TAXATION LAW 2 SANBEDALAW + 2018 LAST MINUTE TIPS GENERAL PRINCIPLES Double Taxation 1. Elements of Obnoxious/Direct Duplicate Taxation ‘The same property or subject matter is taxed twice when it should be taxed only once; Both taxes are levied forthe same purpose; ‘Imposed by the same taxing authority; ‘Within the same ears ion; D the same | i; Covering the sae id or character of tax (VUlanuevav City fll, 1968). pppoe 2. Power to Tax the Power to Destroy . ‘The power to tax includes the power to destroy if it is used as an implement of the police power in discouraging and in effect, ultimately prohibiting certain things or enterprises inimical to the public welfare. But if the power to tax is used solely for the purpose of raising revenues, the modern view is that it cannot be allowed to confiscate or destroy (DIMAAMPAO, Tax Principles and Remedies (2018), p. 21). 3. Exception to the Principle that Taxes are not Subject to Set-off ‘The Supreme Court allowed offsetting of taxes only because the determination of the taxpayer's liability is intertwined with the resolution of the claim for tax refund of erroneously or illegally collected taxes (CIR v. Toledo Power Company, 2015) 4, Taxes do not Violate Equal Protection Clause Requisites for a valid classification: (SAGE) ‘a. Classification must be based on Substantial distinctions; b, _Itmust Apply both to present and future conditions; c. It must be Germane to the purposes ofthe law; and, 4. It must apply Equally to all members of the same class (Ormoc Sugar Co. v. Treasurer of Ormoe, 1968). 5. Origin of Tax Statutes (BAR) ‘a. Bill, not the revenue statute, that is required to originate from the House of Representatives (HOR); b. The Senate may make its own version different from that of the HOR, in line with the power not only to concur but also to Amend; and c. The initiative must come from the House of Representatives (CONST, Art. VI Sec. 24). 6. Rules on Construction of Tax Laws a Tax Statutes ‘Tax laws are construed strictly against the Government and Uberaly in favor of the taxpayer (Mantla Rall Road vs. Collector of Customs, 1915). b. Tax Exemptions ‘Tax exemptions are construed strictly against the taxpayer and liberally in favor of the Government (Manila Rail Road vs, Collector of Customs, 1915). ©. Prior Special Law v. Later General Law A later law, general in terms and not expressly repealing or amending a prior special law, will not ordinarily affect the special provisions of such earlier statute (Commissioner of Internal Revenue and ‘Commissioner of Customs vs, Philippine Airlines, 2017, Covered Case). Tax Exempt Entities | + 7, Non-Stock, Non-Profit Educational Institution : Basis: All revenues and assets used actually, directly and exclusively (ADE) for educational purposes shall be exempt from taxes and duties (Article XIV, Sec (3), 1987 Constitution). REQUISITES FOR EXEMPTION | Real Property ] Wie ee duetonal pupser ax Income Tax, | Revenues and income (regardless of source, Le revenue from lease of school Building used VAT and Local ‘ADE for educational purposes (CIR v. De La Salle University, Inc, 2016) asiness Tax [MARVIEL PAGCALIWANGAN Vi Cha for Manberip ‘SUBSECT COMMITTEE JUSTICE JAPAR B. DIMAAMPAO Adv JAMES PHOLIFE MAC Suit lay MEMBERS Site Noflah A. Ass ‘Orkin eran M. Corer, rh arta, jha Rael D. Lex ACADEMICS CORE ecko Gel, ean Claude alex, Aga Js V. ‘Mstaboeas Jenny Me Maradr EDP CORE Jordan N Chaves, Jol Mas. Car, Mare Anan Kata Magen ~~,| 10, cra TAXATION LAW SANBEDALAW + 2018 LAST MINUTE TIPS Extends to incidental income derived from (CBD) Canteen, Bookstore and Dormitory the shoulders of the. facilities Donor’s Tax | Not more than 30% of gifts used for administration TOHAYG), NRC) Charitable/Religious Institutions . ‘Nature: Charitable institutions provide for jfee goods and services to the publle which would otherwise fall on ‘Basis: Article VI, Sec. 28(3), 1987 Constitution government "REQUISITES FOR EXEMPTION ‘Real Property Tax TReal property must be ADE used for charitable purposes “ADE used" means the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized and not the use of the income from the real property (Lung Center of the Philippines v. Quezon City, 2004) Tacome ‘Tax (NOON) ‘a. Must be a Non-stock corporation or association; 1. . Organized and Operated exclusively for charitable purposes; and, ¢. No part of its net income or assets shall belong to or inure to the benefit of any ‘member, organizer, officer, or any person (NIRC, Sec. 30(E)). ‘A charitable institution is allowed to engage in “activities conducted for profit” without losing its tax exempt status for its not-for-profit activities. The only consequence is that" ‘such income shall be subject to tax (NIRC, Sec. 30 (last par)) (CIR v. St. Luke's Medical Center, 2017, Covered Case, j. Del Castillo). ‘Donor’s Tax Proprietary Educational Institution and Hospital Proprietary E¢ ‘Not more than 30% of gifts used for administration, TOWA)G), NIRC) Real Property ‘Provided, ADE used for charitable, religious, educational purposes (Lung Center of Tax the Philippines v. Quezon City, 2004) Income Tax | Subject to 10% or 30% Normal Income Tax: If income from unrelated trade, business