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DOCTRINES IN TAXATION
As the provision5 of the law stands in the statute book (and to this
day it has remained unchanged), prescription is a matter of defense and
the information does not need to anticipate and meet it. The defendant
could, at most, object to the introduction of evidence to defeat his claim of
1
Because taxes are burdens and should not be imposed without due process of law. Belle Corp. v.
CIR, G.R.181298, Jan. 10, 2011
2
Lorenzo v. Posadas, 64 Phil. 353; CIR. v. Filipinas Cia. de Seguros, 107 Phil. 1055
3
CIR v. Marubeni Corporation, 372 SCRA 576 (2001)
4
CIR v. Ayala Securities Corp., 101 SCRA 231
5
Sec. 281, NIRC
prescription. Anyway, the law says that prescription begins to run from ... "the
institution of judicial proceedings for its ... punishment."
6
Emilio E. Lim, Sr., v. CA, GR Nos. L-48134-37, Oct. 18, 1990
7
Nursery Care Corp v. City of Manila, GR 180651, July 30, 2014
(6) the taxes must be of the same kind or character.8
8
Swedish Match Phils. Inc. v. The Treasurer of the City of Manila, G.R. 181277, July 3, 2013 (700
SCRA 428)
Ibid; Nursery Care Corp. v. Anthony Acevedo & the City of Manila, GR 180651, July 30, 2014.
9
Punzalan v. Mun. Board of Manila, 95 Phils. 46 (1994); City of Baguio v. De Leon, 25 SCRA 38
(1968)
10
CIR v. SC Johnson and Son., Inc. 309 SCRA 87 (1999)
The Supreme Court held that there is no constitutional prohibition
against double taxation in the Philippines.11 Therefore, it is not a valid
defense against the validity of a tax measure.12 However, it is not favored
but the same is permissible, provided some other constitutional
requirements are not thereby violated.13 For example, double taxation
becomes obnoxious only where the taxpayer is taxed twice for the benefit
of the same governmental entity14 or by the same jurisdiction for the same
purpose,15 but not in a case where one tax is imposed by the State and the
other by a province, city or municipality.16
On the other hand, the real estate dealer's tax is a tax on the
privilege to engage in business of real estate dealership.
11
Villanueva v. Iloilo, 26 SCRA 578, Dec. 28, 1968
12
Pepsi Cola v. Mun. of Tanauan, GR L-31156, Feb. 27, 1976 (69 SCRA 460)
13
Pepsi Cola Bottling Co. v. City of Butuan, GR L-22814, Aug. 28, 1968
14
CIR v. Lednicky GR L-18169, July 31, 1964 (11 SCRA 609)
15
SMB, Inc. v. City of Cebu, GR L-20312, Feb. 26, 1972 (43 SCRA 280)
16
Punzalan v. Mun. Board of City of Manila, 50 OG 2485
17
Pepsi Cola v. Mun. of Tanauan, GR L-31156, Feb. 27, 1976 (69 SCRA 460)
While the income tax is a tax on the privilege to earn an income.
No. The refusal of the mayor is not justified. The impositions are
of different nature and character. The fixed annual fee is in the nature of
a license fee imposed through the exercise of police power while the 5%
tax on purchase or consumption is a local tax imposed through the
exercise of taxing powers. Both a license fee and a tax may be imposed
on the same business or occupation, or for selling the same article and
this is not in violation of the rule against double taxation.19
11. Is there double taxation in the imposition of local business tax based
on gross revenue in the case of a taxpayer whose method of accounting is
on the accrual basis?
