GENERAL PRINCIPLES IN TAXATION

POWER OF TAXATION- it is an attribute of sovereignty and emanates from

necessity.
As a power it refers to the inherent power of the state to demand
enforced contribution upon its subjects and objects within its territorial
jurisdiction for public purpose to support the government.
As a process, it is a legislative act of laying taxes to raise income for the
government to defray its necessary expenses. It is the means whereby
the government distributes the burden of its cost among those who
enjoy its benefits.
PRINCIPLES BEHIND THE POWER OF TAXATION
Principle of Necessity- the existence of the government is a necessity
and it cannot exist without the means to support itself.
Benefits-Received Theory- the government and the people have the
reciprocal and mutual duties of support and protection to one another.
LifeBlood Doctrine- taxes are the lifeblood of the government without
which it can neither exist nor endure.
FUNDAMENTAL PRINCIPLE OF TAXATION
ABILITY TO PAY PRINCIPLE- everyone must contribute to the support of
the government in proportion to the revenue to which they respectively
enjoy.
UNIFORM AND EQUITABLE
JUST
CONVENIENT
NATURE AND CHARACTERISTIC OF POWER OF TAXATION
Public purpose
Inherently legislative
Subject to international comity
Payable in money
Territorial
It is not absolute as it is subject to constitutional limitations.
POWER OF TAXATION BEGIN
It commences existence from the moment a state is born with the concurrence
of the 4 elements (people, territory, sovereignty and government)
EXERCISED THE POWER OF TAXATION
Legislative body

LGU
President
DELEGATA POTESTAS NON POTEST DELEGARI

SCOPE OF POWER OF TAXATION

It is SUPREME, COMPREHENSIVE, UNLIMITED, PLENARY AND power to destroy.
OBJECTS OF TAXATION
Businesses
Interests
Transactions
Rights

Acts
persons
properties
privileges

PURPOSE OF TAXATION
PRIMARY- to raise or generate revenues and to mobilize resources
SECONDARY- to regulate the conduct of businesses or profession
To achieve economic and social stability
To protect local industries
COMPENSATORY- reduces inequalities in wealth distribution
PHASES OR STAGES OF TAXATION
1. LEVY/ IMPOSITION- generally it cannot be delegated
2. ASSESSMENT/ COLLECTION- delegable via a valid statute
3. PAYMENT OF THE TAX
DUTY TEST- to determine the public purpose of the tax whether or not the
appropriation or expenditure of public funds is related to the duty of the State
as a government.
PROMOTION OF GENERAL WELFARE TEST- used when there is a need to
determine the public purpose in a tax measure whether the law providing for it
directly promotes the welfare of the community in equal measures.
TAX
Is an enforced proportionate contribution imposed upon persons, properties,
businesses, etc. within its territorial jurisdiction of the taxing authority
exercise by the legislature for public purpose and generally payable in money.
CANONS OF A TAX
Proportionate to ones ability to pay
Certain and not arbitrary
Convenient to pay

Economical to collect

ELEMENTS OF A VALID
It must not violate the constitutional, inherent and contractual
limitations of the power of taxation
It must e uniform and equitable not unjust, excessive, oppressive,
confiscatory or discriminatory.
It must be for public purpose
The power imposing it must have jurisdiction over the object of taxation
It must be proportionate in character
Generally payable in money
Levied by the legislature that has jurisdiction over the object of taxation.
CLASSIFICATION OF TAXES:
AS TO PURPOSE: FISCAL no predetermined purpose AND REGULATORY with
economic goals.
AS TO SUBJECT MATTER: PERSONAL-PROPERTY-EXCISE
AS TO INCIDENCE: DIRECT TAX- imposed on a person obliged to pay the same
and this burden cannot be shifted.
INDIRECT TAX-payment is demanded from a person
who is allowed to transfer the burden of taxation to another. (VAT)
Proper party to question a refund of an indirect tax is the
statutory taxpayer, whom the tax is imposed by law.
AS TO EXCISE TAX (amount): SPECIFIC TAX-fixed amount based on volume. No
assessment required.
AD VALOREM TAX- imposition is based on the value of
the property, assessment is necessary to determine the amount payable.
TAX
It refers to the amount imposed
collected
It is one of the sources of governments
refers to
Revenues
government.

