1st exam: General Principles
2nd exam: Income Tax





Tax law: procedure is diff
X need to recite the procedure
o
Just basic facts & ruling
o
X dissents, sep opinion = unless maam says
Procedure isn’t usually followed
Have consti, read cases
Grading sys: 33% recit, 33% 1st exam, 33% 2nd exam
June 30
Overview: Tax has diff sources
TAX 1:

General
o
o
o

Principles
Not a lot of provs in the tax code
Source: consti & jurisprudence
Other issuances of BIR

Meant to clarify

Rules issued by BIR wc includes several topics (gen
regulations, etc)

A) revenue regulations: most impt

Ex) you have a business, take a loan wc has interest,
to expand the business, this is allowed to be
deducted (an item of deduction) called interest
expenses = revenue regs explain the details, unlike
the tax code wc is just general

B) BIR rulings

Dnt know if a particular tax is applicable to you
o
So you go to the BIR & ask for a ruling

You confirm is a transaxn falls/is subj to certain law

Request of a taxpayer, issued by BIR

But this is more of in remedies

C) Revenue Memorandum order/circular

RMO:
o
Addressed more to BIR examiners
o
Its an issuance by BIR to the examiners for
guidance

RMC:
o
For the information of the pub
o
Circularizes whats in the RMO

D) Customs AO (CAO), CMO

CAO: by the bureau of customs (in customs duties)
Income Tax
o
Main source: tax code, revenue issuances & jurisprudence
o
Items in gross income

Sme taxpayers are taxed on their gross income, others on
their net income

Net income: Need to know what items are included in your
gross income

Ex) 13th mo isn’t included
o
Deductions

Certain expenses (business, interest)

Once deducted, you come up w your tax income

Will also
o
o
o
talk about:
Kinds of taxpayers
Treatment of taxpayers
Subjs of income tax
TAX 2:

Local Taxation
o
LGC, bk2
o
Ex) 2 basic divisions

Real prop tax

Business tax

You have a business & tax is imposed by the
city/municipality
o
Other local taxes:

Ex) cedula: P5

Professional tax

Ex) PTR # for lawyers (P300/500)

Tax on billboards
o
More of licenses, fees

Estate & donor’s tax
o
NIRC
o
Estate: used to have estate (privilege of transferring prop to heirs) &
inheritance taxes

No more inheritance tax
o
Donor: taxed depending on who you’ll be donating it to
o
Revenue regulation: 02-03

Tariff & Customs
o
Tariff & customs code: amended several times
o
Issuances of the Bureau of customs

Remedies
o
LGC

Ex) you have pc of land, city says pay this, argue bec higher
taxes bec market value supposedly went up

Remedy/way of protesting is in the LGC
o
TCC

Ex) import cellphones, collector of customs says pay, you
argue bec you got it cheap & the tax shld be lower, collector
holds the goods & you need to sell it alrdy

Theres a remedy/procedure even if you’ve gotten the
goods out, when 2 yrs later collector says they
made a mistake and you have to pay a higher amnt
o
NIRC

Deadliest bec talks abt 2 basic remedies:

Refund: provs grant this
o
A) Internal revenue tax
o
B) VAT refund

Assessment
o
Pay, filed ITR, BIR discovers you weren’t
able to declare your entire income so they
assess you
o
Procedure of how to protest this is in the
prov
o
DP reqs are stated here, when BIR does
audit, time frames to file protest letters,
submission of supporting docums, etc

Other
o
o
o
o
*docket fees: based on the amnts stated in the complaint/claim,
thus have the amnt go down while still in the BIR
internal Revenue Taxes
A) DST
B) excise: alcohol, cigarettes, etc
C) percentage tax: races, etc
D) VAT

Since 1996 not asked in the bar, last yr it was asked

Long provs, but revenue regs are more difficult
I. General Principles of Taxation
Meaning of tax:
o
Power by wc the sovereign, thru the law making body, to raise
revenue

It’s the legis who makes the tax laws

Distinguish it from other terms:
License fee
Taxes
Emanates from police power
Levied in the exer of the taxing power
Regulatory
To generate revenues
Amng of charge must only be sufficient
to include expenses of issuing the
license & the cost of necessary
inspection or police surveillance
o
License Fee:

Limit in the amnt: only that reqd to cover the license & cost
of inspection

Ex) have a business, don’t pay tax, is it an illegal business?

