LAW ON TAXATION

I. General Principles of Taxation

Two Fold Nature of the Power of Taxation
1. It is an inherent attribute of sovereignty
2. It is legislative in character
Extent of Taxing Power
Subject to constitutional and inherent restrictions, the power
of taxation is regarded as comprehensive, unlimited, plenary and
supreme.
SCOPE OF LEGISLATIVE TAXING POWER
1. Amount or rate of tax
2. Apportionment of the tax
3. Kind of tax
4. Method of collection
5. Purpose/s of its levy, provided it is for public purpose
6. Subject to be taxed, provided it is within its jurisdiction
7. Situs of taxation
TAXES enforced proportional contributions from the persons and
property levied by the law-making body of the State by virtue of
its sovereignty in support of government and for public needs.
As a process, it is a means by which the sovereign, through its
law-making body, raises revenue to defray the necessary
expenses of the government. It is merely a way of apportioning
the costs of government among those who in some measures are
privileged to enjoy its benefits and must bear its burdens.
As a power, taxation refers to the inherent power of the state to
demand enforced contributions for public purpose or purposes.
Rationale of Taxation - The Supreme Court held:
It is said that taxes are what we pay for civilized society.
Without taxes, the government would be paralyzed for lack of the

motive power to activate and operate it. Hence, despite the

natural reluctance to surrender part of ones hard-earned income
to the taxing authorities, every person who is able must
contribute his share in the running of the government. The
government for its part is expected to respond in the form of
tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. The
symbiotic relationship is the rationale of taxation and should
dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
Taxation is a symbiotic relationship, whereby in exchange for
the protection that the citizens get from the government, taxes
are paid. (Commissioner of Internal Revenue vs Allegre, Inc.,et
al., L-28896, Feb. 17, 1988)
CHARACTERISTICS OF TAXES
1. forced charge;
2. pecuniary burden payable in money;
3. levied by the legislature;
4. assessed with some reasonable rule of apportionment;
5. imposed by the State within its jurisdiction;
6. levied for public purpose
A. Definition and concept of taxation
- A mode of raising revenue for public purpose; the exercise of
sovereign power to raise revenue for the expense of the
government.
- Power by which an Independent State, through its lawmaking
body, raises and accumulates revenue from its inhabitants to
pay the necessary expenses of the government. [51 AM JUR
341]
- Process or act of imposing a charge by governmental
authority on property, individuals or transactions to raise
money for public purposes. [ Blacks Law Dictionary]

- Taxation is described as a destructive power which interferes

with the personal and property rights of the people and takes
from them a portion of their property for the support of the
government. (Paseo Realty & Development Corporation v.
Court of Appeals, GR No. 119286, October 13, 2004)
- Taxation is merely a way of apportioning the cost of
government among those who in some measure
areprivileged to enjoy its benefits and must bear itsburdens.
[71 AM JUR 2ND 342]
- The process or means by which the sovereign, through its
law-making body, raises income to defray the necessary
expenses of government; a method of apportioning the
cost of government among those who in some measure are
privileged to enjoy its benefits and must, therefore, bear its
burdens, (see 51 Am. Jur. 341; 1 Cooley 72-93.)
B. Nature of taxation
- Taxation is inherent in nature, being an attribute of
sovereignty. (Chamber of Real Estate and Builders
Association, Inc. v. Romulo, 614 SCRA 605 (2010))
- The power to tax is inherent in the State, such power being
inherently legislative, based on the principle that taxes are a
grant of the people who are taxed, and the grant must be
made by the immediate representative of the people, and
where the people have laid the power, there it must remain
and be exercised. (Commissioner of Internal Revenue v.
Fortune Tobacco Corporation, 559 SCRA 160 (2008))
- As an incident of sovereignty, the power to tax has been
described as unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which
imposes the tax on the constituency who are to pay it.
(Mactan Cebu International Airport Authority v. Marcos, 261
SCRA 667 (1996))
- The power of taxation is an essential and inherent attribute
of sovereignty, belonging as a matter of right to every

independent government, without being expressly conferred

by the people. (Pepsi-Cola Bottling Company of the Phil. V.
Mun. of Tanauan, Leyte, 69 SCRA 460)
- The power to tax is peculiarly and exclusively legislative and
cannot be exercised by the executive or judicial branch of
the government (1 Cooley 160-161). Hence, only Congress,
our national legislative body, can impose taxes. The levy of a
tax, however, may also be made by a local legislative body
subject to such limitations as may be provided by law.
C. Characteristics of taxation
- It is generally payable in the form of money, although the
law may provide payment in kind (e.g. backpay certificates
under Sec. 2, R.A. No. 304, as amended)
- It is a forced charge, imposition or contribution. As such, it
operates ad invitum; it is in no way dependent upon the will
or contractual assent, express or implied, of the person
taxed. It is not contractual, either express or implied, but
postive acts of government. (Panay Electric Co. v Collector of
Internal Revenue, L-10574, May 28, 1958)
- It is levied on persons, property, rights, acts, privileges, or
transactions.
- It is levied by the State which has jurisdiction or control over
the subject to be taxed. (Vera vs Fernandez, 89 SCRA 199)
- It is levied by the law-making body of the State. The power
to tax is a legislative power but is also granted to local
governments, subject to such guidelines and limitations as
law may provide. [Sec. 5, Art. X, Constitution]
- It is levied for public purpose. Revenues derived from taxes
cannot be used for purely private purposes or for the
exclusive benefit of private persons. [Gaston v. Republic
Planters Bank, 158 SCRA 626, March 15, 1988].
- It is assessed in accordance with some reasonable rule of
apportionment which means that conformably with the
constitutional mandate for Congress to evolve a progressive
tax system, taxes must be based on taxpayers ability to
pay(Sec 28(a), Art VI, 1987 Constitution)
D. Power of taxation compared with other powers

1. Police power
- Police Power is the power to make, ordain and establish all
manner of wholesome and reasonable laws, statutes and
ordinances whether with penalties or without, not repugnant
to the Constitution, the good and welfare of the
commonwealth, and for the subjects of the same.
(Metropolitan Manila Development Authority v. Garin, GR No.
130230, April 15, 2005)
- The main purpose of police power is the regulation of a
behavior or conduct, while taxation is revenue generation.
The "lawful subjects" and "lawful means" tests are used to
determine the validity of a law enacted under the police
power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.
(PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION,
G.R. No. 166006, March 14, 2008)
- If generation of revenue is the primary purpose and
regulation is merely incidental, the imposition is a tax; but if
regulation is the primary purpose, the fact that revenue is
incidentally raised does not make the imposition a tax.
(GEROCHI v. DEPARTMENT OF ENERGY, 527 SCRA 696
(2007))
- The lawful subjects and lawful means tests are used to
determine the validity of a law enacted under the police
power. While police power is inherent in the state, it is not in
municipal corporations. (Balacuit vs CFI of Agusan del Norte,
163 SCRA 182)
- A zoning ordinance, reclassifying residential into commercial
or light industrial area, is a valid exercise of the police
power. (Ortigas vs Feati Bank, 94 SCRA 533)
- The Manila ordinance prohibiting barbershop shops from
conduction massage business in another room was held
valid, as it was passed for the protection of public morals.
(Velasco vs Villegas, 120 SCRA 568)
- The act of the Municipal Mayor in opening Jupiter and Orbit
Streets, Bel Air Subdivision, to the buplic was deemed a val
id exercise of police power (Sangalang vs Gaston, G.R. No.
71169, Dec. 22, 1988)

- Coco-levy funds are not only affected with public interest;

they
are,
in
fact, prima facie public funds. They were raised with the use
of
the
police and taxing powers of the State for the benefit of the
coconut
industry and its farmers in general
2. Power of eminent domain
The ordinance requiring owners of commercial cemeteries to
reserve 6% of their burial lots for burial grounds of paupers was
held invalid; it was not an exercise of the police power, but of
eminent domain. (Quezon City vs Ericta, 122 SCRA 759)
E. Purpose of taxation
1. Revenue-raising
- Primary purpose of taxation is to provide funds or property
with which to promote the general welfare and protection it
its citizens. Fees may be properly regarded as taxes even
though they also serve as an instrument of regulation if the
purpose is primarily revenue, or if revenue is, at least, one of
the real and substantial purposes, then the exaction is
properly called a tax. [PAL v. Edu, G.R. No. L- 41383 August
15, 1988] Caltex Phil. Inc. vs Commission on Audit, 208
SCRA 726(1992)
- Osmena vs Secretary Oscar Orbos GR L99886 March 31,
1993
2. Non-revenue/special or regulatory
- Taxes may be levied with a regulatory purpose to provide
means for rehabilitation and stabilization of a threatened
industry which is imbued with public interest as to be within
the police power of the State. [Caltex v. COA, G.R. No. 92585
May 8, 1992]
- As long as a tax is for a public purpose, its validity is not
affected by collateral purposes or motives of the legislature
in imposing the levy, or by the fact that it has a regulatory

effect [51 Am. Jur. 381-382.] or it discourages or even

definitely deters the activities taxed.
The principle applies even though the revenue obtained from
the tax appears very negligible or the revenue purpose is
only secondary. [see United States vs. Sanchez, 340 U.S. 42;
Tio vs. Videogram Regulatory Board, 151 SCRA 208, 1987]
The Sugar Adjustment Act is an act enacted primarily under
the police power and designed to obtain a readjustment of
the benefits derived by people interested in the sugar
industry as well as to rehabilitate and stabilize the industry
which constitutes one of the great sources of the country's
wealth and, therefore, affects a great portion of the
population of the country. (Lutz v Araneta, 78 PHIL 148)
The Court was satisfied that the coco-levy funds were raised
pursuant to law to support a proper governmental purpose.
They were raised with the use of the police and taxing
powers of the State for the benefit of the coconut industry
and its farmers in general. (PAMBANSANG KOALISYON NG
MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA
NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37
April 10, 2012)
In relation to the regulatory purpose of the imposed fees,
the imposition questioned must relate to an occupation or
activity that so engages the public interest, morals, safety
and development as to require regulation for the protection
and promotion of such public interest; the imposition must
also bear a reasonable relation to the probable expenses of
regulation, taking into account not only the costs of direct
regulation, but also its incidental consequences. (CHEVRON
PHILIPPINES, INC. v. BASES CONVERSION DEVELOPMENT
AUTHORITY, 630 SCRA 519 (2010))
As an elementary principle of law, license taxation must not
be so onerous to show a purpose to prohibit a business
which is not injurious to health or morals. (TERMINAL
FACILITIES AND SERVICES CORPORATION v. PHILIPPINE
PORTS AUTHORITY, 378 SCRA 82 (2002))

F. Principles of sound tax system

1. Fiscal adequacy
- Certainly, 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
since then, is not in consonance with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a
sound tax system, requires that sources of revenues must be
adequate to meet government expenditures and their
variations. (FRANCISCO I. CHAVEZ v. JAIME B. ONGPIN, G.R.
No. 76778, June 6, 1990)
2. Administrative feasibility
- Tax laws should be capable of convenient, just and effective
administration. Each tax should be capable of uniform
enforcement by government officials, convenient as to the
time, place, and manner of payment, and not unduly
burdensome upon, or discouraging to business activity.
3. Theoretical justice
- The tax burden should be in proportion to the taxpayers
ability to pay. This is the so-called ability to pay principle.
Taxation should be uniform as well as equitable
TAXATION
Purpose
To raise revenue

POLICE POWER

To
promote
public
purpose
through
regulations
Amount of Exaction
No limit
Limited to the
cost
of
regulation,
issuance of the
license
or
surveillance
3. Benefits Received
No
special
or No direct benefit
direct benefit is is received; a

EMINENT
DOMAIN
To facilitate the
States need of
property
for
public use
No exaction; but
private property
is taken by the
State for public
purpose
A direct benefit
results
in
the

received by the
taxpayer; merely
general benefit of
protection

healthy
form
of
just
economic
compensation to
standard
of the property
society
is
attained
4. Non-impairment of Contracts
Contracts
may Contracts may be Contracts
may
not be impaired
impaired
be impaired
5. Transfer of Property Rights
Taxes
paid No transfer but Transfer
is
become part of only restraint in its effected
in
public funds
exercise
favor of the
State
6. Scope
All
persons, All
persons, Only upon
property
and property,
rights particular
excises
and privileges
property

G. Theory and basis of taxation

1. Lifeblood theory
- Taxes are the lifeblood of the government and their prompt
and certain availability is an imperious need. [CIR v. Pineda]
- Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance... It is said that
taxes are what we pay for civilized society. Without taxes,
the government would be paralyzed for lack of the motive
power to activate and operate it. [CIR v. Algue, G.R. No. L28896, February 17, 1988]
- Taxes being the lifeblood of the government should be
collected promptly. No court shall have the authority to grant
an injunction to restrain the collection of any internal
revenue tax, fee or charge imposed by the National Internal
Revenue Code. (Angeles City v Angeles Electric Corp 622
SCRA 43 (2010))
- We are not unaware of the doctrine that taxes are the
lifeblood of the government, without which it cannot properly
perform its functions; and that appeal shall not suspend the
collection of realty taxes. However, there is an exception to

the foregoing rule, i.e., where the taxpayer has shown a

clear and unmistakable right to refuse or to hold in abeyance
the payment of taxes. (Emerlinda S. Talento vs Hon. Remigio
M. Escalada, JR., G.R. No. 180884, June 27, 2008)
2. Necessity theory
- The power to tax, an inherent prerogative, has to be availed
of to assure the performance of vital state functions. It is the
source of the bulk of public funds. [Sison v. Ancheta, G.R. No.
L- 59431, July 25, 1984]
- The obligation to pay taxes rests upon the necessity of
money for the support of the state. For this reason, no one is
allowed to object to or resist the payment of taxes solely
because no personal benefit to him can be pointed out.
[Lorenzo v. Posadas, G.R. No. L-43082, June 18, 1937].
3. Benefits-protection theory (Symbiotic relationship)
- Despite the natural reluctance to surrender part of one's
hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the
government. The government for its part is expected to
respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance
their moral and material values. This symbiotic relationship
is the rationale of taxation and should dispel the erroneous
notion that it is an arbitrary method of exaction by those in
the seat of power. [CIR v. Algue]
4. Jurisdiction over subject and objects
- The limited powers of sovereignty are confined to objects
within the respective spheres of governmental control. These
objects are the proper subjects or objects of taxation and
none else.
H. Doctrines in taxation
1. Prospectivity of tax laws

- Tax laws are prospective in operation. Nature and amount of

the tax could not be foreseen and understood by the
taxpayer at the time the transaction.
Exception: Tax laws may be applied retroactively provided it is
expressly declared or clearly the legislative intent.(e.g increase
taxes on income already earned) when retroactive application
would be so harsh and oppressive [Republic v. Fernandez, G.R.
No. L-9141. September 25, 1956].
- It is a cardinal rule that laws shall have no retroactive effect,
unless the contrary is provided/ (citing Art. 4 of the Civil
Code) [Hydro Resources v.CA]
- Note that the issue on the retroactivity of Section 204(c) of
the 1997 NIRC arose because the last paragraph of Section
204(c) was not found in Section 230 of the old Code. After a
thorough consideration of this matter, we find that we
cannot give retroactive application to Section 204(c)
abovecited. We have to stress that tax laws are prospective
in operation, unless the language of the statute clearly
provides otherwise. (COMMISSIONER OF INTERNAL REVENUE
v. ROSEMARIE ACOSTA G.R. No. 154068 August 3, 2007)
2. Imprescriptibility
- Unless otherwise provided by the tax law itself, taxes in
general are not cancelable. (Commissioner vs Ayala
Securities Corporation 101 SCRA 231)
- Although the NIRC provides for the limitation in the
assessment and collection of taxes imposed, such
prescriptive period will only be applicable to those taxes that
were returnable. The prescriptive period shall start from the
time the taxpayer files the tax return and declares his
liablility. (Collector vs Bisaya Land Transportation Co. 1958)
- The law on prescription being a remedial measure should be
interpreted liberally in order to protect the taxpayer.
(Republic vs Ablaza 108 Phil 1105)
Double taxation
KINDS OF DOUBLE TAXATION

(1) Direct Duplicate Taxation /Obnoxious double taxation

in the objectionable or prohibited sense. This constitutes a
violation of substantive due process.
Elements:
a. the same property or subject matter is taxed twice when it
should be taxed only once.
b. both taxes are levied for the samepurpose
c. imposed by the same taxing authority
d. within the same jurisdiction
e. during the same taxing period
f. covering the same kind or character of tax.
(Villanueva vs. City of Iloilo)
(2) Indirect Duplicate Taxation not legally objectionable.
The absence of one or more of the abovementioned
elements makes the double taxation indirect.
(3) Domestic- this arises when the taxes are imposed by the
local or national government (within the same state)
(4) International- refers to the imposition of comparable
taxes in two or more states on the same taxpayer in respect
of the same subject matter and for identical periods.
REMEDIES OF DOUBLE TAXATION
1. Tax Sparing Rule same dividend earned by a NRFC within the
Phil. Is reduced by imposing a lower rate of 15% (in lieu of the
35%), on the condition that the country to which the NRFC is
domiliced shall allow a credit against the tax due from the NRFC,
taxes deemed to have been paid in the Phil. (Sec.28 B 5b) (CIR vs
Procter & Gamble) (GR No. 66838, Dec. 2, 1991)
2. Tax deductions
Example: vanishing deduction under Section 86(A)(2), NIRC
3. Tax credits

Instances under the NIRC:

- For VAT purposes, the tax on inputs or items that go into the
manufacture of finished products (which are eventually sold)
may be credited against or deducted from the output tax or
tax on the finished product.
- Foreign income taxes may be credited against the Phil.
Income tax, subject to certain limitations, by citizens,
including members of general professional partnerships or
beneficiaries of estates or trusts (pro rata), as well as
domestic corporations.
- A tax credit is granted for estate taxes paid to a foreign
country on the estate of citizens and resident aliens subject
to certain limitations.
- The donors tax imposed upon a citizen or a resident shall be
credited with the amount of any donors tax imposed by the
authority of a foreign country, subject to certain limitations.
4. Tax Exemptions
5. Principle of Reciprocity
6. Treaties with other states
Strict sense
Double taxation means taxing the same property twice when
it should be taxed only once; that is, "taxing the same
person twice by the same jurisdiction for the same thing." It
is obnoxious when the taxpayer is taxed twice, when it
should be but once. Otherwise described as "direct duplicate
taxation," the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during the same
taxing period; and they must be of the same kind or
character. (COMMISSIONER OF INTERNAL REVENUE v.
SOLIDBANK CORPORATION G.R. No. 148191 November 25,
2003)
Broad sense