REVENUE
it refers to the amount
it is the product of taxation. It
all the funds derived by the

TARIFF
LICENSE
-Refers of a book of rates containing names
-for the purpose of regulation
Or merchandises with corresponding duties
its source police power of the
government
To be paid for the same
-has limit based on necesiity
-refers to the duties payable on goods imported
or exported

When the government and taxpayer entered into a valid compromise

agreement, the tax due from the taxpayer is considered a debt. An
appeal is with the CA, has the power or review the compromise
agreement.

SPECIAL ASSESSMENT: is a kind of property tax confined to local imposition

upon improvements in its immediate vicinity and levied with reference to
special benefits to the property assessed.
:levied on land, cannot be made the personal liability of the
person assessed because it is the land that answers for the liability
:may be imposed by the national gov or local gov.
PENALTY: imposed to regulate conduct through punishment and suppression of
injurious act. May be imposed by the government or private individual.
DELIQUENT TAX
DEFICIENCY TAX
Entire amount of tax liability has not been paid remaining portion of the whole
tax assessment is not necessary
liability remains
unsettled
Filing of civil action is a remedy
collection may be by
asministratively
Judicially
LIMITATIONS OD POWER OF TAXATION
CONSTITUTIONAL LIMITATIONS: observance of due process of law,
requires prior notice and hearing.
Violation of due process amounts to confiscation of property.
Violative of the requisites of public purpose
If subject of tax is outside territorial jurisdiction of taxing authority.
If tax payer not given an opportunity to be heard
EQUAL PROTECTION OF LAW-all persons subject to legislation shall be
treated alike under like circumstances and conditions both in privileges
and liabilities imposed.
UNIFORMITY OF TAXATION-all taxable articles, kinds of properties of the
same class shall be taxed at the same rate.
PROGRESSIVE SCHEME OF TAXATION- is based on the ability to pay
principle
INHERENT LIMITATIONS: taxation is territorial in character, inherently
legislative, subject to international comity, for public purpose, nondelegation and exemption of the government.

CONTRACTUAL LIMITATIONS: franchise granted to its own citizen, service

contract on petroleum and other energy operations granted to
contractors.

VERTICAL EQUITY: connotes a difference in the tax treatment between those

who are financially well-off and those who have relatively less. To tax those
who have more in life.
HORIZONTAL EQUITY: implies that those who are similarly situated in life
should be taxed similarly.
CLASSIFICATION STATUTE: the power of the government to select the subjects
of taxation and the apportionment of tax burden among them includes the
power to make classifications. If the consequence thereof is the singling out of
one particular class for taxation or exemption, that infringes no violation of the
limitation or restrictions in the exercise of the taxing authority.
It is in favor of the taxpayer. It does not violate equal protection and
uniformity clauses.
CLASS LEGISLATION: a law that discriminates against some and favors others.
The constitutional guaranty on equal protection prohibits this act.
DOCTRINE OF SOVEREIGN EQUALITY: the international rule maintains that
property or income of foreign state or government may not be subject to
taxation by another state.
TAX LAW: any law that provides for assessment and collection of taxes for the
support of the government and other public purpose. They are special laws.
CIVIL in nature and character and not penal.
It is construed most strongly against the government and liberally in favor of
the citizen because burdens are not to be imposed beyond what the statutes
expressly and clearly import.
4 basic tax laws:
NIRC 1997
TARIFF AND CUSTOME CODE 1978
LOCAL TAX CODE
REAL PROPERTY TAX CODE.
WHO HAS THE POWER TO INTERPRET TAX LAWS
CIR-original and exclusive power to interpret, subject to review by the
sec of finance.
Sec of justice with authority to give administrative interpretation and
determine the validity of tax laws.