No, just subj to certain penalties
o
Tax:

Amnt depends on what you earn

Operated for revenues (purpose)

Gen principle

But there are sme regulatory purposes on why
they’re imposed

PAL v Ebro Progressive Devt:

if the exaction is really to raise revenue & regulatory
purposes are incidental = TAX

if regulatory purposes is the primary purpose =
License (to regulate conduct)

Special assessment
Taxes
Levied only on land
Imposed on persons, prop & excises
Cant be made a personal liab of the Can be made such
person assessed
Based wholly on benefit
Not
Exceptional bth as to time & locality
o
spcl assessment:

shld inure to the benefit of the land

cant be made a personal liab

ex) pub improvement

construction wc wld improve the value of the prop

ex) highway created near a farm


LGU will assess you bec you’ve benefited from it
even if its for the benefit of the entire community

Cant charge more than 50% of the cost
An imposition/exaction on the prop, not on the person
Toll
Demand of ownership
Tax
Demand of sovereignty
purpose of raising revenue
for
the
Amnt charged for the cost &
maintenance of the prop used
o
Toll:

For cost & maintenance of pub works

Not only the govt wc can impose, so can a priv entity
Penalty
Punishment for the commission of a
crime
Tax
civ liability
Person criminally liable in taxation only
bec he fails to satisfy his civ oblig to
pay taxes
o
o
Penalty:

Can be liable to this for non-payment of taxes

Ex) can be charged surcharge & interest for failure to
pay
Tax:

Dsnt arise necessarily from a crime
Tariff/customs duties
Tax
Duties charged upon commodities on Broader term wc includes custom
their being imported into or exported duties & other taxes
from a country
Are regulatory imposts on goods
Are taxes
o
T/C duties:

Imposed on goods imported/exported

Tariff: can mean the rate itself or the book/list of amnts you
need to pay

Diff from tax but similar = governed by diff provs/law

But they have the same purpose = revenue

Oblig to pay tax:
o
Taxpayer is obliged to pay
o
Consent isn’t necessary
o
No offsetting bec no creditor-debtor rel
o
Consequence: surcharge & interest, imprisoned for tax evasion

Oblig to pay a debt:
o
Existing C-D rel
o
Consent is given
o
Can offset
o
Consequence: interest, cant be imprisoned (consti)

Gen rule: No offsetting under the law
o
But in practice, you can
o
Exception: Domingo v Garlitos

Only exception

When the claim of the taxpayer & whats due to the govt is
alrdy overdue, demandable & liquidated = compensation
takes place by operation of law
Philex

Not subj to compensation bec not creditor & debtor of each other

Debts: due to the govt in their corp capacity

Taxes: due to the govt in their sovereign capacity

Contention of Philex here is always the contention of taxpayers
Essential Characteristics:

Forced charged
o
Oblig by law
o
Not dependent on the will or consent

Generally payable in money
o
2 kinds of refund:

Money or tax credit certificates
o
Tax credit cert:

Once this is given, can be used for tax liabilities as payments

Usually if you don’t need the TCC, you sell it to some1 on a
discount

2002 scandal: bec of this BIR issued a reg wherein the sale of
the TCC became difficult (stricter reqs)
o
What if theres a civ war, money loses its value

Sm1 says instead of paying money, just pay me rice – is this
constitutional? Can congress enact a law wc says just pay
taxes w rice? Valid?

Basic principles of a sound tax sys 

Administrative feasibility: 1 of the hallmarks of a
sound tax sys is that its capable of being
implemented
o
Its not the law wc will allow payment of rice
instead of money, but itll run counter to the
basic principle of admin feasibility

Legislative in charac
o
Created by the legis body
o
Oblig created by law

Assessed on all w reasonable rule of apportionment
o
Taxes are based on one’s ability to pay

Imposed on subjs w/in jurisdiction

For a pub purpose
o
The pub purpose shld exist when the law is enacted

Not at the time of disbursement
Theory & basis

Necessity theory
o
Operations of the govt needs funds, thus need taxes as contributions
o
CIR v Algue:

Taxes are what we pay for a civilized society bec wo taxes
govt wont have nay motive power to operate = paralyzed

Benefit-received theory
o
Foundation to pay taxes isn’t the privileges enjoyed or protection given
o
Cant object to paying bec no personal benefit can be pointed out
*Q: is it necessary to have a govt to impose taxes?
Purpose

Gen: to raise revenue & provide funds for the govt to meet its mandate of
promoting welfare & protection of citizens

Non-revenue purpose:
o
To enhance the exer of police power
o
To rehabilitate & stabilize threatened industries of pub interest
o
Control the exchange


importations: how ds taxation paly a role so that the loc industries are
protected?
o
Added price on imported goods to encourage buying loc products
Spcl laws passed:
o
To regulate certain industries
o
Has spcl incentives

Ex) call centers: located in an eco zone so granted spcl
privileges (lower taxes for a certain yr or given an income tax
holiday)
Classification
A.scope

Natl taxes:
o
Imposed by the natl govt
o
Those implemented by BIR
o
Ex) income tax, excise tax, percentage tax

Loc taxes:
o
Imposed by the loc govt
o
Ex) real prop tax, cedula, business tax
B. who shoulders the burden

