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June 21 (Part 1) Transcribed by: Olamit, Ara Princess O.

INTRODUCTION Now let’s begin with taxation.

For the entire semester, we will discuss two things:

First, the General Principles of Taxation and the second is the Income Taxation Proper.

For your first exam, the coverage will be the entire General Principles of Taxation.

The first question that I always ask to my class is “Why do we have to study taxation?”

Aside from being a bar subject and aside from the fact that you are all students, you are required to take the subject, why do we need to study taxation to begin with? Why is it important? Why is it important to learn how tax works here in the Philippines?

There are several reasons.

We will encounter taxation daily. Even if we don’t know it, we are actually encountering taxation, right from the time that we were born until the time we die. For example, you were born, what about the money that your parents would spend in the hospital? That money is worth subject to taxation. The money that will be given to the doctor will form part to the doctor’s PF (professional fee). Again we are subjected to the VAT or the percentage tax or probably it will be subjected to the income tax if the doctor will declare it as an income to begin with. Okay.

Let’s go to more contemporary context. When you buy gas to your cars. What do you see in your receipts? Diba, there is a VAT component. Who pays for the VAT? It’s not you guys but it is actually the seller (ex. Shell). But you as the consumers are being made to shoulder the payment of VAT. So you are being affected with taxes. If you buy new car right now, in 2018, there is an increase in the excise tax law or the pens from the national bookstore, those are subjected to tax.

What if you are filthy rich and you would like to give out a house and lot to your boylet or girlet. Or to your husband and wife. You would like to give it for free. So what kind of contract is that? That is donation. If you donate something, you give something for free, you will be subjected to donor’s tax. And who will pay the donor’s tax? It is not the person who will receive the gift but it is actually the person who gives the gift. Maghatag na lang gani ka, pabayaron pa jud kag tax. Diba that’s how crazy our tax is.

Even if we die, we will still be subjected to taxation. May Succession na kayo? What do you call the properties that are left behind by the decedent? The

estate. Those properties will be subjected to taxation. On top of that, it’s not enough that you die because there is a certain limit for which the heirs, or your estae, must have to pay the estate tax. At least one year, or within one year you pay your taxes under normal circumstances. So you see? You’re already dead but you are still being made to pay the tax. That’s why, probably, some people would say that there are three permanent things in the world.

1. Death - Mamatay man kayo lahat. Whether you like it or not, we will all die. Each and everyday we are dying slowly.

2. God - Regardless of your religion, we all know that God will be permanent in our lives.

3. Taxes - We cannot escape taxes. Even if we die, we will always be subjected to taxation.

So more or less, since we encounter it daily, we should know at least a little bit of how our Tax works here in the Philippines. Because, probably, if you are in the real world right now, you are an employee or employer, you have you own businesses, you will be subjected to taxation. How would you know that you are paying the correct taxes? Or how would you know that the taxes collected from you by the BIR are the correct amount of taxes that you should pay?

Or let’s make it simpler. What about the compliance? Okay for you who are business people here, lagi kayong na-pepenalty. Bakit yan? Diba. So magbabayad na lang kayo ng penalty so that there would be no trouble. But just think of how much. You just don’t know when and where to find. Diba, you can avoid that.

And lastly, you have to study tax because this is a bar subject. You need to pass taxation in order for you to graduate in Ateneo and for you all to become a lawyer. So I think more or less, this taxation is one of the important subjects that you should know or understand a bit.

DEFINITIONS OF TAXATION

If you look at a lot of books, there are different definitions of taxation.

Aban: Taxation is the power by which the sovereign raises revenue to defray the necessary expenses of the government.

Black’s Law Dictionary: Taxation is a process or an act imposing a charge by governmental authority on property, individuals, or transactions to raise money for public purposes.

De Leon: Taxation is a means by which the State, through its law-making body, raises income to defray the necessary expenses of the government”.

From these definitions, we find that there are

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THREE BASIC CONCEPTS OF TAXATION

1. Taxation is a power. It is a power wielded by the State, to collect money, so that they have to spend something for public purposes.

2. Taxation is a process. It’s basically a process. From the time the Tax law is being made, is being enforced, form the time it is collected, it is a whole process that all of us encounter.

3. Taxation is a means. It is a means of survival. Taxation is not only a way for the State to collect money but also for the State to survive. It is a way for the State to endure and survive.

I would like to impart to you this definition of taxation by Domondon. I like this definition because it more or less encompasses the nature and characteristics of taxation. From this definition, andami nating masagot., andami nating discussion. So let’s begin.

Taxation is the inherent power of the State, exercised through the legislature, to impose burdens upon subjects and objects within its jurisdiction, for the purpose of raising revenues to carry out the legitimate objects of the government.

NATURE OF TAXATION

Most books would say that Taxation has a two-fold nature.

(1)

It is an inherent power and

(2)

It is a legislative power in itself.

Some books would like to add one nature of taxation. (3) It is subject to inherent and constitutional limitations.

So let’s go back to the definition.

I. TAXATION IS THE INHERENT POWER OF THE SOVEREIGN. The power to tax is one of powers of the government. This is basic in Constitutional Law. What are the 3 inherent powers of the state? Police power, Power of eminent domain, and power of taxation. It is inherent because the moment that the state comes into being, the power to tax, along with the other inherent powers will automatically come out with it. ‘Pag merong state, meron ng power to tax.

Thus:

(1) We do not need the Constitution in order for the government to exercise the power of taxation; and

(2)

We don’t need any laws so that the government may enact tax measures in order for it to survive.

This is actually affirmed in the case of Pepsi Cola vs. Municipality of Tanauan. The power of taxation is an essential and inherent attribute of sovereignty belonging as a matter of right to every independent government, without being expressly conferred by the people.”

The power to tax is tend to be the most powerful among the inherent powers of the state.

Why is it powerful? Because the POWER TO TAX is plenary, all encompassing, and unlimited.

What do you mean by that? How is it being manifested?

What are the THREE OBJECTS OF TAXATION to begin with?

1. Persons - (ex. Community tax)

2. Property - (ex. Real property tax)

3. Rights - (ex. Excise tax, income tax) When

you say income tax, the government does not tax the money that you receive because you are working or you are engaged in business, what the government actually taxes is your

privilege of earning income.

What is your conclusion then? The power to tax practically covers everything right? Taxation practically covers everything. The government can practically tax everything under the sun. If you have certain property, possible that the government can enact taxes. For example, right now, grabe na ang traffic sa Davao.

June 21, 2018 (2 nd half) Transcribed by: Campaner, Marrie Allexa F.

The government would like to curve down the purchase of vehicles, what can it do? One, it may raise the excise tax. Or probably it may enforce taxes based on ownership of cars (it’s a property tax). The government can do this and you cannot do anything about it. It encompasses all the spectrum involved in taxation, one of which is the rate of taxes if the government will say that all the properties will be liable for 80% tax rate, can it do that? Theoretically, yes! This is because the power to tax is all- encompassing, plenary, and unlimited.

Later you will know that Taxes are burdens, this is a natural effect of this principle it is the most powerful of all the inherent powers of the government. It is not the most pervasive, but it is the most powerful.

Tio v. Videogram Regulatory Board

There is a certain law enacted by the government back then regulating the videotapes. If the videotapes are not locally made, it will be subjected to a tax, but if it is locally made tax free.

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Valentin Tio is a videogram operator. His contention is that the tax is very oppressive and harsh. If the government should tax the videotapes, what will be left to our business (Tio)?

3.

The power to tax involves the power to destroy so it must be exercised with great caution (Phil Health Care v. Commission)

 

Phil Health Care v. Commission

 

Thus the constitutionality of the tax law was challenged in that it is oppressive and harsh, and it is in restrict of trade.

 

One of the issues here is the imposition of Documentary Stamp Taxes (DST).

SC:

Yes,

it

is

actually

very

harsh,

what

is

being

When the SC 1 st decided the case, it said that the PhilHealth should pay the tax imposed. The PhilHealth filed a Motion for Reconsideration.

collected

is

big.

But

the

mere

fact

that

the

tax

measure

is

oppressive

in

itself

does

not

make

it

unconstitutional.

 

“However, it is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it.

The SC granted the MR. Naawa sya sa PhilHealth, why? The deficiency assessment is around 300M, it assets is only 259M.

“As a general rule, the power to tax is an incident of sovereignty and is unlimited in its

range, acknowledging in its very nature no

limits, so that security against its abuse is to be found only in the responsibility of the

 

The SC is saying “the law is harsh but it is the law”. We

 

legislature

which

imposes

the

tax

on

the

cannot do anything about it. That is how powerful the power to tax of the government is.

The power to tax is the power to destroy

constituency

who

is

to

pay

it.

So

potent

indeed is the power that it was once opined that "the power to tax involves the power to destroy."

This is the opinion of Justice Marshall in one US case. The power to tax is a destructive power which can pirece through personal, property and property rights of the people. If the state should wield it, it can destroy a particular business; all in the name of taxation.

But: Given the realities on the ground, imposing the DST on petitioner would be highly oppressive. It is not the purpose of the government to throttle private business. On the contrary, the government ought to encourage private enterprise. Petitioner, just like any concern organized for a lawful economic activity, has a right to maintain a legitimate business.”

“The power of taxation is sometimes called

 

The power to tax is NOT the power to destroy

 

This is according to Justice Holmes – “the power to tax is not the power to destroy while this court sits.”

Contradicting right? Because you cannot really deny

 

also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It

that power to tax is so powerful and it can destroy a particular industry. But then, Justice Holmes says that it is not a power to destroy.

must

be

exercised

fairly,

equally

and

uniformly, lest the tax collector kill the "hen that lays the golden egg."

How do we reconcile the two principles? When we say that the power to tax is the power to destroy, it refers to a valid tax law.

When we say that the power to tax is NOT the power to destroy, it refers to an invalid tax law; meaning it violated some inherent limitations or constitutional limitations.

What is the implication of “Power to Tax is Not the Power to Destroy”?

1. The courts may strike down an invalid tax law;

2. The power to tax is still subject to limitations (a) inherent limitations; and (b) Constitutional limitations;

CIR v. SM Prime Holdings

SM, et al. are cinematographic operators. This involves VAT deficiency assessment kulang daw ang binayaran na VAT. The SM did not want to pay, so it filed a protest.

BIR SM lost CTA SM won

Republic went to SC to ask for the reversal of the CTA decision.

SC: There is no need for SM to pay the VAT for two reasons:

that

2.

There

is

no

law

that

says

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cinema operators are liable for VAT

3. If the cinema operators are made liable to pay the VAT, it is already so oppressive and unjust. Because under the LGC they are already being made to pay the 30% amusement tax. And on top of that is the 10% VAT should the court adjudge it liable. And mind you, these taxes are based on the gross sales, walang deductions pa yan. So ano nalang kikitain? Again, apply the golden egg principle.

LIFEBLOOD THEORY

Taxes are the lifeblood of the state, without which the government cannot endure or survive. This is the Article 19 of taxation. Ano ba Article 19 sa Civil Code? “Everyone must in the exercise …” (abuse of rights principle). So this phrase is very important, if you don’t know if taxable or not, this is what you will answer; but don’t do this in our exam!

Manifestations of the lifeblood doctrine:

1. NO INJUNCTION PRINCIPLE GR: The collection of national taxes cannot be enjoined. You should read the case of Republic v. Caguioa, just focus on the propriety of the judge in issuing the writ of preliminary injunction. E: The exception is the CTA Law. Upon compliance with certain requirements, the CTA may enjoin the collection of taxes.

2. STRICT CONSTRUCTION OF TAX EXEMPTION LAWS.

June 26, 2018 Castro, SS

II. THE POWER OF TAXATION IS A LEGISLATIVE FUNCTION. It is legislative in character. It is the Congress, the Senate and House of Representatives, they are the one task creating our tax laws.

How are tax laws passed? First it is in the House of Representative and then second it is submitted to the Congress and the latter will make amendments and propose its amendments and then Senate and then that’s it the rest is history.

Pepsi Cola vs. Municipality of Tanauan -- SC said that this is a power purely legislative. And which the central legislative body cannot delegate either to the executive or judicial department.