18
Villanueva v. City of Iloilo, 26 SCRA 578
19
Compania General de Tabacos de Filipinas v. City of Manila, 8 SCRA 367 (1963)
income, and the amount can be determined with reasonable accuracy; the
right to receive income, and not the actual receipt, determines when to
include the amount in gross income. The imposition of local business tax
based on petitioner's gross revenue will inevitably result in the
constitutionally proscribed double taxation - taxing of the same person
twice by the same jurisdiction for the same thing -- inasmuch as
petitioner's revenue or income for a taxable year will definitely include its
gross receipts already reported during the previous year and for which
local business tax has already been paid. Thus, respondent committed a
palpable error when it assessed petitioner's local business tax based on its
gross revenue as reported in its audited financial statements, as Sec. 143
of the LGC and Sec. 22(e) of the Pasig Revenue Code clearly provide that
the tax should be computed based on gross receipts.20
20
Ericsson Telecom vs. City of Pasig, GR 176667, Nov. 22, 2007( 538 SCRA 99)
21
Reciprocity is used to denote the relation between two states when each of them, by their
respective laws or by treaty, gives the citizens or nationals of the other State certain privileges, as in the
practice of a profession, on condition that its own citizens or nationals shall enjoy similar privileges in the latter
state. Sison v. Board of Accountancy, 85 Phil. 276 (1949)
22
Sec. 34(C), NIRC
23
Sec. 34(C)(1)(B), NIRC
(d) Using the Tax Sparing Rule – A non-resident foreign
corporation (NRFC) who earned cash and/or property intercorporate
dividends from a domestic corporation is taxed on a reduced rate of 15%
tax on dividends (in lieu of the 30% corporate income tax), which
represents the difference between the regular income tax of 30% and the
15% tax on dividends on the condition that the country of residence of
the NRFC shall allow a credit against the tax due from the NRFC, taxes
deemed to have been paid in the Philippines.24
15. What are the ways of shifting the burden of tax to another taxpayer?
24
Sec. 28(B)(5)(b), NIRC; CIR v. PGMC, GR 66838, Dec. 2, 1991
25
CIR v. SC Johnson and Son, Inc., 309 SCRA 87 (1999)
(1) Forward shifting – refers to the transfer of tax burden from the
producer to distributor until it finally reaches the ultimate purchasers or
end consumers. Example: The producer shifts its VAT to the distributor,
and the distributor shifts its VAT to the final consumer.
16. What are the taxes which can be shifted to another taxpayer?
17. What are the taxes which cannot be shifted to another taxpayer?
Under the National Internal Revenue Code, all taxes which are the
direct tax liabilities of the taxpayers are the taxes which cannot be shifted
to another taxpayer, such as income tax, estate tax and donor’s tax.
18. Why does the law allow the shifting of the burden of tax to another
person?
When the law allows that the burden of tax may be shifted to
another person, this is one form of escape from taxation which does not
result to any loss on the part of the Government, hence, not objectionable.
B. Tax Avoidance
C. Tax Evasion
26
Yutivo Sons Hardware Co. v. CTA, 1 SCRA 160 (1961); Heng Tong Textiles Co., Inc. v. CIR,
24 SCRA 767 (1968)
22. What is the meaning of “tax evasion”?
"Tax evasion" is the other term for “tax dodging.” It is the use of
the taxpayer of illegal means to avoid or defeat the payment of the tax. It
is a scheme used outside of those lawful means and when availed of is
punishable by law because its main purpose is to entirely escape the
payment of taxes thru illegal means. It usually subjects the taxpayer to
further or additional civil or criminal liabilities.27
27
CIR v. CA, 327 Phil. 1
28
Heng Tong Textiles Co., Inc. v. CIR, 24 SCRA 767 (1968)
(3) A course of action or failure of action which is unlawful.
The second and third factors are not present in tax avoidance,
hence there can be no tax evasion if what was committed is just tax
avoidance.29
29
CIR v. The Estate of Benigno P. Toda, Jr., G.R.147188, Sept. 14, 2004. (48SCRA 290)
30
Ungab v. Judge Cusi, Jr., 186 Phil. 604 (1980)
31
Greenfield v. Meer, 77 Phil 394
32
Diaz v. Sec. of Finance, 654 SCRA 96 (2011)
prove by convincing proof that he is exempted. Therefore, an exemption
granted to a corporation does not apply to its stockholders.33
(d) Tax exemptions are not presumed, but when public property
is involved, tax exemption is the rule, and taxation, the exception.
33
Manila Gas Corp. v. Collector, 71 Phil. 513
34
MERALCO v. Vera, 67 SCRA 351; Phil. Petroleum Corp. v. Mun. of Pililla, Rizal, 198 SCRA
82 (1991)
the government, acting in its private capacity, sheds its cloak of authority
and waives its governmental immunity.35 This exemption must not be
confused with the tax exemption granted under a franchise, which is not
a contract within the context of non-impairment clause of the
Constitution.36
35
PAGCOR v. BIR, John Doe & Jane Doe, GR 172087, March 15, 2011
36
Cagayan Electronic Co. v. CIR, 138 SCA 629
37
PAL v. Commissioner of Customs, BTA No.184, Sept. 10, 1954
38
Art. 17(4), Art. VIII, 1987 Phil. Constitution; CIR v. Botelho Shipping Corp., L-21633-34, June
29, 1967 (20 SCRA 487)
No. Tax exemption cannot be recognized on grounds of equity.