Direct
o
Incidence & liability falls on 1 person

Indirect
o
Incidence & liability falls on 1 person but the impact/burden falls on
anthr
o
Ex) VAT
 Memorize: incidence, liability v impact or burden
o
Incidence, liability = statutory taxpayer




NPC: no longer an issue bec new VAT law says they aren’t subj to 12 % VAT
Commissioner v Gotamco o
Contractors tax: indirect tax

No more today, just VAT
Q: what if you entered into a contract & lease a prop wc is subj to taxes. What
if you dnt what to shoulder the DST & say the renter shld pay for it bec they
got the place cheap – direct or indirect tax?
o
Still a direct tax bec the person who issued the contract is subj to the
tax, you just try to pass the burden
o
DST dsnt really discriminate btwn the buyer/seller

Prov: if says 1 is exempt from DST (i.e. IRRI), if it enters into
a contract wc is subj to DST, other party shld pay for it
Can stip that the burned of paying is passed
o
This dsnt destroy its charac as a direct tax = X prohib by law
C. Obj/Subj Matter
a. Prop










Are assessed on all prop of a certain class w/n the jurisdiction of the taxing
power
Ex) real prop tax & conditional levels on real prop, except spcl assessments
under the LGC
Tax of a fixed amnt a.k.a. poll/capitation
Excise:
o
Ex)income tax, VAT, estate & donor tax
o
Diff from excise tax under NIRC wc are “sins taxes” (excise taxes in
the strict sense)
b. Personal
Aka capitation or poll taxes
Taxes of a fixed amtn upon all persons of a certain class w/in the jurisdiction
of the taxing power, wo regard to the amtn of their prop or to the occupations
or businesses in wc they’re engaged
LGC: residence tax aka community tax
c.
Poll/capitation
Aka personal tax
d. Excise
Excise or privilege taxes are laid upon the manufacture, sale or consumption
of commodities w/n the country
Upon licenses to pursue certain occups & upon corporate privileges
D. manner of Computing:

Ad valorem: needs the intervention of assessors
o
Ex) real prop tax (assess the FMV of the prop), automobiles

Spcfc: dnt need assessors or valuation, just pay
E. Graduation/rate

Proportional: fixed percentage

Progressive: depends if theres an inc in the tax base
o
Tax rate increases as the tax bases increases
o
Ex) income tax

Regressive
o
Tax rate decreases as the tax base increases
* distinguish progressive & regressive against the sys


Ability to pay principle: means more direct taxes than indirect taxes (wc are
regressive)
Bar Q: what are the aspects of taxation?
o
Levy or imposition: Congress dets what to tax
o
Collection: BIR sees the law & collects based on the law
o
Payment:

Pay as you earn: ex) income tax

Pay as you’re assessed: ex) real prop tax (once assessed by
an assessor, you need to pay)

Pay as you file: ex) donors/estate/DST

Pay as you transact: ex) VAT
Basic Principles

Fiscal adequacy:
o
Usually in the cases involving VAT

Theoretical justice & equality
o
Tax burden shld be equal to the taxpayers ability to pay
Administrative feasibility

July 7
II. NATURE & LIMITATIONS OF THE POWER OF TAXATION
Nature & Power of Taxation
a) Power of taxation being inherent in sovereignty
o
No need for a law to grant the power
o
Consti prov are merely limitations on the power to tax

Memorize:
Auth: who
exers
power
Taxation
May be exerd only
by the govt or its
pol’t subdivisions
Eminent domain
May be exerd by
the govts or its pol’t
subdivisions
or
granted
to
pub
service Cos or PUs
Prop is “taken” for
pub use & must be
compensated
Purpose
Prop is taken for the
support of the govt
Persons
affected
Operates upon a
community/class of
indivs
Money contributed
becomes part of the
pub funds
Operates
on
an
indiv as the owner
of a parti prop
There’s transfer of
the right to the prop
Assumed that the
indiv
rcvs
the
equivalent of the
tax in the form of
protection
&
benefits from the
govt
Generally there’s no
limitation on the
amnt of tax that
may be imposed
He rcvs the mrkt
value of the prop
taken from him
Effect
Benefits
rcvd
Amnt of
imposition
Rel to
consti
Is subj to certain
consti
limitations,
including the prohib
against impairment
of oblig of contracts
No amnt imposed
but
rather
the
owner is paid the
mrkt value of the
prop taken
Inferior
to
the
impairment prohib;
govt
cant
expropriate
priv
prop,
wc
under
contract
it
had,
previously
bound
itself to purchase
from
the
other
contracting party
Police power
May be exerd only by
the govt or its pol’t
subdivisions
Use of the prop is
regulated
for
the
purpose of promoting
the gen welfare; not
compensable
Operates
upon
a
community/class
of
indivs
Theres no transfer of
title. At most there’s
restraint
on
the
injurious use of prop
Person affected rcvs
indirect benefits as
may arise from the
maintenance
of
a
healthy eco standard
of society
Amnt imposed shldnt be
more than sufficient to
cover the cost of the
license
&
necessary
expenses
Relatively free from
consti limitations. Its
superior
to
the
impairment provs; subj
to the consti bec you
cant just take prop wo
it
being
subj
to
limitations
*rem:
If arguing for the govt: Commissioner v Algue (lifeblood theory)
If arguing for the taxpayer: Roxas v CTA (golden egg rule)
Incidental benefits to a priv indiv:

