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Power of Taxation v. Eminent Domain v.

Police Power  Necessity Theory

POLICE POWER EMINENT DOMAIN POWER OF - taxation is predicated upon necessity to preserve the State’s sovereignty and a
TAXATION means to give the citizenry facilities and protection which a government is supposed
Purpose The use of the The property is The property is to provide.
property is taken for public use taken for the  Benefits Protection Theory
regulated for and must be support of the
promoting the compensated government - bases the power of the Stet to demand and receive taxes on the reciprocal
general welfare duties of support and protection.
and is not
-the citizen supports the State by paying the portion from his property that is
compensable
demanded in order that he may, by means thereof, be secured in the enjoyment of
Amount Amount No amount Generally, there
the benefits of an organized society.
of imposed should imposed but rather is no limit on the
impositi not be more the owner is paid by amount of tax  Inherent Limitations to the Power of Taxation
on than sufficient just compensation that may be
a. For Public Purpose
to cover license imposed
b. international comity based on Article II Section 2 of !987 Constitution
and necessary
c. Territoriality which provides that the taxing power of a country is limited to persons
expenses or property within and subject to its jurisdiction.
Relations Relatively free Inferior to the Subject to certain d. Non-delegation of the Power to Tax except which is provided under Article VI
hip to from impairment of constitutional Section 28 (2) where the President can impose tariff rates and export quotas.
Constitut constitutional obligations of limitations; e. Exemption from Taxation of Government Agencies/Instrumentalities such as GSIS,
ion limitations; it is contracts including the SSS, PHIC, and PCSO.
superior to the prohibition; impairment of
impairment of government cannot obligation of
 Constitutional Limitations to the Power of Taxation
contract expropriate contracts
provision property which a. due process of law
under a contract it b. equal protection of laws
had previously c. uniformity
bound itself to d. progressive system of taxation
purchase e. non-impairment of contracts
f. non-imprisonment for non-payment of a poll tax
g. appropriation, revenue and tariff bills must originate exclusively in the House of
 Lifeblood Theory Representatives
h. presidential veto
- Taxes are the lifeblood of the government, for without taxes, the government i. presidential power to fix tariff rates
can neither exist nor endure. j. freedom of the press
k. freedom of religion
l. exemption from property tax of properties of religious, educational, charitable
institutions

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m. tax exemptions granted to non-stock, non-profit educational institutions  Construction and Interpretation of tax laws: strictissimi juris
n. no public money or property used for a particular sect, priest, religious minister
etc. -provides that statutes levying taxes or duties are to be construed strongly
o. grant of tax exemptions against the government and in favor of the subject citizens.
p. grant of power of taxation to LGU
In case of grant of tax exemption: Against taxpayer-in favor of the government
q. money collected for a special purpose shall be considered a special fund
r. exclusive appellate jurisdiction of the SC involving legality of taxes, imports, In case of tax penalty: in favor of taxpayer-against the State
assessment, fees and penalty.
Revenue regulation v. Ruling

Revenue Regulation Ruling  Exception to strictissimi juris:


- are issuances signed by the Rulings made by BIR which
Secretary of Finance, upon partakes quasi-adjudication (a) Where the statute granting the exemption expressly provides for a
recommendation of the (IDK) liberal interpretation;
Commissioner of Internal (b) Special taxes relating to special cases and affecting only special classes of
Revenue, that specify, prescribe persons;
or define rules and regulations
(c) Strict construction of exemption statutes applies to exemptions of
for the effective enforcement of
the provisions of the National property held in private ownership but not to exemptions of public
Internal Revenue Code (NIRC) property.
and related statutes. (d) Exemptions to traditional exemptees;
(e) Exemptions in favor of the government, its political subdivisions or
instrumentalities;
(f) If the taxpayer falls within the purview of exemption by clear legislative
intent
Revenue Memorandum Order v. Revenue Memorandum Cicular