The long range objective of all tax measures is the accomplishment of
social order. Although the variant forms of taxation may sometimes
produce individual hardships, a too stilted interpretation of tax laws for
the benefit of one particular taxpayer may result in the loss of revenue at
the expense of the government and operate to the disadvantage of the
others contributing to its support. A tax exemption claimed merely on
the ground that another person similarly situated has not paid similar
taxes is unjustifiable and should be ignored.39
39
BPI v. Trinidad, 45 Phil. 384
40
Republic v. Caguioa, GR 168584, Oct. 15, 2007
41
South African Airways v. CIR, 612 SCRA 665
34. Will the fact that a taxpayer is under audit by the BIR or that there
is a deficiency tax assessment and it has a potential tax liability be a bar
to a claim for tax refund?
35. May a taxpayer who has pending claims for refund of excess VAT
input tax refund or set off said claims against his other tax liabilities?
No. Taxes and claims for refund cannot be the subject of set-off for
the simple reason that the government and the taxpayer are not creditors
and debtors of each other. There is a material distinction between a tax
and a claim for refund. Claims for refunds just like debts are due from
the government in its corporate capacity, while taxes are due to the
government in its sovereign capacity.
42
CIR v. Citytrust Banking Corp., 499 SCRA 477 (2006)
43
CIR v. CA, Citytrust Banking Corp. and CTA, 234 SCRA 348 (1994)
instant case, the claim of the taxpayer for VAT refund is still pending and
the amount has still to be determined. Thus, the liquidated obligation of
the taxpayer to the government cannot be set-off against the unliquidated
claim which the taxpayer conceived to exist in his favor.44
VII. Compromise
44
Philex Mining v. CIR, GR 125704, Aug. 29, 1998
45
Art, 2928, New Civil Code
46
Malvar v. Kraft Food Phils., Inc., 705 SCRA 242 (2013)
47
Magbanua v. Uy, 497 Phil. 511 (2005) cited in Metro Manila Shopping Mecca Corp. v.
City Treasurer of Manila, GR 190818, Nov. 10, 2014
General Rule: The Doctrine of Compensation and Set-off states
that taxes are NOT subject to set-off or legal compensation because the
government and the taxpayer are not mutual creditor and debtor of each
other.48
It is settled that a taxpayer may not offset taxes due from the
claims that he may have against the government for the following
reasons:
(2) Taxes are of such distinct kind, essence and nature, and these
impositions cannot be classed in merely the same category as ordinary
obligations. Taxes and debts are of different nature and character; hence,
no set-off or compensation between these two different classes of
obligations is allowed.
(3) The taxes assessed are the obligations of the taxpayer arising
from law, while the money judgment against the government is an
obligation arising from contract, whether express or implied.
(5) Inasmuch that taxes are not debts, it follows that the two
obligations are not susceptible to set-off or legal compensation.
(6) There can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to
pay a tax on the ground that the government owes him an amount equal
to or greater than the tax being collected. The collection of a tax cannot
await the results of a lawsuit against the government.50
Examples:
48
Republic v. Mambulao Lumber Co., 6 SCRA 522; Caltex Phils v. COA, 208 SCRA 726
49
South African Airways v. CIR, 612 SCRA 665 (2010)
50
Francia v. IAC, GR L- 76749, June 28, 1988 (162 SCRA 753)
(b) A taxpayer who has pending claims for VAT input credit or
refund cannot set off said claims against his other tax
liabilities.
51
Art. 1200, in relation to Arts. 1279 and 1290, NCC
52
Domingo v. Garlitos, 8 SCRA 443 (1963)
53
Philex Mining Corp. v. CIR, GR 125704, Aug. 29, 1998;.Montemayor v. Millora, 654 SCRA
580 (2011)
54
Collector v. UST, 104 Phil. 1062 (1958)
X. Tax Amnesty
55
CIR v. Gonzalez, 633 SCRA 139 (2010)
56
ING Bank N.V., Manila Branch v. CIR, GR 167679, July 22, 2015
57
MBTC v. CIR, G.R. 178797, Aug. 4, 2009 (595 SCRA 234) cited in CS Garment, Inc. v. CIR,