So basically when we say that the power of taxation is legislative in character we still follow the rule in your Constitution Law that the power

of taxation cannot be delegated. That is our GENERAL RULE.

What is the scope the legislative power of the Congress in the taxation aspect? Basically, it covers the entire spectrum of taxation. Like what?

1.

The object of taxation;

 

2.

The nature and kind;

 

3.

The

extent

or the

rate

of that

particular

subject or object;

 

4.

The coverage of taxation. Right like now the Philippine law already covers sugar (e.g coke); cosmetic surgery (before subject lang yan ng 3%, but right now there is an added tax as long as the cosmetic procedure is invasive in nature. Kung haplas-haplas lang okay lang yan. I am wondering in manicure and pedicure. Cosmetic man din yan. Sir is wondering.)

5.

Place or Situs of Taxation. The Government or the Congress may have a particular subject or object that will be subjected to tax. As you can see later on, even if you are a Filipino residing in the Philippines but you have income abroad it will still be taxed as part of your gross income. So diba even if your income is outside in the Philippines it will still be covered by our Philippine taxation. And why is that? Because the law says so. There is no other reason to it.

PRINCIPLE OF NON-DELEGATION GR: The power of taxation cannot be delegated.

It is basically because, what the Congress has right now is just a delegated power. If we take out Congress it is actually the people who has the power to negotiate. Because we inform the State. But because of our Constitution, we delegate it to certain group of people sometimes they are idiots and they are divided into Senate and House of Representatives. XPNS: Those provided in Abakada vs. Ermita (please read this case kasi madami matamaan na general principles sa Taxation):

1. Delegation to the LGU

2. Delegation to the President

3. Delegation to the administrative agencies

4. Delegation to the people at large

5. Emergency powers of the President

1. DELEGATION TO THE LGU

What is our legal basis for the delegation to the LGUs? It is under Article X, Section 5 of the 1987 Constitution:

Each LGU shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such

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guidelines and limitations as Congress may provide consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local governments.

The first question will always be: what is the nature of the LGU’s power to tax? Is it delegated or direct grant? Delegated by who or by what? Or is it a direct grant from where?

That is always the controversy going on for quite some time. Even the SC cannot agree. If you have shifted to the cases I gave you- may iba sinasabi na delegated power meron din naman na direct power tapos after na naman delegated power na naman siya. But in the Ferrer, Jr. vs. Bautista:

- It is against Herbert Bautista yung boyfriend daw ni Kris Aquino. In this case, it is purely delegated power. But how do we properly interpret that? The first principle you have to remember is that the LGU has no inherent power to tax. That’s the very principle you have to remember in the first place. And why is that? Because the power to tax is lodge in the National Government. But what is LGU? Is it a government in itself? Is it a State in itself? The LGU is a municipal corporation. They are corporations created by law with special functions, with special purpose, etc. And they have been given the power to tax by virtue of this Constitutional provision.

So it is merely DELEGATED POWER. Because if there is no Constitution basically this LGU has no authority to tax at all. It can tax only because of that particular provision. This keeps us thinking that the Constitution is supposed to be there to limit the power of taxation. But right now in our current set up it would seem that the 1987 Constitution would expand the power tax. It would not be limited to the national government only. But the national government may delegate the same to the LGU or municipal corporations. So that is one way to argue.

Second, it is a DIRECT GRANT. It is a direct grant from the Constitution. But what does that mean? Once it is in the Constitution, we do not need any enabling law for that to happen. Automatically, the LGU has the power to tax already because of that Constitutional provision. The Congress may then set forth the limits of the LGU’s power to tax and right now it is in the Local Government Code.

Whatever side you choose or argue on, you always think of one thing- still the LGU do not have the inherent power to tax.

Part 2 Inah del Rosario

How do you reconcile the two principles of the delegation of taxation powers? It is a mere delegated power. Without the Constitution, the LGU’s will not have the power to tax. It is not an inherent power. Nonetheless, it is a direct grant by the Constitution. The express provision of the Constitution, the LGU’s have the power to tax without having to wait for an executing law. The purpose of the Local Government Code is merely to limit the powers to tax. The power of the LGU to tax is limited, not plenary.

National Government: Power to tax is plenary. Local Government: Power to tax is not plenary because it is limited by the Local Government Code.

2. DELEGATION TO THE PRESIDENT

ART. VI, SEC 28 (2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.

The powers of the President to tax is merely delegated. The President has no inherent power to tax. Remember that the power to tax is inherently legislative in nature while the nature of the function of the President is executive. His power is necessarily related to the enforcement of the laws.

But then, by this Constitutional fiat, he is somehow given this limited power of taxation.

What is the SCOPE? It is limited to tariffs and customs duties. This is related to importation or exportation. (These terms are interchangeable under Customs laws)

GARCIA VS. EXECUTIVE SECRETARY (1992) EO 438 was issued by the President imposing import duties. The rate was increased; then decreased by EO 475 with the exception of crude oil and other oil products. Here comes Cong. Garcia challenged constitutionality of the EO on the ground that in issuing those EOs the President is in effect exercising the power to tax which is vested exclusively in the Congress.

Do you see the flaw in his argument?

SC upheld the constitutionality of the EOs based on Art. VI, Sec. 28(2).

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There are 2 REQUIREMENTS FOR THE VALID EXERCISE OF THE PRESIDENT OF THE POWER TO TAX:

There must be a law promulgated by

(1)

Congress authorizing the President to do such thing. (2) The exercise must be within the limits

set forth in the law.

What is the law that authorizes the President to adjust/remove the rates? Formerly it was the Tariff and Customs Code. Now, it is the Customs Modernization and Tariff Act.

SOUTHERN CROSS VS. CEMENT MANUFACTURERS This is about the Safeguard Measures Act. If you read the facts, you won’t understand a thing. But, the principles laid down in the case is actually easy to understand. There are BASIC POSTULATES INGRAINED IN ART. VI, SECTION 28(2):

(1) It is the Congress which authorizes the President to impose tariff rates import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. Meaning this is a pure delegation to the President

It’s not enough for the Congress to allow

the President to exercise such power. That delegation must be embodied in a law. (3) The authorization of the President may only be exercised within the specified limits in the law and is further subject to limitations and restrictions which Congress may impose. Once there is a law allowing the President, he may never have a vested right over such power. Because it may be adjusted later on or taken away. We go back to the basic principle that the Congress as the legislative body has the inherent power to tax.

(2)

3.

DELEGATION

AGENCIES This is also known as subordinate legislation.

TO

THE

ADMINISTRATIVE

2 TESTS FOR A VALID DELEGATION:

Completeness Test Sufficient Standards Test

Completeness Test Sufficient Standards Test

(1)

(2)

Without passing these tests, there is no valid delegation.

What is basic principle when we talk about delegation to administrative bodies? The rules and regulations issued by administrative bodies must conform to the law. It can neither expand nor constrict what is written in the red letter of the law.

If there is discrepancy between the law and the revenue regulation, it is the law which will prevail.

ABAKADA VS. ERMITA This involves RA 9337 (amended the NIRC ) particularly the stand-by powers of the President. The stand-by powers of the President if exercised will raise the VAT percentage. RA 9337 contains a proviso authorizing the President, upon recommendation of the Secretary of Finance

to raise the VAT rate to 12% effective Jan 1, 2006 after the ff. conditions are met:

VAT collection as a percentage of

GDP of the previous year exceeds 2 4/5%; or 2) National Government deficit as a percentage of GDP of the previous

1)

year exceeds 1 1/2%

SC said that there was no delegation of legislative power to the President. This is because the President is mandated to increase VAT percentage upon the happening or existence of any of the conditions.

June 26, 2018, Part 3 Transcribed by: Dianne Marie Isidor

Based on the happening of the two facts, the President is authorize to, what, increase the VAT percentage.

Does the President have the option to not exercise the standby power? A: Wala daw discretion kasi once na the conditions will happen, the President has no authority to not follow the increase of the VAT rate.

So isipin nyo, sometimes its delegation, this is one case that I found it difficult to understand. The law says na, the President may increase the VAT rate upon the happening of the conditions.

Dissenting opinion of the case(as summarized by sir):

The argument there is that it is still discretionary on the part of the President whether or not he or she will apply or exercise his or her standby powers.

CIR VS FORTUNE TOBACCO

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RA 8240 increased the tax rates on cigarettes from 10% to 11%. By virtue of that law, the BIR issued a Revenue Regulation No.17-99 which provided (t)hat the new specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and fermented liquor shall not be lower than the excise tax that is actually being paid prior to January 1, 2000.

The effect of this is the BIR made a

essentially, what the BIR is saying that by virtue of that revenue regulation, hanggang dito lang yan. You cannot go below these even if there is an increase in the excise tax rates. Your taxes that you should pay will not go below a certain threshold.

So,

Q: So what’s the issue in this case? A: The issue in this case is W/N the BIR exceed in exercising its delegated power?

Ruling: The SC ruled in the affirmative. By setting the floor for excise tax on cigarettes you have already exceeded what was provided by law. What was provided for by law is that you just adjust the rates.

Principle:

The Rule is that administrative regulations must be in harmony with the provisions of the law. The revenue regulations must not expand, modify, alter or amend thebasic law which it seeks to implement.

4. DELEGATION TO THE PEOPLE AT LARGE

This is through Initiative and Referendum. We will not delve deeper into that. Because it is actually impossible for people to exercise Tax powers through Initiative and Referendum. Who would want to make a law imposing new taxes, diba? Probably siguro tax exemption. But this is a very difficult thing to do as you already know in your Constitutional law and Elections law.

III. TAX IS A BURDEN

Tax power involves the imposition of Burdens.

What are the subjects of taxation? Persons, Property and Rights, right? It is all encompassing. The state can tax anything under the sun. There is almost no exception.

On top of that, it is a Forced Contribution. Pugson ka nga mubayad. You pay your taxes otherwise there will be sanctions. You may even go to prison. You pay your taxes and you will not immediately feel the benefits given by the government. Bayad ka ngayon, yung taxes mo

para sa mga roads na iconstruct sa Ilocos, pano yan? Can you avail of that? NO.

What about let’s put it in the context of, you know,senior citizen discounts and vat exemption?

Alam nyo ba kung gano kalaki yan? 20% discount plus 12% vat exemption.

So sa 200 pesos, ang babayaran mo lang ay nasa around 150 or 160. So, malaki di ba? So order lang kayo ng order(HAHAHA).But you cannot say that you know because you are paying your taxes and you can now avail of the senior citizen discount. Because you are not yet a Senior Citizen. Basically what the government offers, is really a chance for all of us to avail of the government services later on. Hindi na pag may binigay ka, kailangan meron din ibigay.

Can one refuse to pay the tax because he doesn’t

cannot

actually refuse that. You can refuse, kung ayaw na nya,ayaw na nyang magbayad, but there will be sanctions later on.

derive

any

benefits

from

it?

The

person

As one SC decision would say: Tax is the price we pay for a civilized society. There is no need that one must seen an actual or direct consideration. Because remember that it is enough that the money made for taxation is for profit, for cost and for the benefit of the public in general. Tax is a burden to be used as a power to destroy and at the same time it can also be used as a power to build.

July 3, 2018 0:00-13:00 Lexi Singanon

JURISDICTION

Let’s begin with Jurisdiction. When you talk about Jurisdiction in the concept of taxation, you talk about territory.

1.

TERRITORIALITY

When you say that taxation is jurisdictional in nature, it means the power of taxation operates only within the territorial limits of the taxing authority.

As a GENERAL RULE, once the object or subject is already outside the Philippines, it is no longer subject to Philippine taxation. EXCEPTION: If there is a privity of relationship between the taxing authority and the tax subject or object.

How do you determine if there is a privity of relationship between the taxing authority and the tax subject or object? There is a privity of relationship between the taxing authority and the tax subject or object if the taxing authority can afford protection to the tax subject or object.

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So everything boils down to protection.

Now, how do you specifically determine if the government can afford protection to the tax subject or object?

