debt of PPI.
Fertiphil also argues that, even if the LOI is
II. INHERENT LIMITATIONS
1. Planters Products, Inc. vs. Fertiphil Corporation
(public purpose)
FACTS: Petitioner PPI and private respondent Fertiphil
are private corporations incorporated under Philippine
laws, engaged in the importation and distribution of
fertilizers, pesticides and agricultural chemicals. Then
President Marcos issued LOI No. 1465 which provided
for the imposition of a capital recovery component
(CRC) on the domestic sale of all grades of fertilizers in
the Philippines. Pursuant to the LOI, Fertiphil paid P10
for every bag of fertilizer it sold in the domestic market
to the Fertilizer and Pesticide Authority (FPA). FPA then
remitted the amount collected to the Far East Bank and
Trust Company, the depositary bank of PPI. Fertiphil
paid a considerable amount. After the 1986 Edsa
Revolution, FPA voluntarily stopped the imposition of
the P10 levy. With the return of democracy, Fertiphil
demanded from PPI a refund of the amounts it paid
under LOI No. 1465, but PPI refused to accede to the
demand. Fertiphil filed a complaint for collection and
damages against FPA and PPI and questioned the
constitutionality of LOI No. 1465 RTC declared the LOI
1465 as unconstitutional and held that the levy imposed
under the said law was an invalid exercise of the State`s
power of taxation inasmuch as it violated the inherent
and constitutional prescription that taxes be levied only
for public purposes. CA affirmed holding that even on
the assumption that LOI No. was issued under the
police power of the state as defendants posits, it is still
unconstitutional because it did not promote public
welfare and when a statute`s public purpose is spoiled
by private interest, the use of police power becomes a
travesty which must be struck down for being an
arbitrary exercise of government power. PPI insists that
LOI No. 1465 is a valid exercise either of the police
power or the power of taxation. It claims that the LOI
was implemented for the purpose of assuring the
fertilizer supply and distribution in the country and for
benefiting a foundation created by law to hold in trust
for millions of farmers their stock ownership in PPI.
Fertiphil counters that the LOI is unconstitutional
because it was enacted to give benefit to a private
company. The levy was imposed to pay the corporate
enacted under the police power, it is still
unconstitutional because it did not promote the general
welfare of the people or public interest.
ISSUE: Is the levy in this case not for public purpose and
thus unconstitutional?
RULING: YES. The power to tax exists for the general
welfare; hence, implicit in its power is the inherent
limitation that it should be used only for a public
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. In
this case, Firstly the purpose of a law is evident from its
text which expressly provided that the levy be imposed
to benefit PPI until adequate capital is raised to make it
viable. Secondly, the LOI provides that the imposition of
the P10 levy was conditional and dependent upon PPI
becoming financially viable. Thirdly, the levies paid
under the LOI were directly remitted and deposited by
FPA to Far East Bank and Trust Company, the depositary
bank of PPI. Fourthly, the levy was used to pay the
corporate debts of PPI. These prove that the main
purpose of the law was to give undue benefit and
advantage to PPI. Therefore, the levy imposed was not
for a public purpose.
(supplementary issues in case mangutana si mam)
ISSUE: Is the levy and exercise of police power or power
of taxation?
RULING: The SC agree with the RTC that the imposition
of the levy was an exercise by the State of its taxation
power. While it is true that the power of taxation can be
used as an implement of police power, the primary
purpose of the levy in this caseis revenue generation. If
the purpose is primarily revenue, or at least, one of the
real and substantial purposes, then the exaction is
properly called a tax.
ISSUE:
Granting that it is in the exercise of police power, is the
LOI still unconstitutional?
RULING: YES. Even if we consider LOI No. 1695 as
enacted under the police power of the State, it would
still be invalid for failing to comply with the test of
lawful subjects and lawful means. Jurisprudence states
the test as follows: (1) the interest of the public requires
its exercise; and (2) the means employed are reasonably
necessary for the accomplishment of the purpose and
not unduly oppressive upon individuals. Therefore, LOI
in this case is invalid because it did not promote public
interest. The law was enacted to give undue advantage
to a private corporation.
2. CIR v. Solidbank ; Siplon
Facts: Calendar year 1995, Solidbank Corporation filed
its Quarterly Percentage Tax Returns reflecting gross
receipts (5%) in the total amount P1.474M with
corresponding gross receipts tax payments P73,734M.
Solidbank alleges that the total receipts included the
representing gross receipts from passive income which
was already subjected to 20% final withholding tax. The
CTA rendered its decision that the 20% FWT on bank
interest income should not form part of the taxable
gross receipts for purposes of computing the gross
receipts tax. That being said, Solidbank filed with the
BIR a letter-request for the refund or issuance of tax
credit certificate representing allegedly gross receipts
tax for the year 1995. Without waiting for the decision,
Solidbank filed with CTA for review in order to toll the
running of the two-year prescriptive period to judicially
claim refund of any overpaid internal revenue tax.
