, that to be entitled to the exemption, lands, buildings
EXCLUSIVELY and improvements of religious and charitable institutions should be "actually,
USED FOR directly and exclusively used" for religious and charitable purposes.
RELIGIOUS,  The term "exclusively used" does not necessarily mean total or absolute use
CHARITABLE for religious, charitable and educational purposes. Even if the property is
AND incidentally used for said purposes, the tax exemption will apply (this
EDUCATIONA incidental used has already been abandoned as enunciated in Lung Center vs
L Quezon City)
PURPOSES  Corollarily, if a property, although actually owned by a religious, charitable and
educational institution is used for a non-exempt purpose, the exemption from
tax shall not attach.
"Actually is opposed to seemingly, pretendedly, or feignedly, as actually engaged in

farming means, truly in fact."
"Directly. In a direct way without anything intervening; not by secondary, but by direct
means."
"Exclusively. Apart from all others; without admission of others to participation; in a

manner to exclude."
Lung Center of "What is meant by actual, direct and exclusive use of the property for charitable
the institutions is the direct and immediate and actual application of the property itself to
Philippines v. the purposes for which the charitable institution is organized. It is not the use of the
Quezon City income from the real property that is determinative of whether the property is used for
and tax-exempt purposes."
Constantino P.
Rosas, City In sum, the Court ruled that the portions of the land leased to private entities as well as
Assessor of
those parts of the hospital leased to private individuals are not exempt from taxes.
Quezon City,
G.R. No.
144104, June
29, 2004,
433 SCRA 119,
REV. FR. The exemption is only from the payment of taxes assessed on such properties
CASIMIRO enumerated, as property taxes, as contra-distinguished from excise taxes.
LLADOC v.
The CIR and In the present case, what the Collector assessed was a donee's gift tax; the assessment
The CTA was not on the properties themselves.
14 Phil. 292
A gift tax is not a property tax, but an excise tax imposed on the transfer of the property
by way of gift inter vivos, the imposition of which on property used exclusively for religious
purposes does not constitute an impairment of the Constitution.
TAX Section 4. (3) All revenues and assets of nonstock, non-profit educational institutions
EXEMPTIONS used actually, directly and exclusively for educational purposes shall be exempt from

GRANTED TO taxes and duties. Upon the dissolution and cessation of the corporate existence of such
NON-STOCK, institutions, their assets shall be disposed of in the manner provided by law.
NON-PROFIT
EDUCATIONA Proprietary educational institutions, including those cooperatively owned may likewise be
L entitled to such exemptions, subject to the limitations provided by law, including
INSTITUTIONS restrictions on dividends and provisions for reinvestments.
4) Subject to the conditions prescribed by law, all grants, endowments, donations or

contributions used actually, directly and exclusively for educational purposes shall be
exempt from tax. (Article XIV, Section 413] and [4], Constitution)
 The use of the term "actually, directly and exclusively used" referring to religious
institutions cannot be applied to this above article. The provision of Article VI,
Section 28(3) applies to three institutions — religious, charitable and
educational institutions — while Article XIV applies solely to non-stock, non-
profit educational institutions.
Article XIV and Article VI compared

Art. XIV, Sec. 4(3) Art. VI, Sec. 28(3)
GRANTEE: (NN) (REC)
non-stock, nonprofit religious, educational,
educational charitable
institution
TAXES COVERED: income tax property tax
APPROPRIATI
ON OF PUBLIC This is in consonance with the inviolable principle of separation of the Church and State.
MONEY
No public money or property shall be appropriated, applied, paid or employed directly or
indirectly for the use, benefit or support of any sect, church, denomination, sectarian
institution, or system of religion or of any priest, preacher, minister, or other religious
teacher or dignitary as such. (Article VI, Section 29[l] Constitution)
EXCEPTION:
A particular money may be set aside for a particular sect, priest or religious minister or
dignitaries if they are assigned to the following institutions: leprosarium, orphanage, penal
institution and the armed forces.
GRANT OF Note: The inherent power of the state to impose taxes naturally carries with it the power
TAX to grant tax exemptions.
EXEMPTIONS
LEGAL BASIS OF THE GRANT OF EXEMPTIONS:
Art. VI, Section 28(4) of the Constitution provides that: No law granting any tax exemption
shall be passed without the concurrence of a majority of all the members of Congress. Commented [WU7]: No law granting any tax exemption
ESSO shall be passed without the concurrence of a majority of all
STANDARD Exemption from taxation is not favored and exemptions in tax statutes are never the members of Congress, voting separately. (majority sa
EASTERN, presumed. total sa Senate and Congress, dili kadtong present lang-
INC. v.
means 50% plus 1)
ACTING Exemptions from taxation are construed in strictissimi juris against the taxpayer and
COMMISSIO liberally in favor of the taxing authority. Where the State has granted in express terms
NER OF certain exemptions, those are the exemptions to be considered, and no more.
CUSTOMS
18 SCRA 488
MISAMIS The respondents argue that the opinion of the BIR, as the government agency charged
ORIENTAL with the implementation and interpretation of the tax laws, is entitled to great respect.
ASSOCIATIO The SC agreed with respondents.
N
OF COCO Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of
TRADERS, his power under Section 245 of the NIRC to "make rulings or opinions in connection with
INC. v.

DEPARTME the implementation of the provisions of internal revenue laws, including rulings on the
NT OF classification of articles for sales tax and similar purposes."
FINANCE
LOCAL Each local government unit shall have the power to create its own sources of revenues
TAXATION and to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local governments. (Article X, Section 5,
Constitution)
GENERAL RULE: The power to tax is exclusively vested in the Congress.
EXCEPTION: legislative powers may be delegated to local government units. Included in

this grant of legislative power is the grant of local taxing power.
Nevertheless, Congress cannot abolish the local government's power to tax as it cannot
abrogate what is expressly granted by the fundamental law. The only authority conferred
to Congress is to provide the guidelines and limitations on the local government's exercise
of the power
to tax.
SPECIAL FUND
All money collected on any tax levied for a special purpose shall be treated as a special
fund and paid out for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred
to the general funds of the government. (Art. VI, Section 2913], Constitution)
7/23/2018
ANTERO SISON v.
ANCHETA
The State has the inherent power to select the
130 SCRA 654 subjects of taxation, and inequalities which result from
the singling out of one particular class for taxation or
tax exemption infringe no constitutional limitation.
 Consequently, the Supreme Court ruled that the

schedular income tax which imposes graduated taxes
of 0% to 35% without deductions on compensation
income of individuals and a rate scheme of 5% to 60%
on business and other income with deductions does
not violate the rule on equal protection since there is
no infirmity if classifications are based on substantial
distinctions.
LOCAL EUSEBIO VILLANUEVA, Section 2 of the Local Autonomy Act confers on local governments broad taxing
TAXATION et al. v. authority which extends to almost "everything, excepting those which
CITY OF ILOILO, are mentioned therein" provided that the tax so levied is
26 SCRA 578 1. "for public purposes, just and uniform," and
2. does not transgress any constitutional provision or is not repugnant to a
controlling statute.
Thus, when a tax, levied under the authority of a city or municipal ordinance, is not
within the exceptions and limitations, the same comes within' the ambit of the
general rule pursuant to the rules of expressio unius est exclusion alterius and
exception format regulum in casibus non except.
PEPSI-COLA BOTTLING CO. The power of taxation granted municipalities under the Local Autonomy Act is
OF THE constitutional.
PHILIPPINES, INC. v. The power of taxation is an essential and inherent attribute of sovereignty belonging
MUNICIPALITY
as a matter of right to every independent government, without being expressly
OF TANAUAN, LEYTE
69 SCRA 460
conferred by the people.