Revenue Memorandum Order Revenue Memorandum  Prospectivity doctrine of tax laws


Cicular
General rule: taxes must only be imposed prospectively
-are issuances that provide -are issuances that publish
directives or instructions; pertinent and applicable Exception: may be imposed retroactively if the law expressly provides and if it will
prescribe guidelines; and outline portions, as well as not amount to a denial of due process.
processes, operations, activities, amplifications, of laws, rules,
workflows, methods and regulations and precedents
procedures necessary in the issued by the BIR and other  Imprescriptibility of tax laws
implementation of stated agencies/offices. - Taxes are imprescriptible as they are the lifeblood of the government.
policies, goals, objectives, plans
and programs of the Bureau in - amplifying that of Revenue  Double taxation
all areas of operations, except Regulations as what had been
auditing. issued by BIR before. - Taxing the same person (the same subject or object) twice by the same jurisdiction
over the same thing.

 There is direct double taxation if the two taxes are imposed:

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(a) On the same subject matter
(b) For the same purpose
(c) By the same taxing authority  Situs of taxation for trust and estates
(d) Within the same jurisdiction
- Trusts and estates are taxed only for income derived from the Philippines.
(e) During the same taxing period
(f) The taxes must be of the same kind or character  General characteristics of taxation

 Power to tax in the Power to destroy (a) Inherent


(b) Legislative
- The power to tax includes the power to destroy if it is used validly as an (c) Unlimited
implement of the police power in discouraging and in effect ultimately (d) Generally imprescriptible
prohibiting certain things of enterprises inimical to the public welfare. (e) Applied prospectively
(f) Subservient to the non-impairment clause
 Tax avoidance vs Tax evasion (g) May be exercised jointly with police power

Tax avoidance Tax evasion


- is a legal means used by the -connotes fraud through the use  Requisitve of a valid tax
taxpayer to reduce taxes. of pretenses and forbidden
devices to lessen or defeat taxes. (1) for a public purpose
(2) rule of taxation should be uniform
(3) the person or property taxed is within the jurisdiction of the taxing authority
 Situs of taxation for individuals (4) assessment and collection is in consonance with the due process clause
(5) The tax must not infringe on the inherent and constitutional limitations of the
within and without: taxable power of taxation
Resident Citizen income

Non-resident citizen Within is taxable income  Direct v. Indirect tax


Resident alien Within is taxable income
Direct Taxes Indirect Taxes
Non-resident alien engaged Within is taxable income
- A tax for which a taxpayer - a tax primarily paid by
In trade or business
is directly liable on the persons who can shift the
Non-resident alien not Within: Gross income
transaction or business it burden upon someone
engaged in trade or
engages. else.
business

 Tax v. License fee


 Situs of taxation of corporations Tax License Fee
-levied in the exercise of -emanate from the police
Domestic Corporations Within and without: taxable
the taxing power power of the State
income
- generate revenues -for regulatory purposes
Resident Foreign Corp. Within: taxable income
Non-resident foreign corp. Within: gross income

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is about to be subjected to are not intended for public
some burdens or penalties by purpose.
 Doctrine of Recoupment reason of the statute or act
complained of.
-it provides that a claim for refund barred by prescription may be allowed to offset
unsettled tax liabilities should be pertinent only to taxes arising from the same
transaction on which an overpayment is made and underpayment is due.

 Rule on Compensation of Taxes


 Locus standi
GR: There can be no offsetting of taxes against the claims that the taxpayer may have
- it provides that a party will be allowed to litigate only when he can demonstrate
against the government since the they are not mutually creditors and debtors of each
that a) he has personally suffered some actual or threatened injury because of the
other and a claim for taxes is not a debt.
allegedly illegal conduct of the government, b) the injury is fairly traceable to the
EXP: When both taxes and claim against the government is overdue, demandable and challenged action, and c) the injury is likely to be redressed by the remedy being
fully liquidated. sought.

