Taxation SYLLABUS.docx

8/20/2019 Taxation SYLLABUS.docx

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COVERAGE

LAW ON TAXATION

I. General Principles of Taxation

Two Fold Nature of the Power of Taxation1. It is an inherent attribute of sovereignty2. It is legislative in character

xtent of Taxing Power!ub"ect to constitutional and inherent restrictions# the power of

taxation is regarded as co$prehensive# unli$ited# plenary and supre$e.

!%&P &F 'GI!'(TI) T(*ING P&+,1. ($ount or rate of tax2. (pportion$ent of the tax-. ind of tax/. 0ethod of collection. Purposes of its levy# provided it is for public purpose3. !ub"ect to be taxed# provided it is within its "urisdiction4. !itus of taxation

T(*! 5 enforced proportionalcontributions fro$ the persons andproperty levied by the law6$a7ing bodyof the !tate by virtue of its sovereigntyin support of govern$ent and for publicneeds.

%8(,(%T,I!TI%! &F T(*!1. forced charge92. pecuniary burden payable in $oney9-. levied by the legislature9/. assessed with so$e reasonable rule of apportion$ent9. i$posed by the !tate within its "urisdiction93. levied for public purpose

,:;I!IT! &F ( )('I< T(*1. should be for a public purpose2. the rule of taxation shall be unifor$-. that either the person or property taxed be within the "urisdiction of thetaxing authority/. that the assess$ent and collection of certain 7inds of taxes guaranteesagainst in"ustice to individuals# especially by way of notice and opportunityfor hearing be provided


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. the tax $ust not i$pinge on the inherent and %onstitutional li$itations onthe power of taxation

(. 1 (0 ?;, -/1@

• Process or act of i$posing a charge by govern$ental authority onproperty# individuals or transactions to raise $oney for publicpurposes. > Alac7Bs 'aw 41 (0 ?;, 2N


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pay it. (a"tan Ce#u -nternational Airport Autority v. ar"os, 21CRA 3 (199''

• The power of taxation is an essential and inherent attribute of sovereignty# belonging as a $atter of right to every independentgovern$ent# without being expressly conferred by the people. (Pepsi4

Cola +ottlin5 Company of te Pil. 6. un. of anauan, 7eyte, 9 CRA%'

• The power to tax is peculiarly and exclusively legislative and cannot beexercised by the executive or "udicial branch of the govern$ent C1%ooley 136131E. 8ence# only %ongress# our national legislative body#can i$pose taxes. The levy of a tax# however# $ay also be $ade by alocal legislative body sub"ect to such li$itations as $ay be provided bylaw.

%. %haracteristics of taxation

• It is generally payable in the for$ of $oney# although the law $ayprovide pay$ent in 7ind (e.5. #a"pay "erti"ates un*er e". 2, R.A.

No. $%, as amen*e*'

• It is a forced charge# i$position or contribution. (s such# it operates a*

invitum9 it is in no way dependent upon the will or contractual assent#

express or i$plied# of the person taxed. It is not contractual# either

express or i$plied# but postive acts of govern$ent. (Panay )le"tri" Co.

v Colle"tor of -nternal Revenue, 741%/3, ay 28, 19/8'

• It is levied on persons# property# rights# acts# privileges# or

transactions.• It is levied by the !tate which has "urisdiction or control over the

sub"ect to be taxed. (6era vs 0ernan*e:, 89 CRA 199'• It is levied by the law6$a7ing body of the !tate. The power to tax is a

legislative power but is also granted to local govern$ents# sub"ect to

such guidelines and li$itations as law $ay provide. ;e". /, Art.


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C, -NC. v.0)R-P?-7 C!RP!RA-!N, G.R. No. 1%%, ar" 1, 2%%8'

• If generation of revenue is the pri$ary purpose and regulation is

$erely incidental# the i$position is a tax9 but if regulation is the

pri$ary purpose# the fact that revenue is incidentally raised does

not $a7e the i$position a tax. (G)R!C?- v. D)PAR)N !0

)N)RG@, /23 CRA 9 (2%%3''

• The Hlawful sub"ects and Hlawful $eans tests are used to

deter$ine the validity of a law enacted under the police power.

+hile police power is inherent in the state# it is not in $unicipalcorporations. (+ala"uit vs C0- of A5usan *el Norte, 1$ CRA

182'

• ( Joning ordinance# reclassifying residential into co$$ercial or

light industrial area# is a valid exercise of the police power.

(!rti5as vs 0eati +an, 9 CRA /$$'

• The 0anila ordinance prohibiting barbershop shops fro$

conduction $assage business in another roo$ was held valid# as

it was passed for the protection of public $orals. (6elas"o vs

6ille5as, 12% CRA /8'

• The act of the 0unicipal 0ayor in opening ?upiter and &rbit!treets# Ael (ir !ubdivision# to the buplic was dee$ed a val id

exercise of police power (an5alan5 vs Gaston, G.R. No. 3119,

De". 22, 1988'

• %oco6levy funds are not only aKected with public interest9 they

are# in

fact# prima fa"ie public funds. They were raised with the use of


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the

police and taxing powers of the !tate for the bene=t of the

coconut

industry and its far$ers in general

2. Power of e$inent do$ain

• The ordinance reLuiring owners of co$$ercial ce$eteries to

reserve 3M of their burial lots for burial grounds of paupers was

held invalid9 it was not an exercise of the police power# but of

e$inent do$ain. (ue:on City vs )ri"ta, 122 CRA 3/9'

. Purpose of taxation

1. ,evenue6raising

• Pri$ary purpose of taxation is to provide funds or property withwhich to pro$ote the general welfare and protection it itscitiJens. Fees $ay be properly regarded as taxes even thoughthey also serve as an instru$ent of regulation if the purpose ispri$arily revenue# or if revenue is# at least# one of the real andsubstantial purposes# then the exaction is properly called a tax.;PA7 v. )*u, G.R. No. 74 1$8$ Au5ust 1/, 1988= CalteB Pil. -n".vs Commission on Au*it, 2%8 CRA 32(1992'

• &s$ena vs !ecretary &scar &rbos G, 'DD3 0arch -1# 1DD-

2. Non6revenuespecial or regulatory

• Taxes $ay be levied with a regulatory purpose to provide $eans

for rehabilitation and stabiliJation of a threatened industry which

is i$bued with public interest as to be within the police power of

the !tate. ;CalteB v. C!A, G.R. No. 92/8/ ay 8, 1992=• (s long as a tax is for a public purpose# its validity is not aKected

by collateral purposes or $otives of the legislature in i$posing

the levy# or by the fact that it has a regulatory eKect >1 ($. ?ur.

-16-2.@ or it discourages or even de=nitely deters the activities

taxed.• The principle applies even though the revenue obtained fro$ the

tax appears very negligible or the revenue purpose is only

secondary. ;see >nite* tates vs. an"e:, $% >.. 2 io vs.

6i*eo5ram Re5ulatory +oar*, 1/1 CRA 2%8, 1983=

• The !ugar (d"ust$ent (ct is an act enacted pri$arily under the

police power and designed to obtain a read"ust$ent of the


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bene=ts derived by people interested in the sugar industry as

well as to rehabilitate and stabiliJe the industry which constitutes

one of the great sources of the countryOs wealth and# therefore#

aKects a great portion of the population of the country. (7ut: v

Araneta, 38 P?-7 18'

• The %ourt was satis=ed that the coco6levy funds were raised

pursuant to law to support a proper govern$ental purpose. They

were raised with the use of the police and taxing powers of the

!tate for the bene=t of the coconut industry and its far$ers in

general. (PA+ANANG !A7-@!N NG GA AA?ANG

AGAAA A ANGGAGAEA A N-@>GAN v. )-6)

)CR)AR@ G.R. Nos. 13%$4$3 April 1%, 2%12'

• In relation to the regulatory purpose of the i$posed fees# Hthe

i$position Luestioned $ust relate to an occupation or activity

that so engages the public interest# $orals# safety anddevelop$ent as to reLuire regulation for the protection and

pro$otion of such public interest9 the i$position $ust also bear

a reasonable relation to the probable expenses of regulation#

ta7ing into account not only the costs of direct regulation# but

also its incidental conseLuences. (C?)6R!N P?-7-PP-N), -NC. v.

+A) C!N6)R-!N D)6)7!P)N A>?!R-@, $% CRA /19

(2%1%''

• (s an ele$entary principle of law# license taxation $ust not be

Hso onerous to show a purpose to prohibit a business which is not

in"urious to health or $orals. ()R-NA7 0AC-7--) AND

)R6-C) C!RP!RA-!N v. P?-7-PP-N) P!R A>?!R-@, $38

CRA 82 (2%%2''

F. Principles of sound tax syste$

1. Fiscal adeLuacy

• %ertainly# to continue collecting real property taxes based on

valuations arrived at several years ago# in disregard of the

increases in the value of real properties that have occurred sincethen# is not in consonance with a sound tax syste$. Fiscal

adeLuacy# which is one of the characteristics of a sound tax

syste$# reLuires that sources of revenues $ust be adeLuate to

$eet govern$ent expenditures and their variations. (0RANC-C!

-. C?A6)F v. A-) +. !NGP-N, G.R. No. 3338, une , 199%'


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2. (d$inistrative feasibility

• Tax laws should be capable of convenient# "ust and eKective

ad$inistration. ach tax should be capable of unifor$

enforce$ent by govern$ent ocials# convenient as to the ti$e#

place# and $anner of pay$ent# and not unduly burdenso$eupon# or discouraging to business activity.