 Subjecting interest income to a 20% FWT and including it in

the computation of the 5% GRT is clearly not double
taxation: First, the taxes herein are imposed on two different
subject matters; Second, although both taxes are national in
scope because they are imposed by the same taxing
authority -- the national government under the Tax Code -and operate within the same Philippine jurisdiction for the
same purpose of raising revenues, the taxing periods they
affect are different; Third, these two taxes are of different
kinds or characters. (CIR v SOLIDBANK CORPORATION G.R.
No. 148191 November 25, 2003)
Constitutionality of double taxation
- Regulation and taxation are two different things, the first
being an exercise of police power, whereas the latter
involves the exercise of the power of taxation. While R.A.
2264 provides that no city may impose taxes on forest
products and although lumber is a forest product, the tax in
question is imposed not on the lumber but upon its sale;
thus, there is no double taxation and even if there was, it is
not prohibited. (SERAFICA v. CITY TREASURER OF ORMOC,
G.R. No. L- 24813, April 28, 1968)
- Both a license fee and a tax may be imposed on the same
business or occupation, or for selling the same article. This is
not being in violation of the rule against double taxation.
(COMPANIA GENERAL DE TABACOS DE FILIPINAS v. CITY OF
MANILA, 8 SCRA 367)
Modes of eliminating double taxation
- Double taxation usually takes place when a person is
resident of a contracting state and derives income from, or
owns capital in the other contracting state and both states
impose tax on that income or capital. In order to eliminate
double taxation, a tax treaty resorts to several methods.
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 income or capital. In some cases, an
exclusive right to tax is conferred on one of the contracting
states; however, for other items of income or capital, both

states are given the right to tax, although the amount of tax
that may be imposed by the state of source is limited.
- The second method for the elimination of double taxation
applies whenever the state of source is given a full or limited
right to tax together with the state of residence. In this case,
the treaties make it incumbent upon the state of residence
to allow relief in order to avoid double taxation. There are
two methods of relief- the exemption method and the credit
method. In the exemption method, the income or capital
which is taxable in the state of source or situs is exempted in
the state of residence, although in some instances it may be
taken into account in determining the rate of tax applicable
to the taxpayers remaining income or capital. On the other
hand, in the credit method, although the income or capital
which is taxed in the state of source is still taxable in the
state of residence, the tax paid in the former is credited
against the tax levied in the latter. The basic difference
between the two methods is that in the exemption method,
the focus is on the income or capital itself, whereas the
credit method focuses upon the tax. (COMMISSIONER OF
INTERNAL REVENUE v. S.C. JOHNSON AND SON, INC. G.R. No.
127105 June 25, 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 investment 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 concomitant
commitment on the part of the state of residence to grant
some form of tax relief, whether this be in the form of a tax
credit or exemption. (COMMISSIONER OF INTERNAL
REVENUE v. S.C. JOHNSON AND SON, INC. G.R. No. 127105
June 25, 1999)
4. Escape from taxation
a) Shifting of tax burden
- Section 135(a) should be construed as prohibiting the
shifting of the burden of the excise tax to the international

carriers who buy petroleum products from the local

manufacturers. Said international carriers are thus allowed to
purchase the petroleum products without the excise tax
component which otherwise would have been added to the
cost or price fixed by the local manufacturers or
distributors/sellers. (COMMISSIONER OF INTERNAL REVENUE
v. PILIPINAS SHELL PETROLEUM CORPORATION, G.R. No.
188497, February 19, 2014)
i)
Ways of shifting the tax burden
- It may indeed be that the economic burden of the tax finally
falls on the purchaser; when it does the tax becomes a part
of the price which the purchaser must pay. It does not matter
that an additional amount is billed as tax to the purchaser.
The method of listing the price and the tax separately and
defining taxable gross receipts as the amount received less
the amount of the tax added, merely avoids payment by the
seller of a tax on the amount of the tax. (PHILIPPINE
ACETYLENE CO., INC. v. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. L- 19707, August 17, 1967)
(ii) Taxes that can be shifted
(iii) Meaning of impact and incidence of taxation
In indirect taxation, a distinction is made between the liability
for the tax and burden of the tax: The seller who is liable for
the VAT may shift or pass on the amount of VAT it paid on
goods, properties or services to the buyer. In such a case, what
is transferred is not the seller's liability but merely the burden
of the VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
b) Tax avoidance
- Tax avoidance is the tax saving device within the means
sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. (COMMISSIONER
OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA,
JR. G.R. No. 147188 September 14, 2004)
c) Tax evasion

- Tax evasion, on the other hand, is a scheme used outside of

those lawful means and when availed of, it usually subjects
the taxpayer to further or additional civil or criminal
liabilities. (COMMISSIONER OF INTERNAL REVENUE v. THE
ESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188 September
14, 2004)
- Tax evasion connotes the integration of three factors: (1) the
end to be achieved, i.e., the payment of less than that
known by the taxpayer to be legally due, or the nonpayment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being
"evil," in "bad faith," "willfull," or "deliberate and not
accidental"; and (3) a course of action or failure of action
which is unlawful. (COMMISSIONER OF INTERNAL REVENUE v.
THE ESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188
September 14, 2004)
- It is obvious that the objective of the sale to Altonaga was to
reduce the amount of tax to be paid especially that the
transfer from him to RMI would then subject the income to
only 5% individual capital gains tax, and not the 35%
corporate income tax. Altonagas sole purpose of acquiring
and transferring title of the subject properties on the same
day was to create a tax shelter. (COMMISSIONER OF
INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR.
G.R. No. 147188 September 14, 2004)
5. Exemption from taxation
a) Meaning of exemption from taxation
- It is the legislature, unless limited by a provision of the state
constitution, that has full power to exempt any person or
corporation or class of property from taxation, its power to
exempt being as broad as its power to tax. Other than
Congress, the Constitution may itself provide for specific tax
exemptions, or local governments may pass ordinances on
exemption only from local taxes. (JOHN HAY PEOPLES
ALTERNATIVE COALITION, et al. v. VICTOR LIM, et al., G. R.
No. 119775, October 24, 2003)
b) Nature of tax exemption

- Taxation is the rule and exemption is the exception. (FELS

ENERGY, INC. v. PROVINCE OF BATANGAS, 516 SCRA 186
(2007))
- Since the power to tax includes the power to exempt thereof
which is essentially a legislative prerogative, it follows that a
municipal mayor who is an executive officer may not
unilaterally withdraw such an expression of a policy thru the
enactment of a tax. (PHILIPPINE PETROLEUM CORPORATION
v. MUNICIPALITY OF PILILLA, G.R. No. 90776, June 3, 1991)
- A tax exemption being enjoyed by the buyer cannot be the
basis of a claim for tax exemption by the manufacturer or
seller of the goods for any tax due to it as the manufacturer
or seller. The excise tax imposed on petroleum products
under Section 148 is the direct liability of the manufacturer
who cannot thus invoke the excise tax exemption granted to
its buyers who are international carriers; nevertheless, the
manufacturer, as the statutory taxpayer who is directly liable
to pay the excise tax on its petroleum products, is entitled to
a refund or credit of the excise taxes it paid for petroleum
products sold to international carriers
- (COMMISSIONER OF INTERNAL REVENUE v. PILIPINAS SHELL
PETROLEUM CORPORATION, G.R. No. 188497, February 19,
2014)
- Manila Electric Company vs Vera 67 SCRA 351
- Commissioner vs Guerrero, 21 SCRA 180
c) Kinds of tax exemption
(i) Express
Sec. 27 D (4), NIRC
(ii) Implied
It bears repeating that the law looks with disfavor on
tax exemptions and he who would seek to be thus
privileged must justify it by words too plain to be
mistaken and too categorical to be misinterpreted.
(WESTERN MINOLCO CORPORATION v. COMMISSIONER
OF INTERNAL REVENUE, G.R. No. L-61632, August 16,
1983)
(iii) Contractual

- Nevertheless, since taxation is the rule and

exemption therefrom the exception, the exemption
may thus be withdrawn at the pleasure of the
taxing authority. The only exception to this rule is
where the exemption was granted to private
parties based on material consideration of a
mutual nature, which then becomes contractual
and is thus covered by the non-impairment clause
of the Constitution. (MCIAA v. Marcos, G.R. No.
120082 September 11, 1996)Cagayan Electronic
Co. vs Commissioner 138 SCRA 629
- Manila Electric Company vs Prov of Laguna 306
SCRA 750 (1999)
d) Rationale/grounds for exemption
- In recent years, the increasing social challenges of the
times expanded the scope of state activity, and
taxation has become a tool to realize social justice and
the equitable distribution of wealth, economic progress
and the protection of local industries as well as public
welfare and similar objectives. Taxation assumes even
greater significance with the ratification of the 1987
Constitution. (BATANGAS POWER CORPORATION v.
BATANGAS CITY and NATIONAL POWER CORPORATION,
G.R. No. 152675, April 28, 2004)
- The PPI says that the discriminatory treatment of the
press is highlighted by the fact that transactions, which
are profit oriented, continue to enjoy exemption under
R.A. No. 7716 but an enumeration of some of these
transactions will suffice to show that by and large this is
not so and that the exemptions are granted for a
purpose. As the Solicitor General says, such exemptions
are granted, in some cases, to encourage agricultural
production and, in other cases, for the personal benefit
of the end-user rather than for profit. (ARTURO M.
TOLENTINO v. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)

e) Revocation of tax exemption

- Since the law granted the press a privilege, the law could
take back the privilege anytime without offense to the
Constitution. The reason is simple: by granting exemptions,
the State does not forever waive the exercise of its sovereign
prerogative; indeed, in withdrawing the exemption, the law
merely subjects the press to the same tax burden to which
other businesses have long ago been subject. (ARTURO M.
TOLENTINO v. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455,
October 30, 1995)
- 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 terms, provisions and application even if the
terms of the general act are broad enough to include the
cases in the special law unless there is manifest intent to
repeal or alter the special law. (THE PROVINCE OF MISAMIS
ORIENTAL, represented by its PROVINCIAL TREASURER v.
CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC., G.R.
No. L-45355, January 12, 1990)
- This Court recognized the removal of the blanket exclusion of
government instrumentalities from local taxation as one of
the most significant provisions of the 1991 LGC. Specifically,
we stressed that Section 193 of the LGC, an express and
general repeal of all statutes granting exemptions from local
taxes, withdrew the sweeping tax privileges previously
enjoyed by the NPC under its Charter. (BATANGAS POWER
CORPORATION v. BATANGAS CITY and NATIONAL POWER
CORPORATION, G.R. No. 152675, April 28, 2004)

6. Compensation and set-off

7. Compromise
8. Tax amnesty
a) Definition
b) Distinguished from tax exemption
9. Construction and interpretation of:

a) Tax laws
(i) General rule
(ii) Exception
b) Tax exemption and exclusion
(i) General rule
But since taxes are what we pay for civilized society, or are
the lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax
exemptions are thus construed in strictissimi juris against
the taxpayers and liberally in favor of the taxing authority.
(MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)
Entrenched in our jurisprudence is the principle that tax
refunds are in the nature of tax exemptions which are
construed in strictissimi juris against the taxpayer and
liberally in favor of the government. As tax refunds involve a
return of revenue from the government, the claimant must
show indubitably the specific provision of law from which her
right arises; it cannot be allowed to exist upon a mere vague
implication or inference nor can it be extended beyond the
ordinary and reasonable intendment of the language actually
used by the legislature in granting the refund.
(COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE
ACOSTA G.R. No. 154068 August 3, 2007)
Well-settled in this jurisdiction is the fact that actions for tax
refund, as in this case, are in the nature of a claim for
exemption and the law is construed in strictissimi juris
against the taxpayer. The pieces of evidence presented
entitling a taxpayer to an exemption are also strictissimi
scrutinized and must be duly proven. (KEPCO PHILIPPINES
CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 179961 January 31, 2011)
The legislative intent, as shown by the discussions in the
Bicameral Conference Meeting, is to require PAGCOR to pay
corporate income tax; hence, the omission or removal of
PAGCOR from exemption from the payment of corporate
income tax. It is a basic precept of statutory construction
that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. (PHILIPPINE

AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THE

BUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15,
2011)
It is a basic precept of statutory construction that the
express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim
expressio unius est exclusio alterius. Not being a local water
district, a cooperative registered under R.A. No. 6938, or a
non-stock and non-profit hospital or educational institution,
petitioner clearly does not belong to the exception and it is
therefore incumbent upon it to point to some provisions of
the LGC that expressly grant its exemption from local taxes.
(NATIONAL POWER CORPORATION v. CITY OF CABANATUAN
G.R. No. 149110 April 9, 2003)
Definitely, the taxability of a party cannot be blandly glossed
over on the basis of a supposed "broad, pragmatic analysis"
alone without substantial supportive evidence, lest
governmental operations suffer due to diminution of much
needed funds. While international comity is invoked in this
case on the nebulous representation that the funds involved
in the loans are those of a foreign government, scrupulous
care must be taken to avoid opening the floodgates to the
violation of our tax laws. (COMMISSIONER OF INTERNAL
REVENUE v. MITSUBISHI METAL CORPORATION G.R. No. L54908 January 22, 1990)
The claimed statutory exemption of the John Hay SEZ from
taxation should be manifest and unmistakable from the
language of the law on which it is based; it must be
expressly granted in a statute stated in a language too clear
to be mistaken. If it were the intent of the legislature to grant
to the John Hay SEZ the same tax exemption and incentives
given to the Subic SEZ, it would have so expressly provided
in the R.A. No. 7227. (JOHN HAY PEOPLES ALTERNATIVE
COALITION, et al. v. VICTOR LIM, et al., G. R. No. 119775,
October 24, 2003)
The Court in PLDT v. City of Davao, held that in approving
Section 23 of RA No. 7925, Congress did not intend it to
operate
as
a
blanket
tax
exemption
to
all
telecommunications entities. The Court also clarified the

meaning of the word "exemption" in Section 23 of RA 7925:

that the word "exemption" as used in the statute refers or
pertains merely to an exemption from regulatory or reporting
requirements of the Department of Transportation and
Communication or the National Transmission Corporation
and not to an exemption from the grantees tax liability.
(SMART COMMUNICATIONS, INC. v. THE CITY OF DAVAO, G.R.
No. 155491, July 21, 2009)
- In Philippine Long Distance Telephone Company (PLDT) v.
Province of Laguna, the issue that the Court had to resolve
was whether PLDT was liable to pay franchise tax to the
Province of Laguna in view of the "in lieu of all taxes" clause
in its franchise and Section 23 of RA 7925. Applying the rule
of strict construction of laws granting tax exemptions and
the rule that doubts are resolved in favor of municipal
corporations in interpreting statutory provisions on municipal
taxing powers, the Court held that Section 23 of RA 7925
could not be considered as having amended petitioner's
franchise so as to entitle it to exemption from the imposition
of local franchise taxes. (SMART COMMUNICATIONS, INC.
v.THE CITY OF DAVAO, G.R. No. 155491, July 21, 2009)
- The "in lieu of all taxes" clause in a legislative franchise
should categorically state that the exemption applies to both
local and national taxes; otherwise, the exemption claimed
should be strictly construed against the taxpayer and
liberally in favor of the taxing authority. (SMART
COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No.
155491, July 21, 2009)
- PLDTs contention that the in-lieu-of-all-taxes clause does
not refer to tax exemption but to tax exclusion and
hence, the strictissimi juris rule does not apply. The Supreme
Court explains that these two terms actually mean the same
thing, such that the rule that tax exemption should be
applied in strictissimi juris against the taxpayer and liberally
in favor of the government applies equally to tax exclusions.
(PHILIPPINE LONG DISTANCE TELEPHONE COMPANY vs
PROVINCE OF LAGUNA G.R. No. 151899, August 16, 2005)

Exception
- However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction
does not apply because the practical effect of the exemption
is merely to reduce the amount of money that has to be
handled by the government in the course of its operations.
(MCIAA v. Marcos, G.R. No. 120082, September 11, 1996)
- There is parity between tax refund and tax exemption only
when the former is based either on a tax exemption statute
or a tax refund statute. Obviously, that is not the situation
here since Fortune Tobaccos claim for refund is premised on
its erroneous payment of the tax, or better still, the
governments exaction in the absence of a law.
(COMMISSIONER OF INTERNAL REVENUE v. FORTUNE
TOBACCO CORPORATION, G.R. Nos. 167274-75, July 21,
2008)
- A claim for tax refund may be based on statutes granting tax
exemption or tax refund and in such case, the rule of strict
interpretation against the taxpayer is applicable as the claim
for refund partakes of the nature of an exemption, a
legislative grace, which cannot be allowed unless granted in
the most explicit and categorical language. Tax refunds (or
tax credits), on the other hand, are not founded principally
on legislative grace but on the legal principle which underlies
all quasi-contracts abhorring a persons unjust enrichment at
the expense of another. (COMMISSIONER OF INTERNAL
REVENUE v. FORTUNE TOBACCO CORPORATION, G.R. Nos.
167274-75, July 21, 2008)
- As a necessary corollary, when the taxpayers entitlement to
a refund stands undisputed, the State should not misuse
technicalities and legalisms, however exalted, to keep
money not belonging to it. The government is not exempt
from the application of solutio indebiti, a basic postulate
proscribing one, including the State, from enriching himself
or herself at the expense of another. (COMMISSIONER OF
INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION,
G.R. Nos. 167274-75, September 11, 2013)
c) Tax rules and regulations

(i) General rule only

While administrative agencies, such as the Bureau of Internal
Revenue, may issue regulations to implement statutes, they
are without authority to limit the scope of the statute to less
than what it provides, or extend or expand the statute
beyond its terms, or in any way modify explicit provisions of
the law. Hence, in case of discrepancy between the basic law
and an interpretative or administrative ruling, the basic law
prevails.
(FORT
BONIFACIO
DEVELOPMENT
CORPORATION
v.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425,
September 4, 2012)
Revenue Memorandum Circulars (RMCs) must not override,
supplant, or modify the law, but must remain consistent and
in harmony with the law they seek to apply and implement.
(COMMISSIONER OF INTERNAL REVENUE v. SM PRIME
HOLDINGS, INC. 613 SCRA 774 (2010))
Admittedly the government is not estopped from collecting
taxes legally due because of mistakes or errors of its agents.
But like other principles of law, this admits of exceptions in
the interest of justice and fair play, as where injustice will
result to the taxpayer. (COMMISSIONER OF INTERNAL
REVENUE v. COURT OF APPEALS, G.R. No. 117982, February
6, 1997)
"When a statute is susceptible of the meaning placed upon it
by a ruling of the government agency charged with its
enforcement and the [l]egislature thereafter [reenacts] the
provisions [without] substantial change, such action is to
some extent confirmatory that the ruling carries out the
legislative
purpose."
(COMMISSIONER
OF
INTERNAL
REVENUE v. AMERICAN EXPRESS INTERNATIONAL, INC.
(PHILIPPINE BRANCH), G.R. No. 152609, June 29, 2005)
BIR Ruling No. DA-489-03 is a general interpretative rule
because it is a response to a query made, not by a particular
taxpayer, but by a government agency tasked with
processing tax refunds and credits. Thus, all taxpayers can
rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this
Court in Aichi on 6 October 2010, where this Court held that

the 120+30 day periods are mandatory and jurisdictional.