Generally, it devolves upon THREE FACTORS:

1. CITIZENSHIP of the tax subject or object;

2. RESIDENCE or LOCATION of the tax subject or object; and

3. SOURCE of the tax subject or object.

When you talk about jurisdiction, you are also talking about the territorial limits of the power to tax pursuant to its territorial in nature. This also has something to do with the SITUS of taxation.

2. SITUS OF TAXATION

What do you mean by situs of taxation?

It means place of taxation. It doesn’t mean that if a particular tax subject or object is here in the Philippines, it is already covered. No. Because you also have to look at the situs of taxation, the rules on situs of taxation.

The rules on situs of taxation are the general rules that states or taxing authorities follow when it comes to taxation schemes and most of them, if not all, are applicable to the Philippine taxation setting.

FACTORS CONSIDERED IN DETERMINING WHETHER OR NOT A TAX SUBJECT OR OBJECT IS SUBJECT TO PHILIPPINE TAXATION:

1. Kind of tax being imposed or levied;

2. The place where the thing or property is located;

3. Residence of the person being taxed;

4. Citizenship of the person being taxed;

5. Source of the tax subject or object; and

6. Place where the excise or privilege or business or occupation is being performed (the place of exercise of these rights)

Must all these factors go together?

No need. It is enough that one or some of the factors exist in order that the tax subject or object may be covered by Philippine taxation.

DIFFERENT TYPES OF TAX SUBJECTS

Please take note that we’re still in the general principles. Pag mag-exam na tayo sa general principles I don’t want people to answer in the context of the NIRC provisions. I want you to answer in the context of the general principles.

a) INCOME TAX

What are the considerations that must be looked into in order to determine the situs of taxation of income tax?

There are three considerations:

1. CITIZENSHIP of the taxpayer;

2. RESIDENCE or LOCATION of the taxpayer; and

3. SOURCE of the income.

So those are the three factors. So parang “mix-and- match” siya.

Examples:

1)

Resident of the Davao and earning income in the

Davao. Taxable here. You don’t have any problem with me when it comes to Philippine taxation because I am residing here in Davao, and I am earning income here. What type of income? It’s compensation income, coming from an employer-employee relationship.

2) Resident of Davao but earning income abroad. Income abroad taxable in the Philippines. Now, suppose I own a restaurant in Hong Kong, and I am living here in Davao City. I am a Filipino citizen operating a Filipino restaurant in Hong Kong.

Because of the fact that I am a Filipino citizen who is residing here in the Philippines, even my income from abroad are taxable under Philippine laws. Why? Because the government can afford protection on my part.

3) Non-resident Foreigner earning income in the Philippines. Her income made in the Philippines is taxable in the Philippines. Let’s twist the problem a little bit further. What if si Maria Ozawa, a Japanese citizen working as a model here in the Philippines. She’s not even residing here, but she earns income here in the Philippines.

Does it mean that if she is not a resident here in the Philippines, her income here are not subject to Philippine income tax?

No, because there is still the source of income. Where is the source of her income from her modelling? Here in the Philippines. That’s why even if she is not a resident and a citizen of the Philippines, the government can still afford her protection because she earns here and she is contributing to the community.

4) Filipino residing abroad; has properties in the Philippines What about if I am a Filipino and I am residing abroad, and I own a number of properties in

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the Philippines? So even if I am not physically here but the mere fact that I am a Filipino and the source of my income is here in the Philippines, then it will be subjected to Philippine taxation.

So those are the three considerations that you have to look into to determine the situs of taxation of income tax.

July 3, 2018 Emille Dane S. Viola

b) PROPERTY TAX

It’s easier to understand property tax because we can see it. What is the situs of taxation when it comes to property? The first thing you have to consider is to determine what type of property is subject to tax?

We have 2 KINDS OF PROPERTY UNDER PROPERTY LAW:

1. Real Properties

2. Personal Properties

A. Real properties - the situs is where the property is

located. Here in the Philippines our real property tax is governed by the Local Government Code, it is the

Local Government Unit that imposes real property tax.

For example, you have a land here in Davao City, it will be subject to the real property taxes imposed or levied by the local government of Davao. Properties outside the jurisdiction of the city cannot be levied by them, so we still apply the territoriality principle.

B. Personal property- distinguish first what kind of

personal property:

1. Tangible

2. Intangible

a) Tangible personal property

GR

located.

:

the

situs

is

where

the

property

is

However some authors would say that the thing follows the owner, but Dean Quibod follows the general rule where the property is found. But usually when it comes to personal properties the thing follows the owner.

b) Intangible personal property GR: mobilia sequntur personam the thing follows it’s owner. This is because these properties have to form and they are essentially rights which follows the owner.

XPN: When the law specifically provides for the situs of the personal property. Example is the shares of stocks in a corporation. Under the NIRC we have to first

determine whether or not the stocks is here in the Philippines or outside to determine if they are subject to Philippine income taxation.

There’s this old case mentioned in the De Leon book, here the decedent died outside the Philippines but he owned a stock from a Philippine corporation. The question there is whether or not the stocks from the Philippine corporation is subject to estate tax, the SC said yes. Normally we follow mobilia sequntur personam, but the exception is when the rights to intangible property is exercisable in the Philippines, so because it is a stock from a Philippine Corporation, the owner will exercise his rights here in the Philippine jurisdiction.

TAX ON PERSONS

A state may impose taxes on a person subject to its sovereignty. In the Philippines we have community tax or the Cedula, if you are a resident in a particular locality you should pay your community tax for that.

EXCISE OR PRIVILEGE TAXES

This is the tax on the enjoyment of a privilege.

GR: the situs is where the act is performed, where the occupation is engaged in or where the business is done.

- consider the following:

A. Donor’s tax

In case of donation we

have to

a. the residency of the donor

b. the citizenship of the donor

c. and sometimes, the location of the property

B. Sales tax- the situs is the place where the sales

contract is consummated.

July 5, 2018 Patricia Balgoa

Read the case of CIA v. Collector.

CIA V. COLLECTOR GR NO. L-5896 (Not in case list)

Facts:

1. Petitioner was engaged in the business of

selling surplus goods acquired from the Foreign Liquidation Commission pursuant to an agreement with the United States Government whereby petitioner undertook to rehabilitate the Veterans Administration Building (formerly Heacock Building)

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for and in consideration of over a million pesos worth of surplus goods.

the

goods were stored and those that were defective were reconditioned.

2. Petitioner

had

yards

where

some

of

3. United Africa Co., Ltd. sent its representative,

Hugh Watson Gibson, to the Philippines to look into the availability of tractors for sale in the Philippines. Gibson learned of the petitioner's business and contracted to buy tractors from the latter, to be delivered f.a.s. (free alongside ship), Manila, in good working condition and capable of running off lighters under their own power. A tractor expert, Mr. Tex

Taylor, was employed by the foreign company to select, inspect and test the tractors before delivery.

4. Tex Taylor gave a list of tractors to petitioner,

to which the latter acquired and reconditioned. Petitioner then presented such before the Philippine Refining Co., affiliate of the foreign buyer. The latter would then notify banks to which UAC had dollar deposit to pay for the acquisition of the tractors. Petitioner sold a total of 57 tractors.

Issue:

Whether or not petitioner is liable for the payment of percentage or sales tax on its gross sales of the 57 tractors in question to the United Africa Co., Ltd. under the provisions of Sec. 186 of the National Internal Revenue Code

Ruling:

1. Petitioner argues that the goods in question did not

acquire a taxable situs in the Philippines because they merely passed Philippine territory in transit and that they were not intended for local use but for exportation to a foreign country.

2. The sale of the tractors was consummated in the

Philippines, for title was transferred to the foreign buyer at the pier in Manila; hence, the situs of the sale is Philippines and it is taxable in this country.

3. As for the legislative policy to exempt consignments

abroad from tax in order to encourage exports, the Solicitor General has pointed out that it is only the exportation of locally produced or manufactured products, and not every kind of exportation, that Congress wanted to encourage and promote

ILOILO BOTTLERS V. CITY OF ILOILO Facts: Iloilo Bottlers Inc. filed a complaint with the
ILOILO BOTTLERS V. CITY OF ILOILO
Facts:
Iloilo Bottlers
Inc.
filed
a
complaint
with
the
CFI
of Iloilo
for
the
recovery
of
the sum
of
P3,329.20,which
allegedly
constituted
payments
of municipal
license
taxes
under
Iloilo
City
Tax

Ordinance No. 5 series of 1960 that the company paid under protest. Among the arguments of Iloilo Bottlers Inc. were as follows:

-That it already closed its bottling plant at Muelle Loney, Iloilo City, and transferred its bottling operations to its new plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo, which is outside the jurisdiction of the City of Iloilo

That it could not anymore be liable to pay the municipal license fee because its bottling plant (was) not anymore inside the City of Iloilo, and that moreover, since it itself (sold) its own products to its(customers) directly, it could not be considered as a distributor

That the plaintiff does not maintain any store or commercial establishment in the City of Iloilo from which it distributes its products, but by means of a fleet of delivery trucks, plaintiff distributes its products from its bottling plant at Barrio Ungca Municipality of Pavia, Iloilo, directly to its customers in the different towns of the Province of Iloilo as well as the City of Iloilo;

That the plaintiff is already paying the National Government a percentage Tax on all the softdrinks it manufactures.

The CFI rendered on January 26, 1973 a decision in favor of Iloilo Bottlers, Inc. declaring the Corporation not liable under the ordinance. The City of Iloilo appealed to the Court of Appeals which certified the case to this Court.

Issue:

WON Iloilo Bottlers Inc. is liable is liable under Iloilo City tax Ordinance No. 5, series of 1960, as amended, which imposes a municipal license tax on distributors

of soft-drinks.

Ruling: YES.

Iloilo Bottlers, Inc. disclaims liability on two grounds:

1) Since it is not engaged in the independent business of distributing soft-drinks, but that its activity of

selling is merely an incident to, or is a necessary consequence

of its main or principal business of bottling, then it is

NOT liable under the city tax ordinance. 2) Only manufacturers or bottlers having their plants inside the territorial jurisdiction of the city are

covered by the ordinance.

The second ground is manifestly devoid of merit. It is clear from the ordinance that three types of activities are covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks.

A person engaged in any or all of these activities is

subject to the tax. The first ground, however, merits serious consideration. To determine whether an entity engaged in the principal business of manufacturing, is likewise

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engaged in the separate business of selling, its marketing system or sales operations must be looked into.

There are two marketing systems: Under the first system, the manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the productsearlier sold at the main office. Under the second system, sales transactions are entered into and perfected at stores or warehouses maintained by the company. Any one who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers.

considered engaged in the separate business of selling

their manufacturing business. Entities operating under

separate business of selling.

In the case at bar, the company distributed its

softdrinks by means of a fleet of delivery trucks which went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Truck sales were

office. The delivery trucks were not used solely for the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were what

delivery trucks were therefore much the same as the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the corporation was engaged in the separate business of selling or distributing soft- drinks, independently of its business of bottling them.

The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority [Commissioner of Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773- 74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City.

Entities

operating

under

the

first

system

are NOT

or

dealing

in

their products,

independent

of

the

second

system are

considered

engaged

in

the

made

independently

of

transactions

in

the

main

were

called,

until

recently,

"rolling

stores".

The

Where is it based? Initially the business was based in Iloilo, but later on it transferred to Fabia.

What is the nature of the tax involved here, license or business tax? Excise tax. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority.

How did Iloilo Bottlers conduct its business pertaining to its distribution? They have their own salesmen and these salesmen sell the softdrinks in the city of Iloilo.

In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Truck sales were made independently of transactions in the main office. The delivery trucks were not used solely for the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling stores". The delivery trucks were therefore much the same as the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the corporation was engaged in the separate business of selling or distributing soft- drinks, independently of its business of bottling them.

How does the company distribute the softdrinks? The Court distinguished 2 marketing systems:

(1) The manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. (2) The sales transactions are entered into and perfected at stores or warehouses maintained by the company. Any one who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers.