*Legislative powers may be delegated to local governments in respect of matters
of local concern.
JOHN H. OSMENA v. Issue: Special Account in the General Fund, designated as the Oil Price Stabilization
OSCAR ORBOS Fund (OPSF), was created to reimburse oil companies for cost increases in crude oil
220 SCRA 703 and imported petroleum products.
HELD: The OPSF is a 'Trust Account' which was established "for the purpose of
minimizing the frequent price changes brought about by exchange rate adjustment
and/or changes in world market prices of crude oil and imported petroleum
products."
Hence, while the funds collected may be referred to as taxes, they are exacted in the
exercise of the police power of the State.
And while it is placed in what the law refers to as a "trust liability account," the fund
nonetheless remains subject to the scrutiny and review of the COA. The Court is
satisfied that these measures comply with the constitutional description of a "special
fund."
SUPREME ART. VIII, SEC. 2: The Congress shall have the power to define, prescribe, and
COURTS apportion the jurisdiction of the various courts but may not deprive the Supreme
JURISDICT Court of its jurisdiction over cases enumerated in Section 5 hereof.
ION OVER
TAX ART. VIII, SEC. 5: The Supreme Court shall have the following powers: Review,
CASES revise, reverse, modify or affirm on appeal or certiorari as the law or the Rules of
Court may provide, final judgments or orders of lower courts in:
(b) All cases involving the legality of any tax, impost, assessment or toll, or any
penalty imposed in relation thereto.
The Supreme Court exercises exclusive appellate jurisdiction over certain

judgments or orders of the lower courts involving the legality of a tax impost,
assessment, fee, or penalty imposed in relation thereto.
Congress may not pass a law declaring that decisions of the Court of Appeals on tax
cases shall be final and executory.
However, a law making decision of the Court of Tax Appeals appealable directly to
the Supreme Court is valid. Congress cannot deprive the Supreme Court of its power
to review, revise, modify or affirm the decisions of lower courts.
*decision of BIR- appeal to CTA

Decision of CTA – appeal to CA
Decision of CA- elevated to SC
TAX Commissioner Tax avoidance is the tax saving device within the means sanctioned by law while tax
EVASION of Internal Revenue v. evasion, on the other hand, is a scheme used outside of those lawful means and when
AND TAX The Estate of Benigno P. availed of, it subjects the taxpayer to further or additional civil or criminal liabilities.
AVOIDAN Toda, Jr.*
CE All the three factors of tax evasion are present in this case.
DISTINGUI
SHED"
UNGAB DOCTRINE" the Court ruled that an assessment is NOT NECESSARY before a criminal charge can
SUSTAINED be filed.
IN CIR v. PASCOR First — Section 205 of the Tax Code clearly mandates that the civil and criminal
aspects of the case may be pursued simultaneously.
Second — A criminal complaint is instituted not to demand payment, but to penalize
the taxpayer for violation of the Tax Code.

Third — The crime is complete when the violator has knowingly and willfully filed a
fraudulent return with intent to evade and defeat a part of all of the tax.
DOCTRINE National Internal Revenue Code :
OF A. if a return is filed :
IMPRESCR - within three (3) years from the last day prescribed by law for the filing
IPTIBILITY of the return or
" - if filed after the last day, within three years from date of actual filing.
B. If no return is filed or the return filed is false or fraudulent:
- within 10 years from discovery of the omission, fraud or falsity.
Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) of Sec. 222 may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.
Tariff and Customs Code: "when articles have been entered and passed free of duty
of final adjustments of duties made, with subsequent delivery, such entry and
passage free of duty or settlements of duties will, after the expiration
of three (3) years from the date of the final payment of duties, in the absence of fraud
or protest or compliance audit pursuant to the provisions of this Code, be final and
conclusive upon all parties, unless the liquidation of the import entry was merely
tentative."
Local Government Code:

Local taxes, fees, or charges shall be assessed within five (5) years from the date they
became due.
In case of fraud or intent to evade the payment of taxes, fees or charges the same
may be assessed within ten (10) years from discovery of the fraud or intent to evade
payment.
They shall also be collected either by administrative or judicial action within five (5)
years from date of assessment. (Sec. 194, LGC)
NATURE The general rule under the Civil Code that laws shall have prospective application
AND applies to tax laws.
PROSPECT
TVITY OF Retroactive application of revenue laws may be allowed if it will not amount to denial
TAX LAWS of due process. There is violation of due process when the tax law imposes harsh and
oppressive tax.
(Republic v. Oasan It has been held that the retroactive application of War Profits Tax Law may not be
Vela. De Fernandez, 99 considered harsh and oppressive because the force of its impact fell on those who
Phil. 934) had amassed wealth or increased their wealth during the war, but did not touch the
less fortunate.
TAXPAYER
'S SUIT,
REQUISIT Taxpayer's suit requires illegal expenditure of public money.
ES*
Gonzales v. Marcos the Supreme Court held that the taxpayer has no legal personality to assail the validity
of Executive Order No. 30 creating the Cultural Center of the Philippines. Assailed
order does not involve the use of public funds.
Maceda v. Macaraig, Jr. Supreme Court sustained the right of Senator Maceda as taxpayer to file a petition
[197 SCRA 771], questioning the legality of the tax refund to NPC by way of tax credit certificates and
use of said assigned tax certificate by oil companies to pay for their tax and duty
liabilities to the BIR and Bureau of Customs.
Abaya v. Ebdane, Jr.
[515 SCRA 720, the Supreme Court stressed that the prevailing doctrine in the taxpayer's suits is to
757-758], allow taxpayers to question contracts entered into by the national government or
government-owned and controlled corporations allegedly in contravention of law.

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.
DOUBLE COMMISSIONER OF
TAXATION INTERNAL REVENUE, INTERNATIONAL DOUBLE TAXATION:
petitioner, vs. S.C. - Double taxation usually takes place when a person is resident of a
JOHNSON AND SON, contracting state and derives income from, or owns capital in, the
INC., and COURT OF other contracting state and both states impose tax on that income or
APPEALS, responders capital. In order to eliminate double taxation, a tax treaty resorts to
(1999) several methods.
There are two methods of relief:

1. the exemption method and
2. the credit method
In the exemption method the income or capital which is taxable in the state of
source or situs is exempted in the state of residence, although in some instances it
may be taken into account in determining the rate of tax applicable to the taxpayers
remaining income or capital. On the other hand,
in the credit method although the income or capital which is taxed in the state
of source is still taxable in the state of residence, the tax paid in the former is
credited against the tax levied in the latter.
The basic difference between the two methods is that in the exemption method, the
focus is on the income or capital itself, whereas the credit method focuses upon the
tax.
NOTE:
It bears stress that tax refunds are in the nature of tax exemptions. As such they are
regarded as in derogation of sovereign authority and to be construed strictissimi
juris against the person or entity claiming the exemption.
The burden of proof is upon him who claims the exemption in his favor and he must
be able to justify his claim by the clearest grant of organic or statute law.
however, there is nothing on record to support a claim that the tax on royalties
under the RP-US Tax Treaty is paid under similar circumstances as the tax on
royalties under the RP-West Germany Tax Treaty
INCOME TAX OVERVIEW- DOCTRINES

INCOME - The Tax Code is a special law which prevails over the New Civil Code,
TAX which is a general law.
-The Tax Code is classified as civil in nature and not a political law; hence,
it is enforced even during the enemy occupation
-Although penalties are provided for violations of the Tax Code, it is not a
penal law .
-Regulations promulgated in accordance with law have the force and effect
of law.

