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Topic: Tax Returns and Other Administrative Requirements PASEO REALTY AND DEVELOPMENT CORP. vs.COURT OF APPEALSG.R. No.

119286 October 13, 2004FACTS: Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two parcels of land at Paseo de Roxas in Makati City. On April 16, 1990, petitioner filed its Income Tax Return for the calendar year1989 declaring a gross income of P1,855,000.00, deductions of P1,775,991.00, net income of P79,009.00, an income tax due thereon in the amount of P27,653.00, prior years excess credit of P146,026.00, and creditable taxes withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and credit balance of P172,477.00.In a resolution dated October 21, 1993 Respondent Court reconsidered its decision of July 29, 1993 and dismissed the petition for review, stating that it has overlooked the fact that the petitioners 1989 Corporate Income Tax Return (Exh. A) indicated that the amount of P 54,104.00 subject of petitioners claim for refund has already been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax credit for the succeeding taxable year 1990. Petitioner filed a Motion for Reconsideration which was denied by respondent Court on March 10, 1994.Petitioner filed a Petition for Review dated April 3, 1994with the Court of Appeals. Resolving the twin issues of whether petitioner is entitled to a refund of P54,104.00 representing creditable taxes withheld in 1989 and whether petitioner applied such creditable taxes withheld to its 1990 income tax liability, the appellate court held that petitioner is not entitled to a refund because it had already elected to apply the total amount of P172,447.00, which includes the P54,104.00 refund claimed, against its income tax liability for 1990. The appellate court elucidated on the reason for its dismissal of petitioners claim for refund. ISSUE: Whether or not the alleged excess taxes paid by a corporation during a taxable year should be refunded or credited against its tax liabilities for the succeeding year? RULING: The petition must be denied. As a matter of principle, it is not advisable for this Court to set aside theconclusion reached by an agency such as the CTA which is, by the very nature of its functions, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority. This interdiction finds particular application in this case since the CTA, after careful consideration of the merits of the Commissioner of Internal Revenues motion for reconsideration, reconsidered its earlier decision which ordered the latter to refund the amount of P54,104.00 to petitioner. Its resolution cannot be successfully assailed based, as it is, on the pertinent laws as applied to the facts. Petitioners 1989 tax return indicates an aggregate creditable tax of P172,477.00, representing its 1988 excess credit of P146,026.00 and 1989 creditable tax of P54,104.00 less tax due for 1989, which it elected to apply as tax credit for the succeeding taxable year. According to petitioner, it successively utilized this amount when it obtained refunds in CTA Case No. 4439 and CTA Case No. 4528 and applied its1990 tax liability, leaving a balance of P54,104.00, the amount subject of the instant claim for refund. The confusion as to petitioners entitlement to a refund could altogether have been avoided had it presented its tax return for 1990. Such return would have shown whether petitioner actually applied its 1989 tax credit of P172,477.00, which includes the P54,104.00 creditable taxes withheld for 1989 subject of the instant claim for refund, against its 1990 tax liability as it had elected in its 1989 return, or at least, whether petitioners tax credit of P172,477.00 was applied to its approved refunds as itclaims. As clearly shown from the above-quoted provisions, in case the corporation isentitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year. The carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only. Taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. And since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Else wise stated, taxation is the rule, exemption therefrom is the exception.

