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GENERAL PRINCIPLES
Definition; 5 Elements
a.
b.
c.
d.
e.
3.
b.
taxes
are
important
considerations in entering a business.
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4.
NOTES |1
1.
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TAX1
6.
PRIMARY
1)
2)
3)
4)
5)
7.
NOTES |2
TAX1
a.
b.
c.
1)
2)
3)
4)
5)
6)
Distinctions
a.
Taxation From Other Inherent Powers
of the State
TAXATION vs. POLICE POWER vs. EMINENT
DOMAIN
As to purpose:
Taxation for the support of the government
Eminent Domain_- for public use
Police Power to promote general welfare, public
health, public morals, and public safety.
As to compensation:
Taxation Protection and benefits received from the
government.
Eminent Domain just compensation, not to exceed
the market value declared by the owner or
administrator or anyone having legal interest in the
property, or as determined by the assessor,
whichever is lower.
Police Power The maintenance of a healthy
economic standard of society.
As to persons affected:
Taxation and Police Power operate upon a
community or a class of individuals
Eminent Domain operates on the individual
property owner.
As to authority which exercises the power:
Taxation and Police Power Exercised only by the
government or its political subdivisions.
Eminent Domain may be exercised by public
services corporation or public utilities if granted by
law.
As to amount of imposition:
Taxation Generally no limit to the amount of tax
that may be imposed.
Police Power Limited to the cost of regulation
Eminent Domain There is no imposition; rather, it is
the owner of the property taken who is just paid
compensation.
As to the relationship to the Constitution:
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b.
Taxation
impositions
From
Other
Monetary
1)
2)
3)
4)
5)
6)
7)
8)
9)
10) Revenue
11) Impost
2.
3.
4.
5.
Tax vs. Toll
1.
NOTES |3
2.
3.
4.
5.
TAX1
cost of
public
on the
is not
1.
2.
3.
1.
2.
3.
4.
5.
6.
7.
Requisites of compensation
1.
That each one of the obligor be bound principally,
and that he be at the same time a principal creditor
of the other.
2.
That both debts consist in a sum of money, or if the
things due are consumable, they be of the same
kind and also of the same quality if the latter has
been stated.
3.
That the two (2) debts be due.
4.
That they be liquidated and demandable.
5.
That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtors.
ILLUSTRATIONS:
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9.
Taxpayers Suit
There have been several cases wherein the Court
recognized the right of a taxpayer to file an action
questioning the validity or constitutionality of a statute
or law, on the theory that the expenditure of public funds
by an officer of the government for the purpose of
administering or implementing an unconstitutional or
invalid law, constitutes a misapplication of such funds.
(GASCON v. ARROYO, GR 125704 August 28 1998)
10. Aspects,
Taxation
A.
Classification
and
Limitations
of
a.
b.
c.
NOTES |4
TAX1
1.
2.
3.
1.
2.
1.
2.
1.
2.
1.
2.
3.
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C.
Limitations of Taxation
Inherent Limitations
1.
1)
NOTES |5
TAX1
2.
Territorial/Situs
The power to tax is limited only to persons, property
or businesses within the jurisdiction or territory of the
taxing power.
EXCEPT:
A) Where the tax laws operate outside territorial
jurisdiction
1) TAXATION of resident citizens on their
incomes derived from abroad
B) Where tax laws do not operate within the
territorial jurisdiction of the State
1) When exempted by treaty obligations
2) When exempted by international comity
d.
e.
SITUS
Personal or Community
Tax
Business Tax
Sales Tax
ILLUSTRATIONS:
Income Tax
Transfer Tax
Donors Tax
Estate Tax
Franchise Tax
follow the
of personal
a merely a
not to be
c.
3.
b.
being taxed.
g. Method of collection.
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4.
NOTES |6
1)
2)
3)
International comity
These principles limit the authority of the authority
of the government to effectively impose taxes on a
sovereign state and its instrumentalities, as well as on its
property held and activities undertaken in that capacity.
Even where one enters the territory of another, there is
an implied understanding that the former does not
and
TAX1
a.
b.
1)
2)
3)
4)
5.
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authority
Constitutional Limitations
ILLUSTRATION:
the
a.
b.
c.
NOTES |7
TAX1
d.
5.
Non-Impairment of Contracts
NON IMPAIRMENT CLAUSE (Art III. Sec 10, 1987
Constitution)
No law impairing the obligation of contracts shall be
passed.
4.
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NOTES |8
TAX1
6.
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NOTES |9
TAX1
a.
Taxing twice
b.
13. Tax
1.
c.
Tax deductions
Tax credits
Provide for exemption
Enter into treatise with other states
Allowance on the principle of reciprocity
TAX CREDIT
EXAMPLES:
TAXABLE INCOME
(Foreign Source)
TOTAL TAXABLE
INCOME
(Foreign + Phil Source)
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X PHILIPPINE TAX ON =
THE TOTAL INCOME
(Total Taxable
Income x 30%)
LIMIT on
FOREIGN TAX
CREDIT
EXAMPLE:
Income
Income
Income
Income
from A:
from B :
From C:
from Phil:
2000
3000
1000
4000
at
at
at
at
20%
10%
30%
30%
NOTES |10
TAX1
P6000
P10000
P3000
1800
P3000
- P1800
P1200
TAX DEDUCTIONS
EXAMPLES:
from A:
from B :
From C:
from Phil:
2000
3000
1000
4000
at
at
at
at
20%
40%
30%
30%
PH tax due
600
900
300
P3000
P1400
TAX EXEMPTION
1.
