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UNIVERSITY OF ST. LA SALLE COLLEGE OF LAW

COURSE SYLLABUS

TAXATION 1

2nd SEM. AY 2013-2014 Atty. Julie Mae Salvador-Aguilar

I. General Principles of Taxation

A. Definition and Concept of Taxation B. Scope and Nature of Taxation

Art. VI, Sec. 28, Art. VI, 1987 Constitution CIR vs. Reyes (480 SCRA 382, 377) Hilado vs. CIR 100 Phil 288

C. Characteristics/Extent of Taxation

Sison vs. Ancheta, 130 SCRA 654 CIR vs. Pineda, 21 SCRA 105 Phil. Guaranty vs. CIR, 13 SCRA 775 Collector vs. Yuseco, 3 SCRA 313

D. Power of Taxation Compared with Other Powers

Roxas vs. CTA, 23 SCRA 276 Tañada vs. Angara, GR 118295, May 2, 1997 LTO vs. City of Butuan, GR 131512, Jan. 20, 3000 Phil. Match Co. vs. Cebu, 81 SCRA 99 Matalin vs. Mun. Council of Malabang, 143 SCRA 404 Lutz vs. Araneta, 98 Phil 48 NTC vs. CA, 311 SCRA 508 1. Police Power 2. Power of Eminent Domain

E. Purpose of Taxation

1. Revenue-raising

CIR vs. Algue, Inc., et. al. L-28896, 02/17/1988 168 SCRA 9 PAL vs. Edu. 164 SCRA 320 Tolentino vs. Secretary of Finance, 233 SCRA 630, 249 SCRA 628

2. Non-revenue/special or regulatory

Osmeña vs. Orbos, 220 SCRA 703 Caltex vs. COA 208 SCRA 755 CIR vs. Central Luzon Drug Corp (456 SCRA 414, 445)

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F. Principles of Sound Tax System

Chavez vs. Ongpin 186 SCRA 331 Taganito Mining vs. CIR, CTA Case 4702, April 28, 1995 1. Fiscal Adequacy 2. Theoretical Justice 3. Administrative Feasibility

G. Theory and Basis of Taxation

71 Am Jur 2nd 346-347 CIR vs. Algue, Inc., et. al., L-28896, 02/17/1988 168 SCRA 9 Philippine Guaranty Co. Inc. v. CIR 13 SCRA 775 NPC v. Cabanatuan, GR 149110, April 19, 2003 Lorenzo V. Posadas, 64 Phil 353 1. Lifeblood Theory 2. Necessity Theory 3. Benefits- Protection Theory (Symbiotic Relationship) 4. Jurisdiction over subject and objects

H. Doctrines in Taxation

1. Prospectivity of tax laws 2. Imprescriptibility 3. Double taxation

Procter & Gamble Co. vs. Mun. of Jagna , 94 SCRA 894 Sanchez vs. CIR, 97 Phil. 687 Punzalan vs. Municipal Board of Manila, 95 Phil. 46 CIR vs. SC Johnson & Sons, Inc. 309 SCRA 87

Villanueva vs. City of Iloilo, 26 SCRA 578 Ericsson Telecommunications, Inc. vs. City of Pasig, 538 SCRA 99, 114-115

a. Strict sense b. Broad sense c. Constitutionality of double taxation d. Modes of eliminating double taxation

4. Escape from taxation a. Shifting of tax burden

1) Ways of shifting the tax burden 2) Taxes that can be shifted 3) Meaning of impact and incidence of taxation

a) Tax avoidance

b) Tax evasion

Sec. 254 NIRC CIR vs. Toda GR 147188, 9/14/2004 Republic vs. Gonzales, 13 SCRA 633 Delpher Traders vs. IAC, 157 SCRA 349 CIR vs. Lincoln Philippine Lie, GR 119176, Mar. 19, 2002

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5. Exemption from taxation

a. In General (Meaning of exemption from taxation, nature, kinds, rationale/ground, revocation)