2. Topic: Tax Exemption of the Government MACTAN CEBU INTERNATIONAL AIRPORT vs. MARCOS

G.R. No. 120082 September 11, 1996 FACTS: MCIAA was created by virtue of Republic Act 6958. Since the time of its creation, MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter. However on 11 October 1994, the Office of the Treasurer of Cebu, demanded for the payment of realty taxes on several parcels of land belonging to the petitioner. Petitioner objected to such demand for payment as baseless and unjustified. It also asserted that it is an instrumentality of the government performing a governmental functions, which puts limitations on the taxing powers of local government units. It nonetheless stands in the same footing as an agency or instrumentality of the national government by the very nature of its powers and functions. The City refused to cancel and set aside petitioners realty tax account, insisting that the MCIAA is a government controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Government Code, and not an instrumentality of the government but merely government owned corporation performing proprietary functions. MCIAA paid its tax account under protest when City is about to issue a warrant of levy against the MCIAAs properties. On 29 December 1994, MCIAA filed a Petition of Declaratory Relief with the Cebu Regional Trial Court contending that the taxing power of local government units do not extend to the levy of taxes or fees on an instrumentality of the national government. It contends that by the nature of its powers and functions, it has the footing of an agency or instrumentality of the national government; which claim the City rejects. On 22March 1995, the trial court dismissed the petition, citing that close reading of the LGC provides the express cancellation and withdrawal of tax exemptions of Government Owned and Controlled Corporations. MCIAAs motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the petitioner filed the instant petition. ISSUE: Whether the MCIAA is exempted from realty taxes? RULING: Tax statutes are construed strictly against the government and liberally in favor of the taxpayer. But since taxes are paid for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Else wise stated, taxation is the rule, exemption therefrom is the exception. However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations. Further, since taxation is the rule and exemption there from the exception, the exemption may be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the nonimpairment clause of the Constitution. MCIAA is a taxable person under its Charter (RA 6958), and was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax. Since Republic Act 7160 or the Local Government Code expressly provides that All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or part of parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. With that repealing clause in the LGC, the tax exemption provided for in RA 6958 had been expressly repealed by the provisions of the LGC. Therefore, MCIAA has to pay the assessed realty tax of its properties effective after January 1, 1992 until the present. 3. US v. Bull The United States vs. H.N. Bull GR L-5270Jan 15, 1910 Facts: On the 2nd of December 1908, a steamship vessel engaged in the transport of animals named Standard commanded by H.N. Bull docked in the port of Manila, Philippines. It was found that said vessel from Ampieng, Formosa carried 677 heads of cattle without providing appropriate shelter and proper suitable means for securing the animals which resulted for most of the animals to get hurt and others to have died while in transit. This cruelty to animals is said to be contrary to Acts No. 55 and No. 275 of the Philippine Constitution. It is however contended that cases cannot be filed because neither was it said that the court sitting where the animals were disembarked would take jurisdiction, nor did it say about ships not licensed under Philippine laws, like the ship involved. Issue: Whether or not the court had jurisdiction over an offense committed on board a foreign ship while inside the territorial waters of the Philippines. Held: No court of the Philippines has jurisdiction over any crimes committed in a foreign ship on the high seas, but the moment it entered into territorial waters, it automatically would be subject to the jurisdiction of the country. The offense, assuming that it

originated in Formosa, which the Philippines would have no jurisdiction, continued until it reached Philippine territory which is already under jurisdiction of the Philippines. Every state has complete control and jurisdiction over its territorial waters. The Supreme Court of the United States has recently said that merchant vessels of one country visiting the ports of another for the purpose of trade would subject themselves to the laws which govern the ports they visit, so long as they remain. Defendant is thereby found guilty, and sentenced to pay a fine with subsidiary imprisonment in case of insolvency, and to pay the costs

4. COMMISSIONER OF INTERNAL REVENUE vs. ALGUE and THE COURT OF TAX FACTS: The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the V e g e t a b l e O i l I n v e s t m e n t Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals. The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees. ISSUE: Whether or not the Collecto r of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. RULING: The Supreme Court agrees with the respondent court that the amount of the promotional fees was not excessive. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was he payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. 6. PEPSI-COLA BOTTLING COMPANY OF THE PHIILIPPINES, INC. VS. MUNICIPALITY OF TANAUAN FACTS: In February 1963, plaintiff commenced a complaint seeking to declare Section 2 of R.A. 2264 (Local Autonomy Act) unconstitutional as an undue delegation of taxing power and to declare Ordinance Nos. 23 and 27 issued by the Municipality of Tanauan, Leyte as null and void. Municipal Ordinance No. 23 levies and collects from soft drinks producers and manufacturers one-sixteenth (1/16)of a centavo for every bottle of soft drink corked. On the other hand, Municipal Ordinance No. 27 levies and collects on soft drinks produced or manufactured within the territorial jurisdiction of the municipality a tax of one centavo (P0.01) oneach gallon of volume capacity. The tax imposed in b oth Ordinances Nos. 23 and 27 is denominated as "municipal production tax. ISSUES: 1. Is Section 2 of R.A. 2264 an undue delegation of the power of taxation? 2. Do Ordinance Nos. 23 and 24 constitute double taxation and impose percentage or specific taxes? RULING: 1. NO. The power of taxation is purely legislative and cannot be delegated to the executive or judicial department of the government without infringing upon t h e t h e o r y o f s e p a r a t i o n o f p o w e r s . B u t a s a n exception, the theory does not apply to municipal corporations. Legislative powers may be delegated to local governments in respect of matters of local concern. 2.NO. The Municipality of Tanauan discovered that manufacturers could increase the volume contents of each bottle and still pay the same tax rate since tax is imposed on every bottle corked. To combat this scheme, Municipal Ordinance No. 27 was enacted. As such, it was

a repeal of Municipal Ordinance No. 23. In the stipulation of facts, the parties admitted that the Municipal Treasurer was enforcing Municipal Ordinance No. 27 only. Hence, there was no case of double taxation.