(TEAM ENERGY CORPORATION (Formerly MIRANT PAGBILAO
CORPORATION) v. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 197760, January 13, 2014)
d) Penal provisions of tax laws
- In criminal cases, statutes of limitations are acts of grace, a
surrendering by the sovereign of its right to prosecute. They
receive strict construction in favor of the Government and
limitations in such cases will not be presumed in the absence
of clear legislation. (LIM, et al. v. COURT OF APPEALS, G.R.
No. 48134-37, October 18, 1990)
e) Non-retroactive application to taxpayers
- Revenue statutes are substantive laws and in no sense must
their application be equated with that of remedial laws. As
well said in a prior case, revenue laws are not intended to be
liberally construed. (COMMISSIONER OF INTERNAL REVENUE
v. ROSEMARIE ACOSTA, G.R. No. 154068, August 3, 2007)
Exceptions
- While it is a settled principle that rulings, circulars, rules and
regulations promulgated by the BIR have no retroactive
application if to so apply them would be prejudicial to the
taxpayers, this rule does not apply: (a) where the taxpayer
deliberately misstates or omits material facts from his return
or in any document required of him by the Bureau of Internal
Revenue; (b) where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different from the
facts on which the ruling is based; or (c) where the taxpayer
acted in bad faith. Not being the taxpayer who, in the first
instance, sought a ruling from the CIR, however, FDC cannot
invoke the foregoing principle on non-retroactivity of BIR
rulings. (COMMISSIONER OF INTERNAL REVENUE v.
FILINVEST DEVELOPMENT CORPORATION, G.R. No. 163653,
July 19, 2011)
I. Scope and limitation of taxation
LIMITATIONS ON THE TAXING POWER

A. INHERENT LIMITATIONS (KEY: SPINE)

1. Territoriality or Situs of taxation
2. Public purpose of taxes
3. International comity
4. Non-delegability of the taxing power
5. Tax Exemption of the government
1. Inherent limitations
a) Public purpose
TESTS IN DETERMINING PUBLIC PURPOSE
a. Duty Test whether the thing to be furthered by the
appropriation of public revenue is something, which is the
duty of the State, as a government, to provide.
b. Promotion of General Welfare Test whether the proceeds
of the tax will directly
promote the welfare of the
community in equal measure.
- Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and
Article III, Section 5 of P.D. 1468 completely ignore the fact
that coco-levy funds are public funds raised through
taxation. And since taxes could be exacted only for a public
purpose, they cannot be declared private properties of
individuals although such individuals fall within a distinct
group of persons. (PAMBANSANG KOALISYON NG MGA
SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v.
EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)
- The Court of course grants that there is no hard-and-fast rule
for determining what constitutes public purpose. But the
assailed provisions, which removed the coco-levy funds from
the general funds of the government and declared them
private properties of coconut farmers, do not appear to have
a color of social justice for their purpose. (PAMBANSANG
KOALISYON
NG
MGA
SAMAHANG
MAGSASAKA
AT
MANGGAGAWA SA NIYUGAN v. EXECUTIVE SECRETARY G.R.
Nos. 147036-37 April 10, 2012)
- It would be a robbery for the State to tax its citizens and use
the funds generated for a private purpose. When a tax law is

only a mask to exact funds from the public when its true
intent is to give undue benefit and advantage to a private
enterprise, that law will not satisfy the requirement of "public
purpose." (PLANTERS PRODUCTS, INC. v. FERTIPHIL
CORPORATION, G.R. No. 166006, March 14, 2008)
- Jurisprudence states that "public purpose" should be given a
broad interpretation. It does not only pertain to those
purposes which are traditionally viewed as essentially
government functions, such as building roads and delivery of
basic services, but also includes those purposes designed to
promote social justice. (PLANTERS PRODUCTS, INC. v.
FERTIPHIL CORPORATION, G.R. No. 166006, March 14, 2008)
b) Inherently legislative
(i) General rule
- The power to tax is purely legislative, and which the central
legislative body cannot delegate either to the executive or
judicial department of the government without infringing
upon the theory of separation of powers. (Pepsi-Cola Bottling
Company of the Phil. V. Mun. of Tanauan, Leyte, 69 SCRA
460)
- The powers which Congress is prohibited from delegating are
those which are strictly, or inherently and exclusively,
legislative. Purely legislative power, which can never be
delegated, has been described as the authority to make a
complete law complete as to the time when it shall take
effect and as to whom it shall be applicable and to
determine the expediency of its enactment. (ABAKADA GURO
PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY G.R. No. 168056 September 1, 2005)
(ii) Exceptions
A) Delegation to local governments
- The power to tax is primarily vested in the Congress;
however, in our jurisdiction, it may be exercised by local
legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority

conferred by Section 5, Article X of the Constitution. (MCIAA

v. Marcos, G.R. No. 120082 September 11, 1996)
The power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of
local government units. It may also be relevant to recall that
the original reasons for the withdrawal of tax exemption
privileges granted to government-owned and controlled
corporations and all other units of government were that
such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated
enterprises. (MCIAA v. Marcos, G.R. No. 120082 September
11, 1996)
Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power
to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy
taxes, fees and other charges pursuant to Article X, section 5
of the 1987 Constitution. (NATIONAL POWER CORPORATION
v. CITY OF CABANATUAN G.R. No. 149110 April 9, 2003)
Clearly then, while a new slant on the subject of local
taxation now prevails in the sense that the former doctrine
of local government units delegated power to tax had been
effectively modified with Article X, Section 5 of the 1987
Constitution now in place, the basic doctrine on local
taxation remains essentially the same. For as the Court
stressed in Mactan, "the power to tax is [still] primarily
vested in the Congress." (QUEZON CITY, et al. v. ABS-CBN
BROADCASTING CORPORATION, G.R. No. 162015, March 6,
2006)
Section 5, Article X of the Constitution does not change the
doctrine that municipal corporations do not possess inherent
powers of taxation; what it does is to confer municipal
corporations a general power to levy taxes and otherwise
create sources of revenue and they no longer have to wait
for a statutory grant of these powers and the power of the
legislative authority relative to the fiscal powers of local
governments has been reduced to the authority to impose
limitations on municipal powers. The important legal effect
of Section 5 is thus to reverse the principle that doubts are

resolved against municipal corporations; henceforth, in

interpreting statutory provisions on municipal fiscal powers,
doubts will be resolved in favor of municipal corporations.
(QUEZON CITY, et al. v. ABS-CBN BROADCASTING
CORPORATION, G.R. No. 162015, March 6, 2006)
b) Delegation to the President
- Assuming that Section 28(2) Article VI did not exist, the
enactment of the SMA [Safeguard Measure Act] by Congress
would be voided on the ground that it would constitute an
undue delegation of the legislative power to tax. The
constitutional provision shields such delegation from
constitutional infirmity, and should be recognized as an
exceptional grant of legislative power to the President,
rather than the affirmation of an inherent executive power.
(SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R.
No. 158540, August 3, 2005)
- When Congress tasks the President or his/her alter egos to
impose safeguard measures under the delineated conditions,
the President or the alter egos may be properly deemed as
agents of Congress to perform an act that inherently belongs
as a matter of right to the legislature. It is basic agency law
that the agent may not act beyond the specifically delegated
powers or disregard the restrictions imposed by the
principal. (SOUTHERN CROSS CEMENT CORPORATION v.
CEMENT
MANUFACTURERS
ASSOCIATION
OF
THE
PHILIPPINES, G.R. No. 158540, August 3, 2005)
- Delegation of legislative powers to the President is permitted
in Sections 23 (2) and 28 (2) of Article VI of the Constitution.
By virtue of a valid delegation of legislative power, it may
also be exercised by the President and administrative
boards, as well as the lawmaking bodies of all municipal
levels, including the barangay. (Camarines North Electric
Cooperative v. Torres, GR No. 127249, February 27, 1998)
c) Delegation to administrative agencies

- Clearly, the legislature may delegate to executive officers or

bodies the power to determine certain facts or conditions, or
the happening of contingencies, on which the operation of a
statute is, by its terms, made to depend, but the legislature
must prescribe sufficient standards, policies or limitations on
their authority. While the power to tax cannot be delegated
to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to
them, including the power to determine the existence of
facts on which its operation depends. (ABAKADA GURO
PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY G.R. No. 168056 September 1, 2005)
- In the present case, in making his recommendation to the
President on the existence of either of the two conditions,
the Secretary of Finance is not acting as the alter ego of the
President or even her subordinate; he is acting as the agent
of the legislative department, to determine and declare the
event upon which its expressed will is to take effect. Thus,
being the agent of Congress and not of the President, the
President cannot alter or modify or nullify, or set aside the
findings of the Secretary of Finance and to substitute the
judgment of the former for that of the latter. (ABAKADA
GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY G.R. No. 168056 September 1, 2005)
c) Territorial
KIND OF TAX

SITUS

Personal or Community Residence or domicile

tax
of the taxpayer
Real property tax
-tangible: where it is
physically located or
permanently kept (Lex
rei sitae) -intangible:
subject to Sec. 104 of
the
NIRC
and
the
principle
of
mobilia

sequuntur personam
Business tax

Place of business

Excise or Privilege tax

Where
the
act
is
performed or where
occupation is pursued
Where
the
sale
is
consummated
Residence or citizenship
of the taxpayer or
location of property
State which granted the
franchise

Sales tax
Transfer tax
Franchise Tax

Situs of taxation
SITUS OF TAXATION OF INTANGIBLE PERSONAL PROPERTY
(a) Meaning
General Rule: Domicile of the owner pursuant to the principle of
the mobilia sequuntur personam or movables follow the person.
Exceptions:
1. When the property has acquired a business situs in another
jurisdiction;
2. When an express provision of the statute provide for another
rule.
Illustration: For purposes of estate and donors taxes, the
following
intangible properties are deemed with a situs in the Philippines:
(1) franchise which must be exercised in the Philippines;
(2) shares, obligations or bonds issued by any corporation
organized or constituted in the Philippines in accordance with its
laws;

(3) shares, obligations or bonds by any foreign corporation eighty

five percent (85%) of the business of which is located in the
Philippines;
(4) shares, obligations or bonds issued by any foreign corporation
if such shares, obligations or bonds have acquired a business situs
in the Philippines; and
(5) shares or rights in any partnership, business or industry
established in the Philippines. (Sec. 104, 1997 NIRC).
(b) Situs of income tax
- The important factor therefore which determines the source
of income of personal services is not the residence of the
payor, or the place where the contract for service is entered
into, or the place of payment, but the place where the
services were actually rendered. (COMMISSIONER OF
INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R. No.
153793, August 29, 2006)
1) From sources within the Philippines
- The reinsurance premiums remitted to appellants by virtue
of the reinsurance contracts, accordingly, had for their
source the undertaking to indemnify Commonwealth
Insurance Co. against liability. Said undertaking is the
activity that produced the reinsurance premiums, and the
same took place in the Philippines. (Alexander Howden &
Co., Ltd. v. Collector of Internal Revenue as cited in
COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIERNICKEL, G.R. No. 153793, August 29, 2006)
- The "sale of tickets" in the Philippines is the "activity" that
produced the income and therefore BOAC should pay income
tax in the Philippines because it undertook an income
producing activity in the country. The tickets exchanged
hands here and payments for fares were also made here in
Philippine currency; thus, the situs of the source of payments
is the Philippines. (Commissioner of Internal Revenue v.
British Overseas Airways Corporation (BOAC) as cited in

COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIERNICKEL, G.R. No. 153793, August 29, 2006)
- For the source of income to be considered as coming from
the Philippines, it is sufficient that the income is derived from
activities within this country regardless of the absence of
flight operations within Philippine territory. Indeed, the sale
of tickets is the very lifeblood of the airline business, the
generation of sales being the paramount objective.
(COMMISSIONER OF INTERNAL REVENUE v. JAPAN AIR LINES,
INC., G.R. No. 60714, March 6, 1991)
(2) From sources without the Philippines
(3) Income partly within and partly without the Philippines
(c) Situs of property taxes
(1) Taxes on real property
(2) Taxes on personal property
(d) Situs of excise tax
- Since it partakes of the nature of an excise tax, the situs of
taxation is the place where the privilege is exercised, in this
case in the City of Iriga, where CASURECO III has its principal
office and from where it operates, regardless of the place
where its services or products are delivered. (CITY OF IRIGA
v. CAMARINES SUR III ELECTRIC COOPERATIVE, INC., G.R. No.
192945, September 5, 2012)
(1) Estate tax
(2) Donors tax
(e) Situs of business tax
(1) Sale of real property
(2) Sale of personal property
- It is not the place where the contract was perfected, but the
place of delivery which determines the taxable situs of the
property sought to be taxed. In the cases of Soriano y Cia. v.
Collector of Internal Revenue, 51 O.G. 4548; Vegetable Oil
Corporation v. Trinidad, 45 Phil. 822; and Earnshaw Docks
and Honolulu Iron Works vs. Collector of Internal Revenue, 54

Phil. 696, it has been ruled that for a sale to be taxed in the
Philippines it must be consummated there; thus indicating
that the place of consummation (associated with the delivery
of the things subject matter of the contract) is the accepted
criterion in determining the situs of the contract for purposes
of taxation, and not merely the place of the perfection of the
contract. (THE MUNICIPALITY OF JOSE PANGANIBAN,
PROVINCE OF CAMARINES NORTE, ETC. v. THE SHELL
COMPANY OF THE PHILIPPINES, LTD., G.R. No. L-18349, July
30, 1966)
(3) Value-Added Tax (VAT)
- As a general rule, the VAT system uses the destination
principle as a basis for the jurisdictional reach of the tax.
Goods and services are taxed only in the country where they
are consumed; thus, exports are zero-rated, while imports
are taxed. (COMMISSIONER OF INTERNAL REVENUE
v.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE
BRANCH), G.R. No. 152609, June 29, 2005)
- Consumption is "the use of a thing in a way that thereby
exhausts it, and applied to services, the term means the
performance or "successful completion of a contractual duty,
usually resulting in the performers release from any past or
future liability." The services rendered by respondent are
performed or successfully completed upon its sending to its
foreign client the drafts and bills it has gathered from service
establishments here; thus, its services, having been
performed in the Philippines, are also consumed in the
Philippines. (COMMISSIONER OF INTERNAL REVENUE
v.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE
BRANCH), G.R. No. 152609, June 29, 2005)
- Unlike goods, services cannot be physically used in or bound
for a specific place where their destination is determined but
instead, there can only be a "predetermined end of a course"
when determining the service "location or position for legal
purposes." Respondents facilitation service has no physical
existence, yet takes place upon rendition, and therefore
upon consumption, in the Philippines. (COMMISSIONER OF

INTERNAL REVENUE v.AMERICAN EXPRESS INTERNATIONAL,

INC. (PHILIPPINE BRANCH), G.R. No. 152609, June 29, 2005)
d) International comity
These principles limit the authority of the government to
effectively impose taxes on a sovereign state and its
instrumentalities, as well as on its property held and activities
undertaken in that capacity. Even where one enters the territory
of another, there is an implied understanding that the former
does not thereby submit itself to the authority and jurisdiction of
the other.
e) Exemption of government entities, agencies, and
instrumentalities
As a matter of public policy, property of the State
and of its municipal subdivisions devoted to
government uses and purposes is deemed to be
exempt from taxation although no express
provision in the law is made therefor.
- General Rule: The Government is tax exempt.
- However, it can also tax itself.
RULES:
1. Administrative Agencies
a. Governmental function tax exempt unless when the law
expressly provides for tax.
(Sec.32 B7)
b. Proprietary function taxable unless exempted by law.
(Sec.27C)
2. GOCCs
General Rule: Income is taxable at the rate imposed upon
corporations or associations engaged in a similar business,
industry, or activity. Exception: GSIS, SSS, PHIC, PCSO
and PAGCOR. (Sec. 27(C), NIRC)
3. Government Educational Institutions
a. Property or real estate tax property actually, directly and
exclusively used for educational purposes exempt but income of
whatever kind and character from any of their properties, real or

personal, regardless of the disposition, is taxable. (Sec.30, last

par., NIRC)
b. Income received by them as such are exempt from taxes.
However, their income from any of their activities conducted for
profit regardless of the disposition, is taxable. (Sec. 30,
last par., NIRC)
4. Income derived from any public utility or from the exercise of
any essential governmental function accruing to the Government
of the Philippines or to any political subdivision thereof is not
included in gross income and exempt from taxation. (Sec. 32(B)
(7)(b), NIRC)
5. Donations in favor of governmental institutions are considered
as income on the part of the donee. However, it is not considered
as taxable income because it is an exclusion from the
computation of gross income. (Sec.32 (B)(3), NIRC)
6. The amount of all bequests,legacies, devises or transfers to or
for the use of the Government or any political subdivision for
exclusively public purposes is deductible from the gross estate.
(Sec.86 (A)(3), NIRC)
7. Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for
profit, or to any political subdivision of the said Government are
exempt from donors tax. (Sec. 101(A)(2), NIRC)
8. Local government units are expressly prohibited by the LGC
from levying tax upon National Government, its agencies, and
instrumentalities, and local government units. [Sec. 133 (o), LGC]
9. Unless otherwise provided in the Local Government Code
(LGC), tax exemptions granted to all persons, whether natural or
juridical, including GOCC, except local water districts,
cooperatives duly registered under RA No. 6938, nonstick and
non-profit institutions, are withdrawn upon effectivity of the LGC.
(Sec. 193, LGC)

10. Real property owned by the Republic of the Philippines or any

of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person shall be exempt from payment of real property tax. (Sec.
234, LGC)
- The Court rules that the Authority [PFDA] is not a GOCC but
an instrumentality of the national government which is
generally exempt from payment of real property tax.
However, said exemption does not apply to the portions of
the IFPC which the Authority leased to private entities.
(Philippine Fisheries Development Authority v. Court of
Appeals, G.R. No. 169836, 31 July 2007)
- As property of public dominion, the Lucena Fishing Port
Complex is owned by the Republic of the Philippines and
thus exempt from real estate tax. (PHILIPPINE FISHERIES
DEVELOPMENT AUTHORITY (PFDA) v. CENTRAL BOARD OF
ASSESSMENT APPEALS, G.R. No. 178030, December 15,
2010)
2. Constitutional limitations
a) Provisions directly affecting taxation
(i) Prohibition against imprisonment for non-payment
of poll tax
(ii) Uniformity and equality of taxation
- Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed
at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of
taxation; inequalities which result from a singling out of one
particular class for taxation or exemption infringe no
constitutional limitation. (KAPATIRAN NG MGA NAGLILINGKOD
SA PAMAHALAAN NG PILIPINAS, INC. v. HON. BIENVENIDO
TAN, G.R. No. 81311, June 30, 1988)
(iii) Grant by Congress of authority to the president to impose
tariff rates

- It is Congress which authorizes the President to impose tariff

rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts. Thus, the authority cannot
come from the Finance Department, the National Economic
Development Authority, or the World Trade Organization, no
matter how insistent or persistent these bodies may be.
(SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R.
No. 158540, August 3, 2005)
- The authorization granted to the President must be
embodied in a law. Hence, the justification cannot be
supplied simply by inherent executive powers. (SOUTHERN
CROSS CEMENT CORPORATION v. CEMENT MANUFACTURERS
ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August
3, 2005)
- The authorization to the President can be exercised only
within the specified limits set in the law and is further
subject to limitations and restrictions which Congress may
impose. Consequently, if Congress specifies that the tariff
rates should not exceed a given amount, the President
cannot impose a tariff rate that exceeds such amount.
(SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R.
No. 158540, August 3, 2005)
- Assuming there is a conflict between the specific limitation in
Section 28 (2), Article VI of the Constitution and the general
executive power of control and supervision, the former
prevails in the specific instance of safeguard measures such
as tariffs and imposts, and would thus serve to qualify the
general grant to the President of the power to exercise
control and supervision over his/her subalterns. (SOUTHERN
CROSS CEMENT CORPORATION v. CEMENT MANUFACTURERS
ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August
3, 2005)
(iv) Prohibition against taxation of religious, charitable entities,
and
educational entities

- The word "charitable" is not restricted to relief of the poor or

sick. The test whether an enterprise is charitable or not is
whether it exists to carry out a purpose recoganized in law
as charitable or whether it is maintained for gain, profit, or
private advantage. (LUNG CENTER OF THE PHILIPPINES
v.QUEZON CITY, G.R. No. 144104, June 29, 2004)
- Even as we find that the petitioner is a charitable institution,
we hold that those portions of its real property that are
leased to private entities are not exempt from real property
taxes as these are not actually, directly and exclusively used
for charitable purposes. On the other hand, the portions of
the land occupied by the hospital and portions of the
hospital used for its patients, whether paying or non-paying,
are exempt from real property taxes. (LUNG CENTER OF THE
PHILIPPINES v.QUEZON CITY, G.R. No. 144104, June 29,
2004)
- To be a charitable institution, however, an organization must
meet the substantive test of charity in Lung Center. Charity
is essentially a gift to an indefinite number of persons which
lessens the burden of government. In other words, charitable
institutions provide for free goods and services to the public
which would otherwise fall on the shoulders of government.
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S
MEDICAL CENTER, INC. G.R. No. 195909 September 26,
2012)
- In Lung Center, this Court declared: "exclusive" is defined as
possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and "exclusively" is defined,
"in a manner to exclude; as enjoying a privilege exclusively."
The words "dominant use" or "principal use" cannot be
substituted for the words "used exclusively" without doing
violence to the Constitution and the law. Solely is
synonymous with exclusively.(COMMISSIONER OF INTERNAL
REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)
- Services to paying patients are activities conducted for
profit. There is a "purpose to make profit over and above the
cost" of services. (COMMISSIONER OF INTERNAL REVENUE v.