 Tax amnesty v. Compromise  Doctrine of Transcendental Importance

Tax Amnesty Compromise - when there is a presence of a clear case of disregard of a constitutional or
statutory prohibition by the public respondent agency or instrumentality of the
- An immunity from all -allows taxpayers to settle government and the lack of any other party with a more direct and specific interest
criminal and civil obligations their internal revenue tax in questions being raised.
arising from non-payment of liabilities for less than the basic
taxes. assessed tax.  Doctrine of Ripeness for Judicial Determination
- It partakes of an absolute - an agreement between two
- an issue is riped for judicial determination when litigation is inevitable and
waiver by the government of or more persons who, to avoid
when administrative remedies have been exhausted.
its right to collect what is due a lawsuit, amicably settle their
and give tax evaders who differences on such terms as  Authority of Secretary of Finance
which to relent a chance to they can agree on.
start a clean slate. -The Secretary of Finance, upon recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the effective enforcement of the
provisions of the Tax Code.

 Citizen’s Suit v. Taxpayer’s Suit  Power of CIR to interpret tax laws

Citizen’s suit Taxpayer’s suit - Power of Commissioner of Internal Revenue to interpret tax laws is exclusive
and original but subject to review by the Secretary of Finance. Interpretations are not
the person complaining must A remedy available to a judicially binding; interpretation of laws.
allege that he has been or is taxpayer when taxes are used
about to be denied some for illegal activities or when *Doctrine of First Impression
right or privilege to which he public funds are used by the
is lawfully entitled or that he government for projects which

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-a case that presents the court with an issue of law that has not previously  Cash v. Accrual Method of Accounting
been decided by any controlling legal authority in that jurisdiction.
Cash Method Accrual Method
 Global Income Tax System vs Schedular
-deducts expenses in the - recognizes expenses in
Global Income Tax Schedular year in which they are the year they accrue.
- it is one in which a single -it is one in which separate paid. - Accrual Method is
tax is imposed on all taxes are imposed on - whereby all items of method of accounting for
income, whatever its different categories of gross income received income in the period it is
nature. income. during the year shall be earned, regardless of
-it generally provides for - it classifies income, accounted for in such whether it has been
uniform rules, tax rate provides for different tax taxable year and that only received or not. Expenses
and does not classify rules and imposes different expenses actually paid are accounted for in the
income. tax rates. shall be claimed as period they are incurred
deductions during the and not in the period they
year are paid.

 General tax v. Excise tax  Realization test


General tax Excise tax -revenue is generally recognized when the earning process is complete or
virtually complete and an exchange has taken place.
it is levied without a -a tax imposed on the right
specific or or privilege of a person to  Claim of right doctrine
predetermined purpose. receive or earn income.
is a tax on the production, - illegally acquired income constitutes realized gain.
sale or consumption of a
 Economic Test
commodity in a country.
- any economic benefit to the employee that increases his net worth, whatever
may have been the mode, which it is effected, is taxable.
Income v. Capital  Situs of Service
Income Capital - Services performed in the Philippines shall be treated as income from sources
within the Philippines.
means all wealth which -Fund or property which
flows into the taxpayer can be used in producing  Situs of Dividends
other than a mere return goods or services.
of capital. - Dividends received from a domestic corporation are treated as income from
sources within the Philippines.

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 5 exclusion from the tax code exemptions or deductions and the deductions
other tax exemptions. and/or personal
1. Proceeds of life insurance reductions. exemptions
2. amounts received as return of premium authorized by the
3.gifts, bequests and devises Tax Code and other
4. compensation for injuries or sickness statutes.
5. income exempt under treaty
Others:
6. retirement benefits, pensions, gratuities etc.
7. miscellaneous items  Fringe Benefits v. De Minimis

All-events Test Fringe Benefits De Minimis

All Events *Control *Doctrine of *Severance - any good, service. Or -these refer to facilities or
Test Test Proprietary Test other benefits furnished privileges furnished or offered
Interest or granted to an by an employer to his
employer, in cash or in employees that are of
- it requires a) - power to - threats - separation kind, in addition to basic relatively small value and are
the fixing of a procure stock from capital salaries of an individual offered or furnished by the
right to the options, od something employee. employer merely as a means of
income or payment shares of which is of - applies to managerial promoting health, goodwill,
liability to pay, of income stock or exchangeable and supervisory contentment or efficiency of
and b) the and enjoy other assets value. employees ONLY. his employees.
availability of the benefit transferred - privileges of relatively small
the thereof. by an value as given by the employer
reasonable employer to to his employees.
accurate an employee
determination to secure
of such better
income or services are
liability. taxable.