REVENUE REGULATIONS:
Formal pronouncement intended to clarify or explain the tax law. They have
the force and effect of tax law.
Requisites;
It must not be contrary to law
It must be published in the official gazette
It must be useful, practical and necessary for law enforcement
It must be reasonable in their provisions
It must be within the authority conferred.
DOCTRINE OF PRIMARY JURISDICTION
It precludes a court from arrogating unto itself the authority to resolve a
controversy the jurisdiction over which is initially lodged with an
administrative body of special competence. Its determination requires a
special skill and knowledge of the proper administrative body.
JUDICIAL OF NON-INTERFERENCE:
The court cannot inquire into the wisdom of a taxing act or the advisability or
expediency
of a tax measure. It must be addressed to the legislature and administrative
authorities and not the court.
MARSHALL DICTUM: the power to tax includes the power to destroy because
the taxpayer has no choice except to pay the tax being imposed if he is
covered by the imposition.
HOLMES DICTUM: power to tax should not be the power to destroy.
IMPRESCRIPTIBILITY IN TAXATION: they are imprescriptible unless the law itself
provides.
CANNOT BE SUBJECT TO LEGAL COMPENSATION- unless both claims are due
and demandable and fully liquidated.
PRINCIPLE OF STRICTISSIMI JURIS: taxation is the rule and exemption is the
exception.
DOCTRINE OF ESTOPPEL: sate cannot be estopped by the neglect, errors or
mistakes of its agents or officers. The doctrine works against the taxpayer.
DOCTRINE OF EQUITABLE RECOUPMENT: refund of taxes are barred by
prescription which can no longer be claimed by a taxpayer but if there is a
present tax being assessed such tax may be recoup or set off against the tax

the refund of which has been barred. The government cannot enrich itself at
the expense of the taxpayer.
May tax officials effect arrests and seizure for tax violation of any penal law/
BIR?:
YES, even without a warrant if so committed within the plain view of said
officials. The enforcement of tax collection is always reasonable.
WARRANTLESS SEARCH-VALID:
Incident to a lawful arrest
Seizure of evidence in plain view
Search of moving vehicle, highly regulated by the government.
Consented warrant less search
Customs search
SITUS OF TAXATION: means the place of taxation or the authority that can
collect the tax because it gave the subject or object of taxation protection.
State has jurisdiction.
DETERMINING SOURCE OF INCOME:
Taxable where the principal office of the domestic corporation located.
Income of foreign corporation was derived from the phil.
DOUBLE TAXATION DEFINED: taxing the object/subject within the territorial
jurisdiction twice by the same taxing authority for the same period purpose
and involving the same kind of tax.
Direct duplicate taxation- prohibited
Indirect duplicate taxation-no constitutional violation. 2 diff taxing
authority
DOMESTIC DOUBLE TAXATION: the subject matter is taxed both in the national
and local government at the same time within the same tax period.
INTERNATIONAL JURIDICAL DOUBLE TAXATION- two taxing authority, one
domestic and another foreign.
-claim for TAX CREDIT on foreign income taxes paid to minimize the impact in
international double taxation.
TAX TREATIES- exemption method and the credit method.
Who

are not entitled to tax credit of taxes paid to a foreign country?

Non-resident citizen
Resident aliens, if principle of reciprocity not available
Foreign corporations
Resident aliens whose income is derived solely in the phils.

Forms and escapes of taxation:

SHIFTING- the process of transferring the tax burden from the statutory
taxpayer to another without violating the law.
CAPITALIZATION-the seller is willing to lower the price of the commodity
provided taxes are shouldered by the buyer.
TRANSFORMATION-the manufacturer absorbs the additional taxes imposed by
the government without passing it to the buyers.
TAX EVASION-it is resorting to acts and devices that illegally reduces or totally
escape the payment of taxes that are due. Prohibited and subject to civil and
criminal penalties.
TAX AVOIDANCE-it is the reduction or totally escaping payment of taxes
through legally permissible means that are not prohibited. No fraud is
involved.
TAX EXEMPTION-it is an immunity privilege or freedom from payment of a
charge or burden to which others are obliged to pay.
DOCTRINE OF USAGE: this is a test of exemption on real properties which
mandates that such properties must be actually, directly and exclusively used
for religious and charitable or educational purposes. Its is the Use and not the
OWNERSHIP.
CONGRESS HAS THE INHERENT POWER TO GRANT TAX EXEMPTION.
EXEMPT FROM ALL TAXES- excludes indirect taxes.
IN LIEU OF ALL TAXES-applies only to national internal revenue taxes not
local tax.
Elements of tax evasion:
Payment of an amount which is less than what is known by taxpayer.
Accompanying state of mind which is evil, bad faith, or willfull.
A cause of action which is unlawful
TAX CONDONATION:
It means to remit or to refrain from exacting or imposing tax.
TAX EXEMPTIONS ARE:
Not automatic----non-transferable----they are revocablerule of exemption
must be uniform
Strictly construed against taxpayerallowed only under a clear and
unequivocal provision of the lawGOCCS operating local water district are
exempted.

