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UNIVERSITY OF NEGROS OCCIDENTAL RECOLETOS - SCHOOL OF

LAW
Course Outline in Taxation I

Lorebette G. Grandea
1st Semester, SY 2016-17
References:
Law of Basic Taxation in the Philippines by Benjamin B. Aban
The Law on Income Taxation by Benjamin D. Teodoro and
Hector S. de Leon
Compendium of Tax Laws and Jurisprudence by Jose Vitug

I. General Principles of Taxation

A.Meaning, Nature, Basis, Characteristics and Purposes of


Taxation

1. Meaning of tax, taxation, CIR v. Algue, 158 SCRA 9 (1988)

a. Taxation as an inherent power of the state


Abakada Guro Party List v. Ermita, GR No. 168056, 1 Sept.
2005

b. Tax as a general term, as a legal term


Compania General de Tabacos v. City of Manila, 8 SCRA
367 (1963)

c. Tax v. license and regulatory Fee

Osmena v. Orbos, 220 SCRA 703 (1993)


PAL v. Edu, 164 SCRA 320 (1988)
Progressive Development v. QC, 172 SCRA 629 (1989)
Tolentino v. Sec. of Finance, 249 SCRA 628 (1995)
Gerochi v. DOE, G.R. 159796, 17 July 2007

d. Tax v. special assessment

Sec. 240, R.A. 7160


Republic v. Bacolod-Murcia Milling Co., 17 SCRA 632
(1966)

e. Tax v. toll

Sec. 155, R.A. 7160

f. Tax v. penalty

Secs. 247-281

g. Tax v. tariff and customs duties

Garcia v. Executive Secretary, 211 SCRA 219 (1992)

h. Obligation to pay tax v. obligation to pay debt

LGG/UNO-R Law/Taxation I 1
Art. 1279, 1290 NCC
Republic v. Mambulao Lumber, 6 SCRA 858 (1962)
Philex Mining v. CIR, 294 SCRA 687 (1998)
Caltex v. COA, 208 SCRA 726 (1992)
Francia v. IAC, 162 SCRA 753 (1988)

i. Tax v. government revenue

2. Essential Characteristics of Tax

Caltex v. COA, id.

3. Theory and Basis of Taxation

Lorenzo v. Posadas, 64 Phil 353 (1937)


CIR v. Algue, supra.

4. Purposes, Objectives of Taxation

a. General, fiscal, revenue

CIR v. Algue, supra.


Osmena v. Orbos, supra.
PAL v. Edu, supra.
Tolentino v. Secretary of Finance, 235 SCRA 630 (1994)

b. Non-revenue, special or regulatory

Osmena v. Orbos, supra.


Republic v. Bacolod-Murcia Milling Co., supra.
Tio v. Videogram Regulatory Board, 151 SCRA 208 (1987)
Lutz v. Araneta, 98 Phil 150 (1955)
Caltex v. COA, supra.
Esso v. CIR, 175 SCRA 149 (1989)

5. Classification of Taxes

a. As to scope of the tax

National taxes, local taxes


Benguet v. CBAA, 210 SCRA 579 (1992)

b. As to who shoulders the burden of the tax

Direct taxes, indirect taxes


Sec. 105 – VAT
Tolentino v. Sec. of Finance, (1995) supra.
Philippine Acetylene v. CIR, 20 SCRA 1056 (1967)
Maceda v. Macaraig, 197 SCRA 771 (1991)
Maceda v. Macaraig, 223 SCRA 217 (1993)
CIR v. John Gotamco, 148 SCRA 36 (1987)

c. As to the object or subject matter of the tax

Property, personal, poll or capitation, excise

LGG/UNO-R Law/Taxation I 2
Villanueva v. City of Iloilo, 26 SCRA 578 (1968)
CIR v. CA, 242 SCRA 289 (1995)
Assoc. of Customs Brokers v. Municipal Board, 93 Phil 107
(1953)

d. As to the manner of computing the tax

Title VI
Ad valorem, specific

e. As to graduation or rate

1. proportional, flat rate


Sec. 233, R.A. 7160
2. progressive, digressive rate
Sec. 24 (A)
3. regressive, Tolentino v. Sec. of Finance, (1995) supra.