-. Theoretical "ustice

• The tax burden should be in proportion to the taxpayerBs ability

to pay. This is the so6called ability to pay principle. Taxation

should be unifor$ as well as eLuitable

T(*(TI&N P&'I% P&+, 0INNT


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(ll persons# property

and excises

(ll persons# property#

rights and privileges

&nly upon a

particular property

G. Theory and basis of taxation

1. 'ifeblood theory

• Taxes are the lifeblood of the govern$ent and their pro$pt and

certain availability is an i$perious need. ;C-R v. Pine*a= • Taxes are the lifeblood of the govern$ent and so should be

collected without unnecessary hindrance... It is said that taxes

are what we pay for civiliJed society. +ithout taxes# the

govern$ent would be paralyJed for lac7 of the $otive power to

activate and operate it. ;C-R v. Al5ue, G.R. No. 742889, 0e#ruary

13, 1988=• Taxes being the lifeblood of the govern$ent should be collected

pro$ptly. No court shall have the authority to grant an in"unction

to restrain the collection of any internal revenue tax# fee or

charge i$posed by the National Internal ,evenue %ode. (An5eles

City v An5eles )le"tri" Corp 22 CRA $ (2%1%''

• +e are not unaware of the doctrine that taxes are the lifeblood of

the govern$ent# without which it cannot properly perfor$ its

functions9 and that appeal shall not suspend the collection of

realty taxes. 8owever# there is an exception to the foregoing

rule# i.e.# where the taxpayer has shown a clear andun$ista7able right to refuse or to hold in abeyance the pay$ent

of taxes. ()merlin*a . alento vs ?on. Remi5io . )s"ala*a, R.,

G.R. No. 18%88, une 23, 2%%8'

2. Necessity theory

• The power to tax# an inherent prerogative# has to be availed of

to assure the perfor$ance of vital state functions. It is the

source of the bul7 of public funds. ;ison v. An"eta, G.R. No. 74

/9$1, uly 2/, 198= • The obligation to pay taxes restsR upon the necessity of $oney

for the support of the state. For this reason# no one is allowed to

ob"ect to or resist the pay$ent of taxes solely because no

personal bene=t to hi$ can be pointed out. ;7oren:o v. Posa*as,

G.R. No. 74$%82, une 18, 19$3=.


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-. Aene=ts6protection theory C!y$biotic relationshipE

• %I,

v. (lgue@

/. ?urisdiction over sub"ect and ob"ects

• The li$ited powers of sovereignty are con=ned to ob"ects withinthe respective spheres of govern$ental control. These ob"ects

are the proper sub"ects or ob"ects of taxation and none else.

8.


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(C!--!N)R !0 -N)RNA7 R)6)N>) v. R!)AR-) AC!A

G.R. No. 1/%8 Au5ust $, 2%%3'

2. I$prescriptibility

•

;nless otherwise provided by the tax law itself# taxes in generalare not cancelable. (Commissioner vs Ayala e"urities

Corporation 1%1 CRA 2$1'

• (lthough the NI,% provides for the li$itation in the assess$ent

and collection of taxes i$posed# such prescriptive period will only

be applicable to those taxes that were returnable. The

prescriptive period shall start fro$ the ti$e the taxpayer =les the

tax return and declares his liablility. (Colle"tor vs +isaya 7an*

ransportation Co. 19/8'

• The law on prescription being a re$edial $easure should be

interpreted liberally in order to protect the taxpayer. (Repu#li" vs A#la:a 1%8 Pil 11%/'

-.


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reduced by i$posing a lower rate of 1M Cin lieu of the -ME# on thecondition that the country to whichthe N,F% is do$iliced shall allow acredit against the tax due fro$ the

N,F%# taxes dee$ed to have beenpaid in the Phil. C!ec.2 A bE C%I,vs Procter Ga$bleE CG, No.33-#


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by the sa$e "urisdiction for the sa$e thing. It is obnoxious when

the taxpayer is taxed twice# when it should be but once.

&therwise described as direct duplicate taxation# the two taxes

$ust be i$posed on the sa$e sub"ect $atter# for the sa$e

purpose# by the sa$e taxing authority# within the sa$e

"urisdiction# during the sa$e taxing period9 and they $ust be of

the sa$e 7ind or character. (C!--!N)R !0 -N)RNA7

R)6)N>) v. !7-D+AN C!RP!RA-!N G.R. No. 18191

Novem#er 2/, 2%%$'

bE Aroad sense• !ub"ecting interest inco$e to a 2M F+T and including it in the

co$putation of the M G,T is clearly not double taxationS First#

the taxes herein are i$posed on two diKerent sub"ect $atters9

!econd# although both taxes are national in scope because theyare i$posed by the sa$e taxing authority 66 the national

govern$ent under the Tax %ode 66 and operate within the sa$e

Philippine "urisdiction for the sa$e purpose of raising revenues#

the taxing periods they aKect are diKerent9 Third# these two

taxes are of diKerent 7inds or characters. C%I, v !&'I


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inco$e or capital. In order to eli$inate double taxation# a tax

treaty resorts to several $ethods. First# it sets out the respective

rights to tax of the state of source or situs and of the state of

residence with regard to certain classes of inco$e or capital. In

so$e cases# an exclusive right to tax is conferred on one of the

contracting states9 however# for other ite$s of inco$e or capital#

both states are given the right to tax# although the a$ount of tax

that $ay be i$posed by the state of source is li$ited.• The second $ethod for the eli$ination of double taxation applies

whenever the state of source is given a full or li$ited right to tax

together with the state of residence. In this case# the treaties

$a7e it incu$bent upon the state of residence to allow relief in

order to avoid double taxation. There are two $ethods of relief6

the exe$ption $ethod and the credit $ethod. In the exe$ption

$ethod# the inco$e or capital which is taxable in the state of source or situs is exe$pted in the state of residence# although in

so$e instances it $ay be ta7en into account in deter$ining the

rate of tax applicable to the taxpayerBs re$aining inco$e or

capital. &n the other hand# in the credit $ethod# although the

inco$e or capital which is taxed in the state of source is still

taxable in the state of residence# the tax paid in the for$er is

credited against the tax levied in the latter. The basic diKerence

between the two $ethods is that in the exe$ption $ethod# the

focus is on the inco$e or capital itself# whereas the credit

$ethod focuses upon the tax. CC!--!N)R !0 -N)RNA7

R)6)N>) v. .C. !?N!N AND !N, -NC. G.R. No. 1231%/ une

2/, 1999' • In negotiating tax treaties# the underlying rationale for reducing

the tax rate is that the Philippines will give up a part of the tax in

the expectation that the tax given up for this particular

invest$ent is not taxed by the other country. Thus# if the rates of

tax are lowered by the state of source# in this case# by the

Philippines# there should be a conco$itant co$$it$ent on the

part of the state of residence to grant so$e for$ of tax relief#whether this be in the for$ of a tax credit or exe$ption.

(C!--!N)R !0 -N)RNA7 R)6)N>) v. .C. !?N!N AND

!N, -NC. G.R. No. 1231%/ une 2/, 1999'

/. scape fro$ taxation

aE !hifting of tax burden


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• !ection 1-CaE should be construed as prohibiting the shifting of

the burden of the excise tax to the international carriers who buy

petroleu$ products fro$ the local $anufacturers. !aid

international carriers are thus allowed to purchase the petroleu$

products without the excise tax co$ponent which otherwise

would have been added to the cost or price =xed by the local

$anufacturers or distributorssellers. (C!--!N)R !0

-N)RNA7 R)6)N>) v. P-7-P-NA ?)77 P)R!7)>

C!RP!RA-!N, G.R. No. 18893, 0e#ruary 19, 2%1'

CiE +ays of shifting the tax burden• It $ay indeed be that the econo$ic burden of the tax =nally falls

on the purchaser9 when it does the tax beco$es a part of the

price which the purchaser $ust pay. It does not $atter that an

additional a$ount is billed as tax to the purchaser. The $ethodof listing the price and the tax separately and de=ning taxable

gross receipts as the a$ount received less the a$ount of the tax

added# $erely avoids pay$ent by the seller of a tax on the

a$ount of the tax. (P?-7-PP-N) AC)@7)N) C!., -NC. v.

C!--!N)R !0 -N)RNA7 R)6)N>), G.R. No. 74 193%3,

Au5ust 13, 193'

CiiE Taxes that can be shifted

CiiE 0eaning of i$pact and incidence of taxation• In indirect taxation# a distinction is $ade between the liability for

the tax and burden of the taxS The seller who is liable for the )(T

$ay shift or pass on the a$ount of )(T it paid on goods#

properties or services to the buyer. In such a case# what is

transferred is not the sellerOs liability but $erely the burden of

the )(T. (R)NA! 6. D-AF an* A>R!RA A. 0. -+!7 v. ?)

)CR)AR@ !0 0-NANC), G.R. No. 19$%%3, uly 19, 2%11'

bE Tax avoidance

• Tax avoidance is the tax saving device within the $eans

sanctioned by law. This $ethod should be used by the taxpayer

in good faith and at ar$Bs length. C%&00I!!I&N, &F INT,N('

,)N; v. T8 !T(T &F ANIGN& P. T&


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• Tax evasion# on the other hand# is a sche$e used outside of

those lawful $eans and when availed of# it usually sub"ects the

taxpayer to further or additional civil or cri$inal liabilities.

C%&00I!!I&N, &F INT,N(' ,)N; v. T8 !T(T &F

ANIGN& P. T&


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• !ince the power to tax includes the power to exe$pt thereof

which is essentially a legislative prerogative# it follows that a

$unicipal $ayor who is an executive ocer $ay not unilaterally

withdraw such an expression of a policy thru the enact$ent of a

tax. (P?-7-PP-N) P)R!7)> C!RP!RA-!N v. >N-C-PA7-@ !0

P-7-77A, G.R. No. 9%33, une $, 1991'

• ( tax exe$ption being en"oyed by the buyer cannot be the basis

of a clai$ for tax exe$ption by the $anufacturer or seller of the

goods for any tax due to it as the $anufacturer or seller. The

excise tax i$posed on petroleu$ products under !ection 1/ is

the direct liability of the $anufacturer who cannot thus invo7e

the excise tax exe$ption granted to its buyers who are

international carriers9 nevertheless# the $anufacturer# as the

statutory taxpayer who is directly liable to pay the excise tax on

its petroleu$ products# is entitled to a refund or credit of theexcise taxes it paid for petroleu$ products sold to international

carriers(C!--!N)R !0 -N)RNA7 R)6)N>) v. P-7-P-NA ?)77

P)R!7)> C!RP!RA-!N, G.R. No. 18893, 0e#ruary 19, 2%1'

• 0anila lectric %o$pany vs )era 34 !%,( -1

• %o$$issioner vs Guerrero# 21 !%,( 1

cE inds of tax exe$ption

CiE xpress

• !ec. 24 < C/E# NI,%

CiiE I$plied

• It bears repeating that the law loo7s with disfavor on tax

exe$ptions and he who would see7 to be thus privileged $ust

"ustify it by words too plain to be $ista7en and too categorical to

be $isinterpreted. (E))RN -N!7C! C!RP!RA-!N v.