What is the main difference between these 2 schemes? Entities operating under the first system are NOT considered engaged in the separate business of selling or dealing in their products, independent of their manufacturing business. Entities operating under the second system are considered engaged in the separate business of selling. In the first, the transaction occurs in the MAIN WAREHOUSE. In the second, however, the transaction

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does not only occur in the main warehouse, but it also

city.

occurs

inside

the

What is the taxable transaction based on the ordinance? The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks.

Where is the situs of taxation when it comes to excise tax? The situs of taxation here is the place where the activity is performed. In this case, it is the place of distribution.

Where does the sale transaction occur? It occurs inside the City of Iloilo.

July 5, 2018 Transcribed by: Dianne Marie Isidor

14:00-28:00

CIR vs Baier Nickle

Baier-Nickle is a President of the company and at the same time a commission agent of JUBANITEX, Inc. JUBANITEX is engaged in the business of manufacture, marketing and wholesale of textiles.

Q: As President of that company and commission agent, what does she receive, how much dose she receive?

A: She receives arounds 1.7 million based on her 10% commission.

Q:What did JUBANITEX do with respect to the commission that she receives? A: There is a withholding tax.

Q: What do you understand of that withholding tax?Essentially what happens? A: Withholding tax- before the person receives his compensation there is already, a company will withheld a part of his income.

In other words, there’s already a cut. Kuhaan dayon ug tax.

A: So in this case, there was a withholding tax that was, with regard to her income.

Q: What did Baier-Nickle do?Because a part of her income was withheld. What was the action of Baier- Nickle? A: She claimed for a refund.

Q: What is the ground of her refund? A: Because according to her, the taxable activity here, did not happen in the Philippines.Since, she performed her activity in Germany and she was a non- resident here in the Philippines, hence, such activity should not be taxable here.

Q: What did the BIR do to her claim for refund? A: The BIR did not respond. It did not do anything. So, she raised the matter here to the Court of Tax Appeals(CTA).

Q: What did the Court of Tax Appeals do with respect to her claim for refund? A:The CTA first denied her claim. That’s why she went to the Court of Appeals.

Q: What happened to the Court of Appeals? A: It reversed the decision of the CTA. Meaning, the CA granted her refund.

Q: What’s the issue here? A: The issue here: W/N Baier-Nickle’s income is taxable here?

Q: What’s the nature of this sales commission? A: It’s in the nature of labor and service. Meaning, it’s an income.

Q: What are the factors that were considered to determine the taxability of the income? A: a. Citizenship, b. Residency, c. Source of Income

Q; In this case, what matters most? A: It is where she performed the taxable acticity.

Q: In this case, what is the situs of income? A: The situs of income here, since this is a labor and service income, it is the place where the labor and service were performed.

Q: Where was the labor or service performed here by Baier-Nickle? A: According to her version, she performed it in Germany.

Q: What did the SC say about this? A: According to the SC ruling, there were no evidences or documents that would support the contention of Baier-Nickle that she indeed performed such taxable activity in Germany.

Q: Because of lack of evidence, what happens now? A: Since there was lack of evidence, hence, upheld the taxability of the income.

So, please take note of this case.

The point here is the source or situs of income. The source of income of personal services. The place where the services were actually rendered.

PURPOSES OF TAXATION

The PRIMARY PURPOSE OF TAXATION is for Raising Income.

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Is it the sole purpose? NO.

SECONDARY PURPOSES OF TAXATION:

1. Social Justice/Compensatory An example of which is the discount given to

the Senior Citizens.

2. Regulatory/Sumptuary Ex. The taxes imposed on liquors. The regulatory purpose for these taxes is for the general welfare of the people, like their health, and also for peace and order. Basically, the Power of Taxation can be used to implement Police Power.

3. To implement the Eminent Domain powers of government.

What is the HEART OF TAXATION? PUBLIC PURPOSE.

July 5 (28:00 - 42:03) Ara Olamit

Q: Can you give an example where the power of taxation is used for police power? The power of taxation is also used for police power. A: An example would be raising the taxes on alcohol.

Q: Okay alcohol. So why? What is the regulatory purpose there? A: For the general welfare of the people, for health purposes.

Q: Okay. So basically what you’re saying is that power of taxation can be used as an implement of police power. Right? So let’s go now to the social justice. How is it also made manifest? The power of taxation as a tool for promoting social justice. A: A good example of social justice in power of taxation would be the discount given to the senior citizens.

Q: Yes. That is also one way of looking at it. Is the social justice provision under the Constitution applicable only to the people in general? Does it also affect the government? A: Yes sir.

Q: Yes. It also applies to the government. How? A: When they delegated the power to tax to the municipal corporation or the local government unit.

Q: Okay. Case in point is what? A: Batangas Power.

Q: What’s that case all about? How did the SC discuss the social provision there? The power to tax. Can you give a brief explanation why is it the power to tax given to the LGU’s is actually a way to implement the social justice provision? A: For the need to provide to the poor.

Q: But why is it, based on that case, that the LGU is granted the power to taxation? A: The LGU is granted the power of taxation so that they may, by themselves, also raise revenues.

Q: Okay. For purposes of decentralization. So that it can have its own source of revenues. Let’s go now to public purpose. How do you define public purpose? A: Public purpose is when the general welfare of the people are taken into consideration.

Q: Okay now. What happens if that particular community does not derive any benefit from government? Does that circumstance take it out from the term public purpose? A: It does not sir.

Q: Okay. Let’s just go to the case of Planters Products vs. Fertiphil. Planters Products is what? What type of person? A: Juridical person. Private corporation.

Q: How about Fertiphil? A: It is also a private corporation.

Q: What did Fertiphil do against Planters Products? What is the respective business of Fertiphil and Planters Products? A: They are engaged in agricultural products.

Q: Then what happened during the time of Marcos? A: There was an LOI issued by Marcos.

Q: Based on the LOI, what did Planters Products do against Fertiphil? A: Contribution was collected to make PPI viable.

Q: After Marcos was toppled, what happened next? A: Fertiphil asked for a refund of all the contributions it made.

Q: Moving on, what are the issues tackled in this case? Was the LOI valid in this case? Is it valid to begin with?

The LOI somehow imposes a 10 peso per bag for the viability of Planters. What is the nature of that 10 peso payment? What is the nature of that collection? A: It was in the nature of a tax.

Q: Why is it in the nature of a tax? Why did the SC say that this is a tax? Diba the purpose of that exaction was to make Planters viable? Was it supposed to be for regulation? A: No sir.

Q: Then if it is not for regulation, why do you say that it is for tax purposes? Why is it considered a tax? What is the primary purpose of taxation? A: The primary purpose of taxation is to raise revenues.

Q: Yes, to raise revenue. Meaning, to raise income. Going back here, why did the SC say that this is an

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exercise of the power to tax? By the way, dati kasi, si President Marcos, he has legislative powers. Ang LOI, parang batas yan dati. That’s way back then. Going back, why did the SC say that this is an exercise of the power to tax?

Okay. It’s supposed to raise income, right? Raise income. For what purpose? What is the ultimate end goal of getting that 10 peso per bag? A: For the viability of the PPI.

Q: In other words, for capitalization of PPI. There’s no end point except to raise money so that we can capitalize this particular corporation. Okay. Now, the SC also said that this is for police power. How did the SC argue on this? This is supposed to be for because this is regulatory. That 10 peso per bag is supposed to be for regulatory purpose so that this (PPI) will become viable. How did the SC argue on that?

Anyway, it can be argued that that exaction was supposed to be for police power. Because anyway these two powers (power to tax and police power) may go together.

Let’s go now to the legality of the LOI. Why is it considered as not legal? Why is it considered an illegal power to tax? A: Because there was already a declaration in the LOI that the purpose of such would be for the private company (PPI).

Q: What is the ultimate effect in giving the 10 pesos per bag to a private corporation? A: Such exaction would favor only that private corporation.

Q: Meaning it gives an undue advantage and benefit on the part of a private corporation. And what is our basic principle with respect to the power of taxation? What is the end goal there aside from raising revenues? A: It is for public purpose

Q: For public purpose only. Again, what is the heart of taxation? A: The heart of taxation is public purpose.

Okay. Eto yung kaso na yun. So basically that’s it. You read the cases.

July 17, 2018 Part 1 Johaina Madum

TAXATION VS. POLICE POWER

Can tax be used to implement police power? Can the police power go together with power of taxation? The answer is yes of course! In fact the reason behind for making our tax laws is to promote police power, like for example the sin tax we have, its to regulate the people from buying the yosi or cigars, it’s for public health. What about tax

exemption or tax leeway’s given to, ung bago ngayon sa TRAIN law ung electric vehicles. There is some sort of incentives given to car manufacturer if they sell hybrid or totally electric vehicle. In fact if it’s totally electric vehicle its walang excise tax yan.

We say that police power can go together with power of taxation, what thing about the police power is it is not merely in money form, as you can see, it involves, one is for confiscation of money and confiscation of property, and under the police power you can confiscate a property without giving something in return and even without the consent of the owner of such property, that is in the name of regulation. Like for example example contrabands or drugs or marijuana. I have client earlier he wants to file before that FDA to legalized the cannabis oil, kasi maraming benefits. According to him he has seen the effect of cannabis oil to his dying grandma. According to him it’s a good substitute daw for morphine. What about drugs? Not only the police officer will confiscate that drugs, they are going to take away your right and offer it to satan.

What is the guise of police power, it is the power to regulate. If you have read the cases in your outline, some would say that the exaction is for the power to regulate and some would say that it’s the power to tax.

What is our main guiding principle? The cases would say, that you LOOK AT THE PRIMARY REASON OR PRIMARY GOAL. If the principal purpose of exaction is raising

a

regulation that will have an effect of it, it would still be considered as the power to tax.

income

or

raising

revenue,

even

if

there

is

So, all of the tax related principles that we have learned so far, will apply it to that kind of exaction.

if the principal purpose is to regulate,

even if there is an income generation as an incidental to that law, that is actually an exercise

of police power.

However,

Kung isipin mo parang madali lang, you just look at the principle but if you read the cases, you would look at the ruling first, pano ba kayo magbasa ng case, pabaliktad? start with the wherefore, look for that tax portion then, you go to the facts? But if you just read it, like a normal human being would read it, una ka from facts, issues to ruling, you could say that oh its to regulate pero pag abot sa ruling the SC would say that this is actually an exercise of power to tax.

Like for example yong sa motor vehicle licensing fee, ung case ng PAL v. EDU.

paying the LTO for the registration para sa

motor vehicles natin, its to regulate diba? But the

You’re

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SC says that its actually an exercise of the power to tax. How does the supreme court justify under the EDU case? You look at the primary purpose of the exaction taken from, you know the registration of the motor vehicle, the main purpose is to be used for the constructions and maintenance of public road and highways. But anyways aside from that, according to the SC, the main purpose of the motor vehicle registration fees is supposed to be for raising income.

So anong effect, meron tayong mga rules diba? Lets start from the random of cases. Lets start with Republic v. Murcia.

Republic vs. Bacolod-Murcia Milling Co. GR L-19824-26, 9 July 1999

FACTS: This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central Co., Inc., and Talisay-Silay Milling Co., sister companies under one controlling ownership and management, from a decision of the Court of First Instance of Manila finding them liable for special assessments under Section 15 of Republic Act No.

632.

Sec. 15. Capitalization. To raise the necessary funds to carry out the provisions of this Act and the purposes of the corporation, there shall be levied on the annual sugar production a tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected for a period of five (5) years beginning the crop year 1951-1952. The amount shall be borne by the sugar cane planters and the sugar centrals in the proportion of their corresponding milling share, and said levy shall constitute a lien on their sugar quedans and/or warehouse receipts.

RA 632 created the Philippine Sugar Institute, a semi- public corporation. In 1951, the Institute acquired the Insular Sugar Refinery for P3.07 million payable in installments from the proceeds of the sugar tax to be collected under RA 632. The operation of the refinery for 1954 to 1957 was disastrous as the Institute suffered tremendous losses. Contending that the purchase of the refinery with money from the Institute’s fund was not authorized under RA 632, and that the continued operation of the refinery is inimical to their interest, Bacolod-Murcia Milling Co., Ma-ao Sugar Central, Talisay-Silay Milling Co. and the Central Azucarera del Danao refused to continue with their contribution to said fund. The trial court found them liable under RA 632.