-A rule or regulation must bear upon, and be consistent with, the provisions
of the enabling statute to be valid. In case of conflict between a statute and
an administrative order, the former must prevail. A contrary conclusion would
mean the Commissioner could very well moot the law or arrogate legislative
authority unto himself. But regulations in conflict of law are null and void.
Income Tax
Systems
Sison vs. Ancheta Sison assailed the constitutionality of Batas Pambansa Big. 135, claiming
(G.R. No. 59431, July that by the imposition of higher tax rates (5% to 60%) upon his income
25, 1984), derived from the exercise of his profession, he would be unduly
discriminated against compared to those imposed upon compensation
income earners (0% to 35%).
Held: The Supreme Court ruled in favor of the constitutionality of said law.
The court said that there is no legal objection to a broader tax base or taxable
income by eliminating some deductible items from business or professional
income and at the same time reducing the applicable tax rate on
compensation income. It is enough that the classification must rest upon
substantial distinctions that make real differences. Taxpayers who
receive compensation income are set apart as a class.
Features of
the
Philippine
Income Tax
Law
Criteria in Citizenship principle
Imposing Residence principle
Philippine Source of Income principle
Income Tax
(Tan vs. Del Rosario, DOMESTIC CORPORATION- nationality and residence rule
237 SCRA 324, 334) INCOME BY TAXPAYERS- source rule
The income tax law, in levying the tax, adopts the most comprehensive tax
situs of nationality and residence of resident citizens and domestic
corporations that subject them to income tax liability on their income from all
sources within and without the Philippines, while the law adopts the source
rule with respect to income received by taxpayers, other than resident
citizens and domestic corporations.
Types of 1. Graduated income tax on individuals;
Philippine 2. Normal corporate income tax on corporations;
Income Tax 3. Minimum corporate income tax on corporations;
4. Special income tax on certain corporations (e.g., private educational
institutions; foreign currency deposit units; and international carriers);
5. Capital gains tax on sale or exchange of unlisted shares of stock of a
domestic corporation classified as a capital asset;
6. Capital gains tax on sale or exchange of real property located in the
Philippines classified as a capital asset;
7. Final withholding tax on certain passive investment incomes;
8. Final withholding tax on income payments made to nonresidents
(individual or corporation);
9. Fringe benefit tax;
10. Branch profit remittance tax; and
11. Tax on improperly accumulated earnings.
When is
Income
Taxable?
Existence of Income, Payment of loan principal represents mere return of capital which is exempt
Gain or Profit from income tax.
Realization or Receipt Income is realized from the sale, exchange or other disposition of real
of Income24 property.

GENERAL RULE: a mere increase in the value of property is not income
but merely an unrealized increase in capital. For the same reason, a
decrease in the value of the property is not normally allowable as a
deductible loss.
No income is derived nor a loss incurred by the owner UNTIL AFTER THE
ACTUAL SALE OR OTHER DISPOSITION of the property in excess of its
cost.
Receipt of income maybe actual or constructive.
(Limpan Investment The withdrawal in 1958 of the deposits in court pertaining to the 1957 rental
Corp. vs. income is not sufficient justification for the non-declaration of said income in
Commissioner, G.R. 1957, since the deposit was resorted to due to the refusal of the lessor to
No. L-21570, July 26, accept the same, and was not the fault of its tenants. The lessor is deemed
1966). to have constructively received such rentals in 1957.
Commissioner vs. the Court ruled that accrual of income and expense is permitted when the
Isabela Cultural Corp. "All Events Test" has been met.
(G.R. No. 172231, Feb.
12, This principle does not demand that the amount of income or liability
2007), be known absolutely; it only requires that a taxpayer has at its disposal the
information necessary to compute the amount with reasonable accuracy,
which implies something less than an exact or completely accurate amount.
Income, Gain or Profit General rule: not exempt
is Not Exempt from
Tax The income, gain or profit may be exempt from income tax under
Section 30(B) of the Tax Code or under the Constitution, tax treaty, or a
special law.
The exemption must, however, be expressly provided in the statute, and in

case of doubt as to whether the income, gain or profit is taxable or exempt,
it is safer to tax it, because taxation is the rule and exemption is the
exception.
Provisions (Rev. Memo. Circular (RMC) No. 22-2004, Feb. 12, 2004.)
of Tax Code
Prevail In case of difference between the provisions of the Tax Code and the rules
Accounting and regulations implementing the Tax Code, on one hand, and the generally
Principles accepted accounting principles (GAAP) and the generally accepted auditing
standards (GAAS), on the other, the provisions of
the Tax Code and the rules and regulations issued implementing the said
Tax Code shall prevail
Effects of AS A GENERAL RULE, the provisions of the Philippine Tax Code
the (domestic law) shall apply on the income, gain or profit of any person liable
Application to income tax.
of Tax
Treaties However, there are bilateral tax treaties which the Philippines had
concluded with other Contracting States that may have different tax
treatments with respect to incomes and rates of taxes.
Thus, in case of conflict between the provisions of a tax treaty and domestic
law, THE PROVISIONS OF THE TAX TREATY GENERALLY PREVAIL
OVER THE PROVISIONS OF THE DOMESTIC LAW.
Exception to the exception: However, where the rate of tax imposed under
the domestic law is lower than the rate imposed under the tax treaty, the
lower tax rate under the domestic law shall prevail.
Example: the rental income of a non-resident foreign corporation from lease

of aircraft, machinery and equipment to a Philippine company is subject only
to 7.5% final withholding tax under the Tax Code, but rentals and royalties
are generally subject to the 15% final withholding tax under the tax treaties.

DEFINITIO
N OF
TERMS
(SEE
CODALS)
KINDS O In analyzing any problem or issue involving income taxation,
F it is well to remember that the first thing to look for in trying to find
INCOME the solution to the problem or the answer to the question is: Who is the
T AXP AY taxpayer?
ERS
Exceptions:
(1) where the transaction involves the sale of shares of stocks of a
domestic corporation, whether listed and traded in a local stock exchange,
or unlisted or listed but not traded in a local stock exchange. And
(In this case, it does not matter who the seller of the shares is because either
the transaction is subject to the 1% of stock transaction tax or 5%/10%
capital gains tax on net capital gain, whether the seller is an individual,
citizen or alien, or a corporation, domestic or foreign;)
(2) where the real property sold is a capital asset located in the
Philippines, that is subject to the 6% (esure ang percent basin na repeal
na) capital gains tax.
In General "taxpayer"
- means any person subject to tax imposed by Title II (Income Tax)
of the Tax Code.1 A "person" means an individual, a trust, estate,
or corporation.2
(Commissioner vs. A "person liable to tax" has been held to be a "person subject to
Procter & Gamble tax."
PMC, Dec. 2, 1991, 204
SCRA 378). The two phrases both impose a legal obligation or duty to pay tax. It is very
difficult and conceptually impossible to consider a person who is statutorily
made "liable to tax" as not "subject to tax." By any reasonable standard, such
a person {i.e., withholding agent) should be regarded as a party-in-interest,
or as a person having sufficient legal interest to bring a suit for refund of
taxes he believes were illegally or erroneously collected from him.
Importance of Tax The tax status of the taxpayer is generally considered in determining his/its
Status of Taxpayer income tax liability.
It is important to know the tax status of a taxpayer for income

tax purposes, since only resident citizens and domestic corporations
are taxable on their worldwide income, while the other types of
individual and corporate taxpayers are taxable only on income derived
from sources within the Philippines.
Individual Taxpayers Classifications:
1. citizens of the Philippines and
2. aliens
Under the Constitution, the following individuals are considered

as citizens4 of the Philippines:
1. Those who are citizens of the Philippines at the time of the
adoption of the Constitution (on February 2, 1987);
2. Those whose fathers or mothers are citizens of the
Philippines;
3. Those born before January 17, 1973 (date of adoption of
the 1973 Constitution), of Filipino mothers, who elect
Philippine citizenship upon reaching the age of majority;
and
4. Those who are naturalized in accordance with law.
(Jus soli or jus sanguinis?)