Greenfield v. Meer, 77 Phil 394 Basco vs. PAGCOR, 196 SCRA 52 CIR vs. Botelho Shipping Corp. CIR vs. CTA, GCL Retirement Plan, 207 SCRA 487 CIR vs. Guerrero, 21 SCRA 180 Philippine Acetylene Co., Inc. vs. CIR ,GR L-19707, 8/17/1967, 20 SCRA 1056 Maceda vs. Macaraig, Jr., 197 SCRA 771 Sea-Land Service vs. CA, 357 SCRA 441 Davao Gulf vs. CIR, GR 117359, July 23, 1998 PLDT vs. Davao City, GR 143867, Aug. 22, 2001

b. Exemption Compared with Other Terms 1) Tax Remission/Condonation Surigao Con. Min. vs. Collector, 9 SCRA 728 2) Tax Amnesty

PD 370 EO 399 (as amended by EO 422); BIR Revenue Regulations Nos. 6-005 and 10-2005 CIR vs. CA, 240 SCRA 368 CIR vs. Marubeni, GR 137377, Dec. 18, 2001

3) Exclusion/Deduction

Sec. 32(B), NIRC Sec. 34, NIRC

c. Construction of Tax Exemptions

E. Rodriguez, Inc. vs. Collector, 23 SCRA 119 Republic Flour Mills vs. CIR, 31 SCRA 148 Luzon Stevedoring Corp. vs. CTA, 163 SCRA 647 Coconut Oil Refiners vs. Torres, GR 132527, July 29, 2005 Maceda vs. Macaraig, 196 SCRA 771, 223 SCRA 217

6. Compensation and Set-off

Francia vs. IAC 162 SCRA 753

7. Compromise 8. Tax amnesty

a. Definition b. Distinguished from tax exemption

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9. Construction and Interpretation of

a. Tax laws 1) Sources

i. Constitution ii. Statutes

– RA 8424, as amended – RA 9337 – Tariff and Customs Code – Book II LGC – Special Laws

iii. Administrative Issuances – BIR Revenue Administrative Order (RAO) No. 1-2003 – Revenue Regulations

* Secs. 244-245, NIRC * RAO 1-2003 * Revenue Memorandum Circular 20-86 * Art. 7 Civil Code * Asturias Sugar Central vs. CIR, 29 SCRA 617 * Tan v. Del Rosario, 237 SCRA 234 * CIR vs. Seagate Technology, GR 153866, Feb. 11, 2005

– BIR Rulings * Sec. 4, 246, NIRC * PBCOM vs. CIR, 302 SCRA 241

iv. Tax Revenue/Ordinances Tuazon vs. CA, 212 SCRA 739 Hagonoy Market Vendor vs. Municipality of Hagonoy, GR 137621, Feb. 6, 2002 Jardine Davies vs. Aliposa, GR 118900, Feb. 27, 20003

i. Tax Treaties ii. Tañada vs. Angara, GR 118925, May 2, 1997

iii. Case Laws (SC/CA/CTA) iv. Legislative Materials

2) General Rule 3) Exception

b. Tax exemption and exclusion

1) General Rule 2) Exception

c. Tax rules and regulations

1) General rule only

d. Penal provisions of tax laws e. Non-retroactive application to taxpayers

1) Exceptions

Lorenzo vs. Pozadas, Jr., et. al. 64 Phil 353

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I. Scope and Limitation of Taxation

1. Inherent Limitations

a. Public purpose Lutz vs. Araneta, 98 Phil. 48 Pascual vs. Secretary of Public Works, 110 Phil 331

b. Inherently Legislative 1) General Rule

2) Exception- Delegation of Taxation Power:

Sec. 5, Art. X, 1987 Constitution Sec. 28(2), Art. VI, 1987 Constitution Sec. 401, Tariff and Customs Code Phil. Comm. Satellite Corp. vs. Alcuaz, 180 SCRA 219 Meralco vs. Province of Laguna, 306 SCRA 750 Pepsi-Cola Co. vs. City of Butuan, 24 SCRA 789 Smith Bell & Co. vs. CIR, L-28274, July 25, 1975 LTO vs. City of Butuan, supra City Govt. of Quezon City vs. Bayantel, GR 162015 Abakada Guro Party List v. Ermita (469 SCRA 1, 122, 123-124) a) Delegation to local governments b) Delegation to the President c) Delegation to administrative agencies

c. Territoriality or Situs of Taxation Manila Gas vs. Collector, 62 Phil 895 Vegetable Oil Corp. vs. Trinidad, 45 Phil 822 Wells Fargo Bank vs. Collector, 70 Phil 325 Iloilo Bottlers vs. Iloilo City, 164 SCRA 607 CIR vs. BOAC, 149 SCRA 395 Hopewell Power vs. Commissioner, CTA Case 5310, Nov. 18, 1998 Smith vs. Commissioner, CTA Case 6268, Sept. 12, 2002 Collector vs. Lara, 102 Phil. 813 1) Situs of Taxation

a) Meaning b) Situs of Income Tax

(1) From sources within the Philippines (2) From sources without the Philippines (3) Income partly within and partly without the Philippines

