tax syllabus usc pals 2014 as corrected

8/10/2019 Tax Syllabus Usc Pals 2014 as Corrected

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COVERAGELAW ON TAXATION2014 BAR EXAMINATIONS

I. General Principle !" Ta#a$i!nA. %e&ni$i!n an' c!ncep$ !" $a#a$i!n

Taxation is the power by which the sovereign raises revenue to defray the necessaryexpenses of the government. It is merely a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benetsand must bear its burdens. It includes, in its broadest and most general sense,every charge or burden imposed by the sovereign power upon persons, property, orproperty rights for the use and support of the government and to enable it todischarge its appropriate functions, and in that broad denition there is included aproportionate levy upon persons or property and all the various other methods anddevices by which revenue is exacted from persons and property for public purposes.(1 !m. "ur #$%#&

Taxation is described as a destructive power which interferes with the personal and

property rights of the people and ta'es from them a portion of their property for thesupport of the government. (Paseo Realty & Development Corporation v. Court of

Appeals, GR No. 11928, !"to#er 1$, 2%%'

B. Na$(re !" $a#a$i!n

Taxation is inherent in nature, being an attribute of sovereignty. (Cam#er of Real)state an* +uil*ers Asso"iation, -n". v. Romulo, 1 CRA %/ (2%1%''

!s an incident of sovereignty, the power to tax has been described as unlimited inits range, ac'nowledging in its very nature no limits, so that security against itsabuse is to be found only in the responsibility of the legislature which imposes thetax on the constituency who are to pay it. (0a"tan Ce#u -nternational Airport

Autority v. 0ar"os, 21 CRA (199''

The power of taxation is an essential and inherent attribute of sovereignty,belonging as a matter of right to every independent government, without beingexpressly conferred by the people. (PepsiCola +ottlin3 Company of te Pil. 4. 0un.of 5anauan, 6eyte, 9 CRA %'

The power to tax is inherent in the tate, such power being inherently legislative,based on the principle that taxes are a grant of the people who are taxed, and thegrant must be made by the immediate representative of the people, and where thepeople have laid the power, there it must remain and be exercised. (Commissioner of -nternal Revenue v. 7ortune 5o#a""o Corporation, //9 CRA 1% (2%%8''

The power of taxation is essentially a legislative function. The power to tax includesthe authority to)(1& determine the

(a& nature ('ind&*(b& object (purpose&*(c& extent (amount of rate&*(d& coverage (subjects and objects&*(e& apportionment of the tax (general or limited application&*(f& situs (place& of the imposition* and(g& method of collection*

(+& grant tax exemptions or condonations* and(#& specify or provide for the administrative as well as judicial remedies that eitherthe government or the taxpayer may avail themselves in the proper implementationof the tax measure. (Petron v. Pililla, GR No. 1/8881, April 1, 2%%8'

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In other words, the legislature wields the power to dene what tax shall be imposed,why it should be imposed, how much tax shall be imposed, against whom (or what&it shall be imposed and where it shall be imposed. (Cam#er of Real )state an*+uil*ers Asso"iation, -n". v. Romulo, 1 CRA %/ (2%1%''

C. C)arac$eri$ic !" $a#a$i!n

!s a principal attribute of sovereignty, the exercise of taxing power derives it ssource from the very existence of the state whose social contract with its citiensobliges it to promote public interest and common good. (National Poer Corporationv. City of Ca#anatuan, GR No. 1911%, April 9, 2%%$'

The power to tax is so unlimited in force and so searching in extent, that courtsscarcely venture to declare that it is subject to any restrictions whatever, exceptsuch as rest in the discretion of the authority which exercises it. (5io v. 4i*eo3ramRe3ulatory +oar* et al., 1/1 CRA 21$'

It is a settled principle that the power of taxation by the state is plenary.

-omprehensive and supreme, the principal chec' upon its abuse resting in theresponsibility of the members of the legislature to their constituents. (P6AN5)RPR!DC5, -NC. v. 7)R5-P:-6 C!RP!RA5-!N, G.R. No. 1%%, 0ar" 1, 2%%8'

Taxes being the lifeblood of the government that should be collected withoutunnecessary hindrance, every precaution must be ta'en not to unduly suppress it.(Repu#li" v. Ca3uioa, /$ CRA 19$ (2%%''

The power to tax is sometimes called the power to destroy. Therefore, it should beexercised with caution to minimie injury to the proprietary rights of the taxpayer. Itmust be exercised fairly, eually and uniformly, lest the tax collector 'ills the /henthat lays the golden egg.0 (Commissioner of -nternal Revenue v. 0 Prime :ol*in3s,

-n"., 1$ CRA (2%1%''

In order to maintain the general public0s trust and condence in the government,this power must be used justly and not treacherously. (Ro;as y Cia v. Court of 5a;

Appeals, 2$ CRA 2'

Tax laws are prospective in operation, unless the language of the statute clearlyprovides otherwise. (Commissioner of -nternal Revenue v. A"osta, /29 CRA 1(2%%''

%. P!*er !" $a#a$i!n c!+pare' *i$) !$)er p!*er

1. P!lice p!*er

olice ower is the power to ma'e, ordain and establish all manner of wholesomeand reasonable laws, statutes and ordinances whether with penalties or without, notrepugnant to the -onstitution, the good and welfare of the commonwealth, and forthe subjects of the same. (0etropolitan 0anila Development Autority v. Garin, GRNo. 1$%2$%, April 1/, 2%%/'

The main purpose of police power is the regulation of a behavior or conduct, whiletaxation is revenue generation. The 2lawful subjects2 and 2lawful means2 tests areused to determine the validity of a law enacted under the police power. The powerof taxation, on the other hand, is circumscribed by inherent and constitutionallimitations. (P6AN5)R PR!DC5, -NC. v. 7)R5-P:-6 C!RP!RA5-!N, G.R. No.1%%, 0ar" 1, 2%%8'

The motivation behind many taxation measures is the implementation of policepower goals. rogressive income taxes alleviate the margin between rich and poor*

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the so%called 3sin taxes4 on alcohol and tobacco manufacturers help dissuade theconsumers from excessive inta'e of these potentially harmful products. (!5:)RNCR! C)0)N5 C!RP!RA5-!N v. C)0)N5 0AN7AC5R)R A!C-A5-!N !7 5:)P:-6-PP-N), G.R. No. 1/8/%, Au3ust $, 2%%/'

Taxation is distinguishable from police power as to the means employed to

implement these public good goals. Those doctrines that are uniue to taxationarose from peculiar considerations such as those especially punitive e5ects of taxation, and the belief that taxes are the lifeblood of the state yet at the sametime, it has been recognied that taxation may be made the implement of thestate0s police power. (!5:)RN CR! C)0)N5 C!RP!RA5-!N v. C)0)N5 0AN7AC5R)R A!C-A5-!N !7 5:) P:-6-PP-N), G.R. No. 1/8/%, Au3ust $,2%%/'

6nli'e ordinary revenue laws, 7.!. 8+89 and .:. +;8 did not raise money to boostthe government0s general funds but to provide means for the rehabilitation andstabiliation of a threatened industry, the coconut industry, which is so a5ected withpublic interest as to be within the police power of the tate. The subject laws are

a'in to the sugar liens imposed by ec. ;(b& of .:. #<<, and the oil pricestabiliation funds under .:. 1=8, as amended by >.?. 1#;. (PA0+ANANG<!A6-=!N NG 0GA A0A:ANG 0AGAA<A A5 0ANGGAGA>A A N-=GAN v.)?)C5-4) )CR)5AR= G.R. Nos. 1%$$ April 1%, 2%12'

If generation of revenue is the primary purpose and regulation is merely incidental,the imposition is a tax* but if regulation is the primary purpose, the fact thatrevenue is incidentally raised does not ma'e the imposition a tax. (G)R!C:- v.D)PAR50)N5 !7 )N)RG=, /2 CRA 9 (2%%''

@hile it is true that the power of taxation can be used as an implement of policepower, the primary purpose of the levy is revenue generation. If the purpose isprimarily revenue, or if revenue is, at least, one of the real and substantialpurposes, then the exaction is properly called a tax. (P6AN5)R PR!DC5, -NC. v.7)R5-P:-6 C!RP!RA5-!N, G.R. No. 1%%, 0ar" 1, 2%%8'

It has been the settled law that municipal license fees could be classied into thoseimposed for regulating occupations or regular enterprises, for the regulation orrestriction of non%useful occupations or enterprises and for revenue purposes only.Aicenses for non%useful occupations are also incidental to the police power and theright to exact a fee may be implied from the power to license and regulate, but inxing the amount of the license fees the municipal corporations are allowed a muchwider discretion in this class of cases. ()R0-5A0A6A5) :!5)6 AND 0!5)6!P)RA5!R A!C-A5-!N, -NC., :!5)6 D)6 0AR -NC. an* G! C:- v. 5:):!N!RA+6) C-5= 0A=!R !7 0AN-6A, G.R. No. 629$, @uly $1, 19'

2. P!*er !" e+inen$ '!+ainBe it stressed that the privilege enjoyed by senior citiens does notcome directly from the tate, but rather from the private establishments concerned.!ccordingly, the tax credit benet granted to these establishments can be deemedas their just compensation for private property ta'en by the tate for public use.(C!00--!N)R !7 -N5)RNA6 R)4)N) v. C)N5RA6 6!N DRG C!RP!RA5-!NG.R. No. 1/9 April 1/, 2%%/'

Besides, the taxation power can also be used as an implement for the exercise of

the power of eminent domain. Tax measures are but 2enforced contributionsexacted on pain of penal sanctions2 and 2clearly imposed for a public purpose.2 Inrecent years, the power to tax has indeed become a most e5ective tool to realiesocial justice, public welfare, and the euitable distribution of wealth.(C!00--!N)R !7 -N5)RNA6 R)4)N) v. C)N5RA6 6!N DRG C!RP!RA5-!NG.R. No. 1/9 April 1/, 2%%/'

E. P(rp!e !" $a#a$i!n

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1. Re,en(e-raiin2. N!n-re,en(e/pecial !r re(la$!r

The -ourt was satised that the coco%levy funds were raised pursuant to law tosupport a proper governmental purpose. They were raised with the use of the policeand taxing powers of the tate for the benet of the coconut industry and its

farmers in general. (PA0+ANANG <!A6-=!N NG 0GA A0A:ANG 0AGAA<A A5 0ANGGAGA>A A N-=GAN v. )?)C5-4) )CR)5AR= G.R. Nos. 1%$$ April1%, 2%12'

In relation to the regulatory purpose of the imposed fees, 3the impositionuestioned must relate to an occupation or activity that so engages the publicinterest, morals, safety and development as to reuire regulation for the protectionand promotion of such public interest* the imposition must also bear a reasonablerelation to the probable expenses of regulation, ta'ing into account not only thecosts of direct regulation, but also its incidental conseuences as well.4 (C:)4R!NP:-6-PP-N), -NC. v. +A) C!N4)R-!N D)4)6!P0)N5 A5:!R-5=, $% CRA /19(2%1%''

!s an elementary principle of law, license taxation must not be 3so onerous to showa purpose to prohibit a business which is not injurious to health or morals.4(T>7CID!A E!-IAITI> !D: >7FI-> -?7?7!TI?D v. GIAIID> ?7T!6TG?7ITH, #;< -7! <+ (+99+&&

It is a police power measure. The objectives behind its enactment are) 2(1& To beable to impose payment of the license fee for engaging in the business of massageclinic (+& in order to forestall possible immorality which might grow out of theconstruction of separate rooms for massage of customers.2 (5!0A 4)6AC! v.:!N. AN5!N-! @. 4-66)GA, G.R. No. 621/$, 7e#ruary 1, 198$'

. Principle !" !(n' $a# $e+1. ical a'e(ac

-ertainly, to continue collecting real property taxes based on valuations arrived atseveral years ago, in disregard of the increases in the value of real properties thathave occurred since then, is not in consonance with a sound tax system. Eiscaladeuacy, which is one of the characteristics of a sound tax system, reuires thatsources of revenues must be adeuate to meet government expenditures and theirvariations. (7RANC-C! -. C:A4) v. @A-0) +. !NGP-N, G.R. No. 8, @une ,199%'

2. A'+ini$ra$i,e "eai3ili$. T)e!re$ical 5($iceG. T)e!r an' 3ai !" $a#a$i!n1. Li"e3l!!' $)e!r

!s well said in a prior case, revenue laws are not intended to be liberally construed.-onsidering that taxes are the lifeblood of the government and in Golmes0smemorable metaphor, the price we pay for civiliation, tax laws must be faithfullyand strictly implemented. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. R!)0AR-)

AC!5A G.R. No. 1/%8 Au3ust $, 2%%'

Taxes being the lifeblood of the government should be collected promptly. Do court

shall have the authority to grant an injunction to restrain the collection of anyinternal revenue tax, fee or charge imposed by the Dational Internal 7evenue -ode.(ANG)6) C-5= v. ANG)6) )6)C5R-C C!!P)RA5-!N, 22 CRA $ (2%1%''

@e are not unaware of the doctrine that taxes are the lifeblood of the government,without which it can not properly perform its functions* and that appeal shall notsuspend the collection of realty taxes. Gowever, there is an exception to theforegoing rule, i.e., where the taxpayer has shown a clear and unmista'able right to

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refuse or to hold in abeyance the payment of taxes. ()0)R6-NDA . 5A6)N5! vs.:!N. R)0-G-! 0. )CA6ADA, @R., G.R. No. 18%88, @une 2, 2%%8'

2. Necei$ $)e!r

The theory behind the exercise of the power to tax emanates from necessity,

without taxes, government cannot fulll its mandate of promoting the generalwelfare and well being of the people. (G)R!C:- v. D)PAR50)N5 !7 )N)RG=, /2CRA 9 (2%%''

. Bene&$-pr!$ec$i!n $)e!r 6S+3i!$ic rela$i!n)ip7

:espite the natural reluctance to surrender part of ones hard earned income to thetaxing authorities, every person who is able to must contribute his share in therunning of the government. The government for its part is expected to respond inthe form of tangible and intangible benets intended to improve the lives of thepeople and enhance their moral and material values. This symbiotic relationship isthe rationale of taxation and should dispel the erroneous notion that it is anarbitrary method of exaction by those in the seat of power. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. A6G), -NC., an* 5:) C!R5 !7 5A? APP)A6, G.R. No. 62889, 7e#ruary 1, 1988'

The expenses of government, having for their object the interest of all, should beborne by everyone, and the more man enjoys the advantages of society, the morehe ought to hold himself honored in contributing to those expenses. (A+A<ADAGR! PAR5= 6-5 (7ormerly AA@A' !77-C)R A0!N . A6CAN5ARA an* )D4-NC)N5 . A6+AN! v. 5:) :!N!RA+6) )?)C5-4) )CR)5AR= )DARD! )R0-5A,G.R. No. 18%/, eptem#er 1, 2%%/'

4. 8(ri'ic$i!n !,er (35ec$ an' !35ec$

9. %!c$rine in $a#a$i!n1. Pr!pec$i,i$ !" $a# la*

Dote that the issue on the retroactivity of ection +9$(c& of the 1==; DI7- arosebecause the last paragraph of ection +9$(c& was not found in ection +#9 of theold -ode. !fter a thorough consideration of this matter, we nd that we cannot giveretroactive application to ection +9$(c& abovecited. @e have to stress that tax lawsare prospective in operation, unless the language of the statute clearly providesotherwise. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. R!)0AR-) AC!5A G.R. No.1/%8 Au3ust $, 2%%'

2. I+precrip$i3ili$. %!(3le $a#a$i!na7 S$ric$ ene

:ouble taxation means taxing the same property twice when it should be taxed onlyonce* that is, 2taxing the same person twice by the same jurisdiction for the samething.2 It is obnoxious when the taxpayer is taxed twice, when it should be but once.?therwise described as 2direct duplicate taxation,2 the two taxes must be imposedon 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 thesame 'ind or character. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. !6-D+AN<

C!RP!RA5-!N G.R. No. 18191 Novem#er 2/, 2%%$'

37 Br!a' ene

ubjecting interest income to a +9J E@T and including it in the computation of theJ K7T is clearly not double taxation) Eirst, the taxes herein are imposed on twodi5erent subject matters* econd, although both taxes are national in scopebecause they are imposed by the same taxing authority %% the national government



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under the Tax -ode %% and operate within the same hilippine jurisdiction for thesame purpose of raising revenues, the taxing periods they a5ect are di5erent* Third,these two taxes are of di5erent 'inds or characters. (C!00--!N)R !7 -N5)RNA6R)4)N) v. !6-D+AN< C!RP!RA5-!N G.R. No. 18191 Novem#er 2/, 2%%$'

7egulation and taxation are two di5erent things, the rst being an exercise of police

power, whereas the latter involves the exercise of the power of taxation. @hile 7.!.++8$ provides that no city may impose taxes on forest products and althoughlumber is a forest product, the tax in uestion is imposed not on the lumber butupon its sale* thus, there is no double taxation and even if there was, it is notprohibited. ()RA7-CA v. C-5= 5R)AR)R !7 !R0!C, G.R. No. 6281$, April 28,198'

Both a license fee and a tax may be imposed on the same business or occupation,or for selling the same article. This is not being in violation of the rule againstdouble taxation. (C!0PAN-A G)N)RA6 D) 5A+AC! D) 7-6-P-NA v. C-5= !7 0AN-6A, 8 CRA $'

c7 C!n$i$($i!nali$ !" '!(3le $a#a$i!n

6nli'e the 6nited tates -onstitution, double taxation is not specially prohibited inthe hilippine -onstitution. (0anufa"turers 6ife v. 0eer, 89 Pil 21%'

'7 M!'e !" eli+ina$in '!(3le $a#a$i!n

:ouble taxation usually ta'es place when a person is resident of a contracting stateand derives income from, or owns capital in the other contracting state and bothstates impose tax on that income or capital. In order to eliminate double taxation, atax treaty resorts to several methods.

Eirst, it sets out the respective rights to tax of the state of source or situs and of thestate of residence with regard to certain classes of income or capital. In some cases,an exclusive right to tax is conferred on one of the contracting states* however, forother items of income or capital, both states are given the right to tax, although theamount of tax that may be imposed by the state of source is limited.

The second method for the elimination of double taxation applies whenever thestate of source is given a full or limited right to tax together with the state of residence. In this case, the treaties ma'e it incumbent upon the state of residenceto allow relief in order to avoid double taxation. There are two methods of relief% theexemption method and the credit method. In the exemption method, the income orcapital which is taxable in the state of source or situs is exempted in the state of residence, although in some instances it may be ta'en into account in determiningthe rate of tax applicable to the taxpayer0s remaining income or capital. ?n theother hand, in the credit method, although the income or capital which is taxed inthe state of source is still taxable in the state of residence, the tax paid in theformer is credited against the tax levied in the latter. The basic di5erence betweenthe two methods is that in the exemption method, the focus is on the income orcapital itself, whereas the credit method focuses upon the tax. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. .C. @!:N!N AND !N, -NC. G.R. No. 121%/ @une 2/,1999'

In negotiating tax treaties, the underlying rationale for reducing the tax rate is thatthe hilippines will give up a part of the tax in the expectation that the tax given upfor this particular investment is not taxed by the other country. Thus, if the rates of tax are lowered by the state of source, in this case, by the hilippines, there shouldbe a concomitant commitment on the part of the state of residence to grant someform of tax relief, whether this be in the form of a tax credit or exemption.(C!00--!N)R !7 -N5)RNA6 R)4)N) v. .C. @!:N!N AND !N, -NC. G.R. No.121%/ @une 2/, 1999'

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:. E#e+p$i!n "r!+ $a#a$i!na7 Meanin !" e#e+p$i!n "r!+ $a#a$i!n

It is the legislature, unless limited by a provision of the state constitution, that hasfull power to exempt any person or corporation or class of property from taxation,

its power to exempt being as broad as its power to tax. ?ther than -ongress, the-onstitution may itself provide for specic tax exemptions, or local governmentsmay pass ordinances on exemption only from local taxes. (@!:N :A= P)!P6)

A65)RNA5-4) C!A6-5-!N, et al. v. 4-C5!R 6-0, et al., G. R. No. 119/, !"to#er 2,2%%$'

37 Na$(re !" $a# e#e+p$i!n

Taxation is the rule and exemption is the exception. (7)6 )N)RG=, -NC. v.PR!4-NC) !7 +A5ANGA, /1 CRA 18 (2%%''

ince the power to tax includes the power to exempt thereof which is essentially alegislative prerogative, it follows that a municipal mayor who is an executive oMcermay not unilaterally withdraw such an expression of a policy thru the enactment of a tax. (P:-6-PP-N) P)5R!6)0 C!RP!RA5-!N v. 0N-C-PA6-5= !7 P-6-66A, G.R. No.9%, @une $, 1991'

! tax exemption being enjoyed by the buyer cannot be the basis of a claim for taxexemption by the manufacturer or seller of the goods for any tax due to it as themanufacturer or seller. The excise tax imposed on petroleum products underection 1$< is the direct liability of the manufacturer who cannot thus invo'e theexcise tax exemption granted to its buyers who are international carriers*nevertheless, the manufacturer, as the statutory taxpayer who is directly liable to

pay the excise tax on its petroleum products, is entitled to a refund or credit of theexcise taxes it paid for petroleum products sold to international carriers(C!00--!N)R !7 -N5)RNA6 R)4)N) v. P-6-P-NA :)66 P)5R!6)0C!RP!RA5-!N, G.R. No. 1889, 7e#ruary 19, 2%1'

c7 ;in' !" $a# e#e+p$i!n6i7 E#pre6ii7 I+plie'

It bears repeating that the law loo's with disfavor on tax exemptions and he whowould see' to be thus privileged must justify it by words too plain to be mista'en

and too categorical to be misinterpreted. (>)5)RN 0-N!6C! C!RP!RA5-!N v.C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 61$2, Au3ust 1, 198$'

6iii7 C!n$rac$(al

Devertheless, since taxation is the rule and exemption therefrom the exception, theexemption may thus be withdrawn at the pleasure of the taxing authority. The onlyexception to this rule is where the exemption was granted to private parties basedon material consideration of a mutual nature, which then becomes contractual andis thus covered by the non%impairment clause of the -onstitution. (0C-AA v. 0ar"os,G.R. No. 12%%82 eptem#er 11, 199'

'7 Ra$i!nale/r!(n' "!r e#e+p$i!n

In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realie social justice and theeuitable distribution of wealth, economic progress and the protection of localindustries as well as public welfare and similar objectives. Taxation assumes evengreater signicance with the ratication of the 1=<; -onstitution. (+A5ANGA

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P!>)R C!RP!RA5-!N v. +A5ANGA C-5= an* NA5-!NA6 P!>)R C!RP!RA5-!N,G.R. No. 1/2/, April 28, 2%%'

The I says that the discriminatory treatment of the press is highlighted by the factthat transactions, which are prot oriented, continue to enjoy exemption under 7.!.Do. ;;18 but an enumeration of some of these transactions will suMce to show that

by and large this is not so and that the exemptions are granted for a purpose. !sthe olicitor Keneral says, such exemptions are granted, in some cases, toencourage agricultural production and, in other cases, for the personal benet of the end%user rather than for prot. (AR5R! 0. 5!6)N5-N! v. 5:) )CR)5AR= !7 7-NANC) an* 5:) C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 11///,!"to#er $%, 199/'

e7 Re,!ca$i!n !" $a# e#e+p$i!n

ince the law granted the press a privilege, the law could ta'e bac' the privilegeanytime without o5ense to the -onstitution. The reason is simple) by grantingexemptions, the tate does not forever waive the exercise of its sovereign

prerogative* indeed, in withdrawing the exemption, the law merely subjects thepress to the same tax burden to which other businesses have long ago beensubject. (AR5R! 0. 5!6)N5-N! v. 5:) )CR)5AR= !7 7-NANC) an* 5:)C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 11///, !"to#er $%, 199/'

The rule is that a special and local statute applicable to a particular case is notrepealed by a later statute which is general in its terms, provisions and applicationeven if the terms of the general act are broad enough to include the cases in thespecial law unless there is manifest intent to repeal or alter the special law. (5:)PR!4-NC) !7 0-A0- !R-)N5A6, represente* #y its PR!4-NC-A6 5R)AR)R v.CAGA=AN )6)C5R-C P!>)R AND 6-G:5 C!0PAN=, -NC., G.R. No. 6/$//, @anuary 12, 199%'

This -ourt recognied the removal of the blan'et exclusion of governmentinstrumentalities from local taxation as one of the most signicant provisions of the1==1 AK-. pecically, we stressed that ection 1=# of the AK-, an express andgeneral repeal of all statutes granting exemptions from local taxes, withdrew thesweeping tax privileges previously enjoyed by the D- under its -harter.(+A5ANGA P!>)R C!RP!RA5-!N v. +A5ANGA C-5= an* NA5-!NA6 P!>)RC!RP!RA5-!N, G.R. No. 1/2/, April 28, 2%%'

>rroneous application and enforcement of the law by public oMcers do not precludesubseuent correct application of the statute, and the government is never

estopped by the mista'e or error on the part of its agents. (GIAIID> B!N>TB!AA!?-I!TI?D v. -?67T ?E !>!A, ##; -7! #<&

<. C!+pena$i!n an' e$-!=

Taxes cannot be the subject of set%o5 or compensation for the following reasons) (1&taxes are of distinct 'ind, essence and nature, and these impositions cannot beclassed in the same category as ordinary obligations* (+& the applicable laws andprinciples governing each are peculiar, not necessarily common to each* and (#&public policy is better subscribed if the integrity and independence of taxes aremaintained. (R)P+6-C v. 0A0+6A! 60+)R C!0PAN=, CRA 22 (192''

Taxes cannot be subject to compensation for the simple reason that theKovernment and the taxpayers are not creditors and debtors of each other, debtsare due to the Kovernment in its corporate capacity, while taxes are due to theKovernment in its sovereign capacity. (!5: A7R-CAN A-R>A= v. C!00--!N)R!7 -N5)RNA6 R)4)N), 12 CRA / (2%1%''

Gowever, if the obligation to pay taxes and the taxpayer0s claim against thegovernment are both overdue, demandable, as well as fully liuidated,

=



19

compensation ta'es place by operation of law and both obligations are extinguishedto their concurrent amounts. (D!0-NG! v. GAR6-5!, 8 CRA $ (19$''

>. C!+pr!+ie?. Ta# a+ne$a7 %e&ni$i!n

! tax amnesty is a general pardon or the intentional overloo'ing by the tate of itsauthority to impose penalties on persons otherwise guilty of violating a tax law. Itparta'es of an absolute waiver by the government of its right to collect what is dueit and to give tax evaders who wish to relent a chance to start with a clean slate.(A-A -N5)RNA5-!NA6 AC5-!N))R, -NC. v. C!00--!N)R !7 -N5)RNA6R)4)N) G.R. No. 1911/ eptem#er 2, 2%12'

! tax amnesty, much li'e a tax exemption, is never favored or presumed in law. Thegrant of a tax amnesty, similar to a tax exemption, must be construed strictlyagainst the taxpayer and liberally in favor of the taxing authority. (A-A-N5)RNA5-!NA6 AC5-!N))R, -NC. v. C!00--!N)R !7 -N5)RNA6 R)4)N) G.R.