C!--!N)R !0 -N)RNA7 R)6)N>), G.R. No. 741$2,

Au5ust 1, 198$'

CiiiE %ontractual

• Nevertheless# since taxation is the rule and exe$ption therefro$

the exception# the exe$ption $ay thus be withdrawn at the

pleasure of the taxing authority. The only exception to this rule is


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where the exe$ption was granted to private parties based on

$aterial consideration of a $utual nature# which then beco$es

contractual and is thus covered by the non6i$pair$ent clause of

the %onstitution. C0%I(( v. 0arcos# G.,. No. 122 !epte$ber

11# 1DD3E%agayan lectronic %o. vs %o$$issioner 1- !%,( 32D• 0anila lectric %o$pany vs Prov of 'aguna -3 !%,( 4 C1DDDE

dE ,ationalegrounds for exe$ption

• In recent years# the increasing social challenges of the ti$es

expanded the scope of state activity# and taxation has beco$e a

tool to realiJe social "ustice and the eLuitable distribution of

wealth# econo$ic progress and the protection of local industries

as well as public welfare and si$ilar ob"ectives. Taxation

assu$es even greater signi=cance with the rati=cation of the

1D4 %onstitution. CA(T(NG(! P&+, %&,P&,(TI&N v.A(T(NG(! %ITU and N(TI&N(' P&+, %&,P&,(TI&N# G.,. No.

1234# (pril 2# 2/E• The PPI says that the discri$inatory treat$ent of the press is

highlighted by the fact that transactions# which are pro=t

oriented# continue to en"oy exe$ption under ,.(. No. 4413 but

an enu$eration of so$e of these transactions will suce to show

that by and large this is not so and that the exe$ptions are

granted for a purpose. (s the !olicitor General says# such

exe$ptions are granted# in so$e cases# to encourageagricultural production and# in other cases# for the personal

bene=t of the end6user rather than for pro=t. C(,T;,& 0.

T&'NTIN& v. T8 !%,T(,U &F FIN(N% and T8

%&00I!!I&N, &F INT,N(' ,)N;# G.,. No. 11/#

&ctober -# 1DDE

eE ,evocation of tax exe$ption• !ince the law granted the press a privilege# the law could ta7e

bac7 the privilege anyti$e without oKense to the %onstitution.

The reason is si$pleS by granting exe$ptions# the !tate does notforever waive the exercise of its sovereign prerogative9 indeed# in

withdrawing the exe$ption# the law $erely sub"ects the press to

the sa$e tax burden to which other businesses have long ago

been sub"ect. (AR>R! . !7)N-N! v. ?) )CR)AR@ !0

0-NANC) an* ?) C!--!N)R !0 -N)RNA7 R)6)N>), G.R.

No. 11///, !"to#er $%, 199/'


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• The rule is that a special and local statute applicable to a

particular case is not repealed by a later statute which is general

in its ter$s# provisions and application even if the ter$s of the

general act are broad enough to include the cases in the special

law unless there is $anifest intent to repeal or alter the special

law. (?) PR!6-NC) !0 -A- !R-)NA7, represente* #y its

PR!6-NC-A7 R)A>R)R v. CAGA@AN )7)CR-C P!E)R AND

7-G? C!PAN@, -NC., G.R. No. 74/$//, anuary 12, 199%'

• This %ourt recogniJed the re$oval of the blan7et exclusion of

govern$ent instru$entalities fro$ local taxation as one of the

$ost signi=cant provisions of the 1DD1 'G%. !peci=cally# we

stressed that !ection 1D- of the 'G%# an express and general

repeal of all statutes granting exe$ptions fro$ local taxes#

withdrew the sweeping tax privileges previously en"oyed by theNP% under its %harter. CA(T(NG(! P&+, %&,P&,(TI&N v.

A(T(NG(! %ITU and N(TI&N(' P&+, %&,P&,(TI&N# G.,. No.

1234# (pril 2# 2/E

3. %o$pensation and set6oK

4. %o$pro$ise

. Tax a$nesty

aE


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exe$ptions are thus construed in strictissi$i "uris against

the taxpayers and liberally in favor of the taxing authority.

C0%I(( v. 0arcos# G.,. No. 122 !epte$ber 11# 1DD3E• ntrenched in our "urisprudence is the principle that tax

refunds are in the nature of tax exe$ptions which are

construed in strictissi$i "uris against the taxpayer and

liberally in favor of the govern$ent. (s tax refunds involve

a return of revenue fro$ the govern$ent# the clai$ant

$ust show indubitably the speci=c provision of law fro$

which her right arises9 it cannot be allowed to exist upon a

$ere vague i$plication or inference nor can it be extended

beyond the ordinary and reasonable intend$ent of the

language actually used by the legislature in granting the

refund. C%&00I!!I&N, &F INT,N(' ,)N; v.

,&!0(,I (%&!T( G.,. No. 1/3 (ugust -# 24E• +ell6settled in this "urisdiction is the fact that actions for

tax refund# as in this case# are in the nature of a clai$ for

exe$ption and the law is construed in strictissi$i "uris

against the taxpayer. The pieces of evidence presented

entitling a taxpayer to an exe$ption are also strictissi$i

scrutiniJed and $ust be duly proven. CP%& P8I'IPPIN!

%&,P&,(TI&N v. %&00I!!I&N, &F INT,N(' ,)N;

G.,. No. 14DD31 ?anuary -1# 211E• The legislative intent# as shown by the discussions in the

Aica$eral %onference 0eeting# is to reLuire P(G%&, to pay

corporate inco$e tax9 hence# the o$ission or re$oval of

P(G%&, fro$ exe$ption fro$ the pay$ent of corporate

inco$e tax. It is a basic precept of statutory construction

that the express $ention of one person# thing# act# or

conseLuence excludes all others as expressed in the

fa$iliar $axi$ expressio unius est exclusio alterius.

CP8I'IPPIN (0;!0NT (N< G(0ING %&,P&,(TI&N

CP(G%&,E v. T8 A;,(; &F INT,N(' ,)N; G.,. No.

1424 0arch 1# 211E• It is a basic precept of statutory construction that the

express $ention of one person# thing# act# or conseLuence

excludes all others as expressed in the fa$iliar $axi$

expressio unius est exclusio alterius. Not being a local

water district# a cooperative registered under ,.(. No.

3D-# or a non6stoc7 and non6pro=t hospital or educational


20/113

institution# petitioner clearly does not belong to the

exception and it is therefore incu$bent upon it to point to

so$e provisions of the 'G% that expressly grant its

exe$ption fro$ local taxes. CN(TI&N(' P&+,

%&,P&,(TI&N v. %ITU &F %(A(N(T;(N G.,. No. 1/D11

(pril D# 2-E•


21/113

• In Philippine 'ong


22/113

• There is parity between tax refund and tax exe$ption only

when the for$er is based either on a tax exe$ption statute

or a tax refund statute. &bviously# that is not the situation

here since Fortune TobaccoBs clai$ for refund is pre$ised

on its erroneous pay$ent of the tax# or better still# the

govern$entBs exaction in the absence of a law.

C%&00I!!I&N, &F INT,N(' ,)N; v. F&,T;N

T&A(%%& %&,P&,(TI&N# G.,. Nos. 13424/64# ?uly 21#

2E• ( clai$ for tax refund $ay be based on statutes granting

tax exe$ption or tax refund and in such case# the rule of

strict interpretation against the taxpayer is applicable as

the clai$ for refund parta7es of the nature of an

exe$ption# a legislative grace# which cannot be allowed

unless granted in the $ost explicit and categoricallanguage. Tax refunds Cor tax creditsE# on the other hand#

are not founded principally on legislative grace but on the

legal principle which underlies all Luasi6contracts abhorring

a personBs un"ust enrich$ent at the expense of another.

C%&00I!!I&N, &F INT,N(' ,)N; v. F&,T;N

T&A(%%& %&,P&,(TI&N# G.,. Nos. 13424/64# ?uly 21#

2E• (s a necessary corollary# when the taxpayerBs entitle$ent

to a refund stands undisputed# the !tate should not $isuse

technicalities and legalis$s# however exalted# to 7eep

$oney not belonging to it. The govern$ent is not exe$pt

fro$ the application of solutio indebiti# a basic postulate

proscribing one# including the !tate# fro$ enriching hi$self

or herself at the expense of another. C%&00I!!I&N, &F

INT,N(' ,)N; v. F&,T;N T&A(%%& %&,P&,(TI&N#

G.,. Nos. 13424/64# !epte$ber 11# 21-E

cE Tax rules and regulations

CiE General rule only

• +hile ad$inistrative agencies# such as the Aureau of

Internal ,evenue# $ay issue regulations to i$ple$ent

statutes# they are without authority to li$it the scope of

the statute to less than what it provides# or extend or

expand the statute beyond its ter$s# or in any way $odify


23/113

explicit provisions of the law. 8ence# in case of discrepancy

between the basic law and an interpretative or

ad$inistrative ruling# the basic law prevails.CF&,T A&NIF(%I& reenacts@ the

provisions >without@ substantial change# such action is to

so$e extent con=r$atory that the ruling carries out the

legislative purpose. C%&00I!!I&N, &F INT,N('

,)N; v. (0,I%(N *P,!! INT,N(TI&N('# IN%.CP8I'IPPIN A,(N%8E# G.,. No. 123D# ?une 2D# 2E

• AI, ,uling No.


24/113

• In cri$inal cases# statutes of li$itations are acts of grace# a

surrendering by the sovereign of its right to prosecute. They

receive strict construction in favor of the Govern$ent and

li$itations in such cases will not be presu$ed in the absence of

clear legislation. C'I0# et al. v. %&;,T &F (PP('!# G.,. No.