ST. LUKE'S MEDICAL

September 26, 2012)

CENTER,

INC.

G.R.

No.

195909

- Section 30(E) and (G) of the NIRC requires that an institution

be "operated exclusively" for charitable or social welfare
purposes to be completely exempt from income tax. An
institution under Section 30(E) or (G) does not lose its tax
exemption if it earns income from its for-profit activities.
Such income from for-profit activities, under the last
paragraph of Section 30, is merely subject to income tax,
previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B).
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S
MEDICAL CENTER, INC. G.R. No. 195909 September 26,
2012)
- A gift tax is not a property tax, but an excise tax imposed on
the transfer of property by way of gift inter vivos, the
imposition of which on property used exclusively for religious
purposes, does not constitute an impairment of the
Constitution. The phrase "exempt from taxation," as
employed in the Constitution should not be interpreted to
mean exemption from all kinds of taxes. (REV. FR. CASIMIRO
LLADOC v. The COMMISSIONER OF INTERNAL REVENUE, G.R.
No. L-19201, June 16, 1965)
(v) Prohibition against taxation of non-stock, non-profit institutions
- An organization may be considered as non-profit if it does
not distribute any part of its income to stockholders or
members. However, despite its being a tax exempt
institution, any income such institution earns from activities
conducted for profit is taxable, as expressly provided in the
last paragraph of Section 30. (COMMISSIONER OF INTERNAL
REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)
(vi) Majority vote of Congress for grant of tax exemption
- The incentives under R.A. No. 7227 are exclusive only to the
Subic SEZ, hence, the extension of the same to the John Hay

SEZ finds no support therein. The challenged grant of tax

exemption would circumvent the Constitution's imposition
that a law granting any tax exemption must have the
concurrence of a majority of all the members of Congress.
(JOHN HAY PEOPLES
ALTERNATIVE COALITION, et al. v.
VICTOR LIM, et al., G. R. No. 119775, October 24, 2003)
(vii) Prohibition on use of tax levied for special purpose
- The coco-levy funds, on the other hand, belong to the
government and are subject to its administration and
disposition. Thus, these funds, including its incomes,
interests, proceeds, or profits, as well as all its assets,
properties, and shares of stocks procured with such funds
must be treated, used, administered, and managed as public
funds; the coco-levy funds are evidently special funds.
(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA
AT MANGGAGAWA SA NIYUGAN v. EXECUTIVE SECRETARY
G.R. Nos. 147036-37 April 10, 2012)
(viii) Presidents veto power on appropriation, revenue, tariff bills
- An "item" in a revenue bill does not refer to an entire section
imposing a particular kind of tax, but rather to the subject of
the tax and the tax rate; thus, in the portion of a revenue bill
which actually imposes a tax, a section identifies the tax and
enumerates the persons liable therefor with the
corresponding tax rate. To construe the word "item" as
referring to the whole section would tie the President's hand
in choosing either to approve the whole section at the
expense of also approving a provision therein which he
deems unacceptable or veto the entire section at the
expense of foregoing the collection of the kind of tax
altogether. (COMMISSIONER OF INTERNAL REVENUE v. HON.
COURT OF TAX APPEALS, G.R. No. L-47421, May 14, 1990)
(ix) Non-impairment of jurisdiction of the Supreme Court
(x) Grant of power to the local government units to create its own
sources of
revenue
- For a long time, the country's highly centralized government
structure has bred a culture of dependence among local

government leaders upon the national leadership. The only

way to shatter this culture of dependence is to give the LGUs
a wider role in the delivery of basic services, and confer
them sufficient powers to generate their own sources for the
purpose. (NATIONAL POWER CORPORATION v. CITY OF
CABANATUAN G.R. No. 149110 April 9, 2003)
- Republic Act No. 7716, otherwise known as the "Expanded
VAT Law," did not remove or abolish the payment of local
franchise tax; it merely replaced the national franchise tax
that was previously paid by telecommunications franchise
holders and in its stead VAT. The imposition of local franchise
tax is not inconsistent with the advent of the VAT, which
renders functus officio the franchise tax paid to the national
government for VAT inures to the benefit of the national
government, while a local franchise tax is a revenue of the
local government unit. (SMART COMMUNICATIONS, INC.
v.THE CITY OF DAVAO, G.R. No. 155491, July 21, 2009)
(xi) Flexible tariff clause
(xii) Exemption from real property taxes
- For real property taxes, the incidental generation of income
is permissible because the test of exemption is the use of
the property and this test requires that the institution use
the property in a certain way, i.e. for a charitable purpose.
Thus, the Court held that the Lung Center of the Philippines
did not lose its charitable character when it used a portion of
its lot for commercial purposes since the effect of failing to
meet the use requirement is simply to remove from the tax
exemption that portion of the property not devoted to
charity. (COMMISSIONER OF INTERNAL REVENUE v. ST.
LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September
26, 2012)
- The Constitution exempts charitable institutions only from
real property taxes while the NIRC extends the exemption to
income taxes. However, the way Congress crafted Section
30(E) of the NIRC is materially different from Section 28(3),
Article VI of the Constitution: Section 30(E) of the NIRC
defines the corporation or association that is exempt from
income tax while Section 28(3), Article VI of the Constitution

does not define a charitable institution, but requires that the

institution "actually, directly and exclusively" use the
property for a charitable purpose. (COMMISSIONER OF
INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC.
G.R. No. 195909 September 26, 2012)
- To be exempt from real property taxes, Section 28(3), Article
VI of the Constitution requires that a charitable institution
use the property "actually, directly and exclusively" for
charitable purposes. To be exempt from income taxes,
Section 30(E) of the NIRC requires that a charitable
institution must be "organized and operated exclusively" for
charitable
purposes.
(COMMISSIONER
OF
INTERNAL
REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)
(xiii) No appropriation or use of public money for religious
purposes
b) Provisions indirectly affecting taxation
(i) Due process (Art. III, Sec. 1, 1987 Constitution)
Requisites:
a. The interests of the public as distinguished from
those of a
particular
class
require
the
intervention of the State.(Substantive
limitation)
b. The means employed must be reasonably necessary
to the
accomplishment of the purpose and not
unduly oppressive.
(Procedural limitation)
- The constitutionality of a legislative taxing act questioned on
the ground of denial of due process requires the existence of
an actual case or controversy.
- In Sison, Jr. v. Ancheta, et al., we held that the due process
clause may properly be invoked to invalidate, in appropriate
cases, a revenue measure when it amounts to a confiscation
of property. But in the same case, we also explained that we
will not strike down a revenue measure as unconstitutional
(for being violative of the due process clause) on the mere
allegation of arbitrariness by the taxpayer. (Chamber of Real

Estate and Builders Association, Inc. v. Romulo, 614 SCRA

605 (2010))
- The support for the poor is generally recognized as a public
duty and has long been an accepted exercise of police power
in the promotion of the common good but, in the instant
case, the declarations do not distinguish between wealthy
coconut farmers and the impoverished ones. Consequently,
such declarations are void since they appropriate public
funds for private purpose and, therefore, violate the citizens
right to substantive due process. (PAMBANSANG KOALISYON
NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA
NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37
April 10, 2012)
(ii) Equal protection(Art. III, Sec. 1, 1987 Constitution
Requisites of a Valid Classification:
a. based upon substantial distinctions
b. germane to the purposes of the law
c. not limited to existing conditions only
d. apply equally to all members of the class
- The real estate industry is, by itself, a class and can be
validly treated differently from other business enterprises.
What distinguishes the real estate business from other
manufacturing enterprises, for purposes of the imposition of
the CWT, is not their production processes but the prices of
their goods sold and the number of transactions involved.
(Chamber of Real Estate and Builders Association, Inc. v.
Romulo, 614 SCRA 605 (2010))
- PAGCOR cannot find support in the equal protection clause of
the Constitution, as the legislative records of the Bicameral
Conference Meeting dated October 27, 1997, of the
Committee on Ways and Means, show that PAGCORs
exemption from payment of corporate income tax, as
provided in Section 27 (c) of R.A. No. 8424, or the National
Internal Revenue Code of 1997, was not made pursuant to a
valid classification based on substantial distinctions. The
legislative records show that the basis of the grant of
exemption to PAGCOR from corporate income tax was

PAGCORs own request to be exempted. (PHILIPPINE

AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THE
BUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15,
2011)
iii)

Religious freedom
Grantee
Taxes covered

ART. XIV, SEC 4(3)

Non- stock, non profit
educational
institution
Income tax Custom
Duties Property tax
(DECS
Order
No.
137-187)

ART. VI, SEC 28(3

Religious,
educational,
charitable institu
Property Tax

- The constitutional guaranty of the free exercise and

enjoyment of religious profession and worship carries with it
the right to disseminate religious information. Any restraints
of such right can only be justified like other restraints of
freedom of expression on the grounds that there is a clear
and present danger of any substantive evil which the State
has the right to prevent. (AMERICAN BIBLE SOCIETY v. CITY
OF MANILA, G.R. No. L-9637, April 30, 1957)
- It may be true that in the case at bar the price asked for the
bibles and other religious pamphlets was in some instances
a little bit higher than the actual cost of the same but this
cannot mean that appellant was engaged in the business or
occupation of selling said "merchandise" for profit. For this
reason We believe that the City of Manila Ordinance No.
2529 requiring the payment of license fee cannot be applied
to appellant, for in doing so it would impair its free exercise
and enjoyment of its religious profession and worship as well
as its rights of dissemination of religious beliefs. (AMERICAN
BIBLE SOCIETY v. CITY OF MANILA, G.R. No. L-9637, April 30,
1957)
- With respect to Ordinance No. 3000 which requires the
obtention of the Mayor's permit before any person can
engage in any of the businesses, trades or occupations

enumerated therein, We do not find that it imposes any

charge upon the enjoyment of a right granted by the
Constitution, nor tax the exercise of religious practices. But
as the City of Manila is powerless to license or tax the
business of plaintiff Society, We find that Ordinance No. 3000
is also inapplicable to said business, trade or occupation of
the plaintiff. (AMERICAN BIBLE SOCIETY v. CITY OF MANILA,
G.R. No. L-9637, April 30, 1957)
The Philippine Bible Society, Inc. claims that although it sells
bibles, the proceeds derived from the sales are used to
subsidize the cost of printing copies which are given free to
those who cannot afford to pay so that to tax the sales would
be to increase the price, while reducing the volume of sale.
Granting that to be the case, the resulting burden on the
exercise of religious freedom is so incidental as to make it
difficult to differentiate it from any other economic
imposition that might make the right to disseminate religious
doctrines costly. (ARTURO M. TOLENTINO v. THE SECRETARY
OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)
On the other hand the registration fee of P1,000.00 imposed
by Sec. 107 of the NIRC, as amended by Sec. 7 of R.A. No.
7716, although fixed in amount, is really just to pay for the
expenses of registration and enforcement of provisions such
as those relating to accounting in Sec. 108 of the NIRC. That
the PBS distributes free bibles and therefore is not liable to
pay the VAT does not excuse it from the payment of this fee
because it also sells some copies. (ARTURO M. TOLENTINO v.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
The withdrawal of the exemption did not also violate
freedom of religion as regards the activities of PBS on
religious articles, as the Free Exercise of Religious clause
does not prohibit imposing a generally applicable sale and
use tax on the sale of religious materials by a religious
organization as held by the US Supreme Court in Jimmy
Swaggart Ministries v. Board of Equalization (1990).
The VAT registration fee does not constitute censorship of
such freedom as held in the American Bible Society case.

The fee is a mere administrative fee and not imposed on the

exercise of a privilege, much less a constitutional right. But
for the purpose of defraying cost of registration which is a
requirement and a central feature in the VAT system so as to
provide record of tax credits of the taxpayer. (ARTURO M.
TOLENTINO v. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455,
October 30, 1995)
(iv) Non-impairment of obligations of contracts
- No law impairing the obligation of contract shall be
passed. (Sec. 10, Art. III, 1987 Constitution) The rule,
however, does not apply to public utility franchises or
right since they are subject to amendment, alteration or
repeal by the Congress when the public interest so
requires. (Cagayan Electric & Light Co., Inc.
v.Commissioner, GR No. 60216, September 25, 1985)
RULES:
a. When the exemption is bilaterally agreed upon between the
government and the taxpayer it cannot be withdrawn without
violating the non-impairment clause.
b. When it is unilaterally granted by law, and the same is
withdrawn by virtue of another law no violation.
c. When the exemption is granted under a franchise it may be
withdrawn at any time thus, not a violation of the non-impairment
of contracts
- Contractual tax exemptions, in the real sense of the
term and where the non-impairment clause of the
Constitution can rightly be invoked, are those agreed to
by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully
entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its
cloak of authority and waives its governmental
immunity. Truly, tax exemptions of this kind may not be
revoked without impairing the obligations of contracts.
but these contractual tax exemptions are not to be

confused with tax exemptions granted under franchises

the latter partakes the nature of a grant which is
beyond the purview of the non-impairment clause of
the Constitution. (PHILIPPINE AMUSEMENT AND GAMING
CORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL
REVENUE G.R. No. 172087 March 15, 2011)
- Even though such taxation may affect particular
contracts, as it may increase the debt of one person
and lessen the security of another, or may impose
additional burdens upon one class and release the
burdens of another, still the tax must be paid unless
prohibited by the Constitution, nor can it be said that it
impairs the obligation of any existing contract in its true
legal sense." Indeed not only existing laws but also "the
reservation of the essential attributes of sovereignty, is
read into contracts as a postulate of the legal order."
(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE
and THE COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 115455, October 30, 1995)
DUE PROCESS
Taxpayer may not
be deprived of life,
liberty or property
without
due
process
of
law.
Notice
must,
therefore , be given
in case of failure to
pay taxes

EQUAL PROTECTION
Taxpayers shall be
treated alike under
like
circumstances
and conditions both
in
the
privileges
conferred
and
liabilities imposed.

UNIFORMITY
Taxable articles
kinds of propert
the same class,
be taxed at the s
rate. There sh
therefore,
be
direct
do
taxation

J. Stages of taxation
1. Levy
- Levy is an exercise of the power to tax, which is exclusively
legislative in nature and character. Clearly, taxes are not
levied by the executive branch of government. (NPC v. Albay,
186 SCRA 198 (1990))
2. Assessment and collection

3. Payment
4. Refund
K. Definition, nature, and characteristics of taxes
- Taxes are enforced proportional contributions from persons
and property, levied by the State by virtue of its sovereignty
for the support of the government and for all its public
needs. (PAMBANSANG KOALISYON NG MGA SAMAHANG
MAGSASAKA AT MANGGAGAWA SA NIYUGAN v. EXECUTIVE
SECRETARY G.R. Nos. 147036-37 April 10, 2012)
L. Requisites of a valid tax
REQUISITES OF A VALID TAX
1. should be for a public purpose
2. the rule of taxation shall be uniform
3. that either the person or property taxed be within the
jurisdiction of the taxing authority
4. that the assessment and collection of certain kinds of
taxes guarantees against injustice to individuals, especially
by way of notice and opportunity for hearing be provided
5. the tax must not impinge on the inherent and
Constitutional limitations on the power of taxation
M. Tax as distinguished from other forms of exactions
1. Tariff
2. Toll
- A tax is imposed under the taxing power of the government
principally for the purpose of raising revenues to fund public
expenditures; toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and
expenses incurred in the construction, maintenance and
operation of the tollways. Taxes may be imposed only by the
government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or
entities, as an attribute of ownership. (RENATO V. DIAZ and
AURORA MA. F. TIMBOL v. THE SECRETARY OF FINANCE, G.R.
No. 193007, July 19, 2011)

- Fees paid by the public to tollway operators for use of the

tollways, are not taxes in any sense. Parenthetically, VAT on
tollway operations cannot be deemed a tax on tax due to the
nature of VAT as an indirect tax. (RENATO V. DIAZ and
AURORA MA. F. TIMBOL v. THE SECRETARY OF FINANCE, G.R.
No. 193007, July 19, 2011)
3. License fee
- To be considered a license fee, the imposition must relate
to an occupation or activity that so engages the public
interest in health, morals, safety and development as to
require regulation for the protection and promotion of
such public interest; the imposition must also bear a
reasonable relation to the probable expenses of
regulation, taking into account not only the costs of direct
regulation but also its incidental consequences as well.
Accordingly, a charge of a fixed sum which bears no
relation at all to the cost of inspection and regulation may
be held to be a tax rather than an exercise of police
power. (PROGRESSIVE DEVELOPMENT CORP. v. QUEZON
CITY, G.R. No. L-36081, April 24, 1989)
- If the purpose is primarily revenue, or if revenue is at
least, one of the real and substantial purposes, then the
exaction is properly called a tax. (LAND TRANSPORTATION
OFFICE v. CITY OF BUTUAN, G.R. No. 131512, January 20,
2000)
4. Special assessment
5. Debt
- Taxes cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be setoff. (CALTEX PHILIPPINES, INC. v. THE HONORABLE
COMMISSION ON AUDIT, G.R. No. 92585, May 8, 1992)
N. Kinds of taxes