7. PHIL. GUARANTY CO., INC. v. CIR FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums paid by such companies were excluded by the petitioner from its gross income when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign companies. ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign insurance companies, which deprives the government from collecting the tax due from them? HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state. The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents.

8. PHILEX MINING CORP. v. CIR FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities. ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner? HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence. To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot

refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

9. Domingo vs. Garlitos FACTS: In Domingo vs. Moscoso, the Supreme Court declared at final and executory the order of the court of first instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting to 40, 058.55 by the estate of the late Walter Scott Pine. He petition for execution filed by the fiscal, however, was denied by the lower court the court held that the execution is unjustified as the government itself is indebted to the estate for 262,200; and ordered the amount of inheritance taxes be deducted from the governments indebtedness to the estate. Issues: Can there be legal compensation? Ruling: Yes. The fact that the court having jurisdiction of the estate had found that the claim of the estate against the government has been appropriated for the purpose by a corresponding law ( RA 2700) shows that both the claim of the government for inheritance taxes and the claim of the intestate for services regarded have already become overdue and demandable as well as fully liquidated. Compensation, therefore, take place by operation of law, in accordance with the provisions of article 1279 and 1290 of the civil code, and both debts are extinguished to the amount. 10. Gonzales vs. Hechanova 9 SCRA 230 Facts: Respondent executive secretary authorized importation of 67,000 tons of foreign rice to be purchased from private sources. Ramon A. Gonzales, a rice planter and president of ilo-ilo palay and corn planters asso., filed and averring that in making or attempting to make importation of foreign rice are acting without jurisdiction or in excess of jurisdiction because RA 2207, explicitly prohibits the importation of rice and corn by Rice and Corn Administration or any government agency. Issue: Whether an international agreement may be invalidated by our courts. Held: The power of judicial review is vested with the Supreme Court in consonace to section 2 art. VIII of the Constitution. The alleged consummation of the contracts with vietnam and burma does not render this case academic. RA 2207, enjoins our government not from entering contracts for the purchase of rice, but from entering rice, except under conditions prescribed in said act. A judicial declaration of illegality of the proposed importation would not compel our government to default in the performance of such obligations as it may have contracted with the sellers of rice in question because aside from the fact that said obligations may be complied without importing the said commodity into the phils., the proposed importation may still be legalized by complying with the provisions of the aforementioned law. 11. WENCESLAO PASCUAL vs. THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL.G.R. No. L-10405 December 29, 1960FACTS: On August 31, 1954, petitioner Wenceslao Pascual instituted this action for declaratory relief, with injunction, up on the ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953,contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension a n d i m p r o v e m e n t " o f P a s i g f e e d e r r o a d t e r m i n a l s ; t h a t , a t t h e t i m e o f t h e p a s s a g e a n d a p p r o v a l o f s a i d A c t , t h e aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal" which projected feeder roads "do not connect any government property or any important premises to the main highway";Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the petition did "not state a cause of action". ISSUE: Should appropriation using public funds be made for public purposes only? RULING: The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose,