/1-/6-4# &ctober 1# 1DDE

eE Non6retroactive application to taxpayers

• ,evenue statutes are substantive laws and in no sense $ust

their application be eLuated with that of re$edial laws. (s well

said in a prior case# revenue laws are not intended to be liberally

construed. C%&00I!!I&N, &F INT,N(' ,)N; v.

,&!0(,I (%&!T(# G.,. No. 1/3# (ugust -# 24E

CiE xceptions• +hile it is a settled principle that rulings# circulars# rules and

regulations pro$ulgated by the AI, have no retroactive

application if to so apply the$ would be pre"udicial to the

taxpayers# this rule does not applyS CaE where the taxpayer

deliberately $isstates or o$its $aterial facts fro$ his return or

in any docu$ent reLuired of hi$ by the Aureau of Internal

,evenue9 CbE where the facts subseLuently gathered by the

Aureau of Internal ,evenue are $aterially diKerent fro$ the facts

on which the ruling is based9 or CcE where the taxpayer acted inbad faith. Not being the taxpayer who# in the =rst instance#

sought a ruling fro$ the %I,# however# F


25/113

aE Public purpose

T!T! IN


26/113

"ustice. CP'(NT,! P,&


27/113

to govern$ent6owned and controlled corporations

and all other units of govern$ent were that such

privilege resulted in serious tax base erosion and

distortions in the tax treat$ent of si$ilarly situated

enterprises. C0%I(( v. 0arcos# G.,. No. 122

!epte$ber 11# 1DD3E• Taxation assu$es even greater signi=cance with the

rati=cation of the 1D4 %onstitution. Thenceforth#

the power to tax is no longer vested exclusively on

%ongress9 local legislative bodies are now given

direct authority to levy taxes# fees and other charges

pursuant to (rticle *# section of the 1D4

%onstitution. CN(TI&N(' P&+, %&,P&,(TI&N v.

%ITU &F %(A(N(T;(N G.,. No. 1/D11 (pril D# 2-E•

%learly then# while a new slant on the sub"ect of local taxation now prevails in the sense that the

for$er doctrine of local govern$ent unitsB delegated

power to tax had been eKectively$odi=ed with (rticle *# !ection of the 1D4

%onstitution now in place# the basic doctrine on local

taxation re$ains essentially the sa$e. For as the

%ourt stressed in 0actan# the power to tax is >still@

pri$arily vested in the %ongress. C:;W&N %ITU# et

al. v. (A!6%AN A,&(


28/113

corporations. C:;W&N %ITU# et al. v. (A!6%AN

A,&(


29/113

facts or conditions# or the happening of

contingencies# on which the operation of a statute is#

by its ter$s# $ade to depend# but the legislature

$ust prescribe sucient standards# policies or

li$itations on their authority. +hile the power to tax

cannot be delegated to executive agencies# details

as to the enforce$ent and ad$inistration of an

exercise of such power $ay be left to the$#

including the power to deter$ine the existence of

facts on which its operation depends. C(A((


30/113

per$anently 7ept C'ex rei

sitaeE 6intangibleS sub"ect to

!ec. 1/ of the NI,% and

the principle of $obilia

seLuuntur persona$Ausiness tax Place of business

xcise or Privilege tax +here the act is perfor$ed

or where occupation is

pursued!ales tax +here the sale is

consu$$ated

Transfer tax ,esidence or citiJenship of

the taxpayer or location of

propertyFranchise Tax !tate which granted the

franchise

CiE !itus of taxation

!IT;! &F T(*(TI&N &F INT(NGIA' P,!&N('P,&P,TUGeneral ,uleS


31/113

C-E shares# obligations or bonds by any foreign corporation

eighty =ve percent CME of the business of which is

located in the Philippines9C/E shares# obligations or bonds issued by any foreign

corporation if such shares# obligations or bonds have

acLuired a business situs in the Philippines9 andCE shares or rights in any partnership# business or

industry established in the Philippines. C!ec. 1/# 1DD4

NI,%E.

CaE 0eaning

CbE !itus of inco$e tax

• The i$portant factor therefore which deter$ines the

source of inco$e of personal services is not theresidence of the payor# or the place where the

contract for service is entered into# or the place of

pay$ent# but the place where the services were

actually rendered. C%&00I!!I&N, &F INT,N('

,)N; v. ?;'I(N A(I,6NI%'# G.,. No. 1-4D-#

(ugust 2D# 23E

C1EFro$ sources within the Philippines

•

The reinsurance pre$iu$s re$itted to appellants byvirtue of the reinsurance contracts# accordingly# had

for their source the underta7ing to inde$nify

%o$$onwealth Insurance %o. against liability. !aid

underta7ing is the activity that produced the

reinsurance pre$iu$s# and the sa$e too7 place in

the Philippines. C(lexander 8owden %o.# 'td. v.

%ollector of Internal ,evenue as cited in

%&00I!!I&N, &F INT,N(' ,)N; v. ?;'I(N

A(I,6NI%'# G.,. No. 1-4D-# (ugust 2D# 23E• The sale of tic7ets in the Philippines is the activity

that produced the inco$e and therefore A&(% should

pay inco$e tax in the Philippines because it

undertoo7 an inco$e producing activity in the

country. The tic7ets exchanged hands here and

pay$ents for fares were also $ade here in Philippine

currency9 thus# the situs of the source of pay$ents is


32/113

the Philippines. C%o$$issioner of Internal ,evenue v.

Aritish &verseas (irways %orporation CA&(%E as cited

in %&00I!!I&N, &F INT,N(' ,)N; v. ?;'I(N

A(I,6NI%'# G.,. No. 1-4D-# (ugust 2D# 23E• For the source of inco$e to be considered as co$ing

fro$ the Philippines# it is sucient that the inco$e is

derived fro$ activities within this country regardless

of the absence of Vight operations within Philippine

territory. Indeed# the sale of tic7ets is the very

lifeblood of the airline business# the generation of

sales being the para$ount ob"ective.

C%&00I!!I&N, &F INT,N(' ,)N; v. ?(P(N (I,

'IN!# IN%.# G.,. No. 341/# 0arch 3# 1DD1E

C2E Fro$ sources without the Philippines

C-E Inco$e partly within and partly without the

Philippines

CcE !itus of property taxes

C1E Taxes on real property

C2E Taxes on personal property

CdE !itus of excise tax

• !ince it parta7es of the nature of an excise tax# the

situs of taxation is the place where the privilege is

exercised# in this case in the %ity of Iriga# where

%(!;,%& III has its principal oce and fro$ where

it operates# regardless of the place where its services

or products are delivered. C%ITU &F I,IG( v.

%(0(,IN! !;, III '%T,I% %&&P,(TI)# IN%.#

G.,. No. 1D2D/# !epte$ber # 212E

C1E state tax

C2E


33/113

C2E !ale of personal property

• It is not the place where the contract was perfected#

but the place of delivery which deter$ines the

taxable situs of the property sought to be taxed. In

the cases of !oriano y %ia. v. %ollector of Internal,evenue# 1 &.G. //9 )egetable &il %orporation v.

Trinidad# / Phil. 229 and arnshaw


34/113

are also consu$ed in the Philippines.

C%&00I!!I&N, &F INT,N(' ,)N; v.(0,I%(N

*P,!! INT,N(TI&N('# IN%. CP8I'IPPIN A,(N%8E#

G.,. No. 123D# ?une 2D# 2E• ;nli7e goods# services cannot be physically used in

or bound for a speci=c place where their destination

is deter$ined but instead# there can only be a

predeter$ined end of a course when deter$ining

the service location or position for legal purposes.

,espondentBs facilitation service has no physical

existence# yet ta7es place upon rendition# and

therefore upon consu$ption# in the Philippines.

C%&00I!!I&N, &F INT,N(' ,)N; v.(0,I%(N

*P,!! INT,N(TI&N('# IN%. CP8I'IPPIN A,(N%8E#

G.,. No. 123D# ?une 2D# 2E

dE International co$ity

These principles li$it the authority of the govern$ent to

eKectively i$pose taxes on a sovereign state and its instru$entalities# as

well as on its property held and activities underta7en in that capacity. ven

where one enters the territory of another# there is an i$plied understanding

that the for$er does not thereby sub$it itself to the authority and

"urisdiction of the other.

eE xe$ption of govern$ent entities# agencies# and instru$entalities

(s a $atter of public policy# property of the !tate and of its

$unicipal subdivisions devoted to govern$ent uses and purposes is dee$ed

to be exe$pt fro$ taxation although no express provision in the law is $ade

therefor.

General ,uleS The Govern$ent is tax exe$pt.

6 8owever# it can also tax itself.

,;'!S

1. (d$inistrative (gencies

a. Govern$ental function 5 tax exe$pt unless when the law expressly

provides for tax. C!ec.-2 A4E

b. Proprietary function 5 taxable unless exe$pted by law. C!ec.24%E

2. G&%%s


35/113

General ,uleS Inco$e is taxable at the rate i$posed upon corporations

or associations engaged in a si$ilar business# industry# or activity. xceptionS

G!I!# !!!# P8I%# P%!&

and P(G%&,. C!ec. 24C%E# NI,%E

-. Govern$ent ducational Institutions

a. Property or real estate tax 5property actually# directly and

exclusively used for educational purposes 5 exe$pt but inco$e of whatever

7ind and character fro$ any of their properties# real or personal# regardless

of the disposition# is taxable. C!ec.-# last par.# NI,%E

b. Inco$e received by the$ as such are exe$pt fro$ taxes. 8owever#

their inco$e fro$ any of their activities conducted for pro=t regardless of the

disposition# is taxable. C!ec. -#

last par.# NI,%E

/. Inco$e derived fro$ any public utility or fro$ the exercise of any essentialgovern$ental function accruing to the Govern$ent of the Philippines or toany political subdivision thereof is not included in gross inco$e and exe$ptfro$ taxation. C!ec. -2CAEC4ECbE# NI,%E

. !ec. 1-- CoE# 'G%@

D. ;nless otherwise provided in the 'ocal Govern$ent %ode C'G%E# taxexe$ptions granted to all persons# whether natural or "uridical# includingG&%%# except local water districts# cooperatives duly registered under ,( No.3D-# nonstic7 and non6pro=t institutions# are withdrawn upon eKectivity ofthe 'G%. C!ec. 1D-# 'G%E


36/113

1. ,eal property owned by the ,epublic of the Philippines or any of itspolitical subdivisions except when the bene=cial use thereof has beengranted# for consideration or otherwise# to a taxable person shall be exe$ptfro$ pay$ent of real property tax. C!ec. 2-/# 'G%E

• The %ourt rules that the (uthority >PF


37/113

National cono$ic


38/113

P8I'IPPIN! v.:;W&N %ITU# G.,. No. 1//1/# ?une 2D#

2/E• ven as we =nd that the petitioner is a charitable

institution# we hold that those portions of its real property

that are leased to private entities are not exe$pt fro$ real

property taxes as these are not actually# directly and

exclusively used for charitable purposes. &n the other

hand# the portions of the land occupied by the hospital and

portions of the hospital used for its patients# whether

paying or non6paying# are exe$pt fro$ real property taxes.