1. As to object
a) Personal, capitation, or poll tax
b) Property tax
c) Privilege tax
- A contractor's tax is generally in the nature of an excise tax
on the exercise of a privilege of selling services or labor
rather than a sale on products; and is directly collectible
from the person exercising the privilege. Being an excise tax,
it can be levied by the taxing authority only when the acts,
privileges or business are done or performed within the
jurisdiction of said authority. (COMMISSIONER OF INTERNAL
REVENUE v. MARUBENI CORPORATION, G.R. No. 137377,
December 18, 2001)
- A franchise tax is a tax on the privilege of transacting
business in the state and exercising corporate franchises
granted by the state. It is not levied on the corporation
simply for existing as a corporation, upon its property or its
income, but on its exercise of the rights or privileges granted
to it by the government. (CITY OF IRIGA v. CAMARINES SUR
III ELECTRIC COOPERATIVE, INC., G.R. No. 192945,
September 5, 2012)
2. As to burden or incidence
a) Direct
b) Indirect
- In context, direct taxes are those that are exacted from the
very person who, it is intended or desired, should pay them;
they are impositions for which a taxpayer is directly liable on
the transaction or business he is engaged in. On the other
hand, indirect taxes are those that are demanded, in the first
instance, from, or are paid by, one person in the expectation
and intention that he can shift the burden to someone else.
(COMMISSIONER OF INTERNAL REVENUE VS PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY, G.R. No. 140230,
December 15, 2005)
- Indirect taxes, like VAT and excise tax, are different from
withholding taxes: To distinguish, in indirect taxes, the
incidence of taxation falls on one person but the burden

thereof can be shifted or passed on to another person, such

as when the tax is imposed upon goods before reaching the
consumer who ultimately pays for it. On the other hand, in
case of withholding taxes, the incidence and burden of
taxation fall on the same entity, the statutory taxpayer. The
burden of taxation is not shifted to the withholding agent
who merely collects, by withholding, the tax due from
income payments to entities arising from certain
transactions and remits the same to the government. (ASIA
INTERNATIONAL AUCTIONEERS, INC. v. COMMISSIONER OF
INTERNAL REVENUE G.R. No. 179115 September 26, 2012)
- The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive since what
it simply provides is that Congress shall "evolve a
progressive system of taxation." The constitutional provision
has been interpreted to mean simply that "direct taxes are to
be preferred [and] as much as possible, indirect taxes should
be minimized." (ARTURO M. TOLENTINO v. THE SECRETARY
OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)
- The seller remains directly and legally liable for payment of
the VAT, but the buyer bears its burden since the amount of
VAT paid by the former is added to the selling price. Once
shifted, the VAT ceases to be a tax and simply becomes part
of the cost that the buyer must pay in order to purchase the
good, property or service. (RENATO V. DIAZ and AURORA MA.
F. TIMBOL v. THE SECRETARY OF FINANCE, G.R. No. 193007,
July 19, 2011)
3. As to tax rates
a) Specific
b) Ad valorem
c) Mixed
4. As to purposes
a) General or fiscal
b) Special, regulatory, or sumptuary
5. As to scope or authority to impose

a) National internal revenue taxes

b) Local real property tax, municipal tax
6. As to graduation
a) Progressive
b) Regressive
c) Proportionate
II. National Internal Revenue Code (NIRC) of 1997, as amended
A. Income taxation
1. Income tax systems
a) Global tax system
- Global treatment is a system where the tax treatment views
indifferently the tax base and generally treats in common all
categories of taxable income of the taxpayer. (TAN v. DEL
ROSARIO, JR. 237 SCRA 324)
b) Schedular tax system
- Schedular approach is a system employed where the income
tax treatment varies and made to depend on the kind or
category of taxable income of the taxpayer. (TAN v. DEL
ROSARIO, JR. 237 SCRA 324)
c) Semi-schedular or semi-global tax system
2. Features of the Philippine income tax law
a) Direct tax
b) Progressive
c) Comprehensive
d) Semi-schedular or semi-global tax system
3. Criteria in imposing Philippine income tax
a) Citizenship principle
b) Residence principle
c) Source principle
- A non-resident German citizen, president of a domestic
corporation, filed a claim for refund with the BIR, contending
that her sales commission income is not taxable in the
Philippines because the same was a compensation for her
services rendered in Germany and therefore considered as

income from sources outside the Philippines. While it is the

rule that source of income relates to the property, activity
or service that produced the income, the documents
presented by respondent did not constitute substantial
evidence that it was in Germany where she performed the
income-producing service and thus the tax refund should be
denied. (Commissioner of Internal Revenue vs. Juliane BaierNickel, G.R. No. 153793, August 29, 2006)
4. Types of Philippine income tax
5. Taxable period
a) Calendar period
b) Fiscal period
c) Short period
6. Kinds of taxpayers
a) Individual taxpayers
(i) Citizens
(a) Resident citizens
(b) Non-resident citizens
(ii) Aliens
(a) Resident aliens
(b) Non-resident aliens
(1) Engaged in trade or business
(2) Not engaged in trade or business
(iii) Special class of individual employees
(a) Minimum wage earners
b) Corporations
(i) Domestic corporations
(ii) Foreign corporations
- Marubeni Japan claimed a refund for excess taxes it had
paid, contending that since it had a Philippine branch, it is a
resident foreign corporation liable to pay only 10%
intercorporate final tax on dividends received from a
domestic corporation (and not to the branch profit
remittance tax) following the principal-agent theory.
Marubeni Japan is considered a non-resident foreign

corporation as to the dividends because when the foreign

corporation
transacts
business
in
the
Philippines
independently of its branch, the principal-agent relationship
is set aside. (Marubeni Corp. vs. Commissioner of Internal
Revenue, et al., G.R. No. 76573, September 14, 1989) BOAC
is a resident foreign corporation because it maintained a
general sales agent in the Philippines. There is no specific
criterion as to what constitutes doing or engaging in or
"transacting business. The term implies a continuity of
commercial dealings and arrangements, and contemplates,
to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in
progressive prosecution of
(a) Resident foreign corporations
(b) Non-resident foreign corporations
(iii) Joint venture and consortium
c) Partnerships
- Pursuant to reinsurance treaties, a number of local
insurance firms formed themselves into a pool in order to
facilitate the handling of business contractedwith a
nonresident foreign reinsurance company. The insurance
pool is deemed a partnership or association taxable as a
corporation under the NIRC because Section 24 (on tax on
corporations) [now Sec. 27 of the 1997 NIRC] covered these
unregistered partnerships and even associations or joint
accounts, which had no legal personalities apart from their
individual members; moreover, the insurance pool, though
unregistered, satisfies the requisites of a partnership: (1)
mutual contribution to a common stock, and (2) joint interest
in the profits. (Afisco Insurance Corp., et al. vs. Court of
Appeals, et al., G.R. No. 112675, January 25, 1999)
- The original purpose of the co-owners 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 same to dissolve the co-ownership. The division of

the profit was merely incidental to the dissolution of the coownership which was in the nature of things a temporary
state. The sharing of gross returns does not of itself establish
a partnership, whether or not the persons sharing them have
a joint or common right or interest in any property (Obillos
Jr. vs CIR, G.R. No. L- 68118, October 29, 1985)
d) General professional partnerships
e) Estates and trusts
f) Co-ownerships
7. Income taxation
a) Definition
b) Nature
c) General principles
8. Income
a) Definition
b) Nature
c) When income is taxable
(i) Existence of income
(ii) Realization of income
(a) Tests of realization
(b) Actual vis--vis constructive receipt
(iii) Recognition of income
(iv) Methods of accounting
(a)
Cash method vis--vis accrual method
- This accrual method relies upon the taxpayers right to
receive amounts or its obligation to pay them, in opposition
to actual receipt or payment, which characterizes the cash
method of accounting. Amounts of income accrue where the
right to receive them become fixed, where there is created
an enforceable liability. Similarly, liabilities are accrued when
fixed and determinable in amount, without regard to
indeterminacy merely of time of payment. For a taxpayer
using the accrual method, the determinative question is,
when do the facts present themselves in such a manner that
the taxpayer must recognize income or expense? The
accrual of income and expense is permitted when the all-

events test has been met. This test requires: (1) fixing of a
right to income or liability to pay; and (2) the availability of
the reasonable accurate determination of such income or
liability. (CIR vs Isabela Cultural Corp., GR 172231, February
12, 2007 )
- (b) Installment payment vis--vis deferred payment vis--vis
percentage completion (in long-term contracts)
d) Tests in determining whether income is earned for tax
purposes
(i) Realization test
(ii) Claim of right doctrine or doctrine of ownership,
command, or control
(iii) Economic benefit test, doctrine of proprietary interest
(iv) Severance test
(v) All events test
9. Gross income
a) Definition
b) Concept of income from whatever source derived
c) Gross income vis--vis net income vis--vis taxable income
d) Classification of income as to source
(i) Gross income and taxable income from sources within the
Philippines
(ii) Gross income and taxable income from sources without
the Philippines
(iii) Income partly within or partly without the Philippines
e) Sources of income subject to tax
(i) Compensation income
(ii) Fringe benefits
(a) Special treatment of fringe benefits
(b) Definition
(c) Taxable and non-taxable fringe benefits
(iii) Professional income
(iv) Income from business
(v) Income from dealings in property
(a) Types of properties
(1) Ordinary assets
(2) Capital assets

- The proceeds from the inherited land of petitioners, which

they subdivided into small lots and in the process converted
into a residential subdivision and given the name Don
Mariano Subdivision, is taxable as ordinary income. Property
initially classified as a capital asset may thereafter be
treated as an ordinary asset if a combination of the factors
indubitably tend to show that the activity was in furtherance
of or in the course of the taxpayer's trade or business; thus,
a sale of inherited real property usually gives capital gain or
loss even though the property has to be subdivided or
improved or both to make it salable--however, if the
inherited property is substantially improved or very actively
sold or both it may be treated as held primarily for sale to
customers in the ordinary course of the heir's business.
(Tomas Calasanz, et al. vs. Commissioner of Internal
Revenue, et al., G.R. No. L- 26284, October 9, 1986)
(b) Types of gains from dealings in property
(1) Ordinary income vis--vis capital gain
(2) Actual gain vis--vis presumed gain
(3) Long term capital gain vis--vis short-term
capital gain
(4) Net capital gain, net capital loss
(5) Computation of the amount of gain or loss
(6) Income tax treatment of capital loss
(a) Capital loss limitation rule (applicable to
both corporations and individuals)
(b) Net loss carry-over rule (applicable only to
individuals)
(7) Dealings in real property situated in the
Philippines
(8) Dealings in shares of stock of Philippine
corporations
(a) Shares listed and traded in the stock exchange
(b) Shares not listed and traded in the stock
exchange
(9) Sale of principal residence

(vi) Passive investment income

(a) Interest income
(b) Dividend income
(1) Cash dividend
(2) Stock dividend
- Stock dividends, strictly speaking, represent capital and do
not constitute income to its recipient. So that the mere
issuance thereof is not yet subject to income tax as they are
nothing but an enrichment through increase in value of
capital investment. However, the redemption or cancellation
of stock dividends, depending on the time and manner it was
made, is essentially equivalent to a distribution of taxable
dividends, making the proceeds thereof taxable income to
the extent it represents profits. The exception was designed
to prevent the issuance and cancellation or redemption of
stock dividends, which is fundamentally not taxable, from
being made use of as a device for the actual distribution of
cash dividends, which is taxable. (CIR vs CA, G.R. No. 108576
January 20, 1999)
(3) Property dividend
(4) Liquidating dividend
(c) Royalty income
(d) Rental income
(1) Lease of personal property
(2) Lease of real property
(3) Tax treatment of
(a) Leasehold improvements by lessee
(b) VAT added to rental/paid by the lessee
(c) Advance rental/long term lease
(vii) Annuities, proceeds from life insurance or other types of
insurance
(viii) Prizes and awards
(ix) Pensions, retirement benefit, or separation pay
(x) Income from any source whatever
(a) Forgiveness of indebtedness
(b) Recovery of accounts previously written-off when
taxable/when not taxable
(c) Receipt of tax refunds or credit

(d) Income from any source whatever

(e) Source rules in determining income from within and
without
(1) Interests
(2) Dividends
(3) Services
(4) Rentals
(5) Royalties
(6) Sale of real property
(7) Sale of personal property
(8) Shares of stock of domestic corporation
(f) Situs of income taxation
(g) Exclusions from gross income
(1) Rationale for the exclusions
(2) Taxpayers who may avail of the exclusions
(3) Exclusions distinguished from deductions and tax
credit
(4) Under the Constitution
(a) Income derived by the government or its
political subdivisions from the exercise of any essential
governmental function
(5) Under the Tax Code
(a) Proceeds of life insurance policies
(b) Return of premium paid
(c) Amounts received under life insurance, endowment
or
annuity contracts
(d) Value of property acquired by gift, bequest, devise
or
descent
(e) Amount received through accident or health
insurance
(f) Income exempt under tax treaty
(g) Retirement benefits, pensions, gratuities, etc.
- Respondent terminated petitioners services due to her
illness, rendering her incapable of continuing to work, and
gave her retirement benefits but withheld the tax due
thereon. The retirements benefits are taxable because the

petitioner was only 41 yrs old at the time of retirement and

had rendered only 8 years of service; for these benefits to be
exempt from tax, the following requisites must concur: (1) a
reasonable private benefit plan is maintained by the
employer; (2) the retiring official or employee has been in
the service of the same employer for at least ten (10) years;
(3) the retiring official or employee is not less than fifty (50)
years of age at the time of his retirement; and (4) the benefit
had been availed of only once. (Ma. Isabel T. Santos vs.
Servier Phil., Inc., et al., G.R. No. 166377, November 28,
2008)
- Respondents contend that petitioner did not withhold the
taxes due on their retirement benefits because it had obliged
itself to pay the taxes due thereon. This was done to induce
respondents to agree to avail of the optional retirement
scheme. It was only when respondents demanded the
payment of their salary differentials that petitioner alleged,
for the first time, that it had failed to present the 1993 CBA
to the BIR for approval, rendering such retirement benefits
not exempt from taxes; consequently, they were obliged to
refund to it the amounts it had remitted to the BIR in
payment of their taxes. Petitioner used this failure as an
afterthought, as an excuse for its refusal to remit to the
respondents their salary differentials. Patently, petitioner is
estopped from doing so. It cannot renege on its commitment
to pay the taxes on respondents retirement benefits on the
pretext that the new management had found the policy
disadvantageous. (Intercontinental Broadcasting Corp. vs.
Noemi B. Amarilla, et al., G.R. No. 162775, October 27,
2006 )
- Severance of employment is a condition sine qua non for the
release of retirement benefits. Retirement benefits are not
meant to recompense employees who are still in the employ
of the government. (Devt. Bank of the Phil. vs. Commission
on Audit, G.R. No. 144516, February 11, 2004)
(h) Winnings, prizes, and awards, including those in
sports competition
(6) Under special laws

(a) Personal Equity and Retirement Account

(h) Deductions from gross income
(1) General rules
(a) Deductions must be paid or incurred in connection
with the taxpayers trade, business or profession
(b) Deductions must be supported by adequate
receipts or invoices (except standard deduction)
(c) Additional requirement relating to withholding
(2) Return of capital (cost of sales or services)
(a) Sale of inventory of goods by manufacturers and
dealers of properties
(b) Sale of stock in trade by a real estate dealer and
dealer in securities
(c) Sale of services
(3) Itemized deductions
(a) Expenses
(1) Requisites for deductibility
(a) Nature: ordinary and necessary
- The expenses paid by Atlas for the services rendered by a
public relations firm, aimed at creating a favorable image for
Atlas, is not an allowable deduction as business expense
under the NIRC. Efforts to establish reputation are akin to
acquisition of capital assets and, therefore, expenses related
thereto are not business expense but capital expenditures.
(Atlas Consolidated Mining & Devt. Corp. vs. Commissioner
of Internal Revenue, G.R. No. L-26911, January 27, 1981 )
- A stock listing fee paid annually to a stock exchange for the
privilege of having a corporations stock listed is an ordinary
and business expense. This is distinguished from a single
payment made to the stockexchange, which is considered a
capital expenditure. (Atlas Consolidated Mining & Devt. Corp.
vs. Commissioner of Internal Revenue, G.R. No. L-26911,
January 27, 1981)

- The subject media advertising expense for Tang incurred

by respondent corporation was not an ordinary and
necessary expense, but rather a capital expenditure because
it failed the two conditions set by U.S. jurisprudence in
determining whether or not it is an ordinary expense: first,
reasonableness of the amount incurred and second, the
amount incurred must not be a capital outlay to create
goodwill for the product and/or private respondents
business. The subject expense for the advertisement of a
single product is inordinately large; furthermore, the
corporations venture to protect its brand franchise was
tantamount to efforts to establish a reputation and was akin
to the acquisition of capital assets. (Commissioner of Internal
Revenue vs. General Foods, Inc., G.R. No. 143672, April 24,
2003 )
(b) Paid and incurred during taxable year
(2) Salaries, wages and other forms of compensation for
personal services actually rendered, including the
grossed-up monetary value of the fringe benefit
subjected to fringe benefit tax which tax should have
been paid
- Payment by the taxpayer-corporation to its controlling
stockholder (Hoskins) of 50% of its supervision fees
(paid by a client of the corporation for the latter's
services as managing agent of a subdivision project) or
the amount of P99,977.91 is not a deductible ordinary
and necessary expense because it does not pass the
test of reasonable compensation. If independently, a
one-time P100,000.00-fee to plan and lay down the
rules for supervision of a subdivision project were to be
paid to an experienced realtor such as Hoskins, its
fairness and deductibility by the taxpayer could be
conceded; however, the fee paid to Hoskins continued
every year since 1955 up to 1963 and for as long as its
contract with the subdivision owner subsisted,

regardless of whether services were actually rendered

by Hoskins. (C. M. Hoskins & Co., Inc. vs. Commissioner
of Internal Revenue, G.R. No. L-24059, November 28,
1969)
(3) Travelling/transportation expenses
(4) Cost of materials
(5) Rentals and/or other payments for use or possession
of
property
(6) Repairs and maintenance
(7) Expenses under lease agreements
(8) Expenses for professionals
(9) Entertainment/Representation expenses
(10) Political campaign expenses
(11) Training expenses
(b) Interest
(1) Requisites for deductibility
(2) Non-deductible interest expense
(3) Interest subject to special rules
(a) Interest paid in advance
(b) Interest periodically amortized
(c) Interest expense incurred to acquire property
for use in trade/business/profession
(d)
Reduction
of
interest
expense/interest
arbitrage
(c) Taxes
- Margin fees paid by the petitioner to the Central Bank
on its profit remittances to its New York head office are
not allowable deductions as taxes because it is not a
tax but an exaction designed to curb the excessive
demands upon our international reserve. Margin fees
are also not ordinary and necessary business expenses
because they are not expenses in connection with the
production or earning of petitioner's incomes in the
Philippines; they were expenses incurred in the
disposition of said incomes. (Esso Standard Eastern, Inc.

vs. Commissioner of Internal Revenue, G.R. Nos. 285089, July 7, 1989)