2) Situs of Property Taxes

a) Taxes on Real Property

b) Taxes on Personal Property

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3) Situs of Excise Tax

a) Estate Tax

b) Donor’s Tax

4) Situs of Business Tax

a) Sale of Real Property

b) Sale of Personal Property

c) VAT

a. International Comity Sec. 2, Art. XI, 1987 Constitution Tañada vs. Angara, GR 118295, May 2, 1997 Mitsubishi Corp. vs. CIR, CTA Case 6139, Dec. 17, 2003

e. Exemption of Government Entities, Agencies and Instrumentalities Sec. 27(C) and 30(I), NIRC E.O. 93 PD 1931 Maceda vs. Macaraig Mactan Cebu Airport vs. Marcos, GR 120082, Sept. 11, 1996 BIR Ruling No. 013-2004, Sept. 13, 2004

2. Constitutional Limitations

a. Provisions Directly Affecting Taxation

1) Prohibition against imprisonment for non-payment of poll tax Sec. 20, Art. III, 1987 Constitution

2) Uniformity and equality of taxation Sec. 28(1), Art. VI, 1987 Constitution Pepsi-Cola vs. Butuan City, 24 SCRA 789 Manila Race Horse vs. dela Fuente, 88 Phil. 60 Sison vs. Ancheta, 130 SCRA 654 Tolentino vs. Sec. of Finance, 249 SCRA 628

3) Grant by Congress of authority to the President to impose tariff rates

4) Prohibition against taxation of religious, charitable s and educational institutions Sec. 28(3), Art. VI, 1987 Constitution Lladoc vs. CIR, 14 SCRA 292 Province of Abra vs. Hernando, 107 SCRA 1021 Abra Valley College vs. Aquino, 162 SCRA 106

5) Prohibition against taxation of non-stock, non-profit educational institutions Sec. 4(3), Art. XIV, 1987 Constitution Sec. 28(3), Art. VI, 1987 Constitution Secs. 27(B) and 30(H), NIRC DOF Order 137-87

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DOF Order 149-95 BIR Revenue Memorandum Circular (RMC) No. 76-2003 BIR RMC No. 45-95] BIR Revenue Regulations No. 13-98 CIR vs. CA & YMCA, 298 SCRA 83

6) Passage of Tax Bills/Granting of Tax Exemption Sec. 24, Art. VI, 1987 Constitution Sec. 28(4), Art. VI, 1987 Constitution Tolentino vs. Secretary of Finance, 249 SCRA 628

7) Prohibition on use of tax levied for special purpose

8) President’s veto power on appropriation, revenue, tariff bills Sec. 27(2), Art. VI, 1987 Constitution

9) Non-impairment of the SC jurisdiction Sec. 5(2)(b), Art VIII, 1987 Constitution

10) Grant of power to the local government units to create its own sources of revenue

11) Flexible tariff clause

12) Exemption from real property taxes

13) No appropriation or use of public money for religious purposes/Freedom of religious worship Sec. 5, Art. III, 1987 Constitution American Bible Society vs. Manila, 101 Phil. 386

b. Provisions Indirectly Affecting Taxation 1) Due process

Sec. 1, Art III, 1987 Constitution Commissioner of Customs vs. CTA & Campos Rueda Co., 152 SCRA 641 Phil. Bank of Commerce vs. CIR, 302 SCRA 241 Sison vs. Ancheta, 130 SCRA 654

2) Equal protection

Sec. 1, Art III, 1987 Constitution Ormoc Sugar Co. vs. Treasurer of Ormoc City, 22 SCRA 603 Villegas vs. Hsui Chiong Tsai Pao, 86 SCRA 270 Shell Co. vs. Vano, 94 Phil. 388 Tiu vs. CA, 301 SCRA 279 Tan vs. Del Rosario, 237 SCRA 324 Phil. Rural Electric vs. Secretary, GR 143706, June 10, 2003