ISSUE: Whether the defendants-appellants may refuse to pay the special assessment. No

RULING: The nature of a “special assessment” similar to the case has been discussed and explained in Lutz vs. Araneta. The special assessment or levy for the Philippine Sugar Institute (Philsugin) Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but the exercise

of police power for the general welfare of the entire country.

This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is

a great source of the state's wealth, is one, of the

important sources to foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare.

As stated in Johnson vs. State ex rel. Marcy "The protection of a large industry constituting one of the great source of the state's wealth and therefore

directly or indirectly affecting the welfare of so great

a portion of the population of the State is affected to

such an extent by public interests as to be within the

police power of the sovereign." (128 So. 857).

It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist. Section 2a of the Charter authorizing Philsugin to “conduct research work for the sugar industry in all its phases, either agricultural or industrial, for the purpose of introducing into the sugar industry such practices or processes that will reduce the cost of production and achieve greater efficiency in the industry, justifies the acquisition of the refinery in question. The financial loss resulting from the operation thereof is no means an index that the industry did not profit therefrom, as other gains of a different nature (such as experience) may have been realized.

*This is a 1966 case. Ito yong usually na sinasabi nila,

if you read your text books, as your Sugar Central case.

There is this Republic Act 632 which created the Philippine Sugar Institute (PhilSugIn) . This was created to conduct research work on sugar industry here in the Philippines, mainly to improve existing methods of raising sugar cane and manufacturing of

Anyway, they came also for the

capitalization of Philsugin, anong sabi nya? There shall be levied on the annual sugar production tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected. Ano yang picul? Maimagine nyo nyang picul? Pwede ba yan sa rice, diba sa rice kay ‘sack”, bakit sa sugar picul? But anyway, 10 cents per picul of sugar, and then using the once acquired from this

scheme, yang 10 cents na yan, Philsugin bought a factory, or refinery. But what happened, it was a disaster in the sense that PHILSUGIN incurred tremendous losses. So eventually sugar centrals (Bacolod et.al) stop paying exaction of the 10 cents. What are their reasons why they stop paying these 10 cents. Ang sabi nila its not supposed to be a tax, because its not for revenue purpose, ano ito? It’s not

sugar by product etc

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for income, it’s a special assessment. Ok what is a special assessment?

Basically, a special assessment is levied on land. It is levied on land because of the benefits that a land receives because of some public construction for example if the government make a road then tatamaan yong propert. Aano bang levy sa property nayan? So as an effect the local or local government can make a special assessment so that they could make an “amot” to the improvement that happens because after all they will be benefited and its only up to the extent of that benefit. Kung na recover na ang custom construction, the special assessment will stop. This is what sugar central was saying. Sabi nila, they’ll stop paying because they don’t get any benefit from it, in fact tremendous losses has been incurred. So anyway what is the nature of that exaction, is it a tax or a special assessment? Anong sabi ng Supreme Court?

July 17 (11:00-21:00) Nikki Tan

The Supreme Court said that the 10 centavos is not a tax, not even a special assessment, but it’s a just an exaction for regulation an exercise of police power for the general welfare of the entire country it will aid the entire sugar industry in the Philippines if the exaction is made for the protection welfare and improvement of the entire sugar industry of the Philippines.

Then we have ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK, INC. (ECN), v DOE G.R. No. 159796 July 17, 2007 the universal charge, what was challenged here was Republic Act (RA) 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA law) and Rule 18 of the Rules and Regulations (IRR) of that law. Because this IRR and the law itself imposes a universal charge to all entities and end users for particular purposes the amount of the universal charges are determined, fixed, and approved by the ERC. And then then ERC issued an order that it was approved there of course this is an additional money that the end users will have to pay so suko ang mga tao.

This was challenged by the petitioners on the grounds that the universal charge is an illegal exercise of the power of taxation because you are authorizing and administrative body to exact something from the end user this cannot be done. This is a tax this is not a regulation. Of course sabi ng respondents this is not a tax this is for a specific regulatory purpose: to ensure the viability of the country's electric power industry. So the issue here is, is it a tax or not? This is important because this will ultimately determine whether or not the universal charge imposed is valid.

The SC had a long discussion regarding the distinctions between powers of taxation and police power. Let me focus on that.

POWER TO TAX

POLICE POWER

The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes

On the other hand, police power is the power of the state to promote public welfare by restraining and regulating the use of liberty and property. It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of the State.

the tax

on the

constituency that is to pay it.

It is based on the principle

The justification is found in the Latin maxims salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut alienum non laedas (so use your property as not to injure the property of others).

As an inherent attribute of sovereignty which virtually extends to all public needs, police power grants a wide panoply of instruments through which the State, as parens patriae, gives effect to a host of its regulatory powers.

that

taxes

are

the

lifeblood

of

the

government,

and

their

prompt

and

certain

availability is an imperious need.

Thus, the theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.

The SC now said that the universal charge is not a tax, but an exaction in the exercise of the State's police power. Just look at the primary purpose if it is for raising a revenue it is a tax but if the main purpose its merely to regulate even if there is money involved then it is police power. The SC said you look at the declaration of policy of the law you can discern that this universal charge is allowed for it is an exercise of police powers.

SECTION 2. Declaration of Policy. It is hereby declared the policy of the State:

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(a) To ensure and accelerate the total electrification of

the country;

(b) To ensure

affordability of the supply of electric power;

the

quality,

reliability,

security

and

(c) To ensure transparent and reasonable prices of

electricity in a regime of free and fair competition and

full public accountability to achieve greater operational and economic efficiency and enhance the competitiveness of Philippine products in the global market;

(d) To enhance the inflow of private capital and

broaden the ownership base of the power generation,

transmission and distribution sectors;

(e) To ensure fair and non-discriminatory treatment of

public and private sector entities in the process of

restructuring the electric power industry;

(f) To protect the public interest as it is affected by the

rates and services of electric utilities and other providers of electric power;

(g) To assure socially and environmentally compatible

energy sources and infrastructure;

(h) To promote the utilization of indigenous and new

and renewable energy resources in power generation in order to reduce dependence on imported energy;

transparent

privatization of the assets and liabilities of the National Power Corporation (NPC);

(i) To

provide

for

an

orderly

and

(j) To establish a strong and purely independent

regulatory body and system to ensure consumer protection and enhance the competitive operation of the electricity market; and

(k) To encourage the efficient use of energy and other

modalities of demand side management.

So in the end if you look at the policies its not much on money making but its more of ensuring the total electrification of the country in general. So this is in pursuit to the state’s police power objective.

And then what if the exaction is too big? What if I will collect money from you ranging from 1,000,000-

24,000,000?

That

(Formerly CALTEX PHILIPPINES, INC.), Petitioner, vs. BASES CONVERSION DEVELOPMENT AUTHORITY and

CLARK

is

the

case

of

CHEVRON

PHILIPPINES,

INC.

CORPORATION,

G.R.

No.

DEVELOPMENT

173863, September 15, 2010 the Board of Directors of respondent Clark Development Corporation (CDC) issued and approved Policy Guidelines on the Movement of Petroleum Fuel to and from the Clark Special Economic Zone (CSEZ). Now Chevron is a supplier of Nanox Philippines which is inside the CSEZ

and then CDC charged and demanded to Chevron the payment of royalty fees because there was this regulation approved imposing royalty fees and then Chevron did not ought to pay because the royalty fees were excessive. What was the argument of Chevron here? Chevron said that the royalty fees imposed had no reasonable relation to the probable expenses of regulation and that the imposition on a per unit measurement of fuel sales was for a revenue generating purpose, thus, akin to a "tax".

The SC said that the royalty fee is an exercise of police power. The subject royalty fee was imposed primarily for regulatory purposes, and not for the generation of income or profits as petitioner claims. Again we look at the purpose and that is in the Policy Guidelines on the Movement of Petroleum Fuel to and from the Clark Special Economic Zone which provides:

DECLARATION OF POLICY

It is hereby declared the policy of CDC to develop and maintain the Clark Special Economic Zone (CSEZ) as a highly secured zone free from threats of any kind, which could possibly endanger the lives and properties of locators, would-be investors, visitors, and employees.

It is also declared the policy of CDC to operate and manage the CSEZ as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the CSEZ.26 (Emphasis supplied.)

From the foregoing, it can be gleaned that the Policy Guidelines was issued, first and foremost, to ensure the safety, security, and good condition of the petroleum fuel industry within the CSEZ. The questioned royalty fees form part of the regulatory framework to ensure "free flow or movement" of petroleum fuel to and from the CSEZ. The fact that respondents have the exclusive right to distribute and market petroleum products within CSEZ pursuant to its JVA with SBMA and CSBTI does not diminish the regulatory purpose of the royalty fee for fuel products supplied by petitioner to its client at the CSEZ. In the case at bar, there can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare.30 In addition, fuel is a highly combustible product which, if left unchecked, poses a serious threat to life and property. Also, the reasonable relation between the royalty fees imposed on a "per liter" basis and the regulation sought to be attained is that the higher the volume of fuel entering CSEZ, the greater the extent and frequency of supervision and inspection required to ensure safety, security, and order within the Zone. As to the issue of reasonableness of the amount of the fees, we hold that no evidence was adduced by the petitioner to show that the fees imposed are unreasonable.

July 17, 2018 21:00-32:00

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Jessa Puerin

The fuel is highly combustible and it can cause severe damage if left unchecked. The more fuel ,the greater the extent and frequency of supervision and inspection required to ensure safety, security, and order within the Zone. (Mas marami ang tao daw mas malaki ang tao).

REPUBLIC VS INTERNATIONAL COMMUNICATIONS Sir: The law in point here is the Public Service Act.

FACTS: On April 4, 1995, respondent ICC, holder of a legislative franchise under Republic Act (RA) No. 7633 to operate domestic telecommunications, filed with the NTC an application for a Certificate of Public Convenience and Necessity to install, operate, and maintain an international telecommunications leased circuit service between the Philippines and other countries, and to charge rates therefor, with provisional authority for the purpose. Respondent ICC filed a motion for partial reconsideration of the Order insofar as the same required the payment of a permit fee. In a subsequent Order dated June 25, 1997, the NTC denied the motion. Therefrom, ICC went to the CA on a petition for certiorari with prayer for a temporary restraining order and/or writ of preliminary injunction, questioning the NTC's imposition against it of a permit fee of P1,190,750.50 as a condition for the grant of the provisional authority applied for. In its original decision, dated January 29, 1999, the CA ruled in favor of the NTC whose challenged orders were sustained, and accordingly denied ICC's certiorari petition. In time, ICC moved for a reconsideration. This time, the CA, in its Amended Decision dated September 30, 1999, reversed itself, granting ICC its motion for reconsideration. Petitioner NTC filed a motion for reconsideration, but its motion was denied by the CA.

ISSUES: 1. Whether the fee in question is in the nature of a tax, or is merely a regulatory measure.

RULING: 1. Section 40(g) of the Public Service Act is not a tax measure but a simple regulatory provision for the collection of fees imposed pursuant to the exercise of the State‘s police power. A tax is imposed under the taxing power of government principally for the purpose of raising revenues. The law in question, however, merely authorizes and requires the collection of fees for the reimbursement of the Commission's expenses in the authorization, supervision and/or regulation of public services. There can be no doubt then that petitioner NTC is authorized to collect such fees. However, the amount thereof must be reasonably related to the cost of such supervision and/or regulation.

So let us recap.

How do you differentiate police power from power to tax?

1. As to concept: Tax is the power that imposed burdens to raise money for public use; whereas, police power is a power to make laws for general welfare.

2. As to purpose: Tax is for revenue; police power is for regulation.

3. As to amount: In tax, the amount is generally unlimited, plenary and all-encompassing; in police power, the amount should not exceed the cost of regulation.