(1) Requisites for deductibility
(2) Non-deductible taxes
(3) Treatments of surcharges/interests/fines
delinquency
(4) Treatment of special assessment
(5) Tax credit vis--vis deduction
(d) Losses
(1) Requisites for deductibility
(2) Other types of losses
(a) Capital losses
(b) Securities becoming worthless
(c) Losses on wash sales of stocks or securities
(d) Wagering losses
(e) Net Operating Loss Carry-Over (NOLCO)

for

(e) Bad debts

- In claiming deductions for bad debts, the only
evidentiary support given by PRC was the explanation
posited by its accountant, whose allegations were not
supported by any documentary evidence. One of the
requisites to qualify as bad debt is that the debt must
be actually ascertained to be worthless and
uncollectible during the taxable year, and the taxpayer
must prove that he exerted diligent efforts to collect the
debts by (1) sending of statement of accounts; (2)
sending of collection letters; (3) giving the account to a
lawyer for collection; and (4) filing a collection case in
court. (Philippine Refining Company vs. Court of
Appeals, et al., G.R. No. 118794, May 8, 1996)
(1) Requisites for deductibility
(2) Effect of recovery of bad debts
(f) Depreciation
- Depreciation is the gradual diminution in the useful
value of tangible property resulting from wear and tear

and normal obsolescense. The term is also applied to

amortization of the value of intangible assets, the use
of which in the trade or business is definitely limited in
duration. Depreciation commences with the acquisition
of the property and its owner is not bound to see his
property gradually waste, without making provision out
of earnings for its replacement. (Basilan Estates, Inc. vs.
Commissioner of Internal Revenue, et al., G.R. No. L22492, September 5, 1967)
- Both depletion and depreciation are predicated on the
same basic promise of avoiding a tax on capital. The
allowance for depletion is based on the theory that the
extraction of minerals gradually exhausts the capital
investment in the mineral deposit. The purpose of the
depiction deduction is to permit the owner of a capital
interest in mineral in place to make a tax-free recovery
of that depleting capital asset. A depletion is based
upon the concept of the exhaustion of a natural
resource whereas depreciation is based upon the
concept of the exhaustion of the property, not
otherwise a natural resource, used in a trade or
business or held for the production of income. Thus,
depletion and depreciation are made applicable to
different types of assets. And a taxpayer may not
deduct that which the Code allows as of another.
(Consolidated Mines, Inc. vs. Court of Tax Appeals, et
al., G.R. Nos. L- 18843 & 18844, August 29, 1974 )
(1) Requisites for deductibility
(2) Methods of computing depreciation allowance
(a) Straight-line method
(b) Declining-balance method
(c) Sum-of-the-years-digit method
(g) Charitable and other contributions
(1) Requisites for deductibility
(2) Amount that may be deducted
(h) Contributions to pension trusts

(1) Requisites for deductibility

(i) Deductions under special laws
(4) Optional standard deduction
(a) Individuals, except non-resident aliens
(b) Corporations, except non-resident foreign corporations
(c) Partnerships
(5) Personal and additional exemption (R.A. No. 9504, Minimum
Wage Earner Law)
- The increased personal and additional exemptions under the
NIRC cannot be availed of by the petitioner for purposes of
computing his income tax liability for the taxable year 1997.
Since the NIRC took effect on January 1, 1998, the increased
amounts of personal and additional exemptions under
Section 35, can only be allowed as deductions from the
individual taxpayers gross or net income, as the case
maybe, for the taxable year 1998 to be filed in 1999; the
NIRC made no reference that the personal and additional
exemptions shall apply on income earned before January 1,
1998, and it is a rule that tax laws are to be applied
prospectively unless its retroactive application is expressly
provided. (Carmelino F. Pansacola vs. CIR, G.R. No. 159991,
November 16, 2006)
(a) Basic personal exemptions
(b) Additional exemptions for taxpayer with
dependents
(c) Status-at-the-end-of-the-year rule
(d) Exemptions claimed by non-resident aliens
(6) Items not deductible
(a) General rules
(b) Personal, living or family expenses
(c) Amount paid for new buildings or for permanent
improvements (capital expenditures)
(d) Amount expended in restoring property (major
repairs)
(e) Premiums paid on life insurance policy covering life
or any

other officer or employee financially interested

(f) Interest expense, bad debts, and losses from sales of
property between related parties
(g) Losses from sales or exchange or property
(h) Non-deductible interest
(i) Nondeductible taxes
(j) Non-deductible losses
(k) Losses from wash sales of stock or securities
(7) Exempt corporations
(a) Propriety educational institutions and hospitals
(b) Government-owned or controlled corporations
(c) Others
10. Taxation of resident citizens, non-resident citizens, and
resident aliens
a) General rule that resident citizens are taxable on income
from all sources
within and without the Philippines
(i) Non-resident citizens
b) Taxation on compensation income
(i) Inclusions
(a) Monetary compensation
(1) Regular salary/wage
(2) Separation pay/retirement benefit not
otherwise exempt
(3) Bonuses, 13th month pay, and other benefits
not exempt
(4) Directors fees
(b) Non-monetary compensation
(1) Fringe benefit not subject to tax
(ii) Exclusions
(a) Fringe benefit subject to tax
(b) De minimis benefits
(c) 13th month pay and other benefits, and
payments specifically

excluded from taxable compensation income

(iii) Deductions
(a) Personal exemptions and additional
exemptions
(b) Health and hospitalization insurance
(c) Taxation of compensation income of a
minimum wage earner
(1) Definition of statutory minimum wage
(2) Definition of minimum wage earner
(3) Income also subject to tax exemption:
holiday pay, overtime
pay, night-shift differential, and hazard pay
c) Taxation of business income/income from practice of
profession
d) Taxation of passive income
(i) Passive income subject to final tax
(a) Interest income
(i) Treatment of income from long-term
deposits
(b) Royalties
(c) Dividends from domestic corporations
(d) Prizes and other winnings
(ii) Passive income not subject to final tax
e) Taxation of capital gains
(i) Income from sale of shares of stock of a Philippine
corporation
(a) Shares traded and listed in the stock exchange
(b) Shares not listed and traded in the stock exchange
(ii) Income from the sale of real property situated in the
Philippines
(iii) Income from the sale, exchange, or other
disposition of other capital Assets
- The acquisition by the Government of private properties
through the exercise of the power of eminent domain, said
properties being justly compensated, is embraced within the

meaning of the term sale or disposition of property and

the definition of gross income. Profit from the transaction
constitutes capital gain. (Gonzales vs CTA, GR L-14532, May
26, 1965)
11. Taxation of non-resident aliens engaged in trade or business
a) General rules
b) Cash and/or property dividends
c) Capital gains
Exclude: non-resident aliens not engaged in trade or business
12. Individual taxpayers exempt from income tax
a) Senior citizens
b) Minimum wage earners
c) Exemptions granted under international agreements
13. Taxation of domestic corporations
a) Tax payable
(i) Regular tax
(ii) Minimum Corporate Income Tax (MCIT)
- For its fiscal year ending 31 March 2001 (FY 2000-2001), PAL
incurred zero taxable income and did not pay MCIT, for which
BIR assessed PAL for deficiency MCIT. PAL is not liable to pay
MCIT because under its franchise, PAL has the option to pay
basic corporate income tax or franchise tax, whichever is
lower; and the tax so paid shall be in lieu of all other taxes,
except real property tax. MCIT falls within the category of
all other taxes from which PAL is exempted because
although both are income taxes, the MCIT is different from
the basic corporate income tax, not just in the rates, but also
in the bases for their computation. (Commissioner of Internal
Revenue vs. PAL, Inc., G.R. No. 180066, July 7, 2009)
a) Imposition of MCIT
- MBC being a new thrift bank is not yet liable to the MCIT
since it will apply only beginning on the 4 th years from
commencement
of
its
operations.
The
date
of
commencement of operations of a thrift bank is the date it
was registered with the SEC or the date it was granted

authority by BSP to operate as such, whichever comes later.

As newly operated thrift bank it is entitled to a grace period
of 4 years counted from the date when it was authorized by
BSP to operate as thrift bank. MBC is entitled to the refund of
the taxes paid under the MCIT. The intent of Congress
relative to the MCIT is to grant a 4 year suspension of tax
payment to newly formed corporations. Corporations still
starting have to stabilize their venture in order to obtain
stronghold in the industry. It is not a surprise when many
corporations reported losses in their initial years of
operations. (Manila Banking Corp. v. CIR, 499 SCRA 782)
(b) Carry forward of excess minimum tax
(c) Relief from the MCIT under certain conditions
(d) Corporations exempt from the MCIT
(e) Applicability of the MCIT where a corporation is
governed both under
the regular tax system and a special income tax
system
b) Allowable deductions
(i) Itemized deductions
(ii) Optional standard deduction
c) Taxation of passive income
(i) Passive income subject to tax
(a) Interest from deposits and yield, or any other monetary
benefit from deposit substitutes and from trust funds and similar
arrangements
and royalties
(b) Capital gains from the sale of shares of stock not traded in the
stock
Exchange
(c) Income derived under the expanded foreign currency deposit
system
(d) Inter-corporate dividends
(e) Capital gains realized from the sale, exchange, or disposition
of lands
and/or buildings

(ii) Passive income not subject to tax

d) Taxation of capital gains
(i) Income from sale of shares of stock
(ii) Income from the sale of real property situated in the
Philippines
(iii) Income from the sale, exchange, or other disposition of other
capital
assets
e) Tax on proprietary educational institutions and hospitals
St. Lukes is a proprietary non-stock and non-profit hospital
catering to non-paying patients but also derives profit from paying
patients. It is subject to the preferential tax rate of 10% for its
profit-generating activities under sec. 27(B) of NIRC; it cannot be
exempt from income tax under sec. 30(E) and (G) because it is
not organized and operated exclusively for charitable purposes,
which is a requirement under the aforementioned provision. (CIR
vs. St. Luke's Medical Center, Inc., G.R. Nos. 195909 & 195960,
September 26, 2012)
f) Tax on government-owned or controlled corporations, agencies
or
instrumentalities
14. Taxation of resident foreign corporations
a) General rule
b) With respect to their income from sources within the
Philippines
c) Minimum Corporate Income Tax
d) Tax on certain income
(i) Interest from deposits and yield, or any other monetary
benefit from
deposit substitutes, trust funds and similar arrangements and
royalties
(ii) Income derived under the expanded foreign currency deposit
system
(iii) Capital gains from sale of shares of stock not traded in the
stock
exchange
(iv) Inter-corporate dividends
Exclude:
(i) International carrier

(ii) Offshore banking units

(iii) Branch profits remittances
(iv) Regional or area headquarters and regional operating
headquarters of multinational companies
15. Taxation of non-resident foreign corporations
a) General rule
b) Tax on certain income
(i) Interest on foreign loans
(ii) Inter-corporate dividends
(iii) Capital gains from sale of shares of stock not traded in the
stock
exchange
Exclude:
(i) Non-resident cinematographic film-owner, lessor or distributor
(ii) Non-resident owner or lessor of vessels chartered by
Philippine
nationals
(iii) Non-resident owner or lessor of aircraft machineries and
other
Equipment
16. Improperly accumulated earnings of corporations
Petitioner cannot avoid paying surtax on improperly accumulated
earnings because the purchase of the U.S.A. Treasury bonds were
in no way related to petitioners business of importing and selling
wines liquors. The immediacy test determines the reasonable
needs of the business in order to justify an accumulation of
earningsthat is, if the corporation did not prove an immediate
need for the accumulation of the earnings and profits, the
accumulation was not for the reasonable needs of the business,
and the penalty tax would apply; investment of the earnings and
profits of the corporation in stock or securities of an unrelated
business usually indicates an accumulation beyond the
reasonable needs of the business (Manila Wine Merchants, Inc. vs.
Commissioner of Internal Revenue, G.R. No. L-26145, February 20,
1984)
BIR assessed petitioner for surtax on improperly accumulated
profits, which petitioner contested. In order to determine whether
profits are accumulated for the reasonable needs of the business,

it must be shown that: (1) the controlling intention of the taxpayer

is manifest at the time of accumulation, not intentions declared
subsequently, which are mere afterthoughts; and (2) the
accumulated profits must be used within a reasonable time after
the close of the taxable year. (Cyanamid Philippines, Inc. vs. Court
of Appeals, et al., G.R. No. 108067, January 20, 2000)
Previous accumulations should be considered in determining
unreasonable accumulations for the year concerned. In
determining whether accumulations of earnings or profits in a
particular year are within the reasonable needs of a corporation, it
is necessary to take into account prior accumulations, since
accumulations prior to the year involved may have been sufficient
to cover the business needs and additional accumulations during
the year involved would not reasonably be necessary. (Basilan
Estates, Inc. vs. Commissioner of Internal Revenue, et al., G.R. No.
L-22492, September 5, 1967)
17. Exemption from tax on corporations
YMCA, a non-stock non-profit corporation with charitable
objectives, claimed exemption from payment of income tax by
invoking the NIRC and the Constitution. While the income
received by the organizations enumerated in Section 26 of the
NIRC is, as a rule, exempted from the payment of tax in respect
to income received by them as such, the exemption does not
apply to income derived from any of their properties, real or
personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income; Moreover,
charitable institutions under Art. VI, sec. 28 of the Constitution are
only exempted from property taxes, and
YMCA is not an
educational institution under Article XIV, Section 4 of the
Constitution. (Commissioner of Internal Revenue vs. Court of
Appeals, et al., G.R. No. 124043, October 14, 1998)
Lung Center, charitable institution, does not lose its character as
such and its exemption from taxes simply because it derives
income from paying patients, whether out-patient, or confined in
the hospital, or receives subsidies from the government, so long
as the money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no money
inures to the private benefit of the persons managing or operating

the institution. However, it is not exempt from real property tax as

to the portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals because
under the Constitution, it is only exempt when its real properties
are actually, directly, and exclusively used for charitable
purposes. (Lung Center of the Phil. vs. Quezon City, et al., G.R. No.
144104, June 29, 2004)
18. Taxation of partnerships
19. Taxation of general professional partnerships
20. Withholding tax
a) Concept
b) Kinds
(i) Withholding of final tax on certain incomes
(ii) Withholding of creditable tax at source
c) Withholding of VAT
d) Filing of return and payment of taxes withheld
(i) Return and payment in case of government
employees
(ii) Statements and returns
e) Final withholding tax at source
Citytrust and Asianbank are domestic corporations which paid
gross receipts tax and claimed a refund on the basis of a CTA
ruling that the 20% FWT on a banks passive income does not
form part of the taxable gross receipts. The 20% FWT on a banks
interest income forms part of the taxable gross receipts because
gross receipts means the entire receipts without any
deduction; moreover, the imposition of the 20% FWT and 5%
GRT does not constitute double taxation because GRT is a
percentage tax while FWT is an income tax, and the two concepts
are different from each other. (Commissioner of Internal Revenue
vs. Citytrust Investment Phils., Inc., G.R. Nos. 139786 & 140857,
September 27, 2006)
f) Creditable withholding tax
(i) Expanded withholding tax
(ii) Withholding tax on compensation
g) Timing of withholding
B. Estate tax
1. Basic principles
2. Definition

3. Nature
4. Purpose or object
5. Time and transfer of properties
Post-mortem dispositions typically
(1) Convey no title or ownership to the transferee before the
death of the transferor; or, what amounts to the same thing, that
the transferor should retain the ownership (full or naked) and
control of the property while alive;
(2) That before the [donors] death, the transfer should be
revocable by the transferor at will, ad nutum; but revocability may
be provided for indirectly by means of a reserved power in the
donor to dispose of the properties conveyed; (3) That the transfer
should be void if the transferor should survive the transferee; [4]
[T]he specification in a deed of the causes whereby the act may
be revoked by the donor indicates that the donation is inter vivos,
rather than a disposition mortis causa; [5] That the designation of
the donation as mortis causa, or a provision in the deed to the
effect that the donation is to take effect at the death of the
donor are not controlling criteria; such statements are to be
construed together with the rest of the instrument, in order to
give effect to the real intent of the transferor; and (6) That in case
of doubt, the conveyance should be deemed donation inter vivos
rather than mortis causa, in order to avoid uncertainty as to the
ownership of the property subject of the deed. (GONZALO
VILLANUEVA vs. SPOUSES FROILAN, G.R. No. 172804, January 24,
2011)
The conveyance in question is not, first of all, one of mortis causa,
which should be embodied in a will. In this case, the monies
subject of savings account were in the nature of conjugal funds. In
the case relied on, Rivera v. People's Bank and Trust Co., we
rejected claims that a survivorship agreement purports to deliver
one party's separate properties in favor of the other, but simply,
their joint holdings. (ROMARICO G. VITUG vs. THE HONORABLE
COURT OF APPEALS and ROWENA FAUSTINO-CORONA, G.R. No.
82027, March 29, 1990)

But although the survivorship agreement is per se not contrary to

law its operation or effect may be violative of the law. For
instance, if it be shown in a given case that such agreement is a
mere cloak to hide an inofficious donation, to transfer property in
fraud of creditors, or to defeat the legitime of a forced heir, it may
be assailed and annulled upon such grounds. (ROMARICO G.
VITUG vs. THE HONORABLE COURT OF APPEALS and ROWENA
FAUSTINO- CORONA, G.R. No. 82027, March 29, 1990)
6. Classification of decedent
7. Gross estate vis--vis net estate
8. Determination of gross estate and net estate
9. Composition of gross estate
10. Items to be included in gross estate
11. Deductions from estate
As held in Propstra v. U.S., where a lien claimed against the estate
was certain and enforceable on the date of the decedent's death,
the fact that the claimant subsequently settled for lesser amount
did not preclude the estate from deducting the entire amount of
the claim for estate tax purposes. These pronouncements
essentially confirm the general principle that post-death
developments are not material in determining the amount of the
deduction. (RAFAEL ARSENIO S. DIZON vs. COURT OF TAX
APPEALS, G.R. No. 140944, April 30, 2008)
We express our agreement with the date-of-death valuation rule.
There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and
particularly provides that post-death developments must be
considered in determining the net value of the estate. It bears
emphasis that tax burdens are not to be imposed, nor presumed
to be imposed, beyond what the statute expressly and clearly
imports, tax statutes being construed strictissimi juris against the
government. (RAFAEL ARSENIO S. DIZON vs. COURT OF TAX
APPEALS, G.R. No. 140944, April 30, 2008)
Such construction finds relevance and consistency in our Rules on
Special Proceedings wherein the term "claims" required to be
presented against a decedent's estate is generally construed to
mean debts or demands of a pecuniary nature which could have

been enforced against the deceased in his lifetime, or liability

contracted by the deceased before his death. Therefore, the
claims existing at the time of death are significant to, and should
be made the basis of, the determination of allowable deductions.
(RAFAEL ARSENIO S. DIZON vs. COURT OF TAX APPEALS, G.R. No.
140944, April 30, 2008)
Administration expenses, as an allowable deduction from the
gross estate of the decedent for purposes of arriving at the value
of the net estate, have been construed by the federal and state
courts of the United States to include all expenses "essential to
the collection of the assets, payment of debts or the distribution
of the property to the persons entitled to it." In other words, the
expenses must be essential to the proper settlement of the estate
and expenditures incurred for the individual benefit of the heirs,
devisees or legatees are not deductible. (COMMISSIONER OF
INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 123206,
March 22, 2000)
Thus, in Lorenzo v. Posadas, the Court construed the phrase
"judicial expenses of the testamentary or intestate proceedings"
as not including the compensation paid to a trustee of the
decedent's estate when it appeared that such trustee was
appointed for the purpose of managing the decedent's real estate
for the benefit of the testamentary heir. In another case, the Court
disallowed the premiums paid on the bond filed by the
administrator as an expense of administration since the giving of
a bond is in the nature of a qualification for the office, and not
necessary in the settlement of the estate. Neither may attorney's
fees incident to litigation incurred by the heirs in asserting their
respective rights be claimed as a deduction from the gross estate.
(COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS,
G.R. No. 123206, March 22, 2000)
The notarial fee paid for the extrajudicial settlement is clearly a
deductible expense since such settlement effected a distribution
of Pedro Pajonar's estate to his lawful heirs. Similarly, the
attorney's fees paid to PNB for acting as the guardian of Pedro
Pajonar's property should also be considered as a deductible

