DOUBLE TAXATION
Authors would say that double taxation is one of
the inherent limitations. I would say that it is not
because of our basic premise that the power to
tax is plenary, all-encompassing and unlimited. If
the government would like to tax the same
subject matter twice, for the same purpose, the
can do so.
It is more of a constitutional limitation. Our basic
premise is not all forms of double taxation is
actually illegal. Double taxation is not illegal per
se. You’re paying income taxes and at the same
time weekly percentage tax or VAT. It’s the same
money and yet there are two types of tax being
imposed by the government.
WHEN WILL THE DOUBLE TAXATION BECOME
ILLEGAL?
 If it violates the constitution
 If it violates any provision of the law.
2 FORMS OF DOUBLE TAXATION
1. Direct Double Taxation/Direct Duplicate
Taxation
2. Indirect Double Taxation/Indirect Duplicate
Taxation
What is Direct Double Taxation?
This is declared by law to be illegal. Another term
for it is Obnoxious Double Taxation according to
Aban. Direct Double Taxation happens when the
same subject or property is taxed twice, by the
same taxing authority, for the same tax purpose,
the same tax period and all tax subjects/objects
or property within the same territory for the first
time without taxing them for the second time.
Aban’s Definition of Double Taxation:
The same property is taxed twice, where it should
be only taxed once, and that both taxes are
imposed to the same property or subject matter
for the same purpose, same taxing authority,
within the same tax jurisdiction, covering the
same tax period, for the same kind or character of
tax.
6 ELEMENTS. The taxpayer is taxed twice, when
he should be only taxed once and the both TAXES
ARE:
1. For the same subject matter;
2. For the same purpose;
3. For the same taxing authority;
4. Within the samee jurisdiction;
5. During the same taxing period;
6. And the taxes are of the same kind and
character.
What is Indirect Double Taxation?
This is the “legal double taxation”. Absent one of
the elements of Direct Double taxation, there is
INDIRECT DOUBLE TAXATION which is allowable
by law.
CITY OF MANILA VS COCA-COLA
This deals with 2 separate ordinances issued
by the City of Manila. By virtue of this
ordinance, coke had maintained business
taxes under section 14. There’s this certain
provision in the ordinance wherein the Coca
Cola is paying the manufacturer’s tax.
In City of Manila, there is this old ordinance.
This Old ordinance exempted the Coca-Cola
from paying the manufacturing taxes, because
the Coca-Cola is subjected to another kind of
business tax.
Subsequently, new ordinance was enacted
which withdrew the tax exemption of the Coca
Cola. The new ordinance was struck down by
the courts.
So during the interim period between the time
when the new ordinance was enacted and the
time when it was nullified, Coca Cola was
subject tax. We have this principle under the
constitution that before the law is nullified, it
was effective. Those that were done prior to
the nullification cannot be invalidated.
(maybe Doctrine of operative fact?)
Under this principle, the City of Manila tried to
collect taxes from Coke. During the interim
period, there’s 2 taxes involved. The
Manufacturer’s tax under Section 14(the one
that coke is has been paying). The other is
under Section 21 (the one where the
exemption was lifted).
Coke’s defense: its Double taxation
City of Manila: this is not Double Taxation,
because the purposes are different or the kind
of tax is different.
Issue: Is there Double taxation?
Held: Yes
Elements of Double taxation:
1. Both are imposed on the privilege on
doing business (subject matter)
2. To make persons conducting business
within the city of Manila contribute to
the income or revenue (purpose)
3. City of Manila (taxing authority)
4. Within the city (same tax jurisdiction)
5. Both are paid per calendar year (tax
period)
6. Local business tax imposed on gross
sales or receipts of the business (kind
or character)
SC: Yes, this is actually a DOUBLE TAXATION.
All elements are there. The question next is
where is the law that was violated here. As we
have said, double taxation is only illegal when
there is a violation of the constitution or law.
The answer is section 143 (H) of the LGC. The
said section provides that business taxes may
be imposed on those articles which are
subject to VAT so long as they are not subject
to any business taxes under the local
government code. There is already
manufacturer’s tax, so the other business tax
should not be imposed.
ERICSSON VS CITY OF PASIG
The city of Pasig assessed business taxes
against Ericsson Telecom on the basis of Gross
revenues.
Ericsson: the taxes should be based on the
gross receipts instead of the gross revenues.
City of Pasig: gross revenues and gross
receipts are actually the same.
Issue: will the tax based on the gross revenues
instead of gross receipts constitute Double
Taxation?
Held: this issue is weird because under the
double taxation, there’s 2 taxes imposed.
Here, there is only 1 tax.
_____________________________________
Gross Sales or Receipts include the total
amount of money or its equivalent
representing the contract price,
compensation or service fee, including the
amount charged or materials supplied with
the services and the deposits or advance
payments actually or constructively received
during the taxable quarter for the services
performed or to be performed for another
person excluding discounts if determinable at
the time of sales, sales return, excise tax, and
value-added tax (VAT);
The law is clear. Gross receipts include
money or its equivalent actually or
constructively received in consideration of
services rendered or articles sold, exchanged
or leased, whether actual or constructive.
whatever you have received. It is not only
limited to ACTUAL receipts but also includes