Citizens of the Philippines who marry aliens shall retain their
citizenship, unless by their omission they are deemed, under the law,
to have renounced their citizenship. Philippine citizenship may be
lost or reacquired in the manner provided by law.
Dual status- it is possible for a citizen to have dual status (resident and
nonresident) during a calendar year for income tax purposes. He may be
treated as a resident citizen and at the same time a non-resident citizen
during the same taxable year, if at the beginning of the year, he derives
compensation and/or business/professional income, and sometime later
during the same year, he departs from the Philippines as an immigrant or a
qualified non-resident citizen, or vice versa.
Residence of Citizens
- It is important to know whether a citizen is a resident or non-
resident of the Philippines. A person will be taxable on his
worldwide income if he is treated as a resident citizen, and he shall
also be taxable on his income from sources within the Philippines.
(reason- he still gets protection even outside the country)
- If non-resident- he shall be exempted on his income from sources

outside the Philippines
Who are residence citizens:

- A resident citizen can be (a) engaged in trade or business or in
the exercise of his profession in the Philippines, or (b) not engaged in
trade or business or in the exercise of his profession, or (c) engaged in
trade or business or in the exercise of his profession and at the same time,
he derives compensation and/or other income ("mixed income").
Non-Resident Citizens
1. A citizen of the Philippines who establishes to the satisfaction of the

Commissioner the fact of his physical presence abroad with a definite
intention to reside therein;
2. A citizen of the Philippines who leaves the Philippines during the
taxable year to reside abroad, either as an immigrant or for employment
on a permanent basis;
3. A citizen of the Philippines who works and derives income from abroad
and whose employment thereat requires him to be physically present
abroad most of the time8 during the taxable year;
4. A citizen who has been previously considered as nonresident citizen
and who arrives in the Philippines at any time during the taxable year
to reside permanently in the Philippines.
Balikbayan trip to The trip to Manila of a nonresident citizen under the Balikbayan Program did
Manila. not interrupt his residence abroad.
Employees under The employees of a company who are assigned abroad through
secondment Secondment Agreement with its overseas client are classified as non-
agreement. resident citizens or overseas contract workers, if they spend at least 183
days during any given taxable year, or if the workers' employment contract
passes through the Philippine Overseas Employment Agency.
Aliens
1. Resident and
- A resident alien is an individual whose residence is within the within
the Philippines and who is not a citizen thereof.
- Philippines and who is not a citizen thereof.14 an alien actually
present in the Philippines who is not a mere transient or sojourner
is a resident of the Philippines for income tax purposes
- He is taxed in the same manner as a resident citizen, except that
only his income from Philippine sources is taxable in the Philippines
beginning January 1, 1998.
- A resident alien loses his residence status if he actually leaves the
Philippines and abandons his residency thereof without any
intention of returning.

2. Non-resident
- A non-resident alien is an individual whose residence is not within
the Philippines and who is not a citizen thereof.
Classified into:
 (a) engaged in trade or business in the Philippines, or
 (b) not engaged in trade or business in the Philippines, depending on
the length of his stay in the Philippines.
Note: 180-Day Rule:

180-Day Rule: If the aggregate period of his stay in the Philippines is more than one
hundred eighty (180) days during any calendar year, he shall be deemed a
'non-resident alien doing business in the Philippines (this even though
he does not actually engaged trade or business in the Philippines) (As such,
he is taxed on his income from sources within the Philippines), otherwise
he is deemed non-residence alien not doing business in the
Philippines (As such, he is taxed on his compensation income, business or
professional income, capital gain, passive investment income, and other
income from sources within the Philippines)
Pre- arranged alien An alien who has acquired residence in the Philippines retains his status as
employee. a resident until he abandons the same and actually departs from the
Philippines.
Thus, an alien who has acquired a residence in the Philippines (when his
temporary visitor visa was converted into non-immigrant visa for pre-
arranged
employee) is taxable as a resident for the remainder of his stay in the
Philippines.
Individuals subject to Sec 25 (amended pls see)
preferential tax rates
Estates and Trusts TRAIN LAW: Section 62- Repealed
Co-ownership For income tax purposes, the co-owners in a co-ownership report their share
of the income from the property owned in common by them in their individual
tax returns for the year, and the co-ownership is not considered as a
separate taxable entity or a corporation as defined in Section 22(B) of the
1997 Tax Code
Co-ownership due to death of a decedent.
In general,
- co-ownerships are not treated as separate taxable entities.
- The income of co-ownerships is not subject to income tax, if the
activities of the co-owners are limited to the preservation of the
property and the collection of the income therefrom.
Isolated transactions of unimproved properties.

- Where the transactions are isolated, in the absence of other
circumstances showing a contrary intention, the case can only give
rise to co-ownership.
Transfer of property from father to children.

- The court ruled that there was no partnership. To regard them as
having a taxable partnership would result in oppressive taxation
and obliterate the distinction between a co-ownership and a
partnership.
The children had no intention of forming a partnership. The

transaction was isolated.
No community of interests where parties severally retain title.

- Persons who contribute property or funds to a common enterprise
and agree to share the gross returns of that enterprise in proportion
to their contribution, but who severally retain the title to their
respective contribution, are not thereby rendered partners.

The sharing of the profits in a common property does not of itself establish
(Pascual vs. a
Commissioner partnership that is but a consequence of a joint or common right or interest
166 SCRA 560, Oct. 18, in the property.
1988).
There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each
party to transfer or assign the whole property
General Professional A general professional partnership is a partnership formed by
Partnership (GPP) persons for the sole purpose of exercising their common profession, no part
of the income of which is derived from engaging in any trade
or business.
A general professional partnership is not considered as a

taxable entity for income tax purposes.
Corporations "A resident foreign corporation" is a foreign corporation engaged in trade or

business within the Philippines,37 and a "non-resident foreign corporation"
is a foreign corporation not engaged in trade or business within the
Philippines.
(skipped) PAGE 37
GROSS Taxable income TRAIN Law:

I N C O ME Section 31: The term “taxable income” means the pertinent items of gross
income specified in this Code, less deductions, if any, authorized for such
types of income by this Code or special laws.
Gross income definition Section 32(A) (NIRC)
Means all income derived from whatever source, including but not limited to
the ff: xxxx
Section 33 - Special “fringe benefit”
treatment of fringe Means any good, service, or other benefit furnished or granted in cash or in
benefits; kind by an employer to an individual employee except rank-and-file
employees.
Section 39 - Capital
gains and losses;
Section 40 -
Determination of
amount and recognition
of

gain or loss;
Section 42 - Income
from sources within and
without the
Philippines; and
Section 73 - Distribution
of dividends or assets
by corporations.
"Gross income" means income, gain, or profit subject to income tax. It
includes compensation for personal services, business income, profits, and
income derived from any source whatever (whether legal or illegal),1 unless
it is exempt from income tax by law or it is subject to final withholding income
tax in accordance with the semi-global or semi-schedular tax system
adopted by the Philippines.
Gross income for Computing the regular corporate income tax

(RCIT).
It is the difference between Gross Sales (for sellers of goods) or Gross
Revenue (for sellers of services) and the Cost of Goods Sold and Cost of
Services. Include proceeds from sales of transport documents.
Gross income for Computing the minimum corporate income

tax (MCIT)
Gross sales less sales returns, discounts and allowances and cost of goods
sold.
"Gross income" or "gross income earned" (GIE) of an
enterprise registered with PEZA, SBMA, CDA Poro Point
Development Authority, and other special economic and
Freeport authorities
Gross income less certain limited deductions authorized under the law
creating such special economic or freeport zones.
"Net income"
- means gross income less statutory deductions and exemptions.4
To Whom Income, Income from sale or lease of goods or properties is taxable to the owner-
Gain or Profit is seller or lessor of the goods or properties, while income from sale of services
Taxable is taxable to the person who renders the services, although payment of the
consideration for said goods, properties, or services is made by the buyer to
another person (not the seller or lessor) upon the instruction of the owner
thereof or in accordance with their agreement.
Passive investment incomes (i.e., interest, royalty, and dividend) arising