 Gross Income v. Net Income v. Taxable Income

Gross income Net income Taxable income

- it means total - means gross - means pertinent


income from all income less items of gross
sources before statutory income specified in
deductions, the Tax Code, less

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c. taxes
 Exclusion v. Deduction v. Tax Credit vs. Exemption d. losses
e. bad debts
Exclusion Deduction Tax Credit Exemption
f. depreciation
Income These are It refers to Something g. depletion
received or included in foreign is exempt h. charitable and other contributions
earned but the gross taxes paid from being i. research and development expenditure
are not income but beforehand regulated or
j. pension trust contribution
taxable are later but are it is being
because of deducted to claimed as less
arrive at net credits regulated
exemption by
income against because it  Ordinary v. Necessary Expenses
virtue of a law
Philippine meets
or treaty; certain
income tax ordinary necessary
hence, not to arrive at conditions
included in When it is normal in Where it is appropriate
the tax due
the and relation to the business of and helpful in the
computation payable the taxpayer and the development of the
of gross surrounding taxpayer’s business.
income. circumstances.

 Most favored nation clause  Losses from Wash Sales

-The Most Favored Nation clause allows the taxpayer in one state to avail of more - The sale or other disposition of stock or securities where substantially identical
liberal provisions granted in another tax treaty to which the country of residence of securities are acquired or purchased within 61 day period, beginning 30 days before
such taxpayer is also a party; provided that the subject matter of taxation is the same. the sales and ending 30 days after the sale.

- provides that the citizens or subjects of the contracting nations may enjoy the  Net Operating Loss Carry Over
privileges accorded by either party to those of the most favored nation. - The Net Operating Loss of the business which had not been previously offset as
 Cohan Principle deduction from gross income shall be carried over as a deduction from gross income
for the next three (3) consecutive taxable years
- if there is a showing that expenses have been incurred but the exact amount cannot
be ascertained due to absence of receipts and vouchers, the BIR has the option to  Optional Standard Deduction
make an estimate of the deduction that may be allowed in computing the taxpayer’s - Optional Standard Deduction means an allowable deduction from
taxable income. professional/business income of the persons who are entitled and who may elect to
 Itemized Deduction use this kind of deduction in lieu of the itemized deduction.

Itemized Deduction from Gross Income:

a. business expenses
b. interest
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 Realization of income v. Recognition of income

Realization of Income Recognition of Income  Tax Arbitrage

to constitute receipt, the Income is generally - refers to any investment which generates a profit because one part of the
income must be credited to recognized when the transaction is taxed differently from the other part.
the tax payer without any earning process is complete
substantial limitation or or virtually complete and an NOTES:
restriction as to the time or exchange has taken place.
manner of payment or
condition upon which
payment is to be made.

 Destination Doctrine (sales tax) v. Cross-Border Doctrine (PEZA/free port


zone)

Destination Doctrine Cross-Border Doctrine

Provides that a product will exported. to a free port


be taxed where it was zone, it is exempted from
destined. the payment of any tax since
it is considered as a different
territory
-PEZA/Freeport zone

 GOCC v. Government Instrumentality

GOCC Government Instrumentality


refers to any agency organized as defined as an agency of the
a stock or non-stock corporation, national government, not
vested with functions relating to integrated within the department
public needs whether framework, vested with special
governmental or proprietary in functions or jurisdiction by
nature, and owned by the law, endowed with some if not all
Government directly or through corporate powers, administering
its instrumentalities either special funds, and enjoying
wholly, or, where applicable as in operational autonomy, usually
the case of stock corporations, to through a charter.
the extent of at least fifty-one (51)
percent of its capital stock

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