Dsnt make the tax invalid so long as the initial stages are for
a pub purpose

Wnt affect validity for as long as its for a pub purpose
Prohibition against delegation
o
Gen rule: only legis has the power to tax
o
Exceptions: Pres, LGU, admin agencies
o
Can congress remove the power to tax granted to LGUs?

Cant do this wo the consti being violated

But Congress can limit the power thru publication of the LGC
o
Power of the LGU to tax isn’t inherent

Its only bec its placed in the consti, it can be remeoved
o
City govt v Bayantel:

LGC affected several agencies

B4 passed, these agencies has several exceptions
o
Pres:

Provided in the consti & the Flexible Tariff Clause

Grants the pres the power to:

Increase or remove rates of import duties

Estab import quota or ban imports

Impose addtl duty on all imports

Very limited power to tax – only whats stated is the consti &
tax code
o
Admin agencies

Actual imposition of taxes, extent, etc = congress

What can be delegated:

Power to value the prop/valuation

Computation/assessment

Collection

BIR can issue regulations to provide guidelines

But these issuances cant go beyond the legis intent
o
Commissioner v CA

Loc brand: less taxes than imported

RMC 37-93: sought to reclassify the brands as foreign brands

Issued 2 days b4 promulgation of RA7654 wc increased the
tax on cigs from 40 to 55% for foreign brands

If this law was being passed, whats the need for the RMC?

So BIR can collect more taxes from fortune tobacco

They were forcing to include it as foreign brands

Sc: RMC is void! Reclassification was dne wo notice 7 hearing

Admin rule: merely interpretative of a primary legi

Just needs issuance

No rights affected

Legis rule: in the nature of a subordinate legis designed to
implement a primary legis

Needs hearing & notice

Rights are involved
Exemptions of govt entities
o
Reason: fxn is for pub use/purpose
o
Sec27(c): everyone is subj to income tax, except:

GSIS

SSS

PHIC

PCSO

PAGCOR
o
Roxas v CA:

The power to tax is also called the power to destroy
o
Why? Meaning?

Golden egg rule: lest the tax collector kill the hen that lays the golden egg

LTO v Butuan

Power to tax is inherent so not necessary that it be stated in the consti

LTFRB still has J over the reg, etc

LTO’s interpretation of the LGC was too exaggerated
b) exclusively legislative in nature

Only congress has the power to tax but there are exceptions
Commissioner v Santos

Jewelers assailing the taxes imposed on them
o
RTC judge declared the law unconsti

Jewelers: taxes imposed on them were the highest in asia – wanted them
reduced

SC: judge encroached on the power of the legis to impose taxes
o
Bec the legis has the power to det certain details:

Nature (kind)

Extent (rate)

Obj (purpose)

Coverage (subjs)

Situs (place) of tax
o
Judge did judicial legislation wc is prohibited
c) taxpayer’s suit
Lozada v Commissioner

No standing

For a taxpayer to file a case: act complained of shld involve the illegal
disbursement of pub funds
o
If dnst involve this, not a taxpayers suit
o
In order for a case to be properly labeled as a taxpayers suit, this has
to be present
o
But in every other case, there MUST be standing
Bayan v Exec Sec

Assailing the constitutionality of the VFA

Taxpayer suit shld involve illegal disbursement of pub funds
o
Shld also show that the taxpayer will sustain or in danger of sustaining
a direct inj

Not really a taxpayer suit bec no illegal disbursement in the VFA
d) inherent limitations

Purpose is pub in nature
o
Taxes shld be imposed for a pub purpose
o
Ex) providing health care, infrastructure, support of govt itself
(salaries, etc)
o
When ds pub purpose need to exist?

Shld be present when the law is created & when money is
disbursed (initial stages)
o
Even if upon disbursement, the pub purpose disappears, still leg so
long as during the initial stages it had a pub purpose



* but after the passage of RA _____ Pagcor is no longer included in the
exemption
o
Mactan Cebu:

Not exempt from taxes since their exemption had been
w/drawn

Not an agency or instrumentality, Mactan is a GOCC
o
Diff of Mactan v MIAA

Mactan wasn’t exempt

MIAA were exempt

Prop was owned by the state but operated by a
GOCC

Considered as a govt instrumentality wc is why
they’re exempt (since LGC says LG catn tax the Natl
govt)

And bec the props were owned by the state & under
LGC, LG cant impose real prop tax on the natl govt &
can only be taxed on taxable entities
o
BIR Ruling No 013-04

WON LGUs are subj to tax on their passive income?