6. Aspects of taxation

a. Levy or imposition by the legislative body


b. Collection or administration
c. Methods of collection: withholding system
voluntary assessment and payment
assessment and payment
7. Tax systems

a. Classification

Sec. 28 (1), Art. VI, 1987 Constitution


Progressive system, regressive system
Progressive system v. progressive rate of tax
Tolentino v. Sec. of Finance, supra., supra.

b. Basic principles of a sound tax system


Chavez v. Ongpin, 186 SCRA 331 (1990)

B. Nature and Limitations of the Power of Taxation

1. Nature of the power of taxation

a. Inherent in sovereignty

Roxas v. CTA, 23 SCRA 276 (1968)


Tanada v. Angara, 272 SCRA 18 (1997)

b. Exclusively legislative in nature

i. Extent of the legislative power to tax

Tan v. del Rosario, 237 SCRA 324 (1994)


CIR v. Santos, 277 SCRA 617 (1997)
Sison v. Ancheta, 130 SCRA 654 (1984)
Kapatiran v. Tan, 163 SCRA 371 (1988)

LGG/UNO-R Law/Taxation I 3
Reyes v. Almanzor, 196 SCRA 322 (1991)

ii. Non-delegability of power to tax

Except: devolved power to LGUs, express grant in


legislative franchise
Maceda v. ERB, 192 SCRA 363 (1990)
Maceda v. Macaraig, (1991) supra.
Basco v. PAGCOR, 197 SCRA 52 (1991)
Pepsi-Cola v. City of Butuan, 24 SCRA 789 (1968)
PAL v. Edu, supra.

c. Who may question the validity of a tax measure or


expenditure of taxes

Lozada v. Comelec, 120 SCRA 337 (1983)


Maceda v. Macaraig, (1991) supra.
Gonzales v. Marcos, 65 SCRA 624 (1975)
Chavez v. PCGG, 299 SCRA 744 (1998)

c. Subject to inherent and constitutional limitations

2. Inherent Limitations

a. Purpose must be public in nature

Pascual v. Sec. of Public Works, 110 SCRA 331 (1960)


Tio v. Videogram Regulatory Board, supra.
Gaston v. RPB, 158 SCRA 626 (1988)

b. Prohibition against delegation of taxing power

exceptions
i. delegation to LGUs
Sec. 5, Art. X, 1987 Constitution
Book II, R.A. 7160
Basco v. PAGCOR, supra.
Maceda v. Macaraig, (1991) supra.

ii. delegation to the President


Sec. 28 (2), Art. VI, 1987 Constitution
Sec. 401, Tariff and Customs Code
Garcia v. Executive Sec., supra.

iii. delegation to administrative agencies


Osmena v. Orbos, supra.
Maceda v. Macaraig, (1991) supra.
Maceda v. ERB, supra.

c. Exemption of government entities, agencies and


instrumentalities

Sec. 27 (C)
Mactan Cebu Airport v. Marcos, supra.
Maceda v. Macaraig, supra., supra.

LGG/UNO-R Law/Taxation I 4
E. O. 93 and P. D. 1931

d. International comity

Sec. 2, Art. II, 1987 Constitution


Tanada v. Angara, supra.

e. Limitation of territorial jurisdiction


territorial v. personal jurisdiction

CIR v. British Overseas Airway Corp., 149 SCRA 395


(1987)
CIR v. Japan Airlines, 202 SCRA 450 (1991)
Air Canada v. CIR, (CA) Case No. 6572, 22 December 2004
Iloilo Bottlers v. City of Iloilo, 164 SCRA 607 (1988)

3. Constitutional Limitations

a. Due process of law

Sec. 1, Art. III, 1987 Constitution


Tan v. del Rosario, supra.
Sison v. Ancheta, supra.
b. Equal protection of the laws