and other activities does not exceed 50% of total income, NIT of 10% (Predominance Test); OTHERWISE, if income from unrelated trade, business and other activities exceeds 50% of total income, NIT of 30% (NIRC, Sec. 27(B)). Estate__and Lisble Donor’s Tax GOCCs; Government Entities and Instrumentalities (GEI) GOCCs GEI Income Tax Liable Except: GSIS, SSS, Local Water District, PHIC and PCSO (NIRC, Sée 27(0)s ee Note: Under TRAIN Law, PCSO not exempt Real Property Exempt Tax a Exception: beneficial use of property’ pertains to non-exempt entity (LGC, See. 234(a)) «PAGCOR Corporate | Liable only on its income derived from other related services Income Tax % PAGCOR's income from gaming operations is subject only to 5% franchise tax under PD 1869, as amended; while its income from other related services is subject to corporate income tax ant to the same law in relation to RA No. 9337. ‘Withholding | PAGCOR is a mere withholding agent inasmuch as the Fringe Benefits Tax (FBT) is imposed Taxes on on PAGCOR’s employees who receive the fringe benefit. PAGCOR’s liability as a Fringe Benefits | withholding agént is not covered by the tax exemptions under its Charter. ‘VAT EXEMPT ‘The tax exemption of PAGCOR granted under its Charter includes the payment of indirect taxes, such as VAT. Tessees and | Exemption extends because itis equivocally stated in P.D. No. 1869 (Bloomberry Resorts Contractees v. BIR, 2016) (PAGCOR v. CIR, 2017, Covered Case) Philippine Alslines (PAL) Subject only to NCIT or Franchise Tax PAL may pay the basic corporate income tax or a franchise tax of 2% of the gross revenues derived from all sources ‘in lieu of all other taxes”, duties, royalties, registrations, license and other fees and charges of any kind collected 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 2 0f 24TAXATION LAW SAN BEDALAW + 2018 LAST MINUTE TIPS ee —————————— ctw 7. by any municipal, city, provincial or national authority or government agency. However, PAL is not exempt from RPT (CIR v PAL, 2017). c Exchange of Notes Assuming Tax not equivalent to Tax Exemption ‘The Exchange of Notes is considered an executive agreement, which is binding on the state even without Senate concurrence. The tax assumption provision differs from a tax exemption provision in that, inthe former, there is still a tax Lability but it is merely assumed by another entity. Thus, the constitutional requirement on tax exemption would not apply (Mitsubishi v. CIR, 2017, Covered Case). ‘Tax Amnesty Exclusions from the coverage of the tax amnesty program (TEA PUW) ‘Tax cases subject to final and executory judgments by courts, Pending cases involving Unexplained wealth under RA 30 ‘Withholding agents with respect to their withholding tax liabilities (See. 8, RA 9480). 5 “Since the Liebility for the tax belongs to the taxpayer and not to the withholding agent, only the former may avail of the tax amnesty. a b. Tax Evasion cases and other criminal offenses under the NIRC; Pending cases with the AMLA: d. Pending cases with the PCGG; e fi Taxpayer's Suit ‘Taxpayer's Suit v. Citizen’s Suit . "TAXPAYER'S SUIT_ ‘CITIZEN'S SUIT Plaintiff ir affected by the expenditure of public funds | Plaintiffs a mere instrument of public concern Public funds are llegally disbursed or deflected to an | Plaintiff has been or is about to be denied some right illegal purpose or that there is wastage of public funds | or privilege to which he has been lawfully entitled or through the enforcement of an invalid or | that he is about to be subjected to some burdens or unconstitutional law penalties by reason of the statute or act complained of Tegal disbursement of public funds derived from | Issue of transcendental importance or when paramount public interest is involved ‘Government of the Philippines, 2008) tavat Province of North Cotabato Senior Citizen Discount under RA 9257 a Police Power measure Police power is the inherent power ofthe State to regulate or to restrain the use of Liberty and property for public welfare, The 20%; discount is intended to improve the welfare of senior citizens who, at their age, are less likely to be gainfully employed, more prone to illnesses and other disabilities, and, thus, in need of subsidy in purchasing basic commodities. The 20% discount may be properly viewed as belonging to the category of price regulatory ‘measures which affect the profitability of establishments subjected thereto. On its face, therefore, the subject regulation isa police power measure (Manila Memorial Park, Inc. v. Secretary of The Department of Social Welfare ‘and Development, 2013). ‘Tax Treaty ‘Tax Treaty prevails over NIRC (Pacta Sunt Servanda) ; ‘2. RP-Canada Tax Treaty which imposes 1.5% tax on income prevails over the 30% NCIT under NIRC (Air Canada v. Commissioner of Internal Revenue, 2016), b, _RP-Germany Tax Treaty which imposes 10% branch profits remittance tax (BPRT) prevails over 15% BPRT under NIRC. INCOME TAX 18, ‘Income All-Events Test Requisites: Fixing of aright to income to pay;and b. The availability of the reasonable accurate determination of such income (CIR v. Isabela Cultural Corporation, 2007). 2018 SAN BEDA CENTRALZED BAR OPERATIONS | $ of 21