TAX AMNESTY: it is a general pardon or intentional overlooking by the state of

its authority to impose penalties on person guilty of tax evasion. The purpose
is to give a chance to reform and start with a clean slate.
Absolute forgiveness or waiver of the gov of its rights to collect what was due.
TAXPAYERS SUIT: It is a class suit brought by one or more taxpayers on behalf
of themselves. The purpose is seeking relief from illegal or unauthorized acts
of the government or use of public funds which are injurious to their common
interests.
REQUISITES:
Tax money is being exacted in violation of specific constitutional
protection
Public money use in improper purpose
Taxpayers are affected by such use of public money.
DOCTRINE OF TRANSCENDENTAL IMPORTANCE: taxpayers are allowed to sue
even if they failed to show direct injury to them as long as it can show
paramount public interests.
Taxpayers suit complainant is affected by the expenditure of public funds
Citizen suit-he is but a mere instrument of the public concern
Class suit- a complaint of a group of individual with common concern against a
respondent for an allege violation of the groups individual rights.
TAX REMEDIES UNDER THE NIRC
TAX REMEDIES: is an action available to either the government or a taxpayer
whether judicial or extra-judicial to enforce collection of taxes or to prevent
arbitrary collection of taxes or abuses or harassment by those enforcing the
tax.
LEGAL BASIS:
Government- lifeblood doctrine
Taxpayer- due process clause of the constitution
KINDS OF REMEDIES
SUMMARY
-remedies at the administrative level or regulation that are executed without
ceremony or delay, it is expeditious, short or concise.
SUBSTANTIVE
-remedies provided for by law or regulation; an essential part or constituent or
relating to what is essential.
Ex. Issuance of RR, imposition of withholding tax

PROCEDURAL
-remedies involving law of pleading, evidence and jurisdiction
1. Notice of informal conference
2. Informal conference letter
3. Preliminary assessment notice
4. Formal letter of demand and assessment notice
5. Disputed assessment
ADMINISTRATIVE
-remedies available at the administrative level.
Tax minimization (tax avoidance)
Secure BIR or CIR ruling
Disputing and assessment
Abatement of tax liability
Compromise of civil liability
JUDICIAL
-remedies that are enforced through judicial action, which may be civil or
criminal. It cant be availed of if administrative remedies have not yet been
exhausted.
Appeal to CA
Secure injunction from CTA
Appeal from CTA to SC
SPECIAL REMEDIES:
Appeal to the President of Phils
Secure favorable legislation by participating in public hearing
Lobbying in congress
PRINCIPLE OF LEGISLATIVE APPROVAL BY REENACTMENT
Administrative interpretation of statute is to the effect that the reenactment of
a statute substantially unchanged is persuasive of the adoption by Congress
of a prior executive construction
GOVERNMENT REMEDIES TO ENFORCE TAX COLLECTION
1 ADMINISTRATIVE OR EXTRA-JUDICIAL REMEDY:
assessment, compromise, tax lien, distraint, levy, garnishment, abatement,
deportation
2JUDICIAL REMEDIES: can be use singly or both for full settlement
civil court collection filed in court
hold order aginst departure of erring taxpayer
Criminal- criminal prosecution

ASSESSMENT- is a formal written notice or communication with the

computation of the tax liability sent to the taxpayer with a demand to settle
the tax due within the period indicated.
PURPOSE OF ASSESSMENT
To fix and determine the tax liability of the taxpayer and thereafter, to inform
him of the same and to demand that he settles the liability.
REQUISITES OF A VALID ASSESSMENT:
No agreement was arrived at between the tax official and the taxpayer during
the pre-assessment.
It must be in writing
It must state the facts, law, rules and regulations or jurisprudence on which
the assessment is based.
LETTER OF AUTHORITY
This is an official document that empowers a revenue officer to examine and
scrutinize the taxpayers books of accounts and other accounting records in
order to determine the taxpayers correct internal revenue tax liabilities.
Issued by CIR
Presumed to be prima facie correct, valid and made in good faith.
BASIS FOR ASSESSMENT:
Based on actual facts and not on hearsay evidence it must be directed to the
right party.
BEST EVIDENCE OBTAINABLE RULE: used by CIR
There is a reason to believe that any such report is false, incomplete or
erroneous.
*there must be constructive service of notice if through registerd mail and not
received by the taxpayer.
*or served personally to the taxpayer but refuse to accept it.
*or leaving the notice to the premises of the taxpayer.
PRE-ASSESSMENT NOTICE= This is a letter sent to the taxpayer by the BIR
asking him to explain within a period of 15 days from receipt why he should
not be subject to an assessment notice.
STATUTE OF LIMITATION OR PRESCRIPTIVE PERIODS ON ASSESSMENT OF IR
TAXES:
3 years from when the taxes was due or when it was actually paid.