No. 1911/ eptem#er 2, 2%12'

37 %i$in(i)e' "r!+ $a# e#e+p$i!n

@. C!n$r(c$i!n an' in$erpre$a$i!n !"a7 Ta# la*6i7 General r(le

Ferily, taxation is a destructive power which interferes with the personal andproperty for the support of the government. !ccordingly, tax statutes must beconstrued strictly against the government and liberally in favor of thetaxpayer. (0C-AA v. 0ar"os, G.R. No. 12%%82 eptem#er 11, 199'

The rule that tax exemptions should be construed strictly against the taxpayerpresupposes that the taxpayer is clearly subject to the tax being levied against him.6nless a statute imposes a tax clearly, expressly and unambiguously, what appliesis the eually well%settled rule that the imposition of a tax cannot be presumed. Thisis because taxes are burdens on the taxpayer, and should not be unduly imposed orpresumed beyond what the statutes expressly and clearly import. (C!00--!N)R!7 -N5)RNA6 R)4)N) v. 5:) P:-6-PP-N) A0)R-CAN ACC-D)N5 -NRANC)C!0PAN=, -NC. G.R. No. 11/8 0ar" 18, 2%%/'

6ii7 E#cep$i!n37 Ta# e#e+p$i!n an' e#cl(i!n6i7 General r(le

But since taxes are what we pay for civilied society, or are the lifeblood of thenation, the law frowns against exemptions from taxation and statutes granting taxexemptions are thus construed in strictissimi juris against the taxpayers andliberally in favor of the taxing authority. (0C-AA v. 0ar"os, G.R. No. 12%%82eptem#er 11, 199'

>ntrenched in our jurisprudence is the principle that tax refunds are in the nature of tax exemptions which are construed in strictissimi juris against the taxpayer andliberally in favor of the government. !s tax refunds involve a return of revenue fromthe government, the claimant must show indubitably the specic provision of lawfrom which her right arises* it cannot be allowed to exist upon a mere vagueimplication or inference nor can it be extended beyond the ordinary and reasonableintendment of the language actually used by the legislature in granting the refund.(C!00--!N)R !7 -N5)RNA6 R)4)N) v. R!)0AR-) AC!5A G.R. No. 1/%8

Au3ust $, 2%%'

19



11

@ell%settled in this jurisdiction is the fact that actions for tax refund, as in this case,are in the nature of a claim for exemption and the law is construed in strictissimi

juris against the taxpayer. The pieces of evidence presented entitling a taxpayer toan exemption are also strictissimi scrutinied and must be duly proven. (<)PC!P:-6-PP-N) C!RP!RA5-!N v. C!00--!N)R !7 -N5)RNA6 R)4)N) G.R. No.1991 @anuary $1, 2%11'

The legislative intent, as shown by the discussions in the Bicameral -onferenceCeeting, is to reuire !K-?7 to pay corporate income tax* hence, the omission orremoval of !K-?7 from exemption from the payment of corporate income tax. It isa basic precept of statutory construction that the express mention of one person,thing, act, or conseuence excludes all others as expressed in the familiar maximexpressio unius est exclusio alterius. (P:-6-PP-N) A0)0)N5 AND GA0-NGC!RP!RA5-!N (PAGC!R' v. 5:) +R)A !7 -N5)RNA6 R)4)N) G.R. No. 12%80ar" 1/, 2%11'

It is a basic precept of statutory construction that the express mention of oneperson, thing, act, or conseuence excludes all others as expressed in the familiar

maxim e;pressio unius est e;"lusio alterius. Dot being a local water district, acooperative registered under 7.!. Do. 8=#<, or a non%stoc' and non%prot hospital oreducational institution, petitioner clearly does not belong to the exception and it istherefore incumbent upon it to point to some provisions of the AK- that expresslygrant its exemption from local taxes. (NA5-!NA6 P!>)R C!RP!RA5-!N v. C-5= !7 CA+ANA5AN G.R. No. 1911% April 9, 2%%$'

:enitely, the taxability of a party cannot be blandly glossed over on the basis of asupposed 2broad, pragmatic analysis2 alone without substantial supportiveevidence, lest governmental operations su5er due to diminution of much neededfunds. @hile international comity is invo'ed in this case on the nebulousrepresentation that the funds involved in the loans are those of a foreigngovernment, scrupulous care must be ta'en to avoid opening the Ooodgates to theviolation of our tax laws. (-?CCII?D>7 ?E IDT>7D!A 7>F>D6> v. CIT6BIGIC>T!A -?7?7!TI?D K.7. Do. A%$=9< "anuary ++, 1==9&

The claimed statutory exemption of the "ohn Gay >P from taxation should bemanifest and unmista'able from the language of the law on which it is based* itmust be expressly granted in a statute stated in a language too clear to bemista'en. If it were the intent of the legislature to grant to the "ohn Gay >P thesame tax exemption and incentives given to the ubic >P, it would have soexpressly provided in the 7.!. Do. ;++;. (@!:N :A= P)!P6) A65)RNA5-4)C!A6-5-!N, et al. v. 4-C5!R 6-0, et al., G. R. No. 119/, !"to#er 2, 2%%$'

The -ourt in A:T v. -ity of :avao, held that in approving ection +# of 7! Do.;=+, -ongress did not intend it to operate as a blan'et tax exemption to alltelecommunications entities. The -ourt also claried the meaning of the word2exemption2 in ection +# of 7! ;=+) that the word 2exemption2 as used in thestatute refers or pertains merely to an exemption from regulatory or reportingreuirements of the :epartment of Transportation and -ommunication or theDational Transmission -orporation and not to an exemption from the grantee0s taxliability. (0AR5 C!00N-CA5-!N, -NC. v.5:) C-5= !7 DA4A!, G.R. No. 1//91,

@uly 21, 2%%9'

In hilippine Aong :istance Telephone -ompany (A:T& v. rovince of Aaguna, the

issue that the -ourt had to resolve was whether A:T was liable to pay franchisetax to the rovince of Aaguna in view of the 2in lieu of all taxes2 clause in itsfranchise and ection +# of 7! ;=+. !pplying the rule of strict construction of lawsgranting tax exemptions and the rule that doubts are resolved in favor of municipalcorporations in interpreting statutory provisions on municipal taxing powers, the-ourt held that ection +# of 7! ;=+ could not be considered as having amendedpetitioners franchise so as to entitle it to exemption from the imposition of local

11



1+

franchise taxes. (0AR5 C!00N-CA5-!N, -NC. v.5:) C-5= !7 DA4A!, G.R. No.1//91, @uly 21, 2%%9'

The 2in lieu of all taxes2 clause in a legislative franchise should categorically statethat the exemption applies to both local and national taxes* otherwise, theexemption claimed should be strictly construed against the taxpayer and liberally in

favor of the taxing authority. (0AR5 C!00N-CA5-!N, -NC. v.5:) C-5= !7 DA4A!,G.R. No. 1//91, @uly 21, 2%%9'

A:T0s contention that the 3in%lieu%of%all%taxes4 clause does not refer to 3taxexemption4 but to 3tax exclusion4 and hence, the stri"tissimi Buris rule does notapply. The upreme -ourt explains that these two terms actually mean the samething, such that the rule that tax exemption should be applied in stri"tissimi

Buris against the taxpayer and liberally in favor of the government applies eually totax exclusions (P:-6-PP-N) 6!NG D-5ANC) 5)6)P:!N) C!0PAN= vs PR!4-NC) !7 6AGNA G.R. No. 1/1899, Au3ust 1, 2%%/'

6ii7 E#cep$i!n

Gowever, if the grantee of the exemption is a political subdivision orinstrumentality, the rigid rule of construction does not apply because the practicale5ect of the exemption is merely to reduce the amount of money that has to behandled by the government in the course of its operations. (0C-AA v. 0ar"os, G.R.No. 12%%82, eptem#er 11, 199'

There is parity between tax refund and tax exemption only when the former isbased either on a tax exemption statute or a tax refund statute. ?bviously, that isnot the situation here since Eortune Tobacco0s claim for refund is premised on itserroneous payment of the tax, or better still, the government0s exaction in theabsence of a law. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. 7!R5N) 5!+ACC!

C!RP!RA5-!N, G.R. Nos. 12/, @uly 21, 2%%8'

! claim for tax refund may be based on statutes granting tax exemption or taxrefund and in such case, the rule of strict interpretation against the taxpayer isapplicable as the claim for refund parta'es of the nature of an exemption, alegislative grace, which cannot be allowed unless granted in the most explicit andcategorical language. Tax refunds (or tax credits&, on the other hand, are notfounded principally on legislative grace but on the legal principle which underlies alluasi%contracts abhorring a person0s unjust enrichment at the expense of another.(C!00--!N)R !7 -N5)RNA6 R)4)N) v. 7!R5N) 5!+ACC! C!RP!RA5-!N, G.R.Nos. 12/, @uly 21, 2%%8'

!s a necessary corollary, when the taxpayer0s entitlement to a refund standsundisputed, the tate should not misuse technicalities and legalisms, howeverexalted, to 'eep money not belonging to it. The government is not exempt from theapplication of solutio indebiti, a basic postulate proscribing one, including the tate,from enriching himself or herself at the expense of another. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. 7!R5N) 5!+ACC! C!RP!RA5-!N, G.R. Nos. 12/,eptem#er 11, 2%1$'

c7 Ta# r(le an' re(la$i!n6i7 General r(le !nl

@hile administrative agencies, such as the Bureau of Internal 7evenue, may issueregulations to implement statutes, they are without authority to limit the scope of the statute to less than what it provides, or extend or expand the statute beyond itsterms, or in any way modify explicit provisions of the law. Gence, in case of discrepancy between the basic law and an interpretative or administrative ruling,the basic law prevails. (7!R5 +!N-7AC-! D)4)6!P0)N5 C!RP!RA5-!N v.C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 1$2/, eptem#er , 2%12'

1+



1#

7evenue Cemorandum -irculars (7C-s& must not override, supplant, or modify thelaw, but must remain consistent and in harmony with the law they see' to applyand implement. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. 0 PR-0) :!6D-NG,-NC. 1$ CRA (2%1%''

!dmittedly the government is not estopped from collecting taxes legally due

because of mista'es or errors of its agents. But li'e other principles of law, thisadmits of exceptions in the interest of justice and fair play, as where injustice willresult to the taxpayer. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. C!R5 !7

APP)A6, G.R. No. 11982, 7e#ruary , 199'

2@hen a statute is susceptible of the meaning placed upon it by a ruling of thegovernment agency charged with its enforcement and the QlRegislature thereafterQreenactsR the provisions QwithoutR substantial change, such action is to someextent conrmatory that the ruling carries out the legislative purpose.2(C!00--!N)R !7 -N5)RNA6 R)4)N) v. A0)R-CAN )?PR) -N5)RNA5-!NA6,-NC. (P:-6-PP-N) +RANC:', G.R. No. 1/2%9, @une 29, 2%%/'

BI7 7uling Do. :!%$<=%9# is a general interpretative rule because it is a response toa uery made, not by a particular taxpayer, but by a government agency tas'edwith processing tax refunds and credits. Thus, all taxpayers can rely on BI7 7ulingDo. :!%$<=%9# from the time of its issuance on 19 :ecember +99# up to its reversalby this -ourt in !ichi on 8 ?ctober +919, where this -ourt held that the 1+9 S#9 dayperiods are mandatory and jurisdictional. (5)A0 )N)RG= C!RP!RA5-!N (7ormerly 0-RAN5 PAG+-6A! C!RP!RA5-!N' v. C!00--!N)R !7 -N5)RNA6 R)4)N), G.R.No. 19%, @anuary 1$, 2%1'

'7 Penal pr!,ii!n !" $a# la*

In criminal cases, statutes of limitations are acts of grace, a surrendering by thesovereign of its right to prosecute. They receive strict construction in favour of theKovernment and limitations in such cases will not be presumed in the absence of clear legislation. (6-0, et al. v. C!R5 !7 APP)A6, G.R. No. 81$$, !"to#er 18,199%'

e7 N!n-re$r!ac$i,e applica$i!n $! $a#paer

7evenue statutes are substantive laws and in no sense must their application beeuated with that of remedial laws. !s well said in a prior case, revenue laws arenot intended to be liberally construed. (C!00--!N)R !7 -N5)RNA6 R)4)N) v.R!)0AR-) AC!5A, G.R. No. 1/%8, Au3ust $, 2%%'

6i7 E#cep$i!n

@hile it is a settled principle that rulings, circulars, rules and regulationspromulgated by the BI7 have no retroactive application if to so apply them would beprejudicial to the taxpayers, this rule does not apply) (a& where the taxpayerdeliberately misstates or omits material facts from his return or in any documentreuired of him by the Bureau of Internal 7evenue* (b& where the facts subseuentlygathered by the Bureau of Internal 7evenue are materially di5erent from the factson which the ruling is based* or (c& where the taxpayer acted in bad faith. Dot beingthe taxpayer who, in the rst instance, sought a ruling from the -I7, however, E:-cannot invo'e the foregoing principle on non%retroactivity of BI7 rulings.

(C!00--!N)R !7 -N5)RNA6 R)4)N) v. 7-6-N4)5 D)4)6!P0)N5 C!RP!RA5-!N, G.R. No. 1$/$, @uly 19, 2%11'

I. Sc!pe an' li+i$a$i!n !" $a#a$i!n1. In)eren$ li+i$a$i!na7 P(3lic p(rp!e

1#



1$

ection + of .:. ;, !rticle III, ection of .:. =81, and !rticle III, ection of .:.1$8< completely ignore the fact that coco%levy funds are public funds raisedthrough taxation. !nd since taxes could be exacted only for a public purpose, theycannot be declared private properties of individuals although such individuals fallwithin a distinct group of persons. (PA0+ANANG <!A6-=!N NG 0GA A0A:ANG0AGAA<A A5 0ANGGAGA>A A N-=GAN v. )?)C5-4) )CR)5AR= G.R. Nos.

1%$$ April 1%, 2%12'

The -ourt of course grants that there is no hard%and%fast rule for determining whatconstitutes public purpose. But the assailed provisions, which removed the coco%levy funds from the general funds of the government and declared them privateproperties of coconut farmers, do not appear to have a color of social justice fortheir purpose. (PA0+ANANG <!A6-=!N NG 0GA A0A:ANG 0AGAA<A A5 0ANGGAGA>A A N-=GAN v. )?)C5-4) )CR)5AR= G.R. Nos. 1%$$ April1%, 2%12'

It would be a robbery for the tate to tax its citiens and use the funds generatedfor a private purpose. @hen a tax law is only a mas' to exact funds from the public

when its true intent is to give undue benet and advantage to a private enterprise,that law will not satisfy the reuirement of 2public purpose.2 (P6AN5)R PR!DC5,-NC. v. 7)R5-P:-6 C!RP!RA5-!N, G.R. No. 1%%, 0ar" 1, 2%%8'

"urisprudence states that 2public purpose2 should be given a broad interpretation. Itdoes not only pertain to those purposes which are traditionally viewed as essentiallygovernment functions, such as building roads and delivery of basic services, butalso includes those purposes designed to promote social justice. (P6AN5)RPR!DC5, -NC. v. 7)R5-P:-6 C!RP!RA5-!N, G.R. No. 1%%, 0ar" 1, 2%%8'

37 In)eren$l leila$i,e6i7 General r(le

The power to tax is purely legislative, and which the central legislative body cannotdelegate either to the executive or judicial department of the government withoutinfringing upon the theory of separation of powers. ((PepsiCola +ottlin3 Company of te Pil. 4. 0un. of 5anauan, 6eyte, 9 CRA %'

The powers which -ongress is prohibited from delegating are those which arestrictly, or inherently and exclusively, legislative. urely legislative power, which cannever be delegated, has been described as the authority to ma'e a complete law complete as to the time when it shall ta'e e5ect and as to whom it shall beapplicable and to determine the expediency of its enactment. ( A+A<ADA GR!PAR5= 6-5 (7ormerly AA@A' !77-C)R A0!N . A6CAN5ARA an* )D 4-NC)N5 .

A6+AN! v. 5:) :!N!RA+6) )?)C5-4) )CR)5AR= G.R. No. 18%/ eptem#er 1,2%%/'

6ii7 E#cep$i!n6a7 %elea$i!n $! l!cal !,ern+en$

The power to tax is primarily vested in the -ongress* however, in our jurisdiction, itmay be exercised by local legislative bodies, no longer merely by virtue of a validdelegation as before, but pursuant to direct authority conferred by ection , !rticleU of the -onstitution. (0C-AA v. 0ar"os, G.R. No. 12%%82 eptem#er 11, 199'

The power to tax is the most e5ective instrument to raise needed revenues tonance and support myriad activities of local government units. It may also berelevant to recall that the original reasons for the withdrawal of tax exemptionprivileges granted to government%owned and controlled corporations and all otherunits of government were that such privilege resulted in serious tax base erosionand distortions in the tax treatment of similarly situated enterprises. (0C-AA v.0ar"os, G.R. No. 12%%82 eptem#er 11, 199'

1$



1

Taxation assumes even greater signicance with the ratication of the 1=<;-onstitution. Thenceforth, the power to tax is no longer vested exclusively on-ongress* local legislative bodies are now given direct authority to levy taxes, feesand other charges pursuant to !rticle U, section of the 1=<; -onstitution.(NA5-!NA6 P!>)R C!RP!RA5-!N v. C-5= !7 CA+ANA5AN G.R. No. 1911% April 9,

2%%$'

-learly then, while a new slant on the subject of local taxation now prevails in thesense that the former doctrine of local government units0 delegated power to taxhad been e5ectively modied with !rticle U, ection of the 1=<; -onstitution nowin place, the basic doctrine on local taxation remains essentially the same. Eor asthe -ourt stressed in Cactan, 2the power to tax is QstillR primarily vested in the-ongress.2 ()!N C-5=, et al. v. A+C+N +R!ADCA5-NG C!RP!RA5-!N, G.R.No. 12%1/, 0ar" , 2%%'

ection , !rticle U of the -onstitution does not change the doctrine that municipalcorporations do not possess inherent powers of taxation* what it does is to confer

municipal corporations a general power to levy taxes and otherwise create sourcesof revenue and they no longer have to wait for a statutory grant of these powersand the power of the legislative authority relative to the scal powers of localgovernments has been reduced to the authority to impose limitations on municipalpowers. The important legal e5ect of ection is thus to reverse the principle thatdoubts are resolved against municipal corporations* henceforth, in interpretingstatutory provisions on municipal scal powers, doubts will be resolved in favor of municipal corporations. ()!N C-5=, et al. v. A+C+N +R!ADCA5-NGC!RP!RA5-!N, G.R. No. 12%1/, 0ar" , 2%%'

637 %elea$i!n $! $)e Prei'en$

!ssuming that ection +<(+& !rticle FI did not exist, the enactment of the C!Qafeguard Ceasure !ctR by -ongress would be voided on the ground that it wouldconstitute an undue delegation of the legislative power to tax. The constitutionalprovision shields such delegation from constitutional inrmity, and should berecognied as an exceptional grant of legislative power to the resident, rather thanthe aMrmation of an inherent executive power. (!5:)RN CR! C)0)N5 C!RP!RA5-!N v. C)0)N5 0AN7AC5R)R A!C-A5-!N !7 5:) P:-6-PP-N), G.R.No. 1/8/%, Au3ust $, 2%%/'

@hen -ongress tas's the resident or hisLher alter egos to impose safeguardmeasures under the delineated conditions, the resident or the alter egos may beproperly deemed as agents of -ongress to perform an act that inherently belongs asa matter of right to the legislature. It is basic agency law that the agent may not actbeyond the specically delegated powers or disregard the restrictions imposed bythe principal. (!5:)RN CR! C)0)N5 C!RP!RA5-!N v. C)0)N5 0AN7AC5R)R A!C-A5-!N !7 5:) P:-6-PP-N), G.R. No. 1/8/%, Au3ust $,2%%/'

:elegation of legislative powers to the resident is permitted in ections +# (+& and+< (+& of !rticle FI of the -onstitution. By virtue of a valid delegation of legislativepower, it may also be exercised by the resident and administrative boards, as wellas the lawma'ing bodies of all municipal levels, including the barangay. (CamarinesNort )le"tri" Cooperative v. 5orres, GR No. 1229, 7e#ruary 2, 1998'

6c7 %elea$i!n $! a'+ini$ra$i,e aencie

-learly, the legislature may delegate to executive oMcers or bodies the power todetermine certain facts or conditions, or the happening of contingencies, on whichthe operation of a statute is, by its terms, made to depend, but the legislature mustprescribe suMcient standards, policies or limitations on their authority. @hile thepower to tax cannot be delegated to executive agencies, details as to the

1



18

enforcement and administration of an exercise of such power may be left to them,including the power to determine the existence of facts on which its operationdepends. ( A+A<ADA GR! PAR5= 6-5 (7ormerly AA@A' !77-C)R A0!N .

A6CAN5ARA an* )D 4-NC)N5 . A6+AN! v. 5:) :!N!RA+6) )?)C5-4))CR)5AR= G.R. No. 18%/ eptem#er 1, 2%%/'

In the present case, in ma'ing his recommendation to the resident on theexistence of either of the two conditions, the ecretary of Einance is not acting asthe alter ego of the resident or even her subordinate* he is acting as the agent of the legislative department, to determine and declare the event upon which itsexpressed will is to ta'e e5ect. Thus, being the agent of -ongress and not of theresident, the resident cannot alter or modify or nullify, or set aside the ndings of the ecretary of Einance and to substitute the judgment of the former for that of thelatter. ( A+A<ADA GR! PAR5= 6-5 (7ormerly AA@A' !77-C)R A0!N .

A6CAN5ARA an* )D 4-NC)N5 . A6+AN! v. 5:) :!N!RA+6) )?)C5-4))CR)5AR= G.R. No. 18%/ eptem#er 1, 2%%/'

c7 Terri$!rial6i7 Si$( !" $a#a$i!n6a7 Meanin637 Si$( !" inc!+e $a#

The important factor therefore which determines the source of income of personalservices is not the residence of the payor, or the place where the contract forservice is entered into, or the place of payment, but the place where the serviceswere actually rendered. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. @6-AN) +A-)RN-C<)6, G.R. No. 1/$9$, Au3ust 29, 2%%'

617 r!+ !(rce *i$)in $)e P)ilippine

The reinsurance premiums remitted to appellants by virtue of the reinsurancecontracts, accordingly, had for their source the underta'ing to indemnify-ommonwealth Insurance -o. against liability. aid underta'ing is the activity thatproduced the reinsurance premiums, and the same too' place in the hilippines.(Ale;an*er :o*en & Co., 6t*. v. Colle"tor of -nternal Revenue as "ite* inC!00--!N)R !7 -N5)RNA6 R)4)N) v. @6-AN) +A-)RN-C<)6, G.R. No. 1/$9$,

Au3ust 29, 2%%'

The 2sale of tic'ets2 in the hilippines is the 2activity2 that produced the income andtherefore B?!- should pay income tax in the hilippines because it undertoo' anincome producing activity in the country. The tic'ets exchanged hands here and

payments for fares were also made here in hilippine currency* thus, the situs of thesource of payments is the hilippines. (Commissioner of -nternal Revenue v. +ritis!verseas Airays Corporation (+!AC' as "ite* in C!00--!N)R !7 -N5)RNA6R)4)N) v. @6-AN) +A-)RN-C<)6, G.R. No. 1/$9$, Au3ust 29, 2%%'

Eor the source of income to be considered as coming from the hilippines, it issuMcient that the income is derived from activities within this country regardless of the absence of Oight operations within hilippine territory. Indeed, the sale of tic'etsis the very lifeblood of the airline business, the generation of sales being theparamount objective. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. @APAN A-R 6-N),-NC., G.R. No. %1, 0ar" , 1991'

627 r!+ !(rce *i$)!($ $)e P)ilippine67 Inc!+e par$l *i$)in an' par$l *i$)!($ $)e P)ilippine6c7 Si$( !" pr!per$ $a#e617 Ta#e !n real pr!per$627 Ta#e !n per!nal pr!per$6'7 Si$( !" e#cie $a#

ince it parta'es of the nature of an excise tax, the situs of taxation is the place

18



1<

7-:)R-) D)4)6!P0)N5 A5:!R-5= (P7DA' v. C)N5RA6 +!ARD !7 A)0)N5 APP)A6, G.R. No. 18%$%, De"em#er 1/, 2%1%'

2. C!n$i$($i!nal li+i$a$i!na7 Pr!,ii!n 'irec$l a=ec$in $a#a$i!n6i7 Pr!)i3i$i!n aain$ i+pri!n+en$ "!r n!n-pa+en$ !" p!ll $a#

6ii7 Dni"!r+i$ an' e(ali$ !" $a#a$i!n

>uality and uniformity in taxation means that all taxable articles or 'inds of property of the same class shall be taxed at the same rate. The taxing power hasthe authority to ma'e reasonable and natural classications for purposes of taxation* ineualities which result from a singling out of one particular class fortaxation or exemption infringe no constitutional limitation. (<APA5-RAN NG 0GANAG6-6-NG<!D A PA0A:A6AAN NG P-6-P-NA, -NC. v. :!N. +-)N4)N-D! 5AN, G.R.No. 81$11, @une $%, 1988'

6iii7 Gran$ 3 C!nre !" a($)!ri$ $! $)e prei'en$ $! i+p!e $ari= ra$e

It is -ongress which authories the resident to impose tari5 rates, import andexport uotas, tonnage and wharfage dues, and other duties or imposts. Thus, theauthority cannot come from the Einance :epartment, the Dational >conomic:evelopment !uthority, or the @orld Trade ?rganiation, no matter how insistent orpersistent these bodies may be. (!5:)RN CR! C)0)N5 C!RP!RA5-!N v.C)0)N5 0AN7AC5R)R A!C-A5-!N !7 5:) P:-6-PP-N), G.R. No. 1/8/%,

Au3ust $, 2%%/'

The authoriation granted to the resident must be embodied in a law. Gence, the justication cannot be supplied simply by inherent executive powers. (!5:)RNCR! C)0)N5 C!RP!RA5-!N v. C)0)N5 0AN7AC5R)R A!C-A5-!N !7 5:)P:-6-PP-N), G.R. No. 1/8/%, Au3ust $, 2%%/'

The authoriation to the resident can be exercised only within the specied limitsset in the law and is further subject to limitations and restrictions which -ongressmay impose. -onseuently, if -ongress species that the tari5 rates should notexceed a given amount, the resident cannot impose a tari5 rate that exceeds suchamount. (!5:)RN CR! C)0)N5 C!RP!RA5-!N v. C)0)N5 0AN7AC5R)R

A!C-A5-!N !7 5:) P:-6-PP-N), G.R. No. 1/8/%, Au3ust $, 2%%/'

!ssuming there is a conOict between the specic limitation in ection +< (+&, !rticleFI of the -onstitution and the general executive power of control and supervision,the former prevails in the specic instance of safeguard measures such as tari5sand imposts, and would thus serve to ualify the general grant to the resident of the power to exercise control and supervision over hisLher subalterns. (!5:)RNCR! C)0)N5 C!RP!RA5-!N v. C)0)N5 0AN7AC5R)R A!C-A5-!N !7 5:)P:-6-PP-N), G.R. No. 1/8/%, Au3ust $, 2%%/'

6i,7 Pr!)i3i$i!n aain$ $a#a$i!n !" relii!( c)ari$a3le en$i$ie an'e'(ca$i!nal en$i$ie

The word 2charitable2 is not restricted to relief of the poor or sic'. The test whetheran enterprise is charitable or not is whether it exists to carry out a purposerecoganied in law as charitable or whether it is maintained for gain, prot, orprivate advantage. (6NG C)N5)R !7 5:) P:-6-PP-N) v.)!N C-5=, G.R. No.