no appropriation of state funds can be made for other than for a public purpose .The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public 12. COMMISSIONER OF INTERNAL REVENUE vs. MARUBENI CORPORATIONG.R. No. 137377. December 18, 2001FACTS: Respondent Marubeni Corporation is a foreign corporation and is duly registered to engage in business in the Philippines. Sometime in Novem ber 1985, petitioner Commissioner of Internal Revenue issued a letter of authority to examine the books of accounts of the Manila branch office of Respondent Corporation. In the course of the examination, petitioner found respondent to have undeclared in come from two (2) contracts in the Philippines. Petitioner's revenue examiners recommended an assessment for deficiency income, branch profit remittance, and contractors and commercial broker's taxes. Respondent questioned this assessment. Respondent then received a letter from petitioner assessing respondent several deficiency taxes. On September 26, 1986, respondent filed two (2) petitions for review with the Court of Tax Appeals. Earlier, on August 2, 1986, Executive Order (E.O.) No. 41 declaring a one-time amnesty covering unpaid income taxes for the years 1981 to 1985 was issued. Under this E.O., a taxpayer who wished to avail of the income tax amnesty should comply with certain requirements. In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return dated October 30, 1986. On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by Executive Order (E.O.) No. 64. ISSUE: Whether or not herein respondent's deficiency tax liabilities were extinguished upon respondent's availment of tax amnesty under Executive Orders Nos. 41 and 64. RULING: Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts from income tax amnesty those taxpayers with income tax cases already filed in court as of the effectivity hereof." The point of reference is the date of effectivity of E.O. No. 41. The difficulty lies with respect to the contractor's tax assessment and respondent's availment of the amnesty under E.O. No. 64 including estate and donor's taxes and tax on business. In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should be construed strictly against the taxpayer. The term "income tax cases" should be read as to refer to estate and donor's taxes and taxes on business while the word "hereof," to E.O. No. 64. Since Executive Order No. 64 took effect on November 17, 1986, consequently, insofar as the taxes in E.O. No. 64 are concerned, the date of effectivity referred to in Section 4 (b) of E.O.No. 41 should be November 17, 1986. There is nothing in E.O. No. 64 that provides that it should retroact to the date of effectivity of E.O. No. 41, the original issuance. Neither is it necessarily impli ed from E.O. No. 64 that it or any of its provisions should apply retroactively. 13. Allied Thread vs. City of ManilaGR L-40296, 21 November 1984 En Banc, Abad Santos (J): 10 concur, 2 took no part Facts: Allied Thread Co. Inc. is engaged in the business of manufacturing sewing thread and yarn. It operatesits factory and maintains an office in Pasig, Rizal. In order to sell its products in Manila and in other parts ofthe Philippines, it engaged the services of a sales broker, Ker & Co. Ltd., the latter der iving commissionsfrom every sale made for its principal. The City of Manila enacted Ordinance 7516 imposing business taxesbased on gross sales on a graduated basis on manufacturers, importers or producers doing business in Manila.Allied Thread and Ker & Co. alleged that said ordinance is invalid for being contrary to Section 54 of PD426. Issue: Whether Allied Thread is properly taxed in Manila. Held: Ordinance 7516, as amended, imposes a business tax on manufacturers, importers or producers doing business in Manila. The tax imposition is upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, and hence is in the nature of an excise tax. The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in. Thus, since Allied Thread sells its products in the City of Manila through its broker, Ker & Co., it cannot escape the tax liability imposed by Ordinance 7516, as amended. 15. MACEDA vs. MACARAIG, JR., et al. FACTS: Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of hydraulic power and the production of power from other sources. Several laws were enacted granting NPC tax and duty

exemption privileges such as taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities and municipalities "directly or indirectly," on all petroleum products used by NPC in its operation. However P.D. No. 1931 withdrew all tax exemption privileges granted in favour of governmentowned or controlled corporations including their subsidiaries but empowered the President and/or the then Minister of Finance, upon recommendation of the FIRB to restore, partially or totally, the exemption withdrawn. BIR ruled that the exemption privilege enjoyed by NPC under said section covers only taxes for which it is directly liable and not on taxes which are only shifted to it. In 1986, BIR Commissioner Tan, Jr. states that all deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery. Thereafter, the FIRB issued several Resolutions in different occasions restoring the tax and duty exemption privileges of NPC indefinite period due to the restoration of the tax exemption privileges of NPC, NPC applied with the BIR for a "refund of Specific Taxes paid on petroleum products. On August 6, 1987, the Secretary of Justice, Opinion opined that "the power conferred upon Fiscal Incentives Review Board constitute undue delegation of legislative power and, therefore, unconstitutional. However, respondents Finance Secretary and the Executive Secretary declared that "NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity. Thereafter investigations were made for the refund of the tax payments of the NPC which includes Millions of pesos Tax refund. Petitioner, as member of the Philippine Senate introduced as Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, to conduct a Formal and Extensive Inquiry into the Reported Massive Tax Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes, Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the Department of Finance. ISSUE: Whether or not respondent NPC is legally entitled to the questioned tax and dutyrefunds. HELD: YES. In G.R. No. No. 88291 the Supreme Court ruled in favour of exempting NPC to the said taxes. Also in G.R. No. No. 88291 the Supreme Court ruled in favour of respondents. NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity. Presidential Decree No. 938 amended the tax exemption of NPC by simplifying the same law in general terms. It succinctly exempts NPC from "allforms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings." The NPC electric power rates did not carry the taxes and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to the government, no part thereof was recovered from the sale of electricity produced. As a consequence, as of our mostrecent information, some P1.55 B in claims represents amounts for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order to the Bureaus concerned for the resumption of the processing of these claims