But on amendment of a return, will be based on the date taxpayer filed his
amendment.
Interrupted when taxpayer requests for reinvestigation and is granted.
TAX PROTEST:
This is a vital document that is a formal declaration or resistance of the
taxpayer. It is a repository of all arguments.
HOW TO CONTEST/DISPUTE/ PROTEST ASSESMENT: (validity)
Motion for reconsideration- a plea for re-evaluation based on existing
records.
Motion for reinvestigation-plea for re-evaluation for newly discovered
evidence.
Motion for withdrawal
Motion for cancellation
*must be accompanied by a waiver of the Statute of Limitations.
PROCEDURE IN PROTESTING AN ASS IN BIR
1. File a written protest within 30 days from receipt/
2. within 60 days from dispute must submit supporting documents
3. denied- elevate decision of CIR to CTA within 30 days.
4 . CIR failed to act on the protest for 180 days from submission of supporting
documents, may appeal with CTA within 30 days from the lapsed of 180 days.
5. appeal to SC within 15 days from receipt of CTA decision.
When is assessment appealable to the CTA?
If valid protest is denied in whole or on part
Upon finality of assessment
If protest is not acted within 180 days from submission of documents.
Effect of failure to protest- assessment becomes final and executory and
demandable.
Defense of prescription not raised for the first time for civil action is barred
permanently.
TAX REFUND: it is a claim for refund, restitution of money he paid as tax.
TAX CREDIT: Is an application whereby the money so
paid(overpayment/erroneously) be applied to the existing tax liability of the
taxpayer or to his next payment.
*its nature is similar to tax exemption construed strictissimi juris against the
taxpayer.
Prescriptive period for tax credit: 2 years depending on grounds for tax credit.

ADMINISTRATIVE REMEDIE OF GOVERNMENT TO ENFORCE TAX COLLECTION:

Tax lien- legal claim or charge on property. As a security
Compromise- a contract whereby the parties by reciprocal concessions
avoid litigations or put an end to one already commenced. CIR only has
the power to compromise tax liabilities but power delegable to one in
chief position.
*judicial compromise *extra * mixed
prescriptive period: 10 yrs from the time right of action accrues
Distraint of personal property of taxpayer (actual/constructive)-seizure
by the government of personal property tangible or intangible of the
taxpayer to enforce the payment of taxes. This is a summary procedure
forcing the taxpayer to pay. Appeal to CTA within 30 days. No right of
redemption
Levy of real property-property must be offered for public sale. With right
of redemption.
Civil action- when tax liability is collectible or ass has been final.
Approved by CIR and filed in regular courts.
Criminal action
Forfeiture/sale- divesting of property without compensation. Personal
and real property. Title of owner transfers to the government.
Contest forfeiture of chattel: anytime before sale or within 6 months
after sale.
Enforcement of admin penalties
Suspension of business operations. CIR for nt less than 5 days for failure
to issue receipts, file vat, understatement of tax sales, fail to register.
ABATEMENT: it is the cancellation of the tax liability of a taxpayer exercised
by the CIR only because authority is non-delegable.
Prescriptive periods for collection of tax:
If theres assessment: within 5 yrs from finality of decision.
No ass but tax return was filed: 5 yrs from the date tax is due.
No return was filed: 10 yrs from discovery or omission
10 yrs from discovery of fraud.
JUDICIAL TAX COLLECTION: self-assessd not paid
: final ass not protested
:non compliance with the conditions laid down.
:failure to file timely
JUDICIAL ACTION FOR TAX COLLECTION:
Filing with proper court
Appeal with CTA

Acquittal in criminal case does not exonerate the taxpayer from his liability.