11%, @une 29, 2%%'

>ven as we nd that the petitioner is a charitable institution, we hold that thoseportions of its real property that are leased to private entities are not exempt fromreal property taxes as these are not actually, directly and exclusively used forcharitable purposes. ?n the other hand, the portions of the land occupied by thehospital and portions of the hospital used for its patients, whether paying or non%paying, are exempt from real property taxes. (6NG C)N5)R !7 5:) P:-6-PP-N)

1<



1=

v.)!N C-5=, G.R. No. 11%, @une 29, 2%%'

To be a charitable institution, however, an organiation must meet the substantivetest of charity in Aung -enter. -harity is essentially a gift to an indenite number of persons which lessens the burden of government. In other words, charitableinstitutions provide for free goods and services to the public which would otherwisefall on the shoulders of government. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. 5.6<) 0)D-CA6 C)N5)R, -NC. G.R. No. 19/9%9 eptem#er 2, 2%12'

In Aung -enter, this -ourt declared) 2exclusive2 is dened as possessed and enjoyedto the exclusion of others* debarred from participation or enjoyment* and2exclusively2 is dened, 2in a manner to exclude* as enjoying a privilegeexclusively.2 The words 2dominant use2 or 2principal use2 cannot be substituted forthe words 2used exclusively2 without doing violence to the -onstitution and the law.olely is synonymous with exclusively. (C!00--!N)R !7 -N5)RNA6 R)4)N) v.5. 6<) 0)D-CA6 C)N5)R, -NC. G.R. No. 19/9%9 eptem#er 2, 2%12'

ervices to paying patients are activities conducted for prot. There is a 2purpose toma'e prot over and above the cost2 of services. (C!00--!N)R !7 -N5)RNA6R)4)N) v. 5. 6<) 0)D-CA6 C)N5)R, -NC. G.R. No. 19/9%9 eptem#er 2,2%12'

ection #9(>& and (K& of the DI7- reuires that an institution be 2operatedexclusively2 for charitable or social welfare purposes to be completely exempt fromincome tax. !n institution under ection #9(>& or (K& does not lose its tax exemptionif it earns income from its for%prot activities. uch income from for%prot activities,under the last paragraph of ection #9, is merely subject to income tax, previouslyat the ordinary corporate rate but now at the preferential 19J rate pursuant toection +;(B&. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. 5. 6<) 0)D-CA6C)N5)R, -NC. G.R. No. 19/9%9 eptem#er 2, 2%12'

! gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition of which on property usedexclusively for religious purposes, does not constitute an impairment of the-onstitution. The phrase 2exempt from taxation,2 as employed in the -onstitutionshould not be interpreted to mean exemption from all 'inds of taxes. (R)4. 7R.CA-0-R! 66AD!C v. 5e C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 6192%1,

@une 1, 19/'

6,7 Pr!)i3i$i!n aain$ $a#a$i!n !" n!n-$!c n!n-pr!&$ in$i$($i!n

!n organiation may be considered as non%prot if it does not distribute any part of its income to stoc'holders or members. Gowever, despite its being a tax exemptinstitution, any income such institution earns from activities conducted for prot istaxable, as expressly provided in the last paragraph of ection #9. (C!00--!N)R!7 -N5)RNA6 R)4)N) v. 5. 6<) 0)D-CA6 C)N5)R, -NC. G.R. No. 19/9%9eptem#er 2, 2%12'

6,i7 Ma5!ri$ ,!$e !" C!nre "!r ran$ !" $a# e#e+p$i!n

The incentives under 7.!. Do. ;++; are exclusive only to the ubic >P, hence, theextension of the same to the "ohn Gay >P nds no support therein. The challengedgrant of tax exemption would circumvent the -onstitutions imposition that a law

granting any tax exemption must have the concurrence of a majority of all themembers of -ongress. (@!:N :A= P)!P6) A65)RNA5-4) C!A6-5-!N, et al. v.4-C5!R 6-0, et al., G. R. No. 119/, !"to#er 2, 2%%$'

6,ii7 Pr!)i3i$i!n !n (e !" $a# le,ie' "!r pecial p(rp!e

The coco%levy funds, on the other hand, belong to the government and are subjectto its administration and disposition. Thus, these funds, including its incomes,

1=



+9

interests, proceeds, or prots, as well as all its assets, properties, and shares of stoc's procured with such funds must be treated, used, administered, and managedas public funds* the coco%levy funds are evidently special funds. (PA0+ANANG<!A6-=!N NG 0GA A0A:ANG 0AGAA<A A5 0ANGGAGA>A A N-=GAN v.)?)C5-4) )CR)5AR= G.R. Nos. 1%$$ April 1%, 2%12'

6,iii7 Prei'en$ ,e$! p!*er !n appr!pria$i!n re,en(e $ari= 3ill

!n 2item2 in a revenue bill does not refer to an entire section imposing a particular'ind of tax, but rather to the subject of the tax and the tax rate* thus, in the portionof a revenue bill which actually imposes a tax, a section identies the tax andenumerates the persons liable therefor with the corresponding tax rate. To construethe word 2item2 as referring to the whole section would tie the residents hand inchoosing either to approve the whole section at the expense of also approving aprovision therein which he deems unacceptable or veto the entire section at theexpense of foregoing the collection of the 'ind of tax altogether. (C!00--!N)R!7 -N5)RNA6 R)4)N) v. :!N. C!R5 !7 5A? APP)A6, G.R. No. 621, 0ay 1,199%'

6i#7 N!n-i+pair+en$ !" 5(ri'ic$i!n !" $)e S(pre+e C!(r$6#7 Gran$ !" p!*er $! $)e l!cal !,ern+en$ (ni$ $! crea$e i$ !*n !(rce!" re,en(e

Eor a long time, the countrys highly centralied government structure has bred aculture of dependence among local government leaders upon the nationalleadership. The only way to shatter this culture of dependence is to give the AK6s awider role in the delivery of basic services, and confer them suMcient powers togenerate their own sources for the purpose. (NA5-!NA6 P!>)R C!RP!RA5-!N v.C-5= !7 CA+ANA5AN G.R. No. 1911% April 9, 2%%$'

7epublic !ct Do. ;;18, otherwise 'nown as the 2>xpanded F!T Aaw,2 did not removeor abolish the payment of local franchise tax* it merely replaced the nationalfranchise tax that was previously paid by telecommunications franchise holders andin its stead F!T. The imposition of local franchise tax is not inconsistent with theadvent of the F!T, which renders functus oMcio the franchise tax paid to thenational government for F!T inures to the benet of the national government, whilea local franchise tax is a revenue of the local government unit. (0AR5 C!00N-CA5-!N, -NC. v.5:) C-5= !7 DA4A!, G.R. No. 1//91, @uly 21, 2%%9'

6#i7 le#i3le $ari= cla(e6#ii7 E#e+p$i!n "r!+ real pr!per$ $a#e

Eor real property taxes, the incidental generation of income is permissible becausethe test of exemption is the use of the property and this test reuires that theinstitution use the property in a certain way, i.e. for a charitable purpose. Thus, the-ourt held that the Aung -enter of the hilippines did not lose its charitablecharacter when it used a portion of its lot for commercial purposes since the e5ectof failing to meet the use reuirement is simply to remove from the tax exemptionthat portion of the property not devoted to charity. (C!00--!N)R !7 -N5)RNA6R)4)N) v. 5. 6<) 0)D-CA6 C)N5)R, -NC. G.R. No. 19/9%9 eptem#er 2,2%12'

The -onstitution exempts charitable institutions only from real property taxes while

the DI7- extends the exemption to income taxes. Gowever, the way -ongresscrafted ection #9(>& of the DI7- is materially di5erent from ection +<(#&, !rticle FIof the -onstitution) ection #9(>& of the DI7- denes the corporation or associationthat is exempt from income tax while ection +<(#&, !rticle FI of the -onstitutiondoes not dene a charitable institution, but reuires that the institution 2actually,directly and exclusively2 use the property for a charitable purpose. (C!00--!N)R!7 -N5)RNA6 R)4)N) v. 5. 6<) 0)D-CA6 C)N5)R, -NC. G.R. No. 19/9%9eptem#er 2, 2%12'

+9



+1

To be exempt from real property taxes, ection +<(#&, !rticle FI of the -onstitutionreuires that a charitable institution use the property 2actually, directly andexclusively2 for charitable purposes. To be exempt from income taxes, ection #9(>&of the DI7- reuires that a charitable institution must be 2organied and operatedexclusively2 for charitable purposes. (C!00--!N)R !7 -N5)RNA6 R)4)N) v. 5.

6<) 0)D-CA6 C)N5)R, -NC. G.R. No. 19/9%9 eptem#er 2, 2%12'

6#iii7 N! appr!pria$i!n !r (e !" p(3lic +!ne "!r relii!( p(rp!e37 Pr!,ii!n in'irec$l a=ec$in $a#a$i!n6i7 %(e pr!ce

In ison, "r. v. !ncheta, et al., we held that the due process clause may properly beinvo'ed to invalidate, in appropriate cases, a revenue measure when it amounts toa conscation of property. But in the same case, we also explained that we will notstri'e down a revenue measure as unconstitutional (for being violative of the dueprocess clause& on the mere allegation of arbitrariness by the taxpayer. (Cam#er of Real )state an* +uil*ers Asso"iation, -n". v. Romulo, 1 CRA %/ (2%1%''

The support for the poor is generally recognied as a public duty and has long beenan accepted exercise of police power in the promotion of the common good but, inthe instant case, the declarations do not distinguish between wealthy coconutfarmers and the impoverished ones. -onseuently, such declarations are void sincethey appropriate public funds for private purpose and, therefore, violate thecitiens0 right to substantive due process. (PA0+ANANG <!A6-=!N NG 0GAA0A:ANG 0AGAA<A A5 0ANGGAGA>A A N-=GAN v. )?)C5-4) )CR)5AR= G.R. Nos. 1%$$ April 1%, 2%12'

6ii7 E(al pr!$ec$i!n

The real estate industry is, by itself, a class and can be validly treated di5erentlyfrom other business enterprises. @hat distinguishes the real estate business fromother manufacturing enterprises, for purposes of the imposition of the -@T, is nottheir production processes but the prices of their goods sold and the number of transactions involved. (Cam#er of Real )state an* +uil*ers Asso"iation, -n". v.Romulo, 1 CRA %/ (2%1%''

!K-?7 cannot nd support in the eual protection clause of the -onstitution, asthe legislative records of the Bicameral -onference Ceeting dated ?ctober +;,1==;, of the -ommittee on @ays and Ceans, show that !K-?70s exemption frompayment of corporate income tax, as provided in ection +; (c& of 7.!. Do. <$+$, orthe Dational Internal 7evenue -ode of 1==;, was not made pursuant to a validclassication based on substantial distinctions. The legislative records show that thebasis of the grant of exemption to !K-?7 from corporate income tax was!K-?70s own reuest to be exempted. (P:-6-PP-N) A0)0)N5 AND GA0-NGC!RP!RA5-!N (PAGC!R' v. 5:) +R)A !7 -N5)RNA6 R)4)N) G.R. No. 12%80ar" 1/, 2%11'

6iii7 Relii!( "ree'!+

The constitutional guaranty of the free exercise and enjoyment of religiousprofession and worship carries with it the right to disseminate religious information.!ny restraints of such right can only be justied li'e other restraints of freedom of expression on the grounds that there is a clear and present danger of anysubstantive evil which the tate has the right to prevent. (A0)R-CAN +-+6) !C-)5= v. C-5= !7 0AN-6A, G.R. No. 69$, April $%, 19/'

It may be true that in the case at bar the price as'ed for the bibles and otherreligious pamphlets was in some instances a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged in the business oroccupation of selling said 2merchandise2 for prot. Eor this reason @e believe that

+1



++

the -ity of Canila ?rdinance Do. ++= reuiring the payment of license fee cannotbe applied to appellant, for in doing so it would impair its free exercise andenjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs. (A0)R-CAN +-+6) !C-)5= v. C-5= !7 0AN-6A,G.R. No. 69$, April $%, 19/'

@ith respect to ?rdinance Do. #999 which reuires the obtention of the Cayorspermit before any person can engage in any of the businesses, trades oroccupations enumerated therein, @e do not nd that it imposes any charge uponthe enjoyment of a right granted by the -onstitution, nor tax the exercise of religious practices. But as the -ity of Canila is powerless to license or tax thebusiness of plainti5 ociety, @e nd that ?rdinance Do. #999 is also inapplicable tosaid business, trade or occupation of the plainti5. (A0)R-CAN +-+6) !C-)5= v. C-5= !7 0AN-6A, G.R. No. 69$, April $%, 19/'

The hilippine Bible ociety, Inc. claims that although it sells bibles, the proceedsderived from the sales are used to subsidie the cost of printing copies which aregiven free to those who cannot a5ord to pay so that to tax the sales would be to

increase the price, while reducing the volume of sale. Kranting that to be the case,the resulting burden on the exercise of religious freedom is so incidental as to ma'eit diMcult to di5erentiate it from any other economic imposition that might ma'ethe right to disseminate religious doctrines costly. (AR5R! 0. 5!6)N5-N! v. 5:))CR)5AR= !7 7-NANC) an* 5:) C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No.11///, !"to#er $%, 199/'

?n the other hand the registration fee of 1,999.99 imposed by ec. 19; of theDI7-, as amended by ec. ; of 7.!. Do. ;;18, although xed in amount, is really justto pay for the expenses of registration and enforcement of provisions such as thoserelating to accounting in ec. 19< of the DI7-. That the B distributes free biblesand therefore is not liable to pay the F!T does not excuse it from the payment of this fee because it also sells some copies. (AR5R! 0. 5!6)N5-N! v. 5:))CR)5AR= !7 7-NANC) an* 5:) C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No.11///, !"to#er $%, 199/'

The withdrawal of the exemption did not also violate freedom of religion as regardsthe activities of B on religious articles, as the Eree >xercise of 7eligious clausedoes not prohibit imposing a generally applicable sale and use tax on the sale of religious materials by a religious organiation as held by the 6 upreme -ourt in

@immy a33art 0inistries v. +oar* of )EualiFation (199%'. The F!T registration fee does not constitute censorship of such freedom as held inthe Ameri"an +i#le o"iety "ase. The fee is a mere administrative fee and notimposed on the exercise of a privilege, much less a constitutional right. But for thepurpose of defraying cost of registration which is a reuirement and a centralfeature in the F!T system so as to provide record of tax credits of the taxpayer.(AR5R! 0. 5!6)N5-N! v. 5:) )CR)5AR= !7 7-NANC) an* 5:) C!00--!N)R!7 -N5)RNA6 R)4)N), G.R. No. 11///, !"to#er $%, 199/'

6i,7 N!n-i+pair+en$ !" !3lia$i!n !" c!n$rac$

-ontractual tax exemptions, in the real sense of the term and where the non%impairment clause of the -onstitution can rightly be invo'ed, are those agreed to bythe taxing authority in contracts, such as those contained in government bonds ordebentures, lawfully entered into by them under enabling laws in which thegovernment, acting in its private capacity, sheds its cloa' of authority and waivesits governmental immunity. Truly, tax exemptions of this 'ind may not be revo'edwithout impairing the obligations of contracts. but these contractual tax exemptionsare not to be confused with tax exemptions granted under franchisesVthe latterparta'es the nature of a grant which is beyond the purview of the non%impairmentclause of the -onstitution. (P:-6-PP-N) A0)0)N5 AND GA0-NG C!RP!RA5-!N(PAGC!R' v. 5:) +R)A !7 -N5)RNA6 R)4)N) G.R. No. 12%8 0ar" 1/, 2%11'

++



+#

>ven though such taxation may a5ect particular contracts, as it may increase thedebt of one person and lessen the security of another, or may impose additionalburdens upon one class and release the burdens of another, still the tax must bepaid unless prohibited by the -onstitution, nor can it be said that it impairs theobligation of any existing contract in its true legal sense.2 Indeed not only existinglaws but also 2te reservation of te essential attri#utes of soverei3nty , is read into

contracts as a postulate of the legal order.2 (AR5R! 0. 5!6)N5-N! v. 5:))CR)5AR= !7 7-NANC) an* 5:) C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No.11///, !"to#er $%, 199/'

8. S$ae !" $a#a$i!n1. Le,

Aevy is an exercise of the power to tax, which is exclusively legislative in nature andcharacter. -learly, taxes are not levied by the executive branch of government.(NPC v. Al#ay, 18 CRA 198 (199%''

2. Ae+en$ an' c!llec$i!n. Pa+en$4. Re"(n';. %e&ni$i!n na$(re an' c)arac$eri$ic !" $a#e

Taxes are enforced proportional contributions from persons and property, levied bythe tate by virtue of its sovereignty for the support of the government and for allits public needs. (PA0+ANANG <!A6-=!N NG 0GA A0A:ANG 0AGAA<A A5 0ANGGAGA>A A N-=GAN v. )?)C5-4) )CR)5AR= G.R. Nos. 1%$$ April1%, 2%12'

L. Re(ii$e !" a ,ali' $a#M. Ta# a 'i$in(i)e' "r!+ !$)er "!r+ !" e#ac$i!n1. Tari=2. T!ll

! tax is imposed under the taxing power of the government principally for thepurpose of raising revenues to fund public expenditures* toll fees, on the otherhand, are collected by private tollway operators as reimbursement for the costs andexpenses incurred in the construction, maintenance and operation of the tollways.

Taxes may be imposed only by the government under its sovereign authority, tollfees may be demanded by either the government or private individuals or entities,as an attribute of ownership. (R)NA5! 4. D-A an* AR!RA 0A. 7. 5-0+!6 v. 5:))CR)5AR= !7 7-NANC), G.R. No. 19$%%, @uly 19, 2%11'

Eees paid by the public to tollway operators for use of the tollways, are not taxes inany sense. arenthetically, F!T on tollway operations cannot be deemed a tax ontax due to the nature of F!T as an indirect tax. (R)NA5! 4. D-A an* AR!RA 0A. 7.5-0+!6 v. 5:) )CR)5AR= !7 7-NANC), G.R. No. 19$%%, @uly 19, 2%11'

. Licene "ee

To be considered a license fee, the imposition must relate to an occupation oractivity that so engages the public interest in health, morals, safety anddevelopment as to reuire regulation for the protection and promotion of suchpublic interest* the imposition must also bear a reasonable relation to the probableexpenses of regulation, ta'ing into account not only the costs of direct regulationbut also its incidental conseuences as well. !ccordingly, a charge of a xed sumwhich bears no relation at all to the cost of inspection and regulation may be held tobe a tax rather than an exercise of police power. (PR!GR)-4) D)4)6!P0)N5 C!RP. v. )!N C-5=, G.R. No. 6$%81, April 2, 1989'

+#



+

7-NANC) an* 5:) C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 11///,!"to#er $%, 199/'

The seller remains directly and legally liable for payment of the F!T, but the buyerbears its burden since the amount of F!T paid by the former is added to the sellingprice. ?nce shifted, the F!T ceases to be a tax and simply becomes part of the cost

that the buyer must pay in order to purchase the good, property orservice. (R)NA5! 4. D-A an* AR!RA 0A. 7. 5-0+!6 v. 5:) )CR)5AR= !7 7-NANC), G.R. No. 19$%%, @uly 19, 2%11'

. A $! $a# ra$ea7 Speci&c37 A' ,al!re+c7 Mi#e'4. A $! p(rp!ea7 General !r &cal37 Special re(la$!r !r (+p$(ar:. A $! c!pe !r a($)!ri$ $! i+p!e

a7 Na$i!nal F in$ernal re,en(e $a#e37 L!cal F real pr!per$ $a# +(nicipal $a#<. A $! ra'(a$i!na7 Pr!rei,e37 Rerei,ec7 Pr!p!r$i!na$e

INCOME TAXATIONA. Inc!+e $a#a$i!n

1. Inc!+e $a# $e+a7 Gl!3al $a# $e+Klobal treatment is a system where the tax treatment viewsindi5erently the tax base and generally treats in common all categoriesof taxable income of the taxpayer. (T!D v. :>A 7?!7I?, "7. +#; -7!#+$&37 Sc)e'(lar $a# $e+chedular approach is a system employed where the income taxtreatment varies and made to depend on the 'ind or category of taxable income of the taxpayer. (T!D v. :>A 7?!7I?, "7. +#; -7!#+$&c7 Se+i-c)e'(lar !r e+i-l!3al $a# $e+

2. ea$(re !" $)e P)ilippine inc!+e $a# la*a7 %irec$ $a#37 Pr!rei,ec7 C!+pre)eni,e'7 Se+i-c)e'(lar !r e+i-l!3al $a# $e+

. Cri$eria in i+p!in P)ilippine inc!+e $a#a7 Ci$ien)ip principle37 Rei'ence principlec7 S!(rce principle! non%resident Kerman citien, president of a domestic corporation,led a claim for refund with the BI7, contending that her salescommission income is not taxable in the hilippines because the same

was a compensation for her services rendered in Kermany andtherefore considered as income from sources outside the hilippines.@hile it is the rule that 3source of income4 relates to the property,activity or service that produced the income, the documents presentedby respondent did not constitute substantial evidence that it was inKermany where she performed the income%producing service and thusthe tax refund should be denied. (Commissioner of -nternal Revenue

vs. @uliane +aierNi"el, G.R. No. 1/$9$, Au3ust 29, 2%%&

+



+8

4. Tpe !" P)ilippine inc!+e $a#:. Ta#a3le peri!'

a7 Calen'ar peri!'37 ical peri!'c7 S)!r$ peri!'

<. ;in' !" $a#paera7 In'i,i'(al $a#paer

6i7 Ci$ien6a7 Rei'en$ ci$ien637 N!n-rei'en$ ci$ien

6ii7 Alien6a7 Rei'en$ alien637 N!n-rei'en$ alien

617 Enae' in $ra'e !r 3(ine627 N!$ enae' in $ra'e !r 3(ine

6iii7 Special cla !" in'i,i'(al e+pl!ee6a7 Mini+(+ *ae earner

637 C!rp!ra$i!n6i7 %!+e$ic c!rp!ra$i!n6ii7 !rein c!rp!ra$i!n

Carubeni "apan claimed a refund for excess taxes it hadpaid, contending that since it had a hilippine branch, it isa resident foreign corporation liable to pay only 19Jintercorporate nal tax on dividends received from adomestic corporation (and not to the branch protremittance tax& following the principal%agent theory.Carubeni "apan is considered a non%resident foreigncorporation as to the dividends because when the foreign

corporation transacts business in the hilippinesindependently of its branch, the principal%agentrelationship is set aside. (0aru#eni Corp. vs.

Commissioner of -nternal Revenue, et al., G.R. No. /$,

eptem#er 1, 1989&

B?!- is a resident foreign corporation because itmaintained a general sales agent in the hilippines. Thereis no specic criterion as to what constitutes 3doing4 or3engaging in4 or 2transacting4 business. The term impliesa continuity of commercial dealings and arrangements,

and contemplates, to that extent, the performance of actsor wor's or the exercise of some of the functions normallyincident to, and in progressive prosecution of commercialgain or for the purpose and object of the businessorganiation. In order that a foreign corporation may beregarded as doing business within a tate, there must becontinuity of conduct and intention to establish acontinuous business, such as the appointment of a localagent, and not one of a temporary character. (C-R vs+!AC, G.R. No. 6/$ April $%, 198&

6a7 Rei'en$ "!rein c!rp!ra$i!n

637 N!n-rei'en$ "!rein c!rp!ra$i!n6iii7 8!in$ ,en$(re an' c!n!r$i(+

c7 Par$ner)ipursuant to 3reinsurance treaties,4 a number of local insurance rmsformed themselves into a 3pool4 in order to facilitate the handling of business contracted with a nonresident foreign reinsurance company.

The insurance pool is deemed a partnership or association taxable as acorporation under the DI7- because ection +$ (on tax on

+8



+;

corporations& Qnow ec. +; of the 1==; DI7-R covered theseunregistered partnerships and even associations or joint accounts,which had no legal personalities apart from their individual members*moreover, the insurance pool, though unregistered, satises thereuisites of a partnership) (1& mutual contribution to a common stoc',and (+& joint interest in the prots. ( AHs"o -nsuran"e Corp., et al. vs.

Court of Appeals, et al., G.R. No. 112/, @anuary 2/, 1999&

The original purpose of the co%owners of the two lots was to divide thelots for residential purposes. If later on they found it not feasible tobuild their residences on the lots because of the high cost of construction, then they had no choice but to resell the same todissolve the co%ownership. The division of the prot was merelyincidental to the dissolution of the co%ownership which was in thenature of things a temporary state. The sharing of gross returns doesnot of itself establish a partnership, whether or not the persons sharingthem have a joint or common right or interest in any property (!#illos

@r. vs C-R, G.R. No. 68118, !"to#er 29, 198/&

'7 General pr!"ei!nal par$ner)ipe7 E$a$e an' $r($"7 C!-!*ner)ip

>. Inc!+e $a#a$i!na7 %e&ni$i!n37 Na$(rec7 General principle

?. Inc!+ea7 %e&ni$i!n37 Na$(rec7 W)en inc!+e i $a#a3le

6i7 E#i$ence !" inc!+e6ii7 Realia$i!n !" inc!+e

6a7 Te$ !" realia$i!n637 Ac$(al ,i-H-,i c!n$r(c$i,e receip$

6iii7 Rec!ni$i!n !" inc!+e6i,7 Me$)!' !" acc!(n$in

6a7Ca) +e$)!' ,i-H-,i accr(al +e$)!' The accrual method relies upon the taxpayer0s right toreceive amounts or its obligation to pay them, inopposition to actual receipt or payment, whichcharacteries the cash method of accounting. !mountsof income accrue where the right to receive thembecome xed, where there is created an enforceableliability. imilarly, liabilities are accrued when xedand determinable in amount, without regard toindeterminacy merely of time of payment. Eor ataxpayer using the accrual method, the determinativeuestion is, when do the facts present themselves insuch a manner that the taxpayer must recognieincome or expenseW The accrual of income andexpense is permitted when the all%events test hasbeen met. This test reuires) (1& xing of a right toincome or liability to pay* and (+& the availability of thereasonable accurate determination of such income orliability. (C-R vs -sa#ela Cultural Corp., GR 122$1,7e#ruary 12, 2%%&

637 In$all+en$ pa+en$ ,i-H-,i 'e"erre' pa+en$,i-H-,i percen$ae c!+ple$i!n 6in l!n-$er+c!n$rac$7

'7 Te$ in 'e$er+inin *)e$)er inc!+e i earne' "!r $a#p(rp!e

6i7 Realia$i!n $e$

+;



+<

6ii7 Clai+ !" ri)$ '!c$rine !r '!c$rine !" !*ner)ipc!++an' !r c!n$r!l6iii7 Ec!n!+ic 3ene&$ $e$ '!c$rine !" pr!prie$arin$ere$6i,7 Se,erance $e$6,7 All e,en$ $e$

@. Gr! inc!+ea7 %e&ni$i!n37 C!ncep$ !" inc!+e "r!+ *)a$e,er !(rce 'eri,e'c7 Gr! inc!+e ,i-H-,i ne$ inc!+e ,i-H-,i $a#a3le inc!+e'7 Clai&ca$i!n !" inc!+e a $! !(rce

6i7 Gr! inc!+e an' $a#a3le inc!+e "r!+ !(rce *i$)in$)e P)ilippine6ii7 Gr! inc!+e an' $a#a3le inc!+e "r!+ !(rce*i$)!($ $)e P)ilippine6iii7 Inc!+e par$l *i$)in !r par$l *i$)!($ $)e P)ilippine

e7 S!(rce !" inc!+e (35ec$ $! $a#6i7 C!+pena$i!n inc!+e

6ii7 rine 3ene&$6a7 Special $rea$+en$ !" "rine 3ene&$637 %e&ni$i!n6c7 Ta#a3le an' n!n-$a#a3le "rine 3ene&$

6iii7 Pr!"ei!nal inc!+e6i,7 Inc!+e "r!+ 3(ine6,7 Inc!+e "r!+ 'ealin in pr!per$

6a7 Tpe !" pr!per$ie617 Or'inar ae$627 Capi$al ae$

The proceeds from the inherited land of petitioners,which they subdivided into small lots and in theprocess converted into a residential subdivision andgiven the name :on Cariano ubdivision, is taxableas ordinary income. roperty initially classied as acapital asset may thereafter be treated as anordinary asset if a combination of the factorsindubitably tend to show that the activity was infurtherance of or in the course of the taxpayerstrade or business* thus, a sale of inherited realproperty usually gives capital gain or loss eventhough the property has to be subdivided orimproved or both to ma'e it salable%%however, if theinherited property is substantially improved or veryactively sold or both it may be treated as heldprimarily for sale to customers in the ordinarycourse of the heirs business. (5omas CalasanF, et al. vs. Commissioner of -nternal Revenue, et al.,G.R. No. 6228, !"to#er 9, 198&

637 Tpe !" ain "r!+ 'ealin in pr!per$617 Or'inar inc!+e ,i-H-,i capi$al ain627 Ac$(al ain ,i-H-,i pre(+e' ain67 L!n $er+ capi$al ain ,i-H-,i )!r$-$er+capi$al ain647 Ne$ capi$al ain ne$ capi$al l!6:7 C!+p($a$i!n !" $)e a+!(n$ !" ain !r l!6<7 Inc!+e $a# $rea$+en$ !" capi$al l!

6a7 Capi$al l! li+i$a$i!n r(le6applica3le $! 3!$) c!rp!ra$i!n an'in'i,i'(al7637 Ne$ l! carr-!,er r(le 6applica3le!nl $! in'i,i'(al7

+<



+=

6>7 %ealin in real pr!per$ i$(a$e' in $)eP)ilippine6?7 %ealin in )are !" $!c !" P)ilippinec!rp!ra$i!n

6a7 S)are li$e' an' $ra'e' in $)e $!c e#c)ane

637 S)are n!$ li$e' an' $ra'e' in $)e$!c e#c)ane

6@7 Sale !" principal rei'ence6,i7 Pai,e in,e$+en$ inc!+e

6a7 In$ere$ inc!+e637 %i,i'en' inc!+e

617 Ca) 'i,i'en'627 S$!c 'i,i'en'toc' dividends, strictly spea'ing, represent capital anddo not constitute income to itsrecipient. o that the mere issuance thereof is not yetsubject to income tax as they are nothing but an

enrichment through increase in value of capitalinvestment. Gowever, the redemption or cancellation of stoc' dividends, depending on the time and manner itwas made, is essentially euivalent to a distribution of taxable dividends, ma'ing the proceeds thereof taxableincome to the extent it represents prots. The exceptionwas designed to prevent the issuance and cancellation orredemption of stoc' dividends, which is fundamentally nottaxable, from being made use of as a device for the actualdistribution of cash dividends, which is taxable. (C-R vsCA, G.R. No. 1%8/ @anuary 2%, 1999&67 Pr!per$ 'i,i'en'647 Li(i'a$in 'i,i'en'

6c7 R!al$ inc!+e6'7 Ren$al inc!+e

617 Leae !" per!nal pr!per$627 Leae !" real pr!per$67 Ta# $rea$+en$ !"

6a7 Leae)!l' i+pr!,e+en$ 3 leee637 VAT a''e' $! ren$al/pai' 3 $)e leee6c7 A',ance ren$al/l!n $er+ leae

6,ii7 Ann(i$ie pr!cee' "r!+ li"e in(rance !r !$)er $pe !" in(rance6,iii7 Prie an' a*ar'6i#7 Peni!n re$ire+en$ 3ene&$ !r epara$i!n pa6#7 Inc!+e "r!+ an !(rce *)a$e,er

6a7 !ri,ene !" in'e3$e'ne637 Rec!,er !" acc!(n$ pre,i!(l *ri$$en-!= F *)en$a#a3le/*)en n!$ $a#a3le6c7 Receip$ !" $a# re"(n' !r cre'i$6'7 Inc!+e "r!+ an !(rce *)a$e,er6e7 S!(rce r(le in 'e$er+inin inc!+e "r!+ *i$)in an'*i$)!($

617 In$ere$627 %i,i'en'67 Ser,ice647 Ren$al6:7 R!al$ie6<7 Sale !" real pr!per$6>7 Sale !" per!nal pr!per$6?7 S)are !" $!c !" '!+e$ic c!rp!ra$i!n

6"7 Si$( !" inc!+e $a#a$i!n 6ee pae 2 (n'er in)eren$li+i$a$i!n $erri$!rial7

+=



#9

67 E#cl(i!n "r!+ r! inc!+e617 Ra$i!nale "!r $)e e#cl(i!n627 Ta#paer *)! +a a,ail !" $)e e#cl(i!n67 E#cl(i!n 'i$in(i)e' "r!+ 'e'(c$i!n an'$a# cre'i$647 Dn'er $)e C!n$i$($i!n

6a7 Inc!+e 'eri,e' 3 $)e !,ern+en$ !r i$p!li$ical (3'i,ii!n "r!+ $)e e#ercie !" aneen$ial !,ern+en$al "(nc$i!n

6:7 Dn'er $)e Ta# C!'e6a7 Pr!cee' !" li"e in(rance p!licie637 Re$(rn !" pre+i(+ pai'6c7 A+!(n$ recei,e' (n'er li"e in(ranceen'!*+en$ !r ann(i$ c!n$rac$6'7 Val(e !" pr!per$ ac(ire' 3 i"$3e(e$ 'e,ie !r 'ecen$6e7 A+!(n$ recei,e' $)r!() acci'en$ !r)eal$) in(rance

6"7 Inc!+e e#e+p$ (n'er $a# $rea$67 Re$ire+en$ 3ene&$ peni!n ra$(i$iee$c.