Sec. 1, Art. III, 1987 Constitution


Sison v. Ancheta, supra.
Villegas v. Hiu Chiong Tsai Pao, 86 SCRA 270 (1978)
Tan v. del Rosario, supra.
CIR v. CA & Alhambra Ind., 267 SCRA 557 (1997)
Tiu v. CA, 301 SCRA 278 (1999)

c. Uniformity and equity in taxation

classification of taxpayers, subject or items to be taxed


Sec. 28 (1), Art. VI, 1987 Constitution
Tolentino v. Sec. of Finance, supra., supra.
Mla. Race Horse v. dela Fuente, 88 Phil 60 (1951)
Eastern Theatrical v. Alfonso, 83 Phil 852 (1949)
Pepsi Cola v. City of Butuan, supra.
Shell v. Vano, Mun. Treas. of Cordova, Cebu, 94 Phil 389
(1954)
City of Baguio v. de Leon, 25 SCRA 938 (1968)
Kapatiran v. Tan, supra.
Villanueva v. City of Iloilo, supra.
Asso. of Customs Brokers v. Mun. Board, supra.

4. Prohibition against imprisonment for non-payment of poll tax

Sec. 20, Art. III, 1987 Constitution


community tax v. poll tax
Sec. 156-164, R. A. 7160

5. Prohibition against impairment of obligation of contracts

LGG/UNO-R Law/Taxation I 5
Sec. 10, Art. III
Sec. 11, Art. XII, 1987 Constitution
Tolentino v. Sec. of Finance, (1994) supra.

6. Prohibition against infringement of religious freedom

Sec. 5, Art. III, 1987 Constitution


Am. Bible Society v. City of Manila, 101 Phil 386 (1957)
Tolentino v. Sec. of Finance, (1995) supra.

7. Prohibition against appropriation of proceeds of taxation

Sec. 29, Art. VI, 1987 Constitution


Use of tax levied for a special purpose
Osmena v. Orbos, supra.

8. Prohibition against taxation of religious, charitable and


educational entities

Sec. 28 (3), Art. VI, 1987 Constitution


Abra Valley College v. Aquino, 162 SCRA 106 (1988)

9. Prohibition against taxation of non-stock, non-profit


educational institutions

Sec. 4 (3, 4), Art. XIV, 1987 Constitution


Sec. 28 (3), Art. VI, Constitution
Sec. 27 (B) and 30 (H)
DOF Order No. 137-87 and 149-95
CIR v. CA, CTA and YMCA, 298 SCRA 83 (1998)
CIR v. CA, CTA and Ateneo, 271 SCRA 605 (1997)

10. Others

i. Grant of tax exemption (more on this under D4)

Sec. 28 (4), Art. VI, 1987 Constitution


Chavez v. PCGG, supra.

ii. Veto of appropriation, revenue or tariff bills


Sec. 27 (2), Art. VI, 1987 Constitution
Gonzales v. Macaraig, 191 SCRA 452 (1990)

iii. Non-impairment of the jurisdiction of the Supreme Court


Sec. 2, 5 (b), Art. VIII, 1987 Constitution
CIR v. Santos, 277 SCRA 617 (1997)
San Miguel Corp. v. Avelino, 89 SCRA 69 (1979)

iv. Revenue bills shall originate from the House of


Representatives
Sec. 24, Art. VI, 1987 Constitution
Tolentino v. Sec. of Finance, supra., supra.

v. Infringement of press freedom


Sec. 24, Art. III, 1987 Constitution

LGG/UNO-R Law/Taxation I 6
Tolentino v. Sec. of Finance, (1995) supra.

vi. Grant of Franchise


Sec. 11, Art. XII, 1987 Constitution
Tolentino v. Sec. of Finance, (1995) supra.