those that are CONSTRUCTIVELY received by
the taxpayer – those which are placed in your
control. Because what if the other party pays
through the bank, is it actually received? NO.
But in effect, the payor loses control of the
money upon the deposit and the recipient of
the money has total control of that money
and may do anything he wants to do with it.
_____________________________________
Gross revenue covers money or its equivalent
actually or constructively received, including
the value of services rendered or articles sold,
exchanged or leased, the payment of which is
yet to be received.
This is a broader term because it includes
money which you actually/constructively
received and the money yet to be received.
_____________________________________
Now where is double taxation?
Sc: “The imposition of local business tax based
on petitioners 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 petitioners 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.”
This means that if the tax base is on the gross
revenues for this year, it will include
receivables (money actually received) and
perceivables (money yet to be received). If the
following year, those perceivalbles will be
received, they will again be included in the
gross revenues. On the next year some items
which have already been taxed in the prior
year might also be included in the present
year’s tax. The effect is similar to double
taxation even if it involves only one tax.
For me, I think the SC missed the fact that
double taxation involves 2 taxes. I think that
the SC focused more on the effect.
Read also the case of CIR vs BPI, it’s in the outline.
And also the case of Nursery Care vs Acevedo.
WAYS OF ELIMINATING DOUBLE TAXATION:
1. TAX TREATIES
2. TAX CREDITS
3. TAX DEDUCTION
4. TAX REDUCTION
1. TAX TREATIES
Entered between states mainly to avoid
international double taxation. This is indirect
double taxation because there are 2 taxing
authorities (missing element).
Example: Pacquiao – he earns income from
boxing matches. Because the match is done
abroad, the host country will impose
income taxes on him. When he arrives in
the Philippines, because of the fact that he
is a resident citizen, he will also be liable for
taxes for the income he earned abroad. It’s
practically the same – same money, same
 purpose, same earning, same type of tax,
but then, the territory and the taxing
authority are different. This is international
double taxation.
International Double Taxation takes place when a
person who is a resident of a contracting state
and derives income from, or own capital in
another contracting state and both states impose
tax on the income or capital. (2 taxing authority
for practically the same tax)
Tax treaties would usually exempt aliens from
local tax and also exempt our local nationals from
foreign taxation. This is a principle of reciprocity.
What is the purpose of international tax
treaties? (CIR vs SC JOHNSON)
1. The elimination of international juridical
double taxation;
2. To encourage the free-flow of goods and
services movement of capital and
technology between the two countries.
(simply said to support international
trade)
2. TAX CREDITS
This is a direct deduction from the tax liability of
the tax payer. This is a peso-for-peso deduction.
The amount of the tax credit is also the very
amount which will be deducted from the tax due.
Example: .under the NIRC, if you have a tax credit
certificate. You can use this as payment for your
taxes. If you a tax credit certificate worth 30,000
and you have an income tax liability of 100,000.
You just pay 70,000 and the tax credit certificate.
Where do you get this tax credits? This tax credits
are normally allowed if there is a law providing for
it. Usually this is when there’s a refund. If you
want a specific provision of law, there one in the
NIRC. Tax Credits for Foreign Income Taxes Paid.
Like for instance what happen to Pacquiao before,
he was pursued by Kim Henares. Henares claims
that he is requesting for the IRS (Internal Revenue
Service) documents of Pacquiao so that we can
apply the tax credit. The tax liabilities of Pacquiao
will be reduced by the foreign income taxes he
has paid abroad. But what Pacquiao and his team
did was they did not provide any document. So
according to Henares he has no other choice but
to enforce the collection.
Another is in Estate Taxation. There are some
decedents who died with a will and they have
properties all over the world. What about the
estate taxes paid abroad? That can be used as
deduction to the estate tax to be paid here.
There is one found in Donor’s Tax .
Another form of tax credit is VAT. The component
of VAT. The input VAT can be used as a tax credit
against you output VAT.
3. TAX DEDUCTIONS
It is pretty much similar in intent with tax credits
because it will reduce the tax liability of the
taxpayer. This tax deductions would reduce the
tax base. If there is a lower tax base, there is
lower tax to pay. In other words, there is an
indirect reduction to the taxes paid. Compared to
the tax credit which is a direct reduction of the
tax liability.
Example: Section 34 (c) (1b) of NIRC. In the
computation of income taxes, right now, if you
provide for senior citizens’ discounts, you can
avail of a deduction. Deduction which will form
part of your business expenses. If you have a lot
of expenses, your income will reduce, and smaller
income would mean smaller taxes that you have
to pay.

4. TAX REDUCTIONS.

This is more of a legislative side. This would just

require enactments from the Congress that would
reduce the tax liabilities of a taxpayer or the tax
rate or the tax base of a particular tax measure.

Example: Train Law. There was an increase in a lot

of excise taxes. There were new items which were
already excisable but the income tax rates and tax
base were only adjusted.