7espondent terminated petitioner0s services due to herillness, rendering her incapable of continuing to wor', andgave her retirement benets but withheld the tax duethereon. The retirements benets are taxable because thepetitioner was only $1 yrs old at the time of retirementand had rendered only < years of service* for thesebenets to be exempt from tax, the following reuisitesmust concur) (1& a reasonable private benet plan is

maintained by the employer* (+& the retiring oMcial oremployee has been in the service of the same employerfor at least ten (19& years* (#& the retiring oMcial oremployee is not less than fty (9& years of age at thetime of his retirement* and ($& the benet had beenavailed of only once. (0a. -sa#el 5. antos vs. ervier

Pil., -n"., et al., G.R. No. 1$, Novem#er 28, 2%%8&

7espondents contend that petitioner did not withhold thetaxes due on their retirement benets because it hadobliged itself to pay the taxes due thereon. This was doneto induce respondents to agree to avail of the optionalretirement scheme. It was only when respondentsdemanded the payment of their salary di5erentials thatpetitioner alleged, for the rst time, that it had failed topresent the 1==# -B! to the BI7 for approval, renderingsuch retirement benets not exempt from taxes*conseuently, they were obliged to refund to it theamounts it had remitted to the BI7 in payment of theirtaxes. etitioner used this 3failure4 as an afterthought, asan excuse for its refusal to remit to the respondents theirsalary di5erentials. atently, petitioner is estopped fromdoing so. It cannot renege on its commitment to pay thetaxes on respondents0 retirement benets on the pretextthat the 3new management4 had found the policydisadvantageous. (-nter"ontinental +roa*"astin3 Corp. vs.

Noemi +. Amarilla, et al., G.R. No. 12/, !"to#er 2,

2%%&

#9



#1

everance of employment is a condition sine ua non forthe release of retirement benets. 7etirement benets arenot meant to recompense employees who are still in theemploy of the government. (Devt. +an of te Pil. vs.

Commission on Au*it, G.R. No. 1/1, 7e#ruary 11,

2%%&

6)7 Winnin prie an' a*ar' incl('in$)!e in p!r$ c!+pe$i$i!n

6<7 Dn'er pecial la*6a7 Per!nal E(i$ an' Re$ire+en$ Acc!(n$

6)7 %e'(c$i!n "r!+ r! inc!+e617 General r(le

6a7 %e'(c$i!n +($ 3e pai' !r inc(rre' inc!nnec$i!n *i$) $)e $a#paer $ra'e3(ine !r pr!"ei!n637 %e'(c$i!n +($ 3e (pp!r$e' 3a'e(a$e receip$ !r in,!ice 6e#cep$

$an'ar' 'e'(c$i!n76c7 A''i$i!nal re(ire+en$ rela$in $!*i$))!l'in

627 Re$(rn !" capi$al 6c!$ !" ale !r er,ice76a7 Sale !" in,en$!r !" !!' 3+an("ac$(rer an' 'ealer !" pr!per$ie637 Sale !" $!c in $ra'e 3 a real e$a$e'ealer an' 'ealer in ec(ri$ie6c7 Sale !" er,ice

67 I$e+ie' 'e'(c$i!n6a7 E#pene

617 Re(ii$e "!r 'e'(c$i3ili$6a7 Na$(re !r'inar an'

necear The expenses paid by !tlas for theservices rendered by a public relationsrm, aimed at creating a favorableimage for !tlas, is not an allowablededuction as business expense underthe DI7-. >5orts to establishreputation are a'in to acuisition of capital assets and, therefore,expenses related thereto are not

business expense but capitalexpenditures. ( Atlas Consoli*ate*

0inin3 & Devt. Corp. vs.

Commissioner of -nternal Revenue,

G.R. No. 62911, @anuary 2, 1981&

! stoc' listing fee paid annually to astoc' exchange for the privilege of having a corporation0s stoc' listed isan ordinary and business expense.

This is distinguished from a single

payment made to the stoc' exchange,which is considered a capitalexpenditure. ( Atlas Consoli*ate*0inin3 & Devt. Corp. vs.Commissioner of -nternal Revenue,G.R. No. 62911, @anuary 2, 1981'

#1



#+

The subject media advertising

expense for 3Tang4 incurred by

respondent corporation was not an

ordinary and necessary expense, but

rather a capital expenditure because it

failed the two conditions set by 6.. jurisprudence in determining whether

or not it is an 3ordinary4 expense) rst,

reasonableness of the amount

incurred and second, the amount

incurred must not be a capital outlay

to create 3goodwill4 for the product

andLor private respondent0s business.

The subject expense for the

advertisement of a single product is

inordinately large* furthermore, the

corporation0s venture to protect its

brand franchise was tantamount to

e5orts to establish a reputation and

was a'in to the acuisition of capital

assets. (Commissioner of -nternal

Revenue vs. General 7oo*s, -n"., G.R.

No. 1$2, April 2, 2%%$&

637 Pai' an' inc(rre' '(rin$a#a3le ear627 Salarie *ae an' !$)er "!r+ !" c!+pena$i!n "!r per!nal er,iceac$(all ren'ere' incl('in $)er!e'-(p +!ne$ar ,al(e !" $)e "rine3ene&$ (35ec$e' $! "rine 3ene&$ $a#*)ic) $a# )!(l' )a,e 3een pai' ayment by the taxpayer%corporation to itscontrolling stoc'holder (Gos'ins& of 9J of its supervision fees (paid by a client of thecorporation for the latters services asmanaging agent of a subdivision project& orthe amount of ==,=;;.=1 is not a deductible

ordinary and necessary expense because itdoes not pass the test of reasonablecompensation. If independently, a one%time199,999.99%fee to plan and lay down therules for supervision of a subdivision projectwere to be paid to an experienced realtorsuch as Gos'ins, its fairness and deductibilityby the taxpayer could be conceded*however, the fee paid to Gos'ins continuedevery year since 1= up to 1=8# and for aslong as its contract with the subdivisionowner subsisted, regardless of whether

services were actually rendered by Gos'ins.(C. 0. :osins & Co., -n". vs. Commissioner of -nternal Revenue, G.R. No. 62%/9,Novem#er 28, 199&67 Tra,ellin/$ranp!r$a$i!n e#pene647 C!$ !" +a$erial6:7 Ren$al an'/!r !$)er pa+en$ "!r(e !r p!ei!n !" pr!per$

#+



##

6<7 Repair an' +ain$enance6>7 E#pene (n'er leae aree+en$6?7 E#pene "!r pr!"ei!nal6@7 En$er$ain+en$/Repreen$a$i!ne#pene6107 P!li$ical ca+pain e#pene

6117 Trainin e#pene637 In$ere$

617 Re(ii$e "!r 'e'(c$i3ili$627 N!n-'e'(c$i3le in$ere$ e#pene67 In$ere$ (35ec$ $! pecial r(le

6a7 In$ere$ pai' in a',ance637 In$ere$ peri!'icall a+!r$ie'6c7 In$ere$ e#pene inc(rre' $!ac(ire pr!per$ "!r (e in$ra'e/3(ine/pr!"ei!n6'7 Re'(c$i!n !" in$ere$e#pene/in$ere$ ar3i$rae

6c7 Ta#e Cargin fees paid by the petitioner to the -entralBan' on its prot remittances to its Dew Hor' headoMce are not allowable deductions as taxesbecause it is not a tax but an exaction designed tocurb the excessive demands upon our internationalreserve. Cargin fees are also not ordinary andnecessary business expenses because they are notexpenses in connection with the production orearning of petitioners incomes in the hilippines*they were expenses incurred in the disposition of said incomes. ()sso tan*ar* )astern, -n". vs.

Commissioner of -nternal Revenue, G.R. Nos.28/%89, @uly , 1989&

617 Re(ii$e "!r 'e'(c$i3ili$627 N!n-'e'(c$i3le $a#e67 Trea$+en$ !" (rc)are/in$ere$/&ne "!r'elin(enc647 Trea$+en$ !" pecial ae+en$6:7 Ta# cre'i$ ,i-H-,i 'e'(c$i!n

6'7 L!e617 Re(ii$e "!r 'e'(c$i3ili$627 O$)er $pe !" l!e

6a7 Capi$al l!e637 Sec(ri$ie 3ec!+in *!r$)le 3ecurities becoming worthless4resulting from -hina Ban'0s euityinvestment in the Eirst -B- -apital(!sia& Atd., a Gong'ong subsidiary, iscapital loss and not an ordinary loss.!n euity investment is a capital, notordinary, asset of the investor the saleor exchange of which results in eithera capital gain or a capital loss* sharesof stoc' would be ordinary assets onlyto a dealer in securities or a personengaged in the purchase and sale of,or an active trader (for his ownaccount& in, securities. (Cina +anin3Corp. vs. Court of Appeals, et al., G.R.No. 12//%8, @uly 19, 2%%%&

##



#$

6c7 L!e !n *a) ale !" $!c!r ec(ri$ie6'7 Waerin l!e6e7 Ne$ Opera$in L! Carr-O,er6NOLCO7

6e7 Ba' 'e3$

In claiming deductions for bad debts, the onlyevidentiary support given by 7- was theexplanation posited by its accountant, whoseallegations were not supported by anydocumentary evidence. ?ne of the reuisites toualify as 3bad debt4 is that the debt must beactually ascertained to be worthless anduncollectible during the taxable year, and thetaxpayer must prove that he exerted diligent e5ortsto collect the debts by (1& sending of statement of accounts* (+& sending of collection letters* (#&

giving the account to a lawyer for collection* and($& ling a collection case in court. (Pilippine

ReHnin3 Company vs. Court of Appeals, et al., G.R.

No. 1189, 0ay 8, 199&

617 Re(ii$e "!r 'e'(c$i3ili$627 E=ec$ !" rec!,er !" 3a' 'e3$

6"7 %eprecia$i!n :epreciation is the gradual diminution in the usefulvalue of tangible property resulting from wear andtear and normal obsolescense. The term is also

applied to amortiation of the value of intangibleassets, the use of which in the trade or business isdenitely limited in duration. :epreciationcommences with the acuisition of the propertyand its owner is not bound to see his propertygradually waste, without ma'ing provision out of earnings for its replacement. (+asilan )states, -n".vs. Commissioner of -nternal Revenue, et al., G.R.No. 62292, eptem#er /, 19&

Both depletion and depreciation are predicated onthe same basic promise of avoiding a tax on

capital. The allowance for depletion is based on thetheory that the extraction of minerals graduallyexhausts the capital investment in the mineraldeposit. The purpose of the depiction deduction isto permit the owner of a capital interest in mineralin place to ma'e a tax%free recovery of thatdepleting capital asset. ! depletion is based uponthe concept of the exhaustion of a natural resourcewhereas depreciation is based upon the concept of the exhaustion of the property, not otherwise anatural resource, used in a trade or business orheld for the production of income. Thus, depletion

and depreciation are made applicable to di5erenttypes of assets. !nd a taxpayer may not deductthat which the -ode allows as of another.(Consoli*ate* 0ines, -n". vs. Court of 5a; Appeals,et al., G.R. Nos. 6188$ & 188, Au3ust 29, 19&

617 Re(ii$e "!r 'e'(c$i3ili$

#$



#8

a7 General r(le $)a$ rei'en$ ci$ien are $a#a3le !n inc!+e"r!+ all !(rce *i$)in an' *i$)!($ $)e P)ilippine

6i7 N!n-rei'en$ ci$ien37 Ta#a$i!n !n c!+pena$i!n inc!+e

6i7 Incl(i!n6a7 M!ne$ar c!+pena$i!n

617 Re(lar alar/*ae627 Separa$i!n pa/re$ire+en$ 3ene&$ n!$!$)er*ie e#e+p$67 B!n(e 1$) +!n$) pa an' !$)er3ene&$ n!$ e#e+p$647 %irec$!r "ee

637 N!n-+!ne$ar c!+pena$i!n617 rine 3ene&$ n!$ (35ec$ $! $a#

6ii7 E#cl(i!n6a7 rine 3ene&$ (35ec$ $! $a#637 %e +ini+i 3ene&$6c7 1$) +!n$) pa an' !$)er 3ene&$ an'

pa+en$ peci&calle#cl('e' "r!+ $a#a3le c!+pena$i!n inc!+e

6iii7 %e'(c$i!n6a7 Per!nal e#e+p$i!n an' a''i$i!nal e#e+p$i!n637 9eal$) an' )!pi$alia$i!n in(rance6c7 Ta#a$i!n !" c!+pena$i!n inc!+e !" a +ini+(+*ae earner

617 %e&ni$i!n !" $a$($!r +ini+(+ *ae627 %e&ni$i!n !" +ini+(+ *ae earner67 Inc!+e al! (35ec$ $! $a# e#e+p$i!n)!li'a pa !,er$i+e pa ni)$-)i"$'i=eren$ial an' )aar' pa

c7 Ta#a$i!n !" 3(ine inc!+e/inc!+e "r!+ prac$ice !" pr!"ei!n

'7 Ta#a$i!n !" pai,e inc!+e6i7 Pai,e inc!+e (35ec$ $! &nal $a#

6a7 In$ere$ inc!+e6i7 Trea$+en$ !" inc!+e "r!+ l!n-$er+

'ep!i$637 R!al$ie6c7 %i,i'en' "r!+ '!+e$ic c!rp!ra$i!n6'7 Prie an' !$)er *innin

6ii7 Pai,e inc!+e n!$ (35ec$ $! &nal $a#e7 Ta#a$i!n !" capi$al ain

6i7 Inc!+e "r!+ ale !" )are !" $!c !" aP)ilippine c!rp!ra$i!n

6a7 S)are $ra'e' an' li$e' in $)e $!c e#c)ane637 S)are n!$ li$e' an' $ra'e' in $)e$!c e#c)ane

6ii7 Inc!+e "r!+ $)e ale !" real pr!per$i$(a$e' in $)e P)ilippine6iii7 Inc!+e "r!+ $)e ale e#c)ane !r !$)er'ip!i$i!n !" !$)er capi$al ae$

The acuisition by the Kovernment of privateproperties through the exercise of the power of eminent domain, said properties being justlycompensated, is embraced within the meaning of the term 3sale4 or 3disposition of property4 and thedenition of gross income. rot from thetransaction constitutes capital gain. (GonFales vsC5A, GR 61/$2, 0ay 2, 19/&

11. Ta#a$i!n !" n!n-rei'en$ alien enae' in $ra'e !r 3(ine

#8



#;

a7 General r(le37 Ca) an'/!r pr!per$ 'i,i'en'c7 Capi$al ain

E#cl('e n!n-rei'en$ alien n!$ enae' in $ra'e !r 3(ine12. In'i,i'(al $a#paer e#e+p$ "r!+ inc!+e $a#

a7 Seni!r ci$ien

37 Mini+(+ *ae earnerc7 E#e+p$i!n ran$e' (n'er in$erna$i!nal aree+en$

1. Ta#a$i!n !" '!+e$ic c!rp!ra$i!na7 Ta# paa3le

6i7 Re(lar $a#6ii7 Mini+(+ C!rp!ra$e Inc!+e Ta# 6MCIT7Eor its scal year ending #1 Carch +991 (EH +999%+991&, !Aincurred ero taxable income and did not pay C-IT, for whichBI7 assessed !A for deciency C-IT. !A is not liable to payC-IT because under its franchise, !A has the option to paybasic corporate income tax or franchise tax, whichever is lower*

and the tax so paid shall be in lieu of all other taxes, except realproperty tax. C-IT falls within the category of 3all other taxes4from which !A is exempted because although both are incometaxes, the C-IT is di5erent from the basic corporate income tax,not just in the rates, but also in the bases for their computation.(Commissioner of -nternal Revenue vs. PA6, -n"., G.R. No.

18%%, @uly , 2%%9&

6a7 I+p!i$i!n !" MCITCB- being a new thrift ban' is not yet liable to the C-ITsince it will apply only beginning on the $ th years from

commencement of its operations. The date of commencement of operations of a thrift ban' is the dateit was registered with the >- or the date it was grantedauthority by B to operate as such, whichever comeslater. !s newly operated thrift ban' it is entitled to a graceperiod of $ years counted from the date when it wasauthoried by B to operate as thrift ban'. CB- isentitled to the refund of the taxes paid under the C-IT.

The intent of -ongress relative to the C-IT is to grant a $year suspension of tax payment to newly formedcorporations. -orporations still starting have to stabilie

their venture in order to obtain stronghold in the industry.It is not a surprise when many corporations reportedlosses in their initial years of operations. (Canila Ban'ing-orp. v. -I7, $== -7! ;<+&

637 Carr "!r*ar' !" e#ce +ini+(+ $a#6c7 Relie" "r!+ $)e MCIT (n'er cer$ain c!n'i$i!n6'7 C!rp!ra$i!n e#e+p$ "r!+ $)e MCIT6e7 Applica3ili$ !" $)e MCIT *)ere a c!rp!ra$i!n i!,erne' 3!$) (n'er $)e re(lar $a# $e+ an' apecial inc!+e $a# $e+

37 All!*a3le 'e'(c$i!n

6i7 I$e+ie' 'e'(c$i!n6ii7 Op$i!nal $an'ar' 'e'(c$i!n

c7 Ta#a$i!n !" pai,e inc!+e6i7 Pai,e inc!+e (35ec$ $! $a#

6a7 In$ere$ "r!+ 'ep!i$ an' iel' !r an !$)er+!ne$ar 3ene&$ "r!+ 'ep!i$ (3$i$($e an'"r!+ $r($ "(n' an' i+ilar arrane+en$ an'r!al$ie

#;



#<

637 Capi$al ain "r!+ $)e ale !" )are !" $!c n!$ $ra'e' in $)e $!c e#c)ane6c7 Inc!+e 'eri,e' (n'er $)e e#pan'e' "!reinc(rrenc 'ep!i$ $e+6'7 In$er-c!rp!ra$e 'i,i'en'6e7 Capi$al ain realie' "r!+ $)e ale e#c)ane

!r 'ip!i$i!n !" lan' an'/!r 3(il'in6ii7 Pai,e inc!+e n!$ (35ec$ $! $a#

'7 Ta#a$i!n !" capi$al ain6i7 Inc!+e "r!+ ale !" )are !" $!c6ii7 Inc!+e "r!+ $)e ale !" real pr!per$ i$(a$e' in $)eP)ilippine6iii7 Inc!+e "r!+ $)e ale e#c)ane !r !$)er 'ip!i$i!n!" !$)er capi$al ae$

e7 Ta# !n pr!prie$ar e'(ca$i!nal in$i$($i!n an' )!pi$alt. Au'e0s is a proprietary non%stoc' and non%prot hospital catering tonon%paying patients but also derives prot from paying patients. It issubject to the preferential tax rate of 19J for its prot%generatingactivities under sec. +;(B& of DI7-* it cannot be exempt from incometax under sec. #9(>& and (K& because it is not 3organied and operatedexclusively4 for charitable purposes, which is a reuirement under theaforementioned provision. (C-R vs. t. 6ues 0e*i"al Center, -n"., G.R.

Nos. 19/9%9 & 19/9%, eptem#er 2, 2%12&

"7 Ta# !n !,ern+en$-!*ne' !r c!n$r!lle' c!rp!ra$i!naencie !r in$r(+en$ali$ie

14. Ta#a$i!n !" rei'en$ "!rein c!rp!ra$i!na7 General r(le37 Wi$) repec$ $! $)eir inc!+e "r!+ !(rce *i$)in $)eP)ilippinec7 Mini+(+ C!rp!ra$e Inc!+e Ta#'7 Ta# !n cer$ain inc!+e

6i7 In$ere$ "r!+ 'ep!i$ an' iel' !r an !$)er+!ne$ar 3ene&$ "r!+ 'ep!i$ (3$i$($e $r($ "(n'an' i+ilar arrane+en$ an' r!al$ie6ii7 Inc!+e 'eri,e' (n'er $)e e#pan'e' "!rein c(rrenc'ep!i$ $e+6iii7 Capi$al ain "r!+ ale !" )are !" $!c n!$ $ra'e'in $)e $!ce#c)ane6i,7 In$er-c!rp!ra$e 'i,i'en'

E#cl('e6i7 In$erna$i!nal carrier6ii7 O=)!re 3anin (ni$6iii7 Branc) pr!&$ re+i$$ance6i,7 Rei!nal !r area )ea'(ar$er an' rei!nal !pera$in)ea'(ar$er !" +(l$ina$i!nal c!+panie1:. Ta#a$i!n !" n!n-rei'en$ "!rein c!rp!ra$i!n

a7 General r(le37 Ta# !n cer$ain inc!+e

6i7 In$ere$ !n "!rein l!an6ii7 In$er-c!rp!ra$e 'i,i'en'6iii7 Capi$al ain "r!+ ale !" )are !" $!c n!$ $ra'e'

in $)e $!c e#c)aneE#cl('e6i7 N!n-rei'en$ cine+a$!rap)ic &l+-!*ner le!r !r 'i$ri3($!r6ii7 N!n-rei'en$ !*ner !r le!r !" ,eel c)ar$ere' 3 P)ilippinena$i!nal6iii7 N!n-rei'en$ !*ner !r le!r !" aircra"$ +ac)inerie an' !$)ere(ip+en$1<. I+pr!perl acc(+(la$e' earnin !" c!rp!ra$i!n

#<



#=

etitioner cannot avoid paying surtax on improperly accumulated earningsbecause the purchase of the 6..!. Treasury bonds were in no way related topetitioner0s business of importing and selling wines liuors. The 3immediacytest4 determines the 3reasonable needs4 of the business in order to justify anaccumulation of earningsVthat is, if the corporation did not prove an

immediate need for the accumulation of the earnings and prots, theaccumulation was not for the reasonable needs of the business, and thepenalty tax would apply* investment of the earnings and prots of thecorporation in stoc' or securities of an unrelated business usually indicatesan accumulation beyond the reasonable needs of the business (0anila >ine

0er"ants, -n". vs. Commissioner of -nternal Revenue, G.R. No. 621/,

7e#ruary 2%, 198&

BI7 assessed petitioner for surtax on improperly accumulated prots, whichpetitioner contested. In order to determine whether prots are accumulatedfor the reasonable needs of the business, it must be shown that) (1& thecontrolling intention of the taxpayer is manifest at the time of accumulation,

not intentions declared subseuently, which are mere afterthoughts* and (+&the accumulated prots must be used within a reasonable time after theclose of the taxable year. (Cyanami* Pilippines, -n". vs. Court of Appeals, et

al., G.R. No. 1%8%, @anuary 2%, 2%%%&

revious accumulations should be considered in determining unreasonableaccumulations for the year concerned. In determining whetheraccumulations of earnings or prots in a particular year are within thereasonable needs of a corporation, it is necessary to ta'e into account prioraccumulations, since accumulations prior to the year involved may havebeen suMcient to cover the business needs and additional accumulationsduring the year involved would not reasonably be necessary. (+asilan

)states, -n". vs. Commissioner of -nternal Revenue, et al., G.R. No. 62292,eptem#er /, 19&

1>. E#e+p$i!n "r!+ $a# !n c!rp!ra$i!n HC-!, a non%stoc' non%prot corporation with charitable objectives, claimedexemption from payment of income tax by invo'ing the DI7- and the-onstitution. @hile the income received by the organiations enumerated inection +8 of the DI7- is, as a rule, exempted from the payment of tax 3inrespect to income received by them as such,4 the exemption does not applyto income derived 3from any of their properties, real or personal, or fromany of their activities conducted for prot, regardless of the dispositionmade of such income4* Coreover, charitable institutions under !rt. FI, sec.

+< of the -onstitution are only exempted from property taxes, and HC-! isnot an educational institution under !rticle UIF, ection $ of the-onstitution. (Commissioner of -nternal Revenue vs. Court of Appeals, et al.,

G.R. No. 12%$, !"to#er 1, 1998&

Aung -enter, charitable institution, does not lose its character as such andits exemption from taxes simply because it derives income from payingpatients, whether out%patient, or conned in the hospital, or receivessubsidies from the government, so long as the money received is devotedor used altogether to the charitable object which it is intended to achieve*and no money inures to the private benet of the persons managing oroperating the institution. Gowever, it is not exempt from real property tax

as to the portions of the land leased to private entities as well as thoseparts of the hospital leased to private individuals because under the-onstitution, it is only exempt when its real properties are actually,directly, and exclusively used for charitable purposes. (6un3 Center of tePil. vs. ueFon City, et al., G.R. No. 11%, @une 29, 2%% &

1?. Ta#a$i!n !" par$ner)ip1@. Ta#a$i!n !" eneral pr!"ei!nal par$ner)ip20. Wi$))!l'in $a#

#=



$1

(8& That in case of doubt, the conveyance should be deemeddonation inter vivos rather than mortis "ausa, in order to avoid uncertainty asto the ownership of the property subject of the deed. (G!NA6! 4-66AN)4Avs. P!) 7R!-6AN, G.R. No. 128%, @anuary 2, 2%11'

The conveyance in uestion is not, rst of all, one of mortis "ausa, which should be

embodied in a will. In this case, the monies subject of savings account were in thenature of conjugal funds. In the case relied on, Rivera v. Peoples +an an* 5rust Co., we rejected claims that a survivorship agreement purports to deliver onepartys separate properties in favor of the other, but simply, their joint holdings.(R!0AR-C! G. 4-5G vs. 5:) :!N!RA+6) C!R5 !7 APP)A6 an* R!>)NA7A5-N!C!R!NA, G.R. No. 82%2, 0ar" 29, 199%'

But although the survivorship agreement is per se not contrary to law its operationor e5ect may be violative of the law. Eor instance, if it be shown in a given case thatsuch agreement is a mere cloa' to hide an inoMcious donation, to transfer propertyin fraud of creditors, or to defeat the legitime of a forced heir, it may be assailedand annulled upon such grounds. (R!0AR-C! G. 4-5G vs. 5:) :!N!RA+6) C!R5

!7 APP)A6 an* R!>)NA 7A5-N!C!R!NA, G.R. No. 82%2, 0ar" 29, 199%'

<. Clai&ca$i!n !" 'ece'en$>. Gr! e$a$e ,i-H-,i ne$ e$a$e?. %e$er+ina$i!n !" r! e$a$e an' ne$ e$a$e@. C!+p!i$i!n !" r! e$a$e10. I$e+ $! 3e incl('e' in r! e$a$e11. %e'(c$i!n "r!+ e$a$e

!s held in Propstra v. .., where a lien claimed against the estate was certain andenforceable on the date of the decedents death, the fact that the claimantsubseuently settled for lesser amount did not preclude the estate from deductingthe entire amount of the claim for estate tax purposes. These pronouncementsessentially conrm the general principle that post%death developments are notmaterial in determining the amount of the deduction. (RA7A)6 AR)N-! . D-!Nvs. C!R5 !7 5A? APP)A6, G.R. No. 1%9, April $%, 2%%8'

@e express our agreement with the date%of%death valuation rule. There is no law,nor do we discern any legislative intent in our tax laws, which disregards the date%of%death valuation principle and particularly provides that post%death developmentsmust be considered in determining the net value of the estate. It bears emphasisthat tax burdens are not to be imposed, nor presumed to be imposed, beyond whatthe statute expressly and clearly imports, tax statutes being construed stri"tissimi

Buris against the government. (RA7A)6 AR)N-! . D-!N vs. C!R5 !7 5A? APP)A6, G.R. No. 1%9, April $%, 2%%8'

uch construction nds relevance and consistency in our 7ules on pecialroceedings wherein the term 2claims2 reuired to be presented against adecedents estate is generally construed to mean debts or demands of a pecuniarynature which could have been enforced against the deceased in his lifetime, orliability contracted by the deceased before his death. Therefore, the claims existingat the time of death are signicant to, and should be made the basis of, thedetermination of allowable deductions. (RA7A)6 AR)N-! . D-!N vs. C!R5 !7 5A? APP)A6, G.R. No. 1%9, April $%, 2%%8'

!dministration expenses, as an allowable deduction from the gross estate of thedecedent for purposes of arriving at the value of the net estate, have beenconstrued by the federal and state courts of the 6nited tates to include allexpenses 2essential to the collection of the assets, payment of debts or thedistribution of the property to the persons entitled to it.2 In other words, theexpenses must be essential to the proper settlement of the estate and expendituresincurred for the individual benet of the heirs, devisees or legatees are notdeductible. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs. C!R5 !7 APP)A6, G.R.