C';NG %NT, &F T8 P8I'IPPIN! v.:;W&N %ITU# G.,.

No. 1//1/# ?une 2D# 2/E• To be a charitable institution# however# an organiJation

$ust $eet the substantive test of charity in 'ung %enter.

%harity is essentially a gift to an inde=nite nu$ber of persons which lessens the burden of govern$ent. In other

words# charitable institutions provide for free goods and

services to the public which would otherwise fall on the

shoulders of govern$ent. C%&00I!!I&N, &F INT,N('

,)N; v. !T. ';O! 0


39/113

• !ection -CE and CGE of the NI,% reLuires that an

institution be operated exclusively for charitable or social

welfare purposes to be co$pletely exe$pt fro$ inco$e

tax. (n institution under !ection -CE or CGE does not lose

its tax exe$ption if it earns inco$e fro$ its for6pro=t

activities. !uch inco$e fro$ for6pro=t activities# under the

last paragraph of !ection -# is $erely sub"ect to inco$e

tax# previously at the ordinary corporate rate but now at

the preferential 1M rate pursuant to !ection 24CAE.

C%&00I!!I&N, &F INT,N(' ,)N; v. !T. ';O!

0


40/113

i$position that a law granting any tax exe$ption $ust

have the concurrence of a $a"ority of all the $e$bers of

%ongress. C?&8N 8(U P&P'! ('T,N(TI) %&('ITI&N# et

al. v. )I%T&, 'I0# et al.# G. ,. No. 11D44# &ctober 2/#

2-E

CviiE Prohibition on use of tax levied for special purpose

• The coco6levy funds# on the other hand# belong to the

govern$ent and are sub"ect to its ad$inistration and

disposition. Thus# these funds# including its inco$es#

interests# proceeds# or pro=ts# as well as all its assets#

properties# and shares of stoc7s procured with such funds

$ust be treated# used# ad$inistered# and $anaged as

public funds9 the coco6levy funds are evidently special

funds. CP(0A(N!(NG &('I!U&N NG 0G( !(0(8(NG0(G!(!(( (T 0(NGG(G(+( !( NIU;G(N v. *%;TI)

!%,T(,U G.,. Nos. 1/4-36-4 (pril 1# 212E

CviiiE PresidentBs veto power on appropriation# revenue# tariK bills

• (n ite$ in a revenue bill does not refer to an entire

section i$posing a particular 7ind of tax# but rather to the

sub"ect of the tax and the tax rate9 thus# in the portion of a

revenue bill which actually i$poses a tax# a section

identi=es the tax and enu$erates the persons liabletherefor with the corresponding tax rate. To construe the

word ite$ as referring to the whole section would tie the

PresidentOs hand in choosing either to approve the whole

section at the expense of also approving a provision

therein which he dee$s unacceptable or veto the entire

section at the expense of foregoing the collection of the

7ind of tax altogether. C%&00I!!I&N, &F INT,N('

,)N; v. 8&N. %&;,T &F T(* (PP('!# G.,. No. '6

/4/21# 0ay 1/# 1DDE CixE Non6i$pair$ent of "urisdiction of the !upre$e %ourt

CxE Grant of power to the local govern$ent units to create its

own sources of

revenue


41/113

• For a long ti$e# the countryOs highly centraliJed

govern$ent structure has bred a culture of dependence

a$ong local govern$ent leaders upon the national

leadership. The only way to shatter this culture of

dependence is to give the 'G;s a wider role in the delivery

of basic services# and confer the$ sucient powers to

generate their own sources for the purpose. CN(TI&N('

P&+, %&,P&,(TI&N v. %ITU &F %(A(N(T;(N G.,. No.

1/D11 (pril D# 2-E• ,epublic (ct No. 4413# otherwise 7nown as the xpanded

)(T 'aw# did not re$ove or abolish the pay$ent of local

franchise tax9 it $erely replaced the national franchise tax

that was previously paid by teleco$$unications franchise

holders and in its stead )(T. The i$position of local

franchise tax is not inconsistent with the advent of the )(T#which renders functus ocio the franchise tax paid to the

national govern$ent for )(T inures to the bene=t of the

national govern$ent# while a local franchise tax is a

revenue of the local govern$ent unit. C!0(,T

%&00;NI%(TI&N!# IN%. v.T8 %ITU &F


42/113

!ection -CE of the NI,% is $aterially diKerent fro$

!ection 2C-E# (rticle )I of the %onstitutionS !ection -CE

of the NI,% de=nes the corporation or association that is

exe$pt fro$ inco$e tax while !ection 2C-E# (rticle )I of

the %onstitution does not de=ne a charitable institution#

but reLuires that the institution actually# directly and

exclusively use the property for a charitable purpose.

C%&00I!!I&N, &F INT,N(' ,)N; v. !T. ';O!

0


43/113

• In !ison# ?r. v. (ncheta# et al.# we held that the due process

clause $ay properly be invo7ed to invalidate# in

appropriate cases# a revenue $easure when it a$ounts to

a con=scation of property. Aut in the sa$e case# we also

explained that we will not stri7e down a revenue $easure

as unconstitutional Cfor being violative of the due process

clauseE on the $ere allegation of arbitrariness by the

taxpayer. C%ha$ber of ,eal state and AuildersB

(ssociation# Inc. v. ,o$ulo# 31/ !%,( 3 C21EE• The support for the poor is generally recogniJed as a public

duty and has long been an accepted exercise of police

power in the pro$otion of the co$$on good but# in the

instant case# the declarations do not distinguish between

wealthy coconut far$ers and the i$poverished ones.

%onseLuently# such declarations are void since theyappropriate public funds for private purpose and# therefore#

violate the citiJensB right to substantive due process.

CP(0A(N!(NG &('I!U&N NG 0G( !(0(8(NG

0(G!(!(( (T 0(NGG(G(+( !( NIU;G(N v. *%;TI)

!%,T(,U G.,. Nos. 1/4-36-4 (pril 1# 212E

CiiE Lual protectionC(rt. III# !ec. 1# 1D4 %onstitution ,eLuisites of a )alid %lassi=cationSa. based upon substantial distinctions

b. ger$ane to the purposes of the lawc. not li$ited to existing conditions onlyd. apply eLually to all $e$bers of the class

• The real estate industry is# by itself# a class and can be

validly treated diKerently fro$ other business enterprises.

+hat distinguishes the real estate business fro$ other

$anufacturing enterprises# for purposes of the i$position

of the %+T# is not their production processes but the prices

of their goods sold and the nu$ber of transactions

involved. C%ha$ber of ,eal state and AuildersB

(ssociation# Inc. v. ,o$ulo# 31/ !%,( 3 C21EE• P(G%&, cannot =nd support in the eLual protection clause

of the %onstitution# as the legislative records of the

Aica$eral %onference 0eeting dated &ctober 24# 1DD4# of

the %o$$ittee on +ays and 0eans# show that P(G%&,Bs

exe$ption fro$ pay$ent of corporate inco$e tax# as


44/113

provided in !ection 24 CcE of ,.(. No. /2/# or the National

Internal ,evenue %ode of 1DD4# was not $ade pursuant to

a valid classi=cation based on substantial distinctions. The

legislative records show that the basis of the grant of

exe$ption to P(G%&, fro$ corporate inco$e tax was

P(G%&,Bs own reLuest to be exe$pted. CP8I'IPPIN

(0;!0NT (N< G(0ING %&,P&,(TI&N CP(G%&,E v. T8

A;,(; &F INT,N(' ,)N; G.,. No. 1424 0arch 1#

211ECiiiE ,eligious freedo$

(,T. *I)# !% /C-E (,T. )I# !% 2

Grantee Non6 stoc7# non pro=t

educational institution

,eligious#

charitable inst

Taxes covered Inco$e tax %usto$


45/113

• +ith respect to &rdinance No. - which reLuires the

obtention of the 0ayorOs per$it before any person can

engage in any of the businesses# trades or occupations

enu$erated therein# +e do not =nd that it i$poses any

charge upon the en"oy$ent of a right granted by the

%onstitution# nor tax the exercise of religious practices. Aut

as the %ity of 0anila is powerless to license or tax the

business of plaintiK !ociety# +e =nd that &rdinance No.

- is also inapplicable to said business# trade or

occupation of the plaintiK. C(0,I%(N AIA' !&%ITU v.