Afterwhich, CTA rendered its decision in favor of
Solidbank of the refund. However, CA rendered that the
20% FWT on bank interest income did not form part of
the taxable gross receipts in computing 5% GRT,
because the FWT was not actually received by the bank
but directly remitted to the government. Hence, this
appel.
Issue #1: Whether the 20% FWT on bank interest forms
part of the taxable gross receipts in computing the 5%
gross receipt tax
Ruling: Yes. In fact, the same issue has been raised
recently in China Banking Corporation v. CA, where this
Court held that the amount of interest income withheld
in payment of the 20% FWT forms part of gross receipts
in computing for the GRT on banks.
Issue #2: Was there double taxation?
Ruling: None. Double taxation means taxing the same
property twice when it should be taxed only once; that
is, x x x 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.
First, the taxes herein are imposed on two different
subject matters. The subject matter of the FWT is the
passive income generated in the form of interest on
deposits and yield on deposit substitutes, while the
subject matter of the GRT is the privilege of engaging in
the business of banking. A tax based on receipts is a tax
on business rather than on the property; hence, it is an
excise rather than a property tax. It is not an income
tax, unlike the FWT. In fact, we have already held that
one can be taxed for engaging in business and further
taxed differently for the income derived therefrom.
Akin to our ruling in Velilla v. Posadas, these two taxes
are entirely distinct and are assessed under different
provisions. Second, although both taxes are national in
scope because they are imposed by the same taxing
authority the national government under the Tax
Codeand operate within the same Philippine
jurisdiction for the same purpose of raising revenues,
the taxing periods they affect are different. The FWT is
deducted and withheld as soon as the income is earned,
and is paid after every calendar quarter in which it is
earned. On the other hand, the GRT is neither deducted
nor withheld, but is paid only after every taxable
quarter in which it is earned. Third, these two taxes are
of different kinds or characters. The FWT is an income
tax subject to withholding, while the GRT is a
percentage tax not subject to withholding. In short,
there is no double taxation, because there is no taxing
twice, by the same taxing authority, within the same
jurisdiction, for the same purpose, in different taxing
periods, some of the property in the territory.
Subjecting interest income to a 20% FWT and including
it in the computation of the 5% GRT is clearly not
double taxation.
3. CIR vs S.C. JOHNSON, 309 SCRA 87
FACTS: Respondent, JOHNSON AND SON, INC a
domestic corporation organized and operating under
the Philippine laws, entered into a license agreement
with SC Johnson and Son, United States of America
(USA), a non-resident foreign corporation based in the
U.S.A. pursuant to which the [respondent] was granted
the right to use the trademark, patents and technology
owned by the latter including the right to manufacture,
package and distribute the products covered by the
Agreement and secure assistance in management,
marketing and production from SC Johnson and Son, U.
S. A. The said License Agreement was duly registered
with the Technology Transfer Board of the Bureau of
Patents, Trade Marks and Technology Transfer under
Certificate of Registration No. 8064 . For the use of the
trademark or technology, SC JOHNSON AND SON, INC
was obliged to pay SC Johnson and Son, USA royalties
based on a percentage of net sales and subjected the
same to 25% withholding tax on royalty payments
which respondent paid for the period covering July 1992
to May 1993.00 On October 29, 1993, SC JOHNSON AND
SON, USA filed with the International Tax Affairs
Division (ITAD) of the BIR a claim for refund of overpaid
withholding tax on royalties arguing that, since the
agreement was approved by the Technology Transfer
Board, the preferential tax rate of 10% should apply to
the respondent. Respondent submits that royalties paid
to SC Johnson and Son, USA is only subject to 10%
withholding tax pursuant to the most-favored nation
clause of the RP-US Tax Treaty in relation to the RP-
West Germany Tax Treaty. The Internal Tax Affairs
Division of the BIR ruled against SC Johnson and Son,
Inc. and an appeal was filed by the former to the Court
of tax appeals. The CTA ruled against CIR and ordered
that a tax credit be issued in favor of SC Johnson and
Son, Inc. Unpleased with the decision, the CIR filed an
appeal to the CA which subsequently affirmed in toto
the decision of the CTA. Hence, an appeal on certiorari
was filed to the SC.
ISSUE: WON SC JOHNSON AND SON,USA IS ENTITLED
TO THE MOST FAVORED NATION TAX RATE OF 10% ON
ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN
RELATION TO THE RP-WEST GERMANY TAX TREATY.