$1



$+

No. 12$2%, 0ar" 22, 2%%%'

Thus, in 6orenFo v . Posa*as, the -ourt construed the phrase 2judicial expenses of the testamentary or intestate proceedings2 as not including the compensation paidto a trustee of the decedents estate when it appeared that such trustee wasappointed for the purpose of managing the decedents real estate for the benet of

the testamentary heir. In another case, the -ourt disallowed the premiums paid onthe bond led by the administrator as an expense of administration since the givingof a bond is in the nature of a ualication for the oMce, and not necessary in thesettlement of the estate. Deither may attorneys fees incident to litigation incurredby the heirs in asserting their respective rights be claimed as a deduction from thegross estate. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs. C!R5 !7 APP)A6, G.R.No. 12$2%, 0ar" 22, 2%%%'

The notarial fee paid for the extrajudicial settlement is clearly a deductible expensesince such settlement e5ected a distribution of edro ajonars estate to his lawfulheirs. imilarly, the attorneys fees paid to DB for acting as the guardian of edroajonars property should also be considered as a deductible administration expenseas DB provided a detailed accounting of decedents property and gave advice as tothe proper settlement of the latters estate, acts which contributed towards thecollection of decedents assets and the subseuent settlement of the estate.(C!00--!N)R !7 -N5)RNA6 R)4)N) vs. C!R5 !7 APP)A6, G.R. No. 12$2%,0ar" 22, 2%%%'

12. E#cl(i!n "r!+ e$a$e1. Ta# cre'i$ "!r e$a$e $a#e pai' in a "!rein c!(n$r14. E#e+p$i!n !" cer$ain ac(ii$i!n an' $ran+ii!n1:. ilin !" n!$ice !" 'ea$)1<. E$a$e $a# re$(rn

C. %!n!r $a#1. Baic principle2. %e&ni$i!n. Na$(re4. P(rp!e !r !35ec$:. Re(ii$e !" ,ali' '!na$i!n

Deither is the survivorship agreement a donation inter vivos, for obvious reasons,because it was to ta'e e5ect after the death of one party. econdly, it is not adonation between the spouses because it involved no conveyance of a spouses

own properties to the other. (R!0AR-C! G. 4-5G vs. 5:) :!N!RA+6) C!R5 !7 APP)A6 an* R!>)NA 7A5-N!C!R!NA, G.R. No. 82%2, 0ar" 29, 199%'

In the case at bar, when the spouses Fitug opened savings account, they merely putwhat rightfully belonged to them in a money%ma'ing venture. They did not disposeof it in favor of the other, which would have arguably been sanctionable as aprohibited donation. (R!0AR-C! G. 4-5G vs. 5:) :!N!RA+6) C!R5 !7 APP)A6an* R!>)NA 7A5-N!C!R!NA, G.R. No. 82%2, 0ar" 29, 199%'

The granting clause shows that :iego donated the properties out of love anda5ection for the donee which is a mar' of a donation inter vivos* second, thereservation of lifetime usufruct indicates that the donor intended to transfer the

na'ed ownership over the properties* third, the donor reserved suMcient propertiesfor his maintenance in accordance with his standing in society, indicating that thedonor intended to part with the six parcels of land* lastly, the donee accepted thedonation. (P. AGR-P-N! G)5!PA an* -A+)6 -6AR-! G)5!PA vs. C!R5 !7

APP)A6, G.R. No. 1119%, !"to#er /, 2%%%'

In the case of AleBan*ro vs. Geral*eF, 8 CRA 2/ (19', we said that anacceptance clause is a mar' that the donation is inter vivos. !cceptance is a

$+



$8

a7 Re(ii$e !" $a#a3ili$ !" ale !" !!' !r pr!per$ie

Cindanao II0s sale of the Dissan atrol is said to be an isolated transaction.Gowever, it does not follow that an isolated transaction cannot be an incidentaltransaction for purposes of F!T liability. Indeed, a reading of ection 19 of the1==; Tax -ode would show that a transaction 2in the course of trade or business2includes 2transactions incidental thereto.2 (0-NDANA! -- G)!5:)R0A6PAR5N)R:-P vs. C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 19$$%1, 0ar"11, 2%1$'

rior to the sale, the Dissan atrol was part of Cindanao II0s property, plant, andeuipment. Therefore, the sale of the Dissan atrol is an incidental transactionmade in the course of Cindanao II0s business which should be liable for F!T.(0-NDANA! -- G)!5:)R0A6 PAR5N)R:-P vs. C!00--!N)R !7 -N5)RNA6R)4)N), G.R. No. 19$$%1, 0ar" 11, 2%1$'

@. Jer!-ra$e' ale !" !!' !r pr!per$ie an' e=ec$i,el er!-ra$e' ale

!" !!' !r pr!per$ie

Pero%rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at ero and when applied to the tax base, such rateobviously results in no tax chargeable against the purchaser. The seller of suchtransactions charges no output tax, but can claim a refund of or a tax creditcerticate for the F!T previously charged by suppliers. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs. )AGA5) 5)C:N!6!G= (P:-6-PP-N)', G.R. No. 1/$8,7e#ruary 11, 2%%/'

>5ectively ero%rated transactions, however, refer to the sale of goods or supply of services to persons or entities whose exemption under special laws or international

agreements to which the hilippines is a signatory e5ectively subjects suchtransactions to a ero rate. !gain, as applied to the tax base, such rate does notyield any tax chargeable against the purchaser. The seller who charges ero outputtax on such transactions can also claim a refund of or a tax credit certicate for theF!T previously charged by suppliers. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs.)AGA5) 5)C:N!6!G= (P:-6-PP-N)', G.R. No. 1/$8, 7e#ruary 11, 2%%/'

If respondent is located in an export processing one within that ecoone, sales tothe export processing one, even without being actually exported, shall in fact beviewed as "onstru"tively e;porte* under >? ++8. -onsidered as export sales, suchpurchase transactions by respondent would indeed be subject to a erorate. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs. )AGA5) 5)C:N!6!G=

(P:-6-PP-N)', G.R. No. 1/$8, 7e#ruary 11, 2%%/'

!K-?7s exemption from F!T under ection 19< (B& (#& of 7.!. Do. <$+$ has beenthoroughly and extensively discussed in Commissioner of -nternal Revenue v.

A"esite (Pilippines' :otel Corporation. !cesite sought the refund of the amount itpaid as F!T on the ground that its transaction with !K-?7 was subject to ero rateas it was rendered to a tax%exempt entity. The -ourt ruled that !K-?7 and !cesitewere both exempt from paying F!T. (P:-6-PP-N) A0)0)N5 AND GA0-NGC!RP!RA5-!N (PAGC!R' vs. 5:) +R)A !7 -N5)RNA6 R)4)N), G.R. No. 12%8,0ar" 1/, 2%11'

Do prior application for the e5ective ero rating of its transactions is necessary. The

BI7 regulations additionally reuiring an approved prior application for e5ective erorating cannot prevail over the clear F!T nature of respondents transactions. ?therthan the general registration of a taxpayer the F!T status of which is aptlydetermined, no provision under our F!T law reuires an additional application to bemade for such taxpayers transactions to be considered e5ectively ero%rated.(C!00--!N)R !7 -N5)RNA6 R)4)N) vs. )AGA5) 5)C:N!6!G= (P:-6-PP-N)',G.R. No. 1/$8, 7e#ruary 11, 2%%/'

$8



$;

The ?mnibus Investments -ode of 1=<; recognies as export sales the sales of export products to another producer or to an export trader, provided that the exportproducts are actually exported. Eor purposes of F!T ero%rating, such producer orexport trader must be registered with the B?I and is reuired to actually exportmore than ;9J of its annual production. (A56A C!N!6-DA5)D 0-N-NG ANDD)4)6!P0)N5 C!RP!RA5-!N vs. C!00--!N)R !7 -N5)RNA6 R)4)N), G.R.

Nos. 111% & 18$, @une 8, 2%%'

In terms of the F!T "omputation, ero rating and exemption are the same, butthe e;tent of relief that results from either one of them is not. In both instances of ero rating, there is total relief for the purchaser from the burden of the tax but inan exemption there is only partial relief, because the purchaser is not allowed anytax refund of or credit for input taxes paid. (C!00--!N)R !7 -N5)RNA6 R)4)N)vs. )AGA5) 5)C:N!6!G= (P:-6-PP-N)', G.R. No. 1/$8, 7e#ruary 11, 2%%/'

10. Tranac$i!n 'ee+e' alea7 Tran"er (e !r c!n(+p$i!n n!$ in $)e c!(re !" 3(ine !" !!'/pr!per$ie !riinall in$en'e' "!r ale !r (e in $)e c!(re !" 3(ine37 %i$ri3($i!n !r $ran"er $! )are)!l'er in,e$!r !r cre'i$!rc7 C!nin+en$ !" !!' i" ac$(al ale n!$ +a'e *i$)in <0 'a "r!+ 'a$e!" c!nin+en$'7 Re$ire+en$ "r!+ !r cea$i!n !" 3(ine *i$) repec$ $! in,en$!rie !n)an'11. C)ane !r cea$i!n !" $a$( a VAT-rei$ere' per!na7 S(35ec$ $! VAT6i7 C)ane !" 3(ine ac$i,i$ "r!+ VAT $a#a3le $a$( $! VAT-e#e+p$$a$(6ii7 Appr!,al !" re(e$ "!r cancella$i!n !" a rei$ra$i!n '(e $! re,eri!n$! e#e+p$ $a$(6iii7 Appr!,al !" re(e$ "!r cancella$i!n !" rei$ra$i!n '(e $! 'eire $!re,er$ $! e#e+p$ $a$( a"$er lape !" c!nec($i,e ear37 N!$ (35ec$ $! VAT6i7 C)ane !" c!n$r!l !" a c!rp!ra$i!n6ii7 C)ane in $)e $ra'e !r c!rp!ra$e na+e6iii7 Merer !r c!n!li'a$i!n !" c!rp!ra$i!n12. VAT !n i+p!r$a$i!n !" !!'a7 Tran"er !" !!' 3 $a# e#e+p$ per!n1. VAT !n ale !" er,ice an' (e !r leae !" pr!per$ie

ervice has been dened as the art of doing something useful for a person or

company for a fee or useful labor or wor' rendered or to be rendered another for afee. (-I7 v. !merican >xpress International, Inc., K.7. Do. 1+89=, "une +=, +99&

By ualifying 2services2 with the words 2all 'inds,2 -ongress has given the term2services2 an all%encompassing meaning. The listing of specic services areintended to illustrate how pervasive and broad is the F!Ts reach rather thanestablish concrete limits to its application* thus, every activity that can be imaginedas a form of 2service2 rendered for a fee should be deemed included unless someprovision of law especially excludes it. (R)NA5! 4. D-A an* AR!RA 0A. 7. 5-0+!6vs. 5:) )CR)5AR= !7 7-NANC), G.R. No. 19$%%, @uly 19, 2%11'

Tollway operators not only come under the broad term 2all 'inds of services,2 they

also come under the specic class described in ection 19< as 2all other franchisegrantees2 who are subject to F!T, 2except those under ection 11= of this -ode.2

Tollway operators are franchise grantees and they do not belong to exceptions (thelow%income radio andLor television broadcasting companies with gross annualincomes of less than 19 million and gas and water utilities& that ection 11= sparesfrom the payment of F!T. (R)NA5! 4. D-A an* AR!RA 0A. 7. 5-0+!6 vs. 5:))CR)5AR= !7 7-NANC), G.R. No. 19$%%, @uly 19, 2%11'

$;



$<

In specically including by way of example electric utilities, telephone, telegraph,and broadcasting companies in its list of F!T%covered businesses, ection 19< opensother companies rendering public service for a fee to the imposition of F!T.Businesses of a public nature such as public utilities and the collection of tolls orcharges for its use or service is a franchise. (R)NA5! 4. D-A an* AR!RA 0A. 7.5-0+!6 vs. 5:) )CR)5AR= !7 7-NANC), G.R. No. 19$%%, @uly 19, 2%11'

In the case of C-R v. Court of Appeals (CA', the -ourt had the occasion to rule thatservices rendered for a fee even on reimbursement%on%cost basis only and withoutrealiing prot are also subject to F!T. In that case, -?C!>7-? rendered service toits aMliates and, in turn, the aMliates paid the former reimbursement%on%cost whichmeans that it was paid the cost or expense that it incurred although without prot.(C!00--!N)R !7 -N5)RNA6 R)4)N) vs. !N= P:-6-PP-N), -NC., G.R.No. 189, Novem#er 1, 2%1%'

!mong those included in the enumeration is the 3lease of motion picture lms, lms, tapesand discs.4 This, however, is not the same as the showing or exhibition of motion picturesor lms. The legislative intent is not to impose F!T on persons already covered by theamusement tax and this holds true even in the case of cinemaLtheater operators taxedunder the AK- of 1==1 precisely because the F!T law was intended to replace thepercentage tax on certain services. (C-R v. 0 Prime :ol*in3s, -n". an* 7irst AsiaRealty Development Corp., G.R. No. 18$/%/, 7e#ruary 2, 2%1%'

a7 Re(ii$e "!r $a#a3ili$14. Jer!-ra$e' ale !" er,ice1:. VAT e#e+p$ $ranac$i!n

!n e;empt transa"tion involves goods or services which, by their nature, arespecically listed in and expressly exempted from the F!T under the Tax -ode,

without regard to the tax status V F!T%exempt or not V of the party to thetransaction. Indeed, such transa"tion is not subject to the F!T, but the seller is notallowed any tax refund of or credit for any input taxes paid. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs. )AGA5) 5)C:N!6!G= (P:-6-PP-N)', G.R. No. 1/$8,7e#ruary 11, 2%%/'

!n e;empt party , on the other hand, is a person or entity granted F!T exemptionunder the Tax -ode, a special law or an international agreement to which thehilippines is a signatory, and by virtue of which its taxable transactions becomeexempt from the F!T. uch party is also not subject to the F!T, but may be alloweda tax refund of or credit for input taxes paid, depending on its registration as a F!Tor non%F!T taxpayer. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs. )AGA5)

5)C:N!6!G= (P:-6-PP-N)', G.R. No. 1/$8, 7e#ruary 11, 2%%/'

a7 VAT e#e+p$ $ranac$i!n in eneral

By extending the exemption to entities or individuals dealing with !K-?7, thelegislature clearly granted exemption also from indirect taxes. It must be noted thatthe indirect tax of F!T, as in the instant case, can be shifted or passed to the buyer,transferee, or lessee of the goods, properties, or services subject to F!T. Thus, byextending the tax exemption to entities or individuals dealing with !K-?7 incasino operations, it is exempting !K-?7 from being liable to indirect taxes.(P:-6-PP-N) A0)0)N5 AND GA0-NG C!RP!RA5-!N (PAGC!R' vs. 5:) +R)A!7 -N5)RNA6 R)4)N), G.R. No. 12%8, 0ar" 1/, 2%11'

The rationale for the exemption from indirect taxes provided for in .:. 1<8= and theextension of such exemption to entities or individuals dealing with !K-?7 in casinooperations are best elucidated from the 1=<; case of Commissioner of -nternalRevenue v. @on Gotam"o & ons, -n"., where the absolute tax exemption of the@orld Gealth ?rganiation (@G?& upon an international agreement was upheld. @eheld in said case that the exemption of contractee @G? should be implemented tomean that the entity or person exempt is the contractor itself who constructed the

$<



$=

building owned by contractee @G?, and such does not violate the rule that taxexemptions are personal because the manifest intention of the agreement is toexempt the contractor so that no contractors tax may be shifted to the contractee@G?. (P:-6-PP-N) A0)0)N5 AND GA0-NG C!RP!RA5-!N (PAGC!R' vs. 5:)+R)A !7 -N5)RNA6 R)4)N), G.R. No. 12%8, 0ar" 1/, 2%11'

awnshops% considered as non%ban' nancial intermediary is exempted from F!Tbut liable to percentage tax. (Tambunting awnshop, Inc. v. -I7, K.7. Do. 1;=9<,

"anuary +1, +919&

37 E#e+p$ $ranac$i!n en(+era$e'1<. Inp($ $a# an' !($p($ $a# 'e&ne'

6nder the present method that relies on invoices, an entity can credit against orsubtract from the F!T charged on its sales or outputs the F!T paid on its purchases,inputs and imports. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs. )AGA5)5)C:N!6!G= (P:-6-PP-N)', G.R. No. 1/$8, 7e#ruary 11, 2%%/'

If at the end of a taxable uarter the output taxes charged by a seller are eual tothe input taxes passed on by the suppliers, no payment is reuired. It is when theoutput taxes exceed the input taxes that the excess has to bepaid. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs. )AGA5) 5)C:N!6!G= (P:-6-PP-N)', G.R. No. 1/$8, 7e#ruary 11, 2%%/'

1>. S!(rce !" inp($ $a#a7 P(rc)ae !r i+p!r$a$i!n !" !!'37 P(rc)ae !" real pr!per$ie "!r *)ic) a VAT )a ac$(all 3een pai'c7 P(rc)ae !" er,ice in *)ic) VAT )a ac$(all 3een pai''7 Tranac$i!n 'ee+e' alee7 Pre(+p$i,e inp($"7 Trani$i!nal inp($

rior payment of taxes is not necessary before a taxpayer could avail of the <Jtransitional input tax credit) rst, it was never mentioned in ection 19 of the oldDI7- Qnow ec. 111R that prior payment of taxes is a reuirement* second, since thelaw (ection 19 of the DI7-& does not provide for prior payment of taxes, to reuireit now would be tantamount to judicial legislation which, to state the obvious, is notallowed* third, a transitional input tax credit is not a tax refund per se but a taxcredit* fourth, if the intent of the law were to limit the input tax to cases whereactual F!T was paid, it could have simply said that the tax base shall be the actualvalue%added tax paid* and fth, this -ourt had already declared that prior payment

of taxes is not reuired in order to avail of a tax credit. ( 7!R5 +!N-7AC-!D)4)6!P0)N5 C!RP!RA5-!N ,. C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No.1$2/, @anuary 22, 2%1$'

ection 11+ of the Tax -ode does not prohibit cash refund or tax credit of transitional input tax in the case of ero%rated or e5ectively ero%rated F!Tregistered taxpayers, who do not have any output F!T. The phrase 2excepttransitional input tax2 in ection 11+ of the Tax -ode was inserted to distinguishcreditable input tax from transitional input tax credit. ( 7!R5 +!N-7AC-!D)4)6!P0)N5 C!RP!RA5-!N ,. C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No.1$2/, @anuary 22, 2%1$'

It is apparent that the transitional input tax credit operates to benet newly F!T%registered persons, whether or not they previously paid taxes in the acuisition of their beginning inventory of goods, materials and supplies. :uring that period of transition from non%F!T to F!T status, the transitional input tax credit serves toalleviate the impact of the F!T on the taxpayer. ( 7!R5 +!N-7AC-! D)4)6!P0)N5 C!RP!RA5-!N ,. C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 1$2/,

@anuary 22, 2%1$'

$=



+

The lessons of this case may be summed up as follows)

!. Two%Hear rescriptive eriod

1. It is only the administrative claim that must be led within the two%yearprescriptive period. (!ichi&

+. The proper rec'oning date for the two%year prescriptive period is the closeof the taxable uarter when the relevant sales were made. (an 7oue&

#. The only other rule is the !tlas ruling, which applied only from < "une +99;to 1+ eptember +99<. !tlas states that the two%year prescriptive period forling a claim for tax refund or credit of unutilied input F!T payments shouldbe counted from the date of ling of the F!T return and payment of the tax.(an 7oue&

B. 1+9S#9 :ay eriod

1. The taxpayer can le an appeal in one of two ways) (1& le the judicialclaim within thirty days after the -ommissioner denies the claim within the1+9%day period, or (+& le the judicial claim within thirty days from theexpiration of the 1+9%day period if the -ommissioner does not act within the1+9%day period.

+. The #9%day period always applies, whether there is a denial or inaction onthe part of the -I7.

#. !s a general rule, the # 9%day period to appeal is both mandatory and jurisdictional. (!ichi and an 7oue&

$. !s an exception to the general rule, premature ling is allowed only if ledbetween 19 :ecember +99# and ?ctober +919, when BI7 7uling Do. :!%$<=%9# was still in force. (an 7oue&

. Aate ling is absolutely prohibited, even during the time when BI7 7ulingDo. :!%$<=%9# was in force. (an 7oue& (C!00--!N)R !7 -N5)RNA6R)4)N) vs. 0-NDANA! -- G)!5:)R0A6 PAR5N)R:-P, G.R. No. 19198,

@anuary 1/, 2%1'

It is indisputable that compliance with the 1+9%day waiting period is mandatory and jurisdictional. Eailure to comply with the 1+9%day waiting period violates amandatory provision of law. It violates the doctrine of exhaustion of administrativeremedies and renders the petition premature and thus without a cause of action,with the e5ect that the -T! does not acuire jurisdiction over the taxpayer0spetition. (0-NDANA! -- G)!5:)R0A6 PAR5N)R:-P vs. C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 19$$%1, 0ar" 11, 2%1$'

tated otherwise, the two%year prescriptive period does not refer to the ling of the judicial claim with the -T! but to the ling of the administrative claim with the-ommissioner. !s held in !ichi, the 2phrase /within two years x x x apply for the

issuance of a tax credit or refund0 refers to applications for refundLcredit with the-I7 and not to appeals made to the -T!.2 (0-NDANA! -- G)!5:)R0A6PAR5N)R:-P vs. C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 19$$%1, 0ar"11, 2%1$'

an 7oues failure to comply with the 1+9%day +an'a$!r period renders itspetition for review with the -T! void as !rticle of the -ivil -ode provides, 2!ctsexecuted against provisions of mandatory or prohibitory laws shall be void, except

+



#

when the law itself authories their validity.2 an 7oues void petition for reviewcannot be legitimied by the -T! or this -ourt because !rticle of the -ivil -odestates that such void petition cannot be legitimied 2except when the law itself authories QitsR validity,2 and there is no law authoriing the petitions validity.(C!00--!N)R !7 -N5)RNA6 R)4)N) vs. AN R!) P!>)R C!RP!RA5-!N,G.R. No. 188/, 7e#ruary 12, 2%1$'

ec. 11+(!& clearly provides in no uncertain terms that unutilied input F!Tpayments not otherwise used for any internal revenue tax due the taxpayer mustbe claimed within two years rec!ne' "r!+ $)e cl!e !" $)e $a#a3le (ar$er*)en $)e rele,an$ ale *ere +a'e per$ainin $! $)e inp($ VAT rear'le!" *)e$)er ai' $a# *a pai' !r n!$. The rec'oning frame would always be theend of the uarter when the pertinent sales or transaction was made, regardlesswhen the input F!T was paid. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs. 0-RAN5 PAG+-6A! C!RP!RA5-!N, G.R. No. 12129. eptem#er 12, 2%%8'

This prescriptive period has no relation to the date of payment of the

2excess2 input F!T since the 2excess2 input F!T may have been paid for more thantwo years but this does not bar the ling of a judicial claim for 2excess2 F!T underection 11+ (!&, which has a di5erent rec'oning period from ection ++=. Coreover,the person claiming the refund or credit of the input F!T is not the person wholegally paid the input F!T. (C!00--!N)R !7 -N5)RNA6 R)4)N) vs. AN R!)P!>)R C!RP!RA5-!N, G.R. No. 188/, 7e#ruary 12, 2%1$'

The mere ling by a taxpayer of a judicial claim with the -T! before the expirationof the 1+9%day period cannot operate to divest the -ommissioner of his jurisdictionto decide an administrative claim within the 1+9%day mandatory period, unless the-ommissioner has clearly given cause for euitable estoppel to apply as expresslyrecognied in ection +$8 of the Tax -ode. (C!00--!N)R !7 -N5)RNA6 R)4)N)

vs. AN R!) P!>)R C!RP!RA5-!N, G.R. No. 188/, 7e#ruary 12, 2%1$'

Because the 1+9S#9 day period is jurisdictional, the issue of whether petitionercomplied with the said time frame may be broached at any stage, even on appeal.(N-PP!N )?PR) (P:-6-PP-N)' C!RP!RA5-!N vs. C!00--!N)R !7 -N5)RNA6R)4)N), G.R. No. 199%, 0ar" 1$, 2%1$'

c7 Manner !" i,in re"(n''7 %e$ina$i!n principle !r cr!-3!r'er '!c$rine22. In,!icin re(ire+en$

Eor a judicial claim for refund to prosper, however, respondent must not only provethat it is a F!T registered entity and that it led its claims within the prescriptiveperiod. -t must substantiate te input 4A5 pai* #y pur"ase invoices or ofcial receipts) 1& ! 2sales or commercial invoice2 is a written account of goods sold orservices rendered indicating the prices charged therefor or a list by whatever nameit is 'nown which is used in the ordinary course of business evidencing sale andtransfer or agreement to sell or transfer goods and services* and +& ! 2receipt2 onthe other hand is a written ac'nowledgment of the fact of payment in money orother settlement between seller and buyer of goods, debtor or creditor, or personrendering services and client or customer. (A56A C!N!6-DA5)D 0-N-NG ANDD)4)6!P0)N5 C!RP!RA5-!N vs. C!00--!N)R !7 -N5)RNA6 R)4)N), G.R.Nos. 111% & 18$, @une 8, 2%%'

a7 In,!icin re(ire+en$ in eneral

The reuisite that the receipt be issued showing the name, business style, if any,and address of the purchaser, customer or client is precise so that when the boo'sof accounts are subjected to a tax audit examination, all entries therein could beshown as adeuately supported and proven as legitimate business transactions. Theabsence of oMcial receipts issued in the taxpayers name is tantamount to non%

#



$

compliance with the substantiation reuirements provided by law. (+!N-7AC-!>A5)R C!RP!RA5-!N (formerly +!N-7AC-! 4-4)ND- >A5)R C!RP!RA5-!N' vs. 5:)C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 1/12, @uly 22, 2%1$'

Taxpayers claiming for a refund or tax credit certicate must comply with the strictand mandatory invoicing and accounting reuirements provided under the 1==;

DI7-, as amended, and its implementing rules and regulations. Thus, the change of petitioners name to 2Bonifacio K:> @ater -orporation,2 being unauthoried andwithout approval of the >-, and the issuance of oMcial receipts under that namewhich were presented to support petitioners claim for tax refund, cannot be used toallow the grant of tax refund or issuance of a tax credit certicate in petitionersfavor. (+!N-7AC-! >A5)R C!RP!RA5-!N (formerly +!N-7AC-! 4-4)ND- >A5)RC!RP!RA5-!N' vs. 5:) C!00--!N)R !7 -N5)RNA6 R)4)N), G.R. No. 1/12,

@uly 22, 2%1$'

Eailure to print the word 3ero%rated4 on the invoices or receipts is fatal to a claimfor credit of refund of input F!T on ero%rated sales (".7.!. hilippines, Inc. v. -I7,K.7. Do. 1;;1+;, ?ctober 11, +919&

If the claim for refundL tax credit certicate is based on the existence of ero%ratedsales by the taxpayer but it fails to comply with the invoicing reuirements in theissuance of sales invoices (e.g. failure to indicate the TID&, its claim for taxcreditLrefund of F!T on its purchases shall be denied considering that the invoice itis issuing to its customers does not depict its being a F!T%registered taxpayer whosesales are classied as ero%rated sales. Donetheless, this treatment is withoutprejudice to the right of the taxpayer to charge the input taxes to the appropriateexpense account or asset account subject to depreciation, whichever is applicable(anasonic -omm. Imaging -orp. of the hil. v. -I7, K.7. Do. 1;<9=9, Eebruary <,+919&

37 In,!icin an' rec!r'in 'ee+e' ale $ranac$i!nc7 C!ne(ence !" i(in err!ne!( VAT in,!ice !r VAT !cial receip$2. ilin !" re$(rn an' pa+en$24. Wi$))!l'in !" &nal VAT !n ale $! !,ern+en$

TAX REME%IES DN%ER T9E NIRCa7 Ae+en$

!n assessment contains not only a computation of tax liabilities, but also ademand for payment within a prescribed period. It also signals the time whenpenalties and protests begin to accrue against the taxpayer. To enable thetaxpayer to determine his remedies thereon, due process reuires that itmust be served on and received by the taxpayer. !ccordingly, an aMdavit,which was executed by revenue oMcers stating the tax liabilities of ataxpayer and attached to a criminal complaint for tax evasion, cannot bedeemed an assessment that can be uestioned before the -ourt of Tax!ppeals. (C-R vs Pas"or Realty an* Development Corp., GR no. 128$1/, @une29, 1999&

6i7 C!ncep$ !" ae+en$6a7 Re(ii$e "!r ,ali' ae+en$637 C!n$r(c$i,e +e$)!' !" inc!+e 'e$er+ina$i!n

The rule is that in the absence of the accounting records of a

taxpayer, his tax liability may be determined by estimation. Thepetitioner is not reuired to compute such tax liabilities withmathematical exactness. !pproximation in the calculation of thetaxes due is justied. To hold otherwise would be tantamount toholding that s'illful concealment is an invincible barrier toproof. Gowever, the rule does not apply where the estimation isarrived at arbitrarily and capriciously. In ne, then, the petitioneracted arbitrarily and capriciously in relying on and giving weight