4. As to compensation: In tax, the compensation is continuous protection and organized society; in police power, the compensation is the healthy economic standard of economy.

5. As to property taken: Tax is generally payable in money (then later on you will realize that the BIR can get the property and sell it in public auction); in police power, it involves not only money but other properties which may the source of danger, safety and morals that means to be regulated.

6. In relation to non-impairment clause: tax is inferior to non-impairment clause of the Constitution; police power is superior to non- impairment clause.

POWER TO TAX VS. POWER OF EMINENT DOMAIN

What is the Power of Eminent Domain? Eminent Domain - is the inherent power of the State to take private property for public use after payment of just compensation.

3 MAJOR REQUIREMENTS FOR THE VALID EXERCISE OF POWER OF EMINENT DOMAIN:

1. The taking of private property

2. The taking is for public purpose

3. Just compensation must be paid to the property owner.

Take note of the meaning of Just Compensation.

There is one requirement when it comes to LGUs:

There must a previous offer that must be made by the local government unit to which the property owner has rejected.

The power to tax can be used to implement Eminent Domain. That is additional because if you browse jurisprudence, as in the case of CIR VS CENTRAL LUZON, the Supreme Court said that the power of taxation can be used in conjunction of the power of eminent domain.

CIR VS. CENTRAL LUZON This is about the 20% senior citizen discount. The tax benefit for taking up the 20% senior citizen discount.

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Way back then, when business establishments will

provide for 20% discount, the discount can be claimed as tax credit.

A tax credit is a peso for peso deduction for tax

liabilities. Babayaran kung tax is P100K, what if nagbigay ako ng P20k as senior citizen discount

under the Senior Citizen’s Law, P100k less 20k, ang bayronon sa government na lang is 80k. So, it is peso for peso deduction.

The Supreme Court said here na this is actually an exercise of eminent domain because these establishments giving 20% senior citizen discount

is partaking with own property. They are forced

to give discounts to senior citizens and sabi ng

Supreme Court dito na “okay, that is not allowed because we are going to take their money, their income and give it for public purpose.” So, how are we compensate those business establishments? This is through giving of tax credits. Kaya sabi ng Supreme Court dito na tax credit benefits granted to these establishments can be deemed as their just compensation for the private property taken for public use.

As a result of the 20% discount as imposes by the Republic Act, the respondents are entitled for just compensation. That is way back then.

But here comes the amendment. What happened now is this: the establishments or several establishments are still required to give out the senior citizen discount to senior citizen, and yet what are the benefits received by these persons, is just a tax deduction. Ang tax deduction kasi minus lang yan sa income, hindi sa tax- but a deduction of your income. So what is the effect? If the tax credit is a direct deduction of your tax liability, the tax deduction reduces your net income or reduces your net taxable income- the effect of the tax liability of the taxpayer is only indirect. Tax deduction is an indirect deduction; it is no longer a peso for peso deduction, but only a fraction of the total discount gave out to the senior citizens.

CARLOS SUPERDRUG VS. VELASCO Ang ground dito sa Superdrug, there is improper exercise of the power of eminent domain. It constitutes taking of private property without just compensation and violates the equal protection clause. Why? Because the tax deductions scheme for giving out of 20% discount does not fully reimbursed the petitioners or the establishments in general in giving out senior citizen discounts. This is an exercise of eminent domain, but another, this is an exercise of police power for the public welfare. Siguro moengon ko yes but this an unnecessary evil so that they could help the senior citizens.

The Supreme Court held that the law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object.

Police power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest benefits. For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy of police power because property rights, though sheltered by due process, must yield to general welfare.”

MANILA MEMORIAL VS. DSWD In this case of Manila Memorial vs. DSWD, if you have read this case, this essentially has the same principles laid down in the Superdrug case. This is a tax deduction, not a tax credit, but is still legal because in the end it is the exercise of the police power and not the power of eminent domain.

So if you are ask in your exam, is the senior citizen discount is considered an exercise of power of eminent domain? I think you have to answer this as an exercise of police power citing first the Superdrug case and second, the Manila Memorial case.

But if you are ask: can the power of taxation go together with power of eminent domain since both are for public purpose, then you cite the case of Central Luzon.

Case Digests from the internet:

CIR v. CENTRAL LUZON DRUG CORPORATION, GR NO. 148512, 2006-06-26

Facts:

Central Luzon Drug Corporation has been a retailer of medicines and other pharmaceutical products since December 19, 1994. In 1995, it opened three (3) drugstores as a franchisee under the business name and style of "Mercury Drug."

For the period January 1995 to December 1995, in conformity to the mandate of Sec. 4(a) of R.

Subsequently, on December 27, 1996, claiming that

according to Sec. 4(a) of R.A. No. 7432, the amount of P219,778 should be applied as a tax credit, respondent filed a claim for refund in the amount of

he amount of P150,193 claimed as a

P150,193

refund represents the tax credit allegedly due to respondent under R.A. No. 7432.

the CTA dismissed the petition, declaring that even if the law treats the 20% sales discounts granted to senior citizens as a tax credit, the same cannot apply when there is no tax liability or the amount of the tax credit is greater than the tax due

. In

extent of the tax liability.

the latter case, the tax credit will only be to the

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Also, no refund can be granted as no tax was erroneously, illegally and actually collected based on the provisions of Section 230, now Section 229, of the Tax Code.

Furthermore, the law does not state that a refund can be claimed by the private establishment concerned as an alternative to the tax credit.

Thus, respondent filed with the CA a Petition for Review

On May 31, 2001, the CA rendered a Decision stating that Section 229 of the Tax Code does not apply in this case. It concluded that the 20% discount given to senior citizens which is treated as a tax credit pursuant to Sec. 4(a) of R.A. No. 7432 is considered

and, as such, may be carried over

just compensation

to the next taxable period if there is no current tax

liability

Issues:

whether the 20% sales discount granted by respondent to qualified senior citizens pursuant to Sec. 4(a) of R.A. No. 7432 may be claimed as a tax credit or as a deduction from gross sales in accordance with Sec. 2(1) of Revenue

Regulations No. 2-94.

Ruling:

The CA and the CTA correctly ruled that based on the plain wording of the law discounts given under R.A. No. 7432 should be treated as tax credits, not deductions from income.

The above provision explicitly employed the word "tax credit." Nothing in the provision suggests for it to mean a "deduction" from gross sales. To construe it otherwise would be a departure from the clear mandate of the law.

Thus, the 20% discount required by the Act to be given to senior citizens is a tax credit, not a deduction from the gross sales of the establishment concerned.

As a corollary to this, the definition of "tax credit" found in Section 2(1) of Revenue Regulations No. 2-94

erroneous as it refers to tax credit as the amount

representing the 20% discount that "shall be deducted by the said establishment from their gross sales for value added tax and other percentage tax purposes." This definition is contrary to what our

had envisioned with regard to the

treatment of the discount granted to senior citizens.

lawmakers

is

Finally, for purposes of clarity, Sec. 229[11] of the Tax Code does not apply to cases that fall under Sec. 4 of R.A. No. 7432 because the former provision governs exclusively all kinds of refund or credit of internal

revenue taxes that were erroneously or

illegally

imposed and collected pursuant to the Tax Code while the latter extends the tax credit benefit to the private establishments concerned even before tax payments have been made.

The tax credit that is contemplated under the Act is a

form of just compensation, not a

that were erroneously or illegally assessed and collected. In the same vein, prior payment of any tax

liability is not a precondition before a taxable entity can benefit from the tax credit. The credit may be availed of upon payment of the tax due, if any.

there is no tax liability or where a private

Where

remedy for taxes

establishment reports a net loss for the period, the tax credit can be availed of and carried over to the next

taxable year.

It must also be stressed that unlike in Sec. 229 of the Tax Code wherein the remedy of refund is available to the taxpayer, Sec. 4 of the law speaks only of a tax credit, not a refund.

As earlier mentioned, the tax credit benefit granted to the establishments can be deemed as their just compensation for private property taken by the State for public use. The privilege enjoyed by the senior citizens does not come directly from the State, but

rather from the

private establishments concerned.

CARLOS SUPERDRUG CORP., ET. AL. vs. DSWD G.R. No. 166494 June 29, 2007

FACTS Petitioners are domestic corporations and proprietors operating drugstores in the Philippines. Meanwhile, AO 171 or the Policies and Guidelines to Implement the Relevant Provisions of Republic Act 9257, otherwise known as the “Expanded Senior Citizens Act of 2003”was issued by the DOH, providing the grant of twenty percent (20%) discount in the purchase of unbranded generic medicines from all establishments dispensing medicines for the exclusive use of the senior citizens. DOH issued Administrative Order No 177 amending A.O. No. 171. Under A.O. No. 177, the twenty percent discount shall not be limited to the purchase of unbranded generic medicines only, but shall extend to both prescription and non-prescription medicines whether branded or generic. Thus, it stated that “[t]he grant of twenty percent(20%) discount shall be provided in the purchase of medicines from all establishments dispensing medicines for the exclusive use of the senior citizens.” Petitioners assert that Section 4(a) of the law is unconstitutional because itconstitutes deprivation of private property. Compelling drugstore owners andestablishments to grant the discount will result in a loss of profit and capital because 1)drugstores impose a mark-up of only 5% to 10% on branded medicines; and 2) the lawfailed to provide a scheme whereby drugstores will be justly compensated for thediscount.

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ISSUE: WON Section 4(a) of the Expanded Senior Citizens Act is unconstitutional or not violative of Article 3 Section 9 of the Constitution which provides that private property shall not be taken for public use without just compensation and the equal protection clause of Article 3 Section 1?

RULING:

The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property for public use or benefit. This constitutes compensabletaking for which petitioners would ordinarily become entitled to a just compensation. Just compensation is defined as the full and fair equivalent of the property takenfrom its owner by the expropriator. The measure is not the taker’s gain but the owner’sloss. The word Just is used to intensify the meaning of the word compensation , and to convey the idea that the equivalent to be rendered for the property to be taken shall bereal, substantial, full and ample. A tax deduction does not offer full reimbursement of the senior citizen discount.As such, it would not meet the definition of just compensation. Having said that, this raises the question of whether the State, in promoting thehealth and welfare of a special group of citizens, can impose upon private establishmentsthe burden of partly subsidizing a government program.The Court believes so. The law grants a twenty percent discount to senior citizens for medical and dentalservices, and diagnostic and laboratory fees; admission fees charged by theaters, concerthalls, circuses, carnivals, and other similar places of culture, leisure and amusement; faresfor domestic land, air and sea travel; utilization of services in hotels and similar lodgingestablishments, restaurants and recreation centers; and purchases of medicines for theexclusive use or enjoyment of senior citizens. As a form of reimbursement, the law provides that business establishments extending the twenty percent discount to senior citizens may claim the discount as a tax deduction.The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object. Police power is not capable of anexact definition, but has been purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest benefits. Accordingly, it has been described as “the most essential, insistent and the least limitable of powers, extending as it does to all the great public needs.” It is “[t]he power vested inthe legislature by the constitution to make, ordain, and establish all manner of wholesomeand reasonable laws, statutes, and ordinances, either with penalties or without, notrepugnant to the constitution, as they shall judge to be for the good and welfare of thecommonwealth, and of the subjects of the same.” For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy of police power because property rights,

thoughsheltered by due process, must yield to general welfare. Police power as an attribute to promote the common good would be dilutedconsiderably if on the mere plea of petitioners that they will suffer loss of earnings andcapital, the questioned provision is invalidated. Moreover, in the absence of evidencedemonstrating the alleged confiscatory effect of the provision in question, there is no basis for its nullification in view of the presumption of validity which every law has in itsfavor. Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is unduly oppressive to their business, because petitioners have not takentime to calculate correctly and come up with a financial report, so that they have not beenable to show properly whether or not the tax deduction scheme really works greatly totheir disadvantage. The Court is not oblivious of the retail side of the pharmaceutical industry and thecompetitive pricing component of the business. While the Constitution protects propertyrights, petitioners must accept the realities of business and the State, in the exercise of police power, can intervene in the operations of a business which may result in animpairment of property rights in the process. Moreover, the right to property has a social dimension. While Article XIII of theConstitution provides the precept for the protection of property, various laws and jurisprudence, particularly on agrarian reform and the regulation of contracts and publicutilities, continuously serve as a reminder that the right to property can be relinquishedupon the command of the State for the promotion of public good.