RULING: NO. The concessional tax rate of 10 percent
provided for in the RP-Germany Tax Treaty could not
apply to taxes imposed upon royalties in the RP-US Tax
Treaty since the two taxes imposed under the two tax
treaties are not paid under similar circumstances, they
are not containing similar provisions on tax crediting.
The United States is the state of residence since the
taxpayer, S. C. Johnson and Son, U. S. A., is based there.
Under the RP-US Tax Treaty, the state of residence and
the state of source are both permitted to tax the
royalties, with a restraint on the tax that may be
collected by the state of source. Furthermore, the
method employed to give relief from double taxation is
the allowance of a tax credit to citizens or residents of
the United States against the United States tax, but
such amount shall not exceed the limitations provided
by United States law for the taxable year. The
Philippines may impose one of three rates- 25 percent
of the gross amount of the royalties; 15 percent when
the royalties are paid by a corporation registered with
the Philippine Board of Investments and engaged in
preferred areas of activities; or the lowest rate of
Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a
resident of a third state. Given the purpose underlying
tax treaties and the rationale for the most favored
nation clause, the Tax Treaty should apply only if the
taxes imposed upon royalties in the RP-US Tax Treaty
and in the RP-Germany Tax Treaty are paid under
similar circumstances. This would mean that private
respondent must prove that the RP-US Tax Treaty
grants similar tax reliefs to residents of the United
States in respect of the taxes imposable upon royalties
earned from sources within the Philippines as those
allowed to their German counterparts under the
RPGermany Tax Treaty. The RP-US and the RP-West
Germany Tax Treaties do not contain similar provisions
on tax crediting. Article 24 of the RP-Germany Tax
Treaty, supra, expressly allows crediting against German
income and corporation tax of 20% of the gross amount
of royalties paid under the law of the Philippines. On
the other hand, Article 23 of the RP-US Tax Treaty,
which is the counterpart provision with respect to relief
for double taxation, does not provide for similar
crediting of 20% of the gross amount of royalties paid.
At the same time, the intention behind the adoption of
the provision on relief from double taxation in the two
tax treaties in question should be considered in light of
the purpose behind the most favored nation clause.
5. Case: JOHN H. OSMEA vs vs. OSCAR ORBOS, G.R.
No. 99886 March 31, 1993.
Facts: On October 10, 1984, President Ferdinand
Marcos issued P.D. 1956 creating a Special Account in
the General Fund, designated as the Oil Price
Stabilization Fund (OPSF). Subsequently, the OPSF was
reclassified into a "trust liability account," in virtue of
E.O. 1024,7 and ordered released from the National
Treasury to the Ministry of Energy. President Corazon
C. Aquino, amended P.D. 1956, expanding the grounds
for reimbursement to oil companies for possible cost
under recovery incurred as a result of the reduction of
domestic prices of petroleum products, the amount of
the under recovery being left for determination by the
Ministry of Finance. Now, the petition avers that the
creation of the trust fund violates the Constitution that
if a special tax is collected for a specific purpose, the
revenue generated as a special fund to be used only for
the purpose indicated.
Issue #1: Whether or not creation of the trust fund
violates29(3), Article VI of the Constitution.
Ruling: it seems clear that while the funds collected
may be referred to as taxes, they are exacted in the
exercise of the police power of the State. Moreover,
that the OPSF is a special fund is plain from the special
treatment given it by E.O. 137. It is segregated from the
general fund; and while it is placed in what the law
refers to as a "trust liability account," the fund
nonetheless remains subject to the scrutiny and review
of the COA. The Court is satisfied that these measures
comply with the constitutional description of a "special
fund." Indeed, the practice is not without precedent.
***Issue #1 arises from the contention of the petitioner
that "the monies collected pursuant to. . P.D. 1956, as
amended, must be treated as a 'SPECIAL FUND,' not as a
'trust account' or a 'trust fund,' and that "if a special tax
is collected for a specific purpose, the revenue
generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not
channeled to another government objective." Petitioner
further points out that since "a 'special fund' consists of
monies collected through the taxing power of a State,
such amounts belong to the State, although the use
thereof is limited to the special purpose/objective for
which it was created."
Issue #2: Whether or not section 8, paragraph 1 (c) of
P.D. No. 1956, as amended by Executive Order No. 137,
is constitutional, for "being an undue and invalid
delegation of legislative power. . to the Energy
Regulatory Board".
Ruling: For a valid delegation of power, it is essential
that the law delegating the power must be (1) complete
in itself, that is it must set forth the policy to be
executed by the delegate and (2) it must fix a standard
limits of which are sufficiently determinate or
determinable to which the delegate must conform.
The Court finds that the provision conferring
the authority upon the ERB to impose additional
amounts on petroleum products provides a sufficient
standard by which the authority must be exercised. In
addition to the general policy of the law to protect the
local consumer by stabilizing and subsidizing domestic
pump rates, 8(c) of P.D. 1956 expressly authorizes the
ERB to impose additional amounts to augment the
resources of the Fund.