$



to the machine copies of the -onsumption >ntries in xing thetax deciency assessments against the respondent. (C-R vs:ante; 5ra*in3 Co., GR no. 1$9/, 0ar" $1, 2%%/&

The 2best evidence2 envisaged in ection 18 of the 1=;; DI7-Qnow ec. 8, 1==; DI7-R, as amended, includes the corporateand accounting records of the taxpayer who is the subject of theassessment process, the accounting records of other taxpayersengaged in the same line of business, including their gross protand net prot sales. The law allows the BI7 access to all relevantor material records and data in the person of the taxpayer. Itplaces no limit or condition on the type or form of the mediumby which the record subject to the order of the BI7 is 'ept. Thepurpose of the law is to enable the BI7 to get at the taxpayer0srecords in whatever form they may be 'ept. uch recordsinclude computer tapes of the said records prepared by thetaxpayer in the course of business.8< In this era of developinginformation%storage technology, there is no valid reason toimmunie companies with computer%based, record%'eepingcapabilities from BI7 scrutiny. 5e stan*ar* is not te form of te re"or* #ut ere it mi3t se* li3t on te a""ura"y of teta;payers return. Gowever, the best evidence obtainable underection 18 of the 1=;; DI7- Qnow ec. 8, 1==; DI7-R, asamended, does not include mere photocopies of recordsLdocuments. The petitioner, in ma'ing a preliminary andnal tax deciency assessment against a taxpayer, cannotanchor the said assessment on mere machine copies of recordsLdocuments. Cere photocopies of the -onsumption>ntries have no probative weight if o5ered as proof of thecontents thereof. (C-R vs :ante; 5ra*in3 Co., GR no. 1$9/,0ar" $1, 2%%/&

6c7 In,en$!r +e$)!' "!r inc!+e 'e$er+ina$i!n6'7 8e!par' ae+en$6e7 Ta# 'elin(enc an' $a# 'e&cienc

6ii7 P!*er !" $)e C!++ii!ner $! +ae ae+en$ an' precri3ea''i$i!nal re(ire+en$ "!r $a# a'+ini$ra$i!n an' en"!rce+en$

6a7P!*er !" $)e C!++ii!ner $! !3$ain in"!r+a$i!n an' $!(++!n/e#a+ine an' $ae $e$i+!n !" per!n

Eor the purpose of safeguarding taxpayers from any unreasonableexamination, investigation or assessment, our tax law provides astatute of limitations in the collection of taxes. Thus, the law on

prescription, being a remedial measure, should be liberallyconstrued in order to a5ord such protection. !s a corollary, theexceptions to the law on prescription should perforce be strictlyconstrued. ec. 1 of the DI7-, on the other hand, provides that2QwRhen a report reuired by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming withinthe time xed by law or regulation, or when there is reason tobelieve that any such report is false, incomplete, or erroneous, the-ommissioner of Internal 7evenue shall assess the proper tax onthe best evidence obtainable.2 -learly, ection 1 does not providean exception to the statute of limitations on the issuance of anassessment, by allowing the initial assessment to be made on the

basis of the best evidence available. Gaving made its initialassessment in the manner prescribed, the commissioner could nothave been authoried to issue, beyond the ve%year prescriptiveperiod, the second and the third assessments under considerationbefore us. (C-R vs +7 Goo*ri" Pils., -n"., GR no. 1%11, 7e#ruary 2, 1999&

6iii7 W)en ae+en$ i +a'e

http://www.lawphil.net/judjuris/juri2005/mar2005/gr_136975_2005.html#fnt68

http://www.lawphil.net/judjuris/juri2005/mar2005/gr_136975_2005.html#fnt68



8

!n assessment is deemed made only when the collector of internalrevenue releases, mails or sends such notice to the taxpayer. (C-R vsPas"or Realty an* Development Corp., GR no. 128$1/, @une 29, 1999&6a7Precrip$i,e peri!' "!r ae+en$

The statute of limitations on assessment and collection of taxes isfor the protection of the taxpayer and, thus, shall be construed

liberally in his favor. Though the statute of limitations onassessment and collection of national internal revenue taxesbenets both the Kovernment and the taxpayer, it principallyintends to a5ord protection to the taxpayer against unreasonableinvestigation. The indenite extension of the period for assessmentis unreasonable because it deprives the said taxpayer of theassurance that he will no longer be subjected to furtherinvestigation for taxes after the expiration of a reasonable period of time. (+P- vs C-R, GR 1$9$, !"to#er 1, 2%%/&

Both !rticle 1# of the -ivil -ode and ection #1, -hapter FIII, Boo'I of the !dministrative -ode of 1=<; deal with the same subject

matter V the computation of legal periods. 6nder the -ivil -ode, ayear is euivalent to #8 days whether it be a regular year or a leapyear. 6nder the !dministrative -ode of 1=<;, however, a year iscomposed of 1+ calendar months. Deedless to state, under the!dministrative -ode of 1=<;, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of computing legal periods under the -ivil -ode and the!dministrative -ode of 1=<;. Eor this reason, we hold that ection#1, -hapter FIII, Boo' I of the !dministrative -ode of 1=<;, beingthe more recent law, governs the computation of legal periods. (C-Rvs Primeton Property Group -n"., GR 121//, Au3ust 28, 2%%&

-onsidering that the deciency assessment was based on theamended return which, as aforestated, is substantially di5erentfrom the original return, the period of limitation of the right to issuethe same should be counted from the ling of the amended incometax return. @e believe that to hold otherwise, we would be pavingthe way for taxpayers to evade the payment of taxes by simplyreporting in their original return heavy losses and amending thesame more than ve years later when the -ommissioner of Internal7evenue has lost his authority to assess the proper tax thereunder.

The object of the Tax -ode is to impose taxes for the needs of theKovernment, not to enhance tax avoidance to its prejudice. (C-R vsPoeni; Assuran"e Co., 61912, 0ay 2%, 19/&

! waiver of the statute of limitations under the DI7-, to a certainextent, is a derogation of the taxpayers0 right to security againstprolonged and unscrupulous investigations and must therefore becarefully and strictly construed. The waiver of the statute of limitations is not a waiver of the right to invo'e the defense of prescription as erroneously held by the -ourt of !ppeals. It is anagreement between the taxpayer and the BI7 that the period toissue an assessment and collect the taxes due is extended to a datecertain. The waiver does not mean that the taxpayer relinuishesthe right to invo'e prescription uneuivocally particularly where thelanguage of the document is euivocal. The @aiver of tatute of Aimitations, signed by petitioner0s comptroller on eptember ++,1==; is not valid and binding because it does not conform with theprovisions of 7C? Do. +9%=9. It did not specify a denite agreeddate between the BI7 and petitioner, within which the former mayassess and collect revenue taxes. Thus, petitioner0s waiver becameunlimited in time, violating ection +++(b& of the DI7-. (hilippine

"ournalists, Inc vs -I7, K7 18+<+, :ecember 18, +99$&

8



;

The waiver reuired under the Tax -ode is one which is notunilateral nor can it be said that concurrence to such agreement isa mere formality because it is the very signatures of both the-ommissioner and the taxpayer which give birth to such validagreement. (-I7 v. -!, K.7. 11;1+, Eeb. +, 1===&

! waiver of the statute of limitations being a derogation of thetaxpayer0s right to security against prolonged and unscrupulousinvestigations must be carefully and strictly construed. (-I7 v. ECE:ev0t -orp., 8 -7! 8=<&

The reuirement to furnish the taxpayer a copy of the waiver of thetatute of Aimitations is not only to give notice of the existence of the document but of the acceptance by the BI7 and the perfectionof the agreement. (hil. "ournalists, Inc. v. -I7, K7 18+<+, :ec. 18,+99$&

617ale "ra('(len$ an' n!n-&lin !" re$(rnetitioner insists that private respondent committed 2falsity2when it sold the property for a price lesser than its declared fairmar'et value. This fact alone did not constitute a false returnwhich contains wrong information due to mista'e, carelessnessor ignorance. 1 It is possible that real property may be sold forless than adeuate consideration for a #ona H*e businesspurpose* in such event, the sale remains an 2arms length2transaction. In the present case, the private respondent wascompelled to sell the property even at a price less than itsmar'et value, because it would have lost all ownership rightsover it upon the expiration of the parity amendment. (C-R vs +7 Goo*ri" Pils., -n"., GR no. 1%11, 7e#ruary 2, 1999'

Eraud cannot be presumed but must be proven. !s a corollarythereto, we can also state that fraudulent intent could not bededuced from mista'es however freuent they may be,especially if such mista'es emanate from erroneous entries orerroneous classication of items in accounting methods utiliedfor determination of tax liabilities. The lower courts conclusionregarding the existence of fraudulent intent to evade paymentof taxes was based merely on a presumption and not onevidence establishing a willful ling of false and fraudulentreturns so as to warrant the imposition of the fraud penalty. Thefraud contemplated by law is actual and not constructive. Itmust be intentional fraud, consisting of deception willfully anddeliberately done or resorted to in order to induce another togive up some legal right. Degligence, whether slight or gross, isnot euivalent to the fraud with intent to evade the taxcontemplated by the law. ( AFnar vs C5A, GR 62%/9, Au3ust 2$,19&

(b) S(peni!n !" r(nnin !" $a$($e !" li+i$a$i!n

etitioners also argue that the government0s right to assess andcollect the subject tax had prescribed. etitioners admitted in their

Cotion for 7econsideration before the -ourt of !ppeals that thepool changed its address, for they stated that the pool0s informationreturn led in 1=<9 indicated therein its 3present address.4 The-ourt nds that this falls short of the reuirement of ection ###Qnow section ++#R of the DI7- for the suspension of the prescriptiveperiod. The law clearly states that the said period will besuspended only 3if the taxpayer informs the -ommissioner of Internal 7evenue of any change in the address.4 ( AHs"o -nsuran"e

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the test of judicial scrutiny, the assessment must be based on actualfacts. (C-R vs -slan* Garment 0anufa"turin3 Co., GR 6,eptem#er 11, 1987

Taxpayers shall be informed in writing of the law and the facts onwhich the assessment is made, otherwise, the assessment shall be

void. The old reuirement of merely notifying the taxpayer of the -I70sndings was changed in 1==< to inform the taxpayer of not only thelaw but also the facts on which an assessment would be made. Eailureto comply with ec. ++< of the Tax -ode does not only render theassessment void, but also nds no validation in any provision in the Tax-ode. (-I7 vs. 7eyes, $<9 -7! #<+&

! taxpayer must be informed in writing of the legal and factual basesof the tax assessment made against him. This is a mandatoryreuirement. The advice of a tax deciency given by the -I7 to anemployee of >nron as well as the preliminary %day letter notice, werenot valid substitutes for the mandatory notice in writing of the legaland factual bases of the assessment. ec. ++< of the DI7- reuiresthat the legal and factual bases be stated in the formal letter of demand and assessment notice. ?therwise the law and 77 1+%==would be rendered nugatory. In view of the absence of a fairopportunity for >nron to be informed of the bases of the assessment,the assessment was void. This is a reuirement of due process. (-I7 v.>nron ubic ower -orp. ; -7! +1+&

6i7 %ip($e' ae+en$657 A'+ini$ra$i,e 'ecii!n !n a 'ip($e' ae+en$

The authority to ma'e tax assessments may be delegated tosubordinate oMcers. aid assessment has the same force and e5ect asthat issued by the -ommissioner himself, if not reviewed or revised bythe latter. (!"eani" Netor >ireless -n"., GR 18$8%, De"em#er 9,2%%/&

6,i7 Pr!$e$in ae+en$6a7 Pr!$e$ !" ae+en$ 3 $a#paer

617 Pr!$e$e' ae+en$627 W)en $! &le a pr!$e$67 !r+ !" pr!$e$

This -ourt had consistently ruled in a number of cases that a

reuest for reconsideration or reinvestigation by the taxpayer,without a valid waiver of the prescriptive periods for theassessment and collection of tax, as reuired by the Tax -odeand implementing rules, will not suspend the running thereof.(+P- vs C-R, GR 1$9$, !"to#er 1, 2%%/&

It bears to emphasie that under ection ++$ of the Tax -ode of 1=;;, as amended, the running of the prescriptive period forcollection of taxes can only be suspended by a reEuest for reinvesti3ation, not a reuest for reconsideration. 6ndoubtedly,a reinvestigation, which entails the reception and evaluation of additional evidence, will ta'e more time than a reconsideration

of a tax assessment, which will be limited to the evidencealready at hand* this justies why the former can suspend therunning of the statute of limitations on collection of the assessedtax, while the latter can not. (+P- vs C-R, GR 1$9$, !"to#er 1, 2%%/&

647 C!n$en$ an' ,ali'i$ !" pr!$e$

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637 S(3+ii!n !" '!c(+en$ *i$)in <0 'a "r!+ &lin !" pr!$e$etitioner cannot insist on the submission of proof of :T paymentbecause such document does not exist as respondent claims that it isnot liable to pay, and has not paid, the :T on the deposit onsubscription. The term 3relevant supporting documents4 should be

understood as those documents necessary to support the legal basis indisputing a tax assessment as determined by the taxpayer. The BI7can only inform the taxpayer to submit additional documents. The BI7cannot demand what type of supporting documents should besubmitted. ?therwise, a taxpayer will be at the mercy of the BI7,which may reuire the production of documents that a taxpayer cannotsubmit. (C-R vs 7irst );press Pansop Company, GR 12%/, @une1, 2%%9&

6c7E=ec$ !" "ail(re $! pr!$e$ The rule is that for the -ourt of Tax !ppeals to acuire jurisdiction, anassessment must rst be disputed by the taxpayer and ruled upon by

the -ommissioner of Internal 7evenue to warrant a decision from whicha petition for review may be ta'en to the -ourt of Tax !ppeals. @herean adverse ruling has been rendered by the -ommissioner of Internal7evenue with reference to a disputed assessment or a claim for refundor credit, the taxpayer may appeal the same within thirty (#9& daysafter receipt thereof. ! reuest for reconsideration must be madewithin thirty (#9& days from the taxpayer0s receipt of the tax deciencyassessment, otherwise, the decision becomes nal, unappealable andtherefore, demandable. ! tax assessment that has become nal,executory and enforceable for failure of the taxpayer to assail thesame as provided in ection ++< can no longer be contested. (!"eani"Netor >ireless -n"., GR 18$8%, De"em#er 9, 2%%/'

6'7 Peri!' pr!,i'e' "!r $)e pr!$e$ $! 3e ac$e' (p!n6,ii7 Ren'i$i!n !" 'ecii!n 3 C!++ii!ner

6a7 %enial !" pr!$e$7ecords show that petitioner disputed the !D but not the Eormal Aetter of :emand with !ssessment Dotices. Devertheless, we cannot blamepetitioner for not ling a protest against the Eormal Aetter of :emand with!ssessment Dotices since the language used and the tenor of the demandletter indicate that it is the nal decision of the respondent on thematter. @e have time and again reminded the -I7 to indicate, in a clear anduneuivocal language, whether his action on a disputed assessmentconstitutes his nal determination thereon in order for the taxpayerconcerned to determine when his or her right to appeal to the tax courtaccrues. Fiewed in the light of the foregoing, respondent is now estoppedfrom claiming that he did not intend the Eormal Aetter of :emand with!ssessment Dotices to be a nal decision. (!llied Ban'ing -orporation vs-I7, K.7. Do. 1;9=; Eebruary , +919&

617 C!++ii!ner ac$i!n e(i,alen$ $! 'enial !" pr!$e$

The reuest for reinvestigation and reconsideration was ine5ect considered denied by petitioner when the latterled a civil suit for collection of deciency income. 6nderthe circumstances, the -ommissioner of Internal 7evenue,not having clearly signied his nal action on the disputedassessment, legally the period to appeal has notcommenced to run. Thus, it was only when privaterespondent received the summons on the civil suit forcollection of deciency income on :ecember +<, 1=;<that the period to appeal commenced to run. (C-R vsnion ippin3 Corporation, GR 61%, 0ay 21, 199%&

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prescriptive period for collection of an assessed tax, because it mayonly be upon the service of the @arrant that the taxpayer is informedof the denial by the BI7 of any pending protest of the said taxpayer,and the resolute intention of the BI7 to collect the tax assessed. (+P-vs C-R, GR 1$9$, !"to#er 1, 2%%/&

@hile we may agree with the -ourt of Tax !ppeals that a mere reuest forreexamination or reinvestigation may not have the e5ect of suspending therunning of the period of limitation for in such case there is need of a writtenagreement to extend the period between the -ollector and the taxpayer,there are cases however where a taxpayer may be prevented from settingup the defense of prescription even if he has not previously waived it inwriting as when by his repeated reuests or positive acts the Kovernmenthas been, for good reasons, persuaded to postpone collection to ma'e himfeel that the demand was not unreasonable or that no harassment orinjustice is meant by the Kovernment. (C-R vs <u*os 0etal Corp., GR18%8, 0ay /, 2%1%&

The running of the prescription period where the acts of the taxpayerdid not prevent the government from collecting the tax. artialpayment would not prevent the government from suing thetaxpayer. Because, by such act of payment, the government is notthereby 3persuaded to postpone collection to ma'e him feel that thedemand was not unreasonable or that no harassment or injustice ismeant.4 (C-R vs Pilippine Glo#al Communi"ation, GR 11, !"to#er $1, 2%%&

The act of reuesting a reinvestigation alone does not suspend theperiod. The reuest should rst be granted, in order to e5ectsuspension. The burden of proof that the taxpayer0s reuest forreinvestigation had been actually granted shall be on respondent BI7-ommissioner. The grant may be expressed in communications withthe taxpayer or implied from the actions of the respondent BI7-ommissioner or his authoried BI7 representatives in response to thereuest for reinvestigation. (+P- vs C-R, GR 1$9$, !"to#er 1, 2%%/& 6iii7 %i$rain$ !" per!nal pr!per$ incl('in arni)+en$

The prohibition against examination of or inuiry into a ban' depositunder 7epublic !ct 1$9 does not preclude its being garnished toinsure satisfaction of a judgment. Indeed there is no real inuiry insuch a case, and if existence of the deposit is disclosed the disclosureis purely incidental to the execution process. It is hard to conceive thatit was ever within the intention of -ongress to enable debtors to evadepayment of their just debts, even if ordered by the -ourt, through theexpedient of converting their assets into cash and depositing the samein a ban'. (PC-+ vs CA, GR 8/2, @anuary 28, 1991&

6a7 S(++ar re+e' !" 'i$rain$ !" per!nal pr!per$617 P(rc)ae 3 $)e !,ern+en$ a$ ale (p!n'i$rain$627 Rep!r$ !" ale $! $)e B(rea( !" In$ernalRe,en(e 6BIR767 C!n$r(c$i,e 'i$rain$ $! pr!$ec$ $)e in$ere$ !" $)e !,ern+en$

6i,7 S(++ar re+e' !" le, !n real pr!per$6a7 A',er$ie+en$ an' ale637 Re'e+p$i!n !" pr!per$ !l'6c7 inal 'ee' !" p(rc)aer

6,7 !r"ei$(re $! !,ern+en$ "!r *an$ !" 3i''er6a7 Re+e' !" en"!rce+en$ !" "!r"ei$(re

617 Ac$i!n $! c!n$e$ "!r"ei$(re !" c)a$$el637 Reale !" real e$a$e $aen "!r $a#e

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6c7 W)en pr!per$ $! 3e !l' !r 'e$r!e'6'7 %ip!i$i!n !" "(n' rec!,ere' in leal pr!cee'in !r!3$aine' "r!+ "!r"ei$(re

6,i7 (r$)er 'i$rain$ !r le,6,ii7 Ta# lienIt is settled that the claim of the government predicated on a tax lien is

superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became dueand payable. Besides, the distraint on the subject properties of Caritime -ompany of the hilippines as well as the notice of theirseiure were made by petitioner, through the -ommissioner of Internal7evenue, long before the writ of execution was issued by the 7egional

Trial -ourt. (Repu#li" vs )nriEueF, GR 8$91, !"to#er 21, 1988&6,iii7 C!+pr!+ie

6a7 A($)!ri$ !" $)e C!++ii!ner $! c!+pr!+ie an'a3a$e $a#e

6i#7 Ci,il an' cri+inal ac$i!n

6a7 S(i$ $! rec!,er $a# 3ae' !n "ale !r "ra('(len$re$(rn

The contention is made, and is here rejected, that anassessment of the deciency tax due is necessary before thetaxpayer can be prosecuted criminally for the charges preferred.

The crime is complete when the violator has, as in this case,'nowingly and willfully led fraudulent returns with intent toevade and defeat a part or all of the tax. @hile there can be nocivil action to enforce collection before the assessmentprocedures provided in the -ode have been followed, there is noreuirement for the precise computation and assessment of thetax before there can be a criminal prosecution under the -ode.(n3a# vs Cusi @r., GR 619192, 0ay $%, 198%&

ec. +8= Qnow ec. +++ of the 1==; DI7-R provides that whenfraudulent tax returns are involved, a proceeding in court afterthe collection of such tax may be begun without assessment.

The gross disparity in the taxes due and the amounts actuallydeclared constitutes badges of fraud. !pplying 6ngab v. -usi, =;-7! <;; Q1=<9R, assessment is not necessary in ling criminalcomplaints for tax violations. !ssessment of a deciency is notnecessary to a criminal prosecution for tax evasion. The crime iscomplete when the violator 'nowingly and willfully ledfraudulent return with intention to evade the tax. (!damson v.-ourt of !ppeals, << -7! +;&

c7 Re"(n'! corporation entitled to a tax credit or refund of the excess estimateduarterly income taxes paid has two options) (1& to carry over the excesscredit or (+& to apply for the issuance of a tax credit certicate or to claim acash refund. If the option to carry over the excess credit is exercised, thesame shall be irrevocable for that taxable period. This is 'nown as theirrevocability rule and is embodied in the last sentence of ection ;8 of the

Tax -ode. (ystra Pilippines vs C-R, GR 129%, eptem#er 21, 2%%&

No refun* for *o"umentary stamp ta;es) documentary stamp taxes are leviedon the exercise by persons of certain privileges conferred by law for thecreation, revision, or termination of specic legal relationships through theexecution of specic instruments. :ocumentary stamp taxes are thus leviedon the exercise of these privileges through the execution of specicinstruments, independently of the legal status of the transactions giving risethereto. The documentary stamp taxes must be paid upon the issuance of the

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ection +#9 Qnow ec. ++=, 1==; DI7-R of the Tax -ode, ascouched, particularly its statute of limitations component, is, incontext, intended to apply to suits for the recovery of internalrevenue taxes or sums erroneously, excessively, illegally orwrongfully collected. Blac' denes the term erroneous or ille3al

ta; as one levied without statutory authority. In the strict legalviewpoint, therefore, DB0s claim for tax credit did not proceedfrom, or is a conseuence of overpayment of tax erroneously orillegally collected. It is beyond cavil that respondent DB issuedto the BI7 the chec' for 1<9 Cillion in the concept of taxpayment in advance, thus eschewing the notion that there waserror or illegality in the payment. (C-R vs PN+, GR 1199,!"to#er 2/, 2%%/&

@henever applicable, the two%year prescriptive period startsfrom the full and Hnal payment of the tax sought to berecovered. (Con"urrin3 opinion of @usti"e 4itu3 in C-R vs 5e

Pilippine Ameri"an 6ife -nsuran"e Co., G.R. No. 1%/2%8, 0ay 29, 199/&

Eor corporations, the two%year prescriptive period within whichto claim a refund commences to run, at the earliest, on the dateof the ling of the adjusted nal tax return. The rationale incomputing the two%year prescriptive period with respect to thepetitioner corporations claim for refund from the time it led itsnal adjustment return is the fact that it was only then that!--7!ID could ascertain whether it made prots or incurredlosses in its business operations. ( ACCRA -nvestments vs CA,G.R. No. 9$22, De"em#er 2%, 1991& >ven if the two (+&%year prescriptive period, if applicable, hadalready lapsed, the same is not jurisdictional and may besuspended for reasons of euity and other specialcircumstances. 7ecords show that the BI70s very own conductled DB to believe all along that its original intention to applythe advance payment to its future income tax obligations will berespected by the BI7. (C-R vs PN+, GR 1199, !"to#er 2/,2%%/&

The claim for refund with the -ommissioner of Internal 7evenueand the subseuent action before the -ourt of Tax !ppealsregarding the refund should all be done within the said period of two years. (C-R vs NPC, G.R. No. 6188 @anuary $%, 19%&

6iii7 Leal 3ai !" $a# re"(n'6i,7 S$a$($!r 3ai "!r $a# re"(n' (n'er $)e $a# c!'e

6a7 Sc!pe !" clai+ "!r re"(n'637 Necei$ !" pr!!" "!r clai+ !r re"(n'6c7 B(r'en !" pr!!" "!r clai+ !" re"(n'

Tax refunds, li'e tax exemptions, are construed strictly againstthe taxpayer. The claimants have the burden of proof toestablish the factual basis of their claim for refund or tax credit.(:ita"i Glo#al vs C-R, G.R. No. 1212, !"to#er 2%, 2%1%&

The -ommissioner0s contention that a tax refund parta'es thenature of a tax exemption does not apply to the tax refund towhich Eortune Tobacco is entitled. There is parity between taxrefund and tax exemption only when the former is based eitheron a tax exemption statute or a tax refund statute. ?bviously,that is not the situation here. Xuite the contrary, Eortune

Tobaccos claim for refund is premised on its erroneous payment

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of the tax, or better still the government0s exaction in theabsence of a law. (C-R vs 7ortune 5o#a""o Corp., GR 12/,

@uly 21, 2%%8&6'7 Na$(re !" err!ne!(l-pai' $a#/illeall aee'c!llec$e'6e7 Ta# re"(n' ,i-H-,i $a# cre'i$

Eormally, a tax refund reuires a physical return of the sumerroneously paid by the taxpayer, while a tax credit involves theapplication of the reimbursable amount against any sum thatmay be due and collectible from the taxpayer. ?n the practicalside, the taxpayer to whom the tax is refunded would have theoption, among others, to invest for prot the returned sum, anoption not proximately available if the taxpayer chooses insteadto receive a tax credit. (C-R vs Pilippine Pospate 7ertiliFer Corporation, G.R. No. 1%, eptem#er 1, 2%%&6"7 Een$ial re(ii$e "!r clai+ !" re"(n'

6,7 W)! +a clai+/appl "!r $a# re"(n'/$a# cre'i$6a7 Ta#paer/*i$))!l'in aen$ !" n!n-rei'en$ "!rein

c!rp!ra$i!n The proper party to uestion, or see' a refund of an indirect taxis the statutory taxpayer, the person on whom the tax isimposed by law and who paid the same even if he shifts theburden thereof to another. >ven if etron -orporation passed onto il'air the burden of the tax, the additional amount billed toil'air for jet fuel is not a tax but part of the price which il'airhad to pay as a purchaser. (ilair vs C-R, G.R. Nos. 11$8$ &12$9, Novem#er 1, 2%%8&

! withholding agent is a proper party to claim tax refund. Ge is3liable to pay the tax4 3and subject to tax.4 The withholdingagent is constituted the agent of both the Kovernment and thetaxpayer. @ith respect to the collection andLor withholding of the tax, he is the Kovernments agent. In regard to the ling of the necessary income tax return and the payment of the tax tothe Kovernment, he is the agent of the taxpayer. (C-R vs Pro"ter & Gam#le, GR 68$8, De"em#er 2, 1991&

6,i7 Precrip$i,e peri!' "!r rec!,er !" $a# err!ne!(l !rilleall c!llec$e'6,ii7 O$)er c!ni'era$i!n a=ec$in $a# re"(n'

2. G!,ern+en$ re+e'iea7 A'+ini$ra$i,e re+e'ie

6i7 Ta# lien6ii7 Le, an' ale !" real pr!per$6iii7 !r"ei$(re !" real pr!per$ $! $)e !,ern+en$ "!r *an$ !" 3i''er6i,7 (r$)er 'i$rain$ an' le,6,7 S(peni!n !" 3(ine !pera$i!n6,i7 N!n-a,aila3ili$ !" in5(nc$i!n $! re$rain c!llec$i!n !" $a#

The Dational Internal 7evenue -ode of 1==; (DI7-& expressly providesthat no court shall have the authority to grant an injunction to restrainthe collection of any national internal revenue tax, fee or chargeimposed by the code. The situation, however, is di5erent in the case of the collection of local taxes as there is no express provision in the AK-prohibiting courts from issuing an injunction to restrain localgovernments from collecting taxes. uch statutory lapse or intent,however it may be viewed, may have allowed preliminary injunctionwhere local taxes are involved but cannot negate the procedural rulesand reuirements under 7ule <. ( An3eles City vs. An3eles City )le"tri"Corp., GR 11$, @une 29, 2%1%&

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37 8('icial re+e'ie

. S$a$($!r !=ene an' penal$iea7 Ci,il penal$ieIt is mandatory to collect penalty and interest at the stated rate in case of delinuency. The intention of the law is to discourage delay in the payment of

taxes due the Kovernment and, in this sense, the penalty and interest are notpenal but compensatory for the concomitant use of the funds by the taxpayerbeyond the date when he is supposed to have paid them to theKovernment. If penalties could be condoned for Oimsy reasons, the lawimposing penalties for delinuencies would be rendered nugatory, and themaintenance of the Kovernment and its multifarious activities will beadversely a5ected. (Pilippine ReHnin3 Company vs. CA, GR 1189, 0ay 8,199&

The taxpayer should be liable only for ta; proper and should not be heldliable for the surcharge and interest when it appears that the assessment ishighly controversial. The -ommissioner at the outset was not certain as to

petitioners income tax liability. (Ca3ayan )le"tri" Poer 6i3t vs C-R, G.R. No.6%12, eptem#er 2/, 198/&

6i7 S(rc)are6ii7 In$ere$

6a7 In eneral637 %e&cienc in$ere$6c7 %elin(enc in$ere$6'7 In$ere$ !n e#$en'e' pa+en$

4. C!+pr!+ie an' a3a$e+en$ !" $a#ea7 C!+pr!+ie-ompromise may be the favored method to settle disputes, but when itinvolves taxes, it may be subject to closer scrutiny by the courts. !compromise agreement involving taxes would a5ect not just the taxpayerand the BI7, but also the whole nation, the ultimate beneciary of the taxrevenues collected. (PN!C vs CA, G.R. No. 1%99, April 2, 2%%/&

The discretionary authority to compromise granted to the BI7 -ommissioneris never meant to be absolute, uncontrolled and unrestrained. Do suchunlimited power may be validly granted to any oMcer of the government,except perhaps in cases of national emergency. The BI7 -ommissioner wouldhave to exercise his discretion within the parameters set by the law, and incase he abuses his discretion, the -T! may correct such abuse if the matter isappealed to them. (PN!C vs CA, G.R. No. 1%99, April 2, 2%%/&7C? Do. #=%<8 expressly allows a withholding agent, who failed to withholdthe reuired tax because of neglect, ignorance of the law, or his belief that hewas not reuired by law to withhold tax, to apply for a compromisesettlement of his withholding tax liability under >.?. Do. $$. ! withholdingagent, in such a situation, may compromise the withholding tax assessmentagainst him precisely because he is being held directly accountable for thetax. 7C? Do. #=%<8 distinguishes between the withholding agent in theforegoing situation from the withholding agent who withheld the tax butfailed to remit the amount to the Kovernment. ! withholding agent in thelatter situation is the one disualied from applying for a compromisesettlement because he is being made accountable as an agent, who held

funds in trust for the Kovernment. (PN!C vs CA, G.R. No. 1%99, April 2,2%%/&

37 A3a$e+en$ The BI7 may therefore abate or cancel the whole or any unpaid portion of atax liability, inclusive of increments, if its assessment is excessive orerroneous* or if the administration costs involved do not justify the collectionof the amount due. Do mutual concessions need be made, because anexcessive or erroneous tax is not compromised* it is abated or canceled.