MANILA MEMORIAL PARK v. SECRETARY OF DEPARTMENT OF SOCIAL WELFARE, GR No. 175356, 2013-12-03

Facts:

Petitioners emphasize that they are not questioning the 20% discount granted to senior citizens but are only assailing the constitutionality of the tax deduction scheme prescribed under RA 9257 and the implementing rules and regulations issued by the DSWD and the DOF

Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the Constitution, which provides that: "[p]rivate property shall not be taken for public use without just compensation." petitioners cite

Central Luzon Drug Corporation, where it was ruled that the 20% discount privilege constitutes taking of private property for public use which requires the payment of just compensation

Issues:

WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND ITS IMPLEMENTING RULES AND REGULATIONS, INSOFAR AS THEY PROVIDE THAT THE TWENTY

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PERCENT (20%) DISCOUNT TO SENIOR CITIZENS MAY BE CLAIMED AS A TAX DEDUCTION BY THE PRIVATE ESTABLISHMENTS, ARE INVALID AND UNCONSTITUTIONAL.

Ruling:

The Petition lacks merit.

The validity of the 20% senior citizen discount and tax deduction scheme under RA 9257, as an exercise of police power of the State, has already been settled in Carlos Superdrug Corporation.

The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property for public use or benefit. This constitutes compensable taking for which petitioners would ordinarily become entitled to a just compensation.

A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet the definition of just compensation.

Having said that, this raises the question of whether the State, in promoting the health and welfare of a special group of citizens, can impose upon private establishments the burden of partly subsidizing a government program.

The Court believes so.

As a form of reimbursement, the

business establishments extending the twenty percent discount to senior citizens may claim the discount as a tax deduction.

law provides that

The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object.

For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy of police power because property rights, though sheltered by due process, must yield to general welfare.

Police power as an attribute to promote the common good would be diluted considerably if on the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned provision is invalidated.

Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is unduly oppressive to their business, because petitioners have not taken time to calculate correctly and come up with a financial report, so that they have not been

able to

show properly whether or not the tax

deduction scheme really works greatly to their disadvantage.

We, thus, found that the 20% discount as well as the tax deduction scheme is a valid exercise of the police power of the State.

The 20% discount is intended to improve the welfare of senior citizens who, at their age, are less likely to be gainfully employed, more prone to illnesses and other disabilities, and, thus, in need of subsidy in purchasing basic commodities.

the 20% discount is a regulation affecting the ability of private establishments to price their products and

services relative to a special class of individuals, senior citizens, for which the Constitution affords

preferential concern

appropriate or burden specific properties, used in the operation or conduct of the business of private establishments, for the use or benefit of the public, or

senior citizens for that matter

to

it

does

not

purport

The subject regulation may be said to be similar to, but with substantial distinctions from, price control or rate of return on investment control laws which are traditionally regarded as police power measures.[77]

utilities or

These laws generally regulate public

industries/enterprises imbued with public interest in order to protect consumers from exorbitant or unreasonable pricing as well as temper corporate greed by controlling the rate of return on investment

considering that they have a

of these corporations

monopoly

provide to the general public.

over the goods or services that they

On its face, therefore, the subject regulation is a police power measure.

The obiter in Central Luzon Drug Corporation,[78] however, describes the 20% discount as an exercise of the power of eminent domain and the tax credit, under the previous law, equivalent to the amount of

discount given as the just compensation

therefor.

It presupposes that the subject regulation, which impacts the pricing and, hence, the profitability of a private establishment, automatically amounts to a deprivation of property without due process of law.

then all price and rate of return on

investment control laws would have to be invalidated

because they impact, at some level, the regulated establishment's profits or income/gross sales, yet there is no provision for payment of just compensation

If this were so,

The obiter is, thus, at odds with the settled doctrine that the State can employ police power measures to regulate the pricing of goods and services, and, hence, the profitability of business establishments in order to pursue legitimate State objectives for the common good, provided that the regulation does not go too far

as to

amount to "taking."

Principles:

Police power versus eminent domain.

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Police power is the inherent power of the State to regulate or to restrain the use of liberty and property for public welfare.[58] The only limitation is that the restriction imposed should be reasonable, not oppressive.

The taxes being collected by the government must be enough to answer the government expenditures even in cases where there will be a deficit despite a 100% collection on the internal revenue taxes. 1

"property rights of individuals may be subjected to

restraints and burdens in objectives of the government.

order to fulfill the

CHAVEZ VS. ONGPIN There was an Executive Order issued by the government increasing the values of the real properties for real property taxation purposes. The increase was more than 100%. This was challenged by Francisco Chavez (former SolGen) on the ground that it was oppressive for being tantamount to confiscation of property without due process of law.

SC here ruled against Chavez. Without the

The State "may interfere with personal liberty, property, lawful businesses and occupations to promote the general welfare [as long as] the interference [is] reasonable and not arbitrary.

Eminent domain, on the other hand, is the inherent power of the State to take or appropriate private property for public use.

private property

shall

not

be

taken

without

due

Executive Order which raised the real property values the real properties would not mirror the current value of the real properties considering the changes brought about by the passage time. And we also have to accept the fact of the increasing expenses of the government, the government will give value.

According to the SC, fiscal adequacy Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

ABAKADA vs. ERMITA Lagi natin balik-balikan ang case na ito. There are a lot of general principles of Taxation here, so you should read this.

process

of

law

and

the

payment

of

just

compensation

 

In the exercise of police power, a property right is impaired by regulation,[65] or the use of property is merely prohibited, regulated or restricted[66] to promote public welfare.

payment of just compensation is not required.

in the exercise of the power of eminent domain, property interests are appropriated and applied to some public purpose which necessitates the payment of just compensation therefor.

Normally, the title to and possession of the property

are transferred to the

expropriating authority.

   

June 24 Part 1 SS Castro

PRINCIPLES OF SOUND TAX SYSTEM

Synonymous with the Canons of Sound Tax System or Characteristics of Sound Tax System.

Keyword is F-A-T

1. Fiscal Adequacy

2. Administrative Feasibility

3. Theoretical Justice

FISCAL ADEQUACY From the word itself adequate.

Fiscal Adequacy means the TAX SYSTEM must be able to provide submission revenues in order to meet the

legitimate

needs

of the

government,

adequate

or

sufficient.

The sources of income taken as a whole must be sufficient to meet the ever expanding needs or expenditures of the government regardless of conditions, export taxes, and problems of economic adjustments.

ABAKADA challenged the standby powers given to the President to increase the VAT percentage given certain conditions.

SC said here first condition is decided by the President. But the second is that in case there is any increase in the deficit, fiscal adequacy dictates the need to raise the VAT rate. That’s

1 Dead Quibod (2016 TSN): Salaries of EEs, medical services, and other governmental expenditures should be able to meet the economic provisions of the country as well as problems on economic adjustment. The sources of revenue should be sufficient to meet the varied levels of expenditure, regardless of business condition and problems on economic adjustment. The tax system or the prevailing tax measures that the state have should be able to expand in response to variations in public expenditures.

Ex. If there is only 20% collection for revenue this year, should the Congress increase the tax rate? NO. This is what fiscal adequacy means: Problems with the collection and enforcement of the law should not be resolved through legislating or enacting more taxes. The state, through the executive branch in charge of tax administration, should be able to enforce the tax laws.

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why when those 2 conditions will happen, the President already has the authority to increase VAT rate in order to make up for all those deficiencies.

ADMINISTRATIVE FEASIBILTY

From the word itself feasible.

Feasible meaning doable. A tax measure should be easily implemented in order to assure the smooth flow into the treasury the fiscally adequate amounts.

To put it simply, this means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer.

Administrative feasibility requires easy tax collection on the part of the government and easy tax payment of the tax. But what happens in reality is that this requirement is already fulfilled by merely following the NIRC. What happens to the ease that should be felt by the taxpayers? The process of paying the BIR Is so stupid.

So it must be easy for the government to collect and also taxes must be easy for the people to pay. We have Saudia Arabia. There, it is very easy for the people to pay their taxes because they are only required to pay taxes 3 times a year.

Whereas right now, especially if you are not registered taxpayer, you have to fill up the form and submit it monthly and at the same time pay it monthly.

Right now, there is a cute move by the government under the TRAIN LAW, if are covered in the percentage tax system, you are only required to submit quarterly. Hindi na per month na grabe ka hassle especially if small business ka lang. It takes a day for one to pay his taxes.

July 24, 2018 Part 2 Inah del Rosario

THEORETICAL JUSTICE This is the ability-to-pay theory.

The tax system must be based on the taxpayer’s ability to pay.

It must not be so burdensome. Those who have more shall pay more and those who have less shall pay less.

Even if we have these kinds of principles of a sound tax system, even if a certain tax law will violate these, it does not necessarily mean that the tax law will automatically be unconstitutional.

DIAZ VS. SECRETARY OF FINANCE

This case involves the imposition of VAT by the BIR on the collections of tollway operators. The SC said that all cars must be subject to VAT. Diaz argued that it this is very difficult to implement, specifically the issuance of receipts to persons. SC said:

Non-observance of the canon, however, will not render a tax imposition invalid except to the extent that specific constitutional or statutory limitations are impaired. Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.

So in the end, these are just principles or simple guidelines for the lawmakers in making tax laws. But with respect to the legality of a tax law, the violation of these canons by themselves does not necessarily constitute a violation of the statutory or constitutional limitations of that tax law.

THEORY AND BASIS OF TAXATION

Please remember that the theory and basis of taxation are two different things.

THEORY OF TAXATION: Necessity Theory The power to tax emanates from a necessity in order for the government to make for us an organized society.

The existence of the government is a necessity.

This is also where the lifeblood theory comes in.

What are the concepts that float in the lifeblood theory? (1) The collection of taxes may not be enjoined by an injunction, as a general rule. (No- injunction Rule) (2) The taxes cannot be subject of a compensation or set-off

(3)

The power to tax is unlimited and plenary

(4)

The power to tax may also involve the power to destroy.

NO INJUNCTION RULE

GR:

The collection of taxes cannot be enjoined

by the courts.

XPNS:

(1)

Local Taxes can be enjoined by the courts. The no-injunction rule only applies to national

taxes.

ANGELES CITY VS. ANGELES In the collection of local taxes, there is no express prohibition in the LGC that prohibits courts from issuing an injunction to restrain local governments from collecting taxes.

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(2)

Under the CTA Law, RA 1125 as amended by RA 9282

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. x x x That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.

BASIS OF TAXATION: Benefits- Protection Theory This is characterized by the relationship between the taxpayer and the government.

There is a reciprocal duty between the taxpayer and the government to support each other.

(1)

OTHER DOCTRINES PROSPECTIVITY OF TAX LAWS GR: Tax laws do not have retroactive application. To give retroactive effect to tax laws will violate the right of the tax payer to due process. A taxpayer should always know when to pay his obligations. How should a taxpayer pay his dues when he doesn’t know of it?

E:

Tax laws have retroactive application only when the law explicitly says so.

What if before the repeal of a tax law there was an assessment made by the government? You did not pay the assessment not even after there was a repeal. This is the case of

COMMISSIONER VS. ACOSTA This concerns the manner in which the action for tax refund was filed. Acosta applied the new NIRC where it was not required to file a written claim for the refund. However, the SC said that the old law should be applied.

Tax laws are prospective in operation, unless the language of the statute clearly provides otherwise. Revenue statutes are substantive laws and in no sense must their application be equated with that of remedial laws. As well said in a prior case, revenue laws are not intended to be liberally construed. Considering that taxes are the lifeblood of the government and in Holmes’s memorable metaphor, the price we pay for civilization, tax laws must be faithfully and strictly implemented.

(2)

IMPRESCRIPTIBILITY OF TAXES GR: The right of the government to collect taxes is imprescriptible.