%ITU &F 0(NI'(# G.,. No. '6D3-4# (pril -# 1D4E• The Philippine Aible !ociety# Inc. clai$s that although it

sells bibles# the proceeds derived fro$ the sales are used

to subsidiJe the cost of printing copies which are given free

to those who cannot aKord to pay so that to tax the saleswould be to increase the price# while reducing the volu$e

of sale. Granting that to be the case# the resulting burden

on the exercise of religious freedo$ is so incidental as to

$a7e it dicult to diKerentiate it fro$ any other econo$ic

i$position that $ight $a7e the right to disse$inate

religious doctrines costly. C(,T;,& 0. T&'NTIN& v. T8

!%,T(,U &F FIN(N% and T8 %&00I!!I&N, &F

INT,N(' ,)N;# G.,. No. 11/# &ctober -# 1DDE• &n the other hand the registration fee of P1#.

i$posed by !ec. 14 of the NI,%# as a$ended by !ec. 4 of

,.(. No. 4413# although =xed in a$ount# is really "ust to

pay for the expenses of registration and enforce$ent of

provisions such as those relating to accounting in !ec. 1

of the NI,%. That the PA! distributes free bibles and

therefore is not liable to pay the )(T does not excuse it

fro$ the pay$ent of this fee because it also sells so$e

copies. C(,T;,& 0. T&'NTIN& v. T8 !%,T(,U &F

FIN(N% and T8 %&00I!!I&N, &F INT,N(' ,)N;#

G.,. No. 11/# &ctober -# 1DDE• The withdrawal of the exe$ption did not also violate

freedo$ of religion as regards the activities of PA! on

religious articles# as the Free xercise of ,eligious clause

does not prohibit i$posing a generally applicable sale and

use tax on the sale of religious $aterials by a religious


46/113

organiJation as held by the ;! !upre$e %ourt in ?i$$y

!waggart 0inistries v. Aoard of LualiJation C1DDE.• The )(T registration fee does not constitute censorship of

such freedo$ as held in the ($erican Aible !ociety case.

The fee is a $ere ad$inistrative fee and not i$posed on

the exercise of a privilege# $uch less a constitutional right.

Aut for the purpose of defraying cost of registration which

is a reLuire$ent and a central feature in the )(T syste$ so

as to provide record of tax credits of the taxpayer.

C(,T;,& 0. T&'NTIN& v. T8 !%,T(,U &F FIN(N%

and T8 %&00I!!I&N, &F INT,N(' ,)N;# G.,. No.

11/# &ctober -# 1DDE

CivE Non6i$pair$ent of obligations of contractsNo law i$pairing the obligation of contract shall be

passed. C!ec. 1# (rt. III# 1D4 %onstitutionE The rule#

however# does not apply to public utility franchises or right

since they are sub"ect to a$end$ent# alteration or repeal

by the %ongress when the public interest so reLuires.

C%agayanlectric 'ight %o.# Inc. v.%o$$issioner# G, No. 3213#!epte$ber 2# 1DE

,;'!Sa. +hen the exe$ption is bilaterally agreed upon between

the govern$ent and the taxpayer 5 it cannot be withdrawn

withoutviolating the non6i$pair$ent clause.b. +hen it is unilaterally granted by law# and the sa$e is

withdrawn by virtue of another law 5 no violation.c. +hen the exe$ption is granted under a franchise 5 it

$ay be withdrawn at any ti$e thus# not a violation of the

non6i$pair$ent of contracts• %ontractual tax exe$ptions# in the real sense of the ter$

and where the non6i$pair$ent clause of the %onstitution

can rightly be invo7ed# are those agreed to by the taxing

authority in contracts# such as those contained in

govern$ent bonds or debentures# lawfully entered into by

the$ under enabling laws in which the govern$ent# acting

in its private capacity# sheds its cloa7 of authority and

waives its govern$ental i$$unity. Truly# tax exe$ptions of


47/113

this 7ind $ay not be revo7ed without i$pairing the

obligations of contracts. but these contractual tax

exe$ptions are not to be confused with tax exe$ptions

granted under franchisesYthe latter parta7es the nature of

a grant which is beyond the purview of the non6i$pair$ent

clause of the %onstitution. CP8I'IPPIN (0;!0NT (N<

G(0ING %&,P&,(TI&N CP(G%&,E v. T8 A;,(; &F

INT,N(' ,)N; G.,. No. 1424 0arch 1# 211E• ven though such taxation $ay aKect particular contracts#

as it $ay increase the debt of one person and lessen the

security of another# or $ay i$pose additional burdens

upon one class and release the burdens of another# still the

tax $ust be paid unless prohibited by the %onstitution# nor

can it be said that it i$pairs the obligation of any existing

contract in its true legal sense. Indeed not only existinglaws but also the reservation of the essential attributes of

sovereignty# is read into contracts as a postulate of the

legal order. C(,T;,& 0. T&'NTIN& v. T8 !%,T(,U &F

FIN(N% and T8 %&00I!!I&N, &F INT,N(' ,)N;#

G.,. No. 11/# &ctober -# 1DDE


48/113

-. Pay$ent

/. ,efund

.


49/113

health# $orals# safety and develop$ent as to reLuire regulation

for the protection and pro$otion of such public interest9 the

i$position $ust also bear a reasonable relation to the probable

expenses of regulation# ta7ing into account not only the costs of

direct regulation but also its incidental conseLuences as well.

(ccordingly# a charge of a =xed su$ which bears no relation at

all to the cost of inspection and regulation $ay be held to be a

tax rather than an exercise of police power. CP,&G,!!I)


50/113

C%&00I!!I&N, &F INT,N(' ,)N; v. 0(,;ANI

%&,P&,(TI&N# G.,. No. 1-4-44#


51/113

%&00I!!I&N, &F INT,N(' ,)N; G.,. No. 14D11

!epte$ber 23# 212E• The %onstitution does not really prohibit the i$position of

indirect taxes which# li7e the )(T# are regressive since what

it si$ply provides is that %ongress shall evolve a

progressive syste$ of taxation. The constitutional

provision has been interpreted to $ean si$ply that direct

taxes are to be preferred >and@ as $uch as possible#

indirect taxes should be $ini$iJed. C(,T;,& 0.

T&'NTIN& v. T8 !%,T(,U &F FIN(N% and T8

%&00I!!I&N, &F INT,N(' ,)N;# G.,. No. 11/#

&ctober -# 1DDE• The seller re$ains directly and legally liable for pay$ent of

the )(T# but the buyer bears its burden since the a$ount

of )(T paid by the for$er is added to the selling price.&nce shifted# the )(T ceases to be a tax and si$ply

beco$es part of the cost that the buyer $ust pay in order

to purchase the good# property or service. C,N(T& ).


52/113

bE ,egressive

cE Proportionate

II. National Internal ,evenue %ode CNI,%E of 1DD4# as a$ended

(. Inco$e taxation

1. Inco$e tax syste$s

aE Global tax syste$

• Global treat$ent is a syste$ where the tax treat$ent

views indiKerently the tax base and generally treats in

co$$on all categories of taxable inco$e of the taxpayer.

CT(N v.


53/113

taxable in the Philippines because the sa$e was a

co$pensation for her services rendered in Ger$any and

therefore considered as inco$e fro$ sources outside the

Philippines. +hile it is the rule that Hsource of inco$e

relates to the property# activity or service that produced

the inco$e# the docu$ents presented by respondent did

not constitute substantial evidence that it was in Ger$any

where she perfor$ed the inco$e6producing service and

thus the tax refund should be denied. C%o$$issioner of

Internal ,evenue vs. ?uliane Aaier6Nic7el# G.,. No. 1-4D-#

(ugust 2D# 23E

/. Types of Philippine inco$e tax

. Taxable period

aE %alendar period

bE Fiscal period

cE !hort period

3. inds of taxpayers

aE Individual taxpayers

CiE %itiJens

CaE ,esident citiJens

CbE Non6resident citiJens

CiiE (liens

CaE ,esident aliens

CbE Non6resident aliens

C1E ngaged in trade or business C2E Not engaged in trade or business

CiiiE !pecial class of individual e$ployees

CaE 0ini$u$ wage earners

bE %orporations


54/113

CiE now !ec. 24 of the 1DD4 NI,%@ covered

these unregistered partnerships and even associations or

"oint accounts# which had no legal personalities apart fro$


55/113

their individual $e$bers9 $oreover# the insurance pool#

though unregistered# satis=es the reLuisites of a

partnershipS C1E $utual contribution to a co$$on stoc7#

and C2E "oint interest in the pro=ts. C(=sco Insurance %orp.#

et al. vs. %ourt of (ppeals# et al.# G.,. No. 11234# ?anuary

2# 1DDDE• The original purpose of the co6owners of the two lots was

to divide the lots for residential purposes. If later on they

found it not feasible to build their residences on the lots

because of the high cost of construction# then they had no

choice but to resell the sa$e to dissolve the co6ownership.

The division of the pro=t was $erely incidental to the

dissolution of the co6ownership which was in the nature of

things a te$porary state. The sharing of gross returns does

not of itself establish a partnership# whether or not thepersons sharing the$ have a "oint or co$$on right or

interest in any property C&billos ?r. vs %I,# G.,. No. '6

311# &ctober 2D# 1DE

dE General professional partnerships

eE states and trusts

fE %o6ownerships

4. Inco$e taxation

aE


56/113

CaE Tests of realiJation

CbE (ctual vis6Z6vis constructive receipt

CiiiE ,ecognition of inco$e

CivE 0ethods of accounting

CaE%ash $ethod vis6Z6vis accrual $ethod• The accrual $ethod relies upon the

taxpayerBs right to receive a$ounts or its

obligation to pay the$# in opposition to

actual receipt or pay$ent# which

characteriJes the cash $ethod of

accounting. ($ounts of inco$e accrue

where the right to receive the$ beco$e

=xed# where there is created an enforceable

liability. !i$ilarly# liabilities are accrued

when =xed and deter$inable in a$ount#

without regard to indeter$inacy $erely of

ti$e of pay$ent. For a taxpayer using the

accrual $ethod# the deter$inative Luestion

is# when do the facts present the$selves in

such a $anner that the taxpayer $ust

recogniJe inco$e or expense[ The accrual

of inco$e and expense is per$itted whenthe all6events test has been $et. This test