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?nly correct taxes should be paid. (People vs an*i3an#ayan, GR 1/2/$2, Au3ust 1, 2%%/&

. Orania$i!n an' (nc$i!n !" $)e B(rea( !" In$ernal Re,en(e1. R(le-+ain a($)!ri$ !" $)e Secre$ar !" inance

The authority of the Cinister of Einance (now the ecretary of Einance&, inconjunction with the -ommissioner of Internal 7evenue, to promulgate all

needful rules and regulations for the e5ective enforcement of internalrevenue laws cannot be controverted. Deither can it be disputed that suchrules and regulations, as well as administrative opinions and rulings,ordinarily should deserve weight and respect by the courts. Cuch morefundamental than either of the above, however, is that all such issuancesmust not override, but must remain consistent and in harmony with, the lawthey see' to apply and implement. !dministrative rules and regulations areintended to carry out, neither to supplant nor to modify, the law. (C-R vs CA,G.R. No. 1%8$/8, @anuary 2%, 199/&

a7 A($)!ri$ !" Secre$ar !" inance $! pr!+(la$e r(le an're(la$i!n

37 Speci&c pr!,ii!n $! 3e c!n$aine' in r(le an' re(la$i!n

c7 N!n-re$r!ac$i,i$ !" r(lin2. P!*er !" $)e C!++ii!ner $! (pen' $)e 3(ine !pera$i!n !" a $a#paer

III. L!cal G!,ern+en$ C!'e !" 1@@1 a a+en'e'!. Aocal government taxation

1. Eundamental principles

The fundamental law did not intend the delegation to be absolute andunconditional* the constitutional objective obviously is to ensure that, while thelocal government units are being strengthened and made more autonomous, thelegislature must still see to it that (a& the taxpayer will not be over%burdened orsaddled with multiple and unreasonable impositions* (b& each local government unitwill have its fair share of available resources, (c& the resources of the nationalgovernment will not be unduly disturbed* and (d& local taxation will be fair, uniform,and just.(0anila )le"tri" Co. v. Provin"e of 6a3una, G.R. No. 1$1$/9, 0ay %/, 1999'

+. Dature and source of taxing power

6nder the now prevailing -onstitution, where there is neither a grant norprohibition by statute, the taxing power of local governments must be deemed toexist although -ongress may provide statutory limitations and guidelines in order tosafeguard the viability and self%suMciency of local government units by directlygranting them general and broad tax powers. (City Government of an Pa#lo,6a3una, et al., v. Reyes, et al., K.7. Do. 1+;;9<, Carch +, 1===&

a& Krant of local taxing power under the local government code

Aocal governments do not have the inherent power to tax except to theextent that such power might be delegated to them either by the basic law or bystatute. resently, under !rticle U of the 1=<; -onstitution, a general delegation of that power has been given in favor of local government units. (0anila )le"tri"Company vs Provin"e of 6a3una, G.R. No. 1$1$/9, 0ay /, 1999'

b& !uthority to prescribe penalties for tax violationsc& !uthority to grant local tax exemptionsd& @ithdrawal of exemptionse& !uthority to adjust local tax ratesf& 7esidual taxing power of local governmentsg& !uthority to issue local tax ordinances

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!n ordinance carries with it the presumption of validity. The uestion of reasonableness though is open to judicial inuiry.(4i"torias 0illin3 Co., -n". v.0uni"ipality of 4i"torias, G.R. No. 62118$, eptem#er 2, 198'

#. Aocal taxing authoritya& ower to create revenues exercised through Aocal Kovernment 6nits

b& rocedure for approval and e5ectivity of tax ordinances

It is clear under ec. 1<< of 7.!. Do. ;189 and !rt. +;; of its implementingrules that the reuirement of publication is MAN%ATOR and leaves no choice. Theuse of the word 2shall2 in both provisions is imperative, operating to impose a dutythat may be enforced (Co"aCola +ottlers Pil., -n". v. City of 0anila, G.R. No.1/2/2, @une 2, 2%%'

It is categorical, therefore, that a public hearing be held prior to theenactment of an ordinance levying taxes, fees, or charges* and that such publichearing be conducted as provided under ection +;; of the Implementing 7ules and7egulations of the Aocal Kovernment -ode.(!n3su"o v. 0alones, G.R. No. 182%/,

!"to#er 2, 2%%9'

$. cope of taxing power

The taxing power of cities, municipalities and municipal districts may be used(1& upon any person engaged in any occupation or business, or exercising anyprivilege therein* (+& for services rendered by those political subdivisions orrendered in connection with any business, profession or occupation being conductedtherein, and (#& to levy, for public purposes just and uniform taxes, licenses orfees (Pilippine 0at" Co., 6t*. v. City of Ce#u, G.R. No. 6$%/, @anuary 18, 198'

. pecic taxing power of Aocal Kovernment 6nitsa& Taxing powers of provinces

(i& Tax on transfer of real property ownership(ii& Tax on business of printing and publication(iii& Eranchise tax

!s commonly used, a fran"ise ta; is 2a tax on the privilege of transactingbusiness in the state and exercising corporate franchises granted by the state.2 Todetermine whether the petitioner is covered by franchise tax, the followingreuisites should concur) (1& that petitioner has a 2franchise2 in the sense of asecondary or special franchise* and (+& that it is exercising its rights or privilegesunder this franchise within the territory of the respondent city government.(National Poer Corporation v. City of Ca#anatuan, G.R. No. 1911%, April %9, 2%%$'

Ceralco is subject to the local franchise tax. Its exemption has beenwithdrawn under ec. 1#; and ec. 1=# of 7! ;189. The AK6 (an ablo andAaguna& is correct on relying the provisions of ecs. 1#; Y 1=# that Ceralco0s taxexemption has been withdrawn. ec. 1#; authories the province to imposefranchise tax 3notwithstanding any exemption granted by any law or other speciallaw4. The local franchise tax is imposable despite any exemption enjoyed underspecial laws. ec. 1=# provides the withdrawal of all tax exemptions or incentivesgranted to or presently enjoyed by all persons whether natural or juridical includingK?--s. Thus, any existing tax exemption or incentive enjoyed by Ceralco underexisting law was clearly intended to be withdrawn. Eurther, the AK- contains ageneral repealing clause in its ec. #$ (f&.

!ccordingly, we held in Cactan -ebu Int0l !irport !uthority v. Carcos, +81-7! 88;, that ec. 1=# of the AK- prescribes the general rule, vi., the taxexemptions or incentives granted to persons are withdrawn upon e5ectivity of 7!;189, except to those entities enumerated. Invo'ing the non%impairment clause isnon%availing because a franchise granted is subject to amendment, or repeal by-ongress when public interest so reuires, which restriction was not only present in

8=



;9

1=# -onstitution (!rt. UIF, ec. <& but in the 1=;# (!rt. UIF, ec. &, as well as inthe 1=<; -onstitution (!rt. UII, ec. 11&. @ith or without reservation clause,franchises are subject to alterations as an exercise of police power or the power totax. (-ity of an ablo v. "udge 7eyes, #9 -7! ##* Ceralco v. rov. ?f Aaguna,#98 -7! ;9&

(iv& Tax on sand, gravel and other uarry services

6nder the Aocal Tax -ode. there is no uestion that the authority to imposethe license fees collected from the hauling of sand and gravel excavated properlybelongs to the province concerned and not to the municipality where they are foundwhich is specically prohibited under ection ++ of the same -ode 2from levyingtaxes, fees and charges that the province or city is authoried to levy in this-ode.2 (0uni"ipality of an 7ernan*o, 6a nion v. ta. Romana, G.R. No. 6$%1/9,0ar" $1, 198'

In order for an entity to legally underta'e a uarrying business, he must rstcomply with all the reuirements imposed not only by the national government, but

also by the local government unit where his business is situated. articularly,ection 1#< (+& of 7! ;189 reuires that such entity must rst secure a governorspermit prior to the start of his uarrying operationsZZZ (Provin"e of Ca3ayan v. 6ara,G.R. No. 188/%%, @uly 2, 2%1$'

The principle that when a company is taxed on its main business, it is nolonger taxable for engaging in an activity that is but a part of, incidental to, andnecessary to such main business, applies to business taxes and not to taxes such asthe sand and gravel tax imposed by the provincial government, based on thereasoning that the incidental activity could not be treated as a business separateand distinct from the main business of the taxpayer as the sand and gravel tax is anexcise tax imposed on the privilege of extracting sand and gravel. It is settled thatprovincial governments can levy excise taxes on uarry resources independentlyfrom national government. (6epanto Consoli*ate* 0inin3 Company v. Am#anlo",G.R. No. 18%$9, @une 29, 2%1%'

(v& rofessional tax(vi& !musement tax

7esorts, swimming pools, bath houses, hot springs, and tourist spots are notamong those places expressly mentioned by ection 1$9 of the AK- as beingsubject to amusement taxes. ( Principle o Ejusdem Generis ' (PeliFloy Realty Corp. v. Provin"e of +en3uet, G.R. No. 18$1$, April 1%, 2%1$'

In determining the meaning of the phrase 2other places of amusement,2under ec. 1# of the Aocal Tax -ode, one must refer to the prior enumeration of theaters, cinematographs, concert halls and circuses with artistic expression astheir common characteristic. rofessional bas'etball games do not fall under thesame category as theaters, cinematographs, concert halls and circuses as the latterbasically belong to artistic forms of entertainment while the former caters to sportsand gaming. (Pilippine +aset#all Assn. v. Court of Appeals, G.R. No. 119122,

Au3ust %8, 2%%%'

It is the intent of the legislature not to impose F!T on persons alreadycovered by the amusement tax. (C-R v. 0 Prime :ol*in3s, -n"., G.R. No. 18$/%/,7e#ruary 2, 2%1%'

(vii& Tax on delivery truc'Lvan

b& Taxing powers of citiesc& Taxing powers of municipalities

(i& Tax on various types of businesses

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;1

Business taxes imposed in the exercise of police power for regulatorypurposes are paid for the privilege of carrying on a business in the year the tax waspaid. It is paid at the beginning of the year as a fee to allow the business to operatefor the rest of the year. It is deemed a prereuisite to the conduct of business.ZZZ (0o#il Pilippines -n". v. City 5reasurer of 0aati, G.R. No. 1/%92, @uly 1, 2%%/'

@hen a municipality or city has already imposed a business tax onmanufacturers, et". of liuors, distilled spirits, wines, and any other article of commerce, pursuant to ection 1$# (a& of the AK-, said municipality or city may nolonger subject the same manufacturers, et". to a business tax under ection 1$# (h&of the same -ode. ection 1$# (h& may be imposed only on businesses that aresubject to excise tax, F!T, or percentage tax under the DI7-, and that are 2 n!$!$)er*ie peci&e' in prece'in pararap)2. (City of 0anila v. Co"aCola+ottlers Pilippines, -n"., G.R. No. 1818/, Au3ust %, 2%%9'

By its very nature a condominium corporation is not engaged in business, andany prot that it derives is merely incidental, hence it may not be subject to business

taxes. (=amane , et". v. +A 6epanto Con*ominium Corporation, K. 7. Do. 1$==#,?ctober +, +99&

(ii& -eiling on business tax impossible on municipalities within CetroCanila

(iii& Tax on retirement on business(iv& 7ules on payment of business tax

Tax should be computed based on 3ross re"eipts* 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 petitioner0s gross revenue willinevitably result in the constitutionally proscribed double taxation taxing of thesame person twice by the same jurisdiction for the same thing inasmuch aspetitioner0s revenue or income for a taxable year will denitely include its grossreceipts already reported during the previous year and for which local business taxhas already been paid. ()ri"sson 5ele"oms vs. City of Pasi3. G.R. N!. 1,Novem#er 22, 2%%'

(v& Eees and charges for regulation Y licensing! municipality is authoried to impose three 'inds of licenses) 1& license for

regulation of useful occupations or enterprises* +& license for restriction orregulation of non%useful occupations or enterprises* and #& license for revenue. Therst two easily fall within the broad police power granted under the general welfareclause* the third class, however, is for revenue purposes. (4i"torias 0illin3 Co., -n".v. 0uni"ipality of 4i"torias, G.R. No. 62118$, eptem#er 2, 198'

(vi& itus of tax collected

The power to levy an excise upon the performance of an act or the engagingin an occupation does not depend upon the domicile of the person subject to theexcise, nor upon the physical location of the property and in connection with the actor occupation taxed, but depends upon the place in which the act is performed oroccupation engaged in. (Allie* 5rea* Co., -n". v. City 0ayor of 0anila, G.R. No. 6%29, Novem#er 21, 198'

6nder a city ordinance which imposes tax on sales of goods in the city, thecity can validly tax sales to customers outside of the city as long as the orders wereboo'ed and paid for, and the goods were delivered to the carrier, in the city. Thegoods can be regarded as sold in the city because delivery to the carrier is deliveryto the buyer.ZZZ (Pilippine 0at" Co., 6t*. v. City of Ce#u, G.R. No. 6$%/, @anuary 18, 198'

d& Taxing powers of barangays

;1



;+

e& -ommon revenue raising powers(i& ervice fees and charges(ii& ublic utility charges(iii& Toll fees or charges

f& -ommunity tax

8. -ommon limitations on the taxing powers of AK6s

The fundamental law did not intend the delegation to be absolute andunconditional* the constitutional objective obviously is to ensure that, while thelocal government units are being strengthened and made more autonomous, thelegislature must still see to it that (a& the taxpayer will not be over%burdened orsaddled with multiple and unreasonable impositions* (b& each local government unitwill have its fair share of available resources* (c& the resources of the nationalgovernment will not be unduly disturbed* and (d& local taxation will be fair, uniform,and just. (0anila )le"tri" Company vs Provin"e of 6a3una, G.R. No. 1$1$/9, 0ay /,1999'

@hile the power to tax by local governments may be exercised by locallegislative bodies, no longer merely be virtue of a valid delegation as before, butpursuant to direct authority conferred by ection , !rticle U of the -onstitution, thebasic doctrine on local taxation remains essentially the same, Ite poer to ta; isJstillK primarily veste* in te Con3ress.L (ueFon City, et al., v. A+C+N+roa*"astin3 Corporation, K. 7. Do. 188$9<, ?ctober 8, +99< citing City Government of ueFon City, et al. v. +ayan 5ele"ommuni"ations, -n"., K.7. Do.18+91, Carch 8, +998, $<$ -7! 18= in turn referring to 0a"tan Ce#u-nternational Airport Autority, v. 0ar"os, K.7. Do. 1+99<+, eptember 11, 1==8,+81 -7! 88;, 8<9 '

ection 1##(e& of 7! Do. ;189 prohibits the imposition, in the guise of wharfage, of fees V as well as all other taxes or charges in any form whatsoever Von 3oo*s or merchandise. It is therefore irrelevant if the fees imposed are actuallyfor police surveillance on the goods, because any other form of imposition on goodspassing through the territorial jurisdiction of the municipality is clearly prohibited byection 1##(e&. (Palma Development Corp. v. 0uni"ipality of 0alan3as, G.R. No.1/292, !"to#er 1, 2%%$'

The language of ection 1## (h& of 7! Do. ;189 ma'es plain that theprohibition with respect to petroleum products extends not only to excise taxesthereon, but all 2taxes, fees and charges.2 ZZZ @hile local government units areauthoried to burden all such other class of goods with 2taxes, fees and charges2,excepting excise taxes, a specic prohibition is imposed barring the levying of anyother type of taxes with respect to petroleum products. (Petron Corporation v.5ian3"o, G.R. No. 1/8881, April 1, 2%%8'

;. -ollection of business taxa& Tax period and manner of paymentb& !ccrual of taxc& Time of paymentd& enalties on unpaid taxes, fees or chargese& !uthority of treasurer in collection and inspection of boo's

<. Taxpayer0s remedies

!s a general precept, a taxpayer may le a complaint assailing the validity of the ordinance and praying for a refund of its perceived overpayments without rstling a protest to the payment of taxes due under the ordinance. (@ar*ine Davies-nsuran"e +roers -n". v. Aliposa, G.R. No. 1189%%, 7e#ruary 2, 2%%$'

a& eriods of assessment and collection of local taxes, fees or charges

;+



;#

b& rotest of assessmentc& -laim for refund of tax credit for erroneously or illegally collected tax,

fee or charge

=. -ivil remedies by the AK6 for collection of revenues

a& Aocal government0s lien for delinuent taxes, fees or chargesb& -ivil remedies, in general

(i& !dministrative action(ii& "udicial action

6nli'e the Dational Internal 7evenue -ode, the Aocal Tax -ode does not containany specic provision prohibiting courts from enjoining the collection of local taxes.uch tatutory lapse or intent, however it may be viewed, may have allowedpreliminary injunction where local taxes are involved but cannot negate theprocedural rules and reuirements under 7ule <. (4alley 5ra*in3 Co., -n". v. C7- of -sa#ela, +ran" --, G.R. No. 69/29, 0ar" $1, 1989'

B. 7eal property taxation

1. Eundamental principles+. Dature of real property tax#. Imposition of real property tax

a& ower to levy real property taxb& >xemption from real property tax

!s a general principle, a charitable institution does not lose its character assuch and its exemption from taxes simply because it derives income from payingpatients, whether out%patient, or conned in the hospital, or receives subsidies fromthe government, so long as the money received is devoted or used altogether to thecharitable object which it is intended to achieve* and no money inures to the privatebenet of the persons managing or operating the institution. (6un3 Center of tePil. v. ueFon City, G.R. No. 11%, @une 29, 2%%'

6nder the 1=;# and 1=<; -onstitutions and 7ep. !ct Do. ;189 in order to beentitled to the exemption, the petitioner is burdened to prove, by clear anduneuivocal proof, that (a& it is a charitable institution* and (b& its real properties are!-T6!AAH, :I7>-TAH and >U-A6IF>AH used for charitable purposes. 2>xclusive2 isdened as possessed and enjoyed to the exclusion of others* debarred fromparticipation or enjoyment* and 2exclusively2 is dened, 2in a manner to exclude* asenjoying a privilege exclusively.2 (6un3 Center of te Pil. v. ueFon City, G.R. No.11%, @une 29, 2%%'

6nder ection +#$(a&, real property owned by the 7epublic is exempt fromreal estate tax except when the government gives the benecial use of the realproperty to a taxable entity. The justication for the exception to the exemption isthat the real property, although owned by the 7epublic, is not devoted to publicuse or public service but devoted to the private gain of a taxable person. (0anila-nternational Airport Autority v. Court of Appeals, G.R. No. 1///%, @uly 2%, 2%%'

In CI!! v. -ourt of !ppeals Y ara[aue -ity, $= -7! =1 Q+998R, theupreme -ourt resolved this issue that CI!! is not a government owned orcontrolled corporation but a government instrumentality vested with corporatepowers and performing essential public services. CI!! is not subject to any local taxexcept when its properties are used by taxable entity or if the benecial use of realproperty owned by the 7epublic is given to a taxable entity.

The airport lands and buildings of CI!! are properties devoted to public use andthus are properties of public dominion. They are owned by the tate or the 7epublicunder !rt. $+9 of the D--. Gence, the properties of CI!! are exempted from thereal property tax under ec. +#$(a& AK-. ?nly those portions of the D!I! asay

;#



;$

properties which are leased to taxable persons li'e private parties are the onessubject to the real property tax by asay -ity. (CI!! v. -ity of asay, <# -7! +#$&

$. !ppraisal and assessment of real property taxa& 7ule on appraisal of real property at fair mar'et value

7eal properties shall be appraised at the current and fair mar'et valueprevailing in the locality where the property is situated and classied for assessmentpurposes on the basis of its actual use. ( Allie* +anin3 Corporation, et"., v. ueFonCity Government, et al., K. 7. Do. 1$1+8, ?ctober 11, +99&

In xing the value of real property, assessors have to consider all thecircumstances and elements of value and must exercise prudent discretion inreaching conclusions. ( Allie* +anin3 Corporation, et"., v. ueFon City Government,et al., K. 7. Do. 1$1+8, ?ctober 11, +99&

b& :eclaration of real property

! tax declaration does not prove ownership* it is merely an indicium of aclaim of ownership. Deither tax receipts nor declaration of ownership for taxationpurposes are evidence of ownership or of the right to possess realty when notsupported by other e5ective proofs. (De 4eraCruF v. 0i3uel, G.R. No. 11%$,

Au3ust $1, 2%%/'

!lthough tax declarations or realty tax payment of property are notconclusive evidence of ownership, nevertheless, they are good in*i"ia of possessionin the concept of owner, for no one in his right mind would be paying taxes for aproperty that is not in his actual or constructive possession. They constitute at leastproof that the holder has a claim of title over the property. (:eirs of antia3o v.

:eirs of antia3o, G.R. No. 1/1%, @une 1, 2%%$'It is \the duty of each person acuiring real estate in the city to ma'e a new

declaration thereof, with the advertence that failure to do so shall ma'e theassessment in the name of the previous owner valid and binding on all personsinterested, and for all purposes, as though the same had been assessed in thename of its actual owner. (:eirs of 5aBonera v. Court of Appeals, G.R. No. 62,0ar" 2, 1981'

c& Aisting of real property in assessment rollsd& reparation of schedules of fair mar'et value

(i& !uthority of assessor to ta'e evidence(ii& !mendment of schedule of fair mar'et value

e& -lasses of real propertyf& !ctual use of property as basis of assessmentg& !ssessment of real property

(i& !ssessment levels(ii& Keneral revisions of assessments and property classication(iii& :ate of e5ectivity of assessment or reassessment(iv& !ssessment of property subject to bac' taxes(v& Dotication of new or revised assessment

h& !ppraisal and assessment of machinery

. -ollection of real property taxa& :ate of accrual of real property tax and special leviesb& -ollection of tax

(i& -ollecting authority(ii& :uty of assessor to furnish local treasurer with assessment rolls(iii& Dotice of time for collection of tax

c& eriods within which to collect real property taxd& pecial rules on payment

(i& ayment of real property tax in installments

;$



;

(ii& Interests on unpaid real property tax(iii& -ondonation of real property tax

e& 7emedies of AK6s for collection of real property tax(i& Issuance of notice of delinuency for real property tax payment

@ith regard to determining to whom the notice of sale should have been

sent, settled is the rule that, for purposes of real property taxation, the registeredowner of the property is deemed the taxpayer. Thus, in identifying the realdelinuent taxpayer, a local treasurer cannot rely solely on the tax declaration butmust verify with the 7egister of :eeds who the registered owner of the particularproperty is. (pouses :u v. pouses ni"o, G.R. No. 1/$, eptem#er 18, 2%%9'

It has been ruled that the notices and publication, as well as the legalreuirements for a tax delinuency sale, are mandatory* and the failure to complytherewith can invalidate the sale. The prescribed notices must be sent to complywith the reuirements of due process. (De <ne"t v. Court of Appeals, G.R. No.1%8%1/, 1%92$, 0ay 2%, 1998'

The delinuent taxpayer referred to under ec. ;+ of : Do. $8$ is the actualowner of the property at the time of the delinuency and mere compliance by theprovincial or city treasurer with ec. 8 of the decree is no longer enough. Thenotication to the right person, i.e., the real owner, is an essential andindispensable reuirement of the law, non%compliance with which renders theauction sale void. ()state of @a"o# v. Court of Appeals, G.R. No. 12%$/, 12%9,De"em#er 22, 199'

(ii& Aocal government0s lien(iii& 7emedies in general(iv& 7esale of real estate ta'en for taxes, fees or charges(v& Eurther levy until full payment of amount due

8. 7efund or credit of real property taxa& ayment under protestb& 7epayment of excessive collections

;. Taxpayer0s remediesa& -ontesting an assessment of value of real property

(i& !ppeal to the Aocal Board of !ssessment !ppeals(ii& !ppeal to the -entral Board of !ssessment !ppeals(iii& >5ect of payment of tax

b& ayment of real property tax under protest(i& Eile protest with local treasurer

The protest contemplated under ec. ++ of 7.!. ;189 is needed where thereis a uestion as to the reasonableness of the amount assessed. Gence, if a taxpayerdisputes the reasonableness of an increase in a real estate tax assessment, he isreuired to 2rst pay the tax2 under protest* otherwise, the city or municipaltreasurer will not act on his protest. (5y v. 5rampe, G.R. No. 11/, De"em#er %1,199/'

The trial court has no jurisdiction to entertain a etition for rohibition absentpetitioners payment, under protest, of the tax assessed as reuired by ec. 8$ of the 7T-. ayment of the tax assessed under protest, is a condition sine Euanon before the trial court could assume jurisdiction over the petition and failure todo so, the 7T- has no jurisdiction to entertain it. (0anila )le"tri" Co. v. +arlis, G.R.No. 112$1, 0ay 18, 2%%1'

6nder then ec. #9 of : $8$ Qnow under ec. ++8, AK-R, having failed toappeal the real property assessments to the AB!!, taxpayer now cannot assail thevalidity of the tax assessment before the courts. Eor failure to exhaust

;



;8

administrative remedies, the assessment became nal. 6nder ec. 8$ of : $8$Qnow under ec. ++, AK-&, the taxpayer must rst pay under protest and thenassail the validity of the assessment. (:avao ?riental >lectric -oop vs. rov. :vo. of ?riental, ;8 -7! 8$&

(ii& !ppeal to the Aocal Board of !ssessment !ppeals

6nder ection ++8 of 7.!. Do ;189, the last action of the local assessor on aparticular assessment shall be the notice of assessment* it is this last a"tion whichgives the owner of the property the right to appeal to the AB!!. The procedureli'ewise does not permit the property owner the remedy of ling a motion forreconsideration before the local assessor. (7els )ner3y, -n". v. Provin"e of +atan3as,G.R. No. 18//, 1%28, 7e#ruary 1, 2%%'

(iii& !ppeal to the -entral Board of !ssessment !ppeals(iv& !ppeal to the -T!(v& !ppeal to the upreme -ourt

IV. Tari= an' C($!+ C!'e !" 1@>? a a+en'e'!. Tari5 and duties, dened

2Customs *uties2 is 2the name given to ta;es on te importation an* e;portation of "ommo*ities, the tari5 or tax assessed upon merchandise imported from, orexported to, a foreign country. (Nestle Pilippines, -n". v. Court of Appeals, G.R. No.1$11, @uly %, 2%%1'