3) Religious freedom

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4) Non-impairment of obligations on contracts

Sec. 10, Art III & Sec. 11, Art. XII, 1987 Constitution CIR vs. Lingayen Gulf Electric Co. 164 SCRA 67 Misamis Oriental vs. CEPALCO, 181 SCRA 38 Phil. Rural Electric vs. Secretary

J. Stages of Taxation

1. Levy

2. Assessment and Collection

3. Payment

4. Refund

K. Definition, Nature and Characteristics of Taxes

L. Requisites of a valid tax

M. Tax as distinguished from other forms of exactions

1. Debt Caltex vs. COA, 208 SCRA 726 Francia vs. IAC, 162 SCRA 735 RP vs. Ericta and Sampaguita Pictures, 172 SCRA 653 Republic vs. Mambulao Lumber Company, 4 SCRA 622 Philex Mining vs. CIR, GR 125704, Aug. 28, 1998 Domingo vs. Carlitos, 8 SCRA 443

2. License fee Progressive Dev. Corp. vs. QC, 172 SCRA 629 PAL vs. Edu, 164 SCRA 320 ESSO vs. CIR, 175 SCRA 149

3. Special assessment Apostolic Prefect vs. Treasurer of Baguio, 71 Phil. 547

4. Toll Diaz vs. Secretary of Finance 71 Am Jur 351

5. Penalties NDC vs. CIR, 151 SCRA 472

6. Tariff/Customs Duties

N. Kinds of Taxes

1. As to object

a. Personal, capitation or poll tax

b. Property tax

c. Privilege tax

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2. As to burden or incidence

a. Direct

b. Indirect

3. As to tax rates

a. Specific

b. Ad valorem

c. Mixed

4. As to purposes

a. General or fiscal

b. Special, regulatory or sumptuary Osmeña vs. Orbos (220 SCRA 703)

5. As to scope or authority to impose

a. National

b. Local

6. As to graduation

a. Progressive

b. Regressive

c. Proportionate

II. Tax Remedies under the NIRC A. Taxpayer’s Remedies

1. Assessment

a. Concept of assessment 1) Requisites for valid assessment 2) Constructive methods of income determination 3) Inventory method for income determination 4) Jeopardy assessment 5) Tax delinquency and tax deficiency

Commissioner of Internal Revenue vs. Court of Appeals (G.R. No. 104151) Republic of the Philippines vs. Court of Appeals (149 SCRA 351)

b. Power of the Commissioner to make assessments and prescribe additional requirements for tax administration and enforcement

1) Power of the Commissioner to obtain information, and to summon/examine, and take testimony of persons

c. When assessment is made 1) Prescriptive period for assessment

a) False, fraudulent, and non-filing of returns Mambulao Lumber Company vs. Republic (132 SCRA 1)

2) Suspension of running of statute of limitations Republic vs. Hizon (320 SCRA 574)

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d. General provisions on additions to the tax 1) Civil penalties 2) Interest e. Assessment process 1) Tax audit 2) Notice of informal conference 3) Issuance of preliminary assessment notice (PAN) 4) Notice of informal conference 5) Issuance of preliminary assessment notice (PAN) 6) Exceptions to Issuance of PAN 7) Reply to PAN 8) Issuance of formal letter of demand and assessment notice/final assessment notice 9) Disputed assessment 10) Administrative decision on a disputed assessment f. Protesting assessment 1) Protest of assessment by taxpayer a) Protested assessment b) When to file a protest c) Forms of protest CIR vs. Villa (22 SCRA 3) 2) Submission of documents within 60 days from filing of protest 3) Effect of failure to protest g. Rendition of decision by Commissioner 1) Denial of protest a) CIR’s actions equivalent to denial of protest (1) Filing of criminal action against taxpayer (2) Issuing a warrant of distraint and levy (b) Inaction by Commissioner h. Remedies of taxpayer to action by Commissioner 1) In case of denial of protest 2) In case of inaction by Commissioner within 180 days from submission of documents 3) Effect of failure to appeal

2. Collection a. Requisites b. Prescriptive periods c. Distraint of personal property including garnishment 1) Summary remedy of distraint of personal property a) Procedure for distraint and garnishment