17. Topic: Constitutional Limitations: Equal Protection Clause ORMOC SUGAR COMPANY vs. TREASURER OF ORMOCCITY FACTS: On 29 January 1964, the Municipal Board of Ormoc City passed Ordinance 4, Series of 1964, imposing on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one percentum (1%) per export sale to the United States of America and other foreign countries. Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on 20 March 1964 for P7,087.50 and on 20 April 1964 for P5,000.00, or a total of P12,087.50.On 1 June 1964, the company filed before the CFI Leyte, with service of a copy upon the Solicitor General, a complaint against the City of Ormoc as well as its Treasurer, Municipal Board and Mayor (Hon. Esteban C. Conejos), alleging that the ordinance is unconstitutional for being violative of the equal protection clause (Sec.1[1], Art. III, Constitution) and the rule of uniformity of taxation (Sec. 22[1], Art.VI, Constitution), aside from being an export tax forbidden under Section 2287 of the Revised Administrative Code. It further alleged that the tax is neither a production nor license tax which Ormoc City under Section 15-kk of its charter and under Section 2 of RA 2264, otherwise known as the Local Autonomy Act, is authorized to impose; and that the tax amounts to a customs duty, fee or charge in violation of paragraph 1 of Section 2 of RA 2264 because the tax is on both the sale and export of sugar. After pre-trial and submission of the case on memoranda, the CFI, on 6 August 1964, rendered decision that upheld the constitutionality of the ordinance and declared the taxing power of chartered city broadened by the Local Autonomy Act to include all other forms of taxes, licenses or fees not excluded in its charter. Appeal therefrom was directly taken to the Supreme Court. ISSUE: Whether or not the ordinance is violative of the equal protection of laws? RULING:

The Constitution in the bill of rights provides: . . . nor shall any person be denied the equal protection of the laws. (Sec. 1*1+, Art. 111) In Felwa v. Salas, the Court ruled that the equal protection clause applies only to persons or things identically situated and does not bar a reasonable classification of the subject of legislation, and classification is reasonable where (1) it is based on substantial distinctions which make real differences; (2) these are germane to the purpose of the law; (3) the classification applies not only to present conditions but also to future conditions which are substantially identical to those of the present; (4) the classification applies only to those who belong to the same class. Classification reasonable should in terms applicable to future conditions as well The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company Inc. and none other. At the time of the taxing ordinances enactment, Ormoc Sugar Company, it is true, was the only sugar central in the city of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as the Central, from the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to Ormoc Sugar Company as the entity to be levied upon. Interest on refund not due as collection was not arbitrary; Ordinance constitutional until declared otherwise Ormoc Sugar Company, however, is not entitled to interest on the refund because the taxes were not arbitrarily collected (Collector of Internal Revenue v. Binalbagan). At the time of collection, the ordinance provided a sufficient basis to preclude arbitrariness, the same being then presumed constitutional until declared otherwise.

18. Topic: Constitutional Limitations: Due Process Clause CITY OF BAGUIO vs. DE LEON FACTS: In this appeal, a lower court decision upholding the validity of an ordinance 1 of the City of Baguio imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio is assailed by defendant-appellant Fortunato Deleon. He was held liable as a real estate dealer with a property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to pay under such ordinance the P50 annual fee. That is the principal question. In addition, there has been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction of the City Court of Baguio, where the suit originated, a complaint having been filed against him by the City Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from the first quarter of 1958 to the fourth quarter of 1962, allegedly, in spite of repeated demands. Nor was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without the consent of the Mayor, which for him was indispensable. The lower court was of a different mind. It declared the above ordinance as amended, valid and subsisting, and held defendant- appellant liable for the fees therein prescribed as a real estate dealer. Hence, this appeal. Assume the validity of such ordinance, and there would be no question about the liability of defendant-appellant for the above license fee, it being shown in the partial stipulation of facts, that he was "engaged in the rental of his property in Baguio" deriving income therefrom during the period covered by the first quarter of 1958 to the fourth quarter of 1962. ISSUE: Whether or not the ordinance is valid? RULING: The challenged ordinance cannot be considered ultra vires as there is more than ample statutory authority for the enactment thereof. Nonetheless, its validity unconstitutional grounds is challenged because of the allegation that it imposed double taxation, which is repugnant to the due process clause, and that it violated the requirement of uniformity. We do not view the matter thus. As to why double taxation is not violative of due process, Justice Holmes made clear in this language: "The objection to the taxation as double may be laid down or one side. . . . The 14th Amendment [the due process clause] no more forbids double taxation than it does doubling the amount of a tax, short of confiscation or proceedings unconstitutional on other grounds." With that decision rendered at a time when American sovereignty in the Philippines was recognized, it possesses more than just persuasive effect. To some, it delivered the coup de grace to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. In a 1947 decision, however, 9 we quoted with approval this excerpt from a leading American decision: 10 "Where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results." At any rate, it has been expressly affirmed by us that such an "argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city . . ., it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof. The above would clearly indicate how lacking in merit is this argument based on double taxation. Now, as to the claim that there was a violation of the rule of uniformity established by the Constitution. According to the challenged ordinance, a real estate dealer who leases property worth P50,000