Without any law which provides for a prescriptive period for the collection of taxes, the government will have an unlimited time to collect the taxes from the taxpayer.

Hence the law itself can provide for rules on prescription.

For internal revenue taxes, normally, the prescriptive period is 3 years from either the filing of it or the filing of the income tax return or the return required by the NIRC or date or the time of payment of the tax, whichever comes later.

July 24,2018 Transcribed by: Dianne Marie Isidor

Is the imprescriptibility of tax laws still applicable right now?

Sabi nga ng batas natin, NIRC, db meron tayong prescriptive period. Even the law says, even if in cases of non-filing of tax returns, even in cases of fraud employed by the taxpayer to defeat or refute taxes, the government may have a 10 year prescriptive period.

of

imprescriptibility of taxes still applicable, even with

But the question is again, is the principle

this law?

The way I see the provision, I think the principle of imprescriptibility of tax is still applicable.

1. When there is fraud involved.

2. If there is a failure to file the income tax return or the income tax return filed is false.

You know why? Even if the prescriptive period is 10 years, when will you reckon the 10 year period?

From the time of discovery db? So kung dili sya madiscvoer kunohay sa government, then the government will have unlimited time to make an assessment and demand for the payment of the taxes. So, I think, more or less, the doctrine of Imprescriptibility is still applicable up until this pont.

DOUBLE TAXATION

Okay, let us go now to the PRINCIPLE OF DOUBLE TAXATION.

Some books would say that double taxation is one of the inherent limitations, some books would also say

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that double taxation is actually part of constitutional limitaions. So, which is which?

For me, I would say, that double taxation is just a

inherent

limitation. Why? Because of our basic premise that the power to tax is plenary, all-encompassing and unlimited.

constitutional

limitation.

It’s

not

an

So, technically speaking, the government can tax a subject twice kasi kailangan nila ng pera.

But what makes Double Taxation illegal? Because not all forms of double taxation is actually illegal. Double taxation is not illegal per se. It’s not prohibited because it always happens. Like what? What if you’re doing business? You’re paying income taxes and at the same time weekly percentage tax or VAT. It’s the same money and yet there are two types of tax being imposed by the government.

So, when will the Double taxation become illegal? So, basically, there are two forms of Double Taxation:

1. Direct Double Taxation/Direct Double Taxation 2. Indirect Double Taxation/Indirect Double Taxation

When is there a Direct Double Taxation?

Ito yung ILLEGAL. Another term for it is Obnoxious Double Taxation this is taken from dean and I guess he took it from Aban book. Direct Double Taxation happens when the same subject or property is taxed twice, by the same taxing authority, for the same taxing purpose, the same period and taxing all objects or property within the same territory for the first time without taxing them for the second time.

Another definition given is that:

The same property is taxed twice, where it should be taxed only once, and that both taxes are imposed to the same property or subject matter for the same purpose, same taxing authority, within the same jurisdiction, covering the same taxing period, for the same kind or character of tax.

Make no mistake about this. YOU HAVE TO MEMORIZE THIS DEFINITION because absent one of these elements, there is only what you call as INDIRECT DOUBLE TAXATION which is allowable by law.

Let’s run through the definition again: The taxpayer is taxed twice, when he should be only taxed once and the TAX IS:

1. For the same subject matter;

2. For the same purpose;

3. For the same taxing authority;

4. Within the sae jurisdiction;

5. During the same taxing period;

6. And the taxes are

of the same kind and

character.

CITY OF MANILA VS COCA-COLA

Case in point: City of Manila vs Coca-Cola, reiterated in the case of Swedish Match vs City of Manila

So, this City of Manila, there is this old ordinance, let’s say Ordinance A. Oridnance A exempted the Coca- Cola from paying the manufacturing taxes. Because the Coca-Cola is already subjected to another kind of business tax. And then there was this another ordinance, Ordinance B that was enacted which took out the tax exemption of Coca-Cola. So, basically, the City of Manila, is already imposing two types of taxes. But then, Orinance B was subsequently declared as unconstitutional. So nagrevert sya to Ordinance A ulit. Meanwhile, prior to the repeal or the nullity of Ordinance B, the City of Manila attempted to collect taxes from Coca-Cola. Magbayad ka. Probably the City was thinking, during that time that this ordinance was still effective, all legal effects thereto are also effective.

Ang sabi ng Coca-Cola dito, we don’t want to pay because, one of their arguments is that, this is double taxation.

SC: Yes, this is actually a DOUBLE TAXATION. Kasi sabi ng City dito, this is not Double Taxation, because the purposes are different or the kind of tax is different. The SC said, it’s still double taxation because even if that is for manufacturer and the other one is for distribution, it’s still in the same nature. This is a form of business tax. And then the SC here made a wrapped down of the requirements.

(FROM THE FULL TEXT OF THE CASE)

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter the privilege of doing business in the City of Manila; (2) for the same purpose to make persons conducting business within the City of Manila contribute tocity revenues; (3) by the same taxing authority petitioner Cityof Manila; (4) within the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the same kind or character a local business tax imposed on gross sales or receipts of the business.

So,

batas.

probably

nagkaproblema

lang

sa

wordings

sa

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ERICSSON VS CITY OF PASIG

Another peculiar case that I found, that had led me to DOUBLE TAXATION is the Ericsson vs City of Pasig.

Eto naman, there is a City Ordinance, there’s no question about it. There’s a City Ordinance imposing business taxes again which included Ericsson but the problem is the City of Pasig wanted to collect these business taxes on the basis of Gross Revenues. And sabi naman ng Ericsson, hindi yan pwede. You cannot collect taxes on the basis of gross revenues because the law says it must be based on gross receipts. Sabi naman ng City, gross revenues and gross receiots are actually the same. So babayad ka na lang para walang gulo. Essentially ganyan ang sinasabi ng City of Pasig.

Now, the issue here is will the tax based on the gross revenues instead of gross receipts constitute Double Taxation?

We’re talking about the same law and yet in this case, this is with respect to the collection already. This is why which I found this weird. Kasi we’re talking about the collection here. But the argument here is based on double taxation. Will there be a Double Taxation if the tax is based on gross revenue instead of gross receipts?

What is the difference between the two terms?

(FROM THE FULL TEXT OF THE CASE)

(n) Gross Sales or Receipts include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value- added tax (VAT);

x x x x

The law is clear. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive.

Gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received.

July 24, 2018 Part 4 By: M.A. CAMPANER

GROSS RECEIPTS vs GROSS REVENUES

GROSS RECEIPTS whatever you have received. It is not only limited to ACTUAL receipts but also includes those that are CONSTRUCTIVELY received by the taxpayer those which are placed in your control. Because what if the other party pays through the bank, is it actually received? NO. But in effect, the payor loses control of the money upon the deposit and the recipient of the money has total control of that money and may do anything he wants to do with it.

GROSS REVENUES is a broader term because it includes money which you will still receive in the future.

So where is double taxation if the tax will be based on gross revenues?

SC: The imposition of local business tax based on petitioners gross revenue will inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the same jurisdiction for the same thing inasmuch as petitioners revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid.” (Ericsson vs. City of Pasig)

In other words, if the tax base is on the gross revenue, on the next year some items which have already been taxed in the prior year might also be included in the present year’s tax. That is the main reason why the SC ruled that the tax should be based on the gross receipts.

Read also the case of CIR vs BPI, it’s in the outline. And also the case of Nursery Care vs Acevedo.

As we have discussed, take out one of the requirements of double taxation, then it becomes an INDIRECT DOUBLE TAXATION.

WAYS OF ELIMINATING DOUBLE TAXATION:

1. TAX TREATIES

2. TAX CREDITS

3. TAX DEDUCTION

4. TAX REDUCTION

1. TAX TREATIES

are mainly there to avoid international double taxation. The prime example I can give you is Pacquiao he earns income from boxing matches. Because the match is done abroad, the host country will impose income taxes on him. When he arrives in the

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Philippines, because of the fact that he is a resident

3.

TAX DEDUCTIONS

citizen, he will also be liable for taxes for the income he earned abroad. It’s practically the same same money, same purpose, same earning, same type of tax, but then, the territory and the taxing authority are different.

is pretty much similar in intent with tax credits because it will reduce the tax liability of the taxpayer. But when you say tax deductions these items will only indirectly reduce the taxes.

So tax treaties usually provides for tax exemption. International Double Taxation takes place when a person who is a resident of a contracting state and derives income from, or own capital in another contracting state and both states impose tax on the income or capital.

Like for example, in the computation of income taxes, right now, if you provide for senior citizens’ discounts, you can avail of a deduction. Deduction which will form part of your business expenses. If you have a lot of expenses, your income will reduce, and smaller income would mean smaller taxes that you have to pay.

What is the purpose of international tax treaties? (CIR vs SC JOHNSON)

4.

TAX REDUCTIONS.

1. The elimination of international juridical double taxation;

This is more of a legislative side. This would just

2. To encourage the free-flow of goods and services movement of capital and technology between the two countries.

mean that Congress would enact a new law that would reduce the tax liabilities of a taxpayer or the tax rate or the tax base of a particular tax

2. TAX CREDITS

measure. Like what happened now in Train Law. There was an increase in a lot of excise taxes.

Are provided for by law. What is its nature? This is a peso-for-peso deduction of the tax liability of a taxpayer. The amount of the tax credit is also the very amount which will be deducted from the tax due.

There were new items which were already excisable but the income tax rates and tax base were only adjusted. But according to Dean, even with the reduction of the tax rates and the tax base, these actually has no bearing at all. Kumbaga parang palami lang sa mata.

Where do you get these tax credits? In NIRC, there is what we call Tax Credits for Foreign Income Taxes Paid. Like for instance what happen to Pacquiao before, he was pursued by Kim Henares. Henares claims that he is requesting for the IRS (Internal Revenue Service) documents of Pacquiao so that we can apply the tax credit. The tax liabilities of Pacquiao will be reduced by the foreign income taxes he has paid abroad. But what Pacquiao and his team did was they did not provide any document. So according to Henares he has no other choice but to enforce the collection.

This is also found in Estate Taxation. There are some decedents who died with a will and they have properties all over the world. What about the estate taxes paid abroad? That can be used as deduction to the estate tax to be paid here. It is also found in Donor’s Tax.

Another form of tax credit is VAT. The component of VAT is actually two (1) Output tax. It comes from the sales of a certain period and there is a corresponding 12% VAT on it, (2) Input Taxes is a form of tax credit. Why? Because the buyer is the one who shoulders the burden of VAT. Now the VAT component of your payment can be used as a direct deduction of your total VAT liabilities.

July 24 Part 5 Ara Olamit

Let’s say you have tax deductions. How is it different from tax credits?

LIMITATIONS

You have two kinds of limitations of taxing powers.

1. Inherent Limitations; and

2. Constitutional Limitations

So what are the inherent limitations of the power to tax? You have five (5).

1. Public Purpose

2. Inherently Legislative

3. Territorial

4. International Comity

5. Exception of Government Entities

Now, most of these items, we have already discussed. Like for example, public purpose. Diba sabi natin “Public purpose is the heart of tax law”. The power of taxation may be exercised only for a public purpose.

Second. Inherently Legislative. You know the drill here. Generally, it is solely lodged in the Congress. What are the exceptions? We have at least 5 diba? Cannot be delegated is the General Rule, diba? What are the 5 exceptions?

1. Delegation to the President

2. Delegation to the LGUs

3. Delegation to the Administrative Bodies

4. Delegation to the people at large

5. Emergency Powers

BALGOA, CAMPANER, CASTRO, DEL ROSARIO, ISIDOR, MADUM, OLAMIT, PUERIN, SINGANON, TAN, VIOLA Page 28 of 49

TAXATION 1

F R O M

T H E

L E C T U R E S

O F

A T T Y .

D O N A L V O

2 0 1 8

(Abakada vs. Ermita)

What are the SOURCES OF TAX LAWS?

1. Constitution

When it comes to the government, exemption from taxation is the general rule. Taxation is the exception. Baliktad siya.

2. Existing Statutes

What is

the