B. Keneral rule) all imported articles are subject to duty.1. Importation by the government taxable

-. urpose for imposition:. Elexible tari5 clause>. 7euirements of importation

1. Beginning and ending of importation

ection 1+9+ of the Tari5 and -ustoms -ode provides that importation beginswhen the carrying vessel or aircraft enters the jurisdiction of the hilippines withintention to unload therein. It is clear from the provision of the law that mere intentto unload is suMcient to commence an importation and 2intent,2 being a state of mind, is rarely susceptible of direct proof, but must ordinarily be inferred from thefacts, and therefore can only be proved by unguarded, expressions, conduct andcircumstances generally. (7ee*er -nternational 6ine, Pte., 6t*. v. Court of Appeals,G.R. No. 922, 0ay $1, 1991'

Importation is terminated only upon the payment of duties, taxes and othercharges upon the articles, or secured to be paid, at the port of entry and the legalpermit for withdrawal shall have been granted. ayment of the duties, taxes, feesand other charges must be in full. (Papa v. 0a3o, G.R. No. 62$%, 7e#ruary 28,198'

6nder ection 1+9+ of the T--, importation ta'es place when merchandiseis brought into the customs territory of the hilippines with the intention of unloading the same at port. !n exception to this rule is transit cargo entered forimmediate exportation which may be allowed under ection +19# of the T--when the following concur)

(a& there is a clear intent to export the article as shown in the bill of lading, invoice, cargo manifest or other satisfactory evidence*

(b& the -ollector must designate the vessel or aircraft wherein thearticles are laden as a constructive warehouse to facilitate thedirect transfer of the articles to the exporting vessel or aircraft*

;8



;;

(c& the imported articles are directly transferred from the vessel oraircraft designated as a constructive warehouse to theexporting vessel or aircraft and

(d& an irrevocable domestic letter of credit, ban' guaranty or bond inan amount eual to the ascertained duties, taxes and othercharges is submitted to the -ollector (unless it appears in the

bill of lading, invoice, manifest or satisfactory evidence thatthe articles are destined for transshipment&. ( Commissioner of Customs v. Court of 5a; Appeals, G.R. Nos. 11/11,7e#ruary 1$, 2%%9'

+. ?bligations of importera& -argo manifestb& Import entry

The term 2entry2 in -ustoms law has a triple meaning. It means (1& thedocuments led at the -ustoms house* (+& the submission and acceptance of thedocuments* and (#& the procedure of passing goods through the -ustoms

house. (@ar*eleFa v. People, G.R. No. 1/2/, 7e#ruary %, 2%%'

c& :eclaration of correct weight or valued& Aiability for payment of dutiese& Aiuidation of dutiesf& Neeping of records

E. Importation in violation of tax credit certicate1. muggling

muggling is committed by any person who) (1& fraudulently imports orbrings into the hilippines any article contrary to law* (+& assists in so doing anyarticle contrary to law* or (#& receives, conceals, buys, sells or in any mannerfacilitate the transportation, concealment or sale of such goods after importation,'nowing the same to have been imported contrary to law. (@ar*eleFa v. People, G.R.No. 1/2/, 7e#ruary %, 2%%'

The Tari5 and -ustoms law subjects to forfeiture any article which is removedcontrary to law from any public or private warehouse under customs supervision, orreleased irregularly from -ustoms custody. Before forfeiture proceedings areinstituted the law reuires the presence of probable cause* once established, theburden of proof is shifted to the claimant. (Carrara 0ar#le Pil., -n". v.Commissioner of Customs, G.R. No. 1298%, eptem#er %1, 1999'

In order to warrant forfeiture, it is not necessary that the vessel or aircraftmust itself carry the contraband. There is nothing in the law that soreuires. (6lama*o v. Commissioner of Customs, G.R. No. 6288%9, 0ay 1, 198$'

+. ?ther fraudulent practices

K. -lassication of goods1. Taxable importation+. rohibited importation

rohibited importations are subject to forfeiture whether the importation isdirect or indirect such as when the shipper and the consignee are one and the sameperson. (Patero v. +ureau of Customs, G.R. Nos. 9%%1, @anuary 21, 1991'

!lthough the illegally imported articles may not be absolutely prohibited, butonly ualiedly prohibited under ec. 19+ (N& of the Tari5 and -ustoms -ode, for itmay be imported subject to certain conditions, it is nonetheless prohibited and is acontraband (-omm. of -ustoms vs. -T! Y :ichoco, A%##$;1, "an. #1, 1=;+&, and thelegal e5ects of the importation of ualiedly prohibited articles are the same as

;;



;<

those of absolutely prohibited articles. (Auyon3 :ian v. C5A, G.R. No. 62882,eptem#er 12, 19'

#. -onditionally%free importation

G. -lassication of duties1. ?rdinaryLregular duties

a& !d valorem* methods of valuation(i& Transaction value(ii& Transaction value of identical goods(iii& Transaction value of similar goods(iv& :eductive value(v& -omputed value(vi& Eallbac' value

b& pecic

+. pecial dutiesa& :umping dutiesb& -ountervailing dutiesc& Car'ing dutiesd& 7etaliatoryLdiscriminatory dutiese& afeguard

I. 7emedies1. Kovernment

a& !dministrativeLextrajudicial(i& earch, seiure, forfeiture, arrest

It is uite clear that seiure and forfeiture proceedings under the tari5 andcustoms laws are not criminal in nature as they do not result in the conviction of theo5ender nor in the imposition of the penalty provided for in section #891 of the-ode. !s can be gleaned from ection +## of the code, seiure proceedings, suchas those instituted in this case, are purely civil and administrative in character, themain purpose of which is to enforce the administrative nes or forfeiture incident tounlawful importation of goods or their deliberate possession. (People v. Court of 7irst -nstan"e of RiFal, G.R. No. 618, Novem#er 1, 198%'

In administrative proceedings, such as those before the B?-, technical rulesof procedure and evidence are not strictly applied and administrative due processcannot be fully euated with due process in its strict judicial sense. The essence of due process is simply an opportunity to be heard or, as applied to administrativeproceedings, an opportunity to explain ones side or an opportunity to see'reconsideration of the action or ruling complained of. ()l Gre"o ip 0annin3 an*0ana3ement Corporation v. Commissioner of Customs, G.R. No. 1188, De"em#er %, 2%%8'

It is settled that the Bureau of -ustoms acuires exclusive jurisdiction overimported goods for purposes of enforcing the -ustoms laws, from the moment thegoods are actually in possession and control of said Bureau even in the absence of any warrant of seiure or detention. (Papa v. 0a3o, G.R. No. 62$%, 7e#ruary 28,198'

7egional trial courts are devoid of any competence to pass upon the validityor regularity of seiure and forfeiture proceedings conducted by the B?- and toenjoin or otherwise interfere with these proceedings. 7egional trial courts areprecluded from assuming cogniance over such matters even through petitions for"ertiorari, prohibition or man*amus. (u#i" +ay 0etropolitan Autority v.Ro*ri3ueF, G.R. No. 1%2%, April 2$, 2%1%'

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7evenue -ode (DI7-& or related laws administered by the Bureau of Internal7evenue (BI7&. (Commr. v. :am#ret" & uist Pilippines, -n"., G.R. No. 1922/,Novem#er 1, 2%1%'

In line with the lifeblood doctrine, the Dational Internal 7evenue -ode of 1==;(DI7-& expressly provides that no court shall have the authority to grant an

injunction to restrain the collection of any national internal revenue tax, fee orcharge imposed by the code. !n exception to this rule obtains only when in theopinion of the -ourt of Tax !ppeals (-T!& the collection thereof may jeopardie theinterest of the government andLor the taxpayer. (An3eles City v. An3eles )le"tri"Corporation, G.R. No. 11$, @une 29, 2%1%'

b& -ases within the jurisdiction of the court in divisions

@ithout the automatic review by the -ommissioner of -ustoms and theecretary of Einance, a collector in any of our countrys far%Oung ports, would haveabsolute and unbridled discretion to determine whether goods seied by him arelocally produced, hence, not dutiable, or of foreign origin, and therefore subject to

payment of customs duties and taxes. Gis decision, unless appealed by theaggrieved party (the owner of the goods&, would become nal with no one the wiserexcept himself and the owner of the goods. (=aoasin v. Commissioner of Customs,G.R. No. 8111, De"em#er 22, 1989'

ection ; of 7epublic !ct Do. 11+, creating the -ourt of Tax !ppeals, inproviding for appeals from V (1& :ecisions of the -ollector of Internal 7evenue incases involving disputed assessments, refunds of internal revenue taxes, fees orother charges, penalties imposed in relation thereto, or other matters arising underthe Dational Internal 7evenue -ode or other law or part of the law administered bythe Bureau of Internal 7evenue V allows an appeal from a decision of the -ollectorin cases involving disputed assessments as distinguished from cases involvingrefunds of internal revenue taxes, fees or other charges, . . .* To hold that thetaxpayer has now lost the right to appeal from the ruling on the disputedassessment but must prosecute his appeal under ection #98 of the Tax -ode,which reuires a taxpayer to le a claim for refund of the taxes paid as a conditionprecedent to his right to appeal, would in e5ect reuire of him to go through auseless and needless ceremony that would only delay the disposition of the case,for the -ollector (now -ommissioner& would certainly disallow the claim for refund inthe same way as he disallowed the protest against the assessment. (4*a. *e an

A3ustin v. Commr., G.R. No. 1$88/, eptem#er 1%, 2%%1'

@hile the law confers on the -T! jurisdiction to resolve tax disputes ingeneral, this does not include cases where the constitutionality of a law or rule ischallenged. @here what is assailed is the validity or constitutionality of a law, or arule or regulation issued by the administrative agency in the performance of itsuasi%legislative function, the regular courts have jurisdiction to pass upon thesame. (+ritis Ameri"an 5o#a""o v. Cama"o, G.R. No. 1$/8$, Au3ust 2%, 2%%8'

The reviewable decision of the Bureau of Internal 7evenue is that containedin the letter of its -ommissioner, that such constitutes the nal decision on thematter which may be appealed to the -ourt of Tax !ppeals and not te arrants of *istraint . It was li'ewise stressed that the procedure enunciated is demanded by thepressing need for fair play, regularity and orderliness in administrative action.(Commr. v. nion ippin3 Corp., G.R. No. 1%, 0ay 21, 199%'

! nal demand letter from the Bureau of Internal 7evenue, reiterating to thetaxpayer the immediate payment of a tax deciency assessment previously made,is tantamount to a denial of the taxpayers reuest for reconsideration. uch letteramounts to a nal decision on a disputed assessment and is thus appealable to the-ourt of Tax !ppeals (-T!&. (Commr. v. -sa#ela Cultural Corp., G.R. No. 1$/21%, @uly 11, 2%%1'

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<1

If the protest is denied in whole or in part, or is not acted upon within onehundred eighty (1<9& days from submission of documents, the taxpayer adverselya5ected by the decision or inaction may appeal to the -ourt of Tax !ppeals within(#9& days from receipt of the said decision, or from the lapse of the one hundredeighty (1<9&%day period* otherwise the decision shall become nal, executory anddemandable.ZZZ (RiFal Commer"ial +anin3 Corp. v. Commr., G.R. No. 1898, @une

1, 2%%'

The period to appeal from a decision of the -ommissioner of Internal 7evenueto the -ourt of Tax !ppeals under 7epublic !ct Do. 11+ is jurisdictional and non%extendible and a taxpayer may not delay indenitely a tax assessment byreiterating his original defenses over and over again, without substantialvariation. (7ilipinas -nvestment & 7inan"e Corp. v. Commr., G.R. No. 62$/%1, 0ay 1, 19'

To allow a litigant to assume a di5erent posture when he comes before thecourt and challenge the position he had accepted at the administrative level, wouldbe to sanction a procedure whereby the -ourt V which is supposed to review

administrative determinations V would not review, but determine and decide forthe rst time, a uestion not raised at the administrative forum. Thus, it is wellsettled that under the same underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower courtcannot be raised for the rst time on appeal. (Commr. v. >an*er Pils., -n"., G.R.No. 8$/, April 1/, 1988'

By withdrawing the appeal, petitioner is deemed to have accepted thedecision of the -T!. etitioner cannot be allowed to circumvent the denial of itsreuest for a tax credit by abandoning its appeal and ling a new claim. (Central6uFon Dru3 Corp. v. Commr., G.R. No. 181$1, 0ar" %2, 2%11'

ec. ; of 7! 11+ provides that the -T! has exclusive appellate jurisdiction toreview by appeal decisions of the -I7 in cases involving disputed assessments.Ai'ewise ec. $ of the 1==; DI7- Q7! <$+$R provides that the -I7 has the power todecide disputed assessments subject to the exclusive appellate jurisdiction of the-T!. The latest law on the jurisdiction of the -T! under ec. ; of 7! =+<+ providesthat the -T! exercises exclusive appellate jurisdiction to review by appeal decisionsof the -I7 in cases involving disputed assessments. Thus the -T!0s jurisdiction is toentertain an appeal only from a nal decision or assessment of the -I7 or in caseswhere the -I7 has not acted within the period prescribed by the DI7-. o when the-I7 has not issued an assessment, then there is nothing to protest or dispute.(!damson vs. -ourt of !ppeals, << -7! +;&

The period to appeal the decision or ruling of the 7T- in local tax cases to -T!via petition for review is governed by ec. 11 of 7! =+<+ and ec. #(a&, 7ule < of the7evised 7ules of -T!, which is #9 days from receipt of decision or ruling. To appealan adverse ruling of the 7T- to the -T! the taxpayer must le a petition for reviewwith the -T! within #9 days from receipt of the adverse decision or ruling. !nextension may be granted for 1 days. @ith the several extensions as'ed the -T!can dismiss the petition. Eailure to comply with reuirements would also be aground to dismiss the petition. (-ity of Canila vs. -oca -ola Bottlers hils., =-7! +==&

+. -riminal casesa& >xclusive original jurisdictionb& >xclusive appellate jurisdiction in criminal cases

B. "udicial procedures1. "udicial action for collection of taxes

a& Internal revenue taxes

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<+

Dowhere in the Tax -ode is the -ollector of Internal 7evenue reuired to rulerst on a taxpayers reuest for reinvestigation before he can go to court for thepurpose of collecting the tax assessed. ?n the contrary, ection #9 of the same-ode withholds from all courts, except the -ourt of Tax !ppeals under ection 11of 7epublic !ct 11+, the authority to restrain the collection of any national internal%revenue tax, fee or charge, thereby indicating the legislative policy to allow the

-ollector of Internal 7evenue much latitude in the speedy and prompt collection of taxes. (Repu#li" v. 6im 5ian 5en3 ons & Co., -n"., G.R. No. 621$1, 0ar" $1,19'

Eor the purpose of safeguarding taxpayers from any unreasonableexamination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. (-ommissioner of -nternal Revenue v. +.7.Goo*ri" Pils, -n"., (no ime Dar#y -nternational 5ire Co., -n".&, et al., K.7. Do.19$1;1, Eebruary +$, 1===, #9# -7! $8* Pilippine @ournalists, -n". v.Commissioner of -nternal Revenue, K. 7. Do. 18+<+, :ecember 18, +99$&, as well astheir assessments.

The law prescribing a limitation of actions for the collection of the income taxis benecial both to the Kovernment and to its citiens* to the Kovernment becausetax oMcers would be obliged to act promptly in the ma'ing of assessment, and tocitiens because after the lapse of the period of prescription citiens would have afeeling of security against unscrupulous tax agents who will always nd an excuseto inspect the boo's of taxpayers, not to determine the latter0s real liability, but tota'e advantage of every opportunity to molest peaceful, law%abiding citiens.@ithout such a legal defense taxpayers would furthermore be under obligation toalways 'eep their boo's and 'eep them open for inspection subject to harassmentby unscrupulous tax agents. (+an of Pilippine -slan*s (7ormerly 7ar )ast +an an*5rust Company' v. Commissioner of -nternal Revenue, K. 7. Do. 1;$=$+, Carch ;,+99<&

6nreasonable investigation contemplates cases where the period forassessment extends indenitely because this deprives the taxpayer of the assurancethat it will no longer be subjected to further investigation for taxes after theexpiration of a reasonable period of time. (Pilippine @ournalists, -n". v. Commissioner of -nternal Revenue, K. 7. Do. 18+<+, :ecember 18, +99$&

Eor the purpose of safeguarding taxpayers from any unreasonableexamination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedialmeasure, should be liberally construed in order to a5ord such protection and theexceptions to the law on prescription should perforce be strictlyconstrued. (Pilippine @ournalists -n". v. Commr., G.R. No. 128/2, De"em#er 1,2%%'

The signatures of both the -ommissioner and the taxpayer, are reuired for awaiver of the prescriptive period, thus a unilateral waiver on the part of the taxpayerdoes not suspend the prescriptive period. (Commissioner of -nternal Revenue v.Court of Appeals, et al.,K.7. Do. 11;1+, Eebruary +, 1===&

The act of reuesting a reinvestigation alone does not suspend the running of the prescriptive period. The reuest for reinvestigation must be granted by the-I7. (+an of Pilippine -slan*s (7ormerly 7ar )ast +an an* 5rust Company' v.Commissioner of -nternal Revenue, K. 7. Do. 1;$=$+, Carch ;, +99<&

b& Aocal taxes(i& rescriptive period

+. -ivil casesa& @ho may appeal, mode of appeal, e5ect of appeal

(i& uspension of collection of tax

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<#

a& Injunction not available to restrain collection(ii& Ta'ing of evidence(iii& Cotion for reconsideration or new trial

It is true that petitioner could not move for new trial on the basis of newlydiscovered evidence because in order to have a new trial on the basis of newly

discovered evidence, it must be proved that) (a& the evidence was discovered afterthe trial* (b& such evidence could not have been discovered and produced at thetrial with reasonable diligence* (c& it is material, not merely cumulative,corroborative or impeaching* and (d& it is of such weight that, if admitted, willprobably change the judgment. This does not mean however, that petitioner isaltogether barred from having a new trial if the reasons put forth by petitioner couldfall under mista'e or excusable negligence. (Pilippine Pospate 7ertiliFer Corp. v.Commr., G.R. No. 119$, @une 28, 2%%/'

Before the -T! >n Banc could ta'e cogniance of the petition for reviewconcerning a case falling under its exclusive appellate jurisdiction, the litigant mustsuMciently show that it sought prior reconsideration or moved for a new trial with

the concerned -T! division. rocedural rules are not to be triOed with or be excusedsimply because their non%compliance may have resulted in prejudicing a partyssubstantive rights. (Commisioner of Customs v. 0arina ales, -n"., G.R. No. 18$88,Novem#er 22, 2%1%'

The -ommissioner of Internal 7evenue, not having clearly signied his nalaction on the disputed assessment, legally the period to appeal has not commencedto run. The reuest for reinvestigation and reconsideration was in e5ect considereddenied by -I7 when the latter led a civil suit for collection of deciency income.(Commissioner of -nternal Revenue vs nion ippin3 Corporation an* te Court of 5a; Appeals, G.R. No. 61%, 0ay 21, 199%'

! letter of the BI7 -ommissioner reiterating to a taxpayer his previous demandto pay an assessment is considered a denial of the reuest for reconsideration orprotest and is appealable to the -ourt of Tax !ppeals. (Commr. v. Ayala e"uritiesCorp., G.R. No. 6298/, 0ar" $1, 19'

b& !ppeal to the -T!, en banc

The petition for review to be led with the -T! en #an" as the mode forappealing a decision, resolution, or order of the -T! :ivision, under ection 1< of 7epublic !ct Do. 11+, as amended, is not a totally new remedy, uniue to the -T!,with a special application or use therein. !ccordingly, doctrines, principles, rules,and precedents laid down in jurisprudence by this -ourt as regards petitions forreview and appeals in courts of general jurisdiction should li'ewise bind the -T!,and it cannot depart therefrom. (antos v. People, et al, K. 7. Do. 1;#1;8, !ugust+8, +99<&

c& etition for review on certiorari to the upreme -ourt

B?- committed procedural missteps and the decision of the -T! division hasbecome nal. The upreme -ourt is without jurisdiction to review decisionsrendered by a division of the -T! but the decision of the -T! en banc. 6nder ec. =of 7! =+<+, a party a5ected by the ruling or decision of a division of the -T! mayle an C7 within 1 days. ec. 11 of 7! =+<+ provides that if the C7 is denied, apetition for review is led with the -T! en banc. Erom an adverse ruling or decisionfrom the -T! en banc, the appeal by way of petition for review on certiorari under7ule $ is led with the upreme -ourt. Thus the upreme -ourt has no jurisdictionto review the decision of a division of the -T!. (-om. of -ustoms v. KelmartIndustries, ;= -7! +;+&

#. -riminal cases

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a& Institution and prosecution of criminal actions

!ny subseuent satisfaction of the tax liability, by payment orprescription, ill not operate to e;tin3uis "riminal lia#ility, since the duty to paythe tax is imposed by statute independent of any attempt on the part of thetaxpayer to evade payment. The failure of the government, therefore, to enforce by

appropriate civil remedies the collection of the taxes, does not detract from its rightcriminally to prosecute violations of the -ode. (People v. 5ierra, G.R. Nos. 6118%, De"em#er 28, 19'

(i& Institution of civil action in criminal action

ection +++ of the DI7- specically states that in cases where a false orfraudulent return is submitted or in cases of failure to le a return such as this case,proceedings in court may be commenced itout an assessment . Eurthermore,ection +9 of the same -ode clearly mandates that the civil and criminal aspectsof the case may be pursued simultaneously. (Commr. v. Pas"or Realty &Development Corp., G.R. No. 128$1/, @une 29, 1999'

ince the civil liability is not deemed included in the criminal action, acuittalof the taxpayer in the criminal proceeding does not necessarily entail exonerationfrom his liability to pay the taxes. The acuittal in a criminal case cannot operate todischarge defendant from the duty of paying the taxes which the law reuires to bepaid, since that duty is imposed by statute prior to and independently of anyattempts by the taxpayer to evade payment. (Repu#li" v. Patanao, G.R. No. 622$/, @uly 21, 19'

@ith regard to the tax proper, the state correctly points out in its brief thatthe acuittal in the criminal case could not operate to discharge petitioner from theduty to pay the tax, since that duty is imposed by statue prior to and independentlyof any attempts on the part of the taxpayer to evade payment. The obligation topay the tax is not a mere conseuence of the felonious acts charged in theinformation, nor is it a mere civil liability derived from crime that would be wipedout by the judicial declaration that the criminal acts charged did not exist. (Castro v.Colle"tor of -nternal Revenue, G.R. No. 6121, April 2, 192'

b& !ppeal and period to appeal(i& olicitor Keneral as counsel for the people and government

oMcials sued in their oMcial capacityc& etition for review on certiorari to the upreme -ourt

-. Taxpayer0s suit impugning the validity of tax measures or acts of taxingauthorities1. Taxpayer0s suit, dened

It is hornboo' principle that a taxpayer is allowed to sue where there is aclaim that public funds are illegally disbursed, or that public money is beingdeOected to any improper purpose, or that there is wastage of public funds throughthe enforcement of an invalid or unconstitutional law. Eor a taxpayers suit toprosper, two reuisites must be met namely, (1& public funds derived from taxationare disbursed by a political subdivision or instrumentality and in doing so, a law isviolated or some irregularity is committed* and (+& the petitioner is directly a5ectedby the alleged act. (6+P v. Ca"ayuran, G.R. No. 191, April 1, 2%1$'

@hat is a taxpayer0s suitW In the case of a taxpayer, he is allowed to suewhere there is a claim that public funds are illegally disbursed, or that public moneyis being deOected to any improper purpose, or that there is a wastage of publicfunds through the enforcement of an invalid or unconstitutional law. Before he caninvo'e the power of judicial review, however, he must specically prove that he hassuMcient interest in preventing the illegal expenditure of money raised by taxationand that he would sustain a direct injury as a result of the enforcement of the

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<

uestioned statute or contract. It is not suMcient that he has merely a generalinterest common to all members of the public. !t all events, courts are vested withdiscretion as to whether or not a taxpayers suit should be entertained. This -ourtopts to grant standing to most of the petitioners, given their allegation that anyimpending transmittal to the enate of the !rticles of Impeachment and the ensuingtrial of the -hief "ustice will necessarily involve the expenditure of public funds.

(Erancisco, "r. vs. Dagmamalasa'it na mga Canananggol ng mga Canggagawangilipino, $1 -7! $$&

+. :istinguished from citien0s suit

Taxpayers have been allowed to sue where there is a claim that public fundsare illegally disbursed or that public money is being deOected to any improperpurpose, or that public funds are wasted through the enforcement of an invalid orunconstitutional law. ?n the other hand, as citiens, petitioners have must fulll thestanding reuirement given that the issues they have raised may be classied asmatters 2of transcendental importance, of overreaching signicance to society, or of

paramount public interest.2 (+el3i"a v. !"oa, G.R. No. 2%8/, 2%89$, 2%92/1, 62%8, Novem#er 19, 2%1$'

@hat is a citien0s suitW @hen suing as a citien, the interest of the petitionerassailing the constitutionality of a statute must be direct and personal. Ge must beable to show, not only that the law or any government act is invalid, but also that hesustained or is in imminent danger of sustaining some direct injury as a result of itsenforcement, and not merely that he su5ers thereby in some indenite way. It mustappear that the person complaining has been or is about to be denied some right orprivilege to which he is lawfully entitled or that he is about to be subjected to someburdens or penalties by reason of the statute or act complained of. In ne, when theproceeding involves the assertion of a public right, the mere fact that he is a citiensatises the reuirement of personal interest. (Erancisco, "r. vs. Dagmamalasa'it namga Canananggol ng mga Canggagawang ilipino, $1 -7! $$&

#. 7euisites for challenging the constitutionality of a tax measure or act of taxing authoritya& -oncept of locus standi as applied in taxation

3Aegal standing4 or locus standi has been dened as a personal andsubstantial interest in the case such that the party has sustained or willsustain direct injury as a result of the governmental as that is beingchallenged. The gist of the uestion of standing is whether a partyalleges 3such personal sta'e in the outcome of the controversy as toassure the concrete adverseness which sharpens the presentation of issues upon which the court depends for illumination of diMcultconstitutional uestions. To invest him with locus standi, the plainti5 has to adeuately showthat he is entitled to judicial protection and has a suMcient interest inthe vindication of the asserted public right. In case of taxpayer0s suits,the party suing as a taxpayer must prove that he has suMcient interestin preventing the illegal expenditure of money raised by taxation.(ublic Interest -enter vs. 7oxas, 1# -7! $;&

Aocus standi, however, is merely a matter of procedure and it has beenrecognied that in some cases, suits are not brought by parties whohave been personally injured by the operation of a law or any othergovernment act but by concerned citiens, taxpayers or voters whoactually sue in the public interest. -onseuently, the -ourt, in a catenaof cases, has invariably adopted a liberal stance on locus standi,including those cases involving taxpayers. The prevailing doctrine intaxpayers suits is to allow taxpayers to uestion contracts entered intoby the national government or government%owned or controlled

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corporations allegedly in contravention of law. ! taxpayer is allowed tosue where there is a claim that public funds are illegally disbursed, orthat money is being deOected to any improper purpose, or that there iswastage of public funds through the enforcement of an invalid orunconstitutional law. ignicantly, a taxpayer need not be a party tothe contract to challenge its validity. (!baya vs. >bdane, "r. 1 -7!

;+9&

b& :octrine of transcendental importance@hat is 3transcendental importance4W There being no doctrinaldenition of transcendental importance, the following instructivedeterminants are instructive) (1& the character of the funds or otherassets involved in the case, (+& the presence of a clear case of disregard of a constitutional or statutory prohibition by the publicrespondent agency or instrumentality of the government, and the (#&the lac' of any other party with a more direct and specic interest inraising the uestions being raised. The -ourt has adopted a liberal

attitude on locus standi where the petitioner is able to craft an issue of transcendental signicance to the people, as when the issues raisedare of paramount importance to the public. (Erancisco, "r. vs.Dagmamalasa'it na mga Canananggol ng mga Canggagawangilipino, $1 -7! $$&

?nly a person who stands to be beneted or injured by the judgment inthe suit or entitled to the avails of the suit can le a complaint orpetition. 7espondents claim that petitioner is not a proper party%in%interest as he was unable to show that 3he has sustained or is inimmediate or imminent danger of sustaining some direct and personalinjury as a result of the execution and enforcement of the assailedcontracts or agreements.4 Coreover, they assert that not allgovernment contracts can justify a taxpayer0s suit especially when nopublic funds were utilied in contravention of the -onstitution or a law.@e explicated in CaveF v. PCGG, +== -7! ;$$ (1==<&, that in caseswhere issues of transcendental public importance are presented, thereis no necessity to show that petitioner has experienced or is in actualdanger of su5ering direct and personal injury as the reuisite injury isassumed. @e nd our ruling in CaveF v. P)A, #<$ -7! 1+ (+99+&, asconclusive authority on lo"us stan*i in the case at bar since the issuesraised in this petition are averred to be in breach of the fair di5usion of the country0s natural resources and the constitutional right of a citiento information which have been declared to be matters of transcendental public importance. Coreover, the pleadings especiallythose of respondents readily reveal that public funds have beenindirectly utilied in the roject by means of mo'ey Countain rojectarticipation -erticates (C-s& bought by some governmentagencies. Gence, petitioner, as a taxpayer, is a proper party to theinstant petition before the court. (-have vs. DG!, #9 -7! +#&

tax syllabus usc pals 2014 as corrected

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