reLuiresS C1E =xing of a right to inco$e or

liability to pay9 and C2E the availability of the

reasonable accurate deter$ination of such

inco$e or liability. C%I, vs Isabela %ultural

%orp.# G, 1422-1# February 12# 24 E

CbE Install$ent pay$ent vis6Z6vis deferred pay$ent

vis6Z6vis percentage co$pletion Cin long6ter$ contractsE

dE Tests in deter$ining whether inco$e is earned for tax

purposes

CiE ,ealiJation test

CiiE %lai$ of right doctrine or doctrine of ownership#

co$$and# or control


57/113

CiiiE cono$ic bene=t test# doctrine of proprietary interest

CivE !everance test

CvE (ll events test

D. Gross inco$e

aE


58/113

• The proceeds fro$ the inherited land of

petitioners# which they subdivided into s$all

lots and in the process converted into a

residential subdivision and given the na$e


59/113

C4E


60/113

CcE ,oyalty inco$e

CdE ,ental inco$e

C1E 'ease of personal property

C2E 'ease of real property

C-E Tax treat$ent of

CaE 'easehold i$prove$ents by lessee

CbE )(T added to rentalpaid by the lessee

CcE (dvance rentallong ter$ lease

CviiE (nnuities# proceeds fro$ life insurance or other types

of insurance

CviiiE PriJes and awards

CixE Pensions# retire$ent bene=t# or separation pay

CxE Inco$e fro$ any source whatever

CaE Forgiveness of indebtedness

CbE ,ecovery of accounts previously written6oK 5

when taxablewhen not taxable

CcE ,eceipt of tax refunds or credit

CdE Inco$e fro$ any source whatever

CeE !ource rules in deter$ining inco$e fro$ within

and without

C1E Interests

C2E


61/113

C4E !ale of personal property

CE !hares of stoc7 of do$estic corporation

CfE !itus of inco$e taxation

CgE xclusions fro$ gross inco$e

C1E ,ationale for the exclusions

C2E Taxpayers who $ay avail of the exclusions

C-E xclusions distinguished fro$ deductions

and tax credit

C/E ;nder the %onstitution

CaE Inco$e derived by the govern$entor its political subdivisions fro$ the exercise of

any essential govern$ental function

CE ;nder the Tax %ode

CaE Proceeds of life insurance policies

CbE ,eturn of pre$iu$ paid

CcE ($ounts received under life insurance#

endow$ent or

annuity contracts

CdE )alue of property acLuired by gift# beLuest#

devise or

descent

CeE ($ount received through accident or

health insurance

CfE Inco$e exe$pt under tax treaty

CgE ,etire$ent bene=ts# pensions# gratuities#

etc.

• ,espondent ter$inated petitionerBs services

due to her illness# rendering her incapable


62/113

of continuing to wor7# and gave her

retire$ent bene=ts but withheld the tax due

thereon. The retire$ents bene=ts are

taxable because the petitioner was only /1

yrs old at the ti$e of retire$ent and had

rendered only years of service9 for these

bene=ts to be exe$pt fro$ tax# the

following reLuisites $ust concurS C1E a

reasonable private bene=t plan is

$aintained by the e$ployer9 C2E the retiring

ocial or e$ployee has been in the service

of the sa$e e$ployer for at least ten C1E

years9 C-E the retiring ocial or e$ployee is

not less than =fty CE years of age at the

ti$e of his retire$ent9 and C/E the bene=thad been availed of only once. C0a. Isabel T.

!antos vs. !ervier Phil.# Inc.# et al.# G.,. No.

133-44# Nove$ber 2# 2E• ,espondents contend that petitioner did not

withhold the taxes due on their retire$ent

bene=ts because it had obliged itself to pay

the taxes due thereon. This was done to

induce respondents to agree to avail of the

optional retire$ent sche$e. It was only

when respondents de$anded the pay$ent

of their salary diKerentials that petitioner

alleged# for the =rst ti$e# that it had failed

to present the 1DD- %A( to the AI, for

approval# rendering such retire$ent bene=ts

not exe$pt fro$ taxes9 conseLuently# they

were obliged to refund to it the a$ounts it

had re$itted to the AI, in pay$ent of their

taxes. Petitioner used this Hfailure as an

afterthought# as an excuse for its refusal tore$it to the respondents their salary

diKerentials. Patently# petitioner is estopped

fro$ doing so. It cannot renege on its

co$$it$ent to pay the taxes on

respondentsB retire$ent bene=ts on the

pretext that the Hnew $anage$ent had


63/113

found the policy disadvantageous.

CIntercontinental Aroadcasting %orp. vs.

Noe$i A. ($arilla# et al.# G.,. No. 13244#

&ctober 24# 23 E• !everance of e$ploy$ent is a condition

sine Lua non for the release of retire$ent

bene=ts. ,etire$ent bene=ts are not $eant

to reco$pense e$ployees who are still in

the e$ploy of the govern$ent. C


64/113

C1E ,eLuisites for deductibility

CaE NatureS ordinary and necessary

• The expenses paid by (tlas for the

services rendered by a public relations=r$# ai$ed at creating a favorable i$age

for (tlas# is not an allowable deduction as

business expense under the NI,%. Korts

to establish reputation are a7in to

acLuisition of capital assets and#

therefore# expenses related thereto are

not business expense but capital

expenditures. C(tlas %onsolidated 0ining


65/113

product andor private respondentBs

business. The sub"ect expense for the

advertise$ent of a single product is

inordinately large9 further$ore# the

corporationBs venture to protect its brand

franchise was tanta$ount to eKorts to

establish a reputation and was a7in to

the acLuisition of capital assets.

C%o$$issioner of Internal ,evenue vs.

General Foods# Inc.# G.,. No. 1/-342#

(pril 2/# 2- E

CbE Paid and incurred during taxable year

C2E !alaries# wages and other for$s of co$pensation

for personal services actually rendered# including thegrossed6up $onetary value of the fringe bene=t

sub"ected to fringe bene=t tax which tax should have

been paid

• Pay$ent by the taxpayer6corporation to its

controlling stoc7holder C8os7insE of M of its

supervision fees Cpaid by a client of the corporation

for the latterOs services as $anaging agent of a

subdivision pro"ectE or the a$ount of PDD#D44.D1 is

not a deductible ordinary and necessary expense

because it does not pass the test of reasonable

co$pensation. If independently# a one6ti$e

P1#.6fee to plan and lay down the rules for

supervision of a subdivision pro"ect were to be paid

to an experienced realtor such as 8os7ins# its

fairness and deductibility by the taxpayer could be

conceded9 however# the fee paid to 8os7ins

continued every year since 1D up to 1D3- and for

as long as its contract with the subdivision ownersubsisted# regardless of whether services were

actually rendered by 8os7ins. C%. 0. 8os7ins %o.#

Inc. vs. %o$$issioner of Internal ,evenue# G.,. No.

'62/D# Nove$ber 2# 1D3DE

C-E Travellingtransportation expenses


66/113

C/E %ost of $aterials

CE ,entals andor other pay$ents for use or

possession of

property C3E ,epairs and $aintenance

C4E xpenses under lease agree$ents

CE xpenses for professionals

CDE ntertain$ent,epresentation expenses

C1E Political ca$paign expenses

C11E Training expenses

CbE Interest


C2E Non6deductible interest expense

C-E Interest sub"ect to special rules

CaE Interest paid in advance

CbE Interest periodically a$ortiJed

CcE Interest expense incurred to acLuire

property for use in tradebusinessprofession

CdE ,eduction of interest expenseinterest

arbitrage

CcE Taxes

• 0argin fees paid by the petitioner to the %entral

Aan7 on its pro=t re$ittances to its New Uor7 headoce are not allowable deductions as taxes because

it is not a tax but an exaction designed to curb the

excessive de$ands upon our international reserve.

0argin fees are also not ordinary and necessary

business expenses because they are not expenses in

connection with the production or earning of


67/113

petitionerOs inco$es in the Philippines9 they were

expenses incurred in the disposition of said inco$es.

Csso !tandard astern# Inc. vs. %o$$issioner of

Internal ,evenue# G.,. Nos. 26D# ?uly 4# 1DDE


C2E Non6deductible taxes

C-E Treat$ents of surchargesinterests=nes for

delinLuency

C/E Treat$ent of special assess$ent

CE Tax credit vis6Z6vis deduction

CdE 'osses C1E ,eLuisites for deductibility

C2E &ther types of losses

CaE %apital losses

CbE !ecurities beco$ing worthless

CcE 'osses on wash sales of stoc7s or securities

CdE +agering losses

CeE Net &perating 'oss %arry6&ver CN&'%&E

CeE Aad debts

• In clai$ing deductions for bad debts# the only

evidentiary support given by P,% was the

explanation posited by its accountant# whose

allegations were not supported by any docu$entary

evidence. &ne of the reLuisites to Lualify as Hbad

debt is that the debt $ust be actually ascertained

to be worthless and uncollectible during the taxable

year# and the taxpayer $ust prove that he exerted

diligent eKorts to collect the debts by C1E sending of

state$ent of accounts9 C2E sending of collection

letters9 C-E giving the account to a lawyer for


68/113

collection9 and C/E =ling a collection case in court.

CPhilippine ,e=ning %o$pany vs. %ourt of (ppeals# et

al.# G.,. No. 114D/# 0ay # 1DD3E


C2E Kect of recovery of bad debts

CfE


69/113


C2E 0ethods of co$puting depreciation allowance

CaE !traight6line $ethod

CbE


70/113

CaE Aasic personal exe$ptions

CbE (dditional exe$ptions for taxpayer with dependents

CcE !tatus6at6the6end6of6the6year rule

CdE xe$ptions clai$ed by non6resident aliens

C3E Ite$s not deductible

CaE General rules

CbE Personal# living or fa$ily expenses

CcE ($ount paid for new buildings or for per$anent

i$prove$ents Ccapital expendituresE

CdE ($ount expended in restoring property C$a"or repairsE

CeE Pre$iu$s paid on life insurance policy covering life or

any

other ocer or e$ployee =nancially interested

CfE Interest expense# bad debts# and losses fro$ sales of

property between related parties

CgE 'osses fro$ sales or exchange or property

ChE Non6deductible interest

CiE Non5deductible taxes

C"E Non6deductible losses

C7E 'osses fro$ wash sales of stoc7 or securities

C4E xe$pt corporations

CaE Propriety educational institutions and hospitals


71/113

CbE Govern$ent6owned or controlled corporations

CcE &thers

1. Taxation of resident citiJens# non6resident citiJens# and resident aliens

aE General rule that resident citiJens are taxable on inco$e fro$ allsources

within and without the Philippines

CiE Non6resident citiJens

bE Taxation on co$pensation inco$e

CiE Inclusions

CaE 0onetary co$pensation

C1E ,egular salarywage

C2E !eparation payretire$ent bene=t not otherwise

exe$pt

C-E Aonuses# 1-th $onth pay# and other bene=ts not

exe$pt

C/E


72/113

CbE 8ealth and hospitaliJation insurance

CcE Taxation of co$pensation inco$e of a $ini$u$ wage

earner

C1E


73/113

• The acLuisition by the Govern$ent of private properties through

the exercise of the power of e$inent do$ain# said properties

being "ustly co$pensated# is e$braced within the $eaning of the

ter$ Hsale or Hdisposition of property and the de=nition of

gross inco$e. Pro=t fro$ the transaction constitutes capital gain.