Can be taxed since dsnt fall under govt fxns
International commity
o
Mitsubishi:

Dissent is impt

It wsnt their intention to do this, but this was the set-up
*real world: ppl use the provs of the contract/treaty may be
used to evade taxes
Limitations to territorial jurisdiction
o
Taxes cant operate beyond the J/territorial limits of the state
o
Commissioner v BOAC:

Asked in the bar bec of the Air Canada case (wc confirmed
this ruling)

Issue now: only those subj to income tax are flights from the
phils to anthr place – cant tax those who dnt pass thru the
phils

CTA case: Air Canada
o
Dsnt matter if dsnt pass thru the phils, so
long as they earn income in the phils, its
taxable
o
Smith:

Any person resident/alien, is covered by the NIRC

He didn’t fall under the spcl law, wsnt a business /entity

Argument: since there, you cant tax me

But the exemption only covers the businesses
Constitutional Limitations

DP
o
Sison: a tax measure may be assailed for DP concerns
o
SC: a person can attack a tax on the basis of DP

EP
o
Tan: shld be in the sme class

Taxing auth can make valid classifications if the 4 reqs are
satisfied

Here, there was a valid classification
o
Phil Rural Electric
Valid classification bec there’s a substantial distinction btwn
cooperatives under the PP & RA

4 tests were applied
o
4 tests: classification must

(1) rest on substantial distinctions;

(2) be germane to the purposes of the law;

(3) not be limited to existing conditions only; and

(4) apply equally to all members of the same class.
Uniformity & Equity
o
Uniformity: invoked only for articles of the sme class, sme rate
o
Equity: tax shld be just

Those w more shld pay more, those w less pay less = based
on ability to pay
Poll tax: fixed amtn w/in a spcfc territory
o
Cant be imprisoned but can be penalized for not paying on time
o
Exceptions:

Franchises: bec congress can alter or amned this

2 reqs: (Phil Rural)
o
Impairs the oblig of the contract
o
Impairment is susbtnatial

If the govt enters into a contract w a priv entity/indiv w
consideration

Govt cant just impair this



July 14
Prohibition against infringement of religious freedom

S5, A3: establishment clause
o
Prohibits govt from interfering w rel profession & worship

ABS v City Mla: govt cant impose a license fee on the privilege of the exer of rel
freedom
o
Tax exempt
o
But today, all the Christian bkstres are subj to tax = not considered
disseminating info but for profit
Appropriation of proceeds of taxation

Prohibits appropriation for anything other than for a pub purpose

If theres a purpose, tax shld be for that purpose only & any excess goes to the
gen fund of the govt
What is exempt from tax?

All lands, bldgs, improvements actively, directly & exclusively (ADE) used for
rel, charitable & educ purposes

Only for prop/relaty taxes under LGC
o
Dsnt include other taxes

Abra (landmark case)
o
“Used exclusively” extends to facilities wc are incidental to & necessary
for the accomplishment of the purpose of the institution
o
“incidental” – SC expanded the meaning of the word “exclusive”

If the activity is incidental to the primary purpose then its still
considered exempt
What ds the Consti say abt the tax exempt status of non-stock, non-profit…?

Consti: ALL REVENUES & ASSETS those used ADE are tax exempt

Prob: dept of finance issued several orders & BIR also made its own
interpretation (why?)












RMC 76-2003
o
Any entitly w an EE is a w/holding agent for purposes of the w/holding
tax
o
Passive income: exempt from the 20% final tax & 7 1/2 % tax on
interest income except if they cant comply w the conds
Dept Finance Order
o
Hospitals owned by schs & w/in sch premises are exempt from tax as
an indispensable req to the operation of the schs
RMC & DFO have similar provs
o
Aren’t these admin issuances against the consti prov wc says ALL
revenues & taxes?
o
RMC & DFO say if conducted for profit – but all work for profit & all
profit goes to the sch/used for educ purposes – but the admin
issuances say otherwise (they say that if for profit, its taxable)
o
Ex) passive income – not in the consti
o
Consti says ADE – this is the only cond placed
o
But the issuances prescribe other conds – what abt this apparent
conflict?
RMC & DFO talk abt non-stock & non-profit
o
But a lot of schs operate for profit but they’re mostly proprietary schs
(ex. Pre-schs) & its just proper that they’re taxed
If non-stock, non-profit (ex UP, ADMU, La Salle, Poveda), dnt have stock corps,
they dnt declare dividends
o
Its clear in the consti that ALL revenues & assets, ADE wc include
incidental use are exempt
o
So what abt the issuances?
o
Issue nowadays bec all these schs have tax assessments (2004-2005)
when BIR assessed them large amnts
o
All these schs have concessionaires who are taxed