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b) Sale of property distrained and disposition of proceeds (1) Release of distrained property upon payment prior to sale c) Purchase by the government at sale upon distraint d) Report of sale to BIR e) Constructive distraint to protect the interest of the government d. Summary remedy of levy on real property 1) Advertisement and sale 2) Redemption of property sold 3) Final deed of purchaser e. Forfeiture to government for want of bidder 1) Remedy of enforcement of forfeitures (a) Action to contest forfeiture of chattel (b) Resale of real estate taken for taxes (c) When property to be sold or destroyed (d) Disposition of funds recovered in legal proceedings or obtained from forfeiture f. Further distraint or levy g. Tax lien h. Compromise 1) Authority of the Commissioner to compromise and abate taxes i. Civil and criminal actions 1) Suit to recover tax based on false or fraudulent returns

3. Refund a. Grounds and requisites for refund b. Requirements for refund as laid down by cases

1) Necessity of written claim for refund 2) Claim containing a categorical demand for reimbursement 3) Filing of administrative claim for refund and the suit/proceeding before the CTA within 2 years from date of payment regardless of any supervening cause

c. Legal basis of tax refunds d. Statutory basis for tax refund under the Tax Code 1) Scope of claims for refund 2) Necessity of proof for claim or refund 3) Burden of proof for claim of refund 4) Nature of erroneously paid tax/illegally assessed collected 5) Tax refund vis-à-vis tax credit 6) Essential requisites for claim of refund e. Who may claim/apply for tax refund/tax credit

1) Taxpayer/withholding agents of non-resident foreign corporation

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f. Prescriptive period for recovery of tax erroneously or illegally collected

g. Other consideration affecting tax refunds

B. Government Remedies

1. Administrative remedies a. Tax lien b. Levy and sale of real property c. Forfeiture of real property to the government for want of bidder d. Further distraint and levy e. Suspension of business operation f. Non-availability of injunction to restrain collection of tax 2. Judicial remedies 3. Statutory Offenses and Penalties a. Civil penalties 1) Surcharge 2) Interest a) In General b) Deficiency interest c) Delinquency interest d) Interest on extended payment 4. Compromise and Abatement of taxes a. Compromise CIR vs. Abad, etc. (G.R. No. L-19627, June 27, 1968) b. Abatement

III. Organization and Function of the Bureau of Internal Revenue A. Rule-making authority of the Secretary of Finance 1. Authority of Secretary of Finance to promulgate rules and regulations 2. Specific provisions to be contained in rules and regulations 3. Non-retroactivity of rulings

BIR Ruling No. 370-2011 – Imposition of 20% withholding tax on PEACE bonds B. Power of the Commissioner to suspend the business operation of a taxpayer Oplan Kandado of the BIR

IV. Judicial Remedies; Republic Act 1125 The Act that Created the Court of Tax Appeals (CTA), as amended, and the Revised Rules of the Court of Tax Appeals

A. Jurisdiction of the Court of Tax Appeals 1. Exclusive appellate jurisdiction over civil tax cases a. Cases within the jurisdiction of the Court en banc b. Cases within the jurisdiction of the Court in divisions

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2. Criminal cases a. Exclusive original jurisdiction b. Exclusive appellate jurisdiction in criminal cases B. Judicial Procedures 1. Judicial action for collection of taxes a. Internal revenue taxes b. Local taxes 1) Prescriptive period 2. Civil cases a. Who may appeal, mode of appeal, effect of appeal 1) Suspension of collection of tax a) Injunction not available to restrain collection 2) Taking of evidence 3) Motion for reconsideration or New trial b. Appeal to the CTA, en banc c. Petition for review on certiorari to the Supreme Court 3. Criminal cases

a. Institution and prosecution of criminal actions 1) Institution on civil action in criminal action

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b. Appeal and period to appeal 1) Solicitor General as counsel for the People and government officials sued in their official capacity

d. Petition for review on certiorari to the Supreme Court

C. Taxpayer’s suit impugning the validity of tax measures or acts of taxing authorities

a. Taxpayer’s suit, defined

b. Distinguished from citizen’s suit

c. Requisites for challenging the constitutionality of a tax measure or act of taxing authority

1) Concept of locus standi as applied in taxation 2) Doctrine of transcendental importance 3) Ripeness for judicial determination

Maceda vs. Macaraig, Jr. (197 SCRA 771) Gonzales vs. Marcos (65 SCRA 624) Abaya vs. Ebdane (515 SCRA 720)