CGonJales vs %T(# G, '61/-2# 0ay 23# 1D3E

11. Taxation of non6resident aliens engaged in trade or business

aE General rules

bE %ash andor property dividends

cE %apital gains

xcludeS non6resident aliens not engaged in trade or business

12. Individual taxpayers exe$pt fro$ inco$e tax

aE !enior citiJens

bE 0ini$u$ wage earners

cE xe$ptions granted under international agree$ents

1-. Taxation of do$estic corporations

aE Tax payable

CiE ,egular tax

CiiE 0ini$u$ %orporate Inco$e Tax C0%ITE

• For its =scal year ending -1 0arch 21 CFU 2621E# P('

incurred Jero taxable inco$e and did not pay 0%IT# for which AI,

assessed P(' for de=ciency 0%IT. P(' is not liable to pay 0%IT

because under its franchise# P(' has the option to pay basic

corporate inco$e tax or franchise tax# whichever is lower9 and

the tax so paid shall be in lieu of all other taxes# except realproperty tax. 0%IT falls within the category of Hall other taxes

fro$ which P(' is exe$pted because although both are inco$e

taxes# the 0%IT is diKerent fro$ the basic corporate inco$e tax#

not "ust in the rates# but also in the bases for their co$putation.

C%o$$issioner of Internal ,evenue vs. P('# Inc.# G.,. No.

133# ?uly 4# 2DE


74/113

CaEI$position of 0%IT• 0A% being a new thrift ban7 is not yet liable to the 0%IT since it

will apply only beginning on the /th years fro$ co$$ence$ent of

its operations. The date of co$$ence$ent of operations of a

thrift ban7 is the date it was registered with the !% or the date

it was granted authority by A!P to operate as such# whichever

co$es later. (s newly operated thrift ban7 it is entitled to a grace

period of / years counted fro$ the date when it was authoriJed

by A!P to operate as thrift ban7. 0A% is entitled to the refund of

the taxes paid under the 0%IT. The intent of %ongress relative to

the 0%IT is to grant a / year suspension of tax pay$ent to newly

for$ed corporations. %orporations still starting have to stabiliJe

their venture in order to obtain stronghold in the industry. It is

not a surprise when $any corporations reported losses in their

initial years of operations. C0anila Aan7ing %orp. v. %I,# /DD!%,( 42E

CbE %arry forward of excess $ini$u$ tax

CcE ,elief fro$ the 0%IT under certain conditions

CdE %orporations exe$pt fro$ the 0%IT

CeE (pplicability of the 0%IT where a corporation is

governed both under

the regular tax syste$ and a special inco$e tax syste$

bE (llowable deductions

CiE Ite$iJed deductions

CiiE &ptional standard deduction

cE Taxation of passive inco$e

CiE Passive inco$e sub"ect to tax

CaE Interest fro$ deposits and yield# or any other $onetary

bene=t fro$

deposit substitutes and fro$ trust funds and si$ilar

arrange$ents

and royalties


75/113

CbE %apital gains fro$ the sale of shares of stoc7 not

traded in the stoc7

xchange

CcE Inco$e derived under the expanded foreign currencydeposit syste$

CdE Inter6corporate dividends

CeE %apital gains realiJed fro$ the sale# exchange# or

disposition of lands

andor buildings

CiiE Passive inco$e not sub"ect to tax

dE Taxation of capital gains

CiE Inco$e fro$ sale of shares of stoc7

CiiE Inco$e fro$ the sale of real property situated in the

Philippines

CiiiE Inco$e fro$ the sale# exchange# or other disposition of other

capital

assets

eE Tax on proprietary educational institutions and hospitals

• !t. 'u7eBs is a proprietary non6stoc7 and non6pro=t hospital

catering to non6paying patients but also derives pro=t fro$

paying patients. It is sub"ect to the preferential tax rate of 1M

for its pro=t6generating activities under sec. 24CAE of NI,%9 it

cannot be exe$pt fro$ inco$e tax under sec. -CE and CGE

because it is not HorganiJed and operated exclusively for

charitable purposes# which is a reLuire$ent under the

afore$entioned provision. C%I, vs. !t. 'u7eOs 0edical %enter# Inc.#G.,. Nos. 1DDD 1DD3# !epte$ber 23# 212E

fE Tax on govern$ent6owned or controlled corporations# agencies or

instru$entalities

1/. Taxation of resident foreign corporations


76/113

aE General rule

bE +ith respect to their inco$e fro$ sources within the Philippines

cE 0ini$u$ %orporate Inco$e Tax

dE Tax on certain inco$e

CiE Interest fro$ deposits and yield# or any other $onetary

bene=t fro$

deposit substitutes# trust funds and si$ilar arrange$ents and

royalties

CiiE Inco$e derived under the expanded foreign currency deposit

syste$

CiiiE %apital gains fro$ sale of shares of stoc7 not traded in thestoc7

exchange

CivE Inter6corporate dividends

Exclude:

(i) International carrier

(ii) Of!ore "an#in$ unit

(iii) %ranc! pro&t re'ittance

(i) Re$ional or area !eaduarter and re$ional operatin$

!eaduarter o* 'ultinational co'panie

1. Taxation of non6resident foreign corporations

aE General rule

bE Tax on certain inco$e

CiE Interest on foreign loans

CiiE Inter6corporate dividends

CiiiE %apital gains fro$ sale of shares of stoc7 not traded in the stoc7


77/113

exchange

Exclude:

(i) Non+reident cine'ato$rap!ic &l'+o,ner- leor or

ditri"utor

(ii) Non+reident o,ner or leor o* eel c!artered ".

/!ilippine

national

(iii) Non+reident o,ner or leor o* aircra*t 'ac!inerie and

ot!er

Euip'ent

13. I$properly accu$ulated earnings of corporations

• Petitioner cannot avoid paying surtax on i$properly accu$ulated

earnings because the purchase of the ;.!.(. Treasury bonds were

in no way related to petitionerBs business of i$porting and selling

wines liLuors. The Hi$$ediacy test deter$ines the Hreasonable

needs of the business in order to "ustify an accu$ulation of

earningsYthat is# if the corporation did not prove an i$$ediate

need for the accu$ulation of the earnings and pro=ts# the

accu$ulation was not for the reasonable needs of the business#

and the penalty tax would apply9 invest$ent of the earnings and

pro=ts of the corporation in stoc7 or securities of an unrelated

business usually indicates an accu$ulation beyond the

reasonable needs of the business C0anila +ine 0erchants# Inc.

vs. %o$$issioner of Internal ,evenue# G.,. No. '6231/#

February 2# 1D/E

• AI, assessed petitioner for surtax on i$properly accu$ulated

pro=ts# which petitioner contested. In order to deter$ine whether

pro=ts are accu$ulated for the reasonable needs of the business#it $ust be shown thatS C1E the controlling intention of the

taxpayer is $anifest at the ti$e of accu$ulation# not intentions

declared subseLuently# which are $ere afterthoughts9 and C2E

the accu$ulated pro=ts $ust be used within a reasonable ti$e

after the close of the taxable year. C%yana$id Philippines# Inc. vs.

%ourt of (ppeals# et al.# G.,. No. 134# ?anuary 2# 2E


78/113

• Previous accu$ulations should be considered in deter$ining

unreasonable accu$ulations for the year concerned. In

deter$ining whether accu$ulations of earnings or pro=ts in a

particular year are within the reasonable needs of a corporation#

it is necessary to ta7e into account prior accu$ulations# since

accu$ulations prior to the year involved $ay have been

sucient to cover the business needs and additional

accu$ulations during the year involved would not reasonably be

necessary. CAasilan states# Inc. vs. %o$$issioner of Internal

,evenue# et al.# G.,. No. '622/D2# !epte$ber # 1D34E

14. xe$ption fro$ tax on corporations

• U0%(# a non6stoc7 non6pro=t corporation with charitable ob"ectives#

clai$ed exe$ption fro$ pay$ent of inco$e tax by invo7ing the NI,%and the %onstitution. +hile the inco$e received by the organiJations

enu$erated in !ection 23 of the NI,% is# as a rule# exe$pted fro$ the

pay$ent of tax Hin respect to inco$e received by the$ as such# the

exe$ption does not apply to inco$e derived Hfro$ any of their

properties# real or personal# or fro$ any of their activities conducted

for pro=t# regardless of the disposition $ade of such inco$e9

0oreover# charitable institutions under (rt. )I# sec. 2 of the

%onstitution are only exe$pted fro$ property taxes# and U0%( is not

an educational institution under (rticle *I)# !ection / of the%onstitution. C%o$$issioner of Internal ,evenue vs. %ourt of (ppeals#

et al.# G.,. No. 12//-# &ctober 1/# 1DDE• 'ung %enter# charitable institution# does not lose its character as such

and its exe$ption fro$ taxes si$ply because it derives inco$e fro$

paying patients# whether out6patient# or con=ned in the hospital# or

receives subsidies fro$ the govern$ent# so long as the $oney

received is devoted or used altogether to the charitable ob"ect which it

is intended to achieve9 and no $oney inures to the private bene=t of

the persons $anaging or operating the institution. 8owever# it is not

exe$pt fro$ real property tax as to the portions of the land leased toprivate entities as well as those parts of the hospital leased to private

individuals because under the %onstitution# it is only exe$pt when its

real properties are actually# directly# and exclusively used for charitable

purposes. C'ung %enter of

Documents

Taxation SYLLABUS.docx