What petitioner would wish is the fixing of some
definite, quantitative restriction, or "a specific limit on
how much to tax." The Court is cited to this
requirement by the petitioner on the premise that what
is involved here is the power of taxation; but as already
discussed, this is not the case. What is here involved is
not so much the power of taxation as police power.
Although the provision authorizing the ERB to impose
additional amounts could be construed to refer to the
power of taxation, it cannot be overlooked that the
overriding consideration is to enable the delegate to act
with expediency in carrying out the objectives of the
law which are embraced by the police power of the
State. The interplay and constant fluctuation of the
various factors involved in the determination of the
price of oil and petroleum products, and the frequently
shifting need to either augment or exhaust the Fund, do
not conveniently permit the setting of fixed or rigid
parameters in the law as proposed by the petitioner. To
do so would render the ERB unable to respond
effectively so as to mitigate or avoid the undesirable
consequences of such fluidity. As such, the standard as
it is expressed, suffices to guide the delegate in the
exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.
6. Pepsi-cola vs municipality of Tanauan 69 SCRA 460
Facts: The plaintiff-appellant, Pepsi-Cola Bottling
Company of the Philippines, Inc., commenced a
complaint with preliminary injunction before the Court
of First Instance of Leyte for that court to declare
Section 2 of Republic Act No. 2264, otherwise known as
the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare
Ordinances Nos. 23 and 27, series of 1962, of the
municipality of Tanauan, Leyte, null and void. Municipal
Ordinance No. 23, levies and collects "from soft drinks
producers and manufacturers a tax of one-sixteenth
(1/16) of a centavo for every bottle of soft drink corked.
On the other hand, Municipal Ordinance No. 27 levies
and collects "on soft drinks produced or manufactured
within the territorial jurisdiction of this municipality a
tax of ONE CENTAVO (P0.01) on each gallon of volume
capacity. The tax imposed in both Ordinances Nos. 23
and 27 is denominated as "municipal production tax.'
ISSUES:
1. Is Section 2, Republic Act No. 2264 an undue
delegation of power, confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double
taxation and impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
RULING:
1. No. The power of taxation 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. The exception, however, lies in the
case of municipal corporations, to which, said
theory does not apply. Legislative powers may
be delegated to local governments in respect of
matters of local concern. By necessary
implication, the legislative power to create
political corporations for purposes of local self-
government carries with it the power to confer
on such local governmental agencies the power
to tax. Under the 1973 Constitution, local
governments are granted the autonomous
authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI
provides: "Each local government unit shall
have the power to create its sources of revenue
and to levy taxes, subject to such limitations as
may be provided by law." With that, it cannot
be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the
legislative power to enact and vest in local
governments the power of local taxation.
2. No. Double taxation, in general, is not forbidden by
our fundamental law. Double taxation becomes
obnoxious only where the taxpayer is taxed twice for
the benefit of the same governmental entity or by the
same jurisdiction for the same purpose, but not in a
case where one tax is imposed by the State and the
other by the city or municipality. As earlier quoted,
Ordinance No. 23, levies or collects from soft drinks
producers or manufacturers a tax of one-sixteen (1/16)
of a centavo for .every bottle corked, irrespective of the
volume contents of the bottle used. When it was
discovered that the producer or manufacturer could
increase the volume contents of the bottle and still pay
the same tax rate, the Municipality of Tanauan enacted
Ordinance No. 27, imposing a tax of one centavo (P0.01)
on each gallon of volume capacity. The difference
between the two ordinances clearly lies in the tax rate
of the soft drinks produced: in Ordinance No. 23, it was
1/16 of a centavo for every bottle corked; in Ordinance
No. 27, it is one centavo (P0.01) on each gallon of
volume capacity. The intention of the Municipal Council
of Tanauan in enacting Ordinance No. 27 is thus clear: it
was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter,
even without words to that effect.

3. No. The tax of one (P0.01) on each gallon of volume

capacity on all soft drinks, produced or manufactured,
or an equivalent of 1- centavos per case, cannot be
considered unjust and unfair. An increase in the tax
alone would not support the claim that the tax is
oppressive, unjust and confiscatory. Municipal
corporations are allowed much discretion in
determining the rates of imposable taxes. This is in line
with the constitutional policy of according the widest
possible autonomy to local governments in matters of
local taxation, an aspect that is given expression in the
Local Tax Code (PD No. 231, July 1, 1973). Unless the
amount is so excessive as to be prohibitive, courts will
go slow in writing off an ordinance as unreasonable.
Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of
the law to further strengthen local autonomy were to
be realized.