SCOPE AND LIMITATION OF TAXATION

I.

INHERENT LIMITATIONS
1. The levy must be for a public purpose.
2. It is inherently legislative.
GR: Taxation is legislative in nature and thus, the power to tax may NOT be delegated.
XPNS:
i.
Delegation to local governments;
ii.
Delegation to the President;
iii.
Delegation to administrative agencies;
3. Taxation is territorial. Taxation may eb exercised only within the territorial
jurisdiction of the taxing authority.
Situs of taxation place of taxation
In fixing the tax situs, the following criteria are generally observed:
i.
Situs of income tax crucial factors involving this category are a) nationality or
citizenship of taxpayer b)his residence or domicile c)source of income
From sources within the Philippines
From sources without the Philippines
Income partly within and partly without the Philipppines
Sec 23 of Tax Codr of 1997 : General Principles of Income Taxation in the Philippines.
- Except when otherwise provided in this Code:
"(A) A citizen of the Philippines residing therein is taxable on all income derived
from sources within and without the Philippines;
"(B) A nonresident citizen is taxable only on income derived from sources within the
Philippines;
"(C) An individual citizen of the Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable only on income from sources
within the Philippines: Provided, That a seaman who is a citizen of the Philippines
and who receives compensation for services rendered abroad as a member of the
complement of a vessel engaged exclusively in international trade shall be treated
as an overseas contract worker;
"(D) An alien individual, whether a resident or not of the Philippines, is taxable only
on income derived from sources within the Philippines;
"(E) A domestic corporation is taxable on all income derived from sources within and
without the Philippines; and
"(F) A foreign corporation, whether engaged or not in trade or business in the
Philippines, is taxable only on income derived from sources within the Philippines.
The taxable situs will depend upon the nature of income as follows;
1) Interests- Interest income is treated as income from within the Philippines if the debtor or lender whether an
individual or corporation is a resident of the Philippines.

2) Dividends- Dividends received from a domestic corporation are treated as income from sources within the
Philippines. Dividends received from a foreign corporation are treated as income from sources within the Philippines, unless
50% of the gross income of the foreign corporation for the three-year period preceding the declaration of such dividends was
derived from sources within the Philippines; but only in an amount which bears the same ratio to such dividends as the gross
income of the corporation for such period derived from sources within the Philippines bears to its gross income from all
sources.
3)

Services- Services performed in the Philippines shall be treated as income from sources within the Philippines.

4) Rentals and Royalties- Gain or income from property or interest located or used in the Philippines is treated as
income from sources within the Philippines.
5) Sale of Real Property- Gain from sale of real property located within the Philipines is considered as income within the
Philippines.
6) Sale of Personal Property- Gain, profit or income from sale of shares of stocks of a domestic corporation is treated
as derived entirely from sources within the Philippines, regardless of where the said shares are sold Gains from sale of
other personal property can be considered income from within or without or partly within or partly without depending on the
rules provided in Section 42 E of the Tax Code.

ii. Situs of Property Taxes- the tax situs can only be where the property is situated.
Thus, the real property tax cannot be imposed on real npropertly located
abroad, although owned by Flipino citizens.
REAL TAX vs PERSONAL PROPERTY TAX
iii.Situs of Excise Tax
Excise Tax excise or privilege taxes are laid upon the manufacture, sale or
consumption of commodities within the country, upon licenses to pursue
occupations and upon corporate priveleges. It can be exercised: (a) where the
privilege is exercised (b) where a taxpayer is a national of or (c) where he has
his residence
Estate Tax - a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and
beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary
disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death
of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the
postponement of the actual possession or enjoyment of the estate by the beneficiary.
Donors tax - is a tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or
more persons who are living at the time of the transfer. It shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible.

iv. Situs of Business tax -