C. Situs of Taxation and Double Taxation

1. Meaning of situs

2. Situs of subjects of taxation

Sec. 42, 104


CIR v. British Overseas Airway Corp., supra.
CIR v. Japan Airlines, supra.
Wells Fargo Bank v. Collector, 70 Phil 325 (1940)
Tan v. del Rosario, supra.

3. Multiplicity of Situs, Collector v. de Lara, 102 Phil 813


(1958)

4. Double Taxation

a. Meaning
CIR v. S.C. Johnson and Son, Inc., 309 SCRA 87 (1999)

b. Double taxation in its broad sense


Villanueva v. City of Iloilo, supra.

c. Constitutionality of double taxation


City of Baguio v. de Leon, supra.
Pepsi Cola Bottling v. City of Butuan, supra.
Sanchez v. Collector, 97 Phil 687 (1955)
City of Mla. v. Interisland Gas Service, 99 Phil 847 (1956)
Cpa. General de Tabacos v. City of Mla., supra.
D. Means of Avoiding and Minimizing the Burden of Taxation

1. Shifting of tax burden

a. Ways of shifting the tax burden

b. Taxes that can be shifted


Sec. 105-VAT

c. Meaning of impact and incidence of taxation

2. Tax evasion

Elements of tax evasion


Republic v. Gonzales, 13 SCRA 633 (1965)
Sec. 254

3. Tax avoidance

LGG/UNO-R Law/Taxation I 7
Ways of avoiding tax
Delpher Traders Corp. v. IAC, 157 SCRA 349 (1988)
Yutivo v. CTA, 1 SCRA 160 (1961)

4. Exemption from taxation

a. meaning of exemption from taxation


Greenfield v. Meer, 77 Phil 394 (1946)
PLDT v. City of Davao, 363 SCRA 522 (2001)
PLDT v. City of Davao, G.R. 143867, March 25, 2003

i. compared with tax remission, condonation


Juan Luna Subd. V. M. Sarmiento, 91 Phil 371 (1952)
Surigao Corp. Min. v. Collector, 9 SCRA 728 (1963)

ii. tax amnesty


Commissioner v. CA and ROH Auto, 240 SCRA 368
(1995)
People v. Castaneda, 165 SCRA 327 (1988)
Pascual v. CIR, 166 SCRA 560 (1988)
Republic v. IAC, 196 SCRA 335 (1991)
CIR v. Marubeni Corp., 372 SCRA 576 (2001)

iii. VAT zero-rating, Sec. 106 (A) (2)

iv. exclusions, deductions, Sec. 32 (B), 34

b. Kinds of tax exemption

Express or implied, total or partial


Exemption from direct tax, from indirect tax
Atlas Fertilizer v. Commissioner, 100 SCRA 556( 1980)
Commissioner v. Phil. Ace Line, 25 SCRA 912 (1968)
Com. v. RTN Mining, 202 SCRA 137 (1991); 207 SCRA 549
(1992)
Caltex v. COA, supra.

c. Nature of the power to grant tax exemption

Basco v. PAGCOR, supra.


Maceda v. Macaraig, (1993) supra.

d. Rationale for tax exemption

Davao Light v. Com., 22 SCRA 122 (1972)


Tan Kim Kee v. CTA, 7 SCRA 670 (1963)
NPC v. RTC Presiding Judge, Cagayan de Oro, 190 SCRA
477 (1990)
Chavez v. PCGG, supra.
Davao Gulf v. CIR, 293 SCRA 76 (1998)
Maceda v. Macaraig, (1993) supra.
Tolentino v. Sec. of Finance,(1995) supra.

e. Nature of tax exemption

LGG/UNO-R Law/Taxation I 8
Tolentino v. Sec. of Finance, (1995) supra.
PLDT v. City of Davao, (2001) supra.
Maceda v. Macaraig, (1991) supra.
Phil. Acetylene v. Commissioner, supra.
Wonder Mech v. CTA, 64 SCRA 555 (1975)
Atlas Fertilizer v. Com., supra.

f. Laws granting tax exemption, incentives

i. Constitution
Sec. 28 (3), Art. VI and Sec. 4 (3, 4), Art. XIV, 1987
Constitution
Abra Valley v. Aquino, supra.