Regardless of how they got it, as long as its purposes are
educational – exempt bec of the consti prov

Its an industry issue
Commissioner v CA:
o
So whats YMCA? It’s a recreation center
o
Definitely NOT an educational institution
III. SITUS
Place of taxation – shld be w/in J
It’s a limitation to taxing power
S42: enumerates the kinds of taxes wc can be taxed w/in or wo
o
To be levied w/ the tax, shld be w/in the J of the taxing power = but
s42 seems to make exceptions
o
Ex) items purchased abroad = still taxed
It appears that there’s really no just 1 rule
Tangible prop: no longer where its located
S42 seems to show that there are diff situs & diff rules apply as to what
country/auth can tax it
RULES:

Income
o
o
o
tax
Nationality principle: income is taxed based on citizenship
Domiciliary principle: where he’s a resident
Wc shld be followed?

Bth are followed!

If resident citizen = taxed worldwide




Citizen, but OFW – Xtaxed outside, just w/in the phils
Properties
o
Personal: mobilia suquuntur personam

Prop follows the person bec it follows its principal

Exception: s42, s104: wc estab the situs of shares of stock

It follows the corps bonds – situs is the place where
the corp is located/actually located = lex rei sitae
o
Real: where the prop is located = lex rei sitae

A415: these are real prop

Ex) if sell share of stock in Apple in the Phils

This sale will be subj to tax in the US

Results in multiplicity

Fil, so taxed worldwide income but also taxed int eh
US bec of the sale
DST
o
Has diff rules
o
Supposedly taxed on the docum but under NIRC, also taxed on the
transaction
Fees
o
Situs – Gr: place where the payor resides bec that’s where the source
is
o
But if resident of the Phils, taxed worldwide
Metro Alliance

Adapted the BOAC case

Test of source: place where the source of income originates dets who’s the
taxing J

Source is the test when speaking of income

Source: activity, industry that produced the income
Multiplicity

There are certain instances where the transaxn is taxed several times

Course of axn of the got is to make sure that particular transaxns are
protected:
o
Make a law to provide exemption or deductions
o
Enter into tax treaties

Best way to less the burden of the tax payer

What governs? The tax treaty or tax code?
o
Pacta sun servant principle
o
When we enter into treaties, we shld respect it & let it have the force &
effect of law
o
Use the more beneficial prov

GR: go 1st to the tax code
o
Since its what gives us the correct rate, etc
o
If you think the transaxn may be covered by a tax treaty prov, you
can go to that prov

Can you use the tax treaty wo getting any consent from the govt/BIR?
o
Since it’s a law anyway?
o
Need to get consent in order to apply the prov to you case? For 1 to
avail of the tax treaty prov?
o
Ex) X, Ee of Co-A (a US Co); Co B (Phil Co) gets the services of CO A
to install certain software

Prob: CoA sends X to go to the Phils to install the software, X
stays for 80 days
RP-US
treaty:
business
profit
derived
by
a
resident/permanent establishment (PE)

If that treaty country has a PE or detd to be a PE in the Phils,
that treaty Co will be taxed in the Phils & vv

PE: an ofc, branch, business put up

If that entity has done business in the Phils for 183
days (this # can change based on the treaty)

X stayed in the Phils for 80 dys only – ds CoA have a PE? NO

CoB pays CoA 1M

Will the 1M be subj to w/holding b4 given to CoA?
NO, bec no PE so can give the full amnt to CoA bec A
isn’t subj to tax

Wc do we use?

*expanded w/holding tax: domestic or has a
business in the Phils

*final w/holding tax: if person is a non-resident

If use the tax code prov: use the EWT

If use the tax treaty: certain rate is applied FWT

Taxpayer based it on the treaty, so paid FWT rate…BIR
assessed them & said you shldve clarified 1st w the BIR to see
if the transaxn is subj to the tax treaty

CTA: you cant use it unilaterally – gotta check if you’re using
the correct rate w the BIR & get a ruling

In order to avail of a tax treaty prov, need to avail of
an ITAD (intl tax affairs division)

*for Maam: bad law

*case is pending w the SC
Ex) CoA got a ruling, CoB had the EXACT same transaxn & ddnt get a
ruling anymore & instead applied the ruling CoA got

CTA said this isn’t allowed, still need to get a ruling

Maam: pt is its suppose to be precedents, so why do they still
need to get anthr ruling? Impractical!
CTA ruling: need to get a ruling for yourself
Maam: kawawa yung taxpayer if he uses the treaty unilaterally bec
BIR can suddenly assess them for millions/billions