from the use or lease of certain properties or property rights shall be reported
by the creditor, owner of the patent and other intellectual property, or owner
of the shares of stocks, as the case may be.
(Moore Dividends are prima facie the income of the owner of the stock as of
vs. Commissioner, 124 the date of declaration of the dividend and are taxable to such owner.
F[2d] 991).
But where the record owner has sold the stock under an escrow agreement
under which title is to be retained by him, the dividends received by such
owner and applied in reduction of the purchase price are not taxable to
him.
Sources of Income The following incomes are considered as income from sources within the
Philippines:
1. Interests - Residence of the debtor If the obligor or debtor
(corporate or otherwise) is a resident of the Philippines, the interest
income is treated as income from within the Philippines.
2. Dividends - Residence of the corporation paying dividend.
Dividends received from a domestic corporation or from a foreign
corporation are treated as income from sources within the
Philippines, unless less than 50% of the gross income of the foreign

corporation for the three-year period preceding the declaration of
such dividends was derived from sources within the Philippines, in
which case, only the amount which bears the same ratio to such
dividends as the gross income of the corporation for such period
derived from sources within the Philippines bears to its gross
income from all sources shall be treated as income from sources
within the Philippines.
3. Services - Performance of the service. If the service is
performed in the Philippines, the income shall be treated as from
sources within the Philippines. There is no other criterion used to
determine source of income from sale of services.
* Gross income from sources within the Philippines includes

compensation for labor or personal services performed within the
Philippines, regardless of the residence of the payor, of the place in which
the contract for service was made, or of the place of billing or payment.
* Wages received for services rendered inside the territorial limits of the
Philippines and wages of an alien seaman earned on a coastwise vessel are
to be regarded as from sources within the Philippines.
Non-resident alien Non-resident aliens, whether or not engaged in trade or business, are
acting as President of subject to Philippine income tax only on their income received from all
Philippine sources within the Philippines.
company and as
commission agent * The underlying theory is that the consideration for taxation is protection of
abroad life and property and that the income rightly to be levied upon to defray the
burdens of the Government.
(Baier-Nickel vs. The important factor, therefore, which determines the source of income of
Commissioner, G.R. personal services is not the residence of the payor, or the place where the
No. 156305, Feb. contract for service is entered into, or the place of payment, but the place
17,2003). where the services were actually rendered.
International Carriers International carriers by air or water are special types of income taxpayers
because their sources of income do not strictly
follow the territorial jurisdiction of the Philippines, which is
provided for in the Philippine 1987 Constitution and the Law of
the Sea.
*Gross Philippine Billings" GPB - refers to the amount of gross revenue

derived from carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and uninterrupted
flight, irrespective of the place of sale or issue and the place of payment of
the ticket or passage document.
- revenues associated with outbound trips (originating from the

Philippines to a foreign port) of the aircraft or shipping line referred
to in the law as shall be considered as income from sources within
the Philippines,
- while revenues associated with inbound trips (originating from a
foreign port to the Philippines) of the aircraft or vessel shall be
treated as income from sources without the Philippines.
*other incomes such as demurrage fees, detention fees and other

charges of foreign carriers related to their outbound trips shall be
subject to Philippine income tax under the regular corporate income tax
rate.
International Air For the source of income to be considered as coming from the
Carriers Philippines, it is sufficient that the income is derived from activity
within the Philippines.

Commissioner vs. In BOAC's case, the sale of tickets in the Philippines is the activity that
British Overseas produces the income. The tickets exchanged hands here and payments for
Airways Corp., et ah, fares were also made here in Philippine currency.
G.R.
L-65773-74, Apr The flow of wealth proceeded from, and occurred within, Philippine territory,
30,1987, enjoying the protection accorded by the Philippine government. In
consideration for such protection, the flow of wealth should share the burden
of supporting the government.
Japan Air Lines vs. Different from BOAC case. Common carrieer’s tax vs income tax
Commissioner (G.R.
No. L-30041, Feb. In this case, CTA ruled that the mere sale of tickets, unaccompanied by
3, 1969), the physical act of carriage of transportation, does not render the
taxpayer herein subject to the common carrier's tax. The common
carrier's tax is an indirect tax and excise tax, being a tax on the activity of
transporting, conveying or removing passengers and cargo from one place
to another. It purports to tax the business of transportation. Being an excise
tax, the same can be levied by the State only when the acts, privileges or
businesses are done or performed within the jurisdiction of the Philippines.
The subject matter of this BOAC case is income tax, a direct tax on
the income of persons and other entities "of whatever kind and in whatever
form derived from any source."
Since the two cases treat of a different subject matter, the decision in one
cannot be res judicata to the other.11
International In the case of an international shipping line, "Gross Philippine Billings"
Shipping Lines (GPB) means gross revenue whether for passenger, cargo, or mail
originating from the Philippines up to final destination, regardless of the
place of sale or payments of the passage or freight documents.
Thus, even if there is transshipment of cargoes from one vessel to another

vessel in a foreign country, the entire GPB on outbound cargoes shall be
subject to Philippine income tax.
Telecommunications
Companies
Subscription and Subscription payments and advertising fees paid by Philippine subscribers
advertising fees paid or advertisers to a non-resident company that publishes the magazine
to foreign abroad are deemed as coming from sources within the Philippines; hence,
magazines subject to income tax and withholding
Tax.
Rentals and royalties Location of the property or interest in such property.
- If the property or interest is located or used in the Philippines, the gain or
income is treated as income from sources within the Philippines.
Sale of real property Location of real property. - If the real property sold is located within the
Philippines, the gain is considered as income from the Philippines.
Sale of personal a. Personal property produced (in whole or in part) by the
property taxpayer within the Philippines and sold without the
Philippines, or produced (in whole or in part) by the taxpayer
without and sold within the Philippines.
- Any gain, profit or income shall be treated as derived partly from
sources within and partly from sources without the Philippines.
b. Purchase of personal property within and its sale without the

Philippines, or purchase of personal property without and its
sale within the Philippines
- Any gain, profit or income shall be treated as derived entirely from
sources within the country in which sold.
 Where title to the articles sold to the foreign buyers were

(Rattan Art and transferred to the latter from the moment they were placed on board

Decorations, Inc. vs. the carrying vessels, the gain on the transaction is from the
Collector, et al., 13 Philippines.
SCRA 626).
 Sales are domestic where freight were paid by the Japanese
(Butuan buyers and the payments of the logs were effected by means of
Sawmill, Inc. vs. CTA, irrevocable letters of credit in favor of petitioner. In this case, the
et al., G.R. No. L- FOB (free-on-board) feature of the sales indicated that the parties
20601, Feb. 28,1966). intended the title to pass to the buyer upon delivery of the logs
in Agusan on board the vessel that took the goods to Japan.
The sales are domestic or local. The specification in the bill of

lading that the goods are deliverable to the order of the seller or his
agent does not necessarily negate the passing of title to the goods
upon delivery to the carrier.
SALE of Shares of Gain, profit or income from sale of shares of stocks of a domestic
stock of a domestic corporation is treated as derived entirely from sources within
corporation. the Philippines, regardless of where the said shares are sold16
and who is the seller thereof.
However, gain from the sale of shares of stocks of a foreign corporation

shall be taxed in the place of residence or domicile of the owner-seller,
following the principle of mobilia sequuntur personam.
Enumeration of
Income in Section 42
is not Exclusive
(Manila Electric The court ruled that where the insured is within the Philippines, the risk
Company us. Yatco, 69 insured against is also within the Philippines, and certain incidents of the
Phil. 89 [1939]). contract are to be attended to in the Philippines, such as payment of
dividends, sending of an adjuster into the Philippines in case of dispute, or
making of proof of loss, the Philippines has the power to impose the tax
upon the insured, regardless of whether the contract is executed in a
foreign country and with a foreign corporation
Place of activity, not An activity may occur outside the place of business. The Tax Code does not
place of business, is require a foreign corporation to engage in business in the Philippines in
situs of income. subjecting its income to tax.
It suffices that the activity creating the income is performed or done in

the Philippines. What is controlling, therefore, is not the place of
business but the place of activity.
Reinsurance
premiums are income Reinsurance premiums remitted by domestic insurance company to foreign
from sources within reinsurance companies are considered income of the latter derived
the Philippines. from sources within the Philippines.
Types of Conwi vs. Court "Income" means an amount of money coming to a person or corporation
Income, of Tax Appeals and within a specified time, whether as payment for services, interest or profit
Gain or Commissioner, from investment. Unless otherwise specified, income means cash or its
Profit equivalent.
Increase in inventory It is a realization of gain derived from capital. However, a mere increase in
is considered income the value of property is not income but merely an increase of capital. The
revenue late employs the term "income" in its natural and obvious sense, as
importing something distinct from principal or capital.
Transfer of
appreciated property
to employee for
services rendered is
income.
Sale of goodwill is
income- is a profit
subject to income tax