GR 182399, March 12, 2014
58
People v. Castaneda, GR L46881, Sept. 15, 1988
While tax amnesty, similar to a tax exemption, must be construed
strictly against the taxpayer and liberally in favor of the taxing
authority, it is also a well-settled doctrine that the rule-making power of
administrative agencies cannot be extended to amend or expand statutory
requirements or to embrace matters not originally encompassed by the
law. Administrative regulations should always be in accord with the
provisions of the statute they seek to carry into effect, and any resulting
inconsistency shall be resolved in favor of the basic law.59
42. May the creditable withholding taxes be the subject of tax amnesty?
43. What is the meaning of "tax pyramiding"? What is its basis in law?
BQ2006
59
CS Garment, Inc. v. CIR , G.R. 182399, March 12, 2014
60
RMC 61-2014 (July 30, 2014)
61
CIR v. American Rubber Co., 18 SCRA 842 (1966); Pp. v. Sandiganayan, 467 SCRA 137 (2005)
Under the “doctrine of piercing the veil of corporate fiction,” the court
looks at the corporation as a mere collection of individuals or an
aggregation of person undertaking business as a group, disregarding the
separate juridical personality of the corporation unifying the group.62
Another formulation of this doctrine is that when two business
enterprises are owned, conducted and controlled by the same parties,
both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct
entities and treat them as identical or as one and the same.63
It was held that while a corporation may exist for any lawful
purpose, the law will regard it as an association of persons or, in case of
two corporations, merge them into one, when its corporate legal entity is
used as a cloak for fraud or illegality. The doctrine applies only when
such corporate fiction is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, or when it is made as a shield to confuse
the legitimate issues, or where a corporation is the mere alter ego or
business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.
45. May the stockholders be held personally liable for the unpaid taxes of
a dissolved corporation?
62
Kukan International Corp. v. Reyes, 631 SCRA 596 (2010)
63
Pantranco Employees Association v. NLRC, GR L-10689, March 17, 2009 (581 SCRA 598 )
64
In applying the "instrumentality" or" alter ego" doctrine, the courts are concerned with reality,
not form, and with how the corporation operated and the individual defendant's relationship to the operation.
instances, the veil of corporate entity will be pierced or disregarded with
reference to the particular transaction involved.65
65
Land Bank of the Philippines v. Court of Appeals, G.R. 127181, Sept.. 4, 2001 (364 SCRA 375)
cited in Commissioner of Customs v. Oilink International Corp., GR 161759, July 2, 2014
66
Sunio v. NLRC, 127 SCRA 390 (1984)
67
Tan Tiong Bio v. CIR, 4 SCRA 986 (1962)
68
SEC. 234. Exemptions from Real Property Tax. - The following are exempted from payment of
the real property tax:
(a) 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;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit
or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or -controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R. A. No. 6938
(now RA 9520); and
(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -
controlled corporations are hereby withdrawn upon the effectivity of this Code. (Local Government Code)
The Marshall Dictum69 states that “the power to tax is the power
to destroy”, which refers to the unlimitedness and the degree or vigor
with which the taxing power may be employed to raise revenue. The
financial needs of the State may outrun any human calculation, so the
power to meet those needs by taxation must not be limited even though
taxes become burdensome or confiscatory.
The Holmes Doctrine,70 on the other hand, states that “the power
to tax is not the power to destroy while the Supreme Court sits.” The
power to tax knows no limit except those expressly stated in the
Constitution.It only means that in the exercise of the taxing power, the
authority should not violate the Constitutional, inherent and contractual
limitations of taxation, otherwise the court has the primordial duty to
declare the same void and unconstitutional, thereby preventing the
destructive nature of the power of taxation.
69
(Marshall Dictum) U.S. Chief Justice Marshall in McCulloch v. Maryland, 17 U.S. 316, 4
Wheat, 316, 4 L Ed. 579 (1819)
70
Panhandle Oil Co. v. Mississipi ex rel Knox 277 U.S. 233 (1928) (Justice Oliver Wendell Holmes,
Jr.)
71
Eric R. Recalde, A Treatise on Tax Principles and Remedies, p. 33 (2009)
and reality that government is necessary, and it must therefore collect
taxes if it is to survive. Thus, the mistake or negligence of government
officials should not bind the state, lest it bring harm to the government
and ultimately the people, in whom sovereignty resides. 72 Upon taxation
depends the ability of the government to serve the people for whose
benefit taxes are collected. To safeguard such interest, neglect or omission
of government officials entrusted with the collection of taxes should not
be allowed to bring harm or detriment to the people."73
In one case, the Court held that "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 by keeping the latter in the dark for so long, as to whether it is
liable for the tax and, if so, for how much." 75
72
CIR v. Procter & Gamble PMC, GR L-66838, April 15, 1988 (160 SCRA 560), cited in CIR v.