Is using it in GF bec believe it to be applicable & backed up by
anthr ruling – what then?
Maam: btr to just get a ruling now bec everyone is being assessed by
the BIR – so best defense is that you have a ruling to back you up

o
o
o
o
Double taxation
Strict sense
Same prop is taxed twice when it shld
only be taxed once
Elems:
Same taxing auth
Same purpose
Same J
Same pd
Same kind/charac

Broad sense
Taxed twice, but permissible bec 1 elem
is missing
Not unconstitutional to have DT in the strict sense, but not obnoxious is used in
the broad sense
o
Not unconsti bec theres no prov in the consti wc prohibits it

But if you have DT in the strict sense, other consti provs may be hit = EP, DP,
uniformity, etc
o
Thus, in this sense, it seems to still be unconsti
o
So may be unconstitutional for other reasons, but not for being DT
China & Solidbank cases

Asked in the bar – ppl said unfair bec speaks of GRT & FWT & percentage tax
was said not to be included

But what the examiner was really asking was DT & not the percentage tax

I: WON the 20% w/holding tax forms part of gross rcpts?

Saying they’ll be taxed twice, they only constrictively rcvd income

Ct: even if constructive, still part of the income of the banks, still part of the
taxable income of banks

The 2 taxes are diff, taxed in diff pds = thus no DT in the strict sense but in the
broad sense wc isn’t invalid



IV. MEANS OF AVOIDING OR MINIMIZING THE BURDEN OF TAXATION
Shifting:
o
Transferring the burden, passes it to someone else
o
Whats being shifted is the TAX BURDEN not the tax liab
Tax evasion:
o
Use of illegal fraudulent means to lessen payment of tax
o
Tax dodging
o
3 elems:

Purpose/end to be achieved: to avoid or minimize tax

Intent/state of mind: evil, willful or in BF

Course of axn: unlawful
o
If any of these 3 elems are missing, not tax evasion
Tax avoidance:
o
Uses legally permissible alternative tax rates or methods
o
Tax minimization
o
Not punishable by law
o
Ex) Delpher: transferred the props btwn owners to1 of their Cos
o
Ex) estate planning; investing in an IT business in an eco zone; get
BIR incentives
Exemption: An immunity & a privilege
o
Freedom from a charge or burden to wc others are subjected

Tax remission/condonation
o
Surigao: state desists/refrains from exacting

Tax amnesty
o
IVAP
o
15-06: abatement only pertains to penalties
o
9480: tax amnesty law

Ex) if you pay a contractor, theres a w/holding tax of the
contractor

So you’re a w/holding agent of the govt, if don’t comply –
disqualified

Exclusion v deduction – distinction?
o
Exclusion: no longer added to GR income

Not part of the items of GRI wc is added to come up w GRT
o
Deduction: add the total GRI then when tallied, you deduct

Items the law allows to be deducted to come up w your net
income
Kinds of tax exemption:


Implied: hard to rely on this
If the law says exempt, this only covers direct taxes bec exemptions from
indirect taxes aren’t favored
o
But if the law says direct & indirect, then both are exempt
Nature of power to grant tax exemption

Natl govt: wider than municipal
o
Bec the LG has no inherent power to tax & no inherent power to
exempt
Rationale for exemption

Bec of the pub interest involved

By giving exemptions, the ppl are benefitted
Nature of tax exemption

Considered odius

Doctrine is stictissimi juris: strictly against the taxpayer & in favor of the govt

Taxpayer shld show the law wc grants the exemption

Personal in nature, cant be transferred

PLDT v City of Davao
o
Removal was restored by the RA wc grants PLDTs franchise
o
RA came later – why ddnt this govern?

Bec there was no spcfc prov
o
GR: tax exemptions are strictly construed, taxpayer shld pt out clearly
the law

Why wld the govt allow certain tax exemptions?
o
Bec of its purposes, thru exemptions, the govt achieves such purposes

exception: exemption granted to rel, charitable & govt agencies
o
exemptions are applied liberally to them

GR: Misamis Oritental

Nestle
o
Just bec granted a tax refund for advance sales tax, dsnt mean you
get a refund for custom duties as well
July 21
V. SOURCES, APPLICATION, INTERPRETATION & ADMINSTRATION OF
TAX LAWS
Revenue rules & regulations

Issued by the BIR

They have diff purposes (RA00-01-03)

RTAO: most popular now

Revenue regs, BIR ruling, RMC = most impt ones

Revenue Regulations:
o
Interpret a rule
o
Issued by the sec of finance (s244)

But since usually busy, it comes from the BIR & he just signs
o
May be an admin or legis rule
o
Purpose: to clarify, put in effect tax laws & measures
o
Reqs b4 its issued:

Procedural DP complied w: notice & hearing

Must be published (A2,CC)

Not contrary to law

Reasonable

w/in auth conferred

ex) VAT: a lot of revenue regs were issued after this, they had
particular hearings for particular sections/industries
*Regional Revenue Memorandum Circular: issued by the Regional director
BIR



018-05
Act is ultra vires bec not sanctioned by law
RRMC was taxing the condos
Regional Dir had no J to issue such, wsnt 1 of the powers delegated to him
o
CIR v Seagate technology

Seagate is exempted – PEZA law is clear

Seagate failed to submit an application, reqd by the BIR reg, for effective zero
rating
o
Wc is why the CIR was trying to tax them

But the PEZA law is clear that the equipt & capital goods are exempted from
internal revenue laws & regs

BIR reg cant prevail over the law – cant amend the law, it can only interpret

Good case for taxpayers: bec says that just bec a reg adds a req, this cant
defeat a law wc is lcear
o
No issuance can change a law wc is clear in order for BIR to justify its
failure to refund
Tuzon v CA

Resolution No9 falls as a tax measure bec was obligatory
o
Obligatory effect & cond precedent to issuance of a permit

Thus, since a tax ordinance/measure, to be valid, shld have notice, hearing,
issued by the sec of finance, etc
Hagonoy

Filed a case 1 yr after the ordinance was enacted

Law reqs that an appeal be filed w/in 30 dys

Filed out of time so time barred, shld be dismissed
Tax





ordinances
Issued by the local govt (sanggunian)
Shld be patterned to the provs of the LGC
LG is given a leeway by the LGC wc only prescribes a ceiling, thus LG can det
for themselves what shld be imposed
To Q it, appeal shld be filed w/in 30 dys from effectivity of the ordinance & even
during its pendency
Appeal shld be filed w the DOJ
Jardine Davis

Ddnt file the appeal w/in 30 dys

Validity of the tax ordinance shldnt be uncertain for an unreasonable length of
time

Thus oppositions to such, shld be filed asap
Nature of internal revenue laws

Not political or penal in nature

They’re civil

Hilado v Collector:
o
Effectivity of such laws dnt depend on the sovereign power but
continues until competent legis power changes this
o
Tax laws aren’t political but civil
Ex) Taxpayer fails to pay taxes, one of the remedies of the govt are
administrative remedies (ex. Levy, garnishment) thus, BIR/LGU has to
follow certain notice reqs/procedures
Directive:
o
Non-compliance wont render it void
o
Wont affect the rights or prop of taxpayers

Thus no need for notice & hearing
o
Ex) BIR ruling addressed to industrial inspection – stated that its just
directive
o
Ex) reportorial reqs of examiners – they have to comply w internal
rules of the BIR; taxpayer cant say they ddnt follow it so cant be taxed
= WRONG! Its an internal rule for guideline only
o
Construction of tax laws

When legit intent is clear
o
Shld give the law reasonable construction w a view to carry out the
intent
o
Commissioner v Solidbank

Taxing act will be construed, intent & meaning of legi shld be
ascertained, from its lang

When there’s doubt
o
Collector v Todena:

When theres doubt, shld be construed in favor of taxpayers,
strictly against the govt bec taxes are burdens wc shldnt be
imposed beyond what the statutes provide

*Exception: tax exemptions shld be strictly construed against
the taxpayer & liberally against the govt bec exemptions
aren’t favored

Tax measure: liberally against the taxpayer
Application of revenue regs/rulings

S246: IMPT!!

GR: rulings cant be given retroactive effect
o
revocation, modification or reversal or rules & regs wont be given
retroactive effect if prejudicial to the taxpayer

exception:
o
misstates, omits facts
o
facts gathered by the BIR are diff from wc rulings are based

taxpayer gets a favorable ruling, then later assessed – bec
BIR commissioner ppl check if the facts represented are true
& if they’re diff, despite the ruling, they’re assessed = difficult
sit
o
acted in BF

Commissioner v Telefunken:
o
S246: GR – not retroactive if prejudicial
o
Since there’s a qualifier, if its not prejudicial, then it can be
retroactively applied

Commissioner v Lhullier:
o
Diff btwn a legis & interpretative rule
o
Legis rule: subordinate legis

Purpose: to implement a primary legis by providing details

Needs notice & hearing
o
Interpretative rule: provides guidelines

Just needs issuance
o
Bth admin issuances

Commissioner v Benguet Corp:
o
Sale of gold to BSP/CB is zero percent
o
Prejudicial to taxpayer, so cant be given retroactive effect
Mandatory v Directory provs

Mandatory:
o
Relate to substantive laws

If not followed, whole act is illegal or void
o
Effect of non-compliance: renders the act null & void
o
Reqs of notice & hearing
o
Ex) publication of revenues & regs

(MIDTERM)