Just compensation embraced within the meaning of the term "sale" or "disposition of property"
for expropriated and is thus taxable.
property is
income.
Not Deposit of property that Example: deposited properties
considered does not increase
as income networth
of taxpayer
Increase in networth
due to correction of
errors in
book entries.
Voluntary assessments will not be considered income- part of the operating capital of the company
by a corporation paid by
its shareholders.
Stock dividend is not It is a capital
income.
Dollar earnings that are Conwi, et al. vs. CTA and Commissioner, G.R. No. 48532, Aug.
not converted into 31, 1992).
another foreign When petitioners were assigned to the foreign subsidiaries of Procter &
currency are not Gamble, they were earning in their nation's currency and were also spending
receipts derived from said currency. There was no conversion, therefore, from one currency to
foreign exchange another.
transactions.
Security deposits paid By their very nature, the amount received by the lessor as security advances
to a lessor or deposits is eventually returned to the lessees; hence, the lessor did not
earn any gain or profit therefrom.
Award of certain The same being merely reimbursement of expenses/advances in the
damages. course of hearing a complaint
Contributions by lot Amounts paid by its customers to Manila Memorial Park Cemetery, Inc. as
owners for the their contributions to the Memorial Park Care Fund are not subject to the
memorial park corporate income tax. It is intended exclusively as a trust fund for the care
care fund of the cemetery.
Distinction See notes
s between
Capital and
Income
Tests in 1. Severance or realization test
Determinin 2. Doctrine of command or control of income
g Income 3. Claim of right doctrine.
- Award of damages by lower court is taxable despite possibility of
repayment in case judgment is reversed by appellate court. -
4. Income from whatever source
5. Equivalent of cash doctrine.
Significance of
knowing the type or
character of income
Kinds of Income The Tax Code categorizes income, gain or profit as follows:
COMPENSATION INCOME
- means all remuneration for services performed by an employee for
his employer under an employer-employee relationship, unless
specifically excluded by the Tax Code or special law.
 Compensation paid in promissory notes

- If received in payment for services, and not as security for such
payment, constitute income to the amount of their fair market value.
 Statutory Minimum Wage.
Business Income
- Business income of a taxpayer may relate to sale of goods,
properties, or services. It may come from the conduct of trade or

business or the exercise of a profession, or gain derived from
dealings in property.
 Professional Income
- refers to the fees received by a professional from the practice of
his profession, provided that there is no employer employee
relationship between him and his clients.
- The existence or absence of the employer-employee relationship
determines whether the income shall be treated as compensation
income or professional fee. This fact is material for purposes of
taxation because there is no deduction allowed against
compensation income, whereas allowable deductions may be
made from professional income.
 Engaged in Trade or Business
 Gross income from business
- means the total sales, less the cost of goods sold, plus any income
from investments and from incidental or outside operations or
sources
 Gross income of insurance companies.
 Long-term contracts.
- Persons whose income is derived in whole or in part from such
contracts shall report their income on the basis of percentage of
completion.
 Gross income of farmers
 Sale of patents and copyrights.
 Sale and retirement of corporate bonds.
 Sale of goodwill
 Annuities and insurance policies
 Gain from forced sale of property.
 Conditional sale of property.
Lease of Real Property

- Rental income is treated as business income to which the lessor
may claim allowable deductions under Sec 34 of the 1997 Tax
Code. (check if di ba siya apil sa amendment)
 Income from leased property

 Improvements by lessees
- and such buildings or improvements are not subject to removal by
the lessee, the lessor may at his option report the income therefrom
Tax Treaties
Exempt All corporations, agencies, or instrumentalities owned or controlled by the
Corporatio Government, except the Government Service Insurance System, Social
ns Security System, the Philippine Health Insurance Corporation, and the
Philippine Charity Sweepstakes Office shall pay such rate of tax upon
their taxable income as are imposed upon corporations or associations
engaged in a similar business, industry, or activity, the provisions of existing
special or general laws to the contrary notwithstanding.
See section 30 of the tax code:
Non-stock, non-profit Organizations enumerated under Section 30 of the Tax Code of 1997 are
corporations exempt from the payment of income tax on income received by them as such
organization.
Taxable:
- However, they are subject to the corresponding internal revenue
taxes imposed under the Tax Code of 1997 on their income
derived from any of their properties, real or personal, or any
activity conducted for profit regardless of the disposition thereof
{i.e., rental payment from their building/premises), which income
should be returned for taxation.

- their interest income from currency bank deposits and yield or
any other monetary benefit from deposit substitute
instruments and from trust funds and similar arrangement,
and royalties derived from sources within the Philippines are
(Commissioner vs. subject to tax
Court of Appeals and
YMCA of the Phils.,
G.R. No. 124043, Oct. in on case, YMCA is exempt from the payment of property taxes only but
14, 1998) not income taxes because it is not an educational institution devoting its
income solely for educational purposes.
Non-stock, non-profit The exemption of non-stock, non-profit educational institutions refers to
educational internal revenue taxes imposed by the National Government on all revenues
institutions and assets used actually directly and exclusively for educational purposes
(Paragraph 3, Section 4, Article XPV of the 1987 Constitution).
Section 109- already amended
INCOME TAX CASES DOCTRINES

CASES Commissioner of The court ruled that the income is subject to tax under the Claim of
Right Doctrine, but there was no fraud.
Internal Revenue vs
The Claim of right doctrine, a taxable gain is conditioned upon the
Melchor Javier, Jr. presence of a claim of right to the alleged gain and the absence of a

definite unconditional obligation to return or repay that which would
otherwise constitute a gain.
If a taxpayer obtains earnings under a claim of right and without
restriction as to its disposition, he has received income which he is
required to include in his tax return, even though it may be claimed that
he is not entitled to retain the money, and even though he may still be
adjudged liable to restore its equivalent.
As to the existence of fraud:
It must be noted that the fraud contemplated by law is actual and not
constructive. It must be intentional fraud, consisting of deception willfully
and deliberately done or resorted to in order to induce another to give up
some legal right. Error or mistake of fact or law is not fraud.
It is true that a fraudulent return shall cause the imposition of a 50% penalty
upon a taxpayer filing such fraudulent return. However, in this case, although
Javier may be guilty of estafa due to misappropriating money that does not
belong to him, as far as his tax return is concerned, there can be no fraud.
There is no fraud in the filing of the return. Javier’s notation on his income
tax return can be considered as a mere mistake of fact or law but not fraud.
Such notation was practically an invitation for investigation and that Javier
had literally “laid his cards on the table.” The government was never
defrauded because by such notation, Javier opened himself for
investigation.
In the case of North American Oil vs Barnett, it was also held that award
of damages by the lower court is taxable despite possibility of repayment in
case judgement is reversed by appellate.
CONWI vs CTA 213 In this case, when petitioner filed their income tax return, they computed the
SCRA 83 tax due by applying the dollar to peso conversion. Thus, they are asking for
the refund.
Q: WON petitioner’s dollar income are receipts derived from foreign

exchange transaction?
ANS:
For the proper resolution of income tax cases, income may be defined as an
amount of money coming to a person or corporation within a specified time,
whether as payment for services, interest or profit from investment. Unless Commented [WU8]:
otherwise specified, it means cash or its equivalent. Income can also be
thought of as flow of the fruits of one's labor.
Petitioners are correct as to their claim that their dollar earnings are
not receipts derived from foreign exchange transactions. For a foreign
exchange transaction is simply that — a transaction in foreign exchange,
foreign exchange being "the conversion of an amount of money or currency
of one country into an equivalent amount of money or currency of another."
When petitioners were assigned to the foreign subsidiaries of Procter

& Gamble, they were earning in their assigned nation's currency and
were ALSO spending in said currency. There was no conversion,
therefore, from one currency to another. There was therefore
unrealized profit or exchange income. To be taxable, the income or
gain must be realized.
The dollar earnings of petitioners are the fruits of their labors in the foreign
subsidiaries of Procter & Gamble. It was a definite amount of money which
came to them within a specified period of time of two years as payment for
their services.
Obillos vs CIR 1992 In this case, the heirs are not liable for corporate property tax plus fraud
charge.