Raul M. Gonzales, G.R. 177279, Oct. 13, 2010
73
Visayas Geothermal Power Company v. CIR, G.R. 197525, June 4, 2014 (725 SCRA 130) cited
in CIR v. Nippon Express (Phils) Corp., GR 212920, Sept. 16, 2015
74
CIR v. Petron Corp., 668 SCRA 735 (2012)
75
Republic v. Ker & Co., 124 Phil. 822 (1966); CIR v. Gonzalez, 633 SCRA 139 (2010)
76
Chevron Phils., Inc. v. Commissioner of Customs, 561 SCRA 710 (2008)
unconstitutionality of a law rests on the party assailing the law. In
passing upon the validity of an act of a co-equal and coordinate branch of
the government, courts must ever be mindful of the time-honored
principle that a statute is presumed to be valid.77
77
Republic v. Caguioa, GR 168584, Oct. 15, 2007(536 SCRA 193)
78
Valdez v. People, GR 170180, Nov. 23, 2007 (538 SCRA 611)
79
CIR v. Gonzalez, 633 SCRA 139 (2010)
80
CIR v. Kudos Metal Corp., G.R. 178087. May 5, 2010; CIR v. Traders Royal Bank, G.R. L-
167134, March 18, 2015
together with absence of all information, notice, or benefit or belief of
facts which render transaction unconscientious.81
81
Civil Service Commission v. Maala, G.R. 165523, Aug. 18, 2005 (467 SCRA 390)
82
RCBC v. CIR, G.R.L-170257, Sept. 7, 2011
(9) when the subject matter is a private land in land case
proceedings,
(10) when the rule does not provide a plain, speedy and adequate
remedy,
(11) when there are circumstances indicating the urgency of
judicial intervention, and
(12) when the exhaustion will result in an exercise in futility.83
83
Commissioner of Customs v. Oilink Intl. Corp., GR 161759, July 2, 2014’ Banco De Oro v. RP
& CIR, G.R. 198756, Jan. 13, 2015
84
Republic v. CA, GR 79732, Nov. 8, 1993 (227 SCRA 509)
85
CIR v. San Roque Power Corp., GR 187485, Oct. 8, 2013; CIR v. Puregold Duty Free, Inc., GR
202789, June 22, 2015
XXI. Principle of “Pacta Sunt Servanda”
Time and again, the Court has held that it is a very desirable and
necessary judicial practice that when a court has laid down a principle of
law as applicable to a certain state of facts, it will adhere to that principle
and apply it to all future cases in which the facts are substantially the
same. Stare decisis et non quieta movere. Stand by the decisions and disturb
not what is settled. Stare decisis simply means that for the sake of
certainty, a conclusion reached in one case should be applied to those that
follow if the facts are substantially the same, even though the parties may
be different. It proceeds from the first principle of justice that, absent any
powerful countervailing considerations, like cases ought to be decided
alike. Thus, where the same questions relating to the same event have
been put forward by the parties similarly situated as in a previous case
litigated and decided by a competent court, the rule of stare decisis is a bar
to any attempt to relitigate the same issue.87
86
Deutsche Bank AG Manila Branch v. CIR, cited in CBK Power Co. Ltd. v. CIR/CIR v. CBK
Power Co. Ltd. v. CIR,, G.R. 193383-84/G.R. 193407-08, Jan. 14, 2015
87
Fort Bonifacio Devt. Corp. v. CIR, G.R. Nos. 175707 / 180035 / 181092, Nov. 19, 2014; RP,
represented by the Bureau of Customs v. Pilipinas Shell Petroleum Corp., GR 209324, Dec. 9, 2015
what; it is not about individual loss, but about national gain. Whether
from the birth pains of reform, this nation can gain a foothold, nay, a
stride into restoring this nation into its prideful place from the clutches of
a “kleptocratic mafia” that had gained a strangehold into one of the
nation’s primary sources of revenue.88
88
DOF v. Judge Marino M. de la Cruz, Jr., GR 209331, Aug. 24, 2015
89
Nestle Phils, Inc. v. Uniwide Sales, Inc. 634 SCRA 232 (2010)