administration expense as PNB provided a detailed accounting of

decedent's property and gave advice as to the proper settlement
of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of
the estate. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF
APPEALS, G.R. No. 123206, March 22, 2000)
12. Exclusions from estate
13. Tax credit for estate taxes paid in a foreign country
14. Exemption of certain acquisitions and transmissions
15. Filing of notice of death
16. Estate tax return
C. Donors tax
1. Basic principles
2. Definition
3. Nature
4. Purpose or object
5. Requisites of valid donation
Neither is the survivorship agreement a donation inter vivos, for
obvious reasons, because it was to take effect after the death of
one party. Secondly, it is not a donation between the spouses
because it involved no conveyance of a spouse's own properties
to the other. (ROMARICO G. VITUG vs. THE HONORABLE COURT OF
APPEALS and ROWENA FAUSTINO- CORONA, G.R. No. 82027,
March 29, 1990)
In the case at bar, when the spouses Vitug opened savings
account, they merely put what rightfully belonged to them in a
money-making venture. They did not dispose of it in favor of the
other, which would have arguably been sanctionable as a
prohibited donation. (ROMARICO G. VITUG vs. THE HONORABLE
COURT OF APPEALS and ROWENA FAUSTINO-CORONA, G.R. No.
82027, March 29, 1990)
The granting clause shows that Diego donated the properties out
of love and affection for the donee which is a mark of a donation
inter vivos; second, the reservation of lifetime usufruct indicates
that the donor intended to transfer the naked ownership over the
properties; third, the donor reserved sufficient properties for his

maintenance in accordance with his standing in society, indicating

that the donor intended to part with the six parcels of land; lastly,
the donee accepted the donation. (SPS. AGRIPINO GESTOPA and
ISABEL SILARIO GESTOPA vs. COURT OF APPEALS, G.R. No.
111904, October 5, 2000)
In the case of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we
said that an acceptance clause is a mark that the donation is inter
vivos. Acceptance is a requirement for donations inter vivos.
Donations mortis causa, being in the form of a will, are not
required to be accepted by the donees during the donors' lifetime.
(SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs.
COURT OF APPEALS, G.R. No. 111904, October 5, 2000)
Crucial in resolving whether the donation was inter vivos or mortis
causa is the determination of whether the donor intended to
transfer the ownership over the properties upon the execution of
the deed. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA
vs. COURT OF APPEALS, G.R. No. 111904, October 5, 2000)
A remuneratory donation is one where the donee gives
something to reward past or future services or because of future
charges or burdens, when the value of said services, burdens or
charges is less than the value of the donation. (De Luna v. Abrigo,
G.R. No. L-57455, January 18, 1990)
6. Transfers which may be constituted as donation
a) Sale/exchange/transfer of property for insufficient
consideration
b) Condonation/remission of debt
7. Transfer for less than adequate and full consideration
8. Classification of donor
9. Determination of gross gift
10. Composition of gross gift
11. Valuation of gifts made in property
12. Tax credit for donors taxes paid in a foreign country
13. Exemptions of gifts from donors tax
14. Person liable
15. Tax basis
D. Value-Added Tax (VAT)

1. Concept
As its name implies, the Value-Added Tax system is a tax on the
value added by the taxpayer in the chain of transactions. For
simplicity and efficiency in tax collection, the VAT is imposed not
just on the value added by the taxpayer, but on the entire selling
price of his goods, properties or services. (COMMISSIONER OF
INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R.
No. 187485, February 12, 2013)
However, the taxpayer is allowed a refund or credit on the VAT
previously paid by those who sold him the inputs for his goods,
properties, or services. The net effect is that the taxpayer pays
the VAT only on the value that he adds to the goods, properties,
or services that he actually sells.(COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No.
187485, February 12, 2013)
VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or
property, and on the performance of services, even in the
absence of profit attributable thereto. The term "in the course of
trade or business" requires the regular conduct or pursuit of a
commercial or an economic activity, regardless of whether or not
the entity is profit-oriented. (COMMISSIONER OF INTERNAL
REVENUE vs. COURT OF APPEALS, G.R. No. 125355, March 30,
2000)
The VAT is not a license tax; it is not a tax on the exercise of a
privilege, much less a constitutional right. It is imposed on the
sale, barter, lease or exchange of goods or properties or the sale
or exchange of services and the lease of properties purely for
revenue purposes. (ARTURO M. TOLENTINO v. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 115455, October 30, 1995)
2. Characteristics/Elements of a VAT-Taxable transaction
VAT is not a singular-minded tax on every transactional level; its
assessment bears direct relevance to the taxpayer's role or link in
the production chain. Hence, as affirmed by Section 99 [now Sec.
105] of the Tax Code and its subsequent incarnations, the tax is
levied only on the sale, barter or exchange of goods or services
by persons who engage in such activities, in the course of trade or

business.(COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY

LINES, INC., G.R. No. 146984. July 28, 2006)
The Court rules that given the undisputed finding that the
transaction in question was not made in the course of trade or
business of the seller, NDC that is, the sale is not subject to VAT
pursuant to Section 99 [now Sec. 105] of the Tax Code, no matter
how the said sale may hew to those transactions deemed sale as
defined under Section 100 [now Sec. 106]. (COMMISSIONER OF
INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R. No. 146984.
July 28, 2006)
Thus, there must be a sale, barter or exchange of goods or
properties before any VAT may be levied. Certainly, there was no
such sale, barter or exchange in the subsidy given by SIS to Sony;
it was but a dole out by SIS and not in payment for goods or
properties sold, bartered or exchanged by Sony. (COMMISSIONER
OF INTERNAL REVENUE vs. SONY PHILIPPINES, INC., G.R. No.
178697, November 17, 2010)
Goods or properties must be used directly or indirectly in the
production or sale of taxable goods and services. (Kepco
Philipppines Corp. v. CIR, G.R. No. 179356, December 14, 2009) it
is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its
affiliates on a reimbursement-on-cost basis only, without realizing
profit, for purposes of determining liability for VAT on services
rendered. As long as the entity provides service for a fee,
remuneration or consideration, then the service rendered is
subject to VAT. (COMMISSIONER OF INTERNAL REVENUE vs.
COURT OF APPEALS, G.R. No. 125355, March 30, 2000)
3. Impact of tax
Under Section 105 of the Tax Code, VAT is imposed on any person
who, in the course of trade or business, sells or renders services
for a fee. In other words, the seller of services, who in this case is
the tollway operator, is the person liable for VAT. The latter merely
shifts the burden of VAT to the tollway user as part of the toll
fees. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
4. Incidence of tax
The seller who is liable for the VAT may shift or pass on the
amount of VAT it paid on goods, properties or services to the

buyer. In such a case, what is transferred is not the seller's

liability but merely the burden of the VAT. (RENATO V. DIAZ and
AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No.
193007, July 19, 2011)
Thus, the seller remains directly and legally liable for payment of
the VAT, but the buyer bears its burden since the amount of VAT
paid by the former is added to the selling price. Once shifted, the
VAT ceases to be a tax and simply becomes part of the cost that
the buyer must pay in order to purchase the good, property or
service. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
A seller who is directly and legally liable for the payment of an
indirect tax, such as the VAT on goods or services is not
necessarily the person who ultimately bears the burden of the
same tax. It is the final purchaser of consumer of such goods or
services who, although not directly and legally liable for the
payment thereof, ultimately bears the burden of the tax. (Contex
v. CIR, G.R. No. 151135, July 2, 2004)
In the case of the VAT, the law minimizes the regressive effects of
indirect taxation by providing for zero rating of certain
transactions, while granting exemptions to other transactions. On
the other hand, the transactions which are subject to the VAT are
those which involve goods and services which are used or availed
of mainly by higher income groups. (ARTURO M. TOLENTINO v.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
5. Tax credit method
6. Destination principle
According to the Destination Principle, goods and services are
taxed only in the country where these are consumed. In
connection with the said principle, the Cross Border Doctrine
mandates that no VAT shall be imposed to form part of the cost of
the goods destined for consumption outside the territorial border
of the taxing authority. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of VAT,
while those destined for use or consumption within the Philippines
shall be imposed with 10% VAT. (ATLAS CONSOLIDATED MINING
AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. Nos. 141104 & 148763, June 8, 2007)

Applying the destination principle to the exportation of goods,

automatic zero rating is primarily intended to be enjoyed by the
seller who is directly and legally liable for the VAT, making such
seller internationally competitive by allowing the refund or credit
of input taxes that are attributable to export sales.
(COMMISSIONER
OF
INTERNAL
REVENUE
vs.
SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
Under the cross-border principle of the VAT system being enforced
by the Bureau of Internal Revenue (BIR), no VAT shall be imposed
to form part of the cost of goods destined for consumption outside
of the territorial border of the taxing authority. If exports of goods
and services from the Philippines to a foreign country are free of
the VAT, then the same rule holds for such exports from the
national territoryexcept specifically declared areasto an
ecozone. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
While an ecozone is geographically within the Philippines, it is
deemed a separate customs territory and is regulated in laws as
foreign soul. Sales by supplies outside the borders of ecozone to
this separate customs territory are deemed exports and treated
as export sales. (CIR v. Seksui Jushi Phils, Inc. G.R. No. 149671,
July 21, 2006)
For as long as the goods remain within the zone, whether we call
it an economic zone or a freeport zone, for as long as we say in
this law that all goods entering this particular territory will be
duty-free and tax-free, for as long as they remain there,
consumed there or re-exported or destroyed in that place, then
they are not subject to duties and taxes in accordance with the
laws of the Philippines. (Coconut Oil Refiners Association v.
Executive Secretary, G.R. No. 132527, July 29, 2005)
7. Persons liable
8. VAT on sale of goods or properties
Goods, as commonly understood in the business sense, refer to
the product which the VAT-registered person offers for sale to the
public. With respect to real estate dealers, it is the real properties
themselves which constitute their goods. Such real properties are
the operating assets of the real estate dealer. (Fort Bonifacio
Development Corporation vs. CIR, G.R. Nos. 158885 and 170630,
April 2, 2009)

Requisites of taxability of sale of goods or properties

Mindanao IIs sale of the Nissan Patrol is said to be an isolated
transaction. However, it does not follow that an isolated
transaction cannot be an incidental transaction for purposes of
VAT liability. Indeed, a reading of Section 105 of the 1997 Tax
Code would show that a transaction "in the course of trade or
business" includes "transactions incidental thereto." (MINDANAO II
GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 193301, March 11, 2013)
Prior to the sale, the Nissan Patrol was part of Mindanao IIs
property, plant, and equipment. Therefore, the sale of the Nissan
Patrol is an incidental transaction made in the course of Mindanao
IIs business which should be liable for VAT. (MINDANAO II
GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 193301, March 11, 2013)
9. Zero-rated sales of goods or properties, and effectively zerorated sales of goods
or properties
Zero-rated transactions generally refer to the export sale of goods
and supply of services. The tax rate is set at zero and when
applied to the tax base, such rate obviously results in no tax
chargeable against the purchaser. The seller of such transactions
charges no output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers.
(COMMISSIONER
OF
INTERNAL
REVENUE
vs.
SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
Effectively zero-rated transactions, however, refer to the sale of
goods or supply of services to persons or entities whose
exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects such
transactions to a zero rate. Again, as applied to the tax base, such
rate does not yield any tax chargeable against the purchaser. The
seller who charges zero output tax on such transactions can also
claim a refund of or a tax credit certificate for the VAT previously
charged by suppliers. (
COMMISSIONER
OF
INTERNAL
REVENUE
vs.
SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)

If respondent is located in an export processing zone within that

ecozone, sales to the export processing zone, even without being
actually exported, shall in fact be viewed as
constructively exported
under EO 226. Considered as export sales, such purchase
transactions by respondent would indeed be subject to a zero
rate. (
COMMISSIONER
OF
INTERNAL
REVENUE
vs.
SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
PAGCOR's exemption from VAT under Section 108 (B) (3) of R.A.
No. 8424 has been thoroughly and extensively discussed in
Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation.
Acesite sought the refund of the amount it paid as VAT on the
ground that its transaction with PAGCOR was subject to zero rate
as it was rendered to a tax-exempt entity. The Court ruled that
PAGCOR and Acesite were both exempt from paying VAT.
(PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR)
vs. THE BUREAU OF INTERNAL REVENUE, G.R. No. 172087, March
15, 2011)
No prior application for the effective zero rating of its
transactions is necessary. The BIR regulations additionally
requiring an approved prior application for effective zero rating
cannot prevail over the clear VAT nature of respondent's
transactions. Other than the general registration of a taxpayer the
VAT status of which is aptly determined, no provision under our
VAT law requires an additional application to be made for such
taxpayer's transactions to be considered effectively zero-rated.
(COMMISSIONER
OF
INTERNAL
REVENUE
vs.
SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
The Omnibus Investments Code of 1987 recognizes as export
sales the sales of export products to another producer or to an
export trader, provided that the export products are actually
exported. For purposes of VAT zero-rating, such producer or
export trader must be registered with the BOI and is required to
actually export more than 70% of its annual production. (ATLAS
CONSOLIDATED MINING AND DEVELOPMENT CORPORATION vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. Nos. 141104 &
148763, June 8, 2007)

In terms of the VAT computation, zero rating and exemption are

the same, but the extent of relief that results from either one of
them is not. In both instances of zero rating, there is total relief
for the purchaser from the burden of the tax but in an exemption
there is only partial relief, because the purchaser is not allowed
any tax refund of or credit for input taxes paid. (COMMISSIONER
OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
10. Transactions deemed sale
a) Transfer, use or consumption not in the course of business
of
goods/properties originally intended for sale or use in the
course of business
b) Distribution or transfer to shareholders, investors or
creditors
c) Consignment of goods if actual sale not made within 60
days from date of
consignment
d) Retirement from or cessation of business with respect to
inventories on hand
11. Change or cessation of status as VAT-registered person
a) Subject to VAT
(i) Change of business activity from VAT taxable status
to VAT-exempt
status
(ii) Approval of request for cancellation of a registration
due to reversion to
exempt status
(iii) Approval of request for cancellation of registration
due to desire to revert
to exempt status after lapse of 3 consecutive years
b) Not subject to VAT
(i) Change of control of a corporation
(ii) Change in the trade or corporate name
(iii) Merger or consolidation of corporations
12. VAT on importation of goods
a) Transfer of goods by tax exempt persons
13. VAT on sale of service and use or lease of properties

Service has been defined as the art of doing something useful for
a person or company for a fee or useful labor or work rendered or
to be rendered another for a fee. (CIR v. American Express
International, Inc., G.R. No. 152609, June 29, 2005) By qualifying
"services" with the words "all kinds," Congress has given the term
"services" an all-encompassing meaning. The listing of specific
services are intended to illustrate how pervasive and broad is the
VAT's reach rather than establish concrete limits to its application;
thus, every activity that can be imagined as a form of "service"
rendered for a fee should be deemed included unless some
provision of law especially excludes it. (RENATO V. DIAZ and
AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No.
193007, July 19, 2011)
Tollway operators not only come under the broad term "all kinds
of services," they also come under the specific class described in
Section 108 as "all other franchise grantees" who are subject to
VAT, "except those under Section 119 of this Code." Tollway
operators are franchise grantees and they do not belong to
exceptions (the low-income radio and/or television broadcasting
companies with gross annual incomes of less than P10 million and
gas and water utilities) that Section 119 spares from the payment
of VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
In specifically including by way of example electric utilities,
telephone, telegraph, and broadcasting companies in its list of
VAT-covered businesses, Section 108 opens other companies
rendering public service for a fee to the imposition of VAT.
Businesses of a public nature such as public utilities and the
collection of tolls or charges for its use or service is a franchise.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY
OF FINANCE, G.R. No. 193007, July 19, 2011)
In the case of CIR v. Court of Appeals (CA), the Court had the
occasion to rule that services rendered for a fee even on
reimbursement-on-cost basis only and without realizing profit are
also subject to VAT. In that case, COMASERCO rendered service to
its affiliates and, in turn, the affiliates paid the former
reimbursement-on-cost which means that it was paid the cost or
expense that it incurred although without profit. (COMMISSIONER

OF INTERNAL REVENUE vs. SONY PHILIPPINES, INC., G.R. No.