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Constitutional grants of tax exemptions are selfexecuting. The reason for this is that a
constitutional
provision
declaring
certain
properties are tax exempt does not need
legislative enactment to put it into effect. This is
in consonance with the presumption that
provisions of the Constitution are generally selfexecuting; otherwise, it will be within the power
of the legislature to ignore or practically nullify
the directions of the fundamental law. (DOJ
Opinion No. 130, 1987)
The Host Agreement, in specifically exempting
the WHO from indirect taxes, contemplates
taxes which, although not imposed upon or paid
by the Organization directly, form part of the
price paid or to be paid by it. This is made clear
in Section 12 of the Host Agreement which
provides While the Organization will not, as a
general rule, in the case of minor purchases,
claim exemption from excise duties, and from
taxes on the sale of movable and immovable
property which form part of the price to be paid,
nevertheless, when the Organization is making
important purchases for official use of property
on which such duties and taxes have been
charged or are chargeable the Government of
the Republic of the Philippines shall make
appropriate administrative arrangements for the
remission or return of the amount of duty or
tax. Section 12, although referring only to
purchases made by the WHO, elucidates the
clear intention of the Agreement to exempt the
WHO from indirect taxation.(CIR v. Gotamco,
GR L-31092, 27 February 1987)
2. KINDS
According to Manner of Creation
1) Express or affirmative exemption
When certain persons, property or transactions are,
by express provision, exempted from all certain
taxes, either entirely or in part.
2) Implied exemption or exemption by omission
When a tax is levied on certain classes of persons,
properties, or transactions without mentioning the
other classes.
3) Contractual
Agreed to by the taxing authority in contracts
lawfully entered into them under enabling laws. (i.e.:
treaty, licensing ordinance)
According to Scope or Extent
1) TOTAL
When certain persons, property or transactions are
exempted, expressly or impliedly from all taxes
2) PARTIAL
When certain persons, property or transactions are
exempted, expressly or impliedly from certain taxes,
either entirely or in part.
According to Source
1)
2)
Consitutional
Statutory
According to Object
NOTES |11
1.
2.
3.
4.
Tax amnesty
TAX1
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CONSTITUTIONAL RESTRICTION:
No law granting any tax exemption shall be passed without
the concurrence of a majority of all members of Congress.
(Sec. 28 (4) ART VI)
PROV. OF NUEVA ECIJA vs. IMPERIAL MINING
SHIFTING
CAPITALIZATION
TRANSFORMATION
AVOIDANCE
EXEMPTION
EVASION
I. SHIFTING
Shifting is the transfer of the burden of a tax by the
original payer or the one on whom the tax was
assessed or imposed to someone else
Process by which such tax burden is transferred from
statutory taxpayer to another without violating the
law
NOTES |12
TAX1
1) FORWARD SHIFTING
When the burden of the tax is transferred from a
factor of production through the factors of
distribution until it finally settles on the ultimate
purchaser or consumer.
Example:
Manufacturer or producer may shift tax assessed to
wholesaler, who in turn shifts it to the retailer, who
also shifts it to the final purchaser or consumer
2) BACKWARD SHIFTING
When the burden of the tax is transferred from the
consumer or purchaser through the factors of
distribution to the factors of production
Example:
Consumer or purchaser may shift tax imposed on
him to retailer by purchasing only after the price is
reduced, and from the latter to the wholesaler, or
finally to the manufacturer or producer
1) ONWARD SHIFTING
When the tax is shifted two or more times either
forward or backward
Example:
Thus, a transfer from the seller to the purchaser
involves one shift; from the producer to the
wholesaler, then to retailer, we have two shifts; and
if the tax is transferred again to the purchaser by the
retailer, we have three shifts in all.
Impact and Incidence of Taxation
Statutory Taxpayer
II.
CAPITALIZATION
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III.
-
IV.
TRANSFORMATION
The manufacturer in an effort to avoid losing his
customers, maintains the same selling price and
margin of profit, not by shifting the tax burden to his
customers, but by improving his method of
production and cutting down or other production
cost, thereby transforming the tax into or earn
through the medium of production.
TAX AVOIDANCE
NOTES |13
TAX1
6) Tax code
7) Revenue regulations
8) Administrative issuances
9) BIR rulings
10) Local tax ordinances
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NOTES |14
TAX1
It is widely accepted that the interpretation placed upon a
statute by the executive officers, whose duty is to enforce it,
is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if
judicially found to be erroneous. Thus, courts will not
countenance administrative issuances that override, instead
of remaining consistent and in harmony with, the law they
seek to apply and implement. As held in the case of People
vs. Lim, the rules and regulations issued by administrative
officials to implement a law cannot go beyond the terms and
provisions of the latter. (Philippine Bank of Communications
v. CIR, January 28 1999)
TAX REGULATIONS
These are regulations promulgated by the Secretary
of Finance in order to implement the provisions of
the Tax Code.
4.
D. TAX RULINGS
They are the best guess of the moment and
incidentally often contain such well-considered and
sound law, but the courts have held that they do not
prevent an entire change of front at any time and
are merely advisory sort of an information service
to the taxpayer (Quiazon and Lucban)
EXCEPTIONS TO NON-RETROACTIVITY OF RULINGS
Revocation, modification of revenue of any rules and
regulations promulgated by the Sec. of Finance or CIR shall
not have retroactive effect if it will be prejudicial to the
taxpayer, except:
1.
2.
3.
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NOTES |15