or above must pay an annual fee of P100. If the property is worth P10,000 but not over P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the above ordinance cannot be assailed as violative of the constitutional requirement of uniformity. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found."It is thus apparent from the above that in much the same way that the plea of double taxation is unavailing, the allegation that there was a violation of the principle of uniformity is inherently lacking in persuasiveness. There is no need to pass upon theother allegations to assail the validity of the above ordinance, it being maintained that the license fees therein imposed "is excessive, unreasonable and oppressive" and that there is a failure to observe the mandate of equal protection. A reading of the ordinance will readily disclose their inherent lack of plausibility.

20. TOLENTINO vs. SECRETARY OF FINANCEG.R. No. 115455 October 30, 1995FACTS: Motions were filed seeking reconsideration of the Supreme Court decisi on dismissing the petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners in these cases. ISSUES: 1.Whether or not R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required by Art.VI Sec. 24 of the Constitution.2.Whether or not R.A. No. 7716 is violative of press freedom and religious freedom under Art. III Secs. 4 and 5 of the Constitution.3.Whether or not there is violation of the rule on taxation under Art. VI Sec. 28 (1) of the Constitution. 4.Whether or not there is an impairment of obligation of contracts under Art. III Sec. 10 of the Constitution.5.Whether or not there is violation of the due process clause under Art. III Sec. 1 of the Constitution. RULING: 1. While Art. VI Sec. 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of thepublic debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds, " but the Senate may propose or concur with amendments ." In the exercise of this power, the Senate may propose an entirely new bill as a substitute measure. 2. Since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. The VAT is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right anymore than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution.3. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall " evolve a progressive system of taxation."4. Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority.5. On the alleged violation of due process, hardship to taxpayers alone is not an adequate justification for adjudicating abstract issues. Otherwise, adjudication would be no different from the giving of advisory opinion that does not really settle legal issues. We are told that it is our duty under Art. VIII, Sec. 1 (2) to decide whenever a claim is made that "there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government." This duty can only arise if an actual case or controversy is before us. 22. Topic: Freedom of Religion: Free Exercise Clause AMERICAN BIBLE SOCIETY vs. CITY OF MANILAG.R. No. L9637 April 30, 1957FACTS: Plaintiff's Philippine agency has been distributing and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into several Philippine dialects. On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was conducting the business of general merchandise since November, 1945, without providing itself with the necessary Mayor's permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos.2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding permit and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45.Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and pays under protest the sum of P5, 891.45, if suit was to be taken in court regarding the same. To avoid the closing of its business as well as further fines and penalties in the premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit and license fees in the aforementioned amount, giving at the same time notice to the City Treasurer that suit would be taken in court to question the legality of the ordinances under which, the said fees were being collected which was done on the same date by filing the complaint that gave rise to this action. In its complaint plaintiff prays that judgment be rendered declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of P5, 891.45 paid under protest, together with legal interest thereon,

and the costs, plaintiff further praying for such other relief and remedy as the court may deem just equitable. Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, subsection (m-2) of the Revised Administrative Code, superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409, known as the Revised Charter of the City of Manila. ISSUE: Whether or not the ordinances were unconstitutional and provide for religious censorship and restrain the free exercise and enjoyment of its religious profession? RULING: Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides that: No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever bellowed. No religion test shall be required for the exercise of civil or political rights. Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the freedom of religious profession and worship. "Religion has been spoken of as a profession of faith to an active power that binds and elevates man to its Creator". It has reference to one's views of his relations to His Creator and to the obligations they impose of reverence to His being and character, and obedience to His Will. The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraints of such right can only be justified like other restraints of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which the State has the right to prevent". In the case at bar the license fee herein involved is imposed upon appellant for its distribution and sale of bibles and other religious literature. It may be true that in the case at bar the price asked for the bibles and other religious 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 or occupation of selling said "merchandise" for profit. For this reason, we believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs. With respect to Ordinance No. 3000, as amended, which requires the Mayor's permit before any person can engage in any of the businesses, trades or occupations enumerated therein, we do not find that it imposes any charge upon the enjoyment of aright granted by the Constitution, nor tax the exercise of religious practices. It seems clear, therefore, that Ordinance No. 3000(mayors permit) cannot be considered unconstitutional, even if applied to plaintiff Society. But as Ordinance No.2529( license fee) of the City of Manila, as amended, is not applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said business, trade or occupation of the plaintiff.

23. Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY FACTS: The petitioner, a non-stock and non-profit entity is the registered owner of a parcel of land where erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4, 554,860 by the City Assessor of Quezon City but the former filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. ISSUE: Whether or not the petitioners real properties are exempted from realty tax exemptions. HELD: Even if the petitioner is a charitable institution, those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Under Section 2 of Presidential Decree No. 1823, the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among the enumeration of tax exempt

privileges under Section 2. Accordingly, the portions occupied by the hospital used for its patients are exempt from real property taxes while those leased to private entities are nonexempt from such taxes.

24. Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees Abra Valley College v. Aquino FACTS: Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void the Notice of Seizure and the Notice of Sale of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said Notice of Seizure by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. The trial court ruled for the government, holding that the second floor of the building is being used by the director for residential purposes and that the ground floor used and rented by Northern Marketing Corporation, commercial establishment, and thus the property is not being used exclusively for educational purposes. Instead of perfecting an appeal, petitioner availed of the instant petition for review on certiorari with prayer for preliminary injunction before the Supreme Court, by filing said petition on 17 August 1974. ISSUE: Whether or not the lot and building are used exclusively for educational purposes. HELD: NO. Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption from realty taxes for cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes. Reasonable emphasis has always been made that the exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. The use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to theNorthern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education. The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed tax be returned to the petitioner. The modification is derived from the fact that the ground floor is being used for commercial purposes (leased) and the second floor being used as incidental to education (residence of the director).

Topic: Sources of Tax Laws: Tax Treaties COMMISSIONER OF IINTERNAL REVENUE vs. SC JOHNSON & SON INC.G.R. No. 147188 June 25, 1999 FACTS: Respondent is a domestic corporation organized and operating under the Philippine Laws, entered into a licensed agreement with the SC Johnson and Son, USA, a non-resident foreign corporation based in the USA pursuant to which the respondent was granted the right to use the trademark, patents and technology owned by the later including the right to manufacture, package and distribute the products covered by the Agreement and secure assistance in management, marketing and production from SCJohnson and Son USA. For the use of trademark or technology, respondent was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which respondent paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00. On October 29, 1993, respondent filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that, the antecedent facts attending respondents case fall squarely within the same circumstances under which said Mac George and Gillette rulings were issued. Since the agreement was approved by the Technology Transfer Board, the preferential tax rate of 10% should apply to the respondent. So, royalties paid by the respondent to SC Johnson and Son, USA is only subject to 10% withholding tax. The Commissioner did not act on said claim for refund. Private respondent SCJohnson & Son, Inc. then filed a petition for review before the CTA, to claim a refund of the overpaid withholding tax on royalty payments from July 1992 to May 1993.On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR to issue a tax credit certificate in the amount of P163,266.00representing overpaid withholding tax on royalty payments beginning July 1992 to May1993.The CIR thus filed a petition for review with the CA which rendered the decision subject of this appeal on November 7, 1996 finding no merit in the petition and affirming in toto the CTA ruling. ISSUE: Whether or not tax refunds are considered as tax exemptions? RULING: It bears stress that tax refunds are in the nature of tax exemptions. As such they are registered as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption.

The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law. Private respondent is claiming for a refund of the alleged overpayment of tax on royalties; however there is nothing on record to support a claim that the tax on royalties under the RP-US Treaty is paid under similar circumstances as the tax on royalties under the RP-West Germany Tax Treaty. 26. VILLANUEVA v. CITY OF ILOILOG.R. No. 26521 December 28, 1968 FACTS: The municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: 1) tenement house,P25.00anually; 2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, IznartAldequer, P24.00 per apartment; 3) tenement house, partly or wholly engaged in business in any other streets, P12.00per apartment. The validity and constitutionality of this ordinance were challenged by the spouses Villanueva, owners of 4 tenement houses containing 34 apartments. ISSUE: Does Ordinance 11 violate the rules of uniformity of taxation? RULING: No. This court has ruled that tenement houses constitute a distinct class of property. It has likewise ruled that taxes are uniform and equal when imposed upon all properties of the same class or character within the taxing authority.The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition.