178697, November 17, 2010)
Among those included in the enumeration is the lease of motion
picture films, films, tapes and discs. This, however, is not the
same as the showing or exhibition of motion pictures or films. The
legislative intent is not to impose VAT on persons already covered
by the amusement tax and this holds true even in the case of
cinema/theater operators taxed under the LGC of 1991 precisely
because the VAT law was intended to replace the percentage tax
on certain services. (CIR v. SM Prime Holdings, Inc. and First Asia
Realty Development Corp., G.R. No. 183505, February 26, 2010)
a) Requisites for taxability
14. Zero-rated sale of services
15. VAT exempt transactions
An exempt transaction involves goods or services which, by their
nature, are specifically listed in and expressly exempted from the
VAT under the Tax Code, without regard to the tax statusVATexempt or notof the party to the transaction. Indeed, such
transaction is not subject to the VAT, but the seller is not allowed
any tax refund of or credit for any input taxes paid.
(COMMISSIONER
OF
INTERNAL
REVENUE
vs.
SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
An exempt party, on the other hand, is a person or entity granted
VAT exemption under the Tax Code, a special law or an
international agreement to which the Philippines is a signatory,
and by virtue of which its taxable transactions become exempt
from the VAT. Such party is also not subject to the VAT, but may
be allowed a tax refund of or credit for input taxes paid,
depending on its registration as a VAT or non-VAT taxpayer.
(COMMISSIONER
OF
INTERNAL
REVENUE
vs.
SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
a) VAT exempt transactions, in general
By extending the exemption to entities or individuals dealing with
PAGCOR, the legislature clearly granted exemption also from
indirect taxes. It must be noted that the indirect tax of VAT, as in
the instant case, can be shifted or passed to the buyer,
transferee, or lessee of the goods, properties, or services subject
to VAT. Thus, by extending the tax exemption to entities or

individuals dealing with PAGCOR in casino operations, it is

exempting PAGCOR from being liable to indirect taxes. (PHILIPPINE
AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE
BUREAU OF INTERNAL REVENUE, G.R. No. 172087, March 15,
2011)
The rationale for the exemption from indirect taxes provided for in
P.D. 1869 and the extension of such exemption to entities or
individuals dealing with PAGCOR in casino operations are best
elucidated from the 1987 case of Commissioner of Internal
Revenue v. John Gotamco & Sons, Inc., where the absolute tax
exemption of the World Health Organization (WHO) upon an
international agreement was upheld. We held in said case that the
exemption of contractee WHO should be implemented to mean
that the entity or person exempt is the contractor itself who
constructed the building owned by contractee WHO, and such
does not violate the rule that tax exemptions are personal
because the manifest intention of the agreement is to exempt the
contractor so that no contractor's tax may be shifted to the
contractee WHO. (PHILIPPINE AMUSEMENT AND GAMING
CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL REVENUE,
G.R. No. 172087, March 15, 2011)
Pawnshops- considered as non-bank financial intermediary is
exempted from VAT but liable to percentage tax. (Tambunting
Pawnshop, Inc. v. CIR, G.R. No. 179085, January 21, 2010)
b) Exempt transaction, enumerated
16. Input tax and output tax, defined
Under the present method that relies on invoices, an entity can
credit against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and imports.
(COMMISSIONER
OF
INTERNAL
REVENUE
vs.
SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
If at the end of a taxable quarter the output taxes charged by a
seller are equal to the input taxes passed on by the suppliers, no
payment is required. It is when the output taxes exceed the input
taxes that the excess has to be paid. (COMMISSIONER OF
INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
17. Sources of input tax
a) Purchase or importation of goods

b) Purchase of real properties for which a VAT has actually

been paid
c) Purchase of services in which VAT has actually been paid
d) Transactions deemed sale
e) Presumptive input
f) Transitional input
Prior payment of taxes is not necessary before a taxpayer could
avail of the 8% transitional input tax credit: first, it was never
mentioned in Section 105 of the old NIRC [now Sec. 111] that
prior payment of taxes is a requirement; second, since the law
(Section 105 of the NIRC) does not provide for prior payment of
taxes, to require it now would be tantamount to judicial legislation
which, to state the obvious, is not allowed; third, a transitional
input tax credit is not a tax refund per se but a tax credit; fourth,
if the intent of the law were to limit the input tax to cases where
actual VAT was paid, it could have simply said that the tax base
shall be the actual value-added tax paid; and fifth, this Court had
already declared that prior payment of taxes is not required in
order to avail of a tax credit. (FORT BONIFACIO DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 173425, January 22, 2013)
Section 112 of the Tax Code does not prohibit cash refund or tax
credit of transitional input tax in the case of zero-rated or
effectively zero-rated VAT registered taxpayers, who do not have
any output VAT. The phrase "except transitional input tax" in
Section 112 of the Tax Code was inserted to distinguish creditable
input tax from transitional input tax credit. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)
It is apparent that the transitional input tax credit operates to
benefit newly VAT-registered persons, whether or not they
previously paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies. During that period of
transition from non-VAT to VAT status, the transitional input tax
credit serves to alleviate the impact of the VAT on the taxpayer.
(FORT
BONIFACIO
DEVELOPMENT
CORPORATION
vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, January
22, 2013)
18. Persons who can avail of input tax credit

In a VAT-exempt transaction, the seller is not allowed to charge

VAT to his customer. Since no output tax is shifted by the seller,
there is no output tax against which the related input taxes may
be credited. Neither can he credit this input tax against the VAT
due on other sales. In this case, he is treated as the end user who
will shoulder the cost of the input VAT. (COMMISSIONER OF
INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R.
No. 187485, February 12, 2013)
Unlike the input taxes related to exempt sales, input taxes related
to zero-rated sales may be credited against output taxes on other
sales and in case it is not fully utilized, the excess may be carried
over to the succeeding quarter or quarters and there is no
prescription period for the carry-over. The law gives the taxpayer
another option for the recovery of used input taxes: application
for refund or tax credit certificate. (COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No.
187485, February 12, 2013)
19. Determination of output/input tax; VAT payable; excess input
tax credits
a) Determination of output tax
b) Determination of input tax creditable
c) Allocation of input tax on mixed transactions
d) Determination of the output tax and VAT payable and
computation of VAT
payable or excess tax credits
20. Substantiation of input tax credits
21. Refund or tax credit of excess input tax
If, however, the input taxes exceed the output taxes, the excess
shall be carried over to the succeeding quarter or quarters.
Should the input taxes result from zero-rated or effectively zerorated transactions or from the acquisition of capital goods, any
excess over the output taxes shall instead be refunded to the
taxpayer or credited against other internal revenue taxes.
(COMMISSIONER
OF
INTERNAL
REVENUE
vs.
SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
While a tax liability is essential to the availment or use of any tax
credit, prior tax payments are not. On the contrary, for the
existence or grant solely of such credit, neither a tax liability nor a
prior tax payment is needed. (FORT BONIFACIO DEVELOPMENT

CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.

No. 173425, January 22, 2013)
As regards Section 110, while the law only provides for a tax
credit, a taxpayer who erroneously or excessively pays his output
tax is still entitled to recover the payments he made either as a
tax credit or a tax refund. In this case, since petitioner still has
available transitional input tax credit, it filed a claim for refund to
recover the output VAT it erroneously or excessively paid for the
1st quarter of 1997. Thus, there is no reason for denying its claim
for
tax
refund/credit.
(FORT
BONIFACIO
DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 173425, January 22, 2013)
Even if the law does not expressly state that the Ironcons excess
creditable VAT withheld is refundable, it may be the subject-of a
claim for refund as an erroneously collected tax under Sec. 204
(C) and 229 of the NIRC. It should be clarified that this ruling only
refers to creditable VAT withheld pursuant to Sec. 114 of the NIRC
prior to its amendment. After its amendment by R.A. 9337, the
amount withheld under Sec. 114 of the NIRC is now treated as
final VAT, no longer under the creditable withholding tax system
(CIR v. Ironcon Builders and Development Corp., G.R. No. 180042,
February 8, 2010) The input VAT is not "excessively" collected as
understood under Section 229 because at the time the input VAT
is collected the amount paid is correct and proper. The person
legally liable for the input VAT cannot claim that he overpaid the
input VAT by the mere existence of an "excess" input VAT. The
term "excess" input VAT simply means that the input
VAT
available as credit exceeds the output VAT, not that the input VAT
is excessively collected because it is more than what is legally
due. Thus, the taxpayer who legally paid the input VAT cannot
claim for refund or credit of the input VAT as "excessively"
collected under Section 229. (COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No.
187485, February 12, 2013)
If such "excess" input VAT is an "excessively" collected tax, the
taxpayer should be able to seek a refund or credit for such
"excess" input VAT whether or not he has output VAT. The VAT
System does not allow such refund or credit and such "excess"
input VAT is not an "excessively" collected tax under Section 229.

(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER

CORPORATION, G.R. No. 187485, February 12, 2013)
Who may claim for refund/apply for issuance of tax credit
certificate
Having determined that respondent's purchase transactions are
subject to a zero VAT rate, the tax refund or credit is in order. To
repeat, the VAT is a tax imposed on consumption, not on
business. Although respondent as an entity is exempt, the
transactions it enters into are not necessarily so. The VAT
payments made in excess of the zero rate that is imposable may
certainly be refunded or credited. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No.
153866, February 11, 2005)
Period to file claim/apply for issuance of tax credit certificate
The Court, in San Roque, ruled that equitable estoppel had set in
when respondent issued BIR Ruling No. DA-489-03 which was a
general interpretative rule, which effectively misled all taxpayers
into filing premature judicial claims with the CTA. Thus, taxpayers
could rely on the ruling from its issuance on 10 December 2003
up to its reversal on 6 October 2010, when CIR v. Aichi Forging
Company of Asia, lnc. was promulgated. (PROCTER & GAMBLE
ASIA PTE LTD. vs.COMMISSIONER OF INTERNAL REVENUE, G.R. No.
202071, February 19, 2014)
In a nutshell, the rules on the determination of the prescriptive
period for filing a tax refund or credit of unutilized input VAT, as
provided in Section 112 of the Tax Code, are as follows: (1) An
administrative claim must be filed with the CIR within two years
after the close of the taxable quarter when the zero-rated or
effectively zero-rated sales were made.
c) Manner of giving refund
d) Destination principle or cross-border doctrine
22. Invoicing requirements
a) Invoicing requirements in general
b) Invoicing and recording deemed sale transactions
c) Consequences of issuing erroneous VAT invoice or VAT
official receipt
23. Filing of return and payment
24. Withholding of final VAT on sales to government

E. Tax remedies under the NIRC

1. Taxpayers remedies
a) Assessment
(i) Concept of assessment
(a) Requisites for valid assessment
(b) Constructive methods of income determination
(c) Inventory method for income determination
(d) Jeopardy assessment
(e) Tax delinquency and tax deficiency
(ii) Power of the Commissioner to make assessments
and prescribe additional
requirements for tax administration and enforcement
(a) Power of the Commissioner to obtain
information, and to
summon/examine, and take testimony of persons
(iii) When assessment is made
(a) Prescriptive period for assessment
(1) False, fraudulent, and non-filing of returns
(b) Suspension of running of statute of limitations
(iv) General provisions on additions to the tax
(a) Civil penalties
(b) Interest
(c) Compromise penalties
(v) Assessment process
(a) Tax audit
(b) Notice of informal conference
(c) Issuance of preliminary assessment notice
(d) Notice of informal conference
(e) Issuance of preliminary assessment notice
(f) Exceptions to issuance of preliminary
assessment notice
(g) Reply to preliminary assessment notice
(h) Issuance of formal letter of demand and
assessment notice/final
assessment notice
(i) Disputed assessment
(j) Administrative decision on a disputed
assessment

(vi) Protesting assessment

(a) Protest of assessment by taxpayer
(1) Protested assessment
(2) When to file a protest
(3) Forms of protest
(4) Content and validity of protest
(b) Submission of documents within 60 days from
filing of protest
(c) Effect of failure to protest
(d) Period provided for the protest to be acted
upon
(vii) Rendition of decision by Commissioner
(a) Denial of protest
(1) Commissioners actions equivalent to
denial of protest
(a) Filing of criminal action against
taxpayer
(b) Issuing a warrant of distraint and
levy
(2) Inaction by Commissioner
(viii) Remedies of taxpayer to action by Commissioner
(a) In case of denial of protest
(b) In case of inaction by Commissioner within 180
days from submission
of documents
(c) Effect of failure to appeal
b) Collection
(i) Requisites
(ii) Prescriptive periods
(iii) Distraint of personal property including garnishment
(a) Summary remedy of distraint of personal
property
(1) Purchase by the government at sale upon
distraint
(2) Report of sale to the Bureau of Internal
Revenue (BIR)
(3) Constructive distraint to protect the
interest of the
government
(iv) Summary remedy of levy on real property

(a) Advertisement and sale

(b) Redemption of property sold
(c) Final deed of purchaser
(v) Forfeiture to government for want of bidder
(a) Remedy of enforcement of forfeitures
(1) Action to contest forfeiture of chattel
(b) Resale of real estate taken for taxes
(c) When property to be sold or destroyed
(d) Disposition of funds recovered in legal
proceedings or obtained from
forfeiture
(vi) Further distraint or levy
(vii) Tax lien
(viii) Compromise
(a) Authority of the Commissioner to compromise
and abate taxes
(ix) Civil and criminal actions
(a) Suit to recover tax based on false or fraudulent
returns
c) Refund
(i) Grounds and requisites for refund
(ii) Requirements for refund as laid down by cases
(a) Necessity of written claim for refund
(b) Claim containing a categorical demand for
reimbursement
(c) Filing of administrative claim for refund and the
suit/proceeding
before the CTA within 2 years from date of
payment regardless of
g cause
(iii) Legal basis of tax refunds
(iv) Statutory basis for tax refund under the tax code
(a) Scope of claims for refund
(b) Necessity of proof for claim or refund
(c) Burden of proof for claim of refund
(d) Nature of erroneously-paid tax/illegally
assessed collected

(e) Tax refund vis--vis tax credit

(f) Essential requisites for claim of refund
(v) Who may claim/apply for tax refund/tax credit
(a) Taxpayer/withholding agents of non-resident
foreign corporation
(vi) Prescriptive period for recovery of tax erroneously
or illegally collected
(vii) Other consideration affecting tax refunds
2. Government remedies
a) Administrative remedies
(i) Tax lien
(ii) Levy and sale of real property
(iii) Forfeiture of real property to the government for
want of bidder
(iv) Further distraint and levy
(v) Suspension of business operation
(vi) Non-availability of injunction to restrain collection of
tax
b) Judicial remedies
3. Statutory offenses and penalties
a) Civil penalties
(i) Surcharge
(ii) Interest
(a) In general
(b) Deficiency interest
(c) Delinquency interest
(d) Interest on extended payment
4. Compromise and abatement of taxes
a) Compromise
b) Abatement
F. Organization and Function of the Bureau of Internal Revenue
1. Rule-making authority of the Secretary of Finance
a) Authority of Secretary of Finance to promulgate rules and
regulations
b) Specific provisions to be contained in rules and
regulations
c) Non-retroactivity of rulings
2. Power of the Commissioner to suspend the business operation
of a taxpayer

III. Local Government Code of 1991, as amended

A. Local government taxation
1. Fundamental principles
2. Nature and source of taxing power
a) Grant of local taxing power under the local government
code
b) Authority to prescribe penalties for tax violations
c) Authority to grant local tax exemptions
d) Withdrawal of exemptions
e) Authority to adjust local tax rates
f) Residual taxing power of local governments
g) Authority to issue local tax ordinances
3. Local taxing authority
a) Power to create revenues exercised through Local
Government Units
b) Procedure for approval and effectivity of tax ordinances
4. Scope of taxing power
5. Specific taxing power of Local Government Units
a) Taxing powers of provinces
(i) Tax on transfer of real property ownership
(ii) Tax on business of printing and publication
(iii) Franchise tax
(iv) Tax on sand, gravel and other quarry services
(v) Professional tax
(vi) Amusement tax
(vii) Tax on delivery truck/van
b) Taxing powers of cities
c) Taxing powers of municipalities
(i) Tax on various types of businesses
(ii) Ceiling on business tax impossible on municipalities
within Metro Manila
(iii) Tax on retirement on business
(iv) Rules on payment of business tax
(v) Fees and charges for regulation & licensing
(vi) Situs of tax collected
d) Taxing powers of barangays
e) Common revenue raising powers
(i) Service fees and charges

(ii) Public utility charges

(iii) Toll fees or charges
f) Community tax
6. Common limitations on the taxing powers of LGUs
7. Collection of business tax
a) Tax period and manner of payment
b) Accrual of tax
c) Time of payment
d) Penalties on unpaid taxes, fees or charges
e) Authority of treasurer in collection and inspection of books
8. Taxpayers remedies
a) Periods of assessment and collection of local taxes, fees or
charges
b) Protest of assessment
c) Claim for refund of tax credit for erroneously or illegally
collected tax, fee or
charge
9. Civil remedies by the LGU for collection of revenues
a) Local governments lien for delinquent taxes, fees or
charges
b) Civil remedies, in general
(i) Administrative action
(ii) Judicial action
B. Real property taxation
1. Fundamental principles
2. Nature of real property tax
3. Imposition of real property tax
a) Power to levy real property tax
b) Exemption from real property tax
4. Appraisal and assessment of real property tax
a) Rule on appraisal of real property at fair market value
b) Declaration of real property
c) Listing of real property in assessment rolls
d) Preparation of schedules of fair market value
(i) Authority of assessor to take evidence
(ii) Amendment of schedule of fair market value
e) Classes of real property
f) Actual use of property as basis of assessment

g) Assessment of real property

(i) Assessment levels
(ii) General revisions of assessments and property
classification
(iii) Date of effectivity of assessment or reassessment
(iv) Assessment of property subject to back taxes
(v) Notification of new or revised assessment
h) Appraisal and assessment of machinery
5. Collection of real property tax
a) Date of accrual of real property tax and special levies
b) Collection of tax
(i) Collecting authority
(ii) Duty of assessor to furnish local treasurer with
assessment rolls
(iii) Notice of time for collection of tax
c) Periods within which to collect real property tax
d) Special rules on payment
(i) Payment of real property tax in installments
(ii) Interests on unpaid real property tax
(iii) Condonation of real property tax
e) Remedies of LGUs for collection of real property tax
(i) Issuance of notice of delinquency for real property
tax payment
(ii) Local governments lien
(iii) Remedies in general
(iv) Resale of real estate taken for taxes, fees or
charges
(v) Further levy until full payment of amount due
6. Refund or credit of real property tax
a) Payment under protest
b) Repayment of excessive collections
7. Taxpayers remedies
a) Contesting an assessment of value of real property
(i) Appeal to the Local Board of Assessment Appeals
(ii) Appeal to the Central Board of Assessment Appeals
(iii) Effect of payment of tax
b. Payment of real property tax under protest
(i) File protest with local treasurer
(ii) Appeal to the Local Board of Assessment Appeals

(iii) Appeal to the Central Board of Assessment Appeals

(iv) Appeal to the CTA
(v) Appeal to the Supreme Court
IV. Tariff and Customs Code of 1978, as amended
A. Tariff and duties, defined
B. General rule: all imported articles are subject to duty.
1. Importation by the government taxable
C. Purpose for imposition
D. Flexible tariff clause
E. Requirements of importation
1. Beginning and ending of importation
2. Obligations of importer
a) Cargo manifest
b) Import entry
c) Declaration of correct weight or value
d) Liability for payment of duties
e) Liquidation of duties
f) Keeping of records
F. Importation in violation of tax credit certificate
1. Smuggling
2. Other fraudulent practices
G. Classification of goods
1. Taxable importation
2. Prohibited importation
3. Conditionally-free importation
H. Classification of duties
1. Ordinary/regular duties
a) Ad valorem; methods of valuation
(i) Transaction value
(ii) Transaction value of identical goods
(iii) Transaction value of similar goods
(iv) Deductive value
(v) Computed value
(vi) Fallback value
b) Specific
2. Special duties
a) Dumping duties
b) Countervailing duties
c) Marking duties

d) Retaliatory/discriminatory duties
e) Safeguard
I. Remedies
1. Government
a) Administrative/extrajudicial
(i) Search, seizure, forfeiture, arrest
b) Judicial
(i) Rules on appeal including jurisdiction
2. Taxpayer
a) Protest
b) Abandonment
c) Abatement and refund
V. Judicial Remedies (R.A. No. 1125, as amended, and the Revised
Rules of the
Court of Tax Appeals)
A. Jurisdiction of the Court of Tax Appeals
1. Exclusive appellate jurisdiction over civil tax cases
a) Cases within the jurisdiction of the court en banc
b) Cases within the jurisdiction of the court in divisions
2. Criminal cases
a) Exclusive original jurisdiction
b) Exclusive appellate jurisdiction in criminal cases
B. Judicial procedures
1. Judicial action for collection of taxes
a) Internal revenue taxes
b) Local taxes
(i) Prescriptive period
2. Civil cases
a) Who may appeal, mode of appeal, effect of appeal
(i) Suspension of collection of tax
a) Injunction not available to restrain
collection
(ii) Taking of evidence
(iii) Motion for reconsideration or new trial
b) Appeal to the CTA, en banc
c) Petition for review on certiorari to the Supreme Court
3. Criminal cases
a) Institution and prosecution of criminal actions
(i) Institution of civil action in criminal action

b) Appeal and period to appeal

(i) Solicitor General as counsel for the people and
government officials
sued in their official capacity
c) Petition for review on certiorari to the Supreme Court
C. Taxpayers suit impugning the validity of tax measures or acts
of taxing authorities
1. Taxpayers suit, defined
2. Distinguished from citizens suit
3. Requisites for challenging the constitutionality of a tax
measure or act of taxing
authority
a) Concept of locus standi as applied in taxation
b) Doctrine of transcendental importance
c) Ripeness for judicial determination