What was formed was mere coownership. Coownership is not subject to tax,
not part of the definition under Corporation for income tax purposes.
Co-ownership who owns properties should not be automatically considered

as partners for tax purposes.
Commissioner of St. Luke’s Medical Center, Inc. is a hospital organized as a non-stock and
internal revenue vs. non-profit corporation. The BIR assessed St. Luke’s deficiency taxes for
St. Luke’s medical taxable year 1998 comprised of deficiency income tax, value-added tax, and
center withholding tax. St Luke’s devoted 13% only for charitable operations. It also
[G.R. No. 195909, receives payments from paying patuents.
September 26, 2012]
Questions:
1. Is St. Luke exempt from the payment of income tax under Section
30(E) and (G) of the NIRC of 1997?
2. In case SLMC is subject to income tax, what is the tax rate?
Answers:
1. No, SMLC is not exempt under Section 30(E).

2. Thus, SLMC is liable for income tax under
Section 27(B) of the 1997 NIRC insofar
as its revenues from paying patients are
concerned.
Explanation:
We hold that Section 27(B) of the NIRC does not remove the income tax
exemption of proprietary non-profit hospitals under Section 30(E) and
(G). Section 27(B) on one hand, and Section 30(E) and (G) on the other
hand, can be construed together without the removal of such tax exemption.
The effect of the introduction of Section 27(B) is to subject the taxable

income of two specific institutions, namely:
1. proprietary non-profit educational institutions and

2. proprietary non-profit hospitals,
These institutions are among the institutions covered by Section 30, to the
10% preferential rate under Section 27(B) instead of the ordinary 30%
corporate rate under the last paragraph of Section 30 in relation to Section
27(A)(l). But in order to be covered under Section 30, there are 4 requisites
to be complied with.
Whereas, in Section 27(B) of the NIRC which imposes a 10% preferential

tax rate on the income of (1) proprietary non-profit educational institutions
and (2) proprietary non-profit hospitals, the only qualifications for
hospitals are that they must be proprietary and non-profit.
'Proprietary' means private, following the definition of a 'proprietary

educational institution' as 'any private school maintained and administered
by private individuals or groups' with a government permit.
'Non-profit' means no net income or asset accrues to or benefits any

member or specific person, with all the net income or asset devoted to the
institution's purposes and all its activities conducted not for profit.

'Non-profit' does not necessarily mean 'charitable.'
To be a charitable institution, however, an organization must meet the

SUBSTANTIVE TEST of charity in Lung Center. (But take note The issue
in Lung Center concerns exemption from real property tax and not
income tax.)
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 outpatient, 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.
In St. Luke’s case, although it derives income from for profit activities,such
income was not necessarily use for profit.
Charitable institutions, however, are not ipso facto entitled to a tax

In requirements for a tax exemption are specified by the law
exemption. The
granting it.
FOR REAL PROPERTY TAXES:
- the INCIDENTAL GENERATION OF INCOME is permissible

because the test of exemption is the use of the property.
The Constitution provides that '[c]haritable institutions, churches and

personages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly,
and exclusively used for religious, charitable, or educational purposes shall
be exempt from taxation.' The test of exemption is not strictly a requirement
on the intrinsic nature or character of the institution. The test requires that
the institution use property in a certain way, i.e., for a charitable
purpose. Thus, the Court held that the Lung Center of the Philippines did
not lose its charitable character when it used a portion of its lot for
commercial purposes. The effect of failing to meet the use requirement
is simply to remove from the tax exemption that portion of the property
not devoted to charity.
THE CONSTITUTION EXEMPTS CHARITABLE INSTITUTIONS ONLY

FROM REAL PROPERTY TAXES. In the NIRC, Congress decided to
extend the exemption to income taxes.
However, the way Congress crafted Section 30(E) of the NIRC is materially
different from Section 28(3), Article VI of the Constitution.

Section 28(3), Article VI of the Section 30(E) of the NIRC
Constitution
'[c]haritable institutions, churches
and personages or convents
appurtenant thereto, mosques, xxx
non-profit cemeteries, and all
lands, buildings, and
improvements, actually, directly, provides that a charitable institution
and exclusively used for must be:
religious, charitable, or
educational purposes shall be (1) A non-stock corporation or
exempt from taxation.' association;
(2) Organized exclusively for

charitable purposes;
(3) Operated exclusively for

charitable purposes; and
(4) No part of its net income or

asset shall belong to or inure to the
benefit of any member, organizer,
officer or any specific person.
does not define a charitable Section 30(E) of the NIRC defines

institution, but requires that the the corporation or association that
institution 'actually, directly and is exempt from income tax
exclusively' USE the property for
a charitable purpose. (so, source
does not matter)
Coverage: Property tax Coverage: income tax
There is no dispute that St. Luke's is organized as a non-stock and non-profit

charitable institution. However, this does not automatically exempt St. Luke's
from paying taxes. This only refers to the organization of St. Luke's.
Even if St. Luke's meets the test of charity, a charitable institution is

not ipso facto tax exempt.
To be exempt from real property taxes, Section 28(3), Article VI of the

Constitution requires that a charitable institution use the property
'actually, directly and exclusively' for charitable purposes.
To be exempt from income taxes, Section 30(E) of the NIRC requires that
a charitable institution must be 'organized and operated exclusively'
for charitable purposes. Likewise, to be exempt from income taxes,
Section 30(G) of the NIRC requires that the institution be 'operated
exclusively' for social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the words
'organized and operated exclusively' by providing that: xxxx
In short, the LAST PARAGRAPH OF SECTION 30 PROVIDES THAT IF A

TAX EXEMPT CHARITABLE INSTITUTION CONDUCTS 'ANY' ACTIVITY
FOR PROFIT, SUCH ACTIVITY IS NOT TAX EXEMPT EVEN AS ITS NOT-
FOR-PROFIT ACTIVITIES REMAIN TAX EXEMPT.

Thus, even if the charitable institution must be 'organized and operated
exclusively' for charitable purposes, it is nevertheless allowed to engage in
'activities conducted for profit' without losing its tax exempt status for its
not-for-profit activities. The only consequence is that the 'income of
whatever kind and character' of a charitable institution 'from any of its
activities conducted for profit, regardless of the disposition made of
such income, shall be subject to tax.'
Tax rate for profit activities:
The tax rate on such income from for-profit activities was the ordinary
corporate rate under Section 27(A). With the introduction of Section
27(B), the tax rate is now 10%.
***************
For exam purposes:
Under NIRC, for a charitable institution to be exempt from income tax, a

charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the benefit
of any member, organizer, officer or any specific person.
The Supreme Court held that St. Luke’s is a corporation that is not
“operated exclusively” for charitable or social welfare purposes
insofar as its revenues from paying patients are concerned. St Luke’s
fall short under the 3rd requisite since it covers payments from paying
patients thus it does not operate exclusively for charity. However, it is
still in its charitable nature just that it is subject to income tax for the
income derived from for profit activities.
This ruling is based not only on a strict interpretation of a provision granting

tax exemption, but also on the clear and plain text of Section 30(E) and (G).
Section 30(E) and (G) of the 1997 Tax Code requires that an institution be
“operated exclusively” for charitable or social welfare purposes to be
completely exempt from income tax.
But take note that as to tax rate:
St. Luke’s, as a proprietary non-profit hospital, is entitled to the

preferential tax rate of 10% on its net income from its for-profit
activities. (ngano man?)
CORELATE Section 27 (B) and 30 of the NIRC:
Section 27 (B) , NIRC Section 30, NIRC