28. VICTORIAS MILLING CO., INC. vs. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL FACTS: This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental. The disputed ordinance imposed license taxes on operators of sugar centrals and sugar refineries. The changes were: with respect to sugar centrals, by increasing the rates of license taxes; and as to sugar refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual output capacity. For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery located in the Municipality of Victorias comes within these items. Plaintiff filed suit below to ask for judgment declaring Ordinance No. 1, series of 1956, null and void. The plaintiff contends that the ordinance is discriminatory since it singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality. The trial court rendered its judgment declaring that the ordinance in question refers to license taxes or fees. Both plaintiff and defendant directly appealed to the Supreme Court. ISSUE: Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a regulatory enactment or as a revenue measure? RULING: The present imposition must be treated as a levy for revenue purposes. A quick glance at the big amount of maximum annual tax set forth in the ordinance, P40,000.00 for sugar centrals, and P40,000.00 for sugar refineries, will readily convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing which would as much as indicate that the tax imposed is merely for police inspection, supervision or regulation. Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that the ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed. The ordinance is for raising money. To say otherwise is to misread the purpose of the ordinance.

30. C OMMISSIONER OF INTERNAL REVENUE V . PROCTER AND GAMBLE P HILIPPINE MANUFACTURING CORPORATION Topic: Tax credits granted to foreign corporations by their home countries; principles. Facts: Procter and Gamble Philippines declared dividends payable to its parent company and sole stockholder, P&G USA, and deducted 35% withholding tax at source. It then filed a claim with the Commissioner of Internal Revenue for are fund or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal Revenue Code, as amended by Presidential Decree No. 369, the applicable rate of withholding tax on the dividends remitted was only 15%.

Issues and Ruling: 1.W/N P&G Philippines is entitled to the refund or tax c r e d i t . YES. The ordinary 35% tax rate applicable to dividend remittances to nonresident corporate stockholders of aPhilippine corporation goes down to 15% if the country of domicile of the foreign stockholder corporation shall allow such foreign corporation a tax credit for taxes deemed paid in the Philippines, applicable against the tax payable to the domiciliary country by the foreign stockholder corporation. Such tax credit for taxes deemed paid in the Philippines must, as a minimum, reach an amount equivalent to 20 percentage points which represents the difference between the regular 35% dividend tax rate and the preferred 15% tax rate. Since the US Congress desires to avoid or reduce double taxation of the same income stream, it allows a tax credit of both (i) the Philippine dividend tax actually withheld, and (ii) the tax credit for the Philippine corporate income tax actually paid by P&G Philippines but deemed paid by P&G USA. Moreover, under the PhilippinesUnited States Convention With Respect to Taxes on Income, the Philippines, by treaty commitment, reduced the regular rate of dividend tax to a maximum of 20% of the gross amount of dividends paid to US parent corporations, and established a treaty obligation on the part of the United States that it shall allow to a US parent corporation receiving dividends from its Philippine sub sidiary a [tax] credit for the appropriate amount of taxes paid or accrued to the Philippines by the Philippine [subsidiary]. Notes: The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. The withholding agent is the agent of both the Government and the taxpayer. With respect to the collection and/or withholding of tax, he is the Governments agent. With regard to the filing of the necessary income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The NIRC does not require that the US tax law deem the parent corporation to have paid the 20 percentage points of dividend tax waived by the Philippines. It only requires that the US shall allow P&G-USA a deemed paid tax credit in an amount equivalent to the 20 percentage points waived by the Philippines. Section 24(b)(1) does not create a tax exemption nor does it provide a tax credit; it is a provision which specifies when a particular (reduced) tax rate is legally applicable. An interpretation of a tax statute that produces a revenue flow for the government is not, for that re ason alone,necessarily the correct reading of the statute. Section 24(b)(1) of the NIRC seeks to promote the inflow of foreign equity investment in the Philippines by reducing the tax cost of earning profits here and thereby increasing the net dividends remittable to the investor. The foreign investor, however, would not benefit from the reduction of the Philippine dividend tax rate unless its home country gives it some relief from double taxation by allowing the investor additional tax credits which would be applicable against the tax payable to such home country. Accordingly Section 24(b)(1) of the NIRC requires the home or domiciliary country to give the investor corporation a deemed paid tax credit at least equal in amount to the 20 percentage points of dividend tax foregone by the Philippines, in the assumption that a positive incentive effect would thereby be felt by the investor