ii. tax statutes


Sec. 30, 32 (B), 106, 199
Sec. 159 and 234, R. A. 7160
Sec. 105, Tariff and Customs Code (TCC)

iii. special laws


R. A. 7549
Com. v. Phil Ace Line, supra.

iv. treaties
RP-US Tax Treaty
RP-Germany Tax Treaty
Com. v. S. C. Johnson, supra.
Reagan v. CIR, 30 SCRA 968 (1969)
Com. v. PJ Kiener, 65 SCRA 142 (1975)

g. Construction of statutes granting tax exemption

i. general rule
PLDT v. City of Davao, (2001) supra.
Com. v. CA and YMCA, 298 SCRA 83 (1998)
Misamis Oriental Assoc. v. DOF, 238 SCRA 63 (1994)
Com. of Customs v. Phil Acetylene Company, 39 SCRA
70 (1971)
Mla. Electric Co. v. Vera (Tabios), 67 SCRA 352 (1975)
Benguet Corp. v. CBAA, supra.
Davao Gulf v. CIR, supra.

ii. exceptions
Maceda v. Macaraig, supra., supra.
grant to government and other entities

E. Sources, Application, Interpretation and Administration of Tax


Laws

1. Sources of tax laws

The Constitution, NIRC, TCC, LGC

LGG/UNO-R Law/Taxation I 9
tax ordinance/local tax codes, Tuzon v. CA, 212 SCRA 739
(1992)
treaties, Tanada v. Angara, supra.
special laws, SC/CTA/CA decisions
revenue rules and regulations, rulings and opinions
a. validity of revenue rules and regulations
RMO 1-99
Tan v. del Rosario, supra.
Com. v. CA, supra.
Umali v. Estanislao, 209 SCRA 446 (1992)
La Suerte v. CTA, 134 SCRA 29 (1985)
Com. v. CA, 261 SCRA 236 (1996)

b. effectivity of revenue rules and regulations


RMC 20-86

c. nature of rulings, effects of a void ruling


Sec. 4, 244-246
Sec. 511 and 519, TCC
CIR v. CA, 267 SCRA 557 (1997)
Misamis Oriental v. DOF, supra.

2. Interpretation of Tax Laws

a. nature of internal revenue laws


Hilado v. Collector, 100 Phil 288 (1956)
Republic v. Oasan, 99 Phil 934 (1956)
Misamis Oriental v. DOF, supra

b. construction of tax laws

i. rule when legislative intent is clear


Umali v. Estanislao, supra.
Lorenzo v. Posadas, supra.

ii. rule when there is doubt


Collector v. La Tondena, 5 SCRA 665 (1962)
Lorenzo v. Posadas, supra.

iii. rule when language is plain

c. application of tax laws, revenue regulations, rulings


the effects of repeal

i. application of tax laws


Art. 2, NCC
Umali v. Estanislao, supra.
Lorenzo v. Posadas, supra.
Hijo Plantation v. CB, 164 SCRA 192 (1988)
CIR v. Filipinas Cia de Seguros, 107 Phil 1055 (1960)
Cebu Portland v. Collector, 25 SCRA 789 (1968)
Comm. v. RTN Mining, supra.

LGG/UNO-R Law/Taxation I 10
ii. application of revenue regulations, rulings
Sec. 246
Comm. v. CA, supra.
Comm. v. Mega General, 166 SCRA 166 (1988)
ABS-CBN v. CTA, 108 SCRA 142 (1981)
Comm. v. Telefunken, 249 SCRA 401 (1995)

d. mandatory and directory provisions


Roxas v. Rafferty, supra.
Aragon v. George, 85 Phil 246 (1949)
Tiongco v. PVB, 212 SCRA 176 (1992)
Pecson v. CA, 222 SCRA 580 (1993)

3. Enforcement, Administration of Tax Laws

LGG/UNO-R Law/Taxation I 11