PROPRIETARY EDUCATIONAL
INSTITUTIONS AND Corporations exempt from
HOSPITALS- which are NON- income tax: xxxx
PROFIT shall pay a tax of ten
percent (10%) on their TAXABLE
INCOME except those covered by

subsection D hereof (pertains to
passive income). Last paragraph:
Dili siya automatic huh, take note na
naay qualification: Notwithstanding the provisions in
the preceding paragraphs, the
Provided that if the gross income income of whatever kind and
from unrelated trade, business character of the foregoing
or other activity exceeds 50% of organizations from any of their
the total gross income derived properties, real or personal, or
by such educational institutions from any of their activities
or hospitals from ALL sources, conducted for profit regardless
the regular tax rate applies (30 %). of the disposition made of such
income, shall be subject to tax
The term “unrelated trade, imposed under this Code.
business or other activity means”
any trade, business or other
activity, the conduct of which is
NOT substantially related to the
exercise or performance pf such
educational institution or
hospital of its primary purpose
or function.
So nganong subject man siya sa 10%? Because SLMC is still a

PROPRIETARY and NON-PROFIT HOSPITAL.
PERO NGANONG 10% man nga more than 50% man of the gross total
income derived by such institution from all sources are from for profit
activities which is income from paying patients?
ANS: Of course because sa Section 27, what is meant is the income

is derived from UNRELATED ACTIVIES WHICH is NOT substantially
related to the exercise or performance of such hospital of its primary
purpose or function. So if unrelated siya ang 30% mo apply. But if
related ra sa operations bisan pa pila n, then 10% ra gyud muapply.
In SMLC’s case, the money was from the non-paying patients,

therefore part pa gihapon na siya sa hospital operations. Hence, 10%
still applies. Kasabot????
COMMISSIONE ISSUE: Whether DLSU's income and revenues proved to have been
R OF INTERNAL used actually, directly and exclusively for educational purposes are
exempt from duties and taxes.
REVENUE, vs. RULING: YES.
DE LA SALLE The requisites for availing the tax exemption under Article XIV,
UNIVERSITY, Section 4 (3), namely: (1) the taxpayer falls under the classification
INC. (2016) non-stock, non-profit educational institution; and (2) the income
it seeks to be exempted from taxation is used actually, directly and
exclusively for educational purposes.
(Commissioner vs.
Court of Appeals and YMCA is taxable. It is not an educational institution.
YMCA of the Phils.,
G.R. No. 124043, Oct.
14, 1998)
SMI-ED Phiippines vs
CIR (2014)

RP vs Arlene Soriano
(2015)
8/18/18 DOCTRINES FOR INCOME TAX PART
EXCLUSIONS Some laws granting income tax exemptions include:

FROM GROSS
INCOME a. Under R.A. No. 7916 (Philippine Export Zone Authority Law),
AND EXEMPT PEZA-registered enterprises are given income tax holidays of six
or four years from the date of commercial operation, depending
CORPORATIONS
on whether their activities are considered as pioneer or non-pioneer;
after enjoying income tax holidays, they are subject to the 5% final
tax on their gross income earned, in lieu of all national and local taxes.
b. Under R.A. No. 6657 (Comprehensive Agrarian Reform Package

Law), gain arising from the transfer of agricultural property
covered under the law shall be exempt from capital gains tax for
ten (10) years.
c. Under R.A. No. 7653 (New Central Bank Act), the Bangko Sentral
ng Pilipinas is exempt from all national, provincial, municipal and
city taxes for five (5) years
d. Under R.A. No. 7279 (Urban Development Housing Act of 1992),

the National Housing Authority is exempt from all fees and charges
of any kind, whether local or national, such as income and realty
taxes. The tax incentives of sellers of subject real properties under
6
Section Nos. 197 and 208 of Article V, Section 25 of Article VI, and
Section 32 of Article VIII of R.A. No. 7279 are:
Under the Tax Section 32 of the Tax Code enumerates the excluded items
Code from gross income.

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CASES DOCTRINE FOR TAXATION 1

(pointed out by Atty. Yu)

COMPILED BY MYRNA JOY JAPOS, UC 1

The ordinance under consideration, therefore, cannot be considered ultra vires.

HON. RAMON Pointed out by Atty. Yu 

COMPILED BY MYRNA JOY JAPOS, UC 2

In this case, it is not a delegation of legislative power but a delegation of ascertainment of

No discretion would be exercised by the President.

AS TO RECOMMENDATION OF THE SEC OF FINANCE:

COMPILED BY MYRNA JOY JAPOS, UC 3

This is sanctioned by immemorial practice. By necessary implication, the legislative power

It indicates the circumstances under which the legislative command is to be effected. It is

COMPILED BY MYRNA JOY JAPOS, UC 4

SEC. 2. General Terms Defined. — x x x

This term includes regulatory agencies, chartered institutions and government-owned or

The term "government-owned or controlled corporation" has a separate definition under

SEC. 2. General Terms Defined.- x x x

Instrumentality of the National Government is exempt from local taxation

A close scrutiny of the definition of "government owned or controlled corporation" in

COMPILED BY MYRNA JOY JAPOS, UC 5

MCAA is not a stock corporation- no share s of stocks and dividends

BOARD OF The question involved in this case is whether the

COMPILED BY MYRNA JOY JAPOS, UC 6

The government does not part with its title by reserving

RE: The warehouse- NO

As regards the warehouse constructed on a public reservation, a different rule should

COMPILED BY MYRNA JOY JAPOS, UC 7

as in the case at bar, it behooves the

COMPILED BY MYRNA JOY JAPOS, UC 8

BENJAMIN It is claimed that R.A. 1635, otherwise known as

The classification of mail users is based on substantial distinction:

COMPILED BY MYRNA JOY JAPOS, UC 9

Classification should be based on real and substantial differences having a reasonable

COMPILED BY MYRNA JOY JAPOS, UC 10

COMPILED BY MYRNA JOY JAPOS, UC 11

If the press is now required to pay a value-added

COMPILED BY MYRNA JOY JAPOS, UC 12

"Actually is opposed to seemingly, pretendedly, or feignedly, as actually engaged in

"Exclusively. Apart from all others; without admission of others to participation; in a

COMPILED BY MYRNA JOY JAPOS, UC 13

4) Subject to the conditions prescribed by law, all grants, endowments, donations or

Article XIV and Article VI compared

COMPILED BY MYRNA JOY JAPOS, UC 14

GENERAL RULE: The power to tax is exclusively vested in the Congress.

EXCEPTION: legislative powers may be delegated to local government units. Included in

 Consequently, the Supreme Court ruled that the

COMPILED BY MYRNA JOY JAPOS, UC 15

The Supreme Court exercises exclusive appellate jurisdiction over certain

*decision of BIR- appeal to CTA

COMPILED BY MYRNA JOY JAPOS, UC 16

Local Government Code:

COMPILED BY MYRNA JOY JAPOS, UC 17

There are two methods of relief:

INCOME TAX OVERVIEW- DOCTRINES

COMPILED BY MYRNA JOY JAPOS, UC 18

COMPILED BY MYRNA JOY JAPOS, UC 19

Receipt of income maybe actual or constructive.

The exemption must, however, be expressly provided in the statute, and in

Example: the rental income of a non-resident foreign corporation from lease

COMPILED BY MYRNA JOY JAPOS, UC 20

It is important to know the tax status of a taxpayer for income

Under the Constitution, the following individuals are considered

(Jus soli or jus sanguinis?)